What Aided LIC's Profit Margin And Growth In Q2
A fine print of LIC Q2 results based on what the management said during a post-earnings conference call.
Life Insurance Corp. of India's value of new business, akin to net profit for an insurer, jumped 1.3 times over the previous year in the first half ended September.
VNB margins rose to 14.6% from 9.3% a year earlier, according to results announced on Friday. Total premium earned in the first half was up 24%.
Here's a fine print of earnings based on what the LIC management said during a post-earnings conference call:
Here's What Drove VNB Margin Expansion
The VNB margin widened by 5.3% percentage points in the fist half of FY23.
While that was mainly on account of a change in assumptions, the insurer's management explained during a conference call that the major component of assumption change was the risk-free rate. "Increase in the risk-free rate based on market data has majorly contributed to an increase in the margins."
Embedded Value And Outlook
For LIC, the embedded value as on Sept. 30 stood at Rs 5.44 lakh crore compared with Rs 5.39 lakh crore a year earlier, and Rs 5.41 lakh crore as of March 31.
The embedded value has not shown any significant growth. The management said the market movements impacted the EV negatively, while operating variances/assumptions and unwinding impact of better interest rates on the portfolio helped. Overall, it rose 0.85% year-on-year.
LIC kept the unwinding interest rate at 8-9% in the first half.
However, since the company recently changed its fund distribution policy, the management said the EV growth will continue to be slow in the initial stage. But diversification of product mix and higher incremental growth in absolute value of new business should aid EV growth.
The persistency impact on EV has not been significant but the management said it will remain focused on improving the metric. While the company will continue to disclose the EV half-yearly, a complete walk through will be provided at the end of the year.
Group Business Growth
The insurer reported the individual business accounted for 58.04% of the annualised premium equivalent, while the remaining 41.96% came from the group business. The group business's total premium surged 54.94% over a year earlier.
According to the management, annuity has been the major contributor to growth in group business, which, in turn, contributed to better VNB margins. However, it provided no split between annuity and non-annuity.
Group VNB margins were lower than the average margins.
Other Takeaways
There was a higher transfer from non-participating fund to shareholder fund in the first half of FY23, resulting from a change in distribution policy. This led to a higher-than-usual transfer to the shareholder account, aiding profit.
IRDAI's draft to cap management expenses is expected to bode well for LIC. The management said the 70% limit suggested is not final and that discussions are on between the industry and the regulator.
The management is reviewing the marketing strategy with the launch of Bima Sugam to leverage all available channels of growth.