Companies which entered the life insurance business after state-run Life Insurance Corporation lost its monopoly are yet to find a profitably firm footing. And now, they’re dealing with a renewed squeeze in new business and a surge in losses during 2008-09.
When the sector was opened in 2000, most players had said they would break even in seven to eight years. But at least three players — ICICI Prudential, HDFC Standard Life and Max New York Life — are in their ninth year of operation and profits still elude them.
Over last year, as sales fell, insurance companies were slow to adjust and were saddled with high expenses. They had to additionally deal with mark-to-market losses (the accounting rule to record the current value of earlier bought or traded assets) on their equity holdings on the traditional life covers sold by them.
State Bank of India (SBI) Life, after eventually making a profit of Rs 34 crore in the previous financial year, reported a loss of Rs 26 cr. The company made market-to-market (MTM) provisions of around 97 crore on its equity portfolio.
HDFC Standard Life saw its operating losses more than double to Rs 502 crore during the last financial year, against Rs 243 crore in 2007-08. The company has made MTM provisioning of Rs 1,820 crore, as against an income of Rs 52 crore in 2007-08.
Similarly, Reliance Life Insurance saw its losses rise by around 14 per cent to around Rs 875 crore during 2008-09, against Rs 768 crore in the previous year. Birla Sun Life Insurance said its losses increased by 57 per cent to Rs 686 crore in 2008-09, against Rs 437 crore in 2007-08.
Based on results available so far, there are only two exceptions: ICICI Prudential and Bajaj Allianz Life. While Bajaj Allianz said it has registered a profit during the past financial year, it refused to disclose numbers. ICICI Prudential has pruned its losses by 44 per cent to Rs 577 crore during the year ended March 2009, against Rs 1,032 crore in the previous year. It had checked its branch and agency expansion, which helped it pare its expense ratio.
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Most others expanded their distribution network. “Last year, our expense cost went up as we strengthened our distribution network. This year we will like to consolidate in the first six months and will review the situation in the second half,” said HDFC Standard Life’s chief executive officer, Paresh Parasnis. The company’s expenses rose by 55.75 per cent to Rs 1,760 crore during 2008-09 from Rs 1,130 crore in the previous year.
Similarly, SBI Life’s Managing Director and CEO, US Roy, said costs went up as the company added around 250 sales outlets to the 180-odd branches it had at the end of March 2008.
It has almost doubled the insurance agents to around 70,000, as also the certified insurance facilitators, who are State Bank of India employees, to over 12,000.
“Life insurance is a long-term business and companies make accounting losses in the initial few years of operation. We are trying to scale down our operating cost by merging our branches. We have got approval for opening 400 branches in January, but we are now scaling down our requirement and will leverage upon our existing branches,” said Reliance Life President P Nandgopal.
While insurers are trying to lower their operating expenses, they are expecting lower MTM hits during the current financial year, as the stock markets are less volatile.