CHAPTER 1

CONCEPTUAL FRAMEWORK OF

CAPITAL STRUC'fUR£ AND FUND

MANA6EM£NT OF LIC
While Life Insurance is not always the insurance product at the forefront
ofyour thoughts, Life insurance is always a friend in time of need.

BRIEF HISTORY OF INSURANCE

The story of insurance is probably as old as the story of mankind. The same instinct that
prompts modern businessmen today to secure themselves against loss and disaster
existed in primitive men also. They too sought to avert the evil consequences of fire and
flood and loss of life and were willing to make some sort of sacrifice in order to achieve
security. Though the concept of insurance is largely a development of the recent past,
particularly after the industrial era - past few centuries - yet its beginnings date back
almost 6000 years.

Life lnsurance in its modern form came to India from England in the year 1818.
Oriental Life Insurance Company started by Europeans in Calcutta was the first life
insurance company on Indian Soil. All the insurance companies established during that
period were brought up with the purpose of looking after the needs of European
community and Indian natives were not being insured by these companies. However,
later with the efforts of eminent people like Babu Muttylal Seal, the foreign life
insurance companies started insuring Indian lives. But Indian lives were being treated as
sub-standard lives and heavy extra premiums were being charged on them. Bombay
Mutual Life Assurance Society heralded the birth of first Indian life insurance company
in the year 1870, and covered Indian lives at normal rates. Starting as Indian enterprise
with highly patriotic motives, insurance companies came into existence to carry the
message of insurance and social security through insurance to various sectors of society.
Bharat Insurance Company ( 1896) was also one of such companies inspired by
nationalism. The Swadeshi movement of 1905-1907 gave rise to more insurance
companies. The United India in Madras, National Indian and National Insurance in
CaJcutta and the Co-operative Assurance at Lahore were established in 1906. In 1907,
Hindustan Co-operative Insurance Company took its birth in one of the rooms of the
Jorasanko, house of the great poet Rabindranath Tagore, in Calcutta. The Indian
Mercantile, General Assurance and Swadeshi Life (later Bombay Life) were some of

2
 the companies established during the same period. Prior to 1912 India had no legislation
to regulate insurance business. In the year 1912, the Life Insurance Companies Act, and
the Provident Fund Act were passed. The Life Insurance Companies Act, 1912 made it
necessary that the premium rate tables and periodical valuations of companies should be
certified by an actuary. But the Act discriminated between foreign and Indian
companies on many accounts, putting the Indian companies at a disadvantage.

The first two decades of the twentieth century saw lot of growth in insurance business.
From 44 companies with total business-in-force as Rs.22.44 crore, it rose to 176
companies with total business-in-force as Rs.298 crore in 1938. During the
mushrooming of insurance companies many financially unsound concerns were also
floated which failed miserably. The Insurance Act 1938 was the first legislation
governing not only life insurance but also non-life insurance to provide strict state
control over insurance business. The demand for nationalization of life insurance
industry was made repeatedly in the past but it gathered momentum in 1944 when a bill
to amend the Life Insurance Act 1938 was introduced in the Legislative Assembly.
However, it was much later on the 19th of January, 1956 that life insurance in India
was nationalized. About 154 lndian insurance companies, 16 non-Indian companies and
75 provident were operating in India at the time of nationalization. Nationalization was
accomplished in two stages; initially the management of the companies was taken over
by means of an Ordinance, and later, the ownership too by means of a comprehensive
bill. The Parliament of India passed the Life Insurance Corporation Act on the 19th of
June 1956, and the Life Insurance Corporation of India was created on 1st September,

.
1956, with the objective of spreading life insurance much more widely and in particular
to the rural areas with a view to reach all insurable persons in the country, providing
them adequate financial cover at a reasonable cost.

LIC had 5 zonal offices, 33 divisional offices and 212 branch offices, apart from its
corporate office in the year 1956. Since life insurance contracts are long term contracts
and during the currency of the policy it requires a variety of services need was felt in the
later years to expand the operations and place a branch office at each district
headquarter. Re-organization of LIC took place and large numbers of new branch
offices were opened. As a result of re-organisation servicing functions were transferred
to the branches, and branches were made accounting units. It worked wonders with the

3
 performance of the corporation. It may be seen that from about 200.00 crores of New
Business in 1957 the corporation crossed I 000.00 crores only in the year 1969-70, and
it took another 10 years for LIC to cross 2000.00 crore mark of new business. But with
re-organisation happening in the early eighties, by 1985-86 LIC had already crossed
,
7000.00 crore Sum Assured on new policies.

As on 31st March 2009, there were 8 Zonal Offices located at Mumbai, Delhi, Kolkatta,
Chennai, Hyderabad, Kanpur, Bhopal, & Patna. There were I 09 Divisional Offices,
2,048 Branch Offices and 800 Satellite Offices (SOs) Divisional Offices monitor and
control the operations. Branch Offices procure business and are responsible for all
customer interface transactions. Satellite Offices also procure business and are
responsible for immediate customer services required. LIC bas tied up with some Banks
and Service providers to offer on-line premium collection facility in selected cities.
LIC 's ECS and ATM premium payment facility is an addition to customer convenience.
Apart from on-line Kiosks and IVRS, Info Centers have been commissioned at
Mumbai, Ahmedabad, Bangalore, Chennai, Hyderabad, Kolkata, New Delhi, Pune and
many other cities. With a vision of providing easy access to its policyholders, LIC has
launched its SATELLITE SAMPARK offices. The satellite offices are smaller, leaner
and closer to the customer. The digitalized records of the satellite offices will facilitate
anywhere servicing and many other conveniences in the future.

LIC continues to be the dominant life insurer even in the liberalized scenario of Indian
insurance and is moving fast on a new growth trajectory surpassing its own past records.
LIC has issued over one crore policies during the current year. It has crossed the
milestone of issuing 1,01 ,32,955 new policies by 15th Oct, 2005, posting a healthy
growth rate of 16.67% over the corresponding period of the previous year i.e. 2004.

From then to now, LIC has crossed many milestones and has set unprecedented
performance records in various aspects of life insurance business. The same motives
which inspired our forefathers to bring insurance into existence in this country inspire
us at LIC to take this message of protection to light the lamps of security in as many
homes as possible and to help the people in providing security to their families.

4
 Life Insurance Corporation of India (LIC) was formed in September, 1956 by
an Act of Parliament, viz., Life Insurance Corporation Act, 1956, with capital
contribution from the Government of India. The then Finance Minister, Shri C.D.
Deshmukh, while piloting the bill outlined the major objectives of LIC:

> To conduct the business with the utmost economy, in a spirit of trusteeship to
charge premium no higher than warranted by strict actuarial considerations.

> To invest the funds for obtaining maximum yield for the policy holders
consistent with safety of the capital.

> To render prompt and efficient service to policy holders, thereby making
insurance widely popular.

Some of the important milestones in the Life Insurance business in India

are:

1818: Oriental Life Insurance Company, the first life insurance company on Indian soil
started functioning.

1870: Bombay Mutual Life Assurance Society, the first Indian life insurance company
started its business.

1912: The Indian Life Assurance Companies Act enacted as the first statute to regulate
the life insurance business.

1928: The Indian Insurance Companies Act enacted to enable the government to collect
statistical information about both life and non-life insurance businesses.
-
1938: Earlier legislation consolidated and amended to by the Insurance Act with the
objective of protecting the interests of the insuring public.

1956: 245 Indian and foreign insurers and provident societies are taken over by the

5
central government and nationalised. LIC formed by an Act of Parliament, viz. LIC Act,
1956, with a capital contribution of Rs. 5 crore from the Government oflndia.

