Proposed IPO of LIC to benefit insurance industry: Fitch

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The proposed initial share sale of LIC will improve the accountability and transparency of the country's largest insurer and benefit the insurance industry, Fitch Ratings said on Wednesday. The benefits may trickle down to the entire domestic insurance sector in terms of attracting more foreign interest, which could result in an increase in foreign capital inflows into the industry, it said.

Fitch said it expects that the initial public offering (IPO), once executed, may also encourage some of the other private sector insurance companies to list some of their shares in the stock market over the medium term, although the current insurance regulation does not require all insurers to be listed publicly. Finance Minister Nirmala Sitharaman had earlier said Life Insurance Corporation (LIC) will be listed as part of the government's disinvestment initiative.

Currently, the government owns the entire 100 per cent stake in LIC. Fitch further said a publicly listed LIC will be subject to stringent disclosure requirements stipulated by the Securities and Exchange Board of India. This will create a strong culture of compliance and accountability within the insurer. "We think the insurer's investment allocation decisions will be rationalised too, as major investment decisions could be subjected to additional scrutiny and approvals. 

LIC is one of the prominent institutional investors in several public sector assets, and in multiple instances has obtained exceptions from the insurance regulator to increase its stake in investee companies above the regulatory ownership cap of 15 per cent," it said. "In addition, we believe that the proposed IPO, once executed, could broaden the insurer's capital base and improve its regulatory capital position, which was 160 per cent at end-March 2019, slightly above the regulatory minimum of 150 per cent," it said.

Fitch expects the state to reduce ownership only marginally in the insurer in the near term, but could gradually reduce the stake over the long run to meet the minimum public holding requirement for listed companies.

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