Life Insurance sector has strong growth potential amid regulatory changes; HDFC Life, SBI Life top picks

The Indian life insurance sector is on the cusp of significant growth, driven by a series of regulatory changes that are now providing more clarity and stability. Over the past few years, the industry has faced numerous challenges, such as new taxation rules on ULIPs and non-linked products, as well as revised surrender charges.

While these changes initially caused market corrections, they have laid a solid foundation for future expansion.

One of the most impactful changes is the new surrender charges regime, which enhances product liquidity, making it easier for agents to sell higher-ticket products.

This increased flexibility is expected to drive higher customer engagement and improve the overall sales outlook. Additionally, any rate cuts by the Reserve Bank of India (RBI) could further boost the attractiveness of long-term guaranteed products, providing an additional growth lever for the industry.

Protection products, particularly credit protection and individual protection, are also gaining traction. This shift in focus is helping insurers counter any negative impacts from the surrender charges while positioning the sector for sustained growth.

The forthcoming implementation of risk-based solvency and IFRS regulations will release capital for growth, allowing companies to retain a larger share of business and expand in high-demand areas like protection and annuities.In August 2024, the individual weighted received premium (WRP) for private insurers grew by 15% year-on-year, outpacing the overall industry growth of 10%. This performance, alongside investments in distribution and new product innovation, indicates strong momentum for the sector.With regulatory uncertainties now behind and capital-efficient policies on the horizon, the Indian life insurance sector is well-positioned for long-term growth.

The combination of favourable macroeconomic factors, innovative product offerings, and a robust distribution network makes this sector a compelling opportunity for investors seeking stability and growth potential. Key players like HDFC Life and SBI Life are well-positioned to capitalize on the opportunities ahead.

Both HDFC Life and SBI Life are well-positioned to capitalize on regulatory clarity and macroeconomic tailwinds. Their strong financials, innovative products, and expanding distribution networks make them attractive picks for investors seeking stable long-term growth.

HDFC Life: Buy| Target Rs 900

HDFC Life is a strong investment choice due to its resilience in adapting to regulatory changes, such as new surrender charge norms, which have only slightly impacted margins.

The company’s conservative assumptions and improving persistency rates mitigate surrender impacts, while new liquidity provisions attract larger ticket sizes, boosting premium growth.

HDFC Life’s 29% APE growth YTD FY25, alongside a 58% increase in agency count since March 2022, highlights its robust expansion and growth potential, supported by innovative products and a diverse portfolio, including rising protection sales.

SBI Life: Buy| Target Rs 2250

SBI Life remains a top pick with minimal regulatory impact, as its balanced product portfolio limits margin effects to less than 1%. The company’s focus on protection and annuity products, combined with conservative surrender assumptions, strengthens its financial resilience.

SBI Life’s 16.6% market share in individual WRP and 15% APE growth YTD FY25 reflect its dominant position and steady growth trajectory. Strategic investments in distribution further enhance its growth prospects, making it an attractive option for investors seeking stable long-term gains.

(The author is Head – Retail Research, Motilal Oswal Financial Services Limited)

(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)