Life Insurance Sector from Investment point of view

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Hi All, I hope you all are doing good. In our last blog we discussed about LPG gas , cylinders and listed companies in the business (Link). This time, we have come up with details about Life Insurance Sector in India from investment point of view.

Did you know that 75% Indians do not have life insurance policies? (Source)

More insurance policies means more people protected in the event of an unforeseen, loss causing incident. It provides the much needed support during unforeseen events. Life insurance is a must have for every tax paying citizen of India.

From the insurance agency’s standpoint, they get a pool of millions of dollars every month which they can further invest in government policies, equities, bonds etc and which further results in capital in the securities market and development of India. Before we discuss the life insurance sector in more detail, let us look at the history of life insurance in India

Advantage India

  • 10th largest life insurance market worldwide and 5 th largest in Asia with 4.6 trillion in total premium business.
  • Total premium grew at CAGR of 17% between FY01– FY18.
  • India continues to be under-penetrated as compared to countries like China, Thailand and Korea.  
  • 5 th largest economy in the world in terms of GDP 
  • One of the highest young population nations with a median age of 28 years 
  • Rising share of urbanization – Growth in the urban population at 2.4% CAGR between FY 15 and FY 20 
  • Only 1 out of 40 people (2.5%) who can afford it is buying a policy every year 1 
  • Huge opportunity to penetrate the underserviced segments, with the evolution of the life insurance distribution model    
  • India’s insurable population is expected to touch 750 million by 2020 

History of Insurance In India

In India, insurance has a deep-rooted history. It finds mention in the writings of Manu ( Manusmrithi ), Yagnavalkya ( Dharmasastra ) and Kautilya ( Arthasastra ). The writings talk in terms of pooling of resources that could be re-distributed in times of calamities such as fire, floods, epidemics and famine.

This was probably a pre-cursor to modern day insurance. Ancient Indian history has preserved the earliest traces of insurance in the form of marine trade loans and carriers’ contracts. Insurance in India has evolved over time heavily drawing from other countries, England in particular.

An Ordinance was issued on 19th January,
1956 nationalising the Life Insurance sector and Life Insurance Corporation
came into existence in the same year. The LIC absorbed 154 Indian, 16
non-Indian insurers as also 75 provident societies—245 Indian and foreign
insurers in all. The LIC had monopoly till the late 90s when the Insurance
sector was reopened to the private sector.

Read more here

India’s life insurance sector is growing at a speedy rate of 15-20%. Together with banking services, insurance services add about 7% to the country’s GDP. A well-developed and evolved insurance sector is a boon for economic development as it provides long- term funds for infrastructure development at the same time strengthening the risk taking ability of the country – IRDAI

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Source: IBEF

List of Life Insurance Companies in India

Today there are 31 general insurance companies including the ECGC and Agriculture Insurance Corporation of India and 24 life insurance companies operating in the country.

LIC enjoys ~53% of the market share

Out of above 24 companies only 3 companies are listed on the
index .

  1. HDFC Life Insurance Co Ltd’
  2. ICICI Prudential Life Insurance Co Ltd
  3. SBI Life Insurance Co Ltd
Source: IBEF

The life reinsurance market in India has demonstrated strong expansion over the past decade. The market size of life reinsurance in India today exceeds INR 2,100 crore, representing an annualized expansion rate of almost 21% over the past decade i.e. between FY 2007- 08 and FY 2017-18. (Source: Public Disclosures) This growth has been supported by the growth of the direct life insurance market and by the increase in sums assured for new business, especially for individual life. – Source Policyholder.gov.in

From the year 1956 to 1999, LIC was a monopoly insurance brand in India. In 1999, IRDA OR Insurance Regulatory and Development was developed and it brings opportunity to start life insurance business to both foreign as well as Indian companies. Now if you will mark, you can find only 26% of the foreign participant is there in this business.

Related: More about the HDFC business group here

Market Size

Government’s policy of insuring the uninsured has gradually pushed insurance
penetration in the country and proliferation
of insurance schemes.

