A bit muted, on a high base

A bit muted, on a high base. Private life insurers reported 7% yoy decline in individual APE in November 2020 (+14% yoy in October 2020), on a high base (27% growth in November 2019). HDFC Life, Max Life and Tata AIA performed better than the industry while ICICI Prudential Life and Aditya Birla Sun Life were weak; SBI Life and Bajaj Life were broadly in line with industry averages. Equity mutual funds reported sharp outflows likely due to profit booking.

Just a high base effect?

Individual APE for the private sector declined 7% yoy in November 2020, while group APE was down 12% yoy translating to 7% yoy decline in overall APE. Notably individual APE growth turned positive in September 2020 (up 4% yoy) as the lockdown eased, and was up 14% yoy in October 2020, but declined yoy in November. This may be due to a high base effect; November 2019 was a strong month for the private industry with 27% growth as compared to 3-4% growth in September and October 2019. This will normalize from December and in fact a low base of March 2020 (due to the sudden lockdown) will likely provide a big boost.

Individual sum assured weak; credit protect likely picking up        

Individual sum assured for the private sector declined 17% yoy in November 2020 compared to 9% yoy growth in October 2020 and 10% yoy growth in 1HFY21; this is likely following recent tariff hikes by large players. Sum assured in the group single segment (likely reflecting credit protect) was up 4% in November, though lower than 16% growth in October, it compares with yoy decline since March 2020. This growth broadly indicates the improved momentum in lending activity.  

Large outflows from equity MFs, likely due to profit booking

Equity-oriented mutual funds witnessed high net outflows of Rs164 bn in November 2020 (Rs316 bn in 8MFY21). High redemptions, likely due to profit booking (a trend typically observed immediately after a market rally) coupled with muted gross inflows continued to drive high net outflows. Gross SIP inflows declined ~11% yoy to ~Rs73 bn.

High ask rate for next four months; SBI Life remains preferred pick

We expect large players to deliver (-) 19% to (+)14% APE growth in FY2021E. Ask rate for ICICI, Max and SBI to meet our annual APE forecasts is significantly higher than the trend over the past two months. However, Exhibit 1 shows that all large players reported sharp yoy APE decline in March 2020 due to the sudden lockdown in the economy. As such, the base for March 2020 is much lower. HDFC Life will also benefit from a low base and may exceed our estimates, if the current momentum continues. It is not clear if RBI’s recent restrictions on digital business of HDFC Bank will affect HDFC Life- the company generates about 20% business from the online channel in which its partners (like HDFC Bank) have a significant contribution.

SBI Life (BUY; FV of Rs1,150, rolled over to December 2022E, from Rs1,100) remains our preferred pick. We retain BUY on ICICI Prudential Life (FV Rs530, Rs500 earlier). HDFC Life (FV Rs650, up from Rs615) remains a strong model though rich valuations constrain our bullishness.

November 2020: Highlights of key players

HDFC Life: Stronger than the rest. HDFC Life reported 20% yoy increase in individual APE in November 2020; lower than 43-45% yoy growth over the past two months; individual sum assured was down 24% yoy (up 6% yoy in October 2020 and 11% yoy in 7MFY21) indicating sharp slowdown in protection segment. Overall APE was up 11% (up 45-47% yoy over the past two months) owing to 29% yoy decline in group protection segment despite likely pick-up in credit life business. Growth in individual business was likely driven by strong traction in the traditional businesses. HDFC Life’s strategy to toggle between product classes has helped it to deliver better than industry growth.

ICICI Prudential Life: Weak again. ICICI Prudential Life reported 31% yoy decline in individual APE in November 2020 (down 22-24% yoy over the past two months). The company continues to report lower than industry growth owing to (1) pressure on ULIPs, (2) relatively lower presence in non-par segment and (3) moderation in pace of growth in the protection segment. Individual sum assured was down 23% yoy reflecting moderation in protection product (down 2% yoy in October 2020). Strong growth in group APE at 46% yoy (up 31% yoy in October 2020 and 1.2X yoy in September 2020) cushioned APE partially (down 28% yoy).

SBI Life: In-line with industry. SBI Life’s individual APE was down 6% yoy in November 2020 (up 14% yoy in October 2020 post declining 4-14% yoy over June-September 2020). Overall APE was down 5% yoy. Group APE was up 10% yoy likely on the back of strong growth in credit life segment.

Max Life: Holds on well. Max Life’ individual APE was up 8% yoy while individual sum assured was down 15% yoy indicating that protection likely slowed down and majority of growth was driven by non-par segment. Max has fared better than most peers during the pandemic. Group APE was up 55% yoy while group sum assured increased 1.2X yoy; credit life has likely revived.

High base for LIC. LIC reported high growth of 104% in individual APE during November 2019 due to sunset period of some of its key policies. On this high base, LIC reported 54% decline in November 2020.

Other players: Tata AIA holds on, Aditya Birla Sun Life weak. Among other major players, individual APE was flat yoy for Tata AIA Life while it was down 5% yoy for Bajaj Life. Aditya Birla Sun Life witnessed sharp decline in individual APE at 26% yoy. Bajaj Life’s group APE reported sharp decline at ~51% yoy.

Share of single premium at 47% for private players

Share of single premium dropped a bit to 47% in November 2020 from 50% in October 2020  (45% in November 2019). Marginal decline in share of single premiums likely indicates some moderation in pace of growth of annuity or lump sum payout products.

Market share in group business broadly stable mom

Private players’ market share in group business was broadly flat mom at ~24% in November 2020. Among major private players, Bajaj Life, HDFC Life and SBI Life lost marginal market share in group business on mom basis while it increased for Aditya Birla Sun Life and ICICI Prudential Life.

Source: Kotak Institutional Equities Research