Business Standard

High base likely to weigh on life insurers’ Q4 margins

- AATHIRA VARIER Mumbai, 9 April

Ahigh base and a change in product mix are expected to impact margins of life insurers in the last quarter of 2023-24 (Q4FY24), according to analysts.

In March 2023, there was a surge in the sale of high-value non-participat­ing policies after the Centre’s revision in taxation norms. The government removed the tax exemption on the maturity amount of insurance policies (excluding unit-linked insurance plans) with an aggregate premium exceeding ~5 lakh. The change 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-point year-onyear (Y-O-Y) decline in the value of new business (VNB) margin owing to this change towards low-margin-linked products and decline in product-level margins in non-linked products.

The VNB is a measure of economic value of the profits expected to emerge from new business.

Analysts at Emkay Global expect a moderation in VNB margins in Q4 due to interest-rate fluctuatio­ns in this year, apart from transition in product mix of insurers. They 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. HDFC Life’s VNB margin is likely to remain flat at 29.7 per cent as compared to 29.3 per cent in Q4FY23.

While ICICI Prudential Life is expected to print a drop in VNB margin to 22.9 per cent from 32 per cent last year, Max Life’s VNB margin is projected to be at 27.4 per cent as compared to 30.3 per cent in Q4FY23. The VNB margin of Life Insurance Corporatio­n of India is likely to inch down to 17.5 per cent from 19.2 per cent in the year-ago period.

The non-life insurers are expected to see an improvemen­t in their profitabil­ity, combined ratio in Q4FY24, owing to reduced natural catastroph­es and lower claims ratio.

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