Highlights:

The entire transaction of Exide Life merger with HDFC Life was completed in less than 14 months. The customers will now have access to a wider bouquet of products and service touch points.

This merger accelerates the scale-up of HDFC Life's agency and BroCA channels and also enhances its geographical presence in tier II and tier III markets. The company strongly believes that this amalgamation will result in value creation for customers, shareholders, employees and distribution partners.

The company has grown at 2 year CAGR of 17% in top-line, 18% in value of new business and about 150 bps expansion in new business margins between FY20 and FY22, driven by continued product innovation, diversified distribution, balanced product mix, focus on technology and calibrated risk management approach.

The company continues to be excited about the growth prospects of the industry, on the back of renewed support and encouragement from the regulator. The regulator vision is to significantly improve the global ranking of Indian life insurance from its current no. 10 position to no. 6 and the company looks forward to being a meaningful contributor in this journey.

The company is fairly confident of continuing to grow down the line faster than the market.

HDFC Bank contribute between 46% to 48%

The part of Rs 1250 odd crore of negative investment variance is mainly because of the increase in the interest rate, thereby having an MTM on the bonds at about Rs 1000 crore that the company hold. The balance is from the equity.

The company is looking at about a 15% to 17% growth for H2FY2023.

The company expects margin neutrality for the merged entity by middle of next year.

Business update

The company continues to maintain a steady growth trajectory, growing by 11% in terms of total APE in H1FY23 on a pre-merger basis in line with the industry and faster than listed peers this quarter which also led to market share improvement from 14.6% in Q1 to 15.0% in Q2 on a pre-merger basis.

The company has maintained market leadership position as a top three life insurer across individual and group businesses.

Market share in terms of individual WRP for the merged entity i.e. including Exide Life stands at 16.1% amongst private players and 10.2% within overall industry.

The product mix both on a pre-merger basis as well as for the merged entity remains balanced. On a pre-merger basis, non-par savings is at 37%, participating products at 29%, ULIPs at 23%, individual protection at 4%, and annuity at 7% based on individual APE.

The prevailing high interest rate scenario continues to augur well for demand across our traditional savings products.

On the protection front, the credit protect business has registered strong growth of 66% for H1FY23 on the back of rise in disbursements across most of partners.

The growth in retail protection remained tepid on a yoy basis. The company expects yoy growth to gradually pick up in the second half of the year.

The company continues to steadily improve individual protection policy conversion ratios through process efficiencies and several other initiatives. Protection APE has grown by 24% in H1FY23 on a pre-merger basis.

On the retirement front, annuity business in H1FY23 has grown by 4% on received premium basis compared to a 4% de-growth for the industry. Growth of annuity on an APE basis is 44%.

The company continues to explore innovative ways to help deepen protection penetration.

Financial and operating metrics

New business margin for H1 is 27.6%, up from 26.4% in H1 FY22, on a pre-merger basis with margin expansion for both the existing business and the acquired Exide Life business in H1FY23.

The company is close to achieving aspiration of maintaining FY22-margin neutrality for the combined entity, having delivered 26.2% NBM, compared to 26.4% in H1 FY22.

The value of new business has grown by 16% on a pre-merger basis and is at Rs 1258 crore for H1.

The embedded value on a pre-merger basis, stood at 33015 crore end September 2022, with an operating return on embedded value of 17.7% for H1 FY23.

The embedded value of the merged entity stood at 36016 crore.

Solvency ratio is 210% end September 2022, as against 178% last quarter. The solvency was strengthened by way of an equity capital raise of Rs 2000 crore during the quarter.

Renewal premiums have grown by 21% on a pre-merger basis.

Persistency continued to improve for both, the existing business and the acquired business. 13th and 61st month persistency for limited and regular pay policies is at 88% and 54% respectively on pre-merger basis and 87% and 51% on merged basis.

Channel performance

The bancassurance channel grew by 12% in H1FY23 based on individual APE. Within bancassurance, the company continues to see strong growth momentum across newer relationships such as Yes Bank, Bandhan Bank, IDFC First Bank amongst others.

In quest to expand and diversify distribution, the company has won the bancassurance mandate with India Post Payments Bank. IPPB has a vast network of 650+ branches and over 1.5 lakh post offices, serving a customer base of over 55 million customers. A large part of the post offices are in rural areas, thereby giving wider access and furthering goal of Insuring India.

Agency channel grew by 23% based on individual APE in H1FY23 on a pre-merger basis.

The company added about 24,000 agents in H1FY23 and continues to focus on improving activation and productivity across base of financial consultants.

The share of agency to individual APE has increased from 15% to 18% in the merged entity.

The company expects growth in this channel to be driven by the larger agent base, with access to a wider suite of products.

Tech and innovation

The company has integrated customer journey with external databases such as credit bureaus, TRACES & EPFO, to ensure seamless on-boarding. This enables to access latest ITR filings and EPFO passbook with customer consent, ensuring stronger and faster underwriting and quicker policy issuance for both salaried and non-salaried customers.

Innovative solutions such as enabling cardiac risk assessment at the customer's residence for medical underwriting furthers motive of simplifying customer journey and provide best in class service.

HDFC Pension

HDFC Pension had a market share of 39.3% end September 2022, up from 35.9% a year ago and an AUM of Rs 35146 crore clocking growth of 57%, thereby maintaining its leadership position in the private NPS pension fund manager space.