Life Insurance Company ration analysis .

Comparison of 2 life insurance company in ratio analysis

1. By-Priya Yadav Analysis Report : Financial Ratios of Life Insurance Corporation of India And SBI Life Insurance

2. Introduction In the ever-evolving landscape of the Indian Insurance sector. Life Insurance companies play a pivotal role in ensuring financial security and stability for individuals and families . Among the Prominent players in this domain, LIC and SBI Life Insurance stand out due to their significant market presence and robust financial performance . This report aims to provide a comprehensive ratio analysis of these two leading life insurance companies to offer insights into their financial health , operation efficient and overall performance. The Ratio analysis will encompass various financial metrics , including profitability ,Liquidity ,solvency and efficiency ratios , By examining these key indicators , we can gain a deeper understanding of each company ‘s strengths and weaknesses , compare their financial performance , and identify trends that could influence their future growth and stability. Life insurance corporation of India and SBI Life Insurance a Subsidiary of State Bank of India , both have strong brand equity and extensive distribution networks. However ,their strategies market positioning , and financial outcomes exhibit distinct characteristics, making this comparative analysis particular insightful for stakeholder, investors and market analysis . This report will not only highlight the financial ratios of both companies but also contextualize them within the broader market environment and regulatory framework . By doing so, we aim to provide a holistic view that assist in marking decision and developing strategic initiatives.

3. Objectives The primary objective of this report are as follows: 1.Compare performance: To Perform a comparative analysis of SBI life insurance and LIC based on their Financial rations . This comparison aims to identify relative . 2.Evaluate Financial health : To assess the Financial health of SBI Life insurance and LIC Life Insurance by Analysing key financial ratios , including Profitability , liquidity , solvency ,efficiency ratios . This evaluation will provide insight into the companies financial stability and operation effectiveness . 3.Identify Trends and Patterns : To examine historical financial data to identify trends and patterns in the financial performance of both companies . This will help in understanding how each company has evolved over time and their future growth potential . 4.Contextualize Findings : To contextualize the financial ratios within the broader market environment and regulatory framework . This include considering industry benchmarks and external factors that may influence the financial performance of the insurance companies . 5.Provide Strategic Insights: To offer actionable insights and recommendations based on the ratio analysis. This will assist stakeholders, investors, and academic researchers in making informed decisions and developing strategic initiatives related to the life insurance Sector . 6. strengths and weaknesses, and highlight performance differences that may impact strategic decisions. Methodology This reports employs a systematic approach to analyse and compare the financial performance of LIC Life Insurance and SBI Life insurance . The methodology consist of the following steps : 1. Data Collection : Financial statements and relevant reports of SBI Life Insurance and LIC Life Insurance for the latest available fiscal years will be collected. This includes balance sheets, income statements, and cash flow statements.

4. Methodology This reports employs a systematic approach to analyse and compare the financial performance of LIC Life Insurance and SBI Life insurance . The methodology consist of the following steps : 1.Data Collection : Financial statements and relevant reports of SBI Life Insurance and LIC Life Insurance for the latest available fiscal years will be collected. This includes balance sheets, income statements, and cash flow statements. 2.Data Preparation : The collected data will be organized and adjusted for consistency. Any necessary recalculations or adjustments will be made to ensure accuracy and comparability between the two companies . 3. Ratio Analysis : Key financial ratios will be calculated for both companies. This process involves extracting and interpreting data points from the financial statements to determine the ratios, which will then be used to gauge the companies' financial health and performance. 4. Comparative Analysis : A detailed comparison will be conducted between the financial ratios of SBI Life Insurance and LIC Life Insurance. This analysis will focus on identifying differences and similarities in their financial metrics and performance indicators. 5. Contextual Analysis: The findings from the comparative analysis will be contextualized to provide a comprehensive understanding of each company's financial position. This includes considering the broader market and operational environment in which the companies operate. 6. Reporting: The results of the ratio and comparative analysis will be compiled into a detailed report. This report will present the findings, provide insights, and offer recommendations based on the financial performance of the two insurance companies.

