First Insurance IPO set to Hit market: Will it Score Over the NBFC Stocks

With ICICI Prudential Life Insurance kicking off with its mega IPO next week, a host of insurance companies would be eyeing how investors respond to the first insurance issue.

The issue may possibly increase chances of more insurance listings, with value unlocking in many bank-related insurance companies. Stocks of insurers could be good investment propositions, analysts said, as they may score over banks and NBFCs given the fact that the latter face both growth challenges as well as asset quality issues.

Life insurers, on the other hand, have to contend with only growth issues, experts said, making the segment a relatively stable investment option. "The story is set to play out with ebbing of growth concerns and surging margins, which is bound to propel RoEVs. This, along with robust dividend yields, further burnishes the sector's prospects," Edelweiss Securities said in a note. Crisil Research said India has one of the youngest populations in the world with a median age of 28 years and an estimated 90% of the India's population will still be below the age of 60 by 2020.

The insurance market in India is still underpenetrated, with a life insurance penetration at a mere 2.7% in FY2015 compared with a global average of 3.5%.

"We continue to prefer insurers with strong bancassurance models, as they will generate significantly superior operating RoEVs of 17% over FY16-17E against 8% for insurers, driven by the agency channel," JM Financial said in a note. Overall India is the tenth largest life insurance market in the world and the fifth largest in Asia with a size of Rs 3.7 lakh crore, according to Swiss Re. Structural drivers seem to be favourably placed now than ever, reflected across parameters — lower penetration, lower SUM assured and highest protection gap, among others. Additionally, we envisage the segment to benefit from expansion of overall savings pie, shift to financial from physical savings and rising insurance pie within financial savings given its attractiveness vis-a-vis other investment avenues," Edelweiss Securities said.

The brokerage prefers bank-linked insurers such as HDFC-Max Life and SBI Life."Based on structural value and consequent appraisal value, it translates into implied P/EV of 1.4-1.7 times for non-bank linked insurers and 2.4-3.2 times for bank-linked insurers," it said. As far as ICICI Prudential is concerned, the insurer has clocked a return on equity (RoE) in excess of 30% for each year since FY12.Brokerage IIFL said the company has a strong capital position with a solvency ratio of 320.5% as of June 30, 2016 compared with the regulatory requirement of 150%. "The company's persistency ratios have been increasing in recent years and its expense ratio is one of the lowest among the private sector life insurers. I-Pru Life's VNB (value of new businesses) grew 52.6% in FY16 on account of improvement in persistency ratios and product mix. VNB margin also increased to 8%, which partially led to EVOP increasing by 17% YoY in FY16," it said.