By Emkay Research
We expect the listed life and general insurance pack to report a good set of numbers overall, in Q3FY23. For life insurers, APE (annualised premium equivalent) growth y-o-y in Q3 will moderate from H1FY22 levels on account of the stronger Q3FY22 base and a marginal negative impact of the external environment in Q3FY23. Nonetheless, overall APE growth in 9MFY23 will remain satisfactory for HDFCLIFE and SBILIFE, while staying muted for IPRU and MAXLIFE on account of issues at their key bancassurance partners. On the VNB (value of new business) margin front, life insurers should see stable-to-improving margins sequentially, on account of increasing non-par savings in the product mix. In the General Insurance space, ICICI Lombard is likely to report a strong 19% y-o-y growth in premiums for Q3FY23, with a stable combined ratio at 104%. STARHEALTH is expected to clock 12% y-o-y premium growth and a strong turnaround y-o-y in profitability, with combined ratio of ~95%. Overall, Q3/9M FY23 developments should bode well for listed insurance stocks. We reiterate our Buy rating on listed private insurers and our HOLD rating on LIC.
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ICICI Lombard: Driven by strong growth in Motor TP and Health, we expect ICICI Lombard’s GDPI to grow 19% y-o-y .
STARHEALTH: We expect only a modest ~12% y-o-y premium growth for STARHEALTH in Q3.
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We continue to value private life insurers using the appraisal value method (Embedded Value + Franchise value). However, for LIC, we value the stock at 10% discount to the FY24E EV – Given that LIC’s RoEV is materially sub-par vs private peers’ and lower than the cost of equity, we are not using the appraisal value method and, instead, apply discount on EV to reflect the higher EV sensitivity to the equity market.
Notwithstanding the short-term turbulence caused by the external macro environment and by some company-specific, non-operating issues, the outlook for the insurance sector in India and the fundamental strength of these listed entities remain robust. In this backdrop, the underperformance of sector-stocks in CY22 has made valuations attractive and provides a good entry point.