VNB growth of large players to remain strong

Private sector individual APE saw growth at 17 per cent YoY in October. Most large players saw strong growth with HDFC Life up 36 per cent and Max Life 27 per cent. SBI Life saw a moderate growth at 16 per cent. But ICICI Life reported a big decline (down 17 per cent) likely due to its focus on the lower-ticket business.

On the mutual fund side, inflows to equities (including SIP) continued to be stable. With shifting focus to protection and other high- margin policies, VNB growth of large players will remain strong; nevertheless, APE growth for ICICI Life will remain a monitorable over the next few months.

HDFC Life reported 37 per cent growth in individual APE and 34 per cent in overall APE in October. Growth recovered in September after recording three months of low single-digit growth. This is largely driven by higher ticket size in individual non-single business (up 42 per cent YoY; slightly down MoM); in all probabilities the products profile during the month was skewed to Ulips.

SBI Life reported 16 per cent growth in individual APE (up from 6-10 per cent YoY in June-August). This is in line with its guidance of gradual improvement in volumes from a decline in Q1FY19 when it was focusing on streamlining its processes and increasing protection business. While near-term growth will be modest (versus 30 per cent + in the past), rise in penetration will drive VNB.

Max Life continued its momentum and delivered 27 per cent growth in individual APE (20-40 per cent YoY in the past five months).

Birla SL reported 1.1X YoY growth in individual APE in October, raising market share to 2.3 per cent from 1.2 per cent in October 2017. Making strong inroads in HDFC BANK drives this. The 74 per cent YoY rise in ticket size in the individual non-single segment during October (up 22 per cent in 7MFY19) suggests that a large part of the growth may be from higher-ticket Ulips.

Tata AIA reported 59 per cent growth in individual APE in October, similar to September, leading to 54 per cent growth YTD. Its market share increased to 2.8 per cent (up 90bps YoY; flat MoM). The 12 per cent YoY decline (down 2 per cent in 7MFY19) in average ticket of individual non-single segment suggests that growth is driven by increase in volume. APE decline for ICICI Prudential Life a bit worrying.

Unlike other large players that reported strong growth, ICICI Prudential Life reported 17 per cent YoY decline in individual APE. This was largely driven by a steep reduction in ticket size in the individual non-single segment (down 11 per cent YoY and 14 per cent MoM). The reason, according to the management, was its focus on lower-ticket business; October anyway tends to be a lean month. The trend, if continues, poses risk of downgrade in our APE growth estimates for the year even as protection story continues to play out.

Liquid funds in positive mutual fund inflows to equities saw a rise, though modest, to Rs 130 billion after three months, post reaching trough of Rs 97 billion in July. SIPs continued to increase at a modest pace (up 42 per cent YoY/ 3 per cent QoQ). After reporting large (Rs 2.1 trillion) of redemptions in September, liquid funds recorded modest (Rs 553 billion) inflows in October. This provides comfort to debt markets, reducing the fears of mass redemptions by corporate investors due to challenges with NBFCs.