5. Industry Profile The Indian life insurance industry is a dynamic and rapidly evolving sector within the broader financial services landscape. With a diverse range of products and services, it plays a crucial role in providing financial security and long-term savings solutions to individuals and families. The industry is characterized by its strong regulatory framework, which is overseen by the Insurance Regulatory and Development Authority of India (IRDAI). This regulatory body ensures compliance with standards and practices that protect policyholders and maintain market integrity. The sector has witnessed significant growth due to increasing awareness about life insurance, rising disposable incomes, and a growing middle class. Major players include both public and private sector companies, each contributing to a competitive and innovative market environment. As technology advances, there is a notable shift towards digital platforms and online distribution channels, which is reshaping customer engagement and operational efficiency. The industry continues to evolve, driven by regulatory changes, demographic shifts, and technological advancements. Overview of Companies LIC LIFE INSURANCE: Life Insurance Corporation of India is a statutory Corporation established under Section 3 of LIC Act, 1956. The Life Insurance Corporation of India came into existence on 1st September, 1956, with the objective of spreading life insurance more widely and in particular to the rural areas with a view to reach all insurable persons in the country, providing them adequate financial cover at a reasonable cost . From then to now, LIC has crossed many milestones and has set unprecedented performance records in various aspects of life insurance business. LIC continues to be the dominant life insurer even in the liberalized scenario of Indian insurance and is moving fast on a new growth trajectory surpassing its own past records. In its 67 years of existence, LIC has grown from strength to strength be its customer base, agency network, branch office network, new business premium and has a significant role in spreading life insurance widely across the country.

6.   Mission and Vision of LIC of India Mission "Ensure and enhance the quality of life of people through financial security by providing products and services of aspired attributes with competitive returns, and by rendering resources for economic development." Vision "A trans-nationally competitive financial conglomerate of significance to societies and Pride of India.“ SBI Life Insurance SBI Life Insurance one of the most trusted life insurance companies in India, was incorporated in October 2000 and is registered with the Insurance Regulatory and Development Authority of India (IRDAI) in March 2001. Serving millions of families across India, SBI Life’s diverse range of products caters to individuals as well as group customers through Protection, Pension, Savings and Health solutions. Driven by ‘Customer-First’ approach, SBI Life places great emphasis on maintaining world class operating efficiency and providing hassle-free claim settlement experience to its customers by following high ethical standards of service. Additionally, SBI Life is committed to enhance digital experiences for its customers, distributors and employees alike. SBI Life strives to make insurance accessible to all, with its extensive presence across the country through its 1,062 offices, 23,943 employees, a large and productive network of about 257,266 agents, 79 corporate agents and 14 bancassurance partners with more than 41,000 partner branches, 132 brokers and other insurance marketing firms.

7. Ratio Analysis Ratio analysis is a critical tool for assessing the financial health and performance of life insurance companies such as SBI Life Insurance and ICICI Prudential Life Insurance. This analytical method involves calculating and interpreting various financial ratios derived from the companies' financial statements. Key ratios typically analyzed include profitability ratios, which assess the companies' ability to generate earnings relative to revenue, assets, and equity; liquidity ratios, which measure the ability to meet short-term obligations; and solvency ratios, which evaluate long-term financial stability and debt management. Efficiency ratios, indicating how well the companies utilize their assets, are also considered. By comparing these ratios, the report aims to identify strengths and weaknesses in the financial performance of both companies, offering insights into their operational efficiency, financial stability, and overall market competitiveness. This comparative analysis is crucial for stakeholders to make informed decisions regarding investment, management strategies, and policy formulation .

8. Current Ratio: The current ratio is a financial metric that measure a company’s ability to pay off its short-term liabilities with its short-term assets . lts is calculated as : Current Ratio =Current Assets/Current Liabilities An ideal current ratio is typically around 1.5 to 2, indicating that the company has sufficient assets to cover its liabilities but is not excessively liquid. A ratio below 1 may suggest liquidity issues, while a ratio significantly above 2 could indicate inefficient use of assets. SBI Life : 2019-20 : –1.93 SBI Life suggests that the company is in a good position to meet its short-term obligation ,as it has more than double the current assets needed to cover its current liabilities . 2020-21 : -1.69 this indicates that the company has a strong ability to cover its shorts –term obligation ,though not as high as a ratio above 2 . The company can meet its short-term liabilities with some buffer left. 2021-22 :- 1.48 indicates that the company is financially stable but could be more vulnerable to financial stress than companies with higher ratios. Its suggests a balance between maintaining liquidity and efficiently using assets . Current Ratio 2019-20 2020-21 2021-22 SBI Life 1.93 1 .69 1.48 LIC 2.17 2.16 2.68

