Which is the best Insurance Stock to buy now
HDFC Life & SBI Life & ICICI Pru Life To see which amongst these three which is the best insurance stock to buy? Insurance companies have an unconventional business model & certain ratios are insurance specific which we need to keep in mind So don’t miss even a second of this video! Insurance has an interesting business model And the most interesting thing is that they don’t rely on the premium amount for their profits Then how do they make money?
The premium they take from us and invest the money in equities, debts, gov securities bonds etc & the returns from these investments are their profits And in case there is a claim in some year then they settle this claim from the pool keep the rest of the amount is invested and this how they make profits! The pool I’m talking about is called asset under management or AUM. If you were able to grasp this concept easily Indicate it to me & press the like button It will hint that I was able to explain the concept in a simple manner To talk about core terms that are insurance specific APE- Annual Premium Equivalent is first Annual value of premium collected in a year plus 10% of one-year policy sum of these two is APE APE indicates if money is consistently entering the system HDFC Life & SBI Life & ICICI Pru Life’s APE when compared shows that
HDFC has shown growth by 16% CAGR SBI has shown growth by 9% CAGR ICICI Pru has shown degrowth by 9% CAGR. Comparing this quarter with the same quarter last year all 3 HDFC Life & SBI Life & ICICI Pru Life have all shown an APE growth For good growth in last 2 yrs I give hdfc 10 SBI Life gets 9 points And ICICI for degrowth gets 6 points Our second parameter is persistency ratio Percentage of people renewing insurance over their term Comparing their persistency over a year
We see HDFC life performs the best where there’s a 90% renewal on 100 rs SBI Life & ICICI Pru Life is above 85% When looking at 5 yrs the game changes SBI & ICICI Pru have the ratio above 60 which is a very good number! HDFC Life gets the 3rd spot with persistency ratio of 58% keeping this in mind for longer duration SBI & ICICI Pru have a better persistency ratio and they both get 10 points while HDFC life gets 9 points next after persistency ratio is embedded value EV shows future value of all the premium collected Basically, total value of the company If I look at the growth rate for last 2 years HDFC Life is best performing with CAGR of 21 SBI Life’s EV has increased by 19% and 16% for ICICI Pru HDFC Life gets 10, SBI gets 9 ICICI Prudential gets 8 points Value of new business is key for insurance stocks VNB is value of the profits expected from new business net of the cost of supporting capital Embedded value shows total value VNB is the increase in EV over the period due to new business. Last 2 yrs VNB, HDFC is best with 19% CAGR SBI Life, 16% CAGR ICICI prudential has 10.5% CAGR year on year, compared with the corresponding quarter ICICI is best performing with 78% CAGR But this is on a small base HDFC & SBI Life’s growth is above 40% which is not bad! Keeping last 2 years’ CAGR I give HDFC Life 10 points
SBI Life gets 8 points And ICICI Prudential gets 6 points Lets consider how much profit is being made on the new business This is evaluated by new business margin If NBM-20%, i.e., on a new business of 100 rs, profit=20rs HDFC’s NBM in this quarter and last year was 26% which is very good In this aspect even ICICI performs well Where in this quarter its NBM is 29% And in FY21 it was 25% SBI Life’s NBM this quarter is 21% And in FY21 it was 20% Keeping this in mind I give HDFC & ICICI both get 10 points And since sbi is lagging it gets 8 points Next parameter is solvency ratio Solvency is basically how much liquid fund does an insurance company have to honor the claims if any It basically shows the strength If all their customers claim together They should be able to honor them all And by the rules,
solvency should be minimum 150% Here, HDFC & SBI life both are above 200% And SBI’s solvency is 215% ICICI Prudential’s solvency is 193% Keeping this in mind SBI Life gets a 10 HDFC gets 9 points ICICI Prudential gets 8 points AUM has been covered at the start AUM shows total value of the assets being managed We need to see their growth on absolute value if we compare AUM’s growth for past year its more than 30%. Which is excellent! All three stocks get 10 points each! Last core parameter is commission ratio Commission ratio shows, on the sale of 100rs how much is the commission SBI Life had the least commission ratio that is 3.5% HDFC Life and ICICI had 3.95% and 3.9% Which is higher as compared to SBI Life Less Commission’s better, right? Keeping this in mind I give SBI a 10 HDFC Life and ICICI Pru get 9 points We’re done with core ratios but that’s not it! Before that I’d like to give a shoutout to subscribers In the subscribers special section in the last video I had asked you guys
Which is another sector which has an almost duopoly?
To which Mr Maunik has replied Mannapuram & Muthoot have a duopoly in gold loan sector Arvindji has said in telecom, Jio & Airtel have an almost duopoly Lastly, Nayanmoniji has given an excellent example in aliphatic amines Alkyl amines & Balaji Amines And in this video, my question is related to insurance Which is the Next Big Insurance IPO? You have to answer in the comment box 3 lucky subscribers shall get a shoutout Sales and Profit growth is important to Insurance sector too If I compare the last three years’ sales growth SBI Life leads with 34% CAGR Second, HDFC Life with 30% CAGR And third is ICICI with 29% CAGR If I compare the last 3 yrs’ profit growth SBI Life leads with 8% CAGR HDFC life shows 2% growth And ICICI Pru has shown a degrowth of 23% Keeping this in mind SBI gets 10 points HDFC Life gets 9 points And ICICI Pru gets 6 points Lets look at the return ratios and their debt Looking at ROE & ROCE HDFC Life and SBI Life are both great Where ROE>15% AND ROCE>17% ICICI’s ROE & ROCE are both below 10% Just like ROE & ROCE even in ROA HDFC & SBI are better performing than ICICI Typically,
Any insurance company shouldn’t have any debt their business model depends on the fact that they collect premium and invest it Its important to know why an insurance company is in debt SBI Life is a debt free company HDFC has a debt of 600 cr and ICICI has a debt of 1200 cr Keeping this in mind, SBI gets 10 points HDFC Life gets 9 points and ICICI pru gets 7 points Finally, you also need to see how expensive a stock is which means its valuations If we consider their valuations If we look at the p/E ratio that is how much premium is being charged on the earning of 1 rs Then HDFC Life is at 122 P/E SBI Life is at 91 And ICICI Prudential is at 195 P/B is how much premium is being charged on the book value of 1 rs HDFC Life is more than 16 SBI Life and ICICI are around 11
Now we’ll compare market cap with embedded value To see how much market cap is being charged for 1 rs EV Here HDFC Life has 5.3 SBI life has 3.5 ICICI pru has 3.3 in market cap to embedded value HDFC and ICICI HAVE EV/EBITDA of more than 100 and SBI Life is at 90 One outcome’s pretty clear here All three stocks are a little expensive Keeping this in mind Sbi gets 6 HDFC Life gets 5 points ICICI gets 3 points
I reveal the best stock here’s
disclaimer it’s not a stock market recommendation only meant for educational purposes Please consult your financial advisor before any investment decision. If we consider core ratios HDFC Life is first with avg score 9.6 In Financials SBI leads with 10 And in valuations it has a 6 This is a tough choice between HDFC Life and SBI Life If I take the average of these 3 areas The stock that stands 2nd is HDFC Life SBI stand first with 8.4 And ICICI has a score of 6