Indian Life Insurance Industry: Three Key Stocks
Insurance is not too popular in India. Especially, when it comes to life insurance, a marginal proportion of the country holds life insurance. Covid-19 will be bringing some radical changes to our society including an increase in number of individuals taking insurance. Unfortunately, many families have seen their breadwinners dying due to this cruel disease and it has left them with no or little source of income.
It is at this point life insurance comes as a light of hope in everyone's life. A typical life insurance agreement involves an insuree (customer) and the insurer (insurance company). This agreement asks the insurer to deposit regular premiums to the insurer in order to receive a lump sum amount at the death event of the insured person.
Life insurance involves paying today to receive benefits at the later stage of life. Many people are not able to invest in something like life insurance where they have to wait for decades to receive benefits. However, one should not ignore how important this policy can be. The Indian Millennials are understanding its value and this gives us the hope that the Indian insurance industry can grow massively in the long term.
We published a jargon where we mentioned the four key ratios related to the Insurance industry. Check out this article here. These metrics are the key to any insurance company as it tells how lucrative an option that organisation is for the customers.
The Indian insurance industry is still dominated by the Life Insurance Corporation of India (LIC), with a market share of over 60%. The remaining market is shared by many private companies. Let's take a look at the top three private companies in this sector which are listed on the Indian stock market. These organisations are the front-runners to get the benefit of the huge potential this industry holds.
HDFC Standard Life
HDFC Life Insurance Company was established in 2000 and is one of the companies under the arm of HDFC Limited. It is present with the partnership of Standard Life Aberdeen, a global investment company. It offers a range of individual and group insurance solutions that attracts various customers.
As of FY21, the company had 36 individual and 12 group products in its portfolio. It operates through over 400 branches and many other distribution points. Currently, it has a market share of 11.25%, the second-highest by a private player in this industry.
In the last five years, HDFC Life has seen its net income growing at an astounding rate of 10.56% against the industry average of -0.71%. In terms of life insurance companies, it has the highest market capitalization with Rs 1,43,410.19 crore (as of 20th June 2021). The company recorded an increase of 18% in premium earned in FY21 as compared to FY20. Their net income grew by 4.5% from Rs 1,297 crore to Rs 1,360 crore in the same time period. Their EPS has seen an increase from Rs 4.44 in FY17 to Rs 6.74 in FY21.
SBI Life is the biggest private player in the Indian life insurance industry in terms of market share with 16.76%. It was incorporated in 2000. As the name suggests, it comes from the house of SBI which is the largest commercial bank in terms of assets, deposits, branches and customers. SBI Life has 947 offices with a network of about 1,70,096 agents. From December 19 to December 20, the FIIs held a stake of around 25-26% but this has been boosted in the latest March quarter to 30.51%. This shows that even the FIIs are bullish about the company's progress and the efforts they are putting in.
The company saw a robust 23% increase in net premium earned in the last year. During the same period, their net income noticed a meagre increase of 2.3% to Rs 1,455 crore from Rs 1,422 crore. The EPS of the company also shows that this company is reliable for investment purposes. In FY17, the EPS of the company was Rs 9.55 which increased to Rs 14.56 in FY21. SBI Life has a strong free cash flow of Rs 19,209.53 crore in FY20 which was recorded to be Rs 8,376.65 crore in FY17. The fundamentals are quite healthy, signally that if the industry keeps on moving in the right direction, SBI Life will surely benefit.
ICICI Pru Life
Just like the other two companies above, ICICI Prudential Life started its operation in the year 2000 in a partnership between ICICI Bank Limited and Prudential Corporation Holdings Limited. They are known for their high-quality assets with 96% of their fixed income in sovereign or AAA-rated assets. They also distribute their products through individual agents, corporate agents, banks, brokers and other sources.
Unlike the other two companies, the net income of ICICI Prudential Life fell in FY21 even after an improvement in revenues generated. For FY20, the net income was declared to be Rs 1,066 crore which fell to Rs 956.15 crore in FY21. In fact, there has been a decrease in net income every year since FY17. In that year, it was recorded to be Rs 1,650 crore which has been declining each year. This has heavily impacted market share which has shrunk to 8.54%. With profits going downwards, EPS has fallen steeply as well. It was Rs 11.73 in FY17, the highest among the private players. In FY21, it was recorded to be Rs 6.66.
The total insurance coverage in India was recorded to be just 3.76% in 2019. This shows that there can be a massive scale of development in this sector. After the Covid-19 pandemic, the awareness towards insurance has massively increased.
Whether it is health insurance or life insurance, more people are actively looking for the best products that can safeguard their future. Having a long-term vision with these shares can be beneficial if the companies keep on operating on the right path.
Do let us know about your expectations with the Indian insurance industry in the comments section of the marketfeed application below.