LIFE INSURANCE CORPORATION OF INDIA

Canara Bank Securities Ltd IPO Note

A WHOLLY OWNED SUBSIDIARY OF CANARA BANK
Date: 02.05.2022

LIC being the largest insurer in India with market share of Issue details
61.6% (in terms of premium) for Fiscal 2021. LIC had the high-
est gap in market share by life insurance GWP relative to the Price Band (Rs in per share) 902-949
2nd largest life insurer in India. LIC’s Product mix is not as Issue size (Rs in Crore) 19517-20557
diversified as other private players, they have large market Fresh Issue size (Rs in Crore) NA
share of 69.7% in Participating business, 25.73% in Non-
OFS Issue size (Rs in Crore) 19517-20557
participating business and 4.57% in ULIPs. This makes the
margin less accretive as compared to other peers. It will im- Issue open date 04-05-2022
prove to focus on Non participating business which will in- Issue close date 09-05-2022
duce their margin. This will also improve the value of new Tentative date of Allotment 12-05-2022
business with increased new business volume on account of Tentative date of Listing 17-05-2022
improved product mix.
Total number of shares (lakhs) 2213.75
The company faces severe competition from listed peers and
newly arising insurance aggregators. On valuation front, the No. of shares for QIBs (50%)
988.28
company is available at P/EVPS of 1.1x for FY2021 which ap- (lakhs)
pears fairly valued as compared to average industry P/EVPS No. of shares for NII (15%) (lakhs) 296.48
of 3.3x for FY2021. Thus, we recommend to Subscribe the
issue. No. of shares for retail investors
691.80
(35%) (lakhs)
No. of shares for Eligible Policy-
221.38
holders (lakhs)
No. of shares for Eligible Employ-
15.81
ees (lakhs)
Canara Bank Securities Ltd

Minimum order quantity 15

About the Company: Face value (in Rs) 10
Corporation has been providing life insurance in India for more
Employee Discount (in Rs) 45
than 65 years and is the largest life insurer in India, with a 61.6%
market share in terms of premiums (or GWP), a 61.4% market
share in terms of New Business Premium (or NBP), a 71.8% market Retail Shareholder (in Rs) 45
share in terms of number of individual policies issued, a 88.8%
market share in terms of number of group policies issued for the LIC Policyholder (in Rs) 60
nine months ended December 31, 2021, as well as by the number
of individual agents, which comprised 55% of all individual agents
Amount for retail investors (1 lot) 13530-14235
in India as at December 31, 2021. (Source: the CRISIL Report). Cor-
poration’s market share in the Indian life insurance industry for
Fiscal 2021 was 64.1% in terms of GWP, 66.2% in terms of NBP, Maximum number of shares for
210(14 lots)
74.6% in terms of number of individual policies issued, and 81.1% Retail investors at lower Band
in terms of number of group policies issued. (Source the CRISIL Maximum number of shares for
210(14 lots)
Report). Corporation had the highest gap in market share by life Retail investors at upper band
insurance GWP relative to the second-largest life insurer in India as Maximum amount for retail in-
compared to the market leaders in the top seven markets globally vestors at lower Band- upper 189420-199290
(in 2020 for the other players and in Fiscal 2021 for Corporation). band (in Rs)
(Source: the CRISIL Report). Exchanges to be listed on BSE, NSE

Promoters

President of India, acting through the Ministry of Finance, Government of India

Objective of the Offer

 Achieve the benefits of listing the Equity Shares on the Stock Exchanges
 Carry out the Offer for Sale of up to 221,374,920 Equity Shares by the Selling Shareholder (President of India, acting
through the Ministry of Finance, Government of India)

