HDFC Life outperforms peers, SBI Life gives tough fight on valuations

  • In FY19, more than a quarter of HDFC Life’s new business came from selling plain protection products
  • HDFC Life reported growth of 13% in annualized premium equivalent (APE), slower than its past performance

HDFC Life Insurance Co. Ltd’s profitability metrics for FY19 outshone those of its closest rivals SBI Life Insurance Co. Ltd and ICICI Prudential Life Insurance Co. Ltd.

HDFC Life reported growth of 13% in annualized premium equivalent (APE), slower than its past performance. But its rival ICICI PruLife reported no growth at all. SBI Life did marginally better with 14% growth in APE.

But its value of new business margin of 24.6% was superior compared with SBI Life’s 17.7% and ICICI PruLife’s 17%. But there is no secret sauce here. All insurers have realized that growing the margin-friendly protection business is key to better profitability.

HDFC Life has just been more successful than others in pushing plain term plans. In FY19, more than a quarter of its new business came from selling plain protection products. ICICI PruLife is far behind with a share of 9.3%, while SBI Life had 12% of new business coming from term plans.

So, why are analysts wary on HDFC Life and prefer to be bullish on SBI Life and even ICICI PruLife? Nomura Securities India Pvt. Ltd has a neutral rating on HDFC Life, while Deutsche Bank recommends hold. Both have a buy rating on SBI Life and ICICI PruLife.

According to analysts at Jefferies India Pvt. Ltd, SBI Life has the muscle for distribution compared with others as it has exclusive access to parent State Bank of India’s (SBI’s) branches. It has also shown superior traction in its protection business and its persistency ratios outshine those of peers.

“(SBI’s) management is confident of growing protection faster than the overall annual premium equivalent. Persistency trends and surrender ratio of SBI Life remains favourable," noted analysts at Deutsche Bank.

However, a large part of analysts’ stock preferences within the life insurance space has to do with the valuations of the three companies. HDFC Life has run up 13% over the last two months and trades at a multiple of more than four times its embedded value for FY19.

Compare this to SBI Life’s multiple of about three times and ICICI PruLife at about two times, HDFC Life indeed looks richly valued.

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