In India, where the market for private sector was opened ten years in back in 1999, most of the private insurance companies are still in loss and are waiting for break up. Last year’s recession made the ride a bit more difficult for them but this years April-Sep results tells a different story. Companies like SBI, Bajaj Allianz posted net profit where as companies like reliance life insurance showed reduction in losses. Companies have gained from the appreciation in values of their investment and reorganizing their business model like cost cutting and slowing down in expansion. Decline in new business also helped as it reduce their cost of doing business as they have to set aside the cost of underwriting.
Insurance regulatory and development authority has already reduced the solvency margin and because of this the capital requirement has gone down. Private sector companies have seen a decline of 14.67 percent in new business premium collection. Life insurance sector was badly hit last year when people were hesitating in investing in life insurance due to uncertain conditions of stock market. In India, 80 percent of new business premium collection comes from sale of unit link policies and investor were not very sure of the fate of their investment, so they were shying away from the market. Insurance companies used recession for their restructuring and coming up with innovative products. They did well in terms of sailing through it and using it to reduce their losses by reducing their operating cost.
Companies like reliance life is pushing to come up with a IPO, once a companies gets listed, its transaction and financial health become more visible as they have to post their results. Most of the private insurance companies are quite new and are under expansion mode, so it is also adding up to their balance sheets. Though their expansion plans have slowed down since last year but as market is picking up, they will also come on track and will help them in bringing more business. Life insurance industry does have a very low penetration in Indian society so space for growth is enormous and that’s why it is attracting a lot of players.
Industry has seen a robust growth in last few years and more and more players are joining the game, latest being the joint venture of Andhra bank, bank of Baroda and Legal and General Group of UK. They have completed all the formalities and are expected to roll out by the end of the current fiscal.
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