Indian Life Insurers Defy Asian Peers With Premium Valuations

Indian life insurance companies are trading at premium valuations compared to their Asian peers, despite lower value of new business (VNB) margins.

At first glance, the numbers seem perplexing. For instance, HDFC Life’s trailing FY24 P/EV stands at 2.7x, while China Life and Ping An trade at 0.6x and 0.8x respectively. This valuation gap persists despite Asian players like AIA boasting VNB margins of 53%, compared to HDFC Life’s 26%.

But dig a little deeper, and a different story emerges.

Haitong International argues that VNB margins alone don’t tell the whole story. Instead, it points to three key metrics: Return on Embedded Value (RoEV), Embedded Value Operating Profit (EVOP) growth, and the consistency of operating assumption changes. On these fronts, Indian insurers seem to be outperforming. They’ve demonstrated higher and more consistent RoEVs, stronger EVOP growth, and more stable operating assumptions compared to their Asian counterparts.

Moreover, Indian players have shown impressive growth rates across various metrics. For instance, HDFC Life’s 8-year VNB CAGR stands at a whopping 22%, compared to mere 2% for China Life and Ping An. Haiton’s note highlights the importance of consistent positive operating variances, which Indian insurers have largely maintained, unlike the volatility seen in some Asian peers.