fin 410-final-report-1

Introduction

A variety of financial institutions exist in the economy of Bangladesh. Among those financial

institutions, insurance companies play foremost role in our economy. These companies add to

the economy by spreading risk amongst many groups. There are two types of insurance

company. Surrounded by the all insurance companies of Bangladesh, forty six of them are listed

company. These are General Insurance companies and Life Insurance companies. We

accomplished the ratio analysis on the Life Insurance Companies (3) of Bangladesh.

Life insurance companies bear the risk on life of a human being. Their presentation has been

analyzed by calculating 5 years (2009-2013) routine. The obligatory information for this ratio

analysis has been collected from their own reports.

Quantitative analysis of information contained in a company’s financial statements. Ratio

analysis is based on line items in financial statements like the balance sheet, income statement

and cash flow statement; the ratios of one item – or a combination of items - to another item or

combination are then calculated. Ratio analysis is used to evaluate various aspects of a

company’s operating and financial performance such as its efficiency, liquidity, profitability and

solvency. The trend of these ratios over time is studied to check whether they are improving or

deteriorating. Ratios are also compared across different companies in the same sector to see how

they stack up, and to get an idea of comparative valuations. Ratio analysis is a cornerstone of

fundamental analysis.

Foundation of the report:This report has been commenced as a handy requirement for the “Risk Management &

Insurance” [FIN-410] course of BBA program. The report is about “Ratio Analysis of Life

Insurance Company of Bangladesh” which filled a study that covers all-important issues

applicable for it. To expand practical knowledge in the field we have preferred three Life

insurance companies for our report and the report has been arranged in conformity with the

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instructions of our respectable course mentor “Quazi Sagota Samina”, Assistant Professor,

department of business administration.

Environment of the study:In Bangladesh the starting point of insurance is lost in remains. However, there is no data that

insurance in its present form was put into practice earlier to the twelfth century. Thus among

financial institutions, insurance companies play a key role in our economy. To analyze this

sector’s financial data we have generate some ratios, which we have learnt from our respected

course instructor for the course principle.

goal of the study:The goals of the study are as follows:

To discover the ratios specifying the company’s performance.

To recognize these sector’s role to our economy.

To identify the prosperity or failure of the companies.

To find out the general understanding of an insurance company.

Finding authentic state of the companies.

Scope:The report is paying attention mainly on the Ratio Analysis of Life Insurance Company of

Bangladesh. Through which we have got the prospect to collect significant information and gain

satisfactory skill about the insurance companies and identify how they use their financial tools to

retain their business. We have got adequate core information while preparing this report and

utilized the chance to develop our practical knowledge as well as derive concrete ideas.

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Methodology:In order to carry on the report we concave to use both the primary and the secondary data for the

flourishing conclusion of the report. But here we didn’t need any primary data for our report.

Secondary Data:

The secondary data are collected in following ways:

1. Annual reports (2009-2013)

2. Web Sites.

Boundaries:In the time of our analysis we have faced some troubles that hampered our report. Such problems

created some disorder while making the report. If those problems were not shaped then our

report would be more remarkable and tinted. The boundaries of our study are given below:

It was inflexible to get-together with the group members as we have different time plans.

Faced complexity in assembling information which are not given in the websites of the

companies. We had to go to DSE for collecting the annual reports.

All the sources are not consistent, so we have cautiously identified the correct information.

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Company overview:PRAGATI LIFE INSURANCE LIMITED

Pragati Life insurance was established on January 30, 2000 as a public limited company. In April 11, 2000 obtained registration from Department of Insurance under the insurance act. Pragati Life has been sponsored by some renowned business entrepreneurs of the country linked with different industrial groups.

2009 2010 2011 2012 2013

Net Profit 185008199 272090495 185008199 425198643 468387581Total Paid of Capital

186832361 297254628 483009020 589256023 652033420

Total Assets 1739733841 2589098184 2842622704 3181317178 3512807956

Equity Capital

750000000 750000000 840000000 940800000 987840000

Total no. of Share Outstanding

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Vision:

Their vision is to be recognized leader among all life insurance companies in Bangladesh. They will always apply high standards of integrity and responsibility by their activities. Their success will be built on their absolute dedication to the satisfaction of their policyholders,

through constant innovation, operational efficiency, prompt services, cost effectiveness and the talents of their people.

Mission

Their mission is to produce and provide quality and innovative product. Maintain stringently ethical standard in business operation. To ensure benefit to the policyholders, shareholders and the society at large.

Corporate Focus Our vision, our mission and our

objectives are to emphasize on the quality of product, process and services

leading on growth of the company imbibed with good governance

practices.

SUNLIFE INSURANCE COMPANY LIMITED

This insurance industry is now at the final stage of transition. In their solvency position, the paid up capital for general and life insurance companies have been raised to Tk.400 million and Tk.300 million respectively.

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Their main objective is to ensure the financial betterment and welfare to the insured and the dependent. They want to help in bearing the children’s martial and educational expanse. They also mitigate multifarious needs and ensure the welfare of individual and family. They are forced for national savings and socio economic uplift at national plane. They also want to create job opportunities for the unemployed educated people.

Vision:

Their visions are following:

To be a leading life insurance company and to be a company with due solemnity To corporate social responsibility to the society uphold by taking life risks of the policy

holders.

Mission:

Their missions they are up to are following:

To provide unequal service, protect their policy holders interest and contribute for economic stabilization of the company.

