Low base effect.

Low base effect. Life insurers reported stellar individual APE growth of 90% yoy in March 2021 (on a low base) translating to 40% yoy growth in 4QFY21 and 8% yoy for FY2021. Two-year Individual APE CAGR was however modest at 7% in March 2021 and 6% for FY2021. SBI Life, HDFC Life, Bajaj Allianz Life and Tata AIA Life delivered strong 13%, 12%, 11% and 17% 2-year individual APE CAGR respectively; ICICI Prudential Life and Max Life were however flat on a 2-year CAGR basis. Strong traction in non-par savings businesses, revival in ULIPs and credit life businesses are likely drivers. We expect a low base to support growth over the next few months as well.

FY2021: Performance significantly better than initial expectations

Private players reported 8% yoy growth in individual APE for FY2021, significantly higher than initial expectations at the start of the pandemic. Two-year individual APE CAGR was modest at 6%, lower that 4-year CAGR of 12%.

Individual protection supported growth in 1HFY21, while ULIPs started to revive from 3QFY21. Demand for non-par savings retained strong momentum throughout the year, likely reflecting investor preference to lock into a fixed rate in a falling rate regime, coupled with an increase in the appetite of life insurers to underwrite such products due to availability of FRAs. Credit life was weak in 1HFY21 due to lower disbursement volumes but picked up swiftly in 2HFY21; home loan disbursements reached peak levels for most players in 2H led by strong growth in real estate sales. LIC reported 2% 2-year individual APE CAGR in FY2021; the company has lost market share over the past few years by ~350 bps over FY2018-21 to ~40%.

Staging the set for a strong FY2022

We expect life insurance companies to report strong growth in individual APE in FY2022E (on a low base) driven by (1) revival in ULIPs (equity-oriented inflows were positive after 9 months in March 2021), (2) continued traction in non-par, pension and annuity based products; the market remains poised for growth due to dearth of high-yield fixed income instruments, (3) pick-up in credit life from trough levels in FY2021 and (4) high risk aversion pushing demand for individual protection in the latter part of the year −sales of protection policies tend to pick up post a pandemic. We expect VNB margin to remain strong due to a combination of high-margin savings and term products, tempered by growth in ULIPs.

Private players continue to gain market share

Focus on new product addition, diversification of channel mix, increasing digital capabilities of proprietary channels and push through non-core channels (ex. web aggregators) have led to a gradual increase in market share for private players in the individual business. Overall market share in individual APE increased to 40.3% in FY2021 from 43.8% in FY2018 and 60% in FY2015. We expect better digital capabilities to deliver higher growth for private players over the next few months of local lockdowns.

Equity-oriented inflows turned positive in March 2021

Equity-oriented inflows were modest in March 2021 at Rs96 bn compared to Rs20-167 bn in outflows since June 2020. Gross inflows adjusted for SIPs started to pick up from December 2020 though elevated redemptions continued to drag net inflow. Additionally, SIPs increased to a monthly run-rate of Rs82 bn in 4QFY21 from Rs79 bn in 9MFY21. Liquid fund redemptions were high in March 2021 at Rs263 bn; these however tend to be volatile.

Highlights of key companies

HDFC Life: Another strong year. HDFC Life reported 2-year individual APE CAGR of 12% in March 2021 (2-year individual APE CAGR of 18% in FY2021/up 17% yoy in FY2021). Its ability to toggle between product classes and continued focus on product innovation has led to strong growth compared to peers - HDFC Sanchay Plus was the flagship product of the company in the non-par savings segment and HDFC Sanchay Par Advantage was the flagship product in the high tenure par segment. Overall APE was 38% yoy in 4QFY21 led by 40% yoy growth in individual APE. Group APE was modest at 25% yoy in March 2021 (up 14% yoy in FY2021).

ICICI Prudential Life: Base normalization. ICICI Prudential Life reported 2-year individual APE CAGR of 1% in March 2021 (2-year individual APE CAGR declined 12%/ individual APE down 18% yoy in FY2021). Lower sales through the ICICI Bank channel, sharp decline in ULIPs and late entry in the non-par savings market were key reasons for weakness in individual APE growth. With the base normalized, the decline in individual APE is arrested. Investment in the channel and product mix diversification will likely support higher volumes, albeit incrementally. Group APE was up 1.2X yoy in March 2021 (up 16% yoy in FY2021).

SBI Life: Steady. SBI Life reported 2-year individual APE CAGR of 13% (2-year individual APE CAGR of 7% in FY2021/ individual APE up 5% yoy in FY2021). Despite a high share of ULIPs (65-70% over FY2018-20), the company delivered steady growth in a challenging environment, outpacing the growth for other private players (2-year individual CAGR of 7% versus 6% for private players). Continued investment in expansion of agency business, traction in non-par savings and protection (on a low base) and focus on increasing credit life attachment rates through SBI channel are key drivers. Group APE growth at 52% yoy for FY2021 was significantly higher than private player industry average at 20% yoy indicating strong growth in credit life business. APE growth will likely pick-up further; ability to increase business from SBI’s branches remain high.

Max Life: Best performer during the pandemic. Max Life emerged the top performer (among major private players) during the pandemic with 17% yoy growth in individual APE in FY2021. 2-year individual APE CAGR was however flat in March 2021 (2-year individual APE CAGR of 12% in FY2021). Investment in agency business and strong sales of protection products in 1HFY21 are key drivers.

Bajaj and Tata strong on a low base. On a low base, Bajaj Allianz Life and Tata AIA Life reported strong 2-year individual APE CAGR of 11% and 17% respectively in March 2021 and 19% and 24% respectively in FY2021. The strong push of non-par savings products by these players is the key driver.

Source: Kotak Institutional Equities Research