A Comparative Study on Capital Adequacy and Liquidity Parameters between LIC and Selected Private Life Insurers of India

Abstract

The life insurance industry plays a crucial role in ensuring financial security for loved ones in the event of an untimely demise. In India, this sector has witnessed remarkable growth in recent years. However, insurers face challenges like increase in competition, strict regulatory requirements, policy lapses, low persistency ratios and raise in customers’ expectations. Cyber security threats and data privacy concerns add further risks, while inflation, economic uncertainty, and rising mortality rates increase claims and reduce capital. In this challenging environment, life insurers must balance maintaining adequate liquidity and capital with the need for meeting regulatory compliance, maintaining solvency, protecting policyholders, and sustaining business operations over time. Hence, an understanding of the performance of the life insurers is necessary for different stakeholders for taking key decisions. This study aids marketers, academicians, and policymakers in evaluating the performance of life insurers for taking critical decisions.

This study primarily measures the capital adequacy and liquidity performance of the selected private life insurers and the public insurer LIC over ten years, from 2013 to 2022. Key factors considered include capital to total assets, capital to technical reserves, solvency margin, liquid assets to current liabilities and liquid assets to total assets ratios. Statistical tools including mean, standard deviation, and Mann Whitney U test were employed. The analysis highlights that the performance of the LIC has been superior to that of private life insurers in the capital-to-total assets and capital-to-technical-reserves ratios. On the other hand, private life insurers outperform the LIC in the solvency, liquid assets to current liabilities and liquid assets to total assets ratios.