Professional Documents
Culture Documents
1. INTRODUCTION
1.1. General Background of the study
Since the origin of the human being on the earth, they have been
subjected to risks of various kinds. There are several types of risk. Some
risks are ordinary and anxious and create great difficulties. Such risks can be
avoided by means of insuring their property against fire, natural disaster like
flood, earthquake etc.
There are two broad sectors of insurance (a) Life Insurance and (b) General
Insurance: Fire, Marine, Aviation, Motor Engineering and other miscellaneous
business are covered by General insurance. Though there are different types
of insurance, Marine insurance is the first type, which had been started by
the merchant in England. In course of their business transaction with the
merchant of Italy, these Merchants were insecure of their goods and ships,
which were subjected to looting by sea pirates and also loss or damage by
the storm in the sea voyage.
As concerning Fire insurance "Fire insurance in which the sum
insured becomes payable on the happening of a fire.1
Actually speaking, the fire insurance was started first in England on
Friday Sept. 2, 1666 A.D., an important event in the history of fire insurance
occurred.2 An over in the king's bakeshop becomes over heated. The fire that
followed get out of hand and nearly succeeded in destroying the entire city
of London. The blaze raged for five days and left in its wake great
destruction of lives and properties. The destruction made people to think
something about the financial losses due to fire. Dr. Nicholas Baebon, a
1
2
E.R. Hardy Ivamy, General Principles of Insurance Law. 6th edition Butter Worths , P. 7
Mishra, M.N.Insurance principles and Practice, Seventh revised edition
(b)
In addition two Indian companies had licenser to write non- life business,
which were government owned and subsidiary companies of General
Insurance Corporation (G.I.C.), India.
(c)
(d)
was passed and R.B.S. was set up by the government with effect from
March, 1968.
The government began to exercise a certain measure of control on
insurance business with the pursuing of the first insurance Act, i.e. of
1968 and with marked increase in the business of life and the general
insurance, more comprehensive legislation was required. His Majesty's
Government of Nepal after enacting the Insurance Act, 1968 framed the
Insurance rules in 1969. The Insurance Act, 1968 also encouraged the
establishment of an Insurance Board aimed to act as the Insurance
controller. Insurance Board establishment in 1968 was empowered to
regulate the insurance business in Nepal. Under the Act, Insurance Board
gave permission to transact non-life business to National life and general
Insurance Co. Ltd, public sector Company in 1987. Later on 1988 it also
got permission to issue life policy from Insurance Board. There after the
life Insurance business was opened up and it leased to be the monopoly
business for R.B.S.
The period between 1987 and 1992 saw a rapid development of
Nepalese Insurance Industry. In this period more private sector
companies were eager to invest in the insurance sector. As a result of this,
a single member committee (Senior rank officer of Nepal Rastriya Bank)
was appointed by Finance Ministry, The main objective of the committee
was to explore the feasibility aspects of insurance business in Nepal. The
recommendations of the committee led to the amendment of the
Insurance.
In Nepal the insurance Sector showed rapid growth especially after
publication of the new Insurance Act 1992 and Insurance Regulation
1993 and after making the Insurance Board more powerful. Thus, till
3
2.
3.
4.
5.
6.
7.
8.
9.
N.B Insurance
10.
11.
12.
13.
Fire Insurance
2)
Motor Insurance
5
3)
Marine Insurance
4)
Aviation Insurance
5)
Engineering Insurance
6)
Medical Insurance
7)
Miscellaneous Insurance
Sub-branch Offices-
Pokhara
Branch Office
Biratnagar
Nepalgunj
Sub-branch Office
Birgunj
Narayanghat
Sub-branch Birtamod
Promoters
7
Butwal
S.N Person
1.
Kanchan Rana
2.
Deep Maniraj Bhandari(M.D.)
S.N. Institutions
1
Rastriya Banijya Bank
2
Fund Management Company
3.
4.
Rabindra Shrestha
Bharat Raj Upreti
avoid the risk of fire and other natural disasters. Also for commercial and
industrial development in the country, fire insurance should be encouraged.
