Madhukar Ladha, Institutional Research Analyst, HDFC Securities.
General Insurance: Apr-20: GDPI continues to decline due to Lockdown
Pvt. multi-line insurers' Apr-20 GDPI declined 16.2% YoY to Rs 67.2bn. Decline in Apr-20 was along expected lines as new policy sales have fallen as a result of the nation-wide lockdown, and renewals have been impacted by the forbearance (until 21-May-20) given by IRDAI on premium payments, and extra time (until June-20) allowed for claiming deduction under the IT Act, for the purchase of health cover.
The risk of non-renewal of motor TP policies during the lock-down period remains; some lapses may occur and more so for OD cover, while we expect most policies to be renewed as lockdown is relaxed/ended. We expect premium growth to recover as lockdown is eased. Overall for the year we expect companies to enjoy higher underwriting margins on most segments except for health. Investment yields are likely to drop as a result of lower interest rates.
With a long run-way of growth, improving regulatory environment, and strong innovation opportunities, we remain positive on the general insurance sector. Regulatory crack-down on motor TP pricing is key risk.
Growth: robust for Property, moderate for Health, and negative for motor.
Property (fire) segment reported robust Apr-20 growth at 41.0% YoY; price hike mandated by GICRE is the key driver of growth.
Motor OD segment declined 51.0% YoY, as lockdown impacted new sales. While BAGIC/ICICIGI/NIA reported declines of 48.1/51.4/49.6% YoY.
Motor TP segment declined 47.6% YoY, as new vehicle sales slowed and renewals were deferred. BAGIC/ICICIGI/NIA reported declines of 48.3/42.5/53.6% YoY.
Health segment grew by 6.3% YoY in Apr-20. PSU's outperformed as GDPI for Apr-20 was up 20.8% YoY. Premium growth seems to be driven by corporate group and government health (+8.7/18.9% YoY) segments.
BAGIC: Decline in motor OD, motor TP and health segment caused Apr-20 GDPI to fall 21.1% YoY. Property (fire) segment grew 72.7% YoY in Apr-20.
ICICIGI: For Apr-20 GDPI (ex-crop) declined 8.6% YoY to Rs 13.6bn- as motor OD and TP and health lines declined. We have a SELL on ICICIGI with a TP of Rs 1,042 (Mar-22E P/E of 26.2x and a P/ABV of 5.5x). Company currently trading at a FY21/22E P/E of 36.5/31.4x and P/ABV of 7.9/6.5x.
NIACL: Led by growth in health, and property (fire), Apr-20 total GDPI grew 7.1% YoY to Rs 31.6bn. We have a REDUCE on NIACL with a TP of Rs 111 (0.6x Mar-22E ABV (less 10% discount for expected additional 10.4% stock supply). NIACL is currently trading at a FY21/22E P/E of 10.7/9.6x and P/ABV of 5.7/6.2x.