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PROJECT REPORT
ON
“ANALYSIS OF
PROFITIBILITY AND
FINANCIAL POSITION OF
FUTURE GENERALI LIFE
INSURANCE”
SUBMITTED FOR THE PARTIAL FULFILLMENT
OF
THE
MASTER OF BUSINESS ADMINISTRATION
PROGRAMME
2009-2011
UNDER GUIDANCE
MR. RAHUL DHIMAN
SUB
MITTED BY
NISHA KUMARI
ROLL NO.90172232916
PREFACE
A comprehensive study of “working capital” is a supplement to the theoretical
classroom Knowledge. It helps to understand the subject more precisely and
practical implications of various concepts. Pragmatic aspect of management
function. Own observations are significant towards this report tries to outline idea
of professional world and helps in understanding Contribution in learning the
subject.
The report is therefore designed as a reference of organization functioning rather
than copy down instrument.
The purpose of project is to make me familiar with day to day functioning of
business. The present report is an effort in this direction.
My humble endeavor and motive in presenting the project report is to impart a
balanced introduction and knowledge of financial analysis, which is an important
integral part of financial management. It is hoped that this project will serve as
supportive document to research worker as efforts has been tried to make this
report an informative, stimulating, and self-explanatory.
ACKNOWLEDGMENT
Nothing concrete can be achieved without an optimal combination inspiration and
It is only critics from ingenious that help transform a product into a quality
product.
For this, I am grateful to Mr. RAHUL DHIMAN for his constant encouragement
and invaluable critical suggestions given during the review meetings. His timely
advice and help proved his commitment and welfare of his students and the
institute as a whole. Last but not the least, our sincere thanks to all the members
who were a vital thrust to our thoughts and needs throughout the functions
assigned to group to get done and prove our best. Finally thanks to others at
NISHA KUMARI
CONTENT
• Certificate 1
• Preface 2
• Acknowledgement 3
• Objective 5
• Introduction 6
• Company Profile 7
• Literature & Review 12
• Research Methodology 37
• Financial Statements 39-41
• Data Representation 49
• Conclusion 56
• Finding 57
• Limitation 58
Bibliography 59
\
OBJECTIVE
The main objective of this project is to understand the financial position of AVIVA
LIFE INSURENCE and to know the impact of profitability on its market value.
These are the primary and secondary objective if my project.
With the help of this project I can understand that how I can analyses the financial
statement of any company and what are the ratios any key indicators by which
anyone can understand the financial status of company.
Growth Fund - The fund will comprise of debt securities in the range of 0-50%,
equities in the range of 0-85% and money market and cash in the range of 0-20%.
These funds provide investment security to the capital of the customers. Through
their association withBas ix (a micro financial institution) and other NGOs, Aviva
Life Insurance India have been able to reach out to those underprivileged who had
no access to insurances till day. In Aviva Life Insurance India, thus, by combining
protection and long term savings the customers can safeguard and provide life
products for their family with their changing needs. Aviva is the world’s fifth-
largest insurance group and the largest insurance services provider in the UK.
We are one of the leading providers of life and pension products in Europe and are
actively growing our long-term savings businesses in Asia Pacific and the USA. Its
main activities are long-term savings, fund management and general insurance.
Vision: “One Aviva, twice the value”.
By working together across our businesses, we will optimize our performance in
the
global marketplace and maximize the value we can generate for all our
stakeholders
INTRODUCTION
AN INTRODUCTION TO INSURANCE SECTOR
IN INDIA
Insurance in India started without any regulation in the Nineteenth Century.
It was a typical story of a colonial era: a few British insurance companies
dominating the market serving mostly large urban centres. After the independence,
it took a dramatic turn. Insurance was nationalized. First, the life insurance
companies were nationalized in 1956, and then the general insurance business was
nationalized in 1972. Only in 1999 private insurance companies have been allowed
back into the business of insurance with a maximum of 26% of foreign holding. In
what follows, we describe how and why of regulation and deregulation. The entry
of the State Bank of India with its proposal of bank assurance brings a new
dynamics in the game. We study the collective experience of the other countries in
Asia already deregulated their markets and have allowed foreign companies to
participate. If the experience of the other countries is any guide, the dominance of
the Life Insurance Corporation and the General Insurance Corporation is not going
to disappear any time soon.
