Indian insurance sector has seen significant growth post liberalization. There are now 52 insurance companies of which 45 are private. The sector is estimated to need $8 billion in capital to improve solvency and increase penetration. Life insurance premium grew 11.84% in 2015-16 while non-life premium grew 12%. Growing incomes and changing demographics present opportunities for growth. ICICI Prudential Life is the largest private life insurer in India with a 24.2% market share in the private sector.

1. 1
Indian Insurance Sector: Recording a Significant Growth?
A project report submitted in partial fulfilment of the requirements for
Management of Financial Services under Prof. Rajendra Sahu
By
Anni Gupta (2013IPG-022)
Keshav Singhal (2013IPG-059)
ABV INDIAN INSTITUTE OF INFORMATION
TECHNOLOGY AND MANAGEMENT
GWALIOR-474 015
2017

2. 2
ABSTRACT
Indian insurance industry is quite sizeable and attracts investment from leading insurance players from
different corners of the world. Currently it is being estimated that the Indian insurance industry will
need more than $8 billion worth of capital to improve its solvency standards and increase the
penetration levels. A rapidly growing economy, rising level of incomes, and improving life expectancy
rates are some of the many reasons that will also contribute to the growth of the sector and present a
great opportunity for insurance companies overseas.
Keywords: Insurance Sector, Life Insurance,Non-Life Insurance,LIC.

3. 3
TABLE OF CONTENTS
1. INTRODUCTION 4
2. INDIA INSURANCE MARKET BEEFING UP 5
3. LIFE INSURANCE – STERLING OPPORTUNITY 6
4. NON-LIFE INSURANCE – COLOSSAL SCOPE 9
5. ICICI PRUDENTIAL LIFE 12
6. LARGEST LIFE INSURER IN INDIA 14
7. ANALYSIS THROUGH PORTER’S FIVE FORCES MODEL 17
8. ADVANTAGES OF INDIA 18
9. CONCLUSION 19

4. 4
1. INTRODUCTION
Post liberalization, the insurance industry in India has recorded significant growth. There
are 24 life insurance and 28 non-life insurance companies, out of these 52 insurance
companies, 45 are in the private sector. GIC is the sole national reinsurer.
Indian insurance industry is quite sizeableand attracts investment from leading insurance
players from different corners of the world. Currently it is being estimated that the Indian
insurance industry will need more than $8 billion worth of capital to improve its solvency
standards and increase the penetration levels. A rapidly growing economy, rising level of
incomes, and improving life expectancy rates are some of the many reasons that will also
contribute to the growth of the sector and present a great opportunity for insurance
companies overseas.

5. 5
2. INDIA INSURANCE MARKET BEEFING UP
Post liberalisation, the insurance industry in India has recorded significant growth. India
currently accounts for less than 1.5% of the world’s total insurance premiums and about
2% of the world’s life insurance premiums despite being the second most populous
nation. The insurance industry is expected to rise and reach USD280 billion in 2020 from
its current size of US$ 76 billion (2016), owing to the solid economic growth and higher
personal disposable incomes in the country. During April 2015 to March 2016 period, the
life insurance industry recorded a new premium income of Rs 1.38 trillion (US$ 20.54
billion), indicating agrowth rate of 22.5 per cent. India’s lifeinsurance sector is the biggest
in the world with about 360 million policies which are expected to increase at a
Compound Annual Growth Rate (CAGR) of 12-15% over the next five years. The insurance
industry plans to hike penetration levels to 5% by 2020.
During April 2015 to March 2016 period, general insurance industry recorded a 12%
growth in Gross Direct Premium underwritten in April 2016 at Rs 105.25 billion (US$ 1.55
billion) and is expected to growing at a healthy rate of 17%.

6. 6
3. LIFE INSURANCE – STERLING OPPORTUNITY
The size of the Indian life insurance sector (excluding Sahara Life Insurance Company
Limited) is Rs 3.7 trillion on a total premium basis infiscal2016, making it the tenth largest
life insurance market in the world and the fifth largest in Asia. In FY01-16, Indian life
insurance premium grew at a healthy pace of ~17% CAGR. Despite this, India continues
to remain under-penetrated market with life insurance penetration (Insurance
penetration refers to premiums as a percentage of GDP) at 2.7% in FY15, as compared to
3.7% in Thailand, 7.3% in South Korea and a global average of 3.5% in 2015. Similarly,
insurance density (per capita premium or premium per person) also remains very low as
compared to other developed and emerging market economies at USD 43 in 2015.
Protection gap for India remains higher compared to other Asian peers at ~USD 8.5
trillion. (Source: Swiss Re, Economic Research& Consulting “Mortality Protection Gap
Asia-Pacific 2015”)

7. 7
Life insurance industry recorded a premium income of Rs 3669.43 bn during 2015-16 as
against Rs 3281.02 bn in the previous financial year, registering growth of 11.84% (4.39%
growth in previous year). While private sector insurers posted 13.64 %growth (14.32%
growth in previous year) in their premium income, LIC recorded 11.17% growth (1.15%
growth in previous year).
Changing demographics and rising affluent class India currently has one of the youngest
population in the world with a median age of 28 years. Ii is estimated that 90% of India’s
population will remain below 60 years of age by 2020. Rapid urbanisation coupled with
high share of working population with rising affluence is expected to provide impetus to
growth in Indian life insurance sector.

