Life Insurance Corporation of India (LICI) Earnings Call Transcript & Summary

Ladies and gentlemen, good morning, and welcome to the LIC 9M FY '23 Earnings Conference Call. We have senior management of LIC led by Shri M.R.Kumar, Chairperson on this call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. M.R. Kumar Chairperson, LIC. Thank you, and over to you, sir.

Thank you, Aman. Good morning, everyone. I am M.R. Kumar, Chairperson, LIC. On behalf of the senior management team, I warmly welcome all of you to the results and performance update call of Life Insurance Corporation of India for the third quarter and 9-month period ending December 31, 2022. The results and the presentation can be accessed on our website and on websites of both the stock exchanges of BSE and NSE. Along with me, I have 3 managing directors, Mr. Siddhartha Mohanty, Madam Mini Ipe; and Mr. B.C. Patnaik, who's on the call. Senior officials of the corporation present on this call are Mr. Dinesh Pant, Appointed Actuary & Executive Director; Mr. K.R. Ashok, Executive Director heading the Actuarial team; Mr. Sunil Agarwal, CFO; Mr. P.R. Mishra, Executive Director, Investment Front Office and Chief Investment Officer; and Mr. RK Jha, Executive Director Investment-Back Office; and Mr. [ Aditi ] Gupta, Executive Director, Corporate Communications. Mr. R.Sudhakar, Executive Director, Marketing for the marketing team; Ms. Rachana Khare, Executive Director, CRM, Policy Servicing; Mr. Thiruvenkatachar, Executive Directors, CRM Claims from the CRM team. Madam Manju Bagga, Executive Director, Pension & Group Schemes; and Mr. Sanjay Bajaj, Head Investor Relations. Before I start to provide an overview and detailed highlights of our performance for the 9 months ended December 31, 2022, I would like to briefly touch upon 2 issues, which may be on top of the mind for some of you that is one is LICs are running group exposure and the impact on LIC due to the proposed budgetary changes in taxation of a category of maturity claims for life insurance policies in case the premium period is more than 5 lakh per annum. You will appreciate that while both these topics are pertaining to a time period outside the 9-month period ended December 31 quarter for which we have gathered you here today, still, we will mention our position and use up-front before starting the results explanation. First, on the Adani Group exposure, we have already provided many details on our investments in a press release on January 30, 2023. Hope all of you have seen the same. I reiterate that our total exposure to Adani Group on a book value basis is less than 1% of our total AUM at book value as at December 31, 2022. Second is that as we have mentioned in some media interactions post budget, that the impact on us is minimal of the recent budgetary announcements of tax treatment of certain category of life nature maturity claims in case of customers paying more than to INR 5 lakhs per annum. As you will appreciate, we are a very different and unique business both by average ticket sizes, which are on the lower side and the product category sales weightage. Now moving to the key business, operational and financial highlights for the first 9 months of the financial year 2022-'23. For the 9 months ended December 31, 2022, we have reported a total premium in sum of an up INR 3,42,244 crores, showing a growth of 20.65% over the total premium income of INR 2,83,673 crores for the corresponding 9-month period of last year, ending December 31, 2021. The individual new business premium income for the 9 months FY '23 is INR 38,828 crores and for comparable 9 months FY '22, it was INR 35,910 crores. Renewal premium income, individual business for 9 months FY '23 is INR 1,61,601 crores as compared to INR 1,53,312 crores for 9 months FY '22. The group business premium income for 9 months FY '23 is INR 1,41,815 crores as compared in INR 94,452 crores for the corresponding period of last year. Our market share, by first year premium income at 65.38% as per IRDAI for the 9-month period ended December 31, '22 as compared to 61.4% for the similar 9-month period ended December 31, 2021. I'm sure the market participants would have also noted that within these 9 months of current year, we have recorded a high of 68.25% market share during the 6-month period ended September 30, 2022. If we were to split the total premium for 9 months FY '23 by individual and group business, it would translate to INR 2,00,429 crores for individual business and INR 1,41,815 crores for group business. Therefore, we have a market share of 40.93% in individual business and 78.65% of the group business for the 9 months ending December 31, 2022. On a comparable basis, for 9 months ended December 31, 2021, the respective market shares for individual and group business were 44.44% and 73.78%. Therefore, we continue to retain the largest share on a total premium basis in both individual as well as group segments. On APE basis, the breakout of business is as follows: total annualized premiums equivalent that is APE for 9 months ended December 31, 2022, is INR 37,545 crores, which is comprised of individual APE of INR 23,419 crores and group APE of INR 14,126 crores. Therefore, on APE basis, the individual business accounts for 62.38% and group business accounts for 37.62%. Further, on the individual APE, the par business accounts for INR 21,206 crores and non-par amounts to INR 2,213 crores. As you can see, our non-par share of individual APE is 9.45% and par is 90.55% for the 9 months FY '23. You will recall that our non par share for year ended March 31, 2022, on APE basis within the overall individual business was 7.12% and was 7.76% for quarter ended 30 June 22 and was 8.98% for 6 months period ended September 30, 2022. So you will agree that we have gradually and consistently changing the product mix over the last 3 quarters, where in the non par share in the individual business is rising steady. Within non par individual segment, basis dynamic customer demand and our sales processes, the product category contributions to volume of overall business may vary and in our business presentation post results, we do provide the NBP breakup within the non par product categories. Coming to the profit. The profit after tax PAT for the 9 months ended 31st December 2022 was INR 32,970 crores as