Friday, June 11, 2021

LIC Shows Unique Capability in the Run Up to Mega IPO

M.R. Kumar, Chairman, LIC of India

A pandemic of Covid-19 scale leaves no business untouched. And a ‘Second Wave’ like how it happened in India, starting from March-April rattled most sectors to their core. And life insurance companies were no exception, as new policies and recurring premium payments take a direct hit during lockdowns.

That is why the May numbers from all the life insurers were keenly awaited by the market. Most analysts expected life insurers to take a major hit in May, as it was the month in which both Covid+ cases and deaths due to it peaked in the country beyond even the wildest projections.

The May life insurance figures, especially the sequential or month-on-month figures over April, were expected to be poor. And the numbers were indeed poor when it was published recently. The number of policies sold by all life insurers combined, declined 13.69% in May over the previous month.

This may make anyone jump into the conclusion that the largest player – LIC of India – was the worst performer, contributing the maximum to this slide. After all, LIC accounts for more than 75% of life policies in this country.

But believe it or not, it was just the reverse that was witnessed in May! The industry slump of 13.69% in the number of new policies sold in May was despite LIC performing spectacularly in two of its core segments – with 114% growth in Group Single Premium and 20% jump in Group Non-Single Premium policies. In other words, it was LIC’s singularly powerful performance that has limited the industry’s slide to just 13.69%.

When we move from the number of new policies to the total new business premium collected from these policies, LIC’s performance in May is even stronger. The public sector insurer’s Group Single premiums surged 158% in May, while its Group Non-Single premiums soared 445%. 

In sharp contrast, private insurers saw their premiums fall 20.19% over the previous month to Rs 4,029.34 crore in May. LIC’s new business premium jumped 106.31% to Rs 8,947.64 crore.

The key takeaway from the May numbers is not the sheer size of LIC, which is more than double of all the private life insurers combined, but the fact that LIC has the resilience and agility to perform powerfully even under extremely stressful situations like the pandemic’s second wave.

This is a strength that will keep LIC in a higher orbit, than the rest of the industry, when it goes for its IPO, which is expected to happen in the second half of this fiscal. Because, it is good to perform well when everything is going well, but it is great to perform well when nothing is going well. Markets recognize this ability and reward it too by way of superior valuations.

In another recent development, LIC Chairman M.R. Kumar’s tenure was extended by almost 9 months by the Union Government. This is widely thought to be due to the central role he has been playing in leading the country’s largest ever IPO, and to ensure continuity in this eventful period for the country’s largest life insurer.

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