Topic-Financial Performance Analysis of Popular Life

Insurance Company Limited.

Chapter: 1

INTRODUCTION

1.1 Background of the Study

1.2 Objectives of the Study

1.3 Scope of the Study

1.4 Limitations of the Study

1.5 Operational Definition

1.5.1 Major Types of Insurance

1.5.2 Life insurance

1.5.3 Reasons that's why people buy life insurance policies

1.5.4 Advantages of Life Insurance

1.5.5 Disadvantages of Life Insurance

1.1 Background of the Study

Insurance is a contract (policy) according to which one party (a policyholder) pays an amount of
money (premium) to another party (insurer) in return for an obligation to compensate some possible
losses of the policyholder. Such a contract aims to provide a policyholder with some protection
against certain risks. Death, sickness, disability, motor vehicle accidents, loss of property, etc. are
some typical examples of such risks. Each policy contract specifies the policy term and the method of
compensation. Any event specified in the policy contract that takes place during its term can result in
such an insurance claim. Insurance is an old form of financial practice of sharing risk, which was
introduced in the mid-18th century. There are various types of insurance policies (such as life
insurance, car insurance, health insurance, business insurance, marine insurance, and so on)
introduced in the world. But Life insurance is a very well-known policy in the insurance business and
it is a valuable asset to mitigate the financial risk of untimely death. As a crucial component of the
financial system, life insurance policy is an important source of savings and long-term institutional
investments essential for the development and growth of the financial markets. The main uses of life
insurance company funds are as investments in government securities, corporate securities,
mortgages, and real estate. Insurance companies are exposed to different risk categories, including
financial risks (such as leverage risks, credit risks, liquidity risks, and interest rate risks),
environmental risks, management risks, delivery risks, etc. which are incurred in delivering a product
or service. Insurance is a system of spreading the risk of one to the shoulders of many. It can be
defined as a co-operative device to spread the loss caused by a particular risk over a number of
persons who are exposed to it and who agree to ensure themselves against that risk. It is a contract
whereby the insurers, on receipt of a consideration known as premium, agree to indemnify the insured
against losses arising out of certain specified unforeseen contingencies or perils insured against. It can
play an important role in a country's economy. It is an old form of financial practice of sharing risk,
which was introduced in this area in the mid-18th century.
1.2 Objectives of the Study
The specific objectives are:
 To assess the financial performance of Popular Life Insurance Company Ltd;
 To know the financial position of Popular Life Insurance Company Ltd;
 To assess the liquidity, solvency, and profitability of Popular Life Insurance Company Ltd;
 To find out the problems and give possible suggestions regarding the performance analysis of
Popular Life Insurance Company.

1.3 Scope of the Study

By using this study, any individual would be able to have an idea about the principles & procedures of
setting up a life insurance policy, the performance of Popular Life Insurance Company Ltd., and the
impact of the insurance business in our society.

1.4 Limitations of the Study

The study was arranged for two months duration. Generally, this is not enough time to do full research
on any company. But I have tried my level best, to find out the opportunity of work, overcoming the
limitation. The main limitations are as follows:
 Time constraints for the study
 Needed documents, and data information are not easily available.
 The official and respective persons are very busy with their assign

1.5 Operational Definition

Insurance is the equitable transfer of the risk of a loss, from one entity to another in exchange for
payment. It is a form of risk management primarily used to hedge against the risk of a contingent,
uncertain loss. An insurer, or insurance carrier, is a company selling the insurance; the insured, or
policyholder, is the person or entity buying the insurance policy. The amount of money to be charged
for a certain amount of insurance coverage is called the premium. Risk management, the practice of
appraising and controlling risk, has evolved as a discrete field of study and practice. The transaction
involves the insured assuming a guaranteed and known relatively small loss in the form of payment to
the insurer in exchange for the insurer's promise to compensate (indemnify) the insured in the case of
a financial (personal) loss. The insured receives a contract, called the insurance policy, which details
the conditions and circumstances under which the insured will be financially compensated.
1.5.1 Major Types of Insurance

Auto insurance
Auto insurance protects the policyholder against financial loss in the event of an incident involving a
vehicle they own, such as in a traffic collision.
Coverage typically includes:
 Property coverage, for damage or theft of the car.
 Liability coverage, for the legal responsibility to others for bodily injury or property damage.
 Medical coverage, for the cost of treating injuries, rehabilitation, and sometimes
Lost wages and funeral expenses.

Gap insurance
Gap insurance covers the excess amount on your auto loan in an instance where your insurance
company does not cover the entire loan. Depending on the companies’ specific policies it might or
might not cover the deductible as well. This coverage is marketed for those who put low down
payments, have high interest rates on their loans, and those with 60-month or longer terms. Gap
insurance is typically offered by the finance company when any person first purchases his/her vehicle.
Most auto insurance companies offer this coverage to consumers as well.

Health insurance
Health insurance policies cover the cost of medical treatments. Dental insurance, like medical
insurance, protects policyholders for dental costs. In most developed countries, all citizens receive
some health coverage from their governments, paid for by taxation. In most countries, health
insurance is often part of an employer's benefits.

Accident, sickness, and unemployment insurance Disability insurance policies provide financial
support in the event of the policyholder becoming unable to work because of a disabling illness or
injury. It provides monthly support to pay such obligations as mortgage loans and credit cards. Short-
term and long-term disability policies are available to individuals, but considering the expense, long-
term policies are generally obtained only by those with at least six-figure incomes, such as doctors,
lawyers, etc. Short-term disability insurance covers a person for a period typically up to six months,
paying a stipend each month to cover medical bills and other necessities. Long-term disability
insurance covers an individual's expenses for the long term, up until they are considered permanently
disabled and thereafter. Insurance companies will often try to encourage the person back into
employment in preference to and before declaring them unable to work at all and therefore totally
disabled.

Casualty insurance
Casualty insurance against accidents, is not necessarily tied to any specific property. It is a broad
spectrum of insurance that several other types of insurance could be classified, such as auto, workers'
compensation, and some liability insurance.

