Insurance stocks: Indian stock investors find oasis in insurance in a perilous desert

Insurance stocks are now a premium breed in the domestic market, and are seeing heavy demand. All but one insurance stock have made investors richer in last one year, and most of them have outperformed the equity benchmark by a wide margin.

Such is the enthusiasm over this so-called sunrise sector that investors didn’t care much when most of the life insurers reported relatively lower premium growth for October, blamed largely on the festive holidays.

Annual premium equivalent (APE) for private players grew 6.9 per cent year one year in October, thanks mainly to strong performance from ICICI Prudential Life Insurance and Kotak Life Insurance.

SBI Life Insurance is the biggest gainer year to date, surging 65 per cent, followed by ICICI Prudential and ICICI Lombard, both of which are up 60 per cent and 42 per cent, respectively.

Heavy buying over the past few weeks have turned most of these stocks pricey. SBI Life today trades at a trailing 12-month (TTM) PE of 80.3, while the ICICI twins trade at 65.1 and 55.3, respectively.

The cheapest among them is General Insurance Corporation of India, which trades at PE of 30.8 (TTM). The state-owned entity has gained 5.97 per cent so far this year.

The only insurance stock that has given negative returns year to date is government-owned The New India Assurance, whose shares have slipped as much as 20 per cent, because after a rally that lifted the PE to 107.4 (TTM), investors found it pricey enough and cut corners.


Shares of all private insurance players now trade at a stone’s throw from their all-time high price levels, but that has not deterred market veterans from turning bullish on them.

Srinivasan Subramanian, MD for Investment Banking at Axis Capital, said the huge growth potential is the reason the market is willing to pay such high prices for the insurance stocks.

“The market is extremely positive about the insurance sector, because growth here has been extremely strong over the next 10-20 years. On paper, these stocks may look extremely highly valued, but you need to look at them in the light of an extremely long growth runway that lies ahead,” Subramanian told ETNow in an interview.

Insurance businesses have been doing really well over the years. Private players have been seeing massive growth in acquiring new businesses.

Value of new businesses (VNB) grew 20 per cent in H1FY20 to Rs 590 crore for ICICI Pru and 57 per cent to Rs 960 billion for HDFC Life. SBI Life’s VNB expanded 33 per cent to Rs 940 crore.

Another factor working in the insurance sector’s favour is the fact that they are immune to the credit crisis and NPA problems being faced by their banking peers.

“Unlike NBFCs or banks, the insurance sector does not have NPA, liquidity or solvency issues. Almost all insurers are well-capitalised and with reasonably comfortable solvency ratios. This is one of the reasons we have seen investors come to the insurance sector. Investors are appreciating the value that the insurance sector offers, which is what is reflected in these multiples” said Shyamsunder Bhat, Chief Investment Officer, Exide Life Insurance.

Bhat also credits changing investing habits of people — from physical assets like real estate and gold to financial assets — and more analysts coverage of the insurance sector as reasons for their success.

Private players are the choice of Dalal Street in this space. Emkay Global has ‘buy’ ratings on ICICI Pru and SBI Life and ‘hold’ recommendation on HDFC Life.

The last stock has delivered 46 per cent returns so far this calendar year.

Chakri Lokapriya, CIO & MD, TCG AMC, sees good omens for private insurers.

“Both SBI Life and ICICI Pru look very good from a near-term as well as long-term perspective. The long-term story is well known: huge under penetration, vast growth and still a long way away from maturity. Against that backdrop, valuations have run up a little for some of the stocks, but in terms of growth that you see ahead of you, it is clearly a secular story. From that perspective, we will clearly be buyers of both SBI Life, ICICI Pru and also some of the other insurance names.”

Emkay Global listed certain near and long-term challenges for its top picks.

“Volatility in the equity market and higher surrenders are key downside risks for the ICICI Prudential while a reduction of promoter stake in the SBI Life to meet the minimum public shareholding guidelines (needs 2.1 per cent stake sale by September 2020) remain a concern,” said Neeraj Toshniwal, Research Analyst at Emkay Global.

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