LIC's value growth now rests on a margin that slipped last quarter

Life Insurance Corporation of India said on 5 November 2026 that the value of new business it wrote in the six months to September rose 34% on a year earlier. That measure, VNB for short, is the actuary's estimate of the profit built into the policies sold in the period. Sales grew far more slowly: annualised premium equivalent, or APE, the industry's standard yardstick for new business, rose 5.7%. The gap between the two is margin. The company put its VNB margin for the half at 22.3%, against 17.6% a year earlier.

Calculated from those figures, about 83% of the rise in VNB came from earning more on each rupee of new premium, and the rest from selling more. For anyone holding the shares, the growth story is now a margin story, and the half shows which parts of that margin the insurer controls.

Selling more was hard going. APE from unit-linked policies, whose returns follow the stock market, fell by more than 40%. The chief executive, R. Doraiswamy, tied the fall partly to weak markets, and the appointed actuary, Ajay Shrivastava, said management had chosen to sell larger policies in place of small monthly-premium ones, for the sake of persistency and margin. Doraiswamy said growth in non-participating savings and protection policies did not make up for the shortfall. Since that choice was made for margin, part of the mix gain is the sales retreat itself.

Management broke the 4.7-point margin gain into parts. Changes in assumptions added 2.8 points, mainly from the risk-free rate, the government bond yields used to value the profits a policy will earn over its life. An expense realignment made in March took some of that back. The remainder, by Inve's subtraction (management gave a mix figure that the transcript garbles), is product mix and other effects, the largest of the three pieces. The rate part is the one the insurer cannot steer: in the third quarter of the last financial year a move in the yield curve on its own added 1.9 points to the margin.

The half-year figure also hides the direction of travel. LIC reported a margin of 22.9% for the quarter before. Subtracting that quarter's VNB and APE from the half-year totals leaves the September 2026 quarter on its own at about 21.8%. The same subtraction on the full-year and nine-month figures puts the quarter before that at about 25.7%, though that final quarter of the financial year is LIC's seasonally strongest and flatters the comparison.

Shrivastava explained the slip by comparing the first quarter with the half-year margin: the risk-free rate fell by about 40 basis points, he said, which cost 1.2 points, more than mix added. Madhukar Ladha of JPMorgan pointed out that yields had in fact risen over the quarter. The actuary replied that the effect depends on where on the curve the liabilities sit, with long-dated annuities tied to the far end.

When LIC reported its first-quarter results in August, an analyst asked whether LIC was on track for a VNB margin in the mid-20s by the end of the year, and Doraiswamy said the company was working towards that. Calculated from the half-year figures, even a 24% margin for the full year would need about 25.4% in the second half, if second-half sales only matched the year before. Of the three quarters above, only the seasonally strong year-end quarter got there. This time Doraiswamy described the outlook for margins as very positive. He said LIC would concentrate on shifting the mix towards more profitable products and on lowering expenses, and that only time would show whether the advantage from rates lasts.

There are reasons not to read too much into one weaker quarter. Mix is the largest piece of the gain and the part management works on directly; protection APE, one of the lines it is pushing, grew by more than half in the half year. The second half usually brings LIC more business than the first, and of the three quarters shown, the year-end one is where the margin ran highest. What the first half settled is narrower: the insurer's value growth now depends on its margin, and the piece of that margin set by bond yields went against it in the quarter just ended.