New India Assurance, GIC rally up to 8% as govt may raise FDI limit to 74%

Insurance Companies
Shares of life insurance companies including HDFC Life Insurance, SBI Life Insurance, and ICICI Prudential Life Insurance were trading higher on Tuesday on report that the government may propose to raise foreign direct investment (FDI) limit in the sector to 74 per cent from 49 per cent currently in the Union Budget for 2020-21.

“The government is seriously contemplating opening up the sector as it wants long-term stable money to be invested in the country. The Insurance Regulatory and Development Authority of India (IRDAI) is seeking inputs from industry people on government instructions and a report is expected to be submitted soon,” The Economic Times reported quoting unnamed sources. 

According to the report, the regulator is studying "unwinding provisions related to Indian ownership in insurance firms, solvency of firms owned by foreign promoters, exercising long-term liability contracts on overseas owners and securing policy holders’ rights in case the insurer is foreign owned". Earlier, in 2015, the government had raised FDI in insurance via automatic route to 49 per cent from 26 per cent.

Among individual counters, The New India Assurance Company (NIAC) zoomed 7.6 per cent to Rs 142.35 in the morning deals on the BSE. Besides, General Life Insurance Corporation (GIC), gained 4.2 per cent, HDFC Life Insurance and ICICI Prudential Life Insurance (2.4 per cent each), SBI Life Insurance (2.3 per cent), and ICICI Lombard General Insurance Company (1.1 per cent). In comparison, the benchmark S&P BSE Sensex was trading 0.13 per cent lower at 40,434.42 level at 9:52 AM. So far in calendar year 2019, most of the insurance stocks have outperformed the benchmark Sensex. Apart from GIC and NIAC, which declined 6 per cent and 27 per cent YTD till December 9, all other insurance stocks gave returns between 48 and 58 per cent. The S&P BSE Sensex, meanwhile, advanced 12 per cent during this period.

That apart, 37.2 per cent year-on-year (YoY) growth in new premiums between April-November further boosted buying sentiment. Life Insurance Corporation of India (LIC) beat the industry in the collections with a 44.5 per cent YoY growth in new premium at Rs 1.2 lakh crore. Private insurers, on the other hand, saw a 22 per cent YoY growth in the first-year premium at Rs 49,078.27 crore.

On an absolute new premium collection basis, HDFC Life Insurance saw a 26.5 percent YoY rise in new premiums to Rs 10,772.9 crore for the April to November period.

ICICI Prudential Life Insurance saw a 20.3 percent YoY rise in new premiums in the April to November period to Rs 7,060.2 crore. SBI Life Insurance saw a 38.7 percent YoY rise in the eight-month period to Rs 10,715.72 crore compared to a year ago.

Analysts at JM Financial forecast an industry annual premium equivalent (APE) CAGR of 16 per cent over FY19-21E driven by low penetration, omni-channel becoming the norm, and reduced competitive intensity from other saving products in a low interest rate environment. 

"We had lowered our growth expectations for FY20F for select insurers (SBI Life and HDFC Life) in October and expect a moderate growth of 4-15 per cent for insurers, except for HDFC Life, which we believe will have a favourable base from Nov-19. While the growth trends were weak in Sep-19/Oct-19, the improved growth in Nov-19 implies that our coverage stocks will likely meet our APE growth expectationsm," wrote analysts at Nomura in a sector report. The brokerage values HDFC Life's EV at 4.3x for March-21, 2.8x Mar-21F EV for SBI Life, and 2.4x Mar-21F EV for ICICI Prudential Life Insurance. 

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