LIC provisions up, NPAs down ahead of listing: FY21 annual report

State-owned insurance behemoth Life Insurance Corporation (LIC) of India has provided heavily against its debt portfolio and managed to bring down its net non-performing assets (NPAs), as well as gross NPAs, in 2020-21 (FY21).

The corporation has made provisions to the tune of Rs 37,341.6 crore, of which Rs 34,934.97 crore is towards doubtful, sub-standard, and loss assets. Further, it has provided Rs 2,406.63 crore for standard assets, revealed LIC’s annual report for FY21.

In 2019-20 (FY20), LIC had made provisions to the tune of Rs 35,063.04 crore on a debt portfolio of Rs 4.49 trillion. LIC has managed to bring its net NPAs down to 0.5 per cent in FY21, compared with 0.79 per cent in FY20, while gross NPAs were 7.78 per cent in FY21, compared with 8.17 per cent in FY20. As of March 31, NPAs stood at Rs 35,129.89 crore, of a total portfolio of Rs 4.51 trillion. Sub-standard assets total to Rs 254.37 crore. Doubtful assets are to the tune of Rs 20,369.17 crore. Loss assets are Rs 14,506.35 crore. In FY20, NPAs were at Rs 36,694.2 crore.

The corporation has earned around Rs 2.2 trillion as interest and dividend from investments for its linked and non-linked business in FY21, up nearly 10 per cent from FY20. As far as non-linked business is concerned, apart from interest and dividend on investments, the corporation also earned rent of Rs 439.71 crore from investment property, Rs 1,1467 crore for interest on policy loans, and Rs 18.74 crore as interest on loan on mortgages. Further, it made another Rs 36,472.79 crore from the sale of equities, government securities, and other securities (including amortisation). When it comes to linked business, LIC earned Rs 3,622.9 crore as interest and Rs 602.82 crore as dividend for the year. And, Rs 1,644.12 crore, including amortisation, was realised as net profit from the sale/redemption of investments.

The corporation has earned a total income of Rs 6.82 trillion in FY21, up 10.7 per cent, compared with FY20. Total income includes premium income, income from investments, including capital gains. On the other hand, it has paid Rs 2.87 trillion in the form of payment to policyholders, up 13 per cent over last year. Payment to policyholders includes maturity claims, death claims, annuities, and surrenders. The total outgo was to the tune of Rs 3.6 trillion — up 9 per cent over last year.

LIC has also improved its persistency ratio for FY21. The thirteenth-month persistency ratio, which is the proportion of policyholders who continue to pay their renewal premium in terms of the number of policies, has increased to 67 per cent in FY21, compared with 61 per cent in FY20.

In annualised premiums terms, the ratio increased to 79 per cent, from the earlier 72 per cent. Similarly, the 61st-month persistency improved to 48 per cent in FY21, from 44 per cent in FY20 in the number of policy terms, and in annualised premium terms, the ratio increased to 59 per cent, from 54 per cent. As of March 31, investments made amounted to Rs 36.76 trillion. In FY21, it has subscribed to Rs 2.66 trillion worth of securities of the central government and Rs 1.17 trillion worth of new loan issues of state governments.

Reliance on investment income grows

LIC’s revenue or total income growth in FY21 was the best in five years. But most of the growth came from investment income rather than its insurance business. The year-on-year (YoY) growth in LIC’s premium income slowed to 6.3 per cent in FY21, from 12.4 per cent growth in the previous year. In comparison, the income from investment grew 18.4 per cent in FY21 — the best since 2016-17, when it was up 22.2 per cent.

LIC’s profit after tax (PAT) went up 6.9 per cent to Rs 2,906.77 crore in FY21. In FY20, LIC had reported a PAT of Rs 2,712.7 crore. LIC’s premium income grew to Rs 4.03 trillion in FY21, from Rs 3.79 trillion a year ago, while income from investment grew to around Rs 2.79 trillion last fiscal year, from Rs 2.35 trillion in FY20. As a result, investment inc­ome accounted for nearly 41 per cent of LIC’s total revenue in FY21 — the highest in six years. The previous high was 41.2 per cent in 2014-15 (FY15).

A faster growth in investment income is attributed to a rally in asset prices, including bonds and equity last fiscal year. In FY21, government bonds accounted for nearly two-thirds (or 65.8 per cent) of all LIC investments, followed by equities at 17 per cent. While LIC’s bond portfolio gained from a sharp rise in bond prices after the Reserve Bank of India cut interest rates, its equity portfolio gained from a big rally in the stock market.

At the end of March this year, LIC’s long-term investment in government bonds was worth Rs 22.9 trillion, up 12.5 per cent YoY. For comparison, its equity portfolio was valued at Rs 5.9 trillion at the end of FY21 — up nearly 80 per cent YoY.

Yields on decline

However, despite a double-digit growth in investment income, LIC’s yield from investments declined to a decade low of 7.42 per cent in FY21 — down nearly 12 basis points (bps), from 7.54 per cent a year ago. With this, LIC’s yield on investments has shrunk 80 bps, or nearly 10 per cent, from a high of 8.22 per cent in 2014-15.

Analysts attribute this to a steady decline in bond yields in the period that has resulted in a corresponding decline in the interest that LIC earns on its bond and other fixed income portfolio that accounts for the bulk of its investment portfolio.