We can take the case of " Singha Durbar Fire " which caused millions
of rupees of loss to the country. If Singha Durbar was insured the loss could
have been avoided.
Development of fire insurance business in Nepal also contributes to
the development of the economy by protecting the resources against the fire,
which helps to develop the economy.
11
paying premium for insurance purpose from their limited income, they
prefer investing in the business in order to expand it.
5. Lack of Consciousness: - Because of low popularity fire insurance is
unknown to many people. They are not aware of the security provided
by the insurance. In Nepal fire insurance is not widespread. This is
confined to the small area of few cities like Kathmandu, Biratnagar,
Pokhara, Birgunj, Nepalgunj etc. In these cities also, limited people
(industrialists and businessmen) are aware of insurance. Due to the
organizational problem in Nepal, operation of insurance companies is
confined only within the selected cities. This clearly shows the lack of
consciousness of fire insurance among people.
6. Lack of Information or advertising: Advertising done by the
insurance company is not effective at all. Distributing few leaf lets
about the information and services, their offer is not enough to
convince people to insure. It needs systematic and full-scale
advertisement about the benefits of insurance, especially in a country
like Nepal where very few people are aware of pros of insurance.
4. The micro topics of fire insurance are not sufficient to cover the fire
insurance of all other same types of organization so it is also limitation
of this field work study.
5. Because of lack of accuracy and appropriateness of secondary data,
they could not give the exact information satisfactorily for the need of
study.
6. The fieldwork report is entirely based on the information provided by
Neco insurance Ltd., as audited data is not available for the current
year, the data up to previous year i.e. FY 2059/2060 is used for
presentation purpose.
Results.
Chapter
IV
covers
Summary,
Conclusions
&
13
Chapter II
2. Methodology of study
2.1. Introduction
This study is based on an appropriate research methodology. The
application of methodology is in the fact the eye and ear of the study. It
helps to analyze the data in finding the cause and effect of relationship to see
how company is performing and how the company is servicing. All the
information presented in this fieldwork is mainly extracted from Neco
insurance limited. The performance of the firm and the activities that are
being undertaken is thoroughly analyzed and necessary matters have been
carefully presented in this project work. Brochure, companys policy and
annual general meeting reports of Neco insurance Ltd. has also been
consulted. For the research we need data, collected through various relevant
and appropriate sources. The data are collected, quantified, analyzed and
compared to reflect the financial performance of the company. The data
collection for the project is done through the frequent visits to the Neco
insurance company Ltd. and with special reference to the specific people,
materials and the books available.
14
I have also consulted a few assignment reports of the seniors and also the
suggestions of my teachers. So, this report is the outcome of support and
encouragement of different entities.
(b)
successfully standing with its strong goodwill. The past and the present
performance record has been presented in the form of table, pie-chart and
bar diagram wherever necessity of it was felt. Thus, table and diagrams are
used as statistical tools in this field work report.
16
Chapter III
3. Data Presentation and Analysis
3.1 Conditions and Stipulations of Standard Fire Policy
The standard fire policy form is prescribed by the tariff. The
conditions regulate the fire policy contract. There are twenty printed
conditions present in standard fire policy. They are enlisted in serially as
given below:
1.
2.
17
3.
4.
5.
6.
ii.
iii.
Marine clause (condition No.9): This condition provides that fire policy
would not pay earlier than the Marine policy should the subject matter
of insurance be covered under a marine policy. If one property is insured
under Marine and Fire policies then the payment of compensation is to
be first from Marine and any balance left of the loss to be met by fire
policy.
20
B.
Riot, Strike and Malicious (vandalism) Damages: The riot and strike
damages are also covered the loss due to disturbance of public peace.
It is not essential a riot defined as in law. This extension not provides
to cover the losses caused by delay, loss of market, consequential loss,
23
2.
C.
F.
G.
