how Life insurance cos logging in subdued growth this fiscal

The total sum assured (SA) for both the private sector and LIC had increased in seven months of FY22 from the year ago periods. The total SA for the private sector was Rs 4.04 trillion in FY21 up one per cent Y-o-Y while for LIC it had increased 7.5 per cent Y-o-Y to Rs 8.9 trillion

The total New Business Premium (NBP) growth for the domestic life insurance industry has continued to remain subdued at four per cent in seven months of FY22 or Rs1.53 trillion due to the localised lockdown in Q1.

The growth had tapered down to seven per cent (Rs2.78 trillion) in last fiscal, compared to a 21 per cent growth in the previous fiscal. A closer look between the growth rates indicates a sharp decline in the NBP growth for Life Insurance Corporation (LIC) in the last fiscal. Private sector NBP had slowed down in previous fiscal, but yet showed a positive growth (8% in FY2021 from 9% in the previous fiscal), which accelerated in seven months of FY22 (25%) due to strong growth in the individual business.

According to Sahil Udani, assistant vice-president & sector head (financial sector ratings), Icra, "The NBP is estimated to grow 14 per cent in the current fiscal to Rs 3.18 trillion, as the nominal GDP is projected to grow by 16 per cent. We expect the NBP growth to accelerate in H2, as typically Q4 has always been the strongest quarter for life insurance business growth. The NBP density is expected to increase to Rs 2,326 from Rs 2,054 at present. Increasing focus on protection products should help increase the insurance density in India. The outlook on the sector continues to remain stable."

The total sum assured (SA) for both the private sector and LIC had increased in seven months of FY22 from the year ago periods. The total SA for the private sector was Rs 4.04 trillion in FY21 up one per cent Y-o-Y while for LIC it had increased 7.5 per cent Y-o-Y to Rs 8.9 trillion. The total SA had increased at a CAGR of 11.2 per cent in the last four years for the private sector. The average individual SA had marginally increased to Rs 19,900 in FY21, while in five months of FY22 it had declined to Rs 20,000 (Rs 24,000 in five months of FY21). The increase in individual SA over the years is due to a shift in product mix towards protection products (which has a higher SA).

This ICRA paper analyses the performance of 16 life insurance companies in India, of which one is in the public sector while the rest are in the private sector. These companies collectively represented over 98 per cent of the new business written in the domestic life insurance industry during FY21.

While the profitability for select private players remains at similar levels in FY21 with PAT of Rs 59.6 billion (Rs 55.4 billion in FY20), the median Return on Equity (ROE) for select private players had been declining since FY18 due to losses at certain smaller players, and a decline in profitability for the bigger players. The select private players reported a cumulative loss of Rs 5.7 billion in Q1 due to high claims during the second wave of the pandemic. ICRA expects the private players' profitability to remain subdued in current fiscal due to high claims in Q1. LIC's profitability improved in FY21 with a PAT of Rs 29 billion (Rs 27 billion in FY20) supported by both higher premiums underwritten and an improvement in investment income in the year gone by.

"Median solvency levels for select private players remained at 2.0-2.1x for the last three years. The larger players have been reporting back-book surplus higher than the new business strain, which had helped meet the capital requirement for the required growth. While the current solvency remains comfortable, ICRA notes that the solvency levels for the industry would be contingent on the underwriting losses incurred on account of Covid-19 pandemic. The reserve buffer, as measured by the total technical reserves/total last annualised claims paid, has gradually increased for private players over the last five years. With higher Covid claims in Q1, the reserving ratio is expected to be lower in FY2022," adds Udani.

In the meanwhile, private sector life insurer, Bharti AXA Life Insurance has outperformed the private and overall industry growth by registering 33 per cent growth in its Weighted New Business Premium to Rs 285 crore in H1 from Rs 214 crore in the corresponding fiscal period a year ago. The company recorded growth of 53 per cent in weighted new business premium in the month of September 2021 and outperformed the private sector by 1.5 times.

Commenting on it, Parag Raja, Managing Director and Chief Executive Officer, Bharti AXA Life Insurance, said, "We have registered steady performance on many parameters and achieved one of the highest industry growth for our new business premium collection in the first six months of the current financial year. Further, our asset under management saw a strong growth of 28 per cent and has doubled over the past three years. The improvement in the Covid-19 pandemic situation since August, buoyant consumer sentiment towards the need for life insurance and our investments in digital platforms to enhance customer experience and facilitate seamless services along with our suite of customer-centric products gives us confidence about achieving our business targets and growth in the coming months."

We have already witnessed a strong start with our new bancassurance partners-Fincare Small Finance Bank, Shivalik Bank and Utkarsh Small Finance Bank, and are actively pursuing opportunities for strategic tie-ups and alliances to ensure sustained business growth over the next few years, he added.