Not bad

Not bad. Private life insurance players reported 40% yoy decline in individual APE in April 2020 despite the lockdown during the entire month; this is better than our expectations of about 90-95% decline. Demand for protection policies and spillover from year-end pipeline were the likely drivers. Subdued capital markets acted as a dampener – inflows to equity-oriented mutual funds were muted at Rs44 bn in April 2020 as compared to Rs96 bn/month in the previous two months. Among large private players, ICICI Life was down 55% yoy and SBI Life down 73%; HDFC and Max Life were down 29% and 20%, respectively.

40% decline or 60% achievement?

While the month of April 2020 is expected to be a washout for many segments of the economy, life insurance companies were able to deliver 60% of April 2019 individual APE. This is better than our expectation of 90-95% decline for large players (Exhibits 2 to 4). Volumes for the month of April typically reflect some spillover of the year-end business. With sudden pause in business activity in last 10 days of March 2020, the spillover may have supported business despite the lockdown. Additionally, demand for protection policies would have likely increased due to higher appetite for these policies post Covid-19 and sunset period of the old pricing regime. Ability of insurance companies in managing end-to-end product delivery also assumes importance in the current period. On mom basis, individual APE was 25% of March 2020 business for the private sector (Exhibit 1); this ratio was higher at 32% for ICICI Prudential Life and HDFC Life but lower at 20% for Max Life and 15% for SBI Life.  

Key highlights

• HDFC Life reported 28% yoy decline in individual APE in April 2020, the decline was similar mom. The individual business was likely supported by growth in the protection business. The share of individual protection increased to 9.3% in 4QFY20 (6.6% in FY2020) from 5.4% in 4QFY19. 
• ICICI Prudential Life reported 55% yoy decline in individual APE. Likely slowdown in ULIPs (30% yoy drop in average ticket size in individual non-single business in April 2020) drives weak performance. On considering overall (individual and group) adjusted APE including accrued but not received premium, its APE was down 54% yoy. Weakness in capital markets will continue to put pressure on overall ULIPs (down to 65% in FY2020 from 80% in FY2019).
• SBI Life’s individual APE declined 73% yoy. The company has high share of ULIPs (~70% as of FY2020) and dependence on bancassurance channel (~70% as of FY2020). New business through the bancassurance channel was weak due to Covid-related business disruptions. Additionally, protection product is yet to pick up pace through the agency channel. SBI Life’s ability to manage end-to-end digital product delivery will remain crucial in the current environment. The group business increased at a sharp pace by 61% yoy.
• Max Life was weak as well with 20% yoy decline in individual business in April 2020. The slowdown was mostly likely driven by lower volumes (average ticket size in the non-individual segment increased 20% yoy/40% mom in April 2020).
• TATA AIA reported strong 37% yoy growth in the individual business most likely on the back of strong growth in protection product (TATA’s Sampoorna Raksha has higher search interest on Google compared to others). Bajaj Life was muted yoy while Birla SL was down 25% yoy.

Equity inflows weak

Equity mutual funds reported net inflows of Rs44 bn in April 2020 on the back of weakness in capital markets, lower than Rs96 bn/month in the past two months. SIP inflows declined 3% mom to Rs84 bn. Gross inflows at Rs158 bn were the lowest since FY2017. Retail inflows (especially from smaller cities) will likely remain muted over the next few months. Despite high risk aversion, liquidity fund inflows were robust at Rs688 bn (net outflows of Rs1.1 tn in March 2020). Others (mostly debt funds) witnessed redemptions of ~Rs285 bn likely reflecting investor concerns on closure of FT’s debt funds; seasonal trends suggest that April tends to have net inflows in this segment.

Share of single premium at 63% for private players

Share of single premium increased sharply to 63% in April 2020 from 45% in March and 42% for FY2020. This was likely due to steep decline in regular paying ULIPs. Among major private players, share of single premium increased sharply for SBI Life to 86% in April 2020, highest since FY2011. LIC’s share of single premium business decline to 65% compared to ~67-86% over the past 12 months.

Group business market share at 42% for private players

Private players’ market share in group business was at 42% in April 2020 (19% in FY2020) and 48% in April 2019. LIC’s group business tends to be lower in April and business picks up towards the end of 1H and 2H. Most private players excluding ICICI Prudential Life gained market share in April 2020.

Source: Kotak Institutional Equities Research

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