Application of Caramel Model To Life Ins

International Journal of Research in Social Sciences
Vol. 8, Issue 8(1), August 2018,

ISSN: 2249-2496 Impact Factor: 7.081
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APPLICATION OF CARAMEL MODEL TO LIFE INSURANCE COMPANIES IN INDIA

- A COMPARATIVE ANALYSIS
*Dr. L. Krishna Veni,

**Karteek Chedadeepu
ABSTRACT
Insurance industry plays a vital role in the Indian market. Life insurance of India enjoyed monopoly
in insurance industry, however the development of the Insurance Regulatory and Development
Authority (IRDA) Act in 1999 passed a clear signal to the end of the monopoly of LIC in the insurance
business. Many private life insurers have come into picture and creating a severe competition to LIC.
Against this backdrop, the present study aims to examine the financial soundness of the selected
insurance companies during 2007-08 to 2016-17. This study applied the CARAMEL model using the
descriptive statistics and ANOVA. From the study, it is clear that LIC has managed with minimum
statutory requirements as per the IRDA regulations almost during the entire study period, however
ICICI Prudential capital adequacy ratios have registered increasing trend and other insurers have
shown erratic trend. Based on the results, this study concluded that the null hypothesis is rejected since
there is significant difference in all the CARAMEL indicators of the selected insurance companies
considered for this study at 1% level of significance. However it is also clear from the results that the
null hypothesis is accepted in case of total earnings and profitability ratio since there is no significant
difference across the selected life insurers.
Keywords: ANOVA, CARAMEL Model, Financial Performance, IRDA, Life Insurers, LIC, Private
Companies
INTRODUCTION
Life Insurance can be defined as a contract between an insurance policy holder and an insurance
company. In case of any untoward happening to the insured person, the insurer pays up the entire
amount i.e. the sum assured plus the bonus to the bereaved family. If there is no any risk, entire
matured amount will be paid after the specified period to the insured person. Life insurance also
safeguards the interest of the people who have declining incomes with advancing age, people who
meet with accidents or for retired people. At present there are numerous policies available both under
public and private sectors to match the requirements of different policy holders.
Life insurance schemes yield better returns when compared to other investment alternatives. Most of
the life insurance schemes offer bonuses that no other investment scheme can offer. The money
invested in life insurance is safe and covers risks. The money invested will fetch good returns and will
be returned fully as sum assured either after the completion of the term or after the demise of the
insured. The other benefits of investing in Life insurance are tax benefits, loan options, life stage
planning, assured income benefits etc.
Life Insurance of India (LIC) plays a vital role in the Indian Insurance industry market. After the
report of the Malhotra Committee, many imminent changes have taken place in the insurance industry.
The Insurance Regulatory and Development Authority (IRDA) was constituted to regulate and develop
the insurance industry and it was incorporated in April 2000. The IRDA mainly aimed to achieve the
objectives like promoting competition to enhance customer satisfaction with increased consumer
choice and lower premiums while ensuring the financial security of the insurance market. Since the
IRDA Act initiated market reforms, the insurance sector has experienced some significant changes.
The entry of a large number of Indian and Foreign private companies in life insurance business has to
lead greater choice in terms of products and services.
*Professor, Siva Sivani Institute of Management, Secunderabad, Pin-500100,Telangana ,India

**Senior Student, PGDM-BIFASS, Siva Sivani Institute of Management, Secunderabad, Pin-500100,
Telangana,India
381 International Journal of Research in Social Sciences

