'Life insurance sector to grow 15-18 per cent on APE basis in FY18'

The Indian life insurance industry is expected to log a growth of 15 to 18 per cent this fiscal on an annual premium equivalent (APE), said a senior official at credit rating agency ICRA.

Presenting the performance of the life insurance sector at a webinar on Tuesday, Karthik Srinivasan, Senior Vice-President, ICRA, said that, on APE basis, the industry's new business growth stood at 19 per cent last fiscal over the previous fiscal.

APE is the total premium after normalising the policy premiums into equivalent of regular annual premium. Life insurers also sell single premium policy and normally 10 per cent of that is taken to compute the APE.

Srinivasan said the industry is expected to log an APE growth of 15-18 per cent this fiscal.

Queried about the negative APE growth percentage, Srinivasan told IANS: "The 19 per cent APE growth last fiscal was sort of an aberration. In FY16, the APE growth was only 11 per cent. Hence on a conservative side, I have put the APE growth between 15-18 per cent."

The paper analysed the performance of 11 life insurers (comprising LIC and ten companies from the private sector) collectively representing around 95 per cent of the industry-wide new business premium in FY2017.

He said despite the adoption of technology for various parts of policy issuance and servicing, the cost structure of life insurers has increased during the nine month period of last fiscal.

"This increase in expenses is partly on account of higher administration and employee related expenses, as the industry looks to build for a scale-up," Srinivasan said.

He said the solvency levels for the life insurance companies look adequate with the median solvency levels for the ten private layers analysed at 2.3 times as on December 2016 as against a regulatory minimum of 1.5 times.

Srinivasan said the solvency levels would decline over a period of time as life insurers scale up the mix of traditional products.

He said the companies can grow their business without raising external equity capital over the near to medium term.

"They also have the flexibility to raise Tier II bonds to bolster the regulatory solvency levels. However, higher capital raise at the industry levels would help the industry raise more risk capital and aid in greater insurance penetration," he said.

--IANS

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