India's insurance sector saw an 11% decline in Annual Premium Equivalent (APE) in April 2023 due to the rundown by the state-run Life Insurance Corporation of India (LIC). However, the long-term prospects of the sector remain strong as people are increasingly viewing insurance schemes as a risk-mitigation necessity, rather than just a tax-saving or investment tool. While LIC reported a 25% drop in overall APE, HDFC Life was relatively strong, as ICICI Prudential Life was weak and SBI Life Insurance Company was moderately down. Kranthi Bathini, Director-Equity Strategy at WealthMills Securities, suggested that the outlook for the insurance sector should improve by Q2/2024.
Reuters
FY24 began on a sluggish note for the Indian insurance sector with Annual Premium Equivalent (APE) declining by 11% in April 2023 due to rundown by the Life Insurance Corporation of India (LIC). Barring HDFC Life Insurance Company, performance by other companies was sub-par.
However, the long term prospects of the sector remain strong as regulatory overhangs settle down, amid a shift in the mindset of people towards insurance products. People are increasingly seeing insurance schemes as a risk mitigation necessity and not just as a tax saving or investment instrument.
On a long term basis, insurance is a sector to watch out for, in the banking and financial services segment, Kranthi Bathini, Director - Equity strategy at WealthMills Securities told ET Markets.
“Recently, the budgetary overhang because premiums above Rs 5 lakh are to be taxed have taken a toll on the stocks of insurance companies,” Bathini said, adding that there are likely to be initial jitters as a result of this but the overall outlook remains strong.
While announcing the Budget 2023, Finance Minister Nirmala Sitharaman had announced that proceeds from life insurance except for ULIPs, having an annual premium of Rs 5 lakh would be taxed.
The growth will be led by people's perception on insurance products which has seen a marked shift since the onset of Covid, Bathini said. No more are they seen just as instruments to save income tax or for investment purposes. Insurance products are now being seen as risk mitigation avenues and that is how these products are being marketed by the companies, he added. April Report Card State-run LIC reported a 25% decline in overall APE as the company did not book group business last month, according to a sector report published by Kotak Institutional Equities. The individual APE fell 5% in April for the public life insurer, this report said.
In contrast, APE for the private sector went up by 1% in April though individual APE took a hit of 1% during this period. A 1% APE growth was "not a bad start to the year" Kotak said, arguing that the increase should be seen in context of a strong base 0f 42% growth in APE in April 2022 and hectic business activity in March 2023.
APE is a common sales measure calculation employed by the insurance companies and accounts for the sales within a single period. It is used when the insurance sales contain both single premium insurance and regular premium insurance.
The outlook is likely to improve from the second quarter as regulatory overhangs settle, the report said.
In light of the reduction in the high-ticket business and increase in individual term, ticket size will be an important parameter to track during FY2024, Kotak report said.
Base Effect The report noted that April 2022 was a busy month, with 42% private sector growth, as the activity picked up post the Covid.
"Thus, the base was high. Furthermore, private players reported 54% APE growth in March 2023 — sunset period of tax-free traditional high-ticket policies," the report said. Based on a four year CAGR, the private sector was up 12% as compared with 18% growth in March 2023, it said. Further.
HDFC Life reported 7% growth in individual APE, 6% overall APE and gained market share by 90 bps year-on-year to 10.4% in individual business. Momentum at HDFC Bank and growth in other channels are the likely drivers, the report said.
ICICI Prudential Life reported 24% YoY decline in APE, weakest in the listed players. ICICI Bank was down 54% and other channels also declined 17%. The company has guided for about Rs 100 crore/month of business from ICICI Bank; in April, the bank generated an APE of Rs 46 crore.
SBI Life was down 5% in the individual business, driving a 6% decline in overall APE. Notably, its base was very strong, with 89% growth in April 2022 versus 46% of private players.
Max Life Insurance Company, an arm of exchange-listed Max Financial Service Company remained relatively weak, with a 3% decline in overall APE during April and 4% decline in individual APE. Based on a four-year CAGR, Max Life was up 13% (12% for the private sector), the Kotak report said.
Reuters
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