Life insurance
Life insurance provides a monetary benefit to a decedent's family or other designated beneficiary, and
may specifically provide for income to an insured person's family, burial, funeral, and other final
expenses. Life insurance policies often allow the option of having the proceeds paid to the beneficiary
in a lump sum cash payment or an annuity. In most states, a person cannot purchase a policy on
another person without their knowledge.

1.5.2 Life insurance

Life insurance (or commonly life assurance, especially in the Commonwealth) is a contract between
an insured (insurance policy holder) and an insurer or assurer, where the insurer promises to pay a
designated beneficiary a sum of money (the "benefits") in exchange for a premium, upon the death of
the insured person. Depending on the contract, other events such as terminal illness or critical illness
can also trigger payment. The policyholder typically pays a premium, either regularly or as one lump
sum. Other expenses (such as funeral expenses) can also be included in the benefits. Life policies are
legal contracts and the terms of the contract describe the limitations of the insured events. Specific
exclusions are often written into the contract to limit the liability of the insurer; common examples are
claims relating to suicide, fraud, war, riot, and civil commotion.
Life-based contracts tend to fall into two major categories:
 Protection policies – designed to provide a benefit, typically a lump sum payment, in the
event of a specified event. A common form of a protection policy design is term insurance.
 Investment policies – where the main objective is to facilitate the growth of capital by regular
or single premiums. Common forms (in the U.S.) are whole life, universal life, and variable
life policies.

1.5.3 Reasons that's why people buy life insurance policies

 To protect their family if they lose a job or change jobs that had provided life insurance.
 To pay for funeral expenses, loans, or any outstanding debt.
 To cover their children's future education expenses if they are not there to provide.
  To protect a business by letting partners/beneficiaries buy out a deceased partner's business
interests.
 To set an example of responsibility and family values for their children.
 To provide child care or elder care for aging parents if the top caregiver/provider passes
away.
 To provide peace of mind for their loved ones in uncertain financial times.
 To comfort their loved ones in a difficult time of loss and grief.

1.5.4 Advantages of Life Insurance

 Life insurance provides an infusion of cash for dealing with the adverse financial
consequences of the insured's death.
 Life insurance enjoys favorable tax treatment, unlike any other financial instrument.
 Death benefits are generally income-tax-free to the beneficiary.
 Death benefits may be estate-tax-free if the policy is owned properly.
 Cash values grow tax-deferred during the insured's lifetime.
 Cash value withdrawals are treated on a first-in-first-out (FIFO) basis, therefore cash value
withdrawals up to the total premiums paid are generally income-tax-free.
 Policy loans are income tax-free.
 A life insurance policy may be exchanged for another life insurance policy (or for an annuity)
without incurring current taxation.

1.5.5 Disadvantages of Life Insurance

 Policyholders forego some current expenditures to pay policy premiums. Moreover, life
insurance is typically purchased for the benefit of others and usually only indirectly for the
insured person.
 Cash surrender values are usually less than the premiums paid in the first several Policy years
and sometimes a policy owner may not recover the premiums paid if the policy is
surrendered.
 The life insurance purchase decision and the positioning of the life insurance can
be complex especially if the insurance is for estate planning, business situations, or complex
family situations.
 The life insurance acquisition process can be annoying and perplexing.


 Chapter: 2

An overview of the organization

2.1 Historical Background of the Company.

2.2 Vision and Mission Statement

2.2.1 Vision

2.2.2 Mission

2.3 Goals, objectives, targets, commitments and strategies

2.3.1 Goals

2.3.2 Objectives
2.3.3 Targets

2.3.4 Commitments

2.3.5 Strategies

2.4 Popular Life Insurance Company Limited SWOT Analysis

2.4.1 Strength

2.4.2 Weakness

2.4.3 Opportunity

2.4.4 Threat

2.5 Values of popular Life insurance company limited

2.5.1 Clients First
2.5.2 Integrity
2.5.3 Efficiency
2.5.4 Quality
2.5.5 Service

2.6 Products & Services Policies

7
2.7 Principal Activities
2.7.1 Life Insurance Product Design and Sales

2.7.2 Risk Management and Claims Processing

2.7.3 Customer Service and Relationship Management

2.7.4 Business Development and Expansion

2.7.5 Social Responsibility and Sustainability

8
2.1 Historical Background of the Company.
Popular Life Insurance Co. Ltd. was established on September 26, 2000. Since the beginning, Popular
Life Insurance Ltd. set an outstanding standard to gain popularity among all classes of people.
Popular Life started micro life insurance-cum- savings products that went to the poor people.
Corporate Information
Company name : Popular Life Insurance Co. Limited
Year of Establishment :2000
Date of Incorporation : 26th September, 2000
Registered Office : Peoples Insurance Bhaban36 Dilkusha C/A (3rd Floor),
Dhaka 1000.
Authorized Capital : Tk. 500 Cores
Paid Up Capital : Tk. 30.8308 Cores (Approx.)
Nature of Business : Life Insurance
Business Auditor : M.N Islam & Co. Chartered Accountants 123/4
Tejkunipara, Tejgaon, Dhaka-1215
Actuarial Consultant : Mohammad Sohrab Uddin PhD, AIA
Re-Insurer : Scor Global Life Re, Singapore Branch, Asian Retakaful
International (Ltd), Malaysia & Jibon Bima Corporation,
Bangladesh
Consultant : Roy Debdas Rtd. Controller of Insurance & Chief
Controller of Insurance ( In-charge) Govt. of the People's
Republic of Bangladesh
Senior Consultant : Md. Anis Uddin Miah Rtd, Joint Secretary Govt. of the
People's Republic of Bangladesh
Legal Adviser(s) : (i) Md. Aslam Miah
M.A, LLB, Advocate, Supreme Court of Bangladesh
(ii) Faujia Yesmin
B.A, LLB, Assistant Public Prosecutor, Dhaka Judge Court
(iii) K.M Rezaul Firoj LLB(Hon's),
LLM, Advocate, Supreme Court of Bangladesh

