A Comparative Study of Financial Performance of National

Life Insurance Company Limited and Nepal Life Insurance

Company Limited

Submitted By:
Alish Shrestha
Shanker Dev Campus
Exam Roll No. : 11767/13
T.U. Registration No. : 7-2-39-1415-2013

A Summer Project Report

Submitted To:
Office of the Dean
Faculty of Management
Tribhuvan University

In partial fulfillment of the requirements for the degree of

Bachelor of Business Administration (BBA)

Putalisadak, Kathmandu
April, 2017
 STUDENT DECLARATION

This is to certify that I have completed the Summer Project entitled “A Comparative
Study of Financial Performance of National Life Insurance Company Limited and
Nepal Life Insurance Company Limited” under the guidance of Associate Prof.
Achyut Raj Bhattarai and Mr. Kiran Thapa in partial fulfillment of the requirements
for the degree of Bachelor of Business Administration at Faculty of Management,
Tribhuvan University. This is my original work and I have not submitted it earlier
elsewhere,

Date: April, 2017 Signature:

Name: AlishShrestha

2
 CERTIFICATE FROM THE SUPERVISOR

This is to certify that the summer project entitled “A Comparative Study of Financial
Performance of National Life Insurance Company Limited and Nepal Life Insurance
Company Limited” is an academic work done by “Alish Shrestha” submitted in
partial fulfillment of the requirements for the degree of Bachelor of Business
Administration at Faculty of Management, Tribhuvan University under my guidance
and supervision. To the best of my knowledge, the information presented by her in the
summer project report has not been submitted earlier.

Signature of the Supervisors

Name

Designation

Date

3
 ACKNOWLEDGEMENTS

This study entitled “A Comparative Study of Financial Performance of National

Life Insurance Company Limited and Nepal Life Insurance Company Limited”
has been prepared for partial fulfillment of Bachelor of Business Administration. It is
directed towards analyzing the financial performance of life insurance companies in
Nepal.

I express my sincere gratitude and respect to my Summer Project Report supervisors,

Associate Prof. Achyut Raj Bhattarai and Mr. Kiran Thapa for their valuable
suggestions, continuous guidance and encouragement for the completion of this study.

I would also like to thank all the managers of the enterprises under study for their
cooperation in providing me all the necessary data for my study and sincerely
appreciate the participation of the respondents for making this thesis possible. I am
equally indebted towards my friends and family for their continuous support and help.

Finally, I undertake full responsibility for any deficiencies that may have remained in
this study. I believe that the experience and knowledge I have gained from this
research will help shape me and contribute much to my achievements in my future
career.

Alish Shrestha

April, 2017

TABLE OF CONTENTS

4
COVER PAGE i

STUDENT’S DECLARATION ii

CERTIFICATE FROM THE SUPERVISOR iii

VIVA- VORCE SHEET iv
ACKNOWLEDGEMENTS v
TABLE OF CONTENT vi
LIST OF TABLES vii
LIST OF FIGURES viii
EXECUTIVE SUMMARY ix
Pages
CHAPTER I: INTRODUCTION 1-15
1.1 Context information 1
1.2 Statement of the problem 2
1.3 Objectives of the study 2
1.4 Significance of the study 3
1.4 Literature survey 3
1.5 Research methodology 11
1.5.1 Research plan and design 11
1.5.2 Population and sample of the study 12
1.5.3 Nature and sources of data 12
1.5.4 Analytical tools 12
Chapter II: Data presentation and analysis 16-34
2.1 Organization profile 16
2.2 Data presentation and general analysis 17
2.3 Findings and discussion 31
Chapter III: Summary, conclusion and discussion 35-38
3.1 Conclusion 35
3.2 Action implications 37
References
Annex

LIST OF TABLES

5
Table No. Name of table Page No.
2.1 Net Income of sample Companies 17
2.2 Size in terms of total assets of sample companies 18
2.3 Total premium collection of sample companies 19
2.4 Return on Assets of sample companies 21
2.5 Return on equity of sample companies 22
2.6 Net Income to total premium collection ratio of sample 24
companies
2.7 Return on investment of sample companies 25
2.8 Return on Insurance Fund of sample companies 27
2.9 Current liabilities to total assets ratio of sample companies 29
2.10 Current Ratio of sample companies 30

LIST OF FIGURES

Figure No. Name of figure Page No.

2.1 Net Income of Sample insurance companies 17
2.2 Size in terms of total assets of sample companies 19
2.3 Total premium collection of sample companies 20
2.4 Return on Assets of sample companies 21

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 2.5 Return on equity of sample companies 23
2.6 Net Income to total premium collection ratio of sample 24
companies
2.7 Return on investment of sample companies 26
2.8 Return on Insurance Fund of sample companies 27
2.9 Current liabilities to total assets ratio of sample 29
companies
2.10 Current Ratio of sample companies 31

EXECUTIVE SUMMARY

Insurance is the form of risk management primarily used to hedge against the risk of a
contingent, uncertain loss. In simple word, insurance is a means to minimize future
uncertainties and loses. It serves as a medium to be secure from threats. Insurance
provides a canopy under which the consequences of such threats are compensated and
hence eases life. Insurance is the contract by which one party for a compensation
called premium assumes particular risk of the other party and promises to pay him or
his nominee a certain sum of money on a specified contingency.

7
There are two types of insurance business- life insurance business and general
insurance business. Life insurance is a method by which individual protect themselves
and their beneficiaries against the risk of loss of income in the event of the death or
retirement. General insurance is the insurance that protects individuals or entity from
the risks that occurs from financial loss resulting from fire, theft, liability and other
damage. General insurance includes all insurance except life insurance.

This research aims at studying and comparing the financial performance of life
insurance companies in Nepal. General analyses of the important financial parameters
(net profit, total assets, ROA, ROE, Return on investment, Return of Insurance Fund,
Net Income to Total premium collection, liquidity ratio and leverage ratio) are carried
to analyze and compare the financial performance of the selected life insurance
companies. Out of 9 life insurance companies, 2 life insurance companies, i.e.
National Life Insurance Co. Ltd. and Life Insurance Corporation (Nepal) Ltd., are
selected as sample of analysis. Secondary data i.e. annual report of two sample
companies for 5 years is used for the analysis under this study.

Various components of sample life insurance companies are taken for analysis. This
includes Net Income, Total Assets, Total Premium Collection, Return on Assets,
Return on Equity, Net Profit to Total Premium Collection, Return on Investment,
Return on Insurance Fund, Leverage and Liquidity. These components of sample
insurance are analyzed through data tabulation and graphical representation.
Likewise, these components of selected life insurance companies are compared to
each other.

This study gives the picture of financial performance of the selected life insurance
companies along with the comparison between themselves. This study shows that in
recent years the scope of life insurance companies has increased greatly. Due to this,
the existing life insurance companies have expanded significantly. Similarly, due to
increase in scope of life insurance, the number of life insurance companies has also
increased in good numbers. This in turns shows that financial condition of the country
is improving at steady pace.

8
 CHAPTER I

INTRODUCTION

1.1 Context Information

The adaptation of liberalized economic policies has accelerated the growth of

insurance companies in Nepal. In the recent years, the Nepalese insurance market has
grown in the great number. With the rise on purchase power of the people and
increased knowledge, the insurance business has taken upward course. The volume of
premium has been increasing significantly. Similarly, the agent for life insurance has
also increased as compared to the past years

Insurance is the system of combining loss exposure, with the cost of losses being
shared by all participants. It is a form of risk management primarily used
to hedge against the risk of a contingent, uncertain loss. In simple word, insurance is
a means to minimize future uncertainties and loses. It serves as a medium to be
secure from threats. Insurance provides a canopy under which the consequences of
such threats are compensated and hence eases life. It is the equitable transfer of the
risk of loss, from one entity to another, in exchange for a premium, and can be
thought of as a guaranteed and known to small loss to prevent large and possibly
devastating loss.

Insurance companies insure a wide variety of uncertain of our life and society that can
be classified as life and general insurance. Life insurance deals with insurance related
to physical and mental accident of individual or group of individuals whereas the
general insurance considers all insurance except life insurance.

Presently, most of the industries and business houses have been closed down, and
those who have been operating are not been able to perform their daily activities and
earn as they have expected due to existence of risks. In the present context
profitability return is one of the important and challenging goals. So this has
compelled the industries to hedge against the risk of the business.

The increasing trend of foreign employment in Nepal has led to increased life
insurance policy holders’ number. Most of these people go aboard to work not

1
knowing the condition and environment of work. Therefore, people buy different
insurance policies to hedge against the threats that they may face in foreign land.

