The country’s life insurers have faced some major hurdles in the last few months, mainly due to complications related to COVID-19.
Apart from hampering profitability due to higher than normal claims, it also put brakes on revenue growth.
Companies were unwilling to write new policies in a highly uncertain environment, which greatly affected new businesses.
This affected investor sentiments, causing the share price of all life insurance companies to drop 5-10% since the beginning of the year.
But the trend has reversed over the past month, most of which have given returns of over 10%.
So, who has triggered this change? let’s find out.
#1 SBI Life
At the top of the list, we have SBI Life.
SBI Life, one of the top three life insurance companies in the country, has given a one-month return of 6.1%, trailing the BSE Sensex index, which is 5% higher than the index.
This improved performance comes on the back of improved margins (a value of new business (VNB) margin, a measure of profitability in the life insurance business), provided by a healthy business mix.
The company reported VNB margin expansion of 100 basis points in the March 2022 quarter as compared to the year-ago period.
This VNB margin expansion is likely to continue as the company’s business mix continues to change.
However, total income (represented by annual premium equivalents (APE), a common sales measurement calculation used by insurance companies) didn’t grow much, growing only 4% over the same period.
The net profit of the company has grown at a CAGR of 11% over 5 years. The 5-year average dividend yield is 0.2%, which is slightly less than the industry average of 0.9%. The Return on Equity (ROE) is around 18.5%.
SBI Life, a direct subsidiary of India’s largest bank, State Bank of India, has over Rs 2tn in assets under management (AUM).
Being a bank-backed insurer comes with a lot of benefits. Apart from a wide distribution network at its disposal, SBI Life also enjoys a trusted brand name in the insurance sector.
#2 HDFC Life
Next on the list is one of India’s largest private sector life insurers, HDFC Life which has outperformed the BSE index by 5.8%.
While the BSE Sensex index rose 1.2%, the company has given a return of 6.9% in the last month.
This disparity is due to better VNB margins of the company, which is also due to marginally better sales mix. However, there is a good chance that this expansion could come under pressure in the near future due to Exide’s acquisition of life insurance business.
The company recently completed the acquisition of Exide Life Insurance, which has a much lower operating VNB margin than HDFC Life.
But the management is confident that Exide’s VNB margins will soon reach group levels.
HDFC Life has built a strong franchise and brand name by monetizing its relationship with HDFC and HDFC Bank.
The company has built a strong network to sell its products to the customers of HDFC Bank and manages a total assets of over 2 tonnes.
The business is growing well, registering a 5-Year CAGR of 8.5% in Net Profit and a 5-Year Average ROE of 20.1%. The 5-year average dividend yield is 0.3%, which is less than the industry standard 0.9%.
#3 ICICI Prudential Life Insurance
ICICI Prudential Life Insurance is at the third position in the list.
The stock has also outperformed the BSE Sensex index, shooting up over 10% in the last month.
This great performance is a direct result of better revenue growth and less dependence on low profit business.
As per the March 2022 results, ICICI Prudential’s revenue grew by 25% as compared to the previous quarter.
The jump was reassuring for investors, especially considering the decline in revenue over the past three years. However, concerns over a product mix that is more exposed to market risks still remain.
But despite weak revenue growth, the company’s VNB margins have shown improvement. They stand at 28%, up 3% from the same quarter last year.
On a 5-year CAGR basis, ICICI Prudential’s net profit declined by 14.5% but managed to deliver a 5-year average return on equity (ROE) of 15.5%.
The company’s average dividend yield over the same period is 0.7%, close to the industry average of 0.9%.
#4 Maximum Financial Services
Max Financial Services is at the fourth position in the list.
The stock gave a return of 14.7 per cent to its shareholders, which is 13.5 per cent higher than the BSE Sensex last month. But before this jump, the stock fell 37% to Rs 708 from its 52-week high.
The decline is due to promoter issues and weak APE growth.
And while reports of family feuds and allegations of embezzlement may not hinder the company’s performance in the long term, the hefty promoter pledge (over 64% of the 14.5% stake) raises a huge red flag.
The recent run-up in the stock price could be a function of the 88.8% jump in net profit, despite the 8.2% drop in total earnings.
The company’s profit, as reflected in VNB, rose 22% on a higher basis, pushing the share price up further.
Max Financial has total assets under management of 1 tonne. Profits have grown at a post 5-year CAGR of 7.5% over the last 5 years. The business generated a 5-year average return on equity (ROE) of 20.1% and the company does not distribute dividends.
Now, you must be wondering why the insurance company Life Insurance Corporation of India (LIC) did not make the list.
The only joker in the pack, unlike its peers, LIC has underperformed the BSE Sensex Index. The stock is down 13.5% since listing, which was less than a month ago.
Apart from weak macro-economic factors and higher inflation, the decline is attributed to weak results posted by the company. All the more so in light of its peers reporting strong numbers.
The company reported a 17% YoY decline in consolidated net profit for the March 2022 quarter even as its net premium income grew by 17.9% YoY.
Powered by our strong and trusted brand names and strong distribution network, the private sector leaders are performing well.
The advent of the ‘LIC era’ has not affected their stock prices and their valuations.
While there are still some concerns about competition in specific areas of the life insurance business, private players are on a fast recovery path.
Disclaimer: This article is for informational purposes only. This is not a stock recommendation and should not be treated as such.
This article is syndicated from Equitymaster.com
(This story has not been edited by NDTV staff and is auto-generated from a syndicated feed.)