Last week Macquarie Equity Research published a report on India’s Insurance Sector, titling it ‘Bracing For A Lower Growth Environment’. The report from Macquarie Equity Research downgraded the insurance sector and cut FY25e VNB estimates by 2-6 percent and the target price for life insurance stocks by 15-17 percent.

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Interestingly the upside risks to its assumptions as per Macquarie Research was 20 percent+ VNB percent growth.

A week later, Vibha Padalkar, MD & CEO of HDFC Life Insurance scoffed at all slowdown fears. In an exclusive interview with CNBC-TV18, Padalkar said that the recent taxation changes on long-term savings life insurance policies have had no negative impact on the company’s growth in the first two months of FY24 and she expects it to remain that way.

According to Padalkar, A balanced product mix is what insulates a company’s growth against the negative impact coming from long-term savings policies coming under the ambit of taxation. Here, it’s important to note that HDFC Life Insurance has the highest exposure to long-term savings policies which stands at around 10-12 of its total Annualised Premium Equivalent or APE.

Speaking on the company’s performance, Padalkar said that HDFC Life Insurance in the first two months of FY24 has grown at 1.8-2 times the growth of the private sector whereas the retail APE grew at 9 percent which was again 1.8 times the growth of the life insurance industry.

HDFC Life Insurance also managed to grow its group business by 25 percent+ in the first two months of FY24. Growth in group business and policies was also double that of the sector. With the performance so far in FY24, Padalkar affirmed that the building blocks for the company in FY24 were pretty sound.

Analysts are particularly interested in seeing strong VNB growth. Here, Padalkar said that she expects VNB or Value of New Business to grow in the mid-teens for the company. She also clarified that mid-teen growth in VNB will be after factoring in the advance buying of large long-term savings policies which took place in March due to taxation changes.

According to Padalkar, if one removes the base effect then HDFC Life Insurance’s VNB could grow in the range of 20-25 percent in FY24. Talking more on the VNB front, HDFC Life Insurance Chief said that H2FY24 VNB could be around 17-18 percent, much stronger than H1FY24. So far in the first two months of FY24, the VNB growth for HDFC Life Insurance has been around 9-10 percent.

Padalkar also provided crucial guidance on the margin front. On being asked whether margins for the company have peaked around the 30 percent odd levels, Padalkar said that she expects the company to maintain the current level of margins which would be around 28-30 percent.

After the Government announced taxation on large long-term savings life insurance policies (policies with annual premiums of over Rs 5 lakh), it was believed that HDFC Life insurance would be most impacted since it has a high exposure to these large long-term savings life insurance policies.

Citing the growth in the first two months of FY24, Padalkar said that the company so far has and will continue to restrict the impact of the taxation move on its headline growth. Commenting on growth further, Padalkar said that HDFC Life Insurance expects to grow its APE by around 15 percent in FY24.

Commenting on the merger of Exide Life Insurance into the company, Padalkar said that there have been no skeletons from the acquisition and HDFC Life Insurance has got exactly what it intended to acquire.

On synergies, she said, Exide Life is helping HDFC Life Insurance make inroads into tier II & III segments which has resulted in the share of policies from these geographies going up to up to 75 percent from 60 percent earlier. On the impact of merging Exide Life Insurance into itself, Padalkar said that the life insurer achieved margin neutrality three quarters before schedule.

Speaking on synergies for HDFC Life Insurance from the merger between HDFC and HDFC Bank, Padalkar said that the life insurer will get strong cross-sell opportunities post-merger.

Also, credit life as a portfolio is expected to grow faster with the merger between HDFC and HDFC Bank. The credit life portfolio for HDFC Life Insurance grew a little short of 50 percent in FY23.

Speaking on the annuity business, Padalkar said that the portfolio has grown very sharply in the last few years and will comfortably continue to grow in double digits going forward. In FY23, HDFC Life Insurance’s annuity book grew by 50 percent. Padalkar did caution about aggressive pricing in the annuity business.

After the Government’s decision to tax policies with an annual premium of over Rs 5 lakh, a total of Rs 7.5 lakh still remains tax-free. Out of the Rs 7.5 lakh, Rs 5 lakh is under savings policies and Rs 2.5 lakh is under the ULIP segment.

On being asked if HDFC Life believes that the balance amount could also come under taxation, Padalkar stated that people need a nudge to buy insurance and some tax-free portion will be required as a sweetener to sell insurance. Padalkar hopes that the Government continues with Rs 7.5 lakh tax-free status for life insurance.

In fact, Padalkar urged the Government to club all kinds of life insurance policies under the Rs 7.5 lakh limit and leave it to the policyholder on how he wants to use it.