The loss of Input Tax Credit (ITC) after the rationalisation in goods and services tax (GST) from 18 per cent to ‘nil’ is likely to weigh on the profits of life insurers in the October–December quarter of FY26 (Q3 FY26), while healthy investment income is expected to support the profitability of general insurers, analysts said. The GST rationalisation on individual life and health insurance has fuelled healthy premium growth for both segments, while for multi-line general insurers, it has driven growth in motor insurance.
VNB margins likely under pressure
Value of New Business (VNB) margin, a measure of the profitability of life insurers, is likely to be under pressure in Q3FY26 due to the ITC loss. However, a shift in product mix towards non-participating and protection products, negotiations with distributors, and strengthening of operating efficiency are likely to cushion the impact, analysts said.
“VNB margins will be an interplay of product mix changes (higher protection offset by higher ULIPs year-on-year), the drag of ITC losses and the labour code. The base effect plays a key role in year-on-year margin expansion or contraction (-300 bps to +100 bps) for the quarter. Most companies called out a 175–350 bps impact on VNB on account of ITC losses due to the GST exemption,” said analysts at Kotak Institutional Equities.
Premium growth outlook remains healthy
However, the Annualised Premium Equivalent (APE) of life insurers is expected to be healthy, aided by the GST changes and normalisation of the base effect after the implementation of new surrender value changes.
“Among private listed players, Axis Max Life is likely to remain the fastest-growing player, followed by SBI Life, HDFC Life, and ICICI Pru Life. LIC is expected to report strong APE growth owing to a favourable base in retail and backed by robust growth in the group business. VNB margins are likely to remain under pressure, given the impact of GST ITC losses. However, this could be partially offset by a shift in product mix towards non-par and protection products, negotiations with distributors, and enhancing operating efficiency,” according to a report by Emkay Global Financial Services.
Company-wise VNB margin estimates
According to Emkay estimates, SBI Life Insurance is expected to report a VNB margin of 26.3 per cent in Q3 FY26, compared to 26.9 per cent in Q3FY25. Its margin in Q2FY26 was 27.9 per cent. HDFC Life Insurance’s margin is likely to be 23.9 per cent, compared to 26.1 per cent. In Q2 FY26, the insurer’s margin stood at 24.09 per cent. ICICI Prudential Life Insurance’s margin might be 22.9 per cent, up from 21.2 per cent in Q2 FY25. The margin in Q2 FY26 was 24.44 per cent. Axis Max Life Insurance’s margin is expected to be 23 per cent, compared to 23.4 per cent. The insurer’s margin in Q2 FY26 was 25.5 per cent.
Similarly, state-owned Life Insurance Corporation of India (LIC)’s margin is likely to expand to 20.4 per cent from 19.4 per cent in the same quarter last year. “We expect LIC to deliver a strong 40 per cent growth in APE, driven by robust growth in the group segment. In the retail business, LIC is likely to see healthy growth in non-par products,” analysts said. LIC’s margin in Q2 FY26 was 19.33 per cent.
Meanwhile, the combined ratio of general insurers is expected to edge up marginally due to higher claims ratios, despite operational efficiencies. A lower combined ratio indicates higher profitability.
Multi-line insurers are expected to see healthy growth across businesses after GST changes fuelled new-vehicle sales, supporting growth in the motor own-damage segment.
“For general insurers, we forecast gross written premium (GWP) growth shall be steady, with an improvement in loss ratios mainly in health. Competitive intensity in the motor segment remains high,” said Nuvama Research.
Analysts also said health insurers are estimated to clock strong premium growth, aided by tax support and normalisation of the change in 1/N accounting norms.
“Combined ratios are expected to remain elevated, led by increased commission ratios, although select players are likely to see marginal improvement in claims ratios. Profitability, however, should be supported by healthy investment income, driving robust PAT growth,” said Emkay analysts.
According to Emkay estimates, ICICI Lombard General Insurance’s combined ratio is likely to be 103 per cent, compared to 102.7 per cent in Q2FY25. Star Health Insurance is expected to report a combined ratio of 102.4 per cent, compared to 103.3 per cent; Go Digit General Insurance is expected to be 108 per cent, compared to 108.1 per cent.