LIC of India has filed the Draft Red Herring Prospectus (DHRP) for its much awaited IPO on 13th February 2022. According to the DRHP, the government is aiming to sell 316 million equity shares to investors through the IPO, out of a total of 6.32 billion equity shares available.
In this article, let’s take a detailed look at some of the key highlights of the DRHP.
Key takeaways from LIC’S DRHP:
Offer for sale
LIC IPO will be entirely an offer for sale. This means the proceeds of the LIC IPO would go fully towards meeting the government’s divestment target.
Amount of stake sale in the upcoming IPO
Government is planning to sell 31.6 Cr or 5% stake in LIC.
Quota for different classes of investors in the IPO
· 50% of the quota is reserved of Qualified Institutional Buyers
· 35% reserved for retail investors and 15% for non-institutional buyers.
· 5% reserved for employees
· 10% for policyholders.
Embedded value of LIC
According to the draft prospectus, LIC has an embedded value stood at Rs 5, 39,686 crore as on Sept. 30, 2021. Embedded value refers to the present value of future profits plus adjusted net asset value. It is a popularly used metric to value insurance firms globally.
LIC’s Assets under management (AUM)
As of September 30, 2021, LIC’s AUM stood at Rs 39.56 lakh crore.
LIC’s solvency ratio
For the period April-September 2021, LIC’s solvency ratio, a key metric used for evaluating a company’s ability to meet its long term debt obligations stood at 183.4%. It is 3.3 times that of the AUM of all private life insurers and 1.1 times that of the AUM of the mutual fund industry in India.
LIC’s consolidated profit after tax
LIC’s consolidated profit after tax for the FY21 stood at Rs 2,974 crore.
LIC’s market share and agent productivity
As of March 31, 2021, LIC had a market share of 66% in new business premiums with 283 million policies.
According to media reports, for the FY21, LIC had the highest agent productivity at Rs 413,000 per agent. During the same period, the number of policies sold by each agent was 15.3. The company had the highest number of MDRT members among all domestic corporates in the financial services business in the calendar year 2020 at 583 and ranked 25th at global level.
Risk factors mentioned in LIC’s DRHP
Any negative or unfavorable publicity could adversely affect the company’s brand name, business and cash flows.
The pandemic could adversely affect all aspects of the company’s business, such as restricting the ability of agents to sell products, increasing expenses due to regulation changes, thus affecting investment portfolio or operational effectiveness, and heightening the risks in business.
If actual claims experienced and other parameters vary from the assumptions used in pricing the products and setting reserves for the products, it could have a material adverse effect on business and results of operations.
Fluctuations in interest rates may materially and adversely affect the profitability of the company.
Any adverse persistency metrics or variation in persistency metrics could hit the corporation’s financial condition, operations, and cash flows.
The segregation of the corporation’s life fund into a participating policyholders’ fund and a non-participating policyholders’ fund, with effect from 30th September, 2021, may impact the company’s business and results.
Embedded value calculations involve significant technical complexity and the estimates used in the embedded value reports may vary materially if key assumptions are changed or if experience differs from assumptions used for calculating Indian Embedded Value.
A significant proportion of the corporation’s total new business premiums are generated by participating products and single-premium products. Future regulatory changes or market developments that affect sales of such products will impact the business and cash flows adversely.
About LIC of India
LIC is India’s largest and oldest life insurance company established in the year 1956. The insurance behemoth has a strong network of 1.35 million agents as well as nationwide presence across almost all regions of India. Besides its domestic network, LIC also has operations abroad through its fully owned subsidiary in Singapore, overseas branches in Fiji, Mauritius and United Kingdom as well joint-ventures in Bahrain, Bangladesh, Srilanka and Nepal.
– Written and contributed by Pradeep Sukumaran.
