The recent GST exemption on life insurance premiums could limit profit growth for insurers in the July-September 2025 quarter, even as the industry experiences a surge in new business. With ITC no longer applicable on existing policies, analysts expect flat or modestly improved margins, despite higher sales volumes.
September Shows Robust New Business Premium Growth
The life insurance sector saw a strong recovery in September 2025, with new business premiums (NBP) rising 14.8% year-on-year to Rs 40,206.7 crore. This rebound reversed the 5.2% decline in August 2025 and slightly exceeded September 2024's 14% growth.
The upswing was led by the group single-premium segment, which offset declines in individual policies. Analysts note that the GST rate reduction and a favourable base effect helped drive this growth.
ITC Loss Could Weigh on Margins
Kotak Institutional Equities has estimated that the loss of ITC may reduce new business margins by 165-400 basis points, increasing operational and distribution costs.
"Although cuts in health and term product tariffs may support new sales, the absence of ITC will impact profitability," the report said. Smaller or unlisted insurers could see more pronounced effects.
Industry Outlook and Recovery
CareEdge Ratings noted that individual non-single policies continued to decline in September due to the base effect and surrender value regulations. This trend is expected to normalise in the coming months.
Despite policy count declines, private insurers raised premiums per policy, helping drive overall growth. The industry's total premiums for H1 FY26 increased 7.6%, from Rs 1.89 lakh crore to Rs 2.03 lakh crore, signalling a gradual recovery.
Medium-to-Long-Term Growth Remains Positive
Long-term prospects remain robust, supported by private insurers expanding into new regions and launching digital platforms. These measures are expected to increase penetration, improve accessibility and sustain medium-term growth for the life insurance sector.
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