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NEW DELHI : Emkay Global Financial Services has come up with a report on the growth prospects for the life insurance companies in the listed space. The analysis period is from 2020-2030.

The favourable underlying demand factors for life insurance will lead to an overall premiums growth of ~15% annually for the next decade, leading to ~4x increase in total life insurance premiums to 24 lakh crore by FY31.

In FY01-11, premiums had grown at a surprising 24% CAGR and then followed with an anaemic ~8% CAGR in the next 10 years. However, Emkay Global is now more confident of growth in the future due to a number of underlying factors.

#The last slowdown was driven by large changes in product regulations. Now, with the majority of the changes done, a stable regulatory environment is expected.

#Nominal GDP per capita has crossed ~$2,000 levels and this journey of nominal GDP growing from ~$2K to $5K (FY31), should lead to significant savings and investment ability for masses.

#Tailored product offerings by insurers in mortality protection and retirement savings segment should help them differentiate their products from other financial products.

#Continued positive perception of insurance as savings and an investment tool (as reflected in Sebi investor surveys).

#This growth in premiums will be an outcome of increasing count of policy in-force and increasing average ticket sizes (an outcome of nominal ticket size increase on a like-to-like basis and gradually increasing share of high-ticket retirement savings products).

Source: IRDA, Swiss Re, Emkay Research
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Source: IRDA, Swiss Re, Emkay Research

The Indian life insurance sector—two decades after its liberalization—is at an inflexion point. It is set to enter into a multi-decade growth rebound era, powered by economic growth and favourable demographic changes amid very high and rising mortality protection gap and Longevity (Retirement) savings gap.

As per the report, India has one of the highest and fastest growing Mortality protection and Retirement funding gaps in the world. India’s mortality protection gap stands at ~$16.5tn and is compounding at ~7% over 2020-30E, but accounts for only 83% of what is needed. Meanwhile, the retirement funding gap is expected to reach $85 trillion by 2050, at a CAGR of ~10%. These dual challenges provide life insurers a significant multi-decadal growth opportunity. These structural growth drivers should ensure that the life insurance sector will continue to deliver >15% total premium CAGR in the next two decades. In our view, the formidable combination of brand and the distribution reach, coupled with innovations in offerings, should help large private players continue to gain market share with better profitability as the benefits of product mix changes and operating leverage kick in.

20%+ VNB CAGR over medium term: Helped by the favourable base from FY21, private life insurers should post strong new business growth in FY22. However, beyond FY22, the underlying structural demand factors should help them deliver >15% growth. This, along with a gradual margin expansion arising from product mix changes and operating leverage, should propel VNB growth to >20%.

Stock preference: SBI LIFE is the top pick, for which Emkay sees a very strong VNB compounding in the next three years, driven by the core distribution channel of SBI and agency-driven expansion. HDFC LIFE should continue its consistent compounding, led by innovative products. Max Life is expected to witness a continued stable growth to more than offset any potential Axis Bank-related stake dilution. Emkay rates ICICI Prudential as Hold as it believes with margin profile stabilization, ICICI Pru will require strong topline growth to sustain the VNB growth momentum of recent years.

 

Source: Emkay Research
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Source: Emkay Research
Source: Emkay Research
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Source: Emkay Research
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