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International Referred Research Journal,August, 2011. ISSN- 0974-2832, RNI-RAJBIL 2009/29954;VoL.III *ISSUE-31

H O D H , S A M I K S H A A U R M U L Y A N K A N

Research Paper Management

August , 2011

INTRODUCTIONWith the deregulation of insurance industry in Indiasince 1999, private players have got an opportunity toenter in an insurance markets. Prior to its deregulation,the life insurance business was dominated by the public-sector company is life insurance Corporation of India.While liberalization of insurance sector, as many astwelve new private life insurance companies wereentered with the help of foreign equity up to 26 per centin the life insurance business apart from the HDFCstandard life, which has stand foreign equity only 18.6%

in the beginning of insurance business, in the presenttime there are entire 22 private life insurance companiesoperating business in India, their in we have selectedfive private life insurance companies, as like ICICIprudential life insurance (2000), HDFC standard life(2000), Aviva life (2002), SBI life insurance (2001), TATAlife insurance (2001).

They are entire companies is playing a vitalrole in life insurance business with motive for exist andprospective customers to provide better facilities inlives saving scheme, future security, investment plan,funds investment etc. Consequently, the public-sectorcompany has been face towards countering thechallenges posed by the entered new players in thesame business.

The private players have been striving to buildconfidence in customers and get a foothold in themarkets. In competitive markets, life insurancecompanies come out with innovative and attractive lifeinsurance products, and they are trying to reachcustomers through various techniques.

The Insurance sector reforms have open in the door for private play-ers, private insurance companies in the beginningof l ife insurance bus-iness with publ ic sector company (LIC). Fore ign Direct Investment (FDI) has al lowed in priv atelife insurance companies in India, under an act of IRDA with a limit of foreign equity of 26%.The life insurance sectoris playing a pivo-tal role in both Indian and Global markets.Those factor we have taken for the analysis of privatelife insurance companies performance are premium growth, market share of the companies, portfolio Invest-ment,equity share capital etc. It is use for a measure of positive or negative impact of FDI investment in Indian privatelife insurance co-mpanies. It has investigated for a sample of five selected private life insurance companies and one

public company for the purpose to co-mparison with se lected companies it is using a panel data for analys is in betweenthe period of 2002-10. Different key variabl e is use to an-al ysi s yearly premium income, infr-a structure development,

employee facilities, business expansion etc. it was examined to identify cause for any significant impact on the lifeinsurance secto r. The study has made use of secondary data from different authenticated source to draw a meaningful

conclusion.

A B S T R A C T

Objective of the Study1. To make a study on the nature of foreign institutionalinvestment in Private Life Insurance companies in India.2. To make a study of FDI its impact on Premiumcollection of Private Life Insurance Companies.REVIEW OF LITERATUREThe opening of Life insurance companies also wit-nessed major changes in the insurance products beingoffered by life insurance companies and insurancecovers opted for the customers. For example we see agreater shift from traditional life insurance product (taxsaving schemes) to unit linked insurance policies whichfurther justify the changing mindset to the potentialcustomer, in wake of operation of these joint ventureforeign companies with Indian Insurance companiesand Banks.H. Sadhak (2009) in his book, Life Insurance in India,opportunities, challenges and strategic perspectivereported that Deregulation and Liberalization of nationaleconomy had significant impact on institutionalinvestor such as life insurance, pension fund andinvestment institution, it has given the Globalizationand Emerging trends in life insurance sector. Indian lifeinsurance changing market structure market regulationis integral part of market structure, since regulation ina competitive market environment attempts to promotea healthy competition and protect the consumers. (1)

G. Ganesh (2001) in his book, Privatization in Indiareviewed that insurance sector in India. Insurancecompanies have been playing a vital role to protect orreduced risk in the Human life. Open up the insurancesector and allowing foreign equity has aroused

