Mumbai: As the government and bankers gear up for the mega initial public offering of state-owned Life Insurance Corporation of India, a niggling worry for them could be the lower appetite for insurance companies among investors of late. Shares of the seven listed insurance companies have underperformed the market in the past three to six months due to expensive valuations and the multiple business challenges they faced during the pandemic.
Shares of HDFC Life Insurance, the largest insurance firm in terms of market capitalisation, have declined 15% in three months and 10% over the past six months. SBI Life Insurance, the second-biggest, fell 7% in three months and 1% in the previous six months.
The benchmark Nifty fell 3% in three months but gained 7.4% in six months.
“Insurance companies are facing pressure on profitability due to high claim ratios both genuine as well as fraudulent, in health and life segments arising due to Covid and related complications,” said Piyush Nagda, head-investment products, Prabhudas Lilladher. “On top of it, new premium growth has slowed in last 2-3 quarters as insurance companies are not willing to underwrite new risk due to uncertainties.”
According to data released by the Insurance Regulatory and Development Authority of India early this week, India’s life insurers’ new business premium declined nearly 9% to Rs 21,957 crore in January 2022 over the preceding month. Overall growth in APE (annual premium equivalent) for private life insurers was at 7% in January year-on-year. Individual APE was at 6.9% in January 2022 despite a low base of 7% in January 2021.
Analysts said the decline could be on account of a ban on agents by one of the leading listed insurer against selling policies in various areas of the countries. This could not be independently verified.
Shares of ICICI Prudential Life Insurance and ICICI Lombard General Insurance have dropped 21% and 10% in the past three months, respectively.
“While the business growth remains healthy, concern over the valuations is one of the key reasons for their underperformance,” said Ajit Mishra, VP — research, Religare Broking. “In the general insurance space, increase in health insurance claims and muted growth in motor insurance have led to profit-taking.”
New India Assurance and General Insurance Corporation, the two state-owned firms, have declined 11% and 19% in six months. Both stocks, which made their stock market debut in end of 2017, have plunged nearly 70% since then.
Star Health and Allied Insurance Company, which was listed on December 10, 2021, has declined 14% from its IPO price of `900.
Some analysts expect better days ahead for Indian insurance companies. “We expect insurance companies to perform better in the year 2022 with business picking up in terms insurance as well as traditional saving plans except for ULIPs,” said Gaurav Dua, head of capital market strategy, Sharekhan.
According to Prabhudas Lilladher’s Nagda, the sector’s growth potential is ‘tremendous’ but the current stock underperformance will remain for another three quarters.
ICICI Prudential Life, HDFC Life and SBI Life are among the top picks in the sector, according to analysts’ consensus estimates compiled by Bloomberg. These stocks could return about 30-40%, estimates showed.
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