Upcoming LIC IPO should reward its old policy holders

LIC is the oldest and most influential insurer in the country. After the much-awaited IPO, it is expected to start as the heavyweight in the stock indices. There are now more than half a dozen listed insurers in India, including state-controlled general insurance companies. The listing will give LIC, which has gained at least a four-decade lead over its local competitors, at par with its competitors. The special exemption that it has got since 1956 will end. While competition is going to be the least concern – the key to profitability in insurance is the number of policies managed and maintained over the long term, a clear edge for LIC – arriving at its valuation may be difficult and pose challenges. Can do.

Take for example embedded value, a key metric for insurance companies that is reflected in the value of a business, including the present value of future profits. LIC will have to adapt to market operations without any special exemptions from the government and financial sector regulators. Changes in capital and solvency structures will be required to suit insurance industry norms. The treatment of its bad properties will also take the examination of LIC. Changes to a new regime marked by more disclosures on debt and investment portfolios in a quarter-to-quarter or QSQT reporting environment will take some getting used to. The governance structure will also be closely monitored. Policyholders, and owners, can only benefit from an overall increase in transparency and scrutiny by government, investment and brokerage researchers.

An interesting point is that this is not the first time such a gift is being thought of for unit holders in a state-owned financial company. The finance ministry wanted similar rewards for old unit holders of India’s first mutual fund, the Unit Trust of India (UTI), after being drowned in large-scale fraud in the early 2000s. The depreciated mutual fund’s investments in bluechip stocks were placed in a new fund issued specifically for the purpose, which was then listed. As part of this IPO, the ministry has long wanted to offer shares of the Special Fund to UTI investors. But the idea did not fly away; The government took the easy route of selling shares to institutional investors, missing an opportunity to reward customer or investor loyalty.