LIC is the largest life insurer in India. 5th largest Life insurance company by Gross written premiums and the 10th largest by assets globally.
It has 9L people in just their sales force which is more than the total employees of the industry!
LIC’s AUM is 3.3x of the total AUM of all private insurers combined and 1.1x AUM of the entire MF Industry
16.2x higher than 2nd largest SBI Life!
Market Shares:
- 64.1% – terms of premium (GWP)
- 66.2% – new business premium (NBP)
- 74.6% – in no. of individual policies issued
- 81.1% – in terms of no. of group policies issued
- 55% – number of individual agents in India
Type of products:
- LIC is only into non-linked products
- 40% of the private sector’s book is in linked products.
- Linked products’ returns are tied to the performance of debt and equity markets and are also savings-cum-protection products
Strengths:
- No other life insurer anywhere globally enjoys such a large market share as LIC
- The trust in the brand ‘LIC’ is evidenced by the 282.58 million in-force policies under individual business being serviced in India as of 6MFY22
- Scale of LIC leads to much better-operating expense ratios: years/decades before private players challenge LIC on this aspect
- Strong asset management capability: largest asset manager in India (3.3x total private life insurers AUM and 1.1x of total MF industry)
Formidable Agent network:
- FY21 – Individual agents sold 15.3 policies each on an avg v/s 3.9 policies by individual agents of the best performing of the top 5 private players and the average of 1.6 policies by the median of the top 5 private players
- Average NBP per agent is 3.5x the median of the top five private players & 1.3x the best among them.
Risks:
- Losing market share: LIC holds a 64% share by the total life insurance premium. It grew at 9% CAGR from FY16-21 (Private insurers grew 18% CAGR)
- New business premium (NBP) has grown at 15% CAGR in the past 5 years with LIC and private insurers growing at 14% and 18% CAGR, respectively.
- Digital concerns – Just 36% of individual renewal premiums were collected digitally, compared to 90%+ for private players
- Death Claims settlement ratio is among the lowest in the industry
- Active Agents reduced from 11L to 9L (6MFY22, could be due to Covid)
- Dependence on sales agents is very high! – 96% of NBP came from individual sales agents as of 6MFY22
- Bancassurance channel was just 2.3% of NBP (6MFY22)
- Infused 4743 Cr into IDBI Bank using policyholder funds (OCt 2019) – Company says IDBI doesn’t need more funds, but we all know what may happen in future
- Bailed out HAL and BDL IPOs in 2018
- LIC had infused Rs 21,600 crore for 51% in IDBI Bank. In 2019, another 4743 Cr was infusion and then bailed out IPOs as well. The DRHP itself states that the promoter i.e. Govt of India may ask them to carry out actions that may be against Shareholder interests
Conclusion:
- LIC VNB margin in FY21 – 9.9% , in 6MFY22 – 9.3% (Normalized @ 12%)
- For other insurers, the VNB margins are 20-25%!
- One needs to be conservative with the price to embedded value (P/EV) multiple one pays for LIC given the continuous market share loss.
Note: Globally insurers of this size trade at 1-2x P/EV max!
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