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Why Canara HSBC Life is going public at a steep discount to HDFC Life

5 min read 09 Oct 2025, 09:00 am IST

Madhvendra

With 13 years of consistent profits, Canara HSBC Life offers investors a rare entry into a bank-led insurer at nearly half the price of bigger rivals.

Canara HSBC Life Insurance's IPO opens on 10 October, with a price band of ₹100–106 for a ₹2,518 crore offer-for-sale. (AI-generated image)

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In the crowded IPO (initial public offering) market, Canara HSBC Life is quietly stepping into the spotlight. The bank-backed, public sector-led insurer has 13 years of consistent profits and is going public at a steep discount—roughly 45% cheaper than HDFC Life, one of India’s largest and most trusted insurers.

The discount reflects the company’s smaller scale, a ULIP-heavy product mix with lower margins, and the fact that this is a pure offer-for-sale IPO with no fresh capital for expansion—giving investors a rare chance to buy into a proven brand without paying a premium.

To capitalize on its non-core businesses, public sector lender Canara Bank is launching IPOs of two subsidiaries this week, including Canara HSBC Life Insurance. The IPO opens on 10 October, with a price band of ₹100–106 for a ₹2,518 crore offer-for-sale (OFS). Canara Bank, HSBC Insurance, and Punjab National Bank will sell 137.7 million, 4.75 million, and 95 million shares, respectively, reducing their stakes to 36.5%, 25.5%, and 14.8%.

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As no fresh capital is being raised, the listing primarily aims to enhance visibility, strengthen the brand, and provide liquidity to existing shareholders—rather than fund aggressive expansion.

At the upper end of the price band, Canara HSBC Life Insurance’s market capitalization is estimated at around ₹10,070 crore. To understand its appeal, it helps to examine the business model it has built—and the financial foundation behind its consistency.

A bancassurance franchise with deep public sector roots

Canara HSBC Life is a joint venture between Canara Bank (51%), HSBC Insurance (Asia-Pacific) Holdings (26%), and PNB (23%). Its business model is heavily anchored in bancassurance—a channel that contributed over 92.3% of new business premiums in Q1FY26, up from 57.2% in FY23—among the highest in the industry.

Bancassurance not only provides reach and trust but also defines the company’s DNA. By contrast, direct sales—which are more margin-accretive—have dropped to just 2.9% from 38.9%, reflecting a strategic focus on individual and group credit life products rather than fund-based group business. However, this reliance also creates concentration risk.

Nearly 73.2% of business comes from Canara Bank, making the insurer dependent on the bank’s growth and customer engagement. Regulatory developments, such as limits on bancassurance concentration with parent banks, could pose risks if implemented.

Geographic footprint

The insurer’s reach is extensive. It has built a distribution network of over 15,700 branches, including those of Canara Bank, HSBC India, and regional rural banks. This network underpins its strategy, allowing penetration into urban and semi-urban markets where insurance adoption remains low.

In FY24, urban regions accounted for 60.3% of policies sold, rural areas 39.7%. Due to changes in reporting norms, FY25 numbers are not comparable. Geographically, business is concentrated in five states: Karnataka (22.5%), Maharashtra (12%), Kerala (9.6%), Uttar Pradesh (8.9%), and Tamil Nadu (8.4%).

ULIPs and savings products drive growth

The company offers products covering every life stage—from career launch and marriage expenses to retirement planning. Its portfolio includes 20 individual products, seven group products, two optional rider benefits, and policies under PMJJBY.

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On an annualized premium equivalent (APE) basis, unit linked insurance plans (Ulips) dominate, contributing 49.2% of total premiums in Q1FY26, up from 34.6% in FY23. Non-participating (Non-Par) savings accounted for 18.1%, non-par protection 10.6%, PAR plans 7%, and annuities 15%.

The rising share of Ulips reflects customer preference for market-linked returns but also increases exposure to capital market fluctuations. The company, however, held the third-highest non-linked, non-PAR premium share among bank-led insurers in FY25, signalling gradual diversification toward guaranteed-return and protection products.

