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Top Insurance Stocks in India: Insurance companies come among the top picks for long-term investments. Not only do they make a great addition to any investor’s stock portfolio, but they also remain stable or do well during recessions, strong economies, and anytime in between.

The insurance industry remained strong even in the midst of the global crisis and uncertainty caused by the pandemic. This gives the industry huge potential for growth and also makes it attractive for investments.

The crisis caused by the Coronavirus has forced those people to buy insurance, who otherwise wouldn’t. 

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.

In addition to this, we also take a look at the top insurance stocks in India. Keep reading to find out!

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Defining Insurance

Insurance is an agreement between two parties, the insurer and the insured, whereby the insured pays smaller amounts of money periodically or at once, known as premium, to the insurer, who in return agrees to provide a guarantee of compensation in case of an eventuality like loss, damage, illness or death.

Types of Insurance

Broadly, insurance is categorized into two types: Life insurance and General insurance

Life insurance, as the name suggests is related to the life of the person insured. In the event of the death of an earning member of a household or after the completion of a certain period of time, an amount is transferred to the dependants or the person insured, respectively. 

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Non-life insurance provides financial compensation when losses occur due to various incidents like diseases, fire, natural or man-made mishaps, accidents, and so on.

Major Developments in the Insurance Sector

Developments in the insurance sector will help us to choose the best insurance stocks in India for the purpose of investment:

  • Earlier, insurance was mostly sold by insurance agents, but these days, there are multiple channels for the distribution of insurance like bancassurance, broking, corporate agencies, and more. 
  • Web aggregators have also increased the convenience of comparing policies. They have boosted sales, especially during the pandemic.
  • Various schemes by the government have helped increase awareness about the benefits of insurance amongst the masses. They’ve helped in covering a wider population under the insurance bucket.

Overview of the Insurance Industry in India

Many investors took notice of insurance stocks in 2017 when multiple IPOs began hitting the D-Street. The penetration of life insurance, as well as non-life insurance, is low in India as compared to the world average.

Insurance is a niche sector and was very important, given the situation caused due to the Covid-19 pandemic. Growth was seen in the insurance sector, amid the spread of the pandemic. 

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The Parliament recently approved a bill to increase the Foreign Direct Investment (FDI) limit in the insurance sector from 49% to 74% with a view to helping insurers to raise additional funds and tackle financial problems.

It is, however, important to note that the penetration of insurance in India is very low at 4.2% with life insurance at 3.2% and non-life insurance at 1% if we consider the data for FY21, but there was growth in FY22.

This means that insurance companies have a huge scope to grow and become highly profitable.

What should an investor look at while buying insurance stocks in India?

As far as insurance is concerned, our work of choosing stocks becomes relatively easy, because very few insurance companies are listed in India.

Here are a few factors that you should consider before buying insurance stocks apart from the factors that are usually considered to evaluate companies in other sectors:

Why would you buy an insurance stock and not any other stock?

Insurers receive periodic premiums from all of their customers, and this mostly exceeds the amount that is claimed by a few customers in case of any eventuality. If the actuaries successfully and adequately compute the premium amounts, insurers are sure to be profitable in the long run.

What are Gross Written Premium (GWP) or Annual Premium Equivalent (APE)?

This term refers to the profitability of an insurance company and is a key parameter to observe. It measures the volume of new business premiums that are received by insurance companies (insurers) over the course of a year.

Consistent growth in this parameter is a good sign. Life insurance companies call it APE while general insurance companies call it GWP.

What is the New Business Margin (NBM) and Value of New Business Margins (VNB)?

NBM indicates the premium clocked during a period. Ideally, PAT (Profit after tax) and NBM should grow YoY or QoQ. VNB represents the present value of future profits that are associated with the new business.

It helps us to gauge if the operational efficiency and scale are enabling the value of the business to improve.

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How Embedded Value (EV) is used to measure the long term profitability of the existing business?

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.

How is the Persistency Ratio used to measure customer satisfaction?

This ratio measures the duration for which customers stick with policies. Policy renewals and policy returns contribute to this factor. Persistency ratios have been low in India, as compared to other countries in the world.

