The key to understanding insurance business is to make sure we understand the underwriting (conservative vs aggressive) and the risks/long term reward emerging thereof. Clearly linked portion of ULIPS does not have any risk/ additional reward associated with them. So managing linked portion of ULIPS is like an AMC.
On the non linked side and which forms the heart of insurance (protection) we should focus on key assumptions which influence all long term and short term parameter/ratios like EV/RoEV/VNB/VNB and then look into these ratios with contextually and relatively. The key assumptions here are
Blockquote
a) Discount rate assumption
b) Yield expected on investment
c) Mortality assumptions
d) Inflation assumptions for changes in operating expense
Every insurance company need to declare all the above in their public disclosures in L-42 Valuation Basis. Almost all insurance companies have different assumptions regarding the above. I have done a compilation of these assumptions for NON PAR LIFE IN FORCE
Just to get an idea of how these assumptions can change EV/VNB and finally Shareholder returns I tried to find out the current value of a Non Par policy with sum assured of 1 lac:
Now purely from a discount rate perspective SBI Life is creating a VNB/EV higher by 16% for the same policy and HDFC Life by 10.6%. Assuming 10% operating cost a 3% variance in inflation assumption will not change the above numbers by more than 100 bps. Also since yield expectations are similar across so it does not make sense to include them in comparison.
My limited conclusion is
a) ICICI Pru seems more conservative due to a lower discount rate assumption.
b) ICICI Pru is Less risky due to ULIP domination
c) A peer to peer comparison should be done for like products. There is no use comparing AUMs of ULIPs vs Non Linked products.
d) ULIPs AUM should be looked as an AMC business with a 1% (need a better estimate) AUM charge in the long run.
e) Since EV/VNB is an outcome of assumptions on Discount rate/Yield/Inflation/Mortality unless these are standardized there is not much to compare. However we can get an idea as to which insurer is more conservative in its estimates and prudent in its underwiting.
f) Similar to e) VNB Margin independently does not make sense. Also a higher ULIP portfolio necessarily imply a lower VNB margin.
This is as per my limited understanding. I have been working with @rupeshtatiya on this and thanks to him and his , his work and his prodding I have been able to dig into further. Hopefully we can discover more if we question more along this direction.
Dicl: Invested in ICICI Pru and views are biased