The life insurance industry would see a 15 per cent compound annual growth rate (CAGR) in new business premiums in the next two years, according to a report by financial service company JM Financial. The sector presents a good investment opportunity and is at the cusp of a significant re-rating, which will drive valuations, it added.
JM Financial has listed factors like revival in growth, improvement in cost ratios, balanced product mix, good capitalisation and healthy return ratios as factors that would help life insurers get a better valuation. The report has covered seven private life insurance companies which constitute 75 per cent of the private life insurance market, which include ICICI Prudential Life Insurance, HDFC Life, Bajaj Allianz Life, Birla Sun Life, Max Life, SBI Life and Reliance Life.
"Life insurance companies with strong bancassurance partners (HDFC Life, SBI Life, ICICI Pru and Max Life) should generate weighted average return on embedded value of 16.8 per cent by FY15, compared to 13.3 per cent for the companies which are predominantly agency-driven (Bajaj Allianz, Birla Sun Life and Reliance Life)," the report added.
It also favoured companies with strong bancassurance set-up like HDFC Life, Max Life, ICICI Pru and SBI LIfe.
In terms of the insurers, JM Financial said Bajaj Allianz Life is well-positioned to focus on growth, while Birla Sun Life Insurance is marred by costs, in spite of having a high margin. It further added that HDFC Life and ICICI Pru have seen good growth, and Max Life was shown as focussing on quality growth.
The report also mentioned that SBI Life was the most cost-efficient and Reliance Life as the most wounded among the players covered. Reliance Life's position was attributed to regulatory changes, weak distribution set-up and poor persistency. However, the report added that Nippon Life, the Japanese partner of the insurer would be able to infuse life into the company.