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Eyeing more capital before IPO, LIC withheld dividend to govt

🔴 Insurer didn’t pay part of profits to Centre in FY21, FY20

Written by George Mathew | Mumbai |
Updated: January 16, 2022
Life Insurance Corporation, Life Insurance Corporation of India, initial public offering (IPO), LIC IPO, LIC IPO date, LIC IPO news, new IPO LIC news, LIC IPO latest news update, indian express newsThe Life Insurance Corporation headquarters, Mumbai. File

In a bid to conserve capital, IPO bound Life Insurance Corporation (LIC), has not paid any shareholder dividend to its owner, the Government of India, in the last two years — 2019-20 and 2020-21. The total profit reported by the state-run insurer during FY21 was Rs 2,901 crore as against Rs 2,713 crore in the previous year. It paid a dividend of Rs 2,611 crore in FY19.

Sources at LIC said the Corporation has already accumulated Rs 6,300 crore of capital by not paying any dividend to the government in the last two years and it’s planning to raise more.

For decades, LIC has followed a well laid out ratio of 95:5, where five per cent of its profit — called surplus — goes to the government as dividend, while 95 per cent is distributed among its participatory policy holders. Unlike private sector life insurers, LIC distributes its entire profit between the government and its policy holders.

LIC currently has a much smaller capital base of Rs 100 crore and a small reserve, though it controls assets worth Rs 38 lakh crore and services over 30 crore policies. Though the government raised the authorised capital base of the Corporation to Rs 24,900 crore in the Budget 2021-22 in view of its planned mega initial public offering (IPO), it is not known when this capital will be infused into the Corporation.

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Whether the payment of large dividend by LIC to the Centre will continue or not in the future, is not known yet. The insurer will have a huge base of retail and other institutions as new shareholders once it gets listed after the IPO. The profits which were distributed between the government and policy holders will have to be shared with new shareholders every year.

LIC had an investment income (policyholder’s and shareholder’s,) including capital gains, and its other income was Rs 2.79 lakh crore in 2020-21 (Rs 2.37 lakh crore in 2019-20). Its claim settlement ratio was 98.62 per cent as at March 31, 2021, compared to 96.69 per cent as at March 31, 2020, and the proportion of its claims repudiated/rejected fell to 1.0 per cent in 2020-21 from 1.09 per cent in the previous year.

The claim settlement ratio of private insurers was 97.02 per cent during FY21 (97.18 per cent during FY20) and the proportion of repudiations came down to 2.0 per cent in the year 2020-21 from 2.50 per cent in previous year.

During the pandemic, when insurers have been saddled with a large number of claims, the life insurance industry’s settlement ratio increased to 98.39 per cent in 2020-21 from 96.76 per cent in 2019-20, and the repudiation/rejection ratio decreased to 1.14 per cent from 1.28 per cent in FY20.

LIC paid benefits of Rs 2.86 lakh crore in 2020-21, constituting 70.85 per cent of the premium underwritten (Rs 2.53 lakh crore in 2019- 20, 66.62 per cent of the premium underwritten).

The benefits paid on account of surrenders/withdrawals of the life insurance industry increased to Rs 1.29 lakh crore in 2020-21 (Rs 1.17 lakh crore in 2019-20), of which LIC accounted for 61.89 per cent and the remaining 38.11 per cent was by the private sector.

As of March 31, 2021, LIC has offices in 669 districts, i.e. 91 per cent of the 735 districts in the country, whereas private insurers have offices in 596 districts, covering 81 per cent of all districts.

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