Personal Finance: Pvt life insurance cos report drop in profit due to lower surrender charges on ULIPs

MUMBAI:Private sector life insurance companies reported a 2.9 per centdrop in profit in the year ended March, largely because of lower surrender charges on unit-linked insurance plans or Ulips, according to the industry. A large number of Ulip investors surrendered policies that completed the three-year, lock in period in 2014, said Anuj Agarwal, managing director and chief executive officer of Bajaj Allianz Life Insurance, which saw net profit dropping 15 per cent.

“The portion (of profit) contributed by surrender charges has halved, which is good from policyholders' point of view,“ he said, adding that this didn't come as a surprise. “This fall in net profit was expected and is in fact better than what we had planned for.“

Before the 2010 guidelines on Ulips capped surrender charges, insurance companies used to make substantial amounts of money from the premature closure of policies. Surrender charges are now capped at . 6,000 and there is none if the policy has completed five years. The 10 most profitable companies saw net profit declining 6 per cent to . 5,598 crore in the year from . 5,954 crore (see table) . Reliance Life Insurance posted a 62 per cent drop to . 135 crore.




However, some firms bucked the trend. SBI Life saw a robust 11 per cent rise in profit, while HDFC Life registered 8.3 per cent growth. More significantly , some smaller insurance companies were able to clock good profit growth. IDBI Federal Life Insurance saw net profits shoot up 93 per cent.Exide Life Insurance (formerly ING Life) posted a 23 per cent rise despite major changes during the year -its name being amended when the foreign partner exited and losing ING Vysya Bank as a distribution partner.

“We managed the transition period efectively," said Kshitij Jain, managing director and chief executive officer, Exide Life. “Traditional plans account for a fairly large part of our portfolio. In these products, if interest rates are favourable, you end up making a little bit more profit.“

DHFL Pramerica, another company that went through a name change due to the exit of a joint venture partner, also witnessed spectacular growth.