comparative analysis of the performance of public...

CHAPTER VI

COMPARATIVE ANALYSIS OF THE PERFORMANCE OF PUBLIC AND PRIVATE SECTOR GENERAL INSURERS

In a period of half a centaury, the insurance sector in the country has come to a full

circle, from being an open competitive market to full nationalization and then back again to a liberalized market, in which private players and public sector companies are on a level playing field. The opening up of the sector to the private players witnessed the introduction of a number of new products deserving the attention of the customers. Privatization aims at providing benefits of the growth of the industry to the society by providing better customer service and variety of quality products at reasonable prices. The entry of so many companies in this sector was likely to affect the performance of the public sector companies. Thus, the public sector insurers, which never faced competition earlier, now has to compete with the private players which are coming up with different types of innovative policies and other strategic plans. Hence after a decade to Privatization, it is imperative to evaluate the performance of both the sectors to find out which sector is leading and also to know whether the public sector is still marinating its earlier position.

The analysis of the performance of the public and private insurers has been done in the following ways:

I. Class Wise/ Segment Wise Analysis II. Overall/ Combined Analysis

I. CLASS WISE ANALYSIS/SEGMENT WISE ANALYSIS

The “performance” of the insurers has been evaluated under the following parameters: Efficiency Evaluation Productivity Analysis

Efficiency evaluation is becoming more and more considerable in companies’s daily management operations. By looking at the efficiency evaluation, the enterprises can be aware of their specific position, and find out the gap between them and their competitors, so as to determine how they could improve the quality of products on practical and scientific aspects. Efficiency estimation techniques can be categorized into parametric and non-parametric

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methods. The parametric approaches require assumptions about the particular form of cost or profit function and the distribution of efficiency. The non-parametric approaches, on the other hand, require no such specification of the functional form. DEA is frequently used to measure the efficiency of a company. It is a non-parametric multiple input-output efficiency technique that measures the relative efficiency of decision making units or DMUs using a linear programming model. It is non-parametric because it requires no assumption on the shape or parameters of the underlying production. It provides a benchmark for best practice technology based on the experience of those firms in the sample.

Indian General Insurance Sector can be broadly classified into three “classes/segments”: 1. Fire Insurance 2. Marine Insurance 3. Miscellaneous Insurance

EFFICIENCY EVALAUTION OF FIRE INSURANCE SEGMENT

Section 2 of the Indian Insurance Act, 1938 defines fire insurance business as “the business of effecting, otherwise than incidentally to some other class of insurance business, contract of insurance against loss by or incidental to fire or other occurrence customarily included among the risks insured against in fire insurance policies”.

While specifying all the models under the study the condition has been taken care of that the number of Decision Making Unites should be three times the sum of number of inputs and outputs (Nunamaker, 1985). In order to evaluate the efficiency of the fire insurance segment two models have been used.

Model I

Specification of the first model: The specification of the inputs and outputs for the first model have been as

Inputs: Two inputs have been used for this model. The first input used for this particular model has been the shareholders funds comprising of the share capital and reserves and surpluses. The second input has been the operating expenses relating to the fire insurance segment.

Output: Net Premium Income from the fire insurance business has been selected as the output indictor.

This particular model would depict the extent of efficiency of the insurers in utilizing the above mentioned inputs in the production of the net premium income generated from the fire insurance segment.

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Table 6.1

Efficiency Analysis of the Insurers

2002-03 2003-04

Company TE PTE SE RtoS Company TE PTE SE RtoS

National 1 1 1 Constant National 1 1 1 Constant

NewIndia 1 1 1 Constant NewIndia .638 1 .638 Decreasing

Oriental 1 1 1 Constant Oriental .953 .956 .997 Decreasing

United .959 .983 .975 Decreasing United .756 .937 .808 Decreasing

Royal .408 .752 .543 Increasing Royal .430 .446 .964 Increasing

Bajaj .538 1 .538 Increasing Bajaj 1 1 1 Constant

TATA .364 1 .364 Increasing TATA .279 1 .279 Increasing

Reliance .218 .422 .518 Increasing Reliance .331 .341 .970 Increasing

IFFCO .401 1 .401 Increasing IFFCO .932 1 .932 Increasing

ICICI .378 .905 .417 Increasing ICICI .546 .557 .979 Increasing

2004-05 2005-06



NewIndia 1 1 1 Constant NewIndia 1 1 1 Constant

Oriental .945 .950 .995 Increasing Oriental .866 .868 .998 Increasing


Royal .704 1 .704 Increasing Royal .605 1 .605 Increasing

Bajaj 1 1 1 Constant Bajaj 1 1 1 Constant

TATA .402 1 .402 Increasing TATA .327 .395 .827 Increasing

Reliance .589 .895 .657 Increasing Reliance .754 1 .754 Increasing

IFFCO .707 1 .707 Increasing IFFCO .559 .583 .958 Increasing

ICICI .451 .481 .939 Decreasing ICICI .287 .288 .997 Decreasing

2006-07 2007-08


National 1 1 1 Constant National .913 1 .913 Decreasing


Oriental .915 .925 .989 Increasing Oriental .843 .949 .889 Decreasing

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TATA .396 .546 .725 Increasing TATA .401 1 .401 Increasing

Reliance .752 1 .752 Increasing Reliance .555 .990 .560 Increasing

IFFCO .765 .785 .974 Increasing IFFCO 1 1 1 Constant

ICICI .355 .359 .988 Increasing ICICI .508 .581 .876 Decreasing

2008-09 2009-10




Oriental .872 .879 .991 Increasing Oriental .920 .977 .941 Decreasing

United .854 .869 .982 Increasing United .931 .933 .997 Decreasing


Bajaj .804 .950 .846 Increasing Bajaj .874 .914 .956 Increasing

TATA .419 .652 .643 Increasing TATA .502 .696 .722 Increasing

Reliance .732 1 .732 Increasing Reliance .943 1 .943 Increasing

IFFCO .473 .669 .708 Increasing IFFCO .514 .650 .791 Increasing


2010-11 2011-12



NewIndia .994 1 .994 Decreasing NewIndia .920 1 .920 Decreasing

Oriental .853 .922 .925 Decreasing Oriental .864 .910 .949 Decreasing







ICICI .751 .780 .963 Increasing ICICI .588 .617 .952 Increasing (Note: Author’s Own Calculations)

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The above table analyzes that during all the years under study one or two public

sector companies have been found on the frontier. Among the private sector, Bajaj

Allianz has been reporting the efficiency score of 1 for 5 years out of 10 years of study

i.e. 2003-04, 2004-05, 2005-06, 2006-07 and 2007-08. Other than Bajaj, IFFCO has also

shown the efficiency of 1 for single year out of 10 years. The rest of the Private insurers

have been showing the increasing returns to scales in the rest of the years except ICICI

which have been indicating the Decreasing returns to scale in some of the years under

consideration. Examining the public sector it could be concluded that National Insurance

Company has been the top most public sector insurer which has achieved the maximum

efficiency level of 1 during the period 2002-03, 2003-04, 2004-05, 2005-06, 2006-07,

2008-09, 2009-10, 2010-11 and 2011-12. New India Assurance Company has also

enjoyed the Constant Returns to scales in 6 years out of 10 years of study. Oriental

Insurance Company has been on frontier for single year out of 10 years. United India

Insurance Company has not joined the list of the bench markers in any of the years.

Moreover the public sector insurers have recorded the decreasing returns to scale in most

of the years under study, which is an indication that after a decade to liberalization the

private sector has made its presence realized in the insurance market.

Table 6.2

Economies of Scale of the insurance companies

Year Sector IRS CRS DRS Total no of companies

Public 0 3 1 4 2002-03 Private 6 0 0 6 Public 0 1 3 4 2003-04 Private 5 1 0 6 Public 1 2 1 4 2004-05 Private 4 1 1 6 Public 1 2 1 4 2005-06 Private 4 1 1 6 Public 1 2 1 4 2006-07 Private 5 1 0 6

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Public 0 1 3 4 2007-08 Private 3 2 1 6 Public 2 2 0 4 2008-09 Private 6 0 0 6 Public 0 1 3 4 2009-10 Private 6 0 0 6 Public 0 1 3 4 2010-11 Private 6 0 0 6 Public 0 1 3 4 2011-12 Private 6 0 0 6

(Source: Author’s Own Calculations)

The above table exhibits that in the year 2008-09 the maximum number of insurer

have marked the increasing returns to scale i.e. 8 insurers (comprising of 2 public insurers

and 6 private insurers) out of total 10 insurers have depicted that the increase in their

output has been more than the proportional change in their input. In the years 2002-03,

2004-05, 2005-06, 2006-07 and 2007-08 the maximum numbers of insurers have enjoyed

the Constant returns to scale and it is the year 2003-04, 2007-08, 2009-10, 2010-11 and

2011-12 when 3 insurers have exhibited decreasing returns to scale i.e. the increase in

their output has been less than the proportional increase in their input. In these said years

3 public sector insurers have shown the DRS.

Table 6.3

Sector Wise Analysis

Year Sector Mean of TE Mean of PTE Mean of SE Public .989 .995 .993 2002-03 Private .384 .846 .463 Public .836 .973 .860 2003-04 Private .586 .724 .854 Public .941 .961 .977 2004-05 Private .642 .896 .734 Public .889 .906 .976 2005-06 Private .589 .711 .856

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Public .931 .946 .982 2006-07 Private .689 .781 .884 Public .895 .958 .934 2007-08 Private .681 .928 .743 Public .931 .937 .993 2008-09 Private .539 .786 .709 Public .959 .977 .981 2009-10 Private .655 .809 .818 Public .889 .908 .979 2010-11 Private .618 .868 .721 Public .914 .951 .960 2011-12 Private .546 .793 .712

(Note: Author’s Own Calculations)

Above table states the mean of TE, mean of PTE and mean of SE of both public

sector insurers and private sector insurers. The mean of TE of public sector has been

depicting decreasing trends and in the year 2011-12 it has been marked at .914.

Analyzing the private sector it could be said that the mean TE of this sector has been

increasing and has been recorded with the value .546 in 2011-12. After a slight increase

and decrease in the values, the mean of PTE of public sector insurers has been marked at

.951 in 2011-12. Same is the case with the private sector that after a slight increase and

decrease in the value of mean PTE value of private sector, the value of the mean of the

PTE has been marked as .793 in 2011-12 .The mean of the SE depicts that the public

sector has been showing decrease over the time and the private sector has been depicting

the increasing trends over the study as its mean of SE has been .463 in 2002-03 which has

gradually increased over the time and has reached to .712 in 2011-12. The mean TE of

public sector has reduced due to the decrease in the mean of the SE as well as the mean

of PTE of this sector. The results of the Private sector emphasizes that the increase in the

mean of TE has been due to the increase in the mean of the Scale Efficiency whereas the

value of the mean of Pure Technical Efficiency has decreased a little. The above analysis

states that though the technical efficiency of Private Sector has improved over the time,

the TE of public sector has been higher i.e. 91.4% as compared to private sector i.e.

54.6% which states that public sector has been more efficient as compared to private

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sector in terms of efficiency in fire insurance business. The findings of this model depict

that public sector has used their inputs in more efficient manner in the production of net

premium income from the fire insurance segment as compared to the private sector.

Table 6.4

Overall Analysis

Years Insurers Mean of TE Mean of PTE Mean of SE

2002-03 All Insurers .627 .906 .676

2003-04 All Insurers .686 .824 .857

2004-05 All Insurers .762 .923 .832

2005-06 All Insurers .709 .789 .905

2006-07 All Insurers .786 .848 .924

2007-08 All Insurers .767 .940 .820

2008-09 All Insurers .696 .847 .823

2009-10 All Insurers .777 .877 .883

2010-11 All Insurers .726 .884 .824

2011-12 All Insurers .693 .857 .812 (Note: Author’s Own Calculations)

The above table shows that the TE of all the insurers has increased over the time

which can be attributable to increase in SE though PTE has decreased over the time. For

the purpose of overall analysis the mean efficiency scores have been classified into 0-

0.3, 0.3-0.6, 0.6-0.9 and 0.9-1 and thereafter the comparison of all the insurers have been

made with respect to their efficiency scores in order to find out the range within which

they lie. By following the same it has been found that in all the years the overall

efficiency score lies in the higher interval of 0.6-0.9 and 0.9-1. This might be because all

the insurers are operating on increasing return to scale or it can be contributed by PTE

and SE. Moreover it has been shown in table that the mean of TE increased from 0.627 in

the year 2002-03 to 0.693 in the 2011-12. It has also been found that all the insurers are

also better at SE, while comparing the initial year with the current year. But the PTE of

the insurers has decreased from .906 in 2002-03 to .857 in 2011-12. Thus it could be

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concluded that all the general insurers should lay more stress on improving their

managerial efficiencies.

Model II

Specification of the second model: The specification of the inputs and outputs for the

second model have been as

Inputs: Two inputs have been used for this model. The first input used for this particular

model has been the shareholders funds comprising of the share capital and reserves and

surpluses. The second input has been the operating expenses relating to the fire insurance

segment.

Output: Net Claims Incurred from the fire insurance business has been selected as the

output indictor.

This particular model would show the level of efficiency of the Indian General

Insurers in the utilization of the above mentioned inputs in the maximization of the net

claims incurred from the fire insurance segment.

Table 6.5


2002-03 2003-04 Company TE PTE SE RtoS Company TE PTE SE RtoS National .872 .893 .976 Increasing National 1 1 1 Constant NewIndia 1 1 1 Constant NewIndia .937 1 .937 DecreasingOriental 1 1 1 Constant Oriental 1 1 1 Constant United .981 .992 .989 Increasing United .790 .816 .968 DecreasingRoyal .162 .465 .349 Increasing Royal .408 .474 .861 Increasing Bajaj .181 1 .181 Increasing Bajaj 1 1 1 Constant TATA .120 1 .120 Increasing TATA .439 1 .439 Increasing Reliance .317 1 .317 Increasing Reliance .70 .799 .876 Increasing IFFCO .180 1 .180 Increasing IFFCO 1 1 1 Constant ICICI .091 .450 .202 Increasing ICICI .403 .417 .968 Decreasing

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2004-05 2005-06 Company TE PTE SE RtoS Company TE PTE SE RtoS National 1 1 1 Constant National 1 1 1 Constant NewIndia .929 1 .929 Decreasing NewIndia .917 1 .917 DecreasingOriental 1 1 1 Constant Oriental .818 .849 .963 DecreasingUnited .668 .786 .850 Decreasing United .435 .494 .882 DecreasingRoyal .663 1 .663 Increasing Royal .299 1 .299 Increasing Bajaj 1 1 1 Constant Bajaj .972 1 .972 Increasing TATA .380 1 .380 Increasing TATA .301 .325 .924 Increasing Reliance .587 .946 .620 Increasing Reliance 1 1 1 Constant IFFCO .699 1 .699 Increasing IFFCO .193 .206 .939 Increasing ICICI .412 .432 .955 Decreasing ICICI .205 .209 .983 Increasing 2006-07 2007-08 Company TE PTE SE RtoS Company TE PTE SE RtoS National 1 1 1 Constant National 1 1 1 Constant NewIndia 1 1 1 Constant NewIndia 1 1 1 Constant Oriental .729 .737 .990 Increasing Oriental 1 1 1 Constant United .921 1 .921 Decreasing United .788 .975 .991 DecreasingRoyal .263 1 .263 Increasing Royal .335 1 .335 Increasing Bajaj .862 1 .862 Increasing Bajaj .550 .584 .942 Increasing TATA .213 .377 .564 Increasing TATA .174 1 .174 Increasing Reliance .746 1 .746 Increasing Reliance .467 1 .467 Increasing IFFCO .606 .814 .745 Increasing IFFCO .887 1 .887 Increasing ICICI .216 .228 .947 Increasing ICICI .343 .347 .988 Increasing 2008-09 2009-10 Company TE PTE SE RtoS Company TE PTE SE RtoS National .918 .958 .959 Increasing National .794 .818 .971 Increasing NewIndia .604 1 .604 Decreasing NewIndia 1 1 1 Constant Oriental 1 1 1 Constant Oriental 1 1 1 Constant United .623 .730 .853 Decreasing United .473 .475 .996 Increasing Royal .228 1 .228 Increasing Royal .253 1 .253 Increasing Bajaj .588 .735 .799 Increasing Bajaj .584 .717 .814 Increasing TATA .218 .394 .553 Increasing TATA .301 .561 .536 Increasing

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Reliance .516 .901 .573 Increasing Reliance .928 1 .928 Increasing IFFCO .525 .799 .657 Increasing IFFCO .605 .968 .624 Increasing ICICI .442 .465 .949 Increasing ICICI .472 .480 .984 Increasing 2010-11 2011-12 Company TE PTE SE RtoS Company TE PTE SE RtoS National .740 .774 .956 Increasing National .966 1 .966 Increasing NewIndia 1 1 1 Constant NewIndia 1 1 1 Constant Oriental 1 1 1 Constant Oriental 1 1 1 Constant United .454 .459 .988 Increasing United .596 .607 .983 Increasing Royal .164 1 .164 Increasing Royal .192 1 .192 Increasing Bajaj .407 .529 .769 Increasing Bajaj .302 .399 .758 Increasing TATA .344 .939 .366 Increasing TATA .239 .481 .496 Increasing Reliance .521 1 .521 Increasing Reliance .546 1 .546 Increasing IFFCO .577 1 .577 Increasing IFFCO .331 .739 .448 Increasing ICICI .778 .877 .887 Increasing ICICI .420 .463 .906 Increasing (Note: Author’s Own Calculations)

The above table states that during all the years under study one or two public



i.e. 2003-04 and 2004-05. The results further exhibit that Reliance and IFFCO have

enjoyed the constant returns to scales for single year out of total time period. The rest of

the Private insurers have been showing the increasing returns to scales in all the years

except ICICI which has been indicating the Decreasing returns to scale in some of the

years under consideration. Examining the public sector it could be summarized that

Oriental Insurance Company has been the only public sector insurer which has achieved

the maximum efficiency level of 1 during the period 2002-02, 2003-04, 2004-05, 2007-

08, 2008-09, 2009-10, 2010-11 and 2011-12. The second and third position in terms of

being on frontier has been enjoyed by both New India Assurance Company and National

Insurance Company. United India Insurance Company has not joined the list of the bench

markers in any of the years. Moreover when the public sector insurers are not on frontier

these have shown the decreasing returns to scale in most of the years under study, which

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is an indication that reforms in the Indian General Insurance Sector has affected the

workings of the public sector general insurers.

Table 6.6



Public 2 2 0 4 2002-03

Private 6 0 0 6

Public 0 2 2 4 2003-04

Private 3 2 1 6

Public 0 2 2 4 2004-05

Private 4 1 1 6

Public 0 1 3 4 2005-06

Private 5 1 0 6

Public 1 2 1 4 2006-07

Private 6 0 0 6

Public 0 3 1 4 2007-08

Private 6 0 0 6

Public 1 1 2 4 2008-09

Private 6 0 0 6

Public 0 2 2 4 2009-10

Private 6 0 0 6

Public 0 2 2 4 2010-11

Private 6 0 0 6

Public 2 2 0 4 2011-12

Private 6 0 0 6 (Source: Author’s Own Calculations)

The above table exhibits that in the years 2002-03 and 2011-12 the maximum

number of insurer have marked the increasing returns to scale i.e. 8 insurers (comprising

of 2 public insurers and 6 private insurers) out of total 10 insurers have depicted that the

increase in their output has been more than the proportional change in their input. In the

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year 2003-04 the maximum numbers of insurers have enjoyed the Constant returns to

scale and it is the year 2003-04, 2004-05 and 2005-06 when 3 insurers have exhibited

decreasing returns to scale i.e. the increase in their output has been less than the

proportional increase in their input.

Table 6.7


Year Sector Mean of TE Mean of PTE Mean of SE

Public .963 .971 .991 2002-03

Private .175 .819 .224

Public .931 .954 .976 2003-04

Private .658 .781 .857

Public .899 .946 .944 2004-05

Private .623 .896 .719

Public .792 .835 .940 2005-06

Private .495 .623 .852

Public .912 .934 .977 2006-07

Private .484 .736 .687

Public .947 .993 .997 2007-08

Private .459 .821 .632

Public .786 .922 .854 2008-09

Private .419 .715 .611

Public .816 .823 .991 2009-10

Private .523 .787 .689

Public .798 .808 .986 2010-11

Private .465 .890 .547

Public .890 .901 .987 2011-12

Private .338 .680 .557 (Note: Author’s Own Calculations)

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The above table presents the mean of TE, mean of PTE and mean of SE of

both public sector insurers and private sector insurers. The mean of TE of public

sector has been depicting decreasing trends and in the year 2011-12 it has been

marked at .890. Analyzing the private sector it could be said that the mean TE of this

sector has been increasing while comparing the initial year with the current year and

has been recorded with the value of .338 in 2011-12. After a slight increase and

decrease in the values, the mean of PTE of public sector insurers has been marked at

.680 in 2011-12. Same is the case with the private sector that after a slight increase

and increase in the value of mean PTE value of private sector, the value of the mean

of the PTE has been marked as .680 in 2011-12. After a slight change in the value of

SE of public sector the value has been recorded as .987 in 2011-12. The mean of the

SE depicts that the private sector has been depicting the increasing trends over the

study as its mean of SE has been .224 in 2002-03 which has gradually increased over

the time and has reached to .557 in 2011-12. The mean TE of public sector has

reduced due to the decrease in the mean of PTE of this sector whereas the SE of the

public insurers has remained same. The results of the Private sector emphasis that the

increase in the mean of TE has been due to the increase in the mean of the Scale

Efficiency over the study whereas the value of the mean of Pure Technical Efficiency

has decreased in 2011-12. The above results state that no doubt the technical

efficiency of Private Sector has improved over the time and the TE of public sector

has decreased over the period but still it is comparatively higher than the value of the

private sector which shows that public sector has been more efficient as compared to

private sector in terms of efficiency in fire insurance business. The findings of this

model depict that public sector has used their inputs in more efficient manner in the

production of net claims incurred from the fire insurance segment as compared to

their private counterparts.

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Table 6.8

Overall Analysis


2002-03 All Insurers .490 .880 .532

2003-04 All Insurers .768 .851 .905

2004-05 All Insurers .734 .916 .810

2005-06 All Insurers .614 .708 .888

2006-07 All Insurers .656 .816 .804

2007-08 All Insurers .654 .873 .778

2008-09 All Insurers .566 .798 .718

2009-10 All Insurers .639 .802 .809

2010-11 All Insurers .598 .858 .723




the purpose of overall analysis the mean efficiency scores has been divided into 0- 0.3,

0.3-0.6, 0.6-0.9 and 0.9-1 and thereafter the comparison of all the insurers have been


they lie. By following the same it has been found that in all the years the overall

efficiency score lies in the higher interval of 0.6-0.9 and 0.9 to 1. This might be because

all the insurers are operating on increasing return to scale or it can be contributed by PTE




the insurers has slightly decreased from .880 in 2002-03 to .769 in 2011-12. Thus it could

be concluded that all the general insurers should lay more stress on improving their


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EFFICIENCY EVALAUTION OF MARINE INSURANCE BUSINESS

Marine insurance is an important element of general insurance. It essentially

provides cover from loss suffered due to marine perils. Marine insurance extends beyond

marine perils to provide cover for loss incurred during shipment of cargo over water

bodies like rivers, lakes and inland waterways. It also covers ships under construction,

docked for repairs, stranded at ports and ships transporting consignment. In order to

evaluate the efficiency of the marine insurance segment two models have been used.

