LIC’s Mega IPO Credit Positive For India’s Life Insurance Sector: Moody’s
LIC’s IPO, which came in the market on Wednesday, will be open till May 9.
New Delhi:
Examining the impact of the IPO of state-owned Life Insurance Corporation of India, Moody’s Investors Service on Thursday said the public issue is positive for India’s life insurance sector.
LIC’s IPO, which came in the market on Wednesday, will be open till May 9.
As of 10:30 am on Thursday, LIC’s IPO was subscribed 71 per cent. Policyholders’ share was 2.14 times, staff’s share 1.31 times, retail investors 65 per cent of their allotted share, QIBs 33 per cent and NIIs 28 per cent of their share.
As a listed company, Moody’s said, LIC will face more demanding disclosure requirements, which will result in increased transparency in its operations, and encourage it to prioritize profitability, underwriting and risk management. This, in turn, will boost its ability to generate and grow capital internally.
We see the arrival of external shareholders with experience in the insurance industry as another major benefit of an IPO. We believe that the presence of foreign stakeholders will bring significant benefits in the areas of capital adequacy, financial flexibility and governance standards, thereby enhancing LIC’s credit profile, Moody’s said in a report.
Additionally, their impact could aid operational and distribution efficiencies, for example, by encouraging LIC, whose online distribution is currently limited to its own portal, to negotiate comprehensive online distribution agreements with third parties. . This will support LIC’s sales growth given the increasing importance of digital distribution in the life industry and greater geographic reach of online sales.
However, these gains will be limited to some extent unless the government sells a larger stake, allowing outside investors to build a more strategic stake in the company, Moody’s said.
According to Moody’s, while LIC complies with the solvency requirements of the Insurance Regulatory and Development Authority of India (IRDAI), its capital adequacy is weak compared to global life insurance peers. LIC’s shareholders’ equity accounts for less than 1 percent of total assets, for example, compared to 4.9 percent for Ping An Life Insurance Company of China, Ltd.
Moody’s said, “We expect LIC’s operating performance and profitability to undergo comparable changes in the broader life insurance sector post the IPO. This is because, as India’s leading life insurer, LIC often changes in terms of pricing and policy terms. sets the trend.”
The country’s privately owned insurers are already gearing up for the prospect of profitable growth opportunities in the future, as premiums continue to rise along with government reforms of state-owned insurers (which includes LIC’s IPO). In FY20, 4 out of 24 life insurers raised capital, and more such transactions are expected, along with more M&A deals and IPOs. These will improve the capital adequacy and financial resilience of the Indian insurance sector in the coming months.
Moody’s also expects foreign insurers to continue investing in private insurance companies in India where the 49 per cent FDI limit is much higher than the 20 per cent allowed in LIC. Many global companies already in India can increase their ownership stake in their local partners through joint ventures.
The price band of LIC’s IPO has been fixed at Rs 902-949 per share and the government aims to raise Rs 21,000 crore by selling 22.13 crore shares or 3.5 per cent stake.
