SECTOR UPDATE - Insurance - Sharekhan

APE declines sequentially by 17.6%

The annual premium equivalent (APE) of the life insurance industry grew by 8.7% year on year (YoY) while it declined by 17.6% month on month (MoM). The year-on-year (Y-o-Y) growth in APE was mainly contributed by Life Insurance Corporation of India (LIC), which reported a growth of 18.5% YoY, while the private players witnessed a decline of 5% YoY in their APEs. Moreover, the growth on Y-o-Y basis was mainly due to the phasing out of the higher base of the previous year as new regulations were introduced. However, on a year-till-date (YTD) basis (ie April-October 2011), the APE of the industry continued to contract with the private players showing a higher decline (33.2% YTD) compared to an 11.6% decline shown by LIC.

Outlook: On an M-o-M basis the premium collections showed a decline in October 2011, though the same showed a recovery on a Y-o-Y basis. That's because of the phasing out of the higher base effect as new regulations were introduced from September 2010 onwards. On a YTD basis, the premium collection continues to decline while LIC has performed better due to its presence in traditional policies. The insurers are in the process of launching new products and revamping their distribution structure (bank assurance tie-ups, realignment of agent force etc) to curtail their expenses. While the Y-o-Y growth is expected to remain flattish, the growth in H2FY2012 is likely to be better due to seasonality and the lower base of the previous year.

Source : Equity Bulls

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