Shares of Life Insurance Corporation of India (LIC) hit a new 52-week low of Rs 806.85, down less than 1 per cent on the BSE in Tuesday’s intraday trade. The stock was down for the fifth straight trading day and has declined 11 per cent in past seven trading days. The stock of state-owned life insurance giant has tumbled 34 per cent from its 52-week high level of Rs 1,221.50 touched on August 1, 2024.
At 12:37 PM: LIC was trading 0.74 per cent higher at Rs 814.90, after recovering nearly 2 per cent from its intra-day low. The stock hit an intra-day high of Rs 821.10 on the BSE. In comparison, the BSE Sensex was up 0.29 per cent at 76,553.
In the last six months, LIC has underperformed the market by falling 24 per cent, as against 5 per cent decline in the benchmark index.
LIC reported another month of contraction year-on-year (YoY) during December 2024. The company has struggled in December quarter (Q3) post surrender norms and the resultant commission changes.
According to data published by the Life Insurance Council, LIC’s premium dropped 41.15 per cent YoY to Rs 13,523.87 crore while private insurers reported 7 per cent growth in new business premium (NBP) to Rs 16,694.85 crore as the industry absorbs the impact of the revised surrender value norms.
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The fall in LIC’s premium was due to a significant decline in its group single premium which halved to Rs 8,191.29 crore in December from Rs 17,601.97 crore last year. Individual non-single premium dropped to Rs 2,628.74 crore from Rs 3,111.33 crore, the Business Standard reported.
“While LIC is now cheap at 0.6x FY26e EV after adjusting for MTM losses. However, continued contraction in new business implies we wait for a better opportunity,” JM Financial Institutional Securities said in sector update.
Strong channel push in September 2024 – before the discontinuation of older products in the new surrender regulations era – delivered ~47 per cent Retail Annualised Premium Equivalent (APE) growth in that month. This strong pre-sales is expectedly affecting Q3 growth, according to Emkay Global Financial Services.
With the implementation of new surrender regulations, LIC has increased the minimum ticket size in many of its products, which is leading to sharper decline in policy count and also affecting the APE growth.
Trading at a significant discount to its EV, the valuation of LIC is attractive. However, the poor retail new business trends, the Insurance Amendment Act proposal of opening up the individual agents, and the risk of sunset of the Old Tax Regime for Individual Taxation in the upcoming Union Budget will keep LIC shares range-bound, the brokerage firm said in sector report.
LIC maintains its industry-leading position and is focusing on ramping up growth in the highly profitable product segments (mainly Protection, Non-PAR, and Savings Annuity). New product launches, stronger banca & alternates channel presence, and digitization will enable LIC to bridge the gap with private players. The modified commission structure after new surrender value regulations will be key for growth and profitability, analysts at Motilal Oswal Financial Services said in Q2FY25 result update.
The brokerage firm has reduced its EV multiple factoring in higher sensitivity to equity market movements, weaker than expected performance in October 2024 and impact of surrender charges.
Meanwhile, LIC witnessed a decline in policy count in October 2024 due to the ongoing modifications in certain products with low persistency, before relaunch. September 2024 also saw channel partners pushing sales before the festive season and getting high interest from customers as well, due to which September 2024 was exceptional. The company is also giving time to channel partners to understand the new products before achieving growth.
LIC is redesigning products with a mindset of 1) aligning with the regulator’s expectations, 2) maintaining investor profitability, and 3) keeping benefits of intermediary intact. While there has been no change in commission rates, policies have been modified to link rewards to better persistency. The company has relaunched 32 out of 54 products in the first tranche. Many products have undergone revisions in premium rates, along with design changes. The company has realigned product offerings to ensure no adverse impact on margins due to new regulations, the brokerage firm said.