HDFC Life Insurance Company Ltd Q4 FY22 Earnings Conference Call Insights

Key highlights from HDFC Life Insurance Company Ltd (HDFCLIFE) Q4 FY22 Earnings Concall

Q&A Highlights:

• Suresh Ganapathy from Macquarie asked about the details of the 80 bp change in operating assumptions impacting margin. Niraj Shah CFO said that it’s the seasonality assumptions the company had at the beginning of the period given what’s seen in the portfolio.

• Suresh Ganapathy of Macquarie also asked that the merger with HDFC Limited and Bank, how does it change the equation. Vibha Padalkar MD replied that with this merger going through, HDFCLIFE will become a subsidiary of HDFC Bank. So there will be a direct alignment and also will have cross-sell opportunities in a structured manner.

• Arav Sangai of VT Capital asked about the expense, if the company is spending extra and would it affect the VNB margins in order of acquisition expenses increasing. Vibha Padalkar MD answered that the margins on a standalone basis will continue to trend upwards. Along with Exide Life as a combined margin, HDFCLIFE hopes to end flat against the FY22 margin.

• Arav Sangai of VT Capital also asked that since the increase in retention in 3Q22, will it affect the mortality sensitivity going ahead. Srinivasan Parthasarathy Chief Actuary said the mortality retention on the new business should be slightly higher, but the EV sensitivity should not really change materially.

• Ravi Naredi with Naredi Investment enquired about the profit from unrealized investment gain as on 31 March, ‘22. Vibha Padalkar MD said it is nothing but the mark-to-market of equity. So as on 31 March, whatever is the market rates, that is what’s the underlying AUM, that will be mark-to-market.

• Ravi Naredi with Naredi Investment also asked that on the merged entity of HDFC and HDFC Bank how much equity HDFC Bank may hold in HDFC Life. Vibha Padalkar MD replied that currently 47.6% HDFC is holding, which will go to HDFC Bank. They have asked for regulatory approval to take it up to 50%.

• Deepika Mundra from J.P. Morgan enquired about the capital requirements for the business going forward. Vibha Padalkar MD replied that over a period of time, HDFCLIFE is expecting to move to a risk-based capital approach and that will release significant capital for the industry. And that’s something that HDFCLIFE will need to keep in mind over the next maybe 3 year period.

• Deepika Mundra from J.P. Morgan asked about the solvency requirement for next year and what’s the comfortable level of solvency. Vibha Padalkar MD said the company started off with a solvency of 190% as of 31st of March. HDFCLIFE typically will hover around the 180% in terms of solvency.

• Nischint Chawathe with Kotak Securities asked what explains margin expansion looking at the business from a 4Q basis. Niraj Shah CFO said that apart from the assumption change on mortality, large part of it is largely coming through in terms of the product mix shift, managing to reprice a large part of the business over the last 12 to 18 months and on the non-par side, there has been a slight expansion in the quarter from 32% to 35%.

• Dhaval Gada of DSP Mutual Fund asked how much more headroom is available to sort of take the margins higher closer to 30% in the next 3-4 years. Vibha Padalkar MD answered that if all things being equal on regulation, then it should be possible, and that’s what HDFCLIFE will be working towards, without dropping market share.