It will be a quarter of growth and mixed profitability for insurers

On the back of the favourable base of Q1, thanks to the bumper sales of non-par savings in Q4 driven by taxation changes and buoyant equity markets, listed private life insurers are expected to report strong APE growth. However, increased ULIP in the product mix and some pressure on group term pricing would keep VNB margins in check. On the general insurance front, analysts expect the strong premium growth to be driven by motor, health, and commercial lines.

On profitability, our general insurer universe should see a slight improvement in combined ratio driven by improvement in claims ratio. Overall, beyond Q1, it will be another year of reset for life insurers, when they will reset non-linked product offerings by adjusting maturity benefits to policyholders and commissions to the distributors, to reflect the realities of the new surrender regulations. On the GI front, beyond the Q1 numbers, it is Union Budget FY25 that is to be presented later this month,which will be closely watched for any possible changes in corporate or personal taxation that can have a bearing on insurance companies.

Overall, emerging clarity on the outlook and attractive valuations encourage us to have a positive overall view on the sector. Subsequent to the lacklustre growth during Q1 resulting from the advance booking of high-value non-par policies during March-23 that were prompted by changes in taxation policies, Emkay expects life insurers to deliver robust growth on a favourable base. The APE growth is likely to be driven by strong sales of ULIPs, led by buoyant equity markets.

Meanwhile, general insurers are expected to report strong premium growth, driven by robust growth across the motor, health and commercial segments. The claims ratio across players is likely to improve on the back of multiple claims control and fraud prevention measures resulting in an improvement in combined ratio. Further, driven by improvement in underwriting performance and increased investment income, profitability of general insurance companies is expected to see decent-to-robust growth.

Beyond Q1, life insurers are likely to reset non-linked product offerings by adjusting maturity benefits to the policyholders and commission pay-outs to the distributors, to mitigate the impact of the changes in surrender regulations. Given that these changes in product offerings are expected to be implemented after September 30, the industry is likely to witness strong growth in the near term led by channel push, before discontinuation of current products. Life insurance stocks have witnessed material underperformance led by regulatory changes and the current valuation seems to be pricing in the worst.

Buoyed by favourable demographics, increasing wealth and a widening protection gap, one can hop a positive outlook on the sector’s medium-term growth prospects. On the general insurance front, the noise around the composite license regime will continue to weigh on the stocks. Overall, emerging clarity on the overall growth and profitability outlook, backed by attractive valuations and franchise strength of the listed players, drives our overall positive view of the sector.