‘Even today, our prices for protection are much lower in comparison to markets with higher life expectancy,’ the CFO said.
HDFC Life Insurance is hopeful of getting various regulatory approvals for its merger with Exide Life Insurance within this calendar year, says chief financial officer Niraj Shah. In an interview with Mithun Dasgupta, Shah said through this acquisition, the insurer aims to grow its business in Tier- II and -III cities, primarily in South and East India. And, the good quality business of Exide Life will add to HDFC Life’s embedded value. Edited excerpts:
For HDFC Life Insurance, new business premium for February and up to February of this fiscal year grew 9.5% and 22.5% year-on-year, respectively. What are the reasons behind theses healthy grow rates?
At HDFC Life, on a two-year CAGR basis, we registered growth of 14% compared to 4% growth for the industry. We have grown at around 17% on a year-to-date (YTD) basis in line with the industry. Our VNB (value of new business) margin continues to expand and VNB growth for 9MFY22 was a healthy 26%. This performance is on the back of a diversified and balanced business model, product and process innovation and a strong focus on risk management.
We see the life insurance opportunity in three segments — long-term savings, protection, and retirement. Product innovation at regular intervals across categories has enabled us to build a balanced portfolio in long-term savings. Our protection journey started earlier than the broader industry — both in individual and in group protection. In the retirement segment, we introduced a deferred annuity product a few years ago, which expanded the annuity market and more recently we have introduced Systematic Retirement Plan, a product which allows one to save regularly for one’s retirement and then get regular income post retirement. Today, we are among the largest players in the retirement space.
We continue to expand our distribution. We have a multi-channel distribution in terms of agency, bancassurance, online, direct and brokers. We have had new banking partners in the recent past such as Yes Bank, Bandhan Bank, South Indian Bank. We have partnerships across groups such as ICICI Securities, SBI Capital Markets and Bajaj Finance. Through the acquisition of Exide Life, we aim to grow our business in Tie- II and -III cities, primarily in South and East India.
What is the outlook for March? Are you seeing new business premium growing on a month-on-month basis for the company?
As more people get vaccinated and with increase in immunity levels over time, we seem to be better prepared to deal with the pandemic as a nation. While we remain watchful, adverse mortality experience has certainly abated and normalising. We are hopeful that the current growth momentum continues going forward as well.
What is currently the mix of businesses that come from agency channel versus bancassurance channel?
We are diversifying our distribution across bancassurance and even within proprietary distribution like agency, direct and online. Our agency channel comprises around 13% of our individual business. The Exide Life agency business would add another around 4% to this number once the merger is complete. Bancassurance constitutes around 60% of our individual business. Five years ago, our bancassurance channel used to contribute about 70% to our individual business. While the business continues to grow well, our proprietary and other corporate channels are getting larger and contribute around 40% to our business today. Our aspiration would be to see our agency channel contribute to 20-25% of business over the next five years. Similarly, our direct business is also becoming bigger. Agent strength is over 1,10,000 for HDFC Life. For Exide Life, it is a little over 35,000. The combined agent strength would be third highest in the industry.
As the acquisition of the Exide Life Insurance has already been completed, when is the process of merger expected to complete? How will this acquisition drive growth?
We are fairly hopeful that we will be able to get approvals for the merger within this calendar year. That is what we are working towards with various regulatory authorities. There was a clear rationale for this combination from our perspective. First, good quality business (of Exide Life), which is something that adds to our embedded value. Secondly, a strong agency business, which complements our business and aligns with our strategy of enhancing contribution from agency. Thirdly, their geographical presence, strong in Tier- II and -III cities in South and East India, complements our geographical presence and strategy.
Have you increased premiums for term insurance plans? And, what is the plan going ahead on premium?
We have increased our pricing by 15-25% in January. We believe this would be in line with the underlying experience. If you look at how prices have moved over the last six to eight years, it is largely in line with inflation. Even today, our prices for protection are much lower in comparison to markets with higher life expectancy.