Life insurance can be a good investment bet in BFSI space, says expert

Strong individual business growth and market share gains are positives

Strong business performances in the June 2019 quarter highlights the growth potential of listed private players HDFC Life, SBI Life and Max Financial Services (holding company of Max Life). Life insurers seem to be a good bet within the BFSI (banks, financial services, and insurance) space.

Liquidity and debt-repayment issues are weighing on the prospects of many housing and non-banking financial companies. With public sector banks continuing to report frauds (recently by Punjab National Bank and Allahabad Bank), investor sentiment has turned weak. 

Lalitabh Srivastava, vice-president at Sharekhan, believes that life insurance can be a good investment bet in BFSI. The life insurance market is expanding and private players like HDFC Life and SBI Life are gaining market share in the retail space, he added. 

Analysts at Emkay Research say insurance is seen as a safe heaven. Amid the NBFC crisis, insurance stocks have outperformed broader indices. For instance, in the past three months, barring Max Financial, stocks of other life insurers surged 5-26 per cent, strongly outperforming a 1-per cent rise in the Nifty Bank index and 0.9 per cent fall in Nifty50 during the same period. 

Strong distribution channels and new products are helping expand the individual business segment for listed players. Individual life insurance business, accounting for 87 per cent of annual premium equivalent (APE; revenue measure for life insurers) in FY19, is a key metric for life insurers. Listed players alone accounted for about 36 per cent of the individual APE in FY19, indicating potential benefit from improving penetration due to rising awareness.

According to the latest data, barring ICICI Life, all three listed players clocked a sharp 23-63 per cent year-on-year (YoY) growth in individual APE and gained up to 3 per cent market share in Q1. Though ICICI Life had a meagre 1 per cent growth rate in individual APE, it is expected to recover. Improvement in product mix change would be key for ICICI Life's growth, according to analysts.

Some company-specific issues such as the continuation of Max Financial's distribution tie-up with Axis Bank will need to be monitored. While SBI Life is the top pick in the life insurance space, strong business growth could warrant a re-rating despite pricey valuation, said an analyst at a domestic broking house.