After encouraging Q4, outlook positive for public sector insurer LIC

India’s largest life insurer, Life Insurance Corporation of India (LIC) reported encouraging performance in the January-March quarter (Q4) of FY24. Total annual premium equivalent (APE) was at Rs 21,180 crore, up 10.7 per cent year-on-year (Y-o-Y), with group APE of Rs 3,890 crore, up 60 per cent Y-o-Y, though individual APE contracted 2.1 per cent Y-o-Y. The participatory book contracted 20.2 per cent Y-o-Y, but the non-par grew by 206 per cent to Rs 3,740 crore. Embedded Value grew by a strong 24.9 per cent Y-o-Y to Rs 7.27 trillion. The Q4FY24 PAT grew 2.5 per cent Y-o-Y to Rs 13,760 crore. Net premium grew 15.6 per cent Y-o-Y to Rs 1.52 trillion in Q4FY24. Total assets under management (AUM) increased to Rs 51.2 trillion in Q4FY24 from Rs 43.9 trillion in Q4FY23, with an increase of 16.5 per cent Y-o-Y and increase of 3.1 per cent quarter-on-quarter (Q-o-Q).

Market share in premium dropped to 58.9 per cent in FY24 from 62.6 per cent in FY23. The value of new business (VNB) for FY24 was Rs 9,580 crore, up 4.7 per cent Y-o-Y and VNB margins grew 67bps Y-o-Y to 16.8 per cent driven by non-par, which was up 104.9 per cent Y-o-Y, in FY24. Topline performance was muted in FY24 with total APE growing by 0.5 per cent to Rs 56,970 crore. For FY24, LIC’s PAT rose 11.8 per cent Y-o-Y to Rs 40,680 crore. For FY25, the management guided that the “topline growth trajectory will be back”.

Around 25 per cent of Q4FY24 individual APE was contributed by non-par business, up 17 per cent Y-o-Y. Topline growth would be mainly via agency channel and should be helped by repricing of employee liabilities in its group segment, where it has a dominant market share of 72.5 per cent in FY24. On the distribution front, the agency channel contributed 96 per cent in Q4FY24. The bancassurance channel marginally improved contribution to 3.4 per cent. LIC targets a 5-6 per cent contribution from bancassurance.

Over FY24-26, LIC should grow total APE by 11 per cent CAGR. VNB margins should expand to 19-20 per cent by FY26 after dropping to below 17 per cent in FY24 and FY23. The yield on investments on policyholder’s funds, excluding unrealised gains, was 8.9 per cent for FY24 (8.3 per cent for FY23).

LIC is further strengthening its network in Tier II-III towns and it wants to be present in every Panchayat in FY25. LIC has also enhanced benefits in the group business. The benefit structure and changes in risk-free rates have affected margins. LIC has increased payouts for annuity. Movement in risk-free rates has hurt overall margins. LIC is also considering a move into the health insurance sector and assessing prospects. It is already selling fixed-benefit health insurance products.

LIC has an industry leading position despite the aggressive catch up from private competitors. It could ramp up growth in profitable product segments (Protection, Non-PAR, and Savings Annuity). But changing gears for a vast organisation requires good execution. APE should grow in low double-digits and VNB margin recovery is likely as the non-par growth rises, through FY25 and FY26. But return on embedded value (RoEV) will be modest at 11.5 per cent even in FY26, given the lower margin profile and the large EV base. Many analysts now see an upside of above 15 per cent and more with price targets of above Rs 1,225.