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Mar’24 saw the life insurance industry contract by 13.3% in individual APE, on a strong base. Mar’23 had seen the industry grow 37.6% YoY on pre-buying of INR 500,000+ ticket-sized traditional policies, following taxation of these policies. On the back of strong sales in Mar’23, FY24 had begun softly for life insurers and, with the base of Mar’23, the industry reported a sub-par growth of 4.8% in individual APE and 4.1% in total APE terms, in FY24, against a 5-year CAGR of 10.4%/11.4% in individual/total APE over FY18-FY23. On a 2-year basis, both ICICI Prudential and HDFC Life reported 25%+ CAGR in individual APE. SBI Life underperformed in the month with a 6.6% contraction, even though it had not grown substantially in Mar’23. Based on these numbers, 4Q growth for our coverage looks strong, with IPru/SBI Life/LIC expected to report 12.8%/17.3%/9.6% YoY growth in total APE, all higher than industry growth of 6.3% YoY. With the expected contraction in Mar’24 behind, we can look forward to FY25. Moving into FY25, banks continue to actively scout for deposits. In our sector initiation note [link], we had highlighted the negative correlation of life insurance premiums with retail deposit growth, hence, we expect a growth of c.12% in FY25, before picking up further in FY26. Life insurance is a highly concentrated sector and idiosyncratic trends – support of parent banca for HDFC Life, non-par products for LIC or IPru’s outreach can raise sector growth meaningfully. As insurers report 4Q numbers, we are cognisant of margin pressures. In FY24, HDFC Life reported 1.3% YoY contraction in margins, while 9M24 contraction for other private players has been steeper. At current valuations, we have a positive stance on the sector, and HDFC Life, with its balanced product mix and strengthening banca and agency, is our top pick.

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