Besides above reasons, other factors such as lucrative insurance policy, insurance
against risks, alternative to savings deposit in banks, etc. has contributed to growth of
insurance industry in Nepal.

1.2 Statement of the problem

In the context of Nepal, the insurance sector is tariff guided i.e. all the coverage and
premium for risk coverage is same across all companies and guided by the Insurance
Board of Nepal. However, there has been significant fluctuation in the performance of
life insurance companies in Nepal, with some companies in brisk of failure and other
looking forward for merger and acquisition so as to make them more immune against
failure. Hence the analysis of factors that affect the financial performance of the
insurance companies can be of major importance in current context.

The present study will intend to explore the following basic question:

1. Whether insurance companies are improving the overall performance or not?

2. What is the position of profitability?
3. What is the status of the various financial parameters ( total assets, ROA,
ROE, Return on investment, Return of Insurance Fund, Net Income to Total
premium collection, liquidity ratio and leverage ratio) of the sample life
insurance companies? Are they adequately capitalized to indemnify the claims
at all time?

1.3 Objectives of the study

The main objective of the study is to identify and compare the factors determining the
financial performance of the Life Insurance Corporation (Nepal) Ltd. and National
Life Insurance Company Ltd. Based on the above general objective, this research will
have the following specific objectives:

1. To analyze the financial parameters (net profit, total assets, ROA, ROE,
Return on investment, Return of Insurance Fund, Net Income to Total
premium collection, liquidity ratio and leverage ratio) of selected life
insurance companies.

2
 2. To examine position of financial parameters of selected life insurance
companies.
3. To compare financial parameters of selected life insurance companies.
4. To compare the total premium collection position of selected insurance
companies.

1.4 Significance of the study

Profitability is regarded as the lifeblood for any enterprises because it is needed for
growth and expansion. Similarly, the good performance of any industry in general
and any firm in particular plays the role of increasing market value of that specific
firm coupled with role o leading towards the growth of the whole industry which
ultimately leads to the overall success of the economy. Financial institutions are
considered the backbone economy for any country. Measuring the financial
performance of financial institutions including insurance companies has gained great
importance as these companies provide mechanism to transfer funds from surplus unit
to deficit unit. In addition to facilitating transfer of fund, insurance companies also
provides mechanism for transfer of risk. So it is necessary to constantly analyze the
financial performance of insurance companies. It helps to analyze the financial
condition of the country. Similarly the study of financial performance also provides
information to stakeholders to analyze the investment opportunities.

1.5 Literature survey

Insurance is the system of combining loss exposure, with the cost of losses being
shared by all participants. It is a form of risk management primarily used
to hedge against the risk of a contingent, uncertain loss. In simple word, insurance is
a means to minimize future uncertainties and loses. It serves as a medium to be
secure from threats. Insurance provides a canopy under which the consequences of
such threats are compensated and hence eases life. It is the equitable transfer of the
risk of loss, from one entity to another, in exchange for a premium, and can be
thought of as a guaranteed and known to small loss to prevent large and possibly
devastating loss.

Insurance companies insure a wide variety of uncertain of our life and society that can
be classified as life and general insurance. Life insurance deals with insurance related

3
to physical and mental accident of individual or group of individuals whereas the
general insurance considers all insurance except life insurance.

Life insurance (or life assurance, especially in the Commonwealth of Nations), is a

contract between an insurance policy holder and an insurer or assurer, where the
insurer promises to pay a designated beneficiary a sum of money (the benefit) in
exchange for a premium, upon the death of an insured person (often the policy
holder). Depending on the contract, other events such as terminal illness or critical
illness can also trigger payment. The policy holder typically pays a premium, either
regularly or as one lump sum.

In Nepal, the concept of insurance can be traced down to the Guthi system which is
joint family culture that has been prevalent from ancient times in Nepal. This system
has provided security and assistance to individuals and families in times of need. It is
a kind of trust where lands and money are allocated from different sources for
religious and charitable purposes. With the development of trade commerce and
industry, the necessity of insurance also grew. The traditional Guthi system became
obsolete and in 1947, Nepal Insurance and Transport Company were established to
meet the growing necessity of insurance. Later, Nepal government established
Rastriya Beema Sansthan P. Ltd (converted to Corporation in 1969). After the
implementation of Insurance Act, 1992, many insurance companies has been
established in the country.

Company performance is the function of the ability of the company to gain and
manage the resources in several different ways to develop competitive advantage. It is
the measurement for what had been achieved by company which shows good
condition for certain period of time. The purpose of measuring the achievement is to
obtain useful information related to flow of fund, the use of fund, effectiveness and
efficiency. “Financial Performance analysis is a study or relationship among the
various financial factor in business a disclosed by a single set of statement and a study
of the trend of these fact as shown in a series of statements. By establishing a strategic
relationship between the item of a balance sheet and income statements and other
operative data, the financial analysis unveils the meaning and signification of such
items.”(B.N. Ahuja, 1998: 23)

4
Profitability is one of the important function of financial management and a crucial
indicator of financial position of an organization. It plays an important while
analyzing the financial performance of company. In the opinion of R.R. Gilchrist,
(Argent, 1968) “the profit is the ultimate measure of effectiveness. A profitable
company is likely to offer not only the security of employment but also promotion
prospects jobs opportunities and the intense personnel motivation that comes from
being associated with success.” (Argent, 1968:68)

“Profit is the barometer of the success of business. It is indeed, a magic eye that
mirrors all aspects of entire business organization including the quality
output.”(Argent, 1968:68)

So it is essential to measure the profitability of a company to analyze its performance.

Hamdan Ahmed Ali-Shami (2008) argued that there are different ways to measure
profitability such as return on assets (ROA), return on equity (ROE) and return on
invested (ROIC). ROA is an indicator of how profitable a company is relative to its
total assets. It gives us an idea as to how efficient management is in using its assets to
generate earnings whereas ROE measures a company’s profitability which reveals
how much profit a company generates with the money shareholders’ have invested.
ROIC is a measure used to assess a company’s efficiency in allocating the capital
under its control in profitable measure. This measure gives a sense of how well a
company is in using its money to generate returns. Comparing a company’s ROIC
with its weighted average cost of capital (WACC) reveals whether invested capital is
used efficiently or not.”

Similarly, Khan and Jain have defined “the ratio analysis is defined as the systematic
use of ratio to interpret the financial performance so that the strength and weakness of
firm as well as its historical performance and current financial condition can be
determined.” (Khan and Jain, 1990:19)

However, William H. Greene and Dam Segal (2004) argued that the performance of
insurance companies in financial terms is normally expressed in net premium earned,
profitability from underwriting activities, annual turnover, return on investment,
return of equity. These measures could be classified as profit performance measures
and investment performance measure. However, most researchers in the field of

5
insurance and their profitability stated that the key indicator of firm’s profitability is
ROA defined as the after tax profit divided by total assets.

There are various factors that affect the financial performance of a company. A study
by Liargovas & Skandalis (2008) tried to empirically implement a comprehensive
analytical framework of financial performance in the case of Greek industrial firms
during the period of 1997-2004. The paper examined the impact of key determinants
of firm’s financial performance. The study distinguishes between financial and non-
financial drivers of firm performance. The study results showed that leverage, export
activity, location, size, and the index for management competence significantly affect
firm performance of Greece. The results indicated that profitable firms large, young
exporting firms a competitive management team, which have an optimal debt-equity
ratio and use their liquidity to finance their investments.

Studies conducted in different countries found that for non-life insurance companies
size of capital is one of the important factors that affect ROA, Hifza Malik (2011)
examined the relationship between volume capital and return on assets for Pakistan
insurance industry and found positive and statistically significant relationship between
insurance capital and profitability. Similarly, Hamadan Ahamed Ali Al-Shami (2008)
found in his investigation that there exists a positive relation between volume of
capital and profitability of insurance companies. However size of capital may affect
various performance indicators such as return on equity.

Almanjali, Alamro and Al soub (2012) investigated the factors that affect the financial
performance of the Jordanian insurance companies. The study showed that the
variables like liquidity, leverage, size, management competence index have a positive
statistical effect on the financial performance of Jordanian insurance companies. The
researchers recommended that a high consideration of increasing the company assets
will lead to good financial performance and there is a significant need to have highly
qualified employees in the top managerial staff.

Review of thesis:

6
Some related theses to this study are illustrated below:

Dhakal (2007) had conducted research entitles “Financial Performance of Nepalese

Insurance Companies”. The study aimed to evaluate the profitability of Nepal Life
Insurance Company Ltd, and Life Insurance Corporation Nepal Ltd. in life insurance
and Himalayan General Insurance Co. Ltd. and Neco Insurance Co. Ltd. in non- life
insurance companies and suggest the recommendation based on it.
The major objectives of the study are given below:

 To evaluate the profitability of the companies.

