Tag - insurance

Higher Provisions due to increasing Covid-19 Cases to be made – SBI Life

Update on Indian Equity Market:

On Thursday, markets ended lower with Nifty closing 42 points to end at 15,680. DRREDDY (+2.8%), HINDALCO (+2.1%), and BJAT (+1.7%) were the top gainers on the index while BAJAJFINSV (-2.2%), BRITANNIA (-1.4%) and INFY(-1.2%) were the top losers for the day. 

Among the sectoral indices,  PHARMA (+0.9%),  AUTO (+0.8%), and FMCG (+0.4%) were the top gainers, while IT (-0.6%), FINANCIAL SERVICES (-0.4%), and PRIVATE BANK (-0.3%) were the top losers.

 

Excerpts of an interview with Mr. Mahesh Kumar Sharma, MD and CEO of SBI Life on CNBCTV18 dated 30th June 2021:

  • SBI Life Insurance saw a slowdown in their group business in May. The company only registered a growth of 1.35 percent in new business premium, owing to the lockdown.
  • On a YoY basis, the company saw higher claims in H2FY21 over H1FY21. To address the issue of higher claims, the company has taken steps to tackle the negative impact.
  • SBI Life has set aside a higher amount for provisions for any potential spike in Covid-19 claims Rs 1,830 mn vs Rs 400 mn in FY21 and has changed the mortality assumptions for better risk management.
  • If vaccinations continue at this rate, the company expects the full recovery to pre-covid levels by the end of this year. However, the company is confident of a spike in claims during the upcoming quarter.
  • Despite the lockdowns in May, the company expects positive performance due to lifting restrictions and a digital outreach system developed by the company to contact its customers.
  • Individual Non-single premiums are the biggest contributors to the company’s new business premiums due to raising awareness about health insurance and other products due to the pandemic. The company expects to maintain its growth trajectory in the new business premium in the mid-teens over the next few years. 
  • The company hasn’t changed its underwriting policy. The company is confident of the vaccination drive boosting the number of vaccinated insurable population and has no plans to reduce the scope of insurance to the only vaccinated population. 

Asset Multiplier Comments:

  • The insurance sector has been one of the worst-hit sectors due to Covid-19. With the effects of the pandemic tapering and an informed target customer base, there are better days ahead.
  • India’s insurance penetration is very low compared to developed countries. This industry has reached an inflection point from where SBI Life and its peers can achieve steady growth.

 

Consensus Estimates (Source: market screener website): 

  • The closing price of SBI Life was ₹1,007/- as of 1-July-2021.  It traded at 53x/ 46x the EPS estimate of ₹ 19/ ₹ 22  for FY22E/23E respectively.
  • The consensus price target is ₹ 1190/- which trades at 54x the EPS estimate for FY23E of ₹ 22/-
  • In the case of insurance companies, the embedded value per share is the correct multiple for valuing the company. The consensus estimate of this metric is not available on any of the websites.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

Low penetration translates to enormous growth opportunities – HDFC LIFE

Update on the Indian Equity market:
On Tuesday, the Nifty50 index closed at a record high of 13,055 (+1.0%) as hopes for faster economic recovery were renewed due to Covid-19 vaccine progress. BANK (+2.5%), PRIVATE BANK (+2.3%), and REALTY (+1.8%) led the sectoral gainers and there were no sectoral losers. Among the stocks, ADANIPORTS (+4.5%), AXISBANK (+3.9%), and HDFCBANK (+3.5%) led the gainers. TITAN (-1.5%), HDFC (-1.4%), and BPCL (-1.2%) led the laggards.

Excerpts of an interview of Ms. Vibha Padalkar, MD & CEO, HDFC Life aired on CNBC TV18 on 20th November 2020:

