The call comes against the backdrop of a mixed March quarter performance for India's listed life insurers, where headline growth held up but profitability metrics told a more uneven story.

Mixed quarter for value creation metrics

According to the brokerage's review, the final quarter of FY26 did not present a uniform trend across the sector. New Business Value (NBV), a key measure of incremental profitability, and margins moved in different directions across companies, largely driven by product mix and distribution shifts.

Canara HSBC Life stood out with a sharp 739 basis point expansion in NBV margins to 30 per cent, aided by a higher contribution from non-participating savings products and annuities. ICICI Prudential also saw improvement, with margins rising 249 basis points to 25.2 per cent, supported by growing traction in protection products, a segment typically associated with higher profitability.

In contrast, larger players HDFC Life and SBI Life reported margin compression of 253 and 211 basis points, respectively. Analysts attributed this to unfavourable product mix changes and the impact of GST adjustments, which shaved off roughly 1-2 percentage points from reported margins.

Growth trends remain uneven

On the growth front, Axis Max Life delivered the strongest expansion in Annualised Premium Equivalent (APE), clocking 18 per cent growth, followed by Canara HSBC at 12 per cent. Meanwhile, the three biggest insurers, including HDFC Life and ICICI Prudential, reported single-digit growth, pointing to a temporary slowdown in scale-driven momentum.

Despite these variations, embedded value (EV) growth, a broader measure of long-term franchise worth, remained resilient. All five insurers covered in the report recorded double-digit EV growth during FY26, even as economic variances turned negative.

The upgrade of HDFC Life to "Buy" comes despite no change in earnings estimates or the target price, which remains at Rs 700. The rationale hinges on a combination of cyclical recovery potential and structural levers.
The insurer underperformed the private sector average in FY26, delivering APE growth of 8 per cent compared with industry growth of around 13 per cent. This relatively weak base, analyst argues, creates room for acceleration. Nirmal Bang expects HDFC Life's APE growth to recover to 13 per cent in FY27.

Early signals from the current fiscal year are mildly encouraging. Individual APE growth stood at 13 per cent year-to-date as of May 2026, although still trailing the broader industry's 16 per cent expansion. On the business mix side, protection products are expected to remain a key growth driver given their strong margins. The non-participating segment, which struggled in FY26, is likely to see a rebound supported by a favourable interest rate environment and easier base. Meanwhile, the annuity portfolio could gain traction with new offerings, including a recently launched variable annuity product, the brokerage noted.

A structural shift in distribution is another pillar of the bullish stance. HDFC Life is targeting an increase in agency channel contribution to 25%, up from 18% currently, over the next three to four years. A higher share of proprietary distribution typically improves margins and reduces dependence on bancassurance tie-ups.
From a valuation standpoint, the stock is seen as reasonably priced, trading at about 1.5 times its estimated price-to-embedded value (P/EV) multiple for FY28, while delivering a normalised return on embedded value (RoEV) of over 15 per cent.

Sector outlook: selective optimism

While the quarter's mixed performance underscores near-term challenges, the brokerage maintains a constructive stance on the sector. The preference remains for companies with stronger product mix, margin visibility, and distribution control. ICICI Prudential's largely completed actuarial reset and Max Financial's superior growth profile keep them firmly among top picks alongside HDFC Life. The report flags several downside risks that could derail earnings recovery. For HDFC Life, these include a potential decline in business sourced through HDFC Bank, weaker-than-expected traction in high-margin protection products, and slower recovery in non-par and annuity segments.

(Disclaimer: The above article is meant for informational purposes only, and should not be considered as any investment advice. ET NOW DIGITAL suggests its readers/audience to consult their financial advisors before making any money related decisions.)

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