India Insurance Sector Faces Regulatory Headwinds but Growth Potential Remains, JPMorgan Says

Investors in India’s insurance sector are grappling with regulatory concerns and weak confidence in growth prospects for the coming year, JPMorgan says in a report. The bank’s analysts believe, however, the sector may be poised for positive surprises, citing potential margin improvements and the possibility of multiple expansion.

The report, based on recent investor meetings, highlights lingering apprehension about regulatory interventions in the sector. With the upcoming union budget announcement on July 23, investors are particularly focused on potential taxation changes that could impact the industry. Concerns include a possible increase in corporate tax rates for life insurers and further taxation of unit-linked and non-participating products.

Despite these worries, JPMorgan analysts argue that the risk of additional regulatory tightening remains low in the near term. They suggest that insurers are still in the early stages of recalibrating their business strategies following recent changes to surrender value regulations.

The bank maintains its view that life insurers can achieve over 15% growth in new business value for the fiscal year 2025, driven by both annual premium equivalent growth and margin improvements. Interestingly, the report draws parallels between Indian insurers and the trajectory of AIA Group, which saw its price-to-embedded value multiple expand from 1.5x in 2010 to 2.3x in 2019 as product margins improved. JPMorgan analysts suggest that Indian insurers could follow a similar path of multiple expansion as their product mix and margins enhance.

The report also touches on the potential impact of composite licensing, which would allow insurers to offer both life and general insurance products. While investors have mixed views on this development, JPMorgan sees potential benefits for life insurers, including additional growth opportunities and margin enhancement.