Leading private insurer HDFC Life has welcomed the GST cut on all individual life insurance products, stating that the change will spur demand over time, and hence be accretive to our Value of New Business (VNB), a company filing said on September 5.
For an insurer, the value of new business (VNB) is a gauge of he expected profitability of new business written in a specific period, by subtracting acquisition costs from the present value of future profits of new policies.
"We welcome the recent announcement by the Government of India on reduction in Goods and Services Tax (GST) on all individual life insurance products. This significant reform lowers the cost for customers, thereby encouraging them to purchase much needed life insurance and help protect themselves and their families," the insurer said.
HDFC Life said it expects only a marginal impact of less than 0.5% on Embedded Value (EV), and the reform will be accretive to the Value of New Business (VNB) over time. It will continue to work towards doubling the value of its new business. "As we have done in the past, we will continue to work towards our aspiration of doubling our Value of New Business over 4 to 4.5 years," the company filing said. The operational cost for insurers is expected to rise due to a lower tax credit - which may reduce the embedded value.
Embedded value is calculated by adding the present value of future profits to the net asset value of the company's capital and surplus.
Read More: GST exemption on insurance: Policyholders might gain despite likely base premium hikes in future
"Overall, this reform is structurally positive for the life insurance sector, as it is expected to drive higher penetration, improve persistency, and accelerate long-term growth in line with our sectoral vision of “Insurance for All by 2047," said HDFC Life.
The prices of Retail Health and Life Insurance products will come down for customers, and any benefits from GST cuts will likely be passed by insurers to customers, Emkay Global said in a note after the GST reform.
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