 "Life insurance")
Most listed life insurers that reported their July-September (Q2FY23) quarterly earnings last week, saw their retail protection business decline on a year-on-year (YoY) basis, with the exception of Max Life Insurance, as was the case in Q1. However, some momentum was witnessed on a sequential basis, and according to industry insiders, the segment will see growth going ahead as the supply side constraints ease.
Persisting supply-side constraints due to the Covid pandemic and the rate hikes taken by reinsurers over the past two years have impacted the growth of the retail protection business of life insurance firms. However, group protection business has been growing rapidly as disbursements from banks and non-banking finance companies (NBFCs) have picked up sharply during the past few quarters.
In an analysts call following the firm's earnings announcement, ICICI Prudential Life’s management said, “The retail protection growth, though challenged on a year-on-year basis, has broadly stabilised on a sequential basis.” The annualised premium equivalent (APE) of the company’s protection portfolio, which includes retail and group protection business, grew 29 per cent YoY in H1FY22, driven mainly by group life and credit life products.
“I think growth will come back in the second half of the year. That is what we believe because when you look at last year, in the second half things had started flattening and actually started coming down. We are now slowly clawing back in terms of a sequential stabilisation and we hope that the sequential improvement seen in the second half will result in year-on-year growth also,” said N S Kannan, MD & CEO, ICICI Prudential Life Insurance in an analyst call post the company’s earning.
A similar trend was seen in HDFC Life Insurance, whose retail protection business growth dipped on a YoY basis. However, for Q2FY23, it was up 26 per cent sequentially. Strong growth in group protection, especially Credit Life, more than offset the continued decline in retail protection, driving the overall protection APE growth to 24 per cent YoY. The management expects YoY growth to gradually pick up in the second half of the year.
“Optically it looks like the retail term has not grown, but if you look at it sequentially, we have done reasonably well. Q2 is higher by 26 per cent over Q1. It’s a combination of two things: one, we have launched our new product which has been received well, especially in the digital channels and two, supply side constraints have gotten digested in the system and reinsurers are little less panicky than they were earlier,” Vibha Padalkar told Business Standard.
Even SBI Life encountered some headwinds on the retail protection front as the APE dipped four per cent YoY during Q2FY23, despite 80 per cent of the retail protection business comprising term return of premium products.
Max Life, however, saw a YoY increase in its retail protection business, bucking industry trends. The firm saw an 11 per cent YoY growth in retail protection APE in Q2 and a four per cent YoY decline in H1.
Industry experts say the problem is not on the demand side as demand continues to be stable for these products but the problem lies on the supply side as underwriting standards and processes were tightened significantly during the pandemic. The price also moved up considerably as claims experienced for the insurers and reinsurers. However, many insurers are now reducing rates and pushing for growth in the segment.
“Demand side, we are not seeing any lack of demand. Demand continues to be stable for these products and if I really look at the underwriting side, the processes have stabilized, and the pricing has also stabilised. So, those are the indications I can give you in terms of sequential stabilisation, stabilisation of processes and of pricing and that is what we are seeing with a lot of positive outlooks in this segment as we move forward”, said Kannan.
HOW THE SECTOR FARED IN Q2
- ICICI Prudential's retail protection growth, though challenged on YoY basis, has broadly stabilised sequentially
- SBI Life's retail APE declines 4% YoY in the same period
- SBI Life's retail APE declines 4% YoY in the same period
- HDFC Life’s retail protection biz declines YoY but increases 26% sequentially
