New business margins grew 25.6% in Q4 and 24.6% for FY19: Vibha Padalkar, HDFC Life

Vibha Padalkar, HDFC Life-1200

We had a very satisfying fourth quarter (Q4) and we had an all-round growth in our key matrix starting off with our top line growth of 17%. We had a very robust renewal premium, we had a product mix which showed an increasing share of both protection as well as longevity protection in the form of annuities.

We also had a very good growth in our new business margin. So, standalone Q4 new business margins grew by 25.6%. On a full-year basis, it was 24.6%. We also ended the year with an embedded value operating profit of 20.1% on an embedded value of Rs 18,300 crore. Our assets under management were a little more than Rs 1,25,000 crore, with a growth of 18%. What is very satisfying for us is our persistency matrix, especially in the context of a standalone Q4 persistency matrix. Our 13-month persistency went up from 82% to 84% and our 61st month persistency went up from 47% to about 53%, and thereby also taking the persistency for the full year up, especially for the 61st month persistency. We are very pleased with the way Q4 has panned out and we look forward to repeating this performance in the year ahead.

What are your NBAP margin drivers in FY19 and what do you feel is the outlook going forward?

If I were to single out one key margin driver it would be product mix and our continued focus on offering products in the space of protection which includes mortality, morbidity as well as longevity. As far as the first two are concerned, our share went up quite substantially to about 27%, up about a percentage.

If you were to look at our annuity business, the share went up from 2% of our EPI to about 5%. So that more than doubled. All of these put together was the key driver as far as our margins are concerned. Also, persistency was in check, thereby helping margins and our otherwise balance distribution also helped in terms of the cost of acquisition that we have.

What is the reason for the lower solvency in FY19 versus FY18?

The solvency ratio dropped from 191% to 188%. The 400 bps drop was because of our investment in our subsidiary. This happened in Q3. The solvency drop is only because it is not allowed to be counted as solvency but the money — which is Rs 166 crore — is still in our bank account, earning interest. But technically, we are not allowed to count it as solvency because it is an investment in our subsidiary. If I were to leave that out, then our solvency is very much in line with the 191% that I talked about as an opening solvency.

Bancassurance is a crucial part of your insurance sector. Can you talk about the tieups? How do you see your distribution mix developing over the next two years?

Bancassurance overall will continue to be derisked by our own proprietary channels. While bancassurance is important, we ended the year at about 64% but you will find that our proprietary channels like our agency channel have started inching upwards. It went up from about 11% to 13% while our direct channel has grown to 10% and our online channel has grown to 9%. So direct and online, together has now grown close to 20% and you will find those segments growing, excluding bancassurance. These proprietary channels have grown close to 30%. That kind of a balance product mix, which is in line with our stated risk management objectives, are beginning to pan out slowly but surely.

You have been interested in inorganic growth. Have you finalised anything on this front? Is Max Life still on the cards and can you just walk us through the broad growth strategy over the next one to two years?

We have looked at several deals in the past four-five years, but unfortunately nothing has really fructified for various reasons. We are looking for a target company, but their book needs to be good; they need to have credible distribution and the DNA of the company needs to closely match HDFC Life’s DNA.

If all of these things are in place and there is a meeting of minds between the buyer and seller, there can be a deal. But as of now, it does look like it is quite a difficult proposition for a deal to actually go through. There has not been a single complete M&A deal that has fructified in the life insurance space and while we would love to be the first one, I do not think the path is very easy.