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Performance of Life insurance Corporation of India: A Post-deregulation

Experience

Article · February 2019

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International Journal of Management, Technology And Engineering ISSN NO : 2249-7455

Performance of Life insurance Corporation of India:

A Post-deregulation Experience
V. V. N. Reddy1 & S. M. Reddy2
1
Associate Professor, School of Management Studies, Lakireddy Balireddy College of Engineering, Mylavaram-521230
2
Post-Doctoral Fellow, Department of Economics, Andhra University, Visakhapatnam – 530 003

Abstract

In this paper an attempt is made to study the financial performance and investment performance
of Life Insurance Corporation of India Ltd. (LIC) during the period 2001-02 to 2015-16. To
examine financial performance income, outgo and their sub-components are chosen. As far as
investment performance is concerned sector-wise, instrument-wise and also their sub-
components are taken. This paper is divided into two Sections. In the first section financial and
investment performance is examined. In the second section the impact of sector-wise and
instrument-wise investment on total income of LIC is assessed.

Introduction

Almost a decade after India’s independence from the British in 1947, the Government of India
merged 240 private insurance companies to form the government owned Life Insurance
Corporation of India (LIC) in on September 1, 1956. The stated aims of nationalization were
countering high levels of fraud and improving the spread across the country for better security
for people (Sinha, 2007). Life Insurance Corporation started with a capital contribution of 5 crore
rupees from the Government of India. Since nationalization, the life insurance business in India
has been coterminous with the state-owned LIC. It has played a dominant role in the economic
development of the country (Tone & Sahoo, 2005).

In the insurance sector, the journey from private entities to nationalization and back to the private
sector has been quite eventful. There were several reasons and certain historical developments
nationally and globally which perused the Government of India takes steps to open up the
insurance sector. After its initial success, the defects and drawbacks of centralized planning and
intervention strategy surfaced over a period of time, there was a swing in policy towards
liberalization. This ushered in an era of reforms in all sectors in most of the countries of the
world, India included, with the main objective of accelerating the pace of development (Palande

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et al, 2003). Insurance sector has been opened up for competition from Indian private insurance
companies with the enactment of Insurance Regulatory and Development Authority Act, 1999
(IRDA Act). As per the provisions of IRDA Act, 1999, Insurance Regulatory and Development
Authority (IRDA) was established on 19th April 2000 to protect the interests of holder of
insurance policy and to regulate, promote and ensure orderly growth of the insurance industry. .
Under the new dispensation Indian insurance companies in private sector were permitted to
operate in India (IRDA, 2000).

An over view of Indian Insurance Sector

Phase I
1818 to 1956 Many 245 private players
Life Insurance
(About 198 years) Competitive market
Many 107 private players
General Insurance 1850 to 1972
Competitive market
Phase II
Nationalization
1956-2000
Life Insurance One public sector company
(About 44 years)
State Monopoly
Nationalization
1972 to 2000 One public sector company with
General Insurance
(about 28 years) 4 subsidiaries.
State Monopoly.
Phase III
Opened to entry of Private and
foreign companies.
Life insurance and Public and private sector
After 2000
General insurance participation.
Joint ventures with Domestic
and foreign partnership

In the pre-reform era, Life Insurance Corporation of India dominated the Indian Life Insurance
market. But the situation drastically changed since the beginning of the year 2000. With the
development of the IRDA Act in 1999, private players started entering into the life insurance
market (Chakraborty & Sengupta, 2014). According to IRDA, at the end of the FY 2016-17,
there were 24 life insurance companies (inclusive of 1 public sector player) operating in India.
The former is the sole public-sector life insurance player whereas the latter is a dominant private-
sector life insurance player in India at present. As a result, many private insurers also came into
existence. At this juncture, an attempt has been made to study the performance of Life insurance
Corporation of India (LIC) in post liberalization era during 2001-02 to 2015-16.

