CHAPTER 6

DATA ANALYSIS AND INTERPRETATION

6.1 MEANING OF PROFITABILITY

The word „profitability‟ may be defined as “the ability of a given investment

to earn a return from its use.”1Profitability is the index of the performance and of the
better utilization of the financial resources.

The word profit has been defined in a number of ways. The profit is not
simply the increase in cash made available from business activities but includes some
value (positive or negative) arising from the changes in resources commended during
the period. The word ability is referred to the earning power or operating capacity of
the investment.

The criterion of profits is a common standard of measuring efficiency. It is a

general criterion which indicates the overall efficiency combining of all different
operations together. According to Sargent Florence and Coilbert Walker, “The
capitalist test of the efficiency of an undertaking is profit”. In a life insurance
company also the test for efficiency is test for surplus. They further point out that this
surplus should not be the result of exploitation, money cost should reflect real costs
and must not leave social costs out of account. The surplus should result from a small
margin at a large level of operation rather than a large margin on a small level of
operation. In this context, Ramaswamy also observes, “An organization should earn
definite percentage on total assets. Profit should be earned from each of activities and
each sphere”.2

1
Floyd F. Burtchatt and Clifford M. Hicks : Corporation Finance (New York : Harperand Brothers, 1948), P.256.
2
Ramaswamy T., Public Enterprises in India-Objectives and Performance, (Delhi:Meenakshi Prakashan, 1972), P.71.
 Data Analysis And Interpretation 132

While emphasizing the importance of increasing profits in a company, the

views of Lord Latham, are of special significance. He points out that, “if
circumstances are favorable, satisfactory profits can conceal inefficiency while in
unfavorable circumstances, a proper degree of efficiency may be achieved in spite of
an absence of profits.”3

He further says that the test of efficiency should be whether service provides
facilities, which are reasonably adequate to meet the public needs at reasonable
prices. The pursuit of the maximum efficiency in this sense becomes the most
economical use of resources for a given return in goods and services.

6.2 CONCEPT OF PROFITABILITY

Profitability is the ability of an investment to get return from its use. The
profitability is the most important factor for the health of an organization, without
which no business can survive. To make the future strategies the profitability analysis
is essential. The growth of a business is measured by the profits earned during a
specified time period. So in present scenario profitability is the backbone of any
organization. All the decisions of the organization are depends of the profits earned.

The performance of a business is evaluated on the basis of profit earned and

that‟s why management‟s main task is to maximize the profits earned by the business.

According to Gole, “Profitability should be the main criterion in judging the

extent to which management has been successful in its task of maximizing profits or
minimizing loss.”4

According to Harold Bierman, J.R. and Allan R. Drebin, “Income is a basic

measure of managerial performance. The contribution which a division makes toward
overall corporate profit is an important criterion of effectiveness.”5

3
Lord Latham, “London Transport” in Sir W. Holdsworth et al. (Ed.) Efficiency in Nationalised Industry (London:1952), P.29.
4
Gole, V.L., Analysis and Interpretation of Financial Statements, Botterworth, Sydney, 2002, p.85.
 Data Analysis And Interpretation 133

According to John Argenti, “Profit is the engine that drives the business
enterprise.”6 Profit is unalterable, permanent, and as such, the primary as well as final
objective of an enterprise."7 If an enterprise fails to make profits, capital invested is
eroded and, if this situation prolongs, the enterprise may ultimately cease to exist
because the profit is said to be the source of the business without which it is lifeless.

6.3 ANALYSIS OF PROFITABILITY

Distinct facts given in financial statements have no importance of their own

unless and until they are represented in a statement with other facts, or facts of co-
reports and similar facts of other periods, are co-ordinated. This process is called ratio
analysis. Ratio analysis represents relationship between two different numbers. The
use of ratios had started in the twentieth century. It is a powerful tool of profitability
analysis.

Ratio represent the quotient relationship between two relevant variables of the
financial statements an individual item, an individual item to group item or a group
item to group item, which develop the meaningful relationship between these two set
of variables.8

There are several methods to analyze profitability but profitability ratios can
be used to compare earnings for prospective investments. Profitability ratios are
measures of performance showing how much the firm is earning compared to its
sales, assets or equity. One can quickly see the difference in profitability between two
or more companies by comparing their profitability ratios. Ratio also provides a
bird‟s eye view of the financial condition of the company.

5
Harold Bierman, Jr. and Allan R. Drebin, Managerial Accounting : An Introduction, The Macmillan Company, New York,
2002, p.225.
6
John Argenti, Corporate Planning - A Practical Guide, George Allen and Unwin Ltd. London, 2005, p.34.
7
Fourth Conference of Asian and Pacific Accountants, New Delhi, 2001, p.143.
8
D.R. Patel (2002), “Accounting and Financial Management” Atul Prakashan, Ahmedabad. P.182
 Data Analysis And Interpretation 134

Profitability Ratios show how successful a company is, in terms of generating

returns or profits on the Investment that it has made in the business. If a business is
liquid and efficient, it should also be profitable.

In the present study, we are interested to know the profitability of two life
insurance companies. For this purpose, we have to put data of each company in the
form of financial ratios. Analysis of these ratios which is called „cross-sectional
analysis‟, compares financial ratios of the companies from the same industry.

Ratio analysis can provide valuable information about a company‟s financial

health. A financial ratio measures a company‟s performance in a specific area. We
can use this information to make a judgment as to which company is a better
investment risk. By calculating and comparing a single ratio is not sufficient to reach
at any conclusion. We can obtain a better indication of the direction in which a
company is moving when several ratios are taken as a group.

6.3.1 CURRENT RATIO

Current Ratio is the relationship between current assets and current liabilities.
Current Ratio throws light on the liquidity position of the company. Liquidity refers
to the ability of the company to meet its short term obligations. Current Ratio is also
known as working capital ratio.

Current Assets
Current Liabilities

Current Assets are those assets which can be converted into cash themselves,
within a period of one year. Current assets includes cash in hand, cash at bank,
prepaid expenses, bills receivables, debtors, stock, short term investments, advance
payments etc. Current Liabilities are those liabilities which are to be paid within a
period of one year out of total assets. Current liabilities includes creditors, bank
overdraft, bills payable, short term loans, outstanding expenses, tax payable, interest
 Data Analysis And Interpretation 135

payable, cash credit, outstanding expenses, unclaimed dividend, provision for

taxation, unearned income etc.

Table 6.1
Current Ratio of Selected Life Insurance Companies
(2002-03 to 2011-12)

Year LIC of India ICICI Pro

2002-03 1.94 0.75

2003-04 1.20 0.59

2004-05 1.18 0.70

2005-06 1.46 0.59

2006-07 1.69 0.67

2007-08 1.94 0.59

2008-09 2.49 0.57

2009-10 2.26 0.38

2010-11 3.72 0.42

2011-12 3.09 0.54

Source: Annual Reports and Accounts of selected life insurance companies under study from 2002-03 to 2011-12.
 Data Analysis And Interpretation 136

Graph 6.1
Current Ratio of Selected Life Insurance Companies
(2002-03 to 2011-12)

3.5

2.5

2 LIC of India
1.5 ICICI Pro

0.5

Current ratio indicates the ability of the company to pay off its creditors in
time. Current Ratio of 2:1 is considered satisfactory i.e. the current assets are twice of
its current liabilities. If the current ratio is more than one, it is good for the creditor‟s
point of view. In table 6.1 LIC is showing good current ratio in each year of the study
period. Table 6.1 and graph 6.1 reveals that in the year 2002-03 the current ratio of
LIC was 1.94 and 1.20 in 2003-04. Current Ratio of LIC was decreased in 2004-05
and was observed 1.18. Current Ratio of LIC is showing increasing trend from 2005-
06 since it was observed 1.46 in 2005-06, 1.69 in 2006-07, 1.94 in 2007-08, 2.49 in
2008-09, 2.26 in 2009-10, 3.72 in 2010-11 and 3.09 in 2011-12. Current ratio of LIC
was measured above ideal ratio from 2008-09 to 2011-12. Highest current ratio of
LIC was measured 3.72 in the year 2010-11 during the study period.

Current Ratio of ICICI Prudential Life Insurance Company was observed

below ideal ratio in each year of the study period. Current ratio of ICICI Prudential
Life Insurance Company was 0.75 in 2002-03, 0.59 in 2003-04, 0.70 in 2004-05, 0.59
 Data Analysis And Interpretation 137

in 2005-06, 0.67 in 2006-07, 0.59 in 2007-08, 0.57 in 2008-09, 0.38 in 2009-10, 0.42
in 2010-11 and 0.54 in 2011-12. Highest current ratio of ICICI Prudential Life
Insurance Company Ltd. was measured 0.75 in the year 2002-03 during the study
period.