 To analyze the relation of various factors like assets, Interest income,
Managerial expenses and Life Insurance Fund on profitability.
 To analyze the financial position of sample insurance companies

The major findings of the study are given below:

 The return on assets ratio of life insurance companies are more scattered than
that of non-life insurance companies.
 Comparatively, the return on equity ratio of life insurance companies are more
scattered than that of non-life insurance companies.
 The higher CV shows the greater variability in the average return on
investment ratios of life insurance companies than that of non-life insurance
companies.
 Comparatively, the return of insurance fund ratios of life insurance are more
scattered than that of non-life insurance companies.
 The interest incomes to total income ratios of non-life insurance companies
are more homogenous than that of non-life insurance companies.
 Comparatively, the interest income to total assets ratios of life insurance are
more dispersed than that of the non-life insurance companies
 Comparatively, the investment to total assets ratios of life insurance are more
dispersed than that of non-life insurance companies
 Comparatively, the interest earned to total investment ratios of non-life
insurance companies are more dispersed than that of the life insurance
companies.

Thapa (2016) had conducted a research on “Financial performance of General

Insurance Companies in Nepal”. This study aimed to identify and compare factors
determining the financial performance of Nepalese general insurance companies. This
study concluded that the net income of the company has positive relation with the
7
paid up capital, total assets, total premium collection, ROA, ROE whereas net income
has inverse relation with the liquidity of insurance companies.

The following are the main objectives of the study:

 To analyze the financial parameters (Paid up Capital, Total Assets, ROA,

ROE, Liquidity, Tangibility of Assets) of sample non-life insurance companies
that affects the insurance companies’ profitability and growth.
 To examine the premium collection pattern of sample insurance companies
and analyze their effect on profitability.
 To analyze the relationship of profitability with the premium collection from
all the portfolios (Fire, Marine, Motor, Engr. & CAR, Aviation, Agricultural &
Livestock and Miscellaneous) through evaluation of Net Profit to Total
Premium Collection Ratio.
 To examine the effect of re-insurance premium paid to re-insurer on
profitability of non-life insurance companies.
 To identify the major components that contributes to the Net income of
insurance companies.

The major findings of this study are:

Findings on general Analysis of important financial parameters

 The average paid up capital of Sagarmatha and Shikhar are almost equal with
Shikar slightly higher.Sagarmatha has the highest inet inome followed by
Shikhar, Lumbini and Premier. Paid up capital has positive relationship with
the Net Income/Profitability.
 There is positive relationship of total assets with net income, i.e. Net Income
increase with total assets.
 The average total premium collection of Shikhar is highest followed by
Sagarmatha, Lumbini and Premier. Although the pattern of net Income does
not match with the total premium collection, there is positive relationship of
total premium collection with net income.
 The average ROA of Sagarmatha is highest followed by Shikhar, Lumbini and
Premier. The ROA values are of similar pattern of net income values i.e.
higher the ROA value higher the net income and vice versa. Therefore, there is
positive and close relationship of ROA with net income.

8
  The average ROE of Sagarmatha is highest followed by Shikhar, Lumbini and
Premier. There is positive relationship of ROE with net income.
 There is no regular relationship of Net Profit to Total Premium collection ratio
with net income. It means that volume of premium collection does not ensure
high profitability.
 There is no regular relationship between leverage and net income. Sagarmatha
Insurance is highly leveraged followed by Lumbini, Premier and Shikhar.
 Premier Insurance has the highest average liquidity followed by Lumbini,
Sagarmatha and Shikhar .Although the relationship is not perfect, the
relationship of net income with that of liquidity is inverse.
 There is no regular relationship between tangibility of assets and net income.
Sagarmatha Insurance has the least tangible assets , whereas Shikhar has the
highest followed by Lumbini and Premier.
 Shikhar Insurance is the highest re-inusrance premium payer followed by
Sagarmatha, Premier and Lumbini. There is no perfect relationship between
net income and re-insurance premium paid but the higher the premium
collector pays greater re-insurance premium.

Major findings on Premium Collection Structure Analysis

 Sagarmatha Insurance has the highest proportion of average Motor premium

collection followed by Fire, Miscellaneous, Marine, Engr. & CAR, Aviation,
and Agricultural & Livestock. The average Net Profit to Total Premium
collection of Sagarmatha Insurance is highest. Therefore, this order of
premium collection can be the best composition of portfolios among the
sample companies.
 Premium Insurance has the highest average Motor premium collection but
comparatively low proportion among the sample companies, followed by
Engr. & CAR, Fire, Miscellaneous, Marine, Aviation, and Agriculture &
Livestock. The Net Profit to total Premium collection can be good
composition of portfolios among the sample companies regarding profitability.
 Lumbini Insurance has very high average Motor premium collection followed
by Fire, Miscellaneous, Engr. & CAR, Marine, Agricultural and Livestock. It
has not collected any Aviation premium during the study period. Net Profit to
Total Premium collection of Premier is second after Lumbini General
Insurance is lowest among the sample companies. Therefore, this premium
collection pattern under this portfolio composition with very high Motor
9
 premium and very low Marine and no Aviation premium is the among the
sample companies regarding profitability.
 Shikhar Insurance has highest average Motor premium collection but
comparatively low proportion among the sample companies followed by
Aviation, Fire, Marine, Engr. &CAR and Agricultural & Livestock. The Net
Profit to Total Premium collection is average among the sample companies.
Therefore, this premium collection pattern of Shikhar Insurance under this
portfolio composition is average.
 Fire premium collection of Sagarmatha is highest among the sample
companies. Premier has second highest followed by Shikhar and Lumbini.
This is the same pattern of Net Profit to Total Premium collection among the
sample companies. Therefore, it can be concluded that this portfolio is one of
the most lucrative one.
 Similarly, Marine premium collection proportion of Sagarmatha is highest
among the sample companies. Premier has second highest followed by
Shikhar and Lumbini. This is the same pattern of Net Profit to Total Premium
collection among the sample companies. Therefore, it can be concluded that
this portfolio is one of the most lucrative one.
 Motor premium collection of Lumbini General Insurance is highest followed
by Sagarmatha, Shikhar and Premier. This is the portfolio with highest
premium collection proportion of all sample insurance companies. But, the
Net Profit to Total Premium collection of Lumbini is lowest among the sample
companies. Therefore, Motor premium collection does not seem to be much
lucrative one.
 Engr. & CAR premium collection proportion of Premier Insurance is highest
followed by Sagarmatha, Lumbini and Shikhar. Since, the Net Profit to Total
Premium Collection of both Premium and Sagarmatha are high among the
sample companies, it indicates that the Engr. & CAR premium has better
impact on profitability of insurance companies.
 Shikhar Insurance has been maintaining a good proportion of Aviation
premium collection during the study period. Others have started this business
only on the last year of the study period, except for Lumbini General
Insurance which has no any Aviation premium collection during the study
period. Also, most of the premium collected under this portfolio is paid as re-

10
 insurance premium; it has little impact on profitability of insurance
companies.
 Agricultural and Livestock Insurance premium collection started from the last
of study period due to compulsory enforcement from the Regulatory Body;
Beema Samiti and backed by the government. The volume is small and it has
little to do with the profitability of Insurance Companies at present.
 Miscellaneous premium collection of Premier is highest followed by Shikhar,
Sagarmatha and Lumbini. Net Profit to Total Premium Collection of Premier
and Shikhar are average. Therefore, miscellaneous premium collection does
not seem to have much impact on higher profitability of the insurance
companies.

1.5 Research Methodology

1.5.1 Research plan and design

Research design means an overall framework for the activities to be taken during the
course of a study. It draws road map for doing research. It is an integrated system that
guides the researchers in formulating, implementing and controlling the study so as to
obtain answers to research questions. This research is descriptive and analytical in
nature. Descriptive research is used to compare and to assess the options, behaviors
of the firms and describe the situation and events occurring during the study period
where analytical research is used to find out the result employing financial and
statistical tools.

1.5.2 Population and sample of the study

Population refers to the industries of the same-nature of its service & product. In this
study, all the life insurance companies of Nepal is the population. There are 9 life
insurance companies in Nepal which is the population in this study.

Sample means the representative parts of population which is studied to draw

conclusions about the population under study. There are two life insurance companies
which are selected as samples. The samples used in this study are Life Insurance
Corporation Nepal Ltd. and National Life Insurance Co. Ltd.

1.5.3 Nature and source of data

11
The data used in this study are secondary in nature. The secondary data is collected
from various annual reports published by the insurance companies in Nepal.

