India’s listed life insurance companies could report one of the best growth metrics witnessed by the industry in the first quarter of any financial year. Otherwise a seasonally weak quarter, the April-June period for FY23 could see high double-digits business growth for both big and mid-sized life insurance firms. Investors must keep in mind that the growth is mostly propped up by a low base.
Analysts expect listed private sector life insurers to report new business growth of 30-60 percent year-on-year (YoY) on an annualised premium equivalent (APE) basis. Within the private sector, SBI Life Insurance Company Ltd is likely to report the strongest growth numbers.
“Insurers will benefit from a low base that aids stronger growth and life insurers will particularly benefit with stronger growth in new retail APE growth (partly lower base) and improved margins – we see VNB (value of new business) growth of +40 percent YoY, with SBI Life reporting the strongest growth and Max benefiting from a low base,” wrote analysts at Jefferies India Pvt Ltd in a note. Recall that in the first quarter of FY22, growth was subdued for life insurers due to the spread of the Omicron variant of COVID-19, which stymied operations.
Adjusting for base effect, analysts point out a growth moderation during the quarter. Indeed, business data from the sector regulator showed that new business growth for most life insurers has slowed in June. “On 3-year CAGR (compounded annual growth rate) basis, APE growth is 0-13 percent; even for SBI Life, 3-year CAGR in APE is moderate at 16 percent,” point out analysts at Kotak Institutional Equities in a note.
In short, life insurance policies are being sold at a rate slower than earlier, and this could mean profitability would be more measured during the quarter. VNB and margins may show sharp improvement YoY, again due to low base, but sequential metrics are key to look at. SBI Life’s VNB is expected to show more than 40 percent YoY growth, according to Jefferies. HDFC Life Insurance Corporation Ltd is likely to show VNB growth of 27 percent. However, on sequential basis, VNB could halve for most large private sector life insurers. Margins, too, are likely to see some pressure on sequential basis. Rise in bond yields is expected to have hurt the investment book of insurers which could drag the embedded value of life insurers.
To be sure, the moderation in profitability metrics and growth on sequential basis should not perturb investors, given that the fourth quarter of every financial year is strong for life insurers and the first quarter is the weakest. On balance, life insurers have bounced back from the pandemic and growth is likely to remain resilient in the coming quarters, according to analysts. Headwinds from rising bond yields would be a key monitorable.
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