Foreign Investment in Life Insurance Companies

* Kishor Kumar Meena

* Management, Jaipur National University, Jaipur

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International Referred Research Journal, August, 2011. ISSN- 0974-2832, RNI-RAJBIL 2009/29954;VoL.III *ISSUE-31

widespread interest and a number of domestic andforeign player, privatization is playing a vital role ininsurance sector reform have been created acompetitive edge in an insurance sector, in which they

have also focus on pre liberalization and postliberalization of insurance sector.(2)

P.K. Biswasray and Bh. Venkateswara Rao (2008) in hisbook, Marketing of Life Insurance Business revealedthat about the insurers companies his service towardstheir customers. Insurers companies are using latestIT technology for better facilitate to their customers,in which they have emphasis on the public companys(LIC), their Diversified activities in various state inIndia and Global level. It has also revealed fundperformance of LIC in various sector, impact of reformin insurance sector on LIC, by private playerparticipation, they are discus on product innovationand distribution channel and his operational

performance of LIC.(3)

L.M Bhole (2004) in his book, Financial Institutionand Markets admitted that, the general nature ofinsurance companies both economic and social purposeand relevance. They have concerned to insurance sectorreform which by Malhotra committee recommendationin Indian insurance sector. In which discus theinvestment pattern and policy, investment funds,portfoliorestriction and sector wise investment ofLIC.(4) Kamlesh Gabhar (2006) in his book, ForeignDirect Investment in India reported that Foreign DirectInvestment in India and its nature and scope ofinvestment in Indian companies and various sectorthrough collaboration, merger, acquisition and joint

venture of equity. Since independence till 1990, theperformance of Indian economy has been dominatedby a regime of multiple control, they are also pointedon Determinants and Deterrents of FDI inflow in India,macro economy determinants of FDI in India. (5)

Usha Bhat (2003) in his book, FDI ContemporaryIssue revealed that capital is stated as the engine ofeconomic growth. This statement has gained moreimportance in the recent time, in which discus onconceptual framework of FDI, foreign capital played animportant role in the early stage of industrializations ofmost of the advanced countries and they are revealedthe impact of FDI in the review of past studies. (6)R.K.Uppal (2008) in his book, Financial Sector in India,

Emerging Challenges reviewed that with the initiationof the deregulation insurance sector, the insurancesector plays a vital role in the process of the economicdevelopment of any economy. It has a positivecorrelation with economic development. The paradigmshiftsthat taking place in marketing of the insurance productsand the strategies adopted by the players in the market

in the post liberalization era. Private Players have enteredthe market and with innovative approaches, better useof distribution channels and technology are eatinginto the share of public sector Company in India. (7)

Rakesh Shahani (2008) in his book, Financial Marketsin India indicated about the public sector companyLIC in his life insurance business was commenced andhis investment pattern of funds in different sector,Government securities etc. LIC has been facing thechallenge from private players since 2000; the entry ofprivate players has transferred the entire market, froma sellers market to a buyers market.(8)

Research GapThus, the existing literature neither identifies theimpact of foreign direct investment (FDI) on theworking private life insurance companies in India.Life Insurance is the fastest growing sector inIndia, since 2000 as Government have been allowed

Private players with the limit of FDI up to 26% ininsurance sector. Life Insurance in India wasnationalized by incorporating life insurancecorporation in 1956. All private l ifeinsurance companies at that time were taken overby LIC, but we are discussed only private lifeinsurance companies. The present study examinespositive impact of FDI, how foreign equity havebeen helping to Indian private life insurancecompanies since 2000 to onward, which raise lifeinsurance business to the companies frommetropolitan area till to rural area, but in this help notenough for all the private life insurance companies,because they are lacking behind from financial power.

