LIC IPO: The challenges for Milliman to calculate 'embedded value'
Milliman, which is among the world's largest providers of actuarial services, has got the mandate to compute the embedded value (EV) of the LIC, which is a key valuation metric for life insurance companies
- Jan 5, 2021,
- Updated Jan 5, 2021 2:52 PM IST
The government has kicked off the process of discovering the IPO price of the 64-year-old Life Insurance Corporation (LIC) by appointing actuarial firm Milliman Advisors. Milliman, which is among the world's largest providers of actuarial services, has got the mandate to compute the embedded value (EV) of the LIC, which is a key valuation metric for life insurance companies. The lenders like banks and NBFCs are valued in the stock market as a multiple of their book value (BV).
Investment companies like mutual funds are valued as a multiple of their AUMs. Similarly, the life insurance companies are valued at a multiple of their EVs. Currently, LIC is exempted from disclosing its EV. In fact, the EV calculation would mean a comprehensive exercise because of its legacy assets. Since LIC is also vastly different from private life insurance companies in terms of ownership structure, product mix, profitability sharing structure, agency model, there is a tough task ahead for the global actuarial firm.
Let's look at the key issues:
The government has kicked off the process of discovering the IPO price of the 64-year-old Life Insurance Corporation (LIC) by appointing actuarial firm Milliman Advisors. Milliman, which is among the world's largest providers of actuarial services, has got the mandate to compute the embedded value (EV) of the LIC, which is a key valuation metric for life insurance companies. The lenders like banks and NBFCs are valued in the stock market as a multiple of their book value (BV).
Investment companies like mutual funds are valued as a multiple of their AUMs. Similarly, the life insurance companies are valued at a multiple of their EVs. Currently, LIC is exempted from disclosing its EV. In fact, the EV calculation would mean a comprehensive exercise because of its legacy assets. Since LIC is also vastly different from private life insurance companies in terms of ownership structure, product mix, profitability sharing structure, agency model, there is a tough task ahead for the global actuarial firm.
Let's look at the key issues: