Recent developments in the insurance sector, particularly concerning GST rate changes, warrant a closer look at insurance stocks like LIC, SBI Life, and HDFC Life. Investors should stay alert as these companies navigate evolving financial landscapes.

Impact of GST Council Decisions

The GST Council recently made key decisions impacting the insurance sector. Individual life and health insurance policies have been fully exempted from GST. This move, effective September 22, 2025, eliminates the previous 18% tax rate on these policies. Reinsurance costs have also been exempted from GST. The changes are expected to make insurance more affordable and increase its accessibility, aligning with the government's goal of supporting the middle class.

Previously, health insurance, ULIPs, and term life insurance policies were subject to an 18% GST. Endowment policies faced GST rates of 4.5% on the first premium and 2.25% on regular premiums, while single premium annuity policies had a 1.8% GST. The removal of these taxes has generally boosted investor sentiment.

Potential Challenges and Opportunities

While the GST exemption is expected to boost demand for insurance products, it also presents potential challenges for insurance companies. A report by HSBC Securities and Capital Markets (India) suggests that while lower premiums could increase demand, companies might experience a 3-6% impact on combined ratios (CR) in the retail health segment. This is primarily due to the slower repricing of renewals, which could take 12-18 months.

Finance Minister Nirmala Sitharaman has stated that the Central Board of Indirect Taxes and Customs (CBIC) will work with the insurance industry to create a transition mechanism for the accumulated input tax credit (ITC) of policies exempted from tax. Experts believe the GST exemption may affect the profitability of insurance companies in the short term due to the slower repricing of existing policies.

Company Perspectives

Despite potential challenges, several insurance companies have projected minimal impact on their embedded value (EV) due to the GST changes. HDFC Life anticipates the GST change will boost demand and expects its new business value to double over the next 4-5 years. The company estimates a less than 0.5% impact on its EV. SBI Life has confirmed it will adjust its products to align with the new tax regime and anticipates less than a 0.2% impact on its EV. ICICI Prudential expects a slightly higher impact, projecting around 1% impact on its EV.

Stock Market Response

Following the GST Council's announcement, insurance stocks generally rose. For example, on September 4, 2025, LIC shares gained over 5% to an intraday high of ₹914.9. SBI Life and HDFC Life also saw gains of nearly 5%, reaching intraday highs of ₹1899 and ₹814.9, respectively.

Factors to Watch

Investors should closely monitor how insurance companies adjust to the new GST regime. Keep an eye on company strategies for repricing policies and managing their combined ratios. Also, it will be important to observe whether the increased demand for insurance products will offset any short-term challenges to profitability.

Meeting with Finance Ministry Officials

CEOs of several insurance companies are expected to meet with Finance Ministry officials to discuss their demands and concerns regarding the recent GST rate changes. These discussions could provide further insights into the industry's perspective and potential policy adjustments.