Life insurance companies in India have demonstrated resilience and compounded at a healthy rate over the past five years, weathering multiple challenges, ranging from regulatory changes to the impact of Covid-19. Despite these headwinds, the sector has continued to exhibit robust performance, with several private insurers delivering a compounded value of new business growth of 15% or more annually, Investec said in its report on Friday.
With the industry outlook improving, as major challenges such as tax changes and intense competition from mid-sized players recede, the brokerage has Max Financial Services Ltd. and HDFC Life Insurance Co. as its top picks in life insurance segment.
An important metric for evaluating life insurers is their persistency, which refers to the rate at which policyholders continue to renew their policies. Life insurers have significantly improved their persistency ratios, with 13th-month and 48th-month persistency increasing by over 500 basis points during financial year 2014 to financial year 2025.
This improvement is indicative of better customer satisfaction and growing trust in life insurance products, the brokerage added. Additionally, complaints per retail policy have declined, highlighting improvements in service quality.
Life insurers have demonstrated the ability to generate healthy returns on capital, with many companies delivering internal rates of return in excess of 15%. Notably, SBI Life Insurance Co. has achieved an outstanding 28% IRR for its shareholders since inception. These high IRRs underscore the strong profitability potential of life insurance businesses, which tend to operate as long-term projects with up-front capital requirements.
Stock Picks
Max Financial Services
Maintained 'buy' rating with target price of Rs 1,500 per share. Max Financial remains attractive with strong operational performance, a diversified distribution mix, and a solid agency channel. Despite expectations of only 5% VNB growth over the next decade, its cheap valuation makes it a compelling investment, the brokerage said.
HDFC Life Insurance Co.
Maintained 'buy' with target price of Rs 850 per share. Known for its consistent performance and diversified mix, HDFC Life remains a top pick for the brokerage. While its agency channel is weak, the company's overall strength justifies its premium valuation.
ICICI Prudential Life Insurance Co.
After a challenging period, ICICI Prudential Life is seeing recovery with improving growth metrics, the brokerage said in its report. Given its attractive valuation, it is upgraded to 'buy' rating, with a target price of Rs 725 and an upside potential of 15%.
SBI Life Insurance Co.
Maintained 'buy' with target price of Rs 1,900. With strong cost leadership and positive operating variance, SBI Life remains undervalued despite short-term challenges, making it a solid investment.
Life Insurance Corp.
While LIC remains dominant, its growth lags compared to private players, and with its current valuation, a 'hold' rating is advised at a target price of Rs 875.
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