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A better quarter

Life insurers will likely report mixed APE trends, with product mix-led margin expansion driving better VNB growth. Base effect and product strategies are key drivers, while pickup in agency momentum is monitorable. Non-life companies remain marred by low momentum in the auto business, early onset of monsoon driving health claims and distortion in financials due to the 1/n rule. PB’s growth will likely moderate yoy but remain high.

Better VNB growth in 1Q

We expect private life insurance companies to deliver -5% to +25% VNB growth in 1QFY26E. This is largely driven by -9% to +16% APE growth during the quarter. Axis Max Life and HDFC Life (15-16% APE growth in 1QFY26E), which continue to invest in growth, have reported 14-24% APE growth in the first two months of the quarter. ICICI Prudential Life (9% APE decline in 1QFY26E) is likely marred by a high base (34% growth in 1QFY24), while SBI Life (9% APE growth in 1QFY26E) continues to struggle in the core parent bank. Exhibit 6 shows that growth in agency has been generally softer in the last 1-2 quarters, especially after surrender value guidelines were implemented. We pen down 1% APE growth for LIC, following 0-2% growth in the first two months.

In 1HFY25 (base period), the share of ULIPs in overall APE was high at 61% for SBI Life, 51% for ICICI Prudential Life and lower at 39% for Axis Max Life and 33% for HDFC Life. VNB growth will likely be higher due to a shift in product mix in favor of non-par/par from ULIPs. Market sources suggest a shift in business mix away from ULIPs; distributor incentives were more aligned in favor of ULIPs last year. This will mostly lead to expansion in margins. We pen down about 100-150 bps margin expansion on account of the shift away from ULIPs (marginal decline in HDFC Life that has a more balanced mix). Growth in term protection has been strong in the last two quarters for most players; this will likely be another lever to margins; weak MFIs business will put pressure on group credit.

Non-life: A muted quarter

We expect ICICI Lombard’s performance to be tempered by low new vehicle sales, leading to 6% growth in the motor business in the first two months of the quarter; the share of commercial lines likely remains low for now. Health companies remain under pressure from high medical inflation; the early onset of rains this year likely leads to a higher frequency of infectious claims. PB Fintech remains a high-growth story, with 32% growth in new premiums and 39% growth in revenue.

Retain a positive stance on life companies

We retain a positive stance on private life insurance companies as multi-year compounders; we roll over FV to June 2027E. HDFC Life remains the most favored among private names, balancing well across channels and products. LIC is best placed to ride capital market buoyancy. SBI Life can be the biggest beneficiary of the change in policymakers’ stance on bancassurance, while Axis Max Life could see a collapse of 10% holdco discount on account of the merger. The appointment of new IRDA chairman and the Insurance Bill are developments to look out for.

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