Life Insurance

Apr-Jun'21 Earnings Preview

July 7, 2021 Favorable base on growth; steady on margins
Life Insurers are likely to see strong 37% YoY APE growth & 93% VNB growth,
given a low base for same period last year. We expect margins to remain
PL Insurance Coverage steady compared to FY21 levels, as mix still remain towards high margin
products. Growth levels may vary across sectors, but two key themes likely
Companies Rating CMP (Rs) TP (Rs)
to play out are (i) highly favorable non-par savings product with lower rates

HDFC Life Reduce 685 725

on other asset classes and (iii) subdued protection demand than last year’s
ICICI Pru Life Under Review 628 - COVID uncertainty & fear, but mix should be steady. We recently upgraded
Max Financial Accumulate 1,051 1,120 HDFCLI to ‘HOLD’, but mentioned to wait for better entry point/. Hence our
SBI Life Accumulate 1,014 1,023 preference remains towards SBILI, while we put IPRU Life ‘Under review’ as
Source: PL stock has run up by 38% in last three months.

 Growth mixed across insurers: Listed insurers should see a strong 37% YoY
growth in premiums due to lower base, while sequentially it should come off by
40% as Q1 remains seasonally weak. Apr’21 growth trend was decent,
Top Picks although May’21 was impacted and lockdown gradually opened in Jun’21;
accordingly, we expect recovery in growth. Growth trends will remain varied
SBI Life Insurance Company across insurers depending on product push and current mix.

 Margins likely to remain steady, death claims to be monitored: Margin

levels will be broadly steady at 24-26% (20-21% for SBILI) from FY21 levels
as demand for low margin product like ULIP has not recovered completely,
while push also is limited. We believe, continued preference of specific product
in non-par & protection will keep margins steady. Second wave severity was
high and hence we watch out for death claims, but should not breach provisions
(50-100bps of EV) made for the same in Q4FY21.

 Growth optically better but second lockdown slows momentum

 For HDFCLI, we expect 58% YoY growth in premiums & 87% YoY growth
in APE, although see 25-30% drop in premium QoQ. With continued push
of guaranteed products and gradual protection growth, margins to remain
steady at 26%, leading to strong VNB growth of 1x YoY. Banca should
continue to perform better contributing largely to growth.

 For IPru Life, we see premiums to jump by 30% YoY, although APE
should be much stronger at 67% as retail premium should bounce back
strongly with benefit of new products. Margins are likely to be steady at
25%, leading to VNB growth of 73% YoY.

 SBILI saw subdued May’21 & Jun’21 we expect some rebound, but build-
in slower APE growth of 18% YoY for Q1FY21. Although, margins should
be modestly up, volumes recovery should lead to 95% YoY VNB growth.

 For Max Life, we expect 23% premiums on a strong base of last year. The
Pritesh Bumb
priteshbumb@plindia.com | 91-22-66322232 company had an exceptional last year due to launch of new product
Palak Shah especially in non-par kicking off quickly benefitting margins. Also the
palakshah@plindia.com | momentum should continue with steady margins, but likely deliver VNB
growth of 1x YoY.

July 7, 2021 1
 Life Insurance

Valuation Summary for PL Insurance Coverage

Coverage CMP MCap Old New New PT New PT Upside P/EV (x) RoEV (%)
Universe (Rs) (Rs B) Rating Rating (Rs) (Rs) (%) FY20 FY21E FY22E FY23E FY20 FY21E FY22E FY23E
HDFC Life 685 1,375 HOLD HOLD 725 725 6.7 6.6 5.2 4.4 3.7 12.6 28.5 19.6 19.5
ICICI Pru Life 628 901 REDUCE UR 504 - - 3.9 3.1 2.7 2.4 6.5 26.3 14.8 14.4
Max Financial 1,051 359 ACCU ACCU 1,120 1,120 7.7 3.6 3.0 2.6 2.2 16.7 22.4 21.1 21.5
SBI Life 1,014 1,023 ACCU ACCU 1,150 1,150 12.4 3.9 3.1 2.6 2.2 17.4 27.0 17.0 17.0
Source: Company, PL

Q1FY22 Insurance Preview – Strong growth on lower base; margins to be steady

GWP APE VNB VNB Chg. In bps
Company Name – Q1FY22E Gr. YoY Gr. YoY Gr. YoY
(Rs mn) (Rs mn) (Rs mn) Margin YoY
HDFC Life 90,581 54.5% 22,450 89.9% 5,864 101.5% 26.1% 182
ICICI Prudential Life 72,901 26.9% 13,755 67.1% 3,477 73.0% 25.3% 86
SBI Life 100,331 31.3% 22,760 -20.7% 206 1.9% 20.6% 190
Max Financial 33,204 20.7% 9,387 42.0% 2,305 104.0% 24.6% 755

GWP VNB Chg. In bps

Company Name - FY21 Gr. YoY APE Gr. YoY VNB Gr. YoY
(Rs mn) Margin YoY
HDFC Life 385,835 18.0% 81,365 13.6% 21,850 13.9% 26.1% 20
ICICI Prudential Life 357,328 6.9% 64,620 -12.5% 16,210 1.0% 25.1% 340
SBI Life 502,542 23.7% 114,500 20.4% 23,300 1.7% 20.4% 170
Max Financial 190,172 17.5% 49,570 19.5% 12,490 39.2% 25.2% 360
Source: Company, PL

