HDFC Standard Life Insurance
14 July 2020
Annual Report Update | Sector: Insurance
TP: INR575 (-4%)
Non-PAR, Protection to drive business growth
Risk retained in the Individual business reduced to 33% vs 37% last year
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Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
Free float (%)
1207.5 / 16.1
646 / 339
Financials & Valuations (INR b)
FY20 FY21E FY22E
322.2 343.0 401.9
Surplus / Deficit
NBP gr- unwtd (%)
NBP gr - APE (%)
Premium gr (%)
VNB margin (%)
Total AUMs (INRt)
EV per share
102.4 122.7 140.9
Shareholding pattern (%)
FII Includes depository receipts
HDFC Life’s Annual Report
reaffirms our view
that it would continue to focus on
maintaining a balanced product mix across the Savings and Protection
businesses, with an emphasis on product innovation / superior customer
In the near term, there continues to be a higher focus on the Protection and
Non-PAR segments as they are relatively simpler products to transact through
the Digital channel. The Annuity business is also gaining momentum; thus, its
share has improved to ~16% of new business premium (NBP). This would enable
steady growth in value of new business (VNB) margins.
Improvement in persistency, led by a focus on better quality business, the
leveraging of technological capabilities, and need-based selling resulted in
surrenders declining to ~35% in FY20 from ~76% in FY15.
Furthermore, the Agency channel delivered 13
month persistency at 91% v/s
85% in Banca, reflecting the distribution strength the company has built.
The percentage of risk retained in the Individual business reduced to 33% v/s
37% in FY19, and risk retained in the Group business to 79% v/s 86% in FY19.
Investments in technology have positively impacted, with policy issuance TAT
having reduced to <4 hours from 2 days earlier; ~77% of new business policies
Overall, we believe HDFCLIFE would continue to deliver better business growth
than peers, led by product innovation. Overall, we estimate the VNB margin to
gradually improve to ~27% by FY22E (25.9% in FY20), while the operating RoEV
would remain steady at ~19%. HDFCLIFE currently trades at rich valuations and
thus offers limited upside, in our view. We value the stock at INR575,
corresponding to 4.1x FY22 EV. Maintain Neutral.
New business premium led by Protection, Non-PAR Savings
HDFC Life has increased focus on the Protection and Non-PAR segments; the
Non-PAR Savings business grew at ~220% YoY and the Protection business at
15% YoY. The Annuity business is gaining momentum; thus, its share has
improved to ~16% of NBP (4% of the total individual APE). The share of
Protection has improved to ~17.2% of the total APE. Furthermore, growth in
new business premiums, led by the Group Savings business, increased at 25%
YoY. We believe HDFCLIFE continues to focus on product innovation – the key
to driving business growth.
Persistency improves across cohorts; higher persistency in Agency v/s
HDFC Life reported improvement in persistency, led by a focus on better
quality business, the leveraging of technological capabilities, and need-based
selling, resulting in surrenders declining to ~35% in FY20 from ~76% in FY15.
As a result, 13
month persistency improved to 90%/55% (v/s 87%/52%
last year). In terms of distribution, the Agency channel delivered 13
persistency at 91% v/s 85% in Banca. Renewal premium in the Non-PAR
segment increased 33% YoY, and that in the ULIP segment grew at 10% YoY.
Research Analyst: Nitin Aggarwal
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.