Federal Insurance Company Ltd

Origin of the report:

This report has been prepared as the course requirement of the BBA program of Dhaka City College under the National University. Mr. Shahinur Sobhan, the course teacher of Insurance & Risk Management., assigned us to prepare this report on Federal Insurance Company for making our better understanding about the insurance business. We tried our level best to undertake the field study very consciously and definitely enjoyed our work. It has helped us to understand the theoretical part more easily and in our future career. We believe, this field study will contribute a lot .This report is submitted to our honorable principal of our college, Professor Md. Shahjahan Khan to justify our findings and rich us with his valuable comments and advice.

Objectives of the report

1. The main objective is to know the overall process of an insurance Company.
2. To add value to life.
3. To gather the practical experience about the activities of an insurance Company.
4. By this study we can analyze the original current situation of insurance Companies’ in Bangladesh.
5. To know the revenue growth, earnings &cash generation of the insurance Company.
6. To outperform the peers in terms of longevity.
7. A presentation is requires to do in front of students and faculty members.
8. It will be helpful for our later study.
9. It will be helpful for us later in working field.

Scope of the report

This report is the part of the insurance sector that we are studying in our B.B.A course. The objective of the report is to give the practical view about the insurance practices of Bangladesh that provides facility to the ends of individual to transform our modern social order.

Methodology of the report

The nature of the study is descriptive and analytical. So, it required direct interview and large amount of information. Such as company overview, insurance policies & conditions, risk issues, performance & company analysis etc. For that the following criteria have been followed these-

• Visit to a specific insurance company.
• Take interview with higher officials of the Organization.
• Prepared questioner provided to them and the collects primary data.
• The secondary data was collected from the internet, and sample of document that is related to the garments accessories.

Limitation of the report

In case of collecting the data, we faced a lot of problems. The limitations of the study that we faced in case of preparing the report are as follows.

       Difficult to collect the information

       Shortage of time-collected information was complex and unsorted.

       Up to date information were not available.

       Every organization has their own secrecy that is not rivaled to others.

       Finally first experience may also act constants in the way of meticulous exploration on the report.

       Despite these limitations, we have tried our best to prepare the report. If you find any   mistakes please consider it cordially.

Company over View

Company Profile

Federal Insurance Company Limited is a name in the field of Insurance Industry in Bangladesh representing a perfect combination of expert knowledge and diverse experience. The board of directors of the company consists of leading industrialists, exporters, importers and businessmen of the country who play a major role in the sphere of trade, commerce and industry including insurance business. The  company was registered on the 11th November, 1987 and obtained Insurance Registration Certificate on the 17th November and was formally inaugurated on the 20th December, 1987 for underwriting Marine, Fire, Motor, Personal Accident, Aviation and miscellaneous Insurances.

The vast experience of the members of the Board of Directors of the Company, their financial standing, personal image and social status coupled with technically qualified, highly experienced and a dedicated management team has made this Company one of the leading private general insurance organizations in this country within a very short period.

Historical Background

The company was incorporated on 11 November, 1987 under the Companies Act, 1913 with the object of carrying in & outside Bangladesh all kind of insurance business other than life insurance & obtained the Certificate of Commencement of business from the Register of Joint Stock Companies, Bangladesh with effect from the same date. However, the Certificate of Commencement of insurance business from the Controller of insurance, Government of Bangladesh was obtained with effect from 17^th November, 1987. In 1995 the Company issued public portion of shares & was listed with Dhaka Stock Exchange from 26^th June, 1995. The Company was also listed with Chittagong Stock Exchange From 20^th November, 1995.

Mission

The mission of Federal Insurance Company Ltd. is to earn profit by giving best customer service.

 Vision

To become most caring insurance company with dedication, dynamic, innovation & client’s need based on comprehensive service.

 Goal

Their Goal is to expand the business across the country & become one of the market leaders.

 Objectives

The objectives of the Federal Insurance Company Ltd. are given below:

 To render best customer service.

 To earn premium achieved by making customer satisfaction.

 To play a major role for the development of insurance industry.

 To make the payment of claim quickly.

 To expand company’s branch.

 To increase volume & company’s share.

 Always alive to the needs of the customer & to fulfill their needs with satisfaction.

