CHAPTER 5 FINANCIAL REPORTING PRACTICES OF LIFE INSURANCE COMPANIES

CHAPTER 5 FINANCIAL REPORTING PRACTICES OF LIFE INSURANCE COMPANIES

CHAPTER 5 FINANCIAL REPORTING PRACTICES OF LIFE INSURANCE COMPANIES Life Insurance Corporation of India (LIC) was a sole player in the life insurance industry prior to liberalization of insurance sector in India. Liberalization and opening up of this sector to private players resulted in competitive pressure in the insurance industry. In an environment of market volatility and competition, companies must ensure transparency in their financial statements to win public trust (Rao, 2004). The present chapter discusses the disclosure results of life insurance companies including one public sector company (LIC) and 16 private sector companies operating in India. To analyze the financial reporting practices 103 items are selected from the annual reports of companies for 8 years i.e. 2002-03 to 2009-10. These items are classified into mandatory disclosure items (45 items) and voluntary disclosure items (58 items). Extent of disclosure has been explained as item-wise, company-wise and area wise. For comparing the disclosure practices of public and private sector life insurance companies following two null hypotheses have been formulated. These hypotheses have been tested with the help of t-test and F-test. Ho 1 - There is no significant difference in the mean disclosure score of an item for public and private sector life insurance companies. Ho 2 - There is no significant difference in the variation of items of disclosure for public and private sector life insurance companies. 5.1 Item-Wise Mandatory Disclosure Various regulatory bodies have issued different regulations to improve the disclosure practices of insurance companies from time to time. Main statutes governing disclosure practices of insurance companies are Companies Act 1956, Insurance Act 1938, Insurance Regulatory Development Authority (IRDA) Act 1999 and various regulations issued by IRDA. After consulting the provisions issued by these laws and by scanning the annual reports of the selected insurance companies an index of 45 items is prepared. Further these 45 items are divided into 4 sub-heads i.e. statutory disclosure as per IRDA, director s report, balance sheet abstract and disclosure as per accounting standards issued by ICAI (Institute of Chartered Accountants of India). Disclosure results of private life insurance companies have been analyzed for all these 45 items.

But for Life Insurance Corporation of India (LIC) only statutory disclosure as per IRDA is considered mandatory as LIC is a statutory corporation and incorporated under a special Act of Parliament i.e. Life Insurance Corporation Act 1956.A statutory corporation is not subject to the accounting, reporting and audit regulations applicable to other government companies. 5.1.1 Statutory Disclosure as per IRDA Every insurance company prepares the financial statements and makes disclosures from 30 th March 2002 onwards in accordance with the guidelines of Insurance Regulatory and Development Authority titled, The Insurance Regulatory and Development Authority (Preparation of Financial Statements and Auditors Report of Insurance Companies) Regulations, 2002 (Anonymous, 2002). According to these regulations every insurance company has to include in their annual reports some specific information which forms the contents of this head. There are 24 items under this head. There is 100 percent disclosure for 20 items in Life Insurance Corporation (Table 5.1). These 20 items are balance sheet, revenue account, profit and loss account, schedules forming part of financial statements, significant accounting policies, notes to accounts, receipts and payments account, auditors report, contingent liabilities, claim settlement and age wise analysis, summary of financial statements of last five years, sector wise details of policies issued, employee benefit plans, allocation of income and expenditure, managerial remuneration, accounting and performance ratios, basis of allocation of investment, commitment in respect of loans and investments, encumbrances on assets, shareholders and policyholders fund. Two items i.e. certificate as per schedule C and premium deficiency is not disclosed for any of the years by LIC. Results of private life insurance companies reveal that only four items (balance sheet, revenue account, profit and loss account, schedules forming part of financial statement) are having 100 percent disclosure (Table 5.2). Eight items are disclosed by more than 80 percent companies in their annual reports. These items are receipts and payment account (89.51), auditor s report (87.45), management report (86.22), sector wise details of policies issued (81.87), commitment in respect of loans and investments (83.82), accounting and performance ratios (93.08), encumbrances on assets (87.00) and shareholders and policyholder s funds (93.25). Only 3.12 percent companies are showing information relating to premium deficiency in their annual reports. Other items are having moderate disclosure scores. 75

Standard deviation results (Table 5.2) show that more variation is found in the disclosure scores of summary of financial statements of last five years (18.98), certificate as per schedule C (16.78), sector-wise details of policies issued (16.13), claim settlement and age wise analysis (14.49), employee benefit plans (14.27), significant accounting policies (14.03), notes to accounts (14.03) and encumbrances on assets (13.68). There is complete consistency for items i.e. balance sheet, revenue account, profit and loss account and schedules forming part of financial statements as there is 100 percent disclosure score for these items for all the years of study. Results of percentage change in the year 2009-10 over 2002-03 depicts that the highest percentage change is for item, summary of financial statements of last five years (337.67). Minimum change is 9.38 percent for two items i.e. auditors report and shareholders and policy holders fund. 5.1.2 Director s Report Director s report is an index to financial reporting (Ubha and Kaur, 2005). There are total ten items under this head. Results of private sector life insurance companies show that 78.13 percent companies are including information on particulars of employees under section 217(2A) of the companies Act 1956 in their annual reports (Table 5.2). Director s responsibility statement is disclosed by 52.03 percent companies and 33.18 percent companies are giving corporate governance report in their annual reports. Three items i.e. addendum to directors report, adoption of accounts by shareholders and subsidiary companies are not shown by any of the private life insurance companies in their annual reports. Standard deviation results of private life insurance companies show that there is highest variation for item additional information disclosure (18.90) followed by directors responsibility statement (17.28), Right to Information Act 2005 (15.63), corporate governance report (13.83). 76

S. No. Table 5.1 Mandatory Disclosures (%) of Public Sector Life Insurance Company (LIC) Description of Item 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 Mean SD % change Statutory Disclosure as per IRDA 1 Balance sheet 100 100 100 100 100 100 100 100 100 0 0 NA NA 2 Revenue account 100 100 100 100 100 100 100 100 100 0 0 NA NA 3 Profit and loss account 100 100 100 100 100 100 100 100 100 0 0 NA NA 4 Schedules forming part of financial 100 100 100 100 100 100 100 100 100 0 0 NA NA statements 5 Significant accounting policies 100 100 100 100 100 100 100 100 100 0 0 5.42* NA 6 Notes to accounts 100 100 100 100 100 100 100 100 100 0 0 5.42* NA 7 Receipts and payments account 100 100 100 100 100 100 100 100 100 0 0 2.20* NA 8 Auditors report 100 100 100 100 100 100 100 100 100 0 0 4.43* NA 9 Management report 0 0 0 0 0 0 0 100 12.50 35.4 - -5.16* 7.04** 10 Contingent Liabilities 100 100 100 100 100 100 100 100 100 0 0 8.32* NA 11 Claim Settlement and Age wise Analysis 100 100 100 100 100 100 100 100 100 0 0 6.93* NA 12 Summary of Financial Statements of last 100 100 100 100 100 100 100 100 100 0 0 9.68* NA five years 13 Sector wise Details of Policies Issued 100 100 100 100 100 100 100 100 100 0 0 2.98* NA 14 Employee Benefit Plans 100 100 100 100 100 100 100 100 100 0 0 8.21* NA 15 Allocation of Income and Expenditure 100 100 100 100 100 100 100 100 100 0 0 5.10* NA 16 Managerial Remuneration 100 100 100 100 100 100 100 100 100 0 0 6.87* NA 17 Accounting and performance Ratios 100 100 100 100 100 100 100 100 100 0 0 1.72 NA 18 Basis of allocation of investment 100 100 100 100 100 100 100 100 100 0 0 5.16* NA 19 Certificate as per schedule C 0 0 0 0 0 0 0 0 0. 0 0-10.57* NA 20 Premium Deficiency 0 0 0 0 0 0 0 0 0 0 0-1.75 NA 21 Performance of Social Sector Schemes for 0 0 0 0 0 0 0 100 12.50 35.4 0 0.21 12.59** Last Five years 22 Commitment in Respect of Loans and 100 100 100 100 100 100 100 100 100 0 0 3.49* NA Investments 23 Encumbrances on Assets 100 100 100 100 100 100 100 100 100 0 0 2.51* NA 24 Shareholders and Policyholders funds 100 100 100 100 100 100 100 100 100 0 0 3.30* NA * indicates that these values are significant at 5% level of significance and 14 degrees of freedom having table value of t =2.15 ** indicates that these values are significant at 5% level of significance and 7,7 degree of freedom having tabulated value of F=3.79 t-value F-value 77

