Government seeks valuer for LIC, listing likely in FY22

Stepping up the preparatory work for the proposed listing of Life Insurance Corporation (LIC) in FY22, the Department of Investment and Public Asset Management (DIPAM) has invited proposals from actuarial firms to estimate an Indian embedded value (IEV) of the insurer. The last date for submission of request for proposal is December 8.

According to a statement issued by the government, the selected firm would require to work with the appointed actuaries and LIC to mutually agree on an appropriate methodology to be used in the calculations of IEV and then determine the IEV. It will prepare IEV comprising adjusted net worth and value of in-force business, as on March 31, 2021.

The actuarial firm shall have to review various operating experience studies of LIC and accordingly set suitable assumptions to be used in the calculations of IEV in discussion with appointed actuaries/management of LIC, the government said.

The LIC IPO, which was planned in this fiscal, won’t materialise in FY21 owing to tardy progress in preparations and paucity of time to complete formalities. Selling a 10% stake in LIC was crucial for the government to meet the FY21 disinvestment target of Rs 2.1 lakh crore. Without the LIC IPO, the disinvestment receipts could at best be around Rs 1 lakh crore, even assuming the much-delayed BPCL stake sale gets completed by March 31.

In the Budget speech of 2020-21, finance minister Nirmala Sitharaman said: “Listing of companies on the stock exchanges discipline a company and provides access to financial markets and unlocks its value. It also gives opportunity for retail investors to participate in the wealth so created. The government now proposes to sell a part of its holding in LIC by way of initial public offer (IPO).”

Independent valuation firm RBSA Advisors had estimated LIC’s worth in the range of Rs 9.90 lakh crore to Rs 11.50 lakh crore. This valuation was on the basis of market capitalisation as a percentage of assets under management (AUM). RBSA said the reasonable range for valuation of LIC could be between 30% and 35% of AUM, much lower than in the cases of SBI Life, HDFC Life and others.

In September, PTI quoted LIC managing director Raj Kumar as saying that the insurer had made a profit of Rs 13,000 crore from its equity portfolio till August this year. “The insurer has collected about Rs 87,300 crore of renewable premium till August this (fiscal) year, registering a growth of 13.5% over the same period of the last fiscal,” he said.