Since nationalisation, LIC has built up a vast network of 2,048 branches, 109 divisions
and 8 zonal and 800 satellite offices spread over the country in 2008-2009. The Life
Insurance Corporation of India also transacts business abroad and has offices in Fiji,
Mauritius and United Kingdom. LIC is associated with joint ventures abroad in the field
of insurance, namely, Ken-India Assurance Company Limited, Nairobi, United Oriental
Assurance Company Limited, Kuala Lumpur and Life Insurance Corporation
(International) E.C. Bahrain. The Corporation has registered a joint venture company in
26th December, 2000 in Kathmandu, Nepal by the name of Life Insurance Corporation
(Nepal) Limited in collaboration with Vishal Group Limited, a local industrial Group.
An off-shore company L.I.C. (Mauritius) Off-shore Limited has also been set up in
2001 to tap the African insurance market. LIC (Nepal) Ltd., for the year ended 15th July
2008, the Company completed 27,975 policies with Sum Assured of NRs 306.4 crore
and First LIC (Lanka) Ltd. Premium Income ofNRs 19.23 crore. LIC (Lanka) Ltd., for
the year ended December 2008, the company completed business under 8,833 policies
for a Sum Assured of SLR 164.0 crore with First Premium Income of SLR 4.08 crore.

The General insurance business in India, on the other hand, can trace its roots to the
Triton Insurance Company Ltd., the first general insurance company established in the
year 1850 in Calcutta by the British.

General insurance business in the country was nationalised with effect from 1st January,
1973 by the General Insurance Business (Nationalisation) Act, 1972. More than 100
non-life insurance companies including branches of foreign companies operating within
the country were amalgamated and grouped into four companies, viz., the National
Insurance Company Ltd. the New India Assurance Company Ltd. the Oriental
Insurance Company Ltd., and the United India Insurance Company Ltd. with head
offices at Calcutta, Bombay, New Delhi and Madras, respectively.

General Insurance Corporation (GIC), which was the holding company of the four
public sector general insurance companies has since been delinked from the later and
has been approved as the "Indian Reinsurer" since 3rd November 2000. The share

6
capital of GIC and that of the four companies are held by the Government of India. All
the five entities are Government companies registered under the Companies Act.

The general insurance business has grown in spread and volume after nationalisation.
The four companies have 2699 branch offices, 1360 divisional offices and 92 regional
offices spread all over the country. GIC and its subsidiaries have representation either
directly through branches or agencies in 16 countries and through associate/ locally
incorporated subsidiary companies in 14 other countries.

A wholly- owned subsidiary company of GIC, i.e. Indian International Pvt. Ltd. is
operating in Singapore and there is a joint venture company, viz. Kenindia Assurance
Ltd. in Kenya. A new wholly owned subsidiary called New India International Ltd., UK
has also been registered.

IMPORTANCE OF THE STUDY:

An analytical study of capital structure and fund management of LIC is important in

exploring about organisation's financial working and in explaining the role of fund
managers in the Corporation. The study also contributes in ensuring and enhancing the
quality of life of people through financial security by providing Life Insurance products

and services of high quality by LIC of India which is its most important mission. The
analytical work has also been helpful in knowing the various areas where the
Coworation has provided resources for economic development. . Life Insurance
Corporation of India (LIC) which was established in 1956 aims in spreading the
message of life insurance in the country and to mobilise people's savings for nation-
building activities.

LIC of India is the one and only public sector life insurance Company in India The
study is important for the following reasons in addition to the main and important
reason mentioned above.

7
 In finding how LIC 's fund management ensures maximum mobilization of people's
saving by making insurance linked saving adequate attractive in the country and outside
the country. Study also finds how Corporation manages international markets through
its branch office as well as Joint Venture Subsidiaries.

1n getting acquainted with LIC ' s primary obligation to its policyholders, where money it
holds in trust, without losing sight of the interest of the community as a whole.

The study aims at finding the various fields where funds to of the corporation is be
deployed to the best advantage of the investors as well as the community as a whole,
keeping in view national priorities and obligations of attractive returns.

In getting familiar how LIC do the business with utmost economy and with the full
realization that the money which belongs to the policyholders.

Study has vital contribution in finding how LIC promote amongst all agents and
employees of the Corporation a sense of participation, pride and job satisfaction through
discharge of their duties with dedication towards achievement of Corporate Objective.

The study also helps in knowing the different types of investments, returns from
investments, strategies of raising funds of the LIC of India.

The study makes inquiries in the application of funds that is various purchases of assets,
kinds of expenditures and income from the operations of LIC of India.

NEED I REI.EVANCE OF THE STUDY

LIC raise its funds through various policies issued by it. Their main aim is not only to
raise the funds but they keep in mind the various requirements of the customers as well.
LIC has spread alternative channel for reaching newer market segments by harnessing
8
the large customer base through bank partner, corporate agents and brokers. An
analytical study of capital structure and fund management of LIC is required to know
about the Corporation and see the areas of working within the country and outside the
country. The analysis is also needed in order to know how the various funds in the
Coworations are raised, what is the nature, terms of the funds. It also is important as it
helps in studying the types of investments and returns from them.

The study is also required to know the kinds of income generated from different kinds
of investments over a period of time and the incomes generated from them, and various
strategies for raising different kinds of funds.

The study is also relevant in analysing the various implementation of information

technology in the Corporation' s working and needs to know its affect on LIC 's
working. The analytical work at last is also needs to know the contribution of LIC in the
economic development of the country, like in housing, employment opportunities,
agriculture, industries etc.

OBJECTI\1£ OF THE STUDY

The main objectives of the study are mentioned hereunder:

1. To evaluate the various objectives and importance of LIC of India.

·2. To study the various advantages of fund management of LIC and to know its
capital structure.

3. To study the functions and nature of the financial management of LIC of India.

4. To evaluate the present capital structure and management of funds.

5. To analyse how the funds are being raised by the Corporation through various
policies and product development.

9
 6. To know the various kinds of expenditures and areas of investments of LIC of
India.

7. To do comparative analysis of financial statements of LIC from the year 2002-

03 till financial year 2008-09.

,8. To study the impact of Information technology in the working ofLIC of India.

9. Last but not the least, to identify the areas of contribution in economic
development of LIC of India.

10. To recognise the drawbacks in the organization during the financial management
and give related suggestions.

M£TH0D0L06Y OF mE STUDY:

Data collection: study is most probably based on secondary data which is collected from
various secondary sources like annual reports of the LIC of India, magazines of the
Corporation e.g. Yogakshama, various newspapers e.g. Times of India. Various books
on insurance like Life Insurance Corporation of India etc. have been referred. Various
websites like www.licindia.com have been also surfed. Researcher has collected all the
relevant data regarding the Corporation' s working, investment pattern, returns from
investments keeping national priorities.

Primary data have been collected by survey method. A detailed questionnaire was
prepared to do the comparative study of Public and private sector insurance awareness
and preference level.

DES16N OF mE QUESTIONNAIRE:

Questionnaire is prepared to do the comparative study of Consumer Behavior towards

various Investment and Insurance Products of the public and private insurance
companies. LIC of India is the public sector insurance corporation and four other

10
 namely, ICICI, HDFC Std. Life Insurance, Om Kotak Mahindra and Birla Plus, from
the private sector has been taken.

- !"'

SAMPL£SEL£CTI0NANDSIZE

LIC of India is the one and only public sector life insurance Company. The Corporation
has millions of customers within the country and outside the country. But for our
analysis and study, out of the total population, sample has been selected from Kanpur
city of Uttar Pradesh state. Sample of 1,000 respondents, where 500 are the customers
of public sector and 500 are the customers of private sector, have been identified for
detailed study and complementary analysis.

ANALYSIS AND INTERPRETATION OF DATA

The collected raw data have been processed and classified into homogeneous
arrangements. These data have been tabulated and supported by appropriate diagrams.

Wherever required percentage method and trend projection method has also been
applied.

The researcher has given an elaborate idea regarding the nature of LIC of India, it
working, investments, expenditures and returns from them. In order to evaluate the
.
performance of the Public Insurance Company, LIC of India, SWOT analysis has been
applied.

11
SCOPE OF THE STUDY

This study has been undertaken mainly to analyse the different ways through which
funds are raised, various investments which are done by the Corporation and the returns
from the investments or earnings.

PERIOD OF THE STUDY

' An analytical study of capital structure and fund management of LIC' relates to the
time period between financial years 2002-03 to 2008-09.

