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Insurance stock performance since the GST Council announcements (3-Sep25)—of exemption of GST on individual life and health insurance products—has been a mixed bag, with the positives and negatives of such exemptions along with other regulatory news and noise weighing on stock performance. Key irritants: 1) GST exemption-led increased affordability driving growth in retail term and health. 2) GST ITC losses putting pressure on profitability on ceteris paribus basis. 3) GST cut-led strong festive sales of PVs and 2Ws supporting Motor Insurance growth. 4) The impending Insurance Amendment Bill, 2025 proposing changes that would have a divergent impact. 5) Implementation of the new labor code leading to higher PF and gratuity contribution which is resulting in lower take-home salary and is, in turn, affecting discretionary savings. Nevertheless, beyond such transitory noise, growth recovery and sustainability will remain the ultimate panacea for insurance stocks, if these were to re-rate any further.

Multiple levers to drive gradual recovery of margin loss due to GST changes As disclosed by life insurers, impact from the GST ITC loss on VNB margin, ceteris paribus, was meaningful (180-450bps range); hence, insurers have started multiprong actions and will continue with such steps, including a) passing part-burden to distributors, especially in ULIP; b) changing product mix (toward better margins) and changing product construct (increasing PPT and rider attachments) to improve product margins; c) Adjusting the IRRs (in non-par) and RIY (reduction in yield in ULIPs), wherever doable; d) A possible price revision in retail term, in coming quarters; and e) driving cost efficiency across various functions. Overall, such actions will broadly negate the impact of GST ITC loss and help margins rebound, in our view, thus underscoring insurers’ ability to manage desirable margin levels.

Insurance Amendment Bill, 2025 to impact different players differently The Insurance Amendment Bill, 2025 is likely to be taken up by the Parliament for approval during its ongoing winter session. Some key provisions in the Bill are likely to be: i) permitting 100% FDI in the sector (impact: not meaningful for listed insurers); ii) amendment to Section 35 permitting merger of an insurance company with a noninsurance company (impact: facilitating Axis Max Life-MAXF merger); iii) open architecture in Individual Agents (impact: to be perceived negative for LICI, as it has the largest tied agents); iv) Composite Licensing (impact: will facilitate some companies to venture into the allied area via manufacturing or distribution; will facilitate bringing the LI and GI businesses of some promoter groups under one umbrella).

Too early to call out the impact of the new labor code implementation Over the past week, the Union Government notified the implementation of four new labor codes. One key provision of the Code is setting up of basic salary (that sets the base for PF and gratuity calculations) to a minimum of 50% of the total wages, effectively increasing the PF and gratuity deductions for the salaried. This move is seen to have a negative impact on discretionary savings (Life Insurance, Mutual Funds, etc). However, it is too early to pass judgment, as several favorable factors—such as income tax reduction driving up take-home salaries, likely higher gratuity meaning higher group FM business, and GST removal on individual life insurance products—provide a reasonable tailwind.

Beyond the external noise, eventually, it is growth that matters Powered by the Brand, Distribution, and Scale formula, listed private life insurers have repeatedly reiterated that they are in an advantageous position to protect profitability amid the changing regulatory and macroeconomic landscape. Hence, the key this time around is that if they can demonstrate their ability to grow robustly while offsetting the margin headwinds, then they are likely to see a re-rating. The GST cut-induced growth spike in retail term and retail health seems to be sustaining; however, for overall growth, ‘other products’ growth will be key. SBILIFE and MAXF seem to be on a stronger growth path for the near term, while we expect growth to revive in Q4 for HDFCLIFE and IPRU. For multi-line general insurers like ICICIGI and GODIGIT, the key trigger of a Motor TP price hike is likely to happen not before FY27.

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