Stellar results by LIC of India, but will it change price trajectory?

For the fourth quarter ended March 2023, the Life Insurance Corporation of India reported stellar growth of 466% yoy in net profits at ₹13,428 crore. This surge in profits largely came out despite lower premium income on the back of higher accretion to the available solvency margins. This is an accounting adjustment, but the bottom line is that it helps the company to post a set of stellar numbers. Before we go to the specific number for Q4FY23, let us remember that LIC announced its fourth quarter and its full year FY23 results together. Let us first summarize the LIC performance in terms of FY23 numbers to get a more broad-based picture of how LIC has done vis-à-vis the previous fiscal year FY22.

LIC Performance – FY23 over FY22 on key parameters

Here are some of the highlights of FY23 performance of LIC of India on key financial parameters in comparison with the previous financial year.

•    Total premium income for FY23 was up 10.9% yoy at Rs474,005 crore while the market share in premium for FY23 was slightly lower at 62.58% compared to 63.25% in the previous year FY22.

•    The individual new business premium was up 6.91% yoy for FY23 at Rs58,757 crore while the individual renewal premium was up 5.57% yoy in FY23 at Rs2,34,006 crore. LIC has traditionally had a dominance of the group business in India.

•    The total group business premium for FY23 was up 20.19% yoy at Rs181,242 crore while the market share in number of policies has fallen by 286 bps in FY23 at 71.76%. Group business has not only been more substantial but also more profitable for LIC.

•    For FY23, the weighted received premium was up 9.49% at Rs35,605 crore while the total new business sum assured for FY23 was up 4.49% at Rs695,645 crore. That is where there has been some halting progress in the last two quarters.

•    On the claims side, LIC of India saw a sharp fall of 73.5% in the total COVID claims paid in FY23 at Rs560 crore. Total death claims paid in FY23 were also lower by 33.4% yoy at Rs23,423 crore. In addition, the total number of COVID claims in FY23 also fell sharply by 70.8% at 22,526 claims. The ghost of COVID is gradually getting interred by LIC.

•    Solvency in FY23 improved marginally from 1.85 to 1.87 while the AUM of LIC for FY23 improved by 7.7% yoy at Rs43.97 trillion. Just to put things in perspective, the AUM of LIC alone is more than the combined AUM of all the 42 SEBI registered mutual funds in India, which just goes to show the way LIC dominates the investment business.

•    The yield on investment on policyholder funds was lower by 26 basis points at 8.29% while the yield on investments on shareholder funds was higher by 348 basis points at 6.48% in FY23. There has been a good deal of earnings for LIC on its risk investments, predominantly in equities.

•    The overall expense ratio has gone up in FY23 from 14.5% to 15.53% yoy while the commission expense ratio has gone down from 5.54% to 5.39% on yoy basis. This was also the year that LIC listed on the bourses, although its performance has been rather halting.

Let us now turn to the financial numbers of LIC for Q4FY23 and for FY23.

Financials of LIC – Whiff of fresh air

We have seen the story of LIC for FY23 in data points and the profit performance of LIC. What about the top line. For Q4Fy23, LIC of India reported lower top line revenues for the March 2023 quarter on standalone basis at Rs200,158cr as compared to Q4FY22. Even on a sequential basis, the total revenues were up just about 1.7%. For the full fiscal year FY23, total revenues were about 5% higher yoy at Rs788,173 crore. 

The sheen may be fading, but when it comes to the life business, LIC maintained its market leadership with 62.58% market share. The gross value of new business (VNB) registered an increase of16.5% for FY23 at Rs11,553 crore. The VNB margins on a net basis improved by 110 basis points to 16.2%. For the year, its embedded value improved by 7.53% yoy at Rs5.82 trillion. Embedded value is normally estimated by outside actuaries and is used as an important basis for valuation. Market valuation is normally at premium to embedded value.

In FY23, LIC sold a total of 2.04 crore individual policies. The stickiness of policies as measured by the thirteenth month persistency on premium basis improved by 150 bps in the year at 77.09%. The profit for FY23 includes an amount of Rs27,241 crore pertaining to accretion to the available solvency margins transferred from the no-par fund to shareholder account. This was the major driver of profit growth in the fourth quarter too. In short, the sharp surge in profits was largely on account of the surplus transfer, which is an accounting entry, but nevertheless gives a cleaner picture of the numbers.

For the full year FY23, the board of LIC of India recommended dividend to shareholders of Rs3 per share compared to Rs1.50 per share in FY22. Another key metrics for life insurers is the annualized premium equivalent. Now, in terms of annualized premium equivalent (APE), the total premium for FY23 was up by 12.5% at Rs56,682 crore. In terms of customer break-up, 68.2% of the above amount was attributed to individual business with the balance to group business. APE growth at LIC was still driven by the group business. Sample this. Out of the overall 12.5% growth in APE, individual APE grew 8.7% while group APE grew 21.57%.

Will the change the price performance?

That remains the million dollar question. The stock of LIC is down 40% since the IPO in May last year. That is not a good feeling. The initial reaction to the results has been good if you go by the price action on 25th May. However, there is a big business level challenge. Under the new tax regime that has kicked in from FY24, most of the middle income groups will be enticed to opt for the new tax regime (NTR), which does away with most exemptions in return for lower tax rates and wider slabs. This time around, more people are likely to prefer the new tax regime, which will mean less demand for life products. That is going to be the next big challenge and will also remain an overhang on its price performance.