Currently LIC, which is governed by a special law, can transfer 5% of its surplus to the shareholders’ fund. The remaining 95% goes to the insured. bottom for paying a bonus on eligible life safe policies. In the case of other life insurance companies, which are regulated through the Insurance Law, the allowable allocation is in the ratio of 90:10.
With the IPO scheduled for the fourth quarter of the current fiscal year, the government intends to bring parity to make investment in LIC an equally attractive proposition, sources familiar with the deliberations told TOI. “It is natural for investors to expect a similar structure. We are working on the details, along with some other changes, ”said a government source. The Center hopes this will help balance the interests of shareholders and policyholders and still make the IPO attractive to investors.
The government is also expected to clarify the level of foreign investment that will be allowed in the company after its listing. Currently, up to 74% foreign direct investment (FDI) is allowed in the insurance business, but the LIC is expected to be governed by a special waiver.
LIC’s valuation surplus is obtained after calculating all of its liabilities with respect to the business it has already entered into. This means that policyholders with term insurance, guaranteed return policies, and unit-linked plans will not be affected by dividend distribution policies. They are only participating policies where benefits are determined by the bonus level that will be affected.
According to industry According to the sources, a change in the payment rate will not make as significant a difference for the insured as, for example, a reduction in the rate of the RBI policy. For private companies, the proceeds from the sale of protection also represent a significant portion of their earnings. Any surplus that a private insurer obtains from the sale of protection goes entirely to the policyholders. In the case of LIC, the profits are shared between the government and other policyholders. Changing the dividend distribution policy will benefit shareholders but, again, may affect existing participating policyholders.
The government believes that several people who have bought life coverage from the insurance giant will also buy LIC shares during the IPO, as a certain percentage of the issue will be reserved for them. This will entitle them to dividends for years to come. For LIC policyholders, the biggest draw is that everything promised in the policy will continue to be guaranteed by the government. The government, while amending the LIC Act, has retained Section 27, which establishes that the sums insured by all policies issued by the corporation, including the bonuses declared with respect to them and all bonuses, will be guaranteed as cash payment. by the central government. .
A senior government official said the public asset management and investment department will work out the details of the proposed issue based on the implied value currently being worked out.