Morgan Stanley: IRDAI Likely to Revisit Surrender Value Regulations, Impact on Life Insurance Industry

Morgan Stanley Predicts Potential Changes to Surrender Value Regulations in the Insurance Industry

In a recent report, Morgan Stanley has highlighted the possibility of the Insurance Regulatory and Development Authority of India (IRDAI) revisiting surrender value regulations following the issuance of final guidelines. The foreign brokerage is awaiting further details but believes that the life insurance industry has various options to mitigate the impact.

According to a media report cited by Morgan Stanley, the increase in surrender value is expected to be higher than the notifications approved in March 2024 but lower than those discussed in December 2023. The current regulations determine surrender value as the higher of guaranteed and special surrender value. The IRDAI is reportedly considering a formula-based approach to determine special surrender values, with the final impact expected to be less severe than the December 2023 norms.

Morgan Stanley expressed concerns that this uncertainty could weigh on insurance stocks, potentially limiting their upside until more clarity is provided. The brokerage noted that SBI Life Insurance Company Ltd is likely to be the least affected due to its lower exposure to non-linked Annual Premium Equivalent (APE) and remains their top pick in the sector.

The brokerage suggested that a win-win solution for insurers could involve product differentiation, offering options with varying surrender values and Internal Rate of Return (IRR) to cater to different customer preferences. In the event of adverse regulations, the industry may consider sharing the impact with distributors through lower commissions or changes to the commission structure.

While Morgan Stanley’s insights provide valuable analysis for investors, it is important to note that the information is for informational purposes only and should not be considered as investment advice. Readers are advised to consult with a qualified financial advisor before making any investment decisions.