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Economic Times
a day ago
- Business
- Economic Times
Insurers step up their hedge game amid 2025 volatility
The first half of 2025 has seen rising geopolitical tensions, unprecedented volatility and uneven inflation trajectories across advanced and emerging markets alike. With GDP growth holding above 7%, inflation largely contained within RBI's comfort zone, and continued investment in infrastructure and digital expansion, India stands out as a market of sustained interest to international strong foundation will help a large section of the population grow in terms of spending and investing power, with more formalisation of savings. Simultaneously, the insurance sector is also poised to benefit directly from this expansion. Greater household affluence and heightened risk awareness are two factors that are accelerating demand for both life and non-life products. But as portfolios grow and equity allocations deepen, so too does the exposure of those same insurers to global volatility. Protecting value in this climate requires moving beyond static asset management towards more dynamic risk governance. It is against this backdrop that IRDAI has permitted insurers to use equity derivatives to hedge market exposure. The reform was timely. But the bigger question remains: is the industry moving fast enough to operationalise this? Indian insurers have increased their exposure to equity markets over the past decade, particularly through Ulips and longer-dated retirement products. This shift, while positive for long-term returns, can expose portfolios to market shocks. As evident in recent events, these can easily be triggered by geopolitical conflicts, macroeconomic shifts or regulatory developments, domestically or recent decision gives insurers another tool. But tools don't mitigate risk, systems do. The ability to respond to market stress hinges on infrastructure: precision in hedge construction, oversight through real-time visibility, and compliance that ensures every trade is auditable and aligned with accounting volatility seen in recent months has begun to stress-test institutional portfolios. Insurers who have translated IRDAI's reform into integrated risk systems are better positioned. Those still reliant on manual processes or fragmented data flows may find this mark-to-market (MTM) capture, hedge effectiveness testing and automated documentation are not just risk management tasks - they're governance imperatives. They enable boards, regulators and investors to trust that the hedging strategy is not just permitted, but precise. Over the past decade or so, Indian insurers have fine-tuned their technological capabilities, investing heavily in digital delivery, claims settlement and underwriting. The enhanced hedging imperative could trigger a significant reconfiguration of insurers' investment workflows, enabling more sophisticated risk management strategies and dynamic asset-liability matching. Beyond market responsiveness, capital efficiency is increasingly at stake. As India prepares to transition to a risk-based capital regime, the effectiveness of an insurer's hedging strategy will have a direct bearing on its capital charges. Precision in hedge execution can help insurers avoid capital over-allocations for market risk exposures that are otherwise mitigable. And this will, of course, free up resources for innovation and there is a real determination to embrace this change. Most insurers have started upgrading their systems to strengthen their ability to manage risk, comply with regulations and innovate. In an age where headlines move markets, that's a strategic don't mistake this for a technology shift and nothing more. Insurers that invest in these capabilities signal institutional readiness, attract greater investor confidence and align more closely with international best at stake is more than regulatory alignment. Insurers who can hedge effectively will deliver more stable portfolio performance, face lower capital charges and enjoy greater stakeholder trust. In contrast, those who delay may face avoidable write-downs, audit flags or reputational risk. IRDAI's reform opened the door. Global markets have issued a wake-up call and are testing operational responses in real time. Indian insurers must now align their execution with ambition, deploying the necessary tools and infrastructure to hedge risk in real-time, at scale and with confidence. In a world of persistent volatility, readiness is the only real hedge. (Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of Elevate your knowledge and leadership skills at a cost cheaper than your daily tea. Inside TechM CEO's 'baptism by fire' and the blaze he still needs to douse Why the RBI's stability report must go beyond rituals and routines How the sinking of MSC Elsa 3 exposed India's maritime blind spots Profits plenty, prices attractive, still PSU stocks languish. Why? The bike taxi dreams of Rapido, Uber, and Ola just got a jolt. But they're winning public favour Stock Radar: Indus Tower stock breaks out from Symmetrical Triangle pattern; could hit fresh 52-week high – check target & stop loss Weekly Top Picks: These stocks scored 10 on 10 on Stock Reports Plus Will worst of perception be over in Q1 earning season? 9 IT stocks, probably best contrarian bets. Use a different way to be contrarian Stock picks of the week: 5 stocks with consistent score improvement and return potential of more than 25% in 1 year
Mint
3 days ago
- Business
- Mint
HDFC Life banks on broader playbook to keep its lead—but margins remain a worry
Mumbai: HDFC Life Insurance Co. Ltd, India's second-largest private life insurer, is focusing on more partnerships and increased reach to sustain its industry-beating growth amid regulatory disruptions, managing director and chief executive Vibha Padalkar said. 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).
