New Delhi: A draft legislation to amend the Life Insurance Corporation (LIC) Act, 1956, is likely to be tabled in the current session of Parliament as the cabinet has approved of the move, a finance ministry official said.
The Life Insurance Corporation (Amendment) Bill includes a provision that proposes to empower the government to limit the extent of sovereign guarantee on the insurer’s liabilities if it so desires.
The Life Insurance Corp. of India is the country’s largest insurer and the state stands guarantee on its policies.The government was looking to cap this sovereign guarantee, Mint had reported on 3 May, 2007.
Solvency margins: Jeevan Bharti, the LIC corporate office in New Delhi. Government is looking to cap the sovereign guarantee on policies. Ramesh Pathania / Mint
The draft legislation is an exact version of the Bill tabled in the Lok Sabha late last year, the bureaucrat said, who declined to be named because officials are not permitted to talk on the subject.
The Lok Sabha was dissolved before the Bill was put to vote, which makes its re-introduction necessary.
Another key provision of the draft legislation is a move to raise the government’s paid-up capital in state-owned LIC to Rs100 crore from Rs5 crore, the same as that mandated by Insurance Regulatory and Development Authority for private life insurers operating in India.
The amendments are part of a move to amend different insurance laws to bring them in line with current business needs, said Samir Bali, a director at consultancy firm Ernst and Young India Pvt. Ltd.
A change proposed in the LIC Act is a fund to help the corporation meet the prescribed solvency margin needs. The fund is proposed to be built by diverting a part of the surplus—the excess of assets over liabilities that is calculated by an actuary.
Solvency margin is the extent by which the regulator thinks a life insurer’s asset value should exceed the value of liabilities. It gained popularity in the 1970s as regulators thought there should be a cushion from fluctuations in market conditions.
Currently, LIC is required to set aside at least 95% of the surplus for policyholders and the remaining goes to the government. The amendment would reduce that minimum to 90% and the remainder would be divided between the reserve fund and the government.
LIC investments on 31 March, 2008, stood at Rs6.74 trillion, according to the regulator’s latest available annual report.