Drop in high-value ticket life policies drags 13th-month persistency ratio

The decline in the share of high-value policies is largely on account of taxation changes in this segment, which HNIs were earlier using to get tax-free returns

   

The 13th-month persistency of life insurers dropped in the first quarter of FY26 (Q1FY26), due to a decline in the share of high-value policies, largely on account of taxation changes in this segment implemented in April 2023.

 

In February 2023, the government decided to tax income from traditional insurance policies, other than unit-linked products (ULIPs), having premium above Rs 5 lakh in a year to plug the arbitrage, which high-net-worth individuals (HNIs) were using to get tax-free returns on their high-value insurance policies through Section 10(10D).

 

Leading private insurers HDFC Life saw its 13th-month persistency ratio dip to 86 per cent in Q1FY26, as against 88 per cent in Q1FY25. Similarly, ICICI Prudential Life Insurance’s 13th month persistency dropped to 86 per cent from 89.7 per cent during the same period.

 

Persistency is the proportion of life insurance business renewed from the business underwritten. The ratio is measured in terms of number of policies and premiums underwritten.

 

During their post earnings analyst call, management at HDFC Life attributed the drop in share of high value policies post the taxation. However, they don’t expect a major impact of this on their operating variance.

 

“On the persistency, in the 13-month we have seen a drop of around 1 per cent mainly because of the proportion of large ticket sizes which has reduced post the changes in the taxation," said Eshwari Murugan, Appointed Actuary, HDFC Life Insurance. "And this is already accounted for in our assumptions because when we look at assumptions, we see the experience by various parameters of which premium size is one of them. So, we already knew that the persistency is going to be lower and that is why you see that the operating variance is still a small positive, it is not a negative, which would have been the case, if we have allowed for higher assumptions.”

 

According to insurers, the base effect in the 13th-month persistency levels has normalised. Furthermore, there is also some stress in certain product cohorts which is also weighing on the persistency ratios.

 

Bajaj Allianz Life Insurance has also seen a dip in its 13th-month persistency ratio to 82 per cent from 85 per cent in Q1FY25.

 

“Persistency dips were however observed in the 13-month bucket in line with the industry because of the base effect of higher ticket size in Q1FY25 largely because of the business return in Q4 FY24 due to the income tax changes which had significantly higher persistency,” Bajaj Finserv executives said during an analyst call.