 "life insurance, general insurance, Q1 FY26 profits, VNB margin, ULIP impact, LIC margin, SBI Life, HDFC Life, ICICI Lombard, insurance profitability")
Life and general insurance companies are likely to see an improvement in their profitability in the first quarter (Q1) of 2025–26 (FY26) on the back of an increased share of high-margin products and better operational efficiencies, according to analysts.
Life insurance companies are expected to report improved profitability — measured by the value of new business (VNB) — due to a higher share of high-margin, non-participating (non-par) products. This, combined with a lower share of low-margin unit linked insurance plans (Ulips) in the same period last year, has created a base effect that further supports profit margins in the reported quarter compared to the year-ago period.
“Market sources suggest a shift in the business mix away from Ulips; distributor incentives were more aligned in favour of Ulips last year. This will mostly lead to expansion in margins. We penned down about 100–150 basis points margin expansion on account of the shift away from Ulips,” analysts at Kotak Institutional Equities said. However, the annualized premium equivalent (APE) of life insurers is likely to be muted during the quarter compared to last year as a result of the high base caused by the new surrender value norms and increased Ulip sales.
“Owing to a high base impact of Q1 of FY25, the spillover effect of the new surrender regulations, and a relative slowdown in Ulip sales given the volatility in equity markets, moderated APE growth is likely for life insurers during Q1FY26,” according to a report by Emkay Global Financial Services.
According to estimates by analysts at Emkay, the leading private life insurer — SBI Life Insurance — is expected to report a VNB margin of 27 per cent in Q1FY26, up from 26.8 per cent in Q1FY25. Its margin in the fourth quarter of (Q4) FY25 was 30.4 per cent.
HDFC Life Insurance’s margin is likely to be 25.5 per cent, compared with 25 per cent a year ago. In Q4FY25, the insurer’s margin stood at 26.53 per cent. Meanwhile, ICICI Prudential Life Insurance’s margin might be 24.2 per cent, up from 24 per cent in Q1FY25. The margin in Q4FY25 was 22.7 per cent.
Axis Max Life Insurance’s margin is expected to be 18.2 per cent, compared with 17.5 per cent. The insurer’s margin in Q4FY25 was 28 per cent.
Similarly, the state-owned Life Insurance Corporation of India (LIC) is likely to see its margin expand to 15.4 per cent from 13.9 per cent in the same quarter last year. “Led by a higher share of non-par products, we expect VNB margins to improve to 15.4 per cent, driving a VNB growth of 22.6 per cent,” analysts said. LIC’s margin in Q4FY25 was 18.75 per cent.
For general insurers, profitability — measured by the combined ratio — is expected to improve, aided by operational efficiencies despite an increase in the claims ratio. The lower the combined ratio, the higher the profitability of the company.
Motilal Oswal, in its report, said, “While claims are expected to remain elevated due to medical inflation and high claim frequency, operational efficiencies will offset the impact on the combined ratio.”
Analysts at Emkay estimate ICICI Lombard General Insurance’s combined ratio at 101.2 per cent, compared with 102.3 per cent in Q1FY25. Star Health Insurance expects it to be around 101 per cent, up from 99.2 per cent; Go Digit General Insurance is expected to post a ratio of 103.9 per cent, down from 105.4 per cent.
However, the gross direct premium income of general insurers is likely to remain flat in the quarter due to a slowdown in vehicle sales, no revision in motor third party premiums, higher competition, and the implementation of the 1/N accounting norms for long-term policies, analysts said.
