Impressive, amidst challenges

Impressive, amidst challenges. General insurers delivered 7% (ex-crop) premium growth in FY2021 despite a 2% yoy decline in motor premiums. Fire (up 27% yoy) and retail health (up 28% yoy) were key growth drivers. A gradual pick-up in motor premiums is likely to support growth in FY2022E, though retail health and fire will likely moderate on a high base. Among major players, ICICI Lombard was up 5% yoy while Bajaj Allianz General declined 2% yoy. SBI was strong at 22% yoy. Standalone health insurers (excluding HDFC Ergo Health) reported strong 32% yoy growth in FY2021.

Motor declined 2% yoy in FY2021

Motor premiums increased 22% yoy in March 2021 (low base of 7% yoy decline in March 2021). Motor premiums have gradually increased over the past few months. Increasing new vehicle sales, gradual rise in freight volumes and utilization rates supported premiums.

Motor premiums declined 2% yoy for FY2021 due to weakness in new vehicle sales during 1HFY21 and lower freight volumes due to lockdown-related disruptions delaying renewals. We expect motor premiums to report modest growth in FY2022E on the low base of FY2021 though premium growth remains contingent on (1) increase in auto sales (on a low base), (2) any likely disruption in mobility due to the second wave and (3) hike in motor TP premiums (flat since FY2020).

GIC Council has bifurcated motor premiums into (1) motor OD, (2) motor TP and (3) motor package products in FY2021. Motor packages products (78.2% in FY2021 motor premium, down from 82.7% in FY2020) were down 7% yoy in FY2021 - the mix is not available across a time series. Motor TP was up 4% yoy in FY2021 and motor OD was up 1.4X yoy (a low share, we don’t read much in this).

Retail health supports overall premium growth in FY2021

Retail health premium was up 29% yoy in March 2021 (low base of 4% yoy growth in March 2020). On a qoq basis, premiums increased 37%; 4Q tends to be a strong quarter (qoq premium growth of 27-41% over the past three years in March).

Retail health premium increased 28% yoy in FY2021 (12% yoy in FY2020). Strong momentum in the sales of Covid-19 policies and high risk aversion due to the ongoing pandemic are key drivers. However, the lower likelihood of medical checks and substitution of comprehensive policies with Covid-19 policies (the latter tends to have lower ticket) put pressure on premium growth.

The share of retail health premiums in overall general insurance premiums (ex-crop) increased to 16% in FY2021 from 13% over FY2018-20. We believe retail health insurance will remain a key growth driver over the medium term due to increased customer awareness, intent to purchase more post the pandemic, increased push through diversified distribution channels and continued product innovation by insurers targeted at different customer cohorts. Standalone health insurers (excluding HDFC Ergo Health) reported strong 42% yoy growth in retail health in FY2021, while it was lower at 27% yoy for private players (excluding HDFC Ergo General).  Growth in PSUs was muted at 15% yoy.

Fire muted on a normalized base in March 2021

Growth in the fire segment was strong at 27% yoy in FY2021 (up 35% yoy in FY2020), but tepid at 8% yoy in March 2021 (flat yoy in February 2021). Growth in 9MFY21 at 33% yoy was due to price hikes incurred post January 2020 due to the rise in reinsurance rates. On a normalized base, growth slowed down in 4QFY21. Private players gained ~600 bps market share over FY2018-21 (58% in FY2021).

Crop down 3% yoy in FY2021

Overall crop premiums were down 3% yoy in FY2021. Private players lost ~200 bps yoy market share in FY2021 (46% in FY2021). Among major private players, SBI General, Bajaj Allianz General, HDFC Ergo General, IFFCO Tokio, Reliance General and Universal Sompo remained key underwriters with 37% market share in overall premiums.

Key highlights for select players in FY2021

• Standalone health insurers strong. Standalone health insurers (excluding HDFC Ergo Health) reported strong 32% yoy growth in FY2021. Investment in channel expansion, product innovation and geographic diversification are key drivers. Among standalone health insurers, Star Health insurance reported strong 36% yoy growth in FY2021. For March 2021, Star Health’s premium growth at 34% yoy was a tad lower than 41% yoy for standalone health insurers.
• Acko and Digit hold up well albeit off their peaks; focus shifts to product mix diversification. Acko and Digit reported robust 13% yoy and 25% yoy growth in FY2021 respectively; significantly higher than the industry average. Motor insurance growth at 23% yoy and 19% yoy in FY2021 respectively for these players was higher than the 2% yoy decline for the industry; lower share of new vehicles during the year and impact of low base are key reasons. Both players additionally focused on expanding product bouquet during the years. Acko’s health premiums increased 24% yoy (share of health to overall premiums increased to 28% in FY2021 from 25.7% in FY2020). Digit’s health insurance and fire insurance premiums were up 4X and 2.8X respectively in FY2021. The share of these segments to overall premium increased to 14.4% in FY2021 from 4.4% in FY2020.
• ICICI Lombard: Marginally lower than industry average. ICICI Lombard’ premium growth in FY2021 (ex-crop) at 5% yoy was marginally lower than the industry average, led by a sharp decline in group health. Premium growth in motor was however a tad higher than the industry average at 3% yoy. Retail health was up 26%. The slowdown in group health (down 10% yoy compared to 10% yoy increase for the industry) was the key drag on ex-crop premiums. The company has maintained a cautious stance in this segment due to aggressive pricing by select competitors and incrementally, it is focused on driving business through smaller corporate and SMEs where price competition is lower.
• Bajaj GI: Motor significantly lower than industry. Bajaj GI’s premiums declined 3% yoy (ex-crop) due to a 10% yoy decline in motor premiums. The company had a high share of exposure to CVs (mostly passenger vehicle carrying segment) in the motor segment while a slowdown in CV sales led to a sharp decline in premiums. Yoy growth in retail health and group health at 16% yoy and -2% yoy respectively lagged industry averages.
• Cholamandalam MS: Flat. Overall premiums were flat yoy in FY2021. Motor premiums were down 4% yoy. Growth in group health at 1.1X yoy was significantly higher than industry average, while retail health was muted at 5% yoy.
• SBI: Stellar performance. SBI General reported strong 31% (ex-crop) premiums in FY2021 on the back of strong growth across most segments. Motor reported 37% yoy growth while retail health and group health were up 22% and 1X yoy. Growth in the fire segment at 18% yoy was lower than the industry average.

Source: Kotak Institutional Equities Research