LIC of India

LIC IPO – Detailed analysis and exquisite guide

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LIC IPO – Detailed analysis and exquisite guide. The union budget presented by finance minister Nirmala Sitharaman on the 1st of February 2020 has proposed an unanticipated decision to go for an Initial Public Offer(IPO) with the public sector insurance behemoth LIC of India. The decision to divest the most trusted insurer and the all-time financial savior of the Government of India has naturally raised the eyebrows of the populace.

Well, let us have a detailed analysis of the implications of the IPO on LIC of India and how it can affect the interests of the policyholders as well.

Initial Public Offer (IPO) is the process by which a business entity going public by the first sale of its stocks to the general public. Public share issuance allows a  company to raise capital from public investors. After IPO the company’s shares are traded in an open market.

The advantages of going public through IPO include…

  1. Increased public image
  2. Facilitate mergers and acquisitions
  3. Higher responsibility to the public
  4. More transparency in corporate administration
  5. Sharing strategic information through periodic reportings
  6. Maintaining shareholder value through corrective measures
  7. Sharing financial gain to the public

History of LIC of India - How it was formed?

Nationalization of  Insurance business in India was done in 1956 by the amalgamation of more than 245 insurance companies and provident fund societies. Life Insurance Corporation of India (LIC ) was formed on 1st September 1956, under LIC Act 1956 with an initial capital of Rs 5 Crores from the Government of India as the one and only Life Insurer in India. 

Later in 2009, the paid-up capital of LIC of India was enhanced to 100 crores by ‘The life Insurance Corporation Amendment bill (2009)’.

The primary objective of the LIC of India was to spread the message of insurance to the nook and corners of India with particular importance to rural areas. To date, LIC has abided to its objective and has become the most trusted brand in India.

Profit-sharing - LIC of India

LIC Paying Dividend to Govt of India 2019
MR Kumar, Chairman, LIC of India presenting the dividend cheque of Rs 2610.74 crore to Nirmala Sitharaman, Union Minister of Finance and Corporate Affairs.

LIC of India is following a unique pattern of profit-sharing since its inception. Every year LIC Shares 95% of its profit with the policyholders in the form of bonuses and pay the remaining 5 % to the Government of India as the dividend. The latest dividend for the year 2019 was 2610.74 crores. Thus LIC of India has shared 26005.38 crores of its profit as dividends to the Govt of India, till 2019.

Details of dividend paid by
LIC to Govt of India
PeriodAmount (in crores).
Cumulative Dividend Paid from 1957 to 31/03/20023055.32

Investments - LIC of India.

LIC which started with an initial capital of 5 crores in 1956 has assets of over Rs. 31,11,847.28 crores. With total investments of 28,01,483 crore in the 13 th five-year plan, LIC is the largest institutional investor in India.

LIC’s Contribution in ‘Five-Year-Plans’
PlanYearInvestment (in crores)

Sovereign Guarantee - Govt Guarantee on benefits from LIC

LIC has the Sovereign Guarantee of Government of India under section 37 of LIC act 1956. As per the act, any amount including Sum Assured and Bonuses which are to be paid by LIC of India to policyholders will be guaranteed by the central government.

Even though of late, LIC has grown to such an extent enough to provide financial stability, even to Govt of India itself,  through its interventions and investments, it still enjoys this sovereign guarantee which is not available for other insurers in the market. 

Section 37 of the Insurance act 1956

37. Policies to be guaranteed by Central Government.—The sums assured by all policies issued by the Corporation including any bonuses declared in respect thereof and, subject to the provisions contained in section 14 the amounts assured by all policies issued by any insurer the liabilities under which have vested in the Corporation under this Act, and all bonuses declared in respect thereof, whether before or after the appointed day, shall be guaranteed as to payment in cash by the Central Government.

How LIC IPO can affect Sovereign Guarantee?

Nirmala Sitharaman

“We are bringing an initial public offering (IPO) of LIC, and not selling it completely. There will be no change in the ownership,”

The finance minister has clearly mentioned that Government will keep the ownership of LIC of India and in no way is intended to touch the sovereign guarantee clause of LIC of India.