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Review of Literature

Rao (1999) focused on the operating results of the Life Insurance Corporation and their macro-
economic importance. The main focus of the article was the pattern and growth of life insurance
business in India. Considering the trend towards liberalization though there was strong resistance
from the trade unions to privatization and foreign participation- LIC should aim for more
autonomy and restructuring programme. Kumari (2002) aimed at understanding the life
insurance sector in India and flagging issues relating to competition in this sector during post
liberalization. Based on the secondary data analysis, it proved that liberalization has a significant
impact on the growth of Indian life insurance business. Kasturi (2006) focused on performance
management system in insurance corporations in general, based on the principles of performance
management in service organizations. The theoretical attempt found that the key indicators were
success factors for performance of life insurance companies. Rajendran & Natarajan (2009)
studied the impact of LPG on life Insurance Corporation of India during 2001-02 to 2007-08.
The study found that the businesses in India, the business outside India as well as the total
business of LIC are always in an increasing trend. The data prove that the LPG is incorporating a
positive influence on LIC of India and its performance. Kumar & Priyan (2012) made an attempt
to analyze the performance of public and private life insurance companies in India. Privatization
of the insurance sector was feared to affect the prospects of the LIC. The results shown that the
LIC was continuing dominate in the sector. Private sector insurance companies also tried to
increase their market share. Nena (2013) made an attempt to evaluate the performance of Life
Insurance Corporation (LIC) of India during 2005-06 to 2009-10. The idea behind this study is to
know the growth and performance of LIC. The researcher concluded that the LIC need to control
the operating expenses, to not affect its income. Ansari & Fola (2014) examined the financial
soundness and performance of life insurance companies in India during 2008-09 to 2012-13.
This study does not find enough evidence for difference between the ROA and the New Business
Premiums (NBP) in private and public life insurance companies. Reddy (2015) was analyzed
investment pattern of Life Insurance Industry during post reform period. The study concluded
that the investment of life insurers rose in both absolutely and relatively terms with respect to
central government securities, investment subject to exposure norms, infrastructure and social
sector. Prakruthi & Arabi (2018) examined financial performance of Life Insurance Corporation
(LIC) of India during 2005-06 to 2013-14. The study concluded that LIC is doing good,

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managing the products, and related marketing strategies effectively. The data analysis revealed
that LIC need to control the Operating Expenses by not affecting its income. Kartheeswari &
Rajeswari (2018) analyzed macro economy blooms the life insurance companies in India during
2006-07 to 2011-12. It has been observed that there is a significant relationship between the
demand for life insurance and various macroeconomic variables. High growth of GDP induces
an economic effect through higher per-capita and disposable income and savings, which in turn
create a favorable market demand for life insurance.

Objectives of the Study:

The present study made an attempt to examine the financial performance of Life Insurance
Corporation of India.

 To analyses growth of income and outgo of LIC during the study period
 To analyses growth of Investment and outgo of LIC during the study period
 To assess the impact of investment on total income of LIC during the study period

Hypothesis:
 There is no relationship between investment and total income of LIC during the
study period.

Data Sources and Methodology:

The study is mainly based on secondary data obtained from Reserve Bank of India (RBI)
database and Central Statistical Organization (CSO). The time period considered for the study is
span of 20 years from 2001-02 to 2015-16. Hence, the study captures the effects of liberalization
after one decade execution of reforms. Exponential growth rates are calculated to observe which
variables are having high growth during the study period. Regression technique is employed to
assess the impact of investment on total income of LIC during the study period.

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SECTION I
Financial Performance of LIC:

The data for income, outgo and their sub-components including their growth rates are presented
in Table 1.

Table 1: Financial Performance of Life Insurance Corporation of India

Category Item Mean S.D C.V G.R
Premium for Life Insurance and 337354 221009 65.51 19.4
Annuities/ single
First Year's 230046 97817 42.52 8.2
Income Renewal 970655 449626 46.32 11.8
Net Interest, Dividends and Rents 785693 503404 64.07 14.7
Other receipts 4651 4134 88.90 2.4
Total 2328393 1219001 52.35 13.3
Claims by death 64571 33084 51.24 12.6
Claims by survival 442949 262766 59.32 14.6
Surrenders including Bonus in 248079 214745 86.56 25.9
reduction of premium
Annuities less re-insurance 36058 22297 61.84 14.3

Outgo Transfer of Reserve 18190 26817 147.43 -9.3

Expenses of management – 105858 41993 39.67 9.7
Commission to Insurance agents
Expenses of management - Other Expenses 117983 66671 56.51 13.2
Indian Dominion and Foreign taxes 38516 16288 42.29 9.5
Miscellaneous 11012 5504 49.98 9.7
Increase to Life Insurance Fund 1245177 625029 50.20 12.3
Source: Central Statistical Organization.

As can be seen from the Table 1, total income and total outgo of LIC registered 13.3 and 12.3 per
cent growth rates respectively during the study period. Among the income sub-components,
premium has registered a maximum growth rate of 19.4 per cent and under the outgo sub-
components, surrenders including bonus recorded highest growth rate of 25.9 per cent.

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Investment Performance of LIC:

LIC investments in both sector-wise and instrument-wise along with their growth rates are
shown in Table 2.

Table 2: Investments by Life Insurance Corporation of India

Category Item Mean S.D C.V G.R
Public 5989 3835 64.04 15.7
Private 1659 1214 73.15 21.4
Sector-wise Joint 5 6 119.97 -22.4
Co-operative 24 12 50.60 -4.3
Total 7676 5009 65.25 16.6
Stock Exchange 7291 4965 68.09 17.6
Securities
Instrument-wise Loans 394 57 14.53 2.5
Total 7685 4999 65.04 16.4
Source : Reserve Bank of India

From the Table 2, it can be observed that the total sector-wise investments recorded 16.6 per cent
growth rate while the instrument-wise investment registered 16.4 per cent growth rate during the
study period. Among the sub-components of sector-wise investment of LIC is concerned private
sector occupied first place with 21.4nper cent growth rate followed by public sector which has
registered 15.7 per cent growth rate. The co-operative sector (-4.3) and the joint sector (-22.4)
growth rates are noticed negatively.