9. Life Insurance Corporation of India 2019-20 :- 2.17 is seen as very healthy, indicating that the company is well-prepared to handle its short-term obligation . however the company might want to assess whether it could deploy some of its current assets more effectively to generate better returns. 2020-21: -2.16 indicating that the company has a solid liquidity position. It can cover its short-term obligations more than three times over. However, it may also suggest that the company is not utilizing its assets efficiently, potentially holding too much in current assets instead of investing in growth opportunities. 2021-22 :- 2.68 is considered healthy, implying that the company is well-equipped to manage its short-term obligations while maintaining some flexibility for unforeseen circumstances. Summary : Both Companies show a upward trend in their current ratio over the analysed period. SBI Life maintains a safer margin

10. Quick Ratio :The Quick Ratio , also known as the Acid-Test Ratio , is a liquidity ratio that measures a company's ability to meet its short-term liabilities using its most liquid assets, excluding inventory. This ratio is a more stringent test of liquidity than the Current Ratio because it only considers assets that can be quickly converted into cash. Quick Ratio Formula Quick Ratio= Current Assets−Inventory ​ Current liabilities Key Components: Current Assets : These include cash, accounts receivable, marketable securities, and inventory. For the quick ratio, inventory is excluded. Inventory : Considered less liquid compared to other current assets because it may take longer to sell and convert into cash. Current Liabilities : These are obligations that the company needs to pay within a year, such as accounts payable, short-term debt, and other short-term obligations.

11. 2019-20 2020-21 2021-22 SBI Life 1.93 1.69 1.48 LIC 2.17 2.16 2.68 SBI 2019-20:-1.93 implies that the company is in a strong position to cover its current liabilities, which is typically seen as a positive indicator of financial health. 2020-21 :- 1.69 is well above 1.0, which is typically considered a strong liquidity position. This suggests a solid liquidity position, as the company has more than enough liquid assets to cover its short-term obligations. 2021-22 :-1.48 indicates a reasonably strong liquidity position, though it might be slightly tighter compared to higher ratios. LIC 2019-20 :- 2.17 indicates excellent liquidity, providing a substantial buffer beyond just meeting its short-term liabilities. This higher ratio suggests that the company is in a very solid position regarding its short-term financial health. 2020-21 :- 2.16 indicates that the company is in a solid financial position with ample liquidity to handle short-term liabilities comfortably. Summary : SBI :- three ratios indicate that the company has a good ability to meet its short-term obligations with liquid assets, with the ratios gradually decreasing but still remaining above 1.0, which is a positive sign of financial health. LIC :- three ratios are well above 1.0 and indicate a very strong liquidity position, suggesting that the company is in an excellent position to manage its short-term financial commitments.

12. Profit After Tax(PAT Margin) The PAT (Profit After Tax) margin is a financial metric that measures the percentage of net income a company retains after all expenses, including taxes, have been deducted from total revenue. It provides insight into a company's profitability and efficiency in managing its expenses relative to its revenue. Formula for PAT Margin PAT Margin= Profit After Tax (PAT ) ×100 Total Revenue Steps to Calculate PAT Margin Determine Profit After Tax (PAT) : This is the net income of the company after all operating expenses, interest, taxes, and other non-operating expenses have been subtracted from total revenue. Find Total Revenue : This is the total income generated by the company from its business activities before any expenses are deducted. Apply the Formula : Divide PAT by total revenue and multiply by 100 to get the percentage. Interpretation Higher PAT Margin : Indicates better profitability, suggesting the company is efficient in managing its costs and expenses relative to its revenue. It typically signifies strong financial health and effective cost management. Lower PAT Margin : Could indicate higher expenses or lower revenue relative to profits, suggesting potential issues in cost management or pricing strategy. The PAT margin is a key indicator used by investors and analysts to assess a company's overall profitability and operational efficiency.

13. 2019-20 2020-21 2021-22 SBI Life 4.18 1.91 1.97 LIC 0.44 0.43 0.81 SBI 2019-2020:- 4.18% means that for every 100 units of revenue generated by the company, 4.18 units remain as profit after all taxes have been paid. This metric is crucial in assessing the overall profitability of a company, as it takes into account all expenses, including taxes. 2020-21:- 1.91% indicates that the company is earning 1.91 units of profit for every 100 units of revenue after all expenses, including taxes, have been paid. This is a relatively low margin, suggesting that the company retains only a small fraction of its revenue as profit. 2021-22:-1.97% indicates that the company retains 1.97 units of profit for every 100 units of revenue after all taxes and expenses have been deducted. This is a slightly higher margin than the previous 1.91%, but it still suggests relatively low profitability. LIC 2019-20:- 0.44% indicates that the company earns only 0.44 units of profit for every 100 units of revenue after all taxes and expenses have been paid. This is an extremely low margin, suggesting that the company is operating with very thin profitability. 2020-21 :- 0.43% indicates that the extremely low margin suggests the company is operating on the edge of profitability. 2021-22:- 0.81% means that the higher than the previously discussed 0.43%, it still reflects a very low level of profitability. and revenue after accounting for all expenses and taxes.

