Life Insurance Corporation of India (LIC) declared disappointing results in Q1FY24.
While it reported a net profit of Rs 9,540 crore in Q1FY24, this was attributable to the transfer of Rs 7,490 crore from non-participating (non-par) products to shareholders’ accounts due to the accretion on available solvency margin.
In operational terms, annualised premium equivalent (APE) declined and value of new business (VNB) margin was flat. But the medium-term prospects may be better.
The policy mix seems to be improving with a higher share of non-par products, and higher persistency.
Net premium was flat year-on-year (Y-o-Y) at Rs 98,300 crore in Q1FY24, and market share (based on first-year premium) dropped to 61.4 per cent from 65.4 per cent Y-o-Y.
LIC also reported a 7 per cent decline in APE in Q1FY24 with a 10 per cent decline in individual participatory APE.
But the Q1FY23 base was high with 35 per cent Y-o-Y growth, (which moderated to 13 per cent for FY23).
The management expects APE growth to catch up in the rest of FY24. The VNB margins were flat at 13.7 per cent.
One reason was rising interest rates leading to pressure on margins.
LIC also repriced its non-par products, in response to competition and this also pushed VNB margin down.
As per IRDA data, LIC’s individual APE was up 17 per cent in July 2023, which is a good sign.
Although term business is negligible at less than 0.5 per cent, it reduced further in Q1FY24.
The share of non-par policies increased to 6.4 per cent of APE from 4.9 per cent in Q1FY23.
LIC is targeting further increase of non-par which could help it to achieve a target VNB margin of 20 per cent plus.
The share of participatory products reduced to 89.8 per cent from 92.2 per cent in Q1FY23.
The non-par APE increased to Rs 610 crore in Q1FY24 from Rs 500 crore (Y-o-Y), registering 21.6 per cent Y-o-Y growth.
However, LIC does not share product-wise APE break-up and its non-par reportage includes ULIPs.
This makes analysis difficult.
On a new business premium basis, non-par comprised 27 per cent, annuity was at 7 per cent and ULIPs at 2.5 per cent of non-par savings while health and term were about 1 per cent.
Renewal premium rose 6.7 per cent Y-o-Y to Rs 53,600 crore, but the first-year premium and single premium declined 8.3 per cent and 6.7 per cent respectively.
Total individual premium increased 4.6 per cent Y-o-Y to Rs 62,800 crore, while total group premium was down 7.2 per cent Y-o-Y.
Channel-wise, agency contributed 96.5 per cent while bank channels increased 3.2 per cent in Q1FY24 from 2.7 per cent in Q1FY23.
The 13th month and 61st month persistence also improved around 30-50 basis points in each case.
The assets under management was at Rs 46 trillion as of Q1FY24, up from Rs 41 trillion (Y-o-Y).
Management guided that annuity is contributing favourably to group business, which has meant margin gains.
In July, LIC also launched a competitive return of premium product on the protection side and protection share is expected to improve.
LIC repriced its term policy rates last year, and this will enhance competitiveness and management anticipates a rebound in sales.
At current prices, LIC is trading at roughly 0.6-0.7 times its embedded value.
Many analysts consider this an under-pricing given the gradual improvement in mix, and margin recovery.
It is a big discount compared to the valuations of private sector insurers.
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