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Dec-22: Divergent growth trend among life insurers

The Indian life insurance industry reported satisfactory growth in new business for Dec-22, with retail APE for the industry growing at 11.9% YoY, marginally pushing down YTDFY23 retail APE growth to 16.1% YoY from 17.0% till Nov-22. The notable aspect of Dec-22 was the divergent growth trend between LIC and the private sector; and even within the private sector, players experienced wide divergence in growth. Among the listed private players, for Dec-22, SBI Life (+31% YoY) and HDFC Life (+23% YoY) delivered strong growth, whereas IPRU Life (-8% YoY) and Max Life (-10% YoY) reported a decline. For Dec-22, SBILIFE’s retail APE was the highest ever for a month and its retail APE market share reached 22%. LIC’s growth in retail APE for Dec-22 was muted at 3% YoY. Among the unlisted players, TATA AIA and Kotak Life have reported strong growth, whereas BALIC and SUD Life witnessed moderation. On net basis, Dec-22 performance resulted in 18.6% YoY retail APE growth for the private sector and 11.9% YoY growth for LIC on a YTDFY23 basis. Overall, 3Y retail APE CAGR for the sector in YTDFY23, at ~8.6% (Private sector: 13.2%; LIC: 1.7%), looks decent, considering Covid-19 affected two years. Overall, developments of Dec-22 reaffirm our view of 12-13% YoY growth in retail APE for the sector with the private sector delivering mid-teen growth and LIC growing in high single digits. Notwithstanding near-term noises, the private sector’s market leaders, powered by their formidable brand and distribution combination, are in a position to deliver robust growth in the medium term coupled with improving business margins. The recent underperformance of stocks in the life insurance sector and valuations turning more attractive offer a good opportunity to accumulate them. Our order of preference is SBILIFE (Buy), MAXF (Buy), HDFCLIFE (Buy), IPRU (Buy), and LIC (Hold).

Overall decent show, but widely divergent performance across players: The life insurance industry delivered decent growth in retail APE for Dec-22 at 12% YoY, leading to a marginal decline in YTDFY23 retail APE growth at 16.1%. The notable feature of Dec-22 was the wide divergence in the growth trend across players. On one hand, LIC grew at muted 3% YoY and the private sector grew at 16% YoY. Among private players, IPRU (-8% YoY) and MAXF (-10% YoY) struggled for different reasons, while SBILIFE (+31% YoY) and HDFCLIFE (+22% YoY) delivered superb growth. (Exhibits: 1-3, 7)

Among the listed players, SBILIFE delivered an exceptionally strong show: For Dec22, SBILIFE delivered 31% YoY growth in retail APE, backed by 19% YoY growth in retail policies. With retail APE of Rs25.3bn in Dec-22, SBILIFE delivered its highest-ever monthly retail APE and its retail APE market share in the month has gone to 22%. HDFCLIFE reported strong 22% YoY growth (adjusted for Exide Life merger) in retail APE to Rs12.3bn in Dec-22. Strong growth at SBILIFE and HDFCLIFE could be a combination of robust growth at their key bank partners and Dec-22 being the deadline for their MDRT (Rewards and Recognition) program for their agents. Owing to a strong base of Dec-21 (+35% YoY), Max Life, not surprisingly, delivered a 10% YoY decline in retail APE. Going ahead, growth should rebound for Max Life from Jan-23, as the base turns favorable and the Axis Bank channel should start seeing gradual improvement in performance. Relatively muted growth (+13% YoY) by BALIC in Dec-22 suggests that Max Life would be holding on to its share in the Axis Bank channel. IRPU’s poor performance in retail APE growth continued, with Dec22 retail APE down 7.7% YoY, leading to a 4.2% YoY decline in retail APE for YTDFY23. Unless the ICICI Bank channel stabilizes, it seems IPRU’s growth will likely remain inferior to private peers. Overall, we expect private sector players to deliver mid-teen growth in FY23. (Exhibits 1-3)

LIC’s growth moderates sharply after a decent show in Nov-22: LIC’s retail APE growth in Dec-22 slowed to 3.1% YoY post a decent 12.8% YoY growth in retail APE for Nov-22. For YTDFY23, retail APE growth declined to 11.9% in Dec-22 from 13.4% till Nov-22. On a 3Y CAGR basis, LIC reported muted retail APE growth of 1.7% for YTDFY23, resulting in a 7.6ppts decline in retail APE market share. Moving further, we expect LIC to grow in high single digits. (Exhibits 1-3)

Among the unlisted, Tata and Kotak see strong growth, while growth moderates for BALIC and SUD Life: Over the past few years, unlisted players such as Tata AIA, Bajaj Allianz, SUD Life, IndiaFirst Life, and Birla Life have seen much stronger growth, leading them to gain material market share. In YTDFY23, Tata AIA has become the third biggest player on the basis of retail APE. In Dec-22, Tata AIA and Kotak Life reported strong growth in retail APE at 29% YoY and 26% YoY, respectively. On the other hand, Bajaj Allianz and SUD Life witnessed moderation in their growth. Strong growth in premiums has resulted in these unlisted mid-tier players almost doubling their market share over a period of three years for YTDFY23

We maintain our Positive view on private listed life insurers: We believe the slowdown in growth has already been priced-in in the current valuations with growth moderation in the life insurance industry over a few quarters. The remaining months of FY23 stay crucial for growth, considering a slightly difficult external macroeconomic environment. With a host of reforms by the regulator and the government on the anvil, growth volatility in the sector and the individual company-specific, non-operating issues would mean that stocks will remain volatile in the near term. Notwithstanding the near-term noises, the private sector’s market leaders, powered by their formidable brand and distribution combination, are in the position to deliver robust growth in the medium term coupled with improving business margins. The recent underperformance of stocks in the life insurance sector and valuations turning more attractive provide a good opportunity to accumulate them. Our order of preference is SBILIFE (Buy), MAXF (Buy), HDFCLIFE (Buy), IPRU (Buy), and LIC (Hold). Post the sharp correction since its IPO, the valuation of LIC (Hold) has also become undemanding

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