>INDIA INSURANCE (MACQUARIE RESEARCH)

No light (yet) at the end of the tunnel

Event
■ The monthly life insurance sales numbers for May, released by IRDA, show industry sales continuing to contract YoY.

Impact
■ Sales continue to contract. Sales for all major players continue to contract on a year-on-year basis. Private player new business sales declined 29% YoY for May versus -26% YoY for April and -16% YoY for March. A small positive was the strong MoM growth of 52%, but this could have been partly seasonal in nature given that May is a longer month and April has traditionally been weak.

■ Overall industry sales declined by -10% YoY for May compared to 14% YoY for April and -11% YoY for March. This was primarily due to the strong performance of state owned Life insurance Corporation (LIC, unlisted), which grew 17% YoY in the month (see Figure 7 on page 3 for more details in report).

■ Major players continue to see stress. Sales for ICICI Prudential declined 58% YoY in May. However, month-on-month there was a sharp fluctuation, with growth of 107% MoM in May, up from an 83% MoM drop in April. The latter is typically a lean month for the company with the annual sales reorganisation taking place, and so May could be called a more ‘normal’ month in that context.

■ Reliance Capital clocked negative sales for the second consecutive month, down 13% YoY (-11% YoY in April, 41% YoY in March). One of the reasons for the sluggish past two months was some internal restructuring at the firm, which is now over. Management continues to maintain its goal to outgrow the private sector market by a factor of 2−2.5x while continuing to focus on profitability. It also believes that the industry should return to positive growth by end of FY3/10E.

■ Average ticket size up MoM but trend is downwards. Average ticket size was up on a MoM basis for both the private players and the LIC. Ticket size has, however, been trending down for the private players, and is down ~20% from a year ago. The ticket size for LIC is half that of the private players (even after the decline) and has remained more or less stable (+3% YoY).

Outlook
■ While the revival of the capital markets is good news for the insurers, its impact on insurance sales, we believe, would be felt only deeper into the cycle. Hence we expect sales growth to be more back-ended and pick up only in the second half of FY3/10E. At this stage, the buoyancy in the capital markets should benefit the brokers and asset managers more. However, the recent SEBI directive abolishing front-end loads on MF schemes could see third-party distributors concentrating more on insurance products, thus speeding up the revival. The best play on insurance remains Reliance Capital.

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