GIC Re to NIACL to Go Digit and Star Health: Why are insurance stocks falling today?

Shares of insurance companies such as General Insurance Corporation of India (GIC Re), New India Assurance Company Ltd (NIACL), Go Digit General Insurance, were reeling under selling pressure on Monday, falling up to 10% after the GST Council deferred a decision on relief for life, health insurance premiums. Overall, the broader market was positive, with the BSE Sensex and NSE Nifty rising up to 1% amid value buying after losing nearly 5% last week.  

GIC Re was the worst performer among insurance space, declining as much as 10.2% on the BSE. The New India Assurance Company Ltd (NIACL) was second on the list with a loss of 6.6%, followed by Go Digit General Insurance, which tumbled nearly 4%.

Among others, Star Health & Allied Insurance, SBI Life Insurance, HDFC Life Insurance, MAX Financial Services, ICICI Prudential Life Insurance were down in the range of 1-2%.

On the other hand, index heavyweights Life Insurance Corporation (LIC) of India and Niva Bupa Health Insurance Company were trading higher with marginal gains.

The sell-off in insurance sector was triggered after the Goods and Services Tax (GST) Council last Saturday deferred lowering the GST rate on health and life insurance premiums. In a press briefing after the GST Council meeting, Finance Minister Nirmala Sitharaman said GST relief on health, life insurance will be taken up by the Group of Ministers (GoM) only after getting insurance regulator IRDAI's inputs. “No timeline has been given to GoM on cess to finalise report,” she added.

The insurance industry was expecting GST exemption on pure term life insurance policies and a reduction in the GST rate on individual health insurance premiums to 5% from 18% currently. It is estimated that tax relief on premiums of health and life insurance policies may result in an annual revenue loss of around ₹2,600 crore.

Last month, the finance ministry proposed to amend various provisions of the Insurance Act, 1938, including raising foreign direct investment (FDI) in insurance sector from 74% to 100%, and allowing insurers to handle multiple classes of insurance business and insurance activities. The ministry released the proposal on November 26 based on a comprehensive review with IRDAI and the industry.

The government also plans to reduce the net owned funds requirement for foreign re-insurers from ₹5,000 crore to ₹1,000 crore. Net Owned Funds (NOF) for a foreign re-insurer is the minimum amount of capital or financial resources that the company must maintain to operate in India.

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