Board of Directors

Chairman

Alhaj Nurul Alam

Chairman, Executive Committee

Mr. Enamul Hoq

Vice Chairman

Alhaj Jashim Uddin

Chairman, Audit Committee

Directors

Mr. Jainul Abedin Jamal
Sunanda Majumder
Mr. Mohiuddin Chowdhury
Alhaj Rafiqul Anwar, Ex-MP
Alhaj Sabirul Hoque
Mr. Md. Zakaria Khan
Mr. Anisul Hoque
Mr. Fakhrul Anwar
Ms. Hasina Begum
Ms. Mamtaz Begum
Mr. Nasiruddin
Ms. Rokshana Yesmin
Mr. Zahedul Hoque

Independent Directors

Mr. A S Jahir Muhammad
National prof. Dr. M R Khan
Mr. Md. Rafiqul Islam

Managing Directors

Mr. A K M Sarwardy Chowdhury
Company Secretary

Mr. Abdul Haque FCA

Management Team

Managing Director, CEO :

A K M Chowdhury Sarwardy

Deputy Managing Director :

Mr. Abdul Haque FCA

Mr. Jamal Hossain Bhuiyan

Mr. Md. Sadaruddin

Mr. Md. Nurul Islam

Mr. Mahabubul Alam

Mr. Mujibul Wadud Chowdhury

Ms. Faridun Nahar

Senior Executive Vice President :

Mr. Mukbul Ahmed

Mr. A K M Shahabuddin Chowdhury

Mr. Shamsuddin Ahmed

Mr. Simul Kanti Barua

Mr. Abdul Moqueet Chowdhury

Mr. Iqbal Hossain

Ms. Nasima Khanom Dana

Executive Vice President :

Mr. Taslim Bahar Chowdhury

Mr. Moslem Ali Khan

Mr. Md. Rafiqul Islam

Mr. Kazi Shakawat Hossain

Mr. Iftekhar Hossain Chowdhury

Mr. Md. Morshed

Alhaj Md. Rafiqul Islam

Mr. Md Hanif

Mr. Sazeed Hossain

Senior Vice President :

Mr. Md. Fakhrul Islam Bhuiyan

Mr. Syed Anisul Islam

Mr. Mujibul Hasan

Mr. Md. Shoriful Islam

Mr. Dewan Abu Saleh Moinuddin

Mr. Ms. Ayesha Begum

Vice President:

Mr. Md. Aman Ullah

Mr. Abu Bakar Siddique

Mr. Abul Kalam Azad

Mr. Reazul Haque Khandaker

Mr. S M Md. Azimuddoula Khan

Branch Name & Address

Performance & Growth of the Company:

Capital Structure:

Capital & Expenditure

Capital

Authorized capital: Tk. 60,00,00,000/=

Issued, subscribed & paid up capital: Tk. 11,21,97,400/=

Expenditure                                                                   2010                2009

Expenses of management                                           2,36,47,838     1,95,39,200

Director’s fees                                                             6,30,000          3,98,000

Audit fees                                                                   2,62,900          1,35,000

Legal expenses                                                            7,09.568          6,98.074

Statutory fees for business license

& annual registration                                                   8,97,106          9,03,227

Subscription & other fees                                           14,49860         3,97,508

Total                                                                           27597272        22071009   
Challenges:

Although Federal Insurance Co. Ltd. Is one of the leading companies in Bangladesh. But it also has to face various challenges from much other general insurance company. The general insurance companies are introducing new policies & promotions to increase their popularity. So, nowadays insurance company is getting much popularity. Customers or clients are becoming interrelated to open policy because of the increase rate of uncertainty & risk. Federal Insurance Co. Ltd. is facing from –

1) Bangladesh General Insurance Co. Ltd.

2) Green Delta Insurance Co. Ltd.

3) Janata Nsurance Co. Ltd.

4) Purabi General Insurance Co. Ltd.

5) Phoenix Insurance Co. Ltd.

6) The City General Insurance Co. Ltd.

7) Eastern Insurance Co. Ltd.

8) Northern General insurance Co. Ltd.

9) Peoples Insurance Co. Ltd.

10) Pragati Insurance Ltd.

11) Karnaphuly Insurance Co. Ltd.

12) Megna General Insurance Co. Ltd.

13) Prime Insurance Co. Ltd.

14) Standard Insurance Co. Ltd.

15) Rupali Insurance Co. Ltd.

So, it means that Federal Insurance Co. Ltd. is facing by other insurance companies. They are also introdusing new policies to increase their popularity & acceptance to their clients or customers.

Future Plans

The future plans of the Federal Insurance Company Ltd. are given below:

 To set the non-traditional policy along with the traditional policy.

 To provide the policies to the mass people of the country.

 To exceed present target for better future profit.

 To become one of the market leader.

 To expand company’s business.

Insurance Policies & Conditions

Insurance Policies

There are different kinds of insurance policies that are maintained in Federal Insurance Company covering different perils. They are stated below:

1. Fire & allied perils: Fire, RSD, Malicious damage, Earthquake damage, Flood, Cyclone.

2. Marine Cargo: ICC’A, ICC’B’, ICC’C, War & SRCC & other additional perils like non delivery, theft, pilferage, breaker age, Rain water/Fresh water ,Lorry/Rail/Truck all risk, Air  risk, Air all risk clauses enclosed.

