Abstract
The insurance business was nationalized
on September 1, 1956, by an act of parliament and it was opened for private players
with the enactment of the Insurance Regulatory and Development Authority Act
1999. The post-reforms period has been witness to tremendous growth in the
insurance industry. The present study is an attempt to analyze the growth of
LIC India and also discusses the investment pattern of the corporation.
Key words: Investment, Portfolio,
Insurance, Insurance business
Introduction
The Indian insurance business was
nationalized on January 19, 1956, by taking over about 245 erstwhile companies
with varying standard of efficiency. Since September, 1956, life insurance
business has been carried on exclusively by the Life Insurance Corporation of
India (LIC) which was established in 1956 as a Statutory Corporation under
Section 3 of the Life Insurance Act, 1956 to carry out life insurance business.
LIC has its Central Office in Mumbai and eight Zonal Offices at Mumbai,
Kolkata, Delhi, Chennai, Hyderabad, Kanpur, Bhopal and Patna. The Corporation
also transacts business abroad and has branch offices in Fiji, Mauritius and
United Kingdom. LIC also operates in overseas insurance markets through Joint
Venture companies namely Life Insurance Corporation (International) BSC (C), registered
in Bahrain, Kenindia Assurance Company Ltd. registered in Nairobi, Life
Insurance Corporation (Nepal) Ltd registered in Kathmandu, in collaboration with
Vishal Group Ltd, Nepal and Life Insurance Corporation (Lanka) Ltd registered
in Colombo, in partnership with M/S Bartleet Transcapital Pvt. Ltd, Sri Lanka.
An offshore company, Life Insurance Corporation (Mauritius) Offshore Ltd.
registered in Nairobi is a Joint Venture Company between LIC of India and GIC
of India with focus on non-life reinsurance business with active participation
of GIC. LIC along with Life Insurance Corporation (International) BSC (C),
Bahrain, New India Assurance Company Ltd. & Al Hokair group of Saudi Arabia
have registered a Joint Venture Company, namely, Saudi Indian Company for
Co-operative Insurance in the Kingdom of Saudi Arabia to transact both Life and
Non-Life Insurance business. The operating License for this Joint Venture has
now been granted by the local Regulator. A Representative Office in Singapore, for
which approval from local Regulator has already been obtained, is being opened
shortly. Through International Operations, LIC covered a total number of 62,840
policies and also generated a total premium income worth Rs.725.75 crores in
the financial year 2008-09. The Life Fund of LIC as on 31.3.2009 amounts to
Rs.8,07,317.43 crore. During 2008-09 the Corporation made payments of Rs.5962
crore under Death Claim cases, Rs.34744 crore under Maturity Claims and Rs.2812
crore under Annuities. Under Varishtha Pension Bima Yojana, the Corporation
made payments of Rs.103.92 crore under Death Claim and Rs.641.12 crore under
Annuities.
Reforms
in Insurance Sector
Since the opening up of the insurance
sector in 1999 with the enactment of Insurance Regulatory Development Act, the
number of participants in the sector has been steadily going up, considering the
vast potential in India. From six insurers in the year 2000, the number of
players has gone up to 44 insurers operating in the life, non-life and
reinsurance segments. There is much greater competition, today in the market,
although there is vast potential of expansion in India. As many as seven insurance
companies (life and non-Life insurance) are functioning as public sector
enterprises viz., the Life Insurance Corporation of India, the New India Assurance
Company Limited, the National Insurance Company Limited, the Oriental Insurance
Company Limited, the United India Insurance Company Limited, the General
Insurance Corporation of India and the Agriculture Insurance Company of India
Limited. The public sector insurers are offering a variety of insurance
policies ranging from Life insurance to Crop insurance.
MARKET SHARE OF INSURANCE
The introduction of private players in the industry has added value
to the industry. The initiatives taken by the private players are very competitive
and have given immense competition to the on time monopoly of the market LIC.
Since the advent of the private players in the market the industry has seen new
and innovative steps taken by the players in this sector. The new players have
improved the service quality of the insurance. As a result LIC down the years
have seen the declining phase in its career. The market share was distributed
among the private players. The following table shows the mane of the player in
the market.
SHARE HOLDING PATTEN of INSURANCE COMPANY
|
S. N.
|
Name of the Insurance Company
|
Shareholding
|
|
1
|
Agricultural Insurance Co
|
Bank and Public Ins Co
|
|
2
|
Bajaj Allianz General Insurance Co. Ltd.
|
Privately Held
|
|
3
|
Cholamandalam MS General Insurance Co. Ltd.
|
Privately Held
|
|
4
|
Export Credit Guarantee Company
|
Public Sector
|
|
5
|
HDFC Chubb General Insurance Co. Ltd.
|
Privately Held
|
|
6
|
ICICI Lombard General Insurance Co. Ltd.
|
Privately Held
|
|
7
|
IFFCO-Tokio General Insurance Co. Ltd.
|
Privately Held
|
|
8
|
National Insurance Co. Ltd.
|
Public Sector
|
|
9
|
New India Assurance Co. Ltd.
|
Public Sector
|
|
10
|
Oriental Insurance Co. Ltd.
|
Public Sector
|
|
11
|
Reliance General Insurance Co. Ltd.
|
Privately Held
|
|
12
|
Royal Sundaram Alliance General Insurance Co.
