Table of Contents

1. Introduction ............................................................................................................................. 1
1.1 Background ...................................................................................................................... 1
1.2 Objective .......................................................................................................................... 1
1.3 Methodology .................................................................................................................... 1
2. Company Overview ................................................................................................................. 2
3. Particular Insurance Policy ...................................................................................................... 3
4. Ratio Analysis.......................................................................................................................... 4
4.1 Liquidity ratio................................................................................................................... 4
4.1.1 Current Ratio ............................................................................................................. 4
4.1.2 Quick ratio ................................................................................................................ 4
4.1.3 Cash Ratio ................................................................................................................. 5
4.2 Profitability Ratio ............................................................................................................. 5
4.2.1 Gross profit margin ................................................................................................... 5
4.2.2 Operating profit margin ............................................................................................ 6
4.2.3 Net profit margin....................................................................................................... 6
4.2.4 Return on total asset .................................................................................................. 7
4.2.5 Return on common equity ......................................................................................... 7
4.3 Asset management ratio ................................................................................................... 8
4.3.1 Receivables Turnover ............................................................................................... 8
4.3.2 Fixed asset turnover .................................................................................................. 8
4.3.3 Total asset turnover ................................................................................................... 8
4.4 Debt management ratio .................................................................................................... 9
4.4.1 Debt ratio .................................................................................................................. 9
4.4.2 Debt-equity ratio ....................................................................................................... 9
4.4.3 Times interest earned ratio ...................................................................................... 10
4.5 Market value ratio .......................................................................................................... 10
4.5.1 Earnings Per Share .................................................................................................. 10
4.5.2 Price/earnings ratio ................................................................................................. 11
4.5.3 Market value/book value ratio ................................................................................ 11
5. Prospects ................................................................................................................................ 12
6. Problems ................................................................................................................................ 13
7. Conclusion ............................................................................................................................. 14
1. Introduction
1.1 Background
Insurance is a form of risk management that is used to protect against unpredictable loss or failure.
Insurance can be broadly classified into 2 categories: general insurance and life insurance. In
general insurance, the subject matters are mostly assets or liabilities; in life insurance the subject
matters are mostly related to life and well being. General insurance has 3 subcategories- fire,
marine and accident. Life insurance has two subcategories- personal accident and sickness
insurance and ordinary life assurance.
The development of insurance industry can facilitate the growth of economy of a country. In
Bangladesh, overpopulation, natural disasters and disease can imperil the momentum of the
currently remarkable economic growth. As such, an organized, productive, and viable insurance
industry is paramount to overcome risks and calamities. Although insurance indutry was suppose
to have ample opportunities under these circumstances, it failed to grow as per expectations.
In addition to mitigating risks of policyholders, it can also function to channel their funds to
increase investment in a country. This is especially beneficial for Bangladesh's economy, where
suuply of capital is short, savings rates are poor, investment opportunities are scarce, inflation is
rampant, and social security arrangements for the population are almost non-existent.
Insurance industry dates back to the period of British rule in Indian subcontinent. It gained
popularity in East Pakistan, now Bangladesh, in early 1947, with forty-nine insurance companies
operating in the market then with both general and life insurance. As of 2019, there are 46 general
insurance companies, 33 life insurance companies which includes two state-run insurance
companies operating in Bangladesh. In 2019, the combined gross premium earned by life insurance
companies stood at Tk 96.1 billion and general insurance companies earned Tk 36.8 billion.
Nonetheless, total gross premium stood at only 0.47% of the GDP oif the country.
The growing economic importance of insurance industry has been evident in the observation of
other developing countries. This stresses the need for more attention to the expansion of this sector.
Furthermore, the risk involved in the interdependency of the financial system can be spread more
evenly with a constructive insurance system. A robust insurance industry can help in mobilizimg
savings, protect future expenditure and operation and improve standard of living by manyfolds.
1.2 Objective
The objective of this report is to evaluate the financial performance of Central Insurance Company
Limited and explore its various insurance policies, and the opportunities and challenges faced by
the insurance industry in general.
1.3 Methodology
The data for the evaluation of financial ratios was obtained from the annual report of Central
Insurance Company Limited for the year ending at 31 December 2019. This report also cites
information from other secondary sources.

