Q1FY26 earnings: HDFC Life, ICICI Prudential rebalance product mix, inch towards protection-led growth

Protection rising: A clear strategic priority

Both HDFC Life and ICICI Prudential continued to deepen their push into protection in Q1 FY26.

According to the company’s investor presentation, ICICI Prudential reported 15.2 percent growth in total protection APE, led by a 24.1 percent surge in retail protection, a segment that MD & CEO Anup Bagchi emphasised as resilient and “less dependent on market sentiment,” in the company’s analyst call.

The protection focus is reflected in the company’s 36.3 percent jump in new business sum assured (NBSA) and a 17.1 percent rise in in-force sum assured, pointing to deeper risk cover penetration, according to a Macquarie report.

HDFC Life, too, saw protection premium inch up, 13 percent year-on-year, despite some quarterly fluctuations. While not as aggressive as ICICI Pru, it maintains a steady share of term products within its APE mix.

Group protection grew 8 percent sequentially, indicating continued traction among institutional buyers, said the report.

Margins under pressure, but also under control

At HDFC Life, VNB grew 13 percent to Rs 8.1 billion, but margins remained flat at 25.1 percent.

According to Macquarie, this was due to surrender value regulation changes and higher fixed cost absorption, which dragged margins despite strong APE growth. The non-par segment, typically a margin-rich line, fell 36 percent year-on-year, largely due to irrational pricing pressures and distribution recalibration, shrinking its share of the APE mix to 17 percent.

In contrast, ICICI Prudential Life’s VNB margin expanded to 24.5 percent, from 24 percent a year ago, despite a modest 3.2 percent dip in VNB to Rs 457 crore. CFO Dhiren Salian attributed the margin expansion to a product mix shift toward non-linked and protection offerings, as well as improving cost ratios.

“The movement in margin is largely on account of the shift in product mix, and higher protection contribution,” Salian said during the July 15 earnings call.

HDFC Life’s CFO Niraj Shah further explained that while new business strain stood at negative Rs 133 crore this quarter, it’s a standard feature of growing life portfolios. “Once we transition to IND-AS or IFRS, such mismatches will reduce,” he told Moneycontrol.

Product mix rebalancing underway

At HDFC Life, ULIP and PAR products drove APE growth, together accounting for 60 percent of the mix, with PAR growing a staggering 117 percent year-on-year and ULIPs up 16 percent.

According to Macquarie, the rebound in ULIPs was contrary to what some private peers experienced and reflected differentiated distributor-level demand. However, this also leaves HDFC Life more exposed to regulatory risk, especially in bancassurance where 65 percent of its distribution comes via banks, mostly from HDFC Bank, the report said.

ICICI Prudential’s product pivot leaned harder into guaranteed and protection products.

As Salian explained, volatile equity markets pushed customers toward non-linked savings, which grew 20.8 percent, while linked business declined 13.6 percent. Retail APE declined 9.2 percent year-on-year, but this was off a high base, and the two-year CAGR remains at a healthy 13 percent, he said.

Importantly, ICICI Pru’s annuity business, which had driven strong growth in the previous year, saw a decline.

However, Rs 100 crore of single-premium annuities were written in the quarter, as reported by Moneycontrol earlier helped by declining fixed deposit rates, which have once again made guaranteed income streams attractive.

Cost-to-premium as a lever

ICICI Prudential Life’s cost-to-premium ratio improved to 21.2 percent, down from 24 percent a year ago. For the savings line of business, this fell even more sharply, from 16.8 percent to 14.1 percent, as per Salian.

The company credited a leaner cost structure aligned with the emerging product mix and increased digital efficiencies across distribution.

“We are realigning costs in response to where demand is moving. Our focus is on growing absolute VNB, not artificially chasing margins,” Bagchi said.

HDFC Life did not disclose the same level of detail on cost ratios but continues to invest in long-term distribution capabilities. Despite margin pressures, it reported an 11 percent rise in individual WRP, outperforming the private sector average of 8 percent and industry-wide growth of 5 percent. This gain in retail share may offset the near-term drag on margins from fixed costs, said Macquarie.

Persistency: Stable for ICICI, slipping for HDFC

Policy persistency offered contrasting signals.

ICICI Prudential’s 13th month persistency held steady at 86 percent, while longer-tenure buckets (25th and 37th month) showed continued improvement, at 83.4 percent and 75.1 percent, respectively.

Persistency ratio typically is an indication of customer retention, particularly in protection and non-linked lines.

HDFC Life, however, saw its 13th month ratio dip to 82.7 percent, down from 87.3 percent a year ago. CFO Niraj Shah attributed this decline to timing-related premium lags and large-ticket policy churn following the March 2023 budget changes, which impacted high-value savings business.

In terms of solvency ratios, HDFC Life’s solvency ratio stood at 192 percent, and ICICI Pru’s at 212.3 percent.

AUMs also continued to grow, with HDFC Life’s rising to Rs 1.63 trillion this quarter, while ICICI Pru’s hit Rs 3.24 trillion, which according to Macquarie, is backed by high-quality portfolios and zero NPAs.