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DECLARATION

I, ANUPRIYA, Roll No. 121002, student of MBA (Batch 2012-


2014) of L.N. Misha C!""#$# !% B&si'#ss Ma'a$#(#'t, Muzaffarpur
Bihar, hereby declare that the project report on )Ris* Ma'a$#(#'t i'
TATA AIA Li%# I's&a'c# in M&+a%%a,& is original and authenticated
work done by me.
I further declare that it has not been submitted elsewhere by any other
person or any other institute for the award of any degreediploma.

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C#ti%icat# !% C!(,"#ti!' %!( -ac&"t. /&i0#
!his is to certify that "ummer Internship #roject )-INANCIAL
1TATEMENT ANALY1I1 in, ICICI BAN23 prepared by PU4A , Roll
No. 121056, student of Mast# !% B&si'#ss A0(i'istati!'$
(MBA)%egree of B.R.&. Bihar 'ni(ersity, Muzaffarpur, (Batch 2012-
2014) is his genuine effort under my guidance and super(ision.
I wish her all success for his better future.

Assista't P!%#ss!
)DR. DEEPA2 2UMAR3
MBA Ph. 0

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AC2NO7LED/EMENT
!he pleasure that follows the successful completion of an assignment
would remain incomplete without a word of gratitude for the people
without whose co)operation the achie(ement would ha(e remained a
distant dream. "o I would like to intend my immense indebtness to all of
them who ha(e guided and moti(ated me throughout my research
project. I sincerely thank to all for their (aluable contribution without
which this project report would ha(e not reached its goal.
I do e*press my sincere gratitude to !&!& &I& +ife insurance,
Muzaffarpur for gi(ing me a wonderful and e*citing opportunity to work in
their esteemed organization.
My sincere thanks go to my super(isor M. 2a"##( Ah(#0, TATA AIA
Li%# I's&a'c# M&+a%%a,&, under whose help and guidance I could
successfully complete my project. I would also like to thank my faculty
M. A*hsha. 2&(a Misha, Asst. P!%#ss!, management studies of
L.N. Misha C!""#$# !% B&si'#ss Ma'a$#(#'t, Muzaffarpur Bihar,
grooming me to with stand the challenges of professional career and
permitted me to undergo a professional training.

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PRE-ACE
!his project is an integral part of our curriculum for the fulfillment of MB&
programme.
!he projects entitle ,A P!8#ct !' Ris* Ma'a$#(#'t (TATA AIA)3, was
undertaken to know and understand the Risk Management approach in
!&!& &I& +ife Insurance. !he objecti(e of the study was to know and
understand the Risk Management. !he study was conducted with the
help of secondary data that was systematically arranged and interpreted
to draw meaningful conclusions. !he study will help the -ompany to
know the key areas that need management.s attention. !he analysis will
be of great help to the -ompany in impro(ing its Risk Management
system.
LI1T O- CONTENT

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1.I't!0&cti!' t! I'0ia' I's&a'c# I'0&st. Pa$#
'!.
1.1I'0ia' I's&a'c# I'0&st. 9
1.2 A Bi#% :ist!. !% I's&a'c# s#ct! ;-6
1.<List !% I's&a'c# C!(,a'. =!*i'$ i' I'0ia 10-1<
1.4:!= I's&a'c# Ma*#t =!*s 14-19
1.5 I'0ia' 1c#'ai! 1;-1>
2. I't!0&cti!' t! I's&a'c#
2.1 I't!0&cti!' 16-24
2.2 Li%# I's&a'c# 25-29
2.< T.,#s !% Li%# I's&a'c# 2;-<0
2.4 -&'cti!' !% Li%# I's&a'c# <1-<<
2.5 R!"# !% Li%# I's&a'c# <4-<5
2.9 I(,!ta'c# !% I's&a'c# <9-<;
2.; C!'t!""i'$ A&th!it. <>-<6
<. C!(,a'. P!%i"#
<.1 I't!0&cti!' 40
<.2 :ist!. 41-4<
<.< C!(,#tit!s 44-49
<.4 P!0&ct P!%i"# 4;-4>
<.9 17OT A'a".sis 46-50
4.Ris* Ma'a$#(#'t
4.1 I't!0&cti!' 51-52
4.2O?8#cti@# a'0 1c!,# 5<
4.< T.,#s !% Ris*s 54-5;
4.4 Ris* Ma'a$#(#'t A,,!ach a'0 ,!c#ss 5>-;1
4.5 Ris* Ma'a$#(#'t t!!"s ;2
5.R#s#ach D#si$'
5.1 Tit"# O% th# 1t&0. ;<
5.2 O?8#cti@#s A Li(itati!'s !% th# st&0. ;4
5.< R#s#ach M#th!0!"!$. ;5
5.4 Data c!""#cti!', A'a".sis a'0 I't#,#tati!'s ;9->0
5.5 R#c!((#'0ati!'s >1
5.9 C!'c"&si!'s >2
5.; 1&((a. ><
5.> Bi?"i!$a,h. >4
1. I't!0&cti!' t! I'0ia' I's&a'c# I'0&st.B

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1.1 I'0ia' I's&a'c# I'0&st.
Indian Insurance sector was thrown open to competition in /000 and has
e(ol(ed since then1 thanks to robust regulatory framework, positi(e
business en(ironment and economic growth. !he industry is at an
inflection point today and all factors are well in place for it to de(elop into
one of the fastest growing financial ser(ices markets in the world. Rising
income le(els and higher awareness are boosting demand and
increasingly sophisticated consumers with (aried needs are compelling
players to come)up with customised products.
I'0&st. D.'a(ics
2o(ernment)owned +ife Insurance -orporation 3+I-4 of India is the
country.s largest insurer, controlling appro*imately 56 per cent of the
market. +ife insurance penetration in India is about 7.7 per cent of the
country.s gross domestic product 32%#4 in terms of total premiums
underwritten annually, according to the Insurance Regulatory and
%e(elopment &uthority 3IR%&4. !he penetration is 8uite less in India as
against its peers and hence, the Indian insurance market pro(ides ample
opportunities to domestic and international players to harness the
profitable a(enues in the same.
India tops all the countries in terms of life insurance density, according to
the 9orld :conomic ;orums. ;inancial %e(elopment Report /0</. It is
followed by -hina, =apan, '" > '?.
2#. 1tatistics
+ife insurance industry, comprising o(er /0 companies,
including public sector +I-, collected total premium of Rs.
@7,60<.A6 crore 3'"B <6.C@ billion4 during the &pril);ebruary
period of /0</)<C fiscal. #ri(ate insurers together raked)in
Rs /C,AD5./D crore 3'"B 7.CC billion4 in these << months,
Meanwhile, the general insurance industry grew by <D.C7 per
cent in the << months of /0</)<C fiscal wherein the /A non)
life insurers collected premium worth Rs 5<,@@6.<< crore
3'"B <<./5 billion4.

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1.2 A Bi#% :ist!. !% I's&a'c# 1#ct!B
!he business of life insurance in India in its e*isting form
started in India in the year <@<@ with the establishment of the
Eriental +ife Insurance -ompany in -alcutta.
"ome of the important milestones in the life insurance business in India
areF
1612B !he Indian +ife &ssurance -ompanies &ct enacted as the
first statute to regulate the life insurance business.
162>B !he Indian Insurance -ompanies &ct enacted to enable
the go(ernment to collect statistical information about both life and
non)life insurance businesses.
16<>F :arlier legislation consolidated and amended to by the Insurance
&ct with the objecti(e of protecting the interests of the insuring public.
1659F /76 Indian and foreign insurers and pro(ident societies
taken o(er by the central go(ernment and nationalized. +I- formed by
an &ct of #arliament, (iz. +I- &ct,
1659F with a capital contribution of Rs. 6 crore from the
2o(ernment of India. !he 2eneral insurance business in India, on the
other hand, can trace its roots to the !riton Insurance -ompany +td., the
first general insurance company established in the year <@60 in -alcutta
by the British. "ome of the important milestones in the general insurance
business in India areF
165; F 2eneral Insurance -ouncil, a wing of the Insurance
&ssociation of India, frames a -ode of conduct for ensuring fair
conduct and sound business practices.
169> F !he I nsur ance &ct amended t o r egul at e
i n(est ment s and set mi ni mum sol(ency margins and the !ariff
&d(isory -ommittee set up.
16;2 F !he 2eneral Insurance Business 3Nationalization4 &ct,
<DA/ nationalized t he gener al i nsur ance busi ness i n I ndi a
wi t h ef f ect f r om <st =anuar y <DAC.

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Th# I's&a'c# R#$&"at!. a'0 D#@#"!,(#'t A&th!it.B
Ref or ms i n t he I nsur ance sect or wer e i ni t i at ed wi t h t he
passage of t he I R%& Bi l l i n #arliament in %ecember <DDD. !he
IR%& since its incorporation as a statutory body in &pril /000 has
fastidiously stuck to its schedule of framing regulations and registering
the pri(ate sector insurance companies.
!he ot her deci si on t aken si mul t aneousl y t o pr o(i de t he
suppor t i ng syst ems t o t he insurance sector and in particular the
life insurance companies was the launch of the IR%&.s online ser(ice for
issue and renewal of licenses to agents. !he appro(al of institutions for
imparting training to agents has also ensured that the insurance
companies would ha(e a trained workforce of insurance agents in place
to sell their products, which are e*pected to be introduced by early ne*t
year. "ince being set up as an independent statutory body the IR%& has
put in a framework of globally compatible regulations. In the pri(ate
sector </ life insurance and 5 general insurance companies ha(e been
registered.
ROLE O- IRDA
"ection <7 of IR;%& &ct, <DDD lays down the duties, powers > functions
of IR%&. !he power > functions of the &uthority shall includeF
<. Issue to the applicant a certificate of registration, renew, modify,
withdraw, suspend or cancel such registration.
/ . #rotection of the interests of the policy holders, insurable interest,
settlement of insurance claim, surrender (alue of policy > other terms >
conditions of contracts of insurance.
C. "pecifying re8uisite 8ualifications, code of conduct, >
practical training for intermediary or insurance intermediaries >
agents1

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7.-al l i ng f or i nf or mat i on f r om, under t aki ng i nspect i on of ,
conduct i ng en8uiries > in(estigations including audit of the insurers,
intermediaries, insurance intermediaries > other organizations
connected with the insurance business1
6.-ontrol > regulations of the rates, ad(antages, terms > conditions that
may be offered by insurer in respect of general insurance business not
so controlled >regulated by the !ariff &d(isory -ommittee under the
section 57' of the Insurance &ct, <DC@ 37 of <DC@4.
5. &djudications of disputes between insurers > intermediaries or
insurance intermediaries.
1.< LI1T O- IN1URANCE COMPANIE1 7OR2IN/ IN INDIAB

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Insurance industry, earlier comprised of only two state insurers.3M&R-G
/0</4+ife Insurers i.e. +ife Insurance -orporation of India 3+I-4 and
2eneral Insurers i.e. 2eneral Insurance -orporation of India 32I-4 2I-
had four subsidiary
-ompanies,
9ith effect from %ecH/000, these subsidiaries ha(e been de)linked from
parent company and made as an independent insurance companies,
Eriental Insurance -ompany +imited, New India &ssurance -ompany
+imited, National Insurance -ompany +imited and 'nited India
Insurance -ompany +imited.
!he first batch of licenses was issued by the Insurance Regulatory and
%e(elopment &uthority 3IR%&4 in /00<. &s on %ecember /0</ following
are the players in the Indian MarketF !oday there are /7 general
insurance companies including the :-2- and &griculture Insurance
-orporation of India and /C life insurance companies operating in the
country.
LI-E IN1URER1 IN INDIAB
<. Bajaj &llianz +ife Insurance -ompany +imited
/. Birla "un +ife Insurance -o. +td
C. G%;- "tandard +ife Insurance -o. +td
7. I-I-I #rudential +ife Insurance -o. +td
6. India ;irst +ife Insurance -ompany +td
5. IN2 Iysya +ife Insurance -ompany +td.
A. +ife Insurance -orporation of India
@. Ma* New Jork +ife Insurance -o. +td

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D. Met +ife India Insurance -ompany +td
.
<0. ?otak Mahindra Eld Mutual +ife Insurance +imited
<<. "BI +ife Insurance -o. +td
</. !ata &I& +ife Insurance -ompany +imited
<C. Reliance +ife Insurance -ompany +imited.
<7. &(i(a +ife Insurance -ompany India +imited
<6. "ahara India +ife Insurance -o, +td.

