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LIC IPO | LIC: Don’t value LIC at par with HDFC Life or SBI Life:


“The macro setup is brilliant for insurance companies to do well in the next two, three years. When interest rates rise, companies like LIC will see very good numbers because they have a lot of fixed rate products and on higher interest rates their long term liability assumptions will change,” says Digant Haria, Co-Partner, GreenEdge Wealth.

You can never time the market, I do not know if this is the kind of market the government would have wanted for the country’s largest ever IPO but with the kind of information that is out there on the DRHP, the kind of numbers that we are talking about, the road shows which had already began earlier, what is your view?
As you rightly said, it is the largest IPO and more than that, it is the largest company. It is the only insurance company which has survived for 60 years and so it has customers who have made money for many years and even got back their money and through generations, people have made investments in these products.

There is a lot of excitement in terms of how big this can be. Insurance in India is an underpenetrated sector and it can grow at 15% CAGR. But the analysts in me say that LIC is a public sector entity and however large it is, there will be a lot of new things which we will come to know in the coming days. A public sector entity which is not listed, will have to meet pretty high standards and whether this company can sail through the higher standards is what will determine how much value will LIC get in its IPO and how much value it can create further for its shareholders.


So what do we do? Of course, the embedded value that has been declared by LIC at more than Rs 5 lakh crore is about 60% plus market share, the largest insurer in the country. But a lot of it is going to have to come down to pricing.
Yes absolutely. It is the largest and everything is fine. We all know a lot of people who have made their careers out of selling insurance policies and for Indians, it has been a savings option. Indians do not like to pay money and never get it back and so in India, insurance is more of a savings product rather than anything else.

Coming back to valuation and pricing, the embedded value of LIC has gone up 10 times in the last six months. That embedded value has gone up from Rs 49,000 crore to almost Rs 5,38,000 crore. It is very difficult to say how this value went up. Also, we have to understand that insurance is a very long life product. If I am selling a policy today, there are two questions which I need to answer – that am I pricing my product correct. What if the person is going to live much longer than what I have assumed and second is what are going to be the interest rates because in India, I am promising an insurance buyer some kind of protection for his life and some kind of investment returns. About 99% of LIC’s products are in this category and there is no linkage to the stock market, there is no ULIP like product.

In the last three years, LIC has hardly…


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