Phillip Capital initiates coverage on in insurance sector; checks its top picks

Brokerage firm Phillip Capital has initiated coverage on the Indian insurance sector, saying that is currently perceived as a medium-term investment opportunity with its resilient Return on Embedded Value (RoEV) and low beta due to its large market cap bias. This sector benefits from secular growth drivers and a primarily domestic exposure, which are available at undemanding valuations. Despite the sector experiencing a significant de-rating since FY20 due to regulatory changes, the underlying performance remains resilient. Phillip Capital has highlighted ICICI Lombard General Insurance Company and Max Financial Services as top picks due to their favourable risk/return profiles.

Axis Max Life is gaining attention as a leading choice among life insurers, primarily due to its balanced product mix and strong solvency. This stems from a strategic focus on favourable product mix and a growing proprietary channel, contributing to a robust Embedded Value CAGR of around 18% over FY25-28. The company's undemanding valuation further supports its attractiveness in the market, according to a brokerage report.

In the life insurance sector, the regulatory overhang is beginning to ease after causing a 30% de-rating since FY20. This was largely driven by changes in regulations and Union Budget measures. Although some uncertainties remain, particularly around open architecture and banca regulations, the government’s objective of 'Insurance for all by 2027' is unlikely to impose an outright cap on the banca channel's contributions.

Phillip Capital has expressed a preference for the general insurance sector over life insurance in the medium term due to its stronger growth drivers. These include trends such as motor-premiumisation, momentum in health insurance, and the expansion of Property and Casualty lines. With the March 2026 deadline for meeting Expenses of Management norms approaching, smaller insurers are expected to face challenges in securing extended timelines.

Standalone health insurance, driven by a rising middle class and increased health awareness, remains the fastest-growing segment in general insurance. Star Health maintains its market-leading position in retail health insurance, supported by its agency-driven business model. However, the company may face delays in profitability improvements due to structural issues within the industry.

The upcoming shift to Ind AS 117, an IFRS-17-based accounting standard, by FY27 is expected to alter valuation methods within the sector. Under this new framework, life insurance should be valued on the basis of shareholders’ equity, adjusted for post-tax Contractual Service Margin and Risk Adjustment.

Phillip Capital's top picks in the insurance sector include ICICI Lombard GIC and Max Financial Services. The firm has initiated coverage on several insurers, including the top four private life insurers. While SBI Life and HDFC Life have received Buy ratings, IPRU Life and Star Health have been assigned Neutral ratings, pending further progress on underlying issues.

Despite regulatory challenges, the Indian insurance sector offers promising investment opportunities. Axis Max Life’s strategic positioning and ICICI Lombard’s strong performance underline their potential as leading players in their respective fields, as noted by Phillip Capital.

ICICI Lombard GIC (Target Price: Rs 2,300), Max Financial Services (Target Price: Rs 1,780), SBI Life Insurance (Target Price: Rs 2,050), HDFC Life Insurance (Target Price: Rs 900). It has a 'neutral' view on ICICI Prudential Life (Target Price: Rs 700) and Star Health (Target Price: Rs 520).