Premium Growth Slows For Listed Insurers

India’s three listed private insurers saw growth slow down amid a slowing economy and volatile market.

The annualised premium equivalent—a sum of first-year premium and single-premium policies—of ICICI Prudential Life Insurance Co. Ltd., HDFC Standard Life Insurance Co. Ltd. and SBI Life Insurance Co. Ltd. either contracted or grew at a slower pace in the first half of the FY20 compared with the quarter ended June, according to the companies’ exchange filings.

Nomura in a report said it expects the slowdown in insurers’ growth to continue in the near term.

Yet, the net profit and premium collections of the three insurers rose over last year in the three months through September.

Moderation In Persistency, Margin

Growth in persistency—or the percentage of policies renewed every year—of insurance companies moderated over last year. ICICI Prudential’s persistency rose 1 percentage point during the period, the lowest among listed peers.

That, according to Nirmal Bang Securities Pvt. Ltd., was on the back of a drop in its higher ticket-size ULIP business, which customers have held back from due to market volatility.

The value of new business margins for the three insurers rose marginally in the first half of the current fiscal over the year-ago period.

A change in product mix and lag in re-pricing of guaranteed products led to lower margins for HDFC Life, according to Emkay Global and Prabhudas Lilladher. For ICICI Prudential and SBI Life margins were stable, led by greater sale of protection products.

Focus On Protection Business

All three insurers sold more protection policies, aided by the low penetration in the segment.

ICICI Prudential expects to double the absolute value of its new business in three-four years, it said in the earnings call for the quarter ended June. HDFC Life said in an interview with BloombergQuint that it expects to grow faster than the industry in new business premium.

Analysts’ View

Emkay Global

• Expect HDFC Life’s margin to further normalise to 27 percent in FY20 with scale-up in other savings businesses in subsequent quarters.
• APE to grow 20 percent for SBI Life over next three years. Company’s overdependence on SBI for distribution poses a risk, although no change in this relationship is expected in the future.
• Premium growth for ICICI Prudential should improve in subsequent quarters; expect pickup in ULIP segment.

Prabhudas Lilladher

• HDFC Life’s focus on highly profitable products to continue and expect gradual uptick in margins.
• Lowered growth estimates to 42 percent on APE and margins to 29.4 percent, reflecting weaker macros.
• Expects ICICI Prudential’s growth to pick up only in FY21.

Nomura

• Downgrade HDFC Life to ‘Neutral’ on account of demanding valuations of 35x for March 2021 forecast (value of new business) and 4.6x March 2021 for embedded value.