SBI Life, HDFC Life Are Nuvama's Top Picks As Industry Growth Moderates
Investors should closely watch the effects of new surrender value regulations, competitive pressures and profit margins, Nuvama said.
SBI Life Insurance Co. and HDFC Life Insurance Co. are Nuvama Research's top sectoral picks, following the release of life insurance data for August. HDFC Life posted modest individual annual premium equivalent growth of 9.8% year-on-year last month and gained market share.
APE is a metric used to compare life insurance revenues, by converting policy premiums into the equivalent of regular annual payments.
The firm has set the target price for the HDFC Life stock at Rs 780 apiece, an upside of 6% over the previous close.
On the other hand, SBI Life underperformed industry and private insurers with individual APE growth of 3.9% due to higher base. The company posted 34% growth in August last year.
Nuvama has a target price of Rs 1,940 per share on SBI Life, implying a potential upside of 2% from the previous close.
Growth Moderates, Private Insurers Fare Better
Private life insurers' individual APE grew more than Life Insurance Corporation of India during August, even as industry growth moderated. Private firms reported a 14.7% year-on-year growth in individual APE, compared to LIC's 1% gain.
In terms of market share as well, private players were ahead, seeing a 314-basis-point gain to 68.3% so far in the current fiscal, in the individual APE segment. Private insurers saw a 13.7% five-year compounded annual growth, according to Nuvama.
The brokerage expressed optimism about long-term industry growth, but advised investors to closely watch the effects of new surrender value regulations, competitive pressures and profit margins.
HSBC Global Research noted industry individual APE growth moderated to 10.5%, compared to 16.3% in July. The growth slowdown was sharper for large insurers over small insurers.
"We remain positive on growth outlook, driven by increases in the number of policies sold, buoyant equity markets, healthy product pipeline, and insurers’ strengthening of distribution capacities. Any reduction in indirect taxes would be positive for the industry growth," the firm said.
August Life Insurance Data Snapshot
LIC
Continued to underperform private peers with individual APE growth of just 1% YoY.
Total APE edged up 2.2% YoY.
HDFC Life Insurance
Posted modest individual APE growth of 9.8% YoY.
Group APE stagnated.
APE market share gain if 106 bps.
ICICI Prudential
Total APE grew 20% YoY.
Group business APE declined 15.9%.
APE market share improved by 121 bps.
Max Life
Outperformed private peers with individual APE growth of 19.7% YoY and total APE of 19.5%.
Individual APE market share up 57 bps.
SBI Life
Underperformed industry/private insurers with individual APE growth of 3.9% YoY due to higher base.
Total APE grew just 0.5% YoY.
Individual APE market share dipped 101 bps.
Bajaj Finserv
Bajaj Life’s individual APE grew 22.3% YoY.
Total APE grew 18.8%.
Individual APE market share improved by 60 bps.