To maintain stakeholders interest with fair and transparent operation.

2009 2010 2011 2012 2013Net Profit 15003866 98638678 105989641 176618085 259268956Total Paid of Capital

13583951 12258355 414334071 330175038 427725956

Total Assets 844959204 1023480823 948638372 3658161882 3853808331Equity Capital

724421047 801986099 339823901 300000000 315000000


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FAREAST ISLAMI LIFE INSURANCE COMPANY LIMITED

Fareast Islami life Insurance company was emerged as the 1st fully fledged Islami Life Insurance Company in the century in 2000 and have by the grace of Almighty Allah, been able to bring confidence among the common people of the country.

Their company has earned a total premium income of Tk.707.46 crore, the highest among Bangladeshi Insurance Companies in the year 2012. The life fund increased to Tk.2080.42 crore from Tk.1648.65 crore. The growth of life fund in the year of 2012 is 26.19% which is satisfactory and the financial position of the company is very sound since the assets increased to Tk.629.85 crore.

Vision:

They will be the premier Islami Life Insurance Company in Bangladesh. They will serve their policyholders with utmost care and provide the best solution for

their needs They will be a company with due solemnity and corporate social responsibility to the

society upheld by taking financial risks. They will provide dynamic services for their policyholders to make them loyal to the

company.

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Mission:

Provide financial security to their participants with Life Takaful Policies that are most befitting to their needs.

Make life Takaful a forces and easy saving instrument and a profitable one with attractive bonus.

Collect small savings from the people and invest the accumulated fund for economic stabilization of the country.

Islamization of the economic activities in the country for the solidarity of the Muslim Ummah.

2009 2010 2011 2012 2013Net Profit 714390176 12477828 16074722 36483228 28452206Total Paid of CapitalTotal Assets 649960174 523426421 920706966 554516109 775470518Equity Capital

406093815 197485703 4786563816 246689711 329928655


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Ratio Analysis of Life

Insurance Companies of Bangladesh

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PRAGATI LIFE INSURANCE LIMITED Underwriting Ratio

a) Loss Ratio:

The distinction between the ratios of premiums paid to an insurance company and the claims

developed by the company. Loss ratio is the total losses paid by an insurance company in the

form of claims. The losses are added to adjustment expenses and then divided by total earned

premiums. Loss ratios vary depending on the type of insurance. For example, for health

insurance the loss ratio tends to be higher than for property and casualty such as car insurance.

This is an indicator of how well an insurance company is doing. This ratio reflects if companies

are collecting premiums superior than the sum paid in claims or if it is not collecting enough

premiums to cover claims. Companies that have high loss claims may be experiencing financial

trouble.

Formula:

Loss Ratio = * 100

The Loss ratios of the Pragati Life Insurance Company of Bangladesh are presented below-

Year 2009 2010 2011 2012 2013

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ClaimPaid

186832361 297254628 483009020 589256023 652033420

NetPremium

1083760860 1770082074 1879779609 1813299489 1392083671

LossRatio

17.24% 16.79% 25.69% 32.49% 36.84%

Performance analysis:

In view of the above calculations, the year wise performance analysis of Pragati Life Insurance

Company, on the basis of expense ratios, have been illustrated below-

According to rule, when the expense ratio will decrease then the efficiency will increase.

Here, in above five years (2009-2013) Pragati Life nsurance’s expense ratio has been decreased

for 2years, from the year 2009 to 2010 and then again increased. That means efficiency of the

insurance company is increasing.

b) Expense Ratio:

A measure of what it costs an investment company to operate a mutual fund. An expense ratio is

determined through an annual calculation, where a fund's operating expenses are divided by the

average dollar value of its assets under management. Operating expenses are taken out of a

fund's assets and lower the return to a fund's investors. Also known as "management expense

ratio" (MER).

Formula:

Expense Ratio = * 100

The expense ratios of the Pragati Life Insurance Company of Bangladesh are presented below-

Year 2009 2010 2011 2012 2013UnderwritingExpanse

206098116 292961978 370992857 439729651 405357370

NetPremium

108376080 1770082074 1879779609 1813299489 1392083671

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ExpanseRatio

1.02% 2.55% 0.74% 4.25% 6.12%


Considering the a bove calculations, the year wise performance analysis of Pragati Life

Insurance Company, on the basis of expense ratios, have been described below-


Here, in above five years (2009-2013) Pragati Life Insurance’s expense ratio was decreasing

from the year 2009 to 2011 that means efficiency of the insurance company was increasing. But

in 2012 to 2013 it increases, which indicates the company was not doing good.

c) Combined Ratio:

A measure of profitability used by an insurance company to indicate how well it is performing in

its daily operations. A ratio below 100% indicates that the company is making underwriting

profit while a ratio above 100% means that it is paying out more money in claims that it is

receiving from premiums. The combined ratio is comprised of the claims ratio and the expense

ratio. The claims ratio is claims owed as a percentage of revenue earned from premiums. The

expense ratio is operating costs as a percentage of revenue earned from premiums. The combined

ratio is calculated by taking the sum of incurred losses and expenses and then dividing them by

earned premium.

