INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY...

ANNUAL REPORT 2009-10

ANNUAL REPORT2009-10

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INSURANCE REGULATORY AND DEVELOPMENT AUTHORITYINDIA

Website: www.irda.gov.inE-mail: [email protected]

Head Office3rd Floor, Parishram BhavanBasheerbagh, Hyderabad 500 004,INDIA.Phone : +91-40-2338 1100 / 1300Fax : +91-40-6682 3334

Delhi Office1st Floor, Jeevan Tara, Parliament Street

New Delhi 110 001,INDIA

Phone : +91-11-2374 7648Fax : +91-11-2374 7650


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LETTER OF TRANSMITTAL

To November 24, 2010The Secretary,Department of Financial ServicesMinistry of Finance3rd Floor, Jeevan Deep BuildingParliament StreetNew Delhi 110 001

Sir,

In accordance with the provisions of Section 20 of the Insurance Regulatory and Development Authority Act, 1999, weare sending herewith a copy of the Annual Report of the Authority for the financial year ended 31st March, 2010 in theformat prescribed in the IRDA (Annual Report Furnishing of returns, statements and other particulars) Rules, 2000,notified on 14th June, 2000 in Part II of Section 3, Sub Section (ii) of the Gazette of India, Extraordinary.

Yours faithfully,

(J. HARI NARAYAN)

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Parishram Bhavan, 3rd Floor, Basheer Bagh, Hyderabad-500 004. INDIA.Ph. : +91-40-6682 0957, Fax: 91-40-6682 3334

E-mail : [email protected] Web.: www.irda.gov.in

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CONTENTS

MISSION STATEMENT

TEAM AT IRDA

OVERVIEW ... 1

PART IPOLICIES AND PROGRAMMES

1. General Economic Environment ... 92. World Insurance Scenario ... 103. Appraisal of Indian Insurance Market ... 144. Review

4.1 Protection of Interests of Policyholders ... 304.2 Maintenance of Solvency Margins of Insurers ... 344.3 Monitoring of Reinsurance ... 354.4 Insurance Pools ... 374.5 Monitoring of Investments by the Insurers ... 404.6 Health Insurance ... 434.7 Business in the Rural and Social Sector ... 484.8 Financial Reporting and Actuarial Standards ... 494.9 Anti-Money Laundering/Counter-Financing of Terrorism ... 534.10 Crop Insurance ... 534.11 Micro Insurance ... 544.12 Directions, Orders and Regulations issued by the Authority ... 574.13 Right to Information Act ... 57

PART IIREVIEW OF WORKING AND OPERATIONS

1. Regulation of Insurance and Reinsurance Companies ... 59

2 Intermediaries associated with the Insurance Business ... 59

3. Litigations, Appeals and Court Pronouncements ... 64

4. International Cooperation in Insurance ... 66

5. Public Grievances ... 67

6. Insurance Association and Insurance Councils ... 70

7. Functioning of Ombudsmen ... 74


PART IIISTATUTORY AND DEVELOPMENTAL FUNCTIONS OF THE AUTHORITY

1. Issue to the applicant a certificate of registration, renew, ... 75modify, withdraw, suspend or cancel such registration

2. Protection of the interests of policyholders in matters concerning assigning ... 76of policy, nomination by policyholders, insurable interest, settlement ofinsurance claim, surrender value of policy and other termsand conditions of contracts of insurance

3. Specifying requisite qualifications, code of conduct and practical ... 76training for intermediaries or insurance intermediaries and agents

4. Specifying the code of conduct for surveyors and loss assessors ... 76

5. Promoting efficiency in the conduct of insurance business ... 77

6. Promoting and regulating professional organisations ... 77connected with insurance and reinsurance business

7. Levying fees and other charges for carrying out the purposes of the Act ... 78

8. Calling for information from, undertaking inspection of, ... 78conducting enquiries and investigations including audit of the insurers,intermediaries, insurance intermediaries and other organisationsconnected with the insurance business

9. Control and regulation of rates, advantages, terms and conditions that ... 78may be offered by the insurers in respect of general insurancebusiness not so controlled and regulated by the Tariff Advisory Committeeunder Section 64U of the Insurance Act,1938 (4 of 1938)

10. Specifying the form and manner in which books of accounts shall be ... 78maintained and statements of accounts shall be rendered by insurersand other insurance intermediaries

11. Regulating investment of funds by insurance companies ... 79

12. Regulating maintenance of margin of solvency ... 80

13. Adjudication of disputes between Insurers and Intermediaries or Insurance Intermediaries ... 80

14. Supervising the functioning of the Tariff Advisory Committee (TAC) ... 81

15. Specifying the percentage of the premium income of the insurer to ... 81finance schemes for promoting and regulating professionalorganisations referred to in clause (6)

16. Specifying the percentage of life insurance business and general ... 81insurance business to be undertaken by the insurers in the rural and social sector

17. Exercising such other powers as may be prescribed ... 82

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PART IVORGANISATIONAL MATTERS

1. Organisation ... 832. Meetings of the Authority ... 833. Human Resources ... 834. Promotion of Official Language ... 835. Research & Development ... 836. Status of Information Technology in IRDA ... 847. Accounts ... 868. IRDA Journal ... 869. Acknowledgements ... 86

BOX ITEMS

1 Profitability of Life and Non-Life Insurers ... 212. ULIP New Guidelines ... 313. Initiatives in the area of Policyholders Grievance Redressal ... 334. Innovations in Health Insurance ... 445. Public Disclosures The Regulatory Perspective ... 50

TEXT TABLES1. Real Growth in Premium during 2009 ... 102. Insurance Penetration and Density in India ... 133. Registered Insurers in India ... 144. Premium Underwritten by Life Insurers ... 155. Market Share of Life Insurers ... 166. New Policies Issued : Life Insurers ... 167. Paid-up Capital : Life Insurers ... 178. Commission Expenses : Life Insurers ... 179. Commission Expenses Ratio : Life Insurers ... 1710. Operating Expenses : Life Insurers ... 1811. Operating Expenses Ratio : Life Insurers ... 1812. Individual Death Claims : Life Insurers ... 1813. Group Death Claims : Life Insurers ... 1914. Dividends Paid : Life Insurers ... 2015. Number of Life Insurance Offices ... 2016. Distribution of Offices of Life Insurers ... 2117. Gross Direct Premium Income in India : Non-Life Insurers ... 2318. Gross Direct Premium Income in India (Company-wise) ... 2419. Premium (Within India) Underwritten by Non-Life Insurers - Segment Wise ... 2420. Ratio of Outside India Premium to Total Premium ... 2521. Gross Direct Premium from business outside India : Non Life Insurers ... 2522. New Policies Issued : Non-Life Insurers ... 2523. Paid up Capital : Non-Life Insurers and Reinsurer ... 2624. Underwriting Losses : Non-Life Insurers ... 2625. Commission Expenses : Non-Life Insurers ... 2626. Operating Expenses : Non-Life Insurers ... 27

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27. Net Incurred Claims : Non-Life Insurers ... 2728. Incurred Claims Ratio (Segment wise) ... 2829. Investment Income : Non-Life Insurers ... 2830. Net Profits/Losses : Non-Life Insurers ... 2831. Dividends Paid : Non-Life Insurers ... 2932. Net Retained Premium on Indian Business as per cent of ... 35

Gross Direct Premium (excluding GIC)33. Reinsurance placed within India and outside India as per cent of ... 35

Gross Direct Premium in India34. Reinsurance ceded outside India on Indian business ... 3635. Share of member companies in the Indian Terrorism Pool ... 3736. Premium Rates for Terrorism Risk Insurance (w.e.f 1st April, 2010) ... 3837. Mid-Term Cover for Terrorism Risk Insurance (w.e.f 1st April, 2009) ... 3838. Development Pattern of Goods Carrying Vehicles ... 4039. Development Pattern of Passengers Carrying Vehicles ... 4040. Investments of the Insurance Sector ... 4041. Investments of Life Insurers : Instrument-Wise ... 4142. Investments of Life Insurers : Fund-Wise ... 4243. Growth of Investments: Fund-Wise ... 4244. Investments of Non-Life Insurers : Instrument-Wise ... 4245. Health Insurance Premium - 2005-2010 ... 4346. Third Party Administrators Licences Renewed during 2009-10 ... 4647. Third Party Administrators Infrastructure (2009-10) ... 4748. Third Party Administrators - Claims Data ... 4849. New Business under Micro Insurance Portfolio for 2009-10 ... 5550. Micro Insurance Agents of Life Insurers ... 5551. Group Death Claims under Micro Insurance Portfolio - 2009-10 ... 5652. Individual Death Claims under Micro Insurance Portfolio - 2009-10 ... 5653. Duration-Wise Settlement of Death Claims Settled in ... 56

Micro Insurance Individual Category - 2009-1054. Duration-Wise Settlement of Death Claims Settled in ... 57

Micro Insurance Group Category - 2009-1055. Details of Individual Agents : Life Insurers ... 5956. Details of Corporate Agents : Life Insurers ... 6057. Individual New Business Performance of Life Insurers for 2009-10 - Channel Wise ... 6158. Group New Business Performance of Life Insurers for 2009-10 - Channel Wise ... 6259. New Business Premium (Individual and Group) of Life Insurers for 2009-10 - Channel Wise ... 6360. Number of Licences issued to Surveyors and Loss Assessors ... 6461. Grievances related to Surveyors and Loss Assessors ... 6462. Details of Cases Filed ... 6463. Petition / Cases Disposed / Dismissed ... 6564. Committees / Sub-Committees of IAIS ... 6765. Status of Grievances: Life Insurers ... 6766. Break-up of Complaints Lodged with Grievances Cell (Life Insurance) during 2009-10 ... 6867. Status of Grievances - Life Insurers (April-June 2010) ... 6968. Status of Grievances - Non Life Insurers during 2009-10 ... 6969. Status of Grievances - Non-Life Insurers (April-June 2010) ... 7070. Disposal of Complaints by Ombudsmen ... 7471. Penalty Levied on Insurers ... 75