3. Marine Hull: Total loss only & Comprehensive.

4. Motor Accident: Third party/Act Liability & Comprehensive.

5.Miscalleneous Accident: Comprising of Burglary, Cash- in- Safe, Cash- in-Transit, Cash- on-Counter, Fidelity Guarantee, Personal Accident, Workman’s Compensation, Aviation, Travel, Overseas Medic aim, Health insurance, Product liability CAR,EAR,MBD,DOS,BPV etc.

So, these are above type’s insurance policies available for the insured in the company which ensures better safety &certainty.

Policy conditions

The Federal Insurance Company agrees subject to the terms & conditions contained herein or endorsed hereon that if after payment of the premium the property insured or any part of such property insured be destroyed or damaged by different perils. They are described below:

FIRE POLICY:

Electrical clause A

Liability for loss or damage to any electrical machine, apparatus, fixture or fitting (Including electric fans, electric household or domestic appliances, wireless sets & radios) or to any portion of the electrical installations, arising from or occasioned by over running, excessive pressure, short circuiting, arcing, self-heating or leakages of electricity from whatever cause(lightening included).

Electrical clause B

Loss or damage by fire to the electrical appliances & installations insured by item of this policy arising from occasioned by over running, excessive pressure, short circuiting, arcing, self-heating or leakages of electricity from whatever cause (lightening included).

1. If there be any material misdescription of any property insured for estimating the risk or any omission to state such fact, the company shall not be liable upon this policy.

2. No payment in respect of any premium shall be deemed to be payment to the company unless a printed form for the same signed by an official agent of the company shall have been given to the insured.

3. The insured shall give a notice to the company of any insurance already effected & the particulars of such insurance be stated in or endorsed or on behalf of the  company before the occurrence of any loss all benefits shall be forfeited.

4. The insurance does not cover loss by:

A: Theft during or after the occurrence of a fire.

B: Property occasioned its own fermentation, natural heating or spontaneous combustion.

C: Earthquake, Volcanic eruption or other convulsion by nature.

D: War, invasion, act of foreign enemy, hostelries etc.

5:If the property insured be collectively or greater value than the sum insured the insured shall be considered as being his own insurer for the difference & will bear a ratable proportion of the loss accordingly.

 Marine Cargo Policy:

1. Loss damage or expense attributable to willful misconduct of the assured.

2. Ordinary leakages, Ordinary loss in weight or volume or Ordinary wears & tear of the subject-matter insured.

3. Loss damage or expense caused by inherent vice or nature of the subject-matter insured.

4. Loss damage or expense caused by delay, delay caused by risk insured against.

5. Loss damage or expense arising from insolvency or financial default of the owner’s manager’s charterers pr operators of the vessel.

6. Loss damage or expense caused by insufficiency or unsuitability of packaging or preparation of the subject-matter insured.

Marine Hull Policy: Marine hull insurance covers loss of or damage to the subject-matter insured caused by:

a. Perils of the inland rivers lakes or other navigable water.

b. Fire, explosion.

c. Violent theft by persons from outside the vessel.

d. Jettison.

e. Piracy.

f. Breakdown of accident to nuclear installations or reactors.

g. Accident in loading discharging or shifting cargo or fuel.

Motor Insurance Policy:

a. Notice shall be given to the insurer immediately upon the occurrence of any accident or loss or damage & in the event of any claim & thereafter the insured shall give such information as the insurer shall require.

b. If at the time any claim arises under this policy there is other existing insurance covering the same loss the insurer shall not be liable to pay more than its ratable proportion of the loss.

C. The insurer shall take all reasonable steps to safeguard the motor vehicle from loss or damage & he shall have all time & full access to examine the motor vehicle, any part, and driver of the insured.

d. No admission after promise or payment shall be made by the insured without the written consent of the insurer.

e. The insurer may cancel the policy by sending Sven days notice by registered letter to the insured at his last & in such event will return the premium less the pro rata portion.

Flood Clause:

a. The overflowing or deviation.

b. Any flow or accumulation of water on the ground.

c. Loss or damage by flooding caused Earthquake.

Riot & Strike Endorsement:

a. Loss or damage by delay, loss of market.

b. Loss or damage by total or partial cessation of work.

e. Loss or damage occasioned by permanent or temporary dispossession.

f. Goods held in trust or commission.

g. Any curiosity or work of art for an amount exceeding taka 250/-.

h. securities, obligations or documents, stamp, coins or paper money cheques, books of account or other business books.

So, these are the conditions that are given as important clauses in various policies.

 Contents of Agreement

In Federal Insurance Company there are a lot of things that are included in an agreement of insurer & insured which are known as contents of agreement. It includes detail information of the insurance contract. They are described below:

Fire: Agreement of fire insurance include detail about the insured such as name, address, trade of profession, amount to be insured, detail about the asset insured such as situation, construction, occupation, lighting, heating, power & storage, amount of premium & other general information & at last the signature of the proposer & date.