<5. "hriram +ife Insurance -o, +td.
<A. Bharti &K& +ife Insurance -ompany +td.
<@. ;uture 2enerali India +ife Insurance -ompany +imited
<D. I%BI ;ortis +ife Insurance -ompany +td.
/0. -anara G"B- Eriental Bank of -ommerce +ife Insurance -ompany
+td.
/<. &egon Religare +ife Insurance -ompany +imited
//. %+; #ramerica +ife Insurance -ompany +imited
/C. "tar 'nion %ai)Ichi +ife Insurance -ompany +imited

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/7. India ;irst +ife Insurance -ompany +imited
/6. :delweiss !okyo +ife Insurance -o. +td.
/RAP:ICAL PRE1ENTATION O- ALL LI-E IN1URANCE
COMPANIE1
IN INDIAB
!oday there are /7 general insurance companies including the :-2-
and &griculture Insurance -orporation of India and /C life insurance
companies operating in the country.

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NON-LI-E (/ENERAL) IN1URER1B
<.Bajaj &llianz 2eneral Insurance -o. +td.
/.I-I-I +ombard 2eneral Insurance -o. +td.
C.I;;-E !okyo 2eneral Insurance -o
7.National Insurance -o.+td.
6.!he New India &ssurance -o. +td.
5.!he Eriental Insurance -o. +td.
A.Reliance 2eneral Insurance -o. +td.
@.Royal "undaram &lliance Insurance -o. +td
D.!ata &I2 2eneral Insurance -o. +td.
<0.'nited India Insurance -o. +td.
<<.-holamandalam M" 2eneral Insurance -o. +td.
</.G%;- :R2E 2eneral Insurance -o. +td.
<C.:*port -redit 2uarantee -orporation of India +td.
<7.&griculture Insurance -o. of India +td.
<6."tar Gealth and &llied Insurance -ompany +imited
<5.&pollo %?I Insurance -ompany +imited
<A.;uture 2enerali India Insurance -ompany +imited
<@.'ni(ersal "ompo 2eneral Insurance -o. +td.
<D."hriram 2eneral Insurance -ompany +imited
/0.Bharti &*a 2eneral Insurance -ompany +imited
/<.Raheja LB: 2eneral Insurance -ompany +imited
//."BI 2eneral Insurance -ompany +imited
/C.Ma* Bupa Gealth Insurance -ompany +imited
/7.+>! 2eneral Insurance -ompany +imited.
REIN1URER1 IN INDIAB
/ENERAL IN1URANCE CORPORATION O- INDIA
1.4 :!= I's&a'c# (a*#t =!*sC
"imply put, insurance companies help consumers manage their risk. In
e*change for a constant stream of premiums, insurance companies offer
to pay consumers a sum of money upon the occurrence of a

13
predetermined e(ent, such as a natural catastrophe, a car crash, or a
doctorHs (isit
More broadly put, insurance companies create (alue by pooling and
redistributing (arious types of risk. It does this by collecting liabilities 3i.e.
premiums4 from e(eryone that it insures and then paying them out to the
few that actually need them. !he insurance company can then effecti(ely
redistribute those liabilities to entities faced with some sort of e(ent)
dri(en crisis, where they will ostensibly need more cash than they
currently ha(e on hand. &s not e(eryone within the pool will actually
suffer an e(ent re8uiring the total use of all of their premiums, this
pooling and redistribution function lowers the total cost of risk
management for e(eryone in the pool.
Insurance companies theoretically make money in two waysF
By charging enough premiums to co(er the e*pected payouts that
they will ha(e to co(er o(er the life of the policy
By earning in(estment returns 3Mthe floatM4 using the collected
premiums
In actual practice, most insurance companies pay out almost all of their
premiums in order to attract larger customer (olumes and liabilities.
-hief earnings focus is thus placed on in(estment returns. Insurers will
often use insurance agents to initially market or underwrite their
customers. &gents can be capti(e, meaning they write only for one
company, or independent, meaning that they can issue policies from
se(eral companies. !he e*istence and success of companies using
insurance agents is likely due to impro(ed and personalized ser(ice.

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IN1URANCE MAR2ET PRODIDE1 IN1URANCE IN -OLLO7IN/
-ORM1B

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:O7 AN IN1URANCE 7OR21C
1.5 I'0ia' sc#'ai!

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Th# I'0ia' (a*#t sc#'ai! !% i's&a'c# 1#ct!B
9ith an annual growth rate of <6)/0N and the largest number of life
insurance policies in force, the potential of the Indian insurance industry
is huge. !otal (alue of the Indian insurance market is estimated at Rs.
760 billion 3'"B<0 billion4. &ccording to go(ernment sources, the
insurance and banking ser(ices. contribution to the countryHs gross
domestic product 32%#4 is AN out of which the gross premium collection
forms a significant part.
!he funds a(ailable with the state)owned +ife Insurance -orporation
3+I-4 for in(estments are @N of 2%#. !ill date, only /0N of the total
insurable population of India is co(ered under (arious life insurance
schemes, the penetration rates of health and other non)life insurances in
India is also well below the international le(el. !hese facts indicate the of
immense growth potential of the insurance sector. !he year <DDD saw a
re(olution in the Indian insurance sector, ending of go(ernment
monopoly and the passage of the Insurance Regulatory and
%e(elopment &uthority 3IR%&4 Bill, lifting all entry restrictions for pri(ate
players and allowing foreign players to enter the market with some limits
on direct foreign ownership.
!hough, the e*isting rule says that a foreign partner can hold /5N
e8uity in an insurance company, a proposal to increase this limit to 7DN
is pending with the go(ernment. "ince opening up of the insurance
sector in <DDD, foreign in(estments of Rs. @.A billion ha(e poured into
the Indian market and /< pri(ate companies ha(e been granted
licenses. Inno(ati(e products, smart marketing, and aggressi(e
distribution ha(e enabled fledgling pri(ate insurance companies to sign
up Indian customers faster than anyone e*pected. Indians, who had
always seen life insurance as a ta* sa(ing de(ice, are now suddenly
turning to the pri(ate sector.

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!he life insurance industry in India grew by an impressi(e C5N, with
premium income from new business at Rs. /6C.7C billion, bra(ing stiff
competition from pri(ate insurers. +I- has clocked /<.@AN growth in
business at Rs.<DA.@5 billion by selling /.7 billion new policies in. But
this was still not enough to arrest the fall in its market share, as pri(ate
players grew by </DN to mop up Rs. 66.6A billion. !hough the total
(olume of +I-Hs business increased, its market share came down from
@A.07 to A@.0AN. !he <7 pri(ate insurers increased their market share
from about <CN to about //N in a yearHs time.
!he figures also speak of the growing share of the pri(ate insurers. !he
rate at which the pri(ate share has increased, it clearly shows the
potential of this sector. In the globalize market scenario India has big
role to play. #eople in India are brand conscious and show loyalty to a
brand if they belie(e in it or ha(e known it for 8uite a long time is one of
the features of Indian market which needs to be understood.
2. INTRODUCTION TO IN1URANCE

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/.< I't!0&cti!'
Insurance is a way to manage risk. &s you go through your life, there.s
always a chance that you.ll be in a car accident, twist your knee, or that
your home will burn down. !he risk of these accidents is small, but if one
of them were to happen, the effects could be catastrophic. 9ithout
insurance, you.d ha(e to come up with the money on your own to repair
your car, ha(e knee surgery, or rebuild your home. &lthough these
things happen to some people, they don.t happen to e(eryone. 9ith
enough data, it.s possible to know roughly how many people are likely to
e*perience these setbacks and how much it will cost to reco(er from
them. 'sing this info, an insurance company can spread the risk among
all its customers.
I's&a'c# is the e8uitable transfer of the risk of a loss, from one entity
to another in e*change for payment. It is a form of risk management
primarily used to hedge against the risk of a contingent, uncertain
loss.&n insurer, or insurance carrier is a company selling the insurance1
the insured, or policyholder, is the person or entity buying the insurance
policy. !he amount of money to be charged for a certain amount of
insurance co(erage is called the premium.
!he transaction in(ol(es the insured assuming a guaranteed and known
relati(ely small loss in the form of payment to the insurer in e*change for
the insurerHs promise to compensate 3indemnify4 the insured in the case
of a financial 3personal4 loss. !he insured recei(es a contract, called the
insurance policy, which details the conditions and circumstances under
which the insured will be financially compensated.
:ist!. !% I's&a'c#B

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!he first know form of insurance appeared in -hina as early as 6000
B-. It was a way for traders and merchant to reduce their losses in the
e(ent their cargo was stolen or destroyed. !he first know form of
+ife Insurance began in ancient Rome. !hey were called burial clubs and
they co(ered the cost of memberHs funeral e*pense and help the
members sur(i(ing family out monetarily.
Modern life insurance began in the late <Ath century :ngland as a
replacement for traders insurance. In '", it was <DA0s when the first
modern life insurance plans began. !he #resbyterian -hurch in New
Jork and #hiladelphia created the -orporation for Relief of #oor and
%istressed 9idows and -hildren of #resbyterian Ministers in <A6D. !his
was created under the -hristian doctrine that it is the responsibility of the
-hurch to help the poor, needy, and widowed. +ater the :piscopalian
priests created a similar fund in <A5D. ;rom <A@A to <@CA o(er a dozen
life insurance companies sprang into being, but less than half sur(i(ed
that century.
Before the &merican -i(il 9ar plantation owners could insure the li(es of
their sla(es against suddenly or unnatural death. Injures and other
disabilities could also be insured. !he plantation owner would be paid a
sum if said sla(e died or was rendered incapable of working. !his
abominable practice was done because sla(es were seen as property,
not as human beings. !he sale of these policies ended fifteen year
before the :mancipation #roclamation was passed.
In the /<st century all insurance companies sell some form of
life insurance. It is the number one form of insurance purchased
worldwide. Much of it is sold to people after they ha(e children in hopes
that in the e(ent of an early and sudden death the sum paid to the policy
holderHs beneficiaries will be able to use the money to bury their lo(ed
ones and support them economically.