Liquidity position of LIC is far better than ICICI Prudential Life Insurance
Company Ltd., since the current ratio of LIC is showing ideal position but the current
ratio of ICICI is not showing satisfactory position. LIC has sufficient assets to pay off
its liabilities, while ICICI Prudential Life Insurance Company Ltd. doesn‟t have
sufficient assets to pay off its liabilities. So from the creditor‟s point of view LIC is
better than ICICI Prudential Life Insurance Company Ltd.

Table 6.2
Current Ratio (Statistical Analysis)

Variables Average Standard Coefficient Standard P<0.05

(x) deviation of variation error of P-Value is
()  X100 ) mean <0.00001
t=5.7861
LIC of 2.0970 0.8211 39.15 0.2596 Table Value of t
at 5% level
India (d.f.=18) =2.101
ICICI Pro 0.5800 0.1150 19.83 0.0364

Observation:

Table 6.2 reveals that the average current ratio of LIC is 2.10, which is an
ideal current ratio for a company, while the average current ratio of ICICI Prudential
Life Insurance Company Ltd. is 0.58, which is not satisfactory. Standard deviation of
LIC is 0.82, while the standard deviation of ICICI Prudential Life Insurance
Company Ltd. is 0.11. Coefficient of variation of LIC is 39.15, while the Coefficient
of variation of ICICI Prudential Life Insurance Company Ltd. is 19.83. Standard error
of mean of LIC is 0.2596, while the standard error of mean of ICICI Prudential Life
Insurance Company Ltd. is 0.0364.
 Data Analysis And Interpretation 138

Calculated value of “t” test is more than the table value so null hypothesis is
rejected. Hence it can be concluded that there is significant difference between
current ratio of LIC and ICICI Prudential Life Insurance Company Ltd. The liquidity
position of LIC is much better than the ICICI Prudential Life Insurance Company
Ltd. The management of ICICI Prudential Life Insurance Company Ltd. is suggested
to improve the current ratio and thus their liquidity position.

6.3.2 ABSOLUTE LIQUID RATIO

Absolute Liquid Ratio indicates the cash position of the company on a

particular date. Absolute Liquid Ratio indicates relationship between absolute liquid
assets and current liabilities. It is also known as super quick ratio or cash position
ratio.

Absolute Liquid Assets

Current Liabilities

Absolute Liquid Assets includes cash, bank and marketable securities. This
ratio shows how much cash a company have to pay its current or quick liabilities on a
specific date. Current liabilities includes creditors, bank overdraft, bills payable, short
term loans, outstanding expenses, tax payable, interest payable, cash credit,
outstanding expenses, unclaimed dividend, provision for taxation, unearned income
etc.

Table 6.3
Absolute Liquid Ratio of Selected Life Insurance Companies
(2002-03 to 2011-12)

Year LIC of India ICICI Pro

2002-03 0.73 0.45

2003-04 0.51 0.31

 Data Analysis And Interpretation 139

2004-05 0.39 0.52

2005-06 0.60 0.40

2006-07 0.66 0.45

2007-08 0.80 0.34

2008-09 0.88 0.28

2009-10 0.65 0.19

2010-11 1.41 0.21

2011-12 1.43 0.16

Source: Annual Reports and Accounts of selected life insurance companies under study from 2002-03 to 2011-12.

Graph 6.2
Absolute Liquid Ratio of Selected Life Insurance Companies
(2002-03 to 2011-12)

1.6

1.4

1.2

0.8 LIC of India

0.6 ICICI Pro

0.4

0.2

0
 Data Analysis And Interpretation 140

This ratio pays more significance to liquidity at a particular time, when used
with other liquidity ratios. The ideal ratio is 0.50:1 or 1:2. If the company have
liquidity ratio more than 1:2, it is good for creditor‟s point of view. Table 6.3 and
graph 6.2 reveals that LIC is having good liquidity position in each year of the study
period. Absolute liquidity ratio of LIC was 0.73 in 2002-03, 0.51 in 2003-04, 0.39 in
2004-05, 0.60 in 2005-06, 0.66 in 2006-07, 0.80 in 2007-08, 0.88 in 2008-09, 0.65 in
2009-10,1.41 in 2010-11 and 1.43 in 2011-12. Highest absolute liquidity ratio of LIC
was measured 1.43 in the year 2011-13 during the study period.

Absolute Liquidity Ratio of ICICI Prudential Life Insurance Company was

observed below ideal ratio in each year of the study period. Absolute Liquidity Ratio
of ICICI Prudential Life Insurance Company was 0.45 in 2002-03, 0.31 in 2003-04,
0.52 in 2004-05, 0.40 in 2005-06, 0.45 in 2006-07, 0.34 in 2007-08, 0.28 in 2008-09,
0.19 in 2009-10, 0.21 in 2010-11 and 0.16 in 2011-12. Highest absolute liquidity ratio
of LIC was measured 0.52 in the year 2004-05 during the study period.

Liquidity position of LIC is far better than ICICI Prudential Life Insurance
Company Ltd. since the absolute liquidity ratio of LIC is showing ideal position but
the absolute liquidity ratio of ICICI is not showing satisfactory position. LIC has
sufficient liquid assets to pay off its liabilities, while ICICI Prudential Life Insurance
Company Ltd. doesn‟t have sufficient liquid assets to pay off its liabilities. So from
the creditor‟s point of view LIC is better than ICICI Prudential Life Insurance
Company Ltd.

Table 6.4
Absolute Liquid Ratio (Statistical Analysis)

Variables Average Standard Coefficient Standard P<0.05

(x) deviation of variation error of P-Value is
()  X100 ) mean 0.000392
t=4.0306
LIC of 0.8060 0.3519 43.65 0.1113 Table Value of t
India at 5% level
ICICI Pro 0.3310 0.1228 37.10 0.0388 (d.f.=18) =2.101
 Data Analysis And Interpretation 141

Observation:

Table 6.4 reveals that the average absolute liquidity ratio of LIC is 0.81,
which is an ideal current ratio for a company, while the average absolute liquidity
ratio of ICICI Prudential Life Insurance Company Ltd. is 0.33, which is not
satisfactory. Standard deviation of LIC is 0.35, while the standard deviation of ICICI
Prudential Life Insurance Company Ltd. is 0.12. Coefficient of variation of LIC is
43.65, while the Coefficient of variation of ICICI Prudential Life Insurance Company
Ltd. is 37.10. Standard error of mean of LIC is 0.1113, while the standard error of
mean of ICICI Prudential Life Insurance Company Ltd. is 0.0388.

Calculated value of “t” test is more than the table value so null hypothesis is
rejected. Hence it can be concluded that there is significant difference between
absolute liquidity ratio of LIC and ICICI Prudential Life Insurance Company Ltd.
The liquidity position of LIC is much better than the ICICI Prudential Life Insurance
Company Ltd. The management of ICICI Prudential Life Insurance Company Ltd. is
suggested to improve the current ratio and thus their liquidity position.

6.3.3 RETURN ON TOTAL ASSETS RATIO

Return on total assets ratio shows relationship between profit after interest and
tax and total assets of a company on a particular time. This ratio shows the
profitability position of a company. This ratio shows how much profit a company is
having on the total assets on a particular time.

Profit After Interest and Tax

Total Assets

The profitability is the most important factor for the health of an organization,
without which no business can survive. To make the future strategies the profitability
analysis is essential. The growth of a business is measured by the profits earned
during a specified time period. So in present scenario profitability is the backbone of
 Data Analysis And Interpretation 142

any organization. All the decisions of the organization are depends of the profits
earned.

Return on total assets ratio indicates the profitability position and working
efficiency of a company. As such, if the ratio is high, the profit earning capacity of
the company is considered high. Total assets include currents assets and fixed assets
of the selected life insurance companies.

Table 6.5
Return on Total Assets Ratio of Selected Life Insurance Companies
(2002-03 to 2011-12)

Year LIC of India ICICI Pro

2002-03 0.02 -1.56

2003-04 0.02 -1.46

2004-05 0.03 -0.63

2005-06 0.02 -0.45

2006-07 0.02 -0.69

2007-08 0.02 -1.00

2008-09 0.02 -0.74

2009-10 0.02 0.30

2010-11 0.02 0.94

2011-12 0.01 1.22

Source: Annual Reports and Accounts of selected life insurance companies under study from 2002-03 to 2011-12.
 Data Analysis And Interpretation 143

Graph 6.3
Return on Total Assets Ratio of Selected Life Insurance Companies
(2002-03 to 2011-12)

1.5

0.5

0 LIC of India
ICICI Pro
-0.5

-1

-1.5

-2

According to table 6.5 and graph 6.3 the return on total assets ratio of LIC was
0.02 in 2002-03, 0.02 in 2003-04, 0.03 in 2004-05, 0.02 in 2005-06, 0.02 in 2006-07,
0.02 in 2007-08, 0.02 in 2008-09, 0.02 in 2009-10, 0.02 in 2010-11 and 0.01 in 2011-
12. LIC is constantly having almost same profitability ratio in each year of the study
period.