Which can stands their life insurance business to ahealthy position, an infrastructure development, theycan also help in an employment opportunity andacquired good market share on nation level etc. entireprivate life insurance companies are demanding toincrease current FDI from 26% to 49% might be, theywould be greater aid for the life insurance business.Such IRDA stand a security for foreign investor,they have been investing freely in Indian lifeinsurance sector, and because entire life insurancecompanies registered under IRDA it has reducedfraud case. India is developing country emergingwith uncovered massive population such asattracting foreign investor to investment in Indian

markets.METHODOLOGYThe scope of the study is based on the FDI and itsimpact on the selected working private life insurancecompanies in India. We have discussed on as likepremium growth, business growth, infrastructuredevelopment, business expansion, better Facilities etc.Further, the study makes use of the secondary data for

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evaluating the impact of foreign direct investment (FDI).The relevant statistics are gathered from the selectedlife insurance companies, other secondary source ofIRDA, Previous books, from their websites etc.

exception of two companies rest of entire private lifeinsurance companies using foreign investment for thepurpose of business expansion and penetration. A totaltwenty three life insurance companies, twenty two fromprivate sector and one public company life insurancecorporation of India, but we have selected five privatesector companies. The statistics have collected andutilized for the analysis and evaluate the impact offoreign direct investment on the private sectorcompanies.Analysis Nature of investment Foreign Investor:Indiahas revealed Fifth largest economy across the Globallevel, also have taken rank 3rd in Gross Domestic Product(GDP) in the entire Asian countries. The rank has taken

by India, the most significant factor responsible forFDI inflow in Indian markets, which boosts countryeconomy on international markets level. India has beendeveloping country in the world from two decades.Indian market is growing fast, which attracts more FDIinflow in a country it might be a reason to flourishcountrys economy.India Possesses maximum amountof Foreign Direct Investment (FDI). India is potentiallyactive in term of foreign investment to providelucrative opportunities to the foreign players canbusiness into the Indian markets. In Indian potentialcompanies provides offer on Global level for theforeign companies can business in self branch aswell as JV with other companies, inve-stment in

existing business, The foreign companies haveenjoyed the liberalization of investment and businesswith Indian Players, Foreign player are well knownthat the Indian economy on growing level, one morereason uncovered massive population of the countryand per capita income of individual is well. Foreigncompanies have enjoyed to setup own branch office,representative office in India. Therefore, while openthe door for foreign investor there were fewcompanies operating business in India, they areunable to covered massive population due to dearthof financial power and innovative techniques, lackingof financial power reduced infrastructuredevelopment, facing problem to open new branch

office in rural, urban and semi-urban area, hiring newemployee etc. such condition are tend to attractforeign players inve-stment in an Indian private lifeins-urance companies. Table; 1 presented the publiccompany and private life insurance companiesdistributional office in all rural to metropolitan area,this data are revealing private companies on a fast

pace in comparison with public company lifeinsurance corporation, in every field to open newdistribution channel. It might be foreign investorhelping private players to expand their own life

insurance business in every state and village areaswith lucrative offer.Ta ble 1 : Di s t r i bu t i on Of f i ces o f Al l L i f e In su rer sCompanies as on March31, 2008Insurer Metro Urban Semi Other TotalPublic 311 468 848 895 522Private 628 1169 2692 1902 6391Industry 939 1637 3540 2797 8913Source :- From IRDA Journals

Since end of 2000, While Life insurance has beenprivatized. Indian Government have opened theentry door for foreign players and privatecompanies in Life insurance sector. In the presentscenario has revealed 22 Private Life InsuranceCompanies working in Indian markets, Private lifeinsurance companies have been keeping behindIndian largest public companys (LIC) in aninnovative products, smart marketing, andaggressive distribution attracts customer towardthe private life insurance companies, sign upIndian customers faster than anyone expected.Indian, who had always seen life insurance as atax saving device, are now suddenly turning tothe private sector and snapping up the newinnovative products offer to customers andinvestment plans.The Life Insurance companiesin India have grew by an impressive 36% withpremium income in the year 2003-2004 Rs 24.29billion from new business Rs253.43 billion duringthe fiscal year 2004-2005 in this duration havebeen braving stiff completion from Private LifeInsurance Companies. In which LIC has clocked21.87% growth in business at Rs 197.86 billion byselling 2.4 billion in new polices in the year 2004-2005, but this was still enough the fall. Its marketshare as Private Player grew 129% Rs 55.57 billionin the year 2004-2005 with annual growth rate 15-20 %, the largest number of Life Insurance Policesin force, the potential of the Indian Insuranceindustry is huge.

