Proposed IPO of LIC to benefit India’s insurance industry: Fitch

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Published: February 27, 2020 3:30:28 AM

Fitch also believed that relaxing the 49% cap will attract more international companies into the growing Indian market and promote competition.

According to Fitch Ratings, listing of LIC may lead to more foreign interest which could also result in an increase in foreign capital inflows into the industry.

The listing of Life Insurance Corporation of India (LIC) will improve transparency and accountability of the country’s largest insurer and can encourage other insurance players to list their stocks on exchanges, Fitch Ratings said on Wednesday. The rating agency also believes that LIC’s investment decisions will be rationalised, as major investment decisions could be subjected to additional scrutiny and approvals.
The government during the Union Budget had announced its intention to disinvest from LIC by way of an IPO to meet its highest-ever disinvestment target of Rs 2.1 lakh crore.

According to Fitch Ratings, listing of LIC may lead to more foreign interest which could also result in an increase in foreign capital inflows into the industry. Data from Insurance Regulatory and Development Authority of India (Irdai) showed LIC has an market share of 70.02% as on January 2020. New business premiums for LIC in the period between April and January this fiscal stood at Rs 1.50 lakh crore compared with `1.05 lakh crore in previous financial year a growth of 42.85%.

“In addition, we believe that the proposed IPO, once executed, could broaden the insurer’s capital base and improve its regulatory capital position, which was 160% at March end 2019, slightly above the regulatory minimum of 150%,” Fitch said in its report.

However, the government’s intent to list LIC in the next fiscal could see some delay. “We view the procedural and legal bottlenecks in terms of amending certain sections of the LIC Act, conducting independent valuations as well as obtaining regulatory approvals may delay the execution beyond the government’s target deadline of March end 2021,” Fitch Ratings said.

Currently, stocks of HDFC Life, SBI Life and ICICI Prudential Life Insurance in the life insurance industry are listed on exchanges. From the non-life industry, ICICI Lombard GI and New India Assurance are listed on exchanges.

Fitch also believed that relaxing the 49% cap will attract more international companies into the growing Indian market and promote competition. The government has allowed foreign companies to own 100% of insurance intermediary companies, including insurance agents, loss assessors and surveyors.

Fitch said it expected the government to cut its stake only marginally in the insurer in the near term but said it could also gradually reduce the stake further in the long run to meet the minimum public holding public requirement for listed companies.

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