Insurance industry analysis

Basic concept of Insurance is offsetting the Risk. Insurance is basically contract which is readable. There are some types of insurance contracts which if you return to Insurance company, you will receive money against it. But basically insurance is contract which is help them to offset the risk.

There are many different types of risk related with our life. Some of them are very Small some of THEM are Big. It is like possibility of occurance of specific events. Even further the answer of the question why do I need insurance is given on Wells Fargo website.

“Even if you’re in Good health, an unexpected illness or injury could require you to out of pocket if you don’t have health insurance. If you are uninsured and unexpectedly require surgery or other emergency care your expense will be for the full amount of the service which could be thousands of dollars.” – Wells Fargo

The picture is same everywhere and that is starting point for insurance industry.

In India 49% FDI is allowed from 2014. But still largest Life insurance company of india, LIC is held by Govt As per Constitution of India, insurance is come under the seventh Schedule of union List. Means only Centra Government can regulate insurance Sector

History of Insurance Industry in India

History of insurance in India can be traced back to Vedas. In manusmriti we find  various forms of  insurance mentioned. Yogakhema, Headquarter of LIFE Insurance Corporation of India is derived from Rigveda.

Bombey Mutual Assurance Society, First insurance society formed in 1870.

Insurance in its current form, has it’s history dating back from 1818. Anita Bhavsar, Started Oriental Insurance Company for cater European Community. In 1956, Government of India consolidated 245 insurance entity including, Foreign insurance and provident institution and make Life insurance corporation. In 1972, General Insurance Business nationalisation act passed And come into effect from 1 Jan 1973. Till 90s LIC and GIC were Monopoly. GIC was operating through four subsidiary. From December 2004 the link was broken and all five of THEM are different insurance companies namely Oriental Insurance Company, New India assurance company limited, National Insurance Company limited, United India Insurance Company limited.

Industry Structure

Against the global average of 75% in India less than 2% people are insured with some scheme. As the second largest contry in the world, projected market of insurance in India is US$ 350 – 400 Billion to 2020. The industry consists of 53 companies where 24 are in life insurance a d 29 are in non life insurance. LIC is the sole Govr own life insurance company and there is Single Reinsurance company GIC re. Among the largest private Insurance companies, ICICI Prudential, HDFC standard Life insurance are important. There are two specialised Public Sector Insurance Companies namely Export Credit Guarantee corporation for credit insurance and agriculture insurance company for Corp insurance.

April 2015– March 2916 insurance industry grow with 22.5 % with ₹1.38 trillion as new Premium. General insurance grow with 12%. Gross Direct Premium underwritten in 2016 April as ₹106 Billion.

It is expected that insurance Market will quadruple in next 10 years. Indian Insurance market is huge opportunity as the penetration amd the percentage of insured population is low

Operations

Insurance Companies are intermediary as they connect the customer and the investor, Creditors, reinsurer who are willing to bear the Risk. So insurance companies are playing key role to transfer risk to sturdy shoulder. They themselves Also maintain Investments to take care of the Risk. The company also hold diversified portfolio of related insurance contracts. Diversification reduce the Risk for the company. Loss rate in well diversified portfolio is predictable and manageable many times for the company itself. Auto insurance in relatively more risky as the Risk here is don’t have correlation. Even in that case, Diversification helps. So when anyone is buying the stock of Insurance companies, he is actually taking part of that very much low risk which is well diversified with reinsurance, Investment against it and sufficient premium collected from Insurer which also includes running and financing cost of the company.

As insurance companies are long term investor, they invested in many different assets. But many times market is giving around half of the market value. As they are not going to sell investment tomorrow. 

Valuing the insurance company is much like valuing perpetuity. They will continue to receive premium for long Time. So if you know how to find present value of all that Future Cash flow. You are just done.

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About Ashutosh Tilak

Tracking Indian Capital Market since 2010. Finance Student, On this blog I am writing about finance and Investing. You can contact me analystashu@gmail.com or @androidashu & @InsideFinanc on twitter