In his 33-year-long career, Thomas Mathew has never seen Life Insurance Corporation of India (LIC) attract so much media attention. In an interview with Sumit Sharma and Joydeep Ghosh, the LIC managing director says while the risk-management procedures are time-tested, the insurer has set up a high-powered committee to re-assess its systems. Edited excerpts:
In the last few weeks, the entire LIC group has been under intense scrutiny. What went wrong?
Nothing went wrong. The Insurance Regulatory and Development Authority (Irda) has already clarified that our insurance business has an actuarial deficit of Rs 14,000 crore and it’s only a notional loss. As for LIC Housing Finance (LICHF), it has a loan book size of Rs 44,000 crore. Of this, a major portion is allocated to the retail segment. Corporate or project loans account for just 11.87 per cent. Non-performing assets are only 0.08 per cent – the best in the industry.
When these reports surfaced, we constituted an internal committee, which reported that the procedures followed for sanctioning loans were in accordance with the board-approved guidelines. No rules were violated. All of them are standard assets. Crisil has reconfirmed the company’s AAA rating. But if any correction or change in procedures has to be made in LICHF, we will do it.
What about LIC Mutual Fund (LIC MF)?
In terms of assets, the market share of LIC MF was 12-14 per cent two years back. Unlike others, we are more into liquid funds. This is an inherent weakness we are trying to correct. Meanwhile, there were regulatory changes in the liquid fund category that led to losses.
The losses were reported to the AMC (asset management company) and it was decided that we should absorb these rather than passing them to investors.
You have not been able to attract fresh money either.
We are making our marketing more vibrant by contacting more clients and customers. We are entering into a joint venture (JV) with Nomura and revamping our IT (information technology) set-up, procedures and fund management capabilities. We hope to get global expertise from this joint venture.
Is Nomura having second thoughts on the JV?
There are absolutely no issues or apprehensions. There are some delays, but it should happen at the earliest.
Do you feel LIC needs to be a lot more transparent?
There is no opaqueness. LIC is a government-owned company. Investments and functions are governed by the Insurance Act, 1938, the investment regulations of Irda and other rules.
We have an investment committee, a sub-committee of the board, to check investments. This committee meets every month and goes into the details of all investments. The investment committee comprises not only LIC officials but also finance ministry officials, besides heads of banks and financial institutions. Every operation and investment has to be reported to the board, the committees and a policyholders’ protection committee. It is a board-run company.
Are there any internal controls or systems that need to be reviewed?
We have set up a three-member committee, which includes two executive directors, to look into the systems. It will submit a detailed report within a fortnight.
The annual accounts for the year ended March are still to be tabled in Parliament. Don’t you think such delays make the numbers less meaningful?
Our accounts are with Parliament for approval. You are right; there is a time gap. But we handle large volumes locally and globally, so it takes time. We are taking IT initiatives to correct this. Hopefully, we will be able to present it to an earlier session (than the winter session) of Parliament next year.
Won’t returns to other policyholders get affected because of ‘notional actuarial loss’ in three schemes, as the gap has to be bridged from the profits of other schemes?
We are providing for it every year in our balance sheet. The valuation surplus of LIC is increasing every year. Last year, it was Rs 21,000 crore, up from Rs 10,000 crore a few years back. Ninety-five per cent of this goes back to policyholders. Also, while Irda mandates a 150 per cent solvency margin, we have provided 154 per cent at Rs 46,000 crore.
What are you doing to restore LIC’s image?
LIC is a strong brand. Some things happened, which were unfortunate. But media reports also lacked objectivity. We are informing our policyholders. The finance ministry and the regulator have already said that LIC is a strong and stable institution.
