India’s private sector life insurance players remain in the red, even 10 years after breaking ground in the domestic insurance business, with sustained profitability eluding most companies. While life insurance companies do not disclose their embedded value, the actual measure of their profitability, several insurance officials said it was not even twice the capital infused for many players. None of them wanted to be identified by name for this report.
Embedded value (EV) is defined as the present value of the future profits expected out of the current block of insurance business. The Insurance Regulatory and Development Authority (Irda) requires the EV of a life insurance company to be at least twice its paid-up equity capital, if the insurer wants to access capital markets and dilute promoters’ holding.
“Very high level of capital has been infused by the insurance industry, but the corresponding level of profit is yet to be made,” said a senior executive of a private life insurance company.
“Only two or three players such as Kotak Life have been able to achieve an EV that is at least twice the capital infused. The recent Ulips and pensions have further reduced the margins for the insurers,” the executive added.
According to the unaudited data of Life Insurance Council, companies had infused Rs 33,550 crore in business till last February against Rs 31,360 crore till February 2011. ICICI Prudential Life insurance has infused Rs 4,790 crore, Bajaj Allianz Life Rs 1,211 crore and HDFC Life Rs 2,160 crore till this March. Cumulative losses of the life insurance industry stood at Rs 20,569 crore in 2010-11 (Rs 20,143 crore in 2009-10). Figures for 2011-12 are not yet available.
Though dozen-odd companies have been reporting accounting profits, it will still take a while for them to wipe off their accumulated losses. ICICI Prudential Life insurance reported 71 per cent increase in