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LIST OF STATEMENTS1. International Comparison of Insurance Penetration ... 892. International Comparison of Insurance Density ... 903. First Year Life Insurance Premium ... 914. Total Life Insurance Premium ... 925. Individual New Business Performance of Life Insurers - Channel Wise ... 936. Group New Business Performance of Life Insurers - Channel Wise ... 957. State Wise Individual New Business Underwritten ... 978. Individual Business (Within India) - Business in Force - Number of Policies ... 1009. Individual Business (Within India) - Business in Force - Sum Assured ... 10110. Linked and Non-Linked Premium of Life Insurers ... 10211. Linked and Non-Linked Commission of Life Insurers ... 10412. Individual Death Claims ... 10513. Group Death Claims ... 10714. Duration Wise Settlement of Death Claims - Individual Category ... 10915. Duration Wise Settlement of Death Claims - Group Category ... 11016. Assets Under Management of Life Insurers ... 11117. Equity Share Capital of Life Insurers ... 11418. Solvency Ratio of Life Insurers ... 11519. Life Insurers - Policyholders Account ... 11620. Life Insurers - Shareholders Account ... 11921. Life Insurers - Balance Sheet ... 12222. Life Insurance Corporation of India - Policyholders Account (Non-Participating) ... 12523. Life Insurance Corporation of India - Shareholders Account (Non-Participating) ... 12624. Life Insurance Corporation of India - Balance Sheet (Non-Participating) ... 12725. Individual Business - Details of Forfeiture/Lapsed Policies in respect of Non-Linked Business .. 12826. Details of Individual Agents of Life Insurers ... 12927. Details of Corporate Agents of Life Insurers ... 13028. State Wise Distribution of Offices of Life Insurers ... 13129. Region Wise Distribution of Offices of Life Insurers ... 13230. State Wise Distribution of Individual Agents ... 13331. New Business Under Micro Insurance Portfolio ... 13432. Death Claims Under Micro Insurance Portfolio - Individual Category ... 13533. Death Claims Under Micro Insurance Portfolio - Group Category ... 13734. Duration Wise Settlement of Micro Insurance Claims - Individual Category ... 13935. Duration Wise Settlement of Micro Insurance Claims - Group Category ... 14036. Company Wise number of Micro Insurance Agents ... 14137. List of Micro Insurance Products of Life Insurers ... 14238. Gross Direct Premium : Non-Life Insurance (Within & Outside India) ... 14339. Segment Wise Gross Direct Premium Income of Non-Life Insurers (within India) ... 14440. Segment Wise Net Premium Income (Earned) ... 14541. Channel Wise Gross Direct Premium Income of Non Life Insurers ... 14642. State Wise Gross Direct Premium Income ... 14743. Net Retentions of Non Life Insurers ... 14844. Incurred Claims Ratio - Public Sector Non-Life Insurers ... 14945. Incurred Claims Ratio - Private Sector Non-Life Insurers ... 150

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46. Underwriting Experience and Profits of Public Sector Companies ... 15147. Underwriting Experience and Profits of Private Sector Companies ... 15248. Assets Under Management of Non-Life Insurers ... 15449. Equity Share Capital of Non-Life Insurers ... 15550. Solvency Ratio of Non-Life Insurers ... 15651. Public Sector Non-Life Insurers - Policyholders Account ... 15752. Public Sector Non-Life Insurers - Shareholders Account ... 15953. Public Sector Non-Life Insurers - Balance Sheet ... 16054. Private Sector Non-Life Insurers - Policyholders Account ... 16155. Private Sector Non-Life Insurers - Shareholders Account ... 16656. Private Sector Non-Life Insurers - Balance Sheet ... 16857. Health Insurers - Policyholders Account ... 17058. Health Insurers - Shareholders Account ... 17159. Health Insurers - Balance Sheet ... 17260. Export Credit Guarantee Corporation Ltd. (ECGC) - Policyholders Account ... 17361. Export Credit Guarantee Corporation Ltd.(ECGC) - Shareholders Account ... 17462. Export Credit Guarantee Corporation Ltd. (ECGC) Balance Sheet ... 17563. Agriculture Insurance Company of India Ltd. (AIC) - Policyholders Account ... 17664. Agriculture Insurance Company of India Ltd. (AIC) - Shareholders Account ... 17765. Agriculture Insurance Company of India Ltd. (AIC) Balance Sheet ... 17866. General Insurance Corporation (GIC) - Policyholders Account ... 17967. General Insurance Corporation (GIC) - Shareholders Account ... 18068. General Insurance Corporation (GIC) Balance Sheet ... 18169. State Wise Number of Offices of Non-Life Insurers ... 18270. Third Party Administrators No. of claims received & duration wise settlement of claims ... 18471. Status of Grievances - Life Insurers for 2009-10 ... 18672. Status of Grievances - Life Insurers (April-June 2010) ... 18773. Status of Grievances - Non-Life Insurers for 2009-10 ... 18874. Status of Grievances - Non-Life Insurers (April-June 2010) ... 18975. Performance of Ombudsmen at different centres - Life Insurance ... 19076. Performance of Ombudsmen at different centres - Non - Life Insurance ... 19177. Performance of Ombudsmen at different centres - Life and Non-Life Insurance Combined ... 192

LIST OF ANNEX1. Insurance Companies Operating in India ... 1952. Fee Structure for insurers and various intermediaries ... 1973 (i). Indian Assured Lives Mortality (1994-96) (Modified) Ultimate ... 198

(ii). Mortality Rates of Annuitants in LIC of India ... 1994. Life Insurance Products cleared during the financial year 2009-10 ... 2005. Non-Life Insurance Products cleared during the financial year 2009-10 ... 2086. Obligatory Cessions received by GIC ... 2117. State Wise number of Registered Brokers ... 2128. Circulars / Orders / Notifications issued by the Authority from April 2009 ... 2139. Regulations framed under the IRDA Act, 1999 ... 21710. Annual Statements of Accounts for the year ended March 31, 2010 ... 219

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MISSION STATEMENT

To protect the interest of and secure fair treatment to policyholders;

To bring about speedy and orderly growth of the insurance industry (including annuity andsuperannuation payments), for the benefit of the common man, and to provide long term funds foraccelerating growth of the economy;

To set, promote, monitor and enforce high standards of integrity, financial soundness, fair dealing andcompetence of those it regulates;

To ensure speedy settlement of genuine claims, to prevent insurance frauds and other malpracticesand put in place effective grievance redressal machinery;

To promote fairness, transparency and orderly conduct in financial markets dealing with insuranceand build a reliable management information system to enforce high standards of financial soundnessamongst market players;

To take action where such standards are inadequate or ineffectively enforced;

To bring about optimum amount of self-regulation in day-to-day working of the industry consistentwith the requirements of prudential regulation.

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TEAM AT IRDA

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MEMBERS

J. Hari NarayanCHAIRMAN

C.R. Muralidharan(upto 3rd November, 2009)

K. K. Srinivasan

G. Prabhakara Dr. R. Kannan R. K .Nair(from 18th March, 2010)


PART TIME MEMBERS

Amarjit Chopra(from 6th February, 2010)

Ela R. Bhatt

Rahul Khullar(upto 4th October, 2009)

Vijay Mahajan

L. M. Vas(from 5th October, 2009)

Uttam Prakash Agarwal(upto 5th February, 2010)

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Prabodh ChanderED (NON-LIFE)

K.SubrahmanyamED (ACTUARY)

Kunnel PremCSO (LIFE)

A.GiridharED (ADMN.)

Dr. D.V.S. SastryDG (R&D)

N Srinivasa RaoFA & CAO


JOINT DIRECTORS

Suresh Mathur Dr. Mamta Suri Randip Singh Jagpal

Mukesh Sharma J Meena Kumari

S N Jayasimhan Yegna Priya Bharath A R Nithiayanantham

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NAME DESIGNATION

ACCOUNTS DEPARTMENTMahesh Agarwal Sr. Assistant DirectorP Majumder Junior OfficerShyam Sundar Mohakud Junior OfficerSaneetha K A Assistant

ACTUARIAL DEPARTMENTS P Chakraborty Deputy DirectorJ Anita Deputy DirectorP K Maiti Deputy DirectorA V Rao Deputy DirectorS Kartikeya Sarma Assistant DirectorMBVN Murthy Assistant DirectorDNKLNK Chakravarthi Assistant DirectorLekshmi R Pillai Junior OfficerB Someswara Rao Junior Officer (PA to ED-Actuary)A Rama Sudheer Junior Officer (PA to Member-Actuary)Amit Srivastava AssistantSarat Chandra AssistantSujoy Saha Assistant

ADMINISTRATION DEPARTMENTMukesh Sharma Joint DirectorB Raghavan Sr. Assistant DirectorD Srinivasa Murthy Assistant Director (PS to Chairman)R Sangeetha Junior Officer (PA to ED-Admn.)Siva Prasad Yeddu AssistantV V N Kirankumar Sarma AssistantIndradeep Sah AssistantAnurag Bajpai AssistantBH Suryanarayana Sastry Assistant (Library)

CONSUMER AFFAIRS DEPARTMENTYegna Priya Bharath Joint DirectorA Krishnan Deputy DirectorT Venkateswara Rao Deputy DirectorK Srinivas Assistant DirectorManoj Kumar Asiwal Assistant DirectorNeeraj Mani Tripathi AssistantVinay Kumar Mathangi AssistantDomala Rajanikanth Assistant

FINANCE & INVESTMENT DEPARTMENTS N Jayasimhan Joint DirectorDr. Mamta Suri Joint DirectorRaj Kumar Sharma Deputy DirectorR Kumar Deputy DirectorB Padmaja Sr. Assistant DirectorR Uma Maheswari Assistant DirectorK Anand Rao Assistant DirectorDr. Ravinder Kaur Assistant DirectorMohammad Ayaz Assistant DirectorA Keshava Rao Junior Officer (PA to Member F&I)Rakesh Sarodey AssistantRavindra Das AssistantBolla Balakrishna AssistantDasika S Murali Mohan Assistant

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HEALTH DEPARTMENTJ Meena Kumari Joint DirectorKGPL Rama Devi Deputy DirectorNilamdhab Behera Deputy DirectorShardul Suresh Admane Sr. Assistant DirectorNimisha Srivastava Assistant Director

