The Hindu Business Line : LIC's unrealised gain stands at Rs 40,000 crore

YOU may call this a problem of plenty. The Life Insurance Corporation of India (LIC) is sitting on an unrealised gain of Rs 40,000 crore on its portfolio of Government securities.

On investments in the equity-related instruments, the appreciation over the book value stands at about Rs 20,000 crore, according to the LIC Chairman, Mr S.B. Mathur.

Addressing a seminar on `Indian Insurance Industry: Progress, Problems and Perils,' organised by the PHD Chamber of Commerce and Industry (PHDCCI), Mr Mathur, however, held that both the debt market and the capital market were not "deep" enough to allow the insurer to quickly encash such gains.

He also said that LIC's balance sheet size is expected to grow from Rs 3,20,000 crore (December 31, 2003) to about Rs 3,40,000 crore as on March 31, 2004. Premium income from new business is expected to touch Rs 13,200 crore this fiscal (2003-04) against premium income of Rs 9,689 crore from new business in the previous year.

Mr Mathur's remarks on the growing size and financial strength of LIC came even as PHDCCI members voiced concern over the declining annuity rates under the insured superannuation scheme.

LIC had on January 17, slashed the monthly pension under the capital return scheme to a retiring member on attaining the age of 58 years to Rs 399.16 per month (on accumulation of Rs 1 lakh) from Rs 578 per month.

PHDCCI members said that LIC had reduced pension amount drastically and made it one-third in the last three years, which they held was neither justified nor reasonable on any account.

Reacting to their concerns, Mr Mathur said that "fund management" has become a challenge for the life insurance industry, especially in a softening interest rate regime. "The return on a 10-year Central Government paper stood at 12.7 per cent per annum in 1998. This came down to 12,5 per cent in 1999 and 10.5 per cent in April 2001 and today it is 5.22 per cent. At the latest levels, meeting the reasonable expectations of policyholders is a challenge for us," he said.

He added that the low interest rate regime is posing a danger of one-upmanship and that companies may go into risky investments, which may be suicidal in the long run.

Pension scheme fruitful: LIC has so far in the current fiscal collected premium of about Rs 4,500 crore towards the Varishta Pension Bima Yojna, the Chairman said.

The Prime Minister, Mr A.B. Vajpayee, had launched this scheme last year for citizens aged 55 years and above. Under the scheme, pension at the rate of 9 per cent per annum would be available to the investor during the life of the pensioner.

The Government had for 2003-04 allocated Rs 45 crore towards interest subsidy to LIC, which operates the scheme, for the pension plan for senior citizens.

"We have already received Rs 30 crore from the Government for the current year," Mr Mathur said. For 2004-05, the Centre has budgeted an expenditure of Rs 150 crore towards the interest subsidy payable for the pension plan for senior citizens.

LIC expects to collect Rs 5,000-Rs 5,500 crore premium under the Varishta Pension Bima Yojana for the current fiscal.

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