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FINANCIAL PERFORMANCE OF LIC AND PRIVATE SECTOR LIFE INSURANCE COMPANIES IN INDIA - A COMPARATIVE ANALYSIS USING CARAMEL

FINANCIAL PERFORMANCE OF LIC AND PRIVATE SECTOR LIFE INSURANCE COMPANIES IN INDIA<br>- A COMPARATIVE ANALYSIS USING CARAMEL MODEL..<br><br>This is my project report. I did my project on the financial performance of private and public sector of Life insurance companies India by using CARAMEL model.

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FINANCIAL PERFORMANCE OF LIC AND PRIVATE SECTOR LIFE INSURANCE COMPANIES IN INDIA - A COMPARATIVE ANALYSIS USING CARAMEL

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  1. SPECIALIZATION PROJECT REPORT On FINANCIAL PERFORMANCE OF LIC AND PRIVATE SECTOR LIFE INSURANCE COMPANIES IN INDIA - A COMPARATIVE ANALYSIS USING CARAMEL MODEL (Report submitted in partial fulfillment of the requirement for the award of Post-Graduation Diploma in Management) (Session 2016-2018) Submitted by KARTEEK CHEDADEEPU PGDM-BIFAAS B10 - 006 Faculty Guide: Dr. L. Krishna Veni, Professor, SSIM Siva Sivani Institute of Management Kompally, Secunderabad-500014 1

  2. SPECIALIZATION PROJECT on FINANCIAL PERFORMANCE OF LIC AND PRIVATE SECTOR LIFE INSURANCE COMPANIES IN INDIA - A COMPARATIVE ANALYSIS USING CARAMEL MODEL (Report submitted in partial fulfillment of the requirement for the award of Post-Graduation Diploma in Management) (Session - 2016-2018) Submitted by KARTEEK CHEDADEEPU PGDM-BIFAAS B10 - 006 Faculty Guide: Dr. L. Krishna Veni, Professor, SSIM Siva Sivani Institute of Management Kompally, Secunderabad-500014 2

  3. DECLARATION I Mr. KARTEEK CHEDADEEPU has declare that this project titled “FINANCIAL PERFORMANCE OF LIC AND PRIVATE SECTOR LIFE INSURANCE COMPANIES IN INDIA -- A COMPARATIVE ANALYSIS USING CARAMEL MODEL” is the original work done by me under the guidance of Dr. L. Krishna Veni, Professor, Social Sciences. Siva Sivani Institute of Management, Secunderabad. I further declare that it is the original work made by me as a part of my Post Graduate Diploma in Management. Date: Signature of the student: Place: Secunderabad Name of the student: Ch Karteek 3

  4. ACKNOWLEDGEMENT I offer my deep sense of gratitude to our beloved and respected guide Mrs. Dr. L. Krishna Veni, Professor for having guided me in utmost inspiring in all the way that has led me to complete this work, successfully and sufficiently in time. I take this opportunity to thank the management staff of Siva Sivani Institute of Management, Kompally for giving this opportunity to so this project and for their endless support. Date: Name of the Student Place: Secunderabad. Karteek Chedadeepu 4

  5. TABLE OF CONTENTS CHAPTER Chapter I CONTENT PAGE NUMBER Introduction Review of Literature Research Methodology Data Analysis Findings and Suggestions References 7 - 20 Chapter II 21 – 24 Chapter III 25 - 29 Chapter IV 31 - 47 Chapter V 48 - 50 51 - 52 5

  6. LIST OF TABLES Number Title of the Table Page Number 1 CAPITAL ADEQUACY 33 2 ASSET QUALITY RATIO 35 3 REINSURANCE AND ACTURIAL RELATED ISSUES 37 4 MANAGEMENT SOUNDNESS 39 5 EARNINGS AND PROFITABILITY RATIO 41 6 LIQUIDITY RATIO 43 7 DESCRIPTIVE STATISTICS 45 8 RESULTS OF ANOVA 46 6

  7. CHAPTER – I INTRODUCTION 7

  8. INTRODUCTION: CONCEPT OF INSURANCE: Life has always been an uncertain thing. To be secure against unpleasant possibilities, always requires the utmost resourcefulness and foresight on the part of man. To prayor to pay for protection is the spirit of the humanity. Man has been accustomed to pray God for protection and security from time immemorial. In modern days Insurance Companies want him to pay for protection and security. The insurance man says "God helps those who help themselves"; probably he is correct. Too many people in this country are not in employment; and work for too many no longer guarantees income security. Several millions are part-time, self-employed and low-earning workers living under pitiable circumstances where there is no security cover against risk. Further the inherent changing employment risks, the prospect of continual change in the work place with its attendant threats of unemployment and low pay especially after the adoption of New Economic Policy and the imminent lifecycle risks - a new source of insecurity which includes the changing demands of family life, separation, divorce and elderly dependents are tormenting the society. Risk has become central to one's life. It is within this background life insurance policy has been introduced by the insurance companies covering risks at various levels. Life insurance coverage is against disablement or in the event of death of the insured, economic support for the dependents. It is a measure of social security to livelihood for the insured or dependents. This is to make the right to life meaningful, worth living and right to livelihood a means for sustenance. Therefore, it goes without saying that an appropriate life insurance policy within the paying capacity and means of the insured to pay premium is one of the social security measures envisaged under the Indian Constitution. Hence, right to social security, protection of the family, economic empowerment to the poor and disadvantaged are integral part of the right to life and dignity of the person guaranteed in the constitution. Man finds his security in income (money) which enables him to buy food, clothing, shelter and other necessities of life. A person has to earn income not only for himself but also for his dependents, viz., wife and children. He has to provide legally for his family needs, and so he has to keep aside something regularly for a rainy day and for his old age. This fundamental need for security for self and dependents proved to be the mother of invention of the institution of life insurance. DEFINATION OF INSURANCE: Protecting or safeguarding significant loss is called as Insurance. It is a type of risk protection and wealth management strategy as a part of financial planning for an individual or an organization. “Insurance companies offering insurance products are termed as Insurance Policy”. In insurance policy insurer can cover cost of potential loss in exchange by paying insuring company nominal amount every year as a premium. Individuals, corporate 8

  9. or any other groups can safeguard their risk against any critical misfortunes at the reasonable rate know as premium. TYPES OF INSURANCE: There are different types of insurance which can be explained as follows: INSURANCE TYPES Life insurance Marine Insurance Fire Insurance Miscellaneous Insurance Health Insurance Life Insurance: Life Insurance can be defined as a contract between an insurance policy holder and an insurance company, where the insurer promises to pay a sum of money in exchange for a premium, upon the death of an insured person or after a set period. Fire Insurance: Fire insurance means insurance against any loss caused by fire. Section 2(61 of the Insurance Act defines fire insurance as follows: “Fire insurance business means the business of effecting, otherwise than incidentally to some other class of business, contracts of insurance against loss by or incidental to fire or other occurrence customarily included among the risks insured against in fire insurance policies.” What is ‘Fire’? The term fire in a Fire Insurance Policy is interpreted in the literal and popular sense. There is fire when something burns. Fire produces heat and light but either o them alone is not fire. Lighting is not fire. But if lighting ignites something, the damage may be covered by a fire- policy. The same is the case with electricity. Health Insurance: Health insurance is an insurance product which covers medical and surgical expenses of an insured individual. It reimburses the expenses incurred due to illness or injury or pays the care provider of the insured individual directly. 9

