Life insurance stocks: Concerns may be priced in; analysts 'optimistic'

While they are trading at substantial discount to their average historical multiples, data shows there is pickup in business in May

The change in tax regulations bringing high value policies with premiums exceeding Rs 5 lakh under the income tax net was expected to impact the life insurance industry badly. Two months into the new financial year, data suggests there was a reasonable pickup in May 2023, after a flat April 2023. 

Private life insurers reported 10 per cent year-on-year (YoY) Annual Premium Equivalent (APE) growth in May, following April which didn’t have healthy numbers.

Month-on-month (MoM), May grew by 42 per cent over April. The YoY calculations were on a high base since May’22 showed a high 101 per cent growth over May’21. The 4-year compound annual growth rate (CAGR) was moderate for May 2023 -- at 11 per cent -- which was similar to April 2023.

Average ticket size was flat with variations of minus 2 per cent to 4 per cent. There was better growth in retail than in the group segment. Overall APE growth was 3 per cent with 6 per cent decline at LIC of India (LIC) in May, the national insurer also saw declines in April. Growth in policy numbers could indicate families spreading premium exposure across different members to stay inside the Rs 5 lakh tax ceiling. 

ICICI Prudential Life (IPru) reported 8 per cent growth in individual APE ex-ICICI Bank channel. Overall APE was down 1 per cent with a modest 4 per cent growth in individual APE due to muted performance of the ICICI Bank channel. Average ticket size was flat on YoY basis.

HDFC Life’s individual APE grew at 10 per cent YoY with 48 per cent growth in group APE. Overall, APE growth was 14 per cent YoY. Policy numbers saw 29 per cent YoY growth.

SBI Life was up 15 per cent in APE in May 2023, with 8 per cent growth in individual APE compared to a very high base. On a 4-year CAGR basis, APE growth was moderate at 13 per cent for the insurer.

Max Life saw weak performance, with 2 per cent growth in individual APE and 3 per cent in overall APE, maintaining 13 per cent APE CAGR on a 4-year basis. This may reflect slow performance in the Axis Bank channel. The firm also reported 11 per cent growth in the number of policies. 

Among other private players, Bajaj Life saw 18 per cent growth in individual APE but 58 per cent decline in group business with overall APE up 2 per cent in May 2023. Aditya Birla Sun Life Insurance was up 33 per cent in individual APE and Tata AIA up 21 per cent in individual APE.

Analysts who are optimistic point to the following factors: The sum assured trends show 45 per cent and 26 per cent YoY growth, respectively, for private insurers in FY24 for total and individual sum assured, which can be compared to the 3.5 per cent and 5.1 per cent, respectively, growth reported in total and individual APE. This indicates growth in protection. 

The strategy of trying to grow policy numbers, rather than ticket-size, will continue. The full-year guidance of companies indicates expectations of steady growth in FY24.  

The business of HDFC Life and SBI Life have already recovered to pre-Budget levels while IPru Life’s is up 10 per cent and LIC’s is down 7.5 per cent.

HDFC Life reported an impressive 9.8 per cent YoY (adjusted for the Exide Life merger) growth in retail APE in May 2023. SBI Life also did well. But IPru and Max Life were weak.

Listed life insurance stocks are trading at substantial discount to their average historical multiples. The challenges may be factored into the prices.