The initial public offering of Life Insurance Corporation of India is ‘credit positive’ for the country’s insurance sector, said Moody’s Investor Service on Thursday, adding that it will also benefit the state-run life insurer.
“As a listed company with external shareholders, we expect LIC to tighten its underwriting standards and improve its risk management and governance, which should contribute to a stronger financial profile,” Moody’s Investor Service said.
Further, given its dominant position and as a market trendsetter, these enhancements at LIC will likely drive similar improvements across the life insurance sector, it said, terming this “credit positive”
The government plans to sell 3.5 per cent stake in LIC’s IPO, which opened on May 4 and will close on May 9.
As a listed company, LIC will face more demanding disclosure requirements, resulting in increased transparency over its operations, and encouraging it to prioritise profitable underwriting and risk management, Moody’s said, adding this will also boost its capacity to generate and grow capital internally.
Impact of foreign stakeholders
“We believe the presence of foreign stakeholders will bring particular benefits in the areas of capital adequacy, financial flexibility and governance standards, enhancing LIC’s credit profile,” Moody’s said.
Additionally their influence could aid operational and distribution efficiencies — for example, encouraging LIC, whose online distribution is currently limited to its own portal, to rope in third parties, the agency said.
Moody’s also noted that while LIC complies with regulatory solvency requirements, its capital adequacy is weaker than that of global peers.
LIC shareholders’ equity accounts for less than one per cent of total assets, compared with, for example, 4.9 per cent for Ping An Life Insurance Company of China and 4.2 per cent for Aviva Plc.
Moody’s also expects foreign investors to use the FDI window to invest in private insurers. Many global companies already present in India through joint ventures may increase their ownership stake in their local affiliates, it said.