Internship Report-FBS, DU (HMT)

INTERNSHIP REPORT

FUND MANAGEMENT OF GREEN DELTA INSURANCE COMPANY

LIMITED: AN EVALUATION

Submitted to the Department of Banking and Insurance,

University of Dhaka as a partial requirement of BBA Program of

2011

ii

GUIDE TEACHER

Professor Md. Abu Taleb

Department of Banking and Insurance

Faculty of Business Studies (FBS), University of Dhaka

SUBMITTED BY

Hasan Mohammad Tareq

ID.: 17-051

BBA Program, 17th Batch



19TH

MARCH, 2015

ii

LETTER OF TRANSMITTAL

19th March, 2015

Professor Md. Abu Taleb

Guide Teacher

Internship Program of Bachelor of Business Administration



Subject: Request for accepting the internship report

Dear Sir,

This is a great pleasure to inform you that I have prepared the report on “Fund Management of

Green Delta Insurance Company Limited: An Evaluation” as a part of my Internship under BBA

Program. Preparation of the report gave me an opportunity to know about every pros and cons of a

non-life insurance company in Bangladesh – what they do, how they do, why they do, what are called

„funds‟ in a non-life insurance company, how they are managed and finally what are the problems that

may lie in fund management. I tried the utmost I was capable of preparing this report and hope it will

satisfy your desire.

With due respect I request you to excuse for any mistake of mine that may exist in this report despite

my best effort and to view them with your generous consideration.

Sincerely Yours

………………………………………….


ID.: 17-051




iii

SUPERVISOR’S CERTIFICATE

This is to certify that the internship report on “Fund Management of Green Delta Insurance

Company Limited: An Evaluation” in the bona fide record at the report is done by Hasan

Mohammd Tareq, ID: 17-051, 17th batch, BBA program as a partial fulfillment of the requirement of

Bachelor of Business Administration (BBA) degree from the Department of Banking and Insurance,

University of Dhaka.

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

successfully.

……………………………………………

Signature of the Supervisor

iv

DECLARATION

I, hereby, declare that this report entitled as “Fund Management of Green Delta Insurance

Company Limited: An Evaluation” is an original of work mine and it has been prepared under the

guidance of Professor Md. Abu Taleb, the Guide teacher of my internship program as a requirement

for completion of my Bachelor of Business Administration (BBA) degree from Department of

Banking and Insurance, Faculty of Business Studies (FBS), University of Dhaka.

This report is prepared solely for Department of Banking and Insurance, Faculty of Business Studies

(FBS), University of Dhaka. This report neither fully nor partially has ever been submitted for any

other Certificate/Degree/Diploma or Qualification to any other University/College/Institution or

Organization.

………………………………………….


ID.: 17-051




v

ACKNOWLEDGEMENT

At the very outset, I would like to express my deepest gratitude to Almighty Allah Subhan Wa Ta‟ala

for giving me the opportunity to join at Green Delta Insurance Company Limited and for giving me

strength and patience to finish the report within the scheduled time.

From the core of my heart, I would like to thank my respectful guide teacher of my internship

program Professor Md. Abu Taleb, Department of Banking and Insurance, Faculty of Business

Studies (FBS), University of Dhaka, who helped me in every steps of my internship.

I am really grateful to the HRD of Green Delta Insurance Company Limited for choosing me as an

intern at their Head Office out of the eight candidates.

My gratitude then goes to Md. T.H Forhad (Senior Executive Director), Kabir Ahmed Chowdhury

(in-charge, Principal Branch Department), Papia Rahman ACII (Executive Director, Underwriting

Management Department) for helping me a lot by providing information I needed. My special thanks

goes Ali Tareque Parvez (First Assistant Vice President, Underwriting Management Department) who

helped me a lot at my work place by answering any question that I had asked him and by providing

any pieces of information that had wanted from him. I would also like to give my special thanks to

Chinmoy Chakrabarty (First Senior Vice President, Finance and Accounts Department) who helped

me a lot at the eleventh hour. I thank Maksura Siddiqa from whom I have gathered some hands-on

experience. Everybody mentioned here helped me amass the requisite information for the preparation

of the report.

I hope that the dynamic managerial and supervisory skills of the personnel will give inspiration to

anybody to build his/her career at Green Delta Insurance Company Limited.

With the help of all the above-mentioned helping hands it has been possible for me to make the report

ready. I have learned a lot of things in the course of preparing this report.

vi

EXECUTIVE SUMMARY

The objectives of the report are to be familiar with fund management and its environment of

the company, to identify the weakness in managing funds efficiently and to provide some suggestions

in order to solve the problems that lie in fund management of the company.

In order to prepare the report, I had to work at the Head Office of Green Delta Insurance

Company Limited as an intern for the past two months. Despite the topic being “Fund Management”,

I was assigned to Underwriting Management Department (UMD) by the HRD of GDICL. I worked

five days in a week under the guidance of the First Assistant Vice President of UMD. I took

everything in my notebook that I was learning from my work on daily basis thinking that it would

help me prepare my report better. Besides this, I depended on the annual reports of past years and the

journals of GDICL for collecting data.

It has been found from my study that the main source of funds of GDICL is the premiums

collected from all the four departments: Fire, Motor, Marine and Miscellaneous. Premiums are

collected on cash basis. The Finance and Accounts department prepares budget in per month for the

following month. The budget is approved by the board and no department can receive cash without

the prior approval of the board. There is no regulation like SLR from IDRA for the insurance

companies in Bangladesh but GDICL keeps 10% reserve on net premiums. There is no particular

model that the company follows for cash management and temporary investment. Rather, the

company depends on market opportunities.

