MOSL: HDFC STANDARD LIFE INSURANCE | Annual Report Update (Buy)-Enhancing value for customers by well calibrated approach

HDFC Standard Life Insurance | Annual Report Update: Enhancing value for customers by well calibrated approach

(HDFCLIFE IN, Mkt Cap USD11.9b, CMP INR425, TP INR525, 24% Upside, Buy)

Its very important in the life insurance business to maintian a fine balance between pursuing growth and mantaining a high quality book of business, along with adapting to changes happening in the industry in terms of digital adoption, emergence of new customer ecosystems (like ecommerce and payments, etc.), especially in the Indian context. FY18 was a strong performance year for HDFC Life in terms of total premium growth across premium categories, distribution channels, technology and margins. Through this note we have tried to analyze the first annual report of HDFC Life, post-listing, and our key findings are: (i) risk retained in the individual business has dropped from 65% in FY13 to 38% in FY18; (ii) increase in total expense was mainly due to an increase in first year and single-premium commissions, investment in technology and expansion in the distribution reach; and (iii) the proportion of surrenders in the benefits paid has declined from 81% in FY13 to 53% in FY18.

 Risk retained in the individual business dropped from 65% in FY13 to 38% in FY18

The re-insurance ceded has grown at 42% CAGR over FY15-18 as against the gross premium CAGR of ~17% over the same period with significantly higher proportion of re-insurance done in the Non-PAR segment. Over the last few years, an increasing proportion of protection business across individual and group segments has contributed to an increase in the re-insurance ceded.