Ahead of IPO, LIC reveals Q3 results; profit rises to ₹235 cr

Insurance behemoth Life Insurance Corp. (LIC) has released its financial results for the December quarter (Q3FY22), ahead of its planned IPO. According to the insurer's website, net profit rose to ₹235 crore in the third quarter as against a meagre ₹94 lakh in the same period last year.

Similarly, net profit for the nine months period ended December surged to ₹1,643 crore from ₹7 crore a year ago.

The sharp jump in LIC profit is largely due to the change in the surplus distribution model. The LIC Act has been amended to bring its surplus distribution model at par with private life insurers.

Before the amendment, the LIC had a single 'Life Fund'. Now it has been segregated into two. One is known as participating policyholders' fund, while the other is called non-participating policyholders' fund.

The surplus generated under the participating policyholders' fund will be divided between policyholders and shareholders in a ratio of 90:10, wherein 90% will go to the policyholders and the remaining 10% to the shareholders.

In the case of non-participating policyholders' fund, 100% of the surplus will go to the shareholders.

Total premiums collected during the reporting quarter came in at ₹97,761 crore as against ₹97,008 crore a year earlier.

First year premiums during the third quarter surged 10% year-on-year to ₹8,748 crore. It was ₹7,957 crore in the corresponding quarter of last year.

Capital markets regulator has recently approved LIC initial public offering (IPO) worth about ₹63,000 crore. However, the government is planning to delay the issue in the wake of Russia-Ukraine conflict. But there has been no formal announcement of the deal being delayed.

The government has plans to sell 5% of LIC and the IPO will be completely an offer for sale no fresh equity will be issued, according to the offer documents.

LIC's embedded value, which is a measure of the consolidated shareholders' value in an insurance company, has been pegged at about ₹5.4 lakh crore as of September 30, 2021, by international actuarial firm Milliman Advisors.

Although the DRHP does not disclose the market valuation of LIC, as per industry standards, it would be about 3 times the embedded value or around ₹16 lakh crore.

The LIC IPO would be the biggest IPO in the history of Indian stock market and once listed, LIC's market valuation would be comparable to top companies like RIL and TCS. So far, the amount mobilised from IPO of Paytm in 2021 was the largest ever at ₹18,300 crore, followed by Coal India (2010) at nearly ₹15,500 crore and Reliance Power (2008) at ₹11,700 crore.

As per norms, up to 5% of the issue size can be reserved for employees and up to 10% for policyholders. The IPO of LIC is expected by March and the proceeds would be crucial to meet the revised disinvestment target of ₹78,000 crore for the current fiscal year.