Outlook Money – 01.03.2018

projected a 15-18 per cent growth
in the life insurance segment.
Meanwhile, international ratings
agency Moody’s expects the non-life
segment to generate higher returns
in a few years from now.
“Economic expansion supports
premium growth. We expect the
non-life sector’s double digit growth
to continue over the next three-four
years, driven by continued economic
expansion and an associated
increase in household spending,”
Moodys noted in its report, one of
the first of its kind on the general
insurance sector.
The life insurance segment
appears to have put its woes
behind. “Earlier, the industry
faced regulatory obstacles related
to mis-selling, which pushed the
sector into turmoil,” Vidhi Shah,
research associate with broking firm
Prabhudas Liladher, says. “Insurers
have now adopted a more cautious
approach towards growing their
businesses, inspiring confidence
amongst customers.” Rising
awareness on financial instruments
has also prompted growth.

The sector’s long-term prospects

look bright. With a low base of

insurance penetration, India’s scope

for growth is massive. At present, life

insurance penetration in the country

is a mere 3.5 per cent, while non-life

coverage is 0.7 per cent.

“Market opportunity, market

size and market potential are the

three key words,” according to

Jaideep Devare, managing director,

Mahindra Insurance Brokers. “Given

that the non-life industry has grown

at the rate of 17 per cent average

CAGR in the last seven years and

mopped up `1.27 lakh crore in 2017,

it’s a large market opportunity that

deserves retail participation.”

Devare suggests a three to

five year investment horizon

for non-life stocks, keeping in

mind the impending assembly

elections, which he believes could

spur investments in sectors like

infrastructure, car manufacturing,

goods and services.

“These factors indicate growth in

the sector,” he said. In the future, the

life insurance sector will gain from

the widening market penetration

and financialisation in the country.

“Your saving is moving out of

gold, real estate and other financial

assets,” says Asutosh Kumar Mishra,

senior research analyst, Reliance

Securities. “Insurance would benefit

out of that, as people are moving

towards risk-based products.”

Picking right

Retail investors should, however,

carefully evaluate the prospectus

before investing, according to some

analysts. “Investors should direct

their investments in fundamentally

sound companies with good track

record. For instance, HDFC Life and

ICICI Prudential Life have healthy

numbers to back them,” says Payal

Pandya, research analyst at Centrum

Broking. Asutosh Kumar Mishra

sees the sector’s low volatility as a

positive sign. “Fluctuations in life

insurers’ returns and investment

valuations are on the lower side.

This means it will lend a good

balance to retail investors’ portfolio,”

he says. HDFC Life, SBI Life and

ICICI Prudential Life are bankable

stocks, according to Mishra. Shah

of Prabhudas Liladher, on the other

hand, recommends ICICI Lombard

and HDFC Life with a three-year

hold period.

More IPOs

In contrast, the public sector

insurance stocks do not find favour

with analysts. This may not augur

well for the three state-owned

insurers. The Union Budget has

proposed a merger of National

Insurance, Oriental Insurance and

United India Insurance, followed

by an IPO.

In the life insurance segment,

No. Company Name

IPO

issue

price

Latest

market

price as on

20-02-2018

Returns

since

listing

1 HDFC Life Insurance 290 436.05 50%

2

The New India

Assurance

800 703.6 -12%

3

General Insurance

Coporation of India

912 755.75 -17%

4

SBI Life Insurance

Company

700 676.1 -3%

5 ICICI Lombard General

Insurance

661 819.65 24%

6

ICICI Prudential Life

Insurance Company

334 402.75 21%

Source : Aceequity

A Mixed Bag

Savings are moving

out of gold, real

estate and into other

financial assets

http://www.outlookmoney.com March 2018 Outlook Money 57