Group policies drive life insurers’ Q1 growth as GST dents margins

India’s four listed private life insurers reported strong growth in new business in the June quarter, driven largely by one-off group policies sold to companies rather than broad-based retail demand.

At the same time, the goods and services tax (GST) exemption on pure protection policies lifted retail sales but reduced new business margins by 60–120 basis points, with insurers expecting the impact to ease by the December quarter.

Standalone profit rose at all four insurers, increasing 12% year-on-year in the June quarter to ₹611.42 crore at HDFC Life, 22% at SBI Life to ₹725 crore, 27.8% at ICICI Prudential Life to ₹386 crore and 20% at Canara HSBC Life to ₹28 crore.

SBI Life’s annualised premium equivalent (APE), a standard measure of new business sales, rose 36% to ₹5,380 crore while individual APE grew 14%, reflecting a sharp rise in group term business. In a post-earnings call with analysts, managing director Amit Jhingran said “group business is a lumpy kind of business” and that the unusually high share in the June quarter would not recur frequently, while maintaining the insurer’s full-year individual premium growth guidance of 14-15%.

Group business remains the industry’s biggest swing factor, with policy sales often determined by a handful of corporate renewals. ICICI Prudential Life chief financial officer Dhiren Salian, while addressing analysts, called group funds “the most lumpy business of all the segments that we have,” adding the insurer would write such business only if it was “value accretive, VNB (value if new business) accretive.”

A steadier growth driver is group credit life, which tracks bank lending. In an analyst call, HDFC Life executive director Vineet Arora said “as the credit environment has been good and disbursements are up, we have seen the growth continuing.”

Credit life insurance is a type of loan-linked life cover that repays the outstanding loan to the lender if the borrower dies during the loan tenure.

Salian said ICICI Prudential expected an “uptick” in the second half as the microfinance business recovered. Canara HSBC Life expects group credit life growth of 35-40% this year.

The heavier mix of group business also weighed on profitability. Jhingran said that the margin on group business was lower compared to the individual business during the quarter, but retained SBI Life’s full-year VNB margin guidance of 26-28%. “We have definitely seen the bottom in the first quarter itself,” he said, adding that margins would move towards the upper end of the range as the business mix normalised.

The biggest retail tailwind came from the GST exemption on pure protection policies. Retail protection sales rose 60.4% at ICICI Prudential Life and more than 40% at HDFC Life. ICICI Prudential’s chief distribution officer, Amish Banker, said only about 13% of the addressable population currently has retail protection cover, while Salian added that neither his company nor the broader industry has made significant price changes following the tax exemption.

“If you were expecting en-masse price changes, that has not happened,” ICICI Prudential’s Salian said.

Effective 22 September 2025, the government scrapped the 18% GST on all individual life and health insurance policies, including their reinsurance.

Insurers, nevertheless, expect protection growth to moderate as the GST-driven boost fades. HDFC Life managing director Vibha Padalkar said growth rates would ease in the second half “as the impact of recent tailwind normalizes,” while Salian said a repeat of the June quarter’s 60%-plus growth was “very unlikely.”

The GST exemption reduced margins because insurers can no longer claim input tax credit on these policies. HDFC Life said its VNB margin would have been 25.6% without the change, while SBI Life’s margin fell 125 basis points to 26.2%. ICICI Prudential, however, expanded margins as an improved product mix and higher rider attachment more than offset the GST impact.

Analysts see slower growth ahead

HDFC Life expects the industry’s individual APE to grow 14–15% in FY27, though brokerages are pencilling in more conservative estimates than the June-quarter momentum suggests.

Motilal Oswal Financial Services expects HDFC Life to grow about 15% annually through FY28, driven by a broader product mix and higher sales of add-on covers. Prabhudas Lilladher, meanwhile, forecasts 12% growth in FY27 and sees a recovery in the bank channel – insurance sold through partner banks – as the key trigger.

For ICICI Prudential Life, Prabhudas Lilladher forecasts only 10% growth in FY27, citing a higher base in the second half, though it expects margins to keep improving. Axis Securities expects SBI Life to grow new business premium and APE at about 14% a year through FY28, calls the sector outlook positive, and flags a sales slowdown or an unfavourable product mix as the main risk to margins.

Canara HSBC Life draws the most bullish view. Motilal Oswal expects about 19% operating return on embedded value, pointing to an under-used network of state-owned bank branches.

Both brokerages covering HDFC Life expect the GST drag on margins to wash out by the first half of FY27, although Prabhudas Lilladher sees costs staying high while the insurer invests in new capabilities.