Q3 results of life insurers: Continued focus on growth drivers

It was business as usual for life insurance companies in the latest December quarter.

Continued focus on growing the protection business, diversifying the product and distribution mix, improving cost efficiencies and profitability, and product innovation through IRDAI’s Regulatory Sandbox route, were the key highlights of the December quarter performance across the three listed players — HDFC Life, ICICI Prudential Life Insurance and SBI Life.

Value of new business

By focussing on the protection business, life insurance players have been driving the value of new business (VNB) — a key measure to assess the financial performance of insurers. Essentially, VNB is a measure that values future profit streams of the new business written during the year.

In the December quarter, ICICI Prudential Life Insurance continued to focus on its protection business. The insurer’s VNB grew by a strong 24.7 per cent y-o-y in the nine months ended December quarter. This was driven by a robust 66 per cent growth in protection APE (annualised premium equivalent).

Its VNB margin shot up to 21 per cent as against 17 per cent in the corresponding nine-month period of the last fiscal. Even as the performance in the company’s linked business (unit-linked insurance policies - ULIPs) was weak, the strong growth in protection and a healthy growth in non-linked savings businesses aided the overall performance.

In 9MFY20, ICICI Pru Life’s overall APE grew by a modest 1.2 per cent, owing to a fall of 14 per cent in ULIPs. The share of ULIPs has fallen sharply to 68.5 per cent of APE as of December quarter, from 79.6 per cent in March.

A strong growth in protection business saw its share in the overall APE go up to 14.1 per cent in December from 9 per cent in March. Within protection, retail continues to dominate the mix.

Non-linked savings growth was primarily led by participating and annuity businesses. Participating business saw a robust growth of 38 per cent, contributing more than 11 per cent to the total APE. Annuity APE, too, on a low base, nearly doubled in the nine months vis-a-vis last year.

Persistency

On the persistency front (the number of policies or the amount of premium retained with an insurer across different time periods), there has been a dip across buckets (except the 49th month).

In the 13th month, persistency dipped to 83.1 per cent from 84.6 per cent in FY19. The management attributed the decline in persistency to the linked business. The company is taking efforts to improve persistency.

Branching out

On the distribution front, the company continues to focus on diversification. The share of non-bancassurance channels went up to about 47 per cent in the nine months ended December from about 44 per cent in FY19.

Within the bancassurance channel, the focus on growing the protection mix has continued. In the case of corporate agents and brokers, the insurer has focussed on protection and non-linked saving segments, which has paid off. It has also tied up with various non-traditional distributors such as web aggregators, payment banks, small finance banks and insurance marketing firms.

For SBI Life, a strong growth in new business premium, an improvement in VNB margin and continued focus on product diversification, have been key positives. The life insurer reported a strong growth in gross written premium (GWP) and new business premium (NBP), of 33 per cent and 35 per cent, respectively, in the nine months ended December 2019.

The growth in NBP was led by protection, annuity and individual non-par savings businesses. Protection NBP increased 37 per cent y-o-y in the nine months (though there was some moderation in growth in the December quarter). Renewal premiums, too, grew by a strong 31 per cent y-o-y. The insurer’s VNB grew 27 per cent y-o-y, with an 80 bps expansion in VNB margin to 18.3 per cent.

SBI Life’s diversified product portfolio has aided its growth. The individual savings business currently forms 63 per cent of the NBP; within that, ULIPs are about 47 per cent. SBI Life’s 13th-month persistency has marginally improved to 85.7 per cent (85.1 per cent in FY19), as also its 61st-month persistency to 58.5 per cent (57.2 per cent in FY19).

Its operating expense ratio has also improved, falling to 6.1 per cent from 6.9 per cent in the nine months of the last fiscal.

During the period ended December 31, 2019, the company classified its investment in DHFL bonds as NPA. A provision of ₹157 crore under unit-linked funds and ₹113 crore under shareholders funds have been recognised.

HDFC Life held its strong performance in the nine months ended December. The insurer’s individual APE grew by a strong 31 per cent y-o-y while the NBP grew 22 per cent. The strong response for its Sanchay Plus product — a non-par savings product — in the June quarter, had led to a spike in the share of non-par business.

Non-par constitutes 47 per cent of the individual APE, as of December, up from 15 per cent in FY19. However, the share of non-par has fallen substantially, from 54 per cent in the September quarter. The management expects the product mix to be more balanced by the end of FY20.

Healthy growth

As such, the growth in other segments remains healthy. The total protection APE has grown 32 per cent in 9MFY20. The annuity business grew 10 per cent based on the NBP. The VNB grew by a robust 45 per cent in the nine months ended December; the VNB margin expanded by a tidy 260 bps y-o-y to 26.6 per cent in the nine months ended December, though there was moderation in margins from the first half of the fiscal.

HDFC Life has also been diversifying its distribution mix.

The agency channel witnessed a growth of 66 per cent (in terms of individual APE); the direct channel also saw a robust 57 per cent increase.