Insurance under the British Raj
Life insurance in the modern form was first set up in India through a British
company called the Oriental Life Insurance Company in 1818 followed by the
Bombay Assurance Company in 1823 and the Madras Equitable Life Insurance
Society in 1829. All of these companies operated in India but did not insure the
lives of Indians. They were there insuring the lives of Europeans living in India.
Some of the companies that started later did provide insurance for Indians. But,
they were treated as "substandard" and therefore had to pay an extra premium of
20% or more. The first company that had policies that could be bought by Indians
with "fair value" was the Bombay Mutual Life Assurance Society starting in 1871.
The first general insurance company, Triton Insurance Company Ltd., was
established in 1850. It was owned and operated by the British. The first indigenous
general insurance company was the Indian Mercantile Insurance Company Limited
set up in Bombay in 1907. By 1938, the insurance market in India was buzzing
with 176 companies (both life and non-life). However, the industry was plagued by
fraud. Hence, a comprehensive set of regulations was put in place to stem this
problem (see Table 1). By 1956, there were 154 Indian insurance companies, 16
non-Indian insurance companies and 75 provident societies that were issuing life
insurance policies. Most of these policies were cantered in the cities (especially
around big cities like Bombay, Calcutta, Delhi and Madras). In 1956, the then
finance minister S. D. Deshmukh announced nationalization of the life insurance
business.
Monopoly Raj
The nationalization of life insurance was justified mainly on three counts.
(1) It was perceived that private companies would not promote insurance in rural
areas. (2) The Government would be in a better position to channel resources for
saving and investment by taking over the business of life insurance.
(3) Bankruptcies of life insurance companies had become a big problem (at the
time of takeover, 25 insurance companies were already bankrupt and another 25
were on the verge of bankruptcy). The experience of the next four decades would
temper these views.
AN OVERVIEW OF INSURANCE
INDUSTRY
Insurance has a long history in India. Life Insurance in its current form was
introduced in 1818 when Oriental Life Insurance Company began its operations in
India. General Insurance was however a comparatively late entrant in 1850 when
Triton Insurance company set up its base in Kolkata. History of Insurance in India
can be broadly bifurcated into three eras: a) Pre Nationalization b) Nationalization
and c) Post Nationalization. Life Insurance was the first to nationalize in 1956. Life
Insurance Corporation of India was formed by consolidating the operations of
various insurance companies. General Insurance followed suit and was
nationalized in 1973. General Insurance Corporation of India was set up as the
controlling body with New India, United India, National and Oriental as its
subsidiaries. The process of opening up the insurance sector was initiated against
the background of Economic Reform process which commenced from 1991. For
this purpose Malhotra Committee was formed during this year who submitted their
report in 1994 and Insurance Regulatory Development Act (IRDA) was passed in
1999. Resultantly Indian Insurance was opened for private companies and Private
Insurance Company effectively started operations from 2001.
LITRATURE REVIEW
Insurance Market- Present:
The insurance sector was opened up for private participation four years ago. For
years now, the private players are active in the liberalized environment. The
insurance market have witnessed dynamic changes which includes presence of a
fairly large number of insurers both life and non-life segment. Most of the private
insurance companies have formed joint venture partnering well recognized foreign
players across the globe.
There are now 29 insurance companies operating in the Indian market – 14 private
life insurers, nine private non-life insurers and six public sector companies. With
many more joint ventures in the offing, the insurance industry in India today stands
at a crossroads as competition intensifies and companies prepare survival strategies
in scenario.
There is pressure from both within the country and outside on the Government to
increase the Foreign Direct Investment (FDI) limit from the current 26% to 49%,
which would help JV partners to bring in funds for expansion.
There are opportunities in the pensions sector where regulations are being framed.
Less than 10 % of Indians above the age of 60 receive pensions. The IRDA has
issued the first license for a standalone health company in the country as many
more players wait to enter. The health insurance sector has tremendous growth
potential, and as it matures and new players enter, product innovation and
enhancement will increase. The deepening of the health database over time will
also allow players to develop and price products for larger segments of society.
