Private life insurer HDFC Life Insurance posted a 14.5 percent year-on-year (YoY) decrease in consolidated net profit for the March quarter (Q4) at Rs 311.65 crore. This was due to a drop in net investment income and a rise in provisions. However, both annualised premium equivalent (APE) and value of new business (VNB) saw a double-digit growth in FY20.
The net investment income slipped into the red touching a negative of Rs 10,229.92 crore in Q4FY20 as compared to an income of Rs 3,755.65 crore in the year-ago period. Provisions for diminution in value of investments rose to Rs 375.85 crore in Q4 compared to Rs 17.32 crore in the year-ago period.
Net premium income growth saw a marginal hike to Rs 10,475.95 crore in the March quarter compared to Rs 10,251.26 crore.
For the full year (FY20), the annualised premium equivalent (APE) rose by 18 percent YoY to Rs 7,407 crore. APE refers to 100 percent of regular premiums and 10 percent of single premiums.
The total new business premium rose by 15 percent YoY to Rs 17,239 crore in FY20. The new business margin rose to 25.9 percent in FY20 as against 24.6 percent in the year-ago period.
Protection (pure term insurance) business new business premium saw an 18 percent YoY growth to Rs 4,762 crore.
The value of new business (VNB) rose by 25 percent to Rs 1,919 crore in FY20. VNB is the present value of expected future earnings from new policies written during a specified period and it reflects the additional value to shareholders expected to be generated through the activity of writing new policies during a specified period.
Vibha Padalkar, MD & CEO, HDFC Life said, "We continue to deliver growth higher than industry and register steady performance across all key metrics. We believe that insurance remains a multi-decade opportunity with significant potential."
The 13th month persistency (renewal after first year) rose to 88 percent at the end of FY20 compared to 84 percent a year ago. The 61st month persistency rose to 54 percent in FY20 compared to 51 percent in FY19.
In the individual annualised premium equivalent (APE), the share of unit-linked products came down to 28 percent in FY20 from 55 percent a year ago. The share of non-par savings products (savings products with no profits or dividends are paid out) rose to 45 percent from 20 percent in the same period.
The Indian embedded value (EV) rose by 13 percent YoY to Rs 20,650 crore in FY20. The operating return on EV stood at 18.1 percent in FY20 compared to 20.1 percent in the year-ago period.
The EV of a life insurance company comprises two key elements. Firstly, it includes the net asset value or the net worth of the company, which represents the market value of the company’s assets attributable to the shareholders. Secondly, EV also comprises of the present value of the company’s future expected profits from its existing business portfolio as at the date of valuation.
As on March 31, 2020, the assets under management stood at Rs 1.3 lakh crore. Here, more than 96 percent debt investments were in G-Secs and AAA bonds.
The solvency ratio stood at 184 percent in FY20 (compared to 188 percent a year ago) as against the regulatory requirement of 150 percent.
What was the impact of Coronavirus pandemic?
For Coronavirus (COVID-19), HDFC Life said that an additional provision of Rs 41 crore (approximately 4,500 lives) has been made. This is over and above the policy level liabilities.
Vibha Padalkar, MD & CEO, HDFC Life said in the post earnings call that the insurer had an impact of Rs 1,100 crore in premium collection (new business and renewal) in the last 15 days of March 2020 to Coronavirus-related lockdown. Of this, Rs 400-500 crore impact was on the first year premium.
The company is also assessing future scenarios of COVID-19 lockdown including one scenario some branches could operate as one-man operations. Padalkar however clarified that there would not be any job cuts.
"We are looking at various scenarios depending on the lockdown. Given that we are able to service customers largely through working from home, then might look at one-man branches. This means that I don't need that infrastructure. But that is nowhere on the horizon immediately," she added.
HDFC Life Insurance also announced raising of Rs 600 crore of funds through issuance of non-convertible debentures in the nature of subordinated debt instrument. This said the company will be in one or more tranches, on private placement basis subject to receipt of regulatory approvals.
In the post earnings call, Padalkar said that this is an enabling provision and will remove any possible restriction that could be there.