Buzzing! Insurance stocks in focus after IRDAI increases surrender value

Within listed life insurers, non-linked savings products contributed most significantly to HDFC Life and Max Life (52% each in FY24) and LIC (70% in FY24).

Domestic brokerage firm Nuvama said that while they await more details from the companies in the coming week, their top picks are HDFC Life with a target price of Rs 750 and SBI Life with a target price of Rs 1,780.

The new product guidelines propose payment of on a present value on the sum of paid-up sum assured, paid-up future benefits, and accrued benefits, reduced by any payouts.

Previously, the surrender value for guaranteed return products was zero in the first year and up to 30-35% in the second and third years. The new regulations propose introducing benefit payouts in the first year, which will affect the margins of life insurance companies. However, some insurers believe the impact may be minimal, as over 85% of policies tend to remain active beyond the early years.

“This marks the end to a large regulatory uncertainty, and we believe the current market prices largely factor in the change,” said Nuvama in a report.

Analysts at Nuvama stated that they expect companies to defer commission payouts to manage this change with margin moderation by up to 200 bps. However, the impact of this change on distributor behavior and sales growth is more difficult to assess.

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