India's largest asset manager, LIC files for its IPO with an embedded value of Rs5.4 trillion

14 Feb 2022 , 10:41 AM

Life Insurance Corporation of India (LIC), the Country’s largest life insurer with a market share of 64.1% in terms of premiums, has filed its draft red herring prospectus (DRHP) for an initial public offering (IPO).

The issue with a face value of Rs10 each per equity share will be a comprehensive offer-for-sale (OFS) of up to 316,249,885 equity shares by the President of India through the Ministry of Finance, Government of India (“Selling shareholders”).

LIC IPO offer also includes not more than 5% reservation for its eligible employees and not more than 10% for its policyholders.

LIC was created on September 1, 1956, when 245 private life insurance companies in India were merged and nationalized. Till 2000, it was India’s only life insurance company. Based on its size, market relevance, and domestic and global interconnection, IRDAI classified it as a Domestic Systemically Important Insurer (“D-SII”) in September 2020.

As of September 30, 2021 the embedded value of LIC stood at Rs5.40 trillion.

According to a report by Brand Finance, LIC is the third strongest and tenth most valuable insurance brand around the world. The value of a brand represents the worth of earnings tied to the brand’s reputation.

LIC had an asset under management (AUM) of Rs39.74 trillion as of September 30, 2021, which was more than three times the total AUM of all private life insurers in India, approximately 16.2 times the AUM of the second-largest player in the Indian life insurance industry, and 1.1 times the entire Indian mutual fund industry.

In terms of market share, LIC had the highest gap by life insurance Gross Written Premiums (GWP) relative to the second-largest life insurer in India as compared to the market leaders in the top seven markets globally in 2020 for the other players and in Fiscal 2021.

The insurance behemoth had a 66.2% market share in terms of New Business Premium (or NBP), 74.6% in terms of number of individual policies issued, 81.1% in terms of number of group policies issued, and a 55% market share in terms of individual agents as of September 30, 2021.

The 282.58 million in-force policies under individual business being handled in India as of September 30, 2021, demonstrate the trust in the LIC brand.

In addition, LIC has a sizable market share in health insurance and annuities. In terms of GWP, it had a market share of 46.9% and 53.6% in health insurance supplied by life insurance carriers in India for Fiscal 2020 and Fiscal 2021, respectively.

With 32 Individual and 10 group products, LIC caters to a wide range of market segments. Individual products include microinsurance and items specialized to certain market niches, such as women’s and children’s products.

In India, LIC issued approximately 21 million individual policies in Fiscal 2021, accounting for nearly 75% of new individual policy issuances. The industry’s second-largest player, with a 5.9% market share in Fiscal 2021, issued 1.66 million individual policies.

As of September 30, 2021, LIC had 2,048 branch offices and 1,554 satellite offices across India, covering 91% of the country’s districts. In addition to its life insurance business in India, it has branches in Fiji, Mauritius, and India.

The company has subsidiaries in Bahrain (with operations in Qatar, Kuwait, Oman, and the United Arab Emirates), Bangladesh, Nepal, Singapore, and Sri Lanka in the life insurance industry.

LIC’s total income increased by 9.00% to Rs703,732.43 crore in fiscal 2021, compared to Rs645,640.91 crore in fiscal 2020, owing to higher net earned premiums and investment income, while net profits increased by 9.73% from Rs2710.48 crore in fiscal 2020 to Rs2974.14 crore in fiscal 2021. Total income for the six months ended September 2021 was Rs336,972.92 crore, with profit after tax of Rs1,504.01 crore.

The Indian life insurance industry generated a total premium value of Rs6.2 trillion in fiscal 2021, up from Rs5.7 trillion in fiscal 2020. The industry’s total premium climbed at a 11% compound annual growth rate (CAGR) in the five years leading up to Fiscal 2021. CRISIL, a credit rating agency, forecasts a 14-15% CAGR growth over the following five years, taking the total to Rs12.4 trillion by Fiscal 2026.