LIC's VNB margin growth higher than private life insurers in Q3 FY24

State-backed Life Insurance Corporation of India (LIC) recorded strong growth in the value of new business (VNB) margin in the third quarter of financial year 2023-24 (Q3FY24) while major listed private life insurers reported a weak performance.

VNB refers to the profit that an insurer is likely to garner from new business, which comes from policies sold in a particular period.

VNB margin is the profit margin of the insurer.

LIC’s VNB margin increased to 20 per cent in Q3FY24 from 14.6 per cent in Q3FY23 on the back of change in product mix, and addition of non-participating (non-par) products.

Non-par policyholders don't get to participate in the profit earned by the insurer.

For private life insurer SBI Life Insurance, VNB margin stayed flat at 27.4 per cent in Q3 compared to 27.8 per cent a year ago.

ICICI Prudential Life Insurance’s margin dropped to 22.9 per cent from 33.9 per cent and HDFC Life Insurance’s VNB margin was flat at 26.8 per cent.

LIC has benefited from recently launched non-par product Jeevan Utsav, which has seen strong traction, LIC chairperson Siddhartha Mohanty said during a post-earnings media interaction.

The company will launch another product in the child segment, and it has "made upward revision in returns in some of our annuity products like Jeevan Akshay,  Jeevan Shanti and single-premium product, Dhan Vriddhi,” Mohanty added.

The firm has received over Rs 1,000 crore of business under Jeevan Utsav and the non-par savings’ average policy term has risen from 16 years to 43 years, analysts were told.

During the 9-month period ending December 2023, the share of non-par products increased to 14.0 per cent from 9.4 per cent a year ago.

During the same period, the share of par products dropped to 85.96 per cent from 90.5 per cent.

The VNB margin of the second-largest private life insurer, SBI Life, dropped marginally due to higher share of unit-linked insurance plans (ULIPs), which offer both insurance and investments.

The share of revenue from non-par policies rose by 5.2 per cent year-on-year (YoY) to nearly Rs 1,010 crore from Rs 960 crore, while the share of ULIP rose by 18 per cent to Rs 4,190 crore.

Analysts at Motilal Oswal said the decline in margin was primarily on account of change in product mix.

"Product-level margins have seen marginal improvement on the back of rising share of longer-term products,” they said.

SBI Life said it hoped to achieve a VNB margin of 28 per cent in Q4FY24 as it aimed to focus on its non-par segment – both savings and protection.

During the post-earnings analyst meeting, SBI Life said it expected higher growth in the individual protection in upcoming quarters.

Similarly, HDFC Life’s margin remained nearly flat as it was impacted by taxation change with the share of policies commanding a premium of over Rs 5 lakh halving to 6 per cent till December FY24, compared to 12 per cent in the year-ago period.

During the post-earnings analyst meet, the management said that the company's peers have grown faster but their VNB margin has dropped, while the company maintained it.

On the other hand, the VNB margin of the third-largest private life insurer — ICICI Prudential Life Insurance — was under heavy pressure, declining to 22.9 per cent from 33.9 per cent due to adverse product mix.

The ULIP business received traction on account of a buoyant equity market.

Meanwhile, the expense ratio of the company also rose to 18.9 per cent from 15.2 per cent.

“The decline in margin is primarily attributed to product-mix shift and higher expense ratio for the current year,” Dhiren Salian, chief financial officer, ICICI Prudential Life, said during the post-earnings analyst meeting.

The VNB margin of the company in Q3FY24 was compressed due to several factors, including shifting of product mix from non-par to ULIP and par, and more competition in non-par savings leading to lower pricing.

For the entire year, the tax imposed on policies with a premium of more than Rs 5 lakh also affected the business.

The management said it seized the customer movement away from the over-Rs 5 lakh non-par segment by offering unit-linked and participating products.