The country’s largest insurer, Life Insurance Corporation of India Ltd., reported an embedded value of ₹5,41,492 crore as of March 2022, marginally higher than ₹5,39,686 crore six months ago. Henceforth, the insurer’s embedded value will be declared with the half-yearly results, as is usually the case with insurance companies, Chairman MR Kumar said in a press conference.

The March 2022 embedded value has been adopted as per the IEV (Indian Embedded Value) report by Milliman Advisors LLP. The figure is not entirely comparable to the year-ago figure of ₹96,605 crore as on March 31, 2021, as LIC bifurcated its single insurance fund into two funds of participating (par) and non-participating (non-par) policies during H2FY22, following changes in the LIC Act.

The return on embedded value (ROEV) was 11.9 per cent as of March 2022, much lower compared with 36.9 per cent a year ago, owing to the impact of splitting the policyholders’ fund.

Minimal rise

On a six-month basis, the rise in embedded value was minimal due to a more comprehensive coverage of the product basket in calculating the embedded value and a marked-to-market (MTM) loss of ₹40,000 crore incurred on its debt and equity investments in H2FY22, Executive Director (Actuarial) KR Ashok said. On the sensitivity of embedded value to market fluctuations, Ashok said that a 10 per cent fall in equities usually corresponds to a 6.5 per cent fall in LIC’s embedded value.

However, the embedded value was supported by the improvement in other business metrics, including a bigger product base, a rise in premium rates, better persistency and mortality ratios, and improvement in new business margins, among other factors, he added.

LIC reported the Value of New Business (VNB) for FY22 at ₹7,619 crore, 83 per cent higher than the previous financial year, aided by an improvement in the VNB margin to 15.1 per cent for FY22 from 9.9 per cent. Chairman Kumar attributed the better VNB margins to an increase in the share of pension and group policies, improvement in group business margins, and better annualised premium equivalent (APE)—a measure of overall new business sales.

Underperformance of stock

Since its listing in May 2022, shares of LIC have underperformed market expectations, trading below the issue price of ₹949. This has prompted analysts to question the market’s assessment of the stock, given the size and scale of the country’s largest insurer and domestic institutional investor.

JP Morgan India, one of the 10 book-running lead managers of the LIC IPO, had in June said that the 0.75 times P/EV (price-to-embedded value) is “unduly harsh”, even assuming no growth as new business value accounts for only 1 per cent of LIC’s policies in force.

“With due respect to what markets reflect, the market value reflects the total embedded value as well as the future value, so it’s not very clear how LIC’s embedded value is higher and at that time its market value is less than that. But, it’s the market that assesses the value,” Ashok said.

The stock tanked over 30 per cent to touch a 52-week low of ₹650 in May 2022 but has since recovered to an extent. On Thursday, it closed 0.5 per cent lower at ₹715 on the NSE. The embedded value was declared post market hours.

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