Published on 8/08/2022 3:04:18 PM | Source: Motilal Oswal Financial Services

Insurance Sector Update - APE growth steady; VNB margin improves, driven by change in product mix By Motilal Oswal Financial Services

Posted in Broking Firm Views - Sector Report| #Insurance Sector #Sector Report #Motilal Oswal Financial Services Ltd

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Non-par savings segment continues to witness strong demand

* APE growth remained healthy, between 15% and 78% YoY, for all industry players. SBI Life was the outlier with robust growth momentum of 78% YoY in APE compared with 22%/25%/15% for HDFC Life/IPRU Life/ Max Life, respectively.

* Retail protection was weak for the industry during 1QFY23. However, group protection was strong, fueled by improved disbursement momentum across lending institutions. This ensured growth in overall protection in the range of 15-45% YoY in 1QFY23. Most of the players expect demand in individual protection to bounce back from 3QFY23 onwards.


* While group protection was strong for all players, we saw divergent trends in retail protection. HDFC Life/Max Life reported a decline of 28%/19% in retail term while IPRU Life also reported a decline due to reducing fear of pandemic and mortality along with a high base of last year. However, SBI Life was an outlier as its retail term jumped 54% YoY in 1QFY23 driven by its strong focus on deepening penetration of protection business in own customer base. Please refer to Exhibit 5 for more details.


* Within savings segment, non-par savings remained a strong growth area and witnessed robust momentum. The benefit of higher interest rate was passed on to consumers as most players offered a higher IRR on their products while maintaining margins. Non-par savings surged 15-394% YoY for top private players. The segment has been a strong focus area in the last few years and has reported a CAGR of 48% to 272% between FY19 and FY22. Kindly refer to Exhibit 1 for more details.


* Annuity business continued to report healthy trend. It offers a multi-decade growth opportunity driven by improving life expectancy, rising awareness and higher disposable income in the hands of population at large. IPRU/HDFC Life saw strong growth of 69%/42% YoY, respectively, while SBI Life was flat YoY. Please refer to Exhibit 2 for more details.


* ULIP growth, surprisingly, remained healthy with 11-33% YoY growth despite volatile capital markets.


VNB margin expanded in the range of 60-670bp YoY across the top private players. The YoY margin expansion was primarily driven by a better product mix with a larger share of high-margin products. With this, VNB margin was the highest for IPRU Life at 31.0% followed closely by SBI Life at 30.4%. SBI Life also reported the sharpest jump of 670bp YoY and ~360bp QoQ in its margin during 1QFY23. However, sequential margin trend was mixed with a contraction in margins of HDFC Life and Max Life. SBI Life and IPRU Life, conversely, posted an improvement sequentially.


Persistency trends improved: Most of the insurers reported an improvement in persistency trends both on a yearly and sequential basis. However, Max Life faced some challenges and witnessed moderation in persistency sequentially in the range of 100-400bp.


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