Third Quarter Was A Mixed Bag For Private Life Insurers

The insurance arm of India’s largest lender outperformed its private listed peers in the quarter ended December.

SBI Life Insurance Company Ltd.’s gross premium and net profit growth grew the highest among peers at 28 percent and 47 percent, respectively, according to exchange filings. This was followed by HDFC Standard Life Insurance Co Ltd. whose gross premium grew 15 percent and net profit rose marginally by 2 percent. In comparison, ICICI Prudential Life Insurance Company Ltd.’s gross premium and net profit grew 9 percent and 2 percent, respectively.

Gross premium of SBI Life and ICICI Prudential grew on the back of increased traction in the protection and annuity businesses. For HDFC Life, it was on account of balanced growth in the savings business.

While HDFC Life’s new business growth of 45 percent was higher than its peers, its value of new business margins declined sequentially.

ICICI Prudential’s value of new business margin growth stood at 21 percent during the first nine months of the ongoing fiscal compared with 17 percent in the year-ago period—the highest growth among peers. However, its savings growth and persistency—the measure of a business that an insurer retains over a fixed time period—declined during the quarter.

The annualised premium equivalent for SBI Life and HDFC Life grew at 22 percent and 31 percent, respectively, in the first nine months of this fiscal. This, according to brokerages, was driven by higher sales of participating, non-participating and unit-linked insurance plan products.

A contraction in the ULIP segment, however, remained a drag on ICICI Prudential’s APE growth, which grew around 1 percent during the same period to Rs 5,407 crore.

SBI Life reported the lowest cost ratio among peers at 10 percent during the nine months ended December 2019. The insurer’s margins improved due to re-pricing of its non-participating products, according to HDFC Securities. The company’s growth was aided by its focus on increasing the protection mix. The new business premium earned from the protection business grew 37 percent for the nine months ended December 2019, increasing the overall premium growth.

Despite muted savings growth, ICICI Prudential Life Insurance reported a 25 percent jump in value of new business during the first nine months of this fiscal at Rs 1,135 crore. The launch of its new product—ICICI Prudential Precious Life—under the protection segment also gained traction, driving its value of new business growth.

For HDFC Life, the value of new business growth remained robust, driven by robust growth in agency channel and traction in its Sanchay Par Advantage Product. Participating and ULIP products drove APE growth for the company. Value of new business margins of the insurer, however, declined sequentially.

Persistency Trends

The 13th month persistency declined for ICICI Prudential Life at 80 percent, led largely by a drop in the sales of specific group of policies from the linked business, according to Prabhudas Lilladher.

For SBI Life, the persistency continued to grow at a steady rate. This, according to Nirmal Bang, is because the company sells ULIPs across India, including rural areas.

HDFC Life continued to report strong persistency growth at 88.8 percent, driven by improvement across channels, Nomura said.

What’s Expected In The future?

NS Kannan, managing director and chief executive officer at ICICI Prudential Life, said he expects the insurer to double the FY19 value of new business over three-four years and grow at 19-24 percent compound annual growth rate.

SBI Life expects to double protection in the overall mix over the next three-five years, the company said in an earnings conference call. The share of protection was 8 percent of APE as of first nine months of the ongoing fiscal.

Vibha Padalkar, managing director and chief executive officer at HDFC Life, said the company will continue to focus on the protection business. The insurer also expects to sustain the value of new business margin growth and maintain a balanced product mix.

Here’s what analysts have to say:

SBI Life

Emkay expects the company to clock 19.9 percent APE growth over the next three years, with non-participating products’ savings/protection growing 57.8 percent/36.3 percent over FY19-FY22E.

HDFC Securities expects the company to deliver strong FY19-22E value of new business CAGR of 23.3 percent per annum on the back of a strong distribution footprint of its parent SBI, improving protection share, lowest operating cost ratios and improving margins.

Nirmal Bang said the company could continue to outperform the industry since they have a significant presence outside metro and urban centres, among other factors.

ICICI Prudential

Prabhudas Lilladher expects growth to track back to the mid-teens as the company launched new product on the non-linked side which have slightly better margin as well.

Nomura said that going forward, while the protection mix change will likely continue to drive value of new business margins higher, APE growth will need to pick up for a more sustained value of new business growth trajectory.

While growth remains a challenge in the near term, UBS expects business to become less volatile.

HDFC Life

Nomura factors 17 percent APE growth and 20 percent value of new business growth over the next two-three years.

UBS reduced the FY20-22 APE estimates by 3-5 percent and value of new business estimates by 5-6 percent.

Morgan Stanley said HDFC Life is best placed to play the insurance story in India, given its balanced product mix, high protection focus, widening distribution, high technology focus and experienced management.

The reasons have been compiled from research reports by Emkay Global, Prabhudas Lilladher, HDFC Securities and Nomura.