Mumbai: The sovereign guarantee that LIC enjoys will continue even after the public sector life insurer meets the minimum solvency margin requirements.

The government guarantee assures LIC policyholders the payment of sum assured, bonuses declared and guaranteed additions in the event of default by the life insurer.

LIC is ready to meet the 150 per cent solvency margin mandated by the Insurance Regulatory and Development Authority (Irda) by March 31, 2007. The solvency margin is a sum of certain percentages of both the reserves and the sum at risk.

For the current financial year, the 150 per cent solvency margin had been maintained on the 3 crore policies that were added. LIC had met 133 per cent solvency margin for policies underwritten from 1956-2006. LIC was setting aside reserves out of its income, earnings, investment returns and trading profit to make up for the remaining 17 per cent by March 31, said an LIC official.

LIC sources said the continuation of the guarantee would be a way of government backing an institution, which it uses for various purposes.

LIC has issued a total of 18.64 crore policies since 1956. Every year, over 3 crore new policies get added.

In another development, LIC has decided to invest in fixed deposits, which is not a traditional investment avenue for the life insurer. The life insurer has not been a buyer of government bonds in recent days when the yields rose sharply on heavy selling by banks to tide over acute liquidity tightness caused by tax outflows, liquidity absorptions by the Reserve Bank of India (RBI) through bond auctions and increased pre-emptions via cash reserve ratio (CRR).

The company feels that around 8 per cent return on government bonds compares poorly to 10-12 per cent returns offered by upto one-year deposits and long-term bond issues by banks for capital adequacy purposes.

LIC's gross investment for the year ending March 31 is expected to be Rs 80,000 crore. As per Irda norms, LIC invests 50 per cent in government securities, 15 per cent in infrastructure, more than 15 per cent in approved investments, below 15 per cent in other than approved investments.