Time of India
10-06-2025
- Business
- Time of India
Life insurance plans explained: 7 types of life insurance plans you should know about; check savings options
Life insurance in India has expanded far beyond pure protection, offering a suite of plans tailored to diverse financial needs—from family security to long-term wealth creation, retirement income, and child-focused savings. Tired of too many ads? go ad free now Here are 7 insurance plans which offers varieties of options to insurance seekers. Term plan While the term plan remains the most basic option, providing a death benefit without any return on survival, several variants now combine risk cover with savings or investment benefits. These plans include term with return of premium, whole-life policies, traditional endowment and moneyback plans, unit-linked insurance plans (Ulips), retirement-oriented annuities, and child-specific plans, according to an ET report. Standard term plan In a standard term plan, policyholders pay premiums for a set period, and the insurer disburses a fixed sum to beneficiaries upon the policyholder's death. No pay-out is made if the person survives the term. To address that limitation, term plans with return of premium were introduced—offering a full refund of premiums if the policyholder survives, and a death benefit otherwise. Whole-life policies Whole-life policies extend cover up to age 99 or 100, combining protection with a savings component. These allow the policyholder to access a growing corpus over time or take loans against it. Traditional plans Traditional plans include endowment and moneyback options. These offer maturity benefits and guaranteed returns, with endowments providing a lump sum on maturity, while moneyback plans release funds at regular intervals throughout the policy term. Ulips Ulips, on the other hand, allow market-linked growth by investing a portion of the premium in equity and debt. Tired of too many ads? go ad free now These come with a five-year lock-in period and carry both death and maturity benefits. Annuity plans For retirement planning, annuity or pension plans offer life cover while saving for post-retirement income. At maturity, the policyholder may receive a lump sum, opt for regular annuity payouts, or a combination of both. Child plans Child plans combine life cover for the parent with a savings vehicle for the child's future education or wedding. If the parent dies during the term, the death benefit is paid immediately, and the savings corpus continues to grow for the child's use at a pre-defined age or milestone.
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Business Standard
20-05-2025
- Business
- Business Standard
Bharti AXA Life Insurance plans to break even by FY27: MD & CEO Parag Raja
Parag Raja, managing director (MD) and chief executive officer (CEO), Bharti AXA Life Insurance, outlines the company's five-year roadmap — after stake acquisition (of 15 per cent) by 360 ONE Asset Management — in an interview with Aathira Varier in Mumbai. Edited excerpts: Following 360 ONE's stake acquisition, what changes is the company implementing strategically? We also had to solve for growth capital, which we did with 360 ONE coming onboard with around ₹450-500 crore. This sets up well for what we are internally calling Bharti AXA 2.0, which is the next five years (FY30). The first goal is to achieve 3x revenue. Our new business premium (NBP) is around ₹700 crore, which we want to take to ₹2,000 crore. Our aim is to take the gross premium of ₹3,000 crore to about ₹7,000 crore in five years. The second big goal is to ensure that our margins and embedded value grow. We are targeting a value of new business (VNB) margin at 25 per cent in the next five years. We also intend to have another investment coming in the next 2-3 years. The last piece is the profits that we will start to generate from here on. That also, we will plough back. We will need about ₹1,500-1,600 crore in the next five years. As you aspire to plough back profits, when do you plan to break-even? Our break-even is planned for FY27. We saw about ₹37 crore loss in FY25; it was ₹146 crore in FY24. We do not intend to be over indexed on either a particular distribution channel or product segment. About 30-40 per cent of our business will come from non-par; 15-20 per cent from unit-linked insurance plans (Ulips); and 15-20 per cent will be par products. Currently, the mix is a little skewed towards non-par. Since you don't want to be indexed on a particular channel, what are your plans for distribution? Our focus is to make sure that minimum 50 per cent of our sales come from proprietary channels. We want to expand distribution and we are going to enter into new partnerships as well. In FY20, more than 50 per cent of our sales came from corporate agents and brokers. Today, it has come down to 25 per cent. We