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VP CHINTAN BAITHAK GOA 2018: Life Insurance Industry

@Anant bhai, @suru27 & I presented on life insurance industry. Please find the presentation attached.

VP_Insurance_Industry_Group_PPT_Final_Part_1.pdf (1.8 MB)

VP_Insurance_Industry_Group_PPT_Final_Part_2.pdf (2.2 MB)

We would be happy to answer any questions.


Excellent presentation
Realised importance of Assets Liabilities mismatch and prevailing interest rate scenario

Realised that due to extraordinary low interest rates globally from 2009 onwards may have affected profitability of global life insurance companies

One question why Life insurance company have to increase there equity in future (as HDFC life insurance says they don’t require for next three years) on Hdfc life balance sheet it’s negative capital employed so don’t require money for routine business (is it regulatory requirements)
Thanks in advance


There is a regulatory requirement to maintain the solvency margin of 150%. It seems like most private players want to maintain margin of at least 200%.

In insurance business, profits are back ended. In first few years, the company makes losses on the regular policies underwritten due to very high cost of acquisition. So if a company is growing very fast, solvency capital gets eroded & solvency margin goes down. This is when equity raising is required.

In case of HDFC Life, a large percentage of the business comes from group side & in single premiums. Although these are low margin businesses , probably they do not make losses. The exception to group/single premium case is credit protect portfolio. In this one, the margins are high despite being group/single product. So they actually end up enhancing solvency capital & hence they might not need to raise capital for 3 years.

Hope this clarifies.


Good work!! BTW, do you look at General Insurance Companies as well?

Hi @pramodblr,

I have done some work on general insurance companies but there are not very many directly listed general insurance companies. ICICI Lombard is really only private player directly listed. Bajaj General Insurance company can be owned through holding company. SBI/HDFC/Kotak etc. are not yet listed.

On standalone health insurance side (SAHI), no company is really listed. I own Max Bupa through Max India holding company. As & when listings happens, we can look more into general insurance space.


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In terms of channels and the market disruption the biggest factor I see in the industry is the emergence of platforms (aka policy bazaar) and the disintermediation in the industry. Which means products need to stand on their own , customer experience can’t be controlled and those who have scale (and therefore cost leadership) or those who are underwriting in innovative manner or those who build very strong brand will benefit.

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Sorry if this is off-topic. Recently there has been new regulation where all new cars need to have minimum 3 years Third Party insurance and all new two-wheelers need to have 5 years Third-party insurance (in addition to one year own-damage component).

This should definitely shine up things for all motor insurance companies. (I am not sure about the % of contribution of motor insurance within general insurance.)

Is there a schedule where it is mentioned when ppt happen which others can follow? Is Delhi on your roadmap for one?

Hi @s_u_n,

I have not looked into this in great detail & I hope ICICI Lombard conf call might have some details on this.

As you have mentioned, third party liability insurance required has gone from 1 year to 3 years. Most of the insurers have combined ratio above 100% for third party component i.e. they make underwriting losses & make money (if at all) through investment income.

The only way in which I see things improving on profitability is through reduced expenses - in terms of commission & other operating expenses. On growth side, although there might be bump in premium over next 1 year, there might be degrowth/flattish/small growth results for year 2 & 3.

I am not sure if OD component is mandatory (have not come across such detail) but this is a better & profitable business & this might help the industry.


Many digital policyholders are price sensitive customers who switch after every renewal, that way they will stick on. Shared riding economy, no of new cars may come down. OD + TD will be somehow be clubbed that unsuspecting new 2 or 4 wheel owners will buy it. Its good for GI industry. Good for the float…more stable… Will have to see how this pans out.

the lone GI company listed ICICI Lombard is quite expensive in my opinion.

Own Damage premium is not compulsory as per law. Third party coverage is compulsory.
While buying a two wheeler, we have to buy 1 year OD + 5 year TP. At the end of the year, it is upto the owner to decide if he/she wants to shell out more for the OD for the second year.

Now, if you are saying that there is no money to make with the 5 year TP for the insurer, then perhaps all of this discussion does not help us see any growth prospects to the general insurance companies. :slight_smile:

a very basic question but @rupeshtatiya could you please help me reconcile the difference between change in liability valuation on the PL and Change in Assumptions reflected in the Movement of Embedded Value?


Change in assumptions shall change the current liabilities in the P&L and that would result in change in surplus value.

Surplus ~= Unwind - New Business Strain

So change in assumptions would result in change in the Unwind component of the EV.

Change in assumptions would also result in a change in VNB.
In normal scenarios, assumptions shall not change so much that VNB value has to be changed but in any scenario where sudden changes happen (e.g. rapidly falling interest rate) - then VNB would also change according to changes in assumption.

I hope this is what you are looking for.

The way I have understood is such that The Embedded value movement has a component which deals with change in assumptions AND Variance in experience. so one part out there (variance in exp) tells us how accurately have assumptions panned out and the change in assumptions tell us effect on EV of assumption changes made DURING the year.

What I want to understand is the meaning of ‘change in actuarial liability’ -