Insurance stocks pare gains after early surge on GST relief

Insurance stocks see profit booking after early surge on GST relief

Insurance counters opened with a strong rally on Thursday but surrendered most of their early gains by mid-session. Shares of HDFC Life Insurance, ICICI Lombard, Star Health, SBI Life, Niva Bupa Health Insurance and LIC initially surged 5 to 10 percent after the GST Council announced a full exemption of Goods and Services Tax on all individual life and health insurance policies, effective September 22, 2025.

By early afternoon trade, most of these stocks were holding only 1 to 2 percent higher.

Industry leaders cautioned that a steep reduction of GST on insurance could prove counter-productive. Speaking to CNBC-TV18, executives said a lower rate without the benefit of input-tax credit would raise operating costs for insurers, forcing higher premiums and potentially dampening demand.

Market participants added that the sector may formally petition the government to reconsider such a GST move, arguing that preserving credit mechanisms is vital for sustainable pricing and long-term growth, CNBC report added.

According to JM Financial, the exemption makes traditional savings products more competitive compared with fixed deposits and mutual funds. In health insurance, while profitability could be impacted in the medium term, the effect is expected to be offset by GST reduction and exemption across the healthcare value chain, supporting deeper penetration over time—an area where Star Health is likely to benefit.

The brokerage firm added that a 2.25 percent GST waiver on regular premiums allows insurers offering a 6 percent guaranteed return to improve yields by 10 to 15 basis points on an internal rate of return basis.

Life insurers also face a lower incidence of input tax credit because of fewer operating expenses and individual claims relative to the medical spend in health insurance. For unit-linked plans, only management fees and related charges—taxed at 18 percent—are affected, so the direct benefit for policyholders will remain limited, the report said.

Market experts believe the exemption strengthens the appeal of insurance products. They note that the widening spread between fresh deposit rates and government security yields is already favouring life insurers. Private-sector players have reported year-to-date growth above 10 percent, with margins expanding in the first quarter. Analysts expect pricing flexibility and a shift towards higher-margin, return-guarantee products to sustain sector momentum.