 "Insurance")
The life insurance industry is expected to report a compression in its margin during the second quarter of financial year 2023-24 (Q2FY24) due to decline in share of the margin accretive non-participatory products.
The premium of non-life insurers are expected to report decent growth, backed by improvement in business across segments.
The reduction in the share of non-participating products among life insurers is the key reason for the compression in the value of new business (VNB) margins of the companies. However, the slight uptick in the protection business is likely to cushion the pressure on the margins, with analysts at Kotak Securities expecting a margin compression of 110 to 400 bps for most companies.
“We expect premium growth to remain steady after a muted 1QFY24. Demand for annuity, non-par, and credit life segments is likely to fare relatively better, while protection is witnessing a gradual recovery,” stated an earnings preview report by Motilal Oswal.
Analysts at Emkay Global estimates VNB margin for Life Insurance Corporation of India (LIC) to slip down to 14.6 per cent from 15.2 in the year-ago period. Similarly, ICICI Prudential Life’s VNB margin is projected at 30 per cent from 31.1, Max Life Insurance at 28.4 per cent from 31.3, SBI Life at 27.5 per cent from 31.5. Whereas, HDFC Life might see a slight uptick in margin to 27.2 per cent in the second quarter of FY24 from 27 per cent in Q2FY23.
The Annualized Premium Equivalent (APE) of companies are expected to recover, supported by healthy growth in the ULIP products, on the back of buoyant movements in the equity market. This will be reflected in the APE of private insurers. However, LIC is likely to report a fall in APE due to the decline in group business premiums.
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According to the monthly new business premium (NBP) data, LIC reported a 27.47 per cent decline to Rs 18,126.32 crore in September 2023. Meanwhile, private insurers saw a 10.68 per cent rise in premiums to Rs 12,589.97 crore from the year-ago period.
The overall gross written premiums (GWP) of general insurers are expected to report double digit growth, led by a robust improvement in premiums of retail health, crop, and easing competitive intensity in the motor segment. According to analysts at Emkay Global, “In the motor segment, though, competitive intensity remains high among passenger vehicles (PVs), albeit, there are some signs of softening in competitive pressure.”
Further, the Expenses of Management (EoM) regulation along with progress in operational expenditure ratios should lead to an overall improvement in the combined ratio.
The combined ratio for ICICI Lombard General Insurance is expected to be at 73.2 per cent, as compared to 72.8 per cent. Meanwhile, Star Health is likely to see a slight moderation to 67.3 per cent, from 68.2 per cent in the year-ago period, noted analysts at Emkay Global.
