During the first quarter of FY24, the value of new business (VNB) for private sector life insurers appears to be experiencing a slowdown.
For instance, both SBI Life Insurance and ICICI Prudential Life Insurance observed a decline of 1% and 7% respectively in their VNB on a year-on-year (YoY) basis. Although HDFC Life Insurance registered a growth of 18%, this percentage increase was lower than the one recorded in Q1FY23, which stood at 25%. Furthermore, the VNB margin for the life insurance major in the first quarter fell short of the company's full-year guidance.
According to Macquarie Equity Research, the VNB margins of private life insurance companies have likely reached their peak. Another factor dampening the prospects for life insurers is the new tax liability imposed on policies with premiums exceeding Rs 5 lakh. This could potentially decrease investor interest in such policies and adversely affect the acquisition of new policies for tax-saving purposes.
In the case of HDFC Life Insurance, which was expected to be impacted by 10-12% following the new tax ruling, the VNB margin actually grew by 110 basis points YoY, reaching 26.2%. Although this is slightly lower than the 27.6% recorded in the previous financial year.
Niraj Shah, the insurance company's executive director & chief financial officer, explained to ICCBizNews that the volume of policies with premiums above Rs 5 lakh was indeed affected in Q1FY24, as anticipated due to the government's tax measure. However, this impact was compensated by the growth in policies with premiums lower than Rs 5 lakh segments, as stated by Shah.
During Q1FY24, SBI Life Insurance experienced a 1% YoY decline in VNB, amounting to Rs 870 crore. The VNB margin also decreased by 260 basis points YoY, reaching 28.8%. Macquarie Equity Research reported that the lower-than-expected VNB growth in Q1FY24 was influenced by a 160 bps YoY compression in VNB margin (28.8%), which was attributed to a higher share of ULIP products, rising by 6% YoY to 53%.
Emkay Research stated that the management of SBI Life remains confident about achieving a FY24 VNB margin of approximately 28%, while maintaining their aspiration of around 20% individual APE growth. They anticipate that as the year progresses, growth and persistency will improve.
As for HDFC Life, the annual premium equivalent (APE) witnessed a YoY growth of approximately 13%. Vibha Padalkar, the MD & CEO of HDFC Life, mentioned during an analyst call after the results announcement that they expect new business APE growth to be better in H2, leading to a full-year FY24 margin similar to FY23 by the year-end. The expansion in VNB for FY24 is projected to be driven by APE growth rather than significant margin expansions.
SBI Life witnessed subdued APE growth at 4% YoY, and the retail protection growth was relatively lower compared to peers, standing at 5% YoY. According to the Macquarie report on SBI Life, the management attributes the low APE and retail protection growth to a higher base. Additionally, persistency ratios for the 13th and 25th month declined YoY by 60 bps and 260 bps respectively, reaching 85% and 76%.
On the other hand, ICICI Prudential Life Insurance experienced a 3.9% YoY decline in APE, amounting to Rs 1,461 crore during the first quarter, while the VNB margin also decreased by 100 basis points YoY, settling at 30%.
The MD & CEO of ICICI Prudential Life Insurance, Anup Bagchi, stated that they observed an improving trend in business during Q1FY24, with double-digit growth in APE for the month of June 2023. The efforts towards expanding the protection business were evident in the 62% year-on-year growth in the retail protection segment, which now contributes nearly a quarter of the total APE.
During an analysts call, the CFO of ICICI Prudential Life, Dhiren Salian, emphasized their commitment to progress against the 4P framework of premium growth, protection business growth, persistency improvement, and productivity enhancement. They expect that their performance in these aspects will lead to achieving their objective of growing absolute VNB.
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