Focus on health; motor still in the ‘Red’

Focus on health; motor still in the ‘Red’. General insurers reported 11% yoy growth in premiums (excluding crop) in September 2020 (up 9% yoy in 2QFY21 versus 3% yoy decline in 1QFY21) led by 20% yoy growth in fire (up 28% yoy in 2QFY21) and robust 41% yoy growth in retail health (up 43% yoy in 2QFY21). Motor continues to drag growth (down 2% yoy for the month and 4% in 2QFY21). Among key players, SBI reported stellar ex-crop growth of 21% (up 28% yoy in 2QFY21) while ICICI and Tata AIG were up 7% and 20% yoy (up 10% yoy and 14% yoy in 2QFY21). Bajaj’s ex-crop business remained weak, down 5% yoy. Chola MS was muted at 3% yoy (ex-crop).

Motor still in the ‘Red’

Motor premiums declined 2% yoy in September 2020 (down 4% yoy in 2QFY21 compared to 24% yoy decline in 1QFY21), similar mom despite uptick in new vehicle sales (4Ws up ~20-25% yoy in September 2020 and 2Ws up ~5% yoy). This likely reflects lower renewals as freight operators and individuals are focused on cash conservation, especially in cases where vehicle utilization has declined. Motor OD was up 4% yoy, gradually reviving over the past few quarters while motor TP was down 6% yoy. Motor premiums have gradually improved from trough levels observed in April and May and will likely improve further on the back of likely rise in sales during the upcoming festive season.

New age players weak, SBI, Tata and ICICI perform better than the pack. Among key players, new age players like Acko and Go Digit witnessed weakness in the motor business, down 20% yoy and 2% yoy respectively. SBI reported stellar 54% yoy growth in motor led by ~1.2X yoy jump in TP; the company reported better than industry growth for the fifth consecutive month in a row. ICICI Lombard was up 6% yoy; tie-ups with new OEMs and diversification of channels drive growth in motor. Tata AIG was up 14% yoy.

Retail health retains strong momentum

Overall growth in the health business was strong at 29% yoy (up 24% yoy in 2QFY21 and 8% yoy in 1QFY21). Growth was strong in retail health at 41% yoy (up 43% yoy in 2QFY21 and 24% yoy in 1QFY21) and group health at 46% yoy (up 29% yoy in 2QFY21 versus 8% yoy in 1QFY21). Standalone health insurers reported 39% yoy increase in health premiums led by 49% yoy increase in the retail health business. Private players were up 9% yoy in the health business (up 48% in retail health) while PSUs were up 33% yoy.

Standalone health insurers deliver strong growth in 2QFY21. Standalone health insurers reported strong 41% yoy growth in health insurance in 2QFY21 driven by 56% yoy growth in retail health insurance. Investment by these health insurers in digital renewal of policies has likely paid off. Among major private players, Chola MS, SBI, Tata AIG and ICICI Lombard witnessed strong growth in retail segments at 1.2X yoy, 21% yoy, 80% yoy and 35% yoy respectively in 2QFY21.

Fire has started to moderate

Fire insurance premiums grew 20% yoy in September 2020 (on a high base; up 37% yoy in September 2020), lower than 29-47% yoy growth over the past three months. Overall fire premiums moderated a bit to 28% yoy in 2QFY21 versus 37% yoy in 1QFY21; this segment has however supported growth over the past few months. Among major private players, Bajaj Allianz, ICICI Lombard and Tata AIG reported strong growth at 48% yoy, 59% yoy and 51% yoy respectively.

Crop down 25% yoy

Crop premiums tend to be volatile. Overall crop premium was down 25% yoy in September 2020 (up 11% yoy in August 2020 and 1.1X yoy in July 2020). Crop premiums were down 31% for PSU general insurers and 25% for private general insurers. Among major players, crop premiums declined 95% yoy for Bajaj Allianz General in September 2020 (down 11% yoy in August 2020 and up 12.6X yoy in July 2020). SBI General reported muted 2% yoy growth for the month (up 68% yoy in August 2020 and 1.8X yoy in July 2020). Among private players, only Tata AIG reported strong 1.3X yoy growth in the crop segment. Overall crop premiums were down.

For 2QFY21, crop premiums declined 2% yoy. Among major private players, Bajaj Allianz General and SBI General reported 2% yoy and 36% yoy growth respectively in 2QFY21; most others players witnessed decline in premium growth in this segment in 2QFY21.

Key highlights for select players

• Aditya Birla Health and Star Health retain strong momentum. Premium for standalone health insurers was up 38% yoy led by strong growth for all players, although HDFC Ergo Health was muted at 7% yoy. Aditya Birla Health and Star Health continued to witness strong growth, up 72% yoy and 45% yoy respectively in September 2020 (75% yoy and 45% yoy respectively in 1HFY21).
• Acko and Go Digit slowed down. Among new age private players, Acko reported muted 9% yoy growth in premiums in September 2020 while Acko was down 8% yoy. The drag in motor premiums (down 20% yoy for Acko and down 2% yoy fro Go Digit) was the key driver.
• ICICI Lombard: motor holds on; health lower than industry average. ICICI Lombard’s ex-crop business was up 7% yoy in September 2020, lower than industry growth of 11% yoy. While the motor business growth was broadly in line with industry average, health was weak. Strong 59% yoy growth in the fire business supported new business from smaller companies and 31% yoy growth in retail health supported overall premiums. Motor was muted at 6% yoy; motor OD was however modest at 10% yoy. Group health was muted at 4% yoy. ICICI Lombard bounced back in 2Q with better-than industry growth of 10% yoy (excluding crop), down 6% yoy in 1QFY21. Strong 62% yoy growth in fire insurance and 35% yoy growth in retail health insurance during 2QFY21 supported overall growth. Motor and group health was muted at 9% yoy and 5% yoy respectively.
• Bajaj GI: weak across other segments, crop holds on. Bajaj GI’s overall (excluding crop) premiums was down 5% yoy on the back of 20% yoy decline in motor premiums; the company’s performance has been weak over the past few months on ex-crop basis. Health insurance premiums were muted at 13% yoy despite 38% yoy growth in retail health. Group health was up 11% yoy. Crop insurance was down 95% yoy; this however tends to be volatile and the company reported strong 13X yoy growth in July 2020 (up 28% yoy in 1HFY21). Unlike its peer ICICI Lombard, Bajaj GI will continue to be a prudent play in the crop segment. Overall ex-crop gross premiums were down 6% yoy in 2QFY21, marginal improvement over 17% yoy decline in 1QFY21. The company continues to lag growth in the motor business, which has put significant pressure on overall growth.
• Chola MS: motor flat; strong uptick in health. Chola MS reported muted 3% yoy growth in gross premiums (ex-crop) on the back of strong 9X yoy growth in retail health and 43% yoy growth in fire insurance while motor was flat yoy. Group health was down 62% yoy. Chola MS delivered relatively better performance in 2QFY21, albeit lower than industry average. Overall premiums was flat yoy in 2QFY21 compared to 22% yoy decline in 1QFY21.
• SBI: continuous top-class growth. SBI reported 21% yoy growth (excluding crop) in September 2020 led by strong growth across most segments, similar to the trends observed over the past five months. Motor was up 54% (down 2% yoy for the overall industry) while health increased 15% yoy (14% yoy growth in group health and 17% yoy increase in retail health). Crop was muted at 2% yoy. The company continues to deliver best-in-class growth in premiums (up 28% yoy in 2QFY21 and 11% yoy in 1QFY21 in the ex-crop business).

Source: Kotak Institutional Equities Research