Aniket PujariLife insurance companies have posted disappointing numbers for February. Life Insurance Corp. of India Ltd (LIC) is the biggest drag here. It still accounts for nearly one-third of the industry’s total annual premium equivalent (APE) based on FY25 data till date, so any significant drop in its performance has a big impact on total industry data.
When LIC’s APE fell by 23% year-on-year in February, it led to a 6% drop in the metric for the overall industry. The number of policies sold was down by 32% year-on-year to 1.84 million in the individual segment, but a big 24% year-on-year increase in average ticket size mitigated the impact on overall value.
The life insurance industry seems to have become an unexpected casualty of the equity market meltdown. This has likely affected unit-linked insurance plan (ULIP) sales. Note that companies do not share product-wise monthly premium details, but ULIP could be the likely culprit behind the weak numbers.
While February 2024 was a good month with industry growth of 25%, the high base alone cannot be the reason for the drop this time around.
Among large companies, HDFC Life Insurance Co. Ltd was the only one to report growth in February 2025, with APE up 3.9% year-on-year, a sharp outperformance versus ICICI Prudential Life Insurance Co. Ltd, which saw a 15% drop in APE.
Lone shining star
What explains such outperformance? In the first nine months of FY25 (9MFY25), HDFC Life derived nearly 30% of its APE from ULIP, while it was 50% for ICICI Pru. As companies with high ULIP dependency have not done well, it indicates that muted stock markets have meant slowing sales of ULIP.
Though HDFC Life managed to beat the industry, the Street has already recognized its relatively better product mix in the form of a higher price-to-embedded-value-operating-profit (P/EVOP) multiple. Embedded value operating profit measures the annual increase in embedded value.
HDFC Life trades at P/EVOP valuation of 14.8x based on FY26 estimates of Elara Securities. This is a premium of about 25% to that of its large private peers such as ICICI Prudential.
After a dull February, it remains to be seen whether the weakness continues in March, which has historically been a strong month. In FY24, March APE was about 50% higher than February for large insurance companies. If March too turns out to be slow, there is a downside risk to the estimates of large insurance companies.
While private life insurers are yet to see a meaningful reduction in APE estimates for FY26, brokerages such as Kotak Institutional Equities have already cut their estimates for LIC. Instead of 2% growth in APE, they are now building in 6% decline for FY26.
Moreover, LIC’s embedded value also remains vulnerable to fluctuations in the stock market due to its huge equity book. However, Kotak has retained its buy rating on the stock with target price of ₹1,175, which shows more than 50% upside from the current market price as valuation at P/EVOP of 7x for FY26 is undemanding.
Stocks of most life insurance companies (HDFC, ICICI Pru, SBI Life) have been moving sideways for the past one year. Valuations are reasonable, but the Street may like to see at least double-digit growth in APE for the next couple of years. As industry’s dependence on ULIP has increased over the years, investors of life insurance companies hope that stock markets revive, which might trigger renewed interest in ULIP demand.
