The value of new business (VNB) for private sector life insurers in the first quarter of FY24 seems to be in the slow lane.
For example, SBI Life Insurance and ICICI Prudential Life Insurance witnessed a fall of 1% and 7%, respectively, in their VNB in the first quarter of FY24 on a year-on-year (YoY) basis. While HDFC Life Insurance reported a growth of 18%, the percentage increase on a YoY basis was lower than Q1FY23, at 25%. In addition, for the life insurance major, the VNB margin in the first quarter was lower than the company’s full-year guidance as well.
The numbers are significantly lower than the trend seen the last five years. That is, the VNB compound annual growth rate (CAGR) over the past five financial years (FY18-23) for most large private sector players has been closer to 30% versus sub 20% five years ago.
Macquarie Equity Research feels that VNB margins of the private life insurance companies have more or less peaked. Additionally, another dampener for life insurers has been the new tax liability on policies with over Rs 5 lakh premium. This is quite likely to have reduced investor interest in such policies and have an adverse impact on the purchase of new policies for tax-saving purposes.
For HDFC Life Insurance, whose business was expected to be impacted by 10-12% after the new tax ruling, saw its VNB margin grow by 110 basis points YoY at 26.2%, marginally lower than 27.6% in the last financial year.
Talking to FE, the insurance company’s executive director & chief financial officer, Niraj Shah, said the volume of policies above
Rs 5 lakh got impacted in Q1FY24 as expected due to the government’s move to tax incomes from such policies from this financial year. “But that is something which is more than made up by the growth in the lower than Rs 5 lakh policies segments,” Shah added.
For SBI, the VNB fell 1% YoY to Rs 870 crore during Q1FY24 for SBI Life Insurance. During the period, VNB margin declined 260 basis points YoY at 28.8%. “SBI Life reported lower-than-expected 1QFY24 VNB growth, driven by 160 bps YoY VNB margin compression (28.8%) attributable to a higher share of ULIP products (up 6% YoY at 53%),” a Macquarie Equity Research said in its report on Wednesday.
“Overall, (SBI Life) management remains confident about delivering FY24 VNB margin of around 28%, while maintaining its aspiration of ~20% individual APE growth. As the year progresses, growth and persistency will catch up,” according to Emkay Research.
For HDFC Life, the annual premium equivalent (APE) grew by around 13% YoY. “With new business APE growth expected to be better in H2, we expect the full-year FY24 margin to be similar to FY23 by the end of the year. We expect VNB expansion in FY24 to be led by APE growth rather than any significant margin expansions,” HDFC Life MD & CEO Vibha Padalkar said during an analysts call after the results announcement.
For SBI Life, APE growth was subdued at 4% YoY, and retail protection growth was relatively lower than peers at 5% YoY. “Low growth of APE and retail protection is due to a higher base, as per management. Further, persistency ratios for the 13th (85%) and 25th month (76%) declined 60 bps and 260 bps YoY, respectively,” said the Macquarie report on SBI Life.
ICICI Prudential Life Insurance’s APE witnessed a 3.9% YoY fall at Rs 1,461 crore during the first quarter while VNB margin also de-grew 100 basis points YoY at 30%.
“Through Q1FY24, we have observed an improving trend in business, with double-digit growth in APE for the month of June 2023. Our efforts towards expanding the protection business are visible in the 62% year-on-year growth in the retail protection segment, and this has led to the overall protection business contributing nearly a quarter of the total APE,” said ICICI Prudential Life Insurance MD & CEO Anup Bagchi.
“We will continue to make progress against the 4P framework of premium growth, protection business growth, persistency improvement, and productivity enhancement. We expect that our performance in these aspects will translate into our objective to grow absolute VNB,” ICICI Prudential Life’s CFO Dhiren Salian said during an analysts call.