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On expected lines, the Indian life insurance industry reported muted growth in new business for Oct-22, with Retail APE for the industry clocking a soft 3.1% YoY, thus leading to a slowdown in YTDFY23 Retail APE to 16.2% in Oct-22 from 18.7% in Sep-22. Comparatively, listed players SBILIFE, LIC and Max Life have fared better in Oct-22, while HDFCLIFE and IPRU have posted double-digit decline. In the unlisted space, TATA AIA, BALIC, SUD Life and India First continued their strong run. The growth slowdown in Oct22 appears to be an outcome of a combination of factors, including: i) volatile capitalmarket outlook affecting ULIP demand; ii) continued weakness in retail protection; iii) higher number of holidays in the month; and iv) likely focus on deposits by banks slowing the growth in banca channel. Net, the Oct-22 developments came in line with our expectation of overall FY23 Retail APE growth of ~12% in the Life Insurance sector, with private sector growth of ~15% and LIC growth of ~8%. Overall, 3Y Retail APE CAGR for the sector in YTDFY23, at ~9% (Private sector: 12%; LIC: 5%), looks fairly good in light of the Covid19-affected 2 years. This growth, coupled with life insurers’ improving margin profile, underscores the robust performance of such insurers amid challenging times. The sector regulator has increased its focus on the ‘development’ aspect, and a number of reforms introduced by it in recent times are likely to act as a catalyst for sector growth over the medium-to-long term. Notwithstanding the near-term growth challenges, private sector leaders with sturdy brands and distribution will deliver stronger growth in the medium term, along with stable-to-improving new-business margins. However, in the near term, overall sector growth-concerns and company-specific challenges will continue to weigh on life insurance shares. The recent underperformance of life insurance stocks provides a good opportunity to accumulate them, in our view, as valuations have turned attractive. Our order of preference is SBILIFE (Buy), HDFCLIFE (Buy), MAXF (Buy), IPRU (Buy), and LIC (Hold).

Muted growth in Oct-22 is no surprise: The Life Insurance Industry reported muted growth in Oct-22 at 3.1% YoY, leading to moderation in YTDFY23 Retail APE, to 16.2%. In the backdrop of volatile capital markets, unrelenting struggle in retail protection, banks scrambling to garner deposits, and higher number of holidays, such subdued growth does not spring a surprise. However, the divergence in growth patterns (with TATA and BALIC maintaining their strong run while IPRU and HDFCLIFE struggle) also reflects player-specific issues, on top of broader sectoral factors. (Exhibits: 1-3, 7)

Listed private players ex-SBI Life report decline in Retail APE: A YoY decline in Retail APE for Oct-22 was seen in listed private players, except in SBI Life, which reported muted growth of 6.3% YoY for the month. The slowdown in Retail APE for Oct-22 led to a moderation in the Retail APE YoY growth for YTDFY23, but such growth for SBI Life remained decent, at 18.3% YoY. For IPRU, a strong decline of 25.6% YoY in Retail APE appears to be an outcome of a combination of factors, such as the ICICI Bank channel issue coupled with slowing growth in other channels. Despite facing ongoing challenges at the Axis Bank channel, Max Life has been able to deliver a flattish Retail APE in Oct-22. HDFC Life’s Retail APE declined ~13% YoY, a likely outcome of slowing banca channel and lack of new product launches resulting in a soft agency performance. Going ahead, we expect Retail APE growth to pick up, driven by robust growth in non-par products and some traction in retail protection led by new product launches. (Exhibits 1-3)

For LIC, growth slightly improves in Oct-22, but slowdown persists: LIC reported moderate YoY growth in Retail APE, at 3.5% for Oct-22, as against a decline of 1.7% for Sep-22. However, YTDFY23, Retail APE slowed to 13.5% in Oct-22 as against 15.4% in Sep-22. The 3Y Retail APE CAGR for YTDFY23 stood at 5.1%, leading to a 4.7-ppt decline over 3 years in Retail APE marketshare for YTDFY23. Moving ahead, we expect LIC’s Retail APE to grow in a high single digit. (Exhibits 1-3)

Among larger players, Tata and Bajaj maintain their strong growth momentum; SUD Life and India First continue to grow, on a smaller base: Mid-tier life insurers, namely Bajaj Allianz Life, Tata AIA Life, SUD Life and India First Life, reported decent-to-strong Retail APE growth in Oct-22 led by strong growth in the number of policies sold during the period. Mid-tier players reported a fair set of Retail APE growth numbers on the backdrop of a decline in Retail APE growth in a few listed private players. The Retail APE market share of such mid-tier players has almost doubled for YTDFY23, over a period of 3 years.

Growth moderation already priced in; valuation attractive to accumulate stocks: Growth moderation in the life insurance industry does not come as a surprise and, we believe, the slowdown in growth has already been priced in, in current valuations. With strong brands, diversified product mix, investments in distribution channels and cost-efficiency strategies, listed life insurers are poised for good growth. SBILIFE (Buy) is our top pick, followed by HDFCLIFE (Buy), MAXF (Buy) and IPRU (Buy). Post the sharp correction since its IPO, the valuation of LICI (Hold) has also become undemanding.

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