LIC: Solvent or not?

Chennai: The curtains on the solvency margin issue of the country's leading life insurer, Life Insurance Corporation of India (LIC), seems to have come down for the present.

Recently, Insurance Regulatory and Development Authority (IRDA) chairman C S Rao said that LIC needs an additional capital infusion of around Rs 10,000 crore to meet the solvency norms. The corporation has already taken care of the norms to the tune of Rs 3,500 crore and it needs to take care of the remaining Rs 6,500 crore. According to Rao, LIC has submitted that the solvency norms will be met by 2004.

But it is strange that the additional capital requirement has come down by half rather suddenly. According to the initial reports, LIC was said to require a fresh capital infusion of Rs 20,000 crore to satisfy IRDA's solvency norms.

There is another set of figures, this time from LIC, on the subject. In an internal communication, LIC says the corporation has a solvency margin shortfall of Rs 5,400 crore to be met by March 2004. According to the communication, LIC was to have a solvency margin of Rs 10,796 crore at the end of March 2002.

After taking into account its own funds of Rs 5,525 crore (equity capital: Rs 5 crore; general reserve: Rs 85 crore; other reserves: Rs 5, 435 crore) the shortfall amounted to Rs 5,271 crore. With a Rs 3,500-crore provision made last year, the actual deficit was just Rs 1,771 crore.

Since IRDA norms stipulate that the solvency amount should be 150 per cent of the minimum solvency margin, a shortfall of Rs 5,400 crore is perceived. From Rs 20,000 crore at one end to Rs 1,771 crore at the other end, the variance will baffle anybody.