ICICI Pru Life sees breakeven in 2009-10

The breezy growth in life insurance business has pushed further away ICICI Prudential Life Insurance's target for breaking even.

The largest private sector life insurer now sees it breaking even only in 2009-10, the ninth year of its operations, against the earlier expectation that it will start reporting profits from the sixth or seventh year onwards.

ICICI Prudential Life feels it would tend to break even towards 2009 given the very strong growth the insurance industry in general has been witnessing.

The company feels the higher the growth, the longer it will take to break even.

The life insurance industry has grown at 130 per cent in 2006-07 so far with total new business premium collections at Rs 29,664 crore. In comparison, the growth was 34 per cent and 17 per cent in 2005-06 and 2004-05, respectively.

ICICI Prudential Life's new business premium income grew by 143 per cent in the first half of 2006-07 to Rs 1,626 crore, as against Rs 668 crore in the same period a year earlier.

"If we have to maintain our market share, then we have to grow at the industry rate. The accounting guidelines don't allow a life insurance company to amortise expenses. The expenses have to be taken upfront in the profit and loss account. Secondly, higher the growth of business, higher its solvency margins. For these reasons, the breakeven gets shifted," said N S Kannan, executive director, ICICI Prudential Life.

"We want to take advantage of the market opportunities to maintain our leadership. We will take at least another two years to break even," Kannan said.

ICICI Prudential Life needs to grow at the rate at which the industry is growing if it wants to protect its market leadership.

ICICI Prudential Life's market share in new business premium income of private sector life insurers is 29.8 per cent this year, marginally lower than 30 per cent in 2005-06.

The value of a life insurance company is measured as a function of new business achieved profit (NBAP) and is not in terms of statutory profit or loss.

NBAP is defined as the present value of future profits out of the policies sold in a particular financial year.