Life insurance: premium collections up 90% in March 2021


Private players reported 8% year-on-year growth in individual EPAs for FY21, significantly higher than initial expectations at the start of the pandemic.

Life insurers reported stellar growth in individual annualized premium equivalent (APE) of 90% year-over-year (year-over-year) in March 2021 (on a weak basis), translating into a growth of 40% yoy in Q4FY21 and 8% yoy for FY21. The CAGR of individual EPAs over two years, however, was modest at 7% in March 2021 and 6% for FY21.

Performance of private actors
Private players reported 8% year-on-year growth in individual EPAs for FY21, significantly higher than initial expectations at the start of the pandemic. The individual two-year EPA CAGR was modest at 6%, lower than the 4-year CAGR of 12%.

Individual protection supported growth in the first half of 21, while unit-linked insurance plans (Ulips) started to revive from the third quarter of 21. Demand for non-parity savings remained strong. dynamic throughout the year, likely reflecting investors’ preference to stick to a fixed rate in a declining rate regime, coupled with an increase in the appetite of life insurers to subscribe to these products due to the availability of FRA.

Credit life was low in S1FY21 due to lower disbursement volumes, but recovered quickly in S2FY21; mortgage disbursements reached peaks for most players in the second half of the year, driven by strong growth in property sales. The LIC reported an individual APE CAGR of 2% over two years in FY21.

Setting the stage for a strong FY22
We expect life insurance companies to post strong individual APE growth in FY22 (on a weak basis), driven by (1) the upturn in ULIPs (equity-oriented inflows were positive after nine months in March 2021), (2) continued traction in -Products based on pensions, pensions and annuities; the market remains poised to grow due to the shortage of high yield fixed income instruments, (3) the recovery in credit life from the 2021 lows and (4) high risk aversion that drives demand for personal protection in the latter part of the year – sales of protection policies tend to pick up after a pandemic. We expect VNB’s margin to remain strong due to a combination of high margin savings and futures, tempered by growth in ULIPs.

Private actors gain market share
The focus on adding new products, diversifying the channel mix, increasing the digital capabilities of proprietary channels and moving to non-core channels (eg Web Aggregators) have led to a gradual increase in the market share of private actors in the sole proprietorship. The overall market share of individual APEs increased to 40.3% in FY21 from 43.8% in FY18 and 60% in FY15.

We expect better digital capabilities to generate higher growth for private players in the coming months of local lockdowns.

Edited excerpts from the Kotak Institutional Equities Research report

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