LIC’s profit motives come full circle with listing – Times of India

MUMBAI: May 17, when LIC will list, marks the end of the cycle in the corporation’s 66-year history when it functioned without a profit motive.
It was the absence of the profit motive or the concept of shareholder’s funds that resulted in the corporation functioning with a paid-up capital of Rs 5 crore for most of its existence. This meant that all investments, including blue chips, real estate and institutions it helped build belong to policyholders. The absence of shareholder’s funds, which act as a backstop in case of a shortfall to meet the policyholder’s liabilities, was made good by a government guarantee.
Despite an oversubscription to the mega public offer, there is not much enthusiasm in the grey market given the global economic uncertainty following rate hikes by central banks.
At the time of the IPO, its chairman M R Kumar described the event as LIC 3.0. A new incarnation where the corporation would look after the interests of both shareholders as well as policyholders. This is a shift from the historical motive of nationalisation. Kumar had promised the LIC would soon take a number of steps for shareholder value-creation. For those who have got an allotment, the future prospects depend on the measures that the corporation will take.
The birth of the corporation was preceded by the promulgation of the Life nsurance (Emergency Provisions) ordinance on January 19, 1956. This ordinance resulted in the management of 154 Indian life offices, 75 provident societies and 16 non-Indian insurers passing to the central government.
Explaining the motive in 1956, then FM C D Deshmukh had said: “With the profit motive eliminated, and the efficiency of service made the sole criterion under nationalisation, it will be possible to spread the message of insurance as far wide as possible, reaching out beyond the more advanced urban areas and into hitherto neglected, namely, rural areas”.
Even as LIC’s assets of the corporation grew, the absence of a profit motive meant that the corporation’s net worth did not grow. This is one of the reasons why despite nearly Rs 40 lakh crore of assets, the government is seeking a modest valuation of Rs 6 lakh crore for LIC even as SBI Life which has assets under management of Rs 2.7 lakh crore has a market cap of over Rs 1 lakh crore.
The ability of LIC to increase insurance penetration and retain market share even 20 years after liberalisation is seen as a measure of the success of nationalisation. The nationalisation of insurance resulted in a crash in the equity markets in 1956. With the listing, private shareholders will again have an opportunity to partake in growth opportunities.