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INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY - page 36 / 228

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ANNUAL REPORT 2007-08

Segregation of first year premium (based on the monthly data of premium underwritten) into linked and non-linked components revealed consolidation towards linked products, with premium underwritten at Rs.70059.52 crore in 2007-08 as against Rs.42911.86 crore in 2006-07, a growth of 63.26 per cent. The non-linked premium was Rs.22929.19. crore as against Rs.32494.66 crore in 2006-07, i.e., a negative growth of 29.44 per cent. Linked and non-linked business accounted for 75.34 and 24.66 per cent of total business in 2007-08 as against 56.91 and 43.09 per cent respectively in 2006-07. The continued shift towards preference for linked products coincided with the sustained positive performance of the stock markets in the country in the first half of 2007-08. In the case of LIC, 65.84 per cent of the first year premium was from linked products while non-linked products contributed 34.16 per cent (46.31 and 53.69 per cent respectively in 2006-07). In the case of private insurers, these proportions were 91.97 and 8.03 per cent respectively in 2007-08 as against 87.34 and 12.66 per cent in 2006-07. Response to unit linked products in the last four years reflects the preference of the customer to such products and the life insurers have recognized the needs of the customers and are orienting towards ULIP products.

Expenses of the life insurers

Section 40 B of the InsuranceAct, 1938 provides that no insurer shall in respect of life insurance business transacted in India, spend as expenses of management in excess of the prescribed limits. Expenses of management include all commission payments and operating expenses. The Insurance Rules, 1939 further lay down the manner of computation of the prescribed limits.A major expense head for the life insurers is commission paid to the intermediaries. As against the industry average of 16.25 per cent (16.59 per cent in 2006-07), LIC incurred an expense ratio of 17.01 per cent (16.03 per cent in 2006-07) towards commission on first year premium (excluding Single Premium). For the private insurers this ratio worked out to 15.56 per cent (17.68 per cent in 2006-07). The commissions paid by LIC towards the single premium was 1.49 per cent as against industry average of 1.43 per cent. The corresponding ratio for private insurers averaged to 1.0 per cent. The total commission paid by the life insurers in 2007-08 amounted to Rs.14704.30 crore as against Rs.12258.99 crore in 2006-07

(Table 9). It was observed that commissions paid by the life insurance companies for procurement of new business has increased compared to the previous year pointing to increased competition in the sector.

Management expenses of private insurers had stabilized in 2006-07. In 2007-08, six companies namely Bharti Axa, Aviva, ING Vysya, Reliance and new entrants - Future Generali, and IDBI Fortis exceeded the prescribed limits. Out of 18 companies which underwrote business during 2007-08, 12 companies complied with the stipulations on expenses of management. However, Bharti Axa which started business in 2006-07 exceeded the prescribed limits in the year 2007-08., In the case of Future Generali, IDBI Fortis and Bharti Axa, the excess was within the norms for the life insurance industry. In the case of LIC, the expenses of management continued to be within the allowable limits.

LIC

414.05

504.33

Private Sector

42.51

50.65

Total

456.57

554.98

LIC

3969.79

4650.89

Private Sector

307.19

578.46

Total

4276.99

5229.35

TABLE 9

LIC

5203.79

4963.81

Private Sector

2778.21

4511.15

Total

7982.00

9474.95

LIC

9173.58

9614.69

Private Sector

3085.40

5089.61

Total

12258.99

14704.30

COMMISSION EXPENSES OF LIFE INSURERS

First Year

Renewal

Total

Insurer

LIC Private Sector Total

(Rs. Crore)

2006-07

2007-08

4459.48 4460.49 8919.97

Regular

4789.74 2735.70 7525.43 Single Premium

20

20

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