Q1FY21 Result Preview

Company YoY gr. QoQ gr. YoY gr.
Q1FY22E Q1FY21 Q4FY21 FY21 Remark
Name (%) (%) (%)
Net Premium 90,309 57,218 57.8 128,680 (29.8) 381,223 18.3 We expect strong growth in
premiums & VNB led by retail non-
HDFC APE 22,450 11,980 87.4 28,810 (22.1) 83,720 13.0 par and protection could slightly
Life improve from credit protect
VNB 5,864 2,910 101.5 7,770 (24.5) 21,850 13.9
Banca channel growth to lead
VNB Margin (%) 26.1% 24.3% 1.8 27.0% (0.8) 26.1% 0.2 growth and agency to be steady

Net Premium 72,391 55,511 30.4 118,793 (39.1) 349,734 6.4 IPru’s premium growth should
rebound strongly mainly from retail
ICICI APE 13,755 8,230 67.1 25,220 (45.5) 64,620 (12.5) side led by non-ICICIBC banca.
Prudential
Life
VNB 3,477 2,010 73.0 5,910 (41.2) 16,210 1.0 Margins should be steady to
gradually be up, leading to strong
VNB Margin (%) 25.3% 24.4% 0.9 23.4% 1.8 25.1% 3.4 VNB growth.

Net Premium 99,428 75,881 31.0 155,557 (36.1) 497,683 23.4 SBI Life witnessed slower
premium growth in Apr/May’21
SBI APE 53,919 45,849 17.6 94,596 (43.0) 296,299 23.2 comparatively to industry. Group
Life business should drive growth in
VNB 4,688 2,400 95.4 8,800 (46.7) 23,300 15.9 our view.

VNB Margin (%) 20.6% 18.7% 1.9 22.2% (1.6) 20.4% 1.7 Margins should be marginally up

Net Premium 32,972 26,774 23.1 70,918 (53.5) 188,086 17.7 Momentum in APE growth rate
should sustain, leading to VNB
APE 9,387 6,610 42.0 19,170 (51.0) 49,570 19.5 being strong.
Max
Financial
VNB 2,305 1,130 104.0 4,610 (50.0) 12,490 39.2 Although, we expect margins to be
slightly slower v/s FY21 but are
VNB Margin (%) 24.6% 17.0% 7.6 24.0% 0.5 25.2% 3.6 better than Q4FY21.

Source: Company, PL

July 7, 2021 2
 Life Insurance

Q4FY21 Financial Snapshot

SBI Life HDFC Life IPRU Life Max Life
APE (Rs bn) 94.6 28.8 25.2 19.2
VNB (Rs bn) 8.8 7.8 5.9 4.6
VNB Margin 22% 27% 23% 24%
13m Persistency 87% 91% 86% 84%
61m Persistency 59% 55% 59% 54%
YoY Growth
APE 16.3% 28.9% 27.8% 36.1%
VNB 63.0% 51.8% 25.7% 43.6%
VNB Margin 209bps 267bps -38bps 127bps
13m Persistency 317bps 300bps 160bps -300bps
61m Persistency 4bps 0bps 240bps 100bps
QoQ Growth
APE 12.1% 29.9% 52.7% 56.5%
VNB 25.7% 36.3% 38.1% 31.7%
VNB Margin 217bps 54bps -247bps -452bps
13m Persistency 365bps 351bps 370bps 100bps
61m Persistency -12bps -100bps 0bps 200bps
Source: Company, PL

Management Commentary
Banca channel continues to support business operations. Second wave saw increase in claims & mortality rates and hence made
Overall 50-100bps of EV as mortality provisions for claims arising out of COVID death. Premiums growth for industry ended on positive
rate of 4-5% with built-up in Q4FY21
Co provided Rs1.65bn of covid Provisions, the same to be under review during FY22. Scaling up of operations through Banca
HDFC Life Channels apart from HDFC Bank in Tier II & tier III cities. Agency channel is well placed to focus on protection products. Hike in
reinsurance rates might take place due to increase mortality rates & covid claim risk.
Banca Channel with SBI continues to grow and hence they shall look forward to its growth. Undertake measures for cost
SBILIFE
optimization and build-in efficiencies to reduce Opex ratio. They have seen growing trend in annuities.
Focus on group term product led to sequential growth of protection. Management kept guidance of doubling the FY19 VNB by
IPRU FY23 more back ended, driven by mix change & cost measures. Underwriting guidelines impacted retail however group protection
continues to shine. Banca Channel performed better than any other channels. Company scaling up agent recruitment.
Company shifted product mix to Non-Par Business impacted the new business strain. Continues to endeavor digitalization drive
MAXF
which especially benefitted in covid times. Focus shall remain on Cost rationalization practices.
Source: Company, PL

July 7, 2021 3
 Life Insurance
Analyst Coverage Universe
Sr. No. Company Name Rating TP (Rs) Share Price (Rs)
1 Axis Bank Accumulate 822 758
2 Bank of Baroda BUY 100 86
3 Federal Bank Accumulate 93 87
4 HDFC Bank BUY 1,735 1,535
5 HDFC Life Insurance Company Hold 725 718
6 ICICI Bank BUY 750 651
7 ICICI Prudential Life Insurance Company Accumulate 504 452
8 IDFC First Bank Reduce 48 54
9 IndusInd Bank BUY 1,195 1,031
10 Kotak Mahindra Bank Hold 1,900 1,755
11 Max Financial Services Accumulate 1,120 996
12 Punjab National Bank Accumulate 47 42
13 SBI Life Insurance Company BUY 1,150 959
14 South Indian Bank UR - 10
15 State Bank of India BUY 480 430

PL’s Recommendation Nomenclature

Buy : > 15%
Accumulate : 5% to 15%
Hold : +5% to -5%
Reduce : -5% to -15%
Sell : < -15%
Not Rated (NR) : No specific call on the stock
Under Review (UR) : Rating likely to change shortly

July 7, 2021 4
 Life Insurance

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Date: 2021.07.07 19:04:33 +05'30'