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The IUP Journal of Applied Finance
Determinants of Financial Performance of Indian Life Insurance Sector: Panel Evidence
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This paper attempts to examine the relationship between financial performance and their determinants in the case of Indian life insurance sector. This study is carried out using panel data of 10 companies for 10 years from 2005 to 2014. The financial performance is indicated by Return on Assets (ROA) and the independent variables chosen are claims ratio, growth in gross premiums, leverage, liquidity, capital, size, solvency, risk retention ratio and tangibility. Multicollinearity test is applied and found that leverage has a strong correlation with other independent variables and hence eliminated from the model. The results of panel regression test point that liquidity, size, solvency and risk retention ratio are not significantly related to financial performance and claims ratio, growth in gross premiums, capital and tangibility are negatively related to financial performance.

 
 
 

Insurance sector in India has 53 players, 24 in life, 28 in non-life and 1 in reinsurance. The penetration of insurance industry in India was 3.90% in 2013, while its Asian counterparts have as high as 17.6% (Thailand) and as low as 0.5% (Kuwait). However, comparing the world average and Asian average of 6.3% and 5.4%, respectively, of insurance penetration in 2013, India certainly can embark on a higher growth trajectory considering the demographic advantage and economic potential of Indian population. Taking life insurance sector in particular, India’s penetration is 3.1% against the world’s 3.5% and Asia’s 3.8%. India ranks 15 among 88 countries in terms of premium in 2013 (Sigma, 2014). Needless to say, the spread of awareness of the societal benefits of insurance like indemnification of loss, reduction of worry and fear, source of investment funds, loss prevention and enhancement of credit (Rejda, 2011), and personal benefits like safety, protection, fulfillment of various needs, savings and investment and benefits to business like reduction of uncertainty, increase in efficiency, employee welfare, etc. (Mishra and Mishra, 2011) may enhance better penetration of insurance services. Again, the role of a regulator who ensures an enabling environment for the insurance players as well as policyholders is no less important in this context.

 
 
 

Applied Finance Journal, Determinants, Return on Assets (ROA), Liquidity (LQ), Return on Assets (ROA), Growth in Gross Premiums (GRGP), Tangibility (TANG), Claims Ratio (CLAIMS), Financial Performance, Indian Life Insurance Sector, Panel Evidence.