20
Pi'ci,"#s !% I's&a'c#B
(1) I'0#('it.
& contract of insurance is a contract of indemnity. Indemnity means that
the
Insured in case of loss against which the policy has been insured, shall
be paid the actual amount of loss not e*ceeding the amount of the policy
i.e. he shall be fully indemnified. !he purpose of contract of insurance is
to place the insured in the same financial position, as he was before the
loss.
"uppose, a person insured his factory for Rs./0 lakhs against fire, the
factory is partially burnt and it is estimated that a sum of Rs.<0 lakhs will
be re8uired to restore it to the original condition. !he insurer is liable to
pay Rs.<0 lakhs only. !he e*ceptions to the rule are found in #ersonal
&ccident policies, &greed Ialue policies in marine insurance and
Ialuables and reinstatement policies in :ngineering insurance. !hese
are also contracts of indemnity but by a special application of the
principle, the amount of indemnity is decided at the time of entering into
the contract itself.
(2) Ut(!st $!!0 %aith
!he doctrine of utmost good faith applies to all forms of insurance. Both
parties of the insurance contract must be of the same mind at the time of
contract. !here should not be any fraud, non)disclosure or
misrepresentation concerning the material facts. &n insurance contract is
a contract of absolute good faith where both parties of the contract must
disclose all the material facts truly and fully as insurance shifts risk from
one party to another. &s in insurance insured knows more about the
risks than the insurer, so there must be utmost good faith and mutual
confidence between insured and insurer. ;or instance, if a person
suffers from a serious in(isible disease but does not disclose this fact
while getting his life insured, the insurance company can a(oid the
contract. "imilarly the insurer must e*ercise the same good faith in
disclosing the scope of the insurance, which he is prepared to grant.
Breach of good faith renders the contract (oidable a b initio at the
discretion of the aggrie(ed party. & material fact is a fact which would

21
influence the mind of an insurer in deciding whether he should accept
the risk, on what terms and what premium he should charge.
!he utmost good faith says that all material facts should be disclosed in
true and full form. It means that the facts should be disclosed in that form
in which they really e*ist. !here should no false statement and no half)
truth nor any silence on the material facts.
(<) I's&a?"# i't##st
;or an insurance contract to be (alid, the insured must ha(e an
insurable interest in the subject matter of insurance. It means that the
insured must ha(e an actual pecuniary interest. !he insured must be so
situated with regard to the thing insured that he would ha(e benefit by its
e*istence and loss from its destruction.
;or instance, a person has insurable interest in his life or in the life of the
spouse but he has no insurable interest in the life of a stranger. !he
owner of a building has absolute insurance interest. If this building is
financed by banks then financiers too ha(e their interest in the property
but is limited to the e*tent of their financial commitment only. !he
insurable interest must e*ist both at the time of the proposal and at the
time of claims but in case of life insurance, insurable interest must e*ist
only when the policy is taken.
!he essentials of a (alid insurable interest are the followingF
3a4!here must be a subject matter to be insured.
3b4 !he insured should ha(e monetary relationship with the subject
matter.
3c4!he relationship between the insured and the subject matter
should be recognized by law i.e. there should not be any illegal
relationship between the insured and the subject matter.
3d4 !he financial relationship between the insured and the subject
matter
"hould be such that the insured is financially benefited by its
e*istence or sur(i(al and will suffer economic loss at the

22
destruction or death of the subject matter .!he subject matter is life in life
insurance, property and goods
in property insurance, liability and ad(enture in general insurance.
Insurable interest is essentially a pecuniary interest, no emotional or
sentimental loss, like an e*pectation or an an*iety, could be the ground
of the insurable interest.
374 P!Ei(at# ca&s#
!he rule of pro*imate cause says that the cause of the loss must be
pro*imate or immediate and not remote. If the pro*imate cause of the
loss is a risk insured against, the insured can reco(er. If the risk insured
is the outcome of a remote cause, which is not insured against, then the
insurer is not bound to pay compensation. #ro*imate cause means the
acti(e efficient cause that sets in motion a chain of e(ents, which brings
about a result, without inter(ention of any force started and working
acti(ely from a new and independent source.
!hat means pro*imate cause is the cause which in a natural and
unbroken series of e(ents is responsible for a loss or damage.
If there is a single cause of the loss, the cause will be pro*imate cause
and if the cause of loss was insured, insurer will ha(e to indemnify the
loss. 9hen a loss has been brought about by two or more causes, the
8uestion arises as to which is the pro*imate cause. If the causes
occurred in form of chain, they ha(e to be obser(ed seriously. ;or the
policy to co(er the loss must ha(e an insured peril must occur in the
chain of causation that links the pro*imate cause with the loss .!he
pro*imate cause is not necessarily, the cause that was nearest to the
damage either in time or in place, but is rather the cause that was
actually responsible for loss.
(4) 1&?!$ati!'
!he doctrine of subrogation is a corollary to the principle of indemnity
and applies only to fire and marine insurance. &ccording to it, when an
insured has recei(ed full indemnity in respect of his loss, all rights and
remedies which he has against third person will pass on to the insurer.
!he insurer.s right of subrogation arises only when he has paid for the

23
loss and this right e*tends only to the right sand remedies a(ailable to
the insured in respect of the thing to which the contract of insurance
relates.
If the insured is in a position to reco(er the loss in full or in part from a
third party due to whose negligence the loss may ha(e been occurred,
his right of reco(ery is subrogated 3substituted4 to the insurer on
settlement of the claim. !he insurers, thereafter, can reco(er the claim
from the third party or in case the lost property is reco(ered or the
damaged property fetches any (alue, the insurer will be its owner.
"uppose, a house is insured for Rs./ lakhs against fire, the house is
damaged by fire and the insurer pays the full (alue of Rs./ lakhs to the
insured. +ater on the damaged house is sold for Rs./0, 000. !he insurer
is entitled to recei(e the sum of Rs./0, 000.

24
2.2 Li%# I's&a'c#B
Li%# i's&a'c# 3or commonly "i%# ass&a'c#, especially in
the -ommonwealth4is a contract between an insured 3insurance policy
holder4and an insurer or assurer, where the insurer promises to pay a
designated beneficiary a sum of money 3the MbenefitsM4 upon the death
of the insured person. %epending on the contract, other e(ents such
as terminal illness or critical illness may also trigger payment. !he policy
holder typically pays a premium, either regularly or as a lump sum. Ether
e*penses 3such as funeral e*penses4 are also sometimes included in the
benefits.
+ife policies are legal contracts and the terms of the contract describe
the limitations of the insured e(ents. "pecific e*clusions are often written
into the contract to limit the liability of the insurer1 common e*amples are
claims relating to suicide, fraud, war, riot and ci(il commotion.
+ife)based contracts tend to fall into two major categoriesF
#rotection policies O designed to pro(ide a benefit in the e(ent of
specified e(ent, typically a lump sum payment. & common form of
this design is term insurance.
In(estment policies O where the main objecti(e is to facilitate the
growth of capital by regular or single premiums. -ommon forms 3in
the '"4 are whole life, uni(ersal life and (ariable life policies.
"imply, a life insurance is a contract with an insurance company. In
e*change for premiums 3payments4, the insurance company pro(ides a
lump)sum payment known as a death benefit, to beneficiaries in the
e(ent of the insuredHs death. !ypically, life insurance is chosen based on
the needs and goals of the owner.
+ife Insurance is different from other insurance in the sense that the
subject matter of insurance is life of human being. !he insurer will pay
the fi*ed amount of insurance at the death or at the e*piry of certain

25
period. &t present, life insurance enjoys ma*imum scope because each
and e(ery person re8uires the insurance.
!his insurance pro(ides protection to the family at the premature death
or gi(es ade8uate amount at the old age when earning capacities are
reduced

26
!he goal of life insurance is to pro(ide a measure of financial security
for your family after you die. "o, before purchasing a life insurance
policy, you should consider your financial situation and the standard of
li(ing you want to maintain for your dependents or sur(i(ors. ;or
e*ample, who will be responsible for your funeral costs and final
medical billsP 9ould your family ha(e to relocateP 9ill there be
ade8uate funds for future or ongoing e*penses such as daycare,
mortgage payments and collegeP It is prudent to re)e(aluate your life
insurance policies annually or when you e*perience a major life e(ent
like marriage, di(orce, the birth or adoption of a child, or purchase of a
major item such as a house or business.
IN1URANCE :ELP1 IN -OLLO7IN/ LI-E 1TA/E1 O- AN
INDIDIDUALB
2.< T.,#s !% Li%# I's&a'c#
!he life insurance policies are of many types. !he principal types of
policies are discussed belowF
(1) 7h!"# "i%# P!"ic.B

27
'nder this policy premiums are paid throughout life and the sum insured
becomes payable only at the death of the insured. !he policy remains in
force throughout the life of the assured and he continues to pay the
premium till his death. !his is the cheapest policy as the premium till his
death. !his is the cheapest policy as the premium charged is the lowest
under this policy. !his is also known as Qordinary life policy.. !his policy
is suitable to persons who want to pro(ide for payment of estate duty,
make be8ue athments for charitable purposes and to pro(ide for their
families after their death.
(2) Li(it#0 ,a.(#'t "i%# ,!"ic. F
In the case of whole life policy there is one disad(antage in that the
assured must continue to pay the premium e(en during his old age when
he is no more employed. 'nder the limited payment life policy premiums
are payable for a selected number of years or until death, if, earlier.
!he assured knows how much he will be re8uired to payable only at the
how long he li(es. !he sum insured becomes payable only at the how
long he li(es.
(<) E'0!=(#'t ,!"ic.B
It runs only for a limited period or up to a particular age. 'nder this policy
the sum assured becomes payable if the assured reaches a particular
age or after the e*piry of a fi*ed period called the endowment period or
at the death of the assured whiche(er is earlier. !he premium under this
policy is to be paid up to the maturity of the policy, i.e., the time when the
policy becomes payable.
#remium is naturally a little higher in the case of this policy than the
whole life policy. !his is a (ery popular policy these days as it ser(es the
dual purpose of family and ole age pension.
(4) D!&?"# #'0!=(#'t ,!"ic. B

28
'nder this policy the insurer agrees to pay to the assured double the
amount of the insured sum if he li(es on beyond the date of maturity of
the policy. !his policy is suitable for persons with physical disability who
are otherwise not acceptable for other classes of assurance at the
normal tabular rates. #remiums are to be paid for a selected term of
years or until death, if earlier.
(5) 4!i't Li%# P!"ic.B
!his policy co(ers the risk on two li(es and is generally a(ailable to
partners in business. #olicies are howe(er, issued on the li(es of
husband and wife under specified circumstances. "um assured
becomes payable at the end of the selected term or on the death of
either of the two li(es assured, if earlier.
(9) 7ith ! =ith!&t ,!%it ,!"ici#sB
'nder the ,with profit or participating policies,$ the policy holder is
allowed a share in the profits of the corporation in the form of bonus and
it is added to the total sum assured and paid at the time of maturity of
the policy. In the case of without profit or non)participating policies, no
such profit is allowed. #remium in the first case is higher and is lower in
the later case.
(;) C!'@#ti?"# =h!"# "i%# ,!"ic.
!his policy initially pro(ides ma*imum insurance protection at minimum
cost and offers a fle*ible contract which can be altered at the end of fi(e
years from the commencement of the policy to endowment insurance.
(>) C!'@#ti?"# t#( ass&a'c# ,!"ic.B
!his policy meets the needs of those who are initially unable to pay the
larger premium re8uired for a whole life or endowment assurance policy
but hope to be able to do so within a few years. It would also enable

29
such persons to take final decision at a later date about the plan suitable
for their future needs.
(6) -iE#0 t#( ((aia$#) E'0!=(#'t ,!"ic. A #0&cati!' a''&it.
,!"ic. B
It is a policy suitable for making pro(isions for the marriage or education
of children. #remiums are payable for a selected term or till prior death.
!he benefits are payable for selected term or till prior death. !he benefits
are payable only at the end of selected term. In case of the marriage
endowment, the sum assured is paid in lump sum, but in case of the
educational annuity, it is paid in e8ual half)yearly instalments o(er a
period of fi(e years.
(10) A''&iti#s B
It is a policy under which the insured amount is payable to the assured
by monthly or annual instalments after he attains a certain age. !he
assured may pay the premium regularly o(er a certain period or he may
pay the premium regularly o(er a certain period or he may pay a lump
sum of money at the outset. !hese policies are useful to persons who
wish to pro(ide a regular income for themsel(es and their dependants.
(11) 1i'*i'$ %&'0 ,!"ic. B
"uch a policy is taken with a (iew to pro(iding for the payment of liability
or replacement of an asset.
(12) M&"ti,&,!s# ,!"ic.B

30
!his policy meets se(eral insurance needs of a person O like pro(ision
for himself in old age, income for his family and pro(ision for the
education, marriage or the start in life of his children. It gi(es ma*imum
protection to the beneficiaries in the e(ent of the early death of the
assured, as it pro(ides F
Regular monthly income during the une*pired term1
&dditional monthly income for a period of two years from the date
of death1
#ayment of a part of the sum assured on death and
#ayment of the balance sum assured at the end of the selected
period
En maturity the assured may get the sum assured in cash, in the form of
monthly pension, or an increased sum payable on death. #remiums are
payable during the selected term or till death, it earlier.

