LIC aims to reach a mix of 75:25 between par and non-par in individual biz

State-owned insurance behemoth Life Insurance Corporation (LIC) is aiming to achieve a mix of 75:25 between participatory (par) and non-participatory (non-par) businesses in the individual segment in the next few years and once that happens, it will give a significant push to the value of new business (VNB) and VNB margins of the corporation, the management said in an analyst call after the company’s Q2 results.

As of H1FY23, the non-par share on an individual annaulised premium equivalent (APE) basis of LIC stood at 8.99 per cent; the par share stood at 91.09 per cent. In the March quarter of FY22, the share of non-par in individual business was 7.12 per cent, and in the June quarter, it was 7.75 per cent.

“We continue to increase the share of non-par business in our individual business with every passing quarter,” said M R Kumar, chairperson, LIC, in the analyst call.

"The immediate goal is that within the next few years these product portfolio mix in the individual segment could possibly turn around to 75-25 sort of proportions from current 95-5 or 93-7 sort of proportions. That is the ultimate goal. Once that happens there could be significant change in the VNB margins also we can just take the weighted average of what the value would be there. So, there could be significant change in the VNB margins as well as the VNB for the corporation," said Dinesh Pant, Executive Director, LIC. 

The corporation has launched only non-par products this year which cater to specific segments in its drive to increase the non-par business. “We now have a full range of products in the ULIP segments. Savings products and ULIP products are gaining traction and the pick-up has started. The savings products and ULIP products are going to be the drivers of growth. We are now having a relook at our protection products,” the management said.

Non-participatory life insurance contracts are such contracts where no policy dividends are paid to policyholders and the entire profit from non-par policies belongs to shareholders. On the other hand, participating policy enables the policyholder to share profits of the insurance company. These profits are shared in the form of bonuses or dividends.

LIC has traditionally been heavy on participating business but months before the initial public offering, it started to aggressively push its non-par products, which are main the drivers of margins for a life insurance company.

The corporation reported a VNB of Rs 4,836 crore in H1FY23 -- gross VNB of the individual business at Rs 2,974 crore and that of the group business at Rs 1,862 crore. Its VNB margin for the half year ended September 30, 2022, stood at 14.6 per cent as compared to 9.3 per cent for the half year ended September 2021.

Analysts have said the margin expansion seen by LIC in H1 is essentially on the back of its group business, where it has a sizable market share. In fact, in the individual non-par business, it has seen some moderation in margin due to the re-pricing of annuity business to make it competitive.

“We expect margins of LIC to rise, aided by an improving mix of non-PAR and higher profit retention for shareholders. Retention will increase to 10 per cent in the par business by FY25 from 5 per cent earlier, besides retaining the complete profit in the non-par business,” stated Motilal Oswal in a research note.