With cost control, ‘we are confident of making profits in 2011'

HDFC Life Insurance, the industry's third largest private player, expects to report profits this year. It will do this by controlling costs, said Executive Director and Chief Operating Officer, Mr Paresh Parasnis, in an interview with Business Line.

A fellow of the Institute of Chartered Accountants of India, Mr Parasnis' responsibilities include driving and spearheading several key initiatives of HDFC Life, such as setting up branches, driving sales and servicing strategy, leading recruitment, contributing to product launches and performance management system, overseeing new business and claims settlement. Excerpts:

The insurance regulator IRDA has released the final IPO guidelines. When do you plan to come out with an IPO?

We have certain business performance expectations internally and we are regularly reviewing all the parameters to achieve and maintain them. Keeping in mind the current industry scenario, we will wait for stability in our performance and the business parameters to be in line with our expectations before taking the company to the public.

On the other hand, we are also awaiting more clarity on the regulatory framework. Though the IPO guidelines have been finalized, the insurance Bill needs clarity on whether FDI can be increased up to 49 per cent.

IRDA has said that embedded value, and not profitability, will be the main criterion for an IPO. What will be the implications for the insurance industry?

Since the Indian life insurance industry is still in its initial stage, the concept of Embedded Value (EV) to arrive at the valuation of a life insurer is a welcome move and a step in the right direction. An internationally accepted norm, EV is the right measure of calculating a life insurer's valuation. It reflects the future revenue that a life insurer would earn, which is not the case with Indian GAAP profits.

When do you expect to break even?

If we see our performance in the first half of the financial year 2011-12, our total premium has grown by 16 per cent. Renewal premiums have grown by 38 per cent — a very good sign and which reflects our persistence. Conservation ratio (individual business) stood at a very healthy 81 per cent in H1, higher than our peers. The 13th Month persistency ratio was at 80 per cent.

Our expense ratio has come down to 11.9 per cent in H1, compared with 20.2 per cent during the same period last year. Continuous monitoring and focused efforts on controlling cost put in last year have helped reduce the operating expense ratio. Capital infusion has been scaled down over the last 3 financial years with no additions in the current fiscal. Generation of surplus on existing policies has reduced the need for capital draw-downs.

All these would start reflecting well on our profitability as we move forward. So we are not only confident of breaking even, but also of making profits this year.

What is your fund raising plan for this year?

Based on our business plan during the start of the financial year 2011-12, the total capital requirement was expected to be around Rs 100-120 crore. Based on our business performance during the first half of this year, and the fact that there has been no capital infusion during this year so far, we expect to manage the year without any capital infusion.

How much does bancassurance contribute to your overall portfolio? Do you see it changing?

Bancassurance's contribution to our overall portfolio has always been about 60 per cent. In the Indian life insurance industry, the bancassurance model has proved to be the most successful and profitable so far. So, we expect bancassurance to continue to contribute a majority share to our overall sales pie. At the same time, however, we are focusing on scaling up our other distribution models such as retail, direct, online, and broker channels.

deepa.n@thehindu.co.in