UM.ITATIONS OF THE STUDY

Study has following limitations:

1. Study is based on secondary data.

2. The research is confined to Kanpur city and is applicable to other cities like
Kanpur but is not applicable to other cities.

3. Data may be not correct as some of the respondents were reluctant to give
correct information. This may affect the validity of the study.

4. In a rapid changing industry, analysis on one day or one segment can change
very speedily. The environmental changes are very important to be considered in
• order to incorporate the findings.

5. Some of the persons were not so responsive.

6. Some respondents were reluctant to divulge personal information which can

hinder the validity of all responses.

7. Secondary data might not be updated and not of much use in a dynamically
changing environment.

12
 CHAPTER DESIGN OF TH£ STUDY

Dissertation consists of nine chapters.

• The first chapter deals with the design of the study and conceptual framework of
Capital structure and fund management ofLIC.

• Second chapter tells us about the need of sound capital structure and fund
management in LIC.

• The third chapter considers the nature of funds, kinds of investments and returns
from them.

• Fourth chapter discuss about the application of funds.

• Fifth chapter deals with the financial statements of the LIC and their
comparative analysis.

• Sixth chapter includes the various operations of LIC in the country and out side
the country.

• Seventh chapter discuss about the impact of Information technologies in the

working of LIC

• Eighth chapter relates the contribution of LIC in economic development of the

country.

• Ninth chapter deals with the problems and suggestions related to the study.

LITERATURE REVIEW

- r-
To have the better understanding about the present study in its perspective, it is
important to know what has already been done in the field. This will help researcher to
fill the gap to some extent. To review of all the relevant topics related to Life Insurance
Corporation of India, researcher has gone through most of the topics on insurance, but it
was very hard to find relevant applicable topics. It was experienced that no research
13
 IILIC
~~ ~f<ol-,rq
LIK tMSUAANCt. C()fU'O'IA1'10H Of" tHOl4

work on the similar topic has been done yet. Few of the work which have bearing with
the topic, have been presented as under:

Mr. Arjun Roy in a project having topic "A Detailed project report on Life Insurance of
Corporation (LIC) of India" analysed that The Life Insurance Corporation of India has
been a nation-builder since its formation in 1956. The Corporation has deployed the
funas to the best advantage of the policyholders as the community as a whole. Year on
year LIC' s productivity and profitability provides shareholders with an improving dual
return - as co-operativeshareholders through a wider range of services and products ~d
as investors in the business, with a useful return on capital and an increasing share price.
The LIC investment strategy is very clear. It is based on their investment policy, IRDA

Regulations, Insurance Act and the LIC Act. According to the guidelines, 50 per cent of

the total investible funds must be in government securities - 25 per cent should be in
central government securities, and up to 50 per cent in both state and central
government securities. The market has come down by about 50 per cent from its peak in

Jan_uary, but the value of their investments have come down by only 15-20 per cent. For

UC, the situation has turned out to be a boon, as the public is now more biased towards
public sector entities like them instead of investing in private companies.

Dr. Navneet Kumar Bajpai in his study "Working of LIC of India" has given the
overview of LIC of India. He has discussed the need, forms and history of insurance.
Further he discussed about the different policies of LIC along with their premium
payment, claim. He has also covered the Investments of LIC with their restrictions ~d
reasons for investments. The sector and zone wise distribution of investment of LIC has
also been covered. Surplus of LIC covers the reasons of surplus, higher interest
earnings, gains on assets, expenses, surplus ascertainment and the valuation procedure.

- ...
Personnel management of LIC has also been covered where about the categories of LIC
staff and agents and their returns have been discussed.

14
 IILIC
~~1fl...-rf>t-,rq
urc IMMUtAHCC: COAPOAATION Of' IN04A

Dr.Shahla Rahman Khan in her topic of research "Human Resource Development in

LIC- An appraisal" has discussed about the development of human power in LIC and
their relation to the working in the organisation. She discussed about planning and
organizing the Human Resource Development system in LIC of India. There should be
regular training programs in the organisation which keep the employees up to date with
the changing work pace and help them to tackle certain situations. Human resomce
training and development programs in the technological advancement have also been
emphasized. Further the problems which are faced during the human resource
development and training were discussed.

Miss Patya Garg in her project "Life Insurance Corporation of India- An overview"
discussed about the organisation. When the LIC of India came into existence, how
corporation works, different policies of LIC of India, their management have been
discussed by her.

Mr. Ronit Kalra in his project on "Comparative study of LIC with Private Companies"
disyussed that how the entry of private sector insurance companies into the Indian
insurance sector triggered off a series of changes in the industry. Even with the stiff
competition in the market place, the public sector giant LIC dominates the Indian
insurance industry. In today' s competitive world, customer satisfaction has become an
important aspect to retain the customers, not only to grow but also to serve. Increased
competition, wide range of product offerings and multiple distribution channels cause
companies to value satisfied and highly profitable customers. Customer service is the
critical success factor in a company and providing top notch customer service
differentiates great customer service from indifferent customer service

MEANIN6 AND SCOPE OF UC

Life insurance is a contract providing for payment of a sum of money him to the person
entitled to receive the same event the happening of some event. The definition of a
contract of Life Insurance (LI) as given by BUNYON in the law of Life Insurance-
15
 "A contract of Life Insurance is that in which one party agrees to pay a given sum on
the happening of a particular event contingent upon the duration of human life· in
consideration on the immediate payment of a smaller sum or certain equivalent
periodical payments by another."

As such life insurance is a contract for payment of a sum of money to the person
assured on the happening of some event that is insured against. The contract providers
for the payment of an amount on the rate of maturity or at some specified date at
periodical internals of at unfortunate dates, it also provides for the payment of premium
periodically to the corporation by the assured. Basically life insurance is an institution
that eliminates risk substituting certainty for unfortunate and comes to the timely aid of
the family in the unfortunate event of the death of the bread - winner.

The year 1956 brought along a defining moment in India's social engineering attempts
and marked the beginning of a new phase in the history of Life Insurance in India that
was conceived in genuine spirit of service to people. When the corporation started its
journey as a merged entity there were a number of formidable problems. Beginning
from establishing a unified organizational structure to achieving emotional integration
of staff absorbed from offices of erstwhile life insurers - there were problems that had
no ready - made answers. But the valiant efforts of LICians, over generations, succeeded
in effectively surmounting every impediment and today the corporation can, with pride,
look back upon the magnificent achievements. In a competitive era the path to progress
traverse through the customer's heart. The west has suddenly woken-up to relationship
marketing coupled with professionalism can satisfy today' s discerning customer. LIC
has remarkably improved its customer servicing in the past few years LIC settle about 2
claims every second-but let the numerical expressions and comparisons delight
economist and financial experts.

For LIC a policyholder is not a more number but is an individual and for this reason
- I, even a single dissatisfied customer becomes a reminder of the excellence to be
achieved. There is no match to LIC when it comes to innovating products for Indian
customers - Surely Hum Jaane Bharat Ko Behtar.

16
LIC aims at providing a stimulating environment from fresh thinking to take place,
sharpen its professional edge to guide the customer what to expect, and to move beyond
being transactional and develop a transformational approach in every field of activity.
LIC being the market leader, the responsibility to define the standards lies on our
shoulders. With time, batons will get appear on the scene to carry the flame forward.

The nationalization of life insurance business in India was done by an act of parliament,
which received assent of the president on 18th June 1956. The Act came into force on 1st
July, 1956. the act so enacted was brought to replace the provisions of the emergency
name life insurance (emergency provision) ordinance, 1956 promulgated by the
president oflndia on 19th January, 1956.

In competitive environment, LIC would become a much sharper and a more focused
organization to meet the challenges of competition and while operating in a competitive
environment over the last few years; LIC has demonstrated that in ample measure. In
the years ahead, LIC as a market leader has a role to play in providing life insurance
cover to those who need it most.