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2. Company Overview
Central Insurance Company Limited began operation on November 12, 1987 and listed on the
Dhaka Stock Exchange and the Chittagong Stock Exchange on December 10, 1987. On November
30, 1987, the company received the Certificate of Registration from the Controller of Insurance.
The company is currently regulated by the Insurance Development and Regulatory Authority
(IDRA). They offer general insurance policies under the category of fire insurance, maritime
insurance, motor insurance, engineering insurance, and miscellaneous insurance. The company’s
head office is located in the Motijheel area of Dhaka, Bangladesh.
As of December 31, 2019, the firm had BDT 1000 million approved share capital and a BDT
470.8 million paid-up capital. There are 4,70,82,900 shares issued. The face value is Tk 10, while
the book value per share is Tk 24.68. The sponsors and directors held 42% of share, government
held 10.9% of shares while various institutes held 10%, and 37.1% of shares were publicly traded.
Central Insurance is dedicated to providing creative goods and services to all of its customers while
upholding a dedication to protection, security, and sustainability. The goal of the company is to
boost people's quality of life by providing coverage for their business and assets through their
insurance service. Their vision is to be the country's most confident and dependable insurer, with
an aim to become the country's top non-life insurer.

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3. Particular Insurance Policy

Central Insurance Company Limited provides general insurance in fire, marine, engineering, motor
and miscellaneous category. The particular insurance policy to be discussed in this report is the
marine insurance.

Marine insurance insures coverage the loss or damage of the hull, cargo and freight in the ordinary
course of the business. Since trading via sea route has intrinsic risk, various forms of marine
insurance insures the ship and cargo during transportation of goods and stay at ports. Central
Insurance Company Limited offers insurance policy for the builders' risk, hull and cargo.

Marine builder's risk insurance policy provides coverage for any physical loss or damage caused
to the vessel (the body of the ship) from the beginning of its construction, throughout the period
until it is delivered to the buyer of the ship.

The marine hull insurance provides coverage if the vessel or body of an insured ship is damaged.
The ship owners are the principal user of marine hull policy. The coverage is provided either for a
certain time or within certain territory or combination of both as per the contract with the
policyholder. The insurance coverage may also be limited to damages caused by certain types of
peril.

Marine cargo insurance is mainly used by importers and exporters to cover any loss or damage to
their assets that are being transported by sea. The import-export industry heavily relies on sea
routes for carriage of goods and cargo values are generally substantial in amount, which makes
this an attractive insurance policy for insured trading.

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4. Ratio Analysis
4.1 Liquidity ratio
4.1.1 Current Ratio

Current ratio
Year Current Ratio
2.000 1.996
1.990
2018 1.996 1.980 1.974
1.970

2019 1.974 1.960

2018 2019

The current ratio of Central Insurance Limited for the year 2018 and 2019 is 1.996 and 1.974
respectively. This shows that the current asset of the company was greater than its liability for both
years. This indicates that the company has sufficient liquidity to meet its current obligations as
they come due within the next 12 months.

However, the current ratio has decreased between the two years. This may be because there was a
significant increase in sundry creditors and a simultaneous decrease in sundry debtors, which
reduced the company's working capital and liquidity.

4.1.2 Quick ratio

Quick ratio
Year Quick Ratio
2.000 1.993
1.990
2018 1.993 1.980
1.972
1.970

2019 1.972 1.960

2018 2019

The quick ratio of the company for the years 2018 and 2019 is 1.993 and 1.972 respectively.
The quick ratio for both years is greater than 1, which suggests that the company can pay its current
liabilities immediately with its very close-to-cash assets. It can be assumed that stationery and

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insurance stamps are relatively difficult to be converted into cash at their book value; thus, these
assets are the only ones from the current assets that are not included in this calculation. Similar to
the current ratio, the quick ratio has decreased between the two years.

4.1.3 Cash Ratio

Cash ratio
Year Cash Ratio
1.025 1.022
1.020
2018 1.022 1.015 1.013

1.010

2019 1.013 1.005

2018 2019

The cash ratio of the company for the year 2018 and 2019 is 1.022 and 1.013 respectively.
This suggests that the cash and cash equivalent assets of the company is greater than its current
liabilities. Thus, the company can pay its current debts immediately with its cash.

4.2 Profitability Ratio

4.2.1 Gross profit margin

Gross profit Gross profit Margin

Year
margin 17.50% 17.08%
17.00%

2018 15.83% 16.50%

16.00% 15.83%
15.50%
2019 17.08% 15.00%
2018 2019

The Gross Profit Margin shows the portion of revenue left after deducting the cost of service as a
percentage of the revenue. This financial metric enables stakeholders to understand the future
earning potential of a business. In 2018, Central Insurance Company Limited was able to keep
15.8% of its revenue from premium and commission after paying for claims and other costs of

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services. In 2019, their gross profit margin increased by 8% to 17.08%, indicating that the company
has become more profitable from the last year.

