LIC in early talks for bond forward rate agreement, says mgmt
This story was originally published at 21:14 IST on 7 February 2025
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--LIC MD: Don't see much impact of revised tax slabs on insurance business
--CONTEXT: Comments by LIC's management in post-earnings media call
--LIC MD: Realigned commission rates so that persistence, reward are in sync
--LIC: Have started pilot for bond forward rate agreement
--LIC: Engaged with 3 counterparties for bond forward rate agreement
--LIC: Will engage with 2 more counterparties for bond forward rate agreement
--LIC: Aim to achieve 20% value of new business margin in next 2 years
--LIC: Process of acquiring health insurance co underway, will take some time
--LIC: Digitising across segments such as customer acquisition, agent apps
--LIC: Correction in equity mkts good opportunity to enter ULIP space
--LIC: ULIPs will continue to be interesting, dynamic
--LIC: Surrender value norm impact on value of new business margin not major
--LIC: To review pdt structure, rates to mitigate surrender value norm impact
--LIC: Will take time to identify health insurance co for acquisition
--LIC: Don't see health insurance co acquisition being completed in FY25
MUMBAI – Life Insurance Corp. of India Ltd. has begun early talks to enter into bond forward rate agreements, the company briefed in a post-earnings press conference. LIC is in talks with three counterparties in regard to these forward rate agreements and is looking to engage with two more counterparties.
The life insurance company is also looking forward to the release of a detailed circular on the inclusion of forward contracts in government securities which the Reserve Bank of India announced on Friday. RBI Governor Sanjay Malhotra said that the introduction of forward contracts would enable long-term investors like insurance funds to manage their interest rate risk across rate cycles.
The insurer announced its financial result for the quarter ended December on Friday. A fall in commissions and employee costs pushed up the company's net profit by 17% year-on-year in Oct-Dec to INR 110.56 billion. The insurer saw its net commissions decrease 9% to INR 59.66 billion in Oct-Dec, while employee remuneration and welfare expenses fell 30% to INR 66.91 billion.
LIC had reportedly cut agent commissions in October after the Insurance Regulatory and Development Authority of India's revised surrender value norms came into effect at the start of the month. The insurer said that the revised surrender value norm does not have a major impact on the value of new business margin. The insurer's management said that it will review the current product structure and rates to mitigate any negative impact of the revised surrender value.
The insurer said that it aimed to achieve a growth of 20% in the value of new business margin in the next two financial years. The value of new business was INR 64.77 billion for the first nine months of 2024-25 (Apr-Mar), showing a 9% rise, while the net value of new business margin rose to 17.1% from 16.6% in the same period last year. The company also aims to realign their commission rates so that persistence and the reward are in sync, the management said.
Commenting on the company's plan to acquire stakes in a standalone health insurance company, the insurer said that the process is under way, but there is some ground to cover which will require some additional time. Earlier, the insurer planned to complete the acquisition by March-end. However, the insurer said that it still has not finalised on a suitable health insurance company for acquisition.
The insurer said that despite some market corrections in the insurance segment, the unit linked insurance plan will continue to be "interesting and dynamic". In the current scenario of policy rates easing, the unit linked insurance product will provide better returns to investors as the product is not just linked to equity but also to the bond market.
Speaking on the revised tax slabs in the Union Budget for FY26, the insurer said that the revision will not bring any significant changes in the insurance business. The company also said that it is working towards digitisation of its business and in the upcoming quarters the changes will be visible on that front. The shares of the company ended 1.5% lower at INR 816.10 on the National Stock Exchange on Friday. End
Reported by Vidhushi RajPurohit
Edited by Akul Nishant Akhoury
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