HDFC Life Insurance Company Ltd
Company Overview
HDFC Life Insurance Company Limited (NSE:HDFCLIFE) (Formerly HDFC Standard Life Insurance Company Limited) is a joint venture between HDFC Ltd., one of India’s leading housing finance institution and Standard Life Aberdeen, a global investment company.1
Established in 2000, HDFC Life is a leading long-term life insurance solutions provider in India, offering a range of individual and group insurance solutions that meet various customer needs such as Protection, Pension, Savings, Investment, Annuity and Health. As on March 31, 2020 the Company had 37 individual and 11 group products in its portfolio, along with 6 optional rider benefits, catering to a diverse range of customer needs.
HDFC Life continues to benefit from its presence across the country with 421 branches and additional distribution touchpoints through several partnerships. The partnerships comprise 270 bancassurance partners including NBFCs (Non-Banking Financial Companies), MFIs (Micro Finance Institutions), SFBs (Small Finance Banks), etc. and more than 40 new ecosystem partners. The Company is also strengthened by a strong base of financial consultants.
In Fiscal 2012, The Company established a wholly-owned subsidiary, HDFC Pension Management Company Ltd., to operate its pension fund business under the National Pension Scheme (NPS). And in Fiscal 2016, the Company established its first international wholly-owned subsidiary in the UAE, HDFC International Life and Re Company Ltd., to operate its reinsurance business.
Parentage
The Promoters of its Company are Housing Development Finance Corporation Limited (“HDFC Limited”), Standard Life (Mauritius Holdings) 2006 Limited (“Standard Life Mauritius”) and Standard Life Aberdeen plc (“Standard Life Aberdeen”).
About HDFC Limited
HDFC was incorporated as a public limited company on October 17, 1977 under the Companies Act, 1956 and received a certificate of commencement of business on December 3, 1977. HDFC received a certificate of registration dated July 31, 2001 from the NHB under Section 29A of the NHB Act. Its CIN is L70100MH1977PLC019916 and its registered office is situated at Ramon House, 169 Backbay Reclamation, H. T. Parekh Marg, Mumbai 400 020, Maharashtra, India. The equity shares of HDFC were listed on BSE in 1978 and NSE in 1996. The equity shares of HDFC are currently listed on NSE and BSE.
As per the terms of the memorandum of association of HDFC, the main object is to, inter alia, advance money to any person, company, association or society, either at interest or without, and / or with or without any security, for the purpose of enabling the borrower to erect or purchase or enlarge or repair any house or building or lease any property in India on such terms and conditions as it may deem fit.
About Standard Life Mauritius
Standard Life Mauritius was incorporated as a private company limited by shares on April 7, 2006 under the laws of Mauritius with the Registrar of Companies, Mauritius. Its registration number is 62011 C1/GBL. Its registered office is C/o Cim Fund Services Ltd, 33, Edith Cavell Street, Port Louis, Mauritius. It holds a Category 1 Global Business Licence issued by the Financial Services Commission and carries out the work of holding investment.
The shares of Standard Life Mauritius are not listed on any stock exchange.
The promoter of Standard Life Mauritius is Standard Life Aberdeen.
Industry Overview
Outlook on the Life Insurance Industry in India
The Indian life insurance industry has seen a plethora of changes since it was opened up to the private sector in the year 2000. While there have been interim setbacks, the industry as a whole has grown multifold over the last 20 years. Distribution models have evolved considerably with large bank backed private insurers gaining increasingly more market share. Rapidly evolving customer behaviour has spawned the need for innovative products to provide the most optimal solutions to the end customer. Increasing digital adoption by customers means that possessing strong technological capabilities has become the need of the hour for insurers. Despite the recent COVID-19 outbreak dampening growth projections for economies across the globe, the structural story for insurance remains intact. Insurance remains a multi decade opportunity in the Indian context and insurers are well poised to maximise the longterm growth potential of the industry.2
Changing demographic profile
The Life Insurance industry helps in mobilisation of long-term savings, provides protection and long-term income and annuity solutions. Each of these segments has different demand drivers and India’s changing demographic profile bodes well for the industry. The proportion of insurable population (people between the ages of 20 and 64) is expected to touch almost 1 billion by 2035, thus outlining the need for long-term savings and protection plans.
The number of people above the age of 60 years is expected to triple by 2050 as compared to 2015, thus providing insurers an opportunity to tap the retirement space by way of offering long-term income and annuity products.