Increasing growth since liberalization:

Table 1.1 Source: - Insurance Industry (ICFAI publication book)
FINANCIAL YEAR ENDING LIC (in billion Rs) PRIVATE PLAYER ·
ON
2003 110 10

2004 120 20

2005 130 40

2006 140 60

2007 240 160

17
Graphical Presentation of increasing growth since liberalizations
Graph I.I

• UC{ Rs. In billions) I

[ • Pvt. Players(Rs. In billions)

FY03 FY04 FYOS FY06 FY07

FEATURES OF CAPITAL STRUCTURE AND FUND

MANA6EM£NT

Capital structure refers to the way a corporation finances itself through some
combination of equity, debt or hybrid securities. A firm's capital structure is then the
composition or 'structure' of its liabiljties. An appropriate capital structure is a critical
decision for any business organization. The decision is important not only because of
the need to maximize returns to various organizational constituencies, but also because
of the impact such a decision has on an organization's abi lity to deal with its
competitive environment.

ln the history on Insurance in India, the Life Insurance Corporation of India has indeed
written a golden chapter. Conceived bri lliantly by visionaries in 12956, it was brought
together amalgamating 245 insurance to spread the message of life insurance to every
nook and corner of this vast country. Capital structure and the funds in the LIC are
invested in the various field our country's development. The customers of LIC
purchaser the policies according to their payments and premiums for the policies
become capital and fund of the corporation which is further utilized in various fields
Govt. and Social sector like agriculture, infrastructures electricity, water supply &
18
 sewerage state road transport corporation, loans to industrial estate, loans to sugar co-
op, Development Authority Roadways, Port Railways, Power Generation (Private
sector), Municipality etc. there are no special features of capital structure and fund
management but the feature of LIC as a whole are its features become LIC is all about
, '
capital, funds, investments and society. The total Investment in these sectors during
2008-09 was Rs.21,775.57 crore as compared to 2005-06 where investment was
Rs.13,850.84 Crore.

An appropriate capital structure should incorporate the following features:

1. Flexibility: A sound capital structure must be flexible. The consideration of

flexibility gives the financial manager ability to alter the firm's capital structure with a
minimum cost and delay warranted by a changed situation. It should also be possible for
the company to provide funds whenever needed to finance its profitable activities.

2. Profitability: A sound capital structure is also one that also possesses the feature of
profitability, i.e., it must be advantageous to the company. It should permit the
maximum use of leverage at a minimum cost with the constraints. Thus a sound capital
structure tends to minimize 'cost' of financing and maximize earnings per share (EPS).

3. Solvency: A sound capital structure should also have the feature of solvency, i.e., it
should use the debt capital only up to the point where significant risk it not added. As
has been already observed the use of excessive debt threatens the solvency of the
company.

4. Conservation: The capital structure should be conservative in the sense that the debt
capacity of the company should not exceed. The debt capacity of a company demands
on its ability to generate future cash flows. It should have enough cash to pay creditors
fixed charges and principal amount. It should be remembered that cash insolvency
might also lead to legal insolvency.

5. Control: The capital structure should involve minimum risk of loss of control of the
company.

19
 Some of the main features of LIC are as follows -

./ The Pride ofIndia -

A country with a population of over 100 crores. It is very difficult to imagine that what
the capital structure and fund management can give to them. Can LIC give them
Dedication, Integrity Commitment and the trust of all those people? All qualities are
featured at the cove of LIC. Over 5 decades, the LIC of India, has helped millions of
Indians households open their doors to a more secure future. Every year, more and more
people realize the importance of insurance, and are turning to LIC for solutions So
much so, LIC is now the people's choice in Insurance not only that, working of the
corporation assures the customers to be close to them through their network of 2048
branches and more then 8 lakh agents.

The corporation capital structure and fund management continually striving to deep up
with the changing need of the country as it evolves with every passing decade. It has
contributed to the country' s economic infrastructure by vesting in housing water supply
and other areas thus paving the way for a powerful bond between the nation and us.
This is the driving force that urges us to serve people better. Bancassurance and
Alternate Channels completed 8, 62,333 policies and Rs. 1076.59 crore (Rs.10.76
billions) First Premium, registering a growth of 14.15% on policies and 33.50% on First
Premium Income. The percentage share of Alternate channel business to total business
went up from 2.01 % to 2.40% in policies and from 1.84% to 3.05% in First Premium
Income. Of the total business of alternate channels, Banks (under Corporate AgeQ.cy
model) contributed 67.29% of number of policies and 63.70% of First Premium Income.
The contribution of the Corporate Agents was 28. 72% in number of policies and
17.19% in First Premium Income. The contribution of brokers increased substantially
especially on the premium count, where the share increased from 2.85% to 17.81 %.

- Their share of policies was 3.51 %. Banks (under referral model) contributed 0.48% in
T

policies and 1.30% in First Premium Income. In order to give fillip to rural thrust, LIC
tied up with more regional rural banks (RRB's) to market its products. The policies
procured through RRB's have increased twofold to 64,638 this year from 30,835 last
year. LIC is putting more focus on recruitment of Corporate Agents and Brokers. LIC is

20
 tying up with some large national banks on corporate agency as well as referral
arrangement model. 1017 Financial Service Executives were introduced to closely liaise
with channel partners and to help in procurement of business.

./ Bonds of trust -

Over fifty-six years, LIC has become a household name providing security for a
lifetime and beyond. LIC is synonymous to Life insurance in India In relation to the
re9ord average growth of 8.8 per cent achieved during 2003-08, 6.7 per cent growth in
2008-09 represents a notable deceleration, though in terms of growth performance of
major countries around the world Indian growth remained one of the highest. Therein
lies LIC 's strength quick to change with times, responding to changing need and
aspiration of the people. Evidently, LIC's capital structure and fund management
stands on a global stage, ever adapting to world class standards of service - in terms of
tailor-made schemes, computerization and strategic planning. At LIC, nothing bonds
like trust.

./ Omnipresence -

.
LIC's capital structure and fund management can be stated as an organization. As on
3 I st March 2009, there were 8 Zonal Offices located at Mumbai, Delhi, Kolkatta,
Chennai, Hyderabad Kanpur, Bhopal, & Patna. There were 109 Divisional Offices,
2,048 Branch Offices and 800 Satellite Offices (SOs) Divisional Offices monitor and
control the operations. The number of Active Agents was 12,75,611 as at 31.03.2009
as compared to 11 ,17,908 as on 31.03.2008. Branch Offices procure business and are
responsible for all customer interface transactions. Satellite Offices also procure
business and are responsible for immediate customer services required. The
organization covers risk, provision for Childs education, marriage, health care and
- ,. pension, LIC has over 50 plans to suit people's personalized insurance needs.
Proportion of life insurance fund in financial savings increased from I 7.4 per cent in
2007-08 (Provisional) to 19.5 per cent in 2008-09 (Preliminary Estimates). Share of
insurance fund as a percentage of GDP increased to 2.8 per cent in 2008-09 from 2.7

21
 per cent in 2007-08.Total First Year Premium of Insurance Industry was Rs. 69284.00
crores (Rs.692.84 billion) in 2008-09 as compared to Rs. 78552.70 crores (Rs.785.52
billion) in the year 2007-08. LIC as the largest insurer in Life Insurance market
maintained 60.79 % share in premium & 70.52 % in individual policies in financial
year ending March 2009 .

../ Financial Indicators -

In pursuance of the corporate objectives of providing insurance cover to more and

m9re people, greater emphasis is laid on covering individuals who have no previous
insurance on their lives. During the financial year 2008-09, 325.84 lakh (Rs.32.584
million) individuals were insured for the first time for a total Sum Assured of Rs.
360937.07 crore (Rs.3609.37 billion) as against the previous year' s figures of 355.47
lakh (Rs.35.55 million) policies for S.A. of Rs.260873.23 crore (Rs.2608.73 billion).
The ratio of First

Insurance to the Total Business completed for the year comes to 90.78% and 92.54%
·-
in respect of Number of Policies and Sum Assured respectively .

../ Group Insurance Schemes -

LIC makes risk cover affordable. So if anyone who bas group policies to cover
categories such as employer - employee, professionals, co-operations, weaker
sections etc., Social Security Group Schemes at subsidized rates. Expertise is offended
to employers' to fund gratuity and pension liabilities, besides insurance cover. These
group schemes are low premium with simple insurability conditions. Premiums are
based on age, combination of the member's occupations and the working conditions
of the group minimum group size and min participation are key factors to make a
scheme viable.
-

.> Group Term Insurance Schemes

> Group Insurance Schemes in lieu of EDLI

22
 > Group Gratuity Schemes.

