IJRET: International Journal of Research in Engineering and Technology eISSN: 2319-1163 | pISSN: 2321-7308

A STUDY ON FINANCIAL PERFORMANCE OF LIFE INSURANCE

CORPORATION(LIC) OF INDIA

Rakesh H M1, Shilpa R2

1
Assistant Professor, Department of MBA, Vidyavardhaka College of Engineering, Mysuru
2
Lecturer, Dept. of Commerce and Management, St. Joseph First Grade College, Mysuru

Abstract
Life insurance is an important form of social security. Insurance sector in India have grown tremendously in the last decade and
is taking a giant shape after privatization of insurance industry. The government of India has notified the foreign direct investment
in insurance to the extent of 49% on 21st February 2015. This may result in increased competition for LIC with other private and
foreign players in the industry. The study have been undertaken to know the financial and operating performance of LIC with a
rationale of knowing the source of income and other expenses of LIC. The period of study will be for 9 years from 2005-06 to
2013-14.

Keywords:Life Insurance, Financial Performance, Operating Performance, Source of Income, Expenditure.

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INTRODUCTION PrachiAgnihotri, in her study, “The impact of Privatization

on the LIC of India” has thrown a light on performance of
The LIC was established in the year 1956 by an Act of LIC of India in a competitive position. The article contained
Parliament, “Life Insurance of India Act”. The Act post privatization period, competitive environment, major
nationalized 245 insurance companies and provident attributes for success of plans and performance of LIC. The
societies to create Life Insurance Corporation of India. The descriptive study was conducted on the negative and
insurance industry has gone a drastic change after positive aspects of LIC by considering the views of experts.
liberalization, privatization and globalization of Indian The study period was 5 years from 2008-09 to 2012-
economy in the year 1991-92. The LIC was the sole player 13.Ratios were used to analyze the performance of LIC. It
in the life insurance industry for the last four decades. The was concluded saying that overall performance evaluation of
entry of private parties and allowing the FDI in insurance LIC of India is consistent and suggested to have more
industry is going to affect the performance of LIC of India service standards to maintain market value of products.
in the near future. It becomes necessary at this point of time
to appraise the financial and operating performance of LIC Dr. K Ramanathan (2014), “A Study on the Cost Control
of India which is supposed to compete with the other Efficiency of LIC of India” in his article has evaluated the
counter parts of other countries that have vast experience in cost control efficiency of LIC during the period 2002 to
the field and can boost enormous investments in the industry 2012 for 10 years. The analysis revealed that in first two
in the coming period. years of the study LIC didn‟t reduce the expenses it has been
made clear from the covariance that income and expenses
REVIEW OF LITERATURE were insignificant throughout the study period. The study
Chandarana and Harish M (2008), in their study, also calculated the cost efficiency score of LIC of India
“Performance Evaluation of LIC of India”have made a study using Data Envelope Analysis and in all the years LIC had
from 1996-97 to 2005-06. They have observed that the scored the highest rank and maintained consistency
percentage of total outgo to total income was less than 50%, compared to private insurance companies.
total assets have increased six times in the study period. The
study has suggested that LIC has to cut the management T Narayana Gowd, Dr. C Bhanu Kiran and Dr. C H
expenses, invest more in infrastructure and need to Ramaprasada Rao, in their research paper made an attempt
emphasize in international markets. to study the overall performance of LIC of India and
investment strategy and its impact on profitability for a
Dr. Ravi N Kadam (2012), “LIC of India: A Giant in period 1998-2011.The investment of LIC has increased from
India‟s Insurance Sector” has made a study on importance of 77.5 % in1998 to 95.81 % in 2010-11 due to effective
insurance in risk management, performance and competitors regulation of SEBI and increasing transparency and
for LIC. The researcher has identified the 23 competitors for performance of Indian corporate securities. The multiple
LIC. The study was done for a period of 5 years from 2005 Regression analysis revealed that investment strategy of LIC
to 2010. The life insurance business was measured on the has positive impact on its Profitability as R multiple
basis of gross premium income and net premium income. Correlation Coefficients in case of sector wiseinvestment
(0.99) and instrument wise investment (0.98) is high. The
Correlation between investment strategy of LIC and its
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Volume: 04 Special Issue: 14 | NCGCT-2015 | Dec-2015, Available @ http://www.esatjournals.org 90
IJRET: International Journal of Research in Engineering and Technology eISSN: 2319-1163 | pISSN: 2321-7308

