The Hindu Business Line : Govt guarantee on LIC policies may go

In what could be a precursor to a major restructuring of the sole public sector life insurer in the country, the over 16-crore policies issued by the corporation could soon see the Government guarantee taken off their back.

According to highly-placed LIC sources, the suggestion to remove the crutch provided by the Government by way of guaranteeing the payment of the sum assured and the bonuses of LIC policies has been discussed at the corporation's highest level as well as in official circles.

The removal of the Government guarantee, as is provided under the LIC Act, 1956, is one of the major suggestions of Deloitte & Touche Tomhatsu India, the consultant hired by LIC last year to do a health-check on the financials of the corporation.

Though contents of the report are under wraps, senior officials of the Finance Ministry confirmed that the removal of Government guarantee from LIC policies is one of the suggestions put forward by the consultants. "The consultants have suggested that LIC is strong enough not to need government guarantee," officials said.

They, however, said that no decision on the matter has been taken as yet by the Government. "Any such move would require an amendment of the LIC Act," officials said.

With elections round the corner the entire issue of restructuring LIC would be taken up only after the new Government is in place.

Sources said that the LIC top brass feels that the time could be ripe for removal of the guarantee since the corporation is all set to meet the solvency requirements stipulated by the Insurance Regulatory and Development Authority (IRDA) by end March 2004. By the time the deadline expires, LIC would have provided for an amount excess of Rs 10,000 crore to meet the solvency margins based on its operations since its inception.

Sources said that though the solvency margins attained by the corporation may be an adequate cushion to assure policyholders of its capability to meet its liabilities, the removal of Government guarantee might also call for a hike in the existing paid up capital of the corporation.

Thus, against the requirement of a minimum paid-up capital of Rs 100 crore for all other insurance companies, LIC's equity base stands at Rs 5 crore. The corporation has been able to consistently win its argument in favour of the low-level of equity capital because all its commitments to policyholders till now are backed by the Government guarantee.

However, since the Rs 5- crore equity capital of the corporation has also been specified in the LIC Act itself, any alternation of the amount would have to get the Parliament's approval too.

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