Between FY20 and H1FY25, life insurers have seen their embedded value grow at a compound annual growth rate (CAGR) of between 8% to 23%:
- HDFC Life: 23%
- Max Financial Services: 21%
- ICICI Prudential Life: 16.6%
- SBI Life: 16%
- LIC: 8.4%
At the same time, market capitalisation has also expanded, particularly over the past 1.5 years, with LIC leading the surge at 53% CAGR. Over the 4.5-year period, other insurers have also seen market cap growth:
- Max Financial Services: 36%
- SBI Life: 27%
- ICICI Prudential Life: 19%
- HDFC Life: 13%
Despite the robust growth in both embedded value and market capitalisation, the price-to-embedded value (P/EV) multiples have declined across all listed life insurers, except LIC. The steepest de-rating has been in HDFC Life, whose P/EV multiple has dropped from 4.8x in FY21 to an estimated 2.1x in FY26.
Key Reasons Behind the De-Rating
- Regulatory Risks: Analysts highlight fears of government and regulatory interventions, especially from IRDAI (Insurance Regulatory and Development Authority of India).
- Product Mix Shift Toward ULIPs: Many life insurers have seen a significant shift in their product mix towards ULIPs (Unit-Linked Insurance Plans). ULIPs tend to have lower margins compared to other traditional products, leading to profitability concerns.
- Stagnant Insurance Market Growth: India’s insurance penetration and density have remained largely stagnant over time. While the market is not expanding meaningfully, unlisted players are capturing a growing share, further squeezing listed insurers.
So, while life insurers have demonstrated solid growth in embedded value and market capitalisation, external factors have dampened valuation multiples. Regulatory uncertainty, an unfavourable product mix, and stagnating market growth have weighed on investor confidence.
First Published: Feb 18, 2025 4:01 PM IS
