MUMBAI: Promoters of life insurance companies, who pumped Rs 4,700 crore into their companies between April and September 2008, have now started raising questions on capital efficiency. With all but one private life insurer in the red, capital constraints may compel a change in strategy.
Since the end of 2000, life insurance company promoters have infused Rs 21,000 crore into their companies, with most of the funds coming in over the past two years. Until the financial crisis in October, promoters were willing to fund their companies without any question on the likely break-even date. This was because the high growth in the life insurance industry was driving up valuations of life companies and consequently the value of promoters’ shares.
However, with stock markets on the downhill, the valuation is no longer a driver and capital has also turned scarce. As a result, several promoters are looking at capital efficiency and asking managements of life companies not to make any big investments.
Life insurance companies need capital on two counts — first, for increasing their distribution network, i.e., to meet the expenses of opening new branches and training new agents. Secondly, to meet the solvency margin requirements. Capital requirements are structured in such a manner that if premium from the new business outstrips renewal premium, it is difficult for a company to make money.
On the distribution side, the life industry has dramatically increased its network this year. A total of 1,480 branches were added in the second quarter of the current fiscal (FY09), of which a whopping 1,293 branches were set-up by private sector life insurers. In the same quarter, the industry added 53,332 employees to its payrolls, taking the number of direct employees to over 3 lakh.
The expansive phase of the life industry has had a positive impact on insurance penetration into rural areas as well. “More than two-thirds of the total 10,037 branches of life insurance companies are located in semi-urban and rural pockets across all 28 states and six union territories of India,” said Life Insurance Council secretary general SB Mathur.
Since the privatisation of the insurance industry in 2000, the life insurance industry in India has witnessed a phenomenal growth. Total assets of life insurance companies grew to Rs 8,57,500 crore by the end of the September quarter, of which Unit-Linked Policies (ULIPs) accounted for Rs 140,000 crore. The total premium of all life insurance companies stood at Rs 86,500 crore in the first half of the current fiscal. The total premium collected for the year FY08 stood at Rs 201,000 crore
Source:-Economic Times
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