General Insurance - Sector Update - HDFC Securities

Mar-20: GDPI declines due to Lockdown

Pvt. multi-line insurers' Mar-20/FY20 GDPI grew -16.2/+11.7% YoY to Rs 67.1/911.8bn. Decline in Mar-20 was along expected lines as new policy sales have declined as a result of the lockdown and renewals have been impacted by the forbearance (until 15-May-20) given by IRDAI on premium payments, and extra time (until June-20) allowed for claiming deduction under the IT Act, for the purchase of health cover.

The risk of non-renewal of motor TP policies during the lock-down period remains; some lapses may occur, while we expect most policies to be renewed as lockdown is relaxed/ended. We expect premium growth to recover as lockdown is eased. Overall for the year we expect companies to enjoy higher underwriting margins on most segments except for health. Investment incomes will get mildly impacted by lower float and interest rates.

For Mar-20, motor OD/TP saw steep drops at 9.0/5.4% YoY, while health premiums declined 10.7% YoY. Purchase of new retail health policies seems to have fallen as prospective customers delayed buying decision due to the additional 3 months granted for claiming IT benefit u/s 80D. SAHI's outperformed with a growth of 8.5% YoY.

With a long run-way of growth, improving regulatory environment, and strong innovation opportunities, we remain positive on the general insurance sector. Regulatory crack-down on motor TP pricing is key risk.

Growth: robust for Property, moderate for Health, and negative for motor.

Property (fire) segment reported robust Mar-20/FY20 growth at 12.5/35.3% YoY; price hike mandated by GICRE is the key driver of growth.

Motor OD segment declined 9.0% YoY, as lockdown impacted new sales. While BAGIC/ICICIGI/NIA reported declines of 26.8/12.0/19.5% YoY, Acko/Go-digit continue to grow at -0.7/20.5% YoY, increasing market share.

Motor TP segment declined 5.4% YoY, as new vehicle sales slowed and renewals were deferred. Newer players such as Acko/Go-digit/SBI continue to grow ahead of market at 21.3/50.2/166.8% YoY. BAGIC/ICICIGI/NIA reported declines of 24.7/21.2/14.7% YoY.

Health segment declined by 10.7% YoY in Mar-20. For FY20 growth was tempered at +13.5% YoY. SAHIs maintained the growth momentum as GDPI for Mar-20/FY20 was up 8.5/28.3% YoY.

Companies:

BAGIC: Declines across segments caused Mar-20 GDPI to fall 28.7% YoY.

ICICIGI: For Mar-20 GDPI (ex-crop) declined 16.1% YoY to Rs 8.0bn- as motor OD and TP and health lines declined. We have a REDUCE on ICICIGI with a TP of Rs 1,100 (Mar-22E P/E of 26.7x and a P/ABV of 4.4x). Company currently trading at a FY21/22E P/E of 34.0/29.9x and P/ABV of 7.3/6.2x.

NIACL: Led by declines in health, and motor, Mar-20 total GDPI declined 21.1% YoY to Rs 20.1bn. We have a REDUCE on NIACL with a TP of Rs 111 (0.6x Mar-22E ABV (less 10% discount for expected 10.4% supply). NIACL is currently trading at a FY21/22E P/E of 11.1/10.0x and P/ABV of 0.6/0.6x.

Source : Equity Bulls

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