The Insurance Regulatory and Development Authority (IRDA) has asked the Life Insurance Corporation (LIC) to meet its Rs 10,000 crore solvency margin gap by the end of 2003-04.
"IRDA has discussed the matter with LIC and has given it three years to meet the solvency requirement. LIC has agreed to meet the gap by March 31, 2004," IRDA Chairman C S Rao told reporters on the sidelines of a seminar on disaster management, organised by the Federation of India Chambers of Commerce and Industry (Ficci) and the World Bank.
"LIC has shown statistics to assure us that they will be able to meet the required solvency level by March 31, 2004," Rao added.
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He, however, did not elaborate on the manner in which the solvency gap would be met.
The insurance regulator said of the Rs 10,000 crore shortfall, LIC had already created reserves of Rs 3,500 crore. The reserve was created at the beginning of 2002-03.
He, however, gave a clean chit to India's largest life insurer saying, "LIC is financially sound and the solvency margin is only a technical requirement."
Rao, who took over as IRDA chief earlier this month, said LIC had also been asked to raise the level of paid-up capital from Rs 5 crore to Rs 100 crore, for which a legislative change would be required.
The new regulator, however, did not provide a clear answer on depositing IRDA funds in the public account.
"We will discuss the matter with the government and decide on it in due course," he said.
The issue has been a bone of contention between the insurance regulator and the finance ministry, with the latter asking all regulators to deposit funds in the public account.
While the other regulators have fallen in line with the North Block's diktat, Rao's predecessor, N Rangachary, did not deposit the funds on grounds of regulatory independence.
Rao also said the proposed amendments to the Insurance Act, 1938, would be debated at length before the government was approached.