Life Insurance Corporation (LIC) is battling its owner?the government of India?to protect the higher bonus being paid to its 150 million subscribers who hold over 250 million policies.

The silent tussle between LIC and the Centre has started over the provision in LIC Act Amendment?pending in Parliament?that proposes that the existing ratio of 5:95 to distribute the annual surplus (profit) generated by the corporation between the Centre and customers can be altered to 10:90.

Though the amendment has outlined the maximum ratio of 10:90, the government has the freedom to decide the exact ratio of the bonus payment within that limit.

However, once the Act amendment is ratified by Parliament, there are fair chances that LIC?s customers would get less bonus, possibly by 5%. This has been a matter of the concern for the corporation.

For example, the corporation pays a bonus of Rs 70-80 for Rs 1,000 in its endowment plans annually, but it may fall by 5% if the government decides to hike its payout to 10% from 5%.

LIC has protested to the government over the issue, pointing out that in the current cut-throat competitive environment, any reduction in the customers? payout will affect the corporation?s market position.

Despite paying a comparatively higher bonus, LIC had lost 50% of its market share in premium collection last fiscal, though has regained 10% in the first quarter of the current fiscal.

LIC has suggested that the government should continue the existing ratio for the distribution of the surplus.

Sources at both the ministry of finance and LIC have confirmed that differences exist between the two over the way the distribution of surplus should take place.

The government has justified its stance of seeking a higher bonus from LIC, saying it has to provide for the higher capital to be infused in the corporation?to a minimum of Rs 100 crore from Rs 5 crore?after the amendment is passed in Parliament.

LIC has been set up by a special Act of Parliament known as LIC Act 1956 and has special features that other state-owned companies do not have.

A prominent feature of the LIC Act is that the entire surplus, which is actually is the profit of the corporation, will be distributed between government and customers at the ratio of 5:95.

The Act also specified the capital of the LIC at Rs 5 crore, which is the current capital base.

However, the situation has rapidly changed after Indian insurance industry was liberalised in 2000 and the Irda Act 2000, which provides for an insurance regulator, Insurance Regulatory & Development Authority, along with other provisions different from the LIC Act 1956 have to be complied with by the 20 new insurers.

The purpose of the LIC Act amendment is to upgrade some features of the LIC Act 1956 so that LIC is in a position to comply the Irda Act 2000.

However, it is yet to be seen whether it would be at the cost of LIC?s policy-holders.