Niraj Shah, Chief Financial Officer, HDFC Life Insurance CompanyThe challenges in the FY22 are going to be similar to last year, Niraj Shah, the CFO of one of the largest private insurance players, HDFC Life said. In an interview with ETCFO, Shah spoke about how he will navigate FY22 in terms of growth, profitability and challenges. He also shared reasons why his company’s approach in FY22 will be fairly similar to FY21.

“We are going to take a calibrated approach, a more quarter-on-quarter approach as we don’t have a clear line of sight for the rest of the year. We will measure ourselves both on the relative and absolute front with FY20 benchmarks — against market benchmarks, and the rest of the industry. On profitability, the aim is to get closer to the business margins seen anywhere between FY19 or FY20. We ended the last FY21 quarter with slightly higher numbers at 17% growth,” he said. Edited excerpts.

How are you provisioning for the second Covid wave in FY22 in your financials as compared to FY21 (when the first wave hit us)?

Niraj Shah: In FY21 we settled claims of around Rs 3,000 crore at the gross level and around Rs 2,400 crore at the net level. This was 12-15% higher based on the expected mortality last year. Therefore, provisions have been revised. In the case of mortality estimates, a Covid reserve for FY21 for Rs 41 crore was created, and to strengthen it we have increased that to 4X to Rs 165 for FY21-22. The mortality assumption has also been increased by another Rs 120 crore.

These provisions are factored in to measure the impact of the second wave on the P/L. An additional 12% provisioning on claims settled last year, across the multiple segments, has also been done to extrapolate what is to happen.

We will be sharing our operating variance every quarter against what has been estimated to measure what we have actually experienced. Operating variance constituents are mortality, persistency and expense estimates.

If the actual expense is in line with the estimate you will see positive variants. In FY21, HDFC Life experienced negative mortality variance on account of excess Covid claims, which was offset by positive variance on persistency and expenses. We will keep reviewing the situation depending on what is happening on the ground.~

What are the challenges in FY22?

The challenges in FY22 will be similar to last year. We have to ensure from an external perspective, a consistent and predictable performance. All investments are going to be effective, we need to keep measuring them. Last year, we were conservative — not hiring, no increments, no discretionary expenditure, we were just investing in technology that was required to enabling services and business.

The Indian economy is seeing a contraction in output due to the second Covid wave. However, the business sentiment among India’s CFOs for FY22 remains positive and they are looking to invest more than what they had planned the previous year.

Towards the second half of the year, we started seeing growth, started giving increments. The idea is to keep in mind the lessons learnt the first time around and what worked for us then (FY21). This time, though we continue to be calibrated, we will be more localised and granular in our approach. Does a localised approach make things more challenging than last year?

It will be easier than last year. The first wave of Covid was a shocker. Not now, we have already activated work from home, factored in cybersecurity risks, customer mindset, how different distribution channels respond to the different situation on the ground. Now it is just about putting everything back in place. But, yes, a localised approach would mean more effort. However, it’ll not be different in terms of execution. We have to tell partners to not treat India as a homogenous unit.

Does a similar approach this financial year would mean the fear of uncertainty has reduced?

You can fear uncertainty or prepare for it. These are still VUCA times with Covid right at the centre and front of it.

There is a risk on the tech side, risks that are starting to come to the fore now. Things are more uncertain now, but it is time to find an answer to the difficult questions and build an approach.~

We are trying to partner with start-ups who are innovating, talking to reinsurers who have global data, and consultants who have insights on markets around the world, we are keeping our ears close to the ground. The environment will become more volatile and we have to focus on more things.

Therefore, be conservative and prudent and look for more opportunities. It is not either-or. That is not an option, we have to come to terms with the situation and we are checking all the boxes.~

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Your net premium income grew by 23% in Q4 in FY21. Do you see any impact on premium income in Q1 FY21?

Growth momentum will continue but we expect some impact in Q1 and Q2. The April numbers have been fairly strong for the industry and us as well. A lot of it is also because of the base effect. However, there is a slowdown. Obviously, Q1 last year was 19% de-growth for us and 23% for industry, we expect to do better this quarter. But what we would want to look at is how we are doing as compared to FY19.

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