25
Fire Premium
% increased
Total Premium
052/53
053/54
054/55
055/56
056/57
057/58
058/59
059/60
281952
6924386
12100594
13157553
17784773
18899229
22905319
24898659
2355.87
74.75
8.73
35.17
6.37
21.19
8.70
673380
55432899
104849465
118649259
149849045
188488701
218086558
168091383
41.87
12.49
11.54
11.09
11.87
10.02
5.02
14.81
From the above table- 3.1 we can see that there is an increasing trend
of fire insurance premium in the recent years. In the year 2053/54 there has
been an increase of 2355.87% on fire premium. It is an abnormal increased
percentage shown in the fiscal year 2053/54 because the business just has
been started at Jestha 17, 2053 and In this F/Y the duration of business
transaction was only one and half month. In the following year 054/55, the
premium increased has been noted 74.75% which is no greater increase in
percentage compared to 2355.87%, but the volume of premium is slightly
greater than that of previous year increase, which is quite satisfactorily.
26
Fire Premium
Total Premium
281952
6924386
12100594
13157553
17784773
18899229
22905319
24898659
673380
55432899
104849465
118649259
149849045
188488701
218086558
168091383
xy
x . y
2
The above analysis result shows that the coefficient of correlation between
total premium and fire premium is positive i.e. r = 0.5649020. Thus we can
27
conclude that the total premium and fire premium are positively correlated
i.e. two variables move in same direction.
This Bar diagram and pie-chart show clear figure of insurance of fire
premium in different fiscal year.
Figure 3.1
Bar diagram of Fire Premium & Total premium
Bar Diagram of Fire Prem ium and Total Prem ium
250000000
Amount
200000000
150000000
Fire Premium
Total Premium
100000000
50000000
28
Figure 3.2
Pie- Chart of Fire Premium
281952
6924386
24898659
12100594
13157553
22905319
17784773
18899229
052/53
053/54
054/55
055/56
056/57
057/58
058/59
059/60
Figure 3.3
Pie Chart of Total Premium
673380
55432899
168091383
104849465
118649259
218086558
149849045
188488701
052/53
053/54
054/55
055/56
056/57
057/58
058/59
059/60
11.54%, 11.09%, 11.87%, 10.02 respectively. But in the fiscal year 059/60
the fire premium on total Premium is found to be increase to 14.81%. This
figure shows that the fire insurance premium has been increasing, while
contribution towards total premium is slightly decreasing. It means that the
other types of general insurance like marine, motor, engineering, aviation &
miscellaneous have outstripped the contribution of fire insurance. Other
types of general business have been increasing very fast than fire insurance.
This clearly supports our assumption that the Neco Insurance ltd. is passive.
Their promotional activity is respect of fire insurance is not good. They are
not trying their best to increase fire insurance business in these years.
% of claim paid on
21853
708588
4408531
5073636
5898831
5606766
6694831
6389634
on fire
492
6852
329190
144442
713829
1811010
924882
premium
0.069
0.16
6.49
2.45
12.73
27.05
14.47
In the fiscal year 052/53 there has been no claim paid. This is because
of the opening year, time duration is very short i.e. one and half month of
30
this company and the volume of net fire premium was not very large
compared to the following years.
In the following years 2053/54 and 54/55 the percentage of claim paid
is 0.069% and 0.16% respectively. The figures indicate that in these two
years, the amount of claim paid is very low but slightly increasing trend. But
in next fiscal year 055/56, 056/57, 057/58, 058/59 the percentage of claim
paid was increased in fire insurance was noted 6.49%, 2.45%, 12.73%,
27.05% respectively.
In the last fiscal year 059/60 the percentage of claim paid is 14.47%,
which is decrease than previous year. From the above calculation we can
predict that the percentage of claim paid on fire premium is fluctuating in the
different fiscal years, although, the percentage of claim paid increase from
one year to another year. It is not so worse for the company because the
claim paid percentage is very low comparing with net fire premium
collection.
Table showing the calculation of coefficient of correlation between net
fire premium and net claim paid on fire (the value of coefficient of
correlation has been derived by the help of computerized excel program)
31
Table 3.4
Correlation between Net fire Premium and Net claim paid on fire
Fiscal Year
052/53
053/54
054/55
055/56
056/57
057/58
058/59
059/60
r = 0.634757
xy
x . y
2
492
6852
329190
144442
713829
1811010
924882
The above analysis result shows that the coefficient of correlation between
net fire premium and net claim paid on fire is positive i.e. r = 0.634757.
