Government-owned insurer Life Insurance Corporation of India (LIC) filed its draft red herring prospectus (DRHP) with the Securities and Exchange Board of India (SEBI) on Sunday, February 13, for its mega initial public offering (IPO).

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LIC IPO will be entirely an offer for sale (OFS) by the promoter — the government of India. According to the DRHP, the LIC is looking to sell the government's 5 percent equity stake in the company in the upcoming IPO.

The government will offload 316 million equity shares to investors through the IPO, out of the 6.32 billion equity shares outstanding.

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Here are some of the key risks and uncertainties LIC mentioned in the DRHP:

The COVID-19 pandemic could adversely affect all aspects of the business, including restricting the ability of agents to sell products, significantly increasing expenses due to changes in regulations, adversely affecting investment portfolio or operational effectiveness, and heightening the risks in business.

Any unfavourable publicity could adversely affect the brand name, business, financial condition, results of operations, and cash flows.

Any adverse persistency metrics or variation in persistency metrics could hit the corporation's financial condition, operations, and cash flows.

The segregation of the corporation's life fund into a participating policyholders' fund and a non-participating policyholders' fund, effective September 30, 2021, may affect business, financial condition, results of operations and cash flows.

If actual claims experienced and other parameters are different from the assumptions used in pricing the products and setting reserves for the products, it could have a material adverse effect on business, financial condition and results of operations.

Interest rate fluctuations may materially and adversely affect the profitability of the company.

There is significant technical complexity involved in embedded value calculations. The estimates used in the embedded value reports could vary materially if key assumptions are changed or if experience differs from assumptions used to calculate Indian Embedded Value.

A significant proportion of the corporation's total new business premiums are generated by participating products and single-premium products. Any regulatory changes or market developments that adversely affect sales of such products will adversely affect business, financial condition, results of operations and cash flows.

The risk management policies, procedures and internal controls, and the risk management tools available to the company may not be adequate or effective.

The corporation is a domestic systemically important insurer and a financial conglomerate, which subjects the corporation to enhanced regulatory supervision measures.

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First Published:Feb 13, 2022 8:51 PM IST