HDFC Life Insurance reported a 17 per cent decline in pre-tax profit to Rs 284.47 crore in the quarter ending March (Q4FY20) compared to Rs 345.28 crore in the same period last year. Similarly, the net profit of the insurer declined 14 per cent to Rs 311.65 crore from Rs 364.68 crore in the same period last financial year on account of loss in investment income and higher provisions.
The investment income of the private company went into the negative territory. In Q4FY20, the insurers investment losses was to the tune of Rs 10,229.92 crore compared to an investment income of Rs 3,755.65 crore. Provisions for diminution in value of investments rose to Rs 375.85 crore in Q4 compared to Rs 17.32 crore in the year-ago period.
In light of the covid-19 situation, the insurer has made adequate impairment provisions on the investments to the extent necessary and an additional death claim provision of Rs 41 crore, over and above policy level liabilities.
The insurer is also looking to raise Rs 600 crore through non-convertible debentures (NCDs) to augment its solvency ratio, which so far stands at 184 per cent against the regulatory requirement of 150 per cent.
The life insurer earned a net premium of Rs 10,475.95 crore in Q4FY20, up 2.19 per cent from Rs 10,251.26 crore in Q4FY19.
The value of new business (VNB) margin, a measure of profitability, of the insurer in Q4FY20 was 24.3 per cent while the margin for entire financial year was 25.9 per cent. VNB of an insurer is calculated by factoring in the present value of expected future earnings from new policies written during a specified period and it reflects the additional value to shareholders expected to be generated through the activity of writing new policies during a specified period.
In the entire financial year (FY20), the new business premium of the insurer grew 15 per cent to Rs 17,239 crore compared to Rs 14,971 crore in FY19. While the individual Annualised Premium Equivalent (APE) of the company grew 18 per cent to Rs 6,145 crore in FY20, the total APE also rose 18 per cent to Rs 7,407 crore. APE is calculated by taking 100 per cent of regular premiums and 10 per cent of single premiums.
The protection business of the insurer grew 18 per cent based on new business premium to Rs 4,762 crore in FY20 from Rs 4,042 crore. Similarly, on an APE basis, the protection business grew 22 per cent to Rs 1,270 crore in FY20 from Rs 1,045 crore in FY19.
The embedded value of the company saw an increase of 13 per cent to Rs 20,650 crore in FY20 from Rs 18,301 crore.
While the company has filed the products with the insurance regulator for approval post the hike in rates by insurers, however, the management said that they will not pass on the entire hike to its customers. The management also said that they lost around Rs 1,100 crore of topline in the month of march both in terms of new business premium and renewal premium.
“We expect some medium term impact of lockdown on growth and premium recovery for Insurance cos including HDFC Life. However, we continue to like the Indian insurance space and believe long term prospects continue to be attractive. With higher protection and savings share and reasonable valuations, we maintain positive view on HDFC Life”, said Lalitabh Shrivastawa, Dy. Vice President – Research, Sharekhan by BNP Paribas.
The shares of the company closed 6.84 per cent higher at Rs 484.30 at the BSE.