Private insurers to report strong Q1 growth, new business margins may contract: Emkay

Insurance sector Q1 preview: The private insurance companies are set to report strong June quarter (Q1FY25) numbers driven by a favourable base and surging equity margins, leading to strong Annual Premium Equivalent (APE) growth, according to domestic brokerage Emkay said in a note.

The investment research firm also cited the strong growth in policies that offer large coverage amounts without paying dividends to policyholders, also known as high-value non-par policies, as the key driver of improved business outlook for the insurers.  

“Subsequent to the lacklustre growth during Q1FY24 resulting from the advance booking of high-value non-par policies during Mar-23 that were prompted by changes in taxation policies, we expect life insurers to deliver robust growth on a favourable base. Further, APE growth is likely to be driven by strong sales of ULIPs, led by buoyant equity markets,” Emkay's report stated.

However, analysts suggest that the increasing contribution of Unit Linked Insurance Plans (ULIPs) to the overall business and ‘some pressure’ on the group term policy pricing which is the cost of providing life insurance coverage to a group of people under a single policy (i.e. insurance offered by employers to employees), may contract the value of the new business (VNB) margins for the companies. 

“Given the higher contribution of ULIPs to the product mix and some pressure on Group term policy pricing, we expect VNB margins for private players to contract during Q1FY25E. Though VNB margins remain under pressure, APE growth is likely to drive growth in VNB,” the research note stated. 

Apart from that, the insurance sector will be closely watching the upcoming Union Budget for any personal or corporate taxation changes that could impact their business.  

General insurance set for strong premium growth

The general insurance segment in the country will remain on its upward trajectory led by strong growth in motor, health and commercial insurance. 

“We expect General Insurers to report strong premium growth, driven by robust growth across the Motor, Health, and Commercial segments. Claims ratio across players is likely to improve on the back of multiple claims control and fraud prevention measures resulting in an improvement in Combined Ratio,” the report added. 

Emkay also states that an improvement in underwriting performance, a measure of how well an insurance company is doing in its core business of evaluating and taking on risk, and increased investment income, will drive the profitability of the general insurance companies.