Indian insurers deserve higher valuation than mature markets: HDFC Life CEO


Mumbai: Indian life insurance companies should have a higher valuation multiple than mature markets because of the high growth opportunities in the country, said Vibha Padalkar, MD & CEO of the most valuable private life insurance company, HDFC Life.
Responding to a question on the decision to price Life Insurance Corporation close to the embedded value (EV), Padalkar said that the pricing reflected the fact that there was a one-time element to some of the gains in public sector insurance giant’s EV. If these were adjusted, the corporation’s valuation would be nearly 3.5 to 4 times the EV.
The EV is a measure of the value of a life company that considers the present value of future profits in addition to the current net asset value. LIC’s EV shot up from Rs 95,605 crore as of March 2021 to Rs 5.4 lakh crore in September that year, partly due to a one-time gain due to a change in accounting.
“When you triangulate the features of the Indian market — higher rates of growth, low penetration in insurance, low pension penetration — there are huge growth opportunities. Also, as our per capita GDP goes up, there will be an increased demand for insurance. So, whether it is LIC or any other company, there are huge growth opportunities, and the pricing multiple is a function of this growth opportunity,” said Padalkar.
Shares of the HDFC Life gained 1.7% to close at Rs 550 on Tuesday after the company reported a net profit of Rs 367 crore for Q4FY22 — an increase of 12.4% over Rs 318 crore in Q4FY21. At the current price, the company has a market capitalization of Rs 1,16,088, which is 3.5 times its embedded value. Padalkar said that the ratio of share price to embedded value has fluctuated because of the Ukraine conflict, which has resulted in foreign investors turning risk-averse.
The company has been growing almost twice as fast as the industry. HDFC Life’s individual weighted received premium increased 16% during the year. The company ended FY22 with a market share of 14.8% among private players and 9.3% overall. This year the company crossed the milestone of Rs 2 lakh crore of assets under management.
According to Padalkar, the acquisition of Exide Life is on track, and the consolidated embedded value is just short of Rs 33,000 crore. The acquisition of Exide Insurance has resulted in a cash outflow of Rs 726 crore from the company. HDFC Life is raising Rs 350 crore by subordinated debt to shore up its capital base to make up for the cash outflow.
“We listed five years ago. Since then, we have doubled on almost every metric from new business premium to protection, to annualized premium earnings, assets under management or embedded value,” said Padalkar. The company’s new business margin was a hefty 27.4%, while the value of new business grew by 22%.
Speaking on the prospective merger of HDFC with HDFC Bank and its impact on the life business, Padalkar said that the larger size would increase cross-sell opportunities. “There are huge cross-sell opportunities to meet the customer’s life cycle needs, which starts with a savings account and goes all the way to pension products,” she said.
The amalgamation envisages a shift of HDFC’s holding in its insurance companies to the bank. The RBI has allowed banks to either have insurance companies as subsidiaries or has required them to cut stakes to below 30%, and HDFC Bank has said that it would like to hike the stake to 50%.


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