MOSL: HDFC STANDARD LIFE INSURANCE (Buy)-Steady quarter-growth momentum remains strong

HDFC Standard life Insurance: Steady quarter; growth momentum remains strong

(HDFCLIFE IN, Mkt Cap USD15.0b, CMP INR483, TP INR475, Buy)

HDFC Life insurance reported strong 3QFY18 performance with 15% YoY growth in shareholder profits at INR2.07b (18% YoY growth during 9MFY18) while existing business surplus grew by 40% YoY during 9MFY18. Key highlights - a) Individual weighted received premium growing at 60% YoY while overall premium growth stood at 20% YoY, b) Market share in individual wrp improved to 13% while in the group segment (largely protection business) the market share stood at 28.6%, c) Premium mix moved in favour of ULIPs however company mentioned that over medium term it would look to increase the share of high margin products, d) Operating expenses were in control at 14.2% of total premium, e) New business margins were largely stable at 22.2% for 9MFY18 thus driving new business profits of INR7.8b, f) Operating return on EV remained healthy at 20.4% (RoE of 24.9%) which coupled with stable solvency ratio at 191% (192% as at Mar-17) enabled company to announce a dividend of INR3.3b (43% payout).

• Premium growth remains healthy; protection business mix increased to 11.6% of total new business APE: HDFC Life reported 33% YoY growth in total new business (56% YoY growth in APE terms) even as renewal premiums increased by modest 9% YoY. The market share amongst private players thus improved to 18.4% on the basis of un-weighted premiums (12.8% market share on basis on Individual new business APE). During 9MFY18, the share of ULIPs in individual new business APE increased to 59% vs 52% as at FY17 while the composition of participating segment declined sharply to 28% (35% in FY17). The company reiterated that significant potential exits in the protection business and aims to improve the product mix which will further aid profitability.
• Persistency rate improves at the shorter end; margins held largely stable: HDFC Life reported continued improvement in persistency rate with 13M persistency improving to 86% vs 84% in FY17. 61st month persistency however declined to 53% (57% as at FY17) led by slippages in the business written in FY13 while trends in recently written business is faring much better. The new business margins held stable at 22.2% (22% in FY17) and helped report VNB of INR7.8b (47% YoY growth).