SBI Life first private insurer to report profit

SBI Life Insurance Company today became the first among the new life insurers to report net profit.

The life insurer, owned 74 per cent by the country's largest bank, State Bank of India (SBI), said it earned a net profit of Rs 2.02 crore in 2005-06 after five full years of operation. SBI Life started operations in March 2001.

ICICI Prudential Life Insurance and HDFC Standard Life Insurance, the first to start business after the insurance sector was opened up, are yet to post net profit.

But they have posted new business profits. The new business profit is derived by taking into account the net present value of the future cash flow benefit of insurance policies for the current year and netting it off with expenses incurred to acquire the policies.

The accounting practices require that all charges like the start-up cost and commissions paid to agents must be expensed by an insurance company in the first year of operation itself to arrive at the net profit or statutory profit.

This is in sharp contrast to the global practices where insurers are allowed to amortise the cost over a period of time. "To that extent, it is an achievement by SBI Life," said an analyst. SBI Life had reported a loss of Rs 11 crore in 2004-05.

ICICI Prudential Life's new business profit for 2005-06 is Rs 528 crore and that of HDFC Life, Rs 124 crore. ICICI Prudential Life had reported a Rs 129.21-crore loss for the first half of 2005-06 after a Rs 211.62-crore loss for the whole of 2004-05.

HDFC Standard Life's loss in 2004-05 was Rs 89.73 crore against Rs 23.43 crore in 2003-04.

SBI Life Managing Director and CEO S Krishnamurthy said, "Our product strategy has paid off. Also, we have made money by judicious investments. We are targeting a new business premium of Rs 2,000 crore by launching more innovative products, adding 100 more branches and increasing the sales force to 20,000 from the present 8,000."

ICICI Prudential Life's Managing Director Shikha Sharma said, "It will take ICICI Prudential Life about two years more to report net profit. Breaking even and reporting profits are functions of the composition of business."

A larger portion of ICICI Prudential's business consists of a long-dated contract which involves accounting for expenses upfront against shorter term contracts, where revenue and expenses get matched.

SBI Life said it collected a total premium of Rs 1,075 crore in 2005-06, a 78 per cent year-on-year growth.

The new business premium generated was Rs 828 crore, which placed the company in the fourth position amongst the private sector life insurance players.