Should investors worry on HDFC Life, Max Life's slower growth?

At a time when most bank-led life insurers have grown at a healthy clip, HDFC Life and Max Life, to be joined up soon, have lagged behind, particularly in the individual (consumer) segment that makes up bulk of the premiums. This has weighed on the share price of Max Financial Services (holding company of Max Life), which has fallen nearly six per cent over the past one month as against a four per cent rise in the S&P BSE 200 index. So, should investors be worried?

A key reason for the slowdown could be that HDFC Bank has consciously decided not to push insurance products to consumers during demonetisation (note ban), says Nitin Aggarwal, an analyst at Antique Stock Broking. On the other hand, in their endeavour to efficiently deploy huge deposit inflows after demonetisation, most banks have stepped up cross-selling of their insurance and mutual fund products to their customers leading to a spike in life insurance premium growth. In fact, private life insurers witnessed a 42 per cent growth in individual annualised premium equivalents (APE) in the demonetisation month of November, more than double than the 20 per cent growth seen between April and October 2016. APE is a measure used for comparison of life insurance revenue by normalising policy premiums (single premium and regular premium) into the equivalent of regular annual payments. 

Slowdown in Max's business is also likely due to the upcoming union with HDFC Life, believe analysts at Kotak Institutional Equities. They also believe high growth in early FY17 was on account of a low base of FY16 in case of Max.

However, the management team of both companies is taking corrective measures and remains confident of recovery. HDFC Life, for instance, believes that slowdown in the bancassurance individual segment led to its weaker performance in Q2 and Q3 of this financial year. "We were working closely with our bank partners during this period to improve the quality of new business written significantly. We are already seeing an uptick in our bancassurance business and we believe this upward trajectory will continue," says Subrat Mohanty, senior executive vice-president, HDFC Life.

Management of Max Life Insurance, too, remains positive. Prashant Tripathy, senior director and finance chief at Max Life Insurance, says, "We have witnessed some slowdown in January and February but the reasons were short term. We are confident that with strong performance in March, we will be able to bring back the growth momentum." Few leading players have witnessed some high growth years driven primarily by Ulips (unit-linked insurance plans) sales, he adds. Ulips are a smaller proportion (one-third) of Max's total new business premiums.

While the management commentary is positive, some analysts prefer to wait and watch. Improvement in premium growth is key to support valuations. "We will watch out for HDFC Life's performance for one more month before concluding anything," says Aggarwal. Analysts also say that investors must watch out for continued high competition in this business.   

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