ICICI Prudential Life Insurance Company is showing fluctuating trend in

return on total assets ratio. From the year 2002-03 to 2008-09, return on total assets
ratio of ICICI Prudential Life Insurance Company is showing negative values.
Return on total assets ratio of ICICI Prudential Life Insurance Company was -1.56 in
2002-03, -1.46 in 2003-04, -0.63 in 2004-05, -0.45 in 2005-06, -0.69 in 2006-07, -
1.00 in 2007-08, -0.74 in 2008-09, 0.30 in 2009-10, 0.94 in 2010-11 and 1.22 in
2011-12. Highest return on total asset ratio of ICICI Prudential Life Insurance
Company Ltd. was measured 1.22 in the year 2011-12 during the study period.
 Data Analysis And Interpretation 144

Table 6.6
Return on Total Assets Ratio (Statistical Analysis)

Variables Average Standard Coefficient Standard P<0.05

(x) deviation of variation error of P-Value is
()  X100 ) mean 0.084536
LIC of 0.0200 0.0047 23.57 0.0015 t=1.432738
India Table Value of t
at 5% level
ICICI Pro -0.4070 0.9424 -231.56 0.2980 (d.f.=18) =2.101

Observation:

Table 6.6 reveals that the average return on total assets ratio of LIC is 0.02,
while the average return on total assets ratio of ICICI Prudential Life Insurance
Company Ltd. is -0.41, which is not satisfactory. Standard deviation of LIC is 0.005,
while the standard deviation of ICICI Prudential Life Insurance Company Ltd. is
0.94. Coefficient of variation of LIC is 23.57, while the Coefficient of variation of
ICICI Prudential Life Insurance Company Ltd. is -231.56. Standard error of mean of
LIC is 0.0015, while the standard error of mean of ICICI Prudential Life Insurance
Company Ltd. is 0.2980.

Calculated value of “t” test is less than the table value so null hypothesis is
accepted. Hence it can be concluded that there is no significant difference between
return on total assets ratio of LIC and ICICI Prudential Life Insurance Company Ltd.
Management of both the companies are suggested to increase the profits and returns.

6.3.4 RETURN ON SHAREHOLDER FUND RATIO

Return on shareholder fund ratio shows relationship between profit after

interest and tax and shareholder fund of a company on a particular time. This ratio
shows the profitability position of a company. This ratio shows how much profit a
company is having on the shareholders fund on a particular time.
 Data Analysis And Interpretation 145

Profit After Interest and Tax

Shareholder Fund

Return on shareholder fund ratio indicates the profitability position and

working efficiency of a company. As such, if the ratio is high, the profit earning
capacity of the company is considered high.

Table 6.7
Return on Shareholder Fund Ratio of Selected Life Insurance Companies
(2002-03 to 2011-12)

Year LIC of India ICICI Pro

2002-03 4.08 -0.35

2003-04 4.40 -0.33

2004-05 5.16 -0.23

2005-06 3.57 -0.16

2006-07 2.64 -0.31

2007-08 2.74 -0.37

2008-09 2.85 -0.16

2009-10 2.63 0.05

2010-11 2.90 0.17

2011-12 2.48 0.28

Source: Annual Reports and Accounts of selected life insurance companies under study from 2002-03 to 2011-12.
 Data Analysis And Interpretation 146

Graph 6.4
Return on Shareholder Fund Ratio of Selected Life Insurance Companies
(2002-03 to 2011-12)

3 LIC of India
ICICI Pro
2

-1

According to table 6.7 and graph 6.4 the return on shareholder fund ratio of
LIC was 4.08 in 2002-03, 4.40 in 2003-04, 5.16 in 2004-05, 3.57 in 2005-06, 2.64 in
2006-07, 2.74 in 2007-08, 2.85 in 2008-09, 2.63 in 2009-10, 2.90 in 2010-11 and 2.48
in 2011-12. LIC is constantly having good profitability ratio in each year of the study
period. Highest return on shareholder fund ratio of LIC was measured 5.16 in the year
2004-05 during the study period.

ICICI Prudential Life Insurance Company is showing fluctuating trend in

return on shareholder fund ratio. From the year 2002-03 to 2008-09, return on total
assets ratio of ICICI Prudential Life Insurance Company is showing negative values.
Return on total assets ratio of ICICI Prudential Life Insurance Company was -0.35 in
2002-03, -0.33 in 2003-04, -0.23 in 2004-05, -0.16 in 2005-06, -0.31 in 2006-07, -
0.37 in 2007-08, -0.16 in 2008-09, 0.05 in 2009-10, 0.17 in 2010-11 and 0.28 in
2011-12.
 Data Analysis And Interpretation 147

Table 6.8
Return on Shareholder Fund Ratio (Statistical Analysis)

Variables Average Standard Coefficient Standard P<0.05

(x) deviation of variation error of P-Value is
()  X100 ) mean <0.00001
t=11.661001
LIC of 3.3450 0.9167 27.41 0.2899 Table Value of t
India at 5% level
ICICI Pro -0.1410 0.2308 -163.70 0.0730 (d.f.=18) =2.101

Observation:

Table 6.8 reveals that the average return on shareholder fund ratio of LIC is
3.35, while the average return on shareholder fund ratio of ICICI Prudential Life
Insurance Company Ltd. is -0.14, which is not satisfactory. Standard deviation of LIC
is 0.92, while the standard deviation of ICICI Prudential Life Insurance Company
Ltd. is 0.23. Coefficient of variation of LIC is 27.41, while the Coefficient of
variation of ICICI Prudential Life Insurance Company Ltd. is -163.70. Standard error
of mean of LIC is 0.2899, while the standard error of mean of ICICI Prudential Life
Insurance Company Ltd. is 0.0730.

Calculated value of “t” test is more than the table value so null hypothesis is
rejected. Hence it can be concluded that there is significant difference between return
on shareholder funds ratio of LIC and ICICI Prudential Life Insurance Company Ltd.
LIC is getting very good returns on shareholder fund as compare to ICICI Prudential
Life Insurance Company Ltd. ICICI Prudential Life Insurance Company Ltd. is not
getting satisfactory returns on shareholder funds. The management of ICICI
Prudential Life Insurance Company Ltd. is suggested to increase profits and returns to
compete with LIC and other life insurance companies of India.
 Data Analysis And Interpretation 148

6.3.5 ACTUARIAL EFFICIENCY RATIO

Actuarial Efficiency Ratio shows relationship between benefits paid and gross
total premium of a life insurance companies on a specific time period. This ratio
reveals the capacity of a company to underwrite the risk.

Benefits Paid to Customers

Total Premium

This ratio shows the actuarial efficiency of a life insurance company. This
ratio reveals benefits paid to customers in relation to total premium of a specific time.

Table 6.9
Actuarial Efficiency Ratio of Selected Life Insurance Companies
(2002-03 to 2011-12)

Year LIC of India ICICI Pro

2002-03 0.38 0.01

2003-04 0.38 0.01

2004-05 0.38 0.04

2005-06 0.37 0.05

2006-07 0.42 0.09

2007-08 0.38 0.15

2008-09 0.33 0.14

2009-10 0.43 0.44

2010-11 0.55 0.59

2011-12 0.58 0.60

Source: Annual Reports and Accounts of selected life insurance companies under study from 2002-03 to 2011-12.
 Data Analysis And Interpretation 149

Graph 6.5
Actuarial Efficiency Ratio of Selected Life Insurance Companies
(2002-03 to 2011-12)

0.7

0.6

0.5

0.4
LIC of India
0.3
ICICI Pro
0.2

0.1

According to table 6.9 and graph 6.5 the Actuarial Efficiency Ratio of LIC
was measured 0.38 in 2002-03, 0.38 in 2003-04, 0.38 in 2004-05, 0.37 in 2005-06,
0.42 in 2006-07, 0.38 in 2007-08, 0.33 in 2008-09, 0.43 in 2009-10, 0.55 in 2010-11
and 0.58 in 2011-12. LIC is constantly showing good actuarial efficiency ratio in each
year of the study period.

Actuarial Efficiency Ratio of ICICI Prudential Life Insurance Company Ltd.

was measured 0.01 in 2002-03, 0.01 in 2003-04, 0.04 in 2004-05, 0.05 in 2005-06,
0.09 in 2006-07, 0.15 in 2007-08, 0.14 in 2008-09, 0.44 in 2009-10, 0.59 in 2010-11
and 0.60 in 2011-12.

