LIC gets Rs 280 cr from Centre for overseas foray

The government has decided to extend a budgetary support of Rs 280 crore to help Life Insurance Corporation expand overseas and is likely to accept a cut in its share in its profit to enable the insurer meet the prescribed solvency levels.

While LIC already has presence in countries like Bahrain and Nepal, it needs additional capital to enter Saudi Arabia and other new markets, senior finance ministry officials told Business Standard.

"There is tremendous scope in India but at the same time LIC needs to enter new markets for it to emerge as a global player in the coming years," an official said.

"General insurance companies like New India Assurance already have a foreign presence and we are in favour of a similar model for LIC," the official added.

On the issue of meeting the Insurance Regulatory and Development Authority prescribed solvency levels, officials said as an interim measure, the regulator had agreed to LIC's Rs 5 crore equity level, as prescribed in the law.

LIC is trying to find different ways to increase its capital base but a public issue is ruled out for the time being, they added. Instead, the life insurer was looking at creating reserves.

The government, which is mandated to receive 5 per cent of the actuarial surplus (profit in case of companies) as its share of dividends is willing to reduce its earnings by returning a part of the dividend to help LIC meet the solvency requirement.

Under the LIC Act, 95 per cent of the surplus is transferred to the policyholders fund for payment of dividend on insurance covers, while it pays 5 per cent as dividend to the Centre.

While Irda has maintained that there is no problem with LIC's financial health, it is unwilling to make an exception from the prescribed solvency level.