Table 5.2 Mandatory Disclosure (%) of Private Life Insurance Companies S.No. Description of Item 2002-03 2003-04 Statutory Disclosure As Per IRDA 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 Mean SD % change 1 Balance sheet 100 100 100 100 100 100 100 100 100 0 0 2 Revenue account 100 100 100 100 100 100 100 100 100 0 0 3 Profit and loss account 100 100 100 100 100 100 100 100 100 0 0 4 Schedules forming part of financial 100 100 100 100 100 100 100 100 100 0 0 statements 5 Significant accounting policies 57.14 57.14 62.50 57.14 80.00 81.25 87.50 87.50 71.27 14.03 53.13 6 Notes to accounts 57.14 57.14 62.50 57.14 80.00 81.25 87.50 87.50 71.27 14.03 53.13 7 Receipts and payments account 71.43 71.43 87.50 85.71 100 100 100 100 89.51 12.61 39.99 8 Auditors report 85.71 85.71 75.00 78.57 93.33 93.75 93.75 93.75 87.45 7.50 9.38 9 Management report 71.43 71.43 75.00 78.57 93.33 100 100 100 86.22 13.32 39.99 10 Contingent Liabilities 42.86 42.86 50.00 57.14 66.67 62.50 75.00 75.00 59.00 13.03 74.99 11 Claim Settlement and Age wise Analysis 42.86 42.86 62.50 57.14 60.00 75.00 75.00 81.25 62.08 14.49 89.57 12 Summary of Financial Statements of last 14.28 14.28 25.00 14.28 26.67 31.25 56.25 62.50 30.56 18.98 337.67 five years 13 Sector wise Details of Policies Issued 57.14 57.14 87.50 78.57 93.33 93.75 93.75 93.75 81.87 16.13 64.07 14 Employee Benefit Plans 42.86 42.86 37.50 50.00 60.00 68.75 68.75 75.00 55.71 14.27 74.99 15 Allocation of Income and Expenditure 57.14 57.14 62.50 71.43 86.67 87.50 87.50 81.25 73.89 13.55 42.19 16 Managerial Remuneration 57.14 57.14 62.50 64.28 80.00 81.25 81.25 81.25 70.60 11.32 42.19 17 Accounting and performance Ratios 71.43 85.71 87.50 100 100 100 100 100 93.08 10.65 39.99 18 Basis of allocation of investment 57.14 71.43 75.00 85.71 80.00 87.50 87.50 87.50 78.97 10.78 53.13 19 Certificate as per schedule C 42.86 42.86 62.50 64.28 80.00 81.25 81.25 81.25 67.03 16.78 89.57 20 Premium Deficiency 0 0 0 0 0 6.25 6.25 12.50 3.125 4.72-21 Performance of Social Sector Schemes 0 0 0 7.14 6.67 18.75 18.75 25.00 9.54 9.97 - for Last Five years 22 Commitment in Respect of Loans and 57.14 85.71 100 78.57 86.67 87.50 87.50 87.50 83.82 12.27 53.13 Investments 23 Encumbrances on Assets 57.14 85.71 100 78.57 93.33 93.75 93.75 93.75 87 13.68 64.07 24 Shareholders and Policyholders funds 85.71 100 100 85.71 93.33 93.75 93.75 93.75 93.25 5.42 9.38 Contd.. 78

Table 5.2 contd.. S.No. Description of Item 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 Mean SD % change Director s Report 25 Particulars of employees(sec 217(2A)) 71.43 71.43 87.50 64.28 86.67 81.25 81.25 81.25 78.13 8.21 13.75 26 Addendum to Directors Report 0 0 0 0 0 0 0 0 0 0.00-27 Directors responsibility statement 28.57 28.57 50.00 42.86 60.00 68.75 68.75 68.75 52.03 17.28 140.64 28 Compliance with section 40C 0 0 12.50 7.14 6.67 18.75 18.75 25.00 11.10 9.21 29 Additional Information Disclosure(Disclosure 14.28 14.28 25.00 21.43 33.33 56.25 56.25 56.25 34.63 18.90 293.91 Rules 1988) 30 Adoption of Accounts by Shareholders 0 0 0 0 0 0 0 0 0 0.00-31 Submission of Accounts before 0 0 0 0 0 0 0 0 0 0.00 - Parliament(Sec. 619 A) 32 Subsidiary companies 0 0 0 0 0 0 0 0 0 0.00-33 Corporate governance report 14.28 14.28 37.50 28.57 33.33 37.50 50.00 50.00 33.18 13.83 250.14 34 Right To Information Act 2005 0 12.50 18.75 37.50 17.19 15.63 - Balance Sheet Abstract 35 Registration Details 14.28 14.28 25.00 35.71 46.67 50.00 50.00 50.00 35.74 15.88 250.14 36 Capital Raised During The Year 0 0 0 0 0 18.75 12.50 12.50 5.47 7.79-37 Position of Mobilization and Deployment of 14.28 14.28 25.00 35.71 46.67 50.00 43.75 43.75 34.18 14.48 206.37 Funds 38 Performance of the company 0 0 12.50 28.57 40.00 43.75 43.75 43.75 26.54 19.57-39 Services of the company 0 0 0 14.28 20.00 31.25 25.00 25.00 14.44 12.88 - Disclosure As Per Accounting Standards 40 Employee Benefits as per (AS-15) 0 14.28 12.50 7.14 26.67 62.50 75.00 75.00 34.14 31.52-41 Segment Reporting as per ( AS-17) 85.71 100 100 100 100 100 100 100 98.21 5.05 16.67 42 Related Party Disclosure as per (AS-!8) 85.71 100 100 100 100 100 100 100 98.21 5.05 16.67 43 Leases as per AS-19 14.28 14.28 12.50 7.14 20.00 37.50 50.00 50.00 25.71 17.45 250.14 44 EPS as per (AS-20) 14.28 14.28 12.50 42.86 66.67 68.75 87.50 87.50 49.29 32.62 512.74 45 Deferred Tax Liability as per (AS-22) 14.28 28.57 37.50 21.43 40.00 43.75 75.00 75.00 41.94 22.61 425.21 79

As far as percentage change in disclosure score over the year is concerned, there is the highest change in the disclosure score of additional information disclosure as per rules 1988 (293.91) followed by corporate governance report (250.14). As the item, particulars of employees is already having good disclosure through out the period of study, percent change in disclosure is minimum (13.75). 5.1.3 Balance Sheet Abstract This head consists of 5 items. Every company registered under the companies act 1956, is required to prepare a balance sheet abstract as per the requirements of Part IV schedule VI of the companies Act 1956. Due to the different nature of transactions in the insurance industry, the accounts of insurance companies are difficult to prepare according to the Schedule VI, so there is very less disclosure for items covered under this head. Table 5.2 depicts that only 35.74 percent private sector life insurance companies are disclosing registration details in their annual reports. Position of mobilization and deployment of funds has been shown by 34.18 percent companies. For all the five items disclosure score is less than 50 percent, indicating there is very less disclosure by private life insurance companies regarding these items The highest variation is for item performance of the company (19.57) and minimum variation is for item, capital raised during the year (7.79) in case of private sector companies (Table 5.2). There is more than 100 percent change in disclosure score of registration details (250.14) and position of mobilization and deployment of funds (206.37). 5.1.4 Disclosure as per Accounting Standards Institute of Chartered Accountants of India (ICAI) have issued various accounting standards from time to time to improve the disclosure practices and the companies have to comply with these accounting standards as per Section 211 (3C) of the Companies Act 1956. To check the compliance of insurance companies regarding these accounting standards, 6 items are selected from annual reports. Results of private life insurance companies shown in table 5.2 highlights that the highest mean disclosure score is 98.21 percent each for 2 items, segment reporting as per AS-17 and related party disclosure as per AS-18.Other 4 items are disclosed by less than 50 percent private life insurance companies in their annual reports (Table 5.2). 80

