LIC embedded value rises slightly to Rs 5.41L crore

Embedded value is calculated by adding the present value of future profits of an insurance firm to the net asset value (NAV) of the firm’s capital and surplus. It is a common valuation measure to estimate the consolidated value of shareholders' interest in an insurance company.

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LIC’s market capitalisation was at Rs 4,50,434 crore on Monday while its share price close Rs 712.15 on the BSE as against the IPO price of Rs 949.

Life Insurance Corporation (LIC), India’s largest insurance company, has reported an embedded value (EV) of Rs 5,41,492 crore as of March 2022, as compared to Rs 95,605 crore in March 2021 and Rs 5,39,686 crore in September 2021.

The EV as of September 2021 was significantly higher than the EV of March 2021 due to the bifurcation of fund that was carried out by LIC pursuant to changes in the LIC Act during the FY 2021-22, LIC Chairman MR Kumar said.

The EV would have risen further had the corporation not recorded a mark-to-market loss of Rs 40,000 crore in its investment.

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As mandated under amended Section 24 of LIC Act, 1956, the board of LIC had approved bifurcation of the single fund into separate participating (par) and non-participating (non-par) funds and the effect of such bifurcation has been reflected in the financials as of March 2022. The EV was determined by Milliman Advisors LLP engaged by LIC.

LIC’s market capitalisation was at Rs 4,50,434 crore on Monday while its share price close Rs 712.15 on the BSE as against the IPO price of Rs 949.

Embedded value is calculated by adding the present value of future profits of an insurance firm to the net asset value (NAV) of the firm’s capital and surplus. It is a common valuation measure to estimate the consolidated value of shareholders’ interest in an insurance company.

According to LIC, the value of new business (VNB) for year-ended March 2022 has been determined to be Rs 7,619 crore as compared to Rs 4,167 crore for the year ended March 2021. Also, the VNB for the six-month period ended September 2021 was Rs 1,583 crore.

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“The VNB margin for the year ended March 2022 is 15.1 per cent as compared to VNB margin of 9.9 per cent for the year ended March 31, 2021,” LIC said.

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The annualised premium equivalent (APE) for year ended March 2022 is Rs 50,390 crore. The APE for year ended March 2021 was Rs 45,588 crore and the APE considered for arriving at VNB for period ended March 2021 was Rs 42,170 crore.

Further, for the period ended March 2022, the APE of individual business and group business was Rs 35,572 crore and Rs 14,818 crore respectively. Therefore, the individual business accounted for 70.59 per cent of APE and group business accounted for 29.41 per cent of APE.

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Within the individual business, the participating business share on APE basis was 92.88 per cent, while the remaining 7.12 per cent was from the non-participating business. The ROEV (return on embedded value) for March 2022 is 11.9 per cent as compared to 36.9 per cent for March 2021. “These calculations take into account the bifurcation impact of the split of single life fund into par and non-par fund during the FY 2021-22,” LIC said.