HDFC Life to cut agent commissions as GST impact hits financials

“From a customer perspective, definitely the entire benefit is being passed on to customers,” chief financial officer Niraj Shah told Mint. “…we are already in touch with all our distributors in terms of realigning some of the distribution commission. Those conversations are in progress, and I think we will execute all of them in the second half of the year.”

GST changes impacted the second-largest private insurer’s profitability and margins in the quarter ended September.

Mint reported on 30 September that commissions are likely to see a downward review, given that most insurers intend to pass on the entire GST benefit to customers and absorb the hit from the loss of input tax credit.

However, Shah said, the impact of the GST removal and loss of tax credit will normalise in another six months.

GST impact

The second largest private sector insurer posted a net profit of ₹994 crore for the first half of FY26, up 9% on year. “On Q2 PAT (profit after tax), the growth would have been 15%. It’s actually 3% after GST impact,” Shah said. Net profit for the quarter was ₹448 crore.

The 0.5% impact on the embedded value will be a one-time hit, and the insurer is working on various steps, including commission rationalisation and improving operational efficiencies to mitigate the impact on the value of new business (VNB) and profitability. “We expect to get neutral in six months’ time.”

Without the GST hit, VNB would have grown 11% in the quarter, higher than the reported 8% figure. And growth for the first half of the financial year would’ve been 12% instead of 10%. VNB margin for Q2 would have been 25% against the reported 24.1%, and for H1 25% instead of 24.5%.

VNB is the present value of future profits from new policies sold in a period.

The GST rule change created a “material, immediate drag” with a 50-basis-point impact in Q2FY26 and guidance of gross 300 bp hit to VNB margin in FY26, Elara Securities said in a post-earnings note. It attributed the hit on higher operating costs to the loss of input tax credit and the impact on unit economics for various product segments, especially unit-linked plans (Ulips).

“While the mix partially cushioned the blow but not fully, as seen in the 100bp QoQ decline in reported margins,” the note said, adding that margin normalization hinges on incremental scale through fixed-cost absorption, sustained growth in protection/annuity/Ulips and higher ticket policies, and distributor commission negotiations.

The GST impact was also reflected in the insurer’s solvency ratio (a measure of buffer against its risk), which fell to 175% from 192% last quarter. Shah said about 6% of the impact was due to repayment of ₹6,00 crore of subordinated debt, 4% owing to the dividend payout, about 1-1.5% was because of the GST changes, and the remaining was because of the significant growth in the protection business.

The company plans to raise a cumulative ₹750 crore via subordinated debt in the third quarter ending December, following which the solvency ratio will go above 180%. “We are reasonably comfortable with a level of 180-odd %. After the subordinated debt raise, it will be in that zone,” he said.

Top line growth

HDFC Life believes the hit from GST is a short-term impact and will be resolved in a couple of quarters. “We are not too worried about that,” Shah said, adding that the focus remains on topline growth.

In Q2, the insurer improved its market share in terms of individual weighted received premium (WRP)—a measure of premium growth—by 100 basis points to 11.9% at an overall level, and 40 basis points among private life insurers to 16.6%.

The aim is to continue to grow faster than the system, according to Shah, who is hopeful that the industry growth will pick up in the second half of the financial year, in part due to an increase in retail interest post the GST removal.

HDFC Life reported 10% growth in individual WRP for the quarter, higher than around 1% for the life insurance sector and around 8% for private peers.

“Protection is already growing quite well, close to 30% even before (the GST removal), but after that, it has grown even more. That is definitely visible, but it’s early days. We expect this momentum to continue, but we will give it another three to six months,” he said, adding that he definitely sees “acceleration in protection demand” which has trended upwards since September 2025. “The growth is significantly higher than what we were seeing till the beginning of the month.”

Protection largely includes term plans, besides some health and disability polices, for the insurer.

However, he believes it is important to invest in things that will enable this growth, such as expanding distribution, increasing customer awareness, improving the product suite, opening new branches, adding new agents, and investing in technology to improve operational efficiencies.

“Right now, the gap in operating leverage is because we are capacitized to grow at 16-18%, but we’ve grown at 10%. That’s the reason the full fixed cost is not getting absorbed in Q1 and Q2. But I think we should be able to narrow down that gap in the second half of the year,” he said.

Demand to pick up

HDFC Life’s premium income grew 15% on year for H1, led by an 18% rise in renewal premium and 12% in new business premium. Annualised premium equivalent (APE or revenue equivalent for the insurance industry) grew 10% for the first half of the financial year to ₹7,413 crore.

Shah said unit-linked, participating, and protection products continue to do well, while non-participating products have been growing slower for the last two quarters due to higher short-term interest rates. He expects demand for longer-tenure products to pick up in the second half, led by normalisation in the yield curve and sustained volatility in equity markets.

In a participating plan, policyholders get a share of an insurer’s profit in the form of dividends and bonuses, while they don’t get such a benefit under non-participating plans.

“We expect unit-linked (Ulip) to go down, not dramatically, but lower than what it is at this point in time. Participating growth will be similar, non-par will be higher,” Shah said, adding that protection products are expected to grow faster than the overall rate of growth and will remain at around 7% of the product mix.