  10. Marine Insurance: Marine insurance covers the loss or damage of ships, cargo, terminals, and any transport or cargo by which property is transferred, acquired, or held between the points of origin and final destination. Cargo insurance is a sub-branch of marine insurance, though Marine also includes Onshore and Offshore exposed property, (container terminals, ports, oil platforms, pipelines), Hull, Marine Casualty, and Marine Liability. When goods are transported by mail or courier, shipping insurance is used instead. Miscellaneous Insurance: Miscellaneous Insurance refers to contracts of insurance other than those of Life, Fire and Marine insurance. It covers a variety of risks, the chief of which are:- Personal Accident insurance, motor vehicle insurance, credit insurance, automobile insurance etc which comes under miscellaneous insurance. OVERVIEW OF THE CURRENT INSURANCE MARKET In the years since the IRDA Act initiated market reforms, the insurance sector has experienced some remarkable changes. The entry of a large number of Indian and Foreign private companies in life insurance business has to lead greater choice in terms of products and services. Increased consumer awareness of the benefits and importance of insurance and reinsurance has generated many more buyers; and new distribution channels among them brokers, bank assurance, the Internet, and corporate agents have provided additional ways of getting products and services to customers. Insurance industry plays a vital role in the Indian market. There are altogether 53 insurance companies that are serving both life insurance and general insurance products to the customers countrywide. After knowing that the number of insurers available in India is very large, let’s check the Indian insurance market size below: Indian Insurance Market The life insurance sector recorded a new premium income of Rs. 1.38 trillion in a year, i.e. April 2015 to March 2016. This indicated a dramatic growth rate of 22.5% in the premium income, whereas the general insurance sector centered on two-wheeler insurance policy (particularly) recorded a 12% of growth by receiving a premium income of Rs. 105.25 billion during the year, i.e. April 2016 to March 2017. The life insurance sector offers about 360 million policies, which count to be the largest in the world. Still, it is expected to cross compound annual growth rate of 12 to 15% in the next 5 years. It is expected that the Indian insurance market will quadruple in size over the next 10 years and the life insurance sector is expected to collect more than US $160 billion. There are a lot of opportunities in the Indian insurance market. Currently, the general insurance business in the Indian market accounts for more than Rs. 70,000 Crore premiums yearly, and it is growing at a positive rate of 17% every year. Despite being the second highly populous country in the 10

  11. world, Indian insurance market accounts for less than 1.5% of the world’s total insurance premium. History of Insurance: Insurance probably made a beginning in the ancient land of Babylonia in the 18th century B.C., Babylonia king Hammurabi developed a code of law, known as the Code of Hammurabi, which codified many specific rules governing the practices of early risk-sharing activities. Insurance as we know it today took its shape in 17thcentury England. The policy of life of William Gybbons on June 18, 1633 was the first recorded evidence. There was a place called Lloyd's Coffee House in London, owned by Edward Lloyd, where merchants, ship-owners and underwriters met to discuss and transact business. In 1871, Lloyd's Act was passed incorporating the members of the association into a single corporate body with perpetual succession and corporate seal. It extended from marine insurance to other insurance and guarantee business. Today, Lloyd's has become the world's best known insurance brand. It is commonly misunderstood that Lloyd's is an insurance company. Actually, it is a society of members, known as underwriters', both corporate and individual, who underwrite in syndicates on 57 whose behalf professional underwriters accept risk. Thus, supporting capital is provided by investment institutions, specialist investors, international insurance companies and individual. History of Insurance in India In India, insurance has a deep-rooted history. It finds mention in the writings of Manu ( Manusmrithi ), Yagnavalkya ( Dharmasastra ) and Kautilya ( Arthasastra ). The writings talk in terms of pooling of resources that could be re-distributed in times of calamities such as fire, floods, epidemics and famine. This was probably a pre-cursor to modern day insurance. Ancient Indian history has preserved the earliest traces of insurance in the form of marine trade loans and carriers’ contracts. Insurance in India has evolved over time heavily drawing from other countries, England in particular. In "Rigiveda" we find the term "Yogakshema Bahamayam" which is more or less akin to the well-being and security of people. This makes it clear that the traces of sharing the future losses were available even in ancient India'. This suggests that a form of "community insurance" was prevalent around 1000 BC and practiced by the Aryans.  1818 – Oriental life insurance – Kolkata  1823 – Bombay Life Assurance  1829 – Madras Equitable Life Assurance Society  1850 – Trinton General Insurance Co Indians charged @15% higher 11

  12.  1871 – Bombay Mutual Life Assurance society – no differentiation  1907 - 1907 : Indian Mercantile Insurance Ltd. ( all GI lines transacted)  1912 – Indian Life Assurance Act  1938 – Indian Insurance Act  1956 LIC Act passed [245 insurance companies and provident societies]  1957 : General Insurance council (code of conduct)  1968 : Insurance Act amended – investments regulated, Solvency margins set, TAC set up  1972 : GIBNA Act (107 Co’s), 4 PSU’s ; GIC formed  1973 – The General Insurance Corporation of India (GIC) came into existence as a Government Company.  1974 – A year later 107 insurers practicing General Insurance business were grouped and merged to form four subsidiaries of GICs namely – National Insurance Co. Ltd. The New India Assurance Co. Ltd. The Oriental Insurance Co. Ltd. United India Insurance Co. Ltd.  1998 – Insurance Ombudsman Redressal of Public Grievances Rules, 1998 were issued to provide Consumers a Forum with minimal formalities to get their grievances resolved.  1999 – This year has the great relevance in the history of Indian Insurance Sector since based on the Malhotra Committee Report the Insurance Regulatory and Development Authority (IRDA) was established to regulate, promote and ensure orderly growth of the insurance and reinsurance business in India.  2001 – The year of 2001 brought another transformation in the Insurance Business of India because in addition to the existing Government insurance companies, Private Sector Companies were also licensed by IRDA to conduct general insurance business in India.  2002 – General Insurance Business (Nationalization) Amendment Act, 2002 was passed in which the important amendment was that the subsidiaries of GIC were restructured as independent companies and GIC was converted into National Re-insurer.  2003 – This year witnessed the introduction of Broker for first time in Indian Insurance Market to boost up the business in more widened manner. 12

  13.  2015 – The Insurance Laws (Amendment) Act, 2015 was passed to increase the Ceiling of 26% FDI to 49% and in this manner the Insurance Business in India has been widely opened for Foreign Giants of Insurance. The Birth of the Insurance Act 1938: In 1937, the Government of India set up a consultative committee. Mr. Sushil C. Sen, a well- known solicitor of Calcutta, was appointed the chair of the committee. He consulted a wide range of interested parties including the industry. It was debated in the Legislative Assembly. Finally, in 1938, the Insurance Act was passed. To implement the 1938 Act, an insurance department was first set up in the Ministry of Commerce by the Government of India. Later, it was transferred to the Ministry of Finance. Nationalization of Insurance in India: After India became independent in 1947, National Planning modeled after the Soviet Union was implemented. The genesis of nationalization of life insurance came from a document produced by Mr. H. D. Malaviya called "Insurance business in India" on behalf of the Indian National congress. The Finance Minister C. D. Deshmukh announced nationalization of the life insurance business in 1956. Life insurance business was nationalized on 19th January 1956. The Government brought together life insurers under one nationalized monopoly corporation and Life Insurance Corporation of India was born. At that time there were 154 Indian life insurance companies. In addition there were 16 non- Indian companies and 75 provident societies issuing life insurance policies. Most of these companies were centered in the metropolitan areas like Bombay, Calcutta, Delhi and Madras. The reasons behind the nationalization of life insurance were 1.The government wanted to channel more resources to national development programmers. 2.It sought to increase insurance market penetration through nationalization. 3.The government found the number of failures of insurance companies to be unacceptable. The government argued that the failures were the result of mismanagement and nationalization would help to better protect policyholders. Insurance Sector Reforms: In 1993, Malhotra Committee, headed by former Finance Secretary and RBI Governor R.N. Malhotra was formed to evaluate the Indian Insurance industry and recommended its future direction. The Malhotra committee was set up with the objective of complementing the reforms initiated in the financial sector. The reforms were aimed at "creating a more efficient and competitive financial system suitable for the requirements of the economy keeping in 13

  14. mind the structural changes currently underway and recognizing that insurance is an important part of the overall financial system where it was necessary to address the need for similar reforms..." In 1994, the committee submitted the report and suggested some of the key recommendations. 1.Structure :  Government's stake in the insurance companies to be brought down to 50%  Government should take over the holdings of GIC and its subsidiaries so that these subsidiaries can act as independent corporations  all the insurance companies should be given greater freedom to operate. 2.Competition  Private companies with a minimum paid up capital of Z 1 billion should be allowed to enter the industry.  No company should deal in both life and general insurance through a single entity.  Foreign companies may be allowed to enter the industry in collaboration with the domestic companies.  Postal Life Insurance should be allowed to operate in the rural market.  One State Level Life Insurance Company should be allowed to operate in each state. 3.Regulatory body  Insurance Act should be changed.  An Insurance Regulatory body should be set up.  Controller of Insurance (currently a part from the Finance Ministry) should be made independent. 4.Investments  Mandatory Investments of LIC Life Fund in government securities to be reduced from 75% to 50%.  GIC and its subsidiaries are not to hold more than 5% in any company (Their current holdings to be brought down to this level over a period of time). 5.Customer service LIC should pay interest on delays in payments beyond 30 days. Insurance companies must be encouraged to set up unit linked pension plans. 14

