Life insurers to once again benefit from a low-base effect

For two consecutive fiscals, life insurance companies have experienced low-base effects in quarter 1 (Q1) due to the Covid-19 first and second wave effect. The financial year 2022-23 (Q1FY23) is likely to see growth given the base effect. Based on the IRDA data, SBI Life has had a standout quarter but other insurers have done reasonably well.

The low base was balanced off by an adverse environment with high inflation, elevated interest rates and volatile equity markets. While April and May benefitted from strong base effects, there was moderation in June 2022. Overall, ticket sizes declined 8 per cent year-on-year (YoY).

For FY23, total RWRP (retail weighted received premium) is estimated to see a growth of 12-13 per cent YoY, with the private sector growing in the mid- to high-teens and newly-listed Life Insurance Corporation (LIC) growing in the high-single digits. Listed private companies could see at least 20 per cent YoY growth in Value of New Business (VNB) in Q1FY23. SBI Life will probably have far higher VNB growth rates – maybe close to 90 per cent.

Due to product diversification, better distribution mix and better cost efficiencies, listed private players should be able to keep relatively higher margins. The growth would be driven by demand for the annuity/non-participating segment and recovery in the protection business (term policies). But growth in ULIPs (unit linked insurance plans) may be soft due to the market correction.

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