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As FY26 dawns, life insurance stocks have derated from FY25 peaks, which were achieved with strong growth and lower impact of surrender norms than initially expected. (Exhibit 8) While FY25 began with a weak growth outlook, the industry has outperformed with 19.8% growth in 10MFY25. This was led by strong ULIP sales, with the tailwind of strong markets. However, with higher share of ULIPs, margins were compromised. Going into FY26, the room for non-par pricing remains limited with the tight spread between term deposit rates and Gsec yields. (Exhibit 9) With commencement of repo cuts, the spread should rise through the year. As monthly SIPs have increased 40.1% YoY by Jan’25 but have become range-bound over the last 2 months, we expect the product to gradually cede share in the savings business mix. Alongside an expected pickup in retail credit going into 2HFY26 (implying strong credit life sales), we expect margin improvement from FY25 levels for our coverage. With strong brands, established channels and products, we believe private life insurers offer a solid investment opportunity. HDFC Life has strongly navigated FY25 with growth outperformance and lower margin compromise than peer insurers. We expect it to deliver 15.7% CAGR in APE over FY25-FY27e, with margins improving to 26.0% by FY27e from 25.3% in FY25e. We value it at 2.2x FY27e EVPS (against 2.5x earlier) of INR 355, for a EV CAGR of 16.1% over FY25-FY27e. We maintain BUY with a revised target price of INR 800 (down from INR 900 earlier). At CMP, IPRU Life trades at valuations of 1.2x FY27e EVPS of INR 444, inexpensive for 14.2%/16.3%/13.9% CAGR in APE/VNB/EV, implying 9.6x on FY27e VNB, after adjusting for VIF. We value the company at 1.6x FY27e (against 1.8x earlier) EVPS of INR 444, to get a revised target price of INR 700, against INR 777 earlier. Meanwhile, SBI Life has seen a sustained slowdown in banca growth (61% of 9M25 individual APE – 8.5% YoY growth in 9MFY25); however, with a focused growth strategy (agency and non-SBI banca channels), we expect it to deliver 15.2% CAGR in APE over FY25-FY27e. At CMP, the stock trades at valuations of 1.7x/1.5x FY26/FY27e EV, implying 10.4x/8.0x on VNB, after accounting for VIF (Value of In Force business) in the CMP. We believe these are inexpensive for 18% EV CAGR. With the weak aspirations for banca growth, we cut our target price to INR 1,700 from INR 2,000, valuing SBI Life at 1.8x FY27e EVPS of INR 972 (down from 2.1x)

* FY25 APE growth a positive surprise, VNB margins should improve going into FY26: We began FY25 with a growth outlook of 12.6% for the private sector in individual APE as the spread between deposit rates and G-sec yields had narrowed. Through a focus on ULIPs, with underlying strength in equity markets and a growing focus on SIPs, private industry has outperformed with a growth of 19.8% in 10MFY25. As ULIP share of new business cools off and credit life picks up with growth in retail loans, we expect VNB margins to improve going into FY26.

* Companies have diversified their products and channels: Leading insurers have reduced their dependence on specific channels and products – while HDFC Life has diversified its product mix, embracing ULIPs with higher sum assured and riders, ICICI Prudential and SBI Life have substantially reduced their dependence on parent banca.

* Expect consistency to be rewarded by markets: With strong brands, established channels and products, we believe private life insurers offer a solid investment opportunity, trading below Nifty 50 forward P/E of 17.2x (FY26e/FY27e P/EVOPx of 14.3x/12.3x for HDFC Life, 11.2x/9.6x for IPRU and 11.0x/9.4x for SBI Life). HDFC Life has strongly navigated FY25 with growth outperformance and lower margin compromise than peer insurers. We prefer it despite higher valuations given its balanced product mix and strong work in agency, which should cushion growth even as banca growth reduces on a strong base.

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