Most of funds of GDICL are invested in quoted shares, followed by FDR and Unquoted

Shares. It has also been found that most of the funds are invested for short term and after that, for long

term. The interest income of GDICL ranks first among all types of investment income, followed by

dividend, profit from sale of shares and other income. In short, though funds are heavily invested in

shares, the top invested income is interest income.

It is suggested that GDICL look forward more to exploit the opportunities for arranging short

term debt financing for different firms and institutions, along with equity financing.

I worked on only the past five years‟ of Data for analysis. The number of the samples is too

few to make my research a rich one. If the size of samples could be increased, then the results would

replicate almost that of the population. Also, the work of my research is on the fund management of a

particular non-life insurance company. Fund management of other non-life/life insurance company

may not be exactly same with this company.

vii

TABLE OF CONTENTS

Titles Page

List of Abbreviations………………………………………………... x

Chapter - 1 Introduction

1.1. Origin of the report…………………………………………… 1

1.2. Objective of the report……………………………………… 1

1.3. Methodology…………………………………………………. 1

1.4. Scope of the study…………………………………………… 2

1.5. Rationale of the study……………………………………….. 2

1.6. Limitations……………………………………………………. 2

Chapter - 2 Company Overview

2.1. GDICL at a Glance…………………………………………….. 4

2.2. Products and Services…………………………………………. 4-6

2.2.1. Corporate…………………………………………… 4

2.2.2. Financial……………………………………………. 5

2.2.3. Retail and SME…………………………………….. 5

2.2.4. Conventional………………………………………... 5

2.2.5. Investment & Portfolio Management………………. 6

2.2.6. Innovation………………………………………….. 6

2.3. Key Financial Variables……………………………………… 7

Chapter – 3 Fund Management System of the Company

3.1. Source of Cash………………………………………………… 11

3.2. Responsible Unit for Fund Management……………………… 11

3.3. Cash Forecast and Desired Cash Balance……………………... 11

3.4. The Cash Reserve System from Premiums…………………… 12

3.5. Models for the Management of Cash………………………….. 12

3.6. Cash Collection and Disbursement Process at a Glance………. 13-14

3.6.1. The Collection Process……………………………… 13

3.6.2. The Disbursement Process………………………….. 13

Chapter - 4 Analysis and Interpretation

4.1. Analysis of the Sources of Cash………………………………. 15

4.2. Analysis of Investment Portfolio………………………………. 16-18

4.2.1. Items of Investment…………………………………. 16

4.2.2. Detailed Amount of Funds Invested…...…………… 17

4.2.3. Maturity Wise Distribution of Investment………….. 18

4.3. Analysis of the Return on Funds Invested………..…………… 19

4.4. The Coefficient of correlation (R) and the Coefficient of

determination (R2)…………………………………………………..

19

4.5. Interpretation………………………………………………...… 20

Chapter - 5 Findings

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

viii

5.1.1. Findings from Fund Management System…………. 21

5.1.2. Findings from Investment Portfolio………………… 21

5.1.3. Challenges While Managing Funds………………… 21

5.1.4. Problems Faced to Manage Funds………………….. 22

Chapter – 6 Suggestion and Conclusion

6.1. Suggestions………………………………………………........ 23

6.2. Concluding Remarks……………………………………………. 23

References 24

Appendices 25

ix

LIST OF CHARTS AND TABLES

PARTICULARS Page

No. CHARTS

Chart 1 Invested Assets and Sector Wise Invested Assets of GDICL……… 8

Chart 2 EPS of GDICL……………………………………………………… 8

Chart 3 Gross Premium of GDICL…………………………………………. 9

Chart 4 Earning After Tax of GDICL…………………………………….… 9

Chart 5 Gross Premium of GDICL…………………………………………. 9

Chart 6 Total Assets of GDICL……………………………………………... 10

Chart 7 Equity of GDICL…………………………………………………… 10

Chart 8 Proportion of Premiums from 2011-2013 15

Chart 9 Amount of Investment of GDICL from CY 2009-2013……………. 17

Chart 10 Share (%) of Investment of GDICL………………………………... 18

Chart 11 Income from Investment of GDICL from CY 2011-2013…………. 19

No. TABLES

Table 1 GDICL at a Glance……………….………………………………… 4

Table 2 Key Financial Variables of GDICL……………………………….. 7

Table 3 Simple Model for Monthly Budget………………………………… 11

Table 4 Net Premiums of GDICL from 2011-2013………………………… 15

Table 5 Securities/Assets Purchased by GDICL….………………………… 16

Table 6 Detailed Amounts of Funds Invested………………………………. 17

Table 7 Maturity Wise distribution of investment………………………... 18

Table 8 Variables for Correlation (R) and The Coefficient of Determination

(R2)………………………………………………………………….

20

Table 9 Result from SPSS…………………………………………………... 20

No. FIGURES

Figure 1 Cash Collection and Disbursement Process of GDICL…………….. 14

x

LIST OF ABBREVIATIONS

BD Bangladesh

CY Calendar Year

GDICL Green Delta Insurance Company Limited

IDRA Insurance Development & Regulatory Authority Bangladesh

UMD Underwriting Management Department

EBIT Earnings Before Interests and Taxes

EAT Earnings After Taxes

CHAPTER - 1

INTRODUCTION

CHAPTER CONTENTS

ORIGIN OF THE R EPOR T

OBJECTIVE S OF THE R EPOR T

METHODO LOGY

SC O P E O F TH E S T U DY

RATIO NAL E OF THE STU DY

L IMITAT IO NS

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

INTERNSHIP REPORT, FBS - BANKING AND INSURANCE (17051) PAGE 1

1.1. ORIGIN OF THE REPORT

This report is named as “Fund Management of Green Delta Insurance Company Limited: An

Evaluation”. It had to be prepared as a requirement of Internship under BBA Program. Internship

aims at offering the students some practical knowledge beside bookish knowledge and helps the

students to combine the theoretical aspect with the practical one. The topic of the report was assigned

by honourable teacher Professor Md. Abu Taleb, Department of Banking and Insurance, Faculty of

Business Studies, University of Dhaka.

