LIC IPO: Insurer gets until Jan 2023 to dispose of 'other investments'

Life Insurance Corporation (LIC) has received the insurance regulator’s nod for time till January-end 2023 to dispose of investments in pension, group and life annuity funds, which do not fall in the “approved investment” category.

Had the Insurance Regulatory and Development Authority (Irdai) denied more time to transfer the investments to shareholders’ fund at amortised cost, the loss that would have accrued in the profit and loss account (shareholders account) would have been Rs 5,365.83 crore as of September 2021, LIC said in its draft red herring prospectus (DRHP).

LIC is mandated to transfer those investments to shareholders’ fund at amortised cost, 90 days after such investments are reclassified as “other investments”, which it is yet to be undertaken.

Irdai has allowed LIC to hold those investments under “other investment” category till January 2023, subject to the latter complying with the regulator’s investment regulations by the same date as there will be no further extension. Further, LIC has to comply with the extant regulations with regard to all its new investments in pension, group, and annuity funds.

In the DRHP, LIC has said that as of September 2021, it had “other investments” of Rs 11,289.36 crore (of which Rs 24.74 crore was in equity and Rs 11,264.62 crore in debt instruments) in the pension, group, and life annuity funds that have not been transferred even after 90 days of them becoming part of “other investments”.

The market value of the equity investments of Rs 24.74 crore was Rs 9.48 crore. And, of Rs 11,264.62 crore of debt investment, Rs 5,914 crore was standard debt and the remaining Rs 5,35.05 crore are non-performing assets, which have been fully provided for as of September-end.

“While our corporation undertook reasonable efforts to dispose of securities that were re-classified as other investments, such securities could not be sold in a commercially reasonable manner due to the inadequate appetite of the secondary market to acquire the securities offered in large quantities, which resulted in the market values of such securities being highly compressed,” LIC said.

Irdai’s investment regulation specifies that insurers’ investments that do not meet the criteria for “approved Investments” are reclassified as “other investments”, and the insurer is required to ensure that such downgraded securities do not continue to be part of the pension, group and life annuity funds beyond 90 days from the date of reclassification.

Further, if such downgraded securities continue to be categorised as “other investments” even after the 90-day period, the value of such securities is required to be made good by transferring them to the shareholders’ funds at an amortised cost in the books of such insurers.

LIC said that if it is unable to dispose of the assets by the extension period, then the value of such “other investments” will be made good by transferring them to its shareholders’ funds at amortised cost.

“Our corporation shall also continuously review its other investments under pension and group and life annuity funds in future and dispose of securities that are newly reclassified as other investments within the stipulated 90 days,” LIC said.