Financial soundness in Indian insurance sector: A comparison between two leading life insurers

In the pre-reform era, Life Insurance Corporation of India (L.I.C.I) dominated the Indian Life Insurance market. But the situation drastically changed since the beginning of the year 2000. With the development of the IRDA Act in 1999, private players started entering into the life insurance market. At the end of the FY 2011-12, there were 24 life insurance companies (inclusive of 1 public sector player), (L.I.C.I) operating in India. The present paper attempts to compare the level of financial soundness of two leading life insurers in India namely Life insurance Corporation of India (LICI) and ICICI Prudential Life Insurance Company Limited (ICICI Pru). The former is the sole public-sector life insurance player whereas the latter is a dominant private-sector life insurance player in India at present. As financial intermediaries, life insurers tap savings of the public in the form of premium. Hence, they should be financially viable to maintain the timely and anticipated returns of the public. In this regard, the International Monetary Fund (IMF) has come up with the CARAMELS model to analyze the financial soundness of several organizations spread across different industries. This study makes an attempt to analyze the financial soundness of two dominant life insurance players operating in India based on the CARAMELS framework in terms of capital adequacy, asset quality, reinsurance, management soundness, earnings and profitability, liquidity and solvency parameters.