http://www.ijmra.us, Email: editorijmie@gmail.com
As a result of this liberalization, 24 life insurance companies have entered into the insurance industry
including LIC and 23 Private Insurance Companies to serve the customers in the country.
Increased consumer awareness of the benefits and importance of insurance and reinsurance has
generated many more buyers in India. Besides new distribution channels among them,
like brokers, bank assurance, the Internet, and corporate agents have provided additional ways of
getting products and services to customers of life insurance.
REVIEW OF LITERATURE
In this context, an attempt is made to briefly review the studies that are made on financial performance
of LIC of India and other private sector life insurance companies as follows:
Chaudhary and Kiran (2011) made an attempt to examine the current scenario of life insurance
industry in the light of some changes and regulations of IRDA by taking different variables into
consideration. The results of this study exposed that life insurance industry expanded tremendously
since 2000 onwards in terms of number of offices, number of agents, new business policies, products,
premium income etc.
Gulati and Jain (2011) analyzed business performance of all life insurers in industry by taking various
indicators into consideration. The findings of this study showed that even after facing various
opportunities and challenges and the entry of private sector, the growth of public sector undertaking
had not revealed any fall.
Gour and Gupta (2012) focused on the determination of the solvency ratio of Indian Life insurance
companies for the period of 3 years from 2009-10 to 2011-12. This study analyzed whether
performance of different companies was similar or there was any significant difference. On the basis
of solvency ratio, ranks were assigned to different companies which showed that ICICI found the best
among selected companies of industry followed by Birla Sun Life, SBI, HDFC and LIC. The paper
concluded that solvency of life insurance depends on returns received from total investible funds and
interest rate.
Neelaveni (2012) made an attempt to estimate the financial performance of five selected life insurance
companies in terms of various plans and policies on the basis of annual growth rate. The results of
this study concluded that Life Insurance Corporation being the public sector was lagging behind due
to the severe competition from the private insurers, however private life insurance companies have
shown financially significant performance during the period under consideration.
Charumathi (2012) considered the factors that determine the profitability of life insurers operating in
India in her study. The study has taken only one public and 22 private players during the period
2008-09 to 2010-11 for the analysis purpose. In order to estimate the impact of different variables on
profitability of life insurers, regression analysis has been made. The results concluded that the
profitability of life insurers was positively affected by size and liquidity but negatively influenced by
leverage, premium growth and equity capital.
Kumari (2013) estimated the financial performance of both public and private life insurance industry.
For this purpose, various parameters such as number of life insurance companies, private sector
offices, insurance penetration and density, growth in premium income, size of insurance market
were considered. Financial performance was measured by calculating various financial ratios. The
study revealed that there had been a significant increase in the overall business performance of Indian
life insurance industry after privatization.
Valeed A. Ansari and Wubshet Fola (2014) made a study to examine the financial soundness and
performance of life insurance companies in India, based on a regulatory and supervisory parameters
and standards. The authors employed CARAMEL model and the parameters of this model capture the
key operations of life insurers. Certainly, the overall financial soundness and performance is a synopsis
of the adequate risk management and sound inbuilt control system, and effective & efficient business
underwritings. It has examined the performance of seven registered life insurers during a period of
five years i.e from 2008-09 to 2012-13. The results of the CARAMEL model reveals that there was

a significant difference between capital adequacy, asset quality, management efficiency, earnings &
profitability and liquidity position in private and public life insurance companies.
V.N. Parthiban (2014) attempted to examine soundness and financial performance of the life insurers’
using CARAMEL model. The financial soundness and performance of life insurers such as LIC, SBI
and ICICI Prudential Life are evaluated through CARAMEL model and found that they are
financially sound by and large. Further it is also found from this study that the CARAMEL parameters
are significantly differing among the selected life insurers in India.
C Kalpana Naidu and C Paramasivan (2015) made an attempt to compare the financial performance of
LIC and private insurance companies. The authors also stated that selling of more unit-linked plans
helps private players to take market share from LIC. Investment pattern of LIC and private insurers
also showed some changes. The Solvency ratio of private life insurers was much better than LIC, in
spite of big losses faced by them. Capital adequacy ratio of private insurers was higher than LIC
whereas the servicing of death claims was better in case of LIC as compared to private life insurers.
Finally this study concludes that the private sector companies have performed better than LIC of
India.
Maraboina Sreedhar Babu (2015 ) examined the performance of the life insurance companies of private
and public sector. The results of this study reveal that the private sector insurance companies must
remain competitive by introducing cost effective innovative products compared to public sector
insurance companies. This study also concluded that during the study period, the private sector life
insurance companies’ market share has registered much faster growth than the public sector life
insurance companies.
Anoop Kumar Singh and Sumbul Fatima (2017) made an attempt to assess the performance of ICICI
Prudential Life Insurance and to identify the reasons for its good reputation and capturing a good
market share in the life insurance industry. This paper made an attempt to evaluate the growth and
performance of ICICI Prudential , one of the major private sector life insurance companies through
certain parameters such as net profit, net premium, number of branches .This study also used
CARAMEL Model to analyze certain ratios like capital to total assets ratio, net premium to gross
premium ratio etc. These are further statistically tested with the help of the one sample t-test.
All the above studies are mainly focused to assess the financial performance of the life insurance
companies of public and private sector companies with a comparative outlook during different periods.
However this present study deals with five selected life insurance companies during the recent
decade.
Objective of the study:
Against this back ground, this present study is aimed to assess the comparative financial performance
of LIC and ICICI Prudential., Bajaj Allianz, HDFC Standard life , SBI Life using CARAMEL Model
during period of 2007-08 to 2016-17.
Statement of Hypothesis:
There is no significant difference between the selected life insurance companies with respect to Total
Capital Adequacy Ratios, Asset quality Ratio, Total Reinsurance and Actuarial Issues Ratios, Total
Management Soundness ratios, Total Earning and Profitability Ratios and Total liquidity ratios.
RESEARCH METHODOLOGY
The present study is based on secondary data and it has been extracted from different websites
(www.licindia.in , www.iciciprulife.com & www.moneycontrol.com),Annual Reports of LIC of India
and the balance sheets of private sector Life Insurance companies during the period 2007-08 to
2016-17.
To analyze the data, ratio analysis, statistical tools like descriptive statistics, AVOVA have been used.
The statistical tools which are used for this study are different ratios which are used in the CARAMEL
Model (Capital adequacy, Asset quality, Reinsurance and Actuarial issues, Management soundness,
Earnings/Profitability and Liquidity). The CARAMEL parameters are statistically tested with the help
of statistical tools like descriptive statistics and ANOVA.

