Top three private insurers outperform market estimates, say analysts

Strong bancassurance networks, improved agency productivity, and the push towards a digital environment will give the country’s top listed private life insurers the fundamentals to continue outperforming the market’s estimates, say analysts. 

New business margins for the top three listed private life insurance companies have improved in 2016-17 and 2017-18, with analysts expecting growth in margin expansion to slow over the next few years. 

However, analysts say, the fruits of digitisation, which will provide a boost to insurers’ sales and operating efficiencies, are yet to be realised. But losses in mass public insurance schemes on account of extraneous factors can dampen the momentum. 

Yashish Dahia, chief executive officer of Policybazaar, told Business Standard: “Over the past year we have seen these companies come up with exciting products and offers. In terms of products we see more and more term plans and unit-linked insurance plans being sold.”

The table above shows the performance of three life insurance companies: HDFC Standard Life (HDFC Life), SBI Life Insurance (SBI Life) and ICICI Prudential Life (IPRU).

The premium revenue of HDFC Life grew 21.2 per cent to Rs 235.6 billion at the end of 2017-18 over 2016-17, and the insurer’s profit after tax (PAT) increased by 24.3 per cent to Rs 11.1 billion in 2017-18.

Premium from new businesses grew to Rs 113.5 billion, and new business margins increased by 120 basis points (bps) to 23.2 per cent at the end of 2017-18. 

A SBICap Securities report says the company’s growth in margins “was largely driven by increased protection offsetting the negative impact of increased. The management remains committed to deliver profitable growth by leveraging its brand and distribution advantage and proactively investing in technology and people to drive future growth.”

Improved productivity and profitability in the individual agent channel have started giving results, says the SBICap report. 

The operating expense ratio of HDFC Life increased to 13.5 per cent in 2017-18 from 12.6 per cent in 2016-17. 

SBI Life saw its premium grow 20.7 per cent to Rs 253.5 billion at the end of 2017-18 compared to 2016-17, and profit after tax increased by 20.5 per cent to Rs 11.5 billion. 

SBI Life’s new business margins increased by 80 bps to 16.2 per cent at the end of 2017-18.

Avinash Singh, lead analyst with SBICap, along with other authors, said in a report: “The new business margin increased in FY2018 notwithstanding some negative impact from adverse mortality experience in One Year Renewable Group Term Assurance (OYRGTA) and Pradhan Mantri Jeevan Jyoti Bima Yojna (PMJJBY).”

The operating expense ratio has come down from 7.8 per cent in 2016-17 to 6.8 per cent at the end of 2017-18, despite the company investing heavily in information technology, digital services, and sales force expansion.

The premium revenue of ICICI Prudential Life increased by 21.1 per cent in 2017-18 to Rs 270.69 billion, but its PAT for the year decreased by 3.7 per cent to Rs 16.2 billion.

And new business margins for ICICI Prudential Life increased by 640 bps to 16.5 per cent at the end of 2017-18.

ICICI Prudential Life, unlike the other two companies, is the only insurer whose solvency ratio deteriorated over the year by 29 bps to 252 per cent. 

The increase in the new business margins was “propelled by a rejig of the product mix towards increased protection products, reduction in expenses, improved profitability of ULIP and Par saving products, and changes in corporate taxation assumption,” says an SBICap report.

An analyst at a financial securities company said: “Compared to HDFC Life, the other stocks are relatively inexpensive. The market tends to place higher valuations of HDFC Group companies, whether it is the parent company, the bank or other arms.”

In terms of stock performance, HDFC Life’s stock price closed at Rs 498 on the BSE on Friday. Compared to its listing price of Rs 290, the stock has gained over 71 per cent to date. 

SBI Life’s stock has gained 0.15 per cent compared to its listing price of Rs 700 and closed at Rs 700.90 on the National Stock Exchange on Friday. 

However, the company’s earnings per share stand at Rs 11.5 compared to HDFC Life’s Rs 5.5.

ICICI Prudential’s stock closed at Rs 434.95 on BSE, a growth rate of 30.2 per cent over its listing price of Rs 334.