  15. Computerization of operations and updating of technology to be carried out in the insurance industry. After the report of the Malhotra Committee, changes in the insurance industry appeared imminent. Unfortunately, instability of the Central Government in power slowed down the process. The dramatic climax came in 1999. On March 16, 1999, the Indian Cabinet approved an Insurance Regulatory Authority (IRA) Bill designed to liberalize the insurance sector. The government fell in April 1999 just on the eve of the passage of the Bill. The deregulation was put on hold once again. On December 7, 1999, the new government passed the Insurance Regulatory and Development Authority Act. This act repealed the monopoly conferred to the Life Insurance Corporation in 1956 and to the General Insurance Corporation in 1972. The authority created by the Act is now called the Insurance Regulatory and Development Authority. New licenses are being given to private companies. The Insurance Regulatory and Development authority has separated out life, non-life and reinsurance insurance businesses. Therefore, a company has to have separate licenses for each line of business. The Insurance Regulatory and Development Authority (IRDA) Act, 1999 Following the recommendations of the Malhotra Committee, in 1999 the Insurance Regulatory and Development Authority (IRDA) were constituted to regulate and develop the insurance industry and were incorporated in April 2000. Objectives of the IRDA include promoting competition to enhance customer satisfaction with increased consumer choice and lower premiums while ensuring the financial security of the insurance market. The IRDA opened up the market in August 2000 with an invitation for registration applications; foreign companies were allowed ownership up to 26 percent. The authority, with the power to frame regulations under Section 114A of the Insurance Act, 1938, has framed regulations ranging from company registrations to the protection of policyholder interests since 2000. IRDA has played a very important role in the growth and development of the sector by protecting policyholders' interests; registering and regulating insurance companies; licensing and establishing norms for insurance intermediaries , regulating and overseeing premium rates and terms of non-life insurance covers; specifying financial reporting norms, regulating investment of policyholders' funds and ensuring the maintenance of solvency margin by insurance companies; ensuring insurance coverage in rural areas and of vulnerable sections of society; promoting professional organizations connected with insurance and all other allied and development functions. 15

  16. Number of Insurance Companies in India Type of insurance Life insurance General insurance Reinsurance others Total Public Sector Companies 1 4 1 2 8 Private sector Companies 23 18 - - 41 Total 24 22 1 2 49 Life insurance companies in India: 1.Bajaj Allianz Life Insurance co. Ltd 2.Birla Sun Life Insurance Co. Ltd 3.HDFC Standard Life insurance co> Ltd 4.ICICI Prudential Life Insurance Co. Ltd 5.Exide Life Insurance Ltd 6.Life Insurance corporation of of India 7.Max Life Insurance Co. Ltd 8.PNB Metlife India Insurance Co. Ltd 9.Kotak Mahindra Old Mutual Life Insurance Co. Ltd 10.SBI life insurance Co. Ltd 11.Tata AIA Life Insurance Co. Ltd 12.reliance nippon life insurance company limited 13.Aviva Life Insurance co. India Limited 14.Sahara India life insurance Co. Ltd 15.Shriram Life Insurance c ltd 16.Bharti AXA Life Insurance Co. Ltd. 17.Future Generali India Life Insurance Co. Ltd. 18.IDBI Federal Life Insurance Co. Ltd. 19.Canara HSBC Oriental Bank of Commerce Life Insurance Co. Ltd. 16

  17. 20.AEGON Life Insurance Co. Ltd. 21.DHFL Pramerica Life Insurance Co. Ltd. 22.Star Union Dai-ichi Life Insurance Co. Ltd. 23.IndiaFirst Life Insurance Co. Ltd. 24.Edelweiss Tokio Life Insurance Co. Ltd. Types of insurance products: There are many different products, each with a variety of offerings. Right from fueling investment needs to meeting different financial goals, they come with many objectives for the investor. Here are a few common types of covers, including whole life and term insurance policy. Term plan: In insurance language this is a “pure risk cover” and can be described as an insurance or risk management product in its purest and simplest form. In case of your untimely death, your dependents will receive the risk-cover amount or the ‘sum assured’. On the other hand, there is no survival benefits if you survive the policy term, and you also do not get back the premiums paid. Endowment plans: It is a traditional investment-cum-insurance plan. In other words, it provides both life cover (in the event of death of life insured) or maturity benefits if he/she survives the policy term. Endowment plans are typically front-loaded. Therefore it makes sense for you to remain in the policy for at least 12-15 years. Money or Cash Plans: This life insurance policy is preferred by many people because it gives periodic payments during the term of policy. In other words, a portion of the sum assured is paid out at regular intervals. If the policyholder survives the term, he gets the balance sum assured. Whole life plan: This policy provides the life assurance cover for almost the entire life. Most of the insurance companies provide protection up to the age of 100 years. The sum assured is paid to you once you reach this age, and the policy is terminated. In this payment of premium is for whole life, and the sum assured is paid to your nominee in the event of your death. In other words, this is equivalent to a term plan over your lifetime. 17

  18. ULIPs: ULIPs are market-linked life insurance products that provide a combination of life cover and wealth creation options. A part of the amount that people invest in a ULIP goes toward providing life cover, while the rest is invested in the equity and debt instruments for maximizing returns. . Children’s Policies: These plans can be taken in the name of the child or the parent. However, it is only for the benefit of the child. This helps parents mobilize finances when the child reaches a particular age or stage of life. Annuities and Pension: In these types of life insurance policies, the insurer agrees to pay the insured a stipulated sum of money periodically. The purpose of an annuity is to protect against financial risks as well as provide money in the form of pension at regular intervals. Importance of Insurance 1.Security and Safety: It gives a sense of security and safety to the businessman. It enables him to receive compensation against actual loss. He can concentrate on his business with a secure feeling that in case of losses arising from insurable risk, his losses will be compensated. 2.Distribution of risk: Risk in insurance is spread over a number of people rather being concentrated on a single individual. 3.Normal expected profit: An insured trader can enjoy normal margin of profit all the time. He is protected from unexpected losses because of insurance. 4.Easy to get loans: A trader can get bank loans easily if his stock or property is insured, as insurance provides a sense of security to the lenders. 5.Advantages of Specialization: Businessmen can concentrate on their business activities without spending more time on safeguarding their property. The insurance companies, on the other hand, can provide specialized insurance services. 6.Development of Social Sectors: Insurance funds are available for economic development particularly for the development of social sectors. Especially for a developing country like India, insurance funds are an important source for investing in infrastructure projects (roads, power, water supply, telecom etc). 7.Social cooperation: The burden of loss is shouldered by so many persons. Thus, insurance provides a form of social cooperation. 18

