HDFC Life banks on broader playbook to keep its lead—but margins remain a worry

The company is expanding its distribution by adding new branches and resources, Padalkar told Mint in an interview.

“We stand out as the only major insurance company to aggressively grow our branches, and have added more than 200 new branches over the past 24 months,” she said. “These strategic moves are projected to drive significant top-line growth in times to come, ensuring we maintain our competitive edge.”

HDFC Life’s net profit increased 15% to ₹1,800 crore in 2024-25. Individual annualised premium equivalent (APE) grew 18% to ₹13,620 crore, and renewal premium rose 13% to ₹37,680 crore.

In comparison, individual APE growth for domestic private life insurers was 15% in FY25, according to a note by Phillip Capital. “HDFC Life has delivered consistently over the years, driven by its focus on a balanced product mix and conservative operating assumptions,” the brokerage said in a note last month.

India’s life insurance sector has been facing a slew of disruptions in recent years. In FY22, the Union government removed tax exemptions for unit-linked insurance plans (Ulips) of over ₹2.5 lakh, and in FY24, for traditional savings products of over ₹5 lakh.

In FY25, India’s insurance regulator introduced tighter surrender value guidelines for insurers, which increased costs, disrupted distribution channels, and restructured distributor commercials.

Padalkar said she is in favour of “lighter touch regulations and not tweaking business models” for the sector. “There has been a close correlation between changes in business model with the growth of the sector. As an industry and regulator, the need of the hour is to focus on expanding the pie.”

An expanding footprint and regulatory hurdles

HDFC Life Insurance has more than 300 distribution partners, including small finance banks, non-banking financial companies, and new ecosystem players. In FY25, it added 40 bancassurance partnerships, under which partner banks distribute HDFC Life’s products to their customers.

Unlike other bank-backed insurers, HDFC Life operates an open architecture model, which means HDFC Bank Ltd sells insurance products of multiple insurers, including HDFC Life.

Despite criticism of misselling via the bank insurance distribution model, Padalkar supports it, given the channel’s 6-7-fold higher reach than the life insurance industry. Rising instances of such misselling in a hunt for higher commissions prompted a call by the Union finance ministry in November to curb such incidents.

HDFC Life has a network of more than 650 branches and 240,000 agents. SBI Life Insurance is estimated to have more than 1,000 branches. But it follows under a closed architecture model, which means all branches of its promoter bank, State Bank of India, operate as SBI Life branches and only sell its products.

Macquarie Research said in a recent note that HDFC Life would likely be the most affected if the government overhauls distribution or bancassurance regulations, given the insurer has the industry’s highest bancassurance mix, 65%, of which HDFC Bank accounts for 70-80%.

“Our focus should be on strengthening processes, not on curtailing bancassurance. We need more distribution touch points, not fewer,” Padalkar said, adding that the insurer is working on growing its proprietary channel faster than its overall growth rate.

Behind the move is a conviction that financial services will remain “phygital”—a combination of physical and digital distribution channels—especially in terms of higher value and long-term policies.

“Customers need guidance to commit to 7-10 years of premium payments based on their unique circumstances,” Padalkar said.

A chase for new customer segments

As HDFC Life grows its distribution network, it expects bancassurance to account for a smaller percentage of its total business. “This is precisely why we are investing in strengthening our distribution, which encompasses adding new branches and feet on street,” Padalkar said.

The insurer’s distribution expansion includes venturing into tier-2 and tier-3 towns and cities where the presence of insurance companies continues to be limited, even as more customers seek insurance products.

“There is more than enough demand. The conversation is changing from ‘why do I need to save for my old age?’ to ‘how much I will need,?’ or is my insurance cover enough—all good questions,” the managing director said.

HDFC Life’s growth in terms of percentage has been similar across tier 1, 2 and 3 cities—the contribution of tier-2 and tier-3 markets in the insurer’s APE rose to 65% in FY25 from 58% in FY21.

Another area of focus for HDFC Life is the non-resident Indian. In 2016, the insurer established a subsidiary in Dubai, which, in turn, has set up a branch at Gujarat’s GIFT City, a global hub for financial and technology services. HDFC Life’s GIFT City entity has launched eight dollar-denominated products so far.

“We are now offering NRIs the option to also avail multi-currency life and health insurance products through this offering,” Padalkar said.

NRIs currently account for about 8% of HDFC Life’s overall portfolio.

An evolving product mix

HDFC Life typically quantifies a blockbuster product as one that garners at least ₹100 crore in premiums. “This is how we dispassionately evaluate whether our product ideation has been received well by the market. Thus, despite volatility, our market share has steadily moved northwards,” Padalkar said.

The insurer’s market share has improved to 11.1% from 10.4% in FY24. Among private life insurers, its market share, based on individual weighted received premium, is 15.7%, higher than 15.4% in FY24 but lower than 16.5% in FY23.

Unit-linked plans comprised 39% of HDFC Life’s individual APE in FY25, followed by non-participating savings products at 32%, participating products at 19%, and term and annuity policies at 5% each. The protection business contributed 27% to overall new business premiums during FY25, with retail protection APE growing 25%.

Padalkar expects demand for Ulips to remain elevated. The insurer, however, is looking to moderate the share of Ulips and instead offer Ulips with enhanced protection through higher sum assured multiples and additional riders. “Our aim is to keep Ulip mix a little less than one-third of our business,” Padalkar said.

Padalkar is also batting for the Insurance Regulatory and Development Authority of India (Irdai) to introduce a composite licence, which she believes will be a “game changer” as it will allow insurers to manufacture and distribute all classes of insurance products.

“This would make our proposition holistic—a one-stop shop offering solutions for mortality, morbidity, longevity, and savings, all rolled into one. It will also help ease the claims process for policyholders,” she said.

HDFC Life Insurance is also overhauling its technology under an initiative called ‘Project INSPIRE’ to improve customer experience and enhance its ‘go-to-market’ capabilities. “We are overhauling the entire customer journey to reduce friction from on-boarding onwards,” Padalkar said, adding that this will also help enable high-value digital transactions.

Pressure on margins and valuation

The value of new business (VNB), which is the expected profitability from the new business written by an insurer, was at ₹3,960 crore for HDFC Life in FY25, up 13% on-year. However, its VNB margin in FY25 dropped to 25.6% from 26.3% in the previous year.

According to Macquarie Research, the decline was due to an increase in unit-linked plans in HDFC Life’s product mix and changes resulting from surrender value regulations.

“Management targets to maintain range-bound margin levels, which we believe could be around 25-27%. Further, it plans to grow its APE at a 17% CAGR over the next four years (not in a linear trajectory) as seen over FY21-25. This, we believe, remains a key monitorable,” Macquarie Research said in a note.

On a 5-year CAGR (compound annual growth rate) basis, HDFC Life’s value of new business was 16%, and the embedded value was 22%.

Embedded value is an indicator of the corporate value of life insurers, attributed to shareholders. It is calculated as the sum of ‘adjusted net worth’ or accumulated realised profits and ‘value of in-force business’ or estimated future profits.

Phillip Capital estimates HDFC Life’s VNB margin at 25.8-26.3% across FY26-28, with higher commission expenses keeping the cost ratio elevated. It expects the insurer’s value of new business, on a CAGR basis across FY25-28, at 17%.

“HDFC Life has historically traded at a premium to other private life peers, but this has narrowed recently. With private peers showing improving metrics, this valuation gap may remain under pressure,” the research firm said, pegging the insurer’s stock at 2.6 times its FY27 price-to-embedded value (P/EV).