Standard deviation is the highest (32.62) for item EPS as per AS-20 (Table 5.2) indicating greater variation in the disclosure values and it is the lowest (5.05) each for segment reporting as per AS-17 and related party disclosure as per AS-18, reflecting that disclosure values for these items are comparatively consistent. There is a very high degree of change over the years in the disclosure scores of EPS as per AS-20(512.74) and deferred tax liability as per AS-22 (425.21) followed by leases as per AS- 19 (250.14).There is 16.67 percent change in the disclosure scores for both the items i.e. segment reporting as per AS-17 and related party disclosure as per AS-18. Overall item-wise mandatory results of life insurance companies show that comparatively there is better disclosure for items concerned with statutory disclosure as per IRDA for LIC than private sector life insurance companies. As compared to items included under other heads, there is better disclosure for items concerned with statutory disclosure as per IRDA in private sector life insurance companies. 5.2 Item-Wise Voluntary Disclosure For the analysis of voluntary disclosure practices in life insurance companies an index of 58 items is prepared. This index is further classified into four sub-heads i.e. information on accounting and finance, information on human resource and marketing, business specific information and general information. Disclosure score is calculated in percentage by dividing the actual score of an item by its total scores. To interpret the data, mean disclosure score, standard deviation and percent change in disclosure score over the year are calculated separately for both public and private sector companies. 5.2.1. Information on Accounting and Finance Information on accounting and finance is the most important part of an annual report. It provides the operational results of an enterprise expressed in financial terms (Singh, 2009). Majority of the users are interested in this part of information as it helps in various financial decisions. This head consists of twelve items. There is 100 percent disclosure for 6 items in case of Life Insurance Corporation (Table 5.3). These items are financial highlights, underwriting results, net incurred claims, class-wise performance, foreign currency transactions and taxation provision. Data further highlights that there is zero disclosure score for 5 items (gross domestic premium, 81

solvency margins, and certain expenses of management, employee stock option scheme and financial consultants) means LIC is not disclosing these items in their annual report for all the years of study. There is 87.50 percent disclosure for one item provision for claims incurred but not reported. In private life insurance companies not even a single item under this is having 100 percent disclosure (Table 5.4). The highest disclosure score of 86.39 is for item net incurred claims. There are other 3 items having more than 70 percent disclosure score i.e. gross domestic premium (81.26), class wise performance (81.26) and solvency margins (76.80). Remaining items are having moderate disclosure. Standard deviation is used to study the variation in the items disclosed by companies in various years. In private sector life insurance companies this is the highest for item solvency margins (19.81) and taxation provision (19.80) followed by financial highlights (18.91), provision for claims incurred but not reported (12.98) and class wise performance (11.88) To study the improvement in disclosure practices, percent change in disclosure score in the year 2009-10 over the year 2002-03 has been calculated (Table 5.4). There is more improvement in the disclosure of private sector companies. Provision for claims incurred but not reported (293.31) have got the highest percent growth in disclosure score over the period of study. There is more than 100 percent change in disclosure score for two other items namely financial highlights (206.26) and taxation provision (184.39). Minimum percentage change (20.32) is found in disclosure score of foreign currency transactions as this item is also having good disclosure for the initial year of study. 5.2.2. Information on Human Resource and Marketing Human resources are the most significant resources of an organization. All the users expect from companies to disclose maximum information regarding these resources in their annual reports, as it gives an insight to the interested parties regarding measures taken by the organization to develop these human resources. Information on marketing is also an important part of annual reports of any company as various users want to judge the customer services, distribution channels, grievance redresseal machinery, publicity activities and other related activities of the company. There are 14 items included under this head. Results given in Table 5.3 depicts that LIC is disclosing information related to nine items i.e. training of employees, 82

Table 5.3 Voluntary Disclosure (%) of Public Sector Life Insurance Company (LIC) S No Description of Item 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 Mean SD % change Information on Accounting and Finance 1 Financial Highlights 100 100 100 100 100 100 100 100 100 0 0 2 Gross Domestic Premium 0 0 0 0 0 0 0 0 0 0 0 3 Solvency Margins 0 0 0 0 0 0 0 0 0 0-4 Certain Expenses of Management 0 0 0 0 0 0 0 0 0 0-5 Employee Stock Option Scheme 0 0 0 0 0 0 0 0 0 0-6 Financial Consultants 0 0 0 0 0 0 0 0 0 0-7 Underwriting results 100 100 100 100 100 100 100 100 100 0 0 8 Net Incurred Claims 100 100 100 100 100 100 100 100 100 0 0 9 Class wise performance 100 100 100 100 100 100 100 100 100 0 0 10 Foreign Currency transactions 100 100 100 100 100 100 100 100 100 0 0 11 Taxation Provision 100 100 100 100 100 100 100 100 100 0 0 12 Provision for Claims incurred But Not Reported Information on Human Resource and Marketing 0 100 100 100 100 100 100 100 87.50 35.4-13 Staff Welfare Schemes 0 100 100 100 100 100 100 100 87.50 35.4-14 Training of Employees 100 100 100 100 100 100 100 100 100 0 0 15 Gender Issues and Empowerment 100 100 100 100 100 100 100 100 100 0 0 16 Sports Activities 0 100 100 100 100 100 100 100 87.50 35.4-17 SCs, STs, OBCs, and Ex-Servicemen 100 100 100 100 100 100 100 100 100 0 0 18 Customer Service 100 100 100 100 100 100 100 100 100 0 0 19 Distribution Offices 100 100 100 100 100 100 100 100 100 0 0 20 Corporate Agents 100 100 100 100 100 100 100 100 100 0 0 Contd 83

Table 5.3 contd S No Description of Item 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 Mean SD % change 21 Riders 0 0 0 0 0 0 0 0 0 0 22 Grievance Redressal 100 100 100 100 100 100 100 100 100 0 0 23 Techno-Marketing 0 0 0 0 0 0 0 0 0 0 24 Publicity Activities 100 100 100 100 100 100 100 100 100 0 0 25 Voluntary Retirement Schemes 0 0 0 0 0 0 0 0 0 0 26 Retirement Benefits of Employees 100 100 100 100 100 100 100 100 100 0 0 Business Specific Information 27 Business Overview 100 100 100 100 100 100 100 100 100 0 0 28 Product Portfolio 100 100 100 100 100 100 100 100 100 0 0 29 Branch Network 100 100 100 100 100 100 100 100 100 0 0 30 Industrial Relations 0 0 0 0 0 0 0 100 12.50 35.4-31 Rural Insurance, Special sector insurance 100 100 100 100 100 100 100 100 100 0 0 and Special Schemes 32 Vigilance Activities 100 100 100 100 100 100 100 100 100 0 0 33 Organization Structure 0 0 0 0 0 0 100 100 25.00 46.3-34 Market Scenario in the Industry 100 100 100 100 100 100 100 100 100 0 0 35 Market Share 100 100 100 100 100 100 100 100 100 0 0 36 Micro and Small Scale Business Entities 0 0 0 0 0 0 0 100 12.50 35.4-37 Industry Premium Growth 100 100 100 100 100 100 100 100 100 0 0 38 Contribution to Retail Business 0 0 0 100 100 100 100 100 62.50 51.8-39 Reinsurance 0 0 0 0 0 0 0 0 0 0-40 Foreign operations 100 100 100 100 100 100 100 100 100 0 0 41 Internal Audit 100 100 100 100 100 100 100 100 100 0 0 42 Name of Statutory Auditors of the company 0 0 0 0 0 0 0 100 12.50 35.4 - General/Other Information 43 Company s Vision/Mission 0 0 0 0 100 100 100 100 50.00 53.5-44 Chairman Report 0 0 0 0 0 0 0 0 0 0-45 Names of board of Directors 100 100 100 100 100 100 100 100 100 0 0 Contd. 84

