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Weak performance on high base

The Life Insurance industry reported an overall APE (annualized premium equivalent) decline of 6% YoY in February 2025, primarily led by a 23% decline in LIC's APE. Private players, in contrast, reported a modest 5% YoY growth, reflecting ongoing challenges in sustaining industry-wide momentum. While large private players struggled, smallersized insurers continued to outperform, growing 40% YoY, largely driven by group business. Mid-sized players delivered a muted but positive 2% growth. This follows a period of strong growth in February 2024 when the industry expanded by 25% YoY, with LIC and private players growing 27% and 25% YoY, respectively. A high base effect and market-driven slowdown in ULIP sales are now weighing on the sector’s momentum.

* On Retail Weighted Received Premium (RWRP) front, the industry reported a 4% YoY drop, again dragged down by LIC's 17% fall, even as private players grew a moderate 2% YoY. However, within private players, performance was mixed — with small- and mid-sized players delivering growth of 7% and 6% YoY, respectively, while larger players posed a decline of 3% YoY. Thus, while headline growth has slowed down, small- and mid-sized private insurers remain a bright spot, gaining market share amid broader sectoral challenges.

* Relative outperformance by Axis Max Life and HDFCLIFE: While HDFC Life and Axis Max Life emerged as relative outperformers, SBI Life and ICICI Prudential (IPRU) reported notable declines. The likely fall in ULIP demand following market corrections given their higher share in product mix acted as a challenge to growth, especially for players with high ULIP exposure such as SBI Life and IPRU. For LIC, distributor resistance to revised commission norms by the company following regulatory action on surrender values is likely impeding growth.

* ULIP segment may face headwinds; prefer HDFCLIFE given its franchise: Our channel checks have indicated that there has been some slowdown in demand in ULIP products (which were a key growth driver last year) following recent market corrections. ULIP demand typically lags equity market performance by 2-3 quarters, suggesting that the weakness may persist through the coming quarters.

Players with a high ULIP product mix, such as SBI Life and ICICI Prudential, are likely to be more affected, as this product could face reduced investor demand amid volatile markets. IPRU may face growth constraints given a high base and high ULIP share. By contrast, HDFC Life's balanced product portfolio, with lower ULIP dependence, has helped cushion the impact of the slowdown. In this environment, we prefer HDFC Life, given its well-diversified product portfolio, limited ULIP dependence, and strong multi-channel distribution network. The company’s consistent ability to adapt to regulatory changes and maintain stable margins makes it a standout.

While HDFC Life and Axis Max Life have demonstrated relative resilience, other insurers may need to recalibrate their product strategies to revive growth. That said, valuations may remain subdued given noise around regulatory action in the bancassurance channel.

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