Ltd.
|
Privately Held
|
|
13
|
Tata AIG General Insurance Co. Ltd.
|
Privately Held
|
|
14
|
United India Insurance Co. Ltd.
|
Public Sector
|
Source: IRDA
There are a total of 13 life insurance
companies operating in India, of which one is a Public Sector and rest 12 are private
sector enterprises. The list of Companies can be seen in the following table:
SHARE HOLDING PATTEN OF LIFE INSURANCE COMPANY
|
S. N.
|
Name of the Insurance Company
|
Nature of Holding
|
|
1
|
Allianz
Bajaj Life Insurance Co
|
Private
|
|
2
|
Aviva
Life Insurance
|
Private
|
|
3
|
Birla
Sun Life Insurance Co
|
Private
|
|
4
|
HDFC
Standard Life Insurance Co
|
Private
|
|
5
|
ICICI
Prudential Life Insurance Co
|
Private
|
|
6
|
ING
Vysya Life Insurance Co.
|
Private
|
|
7
|
Life
Insurance Corporation of India
|
Private
|
|
8
|
Max
New York Life Insurance Co.
|
Private
|
|
9
|
MetLife
Insurance Co.
|
Private
|
|
10
|
Om
Kotak Mahindra Life Insurance
|
Private
|
|
11
|
Reliance
insurance
|
Private
|
|
12
|
SBI
Life Insurance Co
|
Private
|
|
13
|
TATA-
AIG Life Insurance Company
|
Private
|
Source: IRDA
The LIC has the major market share of life insurance share. The market
share of other life insurance companies can be seen in the following table:
MARKET SHARE LIFE INSURANCE COMPANY (%)
|
Name Of The Player
|
Market Share (%)
|
|
Life Insurance Corporation of India
|
82.3
|
|
ICICI Prudential
|
5.63
|
|
Birla Sun Life
|
2.56
|
|
Bajaj Allianz
|
2.03
|
|
Sbi Life Insurance
|
1.80
|
|
Hdfc Standard
|
1.36
|
|
Tata Aig
|
1.29
|
|
Max New Yark
|
0.90
|
|
Aviva
|
0.79
|
|
Om Kotak Mahindra
|
0.51
|
|
Ing Vysya
|
0.37
|
|
Met Life
|
0.21
|
Source: IRDA
Investment Norms
The investment norms for the life
insurance business can divide into two categories. These categories are-
Pattern
of Investment
LIC has to invest not less than 75% of
the life fund pertaining to individual assurances in government or government guaranteed
securities and has some freedom of investment only in respect of less than 20%
of the fund.
Types of Investment
|
S. N
|
Type of Investment
|
Percentage
|
|
i)
|
Government
Securities
|
25%
|
|
ii)
|
Government
Securities or other approved Securities (including (i) above)
|
Not less than 50%
|
|
iii)
|
Approved
Investments as specified in Schedule I
|
|
|
a)
|
Infrastructure
and Social Sector
|
Not less than
15%
|
|
|
Explanation:
For the purpose of this requirement, Infrastructure and Social Sector shall
have the meaning as given in regulation 2(h) of Insurance Regulatory and
Development Authority (Registration of Indian Insurance Companies)
Regulations, 2000 and as defined in the Insurance Regulatory and Development
Authority (Obligations of Insurers to
Rural and Social Sector) Regulations,
2000 respectively.
|
|
|
b)
|
Others to be
governed by Exposure norms as specified in regulation 5.
Investment in
“other than approved Investments” can in no case exceed 15% of the fund.
|
Not exceeding
35%
|
Source: www.sebi.gov.in
Investment Norms for Pension and Group Schemes
The prescribed pattern of investment in
respect of funds pertaining to group and pension businesses is different. Table
- 5 shows the pattern of investment prescribed for the insurance business of
the LIC.
Investment Norms for Pension and
Group Schemes
|
S N
|
Type of investment
|
IRDA Norms
|
|
1
|
Government securities
|
Not less than 20%
|
|
2
|
Govt. securities or other approved securities
including (1) above
|
Not less than 40%
|
|
3
|
Balance in approved investment
|
Not less than 60%
|
Source: www.sebi.gov.in
Portfolio Management
The investment pattern
of LIC can understand with the help of the following sub-headings:
Total
Fund of LIC
The total fund of LIC refer to funds
procured from life business such as premium income, provisions made for
outstanding claims at the end of the year and reserves created for unexpected
risks. Table – 6 is indicative of the total funds of LIC for the period from
1991-92 to 2008-09. The total fund of the LIC has been increasing from year to
year. The average growth rate in total funds of LIC is 21.9%. The total funds
of LIC have increased from Rs 35969.33 in 1991-92 to Rs 84087747.65 lacs in
2008-09. It shows the growing financial strength of the LIC.