Premium mix reflects a strategic shift

Total premium rose from ₹7,197 crore in FY23 to ₹8,027 crore in FY25, while APE grew 24% from ₹1,884 crore to ₹2,339 crore. New business premiums fell from ₹3,717 crore to ₹3,122 crore due to a deliberate shift away from low-margin fund-based group business toward individual and group credit life policies. Excluding the fund-based component, new premiums actually rose from ₹2,435 crore to ₹3,026 crore.

Individual policies now dominate, contributing 71% ( ₹2,228 crore), up from 50% ( ₹1,843 crore) in FY23. Group policies fell to 29% from 50%. Renewal premiums rose from ₹3,470 crore to ₹4,899 crore, strengthening annuity income—a key factor in smoothing cash flows and building compounding profitability.

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Improving persistency strengthens renewal stability

Canara HSBC Life has improving persistency: the 13th-month persistency ratio rose from 75.33% in FY23 to 84.3% in Q1FY26, in line with peers. This shows more policyholders continue paying premiums beyond the first year, ensuring predictable renewal revenue.

Individual surrender ratios also fell sharply to 4.4% in FY25 from 6.3% in FY23, reflecting better engagement. However, the ULIP-heavy portfolio means renewals remain sensitive to market performance, as policy continuance often correlates with fund returns.

Cost controls and technology drive efficiency

Death claims settlement ratio remains over 99%, with average settlement in 5-6 days, reflecting robust process digitization. In FY25, IT expenses were 1.2% of revenue, down from 1.3% in FY23, ranking second among peers.

Operating expenses to gross written premium (GWP) stood at 12.4%, higher than HDFC Life (8.8%) and ICICI Prudential (8.1%) due to smaller scale. Commission ratio rose from 5.7% to 6.3% in FY25. Total cost ratio was 18.7%, comparable to HDFC Life (19.8%) and ICICI Prudential (18%), reflecting operating leverage.

What’s behind the profit surge?

The company maintains a solvency ratio above 200%, well above the 150% regulatory requirement. Policyholder accounts remained in surplus, rising sharply from ₹15 crore (FY23) to ₹81 crore (FY25), indicating revenues from premiums and investments comfortably exceed claims and costs.

Assets under management grew from ₹30,204 crore in FY23 to ₹43,639 crore in Q1FY26. Profit after tax rose from ₹91 crore to ₹117 crore, underscoring its ability to remain profitable despite product-mix shifts.

New business Value (VNB) increased from ₹377.5 crore (FY24) to ₹446 crore (FY25), with margins slightly moderating to 19% from 20%. Margins trail peers—HDFC Life (25.6%) and ICICI Prudential (22.8%)—due to higher Ulip exposure, which carries lower VNB margins.

Does the discount make it attractive?

At an embedded value (EV) of ₹6,111 crore, the IPO implies a price-to-EV multiple of 1.6x—discounted versus HDFC Life (2.9x), ICICI Prudential (1.8x), and SBI Life (2.5x). While the discount reflects smaller scale and lower growth, it offers valuation comfort.

Risks remain. Contingent liabilities of ₹320 crore, forming 20.8% of net worth, warrant attention, though manageable given balance sheet strength. Short-term pressure could also arise from the GST exemption on life insurance policies, but higher policy demand is expected to offset this.

For more such analysis, read Profit Pulse.

Disclaimer: Madhvendra has over seven years of experience in equity markets and writes detailed research articles on listed Indian companies, sectoral trends, and macroeconomic developments.

The writer does not hold the stocks discussed in this article. The purpose of this article is only to share interesting charts, data points, and thought provoking opinions. It is NOT a recommendation. If you wish to consider an investment, you are strongly advised to consult your advisor. This article is strictly for educational purposes only.

ABOUT THE AUTHOR

Madhvendra

Madhvendra is a financial journalist and equity analyst with over seven years of experience spanning equity research, investment analysis, and financial content. With a sharp focus on company fundamentals and a bird's-eye view of the economy and sectors, he is passionate about covering in-depth stock research. He also writes on personal finance, and general market trends. With a knack for analyzing IPOs, he is always on the lookout for compelling angles. He also writes for Tata Fintech, The Financial Express, and Equitymaster. Backed by a degree in commerce and a postgraduate diploma in investment banking and capital markets, he has a strong foundation in financial modelling and valuation. Madhvendra is also an active voice on Quora and LinkedIn, where he shares his insights on investing.