14. Summary SBI’:- profitability has shown volatility, with periods of stronger performance (4.18%) followed by a downturn to lower margins (1.91% and 1.97%). This fluctuation highlights potential challenges in managing costs or maintaining revenue growth, indicating that while SBI has the capacity for solid profitability, it also faces pressures that can erode its profit margins. The bank needs to focus on enhancing operational efficiency and cost management to stabilize and improve its profitability. LIC :- profitability has been consistently low, with PAT margins below 1%. The slight improvement to 0.81% suggests some positive developments, but overall, LIC is operating with very thin margins. This indicates vulnerability to market fluctuations, cost increases, or other financial pressures. To improve its financial health, LIC needs to focus on enhancing operational efficiency, cutting unnecessary costs, and possibly re-evaluating its pricing and revenue strategies. Stabilizing and increasing these margins will be crucial for long-term sustainability and growth. Return on Equity (ROE) Return on Equity (ROE) is a key financial metric used to assess a company's profitability relative to its shareholders' equity. It measures how effectively a company uses its equity to generate profits. The formula to calculate ROE is: ROE = Net Income×100% Shareholders’ Equity ​ Key Points About ROE: Profitability Indicator : ROE indicates how well the company is using the equity invested by shareholders to generate profit. A higher ROE suggests efficient use of equity and strong financial performance. Comparison Tool : ROE is useful for comparing a company’s profitability with other companies in the same industry. It helps investors assess relative performance.

15. 3.Growth Potential : A consistently high ROE can signal strong management and potential for growth, as the company is effectively converting equity into profits. 4.Impact of Leverage : ROE can be influenced by a company's use of leverage. High debt can increase ROE as long as the return on assets exceeds the cost of debt, but it also introduces financial risk. 5.Industry Variations : ROE varies significantly across industries. For instance, technology companies often have higher ROE compared to capital-intensive industries like manufacturing. Interpretation: High ROE : Generally positive, indicating that the company is efficient in generating profits from shareholders' equity. However, very high ROE might also suggest high leverage. Low ROE : May indicate less effective use of equity or financial struggles. It can also reflect significant investments in assets that aren’t yet generating substantial profits. 2019-20 2020-21 2021-22 SBI Life 222.23 176.85 257.93 LIC 2720.75 10897.66 217.81 SBI 2019-20:- 222.23% indicates exceptional performance, but it's essential to assess the underlying reasons and risks. Ensure that the high ROE is sustainable and not the result of temporary factors or excessive risk-taking. 2020-21:- 176.85% is exceptionally high, indicating that the company is generating a substantial profit relative to the equity invested by shareholders.

16. 2021-22:- 257.93% is extremely high and quite unusual. This suggests that the company is generating very high returns relative to the equity invested by its shareholders. Such a figure could be indicative of several potential scenarios: LIC 2019-20:-2720.75% is extraordinarily high and far beyond typical ranges for most companies. It’s crucial to dig deeper into the company's financials, including understanding the reasons behind such high returns and assessing the associated risks. 2020-21:-ROE of 10,897.66% is extraordinarily high and practically unprecedented. 2021-22 :-ROE of 217.81% is very high but more within the realm of possibility compared to the previously mentioned figures. It suggests that the company is generating substantial profits relative to its shareholders' equity. Summary SBI :- these ROE figures suggest strong performance, but a deeper analysis is necessary to fully understand the implications and sustainability of these results. LIC :- the 217.81% ROE is high but plausible, the extreme figures of 2,720.75% and 10,897.66% suggest that there might be extraordinary circumstances or issues that need careful examination. Return on Asset(ROA) Return on Assets (ROA) is a financial metric that measures how efficiently a company is using its assets to generate profit. It's expressed as a percentage and is calculated by dividing a company's net income by its total assets. Formula: ROA= Net Income ×100 Total Assets