This study makes an attempt to estimate the financial performance of the LIC of India ,ICICI
Prudential, HDFC Standard Life, Bajaj Allianz and SBI Life during the recent decade i.e from 2007-
08 to 2016-17.
This study is very crucial to understand the financial performance and soundness of the public sector
and private sector life insurance companies in India and to analyze the financial soundness of life
insurance companies, CARAMEL framework contains different ratios relating to Capital adequacy,
Asset quality, Reinsurance, Adequacy of claims and actuarial, Management soundness, Earnings and
Profitability, Liquidity and Sensitivity to market risk.
DATA ANALYSIS
The results relating to the selected life insurance companies during the study period are discussed in
detail as follows. All annual ratios of CARAMEL Model for all selected 5 life insurance companies
are presented from Table 1 to Table 6. Further the descriptive statistics (Table7) of the CARAMEL
parameters and the ANOVA results (Table 8) are discussed in this study to test the statement of
hypothesis.
Financial Performance of Selected Insurance Companies
1
Life Ratios 2007- 2008- 2009- 2010- 2011- 2012- 2013- 2014- 2015- 2016-
Insurer 08 09 10 11 12 13 14 15 16 17
LIC SR 1.52 1.54 1.54 1.54 1.54 1.54 1.54 1.54 1.54 1.54
CTA 0.0004 0.0004 0.0003 0.0003 0.0004 0.0003 0.0003 0.0003 0.0003 0.0003
SBI SA 3.300 2.900 2.20 2.00 2.11 2.15 2.23 2.16 2.12 2.04
CTA 0.096 0.071 0.045 0.04 0.04 0.05 0.05 0.04 0.05 0.04
ICICI SA 1.740 2.310 2.90 3.27 3.71 3.96 3.72 3.36 3.20 2.80
CTA 0.131 0.131 0.07 0.06 0.06 0.06 0.06 0.07 0.07 0.07
HDFC SA 2.380 2.580 2.58 1.80 1.72 1.88 2.17 1.36 0.65 0.47
CTA 0.175 0.945 0.07 0.06 0.05 0.06 0.05 0.05 0.05 0.06
Bajaj SA 2.340 2.620 2.68 3.66 5.15 6.34 6.79 7.33 7.60 8.06
CTA 0.086 0.069 0.037 0.05 0.09 0.12 0.12 0.12 0.12 0.13
Table-1 shows that Capital Adequacy position of selected life insurers in India during the period of
study. Capital is considered to protect insured and promote the soundness of financial system and it
also indicates whether the insurer has enough capital to absorb losses arising from claims. Thus the
Capital Adequacy Ratio is the key indicator of an insurer's financial dependability position. As per the
IRDA regulations, insurers have to maintain solvency margin of 1.5 i.e. excess of assets over
liabilities, monitored on quarterly basis, furthermore IRDA issues registration to those companies only
having minimum capital of Rupees one billion. LIC just managed its fate at almost the minimum
statutory requirements; the ratio was remained at 1.54 for all the years considered for this study except
in the first year of the study period. However it is slightly higher than the minimum statutory
requirements ratio of 1.5 also. ICICI Prudential, SBI life insurance, Bajaj Allianz Life and HDFC
Standard life insurance (except in last three years) have recorded significantly higher solvency (ratio)
margin (1.5) during the study period.
Table 2: Asset Quality Ratio
Life Insurer 2007- 2008- 2009- 2010- 2011- 2012- 2013- 2014- 2015- 2016-
08 09 10 11 12 13 14 15 16 17
LIC 0.018 0.019 0.014 0.013 0.012 0.0006 0.0115 0.0006 0.0225 0.0342
SBI 0.0007 0.0007 0.0002 0.0003 0.0015 0.0000 0.0015 0.0003 0.0012 0.0014
ICICI 0.495 0.0033 0.0005 0.0001 0.0018 0.0001 0.002 0.0019 0.0026 0.0015
HDFC 0.015 0.025 0.030 0.044 0.055 0.069 0.083 0.129 0.304 0.419
BAJAJ 0.091 0.071 0.037 0.057 0.090 0.126 0.148 0.155 0.169 0.159
 Equities/Total Assets

