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INTERNSHIP REPORT

FUND MANAGEMENT OF GREEN DELTA INSURANCE COMPANY


LIMITED: AN EVALUATION

Submitted to the Department of Banking and Insurance,


University of Dhaka as a partial requirement of BBA Program of
2011
GUIDE TEACHER
Professor Md. Abu Taleb
Department of Banking and Insurance
Faculty of Business Studies (FBS), University of Dhaka

SUBMITTED BY

Hasan Mohammad Tareq


ID.: 17-051
BBA Program, 17th Batch
Department of Banking and Insurance
Faculty of Business Studies (FBS), University of Dhaka

19TH MARCH, 2015


ii
L ETTER OF T RANS MITTAL

19th March, 2015

Professor Md. Abu Taleb

Guide Teacher

Internship Program of Bachelor of Business Administration

Department of Banking and Insurance

Faculty of Business Studies (FBS), University of Dhaka

Subject: Request for accepting the internship report

Dear Sir,

This is a great pleasure to inform you that I have prepared the report on “Fund Management of
Green Delta Insurance Company Limited: An Evaluation” as a part of my Internship under BBA
Program. Preparation of the report gave me an opportunity to know about every pros and cons of a
non-life insurance company in Bangladesh – what they do, how they do, why they do, what are called
„funds‟ in a non-life insurance company, how they are managed and finally what are the problems that
may lie in fund management. I tried the utmost I was capable of preparing this report and hope it will
satisfy your desire.

With due respect I request you to excuse for any mistake of mine that may exist in this report despite
my best effort and to view them with your generous consideration.

Sincerely Yours

………………………………………….

Hasan Mohammad Tareq

ID.: 17-051

BBA Program, 17th Batch

Department of Banking and Insurance

Faculty of Business Studies (FBS), University of Dhaka

ii
S UPERVISOR ’ S C ERTIFICATE

This is to certify that the internship report on “Fund Management of Green Delta Insurance
Company Limited: An Evaluation” in the bona fide record at the report is done by Hasan
Mohammd Tareq, ID: 17-051, 17th batch, BBA program as a partial fulfillment of the requirement of
Bachelor of Business Administration (BBA) degree from the Department of Banking and Insurance,
University of Dhaka.

The report has been prepared under my guidance and is a record of the bona fide work carried out
successfully.

……………………………………………

Signature of the Supervisor

iii
D ECLARATION

I, hereby, declare that this report entitled as “Fund Management of Green Delta Insurance
Company Limited: An Evaluation” is an original of work mine and it has been prepared under the
guidance of Professor Md. Abu Taleb, the Guide teacher of my internship program as a requirement
for completion of my Bachelor of Business Administration (BBA) degree from Department of
Banking and Insurance, Faculty of Business Studies (FBS), University of Dhaka.

This report is prepared solely for Department of Banking and Insurance, Faculty of Business Studies
(FBS), University of Dhaka. This report neither fully nor partially has ever been submitted for any
other Certificate/Degree/Diploma or Qualification to any other University/College/Institution or
Organization.

………………………………………….

Hasan Mohammad Tareq

ID.: 17-051

BBA Program, 17th Batch

Department of Banking and Insurance

Faculty of Business Studies (FBS), University of Dhaka

iv
ACKNOWLEDGEMENT

At the very outset, I would like to express my deepest gratitude to Almighty Allah Subhan Wa Ta‟ala
for giving me the opportunity to join at Green Delta Insurance Company Limited and for giving me
strength and patience to finish the report within the scheduled time.

From the core of my heart, I would like to thank my respectful guide teacher of my internship
program Professor Md. Abu Taleb, Department of Banking and Insurance, Faculty of Business
Studies (FBS), University of Dhaka, who helped me in every steps of my internship.

I am really grateful to the HRD of Green Delta Insurance Company Limited for choosing me as an
intern at their Head Office out of the eight candidates.

My gratitude then goes to Md. T.H Forhad (Senior Executive Director), Kabir Ahmed Chowdhury
(in-charge, Principal Branch Department), Papia Rahman ACII (Executive Director, Underwriting
Management Department) for helping me a lot by providing information I needed. My special thanks
goes Ali Tareque Parvez (First Assistant Vice President, Underwriting Management Department) who
helped me a lot at my work place by answering any question that I had asked him and by providing
any pieces of information that had wanted from him. I would also like to give my special thanks to
Chinmoy Chakrabarty (First Senior Vice President, Finance and Accounts Department) who helped
me a lot at the eleventh hour. I thank Maksura Siddiqa from whom I have gathered some hands-on
experience. Everybody mentioned here helped me amass the requisite information for the preparation
of the report.

I hope that the dynamic managerial and supervisory skills of the personnel will give inspiration to
anybody to build his/her career at Green Delta Insurance Company Limited.

With the help of all the above-mentioned helping hands it has been possible for me to make the report
ready. I have learned a lot of things in the course of preparing this report.

v
E XECUTIVE S UMMARY

The objectives of the report are to be familiar with fund management and its environment of
the company, to identify the weakness in managing funds efficiently and to provide some suggestions
in order to solve the problems that lie in fund management of the company.

In order to prepare the report, I had to work at the Head Office of Green Delta Insurance
Company Limited as an intern for the past two months. Despite the topic being “Fund Management”,
I was assigned to Underwriting Management Department (UMD) by the HRD of GDICL. I worked
five days in a week under the guidance of the First Assistant Vice President of UMD. I took
everything in my notebook that I was learning from my work on daily basis thinking that it would
help me prepare my report better. Besides this, I depended on the annual reports of past years and the
journals of GDICL for collecting data.

It has been found from my study that the main source of funds of GDICL is the premiums
collected from all the four departments: Fire, Motor, Marine and Miscellaneous. Premiums are
collected on cash basis. The Finance and Accounts department prepares budget in per month for the
following month. The budget is approved by the board and no department can receive cash without
the prior approval of the board. There is no regulation like SLR from IDRA for the insurance
companies in Bangladesh but GDICL keeps 10% reserve on net premiums. There is no particular
model that the company follows for cash management and temporary investment. Rather, the
company depends on market opportunities.

Most of funds of GDICL are invested in quoted shares, followed by FDR and Unquoted
Shares. It has also been found that most of the funds are invested for short term and after that, for long
term. The interest income of GDICL ranks first among all types of investment income, followed by
dividend, profit from sale of shares and other income. In short, though funds are heavily invested in
shares, the top invested income is interest income.

