Life insurers on strong footing on soaring demand

The stocks of life insurance companies have gained 11-17 per cent over the past three months. They have underperformed the 20 per cent returns clocked by the benchmark Sensex following concerns over the possible surge in the insurance claims due to the pandemic. Though the stocks in the near term may reflect rising volatility in the broader market, their long term trend looks positive given the rising demand for protection and savings products.SBI Life and HDFC Life reported improved business momentum in the third quarter after a slack in the previous two quarters. Another listed life insurer, ICICI Prudential Life Insurance will declare its third quarter result on Wednesday.80472330JM Financial in a post-result report noted that SBI Life’s annualised premium equivalent (APE) grew by 5 per cent year-on-year in the third quarter after falling in the previous two quarters. In the case of HDFC Life, APE improved by a strong 19 per cent during the quarter. Apart from better volume, the third quarter performance was also driven by an increase in premiums for HDFC Life. In a sector report on product pricing, ICICI Securities stated that the insurer has raised premiums by 6-39 per cent across product categories in FY21 so far. SBI Life on the other hand has not yet revised prices. “With RoP (return of premium) accounting for nearly 80 per cent of protection mix, SBI Life has until now managed to avoid price hikes,” said ICICI Securities in the report. RoP plans offer term insurance with a guarantee to return the paid premium on maturity.In the first nine months of FY21, SBI Life’s new business premium (NBP) rose by 13 per cent to Rs 14,440 crore. For HDFC Life, it increased by 11 per cent to Rs 13,547 crore. The momentum was driven by the higher demand for savings products.“When interest rates on deposits are at all time low and there are not many investment options, life insurance companies have managed to do a good job about selling these products,” Suresh Ganapathy, research analyst and associate director at Macquarie Capital, said in a note.Jignesh Siyal, analyst at Emkay Global Financial Services, has retained a “buy” rating on HDFC Life with a target price of Rs 786 compared with Monday’s closing price of Rs 680.40 on BSE, citing that its balanced product mix provides cushion against any business cyclicality while taking advantage of the grossly underpenetrated protection market.Siyal expects SBI Life to improve value of new business (VNB) margin to around 23 per cent by FY23 from 19.3 per cent in the nine months to December 2020. He has increased the target price of the stock to Rs 1,050 from 1,006 earlier. Monday's closing price of the stock was Rs 862.85 on BSE.As for ICICI Prudential Life Insurance, brokerage Motilal Oswal Financial Services expects the insurer to report its VNB to drop by 5 per cent year-on-year. Its share had ended at Rs 503 on BSE on Monday.

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