LIC to meet Adani Group management soon, with no impact on policyholders or shareholders: LIC Chairman

LIC to meet Adani Group management soon, with no impact on policyholders or shareholders: LIC Chairman

ON FRIDAY, M R Kumar, the chairman of the state-run Life Insurance Corporation (LIC), said that despite rumours of excessive exposure to the Adani Group enterprises, shareholders and policyholders shouldn’t be concerned about their investments.

The Adani Group has been under fire ever since US-based short seller Hindenburg Research raised questions about the debt positions of the group firms in in-depth research. Both LIC and State Bank of India have been under fire after the report’s release on January 24 for their investments and loans to companies owned by Gautam Adani.

We must reach out to two audiences: your shareholders and your unit holders. Begin with the shareholders. You had a VNB (value of the new business) rise of about 16.5% for the previous quarter, which is excellent. Will this growth rate continue to increase, given that Q4 has historically been an incredible quarter for life insurance firms and LIC?

If I only discuss APE (annualised premium equivalent) figures, the total premium for the nine months that concluded on December 31 was Rs 37,545 crore, with individual businesses accounting for 62.38% of that total and the group for 37.62%. We have been discussing the share of subpar products ever since the listing’s current ranking of 9.45% showed a steady increase.

The profit for the first nine months was Rs 22,970 crore or profit after tax (PAT). The transfer of Rs 19,941.6 crore net of tax related to the accretions on the available solvency margin has increased this. We predict being able to continue rising at the same rate that we did in Q4 in the future, which is generally advantageous for us for several different reasons. We will be able to show the general public of shareholders that we are firm in expanding its operations and boosting penetration in the nation.

The margins on your VNB have increased from 9% to roughly 15%. I’ll give viewers some background information. When LIC went public, they were at 9%; now, they are at 15%. Although the journey has been good, these figures are much below what your peer group appears to be earning right now. Do you believe that VNB margins still have a ways to go before they reach their high for LIC?

We want to expand our VNB, which is more crucial. When you examine the non-par product basket, some items have better margins than others, but customer preference still plays a significant role. We continue to sell subpar products, regardless of the profit margins. We will have to sell additional terms, ULIPs, and similar products if you have a margin focus. However, despite that, our VNB margins increased to around 15%. They’ll likely send a letter in this regard to the finance minister.

What, if anything, will change regarding the profitability of LIC, and how many of your policyholders will no longer be eligible for tax benefits beginning in FY24?

Since individuals already paying a 5 lakh premium and beyond make up only approximately 0.12% of all policyholders, there would be no immediate effects. Second, we must patiently await the ministry’s circular outlining the taxation details. Which policy will be taxed if you add all the policies from different insurance companies and the final count is more than Rs. 5 lakhs? Many of the questions surrounding it remain unresolved. That must be clarified before we can proceed.

Concerning LIC’s overall exposure to the Adani Group of Companies, what are your general equity and debt exposure to the Adani Group?

Based on book value, less than 1% of the AUM is exposed to debt and equity. This has already been said previously.

Please be more precise. Although it represents less than 1% of AUM, what exactly are debt and equity?

The debt is roughly Rs 6,000 crore based on the book value of Rs 33,000 crore.

Is it still classified as “standard” in the LIC debt record?

The debt component is standard, so yes, they are standard assets.

I hear that while you have not lost any principal money and the overall investment kitty of LIC has suffered a loss, the total investment in the Adani Group of Companies is still above the book value. What will consequently alter for policyholders?

Policyholders won’t experience any effects at all. They won’t be affected in any way because we’ll evaluate all the previous policies before deciding whether to offer bonuses at the end of the year. This may not affect policyholders. Through your platform, I would like to reassure them that neither the shareholders nor the policyholders are anything to be concerned about.

LIC is consistently a top-notch contra buyer. You invested in Adani stocks when no one else was. At the moment, everyone is selling Adani Group shares, and some of those shares are in a meltdown. Is LIC considering boosting their exposure, given that its exposure limitations in the Adani Group still need to be met?

Typically, we keep stocks for a very long time. Without question, we are contrarians, but we often hold positions for a while. In this specific instance, we will have to wait and see if we need to adjust that perspective or make a different choice. We’ve scheduled a meeting with the Adani Group management for a week or ten days from now, and then we’ll make a decision. But as of right now, we have yet to decide against it.

When do you plan to start that long talk with Adani’s top management that you mention you are looking forward to? What are the issues you want to address, and what are the problems you wish to have clarified so you can feel comfortable?

We merely need to comprehend the essential business KPIs from them. We want to know from them how the companies will perform in the future, as well as whether any reports have been made and, if so, to what extent they are accurate. We also want to know how they plan to ensure these issues are addressed or if they explain what is taking place.

What time will this meeting be held? Please be more explicit. Will LIC provide any additional information after this meeting?

Since we’ve only recently contacted them, I sincerely hope it does. We’re just waiting; the meeting’s date still needs to be set.

Let’s now respond to the query on behalf of the shareholders. Although you haven’t lost any money outright, a mark-to-mark loss has altered the investment book’s value. So what modifications affect LIC shareholders?

Absolutely, positively correct.

You did mention in our last conversation that due to the strong equity markets, LIC has earned significant earnings for FY22. What number was that?

This one-off event has no bearing on our equities market approach; we remain contrarian and have been taking profits wherever we see them. Even though I have that information, I’m afraid I can’t give it to you now. We have been investing and booking profits in the same manner as always.

What kind of payout should policyholders anticipate for FY24? Will it still be as strong as it was in the previous two years?

Policyholders receive bonuses unless the valuation is completed, and you know that rewards vary per product. It is easier to predict once we determine the embedded value, which we will accomplish at the end of the fiscal year after finishing the entire appraisal of all the goods because we have some very old items for which we still regularly pay bonuses.

However, let’s consider the growth trajectory, the excellent persistence and the rate of investment returns we have received over the past two to three years. We will be able to be particular about you reasonably knowing declaring bonus on the policies.

How would life change for LIC and the sector if it receives a composite licence, allowing them to diversify once more in industries other than life insurance?

We used to have a composite licence back then. In 1972, we ceased. This is an exciting development, therefore. We can work on it, and once we know how it will turn out, we’ll also decide on it.

The macroeconomic environment has been challenging for the insurance industry, first due to Covid and then as a result of rising reinsurance costs. Are things there appearing better now? Have everything calmed down?

Yes, certain things have become more conventional. We have truly exited the Covid era, and rising interest rates are excellent for interest rates because they allow us to continue providing better service. The insurance market is improving, and investment opportunities are also favourable. There is a tonne of room for improvement. I anticipate significant growth in this most recent quarter for the insurance industry, particularly for LIC. I predict a successful year all around.

What changes in premium rates do you anticipate? Numerous members of your peer group have stated that as underlying premiums rise, so do servicing costs. Do you predict that the premium might start to rise soon?

No, the risk determines the premiums. What does risk premium mean? The premium includes a savings component. In light of the experience with death claims and other factors, I would say that the risk premium has not increased even if you had to change it. It perfectly falls within acceptable bounds.

The savings portion depends on the product’s pricing strategy, the kind of returns you hope to achieve, and the state of the market for investments. We will choose the product once everything has been taken into account. However, I don’t anticipate any upcoming premium rises.

edited and proofread by nikita sharma