Sector Update on General Insurance - May-20: Motor declines 23.0% YoY, Retail health grows 24.9% YoY

Mr. Harshad Katkar & Mr. Nilesh Ghuge, Institutional Research Analyst, HDFC Securities.

General Insurance (Sector Update): May-20: Motor declines 23.0% YoY, Retail health grows 24.9% YoY

Pvt. multi-line insurers' May-20 GDPI declined 16.9% YoY to Rs 51.3bn. Decline in May-20 was along expected lines as new policy sales have witnessed a steep fall as a result of the nation-wide lockdown. Renewals seem to have picked up in May-20 as moratorium on premium ended.

Motor TP premiums declined 18.8% YoY in May-20 vs. decline of 32.9% YoY seen in FY21TD indicating some improvement in renewal during May-20. We expect renewals to pick up as businesses open up while we also expect increased permanent slippage in FY21E. The motor OD segment has been hit harder with May-20 declining 29.0% YoY (FY21TD -39.9% YoY).

The health segment overall has grown 9.2% YoY, while retail health continues to grow at a strong 24.9% YoY. In the backdrop of Covid-19, we expect to see strong uptick in retail health.

Overall for the year we expect companies to enjoy higher underwriting margins on most segments. Investment yields are likely to drop as a result of lower interest rates. 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 and Health, and negative for motor.

Property (fire) segment reported healthy May-20 growth at 21.6% YoY; price hike mandated by GICRE is the key driver of growth.

Motor OD segment declined 29.0% YoY, as lockdown impacted new sales. While BAGIC/ICICIGI/NIA reported declines of 27.8/32.6/22.0% YoY. Acko grew 2.8% YoY despite the headwinds.

Motor TP segment declined 18.8% YoY, as new vehicle sales slowed and most likely renewals were deferred. BAGIC/ICICIGI/NIA reported declines of 35.3/16.1/8.5% YoY. Acko/Go digit grew 191.9/-8.0%.

Health segment grew by 9.2% YoY in May-20; Retail health grew 24.9% YoY as pvt. insurers grew 32.0% YoY. BAGIC/ICICIGI/NIA grew 12.0/193.6/3.5% YoY. SAHI's continued to gain market share as growth accelerated to 34.4% YoY. In the group health line BAGIC/ICICIGI declined 0.8/13.8% YoY. Premium growth seems to be driven by retail, group and government health (+24.9/3.0/11.5% YoY) segments.

Companies:

BAGIC: Decline in motor OD, motor TP and health segment caused May-20 GDPI to fall 21.9% YoY. Property (fire) segment grew 33.0% YoY in May-20.

ICICIGI: For May-20 GDPI (ex-crop) declined 12.6% YoY to Rs 8.7bn- as motor OD and TP and health lines declined. We have a SELL on ICICIGI with a TP of Rs 1,042 (Mar-22E P/E of 26.2x and a P/ABV of 5.5x). Company currently trading at a FY21/22E P/E of 39.1/33.6x and P/ABV of 8.4/7.0x.

NIACL: Led by growth in health, and property (fire), May-20 total GDPI grew 2.7% YoY to Rs 18.2bn. We have a REDUCE on NIACL with a TP of Rs 111 (0.6x Mar-22E ABV (less 10% discount for expected additional 10.4% stock supply). NIACL is currently trading at a FY21E/22E P/E of 11.8/10.6x and P/BV of 0.6/0.6x.

Shares of ICICI Lombard General Insurance Company Ltd was last trading in BSE at Rs.1333.1 as compared to the previous close of Rs. 1370.1. The total number of shares traded during the day was 1013100 in over 4173 trades.

The stock hit an intraday high of Rs. 1381.05 and intraday low of 1326.9. The net turnover during the day was Rs. 1377545718.

Source : Equity Bulls

Keywords