This report is a reflection of what have been learned while working as an Intern at Green Delta

Insurance Company Limited, Head Office.

1.2. OBJECTIVE OF THE REPORT

The objectives of the report are to be familiar with fund management and its environment of the

company, to identify the weakness in managing funds efficiently and to provide some suggestions in

order to solve the problems that lie in fund management of the company.

1.3. METHODOLOGY

1.3.1. RESEARCH DESIGN

This research is an exploratory research which investigates fund management of a non-life insurance

company; especially GDICL.

1.3.2. DATA SOURCES

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

been used widely:

1.3.2.1. PRIMARY SOURCES

i. Discussion with the officers of Underwriting Management Department and Finance and

Accounts Department of Head Office

ii. Discussion with Sr. Executive Director of the company

iii. Discussion with the in-charge of the Principal Branch Department

iv. Visiting different departments of the Head Office

1.3.2.2. SECONDARY SOURCES

i. Annual Reports

ii. Journals Published by the company



1.3.3. DATA COLLECTION INSTRUMENTS

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

approval officers.

1.3.4. DATA ANALYSIS METHODS AND TOOLS

After collection, data were first carefully scrutinized. Then data gathered from both primary and

secondary sources were arranged orderly and analysed.

1.3.5. SOFTWARE USED

Microsoft Word 2010, Microsoft Excel 2010 and SPSS 17 were used to prepare the report. Bar chart,

line chart and pie chart have been used for graphical representation.

1.4. SCOPE OF THE STUDY

This research paper addresses the fund management of GDICL only. Due to lack of time fund

management of other non-life and life insurance companies are not focused in this paper. So fund

management of those companies may vary from that of this particular company.

1.5. RATIONALE OF THE STUDY

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

many ways.

Insurance is one of the most underrated sectors in our country. Most of the Bangladeshis have

negative attitude and perception towards this sector. Many reasons have already been identified by

various researchers in this regard. People even do not know about insurance business properly, let

alone fund management.

This research will help gather knowledge about fund management of a non-life insurance company,

understand the process by which a non-life insurance company manages its fund and what can be the

flaws that may exist in the managerial system of fund management.

These types of information will be helpful to be a business leader and perhaps this is why the term

paper was assigned to me and I have taken the job with the utmost cordiality.

1.6. LIMITATIONS

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



1.6.1. AVAILABILITY OF DATA

Despite the topic being ‘Fund Management’, Underwriting Management Department (UMD) was

assigned to work at. Enough data on the research topic were not available because of this reason.

1.6.2. TIME CONSTRAIN

There were five working days in each week during the standard banking office hour of Bangladesh

(10.00am to 6.00pm). There was not enough free time available during past one month to prepare a

standard internship report.

1.6.3. INDIVIDUAL INCAPABILITY

Nothing in this world is completely perfect. Due to many personal limitations many errors and

mistakes may exist in this report.

CHAPTER - 2

OVERVIEW OF THE

COMPANY

CHAPTER CONTENTS

GDICL AT A GLANCE

PRODUCTS & SERVICES

KEY FINANCIAL

VARIABLES

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


2.1. GDIC AT A GLANCE

Green Delta Insurance Company Limited (GDICL) is one of the leading private non-life insurance

companies in Bangladesh. It was incorporated in December 14, 1985 as a public limited company,

under the Companies Act 1913. Actual operations started on 1st January 1986, with a paid up capital

of BDT 30.00 million. Now (2013), Green Delta Insurance Company Ltd. is amassed about BDT

637.875 million with a credit rating of AA1 and ST1. Green Delta Capital Ltd., Green Delta

Securities Ltd., Professional Advancement Bangladesh Ltd. and GD Assist Ltd. are four of the direct

subsidiaries of the company. The company provides stock brokerage services through Green Delta

Securities Ltd. (GDSL) and investment supports through Green Delta Capital Ltd. (GDCL).

This company has now become a big family of 14 respected board members, 600+ committed staff,

numerous valued clients and thousands of esteemed shareholders.

GDICL at a Glance

Full Name of the

Company

Green Delta Insurance Company Limited

Nature of Business Non-life Insurance Company

Established December 14, 1985

First Operation 1st January 1986

Current (2013) Paid

Up Capital

637.875 million BDT

Number of Branches 38

Number of Board

Members

14

Subsidiaries Four Subsidiaries; Green Delta Capital Limited and Green Delta Securities

Limited, Professional Advancement Bangladesh Limited and GD Assist Limited

Share Holders’

Position

Sponsors (51%), General Public (33%), Foreign company and Institution

(8% and 8%)

Table 1: GDICL at a Glance

2.2. PRODUCTS & SERVICES

The company is a non-life insurance company offering four different major insurance services; Fire,

Motor, Marine and Miscellaneous. Details products and services are presented below:

2.2.1. CORPORATE

Risk Management

Industrial All Risk Insurance including Machinery Insurance and Business Interruption



Property All Risk Insurance including Business Interruption

Electronic Equipments and Computer Insurance

Professional Indemnity Insurance

Comprehensive Machinery Insurance

Comprehensive General Liability (CGL)