The asset quality ratio is one of the most critical areas in determining the overall financial soundness
of an insurance company. The Lower ratio may be preferred to higher one, considering that higher
ratio shows large amount of provisions hold for the large amount of Non-Performing Assets (NPAs)
in the total gross assets. As shown in Table 2, the asset quality of life insurers has been very sound
during the period under consideration as the life insurers are prohibited to extend credit to their
customers and from investing in stock markets and neither are the companies listed.
Table 3: Reinsurance and Actuarial Related Issues(Risk Retention Ratio)
Life Insurer 2007- 2008- 2009- 2010- 2011- 2012- 2013- 2014- 2015- 2016-
08 09 10 11 12 13 14 15 16 17
LIC 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 0.90
SBI 1.00 1.00 1.00 1.00 1.00 0.99 0.99 0.99 0.99 0.99
ICICI 1.00 1.00 1.00 1.00 0.99 0.99 0.99 0.99 0.99 0.99
HDFC 0.99 0.99 0.99 0.99 0.99 0.99 0.99 1.00 0.99 0.99
Bajaj 1.00 1.00 1.00 1.00 0.99 0.99 0.99 0.99 0.99 0.99
 Risk Retention Ratio = Net Premium/Gross Premium
Table 3 represents the Risk retention ratio of the selected life insurers of this study. It is evident
from the Table 3 that the life insurance sector retained the risk at their own destiny, and it can be
witnessed by the slightly increasing trend during the study period. Hence, the life insurers passed on
to reinsurance only 1.19 per cent (thumb rule) of the total direct premium. It is observed from Table 3
that the life insurers preferred retaining risk at their own destiny to passing the risk onto the reinsurers
so as to boost up their profits by reducing the transaction costs and sharing of premium income with
reinsurers, during the study period. From Table3 it is also evident that LIC and the other selected life
insurers of this study have maintained the ratios, which are below the thumb rule during the study
period.
Table 4: Management Soundness (Operating Expense Ratio)
Life 2007-08 2008- 09 2009-10 2019-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17
Insurer
LIC 0.0561 0.0576 0.6568 0.0835 0.0735 0.08 0.101 0.0941 0.0857 0.1096
SBI 0.87 0.86 0.0654 0.5863 0.078 0.1101 0.1667 0.1601 0.1221 0.1545
ICICI 0.4547 0.4436 0.3831 0.4397 0.3167 0.3552 0.285 0.3289 0.3477 0.3787
HDFC 0.2098 0.3175 0.2138 0.1661 0.1245 0.1074 0.1062 0.1004 0.1147 0.1227
Bajaj 0.2061 0.1766 0.1551 0.1672 0.1879 0.2322 0.2521 0.203 0.2044 0.1861
 Operating Expense Ratio = Operating Expenses/ Gross Premiums

Table 4 reveals that Management Soundness Ratios of all selected insurers during the period under
consideration. The SBI Life Insurance has witnessed continuously decreasing trend yet SBI Life holds
the first position in the sector by recording good business performance . The ICICI Prudential and the
LIC also have recorded fluctuating expenses to their business operations volume. Bajaj and HDFC
have recorded significant values in the beginning of the study period and there by noted declining
trend with fluctuations.