4.2.2 Operating profit margin

Operating profit Operating profit Margin

Year
margin 15.00% 13.20%
10.73%
10.00%
2018 10.73%
5.00%

2019 13.20% 0.00%

2018 2019

Operating profit margin measures the operational efficiency in managing expenses by showing the
profit left after charging such expenses as a percentage of sales. The company's operating profit
margin in 2018 was 10.73% which rose by 23% to 13.20% in 2019. The company was able to
reduce its expense by 7.7%, which might have contributed to the growth in operating profit.

4.2.3 Net profit margin

Net Profit Margin

Year Net profit margin
39.50%
39.04%
39.00%
2018 37.78% 38.50%
38.00% 37.78%
37.50%
2019 39.04% 37.00%
2018 2019

The net profit margin is an important measure of profitability which shows the income that is left
after deducting expense, interest and tax as a percentage of revenue. Thes company had a high net
profit margin of 38% in 2018 which increased to 39% in 2019. The net profit margin is almost
three times larger than the operating profit margin which is mainly due to high non-operating
revenues like interest receivable and capital gains.

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4.2.4 Return on total asset

Return on Total Assets

Year ROA
5.60%
5.54%
5.55%

2018 5.54% 5.50%

5.45% 5.43%
5.40%
2019 5.43% 5.35%
2018 2019

Return on total asset (ROA) measures the company’s earnings before interest and tax as a
percentage of total assets. This indicates how efficiently a business is using its asset by showing
the net profit earned for every one taka of the total asset of the company. The ROA of this company
in 2018 was 5.54% return. This decreased to 5.43% in 2019. This may be because the company’s
total assets increased by 2.93% whereas EBIT only rose by 0.74%. Nonetheless, the company had
a positive ROA in both years.

4.2.5 Return on common equity

Return on Common Equity

Year ROE 8.96%
9.00%
8.90%
8.80%
2018 8.96% 8.68%
8.70%
8.60%
2019 8.68% 8.50%
2018 2019

The ROE ratio shows the net income earned by a company for every 1 taka of shareholder’s equity.
This ratio shows the efficiency in utilizing equity and is higher than ROA in companies with debt
financing. This company earned a positive ROE in both years. In 2018 the ROE was 8.96% which
decreased by 3% in 2019 to 8.68%. This indicates lower performance.

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4.3 Asset management ratio
4.3.1 Receivables Turnover

The company had no outstanding premiums for both years 2018 and 2019. Thus, all revenue from
the premium is considered cash.

4.3.2 Fixed asset turnover

Fixed asset Fixed asset turnover

Year
turnover 0.620 0.610
0.600

2018 0.610 0.580

0.557
0.560
0.540
2019 0.557 0.520
2018 2019

The fixed asset turnover ratio indicates how efficiently a company's fixed assets can earn revenue.
In 2018, Central Insurance Company Limited generated 0.61 Taka revenue for every 1 Taka of
fixed assets. However, this ratio depleted in 2019 to 0.557:1, which may be because fixed assets
grew by 11.7% whereas revenue decreased by 2.5%, causing the ratio to drop. In a service industry
like insurance, asset management is critical to ensure that too much capital is not tied to fixed
assets affecting the business's working capital.

4.3.3 Total asset turnover

Total asset Total asset turnover

Year
turnover 0.155
0.151
0.150
2018 0.151 0.145
0.141
0.140
2019 0.141 0.135
2018 2019

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The total asset turnover ratio measures how much revenue can be earned by using all the company's
assets. In 2018, the company generated 0.151 Taka revenue for every 1 Taka of total assets. In
2019, the revenue generation decreased to 14.1% of the total asset, which may be because there
was a 2.9% increase in total assets while premium revenue and total revenue fell by 3.3% and
2.5%.

4.4 Debt management ratio

4.4.1 Debt ratio

Debt ratio
Year Debt Ratio 38.15%
38.20%
38.00%
2018 38.15% 37.80%
37.60% 37.52%
37.40%
2019 37.52% 37.20%
2018 2019

The debt ratio indicates the extent to which a company relies on debts to finance its assets. In year
2018, there was 0.381 Taka of debt for every 1 Taka of assets, and in 2019 the ratio fell to become
0.375:1. This ratio reflects the company's risk because it also shows the portion of the assets that
could be distributed to the equity holders after payment of all debts. More than 60% of the assets
were financed by equity in both years, which is a favorable position for the company's
shareholders.