Table 6.10
Actuarial Efficiency Ratio (Statistical Analysis)

Variables Average Standard Coefficient of Standard P<0.05

(x) deviation variation error of P-Value is
()  X100 ) mean 0.00864
 Data Analysis And Interpretation 150

LIC of 0.4200 0.0814 19.38 0.0257 t=2.6220

India Table Value of
ICICI Pro 0.2120 0.2373 111.93 0.0750 t at 5% level
(d.f.=18)
=2.101

Observation:

Table 6.10 reveals that the average actuarial efficiency ratio of LIC is 0.42,
while the average actuarial efficiency ratio of ICICI Prudential Life Insurance
Company Ltd. is 0.21. Standard deviation of LIC is 0.08, while the standard deviation
of ICICI Prudential Life Insurance Company Ltd. is 0.24. Coefficient of variation of
LIC is 19.38, while the Coefficient of variation of ICICI Prudential Life Insurance
Company Ltd. is 111.93. Standard error of mean of LIC is 0.0257, while the standard
error of mean of ICICI Prudential Life Insurance Company Ltd. is 0.0750.

Calculated value of “t” test is more than the table value so null hypothesis is
rejected. Hence it can be concluded that there is significant difference between
actuarial efficiency ratio of LIC and ICICI Prudential Life Insurance Company Ltd.
Life Insurance Corporation of India has won the trust of its policyholders by being
more efficient in payment of benefits as compare to ICICI Prudential Life Insurance
Company Ltd. The management of ICICI Prudential Life Insurance Company Ltd. is
suggested to improve the actuarial efficiency ratio and win the loyalty and trust of
policyholders.

6.3.6 OPERATING EXPENSES RATIO

Operating expenses ratio reveals relationship between total operating expenses

and gross total premium of a company. This ratio reveals operating efficiency of the
life insurance company.
 Data Analysis And Interpretation 151

Operating Expenses
Total Premium

Operating expenses of life insurance companies includes rents, rates, taxes,

repairs, travel, conveyance, vehicle running expenses, employee‟s remuneration and
welfare benefits, printing and stationary, medical fees, advertisement and publicity,
depreciation, interest and bank charges, auditors fees and expenses, legal and
professional charges and other expenses. Total premium includes both first year
premium and renewal premium of a specific time.

Table 6.11
Operating expenses Ratio of Selected Life Insurance Companies
(2002-03 to 2011-12)

Year LIC of India ICICI Pro

2002-03 0.08 0.42

2003-04 0.08 0.29

2004-05 0.08 0.20

2005-06 0.07 0.17

2006-07 0.06 0.19

2007-08 0.06 0.22

2008-09 0.06 0.18

2009-10 0.07 0.16

2010-11 0.08 0.12

2011-12 0.07 0.14

Source: Annual Reports and Accounts of selected life insurance companies under study from 2002-03 to 2011-12.
 Data Analysis And Interpretation 152

Graph 6.6
Operating Expenses Ratio of Selected Life Insurance Companies
(2002-03 to 2011-12)

0.45
0.4
0.35
0.3
0.25
0.2 LIC of India
0.15 ICICI Pro
0.1
0.05
0

According to table 6.11 and graph 6.6 the Operating Expenses Ratio of LIC
was 0.08 in 2002-03, 0.08 in 2003-04, 0.08 in 2004-05, 0.07 in 2005-06, 0.06 in
2006-07, 0.06 in 2007-08, 0.06 in 2008-09, 0.07 in 2009-10, 0.08 in 2010-11 and 0.07
in 2011-12. LIC is constantly showing almost same operating expenses ratio in each
year of the study period.

Operating Expenses Ratio of ICICI Prudential Life Insurance Company Ltd.

was 0.42 in 2002-03, 0.29 in 2003-04, 0.20 in 2004-05, 0.17 in 2005-06, 0.19 in
2006-07, 0.22 in 2007-08, 0.18 in 2008-09, 0.16 in 2009-10, 0.12 in 2010-11 and 0.14
in 2011-12.

Table 6.12
Operating Expenses Ratio (Statistical Analysis)

Variables Average Standard Coefficient Standard P<0.05

( ) deviation of variation error of P-Value is 5.1E-
()  X100 ) mean 05
t=4.956041
LIC of 0.0710 0.0088 12.39 0.0028 Table Value of t
India at 5% level
 Data Analysis And Interpretation 153

ICICI Pro 0.2090 0.0876 41.92 0.0277 (d.f.=18) =2.101

Observation:

Table 6.12 reveals that the average operating expenses ratio of LIC is 0.07,
while the average operating expenses ratio of ICICI Prudential Life Insurance
Company Ltd. is 0.21. Standard deviation of LIC is 0.01, while the standard deviation
of ICICI Prudential Life Insurance Company Ltd. is 0.09. Coefficient of variation of
LIC is 12.39, while the Coefficient of variation of ICICI Prudential Life Insurance
Company Ltd. is 41.92. Standard error of mean of LIC is 0.0028, while the standard
error of mean of ICICI Prudential Life Insurance Company Ltd. is 0.0277.

Calculated value of “t” test is more than the table value so null hypothesis is
rejected. Hence it can be concluded that there is significant difference between
operating expenses ratio of LIC and ICICI Prudential Life Insurance Company Ltd.
Operating expenses of ICICI Prudential Life Insurance Company Ltd. are higher than
LIC. The management of ICICI Prudential Life Insurance Company Ltd. is suggested
to cut the operating expenses to increase the profitability.

6.3.7 COMMISSION EXPENSES TO TOTAL PREMIUM RATIO

Commission to total premium ratio reveals relationship between commission

expenses and total premium of life insurance companies. Commission is the major
expenses for life insurance companies.

Commission Expenses
Total Premium

Commission expenses play an important role in deciding premium amount for

a life insurance cover. This ratio helps to know the commission paid in relation to the
total premium received by a life insurance company. It throws lights on the financial
 Data Analysis And Interpretation 154

management of life insurance companies. Total Premium includes both first year
premium and renewal premium of selected life insurance companies.

Table 6.13
Commission Expenses Ratio of Selected Life Insurance Companies
(2002-03 to 2011-12)

Year LIC of India ICICI Pro

2002-03 0.09 0.09

2003-04 0.09 0.10

2004-05 0.08 0.08

2005-06 0.08 0.07

2006-07 0.07 0.07

2007-08 0.06 0.06

2008-09 0.06 0.05

2009-10 0.07 0.04

2010-11 0.07 0.03

2011-12 0.07 0.04

Source: Annual Reports and Accounts of selected life insurance companies under study from 2002-03 to 2011-12.
 Data Analysis And Interpretation 155

Graph 6.7
Commission Expenses Ratio of Selected Life Insurance Companies
(2002-03 to 2011-12)

0.1
0.09
0.08
0.07
0.06
0.05 LIC of India
0.04 ICICI Pro
0.03
0.02
0.01
0

According to table 6.13 and graph 6.7 the Commission Expenses Ratio of LIC
was 0.09 in 2002-03, 0.09 in 2003-04, 0.08 in 2004-05, 0.08 in 2005-06, 0.07 in
2006-07, 0.06 in 2007-08, 0.06 in 2008-09, 0.07 in 2009-10, 0.07 in 2010-11 and 0.07
in 2011-12. LIC is showing decreasing trend in commission expenses ratio in each
year of the study period.

Commission Expenses Ratio of ICICI Prudential Life Insurance Company

Ltd. was 0.09 in 2002-03, 0.10 in 2003-04, 0.08 in 2004-05, 0.07 in 2005-06, 0.07 in
2006-07, 0.06 in 2007-08, 0.05 in 2008-09, 0.04 in 2009-10, 0.03 in 2010-11 and 0.04
in 2011-12. Highest commission expenses ratio of ICICI Prudential Life Insurance
Company Ltd. was measured 0.10 in the year 2003-04. Commission expenses of both
life insurance companies are almost similar in each year of the study period.

Table 6.14
Commission Expenses Ratio (Statistical Analysis)

Variables Average Standard Coefficient of Standard P<0.05

( ) deviation variation error of P-Value is
 Data Analysis And Interpretation 156

()  X100 ) mean 0.094632

t=1.364382
LIC of 0.0740 0.0107 14.46 0.0033 Table Value of t
India at 5% level
ICICI Pro 0.0630 0.0231 36.70 0.0073 (d.f.=18) =2.101

Observation:

Table 6.14 reveals that the average commission expenses ratio of LIC is 0.07,
while the average commission expenses ratio of ICICI Prudential Life Insurance
Company Ltd. is 0.06. Standard deviation of LIC is 0.01, while the standard deviation
of ICICI Prudential Life Insurance Company Ltd. is 0.02. Coefficient of variation of
LIC is 14.46, while the Coefficient of variation of ICICI Prudential Life Insurance
Company Ltd. is 36.70. Standard error of mean of LIC is 0.0033, while the standard
error of mean of ICICI Prudential Life Insurance Company Ltd. is 0.0073.

