Insurance Sector Outlook: Analysts Optimistic for FY25 Growth Amid Positive Sales Data for May 2024

Insurance policy sales data for May 2024 has brought a ray of hope for the Life insurance sector, easing analysts’ concerns over a slowdown. The industry witnessed a significant growth in individual annual premium equivalent (APE) in May, indicating a positive trend for the ongoing financial year of 2024-25 (FY25).

According to Karan Kamdar, a research analyst at Deven Choksey Research, the growth of the Indian Life insurance sector in FY24 was slower than the previous year. However, with advancements in technology and efforts to expand market penetration, analysts are optimistic about the sector’s performance in FY25.

In May 2024, the individual APE of the Life insurance industry grew by 18.7 per cent year-on-year (Y-o-Y) to Rs 7,250 crore. Private sector insurers saw a robust growth of 25.4 per cent Y-o-Y, while Life insurance Corporation of India (LIC) recorded a growth of 7.2 per cent Y-o-Y.

Contrastingly, the previous fiscal year of FY24 had a slow start for life insurers, with individual APE growing by just 2 per cent Y-o-Y in April-May 2023. However, the industry-wide total APE surged by 23.1 per cent Y-o-Y in April-May 2024, indicating a turnaround from the contraction witnessed in the same period last year.

SBI Life, HDFC Life, and ICICI Prudential Life emerged as the top performers in the individual APE growth for May 2024. SBI Life’s individual APE grew by 25 per cent Y-o-Y, HDFC Life clocked a 23 per cent Y-o-Y growth, and ICICI Prudential Life recorded the strongest growth of 57 per cent Y-o-Y.

Analysts at Kotak Institutional Equities attributed the strong APE growth for private life insurers to higher volumes with non-participating policies. They forecast a positive outlook for the sector, with expected VNB margin growth over the next few years.

However, analysts highlighted some near-term challenges for the sector, including potential changes in surrender charges regulations and the need for increased focus on the agency channel. Granular growth in low-tier cities may also require additional investments.

Despite these challenges, JM Financial remains bullish on HDFC Life, while Nuvama Institutional Equities picks SBI and HDFC Life as top choices. Nomura favors SBI Life for investment opportunities.

On the stock market front, private sector insurance firms have underperformed the Nifty50 index over the past year. While HDFC Life’s shares have declined by 1.7 per cent, SBI Life and ICICI Pru have seen gains of 16 per cent and 17.5 per cent, respectively. In comparison, the Nifty50 index has advanced by 25.3 per cent, and LIC’s shares have surged by 67.2 per cent during the same period.

Overall, the positive sales data for May 2024 has instilled confidence in the Life insurance sector, with analysts expecting a better performance in FY25 compared to the previous year.