Private life insurance cos book record profits

MUMBAI: The global financial crisis surprisingly has had a positive fallout on the private life insurance industry, with leading players in the country booking record profits for 2009-10.

Bajaj Allianz Life Insurance is likely to announce the highest profit among its peers at over Rs 410 crore for 2009-10, compared wtih a profit of just Rs 45 crore a year ago. It is helped by a one-time item of around Rs 150 crore of service tax reversals.
SBI Life Insurance, which recorded the highest business premium during the year, has posted a profit of Rs 276 crore for the year. ICICI Prudential Life, the largest life insurer in terms of total premium, last week reported its maiden annual profit of Rs 258 crore.

Kotak Mahindra Life Insurance is yet to announce its results, but the company is expected to post a significantly higher profit than last year’s Rs 14.5 crore. For the nine-month period ended December 2009, Kotak Life had reported a profit of Rs 33.9 crore.

Shareholders of the profit-making companies will, however, have to wait for a few more years for dividend as there are accumulated losses to be cleared and capital is needed to fund future growth.

A sharp fall in operating expense — down two percentage points to 15.5% of its gross written premium of Rs 11,400 crore — helped Bajaj Allianz boost profits. Shareholders did not have to bring in any additional capital during the year as expenses were lower and growth was flat.

Companies have also shifted focus from hiring more agents to increasing their productivity level. Having fewer agents enable companies to function with less sales officers. This, in turn, reduces wage costs.
Before the crisis broke out, ICICI Prudential had indicated that profits might get delayed up to 2012 as the company pursued growth. But after the crisis, the company changed track and engaged in a massive cost cutting drive by cutting down jobs and duplicate functions.

While ICICI Prudential saw a 7% fall in new business premium to Rs 6,334 crore, Bajaj Allianz’s new business was marginally lower at Rs 4,450 crore. SBI Life, however, recorded a 30% increase to Rs 7,040 crore.
SBI Life, which had reported profit in FY08, reported a loss for FY09 as it suffered mark-to-market losses on its equity portfolio. Guidelines require that insurance companies make good any losses in their shareholder account by transferring reserves from shareholders accounts.

In the profits game, larger life companies have a substantial advantages as their large base of assets under management enable them to generate consistent income from fund management charges.

Unlike other financial services and manufacturing companies, life insurers publish their results under at least two sets of profit and loss accounts. Irda regulations do not allow a life insurer to carry a loss on its policyholders account. If the earnings are not enough to meet the liabilities, the shareholders are required to bring in money and transfer the same to the policyholders account. Shareholders can expect returns only when there is a surplus under both the policyholder and shareholder accounts.