A COMPARATIVE ANALYSIS OF FINANCIAL PERFORMANCE OF PUBLIC AND PRIVATE NON LIFE INSURERS IN INDIA

Against the backdrop of high risky nature of the insurance industry and the growing scepticism regarding the working of companies in this sector, it becomes immensely critical to evaluate and compare financial performance of public and private non life insurance companies operating in India. In this paper a set of ratios have been presented and discussed to lend a hand in the analysis of a non-life insurer's financial and statistical returns. Three parameters taken from CARAMEL model have been used to analyse and evaluate the financial performance of selected public and private non-life insurers. The first indicator is “Earnings and Profitability” under which five ratios, i.e., Claim Ratio, Expenses Ratio, Combined Ratio, Investment Income Ratio and ROE Ratio have been analysed. The second indicator is “Management Soundness” under which ratio of operational expenditure to gross premium has been analysed. The third and the last indicator is “Liquidity” under which ratio of quick assets to current liabilities has been statistically analysed. For measuring the performance of selected sample companies on the basis of these financial indicators, the present study employs ratio analysis. Various statistical tools like mean, standard deviation and F-test have been used to test the CARAMEL parameters statistically. The analysis of overall underwriting performance reveals that every rupee of earned premium is being drained away in the form of claims and costs more specifically by private insurers which speaks of their improper risk selection and mismanaged expenditure policy. In terms of management soundness, although both set of companies seem to have breached the standard benchmark of 20 percent (ratio of management expenses to premium), but at the same time both public and private insurers managed to control the management expenses to a significant level. The statistical analysis of liquidity ratio reveals that both public and private insurers lack high degree of liquidity and none of the insurers under study seem to have followed the benchmark of 100 percent liquidity ratio.