annual report 2008-09 - IRDA

ANNUAL REPORT 2008-09
Expenses of life insurers
Section 40 B of the Insurance Act, 1938 provides that
no insurer shall in respect of life insurance business
transacted in India spend as ‘expenses of
management’ in excess of the limits specified in Rule
17 D of the Insurance Rules, 1939. Expenses of
management means all charges incurred whether
directly or indirectly and include commission payments
of all kinds, operating expenses and amount of
expenditure capitalized. A major expense head for the
life insurers is commission paid to the intermediaries.
TABLE 10
COMMISSION EXPENSES OF LIFE INSURERS
(Rs. Crore)
Insurer 2007-08 2008-09
Regular
LIC 4459.48 4350.91
Private Sector 4460.49 4559.30
Total 8919.97 8910.21
Single Premium
LIC 504.33 432.81
Private Sector 50.65 37.81
Total 554.98 470.62
First Year
LIC 4963.81 4783.72
Private Sector 4511.15 4597.11
Total 9474.95 9380.83
Renewal
LIC 4650.89 5271.37
Private Sector 578.46 880.78
Total 5229.35 6152.15
Total
LIC 9614.69 10055.09
Private Sector 5089.61 5477.89
Total 14704.30 15532.98
The commission expenses in 2008-09 increased by
5.64 per cent and amounted to Rs.15532.98 crore
(2007-08: Rs.14704.30). However, the increase in
these expenses were lower than the increase in the
gross premium collected by the insurers. As such, the
commission expenses ratio (commission expenses as
a percentage of premium) marginally declined to 7.00
per cent in 2008-09 from 7.30 per cent of 2007-08.
While the commission expenses increased in the case
of renewal premium, there has been a fall in the
commission paid towards both single and regular
premium. This was commensurate with premium
underwritten in 2008-09.
TABLE 11
COMMISSION EXPENSES RATIOS
(In per cent)
Insurer 2007-08 2008-09
Regular
LIC 17.01 22.73
Private Sector 15.56 15.08
Total 16.25 18.05
Single Premium
LIC 1.49 1.27
Private Sector 1.00 1.05
Total 1.43 1.25
First Year
LIC 8.27 9.00
Private Sector 13.38 13.59
Total 10.11 10.78
Renewal
LIC 5.18 5.06
Private Sector 3.24 2.87
Total 4.86 4.56
Total
LIC 6.42 6.39
Private Sector 9.87 8.49
Total 7.30 7.00
Note: Commission expenses ratio is the ratio between
commission expenses and the premium underwritten by life
insurers
The operating expenses of the life insurers have
increased in 2008-09 from their earlier levels. The
operating expenses towards life insurance business
were Rs.25723.89 crore as against Rs.20298.66 crore
in 2007-08.
TABLE 12
OPERATING EXPENSES OF LIFE INSURERS
(Rs. Crore)
INSURER 2007-08 2008-09
LIC 8309.32 9064.29
Private Sector 11989.34 16659.60
TOTAL 20298.66 25723.89
Operating expenses, as a per cent of gross premium
underwritten increased marginally in 2008-09 for both
LIC and private insurers. However, the average
expense ratio increased to 11.60 per cent as against
of 10.08 per cent in 2007-08. For the private insurers
this ratio worked out to 25.83 per cent higher than
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