 Marine Cargo: The contents of the marine cargo are name & address of the assured, detail about the vessel, sailing date, bill of lading, voyage or period of  insurance, subject matter insured, amount of premium ,agreed value(if any) amount insured hereunder, clauses, endorsements, special conditions, warranties & important notice at last the signature of the proposer & date.

c. Marine Hull: The contents of the marine hull are owners name & address, name & registered no of the vessel, general description of the vessel (construction, length, depth, draft etc),carrying capacity, gross tonnage, net tonnage, present general condition of the vessel, details of machinery (Horse power, age of engine, speed),purpose of vessel to be used, time of vessel surveyed, period of survey certificate, total premium & claim paid for all vessel’s, value to be insured, period of voyage, name &experience of the captain & signature of the proposer & date.

d. Motor insurance: The contents of the motor insurance are name, address, business of the proposer, particulars of the vehicle such as registration number, power capacity, year of manufacture, license, about previous insurance, detail about full insured value, total premium etc.

So these are the essential contents that are necessary to form a contract between the insurer & insured.

Elements of insurance contract

The elements of insurance contract include both the elements of general & special contract. They are described below:

Elements of general contract   

It includes all the elements that are required to form the entire contract which make the contract enforceable by a court of law. They are:

1. Two or more parties: To form a contract there must be the presence of two or more parties. A contract can’t be formed by single parties.

2. Offer & acceptance: There must be a lawful offer by insured & a lawful acceptance of the offer by the insurer.

3. Lawful consideration: The promise to pay a fixed sum at given contingency is the insurer who must have some return for his promise. It may be sums, right, interest, profit etc.

4. Competent to make contract: The parties to the contract must be competent to make a contract   it cannot be enforced by a court of law.

5. Free consent: In order to be enforceable a contract must be based on the free consent of all the parties otherwise it will be a void contract if it is given by coercion, undue influence, mistake, fraud, misrepresentation.

6. Legal object: The object for which the contract has been entered must be legal otherwise it will be illegal immoral or opposed to public policy.

 Elements of special contract 

It includes all the elements that are required to form an insurance contract specially. They are described below:

1. Insurable interest: The insurer should have a pecuniary or financial or monetary interest in the subject matter to be insured. For example one person may have insurable interest on his own life; importer has insurable interest on the goods imported.

2. Utmost good faith: According to this element both the parties to the insurance contract must disclose all the material fact to the risk voluntarily to each other. Any breach of this duty shall render the contract voidable.

3. Indemnity: Indemnity implies that the insurer undert6akes to put the insured in the same financial position as he occupied before incurring the loss.

4. Subrogation: Subrogation refers to the right of the insurer to stand in the place of the insured after the settlement of claim, so far as the insured’s right of recovery from alternative source is involved.

5. Warranties: Warranty is very important condition in the insurance contract which is to be fulfilled by the insured. If warranties are not followed the contract is cancelled by the other party whether risk has occurred or not.

6.Proximate cause: Proximate cause means the active, efficient cause that sets in motion a train of events which bring about a result ,without the intervention of any force started & working actively from a new & independent source.

7. Assignment & nomination: Marine & life policies can be freely assigned but assignment fire & accident policies are not valid without the prior consent of the insurer-except changes of interest by will or operation of law.

8. Return of premium: Ordinarily the premium once paid cannot be refunded. However, the refund is allowed.

 A: Non attachment of risk.

B: Undeclared balance of an open policy.

C: Payment of premium is apportioned etc.

So an insurance contract must have the above elements in order to make it lawful otherwise it may be regarded as a voidable contract at the opinion of the aggrieved party.

Risk Issues of Federal Insurance Company

Risk is a concept which relate to human expectation. It denotes to a potential negative impact to an asset or some characteristics of value that may arise from some present process or from future event.

People express risk in different ways. To some, it is chance or probability of loss, to others; it may be uncertain situation or deviations or what statisticians call dispersions from the expectation. In most of the terminology the term risk include exposure to adverse situation.

Risk is therefore incidental to life. Some people live dangerously. While others exercise is extreme caution. Nevertheless, the happing of fortuitous events or element cannot be avoided, although its effect may be either good or bad.

Types of Risk

Risks in Underwriting Individual accounts  

A non-life insurance company is in the business of assuming risk from individuals and businesses.  Underwriting is the discipline of understanding and evaluating which risks to intentionally assuming.  Minimizing unintended underwriting risk and the risk to the enterprise from unintended risk accumulations is generally a responsibility shared between Underwriting and Risk Management (“RM”); both disciplines are critical.

