Life Insurance Q4 Results Preview - Margin Softness To Persist: DRChoksey

DRChoksey Research Report

In FY24E, the life insurance players saw higher traction in low-margin ULIP segment due to changes in the taxation norms. However, the companies faced challenges to sustain growth in high-ticket non-linked segments.

In Q4 FY24E, we believe we will see healthy traction on a QoQ basis for the non-par, annuity, and protection segments on the back of new product launches across all the companies. However, ULIP will continue to dominate the growth, driven by optimism in the capital market.

Life insurers will likely see moderate annual premium equivalent growth in Q4 FY24E, following favorable APE growth in 9M FY24. This is due to the higher base in Q4 FY23, which was triggered by the accelerated traction seen in the high-ticket size non-par segment due to taxation changes.

We expect the gross premium for life insurers under our coverage to grow by 14.4% YoY/ 24.8% QoQ, while the new business annualized premium equivalent will grow at 2.8% YoY.

The shift in the product mix resulted in margin contraction during 9M FY24. However, we expect a sequential improvement in Q4 FY24E on the back of gradual improvement in the non-par and protection segments. The ongoing re-pricing of products will aid margin stability.

We see value of new business margins in the range of 26.5%-27.5% for the companies under our coverage. The absolute VNB is expected to grow by 15.4% QoQ, driven by improvement in VNB margins.

The operating cost will continue to be elevated due to higher investments in franchises and expansion of the distribution mix.

Persistency ratios are expected to improve by 50-100 bps across the companies we cover, with consistency in maintaining retention rates.

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