Product & Public Liability Insurance

Directors and Officers Liability (D&O)

Fire and Allied Perils Insurance

Marine Cargo and Hull Insurance

2.2.2. FINANCIAL

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

Portfolio Cover

Credit Card Indemnity Insurance

Bankers Blanket Insurance

Bank Lockers Insurance

A.T.M. Booth Insurance

Banc assurance

2.2.3. RETAIL & SME

Fire and Allied Peril Insurance

Marine Cargo and Hull Insurance

Personal Accident

Health Insurance

Overseas Mediclaim Insurance

Micro Insurance

Micro Health Insurance

Nibedita-Comprehensive Insurance Policy for Women

Household Insurance

Motor Insurance

Peoples Personal Accident Policy

Comprehensive Travel Insurance

2.2.4. CONVENTIONAL

Aviation Insurance

Automobile Insurance



Workmen Compensation Insurance

Miscellaneous Insurance

Engineering Insurance

Crop Insurance


Weather Index Based Insurance

2.2.5. INVESTMENT & PORTFOLIO MANAGEMENT

Underwriting

Pre-IPO placement Syndication

Trusteeship

2.2.6. INNOVATION

Beside the Traditional insurance portfolio, the company introduced following personal line of

products in last year and some those are in pipeline:

Health Insurance

Household Insurance


Cellular Phone Contingency Insurance

Weather Index Based Insurance

Personal Accident Insurance Policy for Migrant workers

In Brief, the company is offering,

Fire Insurance

Burglary Insurance

Marine Insurance

Health Insurance

GD Health

All Risk Insurance

Personal Accident Insurance

Cash-In-Transit & Cash-In-Safe

Overseas Medical Insurance / Travel Insurance

Loss of Profit Insurance

Erection All Risk Policy (EAR)

Contractors All Risk Policy

Industrial All Risk policy



Professional Indemnity

Contractors Plant & Machinery Policy (CPM)

2.3. KEY FINANCIAL VARIABLES

Taka in Million

Particulars/Year 2013 2012 2011 2010 2009

Gross Premium 2613.45 2603.19 2351.47 2001.31 1601.64

Net Premium 1316.99 1212.53 862.04 770.31 726.69

Net Claims 372.60 201.96 122.43 117.51 134.24

Underwriting Profit 288.16 298.04 124.17 99.67 112.51

Investment Income 204.06 135.45 131.80 577.10 224.24

EBIT 285.13 262.67 143.43 562.41 277.65

EAT 229.03 237.67 134.00 478.76 232.65

Paid up Capital 637.87 510.30 408.24 408.24 408.24

Share Holder’s Equity 4422.41 3858.35 2510.33 3103.56 2139.76

Total Liabilities 1882.91 1723.25 1953.88 1638.252 1293.32

Total Reserve 3294.49 3173.84 2102.09 2695.33 2094.79

Total Assets 6305.32 5581.61 4464.21 4741.79 3433.07

Total Investments 2197.01 1998.95 2363.65 2905.30 1835.34

Fixed Assets 2039.82 1978.30 212.94 134.52 38.26

EPS Tk. 3.69 Tk. 4.05 Tk. 2.60 Tk. 12.31 Tk. 5.70

P/E Ratio 25.73 18.39 46.45 Tk. 26.53 Tk. 29.3

Book Value per Share Tk. 69.33 Tk. 75.61 Tk. 60.88 Tk. 75.41 Tk. 52.41

Market Value per Share Tk. 94.30 Tk. 74.50 Tk. 152.40 Tk. 326.50 Tk. 166.98

Required Solvency Margin 334.09 343.22 224.24 248.73 198.79

Available Solvency Margin 3265.33 2756.01 2143.32 2293.32 1400.11

% of Dividend Paid (Cash) 15% 15% - 40% 25%

% Dividend paid ((Stock) 15% 15% 15% - -

Table 2: Key Financial Highlights of GDICL (Source: Annual Report of GDICL, 2013)

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



Bank and

Financial

Institute

22%

Capital Market

29% Subsidiar

ies 7%

Land and Bulding Project

36%

Equity Investme

nts 4%

Other Investme

nts 2%

Sector Wise

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

The slope of Invested assets from CY 2008 to CY 2013 is upward, meaning that invested assets are

increasing year by year except in CY 2010.

Of the 3 sectors of investment land and building project contributes more (36%), followed by capital

market (29%) and Bank and Financial Institution (22%)

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

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

2008

2009

2010

2011

2012

2013

IA 2146 2598 3759 3238 4697 5173

0

1000

2000

3000

4000

5000

6000

Mill

ion

Tak

a

Invested Assets

2008 2009 2010 2011 2012 2013

EPS 12.01 5.7 12.31 2.6 3.73 3.69

0

2

4

6

8

10

12

14

Taka

EPS

2008

2009

2010

2011

2012

2013

UnderwritingProfit

106.16112.5199.67124.17298.04288.16

050

100150200250300350

Mill

ion

Tak

a

Underwriting Profit

The slope of EPS from CY 2008 to CY

2013 is downward, meaning that the

company is not earning much

compared to its common share

outstanding

The slope of underwriting profit from

CY 2008 to CY 2013 is upward,

implying that the company is earning

very good on per policy.



2009 2010 2011 2012 2013

GrossPremium

1601.642001.312351.472603.192613.45

0

500

1000

1500

2000

2500

3000

Mill

ion

Tak

a

Gross Premium

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

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

Chart 6: Total Assets of GDICL (Data Source: Annual Report of GDICL, 2013)

2008

2009

2010

2011

2012

2013

Earning AfterTax

245.07232.65478.76 134 237.67229.03

0100200300400500600

Mill

ion

Tak

a

Earning After Tax

The trend of EAT is fluctuating over the

period of time (2009-2013). It’s due to

heavy operational expenditure of the

company.

