A strong growth in new business, strong distribution franchise and a sustained shift towards high-margin segments have made listed insurance companies the green shoots in the otherwise battered financials space, where banks and non-banking financial companies (NBFCs) are witnessing extreme volatility with a downward bias.
In the current calendar year, while the Sensex has risen nearly 12%, stocks of most listed insurance companies have outperformed the benchmark by a wide margin and have surged between 50% and 70% .
SBI Life Insurance has been the best performer with its shares gaining 68% in 2019 till date. The stock surged from ₹596.45 in December 2018 to the current market price of ₹1,002.10.
ICICI Prudential Life Insurance has also gained more than 60% in 2019.
Morgan Stanley, in a report released on Thursday, said that stocks of insurance players have re-rated sharply due to strong new business growth and continued diversification of earnings towards protection and annuity products. “Insurers’ increased focus on traditional non-par savings products (annuities/guaranteed savings) along with protection has helped drive strong value-of-new-business (VNB) growth even as ULIP (unit linked insurance plan) premium growth moderated,” it said.
“We believe the mix shift towards higher-margin segments is in early stages and will continue to drive strong VNB growth over the medium term, even as lower interest rates moderate the pace of sales of annuities/guaranteed interest rate products,” it added.
The global financial major believes that life insurance players have “strong distribution franchises, good cost and persistency metrics, and are well placed to gain market share.”
Morgan Stanley, however, added that the recent surge in stock prices has stretched the valuations “above mean levels” that could imply “limited upside” in the near term.
General Insurance Corporation of India has been a laggard among listed insurance firms in 2019, though it touched its 52-week high of ₹333.85 on October 31.
