Biz mix tweak will have LIC becoming bigger threat to pvt players: Report

This is based on the assumption of a full transition to new surplus distribution from 100 per cent for non-participating policies now and 10 per cent for participating policies.

New Delhi: Amendments to the surplus/profit distribution rules for IPO-bound LIC, which has already improved its margins by 700 bps to 9.9 per cent and will further rise to 20 per cent when the national insurer shifts its business mix to non-participating policies, can give nightmares to private players who have been thriving on this segment for too long, says a report.

According to an analysis of its initial public offer (IPO) filings by Swiss brokerage Credit Suisse, SBI Life, ICICI Prudential, HDFC Life and Max Life will face the maximum impact of the LIC move.

The report notes that LIC's margin has already gone by up 700 bps to 9.9 percent after government amended LIC's surplus/profit distribution rules which allows it to make a 10 per cent shift in the business mix from participating policies to non-participating policies, which is only 4 per cent now, which can take its margins to 20 per cent.

This is based on the assumption of a full transition to new surplus distribution from 100 per cent for non-participating policies now and 10 per cent for participating policies.

A participating (par) insurance policy provides both guaranteed and non-guaranteed benefits to policyholders in the form of bonus or dividend payouts, while a non-participating (non-par) policy typically provides guaranteed benefits to policyholders, but they do not receive profit or dividend payments.