Profits of top 10 life insurers grow by 5 percent in FY 2013-14

LIC emerges as most profitable life insurer. ICICI Prudential slips to second position after two years of domination.

Top 10 life insurers have recorded a growth of 5% in their Profit after Tax (PAT) margin by registering a net profit of Rs.7,531 crore in FY 2013-14 as against Rs.7,152 crore in the corresponding period last year, shows a study of financial reports of life insurance companies done by Cafemutual.

The growth in profitability was primarily driven by sales of traditional policies & pension products and higher persistency ratio. Among the top 10 Insurers in terms of their AAUM, 7 life insurers saw an increase in their profitability.

State owned LIC has overtaken ICICI Prudential as the most profitable life insurer. LIC has posted a growth of 15% in PAT at Rs.1657 crore from Rs.1438 crore last year. ICICI Prudential’s PAT for fiscal 2013-14 stood at Rs.1566 crore, up 5% from last year at Rs.1496 crore. ICICI Prudential Life has slipped to second position after two years of dominance in terms of profitability.

A Mumbai based financial advisor attributes this growth to strong agency penetration and good track record of LIC. He said LIC had opened some new branches in small cities which helped it collect good premium from these areas.

HDFC Standard Life recorded a growth of 60% by clocking a net profit of Rs.725 crore as against a net profit of Rs.452 crore in FY 2012-13. Similarly, Tata AIA posted a healthy growth of 28% in PAT margin at Rs.413 crore against Rs.332 crore in its preceding fiscal.

The profits of SBI Life rose from Rs.622 crore in FY 2012-13 to Rs.740 crore in FY 2013-14. Max Life’s profit grew from Rs.424 crore in FY 2012-13 to Rs.436 crore in FY 2013-14. Kotak Life’s PAT too increased from Rs.190 crore in FY 2012-13 to Rs.239 crore in FY-2013-14.

While Bajaj Allianz and Birla Sun Life registered a steep decline, Reliance too recorded a modest decline in profits.

Profit figures of top 10 life insurers in terms of their AAUM

Source: Cafemutual Study

Experts attribute this growth increase in sales of traditional policies and pension products. Ritesh Sheth of Tejas Consultancy said that increase in sales of long term traditional policies, especially endowment policies and pension products have contributed significantly to the profits of life insurers.

A national sales head of a private life insurer said, “Profitability is a function of underwriting efficiencies and building good renewals. Higher persistency and more efficient underwriting can lead to higher profitability.”

However, some experts believe that many insurance agents had sold policies by misguiding people about new product guidelines till December. “Due to aggressive sales pitch by its agents and misleading promotion through advertisements which propagated - 'last time to buy your favourite product', LIC had garnered inflows ahead of the proposed changes in policy structure and commission payouts by IRDA,” says a Mumbai based financial adviser.

“Many insurance agents and companies pushed their products by misguiding people that new policies will have high premium structure and low bonuses from January 2014,” says Pankaj Mathpal of Optima Money.