A bit better.

A bit better. Dec 2020 was a muted month with 3% yoy APE growth in private individual business, better than the 7% decline in November, translating into 3% yoy growth in 3QFY21 (versus 3% decline in 2QFY21). Lower share of protection and higher ULIPs qoq may trend down VNB, higher traditional business will provide some cushion. With a diversifying product and distribution mix, we retain a constructive view on the sector; SBI remains best placed.

Tepid growth in December 2020

Individual APE for the private sector was muted at 3% yoy in December 2020 (base was a bit high), higher than 7.1% yoy decline in November and but lower than 14% growth in October 2020. Overall APE growth was a tad higher at 5% yoy due to strong 60% yoy growth in group APE indicating likely pick up in credit protect business (disbursements by financial institutions were strong during the month).

Overall growth in individual APE for the private sector was muted at 3% yoy in 3QFY21 (16% yoy in 3QFY20) despite robust 14% yoy growth in October 2020; it however remains higher than 3% yoy decline in 2QFY21. LIC was down 22% yoy in 3QFY21 on a high base of 40% yoy in 3QFY20.

While growth has improved from trough levels, protection business has slowed down likely due to moderation from heightened risk aversion. ULIPs have picked up a bit from trough levels, likely tracking the buoyant equity market. Traditional business segments and protection however continued to remain key drivers for incremental volumes in 3QFY21, in our view. We expect growth to pick up in 4QFY21E on a low base of March 2020 (due to the sudden lockdown).

Individual sum assured weak; credit protect likely picking up

Individual sum assured for the private sector declined 14% yoy in December 2020 (down 17% yoy in November 2020 and 9% yoy in 3QFY21) compared to 9% yoy growth in October 2020 and 8% yoy growth in 1HFY21; this is likely following recent tariff hikes by large players and lower risk aversion among consumers driving slowdown in retail protection. Individual non-single sum assured to individual non-single premium declined to 26X in 3QFY21 from 29X in 3QFY20 and 35X in 2QFY21 reflecting a sharp slowdown in individual protection. Sum assured in the group single segment (likely reflecting credit protect) was up 13% yoy in December 2020 (up 11% yoy in 3QFY21 compared to 46% yoy decline in 1HFY21) likely reflecting pick up in credit protect business; this broadly indicates the improved momentum in lending activity. 

3QFY21E forecast: VNB margins remain high; moderate from 2Q peak due to higher ULIPs

Large private life insurers (excluding ICICI Prudential Life) reported 5-22% yoy increase in APE in 3QFY21; ICICI Prudential Life’s APE is down 21% yoy. Growth in protection segment has likely moderated from peak levels observed in 1HFY21, reducing their contribution to quarterly APE and VNB. Increase in share of non-par traditional business will however provide some cushion. ULIP growth, a low margin business, was the likely volume driver.

We bake-in 75-450 bps yoy increase in VNB margins for private players on the back of increase in high-margin protection and non-par business in overall product mix. While HDFC Life and SBI Life’s VNB margin will likely remain flat qoq, ICICI Prudential Life will likely report some decline in protection mix. However, increase in credit life from trough levels will support VNB margin.

~220-475 bps qoq decline in individual protection mix to overall individual APE

We estimate individual protection mix to overall individual business to decline ~220-475 bps qoq for private life insurers. A back of the envelope calculation (Exhibit 4) suggests that individual protection mix to overall individual business will likely decline ~210-230 bps qoq (down 225-250 bps yoy) for HDFC Life to ~5.5%, ~250-260 bps qoq decline (up 90-110 bps yoy) to 11.1% for ICICI Prudential Life, ~470-480  bps qoq (down ~270-290 bps yoy) decline for Max Life and ~340-360 bps qoq decline (up ~120-140 bps yoy) for SBI Life.

December 2020 and 3QFY21: Highlights of key players

} HDFC Life: Muted on a high base. HDFC Life reported 4% yoy increase in individual APE in December 2020 on a high base of 46% yoy growth in December 2019. Growth slowed down from November 2020 onwards to 20% yoy (high base) compared to 43-45% yoy growth over September-October 2020. Group APE was up 48% yoy likely reflecting (1) pickup in credit protect business and (2) traction in the newly launched group protection product. Group sum assured was down 8% yoy. Overall individual APE was up 19% yoy in 3QFY21 (high base of 24% yoy in 3QFY20); marginally lower than 22% yoy in 2QFY21. Growth in overall APE was similar to individual APE at 19% yoy for 3QFY21. Individual sum assured was down 15% yoy in 3QFY21 (down 24% yoy in December 2020) indicating slowdown in retail protection.