9
 Board of Directors

Mr. Hasan Ahmed Chairman

Mr. Md. Motaher Hussain Vice Chairman

Mr. M. Fazle Taher Director

Mr. Shamsul Arefin Khaled Director

Mrs. Nurjahan Ahmed Director

Mr. Kabir Ahmed Director

Ms. Farjana Jahan Ahmed Director

Mr. Mohammed Amir Hossain Chowdhury Independent Director

Mr. Mohammed Zahirul Islam Chowdhury Independent Director

Mr. A K M Aminul Mannan Managing Director & CEO

Mr. Md. Khaled Mosharef Hossain Company Secretary

Mr. B M Yousuf Ali Chairman

Mr. Mostofa Helal Kabir Vice Chairman

Bankers
Argani Bank Ltd. Exim Bank Ltd.
Dhaka Bank Ltd. Pubali Bank Ltd.
Al-Arafah Islami Bank Ltd. Jamuna Bank Ltd.
Bangladesh Krishi Bank Janata Bank Ltd.
Islami Bank Bangladesh Ltd. The City Bank Ltd.

Social Islami Bank Ltd. Sonali Bank Ltd.

10
2.2 Vision and Mission Statement
2.2.1 Vision

We envision being the leading insurer by maintaining the highest standards of service in all areas of
our work to uphold our status as one of the market leaders in the insurance industry of Bangladesh.

2.2.2 Mission

 Providing world-class service with supreme security to our clients

 Increasing awareness about insurance in the country
 Enhancing public confidence in the insurance industry
 Introducing modern insurance products comparable with international standards
 Emerge as an innovative insurer by providing complete risk management solutions to clients

2.3 Goals, objectives, targets, commitments and strategies

2.3.1 Goals

 Maximizing Insurance Coverage at a Minimum Cost.

 Responding quickly to new opportunities.
 Establishing a long-term relationship with our clients and business partners built on
professional service and trust.
 Maintaining strong relationships with a wide variety of partners, like- re-insurers insurance
brokers, and so on.
 Assessing and managing our business risks carefully.

2.3.2 Objectives
Provide financial security and protection: PLIC aims to offer various life insurance products that cater
to the diverse needs of individuals and families in Bangladesh, ensuring financial security in case of
unforeseen circumstances like death, disability, or critical illness. Promote financial inclusion: By
offering affordable and accessible insurance products, PLIC strives to make financial protection
available to a broader segment of the Bangladeshi population, contributing to financial inclusion.
Contribute to economic development: PLIC's investments in various sectors and its role in mobilizing
savings contribute to the overall economic development of Bangladesh.

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2.3.3 Targets

Increase market share: PLIC aims to expand its market share in the Bangladeshi life insurance
industry by attracting new customers and retaining existing ones. Launch new products: The company
continuously develops and launches new insurance products to cater to evolving customer needs and
market trends. Enhance customer service: PLIC emphasizes providing excellent customer service to
build trust and loyalty among its policyholders.

2.3.4 Commitments

Ethical and fair business practices: PLIC adheres to ethical and fair business
practices, ensuring transparency and responsible conduct in all its operations. Customer-
centric approach: The company prioritizes customer satisfaction and strives to provide
personalized and efficient services to its policyholders. Social responsibility: PLIC actively
participates in various social responsibility initiatives, contributing to the well-being of the
communities it serves.

2.3.5 Strategies

Product diversification: PLIC offers a wide range of life insurance products, including individual and
group life insurance, term insurance, endowment plans, and retirement plans. This diversification
helps cater to the diverse needs of various customer segments. Distribution network expansion: The
company has a wide distribution network through branches, agency channels, and bancassurance
partnerships, ensuring accessibility of its products to a wider audience. Technology adoption: PLIC
leverages technology to enhance its operations and customer service. This includes online platforms
for policy issuance, premium payments, and claim processing. Strategic partnerships: PLIC
collaborates with other financial institutions and organizations to expand its reach and offer bundled
products or services.

2.4 Popular Life Insurance Company Limited SWOT Analysis

2.4.1 Strength

 Strong corporate Management

 Maintain a strong network throughout the country.
 PLICL has the strength to attract actual and potential Customers to sustain in the challenging
and competitive market.
 Enough financial strength or own financial capability of the company
 Members/customers identify as our strengths
 Highly qualified and experienced employee that can bring the PLICL in the higher position.

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2.4.2 Weakness

 Centralized decision making.

 Conflict in about power of authority among directors.
 Poor co-ordination and communication among different departments.
 Marketing Officer are not educated enough about Insurance law.
 Inefficient and ineffective employee for some positions.

2.4.3 Opportunity

 Home country constraints are becoming flexible as because of govt. are now very much aware
to this sector advantages and disadvantages.
 Target market is increasing at a higher rate on competitor’s products
 Rapid growth of business function and chancing the current market.
 Might attract a specific target market which they have initially targeted for – the rural market.
 POPULAR brand can attract a group of customers

2.4.4 Threat

 The market is very competitive

 Commission offered by competitors is some cases low
 Employee dissatisfaction with the current position in the company.
 Political environment of the country.
 Inflation and slow growth of the economy
 Economic conditions affecting our financial viability
 Foreign companies are entering the market frequently at a faster rate which is a reason for
increasing competition.

2.5 Values of popular Life insurance company limited

Client
First

Guality Service Integrity

Efficenc
y

13
Popular Life Insurance Core Values consist of 5 key elements. These values keep us close with our
clients. Moreover, they help us to build a strong sense of fraternity among all the employees of the
company. These values make us different. There is nothing wrong with being different; it is our
differences that make us unique.

2.5.1 Clients First

Clients are always our priority. We take care of them as they are our business partners. We treat all
clients with warmth and respect. We understand and try our level best to manage their expectations.

2.5.2 Integrity
We believe integrity is the key to success. We earn the trust and respect of our Shareholders,
Stakeholders, Employees, Clients and Business Partners by being honest, loyal, fair and open to them.

2.5.3 Efficiency
We focus both on external and internal training programs to increase our efficiency level in order to
deliver world class operational and financial performance, while improving continuously against
demanding targets for integrity and professionalism.