The total value of insurance marketestimated Rs 450 billion in 2004-2005.Theinsurance business grow in India 17% in Fiscalyear 2008-2009 $ 30 billion. The country economyclocks GDP 7.6%. In Fisca l year 2007-2008 LifeInsurance has been grown up their business 23.3%Rs 930 bil l ion, The Private Life InsuranceCompanies have made a record first quarter yearin 2009,has recorded 13.22% growth in first yearpremium and 20.36% number of polices increaseafter the considering to extend the limit of FDI in

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insurance industry. Analysis Impact of FDIThe above table 2 gives the numerical data of theselected life insurance companies premium Growthyear wise, yearly premium invested by customers in life

insurance companies. In the year 2002-03 publiccompanys (LIC) was collected 546228.49 cr. in thecomparison with five selected private sector companiestheir were total collection 733.52 cr. we can discus in theyear 2004-05 while total significant collection of publiccompany was 75127.29 and in a comparatives withselected private companies their were total collectionof premium around 4402.29 cr. In the year 2007-08 whiletotal collection of public companys was 149789.99 cr.and selected private companies their were totalcollection of premium 27979.99 cr. In during the lastsession 2009-10 public company has been collectedtotal premium around 1, 85,985, its comparison ofselected private companies, their were total collection

of premium 16,495.86 cr. The huge premium collectionhave increased every financial year that was gearinginsurance business in India on fast pace.

The above table 3, presents the resultant figure of theinsurance companies and its market share that indicatethe penetration of life insurance companies in Indianmarkets, such penetration indicate the fruitful growth

and its positive result of utilization foreign investmentin life insurance sector. The new players have improvedthe service quality of the life insurance. As a result haveseen LIC continuing declining in its career from theyear 2000 onward, market share have been distributingamong the private players. In the financial year 2009-10, LIC still hold 65% market share among doing busi-ness of life insurance companies in India, for upcomingnature of these private players are gaining strength togive more competition to LIC in earlier future. Marketshare of LIC has decreased from 95 %( 2002-03) to 81%(2004-05), in the financial year 2007-08 still hold 74.39%and following private players hold the rest of themarket share.

See Table 4 The above table revealing the profit andloss summary to the selected private life insurancecompanies which has been running insurance business

Table 2: Selected life insurance companies collected premium growth yearwise (Rs. in Cr.)

Name of the

life insur. co. 2002-03 2004-05 2007-08 2009-10

LIC 546228.49 7512728.29 149789.99 1,85,985

ICICIPru. 417.62 2363.82 13561.06 6334.31

HDFCStd. 148.83 686.83 4858.56 1000.5

SBI 72.39 601.18 5622.14 7040.66

TATAAIG 81.21 497.04 2046.35 1321.53

AVIVA 13.47 253.42 1891.88 798.86

Source :- From IRDA Journals

In the comparison of public companys (LIC) andselected private life insurance companies the givendata revealing the impact of foreign direct investmentin private sector companies not a bane, its boon for lifeinsurance companies. In premium growth has showntheir performance of business proliferation of selectedprivate life insurance companies, they have beenincreasing their collection of premium investment everyfinancial year.Table 3: Market share of selected companies in (%).

Name of Market Sh. Market Sh. Market Sh.

