Why HDFC Life Insurance Share Price is Falling

2022 proved to be a challenging year for the insurance sector due to an upsurge in claims due to the pandemic.

This spike in claims slowed business growth, placing insurance stocks under pressure.

This avalanche continues in 2023.

The Budget 2023-24, released on 1 February 2023, came as a nasty shock to the insurance industry, particularly life insurance companies.

Following the news, the insurance industry suffered losses across a wide range of counters, with shares of life insurance companies falling by up to 18%.

Among these companies, HDFC Life Insurance's shares dropped marking a two-year low on 2 February 2023.

Here is what triggered the fall.

Curb on exemptions in new tax regime

In the recent budget announcement, the government has lifted tax exemption on life insurance policies issued with an aggregate premium of over Rs 500,000 in a year, with effect from 1 April 2023.

Essentially, income from traditional life insurance policies, other than unit-linked policies (ULIP) having a premium or aggregate of premium above Rs 500,000 in a year will be taxed.

The Budget noted that this change was done as high net worth individuals have been taking undue advantage of this exemption.

It has come as a big blow to life insurers when it comes to high-value policies, especially market-linked policies, as it makes products less appealing from a tax-saving perspective.

This move is said to have a 10-12% impact on the topline products of HDFC Life and a 5% impact on the bottom-line products, according to the CEO and Managing director of HDFC Life Insurance, Vibhav Padalkar.

This new taxation regime will specifically impact HDFC Sanchay products, most loved by HNIs that gave a post-tax IRR (internal rate of return) of 5-6%. This is because the policy has an annual premium exceeding Rs 500,000.

Due to this dampening insurance sector outlook and lower earnings forecast of management, shares of HDFC Life Insurance Company slipped 6% intraday on budget day, trading at its lowest level since May 2020.

Lower-than-expected Q3 results

HDFC Life Insurance's revenue grew 37% YoY to Rs 195.7 bn for the December 2022 quarter driven by strong new business growth.

The company also reported a 15% YoY rise in profit to Rs 3.2 bn.

The new business premium grew 29% YoY to Rs 27.25 bn for the quarter from Rs 21.2 bn a year ago. Its retail business grew by 17% for the quarter, faster than the industry growth.

However, this was way below street estimates and market expectations of Rs 3.4 bn, dragged by the higher payouts.

This dampened market sentiment.

How HDFC Life Insurance shares have performed lately

HDFC Life shares have declined by more than 17% in the last five days and more than 21% in the month gone by.

The company touched its 52-week high of Rs 647.3 on 3 February 2022 and its 52-week low of Rs 473 on 6 February 2023.

At the current price, HDFC Life trades at a PE multiple of 66.5.

About HDFC Life Insurance

HDFC Life Insurance is a leading private long-term life insurance solutions provider in India. It offers a range of individual and group insurance solutions that meet various customer needs, such as protection pension savings, investment annuity, and health insurance.

HDFC Life Insurance is formed as a joint venture between Housing Development Finance Corporation Limited (HDFC Limited) and Abrdn plc.

It offers a range of life insurance plans, such as term insurance plans, health insurance plans, child education plans, unit-linked insurance plans (ULIPs), savings, and investment plans. It also offers long-term savings, protection and retirement or pension products.

It operates in three segments: Participating (Par) segment products, including endowment, protection and pension plans; non-participating (Non-Par) segment products.

Exide Life Insurance Company Ltd is a subsidiary of the company.

To know more about the company, you can visit its factsheet and quarterly results.

You can also compare HDFC Life Insurance with its peers.

HDFC Life Insurance vs SBI Life Insurance

HDFC Life Insurance vs Life Insurance Corporation of India

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