India’s largest insurer
Since its inception, LIC has grown by leaps and bounds. As of September 2021, an initial capital of Rs 5 crore had become the asset base of over Rs 38 lakh crore. And according to a survey report by Brand Finance Insurance 100, the LIC brand is the 3rd strongest and 10th most valuable brand in the world. Also, nearly two decades after the insurance sector was opened up to private companies, LIC accounts for 66.18% in ‘first year premium’ earnings and 74.58% in the number of policies. In 2020-21, it sold an average of 2.1 crore new policies or over 57 lakh new policies per day. It employs more than one lakh Indians and over 13 lakh commission agents.
LIC, Insurer
cost of policies sold
LIC has been a traditional, middle class safe haven; Salaried people still spend some of their hard earned money in buying insurance from the all-encompassing LIC agent. With so much investment of middle class sentiments, is it any wonder that the government’s move to disinvest minority stake in LIC has created a raging debate?
also a big investor
Pranav Haldia, MD, Prime Database Group says, “Based on its size and AUM (assets under management), LIC is the most prominent player in the Indian equity market. LIC has been awarded several times in disinvestment deals and follow-up from public sector enterprises and banks. The offerings are also said to protect and counter FPI sell-offs and lend stability to the market. LIC has traditionally been a contrast investor in the market and made investments when the market sentiment was not so good. Is.
LIC, Investor
The total investment of LIC (or AUM) till March this year stood at Rs 36.71 lakh crore, leading to a net AMU of over Rs 31.42 lakh crore for the entire mutual fund industry. And even though its stake in NSE-listed companies fell to an all-time low of 3.66 per cent by March (3.7 per cent in December 2020, a much higher 5% in June 2012), the value of its holdings rose by 6.3 per cent quarter-on-quarter. 7.24 lakh crores. LIC was making profit by selling some of its shares on NSE during the March quarter.
In terms of number of shares owned (average of LIC holdings as % of total share capital across all NSE listed companies), LIC owned just under one per cent (0.85 per cent) of NSE shares in March. This constitutes a major part of investment in equities by insurance companies (76 per cent). LIC’s stake in some of India’s blue chips: in RIL it stood at Rs 74,437 crore or more than 5%; In TCS, LIC held shares worth Rs 45,724 crore or about 4%. Its stake in Infosys was worth Rs 34,187 crore, in State Bank of India it was worth around Rs 30,000 crore, in HDFC Bank about Rs 23,000 crore and in Hindustan Unilever it was worth close to Rs 20,000 crore. In terms of percentage stake, LIC held the highest 49% stake in IDBI Bank. About 14% of L&T and close to 12% of Oil India Ltd. LIC made an additional investment of Rs 3501 crore in TCS in the March quarter of 2021-22 and its investment in Bajaj Auto grew by about Rs 7000 crore in these three months.
How big will the IPO be? There is no official word yet on the valuation of LIC. But the market capitalization is expected to be between Rs 9 lakh crore and Rs 11 lakh crore, says Deven Choksi of wealth management company KR Choksi Holdings, which is lower than RIL or TCS, but higher than standalone HDFC. “The age of an insurance company is directly proportional to its profit making ability and hence LIC is expected to be profitable for the investor,” he says. India Assurance and GIC’s listing in 2017: Aggressive pricing during IPOs for these two insurers hurt investors and stock prices remain at a steep discount from their IPO price today.
Who is interested: The IPO could be of interest to retail investors as LIC has a strong balance sheet and significant growth potential in the insurance business, which is disappointing overall penetration. Also, LIC’s nearly 30 crore policyholders and some employees may be game, as it plans to reserve a portion of the issue for both the categories. This means policyholders and employees can get LIC shares at a discount. Also, policyholders can benefit from greater transparency post listing where all their money is invested. The government has already clarified that the sovereign guarantee on policyholders’ money will continue.
voice against public issue LIC’s employee unions are representing against the stake sale citing several reasons. In a letter to Sitharaman last year, he had said that the increase in the number of policyholders and claim settlement was achieved “entirely through generating internal resources. Did not make any additional contribution, which was increased to Rs 100 crore in 2011 due to regulatory issues. On this meager capital base, LIC is managing assets worth over Rs 32 lakh crore today. Chairman P Satish says that only 5% of LIC’s annual surplus is given to the government, 95% goes back as bonus to policyholders. “This math will change as the number of shareholders will increase after listing. And When it comes to IPOs, global experience shows that profit motive can prompt LIC to invest more and more through riskier instruments.”
LIC Story: The insurer was established in 1956, when 245 Indian and foreign insurers and provident funds were taken over and nationalized by the central government. It was created through the LIC Act, 1956 with a capital contribution of just Rs 5 crore from the government and remained a monopoly till 2000, when private insurance companies were allowed. Apart from domestic operations, it has three branches outside India – UK, Fiji and Mauritius. It has a wholly owned subsidiary in Singapore and joint venture operations in Bahrain, Kenya, Sri Lanka, Nepal, Saudi Arabia and Bangladesh. In India, LICI’s subsidiaries include LIC Pension Fund Lt. and LIC Cards Services Limited. Its associates include IDBI Bank Ltd., LIC Mutual Fund. and LIC Housing Finance Ltd.
LIC to Govt: LIC has often been a knight in shining armor for the government, investing huge sums of money in public sector entities and infrastructure projects. In the past, LIC has saved IDBI Bank from collapse by pumping in money; IL&FS, one of India’s largest non-banking financial companies, has likewise been saved through timely investment of a huge tranche of funds by this state insurer. According to RBI data, LIC’s investment in public sector companies is increasing year after year and the amount has more than doubled between 2015 and 2021. The figure stood at around Rs 27.7 lakh crore as of March 2021, up from around Rs 25 lakh crore in March. Just Rs 13.7 lakh crore in 2020 and 2015.
Even the proposed IPO will help the government meet its target of disinvestment receipts for 2021-22. In order to launch the IPO, amendments have already been made in the Life Insurance Corporation Act 1956. The amended Act provides for dilution of the government’s stake and states that the dilution cannot exceed 25% over the next five years. This means the government’s stake in LIC cannot be less than 75 per cent for five years after the IPO. The amendment also states that the government must retain a majority of 51% at all times, which means that the government may reduce its stake over the next few years and eventually LIC may be in private hands to 49%.
As the debate over whether publicly listed LIC is more transparent and better able to protect the investments of the common man, perhaps a successful listing will silence the detractors.
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