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<\/p>\nLife Insurance Corporation of India (LIC) declared disappointing results in Q1FY24.<\/p>\n
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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.<\/p>\n
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.<\/p>\n
The policy mix seems to be improving with a higher share of non-par products, and higher persistency.<\/p>\n
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.<\/p>\n
LIC also reported a 7 per cent decline in APE in Q1FY24 with a 10 per cent decline in individual participatory APE.<\/p>\n
But the Q1FY23 base was high with 35 per cent Y-o-Y growth, (which moderated to 13 per cent for FY23).<\/p>\n
The management expects APE growth to catch up in the rest of FY24. The VNB margins were flat at 13.7 per cent.<\/p>\n
One reason was rising interest rates leading to pressure on margins.<\/p>\n
LIC also repriced its non-par products, in response to competition and this also pushed VNB margin down.<\/p>\n
As per IRDA data, LIC’s individual APE was up 17 per cent in July 2023, which is a good sign.<\/p>\n
Although term business is negligible at less than 0.5 per cent, it reduced further in Q1FY24.<\/p>\n
The share of non-par policies increased to 6.4 per cent of APE from 4.9 per cent in Q1FY23.<\/p>\n
LIC is targeting further increase of non-par which could help it to achieve a target VNB margin of 20 per cent plus.<\/p>\n
The share of participatory products reduced to 89.8 per cent from 92.2 per cent in Q1FY23.<\/p>\n
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.<\/p>\n
However, LIC does not share product-wise APE break-up and its non-par reportage includes ULIPs.<\/p>\n
This makes analysis difficult.<\/p>\n
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.<\/p>\n
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.<\/p>\n
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.<\/p>\n
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.<\/p>\n
The 13th month and 61st month persistence also improved around 30-50 basis points in each case.<\/p>\n
The assets under management was at Rs 46 trillion as of Q1FY24, up from Rs 41 trillion (Y-o-Y).<\/p>\n
Management guided that annuity is contributing favourably to group business, which has meant margin gains.<\/p>\n
In July, LIC also launched a competitive return of premium product on the protection side and protection share is expected to improve.<\/p>\n
LIC repriced its term policy rates last year, and this will enhance competitiveness and management anticipates a rebound in sales.<\/p>\n
At current prices, LIC is trading at roughly 0.6-0.7 times its embedded value.<\/p>\n
Many analysts consider this an under-pricing given the gradual improvement in mix, and margin recovery.<\/p>\n
It is a big discount compared to the valuations of private sector insurers.<\/p>\n