The finance ministry has advised LIC to modernise its product portfolio and thereby boost profitability, so that the state-run insurance behemoth can ensure greater returns to investors, an official source told FE.
Given the growing awareness about insurance among the youth in recent years, LIC also needs to devise an attractive product strategy to cater for the Gen-Next demand, he added.
Ever since its listing on May 17, the LIC share has been trading much below the issue price of Rs 949 on the BSE. The share had listed at a discount of 8.6% to the offer price on the BSE. On Tuesday, it settled at Rs 595.5, down 0.7% from the previous close. The government had diluted 3.5% of its stake in LIC and raked in about Rs 20,516 crore from the IPO.
“They (LIC) are doing it (change in strategy, wherever required) in their own way. The government is also encouraging them to innovate more and firm up a strategy that will boost not just short-term profitability, but also long-term growth prospects,” said the official.
In fact, in the company’s annual report for FY22, LIC chairman MR Kumar said the country’s largest insurer was planning to enhance its market share in non-participating insurance products. The announcement was seen as a part of broader efforts to bolster the profitability so that investors remain invested in it.
Typically, a non-participating or non-par policy, unlike a participating one, does not pay out any bonuses or dividends based on the insurer’s profits. However, these non-par life insurance plans do pledge guaranteed benefits on maturity. Greater adoption of non-par policies will ultimately lower the dividend payout to policyholders.
LIC, which has about 65% market share, currently offers 17 individual non-participating products and the same number of individual participating products, in addition to 11 group products and 7 products with rider benefits. In terms of annual premium equivalent in FY22, the share of LIC’s par business within the overall individual business was as much as 93%.
LIC’s standalone net profit in the June quarter jumped to Rs 682.88 crore from Rs 2.94 crore a year before. It had reported an embedded value of Rs 5.41 trillion as of March 2022, higher than Rs 5.40 trillion in September 2021.
Some foreign brokerages, however, have been bullish on the future prospects of LIC on the ground that it has good medium-term market potential, limited high-risk assets and robust core operating return on embedded value. For instance, a Citi research report earlier this month set a target price of Rs 1,000 for the LIC scrip. In fact, it suggested that LIC is “positioned better than mature global players”.