1.5.4 Analytical tools

The different analytical tools used in this study are financial ratios and statistical
tools. These tools are used to analyze the financial performance of the sample
insurance companies.

1.5.4.1 Financial ratios:

a. Liquidity Ratios

Liquidity ratios are used to judge the firm's ability to moot short-term obligation.
These ratios give insights into the present cash solvency of the firms and its ability to
remain solvent in the event of adversities. Usually, the current ratio is used to evaluate
insurance companies’ liquidity. It is calculated by dividing the current assets by the
current liabilities, which is expressed as follows

current assets
current ratio=
current liabilities

b. Leverage Ratio

Leverage or capital structure ratios are used to judge the long-term financial position
of the firm. It evaluates the financial risk of long-term creditors greater the proportion
of the owner's capital structure, lesser will be the financial risk borne by supplier of
credit funds. In this case of insurance company, the ratio of current liabilities to total
assets is taken for calculation of leverage.

current liabilities
Leverage ratio=
total assets

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 c. Net profit to total premium collection ratio:

It is calculated as follows:

net profit
Net profit ¿ total premium collection ratio=
total premiun collected

d. Return on Assets:

It measures the efficiency of bank in utilization of the overall assets. High ratio
indicates the success of management in overall operation. Lower ratio means
insufficient operation of the bank.

net income
ROA=
total assests

e. Return on Equity:

The ratio is tested to see the profitability of the owner's investment "reflects the extent
to which the objective of business is accomplished". The ratio is of great interest to
present as well as prospective shareholders and of great significance to management,
which has the responsibility of maximizing the owner's welfare, so higher ratio is
desirable.

net income
ROE=
total equity

f. Return on investment:

It measures the performance of the investment and it indicates the whole investment
portfolio performance. This ratio is obtained by dividing the net profit by investment,

net income
ROI=
total investment

g. Return on insurance fund:

13
It measures the percentage of net profit on insurance fund employed to the firm. It is
calculated as:

net income
ROI=
total insurance fund

1.5.4.2 Statistical tools:

a. Arithmetic Mean

The arithmetic mean of a set of data is found by taking the sum of the data, and then
dividing the sum by the total number of values in the set. A mean is commonly known
as an average. Arithmetic Mean (AM) is given by

X = ∑X
n
Where,
X = Arithmetic Mean
∑X = Sum of all the values of the variable X
n = Number of observations

b. Coefficient of Variation (C.V):

Coefficient of variation represents the ratio of the standard deviation to the mean and
it is useful statistic for comparing the degree of variation from one data to another
data.

Standard Deviation
C . V .=
Average mean

c. Standard Deviation (S.D):

Standard deviation measures the variation or dispersion of data from average mean or
expected value. It is calculated as follows:

S.D (σ) =
√ 1 (
N
∑ X− X ) 2

14
 Where,
N = Number of observations
X = Expected return of the historical data

CHAPTER II

DATA PRESENTATION AND ANALYSIS

2.1 Organization profile

Life Insurance Corporation (Nepal) Limited

15
LIC (Nepal) Ltd. is one of the largest capitalized insurance companies of Nepal. A
joint venture between Life Insurance Corporation of India (55%) and Vishal Group of
Nepal (25%), the insurance company has public participation to the extent of 20%.
Life insurance corporation (Nepal) Ltd. having Registration No: 765-057/58, was
incorporated under the Companies Act 2053, on 27.12.2000. It has started Operations
since 01.09.2001. It has authorized capital of Rs.855, 562,500 with 33 branch offices
and a corporate office.
National Life Insurance Company Limited

National Life Insurance Company Limited (formerly known as National life &
General Insurance Co. Ltd.) was incorporated in 1988 A.D. under Nepal Company
Act 1964 and the insurance Act 1968 of Nepal with prime objective to meet growing
insurance requirements of the country. It is a listed company with approximately
2,300 public shareholders and its shares of Rs. 100 each is being traded substantially
above the face value.

The Company’s Life Fund size is around Rs. 5 Billion. It has prime properties in
various cities of the country and a modern multi stored commercial complex is
planned for construction at its own land in Lazimpat, Kathmandu. It has substantial
share investment in many financial institutions, the value of which has increased
many folds. Its annual premium collection stands at around Rs. 1.5 Billion and the
company has provided insurance cover to more than 350,000 people.

2.2 Data presentation and general analysis

a. Net Income

It is the company’s total earning or profit. It is calculated by adding the all the
revenues of the company and subtracting the expenses. The net income of the sample
company is illustrated as below:

16
 Table 2.1: Net Income of sample Companies
Net Income (in Rs.)
Fiscal Year National Life LIC Nepal
2067/68 112,068,139 -25,128,308
2068/69 96,329,518 171,774,428
2069/70 442,759,478 277,346,216
2070/71 252,514,776 194,829,700
2071/72 263,707,686 249,042,175
A.M. 233,475,919 173,572,842
S.D. 140200776 118745283
C.V. 60.0493517 68.4123629
Source: annual reports of selected companies, Annex XV

Figure 2.1: Net Income of Sample insurance companies (in Rs.)

500,000,000

400,000,000

300,000,000

National Life
200,000,000
LIC Nepal

100,000,000

0
2067/68 2068/69 2069/70 2070/71 2071/72

-100,000,000

Table 2.1 and Figure 2.1 show the net income of sample companies for 5 years period.
National Life Insurance Co. has greater average net income than Life Insurance
Corporation (Nepal) over the period of 5 years. National Life Insurance Co. and Life
Insurance Corporation (Nepal) has the highest net income in FY 2069/68. But Life
Insurance Corporation (Nepal) had incurred loss in FY 2067/68. The net income of
both insurance has greatly fluctuated in period of 5 years.

b. Size in terms of total Assets

Total assets refer to the total amount of assets owned by an entity. Assets are items of
economic value, which are expanded over time to yield a benefit for the owner. If the
owner is a business, these assets are usually recorded in the accounting records and

17
appear in the balance sheet of the business. Here is the illustration of total assets of
sample insurance companies.

Table 2.2: Size in terms of total assets of sample companies

Total Assets (in Rs.)

Source: Fiscal Year National Life LIC Nepal annual
2067/68 6,294,051,845 6,901,468,641
reports 2068/69 7,686,335,471 9,314,919,122 of
selected 2069/70 9,130,747,866 12,453,124,362
2070/71 11,099,944,639 16,526,611,102
2071/72 13,385,034,833 21,507,537,088
A.M. 9,519,222,931 13,340,732,063
S.D. 2799790199 5816048062
C.V. 29.41196166 43.59616875
companies, Annex XVI

Table 2.2 shows that in average of period of 5 years, Life Insurance Corporation
(Nepal) has greater average of total assets than National Life Insurance Co. It shows
that Life Insurance Corporation (Nepal) has greater variation in term of maintaining
assets than National Life Insurance Co. Fig 2.2 shows that over the period of 5 years,
both companies have steadily grown in size in terms of total assets. In year 2071/72,
both companies have acquired the largest amount of total assets which is Rs.13,
385,034,833 for National Life and Rs. 21,507,537,088 for Nepal Life.

Figure 2.2: Size in terms of total assets of sample companies (in Rs.)

25,000,000,000

20,000,000,000

15,000,000,000
National Life
LIC Nepal
10,000,000,000

5,000,000,000

0
2067/68 2068/69 2069/70 2070/71 2071/72

c. Total Premium Collection

18
Total premium collection is the amount of earned premium during a year time under
all the portfolios.

Table 2.3: Total premium collection of sample companies

Total premium collection (in Rs.)

Fiscal Year National Life LIC Nepal
2067/68 1,606,705,932 1,875,622,036
2068/69 2,181,992,836 2,537,646,938
2069/70 2,273,109,583 3,168,604,126
2070/71 3,677,262,954 4,154,512,503
2071/72 3,171,475,944 5,416,137,435
A.M. 2,582,109,450 3,430,504,608
S.D. 829713852.3 1391974465
C.V. 32.13317903 40.5763765
Source: annual reports of sample companies, Annex XVII

Fig 2.3: Total premium collection of sample companies (in Rs.)

6,000,000,000

5,000,000,000

4,000,000,000

3,000,000,000 National Life

LIC Nepal
2,000,000,000

1,000,000,000

0
2067/68 2068/69 2069/70 2070/71 2071/72

Table 2.3 and Fig 2.3 shows the total amount of premium collected by the sample
insurance companies over the period of 5 years. Table 2.3 shows that in average of
period of 5 years, Life Insurance Corporation (Nepal) has greater average of total
premium i.e. Rs.3,430,504,608 than National Life Insurance Co. i.e.

