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

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.

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

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.