Dissertation On Financial Insurance Industries
Get dissertation help for this at assignment4finance@gmail.com
Chapter 1: Introduction
The financial performance of insurance industry
can be assessed by knowing either its strategies or by knowing its
profitability. Knowledge of strategy will helps in examining internal and
external position of a company. Comparative study of insurance sector is
analysis of financial performance of any insurance company. This is directly
linked with the earning potential and effectiveness of management strategies of
a company.
Choosing a wise insurance is very crucial
because of, balance to the risks and returns. The reason for choosing Indian
and UK insurance industry for the research is because of improved economical
status of the country and increase in the value of insurance in the country
during last several years. The UK Economy is the largest in Europe and is also
ranked as the fifth worldwide as per the market exchange rates, in terms of GDP
(Broadberry et al, 1992) were Indian economy is now improving and it is now
booming growth in insurance companies were greatest effect of Indian economy
during the last several years.
help you with your studies. This is not an
This would need a grate deal of financial
planning knowledge, as well as the knowledge about the current financial market
thus it can compare the other to the insurance companies & the analysis of
different insurance companies from India and UK. Also insurance companies has
to manage their investment in such a way that the principal amount should not
erode, & investor should get the assured returns those company has
promised. This would involve a grate deal of knowledge about the portfolio
management of the risk and return and comparative study of insurance industries.
Comparative study of insurance is also a topic
of hunger for many economists. Till date many researches has been carried out
for comparative study of financial analysis in banking sector and very few
research has been taken on insurance industry. The main purpose of the research
is to find comparative study of insurance companies in India and UK. What
characteristic will determine of insurance industry is the main thrust behind
the research. Further research is carried out to know in depth relationship of various
characteristics that will make up the of Indian and UK insurance industry. The
main outline objectives of the research are as under;
A Research Design is the framework or plan for a
study which is used as a guide in collecting and analyzing the data collected.
It is the blue print that is followed in completing the study. The basic
objective of research cannot be attained without a proper research design. It
specifies the methods and procedures for acquiring the information needed to
conduct the research effectively. It is the overall operational pattern of the
project that stipulates what information needs to be collected, from which
sources and by what methods.
Objectives of the research
This research has been carried out to
comparative study of insurance companies and analyzes financial performance
between Indian and UK’s insurance companies. The main aims of the research are:
To analyze financial performance of insurance
companies in India and UK
To evaluate factors that determine financial
performance of insurance companies
To carry out strategic financial analysis of
insurance in India and UK
The structure of the research paper is as
follows: Chapter 2 reviews the literature on comparative study of insurance
sector; Chapter 3 describes the subject matter of the research: the Indian and
UK economy and insurance industries ; Chapter 4 outlines the methodology and
data used in this study; Chapter 5 presents the analysis and Findings and
Chapter 6 discusses the results obtained in the context of the underlying
theory the findings of other empirical research; Chapter 7 concludes the
research outlining the limitations of the current study and makes
recommendations for further work.
Chapter 2: Literature Review
2.1 Theory
Insurance is, a contract in which one party
agrees to compensate another party fir any losses or damages caused by risk
identified in the contract in exchange for the payment of a lump sum or
periodic amounts of money to the first party. In simple meaning facilitates
recompense during crisis situations, insurance means promise of compensation
for any potential future losses.
Insurance is a form of risk management mainly
used to hedge against the risk of a contingent loss. It is designed to protect
the financial security of an individual, company or other entity in the case of
unexpected loss. Insurance is defined as the realistic transfer of the risk of
a loss, from one entity to another, in exchange for a premium. It is a contract
between two parties - the insurer (the insurance company) and the insured (the
person or unit seeking the cover) in which the insurer agrees to pay the
insured for financial losses arising out of any unforeseen events in return for
a regular payment of "premium". These unforeseen events are defined
as "risk" and that is why insurance is called a risk cover.
Insurance may be described as a social device to
decrease or eliminate risk of loss to life and property. Under the plan of
insurance, a large number of people correlate themselves by sharing risks
attached to individuals. The risks which can be insured against include fire,
the perils of sea, death and accidents and burglary. Any risk contingent upon
these, may be insured against at a premium commensurate with the risk involved.
Thus collective bearing of risk is insurance.
The comparative study of insurance sector,
Analysis of ratios are calculated from company's balance sheet and income
statement and are used to evaluate the performance of the company in a
particular reporting period.
Analysis of ratios can be compared to the
previous years in order to assess trends or between the comparable companies
across the industry in classify to get the relative performance estimation. It
is very important that every ratio should have a reference point - the industry
(sector) average or median. The ratio analysis works better if comparing ratios
not with the complete set of companies within a particular industry, but with a
preferred subset of companies that share certain features, produce the similar
product, and have identical macroeconomic and governmental factors affecting
them.
For the study of companies, operating in several
industries it can be helpful to run a cross-sectional analysis to identify a
group of firms, involved in the same mix of industries. In some cases a
comparison to the economy averages can be meaningful, especially in successful
or constricting economies. Therefore, stable margins may be a good indicator
during the recession, while the industry and economy averages are declined.
It is also important to that usually conclusions
can not be made from reviewing one set of ratios. That creates a necessity of a
complex analysis of one set of ratios against another. The classification of
the objective ratio for the comparison may require a substantial amount of work
and a good judgment in order to evaluate a range of achievable and acceptable
values.
2.2 Classification of insurance sector
There are mainly two types of insurance life and
non-life (general)
Life insurance is concerned with making
provision for specific event happening to the individual, such as death whereas
General Insurance(non-life) is more commonly concerned with provision for a
specific event affects properly, such as fire, flood , theft, burglary etc.
The major difference between Life Insurance and
General Insurance is the Principal of indemnity. Indemnity means “making good
the loss” i.e. for tangible goods, one can make good for the loss that has been
caused due to reasons like – theft, fire or natural disaster. Here basically we
can value the exact monetary value of a commodity, but in case of life
insurance the principal of indemnity does not work, since we can not value in
any way the value of human life.
2.3 There are five main sectors:
Life Insurance
Home Insurance
Auto Insurance
Health Insurance
Disability Insurance
ACC 305 Accounting Theory
Section 2 (11) of Insurance Act 1938 defines
Life Insurance Business as follows:
“Life insurance Business is the business of
effecting contracts of insurance upon human life, including any contract
whereby the payment of money is assured on death or the happening of any
contingency dependent on human life and any contract which is subject to the
payment of premium for a term dependent on human life and shall be deemed to
include.” (Mukherjee and Hanif, 2007)
In simple term we define life insurance as a
contract in which the insurer in consideration of certain premium, either in a
lump sum or by other periodical payments, agrees to pay to the assured sum of
money , on the happening of specific event contingent on the human life.
2.4 Benefits of insurance industries
Life insurance has long been a staple in basic
estate planning. Life insurance can provide an income tax-free death
benefit* far in excess of the premiums paid. However, much of the life
insurance proceeds can be wasted if the ownership and beneficiary designations
are not properly structured.