Formula:

Combined Ratio = Loss Ratio + Expense Ratio

The combined ratios of the Pragati Life Insurance Company of Bangladesh are presented below-

Year 2009 2010 2011 2012 2013LossRatio

17.24% 16.79% 25.69% 32.49% 36.84%

ExpanseRatio

1.02% 2.55% 0.74% 4.25% 6.12%

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Combined Ratio

18.26% 19.34% 26.43% 36.74% 42.96%


Considering the above calculations, the year wise performance analysis of Pragati Life Insurance

Company, on the basis of combined ratios, have been described below-

According to rule, when the combined ratio will be low or decrease then the overall efficiency

will also increase.

Here, in above five years (2009-2013) Pragati Life Insurance’s combined ratio was decreasing

from the year 2009 to 2010 that means efficiency of the insurance company is increasing. But in

2010 to 2012 it increased, which indicates the company was not doing good in.

d) Premium to policyholder Surplus

Premium to Policyholder Surplus = Net Premium

Policyholder Surplus

The assets of a policyholder owned insurance company minus its liabilities. Policyholder surplus is one indicator of an insurance company’s financial health. It gives an insurance company another source of funds, in addition to its reserves and reinsurance, if it needs to pay a higher than expected amount of claims. When an insurance company is publicly owned, its assets minus its liabilities are instead called shareholders’ equity.

Year 2009 2010 2011 2012 2013Net Premium 1083760860 1770082074 1879779609 1813299489 1392083671

Policyholder surplus

1507289329 2328212030 1124753906 8131557121 4613611240

premium to policyholder surplus

0.7190 0.7602 1.6713 0.2229 0.3017

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Company, on the basis of premium to policyholder surplus, have been described below-

According to rule, the when premium to policyholder surplus is more or increase then the overall

efficiency will also increase.

Here, in above five years (2009-2013) Pragati Life Insurance’s premium to policyholder surplus was increasing from the year 2009 to 2011 that means efficiency of the insurance company is increasing. But in 2011 to 2013 it decreased, which indicates the company was not doing good.

Liquidity Ratio

a) Current Ratio:

The current ratio is a accepted financial ratio used to test a company's liquidity (also referred to

as its current or functioning capital position) by getting the proportion of current assets on hand

to cover current liabilities. The thought behind this ratio is to determine whether a company's

short-term assets such as cash, cash equivalents, marketable securities, receivables and inventory

are readily accessible to pay off its short-term liabilities such as notes payable, current portion of

term debt, payables, accrued expenses and taxes. In theory, the higher the current ratio, the

better.

Formula:

Current Ratio =

The current ratios of the Pragati Life Insurance Company of Bangladesh are presented below-

Year 2009 2010 2011 2012 2013Current 897170844 1624366505 1521228479 1951784565 1686101756

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AssetCurrentLiabilities

136894483 136894483 138620423 187061705 267678178

CurrentRatio

0.655 0.1187 0.1090 0.1043 0.630


Allowing for the calculations, the year wise performance analysis of Pragati Life Insurance

Company, on the foundation of current ratios, have been illustrated below-

According to Rule of Thumb, Current Ratio = 2. Now if a company’s current ratio is more than 2

then the company is toward profitability and if it is less than 2 then the company is toward

liquidity problem.

Here, in above five years (2009-2013) Pragati life Insurance’s current ratio is less than 2

throughout the consecutive five years and it decreases from 2009. That means the company is in

liquidity problem.

Profitability Ratio

a) Return on Asset (ROA):

This ratio indicates how profitable a company is relative to its total assets. The Return on Asset

(ROA) ratio illustrates how well management is employing the company's total assets to make a

profit. The higher the return, the more efficient management is in utilizing its asset base. The

ROA ratio is calculated by comparing net income to average total assets, and is expressed as a

percentage.

Formula:

Return on Asset = * 100

The Return on Asset of the Pragati Life Insurance Company of Bangladesh are presented below-

2009 2010 2011 2012 2013NetIncome

185008199 272090495 185008199 425198643 468387581

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TotalAsset

1739733841 2589098184 2842622704 3181317178 3512807956

Return on Asset

10.63% 10.51% 6.51% 13.34% 13.37%



Company, on the basis of return on assets, have been described below-

According to rule, when the return on assets will increase then the overall profitability will also

increase.

Here, in above five years (2009-2013) Pragati Life Insurance’s return on Asset ratio is

decreasing from the year 2009 to 2011 and it is not a huge percentage that means profitability of

the insurance company is poor. But again in 2012 to 2013 the Return on Asset Ratio increased

which means the profitability is now in good condition.

b) Return on Equity (ROE):

The amount of net income returned as a percentage of shareholders equity. Return on equity

measures a corporation's profitability by revealing how much profit a company generates with

the money shareholders have invested.Net income is for the full fiscal year (before dividends

paid to common stock holders but after dividends to preferred stock.) Shareholder's equity does

not include preferred shares and also known as "return on net worth" (RONW).

Formula:

Return on Equity = * 100

The Return on Equity of the Pragati Life Insurance Company of Bangladesh are presented below-

2009 2010 2011 2012 2013

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NetIncome

185008199 272090495 185008199 425198643 468387581

Total Shareholder’s Equity

750000000 750000000 840000000 940800000 987840000

Return on Equity

24.66% 35.28% 22.02% 45.20% 47.42%

Performance Analysis:


Company, on the basis of Return on Equity, have been described below-

According to rule, when the return on equity will increase then the overall profitability will also

increase as because the generating net income by utilizing shareholder’s equity.