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 Canara Bank Securities Ltd
Financials
Brief Financials
Particulars (Rs. Cr) FY2022 FY21 FY20 FY19
(Apr-Dec)
Share Capital 6325.00 100.00 100.00 100.00
Net Worth 8230.50 6514.64 854.65 815.33
Premium Earned 285341.93 405398.50 382475.52 339971.63
PAT 1715.31 2974.14 2710.48 2627.37
Indian Embedded Value 539686.0^^ 95605.0 46497.0 N.C.
Basic EPS(Rs) 2.71 4.70 4.29 4.15
Net Asset Value (Rs) 13.01 10.30 1.35 1.29
P/EVPS# 1.11 6.28 - -
P/E# 262.64^ 201.91 - -
P/B# 72.94 92.14 - -

Source: RHP # Calculated at the upper price band, * Restated summary consolidated ^Annualised, ^^ September 2021.

Industry Review:
India is the Fifth Largest Insurance Market in Asia and Has Exhibited Consistent Growth in Insurance Premiums
Canara Bank Securities Ltd

Based on life insurance premium, India is the tenth largest life insurance market in the world and the fifth largest in Asia, as per
Swiss Re’s sigma No 3/2021 report for July 2021. The size of the Indian life insurance industry was Rs. 6.2 trillion based on total pre-
mium in Fiscal 2021, up from Rs. 5.7 trillion in Fiscal 2020. The industry’s total premium has grown at 11% CAGR in the last five years
ending in Fiscal 2021. New business premiums (NBP) grew at 15% CAGR during Fiscals 2016 to 2021, to approximately Rs. 2.78 tril-
lion. In fact, in Fiscal 2021 – a year impacted by the COVID- 19 pandemic, the NBP of the industry rose by 7.5%. Within the NBP,
group business premium grew at approximately 15.4% CAGR from Fiscals 2016 to 2021, whereas individual premium rose approxi-
mately 14% CAGR during the same period. Life insurance products can be classified on the basis of products and customer seg-
ments. Historically, life insurance products were savings oriented. Non-linked products are traditional products with a protection
and savings element built in or pure-protection products. Non-linked savings products can be further segregated into participating
products and non-participating products. Participating products have variable returns, as these partake in the profits of the partici-
pating business of the company. Linked products’ returns, on the other hand, are tied to the performance of debt and equity mar-
kets and are also savingscum-protection products. For Fiscal 2021, non-linked products accounted for 86% of the total premiums.
The share of non-linked products was lower for private players, constituting 57% of the total premium for Fiscal 2021. Life insurance
companies offer individual and group policies. Premium payments can be made in one go (called single premium) or on a regular
basis. Individual business accounted 73% of total premium and 41% of total new business premium for Fiscal 2021. Below is the
Types of life Insurance products, by product and customer types

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 Canara Bank Securities Ltd
Total Premium has grown at an 11% CAGR in the Last Five Years Ending Fiscal Year 2021
Life insurance premium has grown at an 11% CAGR from Fiscals 2016 to 2021. The double-digit growth in premium can be attribut-
ed to expansion in the distribution network, introduction of different government schemes and financial inclusion drives. These fac-
tors have increased awareness about the need for insurance and propelled industry growth. LIC holds a 64% share by total life insur-
ance premium and grew at 9% CAGR from Fiscals 2016 to 2021. Private insurers grew at a 18% CAGR growth during the same peri-
od.
Canara Bank Securities Ltd

New business premium has grown at 15% CAGR in the past five years with LIC and private insurers growing at 14% and 18% CAGR,
respectively. In Fiscal 2021, amid the COVID-19 pandemic, NBP grew approximately 7% reflecting the impact of the economic slow-
down. During the first nine months of Fiscal 2022, NBP growth remained low for the industry with y-o-y growth of 7.4%.

LIC continues to account for around two-thirds of the industry’s premium LIC accounts for approximately 2/3rd market share in
terms of both GWP and NBP in the life insurance industry for Fiscal 2021, driven by its individual agent network especially in rural
areas, wide range of products and a sense of trust created by brand LIC among individuals. Private sector players, however, have
been gaining market share, supported by their diversified product mix and strong distribution through bancassurance partners. Pri-
vate players have increased their focus towards individual NBP and increased their market share from 44% in Fiscal 2016 to 50% in
Fiscal 2021. In group NBP, LIC continues to dominate the market, accounting for more than 75% of the market share for Fiscal 2021.

