Bangalore: Eight life insurance companies operating in India have pumped in more capital into their business in the past two months, an indication of growth in a business where companies have to match growth with capital.
The life insurance market in the country is estimated at Rs1.6 trillion and is expected to grow to $100 billion (Rs4,000 crore) by 2012, according to a report by McKinsey and Co. Ltd.
The fund infusion, according to industry experts, is to sustain and fuel growth, increase market share as well as help meet the solvency requirements set by the Insurance Regulatory and Development Authority (Irda).
“Growth in India’s insurance industry is being fuelled by a strong economy, low penetration of life insurance in the country and the changing demographic profile. This offers a high growth opportunity to all the life insurance players. The growth in life insurance business has to be supported by infusion of capital to build capacity for supporting the growth plans and to maintain the regulatory specified solvency margin,” says Sunil Kakar, executive director-finance and chief financial officer, Max New York Life Insurance Co. Ltd.
As per Irda regulations, life insurance companies are expected to maintain a 150% solvency margin. Solvency margin is a safety margin which indicates how prepared a firm is to meet unforeseen requirements. It is the extra capital that an insurance company is required to hold. To maintain this solvency ratio, insurance companies are allowed to bring in additional capital.
Private sector life insurers, being new, are still in investment mode and are postponing their break-even period to increase market share. The latest to raise its capital base is MetLife India Insurance Co. Pvt. Ltd, which is in its seventh year of operations in India. It has infused Rs350 crore to increase its paid-up capital to Rs1,230 crore. “We will not be a position to break even by 2009 and would be in an investment mode for sometime. We are comfortable with this and want to increase our market share,” says managing director Rajesh Relan.
The other companies include SBI Life Insurance Co. Ltd, which will infuse Rs300 crore in two months. In January, Aviva Life Insurance Co. India Ltd raised its capital base by Rs246.3 crore to Rs1,004.5 crore. Kotak Mahindra Old Mutual Life Insurance Ltd is expected to infuse almost Rs500 crore of equity capital within the next three years.
ING Vysya Life Insurance Co. Ltd plans infusion of Rs500 crore in 2008-09. The capital base of Bajaj Allianz Life Insurance Co. Ltd has grown to Rs875 crore, after a fresh infusion of Rs175 crore last month.
Bharti AXA Life Insurance Co. Ltd, which infused Rs393 crore up to December, expects to add another Rs40-50 crore in the first quarter of 2008. Chief executive officer Nitin Chopra says similar amounts may be required during the course of this year. Max New York Life plans to increase its capital base from current Rs907 crore to Rs2,650 crore by 2011.
When it comes to the preferred choice of customers, unit-linked insurance policies (Ulips) continue to be the front-runner. ING Vysya Life’s managing director and CEO Kshitij Jain says customer preferences are changing and people are buying life insurance policies to meet financial needs of stages such as marriage, child birth, higher education and retirement, and the industry has to continue to bring new, innovative products to meet these demands.