LIC net surges to Rs 234 cr in Q3FY22 due to change in surplus distribution

Ahead of its initial public offering (IPO), Life Insurance Corporation’s (LIC) net profit surged to Rs 234.91 crore in September – December quarter (Q3FY22), owing to the change in surplus distribution model, wherein shareholders will now get a larger share of the surplus than earlier. In the same period last financial year, LIC’s net profit totaled Rs 0.91 crore. For the 9 months ended FY22 (April – December), net profit of the insurer stood at Rs 1,642.78 crore.

LIC had a single “life fund” before Section 24 of the LIC Act was amended by the government to bring its surplus distribution mechanism at par with private life insurers. Now, the life fund has been segregated into two funds – participating policyholders fund and non-participating policyholders’ fund. Consequently, the surplus distribution in the participating policyholders’ fund has been modified to 90:10 in a phased manner, wherein 90 per cent will go to policyholders and 10 per cent to shareholders. Further, 100 per cent of the surplus generated out of the non-participating business will be available for distribution to all shareholders.

This change, according to M R Kumar, chairman LIC, will help LIC increase its profitability, a metric that will be closely tracked once it gets listed. “Going forward, with the change in surplus distribution, profitability will increase. Beyond that, it’s a question of how the product mix changes, penetration, more coverage to people, getting into sectors where we have been missing out. So, that should take care of the profits,” Kumar had said.

Premiums of the insurance behemoth increased 0.8 per cent to Rs 97,761 crore in Q3FY22 from Rs 97,008 crore in the year-ago period. In the first 9 months of FY22 (9MFY22), premiums of the insurer, which includes first year premiums, renewal premiums, and single premiums, totaled to Rs 2.84 trillion, up 1.67 per cent year-on-year (YoY).

Persistency ratio of the insurer dipped in Q3FY22, with the thirteenth month persistency ratio at 69.23 per cent compared to 72.98 per cent in the same period a year ago. But the 61st month persistency inched higher than the year ago period to stand at 57.28 per cent. Persistency ratio is the ratio of life insurance policies receiving timely premiums in the year and the number of net active policies. The ratio indicates how many policyholders are paying the due premiums regularly on the policies with the insurer.

The solvency ratio -- a measurement of the entity’s ability to meet its debt obligations and other financial commitments – of the insurer improved to 1.77 as of December, 2021, compared to 1.64 in the same period last year. The minimum regulatory requirement is 1.5.

The non-performing assets (NPA) ratio also saw sharp improvement, with the NPA ratio at the end of Q3FY22 standing at 6.32 per cent compared to 7.78 per cent in the same period a year-ago. And, net NPA ratio improved to 0.04 per cent compared to 0.14 per cent in the same period.

LIC filed its draft red herring prospectus (DRHP) with the Securities and Exchange Board of India (Sebi) on February 13, thus setting the ball in motion for the country’s largest-ever public listing. The government will sell 5 per cent of its stake, or 316.25 million shares of its over 6,325 million shares. The government owns 100 percent of LIC. Sebi has cleared the DRHP of the state-owned Life LIC. Following the market regulator’s nod to the IPO papers, the insurer can launch its share sale. However, LIC may not launch its IPO immediately given the current volatile market conditions.

The government is hoping to launch the IPO as soon as stock market volatility, sparked by the Russian invasion of Ukraine, recedes.