Motor collapses; other segments surprisingly hold on well

Motor collapses; other segments surprisingly hold on well. General insurance companies held up well with 11% decline in premium in April 2020, in fact up 12% yoy excluding the motor business, which was down 50% yoy. The health business reported moderate 6% yoy growth. Spillover from March-end business and electronic renewal of policies have likely helped during the lockdown. Standalone health insurers were up 7% yoy; private players down 16%.

On expected lines, motor premiums slide 49% due to muted OEM sales

The motor segment witnessed 49% yoy decline in growth in April 2020 (Exhibit 1) – lower new sales and lower renewals owing to lockdown-related disruptions largely led to sharp decline in premiums. Negligible OEM volumes led to significantly lower volumes in both motor OD and TP segments. A significant portion of customers have likely used the relaxation provided by IRDAI on motor premium renewals up to May 31, 2020. In TP business, private players’ premiums decreased 44% yoy while PSU players’ premiums contracted 52% yoy. Most players reported steep decline in premiums (-22 to -77%). 51% decline in motor OD was broadly similar across private and PSU players. Amid a cash-flow crisis for the underlying customer, motor OD renewals will likely be lower leading to pressure on incremental volumes.

New-age players give up market share, counter-intuitively. Private players are dominant in the motor business with ~64% market share, broadly stable over the past year. New-age players like Acko and Go Digit have slowed down; market share dropped to 2.8% in April 2020 from peak market share levels of ~4% during 2QFY20 and 3QFY20. Intuitively, we would have expected the new-age players to gain share in the current environment due to their digital focus; this trend is a bit surprising.

Retail health holds up

Overall growth in the health business moderated to 6% yoy (compared to 14% yoy in FY2020) but higher than 11% yoy decline in March 2020 (Exhibit 17). Standalone health insurers reported 11% yoy increase in health premiums while it declined 19% yoy for private players (PSU players recorded strong 21% yoy growth on the back of traction in non-retail policies).

Standalone health players fare well. Growth in retail heath was muted at 4% yoy (flat mom) owing to lower business post lockdown in April 2020. Standalone health insurers reported strong 17% yoy growth in retail health in April 2020 (higher than 12% yoy in FY2020). Investment by health insurers in digital renewal of policies has likely paid off. Private players witnessed 13% yoy decrease in retail health insurance premiums in April 2020. Standalone health insurers are placed in a sweet sport to capture incremental growth opportunities due to Covid-19 though business for private players will likely revive in FY2021E.

Fire fires up

Fire insurance premiums grew 41% yoy in April 2020. This was likely driven by higher corporate renewals compared to retail businesses. Seasonally fire premiums tend to be high during April as most companies renew annual contracts. Additionally, 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. Large private players like Bajaj General (up 73% yoy), ICICI Lombard (up 41% yoy), Chola MS (up 22% yoy) and TATA AIG (up 36% yoy) posted strong growth.

Steady growth for standalone health insurers; weak for others

Both private and PSU general insurers registered ~14-17% yoy decline in overall premiums in April 2020 owing to Covid-related disruptions and lower renewals. Muted new auto sales and lower renewals supported by IRDAI relaxation led to sharp decline in motor volumes. Drop in demand for insurance related to marine transit led to 16% yoy decline in marine premiums. Health and fire continue to deliver robust growth (up 41% yoy and 6% yoy, respectively). On an ex-crop basis, private general insurers posted 15% yoy decline in growth, while PSU players declined by 2%. Standalone health insurers continued to post stronger growth rates (up 7% yoy ex-crop in April 2020). Even as PSU and private general insurers struggled in retail health segment, standalone health insurers fared well. The overall retail health premiums were muted at 4% yoy in April 2020 despite modest 17% yoy growth for standalone health insurers; private players down 13% yoy.

• Acko weak; strong growth in fire segment for Go Digit. Among new-age private players, Acko slowed down (premiums down 44% yoy on the back of sharp decline in motor premiums). Even as Go Digit reported 41% yoy decline in motor premiums, strong 3.2X yoy growth in dire premium (on a low based) led to 35% yoy growth in overall premiums. Additionally, robust growth in group health business (on a low base) supported overall volumes. Both these companies reported strong growth during 2QFY20 and 3QFY20 led by strong traction in motor premiums (higher traffic penalties) but have slowed down thereafter.
•  ICICI Lombard: fire and group health cushion steep fall in premiums. ICICI Lombard’s ex-crop business was down 9% yoy in April 2020 owing to weakness in motor business (down 47% yoy). Group business reported strong growth at 5% yoy (down 14% yoy in March 2020); management guided incremental focus on small and mid-sized companies in this segment as pricing pressure is relatively lower. Retail health, however, continues to be weak (down 35% yoy). The company’s market share in retail health business has declined to ~3% from 4-7% over FY2017-19. Fire insurance was up 41% yoy.
• Bajaj GI: motor down 48% yoy. Bajaj GI’s overall (excluding crop) premiums were down 21% yoy on the back of 48% yoy decline in motor premiums (~50% of ex crop business came from motor in FY2020). Health insurance premiums were down 47% yoy led by 20% yoy decline in the group health business and absence of business from government schemes. Retail health was up 9% yoy on a low base. Fire business grew 73% and cushioned sharp fall in premiums. The company is a large player in the fire segment with ~8.3% market share in April 2020 (up 30 bps mom/150 bps yoy).
• Chola MS: another weak month. Chola MS reported 34% yoy decline in gross premiums (ex-crop) as motor (74% of FY2020 premiums) was down 42% yoy; motor OD down 52% yoy. Retail health was weak (down 73% yoy); similar to trends observed in FY2020. The company has lost market share in retail health business (0.5% in April 2020 and ~1% in FY2020 compared to 1.5-3% over FY2017-19).
• SBI: excluding crop, premiums down 3% yoy. SBI reported 51% yoy decline in overall premium on the back of sharp decline in crop business while ex crop growth was -3% yoy. Motor was down 51% yoy. Health premiums were up 7% yoy led by 12% yoy growth in group health. Fire increased 17% yoy.

Source: Kotak Institutional Equities Research