Table 5.3 contd S No Description of Item 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 Mean SD % change 46 Message from the CEO 0 0 0 0 0 0 0 0 0 0-47 Awards and Recognition 100 100 0 0 100 100 100 100 75.00 46.3 0 48 Notice of AGM 0 0 0 0 0 0 0 0 0 0-49 Bi-Lingual Presentation 100 100 100 100 100 100 100 100 100 0 0 50 Glossary 0 0 0 0 0 0 0 0 0 0-51 Disclosure through Charts, Graphs and 100 100 100 100 100 100 100 100 100 0 0 Diagrams 52 Acknowledgements 100 100 100 100 100 100 100 100 100 0 0 53 Citizens Charter 0 0 0 0 0 0 0 0 0 0-54 Plans for Future 100 100 100 100 100 100 100 100 100 0 0 55 Associate companies 0 0 0 100 100 100 100 100 62.50 51.75 56 Information Technology 100 100 100 100 100 100 100 100 100 0 0 57 Office language implementation 100 100 100 100 100 100 100 100 100 0 0 58 Corporate Communication 100 100 100 100 100 100 100 100 100 0 0 85

gender issues and empowerment, SC S, ST S, OBC S and Ex-servicemen, customer service, distribution offices, corporate agents, grievance redressal, publicity activities and retirement benefits of employees for all the years of study. These items are having 100 percent disclosure. Further data reveals that LIC is not disclosing information related to items; riders, technomarketing and voluntary retirement schemes. For theses three items average disclosure score is zero. Data also reveals that there is 87.50 percent disclosure each for staff welfare schemes and sports activities in their annual reports. On the other hand in case of private sector companies none of the item is having 100 percent disclosure score. Table 5.4 shows that the highest disclosure score is for item grievance redressal (69.94). Information relating to distribution offices is given by 64.47 percent companies in their annual reports. It is clear from the data given in table 5.4 that there is no disclosure for four items (sports activities, gender issues and empowerment, SC S, ST S and Ex-servicemen, and voluntary retirement schemes) in case of private sector companies. Remaining eight items are having less than 50 percent disclosure scores, indicating that only some companies are disclosing voluntary information in their annual reports. Results of mean disclosure values show that there is better disclosure in case of public sector company as compared to private sector companies. Standard deviation results show that greater variation is found for item distribution offices (16.56) in case of private sector life insurance companies (Table 5.4). Other items having larger standard deviation values in case of private sector companies are retirement benefits of employees (15.91), grievance redressal (12.86) and training of employees (12.59). The highest percentage change of 162.60 in the disclosure score in 2009-10 over the year 2002-03 is for item, staff welfare schemes of private sector companies. There is more than 100 percent change in disclosure over the period of study for other three items i.e. retirement benefits of employees (140.64), distribution offices (104.15) and grievance redressal (104.15). But one item corporate agents is showing negative growth (-12.46) in disclosure score in case of private sector life insurance companies. 5.2.3 Business Specific Information Various users are interested in business related information which includes business overview, product portfolio, branch network, market share, foreign operations, internal audit and 86

S. No Table 5.4 Voluntary Disclosure (%) of Private Sector Life Insurance Companies Description of Item 2002-03 Information on Accounting and Finance 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 Mean SD % change 1 Financial Highlights 28.57 42.86 50.00 50.00 60.00 68.75 75.00 87.50 57.84 18.91 206.26 5.90* NA 2 Gross Domestic Premium 57.14 71.43 87.5 78.57 86.67 87.5 87.5 93.75 81.26 11.88 64.07-18.11* NA 3 Solvency Margins 57.14 42.86 75.00 78.57 73.33 87.50 100 100 76.80 19.81 75.01-10.26* NA 4 Certain Expenses of 14.28 14.28 12.50 14.27 13.33 12.50 25.00 25.00 16.40 5.36 75.07-8.10* NA Management 5 Employee Stock Option Scheme 0 0 12.50 7.14 13.33 18.75 18.75 18.75 11.15 7.97 - -3.70* NA 6 Financial Consultants 0 14.28 0 7.14 6.67 18.75 25.00 25.00 12.11 10.20 - -3.14* NA 7 Underwriting results 28.57 42.86 50.00 42.86 40.00 43.75 43.75 50.00 42.72 6.72 75.01 22.55* NA 8 Net Incurred Claims 71.43 85.71 87.50 78.57 86.67 93.75 93.75 93.75 86.39 8.01 31.25 4.50* NA 9 Class wise performance 57.14 71.43 87.50 78.57 86.67 87.50 87.50 93.75 81.26 11.88 64.07 4.16* NA 10 Foreign Currency transactions 57.14 57.14 62.50 50.00 60.00 68.75 68.75 68.75 61.63 6.88 20.32 14.76* NA 11 Taxation Provision 28.57 42.86 37.50 50.00 53.33 68.75 81.25 81.25 55.44 19.80 184.39 5.95* NA 12 Provision for Claims incurred But Not Reported Information on Human Resource and Marketing t-value Contd.. F-value 14.28 28.57 25.00 35.71 33.33 43.75 43.75 56.25 35.08 12.98 293.91 3.68* 7.42** 13 Staff Welfare Schemes 14.28 14.28 12.50 7.14 13.33 12.50 25.00 37.50 17.07 9.64 162.60 5.08* 13.49** 14 Training of Employees 0 0 12.50 7.14 6.67 18.75 31.25 31.25 13.45 12.59-18.19* NA 15 Gender Issues and 0 0 0 0 0 0 0 0 0 0 - NA NA Empowerment 16 Sports Activities 0 0 0 0 0 0 0 0 0 0-6.54* NA 17 SCs, STs, OBCs, and Ex- 0 0 0 0 0 0 0 0 0 0 - NA NA Servicemen 18 Customer Service 42.86 42.86 37.50 21.43 20.00 31.25 37.50 43.75 34.64 9.52 2.07 18.16* NA 19 Distribution Offices 42.86 42.86 75.00 57.14 66.67 62.50 81.25 87.50 64.47 16.56 104.15 5.68* NA 20 Corporate Agents 14.28 14.28 12.50 7.14 13.33 6.25 12.50 12.50 11.60 3.12-12.46 74.88* NA 87

Table 5.4 contd S.No Description of Item 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 Mean SD % change t-value F-value 21 Riders 0 0 12.50 7.14 6.67 6.25 6.25 6.25 5.63 4.06 - -3.67* NA 22 Grievance Redressal 42.86 71.43 75.00 78.57 66.67 68.75 68.75 87.50 69.94 12.86 104.15 6.18* NA 23 Techno-Marketing 0 0 0 0 0 0 0 6.25 0.78 2.21 - -0.93 NA 24 Publicity Activities 0 0 0 0 0 0 6.25 6.25 1.56 2.89-90.12* NA 25 Voluntary Retirement Schemes 0 0 0 0 0 0 0 0 0 0 - NA NA 26 Retirement Benefits of Employees 28.57 28.57 37.50 42.86 53.33 62.50 62.50 68.75 48.07 15.91 140.64 8.64* NA Business Specific Information 27 Business Overview 28.57 28.57 37.50 21.43 26.67 43.75 75.00 75.00 42.06 21.45 162.51 7.15* NA 28 Product Portfolio 28.57 28.57 37.50 21.43 26.67 43.75 50.00 56.25 36.59 12.39 96.88 13.54* NA 29 Branch Network 14.28 14.28 25.00 21.43 26.67 31.25 43.75 56.25 29.11 14.53 293.91 12.91* NA 30 Industrial Relations 0 0 0 0 0 0 6.25 6.25 1.56 2.89-0.82 149.3** 31 Rural Insurance, Special sector 14.28 28.57 37.50 35.71 40.00 50.00 50.00 50.00 38.26 12.49 250.14 13.08* NA insurance and Special Schemes 32 Vigilance Activities 0 0 0 0 0 0 0 6.25 0.78 2.21-118.78* NA 33 Organization Structure 0 0 0 0 0 0 0 0 0 0-1.43 NA 34 Market Scenario in the Industry 14.28 14.28 12.50 7.14 13.33 12.50 31.25 37.50 17.85 10.58 162.60 20.54* NA 35 Market Share 14.28 14.28 12.50 7.14 20.00 12.50 43.75 43.75 21.03 14.46 206.37 14.45* NA 36 Micro and Small Scale Business 0 0 0 0 0 18.75 31.25 37.50 10.94 15.93-0.11 4.92** Entities 37 Industry Premium Growth 14.28 14.28 12.50 14.28 26.67 31.25 37.50 50.00 25.10 13.75 250.14 14.41* NA 38 Contribution to Retail Business 14.28 14.28 12.50 7.14 6.67 6.25 6.25 12.50 9.98 3.71-12.46 2.68* 194.24** 39 Reinsurance 28.57 28.57 37.50 21.43 26.67 43.75 37.50 37.50 32.69 7.45 31.26-11.61* NA 40 Foreign operations 0 0 0 7.14 13.33 18.75 18.75 25.00 10.37 9.97-23.79* NA 41 Internal Audit 0 0 0 7.14 13.33 12.50 18.75 18.75 8.81 8.17-29.53* NA 42 Name of Statutory Auditors of the company 0 0 0 0 13.33 18.75 25.00 25.00 10.26 11.57-0.16 9.34** Contd.. 88

