LIC's improving growth trajectory, VNB margin expansion support outlook

LIC's value of new business rose 61.3 per cent in the June quarter as a shift towards higher-margin non-participating products supported a sharp margin expansion

Life Insurance Corporation of India (LIC) beat Street expectations for annual premium equivalent (APE) growth. This metric was up 8.2 per cent year-on-year at ₹13,690 crore in Q1FY27, while the value of new business (VNB) margin was at a high of 22.9 per cent, up 750 basis points year-on-year. Absolute VNB expanded to ₹3,140 crore (up 61.3 per cent year-on-year), far ahead of estimates.

 

LIC seems to have shifted its product strategy towards higher sum-assured, non-participating, or non-par, policies, which contributed 32.5 per cent of individual APE in Q1. This will help it align with the new surrender guidelines. The government reduced its stake in LIC to 90 per cent through the recent offer for sale earlier this week, providing more float.

 

In Q1FY27, LIC reported net premium income of ₹1.3 trillion, up 7 per cent year-on-year. Renewal premium rose 3 per cent year-on-year to ₹61,800 crore, and single premium grew 9 per cent year-on-year to ₹56,400 crore. First-year premium grew 22 per cent year-on-year to ₹9,200 crore.

 

New business APE increased 8 per cent year-on-year to ₹13,700 crore. Individual APE grew 7 per cent year-on-year to ₹7,530 crore, while group APE rose 10 per cent year-on-year to ₹6,160 crore. Shareholder net profit rose 23 per cent year-on-year to ₹13,500 crore. The guidance is for continued VNB margin expansion over the next few quarters, with the margin reaching the mid-20s, closer to the industry average.

 

Individual APE growth of 7 per cent year-on-year was driven by 14 per cent year-on-year growth in non-par APE to ₹2,450 crore, while par growth was subdued at 3 per cent year-on-year to ₹5,090 crore. The growth in non-par APE led to its contribution rising to 17.9 per cent from 16.9 per cent in Q1FY26, driving VNB margin expansion. The mix shift led to a 6.5 per cent rise in the VNB margin.

 

In the non-par segment, LIC saw 59 per cent year-on-year growth in individual savings APE and 44 per cent year-on-year growth in protection APE. On the other hand, unit-linked insurance plan (Ulip) APE declined 17 per cent year-on-year, and annuity APE declined 9 per cent year-on-year. Commission expenses rose 2 per cent year-on-year to ₹5,030 crore, while operating expenses grew 13 per cent year-on-year to ₹8,510 crore. The expense ratio increased to 10.6 per cent from 10.5 per cent a year earlier.

 

Income from investments in policyholders’ accounts grew 6 per cent year-on-year to ₹1.1 trillion, while it increased 42 per cent year-on-year to ₹2,540 crore in shareholders’ accounts. Total assets under management (AUM) grew 4 per cent year-on-year to ₹59 trillion. The yield on investments in policyholders’ accounts was 8.3 per cent, against 8.5 per cent in Q1FY26.

 

LIC has 1.45 million agents, accounting for 44 per cent of the industry’s agency force. It has tie-ups with 88 bancassurance partners, 304 brokers and 176 corporate agents across its massive distribution network. There was a reduction in the urban agency force due to the exit of non-serious agents recruited under the Bima Sakhi programme.

 

The agency channel contributed 93.1 per cent, with individual new business premium (NBP) from the channel growing 15 per cent year-on-year. Individual NBP from bancassurance declined 9 per cent year-on-year, with its contribution falling to 3.4 per cent from 4.2 per cent in Q1FY26. The direct channel saw a 13 per cent decline year-on-year, while the brokerage channel recorded 27 per cent growth year-on-year.

 

The 13-month persistency ratio was 70.4 per cent, while the 37-month persistency ratio was 62.6 per cent and the 61-month persistency ratio was 61.3 per cent in Q1FY27. The 61-month persistency ratio improved by 300 basis points year-on-year. The solvency ratio stood at 242 per cent, against 217 per cent in Q1FY26. Solvency is expected to moderate to 2.32 after the dividend payout.

 

Ulip sales were weak due to volatile equity markets, while LIC focused on higher-margin segments such as non-par savings and protection. The management says non-par momentum will be sustained even as Ulips recover, with limited risk of cannibalisation. Protection is expected to maintain growth over the coming quarters. Group business contributed 29.4 per cent of VNB, while non-par contributed 49.3 per cent and par contributed 19.4 per cent. LIC targets growth in par while outpacing the market in non-par through new product launches. The ITC and GST impacts are expected to normalise going forward. A proposed IDBI Bank stake sale is awaited, with the investment continuing to be held in the policyholder fund.

 

The strong VNB margin expansion, increasing contribution from non-par products and better product-level margins are all positives. Higher ticket sizes, improving agency-channel productivity and continued growth in alternative channels are also noteworthy. Analysts are upgrading their VNB margin estimates for FY27 and FY28. An operating return on embedded value (RoEV) of 11.5-12 per cent seems achievable. The management will evaluate the need for capital augmentation. The valuation appears attractive at a price-to-embedded-value multiple of 0.5 based on FY27 estimates.