India's insurance industry faces slow growth in Q1 FY26 amid regulatory challenges and market volatility

Mumbai: India's insurance industry faces a rather dull quarter through June, although the reasons behind the circumspect performance in both life and non-life segments are rather dissimilar.

Analysts believe regulations and a high base would combine to dwarf the gains in new premiums for the life business, while the general insurance stream, particularly automobile covers, would reflect the broader slowdown in consumption demand through a period coinciding with the quickest retreat in policy rates since 2020.

The life insurance industry is expected to report muted annualised premium equivalent (APE) growth in Q1 FY26, dragged by a high base in the same period last year, regulatory impact from new surrender norms, and a softer push for high-ticket ULIP sales amid ongoing global equity market volatility.

"Owing to a high base impact of Q1FY25, the spillover effect of the new surrender regulations and a relative slowdown in sales of ULIPs given the volatility in equity markets is likely to drive moderated APE growth for the Life Insurers during Q1FY26," said Avinash Singh of Emkay Global in his report.

Axis Max Life is expected to lead APE growth at 15-17%, with a value of new business (VNB) margin around 18%, followed by HDFC Life with 13-15% growth and a 25-25.5% margin. SBI Life may deliver 10-12% growth and a 27% margin. ICICI Prudential is expected to report flat APE growth with VNB margin around 24%.

LIC, the state-owned insurer, is also expected to report 10-12% APE growth with 15-16% VNB margin. VNB margins across most players are expected to expand year-on-year, supported by improved product mix skewed towards non-par and protection products. According to Motilal Oswal, VNB margin expansion could range between 90-210 basis points for most insurers, except ICICI Prudential. In contrast, the general insurance sector continues to face growth challenges.

Slower new vehicle sales, no increase in motor third-party premiums, and the ongoing impact of 1/n accounting norms have dampened growth. General insurers posted gross written premium (GWP) growth of 9% in the June quarter, according to the data by General Insurance Council.

Agencies

The 1/n regulations on insurance accounting refer to the treatment of premium figures in the April-June quarter under the Irdai's revised reporting format, which mandates the recognition of premium income on a 1/n basis for long-term policies. Since the new format came into effect in October 2024, the April-June 2024 data was reported on a gross written premium (GWP) basis without such adjustments. As a result, the April-June 2025 quarter numbers reflect the full GWP from new business but only a fraction (1/n) of the premium from long-term policies, making the two periods not directly comparable.

Standalone health insurers grew 10% overall, but performance varied. Listed player Star Health posted just 3.4% premium growth, while Niva Bupa grew 11.45%.

"The health insurance sector remains affected by the 1/n regulation, and rising claims in group health are putting pressure on margins," Emkay report said.

ICICI Lombard reported flat premium income, with strong retail health growth offset by muted performance in group health and motor.