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Speculation on IRDAI tightening distribution norms hits life insurance stocks
According to unconfirmed media reports, Insurance Regulatory and Development Authority of India (IRDAI) is considering capping contribution of bancassurance business at 50%. In addition, proportion of business conducted by parent bank needs to be trimmed. This proposal aims to address concerns of mis-selling insurance products in the distribution channel.
Among life insurance players, share of banca business remains high for HDFC Life Insurance (at ~65%), SBI Life (at ~59%) and Max Life (at ~52%), while ICICI Pru Life is best placed with contribution from banca channel at ~29% in 1HFY25. Further, contribution of parent bank in banca business also remains high for HDFC Life (80-85%), SBI Life (~95%), Max Life (90%), ICICI Pru Life is well positioned with contribution at ~50%.
Large players have denied any communication or directive from the regulator and also highlighted that such significant regulatory changes are undertaken post consultation from the industry.
Life insurers are gradually undertaking diversification with share of banca business slopping southwards which is further expected to continue ahead. However, any stringent timeliness, if announced, could impact business growth and thus valuation. In near term, until clarity emerges, life insurers could remain in a narrow range.
While clarity is awaited on the speculation of any stricter regulations, in our view, life insurers are well placed to continue diversification trend and thus recent correction could be utilized as an investment opportunity.
Disclaimer – I ICICI Securities Ltd. ( I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. - ICICI Venture House, Appasaheb Marathe Marg, Prabhadevi, Mumbai - 400 025, India, Tel No : 022 - 6807 7100. I-Sec is acting as a distributor to solicit bond related products. All disputes with respect to the distribution activity, would not have access to Exchange investor redressal forum or Arbitration mechanism. The contents herein above shall not be considered as an invitation or persuasion to trade or invest. I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon. Investments in securities market are subject to market risks, read all the related documents carefully before investing. The contents herein mentioned are solely for informational and educational purpose.
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