Private sector insurer HDFC Life Insurance on April 18 reported an 18.3 percent drop in its value of new business (VNB) margin, which is the present value of future profits associated with new business written during January-March quarter of financial year 2023-24. The total VNB margin for the quarter stood at Rs 1,234 crore.
Market experts had suggested that VNB will see a sharp fall due to low margin-linked products. They said that VNB of HDFC Life Insurance is likely to decline up to 15 percent on-year to Rs 1,286 crore in the March quarter from Rs 1,511 crore in the year-ago period.
“The decline is expected to contract the VNB margin by 250 basis points (bps) to 26.8 percent from the previous year. However, sequentially, expansion of up to 50 bps is seen as margins of the Exide Life portfolio catch up,” Kotak analysts said.
Vibha Padalkar, Managing Director and Chief Executive Officer (CEO), HDFC Life said that the current product mix helps in growing and maintaining VNB growth. "VNB growth will be driven by annual premium equivalent (APE) growth," Padalkar said in a post results analyst call.
Also read: Deepak Parekh steps down as as the Chairman and Non-Executive Director of HDFC Life Insurance
One basis point is one-hundredth of a percentage point.
Earlier, industry experts had said that due to the introduction of the new surrender value norms by Insurance Regulatory and Development Authority of India (IRDAI), the impact could be seen on the margins of the insurers. On December 14, 2023, the IRDAI issued a draft circular proposing that the surrender value on non-par insurance products be increased. The surrender value is the amount that the policyholder receives from the insurer if they decide to terminate the policy before its date of maturity.
Saurabh Bhalerao, Associate Director, BFSI, CareEdge had earlier said that the impact due to the norms would be tough to calculate as insurers are working on diversifying their products mix. “We may see some impact on the margins but insurers are working at diversifying their product mix which makes it tough to calculate the exact impact,” Bhalerao had earlier said.
Q4 results
The insurer on April 18 reported a net profit of Rs 411 crore for the January-March quarter of financial year (FY) 2023-24, up by 14.8 percent from Rs 358 crore recorded in the year-ago period. The numbers beat the market expectations which expected 6.1 percent growth in profit to Rs 382.1 crore.
The net premium income of the insurer came in at Rs 20,488 crore, up 5.4 percent from Rs 19,426 crore in the year-ago quarter.
The solvency ratio of the insurer stood at 187 percent, up from 203 percent a year ago.
The company's annualised premium equivalent (APE), which is a measure of new business written by a life insurance company, fell by eight percent, against market expectations which expected APE to fall by seven percent. The APE stood at Rs 4,727 crore for the quarter, compared to Rs 5,162 crore a year ago.
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