The insurance sector plays a crucial role in any economy by providing protection against unforeseen risks and incidents for individuals, businesses, and various entities. Insurance companies collect premiums from policyholders and utilize these funds to cover claims arising from unexpected losses.
Over time, the insurance industry in India has undergone substantial changes aimed at enhancing growth, competition, and innovation. These reforms have resulted in the remarkable expansion of the insurance sector in India, with a projected continuation of steady growth in the upcoming years. As a result, investing in insurance companies has become a popular option for many investors seeking to enhance the diversity of their investment portfolios.
In this blog post, we will analyze some of the most promising insurance stocks in India that are worth considering for investment in the year 2023.
The insurance stocks segment within India constitutes a subset of the broader financial services sector. Within this segment, there are entities that offer diverse insurance services and products catering to individuals, enterprises, and other entities.
The regulatory oversight for this sector is provided by the Insurance Regulatory and Development Authority of India (IRDAI), which formulates the regulatory framework within which insurance firms operate in the country.
The insurance industry within India has experienced substantial growth in recent years, attributed to favourable demographic trends, an increase in the middle-class population, and a heightened understanding among the public regarding the importance of insurance coverage.
Factors considered for the selected Insurance Stocks
Given the notable standing of the Insurance companies in India, it’s crucial to take into account certain factors when deliberating potential investments.
We have curated the following list of top insurance stocks in India based on the following factors:
1. Market Cap
We have chosen only those Insurance companies whose market cap is greater than 5000 Crore INR.
2. Price to Earning Ratio
Typically, an Insurance stock’s price-to-earnings ratio tends to decrease as its performance improves.
3. Sales
We have selected the following Insurance companies with an Average Sales Growth (3 years) of more than 10%.
4.Profit
The following list consists of Insurance companies whose Average Profit growth (3 years) > 10%.
Top Insurance Stocks to buy in India
General Insurance Corporation of India
The General Insurance Corporation of India (GIC Re) has a primary focus on reinsurance, established in 1972 by the Government of India to oversee and consolidate the Indian insurance landscape after independence. GIC Re supervises four major insurance entities: National Insurance Company Limited, The New India Assurance Company Limited, The Oriental Insurance Company Limited, and United India Insurance Company Limited (also a wholly-owned subsidiary of GIC). As India’s largest reinsurance company, GIC Re holds a significant position in the market, commanding around 64% of the Indian reinsurance sector.
GIC Re’s reinsurance activities span across various sectors including fire (property), marine, motor, engineering, agriculture, aviation/space, health, liability, credit, finance, and life insurance. It operates as the exclusive domestic reinsurer, providing reinsurance support to direct general insurance companies in India. The company plays a pivotal role by facilitating a statutory cession of 5% on each policy, subject to specific limitations, ensuring stability and support within the domestic reinsurance market.
- Market Cap – ₹ 35,369 Cr.
- Current Price – ₹ 202
- High / Low – ₹ 212 / 116
- Stock P/E – 4.94
- ROE – 17.0 %
The company maintains a virtually debt-free status, with its stock currently trading at 0.75 times its book value. Moreover, the stock offers an attractive dividend yield of 3.57%. Demonstrating robust performance, the company has achieved impressive profit growth at a compounded annual growth rate (CAGR) of 35.4% over the past five years.However, it’s essential to consider certain drawbacks as well. The company has exhibited limited sales growth, recording only a 4.07% increase over the past five years. Additionally, its return on equity has been relatively low, standing at 11.0% over the last three years.
