FPIs bet big on private insurers

Foreign portfolio investors (FPIs) are going strong on the Indian insurance sector. Bolstered by a strong growth in new business premium and profitability besides sensing a huge scope for insurance penetration, FPIs have been substantially increasing their stake in listed private insurers over the last 2-3 years.

Between FY19 and FY21, FPIs pumped in ₹52,527 crore into the sector.


Explosive growth

“Insurance industry in India is on the cusp of explosive growth. Even now insurance penetration (insurance premia as percentage of GDP) in India is abysmally low at 3.72 percent,” VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, said. “The upcoming five years are expected to witness 13-15 percent growth of the industry. Eying this opportunity, all investors – FIIs, DIIs, HNIs – have been scaling up investments in the sector,” he added.

Of the record FPI inflows worth ₹2.74-lakh crore in FY21, insurance attracted the second largest chunk after the private sector banks, Vijayakumar noted.

Prayesh Jain, Lead Analyst – Institutional Equities at YES Securities said that both life and general insurance are highly under-penetrated in India and have the potential to see a 15-18 per cent growth in premium CAGR over the next few years.

“Unlike other countries where insurers went bankrupt due to default in their investment papers, Indian insurers did not face any such situation due to strong regulations; their underwriting and claim settlement are quite impressive. All these factors make Indian insurance space more attractive for the foreign investors,” Jain added.

FPI holdings

Among private insurers, FPI holding in SBI Life more than doubled to 30.51 per cent as of FY21 from 14.06 per cent in FY19.

Similarly, foreign investors’ holding in HDFC Life jumped to 25.67 per cent (10.52 per cent) while their holding in ICICI Prudential Life went up to 16.51 per cent (10.08 per cent) during this period.

Stake dilution by promoters in these companies over the last two years to meet the regulatory guidelines have also helped FPIs to lap up their stocks in these companies.

“SBI Life has seen amongst the highest increase in APE market share for private players from 9 per cent to 11 per cent over the last one year. New Business Premium market share for the company has also improved more than 100bps to 7.4 per cent,” said Siji Philip, Senior Research Analyst at Axis Securities.

He also added that while HDFC Life had a commendable improvement in APE market share over the last one year from 6 per cent to 8 per cent, ICICI Prudential’s market share was largely flattish at 5.9 per cent.

“Overall, the industry performance is expected to improve in FY22 driven by a revival in ULIPs, improvement in non-par pension, annuity products, and demand pick-up which generally happens post a pandemic, besides the benefit of the low-base effect,” Philip added.

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