against INR 1,672 crores for the 9 months ended December 31, 2021. At this point, I would like to mention that the current period profit has increased due to transfer of an amount of INR 19,941.6 crores net of tax, pertaining to the accretion on the available solvency margin from non par to shareholder's account. The amount of INR 19,941.6 crores comprises of INR 5,669.79 crores for the quarter ended December 31, 2022. Besides INR 5,580.72 crores, INR 4,148.78 crores and INR 4,542.31 crores for the preceding 3 quarters, respectively. Gross value of new business, VNB with INR 7,187 crores and net VNB is INR 5,478 crores for the 9 months ended December 31, 2022. Further, the net VNB margin for the 9-month FY '23 is 14.6% as compared to the same 14.6% for the half year ended September 30, 2022, and 13.6% for the first quarter of FY '23, and 15.1% for the full year ended March 31, 2022. Assets under management as of 31st December 2022 grew by 10.54% year-on-year to INR 44,34,940 crores as compared to INR 40,12,172 crores as on December 31, 2021. I would like to inform you about the new product launches. In line with our strategy of increasing the proportion of non par business, we launched 6 new non par products during the first 9 months of FY '22-'23 to cater to customer requirements, namely LIC's Bima Ratna, Dhan Sanchay, New Pension Plus, Dhan Varsha, New Tech Term and New Jeevan Amar, respectively. During the 9 months ended December 31, 2022, we sold 1,28,90,843 new policies as compared to 1,26,48,184 policies in the 9 months ended December 31, 2021, registering a growth of 1.92% over the corresponding period of last year. As on 31 December, the total number of agents was 13,22,586 as compared to 13,26,432 as at 31st March '22 and 13,34,811 as at 30th September 2021. The market share by number of agents as of December 31, 2022 stands at 52.3% as against 54.98% for December 31, 2021, when we had 13,29,448 agents. On number of policies sold basis, the agency force sold INR 1,24,12,134 policies during the 9 months ended 31st December '22 as compared to 1,19,14,093 policies during the corresponding period of last year, registering an increase of 4.18%. Therefore, you can see that more than 96% of our policies for the first 9 months of FY '23 were sold by agency force. Even on premium basis, a little above 96% of new business premium came from our agency channel for the 9 months FY '23. During the same period, the other channels that the banca and alternate channels contributed to 1.88% by number of policies and 3.5% by new business premium. And for the 9 months ended, 31st December 2021, the banca and alternate channels had contributed 1.56% by policies and 2.56% by NB Premium. Therefore, this is -- you can see that this channel is growing and started to increase its share in both policies and premium within the overall individual business. We are implementing multiple strategies to achieve larger scale in these channels. Our management expense ratio stands at 15.26% for the 9 months ended 31st December '22 as compared to 14.99% for the same period of last year. The increase is 27 bps on year-to-year base. On premium basis, the persistency for 13th, 25th, 37th, 49th and 61st months for the 9 months FY '23 stands at 77.61%, 71.32%, 68.31%, 64.7% and 62.73% as compared to 76.84%, 71.7%, 67.84%, 64.97% and 61.91% for the 9 months of FY '22. Similarly, on the number of policies basis, the persistency for those periods for 13th, 25th, 37th, 49th and 61st month for current FY '23 for 9 months stands at 64.99%, 59.06%, 55.32%, 52.45% and 51.42%, respectively as compared to 65.47%, 59%, 55.6%, 53.67% and 50.85% respectively, for FY '22, 9 months. Operational efficiency, and digital progress. We continue to focus on making our processes efficient. As you're aware that on the previous call on November 24 -- sorry, November 14, I had mentioned to you about our Print to Post initiative. I'm happy to report an update that we have completed dispatching of INR 1.66 crore policies to policyholders since Jan 2022 until 31st December 2022 using this initiative. In our digital initiative through the agent-assisted ANANDA app, we have completed 5,31,792 policies using this app during the entire months -- 9 months ended 31 December 2022, as compared to 2,10,140 policies for the comparable period ended December 31, 2021, thereby registering a growth of 153% on Y-o-Y base. For some of you who are customers of LIC would have noticed that we are now also on WhatsApp. Starting December 2022, we launched many services of LIC via WhatsApp and the response has been encouraging for us. We are bringing -- as we are working to bring tech-based ease into our customer interface. On the claims front, during 9 months FY '23, we have processed 1,40,94,679 number of claims, which include 1,34,24,760 maturity claims. On an amount basis during 9 months FY '23, maturity claims were INR 1,13,936 crores and the debt claims were INR 17,350 crores. On a comparable basis for 9 months FY '22, the maturity claims were INR 1,23,170 crores and debt claims were INR 29,271 crores. Therefore, the debt claims are lower by 40.73% and the maturity claims are lower by 7.5% on a year-on-year basis. I would like to tell you that our feet on street approach to business is intact while we develop the alternate channels such as banca and the digital footprint. We have a committed and trained workforce of over 1 lakh as of December 31, 2022. Out of which, 95% are in branch and divisional offices, enabling them to be in close proximity to our customers, reinforcing our feet of street approach. In summary, I would like to say that we continue to remain focused on creating a portfolio mix to optimize value for all stakeholders. In that context, we have increased the proportionate share of noncore business within our individual business as mentioned earlier. Further, I would say that the relative growth of various products within the non par bucket will vary with each quarter, and we are well aware of this. Finally, we like to keep customer requirement foremost in our sales process. Looking at the market growth, I think we have a robust market ahead for insurance in India, and all forces shall join hands to make insurance accessible to all in the coming years. Thank you very much, and we are now happy to take any questions that you may have.