Here, in above five years (2009-2013) Pragati Life Insurance’s Return on Equity ratio is

decreasing from the year 2009 to 2011. But from 2012 to 2013 the ratio increased in a huge

percentage. So, we can say in this context the company is now doing good.

c) Investment Yield:

The annual percentage return which is considered to be for a specific valuation in an investment

being expressed as the ratio of annual net income (actual or estimated) to the capital value. It is

therefore a measure of an investor's opinion about the prospects and risks attached to that

investment. The better the prospects and lower the risks, the lower the expected yield and thus

the greater the capital value.

Formula:

Investment Yield = times

The Investment Yields of the Pragati Life Insurance Company of Bangladesh are presented below-

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2009 2010 2011 2012 2013Investments 759356908 1208947874 1155840096 1229532613 1707613215

InvestmentsIncome

160614291 377849767 141233231 224656707 268372446

Investment Yield

4.72 3.20 8.18 5.47 6.36



Company, on the basis of investment yields, have been described below-

According to rule, as much as lower the investment yield that is good for company because it is

ensuring the company’s profitability and also good return on investment.

Here, in above five years (2009-2013) Pragati Life Insurance’s investment yields is started from

the year 200 to 2013 it was fluctuating. So, we can say that the company’s investment return is

not stable.

Leverage Ratio

a) Debt-Equity Ratio:

The debt-equity ratio is another leverage ratio that compares a company’s total liabilities to

shareholder’s equity. This is a measurement of how much suppliers, lenders and creditors have

committed to the company versus what the shareholders have committed. To a large degree, the

debt-equity ratio provides another vantage point on a company’s level position, in this case,

comparing total liabilities to shareholder’s equity, as opposed to total the debt ratio. Similar to

the debt ratio, a lower the percentage means that a company is using leverage and has a stronger

equity position.

Formula:

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Debt to Equity Ratio =

The Debt to Equity Ratios of the Pragati Life Insurance Company of Bangladesh are presented below-

Year 2009 2010 2011 2012 2013Total Liabilities

153504275 394990334 164830517 65903624 156409357


750000000 750000000 840000000 940800000 987840000

Debt Equity Ratio

90.46% 82.67% 119.62% 170.05% 97.10%


Considering the above calculations, the year wise performance analysis of United Insurance Company, on the basis debt to equity ratios, have been described below-

According to rule, higher debt to equity ratio will have higher risk that is alarming for the company.

Here, in above five years (2009-2013) Pragati Life Insurance’s debt to equity ratio is started from the year 2009 to 2013 at a fluctuating rate. It means company has moderate condition in liability equity.

SUNLIFE INSURANCE COMPANY LIMITED Underwriting Ratio:

a) Loss Ratio:

Loss Ratio = * 100

The Loss ratio of the Sunlife Insurance Company of Bangladesh are presented:

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Year 2009 2010 2011 2012 2013ClaimPaid

13583951 12258355 414334071 330175038 427725956

NetPremium

136746267 112508443 154430137 1475478653 1439053684

LossRatio

9.93% 10.90% 9.28% 22.38% 29.72%


The second row of the above table shows the amount of claim which is paid for each particular

year. In the third row we calculated net premium (Premium – Reinsurance premium) for last

respective five years. In the year 2009 to 2011 the loss ratio was in between 9.28 to 10.90. Then

the percentage increased in next two years and in 2011 the loss ratio was 22.38% and in 2013

the ratio was 29.72% which says out of its total net premium, 29.72% claim was settled.

Usually Insurance Company always chooses which may has less claim request. Thus, if the loss

ratio is decreased we can predict that the company is more efficient.

b) Expense Ratio:


The expense ratios of the Sunlife Insurance Company of Bangladesh are presented below-

Year 2009 2010 2011 2012 2013UnderwritingExpanse

1437676 1357335 1464932 131506597 107650226

NetPremium

136746267 112508443 154430137 1475478653 1439058684

ExpanseRatio

1.05% 1.21% 0.95% 8.91% 7.48%

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The second row of the above table shows the amount of underwriting expense incurred each

particular year. We assumed (Underwriting Expense = Advertisement and Publicity +

Registration and Renewals + Legal and Professional Fees). In the third row we calculated net

premium (Premium – Reinsurance premium) for last respective five years. From the above table

we can say the percentage of expense ratio was fluctuating over the period and it increased in

2012 which was 8.91% and slightly decreased in 2013 which was 7.48%, if we compare with the

2009, 2010, and 2011 the percentage was 1.05%, 1.21% and 0.95% This percentage says the

underwriting cost increased in term of its net income. Thus we can say the company in not well

enoughto control of its expense,

c) Combined Ratio:

The combined ratios of the Sunlife Insurance Company of Bangladesh are presented below-

Year 2009 2010 2011 2012 2013LossRatio

9.93% 10.90% 9.28% 22.38% 29.72%

ExpanseRatio

1.05% 1021% 0.95% 8.91% 7.48%

Combined Ratio

10.98% 12.11% 10.23% 31.29% 37.2%


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Considering the above calculations, the year wise performance analysis of Sunlife Insurance Company, on the basis of combined ratios, have been described below-

According to rule, when the combined ratio will be low or decrease then the overall efficiency will also increase.

In 2013, 37.2% shows if a company’s net premium is 100tk, its loss and expense contribute

37.2tk, which is higher if we compare with the last year 4 year. So we can predict that the

company is not handy enough to minimize its loss and expenses.





