Steep Rise in Claims Hurt HDFC Life's June Quarter Profit - Views on News from Equitymaster

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  • Jul 20, 2021 - Steep Rise in Claims Hurt HDFC Life's June Quarter Profit

Steep Rise in Claims Hurt HDFC Life's June Quarter Profit

Jul 20, 2021

Shares of HDFC Life Insurance fell in early trade today after the company reported a dip in its net profit for the quarter ended June 2021.

The company reported a 33% year on year (YoY) fall in its bottomline to Rs 3 bn as it raised reserves for claims expected in second and third quarter.

This compared with a bottomline of Rs 4.5 bn recorded in the same period a year ago.

Steep rise in claims

HDFC Life Insurance said that its claims soared three-to-four times during the June quarter as against the peak claim volumes in the first wave of the Covid-19 pandemic.

The life insurer paid over 70,000 claims in the June quarter with gross and net claims amounting to Rs 16 bn and Rs 9.6 bn, respectively.

Based on its current claims experience, it has set up an additional reserve of Rs 7 bn to service the claims intimations expected to be received.

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Healthy growth in AUM

HDFC Life's assets under management (AUM) saw a growth of 30% in the June quarter to Rs 1,812.7 bn.

The new business premium in the quarter surged 44% YoY to Rs 37.7 bn.

HDFC Life was ranked number one in terms of overall new business premium in private sector with market share expanding by 160 bps from 20.7% to 22.3%.

Its share within the group and individual new business segment stood at 25.9% and 17.8%, respectively.

The company reported a 31% growth in total premium to Rs 76.6 bn in the June quarter from Rs 58.6 bn a year ago.

In terms of value of new business, the metric saw a 40% surge in the reported quarter on a YoY basis to Rs 4.1 bn.

Total annual premium equivalent (APE) surged by 30% to Rs 15.6 bn in the first quarter of the fiscal as against Rs 12 bn a year ago.

Financial Summary

(Rs bn) 31-Jun-21 31-Jun-20 YoY % Change
Individual APE 13.1 10.7 22%
Total APE 15.6 12 30%
New Business Premium 37.7 26.2 44%
Renewal Premium 38.9 32.4 20%
Total Premium 76.6 58.6 31%
AUM 1,812.70 1,399.80 29%
Networth 87.8 74.5 18%
PAT 3 4.5 -33%
Data Source: Investor Presentation

Revenue

(Rs bn) 31-Jun-21 31-Jun-20
Premium Earned 76.6 58.6
Reinsurance ceded -1.2 -1.4
Income from Investments 69.6 87.5
Total Income 146 145
Total Outgoings 145.4 42.5
Data Source: Investor Presentation

The company's CEO and MD, Vibha Padalkar said,

  • The strength of our balance sheet and back book surplus has enabled us to absorb the shock of heightened claims, whilst continuing to deliver growth.

HDFC Life's solvency ratio was 203% as on 30 June 2021 from 190% a year ago.

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Covid impact

With signs of the second wave receding, there's been gradual pick-up in economic activity across parts of the country, starting June.

The company is expecting a continuing revival, with easing of lockdown restrictions, an extensive vaccination drive and are hopeful that the severity of future incidences would be lower than what we have seen so far.

Against the backdrop of second wave, the company recorded a 22% growth and a market share of 17.8% in terms of Individual weighted received premium (WRP) in June 2021.

The reserves as on 31 March 2021 were sufficient enough to cover claims received in the June quarter.

India's life insurance sector

India remains vastly under-insured, both in terms of penetration and density.

In its investor presentation, the company highlighted there's huge opportunity to penetrate the underserviced segments, with evolution of the life insurance distribution model.

Here's Tanushree Banerjee, editor of the premium recommendation service Forever Stocks, on India's insurance sector.

  • As the insurance industry is relatively nascent in India compared with its developed market peers, the runway for growth is much longer.

    Just the way Covid accelerated the adoption of digital technology by a few years, the pandemic has given a fillip to the insurance industry in India.

In fact, the private sector insurance companies in India are today where private sector banks were two decades back.

For the first time, in fiscal 2021, the share of private life insurers crossed the market share of the only public sector life insurer, Life Insurance Corporation (LIC), in first year premiums.

The insurance industry of India has 57 insurance companies out of which 24 are in the life insurance business, while 34 are non-life insurers.

Among the life insurers, LIC is the sole public sector company.

As per India Brand Equity Foundation (IBEF), the life insurance industry is expected to increase at a CAGR of 5.3% between 2019 and 2023.

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How the stock markets reacted to HDFC Life's earnings

HDFC Life Insurance share price fell in early trade today after the company posted its June quarter earnings.

The stock opened the day on a flat note at Rs 678. It fell as much as 1.4% to Rs 669 as the session progressed.

HDFC Life shares have touched a 52-week high of Rs 746 on 9 March 2021 and a 52-week low of Rs 556.25 on 30 September 2020.

Over the past one year, shares of the company have traded in a tight range, gaining 10% as compared to 43% gains in NSE Nifty.

Promoters held 58.9% stake in the company as of 31 March 2021, while FIIs held 25.75 stake.

At the current price of Rs 669, the company commands a marketcap of Rs 1,353.4 bn.

About HDFC Life

Established in 2000, HDFC Life Insurance Company is a leading long-term life insurance solutions provider in Indi.

It offers a range of individual and group insurance solutions for protection, pension, savings, investment, annuity, and health.

As on 31 March 2021, the company had 36 individual and 12 group products in its portfolio, along with 7 optional rider benefits.

HDFC Life continues to benefit from its presence across the country with 390 branches and additional distribution touch-points through several new tie-ups and partnerships.

The company has more than 300 partnerships comprising traditional partners such as NBFCs, MFIs, and SFBs, and includes more than 50 new-ecosystem partners. The company also has a strong base of financial consultants.

To know more about the company, check out HDFC Life Insurance company fact sheet and HDFC Life Insurance quarterly results.

To know what's moving the Indian stock markets today, check out the most recent share market updates here.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...

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