Life Insurance: Premium collections up 90% in March 2021

Private players reported 8% y-o-y growth in individual APE for FY21, significantly higher than initial expectations at the start of the pandemic.

Life insurers reported stellar individual annualised premium equivalent (APE) growth of 90% year-on-year (y-o-y) in March 2021 (on a low base) translating to 40% y-o-y growth in Q4FY21 and 8% y-o-y for FY21. Two-year individual APE CAGR was, however, modest at 7% in March 2021 and 6% for FY21.

Performance of private players
Private players reported 8% y-o-y growth in individual APE for FY21, significantly higher than initial expectations at the start of the pandemic. Two-year individual APE CAGR was modest at 6%, lower than 4-year CAGR of 12%.

Individual protection supported growth in H1FY21, while Unit-linked Insurance plans (Ulips) started to revive from Q3FY21. Demand for non-par savings retained strong momentum throughout the year, likely reflecting investor preference to lock into a fixed rate in a falling rate regime, coupled with an increase in the appetite of life insurers to underwrite such products due to availability of FRAs.

Credit life was weak in H1FY21 due to lower disbursement volumes but picked up swiftly in H2FY21; home loan disbursements reached peak levels for most players in the second half led by strong growth in real estate sales. LIC reported 2% two-year individual APE CAGR in FY21.

Setting the stage for a strong FY22
We expect life insurance companies to report strong growth in individual APE in FY22 (on a low base) driven by (1) revival in ULIPs (equity-oriented inflows were positive after nine months in March 2021), (2) continued traction in non-par, pension and annuity based products; the market remains poised for growth due to dearth of high-yield fixed income instruments, (3) pick-up in credit life from trough levels in FY2021 and (4) high risk aversion pushing demand for individual protection in the latter part of the year -sales of protection policies tend to pick up post a pandemic. We expect VNB margin to remain strong due to a combination of high-margin savings and term products, tempered by growth in ULIPs.

Private players gain market share
Focus on new product addition, diversification of channel mix, increasing digital capabilities of proprietary channels and push through non-core channels (ex. web aggregators) have led to a gradual increase in market share for private players in the individual business. Overall market share in individual APE increased to 40.3% in FY21 from 43.8% in FY18 and 60% in FY15.

We expect better digital capabilities to deliver higher growth for private players over the next few months of local lockdowns.

Edited excerpts from Kotak Institutional Equities Research report

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