Pvt life insurance stocks up on decent growth prospects in Q1

Private life insurers are expected to deliver decent growth in the first quarter of the 2023-24 financial year (Q1FY24) on the back of stronger group business performance and easing supply-side constraints on individual protection.

Life Insurance Corporation (LIC), though, is likely to see a decline.

Healthy 12 per cent year-on-year (YoY) retail annual premium equivalent (APE) growth for private players, coupled with 11 per cent year-on-year (YoY) decline in LIC, will pull retail APE growth to a mere 3 per cent YoY in June 2023.

For Q1FY24 retail APE, the private sector reported growth of 8 per cent YoY, while LIC logged a decline of 6 per cent YoY, resulting in LIC’s retail APE market share declining by 330 basis points (bps) YoY to 35.3 per cent.

Overall, the Q1FY24 retail performance reflects a mix of external and company-specific factors, including pre-buying-led bumper sales for March of 2023, weaker life insurance savings product sales trends among mass customers, and improving performances of a few key bank partners.

Among the private listed players, HDFC Life, ICICI Prudential Life (IPRU) and Max Life delivered decent growth. SBI Life reported a slowdown owing to a higher base.

The impact of taxation changes on big-ticket non-linked policies could lead to single-digit retail APE growth in FY24, especially given strong performance and base effects from FY23.

In June this year, the private sector posted a retail APE growth of 12.2 per cent, resulting in 8 per cent YoY overall growth in Q1FY24.

On an overall APE basis, the industry clocked growth of 8.8 per cent YoY in June, led by 16 per cent YoY private-sector growth and LIC’s poor performance.

There was strong 22 per cent YoY growth in group APE.

The product mix is likely to move in favour of protection.

Despite rising fixed deposit interest rates, there were steady sales of non-par and par insurance products.

Unit-linked insurance product sales could also rise as equity market sentiment has improved.

Among listed players, HDFC Life delivered superior retail APE growth of 17.6 per cent (adjusted for the Exide Life merger) YoY in June ‘23, despite strong sales in Mar ‘23 and better than industry growth during FY24 on a year-to-date basis.

Max Life and IPRU also saw satisfactory retail APE growth, at 12.5 per cent and 12.3 per cent YoY, respectively, in June this year, driven by better performance in respective bank channels.

SBI Life reported low 5.2 per cent YoY retail APE growth in June ‘23, owing to a high base on account of strong sales of non-par products in June last year.

The listed private life insurers have seen a run up in share prices that anticipates the gain in market share and perhaps some relief that the tax imposition hasn’t derailed growth. HDFC Life, IPRU, Max and SBI Life have all seen run ups and some analysts are now suggesting that LIC is below fair valuations.

According to Bloomberg, the majority of analysts polled in July are bullish on these stocks – there is only one ‘sell’ recommendation for LIC and one ‘neutral’ rating each for the private insurers (except SBI Life).

Going by their target prices, HDFC Life is fully priced, while there is some upside (5 per cent) left in IPRU, 16 per cent in LIC, 18.5 per cent in SBI Life and 20 per cent in Max Financial.