LIC hopes it can off-set GST hit by managing expenses, selling more policies

Life Insurance Corp. of India. (LIC) hopes to offset the blow of the recent GST rationalization by managing its expenses and selling more policies rather than increasing premiums or reducing commissions.

“We expect that exemption of life insurance business from GST will result in a significant increase in business volumes and revenue growth as well as our continuous efforts to optimize our expenses. We will be able to handle the pressure on margins and continue to focus on margin growth as well as profitability,” Managing Director and Chief Executive Officer R. Doraiswamy said at a media meet to announce LIC’s September quarter results.

While the insurer hopes to maintain its market share going forward, it said its focus will be on growing its turnover and driving sustainable profitability over a period of time.

Customer advantage

Retail life and health policies have been exempt from GST from September 22 as against the earlier tax rate of 18%. While this was expected to encourage retail purchasing of insurance policies, it also increased insurers’ expenses due to the loss of input tax benefit on such policies.

While some private insurance companies said they would reassess commission payments to agents and brokers to pass on some of the loss arising from loss of input tax credit, LIC management said it was “very clear” that it would pass on the entire benefit related to premiums to customers and that no GST liability would be passed on to brokers.

The nation’s largest insurer’s annual premium equivalent (APE) rose slightly by 3.6% year over year. ₹29,034 crore in the first half of FY26 due to 5.5% decline in individual business APE ₹17,170 crore. The slow growth was due to a high base in the same period last year and lower sales volumes as people postponed purchasing new policies ahead of the implementation of GST changes.

“The last eight days were not sufficient to make up for the work that was not completed in the period from September 5 to 21, resulting in muted or subdued growth for September in particular,” he said, adding that he expected growth to be “robust” in the second half of this financial year. “We are already witnessing this in October, so we are seeing good traction in the second half.”

Profit support

New business value (VNB) for insurer up 12.3% year on year ₹5,111 crore in the first half of the financial year, while VNB margin increased by 140 basis points to 17.6% during this period.

Given that the GST changes were implemented towards the end of the quarter, the impact on VNB in ​​the first half of the year was minimal, management said, adding that it did not expect the impact to be significant even going forward.

“As of now, all our assumptions put together on the operational expenses side are below 1%. We are confident that we will be able to manage the impact of this through our efforts to increase volumes,” Doraiswamy said, adding that he expects this momentum to continue as the insurer focuses on profitability and margin growth.

“With the efforts we’ve made in the past, even if we continue to focus more on this, there will automatically be some improvement in this regard. But we would like to see some sort of stabilization somewhere around that in the coming days.”

Steady margin growth coupled with strong growth in investment income has helped the life insurer’s profitability. LIC declared net profit ₹21,040 crore in the first half of the year, up 16.4% year on year. Profit after tax increased by 31% in the second quarter ₹10,098 crore. Income from investments increased by 4.8% annually ₹26.2.1 trillion for the first half of the year.

What helped was that the input tax loss only applied to new policies; This means LIC can still benefit from policies issued before September 22, chief financial officer Sunil Agrawal explained.

“We can collect GST on policies issued before a certain date. That makes us comfortable about it. So, there is a small offset. So, we are comfortable that we can get by with good growth in profits without doing anything on this side,” Agrawal said, adding that the input tax benefit for group health continues to be available.

“We also have rental income that can be offset. So, we will examine all these and come to the final conclusion,” he said, adding that “a significant part is in the individual business commission” and to what extent the ITC benefit will be lost.

Some reports suggested LIC was set to lose ₹5,000 crore ITC benefit due to GST exemption. Agrawal, who did not confirm the number, said these estimates were probably calculated based on historical public data and may not be accurate. Since commission rates vary widely across various product segments, LIC needs to make a new set of assessments or recalculate this figure based on changing product mix and sales trends.