LIC's strong H2FY26 growth outlook likely to trigger stock rerating

LIC reported a 5% rise in premium income and 12% growth in VNB for Q2FY26. With non-par policy growth and improved margins, analysts see room for a positive rerating

Life Insurance Corporation of India (LIC) had a positive surprise on annual premium equivalent (APE) growth (up 3 per cent year-on-year or Y-o-Y), with group business up 20 per cent. Value of new business (VNB) grew 12 per cent. 

The product mix has improved with higher sum-assured and non-participating or non-PAR policies aligned with new surrender guidelines. In Q2FY26, LIC reported net premium income of ₹1.3 trillion, up 5 per cent. 

Renewal premium grew 5 per cent to ₹65,000 crore and single premium grew 8 per cent to ₹50,800 crore. First-year premium declined 3 per cent to ₹10,800 crore. New business APE declined 1 per cent to ₹16,400 crore with individual APE down 11 per cent to ₹10,100 crore and group APE up 24 per cent to ₹6,270 crore. For H1FY26, APE grew 4 per cent to ₹29,030 crore. The absolute VNB grew 8 per cent to ₹3,200 crore and VNB margin expanded to 19.3 per cent in Q2FY26 from 17.9 per cent in Q2FY25. For H1FY26, VNB grew 12 per cent to ₹5,100 crore, with a VNB margin of 17.6 per cent (up 140 basis points). 

The management expects a strong H2FY26. Focus remains on absolute VNB growth. In Q2FY26, individual APE declined 11 per cent, driven by a 27 per cent decline in par APE to ₹6,020 crore. Non-par APE grew 29 per cent to ₹4,090 crore, resulting in strong VNB margin expansion. 

In H1FY26, within non-par, LIC witnessed 113.1 per cent growth in Ulip APE, while individual APE declined by 2 per cent, with net 30.5 per cent growth in non-par APE. This was offset by 18 per cent decline in par APE, leading to 5.5 per cent fall in H1FY26 individual APE. Commission expenses declined 12 per cent to ₹5,770 crore, and operating expenses fell 3 per cent to ₹9,460 crore, with 160 basis points improvement in expense-to-management ratio to 12 per cent. Income from investments in policyholders’ accounts grew 3 per cent to ₹1.1 trillion, while it increased 42 per cent to ₹2,060 crore in shareholders’ accounts. 

Total assets under management (AUM) grew 3 per cent to ₹57 trillion. 

Yield on investment for policyholders’ accounts declined slightly to 8.9 per cent in H1FY26 from 9 per cent in H1FY25. The solvency ratio stood at 213 per cent (198 per cent in Q2FY25). The embedded value at the end of H1FY26 was ₹8.1 trillion (₹8.2 trillion at end H1FY25). LIC maintains the highest agency force in India with 1.5 million agents, which is 47.1 per cent of the total. It has tie-ups with 93 bancassurance partners, 291 brokers, and 175 corporate agents forming a massive distribution network. 

The management says LIC has modified all its existing products to comply with new regulatory norms. 

Raising minimum sum assured led to temporary decline in number of small-ticket policies sold and impacted persistency. 

The embedded value was also impacted by mark-to-market (MTM) changes. The fair-value component declined due to market movement, gains in present value interest factor (PVIF) more than offset reduction, with embedded value improvement by September 2025 compared to March 2025. GST exemption on premiums has triggered a revival in demand. 

The management is confident this momentum will sustain. The average productivity was at 12 policies per agent, and the management is prioritising training to improve this metric. 

LIC does not intend to reduce commission structures, choosing instead to focus on increasing average ticket sizes.

There was a significant shift in the product mix, with Ulips witnessing over 100 per cent growth. 

Trends in risk-free interest rates supported margin expansion. LIC has factored in loss of input tax credit (ITC) in its embedded value. 

Due to weakness in individual business, the stock has underperformed and trades at very low valuations compared to private players. Stronger growth in H2 could trigger positive rerating.