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IRDA has issued revised guidelines for treatment of discontinued linked insurance policies that
would apply from 1 November 2011 to ULIP contracts written post 1 September 2010.
The key changes effected include –
On discontinued funds (assets attributable to lapsed policy), the insurer can charge up to
50bp (nil so far), after ensuring IRDA-specified minimum guaranteed return on the fund
(currently equivalent to interest offered by SBI on savings deposits).
In case the insured opts to revive the policy, the insurer shall add back the discontinuance
charges (usually the surrender charge) deducted from the fund, to the fund value, allotting
units to the policyholders' fund at the NAV as on the date of revival.
The policyholder shall have the right to revive the policy within two years from the date of
discontinuance (against 30 days currently) but not later than the expiry of the (five-year) lockin
period.
Impact of these guidelines: positive for ULIP profitability
Boost earnings as the insurer will be able to generate income on lapsed linked funds.
The increase in revival period will give insurers better control on managing persistency.
Our view
Post the new ULIP pricing guidelines (applicable 1 September 2010 onwards), cost control
has become the sole lever for managing profitability in ULIPs. Pricing guidelines, however, do
not apply to traditional policies. Accordingly, we see low-cost bank-backed insurers and those
promoted by large financial conglomerates (ICICI Prudential, SBI Life, HDFC Life) maintaining
the product focus on ULIPs, while high-cost agency-based models are inclined to push
traditional policies.
Regulatory changes have put the industry in a state of flux, leading to a scaling down of
networks and a general shift in the product mix towards non-linked business over FY11. We
believe bank-backed insurers and those promoted by large financial conglomerates, with
large (profitable) in-force books, will be better off during the difficult transition we see over the
next three to five years. Among the companies we cover, ICICI Prudential and SBI Life fit well
into our prescription, as mentioned above, followed by HDFC Life (with a relatively higher
expense ratio) and Birla Sun Life (absence of a strong bancassurance partner).
We believe the revised guidelines on discontinued linked policies will provide comfort to ULIP
heavy business models (such as those of ICICI Prudential, HDFC Life).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
IRDA has issued revised guidelines for treatment of discontinued linked insurance policies that
would apply from 1 November 2011 to ULIP contracts written post 1 September 2010.
The key changes effected include –
On discontinued funds (assets attributable to lapsed policy), the insurer can charge up to
50bp (nil so far), after ensuring IRDA-specified minimum guaranteed return on the fund
(currently equivalent to interest offered by SBI on savings deposits).
In case the insured opts to revive the policy, the insurer shall add back the discontinuance
charges (usually the surrender charge) deducted from the fund, to the fund value, allotting
units to the policyholders' fund at the NAV as on the date of revival.
The policyholder shall have the right to revive the policy within two years from the date of
discontinuance (against 30 days currently) but not later than the expiry of the (five-year) lockin
period.
Impact of these guidelines: positive for ULIP profitability
Boost earnings as the insurer will be able to generate income on lapsed linked funds.
The increase in revival period will give insurers better control on managing persistency.
Our view
Post the new ULIP pricing guidelines (applicable 1 September 2010 onwards), cost control
has become the sole lever for managing profitability in ULIPs. Pricing guidelines, however, do
not apply to traditional policies. Accordingly, we see low-cost bank-backed insurers and those
promoted by large financial conglomerates (ICICI Prudential, SBI Life, HDFC Life) maintaining
the product focus on ULIPs, while high-cost agency-based models are inclined to push
traditional policies.
Regulatory changes have put the industry in a state of flux, leading to a scaling down of
networks and a general shift in the product mix towards non-linked business over FY11. We
believe bank-backed insurers and those promoted by large financial conglomerates, with
large (profitable) in-force books, will be better off during the difficult transition we see over the
next three to five years. Among the companies we cover, ICICI Prudential and SBI Life fit well
into our prescription, as mentioned above, followed by HDFC Life (with a relatively higher
expense ratio) and Birla Sun Life (absence of a strong bancassurance partner).
We believe the revised guidelines on discontinued linked policies will provide comfort to ULIP
heavy business models (such as those of ICICI Prudential, HDFC Life).
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