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The life insurance industry posted 10.5% year-on-year growth in retail annualized premium equivalent (APE) in February, according to a report by Emkay Global. While the brokerage expects decent growth for March, however, expects 14-15% growth in retail APE for the full year FY23. Because of this, brokers expect life insurance stocks to be range-bound for the near future. So which life insurance stocks to buy this month?
The life insurance industry posted 10.5% year-on-year growth in retail annualized premium equivalent (APE) in February, according to a report by Emkay Global. While the brokerage expects decent growth for March, however, expects 14-15% growth in retail APE for the full year FY23. Because of this, brokers expect life insurance stocks to be range-bound for the near future. So which life insurance stocks to buy this month?
In its latest report, Emkay said, the life insurance industry posted Retail APE growth of 10.5% YoY for Feb-23, with the Private sector growing by 18.2% and LIC retail APE declining by 3% YoY over the same period. Divergent growth trends for the month led to an increasing divergence in Retail APE growth for YTDFY23, with the private sector at 18.1% YoY versus LIC at 9.3% YoY.
In its latest report, Emkay said, the life insurance industry posted Retail APE growth of 10.5% YoY for Feb-23, with the Private sector growing by 18.2% and LIC retail APE declining by 3% YoY over the same period. Divergent growth trends for the month led to an increasing divergence in Retail APE growth for YTDFY23, with the private sector at 18.1% YoY versus LIC at 9.3% YoY.
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It added that the muted event for Feb. 23 resulted in moderate YTDFY23 retail APE growth for the industry to 14.9% YoY on Feb. 23, from 15.4% on Jan. 23. The developments were as expected, as Emkay has maintained overall industry retail APE growth of 14-15% in FY23, with the private sector delivering high youth growth and LIC at ~10% growth.
According to the brokerage, retail APE growth in February was largely driven by size growth, with the overall average ticket size for Retail Premium Regular policies growing by 32% YoY. Here, LIC posted more than 24% growth, while private life insurance recorded growth of around 17% YoY.
It said, “This growth leading to ticket size should be seen in the context of possible pre-ordering of the high ticket non-ULIP policy (>Rs5lakh) in Feb-March 2023, to avoid the impact of taxation changes as proposed in the union budget of FY24.”
Furthermore, in February, among private listed players, HDFC Life was the star performer with strong growth of 27% in retail PE, while it posted 19% and 8% growth in ticket size in policy terms. Meanwhile, ICICI Prudential Life recorded a growth of 10% in retail APE, and 20% in ticket size, but there was a decrease of 9% in policy calculations.
Max Life posted growth of 7% in retail APE and 15% in ticket size but decreased by 7% in policy calculations in February 2023. As for SBI Life Insurance, the company witnessed weak performance in retail APE, while ticket size posted a marginal increase of 1 %, however, a 1% reduction is seen in policy calculations.
In Emkay’s view, these numbers reflect the favorable appeal of the high ticket guarantee products for HDFCLIFE, IPRU, and MAX Life, likely supported by higher warranties and an aggressive marketing campaign. The figures also point to a possible sluggishness in growth for Max Life on Axis Bank’s channel and for IPRU on ICICI Bank’s channel. For SBILIFE, fixed ticket size reflects the relatively weaker traction of high ticket guaranteed products.
For FY24, Emkay said the Government of Indonesia is proposing lifting the tax exemption on Maturity proceeds from Non-ULIP policies purchased after April 1, 2023, with an aggregate annual premium above Rs5lakh. Against the backdrop of the Budget, the industry, especially private players, is expected to continue witnessing strong growth on March 23, led by strong sales of the tax-free high ticket size policy through March 31, 2023. Given these developments, therefore, the focus is now shift to FY24.
However, the report also adds, although the impact of selling policies requiring >Rs5lakh in premiums is estimated to be in the range of 2-15%, the main concern is now on what changes life insurers are bringing to their product mix which, in turn, will affect the VNB margin.
Overall, Emkay expects life insurance stocks to remain range-bound in the near term, supported by valuations amid the current uncertain environment, with the effects of the changes visible and measurable in H2FY24.
Therefore, Emkay has set targets on listed life insurance stocks:
– HDFC Life Insurance: “Hold” rating for target price of Rp560.
– Life Insurance Company of India (LIC): “Hold” rating for a target price of Rp700.
– ICICI Prudential Life Insurance: “Buy” rating with a target price of Rp510.
– Max Financial Services: “Buy” rating with a target price of Rp880.
– SBI Life Insurance: “Buy” rating with a target price of Rp1400.
Disclaimer: The views and recommendations made above are those of individual analysts or brokerage firms, and not those of Mint. We advise investors to consult a certified expert before making any investment decisions.
