Govt finalises advisers for LIC IPO, fixing legal issue

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Mumbai: As LIC prepares for the mega IPO, the positivity around the life insurance business amid the pandemic is seen to be working in favour of the insurer.
While GDP is expected to shrink, the share of LIC in savings is rising. Also, the corporation has made record profits of over Rs 12,000 crore from the volatility in the stock markets. Speaking to TOI, LIC chairman M R Kumar said, “The first quarter we spent only on buying, and after July we started selling. As on date, we have made a profit of Rs 12,000 crore. Whenever there were major dips, we bought. The family jewels — we keep them. But even if we have sold some companies where we have core investments, our holdings are at pre-lockdown levels.”
Kumar added: “As on March 31, 2020, we had 69% and 76% market share in composite first-year premium income and number of policies. In August, the share was 71% and 73% respectively. We shall definitely finish this year with better numbers.”
LIC is seeing progress on three fronts despite the pandemic as it gears up for the IPO. The department of investment and public asset management (Dipam) has finalised Deloitte and SBI Caps as transaction advisers. Additionally, the department of financial services is working on legal amendments required to facilitate the IPO. The corporation has set up a team under a managing director to lead the entire process.
Kumar said, “The second request for proposals would be for an actuarial firm who will help us to determine the embedded value. Once that is in place, the work on valuation will start.” Embedded value refers to the present valuation from future profits — a parameter used by life insurance companies since their expenses are upfront, while income from policies comes over the years. “The valuation will be on several fronts — products, assets & liabilities, investments, and real estate. The totality of all that plus the brand value,” said Kumar.
According to him, the equity profits will make up for a dip in the yields. The bulk of LIC’s investments is in G-secs, with the corporation owning 20% of all outstanding government bonds. For the year, its investment in debt of states and the Centre stands at Rs 1.7 lakh crore, of which central government bonds are Rs 1.2 lakh crore.
According to rating agency Care, the life insurance business has witnessed a fall in Q1FY21 due to the lockdown and business disruption. However, growth seems to be returning in Q2FY21. The industry could return to growth in the second or third quarter of FY21. Overall, the outlook is expected to be stable in the medium term.



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