Why Goldman Sachs Is ‘Constructive’ On India’s Life Insurers

Goldman Sachs initiated coverage on India’s three listed private life insurers, saying they have resumed growth trajectory after the Covid-19 disruption.

Acceleration in protection products driven by customer pull, increased appetite for capital guaranteed savings due to income uncertainty, greater technology adoption in sales and after-sales, among others, have helped the global financial services provider to turn ‘constructive’ on India’s life insurers.

Goldman Sachs recommends a ‘buy’ for HDFC Life Insurance Co. and SBI Life Insurance Co. and suggests a ‘neutral’ rating for ICICI Prudential Life Insurance Co.

“Insurers are increasing focus on profit growth rather than top line, driven by a better product mix, higher persistency and productivity gains,” Goldman Sachs said in a note. It expects the online individual insurance market opportunity to be $1.25 billion by FY25 compared with $365 million in FY20.

Goldman Sachs also expects HDFC Life to be best placed to capitalise on its leadership. “We further assess the positive impact on profitability as more insurers go direct to consumer, given lower take rates and better persistency,” it said.

The multinational investment bank expects profit for its coverage universe to grow at 19% CAGR over FY20-23 against a drop of 1% over FY18-20. It also expects the companies to generate sustainable RoEs of 18-20%. “Valuations, while close to historical average P/E, do not fully reflect the earnings uptick.”

Still, Goldman Sachs highlighted increasing competition, a potential rise in reinsurance costs, equity market volatility impacting ULIPs and interest rate risk on guaranteed products as some of the key concerns.

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