INFORMATION TECHNOLOGY DEPARTMENTA R Nithiayanantham Joint DirectorDeepak Khanna Sr. Assistant DirectorDeepak Kumar Gaikwad Sr. Assistant DirectorSanjay Kumar Verma Sr. Assistant DirectorNarendra Singh Assistant

INSURANCE INFORMATION BUREAUM S Jaya Kumar Deputy DirectorSusan Ittyerah Sr. Assistant DirectorM Madhusudhan Assistant DirectorKLN Raghava Kumar Assistant

INSPECTIONS DEPARTMENTSuresh Mathur Joint DirectorT S Naik Deputy DirectorG R Surya Kumar Deputy DirectorSuresh Nair Sr. Assistant DirectorR Pardha Saradhi Assistant DirectorAnil Kumar Thatipalli Assistant DirectorAshish Kumar Bharti Assistant DirectorBhasker P Khadakbhavi Assistant Director

INTERMEDIARIES DEPARTMENTSuresh Mathur Joint DirectorSanjeev Kumar Jain Deputy DirectorK Mahipal Reddy Deputy DirectorSudha Ramanujam Deputy DirectorJyoti Bhagat Assistant DirectorSunitha LVS Assistant DirectorMathangi Saritha Assistant DirectorD Gyana Prasuna Assistant DirectorNeetu Shahadadpuri Assistant DirectorRajeswar Gangula Assistant DirectorTati Kiran AssistantGandi Venkata Ramana Assistant

LEGAL AND R.T.I. CELLMukesh Kumar Assistant DirectorP Kanthishree Junior Officer

LIFE DEPARTMENTD V S Ramesh Deputy DirectorSudipta Bhattacharya Deputy DirectorR Lalitha Kumari Assistant DirectorK Sridhar Rao Assistant DirectorH Babu Yogish Assistant DirectorV Chitra Assistant DirectorB Aruna Junior Officer (PA to CSO)

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NON LIFE DEPARTMENTRandip Singh Jagpal Joint DirectorShiksha Shaha Assistant DirectorK Sridhar Assistant DirectorSanjay Mohan Sharma Assistant DirectorVikas Jain Assistant DirectorCh B Chandrasekhara Rao Assistant DirectorB S Venkatesh Junior Officer (PA to ED (Non-Life))M L Soujanya Junior Officer (PA to Member (Non-Life))Akash Dangwar Assistant

RAJBHASHA DEPARTMENTKamal Chowla Assistant Director

RESEARCH AND DEVELOPMENT DEPARTMENTMunshi M Nizamuddin Assistant DirectorTriloki Nath AssistantAmeer Hassan AssistantIshtiaque Alam Assistant

VIGILANCE DEPARTMENTMukesh Sharma Vigilance Officer

DELHI OFFICERakesh K Bajaj Deputy DirectorAnil Kumar Arora Deputy DirectorManju Arora Assistant DirectorHari Junior OfficerSush Pal Record ClerkShashi Pal Record Clerk

OFFICERS ON DEPUTATIONH Ananthakrishnan OSD- Non LifeG Babita Rayudu OSD- LegalDr. R K Sinha OSD- R&DV Sai Kumar OSD- LifeS V Hegde OSD- LifeR Srinivasan OSD- Consumer AffairsVikas Kumar OSD- IIBDevendra Kumar OSD- IIBVikas S Rane OSD- IIBRajesha OSD-InspectionsY Srinivasu OSD-InspectionsV Sarvothamudu OSD-InspectionsV Satya Srinivas OSD-InspectionsBV Sastry OSD-InspectionsK Rambabu OSD- Non LifeB V Suryanarayana OSD-RTIV S Narendra Chandra Junior Officer (PS to Chairman)Chandrasekhar B PS to Member (Life)

ON CONTRACTU Jawahar Lal Editor, IRDA Journal

OFFICERS OF IRDA ON DEPUTATION TO OTHER ORGANISATIONSArup Chatterjee Joint DirectorNandan Kumar Assistant Director

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1

OVERVIEW

The Indian Economy:

1. The Indian economy registered an impressivegrowth rate of 7.4 per cent in 2009-10 following 6.7per cent in 2008-09. This was achieved against thebackdrop of a broad based recovery in the secondhalf of the financial year. The overall stability of thefinancial system of India continued to positively impactbusiness confidence. The major source of worry,however, was the inflationary conditions whichchanged significantly in 2009-10, particularly, in thesecond half of the year. It surged to 11 per centtowards the end of 2009-10, aggravated by the initialspurt in prices of food items. Positive developmentwas, however, observed in demand for privateinvestment during the last quarter of 2009-10 and hasbeen particularly robust in the first quarter of 2010-11. Although there has been some concern aroundthe crisis emanating from the sovereign debt in theEuro area and its likely impact about the durability ofthe global recovery, the overall movement in growthhas been positive.

2. The real GDP growth turned around at 7.4 per centin 2009-10, up from 6.7 per cent in 2008-09. Althoughstill below the pre-global crisis growth phase of 8.9per cent during 2003-08, the possibilities of it growingfurther are clearly reflected. The contribution to thegrowth came from a strong recovery in industrial sectorand the services sector thereby reducing the impactof a scarce South-West monsoon. The contributionof the industrial sector to the overall growth increasedsharply at 28 per cent in 2009-10 (9.5 per cent in2008-09), while the growth in the services sector waslower at 8.3 per cent in 2009-10 (9.3 per cent in2008-09). Despite the impact of the deficient monsoon,agriculture and allied activities contributed about 14.6per cent to the GDP. The performance of the sectorhas a significant impact on price stability.

3. The macro-financial developments during2009-10 have established the resilience of theeconomy and its ability to recover faster from aslowdown. The economy has also emerged strongerin terms of the ability of the slowdown in agriculturalproduction impacting the growth of industry andservices sectors, even though the importance of theformer cannot be overstated since it impactsinflationary trends and is the main stay for livelihoodof the rural population.

4. The financial markets during 2009-10 showed signsof volatility while reflecting the developments in theglobal markets. However, the signs were clearly thatof rising activity. This is critical to ensure that theeconomy is catapulted to the next phase of growth.The external balance situation improved and reflecteda positive growth in both exports and capital inflowsduring 2009-10. This reflected a favorable trend fromthe downturn observed in the wake of the financialcrisis. Overall, developments during 2009-10 havebeen positive although there had been some macro-economic concerns at the beginning of the year.

Global Economic Environment:

5. As per the Report published by the InternationalMonetary Fund, the global financial system is still in aperiod of significant uncertainty. The setback hasoccurred in the second quarter of the current calendar2010 due to the turmoil in sovereign debt markets inEurope once again bringing to the fore thevulnerabilities of bank and sovereign balance sheetsagainst the back drop of the financial crisis. TheEuropean economies have once again been in theeye of the storm, having been a witness to thesovereign debt sustainability challenges, resulting infunding pressures. With the spillover effect onto thebanking sector, the resultant impact was in terms ofshrinking credit. Although, the regulatory and policylevel responses at the international levels brought thesituation under control in terms of stabilising fundingmarkets and mitigating risks, the conditions remainweak. Economies still need to find answers to thechallenges posed by a slower than expected level ofrecovery, higher debt levels and rollovers, and a still-impaired financial sector.

6. The global output has expanded in tune with theprojection with the economic environment improvinggradually. This has been supported by growth in theemerging market countries which has been particularlystrong. It has also been observed that economies aremoving from temporary support provided to them tomore self-sustaining private demand. However,concerns remain in terms of dealing with legacyproblems in the banking sector, particularly thoserelating to recapitalisation; strengthening thesovereign balance sheets; and strengtheningregulatory reform to move towards building resilience


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in financial systems. Equally there is a need forsystems to ensure and guard against excessive risktaking.

7. Overall, in the United States, financial stability hasimproved, although pockets of vulnerability remain inthe banking system. While banks have been able toraise capital and expected demand appearsmanageable, additional capital may be needed toreverse recent de-leveraging trends and due to thepossibility of complying with the regulatory reformsunder way. The financial crisis has resulted insubstantial risks being transferred from private topublic balance sheets. The policy makers thus needto address issues which have arisen on account ofthe burden placed on public institutions. In Japan, anear-term disruption in the government bond marketremains unlikely. The stable domestic savings baseand healthy current account surplus reduce the needto attract external funding sources. However, overtime, the factors which are presently supporting theJapanese bond market - high private savings, homebias, and the lack of alternatives to yen-denominatedassets - are expected to erode as the population agesand the workforce declines.

8. As against the mature markets, the emergingmarkets have remained resilient to the financial crisiswhich has hit the global markets. These markets alsocontinued to enjoy access to international capitalmarkets. The cross-border spillover effects werelimited to only regions with significant economic andfinancial links to the euro area. Given the projectedhealthy growth trends in these markets, and thecontinuing slowdown in advanced countries, theemerging markets have become increasinglyattractive to global investors. The shifts due to thestrong capital inflows could result in increased volatilityto these markets thereby raising concerns foreconomies which have been recipients of thesereallocations.

9. As per the revised IMF estimates the crisis-relatedbank write downs between 2007 and 2010 stood atUSD 2.2 trillion in September, 2010. Further, bankshave made progress in recognising those write downs,with more than three-quarters of them alreadyreported, leaving a residual amount of approximatelyUSD 550 billion. As per projections, nearlyUSD 4 trillion of bank debt will need to be rolled overin the next 24 months.

10. A review of the regulatory reforms brings to thefore the fact that much of the proposed financial reformagenda remains unfinished. While much of the failingsof the global financial system have been identified,countries have yet to deal with issues such as too-important-to-fail entities, strengthening supervisoryincentives and resources, and developing the macro-prudential framework. Much of these regulatoryconcerns have centered on the banking sector,although the ripples of the spillover effects are likelyto be felt by the other segments of the financial sectoras well. There are also concerns around addressingissues around pro-cyclicality and limiting the systemiceffects of financial institutions other than those in thebanking sector.