Model I

Specification of the model: The specification of the inputs and outputs for the first

model have been as



surpluses. The second input has been the operating expenses relating to the marine

insurance segment.

Output: Net Premium Income from the marine insurance business has been selected as

the output indictor for this model.

This particular model would depict the extent of efficiency of the insurers in

utilizing the above mentioned inputs in the production of the net premium income

generated from the marine insurance segment.

Table 6.9


2002-03 2003-04




Oriental 1 1 1 Constant Oriental .858 1 .858 Decreasing


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Bajaj .754 1 .754 Increasing Bajaj .869 1 .869 Increasing

TATA .741 1 .741 Increasing TATA 1 1 1 Constant


IFFCO .571 1 .571 Increasing IFFCO 1 1 1 Constant


2004-05 2005-06


National .830 1 .830 Decreasing National .906 1 .906 Decreasing


Oriental .788 .954 .826 Decreasing Oriental .847 1 .847 Decreasing


Royal .909 1 .909 Increasing Royal 1 1 1 Constant

Bajaj 1 1 1 Constant Bajaj .889 .931 .955 Decreasing

TATA 1 1 1 Constant TATA 1 1 1 Constant


IFFCO .884 1 .884 Increasing IFFCO .952 1 .952 Decreasing


2006-07 2007-08









Reliance .830 1 .830 Increasing Reliance .585 .803 .728 Increasing

IFFCO .874 .967 .904 Decreasing IFFCO 1 1 1 Constant

ICICI .220 .220 1 Constant ICICI .163 .187 .874 Decreasing

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2008-09 2009-10


National .997 1 .997 Decreasing National .921 .925 .996 Decreasing

NewIndia .834 1 .834 Decreasing NewIndia .750 .912 .822 Decreasing

Oriental .938 1 .938 Decreasing Oriental 1 1 1 Constant

United .934 1 .934 Decreasing United 1 1 1 Constant






ICICI .191 .197 .970 Decreasing ICICI .390 .390 1 Constant

2010-11 2011-12


National .772 .989 .780 Decreasing National .861 .957 .899 Decreasing


Oriental .613 1 .613 Decreasing Oriental .792 1 .792 Decreasing

United .610 .926 .658 Decreasing United .826 1 .826 Decreasing






ICICI .410 .411 .998 Increasing ICICI .375 .380 .989 Decreasing(Note: Author’s Own Calculations)

The above table depicts that during all the years under study all the public sector companies have either been enjoying the constant returns to scales or have been depicting the decreasing returns. Moreover one or two private sector insurers have been on frontier in all years under study except in 2002-03. Among the private sector, TATA AIG has been reporting the efficiency score of 1 for 9 years out of 10 years of study i.e. 2003-04, 2004-05, 2005-06, 2006-07, 2007-08, 2008-09, 2009-10, 2010-11 and 2011-12. Bajaj has

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shown the efficiency of 1 for 3 years out of 10 years. IFFCO and ICICI have been on the frontier for 2 years only. Royal Sundram has been showing the efficiency of 1 for single year i.e. in the year 2005-06. The Reliance has not been on the frontier in any of the years. Examining the public sector it could be concluded that National Insurance Company has been the top most public sector insurer which has achieved the maximum efficiency level of 1 during the period 2002-03, 2003-04, 2006-07 and 2007-08. Oriental Insurance Company has also enjoyed the Constant Returns to scales in 3 years out of total time period of study. New India Insurance Company has been on frontier for 2 years only. United India Insurance Company has joined the list of the bench markers for a single year i.e. 2009-10.

Table 6.10



Public 0 2 2 4 2002-03 Private 6 0 0 6 Public 0 1 3 4 2003-04 Private 4 2 0 6 Public 0 0 4 4 2004-05 Private 3 2 1 6 Public 0 0 4 4 2005-06 Private 1 2 3 6 Public 0 3 1 4 2006-07 Private 3 2 1 6 Public 0 2 2 4 2007-08 Private 3 2 1 6 Public 0 0 4 4 2008-09 Private 3 2 1 6 Public 0 2 2 4 2009-10 Private 3 3 0 6 Public 0 0 4 4 2010-11 Private 5 1 0 6 Public 0 0 4 4 2011-12 Private 4 1 1 6

(Source: Author’s Own Calculations)

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The above table states that in the year 2002-03 the maximum number of insurer

have marked the increasing returns to scale i.e. 6 insurers (comprising of 6 private

insurers) out of total 10 insurers have depicted that the increase in their output has been

more than the proportional change in their input. In the years 2006-07 and 2009-10 the

maximum numbers of insurers have enjoyed the Constant returns to scale and it is the

year 2005-06 when 7 insurers have exhibited decreasing returns to scale i.e. the increase

in their output has been less than the proportional increase in their input. In these said

years 4 public sector insurers and 3 private sector insurers have shown the DRS.

Table 6.11


Year Sector Mean of TE Mean of PTE Mean of SE Public .903 .971 .926 2002-03 Private .551 .80 .70 Public .792 .966 .836 2003-04 Private .697 .881 .804 Public .791 .944 .833 2004-05 Private .782 .918 .849 Public .738 .939 .779 2005-06 Private .751 .853 .887 Public .904 .906 .997 2006-07 Private .687 .834 .851 Public .923 .968 .951 2007-08 Private .68 .817 .835 Public .925 1 .925 2008-09 Private .741 .795 .938 Public .917 .959 .954 2009-10 Private .772 .827 .942 Public .682 .978 .696 2010-11 Private .667 .737 .919 Public .791 .989 .801 2011-12 Private .692 .771 .919


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Above table shows the mean of TE, mean of PTE and mean of SE of both public







decrease in the value of mean of PTE the value of the mean of the PTE has been marked

as .771 in 2011-12.The mean of the SE depicts that the public sector has been showing

decrease over the time and the private sector has been depicting the increasing trends

over the study as its mean of SE has been .70 in 2002-03 which has gradually increased

over the time and has reached to .919 in 2011-12. The mean TE of public sector has

reduced due to the decrease in the mean of the SE whereas PTE of this sector has

improved a little. It has been found further that the increase in the mean of TE has been

due to the increase in the mean of the Scale Efficiency over the study whereas the value

of the mean of Pure Technical Efficiency has decreased a little. The above analysis states

that though the technical efficiency of Private Sector has improved over the time, the TE

of public sector i.e. 79.1% has been comparatively higher than that of private sector

which further shows that the public sector is more efficient as compared to private sector

in terms of efficiency in marine insurance business. The findings of this model depict that

public sector has used their inputs in more efficient manner in the production of net

premium income from the marine insurance segment as compared to the private sector.

Table 6.12

Overall Analysis of the Insurers

Years Insurers Mean of TE Mean of PTE Mean of SE 2002-03 All Insurers .692 .869 .790 2003-04 All Insurers .735 .915 .817 2004-05 All Insurers .786 .929 .842 2005-06 All Insurers .746 .888 .844 2006-07 All Insurers .774 .863 .910

216

2007-08 All Insurers .777 .878 .882 2008-09 All Insurers .815 .877 .934 2009-10 All Insurers .831 .880 .947 2010-11 All Insurers .673 .834 .830 2011-12 All Insurers .732 .858 .872



which can be attributable to decrease in PTE though SE has increased over the time. For

the purpose of overall analysis the mean efficiency scores have been classified into 0- 0.3,

0.3-0.6, 0.6-0.9 and 0.9-1 and thereafter the comparison of all the insurers have been made

with respect to their efficiency scores in order to find out the range within which they lie.

By following the same it has been arrived at that in all the year the overall efficiency score

lies in the higher interval of 0.6-0.9 and 0.9-1. This might be because all the insurers are

operating on increasing return to scale or it can be contributed by PTE and SE. Moreover it

has been shown in table that the mean of TE increased from 0.692 in the year 2002-03 to

0.732 in the 2011-12. It has also been found that all the insurers are also better at SE, while

comparing the initial year with the current year. But the PTE of the insurers has slightly

decreased from 0.869 in 2002-03 to 0.858 in 2011-12. Thus it could be concluded that all

the general insurers should lay more stress on improving their managerial efficiencies.

Model II

Specification of the model: The specification of the inputs and outputs for the second

model have been as



surpluses. The second input has been the operating expenses relating to the marine

insurance segment.

Output: Net Claims Incurred from the marine insurance business has been selected as

the output indictor for this particular model.


utilizing the above mentioned inputs in the production of the output i.e. net claims

incurred from the marine insurance segment.

217

Table No 6.13


2002-03 2003-04








TATA .889 1 .889 Increasing TATA .903 .928 .973 Decreasing




2004-05 2005-06




Oriental .586 1 .586 Decreasing Oriental .490 .949 .542 Decreasing



Bajaj .993 1 .993 Decreasing Bajaj 1 1 1 Constant

TATA .724 1 .724 Increasing TATA 1 1 1 Constant

Reliance .295 1 .295 Increasing Reliance 1 1 1 Constant

IFFCO 1 1 1 Constant IFFCO .943 .956 .987 Decreasing


2006-07 2007-08


National .999 1 .999 Increasing National .920 1 .920 Decreasing

NewIndia .402 .402 1 Constant NewIndia .766 1 .766 Decreasing


218

United .712 .712 1 Constant United .630 1 .630 Decreasing


Bajaj 1 1 1 Constant Bajaj .588 .604 .973 Decreasing



IFFCO 1 1 1 Constant IFFCO 1 1 1 Constant


2008-09 2009-10


National 1 1 1 Constant National .420 .457 .919 Decreasing



United .706 .773 .912 Decreasing United 1 1 1 Constant


Bajaj .819 .906 .904 Increasing Bajaj 1 1 1 Constant


Reliance .674 .873 .771 Increasing Reliance 1 1 1 Constant

IFFCO .832 .905 .920 Increasing IFFCO .868 .868 1 Constant

ICICI .353 .373 .946 Decreasing ICICI .348 .349 .999 Constant

2010-11 2011-12


National .799 .885 .903 Decreasing National .820 .902 .909 Decreasing









ICICI .650 .651 .998 Increasing ICICI .443 .447 .990 Decreasing(Note: Author’s Own Calculations)

219

The above table shows that during all the years under study all the public sector

companies have either been enjoying the constant returns to scales or have been depicting

the decreasing returns. Moreover one or two private sector insurers have been on frontier

in all years under study except in 2002-03. Among the private sector, IFFCO has been

reporting the efficiency score of 1 for 5 years out of 10 years of study i.e. 2003-04, 2004-

05, 2006-07, 2007-08 and 2009-10. TATA AIG General Insurance Company has also

been depicting the constant returns to scale for 5 years during the study period. Bajaj and

Reliance has shown the efficiency of 1 for 3 years and 2 years respectively during the

study period. ICICI has been showing the efficiency of 1 for single year i.e. in the year

2009-10. The Royal has not been on the frontier in any of the years. Examining the public

sector it has been revealed that National Insurance Company has been the top most public

sector insurer which has achieved the maximum efficiency level of 1 during the period

2002-03, 2003-04 and 2008-09. Oriental Insurance Company and United India Insurance

Company have also enjoyed the Constant Returns to scales in 2 years out of 10 years of

study. New India Assurance Company has joined the list of the bench markers in a single

year i.e. 2006-07.

Table 6.14



Public 0 2 2 4 2002-03

Private 6 0 0 6

Public 0 1 3 4 2003-04

Private 4 1 1 6

Public 0 0 4 4 2004-05

Private 3 1 2 6

Public 0 0 4 4 2005-06

Private 1 3 2 6

Public 1 3 0 4 2006-07

Private 3 2 1 6

220

Public 0 0 4 4 2007-08

Private 3 1 2 6

Public 0 1 3 4 2008-09

Private 4 1 1 6

Public 0 1 3 4 2009-10

Private 1 5 0 6

Public 0 0 4 4 2010-11

Private 5 1 0 6

Public 0 0 4 4 2011-12



have marked the increasing returns to scale i.e. 6 insurers (comprising of 6 private

insurers) out of total 10 insurers have depicted that the increase in their output has been

more than the proportional change in their input. In the years 2009-10 the maximum

numbers of insurers have enjoyed the Constant returns to scale and it is the year 2004-05,

2005-06 and 2007-08 when 6 insurers have exhibited decreasing returns to scale i.e. the

increase in their output has been less than the proportional increase in their input. In these

said years 4 public sector insurers and 2 private insurers have shown the DRS.

Table 6.15



Public .861 .982 .874 2002-03

Private .476 .823 .587

Public .615 .854 .710 2003-04

Private .699 .867 .816

Public .555 .984 .563 2004-05

Private .697 .978 .712

Public .555 .927 .601 2005-06

Private .906 .924 .972

221

Public .778 .778 .999 2006-07

Private .716 .840 .862

Public .714 1 .714 2007-08

Private .624 .797 .776

Public .88 .943 .931 2008-09

Private .692 .842 .835

Public .720 .832 .87 2009-10

Private .797 .869 .928

Public .842 .964 .874 2010-11

Private .737 .822 .910

Public .806 .975 .829 2011-12


Above table reports the mean of TE, mean of PTE and mean of SE of both public






.975 in 2011-12. Same is the case with the private sector that after the increase and

decrease in the mean of PTE, the value of the mean of the PTE has been marked as .746

in 2011-12.The mean of the SE depicts that the public sector has been showing decrease

over the time and the private sector has been depicting the increasing trends over the

study as its mean of SE has been .587 in 2002-03 which has gradually increased over the

time and has reached to .853 in 2011-12. The mean TE of public sector has slightly

reduced due to the decrease in the mean of the PTE as well as the mean of SE of this

sector. The results of the Private sector emphasizes that the increase in the mean of TE

has been due to the increase in the mean of the Scale Efficiency whereas the value of the

mean of Pure Technical Efficiency has decreased with the passage of the time. The above

results state that though the technical efficiency of Private Sector has improved over the

222

time, the TE of public sector which is recorded at 80.6% is higher than the private sector

which points out that public sector has been more efficient as compared to the private

sector in terms of efficiency in marine insurance business. The findings of this model

depict that public sector has used their inputs in more efficient manner in the production

of net claims incurred from the marine insurance segment as compared to the private

sector.

Table 6.16

Overall Analysis


2002-03 All Insurers .630 .887 .702

2003-04 All Insurers .666 .862 .774

2004-05 All Insurers .641 .981 .653

2005-06 All Insurers .769 .926 .824

2006-07 All Insurers .741 .816 .917

2007-08 All Insurers .661 .879 .752

2008-09 All Insurers .767 .883 .874

2009-10 All Insurers .767 .855 .905

2010-11 All Insurers .779 .879 .896




the purpose of overall analysis, the mean efficiency scores have been categorized into 0-

0.3, 0.3-0.6, 0.6-0.9 and 0.9-1 and thereafter the comparison of all the insurers have been


they lie. By following the same it has been arrived at that in all the year the overall

efficiency score lies in the higher interval of 0.6-0.9 and 0.9-1. This might be because all

the insurers are operating on increasing return to scale or it can be contributed by PTE

223




the insurers has decreased from .887 in 2002-03 to .838 in 2011-12. Thus it could be

concluded that all the general insurers should lay more stress on improving their


EFFICIENCY EVALAUTION OF MISCELLANEOUS INSURANCE BUSINESS

According to Section 2(13B) Indian Insurance Act, 1938 Miscellaneous

Insurance Business is “the business of effecting contracts of insurance which is not

principally or wholly of any kind or kinds included in Fire, Life and Marine Insurance

business.” In order to evaluate the efficiency of the miscellaneous insurance segment two

models have been used.

Model I


model have been as



surpluses. The second input has been the operating expenses relating to the miscellaneous

insurance segment.

Output: Net Premium Income from the miscellaneous insurance business has been

selected as the output indictor for this particular model.


utilizing the above mentioned inputs in the production of the net premium income

generated from the miscellaneous insurance segment.

224

Table 6.17


2002-03 2003-04




Oriental 1 1 1 Constant Oriental .778 .778 1 Constant

United .946 .949 .997 Increasing United .824 .824 1 Constant






ICICI .409 1 .409 Increasing ICICI .257 .274 .938 Increasing

2004-05 2005-06






Royal .594 .852 .697 Increasing Royal .838 1 .838 Increasing






2006-07 2007-08





225


Royal 1 1 1 Constant Royal 1 1 1 Constant


TATA .661 .666 .992 Decreasing TATA .665 .674 .988 Increasing

Reliance .828 .832 .995 Decreasing Reliance .743 .796 .934 Decreasing



2008-09 2009-10




Oriental .854 .925 .923 Decreasing Oriental .841 1 .841 Decreasing



Bajaj 1 1 1 Constant Bajaj .972 1 .972 Decreasing

TATA .604 .630 .959 Increasing TATA .617 .617 1 Constant

Reliance .696 .699 .996 Increasing Reliance .684 .753 .909 Decreasing


ICICI .818 .878 .931 Decreasing ICICI .988 1 .988 Decreasing

2010-11 2011-12







Bajaj .916 .920 .997 Decreasing Bajaj .947 .950 .997 Decreasing




ICICI 1 1 1 Constant ICICI 1 1 1 Constant (Note: Author’s Own Calculations)

226

The above table analyzes that during all the years under study all the public sector

companies have either been enjoying the constant returns to scales or have been depicting

the decreasing returns. Among the private sector, IFFCO has been reporting the

efficiency score of 1 for 7 years out of 10 years of study i.e. 2005-06, 2006-07, 2007-08,

2008-09, 2009-10, 2010-11 and 2011-12. Royal has shown the efficiency of 1 for 6 years

out of 10 years. Bajaj Allianz has enjoyed the constant returns to scale for 4 years. TATA

has been on the frontier for a single year only i.e. 2009-10 and ICICI has been the

benchmark for two years i.e. 2010-11 and 2011-12. The Reliance has not been on the

frontier for any of the years. Examining the public sector it could be concluded that

National Insurance Company has been the top most public sector insurer which has

achieved the maximum efficiency level of 1 during the period 2002-03, 2003-04, 2008-

09, 2010-11 and 2011-12. New India Assurance Company and Oriental Insurance

Company have also enjoyed the Constant Returns to scales in 3 years out of 10 years of

study. United India Insurance Company has joined the list of the bench markers in a

single year i.e. 2003-04.

Table 6.18



Public 1 3 0 4 2002-03

Private 6 0 0 6

Public 0 3 1 4 2003-04

Private 6 0 0 6

Public 0 0 4 4 2004-05

Private 4 1 1 6

Public 0 0 4 4 2005-06

Private 3 2 1 6

Public 0 2 2 4 2006-07

Private 0 2 4 6

Public 0 1 3 4 2007-08

Private 1 3 2 6

227

Public 0 1 3 4 2008-09

Private 2 3 1 6

Public 0 0 4 4 2009-10

Private 0 3 3 6

Public 0 1 3 4 2010-11

Private 2 3 1 6

Public 0 1 3 4 2011-12


The above table depicts that in the year 2002-03 the maximum number of insurer



output has been more than the proportional change in their input. In the years 2006-07,

2007-08, 2008-09, 2010-11 and 2011-12 the maximum numbers of insurers have enjoyed

the Constant returns to scale and it is the year 2009-10 when 7 insurers have exhibited

decreasing returns to scale i.e. the increase in their output has been less than the

proportional increase in their input. In these said years 4 public sector insurers and 3

private sector insurers have shown the DRS.

Table 6.19



Public .986 .987 .999 2002-03

Private .526 .811 .638

Public .851 .900 .951 2003-04

Private .628 .867 .750

Public .638 .915 .692 2004-05

Private .665 .905 .746

Public .798 .918 .866 2005-06

Private .816 .938 .874

228

Public .931 .935 .994 2006-07

Private .901 .908 .992

Public .861 .930 .926 2007-08

Private .881 .907 .971

Public .895 .952 .939 2008-09

Private .853 .867 .981

Public .836 .999 .837 2009-10

Private .876 .895 .978

Public .798 .914 .869 2010-11

Private .856 .912 .942

Public .935 .982 .952 2011-12


Above table shows the mean of TE, mean of PTE and mean of SE of both public






.982 in 2011-12. Same is the case with the private sector that after a increase and


PTE has been marked as .906 in 2011-12.The mean of the SE depicts that the public

sector has remained static over the time whereas the private sector has been depicting the

increasing trends over the study as its mean of SE has been .638 in 2002-03 which has

gradually increased over the time and has reached to .988 in 2011-12. The mean TE of

public sector has slightly reduced due to the slight decrease in the mean of PTE whereas

SE of this sector has remained static. The results of the Private sector emphasizes that the

increase in the mean of TE has been due to the increase in the mean of the Scale

Efficiency and the mean of Pure Technical Efficiency. The above results state that no

doubt the technical efficiency of Private Sector has improved over the time, the TE of

public sector is still higher than that of the private sector insurers which further states that

229

private sector has been more efficient as compared to public sector in terms of efficiency

in miscellaneous insurance business. The findings of this model depict that public sector

has used their inputs in more efficient manner in the production of net premium income

from the miscellaneous insurance segment as compared to the private sector.

Table 6.20

Overall Analysis of the Insures


2002-03 All Insurers .710 .882 .783

2003-04 All Insurers .717 .881 .831

2004-05 All Insurers .655 .910 .725

2005-06 All Insurers .809 .930 .871

2006-07 All Insurers .914 .920 .993

2007-08 All Insurers .874 .916 .953

2008-09 All Insurers .870 .902 .964

2009-10 All Insurers .861 .937 .922

2010-11 All Insurers .833 .914 .913



which can be attributable to increase in SE and PTE over the time. For the purpose of

overall analysis the mean efficiency scores have been classified into 0- 0.3, 0.3-0.6, 0.6-

0.9 and 0.9-1 and thereafter the comparison of all the insurers have been made with

respect to their efficiency scores in order to find out the range within which they lie. By

following the same it has been found that in all the years the overall efficiency score lies

in the higher interval of 0.6-0.9 and 0.9-1. This might be because all the insurers are

operating on increasing return to scale or it can be contributed by PTE and SE. Moreover

it has shown in table that the mean of TE increased from 0.710 in the year 2002-03 to

0.913 in the 2011-12. It has also been found that all the insurers are also better at SE and

PTE, while comparing the initial year with the current year.

230

Model II


model have been as



surpluses. The second input has been the operating expenses relating to the miscellaneous

insurance segment.

Output: Net Claims Incurred from the miscellaneous insurance business has been

selected as the output indictor for this particular model.


utilizing the above mentioned inputs in the maximization of the output i.e. net claims

incurred from the miscellaneous insurance segment.

