FY24 began on a sluggish note for the insurance sector with Annual Premium Equivalent (APE) declining by around 11 per cent in April. For May, the non-single premiums fell by 2.1 per cent as against 106.4 per cent reported in May 2022, while single premiums fell by 4.9 per cent in May 2023 vs. an increase of 82.2 per cent in May 2022. Private insurance companies continue to extend their lead in the individual non-single premium segment while the year-to-date first-year premium of life insurers reported a drop of 15 per cent to Rs 36,043.1 crore this May after an 86.7 per cent increase in May 2022.
“The first-year premium numbers in May 2023 fell by 4.1 per cent vs. a decline of 30 per cent in April 2023 and an 88.6 per cent growth reported in May 2022. This movement can continue to be attributed primarily to a fall in group single premiums and more specifically to LIC, base effect (high growth in May 2022), the new tax regime, and high momentum in March 2023,” said Rajani Sinha, Chief Economist, CareEdge Ratings.
LIC’s first-year premium reduced by 11.3 per cent in May 2023 compared to an increase of 77.0 per cent in May 2022 (base effect), while private insurers grew at 9.0 per cent in May 2023 compared to 114.4 per cent in May 2022.
Earlier, during her Budget 2023 speech, Finance Minister Nirmala Sitharaman had announced that proceeds from life insurance except for ULIPs, having an annual premium of Rs 5 lakh would be taxed. However, the long term prospects of the sector remain strong with people’s mindset towards insurance products shifting and them looking at insurance schemes as a risk mitigation necessity.
According to Kotak Institutional Equities, private life insurance companies reported 11-69 per cent YoY APE growth in 4QFY23, lifted by 13-94 per cent growth in March 2023. “We estimate 14-35 per cent of 4QFY23’s APE may be reckoned as one-off, cashing in on the sunset period of tax-free non-ULIP insurance policies with Rs 5 lakh premium. The impact of sunset period sales was the highest for HDFC Life (19 per cent of APE) and the lowest for SBI Life and LIC,” said Nischint Chawathe, Financial Analyst, Kotak Institutional Equities, while maintaining that aggressive marketing push put pressure on margins. “While YoY margin expansion was lower for HDFC Life and ICICI, Bajaj and Max Life reported marginal VNB compression,” he added.
Further, HDFC Securities suggested that the top four private life insurers are likely to witness a 20-27 per cent adverse impact on FY24E APE, predominantly on account of the impending transition to the new tax regime. “We flag “high ceding charges” in guaranteed NPAR savings as the next potential target as policymakers look to protect policyholder interest and improve life insurance penetration. While the demand for retail term protection remains subdued and the Apr 2023 growth print was soft, we await evidence of medium-term growth momentum. While we are constructive on the long-term growth prospects of the life insurance sector, we believe major tectonic shifts will create near-term challenges, albeit preparing the industry for a cleaner insurance penetration,” said Krishnan ASV, Senior Vice President, HDFC Securities.
Performance in May 2023
“The private sector has a larger share in the non-single sub-segment (mainly individual premiums), while LIC continues to dominate the single premium sub-segment, especially the group business,” said Rajani Sinha.
For May 2023, the group premiums dropped by 8.5 per cent, compared to an increase of 92.2 per cent in May 2022. Meanwhile, individual premiums increased by 4.5 per cent compared to the last year’s rate at 82 per cent. Individual premiums continue to remain smaller in size compared to group premiums, according to CareEdge.
For May 2023, private companies have reported growth while LIC has reported a drop in sum assured. Additionally, the private companies seem to be focusing on term plans as the sum assured has moved by over 25 per cent.
Overall, Kotak Institutional Equities retained a positive stance on the life insurance sector. “We expect APE growth (ex-one offs in March) to remain strong in FY24E, with flat margins, but investments provide visibility for better medium-term growth. Non-par savings and protection will be value drivers. We remain bullish across life insurers,” said Nischint Chawathe.
Fourth quarter results summary
While HDFC Life delivered 69 per cent VNB growth due to 69 per cent APE, supported by the high-ticket non-par business, ICICI Prudential Life reported 26 per cent yoy growth in Q4FY23, driven by higher ticket-size, non-linked policies. Max Life reported 38 per cent yoy APE growth in Q4FY23 (19 per cent APE growth excluding one-off HNI non-par business of Rs 3.5 billion), driving VNB growth of 31 per cent YoY. LIC reported expansion in the calculated VNB margin to 19.2 per cent in Q4FY23 from 14.6 per cent in 9MFY23, even as APE (in line with IRDA data) was down 7 per cent YoY, largely due to trued up assumptions in the group business. SBI Life reported 21 per cent VNB growth, largely driven by strong growth in the high margin non-par business, even as overall APE was weak at 11 per cent YoY.