Life Insurance Corporation’s non-par mix drives sharp VNB margin expansion

Investment View and Valuation

Motilal Oswal Financial Services Limited reiterates its Buy rating on Life Insurance Corporation and revises its target price to Rs 480 from the August 6, 2026 results update. The target is based on 0.6 times FY28E embedded value. The broker increased its FY27E and FY28E value of new business (VNB) margin estimates following the strong 1QFY27 performance and the rising contribution of non-participating products.

Motilal Oswal expects operating return on embedded value to remain in the 11.5–12 per cent range. The key investment thesis is supported by sharp VNB growth, continued VNB-margin expansion, a higher-margin product mix and opportunities for improvement in distribution productivity and alternate channels.

Strong 1QFY27 Financial Performance

Life Insurance Corporation reported strong operating performance in 1QFY27. Net premium income increased 7 per cent year on year to Rs 1.3 trillion, while shareholder profit after tax rose 23 per cent to Rs 135 billion.

New-business annualised premium equivalent (APE) growth comprised a 7 per cent increase in individual APE to Rs 75.3 billion and a 10 per cent increase in group APE to Rs 61.6 billion.

VNB Growth and Product-Mix Improvement

The key positive was VNB growth of 61 per cent year on year to Rs 31 billion. VNB margin expanded by 730 basis points year on year to 22.9 per cent.

The shift towards non-participating products contributed 6.5 per cent to VNB-margin expansion, while assumption changes added 2.9 per cent. These benefits were partly offset by a 1.9 per cent impact from expenses.

Group business contributed 29.4 per cent of VNB, while non-participating and participating products contributed 49.3 per cent and 19.4 per cent, respectively. LIC intends to grow its participating business while outpacing the market in non-participating products through new launches and product enhancements.

Management Outlook for VNB Margins

Management expects VNB-margin expansion to continue over the next few quarters and aims to reach a mid-20 per cent VNB margin, closer to the industry average. It indicated that momentum in non-participating products should remain sustainable even if ULIPs recover, with limited risk of product cannibalisation. Protection business is also expected to continue growing.

Motilal Oswal expects growth to improve as ULIP momentum recovers, ticket sizes increase, agency productivity improves and alternate distribution channels expand. The broker also expects the higher-margin non-participating mix, cost optimisation and better persistency to support VNB margins.

Distribution Network and Persistency

The agency channel contributed 93.1 per cent of business, and individual new-business premium through the channel grew 15 per cent year on year. Bancassurance individual new-business premium declined 9 per cent, while the direct channel declined 13 per cent. Broker-channel business grew 27 per cent.

LIC had approximately 1.45 million agents, 88 bancassurance partners, 304 brokers and 176 corporate agents. Its 13th-month, 37th-month and 61st-month persistency ratios were 70.4 per cent, 62.6 per cent and 61.3 per cent, respectively. The 61st-month persistency ratio improved by 300 basis points year on year.

Balance Sheet Strength and Key Uncertainty

Total assets under management increased 4 per cent year on year to Rs 59 trillion. The solvency ratio improved to 242 per cent from 217 per cent.

Interest-rate movements remain an uncertainty for the pace and path of progress towards the targeted VNB-margin level.