LIC IPO - Everything You Need to Know About

The global benchmark for valuing life insurance companies varies at a multiple between 2.60 times Embedded Value and 4.00 times embedded value. Considering the stiff competition in the Indian life insurance market and the risk of substantial government ownership as well as fairly large illiquid debt portfolio, we can assume valuations at the lower end of the valuation spectrum of 2.60 times embedded value. That would work out to an overall valuation of around Rs.14,03,184 crore for LIC or translated as $186 billion.

With a conservative valuation benchmark of $186 billion, a 5% stake sale by the government would translate into an OFS size of $9.3 billion or Rs.70,000 crore. If one looks at comparable valuations of private sector insurance players, this also leaves returns on the table for investors, apart from meeting the divestment target.

Potential of the Life Insurance sector in India

Life insurance in India is a story of untapped opportunity. Look at some of the statistics provided by the Swiss Re report.

1) Insurance penetration overall is fairly low in India. For instance, as of FY21, the overall insurance penetration (premiums/GDP) stood at 4.2% for India, against the global average of 7.4%, which his substantially lower. It is much lower if you compare with the developed countries.

2) The life insurance penetration in India, interesting, at 3.2% is comparable with the global average of 3.3%. It is in non-life insurance penetration that India at 1% lags behind the global average at 4.2%.

3) However, India still lags in insurance density, which is premium per capita. This figure stood at $78 for India against a global average of $809 for FY21. India lags the global average in life and non-life density.

4) The good news is that life insurance penetration has improved in India over last 1 year from 2.82% to 3.2%, largely on account of the insurance awareness created by the COVID pandemic over the last 2 years.

The total insurance premium pool currently stands at Rs.620,000 crore in FY21, clocking 11% CAGR growth in the last 5 years. In fact, CRISIL has forecast total premium of the insurance segment as a whole to grow at 14-15% CAGR over next 5 years with the pool doubling to Rs.12,40,000 crore by FY26. 

How LIC dominates the Insurance Market

Being the pioneer in the life insurance space in India, LIC obviously dominates market share. What is interesting is that it has maintained leadership even after nearly 25 years of private sector competition. Here are some numbers that underlie the LIC story.

a) LIC enjoys 66% market share in new business premiums (NBP), 64.1% of overall premium, but the share of policies sold is more than 74.6%, indicating that LIC still dominates the mass insurance market. This has been achieved via 28.30 crore life policies across 25 crore policyholders and marketed by 14 lakh feet-on-street agents. 

b) LIC has a dominant share of the individual life and group life business. For instance, LIC has a 74.6% market share of number of individual policies issued and a whopping 81.1% market share of number of group policies issued in FY21. The LIC individual agent network is 55% of the all-India agent network as per IRDA.

c) In the first 6 months of FY22, LIC earned Rs.187,000 crore as net premium. In addition, it earned Rs.124,000 crore in H1 from interest and dividends plus another Rs.23,246 crore from capital gains on sale of investments. In FY21, LIC had reported net profits of Rs.2,908 crore and for H1 FY22, the net profits stands at par at Rs.1,504 crore. 

d) Gross NPAs of the debt portfolio have fallen from 7.78% in FY21 to 6.57% in H1-FY22. How, net NPAs at 0.05% indicate that the NPA risk is substantially provided for.

e) LIC has a formidable network of 8 zonal offices, 113 divisional offices and over 4,700 branch and satellite offices. Of course, its individual agent strength constitutes a whopping 55% of the insurance market.

f) Total AUM of LIC as of H1-FY22 stands at Rs.39.6 trillion. This is 3.3X the AUM of the rest of the private insurers combined and more than 16 times the AUM of SBI Life, the second largest life insurer in India. More importantly, the AUM of LIC is more than the entire Mutual Fund industry in India.
 

Pre IPO placement and discounts

The LIC will not be doing any pre IPO placement although 60% of the QIB portion is likely to be reserved for anchor investors to avoid uncertainty in the IPO. The LIC IPO has a 10% reservation for policy holders. In addition, there is likely to be a special discount for policyholders, employees and retail investors. Details of the same will be announced closer to the IPO opening date.

Also Read:-

Upcoming IPOs in February 2022

Upcoming IPOs in 2022