With focus shifting to protection and other high margin policies, the value of new business growth of large players will remain strong.
Private sector individual Annual Premium Equivalent (APE) saw growth at 17% year-on-year (y-o-y) in October 2018. Most large players saw strong growth, with HDFC Life up 36% and Max Life up 27% y-o-y. SBI Life was moderate at 16% y-o-y. However, ICICI Life reported a big decline, down 17% y-o-y likely due to its focus on the lower-ticket business.
With shifting focus to protection and other high margin policies, the value of new business (VNB) growth of large players will remain strong. Nevertheless, APE growth for ICICI Life will remain a monitorable over the next few months.
Most large players strong
HDFC Life reported 37% growth in individual APE and 34% growth in overall APE in October 2018. Growth recovered in September 2018 after recording three months of low single-digit growth. This is largely driven by higher ticket size in individual non-single business (up 42% y-o-y; slightly down month-on-month (m-o-m). In all probabilities, the products profile during the month was skewed to unit-linked insurance plans (Ulips).
SBI Life reported 16% growth in individual APE (up from 6-10% y-o-y during June-August 2018). This is in line with its guidance of gradual improvement in volumes from a decline in 1QFY19 when it was focusing on streamlining its processes and increasing protection business. While near-term growth will be modest (versus 30% + in the past), rise in penetration will drive VNB.
Max Life continued its momentum and delivered 27% growth in individual APE (20-40% y-o-y during the past five months). Birla SL reported 1.1x y-o-y growth in individual APE in October 2018, gaining market share to 2.3% from 1.2% in October 2017. This is clearly driven by making strong inroads in HDFC Bank. The 74% y-o-y rise in ticket size in the individual non-single segment during October 2018 (up 22% in 7MFY19) suggests that a large part of the growth may be from higher-ticket ULIPs. Tata AIA reported 59% growth in individual APE during October 2018, similar to September 2018, leading to 54% growth YTD. Its market share increased to 2.8% (up 90 bps y-o-y; flat m-o-m). The 12% y-o-y decline (down 2% in 7MFY19) in average ticket of individual non-single segment suggests that growth is driven by increase in volume.
APE drop for ICICI Prudential Life
Unlike other large players that reported strong growth, ICICI Prudential Life reported 17% y-o-y decline in individual APE. This was largely driven by a steep reduction in ticket size in the individual non-single segment (down 11% y-o-y and 14% m-o-m). The reason, according to the management, was its focus on lower-ticket business; October anyway tends to be a lean month.
The trend, if continues, poses risk of downgrade in our APE growth estimates for the year even as protection story continues to play out.
Edited extracts from Kotak Institutional Equities Research report