HDFC Life Insurance Q2 Results: Profit Rises After Exide Life Acquisition
The IRDAI approved the acquisition of 100% stake in Exide Life Insurance on Oct. 13.
HDFC Life Insurance Co.’s quarterly profits rose over the year earlier as premiums increased. The earnings also reflect the impact of the Exide Life Insurance Co. acquisition.
The private insurer’s after-tax profit rose 19% year-on-year to Rs 329 crore in the quarter ended September, according to an exchange filing.
Sequentially, however, earnings fell 9%.
The company earned net premium of Rs 13,138 crore, a 15% surge over the previous year.
Of the gross premium earned, renewal premium contributed around 52%, while the rest was new business premium.
The Insurance Regulatory and Development Authority of India approved the acquisition of 100% stake in Exide Life Insurance on Oct. 13. Thus, for the quarter and the half-year ended Sept. 30, 2022, the figures include the impact of the acquisition. Also, financial results for the quarter ended June 30, 2022 were restated.
HDFC Life Q2 FY23 Highlights (YoY)
Revenue rose by 12% to Rs 23,002 crore, against an estimated Rs 20,502 crore.
Renewal premiums grew 37%.
The 13th month persistency ratio—or customer retention—improved to 85% from 84.6%, but for the 61st month it fell to 49.6% from 52.9%, respectively.
Solvency ratio—that measures the extent to which assets cover commitments for future liabilities—rose to 210% from 190% on the back of equity infusion. It’s above the minimum requirement of 150%.
Half-Yearly Highlights (YoY)
After-tax profit rose 19% to Rs 686 crore. Of this, 1% of growth is attributable to the acquisition.
The product mix comprised non-participating savings at 37%, annuity at 6%, protection at 4%, participating products at 31%, and unit-liked plans at 21% on annualised premium equivalent basis post-merger.
Value of new business—present value of the future profits associated with new business written during the period—grew 19% to Rs 1,288 crore. Pre-merger growth is at 16%.
VNB margins were 26.2%% against 26.4%. Pre-merger margins were higher at 27.6%.
Embedded value grew 25% to Rs 36,016 crore post-merger. Pre-merger, the EV growth was 15% compared to the six months through September last year.
Operating expenses stood at 14.7% against 12% a year ago. They are 40 basis points higher than HDFC Life’s pre-merger operating expense ratio at 14.3%.
Assets under management were at Rs 2.25 lakh crore, a rise of 18% post-merger. It grew 7% pre-merger.
Persistency ratios for the 13th and 61st months improved pre-merger but post-merger 61st month’s persistency ratio fell.
According to Niraj Shah, chief financial officer at HDFC Life Insurance, the company is on track to achieving margin neutrality post acquisition by the end of FY23. The post-merger half-yearly VNB margin of 26.2% is close to the yearly target of 27.4% in FY22, he told BQ Prime.
"Further, in two-three years time frame, we expect to inch up our VNB margins to 30%," he said.
Commenting on the Exide Life merger, he said that the margins of the entity have already seen an improvement from low single digits to high single digits. Their target is to improve the 13th month persistency for Exide Life to 80% by the end of FY23.
Addition of new distribution channels and revival of certain costs that saw deflation during Covid-19 have led to an increase in operating expense ratio. "While the aim is to reduce it from current levels, it will remain higher than FY22 levels."
The company continues its calibrated approach in scaling up the retail protection segment. "As we continue to expand our reach to tier-2 and tier-3 cities, where there is a lack of documentation as compared to the salaried people, we are treading cautiously."
The share of overall protection based on total annualised premium equivalent rose 24% in H1 FY23 year-on-year pre-merger, mainly on the back of 66% growth in credit protect business, the company said in the statement.