The brokerage has maintained its a “buy” recommendation on the stock with a target price of ₹100 per share, which implies a potential upside of 31%.
The company is of the view that while the IRDAI reforms are net positive over the medium term, it may have an impact on near-term growth. It said the industry will reassess product constructs and distribution architecture, which could weigh on growth, Motilal Oswal’s note said.
The Insurance Regulatory and Development Authority of India (IRDAI) put out a consultation paper on Wednesday, September 23, which put the spotlight on the economics of insurance distribution. It proposed a broad recalibration of insurance distribution economics, including rationalising expenses of management (EoM), tigher conrrol on commissions and more transparency for policyholders, among others.
The brokerage listed the following key takeaways from the management’s call:
It said the regulations, with regards to retail health, which makes up for 75% of the company’s June quarter book, are a positive. Lower commissions let the company hold prices flat for longer, as it did after the GST exemption. Volumes should offset lower rates for distributors.
Agency: The reforms are positive. It has proposed 20% first-year with 10% renewal cap, which is close to what Niva Bupa already pays.
Bancassurance: Positive on growth and economics, despite a sharper cut,
Precedent: After the GST ITC loss, monthly retail business from bank doubled in 12 years, the company said.
Digital brokers such as Policybazaar – Niva Bupa is of the view the IRDAI reforms are positive for the insurer’s economics. Growth is expected to stay strong and the final commission level is still open.
Group / B2B make up 8% of Niva Bupa’s book. It said the reforms are neutral to marginally positive and pricing cycle is he bigger lever.
The credit-linked business, which makes up 15% of FY26 gross written premium (GWP), is likely to see a negative impact due to the reforms. It said volumes will drop. It added that mitigants are now lender counters and a signed MoU with a life insurer for a composite term, credit life and health offering.
With regards to the EoM, the company is confident of reaching 25% of GWP in two years from 34-35% and 20% in the five years.
In terms of the combined ratio, the reform accelerates the path to the 98% – 99% target, and a formal guidance review would be after the second quarter. Long-run return on equity target of 15% – 18% is unchanged, it added.
The management’s reading is that new rates apply to all in-force business renewing after implementation, not only new businesses, Motilal Oswal stated. A policy written in FY27 and renewed in FY28 would pay the new rate. The company said it would seek clarity from IRDAI and if it turns out to be prospective only, the EoM path would need rework.
The management stated that the differential pricing by the channel is already allowed. The company chooses uniform pricing. The proposed commission is a cap, not a floor, so quality-linked incentives can still vary within it. Customer quality is controlled mainly through underwriting, it said.
Direct-to-consumer still costs around 10 pp less than intermediated business, so it remains more attractive, as per the management. Csutomer ownership value is unchanged and DTC investment continues, the brokerage
Stock reaction
Of the 11 analysts who have coverage on the stock, 10 have a “buy” rating and one has a “hold” rating.
Shares of Niva Bupa Health Insurance ended the previous session 5.2% lower at ₹76.1 apiece. The stock has declined 8.5% in the past month but is up 1.4% this year, so far.
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