Table 5.4 contd S. No Description of Item 2002-03 General/Other Information 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 Mean SD % change 43 Company s Vision/Mission 14.28 14.28 12.50 7.14 13.33 12.50 25.00 25.00 15.50 6.28 75.07 1.69 72.44** 44 Chairman Report 14.28 14.28 12.50 7.14 6.67 6.25 6.25 6.25 9.20 3.77-56.23-6.46* NA 45 Names of board of Directors 57.14 71.43 75.00 85.71 86.67 93.75 93.75 93.75 82.15 13.25 64.07 3.56* NA 46 Message from the CEO 0 0 0 0 6.67 6.25 12.50 12.50 4.74 5.56 - -2.26* NA 47 Awards and Recognition 0 0 12.50 21.43 13.33 12.50 18.75 18.75 12.16 8.20-3.54* 31.91** 48 Notice of AGM 0 0 0 0 0 0 0 0 0 0 - NA NA 49 Bi-Lingual Presentation 0 0 0 0 0 0 0 0 0 0 - NA NA 50 Glossary 0 0 0 0 0 0 6.25 6.25 1.56 2.89 - -1.43 NA 51 Disclosure through Charts, Graphs and 0 0 0 0 6.67 6.25 6.25 6.25 3.18 3.40-75.34* NA Diagrams 52 Acknowledgements 28.57 28.57 37.50 28.57 33.33 43.75 56.25 56.25 39.10 11.82 96.88 13.63* NA 53 Citizens Charter 0 0 0 0 0 0 0 0 0 0 - NA NA 54 Plans for Future 14.28 14.28 12.50 14.28 20.00 25.00 56.25 56.25 26.61 18.74 293.91 10.36* NA 55 Associate companies 0 0 0 0 0 0 0 0 0 0-3.21* NA 56 Information Technology 0 0 0 0 6.67 12.50 25.00 50.00 11.77 17.80-13.11* NA 57 Office language implementation 0 0 0 0 0 0 0 0 0 0 - NA NA 58 Corporate Communication 14.28 14.28 25.00 14.28 13.33 18.75 37.50 50.00 23.43 13.53 250.14 14.97* NA * indicates that these values are significant at 5% level of significance and 14 degrees of freedom having table value of t =2.15 **indicates that these values are significant at 5% level of significance and 7,7 degree of freedom having tabulated value of F=3.79 t-value F-value 89

others. Sixteen items are included under this head. Table 5.3 highlights that there is 100 percent disclosure for ten items viz. business overview, product portfolio, branch network, rural insurance, special sector insurance and special schemes, vigilance activities, market scenario in the industry, market share, industry premium growth, foreign operations and internal audit in LIC. There is no disclosure for item reinsurance by LIC. Three items i.e. industrial relations, micro and small scale business entities, and name of statutory auditors of the company are disclosed by LIC only in the last year of study. One item, organization structure is having only 25 percent disclosure score as this item is disclosed only for last two years of the study. Data relating to private life insurance companies given in table 5.4 reveals that the highest mean disclosure is only 42.06 percent for item business overview in case of private life insurance companies. There is no disclosure for item organization structure and majority of the remaining items are having even less than 30 percent disclosure. Results of mean disclosure values shows that public sector company is disclosing more information regarding business specific information in their annual reports, whereas there is very less disclosure in case of private sector companies. Standard deviation results show that there is greater variability in the disclosure score for private sector companies. The highest standard deviation is found for item business overview (21.45) followed by micro and small scale business entities (15.93), branch network (14.53), market share (14.46) industry premium growth (13.75), rural insurance and special insurance schemes (12.49), and product portfolio (12.39). The highest percent change in disclosure score for item branch network (293.91) is in case of private sector companies. Two items rural insurance, special sector insurance and special schemes and industry premium growth are showing 250.14 percent change in disclosure score over the period of study. Other items having higher percentage change in disclosure scores are market share (206.37), business overview (162.51) and market scenario in the industry (162.60). 5.2.4 General/ Other Information There are sixteen items included under the head general information. It is clear from table 5.3 that LIC, the sole operator in the public life insurance sector is including names of board of directors, bi-lingual presentation, disclosure through charts, graphs and diagrams, 90

acknowledgements, plans for future, information technology, official language implementation and corporate communication in their annual reports for all the years of study. On the other hand there is no disclosure at all for five items i.e. chairman report, message from the CEO, notice of AGM, glossary and citizen charter. There is 75.00 percent disclosure score for item awards and recognition in public sector company. Company s vision/mission is having only 50 percent disclosure in the annual report of LIC. In case of private life insurance companies, the highest mean disclosure is 93.75 percent for item names of board of directors (Table 5.4). Five items i.e. notice of AGM, bi-lingual presentation, citizen charter, associate companies and office language implementation are not disclosed in the annual reports of private life insurance companies for any of the years. Remaining items are having very less disclosure. Standard deviation results show that there is greater variation in the disclosure values of five items called plans for future(18.74), information technology (17.80), corporate communication (13.53), names of board of directors (13.25) and acknowledgements (11.82) in case of private sector companies. There is consistency in disclosure for remaining items. The highest percentage change is for item; plans for future (293.91) followed by corporate communication (250.14) in private sector companies. There is negative change of 56.23 in the disclosure score of one item i.e. chairman report indicating that in recent years some companies are not disclosing this item in their annual reports. 5.3 Company-Wise Disclosure To analyze the disclosure practices of life insurance companies on an individual basis, company-wise disclosure scores are calculated. Company wise mandatory and voluntary disclosure score has been calculated by dividing the actual score of an individual company for a particular year by the total disclosure score of that year. There are 17 companies in life insurance sector, out of which only one company is in public sector and 16 companies are private sector companies (Annexure 1). 5.3.1 Mandatory Disclosure The mandatory disclosure results of life insurance companies operating in the public and private sector (Table 5.5 and figure 5.1) show that there is the highest mean disclosure (84.37) in case of public sector company i.e. LIC. Among private sector companies the highest disclosure is 91

