Case Study on

Group 4

Problem definition
Can LIC remain financially stable considering its significant investments in Govt bonds and PSUs
LICs AUM is Rs 13 lakh crores which is ~15 per cent of the countrys GDP Its investments in government owned companies is Rs 1.1 lakh crore as on May 18, 2012

Situation Analysis
LIC bought a stake of 4 per cent in ONGC taking its overall stake to 9.48 per cent
It was a dis-investment by the Govt.

Also invests in Govt securities and Public sector banks Recent investments in banks have been through preferential shares

Moodys have recently downgraded LICs foreign currency insurance

financial strength from Baa2 to Baa3 with stable outlook

Inference
We believe that LIC will be able to maintain its Financial strength given the key points

below:
It primarily invests in AAA rated G-sec (sovereign rating) or large PSUs. Its risk is hence low to moderate and not a cause of great concern Existence of risk management teams and ALM (Asset Liability Management) committees to monitor the investments. Strong guidelines laid out by the regulator requiring LICs ULIP policies to disclose NAVs on a daily basis and offer only modest returns. Providing less than market returns on investments. For ex: Jeevan Akshaya VI offers 7 per cent returns, which is lower than the 10 yr G-sec. Also, its guaranteed returns policy offers lower rates than G-sec.

COMPETITOR ANALYSIS
Market Share

LIC Birla Sun Life

Bajaj Allianz
ICICI Prudential HDFC Standard Life Tata AIG

OPPORTUNITIES
not more than 30% of the total population in India possess some or the other kind of insurance. Out of which only 2% of the population subscribe for life insurance policies. Insurance Sector Expected to grow @ 18-20% YoY Provider of Engineering Consultancy Services Population dividend can be leveraged

Appendix LIC vs US-64

US-64
Was less regulated and hence less transparent

LIC
Well regulated and hence more transparent (disclosure of daily NAV etc)

Was treated as a growth scheme meaning investors expected significant ROI No information on the investment companies. Risk could have been higher

Provides returns based on prevailing market rates

Invests primarily in G-sec, PSUs like ONGC and banks