The Insurance Regulatory and Development Authority of India (IRDAI) maintained the surrender values for both linked and non-linked policies, which led to intraday gains of up to 5% for HDFC Life, Life Insurance Corporation of India (LIC), ICICI Prudential Life Insurance, Max Financial Services, and SBI Life on March 26.
Brokers anticipate that life insurers will continue to be profitable with little to no pressure on margins, and they view the current situation as a great comfort for them.
Kotak Institutional Equities analysts maintained their “buy” recommendation for all listed life insurance companies, based on the belief that the significant uncertainty surrounding the surrender penalty had passed.
“The current market prices imply long-term premium growth of 3-7 percent for private life insurers. Max Life is best placed at the current juncture, SBI Life remains a steady ship.”
Kotak Institutional Equities
According to Kotak analysts, the action would have reduced surrender profits of subpar products by almost 75% and affected the margins of private life insurers by 140–200 basis points (bps).
The surrender values for life insurance plans are anticipated to essentially stay the same or even decrease under the final IRDAI guidelines, which go into effect on April 1. This is especially true if the policies are surrendered within three years.
Surrender value may somewhat increase for life insurance plans surrendered between the fourth and the seventh year.
Emkay Global analysts also anticipate that listed life insurers will continue to grow in the mid-20s while maintaining their margins in the teens. According to life insurers, they would have found it difficult to impose greater surrender charges on clients who allowed their policies to lapse in the absence of this development.
In addition, they would have to deal with the difficulty of maintaining profitability while offering advantages to policyholders who maintain the active status of their policies.
“We maintain our positive view on listed life insurers, backed by their franchise strength and favourable valuation. We prefer ICICI Prudential, Max Financial, and SBI Life from the pack.”
Emkay Global
