Kotak Institutional Equities Report Highlights Strong Growth in India's Life and Health Insurance Sectors

India’s insurance sector is displaying signs of stronger growth, driven by robust performance from life insurers and improved new business metrics for health insurers, according to a recent report by Kotak Institutional Equities.

The report highlights that private insurance stocks have underperformed by 7 to 15 percent over the past three months. However, Kotak noted that this weak market performance does not accurately reflect the fundamental improvement in the underlying businesses of these insurers.

In the first quarter, life insurers recorded annualised premium equivalent (APE) growth ranging between 8 and 36 percent. During the same period, several players saw their margins improve by approximately 200 to 300 basis points. The report points out that this growth was largely supported by protection products such as term insurance, alongside traditional savings and annuity products.

This operational improvement occurred despite the impact of the Goods and Services Tax (GST) exemption on insurance, which led to a loss of input tax credit for insurers. Companies passed the benefit of the GST cut on to customers, resulting in lower term insurance premiums across several firms.

Kotak anticipates that insurance companies will now place a greater emphasis on growth as uncertainty surrounding proposed commission regulations begins to ease. The report states that with commission guidelines being pushed out, insurance companies can focus on growth and navigate a steady business environment.

The health insurance segment has demonstrated similar positive trends. New business growth for health insurers rose between 37 and 41 percent in the first quarter. Furthermore, the combined ratio—which measures the proportion of premium income used for claims and expenses—improved by 160 basis points for Star Health and 300 basis points for Niva Bupa.

Despite these gains, the report flagged potential risks for diversified non-life insurers stemming from higher motor third-party claims. Overall, Kotak maintained a positive outlook on life insurers, noting that current valuations remain attractive despite ongoing regulatory considerations.

Looking ahead, Kotak expects most private life insurers to achieve moderate mid-teen growth over the next few years, while forecasting a more measured growth trajectory for Life Insurance Corporation of India (LIC).

"The findings from Kotak Institutional Equities highlight a notable divergence between market stock performance and underlying operational fundamentals in India's insurance sector. While short-term stock pressure exists, the robust growth in annualised premium equivalent for life insurers and improved combined ratios for health players indicate strong intrinsic demand. As regulatory uncertainties around commissions ease, insurance providers have a clear opportunity to scale their core protection and savings products effectively." — Dr. Shishir Gupta, Founder & CEO, StartupLanes