Insurance share price target

The Non-Par, Annuity and credit life segments will continue to see strong traction in Q4FY23E. Premium growth is expected to be strong on the back of higher sales in the tax advantage product portfolio across all the players, especially in March 2023.

Insurance regulator (IRDAI) made a number of announcements over the past week. Key features: (1) introduction of an overall ‘expense of management’ (EOM) limit in life as well as non-life insurance with no sub-limits on commission; (2) introduction of the insurer’s Board policy on commission structure including distribution fees to motor insurance service providers.

In this report, we try to compare the performance of key captive insurers like Cholamandalam MS (Chola), Shriram General (Shriram) and Royal Sundaram (RS) with non-captive multiline non-life insurance players. Key takeaways include: (1) Captive players like Chola/Shriram have seen overall strong growth in 9MFY23, (2) higher expense ratio of these players highlights the competitive intensity in the motor segment.

Private life insurers reported 18%/13% YoY growth in individual/total APE in Feb’23 and 18/19% YoY in 11MFY23, respectively. Life Insurance Corporation of India (LIC) reported a decline of 19% YoY in total APE in Feb’23 but has grown strong 20% YoY in 11MFY23. Overall / individual sum assured growth has been 24/7% in FY23- TD for private life insurers.

We highlight three trends in health insurance in this report, namely: (1) Rising claim inflation leading to price hikes, hence aiding premium growth. The claim inflation is a combination of rising unit cost of services and increasing utilisation and better medical facilities.

Industry gross domestic premium income (GDPI) growth has been strong with 19%/17% rise in Jan’23/FY23-TD. Motor/health/fire GDPI has grown 13%/46%/9% in Jan’23 and 16%/24%/11% in FY23-TD. Within the motor segment, OD/TP growth has been 13.4%/12.7% in Jan’23 and 17%/15% in FY23-TD.

The trend mentioned in the headline is clear from government announcements in successive Budgets. As such, the two clear rationales for sustained growth in life insurance will be in bridging the protection gap and generating a guaranteed stream of income (guarantee being the bigger driver than IRR). The narrowing of opportunity basket for life insurers does take down the possible growth prospects for the sector.

HDFC Life/SBI Life/IPRU Life have reported strong performance in 9MFY23 with VNB growth of 22%/40%/23% YoY. Outlook remains optimistic on the back of growth prospects of retail protection, credit protect, non-par products (all have fared good) and sustained increase in persistency. Possible tailwinds from composite license is an optionality that can enhance positive sentiment.

Insurance premium trends are going strong. This is evident from the 25% YoY growth in total APE (21% for private insurers), 20% YoY rise in total sum assured in life insurance and 16% growth in GDPI in non-life insurance, FY23-TD.