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The Insurance sector is likely to deliver a modest performance during Q1FY26, given that 1) APE growth for life insurance companies would see moderation owing to a high base effect of Q1FY25, the new surrender regulations impact playing till H1FY26, and potential slower push of high-ticket ULIP owing to geopolitical uncertainty around equity markets. However, VNB margins are expected to see YoY improvement, backed by sale of high-margin, non-par and protection products; 2) General Insurance sector continues to face growth challenges due to slowdown in new vehicle sales, no Motor TP hike, and implementation of the 1/n regulation. However, we expect marginal YoY improvement in combined ratios; 3) Health Insurance sector is still impacted by the 1/n regulation implementation, while the Group Health segment is likely to see increased pricing aggression; increased claims frequency and severity are likely to put pressure on claims ratio and profitability. Against this backdrop, focus is likely to shift to evolving developments in the sector which include: i) modification in GST rates, especially for Term Life and Health Insurance; ii) amendments in the Insurance Act, 1938 in the upcoming monsoon session of the Parliament; iii) a possible tariff hike prescription by the regulator in Motor TP; and iv) controlling of claims cost in the Health segment backed by fresh premium growth. While stock prices of insurers has witnessed a strong run up in recent months, valuations find favor from investors on a relative basis as the adverse regulatory regime of the last 2-2.5 years is likely behind and growth will revive from H2 after the slower H1 on expected lines.

Moderated growth trends and improving VNB margins for Life Insurers

Owing to a high base impact of Q1FY25, the spillover effect of the new surrender regulations and a relative slowdown in sales of ULIPs given the volatility in equity markets is likely to drive moderated APE growth for the Life Insurers during Q1FY26. While Axis Max Life is expected to top the charts in terms of APE growth followed by HDFC Life, SBI Life is expected to deliver moderate growth. Led by a slowdown in ULIP sales, IPRU’s APE growth is expected to witness a decline. Given the changes in the minimum ticket size, LIC’s retail APE is expected to decline; however, strong growth in the Group APE will drive double-digit APE growth for LIC during Q1FY26. Driven by a relatively higher share of non-par and protection products and the impact of high ULIP sales in the base, we expect Life insurers to witness margin improvement on YoY basis. Given the strong QoQ movement in equity markets, we expect healthy QoQ growth in AUM of Life insurers. Resultantly, led by margin improvement, VNB growth is likely to surpass APE growth.

General Insurance sector continues to witness challenges

We expect General Insurers to report muted GDPI growth for Q1FY26, given 1) the slowdown in new vehicle sales; 2) no hike announced in the motor TP segment; 3) increased competition led by the deadline on EoM limits; and 4) implementation of the 1/n regulation for accounting of long-term policies. However, driven by increased Reinsurance accepted premiums, GI players are expected to see moderate GWP growth. While we build in some improvement in the claims ratios, combined ratios remain elevated. Given the impact of the 1/n regulations, we expect some improvement in the commission ratio for ICICIGI. Health Insurance sector growth continues to be impacted by implementation of 1/n regulation which has resulted in muted growth for Star Health. Driven by changing customer behavior, rising medical inflation, and corporatization of hospitals, the sector is likely to see continued pressure on claims ratio led by higher claims frequency and severity. Going forward, claims ratios of health insurers will be watched closely.

Valuations find favor on relative basis; growth revival to be the next trigger

Receding regulatory noises (Union Budget, Income Tax Bill, and bancassurance) have seen insurance stocks materially re-rating in the last few months, as the slower growth is on expected lines. Going ahead, some positive regulatory developments and the likely growth revival in H2 would support share prices. We roll forward the target price of our insurance universe to Jun-26E from Mar-26E, and reduce holdco discount for Max Financial to 10% from 20% earlier, given our increased confidence on the MAXF-Axis Max Life merger and the eventual listing of Axis Max Life.

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