Life insurance industry to recover in next quarter, says CARE Ratings

CARE Ratings, in a note, said growth could potentially return in Q2 or Q3 and distribution channels could see significant realignment, with digital sales rising at the cost of individual agents.

Life insurers, which have seen their first-year premiums contract 18.6 per cent in the first quarter of the financial year 2020-21 (FY21), could see recovery in the next quarter, said CARE Ratings. Life insurers also saw the sum assured decline 12.9 per cent from Rs 10 trillion in Q1FY20 to Rs 8.8 trillion in Q1FY21. However, despite a sharp dip in premiums, experts believe the industry is recovering from the initial shocks of the lockdown as June was better compared to May and April.

CARE Ratings, in a note, said growth could potentially return in Q2 or Q3 and distribution channels could see significant realignment, with digital sales rising at the cost of individual agents and bancassurance.

Life Insurance Corporation, the country’s largest life insurer, has 74 per cent market share, against private insurers’ 26 per cent, notwithstanding the technological deficiencies it has against its counterparts in the private sector.

Among the private insurers, five of the 23 have reported growth. SBI Life has the largest market share among private insurers in terms of first-year premiums, followed by HDFC Life, ICICI Prudential, Aditya Birla Sun Life, and Max Life.

Covid-19 impact: Missing disinvestment targets will have consequences

Any slippage in disinvestment numbers combined with other revenue shortfall would mean the govt would have to borrow more in the market.

The economic travails this year will be challenging, and from the economist’s perspective, economic growth and fiscal deficit are the two main challenges. The government had embarked on a very ambitious disinvestment programme for the year of Rs 2.1 trillion. It sounded optimistic as we have never delivered such an amount before. The highest was Rs 1 trillion in FY18. The present programme includes the sale of Air India, Life Insurance Corporation of India (LIC) and Bharat Petroleum Corporation Limited (BPCL), which made this very aggressive target look possible.

For disinvestment to take place, there need to be a good number of buyers as well as valuation. Else, like in the past, divestment becomes an exercise of one public sector undertaking (PSU) buying into another. The challenge today is that the conditions do not look congenial and the market is just too volatile. The stock market has touched a new low post the announcement of a shutdown. There seems to be no sign of the shutdown ending or even a plan as to what should be done once this ends. Realistically speaking, FY21 will be a washout. The market is unlikely to reach the January levels anytime soon and unless it is moving in the upward direction continuously for three months, can one be assured that the valuation will be fair?

The other factor is the kind of disinvestment we are looking at. BPCL no longer looks as attractive with the price of oil below $30/barrel and the future of the sector being uncertain. A global recession is for sure, which means that oil prices will be depressed and the sale of such an enterprise will remain unattractive. Next, Air India has been on the block for some time now, and there is no clear plan about how to go about it given the overhang of debt which is around Rs 60,000 crore. To top it all, the future of the aviation industry is in jeopardy following the breakout of the pandemic as movement across countries will remain barred for at least six months after normalcy returns.

Coronavirus pandemic burns Rs 1.9 trillion hole in LIC's investments

The value of insurer's holdings in listed companies at the end of December 2019 quarter stood at Rs 6.02 trillion.

A 30 per cent drop in the S&P BSE Sensex and the Nifty 50 thus far in the calendar year 2020 (CY20) has weighed heavily on the fortunes of state-owned life insurer, Life Insurance Corporation of India (LIC), which has suffered a notional loss of about Rs 1.9 trillion in the past two-and-half months. The insurer, known for making large equity investments, has substantial holdings in many listed companies. The dent comes at a time when the government is drawing up plans of listing LIC at the bourses, subject to legislative changes and regulatory approvals.

The value of insurer’s holdings in listed companies at the end of December 2019 quarter stood at Rs 6.02 trillion, which is valued at Rs 4.14 trillion now, translating into a mark-to-market hit of Rs 1.88 trillion, or 31 per cent. The study is based on 209 companies from the S&P BSE 500 index where LIC held over 1 percentage point stake in the December 2019 quarter. These companies accounted 65 per cent of total market capitalisation of BSE-listed companies.

Among sectors, financials including banks, non-banking financial companies (NBFCs) and insurance companies, the top value destroyers, accounted 30 per cent or Rs 56,810 crore of total LIC value erosion during the period. Oil & Gas (Rs 36,020 crore), cigarettes makers (Rs 17,374 crore), information technology (Rs 15,826 crore), metals (Rs 12,045 crore), automobiles (Rs 11,329 crore) and infrastructure (Rs 10,669 crore) are other sectors, in which LIC lost a more than Rs 10,000 crore values during the period.

“Services-related sectors will be the worst hit due to Covid-19. Agri will largely remain unaffected, while manufacturing will be hit to the extent that there will be a supply-side issue. Within the services, too, there are sub-divisions for the impact. While telecom may largely remain unaffected, hotels, travel & tourism will bear the brunt. All this will continue to impact investors’ fortunes, including LIC. This is a systemic issue,” explains G Chokkalingam, founder and managing director at Equinomics Research.

