Govt May Amend Lic Act To Raise Capital

The government is planning to amend the Life Insurance Corporation (LIC) Act to enable it to raise its share capital base from the present Rs 5 crore to levels in the rest of the industry.

The Insurance Act mandates a minimum share capital of Rs 100 crore. With growth in business, private insurance companies have injected additional capital to meet expenses and solvency margins.

Senior finance ministry officials said that an amendment to the Act would be considered.

As per the Insurance Regulatory and Development Authority (Irda) Regulations 2000, the solvency margin for LIC works out to Rs 10,796 crore in March 2002.

 

The state life insurer has been able to meet this amount to the extent of Rs 9,025.03 crore.

However, on a more cautious note, Irda has advised all insurance companies to maintain 150 per cent of the solvency margin. This will trigger a hike in shareholder capital, which is in line with international practices. Companies require frequent capital inflows in the first five to seven years to meet solvency margins as they write new businesses.

Based on LIC