Kotak [KIE] - Insurance: A sluggish but promising quarter

Moderate but improving business momentum, enriching product margins and mix augur well for life companies in FY2026E. Traction is building in agency, with a waning and seemingly manageable impact of new surrender value guidelines; narratives on bancassurance are turning positive as well. We remain positive on the life sector, acknowledging the recent stock performance. HDFC Life remains our favored pick in private life companies; LIC remains a strong BUY on momentum in equities.

Sluggish APE growth, sequential improving growth and outlook

Private sector life insurance companies delivered 8% APE growth in 1QFY26, with a 3% sequential improvement in April, 9-10% in May-June and 15% in July 2026 (Exhibit 1). Trends in top players continue to be diverse, with Axis Max and HDFC in double digits, ICICI Prudential Life is down (on high base) and SBI Life is in single digits. Bajaj Allianz continues to focus on transformation, while Aditya Birla was muted versus the high (34%) last year; Tata AIA is inching back after slowing down in 2HFY25. LIC ended flat (IRDA data), with a 5% growth in reported APE, after two quarters of a severe decline. Management outlook, which was muted at the beginning of the year, seems to be slowly becoming positive.

Margin expanded for most, protection provides tailwinds

A shift to traditional policies from the high ULIP base last year and an increase in retail protection are key margin drivers for the sector; listed players reported 3-260 bps yoy margin expansion in 1QFY26 (Exhibit 2). While non-par has increased for most, HDFC Life preferred par (after a recent new product) and ICICI Prudential suffered from the high base of an annuity product. SA growth was stronger (16-73%), with most players focusing on riders to improve ULIP profitability; this helped offset any impact of lower margins, after the surrender value guidelines, in the non-par book. We understand that pricing up of term policies in select cohorts and revision of non-par IRRs has also led to a boost.

Non-life: A mixed bag

Key highlights of performance of non-life companies in 1QFY26-(1) commercial lines of businesses fared well, with 17% growth in 1Q as compared with a 22% decline in 3QFY25 and 2% decline in 4QFY25; it appears that pricing has improved in the sector, (2) the motor business remains weak, with 5.3% growth in motor OD and 11.2% in motor TP, reflecting the weak offtake of new vehicles, (3) profitability of TP has been weak, leading to most players going slow (except Bajaj Allianz), (4) claims in the health business remain elevated this quarter as well and (5) investment yields picked up for most (Exhibit 28).

Retain positive bias, remain selective

We retain a positive bias on the life insurance sector, with comfortable valuations and long-term runway. HDFC Life, balancing channels and product mix, is the most favored pick. We await signs of a turnaround in the banca business of SBI Life; LIC remains a play on capital market buoyancy. ICICI Lombard is favored in the non-life space.

Source : Equity Bulls

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Kotak KIE Insurance Q1FY26Review