Superior to Any Other Saving Plan
Unlike any other savings plan, a life insurance
policy affords full protection against risk of death. In the event of death of
a policy holder the insurance company makes available the full sum assured to
the policyholder’s near and dear ones.
Encourages and Forces Thrift
A saving deposit can easily be withdrawn. The
payment of life insurance premiums, however, is considered sacrosanct and is
viewed with the same seriousness as the payment of interest on a mortgage.
Thus, a life insurance policy in effect brings about compulsory savings.
Easy Settlement and Protection against Creditors
A life insurance policy is the only financial
instrument the proceeds of which can be protected against the claims of a
creditor of the assured by effecting a valid assignment of the policy.
Administering the Legacy for Beneficiaries
Speculative or unwise expenses can quickly cause
the proceeds to be squandered. Several policies have foreseen this possibility
and provide for payments over a period of years or in a combination of
installments and lump sum amounts.
Ready Marketability and Suitability for Quick
Borrowing
A life insurance policy can, after a certain
time period (generally three years) ,be surrendered for a cash value. The
policy is also acceptable as a security for a commercial loan, for example, a
student loan. It is particularly advisable for housing loans when an acceptable
LIC policy may also cause the lending institution to give loan at lower
interest rates.
Disability Benefits
Death is not only hazard that is insured; many
policies also include disability benefits. Typically, these provide for waiver
of future premiums and payments of monthly installments spread over certain
time period.
Accidental Death Benefits
Many policies can also provide for an extra sum
to be paid (typically equal to the sum assured) if death occurs as a result of
accident.
Tax Relief
Under the Indian Income Tax Act, the following
tax relief is available
20% of the premium paid can be deducted from
your total income tax liability.
100% of the premium paid is deductible from your
total taxable income.
When these benefits are factored in, it is found
that most policies offer returns that are comparable or even better than other
saving modes such as PPF, NSC etc. Moreover, the cost of insurance is a very
negligible.
The issue of comparability may become one the
critical aspects to pay attention to while performing the analysis. Various
macroeconomic or legislative factors may apply to the companies in the same
industry but in different countries that sometimes makes a direct comparison
inappropriate. Comparisons with other companies may become even more difficult
because of different accounting policies, especially outside the US. Thus
different accounting methods may result in significantly different ratio values
that require normalization by the analyst.
ACC 303 Financial accounting for business combinations
Disclaimer
Seasonality may also affect the ratios if the
business is a subject to seasonal fluctuations in demand, thus year-end values
may not be enough representatives and should also be normalized.
Most of the ratios are preferred to be within
the industry averages or economy norms. For example, all turnover ratios belong
to this category. However, for some ratios the extreme deviations from the
industry averages may mean that the company is highly attractive for the
investors. This is usually true for all ratios dealing with income or cash
flows.
There are different insurance companies that
offer wide range of insurance options and an insurance purchaser can select as
per own convenience and preference.
Several insurances provide comprehensive coverage with affordable premiums. Premiums are periodical payment and different insurers offer diverse premium options.
Several insurances provide comprehensive coverage with affordable premiums. Premiums are periodical payment and different insurers offer diverse premium options.
Insurance companies may be classified into two
groups:
Life insurance companies (which sell life
insurance, annuities and pensions products) and
Non-life, General, or Property/Casualty
insurance companies (which sell other types of insurance).
Life insurance is concerned with making
provision for specific event happening to the individual, such as death whereas
General Insurance(non-life) is more commonly concerned with provision for a
specific event affects properly, such as fire, flood , theft, burglary etc.
The major difference between Life Insurance and
General Insurance is the Principal of indemnity. Indemnity means “making good
the loss” i.e. for tangible goods, one can make good for the loss that has been
caused due to reasons like – theft , fire or natural disaster. Here basically
we can value the exact monetary value of a commodity, but in case of life
insurance the principal of indemnity does not work, since we can not value in
any way the value of human life.
2.5 Introduction of insurance sector
India
In India, the concept of insurance was never a
serious thought as compared to other countries. People still are under insured,
life insurance premium to gross Domestic Product (GDP) ratio is a mere 1.4% as
compared to a healthier rate of 8% amongst other developing with poor state of
services provided.
Presently in India, the insurance sector is
nationalized, services are rendered by Life Insurance Corporation of India
(LIC) and General Insurance Company (GIC) along with its 4 subsidiaries .While
LIC provides life insurance, GIC is concerned with non life insurance. – Motor,
marine, fire, health and personal accident insurance. LIC employs people in
various departments – publicity, public relation department , development
department, personal department , accounts department, legal department
,investment department , inspection department, mortgages department vigilance
department, foreign department, corporate planning department, building
department etc.
Of late, parliament’s nod for the insurance
Regulatory and Development Authority (IRDA) bill has changed the whole
scenario. With the passage of the bill, entry of Private Indian as well as
foreign companies, a long with existing players, in the insurance sector will
add variety and quality to the present insurance services. The other positive
impact would be on creation of new employment opportunities. Till now
employment in the insurance sector was considered akin to any government job,
but now with private participation, it will assume significance importance and
probably become an exciting career option.
UK’s
The UK Insurance sector remains a crucial
contributor to the UK economy after the public, banking and manufacturing
sectors. The industry accounts for approximately 10% of total UK IT
expenditure, and positive growth is expected to continue for the next few years
as insurance firms begin to realize the benefits to be gained from IT
investment.
Although the United Kingdom (UK) insurance
market is now one of the five largest in the world, relatively little is known
about the practices of the major firms and policy-makers which influence its
operations. In particular, whilst the determinants of rating agencies’
assessments of United States (US) insurers is well documented, published
studies have yet to provide comprehensive evidence about insurance company
ratings in the UK. (Hardwick, P and et al, 2000)
2.6 Current scenario of insurance industry
Breaking of strict monopoly of LIC was not an
easy task where to an audience who spelled insurance as LIC. LIC is working for
last 50n years and caved its name for itself in the Indian psyche. Insurance
being long term contract, an established name means feeling of security and
more importantly LIC policies come with the safety tag-the most touted
government guarantee.
by a student in order to help you with your
studies. This is not an
To enter private insurers with an altogether new
agency force, all ready to hawk freshly designed insurance policies. and the
market scene – a government owned established insurance entity-the Life
insurance Corporation with a field force of over 6,00,000agents and more than
80 products to choose from.
Purchase of Insurance is a decision that
determine by a number of demographic as well as personal behavior factors. Main
responsible factors include Age, Income, Education, Risk, etc. Some of the
important determinants as review by different scientists in their research are
as under
2.7 Risk and return in industry
Risk seems to be a fact of life experienced by
an individual as well as by a whole organization. This risk may be economic,
physical or financial. There is an increase in unexpected losses caused by
natural disasters as well as accidental damage. Wealth is subject to possible
loss, and therefore everyone from individual to the whole financial firm desire
to invest in loss prevention activities that reduce the probability of loss
(Hoffman, 2007). A sense of security may be the next basic goal after food,
clothing, and shelter.
