This December will be "highly significant" for the overall growth of the life insurance industry this fiscal, according to analysts at Emkay Global Financial Services.
They expect retail annual premium equivalent (APE) to grow at 6-7 percent year-on-year (YoY) in FY24, led by private sector growth of 11-12 percent and LIC's "low single-digit growth".
Also read: LIC as an investor is key to its profitability as an insurer
The last month of the year is typically key for the industry but this year's December will be particularly important because the industry is likely to see a decline in March 2024, which will weigh on the overall annual growth.
In their latest report, the analysts wrote "as the industry moves past the festive disruption (in November 2023) as well as December typically being the key month (11-12 percent of annual retail APE), growth in Dec-23 will be highly significant for overall FY24 growth — this is owing to the industry likely to a decline in Mar-24 on account of an extremely high base of Mar-23 due to preponement of the large ticket, non-linked policy buying, post taxation changes in Budget-2023. We expect retail APE in FY24 to grow at 6-7 percent, led by private sector growth of 11-12 percent and LIC’s low single-digit growth".
This November's growth was muted, with a 3.8 percent year-on-year (YoY) decline in retail APE, because of the higher base in November 2022, said the analysts.
This November saw the disruptions from Diwali spending while November 2022 came after Diwali. In the month, the decline seen by private players was lower, noted the report.
It stated, "Private players logged a minor dip of 1.3 percent YoY while LIC posted a sharper 8.7 percent drop in Retail APE, during Nov 23."
In November 2022, "The industry saw strong Retail APE growth of 22 percent (private sector: 27 percent; LIC: 13 percent) bolstered by Diwali festivity disruption occurring earlier in Oct-22 and some players running distribution incentive programs... in the month".
Overall, the analysts find the valuations of life insurers attractive and maintain a preference for SBI Life, Max Financial and HDFC Life.
They wrote, "The sustained growth delivery by private life insurers addresses the overstated concerns on growth post the taxation changes on high-ticket, non-linked products." Budget 2023 had removed tax exemption for insurance policies with premium over Rs 5 lakh.
Also read: Budget 2023: Tax exemption removed in insurance policies with premium over Rs 5 lakh
Emkay's analysts added, "With the margin compression story already played out in FY24, private life insurers are on track to deliver robust VNB (value of new business) growth in FY25 & beyond."
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