2.5.4 Quality
We ensure quality both in terms of products and services. We are always open to new ideas for raising
the bar.

2.5.5 Service
We strive to add more value to the service that we provide to our Clients and Stakeholders. To ensure
a better and secured service for them we are always ready with our online service.

2.6 Products & Services Policies

Popular Life Insurance Company provides several types of policies to its customers. Generally, they
divided their policies into two categories.
Individual Micro
Ekok Bima Al-Amin Bima

Islami Bima Takaful Janapriya Bima

Al-Barakah Islami Bima (Ekok) Islami DPS

Janapriya Ekok Bima Al-Barakah Islami DPS

IDPS Ekok Bima Popular DPS

Al-Amin Ekok Bima Islami DPS

14
2.7 Principal Activities
2.7.1 Life Insurance Product Design and Sales

Developing and offering various life insurance products: Individual and group life insurance, term
insurance, endowment plans, retirement plans, savings plans, micro-insurance products, and Shariah-
compliant insurance solutions. Catering to diverse customer segments: Individuals, families,
businesses, and low-income groups. Distributing products through multiple channels: Branches,
agency networks, bancassurance partnerships, and online platforms.

2.7.2 Risk Management and Claims Processing

Assessing and underwriting insurance risks: Evaluating applications and determining premiums based
on individual risk profiles. Investing premiums: Investing premiums are collected to generate income
and cover potential claims. Managing claims: Processing and settling claims efficiently and fairly in
case of death, disability, critical illness, or maturity.

2.7.3 Customer Service and Relationship Management

Providing prompt and responsive customer service: Through branches, call centers, and online
platforms. Building relationships with policyholders: Offering personalized advice, managing
policies, and addressing concerns. Promoting financial literacy and awareness: Educating customers
about the benefits of life insurance and different product options.

2.7.4 Business Development and Expansion

Identifying and entering new market segments: Expanding product offerings and distribution channels
to reach new customer groups. Building strategic partnerships: Collaborating with other financial
institutions and organizations to offer bundled products or services. Investing in technology and
innovation: Utilizing digital tools to enhance customer experience, streamline operations, and improve
efficiency.

2.7.5 Social Responsibility and Sustainability

Participating in social responsibility initiatives: Supporting education, healthcare, and community

development projects. Promoting ethical and fair business practices: Maintaining transparency and
responsible conduct in all operations. Contributing to the economic development of
Bangladesh: Mobilizing savings and investing in various sectors

15
 Chapter: 3
Methodology of The Study: Data and Method

3.1 Data collection technique

3.2 Data processing and analysis technique
3.3- Data Analysis Challenges and Considerations in Bangladesh

16
3.1 Data Collection Technique

The methodology of the study has been discussed in the following sub-heads:

Nature of the Study

This study was descriptive research where I analyzed mainly secondary data to find out the situation
of risk and profitability of Popular Life Insurance Company.

Sources of Data
All the data was gathered for report writing during the internship course. Information collected to
furnish this report is mainly secondary. Primary information from the organization was gathered
through informal discussion.

Primary Source
 Face-to-face conversation with the respective officers and staff of Popular Life Insurance
Company.
 Practical work experience Department of Finance & Accounting of Popular Life Insurance
Company.
Secondary Source
 Annual reports of Popular, Prime & Fareast Life Insurance Company Ltd.
 Website of Popular, Prime & Fareast Life Insurance Company.
 Different internal manuals of Popular Life Insurance Company Ltd.
 DSE and SEC Library.

3.2 Data Processing and Analysis Technique

Data Sources:

Policyholder data Demographics, health history, lifestyle habits, policy

details, claims history, etc.
External data Mortality tables, socioeconomic data, medical
databases, weather data, etc.
Data cleaning and pre-processing Data Processing Techniques:

Data transformation Identifying and correcting errors, missing values, and

inconsistencies.
Data integration Formatting data for analysis, feature engineering, etc.

17
3.3- Data Analysis Challenges and Considerations in Bangladesh

Data quality and availability Lack of standardized data collection and reporting
practices.

Limited access to external data sources Difficulty in obtaining relevant data from other
institutions.

Technical expertise Shortage of skilled professionals in data science and

analytics.

Regulatory compliance Navigating complex and evolving regulations in the

insurance industry.

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 Chapter: 4

RESULT AND DISCUSSION OF FINANCIAL ANALYSIS

IN POPULAR LIFE INSURANCE COMPANY LIMITED

4.1- Financial Performance Analysis of Popular Life Insurance Co.

Limited (PLICL)
4.2-Ratio Analysis
4.3- Analysis of Risk
4.3.1. -Liquidity Analysis
4.3.2. -Solvency Analysis
4.4- Financial Operational Efficiency Analysis
4.4.1 -Combined Ratio (CR)
4.4.2- Investment Income Ratio (IR)
4.5- Analysis of Profitability
4.5.1 -Return on Assets Ratio (ROA)
4.5.2-Return on Equity Ratio (ROE)
4.5.3- Return on Capital Employed Ratio (ROCE)
4.5.4 -Profit Margin Ratio (PM)

19
4.1 Financial Performance Analysis of Popular Life Insurance Co. Limited
(PLICL)
Financial analysis is the process of understanding the risk and profitability of a company through
analysis of reported financial information, particularly annual and quarterly reports. Investors need
this information to estimate both future cash flows from the firm and the riskiness of those cash flows.
Financial managers need an in-depth risk and profitability analysis if a comprehensive evaluation of a
company’s performance is required. Financial analysis also concentrates on how a particular firm
compares with other firms in its industry (benchmarking). The following are some devices to analyze
the risk and profitability of PLICL.

4.2 Ratio Analysis

Financial ratios are mathematical equations derived from information presented on a company’s
financial statements. Every ratio measures a unique association that may have an impact on other
ratios. All financial ratios are used as indicators to reveal the financial health of the company.
Financial ratios are represented in percentage or decimal format, which allows comparing a
company's ratios to its competitors. Company owners, stockholders, or potential investors should
understand how to calculate key financial ratios and their importance in analyzing the financial pulse
of a firm. In this paper, I have used some ratios for analyzing the risk and profitability of PLICL.

