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

Examining the impact of Indias stateowned Life Insurance Corporations IPO Moodys Investors Service on Thursday said that the public issue is credit positive for Indias life insurance sectorLIC IPO which hit the market on Wednesday will remain open till May 9 By 1030 am on Thursday LIC IPO was subscribed 71 per cent Policyholders portion subscribed 214 times staff portion 131 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 portionMoodys 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 internallyWe see the arrival of external shareholders with experience in the insurance industry as a further key benefit of the IPO We believe the presence of foreign stakeholders will bring particular benefits in the areas of capital adequacy financial flexibility and governance standards enhancing LICs credit profile Moodys said in a reportAdditionally their influence could aid operational and distribution efficiencies for example by encouraging LIC whose online distribution is currently limited to its own portal to negotiate wider online distribution agreements with third parties This would support LICs sales growth given the increasing importance of digital distribution in the life industry and the greater geographic reach of online sales it saidHowever these benefits will likely remain somewhat limited until the government sells a larger stake allowing external investors to build a more strategic stake in the company said MoodysAccording to Moodys while LIC complies with the Insurance Regulatory and Development Authority of Indias IRDAIs solvency requirements its capital adequacy is weaker than that of global life insurance peers LICs shareholders equity accounts for less than 1 per cent of total assets compared with for example 49 per cent for Ping An Life Insurance Company of China LtdMoodys said We expect postIPO improvements in LICs operating performance and profitability to drive comparable changes across the wider life insurance sector This is because as Indias dominant life insurer LIC often sets the trend for pricing and policy termsThe countrys privately owned insurers have already been preparing for the prospect of future profitable growth opportunities as premium growth continues alongside the government reforms of stateowned insurers which include LICs IPO In FY 2020 4 of the 24 life insurers raised capital and more such transactions are expected as well as more MampA deals and IPOs These will improve the Indian insurance sectors capital adequacy and financial flexibility in the months aheadMoodys also expects foreign insurers to continue investing in Indias private insurers where the 49 per cent foreign direct investment limit is much higher than the 20 per cent allowed in LIC Many global companies already present in India through joint ventures may increase their ownership stakes in their local affiliatesThe price band of LIC IPO has been fixed at Rs 902949 per share and the government aims to raise over Rs 21000 crore by selling over 2213 crore shares or 35 per cent of its stakeThis story has been sourced from a third party syndicated feed agencies Midday accepts no responsibility or liability for its dependability trustworthiness reliability and data of the text Midday managementmiddaycom reserves the sole right to alter delete or remove without notice the content in its absolute discretion for any reason whatsoever