  19. Benefits of life insurance: 1. Life Risk Cover: Life insurance provides you with a high life risk cover that keeps you and your family protected in case of an unfortunate event. Death Benefits: Investing in life insurance gives you and your family a secure future. In case of any untoward happening to the insured, the insurer pays up the entire amount i.e. the sum assured plus the bonus to the bereaved family. Life insurance also safeguards the interest of people who have diminishing incomes with advancing age, people who meet with accidents or for retired people. There are numerous policies available and you can choose the policy that will best suit your requirements. Return on Investment: Life insurance schemes yield better when compared to other investment alternatives. Most of the life insurance schemes offer bonuses that no other investment scheme can offer. The money invested in life insurance is safe and covers risks. The money invested will fetch good returns and will be returned fully as sum assured either after the completion of the term or after the demise of the insured. Both ways the money invested and the returns are safely paid back. Tax Benefits: Section 80C of the Income Tax Act is an effective way for the salaried person to reduce tax liability. Under this section, investments made in the specified instruments are subject to rebate. Currently, the amount available for rebate under section 80C is Rs. 100,000 which can be invested in life insurance premiums, pension superannuation fund, employee provident fund, equity linked mutual fund schemes, National Savings Certificates and public provident fund (maximum Rs 70,000). The amount invested in these instruments is eligible for rebate through deduction of the amount from gross taxable income. Loan Options: Life insurance provides you the advantage of taking a policy loan in case you are in desperate need of money. The loan amount that can be taken in a percentage of the cash value or sum assured under policy depending on the policy provisions. Life Stage Planning: Life insurance aids you in life stage planning where you can plan your life’s financial goals as per your convenience. It helps you plan for your life stage needs. Life Insurance not only provides for financial support in the event of untimely death but also acts as a long term investment. You can meet your goals, be it your children's education, their marriage, building your dream home or planning a relaxed retired life, according to your life stage and risk appetite. Assured Income Benefits: Your family stays secured due to the assured income they receive on regular intervals. This income aids in paying for all rents, loans and other expenses like house rent, telephone and electricity bills, Child education etc. This income compensates for the income that discontinues after the loss of the earning member. Riders: Riders are the additional benefits that can be bought and added to a basic insurance policy. These options allow you to increase your insurance coverage. Riders cover risks that are beyond the scope of the main life policy, resulting in a 2. 3. 4. 5. 6. 7. 8. 19

  20. more comprehensive protection. The riders may cover critical illness, personal accident, family income benefit and waiver of premium benefit). This additional cover steps in during situations where the main life insurance policy may not come into play. They also provide tax benefits and make you eligible for deductions in line with life and health covers. For instance, if you opt for an accidental death rider, you can claim deductions under section 80 C on premiums paid; for critical illness, the relevant section will be 80 D. 20

  21. CHAPTER - II REVIEW OF LITERATURE 21

  22. This chapter makes an attempt to review few of studies on financial performance of LIC of India other private sector life insurance companies briefly as follows: Jayant D. Chandrapal(2017) aims at the measuring financial soundness of the Indian life insurers (LIC of India and Private Life Insurance Companies (PLIC)) with the help of ratio analysis based on the CARAMEL framework. Financial Soundness indicators indicate the magnificent growth of the Indian life insurance industry. Since LIC of India was found sounder than the PLIC in respect of CARAMEL framework; however, there was a slower growth and some of the indicators such as Management Efficiency_1 shows decreasing trend in respect of financial soundness of LIC of India, on the other side PLIC have improved their position in area of cost effectiveness. It was also observed that PLIC shows improvement and increasing trend in the key areas of financial soundness such as Asset Quality and Cap_Ad_3 (Solvency Margin). This scenario alarms the future challenges to LIC of India and quote for the stiff competition from the PLIC in the coming day C Kalpana Naidu and C Paramasivan (2015) made an attempt on comparison of LIC and private insurance companies. In their study they stated that selling more unit-linked plans helps private players grab market share from LIC. Investment pattern of LIC and private insurers also showed some differences. The Solvency ratio of private life insurers was much better than LIC in spite of big losses suffered by them. Lapsation ratio of private insurers was higher than LIC and servicing of death claims was better in case of LIC as compared to private life insurers. The private sector companies which are performing better than LIC of India V.N. Parthiban (2014) hadundertaken this study on the life insurers soundness and performance through CARAMEL model. The financial soundness and performance of life insurers of LIC, SBI and ICICI Prudential Life are evaluated through CARAMEL model (Total Solvency Ratios, Asset quality ratio, Total Reinsurance and Actuarial Issues Ratios, Total management ratios, Total Earning and profitability Ratios and Total liquid ratios) have been satisfactorily financially sound by and large. The present study also found that the CARAMEL parameters were significantly differing between the selected life insurers in India. Anoop Kumar Singh and Sumbul Fatima(2017) made an attempt to assess the performance appraisal on ICICI Prudential Life Insurance Company has been able to earn its name and capture a good market share in the life insurance industry. This paper is an attempt to evaluate the growth and performance of ICICI Prudential Life Insurance Company, one of the major private sector life insurance companies through certain parameters like net profit, net premium, number of branches as well as CARAMEL Model has been used to analyze certain ratios like capital to total assets ratio, net premium to gross premium ratio etc. These are further statistically tested using the one sample t-test. Maraboina Sreedhar Babu (2015), has analyzed and examined the performance of the private and public sector, the result showed the that public insurance companies shows that 22

  23. they must remain competitive by doing better and faster and also cost effectiveness with performance large number of innovative products are introduced when compared to public sector. During the decay the public sector market share is growing faster than the public sector. Present status of Indian Insurance Market, Benefits of Increased FDI in Insurance Industry in India, IRDAI issues guidelines on FDI in insurance firms, ultimate benefits of increased FDI in Insurance sector and a comparative study of public and private insurance performances. Manish Dadhich (2016) attempted to examine different investment portfolio of both the life insurance companies. Moreover to find out how they follow the prevailing norms of investment guideline and to signify the deviation from investment norm. Investments in infrastructure show no significant difference. In approved investment LIC of India managed its funds but ICICI depicted the significant difference during these five years and invested comparative in this segment. It is limited investment in government securities gives opportunity to the insurers to invest more funds in approved or high return securities. Valeed A. Ansari and Wubshet Fola (2014), the study was examined that the financial soundness and performance of life insurance companies in India, based on a regulatory and supervisory parameters and standards. We employed CARAMEL model; these parameters capture the key operations of life insurers. Typically, the overall financial soundness and performance is a summation of the adequate risk management & sound inbuilt control system, and effective & efficient business underwritings. It has taken that seven registered life insurers and examined data of five years from 2008-09 to 2012-13. Statistical test of the CARAMEL model results reveal that; there was a significance difference between capital adequacy, asset quality, management efficiency, earnings & profitability and liquidity position in private and public life insurance companies. Chaudhary and Kiran (2011) observed current scenario of life insurance industry in light of some changes andregulation of IRDA. By studying different variables the result showed that life insurance industry expanded tremendously from 2000 onwards in terms of number of offices, number of agents, new business policies, products, premium income etc. Gulati and Jain (2011) analyzed business performance of all life insurers in industry on the basis of various indicators. The study indicated that even after the entry of private sector, the growth of public sector undertaking had not resulted in downfall even after facing various opportunities and challenges. Gour and Gupta (2012) focused on the determination of the solvency ratio of Indian Life insurance companies for the period of 3 years from 2009-10 to 2011-12. It analyzed whether performance of different companies was similar or there was any significant difference. On the basis of solvency ratio, ranks were assigned to different companies which showed that ICICI found the best among selected companies of industry followed by Birla Sun Life, SBI, HDFC and LIC. The paper also observed that solvency of life insures depend on returns received from total investible funds and interest rate.. 23

  24. Neelaveni (2012) evaluated the performance of five life insurance companies during the time period of 2002-03 in terms of various plans and policies on the basis of annual growth rate. The study concluded that Life Insurance Corporation being the public sector was lagging behind due to competition faced by private insurers whereas private life insurance companies had performed well in terms of financial aspects. Charumathi (2012) studied the factors that determine the profitability of life insurers operating in India. The sample for the study included 1 public and 22 private players and period of three years i.e. 2008-09 to 2010-11 was studied. For achieving the purpose, regression analysis was performed which resulted that profitability of life insurers was positively affected by size and liquidity but negatively influenced by leverage, premium growth and equity capital. Kumari (2013) analyzed the financial performance of both public and private life insurance industry. For this purpose various parameters such as number of life insurance companies, private sector offices, insurance penetration and density, growth in premium income, size of insurance market were discussed. Financial performance was observed by calculating various financial ratios. The study resulted that there had been a significant increase in the overall business performance of Indian life insurance industry after privatization. 24

