LIC embedded value flat at Rs 5.41 trillion; VNB margin rises to 15.1%

Life Insurance Corporation of India’s (LIC's) Indian embedded value (IEV) grew marginally to Rs 5.41 trillion as of March 2022 compared with Rs 5.39 trillion as of September 2021, even as the value of new business (VNB) margin grew by 580 basis points to 15.1 per cent during this period due to the diversification of its product mix.

The increase in the IEV was marginal as the insurer took a Rs 40,000-crore hit from its investments. This was partially offset by the sharp rise in VNB margins. According to the data released by LIC on Thursday, its IEV as of March 31, 2022, stood at Rs 5,41,492 crore compared with Rs 5,39,686 crore on September 30, 2021, and Rs 95,605 crore on March 31, 2021.

KR Ashok, executive director (acturial), LIC, said, “The change in EV has to be looked at in totality. There was a mark-to-market loss of around Rs 40,000 crore (equity and debt) that has been captured in the calculation. However, the other factors such as the VNB increased, and hence there was a net growth of around Rs 2,000 crore compared with September." 

The bifurcation of the life fund into par and non-par took place in September last year, hence there was a jump in the IEV of the corporation in September.

In the past, analysts have said that LIC’s balance sheet and, in turn, EV remain very sensitive to equity market movements. Milliman Advisors' report on LIC’s EV mentions that a 10 per cent fall in equity markets corresponds to a 6.5 per cent fall in EV.

“We are going through a phase where the equity values have depreciated and that is a concern. But as long as India remains a growth story, it will add value to us going forward. With the corporation’s focus on growing business with increased focus on non-par business, the proportion of core business will automatically increase and equity will come down," a senior LIC official explained.

LIC is looking to introduce more non-par products in the market. On an APE basis, non-par is about 7 per cent of LIC’s portfolio and it plans to take it to 12 - 15 per cent in 3-4 years. Along with the product strategy, LIC is also looking to diversify its distribution strategy by focusing a lot more on the bancassurance channel. Currently, 3-3.5 per cent of LIC’s business comes from the bancassurance channel, and in the next five years, it wants bancassurance to contribute at least 15 per cent to its business.

Going forward, LIC will be disclosing its IEV on a half-yearly basis and its VNB margins on a quarterly basis, the management said.

Its VNB for the year ended March 31, 2022 was Rs 7,619 crore compared to Rs 4,167 crore for the year ended March 31, 2021, up almost 83 per cent. And, the VNB for the six-month period ended September 30, 2021 was Rs 1,583 crore. 

The VNB margin for the year ended March 31, 2022 stood at 15.1 per cent compared to 9.9 per cent for the year ended March 31, 2021. And, in September the VNB margin of the corporation stood at 9.3 per cent.