> Group Superannuating Scheme

> Group leave Encasement Scheme

./ Social security Scheme -

It is the scheme to help the people under poverty line~ govt. of India launched certain
so~al security schemes where LIC plays the role of a custodian as well as administrator.

> Janashree Bi.ma Yojna.

> Krishi Shramik Samajik Surak:sha Yojna

> Shiksha Sahayog Yojna .

./ Anytime, anything L/Cians are accessible-

For better and prompt customer servicing, LIC has a multi-channel approach of using
information technology, taking the optimum benefit of latest technological advantages.
86,274 claims amounting to Rs.221.40 crores paid under Social Security Schemes.

Scholarships of Rs. 110.24 crores paid to 15.25 lakh needy students:

a) Scholarships for total amount of Rs. 97.21 crores were disbursed to 13, 08,858
students as a free add on benefit to the children of the members of Janashree Bi.ma
Yojana under Shiksha Sahayog Yojana during the year 2008-09.

b) Scholarship for total amount of Rs. 13 .03 crores was distributed to 2, 17,2 11 students
as a free add on benefit to the children of members of AABY Shiksha Sahayog Yojana
during the year 2008-09. 2.35 crores lives given insurance cover under Social Security
Schemes:

23
 As at 31.03.2009 the total no oflives covered under all the Social Security Schemes was
2.35 cores. 16.07 lak.h Women Associated with Self Help Groups given insurance
protection: A special emphasis was put for providing protection to Women Associated
with Self Help Groups Credit Linked to Banks. Under the scheme total 16,07,484 lives
have been covered in the year 2008-09.

./ Front end application programs -

All.2048 branches of LIC are equipped with programs developed in house to cover all
policy servicing aspects, providing prompt computerized services.

Networking - LIC's Wide Area Network (WAN) cover 100 Divisional Centres
connecting about 1500 branches through a Metro Area Network (MAN). Till 2008-09
new software has been implemented at IVR/INFO Centers at 13 locations across the
country. The software enables the executives to attend to the queries raised by
customers in an efficient manner besides generating MIS reports locally and remotely.

../ Online Premium Payment -

LIC has tied up with some Banks and services providers to offer an on line premium
collection facility to its customers in selected cities. It is intended to extend this facility
to all cities covered under its network.

1. Electronic Clearance System (ECS): This facility is presently available at 53

centres. Total number of centres where ECS can be offered as per RBI is 64. Through
ECS premium can be collected for ULIP and Health Insurance policies also. Online
Payment channels, Valid Receipt issued instantly:

2. €ustomers' Portal Payment Gateway: Online premium payment on LIC Website:

www.licindia.in with the help of Net Banking Facility of 33 major Banks.

24
3. Axis Bank: Premium can be paid at any of the Branch or Extension Counter of Axis
Bank in cash or cheques drawn on Axis Bank.

4. AP Online: This is a utility bill collection network operative in Andhra Pradesh.

There are more than 1,000 franchises across the state.

5. MP Online: MPOnline is a utility bill collection network operative in Madhya

Pradesh. There are more than 300 franchises across the state with a presence in alm_ost
every mandal.

6. Suvidhaa Infoserve Pvt. Ltd.: This is a utility bill collection network present across
the country. It has more than 3000 collection centre across the country at present.

7. Tick Business Solution Pvt. Ltd (TBS): it is an E-Commerce Company engaged in

offering citizen oriented services including collection of different bills. It has approx.
2000 outlets across the country.

8. Electronic Bill Presentation and Payment (EBPP): Premium can be paid through
various Banks like City Bank, HDFC Bank, ICICI Bank, Federal Bank, Corporation
Bank, Axis Bankand through Service Providers - Bill Desk and Tech Process which
cover almost all other banks throughout the country. Premium can be paid through
Cnxlit Card also availing this facility.

9. ATM: Available with two banks - Corporation Bank and Axis Bank. Through EBPP
& ATM Premium can be collected for in force policies only which are NOT with
Monthly /Salary Saving Schemes mode or under ULIP or Health Insurance plan.

10. Authorised Agents: Keeping in tune with the increasing customer expectation for
more conveniences in servicing, the Corporation has empowered select Agents to
collect the renewal premium. At present, there are 2590 authorised Agents across the
country.

25
 ./ Internet Initiatives -

LIC's website offers a number of customer friendly features - product information,

services with regard to calculation of premium, Income Tax etc. links of online
premium payment services, links to subsidiary companies.

> Kiosks - LIC has installed information Kiosks at 150 selected locations to give
policy status reports and details about insurance plans servicing aspect etc.

> IVRS - LIC also has interactive Voice Response System in 59 urban centers.
This is a menu driven service. Customers can get selected information regarding
their policies by calling the prescribed telephone numbers. These numbers are
advertised frequently and are also available on LIC's website

> Info Centre - LIC commissioned its first policy service Info Centre at Mumbai
in March 2002. This centre is equipped with state of the art technology and
manned by trained persons. Similar services are being commissioned in 7 more
cities .

./ Record breaking claim settlement-

Settlement of Claims
.
The settlement of claims is the most important aspect of service to the policyholders.
Hence, the corporation has laid great emphasis on expeditious settlement of the maturity
as well as death claims. During the year 2008-09, the corporation has settled 1.54 crore
(15.4 million) claims for Rs.40085.12 crore (Rs.400.85 billion Including Micro
Insurance and Pension & Group Schemes) compared to 1.44 crore (14.4 million) claims
for Rs.38864.01 crore (Rs. 388.64 billion) in the previous year. The percentage of
- .. claims outstanding(remaining unpaid) at the end of the year to the claims payable
during the year is 0.33 % by number and 0.97% by amount as on 31st March, 2009
compared to 0.28% by number and 0.94% by amount as on 31st March, 2008. During
2008-09, 97% of Maturity claims were settled on or before the date of maturity. Though
company says that it settle the claims expeditiously, but according to the survey done

26
 this has been found that out of the respondents 17% of LIC's respondents were satisfied
with the claim settlement process and 83%were not satisfied. When we analyse private
insurance policyholders 30% of the respondents are satisfied and 70% are not satisfied
with the claim settlement.

../ Claim Review Committee -

The claims Review Committee at the Central and Zonal office has among its members,
a retired High Court/District Court Judge. This has helped in providing transparency to
operations and has resulted in greater satisfaction among claimants, policyholder and
public .

../ Policyholder Grievance Machinery -

The Corporation has Grievance Redressal Officers at Branch/Divisional/Zonal/Central

Office to redress grievances of customers and for transparency in operations. Their
'
names and availability timings are published in newspapers of wide circulation. The
spirit of customer relations and customer care have been ingrained in our complaint
redressal system with emphasis on placing customer oriented personnel at all touch
points. IT enabled support system have been set into operations to reduce manual
interventions and minimize grievances. In our endeavor for enhancing customer
satisfaction, stringent bench-marks as laid down in the Citizens' charter are being
followed scrupulously. Cells exit in all the offices of the corporation headed by scenario
offices who can be approached by policyholders to get their complaints attended to on
any day and particularly every Monday between 2.30 pm to 4.30pm. Also the
policyholder can avail of the facility of toll free telephone system in Delhi and Mumbai
or contact through LIC website www.licindia.com.
From the survey done by taking 1000 respondants it has been found that 42% are fully
satisfied, 28% of the respondants are partially satisfied and 30% are not satisfied with
-
grievance redressal mechanism of LIC of India whereas for private insurance companies
26% are fully satisfied, 41 % of the respondants are partially satisfied and 33% are not
satisfied with grievance redressal mechanism of private insurance companies.

