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India: Insurance
Equity Research
Subdued volumes so far; 2H to improve, but not by much
Volumes down YTD FY12; 2H12 could see slight yoy improvement
Indian life insurers continued to see significant declines in YTD FY12 retail
APE growth (-32% for industry and -47% for private sector) vs. 2H FY11 (-
26% and -41%, respectively), due to a high base, weak fund flows, and new
regulations. While we expect volume to improve in 2H12 on a low base, we
do not anticipate a strong increase, given volatile and weak equity markets,
low commissions on ULIPs, and cost controls by insurance companies.
Only two insurers among the top seven increased market share ytd in retail
APE: LIC (to 62% from 54% in FY11) and Max (to 3.9% from 3.4%), as they
saw a higher share of traditional policy sales.
Group premium taking a bigger chunk, traditional back in vogue
Insurers have responded to new norms by focusing on group policies in
FY12 (52% of NBP in YTDFY12 vs. 43% in FY11); (2) higher single premium
policy sales, which reduce the persistency risk (24% of NBP vs. 10% in FY10,
27% in FY11); and (3) traditional products, as seen for the three companies
that have disclosed this information, contributed 45%-83% of sales in
1QFY12 vs. 8%-30% in 1QFY11 and 15%-34% in FY11 given higher
commissions. This, despite companies claiming they want to focus on ULIPs.
Margins to decline yoy despite consolidation in business
ICICI Life and HDFC Life reported 1QFY12 margins of about 16%, below the
18% industry average for FY11, reflecting the new regulations on ULIPs. We
assume a FY12 NBAP margin of 12% for the industry, with some upside risk
should insurers manage to reduce cost ratios to single digits and enhance
persistency ratios. While we have yet to see persistency ratios improve, yoy
cost ratios have been declining; we think they could potentially fall further as
volumes improve. A combination of lower costs and lapse profits has led to
key private insurers recording profits in 1QFY12, in our view.
Volumes/margins are key; Neutral on BJFS/MAXI
Solvency margins remain comfortable, as profits for the private insurers in
FY11 have helped alleviate accumulated losses and the need for capital
infusion. However, we rate BJFS and MAXI as Neutral as we see no nearterm catalysts: Significant volume growth and stabilized margins would
make us more constructive. Our top pick in this space is ICICI Bank (Buy),
given attractive valuations vs RoA and growth on sustained margins.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
India: Insurance
Equity Research
Subdued volumes so far; 2H to improve, but not by much
Volumes down YTD FY12; 2H12 could see slight yoy improvement
Indian life insurers continued to see significant declines in YTD FY12 retail
APE growth (-32% for industry and -47% for private sector) vs. 2H FY11 (-
26% and -41%, respectively), due to a high base, weak fund flows, and new
regulations. While we expect volume to improve in 2H12 on a low base, we
do not anticipate a strong increase, given volatile and weak equity markets,
low commissions on ULIPs, and cost controls by insurance companies.
Only two insurers among the top seven increased market share ytd in retail
APE: LIC (to 62% from 54% in FY11) and Max (to 3.9% from 3.4%), as they
saw a higher share of traditional policy sales.
Group premium taking a bigger chunk, traditional back in vogue
Insurers have responded to new norms by focusing on group policies in
FY12 (52% of NBP in YTDFY12 vs. 43% in FY11); (2) higher single premium
policy sales, which reduce the persistency risk (24% of NBP vs. 10% in FY10,
27% in FY11); and (3) traditional products, as seen for the three companies
that have disclosed this information, contributed 45%-83% of sales in
1QFY12 vs. 8%-30% in 1QFY11 and 15%-34% in FY11 given higher
commissions. This, despite companies claiming they want to focus on ULIPs.
Margins to decline yoy despite consolidation in business
ICICI Life and HDFC Life reported 1QFY12 margins of about 16%, below the
18% industry average for FY11, reflecting the new regulations on ULIPs. We
assume a FY12 NBAP margin of 12% for the industry, with some upside risk
should insurers manage to reduce cost ratios to single digits and enhance
persistency ratios. While we have yet to see persistency ratios improve, yoy
cost ratios have been declining; we think they could potentially fall further as
volumes improve. A combination of lower costs and lapse profits has led to
key private insurers recording profits in 1QFY12, in our view.
Volumes/margins are key; Neutral on BJFS/MAXI
Solvency margins remain comfortable, as profits for the private insurers in
FY11 have helped alleviate accumulated losses and the need for capital
infusion. However, we rate BJFS and MAXI as Neutral as we see no nearterm catalysts: Significant volume growth and stabilized margins would
make us more constructive. Our top pick in this space is ICICI Bank (Buy),
given attractive valuations vs RoA and growth on sustained margins.
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