Cost-manage push up private insurers' profits

Private life insurance companies have posted robust profits in the second quarter of this fiscal aided by tight cost controls.
However, going forward, companies expect pressure on their profitability as the new regulations governing unit-linked plans could squeeze margins.
SBI Life Insurance posted a net profit of Rs 103 crore in the second quarter, against Rs 77 crore in the year-ago period, as the company reported one of the lowest expense to GWP (Gross Written Premium) ratio in the current fiscal. It brought down its expense to GWP ratio to 7.76 per cent from 9.18 per cent at the end of the first quarter. Mr M.N. Rao, Managing Director and Chief Executive Officer of SBI Life, said despite the challenging environment, the company could post good profits.
Bajaj Allianz Life Insurance reported a business profit of Rs 199 crore, against Rs 125 crore in the year ago period despite a slowdown in business in September.
Mr Sanjiv Bajaj, Managing Director, Bajaj Finserv, said the company focussed on cost rationalization measures to maintain its margins. “We brought down the total commission to GWP ratio to 7.52 per cent from 8.86 per cent. The ratio of operating expenses to GWP also came down to 16 per cent from 17.55 per cent,” he said.
New regulations
Kotak Life Insurance net profit increased to Rs 13.4 crore from Rs 4.4 crore. Mr G. Murlidhar, Chief Operating Officer, Kotak Life, said growth in new business premium along with stable expenditure helped the company register profits. “Our costs have always been under control as we have not been expanding much,” he said.
For most of the companies, new business premium growth slowed down in September after the new regulations came into effect. Going ahead, companies expect their profitability to be adversely impacted as sales slow down and margins get compressed.
Sales are likely to be sluggish for a few more quarters as agents get used to the new commission structures, said Mr Bajaj.
Margins will be adversely impacted in the new regulatory regime, said Mr Murlidhar.