 "Life insurance industry, insurers, health insurance, insurance sector")
Life insurers are making a strategic shift towards participating (par) products as they seek to reduce risk in balance sheet, amid choppy equity markets, a falling interest rate environment, and intense pricing competition in the non-participating (non-par) product segment.
Many players in the industry have shifted towards par products after a period of being ULIP-heavy and relying on non-par products to drive topline and margins.
Par products are insurance policies that provide policyholders with both guaranteed benefits and a share of the insurer’s surplus, typically paid as bonuses or dividends. The surplus is generated from the performance of participating funds, which pools premiums from par policyholders and invests them in various assets. While the guaranteed benefits are fixed, the bonuses or dividends are non-guaranteed and depend on factors such as investment returns, expenses, and claims experience.
The equity market has come off almost 7 per cent from its peak in September last year, due to earnings disappointment, global headwinds, and sustained selling by foreign portfolio investors (FPIs). This has prompted insurers to diversify their portfolio mix.
The RBI’s Monetary Policy Committee has cut the policy repo rate by 100 basis points (bps), bringing yields on the benchmark 10-year government securities down to around 6.4 per cent from a high of 6.7 per cent in January. This has dented insurers’ investment returns on sovereign bonds.
“Insurers are moving toward par products to reduce the risk on their balance sheet, especially in a falling interest rate environment where offering high guaranteed returns in non-par products becomes unsustainable. Par products offer performance-based returns, allowing insurers to manage risk better,” said the chief executive officer of a private sector life insurer. ULIPs, despite benefiting from market performance, have regulatory caps on expenses, limiting the profitability for insurers. Hence, par products are often preferred, they said.
“We have increased our share in par products. It has increased to 20 per cent in Q1 FY26 from around 6 in Q1 FY25. Par is a long ended product and the upside can be huge. The exposure to equities can be beneficial. There was a product launched in April with 50 per cent exposure to equity. Considering the share of ULIP, and performance of equity market, par is better than ULIP,” said Kamlesh Rao, MD and CEO, Aditya Birla Sun Life Insurance.
HDFC Life, one of the largest players in the industry, said par products have gained traction in Q1FY26, driven by refreshed propositions and heightened macroeconomic uncertainty. “Non-par mix has come down in Q1FY26 and par mix has gone up. Non-par has seen a lot of aggressive pricing in the market. And we did vacate some space deliberately on the non-par segment. That’s where the non-par mix has come down while we made sure that we were able to compensate for this through the par products. From a margin perspective, they are both in a similar range, so it becomes a margin neutral exercise from our end,” the management said in its post earnings call.
Even state-owned Life Insurance Corporation of India (LIC) has indicated that it will launch two par products in FY26, after introducing several products on the non-par segment to clock good margins, following its listing on the bourses back in 2022.
Participating products strike the right balance between security and growth. Unlike non-par products, which are largely linked to debt returns, or ULIPs, where the policyholder bears full market risk, par plans offer a blend of reasonable guarantees and market-linked upside, said Rushabh Gandhi, MD & CEO, IndiaFirst Life Insurance.
“In a volatile interest rate environment, as an industry, we are innovating with higher non-debt allocations to enhance potential returns.”
Decoding the shift
- Shift largely due to volatile equity markets, falling interest rates, and pricing competition
- Participating products offer policyholders both guaranteed benefits and a share of surplus
- This allows insurers to manage risk better, especially in a low-interest-rate environment
- Aditya Birla Sun Life Insurance has increased its par products to 20% in the last year
- HDFC Life has also seen a rise in par products, driven by macro-economic uncertainty
