The listing of Life Corporation of India (LIC) is not a new idea, but previous governments had not gone ahead with it because of the large size and the complexity involved. With over two-third market share, LIC has remained unscathed from private sector competition in the last two decades. In fact, the LIC has expanded and switched to new product categories such as unit linked insurance plans (ULIPs) without any hassle. For decades, the government has used the LIC for funds and bailing out public sector enterprises. But a listing on the stock exchanges would open uncomfortable new fronts for the LIC.
Public scrutiny
Like RBI, the LIC is also the last resort lender for the government. Be it ONGC's offer for sale to public or rescuing public sector banks, the LIC has invested without any protest in the past. The corporation even ended up picking a majority stake in the IDBI Bank. The corporation has substantial stake in many PSBs and other companies like NHAI, Railways. Post listing, public scrutiny would increase manifold.
Strict compliance culture
Stock exchanges follow a strict compliance culture of quarterly results as well as sharing price sensitive information with public via stock exchanges. The quarterly public disclosure are already part of IRDAI , but the sharing of price sensitive information would create a compliance burden.
Valuation
The biggest question is how to value the LIC. It cannot be valued based on the new business premium method as the corporation has a large renewal business. It earns a premium of over Rs 2 lakh crore in policy renewals. Similarly, the embedded value method would involve valuation of its traditional business, real estate properties and agents workforce.
Complexity
The corporation has a large asset size nearing Rs 36 lakh crore, which is as big as the country's largest bank the State Bank of India (SBI). In fact, the LIC has 11,280 branches, 21.94 lakh agents workforce and some 2.85 lakh employees. While the new private sector insurance companies are easy to value, the LIC has a large presence in traditional products. The corporation also owns real estate across the country. The investment portfolio of the corporation is also wide from investment in G-Sec, supporting infrastructure investments and loans to corporate sector.
Loan policy
The LIC's NPAs in the corporate loan market mirrors the losses of public sector banks. Many default cases of the corporation are in the bankruptcy code. Just like banks, which face questions and enquiries, the LIC's credit assessment policy will also come under public scrutiny with the listing. Investors and analysts would certainly have more questions for the management.
LIC Act
The LIC is governed by the LIC Act. There will be many laws which will be in conflict with the Companies Act and other disclosure norms. For example, the LIC Act talks about a paid up capital of just Rs 5 crore. A thorough examination of the LIC Act would be the first step towards listing of the corporation.
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