Year 2009 2010 2011 2012 2013Net Premium 136746267 112508443 154430137 147547365 143305368


1205381570 289176040 224132905 382120392 855775699


0.1134 0.3890 0.6890 0.3869 0.1682






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Here, in above five years (2009-2013) Sunlife Insurance’s premium to policyholder surplus was increasing from the year 2009 to 2011 that means efficiency of the insurance company is increasing. But in 2011 to 2013 it decreased, which indicates the company was not doing good.

Liquidity Ratio:

a) Current Ratio:

The Current Ratio of the Sunlife Insurance Company of Bangladesh are presented:

Year 2009 2010 2011 2012 2013CurrentAsset

712103576 915698112 554421186 981142339 825796380

CurrentLiabilities

81914906 82530793 131467158 98514969 71433464

CurrentRatio

8.69 11.10 4.22 9.96 11.56


The second row of the above table shows the amount of Current Assets (Interest, Dividend &

Rents accrued, Sundry Debtors, Cash at bank and cash in hand, Stock of printing & Stationery,

Insurance stamps in hand) for each particular year. In the third row we calculated Current

Liabilities (Liabilities and Provisions) for last respective five years.

According to the rule of Thumb, the current ratio (CR) = 2. If CR > 2it is assumed that the firm

in less profitable condition and, if CR < 2 indicates that firms do not have sufficient current

assets to cover current liabilities that indicates the firms are in a liquidity crisis. Thus, if we

consider current ratio of the Sunlife Insurance Company, which predict firm is highly capable to

manage its current liabilities because the entire ratios are more than 2.

Profitability Ratio:


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The Return on Asset ratio of the Sunlife Insurance Company of Bangladesh are presented below-

Year 2009 2010 2011 2012 2013NetIncome

150038566 98638078 105989641 176618985 259860956

TotalAsset

844959204 1023480823 948638372 3658161882 3853808331

Return on Asset

18% 10% 11% 4.83% 7.25%


Considering the above calculations, the year wise performance analysis of Sunlife Insurance Company, on the basis of return on assets, have been described below-

According to rule, when the return on assets will incease then the overall profitability will also increase.

The second row of the above table shows the net income (Total operating income – Tax

provisions) for each particular year. In the third row we showed total assets that the company

held from the year 2009 to 2013. The percentage of ROA is in decreasing trend over the period

which says the company was in a bad position of making profit by using its total assets. The less

the percentage the less a firm is capable to utilize its assets. So the percentage 7.25% indicates

the firm can earn 7.25% return from its total assets.



The Return on Equity ratio of the Sunlife Insurance Company of Bangladesh are presented below-

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Year 2009 2010 2011 2012 2013NetIncome

15003866 98638678 105989641 176618085 259268956

TotalStockholder’s Equity

724421047 868665812 801986099 300000000 375000000

Return on Equity

21% 11% 21% 58.87% 48.50%


Considering the above calculations, the year wise performance analysis of Sunlife Insurance

Company, on the basis of return on equity, have been described below-




provisions) for each particular year. In the third row we showed total stockholders’ equity that

the company carried from the year 2009 to 2013. The percentage of ROE is in fluctuating trend

from the year 2009 to 2012 which says the company is moderate of making profit by using its

total stockholders’ equity. The more the percentage the more a firm is capable to utilize its

equity. So the percentage 48.50% indicates the firm can earn 48.50% return from its total

stockholders’ equity.



The Investment Yield ratio of the Sunlife Insurance Company of Bangladesh are presented below-

Year 2009 2010 2011 2012 2013

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Investments 23391361 312694519 394972493 117411861 128800919

InvestmentsIncome

77269616 110813643 108337655 85263202 106412786

Investment Yield

3 3 4 1.38 1.21



Company, on the basis of investment yields, have been described below-

According to rule, as much as lower the investment yield that is good for company because it is ensuring the company’s profitability and also good return on investment. The second row of the above table shows the amount the Pioneer Insurance Company Invested

for each particular year. In the third row we showed the amount they received from the

investment that the company held from the year 2009 to 2013. The percentage of investment

yield is in fluctuating trend over the respective years. In 2013, the investment amount was

tk.128,800,919 and to gain the amount it took 1.21 times. Thus the percentage increased may be

because of decreasing investment income for the particular year.

Leverage Ratio:

a) Debt to Equity Ratio:

Debt to Equity Ratio =

The Debt to Equity ratio of the Sunlife Insurance Company of Bangladesh are presented below-

Year 2009 2010 2011 2012 2013Total Liabilities 844959204 948638372 330906297 36518188 358380833

Total Shareholder’s

724421047 801986099 339823901 300000000 315000000

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EquityDebt Equity Ratio

117% 118% 97.37% 121.94% 113%



Company, on the basis debt to equity ratios, have been described below-

According to rule, higher debt to equity ratio will have higher risk that is alarming for the

company.

