Stagnating

Stagnating. Individual APE has declined 6% yoy for private players, broadly similar to the past two months. Staggered lockdowns disrupting physical channels, weakness in capital markets, focus on cash conservation and moderation in protection business post rate hikes dampened pace of recovery. Among private players, Bajaj, HDFC Life, Max and Tata AIA’s individual APE were up 13%, 14%, 11% and 34% yoy while Aditya Birla SL, SBI Life and ICICI Prudential Life declined 6%, 14% and 29% yoy, respectively.

Non-par likely holding up well while protection has moderated from peak levels

Overall APE was up 4% yoy while individual APE was down 2% yoy in August (down 0.3% in July 2020). Even as private players witnessed 6% yoy decline in individual APE (similar mom), LIC was up 2% yoy (up 10% and 8% yoy in July and June 2020, respectively).

Strong growth in protection business has likely moderated. Individual sum assured for the private sector was up 12% yoy (16% in July 2020) as compared to 38% in June, 12% in May and 25% in April. The ratio of individual non-single sum assured to individual non-single premium ratio (interplay of growth in premium, sum assured and tariff hikes) declined to 37X in August 2020 (39X in July 2020 and 31X in August 2019), down from 45-81X in April-June 2020.

Among other product classes, non-par and annuity likely held on well due to competitive rates offered by players (similar to TD of frontline banks). LIC’s strong growth was likely driven by traction in endowment and annuity-based products.

•  Traditional businesses likely strong for HDFC Life. HDFC Life reported 14% yoy increase in individual APE in August 2020 (12% yoy in July 2020); individual sum assured was flat yoy (up 15-31% yoy over the past two months). Overall APE was up 20% (up 17% yoy in July 2020) compared to 7% yoy decline for other private peers (down 6% yoy in July 2020). Growth in individual business was likely driven by strong traction in the flagship traditional businesses. The IRR offered by ‘HDFC Life Sanchay Plus’, its flagship non-par product is attractive relative to most other products and other financial substitutes (ex. term deposits). Additionally, the par product likely maintained robust growth on a low base. HDFC Life’s strategy to toggle between product classes has helped it deliver better than industry.
•  ULIPs drag ICICI Prudential Life. ICICI Prudential Life reported 29% yoy decline in individual APE in August 2020, translating to 42% yoy decline in 5MFY21. Individual sum assured was up 15% yoy, reflecting continued push in protection products; this is margin accretive. Weakness in capital markets driving lower ULIPs (15% yoy drop in average ticket size in individual non-single business) continues to put pressure on growth. Additionally, relatively lower focus on non-par segment continues to drag growth compared to peers. On considering overall (individual and group) adjusted APE including accrued but not received premium, ICICI Prudential Life’s APE was down 21% yoy (down 36% yoy in 5MFY21).
•  SBI Life weak. SBI Life’s individual APE declined 14% yoy in August 2020 (similar to 14% decline in July; 24% YTD decline). Overall APE was down 8% yoy, supported by 95% yoy growth in group business. Individual sum assured was up 4% yoy, likely indicating some rise in share of protection business (lower base compared to peers). High share of ULIPs, however, continues to put pressure on growth.
•  Protection likely strong for Max. Max Life’ individual APE was up 11% yoy. Individual business sum assured was up 42% yoy, likely indicating strong uptick in protection business. Lower volumes through non-Axis banca channels, however, drag the pace of growth. Max has fared better than most peers during the pandemic although the benefit now seems to be waning. On YTD basis, Max’s individual APE is flat, while HDFC is down 5%, ICICI Life down 42% and SBI Life down 25%.

Other players: Tata and Bajaj strong; Birla weak

Among other major private players, Tata AIA and Bajaj Life reported strong 34% and 13% yoy growth in individual APE while Aditya Birla Sun Life was down 6% yoy. Individual business sum assured was up 1.2X yoy for Bajaj, reflecting traction in protection. Tata AIA’s strong growth is likely attributed to uptick in business from a wide bouquet of endowment, annuity and whole life plans.

Share of single premium at 54% for private players

Share of single premium was high at 54% in August 2020 for private players, similar mom. This was likely driven by higher share of single premium annuity or lump-sum payout products. Among major private players, share of single premium is relatively higher for HDFC Life at 72% (63% in August 2019)  and SBI Life at 59% (42% in August 2019), respectively.

LIC gained market share on mom basis in August 2020 in the group business

Private players’ market share in group business declined to 20% in August 2020. Most players recorded increase in share of group business. Thus tends to be volatile due to lumpy nature of contracts.

Source: Kotak Institutional Equities Research