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New surrender-value norms: Max Life expects profit impact of 100-200 basis points

(16-Aug-24   09:55)


Max Life Insurance, a private sector insurer, anticipates an effect of 100 to 200 basis points (bps) on its value of new business (VNB) margin as a result of the revised surrender value norms, as stated by Prashant Tripathy, managing director and chief executive officer, during an analyst conference on Wednesday.

In June, the Insurance Regulatory and Development Authority of India (IRDAI) implemented revised surrender value norms to ensure improved returns for policyholders who choose to exit their policies before maturity. These norms will come into effect on October 1, 2024.

'While these guidelines will impact margins of traditional products affected by surrender regulations, the impact will be mitigated through multiple strategies, such as restructuring distributions and realigning procurement. We estimate the final impact to be in the range of 100-200 basis points for the transitional period, and we will work hard to figure out more ideas so that we can slide through these changes unaffected,' Tripathy said.

The company's Value of New Business (VNB) margin In the first quarter (Q1) of the fiscal year 2024-25 (FY25), experienced a decline of 17.5% from 22.2% in the previous year. This decrease is attributed to an increased proportion of low-margin unit-linked insurance plans in its overall product mix.

In response to regulatory changes, the insurer has reduced its VNB margin target for FY25 to the mid-teens from the previous guidance of 25-26%.

With the revised norms set to take effect on October 1, 2024, the company intends to refile its products in multiple phases, starting from August 15, 2024, to September 30, 2024.

'We have multiple products to refile, and it will no longer be 'use' and 'file'. We aim to complete the entire replacement exercise by September 30. We have a phased approach, beginning from August 15 to September 30 in different tranches,' Tripathy added.

VNB margin measures the profitability margin for life insurers.

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