Fire revives, motor slows down

Fire revives, motor slows down. General Insurance companies reported healthy premium growth (18% yoy ex-crop) in February 2020, recovering from the 6% level of December 2019. Two key reasons: (1) Health was up sharply, up 42% yoy – highest growth rate in 13 months, on a low base, (2) Fire business growth was strong (up 59% yoy vs 24% in January 2020) with higher reinsurance rates. ICICI Lombard’s premiums grew 12% yoy ex-crop; Bajaj (up 2% yoy) and Chola MS (up 5% yoy) posted weaker-than-industry numbers, on ex-crop basis. SBI (up 94% yoy ex-crop) maintained robust momentum along with Acko and GoDigit.

Retail and group health maintained steady growth. Overall growth in health business jumped to 42% yoy (Exhibit 1), compared to YTD run-rate of 17%, on account of a low base (net reversal) for government schemes. Retail heath maintained strong momentum at 15% yoy growth in February 2020 while group health business was up 19% yoy. PSUs saw a sharp 67% growth in business – United India (up 147% yoy) and Oriental (up 86% yoy) being the growth leaders (Exhibit 11) gaining market share from private players and specialized standalone players. For a change, general insurers (private + public) grew faster (50% yoy) than standalone insurers (up 25% yoy) in February 2020.

Motor OD and TP slowed down in February 2020. Motor segment reported premium growth of 3% yoy in February 2020 (Exhibit 2) – down significantly from the 15-20% levels seen in September-October 2019 after introduction of new traffic penalty rules. Motor TP grew 7% yoy in February 2020, lower than YTD growth rate of 14% (Exhibit 1). OD business contracted by 3% yoy during the month likely due weak lower OEM sales. Private players continued to gain market share on YTD basis, reporting 17% yoy growth, while PSU business YTD contracted by 3% yoy (Exhibit 8).

• TP business: Private players posted 21% yoy premium growth, while PSU players’ premiums contracted 8% yoy (Exhibit 10). SBI General delivered the best performance (up by >500% yoy on a low base). Go Digit (up 67% yoy) and Acko (up 97% yoy) continued to gain market share, while other large private players including ICICI Lombard (down 4% yoy), Bajaj (up ~7% yoy) and Chola MS (flat yoy) posted weak numbers.
• OD business: PSU players’ business contracted 20% yoy after two consecutive months of yoy growth (Exhibit 9), likely due to low OEM sales. This resulted in YTD FY2020 growth rate of -14%. Most large private players posted weaker-than-industry numbers, except ICICI Lombard (up 13% yoy) and SBI General (up 44% yoy). Premiums for Bajaj GI and Chola MS declined yoy by 9% and 3% respectively.

Fire revives. Fire insurance premiums grew 59% yoy in February 2020, back to the ~25-60% growth levels seen in March-November 2019 (Exhibit 7) after declining 10% yoy in December 2019. Large private players including ICICI Lombard (up 146% yoy), HDFC Ergo General (up 71% yoy), Bajaj (up 35% yoy) and SBI General (up 37% yoy) posted sharp recovery in growth. GIC had increased property reinsurance rates in March 2019 (average rise of 2X) for eight occupancies (comprising 35% of industry volumes) and, subsequently, for all 291 occupancies from January 2020. This has driven 37% yoy growth in 11MFY20.

Crop business slows down sharply in February 2020

Premium in crop business was down sharply by 52% yoy during February 2020, but up 21% YTD FY2020 (Exhibit 13). YTD growth was led by PSU players (up 73% yoy on YTD basis) while private players’ business was subdued (down 3% yoy on YTD basis). HDFC ERGO General booked the highest crop business among general insurers in February 2020.

Private and PSU general insurers slow down; Standalone health insurers steady

Both private and PSU general insurers registered ~11-12% yoy growth (Exhibit 4) in overall premiums in February 2020. On an ex-crop basis (Exhibit 6), private general insurers posted 19% yoy growth, while PSU players grew by 16%. Standalone health insurers continue to post stronger growth rates (up 24% yoy ex-crop in February 2020).

• Acko, GoDigit and SBI remain top performers (ex-crop). Among private players, Acko (100% yoy) and Go Digit (74% yoy) registered swift growth ex-crop (Exhibit 6), while SBI maintained strong momentum at 94% yoy growth. Large players including Bajaj (up 2% yoy), ICICI Lombard (up 12% yoy) and Chola MS (up 5% yoy) posted growth lower than private players’ average (up 19% yoy), on ex-crop basis.
• ICICI Lombard: Core business recovers from a negative territory. ICICI Lombard’s ex-crop (Exhibit 16) business grew modestly (up 12% yoy in February 2020), while still lower than management’s target of 18-20% growth in focus segments. This was led by continued weakness in its motor TP business. Motor business premiums (50% of FY2020 YTD business) grew 5% yoy in February 2020, with Motor TP (down ~4% yoy), offset by Motor OD (up ~13% yoy). Fire insurance (~12% of FY2020 YTD business) was up ~146% yoy, in line with 43% growth in YTD FY2020. 21% decline in retail health business was more than offset by 36% growth in group health business, resulting in overall 12% growth in the health business.
• Bajaj GI: Crop drags growth into negative territory but other segments weak as well. Bajaj reported flat business yoy (Exhibit 14) in February 2020, led by 143% decline in crop insurance premiums (21% of FY2020 YTD business) amid weakness in motor and health insurance. Ex crop, premiums were up 2% yoy in the month compared to ~10% yoy growth in FY2020 YTD. Health insurance premiums were down ~7% yoy led by 15% decline in the group health business (contributes 9% to FY2020 YTD business). Retail health held up momentum at ~11% yoy growth in February 2020 (in-line with industry trends). Fire business grew 35% yoy compared to 32% FY2020 YTD growth. Motor insurance business moderated sharply to 1% yoy growth – slower than industry growth in the month.
• Chola MS: Weakness persists. Chola MS reported 5% yoy growth (Exhibit 15) in gross premiums (ex-crop) as motor (74% of YTD FY2020 business) was flat. This was partly offset by fire (up 41% yoy). Neither OD nor TP premiums saw noticeable growth.
• Strong business momentum for SBI GI continues. SBI GI reported a 112% yoy growth (Exhibit 17) in premium in February 2020, driven mainly by significant yoy growth in crop (on a very low base) and 225% growth in motor business; continuing the strong momentum seen in FY2020. SBI General has a balanced product mix with ~20% contribution from fire, 20% from motor, ~10% from health, ~10% from personal accident and ~35% for crop in FY2020.

Source: Kotak Institutional Equities Research