19
Rs.2,582,109,450. It shows that National Life Insurance Co. has greater variation in
term of collecting premium than Life Insurance Corporation (Nepal). It also shows
that Life Insurance Corporation (Nepal) has constantly increased its premium
collection while there is fluctuation in premium collection pattern of National Life
Insurance Co.

d. Return on Assets ratio:

It measures the efficiency of bank in utilization of the overall assets. High ratio
indicates the success of management in overall operation. It is an indicator of how
profitable a company is relative to its total assets. Following illustration depicts the
Return on Assets of the sample companies.

Table 2.4: Return on Assets of sample companies

ROA (in %)
Fiscal Year National Life LIC Nepal
2067/68 1.78 -0.364
2068/69 1.25 1.844
2069/70 4.85 2.227
2070/71 2.27 1.179
2071/72 1.97 1.158
A.M. 2.42 1.209
S.D. 1.41 0.990
C.V. 58.01 81.87
Source: annex I, annex II

Figure 2.4: Return on Assets of sample companies(in %)

20
 6.00

5.00

4.00

3.00
National Life
2.00 LIC Nepal

1.00

0.00
2067/68 2068/69 2069/70 2070/71 2071/72
-1.00
\

Table 2.4 and Fig 2.4 show the return on assets of sample insurance companies over
the period of 5 years. It shows that Life Insurance Corporation (Nepal) had negative
ROA in year 2067/68. Life Insurance Corporation (Nepal) highest ROA is 2.227% in
year 2069/70. In contrast, National Life Insurance Co. has highest ROA in year
2069/70 which is 4.85%. National Life Insurance Co.’s lowest ROA is 1.25 which
occurred in year 2068/69. In average, National Life Insurance Co. has greater average
return on assets than Life Insurance Corporation (Nepal) over the period of 5 years.
Similarly, National Life has slightly greater variation in ROA than Life Insurance
Corporation (Nepal). It shows that both companies had fluctuation while maintaining
their ROA. But National Life Insurance Co. had greater fluctuation than Life
Insurance Corporation (Nepal). It shows that National Life Insurance Co.’s ROA took
a huge upward lift in year 2069/70 and consecutively declining in the next year.

e. Return on equity ratio:

The ratio is tested to see the profitability of the owner's investment "reflects the extent
to which the objective of business is accomplished". It is the net amount of income
returned as percentages of shareholders equity. It is expressed as percentage.

Table 2.5: Return on equity of sample companies

ROE (in %)
Fiscal Year National Life LIC Nepal
2067/68 26.83 -10.258
2068/69 18.93 42.042

21
 2069/70 51.26 41.157
2070/71 20.74 19.689
2071/72 18 20.716
A.M. 27.15 22.669
S.D. 13.91 21.296
C.V. 51.22 93.94
Source: annex III, annex IV

Table 2.5 and Fig 2.5 show the return of equity of sample insurance companies over
the period of 5 years. It shows that Life Insurance Corporation (Nepal) had negative
ROE in year 2067/68. Life Insurance Corporation (Nepal) had the highest ROE
‘41.157%’ in year 2068/69. Whereas, National Life Insurance Co. had lowest ROE
18% in year 2071/72 and highest ROE ‘51.26%’ in year 2069/70. Table 2.5 also
shows that in over the period of 5 years, National Life Insurance Co. has greater
average ROE than Life Insurance Corporation (Nepal). But in terms of variation, Life
Insurance Corporation (Nepal) has greater variation than National Life Insurance Co.
over the period of 5 years.

Figure 2.5: Return on equity of sample companies (in %)

60

50

40

30
National Life
20
LIC Nepal
10

0
2067/68 2068/69 2069/70 2070/71 2071/72
-10

-20

Life Insurance Corporation (Nepal) had huge upward lift in year 2068/69 in terms of
ROE. But later it declined for the rest of the period. National Life Insurance Co. also
had fluctuation in Roe over 5 years period. It increased significantly in year 2069/70
but declined similarly in the next year.

f. Net Income to total premium collection ratio:

22
It is the ratio of net income to total premium collection. It is also expresses in
percentage. Following illustration shows the net income to total premium collection
ratio of sample companies.

Table 2.6: Net Income to total premium collection ratio of sample companies

Net Income to total premium collection ratio (in %)

Fiscal Year National Life LIC Nepal
2067/68 6.98 -1.34
2068/69 4.41 6.769
2069/70 19.48 8.753
2070/71 6.87 4.69
2071/72 8.31 4.598
A.M. 9.21 4.694
S.D. 5.91 3.782
C.V. 64.18 80.56
Source: annex V, annex VI

Figure 2.6: Net Income to total premium collection ratio of sample companies (in
%)

23
 25

20

15

National Life
10
LIC Nepal

0
2067/68 2068/69 2069/70 2070/71 2071/72
-5

Table 2.6 and Fig 2.6 show the net income to total premium collection of sample
companies over the period of 5 years. It shows that Life Insurance Corporation
(Nepal) had negative net income to total premium collection ratio in year 2067/68.
Life Insurance Corporation (Nepal) had the highest net income to total premium
collection ratio ‘8.753%’ in year 2069/70. Whereas National Life Insurance Co. had
lowest net income to total premium collection ratio ‘4.41%’ in year 2071/72 and
highest net income to total premium collection ratio ‘19.48%’ in year 2069/70. Table
2.6 also shows that in over the period of 5 years, National Life Insurance Co. has
greater average net income to total premium collection ratio than Life Insurance
Corporation (Nepal). Similarly, in terms of variation, National Life Insurance Co. has
greater variation than Life Insurance Corporation (Nepal) over the period of 5 years.

Figure 2.6 show that Life Insurance Corporation (Nepal)’s net income to total
premium collection ratio had increased in year 2068/69 greatly in comparison to other
years. But later it declined from year 2069/70 to rest of the period. National Life
Insurance Co. also had fluctuation in net income to total premium collection ratio over
5 year’s period. It increased significantly in year 2069/70 but declined similarly in the
next year.

g. Return on investment ratio:

It is the rate of average investment income. It shows the proportion of retune with
respect to investment. It is just the calculation of average rate of return on investment
of insurers, for a particular year in aggregate. This ratio shows the performance of the

24
investment and it indicates the whole investment portfolio performance. Here the total
investment consists of all the investment in optional and compulsory sectors and net
profit carried from profit and loss account.

Table 2.7: Return on investment of sample companies

Return on investment (in %)

Fiscal Year National Life LIC Nepal
2067/68 5.6 -0.4
2068/69 2.18 2.12
2069/70 9.61 2.591
2070/71 3.29 1.429
2071/72 2.87 1.389
A.M. 4.71 1.426
S.D. 3.03 1.137
C.V. 64.23 79.77
Source: annex VIII, annex VII

Figure 2.7: Return on investment of sample companies (in %)

12

10

6
National Life
4 LIC Nepal

0
2067/68 2068/69 2069/70 2070/71 2071/72
-2

Table 2.7 and Fig 2.7 show the return on investment ratio of sample companies over
the period of 5 years. It shows that Life Insurance Corporation (Nepal) had negative
ROI in year 2067/68 due to loss incurred in that year. Life Insurance Corporation
(Nepal) had the highest ROI ‘2.591%’ in year 2069/70. The overall ROI of Life
Insurance Corporation (Nepal) has been consistently low in comparison to National
Life Insurance Co. National Life Insurance Co. had lowest ROI ‘2.18%’ in year

25
2068/69 and highest ROI ‘9.61%’ in year 2069/70. Table 2.7 also shows that in over
the period of 5 years, National Life Insurance Co. has greater average ROI than Life
Insurance Corporation (Nepal). Similarly, in terms of variation; National Life
Insurance Co. has greater variation than Life Insurance Corporation (Nepal) over the
period of 5 years.

Life Insurance Corporation (Nepal)’s return on investment ratio had increased in year
2068/69 rising to 2.591% in year 2069/70. But later it declined from year 2069/70 to
rest of the period. The performance of investment of Life Insurance Corporation
(Nepal) is seen more slightly consistent than National Life Insurance Co. National
Life Insurance Co. had noticeable fluctuation in return on investment ratio over 5
year’s period. It increased significantly in year 2069/70 but declined similarly in the
next year.

h. Return on insurance fund:

Return on insurance fund ratio measure the percentage of net profit on insurance fund
employed in the firm. Since the companies under the study have not separated the
profit from the insurance fund, this ratio is very significant to understand the
percentage of net profit.

