1.INTRODUCTION:

In order to carry out the assignment, certain approaches and methodologies are required to be followed. The following approaches were followed in conducting this term paper.

1.1 Origin of the Report:

The report is a partial requirement of the course Risk Management & Insurance (FIN 410). That is why our honorable instructor assigned us to do a term paper on Reliance Insurance Company Limited. The report is conducted based on the financial statement and the website of the company. This report is a reflection of what we have learned in between the course.

1.2 Objective and the Scope of the Report:

The report was prepared as a part of our course work. The basic objectives of preparing this report are: * Analyze the financial statement of the insurance company and calculate different ratios. * Different policy the company offers. * Overall structure of the company.
1.3 Methodology of the Report:

The term paper was based on different numeric values collected from the financial statement of the company and plotting them in different equations, also some information regarding the company was collected from the company’s website
1.4 Sources of Data:

All the data and the information which was required to complete the term paper have been collected from the financial statements and the website of Reliance Insurance Company Ltd. That means, only secondary sources of data was used to complete the term paper, no primary source was used.

1.6 Limitations of the study:

Of course this term paper is not flawless and we had several limitations. The limitations of the study are given below.

* Time shortage was one of the major limitations. * Coordination among the group members was another problem. * Collecting information from the annual report was little bit difficult because we do not have that much practical experience.

2.0 COMPANY PROFILE
Reliance Insurance Company Limited:
Following emergence of Bangladesh as an independent nation in 1971, insurance industry was nationalized along with banking and major industrial sectors of jute, textile, sugar and other heavy industries. Under the nationalized scheme, only two corporations in the name and style of Sadharan Bima Corporation (General Insurance Corporation) and Jiban Bima Corporation (Life Assurance Corporation) were set up by the Government for carrying on general and life insurance business respectively. Starting with gradual liberalization of investment in industry and commerce, insurance business was also allowed in the private sector From 1985. As a result, a number of companies were set up. RELIANCE INSURANCE LIMITED was the fourteenth in line to start general insurance business in the private sector.

The Company was incorporated on 20th March 1988 and was allowed to commence business by virtue of the Certificate of Commencement of Business issued by the Registrar of Joint Stock Companies on 22nd March 1988. The Company obtained Certificate of Registration issued by the Controller of Insurance on 7th April 1988.The company was subsequently listed in the stock Exchanges of Bangladesh in 1995.

2.1 Company’s Vision
The vision of the company is to become the premier insurance organization and the insurer of first choice in Bangladesh with a sound reputation for dependability, professionalism and the highest standard of customer services.

2.2 Company’s Mission Grow significantly and achieve significant non-life insurance market share. | Continue delivering attractive returns to our shareholders. | Become a caring organization and employer of choice. | Invest in top quality human resources and develop full potentials of employers by providing continued training and insurance education. | Bring innovation in insurance products and selling techniques. |
2.3 Company’s Strength
Constant pursuit of suitable strategies has made the company the leading insurer of Bangladesh for over two decades.
2.4 Company’s Belief
We believe that client must stand at the center of our all activities. We have the ability to optimally fulfill the clients needs based on risk management with minimum cost and personalized services

2.5 Company’s Core Values

3.0 PRODUCT AND SERVICES

Product | Fire Insurances | Fire Insurance (including Allied Perils) | Industrial All Risks (IAR) | Property Damage All Risks (PDAR) | Marine Cargo Insurances | Marine Cargo Insurance transit by Steamer or Powered Vessel | Marine Cargo Insurance transit by Rail/Lorry/Truck | Marine Cargo Insurance transit by Inland Rail or Road | Marine Cargo Insurance transit by Inland Cargoes (water borne) | Marine Cargo Insurance transit by Air Cargo | Marine Hull Insurance | Total Loss Only (TLO) | Institute and Inland Time Clauses Hull (ITC) | Engineering Insurances | Machinery Insurance (Machinery Breakdown) | Deterioration of Stock (DOS) | Boiler and Pressure Vessel (BPV) | Electronic Equipment Insurance (EEI) | Erection All Risks (EAR) | Contractor’s All Risks (CAR) | Work Plant (WP) | Oil & Gas Well Drilling Equipment Package (OGD) | Contractors Plan & Machinery (CPM) | Hotel Owners All Risks (HOAR) | Motor Insurances | Motor Insurances for Motor Cycle/ Scooter | Motor Insurances for Private Vehicle | Motor Insurances for Commercial Vehicle | Miscellaneous | Burglary | Cash in Safe | Cash in Transit | Cash on Counter | Cash in Premises | Fidelity Guarantee | All Risks | Personal Accident | Personal Accident (air Travel) | Product Liability (PRL) | Public Liability (PL) | Workmen’s Compensation | Employers Liability | Marine Terminal Operators Liability (MTOL) | Commercial General Liability (CGL) | Comprehensive General Liability | Hole in One Insurance/Event Cover | Business Interruption | Overseas Medical and Holiday Insurance including Study and Employment | Health Plan Scheme ( Hospitalization) | Critical Illness |