• The green shoots are being seen and each month has been better than the previous month. On YTD basis, the industry has declined 8% YoY while HDFC Life has grown 8%. The month of October 2020 has been one of the best with 50% growth in new business premium.
• The growth is not linked to the festive season because insurance is a long-term protection and savings outlay. The growth is due to inherent need felt by the customers. Due to the high conviction about the need of insurance, the growth has been across distribution touch points-bancassurance, and the new age ecosystem channels.
• HDFC recently sold some stake in HDFC Life due to regulatory requirements. RBI had asked HDFC to get the shareholding in both of its insurance subsidiaries to 50% levels which led to stake sale to comply before December 2020. Despite the stake sale, HDFC will continue to remain the promoter in the foreseeable future.
• Penetration levels remaining so low, the growth opportunities for HDFC Life are enormous.
• Sanchay policies- the company keeps repricing it and over the past 18-24 months since the product was launched, pricing for new policies has moved in tune with the interest rates.
• The company’s focus has been on prompt protection-mortality, morbidity, longevity and interest rate risk.
• Unit linked products are continuing to see an uptick as there is a recovery in the equity market.
• Covid-19 products are awaiting approval and it is in combination with having an indemnity on covid and is expected to do well. There is an uptick on the Covid-19 claims, which is within the company’s actuarial assumptions.
• The protection products witnessed 38% growth and is one of their best performing products, followed by Sanchay product. Sanchay par advantage has catapulted to 30-35 % of their business and is under the participating umbrella of products.
• They expect a high single digit growth for Annual Premium Equivalent (APE) for FY21E. On Value of New Business (VNB), this year is going to be flat, and margins are expected to be at the same level as FY20.

Consensus Estimate: (Source: market screener website)
• The closing price of HDFC Life was ₹ 666/- as of 24-November-2020. It traded at 97x/ 83x/ 66x the consensus earnings estimate of ₹ 6.9/ 8.0/ 10.1 per share for FY21E/FY22E/FY23E respectively.
• The consensus target price of ₹ 642 implies a PE multiple of 64x on FY23E EPS of ₹ 10.1/-.
• In the case of life insurance companies, the embedded value per share is the correct multiple for valuing the company. The consensus estimate of this metric is not available on any of the websites.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

RBI should allow one-time restructuring rather than extending moratorium – Bajaj Finserv

Update on the Indian Equity Market:

On Thursday, Nifty ended 0.9%, lower than the previous close at 11,254. The top gainers for Nifty 50 were Dr Reddy (+4.6%), Sun Pharma (+3.7%), and Wipro (+2.5%) while the losing stocks were BPCL (-7.9%), IndusInd Bank (-5.4%), and IOC (-4.0%). The sectoral gainers for the day were Pharma (+3.1%) and IT (+0.7%) while the losers were Media (-2.3%), Pvt Bank (-2.0%) and PSU Bank (-1.9%).

Edited excerpts of an interview with Mr Sanjiv Bajaj, MD, Bajaj Finserv; dated 29th July 2020 from CNBC TV18:

  • Mr Bajaj extended support to HDFC chief Mr Deepak Parekh’s view that the Reserve Bank of India should not extend the loan moratorium.
  • Bajaj Finserv has a total of 6 months available for moratorium by September, and as the economy has started picking up from last month at varying speeds because of local lockdowns creating issues. But it is picking up other than a few key sectors like hospitality, travel, entertainment which are facing very high challenges. But most others have started at least doing okay. So, at a time like this, Mr. Bajaj believes that it doesn’t make sense to extend a blanket moratorium.
  • Moratorium numbers have come down significantly in the month of June as compared to April and May-20 for many banks & NBFCs.
  • RBI should allow one-time restructuring rather than extending the moratorium. According to him, let lenders decide on the basis of each one’s own underlying cash flows, because eventually, it should be kept in mind that there is a cost to doing all this and somebody has bear that cost. A 6-month moratorium is long enough, beyond that will start creating a moral hazard that even reasonable quality borrowers will lose the habit of paying.
  • Bajaj Finserv sees Rs 6,300 crores of credit cost for FY21E.
  • The Company was fortunate enough to raise capital for Bajaj Finance last year. They are adequately capitalised with the Rs 8,500 crore raised last year. As the two insurance companies do not need it, Bajaj Finserv has a significant capital on the books from profits of earlier years.
  • The tier-I ratio is 23-24% which he thinks is a comfortable one.

Consensus Estimate: (Source: market screener website)

  • The closing price of Bajaj Finserv Ltd was ₹ 6,175/- as of 30-July-2020. It traded at 2.8x/2.5x/2.1x the consensus book value estimate of ₹ 2,188/2,478/2,873 for FY21E/FY22E/FY23E respectively.
  • The consensus target price of ₹ 7,248/- implies a PB multiple of 2.5x on FY23E EPS of ₹ 2,873/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”