8. 8
Financial Saving Trend
The share of financial savings as a proportion of household savings is likely to rise, as
stable inflationary trends and positive real interest rates generally diminish the
attractiveness of physical savings such as investments in gold and real estate.
The share of life insurance as a proportion of financial savings in India reached its highest
level at 26.2% in fiscal 2010. However, with regulatory changes in the sector and a
downturn in capital markets, the share of life insurance declined sharply to 16.0% of
financial savings in fiscal 2014. In fiscal 2015, the share of life insurance increased to
19.0%, partly due to increase in the sale of linked products.

9. 9
4. NON-LIFE INSURANCE – COLOSSAL SCOPE
Awareness and popularity of general insurance requirements is growing by leaps
and bounds in India. The non-life insurance market grew from USD2.6 billion in
FY02 to USD13.4 billion in FY16; the non-life insurance penetration rate is 0.7%
over 2015 and Non-life insurance density increased from USD 4.0 in FY04 to USD
10.42 in FY15 at a CAGR of 9.09%.
---------------------------------------------------------------------------------------------------------------------

10. 10
In FY16, motor insurance accounted for 48.5% and health insurance accounted for 12.4%
of the gross direct premiums earned and was valued at USD 6.5 billion & USD 1.65 billion
till March 2016.
Motor insurance dominates the non-life segment in India
Due to the large number of accidents that causes fatalities and disability, the Motor
Vehicles Act, 1988, mandates (under section 146) that every vehicle should be
compulsorily insured for third party risk. The motor insurance is expected to rise due to
the expected growth in sales of automobile (recording 6% CAGR in the last 5 years).
Health insurance is emerging as an alternative mechanism for financing of health care
India is promising market for personal health insurance; only 15% of the population is
covered by government health insurance and 2.2% by private health insurance. Though
the penetration of Health Insurance is still under 1% of India’s GDP, the sector continues
to be the fastest growing segment in the non-life insurance industry. Total Health
Insurance premium grew 22% to Rs 247.84 bn in FY 2015-16 from Rs 202.55 bn in FY 2014-
15. Increase in lifestyle and chronic illnesses like Diabetes, Cancer and Cardiovascular
illnesses along with double digit growth in medical inflation is leading to an increase in
demand for health insurance. As per industry estimates,the total health insurance market
is expected to grow 2X to ~ Rs 500 bn by FY 2020.
Total health spending accounted for only 4.0% of GDP in India in 2012, less than half the
OECD average of 9.3%. Health spending as a share of GDP among OECD countries is
highest in the United States, which spent 16.9% of its GDP on health in 2012.

11. 11
Crop Insurance has strong potential to grow
Crop insurance market in India is the largest in the world, covering around 30 million
farmers. Total sum insured under crop insurance is USD 836.6 million and Government of
India plans to increase the coverage to 50 million during the 12th Five-Year Plan.

12. 12

13. 13
5. ADVANTAGES OF INDIA
Strong Demand
 Growing interest in insurance among people; innovative products and distribution
channels aiding growth
 Increasing demand for insurance offshoring
 Growing use of internet has started increasing demand
Attractive Opportunities
 Life insurance in low-income urban areas
 Health insurance, pension segment
 Strong growth potential for micro insurance, especially from rural areas
Increasing Investments
 Insurance companies in India have raised over Rs 35,000 crore (US$ 5.43 billion)
through public issues in 2017*.
 Increase in FDI limit to 49 per cent from 26 per cent, as proposed in 2012, will
further fuel investments
Policy Support
 Tax incentives on insurance products
 Passing of Insurance Bill gives IRDA flexibility to frame regulations
 Clarity on rules for insurance IPOs would infuse liquidity in the industry
 Repeated attempts to make the sector more lucrative for foreign participants

14. 14
6. ANALYSIS THROUGH PORTER’S FIVE FORCES MODEL
Threat of Substitutes
 Similarity in services makes switchover a potent threat
 Investment oriented customers have switched to other avenues
Threat of New Entrants
 Other financial companies can enter the industry
 Overall threat is medium given that entry is subject to license and regulations
Bargaining Power of Suppliers
 Supplier being the distributor or agent have high bargaining power because they
have customer database and can influence customers in making choices
Bargaining Power of Buyers
 Bargaining power of customers especially corporate is very high because they pay
huge amount of premium
Competitive Rivalry
 Insurance industry is becoming highly competitive with 52 players operating in the
industry
 Companies are competing on price and also using low price and high returns
strategy for customers to lure them