Table 2.8: Return on Insurance Fund of sample companies

Return on Insurance Fund (in %)

Fiscal Year National Life LIC Nepal
2067/68 1.91 -0.378
2068/69 1.34 1.929
2069/70 5.36 2.355
2070/71 2.56 1.257
2071/72 2.21 1.216
A.M. 2.68 1.276
S.D. 1.57 1.040
C.V. 58.51 81.55
Source: annex IX, annex X

Figure 2.8: Return on Insurance Fund of sample companies (in %)

26
 6

3
National Life
2 LIC Nepal

0
2067/68 2068/69 2069/70 2070/71 2071/72
-1

Table 2.8 and Fig 2.8 show the return on insurance fund ratio of sample companies
over the period of 5 years. It shows that Life Insurance Corporation (Nepal) had
negative return on insurance fund in year 2067/68 due to loss incurred in that year.
Life Insurance Corporation (Nepal) had the highest return on insurance fund ‘2.355%’
in year 2069/70. National Life Insurance Co. had lowest return on insurance fund
‘1.34%’ in year 2068/69 and highest return on insurance fund ‘5.36%’ in year
2069/70. Table 2.8 also shows that in over the period of 5 years, National Life
Insurance Co. has slightly greater average return on insurance fund than Life
Insurance Corporation (Nepal). But in terms of variation, Life Insurance Corporation
(Nepal) has greater variation than National Life Insurance Co. over the period of 5
years.

Life Insurance Corporation (Nepal)’s return on insurance fund had increased in year
2068/69 greatly in comparison to other years. But later it declined from year 2069/70
to rest of the period. National Life Insurance Co. also had fluctuation in return on
insurance fund over 5 year’s period. It increased significantly in year 2069/70 but
declined similarly in the next year.

i. Leverage ratio:

Leverage or capital structure ratios are used to judge the long-term financial position
of the firm. It evaluates the financial risk of long-term creditors greater the proportion
of the owner's capital structure, lesser will be the financial risk borne by supplier of

27
credit funds. In this case of insurance company, the ratio of current liabilities to total
assets is taken for calculation of leverage.

Table 2.9: Current liabilities to total assets ratio of sample companies

Current liabilities to total assets ratio (in %)

Fiscal Year National Life LIC Nepal
2067/68 3.8 6.211
2068/69 2.97 6.776
2069/70 1.65 7.889
2070/71 1.62 3.843
2071/72 2.14 4.351
A.M. 2.44 5.814
S.D. 0.94 1.689
C.V. 38.49 29.05
Source: annex XI, annex XII

Figure 2.9: Current liabilities to total assets ratio of sample companies (in %)

28
 9

5
National Life
4 LIC Nepal
3

0
2067/68 2068/69 2069/70 2070/71 2071/72

Table 2.9 and Fig 2.9 shows the leverage ratio (current liabilities to total assets ratio)
of sample companies over the period of 5 years. It shows that current liabilities to
total assets ratio of Life Insurance Corporation (Nepal) is consistently larger than that
of National Life Insurance Co. The lowest and highest current liabilities to total assets
ratio of Life Insurance Corporation (Nepal) is 3.843% and 7.889% in year 2070/71
and year 2069/70 respectively. Similarly, the lowest and highest current liabilities to
total assets ratio of National Life Insurance Co. is 1.62% and 3.8% in year 2070/71
and year 2067/68 respectively. Comparatively, Life Insurance Corporation (Nepal) has
higher average current liabilities to total assets ratio than National Life Insurance Co.
over the period of 5 years. But National Life Insurance Co. has greater variation in
terms of current liabilities to total assets ratio than Life Insurance Corporation
(Nepal).

Figure 2.9 show that the current liabilities to total assets ratio of National Life
Insurance Co. has t declined from year 2067/68 to year 2070/71. It increased slightly
in year 2071/72. In contrast, current liabilities to total assets ratio of Life Insurance
Corporation (Nepal) increased slowly up to year 2068/70 and decreased drastically in
year 2070/71 and again increasing in year 2071/72.

j. Liquidity ratio:

Liquidity ratios are used to judge the firm's ability to moot short-term obligation.
These ratios give insights into the present cash solvency of the firms and its ability to

29
remain solvent in the event of adversities. Usually, the current ratio is used to evaluate
insurance companies’ liquidity.

Table 2.10: Current Ratio of sample companies (in %)

Current Ratio (in %)

Fiscal Year National Life LIC Nepal
2067/68 1047 317.2
2068/69 2221 275.1
2069/70 3480 473.6
2070/71 4631 1356.4
2071/72 3517 1596.5
A.M. 2979 803.8
S.D. 1376 624.3
C.V. 4620 7767
Source: annex XIII, annex XIV

Figure 2.10: Current Ratio of sample companies

50
45
40
35
30
25 National Life
LIC Nepal
20
15
10
5
0
2067/68 2068/69 2069/70 2070/71 2071/72

Table 2.10 and Fig 2.10 show the current ratio (liquidity ratio) of sample companies
over the period of 5 years. It shows that current ratio of National Life Insurance Co. is
consistently larger than that of Life Insurance Corporation (Nepal). The lowest and
highest current ratio of Life Insurance Corporation (Nepal) is 2.751 times and 15.965
times in year 2068/69 and year 2070/71 respectively. Similarly, the lowest and highest

30
current ratio of National Life Insurance Co. 10.47 times and 46.31 times in year
2070/71 and year 2067/68 respectively. Comparatively, National Life Insurance Co.
has higher average current ratio than Life Insurance Corporation (Nepal) over the
period of 5 years. Similarly, National Life Insurance Co. has greater variation in terms
of current ratio than Life Insurance Corporation (Nepal).

Current ratio of national life has increased steadily from year 2067/68 to year
2070/71. Then, it decreased slightly in year 2071/72. In contrast, current ratio of Life
Insurance Corporation (Nepal) decreased slightly in year 2068/69 and steadily
increased up to year 2071/72.

2.3 Findings and discussions

The findings on analysis of various financial parameters of life insurance companies

are illustrated below:

a. Net Income: National Life Insurance Co. has higher average net income than
Life Insurance Corporation (Nepal). So, over the period of five years, National
Life Insurance Co. has earned more profit than Life Insurance Corporation
(Nepal). Here, the C.V. of National Life Insurance Co. is less than that of Life
Insurance Corporation (Nepal). It indicates that National Life Insurance Co.
has more consistency in earning net profit than Life Insurance Corporation
(Nepal). So, in terms of net income, National Life Insurance Co. financial
performance is more consistent but the Life Insurance Corporation (Nepal)’s
financial performance is more aggressive.
b. Size in terms of total assets: From the above analysis, it is found that Life
Insurance Corporation (Nepal) has more average total assets than National
Life Insurance Co. in period of 5 years. It shows that the Life Insurance
Corporation (Nepal) has acquired more number of assets during period of 5
years than National Life Insurance Co. But the C.V. of total assets of National
Life Insurance Co. is less than that of Life Insurance Corporation (Nepal).
This means that National Life Insurance Co. has acquired assets more
consistently than Life Insurance Corporation (Nepal). The above analysis also
shows that there is positive relationship between net profit and total assets.
c. Total premium Collection: From above analysis, we can see that there is
positive relation between total premium collection and net profit. So greater

31
 total premium collection indicates good financial performance. Here the
average premium collection of National Life Insurance Co. is less than that of
Life Insurance Corporation (Nepal). The premium collection of Life Insurance
Corporation (Nepal) is consistently increasing whereas the premium collection
of National Life Insurance Co. decreased in last year. This might indicate
financial performance of Life Insurance Corporation (Nepal) is improving
whereas the financial performance of National Life Insurance Co. is consistent
in regards of premium collection.
d. Return on Assets (ROA): Higher ROA indicates either increase in net profit
or decreased in assets. From above analysis, it is seen that totals assets of both
companies is constantly increasing. Higher ROA indicates good performance.
From above analysis it is seen that National Life has higher average ROA than
Life Insurance Corporation (Nepal). Similarly, the C.V. of National Life
Insurance Co. is also higher than Life Insurance Corporation (Nepal). In terms
of ROA, both companies have high inconsistency but National Life Insurance
Co. is more consistent in comparison to Life Insurance Corporation (Nepal).
e. Return on Equity (ROE): Higher ROE indicates increased profit when the
equity is increasing which indicates good financial performance. From above
analysis, it is found that National Life Insurance Co. has more average ROE
than Life Insurance Corporation (Nepal). Though National Life Insurance Co.
is more consistent on ROE than Life Insurance Corporation (Nepal), both are
found highly inconsistent in terms of maintaining ROE.
f. Net profit to total premium collection: From above analysis, the average of
net profit to total premium collection ratio of National Life Insurance Co. is
more than that of Life Insurance Corporation (Nepal). The C.V. of National
Life Insurance Co. more than that of Life Insurance Corporation (Nepal). This
shows that National Life Insurance Co. is more consistent to maintain the net
profit to total premium collection ratio than Life Insurance Corporation
(Nepal). We can see that net profit to total premium collection ratio has
fluctuated greatly.
g. Return on Investment (ROI): From above analysis, it is found that National
Life Insurance Co. has greater average ROI than Life Insurance Corporation
(Nepal). Similarly, National Life Insurance Co. has less C.V. than Life
Insurance Corporation (Nepal). It seen that ROI of National Life Insurance
Co. is more fluctuating than Life Insurance Corporation (Nepal). This

