Raj Kumar.MD, LIC, explained that the exercise to determine Indian embedded value as on March 31, 2022 is under progress and is expected to be completed by June 30, 2022. As soon as the exercise is completed, LIC shall make the required public disclosures of the same
State owned Life Insurance Corporation (LIC), the largest capital market player, made a record profit of Rs 42,000 crore from equity sales in FY 2021-22 as compared to Rs 36,000 crore in the year ago period.
The corporation which announced its results on Monday saw its standalone net profit declining by 18 per cent to Rs 2,371.55 crore in the quarter ended March 2022, compared to Rs 2,893.48 crore in the year-ago period.
For the entire financial year 2021-22, LIC reported a 38 per cent rise in its consolidated profit at Rs 4,124.70 crore from Rs 2,974.13 crore in the previous financial year.
However clarifying on the drop of its q4 net profits, Raj Kumar, managing director, LIC said,”Earlier the profits were declared at the end of the year only. So that’s why the quarterly numbers are not comparable… This year’s (FY22) Q4 number is not comparable with Q4 of last year (FY21) because it was for the full year (FY21),” adding that from September 2022 onwards, the comparable data points will be available.
Kumar said at present the corporation’s product mix is dominated by the participating business but going further its driver of growth will be non-participating business providing higher margin to corporation’s bottomline..
“We have already decided that in future we will be launching only non-par products. With the product mix changing towards the non-par side in the future at a greater pace than the par side, the value of new business will be created. That is the strategy we are adopting,” he said.
A participating (par) life insurance policy allows policyholders to participate in the profits of a life insurance company, while a non-participating (non par) plan does not offer any dividend payouts.
Kumar further explained that the exercise to determine Indian embedded value as on March 31, 2022 is under progress and is expected to be completed by June 30, 2022. As soon as the exercise is completed, LIC shall make the required public disclosures of the same,
“It is a long exercise (determination of Indian EV). We are implementing a new IT solution for calculation of Indian embedded value and we need to cross-check all the data,” he told reporters.
The Embedded Value (EV) is a measure of the consolidated value of shareholders’ interest in the life insurance business.
It represents the worth of shareholders’ interests in the earnings distributable from the assets allocated to the business after sufficient allowance for the aggregate risks in the business.
Total claims paid during the quarter by the corporation increased 19 per cent year on year to Rs 1.21 lakh crore.
Kumar said the higher claims were a residual impact of the Covid pandemic and also due to the maturity of four high value products for which payments were made during the quarter.
LIC has a Rs 7400 crore reserve fund to take care of Covid claims but Kumar said he believes the worst of the pandemic is over .
“There was some residual impact of Covid and covid related claims. Overall Covid impacted the company last fiscal and one hopes that we do not see any more waves. Four of our products where sum assured of each policy was Rs 5 lakhs also matured adding to the higher claims s high,” he said.
LIC’s embedded value was pegged at about Rs 5.4 lakh crore as on September 30, 2021 by international actuarial firm Milliman Advisors
For the quarter ended September 30, 2021 and December 31, 2021, the corporation checked all data and the output of the new system with the existing system, and have found consistency in the numbers. It wants to cross-check the data for the period ended March 31, 2022, so as to ensure that the new IT system is perfect, he said.
“We have 285 products which need to be modelled into a new system. We have to check the consistency of the output for each of the products, and it is taking time. We don’t want to rush into any number which can be questioned tomorrow. We want to be absolutely sure and hence we are taking a little more time.
“Going forward, from Q1 (FY23) onwards, it will not be taking so much time and we will be doing it (determining IEV) simultaneously along with the completion of the financial results,” Kumar said.
The state-run insurer will calculate Indian EV on a quarterly basis but has decided to declare the number on a half-yearly basis, a trend followed by the other industry players, he said.
The life insurer’s biggest driver of growth will be the bancassurance channel. It is having 72 tie-ups with different banks, which gives 60,000 outlets to sell its products. Over the next 5 years, it plans to activate each and every outlet available to it for selling products, Kumar said.
Meanwhile, shares of LIC on Tuesday declined over 3 percent after the company posted a 17 percent decline in consolidated net profit for the fourth quarter ended in March 2022.
The stock declined 3.05 percent to settle at Rs 811.50 on the BSE. During the day, it tanked 3.23 percent to Rs 810.
At the NSE, it fell by 3.21 percent to end at Rs 810.85.
In volume terms, 2.22 lakh shares were traded at the BSE and over 43.73 lakh shares at the NSE during the day. On Monday, insurance behemoth LIC posted a 17 percent decline in consolidated net profit to Rs 2,409 crore for the fourth quarter ended March 2022.
The insurer had earned a profit of Rs 2,917 crore in the same quarter a year ago.
This is the first-ever quarterly result of LIC after being listed on bourses earlier this month.