India’s life insurers have shown a smart recovery from the covid-19 pandemic that hit businesses in the first quarter of FY21. But for their shares to reflect this, investors would prefer to wait for a few more months.
Latest data from the sector regulator shows that private life insurers saw their new business premium collection growing by 13.7% year-on-year (y-o-y) in August, much better than around 6% rise in July.
For the June quarter, private life insurers had seen a sharp contraction in new business premium. The improvement in July and August augurs well for insurers, but the key will be to sustain the numbers. The management commentary that followed June quarter results has been positive in terms of recovery. Within private players, HDFC Life Insurance showed a sharp recovery with 14% growth in individual annualized premium equivalent (APE). HDFC Life has been able to push its products more than peers and the HDFC Life Sanchay Plus insurance plan has helped.
For the first five months of FY21, the life insurer’s retail APE shrank 5.2%, the lowest among top private insurers. Peers SBI Life Insurance and ICICI Prudential Life Insurance saw contractions of 25% and 41%, respectively.
In all this, the surprise has been state-owned Life Insurance Corporation of India (LIC). LIC saw its new business premium grow 15% in August. For the first five months of FY21, LIC’s retail APE shrank by just 3.1%, far lower than most of its private peers. Analysts said that for FY21, private insurers may show a contraction in terms of market share.
“Market share of private players is likely to contract in FY21, but we expect a resumption of the trend of private players gaining share from FY22 onwards,” wrote analysts at Jefferies India Pvt. Ltd.
But LIC’s market share gain may not be based on an increase in business, but more because of a heavy loss of business for private insurers. Indeed, LIC’s growth in August was largely because of a low share of market-linked products in its portfolio.
“LIC’s strong growth was likely driven by traction in endowment and annuity-based products,” a Kotak Institutional Equities report said.
While the life insurance industry has bounced back, analysts are still cautious. Staggered lockdowns across several districts of the country could continue to pose a challenge for insurers. Moreover, the margin-friendly protection business has moderated from its peak levels, according to analysts at Kotak.
Shares of SBI Life and ICICI Prudential Life Insurance are still 15% down from their peaks this year, while that of HDFC Life are down around 5%. LIC’s market share gains, meanwhile, may augur well for its proposed initial public offering (IPO).