Life insurers get a glimpse of profit

After reeling under losses for almost a decade, life insurance companies are now turning the tide. Four life insurers have, so far, posted profit, while three of them have brought down their losses.

The upturn in market conditions also helped insurers to report profit. SBI Life, the largest private sector insurer in terms of new business income, posted a profit of Rs 276 crore (Rs 2.76 billion) for the year as against a loss of Rs 26 crore (Rs 260 million) in the previous year.

Bajaj Allianz, which had reported profit in the last quarter of 2008-09, posted a profit of Rs 417 crore (Rs 4.17 billion) for the year.

Managing Director and CEO Kamesh Goyal attributed the growth to a cost-conscious and efficient distribution channel. The management expense for the company came down from 19.2 per cent in 2008-09 to 16.5 per cent last year.

ICICI Prudential Life, the second largest life insurer in terms of new premium, reported its first annual profit of Rs 258 crore (Rs 2.58 billion).

Kotak Mahindra Old Mutual Life Insurance, which announced its results on Tuesday, saw a 383 per cent jump in profit to Rs 69 crore (Rs 690 million) in 2009-10, as against Rs 14 crore (Rs 140 million) in 2008-09.

Year of consolidation, paring

Reduction in operating expenses also helped insurers pare their losses and enhance profits. In most of the cases, insurers did not infuse any capital during the year. Capital is infused either to expand reach or grow top line.

For every policy sold, insurers have to maintain a solvency margin of 1.5 per cent. In addition, insurers focused on increasing productivity of agents. Some life insurers also closed unproductive branches during the year.

Although insurers have reported profit for the last year, they are yet to report accumulated profit. It would take a few years for insurers to come out of accumulated losses.

Those who did not turn profitable had brought down their losses. HDFC Standard Life brought down losses from Rs 502 crore (Rs 5.02 billion) to Rs 275 crore (Rs 2.75 billion) last year.

Birla Sun Life reduced net loss from Rs 702 crore (Rs 7.02 billion) in 2008-09 to Rs 435 crore (Rs 4.35 billion) last year, mainly led by better expense management. Reliance Life saw losses reduce from Rs 1,069 crore (Rs 10.69 billion) to Rs 262 crore (Rs 2.62 billion) in 2009-10.

However, insurers did not see much growth in their top line. Among the private players, SBI Life recorded the highest business premium during the year. SBI Life recorded a 30 per cent increase to Rs 7,040 crore.

At the same time, ICICI Prudential saw a seven per cent fall in new business premium to Rs 6,334 crore (Rs 63.34 billion), while Bajaj Allianz's new business was marginally lower at Rs 4,450 crore (Rs 44.50 billion) from Rs 4,491 crore (Rs 44.91 billion) in 2008-09.

Similarly, HDFC Standard Life saw a significant 23.3 per cent growth in new business. Reliance Life saw a 12 per cent increase, while Birla Sun Life witnessed a 4.75 per cent increase in new business income during the last year.