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Life insurance segment looking positive amid interest rate hikes

Private sector leaders are well-positioned for strong growth


The rising interest rates from current low levels are expected to favour life insurers. Interest rates going up globally and sticky inflation—indicating a consistent increase in the rates—are expected to create a different scenario for global life insurers and the Indian private life insurers.

It is expected that the current interest rate rise is favourable for profitability and growth of life insurers. The current rise in interest rates from historical low levels is expected to improve the VNB (Value of new business) margins of participating and non participating products of life insurers (A participating (par) insurance policy provides both guaranteed and non-guaranteed benefits, while a non-participating (non-par) policy typically provides guaranteed benefits). A recent report by Emkay Global Financial Services says that even after increasing guarantees in non-participating products to stay competitive, the scope of keeping a higher spread increases with high interest rates. In participating products, higher interest rates generally increase the surplus and hence the surplus share for both the policyholders and shareholders.

The Emkay report points out that private sector leaders are well-positioned for strong growth and to gain market share amid difficult external environment. In the backdrop of a rapidly changing external environment, changing customer demographics and their product preferences, large private life insurers continue to take market share away from LIC and will continue to do so in the coming years. The report says that private life insurers have strong brands and distribution networks. At the same time, according to the Emkay report, private sector majors in the life insurance segment are executing their strategy very well by being agile and innovative when it comes to offering insurance products to match customer preferences and needs amid a dynamic external environment. The report says that companies such as SBI Life, Max Life, HDFC Life and ICICI Prudential Life Insurance have done well.

The report further highlights that with respect to group funds, the corporate business is majorly done by LIC and SBI Life though other private players have also grown in this business in the recent years. The risk on this product is high when interest rates rise because it is a lumpy business, resulting in large inflow and outflow of funds.

On the other hand, as per a recent report on life insurance by Motilal Oswal, the individual weighted received premium (WRP) for private players grew by 46 per cent YoY (year on year) in April 2022 with LIC growing by 28 per cent YoY. On the other hand, market share for private players grew by 63 per cent in April 22. The report points out that the industry posted a growth of 38.7 per cent YoY. This was primarily on account of a low base in April 2021, which saw muted volumes due to the outbreak of Covid-19 variant and resulting in lockdowns.

The Motilal Oswal report says that among the listed life insurance players, SBI Life posted a growth of 89.2 per cent YoY in April 2022 and IPRU too reported a growth of 32.2 per cent YoY, after reporting a muted trajectory in the past few months. HDFC LIFE reported a modest 9.6 per cent YoY growth, while Max Life posted a decline of 4.6 per cent YoY – the third decline in the past four months. Among the mid-sized segment players, Tata AIA, Bajaj Allianz and Birla Sun Life reported a growth of 86 per cent, 81 per cent and 51 per cent YoY respectively. Kotak Life reported a growth of 19 per cent YoY. Whereas LIC reported a growth of 27.8 per cent YoY (+11.5 per cent in March 2022) in individual WRP.

The Motilal report further points out that after reporting a moderation in growth over Jan-Feb 2022, the industry is witnessing a healthy recovery in Mar-Apr 2022 and it is expected to remain healthy, given the strong demand in Annuity, Non participating and recovery in the protection business, though ULIP growth can remain weak due to volatile market conditions.

The Motilal report finds that on an individual WRP basis, the combined market share of listed players such as SBI Life, HDFC LIFE, MAX LIFE and ICICI Prudential Life stood at 58 per cent in April 2022. At the same time both Bajaj Allianz and Tata AIA have overtaken MAX Life in terms of Individual WRP market share in April 2022.


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