Financial risk is mainly divided in to 2 main
categories i.e. Systematic or Market risks and Unsystematic risk. The risk
associated with an investment can be broadly divided into two categories based
on nature and occurrence of risk. Some risks are associated with the firm, and
that risks are called as firm-specific, whereas the rest of the risk is
associated with market condition and generally affects all investments in whole
market. The firm specific risk can be further sub-divided in to various
categories. Some firm specific risks are affect s project value that is called
Project specific risk and in some cases projects value is affected by the
nature of competitions and that type of risks are known as Competitive risks.
Some risks are affecting the value of a whole industry and so known as Industry
associated risks. In some cases, all the companies in a market will affect by
macro economic factors and so that type of risk is known as Market specific
risk (Friend and Bicksler, 1977).
Default risk is the risk fallen on the part of
financial institution or a creditors for your investments i.e. weather they are
able to make a monthly return on your asset or not. To achieve short term
financial goals most of the investors preferred cash investments. The only
limitation with use of cash investments is that, they are unable to produce
higher returns over long term as compared to other financial options. The only
reason for this is cash investments are unable to adjust inflation rates. In
other words cash investments are not preferable source of investment for long
term project. So, what are the other options that will satisfies needs for
investment of long term project.
2.8 Empirical research
Economic decisions are made on both the negative
as well as positive issues. Positive issue studies on insurance gradually
integrated these issues via assimilating developments in the field of risk and
uncertainty following works by Arrow (1963), Lewis (1989), (1953) and others.
The economics on insurance demand became more attentive on evaluating the
amount of risk to be shared between the insured and the insurer rather than
evaluation of life or property values.
Disclaimer
Economic value judgments are made on both the
normative as well as positive issues. Later studies on insurance gradually
incorporated these issues via assimilating developments in the field of risk
and uncertainty following works by von Neumann and Morgenstern (1947), Arrow
(1953), Debreu (1953) and others. The economics on insurance demand became more
purposeful when determining the amount of risk to be shared between the insured
and the insurer rather than evaluation of property values.
Headen and Lee (1974) studied the effects of
short run financial market behaviour and consumer expectations on purchase of
ordinary life insurance and developed structural determinants of life insurance
demand.
Morris and Barbara A (2003) study about Risk
& Insurance and mean study related with a Wedge between Insurers and
Reinsurers, authored by credit analysts and legitimate disagreements between
insurers and reinsurers about the values attributed. Criteria and claims
values, insurers and reinsurers are equally concerned with the Risk.
Venard et al. (2008) determine in the article of
analyzes Hungary's insurance sector as an important part of the country's
economic transition from a centrally planned economy to a market economy. It
details the historic economic development of the Hungarian insurance market
from a state monopoly to a competitive.
Yu, Tong et al 2008) study about Intangible
assets facilitates insurers' capacity to retain existing business and attract
new clients. In his study it can be shows that analyze how the incentives to
protect intangible assets affect asset risk-taking behaviour of property and
ability insurers.
Browne et al. (1993) concluded that income and
social security expenditures are significant determinants of insurance demand.
They further concluded that inflation has a negative correlation with demand of
purchasing for insurance.
Beck and Webb (2003) identified the two main
services provided by life insurance: income replacement for premature death and
long-term savings instruments. They further found that demographic variables,
higher levels of education and greater urbanization as independent factors in
explaining insurance demand.
Income has been found to be having a positive
association with health insurance purchase decision consistently in different
studies conducted in different countries Propper (1989) in UK: Cameron, Trivedi
(1988) in Australia and Hurd and McGarry (1997) in USA.
Health insurance choice essentially entailed a
simple decision - whether or not to purchase private health insurance (Barrett
and Conlon 2003). Binary discrete choice models using either logit or probit
has been used to analyse determinants of this type of purchase decision.
Cameron and Trivedi and Cameron (1991) specified a conditional expected utility
function that is associated with alternative health care regimes. The consumer
chooses the regime that maximizes expected utility.
Barrett and Conlon (2003) concluded from their
study that choice of health insurance essentially entailed a simple decision -
whether or not to purchase private health insurance. Binary discrete choice
models using either logit or probit has been used to analyze determinants of
this type of purchase decision.
Some studies conducted in context with the
financial performance of General Insurance Companies of India. The Researcher
has studied those research works which are as follows:
Dr.P.Pariasamy (2005) has written a book,
“Principles and Practices of Insurance”, published by Himalayas Publishing
House further that the book provides detail coverage of risk management general
insurance, Lice Insurance, Fire insurance and Marine insurance in a
comprehensive way.
Related links are:AFM 311 Advanced Financial Accounting
CHAPTER 3: SUBJECT REVIEW
Indian and UK insurance industry and Economy
This research is conceded out to comparative
study of insurance companies having business in India and UK and also having in
some other countries. Before entering into analysis part it is wise to know
about economy and insurance status of India and UK. The purpose of this chapter
is to give adequate background information on economy and insurance status of
India and UK. This chapter will give an idea about feasibility of this
research. Further details are given below:
3.1 The Indian economy and Insurance Market
Indian economy is the 12th biggest in the world,
with a GDP of $1.25 trillion and 3rd biggest in terms of purchasing power
equivalence With factors like a stable 8-9 per cent annual growth, growing
foreign exchange reserves, a active capital market and a rapidly expanding FDI
inflows, it is on the pivot of an ever rising growth curve.
Insurance is one most important sector which has
been on a constant growth curve since the revival of Indian economy. Taking
into report the giant population and growing per capita income besides several
other dynamic factors, a huge opportunity is in store for the insurance
companies in India. According to the newest research result, nearly 80% of
Indian population is without life insurance cover while health insurance and
non-life insurance continue to be under intercontinental standards. And this
part of the population is also subjected to weak social security and pension
systems with hardly any old age income security.
In India, insurance have been an entrenched
history. It finds mention in the writings of Manu ( Manusmrithi ), Yagnavalkya
( Dharmasastra ) and Kautilya ( Arthasastra ). This is almost certainly a
predecessor to modern day insurance. Ancient Indian history has preserved the
earliest traces of insurance in the form of marine trade loans and carriers’
contracts. Insurance in India has evolved over time greatly drawing from other
countries, England in particular.
Further that since, in 1818 saw in Calcutta the
advent of life insurance business in India with the organization of the
Oriental Life Insurance Company. This Company failed in 1834.However in 1829;
in the Madras Presidency the Madras Equitable has begun transacting life
insurance business. In the nineteenth century saw the enactment of the British
Insurance Act and in the last three decades , the Bombay Mutual (1871),
Oriental (1874) and Empire of India (1897) be ongoing in the Bombay Residency.
However this era was dominated by overseas insurance offices which did greatest
business in India, namely Albert Life Assurance, Royal Insurance, Liverpool and
London Globe Insurance and the Indian offices were up for hard rivalry from the
foreign companies.
