Listed private life insurers' FY24 margins fell on rise in Ulip share

According to analysts at Motilal Oswal, VNB margins for all life insurance players declined from the previous year due to adverse product mix and pressure on non-par margins

All the four listed private life insurance companies recorded a drop in value of new business (VNB) margin in the financial year 2023-24 (FY24) as compared to FY23. This is because of a higher share of unit-linked insurance plans (Ulips) in the product mix.

VNB is a measure of the economic value of profits expected to emerge from a new business. VNB margin is the profit margin of the companies.

According to insurance companies, the demand for Ulip products has surged among customers due to strong performance of the equity market. The product is considered to have a lower profit margin.

In FY24, VNB margin of the largest private sector life insurer — SBI Life — slipped to 28.10 per cent compared to 30.10 per cent in the year-ago period.

During the post earnings analyst meeting, the life insurer attributed the fall in margin to higher share of Ulip business as compared to previous year. The share of Ulip business for the company increased to 60 per cent from 55 per cent in FY23.

According to analysts at Motilal Oswal, VNB margins for all life insurance players declined from the year-ago period due to adverse product mix and pressure on non-par margins.

HDFC Life also witnessed a drop in VNB margin to 26.3 per cent as the share of Ulip in its overall business touched 35 per cent. In addition, for the life insurer, the tax imposed on policies with a premium of over Rs 5 lakh has also impacted margins.

The private life insurer witnessed a surge in sale of high value (aggregate premium is over Rs 5 lakh) in March 2022 after the government imposed tax on the segment during the Union Budget of 2022-23.

In case of ICICI Prudential Life, the third largest private sector life insurer, share of Ulips in the product mix increased to 11.7 per cent from 7.3 per cent in the year-ago period. Also, within the non-linked segment, there has been a shift towards participating products for the company.

Increased expenses and higher share of Ulip and participating products dragged the VNB margin to 24.6 per cent from 32 per cent in FY23.

On the other hand, the VNB margin of Life Insurance Corporation of India (LIC) inched up to 16.8 per cent in FY24 compared to 16.2 per cent in FY23.

The life insurer’s move towards (non-participating) non-par segment led to the growth in VNB margin.

LIC’s share of non-par products in APE increased to 18.32 per cent in FY24 as compared to 8.89 per cent in FY23.

Even while serving demand for various products from customers, private sector insurers aim to grow the share of non-par products and protection segments. This aids in improving the margin.

SBI Life’s management said, “Going forward, while we continue to offer all kinds of products to all segments of customers, it all depends on the customer's choice. We will definitely like to grow our protection and non-par business also in the coming year for a healthier product mix.”