Table 6.21


2002-03 2003-04


National .997 .997 1 Constant National 1 1 1 Constant


Oriental 1 1 1 Constant Oriental .739 .739 1 Constant

United 1 1 1 Constant United .897 .898 .999 Increasing







231

2004-05 2005-06


National 1 1 1 Constant National 1 1 1 Constant NewIndia .973 1 .973 Decreasing NewIndia .888 1 .888 DecreasingOriental 1 1 1 Constant Oriental .776 .778 .997 Increasing United .949 .953 .996 Decreasing United .716 .716 1 Constant Royal .570 1 .570 Increasing Royal .502 1 .502 Increasing Bajaj .858 1 .858 Increasing Bajaj .612 .770 .795 Increasing TATA .520 1 .520 Increasing TATA .298 .474 .628 Increasing Reliance .456 1 .456 Increasing Reliance .192 1 .192 Increasing IFFCO .515 1 .515 Increasing IFFCO .597 .701 .852 Increasing ICICI .445 .499 .892 Increasing ICICI .453 .516 .879 Increasing 2006-07 2007-08 Company TE PTE SE RtoS Company TE PTE SE RtoS National 1 1 1 Constant National 1 1 1 Constant NewIndia 1 1 1 Constant NewIndia 1 1 1 Constant Oriental 1 1 1 Constant Oriental .973 .976 .995 Increasing United .738 .753 .979 Decreasing United .785 .786 .998 Increasing Royal .926 1 .926 Increasing Royal 1 1 1 Constant Bajaj .797 .814 .979 Increasing Bajaj .931 .934 .997 DecreasingTATA .494 .514 .960 Increasing TATA .489 .489 1 Constant Reliance .396 .411 .963 Increasing Reliance .728 .731 .995 DecreasingIFFCO .799 1 .799 Increasing IFFCO .867 1 .867 Increasing ICICI .674 .678 .993 Increasing ICICI .776 .795 .977 Increasing 2008-09 2009-10 Company TE PTE SE RtoS Company TE PTE SE RtoS National 1 1 1 Constant National 1 1 1 Constant NewIndia .942 1 .942 Decreasing NewIndia .802 1 .802 DecreasingOriental .904 .906 .997 Increasing Oriental .968 1 .968 DecreasingUnited .666 .670 .994 Decreasing United .824 .987 .835 DecreasingRoyal .834 1 .834 Increasing Royal 1 1 1 Constant Bajaj .858 .888 .966 Increasing Bajaj .895 .910 .984 Increasing TATA .40 .506 .790 Increasing TATA .547 .603 .907 Increasing

232

Reliance .601 .615 .976 Increasing Reliance .772 .775 .996 DecreasingIFFCO .880 1 .880 Increasing IFFCO 1 1 1 Constant ICICI .722 .733 .985 Increasing ICICI 1 1 1 Constant 2010-11 2011-12 Company TE PTE SE RtoS Company TE PTE SE RtoS National 1 1 1 Constant National 1 1 1 Constant NewIndia .818 1 .818 Decreasing NewIndia .752 1 .752 DecreasingOriental .758 .803 .944 Decreasing Oriental .826 .899 .918 DecreasingUnited .646 .836 .772 Decreasing United .820 1 .820 DecreasingRoyal .843 1 .843 Increasing Royal .987 1 .987 Increasing Bajaj .796 .811 .981 Increasing Bajaj .830 .832 .998 DecreasingTATA .496 1 .496 Increasing TATA .669 .708 .944 Increasing Reliance .714 .757 .943 Increasing Reliance .759 .826 .919 Increasing IFFCO .942 1 .942 Increasing IFFCO 1 1 1 Constant ICICI 1 1 1 Constant ICICI 1 1 1 Constant (Note: Author’s Own Calculations)

The above table states that during all the years under study one or two public

sector companies have been found on the frontier. Among the private sector, Royal has

been reporting the efficiency score of 1 for 2 years out of 10 years of study i.e. 2007-08

and 2009-10, and ICICI has been on frontier for 3 years i.e. 2009-10, 2010-11 and 2011-

12 resp. IFFCO has also shown the efficiency of 1 for two years out of 10 years. The rest

of the Private insurers have been showing the increasing returns to scales in the rest of the

years except Reliance which have been indicating the Decreasing returns to scale in some

of the years under consideration. Examining the public sector it has been found that

National Insurance Company has been the top most public sector insurer which has

achieved the maximum efficiency level of 1 during the period 2002-03, 2003-04, 2004-

05, 2005-06, 2006-07, 2007-08, 2008-09, 2009-10, 2010-11 and 2011-12. Oriental

Insurance Company has also enjoyed the Constant Returns to scales in 4 years during the

study period. New India Assurance Company and United India Insurance Company have

joined the list of the bench markers for 2 years.

233

Table 6.22



Public 0 3 1 4 2002-03

Private 6 0 0 6

Public 1 2 1 4 2003-04

Private 6 0 0 6

Public 0 2 2 4 2004-05

Private 6 0 0 6

Public 1 2 1 4 2005-06

Private 6 0 0 6

Public 0 3 1 4 2006-07

Private 6 0 0 6

Public 0 2 2 4 2007-08

Private 2 2 2 6

Public 1 1 2 4 2008-09

Private 6 0 0 6

Public 0 1 3 4 2009-10

Private 2 3 1 6

Public 0 1 3 4 2010-11

Private 5 1 0 6

Public 0 1 3 4 2011-12


The above table shows that in the years 2003-04, 2005-06 and 2008-09 the

maximum number of insurer have marked the increasing returns to scale i.e. 7 insurers

(comprising of 21public insurers and 6 private insurers) out of total 10 insurers have

depicted that the increase in their output has been more than the proportional change in

their input. In the years 2007-08 and 2009-10 the maximum numbers of insurers have

enjoyed the Constant returns to scale and it is the years 2007-08, 2009-10 and 2011-12

234

when 4 insurers have exhibited decreasing returns to scale i.e. the increase in their output

has been less than the proportional increase in their input.

Table 6.23



Public .985 .999 .986 2002-03

Private .340 .793 .445

Public .847 .909 .937 2003-04

Private .381 .801 .525

Public .980 .988 .992 2004-05

Private .560 .916 .635

Public .845 .873 .971 2005-06

Private .442 .743 .641

Public .934 .938 .994 2006-07

Private .681 .736 .936

Public .939 .940 .998 2007-08

Private .798 .824 .972

Public .878 .894 .983 2008-09

Private .715 .790 .905

Public .898 .996 .901 2009-10

Private .869 .881 .981

Public .805 .909 .883 2010-11

Private .798 .928 .867

Public .849 .974 .872 2011-12


Above table depicts the mean of TE, mean of PTE and mean of SE of both public



Analyzing the private sector it could be stated that the mean TE of this sector has been

235




decrease in the value of mean PTE value of private sector, it has been marked as .894 in

2011-12.The mean of the SE depicts that the public sector has been showing decrease

over the time and the private sector has been depicting the increasing trends over the

study as its mean of SE has been .445 in 2002-03 which has gradually increased over the

time and has reached to .974 in 2011-12. The mean TE of public sector has reduced due

to the decrease in the mean of the SE as well as the mean of PTE of this sector. The

results of the Private sector emphasis that the increase in the mean of TE has been due to

the increase in the mean of the Scale Efficiency and mean of Pure Technical Efficiency.

The above analysis states that as the technical efficiency of Private Sector has been

relatively higher than the public sector which states that private sector has been more

efficient as compared to public sector in terms of efficiency in miscellaneous insurance

business. The findings of this model depict that private sector has used their inputs in

more efficient manner in the production of net claims incurred from the miscellaneous

insurance segment as compared to their public counterparts.

Table 6.24

Overall Analysis of the Insurers


2002-03 All Insurers .599 .876 .662

2003-04 All Insurers .568 .844 .690

2004-05 All Insurers .729 .945 .778

2005-06 All Insurers .603 .795 .773

2006-07 All Insurers .782 .817 .960

2007-08 All Insurers .855 .871 .983

2008-09 All Insurers .781 .832 .936

2009-10 All Insurers .881 .927 .949

2010-11 All Insurers .801 .921 .874


236

Above Table shows that the TE of all the insurers has increased over the time

which can be attributable to increase in SE and PTE over the time. For the purpose of

overall analysis the mean efficiency scores have been classified into 0- 0.3, 0.3-0.6, 0.6-

0.9 and 0.9-1 and thereafter the comparison of all the insurers have been made with

respect to their efficiency scores in order to find out the range within which they lie. By

following the same it has been found that in all the year the overall efficiency score lies

in the higher interval of 0.6-0.9 and 0.9-1. This might be because all the insurers are

operating on increasing return to scale or it can be contributed by PTE and SE. Moreover

it has been shown that the mean of TE increased from 0.599 in the year 2002-03 to 0.864

in the 2011-12. It has also been found that all the insurers are also better at SE and PTE,

while comparing the initial year with the current year.

PRODUCTIVITY EVALUATION/ MALMQUIST ANALYSIS OF GENERAL

INSURERS

The terms - productivity and efficiency are often discussed. They are frequently

used interchangeably, but this is unfortunate because they are not precisely the same

things. Efficiency improvement does not guarantee productivity improvement. People

often think that if you improve efficiency, you are more productive. Efficiency is a

necessary but not a sufficient condition for productivity. Commonly used measures of

efficiency and productivity are (Sumanth 1998 as quoted by Kirikal, 2005):

Efficiency = Actual output/Standard output

Productivity = Actual output/ Inputs consumed

Therefore, efficiency is the ratio of actual output generated to the standard output

prescribed, but the classic measure of productivity is the ratio of output produced per unit

of input expended. Productivity of a unit is the ratio of its output to input used to produce

that output, so the productivity of a unit is unique. On the other hand, efficiency is the

degree of achievement of a predetermined goal, an optimum outcome or the best practice.

It can be said that the efficiency is not unique like productivity because it depends on the

performance of the unit. Therefore the efficiency of a unit is relative and different for

each unit (Haksever, 2000 as quoted by Karaduman, 2006).

237

Many indexes are used to measure the changes in TFP. These indexes are the

ratios of output indexes to input indexes. Here it is important to explain what index is.

Indexes are the tools that are used to measure the changes in the levels of economical

variables. An index number is defined as a real number which measures the changes in a

set of related variables. They are used to compare the values of a variable that change by

time, place or both of them. Numerous methodologies for measuring productivity have

been developed over the last three decades. The commonly accepted indices of

productivity change are Tornqvist Index, Fisher Ideal Index and Malmquist Index. The

popularity of the Malmquist Index stems from three quite different sources. First, it is

calculated from quantity data only, a distinct advantage if price information is

unavailable or if prices are distorted. Second, it rests on much weaker behavioral

assumptions than the other two indices, since it does not assume cost minimizing or

revenue maximizing behavior. Third, provided panel data is available, it provides a

decomposition of productivity change into two components. One is labeled technical

change, and it reflects improvement or deterioration in the performance of best practice

manufacturing industries. The other is labeled technical efficiency change, and it reflects

the convergence toward or the divergence from best practice on the part of the remaining

firms. The value of the decomposition is that it provides information on the source of

overall productivity change in the firms (Mansor and Radam, 2000). MTFP index is an

index that is used for measuring the changes in total factor productivity of DMUs by

time. Malmquist TFP Index measures the TFP change between two data points by

calculating the ratio of the distances of each data point relative to a common technology

(Estache, 2004 as quoted by Karaduman, 2006).

A nonparametric programming method (activity analysis) is used to compute

Malmquist productivity indexes. These are decomposed into two component measures,

namely, technical change and efficiency change. Our measure of productivity growth is a

geometric mean of two Malmquist productivity indexes. This also leads to our

decomposition of productivity into changes in efficiency (catching up) and changes in

technology (innovation).

238

PRODUCTIVITY EVALAUTION OF FIRE INSURANCE BUSINESS

Model I

Specification of the model: The inputs and output used for the analysis has been as

under

Inputs: The shareholders funds comprising of the share capital and reserves and

surpluses and the other one is the operating expenses relating to the fire insurance

segment.

Output: Net Premium Income from the fire insurance business.

Table 6.25

The Productivity Change and Malmquist Index Summary

Year EC TC PTEC SEC TFPC National 1 0.943 1 1 0.943 New India 0.638 1.198 1 0.638 0.764 Oriental 0.953 0.809 0.956 0.997 0.771 United 0.789 0.995 0.952 0.828 0.785 Royal 1.054 1.130 0.594 1.777 1.191 Bajaj 1.858 1.876 1 1.858 3.484 TATA 0.768 2.368 1 0.768 1.818 Reliance 1.515 1.164 0.808 1.874 1.763 IFFCO 2.323 0.783 1 2.323 1.819

2002-03 To 2003-04

ICICI 1.445 0.783 0.616 2.346 1.132 National 1 0.954 1 1 0.954 New India 1.568 0.695 1 1.568 1.089 Oriental 0.992 0.945 0.993 0.998 0.937 United 1.084 0.875 0.957 1.133 0.949 Royal 1.637 0.850 2.241 0.731 1.391 Bajaj 1 0.554 1 1 0.554 TATA 1.439 0.411 1 1.439 0.592 Reliance 1.781 0.764 2.627 0.678 1.360 IFFCO 0.759 1.251 1 0.759 0.950

2003-04 To 2004-05

ICICI 0.827 1.240 0.862 0.959 1.026

239

National 1 1.008 1 1 1.008 New India 1 0.950 1 1 0.950 Oriental 0.916 0.969 0.914 1.003 0.888 United 0.838 0.970 0.845 0.992 0.814 Royal 0.859 0.978 1 0.859 0.840 Bajaj 1 0.910 1 1 0.910 TATA 0.813 0.951 0.395 2.059 0.773 Reliance 1.282 0.956 1.117 1.148 1.226 IFFCO 0.790 0.922 0.583 1.355 0.728

2004-05 To 2005-06

ICICI 0.635 0.932 0.598 1.062 0.592 National 1 0.917 1 1 0.917 New India 1 1.263 1 1 1.263 Oriental 1.057 1.111 1.067 0.991 1.175 United 1.181 1.057 1.138 1.038 1.249 Royal 1.430 0.751 1 1.430 1.075 Bajaj 1 0.756 1 1 0.756 TATA 1.211 1.165 1.382 0.876 1.411 Reliance 0.996 1.362 1 0.996 1.357 IFFCO 1.368 0.740 1.347 1.016 1.012

2005-06 To 2006-07

ICICI 1.239 0.856 1.249 0.991 1.060 National 0.913 0.963 1 0.913 0.880 New India 1 1.069 1 1 1.069 Oriental 0.921 0.946 1.025 0.899 0.872 United 1.019 0.986 1.027 0.992 1.004 Royal 0.722 0.978 1 0.722 0.706 Bajaj 1 0.981 1 1 0.981 TATA 1.013 0.950 1.832 0.553 0.963 Reliance 0.738 1.041 0.990 0.746 0.768 IFFCO 1.308 0.955 1.273 1.027 1.249

2006-07 To 2007-08

ICICI 1.432 0.986 1.616 0.886 1.412 National 1.095 1.115 1 1.095 1.220 New India 1 0.860 1 1 0.860 Oriental 1.034 1.055 0.927 1.115 1.091 United 1.032 0.936 0.982 1.051 0.966

2007-08 To 2008-09

Royal 0.614 0.993 1 0.614 0.610

240

Bajaj 0.804 1.064 0.950 0.846 0.855 TATA 1.044 1.017 0.652 1.602 1.062 Reliance 1.319 0.804 1.010 1.305 1.060 IFFCO 0.473 1.034 0.669 0.708 0.490

ICICI 0.830 1.028 0.771 1.076 0.853 National 1 0.960 1 1 0.960 New India 0.986 0.880 1 0.986 0.868 Oriental 1.055 0.939 1.111 0.949 0.991 United 1.090 0.874 1.074 1.015 0.953 Royal 1.320 0.877 1 1.320 1.158 Bajaj 1.088 0.919 0.962 1.131 0.999 TATA 1.199 0.879 1.068 1.123 1.054 Reliance 1.289 0.874 1 1.289 1.126 IFFCO 1.086 0.941 0.972 1.118 1.021

2008-09 To 2009-10

ICICI 1.404 0.874 1.336 1.051 1.227 National 1 1.136 1 1 1.136 New India 1.008 1.069 1 1.008 1.077 Oriental .927 1.136 .943 .983 1.054 United .760 1.069 .761 1 .813 Royal .910 1.069 1 .910 .973 Bajaj .864 1.069 .880 .982 .924 TATA .933 1.069 1.107 .843 .997 Reliance .834 1.069 1 .834 .891 IFFCO .947 1.069 1.317 .719 1.013

2009-10 To 2010-11

ICICI 1.267 1.069 1.303 .972 1.354 National 1 1.018 1 1 1.018 New India .926 1.124 1 .926 1.041 Oriental 1.013 .969 .988 1.026 .982 United 1.233 1.124 1.262 .977 1.382 Royal .964 1.124 1 .964 1.084 Bajaj .886 1.124 .877 1.011 .996 TATA .939 1.124 .865 1.086 1.056 Reliance .877 1.124 1 .877 .987 IFFCO .907 1.089 .903 1.004 .988

2010-11 To 2011-12

ICICI .782 1.124 .791 .989 .880 (Note: Author’s Own Calculations)

241

Table 6.26

Average of TE, TC and TFPC

Company Average of Technical Efficiency

Average of Technical Progress/

Technological Change

Average of TFPC

National 1.00 1.001 1.004

New India 1.014 1.012 .997

Oriental .985 .986 .973

United 1.002 .987 .990

Public Sector Average

1.000 .996 .991

Royal 1.056 .972 1.003

Bajaj 1.055 1.028 1.162

TATA 1.039 1.103 1.080

Reliance 1.181 1.017 1.170

IFFCO 1.106 .976 1.03

ICICI 1.095 .988 1.059

Private Sector Average

1.088 1.014 1.084


The Productivity Index Table i.e. table 6.25 states the Total Factor

productivity Change which is comprised of Efficiency Change, Technological

Change, Pure Technical Change and Scale Efficiency Change. The results of the

Table 6.26 state that private sector insurers have indicated increase in the Technical

Efficiency whereas the technical efficiency of public sector insurers remained the

same over the period. Among the public sector only one company i.e. Oriental

General Insurance Company marked a decrease over the study period. On the other

hand all the private sector insurers registered increase in the Technical Efficiency

Change over the study period. Among the private sector Reliance showed the highest

Technical Efficiency Change followed by the IFFCO Tokio. The results of the

242

Technical Progress state that the private sector has been showing growth in the

productivity as the value of the private sector is 1.014 which is greater than 1 whereas

the public sector has registered a decline in the technical progress/ technological

change. The results of TFPC index are stating that the public sector general insurer’s

i.e. New India, Oriental and United India General Insurance Company have been

showing regress in the total factor productivity over the study period i.e. 1%, 3% and

1% respectively, whereas National Insurance Company has marked a progress in the

National Insurance Company by showing an increase of 0.4% over the study period.

Reliance General Insurance Company has shown the highest gain of 17% followed by

Bajaj marking an increase of 16.2% in TFPC, whereas the rest of the private sector

insurers also depicted a gain in the productivity. The overall results of the Malmquist

analysis states that the private sector insurers have shown an increase in the TFPC

while their counterparts showed regress in productivity over the study period. It could

be concluded from the results that the decrease in the TFPC of the public sector is due

to the decrease in the value of the technical change whereas the technical efficiency

of this particular sector has remained stagnant over the time, on the other side the

increase in the value of the TFPC of the private sector is the result of the gain in both

technical efficiency and technical progress.

Model II

Specification of the model: The specification of the inputs and outputs for the

second model have been as


surpluses and the other has been the operating expenses relating to the fire insurance

segment.

Output: Net Claims Incurred from the fire insurance business.

243

Table 6.27


Year EC TC PTEC SEC TFPC

National 1.147 0.569 1.119 1.024 0.653

New India 0.937 0.496 1 0.937 0.465

Oriental 1 0.642 1 1 0.642

United 0.805 0.552 0.823 0.979 0.444

Royal 2.513 0.513 1.019 2.467 1.289

Bajaj 5.514 0.724 1 5.514 3.993

TATA 3.666 0.723 1 3.666 2.649

Reliance 2.206 0.504 0.799 2.761 1.112

IFFCO 5.553 0.696 1 5.553 3.867

2002-03 To 2003-04

ICICI 4.436 0.690 0.927 4.786 3.060

National 1 1.454 1 1 1.454

New India 0.992 1.338 1 0.992 1.327

Oriental 1 1.417 1 1 1.417

United 0.846 1.479 0.963 0.878 1.251

Royal 1.626 1.488 2.111 0.770 2.419

Bajaj 1 0.970 1 1 0.970

TATA 0.864 0.959 1 0.864 0.828

Reliance 0.838 1.417 1.184 0.708 1.188

IFFCO 0.699 1.338 1 0.699 0.935

2003-04 To 2004-05

ICICI 1.022 1.397 1.036 0.986 1.428

National 1 1.785 1 1 1.785

New India 0.987 1.760 1 0.987 1.736

Oriental 0.818 1.634 0.849 0.963 1.336

United 0.652 1.635 0.628 1.037 1.065

Royal 0.451 1.680 1 0.451 0.758

Bajaj 0.972 1.588 1 0.972 1.544

TATA 0.792 1.807 0.325 2.435 1.432

2004-05 To 2005-06

Reliance 1.705 1.958 1.057 1.613 3.339

244

IFFCO 0.276 1.614 0.206 1.343 0.446 ICICI 0.498 1.629 0.484 1.029 0.811

National 1 0.769 1 1 0.769

New India 1.091 0.861 1 1.091 0.940

Oriental 0.892 0.852 0.867 1.028 0.760

United 2.117 0.852 2.026 1.045 1.804

Royal 0.880 0.648 1 0.880 0.571

Bajaj 0.886 0.648 1 0.886 0.575

TATA 0.707 0.887 1.158 0.610 0.626

Reliance 0.746 0.770 1 0.746 0.575

IFFCO 3.140 0.648 3.958 0.793 2.036

2005-06 To 2006-07

ICICI 1.054 0.733 1.094 0.963 0.772

National 1 1.248 1 1 1.248

New India 1 1.521 1 1 1.521

Oriental 1.371 1.471 1.357 1.010 2.017

United 0.856 1.381 0.795 1.076 1.182

Royal 1.272 1.089 1 1.272 1.385

Bajaj 0.638 1.089 0.584 1.093 0.695

TATA 0.819 1.376 2.653 0.309 1.126

Reliance 0.627 1.513 1 0.627 0.948

IFFCO 1.465 1.089 1.229 1.192 1.595

2006-07 To 2007-08

ICICI 1.586 1.128 1.520 1.043 1.789

National 0.918 1.171 0.958 0.959 1.075

New India 0.604 1.136 1 0.604 0.686

Oriental 1 1.186 1 1 1.186

United 0.791 1.154 0.918 0.861 0.912

Royal 0.683 1.167 1 0.683 0.797

Bajaj 1.069 1.171 1.260 0.848 1.252

TATA 1.251 1.172 0.394 3.177 1.466

Reliance 1.105 1.123 0.901 1.226 1.240

IFFCO 0.591 1.171 0.799 0.740 0.692

2007-08 To 2008-09

ICICI 1.288 1.163 1.340 0.961 1.498

245

National 0.866 0.867 0.855 1.013 0.751

New India 1.657 0.867 1 1.657 1.437

Oriental 1 0.839 1 1 0.839

United 0.759 0.867 0.650 1.167 0.658

Royal 1.028 0.867 1 1.028 0.892

Bajaj 0.993 0.837 0.975 1.019 0.831

TATA 1.384 0.867 1.426 0.971 1.201

Reliance 1.798 0.867 1.110 1.620 1.560

IFFCO 1.152 0.854 1.212 0.951 0.984

2008-09 To 2009-10

ICICI 1.069 0.867 1.031 1.037 0.928

National .931 1.202 .945 .985 1.120

New India 1 1.126 1 1 1.126

Oriental 1 1.222 1 1 1.222

United .959 1.083 .967 .992 1.039

Royal .697 1.059 1 .697 .738

Bajaj .696 1.183 .738 .944 .824

TATA 1.139 1.059 1.667 .683 1.206

Reliance .561 1.059 1 .561 .594

IFFCO .954 1.186 1.033 .924 1.131

2009-10 To 2010-11

ICICI 1.647 1.059 1.828 .901 1.744

National 1.305 1.183 1.293 1.010 1.545

New India 1 1.259 1 1 1.259

Oriental 1 1.158 1 1 1.158

United 1.315 1.306 1.321 .995 1.717

Royal 1.166 1.306 1 1.166 1.522

Bajaj .744 1.233 .755 .985 .917

TATA .690 1.306 .511 1.351 .901

Reliance 1.047 1.306 1 1.047

2010-11 To 2011-12

1.368

IFFCO .573 1.205 .737 .777 .690

ICICI .539 1.306 .528 1.022 .704 (Note: Author’s Own Calculations)

246

Table 6.28





Average of TFPC

National 1.018 1.138 1.155

New India 1.029 1.151 1.166

Oriental 1.009 1.157 1.175

United 1.011 1.145 1.119


1.017 1.148 1.153

Royal 1.146 1.090 1.152

Bajaj 1.390 1.049 1.289

TATA 1.256 1.128 1.270

Reliance 1.181 1.168 1.324

IFFCO 1.600 1.089 1.375

ICICI 1.459 1.108 1.414


1.339 1.105 1.304


The Productivity Index Table i.e. table 6.27 presents the Total Factor

productivity Change which is comprised of Efficiency Change, Technological

Change, Pure Technical Change and Scale Efficiency Change. The above table i.e.

table 6.28 depicts that though both the sectors have shown an increase in the technical

efficiency, the increase in the value of private sector i.e. 33.9% is more as compared

to the public sector which has registered a gain of 1.7% only. Both the public and

private sector companies are showing increase in the value of the technical efficiency,

IFFCO has given a lead to all the companies by showing 60% gain in the value of

247

technical efficiency. The table also shows the values of the technical progress of the

insurers over the study period. The value of technical progress of both the sectors has

shown an increase but the increase in the value of the public sector i.e. 14.8% is

higher as compared to its counterparts. The results of TFPC are stating that the public

sector general insurer’s i.e. National, New India, Oriental and United India General

Insurance Company have been showing progress in the total factor productivity over

the study period i.e. 15.5%, 16.6%, 17.5% and 11.9% respectively over the study

period. The same trend has been shown by the private sector insurers where ICICI

General Insurance Company has shown the highest gain of 41.4% followed by IFFCO

marking an increase of 37.5% in TFP. The rest of the private sector insurers also

depicted a gain in the productivity. Though both the sectors are showing increasing

trends in the TFPC, the overall results of the Malmquist analysis states that the

private sector insurers have shown more increase in the TFPC as compared to their

counterparts.