27
Graph 1.2
Grievance redressal satisfaction mechanism

45
40
35
30
LIC{in %}
25
20
• Private Insurance Company
15
(in%)
10
5
0 ~_:___:__=-~~~.....:...:..-=--=~~_:__==_:__~---
Fully Satisfied Partially Not satisfied
satisfied

Source: Primary Data

./ Customer Relationship Management -

LIC has appointed a customer Relationship manager at Divisional offices to give

information about products and services and also for rehearsal of grievance in relation
to policy servicing.

,/ LIC has various Investments -

The Investments of LIC are governed by section 27A of the insurance Act, 1938 and the
(Investment) Regulations are prescribed by the Insurance Regulation and Development
Authority (IRDA). LIC follows a very prudent and sound system of investment. The
decision for investment are taken by a high level committee comprising Chairman of
UC, Managing Director and some Member of the Board of the Corporation, and an
investment is made only if the decision to do so is taken with unanimity. In all its
investment LIC follows the exposure and prudential norms prescribed by the Investment
Committee and the IRDA. The pattern of investments as prescribed for LIC is as under
investment norms for LIC approved by IRDA, controlled funds are invested as follows:

28
Investment Norms for LIC:
Table 1.2
S.N. Type of Investment IRDANorms
1 Govt. Securities Not less than 25%
Govt. securities or other approached securities (including
2 Not less than 50%
no. 1 item)
3 Approved investment Infrastructure & social sector Not less than 15%
4 Other Not less than 35%

./ LIC is Global

Beside LIC's head office at London and Lautoka (Fiji) and Port Louis (Mauritius), LIC
has set up two separate joint ventures abroad.

The LIC (International) B.S.C. (c) was established at Bahrain with three broad
objectives.

• To fulfill the insurance needs of expatriate Indians in the Gulf.

• To provide insurance service to the holders of Indian Registered Policies of LIC,
currently residing in the Gulf.
• And to help Non-Resident Indian have their ' OWN COME BACK HOME'
through loans from LIC housing finance limited.

LIC (Nepal) Ltd. is a joint venture between LIC and Vishal Group of Nepal. It was
formed on 3rd December 200 1.

The other joint venture is LIC (Lanka), it was set up between LIC and Bartleet Group,
Sri Lanka in 2003.

29
 UC (Mauritius) offshore Ltd. - A joint venture offshore company prompted by the LIC
of India and the General Insurance Corporation of India. The company commenced its
operation from 2006.

Kenindia Assurance Co. Ltd., a joint venture company between LIC of India, GIC and
others was established on 06.12. 1978 in Kenya. The Company transacts both life and
non-life business. For the year ended 31.12.2008, Life Branch of the Company
completed 2,227 policies with first year premium income of KShs (Kenya Shillings)
31.6 crore.

Saudi Indian Company for Co-operative Insurance (SICCI) is a joint venture company
between LIC of India, LIC (International) B.S.C. (c) Bahrain, New India Assurance
Company Limited, AJ-Hokair Group and public from Saudi Arabia where LIC of India
& LIC (International) hold 10.2% share each. Commercial License was granted on
8.8.2007. The Company began its Life Operations in January, 2009.

Operational Highlights (Amount in Indian Rs. crore)

Companies promoted by LIC - The LIC Mutual Fund was setup with a view to
providing accessibility of various investment media (including the stock market) to all
section of investors particularly the small investors in rural and semi-urban areas. The
company manages a corpus of Rs. 4000 crore, under 35 different schemes.

The LIC Housing Finance Limited was incorporated with the objective of providing
long term finance for construction and purchase of individual houses and apartments
with 6 regional offices 67 area office, 97 operating office and over 100 camp offices
nationwide the company has the largest network in the country.
The LIC Housing Finance Limited is rated amongst 'The Best Performing Companies
in India' .

./ L/C has Citizens Charter

LIC's Mission - To ensure and enhance the quality of life of people through financial
security by providing Life Insurance products and services of high quality, and by
pro.v iding resources for economic development.
30
LIC's Values

> Integrity and Transparency

> Caring and Courtesy

> Initiative and Innovation

LJC's Commitment

To the community -
We will provide insurance cover and financial security to every insurable person. Meet
its insurance needs and consonance with the changing social and economic
~

environment.

Also cater to the insurance needs of the socially and economically weaker sections of
the society through schemes specially designed for them.
Conduct all aspects of our business keeping in view its interest and national priorities.

To customers

> We will provide them prompt, efficient and courteous service.

> Act as trustees of their funds and invest the funds to their best advantage.

> Conduct our business with utmost economy and on sound business principles.

> Build and maintain ending relationship.

> Keep the customer informed.

> Income Tax and Tax Benefits from LIFE INSURANCE

31
 FUNCTIONS OF CAPITAL STRUCTURE AND FUND

~A6EMENT

Capital structure indicates the means by which a firm is financed. A firm can finance
operations through common and preferred stock, with retained earnings, or with debt.
Usually a firm will use a combination of these financing instruments. Capital structure
describes how a corporation has organized its capital-how it obtains the financial
resources with which it operates its business. Businesses adopt various capital structures
to meet both internal needs for capital and external requirements for returns on
shareholders investments.

The proportion of short and long-term debt is considered when analyzing capttal
structure. And, when people refer to capital structure they are most likely referring to a
firm's debt-to-equity ratio, which provides insight into how risky a company is usually a
company more heavily financed by debt poses greater risk.

On the other hand Fund management is the process of managing money. It is also called
portfolio management and money management.

Fund manager is the individual responsible for making decisions related to any portfolio
of investments (often a mutual fund, pension fund, or insurance fund), in accordance
with the stated goals of the fund.

In relation to Life Insurance Corporation of India functions of fund management in

general can be stated as under:

./ Financial protection offamily -

LIC provides financial protection to a large number of policyholders and their family
members. It is beneficial for the family as it gets sum assured from LIC after the death
of the policyholder. It also helps the policyholders in meeting their social and family

32
obligations.

Encouragement of Saving - it encourages people to save money for security. It creates

the habit of saving money in order to pay premium at regular intervals. It offers a very
attractive policy for salaried people, know as salary saving schemes. Under this scheme
the employer remits deducted premium from the salary of the policyholder to the LIC .

./ Good source for investment -

It is a good channel for investing money. Here, the policyholder or nominee) gets
money from the LIC sooner or later. 1n case of death of policyholder, the nominee of
the insured gets the sum assured. In case of maturity of the policy, the policyholder gets
lump sum money from LIC.

Most of the policyholders purchase the policies for good returns and the main incentive
behind this investment is tax saving. Under section 88 there are various provisions for
tax rebate for different amounts to the policyholders. According to the survey conducted
for private insurance companies and public insurance company 30% of the respondents
purchase the policy for tax benefit, 25% of the holders consider it for saving, 26%
invests for the financial security , 8%consider it for pension and 11 % takes it only for
investment purpose.

Graph:1.3
!\Jain ~--oru.~dcr.•don 1laa1 ~• ~"'DA'"ion•er look.'< a l , , bUe purcha ...-:1:ng a n
IOA-u:rance poUcy (Jo 'Y'o)

• TAX

• SAVING
PROTECTION
• PENSION
• INVESTMENT

Source: Primary Data

33
According to the Life Insurance Corporation, Act 1956 following are the specified
functions of LIC of India,

Functions of the Corporation -

(1) Subject to the rules, if any, made by the Central Government in this behalf, it shall
be the general duty of the Corporation to carry on life insurance business, whether in or
outside India, and the Corporation shall so exercise its powers under this Act as to
secure that life insurance business is developed to the best advantage of the community.

(2) Without prejudice to the generality of the provisions contained in sub-section (1) but
subject to the other provisions contained in this Act, the Corporation shall have power-

(a) to carry on capital redemption business, annuity certain business or reinsurance

business in so far as such reinsurance business appertains to life insurance business.

(b) subject to the rules, if any, made by the Central Government in this behalf, to invest
the funds of the Corporation in such manner as the Corporation may think fit and to take
all such steps as may be necessary or expedient for the protection or realisation of any
investment; including the taking over of and administering and property offered as
security for the investment until a suitable opportunity arises for its disposal;

(c) To acquire, hold and dispose of any property for the purpose of its business.

