India Insurance - Nomura

Nomura | India insurance 10 December 2019
India insurance
EQUITY: INSURANCE
Nov-19: Some pick-up in growth Global Markets Research

10 December 2019
Quick Note
Research analysts
Nov-19 – Some pick-up in growth India Financials
Overall individual annualised premium equivalent (APE) grew by ~60% y-y in
Adarsh Parasrampuria - NFASL
Nov-19. While a good part of the growth was driven by +100% y/y growth for adarsh.parasrampuria@nomura.com
the Life Insurance Corporation (LIC), private sector growth of 27% y/y +91 22 403 74034
indicates some pick up even adjusting for the muted base (-1% y/y in Nov- Amit Nanavati - NFASL
18). The growth pick-up seems broad-based with 25% y/y growth for banca amit.nanavati@nomura.com
players and 33% y/y growth for non-banca players. Within our coverage +91 22 403 74361
universe, SBI Life reported 22% y/y growth, HDFC Life 43% y/y growth (- Tanuj Kyal - NFASL
tanuj.kyal1@nomura.com
20% y/y in Nov-18), IPRU 20% y/y growth (-24% y/y in Nov-18) and Max Life
+91 22 40374220
17% y/y growth (13% y/y in Nov-18).
Fig. 1: Pvt insurers’ individual APE grew 27% on a weak base of -1% in Nov-18
Individual APE growth FY18 FY19 1QFY20 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19
Private 23.9% 12.3% 23.7% 21.8% 11.2% 2.4% 3.7% 27.2%
LIC 13.2% 4.5% 3.4% 10.4% 17.7% -10.6% 6.2% 103.9%
Total 18.9% 8.9% 14.3% 16.9% 14.0% -2.9% 4.8% 60.4%
HDFC life 30.8% 5.4% 62.7% 57.7% 34.8% -19.7% -14.6% 43.2%
SBI life 31.1% 15.0% 34.6% 23.6% 14.3% 10.7% 3.3% 22.1%
ICICI Pru life 16.4% -4.9% 1.1% -1.3% -10.1% -6.6% 17.9% 19.6%
Max life 21.8% 20.7% 22.5% 48.2% 28.1% 2.2% 2.6% 16.7%
Total APE growth FY18 FY19 1QFY20 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19
Private 7.4% 9.3% 27.3% 19.6% 16.0% 3.7% 6.9% 26.3%
LIC 15.4% 13.1% 207.6% 133.8% 5.4% 27.8% 13.5% 215.3%
Total 7.4% 9.3% 116.2% 77.5% 10.5% 14.3% 10.1% 110.6%
HDFC life 30.3% 12.2% 62.2% 54.1% 36.3% -15.7% -8.7% 43.8%
SBI life 27.5% 13.2% 38.5% 19.3% 14.9% 18.3% 5.6% 20.8%
ICICI Pru life 16.0% 0.2% 17.2% 3.4% 2.0% 5.2% 36.2% -5.7%
Max life 20.3% 21.0% 20.3% 47.6% 29.2% 4.3% 4.2% 17.7%
Source: Life Insurance Council, Nomura research
Less positive on the sector after the recent re-rating

 We had lowered our growth expectations for FY20F for select insurers
(SBI Life and HDFC Life) in Oct and expect a moderate growth of 4-15%
for insurers, except for HDFC Life, which we believe will have a favourable
base from Nov-19. While the growth trends were weak in Sep-19/Oct-19,
the improved growth in Nov-19 implies that our coverage stocks will likely
meet our APE growth expectations.
 The insurance stocks we cover have moved up by 10-30% in the past
three months and 20-35% in the past six months (vs NIFTY50 index up
8% in past 3 months and flat in past 6 months, respectively), leading to
valuations increasing from 3x to 4.3x Mar-21F EV for HDFC Life, 1.9x to
2.8x Mar-21F EV for SBI Life and 1.5x to 2.4x Mar-21F EV for IPRU over
the past 3-6 months and moved closer to our TPs – we downgraded
HDFC Life to Neutral rating (Link) and IPRU Life to Neutral rating (Link).
 We prefer private corporate banks over life insurers – we also see value in
select HFCs – we upgraded HDFC Limited to a Buy (link).
Production Complete: 2019-12-09 17:03 UTC
1
See Appendix A-1 for analyst certification, important disclosures and the status of non-US analysts.
Nov-19 highlights for key players:

