Regulatory changes, valuation pressures pull down life insurers' returns

Three of India's four listed life insurers have delivered negative returns over the past five years as repeated regulatory changes, slower growth and lower valuations weighed on investor sentiment

India's listed life insurance companies have largely failed to reward shareholders over the past five years, with three of the four listed firms delivering negative stock returns, reflecting a sharp de-rating of the sector amid regulatory changes, slowing growth in profitable product segments and persistent pressure on valuations.

 

Data for the five years ended July 10, 2026, show that while SBI Life Insurance generated positive returns, shares of Life Insurance Corporation of India (LIC), HDFC Life Insurance, and ICICI Prudential Life Insurance declined.

 

Shares of LIC have fallen 6.43 per cent, while HDFC Life Insurance and ICICI Prudential Life Insurance have declined 16.59 per cent and 16.23 per cent, respectively. SBI Life Insurance is the top performer, with its shares gaining 82.56 per cent.

 

According to Suresh Ganapathy, head of financial services research at Macquarie Capital, the biggest overhang for the sector has been frequent regulatory changes over the past three years. "The singular issue with the sector has been regulations. Every year we have had some major regulatory change, and every time companies have had to realign their systems, processes, distributor relationships and commission structures. During that adjustment period, both growth and margins suffer."

 

The industry has had to contend with taxation changes on insurance policies, revised surrender value regulations, withdrawal of input tax credit (ITC) benefits on goods and services tax (GST), and now proposed commission cap regulations expected later this month.

 

He said any new commission cap framework could again affect business growth for the next few quarters, making FY27 another challenging year for life insurers. "Even after that, there is no certainty that regulatory changes are over. The regulator could subsequently take up bancassurance regulations as well," he noted.

 

The regulatory overhang has also prompted private life insurers to recalibrate their distribution strategies. Companies are increasing investments in their agency networks to diversify distribution, reduce dependence on bancassurance and expand their customer reach amid growing concerns over mis-selling through bank channels and the possibility of tighter regulatory oversight.

 

Concerns about insurance mis-selling, particularly through the bancassurance channel, have intensified over the past two years, drawing scrutiny from the Reserve Bank of India (RBI), the Insurance Regulatory and Development Authority of India (Irdai) and the finance ministry. Regulators have flagged instances where insurance products were allegedly sold without adequate disclosure, suitability assessment or customer understanding, particularly through bank branches leveraging their existing customer relationships.

 

Separately, the RBI's draft directions on financial services and customer protection have proposed that banks should not compulsorily bundle insurance and other third-party financial products with loans or banking services. The draft framework also requires explicit customer consent, separate approvals for each product sold and makes banks liable for refunds and compensation in cases where mis-selling is established.

 

The other major reason for the poor showing by these companies has also been a continuing pressure on valuations. "The top players haven't done well and SBI Life has been more of a re-rating and valuation catch-up story. Its five-year annualised premium equivalent (APE) growth has also been better than peers," Ganapathy said.

 

He noted that life insurers today trade at around 1.5-1.6 times price-to-embedded value (P/EV), significantly below the 2.5-3 times multiples they commanded a few years ago. Similarly, value of new business (VNB) multiples have nearly halved to around 10 times from about 20 times previously.

 

The decline in valuations has coincided with several foreign partners reducing or exiting their investments in Indian insurers, even after the government raised the foreign direct investment (FDI) limit in insurance to 100 per cent.

 

"While the government has increased FDI to 100 per cent, existing shareholders are selling. Prudential wants to declassify or exit ICICI Prudential Life, Standard Life exited HDFC Life, Old Mutual sold its stake in Kotak Life's parent, New York Life exited Max, while Aegon and AXA have also reduced their presence. That raises questions about the sector," Ganapathy said.

 

Ganapathy said HDFC Life's subdued performance in the June quarter also reflected weakness in the bancassurance channel rather than merely a loss of market share within HDFC Bank.

 

"Tata AIA has also not done well, suggesting the issue is with the channel itself. While individual policy count has grown well, indicating agency and other channels continue to perform, the higher-ticket bancassurance channel has remained under pressure," he said.

 

The repeated policy changes have created uncertainty around earnings visibility, making investors cautious despite the sector's long-term structural growth opportunity. For investors, the sector's experience over the past five years underscores that premium growth alone has not been enough to drive shareholder returns. Instead, valuations have increasingly been dictated by earnings quality, distribution dynamics and the evolving regulatory landscape.