The life insurance industry is expected to report a compression in its margin during the third quarter of financial year 2023-24 (Q3 FY24) tracking decline in share of the non-participatory products and movement 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 economic value of the profits expected to emerge from new business. 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 growth and VNB margins,” said analysts at Emkay Global Financial Services.
Analysts at Emkay Global estimates VNB margin ICICI Prudential Life’s VNB margin is projected to slip down to 28.8 per cent from 33.9 per cent, Max Life Insurance to 29.7 per cent from 39.3 per cent and HDFC Life to 26.6 per cent from 26.8 per cent.
However, Life Insurance Corporation of India (LIC)’s margin is likely to see an uptick 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 at 28.4 per cent from 27.8 per cent.
The premium of non-life insurers are expected to report decent growth, backed by improvement in 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, 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 and the motor segment.
“We expect strong growth in the motor segment driven by a revival in motor sales. Competitive intensity in the segment remains elevated. Health segment continues to grow at a steady rate,” noted analysts at Nuvama Institutional Equities.
As per the research note, the combined ratio of ICICI Lombard General Insurance Company, which is a measure of 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 due to better expense ratio.
On the other hand, Star Health Insurance is likely to see a rise to 98.1 per cent, from 94.8 per cent in the year-ago period.
A combined ratio of less than 100 is considered to be better; it indicates that the insurer is earning more through premiums as compared to claims paid and the operating expense 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 surge in diseases are likely to drive the claims ratio of the general insures.
As per Emkay’s research note, the claims ratio of ICICI Lombard General Insurance is likely to rise to 71.3 per cent from 70.3 per cent due to catastrophic events. Whereas, for Star Health, it is likely to rise to 68.5 percent from 63.7 per cent.
First Published: Jan 09 2024 | 7:22 PM IST