SWOT Analysis of LIC-
Life Insurance Corporation of India
SWOT Analysis Report of LIC- Life Insurance Corporation of India
COMPANY
OVERVIEW
The
Life Insurance Corporation of India (LIC or “the group”) is primarily a life
insurance service
provider.The
company primarily operates in India. It is headquartered in Mumbai, India and
employed 119,767 people as on 31st March, 2012.
The
group recorded revenues of INR2,873,153.8 million ($52,693.6 million) during
the financial year ended March 2012 (FY2012), a decrease of 4% over FY2011. The
operating profit was INR2,527,819.9 million ($46,360.2 million) in FY2012, a
decrease of 4.7% over FY2011.
SWOT ANALYSIS
The
Life Insurance Corporation of India (LIC or “the group”) is primarily a life
insurance service
provider.
LIC commands a dominant position with a market share of 71.4% of the industry’s
first
year
premium at end FY2011-12 (FY2012). Thus it enjoys economies of scale benefits. However,
increasing competition, and increasing GOI deficit could affect the group’s
margins and financial position.
Strengths
Dominant
market position in Indian life insurance market
LIC,
once a monopoly in Indian life insurance market, still commands a dominant
position. The
market
share of LIC increased to 71.4% in total first year premium and to 80.9% in
individual new business policies. In group insurance premium the market share
increased to 78.5%. The group’s dominant market position is attributable to its
long standing presence in the market. As on 31st March 2012, LIC had 8 zonal
offices, 113 divisional offices, 2,048 branch offices and 1,202 satellite
offices (SOs). In terms of number of lives insured, LIC is unrivalled with more
than 250 million lives. Even after liberalization of life insurance market in
India, LIC continues to be a dominant force due to its perceived backing of
Indian government, and also due to its agency strength that stood at 1,278,234 as
on end March 2012. LIC‘s dominant market position in Indian life insurance
market, which is perceived to continue in near future, provides it with economies
of scale benefits both in terms of policy production, and marketing spend.
Diverse
products, customer base, and channel partnerships sustain premium collection
LIC
product portfolio nearly covers the entire spectrum of life insurance products
available on offer
in
India. The group generates core revenues through four operating business
divisions: individual
assurance
(69.8% of total revenues in FY2012), linked business (21.8%), group schemes
(7.3%),
and
individual pension (1.1%). Within these divisions, it provides several products
suited to the needs of its constituents. The group’s customer base consists of
people from diverse industries, regions, and of various sophistication levels
(in terms of insurance literacy). After the opening of life insurance for
private sector, LIC has diversified its policy distribution channels. Diverse
products, customer base, and channel partnerships of LIC sustain its premium
collection momentum.
Strong
financial position, due to both profitable business growth and investment
management
LIC
balance sheet is strong with zero debt and continued year-over-year growth in
both shareholders’ funds and policy holders’ funds. The group’s policy holders’
funds increased by 11.3% from INR11,098.3 billion ($203.5 billion) in FY2011 to
INR12,354.7 million ($226.6 million) in FY2012. Growth in shareholders’ funds
was also in double digits at 31.4% increasing from INR4,037.4 million ($74.0
million) in FY2011 to INR5,305.7 million ($97.3 million) in FY2012.The group’s
strong financial position is attributable to both business growth (indicated by
net retention ratio well in excess of 99.9% for the last three years), and
investment income. LIC’s strong financial position cushions it from adverse
market developments.
Weaknesses
Government
control and corporate structure limiting returns
LIC
is fully owned by the Government of India (GOI). As a result, GOI exercises
full control over the group’s operations. This type of ownership has both
advantages and disadvantages. Since, the opening of life insurance market to
private players, there is a significant change perceived in the balance of
advantages and disadvantages to the latter. For instance, the group’s Board of
Directors consists of a significant number of government officials who are
involved with several government activities and thus their time spent on
business issues related to LIC is constrained. As a result, the group’s
decision making tends to be slower than its rivals in private sector. Moreover,
as it is owned by GOI, outflow of funds to GOI is significant. It is estimated
that nearly 24% of GOI’s expenses are funded by contributions from LIC. Weaknesses
arising out of government control and corporate structure are expected to
remain in the near future limiting the group’s return on shareholders’ funds.
Opportunities
Continued
growth in Indian life insurance market
According
to MarketLine, the Indian life insurance market shrank by 0.8% in 2011 to reach
a value of $61.8 million. In 2016, the Indian life insurance market is forecast
to have a value of $129.9 million, an increase of 110.2% since 2011. Life
insurance is the largest segment of the life insurance market in India,
accounting for 90.6% of the market's total value. LIC is the leading player in
the Indian life insurance market, generating a 68.5% share of the market's
value. Being the dominant player in Indian life insurance market, LIC has scope
to increase its revenue and profits.
Increasing
spend on training and new product development may accelerate business volume
growth In the last few years ending FY2011, LIC has been spending increasing
amounts on training and new product development. Though the details of amounts
spent on these heads is not revealed, one can infer, from the quantitative
disclosures such as number of persons trained and new products launched, that
the spending on these heads is increasing. For instance, during FY2011, the
group launched two new non-linked plans Bima Account I and Bima Account II. LIC
also launched a new non-linked health insurance plan “Jeevan Arogya”. The plan
offers comprehensive hospitalization benefits for the whole family of the
principal insured. The training imparted to agents and employees helps the
group in increasing the success of new product launch, in retaining their
client base, and also in increasing their business volume per client.
Threats
Increasing
competition likely to reduce profit margins
Competition
in Indian life insurance market has intensified in the recent years. There are
public and private firms operating within India's insurance market with
state-owned LIC is the leading player in the Indian life insurance market,
generating a 68.5% share of the market's value. But private players have moved
aggressively, chasing for business after being allowed to compete with LIC in
2000.
And
overseas insurers, allowed to operate with the passing of the Insurance
Regulatory and Development Authority (IRDA) Act in 1999, have raced into the
market despite rules limiting foreign direct investment in domestic insurers to
26%. Tripartite life insurance joint venture Canara HSBC Oriental Bank of
Commerce (OBC) Life Insurance entered into the group insurance business in October
2010. Moreover, Indian government owned general insurers are planning to enter
health insurance through joint ventures with American insurance companies.
Increasing competition on one hand reduces profit margins and on another hand
reduces market potential per player. Volatility in global financial markets may
affect Indian equity and debt market performance Global financial markets have
been volatile since the onset of subprime crisis. Though, coordinated actions
by several governments did restore some confidence in the market, market
participants are still jittery. A small trigger in Greece public debt
retirement caused a spike not only in Europe but also across several other
connected countries. Essentially, market participants though are willing to
take on higher risk for a perceived higher return, the return of flight to
liquidity can’t be ruled out even when the trigger is small. As a result, when
there is a withdrawal of foreign portfolio investments from Indian equity and
debt markets, investment returns booked by LIC are likely to suffer.
Increasing
GOI revenue deficit
India
is projected to have a fiscal deficit of 5.1% in the year to March 2013. Though
as a percentage of budgets, deficit is declining, it is actually increasing
significantly in terms of actual number.
Increasing
deficit prompts the government of India (GOI) to extract higher returns from
its investments in LIC and other partly or fully owned entities. As a result,
cash outflow in the form of dividends from LIC is likely to remain high as long
as GOI’s absolute deficit increases. Consequently, the group’s financial
position could weaken.
If you want Project Reports on LIC, than contact SWOT Analysis Writers at Mahasagar Publications.
