Life insurers profit declines marginally in FY 2015-16

The 24 life insurers have witnessed a 2% decline in their Profit after Tax (PAT) in FY15-16. The combined net profit of these insurance companies stood at Rs. 7,375 crore in FY 2015-16 as against Rs. 7,527 crore in the corresponding period last year.

The decline in profitability was primarily due to muted sales of traditional policies & pension products and lower persistency ratio of a few large and mid and small sized life insurers, said experts.

Among top ten players in terms of their AAUM, Reliance Nippon Life, Birla Sun Life and Tata AIA witnessed a decline in profitability. Birla Sun Life’s profit declined from Rs. 285 crore in FY 2014-15 to Rs. 140 crore in FY 2015-16. Tata AIA Life’s PAT too declined from Rs. 264 crore to Rs. 64 crore during the same period. Reliance Life recorded a net loss of Rs. 246 crore in FY15-16, as against a net profit of Rs. 135 crore in FY14-15.

Among mid and small life insurers, in terms of their AAUM, nine life insurers saw a decrease in their profitability. Life insurers like Edelweiss Tokio, Future Generali, Aviva Life, Aegon Life, Bharati Axa, Shriram, Sahara and IDBI Federal witnessed a steep decline in their profitability.

Meanwhile, state owned LIC has overtaken ICICI Prudential once again and emerged as the most profitable life insurer for the third consecutive year. LIC’s net profit increased from Rs. 1,824 crore in FY14-15 to Rs. 2,518 crore in FY 2015-16, clocking a 38% growth. A Mumbai based financial adviser attributes this growth to strong agency penetration and good track record of LIC. According to him, LIC has opened some new branches in small cities which helped the insurer collect good premiums from these areas.

Barring LIC and Kotak Mahindra Life, no private insurer among the top ten witnessed double digit growth in profits. Kotak posted a growth of 10% PAT at Rs. 251 crore as against Rs. 229 crore PAT in its preceding year.

ICICI Prudential’s PAT for FY 2015-16 stood at Rs. 1,650 crore, a marginal increase of 1% from the previous year at Rs. 1,634 crore. ICICI Prudential Life had the distinction of being the most profitable insurer in FY 2011-12 and FY 2012-13.

Typically, profitability is a function of underwriting efficiencies and building good renewals. Higher persistency and more efficient underwriting can lead to higher profitability.

Profits of life insurance companies in FY 2015-16

Source: Company websites