31
2.4 Basic -&'cti!'s !% I's&a'c#

32

33

34
2.5 R!"# !% "i%# I's&a'c#B
R!"# 1B Li%# i's&a'c# as Fi'@#st(#'tF i's&a'c#.
9hile most people recognize the risk hedging and ta* sa(ing potential of
insurance, many are not aware of its ad(antages as an in(estment
option as well. Insurance products yield more compared to regular
in(estment options, and this is besides the added incenti(es 3read
bonuses4 offered by insurers. Jou cannot compare an insurance product
with other in(estment schemes for the simple reason that it offers
financial protection from risks, something that is missing in non)
insurance products. In fact, the premium you pay for an insurance policy
is an in(estment against risk. !hus, before comparing with other
schemes, you must accept that a part of the total amount in(ested in life
insurance goes towards pro(iding for the risk co(er, while the rest is
used for sa(ings. In life insurance, unlike non)life products, you get
maturity benefits on sur(i(al at the end of the term.
In other words, if you take a life insurance policy for /0 years and
sur(i(e the term, the amount in(ested as premium in the policy will come
back to you with added returns. In the unfortunate e(ent of death within
the tenure of the policy, the family of the deceased will recei(e the sum
assured. !hus, insurance is a uni8ue in(estment a(enue that deli(ers
sound returns in addition to protection.
R!"# 2B Li%# i's&a'c# as FRis* c!@#FB
;irst and foremost, insurance is about risk co(er and protection )
financial protection, to be more precise ) to help outlast lifeHs
unpredictable losses. %esigned to safeguard against losses suffered on
account of an unforeseen e(ent like death, insurance pro(ides you with
that uni8ue sense of security that no other form of in(estment pro(ides.
By buying life insurance, you buy

35
#eace of mind and are prepared to face any financial demand that would
hit the family in case of an untimely demise.
!o pro(ide such protection, insurance firms collect contributions from
many people who face the same risk. & loss claim is paid out of the total
premium collected by the insurance companies, who act as trustees to
the monies. Insurance also pro(ides a safeguard in the case of
accidents or a drop in income after retirement. &n accident or disability
can be de(astating, and an insurance policy can lend timely support to
the family in such times also. It also comes as a great help when you
retire, in case no untoward incident happens during the term of the
policy.
9ith the entry of pri(ate sector players in insurance, you ha(e a wide
range of products and ser(ices to choose from. ;urther, many of these
can be further customised to fit indi(idualgroup specific needs.
R!"# <B Li%# i's&a'c# as FTaE ,"a''i'$FB
Insurance ser(es as an e*cellent ta* sa(ing mechanism too. !he
2o(ernment of India has offered ta* incenti(es to life insurance products
in order to facilitate the flow of funds into producti(e assets.
Buying a life insurance plan entitles you ta* benefits on, Maturity or
death claim proceeds under "ection <0 3<0%4.
!a* benefits under the policy will be as per the pre(ailing income ta*
laws and are subject to change in Bottom of ;orm.

36
2.9 I(,!ta'c# !% "i%# i's&a'c#B
&n essential part of -i'a'cia" ,"a''i'$ is creating pro(isions for
your family and lo(ed ones following your death. +ife insurance
can ensure financial security to those who mean the most to you,
such as your spouse, children and dependent parents. & carefully
e*ecuted life insurance policy can help prepare for lifeHs
uncertainties and gi(e peace of mind knowing that the future of
those who rely on you is secure.
Li%# i's&a'c# ,a.s %! i((#0iat# #E,#'s#s B Bills can start
accumulating fast in the e(ent of a death. +ife insurance can be
used to pay for immediate e*penses, such as funeral ser(ices,
unsettled hospital and medical bills, mortgage payments, business
commitments and meeting college e*penses for children.
ItGs a cash #s!&c# B +ife insurance gi(es access to cash to pay
for grocery bills and other daily e*penses. It also helps secure your
estate by pro(iding ta*)free cash to pay estate and other
obligations.
Y!& %a(i".Gs sta'0a0 !% "i@i'$ ca' ?# (ai'tai'#0B 9ith the
right co(erage, your familyHs lifestyle and standard of li(ing can be
sustained, adding much needed normalcy during a difficult time.
Y!& ha@# a =i0# a'$# !% !,ti!'sB !here are two basic types of
life insuranceF !erm life and whole life. !erm life policies offer
death benefits, so if you die, you will get money back, but if you
li(e past the pre)determined length of the policy, you get no
benefits. 9hole life or permanent insurance is more e*pensi(e, but
these policies are open)ended and also accumulate a cash (alue

37
that the policyholder can earn di(idends and borrow againstRor
cash)in upon surrendering the policy.
C&st!(i+# .!& ,!"ic. a'0 c!@#a$#B If you ha(e dependent
children, a spouse and parents to care for, youHd want a policy that
would protect them after death. !ypically, policies are opened for
the breadwinner of the family, but a stay)at)home spouseHs
contributions are often o(erlooked. Jou might consider a policy to
co(er childcare, carpooling and household chore e*penses in the
e(ent of a stay)at)home spouseHs death. En the flip side, as you
get older and children or parents are no longer dependent on you
for income, you can reduce your co(erage or drop it entirely.
A0#H&at# c!@#a$# (a*#s a 0i%%##'c#B &n old school rule of
thumb is that your life insurance policy e8uals fi(e to ten times
your annual income. Nowadays, ad(isors will look at the number of
dependents you ha(e, how long they will be dependent upon you,
and the lifestyle they e*pect to li(e after your death. ItHs not a
simple e8uation, but in general, you will need more co(erage than
a typical plan offered by an employer, which usually totals one or
two years of your gross salary.
Y!& ca' i(,!@# .!& c#0it ati'$B life insurance policy is
considered a financial asset and may increase your credit score,
which could be beneficial when trying to obtain medical insurance
or a home or business loan.

38
Li%# i's&a'c# (a. ?# #E#(,t %!( ?a'*&,tc.B Most life
insurance plans will not be affected by bankruptcy and will remain
intact if you claim bankruptcy. Gowe(er, youHll need to confer with
a bankruptcy e*pert, as each case is uni8ue.
2.; C!'t!""i'$ a&th!it.B
Insurance laws and regulations in India takes care of all matters related
to (arious insurance companies in the country. Much of the de(elopment
and growth of the insurance sector in India is due to the go(ernmentHs
decision to nationalize the insurance business and to allow pri(ate and
foreign insurance companies to establish their businesses here. In India,
there is one regulatory authority i.e. IR%& which o(ersees different
functioning of the life insurance companies in India and pro(ide them
with guidelines.
I's&a'c# R#$&"at!. a'0 D#@#"!,(#'t A&th!it. (IRDA)
Insurance Regulatory and %e(elopment &uthority 3IR%&4 is the
controlling body, o(erseeing important aspects and functioning of
(arious insurance companies in India. :stablished by the go(ernment, it
safeguards the interest of the insurance policy holders of the country.
"ome of IR%&Hs functions includeF
!o regulate, ensure and promote the orderly growth of
the insurance business,
!o prescribe regulations on the in(estment of funds by
insurance companies,
!o regulate the maintenance of the margin of sol(ency,
!o adjudicate the disputes between insurers and
intermediaries,

39
!o super(ise the functioning of the !ariff &d(isory
-ommittee.
Ether supporting organisations which facilitate in the working of the
industry,
1. Tai%% A0@is!. C!((itt##B
!he main task of !ariff &d(isory -ommittee is to regulate and control the
rates, benefits, terms and conditions offered by life insurance companies
in India.
2. I's&a'c# Ass!ciati!' !% I'0ia
&ll insurance companies in India are members of the Insurance
&ssociation of India. It has two councils under its patronage, mainly
a. +ife Insurance -ouncil
b. 2eneral Insurance -ouncil
C. O(?&0s(#'
Embudsmen play important role in regulating and ensuring smooth
functions of the insurance companies. !hey are appointed to address all
complaints.

40
<. COMPANY PRO-ILE
<.1 I't!0&cti!'B
!ata &I& +ife Insurance -ompany 3!ata &I& +ife4 is a joint (enture
company, formed by !ata "ons and &I& 2roup 3&I&4. !ata &I& +ife
combines !ataHs pre)eminent leadership position in India and &I&Hs
presence as the largest, independent listed pan)&sia life insurance
group in the world spanning <6 markets in &sia #acific. !ata "ons holds
a majority stake 3A7 percent4 in the company and &I& holds /5
percent through an &I& 2roup company. !ata &I& +ife was licensed to
operate in India on ;ebruary </, /00<, and started operations on &pril <,
/00<.
A#as !% ?&si'#ssB
!he company offers a broad array of insurance products to indi(iduals,
associations and businesses of all sizes. It is one of the major pri(ate

41
sector insurers in India offering life, health and group insurance products
co(ering entire life)stage needs.
L!cati!'B
Gead8uartered in Mumbai, !ata &I& +ife has sales offices in major cities
and towns across India.
<.2 :ist!. !% TATA AIA LI-E IN1URANCE
TATA 1ON1 LIMITED

