Insurance behemoth LIC, whose mega ₹21,000 crore public offering will launch on May 4, is confident of quickly catching up with private players on the profitability front and expects its VNB margins to cross 20 per cent levels in coming years. This will be achieved at a pace faster than what the private peers clocked to achieve such a milestone, its Chairman MR Kumar has said.
“Investors should look at VNB margins and this is what they will be looking at. We are now at a VNB margin of 9.9 per cent before listing. Rest of industry was only at 6,7 or 9 per cent. Post listing, they grew their VNB to beyond 20 per cent. How long did they take to reach 20? It will take much lesser time to reach that 20. I am on a much larger base”, Kumar told BusinessLine in an interview here.
Put simply, Value of new business (VNB) is the profit margin for the insurer for the new business written by the company. “ I am not saying we will immediately go up to 40, but in a year or two, we will reach 12-13. Soon enough, and faster than them, “he added.
Currently, the average VNB margin of top five players stood at about 25 per cent, which was 2.7 per cent larger than LIC’s. In 2020-21, LIC had a VNB of ₹4,167 crore (VNB margin of 9.9 per cent), while HDFC Life had a VNB of ₹2,185 crore (VNB margin of 26.10 per cent ). SBI Life had a VNB of ₹2,384 crore with a margin of 20.40 per cent and ICICI Prudential at ₹1,621 crore (25.10 percent VNB margin).
“Private players who are now doing well were like small children who went to school, learnt the alphabet, and have grown up. We are already a 65-year-old company, and now you are telling us to go to school. So I am starting there. But I already have a legacy and will work at a much faster pace in our post listing journey”, Kumar said.
LIC had a good weightage (61 per cent) of its overall premium coming from participating products and this tended to weigh down its overall profitability. On the other hand, for the top private players, participating products account for only 35 per cent of total premium. Par products are those where premiums are higher than non par and where insurer pays dividend to the insured.
For the nine months ended December 31,2021, LIC had market share of 71.8 per cent of individual policies and 88.8 per cent of all group policies sold in India.
On brand LIC’s relevance and connection to millennials, Kumar said that LIC has been taking steps to engage more with millennials and has been upping its digital game in recent years. “As many as 42 per cent of our agents (1.3 million agents) are millennials, and in the last two years, 80 per cent of those who joined are millennials. We have a phygital model. India still wants to talk to somebody before going in to buy a life insurance product,” he said.
Strategy on IDBI bank
Kumar said that LIC will divest its stake in IDBI Bank along with the government, but there is no clarity yet on what the quantum of stake sale would be. If the government were to permit it, then LIC would prefer to hold a small stake in IDBI Bank just as it has similar small stakes in several banks.
“I can’t put a number on how much I will look to shed. It all depends on the government and how the final transaction plays out and what kind of investor comes in. My stand is predicated on what the government will do. If the government were to exit, we would look to go along with the government or, if permitted, we would like to stick on to some holdings since we already have a stake in so many banks and continue our banca partnership with IDBI Bank”.
Asked if this meant that LIC was not open to completely exiting IDBI Bank, Kumar said that he can’t take an absolute stand, but his stand has been to continue the partnership. “I don’t mind IDBI Bank remaining as a banassurance partner... it is a win-win situation. Three years back, they were not even a banca partner. For decades, we had so many banca partners. Within three years, they (IDBI Bank) have become number one, “he added. Going forward, LIC will focus its energies on growing its bancassurance and digital channels, according to Kumar.
LIC was initially holding 51 per cent, but after a qualified institutional placement by IDBI Bank, the life insurer’s stake came below the threshold of management control. However, LIC retains management control. Centre has about 45 per cent stake in IDBI Bank. Now the government wants to give stake in such a way that a private entity picks up stake and runs the bank while LIC transfers management control to a single entity or group of entities.