Stock exchange securities and loans are the sub-components of instrument-wise

investments by LIC are taken into account. They are recorded 17.6 and 2.5 per cent growth rates
respectively during the study period.

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SECTION II

Regression Results of Sector-wise Investment of LIC on Total Income of LIC during the
Study Period:
The result of regression of sector-wise investment and its sub-components on total
income of LIC is shown in Table 3.

Table 3: Regression Results of Sector-wise Investment of LIC on Total Income

(Total Income) Y = α +  (Public/Private/Joint/Co-operative/Sector-wise Total
Model
Investment)
Sig Sig Sig
Parameters α t (α)  t () R2 F
(α) () (F)
Public 3.172 20.096 0.000 0.849* 19.876 0.000 0.968 395.055 0.000
Private 4.451 48.557 0.000 0.604* 20.349 0.000 0.970 414.076 0.000
Joint 6.430 129.254 0.000 -0.375* -4.865 0.000 0.645 23.666 0.000
Co-operative 6.558 18.495 0.000 -0.198 -0.743 0.471 0.041 0.551 0.471
Sector-wise Total
3.263 24.750 0.000 0.803* 23.120 0.000 0.976 534.513 0.000
Investment
Note: * indicates significance level at 1 per cent.

Form the Table 3 it can be observed that the sign of the beta coefficient of the regression
model indicates the increase or decrease of the total income by investing in different sectors by
LIC during the study period. The regression results reveal that sector-wise total investment has a
positive impact on the total income of LIC. Regarding its components except the joint sector all
the remaining sectors have positive impact. The beta coefficient of the regression model
indicates the percentage increase in total income by investing 1.0 per cent in different sectors.
The public sector recorded highest increase in total income of 84.9 percentages followed by
private sector (60.4%). Sector-wise total investment has contributing 2.83 per cent increase in
total income of LIC. By contrast investment in joint sector leads to decrease in income by 37.5
per cent followed by Co-operative sector that is 19.8 per cent. As far as the significance of the
coefficients of the regression model is concerned public, private and joint sectors are significant
at 1 per cent level while co-operative sectors are found to be not significant. The R2 value
reveals that 95 per cent of the total variation in total income is explained by public sector
investment followed by total investment (97.6 %), private sector (97.0%), joint sector (64.5%)

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and co-operative sector (only 4.1 %). It is evident from the correlation values that except co-
operative sector all the remaining sectors are having high values thus investment in co-operative
sector leads to decline in total income.

Regression Results of Instrument-wise Investment of LIC on Total Income of LIC during

the Study Period:
The results of regression of instrument-wise investment and its sub-components on total income
of LIC are presented in Table 4.

Table 4:Regression Results of Instrument-wise Investment of LIC on Total Income

Model (Total Income) Y = α +  (Stock Exchange Securities/Loans)
Sig Sig Sig
Parameters α t (α)  t () R2 F
(α) () (F)
Stock Exchange
3.459 27.625 0.000 0.757 22.773 0.000 0.975 518.601 0.000
Securities
Loans -1.850 -1.094 0.294 3.146 4.820 0.000 0.641 23.231 0.000
Instrument-wise
3.233 24.149 0.000 0.810 22.985 0.000 0.976 528.302 0.000
Total Investment
Note: * indicates significance level at 1 per cent.

From the Table 4, it is found that both the stock exchange securities and loans as well as
instrument-wise total investments are having positive sign besides having high correlation
values. The highest increase in total income by investing 1.0 per cent is obtained by loans (314.6
%) followed by total investment (81.0%) and stock exchange securities (75.7). All the beta
coefficients are significant at 1 per cent level. 97.6 per cent of variation in total income is
explained by instrument-wise total investment followed by stock exchange securities (97.5%)
and loans (64.1%).

Conclusion:

It is concluded that private sector has registered maximum growth (21.4%) in terms of
sector-wise investment by LIC but the increase in total income of LIC by private sector is 60.4
per cent. In contrast to this the co-operative sector decreases total income of LIC by 19.8 per
cent while it is recorded a meager negative growth of -4.3 per cent. Regarding the instrument-
wise investments of LIC is concerned, though stock exchange securities obtained maximum
growth (17.6%) and it contributes to total income capacity is 75.5 per cent if invest in it. Quite

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opposite to it, the growth of loans registered at 2.5 per cent only but its total income increasing
capacity is very high at 314.6 per cent if invest in loans. So that, from this, it is inferred that LIC
should increase its sector-wise investment in co-operative sector and instrument-wise investment
in loans because of their increasing capacity of total income.

References

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Reddy, S. M. (2015). Investment Pattern of Life Insurance Industry during Post Reform Period.
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