4.0 FINANCIAL STATEMENT ANALYSIS

4.1 Liquidity Ratio

Current Ratio (2007): Current Assets Current Liabilities = 1,576,449,716 1,058,590,000 = 1.49
Current Ratio (2008): Current Assets Current Liabilities =1,374,433,224 1,057,290,000 = 1.29
Current Ratio (2009): Current Assets Current Liabilities = 787,583,346 899,020,000 = 0.87
Current Ratio (2010): Current Assets Current Liabilities =626,111,239 758,410,000

= 0.83
Current Ratio (2011): Current Assets Current Liabilities =488,528,852 606,350,000 = 0.8065

Interpretation:
This ratio shows company’s ability to pay off its current liability out of current asset. From the above calculation we can summarize that, in year 2011 the company is now less capable of payout its debt from its current assets than of 2010,2009,2008 & 2007. But it also indicates that the company is now more efficiently using its resources than of keeping it idle as in 2010,2009,2008 & 2007.

4.2 Underwriting Ratios

Loss Ratio:
Loss Ratio (2007): Loss Adjustments Premiums Earned = 85,600,000 353,660,000 = 24.20%
Loss Ratio (2008): Loss Adjustments Premiums Earned = 103,680,000 453,200,000 = 22.88%
Loss Ratio (2009): Loss Adjustments Premiums Earned = 105,090,000 430,250,000 = 24.43%
Loss Ratio (2010): Loss Adjustments Premiums Earned = 137,680,000 618,070,000

= 22.28
Loss Ratio (2011): Loss Adjustments Premiums Earned = 152,040,000 731,400,000 = 20.79%

Interpretation:
The loss ratio shows what percentage of payouts is being settled with recipients. That means out of the collected premium, what is the percentage of claim paid out by company. The lower the ration is better for the company. From the above scenario we can summarize that, the company have successfully implemented new or managed to overcome lacking of its risk management policies to guard against future possible insurance payouts.

Expense Ratio:
Expense Ratio (2007): Underwriting Expenses Net Premiums Earned = 18,295,857 353,660,000

= 5.17%

Expense Ratio (2008): Underwriting Expenses Net Premiums Earned
= 19,552,407 453,200,000

= 4.31%

Expense Ratio (2009): Underwriting Expenses Net Premiums Earned
= 25,416,229 430,250,000

= 5.90%

Expense Ratio (2010): Underwriting Expenses Net Premiums Earned
= 27,447,895 618,070,000

= 4.44%

Expense Ratio (2011): Underwriting Expenses Net Premiums Earned = 49,199,860 731,400,000

= 6.73%

Interpretation:
Underwriting expenses are the costs of obtaining new policies from insurance carriers. There lower the expenses ratio the better because it means more profits to the insurance company. In 2008 & 2010 company was in better condition. In 2011 this ratio was higher than its previous year.

Combined Loss/Expense Ratio:
Combined Loss/Expense Ratio (2007): Loss Ratio + Expense Ratio
= 24.20%+5.17% = 29.37%
Combined Loss/Expense Ratio (2008): Loss Ratio + Expense Ratio
= 22.88%+4.31%

= 27.19%
Combined Loss/Expense Ratio (2009): Loss Ratio + Expense Ratio
= 24.43%+5.90%

= 30.33%
Combined Loss/Expense Ratio (2010): Loss Ratio + Expense Ratio
= 22.28%+4.44%

= 26.72%
Combined Loss/Expense Ratio (2011): Loss Ratio + Expense Ratio
= 20.79%+6.73%

= 27.57%

Interpretation:
This figure just measures claims losses and operating expenses against premium earned. The lower the figure the better. The combined ratio is the total of estimated claims expenses for a period plus overhead expressed as a percentage of earned premium.

