Private life insurers have recovered well from the pandemic, global brokerage firm CLSA said in a recent report, maintaining a positive view on the sector. Despite the bullish view on the sector, the brokerage has downgraded HDFC Life and ICICI Prudential and maintains Max Financial as its top pick in the space.

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Sector valuations have mean-reverted and are now trading either close to pre-Covid-19 levels or in some cases higher than pre-pandemic levels, it added.

Key rationale for individual stock ratings:

Max Financial: As per the brokerage, the stock has been able to deliver steady growth and share gains, and has been able to diversify from its high PAR dependence. The completion of the deal with Axis Bank will not only end distribution uncertainty but lead to better business momentum as well, it noted. The brokerage has revised the stock's target price to Rs 950, indicating a 37 percent upside.

HDFC Life: The brokerage has downgraded the stock to 'outperform' from 'buy' mainly on the back of expensive valuation. It believes HDFC Life’s ability to drive innovation in margin-accretive, new products will continue to drive best in class VNB margins and Return on Embedded Value (ROEV).

ICICI Prudential: The brokerage also downgraded the stock to 'outperform' from 'buy' since the stock is trading close to its fair value. ULIP weakness had led to significant market share loss for the company but its VNB performance has held up due to strong protection performance, it added.

Further, the brokerage has maintained a 'buy' call on SBI Life since its valuation is still below its pre-COVID levels.

"Its distribution remains best in class. SBI Life’s growth normalised slower than peers post-pandemic but we do not see SBI Life lagging peers on growth over the medium term," said the brokerage.

Moreover, CLSA noted that the insurers have seen a positive Annualized premium equivalent (APE) growth since September 2020 and thus it expects the sector to return to steady compounding from 2022 as the pandemic provides a strong tailwind to the structural protection opportunity.

This has led to an increase in CLSA's FY20-23 APE/VNB growth estimates by 7-13 percent.

Key drivers of APE growth include the structural opportunity in term life business, strong demand for non-PAR savings business and the bottoming-out for ULIP sales, CLSA added.

(Edited by : Ajay Vaishnav)