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 & clients 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 companys branch.
To increase volume & companys 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
Branch Name & Address In charge
Adamjee Court Branch
Adamjee Court Annex-2
119-120 Motijheel C/A, Dhaka
Md. Nurul Islam
Deputy Managing Director

Agrabad Branch
Noor Chamber, 34 Agrabad C/A,
Chittagong.
Md. Mahabubul Alam
Deputy Managing Director

Anderkilla Branch
8 Lal Dhigi East- 1st Floor, Anderkilla
Chittagong
Mukbul Ahmed
Sr. Executive Vice President

Bangshal Branch
230 North South Road
Faridun Nahar
Deputy Managing Director
Bangshal, Dhaka

Bogra Branch
Tin Patty, Borogola, Bogra
Md. Monjurul Alam
Asstt. Vice President

Comilla Branch
Goni Bhuiyan Mansion
Monoharpur, Comilla
Kazi Nazmul
Asstt. Vice President

Dewanhat Branch
930-931 Sk. Mujib Road
Dewanhat, Chittagang
Abdul Moqeet Chowdhury
Sr. Executive Vice President

Dilkusha Branch
28 Dilkusha C/A
(7th Floor), Dhaka.
Md.Sadaruddin
Deputy Managing Director

Dinajpur Branch
Maldah Patty
Gourhatty, Dinajpur
Azizus Salam (Bakul)
Asstt. Vice President

Elephant Road Branch
44 New Elephant Road
Dhanmondi, Dhaka
Md. Iqbal Hossain
Sr. Executive Vice President

Farmgate Branch
91 Kazi Nazrul Islam Avenue
Kawran Bazar, Dhaka
Md. Moslem Ali Khan
Executive Vice President

Gaibanda Branch Khandakar Shamim Ahmed
D.B Road, Gaibanda Incharge

Hatkhola Branch
Delwar Complex
26 Hatkhola Road, Dhaka
Md. Mominul Islam
Executive Vice President

Imamgonj Branch
Al-Fala Building
144 Mitford Road, Dhaka
Dewar A.S. Moinuddin
Sr. Vice President
Jessore Branch
34 Municipal Market (2nd Floor)
Mistrikhana Road, Jessore
Md. Shoriful Islam
Sr. Vice President

Jubilee Road Branch
Ali Building
200/B Jubilee Road, Chittagong
Md. Moazzam Hossain
Sr. Executive Vice President

Joypurhat Branch
Thana Road, Joypurhat
Mamunur Rashid Milton
Asstt. Vice President

Khatungonj Branch
284/2-285/2 Khatungonj
Chittagong.
Md. Mujibul Chowdhury
Deputy Managing Director

Khulna Branch
142 Sir Iqbal Road (2nd Floor),
Khulna
Swadesh Ranjan Ray
Sr. Asstt. Vice President

Kushtia Branch Abul Kalam Azad
Lovely Tower (4th Floor)
55/1, N, S Road, Kushtia
Vice President

Local Motijheel Office
Amin Court (Ist Floor)
62-63 motijheel C/A , Dhaka-1000
A K M Shahabuddin Chy.
Sr. Exesutive Vice President

Moghbazar Branch
323/2 Tongi Diversion Road
Moghbazar, Dhaka
Md. Iftekhar Hossain Chy.
Exesutive Vice President

Munshigonj Branch
Mukterpur, Munshigonj
Md. Hafizur Rahman
Manager

Nawabpur Branch
211 Nawabpur Road (3rd Floor),
Dhaka
Md. Amanullah
Vice President

Rajshahi Branch
Shahed Bazar, Boalia
Rajshahi
Md. Mesbahul Hoque
Incharge

Rangpur Branch
Hoque Super Market
Station Road, Rangpur
Md. Reazul Haque Khandakar
Asstt. Vice President

Romna Branch
Chittagong Samity Bhaban
32, Topkhana Road, Dhaka.
Kazi Arifur Rahaman
Deputy Managing Director

Sylhet Branch
Century Shopping Center
Amberkhana, Sylhet
S. M. Md. Azimuddoula Khan
Asstt. Vice President

Tongi Branch
A. H. Tower
Uttara, Dhaka
Abul Kalam Sikdar Azad
Vice President

VIP Road Branch
City Heart (13th Floor)
67 Naya Paltan, Dhaka
Md. Sirajul Islam
Sr. Vice President
Performance & Growth of the Company:





Particulars 2010 2009 2008 2007 2006
Gross Premium Income 271.62 256.32 258.06 224.04 199.28
Net Premium Less Re-Insurance 176.90 158.94 136.32 128.44 98.36
Net Claims 16.78 17.72 11.94 16.47 15.94
Underwriting Profit 47.82 43.52 35.02 25.40 21.43
Investment Income 9.04 6.08 5.84 5.22 3.40
Profit Before Tax 24.84 22.07 16.30 12.27 2.53
Dividend 13.463 12.021 9.106 9.757 8.715
Rate of Dividend 12% 12% 10% 12% 12%
Shareholder`s Equity * 169.41 154.87 142.22 133.02 123.97
Total Assets 640.68 585.73 560.10 529.49 503.31
NO. of Branches 29 29 32 33 33
NO. of Employees 438 469 438 502 491
NO. of Shareholders 8421 2437 2225 1884 1739
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
Directors 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 companys 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: ICCA, ICCB, ICCC, 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, Workmans Compensation, Aviation, Travel,
Overseas Medic aim, Health insurance, Product liability CAR,EAR,MBD,DOS,BPV etc.
So, these are above types 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 owners managers
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 vessels, 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 cant 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 insureds 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 coverages, 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 entitys 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:
Year 2005 2006 2007 2008 2009
Current Ratio(*:1) 1.4 1.56 1.45 1.42 1.45
Acid Test Ratio(*:1) 1.28 1.31 1.34 1.32 1.35
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.
Year 2005 2006 2007 2008 2009