The underwriting function needs to ensure that a robust infrastructure is in place so when individual accounts are underwritten the underwriter has:  adequate information on the risk, such that the exposures can be reasonably known and understood, the skills and experience required to analyze the risk, and the ability and incentive to design coverage and price the account properly.  Underwriting authority needs to be granted based on skills and experience and not on managerial hierarchical level. Referral authorities need to be in place, as well as effective auditing to ensure compliance with delegated authorities, in order to minimize opportunities for “rogue” activities. The underwriting infrastructure also needs to provide training and oversight such that applicable laws, statutes, regulations, filings and so forth are rigorously followed. Adherence to filed rates, forms and similar measures is intended to reduce the opportunity for money laundering, terrorism funding, and so forth, and to ensure that customers are treated fairly.

Concentration Risk from Credit-Related Exposures

 Another aspect of concentration risk arises from multiple financial-related exposures to an individual policyholder.  A significant event, such as a fraud or severe downturn in profitability, might lead to losses from a D&O policy, surety and fiduciary coverage’s, and/or financial guarantees, plus losses on any debt or equity investments, securities lending, reinsurance recoverable from a captive, and exposure as a counterparty to a derivative transaction.  In addition, third-party liability and/or retrospectively rated insurance programs may generate exposure due to large deductibles, retrospective premium adjustments or other credit risk.

Reinsurance Risk

Reinsurance is a widely used and valuable tool for mitigating peak risks on both individual accounts and portfolios.  Inherent in reinsurance are several risks of concern to the Risk Officer.

First and foremost RM must be attentive that the reinsurance purchased is actually providing the appropriate coverage to mitigate the peak risks. In this regard, there needs to be strong communication between underwriting and the reinsurance buying function to ensure that underwriters are aware of the provisions of the reinsurance treaties being purchased. In particular, awareness of exclusions or special acceptance criteria is vital.  On the facultative side, underwriters or facultative buyers must be trained to have coverage afforded by the facultative reinsurance be concurrent with the terms of the underlying policy.

The insurance enterprise is exposed to various risks when purchasing reinsurance.  These include: Credit Risk, Regulatory Risk, Operational Risk (including Non-Concurrency (mentioned above) Lack of Contract Certainty, and Accounting/Tax Risk) and potentially Reputational Risk.

 Credit risk has numerous aspects which must be managed.  The starting point is the assessment of the credit worthiness of the reinsurer. This process generally leads to an “approved list” of acceptable reinsurers and a limit on the aggregate credit exposure to an individual reinsurer which is linked to its credit rating.  Reinsurance may be purchased locally on a facultative basis by underwriters for individual accounts with peak exposures and also in multiple business offices on a portfolio, or treaty, basis. RM needs to ensure that adequate controls are in place so accumulations by reinsurer are monitored with actions taken to mitigate peak exposures.

 Accounting risk arises as accounting for reinsurance transactions can be complex.  Reinsurance transactions need to have risk transfer characteristics in totality support insurance/reinsurance accounting (to be included in financial results as reinsurance) and these characteristics need to be appropriately analyzed and documented.  In particular, the accounting must consider all aspects of the agreement, including any written or verbal side agreements

Emerging Risks

Emerging risks are exposures which may develop or already exist.  They are difficult to quantify, may have a high loss potential and are marked by a high degree of uncertainty.  Risks involving emerging technologies or environmental changes require identification, assessment, monitoring and mitigation.  Examples of such emerging risks would include nanotechnology, pandemics, genetically modified foods, changes in weather patterns, and so forth. RM needs to ensure that Underwriting identifies coverage triggers, lines of business potentially exposed, limits, accumulation potential across lines of business and policy years, reinsurance applicability and monitors developments broadly in the insurance, healthcare and legal arenas.  Mitigation actions need to be agreed with Underwriting regarding coverage, limit and volume restrictions, reinsurance protection and monitoring of potential accumulations.  RM is a key driver in determining the importance of identifying emerging risks, designing actions to contain unintended accumulations and monitoring that risk measures are effectively in place.

 Correlated Risk

Assessing the degree of correlation between lines of business and for each line to other risk types is a critical requirement.  It is necessary to determine risk capital and optimize the mix by line, limits exposed and volume in order to minimize required capital through diversification.  Relevant experience may well be very limited for analyzing correlations, especially at the critical stress levels most important to risk capital determinations.  Hence, RM generally needs to work closely with Underwriting to judgmentally assess and agree the degree of correlation.

 Risks in the Underwriting “Cycle”

Price levels in non-life insurance tend to move in multi-year cycles as the result of varying levels of industry capital, economic outlook, competition and similar considerations (see diagram below).  Theoretically, an actuarially correct price for each account can be consistently determined based on desired ROE and anticipated loss trends. Actual prices, terms and conditions will deviate from the actuarial price based on marketplace conditions.