Over the next few months – at least till there is clarity on the impact of Covid-19 on the economy and the fortunes of India Inc – analysts at Credit Suisse Wealth Management expect fund flows into equities – both domestic and foreign – to taper off, which again will put the Indian markets under pressure.

YES Bank fallout: SBI Cards may see some negative impact on listing

A plan to infuse capital in YES Bank where it continues to function as a separate entity just like LIC investing in IDBI Bank, would be a big positive for all the concerned stakeholders, analysts say.

Newsflow around State Bank of India (SBI) stepping in to rescue the cash-starved YES Bank has triggered a fresh sell-off in the state-owned bank's counter. While YES Bank tanked 80 per cent in intra-day deals, SBI lost over 10 per cent.

The developments have also cast a shadow on the listing of the bank's credit card arm - SBI Cards & Payment Services - which was expected to list at up to 50 per cent premium against the issue price.

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While analysts continue to remain bullish on SBI Cards from a long-term perspective given its healthy business outlook and huge penetration scope, the recent developments may have an impact on SBI Cards' listing. That said, they advise using the overhang to buy the stock for the long-term.

"If YES Bank gets amalagamated with SBI, just like Global Trust Bank (GTB) with Oriental Bank of Commerce (OBC) back in 2004, then it will be negative for both YES Bank shareholders as well as SBI shareholders. SBI then would have to take charge of all the liabilities of YES Bank. It will be negative for YES Bank shareholders as they would be left with nothing. However, it would be too early to jump the gun and conclude anything right now," explains Ambareesh Baliga, an independent market analyst.

On the other hand, a plan to infuse capital in YES Bank where it continues to function as a separate entity just like LIC investing in IDBI Bank, would be a big positive for all the concerned stakeholders, the analyst says.

Yet to receive proposal from LIC for IPO, says Irdai Chairman S C Khuntia

Khuntia also asked insurance companies to "weed out" loss-making products and concentrate only on the better paying ones.

Insurance watchdog Irdai is yet to get any proposal from life insurance behemoth LIC on an initial public offering but feels a listing is better from a governance perspective, chairman S C Khuntia said on Tuesday.

He also said that there is nothing for the life insurance industry to worry for the time being with regard to government's move on certain income tax exemptions as the alternative to invest still exists.

Khuntia also asked insurance companies to "weed out" loss-making products and concentrate only on the better paying ones.

On the IPO of Life Insurance Corporation of India announced in the budget, he said,"LIC proposal has not yet come".

"Any company which goes public there will be better corporategovernance and better disclosure, he told reporters on the sidelines of an event of actuaries here.

On being asked if LIC's business will need any restructuring before IPO, Khuntia said that work on the same is being carried out by the government.

He said it is a good idea for every insurance company to list and the Insurance Regulation and Development Authority of India (Irdai) will nudge entities to go for the same.

It is, however, not making it mandatory to list because smaller companies are yet to achieve the scale for going public, Khuntia said, adding that ideally a company should achieve sufficient scale to list within ten years of its existence.

He said the practice of annual product review needs to be carried out in full seriousness by the players and pitched for a weeding out of the loss making ones.

"I would like to encourage companies to weed out products which are not selling and simply adding to the number, then they will be able to manage those products well," he said, adding that the plea was made at a meeting with chief executives recently.

LIC listing may take about a year, says Finance Secretary Rajiv Kumar

Kumar said the idea behind the listing of LIC was to "bring in more transparency and allow the company to share gains with its stakeholders".

The listing of Life Insurance Corporation (LIC) will likely take about one year and the government is not willing to sell more than 10 per cent stake in the insurance behemoth.

“We are already in touch with the Department of Investment and Public Asset 

Management (Dipam) to understand all the processes involved. The LIC Act will have to be amended. It’s not possible to do it in six months and may take around one year,” Finance Secretary Rajiv Kumar said in a media interaction on Sunday.

Kumar said the idea behind the listing of LIC was to “bring in more transparency and allow the company to share gains with its stakeholders”. “It is very important as it will bring in the disclosure norms,” he said.

The sovereign guarantee for all policies issued by LIC will continue, the secretary added.

A top government official said the enterprise value of LIC was roughly Rs 36 trillion “according to the latest figures in the balance sheet”. The official said the government might not dilute “more than 10 per cent” in LIC. “It will certainly be less than 10 per cent,” the official added.

The government might seek exemption from the Securities and Exchange Board of India (Sebi) to offload less than 10 per cent in the initial public offer (IPO).

All companies are required to offer at least 10 per cent in the IPO.

Finance Minister Nirmala Sitharaman had announced a stake sale in LIC through an initial public offer in the Union Budget of 2020-21.

The government aims to mop up Rs 90,000 crore from the listing of LIC and stake sale in IDBI Bank. The government currently owns 100 per cent in LIC.

On the stake sale of IDBI Bank, which is substantially owned and controlled by LIC, Kumar said the government was exploring various options, including a strategic stake sale. The government currently holds around 46 per cent in IDBI Bank.