LIC IPO: Investors are eagerly waiting to get their hands on a piece of India’s largest life insurance company, which is about to launch the country’s biggest initial public offering (IPO). More than that, the IPO is special for the 29 crore policyholders of the life insurer, who would be getting a preference on the shares.

The insurance company was established as Life Insurance Corporation of India on September 1, 1956, under the Life Insurance Corporation Act. It has the largest home market share in the world with over 64.1 percent of the total gross written premium as of 2020, according to a report by rating agency Crisil. It also globally the third-largest in terms of life insurance premium.

Here is a SWOT (strength, weaknesses, opportunity, and threat) analysis of things to know for policyholders who may want to subscribe to Life Insurance Corporation’s upcoming IPO.

Key Strengths

LIC IPO: Key Products

The insurance firm offers a wide range of products and services. Life insurer provides cover against mortality (death) and morbidity risks (illness), apart from savings products. The range of products includes term assurance, annuities, endowments, pension plans and unit-linked saving plans (ULIPs) to suit varying needs.

LIC IPO: Growth Prospects

It has a slew of investments throughout companies — private and public — that allows the company to grow organically while providing them with capital support. It has two subsidiaries and four associate companies that look after its pension fund, housing finance, mutual fund, banking, and cards business. LIC has the strongest network of agents in the country. As of March 2021, it had over 13.5 lakh agents across the country.

LIC IPO: No Loan Default

LIC has not availed of any term loans and/or other credit facilities and, accordingly, there have not been any defaults or rescheduling/ re-structuring of borrowings from financial institutions or banks, the DRHP said.

LIC IPO: Return on equity (RoE)

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LIC offers the highest return on equity at 82 per cent, according to Crisil’s report.

LIC IPO: Agent network

LIC has an enormous agent network of 1.35 million individual agents as of March 2021 accounting for 55 percent of the total agent network in the country and was 7.2 times the numbers of agents of the second-largest life insurer SBI Life has, the report said

LIC IPO: Competetive Insurance Industry

Life insurance is a competitive industry. Despite LIC being a market leader, private companies compete with LIC in terms of better service. Moreover, the report said, “The company lacks in giving proper service to their customers due to their traditional way of doing business.”

LIC is also one of the largest employers in the country and shouldering this responsibility of enabling employment, it rarely invests in technology to improve its efficiency. Plus, the government often intervenes in the business where “maximum growth and income is involved,” the IIFL report said. This affects the “decision making and utilisation of its resources.” As compared with private players, LIC’s expenditure on advertisement is low, as shown by the “quality of ads and content they create.”

What are the Major Limitations?

“LIC has to abide by the rules and regulations laid down by the government. This puts limitations on the growth of the company,” the IIFL report stated, adding that the company has invested in many loss-making companies in the past due to policies laid by the government.

LIC restricts its chances of catering to the young urban population by following traditional methods. They do not have a liberty “to garner new technologies and means of distribution,” it said.

LIC IPO: Competition

LIC is a market leader but of late the firm has lost 5 percent market share, i.e. 500 basis points to the private life insurance industry in the first 10 months of FY22. A brokerage report by IIFL Securities earlier pointed to better service provided by private companies as against LIC’s traditional way of doing business

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LIC IPO: Pandemic

The COVID-19 pandemic could adversely affect the ability of agents to sell products, increase expenses due to changes in laws and regulations, affect investment portfolio, affect operational effectiveness and/or heightening the risks in business.

LIC IPO: Persistency ratio

The ratio reflects the number of policyholders who paid their renewal premium and is seen as an indicator of quality of sale as well as future growth. LIC’s persistency ratios decreased as of March 31, 2020, according to the DRHP.

Opportunity

LIC IPO: Scope

According to a Crisil report, the scope for LIC is very high given the $16.5 trillion protection gap in India as of 2019, which was much higher compared with its Asian counterparts. This protection gap was 83 percent as of 2019, the highest amongst all countries in Asia-Pacific.

LIC IPO: Technology Initiatives

LIC has come up with several digital solutions but not as many as it private sector peers. An IIFL report suggests the company exploit advanced technologies such as blockchain and artificial intelligence to improve the business on a greater scale.

LIC IPO: New-age customers

The report advised LIC to spend heavily on advertising and marketing to create new product offerings and cater to new-age customers.

Major Threats

LIC IPO: Assumptions may not materialise

If actual claims experienced and other parameters are different from the assumptions used in pricing the products and setting reserves for the products, it could have a material adverse effect on business, financial condition and results of operations, LIC said in its DRHP.

LIC IPO: Interest rate

The fluctuations in interest rates may materially and adversely affect the profitability of the company.

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