Rating Rationale

Key Rating Drivers & Detailed Description

Strengths:

Strategic importance to, and expectation of support from, HDFC Bank: HDFC Life is strategically important to its parent, HDFC Bank, which is reflected in representation on the HDFC Life board and overseeing of the company’s functioning. The company also benefits from common branding with HDFC Bank, which is the largest private bank in India with a strong retail presence, solid brand image, established franchise and large customer base. Crisil Ratings believes HDFC Bank will continue to support the growth plans of HDFC Life and contribute to any incremental capital requirement. Furthermore, being the life insurance arm of the HDFC group, HDFC Life constitutes a key element of the group’s suite of financial service offerings. Crisil believes that HDFC Bank will continue to exercise control on HDFC Life and will continue to extend support to HDFC Life, as and when required, in-line with regulatory guidelines.

Established market position with balanced portfolio mix: The company continues to maintain its market position as one of the top players in the life insurance industry. Growth moderated in fiscal 2024 on individual WRP compared to private players as the company focussed on balanced product mix and on maintaining margins. Though the 2- year CAGR remained healthy, outpacing private industry growth. The insurer demonstrated healthy uptick in individual WRP growth in the nine months ended December 2025 at 22% yoy resulting in improved market share among private players 15.3% as compared to 15.0% during the same period last year. Given that the company has been operating since 2001, it has presence across all states in the country. Thus, diversification of sourcing channels over the years has led to sustained business growth. Furthermore, strong brand image and direct access to the large customer base of the HDFC group provide critical support to business growth. Low insurance penetration, HDFC life’s focus to increase is presence beyond tier 1 cities in India, and other supportive macro factors are expected to drive growth going forward as well.

With the intent of maintaining a customer centric, balanced and profitable suite, the company maintains a balanced portfolio mix with a focus on sourcing through multiple channels. This is reflected in the Overall APE mix, which is diversified across participating – 16%, non-participating savings (non-par) – 31%, protection – 13%, annuities – 5%, ULIPs – 31% and group retirals – 4% for the first nine months of fiscal 2025. The company saw an increase in share of ULIP in FY24 and 9MFY25, albeit lower than the sector, due to increased customer interest in these policies driven by performance of the equity markets. The company continues to witness improvement in protection business however the credit protect business witnessed challenges due to the slowdown in the MFI sector. The contribution of the protection business to NBP (including group) remained healthy and stood at 29% during the first nine months of fiscal 2025 from 32% in fiscal 2024.

Well-diversified distribution network: HDFC Life has been the first to successfully embrace open architecture in bancassurance while continuing to diversify its distribution network with close to 300+ partners, comprising banks, non-banking financial companies (NBFCs), microfinance institutions (MFIs), small finance banks (SFBs), insurance marketing firms, brokers and web aggregators as partners. HDFC Life has always tried to maintain a well-diversified distribution mix; based on Individual APE, distribution from bancassurance accounted for 60%, agency - 17%, direct (including online) - 11% and broker & Other CA channels - 12% during the first nine months of fiscal 2025. HDFC Life tries to develop and nurture each channel, to ensure business diversification. The company has achieved long-term sustainable and profitable growth by balancing the product mix across various distribution channels.

Healthy persistency and profitability metrics: HDFC Life has maintained healthy persistency in its overall product portfolio. The 13th month and 61st month persistency ratio stood at 87% and 61%, respectively, during the first nine months of fiscal 2025; the ratios stood at 86% and 54%, respectively, for the same period last year. Steady improvement in persistency across cohorts is led by focus on better quality of business and leveraging technological capabilities to provide a superior customer experience. Healthy persistency also reflects the ability to retain policy holders for a longer duration.