It is suggested that GDICL look forward more to exploit the opportunities for arranging short
term debt financing for different firms and institutions, along with equity financing.

I worked on only the past five years‟ of Data for analysis. The number of the samples is too
few to make my research a rich one. If the size of samples could be increased, then the results would
replicate almost that of the population. Also, the work of my research is on the fund management of a
particular non-life insurance company. Fund management of other non-life/life insurance company
may not be exactly same with this company.

vi
TABLE OF CONTENTS

Titles Page
List of Abbreviations………………………………………………... x

Chapter - 1 Introduction
1.1. Origin of the report…………………………………………… 1
1.2. Objective of the report……………………………………… 1
1.3. Methodology…………………………………………………. 1
1.4. Scope of the study…………………………………………… 2
1.5. Rationale of the study……………………………………….. 2
1.6. Limitations……………………………………………………. 2

Chapter - 2 Company Overview


2.1. GDICL at a Glance…………………………………………….. 4
2.2. Products and Services…………………………………………. 4-6
2.2.1. Corporate…………………………………………… 4
2.2.2. Financial……………………………………………. 5
2.2.3. Retail and SME…………………………………….. 5
2.2.4. Conventional………………………………………... 5
2.2.5. Investment & Portfolio Management………………. 6
2.2.6. Innovation………………………………………….. 6
2.3. Key Financial Variables……………………………………… 7

Chapter – 3 Fund Management System of the Company


3.1. Source of Cash………………………………………………… 11
3.2. Responsible Unit for Fund Management……………………… 11
3.3. Cash Forecast and Desired Cash Balance……………………... 11
3.4. The Cash Reserve System from Premiums…………………… 12
3.5. Models for the Management of Cash………………………….. 12
3.6. Cash Collection and Disbursement Process at a Glance………. 13-14
3.6.1. The Collection Process……………………………… 13
3.6.2. The Disbursement Process………………………….. 13

Chapter - 4 Analysis and Interpretation


4.1. Analysis of the Sources of Cash………………………………. 15
4.2. Analysis of Investment Portfolio………………………………. 16-18
4.2.1. Items of Investment…………………………………. 16
4.2.2. Detailed Amount of Funds Invested…...…………… 17
4.2.3. Maturity Wise Distribution of Investment………….. 18
4.3. Analysis of the Return on Funds Invested………..…………… 19
4.4. The Coefficient of correlation (R) and the Coefficient of
determination (R2)………………………………………………….. 19
4.5. Interpretation………………………………………………...… 20

Chapter - 5 Findings
5.1. Findings of the Study………………………………………….. 21-22

vii
5.1.1. Findings from Fund Management System…………. 21
5.1.2. Findings from Investment Portfolio………………… 21
5.1.3. Challenges While Managing Funds………………… 21
5.1.4. Problems Faced to Manage Funds………………….. 22

Chapter – 6 Suggestion and Conclusion


6.1. Suggestions………………………………………………........ 23
6.2. Concluding Remarks……………………………………………. 23

References 24
Appendices 25

viii
LIST OF CHARTS AND TABLES

PARTICULARS Page
No. CHARTS
Chart 1 Invested Assets and Sector Wise Invested Assets of GDICL……… 8
Chart 2 EPS of GDICL……………………………………………………… 8
Chart 3 Gross Premium of GDICL…………………………………………. 9
Chart 4 Earning After Tax of GDICL…………………………………….… 9
Chart 5 Gross Premium of GDICL…………………………………………. 9
Chart 6 Total Assets of GDICL……………………………………………... 10
Chart 7 Equity of GDICL…………………………………………………… 10
Chart 8 Proportion of Premiums from 2011-2013 15
Chart 9 Amount of Investment of GDICL from CY 2009-2013……………. 17
Chart 10 Share (%) of Investment of GDICL………………………………... 18
Chart 11 Income from Investment of GDICL from CY 2011-2013…………. 19

No. TABLES
Table 1 GDICL at a Glance……………….………………………………… 4
Table 2 Key Financial Variables of GDICL……………………………….. 7
Table 3 Simple Model for Monthly Budget………………………………… 11
Table 4 Net Premiums of GDICL from 2011-2013………………………… 15
Table 5 Securities/Assets Purchased by GDICL….………………………… 16
Table 6 Detailed Amounts of Funds Invested………………………………. 17
Table 7 Maturity Wise distribution of investment………………………... 18
Table 8 Variables for Correlation (R) and The Coefficient of Determination
(R2)…………………………………………………………………. 20
Table 9 Result from SPSS…………………………………………………... 20

No. FIGURES
Figure 1 Cash Collection and Disbursement Process of GDICL…………….. 14

ix
L IST OF A BBREVIATIONS

BD Bangladesh

CY Calendar Year

GDICL Green Delta Insurance Company Limited

IDRA Insurance Development & Regulatory Authority Bangladesh

UMD Underwriting Management Department

EBIT Earnings Before Interests and Taxes

EAT Earnings After Taxes

x
CHAPTER CONTENTS

O RIGI N OF TH E R EPOR T

CHAPTER - 1
O BJ EC TIVE S OF TH E R EP OR T

M ETH ODO LOGY

SCOPE OF THE S TU DY

R ATIO NAL E OF TH E STU D Y

L IMI TAT IO NS

INTRODUCTION
FUND MANAGEMENT OF GREEN DELTA INSURANCE COMPANY LTD.: AN EVALUATION Chapter - 1

1.1. ORIGIN OF THE REPORT

This report is named as “Fund Management of Green Delta Insurance Company Limited: An
Evaluation”. It had to be prepared as a requirement of Internship under BBA Program. Internship
aims at offering the students some practical knowledge beside bookish knowledge and helps the
students to combine the theoretical aspect with the practical one. The topic of the report was assigned
by honourable teacher Professor Md. Abu Taleb, Department of Banking and Insurance, Faculty of
Business Studies, University of Dhaka.

This report is a reflection of what have been learned while working as an Intern at Green Delta
Insurance Company Limited, Head Office.

1.2. OBJECTIVE OF THE REPORT

The objectives of the report are to be familiar with fund management and its environment of the
company, to identify the weakness in managing funds efficiently and to provide some suggestions in
order to solve the problems that lie in fund management of the company.

