Given the demand tailwinds in the insurance industry due to the change in taxation of non-linked savings products, analysts at Nuvama Institutional Equities remain cautious on sales going into financial year (FY) 2023-24, but are incrementally enthused by the performance posted in early FY24.

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The analysts said that the industry's long-term growth tendencies are validated by the four-year (FY19–24 to date) annual growth rate of 16.5 percent attained in the private individual annual premium equivalent (APE).

"Despite demand advancing to March 2023 in the wake of a change in taxation of insurance products, private insurers' individual new business profit (NBP) or APE turned in smart growth of 11 percent or 10.4 percent year-on-year in May," Nuvama said in a recent research report.

FY24 to date, the industry growth momentum is holding up as individual APE growth came in at 2 percent on-year, while private insurers grew 5.1 percent on-year.

Meanwhile, analysts at ICICI Securities remain constructive on the back of the following factors —

1) High-value of new business (VNB) products typically have low ticket-size. "This is illustrated by sum assured trends of 45 percent or 26 percent on-year growth reported by private insurers in FY24-to date for total or individual sum assured as against 3.5 percent or 5.1 percent growth reported by them in total or individual APE indicating strong growth in protection," the note stated.

2) The pivot to growth in number of policy as a strategy, away from ticket-size will need some time to play out.

3) There has been a strong 42 percent month-on-month growth in total APE in May 2023.

The full-year guidance of companies indicates steady growth in FY24 (adjusted for one of fly sales in March 2023), which has belied post-Budget fears. "If volume normalcy is established (for ascertaining clear trends, we have to observe for a longer time), there can be a positive rally in life insurance stocks," the brokerage said.

Top picks

ICICI Pru-Life (Buy)

IPRU Life has reported a decline of 1 percent on-year – of which parent bank APE was down 36 percent on-year, while other channel APE growth stood at 8 percent on-year in May 2023.

HDFC Life (Buy)

HDFC Life has demonstrated notable expansion in individual APE at 9.8 percent on-year. "We believe drivers continue to be mainly sale of non-linked savings products. With HDFC Life now expected to become a subsidiary of HDFC Bank, we expect some improvement in the counter share within its parent channel," Nuvama said. Total APE came in at 14 percent on-year for the month. Individual APE four-year YTD CAGR is 15.4 percent, including benefit of acquisition of Exide Life.

SBI Life (Buy)

SBI Life witnessed strong NBP growth: SBI Life's NBP rose 58 percent in May 2023 and 36 percent in FY24 to date as against private insurers growth of 9 percent and 8.8 percent in the same period, stressing higher growth in annuities.

Post budget stock performance

HDFC Life and SBI Life have already recovered to pre-Budget levels while IPRU Life is up 10 percent and LIC is down 7.5 percent.

(Edited by : C H Unnikrishnan)