Insurance: Back to teens

Back to teens. Private sector individual APE was up 17% yoy in December, moderating from 27% in November. All major private players reported strong performance, though Bajaj Life, Birla SL and Tata AIA moderated. HDFC Life’s individual business was up 46% yoy and even ICICI Life remained in the positive. Equity MF inflows were also in the green with net inflows of Rs32 bn in December 2019, compared to net outflows of Rs32 bn in November 2019. Our VNB forecasts, incorporating December trends, now stand at 19%- 34% yoy growth for top players with 34% yoy growth for HDFC Life and 32% for ICICI Life (higher than 16% in 2QFY20).

Strong growth for HDFC Life; ICICI Life in positive but moderates mom

Private players reported 16% yoy growth in overall APE in December 2019, with 17% growth in individual APE. Group business declined 2% yoy. Individual business for LIC was modest at 13% yoy, following 103% growth in previous month due to sunset period of a couple of its products.

• ICICI Prudential Life, slower than November but positive. ICICI Life reported 8% yoy increase in individual APE, on a low base (down 5% yoy in December 2018). The company had reported 18% and 20% yoy growth in October and November 2019 post struggling on growth for about 12 months. Average ticket size in the individual non-single segment was up 16% yoy (down 2% mom). On considering overall (individual and group) adjusted APE including accrued but not received premium, its APE, was up 4% yoy.
• HDFC remains strong, second month in a row. HDFC Life reported 46% yoy growth (down 4% yoy in December 2018) on the back of strong 43% yoy growth in November 2019. Growth revived in November post 20% and 15% yoy decline in September and October 2019. The newly-launched individual par savings product will likely maintain strong traction over the past 2-3 months. Overall APE was up 38% yoy, pulled down by 14% yoy decline in group business.
• Modest 17% yoy growth in SBI’s individual business. SBI Life’s individual APE growth was up 17% yoy. Growth revived in November 2019 to 22% post three months of muted 3-14% yoy growth. Management has guided for about 20-22% growth for FY2020E (reported 24% in 1HFY20 and 16% in 3QFY20); 4Q growth, given its large volumes, assumes importance. 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).
• Max’s business has started to pick pace. Max Life’s growth in individual APE was robust at 23% yoy. Similar to other players, growth had softened in September and October 2019 and picked up to 17% yoy in November 2019. Ticket size in individual non-single segment was up by 20% yoy (up 15% mom). The company has increased focus on non-par savings business.
• Growth for Bajaj, Birla and Tata moderates. Bajaj Life and Tata AIA’s growth momentum moderated in December 2019. Bajaj’s individual APE increased 4% yoy compared to 25-54% yoy growth since May 2019. Tata AIA reported 23% yoy growth (on a high base of 1.3X yoy growth in December 2018). Individual APE declined 13% yoy for Birla Sun Life but has been volatile; while its growth revived in November 2019, it had declined 3% and 9% yoy in October and September 2019. It appears that business from the bancassurance partner has dropped for Tata and Birla SL as HDFC Life gains momentum.

3QFY20E VNB estimates: HDFC Life remains high, acceleration for ICICI Life

We have tweaked our 3QFY20 estimates to reflect (1) strong growth in APE for HDFC Life in December 2019 (up 38% yoy), (2) lower than expected APE growth for ICICI Prudential Life (muted at 9% yoy in December 2019) and (3) marginal change in VNB margins reflecting change in product mix (Exhibit 18). Post the revision, we expect VNB growth to remain strong at 34% for HDFC Life (24% in 2QFY20) in 3QFY20E. ICICI Prudential Life will likely accelerate to 32% VNB growth, significantly higher than 16% in 2QFY20 and 27% in 1QFY20 (20% in 1HFY20), following higher APE growth.

• We have raised our VNB growth estimate for HDFC Life by 2% following increase in APE growth estimates by 5% yoy reflecting strong APE growth in December 2019, consequently tweaking down our VNB estimate to reflect volume of protection business. We now expect HDFC Life to deliver 34% growth in VNB in 3QFY20E.
• We have reduced our APE estimates by 2% for ICICI Prudential Life to reflect lower-than-expected APE growth in December 2019 (up 9% yoy). While APE growth was strong at 21% yoy and 17% yoy in October and November 2019, it moderated in December 2019. Our VNB growth estimate for ICICI Prudential Life now stands revised to 32%, versus 26% estimated earlier.
• We have raised our APE estimates for Max Life by 2% to reflect strong 23% yoy growth in APE in December 2019. While growth was modest at 3% and 17% yoy in October and November 2019, it bounced back in December. Consequently, we expect Max Life to deliver 19% VNB growth in December 2019 compared to 18% earlier.
• We expect SBI Life to deliver 21% VNB growth in 3QFY20E. This is backed by 16% APE growth and VNB margin expansion to 18.7% (17.3-18.4% in past two quarters).

Equity inflows to mutual funds positive but muted

Equity mutual funds reported net inflows of Rs32 bn following net outflows of Rs 32bn November 2019. Redemptions in balanced hybrid/aggressive hybrid and value/contra funds remained high, though lower mom (Rs20 bn versus Rs49 bn in November) leading to positive but muted net inflows. SIPs inflows maintained strong traction and increased marginally to Rs85 bn in December 2019 from about Rs80-82 bn in the past. 

Share of non-single business inches upwards

The share of single premium in overall business for private players dropped to 33% in December 2019 from 40-55% since April 2019. Among major private players, share of single players dropped for most players. Share of single premium however increased for LIC on a lower base in November; the company had reported high growth in non-single business during November.

Strong growth in LIC’s group business

The market share of private players in group business decreased further by ~580 bps mom to 14% on the back of strong growth in LIC;s group business. LIC’s group business was up 1.1X yoy in December 2019; similar to November 2019 (up 1.4X yoy). Private players reported % yoy decline in group business. Among major private players, HDFC Life, Bajaj Life and Birla Sun Life lost 260 bps mom, 210 bps mom and 80 bps mom market share respectively.

Source: Kotak Institutional Equities Research

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