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Business News/ Markets / Mark To Market/  Life insurers hold on to biz growth in Dec; investors eye profitability boost

India’s private sector life insurers have more than made up for the pandemic hit of the first quarter, latest business growth metrics from the regulator show. For December, private life insurers reported new business premium growth of 22%, while Life Insurance Corp. of India Ltd (LIC) reported a decline of 15%.

This takes the business growth for the nine-month period of FY21 to 6.5%, which is decent given the massive contraction seen in the first quarter. Insurers seem to have got back their mojo in the ensuing two quarters.

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That said, the outcome has not surprised investors as the surge in stock prices shows. After all, Indians have turned more willing buyers of life insurance amid the covid-19 pandemic. Ergo, the growth has been largely driven by retail new business premium. Individual new business premium (both single and non-single) grew by 9.15%, showed the regulator’s statistics.

But there is a small factor to worry about for investors. Growth in new business has been completely led by the increase in single premium policies. This category grew a whopping 46% year-on-year in December and 40% during the April-December period. Single premium policies are typically market linked and are subject to volatile market conditions. Adverse market conditions mean the surrender ratios here may be higher than other insurance plans.

Low growth of 2.2% in non-single premium business shows that the growth in protection business is slowing down, according to analysts at Motilal Oswal Financial Services Ltd. However, the trend still remains healthy.

“For private insurers, while individual un-weighted non-single premium grew 2.2% y-o-y in December, individual sum assured declined 14.3% y-o-y. Even for total un-weighted single premium, growth in sum assured at 36.8% y-o-y was lower than the 46.1% y-o-y growth in premium," they wrote in a note. Slower protection business growth does not augur well for margins and profitability.

Overall, listed private sector life insurers have performed well in December. The retail weighted received premium (RWRP) for private insurers has grown by 3% in December, point out analysts at Jefferies India Pvt. Ltd. “Steep month-on-month growth of 55-60% for industry/private players indicates sequential improvement and seasonality," they wrote in a note.

Those at Motilal Oswal Financial Services Ltd expect growth to continue to be strong in the fourth quarter, helped by a low base.

HDFC Life Insurance Co. Ltd is expected to report 14% growth for FY21, while the largest private sector insurer, SBI Life Insurance Co. Ltd, may see 5% growth.

In December, SBI Life reported 12% year-on-year growth in new business premium.

SBI Life continued to be the market leader and the largest player although growth was slower than the industry. Rivals HDFC Life and ICICI Prudential Life Insurance Ltd reported higher growth.

Shares of listed private life insurance companies gained more than 1% on Monday and rose by 18-26% in the past three months. Analysts say current valuations reflect much of the expected positive growth metrics for listed insurers

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Updated: 11 Jan 2021, 09:30 PM IST
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