 SBI Life: Reported 22% y-y growth in Nov-19 on a not-so-muted growth
base of 10% y/y in Nov-18 on a 3-month rolling basis; the 2yr CAGR is
14% vs 20-25% run-rate in FY19.
 HDFC Life: Total APE grew by 43% y-y in Nov-19 on a base of 20%
contraction in Nov-18.
 IPRU Life: IPRU reported 20%y-y growth albeit on a weak base of 24% y-
y contraction. On a 2-year CAGR basis, the rolling 3-month volumes
continue to contract (down 3%).
 Max Life: Max Life grew by 17% y/y in Nov-19 on a not-so-muted growth
base of 13% y/y growth in Nov-18.
Fig. 2: Implied growth expectations for our coverage stocks
New business APE HDFC Life ICICI Life SBI Life Max Life
Expectations for FY20
FY19 62,600 77,900 97,000 39,500
FY20F 82,632 80,237 116,400 45,558
y/y 32.0% 3.0% 20.0% 15.3%
Delivered growth in 1H
1HFY19 25,100 32,232 37,000 14,350
1HFY20 34,387 32,716 46,250 17,586
y/y 37.0% 1.5% 25.0% 22.6%
Implied growth based on our expectations in 2H
2HFY19 37,500 45,668 60,000 25,150
2HFY20F 48,245 47,521 70,150 27,972
y/y 28.7% 4.1% 16.9% 11.2%
Growth delivered in 1Q20 and 2Q20
1QFY20 y/y 66.0% 5.0% 42.0% 20.0%
2QFY20 y/y 25.0% ‐1.0% 18.0% 24.0%
Oct 2019 y/y ‐9.0% 18.0% 3.0% 3.0%
Nov 2019 y/y 44.0% 20.0% 22.0% 17.0%
Source: Company data, Nomura estimates; all amounts in INRmn
Fig. 3: Pvt insurance APE 2-year CAGR (3-month average) basis has come off
significantly over the past 2 years to below 15% now
Pvt insurers 1yr Individual APE (3M Avg) CAGR
30%
Pvt insurers 2yr Individual APE (3M Avg) CAGR
23.7%
25% 22.8% 22.9% 23.1%
21.2% 20.9% 20.5%
23.2%
20% 21.2% 21.0% 18.2%
16.1%15.6%
15.0%15.0%
15% 13.5%
12.1%
11.2%
10.6%
12.9% 13.5%
12.2%
10%
5%
0%
Jun-19
Jun-18
Jan-19
Jul-19
Jul-18
Oct-19
Oct-18
Apr-19
May-19
Aug-19
Sep-19
Nov-19
Feb-18
Mar-18
Apr-18
May-18
Aug-18
Sep-18
Nov-18
Dec-18
Feb-19
Mar-19
2
Fig. 4: Some reversal in Nov-19 from the weak trends in the past 2-3 months
Growth rates Mar-18 Jun-18 Sep-18 Nov-18 Dec-18 Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19
Monthly y/y growth
Pvt insurers 6.7% 8.4% 18.1% -1.4% 14.1% 18.7% 18.5% 27.2% 24.1% 21.8% 11.2% 2.4% 3.7% 27.2%
SBI Life 4.6% 8.1% 22.7% 10.0% 23.9% 28.5% 51.2% 36.5% 25.1% 23.6% 14.3% 10.7% 3.3% 22.1%
ICICI Pru life 16.6% -5.1% 0.1% -23.9% -4.7% 13.7% 2.0% 0.8% 0.6% -1.3% -10.1% -6.6% 17.9% 19.6%
