A life insurance application form (Source: Investment Zen/Flickr) 

Indian Life Insurers To Sustain Robust Growth. Three Firms To Benefit Most

India’s relatively under-penetrated life Insurance market is poised for strong growth as Indians increasingly switched towards higher financial savings in the aftermath of demonetisation.

That’s the word from brokerage HDFC Securities which initiated coverage on SBI Life Insurance Co. Ltd., ICICI Prudential Life and Max Financial Services Ltd. with a ‘buy’ rating, in that order of preference.

With low level of life insurance penetration in the country (2.7 percent of GDP as compared to 3.5 percent across emerging markets), there is huge room for growth, the brokerage said in a report.

India’s life insurance market is largely a savings market and the protection gap remains very high. An increasing population and a large working class will offer opportunities as it will need both savings and protection products.
HDFC Securities Report

Insurance companies with multi-channel distribution such as bancassurance and digital would be the biggest beneficiaries, HDFC Securities said.

Indian Life Insurers To Sustain Robust Growth. Three Firms To Benefit Most

SBI Life Insurance

  • Rating: Buy
  • Target Price: Rs 810 (upside of 16 percent from current levels).
  • Strong support of bancassurance and well-developed agency channel augur well for the company.
  • Improving operating performance through better on-boarding and customer services.
  • Thirteenth month persistency ratio – the proportion of policyholders sticking with the product and funding it for that duration – has improved to 81 percent from 67 percent in the last four years, leading to increased profitability.
  • Equity-linked product mix remains low at 37 percent for the first half of the current financial year. This indicates lower exposure to equity market and increasing flows toward debt-linked funds.
  • Premium growth to be largely driven by the individual segment.

ICICI Prudential Life Insurance

  • Rating: Buy
  • Target Price: Rs 465 (upside of 19 percent from current levels).
  • Less-profitable unit-linked plans contribute 84 percent of the product mix; the company is now focusing on profitable protection products.
  • Strong distribution reach of parent ICICI Bank and agency channel is a key positive.
  • Higher solvency margins to fund growth.
  • Market leader in individual segment business.

Max Financial

  • Rating: Buy
  • Target Price: Rs 665 (upside of 11 percent from the current levels).
  • Well-balanced product mix with focus on longer-term duration products to benefit the company.
  • Exclusive bancassurance tie-ups with Axis Bank and Yes Bank working well for Max Life.
  • Improving persistency ratio, increasing protection share to improve margins.
  • Increasing share of premium through digital channel could lead to lower operating cost.

The one big risk for these companies would be a hike in the income tax rate from 14 percent currently, HDFC Securities cautioned. An increase in the rate to 25 percent would lead to a 10-12 percent cut in their target prices of these stocks due to the possible hit on margins, it said.