Foreign institutional investors (FIIs) seems to have some concerns regarding the mega initial public offering (IPO) of the Life Insurance Corporation of India (LIC). According to a Reuters report, the company's chairman, MR Kumar, said that investors were concerned about LIC's growth prospects as it already dominates nearly a third of the Indian insurance market and has been losing market share to private players.
However, Kumar told Reuters that global pension funds have good interest in the state-run insurance giant's issue.
His comments came a day after LIC filed its initial public offering (IPO) papers that showed India expects to raise up to $2.74 billion, just a third of its original target, from selling a 3.5 percent stake in LIC's IPO.
"FIIs have a concern, (there is) no doubt that they have concerns but long-only funds (pension funds) they don't mind because they know that they are putting money in for the long haul," Kumar said in an interview to Reuters.
LIC IPO is set to open on May 2 for anchor investors. For subscription, the issue will open on May 4 and close on May 9.
The government has set the price band for the initial public offering (IPO) of Life Insurance Corporation of India (LIC) at ₹902-949 per share and may offer a discount of ₹60 to the policyholders. Retail investors and the employees of LIC, on the other hand, may get a discount of ₹45 on subscribing to the shares of India’s largest insurer.
The government is likely to sell 22.13 crore shares or a 3.5 percent stake, in LIC through the offering, which would help the government garner ₹21,000 crore, valuing the insurer at ₹6 lakh crore.
About 10 percent of the issue size, or 2.21 crore shares, may be reserved for LIC policyholders, while 15 lakh shares would be reserved for its employees, the official said. After considering the reservations, the remaining 50 percent shares would be allocated to qualified institutional buyers (QIBs), 35 percent to retail investors, and 15 percent to non-institutional bidders. About 60 percent of the QIB quota has been reserved for anchor investors
LIC vs Private Insurers
There are currently over 20 life insurance companies in India with LIC being the only public sector firm. Apart from LIC, whose market share for 9 months of FY22 stands at 61.4 percent, the highest new business premium market share is of SBI Life and HDFC Life at 9.2 percent and 8.4 percent, respectively, followed by ICICI Prudential at 5 percent, Max Life at 2.6 percent and Bajaj Allianz at 2.9 percent and the remaining players have a combined market share of 10.6 percent.
In the case of premium CAGR for FY19-FY21, for new business premium, Highest CAGR is of SBI Life at 22.3 percent followed by HDFC Life and Max Life at 16.3 percent and 15 percent, respectively. LI.C stands at the fourth position at 13.8 percent.
Meanwhile, in the case of the number of policies, LIC stands at 74 percent followed by SBI Life at 6 percent, HDFC Standard at 4 percent, Max Life and ICICI Prudential at 2 percent each. All the others have a compiled market share of 12 percent under this category.
Net profit for LIC for FY21 stood at ₹2,974 crore. While the same for SBI Life was ₹1,455 crore, HDFC Life was ₹1,360 crore and ICICI Prudential was ₹956 crore.
Total investment book of life insurers grew at a CAGR of 13 percent from approximately ₹25 lakh crore to approximately ₹46 lakh crore between FY16 to FY21 as per CRISIL. The top six insurers together accounted for approximately 93 percent of the total investment book of the industry as of March 2021, with LIC alone accounting for approximately 76 percent.
CRISIL Research forecasts the total premium for life insurers to grow at 14-15 percent CAGR over the next five years. At this level of premium, life insurance as a proportion of GDP is projected to reach 3.8 percent by Fiscal 2026, up from 3.2 percent in FY21. New business premium (NBP) is expected to grow at a CAGR of 17-18 percent during the same period ending FY26. Further, in the long term, life insurance NBP is expected to grow at robust growth of 14-16 percent CAGR between FY21 to FY32.