State Insurers Continue To Dominate There may be room for many more
players in a large underinsured market like India with a population of over one
billion. But the reality is that the intense competition in the last five years has made
it difficult for new entrants to keep pace with the leaders and thereby failing to
make any impact in the market.
Also as the private sector controls over 26.18% of the life insurance market and
over
26.53% of the non-life market, the public sector companies still call the shots.
The country’s largest life insurer, Life Insurance Corporation of India (LIC), had a
share
of 74.82% in new business premium income in November 2005.
Similarly, the four public-sector non-life insurers – New India Assurance, National
Insurance, Oriental Insurance and United India Insurance – had a combined market
share of 73.47% as of October 2005. ICICI Prudential Life Insurance Company
continues to lead the private sector with a 7.26% market share in terms of fresh
premium, whereas ICICI Lombard General Insurance Company is the leader
among the private non-life players with a 8.11% market share. ICICI Lombard has
focused on growing the market for general insurance products and increasing
penetration within existing customers through product innovation and distribution.
Reaching Out To Customers No doubt, the customer profile in the insurance
industry is changing with the introduction of large number of divergent
intermediaries
such as brokers, corporate agents, and bancassurance.
The industry now deals with customers who know what they want and when, and
are more demanding in terms of better service and speedier responses. With the
industry all set to move to a detariffed regime by 2007, there will be considerable
improvement in customer service levels, product innovation and newer standards
of underwriting.
Intense Competition In a de-tariffed environment, competition will manifest itself
in prices, products, underwriting criteria, innovative sales methods and
creditworthiness. Insurance companies will vie with each other to capture market
share through better pricing and client segmentation.
The battle has so far been fought in the big urban cities, but in the next few years,
increased competition will drive insurers to rural and semi-urban markets.
Global Standards While the world is eyeing India for growth and expansion, Indian
companies are becoming increasingly world class. Take the case of LIC, which has
set its sight on becoming a major global player following a Rs280-crore investment
from the Indian government. The company now operates in Mauritius, Fiji, the
UK, Sri Lanka, and Nepal and will soon start operations in Saudi Arabia. It also
plans to venture into the African and Asia-Pacific regions in 2006.
The year 2005 was a testing phase for the general insurance industry with a series
of
Catastrophes hitting the Indian sub-continent.
However, with robust reinsurance programs in place, insurers have successfully
Managed to tide over the crisis without any adverse impact on their balance sheets.
With life insurance premiums being just 2.5% of GDP and general insurance
premiums being 0.65% of GDP, the opportunities in the Indian market place is
immense. The next five years will be challenging but those that can build scale and
market share will survive and prosper.
SWOT ANALYSIS
The SWOT analysis of Insurance sector is as follows:-
1. Strength-Very good policies of life coverage.
2. Weaknesses:-unable to convince the people about the products. There are not
much advisors for the insurance companies
3. Opportunities:-Untapped rural sector and small towns
4. Threats:-growing competition from larger MNC's.
INDIAN COMPANIES WITH FOREIGN
PARTNERSHIP
Indian Partner International
Partner
Alpic Finance Allianz Holding, Germany
Tata American Int. Group, US
CK Birla Group Zurich Insurance,
Switzerland
ICICI Prudential, UK
Sundaram Finance Winterthur Insurance,
Switzerland
Hindustan Times Commercial Union, UK
Ranbaxy Cigna, US
HDFC Standard Life, UK
Bombay Dyeing General Accident,UK
DCM Shriram Royal Sun Alliance, UK
Dabur Group Allstate, US
Kotak Mahindra Chubb, US
Godrej J Rothschild, UK
Sanmar Group Gio, Australia
Cholamandalam Guardian Royal Exchange,
UK
SK Modi Group Legal & General,
Australia
20th Century Finance Canada Life
M A Chidambaram Met Life
Directors Report
REVIEW OF OPERATIONS:
The turnover of the company during the year is Rs.50.28.Lacs compared to
1423.33
Lacs. Showing decrease by Rs.1373.05 Lacs from the corresponding year ended
31st
March, 2007 due to fall in marketing conditions.
