The Life Insurance Corporation of India meeting the 100 per cent solvency margin took its toll on policyholders.

Had LIC not made an additional provision towards the solvency margin in fiscal 2003, bonuses on its 'with profit' policies would have been down by just two to three per cent. LIC reduced the bonus on its policies by an average of 10 per cent for the year ended March 31, 2003.

Senior LIC officials said the corporation had completed meeting the 100 per cent solvency margin by providing an additional Rs 4,681 crore (Rs 46.81 billion).

This takes the final sum to Rs 12,200 crore (Rs 122 billion) as on March 31, 2003. In addition to Rs 1,571 crore (Rs 15.71 billion) shortfall for past business, LIC had to provide for Rs 2,000 crore (Rs 20 billion) for incremental liability.

It further made a provision of Rs 1,100 crore (Rs 11 billion) following the equity markets having fallen in March 2003. The total sum was paid from the surplus account. According to LIC, the surplus rose to Rs 9,733 crore (Rs 97.33 billion) last year.

While LIC has been forced to reduce its annual bonus to policyholders, senior officials stated that it has kept the terminal bonus at a high level from its investment surplus.

Pact with SBI Capital Markets

Meanwhile, LIC signed a memorandum of understanding with SBI Capital Markets Ltd on Wednesday. The alliance will aid LIC in appraisal of investment projects.

SBI Cap chairman D P Roy told the media that the merchant banker hoped to play a complimentary role to LIC, which is the largest mobiliser of long-term resources.

LIC chairman S B Mathur reiterating Roy's expectations, added that through SBI Caps the organisation would be in a better position to appraise projects. This has become crucial at a time when consortium lending has fallen to the way side.

"When liquidity is in plenty and good projects not too many, this association will help in better evaluating proposals," added Mathur.