Insurance behemoth, Life Insurance Corporation (LIC), which is also the largest asset manager in the country, with assets of Rs 42 trillion, has realized profits of Rs 42,000 crore from its investment in the stock markets in FY22, a growth of 16 , 6 percent of Rs 36,000 crore realized in FY21.
LIC invests about 25 percent of its assets under management (AUM) in the stock markets, said Raj Kumar, Managing Director, LIC in a press conference, a day after it came out with its first quarterly results to list.
“Of the total AUM of Rs 42 trillion, 25 percent is in the stock market. We book profits, but we can not book a profit in one year what the MTM profits are on the stock markets. We have to book profits over a period of time “, because we have to give benefits to the policyholders as a bonus in participatory policies, so that the settlement happens in 10 – 15 years. Although the market profits will be close to Rs 5 trillion, but I will not book a profit in one year,” said Kumar.
LIC’s return on investment fell to 8.55% in FY22 from 8.69% in FY21. “While investing the money of policymakers, the most important concern of any life insurer is the protection of the money invested, rather than its return. A return of 8.55 percent in a depressed market is very good. We invest in corporate bonds, which gives us something. “At the same time, we are investing very aggressively in the stock markets,” said Kumar.
The insurance behemoth is now considering increasing the share of non-par products, such as annuities, guaranteed products, unit linked plans, and term plans in its product mix, which in turn will drive the value of new business (VNB). margins of the insurer, a metric that will be sharply considered by observers now that it is a listed entity. Currently, LIC’s product mix is dominated by par products and non-par comprises only 7 percent through sales and 29 percent through insurer’s premiums.
“Margins are driven by the product mix. At the moment, our product mix is dominated by pair products. In the future, it is not that we will lose focus on the participating company, but our driver of growth will be non-participating company,” he said. Kumar.
“Currently we have 18 non-par products. That the product mix will change to non-par at a faster pace in the future and therefore the value of new business will be created. One of the biggest drivers for growth for us “In the next five years, we’ll have the same VNB margin or a little better than what the sector average is,” Kumar added.
LIC announced its fourth-quarter earnings for FY22 earlier this week. In Q4FY22, LIC’s net profit was Rs 2,371.55 crore. But, for the full year (FY22), LIC’s net profit jumped 39 percent to Rs 4,043 crore against Rs 2,900.56 crore in FY21.
LIC management stated in the press conference that profit should be seen from the perspective of the full year, which has grown by 39 per cent year on year to Rs 4,043 crore. Profit from previous years covers the full fiscal year (FY21), but since the profit was declared in the last four years, it therefore appears in Q4 submission. That, Q4FY22 profit figures and Q4FY21 profit figures are not comparable they said. In fact, for the quarter of June there will also be no comparable figure from the previous year, as we have declared quarterly results for the first time as at 30 September 2021.
LIC is working on determining the Indian Embedded Value (IEV) for March 31, 2022, and will be ready to give that figure in the June quarterly earnings. They also plan to declare embedded value semi-annually and we will also follow the same system.
The board of directors of the insurer recommended a dividend of Rs 1.50 per share with nominal value of Rs 10 each for the year ended 31 March 2022, subject to the approval of the shareholders at the annual general meeting. This translates into a dividend of Rs 940 crore. Commenting on the dividend, Kumar said: “Of the net profit of Rs 4,043 crore, whatever dividend we pay, the balance remains in the shareholders’ accounts. As we grow, we need capital to grow the business. And as the business grows , we will book more profit, which can then be shared with the shareholders ”.
The LIC share price fell 3.05 percent to close at Rs 811.50 on the BSE.