First year premium of life insurers log muted growth in Jan 2022; CARE expects H2FY22 demand to grow with focus on nonparticipating and annuity plans

10 Feb 2022 , 08:30 AM

First year premium of life insurance recorded a subdued performance in January 2022 due to contraction in group single premiums, as per CARE Ratings. The First Year Premium of life insurers reported a subdued y-o-y growth rate of 2.7% in January 2022 and 0.3% in December 2021 after increasing by 41.8% in November 2021 and reaching Rs 21,957 crores from Rs. 21,390 crores in January 2021.

CARE in its research note said, “the  marginal growth in monthly numbers can be attributed to a rise in individual premiums which have been offset a fall in group single premiums.”

Data compiled by CARE showed that for the first 10 months of FY22, the life insurance sector’s first-year premium grew by 6.9% compared to a marginal decrease of 1.2% for 10M FY21. Due to the Covid-19 pandemic lockdown and resultant impact, premiums were affected in FY21 and resultant different growth after the same, base effect may also be possible in monthly FY22 numbers.

In the first year premium category, LIC  showed a decline of 16% in January 2022 compared to a drop of 20.3% in December and a growth of 32% in November 2021 and a decrease of 2.4% in January 2021, while private insurers continued to grow by 9.4% in January 2022 compared to a robust 29.8% in December 2020, a 58.6% growth in November 2021 and 15.3% in January 2021. For 10M FY22, LIC reported a drop of 2.9% versus a significantly higher growth of 27.3% reported by the private companies.

Notably, LIC continues to maintain its dominant share in the first-year premium for 10M FY22 (LIC share of 61.2% versus 38.8% share of private companies). The private sector has continued to gain market share, given that it has been growing at a faster pace compared to LIC.

Meanwhile, in January 2022,  non-single premiums grew by 10.5%, while single premiums reported a drop of 1.7%, which is a reversal compared to the last year when single premiums reported a rise and non-single premiums reported a drop. Interestingly, non-single premiums for January 2022 remain below the base
level of January 2020, while single premiums show a sharp increase. Further, the share of single premiums has grown from 58% for 10M FY20 to 69% in 10M FY22.

Further, in January 2022, the group premiums fell by 1.6% (vs an increase of 32.1% in January 2021), while individual premiums grew by 7.4% in January 2022 compared to a decrease of 16.4% in January 2021. Meanwhile, the 10M FY22 individual premiums reported a higher growth of 8.2% vs. an increase of 1.0% witnessed in 10M FY21, while a reverse trend was observed in group premiums which grew at 6.1% vs a fall of 52.6% for 10M FY21. Individual premiums have gained market share by around 45 bps in109M FY22 versus last year but continue to remain smaller in size compared to group premiums.

In its concluding remarks, CARE said that “Insurance demand is positively correlated with economic growth and grows at a multiple to the GDP, consequently the First Year Premium of life insurers is likely to grow in line with the growth in nominal GDP. The growth drivers include the rising share of digital channels, the positive demographics and market under penetration.”

“The life insurance sector witnessed significant claims in the earlier part of the year due to the second wave of the pandemic and profitability suffered as companies made provisions/ reserves to alleviate the impact of the claims,” CARE said.

“H2FY22 is expected to grow with a focus on nonparticipating and annuity plans. The cost of retail protection has increased with several companies increasing the rates. Key risks include delay in the economic recovery, the resurgence of covid cases, given the recent mutations,” CARE lastly said.