Private sector insurers have seen their stocks lose some shine this week, a surprise since monthly data issued by the regulator a few days ago indicates that growth momentum is intact for their business. Private sector insurers have been eating into public sector behemoth Life Insurance Corporation of India’s (LIC’s) market share for many years now. In October, their market share went up by 3.9 percentage points.

The year-on-year growth in annualized premium equivalent (APE) for these insurers was an impressive 18% in October. Indeed, insurers have been able to sell policies faster and faster every month.

Given that the retail business is the biggest chunk, individual APE growth of 17% was the key reason but the 54% jump in group APE gave a big push to the overall business.

What is interesting is how individual private sector insurers fared. Among the top five firms, ICICI Prudential Life Insurance Co. Ltd seems to be the worse off. The insurer saw a 17% drop in its individual APE for October and 10% fall in the first seven months of FY19. The reason was its focus on small-ticket policies. Indeed, the insurer’s average policy size came down by 11% from a year ago. Other smaller insurers like Aviva Life Insurance Co. India Ltd and Star Union Daiichi Life Insurance Co. Ltd also reported a fall in individual APE, led by a reduction in average policy size.

Largest private sector insurer SBI Life Insurance Co. Ltd continued with its trend of a healthy growth in individual APE of 17%. HDFC Standard Life Insurance Co. Ltd was a surprise with a 37% growth. Its stock enjoys a lofty valuation in comparison to its peers. The latest growth numbers add to the shine of its September quarter results, wherein the insurer overshadowed its peers in profitability as well.

But what investors like is not the growth numbers raked up by the insurance companies but how much profitability they can squeeze out of this growth. In this regard, insurers like HDFC Standard Life have stood out. That said, the third quarter of a fiscal year is typically lean for insurance firms and hence opportunities to squeeze out profits could be fewer for all and sundry.

Investors would look for confirmations about the profitability of private sector insurers in the coming quarters to take a call on their valuations.

As for insurance behemoth LIC, it is losing market share hand over fist to the private sector. This ceding of market share comes at a time when the insurer has willingly saddled itself with supporting sick public sector lender IDBI Bank Ltd. LIC’s growth is stagnating and this would reflect in its earnings. The added burden of infusing capital into IDBI Bank is a weight that LIC may soon find heavy.

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