Life insurers face VNB margin pressure in Q2

The life insurance industry is expected to report a compression in its margin during the second quarter of financial year 2023-24 (Q2FY24) due to decline in share of the margin accretive non-participatory products.

The premium of non-life insurers are expected to report decent growth, backed by improvement in business across segments.

The reduction in the share of non-participating products among life insurers is the key reason for the compression in the value of new business (VNB) margins of the companies. However, the slight uptick in the protection business is likely to cushion the pressure on the margins, with analysts at Kotak Securities expecting a margin compression of 110 to 400 bps for most companies. 

“We expect premium growth to remain steady after a muted 1QFY24. Demand for annuity, non-par, and credit life segments is likely to fare relatively better, while protection is witnessing a gradual recovery,” stated an earnings preview report by Motilal Oswal.

Analysts at Emkay Global estimates VNB margin for Life Insurance Corporation of India (LIC) to slip down to 14.6 per cent from 15.2 in the year-ago period. Similarly, ICICI Prudential Life’s VNB margin is projected at 30 per cent from 31.1, Max Life Insurance at 28.4 per cent from 31.3, SBI Life at 27.5 per cent from 31.5. Whereas, HDFC Life might see a slight uptick in margin to 27.2 per cent in the second quarter of FY24 from 27 per cent in Q2FY23.