PRODUCTIVITY EVALAUTION OF MARINE INSURANCE BUSINESS

Model I


model have been as


surpluses and the Second input has been the operating expenses relating to the marine

insurance segment.

Output: Net Premium Income from the marine insurance business.

248

Table 6.29



National 1 0.875 1 1 0.875

New India 0.789 0.924 1 0.789 0.729

Oriental 0.858 0.883 1 0.858 0.757

United 0.842 0.843 0.979 0.861 0.710

Royal 1.195 0.924 1.109 1.078 1.105

Bajaj 1.152 0.924 1 1.152 1.065

TATA 1.350 0.900 1 1.350 1.215

Reliance 1.189 0.924 3.643 0.326 1.099

IFFCO 1.751 0.878 1 1.751 1.538

2002-03 To 2003-04

ICICI 0.867 0.902 0.589 1.474 0.782

National 0.830 0.966 1 0.830 0.802

New India 1.272 0.896 1 1.272 1.139

Oriental 0.919 1.017 0.954 0.963 0.935

United 1.059 0.945 0.952 1.113 1.002

Royal 1.470 0.896 1.210 1.215 1.317

Bajaj 1.151 0.964 1 1.151 1.110

TATA 1 1.235 1 1 1.235

Reliance 1.858 0.896 1 1.858 1.665

IFFCO 0.884 1.086 1 0.884 0.960

2003-04 To 2004-05

ICICI 0.951 1.061 1.106 0.860 1.009

National 1.091 0.971 1 1.091 1.059

New India 0.727 1.225 1 0.727 0.891

Oriental 1.075 0.955 1.048 1.026 1.026

United 0.852 1.150 0.918 0.927 0.979

Royal 1.101 1.186 1 1.101 1.305

Bajaj 0.889 0.990 0.931 0.955 0.880

TATA 1 0.850 1 1 0.850

2004-05 To 2005-06

Reliance 1.025 1.225 1 1.025 1.256

249

IFFCO 1.077 0.981 1 1.077 1.057

ICICI 0.420 0.873 0.372 1.127 0.366

National 1.104 0.825 1 1.104 0.911

New India 1.466 0.852 1 1.466 1.249

Oriental 1.180 0.866 1 1.180 1.022

United 1.199 0.769 0.826 1.451 0.921

Royal 0.406 0.764 1 0.406 0.310

Bajaj 0.894 0.855 0.883 1.013 0.764

TATA 1 1.054 1 1 1.054

Reliance 1.678 0.821 1 1.678 1.377

IFFCO 0.918 0.971 0.967 0.949 0.891

2005-06 To 2006-07

ICICI 1.260 0.915 1.161 1.085 1.152

National 1 1.243 1 1 1.243

New India 1 1.133 1 1 1.133

Oriental 0.905 1.242 1 0.905 1.124

United 1.271 1.244 1.399 0.909 1.581

Royal 1.059 1.238 1 1.059 1.311

Bajaj 1.135 1.249 1.117 1.016 1.417

TATA 1 1.239 1 1 1.239

Reliance 0.704 1.172 0.803 0.877 0.826

IFFCO 1.144 1.317 1.035 1.106 1.507

2006-07 To 2007-08

ICICI 0.740 1.263 0.847 0.874 0.935

National 0.997 0.943 1 0.997 0.941

New India 0.834 0.902 1 0.834 0.752

Oriental 1.036 0.920 1 1.036 0.954

United 1.187 0.923 1.144 1.037 1.095

Royal 1.768 0.924 1 1.768 1.634

Bajaj 1.109 0.961 1.090 1.017 1.066

TATA 1 0.859 1 1 0.859

Reliance 1.209 0.903 0.961 1.258 1.091

2007-08 To 2008-09

IFFCO 0.791 0.821 0.802 0.986 0.649

250

ICICI 1.170 0.897 1.053 1.111 1.050

National 0.923 0.934 0.925 0.999 0.862

New India 0.900 0.962 0.912 0.987 0.866

Oriental 1.066 0.993 1 1.066 1.059

United 1.070 0.962 1 1.070 1.029

Royal 1.075 0.962 1 1.075 1.034

Bajaj 1 0.933 1 1 0.933

TATA 1 1.095 1 1 1.095

Reliance 1.174 0.962 1.241 0.946 1.129

IFFCO 0.756 1.061 0.771 0.981 0.801

2008-09 To 2009-10

ICICI 2.042 0.947 1.982 1.030 1.934

National .838 1.336 1.070 .784 1.120

New India .980 1.206 1.096 .894 1.183

Oriental .613 1.441 1 .613 .883

United .610 1.233 .926 .659 .752

Royal .932 1.206 1 .932 1.125

Bajaj .828 1.215 .848 .976 1.006

TATA 1 1.612 1 1 1.612

Reliance .736 1.206 .809 .910 .888

IFFCO .649 1.521 .633 1.026 .988

2009-10 To 2010-11

ICICI 1.053 1.206 1.055 .998 1.270

National 1.155 1.001 .968 1.153 1.117

New India .936 1.001 1 .936 .937

Oriental 1.293 1.001 1 1.293 1.294

United 1.354 1.001 1.079 1.255 1.356

Royal 1.067 1.001 1 1.067 1.068

Bajaj .992 1.001 .989 1.004 .994

TATA 1 1.001 1 1 1.009

Reliance 1.2 1.001 1.292 .929 1.202

IFFCO 1.042 1.001 1.043 .999 1.043

2010-11 To 2011-12


251

Table 6.30



Average of Technical Progress/ Technological

Change

Average of TFPC

National .993 1.010 .992

New India .989 1.011 .986

Oriental .993 1.035 1.006

United 1.049 1.007 1.047


1.006 1.016 1.007

Royal 1.119 1.011 1.134

Bajaj 1.016 1.010 1.026

TATA 1.038 1.093 1.129

Reliance 1.197 1.012 1.170

IFFCO 1.001 1.070 1.048

ICICI 1.046 1.007 1.045


1.069 1.034 1.092


The table No. 6.30 depicts that though both the sectors have shown an increase

in the average of technical efficiency, the increase in the value of private sector i.e. 6.9%

is more as compared to the public sector which has recorded a gain of 0.6% only. Both

the public and private sector companies are showing increase in the value of the technical

efficiency, Reliance has given a lead to all the companies by showing 19.7% gain in the

value of technical efficiency. The table also shows the average values of the technical

progress of the insurers over the study period. The averages of technical progress of both

the sectors have shown an increase but the increase in the value of the private sector i.e.

3.4% is higher as compared to the public sector. The results of average of TFPC are

stating that the public sector general insurer’s i.e. National and New India Insurance

Company have been showing regress in the total factor productivity over the study period

252

i.e. 1% and 2% respectively, whereas Oriental Insurance Company and United India has

marked a progress in the TFPC by showing an increase of 0.6% and 4.7% over the study

period. All the private sector insurers have shown a satisfactory picture by indicating a

gain in the productivity value. Reliance General Insurance Company has shown the

highest gain of 17% followed by Royal General Insurance Company marking an increase

of 13.4% in TFPC. The comparative analysis of average of TFPC of public and private

sector report that private sector is more productive than public sector during the study

period.

Model II


model have been as


surpluses and the Second input has been the operating expenses relating to the marine

insurance segment.

Output: Net Claims Incurred from the marine insurance business.

Table 6.31



National 1 0.962 1 1 0.962

New India 0.589 1.006 0.895 0.658 0.592

Oriental 0.579 1.049 0.738 0.785 0.607

United 0.635 0.952 0.844 0.752 0.604

Royal 1.108 1.006 0.933 1.187 1.114

Bajaj 2.067 1.006 1 2.067 2.079

TATA 1.016 1.060 0.928 1.095 1.077

Reliance 0.812 1.006 2.423 0.335 0.816

IFFCO 2.360 1.033 1 2.360 2.437

2002-03 To 2003-04

ICICI 1.668 0.986 0.767 2.176 1.644

253

National 0.541 1.073 1 0.541 0.580 New India 1.399 1.005 1.117 1.252 1.406 Oriental 1.011 1.142 1.356 0.746 1.155 United 1.084 1.049 1.194 0.908 1.138 Royal 1.228 1.005 1.672 0.735 1.234 Bajaj 1.052 1.066 1 1.052 1.121 TATA 0.802 1.346 1.078 0.744 1.079 Reliance 1.385 1.005 1 1.385 1.392 IFFCO 1 1.286 1 1 1.286

2003-04 To 2004-05

ICICI 0.891 1.187 1.285 0.693 1.057 National 1.507 0.979 1 1.507 1.476 New India 0.795 1.345 1 0.795 1.069 Oriental 0.877 0.953 0.949 0.925 0.836 United 0.886 1.145 0.813 1.090 1.014 Royal 1.684 1.150 1 1.684 1.937 Bajaj 1.007 1.016 1 1.007 1.023 TATA 1.381 0.771 1 1.381 1.065 Reliance 3.392 1.259 1 3.392 4.270 IFFCO 0.943 0.921 0.956 0.987 0.868

2004-05 To 2005-06

ICICI 0.871 0.798 0.680 1.281 0.696 National 1.226 0.909 1 1.226 1.114 New India 0.820 0.743 0.402 2.041 0.609 Oriental 1.945 0.935 1.054 1.846 1.819 United 1.676 0.840 0.936 1.791 1.408 Royal 0.667 0.862 1 0.667 0.575 Bajaj 1 0.933 1 1 0.933 TATA 0.871 1.046 0.944 0.923 0.911 Reliance 0.613 0.743 0.931 0.659 0.456 IFFCO 1.061 1.075 1.046 1.013 1.140

2005-06 To 2006-07

ICICI 0.305 0.983 0.283 1.078 0.300 National 0.921 1.230 1 0.921 1.133 New India 1.907 1.230 2.489 0.766 2.346

2006-07 To 2007-08 Oriental 0.543 1.232 1 0.543 0.669

254

United 0.885 1.230 1.405 0.630 1.088 Royal 0.516 1.230 1 0.516 0.635 Bajaj 0.588 1.236 0.604 0.973 0.727 TATA 1.127 1.085 1.059 1.064 1.222 Reliance 0.976 1.230 0.828 1.179 1.201 IFFCO 1 1.184 1 1 1.184

ICICI 1.552 1.280 2.455 0.632 1.987 National 1.086 1.043 1 1.086 1.133 New India 1.222 1.043 1 1.222 1.275 Oriental 1.617 0.970 1 1.617 1.569 United 1.121 1.043 0.773 1.449 1.169 Royal 1.397 1.043 1 1.397 1.457 Bajaj 1.393 1.036 1.499 0.929 1.443 TATA 1.019 1.106 1 1.019 1.126 Reliance 1.125 1.043 1.133 0.993 1.174 IFFCO 0.832 0.807 0.905 0.920 0.672

2007-08 To 2008-09

ICICI 1.451 0.927 0.905 1.603 1.345 National 0.420 0.707 0.457 0.919 0.297 New India 0.740 0.841 0.873 0.847 0.622 Oriental 0.875 0.741 1 0.875 0.648 United 1.417 0.810 1.293 1.096 1.147 Royal 1.202 0.813 1 1.202 0.978 Bajaj 1.221 0.750 1.104 1.106 0.916 TATA 1 0.884 1 1 0.884 Reliance 1.485 0.915 1.145 1.297 1.359 IFFCO 1.043 0.805 0.960 1.087 0.840

2008-09 To 2009-10

ICICI 0.987 0.760 0.935 1.056 0.750 National 1.902 1.109 1.934 .984 2.109 New India 1.407 .866 1.145 1.229 1.218 Oriental 1.005 1.253 1 1.005 1.259 United .827 .935 .972 .851 .774 Royal 1.292 .872 1 1.292 1.126 Bajaj .703 .915 .722 .974 .643 TATA 1 1.415 1 1 1.415

2009-10 To 2010-11

Reliance .719 .740 .940 .765 .532

255

IFFCO .708 1.327 .715 .991 .940 ICICI 1.867 .886 1.869 .999 1.653 National 1.027 1.263 1.020 1.006 1.297 New India .80 1.263 1 .80 1.010 Oriental 1.017 1.263 1 1.017 1.285 United 1.020 1.263 1.028 .992 1.288 Royal .297 1.263 1 .297 .375 Bajaj .759 1.263 .751 1.011 .959 TATA 1 1.263 1 1 1.263 Reliance 1.309 1.263 1.064 1.230 1.653 IFFCO .770 1.263 .786 .980 .973

2010-11 To 2011-12


Table 6.32





Average of TFPC

National 1.07 1.030 1.122

New India 1.075 1.038 1.127

Oriental 1.052 1.059 1.094

United 1.061 1.029 1.07


1.064 1.039 1.103

Royal 1.043 1.027 1.047

Bajaj 1.087 1.024 1.093

TATA 1.024 1.108 1.115

Reliance 1.312 1.022 1.428

IFFCO 1.079 1.077 1.148

ICICI 1.141 1.007 1.143


1.141 1.044 1.162


256

The table no. 6.32 states that though both the sectors have shown an increase in

the average of technical efficiency, the increase in the value of private sector i.e. 14.1% is

more as compared to the public sector which has marked a gain of 6.4% only. Both the

public and private sector companies are showing increase in the value of the technical



progress of the insurers over the study period. The average of technical progress of both

the sectors has shown an increase but the increase in the value of the private sector i.e.

4.4% is higher as compared to its counterparts. The results of averages of TFPC are

stating that the public sector general insurer’s i.e. National, New India, Oriental and

United India General Insurance Company have been showing progress in the total factor

productivity over the study period i.e. 12.2%, 12.7%, 9.4% and 7% respectively over the

study period. The same trend has been shown by the private sector insurers where

Reliance General Insurance Company has shown the highest gain of 42.8% followed by

IFFCO marking an increase of 14.8% in TFP. The rest of the private sector insurers also

depicted a gain in the productivity. Though both the sector are showing increasing trends

in the TFPC, the overall results of the Malmquist analysis states that the private sector

insurers have been more productive in comparison to the public sector insurers.

PRODUCTIVITY EVALAUTION OF MISCELLANEOUS INSURANCE BUSINESS

Model I


model have been as


surpluses and the other input has been the operating expenses relating to the

miscellaneous insurance segment.

Output: Net Premium Income from the miscellaneous insurance business.

257

Table 6.33



National 1 1.035 1 1 1.035

New India 0.804 0.866 1 0.804 0.696

Oriental 0.778 1.077 0.779 1 0.838

United 0.871 0.930 0.868 1.003 0.810

Royal 1.320 0.952 1.266 1.042 1.256

Bajaj 1.103 1.069 1 1.103 1.180

TATA 1.171 1.030 1.297 0.903 1.206

Reliance 1.652 0.837 2.757 0.599 1.383

IFFCO 1.535 0.888 1 1.535 1.363

2002-03 To 2003-04

ICICI 0.630 0.898 0.274 2.296 0.566

National 0.886 1.185 1 0.886 1.050

New India 0.771 1.570 1 0.771 1.210

Oriental 0.736 1.374 1.162 0.633 1.010

United 0.578 1.570 0.919 0.629 0.907

Royal 0.801 1.481 0.915 0.875 1.186

Bajaj 1.020 1.364 1 1.020 1.391

TATA 1.190 1.185 1.002 1.188 1.410

Reliance 1.260 1.570 1 1.260 1.978

IFFCO 0.845 1.455 1 0.845 1.230

2003-04 To 2004-05

ICICI 2.066 1.565 2.124 0.973 3.233

National 1.035 0.993 1 1.035 1.028

New India 1.433 0.722 1 1.433 1.035

Oriental 1.372 0.714 1.052 1.304 0.980

United 1.267 0.722 0.953 1.329 0.915

Royal 1.411 0.891 1.174 1.202 1.258

Bajaj 1 0.846 1 1 0.846

TATA 0.830 1.004 0.753 1.102 0.833

2004-05 To 2005-06

Reliance 1.477 0.722 1 1.477 1.067

258

IFFCO 1.479 0.768 1 1.479 1.135

ICICI 1.591 0.852 1.505 1.057 1.355

National 1.088 0.970 1 1.088 1.055

New India 1.126 1.055 1 1.126 1.189

Oriental 1.273 0.985 1.050 1.212 1.253

United 1.207 1.008 1.029 1.173 1.217

Royal 1.193 1.021 1 1.193 1.218

Bajaj 0.972 0.982 1 0.972 0.955

TATA 0.939 1.016 0.884 1.062 0.954

Reliance 1.623 1.028 0.832 1.951 1.669

IFFCO 1 0.963 1 1 0.963

2005-06 To 2006-07

ICICI 1.122 0.933 1.089 1.030 1.046

National 0.878 1.136 1 0.878 0.998

New India 1 1.128 1 1 1.128

Oriental 0.852 1.073 0.946 0.902 0.915

United 0.987 1.075 1.046 0.944 1.061

Royal 1 1.105 1 1 1.105

Bajaj 1.028 1.089 1 1.028 1.120

TATA 1.007 1.084 1.012 0.996 1.092

Reliance 0.897 1.120 0.957 0.938 1.005

IFFCO 1 1.129 1 1 1.129

2006-07 To 2007-08

ICICI 0.926 1.125 1.018 0.910 1.042

National 1.141 0.999 1 1.141 1.140

New India 0.915 0.885 1 0.915 0.810

Oriental 1.002 1.009 0.979 1.024 1.011

United 1.132 0.968 1.137 0.995 1.095

Royal 1 1.010 1 1 1.010

Bajaj 1 0.995 1 1 0.995

TATA 0.908 1.001 0.935 0.971 0.909

Reliance 0.937 1.005 0.878 1.067 0.941

2007-08 To 2008-09

IFFCO 1 1.001 1 1 1.001

259

ICICI 0.930 1.012 0.904 1.029 0.941

National 0.900 0.994 1 0.900 0.895

New India 0.863 1.077 1 0.863 0.930

Oriental 0.985 1.058 1.081 0.911 1.042

United 1.002 1.077 1.128 0.888 1.079

Royal 1 1.008 1 1 1.008

Bajaj 0.972 0.997 1 0.972 0.970

TATA 1.021 0.995 0.979 1.042 1.016

Reliance 0.982 1.024 1.077 0.912 1.006

IFFCO 1 1.081 1 1 1.081

2008-09 To 2009-10

ICICI 1.209 1.077 1.139 1.062 1.302

National 1.111 1.106 1 1.111 1.229

New India 1.032 1.030 1 1.032 1.064

Oriental .861 1.102 .810 1.063 .949

United .801 1.030 .852 .941 .826

Royal 1 1.065 1 1 1.065

Bajaj .943 1.126 .920 1.025 1.062

TATA 1.101 1.139 1.621 .679 1.253

Reliance .799 1.044 .740 1.079 .834

IFFCO 1 1.084 1 1 1.084

2009-10 To 2010-11

ICICI 1.012 1.030 1 1.012 1.042

National 1 .971 1 1 .971

New India 1.135 .908 1 1.135 1.031

Oriental 1.224 .937 1.147 1.067 1.147

United 1.425 .908 1.178 1.210 1.294

Royal 1 .956 1 1 .956

Bajaj 1.033 .953 1.033 1 .985

TATA 1.079 .954 .766 1.408 1.029

Reliance 1.299 .908 1.3 .999 1.180

IFFCO 1 .927 1 1 .927

2010-11 To 2011-12

ICICI 1 .914 1 1 .914 (Note: Author’s Own Calculations)

260

Table 6.34


Average of TFPC Company Average of Technical Efficiency


Change

National 1.004 1.043 1.044

New India 1.008 1.026 1.010

Oriental 1.009 1.036 1.016

United 1.03 1.032 1.022


1.013 1.034 1.023

Royal 1.080 1.054 1.118

Bajaj 1.007 1.046 1.056

TATA 1.027 1.045 1.078

Reliance 1.214 1.028 1.229

IFFCO 1.095 1.032 1.101

ICICI 1.165 1.045 1.271


1.098 1.042 1.142


The table no. 6.34 presents that though both the sectors have shown an increase in

the average of technical efficiency, the increase in the value of private sector i.e. 9.8% is

more as compared to the public sector which has shown a gain of 1.3% only. Both the

public and private sector companies are showing increase in the value of the technical



progress of the insurers over the study period. The average of technical progress of both

the sectors has shown an increase but the increase in the value of the private sector i.e.

4.2% is higher as compared to its counterparts. The results of the average of TFPC are

stating that the public sector general insurer’s i.e. National, New India, Oriental and

United India General Insurance Company have been showing progress in the total factor

productivity over the study period i.e. 4.4%, 1%, 1.6% and 2.2% respectively. The same

261

trend has been shown by the private sector insurers where ICICI General Insurance

Company has shown the highest gain of 27.1% followed by Reliance marking an increase

of 22.9% in TFPC. The rest of the private sector insurers also depicted a gain in the

productivity. The analysis also shows that the productivity of private sector insurers has

been higher than the public sector insurers.

Model II


model have been as


surpluses and the other input has been the operating expenses relating to the

miscellaneous insurance segment.

Output: Net Claims Incurred from the miscellaneous insurance business.