HDFC Life -2.4% 3.7% 20.2% -19.6% -3.6% 0.8% 30.6% 58.9% 87.2% 57.7% 34.8% -19.7% -14.6% 43.2%
Max Life 16.0% 19.7% 30.4% 12.8% 7.0% 15.2% 27.7% 23.1% 20.1% 48.2% 28.1% 2.2% 2.6% 16.7%
3-month average y/y
Pvt insurers 10.2% 4.2% 15.9% 10.8% 9.8% 15.7% 17.9% 20.4% 23.7% 24.0% 18.7% 11.1% 5.7% 10.5%
SBI Life 10.1% 8.6% 13.0% 16.1% 17.8% 16.8% 32.3% 34.2% 34.6% 27.4% 20.5% 15.9% 9.7% 12.3%
ICICI Pru life -3.4% -21.6% 3.3% -13.8% -14.9% 10.7% 9.7% 7.9% 1.1% -0.1% -3.8% -6.0% -1.2% 9.0%
HDFC Life 10.7% 18.2% 11.1% 11.2% 1.9% -0.6% 2.9% 18.2% 62.7% 68.0% 58.9% 17.2% -3.5% -2.4%
Max Life 27.6% 14.9% 30.5% 23.5% 13.4% 22.0% 19.5% 17.8% 22.5% 30.9% 31.6% 22.8% 10.4% 6.9%
3-month 2 year CAGR
Pvt insurers 21.2% 23.2% 23.1% 20.5% 18.2% 12.9% 12.1% 12.2% 13.5% 16.1% 15.6% 13.5% 11.2% 10.6%
SBI Life 24.0% 29.1% 28.2% 28.8% 27.5% 13.4% 18.1% 19.5% 20.9% 19.1% 14.2% 14.4% 12.9% 14.2%
ICICI Pru life 12.6% 17.0% 9.9% 0.6% -3.6% 3.4% 0.5% -2.4% -11.0% -5.3% -1.1% -1.5% -2.3% -3.1%
HDFC Life 18.0% 20.9% 28.9% 31.5% 27.8% 4.9% 6.8% 12.7% 38.7% 33.3% 28.9% 14.1% 8.0% 4.2%
Max Life 25.8% 17.1% 24.3% 20.8% 15.0% 24.8% 18.9% 16.1% 18.6% 28.7% 29.1% 26.6% 18.3% 14.9%
Fig. 5: Valuations have moved up for the sector materially in the past six months
INRbn Max ICICI Pru SBI Life HDFC Life
financials Life
Current Price (INR) 519 490 942 572
Shares (mn) 268 1,435 1,000 1,999
Implied value (INRbn) 279 703 942 1,143
Current EV multiples
Multiple on Mar-20F EV 2.67 2.80 3.31 5.19
VNB Multiple
FY20F 18.3 28.2 27.6 41.4
FY21F 14.0 21.7 21.6 32.9
FY22F 10.6 16.6 16.8 25.8
Source: Bloomberg, Nomura estimates
Fig. 6: Private insurers’ individual APE grew 27% off a lower base of -1% in Nov-18
Mkt
Individual New Nov-19 Nov 17-19 2 yr share-
business APE Nov-18 Nov-19 y/y CAGR YTD-FY19 YTD-FY20 YTD y/y FY18 FY19 y/y CAGR FY20
Industry 50,175 80,464 60.4% 22.5% 374,677 437,617 16.8% 632,193 688,420 8.9% 13.8%
LIC 21,690 44,221 103.9% 33.6% 163,761 193,115 17.9% 278,018 290,580 4.5% 8.8% 44.1%
Private 28,485 36,243 27.2% 12.0% 210,915 244,503 15.9% 354,175 397,841 12.3% 18.0% 55.9%
Top 7 bank players 21,976 27,553 25.4% 10.2% 160,957 188,225 16.9% 274,089 302,116 10.2% 17.5% 43.0%
Agency led insurers 6,510 8,690 33.5% 18.1% 49,958 56,278 12.6% 80,086 95,725 19.5% 19.6% 12.9%
ICICI Prudential 5,107 6,109 19.6% -4.6% 41,275 42,125 2.1% 74,606 70,945 -4.9% 5.2% 9.6%
