New Delhi [India], October 12 : Indian private life insurers experienced robust growth in July and August 2024, but the new high surrender value rule, set to be implemented in October will put pressure on their margins by increasing higher exit payouts to policyholders, a report by Nirmal Bang highlighted.
The IRDAI is set to implement new rules from October 2024, mandating higher surrender pay-outs for policyholders who exit their policies early. This change is expected to negatively impact insurers' margins in the second half of FY25, as per the report.
According to the report, while the growth momentum will continue in September, supported by robust performance in July and August 2024, the upcoming regulatory changes are expected to affect the margins of the private insurers.
The report highlighted that the life insurance industry's Annual Premium Equivalent (APE) witnessed impressive growth, with private insurance companies recording a 26 per cent year-on-year (YoY) rise in July and a 14 per cent increase in August.
The growth has been driven by strong sales in unit-linked insurance plans (ULIPs), retail protection products, steady non-participating (NPAR) volumes, and the expansion of the annuity business.
The report analyzed the major players in the insurance sector.
ICICI Prudential (IPRU) Life, which has seen a strong turnaround with a 39.5 per cent YoY growth in APE for the year-to-date (YTD) August 2024, is expected to face challenges on the margin front due to its investments in franchise. The company's investment in its franchise has caused higher absolute costs in the first half of FY25, and while new product launches in ULIP and annuity plans are gaining traction, the report mentions.
Similarly, the outlook for HDFC Life which reported a 26 per cent YoY growth on a YTD basis, is also optimistic as the report added that the insurer will sustain the growth momentum in September.
Going further, the ULIP of HDFC Life saw strong growth in the first quarter, it is anticipated to moderate in the upcoming quarter. The company has guided for a potential 100 basis points (bps) reduction in its Value of New Business (VNB) margin due to the regulatory changes, which will take effect in the third quarter.
SBI Life, with a slower growth rate of 12 per cent YTD in August 2024, is focusing on launching new protection products and maintaining a healthier product mix to sustain its margins. Meanwhile, Max Life has also performed consistently, with a 28 per cent YoY growth in APE, driven by new launches such as SWAG and SWAG Elite.
The report concludes with observing that the valuations for private life insurers remain subdued due to regulatory challenges. However, the overall outlook for the industry remains optimistic, with growth expected to remain strong despite the margin pressures, as companies continue to expand their product offerings and reach into regional markets.