 Increased risk results from a failure to systematically measure deviations from the actuarial price and to fully recognize such deviations in current financial results, particularly during times when marketplace pricing is less than the actuarial price.  RM needs special attention that actual pricing, terms and conditions are monitored and that loss reserves and current financial results reflect deviations from actuarial pricing. Risk capital is required for uncertainty in this measurement due to the increased risk of understated loss reserves and added volatility as a consequence.

 Top ten risks facing by the company:

1. Climate change: long-term, far-reaching and with significant impact on the industry.

2. Demographic shifts in core markets: offers business opportunities but risk that other sectors will capitalize first.

3. Catastrophic events: rising costs and serious impact on earnings for insurers.

4. Emerging markets: risk and opportunity but competitive threat from new players.

5. Regulatory intervention: increased scrutiny impacting on operations and practices.

6. Channel distribution: technology is changing the way insurance is sold and purchased.

7. Integration of technology with operations and strategy: an enabler to keep pace with competition but lack of integration is a threat at the strategic business level.

8. Securities markets: changes in capital providers and the way capital is entering the insurance industry are causing major changes in the industry.

9. Legal risk: significant and unexpected change in the legal environment, such as government legislation or evolving case law, will continue to have a critical impact on the insurance industry.

10. Geopolitical or macroeconomic shocks: likely causes unknown but consequences potentially severe.

 Risk Management Tools

The following tools are used in federal insurance to manage risks-

1. Large number of exposure units:

The theory of insurance is based on law of large numbers. Thereof the prime necessity for a risk to be insurable is that there must be a sufficient large number of homogenous exposure in order that losses reasonable predictable.

Also, the probabilistic estimates used by the insurance company, by logic, assume large number of units in a distribution and insurance products are priced accordingly.

2. Define and measurable (calculable) loss:

The losses are fairly predictable and can be measured in the money terms. Loss of peace of mind, tension etc. or loss of life cannot be cannot be indemnified.

3. Determinable probability distribution:

The probability distribution of happening of adverse event is determinable. This is necessary to establish the free premium according the theory of equivalence. If there is not determinable distribution, there is no question of issuing a cover by an insurance company.

4. Random (fortuitous) loss:

The adverse event may or may not occur in future and once which the insurance company has not control. Naturally, if the event is non-random or the loss has occurred in the past, there is no question of insurance. And also, it is important to note that underwriters who guard against adverse selection- the tendency of poorer than average insured to seek or continue insurance coverage ensure randomness.

5. Non-catastrophic loss:

The losses should be non-catastrophic. Not all the units in a homogenous group will be subject to an adverse event. Recall that if all the units meet losses, the company will be ruined only few out of a large group will be exposed.

6. Premium should be economically feasible:

Since insurance pool is structured to be sufficiently large, the price charge by the insurer for buying the risk is generally low. It should be sufficient to cause the rich for the insurer as well as visible for the insured.

 Risk management process

1. Establish the context:

Establish the context include planning and remainder of the process and mapping out the scope of exercise the identity and objectives of stakeholders, the basis upon which risk will be evaluated and defining a framework for the process, and agenda for identification and analysis.

2. Identification:

After establishing the context, the next step in the process of mapping risk is to identify potential risks. Risks are about events that, when triggered, will cause problems. Hence, risk identification can start with source of problems or with the problems itself.

1. Source analysis
2. Problem analysis
3. Event

The several of risk identification are:

1. Checklist method
2. Financial method
3. Flowchart method
4. On-site inspections
5. Interaction with others
6. Contract analysis
7. Statistical record of losses

3. Assessment:

Once risk has been identified they must then be assessed as to their potential severity of loss and to the probability of occurrence. These quantities can be either simple to measure, in case of the value of a lost building, or impossible to know for sure in the case of the probability of an unlikely event occurring. The fundamental difficulty in risk assessment is determining the rate of occurrence since statistical information is not available on all kinds of past incidents. Numerous different formulas exist, but perhaps the most widely accepted formula for risk qualification is Rate of occurrence.

4. Potential risk treatment:

Once the risk have been identified and assessed, all techniques to manage the risk fall into one or more of these four major categories:

1. Risk transfer
2. Risk avoidance
3. Risk retention
4. Risk control

A. Risk transfer:

Risk transfer means that the expected party transfers whole or part of losses consequential risk exposure to another party for a cost. Apart from insurance device there are some other techniques by which the risk may be transferred.

B. Risk avoidance:

Avoid the risk or circumstances which may lead to losses in another way, includes not performing an activity that could carry risk.

C. Risk retention:

Risk retention implies that the losses arising due to a risk exposure shall be retained or assumed by the party or the organization. There may have two types of risk retention

1. Self-insurance
2. Captive insurance

D. Risk control:

Risk can be control either by avoidance or by controlling. However as a concept these can be segregated into two

1. Before occurrence of losses
2. After occurrence of losses

5. Create the plan:

Decide the combination and method to be used for each risk. Each risk management decision should be recorded and approved by the appropriate level of management. A good management plan should contain a schedule for control and implementation and responsible persons for those actions.

