LIC rallies 6% on heavy volumes; stock inches towards record high

The stock hit an intra-day high of Rs 1,062.60 on Friday, and has bounced back 21 per cent from last week's low of Rs 880.70 touched on June 4.

Shares of Life Insurance Corporation of India (LIC) moved higher by 6 per cent to Rs 1,062.60 on the BSE in Friday’s intra-day trade amid heavy volumes. The stock of state-owned life insurance company had hit a record high of Rs 1,175 on February 9, 2024. The stock has bounced back 21 per cent from its previous week’s low of Rs 880.70 touched on June 4.

At 12:09 pm; LIC was trading 5.9 per cent higher at Rs 1,061, as compared to 0.08 per cent rise in the BSE Sensex. The counter witnessed huge trading volumes, with a combined nearly 7 million equity shares changing hands on the NSE and BSE. In the past two weeks, a combined average 6 million shares were traded on the bourses, the exchange data shows.

ICICI Securities has recommended a ‘buy’ rating on LIC with 3 month target price of Rs 1,175 per share.

The Insurance Regulatory and Development Authority of India (Irdai) in its ‘Master Circular on Life Insurance Products’ issued on Wednesday prescribed enhanced Special Surrender Value (SSV).

As per the circular, life insurers will have to ensure that the SSV is at least equal to the expected present value of the paid-up sum assured, paid-up future benefits, and accrued or vested benefits, duly allowing for survival benefits already paid.

Surrender value will be applicable after the first year if the first-year annual premium has been paid. The guidelines provide for discounting of benefits at 10-year G-sec with a cushion of 50 basis points (bps) as compared to the draft, which proposed discounting at 10-year G-sec rates.

Insurance companies are likely to offset the impact of increased surrender value by changing commission structures and revising the Internal Rate of Returns (IRRs), according to analysts and experts.

Valuations have come off for leading insurers since the first draft and we see current valuations to be attractive for the sector, and see finality on the regulations as a positive, analysts at JM Financial Institutional Securities said in insurance sector update.

The impact on VNB margins may be early to quantify, as insurance companies may offset the same through distributor clawbacks and/or changes in the internal rate of returns (IRRs). Valuations remain supportive, while investors await stability and visibility, analysts at Kotak Institutional Equities said.

The IRDA released draft surrender penalty guidelines in December 2023, final guidelines in March 2024, revised draft in May 2024 (according to the media) and the master circular yesterday (June 12, 2024). The sector has been marred with tax-rate changes (on high-ticket non-par policies) in the budget last year (2023).

Investments in smaller tickets, growth in interiors, higher payouts and the ULIP wave (over non-par) have kept margins muted. In this backdrop, it has been challenging to get visibility on near-term growth and margin trajectory of these companies, even as deep value makes the investment case. With surrender penalty guidelines out of the way, we expect some clarity to emerge over the next few months, the brokerage firm said in sector update.

Meanwhile, in the March quarter (Q4FY24), LIC of India reported healthy growth in premium income which was driven by single premium and renewal premium while first year premium remained muted. The company reported decline in margins due to higher growth of group products as compared to individual business.

“The company is focused on increasing its agency channel along with focusing on launch of super app. The company announced foray into the health insurance business which remains a competitive market. Financially, we expect APE/VNB to grow at a CAGR of 10.7 per cent/3.8 per cent over FY24-26E,” analyst at Religare Broking said in its result update with a ‘buy’ rating on the stock and target price of Rs 1,232 per share.

The Corporation offers a range of individual and group insurance solutions including participating, non-participating and unit linked lines of businesses. The portfolio comprises of various insurance and investment products such as Protection, Pension, Savings, Investment, Annuity, Health and Variable.

With India’s consumption-based growth driven mainly by the country’s large and young population coupled with the rise in share in the country’s upper middle–income segment, life insurers have an opportunity to increase life insurance penetration and to tap the uninsured population of the country.