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We examine the life insurance space in detail and have added LIC to our BUY list among insurers, along with MFSL and SBIL. Aspects underpinning our call are (1) LIC’s margin is lower than listed peers but it possesses levers to enhance the same and displaying the strongest trajectory in this regard (2) Sluggishness in APE growth has been left behind and, coupled with margin expansion, LIC is displaying the strongest VNB growth YoY (3) Based on the expense ratio metric, LIC seems to have reasonable control over its cost. We most prefer MFSL and SBIL in the life insurance space. On the general insurance front, we remain relatively cautious on ICICIGI owing to a variety of factors.

LIC’s margin is lower than listed peers but it possesses levers to enhance the same and displaying the strongest trajectory in this regard

LIC is the only life insurer which has witnessed VNB margin expansion on YoY basis, up 257 bps YoY whereas listed peers have seen a decline on YoY basis. Share of lowmargin Par business in total APE stood at 50.1% in 2QFY25 for LIC compared with 5.9- 12.7% for listed peers. We think LIC can reduce this share materially going forward and this process is already underway, with share of Par declining 8.8% YoY. Share of highmargin Non-Par has risen 7.0% YoY, while share of low-margin ULIP has risen by a relatively small 4.2%, with listed peers seeing a greater rise in the share of ULIP.

Sluggishness in APE growth has been left behind and, coupled with margin expansion, LIC is displaying the strongest VNB growth YoY

LIC is now displaying healthy revenue growth outcome with APE growth at 25.7% YoY in 2QFY25, which has outpaced SBIL and IPRU. Coupled with VNB margin expansion, LIC has displayed the highest VNB growth on YoY basis, which has amounted to 46.9% YoY for LIC in 2QFY25, which is far higher than other listed peers.

Based on the expense ratio metric, LIC seems to have reasonable control over its cost LIC has the second lowest expense

ratio among listed life insures at 13.6% for 2QFY25. Only SBIL has a lower expense ratio than LIC. LIC does not seem to be paying a high commission ratio to its agents, whether individual or corporate, on a blended basis. LIC has a commission ratio of 5.5% for 2QFY25 and only SBIL has a lower commission ratio than LIC. LIC’s cost control is reasonably good as reflected in its opex ratio of 8.1% for 2QFY25 and, again, only SBIL has a lower opex ratio than LIC.

On the general insurance front, we remain relatively cautious on ICICIGI owing to a variety of factors

(1) It remains to be seen how long the motor segment growth will sustain in the face of OEM sales slowdown – (a) Motor segment GDPI growth has been 16% YoY, driven by renewals growing 26% YoY whereas new vehicle GDPI growth was flat YoY (b) Management expects new vehicle sales to be in single digits in the second half. (2) Health segment growth is lower at 12% YoY. (3) We would also like to watch how ICICI tackles the motor segment industry CoR being under pressure. It may be noted that the motor industry CoR has worsened from 121% to 125.6% on YoY basis, driven by loss ratio for the motor industry worsening from 84.5% in 1QFY24 to 87.6% in 1QFY25.

We most prefer MFSL and SBIL in the life insurance space, followed by LIC

We had deliberately kept MFSL “NOT RATED” for an extended period and then initiated coverage in our report dated 4 th December 2022 after we felt that the negatives were priced in. We acknowledge that SBIL is undergoing an APE growth slowdown but the stock has been pricing in the same and we do not think the slowdown will persist. We are happy to recommend LIC as well in our BUY list since we think that the pace of enhancement in metrics is improved and the RoEV expansion augurs well. This report also contains a comparison of life insurers across a variety of parameters.

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