Player FY 2004-05 FY 2004-05 FY 2004- 05

LIC 78.78 74.39 64

ICICI Pru. 5.6 8.93 11.8

SBI Life 1.80 6.12 6.2HDFC Std. 1.36 2.88 7.4

TATA AIG 1.29 2.53 3.3

Aviva 0.79 1.25 2.5

Other 10.35 3.89 3.9

Total 100 100 100

Soureces: From IRDA Journals

since 2002.We have collected yearly annualreport of their companies for the analysis itwould be suffered gain or loss. The figure hastaken from the selected year; they haverevealed performance to the companies, theycontinuous increase loss every year allcompanies exception of LIC. ICICI prudentiallife insurance in the year 2007-09 increase loss(18, 37,285), in the year 2009-10 increase loss(10, 33,680), in comparison we have taken figure

of SBI life insurance in the year 2005-07 increase loss

(2, 415, 44) in the year 2007-09 the companies havereduce loss 80,751 from the corresponding year 2005-07, in the financial year 2009-10 the company has takenprofit 2,548,743. In the comparison between publiccompany and private life insurance companies, publiccompany taking profit every financial year. In theopposite of selected private life insurance companiesevery financial year have gone downward in theexception of SBI life insurance such as that companyin among show better performance in his track recordto reduce loss and also taking profit.Table 4:Profit and Loss of selected companies

Name of the 2005 2007 2010

Life insur.co.LIC - 7736203 10,607,168

ICIC - (16,016,980) (35,184,918)

HDFC Std. (1,878,181) (4,421,364) (14,664,966)

SBI Life (55,040) (296,584) (16,098,612)

TATA AIG (1,794,004) (3,056,734) (16,098,612)

AVIVA (1,893,874) (4,650,081) (15,072,628)

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In the given table show share holding pattern of entireselected private life insurance companies in which in-vest- ment of foreign player in an Indian life insurance

companies as well as a part of share investment byIndian pr-omoters, they are revealing life insurancecompanies investment in Long term and Short terminvestment in a various sectors such as Governmentsecurities, Government bonds and other approvedsecurities and other investment share, mutual fund,deriv-atives etc. Invest in infrastructure, social sectorand non convertible debe-ntures. They are investingin Short term investment in Government securities,government guaranteed bondsincluding treasury billsothers approved securities and others investment inshare equity, preference share, investment other secu-rities (term deposit) investment properties, real estateetc. for the purpose to enhance the financial position

of insurer companies. Such income investment bypolicyholder into the insurance companies, companiesas optimum utilization of all technique for investingincome in various fund area. Where there to multiple ofinvested money, in there part 26% investment of foreignplayer and other local investerors in India private life

insurance companies. The selected life insurance com-panies in which the given part of percentage investingin insurer companies.

ConclusionEvaluation to the relevant data number of selectedworking private life insurance companies in India,lacking behind from financial strength its needs moreFDI for business expansion. But we have found all theselected private life insurance companies growing hisbusiness growth and its life insurance businessexpanding urban, semi urban and rural areas. The foreigndirect investment (FDI) is not a reverse impact on theworking private life insurance companies business inIndia, but it assist for infrastructure development, assistin better facilities and techniques for sales person,broker etc.. The private sector companies has beenbreaking market share of public company since 2000 to

onward, the penetration strength of private lifeinsurance companies greater than the public companys(LIC) such as development of infrastructure, they havebeen opening more new branch office in rural areas,tapping niche markets for business growth these areultimately a profit solution.

Sadhak. H (2009) Life Insurance In India: Opportunities, Challenges and Strategic Perspective, Sage Publications Pvt. Ltd New Delhi pp 34-50 (1)

Ganesh. G (2001) Privatization in Indian, Mittal Publication New Delhi pp 221-231(2)Biswasray P.K and Rao Venkates- wara Bh. (2008)Marketing

of Life Insurance Business, Discovery publication New Delhi pp 35-55, 193-200,238-245.(3) Bhole L.M. (2004) Financia Inst- itution and Marketsstructure, Growth and Innovation, Tata Mc. Graw Hill Publication Co. LTD. New Delhi pp 11.1-11.23(4)Gabhar Kamlesh (2006) Foreign Direct Investmentin India, New century Publication New Delhi pp 1-10, 96-114(5) Bhat Usha (2003) FDI Contempo-rary Issue Deep and Deep Publicatio- on Pvt. LTD.

