HDFC Life Outperforms in a Tough Market
The life insurance industry is navigating a turbulent period, with the performance of Life Insurance Corporation of India Ltd (LIC) significantly impacting overall results. In a recent report, HDFC Life Insurance Co. Ltd. stood out as the only major player to achieve growth in February.
This raises the question: what factors contributed to this outperformance?
Industry Struggles
February proved to be a disappointing month for several life insurance companies. LIC’s substantial decline in annual premium equivalent (APE) is a primary driver of the industry’s overall downturn. LIC accounts for nearly one-third of the industry’s total APE based on the current fiscal year’s figures, so any significant drop in its performance has a considerable impact on overall industry data.
When LIC’s APE fell by 23% year-on-year in February, the overall industry experienced a 6% drop in the metric. While the number of individual policies sold decreased by 32% year-on-year to 1.84 million, a notable 24% year-on-year increase in the average ticket size helped mitigate the impact on the overall value.
The equity market volatility has likely affected sales of unit-linked insurance plans (ULIPs), which could be a key reason for the industry’s underperformance. Although companies do not disclose product-wise monthly premium details, the muted stock market performance likely had a negative effect on ULIP sales.
Despite a robust 25% industry growth in February 2024, the high base effect alone doesn’t fully explain the current drop.
HDFC Life’s Success
HDFC Life Insurance Co. Ltd. was the sole major company to register growth in February 2025, with its APE increasing by 3.9% year-on-year. This represents a considerable outperformance compared to ICICI Prudential Life Insurance Co. Ltd., which saw a 15% drop in APE.
In the first nine months of FY25 (9MFY25), HDFC Life earned nearly 30% of its APE from ULIPs, while ICICI Prudential derived 50% from this source. Because companies with high ULIP dependency have underperformed, this indicates that the sluggish stock markets have slowed ULIP sales.
Even though HDFC Life has outperformed the industry, the market has already recognized its better product mix, reflected in its higher price-to-embedded-value-operating-profit (P/EVOP) multiple. This multiple is a measure of the annual increase in embedded value.
Based on FY26 estimates from Elara Securities, HDFC Life trades at a P/EVOP valuation of 14.8x. This represents a premium of around 25% compared to its large private sector peers such as ICICI Prudential.
Future Outlook
With a weak February behind, the industry awaits to see if the downward trend continues into March, historically a strong month. Large insurance companies saw March APE being about 50% higher than February’s. If March also underperforms, it could pose a risk to the estimates of the larger insurance companies.
Brokerages such as Kotak Institutional Equities have already lowered their FY26 APE estimates for LIC. Instead of the previously projected 2% growth in APE, Kotak is anticipating a 6% decline for FY26. Furthermore, LIC’s embedded value remains vulnerable to market fluctuations, given its extensive equity holdings.
However, Kotak maintains a buy rating on LIC’s stock with a target price of ₹1,175, indicating more than 50% upside from its current market price, as the valuation at a P/EVOP of 7x for FY26 appears undemanding.
Stocks of most life insurance companies (HDFC, ICICI Pru, SBI Life) have been trading sideways for the past year. While valuations appear reasonable currently, the market may be looking for at least double-digit APE growth in the coming years.
As the life insurance industry’s reliance on ULIPs has increased over time, investors are hoping for a revival in the stock market, which may in turn spark renewed interest in ULIP demand.
