LIC shares rally on report of insurer's plan to issue bonus shares, dividend

Shares of Life Insurance Corporation (LIC) rallied over 2.5 percent in early trade on October 31 on reports that the company plans to pay dividends or issue bonus shares to shareholders.

Following the report, the LIC stock opened higher today at Rs 606.90 on the NSE as against the previous close of Rs 592.70.

The state-owned insurer is reportedly planning to transfer nearly $22 billion from policyholders' funds into a fund earmarked to pay dividends or issue bonus shares.

The move is aimed to shore up both its own net worth and investor confidence, according to a Reuters report.

LIC was listed on the Indian stock exchanges in May, but its stock has since dropped over 30 percent.

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

Transferring some of that into the shareholders' fund is one way to shore up investor confidence as it would be an indicator of higher dividend payout in future, Reuters reported citing unidentified official sources.

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

With inputs from Reuters