LIC Could be A Good Long-term Holding

The government plans to raise up to ₹21,00 crore by selling 3.5% stake in life Insurance Corporations of India (LIC) in the primary market. The country’s largest life insurer and the fifth largest in the world based on the gross written premium (GWP), is at attractively valued based on the Indian Embedded Value (IEV), which reflects the present value of future profits from the current policies in force and adjusted net worth. It is however expensive based on value of new business (VNB), another parameter which reflects the present value of future profits generated by writing new policies in a year. The listed private sector peers fare better on VNB and VNB margin, the Latter indicates the extent of profitability of the insurance business. Apart from operating parameters, investors also need to consider factors such as future stake sale by the government to abide by Sebi regulations and possible government influence on LIC’s operations and investment decisions, which may affect the stock performance. Given these of operations and Lic’s large scale of operations, the issue appears to be suitable for long-term investors with high risk appetite. With over 65 years in the insurance business, LIC commands 61.6% share in individuals policies issued in the country. It is the 10th largest insurance company in the world based on total assets. It has assets under management (AUM) of private sectors life insurers in the country.

Over 13.3 lakh agents from LIC’s major strength and which is 55% of the total insurance agent source over 96% of LIC issued 2.1 crore in dividual policies implying 75% of the markets share. LIC’s net premium increased by 8.5% annually to ₹4 lakh crore between FY19 and FY21 while net profit rose by 6.4% to ₹2.974.1 crore. While the listed private sector peers are far smaller in size, they have been growing faster. For instance, new business premium (NBP) of SBI Life and HDFC Life grew by 16% and 22% annually between FY19 and FY21 while LIC reported a 13.5% growth. The VNB margin of private insurers is above 25% compared with LIC’s 9.3% margin. The margin difference owes to the fact that LIC’s product mix is skewed towards non-linked policies, which reduce the overall investment yield. LIC’s investment yield was 7.4% in FY21 compared with 8-11% for the peers across linked and non-linked the products. S-ET

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