The first quarter is generally a slow one for insurance companies. This time though, they have had to deal with the volatility in the equity market too.
With these factors impacting premium collection and new business, insurance companies are expected to post a flat growth in earnings for the first quarter of FY19.
The equity market moved in a 400-point range in April-June, indicating that prices of stocks fluctuated quite a lot over the period.
For general insurance companies too, expectations of earnings growth are low because of continued crop losses.
Among life insurers, SBI Life, ICICI Prudential Life and HDFC Life are listed on the stock exchanges. In the general insurance space, ICICI Lombard General Insurance and New India Assurance are listed. State-owned reinsurer General Insurance Corporation of India is also listed.
ICICI Lombard General Insurance will be the first one to announce its results for the quarter ended June. It is scheduled to declare its numbers on July 17.
Life insurers' premium collection to be muted
With life insurance being a cyclical business, the first quarter of the financial year is considered a slow period for the sector.
New premium collection will also be impacted by a base effect, since in the same quarter last year, life insurers made more money by selling insurance policies announced by the government.
HDFC Securities said in a report that its expects ICICI Prudential Life to report a decline of 20 percent in its annualised premium equivalent (APE) because of a higher base (growth in Q1FY18 was 75 percent).
The brokerage also said that SBI Life will witness a similar impact of a higher base, and will report an APE growth of 10 percent.
However, the change in the product focus among life insurers is expected to be positive for them. Motilal Oswal said in a report that it expects HDFC Life's margins to expand further as the share of protection in the overall business goes up.
Similarly, Prabhudas Lilladher said in a report that growth in the pure-term business will continue to be strong for all players, especially in the group credit life segment, which will translate to an expansion of Value of New Business (VNB) margins.
"Under our coverage, HDFC Life will showcase strong growth including protection, whereas SBI Life and ICICI PruLife will see lower growth on high base effect. However we expect them to continue to do well in protection front," Prabhudas Lilladher said in its report.
Crop, health losses to impact general insurers
The underwriting losses of the general insurance sector will continue to be a pain-point for the industry in the quarter ended June.
Claim losses from the health insurance segment are expected to stay in the 110-120 percent range, while those from crop insurance may rise to 135 percent from 125 percent last quarter.
This would mean that the claims paid are much higher than the premiums collected in the segment. The Pradhan Mantri Fasal Bima Yojana has led to a spike in claims for insurers, something that has already been reflected in the March quarter numbers of general insurers.
This trend is expected to continue in the first quarter of the new fiscal year as well.
Similarly, third party motor insurance, wherein the government has mandated a payment of Rs 5 lakh for death, will also weigh on the bottom-lines of insurance companies and could impact their profitability.
Overall, while there will not be any major surprises in terms of rise in net profit, the pressures from an increase in loss ratio will continue to be a cause of concern for insurers.