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 Canara Bank Securities Ltd
Market share of largest insurers (% of total life insurance premium)

Global Positioning of LIC

Canara Bank Securities Ltd

Group financial performance of key life insurers (2020)

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 Canara Bank Securities Ltd

Competitive Strengths
Fifth largest life insurer globally by GWP and the largest player in the fast growing and underpenetrated Indian life insurance sec-
tor
The Indian life insurance market is the 10th largest life insurance market in the world and the fifth largest in Asia in terms of life in-
surance premium. (Source: the CRISIL Report). Indicators such as insurance penetration, insurance density and protection gap point
to the fact that the Indian life insurance market is still underinsured thereby presenting a huge potential for growth. (Source: the
CRISIL Report). The protection gap for India was 83% in 2019, the highest amongst all countries in Asia-Pacific, as per the Swiss Re
report “Closing Asia’s Mortality Protection Gap – July 2020”. This means that for $100 of insurance protection requirement, insur-
ance was only taken for $17 in 2019. This indicates the absence of protection coverage for a large part of the Indian population.
India’s protection gap was US$16.5 trillion in 2019. (Source: the CRISIL Report). The combination of (i) high GDP growth (expected to
grow by 9.2% in Fiscal 2022 and 7.8% for Fiscal 2023); (ii) India being the third largest economy in the world in terms of purchasing
power parity; (iii) an estimated increase of households in India in middle income category from 41 million in Fiscal 2012 to 181 mil-
lion in Fiscal 2030, translating into a CAGR of 9% over this time period; (iv) rapid urbanization, in which the urban population is ex-
pected to increase from 34.9% of the total population in 2020 to 37.4% by 2025; and (v) the focus on financial inclusion and increas-
ing preference towards financial savings with increasing financial literacy, are all key factors to propel the growth of Indian life insur-
ance sector. (Source: the CRISIL Report).

Trusted brand and a customer-centric business model

Corporation was incorporated in 1956 and up to 2000, LIC was the only life insurance provider in India, which made LIC, as a brand,
synonymous with life insurance in India. (Source: the CRISIL Report). The brand ‘LIC’ was recognised as the third strongest and 10th
most valuable global insurance brand in 2021, as per the “Insurance 100 2021” report released by Brand Finance. As per the report,
the brand value of LIC in 2021 was US$8,655 million, with a Brand Strength Index (BSI) score of 84.1 out of 100, corresponding to
AAA- brand strength rating. The brand ‘LIC’ was also recognised by WPP Kantar as the second most valuable brand in the report
Canara Bank Securities Ltd

“BrandZ™ Top 75 Most Valuable Indian Brands” for 2018, 2019 and 2020. The brand ‘LIC’ has won the Reader’s Digest Trusted Brand
Award numerous times and the prestigious Outlook Money Award Gold Award in Editor’s Choice Category as the “Most Trusted
Brand in Insurance” twice. LIC believe Corporation’s strong brand name and early-mover advantage is the key driver in maintaining
leading position in the Indian life insurance industry. The trust in the brand ‘LIC’ is evidenced by the 279.11 million in force policies
under individual business being serviced in India as at December 31, 2021. The trust in the brand ‘LIC’ is further evidenced by the
fact that approximately 75% of individual policies sold by Corporation in India in the nine months ended December 31, 2021 were to
sold to customers who had not purchased any life insurance policies from Corporation prior to April 1, 2021.