Table 6.35


Year EC TC PTEC SEC TFPC National 1.003 1.138 1.003 1 1.142 New India 0.795 0.878 1 0.795 0.698 Oriental 0.739 1.171 0.739 1 0.865 United 0.897 0.894 0.898 0.999 0.802 Royal 1.410 0.985 1.436 0.982 1.389 Bajaj 0.922 1.164 1 0.922 1.072 TATA 1.055 1.115 1.434 0.736 1.176 Reliance 1.141 0.878 1.565 0.729 1.002 IFFCO 1.793 0.878 1 1.793 1.575

2002-03 To 2003-04

ICICI 0.609 0.958 0.192 3.169 0.583 National 1 0.938 1 1 0.938 New India 1.295 0.910 1 1.295 1.178 Oriental 1.353 0.907 1.353 1 1.228 United 1.058 0.910 1.060 0.997 0.962

2003-04 To 2004-05

Royal 1.176 0.908 1.141 1.031 1.069

262

Bajaj 1.441 0.941 1 1.441 1.355 TATA 1.587 0.939 1.357 1.170 1.491 Reliance 1.914 0.910 1 1.914 1.741 IFFCO 1.072 0.908 1 1.072 0.974

ICICI 2.752 0.909 2.598 1.059 2.503 National 1 1.246 1 1 1.246 New India 0.913 1.153 1 0.913 1.053 Oriental 0.776 1.153 0.778 0.997 0.895 United 0.755 1.153 0.752 1.004 0.870 Royal 0.881 1.178 1 0.881 1.037 Bajaj 0.713 1.172 0.770 0.927 0.836 TATA 0.573 1.337 0.474 1.209 0.766 Reliance 0.421 1.153 1 0.421 0.486 IFFCO 1.160 1.155 0.701 1.656 1.340

2004-05 To 2005-06

ICICI 1.018 1.195 1.033 0.985 1.216 National 1 0.766 1 1 0.766 New India 1.126 1.044 1 1.126 1.175 Oriental 1.289 0.965 1.286 1.003 1.244 United 1.030 0.998 1.052 0.979 1.028 Royal 1.845 0.683 1 1.845 1.260 Bajaj 1.302 0.686 1.058 1.231 0.893 TATA 1.659 0.647 1.085 1.529 1.073 Reliance 2.061 0.835 0.411 5.014 1.720 IFFCO 1.338 0.934 1.427 0.938 1.250

2005-06 To 2006-07

ICICI 1.487 0.757 1.315 1.131 1.126 National 1 1.060 1 1 1.060 New India 1 1.162 1 1 1.162 Oriental 0.973 0.999 0.979 0.995 0.973 United 1.063 1.025 1.043 1.019 1.090 Royal 1.079 1.105 1 1.079 1.193 Bajaj 1.168 1.104 1.147 1.018 1.289 TATA 0.991 1.103 0.952 1.041 1.093

2006-07 To 2007-08

Reliance 1.838 1.104 1.779 1.033 2.029

263

IFFCO 1.085 1.056 1 1.085 1.146 ICICI 1.153 1.058 1.172 0.983 1.219

National 1 1.245 1 1 1.245

New India 0.942 0.874 1 0.942 0.823

Oriental 0.928 1.107 0.926 1.002 1.028

United 0.849 1.024 0.853 0.996 0.869

Royal 0.834 1.332 1 0.834 1.110

Bajaj 0.921 1.333 0.950 0.969 1.228

TATA 0.818 1.335 1.034 0.791 1.092

Reliance 0.825 1.334 0.842 0.981 1.101

IFFCO 1.015 1.144 1 1.015 1.161

2007-08 To 2008-09

ICICI 0.930 1.122 0.923 1.008 1.043

National 1 0.839 1 1 0.839

New India 0.852 1.009 1 0.852 0.859

Oriental 1.072 0.875 1.104 0.971 0.938

United 1.236 1.009 1.472 0.840 1.247

Royal 1.199 0.914 1 1.199 1.096

Bajaj 1.044 0.868 1.025 1.019 0.906

TATA 1.367 0.860 1.192 1.147 1.176

Reliance 1.285 0.861 1.259 1.021 1.107

IFFCO 1.137 0.888 1 1.137 1.010

2008-09 To 2009-10

ICICI 1.384 0.970 1.363 1.015 1.342

National 1 1.290 1 1 1.290

New India 1.020 1.131 1 1.020 1.153

Oriental .783 1.250 .803 .975 .978

United .784 1.162 .847 .925 .911

Royal .843 1.314 1 .843 1.107

Bajaj .889 1.257 .891 .998 1.118

TATA .906 1.245 1.658 .546 1.128

Reliance .925 1.253 .977 .946 1.159

2009-10 To 2010-11

IFFCO .942 1.256 1 .942 1.183

264

ICICI 1 1.198 1 1 1.198

National 1 .955 1 1 .955 New India .920 1.039 1 .920 .955 Oriental 1.089 1.026 1.120 .972 1.188 United 1.270 1.039 1.196 1.062 1.319 Royal 1.171 .929 1 1.171 1.089 Bajaj 1.042 .997 1.025 1.017 1.039 TATA 1.349 .983 .708 1.904 1.326 Reliance 1.063 1.039 1.090 .975 1.104 IFFCO 1.062 1.031 1 1.062 1.095

2010-11 To 2011-12

ICICI 1 1.052 1 1 1.052 (Note: Author’s Own Calculations)

Table 6.36




Change

Average of TFPC

National 1.000 1.053 1.053

New India .984 1.022 1.006

Oriental 1.000 1.050 1.037

United .993 1.023 1.010


.994 1.037 1.026

Royal 1.159 1.038 1.15

Bajaj 1.049 1.058 1.081

TATA 1.145 1.062 1.146

Reliance 1.274 1.040 1.272

IFFCO 1.178 1.027 1.192

ICICI 1.259 1.024 1.253


1.177 1.042 1.182


265

The above table no. 6.36 states that the private sector has shown an increase in the

average of technical efficiency i.e. 17.7% whereas the public sector has shown a fall in

the average of technical efficiency i.e. nearly 1%. Reliance has given a lead to all the

companies by showing 27.4% gain in the value of technical efficiency. The table also

shows the average values of the technical progress/ technological change of the insurers

over the study period. The average of technical progress of both the sectors has shown an

increase but the increase in the value of the private sector i.e. 4.2% is higher as compared

to its counterparts. The results of average of TFPC are stating that the public sector

general insurer’s i.e. National, New India, Oriental and United India General Insurance

Company have been showing progress in the total factor productivity over the study

period i.e. 5.3%, 0.6%, 3.7% and 1% respectively over the study period. The same trend

has been shown by the private sector insurers where Reliance General Insurance

Company has shown the highest gain of 27.2% followed by ICICI marking an increase of

25.3% in TFPC. The rest of the private sector insurers also depicted a gain in the

productivity. Though both the sector are showing increasing trends in the TFPC, the

overall results of the Malmquist analysis state that the private sector insurers have been

more productive as compared to their counterparts. It could be concluded that the

increase in the productivity of public sector is mainly due to the increase in the value of

the technological change/ technical progress whereas the value of the technical efficiency

has fallen over the time. In the case of the private sector the increase in the technical

efficiency and technical progress/ technological change both have lead to the gain in the

value of the total factor productivity over the time.

Categorization of the general insurers on the basis of development in Efficiency and

Productivity:

In this section Insurers have been categorized on the basis of development in the

mean of the Technical Efficiency and the mean of the Total Factor Productivity. This

type of division helps the insurers to know where they lie in terms of efficiency and

productivity and such categorization helps them to improve their efficiency/ productivity

or both as the case may be. Although the Malmquist productivity index can determine

changes in DMU productivity, large productivity growth did not necessarily mean good

266

technical efficiency or vice versa. Hence, with the average value as the cut-off point, the

development types of the general insurance companies can be categorized into the

following types, as shown in the tables below:

(1) Low growth and low efficiency refer to those with relatively smaller DMU

productivity growth and technical efficiency, suggesting the DMU should focus

on the improvement of productivity and technical efficiency to enhance

competitiveness.

(2) High growth and low efficiency refer to those with relatively greater DMU

productivity growth and relatively lower technical efficiency, suggesting that the

DMU productivity improved considerably, however, its technical efficiency had

relatively more room for improvement.

(3) Low growth and high efficiency refer to those with relatively higher DMU

technical efficiency and relatively lower productivity growth, suggesting that the

DMU productivity had relatively more room for improvement. Those with

technical efficiency lower than 1 should continuously improve relative efficiency.

(4) High growth and high efficiency refer to those with a DMU Malmquist

productivity index and technical efficiency value higher than the average values,

suggesting that the DMU had relative developmental advantages (Lin et al.,

2011).

Fire Premium (as output indicator)

Table 6.37

Categorization of the Insurance Companies

Categorization Insurance Companies in the Category

High Growth and High Efficiency Bajaj

High Growth and Low Efficiency TATA, Reliance, ICICI

Low Growth and High Efficiency National, New India, Oriental, United

Low Growth and Low Efficiency Royal, IFFCO (Note: Author’s Own Calculations)

267

The table no. 6.37 states that Bajaj has been the most efficient as well as most

productive insurer whereas Royal and IFFCO depicted low results both on productivity

parameter and on efficiency criteria. All the public sector insurers have been showing

good results on the efficiency parameter but still having the scope of improvement on the

productivity level. On the other hand TATA, Reliance and ICICI have been good at the

productivity level but could perform better by improving their efficiency.

Fire Claims (as output indicator)

Table 6.38



High Growth and High Efficiency Bajaj, Reliance

High Growth and Low Efficiency TATA, IFFCO, ICICI

Low Growth and High Efficiency National, New India, Oriental, United

Low Growth and Low Efficiency Royal (Note: Author’s Own Calculations)

The table no. 6.38 indicates that Bajaj and Reliance have been the most efficient as

well as most productive insurer whereas Royal depicted low results both on productivity

parameter and on efficiency criteria. All the public sector insurers have been showing good

results on the efficiency parameter but still having the scope of improvement on the

productivity level. On the other hand TATA, IFFCO and ICICI have been good at the

productivity level but could perform better by improving their efficiency.

Marine Premium (as output indicator)

Table 6.39



High Growth and High Efficiency TATA

High Growth and Low Efficiency Royal, Reliance

Low Growth and High Efficiency National, New India, Oriental, Bajaj

Low Growth and Low Efficiency United, IFFCO, ICICI (Note: Author’s Own Calculations)

268

The table no. 6.39 reports that TATA has been the most efficient as well as most

productive insurer whereas United, ICICI and IFFCO depicted low results both on

productivity parameter and on efficiency criteria. National, New India, Oriental and Bajaj

have been showing good results on the efficiency parameter but still having the scope of

improvement on the productivity level. On the other hand Royal and Reliance have been

good at the productivity level but could perform better by improving their efficiency.

Marine Claims (as output indicator)

Table 6.40



High Growth and High Efficiency IFFCO

High Growth and Low Efficiency Reliance, ICICI

Low Growth and High Efficiency National, Oriental, Bajaj, TATA

Low Growth and Low Efficiency United, Royal, New India (Note: Author’s Own Calculations)

The table no. 6.40 states that IFFCO has been the most efficient as well as most

productive insurer whereas United, Royal and New India depicted low results both on

productivity parameter and on efficiency criteria. National, Oriental, Bajaj and TATA


improvement on the productivity level. On the other hand Reliance and ICICI have been


Miscellaneous Premium (as output indicator)

Table 6.41



High Growth and High Efficiency Royal, IFFCO

High Growth and Low Efficiency Reliance, ICICI

Low Growth and High Efficiency National, New India, Oriental, Bajaj

Low Growth and Low Efficiency United, TATA (Note: Author’s Own Calculations)

269

The table no. 6.41 exhibits that Royal and IFFCO have been the most efficient as

well as most productive insurer whereas United and TATA depicted low results both on

productivity parameter and on efficiency criteria. National, New India, Oriental and Bajaj


improvement on the productivity level. On the other hand Reliance and ICICI have been


Miscellaneous Claims (as output indicator)

Table 6.42



High Growth and High Efficiency Royal

High Growth and Low Efficiency TATA, Reliance, IFFCO, ICICI

Low Growth and High Efficiency National, New India, Oriental, United, Bajaj

Low Growth and Low Efficiency - (Note: Author’s Own Calculations)

The table no. 6.42 states that Royal has been the most efficient as well as most

productive insurer. All the public sector insurers and Bajaj also have been showing good

results on the efficiency parameter but still having the scope of improvement on the

productivity level. On the other hand TATA, Reliance, IFFCO and ICICI have been good

at the productivity level but could perform better by improving their efficiency.

II. OVERALL ANALYSIS/ COMBINED ANALYSIS OF PERFORMANCE

OF PUBLIC AND PRIVATE SECTOR INSURERS

The “performance” of the insurers has been evaluated under the following parameters:

1. Efficiency Evaluation

2. Productivity Analysis

3. Financial Soundness Evaluation

4. Efficiency-Profitability Relationship

270

EFFICIENCY EVALUATION OF PUBLIC AND PRIVATE GENERAL

INSURERS

Due to the increased competition, consolidation, solvency risks and a changing

regulatory environment that have characterized the insurance industry in recent years, it

is imperative for the insurance operators to always seek for ways and methods to improve

their operating performance. Efficiency measurement is one aspect of a company’s

performance. It can be measured with respect to maximization of output, minimization of

cost or maximization of profits, which means that the objective of producers is to avoid

waste. The performance measurement of manufacturing is always initially done by

simple method called financial ratio. Data Envelopment Approach (DEA) technique

could be run to assess efficiency with multi input and outputs. Moreover, performance

matrix is yet another appropriate technique which could be used in decision making to

attain good performance (Memon and Tahir, 2012).

Specification of the model: The specification of the inputs and outputs for the model

have been as

Inputs: Two inputs have been identified for this model. The first input used for this

particular model has been the shareholders funds comprising of the share capital and

reserves and surpluses. The Second input has been the operating expenses relating to the

whole/combined insurance segment.

Output: Total Income from the insurance business has been selected as the output

indictor for this particular model. Total Income comprises of Net Premium Income

(combined i.e. from all the segments), Net Investment Income and other income.

Where other income is equal to the sum of profit on sale of other assets,

miscellaneous income and exchange gain.


utilizing the above mentioned inputs in the production of the output i.e. total income.

271

Table 6.43

Efficiency Evaluation of the Insurers

2002-2003 2003-2004

Company TE PTE SE Returns to Scale

Company TE PTE SE R to S


New India 1 1 1 Constant New India 1 1 1 Constant


United .981 .983 .998 Increasing United .901 .925 .974 Decreasing







2004-2005 2005-2006

Company TE PTE SE R to S Company TE PTE SE R to S National 1 1 1 Constant National 1 1 1 Constant


Oriental 1 1 1 Constant Oriental .934 .936 .997 Increasing

United .828 .845 .980 Decreasing United .807 .808 .999 Increasing


Bajaj 1 1 1 Constant Bajaj .856 .988 .867 Increasing



IFFCO .700 1 .700 Increasing IFFCO .768 .862 .890 Increasing


2006-2007 2007-2008

Company TE PTE SE R to S Company TE PTE SE R to S National 1 1 1 Constant National 1 1 1 Constant


Oriental 1 1 1 Constant Oriental .949 .953 .996 Increasing

272

United .776 .799 .972 Decreasing United .851 .852 .999 Increasing

Royal 1 1 1 Constant Royal .970 1 .970 Increasing


TATA .658 .660 .998 Decreasing TATA .666 .699 .953 Increasing

Reliance .742 .800 .927 Increasing Reliance .706 .716 .986 Decreasing

IFFCO .772 .809 .954 Increasing IFFCO .915 1 .915 Increasing

ICICI .729 .732 .996 Decreasing ICICI .734 .752 .977 Increasing

2008-2009 2009-2010

Company TE PTE SE R to S Company TE PTE SE R to S National 1 1 1 Constant National .91 1 .91 Decreasing


Oriental .941 .944 .997 Increasing Oriental 1 1 1 Constant

United .896 .898 .997 Increasing United 1 1 1 Constant

Royal .996 1 .996 Increasing Royal 1 1 1 Constant

Bajaj 1 1 1 Constant Bajaj .947 .959 .988 Increasing




ICICI .727 .745 .976 Increasing ICICI 1 1 1 Constant

2010-11 2011-12

Company TE PTE SE R to S Company TE PTE SE R to S National .952 1 .952 Decreasing National .989 1 .989 Decreasing


Oriental .833 .891 .934 Decreasing Oriental .920 .928 .992 Increasing

United .796 .856 .929 Decreasing United .986 .987 1 Constant






ICICI 1 1 1 Constant ICICI .955 .993 .962 Increasing (Note: Author’s Own Calculations)

273

The above table reports that during all the years under study at least one public



i.e. 2004-05, 2007-08 and 2008-09. Royal and ICICI have been on the second and third

position respectively, as they have shown the efficiency of 1 for two and one year resp.

Examining the public sector it could be concluded that New India Insurance Company

has been the top most public sector insurer which has achieved the maximum efficiency

level of 1 in all the years under consideration. National Insurance Company has also

enjoyed the Constant Returns to scales in 6 years out of 10 years of study. Oriental

Insurance Company has been on frontier for four years out of 10 years. United India

Insurance Company has joined the list of the bench markers in a single year only. The

public sector insurers have recorded the mixed trends by depicting variable returns to

scale in the years under study, which is an indication that after a decade to liberalization

the private sector has made its presence realized in the insurance market.

Table 6.44

Overall Analysis of Insurers

Years Mean of TE Mean of PTE Mean of SE

2002-03 .680 .970 .700

2003-04 .713 .937 .765

2004-05 .805 .951 .850

2005-06 .798 .919 .870

2006-07 .865 .880 .982

2007-08 .879 .897 .980

2008-09 .856 .883 .967

2009-10 .918 .936 .980

2010-11 .840 .923 .912

2011-12 .878 .948 .925 (Note: Author’s Own Calculations)

274


which can be attributable to increase in SE though PTE has decreased a little over the

time. For the purpose of overall analysis the mean efficiency scores have been

categorized into 0- 0.3, 0.3-0.6, 0.6-0.9 and 0.9-1 and thereafter the comparison of all the

insurers have been made with respect to their efficiency scores in order to find out the

range within which they lie. By following the same it has been found that in all the year

the overall efficiency score lies in the higher interval of 0.6-0.9 and 0.9-1. This might be

because all the insurers are operating on increasing return to scale or it can be contributed

by PTE and SE. Moreover it has been shown in table that the mean of TE increased from

0.680 in the year 2002-03 to 0.878 in the 2011-12. It has also been found that all the

insurers are also better at SE, while comparing the initial year with the current year. But

the PTE of the insurers has decreased from .970 in 2002-03 to .948 in 2011-12. Thus it

could be concluded that all the general insurers should lay more stress on improving their


Table 6.45


Years Sector TE PTE SE

Public .995 .995 .999 2002-03

Private .542 .956 .572

Public .923 .966 .957 2003-04

Private .573 .917 .637

Public .957 .961 .995 2004-05

Private .704 .943 .753

Public .935 .936 .999 2005-06

Private .706 .907 .784

Public .944 .949 .993 2006-07

Private .813 .833 .975

Public .95 .951 .998 2007-08

Private .831 .861 .966

275

Public .959 .960 .998 2008-09

Private .787 .832 .946

Public .977 1 .977 2009-10

Private .878 .893 .981

Public .895 .936 .953 2010-11

Private .802 .914 .883

Public .973 .978 .995 2011-12


The table no. 6.45 states the mean of TE, mean of PTE and mean of SE of both

public sector insurers and private sector insurers. The mean of TE of public sector has

been depicting decreasing trends and in the year 2011-12 it has been marked at .973.






PTE has been decreased to .927 in 2011-12 .The mean of the SE depicts that the public

sector has been stagnant while comparing the current year with the initial year, whereas

the private sector has been depicting the increasing trends over the study as its mean of

SE has been .572 in 2002-03 which has gradually increased over the time and has reached

to .877 in 2011-12. The mean TE of public sector has reduced due to the decrease in the

mean of the PTE of this sector whereas SE has remained stagnant. The results of the

Private sector emphasizes that the increase in the mean of TE has been due to the increase

in the mean of the Scale Efficiency over the study whereas the value of the mean of Pure

Technical Efficiency has decreased a little. The above analysis states that though the

technical efficiency of Private Sector has improved over the time, the TE of public sector

which has been reported as 97.3% is higher than the private sector i.e. 81.4% which states

that public sector has been more efficient as compared to private sector in terms of

efficiency in insurance business. The findings of this model depict that public sector has

276

used their inputs in more efficient manner in the production of total income as compared

to the private entities.

Table 6.46

Economies of Scale


Public 1 3 0 4 2002-03

Private 6 0 0 6

Public 0 1 3 4 2003-04

Private 6 0 0 6

Public 0 3 1 4 2004-05

Private 5 1 0 6

Public 2 2 0 4 2005-06

Private 6 0 0 6

Public 0 3 1 4 2006-07

Private 2 1 3 6

Public 2 2 0 4 2007-08

Private 4 1 1 6

Public 2 2 0 4 2008-09

Private 5 1 0 6

Public 0 3 1 4 2009-10

Private 4 2 0 6

Public 0 1 3 4 2010-11

Private 5 1 0 6

Public 1 2 1 4 2011-12

Private 6 0 0 6 (Note: Author’s Own Calculations)




output has been more than the proportional change in their input. In the year 2009-10 the

277

maximum numbers of insurers have enjoyed the Constant returns to scale and it is the

year 2006-07 when 4 insurers have exhibited decreasing returns to scale i.e. the increase

in their output has been less than the proportional increase in their input. In this above

mentioned year, 1 public sector insurer and 3 private sector insurers have shown the

DRS.

PRODUCTIVITY EVALAUTION/ MALMQUIST ANALYSIS OF PUBLIC AND

PRIVATE GENERAL INSURERS

At the present day, insurers are obliged to use their resources in the most efficient

and fruitful way to operate long lastingly and cope with protean competition conditions.

The more accurate efficiency level measurements renders in the more effective

applicability of anticipatory planning activities. Through lack of standardized, secure and

valid measurement techniques, substantiation of performance measurements becomes

troublesome, however.

One of the important criteria for performance measurement of insurers is the

changes in the total factor productivity. Productivity is a measure of how efficiently the

economy transforms its labor, capital and materials into goods and services. The change

in the total factor productivity is subdivided into two as change in technical efficiency

and technologic change. Improvements in these areas constitute the basis of reaching

high economical performance levels and thereby it forms the basis of having very high

level of competitiveness, too. The change in efficiency, thereof, is regarded as the

indicator of national economy’s internalization of global technology by adaptation and

transferring it into the total factor productivity (Deliktas, 2002 as quoted by Benli and

Degirman, 2013). Malmquist Total Factor Productivity is a technique depending on The

Data Envelopment Analysis (DEA). It measures the productivity change of a specific

value (increase/decrease rate) between two timeframe (Berg et.al., 1992 as quoted by

Benli and Degirman, 2013).

Specification of the model: The specification of the inputs and outputs for the model

have been as

278


surpluses and the Second input has been the operating expenses relating to the

whole/combined insurance segment.

Output: Total Income from the insurance business has been selected as the output

indictor for this particular model. Total Income comprises of Net Premium Income

(combined), Net Investment Income and other income.

Where other income is equal to the sum of profit on sale of other assets,

miscellaneous income and exchange gain.