1.3. METHODOLOGY

1.3.1. RESEARCH DESIGN

This research is an exploratory research which investigates fund management of a non-life insurance
company; especially GDICL.

1.3.2. DATA SOURCES

In order to make the study effective and efficient, following two sources of data and information have
been used widely:

1.3.2.1. PRIMARY SOURCES

i. Discussion with the officers of Underwriting Management Department and Finance and
Accounts Department of Head Office
ii. Discussion with Sr. Executive Director of the company
iii. Discussion with the in-charge of the Principal Branch Department
iv. Visiting different departments of the Head Office

1.3.2.2. SECONDARY SOURCES

i. Annual Reports
ii. Journals Published by the company

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FUND MANAGEMENT OF GREEN DELTA INSURANCE COMPANY LTD.: AN EVALUATION Chapter - 1

1.3.3. DATA COLLECTION INSTRUMENTS

During the exploratory research, in-depth interviews were conducted with executives, managers and
approval officers.

1.3.4. DATA ANALYSIS METHODS AND TOOLS

After collection, data were first carefully scrutinized. Then data gathered from both primary and
secondary sources were arranged orderly and analysed.

1.3.5. SOFTWARE USED

Microsoft Word 2010, Microsoft Excel 2010 and SPSS 17 were used to prepare the report. Bar chart,
line chart and pie chart have been used for graphical representation.

1.4. SCOPE OF THE STUDY

This research paper addresses the fund management of GDICL only. Due to lack of time fund
management of other non-life and life insurance companies are not focused in this paper. So fund
management of those companies may vary from that of this particular company.

1.5. RATIONALE OF THE STUDY

The term paper will be helpful for the students especially for the students of the business studies in
many ways.

Insurance is one of the most underrated sectors in our country. Most of the Bangladeshis have
negative attitude and perception towards this sector. Many reasons have already been identified by
various researchers in this regard. People even do not know about insurance business properly, let
alone fund management.

This research will help gather knowledge about fund management of a non-life insurance company,
understand the process by which a non-life insurance company manages its fund and what can be the
flaws that may exist in the managerial system of fund management.

These types of information will be helpful to be a business leader and perhaps this is why the term
paper was assigned to me and I have taken the job with the utmost cordiality.

1.6. LIMITATIONS

While preparing the term paper, some difficulties had to be faced:

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FUND MANAGEMENT OF GREEN DELTA INSURANCE COMPANY LTD.: AN EVALUATION Chapter - 1

1.6.1. AVAILABILITY OF DATA

Despite the topic being ‘Fund Management’, Underwriting Management Department (UMD) was
assigned to work at. Enough data on the research topic were not available because of this reason.

1.6.2. TIME CONSTRAIN

There were five working days in each week during the standard banking office hour of Bangladesh
(10.00am to 6.00pm). There was not enough free time available during past one month to prepare a
standard internship report.

1.6.3. INDIVIDUAL INCAPABILITY

Nothing in this world is completely perfect. Due to many personal limitations many errors and
mistakes may exist in this report.

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CHAPTER CONTENTS

CHAPTER - 2
GDICL AT A GLANCE

PRODUCTS & SERVICES

KEY FINANCIAL
VARIABLES

OVERVIEW OF THE
COMPANY
FUND MANAGEMENT OF GREEN DELTA INSURANCE COMPANY LTD.: AN EVALUATION Chapter – 2

2.1. GDIC AT A GLANCE

Green Delta Insurance Company Limited (GDICL) is one of the leading private non-life insurance
companies in Bangladesh. It was incorporated in December 14, 1985 as a public limited company,
under the Companies Act 1913. Actual operations started on 1st January 1986, with a paid up capital
of BDT 30.00 million. Now (2013), Green Delta Insurance Company Ltd. is amassed about BDT
637.875 million with a credit rating of AA1 and ST1. Green Delta Capital Ltd., Green Delta
Securities Ltd., Professional Advancement Bangladesh Ltd. and GD Assist Ltd. are four of the direct
subsidiaries of the company. The company provides stock brokerage services through Green Delta
Securities Ltd. (GDSL) and investment supports through Green Delta Capital Ltd. (GDCL).

This company has now become a big family of 14 respected board members, 600+ committed staff,
numerous valued clients and thousands of esteemed shareholders.

GDICL at a Glance
Full Name of the Green Delta Insurance Company Limited
Company
Nature of Business Non-life Insurance Company
Established December 14, 1985
First Operation 1st January 1986
Current (2013) Paid 637.875 million BDT
Up Capital
Number of Branches 38
Number of Board 14
Members
Subsidiaries Four Subsidiaries; Green Delta Capital Limited and Green Delta Securities
Limited, Professional Advancement Bangladesh Limited and GD Assist
Limited
Share Holders’ Sponsors (51%), General Public (33%), Foreign company and Institution
Position (8% and 8%)
Table 1: GDICL at a Glance

2.2. PRODUCTS & SERVICES

The company is a non-life insurance company offering four different major insurance services; Fire,
Motor, Marine and Miscellaneous. Details products and services are presented below:

2.2.1. CORPORATE

 Risk Management
 Industrial All Risk Insurance including Machinery Insurance and Business Interruption

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FUND MANAGEMENT OF GREEN DELTA INSURANCE COMPANY LTD.: AN EVALUATION Chapter – 2

 Property All Risk Insurance including Business Interruption


 Electronic Equipments and Computer Insurance
 Professional Indemnity Insurance
 Comprehensive Machinery Insurance
 Comprehensive General Liability (CGL)
 Product & Public Liability Insurance
 Directors and Officers Liability (D&O)
 Fire and Allied Perils Insurance
 Marine Cargo and Hull Insurance

2.2.2. FINANCIAL

 Cash-in-safe, Cash-in-transit & Cash-on-counter Insurance


 Portfolio Cover
 Credit Card Indemnity Insurance
 Bankers Blanket Insurance
 Bank Lockers Insurance
 A.T.M. Booth Insurance
 Banc assurance

2.2.3. RETAIL & SME

 Fire and Allied Peril Insurance


 Marine Cargo and Hull Insurance
 Personal Accident
 Health Insurance
 Overseas Mediclaim Insurance
 Micro Insurance
 Micro Health Insurance
 Nibedita-Comprehensive Insurance Policy for Women
 Household Insurance
 Motor Insurance
 Peoples Personal Accident Policy
 Comprehensive Travel Insurance

