India’s Life Insurance Margins Near Low Point, with Potential for Q4 Recovery
New Delhi: According to a recent report by Kotak Institutional Equities, India’s life insurance sector is navigating a period of adjustment. The report suggests that margins are likely nearing their lowest point, largely due to an anticipated decrease in unit-linked insurance plan (ULIP) sales in fiscal year 2026. However, the report also highlights the possibility of improved margins through better operational efficiencies, potentially driven by a seasonal rise in volumes during the fourth quarter of fiscal year 2025.
)
During the initial nine months of fiscal year 2025, annual premium equivalent (APE) growth for publicly listed private insurers ranged between 11.8% and 17.4%. January saw consistent growth, with most players experiencing a 10-25% increase. Industry analysts anticipate mid-teen APE growth in fiscal year 2026 as insurers adapt to regulatory changes, including agency open architecture, new bancassurance guidelines, and updated product structures.
Private life insurers experienced a 13% year-over-year (YoY) APE growth in the third quarter of fiscal year 2025. This indicates a considerable slowdown from the 22% growth recorded in the first half of the fiscal year. The deceleration is associated with a number of factors. These include a rally in bond markets that led to adjustments in internal rate of return (IRR), distributor efforts during the phasing out of old surrender value rules, and robust ULIP sales during the first half of the year.
Individual APE growth among listed insurers varied between 12% and 18%. Bajaj Allianz saw flat growth after a 34% increase in the first half. Despite initial concerns about the impact of new surrender value norms, life insurers have managed the transition effectively. The industry has implemented these changes in a synchronized approach, mitigating any competitive advantages. Adjustments such as clawbacks, deferrals, and downward revisions in IRRs have been introduced to align with the evolving regulatory environment. The distributor community has also adapted to the new payout structures, reducing market disruptions.
Life insurers have noted margin compressions of 75-400 basis points (bps) YoY. The primary drivers of this include a shift in product mix toward ULIPs, a slowdown in credit protect sales, and the impact of surrender value changes.