4.3 Analysis of Risk

Analysis of risk typically aims at detecting the underlying liquidity risk, solvency risk, and financial
operating risk of PLICL

4.3.1. Liquidity Analysis

Liquidity risk can best be described as the risk of short-term funding crisis. Unexpected events, such
as a large claim or a loss of confidence, or a legal crisis, can cause such funding crisis. Liquidity is a
pre-requisite for the survival of an enterprise. But liquidity is not as big a concern with many life
insurance companies as it is in other financial institutions for one good reason: most of their policies
are less liquid than their assets. Life insurance companies are required to maintain their investment
portfolio as per insurance law. The significant portion of the investment portfolio is usually kept with
different banks as fixed deposit rate (FDR) under different maturity bucket which serves the purpose
of liquidity. In addition, the companies keep a considerable amount in saving term deposit (STD) and
current account.
For unique characteristics of life insurance, the liquidity ratio of other financial institutions is
generally not applicable. Hence, I have used the following formula for analyzing the liquidity risk of

20
life insurer, which has suggested by Credit Rating Agency of Bangladesh (CRAB).
Liquidity Ratio (LR) = Liquid Assets/Total Liabilities
According to CRAB, the minimum requirement for the ratio of liquid assets to total liabilities for life
insurers is 60%. Usually, a high liquid ratio indicates the lower the liquidity risk and the lower the
opportunity for profit.

Table 1: Liquidity Ratio of PLICL

Year Liquid Assets Total Liabilities LR Change in
% of LR
2013 12546673354 25095053566 0.50

2014 11778904246 26288523851 0.42 -16%

2015 12092253511 28617755326 0.42 0%
2016 8851670769 26083922340 0.34 -25%
2017 8732455478 24694612320 0.35 4%
Mean 0.41
SD 0.07
CV 16%
Data Source: Annual Report of PLICL from 2013-2017

Figure-1: Trend of Liquidity Ratio of PLICL

Liquidity Ratio
0.60

0.50 0.50

0.42 0.42
0.40
0.34 0.35
0.30

0.20

0.10

0.00
2013 2014 2015 2016 2017

Source: Table-1

Interpretation: Here we see that in the year 2013, the ratio was 0.50. Then in 2014, the ratio was
decreased by 16% and move to 0.42. After in 2015, the ratio was 0.42. Then in 2016, the ratio was

21
decreased 25% and move to 0.34. At last in 2017, the ratio was increased by 4% and move to 0.35. It
means that company is losing its liquidity ability day by day.
4.3.2. Solvency Analysis
'Solvency' is defined differently by different users. It is the ability of an insurer to meet all its
liabilities whenever they fall due. So, the solvency ratio is a measure of the risk an insurer faces of
claims that it cannot absorb. The primary function of an insurer is to manage all its risks in such a way
as to be able at all times to meet its commitments to the policyholders. The solvency ratio of an
insurance company is the size of its capital relative to premium written. In Bangladesh, there is no
statutory requirement for solvency margin nor has any formula for calculation of solvency margin,
which is used to test the solvency of the life insurer. Hence, I have used the following formula for
analyzing the solvency risk of life insurer, which has suggested by Credit Rating Agency of
Bangladesh (CRAB).
Solvency Ratio (SR) = Policyholder’s Surplus/Net Premium Written

Table-2: Solvency Ratio of PLICL

year Policyholder’s Net Premium Written SR Change in % of SR
Surplus
2013 308307950 6397333214 0.05

2014 421631130 6611763938 0.06 24%

2015 636232641 6688512282 0.10 33%
2016 636232641 5996774364 0.11 10%
2017 636232641 5002754828 0.13 17%
Mean 0.09
SD 0.03
CV 36%
Data Source: Annual Report of PLICL from 2013-2017

Figure 2: Trend of Solvency Ratio of PLICL

0.14
Solvency Ratio
0.13
0.12
0.10 0.11
0.10
0.08
0.06 0.06
0.05
0.04
0.02
0.00
2013 2014 2015 2016 2017

22
 Source: Table-2
Interpretation: Here we see that in the year 2013, the ratio was 0.05. Then in 2014, the ratio was
increased by 24% and move to 0.06. After in 2015, the ratio was increased by 33% and move to
0.10. Then in 2016, the ratio was increased 10% and move to 0.11. At last in 2017, the ratio was
increased 17% and move to 0.13. It means that the ability of solvency is increasing day by day.

4.4. Financial Operational Efficiency Analysis

To obtain an accurate picture of an insurer’s risk and profitability, it is important to analyze the
overall gain or loss from operations. So, I have used operating ratio to evaluate the PLICL’s overall
operating financial efficiency, which depends to a great extent on the control of underwriting
expenses and investment. The operating ratio of PLICL comprises underwriting ratio (also called
combined ratio) minus investment income ratio, because underwriting ratio does not include any
reflection of the investment. Moreover, investment income generally helps to offset any underwriting
losses. The formula for operating ratio is expressed as:
Operating Ratio (OR) = Combined Ratio (CR) - Investment Income Ratio (IR)

4.4.1 Combined Ratio (CR)

Combined ratio is also used a measure of the profitability of an insurance company, because it is an
indication of an insurance company's health. The combined ratio equals expenses and losses divided
by revenue from premiums. The result is expressed as a percentage, and a value more than 100
percent, the insurer has an underwriting loss. So, a combined ratio above 100% indicates that a carrier
is paying out more in claims and expenses than it is taking in premiums. The word "combined" is used
because it includes two ratios:
Loss Ratio
Expense Ratio
The formula for the combined ratio is expressed as:
Combined Ratio = Loss Ratio + Expense Ratio = Net Claims + Underwriting Expenses
Net Premium Earned
Loss Ratio (LOR): The loss ratio is determined by dividing the net claims by net premiums earned.
The formula for loss ratio is expressed as:
Loss Ratio (LOR) = Net Claims/Net Premium Earned
The result is expressed as a percentage and a lower loss ratio shows higher operating profit and vice
versa. Higher loss ratios may indicate that an insurance company may need better risk management

23
policies to guard against future possible insurance payouts.