Net Premium Income 97.75 98.36 128.44 136.32 158.94

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.
Year 2005 2006 2007 2008 2009

Earnings Per Share(EPS) 12.01 3.48 11.12 10.10 12.95

Interpretation: The portion of a companys profit allocated to each outstanding share of
common stock. Earnings per share serve as an indicator of a companys 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.
Year 2005 2006 2007 2008 2009

Profit Before Tax 7.93 2.53 12.27 16.30 22.07

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
Year 2005 2006 2007 2008 2009

Rate of Dividend 10% 12% 12% 10% 12%

Interpretation: The rate of dividend remains almost same except last year. It fluctuates
between 10-12 %
Total Assets
Figures are in Million Taka.
Year 2005 2006 2007 2008 2009

Total Assets 470.49 503.31 529.49 560.10 585.73

Interpretation: The total asset of Federal Insurance Co. is gradually increasing highest in 2009
among last 5 years and in increase.
Net Claims
Year 2005 2006 2007 2008 2009

Net Claims 12.21 15.94 16.47 11.94 17.72

Interpretation: The Net Claim of Federal Insurance Co. is highest in 2009 among last 5 years
and in lowest in 2008.
Number of Branches
Year 2005 2006 2007 2008 2009

Number of Branches 33 33 33 32 29

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.
Year 2005 2006 2007 2008 2009

Share Price 80 90 155.5 281.5 574.75

Interpretation: The Share of Federal Insurance Co. is gradually increasing highest in 2009
among last 5 years and in increase.
Common Size Statement Analysis:
CAPITAL & LIABILITIES 2009 2008 2007 2006 2005
SHAREHOLDERS EQUITY 0.26 0.25 0.25 0.25 0.24
BALANCE OF FUNDS 0.09 0.10 0.10 0.08 0.08
ESTIMATED LIABILITIES 0.05 0.05 0.05 0.05 0.07
AMOUNT DUE TO OTHER PERSONS 0.40 0.36 0.34 0.32 0.26
SUNDRY CREDITORS 0.13 0.19 0.21 0.23 0.30
LOANS AND ADVANCES 0.06 0.04 0.03 0.03 0.02
Premium Deposit Account 0.01 0.01 0.02 0.04 0.03
Total 1.00 1.00 1.00 1.00 1.00
PROPERTY & ASSETS:
PROPERTY & ASSETS 2009 2008 2007 2006 2005
INVESTMENT (AT COST) 0.01 0.01 0.01 0.01 0.01
OUTSTANDING PREMIUM 0.12 0.12 0.11 0.11 0.11
INTEREST, DIVIDEND & RENT 0.01 0.01 0.01 0.01 0.01
AMOUNT DUE FROM OTHER PERSONS 0.24 0.14 0.15 0.15 0.16
SUNDRY DEBTORS 0.30 0.45 0.46 0.48 0.48
CASH AND BANK BALANCES 0.26 0.20 0.18 0.15 0.14
OTHER ACCOUNTS 0.06 0.07 0.08 0.09 0.09
Total 1.00 1.00 1.00 1.00 1.00
Scenario Analysis:
Year 2006 2007 2008 2009 2010*
Net Premium 98,356,941 128,441,056 136,316,922 158,936,885 184,366,786
U.W. Profit 21,431,159 25,404,162 35,024,310 43,524,794 53,970,745
Assets 42,898,918 40,670,950 41,663,413 38,292,846 40,881,531
Share Capital 72,600,000 81,312,000 91,069,400 100,176,300 106,632,780
*Assumed
Sensitivity Analysis:
ITEM In 2009 If Gross
Premium+5%
If Gross
Premium -5%
If Net Claim
+5%
If Net Claim
5%
Gross
Premium 258917716 271863602 245971830 258917716 258917716
Net
premium 158936885 171882771 145990999 158936885 158936885
Net Claim 17721988 17721988 17721988 18608087 16835889
U.W. Profit 43524794 56470680 30578908 42638695 44410893
Interpretation: The Graph shows that, changing in claim and premium doesnt impact
tremendously on profit.
Cross Sectional Analysis:
Companys Name Federal Ins. Peoples Ins. Green Delta Phenix Ins. United Ins.
Ins.
Net Profit 22070000 45390000 277651506 75468998 74260000
Net Premium 158940000 217040000 726690000 260188882 104140000
Investments 5612783 487308558 1835340000 110537012 226309331
Total Reserve 36374368 148210000 2094790000 142552866 274550000
EPS 12.95 33.17 56.99 25.16 21.31
Total Assets 585726090 797410000 3433076610 697904618 726000512
Total Liabilities 585726090 797407025 1293321460 1023722333 726000512
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.
Year 2008
(D3)
2009
(D4)
2010
(D4)
Dividend
%
10 12 12
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 cant computerize the total network still now.
3) No advanced training facilities.
Threat:

1) Unhealthy competitive market.
2) Turnover rate is high.
Situation Analysis:
Porters 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 I nsurance; Azizul Huq Chaudhri
2. I nsurance 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

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