The Government of India on track published
returns of Insurance companies in India in 1914. In 1912 the Indian Life
Assurance Companies Act, was the first constitutional measure to regulate life
business, the Indian Insurance Companies Act in 1928, was enacted to enable the
Government to collect statistical information about both life and non-life
business transact in India by Indian and foreign insurers together with
provident insurance societies. With a view to protecting the interest of the
Insurance public in 1938, the in advance legislation was consolidated and
amended by the Insurance Act, with complete provisions for effective control
over the activities of insurers.
However, after the growth of insurance market
there were a large number of insurance companies and the high level of rivalry
found. There were also allegation of inequitable trade practices. After that
Government of India, decided to nationalize insurance business.
In 19th January 1956, a regulation was issued in
nationalizing the Life Insurance sector and Life Insurance Corporation came
into existence in the same year. Further that the LIC wrapped up 154 Indian, 16
non-Indian insurers as also 75 wise societies 245 Indian and foreign insurers
in all. When the Insurance sector was reopened to the private sector the LIC
had control cultivate the late 90s.
It all started with Property Insurance
Everyone knows what life insurance or property
insurance is and usually knows something about how it works but not everyone
knows the history and reasons for and behind insurance in general. In the most
basic sense, insurance is the compensating of a person or business for a loss.
There are many types of insurance to cover any situation including, auto
insurance, health insurance, dental insurance, home insurance, personal
insurance and even pet insurance.
A type of Property Insurance first became
popular about 3000 BC in China. Chinese merchants, as well as their investors,
wanted to ensure that they would see a profit from their goods that they
shipped overseas. In the event that a ship was lost at sea or pirated, an
insuring partner would reimburse the owners of the ship and goods. To pay for
the loss the merchant would be sold into slavery to the insurer until the debt
was repaid. This was a mutually beneficial arrangement since a merchant could
not afford to pay for the lost goods or even to buy a ship unless someone
invested.
In Babylon merchants and investors devised a
system of contracts in which the supplier of money for a trade venture agreed
to cancel the loan if the trader was robbed of his goods. The trader who
borrowed the money paid an extra amount for this protection in addition to the
usual interest. As for the lender, collecting these premiums from many traders
made it possible for him to absorb the losses of the few. This arrangement
proved to be more appealing and sensible than the earlier one. Later this
series of contracts was extended to include provisions for a family's home and
even covered murder, the start of life insurance.
In fact, this law still exists today as part of
our own laws for protection against losses at sea and the very word
"insurance" is derived from the Latin word for "security."
List of Indian insurance sector:
Life Insurers
List of public sector industries:
Life Insurance Corporation of India
List of private Sector industries:
IFFCO-Tokio General Insurance Co. Ltd.
Reliance General Insurance Co. Limited
Royal Sundaram Alliance Insurance Co. Ltd.
TATA AIG General Insurance Co. Limited
Cholamandalam General Insurance Co. Ltd.
Export Credit Guarantee Corporation
HDFC Chubb General Insurance Co. Ltd.
Max New York Life Insurance Co. Limited
MetLife Insurance Company Limited
Om Kotak Mahindra Life Insurance Co. Ltd.
SBI Life Insurance Company Limited
TATA AIG Life Insurance Company Limited
AMP Sanmar Assurance Company Limited
Dauber CGU Life Insurance Co. Pvt. Limited
National Insurance Company Limited
New India Assurance Company Limited
Oriental Insurance Company Limited
United India Insurance Company Limited
Bajaj Allianz General Insurance Co. Limited
ICICI Lombard General Insurance Co. Ltd.
Allianz Bajaj Life Insurance Company Limited
Birla Sun-Life Insurance Company Limited
HDFC Standard Life Insurance Co. Limited
ICICI Prudential Life Insurance Co. Limited
ING Vysya Life Insurance Company Limited
List of reinsurer industries
General Insurance Corporation of India
Todays evaluate the difference in market share
of Private Sector Life Insurance Companies over a Year's time.
Top five Gaines in Life Insurance Business in a
Year
Reliance Life +3.9% increase in total private life insurance market share
Birla Sun life +3.3% increase in total private life insurance market share
Met Life +2.8% increase in total private life insurance market share
Aviva +2% increase in total private life insurance market share
SBI Life +1.7% increase in total private life insurance market share
Reliance Life +3.9% increase in total private life insurance market share
Birla Sun life +3.3% increase in total private life insurance market share
Met Life +2.8% increase in total private life insurance market share
Aviva +2% increase in total private life insurance market share
SBI Life +1.7% increase in total private life insurance market share
Life Insurance Corporation of India has
mobilises Rs. 12,361 crore of new business premium in March, 2007 - the maximum
recorded by the business in any single month. This has enabled the corporation
post new business premium of Rs. 55,934 crores in 2006-07 a 118% development
over the previous year. LIC’s has been the increase driver for the entire life
insurance industry which grows 110.7% to Rs. 75,406 crore in present financial
year from Rs. 35,897 during the previous year.
The rise in premium gives LIC a market share of
over 74% of the total new business premium mobilise in India, which is
considerably superior than the 72% as on March 31, 2006. The rise in premium is
mainly on account of unit-linked policies which account for nearly 70% of the
total individual premium.
The corporation face a challenge in increasing
its company during the current financial set the huge base. Also a large
fraction of the policy are in the nature of single premium policies, which give
an amount of Rs. 24,927 crore, a nearly 44% of the premium rise by the
corporation during the F.Y. 2006-07.
Table 3.1 premiums of life insurance companies
in India in 2005 to 2007
(Source IRDA, Macquarie research, March 2008)
For the moment, the private life insurance
industry has recorded a development of 89% with total new business premium of
Rs. 19,471 corer as against Rs. 10,252 corer in the equivalent period last
year. ICICI Prudential continues to be the biggest private life insurance player
with a market share of 7% followed by Bajaj Allianz Life Insurance which has a
market share of 5.7%.
The companies that have recorded greatest
increase in the fiscal '06-07 include Reliance Life Insurance, which grow 381%,
followed by SBI Life Insurance which grew 209%. The high development has
enabled SBI Life to move into the number three position after Bajaj Allianz
Life Insurance.
Graph 3.3 premium/policy for the year 2006 to
2008
(Source IRDA, Macquarie research, March 2008)
The average premium per policy has improved by
15 per cent for the private sector. “This is contrary to our expectations it
have been expectant ticket sizes to shrink as incremental growth is being
driven by smaller towns and health products. We like this trend (see
Figure) however, because we believe superior ticket sizes are margin-accretive
as they reduce processing costs,"(IRDA research observed is 2008)
3.2) The UK economy and Insurance Market
The United Kingdom is one of the world's most
important countries in terms of financial and trading sector. The UK Economy is
the biggest in Europe and is also ranked as the fifth worldwide as per the
market exchange rates, in terms of GDP (Harbury and Lipsey, 1993). The UK
Economy is characterizing by a free market connecting a low taxation and
regulation on the part of the organization. Along with New York City and Tokyo,
London is one of the most significant centres of trade and business in the
world. Total of 70% from an overall country’s GDP is comes from the financial
services and business related industries.
