State-owned insurance behemoth Life Insurance Corporation (LIC) reported a net profit of Rs 682.88 crore in the April-June quarter (Q1) of FY23, driven by its non-par business. In the corresponding period a year ago, the insurer’s profit was a mere Rs 2.94 crore.
But these numbers are not comparable because the corporation was ascertaining its policy liabilities annually until FY21. Pursuant to the change in the LIC Act, the six-month-ended and nine-month-ended policy liabilities as of September 2021 and December 2021, respectively, were ascertained for the first time in FY22. Hence, no surplus had been assessed in the revenue account of the corporation until September 2021.
LIC had a single “life fund” until the LIC Act was amended to bring its surplus distribution mechanism on a par with private life insurers. After the amendment, the life fund has been segregated into two funds — participating policyholders fund and non-participating policyholders’ fund. Consequently, the surplus distribution in the participating policyholders’ fund has been modified to 90:10 in a phased manner, wherein 90 per cent will go to policyholders and 10 per cent to shareholders.
LIC’s value of new business (VNB) for Q1FY23 was Rs 1,861 crore, of which Rs 1,277 crore was from the individual business and Rs 583 crore from the group business. VNB is the present value of the future earnings from policies issued during a period. It reflects the additional earnings expected to be generated through the new policies issued.
The VNB margin of LIC for the quarter stood at 13.6 per cent, a drop of around 150 basis points from the 15.1 per cent reported in the March quarter. The major reason for the decline in the margin is the product mix.
The group business’ proportion in new sales of the corporation increased by 8 per cent and most of it was in funded products, which typically have a lower margin than other group products.
“It is temporary. As soon as we raise the mix of non-par products, the margin will go up. But if we sell more funded schemes, there will be a drag. So, we will take a call on this going forward,” said M R Kumar, chairperson, LIC.
“We would like to clock a margin of 15-16 per cent, so that in five years, we will be on a par with the private life insurers,” he said.
LIC’s total premium was up 20.35 per cent year-on-year (YoY) to Rs 98,352 crore in Q1FY23, aided by a 34 per cent jump in the group business premium. The corporation sold around 3.7 million policies in Q1FY23, up 60 per cent from the same period a year ago (Q1 of last financial year was impacted by the second wave of Covid. Assets under management of the corporation also went up 8 per cent during this period to Rs 41.02 trillion.
LIC, which is one of the largest institutional investors in the equity markets, invested Rs 46,444 crore on a gross basis during Q1; on a net basis, it was around Rs 34,000 crore. It booked profit to the tune of Rs 5,076 crore in Q1FY23, against Rs 11,368 crore in Q1FY22. The markets were down, so the corporation did not go for profit-booking in Q1 and instead it brought more during this period as it is a contrarian investor.
“The equity markets have improved now. Therefore, I do not see much volatility happening in that area. We will continue to focus on the non-par segment; we have more non-par products than par products now. Q1 is always slow for the insurance industry, and by that standard, this performance is not as slow as one would have expected. We are confident that growth in new business will be good, going forward,” Kumar said.
The business momentum for the corporation has been strong in FY23; as a result, it has gained market share on a first-year premium basis. LIC’s market share increased to 65.42 per cent in Q1FY23, from 63.25 in FY22. The yield on investments on policyholders’ funds, excluding unrealised gains, for the corporation was 7.74 per cent for the quarter ended June 30, 2022; it was 8.39 per cent in the year-ago period.
Net NPAs in the policyholders’ fund saw a substantial decline to Rs 9 crore as of Q1FY23 versus Rs 194 crore in Q1FY22. The corporation provided Rs 26,611 crore for gross NPAs to the tune of Rs 26,620 crore. LIC’s gross NPA ratio stood at 5.84 per cent as of the June quarter.
In Q1FY23, LIC’s persistency ratios on a premium basis for the 13th month, and 61st month were 75.75 per cent and 58.99 per cent, respectively.
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