IRDAI new regulation on surrender charges decoded; SBI Life, LIC top buy in insurance space now

The guaranteed surrender value shall be at least 30% of the total premiums paid, less any survival benefits already paid, if surrendered during the second year of the policy.

35% of the total premiums paid, less any survival benefits already paid, if surrendered during the third year of the policy.

50% of the total premiums paid, less any survival benefits already paid, if surrendered between the fourth year and seventh year of the policy, both years inclusive.

90% of the total premiums paid, less any survival benefits already paid, if surrendered during the last two years of the policy provided the surrender value beyond the seventh year shall follow a smooth progression and converge to at least 90% of the total premiums paid less any survival benefits already paid, as the policy approaches maturity.

Single premium products:

The guaranteed surrender value shall be at least 75% of the total premiums paid, less any survival benefits already paid, if surrendered any time within the third policy year.

90% of the total premiums paid, less any survival benefits already paid, if surrendered in the fourth policy year.

90% of the total premiums paid, less any survival benefits already paid, if surrendered during the last two years of the policy provided the surrender value beyond the fourth year shall follow a smooth progression and converge to at least 90% of the total premium paid less any survival benefits already paid, as the policy approaches maturity.

For the non-linked products, the exposure draft had a concept of threshold premium and the surrender charge of 35% was levied on the accumulated premium until surrender.

The threshold premium was to be defined for each product, wherein no surrender charges would be imposed on the balance of the premiums beyond such threshold limits, irrespective of the timing of surrender.

The surrender charge regulation was a key overhang for the sector as the impact of exposure draft was to the tune of 300-500bp on VNB margins of the non-par segment.

Resultantly, the impact on Max Life and HDFC Life was expected to be higher given their relatively higher dependence on the segment. With this concern now behind us, these stocks could outperform in the near term. However, structurally we remain positive on .

SBI Life Insurance: Buy| Target Rs 1700

SBI Life continues to maintain its cost leadership. It expects higher growth in individual protection in the coming quarters. Going ahead, the company will focus on the non-par segment – both savings and protection.

We expect an 18% CAGR in APE over FY23-26, thus enabling a 16.4% VNB CAGR. RoEV is expected to stay at around ~20%.

LIC: Buy | Target Rs 1,270

LIC continues to be the market leader in the Indian life insurance biz in First Year Premium Income, with market share of 58.9%.

The company has levers in place to maintain its industry-leading position & ramp-up growth in highly profitable product segments. We expect 12% VNB CAGR & RoEV to remain modest at 10.7% in FY26.

(The author is Head – Retail Research, Motilal Oswal Financial Services)

(Disclaimer: Recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of the Economic Times)