Life insurers reduce losses in first half

Life insurance companies have managed to pare their losses during the first half of the current financial year, partly due to a decline in the sale of new policies.

What also helped the likes of SBI Life report a profit for the six months to September was an appreciation in the value of its investments, especially shares held. In addition, insurance companies have managed to lower expenses by reorganising their branches, raising productivity levels and putting curbs on expansion into newer markets.

The drop in sales has partly contributed to the reduction in losses since insurers have to set aside extra capital for underwriting new business to meet solvency requirements prescribed by the regulator. The solvency margin is 150 per cent for the life insurance products. So, for a policy worth Rs 100, an insurer has to set aside Rs 150.

Last year, the Insurance Regulatory and Development Authority has reduced solvency margins for many products including unit-linked insurance plans, which accounts for 80 per cent of the sales. As a result, there was a decline in capital requirement.

During the first six months of the current financial year, private sector players have seen a 14.67 per cent decline in premium collected through the sale of new policies.

Insurance companies, which are unlisted, do not disclose quarterly numbers.

Riding on bancassurance and profit from investments, the country’s largest private sector insurer SBI Life reported a net profit of Rs 114 crore during April-September 2009 as against a loss of Rs 46 crore in the corresponding period last year. Profit from investment was estimated at Rs 75 crore as against a loss of Rs 130 crore in April-September 2008.

“We have been able to report a profit because of our low cost of operation and partly due to a profit on investment. We will grow our overall business by 30 per cent. We have managed to control our expense ratio at 16 per cent against 15.73 per cent last year,” said SBI Life managing director and chief executive officer M N Rao.

ICICI Prudential Life Insurance saw its first premium income decline by 38 per cent during the first six months of the financial year to Rs 2,128 crore.

Reliance Life, which is preparing for an initial public offer, brought down its losses from around Rs 517.9 crore in the first six months of the last financial year to Rs 111.7 crore during April-September 2009.

Better expense management has pushed up the net profit for Bajaj Allianz to Rs 125 crore from a loss of Rs 24 crore in the corresponding period last year. Its business fell by 29 per cent during the first half. “Our expense ratio has come down from 20.5 per cent to 18.6 per cent. Lesser new business helped us in the first half,” said Bajaj Allianz Life Insurance chief financial officer Rajesh Vishwanathan.

Higher renewal premium brought down the losses of Birla Sun Life Insurance from Rs 347 crore in April-September 2008 to Rs 238 crore in the first six months of this financial year.

“Our losses are in line with the new initiatives we have taken. We have increased our focus on renewal premium, improving productivity and expense management,” said Birla Sun Life Insurance chief financial officer Mayank Bathwal.

The renewal premium for the insurers grew by 53 per cent during the first six months.