Determination of the embedded value ‘work in progress’: LIC MD


India’s state-owned Life Insurance Corporation of India (LIC) said on Tuesday that the exercise to determine its intrinsic value in March 2022 is a “work in progress” and is expected to be completed by the end of the month. next month.

Embedded Value (EV) is a measure of the consolidated value of shareholder participation in the life insurance industry.

It represents the value of the shareholders’ interests in the distributable profits of the assets attributed to the company after sufficient consideration of the overall risks of the company.

The intrinsic value of LIC has been pegged at around Rs 5.4 lakh crore as of September 30, 2021 by international actuarial firm Milliman Advisors.

The life insurer’s chief executive, Raj Kumar, said the exercise to determine India’s intrinsic value as of March 31, 2022 is ongoing and expected to be completed by June 30, 2022. As soon as the exercise will be terminated, LIC will make the necessary public disclosures thereof.

“It’s a long exercise (determination of the Indian EV). We are implementing a new IT solution for calculating Indian intrinsic value and we need to cross-check all the data,” he told reporters.

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For the quarter ended September 30, 2021 and December 31, 2021, the company verified all data and results from the new system with the existing system, and found consistency in the numbers.

He wants to cross-check data for the period ending March 31, 2022, to make sure the new IT system is perfect, he said.
“We have 285 products that need to be modeled in a new system. You have to check the consistency of the rendering for each of the products, and that takes time. We don’t want to rush into a figure that may be questioned tomorrow. We want to be absolutely sure and therefore take a little longer.
“Going forward, starting from the first quarter (fiscal year 23), it will not take so long and we will do it (determine the VEI) simultaneously with the completion of the financial results,” Kumar said.

The state insurer will calculate India’s EV on a quarterly basis but has decided to report the number on a semi-annual basis, a trend followed by other industry players, he said.

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Kumar said that currently the company’s product line is dominated by participating companies, but going further, its engine of growth will be non-participating companies.

A participating (participating) life insurance policy allows policyholders to participate in the profits of a life insurance company, while a non-participating (non-participating) plan offers no dividend payouts. .

“We have already decided that in future we will only launch non-compliant products. With the product mix shifting to the non-peer side in the future at a faster pace than the peer side, new business value will be created. This is the strategy we are adopting,” he said.

The main driver of growth for the life insurer will be the bancassurance channel. It has 72 alliances with different banks, giving it 60,000 outlets to sell its products. Over the next 5 years, he plans to activate every outlet at his disposal to sell products, Kumar said.

On Monday, LIC announced its first ever quarterly result after going public earlier this month.

On a stand-alone basis, the insurer reported an 18% decline in net profit to Rs 2,371.55 crore in the quarter ended March 2022, from Rs 2,893.48 crore a year ago.

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On a consolidated basis, profit after tax fell by 17% to Rs 2,409 crore for the fourth quarter ended March 2022, from Rs 2,917 crore in the same quarter a year ago.

“Previously, profits were only declared at the end of the year. This is why the quarterly figures are not comparable… This year’s Q4 figure (FY22) is not comparable to last year’s Q4 (FY21) as it was for the full year (FY21),” said said Kumar, adding that from September 2022 the comparable data points will be available.

For the full financial year 2021-22, LIC recorded a 38% increase in its consolidated profit to Rs 4,124.70 crore from Rs 2,974.13 crore in the previous financial year.

Its first-year bonus income rose to Rs 14,663.19 crore from Rs 11,053.34 crore in the same quarter of the previous fiscal year.
The renewal premium income increased by 5.37% to Rs 71,472.74 crore, while that of the one-time premium increased by 33.70% to Rs 58,250.91 crore during the quarter.



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