Mumbai: Life Insurance companies are expected to report strong first quarter earnings, as the individual new business premium (NBP) growth for them has been over 30 per cent. In addition, during the first quarter, the 10-year benchmark yield was down by 46 basis points, which should lead to a 1 per cent to 3 per cent boost in their embedded values. On the flip side, while the rates are down, the default incidents have picked up in the recent months, requiring a closer monitoring of investment portfolios, feel analysts.

Historically, the first quarter is marked by weak volumes for the sector, driven by seasonality in the fourth quarter, which contributes around 35 per cent of the NBP growth. However, FY20 has started on a strong note with private players registering annual premium equivalent (APE) growth of 30.5 per cent, as per the IRDAI. APE is an international formula that gives 100 per cent weightage to regular premium while taking into account 10 per cent of a single premium.

"We expect private players to continue to gain market share from LIC through better product offerings, with the focus on volume game through sale of ULIPs and margin accretion via sale of protection and other traditional products such as annuities. We expect HDFC Life and SBI Life to report a very strong set of numbers in 1Q with APE growth of 57/37 per cent YoY and expansion in value of new business margins (20-30 basis points over FY19)," said Emkay Global.

"Our top pick in the sector is SBI Life Insurance with a target price of Rs 850. The current market price of Max Financial also adequately builds in risks and offers meaningful upside potential. We have a Buy with a target price of Rs 681," said Madhukar Ladha, Analyst at HDFC Securities.

During April to June 2019, the first year premium income of ICICI Prudential Life Insurance grew by 29 per cent to Rs 2,226 crore, driven by a strong growth in individual regular premium. However, the life insurer reported a muted growth of 5.3 per cent YoY for Q1FY20 at Rs 1,470 crore. The retail APE was flat at Rs 550 crore (up 0.6 per cent YoY). Policies sold rose 8.4 per cent YoY in June 2019, while the retail APE ticket size fell by 7.7 per cent YoY.

In comparison, HDFC Life reported a reported strong APE growth of 73 per cent YoY to Rs 680 crore in June 2019. For Q1FY20, APE grew 62.2 per cent at Rs 1620 crore. Retail APE grew by 87.2 per cent YoY to Rs 590 crore. The new business premium rose 21 per cent YoY to Rs1360 crore. Policies sold increased 5.2 per cent YoY in June 2019. The retail APE ticket size jumped by 79.5 per cent YoY.

SBI Life Insurance reported 38.5 per cent rise in APE at Rs 1,790 crore in Q1FY20 while Max Life reported APE growth of 20.3 per cent YoY at Rs 670 crore.

"We continue to like this space due to structural undercurrents. We continue to remain overweight on SBI Life due to comfort of both growth and valuation and Max Financial due to its consistent delivery and attractive valuations, said Emkay Global.

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