Life insurance companies stare at life beyond tax tweaks
After a strong end to FY23, life insurance companies were expected to take a hit in the retail (individual) segment in FY24 primarily owing to the tax changes from April. Insurance Regulatory and Development Authority of India’s (IRDAI) monthly data shows that the annualized premium equivalent (APE) has been muted for the first two months of FY24.
That said, the retail APE performance in May was better than April. APE is a key measure of growth for life insurance companies. The retail APE of the life insurance sector fell sharply by 78% month-on-month in April.
This was followed by a 36% month-on-month rise in May to nearly ₹6,110 crore. On a year-on-year basis, the sector’s retail APE rose by 6% in May. Here, the private life insurance companies put up a good show, clocking 10% growth. On the other hand, Life Insurance Corp. of India saw a 1% drop. Still, on an overall basis, the lacklustre show of the group segment meant that the sector’s overall APE growth stood at 3% in May.
“Typically, the June quarter is weak for life insurance companies’ individual savings businesses. And with slower business in the month of April 2023 (on account of bumper sales in March) there is not much to be read from May-23 data,” says Avinash Singh, analyst, Emkay Global Financial Services.
From FY24, the maturity proceeds from life insurance policies (excluding unit linked insurance policies) with aggregate annual premium of over ₹5 lakh will be taxed.
This led to a sharp surge in retail APE in March, boosting FY23’s overall growth. The high base is expected to lead to growth moderation in FY24.
As such, year-on-year retail APE growth in May is encouraging versus a drop seen in April. Jefferies India analysts expect trends to improve further and normalise by Jul-Aug 2023. “Within coverage, HDFC Life outperformed with a 10% rise, while others grew by 2-8%. Unlisted players grew faster with Birla Sun Life (33%), Tata AIA (21%), Bajaj (18%),” said the analysts in a report on 10 June.
To be sure, most life insurance companies are confident of their growth prospects in FY24 aided by non-participating high margin products including term insurance and annuity. Still, risks remain.
“Clarity on whether life insurance companies continue to grow their business will emerge after Q1. This is because from here on it is more of APE driven business rather than margin based (VNB margin),” added Singh.
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Updated: 12 Jun 2023, 10:14 PM IST
