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Informist, Thursday, Mar. 6, 2025

 

By Kabir Sharma

 

MUMBAI – For insurance companies in the Nifty 200 index, Oct-Dec was a 'premium' quarter, as the net profit for the sector rose 21%, hitting out of the park the Street's estimate of a 5?ll and easily surpassing the 10% growth estimated for the broader Nifty 200 index. However, it is a different story when one looks at the revenue growth of these companies – the net sales of the five insurers in the Nifty 200 fell 1.8% on year, massively short of expectations of a 19.5% rise.

 

So, how did the bottom line rise despite these companies recording lower sales? The devil is in the detail. 

 

In terms of the net profit, the heavy lifting was done by SBI Life Insurance Co. Ltd., which reported a 71.2% increase in its bottom line, way better than expectations of a 5?ll, and by ICICI Lombard General Insurance Co. Ltd., whose net profit rose almost 68%, again way above expectation of a 11.6?ll. 

The five insurers managed to record a net profit for the quarter solely due to cutting back expenses, with the total expenses of these companies down 21.4% on year during the quarter. The net profit growth was also supported by a rise of 30.9% on year in other income in the December quarter.

 

While all companies beat the profit growth estimate, only one company – ICICI Prudential Life Insurance – managed to beat the sector estimate for net premium income, the primary income of insurance companies. 

 

OUTPERFORMERS

ICICI Lombard, the only non-life insurer in the Nifty 200, which was expected to report a fall in its bottom line due to lower premiums amid a slowdown in the motor vehicle segment, reported growth in its net profit largely due to a change in accounting norms. The company's net profit rose 67.8% on year, sharply higher than the 21% growth reported by the sector and the 8.8% recorded by the Nifty 200. However, the company said its December quarter figures could not be compared with data from prior years due to a change in accounting norms.

 

The Insurance Regulatory and Development Authority of India has mandated a change in accounting norms for non-life insurers on reporting premiums on an annual basis for all policies underwritten after Oct. 1. Under the new regulations, insurers are allowed to continue providing long-term policies under health, auto, and property insurance. However, they are now mandated to report just one year's premium as income. So far, the full premium for such long-term policies was recorded as income in the first year itself, boosting revenue numbers for the first year.

 

For instance, ICICI Lombard's disclosed gross direct premium income for the December quarter was INR 62.14 billion, down 0.3% on year under the new regulation. Under the previous accounting method, ICICI Lombard's income would have grown 4.8%. SBI Life Insurance Co. Ltd. reported a net profit of INR 5.51 billion, up 71.2% on year. The largest private sector insurer's total expenses fell over 50% on year to INR 181.95 billion, mainly driven by the fall in actuarial liability. The actuarial liability fell 88.3% on year to INR 29.08 billion for Oct-Dec. Assets under management grew 19% on year to INR 4.42 trillion as of Dec. 31, with a debt-equity mix of 61:39.

 

ICICI Prudential Life Insurance Co. Ltd. reported a 43% year-on-year increase in its net profit, beating analysts' estimates by a healthy margin. The life insurer, which was expected to report a bottom line of INR 2.55 billion to INR 2.60 billion for the December quarter, reported a net profit of INR 3.26 billion. ICICI Prudential's bottom line got a boost from a reversal in actuarial liability of INR 105.01 billion and a reversal from an expense of INR 141.04 billion in the year-ago period. 

 

UNDERPERFORMERS
Life Insurance Corp. of India Ltd. had an underwhelming quarter compared to its peers, with its bottom line rising 17% year-on-year in Oct-Dec to INR 110.56 billion. The state-owned insurer's employee remuneration and welfare expenses fell 30% to INR 66.91 billion in Oct-Dec. Despite 10% growth in assets under management, the insurer saw a 14% drop in the first-year premium to INR 72.85 billion, while single-premium income declined 24% on year to INR 351.45 billion.

 

"All eyes are on LIC, which reported severe weakness in business since October, but industry experts believe that it is challenging for LIC to go back to old pay out structures," Kotak Institutional Equities said in a report. 

The other laggard among insurers was HDFC Life Insurance Co., which saw 13.7% growth in its net profit for the December quarter, much lower than the 21% growth reported by the sector. The company managed to report profit growth despite a sharp fall in its income from investments, due to a cutback in expenses. Investment income fell 98.3% on year to INR 1.92 billion during the quarter, but a decline of 36% in expenses at INR 171.08 billion helped offset this. 

  

REGULATORY OVERHANG

To be sure, the December quarter was not without its share of problems for insurers as the new surrender value norms mandated by the IRDAI came into effect on Oct.1. The regulator revised the norms to ensure better payouts for customers who exit policies prematurely. According to the revised surrender value norms, life insurers have to pay higher special surrender value to policyholders after the completion of the first policy year, if the customer has paid the premium for one full year. 

 

Along with the new surrender value norms, the threat of implementation of a limit on acquiring customers through the bancassurance channel loomed large. Bancassurance is the selling of life assurance and other insurance products and services by banks. "Private life insurers have seen a correction in the stock prices in the past three months due to concerns regarding impending Insurance Regulatory and Development Authority of India regulations on the bancassurance channel. Bancassurance is a significant contributor to life insurers' annualized premium equivalent, with some insurers, such as SBI Life, deriving up to 72% of APE (annualised premium equivalent) from this channel. The parent bank's contribution to overall is also high across companies barring ICICI Prudential. Although the degree and timeline of regulatory enactment remain uncertain, valuation overhang is likely to persist until clarity emerge," Elara Capital said in a post-earnings note. 

 

Due to the implementation of the new surrender value norms, HDFC Life Insurance Co. Ltd.'s new business margin would be lower by 20-30 basis points for the current financial year, the management said in a post-earnings call with analysts.

 

The following table shows the performance of the five insurance companies vis-a-vis the consensus estimate for each company as well as against the consensus estimate for the insurance sector, and for the Nifty 200 index companies. 

 

Nifty 200 Q3 PAT growth 8.8%

Nifty 200 Q3 PAT growth consensus estimate 10%

Nifty 200 Q3 revenue growth 5.5%

Nifty 200 Q3 revenue growth consenus estimate 4%

Company

PAT beat analysts' estimate

Adjusted PAT growth %

Adjusted PAT growth estimate %

PAT beat sector estimate -4.87%

PAT beat Nifty 200 estimate

Net Premium Income beat analysts' estimate

Net Premium Income growth %

Net Premium Income growth estimate %

Net Premium Income beat sector estimate 19.52%

Net Premium Income beat Nifty 200 estimate

HDFC Life Insurance

No

13.66

21.02

Yes

Yes

No

10.08

18.74

No

Yes

ICICI Lombard General Insurance

Yes

67.89

42.24

Yes

Yes

Yes

17.20

8.29

No

Yes

ICICI Prudential Life Insurance

Yes

43.16

13.18

Yes

Yes

No

23.49

33.39

Yes

Yes

LIC

N.A.

17.07

N.A.

Yes

No

N.A.

-8.65

N.A.

No

No

SBI Life Insurance Company

Yes

71.20

-5.14

Yes

Yes

No

11.25

27.79

No

Yes

 

End

 

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

 

Edited by Avishek Dutta

 

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