The economy of United Kingdom is the best and
stable among the top countries in Europe and with moderately good economic
performance. There is seen to be more declines in share from developed
industries as compared to other financial service sectors for the duration of
last several years. The service sector accounts for 65% of GDP, while developed
occupies only 20% of nationwide output. In last several years Insurance
business gives wonderful results as well as very high returns and helps in
boosting the economical growth in UK. It is believed that without Insurance it
was not possible to meet require of rising people with relation to their
economy.
Insurance also provides risk protection cover
for small businesses and employ over half the population of financial sector of
company. Insurance also helps manage risks for businesses’ various stakeholders
with an interest in the firm’s stability, and lowers the cost of financial
distress and bankruptcy. Insurance also provides direct advice on good quality
risk management and sensible risk-reduction.
Insurance market in UK
The UK insurance is biggest insurance market in
Europe and 3rd biggest market in the world. Insurance market is a significant
source of overseas income in UK. Insurance market in UK is having a total
number of 339,000 employees, which make more than 30% of total financial
services. Insurance in UK controls about added 17% of total investment in the
London stock market. Out of all insurance companies Lloyd’s insurance company
has the biggest market in UK.
The main types of insurance in United Kingdom
are:
Life and pensions
Health and protection
General insurance
General insurance
General insurance companies involves in giving
insurance for common purposes. General insurance will give business a vital
role for giving a risk free life to insurers by minimizing the impact of
unexpected and unwelcome risk. It lets individuals and businesses for
unexpected future events, and helps them organizing their lives and businesses
with enhanced conviction. The net claims for general insurance per running day
in UK are about £74 million.
Life and Pensions
Insurance industries are also occupied in giving
risk secure to personal life and life after employment i.e. retired people. The
insurance industry is also making contributions to the nation's health by
supporting the private medical sector. A life insurer offers valuable financial
safety in early death of insurers if members of the family are dependent on
earnings, as well as it will gives a range of ways for saving in future. The
net claims for pension and life insurance per running day in UK are about £222
million.
Health and protection
There is maximum risk is seen in relative to health
issues. The life insurance is mainly deals with such category of health linked
with issues and giving insurance to minimize risk from health hazards. The UK
insurance industries provide claim benefits for any kind of injury or illness.
It also enables to plan for older age people and considered various benefit
plans to suit their needs.
This dissertation is an example of a student's work
List of Insurance Companies
Insurance business in UK is one of the largest
businesses in country, having very large number of companies and divided in to
sub categories based on type of insurance they provide and their working
pattern. The main insurance industries are divided as general insurance
industries and health insurance industries. There are thousands of insurance
companies are e in UK. List of various insurance companies are given below:
Life Insurance Companies
List of Domestic Insurance Companies
Sony Life Insurance Company, Ltd
T&D Financial Life Insurance Company
TAIYO Life Insurance Company
Yamato Life Insurance Co
Asahi Mutual Life Insurance Company
Mitsui Life Insurance Company Limited.
ORIX Life Insurance Corporation
List of Foreign-Controlled Companies
AXA Life Insurance Co., Ltd.
Hartford Life Insurance K.K
AIG Edison Life Insurance Company
AIG Star Life Insurance Co., Ltd
PCA Life Insurance Co., Ltd.
The Prudential Life Insurance Co., Ltd.
ING Life Insurance Company. Ltd
List of Subsidiaries of Non life insurance
companies
Tokio Marine &Nichido Life Insurance Co.,
Ltd.
The Fuji Life Insurance Company, Ltd.
Sompo Japan DIY Life Insurance Co. Ltd.
Mitsui Sumitomo MetLife Insurance Co., Ltd.
Aioi Life Insurance Company, Limited
Sompo Japan Himawari Life Insurance Co., Ltd
NIPPONKOA Life Insurance Company, Limited
List of Foreign Insurance Companies
Zurich Life Insurance Company Ltd.
CARDIF Assurance Vie
American Family Life Assurance Company of
Columbus
American Life Insurance Company
Non-Life Insurance Companies
List of Domestic companies
List of Domestic companies
Hitachi Capital Insurance Corporation
Mitsui Direct General Insurance Co. Ltd.
Sony Assurance Inc.
The Fuji Fire &Marine Insurance Co. Ltd
Tokio Marine &Nichido Fire Insurance Co.
Ltd.
Mitsui Sumitomo Insurance Co., Ltd.
NIPPONKOA Insurance Co. Ltd.
SECOM General Insurance Co. Ltd.
List of Foreign-controlled Companies
Ace Insurance
Allianz Fire and Marine Insurance Japan LTD
JI Accident. Fire Insurance Co.,Ltd.
Meiji Yasuda General Insurance Co.,Ltd.
Subsidiaries of life insurance companies
The AXA Non-Life Insurance Co.,Ltd.
The Sumi-Sei General Insurance Co.,Ltd
List of Reinsurance Companies
The Taisei Reinsurance Company, Ltd.
The Toa Reinsurance Co. Ltd.
The Japan Earthquake Reinsurance Co. Ltd.
Overview of the UK insurance market
Insurance market in UK is in advance elevated
interest in the midst of share holders and business people due to its need and
superior demand in market. UK insurance market is divided in 2 main categories,
Life Insurance
An insurer gets greatest benefit from investing
in such firms in UK. According to most recent data, UK insurers established
£44bn and £219bn in premium income for general insurance and for life
insurance, correspondingly. The worldwide net written premiums of UK insurers
amounted to £43.6bn in 2007, an increase of 5.3% over 2006.
In Table.1 is shown Data on revenue account of
insurance companies in UK. The given data represent those Premiums for UK risks
rise by 2.8% to £31.3bn. Worldwide net claims also increase, to £29.0bn from
£25.3bn in 2006. Claims for UK risks increase by 14.1% over 2006 to £21.6bn.
Table.3.2.1 Revenue Account insurer’s in 2008
for UK
(Association of British Insurers 2008)
The UK underwritten profit of £1.5bn in 2006
turned addicted to an underwriting loss of £0.9bn in 2007, while the worldwide
profit of £1.6bn in 2006 fell to very little profit of £97m in 2008. In
profitable years, underwritten results can be pretentious by the companies
reserving for prospect less profitable times. On the other hand, underwriting
results can be better by a releasing of reserves in a year of poor
presentation. Table 1 shows the underwritten result for UK general insurance
market as a percentage of net written premiums.
Graph 1 below shows the growth of UK net premium
income over the earlier period decade, come apart by extensive type of long-term
business. It must be familiar that both the premiums received and benefits paid
figures include the transfer of money, for the most part of the pension funds
of individuals or group schemes, from one pension provider to another. These
pension transfers accounted for £93.0bn (54.6%) of the £170.2bn in total
benefits paid out to policyholders in the UK in 2007. Changes in pension policy
from April 2006 contributed significantly to this movement for individual
pension contract.