Gross premiums written in India reached Rs 5.53 trillion (US$
94.48 billion) in FY18, with Rs 4.58 trillion (US$ 71.1 billion) from life
insurance and Rs 1.51 trillion (US$ 23.38 billion) from non-life insurance.
Overall insurance penetration (premiums as % of GDP) in India reached 3.69 per
cent in 2017 from 2.71 per cent in 2001.

In FY19 (up to October 2018), premium from new life insurance business increased 3.66 per cent year-on-year to Rs 1.09 trillion (US$ 15.46 billion).   In FY19 (up to October 2018), gross direct premiums of non-life insurers reached Rs 962.05 billion (US$ 13.71 billion), showing a year-on-year growth rate of 12.40 per cent. Source : https://www.ibef.org/industry/insurance-sector-india.aspx

Source: IBEF

Now let’s understand more about each of these listed players

HDFC Standard Life

HDFC Standard Life Insurance Company was established in 2000 as a joint venture between Housing Development Finance Corporation Limited (HDFC Ltd) and Standard Life Aberdeen.

It was the first private company to get a license from the Insurance Regulatory and Development Authority in 2001. Today, it is the leading private life insurer in India. As of March 2018, the company was providing 34 individual and 11 group insurance products. After strong period of growth, the company completed its initial public offer (IPO) in 2017.

Between FY14-18, total premium earned by the company
increased at a CAGR of 18 per cent to reach Rs 23564 crore (US$ 3.66 billion).
Currently the company has the largest share in new business among private life
insurers. It had a leading 7.02 per cent share in new business in FY19 (up to
Dec 2018).

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Source Company Website: www.hdfclife.com

Technical Details :

Source: Screener.in

  • Virtually debt free.
  • Company is expected to give good quarter
  • Good return on equity (ROE) track record: 3 Years ROE 25.33%
  • Maintaining a healthy dividend payout of 25.02%
  • Stock is trading at 18.57 times its book value
Life insurance penetration according to HDFC

Institutional Holdings in %  Q2FY20 :

HDFC 51.47%
JP Morgan Funds 1.03%
Standard Life 19.69%

Share Holding Pattern Q2 FY20 :

Promoters 71.16
Public  
FII/FPI 15.94
DII 4.4
Non Instustution 8.5

Key Facts :

  • Leading private sector life insurers in India
  • 28 % share in new business in FY19
  • Sold 9.95 lakh new policies in FY19
  • 414 branches and more than 11,200 partner branches
  • Assets under management worth Rs 125,552 crore (US$ 17.97 billion) in FY19

The life insurer reported a net profit of Rs 311.71 crore in the March’ 20 quarter, compared with Rs 364.01 crore in the same quarter a year ago. Its premium income in the quarter edged up 2.1 per cent to Rs 10,464 .6 crore from Rs 10,247.50 crore in the same period a year before.

SBI Life Insurance

SBI Life Insurance was established in 2000 as a joint
venture between the State Bank of India (SBI) and BNP Paribas Cardif and has
become one of the leading life insurers in the country. The company has a range
of life insurance and pension products which include individual and group
products to cater to the insurance needs of diverse customer segments.

Gross Written Premium of SBI Life has increased at a 25.4
per cent CAGR between FY15-18, to reach Rs 253.54 billion (US$ 3.93 billion).
It had a 6.69 per cent share in new business in FY19 (up to Dec 2018).

Company Website: www.sbilife.co.in

Technical Details :

Source: Screener.in
  • Virtually debt free.
  • Stock is trading at 11.94 times its book value

SBI Life 
  Advantage India • 5 th largest economy in the world in terms of GDP • One of the highest young population nations with a median age of 28 years • Rising share of urbanization – Growth in the urban population at 2.4% CAGR between FY 15 and FY 20 
Share of urban population3 India Life Insurance – Structural Growth Drivers in Place Strong Demographic Tailwinds Supporting India Growth Story  Combination of a high share of the working population, rapid urbanization, rising affluence and focus on financial inclusion to propel the growth of the Indian life insurance sector  

  10th largest life insurance market worldwide and 5 th largest in Asia with ` 4.6 trillion in total premium business. • Total premium grew at CAGR of 17% between FY01– FY18. • India continues to be under-penetrated as compared to countries like China, Thailand and Korea.  

