The country's life insurers have faced some major headwinds in the past few months, mainly due to Covid-19 related complications.
Apart from hampering profitability, attributable to higher than usual claims, it also put the brakes on revenue growth.
Companies were unwilling to underwrite new policies in a highly uncertain environment, affecting new businesses drastically.
This affected investor sentiments, pushing down the stock price of all life insurers by 5-10% since the beginning of the year.
But this trend has reversed in the past month, with most of them delivering a return of more than 10%.
So, what has triggered this change? Let's find out.
#1 SBI Life
At the top of the list, we have SBI Life.
One of the top three life insurance players in the country, SBI Life has outperformed the BSE Sensex Index to deliver a one month return of 6.1%, 5% higher than the index.
This outperformance comes on the back of improved margins (a value of new business (VNB) margin a measure of profitability in the life insurance business) rendered by a healthier business mix.
The company reported a VNB margin expansion of 100 basis points in the March 2022 quarter compared to the year ago period.
This VNB margin expansion is likely to persist as the company's business mix continues to change.
However, the total income (depicted by the annual premium equivalent (APE), a common sales measure calculation used by insurance companies) didn't rise much, growing by a meagre 4% in the same period.
The company's net profit has grown by a 5-Yr CAGR of 11%. The 5-Yr average dividend yield amounts to 0.2%, a tad below the industry average of 0.9%. The return on equity (ROE) stand at around 18.5%.
A direct subsidiary of India's largest bank, State Bank of India, SBI Life has over Rs 2tn in assets under management (AUM).
Being a bank-backed insurer comes with a lot of perks. Apart from an extensive distribution network at its disposal, SBI Life also enjoys a trusted brand name in the insurance space.
#2 HDFC Life
Next on the list is one of India's largest private-sector life insurers, HDFC Life which has also outperformed the BSE Index by 5.8%.
While the BSE Sensex Index rose by 1.2%, the company has delivered a return of 6.9% in the past month.
This disparity is due to the company's improved VNB margins, which are also attributable to a moderately better sales mix. However, there is a good chance this expansion may come under duress in the near term, owing to the acquisition of Exide's life insurance business.
The company recently completed the acquisition of Exide Life Insurance, whose operating VNB margins are much lower than HDFC Life's.
But the management is confident that Exide's VNB margins will soon converge to the group's levels.
HDFC Life has built a strong franchise and brand name, monetizing its relations with HDFC and HDFC Bank.
The company has built a strong network for cross-selling its products to the client of HDFC bank and manages total assets of over Rs 2tn.
The business has been growing well, registering a net profits 5-Yr CAGR of 8.5% and a 5-Yr average ROE of 20.1%. The 5-year average dividend yield is 0.3%, lower than the industry standard of 0.9%.
#3 ICICI Prudential Life Insurance
Third on the list is ICICI Prudential Life Insurance.
The stock has also outperformed the BSE Sensex index, shooting by more than 10% in the past month.
This stellar performance is a direct result of improved growth in revenues and lower dependence on the less profitable business.
As per the March 2022results, ICICI Prudential's revenues grew by 25% compared to the previous quarter.
This leap was reassuring to investors, especially considering revenues have been dwindling in the past three years. However, concerns over a product mix that is more exposed to market risks still remain.
But despite the weak revenue growth, the company's VNB margins have shown improvement. They stand at 28%, up by 3% from the same quarter the last year.
On a 5-Yr CAGR basis, ICICI Prudential's net profit has fallen by 14.5% but managed to deliver a 5-Yr average return on equity (ROE) of 15.5%.
The company's average dividend yield over the same period is 0.7%, close to the industry average of 0.9%.
#4 Max Financial Services
Fourth on the list is, Max Financial Services.
The stock delivered a 14.7% return to its shareholders, 13.5% more than the BSE Sensex in the past month. But before this leap, the stock veered down to Rs 708, a fall of 37% from its 52-week high.
The fall is attributable to promoter issues and weak APE growth.
And while the news of family feuds and embezzlement allegations may not hamper the company's performance over the long-term, the heavy promoter pledging (more than 64% of the 14.5% stake) raises a big red flag.
The recent run-up in the stock price can be a function of an 88.8% jump in the net profit, despite an 8.2% fall in total income.
The company's profit, reflected in the VNB, grew by 22% on a higher base, fueling the stock price further.
Max Financial boasts total assets under management of Rs 1 tn. The profits have shot up in the last 5 years posting a 5-Yr CAGR of 7.5%. The business generated a 5-Yr average Return on Equity (ROE) of 20.1% and the company does not distribute dividends.
Now, you may wonder why the insurance giant, Life Insurance Corporation of India (LIC) didn't make the list.
The only joker in the pack, unlike its peers, LIC has underperformed the BSE Sensex Index. The stock has fallen by 13.5% since its listing, which was less than a month ago.
Apart from weak macro-economic factors and high inflation, the credit for the fall goes to the weak results posted by the company. More so in the light of its peers reporting strong numbers.
The company posted a 17% YoY decline in consolidated net profit for the March 2022 quarter even as its net premium income shot up by 17.9% YoY.
Powered by their strong and trusted brand names and robust distribution networks, private sector leaders seem to be doing well.
The advent of the 'LIC era' has not affected their stock prices and their valuations thereof.
While there are still some lingering concerns over competition in particular segments of the life insurance business, the private players seem to be on the fast track to recovery.
Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such.
This article is syndicated from Equitymaster.com
(This story has not been edited by NDTV staff and is auto-generated from a syndicated feed.)