Life Insurance industry in India is comprised of 24 players with public sector Life Insurance Corporation of India (LIC) as the market leader while several private players have tried to garner new business through innovative distribution channels such as tie up with banks. Despite the competition posed by the entry of new players in recent years, India’s insurance industry suffers from under-penetration with over 92% of population still not covered.
The analysis and outlook on insurance industry for 2018 and beyond is mixed in nature with some pessimistic reports and some painting a positive growth possibility. Increasing disposable income and savings, need for risk mitigation on longer life span and increasing value of new business (VNB) margins may help raise the growth prospects. Tie up with bancassurance partners may also help private insurers show healthy growth.Amidst the mixed trends seen in the industry, here is a look at the three listed players:
SBI Life Insurance Ltd (BSE:540719 NSE: SBILIFE)
SBI Life Insurance is a joint venture between State Bank of India and BNP Paribas, a leading global insurance company. It offers individual and group protection plans. There are life insurance with critical illness cover, wealth generation plans, savings plans. In 2017-18, assets under management (AUM) reached Rs 1,01,226 cr. The company has a pan India presence with a network of 801 branches. Renewal premium collections rose to Rs 10,871 Cr in FY 17.
In September quarter, net profit rose 5.97% on annualised basis to Rs 225.47 cr while sales rose to Rs 7734.54 cr showing a growth of 0.20%. Growth in first year premium and renewal premium is also impressive.
On a returns perspective, 7.65% quarterly beats Nifty returns while on a monthly basis it trails industry average. On a comparative basis return on equity of 17.19%, on assets of 1.87% is below peer average while net profit margin of 90.38 fares better than peers, liquidity ratios are cause for concern while cash flow ratios are better. It is trading at a Price Earnings multiple of 74.21 indicating higher valuation by market.
On technical charts, Relative Strength Index (RSI) of 60.68 is bullish while MACD line has just witnessed a crossover and looking for a possible change in direction while Average Directional Index (ADX) of 13 indicates range bound trading. The scrip is witnessing an uptrend and likely to hit 800 levels on better fundamentals.
Target: 750 Duration: 4 weeks
#HDFC Standard Life Insurance Co Ltd (BSE:540777, NSE: HDFCLIFE)
HDFC Standard Life established in 2000 is a leading life insurance company promoted by HDFC, the leading housing finance institution and Standard Life Aberdeen Plc . It offers a range of individual and group insurance plans with protection, pension, savings, investment and health, children’s and women’s plan. It has a pan-India presence with over 414 branches and spokes and 11,l 200 branches across India of its top bancassurance partners.
In 2016-17, the company witnessed strong premium growth at Rs 19,445 cr from Rs 16,313 Cr in the previous fiscal, assets under management (AUM) rose to 91,742 cr from Rs 74,247 cr the previous year and net profit rose to Rs 892 cr from Rs 818 cr. Overall new business margins rose to 21.6% from 19.9%.
Deepak S Parekh had pointed out that the company is getting stronger on both digital distribution and physical distribution network with growth in Bancassurance, Direct sales and through brokers.
The proposed merger of HDFC Life with Max Life didn’t happen last year.
In December quarter, net profit rose 14.78% to Rs 207.32 cr while sales fell 4.16% to Rs 149.88 cr. On a returns perspective, 21.47% monthly is above Nifty average while financial parameters are comparable with that of industry average.
Return on equity of 23.37, assets of 1.55, net profit margin of 87.24% and has zero debt adding strength to the venture. It is trading at a PE of 91 suggestive of higher valuation by market.
On technical charts, RSI of 61.94 is bullish while MACD has witnessed a bullish pattern and ADX of 54 indicates uptrend.
Target: 480 Duration: 3 weeks Strategy: Hold/Sell.
#ICICI Prudential Life Insurance Co Ltd (BSE: 540133 NSE: ICICIPRULI) Category: Large Cap
ICICI Prudential Life Insurance was established in 2000 as a joint venture between ICICI Bank and Prudential Corporation Holdings Ltd. In FY 15, the company became the first private life insurer to attain AUM of Rs 1 trillion. It was the first insurance firm to be listed in BSE and NSE.
The VNB margin has nearly doubled form 5.7% to 10.1 % in the past two years and the company is focussed on increasing digital marketing and sales.
It is trading at a PE of 37 indicating a moderate valuation by market. The company reported 0.46% growth in net profit in Q3 at Rs 452.10 cr while sales fell 1.08% to Rs 490.18 cr. On a returns perspective, 11.13% monthly, 12.45% quarterly beats Nifty returns and industry average and has excellent financial parameters with return on equity of 26.25%, on assets of 1.84%, net profit margin of 93.50 and strength in liquidity, cash flow ratios.
On technical charts, RSI of 69.67 is bullish while MACD has witnessed a bullish crossover indicating a buy and ADX of 25.31 indicates range bound trading.
Target: 475 Duration 6 weeks Strategy: Buy/Hold
Life insurance industry was monopolised by Life Insurance Corporation until the early 2000s and in the past 15 years several private players have established their presence with new offerings such as ULIPS and attractive investment plans. The industry is expected to witness sustained growth on the twin advantages of savings and protection offered by the schemes.
With Sum Assured to GDP ratio at 67% compared to 200% in US, there is ample room for growth. India has a larger Mortality Protection Gap estimated at Rs 8.56 trillion. Mortality Protection Gap represents the different between the income required by a family to maintain their living standards and the resources available with them in case of unfortunate death of a wage earner. Some of the companies are focussed on better agent training, productivity and providing newer tools to agents to acquire and serve more customers. Such efforts can minimise mis-selling by agents and emergence of digital payment options and online marketing helps in increasing the penetration of life insurance products. Some consolidation is expected in this sector although HDFC Life -Max Life merger didn’t happen last year.