Life Insurance Corporation of India
LIC, or Life Insurance Corporation, holds the esteemed position of being India’s largest insurance provider, capturing an impressive market share of over 66.2% in new business premiums. Offering a comprehensive range of insurance solutions, LIC presents both participating and non-participating products, including unit-linked insurance, savings plans, term insurance, health coverage, and annuity & pension options. Boasting a wide-ranging product lineup, the corporation serves both individual and group segments with 32 individual products (16 participating and 16 non-participating), seven optional rider benefits for individuals, and 11 group products within India
LIC’s stature is underscored by its history spanning more than 65 years and its commanding shares of 61.6% in total premiums, 61.4% in new business premiums, and 71.8% in individual policies issuance. Globally, LIC ranks fifth in terms of life insurance Gross Written Premium (GWP) and tenth in total assets. It also stands as India’s largest asset manager, overseeing an Asset Under Management (AUM) of Rs 40.1 lakh crore, equivalent to 17.0% of India’s GDP. Remarkably, LIC’s investments in listed equity constitute around 4% of the total market capitalization of the National Stock Exchange (NSE), and it holds more government bonds than the Reserve Bank of India (RBI).
- Market Cap – ₹ 4,17,355 Cr.
- Current Price – ₹ 660
- High / Low – ₹ 754 / 530
- Stock P/E – 9.22
- ROE – 130 %
The company maintains a nearly debt-free status and has demonstrated impressive profit growth with a compounded annual growth rate (CAGR) of 71.6% over the last five years. Additionally, the company boasts a strong track record of return on equity (ROE), achieving a remarkable 108% ROE over a span of three years.However, there are certain drawbacks to consider. The stock is currently trading at a multiple of 9.14 times its book value, indicating a potentially elevated valuation. Furthermore, the company’s sales growth over the past five years has been lackluster, standing at only 8.37%. It’s worth noting that the company’s tax rate appears to be low, which could impact its overall financial dynamics. Additionally, the reported earnings include a substantial other income of Rs. 91,003 Crore.
New India Assurance Company Ltd
The New India Assurance Company Ltd stands as the largest non-life insurance enterprise in India. It receives backing from the Government of India (GoI), which holds an approximate 86% stake in the company.Originally founded by Sir Dorabji Tata in 1919, the company underwent nationalization in 1973. Following this, it became one of the four subsidiaries of the General Insurance Company of India (GIC). However, it later attained autonomy when GIC transformed into a reinsurance entity in 1999.
At present, the company occupies a dominant position in various domains of insurance business including health, motor, liability, fire, and marine coverage. It commands a significant presence in the Indian insurance landscape, capturing approximately 14% of the market share within the general insurance industry.
- Market Cap – ₹ 20,715 Cr.
- Current Price – ₹ 126
- High / Low – ₹ 142 / 81.6
- Stock P/E – 17.7
- ROE – 4.06 %
The company exhibits a nearly debt-free financial status and its stock is currently trading at a valuation of 0.75 times its book value. Notably, the company has consistently upheld a strong dividend payout of 18.6%.
However, it’s important to acknowledge certain drawbacks. The company has reported a comparatively low return on equity (ROE) of 3.85% over the past three years.
ICICI Lombard General Insurance Company Ltd
ICICI Lombard General Insurance Co. Ltd stands as a significant and well-established entity in India’s private sector general insurance arena, offering an extensive range of risk management products and solutions through various distribution channels. Established in 2001 as a joint venture between ICICI Bank and Fairfax Financial Holdings Ltd, ICICI Lombard originated with ICICI Bank holding a 64% stake and the remainder owned by Fairfax Financial. In 2019, Fairfax Financial divested its remaining 5% stake in the company for around 2,600 crores. Throughout the fiscal year 2022, the company issued 29.3 million policies and efficiently managed over 2.3 million claims, catering to individual customers, corporate entities, government bodies, and rural segments.
With an impressive 8.1% share of the general insurance industry as of March 31, 2022, ICICI Lombard General Insurance Co. Ltd holds the esteemed position of being the largest private-sector non-life insurer in India and secures the second-largest position within the general insurance sector. Notably, the company achieved significant market shares in various commercial lines during the fiscal year 2022, including approximately 13% in Fire, around 15% in engineering, about 18% in marine cargo, and approximately 15% in liability.
- Market Cap – ₹ 67,316 Cr.
- Current Price – ₹ 1,371
- High / Low – ₹ 1,423 / 1,049
- Stock P/E – 38.0
- ROE – 17.6 %
The company has successfully diminished its debt burden, reaching an almost debt-free status. It has consistently upheld a robust dividend payout of 29.3%.However, it’s important to consider certain drawbacks. The reported earnings encompass a significant other income of Rs. 1,004 Crore. Furthermore, the promoter’s ownership stake has experienced a decrease of -3.88% over the past three years.
