Though the life insurance industry is seeing turbulent times, HDFC Life expects to breakeven in the current financial year. In an interview with Niladri Bhattacharya, Chief Executive Officer and Managing Director Amitabh Chaudhry says volume growth is the primary concern for the life insurance industry this year. He adds smaller players would find it tough to sustain growth. Edited excerpts:
The Insurance Regulatory and Development Authority (Irda) has finally come out with draft guidelines on pension products. How would you rate the set?
First, the regulator has redefined the pension product. They are now calling it a deferred annuity contract. Earlier, pension was the accumulation and annuity was the payout of the accumulated pension. Now, the whole contract is a pension contract and it has to be provided by the same company. Second, because of the new definition, the same company would now have to offer annuity as well. Third, they have taken out the 4.5 per cent guaranteed return clause, and introduced a capital guarantee, which is good enough. It would allow us more flexibility and introduce better products. I think the final guidelines would come in quickly, and pension products would start coming into the market from December. Overall, it is very good for the industry.
Do you think pension products would become the same money spinner for insurance companies as they were before the new guidelines came into effect in September 2010?
I don’t think they would be. There were some features of earlier pension plans that were misused. One such feature is before the maturity of the contract, one could surrender and take out the whole money, just like the endowment plan. This is not allowed now and the annuitisation is also higher. So, people who would invest in these products are those who really want pension. It would require more effort to sell these. I don't think these would see the sales which some companies saw—around 30 per cent in 2009-10. I hope over a period of time, these would account for eight-10 per cent of the sales.
How do you see growth in industry sales this financial year, especially when these declined by nearly 30 per cent in the first quarter?
The situation is quite bad, but there are many factors attached to this. The interest rate continues to remain high, due to which fixed deposit rates are high. Equity markets are not doing well. So, as a whole, insurance industry sales have not picked up. There is also the case of the base effect, since the first five months of the last financial year were much better. The period from October would be the real test on how the industry is doing in terms of premium collection, since the new regulations came into effect from September. On the whole, I think industry growth would remain below 10 per cent this financial year.
However, a major concern is if you look at the performance of private insurance players in the first quarter, the top three players are becoming bigger at the expense of others. So, with big players becoming bigger, I don't know how the smaller players would survive and continue to make investments in this market.
HDFC Life was expected to break-even in this financial year. Given the market conditions, do you see HDFC Life making profits in the current year?
If we see our performance in the first four months, first-year premium declined 27-28 per cent. However, renewal premiums are growing 45 per cent, a very good sign. Second, our expense ratio has come down to 14.5 per cent, compared with 23 per cent last year. In terms of volumes, last year may have been better. But, our margins continue to remain at 16-17 per cent. So, we would make profits this year and our breakeven target remains the same. The biggest issue would be volume growth.