LIC to continue to offer sovereign guarantee; to invest in FDs

24 March 2007

Mumbai: The sovereign guarantee that LIC enjoys will continue even after the public sector life insurer meets the minimum solvency margin requirements.

The government guarantee assures LIC policyholders the payment of sum assured, bonuses declared and guaranteed additions in the event of default by the life insurer.

LIC is ready to meet the 150 per cent solvency margin mandated by the Insurance Regulatory and Development Authority (Irda) by March 31, 2007. The solvency margin is a sum of certain percentages of both the reserves and the sum at risk.

For the current financial year, the 150 per cent solvency margin had been maintained on the 3 crore policies that were added. LIC had met 133 per cent solvency margin for policies underwritten from 1956-2006. LIC was setting aside reserves out of its income, earnings, investment returns and trading profit to make up for the remaining 17 per cent by March 31, said an LIC official.

LIC sources said the continuation of the guarantee would be a way of government backing an institution, which it uses for various purposes.