4.4.2 Debt-equity ratio

Debt-equity ratio
Year Debt-equity Ratio
0.620 0.617
0.615
0.610
2018 0.617 0.605 0.601
0.600
0.595
2019 0.601 0.590
2018 2019

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The debt-equity ratio indicates the level of debt with that of equity. This compares how much debt
has been used in financing against the use of equity. The company's debt-equity ratio in 2018
shows that for every 1 Taka of shareholders' equity, there was 0.62 Taka debt, and in 2019, the
ratio reduced to 0.60:1.

4.4.3 Times interest earned ratio

Times interest Times interest earned ratio

Year 46.66
earned ratio 50.00
40.00 31.43
2018 31.43 30.00
20.00
10.00
2019 46.66 0.00
2018 2019

The time interest ratio shows how many times a company's earnings before interest and tax can
cover its interest expense. This indicates that the company can earn and pay its interest obligation.
The financial cost of the company has been used for the calculation of this ratio. In 2018 the
company earned 31.43 times its financial cost, and in 2019 the ratio increased to 46.66 times. This
is favorable because it implies that the ability of the company to pay interest has increased between
the years.
Overall, the debt management ratio shows favorable conditions. The company can leverage its
growth through debt financing without worsening the interest of the shareholders.

4.5 Market value ratio

4.5.1 Earnings Per Share

Earning Per Share

Year Earnings Per Share 2.14
2.15
2.14
2.14
2018 2.13 2.13 2.13
2.13
2.12
2019 2.14 2.12
2018 2019

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Earnings per share show the earnings available after preference share dividend for each share of
common stock. EPS indicates profitability and can influence the demand for common stock in the
market. In 2018, the EPS of Central Insurance Company Limited was 2.13 Taka per share and in
2014 it increased to 2.14 Taka per share.

4.5.2 Price/earnings ratio

Price/earnings ratio
Year Price/earnings ratio
15.00
11.81
10.00 8.79
2018 8.79
5.00

2019 11.81 0.00

2018 2019

The price-earnings ratio indicates the willingness of investors to pay for every 1 Taka of the
earnings per share of the common stock. In 2018, the investors were willing to pay 8.79 Taka to
claim every 1 Taka of EPS, and in 2019 it grew to become 11.81 Taka. This shows the growing
confidence of the investors in the company in the market.

4.5.3 Market value/book value ratio

Market value/book Market value/book value

Year
value ratio ratio
1.50
1.03
2018 0.79 1.00 0.79

0.50

2019 1.03 0.00

2018 2019

The market value ratio in 2018 was 0.79 which means that the market price of each common stock
was less than the book value and the stockholders would have received more if the company was
liquidated than selling its stock in the market. However, the situation improved in 2019, as the
market value of each share increased to become 1.03 times its book value, indicating improved
confidence in the company's going concern and future earnings.

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5. Prospects

Economic prospect

Bangladesh is a nation growing in population income and standard of living. There has been a
massive growth in working adults which has boosted production and trade in the economy, which
means there is an evermore need to secure business and personal assets from loss with insurance.
This means that there is a potential for this industry to rise in the future. The surge in consumption,
government spending, readymade garments (RMG) exports and remittance propelled GDP. A
such, people's income has also been rising which has enhanced their ability to save. With
increasing standards of living, people are more concerned about securing a stable future which has
promising business opportunity for insurance companies. Meanwhile, the growth in literacy and
digitalisation is likely to facilitate the penetration of the industry among wider group of people
across a larger area of the country.

Industry prospect

The insurance industry itself is growing with new entrants, thus, the potential to attract government
and investors is also rising. This means that there will be more people with knowledge and
experience of the industry to effectively train future potential employees. Meanwhile,
technological advancements has already revolutionised the delivery of financial services to larger
group of people and these channels can also be used to provide insurance services. There are
already cases of successful delivery of insurance services through mobile banking applications and
agents. There are already cases of successful delivery of insurance services through mobile
banking applications and agents. The insurance industry may have ample opportunity to diversify
their products and even reform their policies to micro-insurance for faster adoption, especially by
the rural societies.

Insurance companies can also revamp their business model. For example, insurance companies
can enter into a partnership with banks to provide limited scale insurance services. Banks
predominantly have superior technology and resources to provide better customer service. This
would reduce some cost for insurers and also ease transaction with consumers. Furthermore,
customers' distrust can perhaps be dispersed by little if banks provide some insurance services
which has been seen in a study by PwC where customers displayed more trust in banks than in
insurance companies.