Graph 3.2.1 UK Net written premium during
1997-2007
(Association of British Insurers 2008)
It can be seen from the given data that, net
printed premium for insurance industries in UK shows quickly increase in their
value. Major source for net written premium during defined time was group
pensioners and least premium was obtained from other insurance market.
This dissertation is an example of a student's work
Disclaimer
Underwriting ratios for Insurance industry is
very important tool to judge the performance of company. Generally, a company
with lower underwriting ratios is safer to invest and vice versa. Looking to
data for last five years, it can be seen that overall UK operating ratios for
the five classes of general insurance business (Motor, Accident & Health,
Property, Liability and Pecuniary Loss) have worsened in 2007.
Graph 3.2.2 UK underwriting results as a
percentage of net written premiums during 1995-2007
(Association of British Insurers 2008)
Graph 3.3 Results on Underwriting Ratios for UK
insurance companies in last 20 years
(Association of British Insurers 2008)
The claims ratio was 69.2% and expenses and
commission accounted for a further 32.3% of the premiums received. Once changes
in provisions were taken into consideration, there was an underwriting loss of
3.0% of premiums. In 1998, the last low point in the underwriting cycle, the
claims ratio was 74.2%, and the expenses ratio was 33.0%. This led to an
underwriting loss of 10.4% of premiums. Underwriting ratios are important tool
for any prediction about company and its profitability. Data on such
Underwriting ratios for UK based insurance companies in last 2 decades shown in
Graph.3 above:
Chapter 4: Methodology
This research is carried out to comparative
study of insurance companies in United Kingdom and India. The research includes
six different insurance companies having business in UK and India. The data
period for analysis is of last five years financial performance of a company as
seen from its original balance sheets. The method of analysis is starts with examining
balance sheets of different companies and ending with financial ratio analysis
followed by statistical analysis of the data. This chapter gives an idea about
a whole set of methodology to be followed for determining study of an insurance
company. A step wise methodology to be followed is given below:
4.1 Types of Research
Before entering into financial analysis
directly, it is wise to know about principle of methodology. Saunders, Lewis
and Thorn hill (2003) defined that “Methodology refers to the theory of how a
research should be undertaken”. A flourishing research should include accurate
collection of data and ending with truthful analysis of the same. Methodology
style differs varyingly to the needs and demand of the research to be
undertaken. However the methodology can be broadly classified into two
approaches namely:
Phenomenological
Positivist
Phenomenology and positivism are two different
perspectives that will determine style of research. Within the large discussion
of the history of science, positivism has come to mean inquiry based on
measurable variables and provable prepositions. The phenomenological
investigator determines the underlying structures of an experience by
interpreting the originally given descriptions of the situation in which the
phenomenon occurs.
Phenomenology is a kind of qualitative method.
It doesn’t deal with numbers or calculation actually. It will help to determine
strategies and cultural aspects of a company. Action research, case study
research and ethnography are the example of phenomenological research.
Qualitative data sources include observation and participant observation,
interviews and questionnaires, documents and texts, and the researcher's
impressions and reactions (Myers, 2008).
The word phenomenon comes from the Greek word
phaenesthai, which means to flare up, to show itself, to appear (Bullington and
Karlsson, 1984). In a broad sense that which appears provides the impetus for
experience and for generating new knowledge. The aim of the phenomenological research
inquiry is to determine what an experience means for the persons who have had
the experience and are able to provide a comprehensive description of it.
Phenomenology is the first method of knowledge
because it begins with "things themselves". Phenomenology type of
research eliminates everything that represents a preconception, expected
presuppositions, and reaching a state of freshness and openness. Final result
is obtained the way of earlier research and that is non dependent by the
customs, beliefs or by knowledge based on unrelated experience from everyday
research.
Another type of research is a quantitative type.
Positivist is a kind of quantitative research. This type of research will
handles the numerical data value. Survey analysis, laboratory experiments, formal
methods and numerical methods such as mathematical modeling are the common
examples of positivist research.
Positivist approach is a qualitative aspect of
research where, one can conduct a research according to the models or
strategies laid down by the previous researchers and draw conclusions out of
them. Positives follows the way that is well defined earlier and determine
final value and believe that a particular value is independent to the method of
analysis and kind of instruments.
Positivist studies generally attempt to test
theory, in an attempt to increase the predictive understanding of phenomena
(Orilikowski and Baroudi, 1991). Positivism is a kind of quantitative analysis
deals with measurement of data. It is based on mathematics principles and
practices. Majority of researches which handles data are falls into positivist
category.
4.2 Research Problem
Financial performance of a company is evaluated
by two different means. The first approach to determine financial performance
of a company is to know about its strategies the other approach deals with
determining its profitability. Profitability entitles how profitable a company
is. Better performance of which countries company having favours high
investment from investors. For this reason, comparative study of insurance
sector of profitability is gaining high attention from the researchers. Many
comparative studies have been carried out on banking industry as well as
insurance industry. Based on such concept, this research is carried out to
comparative study of insurance companies in UK and India. The whole research is
carried out on six different insurance industries (three Indian and three UK).
The main purpose of this research is to analyze various financial performances
of insurance company and how it’s deferent from each other.
4.3 Research Style chosen
The Positivist approach is the best suited
approach for this research. This research is about comparative study for
insurance companies. The research is carried out on six different insurance
companies in UK and India. The main quantitative analysis methods includes
financial ratio analysis and statistical analysis i.e. correlation and
regression analysis and Anova test, details on these is given below with more
explanation.
4.4 Hypothesis
Based on the fact insurance is world wild
industry and practice may be similar the hypothesis is as below:
“Financial characteristic of Indian and UK’s
company are not quite different”
4.5 Research question
Do Indian and UK’s insurance companies defer in
risk and return characteristics?
4.6 Methods of Analysis
To access the research question the following
method of analysis are adopted:
Characteristic of financial statement will be
analyzed.
Important ratio will be plotted.
Test will be conducted for similarity.
Result will be interpreted and discarded.
Comparative study of insurance company is mainly
analysed by calculating financial ratios from the balance sheets of the
company. Ratios are following correlation and regression analysis as a part of
statistical analysis.
Ratio Analysis
In Ratio analysis, prime ratios to be calculated
are Profitability ratio i.e. Return on Equity (ROE), Return on capital employed
(ROCE), Return on Revenue (ROR); Liquidity ratio, Capital ratio and
Underwriting ratios i.e. Loss ratio, Expense ratio and combined ratio. The
description for ROE, Expenses Ratio, Loss Ratio and capital ratio is given
below.
