India seeking foreign investors for its state-owned insurance company

The Life Insurance Company recently made its initial public offering. A corporate giant that is as old as the modern Indian state, the company is worth more than US$ 500 billion but only 3 per cent of the Indian population has life insurance.

New Delhi (AsiaNews) – India's largest state-owned insurance company is going public. The Life Insurance Company (LIC) began offering shares this week with an initial public offering (IPO) worth US$ 2.75 billion, a 3.5 per cent stake in the business but also India's largest share sale.

Almost as old as the country, LIC was set up from the merger of 245 private insurance companies; it began issuing life insurance policies in 1956, with a monopoly until the early 2000s.

After 20 years of private competition, LIC’s market share now stands at 66 per cent. The company remains an insurance giant with an asset base that tops US$ 520 billion, more than the GDP of various countries thanks to nearly 280 million policies.

It makes massive investments in government bonds and in the stock market, but has grown thanks to direct sales, and a savings culture developed over the decades.

According to some estimates, out of 100 rupees saved by Indian families, 10 go to LIC. And between 2019 and 2021, its share of household financial savings was greater than that of bank deposits and pension funds.

However, only 3.3 per cent of India’s population has taken out life insurance. Even fewer, only 1 per cent in 2020, have coverage against damages.

In 2019, the difference between the insurance required and actually available was 83 per cent. Growth potential is there, and all insurance companies saw a gradual increase, all except LIC.

According to GlobalData, the state-owned company, despite its leading position, has lost ground to private groups. In 2016-2020, four major insurance companies (HDFC, SBI, ICICI Prudential, Max Life) recorded double-digit growth, LIC did no.

The main reason is the company’s direct, door to door approach, whereas private companies rely more on online sales.

The opposition has criticised the government's decision to sell LIC shares, accusing it of giving away “the family silverware”; for millions, it is their “social safety net”.

The listing was actually postponed due to market volatility resulting from the war in Ukraine; experts believe in fact that LIC offer could have been higher had the timing been different.

Last month, the size of LIC’s offering, which was initially pegged at 5 per cent, was expected to raise US$ 8 billion to finance the government’s debt.

However, certain analysts believe the current offer to be adequate considering that since October 2021 foreign investors have withdrawn nearly US$ 20 billion from India.

Due to rising energy costs and lower growth forecasts, Indian government’s revenues are expected to shrink further. Thus, LIC’s decision to be listed is an attempt to counter the economy’s decline.

Still, although LIC’s growth potential remains high, it must try to keep up with the times in order not to lose more market share to its private sector rivals.