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Negative on Indian life insurance - JP Morgan

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komal:
Due to the ongoing spat between SEBI and IRDA, the Indian Life Insurance Sector has taken a beating as SEBI banned sale of all new ULIPs and both are now in the High Court of Mumbai,

The Finance Minister’s statement that front-end loads are to be phased out was a clear signal to the system that the “status quo” on unit-linked products would not be maintained. Hence, unit-linked products will see a dramatic cut in front-end fees, and the ability of most distributors to push this
product will be impacted.

There is a credible plan B for the lifecos – moving to traditional products, which should remain untouched by regulators in the immediate term. That would
involve lower growth and margins, given 90% of all profits needs to be given back to policyholders.

NBP margins are likely to fall to 12-15% (from 15-18%) and at least a 15-20% downside to new business weighted received premium forecasts. JP Morgan thus cut valuations of life insurance companies by 33-38% and downgrade ICICI Bank and Housing Development Finance Corp to Neutral. The stocks most impacted will be the pure-play insurance stocks such as Bajaj Finserv and Max India.

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