Story Behind HDFC Life Insurance Co. Q2FY23 Results

“We have grown 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.”

– Vibha Padalkar, CEO & MD

Post the COVID 19 Pandemic, there has been a trend towards seeking insurance protection by the general consumer. This trend has resulted in an increase in policy sales for the Life Insurance Industry. Along with that, HDFC Life Insurance Co. has outpaced its peers in terms of growth which has led to the insurer’s increased market share. 

Embedded Value:

The Life insurance Business generally possesses a longer term horizon. The policies offered by life insurers are usually long term contracts because policyholders pay their premiums spread over several years. Thus to accurately assess a life insurance company, embedded value presents itself as a better alternative than usual metrics of profitability. Embedded Value is the sum of present value (P.V) of all anticipated future profits from the business as well as the shareholder’s wealth.

Increase in Embedded Value showcases that the firm’s profits are originated through policy sales and not any other accounting changes. 

Product Mix:

In the mid 2000s, the life insurance industry was majorly dominated by ULIP based products. However, due to regulatory changes ULIP based products lost their appeal. Private Insurers then shifted to higher margin products. So, a lower proportion of ULIPs and higher proportion of other higher margin products resulted in higher Embedded Value.

As per the firm’s investor’s presentation, it is evident that ULIP constitutes just 18% of the Product Mix for HDFC Life Insurance Co.

Channel Distribution Mix:

In the past, the industry used to depend on Agency based distribution channels. However, with regulatory changes coupled with capital constraints the agency channel became less profitable. The solution came through the bance channel. Banca Channel refers to using bank branches to sell Life Insurance Policies. This provided insurers with a banking heritage a significant advantage such as HDFC Life Insurance Co.

As observed through the above diagram, HDFC Life Insurance Co.’s channel mix is dominated by the readymade low cost Banca Channel. However, it seems like in H1FY23 the proportion of Agency based distribution has seen an uptick whereas Direct and Banca Channels have observed a slight decrease.