BackStocks of insurance companies in hot seat in financials space
The market capitalization of listed insurance companies—Bajaj Finserv, SBI Life Insurance, ICICI Prudential, ICICI Lombard and Max Financial—totals to Rs2.6 trillion
PremiumMumbai: With a slew of insurance companies listing on the bourses, it is the next hot space for investors in the capital markets as they place their bets on rapid growth in the sector, analysts and asset managers said.
The market capitalization of the companies in the listed space—Bajaj Finserv Ltd, SBI Life Insurance Co. Ltd, ICICI Prudential Life Insurance Co. Ltd, ICICI Lombard General Insurance Co. Ltd and Max Financial Services Ltd—totals to Rs2.6 trillion, and is around 5% of the total market cap of all Sensex companies.
Bajaj Finserv is the holding company that owns 55.1% in Bajaj Finance and 74% each in Bajaj Allianz General Insurance Co. and Bajaj Allianz Life Insurance Co.
The number is only going to surge going ahead, with two behemoths—New India Assurance Co. Ltd and General Insurance Corp. of India Ltd (GIC)—also aspiring to be listed soon. The valuation of GIC is pegged at Rs80,000 crore, at the upper end of the price band of the initial public offer announced by the company.
“The situation for insurers is similar to what it was when private banks got listed in the 1990s. Insurance companies are growing fast. Life and non-life businesses are growing 15-20% annually in terms of premium and which is expected to grow even faster," said Deven Choksey, group managing director at KR Choksey Investment Managers Pvt. Ltd.
“The insurance sector could see its underwriting business growing at 20% CAGR (compounded annual growth rate). Stock prices are a reflection of this. Fortunately, most of these companies have spent 10-15 years before getting listed. They will have a longer journey hereafter," added Choksey.
Others agree the industry is poised to see strong growth going ahead.
In a report on 18 September, SBICAP Securities Ltd said it expects the life insurance sector to witness a robust three times growth over fiscal years 2017-2025 and record Rs12.7 trillion of total annual premium by fiscal year 2025.
They see this growth driven by a confluence of factors, including a 25% increase in the working age population over 2015-2030, structural rise in financial savings (as a percentage of household savings), high protection gap of 92%, which should reduce to around 60% by fiscal year 2025, greater financial inclusion and rapid penetration of digital distribution.
SBICAP analyst Avinash Singh estimated the share of protection premium in total life premium to increase to around 11% by fiscal year 2025 from around 3% at present.
Brokerages have been upbeat on the prospects of the stocks of insurance companies.
Data from Bloomberg showed 13 of 18 analysts tracking ICICI Prudential Life had a “buy" rating on the stock, 10 of 12 analysts tracking Max Financial Services rated it a “buy", while 8 of 14 analysts tracking Bajaj Finserv were positive on it.
Fund managers were also optimistic.
“We are positive on this sector with financialisation of savings," said Ritesh Jain, chief investment officer, BNP Paribas Mutual Fund.
“Insurance is a pure liability business and it is very difficult to build liabilities franchise—be it banking, insurance or mutual fund. The problem with banks is asset business where there are no entry barriers hence banks are facing competition," said Jain.
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