The June quarter performance shows a clear focus on growth, even as it impacts margins. In the first quarter of FY25, LIC reported a 24% year-on-year increase in its value of new business (VNB) to ₹1,600 crore, largely driven by a 21% rise in annualised premium equivalent (APE).APE is a key gauge of sales, which is the annualised total value of all single premium and recurring premium policies.
VNB margins, in contrast, have grown by only 20 basis points to 13.9%. One basis point is a hundredth of a percentage point.
While the premium growth was mainly due to a 166% year-on-year rise in the non-participating (non-par) segment, the insurer saw a 220 basis points drop in margins in the group business to 11.7%, and around 400 basis points drop in non-par margins to 39.8% and a similar drop in participating margins at 7.9%.
The management informed analysts over a call that the focus is on growth, which has led to a reduction in margins across all product segments. LIC is targeting margins to exceed 20% in the medium term.VNB margins depend on the business mix of the company and the management is focusing on marketing which impacts it.“The momentum around increasing the share of non-par products within the individual segment continues, with non-par share on an APE basis reaching 23.94% in Q1 FY25,” said Siddhartha Mohanty, LIC’s managing director and chief executive. The insurer has been focusing on increasing the share of higher-margin non-participating policies in total policies sold.Participating or par policies pay dividends and bonuses to the policyholder. Non-par policies, on the other hand, do not pay dividends.
On an APE basis, the insurer’s share of non-par policies in its individual business rose to 23.94% from 10.22% a year earlier.
“During the quarter, LIC’s par margins saw a significant dip on a YoY ba sis, which was largely due to changes in the risk-free rates and changes in the par business mix,” said Avinash Singh of Emkay Global.
The insurer also reviewed and revised rates for annuities for the September quarter.
“LIC is playing the price game to get growth,” said Suresh Ganapathy, head of financial services research at Macquarie Capital.
“Their product margins are down sharply over the years and the latest VNB walk clearly shows that they have passed on benefits to customers and that has had a 120 bps impact on VNB margins.”
For the quarter ended June 2024, LIC had a market share of 39.27% in individual business and 76.59% in group business. Within the individual business, the share of par products on an APE basis was 76.06% (₹5,132 crore) and the remaining 23.94% (₹1,615 crore) was from nonpar products. The management will continue to focus on the nonpar business and has modified two existing products.
The challenge for LIC, which has the dominant agency force of over 1.4 million, will come in tweaking the commission structure once the surrender regulations change from October. The management said that the impact is limited and the insurer will look to redesign the products and the commission structures. The insurance regulator has increased surrender commission from the first year on no-participating products, which is expected to have an impact on profitability.
Shares of LIC, which crossed above the IPO price of ₹949 in January for the first time since the May 2022 listing, have now risen to ₹1,050.