New surrender-value norms: Max Life pencils in 100-200-bp hit to profit

Max Life Insurance, a private insurer, expects a 100-200 basis points (bps) impact on its value of new business (VNB) margin due to revised surrender value norms, said Prashant Tripathy, managing director and chief executive officer, during an analyst call on Wednesday.

VNB margin measures the profitability margin for life insurers.

In June, the Insurance Regulatory and Development Authority of India introduced revised surrender value norms to ensure better returns for policyholders exiting their policies prematurely. These norms take effect on October 1, 2024.

“While these guidelines will impact margins of traditional products affected by surrender regulations, the impact will be mitigated through multiple strategies, such as restructuring distributions and realigning procurement. We estimate the final impact to be in the range of 100-200 basis points for the transitional period, and we will work hard to figure out more ideas so that we can slide through these changes unaffected,” Tripathy said.

In the first quarter (Q1) of 2024-25 (FY25), the company’s VNB margin dropped to 17.5 per cent from 22.2 per cent in the previous year, due to a higher share of low-margin unit-linked insurance plans in its overall product mix.

Amid the regulatory changes, the insurer has reduced its VNB margin target for FY25 to the mid-teens from the earlier guidance of 25-26 per cent.

With the revised norms effective from October 1, 2024, the company plans to refile products from August 15, 2024, to September 30, 2024, in multiple tranches.

“We have multiple products to refile, and it will no longer be ‘use’ and ‘file’. We aim to complete the entire replacement exercise by September 30. We have a phased approach, beginning from August 15 to September 30 in different tranches,” Tripathy added.

The overall annual premium equivalent (APE) of the life insurer grew by 31 per cent year-on-year (Y-o-Y) in Q1FY25, driven by the proprietary channel, which grew 60 per cent Y-o-Y and accounts for 49 per cent of the total APE of Rs 14,530 crore.

Although the bancassurance channel remained weak with 9 per cent Y-o-Y growth, there has been an acceleration in July 2024, with business from the key banking partner, Axis Bank, recording 45 per cent growth from July 2023.