Insurance sector poised to return to healthy growth trajectory; HDFC Life, Max Financial may rally up to 32%

Analysts believe that after witnessing underperformance for the past two years, the insurance sector is poised to return to a healthy growth trajectory. HDFC Life, Max Financial Services, and ICICI Prudential Life remain top stock picks in the sector.

insurance sector, hdfc life, ICICI prudential life, max financial
After witnessing muted growth in business premiums in January and February 2022, the life insurance industry is witnessing healthy recovery.

Insurance sector in India picked up as new business premium for the industry grew strongly by 89% on-year in May 2022 on a lower base of May last year, which saw muted growth on account of lockdowns. Among the listed and other large players, SBI Life Insurance reported the fastest new business premium growth, while LIC witnessed premium growth of 77%. Analysts at Sharekhan by BNP Paribas believe that after witnessing underperformance for the past two years, the insurance sector is poised to return to a healthy growth trajectory. HDFC Life, Max Financial Services, and ICICI Prudential Life remain analysts’ top stock picks in the sector.

Preferred stock picks

HDFC Life – Target price: Rs 740, Upside: 22%
Max Financial Services – Target price: Rs 1,100, Upside: 32%
ICICI Prudential Life – Target price: Rs 660, Upside: 17%

Individual APE demonstrated strong growth

The Sharekhan report highlighted how insurance companies under their coverage saw robust individual APE growth in May 2022 on yearly basis. Max Life reported the fastest individual APE growth of around 73% on-year, after witnessing slower growth in April. Growth for HDFC Life was at 52%, while ICICI Prudential saw individual APE growth of around 36%. Meanwhile, the individual APE growth for SBI Life Insurance surged by 194% on-year.

Market share gains

Analysts noted that insurance companies including Max life and HDFC Life saw market share gains on a monthly basis in terms of individual APE. While ICICI Prudential lost market share on the monthly basis, market share of Max Life and HDFC Life increased by 57 bps and 60 bps MoM, respectively. For ICICI Prudential, market share declined by 157 bps MoM, while LIC’s market share in terms of individual APE increased by 269 bps on a monthly basis.

Insurance industry witnessing healthy recovery

Analysts highlighted how the number for policies growth was healthy for the insurers. For HDFC Life, policy growth stood at 13% on-year. While for Max Life and ICICI Prudential, the policy growth stood at 29% and 14.2% on-year, respectively, in May 2022.

Analysts at Sharekhan believe that after witnessing muted growth in business premiums in January and February 2022, the life insurance industry is witnessing healthy recovery. “The protection segment for life insurers is expected to continue to gain pace as supply-side issues subside and non-par and annuity segments are likely to witness strong growth. While ULIPs are expected to remain affected by volatility in capital markets. Further, after witnessing underperformance for the past two years, the insurance sector is poised to return to a healthy growth trajectory,” they said.

Factors such as a large protection gap and expanding per capita income are key long-term growth drivers for the sector, according to the analysts. “In this backdrop, we believe strong players armed with the right mix of products, services, and distribution are likely to gain from this opportunity,” the report stated.

(The stock recommendations in this story are by the respective research analysts and brokerage firms. FinancialExpress.com does not bear any responsibility for their investment advice. Capital markets investments are subject to rules and regulations. Please consult your investment advisor before investing.)

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