(d) To transfer the whole or any part of the life insurance business carried on outside
India to any other person or persons, if in the interests of the Corporation it is expedient
so to do.

(e) To advance or lend money upon the security of any movable or immovable property

or otherwise;

34
(f) To borrow or raise any money in such manner and upon such security as the
Corporation may think fit;

(g) To carry on either by itself or through any subsidiary any other business in any case
where such other business was being carried on by a subsidiary of any insurer whose
controlled business has been transferred to and vested in the Corporation under Act;

(h)To carry on any other business which may seem to the Corporation to be capable of
being conveniently carried on in connection with its business and calculated directly or
indirectly to render profitable the business of the Corporation;

(i) To do all such things as may be incidental or conducive to the proper exercise of any
of the powers of the Corporation.

(3) In the discharge of any of its functions the Corporation shall act so far as may be on
business principles.

Power to impose conditions etc. -

(1 ) In entering into any arrangement, under Section 6, with any concern, the
Corporation may impose such conditions as it may think necessary or expedient for
protecting the interest of the Corporation and for securing that the accommodations
granted by it is put to the best use by the concern.

(2) Where any arrangement entered into by the Corporation under Section 6 with any
concern provides for the appointment by the Corporation of one or more directors of
such concern, such provision and any appointment of directors made in pursuance
thereof shall be valid and effective notwithstanding anything to the contrary contained
in the Companies Act, 1956( I of 1956), or in any other law for the time being in force
or in the memorandum, articles of association or any other instrument relating to the
concern, and any provision regarding share qualification, age limit, number of director-
ships, removal from office of directors and such like conditions contained in any such
35
 law or instrument aforesaid, shall not apply to any director appointed by the
Corporation in pursuance of the arrangement as aforesaid.

(3) Any director appointed as aforesaid shall-

(at Hold office during the pleasure of the Corporation and may be removed or
substituted by any person by order in writing by the Corporation;

(b) Not incur any obligation or liability by reason only of his being a director or for
anything done or omitted to be done in good faith in the discharge of his duties as a
director or anything in relation thereto;

(c) Not be liable to retirement by rotation and shall not be taken into account for
computing the number of directors liable to such retirement.

NATURE AND LEVELS OF FUND MANA6EM£NT OF

UC

Fund Management of LIC rums at the max11Tium satisfaction of customers and

utilization of its resources in maximum efficient manner. Along with that fund
management also analysis the area of investment in order to invest its funds to get
maximum benefits. It invested in various fields and visualizes how it can be beneficial
to the society, members and consumers. It also aims at spreading Life Insurance much
more widely and in particular to the rural areas and to the socially and economically
baclcward classes with a view to reaching all insurable persons in the country and
providing them adequate financial cover against death at a reasonable cost.

Sound financial management is essential in all types of organizations whether it be

profit or non-profit. Financial management is essential in a planned Economy as well as
in a capitalist set-up as it involves efficient use of the resources.

36
 From time to time it is observed that many firms have been liquidated not because their
technology was obsolete or because their products were not in demand or their labour
was not skilled and motivated, but that there was a mismanagement of financial affairs .
. Even in a boom period, when a company make high profits there is also a fear of
liquidation because of bad financial management.

Financial management optimizes the output from the given input of funds. In a country
like India where resources are scarce and the demand for funds are many, the need of
proper financial management is required.

India is on the brink of a revaluation in terms of economic and social growth. On a

global scale, India's potential is on a par with the most technological, innovative and
resourceful countries in the world. In LIC the management understands the country's
need of the hour building a strong foundation for big dreams to be lunched. It is in
accordance with this sense of responsibility that the corporation has developed its funds
to the best advantage of its policy holders as well as nation at large, ensuring the nations
growth in terms of infrastructure, technology, housing, water supply etc.

From 1957 till today LIC has not only been excelling in its primary job of insurance in
its primary job of insurance, but it has also taken the center stage in encouraging India' s
social and industrial development.To put a figure to fact, LIC's total contribution
towards benefit of the community amounts to Rs. 3,85,639.07 crore as on 31st March
2005. LIC has extended its horizon to encompass diverse fields of social welfare.

The corporation currently provides financial assistance to state governments for social
housing schemes for economically weaker section, low - income groups, middle-
income groups, state government employees and rural population. The total contribution
of LIC up to 31st March 2005 to housing development activities by way of loans/bonds
to state governments, state-level apex societies, HDFC, HUDCO, NHB, LICHFL etc.
and loans under mortgage housing schemes amounted to Rs. 21436 crore.

37
 While the nation works towards progress, LIC supplies energy to sustain largest
contribute in the progress of electrification schemes in the country. Its financial
- assistance to state electricity boards/power corporations for power generation projects
had grossed up to 31st March 2005. The total investment in the corporate sector made by
way of loans as on 31st March 2005 was Rs. 9963 crore and by way of subscription to
'
shares/debentures on the same date was Rs. 104568 crore. The Corporation subscribed
an amount ofRs.35284.40 crore (face value) and Rs.18 154.93 crore (face value) to the

Securities of the Government of India and the new loan issues of the various State
Governments respectively during 2008-2009. The Corporation subscribed an amount of
Rs. 46,159.65 crore (face value) and Rs. 8,880.66 crore (face value) to the Securities of
the Government of India and the new loan issues of the various State Governments
respectively during 2005-2006.The investments by way of Central, State and Other
Government Guaranteed Marketable securities, Loans & Debentures to Infrastructure
t
and Social Sector amounts to Rs. 3, 58,400.76 crore.Constantly expending India's
transport system, LIC has been plying new roads for the future.

38
ORGANIZATION STRUCTURE OF LIC

PUBLIC RELATION
DEPARTMENT

COMMUNICATION PUBLICITY
DEPARTMENT DEPARTME

CRISIS MANAGEMENT
DEPARTMENT
 OBJECTIVE AND IMPORTANCE

./ Objective

- Efficient Fund management requires the existence of two very important objectives,
which are as follows

1) Profit Maximization:

The objective of fund management is the same as the objective of a company which
is to earn profit. But profit maximization alone cannot be the sole objective of a
company. It is a limited objective.

2) Wealth Maximization:

It is commonly understood that the objective of a firm is to maximize value and

wealth.
The value of a firm is represented by the market price of the company's stock. The
market price of a firm's stock represents the assessment of all market participants as
to what the value of the particular firm is. It takes in to account present and
prospective future earnings per share, the timing and risk of these earning, the
dividend policy of the firm and many other factors that bear upon the market price
of the stock. Market price acts as the performance index or report card of the firm's
progress and potential. Prices in the share markets are affected by many factors like
general economic outlook, outlook of the particular company, technical factors and
even mass psychology.

The Important Objectives of the Corporation can be stated as

under

1. LIC' s management aims at spreading life insurance widely and in particulru: to

the rural area and to the socially and economically backward.

40
 11. Reaching all insurable persons in the country and providing them adequate
financial cover against death at a reasonable cost.

iii. LIC's fund management ensures maximum mobilization of people's saving by

making insurance linked saving adequate attractive.

iv. LIC's fund management bears in mind the pnmary obligation to its
policyholders, where money it holds in trust, without losing sight of the interest
of the community as a whole.

v. The fund management aims at to that funds to be deployed to the best advantage
of the investors as well as the community as a whole, keeping in view national
priorities and obligations of attractive returns.

v1. It aims at conducting the business with utmost economy and with the full
realization that the money belongs to the policyholders.

v11. It act as trustees of the insured public m their individual arid collective
capacities.

v111. LIC's fund management focuses on meeting the various life insurance needs of
the community that would arise in the changing social arid economic
environment.

ix. Aims in involving all people working in the corporation to the best of their
capabilities in furthering the interests of the insured public by providing efficient
service with country.

X. Promote against all agents and employers of the corporation a sense of

participation pride and job satisfaction through discharge of their duties with
dedication towards achievement of corporate objective.

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 Importance

Life insurance may sound like something you only have to think about when we get
older, but there are a variety of benefits to buying life insurance early on in our working
career. Even if we don't have a family that is dependent on us, or if we feel that our
employer's life insurance policy is adequate for our needs, there are many reasons why
we should consider taking out our own life insurance policy.

