Banking News

life insurance industry: Life Insurers’ business growth muted in February

Mumbai: Life insurers reported muted growth in retail Annual Premium Equivalent (APE) for February 2023, largely due to a decline in retail APE growth of the state-owned Life Insurance Corporation of India (LIC).

While the overall retail APE for the industry rose 10.5% on a year-on-year basis, helped by private players expanding at 18%, LIC’s retail APE declined by 3% over the same period.

The low growth resulted from a likely pre-booking of high-ticket non-ULIP policies in February and March 2023 to avoid the impact of taxation change proposed in the FY24 union budget, according to an Emkay report.

The life insurance industry uses retail APE as a metric to measure new business sales by taking the total new business premium (sum of regular premium and 10% of single premium) during a particular period and annualizing it by multiplying it with the premium payment term.
The average ticket size for retail regular premium policies grew by 32% YoY, driven by the pre-booking of high-ticket non-ULIP policies, due to proposed changes in the Union Budget.

The government has proposed withdrawing the tax exemption on maturity proceeds of non-ULIP policies purchased from 1 April 2023, with an aggregate annual premium above ₹5 lakh. This has likely resulted in some pre-booking of high-ticket non-linked policies, leading to an overall industry average ticket size increase for retail regular premium policies.

This has adversely affected the industry by effectively putting a ceiling of ₹5 lakh annual premium for an individual.The ticket size growth in February 2023 – Tata AIA was up 60%, Birla Sun Life up 38% and Kotak Life up 33% – reflects a higher share of the high ticket non-linked savings product in their mix, Emkay report said.

Among the listed companies, HDFC Life saw strong growth of 27% in retail APE driven by year-end demand followed by ICICI Prudential Life at 10%, Max Life at 7% and SBI Life saw flat growth.

The industry is expected to continue witnessing strong growth in March 2023, led by strong sales of the high ticket-size policies that are tax-exempt until 31 March 2023 before new tax norms kick in.

After April 1, the impact of the sale of policies with more than ₹5 lakh premium is estimated to be in the range of 2-15%, and the focus now shifts to what changes life insurers bring to their product mix, which, in turn, will affect VNB margins, the report said.

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