Not faced a lot of Covid-19 claims- HDFC Life

Update on the Indian Equity Market:
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Excerpts from an interview of Mrs. Vibha Padalkar, MD and CEO, HDFC Life with ET dated 21th September 2020:

● Speaking about the coronavirus pandemic, she said the life insurance in India has grown in a particular way led by savings-based products.
● The pandemic is a penny drop movement for life insurance, especially for term products.
● The Chinese insurers have over 50% share of term protection while for India on a weighted premium basis it is in single digits. This could change with the pandemic and definitely a pull can be seen.
● The market segment is largely the middle class. The target is to focus on all. In a job loss and salary cut scenario, the company is suggesting that people get some cover.
● The average ticket size has fallen to 75% than pre-pandemic, there is a definite pull towards getting insured.
● People are spending less on discretionary and as more people gain awareness on having life insurance, the penetration will also improve.
● The endowment plan gives topline, and other products contribute to the bottom line. Protection, if done sensibly, is a highly profitable business.
● Three protection policies need to be sold to match the premium that a single endowment product brings. Therefore, the company has to balance the mix.
● Products like riders and annuity are also good to have for building strong bottom lines.
● HDFC life has not faced a lot of COVID-19 claims. The company has settled 235 claims since March with the sum at risk at about 22 crore and very much in line actuarial funds.
● Some studies have shown that the overall deaths, in general, have gone down. This could be because of reduced accidents which to an extent has had a neutralizing effect on the impact of coronavirus.
● Last year, the company launched a guarantee backed product that caught customer’s attention. Over 60% of the business in that quarter was through that product. However, now the company has brought it down to 25%. There is constant monitoring of the segment and the reprising of new policies according to interest rates. Then there is asset backing as well where the company writes against long-dated government paper which provides the hedge.
● On LIC listing, she said, the biggest impact is that it would bring transparency. When listed companies make disclosures it’s not just on accounting profits but also on long term profit emergence and value creation.
● The listing of LIC is of utmost importance as it’s the largest financial institution in the country.
● On the demand for Investment-linked products, she said there is a balanced product mix and the company likes Unit Linked Investment Products (ULIPs) to be at 25% of the mix. The company is able to sell enough to maintain it but for companies having a 60-70% mix could struggle.
● Speaking on the effects of automation on agents, she says, it goes hand in hand. There is an India, and, there is a Bharat. There are young people adept at doing their own research to purchase online while there are older people who like assistance and hand-holding.
Banca partners are targeting branch walk-ins, the financial advisors are getting savvy with digital to push digital through existing channels.

Consensus Estimate: (Source: market screener website)
● The closing price of HDFC Life was ₹ 580/- as of 23-September-2020. It traded at 81x/ 73x/ 71x the consensus Earnings per share estimate of ₹ 7.10/7.94/8.14 for FY21E/ FY22E/ FY23E respectively.
● The consensus average target price for HDFC Life is ₹ 615/- which implies a PE multiple of 75x on FY23E EPS of ₹8.14/-.
Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”