Life insurance is a critical part of our financial planning. Originally, life insurance was started with an idea to pool money from individuals and provide “financial support” to the family in case of death of the policyholder or bread earner. However, today life insurance has evolved into an insurance cum financial planning firm with multiple products catering to different financial needs of individuals with a mix of financial protection on the death of the policyholder as well as returns on maturity.
In spite of being around for a long time, life insurance is still an underpenetrated sector in India. It means, there are still lot of people without any life insurance. On top of that, the majority of Indians have a very low amount of life insurance coverage as compared to the actual money required during an emergency. And when it comes to medical insurance, every year millions of people end up selling their properties and assets for medical treatment just because they don’t have medical insurance.
However, there is a growing awareness of the importance of life insurance, and today, it is one of the fastest-growing sectors in the country and has created a great opportunity for investors to create wealth by investing in life insurance companies.
We can broadly classify the insurance sector in 2 categories: Life insurance and Non life insurance.
Life insurance deals with protection of life. It also includes medical insurance.
Non life insurance deals with things like property insurance, vehicle insurance, business insurance, etc.
We will start with analyzing the life insurance sector in India, key trends for the future, then we will briefly discuss each of the companies including HDFC life, SBI life and ICICI Prudential life insurance. Finally, we will do a financial comparison of all 3 companies on parameters like growth ratio, profitability, valuation, etc.
Life Insurance Sector in India
Type of life insurance:
- The beginning of the Indian insurance industry dates back to the nineteenth century. In 1818, Europeans started Oriental Life Insurance Company in Kolkata (Calcutta) to exclusively serve their community. The Indian policy holders paid more premium than European counterparts.
- Indians desperately wished for Indian insurance companies. In 1870, Bombay Mutual Life Assurance Society became the first Indian insurance company to cover the lives of the Indians at normal rates.
- Slowly, there were many life insurance companies operating in various parts of the country.
- Finally, in 1956, Indian government nationalized the life insurance sector and LIC came into existence. It absorbed a total of 254 indian and foreign insurance companies.
- LIC has the monopoly in India till late 90s when insurance sector was reopened for private sector.
- Privatization created competition that increased the efficiency of insurance business.
- Today, there are 24 life insurance companies in India including LIC, HDFC Life, SBI Life, ICICI prudential life, Max life, Kotak Mahindra life, Aditya Birla Sunlife, Tata AIA life insurance, Bajaj Alliance, etc.
- LIC is not a public company yet. But the government is planning to launch its IPO in FY22. It is expected that LIC would go public at a valuation of ~10-12 lakh crore that would place LIC among the top 3 most valued companies in the country.
- Term Plan: It is the purest form of life insurance where the policy holder can get a good coverage at a low premium. However, if the person survive the policy period, he won’t get any return on maturity.
- Endowment plans: It is a mix of insurance and investment where the person would get life coverage on death as well as get a fixed return on maturity in case the person survive the insurance duration. It is also known as non-par category.
- ULIP plans: In this category, the person get life cover as well as fixed return on maturity and the additional profits which are variable. It is also known as par category.
HDFC Life Insurance
- Life insurance sector would see a good growth in the future on account of rising income level, greater awareness about life insurance and medical insurance, increasing reach of insurance companies in rural parts of the country, inclusion of various channels for policy distribution and easy online purchase.
- The Central Government has launched two insurance schemes: Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY) and Pradhan Mantri Suraksha Bima Yojana (PMSBY). The purpose of these schemes is to provide insurance protection to account holders of the Banks at a very reasonable cost. This would also boost the life insurance sector in India.
SBI Life Insurance
- Established in 2000, HDFC life is a part of most prestigious HDFC group of the country with a joint venture between HDFC ltd, which is India’s leading housing finance institution and a Mauritius based global investment company name Standard Life Aberdeen.
- Company has 421 branches, with access to additional touchpoints through a very strong and diversified distribution channel with 270+ partners ranging from traditional banks to NBFCs to new age fintech and insurtech firms.
- As on March 31, 2020, the Company had 37 individual and 11 group products in its portfolio including protection, pension, savings, investment, annuity and health solutions.
- As of Sep 20, HDFC life has an AUM of 1.5 lakh crore.
ICICI Prudential Life Insurance
- Established in 2000, SBI life is a joint ventur between India’s largest commercial bank SBI and BNP PAribas.
- The company has developed a multi-channel distribution network comprising bank branches of SBI and its associated banks, individual agent network (93, 849 agents) and other distribution channels including direct sales and sales through corporate agents, brokers, insurance marketing firms and other intermediaries.
- As of Sep20, SBIlife has an AUM of 1.8 lakh crore.
- Established in year 2001, ICICI prudential is a part of ICICI bank and prudential corporation holding limited.
- As of FY20, company has 517 company branches, 1,90,924 Agents and 25,182 Partner Branches.
- As of Dec 20, it has a total AUM of Rs 2 lakh Crore.
- Market Cap: If we look at the market cap, HDFC life has a market cap of ~ Rs 1.4 lakh Crore, SBI life has a market cap of Rs 87,000 Cr and ICICI prudential life has a market cap of Rs 70,000 Cr. So in terms of market cap, is HDFC life is #1 followed with SBI life and ICICI Pru is #3.
