Holders of life insurance policies of Life Insurance Corporation of India (LIC) may see reduced return on their policies owing to the change in the sharing of the surplus, said the life insurer.
In its Draft Red Herring Prospectus (DRHP) filed with the Securities and Exchange Board of India (SEBI), the LIC said reduction in the availability of surplus to participating policyholders following the amendment to Section 24 of the LIC Act might make its policies less attractive to some customers.
Prior to amending the Section 24 of LIC Act, the life insurer had one single consolidated ‘Life Fund’.
The surplus in the Life Fund was distributed between the policyholders and the shareholder/Government of India in the ratio of 95:5.
After the amendment, the LIC Board was mandated to maintain two separate funds, i.e., a participating policyholders’ fund and a non-participating policyholders’ fund and from September 31, 2021 two funds were maintained.
As on September 30, 2021, the participating policyholders’ fund aggregated to Rs 24,57,995.21 crore and the non-participating policyholders’ fund aggregated to Rs 11,36,966.07 crore.
The surplus for the non-participating policyholders’ fund was Rs 1,407.86 crore for the six months ended September 30, 2021, all of which was transferred to the shareholders’ account.
Post segregation of the Life Fund, 100 per cent of the surplus generated out of the non-participating business is available for distribution to all of the shareholders.
The surplus from the participating business shall be distributed in the ratio of 95:5 to policyholders and shareholders. This sharing ratio will be modified as 90:10 in a phased manner.