HDFC Life sees weakening early policy renewals, long-term retention grows

HDFC Life Q1: early renewals dip on tax changes

HDFC Life’s June quarter operating metrics showed mixed trends, with some improvement in long-term policyholder retention offset by a slight dip in early renewals.

The company’s 13th month persistency ratio, which measures how many customers renew their policies after the first year, slipped to 82.7 percent, down from 87.3 percent in the same quarter last year. Management attributed this decline to a change in product mix, particularly a reduction in large-ticket policies after recent taxation changes.

Explaining the drop, the company clarified that this trend was anticipated and already factored into its assumptions. “The 13th month persistency fell by around 1 percent, largely because of the lower proportion of large-ticket policies following tax changes,” the management said during the post-earnings call. “We had accounted for this in our assumptions, as we analyse persistency across several parameters including premium size. This is why the operating variance remains a small positive rather than turning negative.”

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At the same time, the company noted an encouraging improvement in longer-term persistency metrics. The 25th and 49th month persistency ratios improved year-on-year, while the 61st month persistency also showed gains. Management explained that these improvements stem from policies sold four to five years ago, reflecting a gradual enhancement in customer stickiness over time.

“The improvement in 61st month persistency is driven by the products we sold a few years back,” the management noted. “This trend enhances profitability, and since it is already incorporated in our assumptions, we do not expect any large operating variances in either direction when reviewing our Embedded Value.”

Additionally, the company’s conservation ratio — which measures overall retention of existing business — stayed strong at above 85 percent for both participating and non-participating products.

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