Higher rates of persistency translate into reduced costs, increased profitability, and overall growth with optimal long-term income.

Expense Ratio, Loss Ratio, and Combined Ratio:

The expense ratio is the percentage of premiums that an insurer spends to run its business. The loss ratio is the percentage of an insurer’s premiums paid out as claims.

The Combined Ratio is a combination of the loss ratio and expense ratio. These measures are very important apart from the general ratios that are used to compare companies.

Top Insurance Stocks in India

Let’s take a look at some of the top insurance stocks in India, that are listed. The first three stocks are from the life insurance sector and the next two are from the non-life insurance or general insurance sector.

This section gives details about these companies and we have compared them on the basis of various parameters in the next section. The companies here are ranked on the basis of market capitalization, in descending order.

Insurance Stocks in India #1 – HDFC Life Insurance Company Ltd.

Insurance Stocks in India #1 - HDFC Life Insurance

HDFC Life Insurance company is engaged in carrying on the business of life insurance and offers a range of individual and group insurance solutions. It comprises various insurance and investment products like Protection, Pension and Savings.

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.

It has tied up with 270 partners for selling protection policies and uses the data from these products to sell other insurance products.

HDFC Life has recently added IDFC First Bank, RBL Bank, and Bandhan Bank as bankassurance partners. It has an established market position in the life insurance industry and boasts a new business market share of 27.9% as of 30th June 2022.

Insurance Stocks in India #2 – SBI Life Insurance Company Ltd

Insurance Stocks in India #2 - SBI Life Insurance

It was started as a joint venture between the State Bank of India and BNP Paribas Cardiff, a French Institution. SBI has a 55.50% stake in it. It carries on the business of life insurance and annuity.

SBI Life Insurance Company Ltd has an extensive presence across India with 947 offices and a network of 1,35, 902 agents, 14 bancassurance partners, 64 corporate agents, 110 brokers and 29,000 partner branches. 

Insurance Stocks in India #3 – ICICI Prudential Life Insurance Company Ltd

Insurance Stocks in India #3 - ICICI Prudential Life Insurance

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.

It started with an AUM of ~120 crores in 2001 and its AUM in FY21 was ~2.7 lakh crores. The company has a diversified product portfolio and product mix. 

It has multiple distribution channels that include 520 company branches, 38000+ partner branches, 1,46,000+ agents and 23 bancassurance partners.

Insurance Stocks in India #4 – ICICI Lombard General Insurance Co Ltd 

It is one of the leading and established general insurance companies in the private sector. It offers a well-diversified range of products and risk management solutions.

The company approximately holds an 8.1% market share in the general insurance industry. In 2021, it acquired Bharti AXA General Insurance Company.

It has a strong mix of distribution channels that included 283 branches, 908 virtual offices, 11,247 garages, 20,863 healthcare network and 88,545 agents (incl. POS).

Insurance Stocks in India #5 – General Insurance Corporation of India

It is engaged in the business of reinsurance. This means that multiple insurance companies share risk by purchasing insurance policies from other insurers to limit their own total loss.

In 1972, the Government of India incorporated this company to look after four companies namely National Insurance Company Limited, The Oriental Insurance Company Limited, The New India Assurance Company Limited, and United India Insurance Company Limited.

The General Insurance Corporation of India has a presence in many countries and has a diversified portfolio.

Insurance Stocks in India #6 – LIC of India

LIC cover image

Life Insurance Corporation is the largest insurance provider in India. It has a 66.2% market share in new business premium segment. It provides participating insurance products and non-participating products like unit-linked insurance products, saving insurance products, term insurance products, health insurance, and annuity & pension products.

It is owned by the Government of India. It was created in 1956 by merging and nationalizing 245 private life insurers.

