Life Insurance Corporation's Future Prospects

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Themes: Merger and acquisition takeover
Period : 1999 - 2001
Organization : LIC (Life Insurance Corporation)
Pub Date : 2002
Countries : India
Industry : Financial Services

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Case Code : FINC002
Case Length : 05 Pages
Price: Rs. 200;

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Background Note Contd...

Life Insurance Corporation was formed as a government regulated monopoly in September 1956 by an Act of Parliament, (LIC Act 1956) with a capital contribution of Rs 50 million. Over the years, LIC built a strong distribution and agent network. By 2000, LIC had 2048 branches and 500,000 agents across the country. With income from premiums totalling Rs 6,262 crore and a Rs 1,60,935 crore asset base for fiscal 2001, LIC was a financial powerhouse, with a presence in mutual funds and housing loans besides life insurance (Refer Table I for LIC's growth statistics).

The company had insured more than 11.5 crore people in the country through its individual and group schemes. Of the 60-80 million life insurance policies outstanding, 48% were from the rural and semi urban areas. This was very impressive since no company in any other industry had been able to tap the rural market to this extent. LIC's annual revenue growth rate was 8.8% during 1993-2000.

Table I
LIC'S Growth over the Years

	1957	1974-75	1979-80	1996-97
Individuals (Rs billion)	14.7	118.52	192.43	344.62
Group (Rs billion)	0.05	14.57	61.37	64.61
No. of policies in force (million)	5.69	18.8	22.09	77.75
Group business (million)	n.a.	2.33	5.84	24.45
Life fund (Rs billion)	4.1	30.34	58.18	877.59

Source: www.indiainfoline.com

The opening up of the insurance sector had been the subject of debate for many years². The Insurance Regulatory and Development Authority (IRDA) bill, which was tabled in Parliament, contained detailed guidelines for inviting private players into the insurance sector. In December 1999, the Government approved the IRDA Act, making IRDA the authority to protect the interests of policyholders, and to regulate, promote and ensure the systematic growth of insurance industry.

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2] Life insurance is a written contract between the insured and the insurer, that provides for the payment of the insured sum on the date of the maturity of the contract or on the death of the insured, whichever occurs earlier.