Insurance stocks trade mostly higher after IRDAI releases final surrender value rule

In Thursday’s session (June 13), insurance stocks traded mostly with gains after the insurance regulator Insurance Regulatory and Development Authority of India (IRDAI) introduced revised norms pertaining to the surrender value of life insurance policies. 

At the last count, shares of HDFC Life Insurance were up by 3.72 per cent, ICICI Prudential Life up 1.32 per cent and Max Financial Services up nearly 3 per cent, however SBI Life and Life Insurance of India traded with a minor cut of 0.2 per cent or 0.09 per cent, respectively.

The move is deemed to be a big negative for life insurers, primarily HDFC Life and Max Life as they have a larger exposure to non-participating policies which see more cases of policy surrenders.

Furthermore, profitability of life insurers will see an impact on the new ruling.

What is the revised surrender value rule for life insurance policies?

The IRDAI after several rounds of deliberation has released the final rules concerning surrender value payable to policyholders by life insurers in case they make an early exit. Accordingly as per the proposal, the Special Surrender Value (SSV) has been kept higher. The life insurance industry was seeking several relaxations on the SSV norms; nonetheless, the regulator has granted only a small cushion of 50 bps over the 10-year government yield for calculating SSV.      

How do experts view the ruling to play out for life insurers?

The recent diktat by IRDAI will have a neutral to slightly positive impact on insurance stocks, said Riyank Arora, Technical Analyst at Mehta Equities. Technically, stocks like HDFC Life Insurance are trading near their major resistance mark of 600. A breakout above this level should push the rally towards the 640 and 700 levels. A strict stop-loss can be set near 560, once this breakout is successful, he added.

For other stocks like NIACL (New India Assurance Company Ltd), the expert stated that they are also trading around their important resistance mark of 250. A breakout above this should push the rally towards 275 and 280 levels, with a strict stop-loss set near the 225 mark. GICRE (General Insurance Corporation of India) is also trading around its important resistance mark of 400. A breakout above this level and a closing confirmation should validate the breakout, pushing the rally further towards 430 and 450, with a strict stop-loss set near the 360 mark.