Table 3: Loss Ratio of PLICL

year Net Claims Net Premium Earned Loss Ratio Change in % of LR
2013 1370241807 6410354694 0.21

2014 2510151085 6623172050 0.38 44%

2015 6044895560 6701142996 0.90 58%
2016 8053699840 6005742870 1.34 33%
2017 6218462032 5011622727 1.24 -8%
Mean 0.90
SD 0.50
CV 56%
Data Source: Annual Report of PLICL from 2013-2017

Figure 3: Trend of Loss Ratio of PLICL

Loss Ratio
1.60
1.40
1.34
1.20 1.24

1.00
0.90
0.80
0.60
0.40 0.38
0.20 0.21

0.00
2013 2014 2015 2016 2017

Source: Table-3
Interpretation: Here we see that in the year 2013, the ratio was 0.21. Then in 2014, the ratio was
increased by 44% and move to 0.38. After in 2015, the ratio was increased by 58% and move to
0.90. Then in 2016, the ratio was increased by 33% and move to 1.34. At last in 2017, the ratio was
decreased by 8% and move to 1.24. It means that despite of 2017, Loss ratio of the company is
increasing year to year.
Expense Ratio (ER): The amount of a company's net premiums that were allocated to underwriting

24
costs, like commissions to agents and brokers, state and municipal taxes, salaries, benefits and other
operational expenses. This ratio is determined by dividing the underwriting expenses total by net
premiums earned. The formula for loss ratio is expressed as:
Expense Ratio (ER) = Underwriting Expenses/Net Premium Earned
The result is expressed as a percentage, and lower loss ratio shows higher operating profit and vice
versa. So, it is the measure of an insurer's business efficiency to investors.

Table 4: Expense Ratio of PLICL

year Underwriting Net Premium Expense Change in % of ER
Expenses Earned Ratio
2013 1151428091 6410354694 0.18

2014 2528329076 6623172050 0.38 53%

2015 2696549350 6701142996 0.40 5%
2016 2555655605 6005742870 0.43 5%
2017 2475693476 5011622727 0.49 14%
Mean 0.38
SD 0.12
CV 31%
Data Source: Annual Report of PLICL from 2013-2017

Figure-4: Trend of Expense Ratio of PLICL

0.60
Expense Ratio
0.50 0.49
0.40 0.43
0.40 0.38
0.30

0.20 0.18
0.10

0.00
2013 2014 2015 2016 2017

Source: Table-4
Interpretation: Here we see that in the year 2013, the ratio was 0.18. Then in 2014, the ratio was
increased by 53% and move to 0.38. After in 2015, the ratio was increased by 5% and move to 0.40.
Then in 2016, the ratio was increased by 5% and move to 0.43. At last in 2017, the ratio was
increased by 14% and move to 0.49. It means that Expense ratio of the company is increasing year to

25
year.

Table-5: Combined Ratio of PLICL

PLICL
Year Loss Ratio Expense Ratio Combined Ratio
2013 .21 .18 .39
2014 .38 .38 .76
2015 .90 .40 1.33
2016 1.34 .43 1.77
2017 1.24 .49 1.73
Mean 1.19
SD 0.60
CV 51%
Data Source: Annual Report of PLICL from 2013-2017

Figure-5: Trend of Combined Ratio of PLICL

2.00
Combined Ratio
1.80 1.77 1.73
1.60
1.40
1.30
1.20
1.00
0.80 0.76
0.60
0.40 0.39
0.20
0.00
2013 2014 2015 2016 2017
So
urce: Table-5

Interpretation: Here we see that in the year 2013, the ratio was 0.39. Then in 2014, the ratio was
increased and move to 0.76. After in 2015, the ratio was increased and move to 1.30. Then in 2016,
the ratio was increased and move to 1.77. At last in 2017, the ratio was decreased and move to 1.73.
It means that despite of 2017, combined ratio is increasing year to year.

4.4.2 Investment Income Ratio (IR)

Though investment income ratio is a part of profitability ratio, here I have used IR for finding the

26
actual operating ratio. Because combined ratio does not include any reflection of the investment
income. The investment income ratio equals investment income divided by revenue from premiums.
The formula for IR ratio is expressed as:
Investment Income Ratio = Investment Income/Net Premium Earned
The result is expressed as a percentage, and higher IR ratio shows higher operating profit and vice
versa.

27
 Table 6: Investment Income Ratio of PLICL
year Investment Net Premium Earned IR Change in % of IR
Income
2013 1922771622 6410354694 0.30

2014 2153552686 6623172050 0.33 8%

2015 2423353629 6701142996 0.36 10%
2016 1934835524 6005742870 0.32 -12%
2017 1821166689 5011622727 0.36 11%
Mean 0.33
SD 0.03
CV 8%
Data Source: Annual Report of PLICL from 2013-2017

Figure-6: Trend of Investment Income Ratio of PLICL

Investment Income Ratio

0.40
0.36 0.36
0.35
0.33 0.32
0.30 0.30
0.25
0.20
0.15
0.10
0.05
0.00
2013 2014 2015 2016 2017

Source: Table-6

Interpretation: Here we see that in the year 2013, the ratio was 0.30. Then in 2014, the ratio was
increased by 8% and move to 0.33. After in 2015, the ratio was increased 10% and move to 0.36.
Then in 2016, the ratio was decreased by 12% and move to 0.32. At last in 2017, the ratio was
increased by 11% and move to 0.36. It means that the movement of investment income ratio of the
company is volatile.

