Life Insurance business recovers in June

Last updated: 15 Jul, 2020 | 12:11 pm

Life Insurance business recovers in June

Life Insurance Sector Outlook

  • The insurance penetration remains very low in India at about 3.7% of the gross domestic product (GDP), as against the world average of about 6.31%
  • The life insurance sector, consisting of 24 players is growing at an average of 12 per cent per annum for the past few years. Out of this, LIC remains the single largest Life Insurer with a market share of more than 74%.
  • While the last quarter of the year is generally a strong growth period for life insurance firms as taxpayers rush to buy policies to get tax exemption, Q4FY20 results were weak  due to the lockdown imposed on March 24th to contain the spread of the pandemic. The table below shows Q4FY20 net profit for listed Life Insurance players.

Recovery in June

  • New Business Premium improves: Life insurers had seen their new business premiums (NBP) decline 32.6% and 25.4% in April and May, respectively. The decline in April and May was because insurers couldn’t sell policies through their agency and bancassurance channels because they remained shut in April and most of May. There was a significant recovery in June, where the NBP of life insurers contracted 10.46% (YoY). The table below shows NBP figures for listed companies including HDFC Life, ICICI Prudential Life, SBI Life and Max Life.
  • Despite the recovery in June, the Life Insurers saw their NBP decline 18.46% to Rs 49,335.43 crore in Q1FY21 versus Rs 60,637.22 crore in Q1FY20.

INDwealth Analysis

  • While there has been a significant recovery in business compared to the months of April and May, the life insurers still have some catching up to do when compared to previous year.
  • The current crisis has opened up an opportunity for these insurers, as demand for pure protection plans has gone up since the outbreak of the pandemic. Life Insurance companies are expected to be key beneficiaries of this huge rise in demand. 
  • In fact, all the listed players have gained by more than 60% on expectations of higher demand. The chart below shows the run-up in share prices since the lockdown was imposed on March 24th. 
  • Given India’s huge under-penetration, insurance remains a sector with good potential for growth.  

Our VGQM stock analysis model has the following recommendations.

  Buy: HDFC Life Insurance.

 Hold: SBI Life Insurance and Max Financial Service

 Sell: ICICI Prudential Life Insurance.

Please find your exposure to ICICI Prudentual Life, HDFC Life, SBI Life and Max Financial Services through equities and mutual funds. (listed below)

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