Life insurers extend previous day's losses: What's hurting the space?

Even as the Fed-led rally continued to drive headline indices to new highs, life insurance stocks in Friday’s trade (December 15) continued to defy the broader trend. At the time of writing the copy, Life Insurance Corporation of India (LIC) was down 1.7 per cent at Rs 801.85, SBI Life traded lower by over 1 per cent at Rs 1453.95, ICICI Prudential traded weaker by 1.7 per cent at Rs 523, HDFC Life was down by 1.85 per cent at Rs 672, and Max Life’s parent entity Max Financial Services shed over 4 per cent to trade at Rs 973.25.

What’s dragging insurance stocks lower?

The Insurance Regulatory and Development Authority of India (IRDAI) released a consultation paper on Wednesday proposing a higher surrender value for non-linked products. Also, it implemented a few changes in the methodology for calculating surrender charges. 

Surrender value is the payout to the policyholder in case of termination of policy before maturity.

Domestic brokerage ICICI Direct is of the view that the higher surrender payout remains negative for life insurers. “Among listed insurers, HDFC Life has the highest proportion of non-linked products,” it added.

How do global brokerages expect the space to fare after this development?

CLSA 

On the development, global brokerage commented that the most significant change in the draft guideline issued by the regulator is the calculation methodology for the surrender value of non-linked savings policies. Further, it added that under the new method, the surrender value payable to policyholders can be higher by 10 per cent-2x.

Morgan Stanley

Morgan Stanley is of the view that HDFC Life has the highest share of non- linked business in its Annual Premium Equivalent (APE), followed by ICICI Prudential Life and SBI Life. “IRDAI has not been prescriptive, and the industry will give feedback,” it added.

Jefferies

The global brokerage said that the new concept of threshold premium may raise surrender values, inversely trimming fees for insurers. “This is still a consultation stage; final terms will be based on deliberations,” the brokerage added. Further, it provided that insurers may offset some impact by lowering costs.