LBS Journal of Management & Research

Deregulation of the Indian insurance sector has brought in a lot of opportunities and challenges. In the pre-reform era, the Life Insurance Corporation of India (LICI) dominated the country's life insurance sector with a market share (MKS) close to 100 per cent, since its inception in 1956. But the situation drastically changed with the enactment of the Insurance Regulatory and Development Authority of India Act in 1999. This significant piece of legislation in the country's insurance sector allowed the private companies to venture into insurance business, either independently or in collaboration with foreign partners. Though LICI still remains to be the market leader in the country's life insurance sector, an abrupt rise in the number of private players has led to a significant decline in the MKS of LICI. The stiff competition among the life insurers has eventually raised concerns about ensuring a healthy solvency position fromthe viewpoint of safeguarding policyholders’ interests as well as timely payment of assured returns to the policyholders. The purpose of the study was to investigate the solvency position of the life insurance companies in India, against the backdrop of the insurance sector reforms.

The present study sought to establish a relationship between the firmspecific factors [i.e. investment performance ratio, expense ratio (EXPR), MKSs and reserves-to-claims ratio (RCR)] with the solvency ratios (SOLVRs) of the Indian life insurance companies. For this, the study has employed the multiple linear regression analysis by taking the SOLVRs as the dependent variable and the selected factors as the independent variables. The purposive sampling approach has been employed in the selection of the sample that comprises of 1 public-sector and 17 private-sector life insurance firms in India, who has been consistently in operation covering all the years of the period from 2008–09 to 2014–15, with an emphasis on the post-recessionary phase of developments in the country's life insurance sector.

The findings showed that solvency was positively related with investment performance and RCRs. On the contrary, solvency was negatively related with EXPR and MKSs. The results further emphasised the need for the life insurers to focus on investment performances and operational efficiencies for ensuring a sound solvency position.

The paper extends our understanding of the key performance variables that has an impact on the solvency position of the Indian life insurance firms. This study would help the researchers, potential investors, regulators and policy-makers in making sound investment decisions and to correct any shortcomings for future improvement in the solvency position of the life insurance firms in India.