Star Health & Allied Insurance Company Ltd
Star Health & Allied Insurance Ltd (Star) stands as India’s pioneer Standalone Health Insurance provider, holding the title of the largest private health insurer in the country. With an impressive 15.8% market share in the Indian health insurance market during FY21, Star Health’s prominence is particularly notable in the retail health segment.
Established in 2006, Star Health holds the position of India’s largest private health insurer, boasting a 15.8% market share and gross written premium (GWP) of Rs 93.5 billion in FY21. Remarkably, it commands a substantial 31% market share within the retail health segment, setting itself apart by surpassing the GWP of the next highest retail health insurer by more than threefold during FY21. With a network of 737 branches across India and collaborations with over 90 corporate agents, Star Health’s extensive presence is supported by individual agents contributing to over 78% of premium collections, demonstrating its commitment to providing comprehensive health coverage through a variety of health insurance products endorsed by the Insurance Regulatory and Development Authority of India (IRDAI).
- Market Cap – ₹ 36,924 Cr.
- Current Price – ₹ 635
- High / Low – ₹ 780 / 451
- Stock P/E – 53.3
- ROE – 11.0 %
The company has successfully lowered its debt levels, nearing a nearly debt-free status. Furthermore, the company showcases commendable profit growth with a compound annual growth rate (CAGR) of 29.4% over the past five years.However, it’s important to acknowledge certain drawbacks. The stock is currently trading at a valuation of 5.60 times its book value, potentially indicating an elevated market price. Additionally, the company has reported a relatively low return on equity (ROE) of -12.3% over the last three years.
SBI Life Insurance Company Ltd
SBI Life Insurance Company Ltd is actively involved in the provision of life insurance and annuity services. The company’s inception occurred as a result of a joint venture between State Bank of India and BNP Paribas Cardif S.A.SBI Life Insurance Company offers an extensive range of products catering to both individual and group segments. These encompass participating, non-participating, pension, group gratuity, group leave encashment, group superannuation, group immediate annuity, unit-linked insurance products, and variable insurance products, among others.
Notably, individual policies accounted for approximately 61% of the New Business Premium (NBP), while the remaining ~39% was attributed to group policies in FY21.The company has established a diverse multi-channel distribution network encompassing approximately 170,000 individual agents, 50,000 Corporate Insurance Facilitators (CIFs), 24,000 branches of SBI, around 100 brokers, 60 corporate agents, and maintains partnerships with 14 bancassurance partners across India.
- Market Cap – ₹ 1,31,268 Cr.
- Current Price – ₹ 1,312
- High / Low – ₹ 1,375 / 1,039
- Stock P/E – 71.4
- ROE – 14.0 %
The upcoming quarter is anticipated to yield favorable results for the company.However, certain drawbacks warrant consideration. The stock is currently trading at a significantly high valuation of 131 times its book value, potentially reflecting an elevated market price. The company’s relatively low tax rate raises questions, and its earnings incorporate a substantial other income amounting to Rs. 1,756 Crore. Furthermore, there has been a decrease of -5.25% in promoter holding over the past three years.
ICICI Prudential Life Insurance Company Ltd
ICICI Prudential Life Insurance Company Ltd conducts its operations centered around the provision of life insurance, pensions, and health insurance products for both individuals and groups. The scope of its business encompasses participating, non-participating, and unit-linked lines of insurance. The distribution of these diverse products is facilitated through various channels including individual agents, corporate agents, banks, brokers, the company’s sales force, and its official website.
The company derives its promotion from two major entities:
ICICI Bank (holding a 51% stake) – This affiliation ties with ICICI Bank Ltd, the second-largest private bank in India. The bank is renowned for offering a comprehensive array of products and services catering to retail, SME, and corporate customers.
