The share prices of Indian life insurance companies are significantly higher than those of their peers elsewhere in Asia, says Milliman India in its report.
Indian life insurance companies are trading at 3-5 times the multiple of embedded value, against 1-2 times in other Asian markets. China Life is trading at 0.88 times, Bangkok Life is at 1.06 times, Daiichi Life at 0.43 times and Samsung Life at 0.72 times, reported The Economic Times citing the Milliman India report.
Mr Sanket Kawatkar, principal and consulting actuary at Milliman India said that unless insurers are able to maintain future new business growth and profitability and not just VNB margin, but absolute growth of VNB, the high EV multiple currently enjoyed by insurers would not be sustained
Three Indian life insurance companies ICICI Prudential, SBI Life, HDFC Life are directly listed whereas Max Life has an indirect listing through Max Financial Services.
The newly listed HDFC Life is trading at 5.3 times the embedded value while ICICI Prudential Life 3.15 times and SBI Life at 3.64 times. This is when the margins are lowest in India. To maintain this valuation, companies will have to grow new business income by 25-30% over the medium to long-term.
The report stated that product mix has been the key driver of profitability. Insurers have moved towards writing more protection that have high margins. However, increasing competition and customer education, the expectation of high distributor compensation are the key challenges in growing the protection business.