FIXED DEPOSIT:
The company has not accepted any fixed deposits during the year.
AUDITORS:
Auditors of the company M/s. J. P. Saboo & Co. Chartered Accountants of Surat,
will retire at the conclusion of the ensuing 24th Annual Genera Meeting from the
office of the Auditors and being eligible offer themselves for re-appointment from
the end of the ensuing Annual General Meeting till the. conclusion of the next
Annual General Meetin at a remuneration payable as may be decided. As required
under the provisions of Section 224(lB),the Company has received certificate that
the. appointment, if made shall be within the limits as set down in said section.
DIRECTORS;
In accordance with Article 116 of the Articles of Association of the company, Shri
Jatin Gupta & Sbri Pawan Gupta retire by rotation and being eligible, offers
himself for-their re-appointment. The Board recommends their re-appointment Shri
Mohan Gupta, Shri Shyamsunder Gupta and Shri Sunil Kumar Gupta had resigned
as Directors of the Company w.cf. 15-12-2007,15- 12-2007 and 05-01-2008
respectively.
PARTICULARS OF EMPLOYEE :
None of the employee is in receipt of remuneration as prescribed under
Companies (Particulars of Employees) Rule, 1975 and hence information as
required under section 217{2AA) read with Companies (Particulars of Employees)
Rule, 1975 not provided herewith.
INSURANCE:
The company has made necessary arrangements for adequately insuring interests in
various properties.
As required under section 217(2AA) of the Companies Act, 1956 your Directors
state:
1. That in the preparation of the annual accounts, the applicable accounting
standards
have been followed.
2. That the accounting policies selected and applied are consistent and the
judgments and estimates made are reasonable and prudent so as to give a true and
fair view of the state of affairs of the company at the end of the financial year
ended 31st March, 2008 and of the profit or loss of the company for that period.
3. That proper and sufficient care has been taken for the maintenance of adequate
accounting records in accordance with the provisions of the Companies Act, 1956
for safeguarding the assets of the company and for preventing and detecting fraud
and other irregularities.
4. That the annual accounts have been prepared on a going concern basis.
COMPLIANCE CERTIFICATE :
The Company has availed Secretarial Compliance Certificate for the under review
form the Practicing Company Secretary pursuant to the proviso of section 383 A of
the Companies Act, 1956 and a copy of the same is attached with this report.
LISTING:
The shares of your company are listed on Bombay Stock Exchange. The listing
fees for
the year 2008-09 have been paid to The Bombay Stock Exchange Limited.
DEPOSITORY SYSTEM:
Your company has established electronic connectivity with the both the
depositories, NSDL & CDSL. In view of numerous advantages offered by the
depository system, members of the company are requested to avail the facility of
dematerialization of the companys shares on NSDL SCDSL.
ACKOWLEDGEMENT;
The Directors place on record the appreciation and gratitude for the co-operations
and assistance extended by the Banks, Government etc. The company will make all
effort to meet the aspiration of its shareholders and wish to sincerely thank them
for their whole hearted co- operation and support at all times.
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Going Concern
As a consequence of the Company’s considerable financial resources, the directors
believe that the Company is well placed to manage its business risks successfully
despite the current uncertain economic outlook.
After making enquiries, the directors have a reasonable expectation that the
Company has adequate resources to continue in operational existence for the
Foreseeable future. For this reason, they continue to adopt the going concern Basis
in preparing the financial statements.
The Company is expected to continue to generate positive cash flows on its own
account for the foreseeable future. The Company participates in the Aviva
Group’s centralized treasury arrangements and so shares banking arrangements
with fellow subsidiaries.
The directors, having assessed the responses of the directors of a fellow group
company, Aviva International Insurance Limited, which maintains the centralized
arrangement, have no reason to believe that a material uncertainty exists that may
cast doubt about the ability to continue with the current banking arrangements.
Financial Position and Performance
The financial position of the Company at 31 December 2009 is shown in the
statement of financial position shown below
Financial instruments
The business of the Company includes use of financial instruments. Details of the
Company's risk management objectives and policies and exposures to risk relating
to
financial instruments are set out in note 8 to the financial statements.