Calculated value of “t” test is less than the table value so null hypothesis is
accepted. Hence it can be concluded that there is no significant difference between
commission expenses ratio of LIC and ICICI Prudential Life Insurance Company Ltd.
Commission expenses ratio of LIC and ICICI Prudential Life Insurance Company
Ltd. is almost similar. Management of both life insurance companies is suggested to
control their commission expenses.

6.3.8 FIRST YEAR PREMIUM TO TOTAL PREMIUM RATIO

First year premium to total premium ratio shows the relationship between first
year premium and total premium of the life insurance companies. This ratio is also
known as new business ratio of life insurance companies.

First Year Premium

Total Premium
 Data Analysis And Interpretation 157

This ratio helps to know the percentage of new business on total business of a
life insurance company. First year premium includes single premium. Total premium
of a life insurance company includes first year premium and renewal premium.

Table 6.15
First Year Premium to Total Premium Ratio of Selected Life Insurance
Companies
(2002-03 to 2011-12)

Year LIC of India ICICI Pro

2002-03 0.29 0.87

2003-04 0.27 0.76

2004-05 0.27 0.67

2005-06 0.31 0.61

2006-07 0.44 0.65

2007-08 0.40 0.59

2008-09 0.34 0.44

2009-10 0.38 0.38

2010-11 0.43 0.44

2011-12 0.40 0.32

Source: Annual Reports and Accounts of selected life insurance companies under study from 2002-03 to 2011-12.
 Data Analysis And Interpretation 158

Graph 6.8
First Year Premium to Total Premium Ratio of Selected Life Insurance
Companies
(2002-03 to 2011-12)

0.9
0.8
0.7
0.6
0.5
LIC of India
0.4
ICICI Pro
0.3
0.2
0.1
0

According to table 6.15 and graph 6.8 the First year premium to total premium
ratio of LIC was 0.29 in 2002-03, 0.27 in 2003-04, 0.27 in 2004-05, 0.31 in 2005-06,
0.44 in 2006-07, 0.40 in 2007-08, 0.34 in 2008-09, 0.38 in 2009-10, 0.43 in 2010-11
and 0.40 in 2011-12. LIC is showing increasing trend in new business ratio in each
year of the study period. Highest first year premium to total premium ratio of LIC
was measured 0.44 in the year 2006-07.

First year premium to total premium ratio of ICICI Prudential Life Insurance
Company Ltd. was 0.87 in 2002-03, 0.76 in 2003-04, 0.67 in 2004-05, 0.61 in 2005-
06, 0.65 in 2006-07, 0.59 in 2007-08, 0.44 in 2008-09, 0.38 in 2009-10, 0.44 in 2010-
11 and 0.32 in 2011-12. First year premium is the major source of income for private
life insurance companies, thus first year premium to total premium ratio of ICICI
Prudential Life Insurance Company Ltd. is higher as compare to Life Insurance
Corporation of India. Highest first year premium to total premium ratio of ICICI
Prudential Life Insurance Company Ltd. was measured 0.87 in the year 2002-03.
 Data Analysis And Interpretation 159

Table 6.16
First Year Premium to Total Premium Ratio (Statistical Analysis)

Variables Average Standard Coefficient Standard P<0.05

( ) deviation of variation error of P-Value is
()  X100 ) mean 0.000788
t=3.717381
Table Value of t
LIC of 0.3530 0.0653 18.51 0.0207 at 5% level
India (d.f.=18) =2.101
ICICI Pro 0.5730 0.1754 30.61 0.0555

Observation:

Table 6.16 reveals that the average first year premium to total premium ratio
of LIC is 0.35, while the average first year premium to total premium ratio of ICICI
Prudential Life Insurance Company Ltd. is 0.57. Standard deviation of LIC is 0.07,
while the standard deviation of ICICI Prudential Life Insurance Company Ltd. is
0.18. Coefficient of variation of LIC is 18.51, while the Coefficient of variation of
ICICI Prudential Life Insurance Company Ltd. is 30.61. Standard error of mean of
LIC is 0.0207, while the standard error of mean of ICICI Prudential Life Insurance
Company Ltd. is 0.0555.

Calculated value of “t” test is more than the table value so null hypothesis is
rejected. Hence it can be concluded that there is significant difference between first
year to total premium ratio of LIC and ICICI Prudential Life Insurance Company Ltd.
The percentage of first year premium on total premium of ICICI Prudential Life
Insurance Company Ltd. is higher than LIC. LIC is the oldest life insurance company
and thus having renewal income more than the first year premium. The management
of ICICI Prudential Life Insurance Company Ltd. is suggested to increase the renewal
premium amount. The management of LIC is suggested to increase the first year
premium.
 Data Analysis And Interpretation 160

6.3.9 RENEWAL PREMIUM TO TOTAL PREMIUM RATIO

Renewal premium ratio reveals the relationship between renewal premium

and gross total premium of life insurance companies. This ratio shows the percentage
of old business on total business of the life insurance companies.

Renewal Premium
Total Premium

This ratio helps to know the percentage of old business premium on total
business of a life insurance company. Renewal premium includes premium of old
running policies. Total premium of a life insurance company includes first year
premium and renewal premium.

Table 6.17
Renewal Premium to Total Premium Ratio of Selected Life Insurance
Companies (2002-03 to 2011-12)

Year LIC of India ICICI Pro

2002-03 0.71 0.13

2003-04 0.73 0.24

2004-05 0.73 0.33

2005-06 0.69 0.39

2006-07 0.56 0.35

2007-08 0.60 0.41

2008-09 0.66 0.56

2009-10 0.62 0.62

2010-11 0.57 0.56

2011-12 0.60 0.68

Source: Annual Reports and Accounts of selected life insurance companies under study from 2002-03 to 2011-12.
 Data Analysis And Interpretation 161

Graph 6.9
Renewal Premium to Total Premium Ratio of Selected Life Insurance
Companies (2002-03 to 2011-12)

0.8
0.7
0.6
0.5
0.4 LIC of India
0.3
ICICI Pro
0.2
0.1
0

According to table 6.17 and graph 6.9 that the Renewal premium to total
premium ratio of LIC was 0.71 in 2002-03, 0.73 in 2003-04, 0.73 in 2004-05, 0.69 in
2005-06, 0.56 in 2006-07, 0.60 in 2007-08, 0.66 in 2008-09, 0.62 in 2009-10, 0.57 in
2010-11 and 0.60 in 2011-12. LIC is showing fluctuating trend in renewal business
ratio in each year of the study period.

Renewal premium to total premium ratio of ICICI Prudential Life Insurance

Company Ltd. was 0.13 in 2002-03, 0.24 in 2003-04, 0.33 in 2004-05, 0.39 in 2005-
06, 0.35 in 2006-07, 0.41 in 2007-08, 0.56 in 2008-09, 0.62 in 2009-10, 0.56 in 2010-
11 and 0.68 in 2011-12. Renewal ratio of ICICI Prudential Life Insurance Company
is showing increasing trend, as ICICI is getting old in life insurance industry and the
percentage of old policies is increasing year after year. Highest renewal premium to
total premium ratio of ICICI Prudential Life Insurance Company was measured 0.68
in the year 2011-12. Renewal Premium to total premium ratio of LIC is higher as
compare to ICICI Prudential Life Insurance Company Ltd., as renewal premium is the
major source of income for LIC.
 Data Analysis And Interpretation 162

Table 6.18
Renewal Premium to Total Premium Ratio (Statistical Analysis)

Variables Average Standard Coefficient Standard P<0.05

( ) deviation of variation error of P-Value is
()  X100 ) mean 0.000788
t=3.717381
Table Value of t
LIC of 0.6470 0.0653 10.10 0.0207 at 5% level
India (d.f.=18) =2.101
ICICI Pro 0.4270 0.1754 41.07 0.0555

Observation:

Table 6.18 reveals that the average renewal premium to total premium ratio of
LIC is 0.65, while the average renewal premium to total premium ratio of ICICI
Prudential Life Insurance Company Ltd. is 0.43. Standard deviation of LIC is 0.07,
while the standard deviation of ICICI Prudential Life Insurance Company Ltd. is
0.18. Coefficient of variation of LIC is 10.10, while the Coefficient of variation of
ICICI Prudential Life Insurance Company Ltd. is 41.07. Standard error of mean of
LIC is 0.0207, while the standard error of mean of ICICI Prudential Life Insurance
Company Ltd. is 0.0555.

