Investing in Insurance Stocks? Understand These Key Ratios

While evaluating a life insurance company one should primarily focus on the growth and margins in new business premium i.e., Value of New Business margins, which indicates how profitably new business is acquired. From the insurer business perspective, it is calculated as present value of all future profits to shareholders measured at the point of sale. Here the discount rate is based on the shareholders’ return expectation on capital. Each is also well-loved by the analyst community and boasts substantial upside potential. Stay in touch with the biggest movers to keep your finger on the pulse of the healthcare industry. In some cases, you can buy stock directly from the company that issued it through what’s called a direct stock purchase plan.

It has a wide range of insurance and investment products and its presence today spans urban and rural India across 2048 branches. This can be why nearly 75% of Indians consider the LIC of India trustworthy. ICICI Prudential Life Insurance Company Ltd is a joint venture between ICICI Bank, India’s second-largest bank by assets and Prudential plc, a leading international financial services group headquartered in the United Kingdom. ICICI Prudential Life insurance plans are the best in the industry and offer various insurance policies like term insurance, child insurance, retirement plans, etc. There are a number of insurance stocks in India that investors can consider for their portfolios. While all of these stocks come with some risk, they also offer the potential for significant returns.

Investments in securities market are subject to market risks, read all the related documents carefully before investing. Bajaj Finserv Limited is a non-banking financial services firm headquartered in Pune, India. It is mostly concerned with loans, asset management, wealth management, and insurance. Investors https://1investing.in/ should also focus on trends in persistency ratio, which indicates ratio of policies continuing to remain in force out of policies in the previous year. The persistency ratio indicates the stickiness of customers and thus revenue flows. A healthy mix of bancassurance and agent network is also a positive.

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With this in mind, let’s walk you through things that you should know about the insurance sector and factors that will help you to choose insurance stocks in India from the point of view of investment. Vipul Das is a Digital Business Content Producer at Livemint. He previously worked for Goodreturns.in and has over 5 years of expertise in the finance and business sector. Stocks, mutual funds, personal finance, tax, and banking are among his specialties, and he is a professional in industry research and business reporting. He received his bachelor’s degree from Dr. CV Raman University and also have completed Diploma in Journalism and Mass Communication .

While LIC witnessed premium growth of 77% y-o-y and ~35% m-o-m. LIC’s uniqueness in the global insurance industry lies not just in its overwhelming leadership in the Indian insurance market, but its scope to protect its leadership and still grow. The die was cast in 1956 when, after 25 insurers went bust in the decade following World War II, the government amalgamated and nationalised the business. It gave LIC a monopoly in life insurance, which lasted till 2000.

You can pick these stocks and diversify your portfolio in the BFSI sector. Study the financial metrics of the stocks that you pick and then choose the best-performing stocks for enhancing the profitability of your portfolio. Consult your financial advisor before investing in any insurance stock or scheme. Moreover, there have been many changes in the insurance sector recently. Many insurers have gone public and have listed themselves on the Indian stock exchanges. So, if you invest in stocks, you can additionally pick the stocks of listed insurance companies and benefit from their profitability.

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LIC of India has the highest market capitalization amongst the companies in the table above followed by SBI Life Insurance Company and HDFC Life Insurance. LIC of India STP, DVP, FOP — what does it mean provides the highest ROE , followed by ICICI Lombard General Insurance company. This is justifiable considering the risk that is taken while investing in equity.

HDFC Life has a diversified product mix and distribution mix that helps it to tackle the cyclicality of capital markets as well as changes in regulations and the macro environment. The Parliament recently approved a bill to increase the Foreign Direct Investment limit in the insurance sector from 49% to 74% with a view to helping insurers to raise additional funds and tackle financial problems. While Covid brought unprecedented challenges, it helped the insurance sector to learn new things. Technology has made the distribution of the product faster and cheaper, which is critical to increase the bottom line of a company.

• Charles St, Baltimore, MD Whether you’re buying OTC stock or any other type of securities, you may owe taxes if you sell your stock for a profit.
• That is why a debt-free company is better than a high debt company.
• You may check that the company has been generating sales growth annually during the last 5 financial years of at least 10%.
• This ratio measures the duration for which customers stick with policies.
• It is one of the leading and established general insurance companies in the private sector.

