Life Insurance Corporation, the country's biggest life insurance company, has slipped to the 11th spot in the BT500 2023 list from No. 9 last year. In fact, among the Top 4 life insurance firms, only one has improved its rank 
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Life Insurance Corporation, the country's biggest life insurance company, has slipped to the 11th spot in the BT500 2023 list from No. 9 last year. In fact, among the Top 4 life insurance firms, only one has improved its rank The life insurance sector has faced a challenging year, with leading companies—including Life Insurance Corporation of India (LIC), HDFC Life Insurance Company and ICICI Prudential Life Insurance Company—witnessing a slump in their average market capitalisation.
LIC, which dominates the segment, saw its average market cap decline by about 10.8 per cent (from Rs 4.42 lakh crore to Rs 3.84 lakh crore) for the period of the BT500 study, while HDFC Life’s market cap dropped by 1.3 per cent (from Rs 1.25 lakh crore to Rs 1.23 lakh crore) and ICICI Pru Life’s by 11.4 per cent (from around Rs 79,000 crore to about Rs 70,000 crore), per this year’s BT500 list.
Among the top firms, SBI Life Insurance alone saw its market cap grow. Its average market cap increased by about 5.4 per cent (from Rs 1.16 lakh crore to Rs 1.23 lakh crore). Market capitalisation refers to the overall value of a company’s shares.
This is reflected in the ranking on the BT500 2023 list. LIC fell to No. 11 from No. 9 last year, HDFC Life slipped to No. 41 from No. 39, and ICICI Pru dropped to No. 74 from No. 59. SBI Life, meanwhile, climbed one spot to 42 from 43 last year.
Taking Stock
Since it was established in 1956, LIC has become synonymous with the life insurance segment thanks to its near monopoly status for many years. And yet it wasn’t until May 2022 that the behemoth was listed on the bourses. In the subsequent year and a half, the corporation has experienced a decline in its share price. This has also been mirrored in its declining market share, which fell sharply to 58.5 per cent in September 2023 from 68.25 per cent in September 2022, according to data from the Life Insurance Council, a forum for life insurers. For context, just a decade ago in FY14, LIC’s market share was around 75 per cent.
In this changed environment, one that is marked by significant volatility, LIC is set to face stiff competition from private insurers. Their innovative products and robust marketing strategies pose a significant challenge to LIC, highlighting the need for it to revamp its offerings and distribution channels to sustain its dominance.
According to Sonam Srivastava, Founder and CEO of investment advisory and research firm Wright Research, the decline in insurance market share can be attributed to multiple factors. “LIC has been criticised for its outdated products and distribution methods, making it challenging to compete against private insurers with innovative solutions. Private insurers have seized this opportunity, aggressively marketing to the younger and affluent demographic, effectively increasing their market share,” she adds.
Additionally, LIC’s stock has displayed a fair bit of volatility this year, with share prices varying from Rs 709.5 on January 2 to Rs 600 on November 1. At this lower price, LIC’s shares are trading at a 36 per cent discount from its issue price of Rs 949 per share.
Behind the downturn
Understanding LIC’s downturn is crucial. Two factors appear to have been at play here—a change in income tax rules announced in the Union Budget and the insurance behemoth’s financial performance in the first half of the current fiscal.
On the tax front, the life insurance industry has seen a steep fall in premium income compared to last year because of a fall in demand for higher-premium life insurance policies. This was triggered by Finance Minister Nirmala Sitharaman’s announcement in the Union Budget of 2023-24 that tax will be levied on insurance policies with premiums above Rs 5 lakh.
In August, the Central Board of Direct Taxes notified the changes. According to the new rules, for premiums beyond the Rs 5 lakh limit, the proceeds will be added to the income and taxed at applicable rates. This is applicable on all policies issued on or after April 1, 2023.
Omkar Kamtekar, Research Analyst at stock broker Bonanza Portfolio Ltd, says, “The new policy [change] has made big-ticket insurance plans less desirable for high net-worth individuals (HNIs) and impacted the life insurance industry. Following this announcement, the stock prices of life insurance companies experienced an immediate correction ranging from 9 to 12 per cent.” Though prices have rebounded since, life insurance stocks have underperformed the market because of the impact of this change in tax rules, adds Kamtekar.
Then there is the sluggish performance of the top life insurers in the first half of financial year 2023-24 (H1FY24), which has aided the slump in their stock prices from their respective highs. There has been a drop in new business premium (NBP) collection for the sector. Total collections dipped 12.97 per cent to Rs 1.58 lakh crore in H1FY24, against Rs 1.81 lakh crore in the corresponding period last year.
But look deeper and a different picture emerges. NBP collected by the private insurers has been consistently higher year-on-year (YoY) every month and grew 13.75 per cent in H1FY24 to Rs 65,734 crore. The dip in the overall collections is solely down to the sharp 25.80 per cent decline in LIC’s NBP collection, which stood at Rs 92,643 crore.
On the financial front, too, SBI Life has outperformed its peers, delivering 15.8 per cent YoY growth in individual annual premium equivalent (APE).
In Q2FY24, the company reported a 28.6 per cent YoY growth in individual APE, per a report by capital market research firm Nuvama Research. APE is the sum of the initial premium on new annual-premium policies, plus one-tenth of the premiums on new single-premium policies.
In the case of ICICI Pru Life, its total APE decreased 1.7 per cent YoY. HDFC Life’s individual APE growth moderated to 13.3 per cent YoY. Nuvama said it expects a renewed focus on sales from parent HDFC Bank to propel insurance sales, but this may take some time to show up in the numbers.
“Based on the data for policy sales during H1FY24, it has been observed that the overall number of policies sold has remained static. However, a closer analysis of the data reveals that private insurers have gained a 2.5 per cent market share from LIC,” says Kamtekar.This shift in market share can be attributed to the fact that private insurers were able to sell 8.73 per cent more policies during first half of FY24 than in the corresponding period in H1FY23. Therefore, private insurance players effectively forego margin growth to accelerate volume growth, he adds.
Not Done Yet
And yet, despite these considerable challenges, LIC continues to stand out in the insurance sector. It retains considerable heft in the segment, with a still massive market share of over 58 per cent.
Surprisingly, its profitability was not affected last year despite the downturn. The detrimental impact of receding business was buffered by the wider expansion of LIC’s overall business. In FY23, LIC reported a 16.67 per cent surge in life insurance NBP collection, fortifying its economic standing. In FY23, LIC collected premiums worth Rs 2.31 lakh crore, compared with FY22, when it collected premiums of Rs 1.98 lakh crore.
In the first half of FY24, LIC reported a 5 per cent year-on-year (YoY) growth in standalone net profit at Rs 17,468.73 crore, against Rs 16,635.38 crore a year ago.
Notably, its stock has been under pressure for other reasons. For instance, it was affected by the controversy that surrounded the Adani Group after short-seller Hindenburg Research released a report in January accusing the group of market manipulation and accounting fraud. The group refuted these allegations, but following the report’s release, the Adani Group lost over half of its total market value, or roughly over $100 billion.
This affected LIC because it holds shares of some Adani Group companies, and had a total exposure of around 4 per cent of its assets under management as of September 30. It holds stakes in ACC Ltd, Adani Energy Solutions, Adani Green Energy Ltd., Adani Total Gas, Adani Enterprises, Adani Ports and Special Economic Zone, and Ambuja Cement.
However, these are but a fraction of LIC’s portfolio. The insurance behemoth has stakes in over 300 listed firms, spread across diverse sectors like pharmaceuticals and banking, among others.
With the market leader facing headwinds, investors may need to be more patient on these stocks.
@imNavneetDubey
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