A high base and change in product mix are expected to impact the margins of life insurance companies during the last quarter of the financial 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 norms. 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 life insurers towards ULIPs and other participating products. According to analysts at Nuvama Institutional Equities, life insurers are likely to see a 353 basis points year-on-year (Y-o-Y) decline in Value of New Business (VNB) Margin owing to this change towards low-margin linked products and a decline in product-level margins in non-linked products.
The VNB is a measure of the 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 this year, apart from the transition in the product mix of the insurers.
Analysts at Emkay Global expect the largest private sector life insurer, SBI Life Insurance, to report a VNB Margin of 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 report 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 largest life insurance company, Life Insurance Corporation of India (LIC), is also likely to see a slight decrease in VNB margin to 17.5 per cent from 19.2 per cent in the year-ago period.
On the other hand, non-life insurers are expected to see an improvement in their profitability, with a better combined ratio in Q4 FY24, owing to reduced natural catastrophes and a lower claims ratio.
The combined ratio is a measure of profitability for general insurers. A combined ratio of less than 100 is considered better, as it indicates that the insurer is earning more through premiums than it is paying in claims and operating expenses. Therefore, it is better for the company if the combined ratio is lower.
According to Emkay Global’s estimates, for the quarter ended in March 2024, the combined ratio of ICICI Lombard is likely to be at 102.9 per cent as compared to 104.2 per cent last year. Whereas, for Star Allied & Health Insurance, it is expected to be flat at 91.4 per cent in comparison to Q4 FY23.
First Published: Apr 09 2024 | 2:06 PM IST