The slope of gross premium from CY

2009 to CY 2013 is upward, implying

that more and more people are

purchasing insurance policy from the

company.

2008

2009

2010

2011

2012

2013

Total Assets 2872.53433.14741.84464.25577.66305.3

01000200030004000500060007000

Mill

ion

Tak

a

Total Assets Total assets include all current and non-

current assets in the balance sheet. Total

assets are always the summation of

equity and liability to third parties. The

trend of total assets is upward, meaning

that either equity or liability is

increasing.



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

2008 2009 2010 2011 2012 2013

Equity 1719 2140 3104 2510 3858 4422

0

1000

2000

3000

4000

5000

Mill

ion

Tak

a

Equity The slope of equity is upward. That

means, it is equity for which total assets

of the company are increasing.

CHAPTER - 3

THE FUND MANAGEMENT

SYSTEM OF THE COMPANY

CHAPTER CONTENTS

SOURCE OF CASH

RESPONSIBLE UNIT FOR

FUND MANAGEMENT

CASH FORECAST AND

DESIRED CASH BALANCE

THE CASH RESERVE

SYSTEM FROM PREMIUMS

MODELS FOR THE

MANAGEMENT OF CASH

CASH COLLECTION AND

DISBURSEMENT PROCESS

AT A GLANCE



3.1. SOURCE OF CASH

Premiums collected from every insurance policy are the main source of funds. All premiums are

collected on cash basis. Only the premiums of marine insurance may remain outstanding from 30 to

90 days since the premiums for this class of insurance are on instalment basis. But until and unless

they are collected fully, outstanding premiums are not treated as ‘premiums’ as the company uses

cash basis accounting. That means, the ‘premiums’ on financial statements are noting but some cash

collected. Investment incomes deposited in banks are sometimes used as secondary source of cash.

3.2. RESPONSIBLE UNIT FOR FUND MANAGEMENT

The Finance and Accounts Department of the company is the responsible unit for fund

management. The CFO and the CA are two key personnel in the unit. The unit pays close attention to

cost and risk in order to really capitalize on the cash flow opportunities. Ensuring the proper liquidity

of the funds is a crucial aspect of the fund managers’ position.

3.3. CASH FORECAST AND DESIRED CASH BALANCE

In every month the Finance and Accounts department prepares a budget for the following month after

consulting with the board. The simple budget format is presented below:

Table 3: Simple Model for Monthly Budget

It should me clearly mentioned that the company does not hold any desired cash in hand unlike other

companies. There are three reasons behind it:

January February March April May June

Cash Disbursement For:

Management Expenses and Salary

Reinsurance (Previous month’s)

Claims

Commissions

Total Disbursement

Cash Collection From:

Premiums

Add: Investment Income (if any and necessary)

Total Receipt

Net Cash Flow (Total Receipt – Total Disbursement)

Add: Beginning Cash (if any)

Total Cash



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

example:

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

For honouring reinsurance, the company gets 45 days. That means if the company is to pay any

claim against reinsurance policies purchased, it will pay that claim in the middle of the next month

(30 days + 15 days). The wisdom behind this strategy is that, the longer the company holds cash

balances in the bank, the better return it will get. So the company utilized the maximum 45 days to

honour the claims on reinsurances.

Any big investment is planned before two or three months.

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

forecasted one, the company holds a reserve.

ii) The second reason is that, an insurance company is not a bank like institution. It is not

bound to pay claims immediately as a bank is. If a client of a bank draws a cheque upon

the bank then the bank by law is bound to honour the cheque immediately in every time,

except in few circumstances. But the settlement process of any insurance company takes a

significant time. So the dilemma between Asset and Liability maturity is quite trivial in

the company.

iii) The third reason is that, the company prefers to put cashes in investment rather than to

hold cash balances in hand because of the returns earned in them and because of having

little dilemma between Asset and Liability maturity mismatch problem.

3.4. THE CASH RESERVE SYSTEM FROM PREMIUMS

Every scheduled bank in Bangladesh has to maintain a statutory reserve (current rate is 19.5%) from

the deposits collected. But there is no rule from IDRA for any insurance company to hold a certain

percentage from its premiums collected. The company can invest the total cash collected from

premiums or if necessary, the company can hold the total cash in vault or in bank. But the company

currently holds 10% of net premiums for Reserve for exceptional loss.

3.5. MODELS FOR THE MANAGEMENT OF CASH

As far as the models for management of cash and temporary investments are concerned, four models

are found that companies generally follow:

i) The Baulmol Model

ii) The Beranek Model

iii) The Miller-Orr Model and

iv) The Stone Model



GDICL does not replicate only a singles model for cash management and temporary investment.

Rather, it uses a combination of the Baumol model and the Beranek model. The company is assumed

to receive cash continuously as insurance policies are sold all around the year. But the company in

some cases pays out the cash periodically and in other cases pays out continuously. For example the

company has investment in Lands as well as in stocks of other company. Investments/disinvestments

in assets like lands are one time, but investments/disinvestments for assets like stocks are continuous.

The adoption of the model completely depends on the market opportunities.

