New surrender value norms will not impact margins significantly, says HDFC Life

The private life insurer reported a 15 percent year-on-year growth in profit-after-tax (PAT) in Q1FY25

The revised surrender value (SV) norms by the Insurance Regulatory and Development Authority of India (IRDAI) might slightly impact margins when policies are surrendered in the first year, but the impact is negligible after the second year and beyond, said HDFC Life in its June-quarter earnings concall.

"Based on the change in regulation where surrender value has increased, we don't anticipate any significant drag on margins when policies are surrendered after completing 2 years. The only impact we see is in the first year, where our experience is quite good," the management stated.

The new surrender value rules, introduced on June 12, ensure better exit payouts for life insurance policyholders who are unwilling or unable to continue paying for their insurance. Surrender value is the amount a policyholder receives when they decide to terminate their policy before maturity. Insurers deduct a certain amount as ‘surrender charges’ based on the plan's terms.

ALSO READ: HDFC Life says recent premium hike impacts only 0.1% of business

Previously, no payout was made if a policy was surrendered in the first year, with benefits (30 percent of total premiums) starting from the second year. The new rules introduce benefits from the first year itself, applying to policies with a payment tenure of less than 5 years and single premium policies.

HDFC Life's new business margins contracted by 120 basis points (bps) year-on-year to 25 percent in Q1FY25, compared to 26.2 percent in Q1FY24, due to higher expenses and changes in product mix.

Going forward, the management expects margins to remain stable but ruled out any sharp decline. "We aim to double the value of new business (VNB) growth every four years consistently. Margins may be impacted to some extent, but we do not expect them to fluctuate excessively, say 300, 400, or 700 bps," said Vibha Padalkar, MD and CEO of HDFC Life.

ALSO READ: HDFC Life Insurance Q1 net profit jumps 15% on-year to Rs 479 crore; meets estimates

Meanwhile, the private life insurer reported a 15 percent year-on-year growth in profit-after-tax (PAT) in Q1FY25, with new business premiums rising by 9 percent YoY.

The company's VNB grew by 18 percent YoY to Rs 718 crore in Q1FY25, driven by a 31 percent year-on-year increase in annual premium equivalent (APE) and a 22 percent YoY rise in the number of policies.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.