§ Growth in individual business was likely driven by strong traction in traditional businesses. HDFC Life’s strategy to toggle between product classes has helped it to deliver better than industry in 9MFY21 (up 8% yoy compared to 4% yoy decline for private players).

} ICICI Prudential Life: Yet to recover despite normalizing base. ICICI Prudential Life reported 24% yoy decline in individual APE in December 2020 (down 21-31% yoy over the past four months). The company continued to report weak APE growth despite a lower base (up 8% yoy in December 2020 and down 5% yoy in December 2018). Slower than industry growth is likely led by (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 25.5% yoy in December 2020 and 18.5% yoy in 3QFY21). Strong growth in group APE at 1.6X yoy (up 78% yoy in 3QFY21) cushioned APE partially (down 18% yoy).

§ Overall APE was down 21% yoy in 3QFY21 (down 30% yoy in 9MFY21 compared to 4% yoy decline for private players) on the back of 25% yoy decline in individual business (compared to 3% yoy growth for private players). Individual non-single sum assured to individual non-single premium moderated to 39X in 3QFY21 from 50X in 2QFY21 likely indicating sharp slowdown in the high margin protection segment; it however remains higher compared to 35X in 3QFY20.

} SBI Life: Strong on a high base. SBI Life’s individual APE was up 7% yoy in December 2020 on a high base of 17% yoy growth in December 2019 and 24% yoy growth in December 2018). December tends to be a strong month for the company due to annual incentive targets for the individual agency base. Individual APE growth was marginally higher than industry average in 3QFY21 at 5% yoy despite high dependence on ULIPs. Individual business sum assured was down 10% yoy in 3QFY21; lower than 14% yoy decline for private players. SBI Life’s group APE was up 16% yoy in December 2020 likely on the back of strong growth in credit life segment (group business sum assured up 10% yoy in December 2020 and 17% yoy in 3QFY21).

} Max Life: Another strong month. Max Life’ individual APE was up 18% yoy while individual sum assured was up 2% 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 40% yoy while group sum assured increased 1X yoy; credit life has likely revived.

§ Overall individual APE was strong at 22% yoy in 3QFY21 translating to 22% yoy growth in overall APE for the quarter. Individual business sum assured was however lower at 2% yoy growth indicating slowdown in retail protection segment. The company has fared better than private peers with 11% yoy growth in overall APE compared to 4% yoy decline for private peers.

} High base dampens LIC’s growth in 3QFY21. LIC reported 4% yoy decline in individual APE in December 2020, marginally higher than individual APE growth for private players. Overall individual business declined 22% yoy in 3QFY21 due to 54% yoy decline in November 2020 (high base). Group APE was down 25% yoy in December 2020 (down 19% yoy in 3QFY21`; the company lost market share in group business in 3QFY21, down 650 bps yoy to 75%).

} Other players: Bajaj and Aditya Birla Sun Life strong, Tata AIA moderates. Among other major players, individual APE growth was strong for Bajaj Life and Aditya Birla Sun Life at 41% and 20% yoy respectively in December 2020. Growth was muted at 9% yoy for Tata AIA Life; growth has moderated from peak levels of 25-37% yoy over August-October 2020. While group APE growth was strong at 87% yoy and 1.4X yoy for Bajaj Life and Aditya Birla Sun Life respectively in December 2020, it was down 10% yoy for Tata AIA Life.

§  Overall APE growth was strong at 16% yoy for Bajaj Life and 13% yoy for Tata AIA Life in 3QFY21; it was however muted at 5% yoy for Aditya Birla Sun Life.

Large outflows from equity MFs, likely due to profit booking

Equity-oriented mutual funds witnessed high net outflows of Rs167 bn in December 2020 (Rs483 bn in 9MFY21, Rs396 bn in 3QFY21). High redemptions, likely due to profit booking (a trend typically observed immediately after a market rally) was the key driver. Fresh inflows have however revived coupled with an increase in SIP inflows post a few months of gradual decline. SIP inflows increased to Rs84 bn in December 2020 from low levels of Rs73 bn in November 2020. Non-SIP gross inflows increased to Rs218 bn from Rs62-120 bn since April 2020.

Share of single premium at 40% for private players

Share of single premium dropped a bit to 40% in December from 47% in November  from 50% in October 2020  (33% in December 2019). Marginal decline in share of single premiums likely indicates some moderation in pace of growth of annuity or lumpsum payout products.

Market share in group business broadly stable mom

Private players’ market share in group business was broadly flat mom at ~26% in December 2020. Among major private players, Bajaj Life, HDFC Life and ICICI Prudential Life gained marginal market share in group business on mom basis while Aditya Birla Sun Life and SBI Life lost.

Source: Kotak Institutional Equities Research

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