2.2.4. CONVENTIONAL

 Aviation Insurance
 Automobile Insurance

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FUND MANAGEMENT OF GREEN DELTA INSURANCE COMPANY LTD.: AN EVALUATION Chapter – 2

 Workmen Compensation Insurance


 Miscellaneous Insurance
 Engineering Insurance
 Crop Insurance
 Nibedita-Comprehensive Insurance Policy for Women
 Weather Index Based Insurance

2.2.5. INVESTMENT & PORTFOLIO MANAGEMENT

 Underwriting
 Pre-IPO placement Syndication
 Trusteeship

2.2.6. INNOVATION

Beside the Traditional insurance portfolio, the company introduced following personal line of
products in last year and some those are in pipeline:

 Health Insurance
 Household Insurance
 Nibedita-Comprehensive Insurance Policy for Women
 Cellular Phone Contingency Insurance
 Weather Index Based Insurance
 Personal Accident Insurance Policy for Migrant workers

In Brief, the company is offering,

 Fire Insurance
 Burglary Insurance
 Marine Insurance
 Health Insurance
 GD Health
 All Risk Insurance
 Personal Accident Insurance
 Cash-In-Transit & Cash-In-Safe
 Overseas Medical Insurance / Travel Insurance
 Loss of Profit Insurance
 Erection All Risk Policy (EAR)
 Contractors All Risk Policy
 Industrial All Risk policy

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FUND MANAGEMENT OF GREEN DELTA INSURANCE COMPANY LTD.: AN EVALUATION Chapter – 2

 Professional Indemnity
 Contractors Plant & Machinery Policy (CPM)

2.3. KEY FINANCIAL VARIABLES

Taka in Million
Particulars/Year 2013 2012 2011 2010 2009
Gross Premium 2613.45 2603.19 2351.47 2001.31 1601.64
Net Premium 1316.99 1212.53 862.04 770.31 726.69
Net Claims 372.60 201.96 122.43 117.51 134.24
Underwriting Profit 288.16 298.04 124.17 99.67 112.51
Investment Income 204.06 135.45 131.80 577.10 224.24
EBIT 285.13 262.67 143.43 562.41 277.65
EAT 229.03 237.67 134.00 478.76 232.65
Paid up Capital 637.87 510.30 408.24 408.24 408.24
Share Holder’s Equity 4422.41 3858.35 2510.33 3103.56 2139.76
Total Liabilities 1882.91 1723.25 1953.88 1638.252 1293.32
Total Reserve 3294.49 3173.84 2102.09 2695.33 2094.79
Total Assets 6305.32 5581.61 4464.21 4741.79 3433.07
Total Investments 2197.01 1998.95 2363.65 2905.30 1835.34
Fixed Assets 2039.82 1978.30 212.94 134.52 38.26
EPS Tk. 3.69 Tk. 4.05 Tk. 2.60 Tk. 12.31 Tk. 5.70
P/E Ratio 25.73 18.39 46.45 Tk. 26.53 Tk. 29.3
Book Value per Share Tk. 69.33 Tk. 75.61 Tk. 60.88 Tk. 75.41 Tk. 52.41
Market Value per Share Tk. 94.30 Tk. 74.50 Tk. 152.40 Tk. 326.50 Tk. 166.98
Required Solvency Margin 334.09 343.22 224.24 248.73 198.79
Available Solvency Margin 3265.33 2756.01 2143.32 2293.32 1400.11
% of Dividend Paid (Cash) 15% 15% - 40% 25%
% Dividend paid ((Stock) 15% 15% 15% - -
Table 2: Key Financial Highlights of GDICL (Source: Annual Report of GDICL, 2013)

Some of the items from Table 2 are discussed below with graphical representation:

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FUND MANAGEMENT OF GREEN DELTA INSURANCE COMPANY LTD.: AN EVALUATION Chapter – 2

Equity Other
Invested Assets Investme Sector Wise Investme
nts nts
6000 4% 2%
5000
Million Taka

4000 Bank
3000 and
2000 Land and Financi
Bulding al
1000 Capital
Project Institut
0 36% Market e
200 200 201 201 201 201 29%
Subsidiar 22%
8 9 0 1 2 3
ies
IA 2146 2598 3759 3238 4697 5173 7%

Chart 1: Invested Assets and Sector Wise Invested Assets of GDICL (Source: Annual Report of GDICL, 2013)

The slope of Invested assets from CY 2008 to CY 2013 is upward, meaning that invested assets are
increasing year by year except in CY 2010.

Of the 3 sectors of investment land and building project contributes more (36%), followed by capital
market (29%) and Bank and Financial Institution (22%)

EPS
14 The slope of EPS from CY 2008 to CY
12
2013 is downward, meaning that the
10
8
company is not earning much
Taka

6 compared to its common share


4 outstanding
2
0
2008 2009 2010 2011 2012 2013
EPS 12.01 5.7 12.31 2.6 3.73 3.69

Chart 2: EPS of GDICL (Source: Annual Report of GDICL, 2013)

Underwriting Profit
350 The slope of underwriting profit from
300 CY 2008 to CY 2013 is upward,
Million Taka

250
200 implying that the company is earning
150 very good on per policy.
100
50
0
200 200 201 201 201 201
8 9 0 1 2 3
Underwriting
106.16112.5199.67124.17298.04288.16
Profit

Chart 3: Gross Premium of GDICL (Data Source: Annual Report of GDICL, 2013)

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FUND MANAGEMENT OF GREEN DELTA INSURANCE COMPANY LTD.: AN EVALUATION Chapter – 2

Earning After Tax


600
500
Million Taka

400 The trend of EAT is fluctuating over the


300 period of time (2009-2013). It’s due to
200 heavy operational expenditure of the
100
0 company.
200 200 201 201 201 201
8 9 0 1 2 3
Earning After
245.07232.65478.76 134 237.67229.03
Tax

Chart 4: Earning After Tax of GDICL (Data Source: Annual Report of GDICL, 2013)

Gross Premium
3000 The slope of gross premium from CY
2500 2009 to CY 2013 is upward, implying
Million Taka

2000 that more and more people are


1500 purchasing insurance policy from the
1000 company.
500
0
2009 2010 2011 2012 2013
Gross
1601.642001.312351.472603.192613.45
Premium

Chart 5: Gross Premium of GDICL (Data Source: Annual Report of GDICL, 2013)

Total Assets Total assets include all current and non-


7000 current assets in the balance sheet. Total
6000 assets are always the summation of
Million Taka

5000
4000 equity and liability to third parties. The
3000 trend of total assets is upward, meaning
2000 that either equity or liability is
1000
0
increasing.
200 200 201 201 201 201
8 9 0 1 2 3
Total Assets 2872.53433.14741.84464.25577.66305.3
Chart 6: Total Assets of GDICL (Data Source: Annual Report of GDICL, 2013)

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FUND MANAGEMENT OF GREEN DELTA INSURANCE COMPANY LTD.: AN EVALUATION Chapter – 2

Equity
5000 The slope of equity is upward. That
4000 means, it is equity for which total assets
Million Taka

of the company are increasing.


