Star Health, LIC, HDFC Life — Insurance Stocks Zoom After GST Exemption On Premiums

Shares of life and health insurance companies soared von Thursday after the Goods and Services Tax Council exempted insurance premiums from levies. The insurance services are currently under 18% rate.

Individual health insurance policies, including family floater policies and policies for senior citizens, will be exempted. "Exemption of GST on all individual life insurance policies, whether term life, ULIP, or endowment policies, and reinsurance," Finance Minister Nirmala Sitharaman said.

Analysts said GST exemption is positive for health insurers and insurance penetration. Insurers will be left with a GST liability on their expenses while their GST incoming has been removed. To protect their profitability and manage this change, such insurers may implement price hikes.

Star Health and Allied Insurance Co. jumped the most, rising 9.3%. ICICI Lombard GIC rose as much as 5.4%, and Life Insurance Corporation of India gained 4.5%.

Brokerages have a cautious but overall "manageable" view on the insurance sector.

• UBS and CLSA both note that the lack of input tax credit could lead to a GST liability on expenses, potentially necessitating price hikes of 1-4% to protect profitability. Insurance companies avail various services like commission payments. Earlier they could use GST paid for input services against GST to be paid to government. This entire amount will now be a cost.

• Jefferies sees the GST exemption on life and health insurance premiums as having a "manageable impact" and believes the potential for increased sales of high-margin protection and riders can help offset any negative effects.

The GST Council announced a sweeping cut in tax rates. The Union government also reduced the taxation slabs from four slabs to two slabs of 5% and 18% respectively. The changes will take effect from Sept. 22, with phased implementation for certain items.