The Time Press

Lifestyle changes for LIC before migration

The filing of papers for the listing of Life Insurance Corporation of India (LIC) caps a couple of years of regulatory realignment. But it leaves a few questions unanswered for investors. How will LIC‘s business be affected when it redistributes policyholders’ profits among shareholders? And how will shareholder scrutiny transform its management? Some of LIC’s monopolistic protections like the sovereign guarantee to policyholders remain in place, while others such as the proportion of profits returned to them are being diluted. GoI is retaining LIC’s unique business proposition to offset market-dictated profit redistribution. The value investors place on the insurer critically depends on how a financial ballast reacts to its new place in the market.

GoI has tweaked LIC’s governance structure, but it still lags evolving market requirements. Its holdings, too, are optimised from the government’s perspective, but the market will want to see them realigned to its expectations over time. LIC will have to eventually operate within rules framed by the insurance and stock market regulators. The insurer is the biggest channel for household savings into the stock market and it should ideally conform to the regulatory superstructure. GoI would do well to communicate a schedule for the migration. The insurer will, in turn, need to provide its shareholders a timeline for divestment of struggling assets such as IDBI Bank that were acquired at the behest of the government.

LIC’s dominance of the insurance business will buy it time. But its monopolistic defences will erode. The biggest listing in India’s history could offer GoI a validation of its privatisation drive and spur sales of other state-owned enterprises. By broadening the pool of retail investors in LIC’s initial public offering (IPO), GoI could revive a stalled disinvestment programme that is affecting its fiscal space during a phase of heavy spending to ride out a global health crisis. There is a lot riding on LIC’s market debut as capital markets turn turbulent.

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