Table 5: Earnings and Profitability Ratio
Life Ratios 2007-08 2008-09 2009-10 2010-11 2011-12 2012- 2013- 2014- 2015- 2016-
Insurer 13 14 15 16 17
LIC ROE 168.9 191.5 212.1 234.4 213.1 234.4 245.4 246.5 244.6 245.4
ROA 0.0001 0.001 0.001 0.001 0.001 0.001 0.001 0.001 0.001 0.001
SBI ROE 0.03 -0.03 0.28 0.37 0.56 0.62 1.27 1.21 1.07 1.03
ROA 0.003 -0.002 0.010 0.009 0.012 0.111 1.270 1.210 1.070 1.030
ICICI ROE -1.00 -0.54 0.18 0.57 0.97 1.05 1.27 1.26 1.16 1.16
ROA -0.05 -0.02 0.00 0.01 0.02 0.02 0.02 0.02 0.02 0.22
HDFC ROE -0.19 -0.28 -0.14 -0.05 0.14 0.23 0.24 0.22 0.24 0.22
ROA -0.03 -0.04 -0.01 0.00 0.01 0.01 0.06 0.08 0.08 0.08
Bajaj ROE -1.54 -0.47 0.36 0.70 0.87 0.85 0.87 0.84 0.81 0.85
ROA -0.02 0.00 0.02 0.03 0.03 0.03 0.03 0.03 0.04 0.03
 Return on equity (ROE) = Net Income to Equity

 Return on Asset (ROA) = Net Income to Total Asset
Table 5 highlights that Earning and profitability Ratios of selected insurers during the study period
from 2007-08 to 2016-17. Earnings are considered as one of the key sources of inbuilt long term capital
base for an insurance company. Low profitability may signal fundamental problems of the insurer and
may consider a leading indicator for solvency problems. Therefore, considerable attention is focused
this area so that the most important indicators of earnings and profitability are included in this study.
Thus these are the Expense Ratio, ROE, and ROA. The ROE (return on equity) is measured as the ratio
of net profit to equity and the figure shows that the net profits that are returned to shareholders, higher
the return on equity, the more profitable the insurer has become and the possibility of enhanced
dividends to shareholders. The ROA (return on assets) is measured as the ratio of net profit on assets,
thus this ratio has been included as a proxy to investment ratio in order to represent the effectiveness
of their investment policies.
Table 6: Liquidity Ratio
Life Ratios 2007- 2008- 2009- 2010- 2011- 2012- 2013- 2014- 2015- 2016-
Insurer 08 09 10 11 12 13 14 15 16 17
LIC LA to LL 1.94 2.49 2.26 3.72 3.09 5.86 3.75 3.61 3.00 3.06
LA to TA 0.05 0.06 0.04 0.05 0.07 0.09 0.01 0.02 0.03 0.05
SBI LA to LL 0.61 0.40 0.55 0.78 2.42 2.40 2.75 2.62 2.00 2.06
LA to TA 0.03 0.03 0.03 0.03 0.07 0.07 0.04 0.05 0.57 0.63
ICICI LA to LL 0.59 0.57 0.38 0.42 0.54 0.65 0.63 0.48 0.63 0.64
LA to TA 0.04 0.02 0.01 0.01 0.01 0.02 0.03 0.00 0.00 0.00
HDFC LA to LL 1.37 1.06 0.62 0.80 0.85 0.98 0.08 0.05 0.05 0.05
LA to TA 0.09 0.08 0.04 0.04 0.04 0.04 0.05 0.05 0.48 0.57
Bajaj LA to LL 0.48 0.63 0.47 0.78 0.81 1.04 1.38 1.09 1.26 1.41
LA to TA 0.04 0.03 0.02 0.02 0.02 0.04 0.04 0.09 0.26 0.04
Note- LA to LL= Liquid Assets/Liquid Liabilities, LA to TA= Liquid Assets/Total Assets
From Table 6 represents the Liquidity ratios of LIC, SBI, ICICI prudential and Bajaj Allianz during
the period 2007-08 to 2016-17. Liquidity is the sixth and last component of the CARAMEL framework
for life insurers but not the least even if their liquidity of liabilities is relatively predictable backed

