Life Insurance Corporation of India plans to increase the surplus distributed to shareholders to 7.5 per cent in 2022-23 and 2023-24 from 5 per cent in 2021-22. This will further increase to 10 per cent by 2024-25 and could make the market bound insurer more attractive to investors.

The remaining 90 per cent of the surplus from participating policies will be distributed to the policyholders. Participating policies allow a policyholder to share the profits of the insurer.

In 2020-21, LIC, the largest life insurer in the country, generated a surplus on policies of Rs 57,780.20 crore with a year-on-year growth of 7 per cent according to the insurer's annual report.

LIC paid 5 per cent of the surplus or Rs 2889.01 crore to the central government as the shareholder, in addition to the taxes collected by the government.

The move to raise the distributed surplus follows amendments to various sections of Life Insurance Corporation Act, 1956 through Finance Act, 2021, empowering the board of directors to determine the purposes for which surpluses and profits can be utilised. With the first year premium collection of LIC posting a sharp 32 per cent rise in November 2021, market analysts expect a strong recovery in the second half of the fiscal, which in turn should boost the surplus.

“H2FY22 is expected to grow at a faster pace compared with the first half. Short term headwinds are anticipated in retail protection as premium rates for term plans are expected to increase, given the claims experience and push back from reinsurers,” said Care Ratings in a note

Persistency strategy

LIC has worked out a strategy to improve the persistency ratio – the proportion of business that is retained from the business underwritten.

Campaigns for revival of policies, encouraging policyholders to pay renewal premiums through electronic modes or on a higher frequency basis — monthly against annual — are some of the ways to improve persistency.

As of March 31, 2021, LIC’s persistency ratio for individual products in India was 79 per cent in the 13th month and 59 per cent in the 61st month compared with the median of the top five private players in India of 87.1 per cent in the 13th month and 54.4 per cent in the 61st month. The insurer, which has a network of 1,343,587 individual agents as on September 30, 2021, is also looking to increase cross-selling of policies.