42

43
!he !ata group comprises o(er <00 operating companies in se(en
business sectorsF communications and information technology,
engineering, materials, ser(ices, energy, consumer products and
chemicals. !he group has operations in more than @0 countries across si*
continents, and its companies e*port products and ser(ices to @6
countries. !he total re(enue of !ata companies, taken together, was
B<00.0D billion 3around Rs7A6, A/< crore4 in /0<<)</, with 6@ percent of
this coming from business outside India. !ata companies employ o(er
760,000 people worldwide. !he !ata name has been respected in India
for more than <70 years for its adherence to strong (alues and business
ethics. :(ery !ata company or enterprise operates independently. :ach of
these companies has its own board of directors and shareholders, to
whom it is answerable. !here are C/ publicly listed !ata enterprises and
they ha(e a combined market capitalisation of about BD<.D@ billion 3as on
&ugust <, /0<C4, and a shareholder base of C.D million. !he major !ata
companies are !ata "teel, !ata Motors, !ata -onsultancy "er(ices
3!-"4, !ata #ower, !ata -hemicals, !ata 2lobal Be(erages, !ata
!eleser(ices, !itan, !ata -ommunications and Indian Gotels. !ata "teel is
among the top ten steelmakers, and !ata Motors is among the top fi(e
commercial (ehicle manufacturers, in the world. !-" is a leading global
software company, with deli(ery centers in the '", '?, Gungary, Brazil,
'ruguay and -hina, besides India. !ata 2lobal Be(erages is the second)
largest player in tea in the world. !ata -hemicals is the world.s second)
largest manufacturer of soda ash and !ata -ommunications is one of the
world.s largest wholesale (oice carrier.
In tandem with the increasing international footprint of !ata companies,
the !ata brand is also gaining international recognition. Brand ;inance, a
'?)based consultancy firm, (alued the !ata brand at B<@.<5 billion and
ranked it CDth among the top 600 most (aluable global brands in their
Brand ;inanceS 2lobal 600 /0<C report. In /0<0, BusinessWeek
magazine ranked !ata <Ath among the H60 Most Inno(ati(e -ompaniesH
list.
;ounded by =amsetji !ata in <@5@, !ata.s early years were inspired by the
spirit of nationalism. It pioneered se(eral industries of national importance
in IndiaF steel, power, hospitality and airlines. In more recent times, its
pioneering spirit has been showcased by companies such as !-", India.s
first software company, and !ata Motors, which made India.s first
indigenously de(eloped car, the Indica, in <DD@ and recently un(eiled the
world.s most affordable car, the !ata Nano.
!ata companies ha(e always belie(ed in returning wealth to the society
they ser(e. !wo)thirds of the e8uity of !ata "ons, the !ata promoter
AIA /ROUP
AIA /!&, Li(it#0 known as AIA 3-hinese F4 is an insurance company
based in Gong ?ong. It has offices in &sia)#acific region including
!aiwan, -hina, &ustralia, New Tealand, =apan, India, "ri +anka,
Malaysia, Macau, "outh ?orea, !hailand, #hilippines, "ingapore, Brunei
and Iietnam. Goldings include #hilippine &merican +ife and 2eneral
Insurance -ompany and minority stakes in !&!& &I& +ife Insurance and
!&!& &I2 2eneral Insurance.
It was a member of &merican International 2roup, but separated from
the group in /00D after it was finalized that &I& as well as &+I-E
3another &I2 subsidiary4 were placed under the administration of a
"pecial #urpose Iehicle in e*change for the ;ederal Reser(e Bank of
New Jork. In %ecember /0</, &I& was informed by &merican
International 2roup Inc. 3&I24 that &I2 had entered into a placing
agreement to sell all of its ordinary shares of &I& at a price of G?BC0.C0
per share. 'pon completion of the placing, &I2 has fully di(ested its
holding of shares in &I&.
&ccording to the statistics from the Effice of the -ommissioner of
Insurance &I& being the number < of Gong ?ong insurance company in
terms of the number of policies, its market share in Gong ?ong
Insurance market 3on Non)+inked Indi(idual Business4 is /5N and sum
assured worth more than 700 billion G?% 3i.e. more than B 60 billion.

44
<.< COMPETITOR1
Ma8! c!(,#tit!s !% TATA AIA LI-E IN1URANCE COMPANY a#B
1. Li%# i's&a'c# c!(,a'i#s i' I'0iaB
&fter the go(ernment announced the inclusion of pri(ate
companies and
/5N ;%I in the insurance industry, the life insurance sector has
done
-ommendably, especially in terms of growth. +I- has been the
major
name in this sector but other insurers like Bajaj &llianz, Birla "un
+ife,
and G%;- +ife has gained a certain le(el of prominence as well.
/. Ba8a8 A""ia'+ Li%# I's&a'c# F
Bajaj &llianz is one of the leading names when it comes to growth
among the pri(ately held life insurers in India. It has more than
</00 branches across the country and pro(ides unit linked, child,
traditional and pension life plans.
3. Birla Sun Life Insurance :
Birla "un +ife Insurance is one of the leading life insurers in India
among the pri(ately held organizations. It is one of the major
contributors to the countryHs insurance sector with ground breaking
products and facilities such as 'nit +inked Insurance #lans, free
look periods, and business continuity plans.
4. HDFC Life

45
G%;- +ife is among the best pri(ate life insurers of India and
pro(ides both group and indi(idual insurance products. It has a
substantial financial e*pertise that helps it to properly administer
long term in(estments. It is present in e*cess of A00 cities and has
almost 65@ branches. It also has appro*imately / lakh financial
consultants and offers se(eral customized plans.
5. ICICI P&0#'tia" Li%# I's&a'c#B
I-I-I #rudential +ife Insurance is among the earliest pri(ate life
insurers to operate in India. It started functioning from %ecember
/000 onwards following the consent of IR%&. "ince its
establishment the organization has underwritten more than <0
million policies. &s per IR%& data it is also a leading insurer in
terms of market share.
6. ING Vysya Life Insurance :
!he head office of IN2 Iysya +ife Insurance is at Bangalore and
has, of late, completed <0 years in India. It is a joint partnership of
IN2 Insurance International BI, and :*ide Industries. &t present it
has more than a million policy holders across the country in
addition to offices in at least /00 cities across the country.
7. Life Insurance Corora!ion :
+ife Insurance -orporation is the biggest in(estment company and
insurer in India. It is owned wholly by the Indian go(ernment and
the insurer pro(ides almost /7.5 percent of the aggregate
e*penditure of the national administration. It owns assets worth
almost INR <C./6 trillion. It was incorporated during <D65 by
merging together more than /70 pro(ident societies and insurers.
". #a$ Life Insurance :
Ma* +ife Insurance started its operations during /00< and is
presently one of the leading names among the pri(ately held life

46
insurers in India. It offers both group and indi(idual based life
products and operates across the country with a wide distribution
network. It is a joint (enture of the =apan based Mitsui "umitomo
2roup and Ma* India, an Indian conglomerate.
Th# !th# "i%# i's&a'c# c!(,a'i#s i' I'0ia (a. ?# (#'ti!'#0 as
?#"!=B
&(i(a +ife Insurance

"ahara India +ife Insurance

"hriram +ife Insurance

Bharti &K& +ife Insurance

;uture 2enerali India +ife Insurance

I%BI ;ederal +ife Insurance

-anara G"B- Eriental Bank of -ommerce +ife Insurance

Met +ife India Insurance

&:2EN Religare +ife Insurance

?otak Mahindra Eld Mutual +ife Insurance



47

%+; #ramerica +ife Insurance

"BI +ife Insurance

"tar 'nion %ai)ichi +ife

India;irst +ife Insurance

Reliance +ife Insurance



48
<.4 P!0&ct ,!%i"#B
TATA AIA Li%# I's&a'c# !%%#s ,!0&cts (ai'". *##,i'$ i' @i#=
%!""!=i'$
LI-E NEED1 1OLUTION1B
<. PROTECTION
2. :EALT:
<. 1ADIN/
4. C:ILD
5. RETIREMENT
9. 7EALT:
Iarious life insurance products are offered by !&!& &I& +ife Insurance
but some few are as followsF
1. -! P!t#cti!' it !%%##0 )i Ra*hsha 1&,#(# T#( i's&a'c#
,"a'3B
!ata &I& +ife Insurance I Raksha "upreme is a non linked non
participating, term insurance plan. ItHs designed to be your online pure
term solution of choice that will ensure your peace of mind at a (ery
attracti(e and easily affordable price.
2. -! 7#a"th it !%%##0 )I'@#st ass&# MaEi(is#3B
!ata &I& +ife Insurance In(est &ssure Ma*imizer, a non)participating
endowment unit linked plan, which offers you the fle*ibility of choosing
between two risk protection options. If you ha(e a preference for a
higher life co(er, the product offers the fle*ibility of choosing an
increased death benefit option through our P#(i&( Li%# C!@# option.

49
<. -! R#ti#(#'t a'0 chi"0 it !%%##0 )Maha Li%# /!"03B
!ata &I& +ife Maha+ife 2old is a traditional participating whole life policy
that pro(ides you guaranteed lifetime income flow, as well as helps you
to create an additional income during the golden years and continue till
you reach age <00.
!ata &I& +ife Maha+ife 2old is a plan in which you in(est for only <6
years and reap the benefits till you reach the age of <00 and it pays you
annual cash di(idendsUU which are declared by the company from the
5th policy anni(ersary onwards1 and a guaranteed guaranteed yearly
couponU of 6N of sum assured from the <0th policy anni(ersary till you
reach age <00.
#ro(ided the policy is in force1
-ash di(idends are not guaranteed and are based on the performance
of the company.
4. -! sa@i'$ it !%%##0 )Maha Li%# s&,#(#3
!ata &I& +ife Insurance Maha+ife "upreme, a +imited #remium #aying
Non)+inked Non)#articipating :ndowment Insurance #lan that enables
you to plan both your sa(ings outflow and the re8uired regular annual
income inflow along with the all important benefit of life insurance
protection.
In this plan, you ha(e the option to pay premiums for a limited period of
either </ or <6 years and recei(e guaranteed annual income for <@ or /0
years respecti(ely.
5. -! :#a"th it !%%##0 ):!s,i Cash ?ac*3
!ata &I& +ife Gospi -ash Back is one such plan that offers fi*ed
lumpsum benefits for e*penses arising from hospital charges, care
charges, ambulance charges and other charges irrespecti(e of actual
hospital bills, starting from the first day of hospitalisation. 9hat more, it
offers a guaranteed return of premium on maturity e(en if you make
claims, thus making your health co(er (irtually free.

50
<.5 17OT ANALY1I1B
1TREN/T:1B
Disci,"i'#0 %&'0 (a'a$#(#'t B
Jears of e*perience in asset management, and a strong track
record in managing funds,
I''!@ati@#B
?nown for being an inno(ator in pro(iding world)class
pragmatic financial solutions, with a constant focus on
customization and fle*ibility,
C&st!(# 1atis%acti!'B
& hi ghl y c ommi t t ed s al es f or c e, wi t h c us t omer
s at i s f ac t i on as dri(ing force,
Disci,"i'#0 %&'0 (a'a$#(#'t B
Jears of e*perience in asset management, and a strong track
record in managing funds,
Ta's,a#'c. i' 1#@ic#sB
%aily declaration of fund performances,
regular per f or mance benchmar ki ng, wel l r egul at ed
asset management , and mont hl y newsletter on market
updates.
7EA2NE11E1B
E(,"!.##s ( L#ss '&(?# !% ,#s!''#")B

51
!ata &I& +ife Insurance employs around 7C/@ people in its
(arious businesses and has <</ branches across <C7 cities as
compared to
I-I-I #rudential has AC6offices, // Bank assurance partners and
o(er /.7 lakh ad(isors therefore it should increase its offices.
Tai'i'$ D#,at(#'tB
!at a &I & +i f e I ns ur anc e has a l i mi t ed number
of trainers in its branches, because of which ad(isors are
not properly trained, so it should work on de(eloping its training
department.
OPPORTUNITIE1B
IndiaH s economic de(elopment made it a most lucrati(e
Insurance market in the world and post liberalisation the entry of
foreign partners has been allowed.
-ustomer focus)impro(ed distribution and
product
%e(elopment.
-ost competiti(eness
"takeholder -onfidence
&d(ances in Metrics and Marketing -hannels
Eperational agility
T:REAT1B
:ntry of new -ompetitors in an Insurance
market.
%ata and -yber)related threats.