6. Implementation:

Follow all the planned method for mitigating the effect of the risk. Purchase insurance policy for the risk that have been decided to transfer to an insurer, avoid all the risk that can be avoided without sacrificing the entity’s goal, reduce others and retain the rest.

7. Review and evaluation of the plan:

Initial risk management will never be perfect. Practice experience and actual loss result, will necessitate changes in the plan and contribute information to allow possible different decision to be made in dealing with the risk being faced.

Insurance Pricing, Claim Settlement, Marketing & Reinsurance

Pricing Tools:

1.      Fire: Situation/ condition/ class

1st class- buildings
2nd class- tin shed
3rd class- fence house
4th class- hut

Premium:   Basically premium depends on risk. As much risk rise premium will rise in same way. As much class degrades premium will go high, such as 4th class insurance taker will give more premium than 1st class insurance taker. Because, hut is quickly burnable

2.      Marine (cargo):     A- High covers all risk

1.    B- medium covers. (Lower than A)
   C- Minimum risk cover.
   Additional risk- * ND (non delivery)
   * theft & prefer age (risk)

Comment:  It defers class to class and when additional risk added then

3.      Marine hull:   Here included two types of tool

A-    Tariff

• Policy taker If 3^rd party takes then premium will be less Comprehensive policy, if owner takes then premium will be high.

4.      Miscellaneous:

  Cash on counter/cash on transit

  Burglary cash in safe

Comment: Price defers o tariff and also depends on policy taker. Policy taker could be divided in two way policy in above we can see.

 Pricing element:

Fire-

1. Deceleration

2. Tariff

Marine (cargo) and hull:

1. Goods and packaging
2. Risk and amount
3.  Port and destination

Pricing process:

There are two types of pricing process fire and marine

Claim settlement:

1. Party provide information through phone or writing
2. General diary ( GD) in local police station in terms of non marine insurance
3. Assigning a survey company to assess the loss
4. Report submission of surveyor and bill payment of surveyor
5. Claim settlement: claim department settle the claim after getting the report of surveyor. The MD (managing director) can issue claims amounting up to two lacks of the claim more than two lacks and approval of executive board meeting is needed.

 Marketing techniques:

1. Assigned a target to branch manager:  Salesman contacts with branch manager how many contract they could sale and their salary depend on their sale.
2. Through agent:  Agents will get commission through sale policy.
3. Advertisement:  Policy can be sale in different way, such as print media, bill board and sponsorship of program.

 Re insurance management:

There is a certain retention portion of claim settlement ability of the company.

The over retention portion is reinsured in general insurances corporation (shadharon bima corporation). The shadharon bima corporation also re insure their over retention portion to the foreigners and diving fifty percent of their premium and risk among the listed general insurance companies.

Performance Analysis

Ratio Analysis:

 Interpretation: The graph shows that though the ratio of current and liquid assets & liabilities of Federal Insurance Co. Current Ratio is higher in 2006 among the last five years, but the acid test ratio is quite stable of Federal Insurance Co. Though there is no significant difference in last 5.

Trend Analysis

Net Premium Income

Figures are in Million Taka.

 Interpretation: The total premium paid by a policyholder after any tax relief or discount is taken into the Net Premium Income. The Net premium Income of Federal Insurance Company in 2009 is more than the previous years. In 2006 the percentage of gross premium is lower.

EPS

Figures are in Taka.

 Interpretation: The portion of a company’s profit allocated to each outstanding share of common stock. Earnings per share serve as an indicator of a company’s profitability. The earning per share of Federal insurance company is increasing in the last though dropped in 2006 and higher in 2009 among the last five years.

Profit Before Tax

Figures are in Million Taka.

 Interpretation: The Profit before any tax relief or discount is PBT. The PBT of Federal insurance Company in 2009 is more than the previous years. In 2006 the percentage of PBT is lower.

Rate of Dividend

 Interpretation: The rate of dividend remains almost same except last year. It fluctuates between 10-12 %

 Total Assets

Figures are in Million Taka.

Interpretation: The total asset of Federal Insurance Co. is gradually increasing highest in 2009 among last 5 years and in increase.

Net Claims

 Interpretation: The Net Claim of Federal Insurance Co. is highest in 2009 among last 5 years and in lowest in 2008.

Number of Branches

Interpretation: The number of branches of Federal Insurance Co. is gradually decreasing lowest in 2009 among last 5 years and in decrease.

Share Price

Figures are in Taka.

Interpretation: The Share of Federal Insurance Co. is gradually increasing highest in 2009 among last 5 years and in increase.

