Insurance stocks trade mixed after IRDAI’s final regulations on surrender value; Max Financial gains over 6%

Shares of life insurers in Tuesday’s session (March 26, 2024) traded mixed after the IRDAI’s final regulations concerning surrender value effective April 1, 2024, were deemed favourable for insurance companies.

At around 10:22 am, shares of ICICI Prudential Life were up by over 2 per cent at Rs 593.95, HDFC Life was up by 1 per cent at Rs 630.1, and SBI Life traded with a cut of over 1 per cent at Rs 1485.5.

Furthermore, the stock of Max Financial, the parent company of Max Life, traded with gains of nearly 4 per cent at Rs 979.35.

The insurance regulator IRDAI released the final guidelines concerning surrender value on March 24. As per the guidelines, the surrender value is likely to be the same or even lower if the policies are surrendered for three years. Nevertheless, for policies that have been surrendered subsequently, i.e., from the fourth to the seventh year, the surrender value may be a little higher.

As per the Zee Business research inputs, in the case of a non-single premium life insurance policy, if the policy is surrendered in the second year, the surrender value shall be equivalent to 30 per cent of the total premium paid. If it is surrendered in the third policy year, the surrender value will increase to 35 per cent of the total premium paid.

Likewise, if the policy is discontinued within the fourth to seventh policy year, the surrender value shall be 50 per cent of the total premium paid, and if it is surrendered just two years before maturity, 90 per cent of the premium paid shall be paid as the surrender value to the policyholder.

Brokerages' views on the move

Global brokerage Nomura has maintained a buy call on HDFC Life and suggested a target of Rs 740. The brokerage maintains that HDFC Life and Max Life should see the most relief, as they were the worst affected. 

Further, it added that Max Life is the best-performing insurer in FY24 based on premiums. The brokerage expects healthy margins for these companies in the coming quarter.

Brokerage firm ICICI Direct is positive on the development and maintained that retention of existing surrender charges puts an end to concerns of higher payout which remains negative for life insurers. In FY24, life insurers are expected to clock premium in-line with last year despite regulations impacting business growth, the brokerage added.