If our employer provides us with a life insurance policy, we shouldn't necessarily rely
on it. While many companies may offer life insurance as one of the key benefits of a
job, the figure often doesn't cover enough to be of adequate benefit to your family -
especially in the event of our death. For instance, many firms may offer life insurance
that is one or two times the amount of your annual salary; but most financial planners
will recommend replacing that with life insurance that covers up to 10 times our annual
salary.

Furthermore, it is always important for consumers to be aware of types of life insurance

t they can choose from: essentially, there are two types of life insurance: term insurance
or investment type insurance. Term insurance will provide benefits to our family or our
dependents if we die during the proposed period covered by our policy.

The corporation has deployed the funds to the best advantage of the policy holders as
well as the community as a whole true to the spirit of nationalization. National priorities
and obligation of reasonable returns to the policyholders are the main criteria of LIC's
investments. The total funds, so invested for the benefit of the community at large
accumulated to Rs. 5,24,017 crore (Book value) as on 31st march 2006. The investment
of the corporation' s funds is governed by section 27A of the insurance Act, 1938,
subsequent guide lines/instructions issued there under by the investment pattern
approved by the IRDA.

LIC fund management manages fund ' s investment not only in India but outside the
country also. It manages international markets through its branch office as well as Joint
Venture Subsidiaries. It branch office are in following places -

> Mauritius (In Port Louis)

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 > Fiji (In suva and Lautoka)

> United Kingdom (In wembley)

- REASONS FOR FUND MANA6EMENT IN UC

Fund management work according to the government's guidelines. So in order to be

proper discipline and follow rules and regulation lay by section 27 A of the Insurance
Act, 1938 and the (investment) regulation as prescribed by the Insurance Regulatory
and Development Authority (!RDA) reasons for fund management in LIC are as follows

1. To follow a very prudent and sound system of investment.

u. To take decisions for investments in various fields and an investment is

made only if the decision to do so is taken with unanimity.

111. To assess various profitable fields and invest accordingly with a view of
contributing in significant way to the economic growth of the nation.

lV. To fulfill the insurance service in India and outside India.

V. To settle claims in the minimum time to facilitate customers.

Vl. To make proper utilization of insured money.

vu. For credit of life insurance policy and facility of raising loan on it.

Vlll. To utilize life insurance policy money for social, economic and all round
development of the country.

IX. To administer the legacy for beneficiaries.

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 x. To maximum mobilization of people's saving by making insurance linked
savings adequate attractive.

xi. To meet the various life insurance needs of the community that would arise
- in the changing social and economic environment.

x11. To promote among all agents and employees of the corporation a sense of
participation, pride and job satisfaction through discharge of their duties with
dedication towards achievement of corporate objective.

Although it is now almost seven years since the insurance sector of India was opened up
for FDI, LIC of India is still at the top. This is very clear from the following facts:

a) In 2004-05, LIC brought in a First Premium Income of Rs.15840.67 crore as

against the first premium income of Rs.12179 crore during 2003-04, posting a
momentous growth rate of 30 percent during the year. Out of this, Rs.12174.11
crore came from the individual business, posting an impressive growth rate of 42.1
percent as against the targeted growth rate of 35 percent. This was possible
because of the sale of more than 1 crore policies during the year 2004-05. Thus the
• LIC has continued to retain its position as dominant market leader in life insurru;ice
in India. During the year 2004-05, the Corporation' s Pension & Group Business
contributed Rs.3666.56 crore.

During 2008-09 various channels of LIC completed 8,62,333 policies and Rs.
1076.59 crore (Rs.10.76 billions) First Premium, registering a growth of 14.15%
on policies and 33.50% on First Premium Income. The percentage share of
Alternate channel business to total business went up from 2.01 % to 2.40% in
policies and from 1.84% to 3.05% in First Premium Income. Of the total business
of alternate channels, Banks (under Corporate Agency model) contributed 67.29%
of number of policies and 63.70% of First Premium Income. The contribution of
' the Corporate Agents was 28. 72% in number of policies and 17.19% in First
Premium Income

b) LIC has a vast employees and personal relations. In 2008-09

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 ./ Staff Strength
The number of employees working for the Corporation as on 31.03.2009 was 1,14,916
as against 1, 14,045 at the end of the previous financial year .

./ Employee Relations
The management held periodic discussions as also organized information-sharing
meetings with unions on various issues concerning the employees, which has helped the
Corporation in maintaining cordial and harmonious relationship with employees in the
Corporation.

./ Housing Loan to Employees

Under various Staff Housing Schemes and Agents Housing Scheme an amount of
Rs.83.3 1 crores and Rs.33.40 crores was sanctioned as at 31/3/2009 to employees and
agents of the Corporation respectively.

c) In the segment of Pension and Group Business also LIC has achieved a growth rate of
42 percent in the number of lives covered. In spite of the intensifying competition, the
r
market share of LIC's Pension and Group Business has shown an increasing trend and
is expected to go up further.

d) 'uc·s Total Income (provisional) for the year 2004-05 amounts to Rs.106540 crore
(growth rate - 14.45 percent) and the Total Assets as on March 2005 stand at Rs.462000
crore (growth rate of 25.76 percent). LIC has settled 1.073 crore of Total Claims during
the year 2004-05 (Maturity Claims - 1.034 crore and Death Claims - 0.39 crore) taking
forward the spirit on the servicing front as well. LIC in recent times has made rapid
strides towards customer service, leveraging technology to offer quicker and better
services to its customer base (more than 16 crore customers).

The settlement of claims is the most important aspect of service to the policyholders.
Hence, the corporation has laid great emphasis on expeditious settlement of the maturity
as well as death claims. During the year 2008-09, the corporation has settled 1.54 core

(15.4 million) claims for Rs.40085. 12 crore (Rs.400.85 billion Including Micro
Insurance and Pension & Group Schemes) compared to 1.44 crore (14.4 million) claims

45
 for Rs.38864.01 crore (Rs. 388.64 billion) in the previous year. The percentage of
claims outstanding(remaining unpaid) at the end of the year to the claims payable
during the year is 0.33% by number and 0.97% by amount as on 31st March, 2009
compared to 0.28% by number and 0.94% by amount as on 31st March, 2008. During
- 2008-09, 97% of Maturity claims were settled on or before the date of maturity.

Today, LIC is the leader in the insurance sector with around 83 percent market share.
But the future is certainly going to be very tough, and to meet the future challenges it
will have to introduce innovative products and services, focusing on targeted consumer
segments It has to motivate its employees by using their skills for improvement in
process capabilities, quality and response time and also to talce the help of Information
Technology, database and systems in an optimum manner.

With an annual growth rate of 15-20% and the largest number of life insurance policies
in force, the potential of the Indian insurance industry is huge. Total value of the Indian
insurance market (2004-05) is estimated at Rs. 450 billion (US$ 10 billion). Proportion
of life insurance fund in financial savings increased from 17.4 per cent in 2007-08
r
(Provisional) to 19.5 per cent in 2008-09 (Preliminary Estimates). Share of insurance
fund as a percentage of GDP increased to 2.8 per cent in 2008-09 from 2.7 per cent in
2007-08. Total First Year Premium of Insurance Industry was Rs. 69284.00 crores
(Rs.692.84 billion) in 2008-09 as compared to Rs. 78552.70 crores (Rs.785.52 billion)
in the year 2007-08. LIC as the largest insurer in Life Insurance market maintained
60.79 % share in premium & 70.52 % in individual policies in financial year ending
March 2009.

Though the focus of this market research report is on the potential growth on the Indian
Insurance Sector, it also talks about the market size, market segmentation, and key
developments in the market after 1999. The Insurance sector in India governed by
Insurance Act, 1938, the Life Insurance Corporation Act, 1956 and General Insurance
Business (Nationalisation) Act, 1972, Insurance Regulatory and Development Authority
(IRJ)A) Act, 1999 and other related Acts. With such a large population and the
untapped market area of this population Insurance happens to be a very big opportunity
in India. Today it stands as a business growing at the rate of 15-20 per cent annually.

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