Founded in 1956, Life Insurance Corporation of India (LIC) is the only government-owned insurance company in India. LIC was initially set up by merging around 245 insurance companies. In India, LIC is synonymous with Life Insurance. LIC has an extensive presence across both rural and urban areas as it operates through 113 divisional and 8 zonal offices in India. The government of India, under its ambitious disinvestment policy, aims to list LIC on the stock exchanges through the biggest Initial Public Offering (IPO) of the country to date. The detail of the IPO is not yet finalized but the size of the LIC IPO is expected to be around Rs. 70,000 crores. If you are confused about whether to apply for this IPO or not, this article may guide you to a sound decision.
LIC is an Insurance and Investment corporation owned by the Government of India. The biggest contributor to the revenue of LIC is life insurance and other general Insurances. In India, the insurance industry is very vast with over 57 insurance companies operating in it. Among these companies, 24 are in the life insurance business, while the other 34 are non-life insurers. LIC is the largest insurer and market leader in India with around 70% of the market share. The Indian insurance sector is projected to grow rapidly. India’s insurance industry was worth $102 Billion as of FY20, which is estimated to grow to $520 Billion by FY30. Thus, the insurance sector’s overall industry growth (CAGR) is expected to be 17.8%. More specifically, life insurance is growing at 18.80% CAGR, health insurance at 15.30% CAGR, and General Insurance at 13.50% CAGR. The general insurance industry is also expected to grow at 7-9% in terms of the gross direct premium from FY-22. This growth in general insurance is backed by the healthy growth from the health and the motor segments. LIC is the largest investor in the nation’s growth with over Rs.4 lakh crores invested in various key segments of India’s economy. India’s capital market is also witnessing continuous growth post-Covid-19 scare. LIC is an already well-established and highly profitable corporation and with both insurance and investment sectors showcasing good growth numbers, LIC’s future prospect looks more promising.
LIC was founded in the year 1956 as an Indian statutory insurance and investment corporation under the ownership of the Ministry of Finance, Government of India. The total life fund under LIC as of the year 2019 was around Rs. 28.3 trillion. LIC is the largest insurance provider in India with over 300 million policyholders. Besides life insurance, LIC also extends its services in mutual funds, pension funds, housing finance, card services, etc. LIC operates in India through 2,048 branches, 113 divisional offices, and 8 zonal offices. Along with these, LIC also has around 1,408 satellite offices, 73 customer zones, and 25 metro-area service hubs located in various cities and towns in India. LIC provides employment to a large section of society. As of 2020, around 1,14,000 individuals were employed at LIC, and it had more than 13.5 lakhs individual LIC agents. Thus, apart from the services provided by LIC to its customers, LIC is also crucial for the well-being of the economy of India. LIC’s market share was 81.04% in terms of the number of policies for the month of March 2021 and around 74.58% for the FY-2021. Being the market leader, a well-established and highly successful company over the years, LIC IPO is very tempting for investors. Let us also take a look at LIC’s financials before jumping to any conclusions.
- Asset Base: LIC’s asset base had surpassed Rs. 38 lakh crores as of March 2021 as compared to Rs. 32 lakhs from the previous fiscal year. The total investments of LIC are around Rs. 36.76 lakh crores and a life fund of around Rs. 34.36 lakh crores as per FY-2021.
- New Premiums Collected: LIC collected Rs. 1.84 lakh crores as new premium from 2.1 crore new policies in the fiscal year 2021. According to LIC, this is the highest ever new premiums collected by them in a single fiscal year. It showed a 3.5% growth over the previous fiscal. The pension and group schemes of LIC also created a record by collecting Rs. 1.27 lakh crore as new business premium as compared to Rs. 1.26 lakh crore the previous year.
- Total Premium Revenue: LIC collected around Rs. 3.79 lakh crores as total premium revenue as of March 2020, compared to Rs. 3.37 lakh crore was collected the previous year. This signals that the revenue from the premium is growing at a robust rate of 12.42% for LIC.
- Net Profit: LIC registered a modest increase of 0.9% in the net profit at Rs. 2,712.71 crore during 2019-20, as against Rs. 2,688.50 crore the previous year.
- Dividend Payout: LIC proposed Rs. 2,698 crores as dividend to the Government of India for the FY-2020 as compared to Rs. 2,661 crores the preceding year.
Competitive Strength of LIC
- Network of LIC Agents: As per the Life Insurance Council, the number of LIC agents till March 2021, were around 15.53 lakhs as compared to a total of just 11.01 lakhs agents for over 20 private life insurers.
- Wide Choices: The company provides its customers with a wide array of choices in life insurance plans, endowment plans, whole life plans, money back plans, and other insurance riders.
- Diversified Business Segments: LIC not only operates in the life insurance segment, but also has other businesses such as LIC Housing Finance, LIC Mutual Funds, LIC Pension Fund, and LIC Card Services. Along with these, LIC also acquired IDBI Bank, thus entering the banking sector.
- Sizeable Fund Size: LIC operates with a fund base of whooping Rs. 289.57 crores. In addition to this, it has a robust financial standing with a sufficient amount of flexibility to grow and expand its portfolio further in the future.
Points of Weakness of LIC
- Restriction on PSU: As LIC is a Public Sector Undertaking (PSU), it is subject to various restrictions which could emerge as a barrier to its operational and expansion goals. LIC is all set to overcome this weakness through its IPO.
- Maintenance of Workforce: Having a large workforce is both a strength and a weakness for a company. Though LIC is blessed with around 1.14 lakhs hardworking employees, it is a challenging job to maintain such large workforces, especially during times of financial crisis.
- Competition: In recent times, LIC has been facing continuous competition from many private players and NBFCs offering customized and unique services to the policyholders.
- Changes in National Policies: LIC needs to continuously modify its internal policies in accordance with changes in the fiscal and monetary policies of the country.
Without any doubt, LIC IPO is one of the most awaited IPOs in the history of the stock market. A company with such caliber as LIC does not let you second guess your decision to invest in it. LIC is one of the largest financial institutions in India and it could easily become the nation’s top listed company. LIC is one such company that can rank one in terms of the market valuation beating current leaders such as Reliance Industries and TCS. Investors are highly to recommended to invest in LIC IPO from a long-run perspective.