LIC, SBI Life, ICICI Pru Life, HDFC Life: Impact analysis of Budget announcements on life insurers
HDFC Life shares continued to bleed, as the insurer could be hit the most by Budget announcements. SBI Life gained, as expected to be least impacted stock among life insurers.
- Feb 2, 2023,
- Updated Feb 2, 2023 10:26 AM IST
Shares of Life Insurance Corporation of India (LIC) and ICICI Prudential Life recovered in Thursday's trade post the Budget day falls, but HDFC Life continued to bleed, as the insurer could be hit the most by Budget announcements. SBI Life gained as expected to be least impacted stock among life insurers. Analysts noted that the Budget proposals made life insurance schemes less appealing as a tax-saving instrument. The Budget, said Cyril Charly of Geojit Financial Services, provided a higher impetus for individuals to shift to the new tax regime, which does not favour tax exemptions from investments in insurance schemes.
"Adding concerns to the growth outlook, it was also proposed to tax the income earned from life insurance products (other than ULIPS) issued after April 1, 2023, where the total annual premium exceeds Rs 5 lakh. This has taken away the tax-free advantage of high-value traditional insurance policies, making them less attractive for investments. These proposals have come as a big blow to the sector, which had hoped for positive measures from the government to improve its penetration," he said.
JM Financial said prima-facie reading of the provision suggests that for all non-ULIP products i.e. par and non-par where aggregate insurance premium paid in a year exceeds Rs 5 lakh, the income will now be taxable. The protection segment will not be impacted but it expects non-par products will be impacted the most, given the higher ticket sizes.
"Within our coverage universe, HDFC Life is expected to be impacted the most with guaranteed non-par savings at 15 per cent. Further, the company indicated in a media interview that, the change can impact their top-line by 10-12 per cent which translates to a bottom line impact of 5 per cent (provided other things remain same)," JM Financial said.
For ICICI Prudential Life, non-linked savings (non par savings and par) contributed 29 per cent of APE in the first nine months of FY23; for SBI Life, the non par savings and par contributed 22 per cent and 5 per cent of APE in in Fy23 so far.
"Thus, the impact on ICICI Pru Life and SBI Life is expected to be lower - ICICI Pru Life has guaranteed non par contribution of just 3 per cent while SBI Life generally operates in lower ticket sizes," JM Financial said.
The government has incrementally been promoting the new tax regime wherein there is no deduction for section 80C, which means insurance premiums from citizens who invest in insurance only to claim section 80C tax deduction can be impacted.
"Overall, we need to see how the change in these tax regulations impact the overall APE growth of the insurance companies and what are the steps taken by insurance companies to tackle these near term headwinds. Stocks have corrected meaningfully and we would be buyers on the correction. We remain constructive on the sector in the long run and our pecking order is HDFC Life, SBI Life and ICICI Pru Life," JM Financial said.
PhillipCapital said insurance companies with higher share of non linked premium would be impacted most. It said HDFC Life will be the most impacted, given higher share of single-premium product (Sanchay FMP), which constitutes around 20-25 per cent of NPAR APE. "We believe SBI Life will be the least impacted, given lower ticket size in NPAR," it said.
Shivaji Thapliyal, Head of Research and Lead Analyst at YES Securities said while ICICI Prudential Life does not explicitly provide the share of non-par savings guaranteed product in APE, its understanding is that ICICI Prudential Life is a relatively recent entrant in this area and its share of this business would be relatively lower compared with other listed private sector life insurers.
He said non-par savings excluding annuities in total APE for HDFC Life and SBI Life had been 31 per cent and 25.6 per cent, respectively, for 1HFY23.
"We would think that the corresponding share for ICICI Pru Lid would be comparably lower but we would have to corroborate this. HDFC Life had disclosed in its December quarter conference call that the share of guaranteed product in policyholder AUM was about 15 per cent. The share of guaranteed product for IPRU was 3.1 per cent of liabilities. It may noted that these 2 numbers are not apple-to-apple comparables as the latter number for ICICI Pru Life would be a function of its hedging program. Even so, it points to the possibility of IPRU’s share of guaranteed business being generally lower but we would need to corroborate," it said.
