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2QFY27 performance of the Insurance sector is likely to be modest. Key factors: 1) For life insurers, APE growth is likely to remain modest, though VNB margins are expected to be stable-to-improving led by a favorable product-mix shift toward non-par and term life products, coupled with high rider attachment. 2) The general insurance sector continues to face challenges, with heightened competition in the Motor OD segment, no Motor TP hike in FY27, and pricing aggression in the commercial lines segment driving an impact on growth while NAT CAT events in the quarter are expected to hit claims ratios. 3) The Health insurance sector maintains its growth momentum led by GST rate exemption driving better affordability. However, typically, 2Q seasonality—driven by monsoon-related diseases—is expected to keep loss ratios elevated. We expect slight improvement in the claims ratio of Star Health. Ahead, as the GST base effect normalizes from 3QFY27, we expect investor focus to shift to FY28 and to the final verdict on IRDAI's proposed distribution reforms. While we believe the proposed distribution reforms would materially alter distribution economics, they are likely to benefit insurers over the medium-to-long term. Regulatory uncertainty has caused a sharp correction in the stock prices of insurers, bringing the valuation of life insurance stocks down to an undemanding 0.7-1.6x FY28E P/EV.

Modest growth trends in 2QFY27; VNB margins to improve

Life insurers are likely to report modest growth trends in 2QFY27, with industry APE growing only ~8%/9% in Jul/Aug-26, respectively. Overall, we expect ICICI Life to remain the fastest growing player in 2QFY27 led by healthy growth in the retail segment, while LIC is expected to deliver ~12% APE growth owing to a favorable base effect. SBI Life is likely to deliver ~11% yoy growth in APE. With growth momentum picking up in the HDFC Bank channel in recent months, HDFC Life is expected to deliver ~9% APE growth in 2QFY27E. Axis Max Life is expected to see APE growth slow to ~8%, owing to a high base effect. Led by a favorable shift in the product mix toward non-par and term protection products, coupled with higher rider attachments, we expect life insurers to report improving VNB margins on yoy basis. While we expect marginal VNB margin expansion for HDFC Life and Axis Max Life, ICICI Life and LIC are expected to witness healthy VNB margin expansion during 2QFY27. SBI Life’s VNB margins are likely to witness a slight dip in 2Q. We expect the adverse market movements last quarter and the increase in yields to negatively affect economic variances, thus impacting EV growth

General Insurance – Growth takes a hit, while SAHIs see healthy momentum

The General insurance sector remains impacted by

1) aggressive pricing in the commercial lines segment

2) heightened competitive intensity in the Motor OD segment

3) absence of Motor TP hike in FY27

4) NAT CAT events during 2Q. Given the challenging environment, large players remain focused on driving profitability. Against such a backdrop, we expect ICICIGI and Go Digit to report ~1% decline in GWP in 2QFY27E. While ICICIGI is expected to witness an increase in claims ratio, the combined ratio is expected to see marginal improvement led by improvement in opex ratios. Go Digit is likely to witness an increase in claims ratios owing to a likely elevation in the claims ratio across Motor and Commercial lines, owing to the impact of floods in multiple states. The health insurance segment maintains its growth momentum, led by GST rate exemption. We expect Star Health to deliver ~19% GWP growth in 2QFY27, driving ~15% growth in Insurance revenue. Despite the 2Q seasonal headwinds from monsoon-related illnesses, we expect Star Health to post a marginal yoy improvement in its claims ratio, supported by robust fresh premium growth and targeted management interventions

Regulatory verdict to be watched out for; focus shifts to FY28

Going forward, as the GST base effect normalizes from 3QFY27, investor focus is likely to shift toward FY28 and to the final contours of the IRDAI’s proposed distribution reforms. The regulator’s recent consultation paper on Commissions and EoM proposes radical cuts in payouts, pushing the sector into uncharted waters. However, despite the near-term pain, the reforms are likely to positively affect insurers in the medium-to-long term. Insurance stocks have witnessed sharp correction in recent times, owing to regulatory uncertainty driving undemanding valuations for Life insurers offering good entry points.

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