The Hindu Business Line : For private life insurers, break-even is still away

Indian private life insurers are growing at a scorching pace of over 100 per cent annually and this, they say, is the reason why profits may not be sighted soon. The life insurance industry was liberalised in 2001 and so far just one company, SBI Life Insurance, registered a profit of Rs 2 crore last year — riding on the low-cost bancassurance channel via its tie-up with the State Bank group.

"The accounting rules do not allow companies to amortise costs and hence losses are natural for the sector. The more one grows and incurs expenses, the longer the gestation period," said Mr N.S. Kannan, Executive Director, ICICI Prudential Life Insurance.

High growth has meant the company registered a loss of Rs 188 crore in 2005-06, Rs 212 crore in 2004-05 and Rs 222 core in 2003-04. The company has reported 100 per cent growth this year, raking in new premium of Rs 2,279 crore. In 2005-06, the company received Rs 2,606 crore in new business and Rs 1,658 crore in renewal premium. Company officials say it would take one or two more years to break even.

"For an insurance company to break even, the renewal premium has to catch up with the new business premium. In the Indian market, the volume of new business is far more than the renewal premium but this could change by the seventh or the eighth year," said Mr Sam Ghosh, CEO, Bajaj Allianz Life insurance. He said the company could break even by next year.

Bajaj Allianz Life made a loss of Rs 37 crore in 2005-06, Rs 39 crore in 2004-05 and Rs 22 crore in 2003-04. In 2005-06, new business premium accounted for Rs 2,700 crore while the renewal premium was Rs 400 crore.

New business comes with its costs, and insurers have to put away a portion of the premium as reserves, commission and management expenses.

"There are several costs during the initial years, such as setting up a tied agency, branches and infrastructure as well as building the productivity of managers and advisors. Besides, the Indian market has grown four times in seven years. And if this pace continues, it will be difficult to predict when insurers will break even," said Mr Gaurang Shah, MD, Kotak Life Insurance.

Kotak Life Insurance has registered a new business premium growth of 127 per cent to Rs 327 crore in the first nine months of this fiscal while renewal premium was around Rs 290 crore. The company will increase its branch network from 43 to 82 branches at the end of the year and double its agency force from the current 18,000 by next year.

Ms Shikha Sharma

Players like ICICI Prudential Life Insurance plan to go in for an initial public offering before break-even. "Once the FDI hike is approved, we could consider going in for an IPO. Breaking even is not a constraint for an IPO and institutional investors would look at the new business premium generated by the company and the net asset value of our policies," said Ms Shikha Sharma, MD, ICICI Prudential Life Insurance.