Government may list LIC as a corporation to continue with its guarantee on policies

The government may decide to get the Life Insurance Corporation listed as a corporation and not as a company, sources told CNBC-TV18. The reason for this thinking isthat bringing LIC under the Companies Act would mean doing away with the government guarantees on the policies issued by the insurer.

The government guarantee is the biggest differentiator for LIC, and something that has given the behemoth an edge over its private sector rivals.

The other benefit of government guarantees is that they help LIC meet solvency margin requirements. In the absence of such a guarantee, the government would need to undertake a massive cash infusion in the insurer given the sheer number of close to 30 crore policies and a policyholders fund of over Rs 28 trillion as of FY19 end.

To list LIC as a corporation, the government will have to make amendments in the LIC Act. While formal discussions on amendments to the LIC Act have yet to begin, there is consensus within the government to retain the term 'Corporation' for the insurance giant.

The LIC Act states : “The sums assured by all policies issued by the Corporation including any bonuses declared in respect thereof and, subject to the provisions contained in section 14 the amounts assured by all policies issued by any insurer the liabilities under which have vested in the Corporation under this Act, and all bonuses declared in respect thereof, whether before or after the appointed day, shall be guaranteed as to payment in cash by the Central Government”.

For a meaningful listing of LIC, govt also needs to allot higher authorised capital as the current equity capital of Rs 100 crore is on the lower side. This will be done via amending the Act. Simultaneously the government will also need to infuse cash in LIC to maintain its promoter shareholding.

The government is yet to decide on the size of the initial public offering. Given the importance of the amendments, sources say that the valuation of LIC is necessary which may take at least 3-4 months as the government has just called for bids for the appointment of advisors for the IPO.