16 july 2024 Punjab Khabarnama : Private sector insurer HDFC Life will review its restructuring model for distributor remuneration after sector regulator IRDAI issued draft norms on surrender value, said Niraj Shah, executive director and chief financial officer.
The insurer, Shah said, had measured a temporary impact of 100 basis points on its business if the draft norms are come into play.
The Insurance Regulatory and Development Authority of India (IRDAI) has proposed that the surrender value of the policyholder must be at least equal to the expected present value of the paid-up sum assured and paid-up future benefits.
The insurer is looking at growing its value of new business (VNB) by 17 to 18 percent in fiscal year 2025, said Shah. It reported an 18 percent on-year growth in VNB to Rs 718 crore during the April-June quarter. “Our VNB margins contracted in this quarter but we are okay with what we have delivered on the VNB side. And we look forward to maintaining our margins in a range-bound zone rather than having some big changes and look for a 17-18 percent growth,” Shah said in an exclusive conversation with Moneycontrol.
VNB is the present value of future profits associated with new business written during the period.
According to the HDFC Life executive, the insurer will look at increasing its unit linked insurance plans (ULIP) among its product mix in this fiscal due to its rising demand.
Excerpts from the interview:
How do you analyse your Q1FY25 numbers?
Our value of new business is up by 18 percent on a year-on-year basis. Our individual premium income grew by 31 percent and on the group side, our credit life business, which includes protection business, saw some slowdown. Profit after tax and embedded value also saw good growth.
How is your VNB working? And what about the product mix? How is that working on your margins?
Our approach towards VNB has been to report strong YoY growth. And, we have been reporting steady growth too in the past four years. This has propelled growth across segments.
Our product mix is different from what it used to be till about two years. Non-par mix has been steady in the mid-thirties and participation has gone down little bit and the rest remains strong. The mix of products has been constant.
Going forward, what is the plan on the margin side?
Our margins have been stable and we saw some gap of around 130 bps in the last fiscal, whereas some industry players reported a sharp impact of around 300-700 bps.
We had, in April this year, called out that the sector (insurance) is expected to grow 12-13 percent and we would like to grow in the top range. But the sector has grown a lot faster at around 20 percent and we have grown at around 30 percent.
Our VNB margins did see some pressure but we are okay with what we have delivered on the VNB front. And we look forward to maintaining our margins on a range-bound zone rather than having some big changes and look for a 17-18 percent growth.
On IRDAI’s drafts for increasing surrender value norms, you had mentioned some impact on your business. But how do you see this working now?
We welcome the move and it is one of the measures which is in favour of the industry. We said earlier that we had an 100 bps temporary impact but we will try to neutralise this primarily through distributor remuneration restructuring.
We do not expect any meaningful change to our customer approach as we have calibrated on the pricing approach.
A call for introducing a composite licence for insurers was raised a few months back. If this moves on, how will HDFC Life look at expansion under this?
Our primary interest is in offering long-term health solutions. We are not really keen to have a product which is very similar that is available in the market.
Creating a health and retirement ecosystem is something we are interested in. And we see that the Indian market is at a very nascent stage and the health segment is largely seen on the mediclaim side of things.
But we are happy to participate in the product lines but the things on the licence side will depend on what the regulator wants.
