The government has filed a draft red herring prospectus with the stock market regulator for selling 5% of its shares in the Life Insurance Corporation (LIC) of India, Department of Investment and Public Asset Management (DIPAM) Secretary Tuhin Kanta Pandey said on Sunday evening.
“The IPO is an 100% OFS (offer for sale) by the Government of India and entails no fresh issue of shares by LIC,” Mr. Pandey said, adding that 31.6 crore shares are on offer representing 5% of the government’s equity in the firm.
As much as 10% of the offer could be reserved for LIC policy holders, as per the regulatory filing, and another 5% of the shares may be reserved for LIC employees. Assuaging policy holders' worries, Mr. Pandey told The Hindu that the sovereign guarantee enshrined in LIC's policies will persist after its shares are listed.
The insurance behemoth, which held investments worth over ₹39.55 lakh crore as on September 30, 2021, has been assigned an embedded value of almost Rs 5.40 lakh crore.
The conclusion of the LIC’s share sale through an initial public offer (IPO) by March 31, is critical for the government to achieve its disinvestment target for this year, even after it was pared down from ₹1.75 lakh crore to ₹78,000 crore.
The filing of the draft red herring prospectus (DRHP) with the Securities Exchange Board of India (SEBI), with all the critical information about LIC’s business operations, is the first regulatory step towards the IPO. SEBI is required to vet the facts stated in the DRHP and recommend changes if required, before giving the share sale a green signal.
“LIC has 66% market share in new business premiums with 283 million policies and 1.35 million agents as of 31st March 21,” noted the DIPAM Secretary, who had earlier assured that listing is expected to be completed this year itself.
Death claims shot up after COVID-19
Listing the COVID-19 pandemic as a key risk factor for the insurer’s business, the DRHP said that LIC’s death claims have increased during the pandemic and were particularly high in the first six months of 2021-22, coinciding with the second wave.
Net benefits paid out on insurance claims for death stood at ₹17,527 crore or 6.86% of total claims in 2019-20, but the onset of the pandemic pushed those numbers up to ₹23,926 crore and 8.3% in 2020-21. The first six months of 2021-22 alone, however, recorded a net death benefits outgo of ₹21,734 crore, accounting for 14.5% of LIC’s total claims.
LIC said it had created a separate mortality reserve for COVID-19, amounting to ₹2,344 crore in 2020-21 and ₹7,419 crore in 2021-22.