In December 2003, China Life’s IPO of $2.5 billion attracted $80 billion of capital (or 20 per cent of the Chinese listed market capital). It had a huge impact on the capital markets— within a year, MSCI’s weighting for China doubled to 15 per cent.
It is expected that LIC’s IPO will face a push-back from all sides as in the case of Air India’s (AI) disinvestment. But unlike AI, which is a difficult equity story to sell, LIC
will turn out to be a game-changer.
Ajay Garg, Founder & MD, Equirus Capital
The state-run insurer’s franchise and unique customer-acquisition model is hard to replicate. It is the predominant reason for its dominant market share, two decades after the sector was thrown open to private players. No other state-run entity — AI, Doordarshan or MTNL — has been able to retain market domination post opening up of a sector to private players.
The magnitude of LIC’s dominance is demonstrated by the fact that it manages upwards of Rs 25 trillion of policy-holder assets. This accounts for almost 80 per cent of the assets under management in the sector — roughly 12 per cent of India’s GDP. High policyholder trust with a claim-settlement ratio of 98 per cent has resulted in every three out of four policies sold in the country belonging to the state-run insurer.
This dominance is further strengthened by a strong distribution franchise of nearly 1.1 million active agents accounting for 50 per cent of the life insurance industry’s agency force — one of the largest on the globally. While the top five private insurers have cumulatively registered flat profitability over the period FY14-19, LIC
has managed to consistently grow its profits. This can be attributed to its focus on traditional products which insulates it from volatile capital market cycles unlike top private players which focuses more on easy-to-sell unit-linked insurance plans.
Healthy premium growth led by a steady rise in awareness, innovative products, an evolving underwriting and aggressive distribution strategy has resulted in stellar performance by listed insurance companies
in the past one year (HDFC Life: 48 per cent, SBI Life: 47 per cent and ICICI Prudential: 38 per cent). This has improved the attractiveness quotient of the sector from investors’ perspective. Also, the recent outperformance of differentiated state-run stories such as the Indian Railway Catering and Tourism Corporation post-listing, should provide a strong backdrop for LIC’s IPO.