High base, change in product mix to weigh on life insurers' margin in Q4

In March 2023, there was a surge in the sale of high-value non-participating policies after the Union Government's revision in taxation norms

High base and a change in product mix are expected to impact margins of life insurance companies during the last quarter of fiscal year 2023-24 (Q4 FY24), according to analysts.

In March 2023, there was a surge in the sale of high value non-participating policies after the Union Government’s revision in taxation norm. The government removed the tax exemption on the maturity amount of insurance policies (excluding unit linked insurance plans or ULIPs) with an aggregate premium exceeding Rs 5 lakh. The norm came into effect on April 1, 2023.

This move triggered a shift in the product mix of the life insurers towards ULIPs and other participating products. According to analysts at Nuvama Institutional Equities the life insurers are likely to see 353bps Year-on-Year (YoY) decline in VNB Margin owing to this change towards low margin linked products and decline in product-level margins in non-linked products.

 

The VNB (Value of New Business) is a measure of economic value of the profits expected to emerge from new business. 

Similarly, analysts at Emkay Global expect a moderation in VNB Margins during Q4 FY24 due to interest rate fluctuations in this year apart from transition in product mix of the insurers.

Analysts at Emkay Global expect the largest private sector life insurer, SBI Life Insurance, to report VNB Margin at 26.2 per cent as compared to 31.6 per cent. Whereas, HDFC Life’s VNB Margin is likely to remain broadly flat at 29.7 per cent as compared to 29.3 per cent in Q4 FY23.

ICICI Prudential Life is likely to print a drop in VNB Margin to 22.9 per cent from 32 per cent last year. Similarly, Max Life’s VNB Margin is projected to be at 27.4 per cent as compared to 30.3 per cent in Q4 FY23.

The biggest life insurance company, Life Insurance Corporation of India’s VNB margin is also likely to inch down to 17.5 per cent from 19.2 per cent in the year-ago period.

On the other hand, the non-life insurers are expected to see an improvement in their profitability, combined ratio in Q4 FY24, owing to reduced natural catastrophes and lower claims ratio.