Calculated value of “t” test is more than the table value so null hypothesis is
rejected. Hence it can be concluded that there is significant difference between
renewal premium to total premium ratio of LIC and ICICI Prudential Life Insurance
Company Ltd. The percentage of renewal premium on total premium of LIC is higher
than ICICI Prudential Life Insurance Company Ltd. LIC is the oldest life insurance
company and thus having renewal income more than the first year premium. The
management of ICICI Prudential Life Insurance Company Ltd. is suggested to
increase the renewal premium amount to compete with the Life Insurance
Corporation of India and other life insurance companies in India.
 Data Analysis And Interpretation 163

6.4 PERFORMANCE OF LIFE INSURANCE COMPANIES

The insurance sector in India is opened for the private players since 2000. The
insurance industry has witnessed dynamic changes. Most of the private players have
formed joint ventures partnering well-recognized foreign players across the globe.
The entry of private life insurance companies in life insurance sector has increased
the competition. In India, there is about 200 million middle class household, which
shows a huge untapped potential in the life insurance industry for the private players.
Indian insurance market has high potential and competitiveness. A few years back,
insurance was the tax saving device for the Indians, but the entry of the private
players has changed the mentality of Indian consumers. Now, the Indian consumers
are attracted towards the innovative insurance products offered by the insurance
companies. Insurance is now a tool of investment as well. Consumers are the most
important factor of the insurance industry. After the entry of private players, the
Indian insurance industry has not only witnessed the competition but also the
improvements of consumer services as well. Entry of private players has increased
the use of information technology in insurance sector. Computerization of operations
and updating of technology is the best part of the insurance industry at present. By the
use of information technologies, the insurance companies are able to provide the
quick and better services to the consumers. Presently 24 insurance companies are
operating in India.

Table 6.19
Performance of Life Insurance Industry based on First Year Premium
(Including Single Premium)
(In Crore)
Finan LIC Growt Index Private Growth Index Industry Grow Index
cial h% Life % Total th %
Year Insurance
Compani
es
2002- 15976.76 _ 100 965.69 _ 100 16942.45 _ 100
03
2003- 17347.62 8.58 108.58 2440.71 152.74 252.74 19788.33 16.80 116.80
04
 Data Analysis And Interpretation 164

2004- 20653.06 19.05 129.27 5564.57 127.99 576.23 26217.63 32.49 154.75
05

2005- 28515.87 38.07 178.48 10269.67 84.55 1063.45 38785.54 47.94 228.93
06
2006- 56223.56 97.17 351.91 19425.65 89.16 2011.58 75649.21 95.04 446.51
07

2007- 59996.57 6.71 375.52 33715.95 73.56 3491.38 93712.52 23.88 553.12
08

2008- 53179.08 -11.36 332.85 34152 1.29 3536.54 87331.08 -6.81 515.46
09

2009- 71521.9 34.49 447.66 38372.01 12.36 3973.53 109893.91 25.84 648.63
10

2010- 87012.35 21.66 544.62 39385.84 2.64 4078.52 126398.19 15.02 746.04
11

2011- 81862.25 -5.92 512.38 32079.92 -18.55 3321.97 113942.17 -9.85 672.52
12

ACG 20.85 52.57 24.03

R
Source: Annual Reports of IRDA 2002-03 to 2011-12.

Graph 6.10
Performance of Life Insurance Industry based on First Year Premium
(Including Single Premium)

140000

120000

100000

LIC
80000

60000 Private Life Insurance

Companies
40000 Industry Total

20000

0
 Data Analysis And Interpretation 165

Above table 6.19 and graph 6.10 reveals the performance of LIC, private life
insurance players and total life insurance industry. LIC is showing positive growth in
terms of first year premium from the year 2002-03 to 2007-08. LIC registered
Rs.17347.62 crore first year premium in the year 2003-04, which is 8.58% higher as
compare to the 2002-03. In 2004-05 LIC registered 19.05% growth in first year
premium. In the year 2005-06 the first year premium was Rs.28515.87 crore with
38.07% growth rate. The first year premium was Rs.56223.56 crore in the year 2006-
07 with 97.17% growth rate, which was the highest growth rate of LIC during the
study period. In the year 2007-08 the growth rate was decreased and LIC registered
Rs. 59996.57 crore first year premium which was only 6.71% higher than 2006-07. In
the year 2008-09 LIC registered negative growth of -11.36% but in 2009-10 the
growth rate was 34.49% with first year premium of Rs.71521.9 crore. In 2010-11 the
growth rate of LIC was positive but in the year 2011-12 the first year premium of LIC
was Rs.81862.25 crore with negative growth of -5.92% over previous year. The
annual compound growth rate of LIC is 20.85%. During the study period it is
observed that for five years the growth rate of LIC was below annual compound
growth rate. LIC is showing highest growth rate in the year 2006-07.

Private life insurance companies registered Rs.2440.71 crore first year

premium in the year 2003-04, which is 152.74% higher as compare to the 2002-03. In
2004-05 private life insurance companies registered 127.99% growth in first year
premium. In the year 2005-06 the first year premium was Rs.10269.67 crore with
84.55% growth rate. The first year premium was Rs.19425.65 crore in the year 2006-
07 with 89.16% growth rate. In the year 2007-08 the growth rate was decreased and
private life insurance companies registered Rs. 33715.95 crore first year premium
which was only 73.56% higher than 2006-07. In the year 2008-09 private life
insurance companies registered growth of 1.29% but in 2009-10 the growth rate was
12.36% with first year premium of Rs.38372.01 crore. In 2010-11 the growth rate of
private life insurance companies was positive but in the year 2011-12 the first year
premium of private life insurance companies was Rs.32079.92 crore with negative
growth of -18.55% over previous year. The annual compound growth rate of private
 Data Analysis And Interpretation 166

life insurance companies is 52.57%. During the study period it is observed that for
four years the growth rate of private life insurance companies was below annual
compound growth rate. Annual compound growth rate of private life insurance
companies is higher as compare to the LIC.

Total life insurance industry is showing increasing trend in first year premium
but in the year 2008-09 the industry registered negative growth of -6.81% over
previous year with first year premium of Rs.87331.08 crore. The life insurance
industry registered positive growth in 2009-10 and 2010-11but registered first year
premium of Rs.113942.1 crore with negative growth of -9.85%. The annual
compound growth rate of life insurance industry is 24.03%. During the study period it
is observed that for five years the growth rate of private life insurance companies was
below annual compound growth rate.

Table 6.20
Market share of life insurance companies in percent based on First Year
Premium (Including Single Premium)
(In Percentage)
Financial Year LIC Private Life Insurance
Companies
2002-03 94.30 5.70

2003-04 87.67 12.33

2004-05 78.78 21.22

2005-06 73.52 26.48

2006-07 74.32 25.68

2007-08 64.02 35.98

2008-09 60.89 39.11

 Data Analysis And Interpretation 167

2009-10 65.08 34.92

2010-11 68.84 31.16

2011-12 71.85 28.15

Average ( ) 73.93 26.07

Source: Annual Reports of IRDA 2002-03 to 2011-12.

Graph 6.11
Market share of life insurance companies in percent based on First Year
Premium (Including Single Premium)

100

90

80

70

60

50 LIC

40
Private Life Insurance
30 Companies

20

10

Above table 6.20 and graph 6.11 reveals the market share of LIC and other
private life insurance companies from the year 2002-03 to 2011-12 in terms of first
year premium (including single premium). From the year 2002-03 the market share of
LIC started decreasing due to the new innovative life insurance products offered by
the private life insurance companies. From the year 2009-10 the market share of LIC
is showing positive growth in terms of first year premium. The customers are going
back to LIC in recent years. On the other hand private life insurance companies
 Data Analysis And Interpretation 168

offered various innovative schemes to the customers with attractive returns at the
beginning but actually not providing the sufficient returns. Average market share of
LIC is 73.93% and average market share of private life insurance companies is
26.07% on the basis of first year premium.

Observation:

Hypothesis (H0):

“There is no significant effect on the performance of LIC after the entry of private
players.”

Calculate t-Value is = 10.129239

P –Value is <0.00001

Table Value of t at 5% level (d.f.=18) =2.101

Calculated value of “t” test is more than the table value so null hypothesis is
rejected. Hence it can be concluded that there is significant effect on the performance
of LIC after the entry of private life insurance companies in life insurance sector of
India. Now, in life insurance sector, LIC is facing competition of private players. It
can be seen that at one side, there is an established government owned Life Insurance
Corporation of India and on the other side, private companies in partnership of
foreign companies made the market competitive. Companies of both sides are
engaged in capturing Indian insurance market.