52
Market Risk
Business Risk
4. Ris* Ma'a$#(#'t
4.1 I't!0&cti!'B
RI12B
Risk is una(oidable and present in e(ery human situation. It is present in
daily li(es, public and pri(ate sector organizations. %epending on the
conte*t 3insurance, stakeholder, technical causes4, there are many
accepted definitions of risk in use.
!he common concept in all definitions is uncertainty of outcomes. 9here
they differ is in how they characterize outcomes. "ome describe risk as
ha(ing only ad(erse conse8uences, while others are neutral.
Ene description of risk is the followingF risk refers to the uncertainty that
surrounds future e(ents and outcomes. It is the e*pression of the
likelihood and impact of an e(ent with the potential to influence the
achie(ement of an organizationHs objecti(es.
!he phrase Mthe e*pression of the likelihood and impact of an e(entM
implies that, as a minimum, some form of 8uantitati(e or 8ualitati(e
analysis is re8uired for making decisions concerning major risks or
threats to the achie(ement of an organizationHs objecti(es. ;or each risk,
two calculations are re8uiredF its likelihood or probability1 and the e*tent
of the impact or conse8uences.

53
;inally, it is recognized that for some organizations, risk management is
applied to issues predetermined to result in ad(erse or unwanted
conse8uences. ;or these organizations, the definition of risk which
refers to risk as Ma function of the probability 3chance, likelihood4 of an
ad(erse or unwanted e(ent, and the se(erity or magnitude of the
conse8uences of that e(entM will be more rele(ant to their particular
public decision)making conte*ts.
Ris* Ma'a$#(#'tB
Risk management is an acti(ity which integrates recognition of risk, risk
assessment, de(eloping strategies to manage it, and mitigation of risk
using managerial resources. "ome traditional risk management are
focused on risks stemming from physical or legal causes 3e.g. natural
disasters or fires, accidents, death4.;inancial risk management,
En the other hand, focuses on risks that can be managed using traded
financial instruments. Ebjecti(e of risk management is to reduce different
risks related to a pre)selected domain to an acceptable. It may refer to
numerous types of threats caused by en(ironment, technology, humans,
organizations and politics. !he paper describes the different steps in the
risk management process which methods are used in the different steps,
and pro(ides some e*amples for risk and safety management.
Ene well accepted description of risk management is the followingF
Risk management is a systematic approach to setting the best course of
action under uncertainty by identifying, assessing, understanding, acting
on and communicating risk issues. In order to apply risk management
effecti(ely, it is (ital that a risk management culture be de(eloped. !he
risk management culture supports the o(erall (ision, mission and
objecti(es of an organization. +imits and boundaries are established and
communicated concerning what are acceptable risk practices and
outcomes. "ince risk management is directed at uncertainty related to

54
future e(ents and outcomes, it Is implied that all planning e*ercises
encompass some form of risk management. !here is also a clear
implication that risk management is e(eryoneHs business, since people at
all le(els can pro(ide some insight into the nature, likelihood and impacts
of risk.
Risk management is about making decisions that contribute to the
achie(ement of an organizationHs objecti(es by applying it both at the
indi(idual acti(ity le(el and in functional areas.
4.2 O?8#cti@# a'0 1c!,# !% Ris* Ma'a$#(#'t
O?8#cti@#B
Insurance companies are in the business of taking risks. 9orldwide
these companies write policies that deal with specific risks, and in many
cases, e(en underwrite e*otic risks. &s a direct corollary, therefore,
insurance companies should be good at managing their own risks.
Gowe(er the truth is a little far from thatV Most insurance companies are
(ery good at assessing insurance risks but are not (ery good at setting
up structures in their own home to manage their own operating and
business risks.
Risk management is about making decisions that contribute to the
achie(ement of an organizationHs objecti(es by applying it both at the
indi(idual acti(ity le(el and in functional areas .It assists with decisions
such as the reconciliation of science)based e(idence and other factors1
costs with benefits and e*pectations in in(esting limited public
resources1 and the go(ernance and control structures needed to support
due diligence, responsible risk)taking, inno(ation and accountability.
1c!,#B
!he procedures and guidelines mentioned in this is applicable to e(ery
ones business, since #eople at all le(els some insights in to the nature,
likelihood and impact of risk.

55
;ollowing topics comes under this topicF
:stablishing goals and conte*t 3i.e. the risk en(ironment4,
Identifying risks,
&nalyzing the identified risks,
&ssessing or e(aluating the risks,
4.< T.,#s !% Ris*B
In an insurance company, the cash flows are organized along two
streamsF
a4 InflowsRpremiums, in(estment income, refunds, and so on and
b4 EutflowsRclaim payments, reinsurance premium, agent
remuneration, salaries, interest and di(idends to in(estors, and so
forth.
!hus, risks could be considered along these two flows. In addition,
insurance products rely on models dealing with longe(itymortality,
morbidity, economic
-onditions or market conditions. !here is a large risk that any of these
assumptions or models could be incorrect, leading to first the pricing risk
3that price charged was incorrect4 and then the sol(ency riskRrisk that
arises from inade8uate reser(es, and company runs out of capital. &s
many insurance companies ha(e large fi*ed income holdings or e8uity
position, there is also credit risk and market risk associated with their
in(estment portfolio. Moreo(er, the processes, people, and systems of
an insurance company are also e*posed to risks. !hese are operational
risks and are present throughout the company.
!he key risks in an insurance company are underwriting risks, market
risks, credit risks, operational risks, li8uidity risks, and strategic risks
3reputation, compliancelegal, agency, and so on4. :ach of the risks
should be typically owned by a department, which will then set up

56
procedures, put systems in place, and ha(e the right people to manage
them.
!here are four types of risksF
1. OPERATIONAL RI12
2. CREDIT RI12
<. MAR2ET RI12
4. IN1URANCE RI12
1. O,#ati!'a" Ris*
!he uncertainty arising from e(ents caused by failures in people,
process and technology as well as e*ternal dependencies,
;raud > defalcation
"ales practices
#eople > skills &ttrition
:*ternal disruption
Inade8uate employee training
-omputer security
#rocessing :rrors
Non)compliance
-ontractual risks
-hanges in lawsregulations
2. C#0it Ris*

57
-redit risk is incurred whene(er an insurance company is e*posed to
loss if counterparty fails to perform its contractual obligations including
failure to perform them in a timely manner. -redit risk may therefore
ha(e an impact upon a companyHs ability to meet its (alid claims as they
fall due. -redit risk can also arise from under lying causes that ha(e an
impact upon the creditworthiness of all counterparties of a particular
description or geographical location.
Business credit risk ). failure of a re)insurer
In(ested asset credit risk ) non)performance of in(ested assets.
#olitical risk 3affecting credit worthiness of securities held by the
insurer4.
"o(ereign risk 3affecting credit worthiness of securities issued by
go(ernment or go(ernment entities.
<. Ma*#t Ris*
Market risk is the risk that as a result of market mo(ements a company
may be e*posed to fluctuations in the (alue of its assets, the amount of
its liabilities, or the income from its assets. "ources of general market
risk include mo(ements in interest rates, e8uities, e*change rates and
real estate prices.
Interest rate risk ). losses arising due to change in interest rates
:8uity and property risk ). losses arising due to drop in e8uity
prices
-urrency risk ) losses arising due to ad(erse mo(ements in
e*change rates
Basis risk ) arising because the yields on instruments of (arying
risk 8uality,

58
+i8uidity and maturity donHt mo(e together1 affecting the assets and
liabilities of the company independently.
Rein(estment risk O risk that assets will be rein(ested at a lower
rate.
4. I's&a'c# Ris*
!he uncertainty due to differences between the actual and e*pected
amounts of claims and benefits payments and the cost of embedded
options and guarantees related to insurance risks.
'nderwriting process risk ) related to selection and appro(al of risk
to be co(ered.
#ricing risk ) due to incorrect premium charged for a risk
undertaken.
#roduct design risk O e*posures not anticipated in the product
design.
-laims risk O &ctual claims are. more than e*pected number of
claims.
:conomic en(ironment risk ) ad(erse effect on the company due to
changes in socioeconomic conditions.
&d(ersely affecting the company.
"ol(ency risk ). Inade8uate pro(ision in company accounts for
policy liabilities.
&nother risk that Indian insurance companies should consider is the
impro(ements in longe(ity due to impro(ed li(ing standards, socio)
cultural ad(ances, changing lifestyles, impro(ing deli(ery of health
ser(ices, breakthroughs in medical treatment, impro(ing diets, and
generally healthy li(ing.
Ris* -a(#=!*B
& good risk framework should ha(e a strong go(ernance structure so
that the board and the management should know how risks are being
managed. !his in(ol(es appointing a chief risk officer 3-RE4 for risk
management and the organizational culture too should support it.
In large companies, it is common to form a separate risk management
unit, staffed by a multi)disciplinary team. !he work of this team is

59
typically facilitated by designated persons in each of the (arious
departments, such as underwriting, legalcompliance, actuarial, finance,
marketing and sales, policy ser(icing, claims, I!, and so on. !he
management should always be aware about the dangers of under
mining the independence of the department and should ensure that the
risk)taking and risk monitoring roles are independent.
!o ensure this, there are a few well)known frameworks a(ailable such
as I"E C<000 risk management standard and the -E"E :RM. !here is
another framework used by "># and &>M Best in their ratings as well.
& -RE should ensure that risk management in the organization is
centralized rather than being carried out from silos. Ge should
functionally report to someone like the risk >audit committee while
administrati(ely he could report to a -*E, such as the chief financial
officer 3-;E4.
C%& %ole
Ideally, as -RE is the main risk facilitator of the company, all risk)related
decisions should ha(e his inputs. Gowe(er, at the (ery least, a -RE
should ha(e the following elements in his roleF
:nterprise risk management 3:RM4
Iiew of the key risk control programmers
:nsuring common risk language across organization
Managing the risk (iew through the risk dashboard
4.4 Ris* Ma'a$#(#'t A,,!ach a'0 P!c#ssB

60
Ris* Ma'a$#(#'t A,,!achB
In the year /000, the 2o(ernment of India set up the Insurance
Regulatory and %e(elopment &uthority 3IR%&4 in terms of the IR%& &ct,
lDDD.IR%& has tried to address the issue of capital ade8uacy of life
insurance companies through entry le(el net worth re8uirement and
maintenance of sol(ency margins.
(1) E't. L#@#" Ca,ita" R#H&i#(#'tB
&s per "ection 5 of the Insurance &ct, <DC@, any company proposing to
carry on life insurance business shall ha(e a paid up capital of Rs.<00
crore. In case of a re)insurer, the re8uirement has been placed at
Rs./00 crore. !he foreign joint (enture partner, either by itself or through
its subsidiary companies or its nominees, may participate to the e*tent of
/5 per cent of the paid up e8uity in the insurance company. !he
underlying philosophy for laying down such stringent re8uirement has
been to restrict entry in the life insurance sector to reputed groups with
long term commitments and also to ensure that ade8uate capital is
a(ailable to fund (arious re8uirements e(ol(ing with operations and to
fuel growth of the insurer.
(2) 1!"@#'c. R#H&i#(#'tsB-
H"ol(encyH is defined differently by different users. Broadly, it is the ability
of an insurer to meet all its liabilities whene(er they fall due.
"implistically, it is represented by the e*cess of an insurerHs assets o(er
its liabilities.
Ene of the many uses of the risk management process is to determine
the sol(ency re8uirements or standards. !hese standards can be set
from internal management perspecti(e or from regulatory perspecti(e.
In the Indian conte*t, the Insurance &ct, <DC@ re8uired all insurers to
maintain sufficiency of assets at all times to meet all the liabilities,
thereby pro(iding for a sol(ency margin of <00N. !he IR%&, as a
measure of prudence has prescribed a sol(ency margin of <60N to be
maintained at all points in time.

