Insurance stocks in focus; SBI Life, HDFC Life up 4%; ICICI Pru slips 3%

The NBP of life insurance companies contracted 10.46 per cent YoY in June as compared to decline 32.6 per cent and 25.4 per cent in April and May, respectively

Shares of insurance companies were in focus at the bourses on Friday, with SBI Life Insurance and HDFC Life Insurance Company gaining up to 4 per cent on the BSE as their new business premiums (NBP) contracted by lesser margin on a year-on-year (YoY) basis in June as compared to April and May.

The NBP of life insurance companies contracted 10.46 per cent year-on-year (YoY) in June, it is, however, indicative of recovery signs after the government decided to gradually unlock. Life insurers had seen their NBP decline 32.6 per cent and 25.4 per cent in April and May, respectively.

In June, life insurers earned NBP to the tune of Rs 28,868.68 crore, compared to Rs 32,241.33 crore in the same period a year ago. NBP is the premium acquired from new policies for a particular year. CLICK HERE TO READ FULL YEAR

Among individual stocks, SBI Life Insurance rallied 4 per cent to Rs 872, while HDFC Life Insurance Company was up 2.5 per cent to Rs 600 in intra-day trade on the BSE. In comparison, the S&P BSE Sensex was down 0.14 per cent at 36,685 at 09:41 am.

ICICI Prudential Life Insurance Company, however, slipped 3 per cent to Rs 420, after the company said NBP in the month of June declined 37.1 per cent YoY at Rs 565 crore. For April-June quarter, the NBP had fallen 32.6 per cent YoY at Rs 1,499 crore it said.

Meanwhile, for the April-June quarter (Q2FY21), Motilal Oswal Securities expects ICICI Prudential and HDFC Life to report net premium income decline of 18 per cent/15 per cent YoY, impacted by weak business trends owing to the Covid-19 outbreak. With continued focus on protection business and slowdown in low-margin ULIPs, margin trajectory should improve for these players. Overall, we expect PAT decline of 21-22 per cent for both the insurers, the brokerage firm said in results preview.

Analysts at Emkay Global Financial Services are positive on the sector on the back of a structural story and fair resilience shown even in the current environment. Grace period on premium dues during the lockdown impacted Annualized premium equivalent’s (APE) of Q4.

The brokerage firm believes that Covid-19 may turn out to be a trigger for protection plans, pushing margin profiles of insurers higher. It has overweight rating on SBI Life Insurance and HDFC Life Insurance and underweight rating on MAXL, IPRU due to their high share of ULIPs. However, given the sharp run-up recently, valuations are not cheap, limiting upside potential. The volatility in equity markets is the key downside risk for IPRU and SBIL, it said.