- Last 5 year stock returns: If we look at the stock return, HDFC life has an IPO in Nov 2017 at price band of Rs 290. Since then, it has zoomed to the current levels of Rs 713 at a CAGR of 32%. SBI life had the IPO in Sep 2017 at price band of Rs 700 and since then its share price has jumped to Rs 895 at a CAGR of 7.2%. ICICI prudential life has its IPO in Sep 2016 at a price band of Rs 334. Since then it has grown to currently at Rs 490 a CAGR of 8.9%. So all 3 companies are relatively new in terms of share listing. In terms of returns since listing, HDFC life is #1, ICICI prudential is #2 and SBI lifeis at 3rd position.
- Revenue: If we look at the revenue in the last 5 years, HDFC life revenues have increased from Rs 18,141Cr to currently at Rs 52,683 Cr by Dec20. SBI life revenues have increased from Rs 19,324 Cr to currently at Rs 66,798 Cr by Dec20 and ICICI prudential life revenues have increased from Rs 20,849 Cr to Rs 55,562 Cr by Dec20. As per the latest revenue figure, SBI life is #1 followed by ICICI prudential and HDFC life is at 3rd position. Although there is very little difference in revenues of ICICI prudential and HDFC Life.
- Revenue growth in last 5 years: In terms of revenue growth in the last 5 years, HDFC life revenues have grown at a CAGR of 25.2%, SBI life revenue have grown at a CAGR of 29.8%, ICICI prudential revenues have grown by 22.9%. So in terms of revenue growth SBI life is #1 followed with HDFC life and then ICICI prudential.
- Profits: If we look at the profits in the last 5 years, HDFC Life profits have increased from Rs 817 Cr to currently at Rs 1353 Cr for dec20. SBI life profits have increased from Rs 844 Cr to currently at Rs 1454 Cr by Dec20 and ICICI prudential profits have reduced from Rs 1650 Cr to Rs 1072 Cr by Dec20. As per the latest profit figure, SBI life is #1 followed by HDFC life and ICICI prudential is at 3rd position.
- Profit growth in last 5 years: In terms of profit growth in the last 5 years, HDFC life profits have grown at a CAGR of 11.2%, SBI Life profits have grown at a CAGR of 12.1%, ICICI prudential life profits have shrunk at CAGR of 8.68%. So in terms of profit growth in last 5 years, SBI life is #1 followed with HDFC life and then ICICI prudential.
- ROE: If we look at the return on equity, HDFC life ROE for Dec20 stood at 17.3%. SBI life ROE is 14.35% and ICICI prudential ROE stood at 12%. So HDFC life is #1 in terms of ROE followed with SBI life and ICICI prudential at 3rd position.
- ROCE: If we look at the return on capital employed, HDFC life ROCE for Dec20 stood at 18.3%, SBI Life has the ROCE of 17%. ICICI prudential ROCE stood at 12.6%. So HDFC life is #1 followed with SBI life and ICICI prudential at 3rd position.
- Debt to equity: If we look at the latest debt to equity ratio, HDFC life debt to equity is 0.08 which is almost debt free. SBI life is completely debt free with 0 debt. ICICI prudential life also has a very low debt to equity of 0.13. So all 3 companies are comfortably placed in terms of their debt to equity ratio.
- Promoters shareholding & % change in promoters shareholding : If we look at the promoters shareholding, HDFC life promoters shareholding for Dec20 stood at 58.87%. SBI life promoter shareholding stood at 60.7% and ICICpromoters shareholding stood at 50.39%. So all 3 companies have good amount of holding from promoters which shows the trust of promoters in the company.
- Valuations: If we look at the valuations, HDFC life share is currently trading at Rs 713at a PE ratio of ~105 whereas its median PE since IPO is 90. Its PEG ratio is 11.That makes HDFC life a super expensive stock at current valuation. SBI life share is currently trading at Rs 895 at a PE ratio of ~60 whereas its median PE since launch is also 56. It means SBI life is trading at fair valuation. Although the PEG ratio is still on the higher side at 5. But SBI life is available at much better valuation than HDFC life. ICICI prudential is currently trading at Rs 334 at a PE ratio of ~65 whereas its median PE since IPO is 35. Again, the valuations are very expensive.
Overall, if we conclude, in terms of market cap, HDFC life is #1, followed with SBI life and ICICI prudential. In terms of stock return since IPO, HDFC life is aginn #1 followed with ICICI prudential life and then SBI life. In terms of revenue and profit size, SBI life is #1 followed with HDFC life. In terms of revenue and profit growth, again SBI life is #1 followed with HDFC life. However, in terms of profitability i.e. ROE, HDFC life is #1 followed with SBI life and then ICICI prudential. In terms of ROCE, HDFC life is again #1 followed with SBI life. In terms of debt to equity, all 3 companies are comfortable.Finally, in terms of valuation, although all 3 companies are currently available at expensive valuations, SBI life is still available at much better valuation than HDFC life.
PS: If you want to learn every aspect of fundamental analysis of stock and other important concepts of personal finance, you can explore my video course on "Everything about money management".Disclaimer: This article is only for education purpose. Consult your financial Advisor before investing your money.
Note: This article is co-authored by Sahil & Juhi. Sahil is the founder of this personal finance academy and Juhi is an investor and finance expert based out of the USA.