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Shares of Life Insurance Corporation of India (LIC) and ICICI Prudential Life recovered in Thursday's trade post the Budget day falls, but HDFC Life continued to bleed, as the insurer could be hit the most by Budget announcements. SBI Life gained as expected to be least impacted stock among life insurers. Analysts noted that the Budget proposals made life insurance schemes less appealing as a tax-saving instrument. The Budget, said Cyril Charly of Geojit Financial Services, provided a higher impetus for individuals to shift to the new tax regime, which does not favour tax exemptions from investments in insurance schemes.
"Adding concerns to the growth outlook, it was also proposed to tax the income earned from life insurance products (other than ULIPS) issued after April 1, 2023, where the total annual premium exceeds Rs 5 lakh. This has taken away the tax-free advantage of high-value traditional insurance policies, making them less attractive for investments. These proposals have come as a big blow to the sector, which had hoped for positive measures from the government to improve its penetration," he said.
JM Financial said prima-facie reading of the provision suggests that for all non-ULIP products i.e. par and non-par where aggregate insurance premium paid in a year exceeds Rs 5 lakh, the income will now be taxable. The protection segment will not be impacted but it expects non-par products will be impacted the most, given the higher ticket sizes.
"Within our coverage universe, HDFC Life is expected to be impacted the most with guaranteed non-par savings at 15 per cent. Further, the company indicated in a media interview that, the change can impact their top-line by 10-12 per cent which translates to a bottom line impact of 5 per cent (provided other things remain same)," JM Financial said.
For ICICI Prudential Life, non-linked savings (non par savings and par) contributed 29 per cent of APE in the first nine months of FY23; for SBI Life, the non par savings and par contributed 22 per cent and 5 per cent of APE in in Fy23 so far.
"Thus, the impact on ICICI Pru Life and SBI Life is expected to be lower - ICICI Pru Life has guaranteed non par contribution of just 3 per cent while SBI Life generally operates in lower ticket sizes," JM Financial said.
The government has incrementally been promoting the new tax regime wherein there is no deduction for section 80C, which means insurance premiums from citizens who invest in insurance only to claim section 80C tax deduction can be impacted.
"Overall, we need to see how the change in these tax regulations impact the overall APE growth of the insurance companies and what are the steps taken by insurance companies to tackle these near term headwinds. Stocks have corrected meaningfully and we would be buyers on the correction. We remain constructive on the sector in the long run and our pecking order is HDFC Life, SBI Life and ICICI Pru Life," JM Financial said.
PhillipCapital said insurance companies with higher share of non linked premium would be impacted most. It said HDFC Life will be the most impacted, given higher share of single-premium product (Sanchay FMP), which constitutes around 20-25 per cent of NPAR APE. "We believe SBI Life will be the least impacted, given lower ticket size in NPAR," it said.
Shivaji Thapliyal, Head of Research and Lead Analyst at YES Securities said while ICICI Prudential Life does not explicitly provide the share of non-par savings guaranteed product in APE, its understanding is that ICICI Prudential Life is a relatively recent entrant in this area and its share of this business would be relatively lower compared with other listed private sector life insurers.
He said non-par savings excluding annuities in total APE for HDFC Life and SBI Life had been 31 per cent and 25.6 per cent, respectively, for 1HFY23.
"We would think that the corresponding share for ICICI Pru Lid would be comparably lower but we would have to corroborate this. HDFC Life had disclosed in its December quarter conference call that the share of guaranteed product in policyholder AUM was about 15 per cent. The share of guaranteed product for IPRU was 3.1 per cent of liabilities. It may noted that these 2 numbers are not apple-to-apple comparables as the latter number for ICICI Pru Life would be a function of its hedging program. Even so, it points to the possibility of IPRU’s share of guaranteed business being generally lower but we would need to corroborate," it said.
Also read: Q3 results previews: HDFC, Titan, Dabur India, Birlasoft and eClerx
Also read: Sensex, Nifty open lower; Adani Group stocks bleed, HDFC Life tanks 5%