HDFC Life Insurance Q1 Results: Profit Falls, Death Claims Rise Amid Second Covid Wave

Analysts expect HDFC Life Insurance Co. Ltd.’s non-par policies and annuity products to witness growth, while they remain cautious over its protections plans amid uncertainties caused by the newer variants of the coronavirus.

In the quarter ended June, the life insurer saw a “steep rise in death claims, with peak claims in second wave at 3-4 times of the peak claim volumes in the first wave”, according to its exchange filing. “We paid over 70,000 claims in Q1. The gross and net claims provided for amounted to Rs 1,598 crore and Rs 956 crore, respectively,” it said. “Based on our current claims experience, we have set up an additional reserve of Rs 700 crore to service the claims intimations expected to be received.”

According to Deepak Parekh, chairman at the company, HDFC Life has also provided for a Covid reserve of Rs 165 crore for FY22.

A spike in claims and a fall in premium income hurt the company’s profit during the reported quarter.

Net profit of HDFC Life stood at Rs 269.55 crore in the April-June period. That’s 16% less than the earnings in the preceding three months and 40% short over the year-ago period and Bloomberg consensus analyst estimates.

The company earned a net premium of Rs 7,540.05 crore, a 41% drop over the preceding quarter but a 32% rise year-on-year. Renewal premiums contributed more than 50% to the net premium earned.

• Revenue fell 24% sequentially but rose 1% year-on-year to Rs 14,605.87 crore in the April-June period. Still, it beat the consensus estimate by 75%.

• Operating income fell 12% sequentially and 39% year-on-year to Rs 274.15 crore in the three months ended June. That’s also 50% lower than the Bloomberg consensus forecast.

• Ebidta margin was at 1.9% against the projected 6.6%. The margin was flat over the year earlier but was higher than 1.6% posted in the quarter ended March.

• The 13^th month persistency ratio—or customer retention—fell 1.6 basis points sequentially to 89.8%, while the 61^st month ratio improved to 58.1% from 54.6% in the preceding three months.

• Earnings per share for the quarter stood at Rs 1.33 apiece, lower than the estimated Rs 2.64.

• The company maintained a 203% solvency ratio—that measures the extent to which assets cover commitments for future liabilities—at the end of the first quarter.

Other highlights (year-on-year)

• Reported 22% growth in terms of individual weighted received premium, with a market share of 17.8% in private sector.

• Value of new business increased 40% to Rs 408 crore.

• New business margin was at 26.2%.

• Saw 20% growth in renewal premium.

• Assets under management were at Rs 1.8 lakh crore, a rise of 30%.

• Persistency ratios for the 13^th, 25^th, 37^th, 49^th and 61^st months have improved.

Shares of HDFC Life fell as much as 1.23% to Rs 670.35 compared with benchmark Nifty 50 index's 0.7% drop. Of the 37 analysts tracking the stock, 26 have a 'buy' rating, nine recommend 'hold', while two have 'sell' rating, according to Bloomberg data. The consensus 12-month return target implies 15% upside from the current share price.

Here’s what brokerages have to say about HDFC Life Insurance’s first-quarter results...

Motilal Oswal

• Recommends ‘neutral’ rating on the stock with a price target of Rs 725 apiece.

• The company is focused on maintaining a balanced product mix across the business, with an emphasis on product innovation and superior customer service.

• In the near term, the non-par/annuity and credit life segments are likely to see healthy growth.

• It remains cautious on the individual protection business on claims-related uncertainty due to Covid-19.

• Protection remains a long-term structural story, and the company would continue to leverage this opportunity prudently.

Prabhudas Lilladhar

• Recommends ‘hold’ rating with a target price of Rs 725 apiece.

• The company continues have a steady product mix.

• Focus continues to remain on long-term products, while is cautious in near term on protection as profitable underwriting is quite tough.

• With subsiding second wave, business has picked up and claims have moved down, although visibility of growth and Covid impact remains quite uncertain.

• In the medium to long term, investment thesis continues to remain same on the back of improving protection/annuity and certain saving products.

• This will enable gradual margin improvement and deliver 18% sustainable ROEV with 18-20% EV growth over FY22-FY24E.

Yes Securities

• Recommends ‘add’ rating with a price target of Rs 769 apiece.

• HDFC Life’s performance in Q1 FY22 was broadly in line with estimates.

• Reserving of Rs 700 crore for Covid claims seems adequate currently.

• The company has calibrated its approach towards protection business considering the risks associated with.

• The focus is on non par and annuity products.

• For the remainder of the year, the brokerage is working with a 13% APE growth and 16% VNB growth, which is fairly achievable.

• During FY21‐24E, the brokerage expects APE CAGR of 14.4% and VNB CAGR of 17.8%.

Jefferies

• Maintains ‘buy’ rating in its first-cut analysis with a target price of Rs 880 apiece.

• HDFC Life reported a 40% YoY rise in VNB to Rs 4,100 crore, in line with estimates.

• This was led by a healthy 30% growth in APE to Rs 1,560 crore, and 200 basis points YoY margin expansion to 26.2% (estimate 25.9%).

• 13^th month persistency remained unchanged sequentially at 90% despite Covid.