Analysis of Insurance Stocks in India

 Life Insurance Corporation of IndiaHDFC Life Insurance Company LtdSBI Life Insurance Company Ltd
ICICI Prudential Life Insurance Comp LtdICICI Lombard General Insurance Co LtdGeneral Insurance Corporation of India
Face Value (₹)10101010105
EPS (₹)6.396.6815.007.6629.0011.4
Debt to Equity0.000.040.000.130.030.00
ROE (%)48.210.915.36.3015.112.4
Current Ratio3.390.901.480.960.270.50
Market Cap (Cr)431,9971,11,8711,14,68076,63358,58220,430
Promoter’s Holdings (%)96.551.555.573.448.085.8
Dividend Yield (%)0.220.320.170.110.741.93
Stock P/E 10780.776.269.641.110.2
Net Profit Margin0.561.981.811.227.924.11

From the above table, we understand the following:

  1. ICICI Lombard General Insurance Co Ltd has provided the highest EPS (Earnings per share) followed by SBI Life Insurance Company Ltd
  2. The debt to equity ratio is ideal when it is between 0 and 1. This ratio for all the companies in the above table is ideal.
  3. LIC of India provides the highest ROE (return on equity), followed by ICICI Lombard General Insurance company. This is justifiable considering the risk that is taken while investing in equity.
  4. LIC has the highest current ratio. Among the other companies in the table above, HDFC Life Insurance, SBI Life Insurance Company Ltd, and ICICI Prudential Life Insurance Company Ltd have a favorable current ratio that is higher than or closer to 1. This means that they have more current assets as compared to their current liabilities. A current ratio lower than 1 is not considered to be good, in general.
  5. 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.
  6. Government has ownership of 96.5% of LICI. General Insurance Corporation of India also has high promoter holdings of 85.78%. ICICI Prudential Life Insurance Comp Ltd has 73.41% held by promoters.
  7. The dividend yield of all of the above companies is moderate.
  8. The PE ratio of HDFC Insurance Company Ltd is the highest. In general, a low PE ratio is considered to be good.
  9. The net profit margin of ICICI Lombard General Insurance Co Ltd. is the highest among the above companies.

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Data that is specific to the Insurance Stocks in India

 HDFC Life InsuranceSBI Life InsuranceLIC of IndiaICICI Prudential Life Insurance
Embedded Value per share300396.3856316.25
RoEV19%*20.6%11.915.0%
P/EV1.76x2.9x0.80x1.7x
VNB Margin26.8%25.9%15.128.0%
VNB Growth22.37%39%52.52%28%*
Total APE21%*47.40%*50,39035.00%*
13th Month Persistency92.0%88.4%72.00%84.6%
61st Month Persistency58.0%62.0%54.0%54.7%
Total AUM (in Bn)2,0012,67437,0002,405
Solvency Margin178%205%176%205%
Claim Settlement Ratio99.6%96.1%98.62%97.8%
PAT Growth (YoY)21%3.42%39.37%-20.61%
ROE10.9%13.7%48.26.30%

Analysis: Life Insurance Stocks

  • State-owned LIC has highest embedded value, AUM, VNB Growth and ROE compare to other companies.
  • With reference to the above table, RoEV,  61st month persistency ratio, P/EV, total APE, ROE, VNB Margin and solvency margin of SBI Life Insurance company is the higher as compared to its peers. 
  • HDFC Life Insurance has the highest 13th-month persistency ratio and Claim Settlement Ratio amongst these life insurance companies.
  • ICICI Prudential Life Insurance has moderate values in most of the parameters listed above, but its PAT Growth (YoY) is negative.
 ICICI Lombard General InsuranceGeneral Insurance Corporation of India
GWP Growth (YoY)29.37%7.7%*
Combined Ratio108.8% 112.08%
Solvency Ratio2.61x1.96x
PAT Growth (YoY)-13.71%4.48%
ROE15.1%6.9%

Analysis: General Insurance Stocks

Among the two general insurance companies compared here, ICICI Lombard General Insurance has an upper hand in most of the parameters. However, when it comes to PAT Growth (YoY) General Insurance Corporation of India leads.

In Closing

Thank you for staying with us for so long. We’re done with the basic analysis here. Phew! 

In this article, we explored the developments in the insurance sector, had an overview of the industry, and took a look at ratios that are specific to the insurance sector.

In addition to this, we also have analyzed life and non-life insurance stocks in India.

Choosing insurance stocks is a tricky business! But with the right research, awareness about the latest developments in the industry, and their effect on the industry anyone can invest successfully.

Let us know what you think in the comments below. Keep visiting us for articles like this and more. Happy investing, until next time!

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