Max Life Insurance, a private insurer, is expecting a 100-200 basis points (bps) impact on its Value of New Business (VNB) margin as a result of revised surrender value norms, Prashant Tripathy, managing director (MD) and chief executive officer (CEO), said during an analyst call on Wednesday. VNB margin is the measure of profitability margin for life insurers.
The Insurance Regulatory and Development Authority of India (Irdai) in June introduced revised surrender value norms to ensure better returns for policyholders who exit their policies prematurely. The norms are effective from October 1, 2024.
“While these guidelines will have an impact on margins of traditional products affected by surrender regulations, the impact will be mitigated using multiple elements such as restructuring of distributions and realigned procuring. We estimate the final impact to be in the range of 100-200 basis points for the transitory period, and we will work hard to figure out more ideas so that we can slide through these changes unaffected,” Tripathy said.
In Q1 FY25, the VNB margin of the company dropped to 17.5 per cent from 22.2 per cent in the year-ago period due to a higher share of low-margin Unit Linked Insurance Plans (ULIPs) in its overall product mix. Further, amid the change in regulatory norms, the insurer has reduced its VNB margin target for FY25 to mid-teens from the earlier guidance of 25-26 per cent.
As the revised norms are effective from October 1, 2024, the company plans to undertake refiling of products from August 15, 2024, to September 30, 2024, in multiple tranches.
“We have multiple products that need to be refiled. It will no longer be ‘Use’ and ‘File’. So we are very keen that by September 30, we complete the entire replacement exercise. We have a phased approach. We will begin replacing our products somewhere from August 15 to September 30 in different tranches,” Tripathy said.
The overall Annualized Premium Equivalent (APE) of the life insurer grew by 31 per cent year-on-year in Q1 FY25, driven by the proprietary channel, which grew 60 per cent year-on-year and accounts for 49 per cent of the total APE of Rs 14,530 crore. Although the bancassurance channel remained weak with 9 per cent year-on-year growth, according to Tripathy, there has been acceleration in July 2024, and business from the key banking partner, Axis Bank, recorded 45 per cent growth from July 2023.
First Published: Aug 15 2024 | 4:28 PM IST