Insurance markets:

11. As per the World Insurance Report published byreinsurance major Swiss Re, the global insurancepremium for the calendar year 2009 wasUSD 4066 billion, which is 1.1 per cent (inflation-adjusted) lower than USD 4220 billion reported duringthe previous calendar year 2008. The share of lifeinsurance business was 57 per cent in total premiumcollection. While life insurance business collectedUSD 2331 billion as premium, the same for non-lifebusiness was USD 1735 billion. During 2009, thepremium in life insurance business fell by 2 per centon account of double digit decline in premiumcollection in USA and UK. However, compared to2008, when life insurance premium fell by 5.8 per cent,this is an improvement on account of the improvedsentiment in the calendar year 2009.

12. During year 2010, it is expected that overallpremium growth in the industry will turn positive andprofitability and balance sheets will continue toimprove. The prospects for life insurance in 2010 arepromising as growth resumes in the sector. A furtherrecovery of the financial markets is likely to stimulatethe overall growth of unit-linked products and allowinsurers to continue strengthening their balancesheets.

Indian insurance sector:

13. Since opening up, the number of participants inthe industry has gone up from six insurers (including


3

Life Insurance Corporation of India, four public sectorgeneral insurers and General Insurance Corporationas the national reinsurer) in the year 2000 to 48insurers operating in the life, non-life and reinsurancesegments (including specialised insurers, viz., ExportCredit Guarantee Corporation and AgricultureInsurance Company). Three of the non-life insurancecompanies, viz., Star Health and Alliance InsuranceCompany, Apollo Munich Health Insurance Companyand Max Bupa Health Insurance Company functionas standalone health insurance companies. Of thetwenty two insurance companies which have set upoperations in the life segment post opening up of thesector, twenty are in joint venture with foreign partners.Of the seventeen insurers (including health insurers)who have commenced operations in the non-lifesegment, sixteen are in collaboration with the foreignpartners. The three standalone health insurancecompanies have been set up in collaboration withforeign joint venture partners. Thus, as on date, thirtysix insurance companies in the private sector areoperating in the country in collaboration withestablished foreign insurance companies across theglobe.

14. The first year premium, which is a measure ofnew business secured, underwritten by the life insurersduring 2009-10 was `1,09,894 crore as compared to`87,331 crore in 2008-09 registering a growth of25.84 per cent against negative growth rate of6.81 per cent during 2008-09. In terms of linked andnon-linked business during the year 2009-10,54.53 per cent of the first year premium wasunderwritten in the linked segment while 45.47 percent of the business was in non-linked segment (51.13and 48.87 per cent respectively in 2008-09). The totalpremium underwritten by the life insurance sector in2009-10 was `2,65,450 crore as against`2,21,785 crore in 2008-09 exhibiting a growth of19.69 per cent (10.15 per cent in 2008-09).

15. The non-life insurers (excluding specialisedinstitutions like ECGC and AIC and the standalonehealth insurance companies) underwrote premium of`35,816 crore in 2009-10, as against `31,428 crorein 2008-09 registering a growth of 13.44 per cent. Thethree health insurance companies underwrotepremium of `1,072 crore in 2009-10, twice of theircollective premium of `535 crore in 2008-09.

Penetration and Density:

16. The potential and performance of the insurancesector is universally assessed with reference to twoparameters, viz., Insurance Penetration and InsuranceDensity. Insurance penetration is defined as the ratioof premium underwritten in a given year to the grossdomestic product (GDP). Insurance density is definedas the ratio of premium underwritten in a given yearto the total population (measured in USD forconvenience of comparison). The insurancepenetration was 2.32 per cent (Life 1.77 per cent andNon life 0.55 per cent) in the year 2000 when the sectorwas opened up for private sector. It had increased to5.20 per cent in 2009 (Life: 4.60 per cent and Non-life: 0.6 per cent). The insurance density stood atUSD 54.3 in 2009 (Life USD 47.7 and Non-lifeUSD 6.7) from USD 9.9 in 2000 (Life USD 7.6 andNon-life USD 2.3)

Micro insurance:

17. One of the main objectives of promoting financialinclusion packages is to economically empower thosesections of society who are otherwise denied accessto financial services, by providing banking and creditservices thereby focusing on bridging the rural creditgap. The banking sector is focusing on financialinclusion on a priority basis. Vulnerability to variousrisk factors is one of the fundamental attributes ofthese sections of the society. Lack of protectiveelements may, thus, not serve the objective ofpromoting financial inclusion packages as the targetedsections may fall back into the clutches of poverty inthe event of unforeseen contingencies. Hence, toprovide a hedge against these unforeseen risks, microinsurance is widely accepted as one of the essentialingredients of financial inclusion packages. Microinsurance regulations issued by IRDA have provideda fillip in propagating micro insurance as a conceptualissue.

18. With the positive and facilitative approach adoptedunder the micro insurance regulations, it is expectedthat all insurance companies would come out with aprogressive business approach and carry forward thespirit of regulations thereby extending insurancepenetration to all segments of society. There are 8,676micro insurance agents operating in the microinsurance sector as at the end of 2009-10. The newbusiness premium secured in individual category


4

during the year was `160 crore under 0.30 crorepolicies and the new business premium secured for33 group schemes during 2009-10 was `238 crorecovering 1.69 crore lives. In the individual category7,516 claims were settled for an amount of 7.88 croreand in the group category claims on 43,645 lives weresettled for an amount of `169 crore.

Investments by the insurance sector:

19. During 2009-10, the IRDA aligned the definitionof infrastructure facility with that of the Reserve Bankof India (RBI) thereby creating more room for theinsurers to invest in infrastructure sector. The Authorityhas also relaxed the ceiling of investments ininfrastructure to 20 per cent in a single investeecompany as against 10 per cent earlier. The limit isapplicable to the combination of both debt and equitytaken together without sub ceilings in instrumentssatisfying certain criteria. An additional exposure of5 per cent has been permitted in debt alone with priorapproval of the respective insurers InvestmentCommittee.

20. Further strengthening on the risk managementstructure, IRDA has issued guidelines on the scopefor Internal and Concurrent Audit for investmentoperations of insurance companies to monitorinvestment of both traditional and unit linked portfolio,at a closer level with the aim of mitigating risk. Similar,stipulations are also applicable to non-life insurancecompanies. The guidelines for audit of Investment RiskManagement Systems and Processes were alsoissued during the year.

Initiatives at enhancing public disclosures:

21. With a view to improving transparency inoperations, the Authority has been working towardsenhancing disclosures to be made by insurancecompanies on periodic basis. A major step in thisdirection has been the issuance of disclosureguidelines in January, 2010. The stipulations ondisclosures to be made by insurance companies havebeen strengthened by the Authority to fill the gap inavailability of information in the public domain. Thesedisclosures are required to be made through(i) Publication in Newspapers; and (ii) Hosting on therespective company websites, effective from theperiod ended 31st March, 2010. This initiative hasplaced the insurance companies, which are presently

not publicly listed entities, at par with the listed entitiesin the corporate world in terms of public disclosures.Listed corporate entities are governed by the termsof the Listing Agreement, which amongst other thingsprovides for public disclosure of performance on aquarterly basis.

Disclosures in the Prospectus Document:

22. Public disclosure of risks faced by the insurers iscritical for ensuring a fair and orderly growth of theinsurance sector. The disclosures are required to bereliable and timely to ensure efficiency of the markets.The disclosures also provide necessary feedback tothe insurance regulator to ensure safety of investorsas well as the policyholders. While individualpolicyholders may not have the necessary ability andresources to undertake the task of assessing theinsurers, other stakeholders, including the analysts inthe market can provide necessary inputs based onthe disclosures made by the insurance companies.

23. Several insurance companies will be completing10 years of their operations shortly, after which theymay be allowed by the Regulator to go for an InitialPublic Offer (IPO). It is essential that the investorsare fully aware of the financial performance, companyprofile, financial position, the risk exposure, elementsof corporate governance in place, and themanagement of the insurance companies. TheAuthority is participating in the discussions at themeetings of the Standing Committee on Disclosures& Accounting Issues (SCODA) set up by Securitiesand Exchange Board of India (SEBI) to finalise thedisclosure requirements for insurance companies inthe Prospectus document. While laying down thestipulations on disclosure requirements, the Authorityhas drawn on the international best practices in thisregard. It is proposed that the disclosure requirementsfor the life and non-life companies would be separatelymandated given the nature of their respectivebusinesses.

Amalgamation of Insurance Companies:

24. There is a view that the insurance Sector in Indiacould be a witness to some degree of consolidation.The Authority has been approached by players in thenon-life space in the Indian insurance market toamalgamate their existing ventures to create thesecond largest private sector general insurance


5

company in the sector. The Authority is activelyconsidering the proposal and would likely to put inplace systems whereby any amalgamation in theinsurance space fully ensures protection of theinterests of the policyholders, while contributing to amore vibrant market in the country. Prior to this, therehas been only one instance when the promoters of alife insurance company had expressed inability tocontinue operations in the life insurance space, andtheir stake was picked up another entity post the duediligence process carried out by the Authority. TheAuthority had through its quick actions ensured thatthe situation did not remain fluid for too long, took stepsto ring-fence the assets of the company and at thesame time initiated action to ensure that the interestsof the policyholders were not compromised in anymanner.

Economic capital (EC):

25. It is acknowledged from the experience globallythat insurance is a capital intensive business. Theneed to improve the capital efficiency withoutthreatening the solvency is becoming increasinglyessential in view of the recent macro-economicdevelopments in the wake of the financial crisis whichstarted in 2007. Economic capital (EC) reflects theoptimum levels of capital required by an insuranceentity. The main objective of estimating EC is toseparate the liability and risk parts clearly out of thetotal reserves (including solvency margin). EC can bea common currency of risk if measured consistently.The word economic indicates the fact that it measuresrisk in terms of economic realities rather than basedon certain pre-defined rules. The economic capital isdetermined in the context of the capital required tomeet the insurance risk, market risk, operational risk,credit risk, etc., separately. Commencing from thefinancial year 2009-10, the life insurance companieshave been advised to submit a detailed report settingout the Economic Capital. This exercise would give adeeper insight into the risks an insurance company isfaced with and their impact on the solvency position.

