LIC's Surprising Profit: Rs 40,676 Crore Despite Fewer Policies!

"The Strategy Behind LIC's Rs 40,676 Crore Profit with Fewer Policies"

The country’s largest and only state-run life insurer, Life Insurance Corp. Of India (LIC), sold fewer policies in the just-concluded fiscal than the previous one, took a hit on its core earnings from first-year premium, yet managed to earn a 12 percent rise in annual profit.

On Monday evening, LIC revealed that it recorded net profit of Rs 40,676 crore in FY24 compared to Rs 36,397 crore in FY23, on the back of higher income from renewal premium (one earned from existing policies that are older than 12 months), better income from investment activities, and a slight increase in value of new business (VNB). The company said it will pay its shareholders a dividend of Rs 6 for every share held for the financial year 2024.

At the same time, the insurer, which is grappling with an erosion of market share in the face of growing competition from private peers, said it sold 20.39 million policies in FY24, marginally fewer than the 20.43 million covers sold in the previous fiscal.

It also saw a 5.48 percent year-on-year (YoY) drop in total premium income from group businesses (policies sold to a group of individuals) at Rs 1.71 trillion in FY24 that ended on March, compared to Rs 1.81 trillion in FY23. In the individual segment, too, LIC’s new business premium income fell 1.77 percent YoY to Rs 57,716 crore in FY24.

“Despite lower incomes from new businesses, we earned more from renewal businesses, our investments and increasing VNB, which has helped us in earning better net profits this year,” a top LIC official said on a call after the earnings were announced on Monday.

LIC’s net value of new business (the present value of the future profits from the sales of new policies during the year) grew by 4.66 percent to Rs 9,583 crore in FY24. The net VNB margin for the year ended 31 March increased by 60 bps to 16.8 percent.

“VNB margin is a directional change we had envisaged during listing. We are moving towards non-par, which has higher VNB margins. We introduced non-par products last year. For the ongoing fiscal year, VNB margin can be expected to improve,” another LIC official said during the earnings call on Monday.

Also, the insurer’s total premium income for fiscal 2024 grew, albeit by a meagre 0.22 percent Y-o-Y, to Rs 4.75 trillion.

Apart from being able to sell fewer policies, LIC’s first-year premium fell by 4.04 percent during the fiscal 2024, while private insurers recorded a jump of 12.11 percent in new business at Rs 1.55 trillion during the same period, according to data from the Insurance Regulatory and Development Authority of India (Irdai).

Consequently, the insurer’s market share was at 58.87 percent, lower than the 62.58 percent at the end of FY23.

“Now we intend to focus our strategic interventions to maximize our market share across categories,” said Siddhartha Mohanty, chairman, LIC.

Mohanty said during FY2024 LIC focused on directional changes in its product mix and enhancing margins in the business.

The LIC chairman said the insurer has doubled its share of non-par business within the individual business segment. 

During a call after the earnings on Monday, Mohanty said that during to focus on increasing its VNB margin and the proportion of non-participating policies.

Also, the LIC officials said that in the country, the market share of big-ticket size policies (above Rs 5 lakh premium) has gone up during fiscal 2024.

During fiscal 2024, LIC transferred Rs 29,518.75 crore from the available solvency margin amount from non-participating policyholders account to shareholders’ account.

However, LIC’s solvency ratio at 1.98 is still above the regulatory requirement and higher than 1.87 at the end of FY2023.

LIC’s net cash flow from operating activities during fiscal 2024 has come down to Rs 26,121.65 crore from Rs 54,518.51 crore in FY23, and this is likely to be due to higher payments of claims and benefits at Rs 3.39 trillion in FY24 as compared to Rs 3.5 trillion in FY23.

LIC has paid a bonus of Rs 52.956 crore to participating policyholders (policies in which customers get a share of the profits made) during fiscal 2024, said Mohanty.

However, at the end of fiscal 2024, LIC recorded a shrink in its cash and cash equivalents to Rs 42,013.83 crore compared to Rs 45,588.14 crore in FY23.

“We look forward to this current year as the one in which our topline growth trajectory will be back in focus,” added Mohanty.

LIC’s embedded value increased by 24.9 percent to Rs 7.27 trillion at the end of FY24 as compared to Rs 5.82 trillion at the end of FY23.

Before the earnings were announced, LIC’s shares closed up 0.58 percent at Rs 1,035.80 on BSE on Monday amid a flat equity market.