LIC spikes over 3% on news of insurer seeking changes to surrender value norms

So far this year, the stock of this life insurer has surged over 30 percent

Shares of India's largest insurer Life Insurance Corporation of India jumped more than 3 percent to Rs 1,089 on August 27 as reports suggested that it has reached out to the Insurance Regulatory Development Authority of India (IRDAI) seeking review of surrender value regulations.

According to CNBC-TV18 reports, LIC is seeking an increase in the interest rate assumption used to calculate surrender values and is also suggesting using a plan-based Government Securities (G-Sec) benchmark for this calculation.

Using a government securities (G-Sec) benchmark in the calculation of surrender values for life insurance policies may ensure that the surrender values reflect the true economic cost and value of the policy. G-Sec yields typically reflect the current interest rate environment and economic conditions.

Earlier this year, the IRDAI introduced new regulations for the surrender value of life insurance policies. Under these updated rules, insurance companies are now required to pay a special surrender value after policyholders have completed the full premium payment for the first year. This marks a shift from previous regulations, which provided no surrender value in the first year and began payments only after two years of premium payments.

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The new surrender value will be 75-80 percent of the premiums paid, which is a significant increase from the previous 30 percent. These new regulations will come into effect on October 1, 2024.

LIC, in its Q1FY25 investor conference call, had expressed confidence in managing the impact of the new surrender value norms. The management had outlined plans to develop higher ticket size products with lower surrender value behavior to minimise any impact on margins.

In the quarter ended June, LIC reported 9.6 percent rise in net profit to Rs 10,461 crore, while total premium income increased by 15.66 percent to Rs 1.1 lakh crore. Its net VNB margin also expanded to 13.9 percent in Q1FY25 from 13.7 percent a year back.

Going ahead, analysts at JM Financial remain positive on LIC's ability to grow its non-par business and strong EV returns. The brokerage firm has maintained a 'buy' rating on the stock and set target price at Rs 1,300 apiece. Similarly, Antique Stock Broking remained bullish on LIC's growth prospects, increasing its FY25-FY27E APE growth by 6-7 percent and raised target price to Rs 1,260 apiece from Rs 1,160.

So far this year, the stock of this life insurer has surged over 30 percent, outpacing Nifty 50's 15 percent rise. At current levels of 1,083, LIC is trading at 8.28x of FY24 price-adjusted book and 5.91x FY25 price-adjusted book.

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