Financial Condition Report (FCR) for non-lifeinsurance companies:

26. The non-life insurance companies have beenmandated to submit the Financial Condition Reportannually, effective 31st March, 2010 for the saidfinancial year in the prescribed format. The objective

of the FCR is to facilitate analysis of the current blockof business as on the valuation date to bring out clearlythe challenges the insurers face in terms of meetingthe solvency requirements, their profitability and otherrisks viz. morbidity, liquidity, credit and expense,investment return, asset-liability mismatch, etc. Thisexperience will also indicate the insurers position onthese parameters for the next one year. With thisinitiative, the Authority has expanded its mandate onthe submission of the FCR beyond the life insurancecompanies to also bring in the non-life insurers withinthe ambit of such reporting.

Initiatives at AML FATF:

27. Under the existing framework, the Inter-MinisterialCoordination Committee on AML/CFT (IMCC) hasbeen set up as the co-ordinating body on issuesrelating to membership into FATF and further followup processes. The inputs for the process andimplementation of the recommendations are beinghandled by the respective regulators/agencies. Basedon the initiatives of the respective regulators/agenciesIndia has been granted membership of the FATF inJune, 2010. Concerns expressed by FATF in termsof implementation of certain recommendations arebeing addressed through the approved action planwhich has been submitted to the Secretariat of theFATF. The existing framework has workedsatisfactorily and has delivered in terms of India beinggranted the membership of FATF. More recently, theNational Regulatory Framework AssessmentCommittee comprising of representatives from thefinancial sector regulators and the Governmentagencies has been constituted to address variousregulatory concerns and to facilitate the process ofplugging the various gaps observed in compliance withthe various recommendations.

28. As part of the various initiatives taken by theAuthority, all life insurers have been advised to collectPAN from all persons purchasing insurance productswhere the contracted annual premium payable on theinsurance policies, per policy basis, exceeds Rupeesone lakh. For persons who are exempt from therequirement of PAN, insurers are required to collect adeclaration from the proposer wherein the provisionunder which he/she has been exempted, is requiredto be disclosed.


6

Corporate Governance guidelines for insurancecompanies:

29. Corporate Governance guidelines have been putin place for insurance companies. As per thestipulations, insurance companies were required tobe compliant with the guidelines effective from 1st April,2010. The Guidelines provide for the structure,responsibilities and functions of the Board of Directorsand the senior management of the company. Theguidelines cover the major structural elements of aninsurance company, including governance structure;Board of Directors; Control functions; seniormanagement - CEO and other senior functionaries,role of Appointed Actuaries, external audit Appointment of Statutory Auditors; Disclosures;Outsourcing; relationship with stakeholders;interaction with the supervisor; and the whistle blowingpolicy. Insurers are required to have a minimum oftwo independent directors on their Board as long asthey are unlisted, and all directors must meet the fitand proper criteria. The Guidelines have further laiddown stipulations on formation of mandatorycommittees - Audit; Investment; Risk Management;Asset Liability Management (in case of life insurancecompanies); Policyholder Protection; and optionalcommittees - Remuneration; Nomination; and Ethics.

Initiatives towards policyholder protection:

30. With a view to protecting the interests ofpolicyholders, the IRDA has taken a number ofinitiatives in the current financial year 2010-11. Theobjective of these initiatives is to rationalise the productfeatures through such clauses as (i) minimum lock-inperiod being increased from three years to five years,with the stipulation being applicable to even top-ups;(ii) charges on Unit Linked Insurance Products (ULIPs)have been mandated to be spread evenly over thelock-in-period; (iii) ULIPs, other than single premiumproducts, to have a minimum premium paying term offive years; (iv) individual products to have a minimumpolicy term of five years, although group productscontinue to be on annual renewable basis; (v) allproducts including pension/annuity must have aminimum sum assured payable on death; (vi) ULIPpension/annuity products shall offer a minimumguaranteed return of 4.5 per cent per annum or asspecified by IRDA from time to time; (vii) top uppremium must also have insurance cover; (viii) thefacility of partial withdrawal to be permissible only after

the fifth policy anniversary for individual products.Partial withdrawals in case of pension/annuity productsare not allowed and the insurer shall convert theaccumulated fund value into an annuity at maturity;and (ix) all ULIPs, other than pension and annuityproducts must provide the prescribed minimummortality/health cover.

31. The Authority also issued guidelines on Healthplus Life Combi Products paving the way for combinedproducts whereby pure term life insurance productscan be offered by life insurance companies andstandalone health insurance products offered by non-life insurance companies under the umbrella of asingle product.

Grievance Redressal:

32. The Consumer Affairs Department of IRDAhandles policyholder grievances, apart from carryingout awareness campaigns on insurance. TheGrievance Cell looks into the complaints frompolicyholders against life and non-life insurancecompanies. Prospects and policyholders are advisedto first file their complaints with the respectiveinsurance companies. The Grievance Cell facilitatesredressal by taking up the complaints with thecompany. Where required, investigations andenquiries are carried out by IRDA. Recently, IRDA hasprovided an alternative channel for prospects andpolicyholders to lodge complaints with the GrievanceCell by launching the IRDA Grievance Call Centre(IGCC). The IGCC receives and registers complaintsthrough a Toll Free number. Complainants can alsotrack the status of their complaints through IGCC. TheAuthority is also in the process of implementing theIntegrated Grievance Management System (IGMS)through automation of the Grievance Cell for on-lineregistration of complaints. The proposed automatedsystem would also enable on-line verification of statusand redressal. Further, under the CorporateGovernance guidelines, the Authority has alsomandated that insurers shall have in place thePolicyholder Protection Committee.

Strengthening on-site inspections:

33. The financial year 2009-10 was the tenth year ofoperations of insurance companies, post opening upof the sector. While the Authority has beencontemplating commencement of comprehensive on-site inspection, it was considered that the registered


7

insurers should be allowed time to stabilise operationsprior to taking up full scale inspection. Commencingfrom the current financial year, 2010-11, on-siteinspection targeted on critical issues in respect of fourlife insurers and four non-life insurers has beenundertaken. The Authority proposes to strengthen itsactivities in this critical area of its operations.

Data Warehouse:

34. The Authority has constituted the InsuranceInformation Bureau (IIB), an advisory body which iscollecting, processing and disseminating data. IIB hasbeen formed to ensure that the business data ofinsurance companies is collected and processed inan orderly manner and is made available at regularintervals. Hence, it is useful for the various marketplayers, researchers, policyholders as well as thepublic at large for real-time decision making. IIBfunctions as a single point official reference for theentire data requirement on the insurance sector. Allthe necessary decisions regarding processing anddissemination of data are being undertaken as perthe policy laid down by the Bureau. All non-life insurersare required to upload the insurance data on motor,health and other lines of business online as per thedata formats prescribed and provided by IRDA. Aspart of the initiative, aggregate level data for the non-life industry as a whole is made available to theinsurers for making better underwriting decisions.

Initiatives taken at Authority on Implementation ofIFRS:

35. The Authority had constituted a Working Groupin October, 2008 to decide the road map forimplementation of International Financial ReportingStandards (IFRS). The Working Group had submittedits Report in June, 2009. The Report submitted by theGroup raised various issues which may emerge onimplementation of IFRS which is due for applicationto the insurance companies by 2012-13. The basicapproach adopted by the Authority is that it will not bean adoption of IFRS but it will be a convergence toIFRS.

36. The Institute of Chartered Accountants of India(ICAI) has issued the exposure draft on InsuranceContracts in the form of IAS 39 which is yet to benotified as Accounting Standard by National AdvisoryCommittee on Accounting Standards (NACAS). In the

meantime, IASB has issued exposure draft onInsurance Contracts. IAS 39 compliance is anintermediary step in moving forward to convergenceto IFRS.

37. The Authority has recently constituted a WorkingGroup to address the issues in this situation. TheWorking Group consists of the officers of the Authorityand experts in the field of accounts and actuarial fromthe industry. The task of the Group is to examine theexposure draft on IAS 4 and various other issuesarising out of the implementation of IFRS.

Performance in the first quarter of 2010-11:

38. The life insurers underwrote new business of`25,522 crore during the first quarter in the currentfinancial year, 2010-11 as against `14,456 crore inthe corresponding first quarter in 2009-10, recordinggrowth of 76.55 per cent. Of the new businesspremium underwritten, LIC accounted for`18,740 crore (73.43 per cent market share) and theprivate insurers accounted for 6,782 crore (26.57 percent market share). The market share of these insurerswere 62.45 per cent and 37.55 per cent respectivelyin the corresponding period of 2009-10.The non-lifeinsurers underwrote a premium of `10,755 croreduring the first quarter of the current financial yearrecording a growth of 21.83 per cent over 8,827 croreunderwritten in the same period in 2009-10. Theprivate sector non-life insurers underwrote a premiumof `4,361 crore in April-June, 2010 as against`3,586 crore in April-June, 2009, reporting a growthof 21.61 per cent. The public sector non-life insurersunderwrote a premium of `6,391 crore which washigher by 21.88 per cent (`5,244 crore in the firstquarter of 2009-10). The market share of the publicand private insurers stood at 59.44 and 40.56 per centat the end of the quarter (59.36 and 40.64 at the endof June 2009).

39. ECGC underwrote credit insurance of `208 croreas against `190 crore in the previous year, a growthof 9.66 per cent. AIC underwrote agricultural insuranceof `149 crore as against `132 crore in the previousyear, i.e., a growth of 12.84 per cent. The healthinsurers (Star Health, Apollo Munich and Max Bupa)underwrote premium of `364 crore as against `246crore in the previous year, reporting growth of 48.23per cent.


8


9

PART I

POLICIES AND PROGRAMMES

1. GENERAL ECONOMIC ENVIRONMENT

I.1.1 The Indian economy exhibited good recovery in2009-10 and recorded a Gross Domestic Product(GDP) growth rate of 7.4 per cent, higher than thegrowth of 6.7 per cent of the previous year. Therecovery was pertinent against the backdrop of theslowdown witnessed in the economy in the latter partof 2008-09. Except agriculture sector, which grew bya mere 0.2 per cent, other sectors of the economyreported positive growth rates. While industrial sectorreported 10.4 per cent growth (3.1 per cent in previousyear), the growth rate for services sector was 8.3 percent (9.3 per cent in previous year). The low growthrate reported in agricultural sector was on account ofdeficiency in the South-West Monsoon, which caused6.9 per cent fall in food production to 218.2 milliontonnes. In spite of a decline in food grains production,the growth rate of GDP from agriculture was positivedue to growth in other areas of agriculture such ashorticulture, livestock, forestry and logging, andfisheries.

