Insurance companies can provide cover to investors in tough times

Firms will gain if they do a balancing act between claims and income

The insurance sector can show growth during a recession but claims may also rise. A policy is like an option. An insurer accepts a premium upfront: The payout if the claim is triggered is many multiples of the premium, but if a claim is not triggered, the premium provides very cheap, or free money, to be deployed for a very long-term.

The pandemic has led to more than normal claims for life and health. But part of the scale of health and mortality claims may be offset since the umbrella Ayushman Bharat is mostly state-supported. The pandemic has also expanded the market for life and medical insurance. For vehicle insurance, the trend is different. There are fewer claims because traffic and accident rates have declined. But vehicle sales have also reduced, meaning slower growth in premia.

Over FY20 and FY21, the life insurance premium increased 11 per cent and non-life did even better. But the number of life policies fell 21 per cent YoY in 2020-21, even as the value of premia collected rose 7.5 per cent. The value of life insurance claims also rose 36 per cent (March 2020-December 2020) compared to the same period of 2019-20.

In April 2021, gross premia written by non-life insurance companies rose over 22 per cent YoY to Rs 17,310 crore versus Rs 14,174 crore in April 2020. The five standalone health insurers saw a 56 per cent jump in gross premia at Rs 1,259 crore versus Rs 809 crore. Life insurers saw 44.8 per cent YoY growth in first-year premia to Rs 9,379 crore versus Rs 6,728 crore. This is encouraging even though April 2020 was a low base.

In Q4FY21, ICICI Prudential Life reported a 64 per cent YoY drop in net profit due to higher provisioning for pandemic-related claims to Rs 64 crore, from Rs 179 crore in January-March 2020. The FY21 net profit dropped to Rs 960 crore, from Rs 1,069 crore a year ago.

ICICI Pru also registered a Rs 7,400-crore gain from investment income against a loss of Rs 18,000 crore in Q4FY20. It made a net payout of Rs 265 crore for 205 death claims. The excess provisioning of Rs 200 crore takes total provisioning to Rs 300 crore. New business premia (first-year premia) rose 26 per cent to Rs 591 crore and AUM grew 40 per cent to Rs 2.14 trillion.

SBI Life Insurance registered a net profit of Rs 532 crore in Q4FY21, a marginal rise over the Rs 530 crore in the same quarter of 2019-20. For the full year, the net profit stood at Rs 1,456 crore, while new business premia rose to Rs 20,624 crore, from Rs 16,592 crore in 2019-20.

HDFC Life posted a 2.3 per cent YoY rise in its Q4 net profit at Rs 319 crore. It collected new premia (individual plus group) of Rs 20,107 crore versus Rs 17,239 crore a year ago.

Over the past month, shares of HDFC Life have slid 2 per cent, while ICICI Pru is up 24.9 per cent and SBI Life is up 14.7 per cent.

If the business trends hold, claims will stay elevated in 2021-22 but premium growth will also accelerate. Insurers may actually gain if they can manage a delicate balancing act.