The insurance sector in India was dominated by the state-owned Life Insurance Corporation (LIC) and the General Insurance Corporation (GIC) along with its four subsidiaries. But in 1999, the Insurance Regulatory and Development Authority (IRDA) bill opened it up to private and foreign players whose share in the insurance market has been rising. The IRDA is the regulatory authority of the insurance sector, entrusted with protecting the interests of the insurance policy holders and regulating, promoting and ensuring orderly growth of the insurance industry in India. As financial intermediaries, life insurers tap savings of the public in the form of premium. In order to sustain public confidence, they have to maintain their financial credibility intact. In other words, a strong financial background enables insurance companies to augment their business. The International Monetary Fund (IMF) suggested a number of indicators to diagnose the health of the insurance sector. This paper makes an attempt to analyze the financial soundness of Indian Life Insurance Companies in terms of capital adequacy, asset quality, reinsurance, management soundness, earnings and profitability, liquidity and solvency ratios.

The insurance sector in India was dominated by the state-owned Life Insurance Corporation and the General Insurance Corporation and its four subsidiaries. The Insurance Regulatory and Development Authority (IRDA) Bill (1999) opened it up to private and foreign players, whose share in the insurance market has been rising. The IRDA is the regulatory authority in the insurance sector, entrusted with protecting the interests of holders of insurance policies and regulating, promoting and ensuring orderly growth of the insurance industry in India. This paper analyses the key financial soundness indicators of the life insurance sector.

As financial intermediaries, life insurers tap savings of the public in the form of premium. In order to sustain public confidence, they have to maintain their financial credibility intact. In other words, a strong financial background enables insurance companies to augment their business. The IMF (2008a and 2008b) has suggested a number of indicators to diagnose the health of the insurance sector. Table 2 analyses few of such indicators of the Indian life insurance sector.

This ratio indicates the capital adequacy of the sector. It shows the amount of capital plus reserves and surpluses needed to support one unit of mathematical reserve. For the industry as a whole, this ratio has increased from 1.3% to 2.2%. Ratios of life insurance companies exhibit very small values because of a very low amount of capital vis-à-vis mathematical reserve. Table values of the private sector show a reducing trend possibly due to a rise in their liabilities.

Risk And Insurance Journal, Life Insurance Companies, Insurance Sector, General Insurance Corporation, Insurance Regulatory and Development Authority, International Monetary Fund, IMF, Management Soundness, Non-Linked Investments, Investment Process, Life Insurance Market, Business Portfolio, Insurance System, Distribution Channels, Financial Liability, Risk Management.