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Principles of Insurance
FIN-203
Prepared for
Nusrat Nargis(NN)
Lecturer
Department of Business & Economics
Daffodil International University
Dhanmondi, Dhaka
Date of Submission
27 April 2008
1
Prepared by
2
13 August 2008
Nusrat Nargis
Lecturer
Faculty of Business & Economics
Daffodil International University,
120, Sukhrabad, Dhanmondi,
Mirpur Road, Dhaka 1207
Bangladesh.
Dear Madam:
Here the report that I prepared on Prime Islami Life Insurance Limited. Which
will be mainly, based on the survey of the Prime Islami Life Insurance Ltd as
per your assignment.
In preparing the report, I have made sincere efforts to present the relevant
information pertinent to this report and have analyzed them accordingly.
In this connection may I urge up on the benign honor of yours to go through the
report and let us know about any change and adjustment on the report if required?
Sincerely yours
1. …………………
2. …………………
3. …………………
4. …………………
Index
• Definition of Insurance 5
3
• History of insurance 6
• Origin of insurance 8
• Development Insurance in Bangladesh 10
• Objective 11
• Company name 12
• About Prime Islami Life Insurance Ltd 13
• Corporate status and legal form 13
• Nature of Business 13
• Over view of an Organization 14
• Mission, Vision, Goal 15
• Features 16
• Policies offered 17
• Investment, Risk consideration for changing premium 22
• Claims, Settlement of Claims 23
• Financial Highlights 24
• Business Growth Rate 25
• Improvement of Financial Health 26
• Investment Portfolio 27
• Life Revenue Account 28
• Life Insurance fund 31
• Outstanding Premium, Risk factors & management 32
perception about the risks
• Conclusion 33
DEFINITION OF INSURANCE
Insurance is defined as a cp-operative device spread that loss caused by a particular
risk over a number of persons who are exposed to it and who agree to insure
themselves against that risk. Risk is uncertainty of a financial loss. It should not be
confused with the chance of loss, which is the probable number of losses out of a
given number of exposures. It should not be confused with peril, which is defined
as the cause of loss or with hazard, which is a condition that may increase the
chance of loss. Finally, risk must not be confused with losses itself which is the
unintentional decline in, or disappearance of value arising from a contingency.
Wherever there is uncertainty with respect to a probable loss there is risk. The
famous writers’ definitions about insurance are below:
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“Insurance is a promise by an insurer to an insured of protection/or service.”
Mowbray and Blanchard.
“Insurance may be define as a system of combining many loss exposures, with the
cost of the losses being shared by all of the participants”-F.G. Granc.
History of insurance
In some sense we can say that insurance appears simultaneously with the
appearance of human society. We know of two types of economies in human
societies: money economies (with markets, money, financial instruments and so
on) and non-money or natural economies (without money, markets, financial
instruments and so on). The second type is a more ancient form than the first. In
such an economy and community, we can see insurance in the form of people
helping each other. For example, if a house burns down, the members of the
community help build a new one. Should the same thing happen to one's neighbor,
the other neighbors must help. Otherwise, neighbors will not receive help in the
future. This type of insurance has survived to the present day in some countries
where modern money economy with its financial instruments is not widespread
(for example countries in the territory of the former Soviet Union).
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Turning to insurance in the modern sense (i.e., insurance in a modern money
economy, in which insurance is part of the financial sphere), early methods of
transferring or distributing risk were practiced by Chinese and Babylonian traders
as long ago as the 3rd and 2nd millennia BC, respectively. Chinese merchants
traveling treacherous river rapids would redistribute their wares across many
vessels to limit the loss due to any single vessel's capsizing. The Babylonians
developed a system which was recorded in the famous Code of Hammurabi, c.
1750 BC, and practiced by early Mediterranean sailing merchants. If a merchant
received a loan to fund his shipment, he would pay the lender an additional sum in
exchange for the lender's guarantee to cancel the loan should the shipment be
stolen.
Achaemenian monarchs were the first to insure their people and made it official by
registering the insuring process in governmental notary offices. The insurance
tradition was performed each year in Norouz (beginning of the Iranian New Year);
the heads of different ethnic groups as well as others willing to take part, presented
gifts to the monarch. The most important gift was presented during a special
ceremony. When a gift was worth more than 10,000 Derrik (Achaemenian gold
coin) the issue was registered in a special office. This was advantageous to those
who presented such special gifts. For others, the presents were fairly assessed by
the confidants of the court. Then the assessment was registered in special offices.
