According to the report by actuarial firm Milliman, the reason for the marked jump in value is the decision by the corporation to bifurcate the single policyholders’ fund. This was split into participating and non-participating funds with shareholders having 100% interest in the non-participating one.
Analysts said that in the consolidated fund (as of March 31), the shareholders’ value from non-par assets were pegged at a small fraction of the total fund. After bifurcation, the entire returns go to shareholders. Had a shareholders’ fund not been carved out, the EV of the corporation would have been lower as the shareholders’ interest in the earnings would be lower.
A life insurance company’s shares are usually valued at a multiple of the EV. For instance, last year SBI Life (a PSU-promoted life insurer) was trading at a multiple of 2.5 times its EV. If a similar multiple is applied to LIC, the valuation would be Rs 13.5 lakh crore.
“While we have obtained the report from the independent actuary, there is significant technical complexity involved in EV calculations and the estimates used in such reports could vary materially if key assumptions are changed or if our experience differs from our assumptions used to calculate our Indian EV,” LIC said in its offer document.
The EV calculation includes a number of assumptions relating to mortality & morbidity, persistency & revival rates, commission & expenses, inflation, policyholder bonuses, reinsurance, asset values, reference rates, investment returns & discount rates, stochastic asset model, taxation as well as statutory reserving and capital requirements.
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