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  1. Life insurance: Expect inflows into Ulips to be moderate in FY19

Life insurance: Expect inflows into Ulips to be moderate in FY19

Private life insurance companies reported 4% growth in individual annual premium equivalent (APE) (16% excluding ICICI Prudential Life and SBI Life Insurance) during May 2018 on a high base – 46% year-on-year (y-o-y) growth in March 2017.

By: | New Delhi | Updated: June 15, 2018 12:52 AM
Life insurance: Expect inflows into Ulips to be moderate in FY19

Private life insurance companies reported 4% growth in individual annual premium equivalent (APE) (16% excluding ICICI Prudential Life and SBI Life Insurance) during May 2018 on a high base – 46% year-on-year (y-o-y) growth in March 2017. Inflows to equity mutual funds were broadly stable month-on-month but far lower than FY17 peaks. We expect FY19 to be a moderate year for Ulip inflows though focus on protection business will continue to drive value of new business (VNB) for large players. In that sense, monthly APE data is incrementally less relevant.

Private sector (excluding ICICI and SBI) individual business

Private sector APE was up 3% y-o-y in May 2018. With 16% growth at LIC, the overall industry was up 10% y-o-y. In the individual segment, the private sector was up 4%. Excluding two large players, viz., ICICI Prudential Life and SBI Life that carry a large base and have been moderating for past few months, the rest of the industry was up 16% y-o-y, lower than 21% in April 2018 and 25% in FY2018.

SBI picks up, ICICI still weak

SBI Life Insurance reported 27% growth in individual APE as compared to 11% decline in April 2018 and 12% growth in 4QFY18. The business seems to be back on track after a sluggish performance over the past four months.

ICICI Prudential Life reported 30% decline in individual APE, in line with April 2018. This comes from a high base of 100-145% growth. On a lower base (27% growth in June 2017), we expect the growth rate to be higher next month.

A low base in April had supported 70% individual APE growth for HDFC Life. Business was moderate at 11% yoy growth in May 2018. Max Life was up 19% y-o-y, in line with its recent growth rates.

Birla Sun Life Insurance delivered 40% growth during the month (37% in April 2018) despite a high base of 25-32% for individual APE; the traction may be likely due to its bancassurance partnership—a trend interesting to track.

We don’t read much into growth rates of April-May as the first two months of the year tend to be weak and may not be indicative of any trends for the year, and second, the base for past two months was high with private sector individual APE up 86% in April 2017 and 46% in May 2017 from delayed benefits of demonitisation. Overall growth in the next 10 months was lower at 21%.

Investment inflows may be moderate in FY19

Moderation in capital markets and rise in interest rates will likely reduce the intensity of inflows into capital market financial savings—mutual fund inflows for the past two months have been stable at `132-136 billion as compared to the peak of `265 billion in August 2017. We hence expect inflows into Ulips to be moderate in FY19.

Most large life insurance companies are increasingly balancing their portfolio and shifting a bit towards traditional policies. More importantly, all large players are focusing on the high-margin protection business, which will improve their VNB even as APE growth may be lower. As such, the monthly APE trends are increasingly getting irrelevant.

Edited excerpts from Kotak Institutional Equities report on insurance

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