Table 6.21
Performance of Life Insurance Industry based on Renewal Premium
(In Crore)
Fina LIC Grow Index Private Growt Index Industry Grow Index
ncial th % Life h% Total th %
Year Insurance
Compani
es
2002 38651.73 _ 100 153.37 _ 100 38805.1 _ 100
 Data Analysis And Interpretation 169

-03
2003 46185.81 19.49 119.49 679.62 343.12 443.12 46865.43 20.77 120.77
-04
2004 54474.23 17.95 140.94 2162.94 218.26 1410.28 56637.17 20.85 145.95
-05
2005 62276.35 14.32 161.12 4813.87 122.56 3138.73 67090.22 18.46 172.89
-06
2006 71599.28 14.97 185.24 8827.35 83.37 5755.59 80426.63 19.88 207.26
-07
2007 89793.42 25.41 232.31 17845.47 102.16 11635.57 107638.9 33.83 277.38
-08
2008 104108.96 15.94 269.35 30345.43 70.05 19785.77 134454.4 24.91 346.49
-09
2009 114555.41 10.03 296.38 40997.93 35.10 26731.39 155553.3 15.69 400.86
-10
2010 116461.05 1.66 301.31 48779.4 18.98 31805.05 165240.5 6.23 425.82
-11
2011 121027.03 3.92 313.12 52102.91 6.81 33972.03 173129.9 4.77 446.15
-12
AC 12.37 100.04 16.54
GR
Source: Annual Reports of IRDA 2002-03 to 2011-12.
 Data Analysis And Interpretation 170

Graph 6.12
Performance of Life Insurance Industry based on Renewal Premium

200000
180000
160000
140000
120000 LIC
100000
Private Life Insurance
80000
Companies
60000
Industry Total
40000
20000
0

Above table 6.21 and graph 6.12 reveals the performance of LIC, private life
insurance players and total life insurance industry. In terms of renewal premium, LIC
is showing positive growth in each year during the study period, as LIC is the oldest
player in life insurance industry and renewal premium is the major source of income
for LIC. Renewal premium of LIC was registered Rs.46185.81 crore in 2003-04,
which was 19.49% higher as compare to 2002-03. In 2004-05 and 2005-06 LIC
registered growth rate of 17.95% and 14.32% respectively. In 2006-07 the renewal
premium of LIC was Rs.71599.28 crore which was 14.97% higher as compare to
2005-06. The growth rate of LIC was increased in 2007-08 with 25.41%, which was
the highest recorded growth rate of LIC in terms of renewal premium during the study
period. The growth rate of LIC is showing decreasing trend from 2008-09 to 2010-11
and registered minimum growth rate of 1.66% in the year 2010-11. In 2011-12 the
renewal premium of LIC was Rs.121027.03 crore which was 3.92% higher as
compare to 2010-11.Maximum growth rate of 25.41% was recorded in the year 2007-
08 and minimum was 1.66% in the year 2010-11. The annual compound growth rate
of LIC is 12.37%. During the study period, growth rate of LIC is recorded below
annual compound growth rate in three years.
 Data Analysis And Interpretation 171

Private Life Insurance Companies are showing positive growth in terms of

renewal premium in each year of the study period, as they are getting older in the life
insurance industry and the amount of renewal premium is showing increasing trend
but the growth rate of private players is showing decreasing trend. Highest growth
rate was recorded in 2003-04 with 343.12% and the lowest growth rate was recorded
in 2011-12 with 6.81%. Annual compound growth rate of private players is 100.04%
and during the study period, the growth rate of private life insurance companies
recorded below annual compound growth rate in five years.

Total life insurance industry is showing positive growth in terms of renewal

premium but the growth rate is showing fluctuating trend. The growth rate has shown
increasing trend in 2003-04 and 2004-05 but decreased in 2005-06 and recorded
18.46% growth. In 2006-07 and 2007-08, the growth rate is showing increasing trend
but showing decreasing trend from 2008-09 to 2011-12. The highest growth rate was
recorded 33.83% in 2007-08 and lowest growth rate was recorded 4.77% in 2011-12.
The annual compound growth rate of life insurance industry is 16.54%. During the
study period, the growth rate of life insurance industry was below annual compound
growth rate in three years.

Table 6.22
Market share of life insurance companies in percent (based on Renewal
Premium)
(In Percentage)
Financial Year LIC Private Life Insurance
Companies
2002-03 99.60 0.40

2003-04 98.55 1.45

2004-05 96.18 3.82

2005-06 92.82 7.18

2006-07 89.02 10.98

 Data Analysis And Interpretation 172

2007-08 83.42 16.58

2008-09 77.43 22.57

2009-10 73.64 26.36

2010-11 70.48 29.52

2011-12 69.91 30.09

Average ( ) 85.11 14.90

Source: Annual Reports of IRDA 2002-03 to 2011-12.

Graph 6.13
Market share of life insurance companies in percent (based on Renewal
Premium)

120

100

80

60 LIC

Private Life Insurance

40
Companies

20

Above table 6.22 and graph 6.13 reveals the market share of LIC and other
private life insurance companies from the year 2002-03 to 2011-12 in terms of
renewal premium. LIC is the oldest life insurance player in life insurance industry
 Data Analysis And Interpretation 173

thus the renewal premium is the major source of income for LIC. The market share of
LIC is showing decreasing trend in the whole study period as the private players are
getting older and also having their renewal premium from the running old policies.
Thus the market share of private life insurance companies is getting increase in terms
of renewal premium. Average market share of LIC is 85.11% and average market
share of private life insurance companies is 14.90% on the basis of renewal premium.

Observation:

Hypothesis (H0):

“There is no significant effect on the performance of LIC after the entry of private
players.”

Calculate t-Value is = 13.449266

P –Value is <0.00001

Table Value of t at 5% level (d.f.=18) =2.101

Calculated value of “t” test is more than the table value so null hypothesis is
rejected. Hence it can be concluded that there is significant effect on the performance
of LIC after the entry of private life insurance companies in life insurance sector of
India. Now, in life insurance sector, LIC is facing competition of private players. It
can be seen that at one side, there is an established government owned Life Insurance
Corporation of India and on the other side, private companies in partnership of
foreign companies made the market competitive. Companies of both sides are
engaged in capturing Indian insurance market.

Table 6.23

Performance of Life Insurance Industry based on Total Premium

(In Crore)
Fina LIC Grow Index Private Growt Index Industry Grow Index
ncial th % Life h% Total th %
 Data Analysis And Interpretation 174

Year Insurance
Compani
es
2002 54628.49 _ 100 1119.06 _ 100 55747.55 _ 100
-03
2003 63533.43 16.30 116.30 3120.33 178.83 278.83 66653.76 19.56 119.56
-04
2004 75127.29 18.25 137.52 7727.51 147.65 690.54 82854.8 24.31 148.63
-05
2005 90792.22 20.85 166.20 15083.54 95.19 1347.88 105875.76 27.78 189.92
-06
2006 127822.84 40.79 233.99 28253 87.31 2524.71 156075.84 47.41 279.97
-07
2007 149789.99 17.19 274.20 51561.42 82.50 4607.57 201351.41 29.01 361.18
-08
2008 157288.04 5.01 287.92 64497.43 25.09 5763.54 221785.47 10.15 397.84
-09
2009 186077.31 18.30 340.62 79369.94 23.06 7092.55 265447.25 19.69 476.16
-10
2010 203473.4 9.35 372.47 88165.24 11.08 7878.51 291638.64 9.87 523.14
-11
2011 202889.28 -0.29 371.40 84182.83 -4.52 7522.64 287072.11 -1.57 514.95
-12
AC 14.58 64.62 18.62
GR
Source: Annual Reports of IRDA 2002-03 to 2011-12.
 Data Analysis And Interpretation 175

Graph 6.14
Performance of Life Insurance Industry based on Total Premium

350000

300000

250000

LIC
200000

150000 Private Life Insurance

Companies
100000 Industry Total

50000

Above table 6.23 and graph 6.14 reveals the performance of LIC, private life
insurance players and total life insurance industry. In terms of total premium, LIC is
showing positive growth from 2002-03 to 2010-11 but negative growth in 2011-12. In
2003-04 the total premium of LIC was 63533.43 crore, which was 16.30% higher as
compare to 2002-03. The growth rate is showing increasing trend from 2003-04 to
2006-07. In 2007-08 total premium of LIC was Rs.149789.99 crore with growth rate
of 17.19%. In 2008-09 the growth rate was 5.01%. Total premium of LIC in 2009-10
was Rs.186077.31 crore with 18.30% growth rate but in 2010-11 the growth rate was
registered in 2006-07 and lowest was registered in 2011-12. Annual compound
growth rate of LIC is 14.58% and in three years during the study, the growth rate was
recorded below annual compound growth rate.

Private Life Insurance Companies registered positive growth in terms of total

premium from 2002-03 to 2010-11 but registered negative growth in 2011-12.
Maximum growth rate of 178.83% was registered in 2003-04 with total premium of
Rs.3120.33 crore. The growth rate of private life insurance companies showing
 Data Analysis And Interpretation 176

decreasing trend in each year of the study period and registered lowest growth rate of
-4.52% in the year 2011-12. Annual compound growth rate of private players is 64.62
and during the study period, the growth rate was below annual compound growth rate
in four years.