15. 15
7. ICICI PRUDENTIAL LIFE: LARGEST LIFE INSURER IN INDIA
Company Profile: ICICI Prudential Life (I-Pru) is the largest private sector life insurer in
India by total premium and AUM in FY16, with a market share of 24.2% (H1FY17) in the
pvt sector and 12.4% (H1FY17) share in the overall industry. IPru is owned by ICICI Bank
(67.52%), Prudential Corporation, UK (25.83%), Hasham Traders owned by Azim Premji
(4%), Compassvale Investments owned by Temasek (2%) & rest by employees. I-Pru has
large distribution network comprising of 124,155 individual agents and 4,500 bank
partner branches.
I-Pru relies on abancassurancetie-up, which contributed 56.1% of the business generated
in H1FY17. I-Pru’s product mix is predominately driven by market linked products (ULIP),
which formed 80.1% of the individual new business premiums in H1FY17.

16. 16
Investment Rationale
Strong Financial Performance – Gross premium income in FY16 rose by 25.2% to Rs 191,644 mn
YoY and 23.16 percent in FY15 to Rs 153,066 mn. It was Rs 54,690 mn in Q2FY17, up 5.1 percent
over Q2FY16. New business premium (NBP) in FY16 was up by 23 percent to Rs 65,630 mn
compared with FY15. Profit grew only by 0.75 percent to Rs 16,527 mn in FY16 and 5 percent to
Rs 16,403.5 mn in FY15 on YoY basis. Profit in quarter ended Sep 2016 was at Rs 4,190 mn (up 1
percent over Q2FY16). Unit Linked Insurance Plans (ULIPs) comprised 80.1% of I-Pru Life’s retail
annualised premium equivalent (APE) and 72.6% for the H1FY17, I-Pru had Rs 1.13tn of Assets
under Management.
High Persistency Ratio & Lower Expense Ratio – I-Pru’s 13th month persistency ratio is at 82.4%
for FY2016, one of the highest in the sector. Expense ratio as of FY2016 is at 14.6%, one of the
lowest among private sector life insurance companies in India.

17. 17
Healthy Solvency Ratio – IPru has a strong capital position with a solvency ratio of 305.9% at Sep
2016 compared to the IRDAI-prescribed control level of 150%.
Healthy Balance sheet position – Return on Equity (ROE) had exceeded 30% for each year since
fiscal 2012. Value of new business grew from Rs 2,700 mn in FY15 to Rs 4,120 mn in FY16,
representing an increase of 52.6 percent. Contingent liabilities were more or less stable at Rs
1,987.5 mn at the end of June quarter of 2016 against Rs 2,006.5 mn in FY16 and Rs 1,969.2 mn
in FY15. IPru has not received a shareholder capital injection since FY09 and has paid annual
dividends since FY12.
Valuation- At CMP of Rs 345 it is trading at TTM EV (Embedded Value) of 3.4x, IPru has disclosed
its H1FY17 Embedded Value (EV)at Rs 148,380 mn (up by 6.4% from FY2016). We remain positive
on I-Pru in medium to long term with price target of Rs. 426, based on EV of 3.5x FY19E.

18. 18
8. CONCLUSION
Indian insurance industry is seeing good growth due to changing economic environment,
changing government policy and guideline of the regulatory authority, IRDA have also
played a very vital role in the growth of the sector. The sector will also get some boost
with increased awareness about the need for insurance and growing disposable incomes
of middle class.Indiahas alsoemerged as attractive destinations for insurance investment
globally to foreign investor, as government increased maximum permissible shareholding
for foreign investors to 49% of paid-up equity capital from 26%. This led to an inflow in
foreign direct investments (FDI) of $1.13 billion in fiscal 2016, an approximate increase of
170% over fiscal 2015.

19. 19
9. REFERENCES
1. Swiss-Re, IRDA Annual Report, Mckinsey estimates
2. Insurance Regulatory and Development Authority, Aranca Research, General Insurance
Council
3. Swiss Re, BCG, Insurance Regulatory and Development Authority, Aranca Research; ,
ICRA, Financial Express
4. Insurance Regulatory and Development Authority (IRDA), Aranca Research, BCG – The
Changing Face of Indian Insurance
5. LIC, Aranca Research, IRDA
6. IRDA Annual Report, KPMG Analysis
7. ICICI, RBI Annual Report, Aranca Research
8. Towers Watson; Assorted news articles, Aranca Research
9. Agricultural Insurance Company of India Annual Report, Department of Agriculture and
Cooperation, IRDA, Aranca Research, Livemint, PTI
10. SBI Life Annual Report, IRDA, Company website, Aranca Research
11. Reserve bank of India, Average for the year