3.6. CASH COLLECTION AND DISBURSEMENT PROCESS AT A GLANCE

3.6.1. THE COLLECTION PROCESS

i) Collection Documents Received. In this first stage, each and every documents of a sold

policy – premium outstanding list, money receipt, bank deposit slip, bank statement and

premium collection sheet are collected from respective parties. Balances from ‘Premium

Collection Sheet’ go to two separate sheets; Current Recovery Sheet and Previous Recovery

Sheet.

ii) Outstanding Premium Prepared and Updated. Current year’s outstanding and previous

outstanding are adjusted from Current Recovery Sheet and Previous Recovery Sheet

respectively.

iii) VAT Separation and Deposit. Clients’ 15% vat are separated and then deposited to particular

VAT account.

iv) Bank’s Registration and Reconciliation. The after VAT adjusted balance will be registered

and reconciled by the bank.

v) Premium Collection Summarizing. In this stage premiums will be summarized based on

insurance class and bank.

vi) Balances Transferred from Collection Accounts to Mother Account. There are four hundred

(400) collection accounts of GDICL to collect premiums. All of the balances in this stage will

be channelled to the two (2) mother accounts. This is more or less lockbox alike.

3.6.2. THE DISBURSEMENT PROCESS

i) Allocation. For the budgets prepared by the finance and accounts department for each

following months, required amount of cashes for each department are transferred to them

from the mother accounts with the approval of board. It should be mentioned that no

department/unit can use the cash of the mother account as per their whim. It is the board that

approves for receiving required amount money from the mother accounts according to budget

prepared.

ii) Final Disbursement. Respective departments disburse cash for following purposes:



Expenses

Investments

The entire process is presented below:

Figure 1: Cash Collection and Disbursement Process of GDICL

CHAPTER - 4

ANALYSIS AND

INTERPRETATION

CHAPTER CONTENTS

ANALYSIS OF THE

SOURCES OF CASH

ANALYSIS OF

INVESTMENT PORTFOLIO

ITEMS OF INVESTMENT

DETAILED AMOUNT OF

FUNDS INVESTED

MATURITY WISE

DISTRIBUTION OF

INVESTMENT

ANALYSIS ON THE

RETURN ON FUNDS

INVESTED

THE COEFFICIENT OF

CORRELATION (R) AND

THE COEFFICIENT OF

DETERMINATION (R2)



4.1. ANALYSIS OF THE SOURCES OF CASH

Funds are collected mainly form the following sources:

a. Fire Insurance premiums

b. Marine Insurance premiums

c. Motor Insurance premiums

d. Miscellaneous Insurance premiums

Premiums collected from different classes of insurances are presented below:

Taka in million

Year 2013 2012 2011

Amount Proportion Amount Proportion Amount Proportion

Fire 564.9 0.429 396.7 0.327 374.8 0.435

Marine 528.6 0.401 608.8 0.502 318.9 0.370

Motor 153.8 0.117 130.2 0.107 115.3 0.134

Misc. 69.8 .053 76.8 0.063 53.1 0.062

Total 1317.1 1 1212.5 1 862.1 1

Table 4: Net Premiums of GDICL from 2011-2013 (Source: Annual Report of GDICL, 2013)

Chart 8: Proportion of Premiums from 2011-2013

0.435

0.327

0.429 0.37

0.502

0.401

0.134 0.107 0.117 0.062 0.063 0.053

2011 2012 2013

Proportion of Premiums

Fire Marine Motor Misc.Analysis: From the graph it is seen

that premiums from fire insurance

ranks first in case of total amount of

premiums for CY 2011 and CY 2013,

followed by marine insurance. That

means, fire insurance and motor

insurance are the two classes of

insurance leading the company ahead.



4.2. ANALYSIS OF INVESTMENT PORTFOLIO

4.2.1. ITEMS OF INVESTMENT

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

Types Items

General Investment

Investment in Government Bond

Investment in Debentures

Investment in GDSL as Margin Loan

Investment in quoted shares

Investment in unquoted share

Jalalabad Telecom Ltd.

Green Delta AIMS Ltd.

United Hospital

Beximco Pharma Preferred Shares

United Power Generation

Financial Excellence

CDBL

BD Venture

Swiss Pro BD Ltd.

Heritage Life Insurance Company Ltd.

Energypac Power Generation Ltd.

The ACME Laboratories Ltd.

Investment in Subsidiaries

Green Delta Capital Limited

Green Delta Securities Limited

Other

Land

Plant, Vehicle and Equipment

Misc.

Table 5: Securities/Assets Purchased by GDICL



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

4.2.2. DETAILED AMOUNT OF FUNDS INVESTED

Detailed amounts of fund invested are presented below:

Taka in Million 2013 2012 2011

Particulars Amount Total

%

Growth Amount Total

%

Growth Amount Total

%

NIB 25 0.76 124 4.5 0.2 0.0 4.5 0.2

Fixed Deposits 1106.16 33.49 35.27 878.2 30.5 62 542.2 18.6

Quoted Shares 1485.86 44.98 27.19 1515.9 52.7 -13 1743.4 60.0

Un-Quoted Share 226.28 6.85 46.14 139 4.8 60.5 86.6 3.0

Debentures 4.34 0.13 20.70 5.2 0.2 -25.7 7 0.2

Mutual Funds - - - - - - 200 6.9

Investment in

Subsidiaries

349.98 10.60 49 200 7.0 - 200 6.9

Investment in GDSL

as margin Loan

105 3.18 27.38 107.5 3.7 -6.5 115 4.0

Others 0.52 .02 (0.42) 26.7 0.9 276.1 7.10 0.2

Totals 3303.14 100 32.03 2877 100 -1 2905.8 100

Table 6: Detailed Amounts of Funds Invested (Source: Annual Report of GDICL, 2013)

Analysis: In terms of percentage in total assets, investment in quoted share (Blue coloured) ranks first

in each of the past three years (60%, 52.7% and 44.98%), followed by Fixed Deposits and Unquoted

share

2009 2010 2011 2012 2013

Investment 1835.33 2905.3 2363.651998.952197.01

0

500

1000

1500

2000

2500

3000

3500

BD

T in

Mill

ion

Amount of Investment

Analysis: The mean of investment

from 2009-2013 is around 2260

million taka. The trend fluctuates; it is

neither upward trending nor downward

trending.