have also increased our bancassurance partnerships to eight banks. With 360 ONE coming on board, it helps us in two ways — we have got growth capital and it also gives us access to a very different super high net worth (HNI) clientele. We have also signed up with Nuvama, Spark and Blue Chip — some of the key marquee partnerships in the last 4-5 months. This is all happening with a view of launching the Bharti AXA 2.0. In FY25, performance of the life insurance industry was muted both in premium and sale of policies… The retail segment of the industry posted 8-9 per cent growth in FY25. The industry growth was 20 per cent in H1FY25 and H2 was almost muted due to surrender-value regulations. The regulations, which are beneficial for the customer, are also good in the long term. But in the short term, the industry had to make some changes. The industry had to relook at distributor compensation and commercial deals with institutions and agents. This led to a readjustment. While the growth in policies has been flat, the ticket size has increased by 20 per cent for almost five years. There has been a change in the customer segment and distribution channel. Owing to this, ticket sizes are growing while policy growth in numbers has been flat.
Time of India
14-05-2025
- Business
- Time of India
Bought life insurance to save tax? Why it may be time to get rid of it under the new income tax regime - top things to check
Experts advise that if the policy is going to mature in 3-4 years, it is better to continue paying the premium. (AI image) Most taxpayers are shifting to the new tax regime . They will not only pay less tax but also be free from the maze of deductions and exemptions. Taxpayers who made the mistake of buying life insurance only to save tax now have an opportunity to redeem themselves. Life insurance is the lynchpin of a financial plan and a well-chosen policy safeguards all financial goals of an individual. But traditional life insurance policies offer very low coverage of just 10 times the annual premium. They are mostly bought for saving tax, not financial protection. With no deduction available under the new regime, policyholders will not find them very useful. However, closing a policy prematurely has financial implications. Total loss for new purchases: Did you buy life insurance in the past two years? If a life insurance policy has not completed three years, all the premiums paid will be forfeited if the policy is prematurely closed. To many people, this may appear a losing proposition. Financial planners say losing 1-2 years' premium is better than continuing a policy that will yield a return of barely 5-6% for the next 10-15 years. They say it is better to take that loss and invest the future premiums in more lucrative avenues. by Taboola by Taboola Sponsored Links Sponsored Links Promoted Links Promoted Links You May Like Mountain Gear for Extreme Conditions Trek Kit India Learn More Undo But there is another aspect that taxpayers must keep in mind when ending a policy prematurely. If you have claimed tax benefits under Section 80C, premature closure before three years could lead to a retrospective tax liability. The taxman will want you to pay up the tax you saved when you purchased the policy. 50-70% hit for older policies: After you pay premiums for three years, an insurance policy acquires a surrender value. This surrender value is not very high. If a policy with an annual premium of Rs 20,000 per year is surrendered after the third year, the policyholder can expect to get back around Rs 18,000 (or 30% of the Rs 60,000 paid over three years). The surrender value increases with every passing year. It may be close to 40-50% if premiums have been paid for 10-12 years. Different rules for Ulips: The rules are different for Ulips. These plans have a mandatory 5-year lock-in period, but premature closure is not as painful as in case of traditional policies. If you stop paying the premium of a Ulip, the policy will terminate but the money you paid till then is not forfeited. The balance in the Ulip is moved to a discontinuance fund where it earns a minimal 4% per year and is returned to you after the five-year lock-in ends. Experts advise that if the policy is going to mature in 3-4 years, it is better to continue paying the premium and reap the full benefits promised under the plan. If the policyholder is finding it difficult to pay the premiums, it is best to turn the policy into a paid-up plan. You stop paying the premium but the policy continues to be in force, although the sum assured (the death benefit or maturity amount) are proportionally reduced. The reduced sum assured is better than surrendering the policy completely. Stay informed with the latest business news, updates on bank holidays and public holidays . AI Masterclass for Students. Upskill Young Ones Today!– Join Now
