Life insurance industry sees 4.5% growth in its profit

After witnessing a marginal decline of 2% in FY 2015-16 due to muted sales and lower persistency ratio, the life insurance industry recorded a 4.5% increase in its profitability in FY 2016-17.

The total net profit of the life insurance industry grew from Rs.7,408 crore in FY 2015-16 to Rs.7,707 crore in FY 2016-17.

The increase in profitability is due to increased sales of traditional policies due to demonetisation. Many people bought financial instruments during demonetisation. The 24 life insurance players mopped up Rs1.75 lakh crore in FY 2016-17 against Rs1.38 lakh crore the previous fiscal, shows the latest Life Insurance Council data. Most of the premiums came in the last four months of FY 2016-17.

Among top ten players in terms of AAUM, state-owned LIC emerged to be the most profitable insurer even after witnessing 11% decline in its profits in FY 2016-17. LIC’s net profit stood at Rs. 2,231 crore as against Rs. 2,517 crore in the previous financial year. The profit was low mainly because of the one-time bonus distributed to over 29 crore policyholders on the onset of LIC’s diamond jubilee year and increased investments in equity instruments. In addition, the company has paid Rs. 2,500 crore to the government towards its share of surplus business.

ICICI Prudential’s PAT for FY 2016-17 stood at Rs. 1,681 crore, a marginal increase of 2% from the previous year at Rs. 1,650 crore. The company has paid net commission paid of Rs.760 crore to its distributors, according to its regulatory filing to the BSE.

Interestingly, life insurers like IndiaFirst Life and IDBI Federal witnessed a nearly four-fold increase in their net profits. Both the companies had improved their productivity by introducing some innovative products and strengthening their distribution channels.

Among other private life insurers, eight life insurers saw a decrease in their profitability. Life insurers like Edelweiss Tokio, Future Generali, Aviva Life, Bharati Axa and Sahara witnessed a steep decline in their profitability.

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 2016-17

Source: Company disclosure