Life insurance sector in focus: Kotak sees a cautious quarter two for life insurers

Life insurance companies saw a mixed quarter marked by regulatory and tax changes. A new chairman took charge at the Insurance Regulatory and Development Authority of India (IRDAI), while the government’s goods and services tax (GST) changes added to insurers’ costs. Companies are said to have passed some of these costs to distributors to protect their financials.

Kotak Institutional Equities expects the quarter to show “anxiety and weakness.” It forecasts annualised premium equivalent (APE) growth of 14% for Axis Max Life and 10% for HDFC Life, while SBI Life, LIC, and ICICI Prudential Life are expected to see APE declines of 1%, 1%, and 4%, respectively.

Kotak also expects the value of new business (VNB) growth to remain muted. Axis Max Life may post the strongest VNB growth of about 20%, followed by HDFC Life at 11% and SBI Life at 7%. ICICI Prudential’s VNB growth is expected to stay flat, while LIC may see a 3% decline.

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Margins across the industry could drop by 50 to 150 basis points due to the GST-related disallowance of input tax credit (ITC). Valuations remain steady, with Max Financial and HDFC Life

trading around 2.2 times FY27 price-to-embedded value, and LIC around 0.6 times.

Kotak highlighted five key areas to watch: the margin impact of GST changes, cost pass-through to distributors, demand outlook for the second half of FY26, commission trends, and discussions between insurers and the IRDAI on risk capital and expense spreading.

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Analyst Nischint Chawathe of Kotak Institutional Equities said, “It’s been a volatile three months. The first month was fine, August volumes were weak, and then we saw some pickup in September.” He added that industry growth looks modest year-on-year but is stable on a two-year basis at around 15% CAGR.

Chawathe said the focus now is on how demand evolves after the GST revisions. “Prices have gone down for term, health, and some other products. The question is whether that helps stimulate demand,” he noted. He added that the sharing of ITC losses between distributors and insurers remains uncertain and will be an important trend to track in the coming months.

For the full interview, watch the accompanying video

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