HDFC Life Insurance Company Ltd is expected to report a robust set of profitability metrics for Q3FY23, powered by strong business growth.
The average of estimates by three brokerages shows that the private-sector life insurer may report a value of new business (VNB) of Rs 861 crore, up 13 percent year on year (YoY) from Rs 690 crore in the corresponding quarter of FY22.
VNB margin is expected to remain steady at 26.8 percent for the quarter, compared with 26.7 percent a year ago.
For life insurance companies, the key profitability metrics are the VNB, which captures profitability from total business in a given period, and new business margin (NBM) that tells investors how much the life insurer can squeeze out of each policy written.
VNB is used to measure the profitability of new business written in a period. NBM is a system used by insurers to measure the cost of and profit from writing new policies.
Successful journey on NBMs
HDFC Life has delivered superior NBMs for several quarters now, and this has supported its valuations in the market. For Q2FY23, the life insurer’s margin was 25.8 percent.
A superior product mix, with a healthy share of margin-friendly protection business, has been behind the insurer’s stellar numbers.
“New business premium to see a healthy growth; expect strong trends in annuity/non-par (non-participatory) segments,” wrote analysts at Motilal Oswal Financial Services Ltd.
Analysts at Jefferies India Pvt Ltd expect the life insurer’s strong growth to drive profitability for the quarter. HDFC Life witnessed a 15 percent growth in new business on an annualized premium equivalent (APE) basis for the December quarter, as per company-wise business data from the Insurance Regulatory and Development Authority (IRDA).
The company’s APE stood at Rs 2,990 crore, as of December. The 15 percent expansion comes over a 20 percent growth in the corresponding quarter last year, an indication that the life insurer has been able to boost its business.
“HDFC Life seems to have turned the corner on growth, with a 23 percent individual APE growth, following a 47 percent growth in November 2022 after a few weak (-17% to +15%) ones in the preceding five months,” noted analysts at Kotak Institutional Equities in a January 9 report.
To be sure, part of the growth is also due to the acquisition of Exide Life that concluded in October. Exide Life’s product book performance would be a key monitorable for investors. The management’s outlook on growth in the coming quarters as well as improvement in persistency ratios will also be keenly watched.
Shares of the life insurer have gained over 6 percent since the beginning of the month in anticipation of strong operating performance.
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