Q2 ushers in better profits for pvt insurers and swift revival for LIC2 min read . Updated: 15 Oct 2020, 09:45 PM IST
Recovery has been sharper for HDFC Life Insurance, SBI Life Insurance Ltd, and Max Life Insurance Ltd, while ICICI Prudential Life Insurance Ltd has continued to lag behind
India’s life insurers have had an impressive recovery in the second quarter of FY21. New business premium has grown year-on-year (y-o-y) for private sector insurers after a sharp contraction in the June quarter.
Recovery has been sharper for HDFC Life Insurance Ltd, SBI Life Insurance Ltd, and Max Life Insurance Ltd in the September quarter, while ICICI Prudential Life Insurance Ltd continues to lag.
The recovery augurs well for the profitability of life insurers, said analysts. The gradual unlocking of the economy has helped life insurers get new customers. The fact that a pandemic has made Indians aware of the importance of health and life has only worked to the advantage of insurers.
Data from the Insurance Regulatory and Development Authority of India (Irdai) shows that there has been a sharp recovery during the three months ended September.
Public sector insurance behemoth Life Insurance Corporation of India (LIC) has also shown an encouraging recovery. Its new business premium growth was 30% in September, second only to HDFC Life.
Given the size of LIC, the business recovery is significant. Even so, the insurer, which may get listed this year, has seen the worst contraction so far in FY21 because of a big hit in the first quarter.
Private sector insurers are expected to show improvement in profitability metrics such as value of new business and margins. However, there is likely to be wide divergence between players. Jefferies India Pvt Ltd analysts expect margins to improve the most for HDFC Life, while ICICI Prudential Life is likely to see marginal improvement.
“Max Life and SBI Life may also see a decline in value of new business, but their margin trends have seen a bit of volatility," said the analysts.
This divergence would be driven by the product mix. For instance, HDFC Life’s profitability improvement could be higher because of its participatory products and higher growth in protection business.
ICICI Prudential Life is expected to struggle with its margins, as well as its business growth, primarily because of the continued stress in its market-linked products.
The country’s largest private sector life insurer, SBI Life, may see modest business growth in annual premium equivalent, but margins may improve. SBI Life’s biggest benefit is a low-cost, high-distribution network that has kept its cost ratio under check. Even so, its margins are expected to continue to trail that of rival HDFC Life.
Even as the September quarter expectations are sanguine for life insurers, business in terms of APE has remained in contraction mode.
This is expected to weigh on the shares of life insurers in the coming months.