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Insurance stocks' prices hit 52-week highs: Should you invest?

All three listed life insurers and private general insurer ICICI Lombard hit 52-week highs on October 22 and 23.

, ET Bureau|
Last Updated: Oct 28, 2019, 07.25 PM IST
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General insurers fared better in September in terms of premium income.
Stocks of insurance companies have created a buzz at the bourses of late, with all three listed life insurers and private general insurer ICICI Lombard hitting 52-week highs on 22 and 23 October. SBI Life and HDFC Life also posted healthy earnings.

PSU insurer New India Assurance staged a smart recovery, gaining 43% in five sessions after touching a 52-week low on 15 October.

Life insurance
The Indian life insurance sector and its listed companies had been consistently registering strong growth in New Business Premiums (NBP) and Annualised Premium Equivalent (APE) over the past few years.

However, the good times hit a speed breaker in September. The sector’s individual APE dipped 3% in September compared to the corresponding period last year. The overall APE was up 3% y-oy, thanks to robust group business. APE represents the sum total of individual regular premium and 10% of single premium amounts reported by an insurer during a financial year. “Even HDFC Life declined after five months of consistent high growth. SBI Life and Max Life continued to moderate for the second consecutive month,” a Kotak Institutional Equities report noted.

Life insurance: High valuations the speed-breaker

Compiled by: ETIG Database. Data as on 23 oct

Analyst recommendations
Company Buy Hold Sell
HDFC Life Insurance 18 9 2
ICICI Prudential Life Insurance 26 2 2
SBI Life Insurance 26 2 1

Looking ahead
Analysts believe the slowdown has cast its shadow on the life insurance sector. “Growth in the group business has also slowed down considerably from 38.3% in the first quarter to 12.9% in the second quarter, as a slowdown in loan growth for banks and NBFCs is having a bearing on the credit protect business” says Madhukar Ladha, Analyst, HDFC Securities. He expects private insurers’ individual NBP and APE growth for 2019-20 to be 16-22% and 12-17% respectively. “We expect growth to remain soft in the near-term given the sluggish environment and volatile market,” adds Nitin Aggarwal, Senior VP, Research and Banking Analyst, Motilal Oswal Financial Services.

Despite the short-term hiccups, analysts continue to be optimistic about its long-term prospects. “The prospects of life insurance sector are positive over the long term given the low penetration in India,” says Nimish Shah, Head of Investments, BNP Paribas Wealth Management. The protection gap in the country continues to offer growth. “An increasing share of financial assets in savings lends long-term structural growth to India’s insurance sector. It should benefit with the revival in economic growth, favourable demographics, and rising financial savings,” says Arun Thukral, MD and CEO, Axis Securities.

Valuation a concern
In addition to the moderation in business prospects in the short-term, analysts are also not bullish on life segment because of the prevailing high valuations, triggered by the recent share price appreciations. As per Bloomberg consensus targets, HDFC Life is expected to fall 10% during the next one year, while SBI Life and ICICI Prudential Life are expected to see a decline of 4% and 2% respectively. “We believe margin of HDFC Life has peaked for now and should be moderate while growth momentum normalises,” says Aggarwal.

Non-life insurance
General insurers fared better in September in terms of premium income, largely on the back of hike in traffic fines under the amended Motor Vehicles Act. Other lines of businesses did well too. The general insurance sector, including standalone health and specialised public sector insurers, clocked over 28% growth in gross direct underwritten premium in September, as compared to the previous year.

General insurance: Riding high on traffic penalties

Compiled by: ETIG Database. Data as on 23 oct

Analyst recommendations
Company Buy Hold Sell
ICICI Lombard General Insu. 8 5 4
General Insurance Corp 5 1 0
New India Assurance 3 3 1

However, the consensus estimates do not paint a pretty picture. Broking coverage for these stocks remains limited, but consensus estimates suggest that only GIC Re is expected to deliver positive, but modest, returns in the next one year. Despite better performance, PSU players continue to remain off analysts’ radar.
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