[Operator Instructions] First question is from the line of Avinash from Emkay Global Financial Services.

Yes, couple of questions. On the first one is your junction changing impact on VNB margin, that's positive. Is it largely the interest rate changes? Or are there something else at will? So that is the first one. And second one, if you can just explain the net impact of the tax related thing on your accounting effect because if I see there are 2 kinds of tax. One, of course, being some kind of a tax calculate reversal in policyholder account. And also, the other one is that you have got some kind of some 6,000-odd crores refund on -- sorry, interest on refund of income tax. So how much net-net we have gone to your more this impact? And thirdly, if you can help me. I saw your media [indiscernible] saying 0.12% of policies, it was 5 lakh so is it the count policy you are talking or premium or APE you're talking? 3 question.

Regarding the VNB margin, we have discussed the VNB margin work. There are 2 impacts on the margin. WACC compared to the numbers we see for March. One is the change in business mix, sir, the change in business mix is as an impact of bringing down the margin by 120 bps. And then there is a second one, which we have shown it as change in margins. The major impact on that is from the movement of [ arapa ].

Yes, so this assumption change -- what are the assumption changes? Is it largely the interest rate movement or something else?

Yes, it is largely interest rate movement.

This is Sunil Agarwal, CFO. On the second, sorry, on the tax-related reversal, I would like to tell you that the -- both the impacts are largely on the participating segment of the business. So they will not impact the profitability of those operations. They were done on account of -- basically earlier we were following the practice of provisioning for tax [indiscernible] and must had go, how we [indiscernible] segment Interim Financial Reporting business. This was the corrections for the previous quarters that happened and that for the reversal in the current quarter [indiscernible]. If you look at from an annualized thing, this will not impact overall [indiscernible]. In the current quarter reversal, because the adjustment for the previous 2 quarters have also been taken place in this quarter, but I guess largely in the par front so there's no impact on the profitability. On the interest on refund, the amount is INR 6,626 crores. which again was paid out of the par front because this refund pertains to the earlier years where we had unified fund only, and there was no fund segregation. So because the tax was at time point of time paid out of the participating fund, therefore, the receipts have also been accounted for in the participating fund. And again, that has not impacted the overall profitability of the [indiscernible].