found (79.26) in case of Future Generali India Life Insurance Co. Ltd, which is a new entrant in the private life sector. Max New York Life Insurance Co. Ltd, which has got the lowest disclosure score, is disclosing only 24 percent items relating to mandatory disclosure in their annual reports. Other companies having higher disclosure scores are Reliance Life Insurance Co. Ltd (74.22), Shriram Life Insurance Co. Ltd (70.67), Sahara India Insurance Co. Ltd (70.37), Bajaj Allianz Life Insurance Co. Ltd (65.34), ICICI Prudential life insurance co. Ltd (65.00), Bharti AXA Life Insurance Co. Ltd (64.44) and HDFC Standard Life Insurance Co. Ltd (63.61).Two companies which were originally private limited companies but changed their status to public limited companies in recent years are having very good disclosure scores i.e. ING Vysaya Life Insurance Co. Ltd(63.89) and Aviva Life Insurance Co. India Ltd(71.55). Results of standard deviation show that maximum variation is found in the disclosure values of Kotak Mahindra Old Mutual Life Insurance Co. Ltd. (21.92) and the minimum variation is found in Birla Sun Life Insurance Co Ltd (2.06). Other companies having larger standard deviation values are Bajaj Allianz Life Insurance Co. Ltd. (21.64) and Shriram Life Insurance Co. Ltd. (15.43).Disclosure values of life insurance company in the public sector is comparatively consistent as the value of standard deviation is only 2.95 in case of Life insurance Corporation of India. Data given in Table 5.5 further highlights that there is a good improvement in the disclosure scores of Kotak Mahindra Old Mutual Life Insurance Co. Ltd (244.45) followed by Bajaj Allianz life Insurance Co. Ltd (183.31) and SBI Life Insurance Co. Ltd. (111.1). 5.3.2 Voluntary Disclosure Company wise voluntary disclosure of life insurance companies (public and private) is given in table 5.6.and figure 5.1. LIC has the highest mean disclosure (67.45) in all the public and private sector insurance companies. All the private sector life insurance companies have less than 50 percent disclosure with Sahara India Insurance Co Ltd. having the highest disclosure of 45.53 percent items. Future Generali India Life Insurance Co. Ltd. which started its operations in the year 2007-08, is disclosing 40.72 percent items in their annual reports and is on the second rank. SBI Life Insurance Co. Ltd. has the least disclosure (11.88). Company wise standard deviation results show that there is greater variation (18.80) in the disclosure values of Shriram Life Insurance Co. Ltd. Other companies having larger standard 92

deviation values are Sahara India Insurance Co. Ltd. (13.46), HDFC Standard Life Insurance Co. Ltd. (13.25), and Bajaj Allianz Life Insurance Co. ltd. (11.66). The lowest variation is found in the disclosure values of Birla Sun Life Insurance Co. Ltd. (1.28) To know the improvement in disclosure of different companies, the percent change in disclosure score in the year 2009-10 over the entry year of the company is calculated (Table 5.5). This shows that maximum change in the disclosure score is in Shriram Life Insurance Co. Ltd. (1197.65).Other companies having more than 100 percent change in disclosure score are, HDFC Standard Life Insurance Co. (250.18), Max New York Life Insurance Co. Ltd. (116.60), Kotak Mahindra Old Mutual Life Insurance Co. Ltd. (216.70),ING Vysaya Life Insurance Co. Ltd.(166.70), Bharti AXA Life Insurance Co. Ltd.(200.12) and SBI Life Insurance Co. Ltd.(398.82). The lowest change in disclosure score is found in case of Birla Sun Life Insurance Co. Ltd. (8.71). Overall company wise voluntary disclosure results depict that LIC is having better disclosure score, but there is greater improvement in the disclosure scores of private sector companies. Company wise results of life insurance sector show that in case of both mandatory and voluntary disclosure, there is better disclosure in LIC as compared to private sector companies. Greater variation is found in the disclosure scores of private sector companies. There is more improvement in the disclosure practices of private sector companies than LIC. 5.4 Area Wise Disclosure To facilitate the better interpretation of data, area wise disclosure has been calculated. Total items have been divided into 8 important areas including statutory disclosure as per IRDA, directors report, balance sheet abstract, disclosure as per accounting standards, accounting and finance, human resource and marketing, business specific information and general information. First 4 areas are related to mandatory disclosure and other 4 areas to voluntary disclosure items. 5.4.1 Public Life Insurance Company There is only one company, LIC in the public sector. Table 5.7 and figure 5.2 reflects that the area statutory disclosure as per IRDA which includes mandatory items have got the highest mean disclosure (84.4). Two areas which include voluntary items i.e. human resource and 93

marketing (76.8) and business specific information (70.3) have got more than 70 percent mean disclosure. Standard deviation results shows that there is greater variation in the disclosure scores of business specific information as the highest standard deviation (10.4) whereas minimum variation is there in the disclosure values of accounting and finance (2.4). Disclosure scores of other areas are comparatively consistent. The highest percentage change in disclosure score is for area business specific information (50.00).Whereas the lowest percent change is observed in statutory disclosure as per IRDA (10.00) as there is good disclosure for this area in the initial year. 5.4.2 Private Life Insurance Companies A glance at the Table 5.8 and Figure 5.2 reflects that the highest mean disclosure score (73.14) is for area statutory disclosure as per IRDA, witnessing that it is mandatory in nature and majority of the companies are disclosing information required under this area. Least mean disclosure (12.26) is found in case of general/other information, due to voluntary nature of items included under this head. Disclosure as per accounting standards is disclosed by 57.92 percent companies in their annual reports. There is less than 25 percent mean disclosure in case of five areas i.e. human resource and marketing(19.09), business specific information (18.46), directors report (21.77), general information (12.26) and balance sheet abstract (23.27). One area accounting and finance is disclosed by 41.93 percent companies in their annual reports. 94

Table 5.5 Company-Wise Mandatory Disclosure (%) of Life Insurance Companies S No. Name of Company 2002-03 Public Sector 2003-04 2004-05 11 Met Life India Insurance Co. Pvt. Ltd. - - - 46.67 46.67 46.67 51.11 51.11 48.45 2.43 9.51 12 Reliance Life Insurance Co. Ltd. - - - 66.67 66.67 71.11 82.22 84.44 74.22 8.55 26.65 13 **Aviva Life Insurance Co. India Ltd - - - 68.89 68.89 73.33 73.33 73.33 71.55 2.43 6.45 14 Sahara India Insurance Co. Ltd. - - 66.67 64.44 66.67 73.33 73.33 77.78 70.37 5.20 16.66 15 Shriram Life Insurance Co. Ltd. - - - 44.44 71.11 75.56 77.78 84.44 70.67 15.43 90.01 16 Bharti AXA Life Insurance Co. Ltd. - - - - 51.11 64.44 68.89 73.33 64.44 9.60 65.21 17 Future Generali India Life Insurance Co. Ltd. - - - - - 75.56 80.00 82.22 79.26 3.39 8.81 *Originally a Pvt Ltd.Co became a Public Ltd. Co. in 2005) **(changed its incorporation status in Nov.2007) Annual Reports of Bajaj Allianz life insurance co. ltd., Max New York Life Insurance Co. Ltd., Met Life India Insurance Co. Pvt. Ltd., Reliance Life Insurance Co. Ltd. and Aviva Life Insurance Co. India Ltd. for the year 2002-03 -2004-05 were not made available. 2005-06 2006-07 2007-08 2008-09 2009-10 Mean SD % change 1 Life Insurance Corporation of India 83.33 83.33 83.33 83.33 83.33 83.33 83.33 91.67 84.37 2.95 10.00 Private Sector 2 HDFC Standard Life Insurance Co. Ltd. 51.11 51.11 60.00 62.22 62.22 71.11 75.56 75.56 63.61 9.79 47.84 3 Max New York Life Insurance Co. Ltd. - - - 22.22 24.44 24.44 24.44 24.44 24.00 0.99 9.99 4 ICICI Prudential Life Insurance Co. Ltd. 57.78 57.78 62.22 64.44 66.67 68.89 71.11 71.11 65.00 5.41 23.07 5 Kotak Mahindra Old Mutual Life Insurance Co. Ltd. 20.00 28.89 28.89 28.89 64.44 66.67 68.89 68.89 46.95 21.92 244.45 6 Birla Sun Life Insurance Co. Ltd. 46.67 46.67 46.67 48.89 48.89 51.11 51.11 51.11 48.89 2.06 9.51 7 Tata AIG Life Insurance Co. Ltd. 31.11 33.33 40.00 42.22 46.67 46.67 53.33 55.56 43.61 8.73 78.59 8 SBI Life Insurance Co. Ltd. 20.00 26.67 31.11 35.56 37.78 37.78 42.22 42.22 34.17 7.78 111.10 9 *ING Vysaya Life Insurance Co. Ltd 53.33 60.00 60.00 64.44 64.44 77.78 64.44 66.67 63.89 7.00 25.01 10 Bajaj Allianz Life Insurance Co. Ltd. - - - 26.67 73.33 75.56 75.56 75.56 65.34 21.64 183.31 95

