The Insurance Regulatory and Development Authority of India (IRDAI) has updated surrender value (SV) rules for life insurance policies, which could affect insurance companies' profitability.

Analysts predict that Max Life, HDFC Life, ICICI Prudential Life, and SBI Life will face the biggest impact. Jefferies expects Max Life and HDFC Life to be hit harder compared to ICICI Prudential Life and SBI Life.

Overall, brokerages have mixed but cautiously optimistic views on these new rules. They acknowledge that while higher payouts to policyholders leaving early might reduce insurers' profits, the impact can be managed through strategic adjustments.

Jefferies notes that these SV norms, effective from October 2024, align with earlier drafts. Policies with more non-participating and participating savings products, and lower policy renewal rates, will be most affected. They estimate these changes could lower profit margins by 6-8 percentage points for affected products.

However, Jefferies suggests insurers can lessen the impact by 40-120 basis points through tactics like delaying or reclaiming commissions and cutting commission rates. They believe this manageable impact might ease concerns and potentially improve sector valuation.

Morgan Stanley agrees with Jefferies, recognizing the negative effects of these rules on insurers' profits. They stress that insurers will need to take steps to counter the potential squeeze on margins.

The new regulations mandate insurers to increase the special surrender value to at least the present value of the paid-up sum assured and future benefits. This adjustment aims to ensure fair compensation for policyholders ending their policies prematurely due to financial challenges or mis-selling.

Share On :