RoE stood at 12.0% for the nine months ended December 31, 2024, as compared to 11.5% for same period last year. The new business margin (NBM), though declined, remains healthy at 25.1% in the first nine months of fiscal 2025 (26.5% during same period last year and 26.3% during fiscal 2024). Embedded value of the company saw a YoY growth of 18% and stood at Rs 53,246 crore as on December 31, 2024 (Rs 45,173 crore as on December 31, 2023) Healthy cash accrual has supported capital position. While the gross impact of the new regulations around surrender charges was expected to be ~100 bps, the company was able to work with channel partners and the net impact on the margins of the company were 30bps in Q3FY25. Going ahead, the ability to maintain this pricing structure with distributors amid competition will remain to be seen

Adequate capital position: HDFC Life maintains adequate capital position, which is reflected in healthy solvency margin of over 1.8 times maintained for the last 12 quarters. As on December 31, 2024, the company reported solvency margin of 1.88 times (1.87 times as on March 31, 2024). Networth stood at Rs 15,776 crore as on December 31, 2024, as compared to Rs 14,166 crore as on December 31, 2023 (Rs 14652 crore as on March 31, 2024). The company also raised Rs 1000 crore as subordinated debt in the third quarter of fiscal 2025 as part of its plan to raise Rs 2,000 cr of subdebt to support its capital position. While Crisil Ratings expects capital support from HDFC Bank to be forthcoming if required; HDFC Life has been maintaining its capital position through internal accruals, not necessitating any such support.

Robust risk management in non-participating segment (non-par): HDFC Life has a robust risk management framework across all its product segments. The products offered under the non-par segment are typically those wherein the minimum returns are guaranteed to the policyholders. The company has grown substantially within the non-par segment during the last few fiscals and Unit Linked Insurance Plan (ULIP) segment over the past fiscal. However, given its philosophy of adhering to a balanced product mix, it has been able to maintain it to close to a third of its product mix. HDFC Life follows a fairly comprehensive approach to financial risk management, targeting duration matching on the annuity business and cash flow matching on the non-par savings business. The company also follows a strategy of prudent pricing and dynamic repricing of new business. A judicious mix of multiple instruments is used to hedge interest rate and renewal premium reinvestment risk. The result of this is visible in low-interest rate sensitivity for embedded value and NBM. The regulator is in the process to implement Risk-based capital framework which is expected to increase capital utilisation efficiency. Crisil Ratings understands that the risk management approach of the company has also been validated by a leading external actuarial consultant.

Weaknesses:

High operating cost compared with peers.: The operating costs (excluding commission), remains higher compared with some large competing peers. In the first nine months of fiscal 2025 and in fiscal 2024, the company saw commission expenses increase by 70% and 80% over the corresponding periods previous fiscal, due to implementation of EoM guidelines. There is a corresponding decline in operating expenses compared to previous years, thereby the company has broadly maintained its overall expense ratios versus previous periods which stood at 20.8% of gross premium in first nine months of fiscal 2025 against 19.6% during same period last year. The company continues to invest in technology, distribution, and human resources. Overall expense ratio of the company has remained within 19-21% range in last three fiscals. Crisil Ratings notes the company’s efforts and investments to ensure a balanced portfolio mix, strengthening its distribution mix and making efficient use of technology to ensure ease of purchase for the customers will result in long-term benefits for the company. The company also operates in open architecture model across all corporate distributors. Hence, the overall expense ratio continues to be relatively higher than peers.

Exposure to competition in the insurance business and changing regulatory dynamics: As the life insurance segment in India evolves, the sector has witnessed frequent regulatory changes such as changes in surrender value of life policies, changes around taxation of policies etc. While these measures by the regulator are positive from a long-term perspective and will aid in increasing penetration and protecting policyholders.; These can result in unforeseen pressure on business growth, margins & profitability and involuntary changes in business models. Despite facing macroeconomic and regulatory headwinds in recent years, the insurance industry has delivered resilient performance and HDFC Life continues to be a major player in the life insurance industry, showcasing strong performance throughout business cycles.

While India has low insurance penetration levels and ample room for growth for all players, pressure on pricing, margins and growth due to increased competition from smaller players and new entrants to remain a constant monitorable for well established players like HDFC Life.