HDFC Life margins will continue to improve: Vibha Padalkar

“Our individual protection grew by 20% and also overall protection grew quite robustly. So for the nine months, overall protection grew by 34%. Annuity continues to do well and exhibited a growth of about 39%. All in all, we are fairly pleased because of the all round performance, ” says Vibha Padalkar, MD & CEO, HDFC Life.

What are the highlights of the earnings?
Our performance was fairly holistic and we are fairly happy with it because all our channels grew and did well. Our agency channel in the standalone Q3 grew by 49%. Some of our Bancassurance partners other than HDFC Bank, grew as much as 85%. Our direct channel grew by 57%. So it was fairly holistic.

Also in terms of the product mix, it is very heartening that after a lull of two quarters because of the pandemic, our individual protection grew by 20% and also overall protection grew quite robustly. So for the nine months, overall protection grew by 34%. Annuity continues to do well and exhibited a growth of about 39%. All in all, we are fairly pleased because of the all round performance.

As for your question on Covid claims, that is something which has also gone down quite significantly in Q3 and to give a sense of the scale in which it has gone down – in Q3, on our individual claims we had to pay out Covid claims of only Rs 17 crore against about Rs 300 crore in Q2 and Rs 150 crore in Q1. So there has been a sharp runoff in terms of Covid claims. We are in the midst of the Omicron wave.

We have strengthened our extra mortality reserves and at the end of December last year, we are carrying forward Rs 155 crore of extra mortality reserves.

From an industry standpoint, there is a rise in premium growth and pricing has also gone higher. Will it be able to offset the rising Covid claims which you mentioned?
We have already increased our prices by about 15% to 25%. We believe that this was necessary. We are also retaining slightly more from 20-40 lakh but this has no impact on our solvency because the reserving was already at a higher level. We see this holistically but on a slightly longer term point, I believe that these kinds of price hikes, not just in protection but for other life as well as health insurance products, are bound to happen due to inflation.

So while there is a lot of discussion about it right now, I do believe that we need to focus more on insurance penetration getting more especially in profiles that otherwise were not buying insurance. It could be non-salaried, it could be in non-metros, it could be amongst female population and so on. The focus all of us should have is on that, rather than just the price hike.
The final point is demand is not going to be in-tune with the price hikes. It is going to be more robust than that and I do not personally believe that longer term there is going to be an impact on demand.


Your solvency ratio is down after the Exide deal largely because of the cash payout. Would you be needing capital?
One correction is that the 190% was before the cash payout because the cash payout happened on 1st of January. So the 190% is in the normal scheme of things. Actually the comparison with last year was likely over 200% is that was more an aberration. Typically we have been in the 190%-195% zone and so nothing very unusual.

In Q4, two-three things will happen. One is that the back book profits that will get generated in Q4 will add to the solvency when we end the year on March 31. Second, we do have some ammunition in terms of sub debt. We have already raised sub debt of Rs 600 crore. We could possibly raise a little bit more of sub debt; and third, our promoters have always been very supportive and when we think that there is a need, that also could be available.

So it is a three-pronged approach and the last one that I mentioned would be more towards growth as and when growth comes up and the pandemic situation is out of the way, then that is a good problem to have and that support is there.

What has been the difference in customer behaviour during the third wave as opposed to what it was during the second wave? Also what kind of structural changes do you see in customer trends going forward?
Very much and that is one of the reasons why we found Exide Life as an attractive target. Now the first leg of the merger is out of the way wherein it has become our wholly owned subsidiary and we have full control on the entity. Next step is merger which is perhaps nine months to a year away and when the full integration happens we will be able to really amalgamate in terms of how do we extract synergies. It will add 30 to 35% to our agency channel and also deepen our presence in South India and in tier two and three towns as well. We have been a fairly metro focussed company. This part of our customer base also is something that we would like to welcome into HDFC Life also.

Insurance is on the cusp of a transformation with the coming LIC IPO. Economic growth has increased affordability and a large awareness as well. What is your outlook for the entire financial year?
I have gone from being cautiously optimistic to optimistic. I believe that the viral strain and the third wave has probably peaked in several parts of India which means that demand and all the macro indicators are still very robust.

I do feel optimistic as we go into the next financial year. People’s attitude towards insurance has changed. Also, as we move further inland, away from metros, we find untapped demand. Also there is Credit Life, wherein we partner banks, NBFCs and small finance banks as credit offtake continues to be robust we will piggyback on that demand to cover the loans with insurance. It is really multi pronged.

The final part is on annuity. There too a lot of people who are close to retirement or thinking about retirement are beginning to understand that they will easily outlive their retirement age by maybe 20 years if not more and with inflation continuing to be there, they are soon going to have a serious erosion in their savings. So they are thinking about locking into annuities. Our entire retirement focus campaigns are also enlightening people.

What is the product strategy going to be for the year?
We are very close to our ideal product construct which is about one-third to one-fourth – the lower end is unit linked about a third to be participating products; another third will be non-participating savings products and the recent launch – Sanchay fixed maturity plans – has been very well received. In the first 75 days after launch, we have garnered Rs 300 crore. And the rest is in protection and in annuity. So that is very close to where we are today but with a focus on protection and annuity.

In insurance parlance, the value of new business (VNB) has been recorded at 25% by HDFC Life on the back of higher volumes as well as balanced product mix. Is this sustainable? What is your outlook and guidance?
Margins will continue to show a smooth upward trend. We have done fairly well in this quarter on a standalone basis we have gone up from 26.4% to 26.8% and on a nine month basis, there has been an improvement in margin from 25.6% to 26.5% and consequently a growth in our VNB by 26%. The smooth upward curve will continue to be there.