Here, in above five years (2009-2013) Sunlife Insurance’s debt to equity ratio is started from the

year 2009(92.39%) to 2012(168.36%) and it is increasing gradually. It means company is not

recovering by paying its liability and also not increasing its equity

Fareast ISLAMI LIFE INSURANCE LIMITED Underwriting Ratio:

a) Loss Ratio:

Loss Ratio = * 100

The Loss ratio of the Fareast Islami Life Insurance Company of Bangladesh are presented:

Year 2009 2010 2011 2012 2013Claim Paid 207441646 161984195 146422188 126342841 103522316

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Net Premium 792480911 718511171 531306262 393350263 323080245

Loss Ratio 26.18% 22.54% 27.56% 32.12% 32.04%


In view of the above calculations, the year wise performance analysis of Fareast Islami Life

Insurance Company, on the basis of expense ratios, have been illustrated below-


Here, in above five years (2009-2013) Fareast Islami Life Insurance’s expense ratio has been

decreased for 2years, from the year 2009 to 2010 and then again increased. That means

efficiency of the insurance company is increasing.

b) Expense Ratio:


The expense ratios of the Fareast Islami Life Insurance Company of Bangladesh are presented below-

Year 2009 2010 2011 2012 2013UnderwritingExpense

30685910 1279296 2108310 1327541 1279296

NetPremium

531306262 99280787 532680414 97207799 99280787

ExpenseRatio

5.77% 0.31% 0.39% 1.36% 1.28%


The second row of the above table shows the amount of underwriting expense incurred each

particular year. We assumed (Underwriting Expense = Advertisement and Publicity +

Registration and Renewals + Legal and Professional Fees). In the third row we calculated net

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premium (Premium – Reinsurance premium) for last respective five years. From the above table

we can say the percentage of expense ratio was fluctuating over the period and it increased in

2012 which was 1.36% and slightly decreased in 2013 which was 1.28%, if we compare with the

2009, 2010, and 2011 the percentage was 5.77%, 0.31% and 0.39% This percentage says the

underwriting cost increased in term of its net income. Thus we can say the company in not well

enough to control of its expense,

c) Combined Ratio:

The combined ratios of the Fareast Islami Life Insurance Company of Bangladesh are presented below-

Year 2009 2010 2011 2012 2013LossRatio

27.56% 22.95% 12.15% 34.16% 38.85%

ExpenseRatio

5.77% 0.31% 0.39% 1.36% 1.28%

CombinedRatio

33.33% 23.26% 12.54% 35.52% 40.13%


Considering the above calculations, the year wise performance analysis of Fareast Islami Life Insurance Company, on the basis of combined ratios, have been described below-

According to rule, when the combined ratio will be low or decrease then the overall efficiency will also increase.

In 2013, 40.13% shows if a company’s net premium is 100tk, its loss and expense contribute

40.13tk, which is higher if we compare with the last year 4 year. So we can predict that the

company is not handy enough to minimize its loss and expenses.

29





Year 2009 2010 2011 2012 2013Net Premium 53130626 99280787 532680414 97207799 99280787


280583471 190939103 478563815 212380391 419032254


0.1893 0.5199 1.1130 0.4577 0.2369






Here, in above five years (2009-2013) Fareast Islami Insurance’s premium to policyholder surplus was increasing from the year 2009 to 2011 that means efficiency of the insurance company is increasing. But in 2011 to 2013 it decreased, which indicates the company was not doing good.

Liquidity Analysis:

a) Current Ratio:

30

The Current Ratio of the Fareast Islami Life Insurance Company of Bangladesh are presented:

Year 2009 2010 2011 2012 2013CurrentAsset

550948567 704890988 518480330 779230915 643816508

CurrentLiability

242439991 264272152 252972860 304874585 252886323

CurrentRatio

2.27 2.67 2.05 2.56 2.55


The second row of the above table shows the amount of Current Assets (Interest, Dividend &

Rents accrued, Sundry Debtors, Cash at bank and cash in hand, Stock of printing & Stationery,

Insurance stamps in hand) for each particular year. In the third row we calculated Current

Liabilities (Liabilities and Provisions) for last respective five years.

According to the rule of Thumb, the current ratio (CR) = 2. If CR > 2it is assumed that the firm

in less profitable condition and, if CR < 2 indicates that firms do not have sufficient current

assets to cover current liabilities that indicates the firms are in a liquidity crisis. Thus, if we

consider current ratio of the Fareast Islami Life Insurance Company, which predict firm is highly

capable to manage its current liabilities because the entire ratios are more than 2.

Profitability Ratio:



31

The Return on Asset ratio of the Fareast Islami Life Insurance Company of Bangladesh are presented below-

Year 2009 2010 2011 2012 2013Net Operating Income

71439076 17477828 16074722 36483228 28452206

TotalAsset

649960174 523426421 920706966 554516109 775470518

Return on Asset

10.99% 2.38% 1.75% 6.58% 3.67%


Considering the above calculations, the year wise performance analysis of Pioneer Insurance Company, on the basis of return on assets, have been described below-

According to rule, when the return on assets will increase then the overall profitability will also increase.


provisions) for each particular year. In the third row we showed total assets that the company

held from the year 2009 to 2013. The percentage of ROA is in fluctuating trend over the period

which says the company was in a moderate position of making profit by using its total assets.

The less the percentage the less a firm is capable to utilize its assets. So the percentage 3.67% in

2013 indicates the firm can earn 3.67% return from its total assets.



The Return on Equity ratio of the Fareast Islami Life Insurance Company of Bangladesh are presented below-

Year 2009 2010 2011 2012 2013NetIncome

714390176 12477828 16074722 36483228 28452206

32


329928655 197485703 478563816 246689711 406093815

Return on Equity

7.01% 6.32% 14.79% 14.79% 7.01%


Considering the above calculations, the year wise performance analysis of Fareast Islami Life

Insurance Company, on the basis of return on equity, have been described below-




provisions) for each particular year. In the third row we showed total stockholders’ equity that

the company carried from the year 2009 to 2013. The percentage of ROE is in fluctuating trend

from the year 2009 to 2013 which says the company is moderate of making profit by using its

total stockholders’ equity. The more the percentage the more a firm is capable to utilize its

equity. So the percentage 7.01% indicates the firm can earn 7.01% return from its total

stockholders’ equity.