Investment
Investment refers to the utilization of
resources in order to increase income or production output in the future. The investments
of the LIC are in the form of loans to government and government organizations.
The average growth rate in the investment of LIC is 21.91%. The total investment
of LIC has increased from Rs 32261.73 in 1991-92 to Rs 73052450.76 lacs in
2008-09. It shows the growing financial strength of the LIC.
Income
from Investment
Income from investment is the money that we
collect from our investments. It includes stock dividends, mutual fund
distributions, and interest from CDs, interest-bearing bank accounts, bonds,
and other debt instruments. The average growth rate in
the income from investment of LIC is 16.94%. The total incomes from investment
of LIC have increased from Rs 3573.86 in 1991-92 to Rs 4277572.55 lacs in
2008-09. It shows the growing financial strength of the LIC.
Investment
pattern
The investment of the LIC in India and abroad
during 2008-09 is given in the following Table.
Investment of LIC (during 2008-09)
(Rs in Crore)
|
Investment in India
|
Amount
|
Per cent
|
|
|
1
|
Loan
|
82683.04
|
10.14
|
|
2
|
Securities
|
727130.34
|
89.17
|
|
3
|
Other Investments
|
4569.28
|
0.56
|
|
Investment out of India
|
|
|
|
|
1
|
Loan
|
117.28
|
0.01
|
|
2
|
Securities
|
926.42
|
0.11
|
|
3
|
Investments property
|
57.59
|
0.01
|
|
|
Total
|
815483.95
|
100
|
Source: LIC, Annual Reports, 2008-09
Social
Sector Investment
The total investments of the Corporation for
social sector amounted to Rs. 815483.95 crore as at 31st March, 2009. The
Corporation subscribed an amount of Rs.35284.40 crore (face value) and
Rs.18154.93 crore (face value) to the Securities of the Government of India and
the new loan issues of the various State Governments respectively during
2008-2009. It has been the constant endeavor of the Corporation to provide
security to as many people as possible and to channelise the savings mobilised
for the welfare of the people at large. To meet this end, the Corporation has
been promoting Social Schemes through investments in Infrastructure and Social
Sector which includes:
- Projects/Schemes for generation and transmission of Power,
- Housing Sector,
- Water Supply and Sewerage Projects/Schemes,
- Development of Roads, Bridges & Road Transport.
The total Investment in these sectors
during 2008-09 was Rs.21,775.57 crore as indicated in Table 10. The investments
by way of Central, State and Other Government Guaranteed Marketable securities,
Loans & Debentures to Infrastructure and Social Sector amounts to Rs.
5,30,159 crore.
Investment in Social sector
|
S.
N.
|
Investment
|
Amount
|
Per cent
|
|
1
|
Power
|
6689.11
|
30.72
|
|
2
|
Housing -
|
|
|
|
|
A. Loans to State Governments for Housing
Schemes
|
130.08
|
00.60
|
|
|
B. Loans to Apex Co-operative Housing
Finance Societies & others
|
70.00
|
00.32
|
|
|
C. Debentures , Bonds etc. to Housing
Finance Companies
|
6534.79
|
30.01
|
|
3
|
Water Supply & Sewerage Schemes
|
118.31
|
00.54
|
|
4
|
Transport
|
227.73
|
01.05
|
|
5
|
Other Infrastructure
|
8005.55
|
36.76
|
|
Total
|
21775.57
|
100.00
|
|
Conclusion
LIC was established to carry on life
insurance business. Besides life insurance and group insurance, LIC undertakes
the responsibilities of under-writing and subscribing new issues and advances,
loans mostly to social sectors as major avenue for investment of its surplus
funds. The working results of the corporation show substantial surpluses every
year. However, in 2008-09, on account of the financial meltdown, the life
insurance segment saw a downward trend. The first-year premium, which is a
measure of new business secured, underwritten by the life insurers during
2008-09 was Rs 87,006 crore as compared to Rs 93,713 crore in 2007-08,
registering a negative growth of 7.2 per cent. In terms of linked and
non-linked business during the year 2008-09, 50.9 per cent of the first-year
premium was underwritten in the linked segment while 49.1 per cent was in the
non-linked segment as against 75:25 in the previous year. The shift towards the
traditional segment is significant during the year 2008-09. The working results
of the corporations show substantial surpluses every year. On the whole, the
performance of LIC has been remarkable. However, the size of the corporation
has become too giant and, like GIC, it has also be reorganized and spilt into
subsidiaries to improve its efficiency further. At present it has a substantial
market share, but in near future it is bound to reduce, as many private players
and bank have started spreading their tentacles in this sector. However, the
present study is not free from limitations.
The study is based on secondary data collected from the insurance industry
website process data base for the sample companies. Thus, the study possesses
all the inherent limitations of the secondary data.
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