Cross-cyclical product mix that caters to diverse consumer needs and an individual product portfolio that is dominated by partici-
pating life insurance policies
Corporation has a broad, diversified product portfolio covering various segments across individual products and group products.
Corporation’s individual product portfolio in India comprises 32 individual products (16 participating products and 16 non-
participating products) and seven individual optional rider benefits. Corporation’s group product portfolio in India comprises 11
group products. Corporation is well placed to serve customers across age brackets with a comprehensive product portfolio, while
maintaining a strong connect across age groups. Customers in the age bracket 27 to 40 years old accounted for approximately 42%
and 42% of individual policies sold in Fiscal 2021 and the nine months ended December 31, 2021

The benefits of having a portfolio dominated by participating products include:

• A balance sheet that has lower interest rate and liquidity risks compared to a balance sheet that is dominated by non-participating
products;
• Lower capital requirements compared to a balance sheet that is dominated by non-participating products, allowing for better
product diversification;
• Less need to cede premium to reinsurers. For Fiscal 2019, Fiscal 2020, Fiscal 2021 and December 31, 2021, Corporation ceded
0.1%, 0.1%, 0.1% and 0.1% of premium to reinsurers, respectively, on a standalone basis compared to 1.2%, 1.6%, 1.7% and 2.1% of
the premium ceded to reinsurers, respectively, by the private players in India. (Source: the CRISIL Report);
• Lesser burden of guaranteed returns
• Sticky customer base due to the stable long-term product offered to mass-market customer.

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 Canara Bank Securities Ltd
Presence across India through an omni-channel distribution network with an unparalleled agency force

Corporation’s omni-channel distribution platform for individual products currently comprises (i) individual agents, (ii) bancassur-
ance partners, (iii) alternate channels (corporate agents, brokers and insurance marketing firms), (iv) digital sales (through a portal
on Corporation’s website), (v) Micro Insurance agents and (vi) Point of Sales Persons-Life Insurance scheme. As at December 31,
2021, Corporation had the following distribution network for individual products in India:
• 1.33 million individual agents
• 70 bancassurance partners
• 215 alternate channel
• A portal on Corporation’s website for digital sales
 2,128 active Micro Insurance agents
 4,769 Point of Sales Persons-Life Insurance scheme.

Risk Factors

Brand name, reputation and perception are critical in maintaining leading position
Business is, to a large extent, reliant on the strength of the brand ‘LIC’. Brand name is one of the key drivers in maintaining leading
position in the Indian life insurance industry. The strength of the brand ‘LIC’ could be adversely affected by changes in customers’
and the market’s perceptions about them, particularly in the insurance sector, where integrity, trust and customer confidence are
paramount. LIC is exposed to the risk that litigation, misconduct by employees, agents or other distribution partners, operational
failure and negative publicity could harm brand, reputation, customer trust and business.
Canara Bank Securities Ltd

Adverse persistency metrics

Events such as changes in regulatory policies, volatility in capital markets, loss of customer confidence in the insurance industry or in
them, or declines in customers’ financial positions due to a deterioration in economic conditions. LIC believe that the 13th month
Persistency Ratio is an important metric to assess the quality of sales because it is the first opportunity for them to assess the likeli-
hood of premiums being paid beyond the first year, thereby reaffirming the policyholder’s decision to buy the insurance policy and
thus reflecting the quality of business written. A high level of 49th month and 61st month Persistency Ratios reflects the success of
products with a long-term horizon. The following table sets forth Persistency Ratios in terms of amount of premium by (i) regular
premium and limited premium, (ii) single premium and fully paid-up premium and (iii) total premium in India for individual products
as at the dates indicated.

