IPO IPO: Investors eagerly await some of India’s largest life insurance company, which is about to launch the country’s largest initial public offering (IPO). More than that, the IPO is specifically for the life insurer’s 29 crore policyholders, who would be given a preference for the shares.
The insurance company was incorporated on September 1, 1956 as Life Insurance Corporation of India under the Life Insurance Corporation Act. It has the largest domestic market share in the world with more than 64.1 percent of total gross written premiums as of 2020, according to a report by rating agency Crisil. It is also the third largest globally in terms of life insurance premium.
Here’s a SWOT (strength, weakness, opportunity, and threat) analysis of things to know for policyholders who may want to subscribe to Life Insurance Corporation’s upcoming IPO.
Key strengths
LIC IPO: main products
The insurance company offers a wide range of products and services. In addition to savings products, life insurers also offer cover against mortality (death) and morbidity (illness) risks. The product range includes term insurance, annuities, endowments, retirement plans and unit-linked savings plans (ULIPs) to meet a variety of needs.
LIC IPO: Growth Outlook
It has a slew of investments in businesses – private and public – that allow the business to grow organically while also receiving capital support. It has two subsidiaries and four associated companies engaged in the pension fund, housing finance, mutual fund, banking and card business. LIC has the strongest network of agents in the country. As of March 2021, it had more than 13.5 lakh agents across the country.
LIC IPO: no loan default
LIC has not made use of term loans and/or other credit facilities and accordingly there have been no defaults or rescheduling/restructuring of loans from financial institutions or banks, according to the DRHP.
LIC IPO: Return on Equity (RoE)
According to Crisil’s report, LIC offers the highest return on equity at 82 percent.
LIC IPO: Agent network
LIC has a massive agent network of 1.35 million individual agents as of March 2021, accounting for 55 percent of the total agent network in the country and was 7.2 times the number of agents of the second-largest life insurer that SBI Life has, according to it. report.
LIC IPO: Competitive Insurance Industry
Life insurance is a competitive industry. Despite the fact that LIC is the market leader, private companies compete with LIC in the field of better services. In addition, the report states, “The company is lacking in providing good service to their customers because of their traditional way of doing business.”
Also one of the largest employers in the country, LIC takes on this responsibility of enabling employment and rarely invests in technology to improve efficiency. In addition, the government often intervenes in the business where “maximum growth and income play a role,” according to the IIFL report. This affects the ‘decision-making and use of its resources’. Compared to private players, LIC’s spend on advertising is low, as evidenced by the “quality of ads and content they create”.
What are the main limitations?
“LIC must adhere to the rules and regulations set by the government. This puts limits on the company’s growth,” the IIFL report said, adding that the company has invested in many loss-making companies in the past due to government policies.
LIC limits its chances of serving the young urban population by following traditional methods. They don’t have the freedom “to collect new technologies and distribution resources,” it said.
LIC IPO: Competition
LIC is the market leader, but of late the company has lost 5 percent market share, or 500 basis points, to the private life insurance sector in the first 10 months of FY22. A brokerage report from IIFL Securities previously pointed to better service by private companies as opposed to LIC’s traditional way of doing business
LIC IPO: Pandemic
The COVID-19 pandemic could negatively affect agents’ ability to sell products, increase costs due to changes in laws and regulations, affect the investment portfolio, affect operational effectiveness and/or risk in business enlarge.
LIC IPO: Persistence Ratio
The ratio reflects the number of policyholders who have paid their renewal premium and is seen as an indicator of sales quality and future growth. LIC persistence ratios declined as of March 31, 2020, according to the DRHP.
Possibility
LIC IPO: reach
According to a Crisil report, the scope for LIC is very high given India’s $16.5 trillion protection gap as of 2019, which was much higher compared to its Asian counterparts. This protection gap was 83 percent as of 2019, the highest of any Asia-Pacific country.
LIC IPO: Technology Initiatives
LIC has come up with several digital solutions, but not as many as comparable private sector companies. An IIFL report suggests that the company is using advanced technologies such as blockchain and artificial intelligence to improve the business on a larger scale.
LIC IPO: New-age customers
The report advised LIC to spend a lot of money on advertising and marketing to create new product offerings and cater to new age customers.
Major Threats
LIC IPO: Assumptions may not materialize
If the actual claims and other parameters differ from the assumptions used in pricing the products and establishing reserves for the products, it could have a material adverse effect on the business, financial condition and results of operations, LIC said in its DRHP .
LIC IPO: interest rate
The fluctuations in interest rates can materially and adversely affect the company’s profitability.
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