A second attempt for India's first private insurer

HDFC Life has a balance between traditional policies and Ulips

HDFC Life Insurance could soon become the first private sector insurance company to be listed on the stock exchanges. Among the top three in the private life insurance segment, the company has managed to maintain a rise in revenue and profit at a time of slower growth for the sector.

Housing Development Finance Corporation (HDFC) announced that it had initiated the process for an initial public offering (IPO) of equity in HDFC Life, by offloading 10 per cent of its stake. HDFC Life’s board of directors have approved.

The insurer had made an IPO plan some years earlier but didn't proceed, due to market conditions and the then cap of foreign direct investment up to only 26 per cent in the sector.

Started in 2000, HDFC Life was the first private life insurance company to be granted a licence to operate in India. It is a joint venture between HDFC and Standard Life, a provider of financial services in Britian. The foreign partner has taken its stake up to 35 per cent from the earlier 26 per cent, valuing the company at Rs 18,951 crore (Rs 189.51 billion).

The life insurance sector crossed Rs 25 lakh crore in assets under management in FY16. The top few have seen consistent growth in both premium collection and profitability. In new premium collections, ICICI Prudential Life Insurance continues to hold the top spot in the private sector. With a strong bank partner (ICICI) and a focus on unit-linked insurance products (Ulips), it has been able to see growth in average individual policy size, too. Further, it is valued at Rs 32,500 crore, the highest for an insurer in the country.

In comparison, HDFC Life has a balance between traditional policies and Ulips. For FY16, the latter contributed 55 per cent and conventional products formed 45 per cent of the APE (Annual Premium Equivalent) in the individual business.

The operating expenses ratio has also seen a gradual rise. HDFC Life says this is mainly on account of incremental investments in development of new distribution channels, technology and products. The expense ratio increased to 11.6 per cent from 10.2 per cent in the previous financial year. This, say analysts, is an area to watch as the insurer prepares a listing path, even as it does continue to provide high returns to shareholders.

Persistency or the number of policies getting renewed continues to be a worry for the sector. While HDFC Life is looking to further raise its 13th and 61st month persistency, they have risen to 79 per cent from the earlier 73 per cent (13th month) and to 44 per cent from the earlier 37 per cent (61st month).

As on end-March, HDFC Life had 28 individual and eight group products in its portfolio, along with seven optional rider benefits.

At present, while no life insurer is directly listed, Max Financial Services owns and actively manages a 72.1 per cent stake in Max Life Insurance Company, making it India’s first listed company focused exclusively on life insurance.

One of HDFC Life's biggest advantage, say its competitors, is a wide distribution network. They have 398 offices in India and 9,000-plus distributor touchpoints.

After the results for 2015-16 were announced, Amitabh Chaudhry, the managing director, had said identification of new market niches and innovation in the way their products were sold would continue to be the key strategic drivers.

Photograph: Reuters