28
 Table-7: Operating Ratio of PLICL
PLICL
Year CR IR 0R
2013 .39 .30 .09
2014 .76 .33 .44
2015 1.30 .36 .94
2016 1.77 .32 1.44
2017 1.73 .36 1.37
Mean 0.86
SD 0.59
CV 68%
Data Source: Annual Report of PLICL from 2013-2017

Figure-7: Trend of Operating Ratio of PLICL

1.60
Operating Ratio
1.40 1.44
1.37
1.20
1.00 0.94
0.80
0.60
0.40 0.44
0.20
0.09
0.00
2013 2014 2015 2016 2017

Source: Table-7

Interpretation: Here we see that in the year 2013, the ratio was 0.09. Then in 2014, the ratio was
increased and move to 0.44. After in 2015, the ratio was increased and move to 0.94. Then in 2016,
the ratio was increased and move to 1.44. At last in 2017, the ratio was decreased and move to 1.37.
It means that despite of 2017, The operating ratio is increasing year to year.

4.5. Analysis of Profitability

Profitability reflects the final result of business operation. It helps to establish future earning
capability of the business. Profit is an absolute figure whereas profitability is defined as profits
expressed as a proportion of total assets, total capital employed and total equity.

29
4.5.1 Return on Assets Ratio (ROA)
The rate of return on assets is the most comprehensive accounting measure of a life insurer’s overall
performance. Since it is defined as net profit during total assets, it shows the profit earned per taka of
assets. It is an indicator of life insurer’s efficiency and a measure of the life insurer’s ability to earn
funds from its total operations. More important, it gauges how effectively a life insurance company
uses its financial and real investments to generate profits. The formula for ROA ratio is expressed as:
ROA Ratio = Net Profit/Total Assets

Table-8: ROA Ratio of PLICL

year Net Profit Total Assets ROA Change in % of ROA
2013 1274272000 25330844961 0.05

2014 1748562000 26720154981 0.07 23%

2015 2696133000 29253987967 0.09 29%
2016 2341537000 28806626877 0.08 -13%
2017 3495493000 25403361516 0.14 41%
Mean 0.09
SD 0.03
CV 39%
Data Source: Annual Report of PLICL from 2013-2017

Figure-8: Trend of ROA Ratio of PLICL

Return on Asset (ROA)

0.16
0.14 0.14
0.12
0.10
0.09
0.08 0.08
0.06 0.07
0.05
0.04
0.02
0.00
2013 2014 2015 2016 2017

Source: Table-8

Interpretation: Here we see that in the year 2013, the ratio was 0.05. Then in 2014, the ratio was
increased by 23% and move to 0.07. After in 2015, the ratio was increased by 29% and move to
0.09. Then in 2016, the ratio was decreased by 13% and move to 0.08. At last in 2017, the ratio was

30
increased by 41% and move to 0.14. It means that despite of 2016, Return on asset of the company is
increasing year to year.

4.5.2 Return on Equity Ratio (ROE)

ROE captures profitability from the policyholders’ perspective that reflects how effectively an
insurance company is using policyholders’ investment. For unique characteristics of life insurance,
the return on equity ratio of other financial institutions is generally not applicable. That is why Jeff
Madura has said in his Financial Markets and Institutions book that the profitability of insurance
companies is often assessed using the return on net worth (or policyholders’ surplus) as a ratio, as
follows:
Return on Equity = Net Profit/Policyholder’s Surplus
Less variability in the return on equity ratio indicates proper or efficient management of
policyholders’ surplus. Generally, ROE ratio of an insurer is expressed in percentages. Here, I have
shown the ROE ratio of life insurers in absolute terms.
Table 9: ROE Ratio of PLICL
year Net Profit Policyholder’s Surplus ROE Change in % of ROE
2013 1274272000 308307950 4.13

2014 1748562000 431631130 4.05 -2%

2015 2696133000 636232641 4.24 4%
2016 2341537000 626232641 3.74 -13%
2017 3495493000 626232641 5.66 34%
Mean 4.36
SD 0.75
CV 17%
Data Source: Annual Report of PLICL from 2013-2017

Figure-9: Trend of ROE Ratio of PLICL

Return on Equity (ROE)

6.00
5.67
5.00
4.00 4.13 4.05 4.24
3.74
3.00
2.00
1.00
0.00
2013 2014 2015 2016 2017
S
ource: Table-9

31
Interpretation: Here we see that in the year 2013, the ratio was 4.13. Then in 2014, the ratio was decreased by
2% and move to 4.06. After in 2015, the ratio was increased by 4% and move to 4.24. Then in 2016, the ratio
was decreased by 13% and move to 3.74. At last in 2017, the ratio was increased by 34% and move to 5.67. It
means that the return on equity is volatile of the company.

4.5.3 Return on Capital Employed Ratio (ROCE)

This is the most important ratio for testing profitability of a business. It measures satisfactorily the
overall performance of a business in terms of profitability. This ratio expresses the relationship
between net profit earned and capital employed. The term ‘capital employed’ refers to long-term
funds supplied by the policyholders and owners of the firm. The term ‘return’ signifies net profit after
interest and taxes. This ratio is more appropriate for evaluating the efficiency of internal
management. It indicates how well the management has utilized the funds supplied by the owners and
policyholders. In other words, this ratio intends to measure the earning power of the net assets of the
business. It is figured as shown below:
ROCE Ratio = Net Profit/Net Capital Employed
A high ratio is a test of better performance and a low ratio is an indication of poor performance.
Higher the ratio, more efficient the management is considered to have been using the funds available.

Table-10: ROCE Ratio of PLICL

year Net Profit Net Capital ROCE Change in % of
Employed ROCE
2013 1274272000 25102446000 0.05

2014 1748562000 28480933000 0.06 17%

2015 2696133000 28842417000 0.09 34%
2016 2341537000 25957998000 0.09

2017 3495493000 24237054000 0.14 37%

Mean 0.09
SD 0.04
CV 41%
Data Source: Annual Report of PLICL from 2013-2017

Figure-10: Trend of ROCE Ratio of PLICL

32
 ROCE
0.16
0.14 0.14
0.12
0.10 0.09 0.09
0.08
0.06 0.06
0.05
0.04
0.02
0.00
2013 2014 2015 2016 2017

Source: Table-10
Interpretation: Here we see that in the year 2013, the ratio was 0.05. Then in 2014, the ratio was
increased by 17% and move to 0.06. After in 2015, the ratio was increased by 34% and move to
0.09. Then in 2016, the ratio was stable and remains to 0.09. At last in 2017, the ratio was increased
by 37% and move to 0.14. It means that the return on capital employed of the company is increasing
year to year.

