Department of Investment and Public Asset Management (DIPAM) Secretary Tuhin Kanta Pandey said on Sunday evening that the government has filed a draft red herring prospectus with the stock market regulator for selling its 5% shares in Life Insurance Corporation of India (LIC). ,
“The IPO is 100% OFS (Offer for Sale) by the Government of India and there is no fresh issue of shares by LIC,” said Mr. Pandey, adding that 31.6 crore shares are on offer representing 5% of the government’s equity. Firm.
As per regulatory filings, 10% of the offer can be reserved for LIC policy holders, and another 5% shares can be reserved for LIC employees. Allaying the concerns of the policy holders, Mr. Pandey told The Hindu that the sovereign guarantee implied in the policies of LIC will continue after the listing of its shares.
The insurance giant, which had an investment of over Rs 39.55 lakh crore as of September 30, 2021, has been assigned an embedded value of around Rs 5.40 lakh crore.
The conclusion of LIC’s share sale, through an initial public offering (IPO) by March 31, is crucial for the government to achieve its disinvestment target for this year, even if it is cut from ₹1.75 lakh crore to ₹78,000 crore. was done.
The filing of the Draft Red Herring Prospectus (DRHP) with the Securities Exchange Board of India (SEBI), containing all the important information about LIC’s business operations, is the first regulatory step towards an IPO. Before giving green light to the share sale, SEBI should examine the facts stated in the DRHP and recommend changes, if necessary.
“LIC has 66% market share in new business premium with 283 million policies and 1.35 million agents as on March 21,” the DIPAM secretary said.
Surge in death claims after COVID-19
Listing the COVID-19 pandemic as a major risk factor for the insurer’s business, the DRHP said there has been an increase in LIC’s death claims during the pandemic and especially in the first six months of 2021-22. There were highs coinciding with the wave.
The net profit paid on insurance claims for death was ₹17,527 crore or 6.86% of the total claims in 2019-20, but the onset of the pandemic pushed those numbers up to ₹23,926 crore in 2020-21 and 8.3%. In the first six months of 2021-22 alone, a net death benefit of ₹21,734 crore was recorded, accounting for 14.5% of LIC’s total claims.
LIC said it has created a separate mortality reserve for COVID-19, which stands at ₹2,344 crore in 2020-21 and ₹7,419 crore in 2021-22.