Low insurance penetration
As compared to other developed economies, India remains vastly under-insured, both in terms of penetration and density. The ‘protection gap’ in India is amongst the highest in the world at 92.2% as of 2014. This, along with the evolution of the life insurance distribution model and rising awareness about need for life insurance, enhances the opportunity. Retail credit has grown at a CAGR of 21% over the last six years (FY 2012-18) and is likely to spur the need for credit life products.
Improvement in life expectancy has increased the post retirement period by around 20 years. This, coupled with pension assets at just 4.8% of GDP, further reinforces the need for long-term income and annuity products.
Financialisation of savings
The share of financial savings, as a percentage of household savings, increased from 33% in FY 2013 to 40% in FY 2018, while the share of life insurance as a percentage of financial savings has been stable around 17-18%.
The government has also taken initiatives to promote financial inclusion and helped increase insurance awareness including setting up of small finance banks and payments banks and offering low cost insurance like the Pradhan Mantri Jeevan Jyoti Bima Yojna (PMJJBY). The Government introduced the Pradhan Mantri Shram Yogi Maan Dhan (PMSYM), a pension scheme for poor labourers in February 2019 and enrolled over 4 million people under the scheme.
Digitisation
Technology today is evolving and disrupting businesses at a pace never seen before. Blurring lines of business coupled with increased flow of information have created an ultracompetitive marketplace where it has become important to continuously innovate and be agile. Rapidly evolving customer behaviour means that providing a frictionless end-to-end buying experience to customers has become of utmost importance.
Insurers are now partnering with a wide variety of distribution partners beyond the traditional modes of distribution. This requires highly efficient platforms powered by analytics, automation and artificial intelligence. Seamless integration of these platforms and processes with the partners’ systems is an absolute must. Today, a personalised customer service experience is not just expected, but is demanded and the use of artificial intelligence, cloud computing, machine learning algorithms and bots are expected to help improve this experience going forward.
Risks and Concerns
The life insurance industry faces a number of risks primarily due to rapidly evolving customer behaviour, changing demographic profile and dynamic macroeconomic conditions. The financial conditions and future prospects of companies may be significantly affected by factors such as market fluctuations, changes in tax rates or in interest rates. Risks also exist in the form of a change in the relationship with key distribution partners. The ongoing pandemic poses short term pressures to the industry including but not limited to growth, persistency and solvency.
Life insurance industry overview
The life insurance industry has considerably evolved over a period of time from a product-centric approach driven by marketing and advisers to keeping customer needs and experience at the core of the strategy. From a single insurer industry two decades ago, today the market is thriving with 24 insurers. Over the last 20 years, business models have evolved leading to changes in distribution strategy as well as the product portfolio, with technology viewed as a key enabler in the entire process.
During FY 2020, the life insurance industry grew by 21% to garner Rs 2,589 billion of new business premium against Rs 2,147 billion in the previous financial year. Private insurers grew by 5% in individual business while group business saw a growth of 19%. LIC recorded a growth of 8% in individual business and 39% in the group business.
Market share of the private insurers in the individual business (WRP) remained high for the fifth consecutive year. Development of alternate channels of distribution and product innovation were key drivers of market share growth from 37% in FY 2012 to 57% in FY 2020.
Within the private sector, the top 7 insurers account for 78% of the market (in terms of individual WRP) in FY 2020. Distribution arrangements with large banks has been a key driver for most of these insurers.
Product Mix across Private Insurers
Post the regulatory changes around unit linked products in September 2010, private life insurers shifted focus from a unit linked dominated product mix to a more diversified product mix.
In the past few years, private insurers have increased their focus on the under-penetrated protection segment, both for individual and the group segments. Tepid capital markets played a key role in diversifying the mix within the savings segment in FY 2020.
Distribution Mix across Private Insurers
There has been a shift in the distribution mix over time. Business sourced by Bancassurance channel has increased while the share of the Agency channel has declined post regulatory changes in FY 2011. Implementation of the open architecture distribution model in bancassurance will enable more insurers to achieve scale.
The direct channel (including online) has gained traction over the years and has showcased faster growth. Increasing digital awareness coupled with the government's push towards digitisation is helping the online channel emerge as a key distribution channel. Insurers are also tying up with partners within the non-traditional ecosystem to diversify their distribution mix further.
