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Determination of embedded value ‘work in progress’: LIC MD

For the quarter ended September 30, 2021 and December 31, 2021, the corporation checked all data and the output of the new system with the existing system, and have found consistency in the numbers.

It represents the worth of shareholders' interests in the earnings distributable from the assets allocated to the business after sufficient allowance for the aggregate risks in the business.
It represents the worth of shareholders' interests in the earnings distributable from the assets allocated to the business after sufficient allowance for the aggregate risks in the business.

State-owned Life Insurance Corporation of India (LIC) on Tuesday said the exercise of determining its embedded value as on March 2022 is a “work in progress” and is likely to be completed by the end of next month.

The Embedded Value (EV) is a measure of the consolidated value of shareholders’ interest in the life insurance business.

It represents the worth of shareholders’ interests in the earnings distributable from the assets allocated to the business after sufficient allowance for the aggregate risks in the business.

LIC’s embedded value was pegged at about Rs 5.4 lakh crore as on September 30, 2021 by international actuarial firm Milliman Advisors.

The life insurer’s managing director Raj Kumar said the exercise of determination of Indian embedded value as on March 31, 2022 is under progress and is expected to be completed by June 30, 2022. As soon as the exercise is completed, LIC shall make the required public disclosures of the same.

“It is a long exercise (determination of Indian EV). We are implementing a new IT solution for calculation of Indian embedded value and we need to cross-check all the data,” he told reporters.

For the quarter ended September 30, 2021 and December 31, 2021, the corporation checked all data and the output of the new system with the existing system, and have found consistency in the numbers.

It wants to cross-check the data for the period ended March 31, 2022, so as to ensure that the new IT system is perfect, he said.
“We have 285 products which need to be modelled into a new system. We have to check the consistency of the output for each of the products, and it is taking time. We don’t want to rush into any number which can be questioned tomorrow. We want to be absolutely sure and hence we are taking a little more time.
“Going forward, from Q1 (FY23) onwards, it will not be taking so much time and we will be doing it (determining IEV) simultaneously along with the completion of the financial results,” Kumar said.

The state-run insurer will calculate Indian EV on a quarterly basis but has decided to declare the number on a half-yearly basis, a trend followed by the other industry players, he said.

Kumar said at present the corporation’s product mix is dominated by the participating business but going further its driver of growth will be non-participating business.

A participating (par) life insurance policy allows policyholders to participate in the profits of a life insurance company, while a non-participating (non par) plan does not offer any dividend payouts.

“We have already decided that in future we will be launching only non-par products. With the product mix changing towards the non-par side in the future at a greater pace than the par side, the value of new business will be created. That is the strategy we are adopting,” he said.

The life insurer’s biggest driver of growth will be the bancassurance channel. It is having 72 tie-ups with different banks, which gives 60,000 outlets to sell its products. Over the next 5 years, it plans to activate each and every outlet available to it for selling products, Kumar said.

On Monday, LIC declared its first-ever quarterly result after being listed on bourses earlier this month.

On a standalone basis, the insurer reported a 18 per cent decline in its net profit at Rs 2,371.55 crore in the quarter ended March 2022, compared to Rs 2,893.48 crore in the year-ago period.

On a consolidated basis, the profit after tax dropped 17 per cent to Rs 2,409 crore for the fourth quarter ended March 2022 from Rs 2,917 crore in the same quarter a year ago.

“Earlier the profits were declared at the end of the year only. So that’s why the quarterly numbers are not comparable… This year’s (FY22) Q4 number is not comparable with Q4 of last year (FY21) because it was for the full year (FY21),” Kumar said, adding that from September 2022 onwards, the comparable data points will be available.

For the entire financial year 2021-22, LIC reported a 38 per cent rise in its consolidated profit at Rs 4,124.70 crore from Rs 2,974.13 crore in the previous financial year.

Its income from first-year premium rose to Rs 14,663.19 crore as against Rs 11,053.34 crore in the same quarter previous fiscal.
The income from renewal premium rose 5.37 per cent to Rs 71,472.74 crore, while from single premium increased by 33.70 per cent to Rs 58,250.91 crore during the quarter.

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