Insurance share price target

players saw growth slowdown to 10.5% YoY, while similar growth of 10% YoY Source: Life Insurance Council, PL in individual segment as well. Key players like SBILI delivered stable 17% YoY which has helped growth to stay up but has been difficult to maintain...

We have cut FY21E APE for IPRU/MAXL/SBILIFE/HDFCLIFE by 4.1/1.7/5.8/4.6%. We have also lowered VNB margins assumptions between 10-70bps across the board. SBILIFE continues as our top pick with reduced TP of Rs 1,120 (Dec-20EV +24.4x FY22E VNB, +22.9% upside), MAXF offers attractive risk reward, TP of Rs 563 (MAXL: Dec-20EV +18.8x FY22E VNB, +16.6% upside). The Union budget 2020 has introduced a new optional personal tax regime and removed dividend distribution tax. These changes are likely to impact both demand and margins for life insurance products. We have reduced our APE growth assumptions for FY21E, VNB margins FY20E onwards and also reduced EVs for FY20E.

Asset Management:For 3QFY20, monthly SIP inflows averaged at ~Rs 83.5bn aggregating to Rs 250.4bn (+4.4/0.9% YoY/QoQ), while lump-sum outflows increased substantially to ~Rs 224bn (1HFY20: Rs 189bn). For 3QFY20 total equity inflows (ex. arbitrage and ETF) were only Rs 26bn (-90.8%/-88.2% YoY/QoQ). Broking:Total market ADTV (ex-prop) for 3QFY20, continued to grow at a healthy pace of 45.1/(0.1)% YoY/QoQ; cash ADTV (higher yielding) growth improved 7.6/5.4% vs. 46.5/(0.3)% YoY/QoQ for derivatives. Consequentially derivative : Cash mix moved remained stable at 2.9:97.1%. Life Insurance: Growth in pvt. indiv. APE continues at a steady 15.6% YoY in Oct/Nov-19, compared to 16.0% YoY in 1HFY20. The high base set after strong growth of 22.8% CAGR during FY17-19, slowing sales of NPAR products (compared to 2QFY20), and a slowing economy may mean slightly lower growth for the sector in 4QFY20. General Insurance While total industry GDPI growth in Oct-Nov-19 is 13.6% YoY, pvt. multi-line insurers have grown at 16.1% YoY. Public insurers on the other hand have grown only ~4.3% YoY.

In India, life insurance is perceived more as a savings product and people park their financial savings in it with an eye on earning a bonus (returns) on their investment.

recently moved up for insurance companies and slower growth which has to Source: Life Insurance Council, PL be closely watched may lead for some correction. We do retain our preference for the sector but we have downgraded our rating for HDFC Life/IPru Life to Hold from BUY post results and have seen TP achieved for SBI Life as well....

EXECUTIVE SUMMARY: Life insurance sector has seen unprecedented growth in the past few years and is second only to banks for mobilized savings and controls more than Rs.37116 Cr.

HDFCLIFE reported 10% YoY growth in net premium income, primarily led by 20% growth in the first-year premium. Renewal premiums grew 10% YoY/37% QoQ, aided by improvement in persistency ratios. growth moderated to 18% YoY led by term APE growth of 30% YoY. The share of non-PAR savings business in Individual APE declined to 51% v/s 58% in 1QFY20. The share of ULIPs remained constant at 26% while share of the PAR business increased to 13% v/s 6% in 1QFY20. During 2QFY20, share of the Protection business stood at 16% in total APE (7% on individual APE basis) while the Annuity business contributed 4% to total APE (1% in FY17). On un-weighted basis, Annuity and Term together accounted for 42% of total NBP v/s 26% in FY17. moderated to 25.4% in 2QFY20 (27.5% in 1HFY20) due to lower mix of the Non-PAR Savings business. Thus, the VNB grew at a modest 24% YoY to INR4.

Asset Management:For 2QFY20, monthly SIP inflows remained stable at ~Rs 82bn aggregating to Rs 248bn (+8.2/1.1% YoY/QoQ), while lump-sum outflows declined substantially to ~Rs 27bn (1QFY20: Rs 162bn), leading to total equity inflows (ex. arbitrage and ETF) of Rs 221bn (-32.3%/+2.7x YoY/QoQ). Broking:On account of increased volatility in equity markets, total market ADTV (ex-prop) for 2QFY20, continues to grow at a healthy pace of 49.4/12.1% YoY/QoQ; cash ADTV (higher yielding) growth remained lackluster at -3.4/-1.0% vs. 51.8/12.5% YoY/QoQ for derivatives. Consequentially derivative : Cash mix moved further towards derivatives at 97.2 : 2.8% in 2QFY20 (vs . 95.7:4.3% in 2QFY19). Life Insurance: After a growth of 23.5% YoY in 1QFY20, overall pvt. indiv. APE growth has slipped considerably to 11.1% in 2QFY20. The high base set after strong growth of 22.8% CAGR during FY17-19 and a slowing economy has put growth for the sector at risk in 2HFY19. General Insurance: While Jul-Aug19 industry GDPI growth was robust at 19.5% YoY, growth for pvt. multi-line insurers was slow at just 7.5% YoY, however growth ex-crop was at 18.3%

Sharp slowdown in growth: Individual APE growth for private players slowed down to 2.5% YoY v/s 10% YoY seen in Aug'19 and +20% YoY seen from Apr- Individual APE growth turns weak...

Sharp slowdown in growth: Individual APE growth for private players slowed down to 2.5% YoY v/s 10% YoY seen in Aug'19 and +20% YoY seen from Apr- Individual APE growth turns weak...