New foreign shareholders in LIC will not only improve capital adequacy and financial flexibility but also enhance’s LIC’s operational and distribution efficiences by pushing for a wider online distribution network.
“As a listed company with external shareholders, we expect LIC to tighten its underwriting standards and improve its risk management and governance, which should contribute to a stronger financial profile.
Given its dominant and market trend setting position, these enhancements at LIC will likely drive similar improvements across the wider Indian life insurances sector, a credit positive,” Moody’s said.
The government has put 3.5% out of its 100% in LIC on the block through this IPO which began subscription on May 4 and closes on May 9.
It expects to garner Rs 21,000 crore through the share sale, the largest from India through an IPO. Already Rs 5630 crore has been raised from large institutional investors dominated by local mutual funds. Foreign institutional investors include GIC of Singapore, BNP Paribas and a Norwegian pension fund. Foreign investors could ultimately own upto 20% of LIC shares, Moody’s said.
The presence of foreign investors could support LIC’s sales growth, given the increasing importance of digital distribution in the life industry, and the greater geographic reach of online sales. “However, these benefits will likely remain somewhat limited until the government sells a larger stake, allowing external investors to build a more strategic stake in the company,” Moody’s said.
India’s life insurance sector generated new business premiums of Rs 3.1 lakh crore in the fiscal year ended March 2022, bringing its five year compound annual growth rate (CAGR) to a strong 17.8%.
Moody’s expects sustained premium growth for India’s insurance industry, driven by continued economic expansion and rising demand for health and life protection products and low rate of premiums as a percentage of GDP compared to developed markets such as the UK and the US and also below large developing markets such as China.
LIC’s market share has fallen to 63% in fiscal ended March 2021 from 71% in March 2016. But Moody’s expects post-IPO improvements in LIC’s operating performance and profitability to drive comparable changes across the wider life insurance sector.
“This is because as India’s dominant life insurer, LIC often sets the trend for pricing and policy terms…We also expect foreign insurers to continue investing in India’s private insurers where the 49% foreign direct investment limit is much higher than the 20% allowed in LIC. Many global companies already present in India through joint ventures may increase their ownership stakes in their local affiliates,” Moody’s said.
