Most Life Insurance Companies Buck Rallying Market Trend

Shares of most life insurance companies bucked a rallying market trend on Thursday after Insurance Regulatory and Development Authority sought to massively hike the surrender value on non-par insurance products from next year.

Following the rate cut cues from the U.S. Fed on Wednesday, the domestic markets rallied more than 1% to hit an all-time high.

While the benchmark Sensex jumped 929.60 points or 1.34 per cent to settle at 70,514.20, its all-time closing high, the broader Nifty rallied 256.35 points or 1.23 per cent to settle at a record closing high of 21,182.70.

However, the opposite was the trend on the life insurers' counters barring LIC, which rallied more than 1% and SBI Life, which settled almost flat with a minor positive bias.

Private life players' counters were battered, with Max Life's parent Max Financial Services Ltd. falling 3.1% to close at Rs 1,024.45, HDFC Life losing 1.90% to Rs 685, ICICI Prudential Life shedding 1.72% to Rs 533 and Nippon Life AMC slipping 3.6% to close at Rs 443.

According to a draft released Wednesday, the Irdai has proposed a much higher surrender value on non-par insurance products and made a few changes in the way surrender charges have been calculated. Now, there will be a premium threshold for the product where no surrender charge will be imposed.

Surrender value is the amount that an insurer pays to the policyholder if she decides to terminate the cover before its maturity.

The proposal had no impact on LIC as it has less than 10% of non-par products, while private life companies have it in the opposite. The LIC counter rallied 1.32% at close at Rs 815.30, after hitting a high of Rs 820 earlier in the day and SBI Life, which has among the lowest non-par products among private life peers, gained 32 bps to close at Rs 1,472.15.

The draft proposes a defined premium threshold for each product, wherein, there shall not be any surrender charges imposed on the balance of the premia beyond such thresholds, irrespective of the timing of the surrender.

For example, a non-linked savings policy with an annualised premium of Rs 1,00,000 and a policy term of 20 years, has an assumed threshold limit of Rs 25,000, and the adjusted guaranteed surrender value after payment of the third annualised premium is Rs 26,250. Under the new proposal, it will be Rs 2,51,250.

The proposal, if accepted, will significantly increase the surrender value and impact the margin of non-par products.