Table 6.47


Year EC TC PTEC SEC TFPC National .859 .905 1 .859 .777 New India 1 1.036 1 1 1.036 Oriental .934 1.026 .939 .995 .959 United .918 .962 .941 .976 .883 Royal 1.193 .969 1.20 .994 1.156 Bajaj 1.224 1.024 1 1.224 1.253 TATA 1.144 1.006 1.120 1.021 1.151 Reliance 1.072 .884 1 1.072 .948 IFFCO 1.406 .989 1 1.406 1.390

2002-03 To 2003-04

ICICI 1.311 .946 .522 2.511 1.241 National 1.165 1.056 1 1.165 1.230 New India 1 1.008 1 1 1.008 Oriental 1.070 1.040 1.065 1.005 1.114 United .919 1.056 .914 1.006 .971 Royal 1.086 1.041 1.016 1.069 1.131 Bajaj 1.156 1.039 1 1.156 1.201 TATA 1.217 1.019 1 1.217 1.240 Reliance 1.357 1.056 1 1.357 1.433 IFFCO 1.292 1.027 1 1.292 1.326

2003-04 To 2004-05

ICICI 1.415 1.029 1.266 1.118 1.456

279

National 1 1.083 1 1 1.083 New India 1 1.097 1 1 1.097 Oriental .934 .980 .936 .997 .915 United .974 1.006 .956 1.020 .980 Royal 1.061 1.045 1 1.061 1.109 Bajaj .856 1.146 .988 .867 .981 TATA .731 1.142 .723 1.012 .835 Reliance 1.093 1.085 1 1.093 1.186 IFFCO 1.097 1.059 .862 1.273 1.162

2004-05 To 2005-06

ICICI 1.370 1.082 1.315 1.042 1.482 National 1 1.198 1 1 1.198 New India 1 .967 1 1 .967 Oriental 1.071 1.134 1.068 1.003 1.215 United .962 1.149 .988 .973 1.105 Royal 1.399 .886 1 1.399 1.240 Bajaj 1.141 .863 1.012 1.127 .984 TATA 1.139 .859 .913 1.248 .979 Reliance 1.401 1.080 .800 1.750 1.513 IFFCO 1.006 1.021 .939 1.071 1.026

2005-06 To 2006-07

ICICI .924 .928 .842 1.097 .857 National 1 1.110 1 1 1.110 New India 1 1.008 1 1 1.008 Oriental .949 .979 .953 .996 .929 United 1.096 .996 1.066 1.028 1.092 Royal .970 1.140 1 .970 1.106 Bajaj 1.023 1.147 1 1.023 1.174 TATA 1.011 1.132 1.059 .955 1.145 Reliance .951 1.109 .894 1.063 1.055 IFFCO 1.185 1.062 1.236 .959 1.258

2006-07 To 2007-08

ICICI 1.007 1.018 1.026 .981 1.025 National 1 .741 1 1 .741 New India 1 1.079 1 1 1.079 Oriental .991 .980 .991 1 .971 United 1.053 .884 1.055 .998 .930

2007-08 To 2008-09

Royal 1.027 .992 1 1.027 1.018

280

Bajaj 1 .994 1 1 .994 TATA .872 1.024 .908 .960 .893 Reliance .827 1.055 .856 .966 .872 IFFCO .916 1.066 1 .916 .977

ICICI .990 .995 .991 .999 .985 National .910 1.029 1 .910 .937 New India 1 .927 1 1 .927 Oriental 1.063 .924 1.059 1.003 .982 United 1.117 1.031

2008-09

1.113 1.003 1.151 Royal 1.004 .996 1 1.004 1 Bajaj .947 .944 .959 .988 .894 TATA 1.083 .955 1.072 1.011 1.034 Reliance 1.225 .913 1.173 1.045 1.119 IFFCO 1.171 .923 1 1.171 1.081

To 2009-10

ICICI 1.375 .993 1.343 1.024 1.366 National 1.046 .997 1 1.046 1.042 New India 1 1.219 1 1 1.219 Oriental .833 1.151 .891 .934 .959 United .796 1.027 .856 .929 .817 Royal .834 1.271 1 .834 1.060 Bajaj .871 1.152 .893 .976 1.003 TATA 1.085 1.149 1.470 .738 1.247 Reliance .820 1.069 .873 .940 .877 IFFCO .906 1.125 1 .906 1.020

2009-10 To 2010-11

ICICI 1 1.043 1 1 1.043 National 1.039 1.078 1 1.039 1.121 New India 1 1.076 1 1 1.076 Oriental 1.105 1.115 1.041 1.062 1.232 United 1.240 1.078 1.153 1.076 1.337 Royal 1.047 1.030 1 1.047 1.078 Bajaj 1.009 1.120 1.038 .972 1.129 TATA 1.055 1.106 .893 1.182 1.167 Reliance 1.144 1.078 1.254 .912 1.233 IFFCO .940 1.115 1 .940 1.048

2010-11 To 2011-12

ICICI .955 1.081 .993 .962 1.033 (Note: Author’s Own Calculations)

281

Table 6.48





Change

Average of TFPC

National 1.002 1.021 1.026

New India 1 1.046 1.046

Oriental .994 1.036 1.030

United 1.008 1.021 1.029


1.001 1.031 1.032

Royal 1.069 1.041 1.099

Bajaj 1.025 1.047 1.068

TATA 1.037 1.043 1.076

Reliance 1.098 1.036 1.137

IFFCO 1.102 1.043 1.143

ICICI 1.149 1.012 1.165


1.08 1.037 1.114

The results of the Technical Efficiency Change state that private sector insurers

have indicated increase in the Technical Efficiency Change whereas the technical

efficiency of public sector insurers remained the same over the period. Among the public

sector only one company i.e. Oriental General Insurance Company marked a decrease

over the study period. On the other hand all the private sector insurers registered increase

in the Technical Efficiency Change over the study period. Among the private sector

ICICI showed the highest average Technical Efficiency Change followed by the IFFCO

Tokio over the study period. The results of the Technical Progress state that both the

public and private sector are showing growth in the productivity as the value of the public

sector and private sector is 1.031 and 1.037 resp. which is greater than 1. Moreover there

is not much difference in the average value of Technical Progress of both the sectors. The

282

results of the average of TFPC are stating that the public sector general insurer’s i.e.

National, New India, Oriental and United India General Insurance Company have been

showing progress in the total factor productivity over the study period i.e. 2.6%, 4.6%,

3.0% and 2.9% respectively over the study period. The same trend has been shown by the

private sector insurers where ICICI General Insurance Company has shown the highest

gain of 16.5% followed by IFFCO marking an increase of 14.3% in TFP. The rest of the

private sector insurers also depicted a gain in the productivity. Though both the sectors

are showing increasing trends in the TFPC, whereas the overall results of the Malmquist

analysis states that the private sector insurers have shown more increase in the TFPC as

they have indicated a 11.4% growth in the productivity whereas their counterparts have

registered 3.2% growth in the productivity over the study period. It is evident from the

above table that the increase in the productivity growth of private sector insurers is

attributable to improvement in both the technical efficiency and technical progress

whereas the productivity growth of their counterparts is attributable to the growth in the

technical progress whereas their technical efficiency change has remained the same over

the time.

Categorization of the General Insurers on the basis of Efficiency and Productivity:

Table 6.49

Categorization of the Insurers


High Growth and High Efficiency -

High Growth and Low Efficiency Royal, Reliance, IFFCO, ICICI

Low Growth and High Efficiency National, New India, Oriental, United, Bajaj

Low Growth and Low Efficiency TATA (Note: Author’s Own Calculations)

The table no. 6.49 states that TATA depicted low results both on productivity

parameter and on efficiency criteria. All the public sector insurers and Bajaj also have

been showing good results on the efficiency parameter but have been still having the

scope of improvement on the productivity level. On the other hand Royal, Reliance,

283

IFFCO and ICICI have been good at the productivity level but could perform better by

improving their efficiency. No insurer has shown good results at both the efficiency as

well as productivity level.

FINANCIAL SOUNDNESS OF INDIAN GENERAL INSURANCE SECTOR

CARAMEL MODEL

A resilient and well regulated insurance industry can significantly contribute to

economic growth and efficient resource allocation through transfer of risk and

mobilization of savings. Failures of non-life insurance companies can create a situation in

which certain services are interrupted due to a lack of insurance protection (Das et al.,

2003). Financial Soundness of the insurance company depicts the strengths and

weaknesses of the insurers by properly establishing the relationship between the items of

the financial statements.

The methodology applied here to determine the financial soundness is the

CARAMELS framework developed by the International Monetary Fund to understand

financial strengths and weaknesses of various sectors. In fact, the CARAMELS model

acts as a framework which considers different parameters for determining the soundness

of organizations spread across different industries. An attempt has been made to analyze

the financial soundness of the Indian General Insurance Companies in terms of Capital

Adequacy, Assets Quality, Reinsurance and Actuarial Issues, Management Soundness,

Earnings and Profitability and Liquidity.

1. Capital Adequacy

Capital represented by its shareholder’s funds acts as a buffer against adverse

developments. It is important for an insurance company to maintain policyholder’s

confidence and preventing the insurer from going bankrupt. It reflects the overall

financial condition of insurer and also the ability of management to meet the need of

additional capital. Some ratios have not been calculated due to the unavailability of the

financial data relating to the ratios. For Non-Life Insurers, two ratios have been

calculated: net premium/ capital and capital/ total assets. The former reflects risks arising

from underwriting operations and the latter reflects asset risk. The following ratios

measure capital adequacy:

284

a. Net Premium/ Capital

Table 6.50

Net premium/ capital (Percentage)

Company 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 mean median S.DevNational 198.74 224.95 232.85 241.70 199.19 204.52 259.21 239.93 278.17 350.62 242.98 236.39 45.80New 103.30 92.17 90.23 90.32 78.93 70.47 75.11 80.78 101.13 113.45 89.58 90.27 13.59Oriental 227.65 181.16 156.35 151.95 142.15 142.06 163.91 205.37 232.43 233.23 183.62 172.53 37.77United 144.70 120.01 107.04 94.41 91.58 88.89 97.14 100.90 120.45 149.08 111.42 103.97 21.61Mean 168.59 154.57 146.61 144.59 127.96 126.48 148.84 156.74 183.04 211.59 156.90 143.42 68.84Median 171.72 150.58 131.69 123.18 116.86 115.47 130.52 153.13 176.44 191.15 143.42S.Dev 55.46 59.85 63.97 70.58 54.77 60.23 82.69 77.83 85.86 105.41 68.84Royal 84.11 120.32 155.09 212.06 273.48 300.90 299.93 297.33 322.28 344.22 240.97 285.40 91.86Reliance 15.59 26.05 44.76 36.35 194.41 220.33 175.59 141.87 100.49 123.29 107.87 111.89 74.89IFFCO 65.44 120.56 187.32 170.88 195.64 242.76 193.54 208.89 283.54 266.11 193.46 194.59 65.24TATA 102.57 152.74 207.81 172.70 170.55 203.10 173.19 167.67 215.47 283.07 184.88 172.94 47.17ICICI 40.62 57.45 128.66 196.79 183.01 165.41 132.06 138.30 198.13 221.28 146.17 151.85 59.82Bajaj 165.12 218.06 268.34 261.61 257.74 303.56 298.38 248.54 276.18 280.73 257.82 264.97 40.80mean 78.90 115.86 165.33 175.06 212.47 239.34 212.11 200.43 232.68 253.11 188.52 193.97 81.39median 74.77 120.44 171.20 184.74 195.02 231.54 184.56 188.28 245.82 273.42 193.97S.Dev 52.29 68.30 76 75.62 42.44 54.89 70.36 63.46 79.33 74.82 81.39Source: Compiled from annual reports of the companies

285

Test of Significance

Test Ratio Z Value Asymp. Sig (2-tailed)

Mann-Whitney Test Net Premium to Capital -2.181 .029

The net premium to capital ratio indicates the degree to which an insurer can grow

premium by before fresh capital is needed. The ratio of net premium to capital, witnessed

increasing trends for all public sector insurers. The National, New India, Oriental and

United insurance companies have witnessed increasing trend in ratio ranging between

198.74 & 350.62, 70.47 & 113.45, 142.06 & 233.23 and 88.89 & 149.08 respectively.

The sector wise analysis states that the net premium to capital ratio of the public sector

general insurers is lower than that of the private sector general insurers. Among the

public sector companies, National Insurance Company showed the maximum average net

premium to capital ratio of 242.98 followed by Oriental, United and New India with

respective percentages of 183.62, 111.42 and 89.58 respectively. Similarly Private Sector

Insurers have been marking an increase in the same ratio. However among the private

insurers, Bajaj showed the maximum average net premium to capital ratio of 257.82 per

cent followed by Royal and IFFCO with the respective percentages of 240.97 per cent

and 193.46 per cent. Reliance General Insurer showed the least average net premium to

capital ratio of 107.87 per cent. The average net premium to capital ratio of all the public

sector insurers is 156.90 and that of private sector is 188.52 per cent which states that

there is a huge difference between the ratio of public and private sector. The standard

deviation values of the public sector and private sector general insurers are 68.84 and

81.39 resp. which exhibit that public sector insurers are more consistent than the private

sector insurers. Year wise analysis indicates that the average net premium to capital ratio

of the public sector is the highest i.e. 211.59 per cent in the year 2011-12 followed by

183.04 per cent in the year 2010-11. The private insurer’s average net premium to capital

ratio is the highest in the year 2011-12 followed by 2007-08.

Mann- Whitney test further shows that there is a significant difference between

the net premium to capital ratio of the public and private sector general insurance

companies.

286

b. Capital/ Total Assets

Table 6.51

Capital/total assets (Percentage)

Company 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 mean median S.DevNational 16.39 12.49 11.84 8.03 10.53 9.89 11.23 9.20 8.56 9.96 10.81 10.24 2.40New 26.26 22.79 21.94 17.85 21.97 21.82 27.18 20.17 17.94 18.33 21.62 21.88 3.24Oriental 12.91 12.77 14.37 12.14 14.54 12.49 14.66 10.65 10.23 11.24 12.60 12.63 1.59United 18.83 16.84 19.07 17.38 20.79 21.20 27.86 24.12 22.74 21.89 21.07 20.99 3.32Mean 18.59 16.22 16.80 13.85 16.95 16.35 20.23 16.03 14.86 15.35 16.52 16.61 5.58Median 17.61 14.80 16.72 14.76 17.66 16.84 20.92 15.41 14.08 14.78 16.61 S.dev 5.65 4.80 4.54 4.66 5.38 6.05 8.53 7.26 6.65 5.70 5.58Royal 63.40 50.47 39.81 31.15 24.59 22.66 22.18 20.38 18.88 17.54 31.10 23.62 15.40Reliance 48.40 57.48 61.13 62.27 59.97 35.22 34.87 37.36 38.72 45.20 51.79 48.49 11.37IFFCO 49.75 40.49 31.32 36.74 33.11 25.83 28.68 25.57 20.30 18.75 31.05 30 9.45Tata 29.84 53.72 39.91 32.91 33.64 29.95 31.18 27.01 24.07 20.41 32.26 30.56 9.24ICICI 39.18 41.30 32.43 22.75 26.83 28.35 29.22 24.85 18.60 17.64 28.11 27.59 7.87Bajaj 37.13 28.59 24.21 25.11 23.78 23 21.23 21.25 18.81 17.85 24.09 23.39 5.53mean 50.11 43.64 36.64 34.77 29.52 27.44 28.30 26.29 24.31 23.99 32.50 29.53 12.47median 51.73 40.89 31.87 32.03 29.97 27.09 28.95 25.21 19.59 18.30 29.53 S.Dev 10.31 6.60 11.03 13.51 13.36 5.03 4.63 5.98 10.43 13.65 12.47 Source: Compiled from annual reports of the companies

287



Mann-Whitney Test Capital to Total Assets -6.899 .000

This particular ratio calculates the proportion of shareholder’s funds held in

total assets. The ratio of capital to total assets, witnessed decreasing trends for all

public sector insurers except United India. The National, New and Oriental insurance

companies have witnessed decreasing trends in ratio ranging between 16.39 & 8.03,

27.18 & 17.85 and 14.66& 10.23 respectively, while as for United India insurer, the

ratio has witnessed increasing trend ranging between 16.84 & 27.86. The sector wise

analysis states that the capital to total assets ratio of the public sector general insurers

is lower than that of the private sector general insurers. Among the public sector

companies, New India Insurance Company showed the maximum average capital to

total assets ratio of 21.62 followed by United, Oriental and National with respective

percentages of 21.07, 12.60 and 10.81 respectively. The private sector insurers have

been marking a decreasing trend. However among the private insurers, Reliance

showed the maximum average capital to total assets ratio of 48.40 per cent followed

by TATA and Royal with the respective percentages of 32.26 per cent and 31.10 per

cent. Bajaj Allianz General Insurer showed the least average capital to total assets

ratio of 24.09 per cent. The average net capital to total assets ratio of all the public

sector insurers is 16.52 and that of private sector is 32.50 per cent which states that

there is a huge difference between the ratio of public and private sector. The standard

deviation values of the public sector and private sector general insurers are 5.58 and

12.47 resp. which exhibit that public sector insurers are more consistent than the

private sector insurers. Year wise analysis indicates that the average capital to total

assets ratio of the public sector is the highest i.e.20.23 per cent in the year 2008-09

followed by 18.59 per cent in the year 2002-03. The private insurer’s average capital

to total assets ratio is the highest in the year 2002-03 followed by 2003-04.

288


the capital to total assets ratio of the public and private sector general insurance

companies.

2. Asset Quality:

The quality of assets is an important parameter to measure the strength of an

insurer. The prime aim behind measuring the assets quality is to ascertain the

component of equities as a percentage of the total assets. It reveals the degree of

insurer’s exposure to stock market risk. Only one ratio i.e. Equities/ Total Assets has

been used to calculate the assets quality, the other ratios have not been calculated due

to the unavailability of the financial data relating to the ratios. The ratio necessary to

assess the assets quality is:

289

Table 6.52

Equities/ Total Assets (Percentage)

Company 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 mean median S.DevNational 1.52 .804 1.12 0.97 .72 .73 .63 .79 .55 .51 .50 .725 .320New .74 .77 .57 .76 .74 .73 .62 .54 .50 .47 .644 .675 .116Oriental 1.54 1.13 1.01 .73 .71 .61 .74 .55 .51 .50 .803 .720 .331United 1.30 .99 .93 .73 1.12 .98 1.15 .87 .80 .72 .959 .955 .189Mean 1.28 .952 .917 .730 .822 .71 .855 .627 .580 .547 .802 .735 .270Median 1.41 .730 1.05 .950 .730 .625 .765 .550 .510 .50 .735S.dev .358 .262 .109 .008 .198 .180 .198 .161 .146 .115 .270Royal 63.40 50.47 39.81 31.15 24.17 21.74 20.90 16.86 15.80 14.02 29.83 22.95 16.48Reliance 47.44 47.03 45.89 40.03 13.99 6.15 5.30 4.43 4.59 3.94 21.87 10.07 20.28IFFCO 46.49 36.60 24.99 28.87 24.55 18.69 15.48 13.31 11.35 9.44 22.97 21.62 11.86Tata 53.70 39.91 29.84 32.91 31.05 25.92 27.58 23.43 21.62 19.85 30.58 28.71 10.02ICICI 39.18 40.22 28.61 14.94 11.36 9.94 7.35 5.99 4.91 4.14 16.66 10.65 14.04Bajaj 37.12 23.86 14.88 10.34 6.49 4.39 3.48 2.95 2.47 2.04 10.80 5.44 11.55mean 47.88 39.68 30.67 26.37 18.60 14.47 13.34 11.16 10.12 8.90 22.12 20.37 15.51median 46.96 40.06 29.22 30.01 19.08 14.31 11.41 9.65 8.13 6.79 20.37 S.Dev 9.67 9.27 10.97 11.36 9.39 8.86 9.61 8.08 7.51 6.93 15.51 Source: Compiled from annual reports of the companies

290



Mann-Whitney Test Equities to Total Assets -8.444 .000

All the public sector insurance companies have witnessed decreasing trend in

ratio ranging between 1.52 & .50, .77 & .47, 1.54 & .50 and 1.30 & .72 respectively.

The sector wise analysis states that the equities to total assets ratio of the public sector

general insurers is lower than that of the private sector general insurers. Among the

public sector companies, United India Insurance Company showed the maximum

average equities to total assets ratio of .959 followed by National, Oriental and New

India with respective percentages of .804, .803 and .644 respectively. Similarly

Private Sector Insurers have been depicting decreasing trends. However among the

private insurers, TATA showed the maximum average capital to total assets ratio of

30.58 per cent followed by Royal and IFFCO with the respective percentages of 29.83

per cent and 22.97 per cent. Bajaj Allianz General Insurer showed the least average

equities to total assets ratio of 10.80 per cent. The average equities to total assets ratio

of all the public sector insurers is .802 and that of private sector is 22.12 per cent

which states that there is a huge difference between the ratio of public and private

sector. The standard deviation values of the public sector and private sector general

insurers are .270 and 15.51 resp. which exhibit that public sector insurers are more

consistent than the private sector insurers. Year wise analysis indicates that the

average equities to total assets ratio of the public sector is the highest i.e.1.28 per cent

in the year 2002-03 followed by .952 per cent in the year 2003-04. The private

insurer’s average equities to total assets ratio is the highest in the year 2002-03

followed by 2003-04.

Mann- Whitney test further shows that there is a significant difference

between the equities to total assets ratio of the public and private sector general

insurance companies.

291

3. Reinsurance and Actuarial Issues:

The risk retention ratio (Net Premium/ Gross Premium) is included for both

life and non life business. It reflects the overall underwriting strategy of the insurer in

that it shows what portion of risk is passed on to the reinsurers. Overall insurers

capital and reinsurance cover need to be capable of covering a plausible severe risk

scenario. If the insurer relies on reinsurance to a substantial degree, it is critical that

the financial health of its reinsurers is examined. Some ratios have not been

calculated due to the non availability of the financial data relating to the ratios.

292

Table 6.53

Net premium/ Gross premium (Percentage)

Company 2007-08 2002-03 2003-04 2004-05 2005-06 2006-07 2008-09 2009-10 2010-11 2011-12 mean median S.D.National 6.02 74.25 73.78 74.32 75.87 74.61 79.26 85.05 85.61 86.30 88.96 79.80 77.56New 73.06 73.86 76.33 76.52 80.04 79.88 85.19 84.55 87.43 87.06 80.39 79.96 5.40Oriental 66.21 70.11 71.77 69.27 71.62 73.81 79.33 81.62 82.79 84.53 75.10 72.79 6.42United 70.46 70.23 73.79 70.54 72.29 77.02 82.06 79.97 80.24 82.88 75.94 75.40 5.06Mean 71.00 82.93 72.00 74.05 73.04 74.64 77.49 82.90 84.19 85.85 77.81 76.77 6.00Median 71.75 72.00 74.05 73.21 73.44 78.13 83.55 83.08 84.54 85.79 76.77 S.Dev 3.55 2.10 1.86 3.66 3.80 2.73 2.78 2.60 3.29 2.68 6.00Royal 84.40 59.18 60.63 60.97 54.38 55.76 64.20 74.44 78.28 76.59 66.88 62.58 10.58Reliance 10.38 21.44 38.32 33.24 26.77 49.32 72.52 70.68 78.15 69.13 46.99 43.82 24.37IFFCO 32.82 41.37 47.25 38.75 47.84 56.70 60.61 63.25 63.65 72.05 52.42 52.27 12.71TATA 54.13 54.90 57.94 49.86 53.71 57.98 71.30 69.07 61.94 79.79 61.06 57.96 9.45ICICI 21.03 26.67 36.72 33.33 35.68 47.38 58.01 66.54 67.17 79.77 47.23 42.05 19.69Bajaj 60.93 60.10 56.27 46.08 46.94 59.47 71.04 75.90 74.90 82.01 63.36 60.51 12.23Mean 39.74 44.18 49.57 42.60 44.45 55.84 67.98 70.62 70.40 77.85 56.32 58.59 17.04Median 43.47 48.13 51.76 42.41 47.39 57.34 71.17 69.87 71.03 79.78 58.59 S.Dev 21.41 17.14 10.41 8.85 11.14 6.36 6.87 5.65 7.01 5.95 17.04 Source: Compiled from annual reports of the companies

293



Mann-Whitney Test Net Retention Ratio -6.635 .000

This ratio indicates the risk bearing capacity of the insurers. It indicates the

extent the insurers are retaining the premium. The ratio of net premium to gross

premium, witnessed increasing trend for all public sector insurers. All the public

sector insurance companies have shown increasing trend in ratio ranging between

73.78 & 88.96, 73.06 & 87.43, 66.21 & 84.53 and 70.23 & 82.88 respectively. The

sector wise analysis states that the net premium to gross premium ratio of the public

sector general insurers is higher than that of the private sector general insurers.

