HDFC Life Insurance:
- A joint venture between HDFC Ltd. (reduced stake to 50% in June, 2020), India’s leading housing finance institution and Standard Life Aberdeen (holds 12.3%), a global investment Company.
- Had 37 individual and 11 group products in its portfolio: More the products, better.
- Embedded value (present value on the insurers future earnings added to its book value): Rs 20,650 crore (19% cagr for last 4 years): Insurance businesses are valued as a multiple of this.
- Valuations are a multiple on Embedded value (Think of it like the book value of a Bank)
- Embedded value accounts for past; NPV of future profits from current policies.
- Embedded value does not take into account future growth, goodwill etc.
- No. of lives insured: 6.1crores (from 1.5crores in FY16)
- Amongst the top three companies in the private sector in terms of new business premium, closing the year at Rs 17,238 crore with a market share of 21.5%. New Business Margin (NBM) of 25.9%. AUM: Rs 1.27 lakh cr; Debt:Equity mix stood at 71:29.
- HDFC Pension Management Company Ltd. (HPMC) & HDFC International Life and Re Company Ltd. (HILRC) – HDFC Life’s two subsidiaries have gone from strength to strength in FY 2020.
- HPMC grew its AUM by 60% to close the year at Rs 8,265 crore and is the largest privately-owned pension fund management company in India with a market share of 31% (India’s pension market is underpenetrated at just 4.8% of GDP.)
- HILRC grew its reinsurance premium revenue by 72% in FY 2020 and continues to register positive net profit.
- Operating return on embedded value was 18.1% compared to 20.1% last year, on account of strengthening our persistency assumptions and creation of a COVID reserve in anticipation of worsening mortality experience.
- Solvency position remained strong at 184% compared to 188% a year ago, the drop mainly due to the fall in equity markets.
- The longer customers stay (persistency ratio), the better.
- The new business model:
- Private players have been in the forefront of gaining market share from LIC in the last 8 years (Development of alternate channels of distribution and product innovation were key drivers): In the private market, Top 7 players own the majority share & continuing to do so increase it over the years (Just like in every other BFSI business)
- 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.
- Individual agents which have been the base in which this industry was built on are losing their touch with the onset of other efficient distribution ways.
- Has 421 branches, with access to additional touchpoints through partnerships with over 230 banks, NBFCs, SFBs, MFIs and more than 40 new ecosystem partners: As Life Insurance being a commodity product (24 players), this matters the most.
- Cost efficiency determines the margins:
- Board Members: Good amount of experience in BFSI space.
The post has been published by Anish Moonka. He is an independent research analyst. He can be reached out on twitter here.
Disclosure – Please do not construe this article as a piece of investment advice. It is written simply for educational purposes.