While everyone is obsessing over media, banking and auto stocks, one space that has taken away all the shine is the life insurance companies. There are primarily only three stocks in this space that are currently trading at their record highs -- HDFC Life Insurance, SBI Life Insurance, and ICICI Prudential Life Insurance. They have continued to trade higher irrespective of the economic slowdown and liquidity crisis.
Interestingly, these stocks have surged the most between August and October, a rare time to generate gains in the market considering the market meltdown phase.
All 3 life insurers this year have rallied over 55 percent. HDFC Life Insurance jumped 62 percent, SBI Life Insurance surged 67 percent and ICICI Prudential Life Insurance rose 57 percent this year. Furthermore, all these stocks are trading at their record highs this month.
However, the hiccup for these stocks is their valuations. The price-to-earnings (P/E) ratio of HDFC Life Insurance stands at 93.18x, SBI Life Insurance at 81.17x and ICICI Prudential at 60.92x. Despite expensive valuations, foreign investors are on a buying spree in the insurance industry. During July-September 2019, FIIs stake in HDFC Life rose by 4.19 percent while in SBI Life Insurance and ICICI Prudential, it rose 4.30 percent and 0.64 percent respectively.
Boston Consulting Group, in its recent report, said, “While the non-life insurance segment grew at a nearly consistent rate, the life insurance segment spent the first half of this decade restructuring its model in response to the regulatory changes at the start of this period, with a return to growth only in the last few years.”
It added that the annualised new business premium in the life insurance segment will grow at a CAGR of 14 to 15 percent over the next 5-6 years. With corresponding growth in total premium, the assets under management in the life insurance segment are set to double and cross $ 1 trillion over the same period.
“The Indian insurance industry is only scratching the surface as far as the potential of digital and data-driven transformation is concerned. In the next decade, insurers that successfully maximise this potential will capture a disproportionate share of value,” the BCG report added.
