Top insurance stocks, including GIC Re, i.e., General Insurance Corporation of India Reinsurance Company, New India Assurance Company Limited, and Star Health, started the week with a fall in the share price of around 6.5%, 5.4%, and 1.9%, respectively. The reason for the fall is the recent decision of the GST Council regarding the GST rate on life and health insurance premiums. What is the decision, and how did it impact the companies and raise concerns over their revenue? Let’s understand.
The GST Council Decision
The GST Council has postponed its decision on reducing GST rates for life and health insurance premiums. This was discussed during its 55th meeting on Saturday. Earlier in November, a proposal by the GoM suggested exempting GST on term life insurance premiums and health insurance premiums paid by senior citizens. It also recommended removing GST on health insurance premiums up to Rs.5 lakh for individuals, excluding senior citizens.
The 18% GST rate remains on premiums for health insurance policies exceeding Rs.5 lakh. The Council deferred the decision, citing the need for further discussions to address technical details and ensure all states agree. This delay is significant for consumers and the insurance sector. The proposed changes could make insurance premiums more affordable, positively impacting many lives.
The Affect On Top Insurance Stocks
GIC Re:
GIC is India’s only reinsurer registered with the regulatory authority and listed on the country’s stock exchanges. It leads the domestic market, contributing 69% of its premium income in FY 2023-24, while international premiums accounted for 31%. The company has a robust financial standing with a net worth of ₹81,330 crore (including fair value change account) and total assets of ₹1,78,286 crore.
On December 20th, 2024, GIC’s shares surged nearly 11% to hit a record high of Rs.494.45, driven by heavy trading volumes. However, the stock dropped in early market hours on December 23rd, 2024, trading nearly 5% lower at Rs.476.75 and ending the day at Rs.492.
New India Assurance Company Limited:
New India Assurance Company Ltd, India’s largest non-life insurer, is backed by the Government of India, which holds an 86% stake. As of FY2024, the company reported a net worth of ₹44,704 crore and earned an impressive investment income of Rs.9,241 crore.
In the past month, its stock value saw a 14.9% rise, reflecting positive market sentiment. However, by 10:25 am on 23rd December 2024, shares of New India Assurance were trading 6% lower, priced at Rs.200.78 per share.
Star Health & Allied Insurance Company Ltd.:
Star Health & Allied Insurance Ltd (Star) is India’s first standalone health insurance provider and the largest private health insurer. It holds a 31% market share in retail health insurance and 5.26% in general insurance as of Q1 FY2025.
On 4th December 2024, Star Health’s stock rose by 5.6% after the Group of Ministers (GoM) on GST rate rationalization proposed reforms to boost the insurance sector. These reforms included lower GST rates on health insurance policies, aiming to make them more affordable. However, on 23rd December 2024, the shares fell by 1–2%. The dip came after the GST Council deferred the decision, citing the need for further discussion on the financial implications of the proposed changes.
How Will The Possible Revenue Changes Be A Concern?
While the proposed reforms aim to make insurance policies more affordable by reducing the GST rate from 18% to 5% or exempting certain premiums altogether, the projected annual revenue loss of Rs.2,600 crore raises significant concerns for insurers.
A reduction in GST might immediately benefit consumers, encouraging more individuals to purchase health and life insurance policies. However, this increase in policy sales may not fully offset the revenue loss for insurers in the short term.
Lower tax rates could pressure insurers’ profitability margins, especially for private players who rely heavily on retail health insurance premiums. Insurers might face challenges in maintaining operational costs, including claims processing, administrative expenses, and compliance requirements, without passing on the burden to consumers in other ways, such as higher base premiums or reduced policy benefits.
Additionally, insurers may need to adjust their financial strategies to absorb the impact of reduced tax revenue. This could include scaling back on investments in new products, technology, and infrastructure critical for improving customer experience and expanding market reach.
Conclusion:
While the reforms have the potential to stimulate demand due to the elasticity of insurance purchases, insurers’ long-term financial stability remains uncertain. If the proposed GST relief is implemented, balancing consumer affordability with sustainable revenue models will be a critical challenge for the industry.
Since the decision is still under discussion, it isn’t easy to pinpoint the effects on the insurance sector as a whole. However, we can expect a more precise picture after the finalization of the reforms.
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FAQs
Which other insurance stock saw a drop in its share price on 23rd December 2024?
In addition to GIC Re, NIACL, and Start Health, Go Digit General Insurance stumbled around 4% following the deferred GST council decision.
Which company has the biggest market share in India’s insurance sector?
The insurance sector in India is dominated by LIC, which holds a strong market share of 59%.
What is the growth rate of the insurance sector in India?
India’s life insurance sector witnessed robust growth in Q1 FY25, with first-year premiums increasing by 22.91% year-on-year to Rs.89,726.7 crore, compared to Rs.73,004.87 crore in Q1 FY24.
I’m Archana R. Chettiar, an experienced content creator with
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