During our discussions at the Jefferies Asia Forum, the management team of HDFC Life (including the CEO, EDCFO, and IR) emphasised the positive progress of their bancassurance partnership with HDFC Bank. They highlighted that there is a closer alignment between the two organisations at both the top management level and among the street-level teams. This alignment can increase HDFC Life’s share in HDFC Bank from 56% in FY23 to 70% by the end of FY23 (upon exit). This development will contribute to 15-17% growth in APE (annualised premium equivalent) and 20% increase in FY25.
Integration with HDFC Bank moving well towards 70% mark
Management emphasised that the alignment between HDFC Bank and HDFC Life is moving well, both at the top management level as well as branch and street-level teams. Even Vibha Padalkar, the CEO of HDFC Life, is highly engaged with the branch staff of HDFC Bank.
High teens core growth ahead
The management expects that HDFC Life can deliver high-teens growth in APE, in the near term growth, aided by increasing contribution from HDFC Bank. In the medium term, the agency channel will be a primary area of focus, with a target to raise its contribution to one-third of the total APE. The reported APE growth in FY24 may appear lower, likely around 8-10%, due to the inclusion of one-time business figures from March 2023. The faster ramp-up of bancassurance business may necessitate the expansion of teams at bank branches. While this could lead to increased costs and impact margins, it is a strategic move, as it ultimately enhances HDFC Life’s growth trajectory.
Sector seeing steady growth
Management emphasised that demand trends in the industry continue to be healthy, despite recent changes in tax laws. There might be a slight shift in premiums towards Unit Linked Insurance Plans (Ulips) due to the lower tax rate (10%) for high-ticket investors, as compared to the non-par segment (with a tax rate of over 30%). Management is optimistic about the sector’s outlook and expects to achieve a growth rate of 13-15% in new premiums. However, competition from unlisted players is on the rise, driven by factors such as pricing and risk-bearing capacity. For these unlisted players, the transition to a risk-based solvency framework may have a more substantial impact.
We have raised expectations to a 16% CAGR in APE from FYxx to yy. This upward revision is driven by improved channel performance, along with consistent VNB margins.