India’s life insurance sector is navigating a period of adjustment, with profit margins likely at their lowest point, according to a recent report by Kotak Institutional Equities. The report anticipates a decline in unit-linked insurance plan (ULIP) sales during FY2026. However, insurers may find some relief from a seasonal increase in volumes during the fourth quarter of FY2025, which could lead to improved margins through enhanced operational efficiencies.
In the first nine months of FY2025, listed private insurers experienced annual premium equivalent (APE) growth ranging from 11.8% to 17.4%. January saw continued growth in the 10-25% range for most companies.
Looking ahead, insurers project mid-teen APE growth in FY2026 as they adapt to regulatory changes. These changes include agency open architecture, new bancassurance guidelines, and revised product designs.
Private life insurers reported a 13% year-on-year (YoY) APE growth in Q3FY25, which represents a significant slowdown compared to the 22% growth recorded in the first half of the fiscal year. This deceleration was attributed to several factors, including a rally in bond markets, which prompted adjustments to the internal rate of return (IRR), a surge in sales during the sunset period of old surrender value norms, and strong ULIP sales in the first half of the year.
Individual APE growth among listed insurers varied between 12% and 18%. Bajaj Allianz, however, reported flat growth after achieving 34% in the first half of the year.
Despite worries about how new surrender value norms would influence the industry, life insurers have managed the transition effectively. Industry players synchronized the changes, minimizing any relative advantage for competitors. Adjustments such as clawbacks, deferrals, and downward revisions in IRRs were implemented to align with the evolving regulatory environment. The distributor community has also adapted to the new payout structures, thereby reducing market disruptions.
Life insurers experienced margin compressions between 75 and 400 basis points (bps) YoY. This was largely due to a shift in product mix toward ULIPs, a slowdown in credit protect sales, and the impact of changes in surrender value norms.
