Mumbai: Life Insurance Corporation (LIC) has warned that a reduction in the share of surplus to policyholders by way of a bonus can make its products less attractive.
This follows a decision by the corporation to change the ratio of the distribution of the surplus between policyholders and shareholders from 95: 5 to 90:10 in FY25 in line with the rest of the industry.
Surplus distribution policy refers to the rate of increase of the fund’s life is shared with policyholders.
This only applies to those who have bought a policy of ‘participating’ in which they get a bonus linked to the performance of the fund.
Policy or a guaranteed return policy which is a unit-linked unaffected by the distribution of surplus.
Under Section 49 of the Insurance Act, the surplus will be distributed is arising from the balance sheet as a result of the votes on the actuarial valuations of the assets and liabilities of insurance companies.
Up to 10% of the surplus in the participating segments can be transferred to the shareholders and private companies to transfer 10% to the shareholders.
The revised ratio will also benefit the government will get most of the dividend because it will continue to accommodate 95% of the shares after the IPO.
The government has said that it will respect the policyholder in an initial public offering (IPO) by ordering the majority of the public to their problems.
In addition to giving them a better chance at the allotment, it will reduce conflicts of interest between policyholders and shareholders.
According to reports in the economic times, a record 34 lakh accounts Depository Participant (DP) was opened in January as brokers raced to get a LIC policy holders in the vessel prior to the IPO.
According to sources, the corporation aims to obtain a new DP crore accounts opened from policyholders.
Insurance industry officials say that although the policyholder would receive a bonus that is slightly lower, the impact will be very small on their return and will be in a few basis points (100bps = 1 percentage point).
In fact, Moody’s said that the list of companies will be a big positive because it will improve transparency and governance and bring reforms in terms of a better focus on underwriting.
“Improving the allocation of surplus funds that participate to shareholders and allocated 100% to shareholders of businesses that do not participate (previously 5%, which flows through the declaration of bonus) resulted in the allocation of surplus higher.
The shareholders,” said LIC in a bid sheet.
LIC says it will try and generate a higher return than what is being done on its investment.
“We plan to continue to work for a dynamic asset allocation and strategic between the different asset classes are allowed within the framework of regulations, depending on the cycle and market conditions, to improve investment returns,” the corporation said.