Capitaline

Analyst Meet / AGM 22-Jul-20

Conference Call

HDFC Life Insurance Company

Significant portion of costs is variable in nature, expects stable cost ratio in FY2021

HDFC Life Insurance Company conducted a conference call on 21 July 2020 discuss its financial results for the quarter and year ended June 2020. VibhaPadalkar, MD and CEO of the company addressed the call
Highlights:

The company has been able to operationalise more than 75% of branches across the country. The digital footprint also allows the company to service its customers remotely.
Business has started to pick up on a month]on-month basis and the company is seeing higher traction, especially in the individual protection business.
As the situation begins to normalise, the company expect life insurance to emerge as an important avenue for both protection as well as long term savings, and consequently help attract a higher quantum of inflows from Indian households.
Given the wide bouquet of product offerings across segments and continued focus on a balanced product mix, the company believes that it is well positioned to serve the anticipated demand uptick.
The company has improved market share by 100 basis points from 17.5% in Q1 FY20 to 18.5% in Q1 FY21 in terms of Individual WRP.
Despite the expected drop in business volumes, the company delivered a healthy new business margin of 24.3% on the back of a favourable product mix and cost control measures.
The Company has assessed the investment position as of end June 2020 and made adequate impairment provisions to the extent necessary.
The Company had made a provision approx Rs 41 crore end March 2020, for potential adverse mortality experience due to COVID. The provision held is in excess of the IRDAI prescribed norms. While this COVID reserve was not utilised in Q1FY2021, the company believe that it is prudent to continue to carry it forward.
The company is cautious about the sustainability of the growth in premium income due to multiple lockdowns and impact on jobs and the economy.
The company has sold 1.9 lakh policies in the quarter ended June 2020 registering a decline 4%
The company expects the demand for ULIP linked products to remain subdued with the consumers focus on conserving cash, but innovative traditional products would support the overall business growth of the company.
The company reported valid 39 covid claims of which 2 were relating to term policy and the rest were relating to saving products. The sum assured is less than Rs 2 crore.
The significant portion of the cost of the company is variable in nature. The cost management initiatives and deferral of discretionary expenses has helped the company to reduce operating expenses ratio.
The volume led costs has moderated contributing to the decline in expense ratio. On fixed cost front, the employee cost is the important item, while the company is not planning any new hiring, no increment and has announced bonus cut for senior management.
On discretionary expenses front, the company is focusing on shifting towards virtual servicing of customers which has helped to reduce expense ratio.
The company expects some costs to normalise as the volume picks up ahead. The company expects to maintain stable cost ratio in FY2021 similar to FY2020.
The company has continued to invest in technology, employees wellbeing and training.
The technology investment is helping the company to improve the customer experience while it is also helping to improve the efficiencies.
About 89% of renewal premium collection is done through online channel.
All distributor channels have contributed materially to the business growth of the company.
The credit protect business declined 74% due to tepid lending environment, while the company expects credit protect business to revive only after Q3FY2021.
The company is upbeat about the medium to long-term outlook of the business and remains focused on building sustainable and profitable business.
The product mix between ULIP, Par and Non-Par is between 27 to 30% and the company is comfortable with the current product mix. The term and annuity segment is ramping up faster, while the share of term insurance has doubled to 11% from 5% last year.
On term plans front, the customers would choose to stick to 2-3 large players only in an uncertain environment. However, the strong positioning of the company is helping to drive business volumes.

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