32
 indicates that National Life Insurance Co. return on its investment made is
more than Life Insurance Corporation (Nepal).
h. Return on Insurance Fund (ROIF): From above analysis, it is seen that
average ROIF of National Life Insurance Co. is more than that of Life
Insurance Corporation (Nepal). The C.V. of National Life Insurance Co. is less
than that of Life Insurance Corporation (Nepal). It indicates that the ROIF of
National Life Insurance Co. is more consistent than Life Insurance
Corporation (Nepal). The S.D. of Life Insurance Corporation (Nepal) is less
than that of National Life. It shows that the ROIF of National Life is more
dispersed than that of Life Insurance Corporation (Nepal).
i. Liquidity: From above analysis, the average current ratio of National Life
Insurance Co. is more than that of Life Insurance Corporation (Nepal). This
shows that National Life Insurance Co. has more liquidity than Life Insurance
Corporation (Nepal). The S.D. of current ration of National Life Insurance Co.
is more than that of Life Insurance Corporation (Nepal). And the C.V. of Nepal
life is more than that of National Life Insurance Co. This shows the liquidity
position maintained by National Life Insurance Co. is more consistent than
that of Life Insurance Corporation (Nepal).
j. Leverage: From above analysis, the average current liabilities to total assets
ratio of Life Insurance Corporation (Nepal) is more than that of National Life
Insurance Co. It indicates that Life Insurance Corporation (Nepal) is more
leveraged than National Life Insurance Co. The C.V. of Life Insurance
Corporation (Nepal) is less than that of National Life Insurance Co. This
shows that Life Insurance Corporation (Nepal) is more consistent is
maintaining its leverage than National Life Insurance Co. It is observed that
leverage ratio of National Life Insurance Co. is declining whereas the leverage
ratio of Life Insurance Corporation (Nepal) has increased as well as decreased
over the period of 5 years.

33
 CHAPTER III

SUMMARY, CONCLUSION AND DISCUSSION

3.1 Conclusion

This study aimed at studying about the life insurance companies. For the purpose of
the study, two sample insurance companies i.e. Life Insurance Corporation (Nepal)
Ltd. and National Life Insurance Co. Ltd. Under this study, various financial and
statistical tools are used to analyze the financial parameters (ROA, ROE, etc.) and
financial performance of the sample life insurance companies. Based on the analysis
and findings, following conclusions are drawn.

It is found that profitability of National Life Insurance Co. is greater than that of
Nepal life in course of 5 years. The loss incurred by the Life Insurance Corporation
(Nepal) in year 2067/68 has led to decline in average net income for the whole period.
In terms of profitability, it is seen that National Life Insurance Co. has better financial
performance than Life Insurance Corporation (Nepal). But since the profitability of
Life Insurance Corporation (Nepal) is steadily increasing, it can be said that Life
Insurance Corporation (Nepal) has been improving its performance steadily.

34
Similarly, the total size of assets of both companies is continuously increasing. It
seems that both companies have expanded greatly in 5 years. Comparatively, Life
Insurance Corporation (Nepal) has expended in greater number than National Life
Insurance Co. though the net profitability of National Life Insurance Co. is higher.

Life Insurance Corporation (Nepal) has greatly improved its premium collection
status in 5 years. Similarly, the premium collection status of National Life Insurance
Co. has also increased but the rate of growth of premium collection of National Life
Insurance Co. is less than that of Life Insurance Corporation (Nepal). It can be said
that the premium collection pattern of National Life Insurance Co. is more consistent
than that of Life Insurance Corporation (Nepal). Consequently, the total premium
collection of Life Insurance Corporation (Nepal) is more than that of National Life
Insurance Co.

There is a positive relation of return on assets (ROA) with net profit and inverse
relation with total assets. Both companies have inconsistent ROA in 5 years due to the
inconsistent net profit and steady increase in total assets. Comparatively, the ROA of
National Life Insurance Co. is more than that of Life Insurance Corporation (Nepal)
due to the greater increase in assets and less profit of Life Insurance Corporation
(Nepal) than that of National Life Insurance Co. Life Insurance Corporation (Nepal)
has been more effective in utilization of assets to generate profit as comparison to
National Life Insurance Co.

While comparing the return on equity of both life insurance companies, the average
ROE of National Life Insurance Co. is greater than that of Life Insurance Corporation
(Nepal). This concludes that National Life Insurance Co. is more efficient while
utilizing equity. But Life Insurance Corporation (Nepal) is also improving its ROE.
From above analysis, it is seen that net profit contributes more to determination of
ROE as the equity of both companies are rising constantly. So the greater increase in
equity and less profit of Life Insurance Corporation (Nepal) has resulted in lower
ROE than that of National Life Insurance Co.

National Life Insurance Co. has greater net income to total premium ratio than Life
Insurance Corporation (Nepal). It implies that net income of National Life Insurance
Co. is more dependent on total premium collection than the interest or dividend
income. Similarly, Life Insurance Corporation (Nepal)’s net income also depends on

35
the total premium but not as much as National Life Insurance Co. In addition, the net
income to total premium ratio of National Life Insurance Co. have greater fluctuation
than Life Insurance Corporation (Nepal).

The return on investment of National Life Insurance Co. is greater than that of Life
Insurance Corporation (Nepal) has made more investment despite earning less profit
than National Life Insurance Co. Similarly, National Life Insurance Co. has earned
more profit despite having less investment than Life Insurance Corporation (Nepal).
So it can be said that net income of Life Insurance Corporation (Nepal) is constitute
of more investment return than National Life Insurance Co. during the period of 5
years.

The return on life insurance fund of National Life Insurance Co. is more than that of
Life Insurance Corporation (Nepal). National Life Insurance Co. has earning more net
income per insurance fund rupee than Life Insurance Corporation (Nepal). Life
Insurance Corporation (Nepal) has maintained more life insurance fund from its
income than National Life Insurance Co. During 5 years, the return on life insurance
of both companies have fluctuated but not to great extent.

National Life Insurance Co. has higher liquidity than Nepal life. In period of 5 years,
National Life Insurance Co. has consistently maintained high liquidity. But the
liquidity position of Life Insurance Corporation (Nepal) is weak as it has maintained
low liquidity over the period of 5 years.

Comparatively, Life Insurance Corporation (Nepal) is highly leveraged than National

Life Insurance Co. Over the period of 5 years, National Life Insurance Co. has low
leverage than Life Insurance Corporation (Nepal). This shows that Life Insurance
Corporation (Nepal) has more capacity to meet its obligation than National Life
Insurance Co.

By studying the different financial parameters mentioned above, it can be concluded

that National Life Insurance Co. financial performance is consistently increasing in
steady pace. It is expected to form in same pace in the coming years. In contrast, Life
Insurance Corporation (Nepal)’s financial performance has improved greatly over the
period of 5 years. It has expanded greatly and will continue to expand at great pace.

36
Life Insurance Corporation (Nepal) performance has shown aggressive nature which
may in turn lead to greater value of the firm.

3.2 Action Implication

Life insurance companies have grown significantly in the past years. It due to
increasing opportunities created in this industry. The above data acts as the proof as it
shows that both sample life insurance companies have grown greatly in 5 years.

 Presently, the insurance companies have concentrated in urban areas only. In

order to fully obtain new opportunities, the life insurance companies should
tap into the rural areas of the country where most of the population of our
country is located. This will also facilitate the transfer of fund in the rural
areas where investments are widely needed.
 The insurance companies should increase their portfolio investment to prevent
from risks.
 ROA is found unsatisfactory. So, insurance companies should improve earning
of the company by utilizing the ideal assets in profitable portfolio.
 Beside the current different life insurance policy, life insurance companies
should develop new and attractive policy so that it would increase their
customers.

