Don’t judge LIC’s Q4 profits | Value Research Recently, LIC announced its quarterly results and here’s what is interesting

Don't judge LIC's Q4 profits

Recently, LIC announced its quarterly results and here's what is interesting

Don’t judge LIC’s Q4 profits

Indian life insurance giant, LIC came out with its quarterly results on May 30, 2022 and it is safe to say that the market was not impressed as the company's profit for the quarter ended March 2022 dipped by 17.4 per cent. The company saw promising growth in topline as net premium income grew by 17.9 per cent and surplus for the period excluding share of profit of associates increased by 6.3 per cent. The market reacted negatively to the results as the shares have slumped 2.4 per cent today and is trading below the issue price.

BUT, LIC's profits are not comparable. Why so?
The reason for the fall in profits was due to a decrease in transfer from policyholders' accounts by 21.6 per cent which resulted in a fall in profits. But LIC's management has clarified that the profit numbers for Q4FY22 and Q4FY21 are not comparable. That is because till FY21, LIC was conducting an actuarial valuation once a year and the profit of Q4FY21 actually pertains to the whole year and not just the quarter. We can see that in the table below how there is a very minimal difference between profit for FY21 and Q4FY21. The management said that the results will be comparable from FY23 onwards.

Don't judge LIC's Q4 profits

Don't judge LIC's Q4 profits

Company's annual performance was satisfying as net premium income jumped 6 per cent. Thanks to an increase in transfers from policyholders' accounts, profits also jumped 39 per cent. But its operating cash flow during the year was also negative due to increase in payment of claims and benefits, and income taxes paid. The management said that FY22 was an abnormal year due to COVID, resulting in a surge in claims. While LIC's 13th and 37th-month persistency ratio dropped, its 61st-month ratio stayed strong. The company's net NPAs ratio has decreased and its solvency ratio has improved.

Don't judge LIC's Q4 profits

Earlier, LIC had a single fund where the surplus from participating and non-participating business was distributed to policyholders and shareholders at 95:5 ratio. But in September 2021, the government amended the act and now has two funds - participating and non-participating. The surplus which is generated from non-participating businesses will completely be distributed to shareholders. The surplus generated from participating businesses will be distributed between policyholders and shareholders at a 90:10 ratio. To know more about this, you can read our article. MR Kumar, the Chairman of LIC has stated that this change will help the company increase its overall profitability.

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