Life Insurance Corporation of India (LIC) share price fell on Friday, a day after the insurer said its Indian embedded value (IEV) for March has been pegged at Rs 5.41 lakh crore. LIC reported the Indian Embedded Value (IEV) at Rs 5,41,492 crore (Rs 5.41 trillion) as of March 31, 2022, as compared to Rs 5.39 trillion as of September 2021 and Rs 95,605 crore as of March 31, 2021.
“The rising interest rate has impacted the value of bonds, government securities and other fixed income papers. These have been factored in while calculating the latest Indian embedded value of LIC. The mark-to-market losses have been around Rs 40,000 crore since September till 31 March, 2022. However, the policy sales business has grown and that’s how the net growth in EV is Rs 2,000 crore,” LIC’s Managing Director Raj Kumar told reporters.
The Embedded Value (EV) is a measure of the consolidated value of shareholders’ interest in the life insurance business. It represents the present value of shareholders’ interests in the earnings distributable from the assets allocated to the business after sufficient allowance for the aggregate risks in the business.
“The Indian Embedded Value (IEV) determination exercise has been completed. The IEV report issued by Milliman Advisors LLP has been adopted by the board on July 14, 2022,” Kumar added.
Going forward, the IEV will be disclosed on six monthly basis, that is, at the end of March and September, every year, he said. As of September 30, 2021, the corporation’s embedded value stood at Rs 5,39,686 crore.
The IEV as of September 30, 2021 was significantly higher than the IEV of March 2021 due to the bifurcation of funds that was carried out by LIC following changes in the LIC Act during the FY 2021-22, the state-run insurer said in a release.
“The change in EV has to be looked at in totality. There was a market movement downwards and that impact of around Rs 40,000 crore has been captured in the calculation. However, the other factors increased such as the Value of New Business (VNB) and hence the net growth of around Rs 2,000 crore (in March 2022) compared to September 2022,” its Executive Director (Actuarial) K R Ashok said.
LIC share price has tumbled around 25 per cent from its IPO price of Rs 949 apiece. However, analysts at Motilal Oswal see a 17 per cent potential rally in the stock, going forward. The brokerage in its recent note said that LIC has all the levers in place to maintain its industry-leading position and ramp up growth in highly profitable product segments (mainly Protection and Non-PAR Savings/Annuity). However, changing gears for such a vast organization requires superior and well-thought execution that also has to endure frequent rotation at the top management level. “We estimate LIC to deliver 10 per cent CAGR in NBP over FY22-24, while improving margin trajectory and stability in the capital market will enable improved EV growth going forward,” it said.
The ROEV (Return on Embedded Value) for March 2022 came in at 11.9 per cent as compared to 36.9 per cent for March 2021, LIC said, while clarifying that the calculations have taken into account the bifurcation impact of the split of single life fund into par and non-par fund during FY 2021-22. LIC’s annualised premium equivalent (APE) for FY22 was determined as Rs 50,390 crore, the release stated. This is higher as compared to the APE FY21, which was Rs 45,588 crore, filing said.