LIC IPO: Investors are eagerly waiting to join hands with India’s largest life insurance company, which is about to launch the country’s largest initial public offering.IPO) More importantly, the IPO is exclusive to the life insurer’s 29 crore policyholders, who will be given preference over shares.
Insurance company was established as life insurance corporation of India on 1st September, 1956 under the Life Insurance Corporation Act. According to a report by rating agency Crisil, it has the largest domestic market share in the world with over 64.1 per cent of the total gross written premiums as of 2020. It is the third largest globally in terms of life insurance premiums.
Here is a SWOT (Strengths, Weaknesses, Opportunities and Threats) analysis of things to know for policyholders looking to subscribe to Life Insurance Corporation’s upcoming IPO.
key strengths
LIC IPO: Key Products
Insurance firm offers a wide range of products and services. The life insurer offers cover against mortality (death) and morbidity risk (disease) in addition to savings products. The range of products includes Term Assurance, Annuity, Endowment, Pension Plan and Unit-Linked Saving Plan (ULIP) to suit different needs.
LIC IPO: Growth Prospects
It has a slew of investments in companies – all private and public – that allow the company to grow organically while providing capital support. It has two subsidiaries and four associate companies that look after its pension fund, housing finance, mutual funds, banking and card business. LIC has the strongest network of agents in the country. As of March 2021, it had over 13.5 lakh agents across the country.
LIC IPO: No loan default
DRHP stated that LIC has not availed any term loan and/or other credit facilities and accordingly, there has been no default or rescheduling/restructuring of borrowings from financial institutions or banks.
LIC IPO: Return on Equity (ROE)
According to Crisil’s report, LIC gives the highest return of 82 per cent on equity.
LIC IPO: Agent Network
The report said that as of March 2021, LIC has a huge agent network of 1.35 million individual agents, which is 55 per cent of the total agent network in the country and 7.2 times the number of agents of SBI Life, the second largest life insurer.
LIC IPO: Competitive Insurance Industry
Life insurance is a competitive industry. Despite LIC being the market leader, private companies compete with LIC in terms of better service. Further, the report said, “the company is falling short in providing proper service to its customers due to its traditional way of doing business.”
LIC is one of the largest employers in the country and in carrying out this responsibility of enabling employment, it rarely invests in technology to improve its efficiency. In addition, the government often intervenes in business where “maximum growth and income is involved,” the IIFL report said. It affects “decision making and use of its resources”. Compared to private companies, LIC spends less on advertising, as evidenced by the “quality of advertisements and content created by them”.
What are the major limits?
“LIC will have to follow the rules and regulations laid down by the government. This puts limits on the growth of the company,” the IIFL report said, adding that the company has invested in several loss-making companies in the past due to the policies laid down by the government.
LIC limits the possibilities of catering to the young urban population by following traditional methods. It states that they are not at liberty to “acquire new technologies and means of delivery”.
LIC IPO: Competition
LIC is a market leader but recently the firm has lost 5 per cent market share, i.e. 500 basis points, in the private life insurance industry in the first 10 months of FY 2012. A brokerage report by IIFL Securities had earlier pointed to better service provided by private companies than LIC’s traditional way of doing business.
LIC IPO: Pandemic
The COVID-19 pandemic can adversely affect agents’ ability to sell products, increase expenses due to changes in laws and regulations, affect investment portfolios, affect operational effectiveness and/or business may increase the risk.
LIC IPO: Persistence Ratio
This ratio reflects the number of policyholders who have paid their renewal premiums and is seen as an indicator of the quality of sales as well as future growth. As per the DRHP, the persistence ratio of LIC reduced till March 31, 2020.
opportunity
LIC IPO: Scope
According to a report by Crisil, the scope is huge for LIC considering the $16.5 trillion security gap in India by 2019, which was much higher than its Asian counterparts. As of 2019, this security gap stood at 83 percent, the highest among all countries in the Asia-Pacific.
LIC IPO: Technology Initiative
LIC has come up with many digital solutions, but not as many as those in the private sector. An IIFL report suggests that the company leverages advanced technologies such as blockchain and artificial intelligence to improve business at scale.
LIC IPO: New Age Customers
The report has advised LIC to spend heavily on advertising and marketing to introduce new products and meet the needs of new age customers.
major threats
LIC IPO: Assumptions cannot be materialized
LIC in its DRHP stated that if the actual claims experience and other parameters differ from the assumptions used in pricing the products and determining the reserves for the products, it may have an adverse effect on the business, financial position and results of operations. Is.
LIC IPO: Interest Rate
Fluctuations in interest rates can materially and adversely affect a company’s profitability.
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