LIC IPO: LIC to take glide path for surplus transfer from next year

LIC IPO: The government plans to list LIC, which is held to be the country's largest listing, in the last quarter this financial year

Ahead of the Life Insurance Corporation of India’s (LIC’s) public listing, the finance ministry and the insurer have approved gradually lowering the public sector outfit’s distributable surplus to its policyholders.

From next year, LIC will distribute 92.5 per cent of its surplus to the policyholders against 95 per cent at present, and then bring the level down to the industry norm of 90 per cent.

The pie for the shareholders, including the government, will go up to 10 per cent from 5 per cent at present.

“Starting 2022-23, 92.5 per cent of the insurer’s surplus will be transferred to the policyholders, and the remaining 7.5 per cent to the shareholders, for the next two years,” an official said.

After two years, the surplus transferred to the policyholders will be brought down to 90 per cent, he added.

The change has been decided after consultations with the Insurance Regulatory and Development Authority of India (Irdai), Department of Investment and Public Asset Manage­ment (DIPAM), and Department of Financial Services (DFS).

LIC’s board has approved the changes, the official quoted above said.

The provision of the insurer’s surplus is governed by Section 28 of the LIC Act, which states 90 per cent or more surplus, as approved by the Central government, from the life insurance business will be reserved for policyholders. The LIC Act provides the insurer the flexibility to reduce it to 90:10 in future.

Irdai mandates surplus distribution by insurers in the 90:10 ratio, where 90 per cent goes to the policyholders and the rest to the shareholders.

This glide path in distributing the surplus has been decided keeping the interests of both the shareholders and policyholders in view, and the gradual change will aim to move towards the regulator-mandated distribution of surplus.

The government plans to list LIC, which is held to be the country’s largest listing, in the last quarter this financial year. Part of the initial public offering (IPO) will be reserved for the employees and policyholders of LIC. 

The government has reserved 10 per cent of the allotment in LIC’s IPO for the policyholders. The insurer has also started an advertisement campaign for policyholders to prod them to update their personal details with LIC, and open a demat account to participate in the listing to become shareholders of the country’s largest insurer.

The insurer has also created a database of policyholders who will be eligible for the reserved 10 per cent of the allotment in the IPO.