Life Insurance - ‘Cleansing’ Underway; No Longer 'Nudge And Push': HDFC Securities

Product mix up for an overhaul; severe profitability implications.

<div class="paragraphs"><p>A person filling an application form. (Source: freepik)</p></div>
A person filling an application form. (Source: freepik)

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HDFC Institutional Equities

Contrary to expectations of relief in the Union Budget, life insurers are expected to be adversely impacted by the first-order and second-order changes proposed in the Finance Act 2023.

Conversation with industry experts suggest that the top four private life insurers are likely to witness 20-27% adverse impact on FY24E annual premium equivalent; predominantly on account of the impending transition to the new tax regime.

We flag 'high ceding charges' in guaranteed non participating savings as the next potential target as policymakers look to protect policyholder interest and improve life insurance penetration. While the demand for retail term protection remains subdued and the April 2023 growth print was soft, we await evidence of medium-term growth momentum.

While we are constructive on the long-term growth prospects of the life insurance sector, we believe major tectonic shifts will create near-term challenges, albeit preparing the industry for a cleaner insurance penetration.

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HDFC Securities Institutional Equities Life Insurance - Cleansing underway no longer nudge and push.pdf
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