The embedded price of LIC for September-21 was INR 5.4trn (US$72bn) which is up from Rs. 956 billion in March-22 because it is now allocating 100% profit of non-par products to shareholders. The September-21 EV of the top 3 listed players was in the range of INR290bn-. 350 Billion Partners like HDFC Life, SBI Life, and IPRU Life trade at 2.4x-3.9x Sep’21EV and have a steady position RoEV between ~16%-19% with a high VNB margin.
A number of net active policies. A longer-term persistence ratio like 5 years is more important to understand whether Policyaholic’s VNB margins for FY21 and 1HFY22 were 9.9% and 9.3% respectively- largely reflecting the cross-heavy product mix. According to DRHP, in the scenario of 10% surplus sharing in Par products, LIC’s FY21 VNB margin may increase to 12.3%, ceteris paribus. This compares to a 25%-26% comparable margin for listed industry peers.
Insurance companies have a different business model and do not report financial statements like others. Do not consider ROEV, or P/E ratio type ratio, as the basis for analysis.
APE: Annual Premium Equivalent (APE) is a measure used to compare life insurance revenue by normalizing policy premiums to equal regular annual payments.
Embedded Value (EV): Embedded value is the sum of all future premiums to be received from existing policies. It can be taken as a definite component in evaluation.
Value of New Business (VNB): This is the sum of the future premiums of this year’s policies (using the same persistence and profit assumption). It should be projected for the future and added to the EV. This is nothing but the EV for each year in the future.
Persistence: The persistence ratio is the ratio of life insurance policies receiving premiums on time in the year it continues to hold its policy. A persistence ratio of 50% for the 5th year (or 61 months) means that only 50% of policyholders have continued to pay premiums, while the rest have discontinued.
| Income Statement (in cr) | FY 19 | FY 20 | FY 21 | H1 FY22 |
| APE Premium | 40,565 | 47,972 | 45,587 | 18,448 |
| APE Growth Rate (Annualised) | 18.3% (Green) | -5% (Yellow) | -19.1% (Red) | |
| VNB | 4,167 | 1,583 | ||
| VNB Margins (VNB/APE) | 9.90% | 9.30% | ||
| Key ratios | ||||
| Persistency 13th | 77% (Green) | 72%(Yellow) | 79% (Green) | 79%(Green) |
| Persistency 61st | 63% (Green) | 54% (Red) | 59% (Yellow) | 61% (light green) |
| Embedded Value (EV) | 46,497 | 95,605 | 5,39,686 |