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MUMBAI : State run Life Insurance Corp. of India (LIC) bought Indian companies' shares worth at least Rs. 34,000 Crore from the equity market during the first quarter of the current fiscal, the country's largest insurer said in a virtual conference on Friday, while announcing a net profit of Rs.602.78 crore for the June quarter.
LIC, which, with assets of over Rs. 41 trillion, is known for its capability to lend the strongest support to Indian equity markets, bought shares worth at least Rs. 46,444 Crore during the April-June period on a gross basis, while selling equities worth over Rs. 12,000 Crore during the quarter, said an LIC executive during the conference.
This was significant because in the absence of LIC's share purchases India's already-bearish equity market would have fallen more.
By increasing its new business, changing its product mix and focusing more on non-participating products LIC managed to grow its net profit by multiple times from merely Rs. 24.36 crore in June quarter of last year.
"We continue to focus on non-participating policies (policies in which profit from investment is not shared with policyholders). Our VNB (value of new business, i.e. exact value of business from sales of fresh policies) margin from non-participating products has increased. Growth in new business is expected to be good going ahead," said M R Kumar, chairman, LIC.
LIC's profit would have been better, had the insurer not made a provisioning of Rs. 3,015.38 crore against diminution in value of investment during the quarter.
However, a closer look at the analytical ratios in LIC's financials shows that the net yield on LIC's investments under policyholders' fund has deteriorated to -2.08% this June quarter from 15.46% in June quarter last year, if the investments are evaluated along with unrealised gains or losses ( i.e. if one were to consider the mark to market value of investment). This is essentially from the bond portfolio of LIC.
A negative bond yield means LIC would receive less money at the bond's maturity than the original purchase price for the bond. This essentially means an investor or a customer who has bought a long-term life insurance policy from LIC (which predominantly invests in bonds) would have received less money than he expects if he redeems his policy as on date.
"A negative return would happen only if we redeem. We have not redeemed yet," said the LIC chairman, without elaborating on the issue further.
However, weak equity markets and falling bond yields have reduced the value of LIC's investments on a net basis. LIC's income from investments fell to Rs. 69,833.71 Crore during this June quarter as compared to Rs. 72,556.91 in June quarter of last fiscal.
Additionally, LIC's expenses of management (commission paid to agents and other expenses) rose to Rs.14,428.23 crore in June quarter from Rs. 13,026.31 crore in June quarter last year.
Further, a liability in LIC's books has arisen on account of additional contribution of Rs. 11, 124.66 crore due to fresh pension option to employees in financial year 2019-20, said LIC. This is being provided over a period of
five years from financial year 2019-20. Accordingly, an amount of Rs. 556.23 crore has been charged to LIC's revenue account for the quarter ended 30 June 2022 and the balance amount of Rs. 3,893.62 crore will be provided over the remaining period upto 31 March 2024.
For the quarter, LIC saw a 20.35% increase in total premium income at Rs. 98,352 crore as compared to Rs. 81,721 crore for the quarter ended 30 June 2021.
"The marketing activity picked up pace, overall business momentum was strong for LIC...
On an annualised premium equivalent (APE) basis the total premium was Rs.10,270 crore for the quarter ended 30 June 2022. Of this 62.8%(Rs. 6,450 crore) was accounted for by the individual business and 37.2% (Rs. 3,819 crore) by the group business. Within the individual business the share of par products on APE basis was 92.25% and balance 7.75% was due to non par products," said LIC in a release.
LIC sold 3.68 million policies in the individual segment during the quarter ended, registering an increase of 59.56% over the similar quarter last year when 2.31 millon policies were sold.
For the quarter ended 30 June, 2022, the persistency ratios on premium basis for the 13th month, and 61st month were 75.75%, and 58.99% respectively. The comparable persistency ratios for the corresponding quarter ended 30 June, 2021 were 72.49%, 56%, respectively.
The persistency has improved across the board, both on premium and policies basis for the quarter ending 30 June, 2022 as compared to the corresponding period of last fiscal.
LIC' asset under management increased by 7.57% to ₹41.02 trillion as on 30 June 2022 as compared to Rs. 38.13 trillion on 30 June 2021.
The yield on investments on policyholders funds excluding unrealized gains was 7.74% for the June quarter as against 8.39 % for the same period last year.
As against a gross NPA of ₹26,620 Crore, an NPA provision of ₹26,611 Crore has been made for the quarter ended 30 June 2022, said LIC.
"The value of new business (VNB) margins for the period ended 30 June 2022 are 13.6% on a net basis. The gross VNB of the individual business was ₹1,277 Crore and for group business was Rs. 583 Crore for quarter ended 30 June 2022. The gross VNB margins for the individual and group business were 19.80% and 15.26% respectively. Within the individual business, the par business, non par business (including linked business) had gross VNB margins of 14.38% and 84.20% respectively," said LIC.
VNB margin indicates an insurer's ability to draw profits from sales of new or fresh policies. However, since life insurance is a long term business, VNB margins matter more on an annual basis rather than quarterly changes.
“As the Covid situation normalises, we are seeing a larger activity on the ground, therefore bringing us back closer to our model of having “feet on street" and continuous in person engagement with our customers. While the growth numbers are very robust for the first quarter as seen in comparison to the same quarter of FY 2021-22, we are aware that the Q1 of the previous year, FY 2021-22 was impacted by a very tough second wave of Covid. However, the trajectory is upwards and we are looking at increased business volumes as is evident in our market share in the year to date since January 2022. We are glad to inform that LIC has been now included in the Fortune 500 list of companies and is placed at number 98 in the list. With this ranking, LIC is the top ranked Indian company on the Fortune 500 list," said Kumar, while addressing the conference on LIC's quarterly financials post the market closure for the week.