Thus we can conclude that net fire premium and net claim paid on fire are
positively correlated i.e. two variables move in same direction.
The following figure will show the picture of net claim paid compared
to fire premium.
32
Figure - 3.4
8000000
7000000
6000000
5000000
4000000
3000000
2000000
1000000
0
Net fire
Premium
21,853
Net claim
paid on fire -
05
3/
54
05
4/
55
05
5/
56
05
6/
57
05
7/
58
05
8/
59
05
9/
60
Amount
Fiscal Year
Figure 3.5
Pie Chart of Net claim paid
492
6852
329190
924882
144442
713829
1811010
33
052/53
053/54
054/55
055/56
056/57
057/58
058/59
059/60
In the figure, the claims paid on the first three fiscal years are
negligible in comparison to their net fire premium. But in the fiscal year
058/59 and 059/60 the net claims paid is higher then preceding two years.
Although the above situation stated that company is very healthy and also
help to increase the profit.
3.2.3. Reinsurance
Reinsurance is an arrangement whereby an original insurer who has
insured a risk insures part of that risk again with another insurer, that is to
say, reinsures a part of the risk in order to diminish his own liability. It other
words, reinsurance is the transfer of insurance business from one insurer to
another.
Large risks are encountered in all section of insurance business. It
doesn't matter if it is marine or fire, life or non-life. It is for this reason that
re-insurance is required in all departments with the objective of providing a
greater spread of risk. So when a heavy claim is made on the insurance
company, which issued the policy, the burden will be borne by other
insurance companies as well.
There is most important role of reinsurance for pure operation of
insurance business. For this reason Neco Insurance Ltd. has reinsurance
contract with different national insurance company like Premier insurance
co., Sagarmatha Insurance Co. and National Insurance Co. etc. The company
has also reinsurance contract with various foreign renowned insurance
companies such as General Insurance Corporation India; The Tokyo Marine
and fire Insurance Co. Ltd. Japan, Arab Insurance Group, Bahrain;
Assicurazioni Generali, Dubai and others.
34
The following table shows the reinsurance premium from firepremium of Neco Insurance Ltd. for different fiscal years.
Table- 3.5
Status of reinsurance premium on fire and fire premium
Fiscal Year
052/53
053/54
054/55
055/56
056/57
057/58
058/59
059/60
Re-insurance
Premium on fire
260099
6215798
7692062
8083917
11887942
13292463
16210488
18509025
Fire Premium
281952
6924386
12100594
13157553
17784773
18899229
22905319
24898659
% of Re insurance
Premium on fire
92.25
89.77
63.57
61.44
66.84
70.33
70.77
74.33
35
company wants to retain more business with them. It also indicates that the
company is expanding their capacity with the increase premium income.
Transaction of re-insurance business within the country between
different companies is less than the business for re-insurance in the foreign
international companies'. Placing of reinsurance business in foreign
companies means paying foreign currency. It means heavy foreign currency
outflow from country. Instead re-insurance among different foreign
companies within the country is preferred.
This Bar- diagram and pie chart will show a clear picture of reinsurance business of Neco Insurance Ltd. from Fiscal year 2052/53 to
059/60
Figure - 3.6
Bar-diagram of reinsurance premium and fire premium
25000000
052/53
053/54
054/55
055/56
056/57
057/58
058/59
059/60
20000000
15000000
10000000
5000000
0
Re-insurance Premium on
fire
Fire Premium
Figure 3.7
Pie Chart of Re Insurance Premium
36
Re-insurance Premium
on fire
Fire Premium
37
Table - 3.6
Status of Fire Premium and Operating Profit On Fire
Fiscal Year
052/53
053/54
054/55
055/56
056/57
057/58
058/59
059/60
Fire
operating
% of profit on
% change on
premium
profit on
premium
Operating profit
281952
6924386
12100594
13157553
17784773
18899229
22905319
24898659
fire
(185969)
1667806
3335437
5538786
7813011
7694106
7991069
6277479
-65.96
24.09
27.56
42.10
43.93
40.71
34.88
25.29
on fire
(996.82)
99.99
66.06
41.06
(1.52)
3.86
(21.44)
As shown in table 3.4, the operating income (profit) for the year
052/53 is -65.96% (loss) of the premium income, which is heavy loss. It is
because of established year and very short period one and half month, in this
year 92.25% of its premium is re-insured to other companies and also high
managerial expenses and other expenses are beard by the company.
