LIC takes ₹40,000 crore hit on valuation

Life Insurance Corp. of India (LIC) has suffered a ₹40,000 crore hit on its valuation due to the extended fall in equity markets and rising interest rates affecting yields from its debt investment, a top executive said.

“The equity market fall has impacted the valuation of equity investment holdings by LIC,” an executive director of the country’s largest life insurer said at a conference call hosted by chairman M.R. Kumar on Thursday.

“The rising interest rate has impacted the value of bonds, government securities and other fixed income papers. These have been factored in while calculating the latest Indian embedded value of LIC. The mark-to-market losses have been around ₹40,000 crore since September till 31 March, 2022. However, the policy sales business has grown and that’s how the net growth in EV is ₹2,000 crore,” he said. The insurer’s board met earlier in the day.

For every 10% fall in equity market, LIC’s embedded value decreases by 6.5%, said the insurer.

Between September end and March end, the Indian equity market was down by about 1% on a net basis, while hitting lows on numerous occasions, which led to the mark-to-market loss of ₹40,000 crore for LIC.

But, between March end and June end, the equity market fell even more sharply, which essentially means LIC’s embedded value may take a worse beating and erode further from ₹5.41 trillion (as on 31 March, 2022), which was announced by LIC on Thursday.

The market has fallen by 9.5% in the June quarter. The Sensex has lost at least 5,594 points or 9.5% from 59,126 points on 31 March to 53,019 points at 30 June.

At the end of March, the EV of LIC has been determined to be ₹5.41 trillion as compared to ₹5.39 trillion as on 30 September, 2021, said LIC.

The insurer’s value of new business or VNB (the actual value of income from the sales during a certain quarter, half year or full year) for the year ended March 2022 has increased to ₹7,619 crore from ₹4,167 crore for the year ended March 31, 2021 and ₹1,583 crore at the end September.