India witnessed a strong surge in the insurance protection segment (45-50%) in the past couple of years, but with the COVID-19 pandemic getting widespread, the growth trajectory in demand will continue given the rising “fear for life” sentiment, says YES Securities (India) [YSL], a wholly owned subsidiary of YES Bank.
YSL, a SEBI registered stock broker, says in a report on the Indian life insurance sector, that furthermore, the industry is witnessing an upwards repricing to pass on increases in rates by reinsurers. The first round of hikes has been well absorbed in the market and YSL expects further hikes.

Strong volumes and pricing will lead to stable VNB margins in the protection segment against YSL’s earlier stance of a possible decline.

The YSL report said, “While the business does bring its share of challenges in the form of higher new business strain and increased capital requirements, we are confident that these companies given their balance sheet strengths and pedigree will be able to raise capital with ease.

“Currently, these entities are comfortable with regards to solvency margins (180-190% vs statutory requirement of 150%).”

Savings business faces near-term challenges, but has huge long-term potential

In the near term, expectations are that small-scale businesses would find it difficult to make reasonable profits, pay cuts and job losses are in store for employees.

Also, the tax slab changes implemented in the Budget are likely to reduce the pie of new customers. These could percolate into a hit on the new business premium in the savings segment for the insurance industry in the fiscal year ending 31 arch 2021 (FY21).

Presuming that the pandemic is contained within 1HFY21 and a large portion of the economy is back on its feet in 2HFY21, premium collections will bounce back in FY22, says YSL.

As for unit linked insurance plans (ULIPs), premium collections in the segment bears a strong correlation with equity market performance. With the recent recovery, YSL believes the current slump in ULIP collections is only a blip. Non-par products with decent interest rate guarantees in the current low interest rate regime will continue to garner attention.

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