The top seven private sector life insurance companies, which account for about 70 per cent of the first year premium income, saw their net profits rise 7 per cent last fiscal (2012-13). However, the industry as a whole saw new business premium collections dip amid a tough business environment.

Apart from poor renewals of life insurance policies, the exit of some 2 lakh agents last fiscal affected the industry badly.

While Max Life and Kotak Life saw an 8 per cent and 7 per cent decline in their net profit, respectively, HDFC Life and SBI Life witnessed a 66 per cent and 12 per cent increase in profits respectively.

The largest private life insurance company, ICICI Prudential Life, posted an 8 per cent rise in net profit to Rs 1,496 crore in FY13 against Rs 1,384 crore during the previous year.

A Goldman Sachs report on the sector states: “Slower volume growth, lower cost ratios, high surrender/lapse fees have been supporting profit growth for companies.

“However, insurers will now have to focus on efficiency and productivity levels as the share of surrender charges and lapse charges in overall profit will fall as the old policies (sold prior to September 2010) on which charges were high will run off.”

According to analysts’ estimates, even though the surrender profits of life insurance companies have come down this year, they continue to constitute a major portion of their profits.  Along with the drop in the number of agents, the industry also saw large-scale surrender of insurance policies and low rate of renewals (persistency) of policies.

“Even though in the first year the rate of renewals of life insurance policies is about 65 per cent, it goes down to 25 per cent by the third year. The low rate of persistency is a huge issue with the life insurance industry,” said Shaswat Sharma, Partner, KPMG.

Life insurers have also cut down on the number of branches. From over 11,100 branches in 2011, the total number of branches fell to 10,300 by 2012-end, as cost pressures hit the branch expansion and existing non-performing offices were shut.

“Life insurance is still viewed largely as a savings and investment product. With other financial savings products offering better returns and in an environment of tighter regulatory norms, insurance agents have not been able to push ULIPs which, among other factors, has contributed to the muted profitability of the life insurance companies last fiscal,” said Sharma.

deepa.nair@thehindu.co.in