All the four listed private life insurance companies recorded a drop in Value of New Business (VNB) margin in financial year 2023-24 (FY24) compared to FY23 due to an increase in the share of Unit Linked Investment Plan (Ulip) in the product mix.

VNB is a measure of the economic value of the profits expected to emerge from 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 the strong performance of the equity market. The product is considered to have a lower profit margin.

In FY24, the 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 previous year. During the post-earnings analyst meeting, the life insurer attributed the fall in margin to the higher share of Ulip business compared to the 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 previous year due to adverse product mix (lower share of non-participatory products, and higher Ulip share) and pressure on non-par margins.

HDFC Life also witnessed a drop in VNB margin to 26.30 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 their margin.

Speaking about the role played by operating deleverage and adverse product mix in the drop in VNB margin, Vibha Padalkar, managing director and chief executive officer, HDFC Life, said in the post-earnings analyst meet, “…operating leverage gap caused by the one-time Rs 1,000 crore additional (Annualised Premium Equivalent) APE received in FY23 due to budget changes and the second one amounting to 40 basis points due to higher (Ulip) UL proportion, thanks to buoyant equity markets.”

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

In the case of ICICI Prudential Life, the third largest private sector life insurer, the share of Ulips in the product mix increased to 11.70 per cent from 7.3 per cent in the previous year. Also, within the non-linked segment, there has been a shift towards participating products for the company.

Increased expenses and a higher share of Ulip and participating products have dragged the VNB margin to 24.60 per cent from 32 per cent in FY23.

On the other hand, the VNB margin of the public sector giant, 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 nudged the growth in VNB margin.

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

Going forward, even while serving demand for various products from customers, private sector insurers aim to grow the share of non-par products and protection segments as 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, and it all depends on the customer’s choice. Having said that, we will definitely like to grow our protection and non-par business also in the coming year for a healthier product mix.”

At the same time, LIC plans to increase the share of non-par products, which will aid in further improving the profit margin of the company.

First Published: Jun 03 2024 | 7:50 PM IST