With the passing of the Insurance Bill in Parliament in March 2015, the insurance sector has been in the news. Foreigners can now invest up to 49% in an insurance company up from 26% earlier. This is good for insurance companies.

A lot of factors are looking good for insurance companies. With growth around the corner, it may be the right time to invest in insurance-related stocks like HDFC and SBI, according to a report by UBS, a global brokerage. It believes that large private sector insurance companies could grow faster than government-owned peers.

Here are some things to know:

1. Low insurance penetration: The insurance sector in India is very small. This can be seen in the penetration of life insurance in the country. Total premiums of life insurance companies accounts for a mere 3% of the Gross Domestic Product (GDP) – a measure of the economy. This is much lower than other emerging market economies like Taiwan (14.5%) and South Africa (12.7%). Even the per capita life insurance premium – a measure of premiums paid by per person per annum – is $41 in India, drastically lower than the $3204 in Taiwan, the UBS report stated. However, there is scope for a lot of improvement and growth for insurance companies. As profits grow, share prices too could rise.

2. Rise in APE: Annualised premium Equivalents (APE) is a measure of new businesses gained by insurance companies. Private sector companies have been reporting APE declines of 9% per annum over FY12-14. However, this trend is about to change. Growth is expected to recover to 14% in FY16-17, the UBS report said. "We believe favourable cyclical factors are now emerging, as inflation falls and equity markets turn favourable," the brokerage firm said. When inflation falls, people save more through financial instruments like bank deposits and insurances. This is why, people are expected to get insured more. As insurance companies gather new business, profits and share prices too could grow.

3. Bank-led insurance companies: UBS states that insurance companies owned by banks have an advantage. This is because they can access their parent's strong distribution networks. Examples are HDFC Life, ICICI Pru Life, and SBI Life. This helps reduce costs and maximise profits. This is why UBS has a buy call on the parent bodies HDFC and SBI.

4. A longer wait for profit growth: Insurance companies have become profitable in the last 4-5 years. UBS expects accounting growth to remain in single-digits for the next two years. This is despite the high growth in premiums. Profit for an insurance company is determined by the product mix it offers. Products generate a loss in the first year due to high acquisition costs and turn profitable thereafter. Acquisition costs in India are borne upfront and hence even in high growth years companies can report a loss.

5. Key players: ICICI Bank remains the largest private-sector insurer in the individual segment while HDFC Life gained significant market share. A 13-month persistency ratio was highest for ICICI and HDFC at 70% compared with 60-62% for Allianz, Birla Sun Life and reliance Life. This indicates higher customer retention. HDFC Life has the lowest surrender ratio – a measure of how many people terminate policies beforehand, and HDFC Life and Birla Sun Life sell the maximum term policies. HDFC life leads the market share for online sales at 5%, while the others are at 1%.

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