The purpose of registering was that whenever the person who presented the gift
registered by the court was in trouble, the monarch and the court would help him.
Jahez, a historian and writer, writes in one of his books on ancient Iran:
"[W]henever
A thousand years later, the inhabitants of Rhodes invented the concept of the
'general average'. Merchants whose goods were being shipped together would pay
a proportionally divided premium which would be used to reimburse any merchant
whose goods were jettisoned during storm or sink age.
The Greeks and Romans introduced the origins of health and life insurance c. 600
AD when they organized guilds called "benevolent societies" which cared for the
families and paid funeral expenses of members upon death. Guilds in the middle
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Ages served a similar purpose. The Talmud deals with several aspects of insuring
goods. Before insurance was established in the late 17th century, "friendly
societies" existed in England, in which people donated amounts of money to a
general sum that could be used for emergencies.
Separate insurance contracts (i.e., insurance policies not bundled with loans or
other kinds of contracts) were invented in Genoa in the 14th century, as were
insurance pools backed by pledges of landed estates. These new insurance
contracts allowed insurance to be separated from investment, a separation of roles
that first proved useful in marine insurance. Insurance became far more
sophisticated in post-Renaissance Europe, and specialized varieties developed.
Insurance as we know it today can be traced to the Great Fire of London, which in
1666 devoured 13,200 houses. In the aftermath of this disaster, Nicholas Barbon
ORIGIN OF INSURANCE
also be raised on pledge of cargo and this was used to be done on Respondentia
Bonds. The terms
of repayment were exactly the same. The practice has been abandoned since 19th
century because of tremendous advancement in communication system.
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Up to 18th century we also experience, amongst the merchant community, a system
to sharing risks with each other. They used to form a group where in one of the
merchant, in particular voyage, used to accept the risk against a premium from
others whilst the others used to trade. On the different occasion another from the
group used accept the risk whilst the rest used to trade, and so on. So at one time
had to take the responsibility of risk bearing and collection was such, which could
reasonably take, caring of probable loss. As the group was indeed small and the
professional expertise on risk management was rather varying limited, the rate of
premium used to be necessary high. Here also it is necessary for the student to
appreciate that, even through, this is not the present day system of insurance as an
isolated specialized entity, but nevertheless, that concept of insurance, that is to
say, a system of sharing or spreading risk gradually developed because of need,
which was ultimately replaced by modern insurance approach.
Insurance is not a new idea or proposition to the people of Bangladesh. About half
a century back, during the British rule in the then India, some insurance companies
started transacting insurance business, particularly life, in this part of the world.
Since 1947 until 1971 insurance business gained momentum in this part of what
then known as East Pakistan. There were about 49 companies transacting both life
and general insurance business.
The Jatiya Bima Corporation was not an underwriting corporation, instead, it was a
central corporation to supervise and control the activities of remaining four
subsidiary corporations responsible for underwriting. As per this order Teesta and
Karnaphuli were made responsible for general insurance business and Rupsa and
Surma were made responsible for life insurance business. All the existing 49
companies were merged with these 4 corporations. Whilst life companies or the
life portion of a composite company joined the Rupsa and Surma, the general
companies of general portion of composite company joined the Teesta and
Karnaphuli.
Objective
As the requirement of this course, the students are mandated to prepare a report
upon which the faculty evaluates and provides the grade. Our honorable faculty
provides us a guideline for preparing this term paper. The students followed this
online in a very strict manner. The introductory part of the report includes the vary
primary concepts of life insurance policy its meaning and backgrounds. It also
features the life insurance policy in the Bangladesh prospective.
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The scenario of insurance policy in Bangladesh has focused from different point of
view. After a general look, I concentrated on general features of life insurance, its
needs, its recent developments and its activities and related other issues. Finally,
the report focuses on PRIME ISLAMI LIFE INSURANCE LIMITED. Its
background, the different policies it offers and some special offers it has under its
product banner.
Prime Islami Life Insurance Ltd. was incorporated as prime life insurance
company ltd. In july 2000 with combined efforts of renowned business
Personalities, Bankers and Retired Secretary, Govt. of Bangladesh. With a view to
running the company as per ideology and principle of shariah, it was converted
into Prime Islami Life Insurance Limited In April 2002. In a relatively very short
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span of time, Prime Islami Life Insurance Limited (PILIL) has achieved an
excellent progress in business and product developments.
