Shares of life insurance companies have rallied by up to 10 per cent on the BSE in Thursday’s intra-day trade after HDFC Life reported a better-than-expected performance for the quarter ended December 2024 (Q3FY25). The company posted a 13.65 per cent year-on-year (YoY) rise in net profit at Rs 414.9 crore, driven by healthy persistency and a growing back book.
Its value of new business (VNB) rose by 8.6 per cent YoY to Rs 930 crore in Q3, compared to Rs 856 crore in the year-ago period. VNB is the present value of all future profits to shareholders, measured at the time of writing the new business contract.
The insurer’s VNB margin, a measure of profitability, rose to 26.06 per cent, compared to 26.8 per cent last year. However, the margin improved from 24.3 per cent in Q2FY25. The sequential revival was witnessed in margins owing to higher growth in non-par products, restructuring of commission structure and product repricing.
The stock price of HDFC Life has rallied 10 per cent to Rs 651.10 on the BSE in intra-day trades on the back of heavy volumes. In comparison, the BSE Sensex was up 0.56 per cent at 77,151 at 09:37 AM.
ICICI Prudential Life Insurance Company, SBI Life Insurance Company and Max Financial Services are up in the range of 5 per cent and 7 per cent, while, Life Insurance Corporation of India was up nearly 2 per cent on the BSE in intra-day trades. Most of the life insurance companies had underperformed the market. Currently, these stocks are trading lower by up to 30 per cent from their respective 52-week highs touched during the months of September and October 2024.
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Meanwhile, HDFC Life delivered healthy growth in new business premium accretion at 11 per cent YoY to Rs 22,396 crore for the April to December 2024 (9MFY25) period, driven by a balanced product mix and a 15 per cent increase in the number of policies sold.
Asset under management (AUM) expanded to Rs 3.3 trillion, registering an 18 per cent YoY growth, while embedded value increased by 18 per cent YoY to Rs 53,246 crore.
While growth remained slower owing to regulatory headwinds, HDFC Life witnessed increased market share and remains confident of achieving its full year guidance of 18-20 per cent annualised premium equivalent (APE) growth and around 15 per cent VNB growth, according to ICICI Securities. The company's continued focus on balanced business mix and enhancing reach in tier 2 and 3 cities is seen to aid growth. Although there's been no formal communication on banca business from the sector regulator, diversification of distribution remains underway, ICICI Securities said in a note.
HDFC Life aims to maintain a balanced product mix and gain a higher market share, focusing on geographical expansions and customer acquisition, said Motilal Oswal Financial Services (MOFSL) in the company's results update. Persistency trends have been improving across cohorts, which will keep the renewal premium growth steady, it added. Changes in the commission structure after the discussion will lead to only 20-30bp impact on VNB margins due to the surrender charge regulation. The company's management has guided for steady or slightly better margins on account of better growth in Q4 and no deterioration in the product mix, MOFSL noted.
The brokerage firm has increased its VNB margin assumptions for the company on the back of a better-than expected performance in Q3FY25. “We now estimate HDFC Life to deliver a ~19 per cent VNB compound annual growth rate (CAGR) over FY24-FY27E and margin to expand from 25.4 per cent in FY25E to 26.8 per cent in FY27E,” MOFSL said, while reiterating its 'Buy' rating on the stock with a target price of Rs 800 (premised on 2.5x Sep’26E EV).