  25. CHAPTER-III RESEARCH METHODOLOGY 25

  26. Against the background of the review of literature, this study mainly focused on the financial performance of LIC of India and selected four private life insurance Companies viz., ICICI Prudential, HDFC, SBI, Bajaj Allianz Life Insurance. The brief history of the selected life insurance companies for this study are described as follows in this context: LIFE INSURANCE CORPORATION OF INDIA (LIC) The Life Insurance Corporation of India popularly known as “LIC ofIndia” was incorporated on September 1, 1956 by nationalizing 245 Indian as well as foreign companies. It was established 52 years ago with a view to provide an insurance cover against various risk in life. The luminaries who spearheaded this move at that time visualized an entity that will provide life insurance to Indians, especially the vast rural people, at an economical cost and channel the savings for the betterment of the nation. It is the largest life insurance company in India and also the country’s largest investor. It is fully owned by the Government of India and headquarter is Mumbai. Today LIC function with 2048 fully computerized branch offices, 100divisional offices, 7 Zonal offices and the corporate office. LIC’s wide area Network cover 100 divisional offices and connects all the branches through a Metro area network. LIC has tied up with some Banks and service providers to offer on- line premium collection facility in selected cities. LICs 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 vision of providing easy access to its policyholders, LIC has launched its SATELLITE SAMPARK offices. The digitalized record of the satellite offices will facilitate anywhere to serve and other convenience in the future. STATE BANK OF INDIA LIFE INSURANCE COMPANY: SBI Life Insurance is a joint venture life insurance company between State Bank of India (SBI), the largest state-owned banking and financial services company in India, and BNP Paribas Cardif. BNP Paribas is a French multinational bank and financial services company with global headquarters in Paris. SBI owns 70.1% of the total capital and BNP Paribas Cardif 26% of the capital. Other investors are Value Line Pte. Ltd. and MacRitchie Investments Pte. Ltd., holding 1.95% of the total capital each. SBI Life Insurance has an authorized capital of ₹20 billion (US$310 million)and a paid up capital of ₹10 billion (US$160 million). SBI Life Insurance also features in the Fortune Global 500 list of the world’s biggest corporations. While in its initial stage its business was mainly from bancassurance channel, now it is developing its own agency team for selling its life insurance products. 26

  27. ICICI PRUDENTIALLIFE INSURANCE COMPANY LIMITED: ICICI Prudential Life Insurance Company Ltd. (ICICI Prudential Life) is a joint venture between ICICI Bank Ltd., one of India's largest private sector banks, and Prudential Corporation Holdings Limited. ICICI Prudential Life began its operations in fiscal year 2001 and has consistently been the market leader* amongst private players in the Indian life insurance sector. Our Assets Under Management (AUM) as on 31st March 2017 were `1,229.19 billion. At ICICI Prudential Life, we operate on the core philosophy of customer centricity. We offer long term savings and protection products to meet different life stage requirements of our customers. We have developed and implemented various initiatives to provide cost-effective products, superior quality services, consistent fund performance and a hassle-free claim settlement experience to our customers. ICICI Prudential Life is the first private life insurer to attain assets under management of `1 trillion and In-force sum assured of over `3 trillion. ICICI Prudential Life is also the first insurance company in India to be listed on NSE and BSE. HDFC LIFE INSURANCE COMPANY LIMITED: HDFC Standard Life Insurance Company Limited ('HDFC Life' / ‘Company’) is a joint venture between Housing Development Finance Corporation Limited, one of India’s leading housing finance institutions and Standard Life Aberdeen plc (one of the world’s largest investment companies), initially through its wholly owned subsidiary The Standard Life Assurance Company and now through its wholly owned subsidiary, Standard Life (Mauritius Holdings) 2006 Limited. Established in 2000, HDFC Life is positioned as a leading life insurer in India, offering a range of individual and group insurance solutions. Its portfolio comprises various insurance and investment products such as Protection, Pension, Savings, Income and Health. As on June 30, 2017, the Company offered 31 individual and 10 group products, along with 8 optional rider benefits catering to specific needs of customers during each stage of their lives. HDFC Life has a pan India presence, comprising 414 branches and spokes, and over 11,200 branches across India of its top 15 bancassurance partners, as on June 30, 2017. The Company has two wholly owned subsidiaries namely HDFC Pension Management Company Limited, which is regulated by Pension Fund Regulatory and Development Authority of India and HDFC International Life and Re Company Limited, which is regulated by Dubai Financial Services Authority. BAJAJ ALLIANZ LIFE INSURANCE COMPANY LIMITED: Bajaj Allianz is a joint venture between Bajaj Finserv Limited and Allianz SE. The joint venture incorporates global expertise with local experience. Both enjoy a reputation of expertise, stability and strength. The comprehensive life insurance solutions, technical expertise and experience of Allianz SE combines with the in-depth market knowledge and goodwill of "Bajaj" brand in India. Competitive pricing and customized life insurance 27

  28. solutions have earned Bajaj Allianz Life the customer's trust and market leadership in a very short time. Bajaj Allianz Life has developed life insurance solutions that cater to every segment and age-income profiles. Currently Bajaj Allianz Life has a strong life insurance portfolio and caters to all kinds of customer needs from ULIPs to Child plans, from group insurance to health insurance. OBJECTIVE OF THE STUDY: To analyze the comparative of financial performance of LIC and ICICI Prudential., Bajaj Allianz, HDFC, SBI Life insurance companies using CARAMEL Model during period of 2008-09 to 2016-17. STATEMENT OF HYPOTHESIS: There is no significant difference between the selected life insurance companies with respect to Total Solvency Ratios, Asset quality Ratio, Total Reinsurance and Actuarial Issues Ratios, Total management ratios, Total Earning and profitability Ratios and Total liquid ratios. Collection of data: The present study is based on secondary data. Data and information have been extracted from Annual Reports of LIC of India and the balance sheets of private sector companies dealing with Life Insurance during the period 2008-09 to 2016-17. Tools and technique of analysis: To analyze the data, ratio analysis, statistical tools like descriptive statistics, AVOVA have been used. The statistical tools which are used for this study are different ratios which are used in the CARAMEL Model (Capital adequacy, Asset quality, Reinsurance and Actuarial Earnings/Profitability and Liquidity). The CARAMEL parameters are statistically tested with the help of statistical tool ANOVA. issues, Management soundness, Sampling Area: This study is based on empirical research. To know the financial performance of the Life Insurance Corporation of India and ICICI Prudential, HDFC, Bajaj Allianz, SBI Life Insurance Companies. Period of study: This study is made for the recent decade i.e from 2008 – 2017. Significance of the study: To understand the financial performance and soundness of the public sector and private sector life insurance companies in India and to analyze the financial soundness of life insurance companies, this study is very crucial CARAMELS MODEL: CARAMELS framework (Capital adequacy, Asset quality, Reinsurance, Adequacy of claims and actuarial, Management soundness, Earnings and profitability, Liquidity and Sensitivity to market risk) 28

  29. 1.Capital adequacy: a)Share Capital to Total Assets Ratio = Total Assets / Share Capital × 100 Solvency Ratio: The ratio is a measure of risk faced by insurers relating to claims which can not be absorbed by it. It is calculated as: b)Solvency ratio: Net Assets / Net Premium Underwritten × 100 2. Asset Quality:Asset quality ratio measures the degree of exposure to equity risk. For computing this ratio Equity is divided by Total assets. Asset Quality Ratio: Equity/ Total Assets × 100 3. Reinsurance and Acturial Issues Risk Retention Ratio: The ratio serves as an indicator of insurance risk management policy of insurers. Risk Retention Ratio: Net Premium/Gross Premium X 100 4. Management Soundness Ratio:The ratio serves as an indicator of efficient management system because inefficient management could flag potential problems in key areas. Management Soundness = Operating Expenses/ Gross Premium × 100 5. Earnings / Profitability Ratios: A. Expense Ratio:The ratio expresses the relationship between expenses and net Premium under written. The Expense ratios calculated in this chapter are as follows: 1.Operating Expenses to Net Premium Ratio: Operating Expenses / Net Premium Underwritten × 100 2.Commission to Net Premium Ratio: Commission/ Net Premium Underwritten × 100 3.Other Expenses to Net Premium Ratio: Other Expenses / Net Premium Underwritten × 100 6. Earnings / Profitability Ratios: A.Expenses Ratio: Expenses / Net Premium Underwritten × 100 B.Return on Shareholders’ Investment:The ratio reveals how profitably the proprietor’s funds have been utilized by the company. Shareholders Investment Income / Shareholders Investment × 100 29