3000
2000
1000
0
2008 2009 2010 2011 2012 2013
Equity 1719 2140 3104 2510 3858 4422

Chart 7: Equity of GDICL (Data Source: Annual Report of GDICL, 2013)

INTERNSHIP REPORT, FBS - BANKING AND INSURANCE (17051) PAGE 10


CHAPTER CONTENTS

S OU RCE OF CA S H

R E SP ON SI B LE U N IT F O R

CHAPTER - 3
F U ND M ANA GE ME N T

C AS H F ORE C AS T A N D
D E SI RE D C AS H B A LAN CE

T HE CAS H RE SE RVE
SY STE M F RO M P RE MIU M S

M O DE L S F OR THE

THE FUND MANAGEMENT


M ANAGE ME N T OF C A SH

C AS H C O LLE C TI O N A ND

SYSTEM OF THE COMPANY D I SBU R SE ME NT P R OCE S S


AT A G LANCE
FUND MANAGEMENT OF GREEN DELTA INSURANCE COMPANY LTD.: AN EVALUATION Chapter - 3

3.1. SOURCE OF CASH

Premiums collected from every insurance policy are the main source of funds. All premiums are
collected on cash basis. Only the premiums of marine insurance may remain outstanding from 30 to
90 days since the premiums for this class of insurance are on instalment basis. But until and unless
they are collected fully, outstanding premiums are not treated as ‘premiums’ as the company uses
cash basis accounting. That means, the ‘premiums’ on financial statements are noting but some cash
collected. Investment incomes deposited in banks are sometimes used as secondary source of cash.

3.2. RESPONSIBLE UNIT FOR FUND MANAGEMENT

The Finance and Accounts Department of the company is the responsible unit for fund
management. The CFO and the CA are two key personnel in the unit. The unit pays close attention to
cost and risk in order to really capitalize on the cash flow opportunities. Ensuring the proper liquidity
of the funds is a crucial aspect of the fund managers’ position.

3.3. CASH FORECAST AND DESIRED CASH BALANCE

In every month the Finance and Accounts department prepares a budget for the following month after
consulting with the board. The simple budget format is presented below:

January February March April May June


Cash Disbursement For:
Management Expenses and Salary
Reinsurance (Previous month’s)
Claims
Commissions
Total Disbursement

Cash Collection From:


Premiums
Add: Investment Income (if any and necessary)
Total Receipt

Net Cash Flow (Total Receipt – Total Disbursement)


Add: Beginning Cash (if any)
Total Cash
Table 3: Simple Model for Monthly Budget

It should me clearly mentioned that the company does not hold any desired cash in hand unlike other
companies. There are three reasons behind it:

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FUND MANAGEMENT OF GREEN DELTA INSURANCE COMPANY LTD.: AN EVALUATION Chapter - 3

i) The first reason is that, the monthly amount cash outflows are almost certain. For
example:

Management Expenses and Salary are very much non-volatile and almost fixed.

For honouring reinsurance, the company gets 45 days. That means if the company is to pay any
claim against reinsurance policies purchased, it will pay that claim in the middle of the next month
(30 days + 15 days). The wisdom behind this strategy is that, the longer the company holds cash
balances in the bank, the better return it will get. So the company utilized the maximum 45 days to
honour the claims on reinsurances.

Any big investment is planned before two or three months.

In case of big claims, the company gets more than one and half months. For any claim besides the
forecasted one, the company holds a reserve.

ii) The second reason is that, an insurance company is not a bank like institution. It is not
bound to pay claims immediately as a bank is. If a client of a bank draws a cheque upon
the bank then the bank by law is bound to honour the cheque immediately in every time,
except in few circumstances. But the settlement process of any insurance company takes a
significant time. So the dilemma between Asset and Liability maturity is quite trivial in
the company.
iii) The third reason is that, the company prefers to put cashes in investment rather than to
hold cash balances in hand because of the returns earned in them and because of having
little dilemma between Asset and Liability maturity mismatch problem.

3.4. THE CASH RESERVE SYSTEM FROM PREMIUMS

Every scheduled bank in Bangladesh has to maintain a statutory reserve (current rate is 19.5%) from
the deposits collected. But there is no rule from IDRA for any insurance company to hold a certain
percentage from its premiums collected. The company can invest the total cash collected from
premiums or if necessary, the company can hold the total cash in vault or in bank. But the company
currently holds 10% of net premiums for Reserve for exceptional loss.

3.5. MODELS FOR THE MANAGEMENT OF CASH

As far as the models for management of cash and temporary investments are concerned, four models
are found that companies generally follow:

i) The Baulmol Model


ii) The Beranek Model
iii) The Miller-Orr Model and
iv) The Stone Model

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FUND MANAGEMENT OF GREEN DELTA INSURANCE COMPANY LTD.: AN EVALUATION Chapter - 3

GDICL does not replicate only a singles model for cash management and temporary investment.
Rather, it uses a combination of the Baumol model and the Beranek model. The company is assumed
to receive cash continuously as insurance policies are sold all around the year. But the company in
some cases pays out the cash periodically and in other cases pays out continuously. For example the
company has investment in Lands as well as in stocks of other company. Investments/disinvestments
in assets like lands are one time, but investments/disinvestments for assets like stocks are continuous.
The adoption of the model completely depends on the market opportunities.

