LIC booked Rs 42,000 cr profit from equity markets in FY22, up 16% YoY

Insurance behemoth Life Insurance Corporation of India (LIC), the largest asset manager in the country with assets of Rs 42 trillion, said it realised gains of Rs 42,000 crore from its investment in the equity markets in financial year 2021-22 (FY22), an increase of 16.6 per cent from Rs 36,000 crore in FY21.

LIC invests approximately 25 per cent of its assets under management (AUM) in the equity markets, Raj Kumar, LIC’s managing director, said in a press conference on Tuesday, a day after the insurer came out with its first quarterly results after listing on the stock exchange.

“Out of the total AUM of Rs 42 trillion, 25 per cent is in the equity market. We do book profits, but we cannot book profits in a single year whatever is the MTM (mark-to-market) gain in the equity markets. We have to book profits over a period of time because we have to give benefits to policyholders as bonus in participating policies. So, the unwinding happens in 10-15 years. Although the market gains will be close to Rs 5 trillion I will not be booking profits in one single year,” Kumar said.

LIC’s yield on investments dropped to 8.55 per cent in FY22 compared with 8.69 per cent in FY21. “While investing the money of policyholders, the main concern of any life insurer is the protection of the invested money, rather than the return. An 8.55 per cent return in a depressed market is very good. We do invest in corporate bonds, which give us higher yields. At the same time, we are also very aggressively investing in the equity markets,” Kumar said.

The insurance behemoth is now looking to increase the share of non-par products such as annuities, guaranteed products, unit-linked plans, and term plans in its product mix, which will drive its value of new business (VNB) margins, a metric that will be keenly watched now that it is a listed entity. At present, LIC’s product mix is dominated by par products and non-par comprises only 7 per cent of sales and 29 per cent of premiums.

“The margins are driven by the product mix. Presently, our product mix is dominated by par products. Going forward, it is not that we will lose focus on the participating business, but our driver of growth will be non-participating business,” Kumar said.

Kumar said the insurer has 18 non-par products at present. “One of the biggest drivers of growth for us will be the banca channel. In the next five years, we shall have the same VNB margin or a little better than the industry average,” Kumar added.

In Q4FY22, LIC reported a net profit of Rs 2,371.55 crore. But, for the full year (FY22), its net profit jumped 39 per cent to Rs 4,043 crore as against Rs 2,900.56 crore in FY21.

The LIC management clarified on Tuesday that profit should be looked at from the full-year perspective. The previous years’ Q4 numbers pertain to the whole of FY21. So, the Q4FY22 and Q4FY21 profit figures are not comparable, they said. In fact, for Q1FY23, too, there will be no comparable figure from the previous year as the insurer declared quarterly results for the first time in Q2FY22.

LIC is working on determining the Indian embedded value (IEV) for March 31, 2022, and will be ready with that figure in the Q1FY23 earnings. It also plans to declare EV half yearly.

The insurer’s board recommended a dividend of Rs 1.50 per equity share for FY22, subject to the shareholders’ approval. This translates to a dividend of Rs 940 crore.

Commenting on the dividend, Kumar said, “Out of Rs 4,043 crore net profit, whatever dividend we pay, the balance remains in the shareholder account. When we are growing, we need capital to grow the business. And as the business grows, we will book more profit, which can then be shared with the shareholders”.