Q3FY26 Life Insurance review: Early persistency weakens even as long-term policy retention improves at life insurers

Life insurance Q3 FY26 review

• Early policy renewals weaken for HDFC Life and ICICI Prudential Life insurers
• Long-term policy retention improves, but early persistency declines sharply
• Protection products boost margins, hiding slowdown in savings and annuities.

Did our AI summary help?

India’s private life insurers are facing rising stress in early policy renewals even as long-term policy retention improves, highlighting execution challenges in recent sales cohorts despite stable headline profitability.

13th-month persistency has deteriorated for both insurers, while the 61st-month metric tell a more resilient story, pointing to pressure in new business quality rather than structural weakness in the existing book.

Early persistency under pressure

At HDFC Life, 13th-month persistency declined by around 200 basis points year-on-year, largely driven by weaker renewal behaviour in lower-ticket policies.

This, according to Elara Securities, has resulted in a negative operating variance of nearly Rs 700 million in embedded value during the quarter.

In contrast, 61st-month persistency improved by about 200 bps year-on-year to 63 percent, indicating that older cohorts continue to perform well and customer stickiness remains intact over longer durations.

At ICICI Prudential Life, early persistency trends were more pronounced. 13th-month persistency declined by 540 bps YoY, marking the third consecutive quarter of deterioration, according to Macquarie.

Analysts from both brokerage reports have cautioned that sustained weakness at the early stage could weigh on long-term profitability and capital efficiency if not arrested.

Protection-led growth masks broader slowdown

Despite persistency challenges, both insurers reported stable margins, largely driven by a rising contribution from retail protection products.

ICICI Prudential’s retail protection APE rose 40.8 percent year-on-year, while total protection APE increased 18.7 percent year-on-year.

However, this strength masked a broader slowdown, with overall APE growth limited to 3.5 percent year-on-year in the quarter, as savings APE remained flat at 0.6 percent year-on-year and annuity APE declined 16.4 percent year-on-year, Macquarie noted.

HDFC Life also saw protection support margins, but VNB growth remained muted at 2.2 percent year-on-year to Rs 9.55 billion, while VNB margins declined to 24 percent from 26.9 percent a year earlier, impacted by GST-related headwinds and persistency-linked operating variances, according to Elara.

Bancassurance losing momentum

Both reports highlighted continued weakness in bancassurance, traditionally a low-cost growth channel for insurers.

HDFC Life’s bancassurance growth remained subdued amid intense competition in open-architecture partnerships, with Elara noting the company’s selective approach to avoid low-margin business.

At ICICI Prudential, group savings APE fell 44 percent year-on-year, while group annuity APE declined 40% YoY, underscoring pressure in institutional and bank-led segments.

Embedded value growth faces higher forecast risk

While embedded value (EV) growth remained in double digits, analysts warned that EV outcomes are increasingly sensitive to assumptions rather than sales momentum.

HDFC Life’s embedded value rose 15.6 percent year-on-year to Rs 615.6 billion, but operating EV was weighed down by persistency stress. Macquarie cautioned that assumption changes expected in Q4FY26 could pose downside risks to ICICI Prudential’s FY26 margins and EV, despite stable current profitability.