Life insurance behemoth LIC, which is gearing up for an initial public offering (IPO) later this year, witnessed a tepid growth in individual annualized premium equivalent (APE) in the first quarter of the current fiscal ending June 30. It was mainly due to pressure on the individual agency business during the pandemic.
APE is the total value of recurring premiums plus 10 percent of new single premiums written during a period. LIC reported 4 percent y-o-y growth in individual APE, translating into a 2 percent y-o-y growth in overall APE.
Individual sum assured was, however, up 37 percent over the same period last year. Weakness in volumes for LIC reflects pressure on the individual agency business during the pandemic, resulting from lockdown-related disruptions and social-distancing norms.
In terms of market share, LIC grew by merely 1 percent y-o-y (two-year CAGR of 4.4 percent), whereas private players grew by 59 percent.
Individual weighted received premium (WRP) for private players grew 16 percent over the year-ago June quarter, while the industry posted a growth of 10 percent. Individual WRP for private players grew 26.3 percent. The same for the industry grew 16.4 percent Y-o-y, as per a report by Motilal Oswal Financial Services.
The month of June marked a strong y-o-y with low base on many counts. Strong (26 to 47 percent in 1QFY22) y-o-y APE growth with mixed trends in the month gone by will drive 30 to 90 per cent y-o-y growth in value of new business or VNB (ex-COVID provisions).
The drop in individual sum assured for most players reflected pickup in the market-linked unit linked insurance plans (Ulips).
Ulips performed better than any other life insurance product during the first fiscal quarter on the back of good show witnessed by the capital market.
Sensex too crossed the 53,000 mark for the first time in June this year. ULIPs growth in the period under review was also due to the drop in individual sum assured for most players.
The capital market witnessed strong revival in equity-oriented mutual fund volumes from March — Rs 20,100 crore of net inflows versus outflows of Rs 17,900 crore in the preceding quarter.
Term life insurance sees a fall
Increase in term life insurance premium tariffs post rise in reinsurance rates and tightening of norms (like insisting on pre-medicals) have led to lower traction in this segment for the past two-three quarters. Notably, tariff hike in SBI Life for term life insurance plans is less significant over peers.
“Capital markets doing well in the recent times have helped faster growth of ULIPs. With a revival in the economy, the demand for insurance products will increase further,” said Shiva Kumar, former group president of Edelweiss group.
Arun Kejriwal, a capital market expert, said that rising stock market has helped the NAVs of units under various schemes of ULIPs of life insurance companies significantly.
Individual non-single sum assured was down for most of the players, except SBI Life.
Individual sum assured for private players declined 14 percent; SBI Life was, however, up 50 percent y-o-y. The drop in individual sum assured for most players likely reflects pickup in ULIPs during the quarter and lower term business.
A majority of life insurers have increased their term premia as a result of increased reinsurance rate for the same by 10-15 percent.
Group sum assured was up 2.3X y-o-y for private players, higher than 42 per cent y-o-y growth in APE reflecting better credit protect business to the period under review.
While a low APE base augurs well for ICICI Life, low margin base drives high VNB growth for SBI Life and Max Life. HDFC Life’s VNB growth (lower than listed peers) reflects a combination of moderate growth and margin expansion. The focus this quarter will be on incremental growth outlook and impact of Covid-2 claims.
“We continue to like the life insurance space; ICICI Life and SBI Life are top picks,” said a recent Kotak report on the life insurance sector.
APE in the first quarter was strong on a low base as it was in the year-ago period when the nationwide lockdown due to COVID-19 had kickstarted. However, high ULIPs and low term put some VNB pressure on the industry during the period under review.
The life insurance industry with 24 players reported strong (26-47 percent) growth in individual APE during the period. Except for SBI Life, which was down by 12 percent due to high base), group APE (up 77-240 percent y-o-y) was strong for all players.
For all the three listed players — HDFC Life, ICICI Prudential Life and SBI Life, individual APE was down on two-year CAGR. On a two-year CAGR basis, individual APE was down 1 percent for HDFC Life, 8 per cent for SBI Life and 15 per cent for ICICI Prudential Life.
Max Life’s two-year individual APE CAGR was strong at 14 per cent as against industry average of -1 percent. This was on the back of strong traction in bancassurance business through the Axis Bank channel. Other players with new bancassurance partnerships like Bajaj Life and Tata AIA Life reported strong 22 per cent and 11 per cent two-year individual APE CAGR.
Lockdown-related disruptions and social-distancing norms have led to moderation in life insurance business; however, with increasing awareness and shift to protection products, the life insurance industry is expected to witness robust growth in FY22.
