Life Insurance Corporation (LIC) was incorporated on September 1, 1956, when the Indian parliament passed the Life Insurance Corporation Act on June 19, 1956. The act consolidated the 245 private life insurers and other entities offering life insurance services into LIC. Nationalization of the life insurance business resulted from the Industrial Policy Resolution,1956, which had created a policy for extending state control over at least 17 sectors, one of them being life insurance. The state-owned corporation is ubiquitous across Asia’s third-largest economy. It is headquartered in Mumbai, India.
How big is LIC?
Market Share of LIC is 64.1%, with almost 300 million policies. It also provides employment to more than 12 Lakh agents who sell their insurances in India. They also offer direct work to approximately 100,000 people across 2000 branches and 1500 satellite offices (A satellite office is a small office, does come in many sizes, and sometimes does not have a full staff. Satellite offices are generally opened to reach an underserved location to gain market share).
LIC and its record-breaking IPO
Firstly we need to understand what an IPO is. It stands for Initial Public Offer. It means that the companies are offering their shares to the public to subscribe so that they can be traded & listed on the stock exchange(s).
On February 13, 2022, LIC filed a 652-page DRHP (Draft Red Herring Prospectus). DHRP is basically a preliminary legal document that contains all the company’s details. It acts as the bridge between the investors, stakeholders, and the company. DRHP needs to be filed with the Securities and Exchange Board of India (SEBI).
A life insurance company’s Embedded Value (EV) equals the present value of future earnings plus adjusted net asset value. It is the industry standard for determining how much an insurance firm is worth. According to the DRHP, the embedded value of LIC is Rs 5.39 trillion, or Rs5,39,686 crore, as of September 30, 2021.
Currently, the Government of India is the 100% owner of LIC, and it plans to dilute 5% of the total equity it holds, which roughly translates to 31.6 Crore of shares. Up to 10% of the shares up for offer are reserved for the existing policyholders of LIC. The FV (Face Value) of the shares is ₹ 10. The offer was authorized on February 11, 2022, when the LIC Board passed the resolution.
This IPO is a 100% Offer for Sale (OFS). It means that there would be no fresh infusion (i.e., No new shares would be issues) of capital in the company, the entire amount raised from the IPO would be going to the Government of India.
Would this be an attractive option to invest in?
LIC is one of the few brands that is known in almost every household in India. It has the highest market share in India, leaving the other 23 competitors with a market share of 36.6%. The share of LIC has been firm despite there being numerous new entrants in the market. The company would also offer discounts to the policyholders, making the deal even sweeter. Overall the option to invest in LIC is excellent and lucrative.
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