LIC share price hits new one year low; buy the dip?

Shares of Life Insurance Corporation (LIC), India's largest life insurer, hit a fresh 52-week low on Tuesday, January 14, 2025, dropping to ₹806, surpassing its previous low of ₹820. Despite the decline, the stock managed to close 2% higher at ₹825 by the end of the session.

LIC’s stock has been on a steady downtrend since August 2024, with four out of the following five months closing in the red, eroding nearly 30% of its value. Compared to its all-time high of ₹1,221, the stock has fallen by 32.5%.

Regulatory Challenges Affect Growth Prospects

The insurer’s troubles have been compounded by a 13% drop in individual Annualized Premium Equivalent (APE) for December 2024, following a 12.4% year-on-year decrease in November. Despite strong pre-sales in September, LIC has now faced three consecutive months of de-growth.

The decline in performance is largely attributed to regulatory challenges surrounding the Banca channel and the new surrender regulations, which have negatively impacted lower ticket-size policies. While the overall insurance industry saw strong growth of 14.5% year-to-date (YTD), with private players growing at 19.3%, LIC’s YTD growth has slowed to just 4.4% in Q3, according to domestic brokerage JM Financial.

The brokerage firm noted that while LIC’s stock looks attractive, trading at 0.6x FY26 estimated embedded value (EV) after accounting for market-to-market losses, continued contraction in new business suggests that investors may need to wait for a more favorable opportunity.

Weak Premium Growth Amidst Regulatory Shift

LIC's premiums have been heavily impacted, falling by 41% year-on-year to ₹13,523 crore in December. However, individual single premiums saw a significant increase of 26%, rising from ₹2,000 crore to ₹2,522 crore in the same month last year, as reported by the Life Insurance Council.

The increase in individual single premiums was driven by a strong push in sales during September, prior to the discontinuation of older products under the new surrender regulations. While this contributed to a 47% Retail APE growth in September, it is now weighing on LIC’s Q3 performance.

The implementation of these new surrender rules has also led LIC to raise the minimum ticket size for many products, contributing to a sharper decline in policy counts and affecting APE growth.

Outlook and Valuation

Despite these setbacks, LIC maintains a dominant 64.4% market share in group business, even though its premiums have dropped by more than half compared to the high base of December 2023.

While LIC’s valuation appears attractive due to its discount to embedded value, analysts from Emkay Global Financial Services caution that the ongoing weakness in retail new business, coupled with potential regulatory changes, is likely to keep the stock range-bound in the near term. The upcoming Union Budget and the possibility of tax regime changes could also influence future performance.

Disclaimer: Investors are advised to carefully assess the situation and consult with experts before making any investment decisions.