HDFC Life continues to struggle with margin pain

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Subscribe to enjoy similar stories. A key takeaway from the September quarter (Q2FY25) earnings of HDFC Life Insurance Company Ltd is that pressure on value of new business (VNB) margin continues. VNB margin came in at 24.4% in Q2FY25, down sequentially and year-on-year.

An analysis of the annualised premium equivalent (APE) for Q2FY25 shows the adverse new business profile, including product mix and higher policy benefits, may be putting pressure on the margin. The overall APE grew 26.6% year-on-year in Q2FY25, but VNB rose 17.5%. The impact of the new business profile was ₹80 crore in Q2FY25 versus ₹40 crore in Q1FY25.

This is the key monitorable going forward. Non-participatory saving products (policyholders are not entitled to a share of the company’s profit) rose 93% year-on-year to ₹1,270 crore and unit-linked insurance plans (ULIPs) by almost 50% year-on-year to ₹1,194 crore. However, APE growth was moderated by other segments that reported a fall.

Also read: PVR Inox re-release bet pays off in Q2, more in the pipeline The 37% fall in participatory APE is understandable. As participatory policies allow policyholders to share the profits of life insurance companies, it is a conscious strategy to reduce focus on the segment. However, the reduction in protection or term insurance business by 7% is a concern as it has a high profit margin.

Annuity APE also fell by 12%, which is a worry as the company has been aiming to increase sales of the longevity product. The numbers have been derived from the pie chart of the company’s presentation, so there could be slight variation as the percentages have been rounded off. Nevertheless, they do reveal the broad trend.