Ratio of Net Written Premiums to Policyholder Surplus:

Ratio of Net Written Premiums to Policyholder Surplus (2007): Premium Surplus = 353,660,000 (1,205,615,527-35,598,723) = 30.23%
Ratio of Net Written Premiums to Policyholder Surplus (2008): Premium Surplus = 453,200,000 (1,467,927,934-482,356,463) =45.98%
Ratio of Net Written Premiums to Policyholder Surplus (2009): Premium Surplus = 430,250,000 (1,880,297,822-617,984,271) = 34.08%

Ratio of Net Written Premiums to Policyholder Surplus (2010): Premium Surplus = 618,070,000 (4,605,927,373-1,092,859,573)

= 17.59% Ratio of Net Written Premiums to Policyholder Surplus (2011): Premium Surplus = 73,140,000(453,084,514-1,103,320,130) = 15.92%

Interpretation:
This ratio measures the level of capital surplus necessary to write premiums. An insurance company must have an asset heavy balance sheet to pay out claims. Industry statuary surplus is the amount by which assets exceed liabilities.
In 2007 the company had 30.23%, in 2008 it was 45.98%,in 2009 it was 34.08%, in 2010 it was 34.69% premium among its surplus and in 2011 the percentage was 15.2%

4.3 Profitability Ratios

Return on Revenues:

Return on Revenues (2007): Net Operating Income Total Revenues = 100,680,000 353,660,000 = 28.47%
Return on Revenues (2008): Net Operating Income Total Revenues = 137,910,000 453,200,000 = 30.43%
Return on Revenues (2009): Net Operating Income Total Revenues = 146,300,000 430,250,000 = 34%
Return on Revenues (2010): Net Operating Income Total Revenues = 287,230,000 618,070,000 = 46.47%
Return on Revenues (2011): Net Operating Income Total Revenues = 304,970,000 731,400,000 = 41.70%

Interpretation:
This ratio indicates, what is the percentage of net operating income out of the total revenue. The higher the ratio better for the organization. From the above situation we can summarize that, from 2007-2010 the company able to manage expenses out of the total revenue that is the reason why company’s net operating income increases in comparison to the total revenue but in 2011 it drops down than 2010.

Return on Assets:
Return on Assets (2007): Net Operating Income Mean Average Assets = 100,680,000 1,205,615,527 = 8.35%
Return on Assets (2008): Net Operating Income Mean Average Assets = 137,910,000 1,467,927,934 = 9.39%
Return on Assets (2009): Net Operating Income Mean Average Assets = 146,300,000 1,880,297,822 = 7.78%
Return on Assets (2010): Net Operating Income Mean Average Assets = 287,230,000 4,605,927,373 = 6.24%
Return on Assets (2011): Net Operating Income Mean Average Assets = 304,970,0004,530,842,514 = 6.73%

Interpretation:
This ratio calculates the return on assets by dividing net operating income by mean average assets. This figure shows the profitability on existing investment securities and premiums. The higher the return on assets the better the company is enhancing its returns on existing liquid assets.
From the above situation, we can summarize that, from 2007 to 2010, the company’s earning of income got lower in percentage. Meaning that, now company is earning lesser using its per unit of existing asset compared to the previous year. In 2011 it gets slightly higher than 2010, but it was better than the other years.

Return on Equity:
Return on Equity (2007): Net Operating Income (less preferred stock dividends) Average Common Equity = 100,680,000 580,260,000 = 17.35%
Return on Equity (2008): Net Operating Income (less preferred stock dividends) Average Common Equity = 137,910,000 688,200,000 = 20%
Return on Equity (2009): Net Operating Income (less preferred stock dividends) Average Common Equity = 146,300,000 952,440,000 = 15.36%
Return on Equity (2010): Net Operating Income (less preferred stock dividends) Average Common Equity = 287,230,000 3,513,070,000 = 8.18%
Return on Equity (2011): Net Operating Income (less preferred stock dividends) Average Common Equity = 3,049,700,00342,745,200 = 8.90%

Interpretation:
This ratio shows the net profits that are returned to shareholders. The higher the return on equity the more profitable the company has become and the possibility of enhanced dividends to shareholders.
From the above scenario we can conclude that, from 2007 to 2011 the company has earned less return on equity, so it is not bearing any positive information among the shareholders. Resulting in tension in share market due to selling tendency of company’s share and fall in share price.

