Govt to revamp LIC’s rules for surplus distribution to shareholders

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The Central government is considering methods to align the rules set by the Life Insurance Corporation of India (LIC) for surplus distribution to shareholders with what’s relevant for personal companies, according to a report in The Times of India. About 5% of its surplus is allowed to be switched under a specific policy to the shareholder’s fund by LIC. The other part, that is the remaining 95% is diverted to the policyholders’ fund for paying bonuses on eligible life insurance coverage. The allocation allowed in other life insurance companies regulated under the Insurance Act is 90:10.

The LIC IPO is likely to be expected in Q4, of the current fiscal year. The government wants to create a parity to make funding in LIC an attractive proposition, sources told TOI. The buyers are expecting a structure on similar lines. The government is working on some points and few changes. The Centre wants to make the IPO an attractive option while balancing the pursuits of shareholders and policyholders. Centre will also give clarity on the extent of overseas funding that can be permitted within the firm after its listing. Presently, as much as 74% overseas direct funding (FDI) is allowed, however, LIC is predicted to be ruled by a particular dispensation.

After calculating all the liabilities in respect of the company that it has already underwritten, LIC’s valuation surplus has arrived. Because of this policyholders with term insurance, assured return policies and unit-linked plans won’t be impacted by dividend distribution policies. It’s only the collaborating insurance policies that decide the extent of the bonus that can be affected.