Margin Pressure Expected for Life Insurance Companies in Q4 FY24

Life insurance companies are anticipated to face margin pressure in the final quarter of fiscal year 2023-24 (Q4 FY24) due to changes in their product mix and a high base from the previous year.

The shift towards ULIPs (Unit Linked Insurance Plans) and other participating products following the government’s tax revision in March 2023 led to a surge in the sale of high-value non-participating policies. As a result, life insurers are moving towards lower-margin linked products, which is expected to contribute to a 353 basis point Year-on-Year (YoY) decline in Value of New Business (VNB) Margin.

Analysts predict a moderation in VNB margins during Q4 FY24 due to interest rate fluctuations and the transition in insurers’ product offerings. SBI Life Insurance is expected to report a VNB Margin of 26.2 percent compared to 31.6 percent last year, while HDFC Life’s VNB Margin is projected to remain largely unchanged at 29.7 percent.

ICICI Prudential Life and Max Life are also expected to see declines in VNB margins to 22.9 percent and 27.4 percent respectively, compared to the previous year. Similarly, Life Insurance Corporation of India’s VNB margin is anticipated to decrease to 17.5 percent.

Conversely, non-life insurers are predicted to experience improved profitability in Q4 FY24, reflected in their combined ratio, due to fewer natural catastrophes and a lower claims ratio.

These trends highlight the evolving landscape for insurance companies and the challenges and opportunities they face in adapting to changing market conditions.