So this was the [indiscernible] assets [indiscernible] par is going to be almost neutral. And the third one that you are missing, higher than 5 lakh you said in media, I think I read 0.12%, is it the policy count? Or is this the premium?

It is on the policy count.

So on premium or like new premium, what would be the number approx.?

From [0.80]% to 1.8%.

Okay, sir. Okay. And sir, just quickly, if you can allow me. Do you see that, if at all, I mean, next year or maybe year after next, is the entire individual moves to the new tax regime where you have kind of exemption less world. Will that impact your sort of business, particularly given that you are a lot into low ticket granular businesses where ATC-related income so it could be one of the incentives?

I would put it this way. The number of customers, which LIC has is almost INR 20 crores, whereas the taxpayers are INR 6 crores and only a portion of the taxpayers would be basically benefiting out of the tax basis as of now. So I feel that there's a lot of scope because already, the percentage of people who are not covered with insurance, that's one of those who are covered were not having adequate cover. There's a lot of scope within that space. And LIC being one company which has been selling policies in a couple of crores every year. So there is a lot of scope, and we feel that we will be able to overcome any impact on that within one year without much of issue.

Avinash, does that answer your question?

No, no. My question has been answered.

The next question is from the line of Nitin Aggarwal from Motilal Oswal.

Sir, one question around the individual non par margin. You earlier talked about the change in the product pricing, which has affected the margin. But this quarter, there has been a very sharp decline. So if you can talk about as to how are we seeing this and where do you expect it to settle? And maybe I'll ask a second question later, sir. So if you can answer this first.

Yes. So if you look at the marginal and vis-à-vis, the non par growth. It's true that non par business has grown, but within the non par, there are different segments of business that has different margin signatures. And if our ULIP business have grown more in the non par, and their margins are low as in the averages, thus bringing the -- keeping the margins at that same level.

Okay. And sir, within the annuity business now, if you can share some color as to what will be the average ticket size and what is the mix of government and private sector professionals?

Tickets size in annuity is around 8.9 lakh per policy. What was the second part?

Government and private mix.

Private mix employees have taken annuity.

Profile [indiscernible]

Profile [indiscernible].

You may not be...

Yes, we don't have that right now. We can clear it with you later.

Okay. Sure, sir. And the other question I have is around the agent count, like agent count has been flat over 9 months, and this is a prime distribution channel. So are we looking at this because private sectors have really been ramping up their agency channel.

In our agency channel, we have a constant method of recruiting agents. And every year, we recruit approximately more than 2 lack agents. It is indeed a fact that there are many people who also drop out by way of either getting a new job or moving on to other types of business. This is a market, I would say, it keeps happening in the insurance business in market. And what we have seen is that during certain months, there is a slightly decline, but it will be made up also and that addition has been already being done currently. So we are saying that we will be ending the year with [indiscernible] agency force.

Right. And sir, lastly, on the banca channel, the mix has been improving Y-o-Y. And so if you can share more color as to which banks are you seeing the most attraction with? And how do you see this evolving in the next 2 years?

[indiscernible], which is giving us the maximum volume in banca. We're also looking at documenting the number of persons who are serving in that particular channel. And we are seeing good traction happening there. So we are seeing a positive growth on banca even in the coming year.

The next question is from the line of Shyam Srinivasan from Goldman Sachs.

Just the first one on quarterly APE or NBP develop, right? So we have seen a slowdown in growth. I know maybe last year quarter ago, that was disclosed during the [RSP] time frame may not be like-for-like. So but just want to understand why there has been a sequential slowdown in Q3 versus Q2 on a Y-o-Y basis. Maybe I'm not comparing right, but that's the first question I had.

year-on-year for Q3 is the question he's asking...

