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India's life insurance industry is going through a phase of adjustment, with margins likely reaching their lowest point due to an expected decline in unit-linked insurance plan (ULIP) sales in FY2026, however, a seasonal rise in volumes during Q4FY25 could help improve margins through better operational efficiencies, according to Kotak Institutional Equities report.
In the first nine months of FY2025, annual premium equivalent (APE) growth for listed private insurers ranged between 11.8-17.4 per cent, and January showed stable growth of 10-25 per cent for most players. Looking ahead, insurers expect mid-teen APE growth in FY2026 while adapting to regulatory changes such as agency open architecture, new bancassurance guidelines, and revised product structures. Private life insurers reported a 13 per cent year-on-year (YoY) APE growth in Q3FY25, a sharp deceleration from the 22 per cent growth recorded in the first half of the fiscal year. The slowdown was attributed to multiple factors, including a rally in bond markets leading to downward internal rate of return (IRR) adjustments, distributor push during the sunset period of old surrender value norms, and strong ULIP sales in the first half. Among listed insurers, individual APE growth ranged between 12-18 per cent, while Bajaj Allianz reported flat growth after achieving 34 per cent in H1. Despite concerns over the impact of new surrender value norms, life insurers have managed the transition effectively. Industry players have implemented the changes in a synchronized manner, minimizing any relative advantage for competitors. Adjustments such as clawbacks, deferrals, and downward revisions in IRRs were introduced to align with the changing regulatory environment. The distributor community has also adapted to the new payout structures, reducing market disruptions. Life insurers reported margin compressions of 75-400 bps YoY, primarily due to a shift in product mix toward ULIPs, a slowdown in credit protect sales, and the impact of surrender value changes. (ANI)
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