The Life Insurance Corporation (LIC) of India seems to be walking its talk of regaining its market share and growing at a faster pace than it has been doing in the past few quarters.
LIC’s new business premium for the month of November was Rs 24,033 crore, a massive growth of 50 percent. New business growth of all the private sector life insurers put together was a mere 1.9 percent during the same month. Note that LIC’s balance sheet size makes this growth rate even more sizeable.
The insurance industry’s business metrics for November show that LIC has gained considerable ground versus its private sector peers in pushing policies. On an annualised premium equivalent (APE) basis, LIC reported 30 percent year-on-year (YoY) increase in business for November 2022.
Among private-sector life insurers, SBI Life Insurance Company reported an 11 percent growth, and ICICI Prudential Life Insurance Corporation reported a marginal fall of 1 percent. HDFC Life Insurance Company reported a 42 percent surge.
To be sure, listed private-sector life insurers have also shown a sharp jump in premium growth.
LIC leads the growth rate on a three-year compounded annual growth rate (CAGR) basis too. A three-year CAGR growth smoothens out the volatility induced by the COVID-19 pandemic, giving investors a fair idea of the performance of an insurer.
Notably, the expansion comes on a balance sheet size that dwarfs other players. Kotak Institutional Equities notes that the 3-year CAGR growth for LIC was a stellar 42 percent, as of November.
LIC’s retail market share falls
What should bother investors is that much of this growth comes from the group insurance segment even as LIC’s retail market share is on a downhill.
Growth here hasn’t been spectacular with retail APE increasing by a modest 12.8 percent in November, which compares poorly to a 47.6 percent growth of HDFC Life and 30.3 percent for SBI Life. Ergo, the life insurer has lost market share here.
“LIC reported muted retail APE growth of 1.3 percent for YTDFY23, resulting in an immense decline in retail APE market share. Moving further, we expect LIC to grow in high single digits,” analysts at Emkay Global Financial Services wrote in a note.
The insurer’s management has reiterated several times that the company would pursue growth and particularly increase the share of non-participatory products.
Given its vast agency network, LIC’s aggression in margin-friendly, non-participatory products does not bode well for private-sector life insurers. In fact, smaller life insurers could face a greater challenge simply because of the balance sheet heft of LIC.
So, will LIC stock price go up?
The stock is down 23 percent from its issue price of Rs 949 at the initial public offer in May to Rs 685 a piece now. Though analysts have taken a favourable look, post the insurer’s growth pick-up, LIC’s profitability metrics still fall short. This could weigh on the stock.
Private-sector peers are likely to deliver more bang for their buck. Profitability metrics, such as value of new business (VNB) and margins, are superior for HDFC Life and SBI Life.
For instance, in the July-September 2022 quarter, HDFC Life reported a VNB margin of 26.2 percent, second only to SBI Life’s VNB margin of 31.6 percent. LIC’s margin was a mere 14.6 percent.
Analysts at Kotak Institutional Equities continue to keep HDFC Life and SBI Life as their top picks in life insurance. To be sure, growth could moderate for bank-promoted life insurers as lenders get busy pushing deposits and side-line policies.
“We do not expect the current month’s momentum to continue, especially in the light of rising deposit rates, even as we build consistent moderate gains for HDFC Life. SBI Life, though volatile on month-on-month basis, would continue to gain share over the year—largely supported by its strong parent,” they said in a note.
For LIC, given the vintage of its policies, the extent of profits it can squeeze out is limited. This is already reflecting in its embedded value, which hardly showed an expansion despite the insurer’s operating performance being stellar. The contribution of VNB to embedded value — of around 1.8 percent — is low for LIC.