Stock Fundamentals

Q1 results round-up of life insurance companies

Radhika Merwin | Updated on July 29, 2019 Published on July 28, 2019

Life insurers’ focus on protection business, persistency and cost-efficiencies has driven profitability in the June quarter

Life insurance companies reported healthy growth in value of new business (VNB) last fiscal. The momentum of VNB picked up in the latest June quarter, thanks to increased focus on the protection business. Strong growth in new business premium, better profitability, cost-efficiencies, good distribution network and product innovation, are key positives that should keep earnings of the three listed players — HDFC Life, ICICI Prudential Life Insurance and SBI Life — in good stead through FY20.

Given the challenges in the savings business, that comprise linked, participating and non-participating policies, life insurance players have been focussing on protection business. Protection products provide cover for life, disability, critical illness and accidental death. The cost of these pure risk protection products are low.


In the June quarter, while HDFC Life continued its focus on the protection business, strong growth of 64 per cent Y-o-Y in individual APE (annualised premium equivalent — sum of annualised first year regular premium plus 10 per cent of single premiums) was led by its non-participating savings business. This was thanks to the strong response for its Sanchay Plus product — a savings-cum-investment plan. As a result, HDFC Life’s product mix was skewed in favour of non-par savings, which constituted 58 per cent of individual APE in the June quarter, up from 6 per cent in the same quarter last year.

The management expects the product mix to normalise on a full-year basis. As such, all segments have grown at a healthy clip in the June quarter. Protection APE grew 63 per cent Y-o-Y in the June quarter. Overall, new business premium (NBP — sum of first-year premium and single premium) reported a robust growth of 47 per cent Y-o-Y.

Driving VNB is important for life insurance players. Since premium payments for life insurance policies are typically spread over by a period, the cost of new customer acquisition is high, leading to new business strain in the year of sale. Hence, VNB is a key measure to assess the financial performance of insurers. Essentially, VNB is a measure that values future profit streams of the new business written during the year.

VNB for HDFC Life doubled in the June quarter to ₹509 crore; the company’s steadfast focus on cost-efficiencies saw VNB margin — the ratio of VNB to APE — expand by a tidy 560 bps to 29.8 per cent.

HDFC Life’s renewal premium growth, though, was modest at 10 per cent in the June quarter. The management stated that this was because the premium-paying period of many products ended last year and didn’t get renewed. The insurer’s persistency ratio has inched up from last year; this is a positive. Persistency measures the number of policies (or amount of premium) retained with an insurer across different time periods. The persistency ratio of HDFC Life’s 13th month was 88 per cent (87 per cent last year) and that of 61st month was 54 per cent (50 per cent last year).



SBI Life

SBI Life continued its focus on the protection business, which grew at a healthy clip in the June quarter. The insurer’s NBP grew by a strong 52 per cent Y-o-Y in the June quarter.

Renewal premiums too grew by a healthy 32 per cent Y-o-Y. SBI Life’s protection new business premium rose 106 per cent Y-o-Y in the June quarter; the share of protection NBP has inched up from 10.2 per cent last year to 13.8 per cent in the June quarter.

This aided the robust 49 per cent growth in VNB, though VNB margin improvement was somewhat muted at 90 bps. Improvement in VNB margin in the coming quarters will be keenly watched as operating leverage is expected to kick in with higher volumes, boosting profitability. Savings business now forms 86 per cent of new business premium; within that, ULIPs constitute about 42 per cent. The insurer’s diversified product portfolio augurs well for growth.

SBI Life’s 13th month persistency has improved marginally to 85.9 per cent (85.1 per cent in FY19), though the 61st month ratio has dipped slightly to 56.8 per cent (57.2 per cent in FY19). This was because of the falling share of single premium in the 61st month bucket. However, the operating expense ratio improved, falling to 7.4 per cent from 9.7 per cent in the same quarter last year.

ICICI Pru Life Insurance

For ICICI Prudential Life Insurance, the strong growth in protection aided performance despite a modest 5.3 per cent Y-o-Y growth in overall APE in the latest June quarter. The insurer’s ULIP business — that continues to constitute a large proportion (71.2 per cent of APE) — declined 6.1 per cent in the June quarter, dragging the overall growth in APE.

A robust growth of 87.7 per cent in protection APE boosted profitability. VNB grew by 26.6 per cent Y-o-Y in the June quarter, while VNB margin shot up to 21 per cent as against 17.5 per cent in the same quarter last year.

The share of protection in overall APE has gone up to 14.6 per cent from 9.3 per cent in FY19. The management expects to double VNB over the next three to four years.



Published on July 28, 2019
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