Chart 10: Share (%) of investment of GDICL

4.2.3. MATURITY WISE DISTRIBUTION OF INVESTMENT

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

follows:

Taka in Million

Year 2013 Year 2012

Short

Term

Long

Term Total

Total

% Growth

Short

Term

Long

Term Total

Total

%

Government

Bond - 25 25 0.40% 456% - 4.50 4.50 0.08%

Investment in

Quoted Share 1485.86 - 1485.86 23.57% -2% 1515.98 - 1515.98 27.18%

Sub 349.98 349.98 5.55% 75% - 199.98 199.98 3.59%

Equity

Investment - 226.31 226.31 3.59% 37% - 165.25 165.25 2.96%

Debenture

and others 109.86 - 109.86 1.74% -3% 113.24 - 113.24 2.03%

FDR 1106.16 - 1106.16 17.54% 26% 878.15 - 878.15 15.74%

Cash and

Bank Balance 94.43 - 94.43 1.50% 132% 40.62 - 40.62 0.73%

Office Space - 425.87 425.87 6.75% 14% - 373.73 373.73 6.70%

Building - 644.94 644.94 10.23% 0% - 645.91 645.91 11.58%

Land - 800 800 12.69% 0% - 800 800 14.34%

P&E - 166.27 166.27 2.64% 7% - 156.03 156.03 2.80%

Other Assets 868.39 2.25 870.64 13.81% 2% 681.51 2.63 684.14 12.27%

Total 3664.70 2640.62 6305.32 100% 13% 3229.50 2348.03 5577.55 100%

Table 7: Maturity wise distribution of investment (Source: Annual Report of GDICL, 2013)

NIB 0%

FD 19%

QS 60%

UQS 3%

Deb. 0%

MF 7%

IiS 7%

Margin 4%

Other 0%

Share of assets Analysis: From the chart above it is

clearly seen that GDICL have invested

a major portion of their total investment

in Quoted Share (60%), followed by

FDR.



Analysis: It is found that most of the investments of GDICL are for short term (red coloured). It may

be due to the fact that the company do not face any liquidity crisis.

4.3. ANALYSIS OF THE RETURN ON FUNDS INVESTED

Income earned from investment can be divided into four types:

i) Interest

ii) Dividend

iii) Profit from Sale of Share

iv) Other

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

Analysis: Of the four types of income, interest income is the largest one, followed by dividend

income. Both interest income and dividend are upward sloping. The other two are more or less flat. It

means, though the company has heavy investments in stocks, interest income ranks first in terms of

investment income.

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

DETERMINATION (R2

)

The coefficient of correlation (R) describes the strength of the relationship of two sets of ratio scaled

variables. It shows, how well one variable can be explained by another. It can assume any value from

-1.00 to +1.00. A correlation coefficient of -1.00 or +1.00 indicates perfect correlation, (+) sign for

positive relationship and (-) sign for negative relationship. On the other hand, the coefficient of

2011 2012 2013

Interest Income 61.5 89.5 130.81

Dividend 12.8 25.5 59.75

Profit from Sale ofShare

39.2 1.3 3.12

Other Income 18.3 19.2 10.37

0

20

40

60

80

100

120

140

Mill

ion

Tak

a

Income from Investments



determination (R2) is the primary way by which we can measure the extent of the association that

exists between two variables.

In this section a statistical relationship of net claims, underwriting profits and net premiums with total

investment income is shown. For this purpose, past five years’ data (2009-2013) were used to make

the analysis more acceptable. Data, model and assumptions needed to do the research are presented

below:

Type Variable Assumption

Independent

Net Claims There are many factors to accelerate investment income. It is

assumed that the investment income is influenced by net claims, underwriting profits and net premiums. If the explanatory power of

the independent variables is high over investment income, the

dependent variable, the assumption will be proved.

Underwriting

Profit

Net Premiums

Dependent Investment

Income

Table 8: Variables for Correlation (R) and the Coefficient of Determination (R2)

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

R R2

0.523 0.274

Table 9: Result from SPSS

Analysis: The R value is 0.523, meaning that there is a moderate relationship between the

independent variables and the dependent variable. The R2 value is 0.274, which means that only

27.40% variance in investment income can be explained by the variance in net claims, underwriting

profits and net premiums jointly. There must be more independent variables other than net claims,

underwriting profits and net premiums whose variance can explain the variance in investment income

significantly.

4.5. INTERPRETATION

Fire and Marine are two classes of insurance from which the company earns significant amount of

premiums. The list of the investments in securities is more or less long for the company; it invests in

all types of assets. As the insurance policies are for one year, the company has a heavy investment for

short term in stocks. Although funds are heavily invested in stocks, interest income is the top invested

income.

