HDFC Life's VNB business will inch up closer to 30% in medium term: Vibha Padalkar, MD & CEO

Vibha Padalkar, MD & CEO, HDFC Life, talks about the fourth-quarter results, segmental performance, VNB margins, fundraising plans, acquisition of Exide Life, product pipeline and women Financial Consultant model among others during an exclusive interview with Swati Khandelwal, Zee Business. Edited Excerpts:

Q: How will you summarize Q4FY22 as profit and net premium income was a bit less than our estimates but the numbers are looking positive and healthy?

A: We are really happy with this quarter because the first two quarters passed off in the pandemic and that was resulting in a lot of COVID claims, which were quite elevated not just for HDFC Life but for the overall sector. But that is behind us now. The reserves that we established for the COVID were enough and we are very happy and relieved that it was enough for us. At the same time, we are also able to carry forward Rs 55 crore of reserves which was not utilised. In case, if something or other happens because of COVID then that is also back in the pocket. Also, if you will have a look at our new business on a two-year CAGR basis - because there was a base impact due to the COVID - it has been in the range of 20-22% depending on which number you see. Persistency was also fairly healthy and continues to hold up very well at around 87% on a 13-month persistency. If you will have a look at the product mix then that was also very much in line with our stated product mix. Similarly, each of our channels including the propriety channel and agency channel also did very well. Credit life also grew very well at about 26%. So, if seen from an overall perspective, it was a satisfying quarter.

Q: Can you please give us a sense of performance in different segments like WRP, bancassurance, Protection etc?

A: If you will look at the WRP, it was in a range of about 6% which looks a little bit low but if you will have a look at a two-year CAGR then that was about 22%. It is important because, in Q4FY22, we grew about 40%. So there was a base effect and if you make the base effect even then that grew by 22%, so that was fairly healthy. If you will have a look at our ranking amongst the top three including LIC, we continue to hold our ranking. It is an important aspect because if I drop my ranking and showed higher new business margins, which is not a big thing, to hold on to your market share and ranking as well as show the growth that becomes a lot difficult and we have been able to do so in this quarter. Even in terms of our assets under management (AUM), in this quarter, where we had a milestone as we crossed 2 lakhs.

Q: You have talked about VNB (value of the new business) margins having grown to 29.3%. Going forward, what is your future outlook for it and do you think that it can be maintained?

A: If you will have a look at the full-year basis then we have seen expansion in the margin from 26.1% to 27.4%. You will see an expansion in the margin in the medium term. It can drift in a quarter or two, as the fourth quarter tends to be good because there is a seasonality in the business. But in the medium term, let's say in the next four years, we should inch up closer to 30%.

Q: Now that COVID cases are fewer. However, a new wave is coming up. How much cautious you are monitoring it?

A: We are monitoring it closely. To date, given that we are close to a month in the new year, it doesn't seem that the elevated levels of COVID claims are panning out. But we will continue to be cautious and because of this, we have not reversed the access reserves of Rs 55 crore. But hopefully, it will be closer to Omicron. Unfortunately, we get into one more wave, hopefully, it will be closer to Omicron than the Delta variant. If it is the same then there can be infections but the COVID claims will not pan out as they did in the Delta variant. At the same time, I would like to mention a point here, it has been four years since our IPO in FY18, and in these four years, we have consistently at least doubled every metric. For instance, new business, renewal premium, embedded value, the value of the new business, assets under management, and every metric we have doubled in these four years.

Q: Has the company taken any price hike in the premium or will be taking days to come especially in term insurance? Are you seeing any pressure from reinsurance companies for price hikes?

A: When we closed the third quarter, we said that we have taken a 15-25% price hike and after that, we are not contemplating any of the price hikes in the foreseeable future, as of now.

Q: What about fundraising and for what these funds will be used?

A: Currently, our solvency stands at 176%. We have also announced the acquisition of Exide Life and that has a cash component in terms of pay-out. Mostly, the deal is in terms of share swap/share issue but there is a cash component of Rs 726 crore, which resulted in an expected fall in the solvency of 12%, therefore, we are raising sub-debt and we have got board approval to raise about Rs 350 crore of sub-debt.

Q: What is the timeline for the completion of the Exide Life merger? Also, update us about your product pipeline?

A: We are very happy that the process of going well in terms of we have got the CCI approval. A week back we got the approval from the exchanges, so, we have applied in the NCLT. Hopefully, in the quarter's time, they should be through and we will be able to merge the entities. When it will happen, we will be truly able to integrate both teams into one and will be able to grow their business. The reason for the acquisition of the company will start panning out in terms of better penetration into Tier-II and Tier-III cities offering HDFC Life's products to Exide Life customers. All these activities will take place once we get the final NCLT approval.

Q: What is your product pipeline?

A: It is very robust and we have interesting products we have launched Sanchay Fixed Maturity Plan and it is doing very well and we have collected around Rs 1,000 crore. Retirement products and systematic retirement plan is also doing well it is a regular pay deferred annuity product. We also have one to two other products in the pipeline, which hopefully we will get approval soon.

Q: In Your press release your company has said that “we are focusing on building a women Financial Consultant model which we believe would give us higher activation, retention and productivity”. Can you elaborate on this?

A: We are finding more and more educated women but are sitting at home for various reasons. They want to operate out of home, largely, they also come to the office at times but largely from home. So, they have friends, family and social media circles where they can sell. We can train them very well and their output/productivity, persistence ratio, mis-sell complaints are low, fraudulent cases are low, and they are trending very well. The quality of business is quite good and they want to stay with the company for a lot longer period. So, it is a win-win situation and we thought that why we should not invest in this and create a separate business model for how we engage with the women and how do we look at them slightly differently, be more flexible so that they can work in the hours which is meaningful for them. But talent is very good.