4.5.4 Profit Margin Ratio (PM)

This figure determines the profitability of an insurance company. It is the profits after all expenses
and taxes are paid by the insurance company. A ratio of profit margin calculated as net income
divided by revenues. The formula for PM ratio is expressed as:
PM Ratio = Net Profit/Total Revenues
A higher profit margin indicates a more profitable company that has better control during its costs
compared to its competitors. A decrease in this ratio may indicate more intensive competition in the
market, declining selling prices or an increased cost of underwriting.

Table-11: PM Ratio of PLICL

year Net Profit Total Revenues PM Change in % of PM
2013 1274272000 8427695913 0.15

2014 1748562000 8866628879 0.20 23%

2015 2696133000 9151288706 0.29 33%
2016 2341537000 8063807816 0.29

2017 3495493000 6908628069 0.51 43%

Mean 0.29
SD 0.136
CV 47%
Data Source: Annual Report of PLICL from 2013-

33
 Figure-11: Trend of PM Ratio of PLICL

Profit Margin Ratio

0.60
0.50 0.51
0.40
0.30 0.29 0.29
0.20 0.20
0.15
0.10
0.00
2013 2014 2015 2016 2017

Source: Table-11
Interpretation: Here we see that in the year 2013, the ratio was 0.15. Then in 2014, the ratio was
increased by 23% and move to 0.20. After in 2015, the ratio was increased by 33% and move to
0.29. Then in 2016, the ratio was stable and remains to 0.29. At last in 2017, the ratio was increased
by 43% and move to 0.51. It means that profit margin of the company is increasing year to year.

34
 Chapter: 5

FINDINGS, RECOMMENDATIONS & CONCLUSION

5.1 Findings

5.2 Conclusion

5.3 Recommendations

35
5.1 FINDINGS
This report started with an objective: To Analyze the Financial performance of Popular Life Insurance
Company Limited. Some interesting discoveries are given below:

 The liquidity of Popular Life Insurance Company Limited is very low.

 The ability of PLICL to meet all its liabilities year to year is stronger. The solvency ratio of
PLICL increased but was not up to the mark
 PLICL is inefficient in managing the policyholders’ surplus.
 PLICL is inefficient in managing the policyholders’ claims because Claims increase year to
year.
 PLICL is inefficient in managing its underwriting expenses because underwriting expenses
increase year to year.
 PLICL is very conservative in its investment.
 PLICL is efficient in managing its operating expenses because the operating Efficiency ratio
increases year to year.
 The ROA of PLICL shows an increase year to year but in year 2016 comparatively low.
 Expect in 2016 PLICL has obtained a very good level of Return on equity (ROE).
 PLICL is more efficient in managing its Net capital employed because the Return on Capital
Employed Ratio (ROCE) increases year to year.
 The Profit margin ratio (PM) is increasing year to year.
 The Analysis suggests that there is a significant positive relationship between risk and
profitability of PLICL.

5.2 CONCLUSION

The insurance business is only commercial but it has become professional now. Knowledge of
insurance is as essential as a trading business for society. Privatization of the Insurance business has
added more significance for the people. The prospects of insurance in the first years of the next
millennium decide the direction of insurance management. Safety, security, and investment have
become the needs of the present society people, now, demand insurance as compared to the previous
attitude of selling insurance to people. They have become selective and practical. The insurance
industry has to meet the expectations of people. Though Popular Life Insurance Company has some
negative aspects, the customer satisfaction rate is higher than any other insurance company in
Bangladesh. Day by day, they are trying to improve their situation. And, the company is committed to
its customers by providing better services. Here Popular life insurance company limited could

36
improve its marketing strategy for customer satisfaction. Overall, we can see that Popular life
Insurance Company limited is one of the progressive Insurance Companies in Bangladesh for its
servicing and its better performance.

5.2 RECOMMENDATIONS
The study has analytically examined the Financial Performance Analysis of Popular Life Insurance
Company Limited based on published data. Based on the study, the following recommendations can
be made:

 PLICL should concentrate its liquidity level because the liquidity Ratio is low. Due to the bad
level of solvency margin of PLICL, they should pay special attention to determining their
optimal capital structure. More especially, they should consistently generate policyholders’
surplus to remain viable in the long run.
 Operational efficiency should be increased by reducing underwriting expenses and improving
operating and management performance
 PLICL should more concentrate on net premiums earned to bring down the claims ratio and
increase their profits. Higher profits would mean better reserves which in turn would assist
the insurer to operate in times of unexpected eventualities and also help them maintain
liquidity at all times.
 Due to the strong positive relationship between risk and profitability of PLICL, they should
be more aggressive or effective in their investment policies.
 The Insurance Development and Regulatory Authority of Bangladesh (IDRA) should specify
the maximum capacity ratio for the insurers so that at any point of time the insurers have
funds available to service any unexpected claims.

37
6.0 REFERENCE(S)

Ambrose J.M. and Seward J.A. (1988). Best’s Ratings, Financial Ratios, and Prior Probabilities in
Insolvency Prediction. The Journal of Risk and Insurance, Vol. 55, No. 2, pp. 229-244.

Annual reports of Popular Life Insurance Company Limited

Brigham, Eugene F. and Houston, Joel F. (2005). Fundamental of Financial Management. 10th
Edition, United States: Thomson Southwestern.

Jahangir, N., Shill, S., and Haque, M. A. J. (2007). Examination of Profitability in the Context of
Bangladesh Banking Industry. ABAC Journal, Vol. 27, No. 2.

Jain, P. K. and Khan, M.Y. (1995). Financial Management Text and Problems, 2nd Edition, New
Delhi: Tata MeGraw-Hill Company Limited.

James, C. van Horne. (1996). Financial Management Policy. 10th Edition, New Delhi: Prentice-hall
of India.

www.idra.org.bd

www.Popularlifebd.com

www.crab.com.bd

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