CHAPTER - 5

FINDINGS

CHAPTER CONTENTS

FINDINGS FROM FUND

MANAGEMENT SYSTEM

FINDINGS FROM

INVESTMENT PORTFOLIO

CHALLENGES WHILE

MANAGING FUNDS

PROBLEMS FACED TO

MANAGE FUNDS



5.1. FINDINGS OF THE STUDY

5.1.1. FINDINGS FROM FUND MANAGEMENT SYSTEM

i) Main Source of Cash: Premiums from all classes of insurance. Most of the premiums come

from Fire and Marine insurance.

ii) Responsible Unit for Fund Management: The Finance and Accounts Department. The CFO

and the CA are two key personnel.

iii) Cash Forecast and Desired Cash Balance: Monthly Budget for each following month.

iv) Cash Reserve System from Premiums: 10% reserve on net premiums . But there is no

specific regulation on rate from IDRA.

v) Models for the Management of Cash: No specific model is used by the company.

vi) Cash Collection and Disbursement process: As per traditional non-life insurance companies.

5.1.2. FINDINGS FROM INVESTMENT PORTFOLIO

i) Detailed Amount of Funds Invested: Heavily invested in Quoted Shares, followed by FDR

and Unquoted Shares.

ii) Maturity Wise Distribution of Investment: The major portion is for short term and the rest is

for long term.

iii) Return on Funds Invested: Although funds are heavily invested in shares, the top invested

income is interest income.

5.1.3. CHALLENGES WHILE MANAGING FUNDS

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

i) Lower Investment Income Due to ‘Crisis’. If the company ever exceeds its budget in any

month or if any incident occurs for which the company needs more cash than the budgeted

amount, the company has to liquidate some of its short term assets. The company does not

face any difficulty in this case as the company has invested in short term assets heavily. This

is not any real crisis actually. The main problem lies here; the company has to lose some

investment income if some assets are liquidated before maturity. For example, if any asset is

assumed to be matured after twelve (12) months and for some reasons the company liquidates

the assets after five (5) months, then the income generated from five months will definitely be

lower than that of twelve months.

ii) Multiple Big Claims. If several big claims of BDT 30/40 million are called in one month, the

company may face a great difficulty for the next two or three months.



5.1.4. PROBLEMS FACED TO MANAGE FUNDS

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

i) Bargaining Power of Big parties. If a big corporate client wants GDICL to purchase some

stocks of that company despite the fact being clear that the company is not performing well in

the market and the market value of the stocks may start declining any time, GDICL often

cannot ignore the proposal, as they may lose that big corporate client.

ii) Heavy Investment in Stock Market. Investment in quoted share ranks first in the total

investments of the company, followed by FDR and Unquoted shares. But the income on that

equity investment is very poor. The company earns a marginal return from stock market.

iii) Decrease in FDR Rate. There was a time when the rate of return on FDR that the company

earned was 12-13%. But this rate is going down year by year and now it has become a single

digit only.

CHAPTER - 6

SUGGESTIONS AND

CONCLUSION

CHAPTER CONTENTS

SUGGESTIONS

CONCLUDING REMARKS



6.1. SUGGESTIONS

It is quite difficult for an Intern with little knowledge to provide suggestions for a big organization

like GDICL to minimize the problems found. Despite the fact, some suggestions are presented below

based on the knowledge acquired so far:

i. Long Term Investment. In order to earn higher income it is suggested that the company go

for more long term investment.

ii. More Investment in Debt. If everything remains the same, then it is suggested that the

company look forward more to exploit the opportunities for arranging debt financing for

different firms and institutions, along with equity financing. A portion from equity may be

transferred to debt.

iii. Efficient Budget. Monthly Budget must be efficient enough and consider each and every

possible outflow to overcome the problem like Lower Investment Income Due to ‘Crisis’.

iv. Be Tactful. The company should be tactful enough to deal with the big clients’ bargaining

power problem.

v. Reduction in Equity Investment. The company should minimize the investment in stock

market and look forward for debt, since the return earned from stock market is very marginal.

6.2. CONCLUDING REMARKS

In order to develop any type managerial performance, human resource along with professional

knowledge, professional degree and professional skills are some prerequisites for the insurance

companies in Bangladesh. As the insurance sector in our country is one of the most underrated sectors

and people have a negative attitude toward it, the company should come forward to make people

aware about the necessity of insurance in their every-day life and offer lucrative career opportunity to

people for building their career at GDICL.

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


References:

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

Delta Insurance Company Limited, Dhaka, Bangladesh

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

3rd

march 2015)

http://www.green-delta.com/home.php

APPENDICES

CHAPTER CONTENTS

MODEL SUM MAR Y OF

CORRE LAT IO N O F

COEFF ICIENT AND

CORRE LAT IO N O F

DET ER MINA TIO N

GROSS PR EM IU M A ND NE T

CLAIMS O F GDICL

AMO UNT O F I NVE ST ME NT

FROM CY 2009 TO CY

2013

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


APPENDIX 1

Model Summary of Correlation of coefficient and Correlation of determination

Model Summary

Model R R

Square

Adjusted R

Square

Std. Error of

the Estimate

Change Statistics

R Square

Change

F

Change

df1 df2 Sig. F

Change

1 .523a .274 -1.904 315.09630 .274 .126 3 1 .933

a. Predictors: (Constant), Net_Premium, Net_Claims, Underwriting_Profit

APPENDIX 2

Gross Premium and Net Claims of GDICL

Year Gross Premium Net Claim

2011 2351.47 372

2012 2603.19 201.96

2013 2613.45 122.43

APPENDIX 3

Amount of Investment from CY 2009 to CY 2013

Particulars 2013 2012 2011 2010 2009

Investment 2,197.01 1998.95 2363.65 2905.30 1835.34

Cash and

Cash

Equivalent

1,200.59 918.77 712.74 742.81 822.47

Fixed Assets 2,039.81 1978.31 212.94 134.52 38.26

Other Assets 867.90 681.52 1174.88 959.15 737.00

6,305.32 5577.55 4464.21 4741.78 3433