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Ending the year on a ‘healthy’ note!

Product-level changes improve the VNB margin trajectory in 4Q

* During 4QFY25, the life insurance industry witnessed APE growth of ~1% YoY, driven by ~12% YoY growth reported by private life insurers, while LIC witnessed a decline of ~16% YoY. For FY25, the industry grew 9% YoY, with IPRULIFE growing the fastest among the listed private peers (+39% YoY).

* VNB margin expanded across the industry in 4Q due to: 1) an increase in sales of ULIP products with higher sum assured and rider attachments and 2) growth recovery of non-linked products. Absolute VNB for the listed private peers grew in the range of 3- 12% YoY. HDFCLIFE witnessed the highest absolute VNB growth among the listed private peers (+12% YoY). The players reported sequential VNB margin expansion between 50bp and 500bp. SBI LIFE recorded the highest margin expansion YoY (+210bp), while MAXLIFE saw strong expansion on a sequential basis (+480bp QoQ).

* During 4QFY25, weak performance in equity markets led to a moderation in ULIP traction, which also hit the APE growth for the industry. While there was no significant impact on ULIP contribution in the mix, the shift in focus towards non-linked products can be reflected in traditional product growth recovery and the product pipeline.

* Contributions from bancassurance and agency channels have remained broadly stable, but growth in 4QFY25 was low due to a decline in ULIP sales and commission structure changes. Digital channels are experiencing traction aided by continued investments in tech capabilities.

* Following the 4QFY25 results, the companies have broadly given stable guidance for APE along with VNB margin expansion. In a declining interest rate environment, the non-par segment picks up momentum, which enhances the product profile and VNB margins. Further, as the industry needs granular growth, reinforcing agency channels will be the key to future growth. Our preferred pick in the space is HDFC Life with a one-year TP of INR850 (premised on 2.4x FY27E P/EV).

Positive stance for FY26 after facing multiple challenges in FY25

* HDFC Life: The company reported 16% YoY growth in APE during the year with a 70bp YoY dip in VNB margin to 25.6%. Going forward, APE growth will be hit by the high base in 1HFY25, while the VNB margin is likely to see a positive impact from increased traction in traditional products.

* SBI Life: The company reported 9% YoY growth in APE during the year with a 30bp YoY decline in VNB margin to 27.8%. Going forward, individual APE growth is expected to be slightly better than the industry at 13-14%, and VNB margin is expected to be in the 27-28% range in FY26.

* IPRU Life: The company reported 15% YoY growth in APE during FY25 with an 180bp YoY dip in VNB margin to 22.8%. Management aims to achieve a higherthan-estimated APE growth of 15% in FY26, with higher VNB growth vs. APE growth. This will be backed by improvement in protection margins and sustainable ULIP margins at higher levels.

* MAX Life: The company reported an APE growth of 18% YoY for FY25, with a 250bp YoY contraction in the VNB margin. Management aims to achieve 300bp400bp alpha over private industry premium growth, with an improvement in VNB margin to 24-25% in FY26.

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