Base effect to hit life insurers’ March biz

New business premium (NBP) growth of life insurers in March is expected to be weak owing to the high base effect in the year-ago period due to revision in taxation norms for high-value policies, insurers said.

In the Budget, Finance Minister Nirmala Sitharaman proposed that insurance policies (excluding unitlinked insurance plans or Ulips) with an aggregate premium exceeding ~5 lakh would be taxed. This rule came into effect on April 1, 2023.

In March 2023, the NBP of life insurance companies witnessed a strong growth after the tax announcement. Premiums rose by 14.45 per cent year-onyear (Y-O-Y) to ~59,608.83 crore in March 2023 from ~52,081.12 crore.

Individual premiums of life insurers during the period increased by nearly 27.74 per cent Y-O-Y to ~26,241.14 crore. Private life insurers, who dominate the individual premium segment, saw 44 per cent growth in premium to ~15,884.99 crore.

NBP is the premium acquired by life insurance companies from new policies for a particular year. It is the sum of the first-year premium and single premium, reflecting total premium received from new businesses. “The private insurance industry has grown by 11 per cent on the total retail premium up to February 2024. In March of the previous year, business received a strong boost due to the change in tax rules. One of the immediate impacts of the new tax rule, which was implemented from FY24, was a 44 per cent increase in retail business for March 2023,” said Casparus Kromhout, managing director (MD) & chief executive officer (CEO), Shriram Life Insurance. Life insurers may find it difficult to record a similar growth in March 2024 due to the high base effect and a decline in sale of policies with annual premiums exceeding ~5 lakh.

“March 2023 was better compared to March in the year-ago period. There was some pulling forward that occurred last year due to change in taxation norms. So, this March is going to be a bit challenging for companies and it will be very difficult to attain the levels observed last March. Overall, this year is also likely to end on a flat note,” said Saurabh Bhalerao, associate director, Careedge Ratings.

Voicing a similar opinion, Kromhout noted, “In March 2024, the industry would find it difficult to show strong growth due to the high base effect.”