Nirmal Bang initiates coverage on life insurers; Here are the reasons to prefer private players?

Domestic brokerage firm Nirmal Bang Institutional Equities has initiated coverage on India's life insurance sector, with its view on HDFC Life Insurance Company Ltd, ICICI Prudential Life Insurance Company Ltd, Max Financial Services Ltd and SBI Life Insurance Company Ltd. However, it has not covered Life Insurance Corporation of India (LICI) in its maiden report on the sector.

The brokerage said that low insurance penetration in India indicates huge scope for growth over a multi-decade horizon; outlook remains positive driven by strong inherent demand for protection and annuity products. "The sector is in a transition phase with upcoming regulations which could disrupt the business model of traditional players," it said.

Nirmal Bang remains bullish on long-term industry growth prospects over the next two decades with an increasing need for long-term guaranteed returns, due to lack of social security, robust demand for annuity products over the next decade driven by NPS/ageing population and massive scope to increase protection penetration.

It has initiated coverage on ICICI Prudential life Insurance (upside of 26 per cent) and SBI Life Insurance Company (upside of 17 per cent) with a buy rating and a target price of Rs 660 and Rs 1,600 respectively. However, it has an 'accumulate' rating on HDFC Life Insurance Company and Max Financial Services, with a target price of Rs 675 and 1,035 apiece.

Private players with an innovative product portfolio, well-entrenched distribution network targeting tier-II and III cities and a growing protection franchise are best-positioned to capture the opportunity, Nirmal Bang said. However, life insurers under coverage are resilient and quick to adapt to new changes, it said.

"We identify incremental growth coming from the rapidly-growing protection and annuity segments. Growth in protection will be derived from an increase in both the number of absolute lives and protection cover aided by higher financial awareness and rising disposable incomes," it said. "Annuity market is in a nascent stage and we expect the market to develop as players come out with new and innovative product offerings to capture the customer."

While margins would remain steady for most players, we expect APE growth to be the main delta for outperformance. Companies like IPRU Life and SBI Life with robust distribution channels, strong brand names and a growing protection franchise would be clear winners in the sector, said Nirmal Bang.

 

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