Inside the LIC IPO process, an insight into the political economy of India

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Mumbai: The central government is no stranger to burning its fingers in the markets. Flashback to 2017, when two public players – New India Assurance Company and General Insurance Company – listed on the stock exchange.

Both debuted at a 6-7% discount and since listing in the second half of 2017, the duo have wiped out investors’ wealth like a swarm of grasshoppers. This is not as hyperbolic as it sounds: New India Assurance, which is listed at Rs 750, is currently trading at Rs 110. GIC, which is listed at Rs 850, is operating at Rs 123.

Market experts warn that the fate of New India Assurance and GIC will not be that of LIC. On the one hand, the valuations attributed to LIC’s IPO are much more attractive. At 1.1 times the 22 strike price to intrinsic value, the valuation is much more attractive compared to private players – whose market share is much smaller compared to LIC, but their valuations lie within an approximate range of 2.8 to 4 times FY22P/EV.

The Company is divesting 3.5% of its interest in the IPO. The price range was set at Rs 902-949 per share. At the upper band, the IPO is valued at Rs 21,000 crore. The initial public offering was opened on May 4 and by the end of the third day had been subscribed 1.38 times with strong participation from retail investors who enjoy a discount of Rs 45 while policyholders enjoy a discount of Rs 60.

Of the total sale offer, 10% of the shares were reserved for policyholders, 0.7% for LIC employees and 31.25% for individual investors. If an investor belongs to either of the two categories, he is allowed to apply for shares in lots of 15 as long as the total amount of the offer does not exceed Rs 2 lakh.

The raw (declining) dominance of LIC

The Indian life insurance industry had only one player – LIC – from 1956 to 2000. However, after privatization in 2000, private players started entering the industry. In 2000-01, four private players were established. HDFC Standard Life was the first private company to enter the industry in 2000-2001, followed by ICICI Prudential Life, Max Life Insurance and Aditya Birla Sunlife Insurance in the same year. Only four new private players entered between 2002 and 2005, after which there was a further increase, with eight players settling in until 2009.

However, none of the 23 private players present on the domestic market can really challenge LIC’s brutal domination of the segment.

LIC has been providing life insurance in India for over 65 years and is the largest life insurer in India with a market share of 64.1% in terms of premiums, a market share of 66.2% in terms of new business premiums, a market share of 74.6% in terms of the number of individual policies issued, a market share of 81.1% in terms of the number of group policies issued for FY21, as well as by the number of individual agents, which accounted for 55% of all individual agents in India at the end of March 2021.

Although LIC’s authority is unchallenged, there is cause for concern: LIC has continued to cede market share to private insurers, albeit marginal. The private sector insurance companies have grown faster than the state-backed insurer and have been gaining market share since entering the Indian insurance industry in 2001. has grown at a CAGR of 18% while the total LIC premium in India grew at a CAGR of 9% for the same period.

For fiscal years 19, 20, 21 and the six months ending September 30, 2021, LIC’s market share in terms of total premiums in the Indian insurance industry eroded from 66.4% to 66.2%, 64.1% and 63.6%, respectively. Of course, there is no guarantee that LIC will not lose further market share.

Although private players are eating away at LIC’s market share, its leadership position is quite strong. Moreover, given the long tradition of LIC in India, it still remains the number one go-to insurance brand in India, despite the fact that LIC premiums are often higher on average by 30-70% on different insurance products. ‘insurance.

Where is the LIC in the world?

Nowhere in the world is the difference in market share between the largest and second largest life insurers as stark as in India, with the second player having only 8.0% premium market share gross subscribed (GWP) versus LIC’s 64.1 market share. % from FY21. LIC’s market share in India is unmatched globally, with no other life insurance player in any other country enjoying such a large market share.

In China, for example, the life insurance market is dominated by Ping An Insurance and China Life Insurance Company, with market shares of 21% and 20% respectively. In Malaysia, AIA BHD and Great Eastern Life Insurance – the two largest life insurers – together accounted for around 37% of the premiums collected by the sector during the year 2020. In Japan, the largest life insurer, Nippon Life Insurance Company, has a market share of 16.2% as of CY 2020.

LIC ranks fifth in terms of net premiums earned, with a premium of $56 billion in FY21. The Company is also the eighth-largest life insurer by assets among global insurance players .

It is in conscious recognition of the central role LIC plays in the lives of millions of Indians that has led a platform called the People’s Commission on Public Sector and Public Services to raise a number of red flags vis- against the LIC list. The platform criticized the government’s claim that LIC’s divestment will make it efficient and profitable, arguing that the efficiency of a life insurance company should be measured by claims performance.

“For the record, the LIC has settled over 99% of complaints. The fact that the percentage of claims rejected by LIC is much lower than that of its private sector rivals is proof that it does not need any private participation to improve its performance,” the platform said.


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