Prudential Plc (holding a 22% stake) – Prudential Plc stands as a British multinational insurance corporation headquartered in London, England. It holds the distinction of being the largest UK life insurer within the Asian region, operating across countries like India, China, Cambodia, Indonesia, Laos, Malaysia, Myanmar, and the Philippines. Moreover, its presence extends to the African subcontinent, including countries such as Nigeria, Ghana, and Togo, among others.
- Market Cap – ₹ 80,579 Cr.
- Current Price – ₹ 560
- High / Low – ₹ 616 / 381
- Stock P/E – 93.4
- ROE – 8.45 %
The company has consistently sustained a robust dividend payout of 17.0%.However, it’s essential to consider certain drawbacks. The stock is presently trading at a valuation of 7.66 times its book value, potentially indicating an elevated market price. Moreover, the company’s return on equity (ROE) has been comparatively low, amounting to 9.39% over the past three years. Additionally, the reported earnings encompass a substantial other income of Rs. 2,135 Crore.
HDFC Life Insurance Company Ltd
HDFC Life Insurance Company is a prominent player in the life insurance sector, offering a wide range of insurance solutions catering to both individual and group needs. With a comprehensive portfolio that includes Protection, Pension, and Savings options, the company stands as a reliable provider of insurance and investment products.
Established as a Joint Venture between HDFC and Standard Life Aberdeen, HDFC Life has solidified its position in the industry. The company’s impressive 26% new business margin showcases its ability to generate significant profits from policies issued within a specified period. Its diverse product mix and effective distribution strategies allow HDFC Life to navigate the complexities of capital markets and evolving regulatory landscapes. As a top performer within the private insurance sector, HDFC Life consistently ranks among the top three players. With a substantial 21.5% market share in new business premiums during the fiscal year 2020, both individual and group, the company’s market presence is evident. Moreover, holding a market share of about 17.7% within the private insurance sector for the same period, HDFC Life’s two decades of industry expertise and nationwide coverage contribute to its strong standing within the Indian life insurance market.
- Market Cap – ₹ 1,36,204 Cr.
- Current Price – ₹ 634
- High / Low – ₹ 691 / 458
- Stock P/E – 95.7
- ROE – 9.57 %
The company holds a nearly debt-free status and is anticipated to deliver a strong performance in the upcoming quarter. It has consistently upheld a robust dividend payout of 29.0%.However, certain drawbacks need consideration. The stock is currently trading at a valuation of 10.5 times its book value, possibly indicating a relatively high market price. The company’s relatively low tax rate raises questions, and its return on equity (ROE) has been modest at 11.9% over the past three years. Furthermore, the reported earnings encompass a substantial other income of Rs. 1,477 Crore. Additionally, there has been a notable decrease of -10.1% in promoter holding over the last three years.
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FAQs
How do insurance enterprises generate profits and sustain their financial health?
Insurance firms secure revenue by collecting premiums from policyholders in exchange for coverage. Their income sources encompass these premiums, alongside the profits garnered from astute investments facilitated by the accumulated funds.
Why should one contemplate investing in insurance stocks?
As India emerges as one of the swiftest evolving insurance markets on the global stage, it presents a conducive environment for insurance companies to achieve substantial growth.
What are the prudent strategies to adopt when considering investments in insurance stocks?
A well-advised approach involves distributing your investment portfolio across both life and non-life insurance companies, thereby mitigating risks and leveraging opportunities.
Conclusion
A promising strategy to gain exposure to the growing Indian insurance industry involves investing in insurance stocks.
The substantial and expanding middle class in India plays a pivotal role in driving the demand for various insurance products, encompassing health, life, and automobile insurance. This trend is poised to further bolster the growth of the Indian insurance sector in the coming years.
When contemplating investment in Indian insurance stocks, conducting thorough research and comprehensive analysis is paramount. Identifying companies with a stable financial foundation, a proven historical performance, and a competitive edge is essential.
Moreover, it’s crucial to factor in macroeconomic variables that impact the insurance landscape, including shifts in interest rates and regulatory modifications. Just as with any investment endeavor, seeking guidance from a financial expert and diversifying your portfolio to mitigate risks holds utmost importance.
What did we learn?