In
the
following
years
053/54,
054/55,
055/56,
056/57,
38
The bar- diagram and pie chart will show in clear picture of operating
profit on fire premium of Neco Insurance Ltd. from fiscal year 052/53 to
059/60.
Figure 3.8
Fire premium
operating profit on fire
9/
60
05
8/
59
7/
58
05
6/
57
05
05
5/
56
4/
55
05
3/
54
05
05
-10000000
2/
53
10000000
0
05
Amount
30000000
Fiscal Year
Figure 3.9
Pie chart of operating profit
-65.96%
20.4
Fire premium
-185969
39
% of profit on premium
4th Qtr
From the above stated figure out of the fiscal year 2052/53 all other fiscal
years like 053/54, 054/55, 055/56 ,056/57,057/58,058/59,059/60 have show
the increasing trend of operating profit on fire premium. This indicates the
good sign for the betterment of the company as per fire insurance business.
However the % of Re- insurance premium on fire premium is heavy amount,
the company success to make the satisfactory profit in the different fiscal
year. This increasing trend of profit makes the company strong and expanse
the volume of business widely. By the operating profit of fire insurance may
cover the other sectors loss arising to the company.
40
41
CHAPTER- IV
4. Summary, Conclusion and Recommendation
4.1. Summary
Fire insurance is the important branch of insurance business one can
feel safe after insuring his property against fire and other hazards like
explosion, riot, civil commotion, and earthquake. Nobody knows when a fire
incurs and his property will be destroyed. In order to avoid such insecurities
from mind fire insurance is the surest possible way of protecting one's
property is advance. Fire insurance has vital role to play in our country when
trade and commercial activities are increasing day by day.
The main objective of this research is to explore the present situations
to observe its popularity to evaluate the trend to compare the fire insurance
with other similar company and give suggestions for the betterment of the
fire business.
While studying different facts of the fire insurance business from
Neco Insurance Company, some problems have been identified. Prospect of
fire insurance is very high but due to concentration of business in limited
cities, most of the people are unknown to fire insurance. Among the masses,
it is not much popular, as it ought to be. It is because, insurance companies
are not doing well to promote it and government also is not serious on
promotional activities. The companies are depending on big industries and
are not trying to sell their policy to small entrepreneurs. Low income is also
another factor, which has been affecting fire insurance business. In our
country most of the business is sole trading concern. The income of these
concerns is very limited. So trails are reluctant to insure their property. The
company should come forward with efforts to make them aware of the
advantages of insuring their property.
42
43
4.3. Recommendation
Based on the summary and findings some important suggestions and
recommendations are drawn to improve the current position of the
company, which are listed below.
1. Research should be made by experienced person of the related field to
search new insurance market, for which the company should appoint
its professional agents.
2. Company should improve the outstanding premium collection by
providing attractive collection scheme or incentives to the
policyholder and encouraging them to pay earlier or in time.
3. Company should improve its liquidity position by adopting new
strategies to reduce the level of current liabilities or to invest more on
liquid assets. The company should also reduce the outstanding claim
to Make sound liquidity position.
4. Company should make effective investment portfolio by investing its
resources on government securities and bonds for liquidity
consideration, as well as for safety measure. Major portion of the
funds should be invested in stocks of financially reputed (strong)
companies to earn high rate of return.
5. Adequate publicity and advertising should be made to inform people
the need and importance of insurance for the development of
insurance market.
6. The company should make and adopt new, clear and sound policy to
involve more and more areas in insurance business from different
sector.
44
45