The Investment Yield ratio of the Fareast Islami Life Insurance Company of Bangladesh are presented below-

Year 2009 2010 2011 2012 2013Investment 195833662 69775923 195998285 76654233 158328557

Investment Income

22653053 21356315 29192103 19831871 21703833

Investment Yield

8 3 7 4 7

33



Insurance Company, on the basis of investment yields, have been described below-

According to rule, as much as lower the investment yield that is good for company because it is

ensuring the company’s profitability and also good return on investment.

The second row of the above table shows the amount the Pioneer Insurance Company Invested

for each particular year. In the third row we showed the amount they received from the

investment that the company held from the year 2009 to 2013. The percentage of investment

yield is in fluctuating trend over the respective years. In 2013, the investment amount was tk.

158,328,557 and to gain the amount it took 7 times. Thus the percentage increased may be

because of fluctuating investment income for the particular year.

Leverage Ratio:

a) Debt to Equity Ratio:

The Debt to Equity ratio of the Fareast Islami Life Insurance Company of Bangladesh are presented below-

Year 2009 2010 2011 2012 2013TotalLiability

369376703 392487918 442149151 342135718 356438264

Total shareholder equity

406093815 197485703 4786563816 246689711 329928655

DebtEquity Ratio

90.96% 168.36% 92.39% 138.69% 108.03%


34


Insurance Company, on the basis debt to equity ratios, have been described below-

According to rule, higher debt to equity ratio will have higher risk that is alarming for the

company.

Here, in above five years (2009-2013) Fareast Islami Life Insurance’s debt to equity ratio is

started from the year 2009(90.96%) to 2013(108.03%) and it is flactuating. It means company is

moderate in paying its liability and equity.

Comparative Analysis

Underwriting Ratio (Loss Ratio)Year 2009 2010 2011 2012 2013

PRAGATI 17.24% 16.79% 25.69% 32.49% 36.84%

SUNLIFE 9.93% 10.90% 9.28% 22.38% 29.72%

FAREAST 26.18% 22.54% 27.56% 32.12% 32.04%

35

2009 2010 2011 2012 20130.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

80.00%

FAREASTPRAGATI

Axis Title

Axis Title

Underwriting Ratio measures a company’s efficiency. Lower ratio of loss ratio indicates better efficiency of a company. Here we can see that Sunlife Insurance Company Limited is performing good rather than other company. As its last periods (2013) loss ratio is less than others. So it’s showing more efficiency.

Underwriting Ratio (Expense Ratio)Year 2009 2010 2011 2012 2013

PRAGATI 1.02% 2.55% 0.74% 4.25% 6.12%

SUNLIFE 1.05% 1.21% 0.95% 8.91% 7.48%

FAREAST 5.77% 0.31% 0.39% 1.36% 1.28%

36

2009 2010 2011 2012 20130.00%1.00%2.00%3.00%4.00%5.00%6.00%7.00%8.00%9.00%

10.00%

Expanse Ratio

Axis Title

To measure a company’s efficiency underwriting ratio is very effective. Under the heading “Under writing Ratio” lower ration of Expense ratio indicates better efficiency of a company.If we consider the expense ratio of these three companies we can see that Fareast Islami Life Insurance Company is performing good compare to two other. Because the latest period’s (2013) expense ratio of Fareast is less.

Underwriting Ratio (Combined Ratio)Year 2009 2010 2011 2012 2013

PRAGATI 18.26% 19.34% 26.43% 36.74% 42.96%

SUNLIFE 10.98% 12.11% 10.23% 31.29% 37.2%

FAREAST 33.33% 23.26% 12.54% 35.52% 40.13%

37

2009 2010 2011 2012 20130.00%5.00%

10.00%15.00%20.00%25.00%30.00%35.00%40.00%45.00%50.00%

Combined Ratio

PRAGATI SUNLIFE FAREAST

Under the heading “Underwriting Ratio” the less the combined ratio the more efficient the company is. Here if we consider the combined ratio we can see it shows that Sunlife Insurance Company Limited is performing well than other company. Because the latest period’s (2013) combined ratio of Sunlife is less than the others.

Premium to policyholder SurplusYear 2009 2010 2011 2012 2013

PRAGATI 0.7190 0.7602 1.6713 0.2229 0.3017

SUNLIFE0.1134 0.3890 0.6890 0.3869 0.1682

FAREAST 0.1893 0.5199 1.1130 0.4577 0.2369

38

2008 2009 2010 2011 2012 2013 20140

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

1.8Primum to Policyholder's Surplus

PRAGATISUNLIFEFAREAST

` Under the heading “Premium to policyholder surplus” is shows how much premium earned by the company. Higher ratio indicates more efficiency. If we consider the above chart we can comprehend that Paragati is performing good that others. Because the latest period’s (2013) Premium to policyholder surplus of pragati is more than others.

Liquidity Ratio (Current Ratio)Year 2009 2010 2011 2012 2013

PRAGATI 0.655 0.1187 0.1090 0.1043 0.630

SUNLIFE 8.69 11.10 4.22 9.96 11.56

FAREAST 2.27 2.67 2.05 2.56 2.55

39

2009 2010 2011 2012 20130

2

4

6

8

10

12

14

Current Ratio


We know that Current Ratio < 2 creates liquidity problem & Current Ratio > 2 creates profitability problem. Hence, under the heading Liquidity Analysis if we consider the current ratio we can comprehend that Sunlife Insurance Company Limited is performing well compare to other company. Because of the latest period’s (2013) current ratio of Sunlife is more than others.