I. Profitability Ratios:
As in any company, profitability is a key
determinant for deciding whether to invest or not. Insurance company’s
profitability can be expressed by the value of its premium/underwriting income
and investment income. Underwriting income is any revenue derived from issuing
insurance policies, while investment income is total income from investing an
insurance policy. Profitability of insurance company is determined mainly in
three distinct steps. Main ratios for determining profitability are,
Return on Equity (ROE)
Return on Equity
Return on Equity is calculated by dividing net
operating income by average common equity. Equity value is very important as
shareholder’s point of view. This figure will determine the amount of profit
that will given to the equity shareholder’s directly after interest and taxes.
II. Underwriting Ratios:
After profitability, next important term is
underwriting ratios. It will gives an account on various losses caused by
claims, different expenses for re-issuing policies and further expenditure on
handling of claim related issues. A demand and supply force decides the price
for insurance. As the underwriting profit of a company increase, the loss ratio
will eventually decrease and vice versa. In such a condition of more
underwriting profit, companies will issue more number of policies. As the
numbers of policies are increasing the price for obtaining a policy will
decline.
This dissertation is an example of a student's work
Main underwriting ratios are,
The loss ratio measures the amount of premium
paid out against claims and expenses. It can be calculated by dividing losses
caused by claims to net premium earned. As the number of claims increases, more
risk is seen on a company. The lower ratio is preferable for a better
performance of an industry. Higher loss ratios may indicate failing of
management strategies over risk prevention and also predict about lower value
of shares in future.
Expense Ratio
The expense ratio includes total expenses
utilized to issue a new policy. It also includes expenses for re-issuing a
policy. As the amount of expense for issuing a policy decreases the profit for
insurance company increases. It can be calculated by dividing underwriting
expenses for issuing a policy by net premiums earned on a policy.
IV. Capital ratio:
Capital ratio gives an idea about the capital
strength of a company. Higher capital ratio favours the growth of company. It
is calculated by dividing Shareholder’s equity by total assets.
Statistical Analysis
After financial analysis of data, results were
analysed statistically. Data were subjected to correlation and regression for
better understanding of factorial relationship before giving final conclusion.
Correlation analysis will analyse determinants that are correlated with each
other in one or more ways while, regression analysis will yields in depth
relationship between all those variables.
4.7 Data sources
Primary source of data for this research is
original balance sheets of the company. All financial data is taken from
company’s financial balance sheet as well as company’s annual reports. Past
five years data on different insurance company were collected, tabulated and
formatted for determining profitability of insurance company. The main websites
for collection of data for each company is annual report service were it is
provide annual books of all companies.
Chapter 5: Analysis and Findings
This research is carried out to determine
financial performance of insurance companies in UK and India. Earlier chapters
described about theory and background information with some sound reviews on
topic but without any technical analysis part on it. This chapter deals with
actual analysis part to performance of insurance industry. How an insurance
company is to be analysed and how it’s different? Answer to this question is
given in detail in this chapter. Overall detail about financial and statistical
analysis is given below:
5.1 Analysis of data
Comparative study gives effectiveness of
insurance is different from banking sector. There are various differences were
observed while the study of insurance the sectors. Starting from examining
balance sheet data to the final analysis both the sectors are conflicted in one
or more ways. Comparative study of insurance is a multi step process. Overall
analysis for comparative study of insurance in India and UK is divided in to 3
main distinct steps which are given below:
1. Examining Company’s Balance Sheet
2. Financial Analysis
Ratio Analysis
3. Statistical Analysis
1. Examining Balance Sheet
First step towards analysis of financial
performance of insurance is to study and examining properly the balance sheet
of the company. Without complete balance sheet i.e. with all data filled with
time and accurate proportion, an analysis will not be performing in an accurate
way. It is very much necessary to observe balance sheet with a great care and
without failing to give concentration on each and every data.
The most important thing to be observed and
examined for study of insurance is data pertaining to insurance terms i.e.
underwriting ratios. This data should include various losses occurred by each
claim, various expenses for issue and re-issue of insurance and all the data
relates to other expenditure. Data pertaining to cash flows are also having
equal importance for analysis part. After observing balance sheet in a proper
way the next step is to extract data that is utilized for actual analysis.
Whatever data that is to be extracted is following financial and statistical
analysis for determining profitability of insurance.
2. Financial Analysis
This includes processing of data by various
financial models. The main financial analysis needed for study profitability of
insurance is Ratio Analysis. Ratio analysis gives an idea about profitability,
liquidity and capital structure for insurance company. This research includes
data during 2004-2008 and taken from original balance sheets of the company’s
website. From the balance sheet data ratios were plotted over time and studied
following statistical analysis. All the ratios are plotted in a percentage
value for analysis. The main ratios for determining profitability of insurance
are given below:
This dissertation is an example of a student's work
1. Profitability Ratio
Return on Revenue (ROE)
2. Liquidity Ratio (LIQ) and Capital Ratio (Cap)
Profitability Ratios Analysis
Profitability ratios are the important ratios to
comparative study of profitability of insurance company. These ratios were
carried out to know about profitability status of an insurance company.
Profitability of insurance is measured in terms of its returns value. The
returns are calculated against equity, assets and revenue for determining
values for return on equity (ROE).The value of ROE determines higher dividend
payout to shareholders.
The value of return on equity is more important
as shareholder point of view while, the value for return on assets and return
on revenue is more important as a company point of view. These all ratios are
positively correlated with the firms overall value and financial position at a
given time. Generally, a firm or a company with higher profitability ratios is
profitable in nature. For determining each ratio value for profit after
interest and taxes is divided to average equity, total assets and total
revenues for ROE, ROCE and liquidity ratio respectively. Final value for each
ratio was presented in a percentage figure for analysis.
Liquidity Ratio and Capital Ratio
These ratios are also having an equal importance
for determining profitability of insurance company. The liquidity ratio will
determine the debt paying status of a company, while capital ratio will
determine financial strength of a company. A company with lower liquidity ratio
implies that a particular company faces larger liability on it. In other words
a company having more money to overcome his debts is less liquid in nature. On
the counter part, a higher capital ratio will determine that how strong a
company is to handle the critical financial situation. Higher capital ratio
implies that a company is in a condition to give maximum dividend to their
shareholders.
Liquidity ratio is calculated by dividing total
cash and cash equivalents that remains at the end of financial or calendar year
against total liability held on a company for that particular financial year.
Capital ratio is calculated by dividing total equity value given to
shareholders against value of total assets utilized for issuing a policy. Final
value for each ratio was presented in a percentage figure for analysis.
3. Statistical Analysis
Comparative Study of insurance company is not
assessed based on only financial analysis of balance sheets. The final
conclusion is given only after all the financial results were statistically
tested and accepted for actual performance of findings from both countries. The
main statistical analysis needed to determine the study of an insurance company
is correlation and regression analysis and comparison of both companies’
financial data.
Correlation study will find out the different
determinants that are correlated with each other to determine ratios of
insurance companies. Once the correlated determinants were established than
regression studies on that determinants only is carried out to know in depth
relationship between them. After Anova test and correlation and regression
analysis of financial data one can conclude about any companies regarding its
status.
