Life insurance premiums likely to fall: Expert View

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Hand drawing LIFE INSURANCE inscription with white chalk on blackboard, medical concept

Life insurers indicated a drop in annualized premium equivalents (APE) of 30-44 percent year-on-year (y-o-year) in Q1FY21 due to lockout volumes and a sharp fall in ULIPs caused by capital market weakness. In contrast to HDFC Life, which has a varied product bouquet, ICICI Prudential Life and SBI Life with a higher share of ULIPs decreased at a faster rate.

Due to the lower quantities and pressure on ULIPs, we are expected to reduce the APE of life insurers in FY2021 by 2-19%. HDFC Life can help you evolve faster than peers with a diverse suite of products and the ability you swap product grades. SBI Life should focus on rising the downturn in non-par business and APE buffer.

In the non-par category, ICICI Prudential Life is faced by dual challenges of lower ULIP levels, which causes a sharp decrease in APE. Credit life was high in competition with peers for SBI Life. Thanks to lower financial institution disbursements, ICICI Prudential Life and HDFC Life have experienced a > 70% decline in credit life over the year. SBI Life concentrated on providing new (not necessarily credit-life) loan lives to established customers and saw good momentum in this market. Within this section of the pandemic, the market remains high with decreased aversion exhibited by consumers, according to management guidelines.

The Value of New Business (VNB) for life insurers decreased by 29-43 percent y-o-y based on a sharp APE downturn. The 340-bps y-o-y VNB gain in ICICI Prudential Life resulted in a sharp rise in APE penetration from 15% in Q1FY20 and a fall in ULIPs’ share of savings market to 26% in Q1FY21.

Ratios of persistence have decreased

Persistence patterns in most companies were sequentially low. Management of most of those players has emphasized that the use of grace periods for renewals is encouraged by renewal increases month-on-month (m-o-m).

For most players, stability patterns have increased sequentially relative to the number of troughs seen in April 2020, with early patterns increasing in July 2020. Over recent quarters, ULIP persistence has been weak and declined for most players in selected buckets. Management of HDFC Life guided ULIP persistence for high-ticket ULIPs to be weaker. These insurers have been covered by resilience.

Due to an increased focus on retail customer capital preservation, we expect persistence to remain weak in FY2021. In Q1FY21 the solvency ratio was up from 6-44 percent for most players, led by improvements in inequality. In most businesses, the capital state is secure.

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