Evaluating financial performance of life insurance companies

Abstract

With the passing of IRDA act , 1999 sweeping changes have taken place in the way insurance business in India. Entry of private players (at present 14) in the life insurance sector resulted in rapid expansion of the sector as a whole with introduction of a number of innovative products. The rapid growth of the sector made it essential to develop a framework to gain understanding of the financials of life insurance companies to protect the interests of the policyholders and prevent any negative impact of failure on the economy. Because of the long term nature of the liabilities and relatively new entrants to the business, the use of traditional term nature of the liabilities and relatively new entrants to the business, the use of traditional financial performance measures might be misleading . This report attempt to highlight the measures that can be used to evaluate financials of the insurance companies . It also attempts to explain the reasons for non suitability of the financial performance measure in evaluation.