LIC looks to buy stake in standalone health insurer by March; Q2 profit falls nearly 4%
- India’s largest life insurer’s net profit falls partly partly owing to the amortization of expenses to the extent of ₹157 crore.
Mumbai: Life Insurance Corporation (LIC) of India is identifying and evaluating standalone health insurers to acquire stake in one of these by March 2025, according to MD and CEO Siddhartha Mohanty.
“The groundwork is going on. We’ll have stake in some standalone health insurer, at least within this financial year,” Mohanty said during the insurer’s earnings call, adding that the process is taking some time due to the number of clearances and approvals from various regulators.
“It depends on various factors, first we have to find the proper company, complete evaluation, due diligence, etc., and then finally our board will take a call on how much stake we could take,” he said, adding that there is no regulatory cap on how much stake the insurer can acquire.
Also read | LIC decreases stake by 2 percent in air conditioners giant Voltas
The country’s largest life insurer’s net profit fell nearly 4% on-year to ₹7,621 crore in the second quarter ended September, partly owing to the amortization of expenses to the extent of ₹157 crore.
Net premium income rose 12% to ₹1.2 trillion but net policy benefits paid to policyholders climbed 17% to ₹97,562 crore, also weighing on the bottom-line. The policy benefits, which include both maturity and death benefits, rose 13% on-year to ₹1.8 trillion for the first half of the financial year.
Commission structure realigned
On the impact of the new surrender value norms, which came into effect from 1 October, Mohanty said the insurer has realigned its commission structure, product designs and policy covers to ensure that agent commissions are not impacted even as margins remain intact.
Surrender value is the amount policyholders receive when they decide to terminate their policy before maturity. The new guidelines aim to ease exit payouts and reduce the amount deducted by insurers as ‘surrender charges’ based on the plan's terms.
“We have not only changed the commission structure, but have also repriced and revised certain products to strike the balance to maintain VNB (value of new business) margins, make products affordable and ensure that it does not impact growth in terms of APE so that overall VNB movement is on the positive side,” he said, adding that the insurer has tried to strike a balance between the interests of customers and market intermediaries.
Also read | LIC gets GST demand penalty notice of ₹605.5 crore for FY20
Annualized premium equivalent (APE) for Q2 was up 26% on-year at ₹16,465 crore. Value of new business (VNB) for the quarter rose 47% on-year to ₹2,941 crore and VNB margin improved by 257 basis points (bps) to 18%.
Assets under management for the six-month period ended September 2024 grew 16.8% to ₹55.4 trillion.
Mohanty said that despite the regulatory changes, the insurer’s performance is expected to improve in H2 given the tweaking of product and commission structures. The insurer is already starting to see steady VNB growth and will continue to have a granular approach to margins with the aim of growing them further, he added.
New products launched
The insurer had earlier guided for over 20% margins for FY25. Without reiterating the guidance, Mohanty said the company has launched new, margin-accretive products and expects margins to go up gradually but that the focus is on consistent performance and not on margins as a lot will also depend on market conditions.
The insurer’s 13th month persistency ratio, a measure of customer stickiness, deteriorated slightly to 77.6% in H1 FY25 from 78.5% a year ago in terms of premiums. However, by the number of policies, this ratio was slightly better at 67.2% compared with 66.8% a year ago.
Also read | LIC appoints Infosys to build its NextGen Digital Platform
Mohanty said that the dip in terms of premiums was due to the impact of the revision in product and structures where the focus is on improving the life cycle of the policies to align with the revised commission structure for agents. The company has also reviewed policy ticket sizes and is reconsidering if it should go ahead with launching new policies in the categories with weak persistency. Mohanty said due to these measures, the 25th month persistency is already better, and these ratios are expected to improve further.
The 61st month persistency for H2, on a premium basis, deteriorated to 61.5% from 62.5%, while it fell to 48.9% from 50.4% in the previous year on a policy basis.
Catch all the Business News , Corporate news , Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
Business NewsCompaniesCompany ResultsLIC looks to buy stake in standalone health insurer by March; Q2 profit falls nearly 4%
First Published:8 Nov 2024, 04:18 PM IST
- Top Gainers
- Top Losers
- 52 Week High