Investment Yield:

Investment Yield (2007): Average investment Assets Net Investment Income = 169,522,028 42,420,000 = 4
Investment Yield (2008): Average investment Assets Net Investment Income = 198,536,151 61,140,000 = 3.247
Investment Yield (2009): Average investment Assets Net Investment Income = 190,526,148 114,940,000 = 1.658
Investment Yield (2010): Average investment Assets Net Investment Income = 2,673,343,053153,680,000 = 17.40
Investment Yield (2011): Average investment Assets Net Investment Income = 1,539,704,997159,910,000 = 9.62

Interpretation:
This is the return received on an insurance company’s assets. The investment yield is obtained by dividing the average investment assets into the net investment income before income taxes.
Meaning that, what is the percentage of return earned by the insurance company out of its net investment.
From the above situation we can conclude that, in 2010 this ratio was highest Which is beneficial for the company, as the company was earning more return out of its net investment.

4.4 Leverage Ratio

Debt Ratio (2007): Total Liabilities Total Assets = 355,987,2331,205,615,527 = 29.53%
Debt Ratio (2008): Total Liabilities Total Assets = 482,356,463 1,467,927,934 = 32.86%
Debt Ratio (2009): Total Liabilities Total Assets = 617,984,271 1,880,297,822 = 32.87%

Debt Ratio (2010): Total Liabilities Total Assets = 690,901,872 4,605,927,373 = 15.00%
Debt Ratio (2011): Total Liabilities Total Assets =608,243,491 4,530,842,514 = 13.42%

Interpretation:
This ratio shows, what is the percentage the company is having of its total liability in comparison to its total assets. That means, the lower the ratio the less liable is the company against of its asset. From the above scenario, in 2011 the company is getting a lower portion of debt ratio, which is definitely wise for the company. And it will also can be a reason of shareholders satisfaction and increase in the share price in the stock market.

4.5 Market Ratio
Price Earnings Ratio (2007): Market Price per Share EPS =32.20 4.43 =7.27

Price Earnings Ratio (2008): Market Price per Share EPS
=88.73 6.00 =14.79
Price Earnings Ratio (2009): Market Price per Share EPS
=133.9 5.12 =26.15
Price Earnings Ratio (2010): Market Price per Share EPS
=173.80 7.15 =24.31
Price Earnings Ratio (2011): Market Price per Share EPS =102.10 5.37 =19.01
Interpretation:
P/E ratio measures the willingness of the investors to purchase the share.
In 2007 investors were willing to spend Tk. 7.27 for each Taka of earning for the company share.
In 2008 investors were willing to spend Tk. 14.79 for each Taka of earning for the company share.
In 2009 investors were willing to spend Tk. 26.15 for each Taka of earning for the company share.
In 2010 investors were willing to spend Tk. 24.31 for each Taka of earning for the company share.
In 2011 investors were willing to spend Tk. 19.01 for each Taka of earning for the company share.

Market /Book Value of Equity:
Market /Book Value of Equity (2007): Market Price per Share Book Value per Share = 32.20 386.84 = 0.08
Market /Book Value of Equity (2008): Market Price per Share Book Value per Share = 88.73 382.62 = 0.23
Market /Book Value of Equity (2009): Market Price per Share Book Value per Share = 133.9407.03 = 0.33
Market /Book Value of Equity (2010): Market Price per Share Book Value per Share = 173.80 384.64 = 4.52
Market /Book Value of Equity (2011): Market Price per Share Book Value per Share = 102.10 83.46 = 1.22

Interpretation:
It indicates in each Taka of market price of a share, how much is contributed by the equity holders. In 2007 it was Tk. 0.08, in 2008 it was Tk. 0.23, in 2009 it was Tk. 0.33, in 2010 it was Tk. 4.52 and in 2011 it was Tk. 1.22.

5.0 CONCLUSION
From the ratio analysis it is visible that Reliance Insurance Company is consequently a profitable company, but after 2010 profit has little bit decreased because of the downward trend in the economy. The company offers a diversified policy, for the corporate clients and the individuals. The company runs their business through several functional units.

6.0 REFERANCE
1. Annual report of the company
2. http://www.reliance.com.bd