5.2 Summary of the findings
This research is carried out to comparative
study of insurance. For that data were collected from websites of company
itself and recorded between the years 2004 to 2008. After extracting data from
balance sheets all the data were transformed for financial analysis. The result
for various analyses is illustrated below:
Financial Ratio Analysis
In this section results reveals data on various
ratios for different companies in their last five years. Main ratios that are
calculated for this research are Profitability ratio, Liquidity ratio and
Capital Adequacy ratio.
Regression and correlation analysis are
statistical techniques used comprehensively in purpose characteristics to
examine causal relationships between variables. Regression and correlation
measure the scale of relationship between two or more variables in two
different but related ways. Further, parametric forms of regression analysis
assume that for any given value of the independent variable, values of the
dependent variable are normally distributed about some mean. Application of
this statistical procedure to dependent and independent variables produces an
equation that greatest approximate the functional relationship between the data
observed.
A) Since, there was no significant factor
between the ratios. It is now appropriate to trail them as one as pool and
ascertain any cross relationship.
The correlation ratio show the profitability is
across not result found with 30 data the cut of correlation is 0.36 for a
significant relation. The above correlation ratio, some have positively
relation with correlation and negatively. And higher the loss ratios lower the
ROE. Higher the expense ratio higher the ROE that means this point to the more
successful insurance companies. Whenever, more expense ratio while keeping the
loss ratio down.
B) After arrangement of all ratios, the entire
ratios are subjected to regression analysis. From above table, the factors that
were following regression are return on equity, expense ratio, loss ratio and
capital ratio. Regression analysis had been carried out on these determinants
for further deep analysis to determine any positive and negative relationship.
The result for regression analysis on theses determinants is expense ratio
0.366696 and loss ratio is -0.44081, were expense ratio is higher and loss
ratio is lower it means profit is higher.
Chapter 6: Discussions
This research is caring out comparative study of
Indian and United Kingdom insurance industries. Background of this research is
manly study from the financial performance and economy of Indian and United
kingdoms insurance industry. Comparative study of insurance industry is finding
from the balance sheet and economy of company. Finally analysis of ratio
determine from the balance sheet and which study about the Return on Equity,
expense ratio, loss ratio and capital ratio. This chapter will give result of
statistic and financial analysis of insurance company which one is discus
below:
6.1 Implications of findings from the research
The total six companies from India and UK were
taken for this research which will be given in table 5.1. The table includes
five years data of each company from Indian and United Kingdom insurance
industries. The table includes six companies’ data of last five years viz. ROE,
EXP.R, LOSS R and CR. The prime analysis of the research is based on ratio
analysis. For this purpose the many ratios taken where return on equity,
expense ratio, loss ratio and capital ratio. Further discussion on each ratio
is given below:
The data on various ratios from three India and
three UK insurance industries is given in the table. From the table it can be
seen that in UK Chaucer holding plc giving the higher returns on equity, return
on expense and losses in last three years among the three UK companies. In
India, the same results came from Bajaj Allianz from all the data it can be
seen that Chaucer holing plc give the highest return on equity among all the
companies in the year 2008.
From the table it can be seen that in UK
prudential plc giving the lower returns on equity, return on expense and losses
in last three years among the three UK companies. In India, the same results came
from united India insurance. From all the data it can be seen that Chaucer
holing plc give the lower return on equity among all the companies in the year
2004.
Further discussion on comparison of data is
given in table 5.2. The data on various ratios for the two countries were
grouped together for the purpose of comparison between both of them.
Chapter 7: Conclusion
This chapter will discussed on various results
and findings obtained from the financial and statistical analysis of the data
to comparative study of insurance industries. Further details are given below;
7.1 Conclusion- evaluation of research question
This research is carried out to comparative
study of insurance companies in India and UK. The research includes an analysis
on six different insurance companies having business in UK and India. For the
purpose of analysis, data were extracted from the balance sheets provided from
original websites of company itself having duration between 2004 -2008. After
extracting data were subjected to various financial analysis tools with back up
of sound statistical analysis as well to predict comparative study of insurance
companies in India and UK.
At the beginning of research the hypothesis was
set as an expected outcome of findings. The expected hypothesis for this
research was, “Financial characteristic of Indian and UK’s company are not
quite different”. The illustration on this hypothesis is that, a company having
better result in further ratio in ROE, ER, LR and CR in a position no deferred
characteristic of Indian and UK insurance companies.
An overall conclusion from the research and with
relation to set hypothesis is that, financial performance of insurance company
having quite different characteristic but in statistic analysis as per result
of Anova calculation p value > 0.05 which means ROE, EXP.R, LR and CR of
both country are same.
7.2 Limitations of the current research,
There are until the end of time some weak points
or limitations were observed in each research. This is also a research and for
that reason having some limitation to perform this research.
This research includes analysis on six different
insurance companies in India and UK only. Based on this it can be seen that,
first limitation of the sample size research. The complete research is
performing on a small sample size. The other limitation based on this situation
is that, a whole research is carried out on the insurance companies having
business in India and UK only, without taking any more then two different
countries.
On other side this research includes data for
complete analysis from the last five years (2008 to 2005) only. Based on this,
the next limitation emerges for this research is related to time. A feasible
research should include an analysis based on more than 10 years data and also
having comparisons with insurance companies in more then two countries.
This research should include only four ratio
analyses as main tool for financial analysis, statistic of Anova test and
correlation and regression is the main tool as statistical analysis. No more
financial and statistical analysis was performing during the research to
comparative analysis of insurance companies. It will limit scope of study for
the research.
As the topic of comparative analysis of
insurance companies as compared to banking industry it is less research. Because
after finding empirical research there is more research comparisons only with
companies not with other countries insurance companies. There was less research
has been comparative study of insurance companies. Based on this, the
limitation of less empirical research on topic is also observed.
For data analysis not all the companies were
having data for all the five years. Based on this, there is less feasibility
for comparisons of risk and return, financial performance of all companies and
comparative study of insurance also not a perfect observed.
7.3 Recommendations for further work
It is fundamental truth that ending of one
research is the beginning of the next research. The research is a linked
process and always connected with the earlier research. Every research suggests
the recommendation for future work on the same area or a different area related
to main research. This research is based on profitability determinants for
insurance companies in UK, after a whole analysis this research also gives further
recommendation for future work. The future recommendations from this research
are as follows:
.
This research includes data for last five years
only. For future research, it will be recommended taking into consideration
data for more number of years in analysis.
There is no any positive relationship was
observed between study of comparative analisys of Indian and UK insurance
companies are profitability ratios and underwriting ratios. Based on this
finding, it can be recommended to study this finding in detail to find any
appropriate relationship between these two insurance companies.
For future work, it will be suggested to involve
extensive range of financial analysis and statistical analysis tools.
Some research has been carried out to compare of
insurance industry with the compare with the banking sector. There is also
involvement two or more banks in research to analyze of insurance.
Please read it too:ACC 202 Financial accounting standards and corporate reporting
No comments:
Post a Comment