Prime Islami Life Insurance Ltd, is a public Limited Company incorporated under
Companies Act, 1994 on 24 July 2000 with an authorized Share capital of Tk
100,00,000 divided into 1,000,000 Ordinary Shares of Tk 100/= each of which
300,000 ordinary share of Tk 100/= each were issued and fully paid-up by the
Sponsors /Directors of the company. The Company went for public issue in
November 2006 and its shares are listed in both Dhaka and Chittagong Stock
Exchanges in the Year 2007. The company is engaged in Islami Life Insurance
Business.
The registered office of the Company is situated at Raj Bhaban (6th floor) 29
Dilkusha, C/A Dhaka-1000.
NATURE OF BUSINESS
The Company is mainly engaged in individual, group life including Micro (Mukta
Bima) and P.I.D.P.S (Prime Islami Deposit Pension Scheme).In Case of individual
& group Life insurance (Akok Bima) the risk commences from the issue date of
F.P.R (First Premium Receipt) and in case of Micro Insurance scheme (Mukto
Bima) & PIDPS the risk covers from the date of issue of pass Book. In addition, it
also operates Group Insurance.
12
INSURANCE)
M. Azizul Haque
Former Inspector General of Police.
Management & Financial : Ex Advisor of Caretaker Government of People’s
Consultant Republic of Bangladesh
Mission
• To abide by shariah Principles in say-to-day business affairs.
• To build dynamic, sound and professional management team.
• To develop innovative products to add value to our customers
• To ensure quality management system.
• To ensure best customer services
• To ensure good governance
Vision
• To maintain utmost integrity responsibility and transparency
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• To become the best the private life insurance company in Bangladesh and in
South-East Asia as whole.
• To change beliefs, attitudes, values and practices in the Islamic life
insurance industry.
Goal
To sere the humanity for its well-being in the present and the world hereafter by
providing financial and moral gains through utmost good faith, good conduct,
mutual trust, sincerity, integrity, and personalized services.
Features
The following underlying assumption, measurement base, rules, regulations and
accounting pronouncement have been considered in and presenting the financial
statements:
• Going concern
• Accrual unless stated otherwise
• Historical cost convention
• The Insurance Act 1938
• The companies Act 1994
• The Securities and Exchange (SE) Rule, 1987
• The Income Tax ordinance, 1984
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• The Listing Regulation of Dhaka and Chittagong Stock Exchange and
Policies Offered
15
01. Islamic Endowment Assurance Plan (Hajj Bima)
Age at Entry : 18 to 50 Years
Term : 10, 15 & 20
Mode of : Yearly, Half Yearly & Quarterly
Payment
Maturity Age : 70 Years
Supplementary : DIAB - Double Indemnity Accidental Benefit
PDAB - Permanent Disability Accidental Benefit
Benefits : Under this plan the sum assured is payable on death if
occurring earlier or on survival of life assured till end of
term.
03.
05. Three PaymentEndowment
Five Payment EndowmentAssurance
AssurancePlan Plan
Age at Entry : 18 to 50 Years
Term : 12,
10, 15, 18,
20, 2125,&&2430
Mode of : Yearly, Half Yearly & Quarterly
Payment
Maturity Age : 70
50 Years
Supplementary : DIAB, PDAB, HI
Benefits : 25%
Underofthis
sumplan
assured willschedule
benefit be paid is
onbelow:
completion of one-third
of
10%term. Another
of Sum 25%isofpayable
Assured sum assured
of 15 will be paid on
of term
completion
15% of SumofAssured
two-third of term and
is payable of 25atof
theterm
end of term
remaining
20% of Sum 50% of basic
Assured sum withofprofits
is payable will be paid. Even
35 of term
after
25% ofpayment of 2nd installment
Sum Assured is payable ofthe45full
of sum
term assured is
payable
The rest ifofdeath
30% occurs
of sum before
assuredmaturity.
with profit is payable at the
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end of term.
04. Prime Islami Deposit Pension Even after payment of 4th installment the full
Scheme
Age at Entry sum assured
: 18 to 50 Years with profits is payable if the death occurs before
Term : maturity.
