LIC's Embedded Value Steady At Rs 5.41 Lakh Crore Despite Market Volatility
LIC embedded value held steady even as volatility in the equity market was offset by improving business.
Life Insurance Corp.'s embedded value held steady even as volatility in the equity market was offset by improving business.
The insurer's embedded value stood at Rs 5.41 lakh crore as on March 31, 2022, according to its filing. That compares to Rs 5.39 lakh crore as on Sept. 30, 2021 and Rs 95,605 crore in March 2021.
LIC, which discloses EV on a half-yearly basis, had deferred the disclosure when it announced its results for the fourth quarter ended March in May.
The embedded value indicates the sum of present value of future profits and adjusted net asset value. It similar to book value but adjusted for future provisions and cash flows. Equity and debt impact the metric.
"The embedded value suffered a loss Rs 40,000 crore due to volatility in equity and debt markets" in the second half of the year owing to geopolitical tensions, changes in interest rates and withdrawal of foreign institutional investors, the company's management said in a press meet. "A 10% fall in the equity markets impacts the embedded value by 6.5%, while bonds have a small 0.4-0.5% impact."
Yet, the embedded value improved marginally. Factors like growth in value of new business, better mortality, persistency and changes in some other assumptions cushioned the EV, it said.
Other Key Metrics
The value of new business expanded from Rs 4,617 crore in March 2021 to Rs 7,619 crore in March 2022.
The VNB margins expanded to 15.1% from 9.3% in H1FY22 and 9.9% in FY21.
The insurer explained that the VNB margin expansion could be attributed to changes in product mix, changes in business as the proportion of revenue from group business improved from 24% to 29%. Other factors include change in distribution pattern, increase in risk free rate, volume of business done in the period.
The return on embedded value stood at 11.9% as against 36.9% in March last year. The insurer attributed the decline to a larger EV base.
LIC had amended its fund distribution policy before the initial public offering to bring it in line with that of listed private insurers. That increased its EV from Rs 95,605 crore in March 2021 to Rs 5.39 lakh crore in September 2021.
The policy changed the way surplus from the premium pool was distributed among policyholders and shareholders. LIC had a single fund for both participating and non-participating plans, and any surplus was shared with policyholders and shareholders in the 95:5 ratio. However, post bifurcation, entire surplus from non-participating plans was given to shareholders along with 5% of the surplus from participating fund.
The insurer had said that it will further increase the share of shareholders in the participating fund surplus to 90:10 by FY24-25, further boosting the embedded value.
The insurer said that it will continue to report other key metrics like VNB and VNB margins quarterly, the EV will be disclosed half-yearly.