Common Size Statement Analysis:

 PROPERTY & ASSETS:

 Scenario Analysis:

*Assumed

 Sensitivity Analysis:

 Interpretation: The Graph shows that, changing in claim and premium doesn’t impact tremendously on profit.

 Cross Sectional Analysis:

 From the above cross sectional analysis we have found that, Federal Insurance Company is in fifth position as the capital and business size is smaller.

Share price valuation

The dividend of the company for the last few years are given below-

 Calculation of the growth rate (g):

                                                g= -1

                                              g=

                                                 g=0.095

Calculation of D2011:    

                                       D2010*(1+g)

                                    =12*(1+0.095)

                                    =Tk.13.14

Price of the share =

                            =Tk.125.14

Comment: The share price is justified; the market price of the share is Tk.125.4. The main reason behind this situation is the reserve fund of progressive general insurance company.

Company Analysis

SOWT Analysis

S                                                                                       Strength         

O                                                                                      Opportunity                            

W                                                                                     Weakness  

T                                                                                       Threat

Strength:

1) In case of premium earning this company is on 10^th position among all of the insurance companies (43companies) in Bangladesh.

2) Claim paying ability.

3) It has bank investment.

4) Underwriting profit is in a stable position.

5) Wide distribution network.

Opportunity:

1) Location of the head office.

2) Expansion of market country wide.

3) Increased demand of insurance & re –insurance.

4) Investment opportunity.

5) Rate of tariff is fixed by the CRC.

Weakness:

1) Less capital.

2) The company can’t computerize the total network still now.

3) No advanced training facilities.

Threat:                                                                                                                                                                                                         

1) Unhealthy competitive market.

2) Turnover rate is high.

Situation Analysis:

Porter’s 5 forces on insurance industry

Insurance industry in Bangladesh is running on by small number of quality producers. Federal insurance company is one of the largest of all companies in the industry. It has extreme reputation & brand image as well. Five forces of this are the followings-

Threats of new entrants is low because-

1) Economies of scale are too much high.

2) Quality of product is almost outstanding.

3) Huge amount of capital is required.

4) Shortage of proprietary skills or technology.

Threats of substitute are low because-

1) As it is not highly profitable, there exists low threat.

2) The satisfaction of substitute product price performance is poor.

Power of supplier is high because-

1) Substitute for their policies is not available.

2) Provider can forward integrate because it might be profitable.

3) There is some small no. of friendly institutions in the industry.

4) Their offers are highly profitable.

5) Entering between them is very costly.

Power of buyer is low because-

1) Insurer avoids high volume of insured amount.

2) Policy can be in different forms.

3) Insurer always forward moving….

Intra-industry rivalry is low because-

1) The area of market is very large.

2) Industry is growing & yet to attain at maturity.

3) Fixed costs are high, revenue also very high to services make up it.

4) The standard of the insurance services is different from company to company.

Findings, Recommendation & Conclusion

Finding form Performance Analysis

From the various financial analyses, there are some major findings as follows:

  The current & acid test ratio is good and reliable.

  The Share Price is just following the share value, no over value or under value.

  The no of branches are in decrease for various obstacles and for the challenges from the competitors.

  Rate of dividend is lower than other companies and stable.

  Rate of premium collection and market share is good, 10^th in position in terms of premium collection.

  EPS is not bad.

These are the basic findings from the analysis of the financial information of this company.

Alternative Strategies & Recommendation

• The Company must be fully computerized as early as possible.
• New strategy has to be taken to improve the sales and performance.
• Efficient employees should be appointed.
• Different portfolio investment can be increased.
• Modernization of office setup.

These steps could be taken to improve the condition of the company according to our short view.

Conclusion:

Visiting Insurance Co. was totally new for us. We have found that, the practical knowledge of insurance is more important and a bit different then the bookish knowledge. Making this report helped us to gain valuable practical knowledge and skills. The Federal insurance company is one of the oldest private general insurance companies. The main feature of this company in our view is that, maximum portion of their profit comes from the underwriting profit that means insurance business, not from investments. If the recommended steps are taken as early as possible, we strongly believe that, they will come to the top most positions very shortly in this sector.

Bibliography

Books:

1. Elements of Insurance; Azizul Huq Chaudhri
2. Insurance Principles & practices; M.N Mishra

Reports and articles:

1. Annual Report of the Company
2. Daily Newspapers and financial publications

Encyclopedia & Dictionary:

1. Online Encyclopedia
2. Online Dictionary

Website or Webpage:

1. http://www.google.com/
2. http://www.federalinsu-bd.com/

http://dse.com.bd/

Consulted:

1. Mr. Shahinur Sobhan

Assistant Professor

Department of Business Administration

Dhaka City College

Managing Director, CEO:

A K M Sarwardy Chowdhury

Senior Executive Vice President:

Simul Kanti Barua