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Informist, Thursday, Aug. 7, 2025

By Aaryan Khanna and Cassandra Carvalho

MUMBAI – India's largest life insurer does not plan to increase its value of new business margin at the cost of sacrificing its market share and lead in the lower margin group insurance business. Instead, Life Insurance Corp. of India sees huge potential in increasing some higher margin segments of the group business and expects its margins to improve through the financial year as the share of non-participating products increases. 

"Let's be clear about it. The ultimate context is that VNB margin should improve, but the volume should also...VNB margin should not come in the way for the growth of the overall business," the management said in a post-earnings conference call with analysts and investors Thursday. It pointed to expanding the assurance products within the group business, which have higher margins, but said it would provide the solutions customers needed. 

LIC's value of new business margin improved by 150 basis points on year to 15.4% in the June quarter. The management said its new business premium in the individual business improved to around 23-24% in the reporting quarter from 21% in the trailing quarter. Helped by the margin expansion, the life insurance behemoth's net profit rose 5.0% on year to INR 109.86 billion in the June quarter, it said earlier in the day.

The insurer's highest margin product was the non-participating savings schemes it sold, the management said. Unit-linked products were doing well and made up 22.14% of the new business premium share in the June quarter as customers increased their exposure to the financial market. However, the latter were not the highest margin products for LIC, and were more critical in driving the value of new business in absolute terms, the management said. In the reporting quarter, the value of new business rose 20.8% on year to INR 19.44 billion.

The life insurer was refocusing on the participating policy segment as well and margins from the segment have improved, the management said. However, after the change in surrender value norms in October last year, LIC added several new non-participating products that got a lot of traction and improved margins. The Insurance Regulatory and Development Authority of India had instructed insurance companies to increase the surrender value of life insurance policies, specifically for non-participating products. The average ticket size of its policies sold had increased after the change in norms, the management said.

In a media call earlier in the day, the management said a 40:60 ratio of non-participating to participating products would be optimal as it aims for double-digit growth in profitability in 2025-26 (Apr-Mar). "We are looking at a decent growth in terms of absolute volume, as well as in terms of APE (annualised premium earned) in the current year," Managing Director and Chief Executive Officer R. Doraiswamy said on the call. "And I'm sure when it comes to the second half of the year (Oct-Mar), the growth is substantially improved."

The management said LIC had started hedging its premium and payout exposures through bond forward rate agreements starting in March, after exploratory steps in January. The life insurer's hedging strategy is governed by regulations and market conditions, the management said, even as the entire cash flow is available to hedge. However, the hedge offered by forward rate agreements must align with the pricing assumptions of the product.

"So if it doesn't align with this, we may actually revisit the pricing strategy or even changing the structure of the product itself. So the (hedging) strategy is dynamic and ongoing," the management said. On Thursday, shares of LIC ended 0.9% lower at INR 885.00 on the National Stock Exchange.

The management said it was comfortable with a solvency ratio of 1.8-2.0 times its long-term liabilities, well above regulatory requirements of 1.5 times as it was a systemically important financial institution in India. The solvency ratio of 2.17 times in the June quarter was high as LIC was readjusting its portfolio, and therefore needed to invest in new products. Asked about using the cash to give out dividends, the management said it has consistently increased its dividend payouts since its listing in 2022 and would aim to continue increasing them in the future. LIC paid an annual dividend of INR 12 per share in FY25.

The life insurer saw a sharp increase in premiums through its tie-up with banks as well, the management said. LIC had 94 bancassurance partnerships and individual new business premium sources through these nearly doubled on year to INR 8.62 billion. For the agency route, the management asked investors to expect higher productivity per agent in the coming quarters, which had come down as it had expanded its agency workforce in the June quarter. The average ticket size rose 23% and the average commission went up by 15%. Even as the agency force expanded, the management said the reduction in employee costs over the past two years had been part of its business plan. The insurer's employee-related expenses fell 13.2% on year to INR 56.73 billion in the June quarter.

On the health insurance business, the company was waiting for a change in the regulatory environment and the insurance amendment bill before committing to a path. LIC had mulled buying a stake in a standalone health insurer, but had not decided on the company or if that was the right route to take. The insurance bill planned by the government includes a provision for a composite licence. A composite licence allows an insurance company to provide multiple types of products, such as life, general, or health, under one roof.

LIC also said it wants to ramp up its digital infrastructure offerings and plans to be a leading player in the industry by 2030. It was building data analytics programmes through partners, with consulting firm BCG hired for the digital transformation. The life insurer was also mulling integrating artificial intelligence and machine learning into its underwriting and risk assessment processes, the management said.  End 

Edited by Tanima Banerjee

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