After losing steam due to regulatory clampdowns and waning investor sentiment for over three years, Unit-Linked Insurance Plans (ULIPs) are regaining appeal, recent disclosures by top insurers ICICI Prudential Life and HDFC Life has shown.
While this shift toward ULIPs did drive stronger top-line growth, it also marginally impacted profitability. ULIPs brought in more revenue but squeezed profits marginally, hence, insurers are now limiting their focus on the instrument, to maintain a healthier balance in their product mix.
Additionally, this ongoing revival of ULIPs does not fully mirror the pre-2021 surge, following which the instrument saw a dip in demand due to the Union Budget 2021 taxing maturity proceeds, prevailing market conditions, and IRDAI's surrender value norms.
ULIP’s Share in Business Rising
Over the past two years, the share of ULIPs in the product mix of insurers such as ICICI Prudential Life Insurance and HDFC Life has seen a steady rise. ICICI Prudential’s ULIP share increased to 48.3 percent in FY25, nearly half of the insurer's product mix, which is an increase from 43 percent in FY24. In FY23, ICICI Prudential Life's ULIPs accounted for 41.2 percent of the total Annualized Premium Equivalent (APE).
Additionally, ULIP-specific persistency metrics remained stable, with the 13-month rolling persistency rate rising to 89.1 percent in FY25, up from 87.8 percent in FY24 and 86.5 percent in FY23, indicating that the policyholders are maintaining their ULIPs for longer periods.
On the other hand, HDFC Life’s ULIP portfolio has demonstrated a steady upward trajectory, evolving significantly from a modest base two years ago.
In FY23, ULIPs accounted for just 19 percent of individual Annualized Premium Equivalent (APE). An insurer calculates Annual Premium Equivalent (APE) by summing the first-year premium on regular policies and 10% of the single premiums written in a given period. APE provides a standardized measure of new business premium income.
This share surged to 35 percent in FY24 and further climbed to 39 percent in FY25, with total individual APE growing 18 percent year-on-year to Rs 136.2 billion. This doubling of ULIP share within two years highlights a marked shift in customer preference toward market-linked insurance products, reflecting their growing appeal.
Supporting this ULIP resurgence, persistency data of HDFC Life for the 13-month persistency rate improved to 86 percent in FY25, up from 84 percent in FY24 and 82 percent in FY23. Similarly, the 61-month persistency rate rose significantly to 63 percent in FY25, compared to 53 percent in FY24 and 50 percent in FY23.
The Profit Squeeze due to ULIPs
HDFC Life's new business margin narrowed to 25.6 percent from 26.3 percent last year, a reflection of the lower margin profile typically associated with ULIP products as compared to guaranteed or protection plans.
Vibha Padalkar, MD and CEO, during an earlier interaction with Moneycontrol indicated a preference for maintaining ULIPs within a specific range, "ideally around 30-36 percent." Padalkar emphasised the importance of a diversified product mix to mitigate risks associated with market volatility, regulatory changes, and shifts in customer preferences.
ULIPs, being market-linked, are inherently volatile and have relatively lower margins and persistency ratios compared to other products like participating (par) or non-participating (non-par) plans.
Niraj Shah, CFO of HDFC Life too echoed a similar view, and said that post-Q4FY25 earnings, he aims to reduce the ULIP share to early 30s range, from the current 38 percent.
In ICICI Prudential’s case, even as ULIPs expanded their share, the insurer maintained focus on retail protection and annuities, which recorded 25.1 percent and 106.9 percent year-on-year growth respectively. During a media interaction after the Q3FY25 earnings, Anup Bagchi, CEO of ICICI Prudential Life said the goal of achieving a more ‘balanced’ product mix signals an intent to lower their ULIP exposure.
Street View
A recent Motilal Oswal note said that the rebound of ULIPs in insurer's product mix is being driven by a convergence of several forces. "Equity markets have sustained their rally, prompting investors to look beyond traditional savings instruments and seek higher returns via market participation," the note added.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