3.6. CASH COLLECTION AND DISBURSEMENT PROCESS AT A GLANCE

3.6.1. THE COLLECTION PROCESS

i) Collection Documents Received. In this first stage, each and every documents of a sold
policy – premium outstanding list, money receipt, bank deposit slip, bank statement and
premium collection sheet are collected from respective parties. Balances from ‘Premium
Collection Sheet’ go to two separate sheets; Current Recovery Sheet and Previous Recovery
Sheet.
ii) Outstanding Premium Prepared and Updated. Current year’s outstanding and previous
outstanding are adjusted from Current Recovery Sheet and Previous Recovery Sheet
respectively.
iii) VAT Separation and Deposit. Clients’ 15% vat are separated and then deposited to particular
VAT account.
iv) Bank’s Registration and Reconciliation. The after VAT adjusted balance will be registered
and reconciled by the bank.
v) Premium Collection Summarizing. In this stage premiums will be summarized based on
insurance class and bank.
vi) Balances Transferred from Collection Accounts to Mother Account. There are four hundred
(400) collection accounts of GDICL to collect premiums. All of the balances in this stage will
be channelled to the two (2) mother accounts. This is more or less lockbox alike.

3.6.2. THE DISBURSEMENT PROCESS

i) Allocation. For the budgets prepared by the finance and accounts department for each
following months, required amount of cashes for each department are transferred to them
from the mother accounts with the approval of board. It should be mentioned that no
department/unit can use the cash of the mother account as per their whim. It is the board that
approves for receiving required amount money from the mother accounts according to budget
prepared.
ii) Final Disbursement. Respective departments disburse cash for following purposes:

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FUND MANAGEMENT OF GREEN DELTA INSURANCE COMPANY LTD.: AN EVALUATION Chapter - 3

 Expenses
 Investments

The entire process is presented below:

Figure 1: Cash Collection and Disbursement Process of GDICL

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CHAPTER CONTENTS

A NAL YS I S OF T HE
S OU RCE S OF C A SH

A NAL YS I S OF
I NVE ST ME N T P O RT F OL I O

I TE M S OF I NVE S T ME N T

CHAPTER - 4
D E TAI LE D A M OU N T O F
F UND S I NVE STE D

M ATU RI TY W I SE
D I ST R IBU TI O N OF
I NVE ST ME N T

A NAL YS I S ON T HE

ANALYSIS AND R E TUR N ON F UN DS


I NVE STE D

INTERPRETATION T HE C OE FF ICIE NT O F
CO RRE LA TI ON (R) AN D
THE C OE FF IC IE NT OF
2
DE TE R MI NAT IO N (R )
FUND MANAGEMENT OF GREEN DELTA INSURANCE COMPANY LTD.: AN EVALUATION Chapter - 4

4.1. ANALYSIS OF THE SOURCES OF CASH

Funds are collected mainly form the following sources:

a. Fire Insurance premiums


b. Marine Insurance premiums
c. Motor Insurance premiums
d. Miscellaneous Insurance premiums

Premiums collected from different classes of insurances are presented below:

Taka in million
Year 2013 2012 2011
Amount Proportion Amount Proportion Amount Proportion
Fire 564.9 0.429 396.7 0.327 374.8 0.435
Marine 528.6 0.401 608.8 0.502 318.9 0.370
Motor 153.8 0.117 130.2 0.107 115.3 0.134
Misc. 69.8 .053 76.8 0.063 53.1 0.062
Total 1317.1 1 1212.5 1 862.1 1
Table 4: Net Premiums of GDICL from 2011-2013 (Source: Annual Report of GDICL, 2013)

Proportion of Premiums
Fire Marine Motor Misc.
Analysis: From the graph it is seen
that premiums from fire insurance
0.502 ranks first in case of total amount of
0.435 0.429
0.401
0.37 premiums for CY 2011 and CY 2013,
0.327
followed by marine insurance. That
means, fire insurance and motor
0.134 0.107 0.117
0.062 0.063 0.053 insurance are the two classes of
insurance leading the company ahead.
2011 2012 2013

Chart 8: Proportion of Premiums from 2011-2013

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FUND MANAGEMENT OF GREEN DELTA INSURANCE COMPANY LTD.: AN EVALUATION Chapter - 4

4.2. ANALYSIS OF INVESTMENT PORTFOLIO

4.2.1. ITEMS OF INVESTMENT

The company manages portfolio of a wide range of assets. It invests in the following items.

Types Items

Investment in Government Bond

Investment in Debentures
General Investment
Investment in GDSL as Margin Loan

Investment in quoted shares

Jalalabad Telecom Ltd.

Green Delta AIMS Ltd.

United Hospital

Beximco Pharma Preferred Shares

United Power Generation

Financial Excellence
Investment in unquoted share
CDBL

BD Venture

Swiss Pro BD Ltd.

Heritage Life Insurance Company Ltd.

Energypac Power Generation Ltd.

The ACME Laboratories Ltd.

Green Delta Capital Limited


Investment in Subsidiaries
Green Delta Securities Limited

Land

Other Plant, Vehicle and Equipment

Misc.

Table 5: Securities/Assets Purchased by GDICL

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FUND MANAGEMENT OF GREEN DELTA INSURANCE COMPANY LTD.: AN EVALUATION Chapter - 4

Amount of Investment
Analysis: The mean of investment
3500
from 2009-2013 is around 2260
3000 million taka. The trend fluctuates; it is
2500
BDT in Million

neither upward trending nor downward


2000 trending.
1500
1000
500
0
2009 2010 2011 2012 2013
Investment 1835.33 2905.3 2363.651998.952197.01

Chart 9: Amount of Investment of GDICL from 2009-2013 (Source: Annual Report of GDICL, 2013)

4.2.2. DETAILED AMOUNT OF FUNDS INVESTED

Detailed amounts of fund invested are presented below:

Taka in Million 2013 2012 2011


Particulars Amount Total Growth Amount Total Growth Amount Total
% % %
NIB 25 0.76 124 4.5 0.2 0.0 4.5 0.2
Fixed Deposits 1106.16 33.49 35.27 878.2 30.5 62 542.2 18.6
Quoted Shares 1485.86 44.98 27.19 1515.9 52.7 -13 1743.4 60.0
Un-Quoted Share 226.28 6.85 46.14 139 4.8 60.5 86.6 3.0
Debentures 4.34 0.13 20.70 5.2 0.2 -25.7 7 0.2
Mutual Funds - - - - - - 200 6.9
Investment in 349.98 10.60 49 200 7.0 - 200 6.9
Subsidiaries
Investment in GDSL 105 3.18 27.38 107.5 3.7 -6.5 115 4.0
as margin Loan
Others 0.52 .02 (0.42) 26.7 0.9 276.1 7.10 0.2
Totals 3303.14 100 32.03 2877 100 -1 2905.8 100
Table 6: Detailed Amounts of Funds Invested (Source: Annual Report of GDICL, 2013)

