Private insurance company, HDFC Life Insurance, which has filed its draft prospectus with the Securities and Exchange Board of India (SEBI) for an initial public offering (IPO), may soon be listed on the stock exchanges as the third life insurer. In an interview to M Saraswathy, Amitabh Chaudhry, MD & CEO, HDFC Life talks about their listing plan and business strategies. Edited excerpts:
The valuations that have been commanded in recent IPO proposals by insurers have been huge. What do you think drives that?
Here, we are talking about global investors who understand insurance and increasingly domestic investors are savvy enough to understand the valuations of the insurance company should be and they are willing to pay the value.
The big change that has happened is that, and that insurers have sustained the growth. There is confidence on the part of the investors on the business models. They see a huge runway for growth.
But they have seen a significant jump compared to the earlier transactions?
In the previous transactions, the risk was higher. It was a private transaction and the equity that was sold was lower. The past transactions were done at a discount because the people were taking higher risk.
India is quite underpenetrated in protection. We, at HDFC Life, have shown a clear sign and strategy that there is much more possible in protection. Overall, the quality of business has improved and insurers are ensuring that right kind of policies are sold. Also, the comfort level around consistency of performance going forward has improved. This is reflected in the valuations.
We want to deliver on the expectations consistently. For us, there is valuation but more important is that we have to sustain that.
Unlike other players, your business mix has also been balanced. Is that a conscious strategy?
We have worked very hard to build a balanced business mix. Our growth is consistent and we have a balanced product mix and channel mix. If you compare the sensitivity metrics of HDFC Life with our peers, the volatility in our business is much lower in terms of impact on embedded value (EV) and Value of New Business (VNB).
This was also seen in your product strategy as well. What is your view?
We were the first to go online, bring out a cancer care product and even in terms of bancassurance, we have 120 relationships as on June 30, 2017. We are investing technology in a big way. We are the largest seller of unit-linked insurance products (Ulip) online. Further, we have also launched a combi product with Apollo Munich and we are trying to bring a different customer experience there on buying a joint term and life policy.
We have a different business model which brings less volatility and more margins and a bit of a conservative approach. We believe that it has worked for us.
Your bancassurance partner HDFC Bank is not your exclusive partner. Do you see it as a risk?
The insurance regulator had earlier said that every board (of banks) should adopt an open architecture policy. HDFC Bank has embraced that. From our perspective, the risk is out in the open and we are competing in the marketplace.
Yes, the group bank (HDFC Bank) has opened up. For me, there is a huge headroom for growth because they have toned down their growth rate to ensure that the whole process of selling works and misselling is reduced. It allows me to go and have a clear story with the other banks when they open up and the risk was always there and it is playing out. We will continue to have a large number of people deployed there and will continue to get the lion’s share of the business.
Is the IPO also a positive signal for your subsidiary, HDFC Pension which is a pension fund manager?
While we were late to the party, on the pension side, too, we have been growing well. We are catching up with the number one player very fast. We see this as a huge opportunity for growth. They have not yet opened up the government sector to the private players yet but that will happen soon. When that happens, we will get access to the bigger pie.
What is the timing that you are looking at for the IPO? With a slew of insurance IPOs, that seems to be the most crucial factor.
We are working towards it. We are working on the process of the IPO and after the regulatory approvals, we will decide on the timing.
There is a time that is needed to get all the approvals. Shareholders will do the IPO when the market is doing well and this being the biggest market event for us, the new shareholders should also feel good for that.
Was the break-off of the deal with Max Financial and Max Life for the merger with HDFC Life, a huge setback?
We wanted it to happen. But, we could not come up with a structure that could satisfy the regulatory authorities. However, we had intended to do an IPO and moving in the direction.
Do you see your IPO being a trigger for mid-size insurers to go public?
The mid-size players will struggle in comparison. They have not been very profitable and growth is restricted. The crucial factor is what story you are selling to the investors. However, if they can build the story then maybe in the future it will. But right now I do not see it happening in large numbers.
Will Standard Life continue to be a joint venture partner?
Standard Life intends to be a promoter for the longest period and is committed to the business. They were involved in the proposed merger with Max Life as also the current IPO process. We don’t see an iota of a decrease in interest in the business from them.
Do you see a risk in the Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY) business?
The PMJJBY portfolio has been performing well for us. We believe that it is a good initiative and is a great first step. Also, persistency has been good for us in that space.
Is there a business opportunity for you overseas?
We are the only company to formally go and set up a subsidiary in Dubai. We can write insurance and also reinsurance there. We are operating in the UAE market and doing reinsurance and intend to look at reinsurance as an opportunity seriously. But a lot of what we do in the future in terms of overseas expansion will depend on what strategy we come up with and what is approved by the board.
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