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Benefits Paid

The life industry paid gross benefits of Rs.61780.02 crore in 2007-08 (Rs.55765.35 crore in 2006-07) constituting 30.68 per cent of the gross premium underwritten (35.73 per cent in 2006-07). The benefits paid by the private insurers showed an increase of 111.28 per cent at Rs. 5212.24 crore (Rs.2466.94 crore in 2006-07), constituting 10.11 per cent of the premium underwritten (8.73 per cent in 2006-07). LIC paid benefits of Rs.56567.78 crore in 2007-08, constituting 37.76 per cent of the premium underwritten (Rs.53298.41 crore in 2006-07 constituting 41.70 per cent of the total premium underwritten). The benefits paid by the life insurers net of re-insurance were Rs.61687.77 crore (Rs.55715.01 crore in 2006-07). There has been a significant increase in the benefits paid on account of surrenders/withdrawals amounting to Rs.21677.25 crore as against Rs.17690.32 crore in 2006-07. With a stipulation of minimum lock-in period of three years for ULIP products, surrenders as a per cent of premium underwritten may come down in future.

Investment income

As the operations of the life insurers stabilize, their investment base gets strengthened, resulting in investment income forming a larger proportion of their total income. In the case of LIC, the investment income including capital gains was higher at Rs. 56595.06 crore in 2007-08 compared to Rs. 46784.71 crore in 2006-07. As a percentage of total income, it increased to 37.78 per cent in 2007-08 from a decline of 36.60 per cent in 2006-07. The investment income of the private insurers,

inclusive of capital gains, was Rs.6602.62 crore in


08 as against Rs.2478.48 crore in 2006-07. The share of investment income in the total income for the private life insurers increased to 23.37 per cent in 2007-08 (4.81 per cent in 2006-07). Companies have also reported an improvement in the yields on their investments. The industry is still in the process of stabilizing and despite additional share capital, it takes time to reach the consolidation stage.

Profits of life insurers

training costs for developing the agency force, creating a niche market for its products, achieving reasonable levels of persistency, providing for policy liabilities, and maintaining the solvency margin, would be difficult for the insurers to earn profits in the initial seven to ten years of their operations. In 2007-08, four of the private sector companies reported net profits. SBI Life insurance company was the first private company to report net profit of Rs.2.02 crore in 2005-06. It reported higher net profit of Rs.3.83 crore in 2006-07 and further increased its net profit level to Rs.34.38 crore in 2007-08. The company has succeeded in achieving an early break even on account of its lower cost of operations due to the large network of its Indian partner, the State Bank of India. However, the insurer still continues to report a deficit in the Revenue Account. However, some segments namely Non-participating individual; Group-other than retirement and Annuity generated surplus in 2007-08). Shriram Life, which commenced operations in February, 2006, too reported net profit for the third successive year of operations. However, it reported a lower net profit of Rs.5.58 crore in 2007-08 as against Rs.9.50 crore in 2006-07. With the total premium underwritten at Rs.184.16 crore, the company’s operations have, however still to take off in a significant manner. In 2007-08, Metlife and Sahara life have reported net profits of Rs.21.25 crore and Rs.3.34 crore respectively. As against net loss of Rs.11.96 crore in 2006-07, Metlife reported net profit of 21.25 crore in 2007-08. The company has reported profits by carrying deficit of Rs.488 crore in the Revenue Account. Sahara Life has reported maiden net profits in 2007-08 at Rs.3.34 crore, against net loss of Rs.51.44 lakh in 2006-07. The company has reported surplus in the non-participating Individual Term and Pension segments, although on a small portfolio.

All the private insurance companies reported deficit in their respective Revenue Accounts in 2007-08. Some of these companies reported surpluses in some segments of their business in 2006-07. The deficits in Revenue account necessitated injection of further capital by the shareholders (except for Shriram Life).

Life insurance industry is capital intensive, and insurers are required to inject capital at frequent intervals to achieve growth in premium income. Given the high rate of commissions payable in the first year, expenses towards setting up operations,

During 2007-08 insurers continued to declare bonus despite reporting deficit in the Policyholders’ Account (Revenue Account). It may be recalled that in 2003-04, recognizing the need of the new insurers to declare bonus to maintain their



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