New Delhi [India]: India’s life insurance industry is currently undergoing a phase of adjustment, with margins likely reaching their lowest due to an expected decline in unit-linked insurance plan (ULIP) sales in FY2026, according to a Kotak Institutional Equities report.
However, a seasonal rise in volumes during Q4FY25 could help improve margins through better operational efficiencies, the report stated.
APE Growth Trends and Market Adjustments
In the first nine months of FY2025, annual premium equivalent (APE) growth for listed private insurers ranged between 11.8% and 17.4%, with January 2025 showing stable growth of 10-25% for most insurers.
Looking ahead, insurers expect:
- Mid-teen APE growth in FY2026, despite regulatory changes.
- Adjustments to agency open architecture, new bancassurance guidelines, and revised product structures.
Private life insurers reported 13% YoY APE growth in Q3FY25, a sharp deceleration from 22% growth in the first half of the fiscal year.
The slowdown was attributed to:
- Bond market rally, leading to downward internal rate of return (IRR) adjustments.
- Distributor push during the sunset period of old surrender value norms.
- Strong ULIP sales in H1 FY2025, resulting in a high base effect.
Among listed insurers:
- Individual APE growth ranged between 12-18%.
- Bajaj Allianz reported flat growth, after achieving 34% growth in H1 FY2025.
Industry’s Response to Regulatory Shifts
Despite concerns over new surrender value norms, insurers have managed the transition smoothly, implementing synchronized changes to minimize competitive advantages.
Key adjustments include:
- Clawbacks, deferrals, and downward revisions in IRRs to align with regulatory shifts.
- Distributor community adapting to new payout structures, reducing market disruptions.
Margins Under Pressure Due to Changing Product Mix
Life insurers reported margin compressions of 75-400 bps YoY, primarily due to:
- A shift in product mix toward ULIPs.
- Slowdown in credit protect sales.
- Impact of surrender value changes.
Despite these challenges, seasonal volume increases in Q4FY25 may help offset some margin pressures by driving higher operational efficiency.
As the sector adapts to new regulatory frameworks, insurers are focusing on balancing growth, profitability, and compliance, ensuring a stable transition into FY2026.