The withdrawal of ITC following the GST rationalisation on individual life and health insurance from 18% to nil is expected to weigh on the profitability of life insurers in the third quarter of FY26 (October-December), analysts said. However, strong investment income is likely to provide a cushion for general insurers during the period.
While the GST exemption has triggered healthy premium growth across life and health insurance segments, it has also removed ITC benefits, putting pressure on margins, particularly for life insurers. For multi-line general insurers, the GST changes have supported growth in motor insurance, aided by higher new-vehicle sales.
VNB Margins Under Pressure for Life Insurers
The value of new business (VNB) margin, a key profitability indicator for life insurers, is expected to remain under strain in Q3FY26 due to ITC losses. However, analysts believe the impact will be partially offset by a favourable shift in product mix towards non-participating (non-par) and protection products, distributor negotiations and improved operating efficiencies.
Premium Growth to Remain Healthy
Despite margin pressures, annualised premium equivalent (APE) growth for life insurers is expected to remain strong, supported by GST changes and the normalisation of base effects after the implementation of revised surrender value norms.
According to Emkay Global Financial Services, Axis Max Life is likely to remain the fastest-growing private insurer, followed by SBI Life, HDFC Life and ICICI Prudential Life. State-owned Life Insurance Corporation of India (LIC) is expected to report robust APE growth, aided by a favourable base in the retail segment and strong group business performance.
Insurer-wise Margin Expectations
Emkay estimates SBI Life's VNB margin at 26.3% in Q3FY26, slightly lower than 26.9% a year earlier and down from 27.9% in Q2FY26. HDFC Life's margin is expected to decline to 23.9% from 26.1% in Q3FY25. ICICI Prudential Life's margin is estimated at 22.9%, higher than 21.2% last year but below its Q2FY26 level of 24.44%. Axis Max Life's margin is projected at 23%, compared with 23.4% a year ago.
LIC's VNB margin is expected to improve to 20.4% from 19.4% in the year-ago quarter. Analysts expect LIC to deliver around 40% APE growth, driven by strong group business and healthy traction in non-par retail products.
General Insurers to See Stable Growth
For general insurers, combined ratios are expected to edge up marginally due to higher claims ratios, even as operational efficiencies improve. Multi-line insurers are likely to benefit from steady growth across segments, particularly motor insurance, following the GST-led improvement in vehicle sales.
Health insurers are also expected to post strong premium growth, supported by tax incentives and the normalisation of 1/N accounting norms. While combined ratios may remain elevated due to higher commission expenses, profitability is expected to be supported by robust investment income.
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