GST-led ITC loss, market swings to test insurers' profitability in Q4 FY26

GST-led input tax credit loss and weak equity markets may weigh on insurers' Q4 FY26 profitability, with life insurers facing sharper impact while general insurers see demand support

Volatility in equity markets is also likely to weigh on insurers’ investment income during the quarter.

Aathira Varier Mumbai

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Insurance companies' profitability is likely to be under pressure in the January–March quarter of FY26 (Q4 FY26), primarily due to the loss of input tax credit (ITC) following the rationalisation of Goods and Services Tax (GST) on retail life and health insurance policies, analysts said. However, the impact is expected to be relatively lower for general insurers, aided by a positive demand impulse in health and motor segments after rate rationalisation.

Volatility in equity markets is also likely to weigh on insurers’ investment income during the quarter.

According to analysts at Emkay, margins are expected to remain broadly stable, with the impact of GST-related ITC losses already factored in.

A correction of about 14 per cent in the Nifty50 during Q4, along with a roughly 10 per cent decline in the second half (H2) of FY26, coupled with a 40 basis point rise in bond yields in Q4, is likely to result in a negative economic variance of 4–5 per cent for private life insurers and nearly 10 per cent for Life Insurance Corporation of India (LIC) in FY26.

Life insurers are expected to mitigate the impact of ITC loss by increasing focus on non-linked products, supported by rising demand for term plans and higher attachment rates.

“We expect the impact of ITC loss on Value of New Business (VNB) margins to be partly offset by a shift towards non-linked products, rising demand for term products, and improved attachment rates. Across our coverage, VNB is likely to grow in double digits, except for HDFC Life Insurance Company, where it is projected to decline year-on-year, and SBI Life Insurance, where growth is expected to be in single digits,” Motilal Oswal said in a report.

According to the brokerage, SBI Life Insurance is likely to report a marginal 1 per cent increase in VNB in Q4 FY26, compared with 9.9 per cent growth in the same quarter of FY25. HDFC Life’s VNB is expected to decline by around 6 per cent, from 11.5 per cent a year earlier. ICICI Prudential Life Insurance is estimated to report a 12 per cent growth in VNB, up from 2.45 per cent in Q4 FY25.

Meanwhile, LIC is expected to post a 25 per cent increase in VNB in Q4 FY26, compared with a 3.04 per cent decline in the year-ago period.

For general insurers, GST changes have supported continued growth momentum in the health and motor segments during the quarter. Emkay expects the combined ratio to remain broadly stable, despite some impact from ITC losses. However, subdued equity markets are likely to limit capital gains, thereby weighing on profitability.

Looking ahead, an uncertain economic and geopolitical environment could pose challenges in FY27 for general insurers, which are already grappling with pricing pressure in commercial lines and delays in motor third-party tariff hikes.

Additionally, regulatory developments, including the proposed Sabka Bima Sabki Suraksha framework, will remain key monitorables for the sector.

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First Published: Apr 12 2026 | 11:05 AM IST