37
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Dangol, R.M. and Prajapati, K.P. (2057 B.S.), Accounting for Financial Analysis and
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Panday, I.M. (2000), Financial Management, New Delhi: Vikas Publishing House
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Pradhan, U. (2009), Investment & Liquidity management of insurance companies in
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Official Publication

National Life Insurance Company Limited, (FY 2067/68- FY 2071/72), “Annual

report”, Kathmandu, National Life Insurance Company Limited,

Nepal Life Insurance Company Limited, (FY 2067/68- FY 2071/72), “Annual report”,
Kathmandu, Nepal Life Insurance Company Limited,

Websites

http://www.nationallife.com.np/

http://nepallife.com.np/

http://oneclicknepal.com/list-of-all-insurance-companies-in-nepal-with-
telephone-number

https://en.wikipedia.org/wiki/Insurance
 ANNEX

Annex I: Return on Assets of National Life Insurance Co. Ltd. ( in %)

Fiscal Year National Life

Net Income Total assets ROA
2067/68 112,068,139 6,294,051,845 1.78
2068/69 96,329,518 7,686,335,471 1.25
2069/70 442,759,478 9,130,747,866 4.85
2070/71 252,514,776 11,099,944,639 2.27
2071/72 263,707,686 13,385,034,833 1.97
Source: annual reports of selected companies

Annex II: Return on Assets of Life Insurance Corporation (Nepal) Ltd. ( in %)

Fiscal Year LIC Nepal

Net Income Total assets ROA
2067/68 -25,128,308 6,901,468,641 -0.364
2068/69 171,774,428 9,314,919,122 1.844
2069/70 277,346,216 12,453,124,362 2.227
2070/71 194,829,700 16,526,611,102 1.179
2071/72 249,042,175 21,507,537,088 1.158
Source: annual reports of selected companies

Annex III: Return on Equity of National Life Insurance Co. Ltd. ( in %)

Fiscal Year National Life

Net Income Total equity ROE
 2067/68 112,068,139 417,665,035 26.83
2068/69 96,329,518 508,787,574 18.93
2069/70 442,759,478 863,813,077 51.26
2070/71 252,514,776 1,217,516,583 20.74
2071/72 263,707,686 1,465,132,808 18.00
Source: annual reports of selected companies

Annex IV: Return on Equity of Life Insurance Corporation (Nepal) Ltd. ( in %)

Fiscal Year LIC Nepal

Net Income Total equity ROE
2067/68 -25,128,308 244,959,644 -10.258
2068/69 171,774,428 408,576,178 42.042
2069/70 277,346,216 673,877,306 41.157
2070/71 194,829,700 989,534,159 19.689
2071/72 249,042,175 1,202,172,320 20.716
Source: annual reports of selected companies

Annex V: Net Income to total premium collection of National Life Insurance Co. Ltd. ( in
%)

Fiscal Year National Life

Net Income to total
Net Income Total premium collection premium
2067/68 112,068,139 1,606,705,932 6.98
2068/69 96,329,518 2,181,992,836 4.41
2069/70 442,759,478 2,273,109,583 19.48
2070/71 252,514,776 3,677,262,954 6.87
2071/72 263,707,686 3,171,475,944 8.31
Source: annual reports of selected companies

Annex VI: Net Income to total premium collection of Life Insurance Corporation (Nepal)
Ltd. ( in %)

Fiscal Year LIC Nepal

Total premium
Net Income collection Net Income to total premium
2067/68 -25,128,308 1,875,622,036 -1.340
2068/69 171,774,428 2,537,646,938 6.769
2069/70 277,346,216 3,168,604,126 8.753
2070/71 194,829,700 4,154,512,503 4.690
2071/72 249,042,175 5,416,137,435 4.598
Source: annual reports of selected companies

Annex VII: Return on Investment of National Life Insurance Co. Ltd. ( in %)

Fiscal Year National Life

Net Income Total investment ROI
2067/68 112,068,139 2,001,848,909 5.60
2068/69 96,329,518 4,427,080,541 2.18
2069/70 442,759,478 4,605,022,873 9.61
2070/71 252,514,776 7,674,219,775 3.29
2071/72 263,707,686 9,179,068,008 2.87
Source: annual reports of selected companies

Annex VIII: Return on Investment of Life Insurance Corporation (Nepal) Ltd.

( in %)

Fiscal Year LIC Nepal

Net Income Total investment ROI
2067/68 -25,128,308 6,283,114,544 -0.400
2068/69 171,774,428 8,103,358,364 2.120
2069/70 277,346,216 10,703,688,970 2.591
2070/71 194,829,700 13,637,658,034 1.429
2071/72 249,042,175 17,933,688,253 1.389
Source: annual reports of selected companies

Annex IX: Return on Insurance Fund of National Life Insurance Co. Ltd. ( in
%)

Fiscal Year National Life

Net Income Life Insurance Fund ROIF
2067/68 112,068,139 5,876,386,810 1.91
2068/69 96,329,518 7,177,547,897 1.34
2069/70 442,759,478 8,266,934,789 5.36
2070/71 252,514,776 9,882,428,056 2.56
2071/72 263,707,686 11,919,902,025 2.21
Source: annual reports of selected companies

Annex X: Return on Insurance Fund of Life Insurance Corporation (Nepal) Ltd.

( in %)

Fiscal Year LIC Nepal

Net Income Life Insurance Fund ROIF
2067/68 -25,128,308 6,651,468,641 -0.378
2068/69 171,774,428 8,906,342,944 1.929
2069/70 277,346,216 11,775,627,360 2.355
2070/71 194,829,700 15,505,209,419 1.257
2071/72 249,042,175 20,483,506,322 1.216
Source: annual reports of selected companies

Annex XI: Current liabilities to total assets ratio of National Life Insurance Co.
Ltd. ( in %)

Fiscal Year National Life

Current Current liabilities to total assets
liabilities Total assets ratio
2067/68 239,045,666 6,294,051,845 3.80
2068/69 228,253,761 7,686,335,471 2.97
2069/70 150,207,563 9,130,747,866 1.65
2070/71 179,734,259 11,099,944,639 1.62
2071/72 286,280,982 13,385,034,833 2.14
Source: annual reports of selected companies
Annex XII: Current liabilities to total assets ratio of Life Insurance Corporation
(Nepal) Ltd. ( in %)

Fiscal Year LIC Nepal

Current Current liabilities to total assets
liabilities Total assets ratio
2067/68 428,654,955 6,901,468,641 6.211
2068/69 631,190,237 9,314,919,122 6.776
2069/70 982,439,325 12,453,124,362 7.889
2070/71 635,044,094 16,526,611,102 3.843
2071/72 935,797,994 21,507,537,088 4.351
Source: annual reports of selected companies

Annex XIII: Current Ratio of National Life Insurance Co. Ltd. ( in %)

Fiscal Year National Life

Current assets Current liabilities Current Ratio
2067/68 2,501,797,819 239,045,666 10.47
2068/69 5,069,335,471 228,253,761 22.21
2069/70 5,227,532,976 150,207,563 34.80
2070/71 8,322,977,153 179,734,259 46.31
2071/72 10,067,204,787 286,280,982 35.17
Source: annual reports of selected companies
Annex XIV: Current Ratio of Life Insurance Corporation (Nepal) Ltd. ( in %)

Fiscal Year LIC Nepal

Current assets Current liabilities Current Ratio
2067/68 1,359,732,030 428,654,955 3.172
2068/69 1,736,153,614 631,190,237 2.751
2069/70 4,652,947,896 982,439,325 4.736
2070/71 8,613,546,343 635,044,094 13.564
2071/72 14,939,930,379 935,797,994 15.965
Source: annual reports of selected companies

Annex XV: Net profit of Selected Life Insurance companies

Net Profit/Income (in Rs.)
Fiscal Year National Life LIC Nepal
2067/68 112,068,139 -25,128,308
2068/69 96,329,518 171,774,428
2069/70 442,759,478 277,346,216
2070/71 252,514,776 194,829,700
2071/72 263,707,686 249,042,175
Source: annual reports of selected companies

Annex XVI: Total Assets of Selected Life Insurance companies

Total Assets (in Rs.)

Fiscal Year National Life LIC Nepal
2067/68 6,294,051,845 6,901,468,641
2068/69 7,686,335,471 9,314,919,122
2069/70 9,130,747,866 12,453,124,362
2070/71 11,099,944,639 16,526,611,102
2071/72 13,385,034,833 21,507,537,088
Source: annual reports of selected companies

Annex XVII: Total Assets of Selected Life Insurance companies

Total premiun collection (in Rs.)

Fiscal Year National Life LIC Nepal
2067/68 1,606,705,932 1,875,622,036
2068/69 2,181,992,836 2,537,646,938
2069/70 2,273,109,583 3,168,604,126
2070/71 3,677,262,954 4,154,512,503
2071/72 3,171,475,944 5,416,137,435
Source: annual reports of selected companies