Systematix sees life insurance sector to gain post-GST cut; check top picks

India’s life insurance industry offers a long-term growth opportunity, supported by low penetration, a large protection gap and favourable demographics, Systematix Institutional Equities said in a report. While penetration remains close to the global average, it is well below levels seen in developed markets, indicating significant headroom for expansion. The brokerage noted that recent policy support, including the GST exemption on individual life insurance, has improved affordability and revived growth momentum. Against this backdrop, Systematix sees the sector as structurally well placed and initiated coverage on select life insurers with a positive outlook.

Low penetration signals long-term growth opportunity

According to Systematix, India’s life insurance penetration peaked at around 4.4-4.6 per cent of GDP in 2009–10, led by ULIPs, but fell after IRDAI reforms that capped charges, introduced lock-ins, and mandated higher protection cover. Penetration has since stabilised at about 2.7-2.8 per cent in recent years.

 

 

India also has Asia’s widest protection gap at 83 per cent, according to Swiss Re, highlighting significant untapped demand for protection products. Household savings remain supportive, with gross domestic savings at around 30.7 per cent of GDP in FY24, above the global average, even as they trend lower. Insurance funds continue to hold a stable share within household financial savings, pointing to aligned long-term growth potential, the brokerage said.  ALSO READ | Down up to 43% in 7 months, analyst turns bullish on these 3 stocks

Growth momentum intact despite regulatory headwinds

India’s life insurance industry has continued to grow despite multiple regulatory changes in recent years, Systematix Institutional Equities said. Measures such as the Finance Act 2021, capping tax-exempt ULIP premiums and the extension of similar taxation to high-premium traditional policies in Budget 2023–24 temporarily affected certain segments.

 

According to the brokerage, IRDAI’s expense management norms introduced in 2023 provided greater flexibility, while higher surrender value norms effective October 2024 strengthened policyholder protection, albeit with a marginal impact on premiums. Despite these headwinds, total APE grew at a CAGR of 9.3 per cent over the past three years and 9.4 per cent over six years up to FY25, with private insurers growing faster. Systematix attributed the resilience to product diversification and a sharper focus on protection and non-participating products, and expects growth momentum to remain intact.

GST exemption a big boost to business growth

According to the brokerage, the government’s decision to exempt individual life insurance premiums from GST, effective September 22, 2025, is expected to significantly boost demand. The exemption, announced by the 56th GST Council, cuts GST from 18 per cent to zero on term plans, ULIPs, endowment, whole life and annuity policies, while group insurance remains taxed. This has made premiums cheaper by up to 18 per cent, leading to strong year-on-year growth in individual APE for private insurers.  However, the brokerage noted that insurers face higher costs due to the loss of input tax credit, which could raise expenses by 3–8 per cent and pressure margins. Companies are mitigating this through commission renegotiations, improved product mix and tighter cost controls, allowing volume growth to partly offset margin impact.  ALSO READ | Markets pricing in trade deal positives; buy the dips and hold: Analysts

Self-sustaining model with limited dilution risk

Analysts at Systematix said the life insurance industry operates a self-sustaining business model marked by high upfront costs and losses in the early years, followed by a long gestation period before profitability. As the in-force book matures, renewal premiums, low servicing costs and steady investment income generate strong internal cash flows. This enables insurers to fund growth largely through internal accruals, reducing dependence on external capital. High entry barriers, rising penetration and embedded value growth support the sector’s capital-efficient, compounding profile, making it attractive for long-term investors seeking limited dilution, the brokerage said.

Valuation and outlook

The recent GST exemption on individual life insurance policies has emerged as a strong structural tailwind for the sector after a prolonged period of regulatory headwinds, the brokerage said in its note. It added that the reduction of GST to zero has already translated into a sharp pickup in new business premiums over the past few months, reinforcing confidence in the industry’s growth outlook.

 

Viewing this as a long-term positive for the sector, Systematix initiated coverage with a ‘Buy’ rating on six listed life insurers. Its preferred picks, in order of preference, are Max Financial Services with a target price of ₹2,150, followed by SBI Life (₹2,540), HDFC Life (₹900), Canara HSBC Life (₹180), ICICI Prudential Life (₹795), and Life Insurance Corporation of India (₹1,100).  Disclaimer: View and outlook shared on the stock belong to the respective brokerages and are not endorsed by Business Standard. Readers discretion is advised.