Among the public sector companies, New India Assurance Company showed the

maximum average net premium to gross premium of 80.39 followed by National,

United India and Oriental with respective percentages of 79.80, 75.94 and 75.10

respectively. Similarly the private sector insurers have been showing the increasing

trends. However among the private insurers, Royal showed the maximum average net

premium to gross premium ratio of 66.88 per cent followed by Bajaj and TATA with

the respective percentages of 63.36 per cent and 61.06 per cent. Reliance General

Insurer showed the least average net premium to gross premium ratio of 46.99 per

cent. The average net premium to gross premium ratio of all the public sector insurers

is 77.81 per cent and that of private sector is 56.32 per cent which states that there is a

huge difference between the ratio of public and private sector. The standard deviation

values of the public sector and private sector general insurers are 6.00 and 17.04 resp.

which exhibit that public sector insurers are more consistent than the private sector

insurers. Year wise analysis indicates that the average net premium to gross premium

ratio of the public sector is the highest i.e. 85.85 per cent in the year 2011-12

followed by 84.19 per cent in the year 2010-11. The private insurer’s average net

premium to gross premium ratio is the highest in the year 2011-12 followed by 2009-

10. The close examination of this ratio state that private sector is relying more on the

294

reinsurance whereas public sector is retaining the premium with them and depending

less on reinsures due to large capital base. Moreover the premium earned by these

public sector insurers is invested in the profitable investments whose investment

returns help this sector to offset the underwriting losses faced by them.


the net premium to gross premium ratio of the public and private sector general

insurance companies.

4. Management Soundness

Sound management is crucial for financial stability of insurers. The ratio in

this segment involves subjective analysis to measure the efficiency and effectiveness

of management. The ratios used to evaluate management efficiency are described

as:

295

Table 6.54

Operational expenses/ Gross premium (Percentage)

Company 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 mean median S.DevNational 20.98 21.53 22.61 25.04 21.11 22.40 22.11 26.35 23.26 20.26 22.56 22.25 1.89New 22.71 33.07 28.21 27.27 22.97 19.31 26.41 28.73 27.38 24.16 26.02 26.84 3.86Oriental 23.27 27.61 24.18 24.12 19.19 21.62 23.06 24.29 28.81 22.39 23.85 23.69 2.76United 20.96 25.97 29.30 30.95 25.56 24.40 24.11 22.08 27.05 19.14 24.95 24.98 3.64Mean 21.98 27.04 26.07 26.84 22.20 21.93 23.92 25.36 26.62 21.48 24.34 24.11 3.28Median 21.84 26.79 26.19 26.15 22.04 22.01 23.58 25.32 27.21 21.32 24.11 S.dev 1.18 4.76 3.19 3.03 2.71 2.10 1.84 2.84 2.36 2.23 3.28Royal 30.01 25.51 22.01 22.85 22.80 25.10 27.32 25.62 26.63 23.86 25.17 25.30 2.43Reliance 14.37 20.69 21.21 16.78 19.83 28.91 28.25 24.27 26.99 22.38 22.36 21.79 4.80IFFCO 22.81 19.95 19.56 17.12 17.88 17.84 17.43 17.09 17.86 17.84 18.53 17.85 1.77Tata 24.13 22.15 23.77 26.38 27.23 29.53 32.63 29.29 25.08 23.1 26.32 25.73 3.33ICICI 19.73 18.36 17.27 18.84 16.68 16.96 19.94 16.84 15.98 16.94 17.75 17.11 1.37Bajaj 22.48 21.12 17.50 16.39 19.38 21.81 22.86 22.09 22.51 20.45 20.65 21.46 2.23Mean 22.25 21.29 20.22 19.72 20.63 23.35 24.73 22.53 22.50 20.76 21.80 21.91 4.23median 22.64 20.90 20.38 17.98 19.60 23.45 25.09 23.18 23.79 21.41 21.91 S.Dev 5.14 2.42 2.58 4.03 3.83 5.39 5.67 4.90 4.64 2.86 4.23 Source: Compiled from annual reports of the companies

296


Test Ratio Z Value

Asymp. Sig (2-tailed)

Mann-Whitney Test

Operational Expenses to Gross Premium

-3.124 .002

The ratio of operational expense to gross premium, witnessed decreasing

trends for all public sector insurers except New India Assurance Company. These

companies have been depicting ratios ranging between 20.26 & 26.35, 19.31 & 33.07,

19.19 & 28.81 and 19.14 & 30.95 respectively. The sector wise analysis states that the

operational expense to gross premium ratio of the public sector general insurers is

higher than that of the private sector general insurers. Among the public sector

companies, New India Assurance Company showed the maximum average operational

expense to gross premium of 26.02 followed by United, Oriental and National with

respective percentages of 24.95, 23.85 and 22.56 respectively. The private sector

insurers have been showing decreasing trends except Reliance General Insurer

Company. However among the private insurers, TATA showed the maximum average

operational expense to gross premium ratio of 26.32 per cent followed by Royal and

Reliance with the respective percentages of 25.17 per cent and 22.36 per cent. ICICI

General Insurer showed the least average operational expense to gross premium ratio

of 17.75 per cent. The average operational expense to gross premium ratio of all the

public sector insurers is 24.34 per cent and that of private sector is 21.80 per cent

which states that there is a huge difference between the ratio of public and private

sector. The standard deviation values of the public sector and private sector general

insurers are 3.28 and 4.23 resp. which exhibit that public sector insurers are more

consistent than the private sector insurers. Year wise analysis indicates that the

average operational expense to gross premium ratio of the public sector is the highest

i.e. 27.04 per cent in the year 2003-04 followed by 26.84 per cent in the year 2005-06.

The private insurer’s average operational expense to gross premium ratio is the

highest in the year 2008-09 followed by 2007-08.

297


the operational expense to gross premium ratio of the public and private sector

general insurance companies.

5. Earnings and Profitability Ratios

The quality of earnings and profitability is a very important criterion that

determines the ability of an insurer to earn consistently. Low profitability may signal

fundamental problems of the insurers and may be considered a leading indicator for

solvency problems. The ratios used in this section basically determine the profitability

of insurer and explains its sustainability and growth in earnings in future. The

following ratios explain the quality of income generation.

298

a. Loss Ratio

Table 6.55

Loss Ratio=Net claims/ Net premium (Percentage)

Company 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 mean median S.D.National 76.01 84.10 79.92 102.43 86.51 94.05 99.16 85.05 97.05 87.50 89.17 87.00 8.64

New 76.77 74.65 74.58 88.13 80.34 86.82 89 89.87 100.80 90.01 85.09 87.47 8.38Oriental 90.47 77.25 78.09 86.04 87.64 87.66 99.69 90.79 94.22 91.02 88.28 89.06 6.79United 91.06 85.63 91.99 93.09 90.26 92.75 78.62 86.74 94.36 88.50 89.30 90.66 4.68Mean 80.27 80.61 83.13 92.82 86.19 91.02 91.61 88.11 96.60 89.25 87.96 88.31 7.22

Median 77.01 81.09 82.98 90.61 87.08 91.61 94.08 88.30 95.70 89.25 88.31S.Dev 7.20 5.13 7.53 6.86 4.20 3.16 9.96 2.67 3.08 1.56 7.22Royal 53.68 57.33 56.39 64.81 61.08 66.88 68.95 71.21 75.35 78.33 65.40 65.84 8.28

Reliance 77.30 99.48 68.71 61.91 63.80 70.90 78.19 84.74 102.90 108.84 81.67 77.74 16.80IFFCO 40.70 54.63 50.79 70.54 72.79 78.91 83.44 79.45 87.26 92.57 71.10 75.85 17.04TATA 47.41 44.84 48.59 56.08 54.27 54.58 60.54 67.21 74.74 79.67 58.79 55.33 11.72ICICI 39.89 53.96 48.23 73.77 76.30 78.38 85.35 88.85 95.61 101.46 74.18 77.34 20.61Bajaj 52.59 59.04 47.22 69.92 66.26 66.81 71.90 73.59 79.14 77.10 66.35 68.36 10.45Mean 56.70 55.34 52.18 66.48 66.93 70.62 74.58 77.50 85.83 89.66 69.58 70.23 15.92

Median 50.54 68.58 54.29 49.69 67.36 72.53 74.60 76.52 83.20 86.12 70.23S.Dev 22.22 7.78 5.78 6.31 8.15 9.71 9.35 8.31 11.54 13.42 15.92

Source: Compiled from annual reports of the companies

299



Mann-Whitney Test Loss Ratio -5.981 .000

For non-life insurers, the loss ratio is an important indicator of whether their

policy is correct. The Loss Ratio, witnessed increasing trends for all public sector

insurers except United India General Insurer. These companies have been depicting these

trends in ratio ranging between 76.01 & 102.43, 74.58 & 100.80, 77.25 & 99.69 and

78.62 & 94.36 respectively. The sector wise analysis states that the Loss Ratio of the

public sector general insurers is higher than that of the private sector general insurers.

Among the public sector companies, United India Insurance Company showed the

maximum average Loss Ratio of 89.30 per cent followed by National, Oriental and New

India with respective percentages of 89.17, 88.28 and 85.09 respectively. Similarly the

private sector insurers have been depicting increasing trends. However among the private

insurers, Reliance showed the maximum average Loss Ratio of 81.67 per cent followed

by ICICI and IFFCO with the respective percentages of 74.18 per cent and 71.10 per

cent. TATA AIG General Insurer showed the least average Loss Ratio of 58.79 per cent.

The average Loss Ratio of all the public sector insurers is 87.96 per cent and that of

private sector is 69.58 per cent which states that there is a huge difference between the

ratio of public and private sector. The standard deviation values of the public sector and

private sector general insurers are 7.22 and 15.92 resp. which exhibit that public sector

insurers are more consistent than the private sector insurers. Year wise analysis indicates

that the Loss Ratio of the public sector is the highest i.e. 96.60 per cent in the year 2010-

11 followed by 92.82 per cent in the year 2005-06. The private insurer’s average Loss

Ratio is the highest in the year 2011-12 followed by 2010-11.


the Loss Ratio of the public and private sector general insurance companies.

300

b. Expense Ratio

Table 6.56

Expense Ratio=Expenses/ Net Premium (Percentage)

Company 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 mean median S.D. National 28.20 29.11 30.34 32.89 28.20 28.15 25.90 30.64 31.38 22.70 28.75 28.65 2.90New 25.32 36.81 30.50 30.09 24.25 20.73 26.45 28.92 27.01 23.53 27.36 26.73 4.50Oriental 34.37 38.46 32.90 34.02 26.19 28.61 28.26 29.04 34.09 25.86 31.18 30.97 4.15United 29.74 37.05 39.71 43.87 35.36 31.67 29.38 27.61 33.71 23.09 33.11 32.69 6.13Mean 29.40 35.35 33.36 35.21 28.50 27.29 27.49 29.05 31.54 23.79 30.10 29.24 4.93Median 28.97 36.93 31.70 33.45 27.19 28.38 27.35 28.98 32.54 23.31 29.24 S.Dev 3.78 4.22 4.39 6 4.84 4.64 1.60 1.24 3.25 1.41 4.93Royal 50.70 42.07 36.11 35.30 35.01 32.70 32.85 31 31.65 28.27 35.56 33.93 6.47Reliance 138.45 96.49 55.37 49.04 35.87 42.08 38.65 33.64 38.69 32.38 56.06 40.38 34.55IFFCO 27.28 69.51 48.22 41.39 31.96 35.26 27.05 25.15 25.44 24.77 35.60 29.62 14.25TATA 5.69 44.56 40.33 41.01 44.87 46.54 43.78 45.76 43.13 33.60 28.98 41.25 43.45ICICI 94.22 68.87 47.04 40.64 34.37 31.52 32.06 23.98 22.41 21.24 41.63 33.21 23.28Bajaj 36.88 35.14 31.09 29.86 33.30 29.62 29.84 27.81 27.96 24.93 30.64 29.85 3.59Mean 72.38 55.18 42 38.61 36.72 34.49 34.36 30.78 29.95 26.76 40.12 35.07 19.36Median 60.10 45.14 41.20 37.97 35.13 32.11 32.45 29.40 29.80 26.60 35.07 S.Dev 38.35 23.39 8.47 7.53 4.88 6.80 6.77 7.03 5.89 3.91 19.36

Source: Compiled from annual reports of the companies

301



Mann-Whitney Test Expense Ratio -3.740 .000

For the Non-Life Insurers, the expense ratio adds the aspect of operating costs

into the analysis. The Expense Ratio witnessed decreasing trends for all public sector

insurers. These Insurers have been depicting these trends in ratio ranging between 22.70

& 32.89, 20.73 & 36.81, 25.86 & 38.46 and 23.09 & 43.87 respectively. The sector wise

analysis states that the Expense Ratio of the public sector general insurers is lower than

that of the private sector general insurers. Among the public sector companies, United

India Insurance Company showed the maximum average Expense Ratio of 33.11 per cent

followed by Oriental, National and New India with respective percentages of 31.18,

28.75 and 27.36 respectively. Similarly Private Sector Insurers have also been depicting

the decreasing trends. However among the private insurers, Reliance showed the

maximum average Expense Ratio of 56.06 per cent followed by ICICI and TATA with

the respective percentages of 41.63 per cent and 41.25 per cent. Bajaj General Insurer

showed the least average Expense Ratio of 30.64 per cent. The average Expense Ratio of

all the public sector insurers is 30.10 per cent and that of private sector is 40.12 per cent

which states that there is a huge difference between the ratio of public and private sector.

The standard deviation values of the public sector and private sector general insurers are

4.93 and 19.36 resp. which exhibit that public sector insurers are more consistent than the

private sector insurers. Year wise analysis indicates that the Expense Ratio of the public

sector is the highest i.e. 35.35 per cent in the year 2003-04 followed by 35.21 per cent in

the year 2005-06. The private insurer’s average Loss Ratio is the highest in the year

2002-03 followed by 2003-04. The close investigation of the results state that no doubt

the Indian General Insurers specially the private sector have been spending more on

advertisements, commission and other expenses in the initial years of the privatization in

order to compete with the public sector but with the passage of the time this sector is

302

adopting various cost effective measures due to which the private sector has been

depicting downward swing in the ratio.


the Expense Ratio of the public and private sector general insurance companies.

c. Combined ratio:

Underwriting profits are generated when premium exceeds claims and

administrative expenses. An insurer’s underwriting performance is measured by the

combined ratio which is the sum of loss ratio and the expense ratio.

303

Table 6.57

Combined ratio= Loss Ratio+ Expense ratio (Percentage)

Company 2004-05 2002-03 2003-04 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 mean median S.D.National 104.21 113.12 110.26 135.32 114.71 122.2 125.06 115.69 128.43 110.20 117.92 115.20 9.58New 102.09 111.46 105.08 118.22 104.59 107.55 115.45 118.79 127.81 113.54 112.45 112.50 7.94Oriental 111.62 116.55 118.94 121.66 113.85 119.08 127.95 119.83 128.81 113.54 119.18 119.01 5.77United 128.07 120.80 122.68 131.70 136.96 125.62 124.42 108 114.35 111.59 122.41 123.55 9.04Mean 109.68 115.95 116.49 128.04 114.69 118.31 119.11 117.16 128.28 112.21 117.99 117.38 8.69Median 107.91 114.83 114.60 128.49 114.28 120.64 120.25 117.24 128.25 112.56 117.38S.Dev 8.46 4.96 11.63 9.48 8.60 7.50 9.13 2.57 .435 1.62 8.69Royal 101.80 104.38 99.40 92.50 100.11 96.09 99.58 102.21 107 106.60 100.96 100.95 4.50Reliance 237.93 165.20 117.28 112.84 106.77 120.27 115.95 118.38 141.59 141.22 137.74 119.32 39.40IFFCO 110.21 102.85 92.18 102.50 108.05 106.19 110.49 104.60 112.70 117.34 106.71 107.12 6.87TATA 91.97 85.17 89.60 100.95 100.81 98.36 106.30 110.34 108.34 108.65 100.04 100.88 8.74ICICI 134.11 120.83 95.27 114.41 110.67 109.90 117.41 112.83 118.02 122.70 115.61 115.91 10.04Bajaj 95.92 87.73 78.31 99.78 99.56 96.43 101.74 101.40 107.10 102.03 97.00 99.67 8.30Mean 129.08 110.19 94.19 105.09 103.65 105.12 108.94 108.29 115.79 116.42 109.68 106.45 21.94Median 107.29 101.12 92.34 101.72 103.79 102.88 108.39 107.47 110.52 112.99 106.45S.Dev 55.34 29.79 12.76 6.68 5.66 9.00 6.82 6.70 13.32 14.27 21.94 Source: Compiled from annual reports of the companies

304



Mann-Whitney Test Combined Ratio -4.686 .000

The indicator of combined ratio measures the performance of the underwriting

operation but does not take into account the investment income. The combined ratio

witnessed increasing trends for all public sector insurers except United India Insurance

Company. These Insurers have been depicting these trends in ratio ranging between

104.21 & 135.32, 102.09 & 127.81, 111.62 & 128.81 and 108 & 136.96 respectively. The

sector wise analysis states that the combined ratio of the public sector general insurers is


companies, United India Assurance Company showed the maximum average combined

ratio of 122.41 followed by Oriental, National and New India with respective percentages

of 119.01, 115.20 and 112.50 respectively. Similarly Private Sector Insurers have been

depicting increasing trends except Reliance and ICICI. However among the private

insurers, Reliance showed the maximum average combined ratio of 137.74 per cent

followed by ICICI and IFFCO with the respective percentages of 115.61 per cent and

106.71 per cent. Bajaj General Insurer showed the least average combined ratio of 97 per

cent. The average combined ratio of all the public sector insurers is 117.38 per cent and

that of private sector is 109.68 per cent which states that there is a huge difference

between the ratio of public and private sector. The standard deviation values of the public

sector and private sector general insurers are 8.69 and 21.94 resp. which exhibit that

public sector insurers are more consistent than the private sector insurers. Year wise

analysis indicates that the average combined ratio of the public sector is the highest

i.e.128.28 per cent in the year 2010-11 followed by 128.04 per cent in the year 2005-06.

The private insurer’s average combined ratio is the highest in the year 2002-03 followed

by 2011-12.


the combined ratio of the public and private sector general insurance companies.

305

d. Investment Income to Net Premium

Table 6.58

Investment income/ net premium (Percentage)

Company 02-03 03-04 04-05 05-06 06-07 07-08 08-09 09-10 10-11 11-12 Mean Median S.D.National 22.80 26.41 24.19 37.63 36.94 37.04 28.45 33.90 39.49 24.64 31.14 31.17 6.47New India 25.05 34.85 38.31 47.96 47.45 47.74 30.48 35.66 32.69 26.61 36.68 35.25 8.58Oriental 25.67 46.39 48.79 44.69 40.28 39.69 30.77 29.51 38.95 30.73 37.54 39.32 7.94United 32.06 43.95 49.26 62.91 51.75 54.73 30.98 40.29 36.59 26.04 42.85 42.12 11.78Mean 26.39 37.90 40.13 48.29 44.10 44.80 30.17 34.84 36.93 27.00 37.05 36.76 9.53Median 25.36 39.40 43.55 46.32 43.86 43.71 30.62 34.78 37.77 26.32 36.76S.D. 3.97 9.12 11.77 10.65 6.72 8.03 1.16 4.45 3.09 2.61 9.53Royal 17.47 11.45 6.67 7.10 8.43 9.00 11.30 12.29 9.81 10.77 10.42 10.29 3.10Reliance 121.79 47.01 22.57 27.06 6.33 7.78 10.46 10.71 14.82 17.40 28.59 16.11 34.89IFFCO 18.24 11.26 8.01 7.49 9.83 9.96 11.90 12.10 11.07 13.62 11.34 11.16 3.05TATA 12.31 11.18 9.91 10.63 9.13 9.53 12.20 16.41 13.06 11.13 11.54 11.15 2.12ICICI 33.44 19.62 16.01 12.18 9.36 12.61 17.28 20.41 13.19 12.57 16.66 14.60 6.86Bajaj 11.46 10.68 8.11 6.27 8.55 10.64 10.70 11.83 12.12 13.14 10.35 10.69 2.09Mean 35.78 18.53 11.88 11.78 8.60 9.92 12.30 13.95 12.34 13.10 14.82 11.37 15.50Median 17.85 11.35 9.01 9.06 8.84 9.74 11.60 12.19 12.59 12.85 11.37S.D. 42.86 14.35 6.18 7.81 1.22 1.63 2.52 3.71 1.75 2.38 15.50Source: Compiled from annual reports of the companies

306



Mann-Whitney Test Investment Income to Net Premium

-7.768 .000

This indicator i.e. investment income/ net premium focuses on the second major

revenue source-investment income. The Investment income to net premium ratio witnessed increasing trends for all public sector insurers except United India. These companies have been depicting these trends in ratio ranging between 22.80 & 39.49, 25.05 & 47.96, 25.67 & 48.79 and 26.04 & 62.91 respectively. The sector wise analysis states that the Investment income to net premium ratio of the public sector general insurers is higher than that of the private sector general insurers. Among the public sector companies, United India Insurance Company showed the maximum average Investment income to net premium ratio of 42.85 followed by Oriental, New and National with respective percentages of 37.54, 36.68 and 31.14 respectively. Similarly all the private sector insurers have been showing the increasing trends except Bajaj Allianz General Insurer. However among the private insurers, Reliance showed the maximum average Investment income to net premium ratio of 28.59 per cent followed by ICICI and TATA with the respective percentages of 16.66 per cent and 11.54 per cent. Bajaj General Insurer showed the least average Investment income to net premium ratio of 10.35 per cent. The average Investment income to net premium ratio of all the public sector insurers is 37.05 per cent and that of private sector is 14.82 per cent which states that there is a huge difference between the ratio of public and private sector. The standard deviation values of the public sector and private sector general insurers are 9.53 and 15.50 resp. which exhibit that public sector insurers are more consistent than the private sector insurers. Year wise analysis indicates that the average Investment income to net premium ratio of the public sector is the highest i.e. 48.29 per cent in the year 2005-06 followed by 44.80 per cent in the year 2007-08. The private insurer’s average Investment income to net premium ratio is the highest in the year 2002-03 followed by 2003-04.

Mann- Whitney test further shows that there is a significant difference between the Investment income to net premium ratio of the public and private sector general insurance companies.

