Street likely to view general insurers favourably

Stocks of listed players ICICI Lombard and New India Assurance have lagged in FY22, so far

Based on the latest data, market conditions are improving for general insurance. Gross written premia (GWPs) in August were up 24 per cent year-on-year (YoY) for the entire insurance industry. This came on the back of strong numbers for July when overall GWP growth was 20 per cent. Although the motor (12 per cent growth YoY), health (up 30 per cent YoY), and agriculture sectors were the biggest contributors to growth, every category saw strong numbers. The general insurance sector has done well.
 
However, clarity is needed on the suggested court order for mandatory bumper-to-bumper insurance for new vehicles. The Madras High Court’s order wouldn’t be mandatory but the situation is still ambiguous. Legislators would have to make a call on bumper-to-bumper insurance, which may add substantially to new vehicle costs and also involve complicated calculations on depreciations given a five-year timeframe. 
 
Among listed general insurers, ICICI Lombard General Insurance had slow growth at 4 per cent YoY in August 2021. If August 2019 is taken as the base, industry GWP was up 37 per cent in August 21. Among listed general insurers, ICICI Lombard was up 17 per cent over August 2019 and up 10.5 per cent YTD in 2021-22. Among PSUs, New India Assurance saw YoY growth of 30.6 per cent over August 2020; its YTD growth is 23 per cent. Bajaj Allianz (whose results are reflected in Bajaj Finserv) inched up 1 per cent from August 2019. New general insurers Go Digit (2.2x) and Acko (2.9x) saw three-digit growth versus August 2019 levels. 
 
The GWP for health increased 43 per cent YoY in July 2021, with private insurers showing 54 per cent YoY growth, while the PSUs were up 45 per cent. Standalone health insurers (up 27 per cent YoY) lagged peers. Among other major product lines, fire insurance grew at 20 per cent YoY, despite a high base of 32 per cent YoY growth in July 20. Premia collected for the motor segment remained soft due to low new vehicle sales.

The pandemic may have been a trigger for stronger consumer demand for health insurance, although it has also probably meant elevated claims. Growth in the industrial and motor insurance lines should be indicative of economic revival and correlate to that. Motor insurance, in particular, could be correlated to vehicle sales and that has been low, so far, this financial year. The base effect should be easing off as we move into the second half of 2021-22.
 
 The listed companies have generally underperformed the market, so far. ICICI Lombard returned 11.7 per cent in the past six months, while New India returned 2.9 per cent. There’s a chance that the market will review the valuations favourably after the strong numbers over the last few months.