Life insurance reported strong (26-47%) growth in individual annualised premium equivalent (APE) during Q1FY22 (on a low base of 1QFY21). Barring SBI Life (down 12% year-on-year (y-o-y) due to high base), group APE (up 77-240% y-o-y) was strong for all players on a low base of Q1FY21.
On a two-year CAGR basis, individual APE was down 1% for HDFC Life, 8% for SBI Life and 15% for ICICI Prudential Life. Max Life’s two-year individual APE CAGR was strong at 14% led by strong traction in business through the Axis Bank channel. Other players with new bancassurance partnerships like Bajaj Life and Tata AIA Life reported strong 22% and 11% two-year individual APE CAGR in 1QFY22. Lockdown-related disruptions and social-distancing norms have led to moderation in business; agent additions remained robust.
Individual non-single sum assured down
Individual sum assured for private players declined 14% y-o-y in Q1FY22; SBI Life was, however, up 50% y-o-y. The drop in individual sum assured for most players likely reflects pickup in Unit-linked insurance policies (Ulips) during the quarter and lower term business.
Increase in term tariffs post rise in reinsurance rates and tightening of screens (like insisting on pre-medicals etc.) have led to lower traction in this segment for the past 2-3 quarters. Notably, tariff hike in SBI Life is less significant over peers.
Group sum assured was up 2.3X y-o-y in Q1FY22 for private players, higher than 42% y-o-y growth in APE reflecting higher credit protect business to Q1FY21. We expect most banks/NBFCS to deliver high disbursements y-o-y.
Rise in Ulips
Q1FY22 value of new business (VNB) margins (before Covid-19 second wave provisions) will likely be interplay of increasing Ulips q-o-q and slowdown in term business putting some pressure versus increase in traction on non-par and pension policies driving expansion; higher volumes and group credit y-o-y will also augur well.
We expect 70-700 bps y-o-y expansion in VNB margin for HDFC Life, Max Life and SBI Life led by higher share of non-par savings business. ICICI Prudential Life’s VNB margin will likely be flat y-o-y (high base of Q1FY21 reflects elevated protection mix; higher Ulips this year offset by increasing non-par and pension business). On a q-o-q basis, rise in Ulips will put pressure on VNB margin although strong traction in non-par and annuity businesses will likely provide support.
Edited excerpts from Kotak Institutional Equities Research report