Determinants of Public Disclosures and Its Impact on the Profitability of Indian Life Insurers

Abstract

The insurance regulatory and supervisory infrastructure in India is relatively well developed. The apex body, Insurance Regulatory Development Authority, (IRDA) has a clear mandate and is a leader among emerging markets. This is evidenced in the life insurance asset under management to GDP figure at 16.8 percent, which places India along with several industrial countries, although underlying drivers vary. With a growth in life premium since 2005, India is a clear outperformer in terms of expected life insurance penetration. Since the introduction of IRDA and the establishment of its regulatory mechanism pertaining to the overall functioning of the insurance industry from the year 2000, twelve years have passed. There arises the need for the regulatory apparatus to move forward to oversee compliance of these regulations. One of the most important and emerging areas is the timely and reliable public disclosures of risks faced by the insurers which are critical for ensuring fair and orderly growth of the insurance sector. The International Association of Insurance Supervisors (lA IS) has recognized that the insurers have an equal if not greater responsibility tow Ards the policyholders than their duty towards the investors as policyholders lose much more money than the investors in the event of the insurer's insolvency. Public disclosures provide information to the policyholders to make necessary decisions before entering a contract and strengthen corporate governance and market discipline for the insurers. In this context, an empirical study on the determinants of public disclosures and its impact on the profitability of Indian life insurers is significant. A multiple linear regression model is used, and the sample includes all the 23 life insurers (I public and 22 private) for six fin uncial years, viz., 2005-06 to 2010-11. Size (Net Worth), Asset Quality N on-Linked, Reinsurance and Actuarial Issues, Non-Linked Investment Performance, M management Soundness and Return on Equity are the determinants of level of public disclosure by life insurers. Level of public disclosure affects profitability in terms of Return on Equity of Indian life insurers.