SBI Life 7,394 9,030 22.1% 15.9% 48,174 57,699 19.8% 77,873 89,547 15.0% 22.8% 13.2%
HDFC Standard 3,178 4,552 43.2% 7.3% 27,857 35,772 28.4% 47,536 50,123 5.4% 17.4% 8.2%
Max Life 2,647 3,091 16.7% 14.8% 18,661 22,292 19.5% 32,145 38,787 20.7% 21.2% 5.1%
Tata AIA 1,526 2,293 50.3% 54.4% 10,269 14,505 41.2% 13,974 22,321 59.7% 46.0% 3.3%
Reliance Nippon Life 634 629 -0.8% 15.5% 5,178 5,371 3.7% 7,272 8,764 20.5% 12.7% 1.2%
PNB Met Life 990 1,106 11.7% 4.9% 7,315 7,576 3.6% 12,211 13,715 12.3% 16.2% 1.7%
Kotak Life 1,134 1,372 21.0% 18.5% 7,406 8,257 11.5% 15,745 16,677 5.9% 17.8% 1.9%
Birla Sunlife 1,104 1,797 62.8% 59.0% 8,045 9,852 22.5% 10,590 16,936 59.9% 35.5% 2.3%
Bajaj Allianz 1,193 1,833 53.6% 24.0% 8,698 11,305 30.0% 13,971 17,421 24.7% 31.3% 2.6%
Exide Life 436 589 35.2% 18.7% 3,612 3,901 8.0% 6,193 6,677 7.8% 4.5% 0.9%
Canara HSBC OBC 559 774 38.5% 7.9% 4,751 5,617 18.2% 8,179 9,152 11.9% 22.2% 1.3%
Shriram Life 297 379 27.5% 8.7% 2,562 2,653 3.6% 4,295 4,604 7.2% 10.6% 0.6%
Bharti Axa Life 424 504 18.9% 19.0% 3,298 3,703 12.3% 4,390 5,840 33.0% 22.5% 0.8%
Future Generali 225 311 38.6% 33.4% 1,517 2,025 33.5% 2,792 3,751 34.3% 44.7% 0.5%
Star Union Daiichi 513 628 22.3% -1.9% 2,767 3,252 17.5% 5,745 5,638 -1.9% -3.2% 0.7%
IDBI Fortis Life 333 242 -27.3% -16.5% 2,539 1,844 -27.4% 4,471 4,463 -0.2% 3.6% 0.4%
Aegon Life 65 57 -12.3% -21.7% 569 467 -18.0% 1,317 1,008 -23.5% 6.3% 0.1%
DHFL Pramerica 188 127 -32.4% -29.4% 2,114 1,068 -49.5% 3,205 2,983 -6.9% 28.4% 0.2%
Aviva Life 97 94 -3.0% -14.5% 815 665 -18.3% 1,897 1,683 -11.3% 6.1% 0.2%
Source: IRDA, Life Council, Nomura research; all amounts in INRmn
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Appendix A-1
Analyst Certification
We, Adarsh Parasrampuria, Amit Nanavati and Tanuj Kyal, hereby certify (1) that the views expressed in this Research report
accurately reflect our personal views about any or all of the subject securities or issuers referred to in this Research report, (2)
no part of our compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in
this Research report and (3) no part of our compensation is tied to any specific investment banking transactions performed by
Nomura Securities International, Inc., Nomura International plc or any other Nomura Group company.
Issuer Specific Regulatory Disclosures

