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Things to know about the LIC IPO DRHP

13 April 2022
6 minutes

On late Sunday evening (February 13, 2022), the state-owned life insurance giant, LIC filed the Draft Red Herring Prospectus (DRHP) with the Securities and Exchange Board of India (SEBI). SEBI approval for LIC IPO came on March 9. This is one of the biggest IPOs to hit the Indian markets and many investors have been waiting for the DRHP to be released. This brings us to the most pertinent question in the minds of most investors – should I invest in the LIC IPO? The LIC IPO DRHP is very comprehensive. Today, we will try to offer some interesting and important snippets from the document to help you make a decision.

Things to know about the LIC IPO DRHP for a LIC Policyholder

  • Last date to link PAN: The last date to link your PAN to your LIC policy to be eligible to apply under the policyholder quota is February 28.
  • The Offer: It comprises a Net Offer, Employee Reservation Portion, and Policyholder Reservation Portion
  • Application limit: The total value of allocation to an eligible policyholder cannot be more than Rs 2 lakh after the discount.
  • NRI applicants: Non-Resident Indians (NRIs) are eligible to invest in the IPO. However, NRIs holding LIC policy can apply only under the retail category. They aren’t eligible to apply under policyholder reservation.
  • Joint LIC policyholders: In case two people share a joint life policy, only one of the two policyholders can apply for the equity shares under the Policyholder quota. The PAN number of the applicant bidding in the offer needs to be updated in the policy records. The applicant should have a demat account in his/her name and if the demat account is joint, the applicant needs to be the first/primary holder of the demat account.
  • Minors: The proposer of a policy for a minor is eligible to apply under policyholder reservation.
  • Eligibility for policyholder quota: To be eligible for policyholder quota, the policy should have been issued on or before the date of the prospectus i.e. February 13, 2022, and should not have been removed from LICs records by way of surrender, maturity, or death claim on the bid or offer opening date.
  • After the expiry of LIC policy: Further, the spouse who’s currently receiving annuities after the death of the spouse is not eligible to apply under policyholder reservation. Nominees under the policies are not eligible to apply under policyholder reservation.
  • Employee quota: LIC also offers their employees to apply under employee quota. In case an employee also holds a LIC policy, he/she can apply under all three quotas- retail, policyholder, and employee reservation. However, the individual cannot then bid under the non-institutional portion.
  • Multiple bids: If an individual applies under retail, employee, policyholder, and non-institutional quota, then only the applications made under the employee and policyholder categories would be considered and applications made under the non-Institutional and retail quota would be considered as multiple Bids and both the bids will be rejected.
  • Lock-in period: There is no lock-in period which means that the policyholders can sell the equity shares immediately on the listing of the equity shares if they wish.

How big is LIC?

Here are some interesting points from the DRHP filed for LIC IPO:

  • LIC was established in 1956 by nationalizing and merging 245 private life insurance companies
  • Until the year 2000, LIC was the only life insurance company in India
  • India is the fifth-largest insurance market in Asia and the tenth-largest in the world. LIC is the largest player in life insurance.
  • It holds a market share of:
    • 64.1% in terms of the overall life insurance premium paid in the country
    • 66.2% in terms of the new business premium
  • Of all the individual life insurance policies issued in India every year, LIC has a mammoth share of 74.6%. It also holds a giant share of 81.1% in terms of the number of group policies issued

Unclaimed amount

LIC’s DRHP showed that the insurance company currently has Rs 21,539 crore of unclaimed funds. Unclaimed amount refers to the money that policyholders could have claimed on events (Such as completing the policy period, and health benefit claims) but so far haven’t.
LIC policyholders can check if they have any unclaimed amounts by visiting LIC’s website and navigating to the ‘Unclaimed Policy Dues’ section.

How big is LIC globally?

LIC is the fifth-largest life insurer in the world in terms of Gross Written Premium (GWP). Also, it is the tenth-largest life insurer in the world in terms of total assets.

Number of ongoing life insurance policies: It has around 286 million (28.6 crores) in-force life insurance policies of individuals

Size of LIC’s AUM: LIC has total Assets Under Management (AUM) of Rs.39,55,892.92 crore. This is:

    • More than 3.3 times the AUM of all private life insurers in India
    • Around 16.2 times the AUM of the second-largest life insurer in India
    • 1.1 times the AUM of the entire mutual fund industry
    • 18.5% of India’s annualized GDP for Fiscal 2022

LIC’s Embedded Value

As of September 30, 2021, the Embedded Value of LIC was Rs. 5,39,686 crore.

Embedded Value is the standard of valuing any insurance company. It is calculated by adding the present value of future profits from in-force policies to the Net Asset Value (NAV) of its capital and surplus.

Also, read What to know before applying for LIC IPO?

Asset Management – LIC

LIC is the largest asset manager in India as mentioned in the LIC IPO DRHP.

  • It primarily invests in central and state government securities. Here is a break-up of its investments:
    • Central government securities: 37.45%
    • State government securities: 24.62%
    • Equity: 24.77%
    • Debentures, Bonds, and Pass-Through certificates: 8.06%
    • Loans: 3.07%
    • Mutual Funds and other investment funds: 0.78%
    • Other approved securities: 0.66%
    • Preference shares and investment properties: 0.37%
    • Money market instruments: 0.22%

Operating Expenses & Cash Flows 

This is an important aspect for an insurance company. Here are two important factors to keep in mind with respect to the operating expenses of LIC:

  1. The ratio of LIC’s insurance business-related operating expenses to premium (consolidated):
    1. 2019: 8.33%
    2. 2020: 8.99%
    3. 2021: 8.66%
  2. LIC’s total expenses (including commissions paid to agents) (in Rs crore):
    1. 2019: 28,331.6
    2. 2020: 34,425.88
    3. 2021: 35,162.21

LIC has reported negative cash flows for the last three years. This can be attributed to its rising operating expenses. The total expenses (including commissions paid to agents) have shown a constant rise from 2019 to 2021. In fact, the total expenses for the six months of FY2022 were Rs18,906.36 crore. These expenses resulted in the LIC reporting negative cash flows at Rs11,114.3 crore.

Another noteworthy observation is the substantial reduction of cash flows from Rs.67,899.5 crore in 2019 to Rs. 26,050 crore in 2021.

Market Share 

While LIC is still the largest player in the life insurance space, it has lost market share over the last few years. Here are some numbers:

  • Overall market share: Dropped from 56% in 2016 to around 44% in the first half of Fiscal 2022.
  • Group New Business segment: Dropped from 81% in 2016 to around 77% in the first half of Fiscal 2022

Additionally, LIC experienced a drop in the sales of individual policies too. Apart from other factors, the pandemic-induced lockdowns played a role in the drop in LIC’s market share.

The impact of COVID-19

LIC experienced an increase in claims of death during the pandemic.

  • 2019: Rs17,128.84 crore
  • 2020: 17,527.98 crore
  • 2021: 23,926.89 crore
  • First 6 months of Fiscal 2022: Rs. 21,734.15 crore
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