Life insurers' valuations dip on lower sales growth

A slower growth in sales of new insurance policies has affected the valuation of life insurance companies by up to 40 per cent.

An international investment bank has lowered the valuation of ICICI Prudential Life Insurance by over 41 per cent to $9.2 billion compared with that of $15.7 billion assigned in February this year. In both the cases, the valuation was for 2009-10. ICICI Prudential Life was valued between $12 billion and $17 billion a year ago by most international investment banks.
 

HIT BY VOLATILITY
Company	Feb 08* ($bn)	Aug 08* ($bn)	Decrease (%)
ICICI Prudential Life	15.7	9.2	41.40
HDFC Standard Life	4.3	2.6	39.53
SBI Life	6.6	4.2	36.36
Bajaj Allianz Life	8.6	6.8	20.93
Reliance Life	5.5	4.6	16.36
Max New York Life	1.9	1.6	15.79
* Valuations are for 2009-10

“We have assigned lower multiples to growth as we see a moderation in growth,” said an analyst at the investment bank, which did not want to be identified, saying the report was meant for private circulation.

An analyst at another global investment bank, which is finalising a similar report, added that stocks of the promoters of life insurance companies too have been re-rated due to the current market volatility. In addition, he pointed out that the growth rate for new business and margins on the business also dipped, resulting in lower valuations. In addition, the depreciation of the rupee against the dollar is affecting valuations.

“Inflation is at 12.63 per cent, crude oil price is rising, money market is tightening, interest rates are rising, the international market scenario is not encouraging, the GDP growth (forecast) has been scaled down to 8 per cent, therefore the perception of the analysts about the future growth prospects over the next 12 months has been impacted,” said SBI Life Managing Director and CEO U S Roy.

During the year ended March 2008, the first year premium income of life insurers rose by 74 per cent to Rs 33,800 crore, while the growth in 2006-07 was 90 per cent.

With stock markets continuing to be volatile, investors are no longer thronging to buy unit-linked insurance plans (Ulips) the way they did in the past. When stock markets were booming, Ulip sales accounted for 75-90 per cent of new sales. In addition, HDFC Standard Life Managing Director and CEO Deepak Satwalekar said the economic slowdown and higher inflation were affecting savings of individuals.

Valuations will have an impact on public offers lined up by companies like SBI Life and HDFC Standard Life, which intend to list next year. “No doubt, lower valuations will impact our price at listing. However, the real value will be to see how the market and the growth pan out in the next one year,” said Satwalekar.

ICICI Prudential Executive Director N S Kannan, however, said the depreciation of the rupee during the last month or so has not been factored in by the investment bank that has dished out lower valuations for life insurers. “ICICI Prudential has grown 50 per cent during the first quarter, its new business achieved a profit of Rs 240 crore. However, what multiples the analysts assign to a company’s earnings depend on their outlook on which I cannot comment.”