Financial Overview
Income
The Company has continued to invest in people and technology platforms to ensure ease of buying for customers and seamless integration with distributors. The reported Gross Premium Income witnessed a growth of 12%, with growth in both individual and group premium. Operating expenses grew in line with premium growth. The Company reported Profit after tax of Rs 1,295 crore during FY 2020.
The total premium collected by the Company during the year witnessed an increase of 12% from Rs 29,186 crore in FY 2019 to Rs 32,707 crore in FY 2020. The growth was on the back of 19% growth in first year (regular) premium individual from Rs 4,720 crore in FY 2019 to Rs 5,630 crore in FY 2020. During FY 2020, the Company added nearly 8.96 lakh new policies to its individual portfolio. The growth in premium is primarily driven by its multi-channel approach, coupled with a focus on meeting varied customer needs through its diverse and innovative
Profitability
The overall profit after tax increased from Rs 1,277 crore in FY 2019 to Rs 1,295 crore in FY 2020 due to growth of 17% in backbook surplus offset by 16% increase in new business strain.
The Company had total accumulated profits of Rs 4,569 crore as on March 31, 2020.
The Company has taken cognizance of IRDAI circular number IRDA/F&A/CIR/MISC/099/04/2020 dated April 24, 2020, and has not proposed any dividend for FY 2020. The Company had paid dividend of Rs 396 crore (including Dividend Distribution Tax) during FY 2019.
Capital and Solvency Ratio
As against regulatory minimum requirement of 150%, the Company has a stable solvency ratio of 184% as on March 31, 2020 as compared to 188% as on March 31, 2019.
The decrease in solvency ratio is mainly on account of significant market volatility due to COVID-19 in the month of March 2020. Further, based on the Company’s assessment of the business operations over the next one year, it is expected that the solvency ratio will continue to remain above the minimum limit prescribed by the Insurance regulator
New business margins
The Value of new business (VNB) grew at 25% to end at Rs 1,919 crore in FY 2020 on the back of premium growth and expansion of new business margins. The new business margins increased to 25.9% compared to 24.6% last year due to a favourable product mix and economies of scale.
Performance of Subsidiary Companies
HDFC Pension Management Company
HDFC Pension Management Company Limited (“HDFC Pension”), a wholly-owned subsidiary of HDFC Life Insurance Company Limited, started its operations in August 2013. The Company has 5.5 lakh customers as on March 2020. It is the fastest growing PFM (Pension Fund Manager) under the NPS architecture (YoY growth of 60% in AUM) with an AUM of Rs 8,265 crore as on March 31, 2020. In FY 2020, HDFC Pension started its operation as a Point of Presence in both retail and corporate NPS segments.
HDFC International Life and Re Company
HDFC International Life and Re, successfully navigated FY 2020 with focussed and strategic expansion in the MENA (Middle East and North Africa region) and India life reinsurance markets. The Company's strategy for the year - "Navigating with Agility" paid dividends in an external environment which transitioned from being stable to neutral and then uncertain as the year progressed. While the Company delivered substantial gross written premium growth, core performance levers including return on invested assets, regulatory solvency margins and net profit margins also trended positively on a yearon-year basis.
The business model consists of both treaty and facultative reinsurance arrangements assumed from ceding companies, relating to a broad range of life insurance products across Individual Life, Group Life and Group Medical offered by such cedents.
During FY 2020, S&P Global Ratings reaffirmed its longterm insurer financial strength rating of “BBB” with a stable outlook on the Company. The Company was also conferred with the "Reinsurer of the Year - Overall" at the MENA IR Awards 2020 for ground-breaking achievements and demonstration of the trinity of skill-efficiencyprofessionalism within the MENA (re)insurance markets.
HDFC Life Standalone December 2020 Net Sales at Rs 282.49 crore, up 0.13% Y-o-Y 3
January 27, 2021; Reported Standalone quarterly numbers for HDFC Life Insurance Company Limited are:
- Net Sales at Rs 282.49 crore in December 2020 up 0.13% from Rs. 282.12 crore in December 2019.
- Quarterly Net Profit at Rs. 264.99 crore in December 2020 up 5.89% from Rs. 250.24 crore in December 2019.
- EBITDA stands at Rs. 267.00 crore in December 2020 up 1.29% from Rs. 263.61 crore in December 2019.
- HDFC Life EPS has increased to Rs. 1.31 in December 2020 from Rs. 1.24 in December 2019.
