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After the 20-50% catchup rally post mid-March, stocks in the life insurance pack have underperformed the broader markets post the Q1FY24 results, owing to concerns on profitability and on growth being led by ULIP products. The subdued growth in VNB for FY24, on account of lackluster APE growth and softening in margins, was already anticipated and hence does not give us reason to revise down our APE or VNB estimates for listed players. In essence, we continue to view the risk-reward balance favorably for life insurance stocks, with the market already factoring-in the expected slow VNB growth in FY24, and the anticipated improvement in APE growth is likely to remain a catalyst for driving up share prices. We expect HDFC Life to deliver flat margins, whereas other listed players would witness some moderation in VNB margins for FY24E on account of product mix changes and yield curve movement. Given the product mix changes and focus on growth, we expect FY24 to see some margin temperance, as already built into our forecasts. In the general insurance space, we expect listed players to deliver a healthy ~18-19% premium growth, with stable-to-improving combined ratio. Overall, we see favorable risk-reward in the Life and General Insurance space, with valuation being favorable and growth-profitability outlook looking stable. We prefer SBILIFE, MAXF and HDFCLIFE in the Life Insurance space.

Life Insurance: Good APE growth; margin moderation on product mix, yield curve and opex changes; EV growth to be healthy, helped by the market move

Post the slowdown in APE in Q1FY24 owing to bumper sales of Non-Par products in Q4FY23, we expect listed private life insurance players to deliver decent APE growth in H1FY24E, driven by robust growth momentum in Q2FY24. The growth in Jul-23 and Aug23 is possibly backed by robust growth in ULIP products fueled by the buoyant equity market movements. Owing to its declining Group business, we expect LIC to report a decline in APE for H1FY24E. With changes in product mix and given the impact of the interest rate movement, we expect slight temperance in VNB margins for H1FY24E, resulting in slower VNB growth over the same period. Overall, we expect moderate business performance during H1FY24E for listed private players, while we maintain our APE and VNB estimates.

General Insurance: Premium to grow ~18%, improvement in CoR

We expect robust growth momentum in the premium for listed names in the private general insurance space, led by growth in the Retail health and crop segments. In the Motor segment, though, competitive intensity remains high among PVs, albeit there are some signs of softening in competitive pressure. In the health segment, the claims ratio should increase QoQ (owing to monsoon seasonality); however, on YoY basis, it should see some improvement. With implementation of the new Commission and EoM regulations, we expect some progress in commission and opex ratios, resulting in an overall improvement in the combined ratios