through their long-term obligations. The 1st ratio of Table 6 represents the Current Ratio. Overall
results indicate that the life insurer's ability to meet the short-term obligations is improving gradually
during the study period, given that their inherently long-term obligations. ICICI Prudential (during the
entire study period), Bajaj Allianz (in the first five years of the study period) and HDFC Life (in the
first two years of the study) have recorded the current ratio which was below the rule of thumb, (1:1)
ratio during the study period. However LIC has maintained more than the required current ratio as per
thumb rule during the study period where as SBI has also maintained the same status during 2011-12
to 2016-17. The 2nd ratio, liquid assets to total assets reflects the financial assets position in the total
assets of an insurer. Thus the ratio analysis to some extent supports the above discussion made
under current ratio during the study period.
Null Hypothesis:
Table 7 Descriptive Statistics
Ratio Life Insurer N Mean Std. Std.
Deviation Error
LIC 10 0.7692 1.8322 0.2591
Total Capital Adequacy SBI 10 1.1881 1.1989 0.1696

Ratio ICICI 10 1.591 1.6152 0.2284
HDFC 10 0.9606 0.9847 0.1393
Bajaj 10 2.6788 3.071 0.4343
Total 50 1.4375 0.8153 0.1153
Asset Quality Ratio LIC 10 0.0145 0.0099 0.0014
SBI 10 0.0008 0.0006 0.0001
ICICI 10 0.0509 0.1561 0.0221
HDFC 10 0.1171 0.1355 0.0192
BAJAJ 10 0.1103 0.0471 0.0067
Total 50 0.0587 0.0718 0.0102
LIC 10 0.9897 0.0304 0.0043
Total Reinsurance SBI 10 0.9949 0.003 0.0004
&Actuarial Issues Ratios ICICI 10 0.9935 0.0035 0.0005
HDFC 10 0.9932 0.0015 0.0002
Bajaj 10 0.9931 0.0042 0.0005
Total 50 0.9929 0.0123 0.0017
LIC 10 0.0824 0.0181 0.0026
SBI 10 0.3173 0.3245 0.0459
Total Management ICICI 10 0.3643 0.0549 0.0078
Soundness Ratios HDFC 10 0.1583 0.07 0.0099
Bajaj 10 0.1971 0.0293 0.0041
Total 50 0.2239 0.1275 0.018
LIC 10 111.8 116.17 16.429
Total Earning &Profitability SBI 10 0.5566 0.5277 0.0746
Ratios ICICI 10 0.6765 0.6848 0.0968
HDFC 10 0.0438 0.1474 0.0209
Bajaj 10 0.2192 0.5893 0.0833
Total 50 9.2408 36.2618 5.1282
LIC 10 1.6636 1.8209 0.2575
SBI 10 0.9065 1.0266 0.1452
Liquidity Ratio ICICI 10 0.2832 0.2845 0.0402
HDFC 10 0.3684 0.4344 0.0614
Bajaj 10 0.4982 0.5129 0.0725
Total 50 0.744 0.6273 0.0887

There is no significant difference between the selected life insurance companies (5) with respect to
CARAMEL model (Total Capital Adequacy Ratios, Asset Quality Ratio, Total Reinsurance and
Actuarial Issues Ratios, Total Management Soundness Ratios, Total Earning and Profitability Ratios
and Total Liquidity Ratios).
Table 8-Results of ANOVA

Source of Variation SS df MS F P-value
Between Groups 1099.569 3 366.5229 5.474276 0.006519
Total Capital Within Groups 1339.073 20 66.95367
Adequacy Ratio
Total 2438.642 23
Between Groups 1243.082 3 414.3607 6.215259 0.003708
Asset Quality Within Groups 1333.366 20 66.66829
Ratio Total 2576.448 23
Total Between Groups 1204.24 3 401.4134 6.021198 0.004286
Reinsurance
&Actuarial Within Groups 1333.334 20 66.6667
Issues Ratio
Total 2537.574 23
Total Between Groups 1233.059 3 411.0195 6.164736 0.003849

