LIC stock is available at a discount. So why aren’t investors piling in?

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₹38,433 crore. This was possible because non-participating business as a percentage of total individual APE doubled year-on-year to 18% in FY24. For insurance companies, APE is a measure of sales growth and VNB a profitability parameter.

Non-participating policies are more profitable for life insurance companies, as these policy holders do not enjoy any benefits in terms of dividend/bonus from the company’s profits. Also read: Opportunity cost vs premium loss: When to surrender your policies The far-superior profitability of non-participating policies is evident from its net VNB margin of 60.7% as against 9.4% for participating policies during FY24. Notably, participating policies still accounted for 82% of the individual business, which meant at an aggregate level, the gain in VNB margin was only 60 bps to 16.8%.

The other reason for the diluted growth in aggregate VNB was a sharp deterioration in the profitability of the group insurance business. During the earnings call, concerns were raised about LIC’s decision to increase the benefits payable under group schemes despite its dominant position in the business with a 72% market share. Consequently, the VNB margin of group schemes crashed from 17.6% to 12.6%.

LIC’s overall VNB margin is much lower than those of its key rivals such as HDFC Life Insurance Co (26%), ICICI Prudential Life Insurance Co (25%) and SBI Life Insurance Co (28%). LIC also has the lowest operating return on embedded value (RoEV) among peers at 11.5%, against 17.5% for HDFC Life Insurance, 14.1% for ICICI Prudential Life Insurance and 21.8% for SBI Life Insurance. LIC therefore has a market-capitalisation-to-embedded-value (P/EV) of just 0.9x as against 2 to 2.6 for the other three companies.