Table 5.6 Company-Wise Voluntary Disclosure (%) of Life Insurance Companies S No. Name of Company 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 Mean SD % change Public Sector 1 Life Insurance Corporation of India 59.39 66.17 62.78 66.17 69.57 69.57 69.57 76.36 67.45 5.11 28.57 Private Sector 2 HDFC Standard Life Insurance Co. Ltd. 16.96 22.05 27.14 28.84 28.84 33.94 42.42 59.39 32.45 13.25 250.18 3 Max New York Life Insurance Co. Ltd. - - - 10.18 15.28 15.28 18.66 22.05 16.29 4.42 116.60 4 ICICI Prudential Life Insurance Co. Ltd. 22.05 22.05 27.14 33.94 32.24 33.94 35.64 35.64 30.33 5.77 61.63 5 Kotak Mahindra Old Mutual Life Insurance Co. Ltd. 10.18 10.18 10.18 10.18 27.14 28.84 32.24 32.24 20.15 10.79 216.70 6 Birla Sun Life Insurance Co. Ltd. 39.02 39.02 39.02 39.02 39.02 40.72 40.72 42.42 39.87 1.28 8.71 7 Tata AIG Life Insurance Co. Ltd. 8.48 11.88 13.58 13.58 13.58 13.58 16.96 16.96 13.57 2.72 100.00 8 SBI Life Insurance Co. Ltd. 3.40 6.79 10.18 11.88 13.58 15.28 16.96 16.96 11.88 4.88 398.82 9 *ING Vysaya Life Insurance Co. Ltd 10.18 15.28 16.96 18.66 20.36 28.84 25.45 27.15 20.36 6.41 166.70 10 Bajaj Allianz Life Insurance Co. Ltd. - - - 8.48 30.54 32.24 32.24 39.02 28.50 11.66 360.14 11 Met Life India Insurance Co. Pvt. Ltd. - - - 11.88 13.58 15.28 20.36 20.36 16.29 3.91 71.38 12 Reliance Life Insurance Co. Ltd. - - - 25.45 27.14 33.94 42.42 42.42 34.27 8.08 66.68 13 **Aviva Life Insurance Co. India Ltd - - - 23.75 28.84 30.54 40.72 40.72 32.91 7.55 71.45 14 Sahara India Insurance Co. Ltd. - - 33.94 33.94 35.64 45.82 61.08 62.78 45.53 13.46 84.97 15 Shriram Life Insurance Co. Ltd. - - - 3.40 6.79 20.36 40.72 44.12 23.08 18.80 1197.65 16 Bharti AXA Life Insurance Co. Ltd. - - - - 8.48 10.18 25.45 25.45 17.39 9.34 200.12 17 Future Generali India Life Insurance Co. Ltd. - - - - - 30.54 40.72 50.90 40.72 10.18 66.67 *Originally a Pvt Ltd.Co became a Public Ltd. Co. in 2005) **(changed its incorporation status in Nov.2007) Annual Reports of Bajaj Allianz life insurance co. ltd., Max New York Life Insurance Co. Ltd., Met Life India Insurance Co. Pvt. Ltd., Reliance Life Insurance Co. Ltd. and Aviva Life Insurance Co. India Ltd. for the year 2002-03 -2004-05 were not made available 96

97

Table 5.7 Area-Wise Disclosure (%) of Public Sector Life Insurance Company (LIC) S. No. Area 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 Mean SD % change t- value F-value 1 Statutory disclosure as per IRDA 83.3 83.3 83.3 83.3 83.3 83.3 83.3 91.7 84.4 3.0 10.0 3.15* 8.92** 2 Accounting and finance 40.0 46.7 46.7 46.7 46.7 46.7 46.7 46.7 45.8 2.4 16.7 1.23 11.11** 3 Human resource and marketing 64.3 78.6 78.6 78.6 78.6 78.6 78.6 78.6 76.8 5.1 22.2 22.08* 1.19 4 Business specific information 62.5 62.5 62.5 68.8 68.8 68.8 75.0 93.8 70.3 10.4 50.0 10.01* 1.36 5 General/other information 48.1 48.1 42.8 48.1 58.8 58.8 58.8 58.8 52.8 6.7 22.2 13.13* 2.05 * indicates that these values are significant at 5% level of significance and 14 degrees of freedom having table value of t =2.15 ** indicates that these values are significant at 5% level of significance and 7,7 degree of freedom having tabulated value of F=3.79 98

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Table 5.8 Area-Wise Disclosure (%) of Private Life Insurance Companies S.N o. Area 2002-03 1 Statutory disclosure as per IRDA 59.5 2 2003-04 63.6 9 2004-05 69.7 9 2 Director s report 12.8 6 12.8 6 21.2 5 3 Balance sheet 5.71 5.71 12.5 abstract 0 4 Disclosure as per 35.7 45.2 45.8 accounting 1 4 3 standards 5 Accounting and finance 6 Human resource and marketing 7 Business specific information 8 General/other information 29.5 2 36.1 9 40.0 0 13.2 15.3 19.6 7 1 4 10.7 11.6 14.0 1 1 6 7.63 8.40 10.0 3 2005-06 68.7 5 16.4 3 22.8 5 46.4 3 2006-07 77.5 0 22.0 0 30.6 7 58.8 9 39.5 38.5 2 7 16.3 17.6 3 2 10.7 15.8 1 3 9.55 11.0 4 2007-08 80.2 1 27.5 0 38.7 5 68.7 5 47.5 0 19.2 0 21.4 8 12.7 0 2008-09 82.2 9 29.3 8 35.0 0 81.2 5 50.8 3 23.6 6 29.6 9 18.3 8 2009-10 83.3 3 31.8 8 35.0 0 81.2 5 53.3 3 27.6 8 33.5 9 20.3 7 Mea n SD % change 73.14 8.96 40.00 21.77 7.37 147.90 23.27 13.6 4 57.92 17.4 8 512.96 127.53 41.93 8.00 80.66 19.09 4.67 108.59 18.46 8.92 213.63 12.26 4.67 166.95 100

The highest variation is found in the disclosure scores of area disclosure as per accounting standards having standard deviation of 17.48 and least standard deviation,4.67 is for general/other information. The highest percentage change is in the disclosure score of balance sheet abstract (512.96).The lowest percentage change over the year is for statutory disclosure as per IRDA (40.00) as most of the companies are disclosing this information from initial years of study. Overall area-wise results reveal that the disclosure score is higher for areas including mandatory items than areas including voluntary items. These results are consistent with the results of earlier research studies i.e. Bhatter (1995), Ubha (1998), Singh (2005) and Riaz et al (2006). 5.5 Comparative Analysis of Financial Reporting Practices - Public and Private Sector 5.5.1 Comparative Analysis of Mandatory Disclosure In order to compare the item-wise results of mandatory disclosure of public and private sector companies, t-values and F-values have been shown in Table 5.1. A bird s eye-view of the table depicts that there is a significant difference in the mean disclosure scores of 17 items out of total 24 items of mandatory disclosure. So, null hypothesis Ho 1 is rejected for 17 items as significant difference is found in the mean disclosure scores of public and private sector life insurance companies for these items. These items are significant accounting policies, notes to accounts, receipts and payments account, auditors report, management report, contingent liabilities, claim settlement and age-wise analysis, summary of financial statements of last five years, sector-wise details of policies issued, employee benefit plans, allocation of income and expenditure, managerial remuneration, basis of allocation of investment, certificate as per schedule C, commitment in respect of loans and investments, encumbrances on assets, shareholders and policyholders funds. Public sector company, LIC is having better disclosure scores for all the above items except two items i.e. management report, and certificate as per schedule C, in which private sector companies are having better mean disclosure scores. As there is insignificant difference in the mean disclosure scores of public and private sector life insurance companies for 3 items i.e. accounting and performance ratios, premium deficiency and performance of social sector schemes for last five years, null hypothesis Ho 1 has been accepted for these items. The t -test is not applicable on remaining 4 items i.e. balance sheet, revenue account, profit and loss

