LIC IPO is credit positive for India’s life insurance sector: Moody’s

Examining the impact of India’s state-owned LIC IPO Moody’s Investors Service on Thursday said that the public issue is credit positive for India’s life insurance sector.

LIC IPO, which hit the market on Wednesday, will remain open till May 9. By 10:30 am on Thursday, LIC IPO was subscribed 71 per cent. Policyholders’ portion subscribed 2.14 times, staff portion 1.31 times, retail investors subscribed 65 per cent of their allocated portion, QIBs close 33 per cent and NII lapped up 28 per cent of their portion.

Moody’s said, as a listed company, LIC will face more demanding disclosure requirements, resulting in increased transparency over its operations, and encouraging it to prioritize profitability, underwriting, and risk management. This will, in turn, boost its capacity to generate and grow capital internally.

According to Moody’s, while LIC complies with the Insurance Regulatory and Development Authority of India’s (IRDAI’s) solvency requirements, its capital adequacy is weaker than that of global life insurance peers. LIC’s shareholders’ equity accounts for less than 1 per cent of total assets, compared with, for example, 4.9 per cent for Ping An Life Insurance Company of China, Ltd.

Moody’s said, “We expect post-IPO improvements in LIC’s operating performance and profitability to drive comparable changes across the wider life insurance sector. This is because as India’s dominant life insurer, LIC often sets the trend for pricing and policy terms.”

The country’s privately owned insurers have already been preparing for the prospect of future profitable growth opportunities, as premium growth continues alongside the government reforms of state-owned insurers (which include LIC’s IPO). These will improve the Indian insurance sector’s capital adequacy and financial flexibility in the months ahead.

Many global companies already present in India through joint ventures may increase their ownership stakes in their local affiliates.