P/B should be low as compared to the peer companies operating in the same industry. The net profit of a company increases at least 15% on a year-on-year basis. Another sword hanging over ITC is the excise related speculation which builds up invariably before the Budget. There is already some talk about uniformity in tobacco taxation.

The P/E ratio is calculated by dividing the share price by the EPS of insurance companies maintained at Ashad end, 2079 BS . The market cap is computed by multiplying the listed shares at end of Ashad, 2079 BS and the share price. ICICI Prudential offers a wide range of insurance products to choose from, making it a great choice for investors looking for an insurance stock to invest in. The company has a strong partnership with ICICI Bank, one of the largest banks in India, which gives it a lot of credibilities.

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You can choose the plan that best suits your needs and budget. The company also offers online insurance plans for a quick and hassle-free buying process. Persistency is another important factor to measure how long customers stick with the policies.

Investors are advised to take other things into consideration along with this report while making the investment decisions. The company has an impressive track record, with a Gross Written Premium of Rs135.92 billion for the year ended March 31, 2020. In addition, the company issued over 26.2 million policies and settled over 1.86 million claims as on March 31, 2020. Given its strong performance and solid growth prospects, ICICIGI is definitely a stock to watch in the coming months.

Target price: Rs 880

As a long-tailed business carries a longer settlement period which gives access to the investment float for a longer period. This will inturn lead to higher ROEs and this higher investment leverage will result in better returns. Motor TP and engineering or liability insurance are all long-tailed in nature. General insurance companies with a higher proportion to any of the above is expected to generate better returns. Embedded value on the other hand is a valuation measure to estimate the consolidated value of shareholders’ interest in the insurance company. P/Ev and P/VNB are used as valuation multiples and India’s current average is 3.5 P/EV and 42.9 P/VNB.

Up the process of claims through video calls and virtual offices will prove to be extremely effective for them in the long run. ICICI has a lower share of 5.3% in health compared to SAHI health players (26.8% share) and has scope for improvement. There is a lot of potential to ramp up share in the fire business which is currently dominated by New India Assurance through their direct or broker channels. ICICI didn’t participate in the Ayushman Bharat scheme due to subdued pricing but this can stab them in the back as other players will steal a large chunk of the rural pie. In insurance business, an investor must always look out for a higher proportion of product mix which is long-tailed in nature.

MFSL is listed on both the Bombay Stock Exchange and National Stock Exchange of India. HDFC Life insurance company is a joint venture between Housing Development Finance Corporation Limited and Standard Life Aberdeen. HDFC holds 52.14% stake in the company and Standard Life Aberdeen has 35.87% stake while the remaining 12% is held by other shareholders. Some analysts expect better days ahead for Indian insurance companies. “We expect insurance companies to perform better in the year 2022 with business picking up in terms insurance as well as traditional saving plans except for ULIPs,” said Gaurav Dua, head of capital market strategy, Sharekhan.

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An investor should check for higher VNB margins as they translate to higher EV in the longer term. This value is a measure to estimate the consolidated value of shareholders’ interest in the insurance company. An investor should check for higher VNB margins as they translate to higher EV in the longer term and this would mean long-term profitability.

That demarcation is good for the health of the market and good for the investors also. So yes, the IPO market is buoyant and will probably appreciate and give thumbs up to good issues at a decent premium. For the stock to reach the target price, the scrip is expected to jump 25%. ICICI Prudential Life Insurance Company Ltd. carries on the business of providing life insurance, pensions, and health insurance, and ULIPs. When it comes to ownership ICICI has a 51% stake in it and Prudential PLC has a 22% stake.

The protection segment for life insurers is expected to continue to gain pace as supply-side issues subside and non-par and annuity segments are likely to witness strong growth. While ULIPs are expected to remain affected by volatility in capital markets. Further, after witnessing underperformance for the past two years, the insurance sector is poised to return to a healthy growth trajectory. Factors such as a large protection gap and expanding per capita income are key long-term growth drivers for the sector. In this backdrop, we believe strong players armed with the right mix of products, services, and distribution are likely to gain from this opportunity.»

It is a large-cap company, and its stock is ranked at 60 in SEBI’s list of companies. SBI Life increased its market share from 14.01% to 19.16% in a span of 5 yrs. The company’s revenue has grown at an average annual rate of 31.58% over the last 5 yrs. This growth is more than the industry average growth rate of 25.71%. Apart from that, take a close look at valuations since maintaining a margin of safety will boost better returns in the long run.