Life Insurance Industry is showing positive growth from 2002-03 to 2010-11

but registered negative growth in 2011-12. The growth rate of total industry is
showing increasing trend from 2003-04 to 2006-07 and registered highest growth rate
of 47.41% in 2006-07. In 2007-08 and 2008-09 the growth rate of life insurance
industry is showing decreasing trend. In 2009-10 life insurance industry registered
Rs.265447.25 crore total premium with 19.69% growth rate. In 2010-11 and 2011-12
the growth rate of industry was decreased and minimum growth rate -1.57% was
registered in 2011-12. Annual compound growth rate of life insurance industry is
18.62% and during the study period, the growth rate was below annual compound
growth rate in 3 years.

Table 6.24
Market share of life insurance companies in percent (based on Total Premium)
(In Percentage)
Financial Year LIC Private Life Insurance
Companies
2002-03 97.99 2.01

2003-04 95.32 4.68

2004-05 90.67 9.33

2005-06 85.75 14.25

2006-07 81.90 18.10

2007-08 74.39 25.61

 Data Analysis And Interpretation 177

2008-09 70.92 29.08

2009-10 70.10 29.90

2010-11 69.78 30.22

2011-12 70.68 29.32

Average ( ) 80.75 19.25

Source: Annual Reports of IRDA 2002-03 to 2011-12.

Graph 6.15
Market share of life insurance companies in percent (based on Total Premium)

120

100

80

60 LIC

Private Life Insurance

40 Companies

20

Above table 6.24 and graph 6.15 shows the market share of LIC and other
private life insurance companies from the year 2002-03 to 2011-12 in terms of total
premium. Before the year 2000, LIC was the only player in the life insurance industry
and was having 100% market share but after the entry of private life insurance
companies, the market share of LIC decreased. The market share of LIC is decreasing
 Data Analysis And Interpretation 178

every year but still having the maximum market share and having a leading position
in the life insurance industry. On the other hand private life insurance companies are
growing positively in the life insurance sector of India but still they are far behind as
compare to LIC. Average market share of LIC is 80.75% and average market share of
private life insurance companies is 19.25% on the basis of total premium.

Observation:

Hypothesis (H0):

“There is no significant effect on the performance of LIC after the entry of private
players.”

Calculate t-Value is = 12.40252

P –Value is <0.00001

Table Value of t at 5% level (d.f.=18) =2.101

Calculated value of “t” test is more than the table value so null hypothesis is
rejected. Hence it can be concluded that there is significant effect on the performance
of LIC after the entry of private life insurance companies in life insurance sector of
India. Now, in life insurance sector, LIC is facing competition of private players. It
can be seen that at one side, there is an established government owned Life Insurance
Corporation of India and on the other side, private companies in partnership of
foreign companies made the market competitive. Companies of both sides are
engaged in capturing Indian insurance market.
 Data Analysis And Interpretation 179

Table 6.25

Number of individual New Policies Issued

(In Lakhs)
Financi LIC Growt Index Private Growth Index Industr Growt Index
al Year h% Life % y Total h%
Insurance
Companie
s
2002- 245.46 _ 100 8.25 _ 100 253.71 _ 100
03
2003- 269.68 9.87 109.87 16.59 101.09 201.09 286.27 12.83 112.83
04
2004- 239.78 -11.09 97.69 22.33 34.60 270.67 262.11 -8.44 103.31
05
2005- 315.91 31.75 128.70 38.71 73.35 469.21 354.62 35.29 139.77
06
2006- 382.29 21.01 155.74 79.22 104.65 960.24 461.51 30.14 181.90
07
2007- 376.13 -1.61 153.23 132.62 67.41 1607.52 508.75 10.24 200.52
08
2008- 359.13 -4.52 146.31 150.11 13.19 1819.52 509.24 0.10 200.72
09
2009- 388.63 8.21 158.33 143.62 -4.32 1740.85 532.25 4.52 209.79
10
2010- 370.38 -4.70 150.89 111.14 -22.62 1347.15 481.52 -9.53 189.79
11
2011- 357.51 -3.47 145.65 84.42 -24.04 1023.27 441.93 -8.22 174.19
12
ACGR 4.55 34.32 6.69

Source: Annual Reports of IRDA 2002-03 to 2011-12.

 Data Analysis And Interpretation 180

Graph 6.16
Number of individual New Policies Issued

600

500

400
LIC
300
Private Life Insurance
Companies
200
Industry Total

100

Above table 6.25 and graph 6.16 reveals the performance of LIC, private life
insurance companies and life insurance industry on the basis of number of new
policies issued during the years under study. In 2003-04 LIC issued 269.68 lakhs new
policies, which is 9.87% higher as compare to 2002-03. In 2004-05 LIC registered
negative growth of -11.09% but in 2005-06, LIC issued 315.91 lakhs new policies,
which was 31.75% higher as compare to 2004-05. In 2006-07 LIC issued 382.29
lakhs new policies and recorded negative growth of -1.61% in 2007-08. In 2008-09
LIC issued 359.13 lakhs new policies with negative growth rate of -4.52%. In 2009-
10 LIC recorded positive growth rate of 8.21% and negative growth rate was recorded
in 2010-11 and 2011-12. Highest growth rate of 31.75%was recorded in 2005-06.
Annual compound growth rate of LIC was 4.55%. During the study period, the
growth rate of LIC was recorded below annual compound growth rate in five years.

Private Life Insurance Companies issued 16.59 lakhs new policies in 2003-04
which is 101.05% higher as compare to 2002-03. The growth rate of private players
was 34.62% in 2004-05 and showing increasing trend in 2005-06 and 2006-07. In
 Data Analysis And Interpretation 181

2007-08 private players issued 132.62 lakhs new policies with 67.40% growth. In
2008-09 the growth rate was decreased and only 150.11 lakhs policies were issued by
private players. Private players recorded negative growth rate from 2009-10 to 2011-
12. Annual compound growth rate of private players is 34.32%. During the study
period, the growth rate of private players was recorded below annual compound
growth rate in four years.

Life insurance industry issued 286.27 lakhs new policies with 12.83% growth
rate in 2003-04. In 2004-05 industry recorded negative growth rate of -8.44%. In
2005-06 industry recorded maximum growth with 35.29% growth rate and 30.14%
growth rate was recorded in 2006-07. In 2007-08 and 2008-09 the growth rate of total
industry is showing decreasing trend. In 2009-10 total life insurance players issued
532.25 lakhs new policies with 4.52% growth rate and recorded negative growth rate
in 2010-11 and 2011-12. Annual compound growth rate of total life insurance
industry is 6.69%. During the study period, the growth rate of insurance industry was
recorded below annual compound growth rate in five years.

Table 6.26
Market share of life insurance companies in percent based on Number of
individual new policies issued
(In Percentage)
Financial Year LIC Private Life Insurance
Companies
2002-03 96.75 3.25

2003-04 94.20 5.80

2004-05 91.48 8.52

2005-06 89.08 10.92

2006-07 82.83 17.17

2007-08 73.93 26.07

 Data Analysis And Interpretation 182

2008-09 70.52 29.48

2009-10 73.02 26.98

2010-11 76.92 23.08

2011-12 80.90 19.10

Average ( ) 82.96 17.04

Source: Annual Reports of IRDA 2002-03 to 2011-12.

Graph 6.17
Market share of life insurance companies in percent based on Number of
individual new policies issued

120

100

80

60 LIC

Private Life Insurance

40
Companies

20

Above table 6.26 and graph 6.17 shows the market share of LIC and other
private life insurance companies from the year 2002-03 to 2011-12 in terms of
number of insurance policies issued. The market share of LIC is decreasing from the
year 2002-03 to 2008-09 and showing increasing trend from the year 2009-10 to
2011-12. LIC is having market share and having a leading position in the life
 Data Analysis And Interpretation 183

insurance industry. On the other hand private life insurance companies are growing
positively in the life insurance sector of India but still they are far behind as compare
to LIC. Average market share of LIC is 82.96% and average market share of private
life insurance companies is 17.04% on the basis of number of individual new policies
issued.

Observation:

Hypothesis (H0):

“There is no significant effect on the performance of LIC after the entry of private
players.”

Calculate t-Value is = 15.6125

P –Value is <0.00001

Table Value of t at 5% level (d.f.=18) =2.101

Calculated value of “t” test is more than the table value so null hypothesis is
rejected. Hence it can be concluded that there is significant effect on the performance
of LIC after the entry of private life insurance companies in life insurance sector of
India. Now, in life insurance sector, LIC is facing competition of private players. It
can be seen that at one side, there is an established government owned Life Insurance
Corporation of India and on the other side, private companies in partnership of
foreign companies made the market competitive. Companies of both sides are
engaged in capturing Indian insurance market.