LIC flags pressure on customer incomes even as Q1 profit rises 23%

Life Insurance Corp. of India Ltd (LIC) delivered stronger profitability in the June quarter, but the country's largest insurer warned that shrinking household disposable incomes continue to weigh on premium growth.

“We depend on the disposable income of the customers, and when that income gets impacted, there will be an impact certainly on the way people save,” chief executive and managing director R. Doraiswamy said at a post-earnings briefing on Thursday.

He said the impact was already visible in LIC's growth numbers, with businesses linked to interest rates and financial markets, including unit-linked plans and annuities, remaining the most exposed to the fallout from the West Asia conflict.

“Though the numbers are good this quarter, if you look at the growth in premium or the APE, it is not that high what you would have expected,” he said, adding that it was too early to say whether the worst had passed.

Total premium income for the April-June quarter (Q1FY27) rose 6.75% to ₹1.27 trillion. Individual business premium increased 5.52% to ₹75,416 crore, while group business premium rose 8.61% to ₹51,834 crore. Individual policies sold grew 2.06% to 3.10 million, annualized premium equivalent (APE) rose 8.22% to ₹13,692 crore, and profit after tax climbed 22.81% to ₹13,492 crore.

Savings under strain

Management said the pressure is concentrated in LIC's savings business, where persistency has remained broadly range-bound for several quarters despite repeated renewal efforts. The longer-tenure cohorts continue to face the greatest pressure.

“We have been a strong savings player, and hence any pressure that we feel is on the savings portfolio only,” Doraiswamy said.

He added that customers buying micro-insurance products, many of whom have seasonal incomes, had also been affected, while market volatility since late February had disrupted timely premium payments. LIC is following up with policyholders whose policies have lapsed to revive their cover.

Asked about a parliamentary reply showing industry surrender and withdrawal ratios rising from 32% in FY22 to 39% in FY26, Doraiswamy said the trend was industry-wide and that LIC's own surrenders had declined. Data accompanying the reply also showed LIC's policy surrender and withdrawal payouts rose to ₹1.57 trillion in FY26 from ₹1.31 trillion a year earlier, although the insurer did not disclose its surrender ratio for the quarter.

Margins improve

Even as premium growth remained modest, profitability improved sharply as LIC continued to shift towards higher-margin products. Value of new business (VNB) rose 61.32% to ₹3,136 crore in Q1, while the net VNB margin expanded 750 basis points to 22.9% from 15.4% a year earlier.

Doraiswamy attributed the improvement entirely to product mix.

“The growth has been on those product buckets which have a higher VNB margin. The growth has been muted in some areas which are not that value accretive,” he said, pointing to both non-par protection and non-participating (non-par) savings.

He said margins could improve further as LIC continues to expand its non-par portfolio. Non-par products accounted for 32.49% of individual APE during the quarter, up from 30.34% a year earlier, within LIC's target range of 30-35%.

Non-participating products offer fixed benefits and do not share the insurer's profits with policyholders.

“Our focus will be on increasing protection certainly in the next few quarters. We want some big improvement in the contribution that we receive from protection,” he said.

LIC's investor presentation showed non-par products accounted for 60.8% of individual new business premium in FY26, up from 53.3% in FY25 and 29.6% at the time of listing. Full-year VNB margin improved to 21.2% from 17.6%.

The overall expense ratio increased 16 basis points to 10.63%. Doraiswamy attributed the rise to the loss of input tax credit following the goods and services tax (GST) exemption on individual policies from 22 September, an impact he said would continue through the September quarter. Commissions increased only marginally, reflecting the mix between individual and group business rather than higher payout rates.

LIC's solvency ratio improved to 2.42 from 2.17. The insurer has opted for regulatory forbearance on adopting Ind AS this year and said it remains on track to comply within the prescribed timeline. Doraiswamy also said the transition to a risk-based capital regime was not expected to pose a constraint.

“Our solvency is quite comfortable right now,” he said.

Assets under management (AUM) rose 4.1% to ₹59.39 trillion. LIC said it added to its equity portfolio during a flat market and locked in debt investments at attractive yields, allocating 20-25% of incremental investments to equities.

Doraiswamy said he did not expect another government stake sale for at least the next 18-24 months, citing indications from the Department of Investment and Public Asset Management. Following the recent 6.5% offer for sale, the government's holding fell to 90%, meeting the milestone set by the Securities and Exchange Board of India for May 2027. LIC now has five years to increase public shareholding to 25%.