Life Insurance Corporation LIC - IPO Update

For over 60 years Life Insurance Corporation or LIC has been undoubtedly the most trusted brand in India. LIC was popular and trusted, not only for the protection products it offered, but was also seen as a face of the government. LIC plans to issue shares in the Indian IPO market during FY22.

About Life Insurance Corporation (LIC)

LIC was formed under the Life Insurance Corporation Act, 1956; which governs LIC’s framework and functioning. The government plans to divest 10% of its stake in LIC through the IPO (currently, government owns 100% of LIC). However, subsequently, rules were amended to even allow an IPO with 5% dilution for companies with market cap above Rs.100,000 crore. 

While actuarial estimates of value are awaited, LIC is estimated to be valued in the range of Rs.12,00,000 crore to Rs.15,00,000 crore. A 5% sale would entail an IPO size of Rs.75,000 crore while a 10% sale will entail an IPO size of Rs.150,000 crore. Either ways, LIC promises to be India’s biggest ever IPO by a margin.

Understanding the LIC business model

LIC offers life insurance products that encompass the complete including pure-risk covers, term policies, endowment policies, whole-life policies, money-back policies, ULIPs etc. One big advantage LIC brings to the table is the sovereign guarantee backing each and every policy issued by LIC; a benefit not available in any other life insurer. 

Some of the statistics pertaining to LIC are staggering. It has nearly 290,000 employees and the business is fuelled by its massive network of 22,78,000 agents. As of the end of the FY20 financial year, LIC had total assets of 37,75,000 crore. 

LIC is India’s largest institutional investor with an equity AUM of Rs.665,000 crore in FY20. Just to give a perspective, this AUM is more than the combined equity fund AUM of India’s 3 largest equity mutual funds viz. SBI MF, ICICI Pru MF and HDFC MF combined.

How does LIC compare with competition

When it comes to the life insurance industry, LIC is the undisputed leader. It currently commands a market share of 66%, which is more than the combined share of the next 3 private sector life insurers. For FY21, LIC earned first-year premiums of Rs.184,000 crore and this figure has been steadily growing over the years. Unlike the PSU banks, which rapidly lost market share to private banks, LIC has held on to its leadership, despite stiff competition.

Also Read: LIC IPO Government Approval

When is the LIC IPO scheduled?

The dates for LIC IPO are yet to be announced, which is likely after the actuarial valuation and the completion of multiple levels of approvals. The IPO is tentatively expected to hit the market around Jan-Feb 2022. Certainly, it will happen this fiscal year as the government is counting on the LIC divestment to meet its full year divestment target of Rs.175,000 crore.

There are 3 things to keep an eye on. Government sold stakes in two non-life insurers; GIC Re and New India Assurance in 2017 and both IPOs trade at 60% discount to issue price. Secondly, higher market share and asset base do not necessarily translate into better valuations, as we have seen in PSU banks. Finally, gross NPAs of LIC lending portfolio scaled past 6.20% in FY20. Despite these minor concerns, LIC is likely to be a marquee IPO in the Indian context.