I.1.2 During 2009-10, the industrial sector witnessed10.4 per cent growth, which was higher than the 9.1per cent annual average growth rate achieved duringthe pre-global financial crisis years, 2003-08. TheIndex of Industrial Production (IIP) clocked a growthof 10.5 per cent during 2009-10 (8.7 per cent during2003-08). The growth was observed in all three sub-sectors viz., mining (9.9 per cent), manufacturing (10.9per cent) and electricity (6.0 per cent). On Use-basedclassification of sectors, capital goods andintermediate goods reported a growth of 19.2 per centand 13.6 per cent respectively.

I.1.3 The services sector exhibited significantresilience to the contagion from the global crisis.During 2009-10, the services sectors contribution tothe GDP, registered an 8.3 per cent growth (10.1 percent during pre-crisis years 2003-08). Domesticdemand driven services such as commercial vehiclesales, cell-phone connections, railway traffic andconstruction activity showed higher rate of growth.Services dependent on external demand such astourist arrivals, cargo handled at major ports andpassengers handled at international terminals

recovered during 2009-10, although it still remainedbelow the pre-crisis levels. In the road sector,construction and widening of national highwayscontinued at a fast pace during 2009-10, while freighttraffic carried by the railways also increased.

I.1.4 The growth in Private Final ConsumptionExpenditure (PFCE) moderated to 4.3 per cent in2009-10 (the average for 2003-08 was 7.6 per cent).The moderation reflects the sluggish demand fromthe private sector. With a view to compensating forthe slowdown in PFCE, the Government has resortedto expansionary fiscal measures supported byexpansionary monetary policy by the Reserve Bankof India (RBI). This has resulted in Government FinalConsumption Expenditure (GFCE) nearly doubling at10.5 per cent during 2009-10 (as against five-yearaverage of 5.6 per cent during 2003-08). The increasein GFCE has led to a decline in public sector savingswhich has come down from 5.0 per cent in 2007-08 to1.4 per cent in 2008-09. However, the saving rate ofhousehold sector and private corporates remainedstable at 22.6 per cent and 8.4 per cent respectively(22.6 per cent and 8.7 per cent during 2007-08).

I.1.5 During 2009-10, inflation changed its coursesignificantly over two distinct phases. While Year-on-Year Wholesale Price Index (WPI) inflation remainedlow during first half of the year (negative during June-August 2009), it accelerated in the second half to reach11.0 per cent by March, 2010. The base effect of highprices in the first half of 2008-09 contributed to thelow rate of inflation during the first half of 2009-10.The decline in the base effect, along with sharpincrease in prices of food items and oil pricescontributed to the increase in inflation during thesecond half of 2009-10. Lower agricultural productionand increase in oil prices at the international levelswere also the contributory factors. The domestic equitymarkets witnessed a substantial rebound in activitydue to strong domestic recovery and improvedexternal conditions in 2009-10. The benchmarkBombay Stock Exchange (BSE) Sensex closed at17,529 points as on 31st March, 2010 surpassing 9,709points as on 31st March, 2009, although stillsignificantly lower than its peak levels. The corporatesector raised `32,607 crore through public issues


10

during 2009-10, both initial and follow-on offering,which was higher than `14,671 crore raised during2008-09. Foreign Institutional Investors (FIIs) invested`1,12,236 crore in the Indian equity market during2009-10. This is in marked reversal of 2008-09 whenthe FIIs had withdrawn `48,248 crore from the capitalmarket, and is still reflective of the fragile financialposition of the global economy. The growth inmerchandise exports remained negative for 12successive months during October 2008 to September2009. It, however, witnessed a turnaround in October2009, reflecting the turnaround for the economy. Therecovery in domestic economic activity andresurgence in oil prices, also led to a rebound in Indiasimports, from November 2009 onwards. As a result,imports witnessed a robust growth at a monthlyaverage of 47.9 per cent during December 2009 toJune 2010.

I.1.6 On the strength of short-term capital inflows andpositive growth outlook, the rupee appreciated againstthe US dollar in 2009-10, though this was marked byintermittent depreciation pressures. An easy supplysituation against the backdrop of revival in capital flowstoo led to moderation in forward premia. Althoughcapital inflows were not excessive in relation to thefinancing gap in the current account, the exchangerate appreciated, reflecting the flexibility of theexchange rate. The average exchange rate (Rupee/US Dollar) for the year 2009-10 was 47.4 (45.9 in2008-09). During 2009-10, the net accretion to Indiasforeign exchange reserve was USD 27.1 billion(including revaluation gains). The revaluation gainsaccrued on account of two factors, viz., (i) depreciationof the US dollar vis-a-vis other non-US dollarcurrencies in which part of the reserves aremaintained; and (ii) increase in price of gold, whichremained buoyant for most part of 2009-10.

2. WORLD INSURANCE SCENARIO

I.2.1 As per World Insurance Report published byreinsurance major Swiss Re, the global insurancepremium for the calendar year 2009 wasUSD 4066 billion, which is 1.1 per cent (inflation-adjusted) lower than USD 4220 billion reported duringthe previous calendar year 2008.

I.2.2 The share of life insurance business was 57 percent in total premium collection. While life insurancebusiness collected USD 2331 billion as premium, the

same for non-life business was USD 1735 billion.During 2009, the premium in life insurance businessfell by 2 per cent on account of double digit decline inpremium collection in USA and UK. However,compared to 2008, when life insurance premium fellby 5.8 per cent, this is an improvement on account ofthe improved sentiment in the calendar year 2009.On a product basis, investment-linked insuranceproducts continued to perform worse than traditionalproducts with guaranteed returns. Meanwhile,premiums in most emerging market countries,particularly in Asia, continued to grow, albeit at aslower pace. As major investors, life insurers profitedfrom the recovery of stock and credit markets.Profitability and risk capital also improved as capitalmarkets rebounded, but have not yet returned to theirpre-financial crisis levels.

TABLE 1REAL GROWTH IN PREMIUM DURING 2009*

(In per cent)

Regions/Countries Life Non-Life TotalIndustrialised countries -2.8 -0.6 -1.8Emerging markets 4.2 2.9 3.5Asia 1.8 5.6 2.8India** 10.1 1.6 9.0World -2.0 -0.1 -1.1

Source: Swiss Re, Sigma No. 3/2010. Note: * calendar year.** Financial Year 2009-10

I.2.3 During the crisis, non-life insurance was notsignificantly impacted. Despite losses on theinvestment side, insurers had more than enoughcapacity to meet the demand. Non-life premiumsremained stable in 2009, falling just 0.1 per cent. Whilenon-life premiums fell in the US and Europe, they rosein the other regions. Given the sharp decline of realGDP, this flatness is reasonably acceptable.Nevertheless, combined ratios show that underwritingresults have further weakened. In 2009, underwritingresults in non-life turned negative, despite lowernatural catastrophe losses and lower losses from theUS financial guarantee business, which had hurtunderwriting results in 2008. It was, thus, lowerpremium rates in non-life insurance which hurtprofitability in 2009. There was no shortage of capacityand premium rates did not increase. Still, overallprofitability improved due to the recovery of credit andequity markets, as witnessed in the life segment.


11

I.2.4 In sixty-six per cent of the countries, insurancegrew faster than GDP, which shows the robustnessof the industry. Further, as credit and stock marketsrecovered in 2009, the industry was able to restore itscapital base. Investment results and overall profitabilityalso improved during the period. During the financialcrisis, the insurance industry continued to providecover and pay claims, reflecting the industrysrobustness. Unlike the banking sector, insurers didnot receive government support in the form of capitalor guarantee, except in a few cases. Thus, theinsurance industry was largely not impacted by thefinancial crisis in the same way as banking sector hadbeen although asset values showed a decline in linewith the overall trends across world economies.

I.2.5 During year 2010, it is expected that overallpremium growth in the industry will turn positive andprofitability and balance sheets will continue toimprove. The prospects for life insurance in 2010 arepromising as growth resumes in the sector. A furtherrecovery of the financial markets is likely to stimulatethe overall growth of unit-linked products and allowinsurers to continue strengthening their balancesheets. Over the longer term, life insurance will profitfrom the ageing of the population, which will boostthe sales of pension, disability, critical illness and long-term care products. Non-life premium growth in theindustrialised countries is gradually expected to rise.However, the continued pressure on rates will hamperprofitability and could limit premium growth. As interestrates are likely to stay low in 2010, investment returnswill also be adversely affected. Overall, profitabilityand return on equity will be below average.

Source: Swiss Re, Sigma No. 3/2010.Data is in USD.

Insurance density in select countries - 2009


12

Source: Swiss Re, Sigma No. 3/2010.

Indian Insurance in the global scenario

I.2.6 In life insurance business, India ranked 9th amongthe 156 countries for which data are published bySwiss Re. During 2009, the life insurance premium inIndia grew by 10.1 per cent (inflation adjusted).However, during the same period, the global lifeinsurance premium had contracted by 2 per cent. Theshare of Indian life insurance sector in global marketwas 2.45 per cent during 2009, as against 1.98 percent in 2008.

I.2.7 The non-life insurance sector witnessed amarginal growth of 1.6 per cent during 2009. However,its performance was better when compared to globalnon-life premium, which contracted by 0.1 per centduring the same period. The share of Indian non-life

insurance premium in global non-life insurancepremium remained very low at 0.46 per cent and Indiaranked 26th in global non-life insurance premium.

Insurance penetration & density in India

I.2.8 The measure of insurance penetration anddensity reflects the level of development of insurancesector in a country. While insurance penetration ismeasured as the percentage of insurance premiumto GDP, insurance density is calculated as the ratio ofpremium to population (per capita premium). Sinceopening up of Indian insurance sector for privateparticipation, India has reported increase in bothinsurance penetration and density. But, the increasehas been almost entirely contributed by the lifeinsurance sector.