The decrease in the Persistency Ratios as at March 31, 2020 compared to as at March 31, 2019 was primarily due to the nation-wide
lockdown from March 25, 2020 for three weeks on all services except essential services (which included insurance offices), which
was extended to May 31, 2020. The decrease in the 61st month Persistency Ratios for regular premium and limited premium from
63% as at March 31, 2019 to 59% as at March 31, 2021 and 62% as at December 31, 2021 was primarily due to declines in some cus-
tomers’ financial positions caused by the COVID

Segregation of the single consolidated ‘Life Fund’

Whilst prior to the segregation of the Life Fund, surplus as assessed by the Appointed Actuary for the Life Fund was distributed
amongst Corporation’s policyholders and Shareholder in the ratio of 95:5, post segregation of the Life Fund, 100% of the surplus
generated out of the non-participating business is available for distribution to all of the Shareholder(s) of the Corporation and the
surplus from the participating business shall be distributed amongst policyholders and Shareholder in the ratio of 95:5, which ratio
is being modified as 90:10,

The surplus for the non-participating policyholders’ fund was ₹15,940.19 million for the nine months ended December 31, 2021, all
of which was transferred to the Shareholders’ Account. Prior to the segregation of the Life Fund as at September 30, 2021, the sur-
plus for the non-participating business was effectively shared in the ratio of 95:5 between the participating business and the Share-
holder. Although Corporation cannot quantify the impact on the distributable surplus for participating policyholders in the future,
the decrease in the surplus available to participating policyholders’ resulting from the segregation of the Life Fund may reduce the
attractiveness of the Corporation for certain categories of customers.

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 Canara Bank Securities Ltd

Peer Comparison
Company FV Total Pre- Basic Embedded P/E* RONW NAV (₹) Price/EVPS
(₹) mium (₹ In EPS Value (%)
Crores)
Life Insurance
Corporation 10 405850 4.70 539680^ 201.91 45.65 10.30 1.11
Ltd
SBI Life Insur-
10 50250 14.55 30200^ 78.16 14.00 103.99 3.56
ance Co
HDFC Life In-
10 38580 6.74 29540$ 82.33 15.75 42.75 3.92
surance Co
ICICI Prudential
10 35730 6.66 30200^ 78.81 10.48 63.51 2.47
Life
* Price/EVPS, P/E ratio based on closing market price as on April 27th, 2022, At the upper price band of
IPO, financial details consolidated audited results as on FY21,^Sept 30, 2021, $Dec 31 2021

Our View
Canara Bank Securities Ltd

LIC being the largest insurer in India with market share of 61.6% (in terms of premium) for Fiscal 2021. LIC had the highest gap in
market share by life insurance GWP relative to the 2nd largest life insurer in India as compared to the market leaders in the top sev-
en markets globally (in 2020 for the other players and in Fiscal 2021 for the LIC). LIC’s Product mix is not as diversified as other pri-
vate players, they have large market share of 69.7% in Participating business (sharing profits with policyholders) and 25.73% in Non-
participating business (Annuity and term) and 4.57% in ULIPs. This makes the margin less accretive as compared to other peers. It
will improve to focus on Non participating business which will induce their margin. This will also improve the value of new business
with increased new business volume on account of improved product mix.

LIC faces severe competition from listed peers and newly arising insurance aggregators. On valuation front, it is available at P/EVPS
of 1.1x as on September 2021 which appears fairly valued as compared to average industry P/EVPS of 3.3x. Thus, we recommend to
Subscribe the issue for long term.

Sources: Company Website and Red Herring Prospectus

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 Canara Bank Securities Ltd

Analyst Certification
We/I, Sankita V, MBA, Mcom Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research
report accurately reflect our views about the subject issuer (s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly
related to the specific recommendation (s) or view (s) in this report. It is also confirmed that above mentioned Analysts of this report have not received any compen-
sation from the companies mentioned in the report in the preceding twelve months and do not serve as an officer, director or employee of the companies mentioned
in the report.
Disclosures and Disclaimers
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Canara Bank Securities Ltd

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Research Desk
Canara Bank Securities Ltd
SEBI: RESEARCH ANALYST REGISTRATION: INH000001253
BSE: INB 011280238, BSE F&O: INF 011280238
NSE: INB 23180232, F&O: INF 231280232, CDS: 231280232
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Email id: researchdesk@canmoney.in Website: www.canmoney.in

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