account and schedules forming part of financial statements. Null hypothesis Ho 2 - There is no significant difference in the variation of items of disclosure in the public and private sector life insurance companies is rejected for two items i.e. management report and performance of social sector schemes for last five years. Significant difference is found for these two items in the variation of items of disclosure in the public and private sector life insurance companies. F-test is not applicable on other items under this head as the value of standard deviation is 0 for both the sectors. 5.5.2 Comparative Analysis of Voluntary Disclosure In order to compare the item-wise results of voluntary disclosure t-value and F- values have been shown in Table 5.4. A glance at the table depicts that null hypothesis Ho 1 - There is no significant difference in the mean disclosure score of an item in the public and private sector life insurance companies is rejected for 44 items out of total 58 items of the voluntary disclosure index. The same null hypothesis has been accepted for only 7 items. The null hypothesis Ho 2 There is no significant difference in the variation of items of disclosure in the public and private sector life insurance companies is rejected for 8 items and F-test is not applicable on 50 items. A detailed analysis of the data given in Table 5.4 reveals that there is significant difference in the mean disclosure scores of all the 12 items under the head information on accounting and finance. Mean disclosure score is better for public sector insurance companies in case of seven items i.e. financial highlights, underwriting results, net incurred claims, class wise performance, foreign currency transactions, taxation provision and provision for claims incurred but not reported. Items having better mean disclosure score in private sector life insurance companies are gross domestic premium, solvency margins, certain expenses of management, employee stock option scheme and financial consultants. The results of F-test show that null hypothesis Ho 2 is rejected for only one item i.e. provision for claims incurred but not reported, as the calculated value of F is more than the tabulated value of F for this item. F-test is not applicable on other items. 102

Information on human resource and marketing includes fourteen items. There is significant difference in the mean disclosure scores of 10 items. So the null hypothesis Ho 1 - There is no significant difference in the mean disclosure score of an item in the public and private sector life insurance companies is rejected for these 10 items. Out of these 10 items, LIC is better in disclosing for 9 items and private sector life insurance companies for only one item. Items having better disclosure in LIC are staff welfare schemes, training of employees, sports activities, customer service, distribution offices, corporate agents, grievance redressal, publicity activities and retirement benefits of employees. On the other hand an item rider is having better disclosure in private sector companies. Insignificant difference is found for one item i.e. techno marketing, so the null hypothesis has been accepted for this item. Null hypothesis Ho 2 - There is no significant difference in the variation of items of disclosure in the public and private sector life insurance companies is rejected for only one item called staff welfare schemes and this is not applicable on remaining thirteen items under this head. There are sixteen items under the head business specific information. Null hypothesis Ho 1 - There is no significant difference in the mean disclosure score of an item in the public and private sector life insurance companies is rejected for 12 items as the calculated value of t is more than the tabulated value of t for the said items. These items are business overview, product portfolio, branch network, rural insurance, special sector insurance and special schemes, vigilance activities, market scenario in the industry, market share, industry premium growth, contribution to retail business, foreign operation and internal audit. Out of these 12 items the mean disclosure score is better in private sector companies only for one item i.e. reinsurance. There is better disclosure in public sector companies for the other 11 items. The same null hypothesis is accepted for 4 items as there is no significant difference in the mean disclosure scores of these four items i.e. industrial relations, organization structure, micro and small scale business entities and name of statutory auditors of the company. Null hypothesis Ho 2 There is no significant difference in variation of items of disclosure in the public and private sector life insurance companies is rejected for 4 items out of total 16 items under the head business specific information. F-test is not applicable on remaining 12 items. Out of 16 items covered under the head general information, there is significant difference in the mean disclosure scores of public and private sector life insurance companies in 10 items. The items for which null Ho 2 has been rejected are chairman report, names of board of directors, message from the CEO, awards and recognition, 103

disclosure through charts, graphs and diagrams, acknowledgements, plans for future, associate companies, information technology and corporate communication. Out of these 10 items there is better disclosure in case of private sector companies for two items i.e. chairman report and message from the CEO, but for remaining 8 items public sector companies are having better disclosure. Two items i.e. company s vision and glossary are having insignificant difference in the mean disclosure scores of public and private sector insurance companies, so the null hypothesis Ho 1 is accepted for these two items. The t -test is not applicable on 4 items. As the calculated value of F is more than the tabulated value of F for two items, null hypothesis Ho 2 is rejected for these two items i.e. company s vision and awards and recognition. F-test is not applicable on remaining items. 5.5.3 Comparative Analysis of Area Wise Disclosure Table 5.7 highlights the area-wise comparative disclosure practices of public and private sector life insurance companies. To compare the results following two null hypotheses have been formulated: Ho 1 -There is no significant difference between area-wise mean disclosure scores of public and private sector life insurance companies. Ho 2 -There is no significant difference in the variation of disclosure of different areas of public and private sector life insurance companies. Student s t test and F-test has been used to test the hypothesis. A detailed analysis of the results reveals that the null hypothesis Ho 1 has been rejected for 4 areas, as significant difference is found in the mean disclosure scores of these areas. There is better disclosure in case of LIC for all the 4 areas i.e. human resource and marketing, business specific information, general information and statutory disclosure as per IRDA. Insignificant difference is found in the mean disclosure scores of one area i.e. accounting and finance, so the null Ho 1 has been accepted for this area. Further, it is clear from the table 5.7 that there is significant difference in the variation of items of disclosure of public and private sector life insurance companies for 2 items i.e. accounting and finance and statutory disclosure as per IRDA. So, the null hypothesis Ho 2 There is no significant difference in the variation of different areas of disclosure of public and private sector life insurance companies has been rejected for these two areas. But insignificant difference is found 104

in the variation of areas of disclosure of both the sectors for remaining three areas, so the null hypothesis Ho 2 has been accepted for three areas i.e. human resource and accounting, business specific information and general information. From the above discussion of corporate reporting practices of life insurance companies measured in terms of item-wise, company-wise and area-wise disclosure, following observations are made: 1. LIC is having better item-wise mandatory disclosure than private sector companies. There is more variation and higher percentage change over the period of time in the disclosure scores of private sector companies. 2. Company-wise mandatory disclosure is also higher in LIC. Among private sector companies Future Generali India Life Insurance Co. Ltd., a new entrant is on the top. Higher percent change in disclosure score over the year is in Kotak Mahindra Old Mutual Life Insurance Co. Ltd. 3. Voluntary disclosure is better in LIC than private sector companies. But items concerned with information on accounting and finance are having better disclosure by private sector companies. There is more variation in the disclosure scores of private sector companies. 4. Company-wise voluntary disclosure indicates that LIC is leading in all the companies. Among private sector Sahara India Insurance Co. Ltd. is on the top. All private life insurance companies are having less than 50 percent disclosure reflecting that new generation companies are reluctant to disclose voluntary information in their annual reports. 5. Area-wise results depict that in both public and private sector companies, statutory disclosure as per IRDA has the highest disclosure score. It shows that most of the companies are complying with mandatory disclosure requirements issued by IRDA in the year 2002. 6. Comparative results of public and private sector companies highlight that there is a significant difference in the mean disclosure scores of majority of the items and there is better disclosure by LIC. Insignificant difference is found in the variation of disclosure of majority of the items of public and private sector companies. 105

References Anonymous (2002). The Gazette of India Extraordinary, Part III, Section 4,Insurance Regulatory and development Authority, New Delhi, Notification 30 th March. Bhattar, M.M. (1995). Corporate Published Accounting Information and Investors, ISBN-81-900422-9-7, Books Treasure Jodhpur, India. p.6 Rao, C.S. (2004), The Role of Actuaries in the Indian Insurance Industry in Post- Liberalization Era. An address by chairman of IRDA, Hyderabad at 6 th Global Conference of Actuaries. Feb.18, 2004, New Delhi. Riaz, Uddin, Mausm, Iqbal and Syed, Maruf Reza (2006). Disclosure Practice: A Comparison of Commercial Banks and Insurance Companies in Bangladesh. The Cost and Management 34 (1). Singh, Kashmir (2005). Financial Reporting Practices of Banking Companies in India. A Ph. D. Thesis submitted to H.N.B. Garhwal University, Srinagar. Singh, Manjit (2009). Corporate Disclosure Practices in India-A Study of Large and Mid- Cap Companies. A Ph.D. Thesis submitted to the Faculty of Business Studies of the Punjabi University, Patiala Ubha, Dharminder Singh and Kaur Gagandeep (2005). Directors Report- an Index to Financial Reporting. Punjab Journal of Business Studies. 1 (1): 125-134. 106