Persistency Ratio in Life Insurance
How much of the business sold is still paying premium a year, three years and five years on.
The persistency ratio shows how much of a life insurer's business is still paying premium a set time after it was sold. A 13th month persistency of 75% means that, of the policies (or premium) written in a year, 75% was still in force when the second year's premium fell due.
IRDAI asks life insurers to report it at five points: the 13th, 25th, 37th, 49th and 61st months. Each point is worked out two ways, by premium and by number of policies.
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The Five Measurement Points
Each month marks the first premium of a new policy year.
| Month | What it checks |
|---|---|
| 13th month | Still in force at the start of year 2 |
| 25th month | Start of year 3 |
| 37th month | Start of year 4 |
| 49th month | Start of year 5 |
| 61st month | Start of year 6 |
How IRDAI Wants It Reported
From the analytical ratios for life insurers in IRDAI's Master Circular on Actuarial, Finance and Investment Functions of Insurers (17 May 2024):
- check_circlePremium basis: the share of premium from the cohort that is still in force.
- check_circleNumber of policies basis: the share of policies from the cohort still in force.
- check_circleBoth are shown separately for regular or limited premium payment business and for single premium or fully paid-up business, in the individual category.
- check_circleA separate annual Persistency Report (Annexure ACTL-LI-5) goes to IRDAI by 30 June every year. The master circular takes over the January 2014 circular (IRDA/ACT/CIR/MISC/035/01/2014) on persistency and renewal rates.
How the Cohort Is Picked: One Insurer's Note
Bharti AXA Life's public disclosure (form L-22, year ending 31 March 2021) explains its calculation under the 2014 circular. This is one insurer's practice, shown as an example.
- 1
Fix the cohort
For 13th month persistency for the year ending 31 March 2021, take policies issued from 1 April 2019 to 31 March 2020.
- 2
Measure a month later
The ratio was calculated on 30 April 2021.
- 3
Exclude what does not renew
In that disclosure, single premium and group one-year renewable products were left out.
- 4
Read the flip side
The same form defines the 13th month lapse ratio as 1 − persistency ratio. A 62.5% persistency means a 37.5% lapse ratio.
Reading the Numbers
Persistency falls as the month rises, because each year some more policyholders stop paying. In LIC's figures, about three quarters of first-year premium was still in force at the 13th month, and under 60% at the 61st month in FY2025-26.
The two bases can tell different stories. In both of LIC's years the number-of-policies figure is 10 to 13 percentage points below the premium figure, which means smaller policies lapse more often than larger ones. That is why IRDAI asks for both.
Textbook Definitions Differ
IC-26 study sources do not all define persistency the same way. Know who says what.
- IIFL
- Policies in force ÷ all policies issued in a fixed period, by count or by premium.
- Crisil (key ratios)
- Policyholders paying premium ÷ total active policyholders in the same period.
- Crisil (business risk section)
- Policies renewed this year as a percentage of policies outstanding in prior years.
- Value Research
- Often quoted for the 13th, 37th and 61st months.
Persistency vs Conservation Ratio
The conservation ratio, as Crisil defines it, is renewal premium collected this year as a percentage of total premium collected last year. It looks at the whole book in one year, not one cohort over time. IRDAI's analytical ratios list it segment-wise for linked and non-linked business.
Why It Matters
- check_circleTrust: Crisil reads a higher persistency ratio as a sign of policyholder trust in the insurer.
- check_circleLiquidity: Crisil notes that surrenders, lapses and cancellations can weaken a life insurer's liquidity.
- check_circleValue: a life policy earns its profit over many years, so lapses cut the future profit behind value of new business and embedded value. The CFO Forum's 2005 sensitivity guidance for embedded value includes a 10% fall in lapse rates.
Exam Traps
The months are 13, 25, 37, 49 and 61, not 12, 24 or 36. Premium basis and number-of-policies basis are different numbers; don't mix them in one comparison. Lapse ratio = 1 − persistency ratio. Persistency is not claims over premium. The conservation ratio compares renewal premium with last year's total premium; it is not a persistency measure for one cohort.
FAQs
What is 13th month persistency?expand_more
The share of policies (or premium) sold in a year that is still in force when the second year's premium falls due. It is the first of IRDAI's five measurement points.
How is persistency ratio calculated?expand_more
Take a cohort of policies issued in a period and divide what is still in force at the measurement month by what was issued, by premium or by number of policies. IRDAI wants both bases, at the 13th, 25th, 37th, 49th and 61st months.
What is a good persistency ratio?expand_more
None of the sources here sets one. Compare an insurer with its own trend and its peers, on the same basis and the same month. LIC reported 74.64% at the 13th month on premium basis for FY2025-26.
Why is persistency on number of policies lower than on premium?expand_more
When smaller policies lapse more often than larger ones, fewer policies survive than premium does. LIC's FY2025-26 figures show 64.87% by number against 74.64% by premium at the 13th month.
Where can I find an insurer's persistency ratio?expand_more
In its public disclosures and results releases. Bharti AXA Life, for example, shows it in its L-22 analytical ratios form, and LIC states it in its results press releases.
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