LIC’s embedded value at Rs 5.41 trillion in March-end

Life Insurance Corporation of India’s (LIC) Embedded Value (EV) was at Rs 5.41 trillion at the end of March, significantly higher than Rs 95,605 crore at the end of March, 2021, the insurer said on Thursday.

The increase is due to the bifurcation of fund into separate participating and non-participating funds, pursuant to changes in the LIC Act, 1956. Earlier, the insurer had only one fund and the valuation surplus from the participating (par) and non-participating (non-par) business was distributed between policyholders and shareholders in a ratio of 95:5.

The insurer said the EV had not fallen since September, 2021 despite a mark-to-market loss of around Rs 40,000 crore. The EV is the present value of future profits plus the market value of net assets. One of the valuation parameters that analysts use is a multiple of the EV.

The LIC stock has lost nearly 25% since it listed on May 17 and closed Thursday’s session at Rs 715.

The state-owned insurer also put the value of its new business (VNB) margin for FY22 at 15.1 % as compared to 9.9% in FY21. The VNB was placed at Rs 7,619 crore as compared to Rs 4,167 crore for the previous financial year. The Annualised Premium Equivalent (APE) for year to March was Rs 50,300 crore, compared with Rs 45,588 crore for the year ended March, 2021.

LIC commanded a retail market share of 44% in FY22 as compared with 30% for the top three private insurers but has given up share in the last five years; its share in FY17 was 59%.

Analysts at JP Morgan recently rated the stock overweight with a price target , for March, 2023 of `840. “Our thesis centres on LIC’s 0.75x Price to Embedded Value — a measure of the market value of an insurer’s current and future policies,” analysts wrote. They estimate a conservative 12% profit CAGR over FY22-25.

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