Insurance stocks eye Amendment Bill as next re-rating trigger

Insurers await key policy overhaul for next phase of re-rating

Insurance stocks have struggled to find clear direction after GST was removed on individual life and health insurance policies in September. While the exemption made these products cheaper for customers, it also wiped out input tax credit benefits. Analysts at Emkay Global believe the sector’s re-rating now hinges on the Insurance Amendment Bill, which will be taken up in the ongoing winter session of Parliament.

The Bill is likely to be the next big trigger for the sector and proposes several changes that could affect players differently, said analysts.

These include allowing 100 percent FDI in insurance, enabling mergers between insurance and non-insurance companies, opening up agent architecture, and introducing composite licences that allow companies to offer multiple types of insurance under one umbrella. Some of these moves could help companies expand or restructure, while others may challenge incumbents with large tied-agent networks.

Mixed impact after GST exemption

Since the GST announcement, shares of SBI Life, HDFC Life, and ICICI Prudential have surged up to 11 percent, while Max Financial and Go Digit have slipped up to 4 percent.

The GST exemption boosted affordability and lifted demand, especially in retail term and health insurance. But insurers also lost input tax credit benefits, which directly affected profitability. According to Emkay, this hit value-of-new-business margins by 180–450 basis points.

To limit the damage, insurers have begun adjusting product mixes, tweaking pricing, redesigning products, and cutting costs. Some have also passed part of the burden to distributors in products like ULIPs. These measures should help recover margins over time, but the immediate overhang has kept stocks from re-rating.

At the same time, GST cuts on automobiles pushed up car and two-wheeler sales during the festive season, which supported motor insurance.

A new complication: labour code rollout

Another factor affecting sentiment has been the rollout of the new labour codes. With basic salary now required to form at least half of total wages, PF and gratuity contributions have increased. This reduces take-home salaries for many employees and has raised concerns that discretionary savings, including life insurance purchases, may slow.

Emkay noted, however, that it is too early to draw firm conclusions. Lower income tax rates, higher gratuity benefits for corporates, and the GST exemption itself may offset the impact.

Growth remains the deciding factor

Despite the regulatory noise, analysts believe the sector’s long-term trajectory still depends on growth. Retail term and health insurance are seeing sustained momentum after the GST cut, but broader product growth will be essential.

Emkay analysts expect SBI Life and Max Financial to remain on a stronger near-term growth path, with HDFC Life and ICICI Prudential likely improving by the March quarter. For general insurers such as ICICI Lombard and Go Digit, major tailwinds like a motor third-party premium hike may not come until FY27.

For now, insurance stocks remain in a period of transition—balancing short-term challenges with potential long-term catalysts. Whether the sector can re-rate will ultimately depend on how consistently insurers can grow through this regulatory reset.