10 & 15
Mode of : Yearly, Half Yearly & Quarterly
Payment
Maturity Age : 50 Years
Supplementary : na
Benefits : Under this plan the sum assured is payable on normal death
and double of the sum assured is payable on accidental death
or after expiry of the term sum assured with profits (if any) is
payable.
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08. Multiple Benefits Life Assurance Plan
Age at Entry : 20 to 55 Years
Term : 10, 20, 30 & 40
Mode of : Yearly, Half Yearly & Quarterly
Payment
Maturity Age : 65 Years
Supplementary : na
Benefits : Premium is payable half of the term of the policy.
Fulfill the half term of the policy the sum assured is payable
and also the sum assured is payable at the end of the specified
term. At the event on death at any time of term two multiple
of sum assured (for normal death) & three multiple of sum
assured (for accidental death) is payable.
Operations risks
Liberalization of permission to set up more insurance companies by government
may result in severe competition amongst insurers thus reducing premium and
profitability.
Claims
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Clams are policy benefit payable according to the terms of policy contract. Claims
by survivals are recorded when these become due for payment. Death claims are
accounted for when intimated.
Provision for outstanding death claims less any reinsurance thereof is made for
those policies where the intimation of death has been received up to 31st December,
2006
Settlement of Claims
You will agree with me that reputation, image and upliftment of the Company
largely depend on early settlement of claims. Our Company is very much sincere
and prompt to settle the Claims Company is very much sincere and prompt to settle
the claims. During 2006, 101 death claims were settled and 3103 survival benefits
were paid amounting to TK 36.00 lac and Tk 2.57 crore respectively, being 5.20%
of total premium procured during the year.
Financial Highlights
Business Performance
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SL.NO Particulars 2006 2005 2004 2003 2002
01 Gross 56.37 34.30 18.29 13.02 5.95
premium
First Year 32.22 21.09 11.41 9.87 5.56
Premium
Renewal 24.05 13.16 6.79 3.12 0.38
Premium
Group 0.10 0.05 0.09 0.03 0.01
Premium
02 Assts *192.37 27.11 13.69 7.41 5.21
03 Life Fund 43.86 21.23 9.27 2.83 0.09
04 Investment 33.34 15.58 6.65 1.90 1.90
05 Investment 3.25 0.95 0.35 0.20 0.24
Income 3.25
06 Claims 2.93 1.51 0.28 0.11 0.002
07 Claims to 5.20 4.40 1.53 0.84 0.03
Premium (%)
60
56.37
50
43.86
40
34.3
30
20 21.23
18.29
13.02
10 9.27
5.95
2.83
0 0.09
2002 2003 2004 2005 2006
60
56.37
50
40
34.3
30
20 18.29
13.02
10
5.95
0.28 1.51 2.93
0 0.002 0.11
2002 2003 2004 2005 2006
Premium
250
200
150
100 192.37
50
22
Improvement of Financial Health
The company has been able to make a significant growth during its 06(six) years of
life and a comparative financial statement of last two years is given below:
(Taka in crore)
(Taka in crore)
Investment Portfolio
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Description 2005 2006
Islami Bond Tk 4.60 Tk 7.15
Mudarabah Term Tk 10.81 Tk 25.67
Deposit
Shares Tk 0.18 Tk 0.52
The above statement speaks that the company has been getting a sound financial
footing gradually.
Amount in Taka
24
Notes 2006 2005
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BALANCE OF FUND AT THE BEGINNING OF 212,269,12 92,662,097
THE YEAR 7
32,465,431 161,253
319,440
Total 806,537,30 444,662,695
6
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First year Premium , where the maximum
Premium Paying period is
Two years
Three years
Four years
Five years
Six years
Seven years
Eight years
Nine years
322,174,72 210,917,439
5
27
CLAMS UNDER POLICIES (INCLUDING PROVISION 2006 2005
FOR CLAIMS DUE OR INTIMATED ), LESS
REINSURANCE
29,261,988 15,018,134
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Add: increase in Life Revenue Account during the year 226,374,280 119,607,030
1,711,554 833,332
6, 626, 13 10,111,723
Outstanding Premium
The above balance represents outstanding amount of premium due on 31st
December 2006 but subsequently collected.
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Risk factors & management perception about the risks
Industry risks
The company is operating in a highly competitive industry. Entrance of competitor
in the business arena may hamper business growth of the company.
Market perception:
To be company in the market Insurance companies always need to develop new
product and services as to introduce new insurance policies. Failing of which may
make the company by its competitors.
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