New Delhi pp 1-10, 41-54(6)

Uppal R.K. (2008) Financial sect- tor in India, Emerging Challenges, New Century Publication New Delhi pp 167-191(7) Shahani Rakesh (2008) Financial Markets in India, Anamika Publication and Distribution (p) LTD. New Delhi pp 413-416 (8) Journals Rjendran R.and Natarajan B. (2009) The impact of LPG on LIC. Asia Pacific Journal of Finance and Banking Research Vol.3, pp 41-52. IRDA The journal insuranceinstitute of India, jan-june 2009. pp 48-52, 69-73. Ansari A.A and Meena R.S (2010) Growth and Development of LIC. International Journals of Developm-ent studies vol-II jan-june pp 135-149. News Paper & Magazine Magazine Money Outlook Business India economic and political weekly Nov 29,2010. pp 95 Money and Markets Nov, 2009Business Line Published on Sat, Nov 21, 2009 The Financial Express Tuesday Dec 14, 2010 and Monday, Dec03, 2007 The Economic Times, Sept. 21, 2008. Financial Chronicle, 20-Aug-2009 The Hindu Business line. Hopes on hike in FDI Dec,2008 The HinduBusiness line The Hindu group of publications Saturday, Apr 18, 2009BroachersHDFC Standard Life Insurance ICICI Prudential Life Insurance Tata AIG Lifeinsurance SBI Life insurance Aviva life insurance Websites http://www.asianinsuranceveiw.comhttp://www.economictime.indiatime.comhttp://www.business-standard.com http://www.thehindubusinessline.com http://www.hdfcinsurance.com http://www.irda.gov.in httpp://www.insuranceicai.org http://www.iloveindia.com http:/ www.managementparadise.com http://www.irdainia.com http://www.lloyds.com

R E F E R E N C E

Table 5: Share Holding Pattern

Name of Life Insurance co. ICICI Pru. HDFC Std. SBI Life TataAIG Aviva Life

Promoter

Indian Year-2005 - 254,213,000(79.44%) 259,000,000 237,540 236,652,000

Foreign 47,523,000(14.85%) 91,000,000 83,460 83,148,000

Other 18,264,000(5.71%)

Indian Year-2007 969,328,571(73.87%) 656,212,304(81.90%) 370,000,000 404,780 561,068,000

Foreign 340,574,903(25.95%) 126,784,606(15.82%) 130,000,000 142,220 197,132,000

Other 2,398,061(0.18%) 18,264,000(2.28%)

Indian Year-2009 1,055,162,900(73.93%) 1,300,776,000(72.43%) 740,000,000 1,124,430 1,103,932,000

Foreign 370,332,884(25.97%) 466,960,000(26%) 260,000,000 395,070 387,868,000

Other 1,361,509(.10%) 28,269,000(1.57%)
http://www.asianinsuranceveiw.comhttp//http://www.economictime.indiatime.com/http://www.business-/http://www.thehindubusinessline.com/http://www.hdfcinsurance.com/http://www.irda.gov.in/http://www.insuranceicai.org/http://www.iloveindia.com/http://www.managementparadise.com/http://www.lloyds.comr/http://www.irdainia.com/http://www.managementparadise.com/http://www.iloveindia.com/http://www.insuranceicai.org/http://www.irda.gov.in/http://www.hdfcinsurance.com/http://www.thehindubusinessline.com/http://www.business-/http://www.economictime.indiatime.com/http://www.asianinsuranceveiw.comhttp//

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