61
!he regulatory prescription has been formulated for ensuring that the
insurer has the financial resources at all times to meet its liabilities. In
particular, it is essential to create a capital buffer so that the life insurers
are in apposition to absorb any gap arising between the anticipated and
actual e*penses and profits. 2i(en the nature of the industry despite
actuarial and statistical efforts the loss e*perience cannot be precisely
predicted. !he risk premium in the life insurance industry is calculated
taking into account the margins for downside mo(ement. Gowe(er, it
may be insufficient in the face of negati(e (ariances and when e*pected
(alues are of high proportion which cannot be co(ered by the safety
margins pro(ided for the purpose.
"ince an insurer faces other risks besides technical risks from the
regulator.s perspecti(e, an important instrument of risk mitigation to meet
foreseeable obligations to the policyholders under contracts is through
ade8uate allocation of the pro(isions. IR%& 3&ssets, +iabilities and
"ol(ency Margin of Insurers4 Regulations, /000 mandates insurers to
set up re8uired reser(es in respect of insurance liabilities on a prudent
basis. !he first year premium recei(ed from the policyholders would not
be sufficient to establish such reser(es due to initial high ac8uisition
costs of new business 3also referred to as initial business strain4. !he
initial business strain and the manner of its release o(er the term of the
policy would (ary with the features of the indi(idual products launched by
the insurers.
H"ol(ency capitalH is re8uired for (arious reasonsF
!o reduce the likelihood of the insurer not meeting liabilities when
they fall due.
!o pro(ide a cushion to limit the losses, in the e(ent of insol(ency.
!o pro(ide an early warning system for regulatory inter(ention and
early correcti(e action.
!o promote the confidence of the general public.
(iii) O'$!i'$ Ca,ita" R#H&i#(#'tB

62
9hile carrying out their business, life insurance companies re8uire
capital to take care of the effect of the statutory reser(e1 the actual cost
of ac8uiring business and the strains associated with the business
ac8uired which could be substantial1 and losses likely to result from the
insurance andor the in(estment risks associated with the business.
In addition, the insurer is re8uired to bear the e*penses for
information technology, costs of training its agent force and
ad(ertisement and sales promotion e*penses. !he life insurer also has
to bear certain initial e*penses for the commencement of business
operations. !hese costs along with a timeframe for achie(ing economies
of scale to bring the actual e*penses in line with e*pense loading and
operating charges may sometimes result in e*pense o(errun during the
said timeframe. !hese e*penses need to be funded with regular injection
of capital. ;urther, the statutory stipulation of meeting the sol(ency
re8uirements sometimes necessitates injection of capital at regular
inter(als.
!he regulatory re8uirements do not allow the insurers to make use of
any other a(enue for funding their acti(ities than through capital infusion
through the shareholders. !he registration re8uirements prohibit insurers
from resorting to borrowings to fund their acti(ities. ;or e*panding their
operations through new products, ser(ices and territories, insurers who
already ha(e a deficit in the Re(enue &ccount, may ha(e to inject further
e8uity at regular inter(als.
!he most important rules specified and monitored by these authorities
are those concerning QAss#t, Lia?i"it. a'0 1!"@#'c. (a$i' !%
I's&#sI. More specifically, e(ery insurer is re8uired to in(est and keep
in(ested certain amount of assets as determined under the Insurance
&ct.
!he funds of the policyholders cannot be in(ested 3directly or indirectly4
outside India. Important regulations are specified belowF)
INDE1TMENT1B-

63
<4 +ife Insurance W &n insurer in(ol(ed in the business of life insurance is
re8uired to in(est and keep in(ested at all times assets, the (alue of
which is not less than the sum of the amount of its liabilities to holders of
life insurance policies in India on account of matured claims and the
amount re8uired to meet the liability on policies of life insurance
maturing for payment in India, reduced by the amount of premiums
which ha(e fallen due to the insurer on such policies but ha(e not been
paid and the days of grace for payment of which ha(e not e*pired and
any amount due to the insurer for loans granted on and within the
surrender (alues of policies of life insurance maturing for
payment in India issued by him or by an insurer whose business he has
ac8uired and in respect of which he has assumed liability.
:(ery insurer carrying on the business of life insurance is re8uired to
in(est and at all times keep in(ested his controlled fund 3other than
funds relating to pensions and general annuity business and unit linked
life insurance business4 in the following manner, free of any
encumbrance, charge, hypothecation or lienF
Da"&ati!' !% Ass#tJLia?i"it. a'0 1!"@#'c. Ma$i'B
&n insurer should maintain, at all times, an e*cess of the (alue of his
assets o(er the amount of his liabilities of not less than the rele(ant
amount arri(ed at in the following manner 3Mre8uired sol(ency marginM4F
3a4 In the case of an insurer carrying on life insurance business, the
re8uired sol(ency margin shall be the higher of rupees fi(e
hundred million 3one billion in case of reWinsurers4 or the
aggregate sum arri(ed at based on the calculations specified in
the Insurance.
&n insurer who fails to maintain the re8uired sol(ency margin will be
deemed to be insol(ent and may be wound up by the court. &n insurer is
re8uired under the IR%& 3&ssets, +iabilities and "ol(ency Margin of

64
Insurers4 Regulations, /000, to prepare a statement of sol(ency margin
in accordance with "chedule IIIW&, in respect of life insurance business.
ALM
!he "E& defines &+M as ,the practice of managing a business so that
decisions on assets and liabilities are coordinated1 or more broadly
X..!he ongoing process of formulating implementing monitoring and
re(isiting strategies related to assets and liabilities in an attempt to
achie(e financial objecties for a gi(en set of risk tolerance and
constraints$
7h. (&st =# c!'si0# ALMC
Mismatching could ha(e serious implications for the financial (iability, as
e(idenced by collapse of many life insurers.
&+M answers the strategic 8uestions, (iz.,
Y &(ailability of ade8uate capital for sol(ency in stressed scenario1
Y Gow to make a tradeoff between risk and return1
Y 9hat is the optimal growth of premium, gi(en the risk appetiteP
Y &de8uacy of reinsurance arrangements1
Y Eptimal use of risk mapping and e(aluation of alternati(e strategy.
PILLAR1 -OR ALMB
!he &+M process rests on three pillarsF
ALM IN-ORMATION 1Y1TEMB- &&&&&&&&& information "ystem
information "ystem
YManagement Information "ystem,
YInformation a(ailability, accuracy, ade8uacy and e*pediency.
ALM OR/ANI1ATIONB-
Y"tructure and responsibilities,
Y+e(el of top management in(ol(ement.

65
ALM PROCE11B-
YRisk parameters
YRisk identification
YRisk measurement
YRisk management
YRisk policies and tolerance le(els
M!0#"i'$ a'0 Ma'a$i'$ Ris*B
&+M modeling can be split into a systematic process.
<. 2etting the precise nature and cashWflows of liabilities and fi*ed
assets.
/. Modeling Interest RateF
a. Modeling risk premium
b. Modeling other economic factors like inflation
c. Modeling (olatilities
d. Mean re(ersion
e. Modeling correlations and basis
C. Measuring Risk,
C. Management of RiskF :(aluating and implementing (arious
strategies.
1t#, 1B Ass#t Lia?i"it. M!0#"i'$B-
& simple stylistic modeling of the balance sheet of an insurance
company would look something like thisF
Ass#ts Lia?i"iti#s a'0 1t!c*h!"0#Gs EH&it.
&"":"!
+I&BI+I!I:" "G&R:GE+%:R" :L'I!J
2EE%9I++
!o get a complete picture of &+M of an insurer one need accurate data
on nature of assets and nature of liabilities namelyF
<. 9hat are the tenures of assets and liabilitiesP

66
/. 9hat proportion of the assets and liabilities are fi*ed and what
proportion are floatingP
C. 9hat is the floating rate inde*ed toP
7. 9hat is the probability of default and of early payment for the assetsP
6. 9hat is the probability for filing of insurance claimsP
!his brings us to the second aspect of risk modeling i.e. modeling
interest rate mo(ement.
1t#, 2B Ma*#t M!0#"i'$B-
Modeling the projected mo(ement of interest rate is the key for analyzing
risk in any financial institutions. "e(eral theoretical and statistical models
are pre(alently used in the industry. -ertain aspects that ha(e to be kept
in mind while modelingF
<. Ris* P#(i&(B Interest rates and bond prices ha(e a risk
premium embedded in them. In other words in(estors demand
higher premium for locking in money for longer term. !his is also
referred to as the term premium of interest rates. !he premium has
to be accounted for to build any realistic model. 9e ha(e
de(eloped statistical methods to e*tract the risk premium.
2. Ec!'!(ic -act!sB :conomic factors influence e(ery aspect of the
balance sheet of a bank. & growing economy on one hand will help on
the asset side as 8uality of assets to impro(e but the same time interest
costs on the liabilities would also increase and (ice (ersa. !hus it is
crucial to generate se(eral economic scenarios to see which scenario
gi(es ma*imum risk.
/. D!"ati"iti#sB It is important to get the (olatilities of interest rates
and other factors as that would point us to the right risk factors
which would be the most crucial to hedge. Iolatilities can be
statistically modeled from time series data. &ll the factors like
interest rates, ;K, default rates etc. can be modeled this way.

67
7. M#a' R#@#si!'B although interest rates in the shortWterm can
fluctuate a lot in the long run interest rates are range bound thus any
spikes in interest rates would e(entually correct. !his is a uni8ue aspect
of interest rates that.s not (alid for other assets like e8uities.
6. Basis a'0 C!#"ati!'sB &lthough all assets and liabilities are
affected by interest rate mo(ements, the mo(ements are not perfectly
correlated. ;or e*ample floating rate loans might be linked to #+R, which
mo(es together with go(ernment bond yields but the relationship is not
perfect. Gence correlations and basis between (arious rates ha(e to be
modeled carefully. &gain we rely on statistical analysis for the same.
1t#, <B M#as&i'$ Ris*B-
Risk can be managed only if it is measurable. Iarious measures are
being used currently by institutions.
&ny measure should not only look at current position of the balance
sheet but should also be forward looking. ;or this purpose we think the
following is a good list of risk measures to track.
<. "ol(ency ratio
/. "cenarios of sol(ency ratio
C. %uration 2ap O Interest Rate sensiti(ity of #n+
7. Iar and -Iar of "ol(encyreturns
6. #robability of remaining "ol(ent
5. #robability of remaining ZD6Netc.
:ach of these measures can be obtained by generating enough
scenarios of the balance sheet using abo(e statistical tools.
Th# is* (a'a$#(#'t st#,s a# as %!""!=sB
<. :stablishing goals and conte*t 3i.e. the risk en(ironment 4,
/. Identifying risks,
C. &nalysing the identified risks,
7. &ssessing or e(aluating the risks,
6. !reating or managing the risks,

68
5. Monitoring and re(iewing the risks and the risk en(ironment
regularly,
A. -ontinuously communicating, consulting with stakeholders and
reporting.
1. Esta?"ishi'$ $!a"s a'0 c!'t#Et (i.#. th# is* #'@i!'(#'t)B
!he purpose of this stage of planning enables to understand the
en(ironment in which the respecti(e organization operates, that
means to thoroughly understand the e*ternal en(ironment and the
internal culture of the organization.
!he analysis is undertaken throughF
:stablishing the strategic, organizational and risk management
conte*t of the organization, and
Identifying the constraints and opportunities of the operating
en(ironment.
2. I0#'ti%.i'$ is*sB
'sing the information gained from the conte*t, particularly as
categorized by the "9E! frameworks, the ne*t step is to identify
the risks that are likely to affect the achie(ement of the goals of the
organization, acti(ity or initiati(e. It should be underlined that a risk
can be an opportunity or strength that has not been realised.

