State-run insurer Life Insurance Corporation’s (LIC) top management, along with senior government officials, have had meetings with investors starting June 2023. The US leg of the international roadshows have just concluded, and the ones in Singapore, Hong Kong and the UK rounds are still due.

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Government sources told CNBC-TV18 that these are "non-deal" roadshows and the plan is to help the insurance giant communicate with a wider set of investors, as the insurance giant turned a year old in the Indian stock market, and in that time, the LIC share price has lost a third of its value compared to the issue price of Rs 949 apiece. The emphasis on "non-deal" is meant to assure the street that there won't be another stake sale, or fresh issue of shares, at least not any time soon, contrary to the market murmurs.

'No hurry at all for LIC FPO'

In theory, when new shares hit the market, the value of existing shares go down due to increased supply. In fact, DIPAM Secretary Tuhin Kanta Pandey, in an exclusive chat with CNBCTV18, on June 2 had said that the government is “in no hurry to bring a follow-on public offer (FPO) for LIC".

Now, government sources have reiterated the same after media reports speculated that the current roadshows will be followed by another round of stake sale by the government.

However, government sources insist that the meetings with the investors are meant to improve the perception about the company, which may lost significant market share in the last few years but still accounted for 63% of the new business premiums in the financial year ending March 2023.

“There should be a broader understanding of strengths of LIC . LIC management is engaging with wider set of investors . The Corporation is very clear about its earnings, earnings have been fabulous and they are working to increase their market share , making a qualitative change to portfolio . Next few quarters are important for LIC,“ Pandey had said in an interview with CNBC-TV18 on June 2.

In the corporate presentation to the investors, the insurer has listed three initiatives to improve its business: a wide bouquet of products with new product launches , focus on increasing the share of non-participating policies, and expanding other channels of distribution like bancassurance and through digital platforms.

What is a non-participating policy?

Let's understand why LIC wants to sell more non-participating insurance policies. Non-participating plans or non-par policies do not provide any dividend benefits or payouts based on the company's profit in any given year. So, a rise in proportion of participating insurance policies may squeeze the profit margin and a reduction in sale of such policies will help profitability.

Currently, over 94 percent of all its policies are participatory, and nearly two out of every three rupees earned in premiums, by LIC, come from such policies. Whereas, in the case of privately-owned companies like HDFC Life, ICICI Prudential and Bajaj Finserv, the proportion of participating policies ranges anywhere between 5 percent and 20 percent, according to a June 2023 report by investment advisory firm Ambit.

"LIC has scope for margin expansion over the medium term. But we expect LIC’s margins to peak at 21 percent and may not match 28-30 percent margins of private peers," Ambit said. The report also highlighted that LIC has also been less competitive with its pricing. LIC's term insurance pricing is nearly double that of private life insurers, the report highlighted.

The other big factors holding back the LIC share price

LIC's private peers like HDFC Life and ICIC Prudential, which are backed by the country's two biggest private banks and their aggressive sales force. On the other hand, LIC has to rely on the less-efficient, and relatively docile workforce of state-owned banks.

The private banks also own a stake in the life insurance units and that serves as enough incentive for them to push the products on behalf of their sister concerns. Whereas, the only way LIC can incentivise its sales force, or the partner banks, is by increasing the rate of commission, which would eat into the company's profit.

So, while the nearly one in three (32 percent to be specific) individual life insurance policies sold in India goes through the banks, LIC's share of sales via banks as a channel stands at just 3 percent. 96 percent of the new business premium from life insurance policies sold to individuals still goes through its agents, which is an enviable network of 1.3 million people, more than the number of feet on the ground (1.28 million) for all other peer companies put together.

While the government ownership of LIC casts a shadow on its performance in many ways including, but not limited to, pressures to serve low-margin rural customers a lot more than its private peers may care to, or to rescue a not so success disinvestment programme, it also gives the company certain advantages.

The biggest feather in the cap for LIC is its nearly five-decade long history, in a country where only four in every 100 people have any kind of insurance. Yet, LIC is a household name in India. Kantar Brand Z, a consumer insights firm, valued brand LIC at $12 billion in 2022 whereas none of the insurer's peer brands were worth more than $3 billion.

This is one of the biggest reasons why the initial public offering by LIC was a hit from the word go. The Rs 21,000 crore share sale by the Indian government in May last year, the biggest IPO by any Indian company ever, got bids for three times the number of shares on offer.

However, the excitement fizzled out soon after the listing and the shareholders are waiting for their investment to yield profits. The government, which still owns 96.5% stake in the company, will also benefit if the shares gain value. The officials hope that large global investors buy their argument that LIC is worth a lot more than what the market is paying for it right now.

First Published:Jun 22, 2023 12:22 PM IST