 "insurance")
The life insurance industry is expected to report a compression in its margin during the third quarter of 2023-24 (Q3FY24), showing a decline in the share of non-participatory (non-par) products and movements in interest rates. Meanwhile, the combined ratio of non-life insurers is expected to feel the pressure of rising catastrophic events and surge in medical issues. The reduction in the share of non-participating products among life insurers is one of the major reasons for the contraction in the value of new business (VNB) margins of the companies. The VNB is a measure of the profits expected from new businesses. The VNB margin is the profit margin of the companies.
“Listed private life insurers’ VNB margins are likely to witness some contraction on YoY basis due to reduced share of Non-Par in the product mix and movement in interest rates. Overall, we expect performance of life insurers to be low-key against the backdrop of moderating APE (annual premium equivalent) growth and VNB margins,” said analysts at Emkay Global Financial Services.
Analysts at Emkay Global estimate ICICI Prudential Life’s VNB margin is projected to slip to 28.8 per cent from 33.9 per cent, Max Life Insurance’s to 29.7 per cent from 39.3 per cent, and HDFC Life’s to 26.6 per cent from 26.8 per cent.
However, Life Insurance Corporation’s (LIC’s) margin is likely to go up to 15.5 per cent from 14.6 per cent in the year-ago period due to an increase in their share of non-par products. Similarly, SBI Life Insurance’s margin is expected to be 28.4 per cent from 27.8 per cent. The premium of non-life insurers is expected to report decent growth, backed by improvement in the health and motor segments. In the segment, the management’s commentary on the insurance regulator’s proposal to increase surrender value and the noise around the mis-selling of products will be closely watched.
In the general insurance business, gross written premiums (GWP) of general insurers are expected to report double-digit growth, led by a robust improvement in those of the retail health and the motor segments. “We expect strong growth in the motor segment, driven by a revival in motor sales. Competitive intensity in the segment remains elevated. The health segment continues to grow at a steady rate,” noted analysts at Nuvama Institutional Equities. According to the research note, the combined ratio, which is a measure of the profitability of the general insurer, is likely to rise to 104.9 per cent as compared to 104.4 per cent in the year-ago period.
On the other hand, Star Health is likely to see a rise to 98.1 per cent from 94.8 per cent in the year-ago period.
More From This Section
A combined ratio of less than 100 per cent is considered better because it indicates that the insurer is earning more through premiums as against claims paid and the operating expenses incurred. Therefore, it is better for the company if the combined ratio is lower.
However, the surge in catastrophes, including the recent Chennai floods, and the rise in diseases are likely to drive the claims ratio of general insures.
According to Emkay’s research note, the claims ratio of ICICI Lombard General Insurance is likely to rise 71.3 per cent from 70.3 per cent due to catastrophic events.
For Star Health, it is likely to rise to 68.5 per cent from 63.7 per cent.
