The Life Insurance Corporation of India has sought a five-year time frame to meet the additional 50 per cent solvency margin as asked by the Insurance Regulatory and Development Authority.

In keeping with the Irda Act, LIC will meet the 100 per cent solvency margin of Rs 10,796 crore (Rs 107.96 billion) by the end of fiscal 2004, said the corporation chairman S B Mathur.

The additional 50 per cent solvency margin needs to be met by the end of 2005.

The solvency margin for LIC works out to Rs 10,796 crore, of which sources stated that the state life insurer has been able to meet this figure to the extent of Rs 9,025.03 crore (Rs 90.25 billion).

The insurance regulator however, on a more cautious note, has advised LIC to maintain 150 per cent solvency margin, pushing the required solvency margin to Rs 15,909.41 crore (Rs 159.094 billion).

This is in accordance with LIC's past performance and business written over the last 46 years.

Solvency margin is calculated at about six to eight per cent of the new business done each year. In addition to that, it also takes into account a certain percentage of the total business.

In absolute terms, Life Insurance Corporation thus needs to provide about Rs 2,000 crore (Rs 20 billion) each year, said official sources.

LIC officials stated that the corporation had met the RSM to the extent of Rs 9,025.03 crore, leaving a balance of Rs 6,884.38 crore (Rs 68.843 billion) to be met.

"By the end of fiscal 2004, we will have provided 100 per cent of the solvency margin for the past 47 years," said Mathur.

The corporation chairman added that the short fall of Rs 1,700-odd crore (Rs 17 billion) towards solvency margin would be met through the surplus.

"This will not having any bearing on the bonus amount given to policyholders. Bonus amounts have fallen in keeping with the drop in yields on government securities," said Mathur.

While the Irda had asked LIC to meet the RSM by third quarter of 2004, the corporation has asked the government and the regulator for more time to meet what it feels is not necessary.

Mathur told reporters on Monday: "We feel we should not be asked to provide for the additional 50 per cent solvency margin, especially since all our policies have government backing in the form of guarantees".