The terms "Nomura" and "Nomura Group" used herein refers to Nomura Holdings, Inc. and its affiliates and subsidiaries, including Nomura
Securities International, Inc. ('NSI') and Instinet, LLC('ILLC'), U. S. registered broker dealers and members of SIPC.
Materially mentioned issuers
Issuer Ticker Price Price date Stock rating Sector rating Disclosures
HDFC HDFC IN INR 2311 09-Dec-2019 Buy N/A
HDFC Standard Life
Insurance HDFCLIFE IN INR 572 09-Dec-2019 Neutral N/A
ICICI Prudential Life
Insurance IPRU IN INR 490 09-Dec-2019 Neutral N/A
Max Financial Services MAXF IN INR 519 09-Dec-2019 Buy N/A
SBI Life Insurance SBILIFE IN INR 942 09-Dec-2019 Buy N/A
HDFC (HDFC IN) INR 2311 (09-Dec-2019) Buy (Sector rating: N/A)
Rating and target price chart (three year history)
Date Rating Target price Closing price
05-Nov-19 Buy 2,181.30
05-Nov-19 2,550.00 2,181.30
11-Jun-19 Neutral 2,189.85
11-Jun-19 2,300.00 2,189.85
22-Dec-17 Buy 1,709.35
22-Dec-17 2,000.00 1,709.35
29-Mar-17 1,550.00 1,522.05
30-Jan-17 Neutral 1,371.90
30-Jan-17 1,475.00 1,371.90
For explanation of ratings refer to the stock rating keys located after chart(s)
Valuation Methodology Our TP of INR2,550 is based on SOTP which implies ~18x Sep-21F EPS for the mortgage business
after deducting INR1,417 (based on 15% holdco discount) for its subsidiaries. The benchmark index for this stock is Nifty 50.
Risks that may impede the achievement of the target price Downside risks is higher-than-expected asset quality issues in
the builder book and higher-than-expected pressure from RBI on rate transmission.
4
HDFC Standard Life Insurance (HDFCLIFE IN) INR 572 (09-Dec-2019) Neutral (Sector rating: N/A)
23-Oct-19 Neutral 607.85
24-Jul-19 Buy 499.55
24-Jul-19 600.00 499.55
28-Apr-19 435.00 399.65
24-Oct-18 390.00 364.75
23-Jul-18 Neutral 482.95
23-Jul-18 525.00 482.95
05-Jan-18 Buy 407.00
05-Jan-18 450.00 407.00
Valuation Methodology Our TP of INR600 is based on 4.2x Sep-21F EV. The benchmark index for this stock is Nifty 50.
Risks that may impede the achievement of the target price A change in tax rates and lower persistency are key downside
risk factors. Also ability to manage interest rate risk in the non-PAR portfolio over the long term is a risk, in our view. Faster than
expected improvement in VNB margins will be key upside risk in our view
ICICI Prudential Life Insurance (IPRU IN) INR 490 (09-Dec-2019) Neutral (Sector rating: N/A)
13-Nov-19 Neutral 529.20
25-Jul-19 510.00 396.10
25-Apr-19 450.00 367.70
20-Nov-18 430.00 321.00
24-Oct-18 490.00 322.90
25-Jul-18 550.00 403.60
25-Apr-18 570.00 437.149
20-Jan-18 540.00 428.523
05-Jan-18 Buy 393.07
05-Jan-18 490.00 393.07
Valuation Methodology Our TP of INR510 implies 2.3x Sep-21F EV multiple and is based on our EV estimate of INR315bn by
Sep-21F and appraisal value of INR730bn. The benchmark index for the stock is Nifty 50.
Risks that may impede the achievement of the target price Further moderation in ULIP APE growth and lower persistency in
ULIPs are key downside risks to our recommendation. Better than expected growth in protection business would be a key
upside risk.
5
Max Financial Services (MAXF IN) INR 519 (09-Dec-2019) Buy (Sector rating: N/A)
19-Apr-19 550.00 442.85
11-Feb-19 492.00 377.00
15-Nov-18 540.00 428.45
12-Feb-18 605.00 524.45
05-Jan-18 680.00 588.90
16-Jun-17 Buy 606.65
16-Jun-17 700.00 606.65
Valuation Methodology Our TP of INR550/share based on embedded value multiple approach implies 2.4x Sept-21F EV. We
assume that Axis Bank would receive further sweat equity of ~20% towards extending the distribution tie-up arrangement. Thus,
we value MAXF based on a 50% stake in Max Life vs the actual stake of 70%. The benchmark index for Max Financial Services
is Nifty 50.
Risks that may impede the achievement of the target price 1) regulatory hurdles to a potential deal with Axis Bank; 2) Axis
Bank exiting the partnership, which would lead to a substantial decline in growth and margins, in our view.
SBI Life Insurance (SBILIFE IN) INR 942 (09-Dec-2019) Buy (Sector rating: N/A)
16-Oct-19 980.00 877.35
24-Jul-19 900.00 772.50
26-Apr-19 760.00 637.25
22-Oct-18 725.00 557.85
27-Apr-18 880.00 758.85
05-Jan-18 Buy 701.95
05-Jan-18 840.00 701.95
Valuation Methodology Our TP of INR980/share implies 2.7x Sep-21F EV and 22x NBP multiple. The benchmark index for this
stock is NIFTY 50.
Risks that may impede the achievement of the target price Growth has slowed down for the industry in last few months and
that remains a near term risk for the stock given the re-rating in last 6mnts.
Important Disclosures
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Important disclosures may be read at http://go.nomuranow.com/research/globalresearchportal/pages/disclosures/disclosures.aspx or requested
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email grpsupport@nomura.com for help.
6
The analysts responsible for preparing this report have received compensation based upon various factors including the firm's total revenues, a
portion of which is generated by Investment Banking activities. Unless otherwise noted, the non-US analysts listed at the front of this report are
not registered/qualified as research analysts under FINRA rules, may not be associated persons of NSI or ILLC, and may not be subject to
FINRA Rule 2241 restrictions on communications with covered companies, public appearances, and trading securities held by a research
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Distribution of ratings (Nomura Group)