Analysis: In terms of percentage in total assets, investment in quoted share (Blue coloured) ranks first
in each of the past three years (60%, 52.7% and 44.98%), followed by Fixed Deposits and Unquoted
share

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FUND MANAGEMENT OF GREEN DELTA INSURANCE COMPANY LTD.: AN EVALUATION Chapter - 4

Margin Share of assets Other


NIB 0%
4%
0% Analysis: From the chart above it is
IiS
MF
7% clearly seen that GDICL have invested
7% FD
Deb. 19% a major portion of their total investment
0% in Quoted Share (60%), followed by

UQS FDR.
3%
QS
60%

Chart 10: Share (%) of investment of GDICL

4.2.3. MATURITY WISE DISTRIBUTION OF INVESTMENT

The company invests both for short and long term. Items along with their respective maturity are as
follows:

Taka in Million
Year 2013 Year 2012
Short Long Total Short Long Total
Total Growth Total
Term Term % Term Term %
Government
- 25 25 0.40% 456% - 4.50 4.50 0.08%
Bond
Investment in
1485.86 - 1485.86 23.57% -2% 1515.98 - 1515.98 27.18%
Quoted Share
Sub 349.98 349.98 5.55% 75% - 199.98 199.98 3.59%
Equity
- 226.31 226.31 3.59% 37% - 165.25 165.25 2.96%
Investment
Debenture
109.86 - 109.86 1.74% -3% 113.24 - 113.24 2.03%
and others
FDR 1106.16 - 1106.16 17.54% 26% 878.15 - 878.15 15.74%
Cash and
94.43 - 94.43 1.50% 132% 40.62 - 40.62 0.73%
Bank Balance
Office Space - 425.87 425.87 6.75% 14% - 373.73 373.73 6.70%
Building - 644.94 644.94 10.23% 0% - 645.91 645.91 11.58%
Land - 800 800 12.69% 0% - 800 800 14.34%
P&E - 166.27 166.27 2.64% 7% - 156.03 156.03 2.80%
Other Assets 868.39 2.25 870.64 13.81% 2% 681.51 2.63 684.14 12.27%
Total 3664.70 2640.62 6305.32 100% 13% 3229.50 2348.03 5577.55 100%
Table 7: Maturity wise distribution of investment (Source: Annual Report of GDICL, 2013)

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FUND MANAGEMENT OF GREEN DELTA INSURANCE COMPANY LTD.: AN EVALUATION Chapter - 4

Analysis: It is found that most of the investments of GDICL are for short term (red coloured). It may
be due to the fact that the company do not face any liquidity crisis.

4.3. ANALYSIS OF THE RETURN ON FUNDS INVESTED

Income earned from investment can be divided into four types:

i) Interest
ii) Dividend
iii) Profit from Sale of Share
iv) Other

Income from Investments


140
120
100
Million Taka

80
60
40
20
0
2011 2012 2013
Interest Income 61.5 89.5 130.81
Dividend 12.8 25.5 59.75
Profit from Sale of
39.2 1.3 3.12
Share
Other Income 18.3 19.2 10.37

Chart 11: Income from investment of GDICL from CY 2011-2013 (Source: Annual Report of GDICL, 2013)

Analysis: Of the four types of income, interest income is the largest one, followed by dividend
income. Both interest income and dividend are upward sloping. The other two are more or less flat. It
means, though the company has heavy investments in stocks, interest income ranks first in terms of
investment income.

4.4. THE COEFFICIENT OF CORRELATION (R) AND THE COEFFICIENT OF

DETERMINATION (R2)

The coefficient of correlation (R) describes the strength of the relationship of two sets of ratio scaled
variables. It shows, how well one variable can be explained by another. It can assume any value from
-1.00 to +1.00. A correlation coefficient of -1.00 or +1.00 indicates perfect correlation, (+) sign for
positive relationship and (-) sign for negative relationship. On the other hand, the coefficient of

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FUND MANAGEMENT OF GREEN DELTA INSURANCE COMPANY LTD.: AN EVALUATION Chapter - 4

determination (R2) is the primary way by which we can measure the extent of the association that
exists between two variables.

In this section a statistical relationship of net claims, underwriting profits and net premiums with total
investment income is shown. For this purpose, past five years’ data (2009-2013) were used to make
the analysis more acceptable. Data, model and assumptions needed to do the research are presented
below:

Type Variable Assumption


Net Claims There are many factors to accelerate investment income. It is
assumed that the investment income is influenced by net claims,
Independent Underwriting
underwriting profits and net premiums. If the explanatory power of
Profit the independent variables is high over investment income, the
Net Premiums dependent variable, the assumption will be proved.
Dependent Investment
Income
Table 8: Variables for Correlation (R) and the Coefficient of Determination (R2)

After inputting all those variable using SPSS, the result found is shown below:

R R2

0.523 0.274

Table 9: Result from SPSS

Analysis: The R value is 0.523, meaning that there is a moderate relationship between the
independent variables and the dependent variable. The R 2 value is 0.274, which means that only
27.40% variance in investment income can be explained by the variance in net claims, underwriting
profits and net premiums jointly. There must be more independent variables other than net claims,
underwriting profits and net premiums whose variance can explain the variance in investment income
significantly.

4.5. INTERPRETATION

Fire and Marine are two classes of insurance from which the company earns significant amount of
premiums. The list of the investments in securities is more or less long for the company; it invests in
all types of assets. As the insurance policies are for one year, the company has a heavy investment for
short term in stocks. Although funds are heavily invested in stocks, interest income is the top invested
income.

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CHAPTER CONTENTS

F IN DIN GS FR O M F U ND
M ANAGE ME N T S YS TE M

CHAPTER - 5
F IN DIN GS FR O M
I NVE ST ME N T P O RT F OL I O

C HA LLE N GE S W H I LE
M ANAG ING F U N D S

P R OB LE MS F ACE D T O
M ANAGE F UND S

FINDINGS
FUND MANAGEMENT OF GREEN DELTA INSURANCE COMPANY LTD.: AN EVALUATION Chapter - 5

5.1. FINDINGS OF THE STUDY

5.1.1. FINDINGS FROM FUND MANAGEMENT SYSTEM

i) Main Source of Cash: Premiums from all classes of insurance. Most of the premiums come
from Fire and Marine insurance.
ii) Responsible Unit for Fund Management: The Finance and Accounts Department. The CFO
and the CA are two key personnel.
iii) Cash Forecast and Desired Cash Balance: Monthly Budget for each following month.
iv) Cash Reserve System from Premiums: 10% reserve on net premiums . But there is no
specific regulation on rate from IDRA.
v) Models for the Management of Cash: No specific model is used by the company.
vi) Cash Collection and Disbursement process: As per traditional non-life insurance companies.

