The Embedded Value (EV) of a life insurance company is the present value of future earnings plus the adjusted net asset value. It is the industry standard for rating an insurance company. The DRHP sets the intrinsic value of LIC at ₹5.39 trillion or or ₹5,39,686 crore as of September 30, 2021.
LIC compared to its global counterparts
The DRHP indicates that LIC ranks fifth in the world in terms of life insurance GWP (gross written premiums) after the German insurer Allianz SE, the Chinese Ping An Insurance and China Life Insurance and the Italian Assicurazioni Generali SpA, and the tenth in the world in terms of total assets.
The largest asset manager
LIC is the largest asset manager in India as of September 30, with assets under management (AUM) of ₹39.55 trillion on a standalone basis, more than 3.3 times the total AUM of all private life insurers in India and more than 1.1 times the AUM of the entire Indian fund industry mutual funds. Its listed equity investments represented approximately 4% of NSE’s total market capitalization as of September 30.
The bulk of LIC’s investments are in central and state government securities. About ₹14.8 trillion – representing 37.45% of its total investments – are in central government securities. About ₹9.74 trillion, or 24.62%, are government securities. investments of more than ₹9.78 trillion are in shares, representing 24.78% of its investments. About ₹3.18 trillion, or 8.06%, is in the form of debentures, bonds and transfer certificates. Only around ₹30,905 crore or 0.78% of its total investments are in mutual funds, exchange traded funds and AIFs.
Dependence on agents
In fiscal years 19, 20, 21 and the six months ended September 30, 2021, individual LIC agents were responsible for supplying 96.69%, 95.73%, 94.78% and 96.42% new commercial profits from LIC for its individual products in India. It has the largest single agent network among life insurance entities in India, comprising approximately 1.35 million single agents as of March 31, 2021, or 7.2 times the number of second-largest single agents. large life insurer.
LIC paid agents on commission ₹9,815.2 crore in the six months ending September 2021. In the fiscal year ending March 2021, the figure was ₹ 22,358 crores.
For the fiscal years 2019, 2020, 21 and the six months ended September 30, 2021, LIC’s insurance business operating expenses to premiums (as a percentage of premiums) were 8.33%, 8, 99%, 8.66% and 10.08%, respectively, on a consolidated basis. based. Total expenses (including commissions paid to agents) for LIC steadily deteriorated from ₹ 28,331.6 crores in FY19 for ₹34,425.88 crore in FY20 at ₹35,162.21 crores in FY21. Total expenditure for the six months of FY22 was ₹18,906.36 crore. LIC reported negative cash flow from operating activities in the first half of FY22 at ₹11,114.3 crores due to other high operating expenses. It has recorded positive cash flow over the past three years. The cash on its balance sheet has shrunk considerably, from ₹67,899.5 crore in fiscal year 2019 for ₹26,050 crores in the first half of FY2022.
LIC vs Indian peers
Assets under management for private life insurance companies have grown by more than 15% CAGR over the past three years. On the other hand, LIC’s AUM (consisting of policyholder investment, shareholder investment and assets) on a stand-alone basis increased to 10.92% CAGR.
Despite being the market leader, LIC lags behind its insurance-listed counterparts in terms of earnings per share (EPS). For fiscal year 2021, it reported EPS of ₹4.70, against an EPS of ₹14.55 for SBI life insurance, ₹6.73 for HDFC life insurance and ₹6.66 for ICICI Prudential Life Insurance.
Market share erosion
LIC gradually lost market share in individual new business premiums. Its share increased from 56% in FY2016 to 44% in the first half of FY2022. In the new group business premium segment, its share increased from 81% in FY2016 77% in the first half of fiscal year 2022.
The pandemic and related shutdowns played a significant role in LIC’s market share decline. Sales of individual policies decreased by 22.66% in the fourth quarter of fiscal 2020 to 6.35 million, compared to 8.21 million in the fourth quarter of fiscal 2019. Sales for the first quarters of fiscal 2021 and fiscal 2022 decreased by 46.20% and 34.93% respectively.
LIC acknowledges that it could lose further market share if it does not offer its products on third-party websites, noting that reliance on the agent network for distribution may need to reduce in the future for sustainability and growth.
Covid impact on claims
LIC death insurance claims have increased during the pandemic. For fiscal years 2019, 2020, 21 and the six months ended September 30, 2021, its death benefit claims paid (net) were ₹17,128.84 crore, ₹17,527.98 crore, ₹23,926.89 crores and ₹21,734.15 crores, respectively, on a consolidated basis, or 6.79%, 6.86%, 8.29% and 14.47% of its total insurance claims, respectively.
A fair investment
LIC’s realized investment income in equities for the six months ended September 30, 2021 was ₹ 35,987 crores. For fiscal year 21, ended March 31, 2021, its realized income from equity investments (including interest, dividends and amortization and realized gains or losses) was ₹49,659 crores, against ₹29,702 crores in FY20.
In FY19, its realized investment income in equities was higher at ₹34,799 crores. For context, stock markets were down at the end of FY20 as fears around the new wave of covid began to spread.
LIC said its gross NPA was 7.78% for FY21, while the net NPA was 0.05%. It’s only for his debt portfolio. He disclosed the NPA only for policyholder funds, not for shareholder funds.
LIC paid ₹2,663 crore in dividends to the government in fiscal year 2019 and retained its share of the surplus in fiscal years 2020 and 2021 for the issuance of bonus shares to the government.
As of February 6, LIC is involved in no less than 26,919 criminal, consumer, civil, tax proceedings and measures taken by a statutory or regulatory authority.
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