Does listing mean privatization?

Listing in the share market cannot be called privatization unless and until the control of the entity is transferred to private investors. If we check the precedence in India, many public sector companies like BHEL, Bharat Petroleum, ITC, Coal India, Cochin Shipyard, GIC, and ONGC are already listed and are still maintained under public sector.

Public sector banks – Govt stake holding
(As of 1st April 2019)
No:Name of BankGovernment Stake
1Bank of Baroda63.74%
2Bank of India87.05%
3Bank of Maharashtra87.01%
4Central Bank of India88.02%
5Indian Overseas Bank91%
6Punjab & Sind Bank79.62%
7State Bank of India61.00%
8UCO Bank93.29%

So as long as the government stake is more than 50 % the company will remain as a public sector company. And it is anybody’s guess that reducing the Govt: stake in LIC to less than 50 % is not likely at all owing to obvious reasons.

They know losing control over LIC will be suicidal, as the insurance behemoth has the potential to bail out even the Government from difficult financial situations, as we have already seen several times in the past.

How listing (LIC IPO) can affect policyholders' benefits?

Indian contract act 1872

Any life insurance policy issued by the LIC of India is based on the Indian Contract Act 1872. At the time of purchase of a policy, the policyholder gets into a contract with LIC which involves an offer and acceptance. The terms and conditions of the contract will be clearly defined in the policy document itself.

The insurance company has the liability to abide by the conditions of the policy even if there is a change in the environment. The bonus and other benefits provided to the policyholder is dependant on the policy conditions and the investment experience only and is independent of the stake percentage of government in the company.

Strict investment guidelines

Even though LIC has been investing huge funds in various sectors and that too in a balanced manner for several years, no one questions its trustworthiness or investment capability. Thanks to the strict investment guidelines and proven multilevel monitoring systems.


Monitoring by IRDA and SEBI

Since inception, IRDA is taking all steps to protect policyholder’s interests with timely interventions. This monitoring system will be active irrespective of the LIC IPO or listing.

With the proposed listing, in addition to IRDA, LIC will be put under an additional scanner of SEBI also. And no need to add, the investment transparency is bound to increase with this additional monitoring system.

LIC IPO - What LIC Chairman has to say

M. R. Kumar

"There is no question of privatization. We will address concerns. Most public sector banks and general insurance companies remain government-owned entities even after listing"

LIC Chairman Mr. M R Kumar has intervened quickly to alleviate the apprehensions of policyholders regarding IPO of LIC. He has clearly stated the following facts on various occasions.

  • IPO should not be seen as privatisation.
  • IPO will not impact employees, customers in any way.
  • Sovereign Guarantee will be retained even after LIC IPO/listing
  • Even though we are not mandated to publish quarterly results we are already doing it to ensure transparency.
  • With the listing, LIC will remain to be transparent as far as investments are concerned. 
  • Even a decade after the privatisation of the Insurance sector, the market share in terms of first premium income and number of policies as of January 2020 end stood at 80% and 77.6% which shows the confidence of the public in LIC of India.

LIC listing - A boon or bane for policyholders?

Life Insurance Corporation is going through an excellent phase as far as business growth is concerned. It was in this year that its new business premium crossed Rs. 1.5 lakh crore in a financial year for the first time, with two more months remaining in the financial year. Further, the market share stands high at 80% in terms of premium.

All these can be attributed to the trust and confidence the public has kept with the insurer. 

Well, the listing of the company may neither bring a positive nor a negative difference to the policyholders overnight. The reason is that LIC is likely to abide by the time tested and proven strategies as far as corporate governance is concerned. 

But the positive note to add is that, even though LIC is transparent to a great extent, the listing can bring in more transparency as there is a chance for the shareholders to monitor the day to day activities from inside, which in turn can add the stability of the corporation in the long run.


Anish L J

Anish L J is a 'Financial Planner' and member of Chartered Insurance Institute(CII), London and Insurance Institute of India. He is also a finance, insurance and software consultant. He thoroughly follows the developments in finance, insurance, and other related sectors.