Management
Soundness Ratio Within Groups 1333.454 20 66.67269
Total 2566.512 23
Total Earning Between Groups 1954.01 3 651.335 0.56983 0.64134
and Profitability
Ratios Within Groups 22860.8 20 1143.04
Total 24814.8 23
Liquidity Ratio Between Groups 1171.09 3 390.363 5.84263 0.00491
Within Groups 1336.26 20 66.8128
Total 2507.34 23
The results as shown in Table 8 conclude that there is significant difference across the selected life
insurance companies with respect to CARAMEL ratios (Total Solvency Ratios, Asset quality Ratio,
Total Reinsurance and Actuarial Issues Ratios, Total management ratios, Total Earning and
profitability Ratios and Total liquidity ratios). Since the p value of Total Solvency Ratio (0.006), Asset
quality Ratio (0.003), Total Reinsurance and Actuarial Issues Ratios (0.004), Total Management
Soundness ratio (0.003), Total Earning and Profitability Ratio (0.640 and Total liquidity ratio (0.004)
are less than 0.01, thus the null hypothesis is rejected at 1% level of significance.
However, the ANOVA results show that the null hypothesis is accepted at 1% level of significance in
case of total earnings and profitability ratio since the p value (0.641) is greater than the 0.05. Thus, it
is clear that there is no significance difference across the selected insurance companies with respect to
Total Earnings and Profitability Ratio during the study period.
SUMARY CONCLUSIONS
From the study, it is clear that LIC has managed with minimum statutory requirements as per the
IRDA regulations almost during the entire study period, however ICICI Prudential capital adequacy
ratios have registered increasing trend and other insurers have shown erratic trend. It also reveals that

the asset quality ratio of LIC has fluctuated from 0.018 to 0.0342, whereas HDFC standard life has
recorded a significant growth during the study period.
From this study it is clear that LIC has maintained the retention ratio as per the thumb rule of 1.19
per cent. However other life insurers such as SBI, ICICI, HDFC, and Bajaj Allianz have not
maintained the same. The results also reveals that Management Soundness Ratios of SBI Life
during the period of study has witnessed continuously increasing expenses to their business operations
volume while the ICICI Prudential and the LIC have recorded fluctuating expenses to their business
operations volume. The return on equity ratio of LIC has registered significant growth compared to
the rest of the life insurers during the study period.
ANOVA results conclude that there is significant difference among the selected life insurance
companies with respect to CARAMEL ratios such as Total Solvency Ratio (0.006), Asset quality Ratio
(0.003), Total Reinsurance &Actuarial Issues Ratios (0.004), Total Management Ratio (0.003) and
Total Liquidity Ratio (0.004) since the p values are less than 0.01 therefore the null hypothesis is
rejected at 1% level of significance. However in case of Total Earnings and Profitability Ratios across
the selected life insurers, ANOVA results show that the null hypothesis is accepted at 1% level of
significance since the p value (0.641) is greater than the 0.05.
Finally, it can be concluded that the investors who are planning to take the life insurance policy can
choose the insurer based on the fundamentals and financial performance based on CARMEL model.
References:
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Insurance Companies, University of Rajasthan, Jaipur-India, IJRRR, Vol.II, ISSN 2277-8322
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International Journal of Research in Social Sciences

Vol. 8, Issue 8(1), August 2018,

APPLICATION OF CARAMEL MODEL TO LIFE INSURANCE COMPANIES IN INDIA

*Dr. L. Krishna Veni,

*Professor, Siva Sivani Institute of Management, Secunderabad, Pin-500100,Telangana ,India

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 Operating Expense Ratio = Operating Expenses/ Gross Premiums

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Table 5: Earnings and Profitability Ratio

 Return on equity (ROE) = Net Income to Equity

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Total Capital Adequacy SBI 10 1.1881 1.1989 0.1696

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Table 8-Results of ANOVA

Total Between Groups 1233.059 3 411.0195 6.164736 0.003849

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