LIC's Embedded Value Jumped Nearly Fivefold In Six Months. Here's Why

Till 2018-19 fiscal, LIC paid the government, its only shareholder, 5% of the surplus. For FY20 and FY21, it issued bonus equity shares to the government in lieu of its share in the surplus.

In the run-up to the LIC IPO, the government amended the Life Insurance Corporation Act, 1956, to provide for separate policyholders' funds for the two categories. As on Sept. 30, the policyholders’ fund for:

• participating plans aggregated to Rs 24.5 lakh crore.

• non-participating policies stood at Rs 11.4 lakh crore.

After segregation, shareholders will get 5% of the surplus from participating fund and 100% of the surplus from the non-participating policyholders' fund. That caused its embedded value to spike.

The insurer will increase the share of shareholders in the participating fund surplus to 90:10 by FY24-25. That would bring it in line with private insurers.

The LIC IPO filing, however, left one thing unexplained.

The insurer had 244 in-force products as on March 31. Yet, to calculate its embedded value, it factored in 94 products contributing more than 90% of both in-force reserves and the new business annualised premium equivalent.