Life Insurance Corporation of India (LIC), which is in the process of floating its maiden offer for sale soon, fares better than the listed top three private sector life insurers on parameters including size and scale of operations, agent network, new business premium per employee (NBP), and return on equity (RoE). On the other hand, it lags in terms of new business margin, persistency ratios, and solvency ratio.

This is evident from the information in the draft red herring prospectus (DRHP) filed by the country’s largest insurer on Sunday. While it is too early to evaluate the IPO since information on pricing and valuation is not yet out, a comparative analysis will help investors while assessing the potential of the opportunity in what is touted as the country’s biggest primary market offering.

To begin with, LIC boasts of the largest network of insurance agents in the country comprising of nearly two crore individual agents contributing 94% to the individual NBP in FY21. Listed top peers including SBI Life, HDFC Life and ICICI Prudential earn 12-28% of NBP through individual agents with a major chunk – 46-65% — coming from the banking channel. Given a large agent pool, LIC’s commission ratio at 5.5% is the highest among peers.

With just 0.3% premium derived from non-linked policies in FY21, LIC’s premium income is less susceptible to equity market volatility though at the cost of higher investment risk. ICICI Pru collected 63.4% of the total FY21 premium through linked policies. For SBI Life and HDFC Life, the proportion was 56.6% and 29.1% respectively.

LIC also scored better in terms of NBP per employee at Rs 1.6 crore compared with Rs 1-1.2 crore for the peers. LIC’s value of NBP (VoNBP), which is the present value of expected future earnings from writing new policies, at Rs 4,167 crore was the highest among peers in FY21. However on per share basis, it was the lowest at Rs 6.6 compared with Rs 10-23 for peers. In addition, LIC’s VoNB margin at 9.9% was the lowest compared with 23-26% for the peers. This is expected to improve once LIC changes the surplus distribution ratio to 90-10 by FY25 from 95-05 in favour of shareholders.

In terms of solvency ratio, which measures the insurer’s ability to settle claims, peers have an upper hand with a ratio of over two compared with LIC’s 1.76. IRDAI stipulates a minimum solvency ratio of 1.5. However, LIC shines bright when it comes to the return on equity (RoE). Its RoE of 81.7 surpasses the range of 12-18% for the peers.

While the IPO pricing is not yet out, analysts have started building projections. According to Suresh Ganapathy, Associate Director, Macquarie Capital Securities (India), LIC’s VoNB at an estimated margin of 12.3% and 20% expected growth over FY21numbers will be Rs 6,200 crore. This implies a possible VoNB multiple in the range of 74-154. This is way higher than the valuation multiple of around 25 for peers.

LIC peer comparison based on FY21 data

NBP = New business premium
VONB = Value of new business
IEV = Indian embedded value
*Operating expense/premium income

Source: RHP, company data