Result preview: Insurers stare at weak Q4 on growth and margin pressure

Life segment players may report flat profit; claims, new norms to weigh on general insurers

Profitability of life insurance companies is likely to remain flat in the January-March quarter (Q4) of 2024–25 (FY25), weighed down by a lower contribution from low-margin unit-linked insurance plans (Ulips), slow growth in the credit protection segment, and continued investments in distribution channels. Meanwhile, profitability of general insurers is expected to be hit by changes in accounting norms and a higher claims ratio, analysts said. 

Sales of Ulip products are likely to have dipped in Q4FY25 due to choppy equity markets. The credit protection business has also likely weakened amid a slowdown in microfinance disbursements. Muted growth in Ulip and credit protection segments may also drag down the annualised premium equivalent during the quarter. 

According to Emkay Global Financial, “With a lower contribution of Ulips in the quarter offset by the slow microfinance disbursements impacting credit protection growth, value of new business (VNB) margins are likely to be stable.”  

VNB is a key measure of profitability in life insurance. 

Analysts expect SBI Life — the largest private-sector life insurer — to report a drop in VNB margin to 27.9 per cent in Q4FY25 from 28.3 per cent a year ago. In the third quarter (Q3) of FY25, SBI Life’s margin stood at 26.9 per cent. 

Similarly, HDFC Life Insurance’s margin is expected to decline to 25 per cent in Q4FY25 from 26.1 per cent a year ago. In Q3FY25, its VNB margin was 26.06 per cent. Max Life’s margin is seen falling to 25.9 per cent from 28.6 per cent in the same quarter last year. In Q3, the VNB margin stood at 23.2 per cent. ICICI Prudential Life’s margin is also expected to slip to 21 per cent from 21.5 per cent a year ago. In Q3FY25, its margin stood at 21.2 per cent. 

In contrast, state-owned Life Insurance Corporation (LIC) of India’s VNB margin is expected to rise to 17.9 per cent. “LIC’s focus on increasing the share of non-participating products, driven by the launch of new offerings, is likely to contribute to improved VNB margins for FY25. However, this improvement may be partially offset by the impact of new surrender regulations and increased competitive intensity,” Emkay analysts said. In Q3FY25, LIC’s margin stood at 19.35 per cent. 

 

Non-life insurers 

Separately, non-life insurers are likely to face pressure on profitability — measured by the combined ratio — due to higher claims, with growth affected by changes in accounting norms. A slowdown in vehicle sales is also expected to weigh on the combined ratios of general insurers, analysts observed. 

In FY25, premium growth for non-life insurance companies slowed to a three-year low of 6.2 per cent year-on-year (Y-o-Y), touching ₹3.08 trillion. 

The insurance regulator revised the premium reporting format, requiring non-life insurers to report long-term premiums using the 1/N method — where 1 represents the premium payment and N number of years the policy is in force. These norms came into effect from October 1, 2024. 

“Gross written premium growth of non-life players will likely be muted at 3–5 per cent Y-o-Y during Q4FY25E (E: Estimates) due to the impact of the 1/N rule… Elevated medical claims inflation and the impact of the 1/N rule will lead to muted profitability for Star Health during the quarter,” analysts at Kotak Institutional Equities said. 

A combined ratio below 100 per cent indicates an underwriting profit. The lower the combined ratio, the better the profitability. According to Emkay estimates, ICICI Lombard’s combined ratio in Q4FY25 is likely to be 101.5 per cent, compared to 102.2 per cent a year earlier. In Q3FY25, it stood at 102.7 per cent. 

Star Health and Allied Insurance is expected to report a higher combined ratio of 96.9 per cent in Q4FY25, up from 92.8 per cent in Q4FY24. Recently listed Go Digit General Insurance is expected to post a combined ratio of 106.4 per cent, down from 108.8 per cent a year ago. Its Q3FY25 combined ratio was 108.1 per cent. 

According to analysts at Nuvama, investors will watch for commentary on industry commission payouts amid expense-of-management pressures and increased regulatory scrutiny. Investment income is also likely to remain subdued, given the volatile equity markets in Q4FY25.