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Trichy, Tamil Nadu, India
Working as an Assistant in LIC of India, Rockfort BO, Trichy, TN. Having a strong belief that LIC's welfare is our welfare and always trying to work towards that. Also functioning as an office bearer of AIIEA Thanjavur Division.

Wednesday, December 22, 2010

Private life insurers fail to meet break-even targets

 Total Loss of Pvt. Cos.
31.3.2009 Rs.17,304 Cr.
31.3.2010 Rs.20,143 Cr.

The Insurance Regulatory and Development Authority (Irda) has said private life insurers have failed to meet the breakeven targets indicated by them at the time of seeking a licence. However, companies have started taking corrective action and have reduced their operating expenses considerably.

In its annual report for 2009-10 released last week, the regulator said: “But for most of the companies, the expected break-even point has shifted forward as compared to what was envisaged at the time of their application for licence to underwrite insurance business in India.” According to Irda, the experience of the insurance markets globally indicates that companies in the life sector take 7-10 years to break even. In India, several insurance companies will complete 10 years of operations in the current fiscal.

The regulator has pointed out that the increase in expenses was largely because of the insurance companies’ inability to control procurement costs. “Although some increase in capital expenses was seen, increase in expenses of management , especially procurement costs of business , had increased significantly. Also, the companies exceeded their expected levels of management expenses per unit premium. Expense growth rate far outweighed the premium growth rate,” Irda said. What made things worse was that lapse rates affected profitability and rendered all pricings insufficient.
On the positive side, death claims have been few, and companies have not had an adverse experience. 

The other bright spot is that companies are now focusing on cutting costs. Operating expenses, as a percentage of gross premium underwritten, have declined sharply for private insurers from 25.99 % in 2008-09 to 20.86 % in 2009-10 . For the industry as a whole, the operating expenses ratio declined from 11.65 % in 2008-09 to 10.85 % in 2009-10 . The efforts at rationalising and bringing down the expense ratios are in line with Irda’s stand that private insurance companies should take all steps to ensure compliance with the mandatory stipulations on the expenses of management.

The cumulative losses of the (Private) life insurance industry as on March 31, 2010, stood at Rs 20,143 crore, as against Rs 17,304 crore as on March 31, 2009. During 2009-10 , out of the 22 private life companies, seven revealed profit after tax as compared to four in the previous two years. Of the seven companies which reported profit in 2009-10 , three companies showed profits continuously for the past two years.

“It is important to note that the life insurance sector is witnessing an increasing number of companies which are entering the positive zone. Except for the newcomers whose expense levels in the initial years are bound to result in sizeable losses, existing insurance companies which reported losses during the year, have been able to reduce the quantum of losses when compared to that incurred in the previous year,” Irda said.

The eight companies that have reported profits in 2009-10 include LIC, ICICI Prudential, Kotak Mahindra, SBI, MetLife, Bajaj Allianz , Sahara India and Aegon Religare . Life Insurance Corporation of India had reported net profit of Rs 1,061 crore, i.e. an increase of 10.80 % over Rs 957 crore in 2008-09 . ICICI Prudential reported anet profit of . 258 crore after incurring losses for eight consecutive years, after setting up operations .

Kotak Mahindra had reported a profit of Rs 69.22 crore for the second year in a row; it reported profit for the first time in 2008-09 . SBI Life reported a profit of Rs 276 crore, as against a loss of Rs 26.31 crore in 2008-09 . SBI Life reported net profits for three consecutive years prior to this from 2005-06 to 2007-08 . MetLife has logged a profit of Rs 25.06 crore. The insurer has been reporting profits continuously in the past three financial years. 

Note: LIC's actual profit (surplus) is Rs.23,478 Crs. IRDA quotes the dividend paid (5%) to the Government as LIC's profit.

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