The Indian insurance sector is witnessing a positive trend along with a structural shift in product mix when it comes to higher margin protection business. The profitability has also increased in savings business along with more stable regulatory regime and increasing scale. In last 3 years, the savings product margins improved by 5 percentage point. According to Goldman Sachs, these factors will drive the Indian insurance sector to a strong 23% NBV CAGR over FY19-22E. The American investment banker has raised its target for this sector and has also given investment calls on which stocks would be best bet on Dalal Street. 

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“We forecast the retail protection segment to grow at 30% CAGR over next 7 years on the back of 1) increasing ad-spend and attractive pricing, 2) development of direct / online channels and 3) very low levels of penetration currently, at only c.3% of the addressable market," it said.

 The banker sees increasing large untapped pools of income in various protection business (Retail protection, credit life & annuities), which it expects to contribute to c.45% of profitability (in NBV terms) of insurers under coverage in FY22E vs 26% in FY18.

Additionally, Goldman also pictures IPRU as best positioned given - 1) access to urban mass affluent segments, 2) a banca channel geared to sell protection and 3) a good balance between pricing and brand recognition. HDFL is very well positioned in the segment too, given its large direct business; however slower protection sales in the banca channel has been a challenge. 

Hence, insurance-related stocks can become a money making magnet. These three can be your bet ahead, as per Goldman. 

HDFC Life (Buy, 12m TP Rs488): 

HDFL is well-placed to deliver sector leading NBV growth, of 27% over FY19-22E, given its: 1) ability to tap into various protection profit pools; 2) strong execution track record and 3) a more resilient business model to navigate equity market and regulatory risks. 

ICICI Prudential Life (Buy, 12m TP Rs421): 

Transitioning from a capital market play into a more diversified franchise as it taps into newer business and customer segments. Well placed to deliver 25% NBV CAGR over FY19-22E on 1) doubling the contribution of protection in its product mix, 2) product and customer segment deepening and 3) Scale based competitive advantage in ULIP business. 

SBI Life (Neutral, 12m TP Rs 639):

SBI Life’s key competitive edge in the savings business segment is its large, profitable and relatively untapped banca distribution channel. However, Goldman says, “prefer stocks better placed to tap the protection opportunity, where SBLI may face challenges given an undeveloped direct channel, lower income customer base and higher pricing.”

Goldman forecast a 17% NBV CAGR over FY19-22E, despite a muted 2.7ppt NBV margin expansion vs peers over FY19-22E on healthy premium growth trends.