Dividends
Interim ordinary dividends of £340 million were declared and paid during 2009
(2008: £475 million). The directors do not recommend a final ordinary dividend
for
the year (2008: £nil). The total cost of dividends paid during the year, including
preference dividends, amounted to £361million (2008: £567 million, including the
2007 final dividend).
Directors’ interests
None of the directors who held office at 31 December 2009 held any interest in the
Company’s shares.
Authority to purchase own shares
At the Annual General Meeting held on 25 April 2006, shareholders renewed the
Company’s authority to make market purchases of up to 140 million 87/8 %
preference shares and up to 110 million 77/8 % preference shares. This authority
remains in place until 24 April 2011 but was not used in the year.
Creditor payment policy and practice
The Company has no trade creditors.
Directors’ Liabilities
Aviva plc, the Company’s parent, has granted an indemnity to the directors
against liability in respect of proceedings brought by third parties, subject to the
conditions set out in the Companies Act 1985. This indemnity was granted in 2004
and the provisions in the Company's Articles of Association constitute "qualifying
third party indemnities" for the purposes of sections 309A to 309C of the
Companies Act 1985. These qualifying third party indemnity provisions remain in
force as at the date of approving the Directors’ report by virtue of the transitional
provisions to the Companies Act 2006.
(xi) In our opinion and according to the information and explanations given to us,
the company has not defaulted in repayment of dues to a financial institution, bank
or debenture holders.
(xii) The company has not granted loans and advances on the basis of security by
way
of a pledge of share, debentures and other securities.
(xiil) The company is not a chit fund or a nidhi mutual benefit fund/society.
Therefore; the provisions of clause 4 (xiil) of the Companies (Authors Report)
Order, 2003 are not applicable to the company.
(xiv) The company is not dealing in or trading in shares, securities, debentures
and other investments except as an investment. Accordingly, the provisions of
clause 4 (xiv) of the Companies (Auditors Report) Order, 2003 are not appllcable
to the company.
(xv) in our opinion and informed by the management, the company has not given
guarantees for loans taken by others from banks or financial institutions.
(xvi) In our opinion, the term loans have been applied for the purpose for which
they
were raised.?;
(xvii) According to the information and explanations given to us and on an overall
examination of the balance sheet of the company, we report that the no funds
raised on
short
- term basis have been used for long
- term investment. No long - term funds have been used to finance short
- term assets except permanent working capital.
(xviii) According to the information and explanations given to us, the company has
not
made any allotment of preferential shares during the financial year.
(xix) The company has no issued and / or outstanding debentures at the end of the
year.
(xx) The company has not issued and raised money by public issues during the
year.
(xxi) According to the information and explanations given to us, no fraud on or by
the Company has been noticed or reported during the course of our audit. Find
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ACCOUNTING POLICIES
General Accident plc (“the Company”) is a public limited company incorporated
and domiciled in the United Kingdom (“UK”). The following accounting policies
have been applied consistently in dealing with items which are considered material
in relation to the Company’s financial statements.
1. GENERAL
i) The Financial Statements have generally been prepared on the historical cost
convention.
ii) Accounting policies not specifically referred to otherwise are in consonance
with
generally accepted
2. BASIS OF ACCOUNTING
The company follows the mercantile system of accounting generally except
otherwise stated herein below.
3. FIXED ASSETS
Fixed Assets are stated at cost less accumulated depreciation.
4. DEPRECIATION
a) Depreciation on fixed assets has been provided at the rates and in accordance
with the provisions of Schedule XIV of the Companies Act,1956 on SLM Method
on days prorata on basis of date put to use of the assests. However, no depreciation
has been charged on fixed assets during the year and profit of the company has
been affected adversely to that extent.
5. INVENTORIES
The inventory has been valued at lower of cost or net relisable price, however there
is no closing stock at the
7. INVESTMENT
Investment are valued at Cost. No provision has been made for depreciation of the
market value of the Investment.
(A)Basis of presentation
The financial statements of the Company have been prepared in accordance with
International Financial Reporting Standards (IFRS) issued by the International
Accounting Standards Board (IASB) and applicable at 31 December 2009, and
endorsed by the European Union. The date of transition to IFRS was 1 January
2004.