307

e. Return on Equity

Table 6.59

Net Returns/ Equity (Percentage)

company 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 mean median S.DevNational 12.57 6.39 10.77 -9.56 29.38 10.49 -10.58 14.20 4.51 16.39 8.45 10.63 11.86New 7.52 14.97 9.33 14.90 24.24 20.09 3.06 5.44 5.92 2.31 10.77 8.42 7.45Oriental 7.59 28.20 23.30 17.25 24.54 0.46 -2.67 -2.29 2.75 11.63 11.07 9.61 11.66United 11.82 21.22 15.16 18.04 19.16 19.45 13.17 17.04 3.07 8.50 14.68 16.10 5.63Mean 9.87 17.68 14.64 10.15 24.34 12.62 .745 8.59 4.06 9.70 11.24 11.72 9.43Median 9.71 18.08 12.96 16.07 24.4 14.96 .195 9.82 3.79 10.06 11.72 S.dev 2.69 9.27 6.28 13.20 4.17 9.21 9.99 8.78 1.45 5.90 9.43Royal -3.54 6.17 3.85 6.16 14.89 2.66 2.54 12.20 6.74 0.06 5.17 5.00 5.42Reliance 15.63 6.78 4.20 9.40 0.62 -27.26 -6.56 -5.00 -27.11 -21.55 -5.08 -2.19 15.45IFFCO 5.94 8.65 12.43 5.23 9.14 2.36 0.54 5.35 -7.40 -5.94 3.63 5.29 6.39Tata -10.46 12.39 9.79 6.97 8.85 6.21 1.25 1.93 -1.13 -6.17 2.96 4.07 7.31ICICI 3.11 14.07 19.38 13.49 8.61 9.55 1.47 8.60 -5.25 -22.42 5.06 8.60 11.92Bajaj 8.76 16.51 26.35 19.31 18.67 18.28 14.15 15.23 5.17 12.87 15.53 15.87 5.88mean 3.24 10.76 12.67 10.09 10.13 1.96 2.23 6.38 -4.83 -7.19 4.54 6.16 10.91median 4.52 10.52 11.11 8.18 8.99 4.43 1.36 6.97 -3.19 -6.05 6.16S.Dev 9.21 4.19 8.83 5.40 6.17 15.46 6.69 7.31 12.25 13.38 10.91 Source: (Compiled from annual reports of the companies (here equity=share capital+ reserves and surpluses))

308



Mann-Whitney Test Return on Equity -2.948 .003

Return on Equity indicates the overall level of profitability. The Return on

Equity ratio witnessed mixed trends for all public sector insurers. The sector wise

analysis states that the Return on Equity ratio of the public sector general insurers is


companies, United India Insurance Company showed the maximum average Return

on Equity ratio of 14.68 followed by Oriental, New and National with respective

percentages of 11.07, 10.77 and 8.45 respectively. Similarly Private Sector Insurers

have been showing decreasing trends except Royal and Bajaj. However among the

private insurers, Bajaj showed the maximum average Return on Equity ratio of 15.53

per cent followed by Royal and ICICI with the respective percentages of 5.17 per cent

and 5.06 per cent. Reliance General Insurer showed the least average Return on

Equity ratio of -5.08 per cent. The average Return on Equity ratio of all the public

sector insurers is 11.24 per cent and that of private sector is 4.54 per cent which states

that there is a huge difference between the ratio of public and private sector. The

standard deviation values of the public sector and private sector general insurers are

9.43 and 10.91 resp. which exhibit that public sector insurers are more consistent than

the private sector insurers. Year wise analysis indicates that the average Return on

Equity ratio of the public sector is the highest i.e. 24.34 per cent in the year 2006-07

followed by 17.68 per cent in the year 2003-04. The private insurer’s average Return

on Equity ratio is the highest in the year 2004-05 followed by 2003-04. The in depth

investigation of this ratio states that as the public sector insurers have been earning

effective returns on the investment portfolio, it has been able to offset the

underwriting losses faced over the years. That is why the ROE of public insurers has

improved over the time, whereas in case of private sector insurers due to less effective

investment portfolio this particular sector is not been able to efficiently offset the

309

underwriting losses due to which ROE ratio of this sector has not improved over the

years.


the Return on Equity ratio of the public and private sector general insurance

companies.

6. Liquidity

Risk of liquidity is nuisance to the goodwill of insurer. The frequency and

timing of insurance claims or benefits is uncertain, so insurers need to plan their

liquidity carefully. Insurer has to take a proper care to tackle with the liquidity risk; at

the same time ensuring that good percentage of funds are invested in high return

generating securities, so that it is in a position to generate profit. The following ratio

is used to measure the liquidity:

310

Table 6.60

Liquidity ratio=Current assets/ current liabilities (Percentage)

Company 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 mean median S.DevNational 40.14 39.91 43.55 38.94 39.41 42.91 39.26 39.26 29.28 21.14 37.38 39.33 6.87New 41.41 45.19 46.45 52.86 51.62 59.28 68.80 71.31 65.33 69.40 57.16 56.07 11.11Oriental 28.95 29.56 32.37 33.33 42.04 39.26 47.86 48.35 39.38 38.60 37.97 38.93 6.92United 25.53 22.33 27.39 32.92 30.74 31.88 35.51 38.78 30.07 31.85 30.70 31.29 4.76Mean 34 34.24 37.44 39.51 40.95 43.33 47.85 49.42 41.01 40.24 40.80 39.26 12.47Median 34.54 34.73 37.96 36.13 40.72 41.08 43.56 43.80 34.72 35.22 39.26 S.dev 7.95 10.25 9.04 9.31 8.59 11.57 14.88 15.23 16.84 20.72 12.47 Royal 42.37 25.11 24.44 21.28 24.92 32.23 25.37 31.42 14.10 12.24 25.34 25.01 8.75Reliance 34.57 38.25 55.50 32.71 15.43 29.48 42.88 45.38 15.90 11.82 32.19 33.64 14.30IFFCO 77.87 84.17 73.32 69.03 67.44 69.95 76.74 73.68 51.25 56.46 69.99 71.63 9.86Tata 31.22 30.09 29.79 31.30 34.49 34.62 25.86 44.91 41.71 21.82 17.67 30.69 8.32ICICI 33.99 62.92 52.20 55.60 56.54 46.24 56.54 56.33 49.77 45.08 51.52 53.90 8.16Bajaj 26.04 23.98 20.69 33.64 26.30 27.33 33.25 34.34 26.01 28.67 28.02 26.81 4.48Mean 41.87 28.65 42.22 42.19 42.59 37.54 38.51 46.61 47.14 29.80 39.71 34.16 18.45Median 34.28 34.02 41.75 34.06 30.46 30.85 43.89 43.54 23.91 23.17 34.16 S.Dev 21.42 20.93 19.46 20.54 20.18 17.05 18.18 15.69 16.59 18.52 18.45 Source: Compiled from annual reports of the companies

311



Mann-Whitney Test Current Assets to Current Liabilities

-.964 .335

An Insurer’s liquidity is measured by the degree to which it can meet its financial

obligations. Adequate liquidity should be maintained to meet the insurer’s unexpected

cash needs without untimely sale of investments. The Current Assets to Current

Liabilities ratio witnessed increasing trends for all public sector insurers except National.

These Insurers have been depicting the ratio ranging between 21.14 & 43.55, 41.41 &

71.31, 28.95 & 48.35 and 22.33 & 38.78 respectively. The sector wise analysis states that

the average Current Assets to Current Liabilities ratio of the public sector general

insurers is almost equal to that of the private sector general insurers. Among the public

sector companies, New Insurance Company showed the maximum average Current

Assets to Current Liabilities ratio of 57.16 per cent followed by Oriental, National and

United India with respective percentages of 37.97, 37.38 and 30.70 respectively. The

Private Insurers have also been depicting the decreasing trends except ICICI and Bajaj.

However among the private insurers, IFFCO showed the maximum average Current

Assets to Current Liabilities ratio of 69.99 per cent followed by ICICI and Reliance with

the respective percentages of 51.52 per cent and 32.19 per cent. Royal General Insurer

showed the least average Current Assets to Current Liabilities ratio of 25.34 per cent. The

average Expense Ratio of all the public sector insurers is 40.80 per cent and that of

private sector is 39.71 per cent which states that the ratio of both public and private sector

is almost equal and it reports that there is no significant difference between both the

sectors in terms of liquidity. Year wise analysis indicates that the Current Assets to

Current Liabilities ratio of the public sector is the highest i.e.49.42 per cent in the year

2009-10 followed by 47.85 per cent in the year 2008-09. The private insurer’s average

Current Assets to Current Liabilities Ratio is the highest in the year 2009-10 followed by

2008-09.

312

Mann- Whitney test also make the fact strong that there is insignificant

difference between the Current Assets to Current Liabilities ratio of the public and

private sector general insurance companies.

Group Ranking of the Indian General Insurers on different parameters of CARAMEL

The Group Ranking on the CARAMEL parameters is exhibited in Table 6.61,

Table 6.62, Table 6.63, Table 6.64, Table 6.65 and Table 6.66. Each parameter is ranked

based on the average of individual insurer’s sub-parameter ranks.

Table 6.61

Group Ranking on the Capital Adequacy Parameter

National New Oriental United Royal Reliance IFFCO TATA ICICI Bajaj

Net Premium/

Capital

2 10 6 8 3 9 4 5 7 1

Capital/ Total Assets

10 7 9 8 3 1 4 2 5 6

Average 6 8.5 7.5 8 3 5 4 3.5 6 3.5

Rank 6.5 10 8 9 1 5 4 2.5 6.5 2.5

Table 6.62

Group Ranking on the Assets Quality Parameter


Equities/ Total Assets

8 10 9 7 2 4 3 1 5 6

Average 8 10 9 7 2 4 3 1 5 6

Rank 8 10 9 7 2 4 3 1 5 6

313

Table 6.63

Group Ranking on the Reinsurance and Actuarial Issues Parameter


Net Premium/

Gross Premium

2 1 4 3 5 10 8 7 9 6

Average 2 1 4 3 5 10 8 7 9 6

Rank 2 1 4 3 5 10 8 7 9 6

Table 6.64

Group Ranking on the Management Soundness Parameter


Operational Expenses/

Gross Premium

5 9 6 7 8 4 2 10 1 3

Average 5 9 6 7 8 4 2 10 1 3

Rank 5 9 6 7 8 4 2 10 1 3

Table 6.65

Group Ranking on the Earnings and Profitability Parameter


Loss Ratio 9 7 8 10 2 6 4 1 5 3

Expense Ratio

2 1 4 5 6 10 7 8 9 3

Combined Ratio

7 5 8 9 3 10 4 2 6 1

Investment Income/

Net Premium

4 3 2 1 9 5 8 7 6 10

Return on Equity

5 4 3 2 6 10 8 9 7 1

Average 5.4 4 5 5.4 5.2 8.2 6.2 5.4 6.6 3.6

Rank 6 2 3 6 4 10 8 6 9 1

314

Table 6.66

Group Ranking on the Liquidity Parameter


Current Assets/ Current

Liabilities

5 2 4 8 10 6 1 7 3 9

Average 5 2 4 8 10 6 1 7 3 9

Rank 5 2 4 8 10 6 1 7 3 9

Table 6.61 shows the capital adequacy ratios and the rank position of the insurers.

As it is evident from the table, Royal has the highest capital adequacy ratio and it has

topped the list. Royal is followed by Bajaj and TATA which occupied the second

position, whereas IFFCO held the same third rank and Reliance occupied the fourth

position. The last position is occupied by New India Assurance Company. The group

ranking of the insurers under the asset quality parameter of is shown in Table 6.62.

TATA occupied the first position regarding the assets quality management, this position

of TATA is being followed by Royal, IFFCO who occupied the second and third position

respectively. The group ranking of the selected insurers under the reinsurance and

actuarial issues is shown in Table 6.63. New India topped the table in the parameter of

Reinsurance and Actuarial issues followed by National and United occupying the second

and third position. The last two positions are occupied by ICICI (rank 9) and Reliance

(rank 10). Table 6.64 states the management soundness parameter. ICICI occupies the

first position and last position is held by TATA. Table 6.65 shows the earning ability of

insurers and the rank position of the insurers. On the basis of the results shown in the

table the Bajaj demonstrated excellent ability regarding the profitability and earnings,

here New India occupies the second position whereas Oriental holds the third position.

Reliance occupied the last position in this particular parameter. The ability of the insurers

understudy to meet their short-time obligation is exhibited in Table 6.66 under group

ranking on liquidity parameter. IFFCO commands the first position to manage its

315

liquidity under this particular parameter. Royal Sundram is ranked last in the group on

the parameter of liquidity management.

All of the group wise analysis reflects that private sector has been occupying the

top most positions in all the parameters except the Reinsurance & Actuarial parameters

where public sector is leading the private sector.

COMPOSITE RANKING ON THE CARAMEL PARAMETER

The overall/ composite rank of each insurer is computed using the CARAMEL

model and variables.

Table 6.67

Overall Grand Ranking on the CARAMEL Parameters


Capital Adequacy Ranking

6.5 10 8 9 1 5 4 2.5 6.5 2.5

Assets Quality Ranking

8 10 9 7 2 4 3 1 5 6

Reinsurance and

Actuarial Issues

Ranking

2 1 4 3 5 10 8 7 9 6

Management Soundness Ranking

5 9 6 7 8 4 2 10 1 3

Earnings and

Profitability Ranking

6 2 3 6 4 10 8 6 9 1

Liquidity Ranking

5 2 4 8 10 6 1 7 3 9

Average 5.41 5.67 5.67 6.67 5 6.5 4.33 5.58 5.58 4.58

Rank 4 7.5 7.5 10 3 9 1 5.5 5.5 2

316

The overall capital adequacy, asset, reinsurance and actuarial issues, managerial,

earning, and liquidity performance of the insurers for the study period (2002-2012) is

exhibited in Table 6.67 based on the CARAMEL parameters. IFFCO ranked first in the

overall ranking whereas Bajaj and Royal occupy the second and third positions. Reliance

and United have been at the last positions on the overall parameter. The overall analysis

parameters make it evident that the Top most position which has earlier been occupied by

the public sector is now being taken over by the private sector.

Thus, it could be summarized that the group wise analysis reflects that private sector

has been occupying the top most positions in all the parameters except the Reinsurance &

Actuarial parameters where public sector is leading the private sector. Moreover, the

Investment Income to Net Premium ratio of public sector is better than the private sector.

The whole of the overall ranking makes it evident that the Top most position which has

been earlier occupied by the public sector is now being taken over by the private sector.

Inferences imply that private sector has been more sound on the CARAMEL model and

ranking parameter. The current study has been conducted to examine the economic

sustainability of a sample of insurers in India using CARAMEL model during the period

2002-12. The study revealed that

Royal Sundram stood at top position in terms of capital adequacy.

In front of asset quality, TATA AIG General Insurance Company was at top most

position.

In relation to reinsurance and actuarial issues New India Assurance Company has

attained the top most position.

In context of management efficiency, ICICI General Insurance Company

positioned at first.

In terms of earnings and profitability quality Bajaj sustained the top position.

IFFCO Tokio General Insurer rated top in case of liquidity position.

Overall performance table shows that, IFFCO General Insurance Company is

ranked first followed by Bajaj. In bottom positions, Reliance (Rank 9) and United (Rank

10) were on the last.

317

EFFICIENCY-PROFITABILITY RELATIONSHIP

To have a wider picture of insurers’ performance, the relationship between

efficiency and profitability has been explored. The relationship between the efficiency

and profitability of the organizational units can be studied with the help of the

‘efficiency– profitability matrix’. To achieve this DEA based TE scores have been

plotted against the Profitability Ratio (ROE). This resultantly formed an ‘Efficiency-

Profitability Matrix’ containing four distinct quadrants (see figure 6.1). These quadrants

are separated from each other on the basis of arithmetic average of TE score and ROE

figures. This particular matrix facilitates the categorization of units (as suggested by

Avkiran, 2006, Boussofiane and Dyson, 1991, Camanho and Dyson, 1999) that fall into

four distinct quadrants as shown in Figure 6.1: (i) ‘Ace’ or ‘Star’; (ii) ‘Lucky’ or

‘Sleeper’; (iii) ‘Underdog’ or ‘?’; and (iv) ‘Unlucky’ or ‘Dog’.

Four quadrants are used to identify performance of companies which are based on

vertical axis with profitability ratio (ROE) and the horizontal axis with DEA efficiency.

The following four quadrants are as follows:

Quadrant I (Underdog/ Question mark) = Below Average Efficiency and Below

Average Profitability

Quadrant II (Ace/Star) = Above Average Efficiency and Above Average Profitability

Quadrant III (Dog/ Unlucky) = Above Average Efficiency and Below Average

Profitability

Quadrant IV (Lucky/ Sleeper) = Below Average Efficiency and Above Average

Profitability

Performance matrix helps investors and managers to take a proper decision to

invest accordingly. This helps inefficient and low profitable companies to improve

their performance accordingly and sets benchmark for competitors (Memon and Tahir,

2012).

318

Y Q4 Q2

Lu

Q1 Q3

X

Figure 6.1: Efficiency-Profitability Matrix

(Source: Kumar, 2008)

The first quadrant contains the ‘underdog’ units that have the greatest potentials

for improvement in both efficiency and profitability. Such units are probably under-

resourced and lack appropriate skills. Therefore, in a favorable environment and with

additional resources, the ‘underdog’ units can be expected to enhance their efficiency and

profitability. On the other hand, the units that fall in second quadrant are ‘ace’ units. The

‘ace’ units have high levels of efficiency and profitability. These units are most suitable

for others to “benchmark” and can become role models for the inefficient units. Moving

down from right, one enters the third quadrant in which the ‘unlucky’ units are

positioned. An ‘unlucky’ unit operates at a high level of efficiency as compared to its

peers (i.e., it is rated as either ‘efficient’ or ‘marginally inefficient’ on the basis of DEA

scores) but this is not borne in accounting profitability measures. Unfavorable

environmental factors are often the cause of such observations, for example, operating in

an economically depressed catchment area. The best course of action in such

circumstances is probably to reallocate the unit to a more favorable environment.

Average Profitability

Average TE

Sleeper/Lucky Ace/ Star

Prof

itabi

lity

Question Mark/ Underdog

Dog/ Unlucky

Technical Efficiency

319

Finally, the fourth quadrant includes the ‘lucky’ units. These organizational units

are distinctly inefficient units in utilizing the resources but earn high profits. The ‘lucky’

units operate in a favorable environment, for example, no competitors in their catchment

area. Management of a ‘lucky’ unit clearly needs intervention from higher up in the

organization to stop misallocation of resources. In this case, it should be feasible for a

‘lucky’ unit to significantly raise its efficiency and further enhance its already high

profitability to the level that has been achieved by an ‘ace’ unit. A further subdivision

within the ‘ace’ quadrant presents those insurers that have attained a TE score equal to 1

and an above average value of ROE, labeled as ‘superstar’.

Efficiency–Profitability Relationship

In this analysis, the study primarily focus on evaluating the performance of Public

Sector and Private Sector General Insurers based on an efficiency-profitability matrix.

The mean value is used to split the matrix into two halves to create high and low groups

of profitability, as measured by ROE, and efficiency scores as measured by DEA. The

study further split the matrix into four quadrants: ace, lucky, underdogs, and unlucky.

The “ace” quadrant consists of DMUs which exhibit a high level of profitability

and efficiency and thus, considered as the flagship insurers. The insurers falling in

“lucky/sleeper” category have high profitability but low efficiency which is not a good

sign from long-term perspective. These sleeper insurers are profitable due to primarily

more favorable environmental conditions than good management. The resource

utilization process of these insurers requires overhauling so as to minimize waste of

resources. The insurers falling in this quadrant should be treated as prime candidates for

a drive towards improvement in efficiency. There is every possibility that with an

improvement in efficiency, ‘lucky’ insurers would be able to earn greater profits than

what they had earned earlier. The “question marks/ underdog” category has low

profitability and low efficiency. They have a potential for greater efficiency and possibly

greater profits. The “dogs/unlucky” have a low profitability but high efficiency hence,

they are efficient, but are still not profitable. They are efficiently operated units but low

on profitability due to an unfavorable environment.

320

The ‘underdog’ insurers lack vitality in terms of efficiency in insurance

operations. Thus, these insurers can be considered as ‘distressed’ or ‘weak’ insurers. The

south-east quadrant labeled as ‘unlucky’ has those insurers which operate with high

efficiency and low profitability, probably due to an unfavorable environment. The north-

east quadrant labeled ‘ace’ contains those insurers having both TE score and ROE above

average. The insurers in the ‘ace’ quadrant are the most efficient and profitable insurers

in the sample. The ‘ace’ insurers are most suitable for others to benchmark and can

become role models for the inefficient insurers. The following is the efficiency-

profitability matrix of the insurers for the various years under consideration:

Efficiency-profitability matrix

-15

-10

-5

0

5

10

15

20

0 0.2 0.4 0.6 0.8 1 1.2

Efficiency

Prof

itabi

lity

Series1

Figure 6.2 Year 2002-03


321



322

323




r 2 Figu e 6.9 Year 009-10

Fi

gure 6.10 Year 2010-11


(Source: Fig. 6.2 to 6.11 authors own calculations on the basis of Efficiency-Profitability Matrix as mentioned in Fig. 6.1)

On the basis of the above figures the progress chart of the public and private sector has been drawn:

Table 6.68

Progress Chart of Public Sector General Insurers

2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12

National Superstar Unlucky Unlucky Unlucky Superstar Superstar Unlucky Lucky Ace Ace

New Superstar Superstar Unlucky Superstar Superstar Superstar Superstar Unlucky Superstar Superstar

324

Oriental Superstar Ace Superstar Ace Superstar Unlucky Unlucky Unlucky Lucky Ace

United Ace Ace Ace Ace Lucky Lucky Ace Superstar Lucky Ace


Table 6.69

Progress Chart of Private Sector General Insurers

2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12

Royal Underdog Underdog Underdog Underdog Unlucky Unlucky Ace Superstar Lucky Lucky

Bajaj Ace Ace Superstar Ace Ace Superstar Superstar Ace Lucky Lucky

TATA Underdog Underdog Underdog Underdog Underdog Underdog Underdog Underdog Lucky Underdog

Reliance Lucky Underdog Underdog Underdog Underdog Underdog Underdog Underdog Underdog Underdog

IFFCO Lucky Underdog Underdog Underdog Underdog Unlucky Underdog Unlucky Unlucky Underdog

ICICI Underdog Lucky Lucky Lucky Underdog Lucky Underdog Superstar Unlucky Unlucky


The results of the “Efficiency-Profitability Matrix” of Indian General Insurers

reveal that Public Sector is showing good results in terms of relationship between

profitability and efficiency. New India Assurance Company can be regarded as the

flagship unit in the Indian public sector insurance industry in terms of both efficiency and

profitability as it has been lying either in ‘Superstar’ or in the ‘Ace’ quadrant in almost 8

years out of 10 years under consideration. Rest of the public sector insurers are also

depicting a good picture as the United India Insurance Company has been either lying in

the ‘Superstar’ or in the ‘Ace’ quadrant in 7 years. Moreover the Oriental Insurance

Company and National Insurance Company have also shown the good position in 6 years

and 5 years resp. out of 10 years under study. Analyzing the Private Sector Insurers it

could be seen that Bajaj Allianz General Insurance Company can be considered as the

ideal bench mark for the laggards on the efficiency and profitability dimensions of

performance evaluation. One worth noticeable point is that from the last two years it has

been lying in the ‘lucky’ quadrant and it should try to maintain its previous position by

paying attention towards the efficiency. Royal and ICICI both have been lying in the

‘superstar’ quadrant or ‘ace’ quadrant in 2 years and 1 year respectively. The picture of

the Private sector insurers is not good as depicted by the performance matrix, they are

either lying in the ‘lucky’ or in the ‘underdog’ quadrants which is an indication that they

should either pay attention towards the efficiency-profitability parameters or they would

325

326

soon be at very pathetic position. These insurers are not functioning well and feature the

presence of considerable wastage of the inputs. These insurers have the potential for

profitability increase through an improvement in their operating efficiency.

comparative analysis of the performance of public...

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