profitability is significantly positive and also the impact of from annual reports of LIC available in the website
investment strategy of LIC has significantly positive on its www.licindia.in. The other required information has been
profit earned. The Regression model is valid and best fit to gathered from various academic journals, literatures of LIC.
the data as adjusted R2 value being close to R2 value.
Various statistical measures have been used in this study
Ajay Mahal (2002) in his article on “Assessing Private namely; Standard Deviation, Kurtosis, Skewness etc. T test
Health Insurance in India–Potential Impacts and Regulatory have used to validate the hypothesis set for the study.
Issues” asserts that the entry of private health insurance
companies in India is likely to have an impact on the costs Scope of the Study
of health care, equity in the financing of care and the quality
and cost-effectiveness of such care. However, he mentions Life insurance is significantly important for human life
that an informed consumer and a well-implemented today. The present study tries to give a perfect knowledge
insurance regulation regime in many cases eliminate some about the insurance sector managed by government. The
of the bad outcomes study has been made using secondary data for a period of 9
years collected from the annual reports of LIC of India. The
commission expenses and operating expenses have also
Objectives for the Study
been used for analyzing the operating efficiency of the LIC.
1. To evaluate the growth of LIC during the period of the
study Limitations of the Study
2. To evaluate the operating efficiency of LIC
3. To measure the performance of LIC The study has considered only LIC of India to evaluate and
measure the performance. There are so many other life
insurance companies functioning in India that can also be
Hypothesis
considered by the researchers in future. Because of the time
H0: There is no significant difference in expenses of constraint, only LIC has been considered in this study. The
sampled unit during the period of study suggestions and interpretation of data is based on the data
H1: There is a significant difference in expenses of sampled collected through the websites and annual reports of LIC.
unit during the period of study Data Analysis
Life Insurance Corporation of India is doing insurance
Research Methodology
business in India from 1961. By providing insurance it is
The present study has been conducted using secondary data securing the value of human life and gives security to the
of LIC of India. The required information and data have person having policy. The data has been analyzed by
been collected from annual reports of LIC. The data for a considering the five parameters of LIC. All the parameters
period of 9 years from 2005-06 to 2013-14 was collected have been analyzed through the different statistical measure.

Table 1: Components of Expenses

Policy
Total Operating Shareholders
Years % Commission % % % holders %
Claims Expenses Investments
Investments
2005-06 2992136.56 100 684648.01 100 489232 100 16640.43 100 45278642 100
2006-07 3691661.56 123 729694.38 107 528175 108 27945.18 168 51111283 113
2007-08 3852982.79 129 715093.24 104 518311 106 29319.63 176 60539701 134
2008-09 4216774.03 141 862108.36 126 701378 143 31950.4 192 63896170 141
2009-10 5412910.66 181 1054737.9 154 932961 191 35376.27 213 83304127 184
2010-11 5755791 192 1330871 194 1737741 355 41726.63 251 97016710 214
2011-12 7191233 240 1403562 205 1533874 314 45276.07 272 107018081 236
2012-13 7394802 247 1476801 216 1736295 355 47810.55 287 118777524 262
2013-14 9140211 305 1668133 244 2018531 413 49216.9 296 138987239 307

The above table shows the performance of claims paid. The

base year consider for this study is 2005-06. The highest As per the above table the important point to be noted is
percentage of claims was in the year 2011-12 and the lowest regarding the operating expenses of LIC. The increase in
percentage was in the year 2012-13. It depicts year on year operating expenses of LIC is much higher than compared to
the claims is continuously increasing. The other other components.
components like commission paid. Operating expenses,
investments in other assets and policy holders‟ investment
showing increasing trend.

