Insurance : Growth bounces back, LIC leaps

Growth bounces back, LIC leaps. Individual APE increased 27% yoy in November for private players, bucking the 2-4% yoy growth trend of the past two months. Almost all players reported strong performance, partially aided by a low base. LIC almost doubled its premium, a change from muted performance in recent months. Amongst large players, HDFC bounced back after a decline in October and ICICI Life reported a second consecutive month of high-teen growth. SBI crossed 20% growth after three months. Interestingly, equity mutual funds reported net outflows.

Growth rebounds post three months of weakness; LIC surprises

Private players reported 29% yoy growth in overall APE in November 2019, with 27% growth in individual APE and 53% yoy growth in group business. Overall industry APE was high at 67% yoy owing to 1X yoy rise in individual APE for LIC and 1.4 X yoy increases in group business

•  Second strong month for ICICI Prudential Life. ICICI Life reported 20% yoy increase in individual APE, on a low base of 24% yoy drop in November 2018. The company had reported 18% growth in October after struggling for about 12 months. Average ticket size in the individual non-single segment was up 69% yoy (down 9% mom), higher than most players. On considering overall (individual and group) adjusted APE including accrued but not received premium, its APE was down 5% yoy as compared to 16% growth in October 2019.
•  HDFC bounces back mom.  HDFC Life reported 43% yoy growth in individual business post recording a 15-20% yoy decline over the past two months. A low base (20% decline in November 2018) appears to have helped. The company has launched a new par product which will likely get reflected in its volumes over the next 2-3 months. Overall APE was up 49% yoy on the back of 81% yoy growth in group business.
•  Strong 22% yoy growth in SBI’s individual business. SBI Life’s individual APE growth was up 22% yoy higher than 3-14% yoy growth observed in the past three months. In any case, management has guided for about 20-22% growth for FY2020E (reported 24% in 1HFY20 but has been weakening since). November performance suggests that it may be on track to achieve its target. The company will continue its focus on protection though yoy growth in protection will be lower in FY2020E (individual protection APE was up 1.3X in 1HFY20 and 5X in FY2019).
• Modest growth in individual business for Max Life. Max Life’s growth in individual APE was modest at 17% yoy; down from 28% growth in August and 48% growth in July but higher than 2-3% yoy growth in the past two months. Ticket size in individual non-single segment was up by 8% yoy (up 4% mom). The company has increased focus on non-par savings business significantly in 1HFY20.
• Birla SL and Tata AIA reported >50% yoy growth. Strong growth momentum for Birla SL and Tata AIA observed in 2HFY19 had slowed down in the past two months but revived in November 2019. Individual business for Birla SL increased 63% yoy, most likely led by strong traction in the bancassurance channel. However, Tata AIA reported 50% yoy growth in individual APE, higher than 22% in October. Thus, all the three banca partners of HDFC Bank fared well in November.
• Bajaj Life up 53%. Bajaj reported 54% growth in November on a low base (0% growth in November 2018). Its momentum has been strong with 25-40% growth over the past six months. The company has just announced a partnership with Axis Bank which is yet to reflect in its performance.

Sunset period for popular products led to strong growth for LIC

LIC almost doubled its individual APE in November post 6% growth in October and decline in September. LIC agents seem to have pushed their paddle hard since it was the sunset month for some of LIC’s popular products viz. Jeevan Lakshya, Jeevan Umang and  Jeevan Labh (all three par products ). These products are being re-priced. We would expect weakness in its growth hereon.

Growth may not sustain but provides support for FY2020 estimates 

We don’t think high growth in APE will sustain over the next few months. Growth in the previous two months was moderating and raising some concerns of weak FY2020E. After a strong November, it now seems that mid-to-high teens growth may hold.

Ironically, mutual funds were in the red

Interestingly, equity mutual funds reported net outflow in November 2019 of Rs32 bn as compared muted inflows of Rs44-91 bn observed during June-October 2019. The outflow was largely in the balanced hybrid fund/aggressive hybrid fund segment. SIPs were broadly flat mom at ~Rs83 bn and have been stable over the past year and a half.

Non-single business dominates in November 2019

The share of single premium in overall business for private players was broadly flat mom at 45%; similar to average historical levels. Among major private players, share of single players increased for ICICI Prudential Life, HDFC Life and Bajaj Life. Share of single premium dropped for LIC owing to 1.2X yoy growth in individual non-single business in November 2019.

LIC’s market share in group business increased in November 2019

The market share of private players in group business decreased ~320 bps mom to 20% despite strong 53% yoy growth in group business in November 2019. This was driven by strong business growth for LIC at 1.4X yoy. Among major private players, HDFC Life and Bajaj Life gained market share by 130 bps and 40 bps mom, respectively, while the market share of several key players declined mom: ICICI Prudential Life (-110 bps), SBI Life (-320 bps), Max Life (-10 bps) and Aditya Birla SL (-70).

Source: Kotak Institutional Equities Research