LIC dividend payout likely to restart after IPO, say market experts

Life Insurance Corporation of India (LIC) has not paid any dividends in nearly three years, something that may have helped shore up the insurer’s net worth ahead of its initial public offering (IPO), said experts.

No dividends have been paid this financial year as well as in financial year 2019-20 (FY20) and FY21, years when the insurer reported a net profit of Rs 2,710 crore and Rs 2,974 crore, respectively. This was after six consecutive years from FY14 to FY19 when it had high dividend payout ratios of 98-99 per cent. Dividend paid to the government of India in FY19 amounted to Rs 2,663 crore.

The years of high dividend payouts coincided with the period when the government’s fiscal condition was under strain, according to experts.

The Insurance Regulatory and Development Authority (Irdai) issued general advisories in April 2020 to insurers for capital conservation in the aftermath of the pandemic. The advisory had urged insurers to refrain from making dividend payouts from profits for FY20.

Accordingly, insurers such as LIC, SBI Life, and HDFC Life refrained from paying dividends that year. Insurers such as ICICI Prudential Life Insurance, Max Life and Bajaj Allianz Life, however, continued to pay dividends, with payouts of 38.1 per cent, 143.7 per cent, and 28.3 per cent, respectively. Irdai withdrew the applicability of its ‘capital conservation’ circular from February 25, 2021, after taking into consideration the solvency position of the insurers. However, the Irdai requested the insurers to take a conscious call in the matter of declaring dividends for FY21 considering their capital, solvency, and liquidity positions. 

“Our corporation retained its share of the surplus in Fiscals 2020 and 2021 for the issuance of bonus equity shares,” LIC’s draft prospectus said.

Analysts believe that eschewing dividends for nearly three years may have helped shore up its net worth and strengthen the balance sheet of the insurer ahead of its IPO.

“Now that they have declared the bonus, they may start paying dividends from next year in line with the other life insurance companies. This could be anywhere between 20-40 per cent of the earnings, or even higher depending on the needs of the government,” said Jasani.

An email sent to LIC did not elicit a response.