Why Goldman Sachs is bullish on India’s life insurers

Goldman Sachs initiated coverage on life insurers with a constructive stance as they resume a growth trajectory post Covid-19 disruption.

The global research firm has a ‘Buy’ call on HDFC Life with a 12-month target price of Rs 880. It is also positive on SBI Life and ICICI Life with a target price of Rs 1,080 and Rs 500, respectively.

Commenting on individual insurance players, Goldman Sachs added that HDFC Life is poised for an earnings inflection led by diversified product franchise, sustainable online leadership and a rising share of higher-margin protection business. On the other hand, it added that SBI Life is on track to deliver a 21% CAGR in EPS (FY20-23E) as it mines eligible SBI customers while ramping up its retail protection offerings, including monetising the SBI YONO platform. The overseas firm believes that earnings to recover for ICICI Life as its Ulip segment stabilises and improves in FY22.

Shares of HDFC Life have gained 28.25% to Rs 719.25 during the past one year till February 24. However, SBI Life and ICICI Life have declined by 4.93% and 1.96% to Rs 871.10 and Rs 477.40, respectively. The benchmark BSE Sensex has gained nearly 26% to 50,781 during the same period.

Acceleration in protection products driven by customer pull, increased appetite for capital guaranteed savings due to income uncertainty and greater technology adoption in both sales and after-sales are among the top factors which will support the sector going ahead, Goldman Sachs said, adding insurers are increasing focus on profit growth, rather than top-line, driven by a better product mix, higher persistency and productivity gains.

On the other hand, it sees increasing competition, potential increase in re-insurance costs, equity market volatility impacting ULIPs and interest rate risk on guaranteed products as some of the key risks for insurers.

Source: Money9