Life Insurance Corporation of India (LIC), SBI Life Insurance (SBI Life) and HDFC Life are three of the top life insurer stocks in India. LIC was listed in May this year and is not only the largest life insurance firm in the country but also the biggest competitor of the latter two.
LIC vs SBI Life vs HDFC Life: Which insurance stock should you pick?
While SBI Life has risen 18 percent in the last 1 year, HDFC Life has lost 12 percent in this period. However, since listing in May, LIC has fallen 25 percent till date.
About the firms
LIC provides life insurance products in India, Fiji, Mauritius, and the United Kingdom. It provides individual products, including participating insurance products; and non-participating products comprising savings insurance, term insurance, health insurance, annuity and pension, and unit-linked insurance products. It is the oldest life insurer, incorporated in 1956.
SBI Life Insurance Company Limited operates as a private life insurance company in India. The company’s life insurance business comprises of individual life and group business, including participating, non-participating, pension, group gratuity, group leave encashment, group superannuation, group immediate annuity, unit-linked and variable insurance products, health, and micro insurance. It was incorporated in 2000 and is a subsidiary of State Bank of India (SBI).
HDFC Life Insurance Company Limited provides individual and group insurance solutions in India. It offers insurance and investment products, such as protection, pension, savings, investment, annuity, and health, as well as term, retirement, investment, children’s, and unit linked insurance, NRI, and group insurance plans. It was also incorporated in 2000.
LIC reported nearly 232 times year-on-year (YoY) growth in standalone net profit at ₹682.88 crore for the quarter ended June 30. It had posted a standalone profit of ₹2.94 crore in the corresponding quarter last year. However, its performance was disappointing on a quarter-on-quarter (QoQ) basis. Its net profit declined 71.2 percent on quarter to ₹2,371.6 crore, while standalone total premium contracted 31.6 percent to ₹98,351.8 crore. Meanwhile, on a YoY basis, the net premium income of LIC increased by 20.35 percent to ₹98,351.76 crore.
SBI Life reported 18 percent year-on-year (YoY) growth in its net profit at ₹263 crore in the April–June quarter (first quarter, or Q1) of 2022-23 (FY23), aided by a healthy jump in gross written premium. In the corresponding period a year ago, the company's net profit was to the tune of ₹223 crore. On a sequential basis, however, net profit was down almost 60 percent. Its gross written premium - the sum of new business premium and renewal premium - was up 35 percent YoY to ₹11,350 crore in Q1FY23.
HDFC Life reported a 21 percent rise in net profit at ₹365 crore for June quarter 2022-23 buoyed by topline growth along with a higher renewal ratio that boosted margins. Total premium rose 23 percent to ₹9,396 crore during the quarter from ₹7,656 crore a year ago, the life insurer said, adding the first-year premium income rose 27 percent to ₹4,776 crore.
Which one to choose?
Now that LIC has been listed, which insurance stock should investors choose between the three; let's see what analysts have to say:
According to Vinit Bolinjkar, Head of Research, Ventura Securities, between these 3, at the current market price (CMP), HDFC life is available at a lucrative valuation of 2.2x P/EV which seems decent given its consistent growth track record.
At current valuations, one can shift to HDFC Life as it is more consistent performance than LIC with better value of new business (VNB) margins, he said.
Meanwhile, for Rohit Khatri, Assistant Vice President of Research, Religare Broking, SBI Life is his top pick in this space given its scope for improving product mix as well as margins.
Naveen Kulkarni, Chief Investment Officer, Axis Securities has also chosen SBI Life as his preferred insurance pick.
"Our top pick is SBI Life (SBIL), as the stock's performance has been improving, led by growth, margins, cost ratio, and persistence. Among private life insurers, it possesses by far the largest bancassurance network, bancassurance network size being most critical for scalability. The company has been continuously expanding its VNB Margin (which was at 30.4 percent in Q1FY23, up 665 bps YoY), which stands as one of the best in the industry, led by improving product mix and operating leverage," Kulkarni explained.
He further stated that SBI Life enjoys industry-wide very competitive cost ratios, which help the company to maintain a superior margin profile. Further, its granular business coupled with a high share of debt in the ULIP portfolio would support in maintaining persistence. With the continuous focus of Management to shift toward a more profitable product mix (non-par and protection products), he believes, SBI Life remains well-placed in the life insurance space from a long-term perspective.
Despite the 25 percent decline since listing, Khatri feels one can also stick with LIC from a long-term perspective given its leadership position coupled with the company's strong focus on improving its product portfolio and improving margins.
Kulkarni also believes that the life insurance industry is geared to register robust growth over the long term. Thus, from the long-term perspective, he expects the LIC IPO to give a reasonable return to the investors. Also, given the under-penetration of life insurance in India and the higher protection gap, there is enough space for growth for multiple players in the industry, he noted. However, he sees the private players outperforming LIC by registering a higher growth rate (on a smaller base) and effectively gaining market share.
Insurance Sector Outlook
According to Khatri, the rising interest rates and moderate growth in individual protection plans are some of the concerns currently. Nonetheless, he remains constructive from a long-term perspective given the under penetration of life insurance and the expectation of improving life expectancy. While we are positive on all large names in this space, SBI Life remains one of our top picks, he said.
Meanwhile, going ahead, Bolinjkar believes that the growth in bancassurance and online sale will be a key growth differentiator as the traditional model of selling through agents will slowly become obsolete. His top pick is HDFC life as it will be able to benefit from the huge branch network of HDFC and HDFC Bank. Also, the company has been the most consistent performer in the sector with an industry-leading VNB margin, he added.
Kulkarni, on the other hand, noted that post business momentum moderating over Jan-Feb’22, the life insurance industry has regained growth traction as it entered FY23. Given the strong demand for protection, annuity, and non-PAR products, he expects the growth momentum to continue.
"In the near term, we expect the industry to see higher penetration of insurance products, led by digital technologies, the emergence of new products with flexibility around changing interest rate environments, and insurers’ focus on building multi-channel capabilities (including tie-ups with fintech) to expand customer base. Our top pick in the space is SBI Life," said Kulkarni.
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