Health softens; motor revs

Health softens; motor revs. General insurers reported 5% yoy growth in premiums (excluding crop) in November 2020 (up 7% yoy in October 2020 and ~9% yoy in 2QFY21). Softening in health offset gradual improvement in motor. Motor recovered further to 7% yoy (up 3% yoy in October 2020 and down 13% yoy in 1HFY21). Retail health moderated to 17% yoy from 30-47% yoy growth over July-October 2020. Among key players, SBI reported stellar ex-crop growth of 33% yoy (up 24% yoy in 8MFY21; higher than 4% yoy for general insurers) while ICICI and Tata AIG were up 7% and 26% yoy (up 3% yoy and 10% yoy in 8MFY21) respectively. Bajaj’s ex-crop business remained weak; down 3% yoy. Chola MS was muted at 8% yoy (ex-crop).

Motor continues to improve mom. Motor premiums increased 7% yoy (up 3% yoy in October 2020 and down 4% yoy in 2QFY21) in November 2020 on the back of increasing new vehicle sales (4Ws up ~13% yoy in November 2020 and 2Ws up ~13% yoy). Robust festive demand and gradual rise in freight volumes and utilization rates supported premiums.  Motor premiums have gradually improved from trough levels observed in April and May and will likely improve further.

GIC Council has bifurcated motor premium into (1) motor OD, (2) motor TP and (3) motor package products (OD+TP combined policies). Motor package products constituted 71% of overall motor premiums in 8MFY21 (76% in 8MFY20). A back of the envelop calculation suggests that motor TP constituted ~60% of overall motor premiums in November 2019.

Retail health moderates from highs. Overall growth in health business was muted at 2% yoy in November 2020 on the back of (1) slowdown in retail health to 17% yoy from 30-48% over July-October 2020 and (2) muted growth in group health (despite a low base); this however tends to be volatile. Slowdown in growth in retail health was likely an interplay of (1) slowdown in daily new Covid-19 cases in India and (2) lower volumes during the festive season. Private players (excluding HDFC Ergo General) were down 1% yoy in retail health (down 15% yoy on overall basis) while PSUs were up 11% yoy (up 3% yoy on overall basis). Among major private players, SBI, Tata AIG and ICICI Lombard all slowed down in retail segments to growth of 13% yoy, 59% yoy, 95% yoy and 11% yoy from 49% yoy, 95% yoy and 32% yoy growth in October 2020.

Premium for standalone health insurers (excluding HDFC Ergo Health) slowed down to 17% yoy from strong 57-66% yoy growth observed over the past three months. Pace of growth started to moderate from October 2020 onwards as overall daily Covid-19 cases started to decline a bit from peak levels. Retail health insurance slowed down to 17% yoy in November 2020 (30% yoy in October 2020) from 41-48% yoy growth observed over June-September 2020. At 17%, growth in retail health has been moderate, lower than 30-40% in the past few months. We expect growth trajectory to continue or improve as demand for such policies picks up post the pandemic. This segment will however report high loss ratios in the near-term due to (i) significant Covid-related claims and (ii) high health inflation for non-Covid hospitalization and medical procedures.

Fire cools off on a high base. Fire insurance premiums moderated to 13% yoy on a high base of 58% yoy growth in November 2019 (20-47% yoy over June-September 2020). Among major private players, Bajaj Allianz, ICICI Lombard, SBI General and Tata AIG reported strong growth at 27% yoy, 28% yoy, 14% yoy and 35% yoy, respectively; SBI General and Tata AIG slowed down from peak levels.

Crop down 10% yoy. Overall crop premiums were down 10% yoy in November 2020 (down 2% yoy in 2QFY21); down 66% for PSU general insurers and 19% for private general insurers. Among major players, crop premiums declined 59% yoy for SBI General while Bajaj General (7% of overall premiums) and HDFC Ergo General (4% of overall premiums) continued to demonstrate strong performance (these two players had negligible volumes in November 2019).

Key highlights for select players.

Ø  Aditya Birla Health and Star Health moderate pace of growth.  Among standalone health insurers, Star Health insurance reported 29% yoy growth in retail health insurance; down from 47-56% yoy growth over the past three months. Unlike other players, group health held up well (up 48% yoy); this however tends to be volatile. Aditya Birla’ strong growth trends in retail health slowed down to 11% yoy in November 2020 (up 58% yoy in October 2020 and 1-1.1X in August-September 2020) due to the impact of a high base and gradual decline in industry volumes.

     HDFC Ergo Health was merged into the business of HDFC Ergo General Insurance and the reported premium reflects merged entity from November 2020.

Ø  Acko reverses; Go Digit retains momentum. Among new age private players, Acko was up 22% yoy (down 8% yoy in October 2020 and September 2020). Strong 38% yoy growth in motor insurance supported Acko’s growth during the month. Go Digit  retained momentum during the month (up 30% yoy compared to 39% yoy in October 2020) led by further recoveries in the motor segment. Motor premiums were up 21% yoy in November 2020 compared to 24% yoy increase in October 2020. Health premiums slowed down further 79% yoy (1.4X yoy in October 2020 and 4-12X yoy growth over July-September 2020) led by slower growth in group health.

Ø  ICICI Lombard: Motor fares better than industry average, retail health a tad lower. ICICI Lombard’s ex-crop business was up 7% yoy in November 2020; higher than industry growth of 5% yoy. While motor business was higher than industry average at 14% yoy growth, retail health was a tad lower at 11% yoy (up 17% yoy for the industry). Group health was down 24% yoy leading to 19% yoy drop in overall health. Fire was up 28% yoy.

Ø  Bajaj GI: Weaker than industry. Bajaj GI’s overall (excluding crop) premiums were down 3% yoy on the back of 2% 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 down 13% yoy owing to 15% yoy decline in group health and flat trends in retail health. The company continues to lag growth in motor business which has put significant pressure on overall growth. The company carried out Rs1.4 bn of crop business during the month (11% of overall crop premium by general insurers and 7% of overall crop premiums for November 2020).

Ø  Chola MS: Better month. Chola MS reported at-par growth in motor segment at 9% yoy in November 2020 (overall ex crop premiums were up 8% yoy). Fire was muted at 12% yoy.

Ø  SBI: Continuous top-class growth. SBI reported 33% yoy growth (excluding crop) in November 2020 led by strong growth across most segments; similar to the trends observed over the past eight months. Motor was up 63% (up 7% yoy for the overall industry) while health increased 35% yoy (60% yoy growth in group health and 13% yoy increase in retail health). Crop premiums declined 59% yoy; this however tends to be volatile. The company continues to deliver best-in-class growth in ex-crop premiums (up 24% yoy in 8MFY21 compared to 4% yoy growth for the industry).

Source: Kotak Institutional Equities Research