5.1.2. FINDINGS FROM INVESTMENT PORTFOLIO

i) Detailed Amount of Funds Invested: Heavily invested in Quoted Shares, followed by FDR
and Unquoted Shares.
ii) Maturity Wise Distribution of Investment: The major portion is for short term and the rest is
for long term.
iii) Return on Funds Invested: Although funds are heavily invested in shares, the top invested
income is interest income.

5.1.3. CHALLENGES WHILE MANAGING FUNDS

There are two major challenges that the company has to face while managing funds:

i) Lower Investment Income Due to ‘Crisis’. If the company ever exceeds its budget in any
month or if any incident occurs for which the company needs more cash than the budgeted
amount, the company has to liquidate some of its short term assets. The company does not
face any difficulty in this case as the company has invested in short term assets heavily. This
is not any real crisis actually. The main problem lies here; the company has to lose some
investment income if some assets are liquidated before maturity. For example, if any asset is
assumed to be matured after twelve (12) months and for some reasons the company liquidates
the assets after five (5) months, then the income generated from five months will definitely be
lower than that of twelve months.
ii) Multiple Big Claims. If several big claims of BDT 30/40 million are called in one month, the
company may face a great difficulty for the next two or three months.

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FUND MANAGEMENT OF GREEN DELTA INSURANCE COMPANY LTD.: AN EVALUATION Chapter - 5

5.1.4. PROBLEMS FACED TO MANAGE FUNDS

Three main problems that the company has to experience often are:

i) Bargaining Power of Big parties. If a big corporate client wants GDICL to purchase some
stocks of that company despite the fact being clear that the company is not performing well in
the market and the market value of the stocks may start declining any time, GDICL often
cannot ignore the proposal, as they may lose that big corporate client.
ii) Heavy Investment in Stock Market. Investment in quoted share ranks first in the total
investments of the company, followed by FDR and Unquoted shares. But the income on that
equity investment is very poor. The company earns a marginal return from stock market.
iii) Decrease in FDR Rate. There was a time when the rate of return on FDR that the company
earned was 12-13%. But this rate is going down year by year and now it has become a single
digit only.

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CHAPTER - 6
CHAPTER CONTENTS

S U GGE ST IO NS

C ONC LU DI NG R E MA R K S

SUGGESTIONS AND
CONCLUSION
FUND MANAGEMENT OF GREEN DELTA INSURANCE COMPANY LTD.: AN EVALUATION Chapter - 6

6.1. SUGGESTIONS

It is quite difficult for an Intern with little knowledge to provide suggestions for a big organization
like GDICL to minimize the problems found. Despite the fact, some suggestions are presented below
based on the knowledge acquired so far:

i. Long Term Investment. In order to earn higher income it is suggested that the company go
for more long term investment.
ii. More Investment in Debt. If everything remains the same, then it is suggested that the
company look forward more to exploit the opportunities for arranging debt financing for
different firms and institutions, along with equity financing. A portion from equity may be
transferred to debt.
iii. Efficient Budget. Monthly Budget must be efficient enough and consider each and every
possible outflow to overcome the problem like Lower Investment Income Due to ‘Crisis’.
iv. Be Tactful. The company should be tactful enough to deal with the big clients’ bargaining
power problem.
v. Reduction in Equity Investment. The company should minimize the investment in stock
market and look forward for debt, since the return earned from stock market is very marginal.

6.2. CONCLUDING REMARKS

In order to develop any type managerial performance, human resource along with professional
knowledge, professional degree and professional skills are some prerequisites for the insurance
companies in Bangladesh. As the insurance sector in our country is one of the most underrated sectors
and people have a negative attitude toward it, the company should come forward to make people
aware about the necessity of insurance in their every-day life and offer lucrative career opportunity to
people for building their career at GDICL.

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FUND MANAGEMENT OF GREEN DELTA INSURANCE COMPANY LTD.: AN EVALUATION References

References:

Green Delta Insurance Company Limited 2014, creating differentiation: Annual Report 2013, Green
Delta Insurance Company Limited, Dhaka, Bangladesh

Green Delta Insurance Company Limited (2015), http://www.green-delta.com/home.php, (Accessed


3rd march 2015)

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CHAPTER CONTENTS

M ODEL S UM MAR Y OF
C ORRE LAT IO N O F

APPENDICES
COEFF ICI EN T AN D
C ORRE LAT IO N OF
DET ER MI NA TIO N

G ROSS P R EM IU M A ND N E T
C LAI MS O F GDICL

A MO UN T O F I NVE ST ME NT
FROM CY 2009 TO CY
2013
FUND MANAGEMENT OF GREEN DELTA INSURANCE COMPANY LTD.: AN EVALUATION Appendices

APPENDIX 1
Model Summary of Correlation of coefficient and Correlation of determination

Model Summary
Model R R Adjusted R Std. Error of
Change Statistics
Square Square the EstimateR Square F df1 df2 Sig. F
Change Change Change
a
1 .523 .274 -1.904 315.09630 .274 .126 3 1 .933
a. Predictors: (Constant), Net_Premium, Net_Claims, Underwriting_Profit

APPENDIX 2
Gross Premium and Net Claims of GDICL

Year Gross Premium Net Claim


2011 2351.47 372
2012 2603.19 201.96
2013 2613.45 122.43

APPENDIX 3
Amount of Investment from CY 2009 to CY 2013

Particulars 2013 2012 2011 2010 2009


Investment 2,197.01 1998.95 2363.65 2905.30 1835.34
Cash and
Cash 1,200.59 918.77 712.74 742.81 822.47
Equivalent
Fixed Assets 2,039.81 1978.31 212.94 134.52 38.26
Other Assets 867.90 681.52 1174.88 959.15 737.00
6,305.32 5577.55 4464.21 4741.78 3433

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