With equity markets near life highs insurance sector will see a growth of 18-20% in FY18

28th July 2017
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The Insurance industry has successfully transformed to leaner and efficient operating model post the regulatory changes. The industry has gradually adapted to the new environment and is now moving back into the growth trajectory.

Against the regular decline in new business premiums that the industry witnessed between FY12-FY15, the insurance industry is now gaining traction in premium collection and has reported 15 percent CAGR growth in new business annual premium equivalent (APE) over past two years.

This pickup in new business sales has been aided by increasing formalization of the economy and overall growth in financial assets.

Demonetisation has also provided a strong tailwind to the sector. Increasing customer awareness and reduced mis-selling in the industry has also brought in much needed transparency and has lend sustainability to this growth.

Even though there is scope to further improve the product guidelines to make it more customer friendly we believe the industry is now well placed with the expected changes from regulator.

The momentum that the industry has built up over the past year is only gaining pace and during FY18 YTD the new business APE growth for private players has surged significantly. Demand for ULIPs is strongly correlated to underlying capital markets.

Recent strong run up in the equity markets during FY17 has led to some improvement in demand for ULIPs. A sustainable rally in capital markets will drive ULIP growth for the industry.

With gold losing sheen and real estate prices cooling off, we believe Indian households will prefer financial products for savings.

Furthermore, softening of inflation will also increase the share of financial savings. Demand for financial savings products bodes well for growth in the life insurance industry. We forecast 18-20 percent growth for FY18E.

Over medium term, we forecast industry to deliver 17-20 percent CAGR aided by low penetration levels, rising share of financial savings and moderation in rate environment.

The profitability of the insurers is also likely to improve as cost overruns decline on the back of continued cost rationalization while improvement in operating metrics (persistency & product mix) will help improve margins.

Note – This article was originally published on www.moneycontrol.com

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