LIC’s business plan will change after IPO, threat to private companies – Report

Even 21 years after the introduction of liberalization policies in the country, LIC has a market share of 66 per cent in the new insurance policy business.

LIC’s stake in individual business is 43 percent

Public Sector Company Life Insurance Corporation of India (LIC IPO) its initial public offering (IPO) is going to bring. LIC can give a tough challenge to private insurance companies in the coming times by turning its business in the direction of non-participating policy. This possibility has been expressed in a report prepared by Swiss brokerage firm Credit Suisse after analyzing the application details filed with markets regulator SEBI for approval of the IPO. The report says that the biggest impact of LIC’s change in business prominence is SBI Life (SBI Life), ICICI Prudential (ICICI Prudential), HDFC Life (HDFC Life) and life insurance companies like Max Life.

According to the report, LIC has already improved its margin by 7 per cent to 9.9 per cent. The government has eased the way for LIC to increase its margins by making changes in the surplus and profit distribution rules. Due to this, LIC will be able to give 10 percent space to non-participating policies along with partner policies in its business, which is only 4 percent at present. With this, LIC can take its margin up to 20 percent.

Insurance business of LIC will be transferred on new surplus distribution

This estimate by Credit Suisse is based on the assumption that LIC’s insurance business will shift completely to the new surplus distribution. At present the non-participating policy is 100% and the participating policy is 10%.

Under participating insurance policies, both guaranteed and unguaranteed benefits are given to the policyholders in the form of bonus or dividend distribution. Whereas, in non-participating policies, the policyholder usually gets guaranteed benefits but they are not paid profits or dividends.

At present, only 4% of LIC’s new business premium comes from non-participating policies. In contrast, this ratio of top private sector insurance companies ranges from 20 to 45 percent.

The report says that LIC’s non-participating policy margin is higher than its own participating policy business and private companies are also behind it in this regard.

LIC’s stake in individual business is 43 percent

LIC has a market share of 43 per cent in the individual business. Its filing highlights how its profitability has become uncontrollable post demutualisation, in which its embedded value (EV) has increased by 5x to Rs 5.4 lakh crore due to its shareholder interest in surplus from non-participating funds. 14.6 lakh crore, which is 37 per cent of its AUM.

Even 21 years after the introduction of liberalization policies in the country, LIC has a market share of 66 per cent in the new insurance policy business. Its huge status can be gauged from the fact that it has 16 times more assets under management than the second-ranked company after LIC.

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