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Premium income continues to slide, however, margins improved

Decline in net premium income: LIC of India net premium income in Q2FY24 saw a decline of 18.7% YoY to Rs 1.07 Lakhs Cr which was led by single premium decline of 43.4% YoY of 37,955 Cr. Annualized Premium Equivalent (APE) declined by 12.5% YoY to Rs 13,095 Cr mainly due to decline in group premium which declined by 35% YoY. New Business Premium (NBP) too posted de-growth of 36% YoY led by decline of group business premium of 45% YoY to Rs 35,387 Cr.

Individual business stable: Individual business remained relatively stable as compared to group business as the individual new business premium increased by 8% YoY. On APE basis, individual APE grew by 6% YoY to Rs 8,688 Cr reflecting that the individual business is relatively stable. Group business on new business premium de-grew by 45% YoY to Rs 35,387 Cr while on APE basis it declined by 35% YoY to Rs 4,407 Cr. The group business is cyclical in nature and it is expected that the group business will see revival in the H2FY24.

Gradual shift in product mix: The product mix of the public insurer continues to have par products as the major component. In the APE mix, Par products constituted 89% of the overall mix. The shift in product mix is slow and there needs a ramp-up towards creating a balanced product mix. The non-par margins remain high, hence, a shift in the product mix will also contribute to improvement in margin. Management indicated that the agents selling non-par products increased by 3-4% YoY.

Agency continue to dominate and persistency stable: The agency channel continues to be the core strength of LIC as it forms 96% of the new business premium. The bancassurance channel declined by 38bps YoY to 3.5% and direct channel improved by 10bps YoY to 0.2%. The direct and online channels is seeing traction in term products. Persistency saw an improvement mainly due to slight increase in the non-par product mix. The 13th month persistency improved by 67bps YoY to 71.2%, however, the 61st month persistency declined marginally by 66bps YoY to 55.2% due to micro insurance products introduced earlier. The company expects overall persistency to improve on the back of shift to new product and improvement in existing product term.

Outlook & Valuation: LIC premium income continued to slide during the quarter mainly led by decline in group insurance business while the individual business remained stable. There is a gradual shift in the product mix with an effort to make the product mix more balanced. The margin continues to see improvement as the non-par component increases. We estimate APE/VNB to grow at 11.7%/25% CAGR of FY23-25E and continue to maintain Hold on LIC with a target price of Rs 646 valuing the company at 0.6x of the FY25E embedded value.

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