  30. C. Return on Policyholders Investment: The ratio measures how efficiently the policyholder’s funds have been used in the business. Policyholder'sInvestment Income/ Policyholder's Investment × 100 D. Return on Total Investment: Investment Income/ Investment Assets × 100 E. Return on Equity: The ratio measures the profitability of funds belonging to equity shareholders. Profit after Interest, Tax & Dividend / Share Capital × 100 7. Liquidity Ratio: The ratio indentifies the vulnerability to loss resulting from forced sale of illiquid assets. Liquid Ratio: Liquid Assets/ Current Liabilities × 100 30

  31. CHAPTER - IV DATA ANALYSIS 31

  32. This chapter presents the results relating to the selected life insurance companied during the study period. All annual ratios of CARAMEL MODEL for all selected 5 life insurance companies are presented from Table 1 to Table 6. Further the descriptive statistics Table 7 and the A ANOVA results (Table8) are discussed in this chapter. FINANCIAL PERFORMANCE OF SELECTED INSURERANCE COMPANIES 32

  33. Table- 1: CAPITAL ADEQUACY 2008 2009 2010 Name of life insurer Ratios 2011 2012 2013 2014 2015 2016 2017 PUBLIC SECTOR 1.5400 1.5400 Solvency ratio 1.5200 1.5400 1.5400 1.5400 1.5400 1.5400 1.5400 1.5400 LIC Capital to total asset 0.0004 0.0004 0.0003 0.0003 0.0004 0.0003 0.0003 0.0003 0.0003 0.0003 PUBLIC SECTOR 2.900 2.200 Solvency ratio 3.300 2.000 2.110 2.150 2.230 2.160 2.120 2.040 SBI Capital to total asset 0.096 0.071 0.045 0.041 0.046 0.052 0.052 0.048 0.054 0.047 Solvency ratio 1.740 2.310 2.900 3.270 3.710 3.960 3.720 3.360 3.200 2.800 ICICI Capital to total asset 0.131 0.131 0.079 0.068 0.069 0.069 0.067 0.079 0.079 0.079 Solvency ratio 2.380 2.580 2.580 1.800 1.720 1.880 2.170 1.364 0.650 0.470 HDFC STANDARD Capital to total asset 0.175 0.945 0.078 0.066 0.054 0.068 0.057 0.055 0.053 0.067 Solvency ratio 2.340 2.620 2.680 3.660 5.150 6.340 6.799 7.333 7.607 8.069 BAJAJ ALLIANZ Capital to total asset 0.086 0.069 0.037 0.057 0.090 0.126 0.125 0.124 0.126 0.139 Capital/Total Assets Solvency Ratio 33

  34. INTERPRETATION: From the Table-1, it shows that capital adequacy position of selected life insurers in India during the period of study. Capital is considered to protect insured and promote the soundness of financial system; it also indicates whether the insurer has enough capital to absorb losses arising from claims. Then the 'Capital Adequacy Ratio' is the key indicator of an insurer's financial dependability position. As per the IRDA regulations, insurers has asked to maintain solvency margin of 1.5 i.e. excess of assets over liabilities, monitored on quarterly basis, moreover IRDA issues registration to those companies only having capital of minimum of Rupees one billion. LIC just managed its fate at nearly the minimum statutory requirements; the ratio was remained at 1.54 for last five consecutive years; even though it's slight higher than the minimum statutory requirements ratio of 1.5. The private life insurer ICICI Prudential capital adequacy ratios have been increasing trend that ranges from 3.2 to 2.8. The SBI life insurance company capital adequacy ratio has declined from the 2008 – 2011 and later it varied between 0.054 to 0.047. Bajaj Allianz Life Insurance Company has also progressed during the study period. HDFC standard life insurance company has recorded increasing trend and shown a gradual decrease from the 2008 to 2017 which is 2.3 to 0.4 34

  35. TABLE-2: ASSET QUALITY RATIO 2008 2009 2010 Name of life insurer Ratios 2011 2012 2013 2014 2015 2016 2017 PUBLIC SECTOR 0.0143 LIC Asset Quality Ratio 0.0178 0.0189 0.0125 0.0118 0.0006 0.0115 0.0006 0.0225 0.0342 PRIVATE SECTOR 0.0002 SBI Asset Quality Ratio 0.0007 0.0007 0.0003 0.0015 0.0000 0.0015 0.0003 0.0012 0.0014 ICICI Asset Quality Ratio 0.4950 0.0033 0.0005 0.0001 0.0018 0.0001 0.0020 0.0019 0.0026 0.0015 HDFC STANDARD Asset Quality Ratio 0.0145 0.0250 0.0301 0.0436 0.0548 0.0686 0.0832 0.1288 0.3036 0.4186 BAJAJ ALLIANZ Asset Quality Ratio 0.0914 0.0711 0.0366 0.0572 0.0901 0.1263 0.1478 0.1545 0.1690 0.1591 Equities/Total Assets 35

  36. INTERPRETATION: From the Table – 2, reveals that management ratios of LIC, SBI and ICICI prudential, HDFC standard and Bajaj Allianz life insurance company limited from 2007-08 to 2016-17. The LIC has increased from 0.0178 in 2008 to 0.0342 2017 and ICICI Prudential has also witnessed a gradual declined from 0.49 to 0.0015 during the period 2008 to 2017 and there is an increase in 2016 as 0.0026.The HDFC standard has a growth from the 2008 to 2017. The Bajaj Allianz Life Insurance Company reveals that there is a fall in the 2010 and it increased to 0.17 in 2016 and declined in the latest year from the period of the study. The SBI Life has witnessed a continuously increasing expense to their business operations from 0.0007 to 0.0015 during the 2008 to 14 and there by recorded a gradual decline to 0.0014 in 2017. 36

  37. TABLE- 3: REINSURANCE AND ACTURIAL RELATED ISSUES Name of life Insurer Ratios 2016 2008 2015 2009 2010 2011 2012 2013 2014 2017 PUBLIC SECTOR LIC Risk retention ratio 0.9994 0.9994 0.9995 0.9994 0.9996 0.9990 0.9994 0.9992 0.9992 0.9033 PRIVATE SECTOR SBI Risk retention ratio 0.9981 0.9987 0.9977 0.9972 0.9960 0.9935 0.9924 0.9932 0.9899 0.9923 ICICI Risk retention ratio 0.9982 0.9975 0.9968 0.9964 0.9933 0.9911 0.9883 0.9905 0.9914 0.9911 HDFC STANDARD Risk retention ratio 0.9917 0.9927 0.9927 0.9945 0.9949 0.9943 0.9928 0.9955 0.9918 0.9912 BAJAJ ALLIANZ Risk retention ratio 0.9986 0.9978 0.9975 0.9964 0.9933 0.9916 0.9884 0.9885 0.9889 0.9901 Net Premium/Gross Premium 37

  38. INTERPRETAION: From the table – 3, the risk retention ratio, indicates that the life insurance sector retained the risk at their own destiny, can be witnessed by the slightly increasing trend during the study period from 2007-0 8to 2016-17, given that they do not rely considerably on reinsurance as non-life insurers do. Hence, insignificant gap is seen between Gross Written Premium (GWP) and Net Premium which indicates the risk passed onto the reinsurers is negligible. In other words, the life insurers passed on to reinsurance only 1.19 per cent of the total direct premium. From the above table, it is observed that the life insurers preferred retaining risk at their own destiny to passing the risk onto the reinsurers so as to boost up their profits by reducing the transaction costs and sharing of premium income with reinsurers, during the study period.in this study Public sector Life insurance company LIC has maintained the thumb rule of 1.19 per cent. It maintained a below growth. As compared to private sector life insurance companies SBI, ICICI prudential, HDFC, Bajaj Allianz life insurance companies has maintained the below the thumb rule and there is a continuous growth in the risk retention ratio for a particular period. 38

