Things to Know Before Investing In Insurance Stocks


sdBENGALURU: Insurance companies have been in the news along the passage of the insurance bill in the parliament in March 2015. Foreigners can now invest up to 49 percent in an insurance company up from 26 percent earlier which is good news for the insurance companies, according to yahoo.com.

Key Banks:

When we talk about private banks insurer, ICICI Bank remains the largest private sector insurer of them all and HDFC Life shares a significant market share. HDFC Life has the lowest surrender ratio which is a measure of how many people terminate policies beforehand and HDFC Life and Birla Sun Life sell the maximum term policies recorded. HDFC life leads the market share for online sales at almost 5 percent, while the others are at 1 percent.

Slow Profit Growth: 

We all are seeing that the Insurance companies have become profitable in the last few years. Profit for an insurance company is determined by the product mix it offers to its customers. Products always generate a loss in the first year due to high acquisition costs and turn profitable thereafter.  Acquisition costs in India are a borne upfront and hence even during high growth years, companies can report a loss.

Surge Of Annualised premium Equivalents (APE):

An Annualised premium Equivalents (APE) is a measure of new businesses gained by insurance companies. Private sector companies have been reporting APE declines of 9 percent per annum over FY12-14 but, this is about to change, as growth is expected to raise  to 14 percent in FY16-17. Favourable factors are now emerging as inflation falls and equity markets turn favourable.

We all know that when inflation falls, people save more via financial instruments like-bank deposits and insurances which are the main factor that people are expected to get insured more.

Less Insurance Penetration:

In India, the insurance sector is a very small one. This can be seen in the penetration of life insurance in the country. Total premiums of life insurance companies accounts for just 3 percent of the Gross Domestic Product (GDP). This is much lower than other emerging market economies when compared. Even the per capita life insurance premium is just $41 in India, drastically lower than the $3204 in Taiwan. However, there is scope for a lot of improvement and growth for insurance companies. As profits grow, share prices are also expected to rise.

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