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6. Problems
Economic problems
Bangladesh is a thriving nation. However, a mass portion of the population belongs to low and
middle-income class. Low disposable income makes savings dearer; this is why people are less
willing to save in uncertain schemes, especially in a general insurance policy, and look for more
reliable options like deposit. The poor economic condition makes it difficult for the insurance
industry to flourish (Shamim & Nazim). This situation is further worsened by low literacy in the
country. Religious attitude has also been conducive to the industry because people believe that
uncertainty is in the hands of Allah, and insurance is not necessarily required to combat such (Reza
& Iqbal, 2007).
Consumer-side problems
Demand-side challenges: Lack of awareness about the benefits insurance policy has been
conducive to reaching potential customers. This was also observed in the study by Uddin (2020),
which found that 93.6% of the 200 respondents lack awareness about insurance. At the same time,
it was found that people a negative perception of insurance companies and suspect them of
cheating with their policies and conditions. The insurance industry is also under-publicized by
media or advertisements. Without very little publicly available information, people are
discouraged. A lack of effective marketing policy exists in the insurance industry. Meanwhile, the
industry also struggles in retaining consumers due to the difficulties and delays in claim settlement
following accidents. This dampens the popularity and trustworthiness of the business.
Insurer-side problems
There are some problems caused by the insurance companies including lack of effective human
resource management, centralised business model and low product diversification. Insurance
business reportedly has been found to lack qualified officials, knowledgeable agents and proper
training of the field which results in poor risk assessment and substandard delivery of
professionalism and service to customers. This can weaken financial strength and impact on the
creation of trust in customer service of an insurance company. Furthermore, the industry has been
less effective in attracting intellectual recruits creating a shortage of knowledgeable agents.
Insurance companies also tend to heavily centralise their operation in urban areas in hopes of
greater business, failing to properly address the rural and vulnerable sector of the economy. In
addition to this, many lack diversified insurance policies to cover all types of customers like
agriculture insurance for farmers or education insurance for students. The agriculture industry, in
particular, which employs almost 50% of the population and faces risk from natural calamities and
disease, is largely ignored by many insurance companies.
Lack of Business Ethics

Some insurance companies in Bangladesh have questionable business ethics. Such companies
create hurdles for the policyholders by creating different reasons to disqualify from claims.
Besides, some agents or insurance representatives also try to attract people into a policy by giving
false data. These acts dilute trust in insurance companies due of negative words of mouth of those
aggrieved by the insurers

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7. Conclusion
Insurance provides protection against loss or damages caused by unforeseeable events. Insurance
policies can be broadly differentiated into general insurance and life insurance. General insurance
protects the assets and liabilities of the insurer while life insurance provides coverage for life
related issues. The objective of this report is to evaluate the financial ratios of a general insurance
provider- Central Insurance Company Limited. The financial ratios discussed include profitability
ratios, liquidity ratios, asset management ratios, debt-management ratios and market value ratios.
Profitability ratios reflect the financial performance of a business during the year. Generally gross
profit, operating profit and net profit are calculated as a percentage of net revenue to identify how
efficiently a business has managed its costs and expenses. For Central Insurance Company
Limited, all of the profit margins aforementioned increased between the year 2018 and 2019. The
company was found to have significant non-operating income which boosted net
profit. Profitability is also measured in terms of return on total assets and return on equity. Both
ROA and ROE decreased in this period. Liquidity ratios measures the ability of a company to pay
its current obligation as they come due. All the liquidity ratios of the company are above 1 which
means the company even has the most liquid asset-cash to cover for all its current liabilities. Asset
management ratios shows how efficiently a company has used its assets to generate revenue. Both
fixed assets turnover and total asset turnover shrinked between year 2018 and 2019. This indicates
lower efficiency in utilizing assets to generate revenue. However, the company's debt management
ratios are in a favourable situation since both debt ratio and debt-equity ratio declined indicating
less reliance on debt financing; meanwhile earnings before interest and tax rose to become 46
times it's finance cost. Market value ratio also indicated improved confidence of investors in the
company. In 2019, EPS grew and investors were willing to pay more for every 1 taka EPS and the
market price per share exceeded the book value per share for the first time.
The growth of insurance industry in Bangladesh has been stagnant compared to other service
sectors in the country. The problems stem from low income and savings in the economy, lack of
awareness about benefits of insurance, poor business ethics causing distrust and negative words of
mouth, low diversity in services offered and inadequate skills and knowledge of human resource.
Despite these, there is ample opportunity for the insurance sector to grow because Bangladesh has
a booming economy with its population, literacy and trade rising over the years, which means the
willingness to secure asset and life from uncertainty will increase in future.

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