  39. TABLE- 4: MANAGEMENT SOUNDNESS Name of life Insurer Ratios 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 PUBLIC SECTOR . LIC Operating expense ratio 0.0561 0.0576 0.6568 0.0835 0.0735 0.0800 0.1010 0.0941 0.0857 0.1096 PRIVATE SECTOR SBI Operating expense ratio 0.8700 0.8600 0.0654 0.5863 0.0780 0.1101 0.1667 0.1601 0.1221 0.1545 ICICI Operating expense ratio 0.4547 0.4436 0.3831 0.4397 0.3167 0.3552 0.2850 0.3289 0.3477 0.3787 HDFC STANDARD Operating expense ratio 0.2098 0.3175 0.2138 0.1661 0.1245 0.1074 0.1062 0.1004 0.1147 0.1227 BAJAJ ALLIANZ Operating expense ratio 0.2061 0.1766 0.1551 0.1672 0.1879 0.2322 0.2521 0.2030 0.2044 0.1861  Operating Expenses/ Gross Premiums 39

  40. INTERPRETATION: The above table – 4, it reveals that management ratios of LIC, SBI and ICICI prudential, HDFC Standard and Bajaj Allianz life insurance Company limited from 2008 to 2017. The SBI Life have witnessed continuously increasing expenses to their business operations volume during the study period while the ICICI Prudential and the LIC have also recorded fluctuating expenses to their business operations volume. Bajaj Allianz Life Insurance Company has stood third position from the private sector. It has been increased from the 2010 to 2014 and there is a deemed decrease from 2015 to 2017. HDFC Standard has there is a continuous decrease in the 2015. And there is an increase in the 2016 to 2017. The peer and industry average trend ratio indicate that in general the operation expenses decreasing from year on year (YOY) basis, given still the highest. The SBI Life Insurance has witnessed continuously decreasing trend yet SBI Life holds the first position in the sector by recording good business performance whereas the LIC showed surging up and down business performance during the study period 40

  41. TABLE-5: EARNINGS AND PROFITABILITY RATIO Name of life insurer Ratios 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 PUBLIC SECTOR 212.14 ROE 168.92 191.47 234.36 213.13 234.38 245.38 246.48 244.55 245.38 LIC ROA 0.0001 0.0011 0.0009 0.0009 0.001 0.0009 0.0008 0.0009 0.0007 0.0009 PRIVATE SECTOR ROE - 0.2756 0.3663 0.5558 0.6222 1.27 1.21 1.07 1.03 SBI 0.0343 0.0032 0.0263 -0.0019 ROA ROE 0.0098 0.0093 0.0119 0.1109 1.27 1.21 1.07 1.03 -9956 -0.5436 0.1806 0.5654 0.9687 1.0469 1.2713 1.2636 1.16 1.16 ICICI ROA -0.0463 -0.0213 0.0043 0.0115 0.0193 0.0201 0.0209 0.0169 0.017 0.22 ROE -0.1915 -0.2801 -0.1398 -0.0493 0.1359 0.2263 0.2363 0.2243 0.24 0.22 HDFC STANDARD ROA -0.0253 -0.0429 -0.0127 -0.0035 0.0081 0.011 0.064 0.075 0.08 0.08 ROE -1.538 -0.469 0.3598 0.7013 0.87 0.853 0.873 0.843 0.812 0.85 BAJAJ ALLIANZ ROA -0.0152 -0.004 0.0164 0.0269 0.0332 0.0335 0.0345 0.0335 0.0355 0.032 Return on equity (ROE) = Net Income to Equity Return on Asset (ROA) = Net Income to Total Asset 41

  42. INTERPRETATION: From the table – 5, it highlights that Earning and profitability Ratios of LIC , SBI and ICICI prudential, HDFC Standard and Bajaj Allianz life insurance company from the period from 2007-08 to 2016-17. Earnings are one of the key sources of inbuilt long term capital base for an insurance company. Low profitability may signal fundamental problems of the insurer and may consider a leading indicator for solvency problems. Therefore, considerable attention has given to this area so that the most important indicators of earnings and profitability are included in this study for life insurers' under review. Thus these are the Expense Ratio, ROE, and ROA. The ROE (return on equity) is measured as the ratio of net profit to equity and the figure shows that the net profits that are returned to shareholders, higher the return on equity, the more profitable the insurer has become and the possibility of enhanced dividends to shareholders. The ROA (return on assets) is measured as the ratio of net profit on assets; we included this ratio proxy to investment ratio as an indicator of the effectiveness of their investment policies by and large since Life Insurance Company has been functioning to a large extent as asset managers. 42

  43. TABLE- 6: LIQUIDITY RATIO Name of life insurer Ratios 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 PUBLIC SECTOR 3.619 LA to LL LA to TA 1.937 0.052 2.487 0.058 2.259 0.044 3.723 0.048 3.087 0.072 5.859 0.094 3.753 0.013 3.004 0.032 3.060 0.051 LIC 0.020 PRIVATE SECTOR 0.554 0.028 LA to LL LA to TA 0.607 0.027 0.399 0.029 0.777 0.034 2.415 0.068 2.399 0.065 2.753 0.043 2.619 0.052 2.004 0.570 2.060 0.627 SBI LA to LL 0.592 0.574 0.376 0.417 0.537 0.648 0.634 0.484 0.628 0.635 ICICI LA to TA 0.035 0.020 0.010 0.010 0.013 0.018 0.026 0.002 0.003 0.002 LA to LL 1.371 1.056 0.621 0.804 0.852 0.977 0.082 0.046 0.045 0.049 HDFC STANDARD LA to TA 0.088 0.081 0.035 0.037 0.038 0.041 0.049 0.048 0.478 0.570 LA to LL 0.484 0.632 0.474 0.777 0.810 1.037 1.376 1.091 1.263 1.414 BAJAJ ALLIANZ LA to TA 0.036 0.030 0.016 0.020 0.024 0.042 0.038 0.091 0.263 0.044 LA to LL=Liquid Assets/Liquid Liabilities LA to TA= Liquid Assets/Total Assets 43

  44. INTERPRETATION: From Table - 6, Liquid ratios of LIC, SBI, ICICI prudential and Bajaj Allianz life insurance companies from 2007-08 to 2016-17 highlighted from the above table. Liquidity is the sixth and last component of the CARAMEL framework for life insurers but not the least even if their liquidity of liabilities is relatively predictable backed through their long-term obligations. The 1st ratio presented in the above table represents the Current Ratio. Overall results indicate that the life insurer's ability to meet the short-term obligations is steady improving year on year basis during the study period, given that their inherently long-term obligations. The private insurer of ICICI Prudential, Bajaj Allianz and HDFC life insurance Company limited was recorded the current ratio below the rule of thumb, that is, at least 1:1 ratio, during the study period. The 2nd ratio, liquid assets to total assets reflects the financial assets position in the total assets of an insurer. The ratio analysis, to some extent supports the previous discussion made under current ratio thus both the peer and industry average was slightly waving up and down during the study period. NULL Hypothesis: There is no significant difference between the selected life insurance companies (5) with respect to CARAMEL (Total Solvency Ratios, Asset quality Ratio, Total Reinsurance and Actuarial Issues Ratios, Total management ratios, Total Earning and profitability Ratios and Total liquid ratios). 44