  Increase in share of insurance as a percentage of Financial Savings is expected to drive growth in life insurance sector. • Also the demand for a pension based products will increase with the rise in life expectancy  

Institutional Holdings in %  Q2FY20 :

SBI 57.6
CA Emrald Investments 9
Canara Pension Plan Investment 2.86
ICICI Pru NIFTY Next 50 ETF 2.68
Government of Singapore 1.24
BNP ParibasCardif 5.2
Macritche Investments 1.95

Share Holding Pattern Q2 FY20 :

Promoters 62.8
Public  
FII/FPI 23.72
DII 6.93
Non Instustution 6.55

Key Facts

  • One of the leading private life insurers in India
  • Joint venture between State Bank of India (SBI) and BNP Paribas Cardif
  • Multi-channel distribution network with 123,613 agents as of March 31, 2018
  • Assets Under Management (AUM) reached Rs 141020 (US$ 20.18 billion) in FY19
  • 6.40 per cent share in new business in FY19
  • 1.35 million claims settled in FY19

SBI Life Insurance Company posted a 15.85 per cent year-on-year (YoY) rise in net profit at Rs 530.67 crore for the quarter ended March 31 2020. The figure stood at Rs 457.98 crore in the corresponding quarter last year.Net premium income of the life insurer increased 4.67 per cent YoY to Rs 11,862.98 crore

ICICI Prudential Life Insurance Co Ltd

ICICI Prudential Life Insurance Company Limited (ICICI
Prudential Life) is promoted by ICICI Bank Limited and Prudential Corporation
Holdings Limited.

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ICICI Prudential Life began its operations in fiscal
year 2001 and has consistently been amongst the top players* in
the Indian life insurance sector. Our Assets Under Management (AUM) as on 31st March
2019 were `1,604.10 billion. 

At ICICI Prudential Life, we operate on the core philosophy
of customer centricity. We offer long term savings and protection products to
meet different life stage requirements of our customers. We have developed and
implemented various initiatives to provide cost-effective products, superior
quality services, consistent fund performance and a hassle-free claim
settlement experience to our customers.

In FY2015 ICICI Prudential Life became the first private
life insurer to attain assets under management of `1 trillion. ICICI
Prudential Life is also the first insurance company in India to be listed on
NSE and BSE.

https://www.iciciprulife.com/about-us/company-overview.html

Technical Details :

Source: Screener.in
  • Company is virtually debt free.
  • Has a good return on equity (ROE) track record: 3 Years ROE 23.43%
  • Company has been maintaining a healthy dividend payout of 53.95%
  • Stock is trading at 9.97 times its book value

Institutional Holdings in %  Q2FY20 :

ICICI bank 52.87
SBI Funds 3.32
Amansa Holding Private Ltd 1.04
Prudential Corporation Holdings Ltd 22.11
Commpassive Investments Private Ltd 2

Share Holding Pattern Q2 FY20 :

Promoters 74.98
Public  
FII/FPI 12.12
DII 6.71
Non Instustution 6.19

Private sector ICICI Prudential Life Insurance registered a 31.3 per cent drop in its net profit to ₹179.49 crore in the fourth quarter of the fiscal 2019-20, as against ₹261.37 crore in the same period a year ago.
Its net premium income grew marginally to ₹10,475.12 crore in the quarter ended March 31, 2020 as against ₹10,056.32 crore in the same period a year ago.

Source: ICICI

My View :

All the companies are among the industry leaders in Insurance sectors. These are fundamentally good companies backed by one of the oldest business houses of India and strong leadership. Strong Promoter holding and zero debt for all is the key thing to notice. Insurance as sector in Indian Stock market is just started off.

A new investor should always have at least one of the above stock in portfolio for long term. Before we leave for the day please note that Oracle of Omaha Warren Buffett has major part of his portfolio in Insurance Sector. Read it and give thought how you can build  good portfolio with Insurance as sector in Indian Stock markets

Bonus Read!

Warren Buffett and the Insurance Business: A 52-Year Love Story

Regards

Anup Lamb



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Prateek Goel
Co-founder of Investeek, Prateek has been investing in the stock markets since 2006 and has beaten the NSE/BSE on a consistent basis. At the age of 24, he was also featured in India Today for his expert insight on gold trading.
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