Insurance penetration in select countries - 2009


13

TABLE 2INSURANCE PENETRATION AND DENSITY IN INDIA

Life Non-Life IndustryYear Density Penetration Density Penetration Density Penetration

(USD) (% age) (USD) (% age) (USD) (% age)

2001 9.1 2.15 2.4 0.56 11.5 2.71

2002 11.7 2.59 3.0 0.67 14.7 3.26

2003 12.9 2.26 3.5 0.62 16.4 2.88

2004 15.7 2.53 4.0 0.64 19.7 3.17

2005 18.3 2.53 4.4 0.61 22.7 3.14

2006 33.2 4.10 5.2 0.60 38.4 4.80

2007 40.4 4.00 6.2 0.60 46.6 4.70

2008 41.2 4.00 6.2 0.60 47.4 4.60

2009 47.7 4.60 6.7 0.60 54.3 5.20

Insurance density is measured as ratio of premium (in US Dollar) to total population.Insurance penetration is measured as ratio of premium (in US Dollars) to GDP (in US Dollars).Source: Swiss Re, Various Issues.

I.2.9 The insurance density of life insurance sector

had gone up from USD 9.1 in 2001 to USD 47.7 in

2009. Similarly, insurance penetration of life sector

had gone up from 2.15 per cent in 2001 to 4.60 per

cent in 2009.

I.2.10 The penetration of non-life insurance sector in

the country remains near-constant for the last 9 years

at around 0.60 per cent. However, there is a marginal

increase in density, which has increased from USD

2.4 in 2001 to USD 6.7 in 2009.


14

3. APPRAISAL OF INDIAN INSURANCE MARKET

Registered Insurers

I.3.1 At end-September 2010, there were forty-eightinsurance companies operating in India; of whichtwenty three were in the life insurance business andthe remaining twenty-four were in general insurancebusiness. In addition, GIC is the national reinsurer.

I.3.2 Of the forty-eight companies presently inoperations, 8 are in the public sector: two specialisedinsurers, namely ECGC and AIC, one in life insurance,four in general insurance and one reinsurance. Theremaining forty companies are in the private sector.

TABLE 3REGISTERED INSURERS IN INDIA

(As on 30th September, 2010)

Type of business Public Private Sector Sector TotalLife Insurance 1 22 23General Insurance 6* 18** 24Reinsurance 1 0 1Total 8 40 48

* Includes specialised insurance companies - ECGC and AIC

** Includes three Standalone Health Insurance Companies Star Health & Allied Insurance Co., Apollo Munich HealthInsurance Co. and Max Bupa Health Insurance Co.

Includes L&T General Insurance Company Ltd., which wasgranted registration in 2010-11.

I.3.3 During the financial year 2009-10, IRDA had

granted Certificate of Registration to three new

companies, viz., IndiaFirst Life Insurance Company

Ltd.; SBI General Insurance Company Ltd., and Max

Bupa Health Insurance Company Ltd. L & T General

Insurance Company Ltd., was granted registration in

2010-11.

LIFE INSURANCE

Premium

I.3.4 Life insurance industry recorded a premium

income of `2,65,450 crore during 2009-10 as against

`2,21,785 crore in the previous financial year,

registering a growth of 19.69 per cent. While private

sector insurers posted 23.06 per cent growth (25.09

per cent in previous year) in their premium income,

LIC recorded 18.30 per cent growth (5.01 per cent in

previous year).

I.3.5 While renewal premium accounted for 58.60 per

cent (60.62 per cent in 2008-09) of the total premium

received by the life insurers, first year premium

contributed the remaining 41.40 per cent (39.38 per


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cent in 2008-09). During 2009-10, the growth in

renewal premium was 15.69 per cent (24.91 per cent

in 2008-09). By comparison, the growth in first year

premium was higher at 25.84 per cent during

2009-10 (negative 6.81 per cent in 2008-09).

I.3.6 Further bifurcation of the first year premium

indicates that single premium income received by the

life insurers recorded 31.05 per cent growth during

2009-10 (negative 3.34 per cent in 2008-09). Single

premium products continue to play a major role for

LIC as they contributed 24.36 per cent of LICs total

premium income (21.64 per cent in 2008-09). In

comparison, the contribution of single premium income

in total premium income was only 4.84 per cent for

private insurance companies during 2009-10

(5.41 per cent in 2008-09).

I.3.7 The contribution of regular premium to the total

premium stood at 22.87 per cent in 2009-10

(22.46 per cent in 2008-09). During 2009-10, the

amount of renewal premium received by the life

insurance companies had gone up by 15.69 per cent

(24.91 per cent during 2008-09). Private insurers

reported higher growth of 35.11 per cent in renewal

premium in 2009-10 than 10.03 per cent reported by

LIC.

I.3.8 Unit-linked products (ULIPs) witnessed 27.44

per cent increase in premium income from

`90,647 crore in 2008-09 to `1,15,521 crore in

2009-10. On the other hand, the growth in premium

income of traditional products was lower at 14.33 per

cent, with premium income increasing to

`1,49,929 crore as against `1,31,138 crore in

2008-09. Accordingly, the share of unit-linked products

in total premium increased to 43.52 per cent in

2009-10 as against 40.87 per cent in 2008-09.

(Statement No. 10)

TABLE 4PREMIUM UNDERWRITTEN BY LIFE INSURERS

(` crore)

Insurer 2008-09 2009-10Regular premium

LIC 19140.61 26184.48(-27.01) (36.80)

Private Sector 30663.04 34529.75(6.97) (12.61)

Total 49803.65 60714.23(-9.26) (21.91)

Single premiumLIC 34038.47 45337.42

(0.78) (33.19)Private Sector 3488.97 3842.37

(-30.91) (10.13)Total 37527.44 49179.79

(-3.34) (31.05)First Year premium

LIC 53179.08 71521.90(-11.36) (34.49)

Private Sector 34152.01 38372.12(1.29) (12.36)

Total 87331.09 109894.02(-6.81) (25.84)

Renewal premiumLIC 104108.96 114555.41

(15.94) (10.03)Private Sector 30345.43 41000.94

(70.05) (35.11)Total 134454.39 155556.35

(24.91) (15.69)Total premium

LIC 157288.04 186077.31(5.01) (18.30)

Private Sector 64497.44 79373.06(25.09) (23.06)

Total 221785.48 265450.37(10.15) (19.69)

Note: Figure in brackets indicates the growth (in per cent)

over the previous years.


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Market Share

I.3.9 On the basis of total premium income, the marketshare of LIC declined marginally from 70.92 per centin 2008-09 to 70.10 per cent in 2009-10. Accordingly,the market share of private insurers had gone upmarginally from 29.08 per cent in 2008-09 to 29.90per cent in 2009-10.

I.3.10 The market share of private insurers in firstyear premium was 34.92 per cent in 2009-10 (39.11per cent in 2008-09). The same for LIC was 65.08 percent (60.89 per cent in 2008-09). However, in renewalpremium, LIC had a much higher share of 73.64 percent (77.43 per cent in 2008-09) when compared to26.36 per cent (22.57 per cent in 2008-09) share ofprivate insurers.

TABLE 5MARKET SHARE OF LIFE INSURERS

(per cent)

Insurer 2008-09 2009-10

Regular Premium

LIC 38.43 43.13

Private Sector 61.57 56.87

Total 100.00 100.00

Single Premium

LIC 90.70 92.19


Total 100.00 100.00

First Year Premium

LIC 60.89 65.08


Total 100.00 100.00

Renewal Premium

LIC 77.43 73.64


Total 100.00 100.00

Total Premium

LIC 70.92 70.10


Total 100.00 100.00

New Policies

I.3.11 During 2009-10, life insurers had issued 532

lakh new policies, out of which, LIC issued 389 lakh

policies (73.02 per cent of total policies issued) and

the private life insurers issued 144 lakh policies (26.98

per cent). While LIC reported an increase of 8.21 per

cent (-4.52 per cent in 2008-09) in the number of

policies issued over the previous year, the private

sector insurers reported a decline of 4.32 per cent

(13.19 per cent increase in 2008-09) in the number of

new policies issued.

I.3.12 Overall, the industry witnessed a 4.52 per cent

increase (0.10 per cent in 2008-09) in the number of

new policies issued.

TABLE 6

NEW POLICIES ISSUED : LIFE INSURERS

(in lakh)

Insurer 2008-09 2009-10

LIC 359.13 388.63

(-4.52) (8.21)


(13.19) (-4.32)

Total 509.24 532.25

(0.10) (4.52)

Note: Figure in brackets indicates growth over previous year

(in per cent).

Paid-up capital

I.3.13 The total capital of the life insurance companies

as on 31st March, 2010 was `21,020 crore. During

2009-10, an additional capital of `2,765 crore was

brought in by the industry. The incremental capital

during 2009-10 was brought in by the private sector

insurers as there was no addition in the capital of LIC,

the public sector insurance company.


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TABLE 7PAID-UP CAPITAL : LIFE INSURERS

(` crore)

INSURER 31st March, Additions 31

st March,

2009 during 20102009-10

LIC 5.00 0.00 5.00

Private Sector 18249.77 2765.22 21014.99

TOTAL 18254.77 2765.22 21019.99

Expenses of life insurers

I.3.14 As per section 40B of the Insurance Act, 1938no life insurer can spend as expenses of managementin any year an amount in excess of the limitsprescribed under Rule 17D of the Insurance Rules,1939. Rule 17D takes into consideration the size andage of the insurer, while laying down the limits of suchexpenses. The IRDA, on the recommendations of theLife Insurance Council constituted under Section 64Fmay enhance the limits in any year. Expenses ofmanagement refer to all charges incurred whetherdirectly or indirectly and include commission paymentsof all kinds, operating expenses and expenditurecapitalised.

