The Initial Public Offering of Corporation of India’s Life Insurance, dubbed the country’s Aramco moment, has taken another step forward. The IPO is expected to outperform Paytm’s $2.4 billion IPO last year. LIC has been a familiar name in India for decades, having been formed in 1956 by the merger and nationalisation of 245 Indian and international insurers and provident societies.
Here are some critical details concerning the upcoming IPO that you should be aware of. On-screen text – What is the size of LIC? With 286 million policies, 115,000 staff, 1.34 million individual agents, and over 2000 branches, LIC is India’s largest life insurer. It has a market share of 64.1 percent in terms of premium and 66.2 percent in terms of new business premium.
It manages $528 billion in assets, which is bigger than the whole mutual fund industry in India and 3.3 times the total assets under management of all 23 private life insurance firms combined.
LIC’s interests in listed stock amount to around $130 billion, or about 4% of the NSE’s entire market capitalization. What does text on screen have to offer?
The government, which owns 100% of LIC, is selling 316 million shares in the IPO, accounting for 5% of its ownership position. LIC will not get any profits from the offering because it is a 100 percent offer-for-sale.
Employee quotas have been restricted at 5%, with 10% of the IPO size designated for policyholders.
LIC’s global domination is unrivalled, with no other life insurance company in any country having such a large market share. In terms of life insurance premiums, LIC is rated fifth in the world, and tenth in terms of total assets. It is the only Indian insurer among the world’s top ten.
The inherent value of LIC is estimated to be $71.3 billion in the draught prospectus. The embedded value is a crucial financial metric for insurers and a measure of future cash flows in life insurance firms.
The only listed life insurers in India are SBI Life Insurance, HDFC Life Insurance, and ICICI Prudential Life Insurance.
For the first six months of FY22, LIC reported a profit after tax of $199 million. During this time, it collected $24.6 billion in premiums. The debt portfolio’s gross and net non-performing asset ratios are 6.57 percent and 0.05 percent, respectively.
Private players pose a big threat to LIC. As a result, although remaining the largest life insurer, it has been losing market share.
LIC’s gross written premiums climbed by 6.30 percent in FY21, compared to SBI Life’s 24 percent and HDFC Life’s 18 percent. With the government lifting the FDI ceiling in the insurance sector to 74 percent from 49 percent last year, foreign firms are increasingly likely to enter the market and take market share.
The majority of LIC’s insurance are sold through agents. Individual agents accounted for 93.8 percent of new business premium in FY21, compared to less than 30% for private counterparts.
According to LIC, it may be obligated to take certain activities to help the government achieve its economic or policy goals, but there is no guarantee that such efforts will be advantageous to the company.
Furthermore, LIC is a party to about 26,919 criminal, consumer, civil, and tax proceedings, as well as statutory and regulatory activities.
For the first six months of FY22, LIC reported a profit after tax of $199 million. During this time, it collected $24.6 billion in premiums. The debt portfolio’s gross and net non-performing asset ratios are 6.57 percent and 0.05 percent, respectively.
Private players pose a big threat to LIC. As a result, although remaining the largest life insurer, it has been losing market share.
LIC’s gross written premiums climbed by 6.30 percent in FY21, compared to SBI Life’s 24 percent and HDFC Life’s 18 percent. With the government lifting the FDI ceiling in the insurance sector to 74 percent from 49 percent last year, foreign firms are increasingly likely to enter the market and take market share.
According to Brand Finance, a brand consultant firm in London, the valuation of LIC is roughly $64,000. In addition, the market value is expected to reach 43.40 lakh crore, or $59.21 billion, by 2022, and 58.9 lakh crore, or $78.63 billion, by 2027.
Ab0ut LIC
The Life Insurance Corporation of India (LIC) has been providing life insurance in India for over 65 years and is the country’s largest life insurer. LIC was created in 1956 by merging and nationalising over 245 private life insurance businesses. It is also India’s largest asset manager. Until 2000, it was the only life insurance company in the country. LIC has a diverse product line that includes individual and group coverage. Savings insurance products, term insurance products, health insurance products, annuity and pension products, and unit-linked insurance products are examples of these.
Strengths and Risks
Strengths
- It has a massive agent network, a solid track record, and a 65-year lineage.
- The world’s fifth largest life insurer by GWP and the largest player in the fast-growing and The Indian life insurance industry is undercapitalized.
- A reliable brand and a customer-focused business model.
- A cross-cyclical product mix that meets a variety of consumer needs, as well as a single product.
- A portfolio in which participating life insurance contracts predominate.
- A strong presence in India with an Omnichannel distribution network and an unrivalled agency force.
- Using technology to help customers connect and drive operational efficiencies
- India’s largest asset manager with a proven track record of financial performance and
profitable expansion - A strong risk management structure.
- A highly experienced and competent management team, a prestigious Board of Directors, and a strong financial position framework for corporate governance
Risks
- Any negative publicity that has an impact on its brand name, reputation, or impression.
- Negative persistency measurements or a negative variance in persistency metrics
- The impact of LIC’s decision to split its one consolidated ‘Life Fund’ into two separate funds, one for participating policyholders and one for non-participating policyholders.
- Difference in the number and/or amount of claims compared to the assumptions used in pricing and setting reserves for its products
- A substantial chunk of its revenue is dependent on the sale of participating products and single premium products.
- This is a very competitive industry.
