Insurance companies report double-digit profit growth in April-June quarter, but VNB margin dips

On average, the insurance companies, which include both life and non-life companies, reported 22 percent growth in year-on-year (YoY) net profit for the quarter, the analysis showed.

A close look at the April-June quarter earnings of insurance companies shows that most reported double-digit growth in net profit. However, the present value of future profits associated with the Value of New Business (VNB) dipped for the majority of companies during the quarter. Moneycontrol analysed earnings of six insurance companies.

On average, the insurance companies, which include both life and non-life companies, reported 22 percent growth in year-on-year (YoY) net profit for the quarter, the analysis showed.

This does not include state-owned Life Insurance Corporation (LIC) of India and New India Assurance, which reported a surge of 1,299 percent and 120 percent in net profit, respectively, due to higher income on investments and a rise in total income, respectively.

SBI Life recorded a net profit of Rs 381 crore, an increase of 46 percent, while private sector insurer HDFC Life recorded a 15 percent rise in profit, at Rs 415 crore.

Similarly, ICICI Prudential’s net profit rose 15 percent to Rs 207 crore, while ICICI Lombard’s net profit went up by 12 percent to Rs 390 crore.

“Post-Covid, the insurance landscape witnessed significant shifts as insurance providers displayed resilience by absorbing some costs without transferring the burden to policyholders. However, this adaptive phase was opposed with a period of sensitivity, where people chased insurance products,” Kiran Boosam, Vice President and Head of Global Insurance Strategy and Portfolio, Capgemini, told Moneycontrol.

Why the dip in VNB?

Value of new business, a crucial metric, measures the profit margin of new business written by a life insurance company. VNB dipped for most insurers in the April-June FY24 quarter. Experts attributed this to uncertainty in market conditions amid rising competition.

Alok Rungta, Deputy Chief Executive Officer (CEO) and Chief Financial Officer (CFO), Future Generali India Life Insurance, said that a decline in VNB is mainly due to market volatility, rising competition, and regulatory changes in the sector.

“Due to heightened competition, market volatility, and potential regulatory changes, as well as shifts in customer preferences leading to a change in product mix, the VNB of insurers fell in Q1,” Rungta added.

LIC’s VNB dropped 7 percent to Rs 1,302 crore from Rs 1,397 crore in April-June FY23. The state-owned insurer’s VNB margin stood at 13.6 percent, almost mirroring the 13.7 percent margin last year. SBI Life saw a marginal 1 percent reduction in VNB at Rs 870 crore whereas its margin narrowed from 30.4 percent last year to 28.8 percent this year. ICICI Prudential’s VNB dropped 7 percent to Rs 438 crore while its VNB margin dipped by 1 percent YoY to 30 percent.

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HDFC Life Insurance was the only life insurer to report a VNB rise, reporting an 18 percent increase to Rs 620 crore. The company’s VNB margin improved to 26.2 percent from 25.1 percent a year earlier.

Mixed APE

On the other hand, there were mixed signals on growth in the total annual premium equivalent (APE), which is a metric used to measure new business sales growth. LIC and ICICI Prudential showed a drop in total APE for the April-June FY24 quarter. LIC reported a total APE of Rs 9,532 crore, a 7.19 percent decline from Rs 10,270 crore last year. ICICI Prudential’s total APE stood at Rs 1,461 crore, dropping 4 percent from Rs 1,520 crore.

Other insurers reported growth in APE. SBI Life reported a 4 percent increase in the metric to Rs 3,003 crore, whereas HDFC Life recorded a 13 percent jump in its APE, at Rs 2,328 crore.

Policies sold

Except for LIC, major life insurers recorded growth in policy sales. SBI Life issued 4.2 lakh policies in the April-JuneFY24 quarter, recording marginal growth of 1 percent. HDFC Life sold 2.06 lakh policies, a 9 percent increase. LIC, however, sold 32.1 lakh policies against 36.8 lakh policies during the quarter ended June 30, 2022.

Non-life insurance companies saw robust demand from the health and motor segments. For ICICI Lombard, the premium in the health and travel insurance segment grew to Rs 2,073 crore from Rs 1,495 crore. New India Assurance’s health insurance segment grew to Rs 5,281 crore from Rs 4,613 crore last year.

Also read: LIC Q1 Results: Net profit rises multi-fold on higher income on investments

In the motor segment, ICICI Lombard’s premium portfolio grew to Rs 1,875 crore from Rs 1,782 crore last year. New India Assurance’s motor segment grew to Rs 2,341 crore from Rs 1,918 crore.

Experts believe that the Indian insurance sector is poised for growth with favourable economic conditions.

“With a younger demographic, the challenge lies in enhancing awareness and appreciation for insurance. Insurers must simplify products, embrace digital means to attract a younger population, and leverage the increasing data from digital programmes,” said Boosam.

Rungta said that the outlook for the sector is mixed, with opportunities as well as challenges.

“Prolonged low interest rates may impact investment income. And intense competition, especially through online channels, could lead to pricing pressure. But digital transformation, personalisation, and innovative product offerings present growth potential,” he added.

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