Insurance seems to have attracted analysts, as in the last couple of months volumes surprised positively with across-the-board performance on annual premium equivalent (APE) front. Most analysts are now advising investors to accumulate insurance stocks — both life and non-life stocks, as they see potential in the long run.
Emkay Global said: APE of private players grew 29.6 per cent y-o-y, driven by strong performance of HDFC Life Insurance, Kotak Life, Tata AIA Life and SBI Life.
APE is a measure used for comparison of life insurance revenue by normalising policy premiums into the equivalent of regular annual payments.
Kotak Institutional Equities said excluding ICICI Prudential Life (overall APE up 4 per cent y-o-y), other large players reported 25-55 per cent growth. “A low base and focus on ULIPs coupled with moderate appetite for equity investments were the likely reasons,” for the surge in APE increase, it added.
According to Fitch Solutions, India’s life insurance is well developed, though substantial gaps remain in terms of density and penetration. Rising life expectancies combined with a growing middle class are driving demand for life insurance products.
“Given India’s positive population and economic growth forecasts, this will create major opportunities for insurers over the next few years. In the medium term, premiums will grow steadily, at about 7 per cent per year,” Fitch said. The non-life insurance sector, according to Fitch Solutions, is smaller and less developed than the life market. Hence, it offers scope for accelerated growth over the next few years, particularly as regulatory changes attract new customers and price reductions open up lower-income markets, it further said.
“We continue to remain overweight on SBI Life (also features in our high-conviction list) and Max Financial in our sector EAP (Emkay Alpha Portfolio) due to their consistent delivery in premium growth. However, the stake-sale overhang to Axis by Max Life for a perpetual banca tie-up and the reduction of promoter stake by SBI Life to meet the minimum public shareholding guidelines could limit the upside potential of these stocks,” Emkay Global cautioned.
JM Financial said: “Going forward, we expect industry APE CAGR to be a healthy 16 per cent over FY19-21, with private players’ CAGR coming in at 17 per cent driven by — increased awareness and expanding share for life insurance within financialisation of savings; product innovations such as 4G ULIPs; investment into online/direct distribution channels; expected revival in capital markets which can give a fillip to ULIP sales.” Motilal Oswal recommends investors to buy ICICI Prudential Life with a price target of ₹450 on growth expectation.