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Volume: 04 Special Issue: 14 | NCGCT-2015 | Dec-2015, Available @ http://www.esatjournals.org 91
IJRET: International Journal of Research in Engineering and Technology eISSN: 2319-1163 | pISSN: 2321-7308

Table 2: Descriptive Statistics

Shareholders Policy holders
Descriptive Statistics Total Claims Commission Operating Expenses
Investments Investments

Mean 5516500.29 1102849.88 1132944.21 36140.23 85103275.22

Standard Error 6.84 1.25 2.06 3.601 1.08
Sample Variance 421.138 140.821 3823.68 116.74 105.71
Median 5412910.7 1054737.9 932960.5 35376.3 83304127.0
Standard Deviation 2.052 3.75 6.18 10804.66 3.251
Kurtosis -0.72 -1.76 -2.02 -0.50 -1.12
Skewness 0.56 0.23 0.27 -0.46 0.37
Range 6148074.44 983484.99 1529299.37 32576.47 93708597
Minimum 2992136.56 684648.01 489231.63 16640.43 45278642
Maximum 9140211 1668133 2018531 49216.9 138987239
Count 9 9 9 9 9

The above table reveals that expenses are increasing year by ‘T’ Test
year significantly. As the expenses increases standard error
will also increase. As already said, the operating expenses H0: There is no significant difference in expenses of
has the highest and fastest increasing variance (3823.68). sampled unit during the period of study
H1: There is a significant difference in expenses of sampled
unit during the period of study

t df Sig. (2-tailed) Result

Total Claims 8.06 8 4.121 Insignificant
Commission 8.816 8 2.155 Insignificant
Operating Expenses 5.49 8 0.0005 Insignificant
Shareholder Investments 10.03 8 8.27 Insignificant
Policyholders investments 7.85 8 4.99 Insignificant

As the t value is more than the table value the hypothesis is CONCLUSION
rejected. The Analysis of Variance gave a result; „F‟ value
64.93 whereas critical value was 2.641. So, by analysis of LIC is successfully creating value to its
variance, the hypothesis is rejected. policyholders.During the study period there was no major
change in the performance of the LIC. It can be said that the
performance is consistent and maintained good market value
SUGGESTIONS
for its products. As many private insurance companies are
1. LIC should try to introduce new plans and insurance establishing its business, competition is certainly set to
products to the prospective insurers in order to increase increase and LIC has to make efforts to retain its top
the revenue through collecting premium. position. Apart from this, LIC need to control the investment
2. As there are many private insurance companies level. The above discussion shows that the investment
functioning in the country there is increased competition (Policy holders‟) has second highest variance, so investment
in the insurance industry. To retain the position of (policyholders‟) needs to be controlled. Research has
industry leader, LIC has to introduce innovative plans to evaluated the various components of expenses with
attract customers scientific methodology to justify the performance; so to
3. There is a need to issue more and more policies for LIC conclude, LIC is doing good, managing the products, and
to retain the market share in this competitive scenario related marketing strategies effectively. But as per analyzed
4. LIC has to make a secured investment so as to maintain data we can say that LIC need to control the Operating
the interest of the policy holders Expenses by not affecting its income.
5. A comparison between the different insurance
companies may help in reducing the cost for the
company

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Volume: 04 Special Issue: 14 | NCGCT-2015 | Dec-2015, Available @ http://www.esatjournals.org 92
IJRET: International Journal of Research in Engineering and Technology eISSN: 2319-1163 | pISSN: 2321-7308

REFERENCES
[1] Kadam, D. (2012). Life Insurance Corporation of India:
A Giant in India's Insurance Sector. IJPSS, 2(6), 316-
325.
[2] Nena, D. (2013). Performance Evaluation of Life
Insurance Corporation of India. International Journal of
Advance Research in Computer Science and
Management Studies, 1(7), 113-118.
[3] Agnihotri, P. (2014). The Impact of Privatization On
Life Insurance Corporation of India. AltiusShodh
Journal of Management & Commerce, 1(1), 1-9.
[4] Ramanathan, D. (2014). A Study on the Cost Control
Effciency of LIC of India. Asia Pacific Journal of
Research, 1(14), 172-179.
[5] www.licindia.com
[6] www.irda.org
[7] www.insure.com

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Volume: 04 Special Issue: 14 | NCGCT-2015 | Dec-2015, Available @ http://www.esatjournals.org 93