Profitability Ratio (Return on Asset)Year 2009 2010 2011 2012 2013

PRAGATI 10.63% 10.51% 6.51% 13.34% 13.37%

SUNLIFE 18% 10% 11% 4.83% 7.25%

FAREAST 10.99% 2.38% 1.75% 6.58% 3.67%

40

2009 2010 2011 2012 2013

0.00%2.00%4.00%6.00%8.00%

10.00%12.00%14.00%16.00%18.00%

Return on Asset


Usually Return on asset under profitability ratio shows how much net income a company generated by using its total asset. If we consider the return on asset of these three companies we can comprehend that Pragati Life Insurance Company is performing good compare to others. Because of the latest period’s (2013) return on asset of Pragati is more.

Profitability Ratio (Return on Equity)Year 2009 2010 2011 2012 2013

PRAGATI 24.66% 35.28% 22.02% 45.20% 47.42%

SUNLIFE 21% 11% 21% 58.87% 48.50%

FAREAST 7.01% 6.32% 14.79% 14.79% 7.01%

41

2009 2010 2011 2012 2013

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

Return on Equity


Profitability ratio shows that whatever the shareholders invest by using that what is the net income of a company. Higher return on equity indicates higher profitability. Under the heading “Profitability Ratio”, if we consider the return on equity we can comprehend that Sunlife Insurance Company is performing good compare to other company. Because of the latest period’s (2013) return on equity of Sunlife is more than the others.

Profitability Ratio (Operating Margin)Year 2009 2011 2012 2013

PRAGATI 19.88% 32.63% 26.14% 16.40% 29.25%

SUNLIFE 86.05% 99.46% 96.19% 98.06% 82.59%

FAREAST 80.67% 89.87% 75.58% 87.18% 94.17%

42

2009 2010 2011 2012 2013

0.00%10.00%20.00%30.00%40.00%50.00%60.00%70.00%80.00%90.00%

100.00%

Operating Margin


Under the heading “Profitability Ratio” if we consider the Operating Margin we can comprehend that Fareast Islami Life Insurance Company Limited is performing well compares to others because their latest period’s (2013) operating margin is more than other two companies.

Profitability Ratio (Investment Yield)Year 2009 2010 2011 2012 2013

PRAGATI 5 3 8 5 6

SUNLIFE 3 3 4 1 1

FAREAST 8 3 7 4 7

43

2009 2010 2011 2012 201302468

101214161820

Investment Yield

FAREASTSUNLIFEPRAGATI

Investment Yield means how many times it is from investment income. Lower value of investment yield shows more profitability. Under the heading “Profitability Ratio” if we consider the investment yields we can say that Sunlife Insurance Company is performing well than rest of the two companies. Because Sunlife’s investment yield of latest period (2013) is less than others.

Leverage Ratio (Ratio) Debt to EquityYear 2009 2010 2011 2012 2013

PRAGATI 90.46% 82.67% 119.62% 170.05% 97.10%

SUNLIFE 117% 118% 97.37% 121.94% 113%

FAREAST 90.96% 168.36% 92.39% 138.69% 108.03%

44

2009 2010 2011 2012 2013

0.00%20.00%40.00%60.00%80.00%

100.00%120.00%140.00%160.00%180.00%

Debt to Equity Ratio


Debt to equity measures compare to equity what is the liability of a company. It also shows the future survival the company. Lower value of debt ratio under the heading “Leverage Ratio” shows solvency of a company. If we consider the debt ratio of these three companies we can comprehend that Pragati Life Insurance Limited is performing better than the rest. Because latest period’s (2013) debt to equity ratio of pragati is less than the others.

ConclusionUnder the four headings, we have analyzed ten ratios and we have seen that there is a good

balance among the ratios. Most of the firms have good ratio figure. In case of liquidity

measurement ratios, Sunlife Insurance Company Limited has the very high figure. That means

they retain much cash then need. This way they can reduce the ability of earning. In case of

profitability indicator ratios all of the firms have healthy figure but especially Sunlife Insurance

Company Limited has a very good position. That indicates the firm has high net income. Firms

have good debt to equity indicator ratios. On the other hand cash flow indicator ratios all of the

firms have adequate good figure which refers that all generate enough cash for their activity. Last

45

of all in case of investment yield, firms have strong ratios. This indicates that all of firms offer

very good amount of investment which they have very good returned though here also Sunlife

Insurance Company Limited has a better positon compare to Pragati & Fareast.

46

References:

a) Pragati Life Insurance Limited’s Website: http://www.pragatilife.com/ Annual reports of Pragati Life Insurance Limited:

Annual report (2009-2013)

b) Sunlife Insurance Company Limited’s Website:

http://sunlifeinsbd.com/

Annual reports of Sunlife Insurance Company Limited:


c) Fareast Islami Life Insurance Company Limited’s Website:

http://www.fareastislamilife.com/

Annual reports of Fareast Islami Life Insurance Company Limited:


d) Class lectures of FIN 410

47

http://www.fareastislamilife.com/

http://sunlifeinsbd.com/

http://www.pragatilife.com/

fin 410-final-report-1

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