Let me respond, I'm Kumar here. We -- I don't think that we are very much worried about this. It's basically, as you heard earlier, Mr. Sudhakar was explaining, concerning in the agency for this happen. We have new products almost 16 products in non par, we are getting people to get trained on all these products. That part is taking a little bit of time. So this could be one reason. It's -- people have been active in the market. So the more agents who get trained on all these products and they start working now, we've seen a good traction in the last couple of months. So I think going forward February and March, all these agents like Mr. Sudhakar said, will be back on the streets with renewed vigor with all this new inputs on the new products. And I think we should be able to work on whatever that slowdown was there.

But in your Q3 basis, from between September to December, in the individual business, the premium has increased around [ 30,997 to 40,290 ] , figurative growth about 5.2%, largely because if you would have been seeing in the terms of APE, it is largely because the P&GS -- group business, the last Q3 has been less. That has impacted and something more to do also with annuity growth in this particular quarter. We are already revise the rates, and that will be more than covered possible in this Q4.

Sir, if you're saying group business, there is seasonality. And if you were to look at individual maybe there is still -- there is growth even on a sequential basis.

Yes. Group has done tremendously well in overall basis. So certain changes from quarter-to-quarter can always be expected because the cash flow timing can vary depending upon the corporate's plan of actions and all those things, but group has overall done very well if you consider the 9-months period.

Sir, just some clarity around group if you could split into what are the key constituents. I know we gave disclosure in NBP, but if you could disaggregate what is the savings component, if there is any protection or credit life, that will be helpful. I don't know whether you can do it now, but I'm just saying maybe as a request.

Yes, yes. See, if we just want to see, in APE terms for the group, total APE for the 9-month period is something around 14,126. And all the savings schemes, including annuities, right, and fund-based business, gratuity schemes, super emission schemes in particular, they have been the large contributors here.

So credit life will be very small you think? Credit like group term...

So group term is not very small. But yes, the saving proportion in the group is significant. Yes.

Got it, sir. My last question is just on margins again. So I think the previous participant asked this as well. So ULIP has been growing faster and that's the reason why we have non par, I'm just using the cumulative disclosure you'll see on gross margins, from 104% has come down to, I think, 73.5% when I calculated for the 9-month period now. So is there other than ULIP mix change? Is there anything else in terms of repricing your non par on the savings side that has also led to this?

See, let's -- yes, in fact, we would have seen that already that the growth had in ULIP, but it's not that the growth in non par savings is less actually, it is significantly high 77% or so. ULIP has grown more, and we all know ULIP VNB margins are less. So -- and recently, some more products have been launched also other than ULIP. So there it will take -- And that's also because the annuity rates have been revised, so any time will the revision in annuity rate, you have to do it in terms of the purpose of competitive reasons, whenever that would be done, when the margins will come down. What we as a corporation as an insurer would have to look into, what is -- first step is to look towards VNB. So striking the right balance of VNB margins and the growth in APE. So that the VNB in terms of the ultimate volume should result into -- should go in the required direction. So any time when the revision in annuity rates would happen, but on the other side, for example, in term products, we have increased the rates also. So there we would have tried to capture the [indiscernible]. In fact, get the VNB margins going in the right direction. So this portfolio balancing is a continuous process, it's done.

Would you say the larger impact is for this annuity rate increase? Or it's still the ULIP increase in mix?

No, it is more mainly because the ULIP growing more than the non par savings. Actually as a contribution to the overall portfolio, ULIP's contribution has gone up, say, 1% to almost 2%. And then ULIP margins are less, but that's very much -- I think, we should always take in round of the fact that in ULIP LIC's contribution where there was industry is very small. So without prejudice to the whatever happens on the margin, we have a reason to keep on growing in ULIP also because customers need base selling and all those, covering the entire -- all the baskets of the products segments have to be taken care of. So ULIP has to continue to grow. ULIP will bring down margins slightly, which will be taken care of from other segments like annuity and the non par segment.

If I may, last question, Slide 8. If you could talk about the 2 new products that we launched in, say, November or even October Dhan Varsha. How has been the pickup in numbers? What's been exciting?

Actually, Dhan Varsha has been doing quite well, and we expect a lot of business to come back because that product is available for sale in this quarter for upto Q4 only. It's a very well-balanced and good return as well as you know, it covers a large segment of this society from a very young age, nascent age, 2 to 3 years or so. So we expect a lot of good performance in this particular product in last quarter.

Ticket size in Dhan Varsha is around 2,60,000, and it is also at close end of -- which is 31st March. So we are expecting those numbers to go up.

So what's the rate, sir, indicatively?