(B)Use of estimates
The preparation of financial statements requires the Company to make estimates
and assumptions that affect items reported in the statement of financial position
and income statement and the disclosure of contingent assets and liabilities at the
date of the financial statements. Although these estimates are based on
management’s best knowledge of current facts, circumstances and to, some extent,
future events and actions, actual results ultimately may differ from those estimates,
possibly significantly.
(C)Investment income
Investment income consists of interest receivable for the year. Interest receivable is
recognized as it accrues, taking into account the effective yield on the investment.
(D)Financial instruments
Loans to, or from other Aviva Group companies are recognized when cash is
advanced to, or received from these companies. These loans are subsequently
carried at amortized cost. The Company reviews the carrying value of loans on a
regular basis. If the carrying value of the loan is greater than the recoverable
amount, the carrying value is reduced through a charge to the income statement in
the period of impairment.
RESEARCH METHODOLOGY
Market research is the process of systematic gathering, recording and analyzing of
data about customers, competitors and the market. Marketing research (also called
consumer research) is a form of business research. It is a form of applied sociology
which concentrates on understanding the behaviors, whims and preferences, of
consumers in a market-based economy. Market research can help create a business
plan, launch a new product or service, fine tune existing products and services,
expand into new markets etc. It can be used to determine which portion of the
population will purchase the product/service, based on variables like age, gender,
location and income level. It can be found out what market characteristics your
target market has. With market research companies can learn more about current
and potential customers.
The purpose of market research is to help companies make better business
decisions about the development and marketing of new products and in the case of
financial market research, it shows the company worthiness and position in front of
people.
Market Research Process
•
Defining the Research Problem
•
Selecting and Establishing Research Design
•
Select the Research Design
•
Identify Information types and Sources
•
Determining and Design Research Instrument
•
Collecting and Analyzing Data
•
Formulate Findings
FINANCIAL STATEMENT
Profit & loss Account, Balance Sheet and Key Ratio of Aviva
life insurance
Profit & Loss account of
Aviva life insurance
Mar06 Mar07 Mar08 Mar09
APPLICATION OF FUNDS
KEY FINANCIAL RATIOS
Their IFRS earnings per share for 2009 were 37.8 pence (2008: 36.8 pence loss).
This
mainly reflects the improvement in financial markets in 2009. Economic and
investment
return assumptions during the year were in line with our long-term expectations
with a positive variance of £77 million (2008: £2,544 million adverse).
As condition of insurance market was very bad in 2006 to 2008 mid after that it
improved a lot and from that graph we can understand that because of market
slowdown
it happened.
Debt equity ratio is also saying that it improved a lot from the year 2007 mid
till 2008
but after that because of return the have faced the slowdown
Quick ratio shows also decline position it means that the ability to change
current assets
into money or liquidate power is declining because of market trends. The liquid
assets
are very few and they are not utilizing properly. As market down in year 2005 so
its
speedily declined after year 2006 its slowly recovered but in the year 2008 and
2009 it
was stagnant
The difference of current assets and current liabilities shows that ratio. As it shows
that
if working capital is high so liquidity of business is respectively high. By this
graph I
can understand the financial position of the company like in the year 2005 the ratio
shows the good position but because of market slowdown it’s fluctuating and after
2008
it become stable. That shows that company is recovering its financial position
In every graph we can see that position was very fluctuating of the company, it is
because market slowdown. In this graph I can say that company is trying to recover the
losses by reducing the indirect expenses. As in the year 2008 and 2009 the position was
little bit stable then other year
The improvement in 2009 to 16.2% (2008: 11.0%) reflects the increase in the post-tax MCEV operating
result and the impact of lower opening equity shareholder's funds following falls in asset values in 2008.
Return on equity shareholders' funds is calculated as after-tax operating return, before adjusting items, on
opening equity shareholders' funds, including life profits on a market consistent embedded value (MCEV)
basis.
Conclusion
As the project is to Analysis of Financial Position & Profitability of Aviva Life
Insurance and the main objective to understand the financial position or condition of
company. After completing the project I know that how ability of management can
perform work in difficult situation. Because during the recession they faced very bad
condition but as India condition will improve they will also improve. As company is