A basis point is one hundredth of a percentage point.
Meanwhile, Tata AIA Insurance and Max Life Insurance offer rates of 7.27% and 7.21% respectively, compared to SBI Life’s 6.65% and HDFC Life’s 6.9% on annuities.
State giant LIC It now offers 6.96%, slightly better than its larger competitors.
Max Life’s Smart Wealth Annuity guaranteed pension plan, which includes a limited payout variant for personalised retirement planning, has driven 42% growth in its retail annuity segment. However, higher rates have impacted its new business margins, which fell from 22.2% to 17.5%.
“As we have diversified the overall annuity mix, there is an intrinsic reduction in the annuity product margin as well, which comes into play,” Max Life said during an investor call recently. While the annuity market in India is still in its early stages, insurers believe it has long-term growth potential. With rising life expectancy and higher income levels, demand for annuity products is expected to soar. India’s pension assets-to-GDP ratio was just 3.1% in 2022, compared to 78.7% in the US and 23.4% in Japan, highlighting the ample scope for growth in this sector, according to OECD data. HDFC Life’s annuity business accounts for just 5% of its standalone APE in Q1FY25, down from 9% a year earlier. Despite aggressive pricing from competitors, HDFC Life maintains a cautious growth strategy, focusing on enhancing its product offering while adhering to pricing discipline.
“Despite facing irrational pricing in the annuity segment, with rates 70 basis points higher than listed players, we are holding our ground due to our deep relationships,” Vibha Padalkar, MD and CEO, HDFC Life, said during the earnings call.
SBI Life has faced a 10% decline in individual annuity sales, largely due to competitive pressures. The share of annuities in its product portfolio has fallen to 11.5% from 13.1% a year ago. Despite moderate growth in the first quarter, SBI Life management remains confident, believes its rates are competitive and anticipates a recovery in the coming quarters.
In the case of group annuities, which involve larger transactions, SBI Life is evaluating whether these arrangements will have a positive impact on VoNB before implementing them in the coming quarters.
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