The annual premium equivalent (APE) for the life insurance industry continued to contract in January 2011 due to the change in the norms governing the unit-linked insurance plans (ULIPs). Although the APE of the industry contracted by 4.7% year on year (YoY), yet on a sequential basis the APE declined by a strong 15.7% due to a higher base in the previous month.

• On a year-till-date (YTD) basis, the APE of the life insurance industry has grown by 22.3% YoY, mainly contributed by the Life Insurance Corporation of India (LIC) whose APE has seen a growth of 66.5% YoY. Private players have, meanwhile, registered an APE contraction of 12.6% on a YTD basis.
• The market share of the private players dropped marginally to 40.0% from 40.2% in the preceding month and 55.9% in the corresponding period of the previous year. Among the private players, on a YTD basis, HDFC Standard Life gained market share on a year-on-year (Y-o-Y) basis (12.4% vs 8.1% in the year-ago period) whereas Max New York Life Insurance’s market share also increased from 5.6% in the year-ago period to 6.9%.
• The APE of the life insurance industry had contracted significantly in the recent past, as the new ULIP guidelines set in and insurers awaited the clearance from the Insurance Regulatory and Development Authority (IRDA) for new products. However, on a sequential basis, the APE growth picked up as players launched new products conforming to the revised guidelines. The revised regulations (essentially the capping of the surrender charges, commissions etc) are likely to have a negative impact on the margins and growth of the insurance companies in the near term.
• However, these reforms are positive from a long-term perspective as the end-consumer stands to benefit from them. The insurance companies will design new products based on the revised guidelines and will revamp their distribution structure to minimise the expenses. Hence, the revised guideline should ultimately help improve the penetration of life insurance products in India. In the near term, players with strong bancassurance tie-ups will have an advantage over those primarily dependent on the agency-led distribution channel.

Industry growth falls sequentially

The APE for the life insurance industry contracted by 4.7% YoY due to the change in the ULIP norms. On a sequential basis also, the industry APE contracted by 15.7% in January 2011. While the private players witnessed an APE contraction of 32.0% YoY, LIC saw its APE expanding by 27.2% YoY in the same period.

Private players continue to witness APE contraction

The private players saw their APE contract by 32.0% YoY as several of them awaited IRDA clearances for new products. Notably amongst the private players, HDFC Standard Life witnessed an APE expansion of 12.7% YoY followed by Max New York Life Insurance, which showed a growth of 12.5% YoY. Canara HSBC Life Insurance, Aegon Religare Life Insurance and DLF Pramerica Life Insurance also saw a growth in their premiums in January 2011 but the same was due to a low base in the corresponding period of the previous year.

Private players lose market share

The private players lost market share to LIC during the month as a result of the regulatory changes. However, with the launch of new products their market share may improve in future.

ICICI Prudential maintains leadership position

On a YTD basis ICICI Prudential Life Insurance remains the market leader among the private insurers, with a market share of 18.4% followed by HDFC Standard Life with a market share of 12.4%.

Outlook

The APE of the life insurance industry had contracted significantly in the recent past, as the new ULIP guidelines set in and insurers awaited IRDA clearances on new products. Sequentially, however, the APE growth has picked up as players launched new products conforming to the revised guidelines. The revised regulations are likely to have a negative impact on the margins and growth of the insurance companies in the near term. However, these
reforms are positive from a long-term perspective as the end-consumer stands to benefit from them.

The insurance companies will design new products based on the revised guidelines and will revamp their distribution structure to minimise the expenses. Hence, the revised guidelines should ultimately help improve the penetration of life insurance products in India. In the near term, players with strong bancassurance tie-ups will have an advantage over those primarily dependent on the agencyled distribution channel.

Sourced from www.sharekhan.com

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