Page 11 - The Insurance Times October 2021

September 2, 2021, Bank of India said ning campaigns to raise concerns about and EV multiple at which LIC shares
in a regulatory filing. the share sale, Kumar said. could be offered.
Before the latest acquisition of shares According to Sathe, the corporation's
in the bank, LIC held over a 3.17 per LIC's asset base goes past valuation would be influenced by the
cent stake in the state-owned bank. Rs. 38lakh crore in fiscal extent of contribution from single pre-
The bank said that LIC's stake in Bank mium policies to its assets under man-
of India has now increased to 7.05 per 2021 agement (AUM) that would determine

cent, equivalent to 28,92,87,324 LIC of India has said that its asset base valuation. According to numbers re-
shares. has crossed Rs 38 lakh crore with total leased by LIC, its asset base has
As per Sebi regulations on substantial investments of Rs 36,76,170 crore and crossed Rs 38 lakh crore which is more
acquisition of shares and takeovers, com- a life fund of Rs 34,36,686 crore as of than 15 times the AUM of the top pri-
panies have to inform the stock ex- March 2021. vate life companies like HDFC Life or
changes when an entity holds more than According to its balance sheet for the ICICI Prudential.
5 per cent shares in a listed company. previous fiscal ended March 2020, the "Taking into consideration the AUM, if
corporation's total assets stood at just we think its embedded value will be 15-
LIC IPO may result in job under Rs 32 lakh crore, total invest- 20 times of private listed companies it
losses: Staff union ments at Rs 30.7 lakh crore and its life will be wrong because the calculation
fund at Rs 31.1 lakh crore. of embedded value is based on the ac-
The mega initial public offering of LIC tuarial calculation, which takes into
could result in job losses and impact the LIC shared its balance sheet numbers account present value of future ben-
company's social infrastructure spend- ahead of its foundation day on Septem- efits," said Sathe while speaking at an
ing plans, according to one of its larg- ber 1, which marks its 66th anniver- event recently. "Since single premium
est trade unions. sary. The balance sheet numbers pro-
vide some insights into the value of the policies have less EV (present value of
Life Insurance Corp. "was formed to IPO-bound corporation. However, a future benefits) and it reduces profit-
provide insurance to rural and social clear indication will be available only ability, private insurers are reluctant
and economically backward people," to do single premium policies," he said.
after it reveals the embedded value of
Rajesh Kumar, general secretary of All
its business.
India LIC Employees' Federation, said Markets, not promoters,
in an interview with Bloomberg TV. The The expansion in the balance sheet in
company, which has been funding capi- the pandemic year FY21 occurred on to bring capital to insurers
tal-intensive infrastructure projects the back of a 3.5% growth in new busi- The Indian insurance industry is mov-
such as roads, railways and power for ness (first-year premium) with a collec- ing from being a promoter-driven to a
more than six decades, may instead tion of Rs 1.8 lakh crore premium from market-led one with the capital mar-
focus on "profit-maximizing invest- 2.1 crore new policies. kets becoming a dominant source of
ments" after the IPO, Kumar said. funding, a finance ministry official said.
Private companies can't The listing of LIC would result in listed
Prime Minister Narendra Modi's gov-
ernment is looking to dilute as much as be used as benchmark to entities accounting for 60% of the in-
10% stake in LIC as part of a broader surance business.
divestment target to help plug a wid- value LIC Amit Agarwal, additional secretary in
ening budget gap. The sale, which is Valuations of listed private life insurers the finance ministry said: "We have for
set to be the country's biggest, could cannot be a basis for the valuation of the first time an opportunity to attract
value the company at as much as $261 LIC, according to former IRDA member and leverage large amounts of risk
billion, surpassing Reliance Industries Nilesh Sathe. capital, in a traditionally capital scarce
Ltd., according to analysts at Jefferies With the government appointing mer- economy for enabling faster growth in
India. chant bankers for what is likely to be the risk intensive insurance sector.
The trade union, which represents the largest government divestment Agarwal said that in the two decades
about 4,000 of LIC's roughly 114,000 and largest IPO, there is speculation on after opening up the industry has ma-
employees, has written to the prime LIC's valuation. Many have used the tured with 69 insurers as against eight
minister and members of Parliament private sector listed companies or SBI in 2,000 and a majority have achieved
to protest about the listing and is plan- Life as a proxy for embedded value (EV) break-even.

The Insurance Times, October 2021 11