Life Insurance Corporation (LIC) is reportedly planning to transfer nearly Rs 1.8 lakh (trillion) crore of its policyholder funds to a fund for dividend and bonus shares — in a bid to boost its share price, languishing since its listing in May.
A Reuters report on Friday said the country’s largest life insurer plans to move Rs 1.8 lakh crore (trillion) from its surplus in the non-participating (non-par) fund to the shareholder’s fund. This surplus sum makes up nearly 16 per cent of the Rs 11.57 lakh crore lying in this fund.
The life insurer had changed the rules to share the surplus in policy funds last month. It created two separate funds — a participating policyholders fund and a non-participating policyholders fund. Earlier, LIC had a single life fund.
While 100 per cent of the surplus generated out of the non-par business will be available for distribution to shareholders, that in the participating policyholders’ fund was modified to 90:10 in a phased manner. Policyholders will get 90 per cent and shareholders, 10 per cent.
Non-par life insurance products do not offer any bonuses or dividends to the policyholders. In other words, the profit is not shared with the policyholders. One such nonpar product is a pure term life insurance policy which offers a fixed cover against the payment of the policy premium. On the other hand, money back or endowment policies are par plans.
Previously, LIC focussed on the par plan. But now it wants to increase the contribution of the nonpar policies.
Individual non-par policies generated Rs 2,532 crore or 5 per cent of LIC’s annualised premium equivalent (APE) in the last fiscal. LIC is reportedly planning to take this share to 15 per cent over the next three years.
APE is a measure of new business written by a life insurer. It is calculated as the sum of annualised first-year premiums on regular premium policies and 10 per cent of single premiums written by the insurer from new retail and group customers.
The Reuters report, quoting sources, said that the surplus in the non-par fund is earmarked for shareholders and can be transferred to the shareholder's fund with approval from the life insurer’s board, which is yet to be sought.
The officials pointed out that if the transfer is done, it would boost LIC’s net worth by about 18 times its current value of about Rs 10,500 crore and lead in net worth among peers that include SBI Life and HDFC Life.
Shares of LIC on Friday ended at Rs 592.95. It is thus trading at a discount of nearly38 per cent to the issue price of Rs 949 per share. It listed at Rs872 per share on the NSE on May 17 and has been consistently trading below the issue price.
Its initial public offering (IPO) had come in a price band of Rs 902-949 a share. The issue fetched about Rs 21,000 crore to the Government.
At the current price, LIC has a market cap of Rs 3.75lakh crore, while the market cap of SBI Life stands at Rs1.25 lakh crore, HDFC Life at Rs 1.13 lakh crore and ICICIPrudential Life Insurance at Rs 72,222.51 crore.
