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Shares of India's ICICI Prudential Life Insurance fell 10% on Thursday after weak demand led to a sharp contraction in new business margins.

Shares of the company fell to an eight-month low, marking the biggest slide since Feb. 1, when India announced a plan to tax the total returns of policies with returns exceeding 500,000 rupees at maturity.

The life insurer, which reported third-quarter results on Wednesday, said its expected profit margin from new policies declined to 26.7% for the nine months to Dec. 31 from 32% a year earlier.

The new business margin decline was sharper-than-expected, Jefferies said in a note.

The move to tax total returns of high-value policies at maturity, and a rise in low-margin, unit-linked plans (ULIPs) have hurt insurers' VNB margins, analysts have said.

Jefferies had previously said that ICICI Prudential has higher dependence on low-margin yielding ULIPs. In fact, ULIPs constituted 44% of the company's premiums in the third quarter, up from around 36% last year.