LIC IPO

Last Updated: 13 May 2022 9:53 AM by 5Paisa

The LIC IPO, opens on 4th May and will close on 9TH May, 2022. It plans to raise an amount of Rs 21,000 crore by selling around 22 crore shares which is equivalent to a 3.5 percent stake. The price band is set at Rs 902 – 949 per share. 

Here is the gist of the LIC IPO, its business model and its competitive strengths in the life insurance industry.

The graph below captures how insurance industry is growing and how it is poised to grow in the coming years.

Objective of LIC IPO Issue

1. Achieve benefits of listing the equity shares on the stock exchanges

2. Enhance the visibility and brand image as well as provide a public market for the equity shares in India

Out of the total paid up capital of 632,49,97,701 shares (approx. 632.50 crore shares), LIC plans to offer a total of around 22 crores to the public by way of offer for sale. There will be no fresh issue component in the LIC IPO and the entire IPO will be by way of offer for sale only. 

This translates approximately to about 3.5% of the total outstanding equity of LIC. Hence the total of the government in LIC will come down post the IPO from 100% to 96.5% while the public will hold 3.5% post the IPO in LIC. The price band for the IPO is set at Rs 902 – 949 per share resulting in an implied market capitalization of Rs 6 lakh crore for the company.

The IPO is expected to open on 4th May, 2022 and will close on 9th May, 2022. The government delayed the issue due to the Russian-Ukraine war.

From the offer for sale (OFS) 10 percent of the shares are reserved for LIC policyholders, 0.7 percent for LIC employees and 31.25 percent is reserved for household (retail) investors.

Applicants from retail and employee categories will get a discount of Rs 45 while it is Rs 60 for policyholders on the actual offer price. For these categories, the maximum application is restricted to Rs 2 lakh, implying 230-odd shares at the lower price band after discount.

LIC IPO has received ₹13,000 crore worth of investment commitments from anchor investors, more than twice the value of shares offered to such investors.

Economics of the Life Insurance Industry

There are several factors that set the perfect undertone for the growth of insurance business in India. Some pertain to macro advantages, some to demographic dividends and some to the extent of penetration of financial inclusion. Here are some highlights.

a)    India currently has a total population of 1.2 billion spread across 24.5 crore households and ranked fifth in the world on total GDP with a share of 3.1% of world GDP.

b)    India has the largest army of young people with median age of 28. Over 90% of Indians are below the age of 60, opening a huge life insurance market.

c)    Urban population is expected to rise to 37% in FY2025, entailing higher personal risk and greater need for life insurance.

d)    There is a middle class explosion in India. Households with income under Rs.2 lakhs fell from 83% in 2012 to 65% in 2022. That is a lot of purchasing power.

e)    Despite 77% overall literary, level of financial literacy is just 27%, leaving a huge potential for financialization of savings, including the potential for insurance.

f)    Share of financial assets in household savings pool has gone up sharply from 31% in FY12 to 41% in FY21 and continues to grow at a rapid pace.

g)    Gross financial savings in India have grown at a CAGR rate of 12% on average between FY13 and FY21, giving a thrust to financialization of savings.

h)    Share of life insurance in Indian household savings has gone up from 16.8% in FY19 to 19.4% in FY21, largely on account of higher awareness of life insurance post COVID-19.

i)    Pradhan Mantri Jan Dhan Yojana (PMJDY) to ensure bank account for every Indian, has been a big catalyst for the growth of digital sales of insurance.

j)    Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY) for Universal Insurance has seen cumulative enrolments grow from 30 million in FY17 to 71 million in FY21

k)    Pradhan Mantri Suraksha Bima Yojana (PMSBY) for underprivileged classes has seen enrolments rise from 94 million in FY17 to 185 million in FY21.
In short, there have been several catalysts for the rapid growth and penetration of life insurance in India; some push and some pull factors.

History of Life Insurance Corporation (LIC) of India

The Insurance Act, 1938 was the first legislation governing not only life insurance but also non-life insurance to regulate the insurance industry. Life insurance in India was nationalized on January 19, 1956. The Parliament of India passed the Life Insurance Corporation Act on June 19, 1956, and the Life Insurance Corporation of India (LIC) was created on September 1, 1956 with the objective of spreading life insurance, in particular to rural areas and to socially and economically disadvantaged classes. The idea was to offer social security in the form of adequate financial coverage against death at a reasonable cost.

Today, LIC continues to be the largest life insurer in India despite 25 years of private sector competition. LIC is the largest life insurer in India in terms of GWP, NBP, number of individual policies issued and number of group policies issued as of Fiscal 2021. LIC had 28.6 core in-force policies under Individual Business (within India) as at March 31, 2021, which is greater than the 4th largest country population-wise. As on September 30, 2021, LIC had a market share of 64.49% in NBP (individual and group) as compared to next largest competitor who had a market share of 7.79% in NBP (individual and group). As at September 30, 2021 LIC operates through 8 zonal offices, 113 divisional offices and more than 4,700 branch/satellite and mini offices. NBP for LIC in Fiscal 2021 was over Rs. 1.8 trillion, representing 66% of the aggregate industry NBP