A Study on Financial Performance of Indian Non – Life Insurance Industry

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Executive Summary
India is one of the world’s fastest growing economies, with real GDP rising to 9.4 per cent in 2006-07 as against 9.0 per cent in 2005-06. India’s share in world GDP thus has increased to 6.3 per cent in 2006 measured in terms of purchasing power parity. Growth in per capita income also accelerated to 8.4 per cent in 2006-07 from 7.4 per cent in 2005-06. Economic fundamentals strongly suggest that there is a tremendous potential for the insurance sector to attain a high growth level. The insurance penetration in a country depends on its level of economic activity, risk awareness among the people and the deepening of the financial system. With a large population and an untapped market, insurance industry has a huge growth potential in India. The improved performance in the domestic economy has an impact on the insurance industry, in particular. Higher per capita income, domestic savings and availability of more instruments for parking surplus funds facilitates growth in the activities of financial services, particularly insurance. At the time of opening up of the sector in 1999, insurance was viewed primarily as a tax saving device. However, policyholders’ perspective began gradually changing towards an insurance cover irrespective of the tax incentives. Most of the private insurance companies are joint ventures with recognized foreign players across the globe. Consumer awareness has improved. Competition has brought more products and improved the customer service. It has had a positive impact A Study on Financial Performance of Indian non - life Insurance Industry 2

on the economy in terms of income generation and employment opportunities in this sector. The purpose of this study is to assess the financial performance of the Indian non - life insurance industry from 2003 till 2007. This about three to four years after the private sector initiatives commenced in this sector. Insurance is a highly regulated industry , therefore the study also aims at examining the key IRDA regulations, in the context of the financial norms to be adhered to by all the new and existing insurers in the non – life Indian sector. The study thus examines the compliance of these norms by the non – in particular – the Solvency margins and Rural and Social Sector Obligations. This study is conducted on the non – life sector as this form of insurance gets the least attention by the insured in India. Barring vehicle insurance which is compulsory, the other forms of property indemnities are rarely given the due attention particularly in the retail market. India currently is at mid – size on non – life market but the predicted growth is attracting foreign investments and competition. The new private insurers are growing at a fast rate as such a study of this sector would be of extreme interest and relevance for both new and existing insurers in the Indian market. Data for the study was collected from the secondary source such as IRDA Annual reports, official gazettes and e-journals - available to the public over the web. A Study on Financial Performance of Indian non - life Insurance Industry 3

Some of the Key findings from the study are: The Combined ratio for all the insurers was more then 100. Combined ratio of all the private insurers has definitely been reducing gradually over the period of five years from 2003 to 2007 and getting close to 100 per cent but in case of public insurers the combined ratio has mostly remained the same or there has been a marginal increase. Public insurers have a very high capacity ratio at least 5 times that of the generally accepted upper limit of 3, all through out the span of five years. Except for Bajaj Allianz, ICICI Lombard and Reliance all the other private insurers maintained a capacity ratio well below three over the period of five years. This relatively high written premium’s not commensurate with the backing of equity is not a comforting sign. Public sector insurers continue to dominate in...
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