LIC’s Financial Fortitude: Annual Profit Soars Despite Sales Decline

The Life Insurance Corporation of India (LIC) demonstrated remarkable resilience in FY24, achieving a significant rise in annual profits despite facing challenges in policy sales and market competition. For investors and policyholders, this post explores how LIC navigated the fiscal year with strategic adaptations and sustained growth.

Financial Performance Overview

Life Insurance Corporation of India (LIC), the country’s largest state-run life insurer, experienced a complex fiscal year in 2024. On Monday evening, LIC announced a net profit of ?40,676 crore for FY24, up from ?36,397 crore in FY23. This profit surge was driven by higher renewal premium income, improved investment returns, and a modest increase in the value of new business (VNB). The company declared a dividend of ?6 per share for the financial year 2024.

Despite the challenges faced, this increase in profit showcases LIC's strategic efforts to sustain its growth. Higher renewal premium income played a crucial role in this achievement, indicating that existing policyholders continued to trust and invest in LIC's offerings. Additionally, improved investment returns contributed significantly to the profit surge, highlighting LIC's ability to make smart investment decisions even in a competitive market landscape.

Policy Sales and Premium Income

In FY24, LIC sold 20.39 million policies, slightly fewer than the 20.43 million policies sold in the previous fiscal. The company’s total premium income from group businesses dropped by 5.48% year-on-year (y-o-y) to ?1.71 trillion, compared to ?1.81 trillion in FY23. Additionally, new business premium income in the individual segment decreased by 1.77% y-o-y to ?57,716 crore in FY24.

Despite these declines, LIC’s total premium income for the year grew marginally by 0.22% y-o-y to ?4.75 trillion. This growth was supported by increased income from renewal premiums and strategic investment activities. The slight decrease in policy sales and premium income reflects the competitive pressures faced by LIC, yet the overall growth in total premium income underscores the company’s resilience and strategic planning.

Market Share and Competitive Landscape

LIC’s market share dropped to 58.87% at the end of FY24 from 62.58% in FY23, reflecting the rising competition from private insurers. While LIC’s first-year premium income fell by 4.04% during FY24, private insurers saw a 12.11% increase in new business premium, totaling ?1.55 trillion.

The competitive landscape in the insurance sector has intensified, with private insurers gaining ground. However, LIC remains a dominant player with a significant market share. The slight decline in market share highlights the need for LIC to continually innovate and adapt to the evolving market dynamics to maintain its leadership position.

Value of New Business (VNB) and Margins

The net value of new business for LIC grew by 4.66% to ?9,583 crore in FY24. The VNB margin for the year improved by 60 basis points to 16.8%. LIC officials highlighted a strategic shift towards non-participating products, which offer higher VNB margins. This focus on enhancing product mix and margins is expected to continue in FY25.

The improvement in VNB and margins signifies LIC's strategic focus on high-value products that contribute to profitability. By shifting towards non-participating products, LIC aims to enhance its financial performance and deliver better returns to its stakeholders.

Strategic Plans and Future Outlook

LIC Chairman Siddhartha Mohanty emphasized the company’s focus on maximizing market share and increasing VNB margins. The insurer aims to double its share of non-par business within the individual segment and improve the proportion of non-participating policies. LIC’s embedded value increased by 24.9% to ?7.27 trillion at the end of FY24, reflecting its strong financial position and growth potential.

LIC's strategic plans indicate a clear roadmap for future growth. By doubling its share of non-par business and focusing on non-participating policies, LIC aims to strengthen its market position and enhance profitability. The increase in embedded value further underscores LIC's robust financial health and growth potential.

Health Insurance Market Entry

In a significant strategic move, LIC plans to acquire one of India’s five private standalone health insurance companies. This acquisition aligns with LIC’s goal to secure a composite license, allowing it to offer both life and non-life policies. The move is part of LIC’s broader strategy to penetrate the growing health insurance market, leveraging its extensive network and resources.

Entering the health insurance market presents a new growth avenue for LIC. By acquiring a standalone health insurance company, LIC aims to diversify its portfolio and tap into the increasing demand for health insurance products. This strategic move is expected to strengthen LIC's market presence and create new opportunities for growth.

Government Stake and Future Sales

The government, which owns 96.5% of LIC, has postponed further stake sales to FY26 to better gauge market conditions and investor appetite. The market regulator has extended the deadline for LIC to meet the minimum public shareholding norm of 10% to May 2027.

The government's decision to postpone stake sales reflects a cautious approach to ensure favorable market conditions. This move allows LIC to focus on its strategic initiatives and continue delivering strong financial performance before further dilution of government ownership.

Conclusion

LIC’s performance in FY24 underscores its ability to navigate challenges and adapt to changing market dynamics. The insurer’s strategic focus on renewal premiums, investment income, and higher-margin products has driven profit growth despite a decline in new business income and market share. Looking ahead, LIC’s planned entry into the health insurance market and ongoing strategic adjustments position it well for future growth and profitability. As the company continues to innovate and expand, it remains a pivotal player in India’s insurance industry.

Investors and policyholders can take confidence in LIC's ability to adapt and thrive in a competitive market. The strategic initiatives and strong financial performance reflect LIC's commitment to delivering value and maintaining its leadership position. Stay tuned for more updates as LIC continues to shape the future of the Indian insurance industry.?

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Disclaimer

This article should not be interpreted as investment advice. For any investment decisions, consult a reputable financial advisor. The author and publisher are not responsible for any losses incurred by investors or traders based on the information provided.

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