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Home >Markets >Mark To Market >SBI Life and HDFC Life show lockdown hit in Q1, ICICI Prulife fares better

The weak first-quarter show from India’s private sector life insurance companies was along expected lines as the nationwide lockdown made premium collections challenging and hit product sales.

All three life insurers saw their value of new business plummet as the pandemic and the ensuing lockdown crippled sales and premium collections.

The largest private insurance company, SBI Life Insurance Co. Ltd, reported a 29% fall in its value of new business, while the most valuable, HDFC Life Insurance Co. Ltd, reported an even steeper 43% fall.

Business growth in terms of annualized premium equivalent (APE) dropped sharply for the insurers, with ICICI Prudential Life Insurance Ltd reporting the sharpest fall of 44%.

Analysts expect growth to be challenging for FY21.

“We expect a 2-19% decline in APE for life insurers in FY2021E (down 2% for HDFC Life, down 19% for ICICI Prudential Life and down 8% for SBI Life) owing to lower volumes in 1QFY21 and pressure on ULIPs," analysts at Kotak Institutional Equities wrote in a note.

While business growth is crucial for insurance companies, another way an insurer can protect its earnings in the wake of low growth is pricing.

Here is where SBI Life showed some weakness.

Analysts at Jefferies India Pvt. Ltd said the benefit from increased protection plan sales was offset by the fall in rates in guaranteed return products. Even HDFC Life has increased exposure to guaranteed products, the 25% share in APE being highest among peers. On the other hand, ICICI Prudential Life has reported a fall in guaranteed products’ share.

While insurers have focused on pushing protection plans, the share of the products have fallen. For HDFC Life, only 13.6% of its new business came from protection plans, a sharp fall from the 25.8% share a year ago. The share of protection for SBI Life was down from 14% a year ago to 10%.

Hence, life insurers reported contraction in their value of new business (VNB) margins.

SBI Life’s VNB margin contracted by a massive 126 basis points, while that of HDFC Life eroded by 27 bps. ICICI Prudential Life reported an improvement of 61 bps in margins.

Notwithstanding the raging coronavirus pandemic, Indians are more likely to conserve cash rather than save it for the future. Ergo, analysts expect business to recover slowly for insurance companies.

After the removal of the nationwide lockdown, life insurers have seen a bounce back in collections. But regional lockdowns have posed a new challenge. Perhaps, the uncertainty due to them has made investors jittery. Shares of SBI Life Insurance Co. Ltd and HDFC Life Insurance Ltd fell 3.3% and 2.5%, respectively, on Wednesday. ICICI Prudential Life saw a smaller drop of less than 1%.

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