Life insurance companies that witnessed a sharp decline in premiums in the June quarter owing to the pandemic saw a notable improvement in the September quarter. Strong focus on high margin protection business, diversified product mix and strong technological and digital thrust aided the performance of leading life insurance companies in the September quarter.

The pandemic crisis has opened up huge opportunities for life insurers in the long term, with the rise in awareness and demand for protection and annuity products (offering income certainty). While uncertainty over pandemic-related claim losses (underwriting losses) and low investment returns can impact profitability in the near term, steady focus on high margin segments, strong digital and product innovation capabilities and well-diversified distribution network should bode well for the three listed private players-- HDFC Life, ICICI Prudential Life and SBI Life.

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HDFC Life --Accumulate

After a sharp decline of 30 per cent in the June quarter, HDFC Life’s total APE (annualised premium equivalent) grew 21 per cent y-o-y in the September quarter. HDFC Life’s strong growth of 22 per cent in renewal premium in the first half of the current fiscal also lends comfort.

Value of new business (VNB) for a life insurer is a key measure that values future profit streams of the new business written during the year. For HDFC Life, while VNB declined by 12 per cent in the first half and resultantly the VNB margins fell by 240 bps to 25.1 per cent, it was mainly due to lower share of non-par products. This was due to a higher base of non-par mix last year (thanks to strong response for its Sanchay Plus product).

However, an increase in share of par products and continued focus on protection business offer support to margins. While tepid lending environment impacted its credit life business, there was a gradual pick up in Q2.

The management expects the credit protect business to normalise to previous year levels by Q4 of this fiscal.

At the current price, HDFC Life trades at about 5.6 times its embedded value as of September. The company’s strong financials, ability to drive product innovation and digital thrust should help it retain its premium valuations. Given the steep valuations, investors can accumulate the stock in dips for the long term.


ICICI Prudential Life’s relatively higher share of ULIPs has been a dampener in the past. But steady focus on growing protection and non-linked savings business has helped drive its VNB. In the September quarter, the life insurer’s VNB margins improved sharply to 27.4 per cent from 24.4 per cent in the June quarter, thanks to strong growth of 45 per cent in non-linked savings segment (APE) and improving share of high margin protection business (passing on reinsurance price hike aiding margins). While the share of ULIPs (in total APE) fell to 46 per cent in the first half, from 64 per cent in FY20, it remains a sizeable portion of the company’s portfolio and can inch up with stability in equity markets.

Both protection and the non-linked savings business are the more profitable segments, driving VNB margins. Going ahead, while product diversification remains the key focus for the company to drive VNB margins, whether it is able to maintain the momentum in high margin segments needs to be seen.

ICICI Pru Life trades at about 2.6 times its embedded value as on September, a discount to its peers. Sustainable improvement in VNB margins will be key to the stock re-rating significantly. Investors can buy the stock at current levels.


Much like its peers, SBI Life too witnessed strong recovery in the September quarter. The company’s overall new business premium grew by 15 per cent y-o-y in the first half of the fiscal, led by non-par and group savings products. Renewal premiums posted a strong 29 per cent y-o-y growth in the April-September period. ULIPs that constitute a relatively notable share for SBI Life had dragged the overall APE in the June quarter. According to the management, the momentum in ULIPs has picked up in the September quarter.

On a relatively low base, non-par APE has grown notably in the first half, taking the share of non-par APE to 12 per cent from 8 per cent last year. This along with the increase in protection mix has aided the 70 bps expansion in VNB margins to 18.8 per cent in the April-September period. Rising share of protection business and strong traction in non-par should aid margins going ahead.

At the current price, SBI Life trades at about 2.9 times its embedded value as on September. SBI Life’s focus on increasing non-par business, multi-channel distribution, gradual increase in share of protection business, consistent improvement in VNB margins and cost efficiencies are key positives. The stock presents a good buying opportunity now.