TABLE 8COMMISSION EXPENSES : LIFE INSURERS

(` crore)

Insurer 2008-09 2009-10Regular Premium

LIC 4350.91 6100.48Private Sector 4554.34 4975.86Total 8905.25 11076.34

Single PremiumLIC 432.81 526.38Private Sector 39.15 46.11Total 471.96 572.49

First Year PremiumLIC 4783.72 6626.85Private Sector 4593.49 5021.98Total 9377.21 11648.83

Renewal PremiumLIC 5271.37 5505.71Private Sector 880.78 1030.77Total 6152.15 6536.48

Total PremiumLIC 10055.09 12132.56Private Sector 5474.27 6052.75Total 15529.36 18185.31

I.3.15 The increase in expenses was lower than theincrease in the gross premium collected by theinsurers in 2009-10. As such, the commissionexpenses ratio (commission expenses as apercentage of premiums) declined marginally to 6.85per cent in 2009-10 from 7.00 per cent of 2008-09.Overall, while the commission expenses increased inthe case of regular premium, there has been a fall inthe commission paid towards both single and renewalpremium products. However, there is some variationin the position when compared between the privateinsurers and LIC, as reflected in Table 9, providingbifurcation of the commission ratios for both privateand public sector life insurers.

TABLE 9COMMISSION EXPENSES RATIO :

LIFE INSURERS(in per cent)

Insurer 2008-09 2009-10

Regular Premium

LIC 22.73 23.30


Total 17.88 18.24

Single Premium

LIC 1.27 1.16


Total 1.26 1.16

First Year Premium

LIC 9.00 9.27


Total 10.74 10.60

Renewal Premium

LIC 5.06 4.81


Total 4.58 4.20Total Premium

LIC 6.39 6.52


Total 7.00 6.85

Note: Commission expenses ratio is the ratio betweencommission expenses and the premium underwritten by lifeinsurers


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I.3.16 The operating expenses of the life insurers haddecreased to 10.85 per cent in 2009-10 from theirearlier level (11.65 per cent in 2008-09). The operatingexpenses towards life insurance business were`28,807 crore in 2009-10 as against `25,827 crore in2008-09.

TABLE 10OPERATING EXPENSES : LIFE INSURERS

(` crore)

Insurer 2008-09 2009-10LIC 9064.29 12245.82Private Sector 16763.03 16561.11TOTAL 25827.32 28806.93

I.3.17 Operating expenses, as a per cent of grosspremium underwritten, increased marginally for LICfrom 5.76 per cent in 2008-09 to 6.58 per cent in 2009-10. However, the same declined sharply for privateinsurers from 25.99 per cent in 2008-09 to 20.86 percent in 2009-10. For the industry as a whole, theoperating expenses ratio declined from 11.65 per centin 2008-09 to 10.85 per cent in 2009-10. The effortsat rationalising and bringing down the expense ratiosare in line with IRDAs stand that private insurancecompanies should take all steps to ensure compliancewith the mandatory stipulations on the expenses ofmanagement.

TABLE 11OPERATING EXPENSES RATIO : LIFE INSURERS

(in per cent)

INSURER 2008-09 2009-10LIC 5.76 6.58Private Sector 25.99 20.86TOTAL 11.65 10.85

Note: Operating expenses ratio is the ratio of operatingexpenses to the premium underwritten by the life insurers

I.3.18 As the initial set-up costs incurred by anyinsurance company is high, the Authority granted

exemption from the limits under Rule 17D to 22 privateinsurers in the first five years of commencement oftheir business operations.

I.3.19 Out of the 23 life insurance companies(including 1 PSU) in 2009-10, 10 companies were inthe exemption period. Of the balance, 9 companies(including 1 PSU) were compliant with the limits underRule 17D/directions of the Authority.

Benefits PaidI.3.20 The life industry paid higher gross benefits of`95,833 crore in 2009-10 (`58,527 crore in 2008-09)constituting 36.10 per cent of the gross premiumunderwritten (26.39 per cent in 2008-09). The benefitspaid by the private insurers at `16,671 crore(`6,025 crore in 2008-09), showed an increase of176.71 per cent constituting 21.00 per cent of thepremium underwritten (9.34 per cent in 2008-09). LICpaid benefits of 79,162 crore in 2009-10, constituting42.54 per cent of the premium underwritten(`52,502 crore in 2008-09, 33.38 per cent of the totalpremium underwritten). The benefits paid by the lifeinsurers net of re-insurance were `95,578 crore(`58,370 crore in 2008-09). There has been asignificant increase in the benefits paid on account ofsurrenders/withdrawals which stood at `36,244 crore,of which LIC accounted for `22,395 crore and privatesector `13,849 crore. The comparative previous yearstatistics were `13,869 crore, of which LIC accountedfor `9,723 crore and private sector `4,146 crore.

Individual Death ClaimsI.3.21 In the year 2009-10, the life insurancecompanies settled 7.26 lakh (6.05 lakh in 2008-09)claims on individual policies, with a total payout of`5,958 crore (`4,798 crore in 2008-09). The numberof claims repudiated stood at 14,693 (12,781 in2008-09) for an amount of `245 crore (`180 crore in2008-09). The number of claims pending at the yearend was 15,892 (16,915 in 2008-09) and the amountinvolved was `286 crore (`243 crore in 2008-09). Ofthese claims, 2,180 were pending for more than oneyear. (Statement No. 12)

TABLE 12INDIVIDUAL DEATH CLAIMS : LIFE INSUERS (2009-10)

(Figures in per cent of policies)

Insurer Total Claims Claims Claims Claims Break up of claims pendingClaims paid repudiated written pending at duration wise (Policies)

back end of year < 3 3 to 6 6 to 12 > 12months months months months

Private 100.00 84.88 7.60 0.04 7.48 68.66 14.47 7.70 9.18LIC 100.00 96.54 1.21 0.84 1.41 36.75 23.95 22.55 16.75Total 100.00 95.24 1.93 0.75 2.08 49.53 20.15 16.60 13.72


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I.3.22 The claim settlement ratio of LIC was higherthan that of the private life insurers. While LIC settled96.54 per cent in 2009-10 (95.48 per cent in2008-09) of claims intimated to it during the same year,the private life insurers settled 84.88 per cent(82.26 per cent in 2008-09) of the claims intimated.The percentage of repudiations for LIC was quite lowat 1.21 per cent (1.33 per cent in 2008-09) as against7.60 per cent (9.97 per cent in 2008-09) for the privatelife insurers.

Group Death Claims

I.3.23 A total of 3,05,739 group claims were settled in

2009-10 out of 3,09,151 claims intimated to the life

insurers. Of these, the number of claims repudiated

was 1,520, at 0.49 per cent of the claims intimated.

(Statement No. 13)

TABLE 13GROUP DEATH CLAIMS : LIFE INSURERS (2009-10)

(Figures in per cent of policies)

Insurer Total Claims Claims Claims Claims Break up of claims pendingClaims paid repudiated written pending at duration wise (Policies)

back end of year < 3 3 to 6 6 to 12 > 12months months months months

Private 100.00 96.80 1.61 0.02 1.58 71.00 11.16 9.94 7.90

LIC 100.00 99.80 0.01 0.00 0.19 47.89 20.60 16.13 15.38

Total 100.00 98.90 0.49 0.01 0.61 66.03 13.19 11.27 9.51

I.3.24 In the year 2009-10, the life insurers settled98.90 per cent (98.63 per cent in 2008-09) of the totalclaims payable while 0.61 per cent (0.81 per cent in2008-09) remained pending for settlement orotherwise as at 31st March, 2010. While LIC settled99.80 per cent (99.76 per cent in 2008-09) of groupdeath claims, private insurers settled 96.80 per cent(92.51 per cent in 2008-09). This ratio is much higherthan that of individual policies.

Investment income

I.3.25 As the operations of the life insurers stabilise,their investment base gets strengthened, resulting ininvestment income forming a larger proportion of theirtotal income. In the case of LIC, the investmentincome including capital gains was higher at`1,12,425 crore in 2009-10 compared to 42,804 crorein 2008-09. As a percentage of total income, itconstituted 37.64 per cent in 2009-10 as against 21.37per cent in 2008-09. The income from investmentincludes transfer/gain on revaluation/change in fairvalue. In the case of private insurers, the investmentincome including capital gains was higher at`42,831 crore in 2009-10 as compared to`10,416 crore in 2008-09. As a percentage of totalincome, it constituted 30.70 per cent in 2009-10.

Retention Ratio

I.3.26 LIC traditionally reinsures a small componentof its business. During 2009-10, `95 crore was cededas reinsurance premium (`101 crore in 2008-09).Similarly, in the case of private insurers, a smallcomponent of the business was reinsured, with groupbusiness forming the major component of thereinsurance cessions. The private insurers togetherceded 407 crore (`325 crore in 2008-09) as premiumtowards reinsurance. It may be interesting to view thisin the context of the fact that the risks pertaining tothe investments component of the unit linkedinsurance products are borne by the policyholders anda significant component of the new business premiumunderwritten by the industry in 2009-10 was towardsunit linked products.

Profits of life insurers

I.3.27 Life insurance industry is capital intensive, andinsurers are required to infuse capital at regularintervals to fund both the new business strain and toexpand their infrastructure base including expenseson initial operations, training costs for developmentof the distribution channels, creating niche marketsand achieving reasonable levels of persistency. Theexperience of the insurance markets globally indicates


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that companies in the life sector take seven to tenyears to break-even.

I.3.28 Out of the 23 life insurers in operations during2009-10, 8 companies have reported profits viz. LIC,ICICI Prudential, Kotak Mahindra, SBI, MetLife, BajajAllianz, Sahara India and Aegon Religare. LifeInsurance Corporation of India had reported net profitof 1,061 crore i.e., an increase of 10.80 per cent over`957 crore in 2008-09. ICICI Prudential reported anet profit of `258 crore after incurring losses for eightconsecutive years, after setting up operations. KotakMahindra had reported a profit of `69.22 crore for thesecond year in a row; it reported profit for the firsttime in 2008-09. SBI Life reported profit of 276 crore,as against a loss of `26.31 crore in 2008-09. SBI Lifereported net profits for three consecutive years priorto this from 2005-06 to 2007-08. MetLife has reporteda profit of 25.06 crore. The insurer has been reportingprofits continuously in the last three financial years.However, MetLife is carrying deficit in thePolicyholders Acc

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