The distribution of all ratings published by Nomura Group Global Equity Research is as follows:
50% have been assigned a Buy rating which, for purposes of mandatory disclosures, are classified as a Buy rating; 47% of companies with this
rating are investment banking clients of the Nomura Group*. 0% of companies (which are admitted to trading on a regulated market in the EEA)
with this rating were supplied material services** by the Nomura Group.
45% have been assigned a Neutral rating which, for purposes of mandatory disclosures, is classified as a Hold rating; 57% of companies with
this rating are investment banking clients of the Nomura Group*. 0% of companies (which are admitted to trading on a regulated market in the
EEA) with this rating were supplied material services by the Nomura Group
5% have been assigned a Reduce rating which, for purposes of mandatory disclosures, are classified as a Sell rating; 15% of companies with
this rating are investment banking clients of the Nomura Group*. 0% of companies (which are admitted to trading on a regulated market in the
EEA) with this rating were supplied material services by the Nomura Group.
As at 30 September 2019.
*The Nomura Group as defined in the Disclaimer section at the end of this report.
** As defined by the EU Market Abuse Regulation
Distribution of ratings (Instinet, LLC)

The distribution of all ratings published by Instinet, LLC Equity Research is as follows:
57% have been assigned a Buy rating which, for purposes of mandatory disclosures, are classified as a Buy rating; Instinet LLC has provided
investment banking services to 0% of companies with this rating within the previous 12 months.
40% have been assigned a Neutral rating which, for purposes of mandatory disclosures, is classified as a Hold rating; Instinet LLC has provided
3% have been assigned a Reduce rating which, for purposes of mandatory disclosures, are classified as a Sell rating; Instinet LLC has provided
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subject to limited management discretion. An analyst’s target price is an assessment of the current intrinsic fair value of the stock based on an
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STOCKS
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Nomura | India insurance 10 December 2019

Nov-19: Some pick-up in growth Global Markets Research

Less positive on the sector after the recent re-rating

Production Complete: 2019-12-09 17:03 UTC

Nov-19 highlights for key players:

Source: Life Insurance Council, Nomura research

Source: Bloomberg, Nomura estimates

Source: IRDA, Life Council, Nomura research; all amounts in INRmn

Issuer Specific Regulatory Disclosures

Materially mentioned issuers

Distribution of ratings (Nomura Group)

Distribution of ratings (Instinet, LLC)

Definition of Nomura Group's equity research rating system and sectors

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