Abstract
This study assesses the financial performance and solvency of the Life Insurance Corporation of India (LIC) using the CARAMEL model for the period 2015-16 to 2024-25. The study is descriptive and analytical, based on secondary data from LIC's annual reports, financial statements, and publications of the Insurance Regulatory and Development Authority of India (IRDAI). CARAMELS framework has eight dimensions: (i) Capital adequacy, (ii) Asset quality, (iii) Reinsurance, (iv) Actuarial and claims adequacy, (v) Management soundness, (vi) Earnings and profitability, (vii) Liquidity, and (viii) Sensitivity to market risk. Descriptive statistics, coefficient of variation, and correlation analysis are used to assess financial performance and its relationship with solvency. The analysis reveals substantial variation in the performance of six CARAMELS dimensions, and sample statistics show reasonable performance in asset quality and actuarial and claims adequacy. The correlation results also indicate positive correlations between LIC solvency position and capital adequacy, asset quality, actuarial and claims adequacy, management soundness, earnings and profitability, and liquidity. Reinsurance and market risk susceptibility show no significant relationship with solvency. The results suggest that capital strength, profitability, liquidity management, and risk management are important in ensuring financial stability. The study demonstrates the importance of the CARAMEL framework in assessing financial strength, estimating risk exposure, and appraising LIC's long-term financial sustainability. The study has useful implications for insurance regulators, policymakers, and LIC management in reinforcing financial soundness and serving policyholders' interests.
Caramel Model
References
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Author information
A. Juliet Jeyakumar
G. Vijayakumar