Insurers may report robust profit, drop in new business margins in Q4

Alongside VNB margin, the average net profit of insurers including both life and non-life companies, showed a mixed trend.

Insurers may report a robust profit in Q4 as third-party premiums increase, although the value of new business (VNB) may shrink, experts said.

“Insurance companies are expected to see strong growth, similar to that in FY23," said Jinay Gala, associate director at India Ratings & Research. Profit at general insurers may rise 16-17 percent while health insurers are expected to report a 20 percent increase, he said.

Some insurers reported double-digit profit growth in the October-December quarter. Life Insurance Corporation of India said profit jumped 49 percent and HDFC Life reported a 16 percent rise in earnings.

Gala said growth is expected to stay in line as profit gets a boost with an increase in third-party premiums.

Also read: Why has the sum assured under the IPL's insurance policy shot up this year?

Brokerage house Motilal Oswal said in a report that the expense ratios of insurers are expected to benefit from operating leverage.

“Health segment loss ratios are expected to improve on a year-on-year (YoY) basis, due to the implemented price hikes,” Oswal said.

VNB and APE

According to research reports, the value of new business (VNB) margins, a measure of the profit margin of new business written by a life insurance company, is expected to drop.

“VNB margins of insurers are expected to decrease 353 basis points YoY due to a slight change in product mix towards low-margin-linked products and decline in product-level margins in non-linked products,” Nuvama said in a report.

Experts said the annual premium equivalent (APE) is expected to decline in March due to a high base last year. APE is a metric used to measure new business sales growth.

“Private life insurance players saw an 18 percent to 25 percent growth in APE in January and February 2024. However, we anticipate a decline in March 2024 for the industry, given the high base of March 2023,” Oswal said in a report.

How insurers fared in FY24

In the past few quarters, insurance companies faced mixed pressure on their VNB on account of tough competition and a change in the product mix. LIC’s VNB was at Rs 3,304 crore in the first six months of FY24 compared with Rs 3,677 crore for the first six months of FY23.

Also read: Indian banks to report 13-14% net profit growth in Q4FY24, say analysts

Alongside the VNB margin, the average net profit of insurers - both life and non-life companies - showed a mixed trend.

Additionally, there was a new development on the surrender value front. The Insurance Regulatory and Development Authority of India issued a draft circular proposing that the surrender value on non-par insurance products be increased. This, according to experts, would affect the profit and VNB margin of insurers.