The union finance minister Nirmala Sitharaman on Monday introduced two significant changes for the insurance industry in Union Budget 2021-22.
Firstly, the
FDI limit for insurance (life and general) companies has been increased to 74 percent from 49 percent. Secondly, maturity proceeds from ULIPs with an annual premium above Rs 2.5 lakh will be taxed at 10 percent.
In a recent note, brokerage house CLSA pointed out the key positive for listed insurance companies due to the rise in FDI limit could have been higher MSCI weights and related flows. However, CLSA's calculations suggest MSCI free floats may not change materially because of this except for some increase for HDFC Life.
The brokerage further believes that taxation on
maturity proceeds of ULIPs will be negative for companies with a higher share of ULIP ticker size. Like for example, ICICI Prudential Life has a 48 percent share of ULIPs and an average ULIP ticket size of Rs 1,80,000 and it will be negatively impacted on the back of this development.
CLSA estimated that high-ticket ULIP policy sales, which had seen about 4-5 times increase during FY14-19, could stagnate for a few years. The new taxation policy, which brings taxation in high ticket size ULIPs at par with mutual funds, will further impact negatively, it added.
Even though the budget seems to be mixed for the insurance firms, CLSA retains a positive view on the sector due to the healthy recovery in the insurance industry post-pandemic. Max Life remains its top pick in the sector.
