Insurance stocks rally 2-7% on strong APE growth in June

Max Life's growth in individual APE was strong at 20 percent YoY (23 percent in Q1FY20), although somewhat lower growth than Q4FY19.

Life insurance stocks gained 2-7 percent intraday on July 12 after private companies reported healthy growth in annual premium equivalent (APE) in June.


SBI Life Insurance Company rallied 3.4 percent, HDFC Life Insurance Company 3.46 percent, ICICI Prudential Life Insurance Company 1.84 percent and Max Financial Services climbed 7.4 percent.

"Private sector players reported 24 percent YoY growth in individual APE in June 2019, gaining share from LIC. Overall industry growth was 13 percent as LIC was flat YoY," Kotak Institutional Equities said in its report.

Private players' growth was driven by strong performances of HDFC Life, Tata AIA Life, Bajaj Allianz Life, and SBI Life. LIC reported strong growth in its group business for the second consecutive month, resulting in 9x growth in its group APE in Q1FY20.

According to Emkay, premium growth for life insurance companies under its coverage has been broadly in line with expectations (Q1FY20) with a slight beat for HDFC Life and SBI Life, which have reported a strong set of numbers. "We continue to like this space due to structural undercurrents."

The brokerage remained overweight on SBI Life (also featured in its overall high-conviction list) due to the comfort of both growth and valuation and Max Life (Owned by Max Financial Services) citing its consistent delivery and attractive valuations.

However, the stake sale overhang to Axis by Max Life for a perpetual bancassurance tie-up and the reduction of promoter stake by SBI Life (needs a 6.5 percent stake sale by September 2020) to meet the minimum public shareholding (MPS) guidelines could limit the upside potential of these stocks, it added.

ICICI Prudential Life reported 1 percent YoY increase in June 2019 in individual APE, similar MoM. On considering overall (individual and group) adjusted APE including accrued but not received premium, its APE was up 3 percent YoY as compared to 5 percent in May 2019.

SBI Life's individual APE growth was strong at 25 percent YoY in June 2019.

"SBI Life had moderated its overall growth momentum in 9MFY19 due to its focus on productivity and protection business. The overall business momentum picked up since December 2018 with 25-45 percent YoY growth in individual APE," Kotak said.

SBI Life has guided to continue its focus on protection, though YoY growth in protection will be lower in FY2020 (individual protection APE was up 5 times in FY2019); in that sense, savings business APE will likely remain strong, the brokerage added.

Max Life's growth in individual APE was strong at 20 percent YoY (23 percent in Q1FY20), although somewhat lower growth than Q4FY19. The company has increased focus on ULIPs in the past two years. Its ticket size in the individual non-single segment was up moderately by 13 percent YoY/MoM.

Kotak said HDFC Life reported a sharp increase in individual APE for the third straight month at 87 percent YoY (31 percent in April, 59 percent in May) after witnessing muted growth from November to March 2018. "This pulled up its overall APE growth to 69 percent. Average ticket size in the individual non-single segment was up 79 percent YoY.

In addition, net mutual fund inflows to equities improved significantly to Rs 5,800 crore in June 2019 from Rs 2,700 crore in May 2019, although it was still lower than preceding months, Kotak said.

Interestingly, SIPs have been broadly stable over the past few months at Rs 8,000-8,200 crore, it added. "Thus, trends in growth between the individual business of insurance companies and mutual funds now seem to be converging."

At 1201 hours on the BSE, Max Financial Services was up 7.09 percent at Rs 436.80, HDFC Life was up 2.58 percent at Rs 479.70, SBI Life was up 2.80 percent at Rs 775.45 and ICICI Prudential was up 1.51 percent at Rs 387.35.
Disclaimer: The views and investment tips expressed by the brokerages on moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

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