LIC taking steps to transform corporate governance: DIPAM Secretary

The management of Life Insurance Corporation (LIC) of India is taking a number of initiatives to transform corporate governance at the India’s largest insurer such as improving persistency ratio, hiring professionals, and boosting employee productivity, said Department of Investment and Public Asset Management (Dipam) Secretary Tuhin Kanta Pandey.
 

A lot of teamwork was put into the listing of LIC that required a series of legal changes, among others, and now the management of the insurer is taking post-listing initiatives that involve addressing corporate governance challenges, said Pandey.

“LIC is taking a number of initiatives. It’s important from the point of view on whether the LIC IPO was the only objective, or are we really looking at… corporate governance transformation,” Pandey said at FICCI Annual Capital Market Conference.

Some of these steps include improving LIC’s 13th month and 25th persistency ratio, which is less than its peers. Persistency ratio denotes life insurance policies receiving timely premiums during the year, and the number of net active policies. It is measured for one financial year or a combination of financial years. The first year’s persistency ratio is estimated in the first month of the next year.

Other measures include bringing new professionals to look at investor relations, hiring a chief development officer and a chief technical officer, Pandey said. The insurer is also improving employee productivity, cash management, looking into actuarial valuation in line with industrial practice, and regular disclosure of embedded value, he added. LIC has also announced it will disclose its September EV with quarterly results.

Strategic divestment

At a time when India is looking at more capital formation to push growth, there is need to unshackle investment opportunities, said Pandey. One such investment opportunity is in brownfield projects where such units can be utilised to reach economic growth potential, create jobs through structural reforms, and put India on a sustainable high growth path, Pandey said.
 

Citing the example of privatisation of Nilachal Ispat Nigam Ltd (NINL), Pandey said the sale fetched over $1.5 billion for a plant, which was completely closed for two years, and a had negative net worth of Rs 3,000 crore. The workers were not paid for two years. With the privatisation of NINL, about 4,000 workers are working to make the plant operational, and simultaneously the company is looking at new plants to make investments.

“In next 7-8 years, we are looking at a $10 billion investment in NINL,” Pandey said. This will lead to both more direct and indirect employment. Potentially, Kalinganagar, where NINL’s plant is located, will probably become the most cost-effective steel making hub in the world.

“This is what strategic disinvestment can actually do,” Pandey said.