17. Components: Net Income: This is the profit a company has after all expenses, taxes, and costs have been subtracted from total revenue. It represents the earnings available to shareholders. Total Assets: This is the sum of everything the company owns, including cash, inventory, property, and equipment. It reflects the resources available to the company to generate revenue. Interpretation: A higher ROA indicates that the company is more efficient at using its assets to generate earnings. It shows that the company is getting more profit per dollar of assets. A lower ROA could indicate inefficiency, meaning the company may not be utilizing its assets effectively to generate profits. 2019-20 2020-21 2021-22 SBI Life 1.34 0.78 0.94 LIC 0.08 0.29 0.33 SBI Life 2019-20 :- An ROA of 1.34% means the company earns 1.34 cents of profit for every dollar of assets it owns, indicating moderate efficiency in asset utilization. 2020-21 :- An ROA of 0.78% means the company generates 0.78 cents of profit for every dollar of assets, suggesting low efficiency in using its assets to generate income. 2021-22 :- ROA of 0.94% indicates the company earns 0.94 cents of profit for every dollar of assets, reflecting modest efficiency in asset utilization.

18. LIC 2019-20 :- ROA of 0.08% means the company earns just 0.08 cents of profit for every dollar of assets, indicating very low efficiency in using its assets to generate profit. 2020-21 :- 0.29% indicates the company earns 0.29 cents of profit for every dollar of assets, suggesting relatively low efficiency in asset utilization. 2021-22 :- 0.33% indicates the company generates 0.33 cents of profit for every dollar of assets, reflecting low efficiency in using its assets to produce income. Summary ; SBI Life's ROA figures of 1.34%, 0.78%, and 0.94% show moderate efficiency in asset utilization, with the highest at 1.34% indicating relatively better performance. In contrast, LIC's ROA figures of 0.08%, 0.29%, and 0.33% suggest much lower efficiency, with the highest at 0.33% still reflecting weaker asset utilization compared to SBI Life. Price-to-Earnings Ratio (P/E Ratio) The Price-to-Earnings Ratio (P/E Ratio) is a valuation metric that measures a company's current share price relative to its earnings per share (EPS). It helps investors assess how much they are willing to pay for each dollar of a company's earnings. Formula: P/E Ratio = Current Share Price​ Earning Per Share (EPS) Components: Current Share Price: The market price of one share of the company's stock. Earnings Per Share (EPS): The portion of a company’s profit allocated to each outstanding share of common stock. Types of P/E Ratios: Trailing P/E: Based on the company's earnings over the past 12 months. It's calculated using historical EPS data. Forward P/E: Based on projected earnings for the next 12 months. It uses forecasted EPS estimates.

19. Interpreting the P/E Ratio: High P/E Ratio: This can indicate that a stock is overvalued or that investors expect high growth rates in the future. Low P/E Ratio: This might suggest that the stock is undervalued or that the company is experiencing difficulties. 2019-20 2020-21 2021-22 SBI 59.75 78.91 81.42 LIC 1.11 109.00 129.30 SBI Life 2019-20 :- P/E ratio of 59.75 is quite high, suggesting that the stock is valued at a premium compared to its earnings. 2020-21 :- P/E ratio of 78.91 suggests that investors are highly optimistic about the company’s future growth. However, it also means there’s a higher risk if those growth expectations aren’t met. 2021-22 :- It’s crucial to look at other financial metrics and qualitative factors in addition to the P/E ratio to assess the overall value and potential of the company. LIC 2019-20 :- P/E ratio of 1.11 generally suggests that the stock might be undervalued, but it’s essential to conduct a thorough analysis to understand the underlying reasons and ensure that the low valuation isn’t due to fundamental problems with the company. 2020-21 :-129.30 suggests a very high valuation based on current earnings, driven by strong growth expectations or market sentiment. It’s important to carefully evaluate the company’s prospects and risks to understand whether the high P/E ratio is justified.

20. Overall Notes: SBI Life is trading at a premium valuation but within a range that indicates consistent growth expectations. LIC shows a dramatic range of P/E ratios, reflecting potential undervaluation or significant market expectations for future performance. It’s essential to analyze other financial metrics, company fundamentals, and sector trends to get a comprehensive view of each company’s investment potential and risk profile.

21. References Annual Report 2019-20 ( SBI Life Insurance ) Annual Report 2020-21 (SBI Life Insurance ) Annual Report 2021-22 (SBI Life Insurance ) Annual Report 2019-20 ( Life Insurance Corporation of India ) Annual Report 2020-21 ( Life Insurance Corporation of India ) Annual Report 2021-22 (Life Insurance Corporation of India ) Money control Screener