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MOSL: HDFC LIFE INSURANCE (Neutral)-Higher reserves dent EVOP growth; persistency trends stable

HDFC LIFE INSURANCE: Higher reserves dent EVOP growth; persistency trends stable

(HDFCLIFE IN, Mkt Cap USD18.3b, CMP INR679, TP INR725, 7% Upside, Neutral)

 

COVID claims rise 3-4x the peak levels of first wave

• HDFC Life (HDFCLIFE) saw higher COVID-19 claims and settled gross claims of ~INR16b (over 70k) - as claims during the second COVID wave have been 3-4x the peak claims seen during the first wave. The company made an Excess Mortality Reserve (EMR) of INR7b towards potential COVID claims, which dented earnings and EVOP growth.
• On the APE front, the Individual Protection business declined 4% YoY as the company remains cautious over the near term. On the other hand, strong trends continued in the Non-PAR/Annuity and Credit Life segments. Thus, the share of Non-PAR/Annuity in the total APE increased to 27%/6%.
• Overall, we expect HDFCLIFE to deliver 22% VNB growth over FY21-23E and estimate margins to improve to ~27%. Maintain Neutral.

 COVID claims surge; muted trends in Individual Protection business

• In 1QFY22, HDFCLIFE posted net premium growth of 32% YoY, led by new business premium growth of ~44% YoY. Moreover, renewal premiums grew 20% YoY. Persistency trends for individual premiums were stable v/s FY21 levels, with 13th/61st month at 90%/53%. However, on a YoY basis, persistency improved across cohorts (barring 61st month). Overall, shareholders' PAT declined 33% YoY to INR3.0b (in-line), largely on the back of higher COVID-19 claims settled.
• COVID claims update: HDFCLIFE settled over 70k claims during the quarter, with gross claims of ~INR16b and net claims of ~INR9.6b. Overall, the peak claims during the second wave have been 3-4x the peak claims seen during the first wave. Thus, HDFCLIFE made an EMR of INR7b to absorb potential COVID claims.