No change in overall average ticket size: HDFC Life Insurance CFO Niraj Shah

Although the volume of policies with over Rs 5 lakh premium got impacted in the first quarter this fiscal due to the new tax rule, for HDFC Life Insurance overall average ticket size did not change, says its executive director & chief financial officer Niraj Shah. In an interview with Mithun Dasgupta, Shah says the insurance company is in the process of launching products to address very high ticket sizes also. Excerpts:

Q1) What were the factors that contributed to the growth in the first quarter this fiscal for HDFC Life Insurance?

A: There were a lot of concerns as we know that the first quarter is likely to register a very large de-growth for the sector. We were always reasonably confident. We don’t believe that too much discontinuity will happen. There could be a slow start to the year. That is okay. But things will pick up as we go forward. And that is exactly what has happened. We have grown higher than the sector. From our perspective we were very clear that we wanted to guide both volume growth and not have any significant impact on the ticket size. And that is exactly what has happened. Our average ticket size (ATS), contrary to what the expectation may have been, has actually increased by 3%. The savings ticket size is largely where it was, unit-linked ticket size has gone up and annuity ticket size has gone up as well.

Q2) What kind of impact did the company witness on policies with over Rs 5 lakh annual premium in the first quarter as incomes from such policies become taxable?

A: Definitely the volume of policies above Rs 5 lakh has got impacted as expected. But that is something which is more than made up by the growth in the lesser than Rs 5 lakh policies segments. So all the segments like less than Rs 50,000, Rs 50,000- Rs 1 lakh, Rs 1 lakh- Rs 2.5 lakh and Rs 2.5 lakh- Rs 5 lakh have actually done reasonably well during the first quarter this fiscal. And, that is the reason why our average ticket size has not changed. We are also in the process of launching products to address very high ticket sizes also. You see that in the rest of the year products will be launched to address this set of customers as well. But as things stand today, because of the diversified distribution and products that we have, we have actually managed to get the volume growth which is very much essential for sustainable growth.

Q3) Value of new business (VNB) margin grew 110 basis points year-on-year at 26.2% for Q1FY24. What is the company’s guidance for VNB margin for this fiscal?

A: We are wanting to hold our margin to last year’s level. The margin was about 27.6% in the last financial year. So, we want to close the year at the similar kind of a number and all our VNB growth will drive from APE (annual premium equivalent) growth. In Q1, our annual premium equivalent (APE) has grown by around 13% y-o-y and VNB increased around 18% y-o-y.

Q4) HDFC Bank has now become the promoter and holding company of HDFC Life. What kind of benefit will the insurance company get due to this?

A: So, what happens is that our largest distributor becomes the promoter and alignment of interest is obviously going to be stronger than what it has been previously as a distributor alone. That is something which is likely to result in our countershare in HDFC Bank improving over a period of time. It will happen organically. But it will happen over a period of time. That is largely going to be the biggest benefit apart from the opportunity to address a larger set of customers within the group.