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LIC plans dividends, bonus shares to shore up net worth and investors’ confidence

Life Insurance Corporation of India (LIC) was planning to transfer nearly $22 billion from policyholders’ funds into a fund earmarked to pay dividends or issue bonus shares, two sources said on Friday. With this transfer, the country’s largest insurer aims to shore up both its own net worth and investors’ confidence. 

The State-owned insurer had listed on stock exchanges in May, but its stock has since dropped by more than 35 per cent, wiping off nearly Rs 2.23 lakh crore in investors’ wealth. 

LIC was now looking at steps to revive its share price, said a government official, who did not want to be named. 

The company plans to transfer Rs 1.8 lakh crore ($21.83 billion), a sixth of the Rs 11.57 lakh crore lying in its non-participating fund, to its shareholders’ fund, according to an official aware of the matter. 

Life insurance companies primarily sell two types of products: the first are participating policies where profits are shared with customers and the second are non-participating, or non-par, policies that have fixed returns. LIC parks the premium it collects from the latter in a non-participating fund.

Transferring some of that into the shareholders’ fund was one way to shore up investors’ confidence as it would be an indicator of higher dividend payouts in the future, both the officials said. 

The surplus in the non-participating fund was earmarked for shareholders and could be transferred to shareholders’ fund with approval from LIC’s board, which was yet to be sought, they said. 

The transfer, if concluded, would boost LIC’s net worth by about 18 times from its current value of about Rs 10,500 crore and top the net worth chart among insurers, including SBI Life and HDFC Life, both the officials said. 

LIC and the Union Finance Ministry did not immediately respond to emails from the Reuters seeking comment. 

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