  45. TABLE – 7 DESCRIPTIVE STATISTICS Type of life insurer companies PUBLIC LIC PRIVATE SBI PRIVATE ICICI PRIVATE HDFC STANDARD PRIVATE BAJAJ ALLIANZ TOTAL PUBLIC LIC PRIVATE SBI PRIVATE ICICI PRIVATE HDFC STANDARD PRIVATE BAJAJ ALLIANZ TOTAL PUBLIC LIC PRIVATE SBI PRIVATE ICICI PRIVATE HDFC STANDARD PRIVATE BAJAJ ALLIANZ TOTAL PUBLIC LIC PRIVATE SBI PRIVATE ICICI PRIVATE HDFC STANDARD PRIVATE BAJAJ ALLIANZ TOTAL PUBLIC LIC PRIVATE SBI PRIVATE ICICI PRIVATE HDFC STANDARD PRIVATE BAJAJ ALLIANZ TOTAL PUBLIC LIC PRIVATE SBI PRIVATE ICICI PRIVATE HDFC STANDARD PRIVATE BAJAJ ALLIANZ TOTAL Ratios Life insurance N Mean Std. Deviation 1.8322 1.1989 1.6152 0.9847 3.0710 0.8153 0.0099 0.0006 0.1561 0.1355 0.0471 0.0718 0.0304 0.0030 0.0035 0.0015 0.0042 0.0123 0.0181 0.3245 0.0549 0.0700 0.0293 0.1275 116.17 0.5277 0.6848 0.1474 0.5893 36.2618 1.8209 1.0266 0.2845 0.4344 0.5129 0.6273 Std. Error 0.2591 0.1696 0.2284 0.1393 0.4343 0.1153 0.0014 0.0001 0.0221 0.0192 0.0067 0.0102 0.0043 0.0004 0.0005 0.0002 0.0005 0.0017 0.0026 0.0459 0.0078 0.0099 0.0041 0.0180 16.429 0.0746 0.0968 0.0209 0.0833 5.1282 0.2575 0.1452 0.0402 0.0614 0.0725 0.0887 Total Capital Adequacy Ratio 10 10 10 10 10 50 10 10 10 10 10 50 10 10 10 10 10 50 10 10 10 10 10 50 10 10 10 10 10 50 10 10 10 10 10 50 0.7692 1.1881 1.5910 0.9606 2.6788 1.4375 0.0145 0.0008 0.0509 0.1171 0.1103 0.0587 0.9897 0.9949 0.9935 0.9932 0.9931 0.9929 0.0824 0.3173 0.3643 0.1583 0.1971 0.2239 111.80 0.5566 0.6765 0.0438 0.2192 9.2408 1.6636 0.9065 0.2832 0.3684 0.4982 0.7440 Asset Quality Ratio Total Reinsurance and Actuarial Issues Ratios Total Management Ratios Total Earning and Profitability Ratios LIQUIDITY RATIO 45

  46. TABLE – 8-RESULTS OF ANOVA Source of Variation SS df MS F P-value Capital Adequacy Between Groups Within Groups Total Between Groups Within Groups Total Between Groups Within Groups Total Between Groups Within Groups Total Between Groups 1099.569 1339.073 2438.642 1243.082 1333.366 2576.448 1204.24 1333.334 2537.574 1233.059 1333.454 2566.512 1954.01 3 20 23 3 20 23 3 20 23 3 20 23 3 366.5229 66.95367 5.474276 0.006519 Asset Quality 414.3607 66.66829 6.215259 0.003708 Total Reinsurance and Actuarial Issues Ratios 401.4134 6.021198 0.004286 66.6667 Total Management Ratio 411.0195 66.67269 6.164736 0.003849 Total Earning and Profitability Ratios 651.335 0.56983 0.64134 Within Groups 22860.8 20 1143.04 Total 24814.8 1171.09 1336.26 2507.34 23 3 20 23 LIQUIDITY RATIO Between Groups Within Groups 390.363 66.8128 5.84263 0.00491 Total 46

  47. INTERPRETATION: From the Table 8, represents that whether there is any significant difference between the selected life insurance companies with respect to CARAMEL (Total Solvency Ratios, Asset quality Ratio, Total Reinsurance and Actuarial Issues Ratios, Total management ratios, Total Earning and profitability Ratios and Total liquid ratios). Since the p value of Total Solvency Ratios 0.006, Asset quality Ratio 0.003, Total Reinsurance and Actuarial Issues Ratios 0.004, Total management ratios 0.003, Total Earning and profitability Ratios 0.64 and Total liquid ratios 0.004 less than 0.01. Hence it is concluded that there is a significant difference between the selected life insurance companies with respect to CARAMEL ratios However, the ANOVA results show that the null hypothesis is rejected at 1% level in case of total earnings and profitability ratio since the p value is 0.641 is greater than the 0.05. thus, it is clear that there is no significance different between the selected insurance companies with respect to total earnings and profitability ratio. 47

  48. CHAPTER - V FINDINGS AND SUGGESTIONS 48

  49. FINDINGS AND SUGGESTIONS This chapter provides a brief picture about the of the major findings of the study. From the study, it is clear that LIC has just managed its fate at nearly the minimum statutory requirements as per the IRDA regulations; the capital adequacy ratio was remained at 1.54 for last five consecutive years; even though it's slight higher than the minimum statutory requirements ratio of 1.5. The private life insurer, ICICI Prudential capital adequacy ratios have been increasing trend however the SBI life insurance company’s capital adequacy ratio has declined from 2008 – 2011 and later it varied between 0.054 to 0.047. Bajaj Allianz Life Insurance Company has also progressed during the study period. HDFC standard life insurance company indicated a gradual decline from the during the study period. It also reveals that the Management ratio of LIC has increased from 0.0178 in 2008 to 0.0342 2017. But the ICICI Prudential has witnessed a gradual declined from 0.49 to 0.0015 during the period under consideration and there is an increase in 2016 as 0.0026. The HDFC standard has a growth from the 2008 to 2017. The Bajaj Allianz Life Insurance and SBI Standard life revealed fluctuating Management ratio during the period of the study period. It is evident that the risk retention ratio, indicates that the life insurance sector retained the risk at their own destiny, can be witnessed by the slightly increasing trend during the study period from 2007-0 8to 2016-17, given that they do not rely considerably on reinsurance as non-life insurers do. Hence, insignificant gap is found between Gross Written Premium (GWP) and Net Premium which indicates the risk passed onto the reinsurers is negligible. In other words, the life insurers passed on to reinsurance only 1.19 per cent of the total direct premium. From this study, it is observed that the life insurers preferred retaining risk at their own destiny to passing the risk onto the reinsurers so as to boost up their profits by reducing the transaction costs and sharing of premium income with reinsurers, during the study period.in this study Public Sector Life insurance company LIC has maintained the thumb rule of 1.19 per cent. It maintained a below growth. As compared to private sector life insurance companies SBI, ICICI prudential, HDFC, Bajaj Allianz life insurance companies has maintained the below the thumb rule and there is a continuous growth in the risk retention ratio for a particular period. It reveals that management ratios of SBI Life during the period of study has witnessed continuously increasing expenses to their business operations volume while the ICICI Prudential and the LIC has recorded fluctuating expenses to their business operations volume. Bajaj Allianz Life Insurance Company has stood third position from the private sector. It has been increased from the 2010 to 2014 and there is a deemed decrease from 2015 to 2017. HDFC Standard has there is a continuous decrease in the 2015. And there is an increase in the 2016 to 2017. The peer and industry average trend ratio indicated that in general the operation expenses decreasing from year on year (YOY) basis, given still the highest. The SBI Life Insurance has witnessed continuously decreasing trend yet SBI Life 49

  50. holds the first position in the sector by recording good business performance, whereas the LIC showed surging up and down business performance during the study period It is also clear from the study that considerable attention has given to the Earning and profitability Ratios as the most important indicators of the life insurers' selected for the study like LIC , SBI and ICICI prudential, HDFC Standard and Bajaj Allianz life insurance company from the period from 2007-08 to 2016-17. Earnings are one of the key sources of inbuilt long term capital base for an insurance company. Low profitability may signal fundamental problems of the insurer and may consider a leading indicator for solvency problems. Liquidity is the sixth and last component of the CARAMEL framework for life insurers but not the least even if their liquidity of liabilities is relatively predictable backed through their long-term obligations. Overall results of this study indicate that the life insurer's ability to meet the short-term obligations is steadily improving on year on year basis during the study period, given that their inherently long-term obligations. The private insurer of ICICI Prudential, Bajaj Allianz and HDFC life insurance Company limited was recorded the current ratio below the rule of thumb, that is, at least 1:1 ratio, during the study period. The 2nd ratio, liquid assets to total assets reflects the financial assets position in the total assets of an insurer. The ratio analysis, to some extent supports the previous discussion made under current ratio thus both the peer and industry average was slightly waving up and down during the study period. ANOVA results conclude that the p value of Total Solvency Ratio (0.006), Asset quality Ratio (0.003), Total Reinsurance and Actuarial Issues Ratios (0.004), Total management ratios (0.003) and Total liquid ratios (0.004) are less than 0.01 therefore it is established that there is a significant difference among the selected life insurance companies with respect to CARAMEL ratios. But the ANOVA results show that the null hypothesis is rejected at 1% level in case of total earnings and profitability ratio since the p value ( 0.641) is greater than the 0.05. therefore, it is clear that there is no significant difference between the selected insurance companies with respect to total earnings and profitability ratio. Finally, it can be concluded that the investors who are planning to take the life insurance policy can take the policy from any life insurance company 50

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