69
?ey 8uestions that may assist your identification of risks includeF
;or us to achie(e our goals, when, where, why, and how are
risks likely to occurP
9hat are the risks associated with achie(ing each of our
prioritiesP
9hat are the risks of not achie(ing these prioritiesP
9ho might be in(ol(ed 3for e*ample, suppliers, contractors,
stakeholders4.
!he appropriate risk identification method will depend on the application
area 3i.e. nature of acti(ities and the hazard groups4, the nature of the
project, the project phase, resources a(ailable, regulatory re8uirements
and client re8uirements as to objecti(es, desired outcome and the
re8uired le(el of detail.
<. A'a".s# th# is*B-
Risk analysis in(ol(es the consideration of the source of risk, the
conse8uence and likelihood to estimate the inherent or unprotected risk
without controls in place. It also in(ol(es identification of the controls, an
estimation of their effecti(eness and the resultant le(el of risk with
controls in place 3the
#rotected, residual or controlled risk4. Lualitati(e, semi)8uantitati(e and
8uantitati(e techni8ues are all acceptable analysis techni8ues
depending on the risk, the purpose of the analysis and the information
and data a(ailable.
Eften 8ualitati(e or semi)8uantitati(e techni8ues can be used for
screening risks whereas higher risks are being subjected to more
e*pensi(e 8uantitati(e techni8ues as re8uired. Risks can be estimated
8ualitati(ely and semi)8uantitati(ely using tools such as hazard matrices,
risk graphs, risk matrices or monographs but noting that the risk matri* is
the most common

70
.
4. E@a"&at# th# is*B-
Ence the risks ha(e been analysed they can be compared against the
pre(iously documented and appro(ed tolerable risk criteria. 9hen using
risk
matrices this tolerable risk is generally documented with the risk matri*.
"hould the protected risk be greater than the tolerable risk then the
specific risk needs additional control measures or impro(ements in the
effecti(eness of the e*isting controls.
!he decision of whether a risk is acceptable or not acceptable is taken
by the rele(ant manager. & risk may be considered acceptable if for
e*ampleF
!he risk is sufficiently low that treatment is not considered cost
effecti(e, or
& treatment is not a(ailable, e.g. a project terminated by a change
of go(ernment, or
& sufficient opportunity e*ists that outweighs the percei(ed le(el of
threat.
If the manager determines the le(el of risk to be acceptable, the risk may
be accepted with no further treatment beyond the current controls.
&cceptable risks should be monitored and periodically re(iewed to
ensure they remain acceptable. !he le(el of acceptability can be
organizational criteria or safety goals set by the authorities.

71
5. T#at th# Ris*B-
&n unacceptable risk re8uires treatment. !he objecti(e of this stage of
the risk assessment process is to de(elop cost effecti(e options for
treating the risks. !reatment options which are not necessarily mutually
e*clusi(e or appropriate in all circumstances are dri(en by outcomes that
includeF
&(oiding the risk,
Reducing 3mitigating4 the risk,
!ransferring 3sharing4 the risk, and
Retaining 3accepting4 the risk.
&(oiding the risk ) not undertaking the acti(ity that is likely to
trigger the risk.
9. M!'it!i'$ th# is*B-
It is important to understand that the concept of risk is dynamic and
needs periodic and form are (iew. !he currency of identified risks needs
to be regularly monitored. New risks and their impact on the organization
may to be taken into account. !his step re8uires the description of how
the outcomes of the treatment will be measured. Milestones or
benchmarks for success and warning signs for failure need to be
identified. !he re(iew period is determined by the operating en(ironment
3including legislation4, but as a general rule a comprehensi(e re(iew
e(ery fi(e years is an accepted industry norm. !his is on the basis that
all plant changes are subject to an appropriate change process including
risk assessment. !he re(iew needs to (alidate that the risk management
process and the documentation is still (alid. !he re(iew also needs to
consider the current regulatory en(ironment and industry practices which
may ha(e changed significantly in the inter(ening period.

72
!he organisation, competencies and effecti(eness of the safety
management system should also be co(ered. !he plant management
systems should ha(e captured these changes and the re(iews should be
seen as a Qback stop.. !he assumptions made in the pre(ious risk
assessment 3hazards, likelihood and conse8uence4, the effecti(eness of
controls and the associated management system as well as people need
to be monitored on an on)going basis to ensure risk are in fact controlled
to the underlying criteria.
;or an efficient risk control the analysis of risk interactions is necessary.
!his ensures that the influences of one risk to another is identified and
assessed. 'sual method for that purpose is a cross impact analysis #etri
nets or simulation tools,
& framework needs to be in place that enables responsible officers to
report on the following aspects of risk and its impact on organizations[
operationsF
9hat are the key risksP
Gow are they being managedP
&re the treatment strategies effecti(eP O If not, what else must be
undertakenP
;. C!((&'icati!' a'0 #,!ti'$B-
-lear communication is essential for the risk management process, i.e.
clear communication of the objecti(es, the risk management process
and its elements, as well as the findings and re8uired actions as a result
of the output. Risk management is an integral element of organization[s
management. Gowe(er, for its successful adoption it is important that in

73
its initial stages, the reporting on risk management is (isible through the
framework. !he re8uirements on the reporting ha(e to be fi*ed in a
8ualified and documented procedure, e. g., in a management handbook.
%ocumentation is essential to demonstrate that the process has been
systematic, the methods and scope identified, the process conducted
correctly and that it is fully auditable.
%ocumentation pro(ides a rational basis for management consideration,
appro(al and implementation including an appropriate management
system.
& documented output from the abo(e sections 3risk identification,
analysis, e(aluation and controls4 is a risk register for the site, plant,
e8uipment or acti(ity under consideration. !his document is essential for
the on)going safe management of the plant and as a basis for
communication throughout the client organisation and for the on)going
monitor and re(iew processes. It can also be used with other supporting
documents to demonstrate regulatory -ompany

74
.
4.5 Ris* Ma'a$#(#'t T!!"B
RI12 APPETITEB-
Risk appetite is the amount of risk that an organization is prepared to
accept, tolerate, or be e*posed to at any point in time. Risk appetite can
pro(ide consistency in decision making.. It enables people to take well)
calculated risks when opportunities arise that will impro(e deli(ery, and
con(ersely, to also identify when a more cautious approach should be
taken to mitigate a threat.
RI12 1EL--A11E11MENT1B-
Risk assessment is the basic unit of risk identification across the
company and typically should be performed by the departments
themsel(es though facilitated and challenged by the risk management
people. & risk self)assessment is a (ery powerful tool and is based on
the premise that those who perform or facilitate a process best know
their risks. !hese e*ercises can unco(er emerging risks. & risk

75
assessment e*ercise done with top management for articulating the
major risks to the company is the entity)le(el risk assessment. "uch risk
assessments should throw up the strategic risks for the company in the
near and long term. :fficacy of entity)le(el risk assessment lies in seeing
whether there was an emerging risk in the past that caught the
management unaware. !hese could be (ulnerable points that re8uire a
tightening of risk assessment.
5. R#s#ach D#si$'
5.1 Tit"# !% th# st&0.
Ris* Ma'a$#(#'t i' I's&a'c# C!(,a'.B
(7ith 1,#cia" #%##'c# t! TATA AIA "i%# i's&a'c#)
:(ery organization is e*posed to (arious risks. 9hile many of them are
pure risks like fire, e*plosion, chemical release etc., some of them are
speculati(e.
Insurance companies are in the business of taking risks. 9orldwide
these companies write policies that deal with specific risks, and in many
cases, e(en underwrite e*otic risks. !hey are mainly e*pose to following
riskF
<. -redit risk
/. Market risk and
C. Insurance risk

76
&s a direct corollary, therefore, insurance companies should be good at
managing their own risks. Gowe(er the truth is a little far from thatV Most
insurance companies are (ery good at assessing insurance risks but are
not (ery good at setting up structures in their own home to manage their
own operating and business risks.
&s an emerging need from the credit crisis, IR%& issued a set of
guidelines on corporate go(ernance in /0<0, < which contained a
reference to the setting up of a mandatory risk management committee
3RM-4. !he RM- has to lay down a risk management strategy across
(arious lines of business, and the operating head must ha(e direct
access to the Board. Gowe(er, IR%& left it to the companies to work out
the details of how risk management functions were to be suitably
organized by them gi(en the size, nature, and comple*ity of their
business.
5.2 O?8#cti@# !% th# st&0.B
Broadly the Risk Management studies are conducted with the following
objecti(esF
!o carry out a systematic, critical appraisal of all
potential risks in(ol(ing personnel, ser(ices and
operations 3risk identification, assessment and
control4.
!o re(iew the insurance co(erage and to identify
areas of co(erage to minimize the risk e*posure.
5.< Li(itati!' !% th# st&0.B

77
!ime +imitations
-onser(ati(e company policy
+ack of secondary sources of data
5.< R#s#ach M#th!0!"!$.
It refers to a way to systematically sol(e the problem.
& Research has been conducted as to know how Insurance -ompany
manages its risk, using Risk Management guidelines pro(ided by IR%&.
By conducting Risk Management &nalysis, it aids in followingF
&n o(er(iew of all risks in(ol(ed in an Insurance company.
&n in)depth study in Risk Management process in an Insurance
-ompanies.
Gelps in #rofit)#lanning.
Gelps in Eptimum utilization of resources.
+eads to ade8uate "afety.
!his research is mainly based on "econdary data collected from
following sourcesF

78
1. A''&a" R#,!ts
2. Ma$a+i'#s
<. 4!&'a"s
4. 7#?sit#s
5. N#=s,a,#s
5.9 Data c!""#cti!', A'a".sis a'0 I't#,#tati!'sB-
:## c!""#cti!' !% 0ata is 0!'# th!&$h s#c!'0a. s!&c#s !% Data.
-! is* ass#ss(#'t (ai'". t=! t#ch'ica" P!@isi!'s a# (a0#
acc!0i'$ t! 1!"@#'c. 2, =hich a# as %!""!=sB
1. E't. L#@#" ca,ita" #H&i#(#'ts
2. 1!"@#'c. Ca,ita" #H&i#(#'ts
1. E't. L#@#" Ca,ita" #H&i#(#'t
&s per "ection 5 of the Insurance &ct, <DC@, any company
proposing to carry on life insurance business shall ha(e a paid up
capital of Rs.<00 crore.

79
Data C!""#cti!'-
;or knowing the minimum capital re8uirement of !ata aia +ife
insurance we ha(e to present balance sheet of the company.

80

81

2. 1OLDENCY REKUIREMENT1B
H"ol(encyH is defined differently by different users. Broadly, it is the ability
of an insurer to meet all its liabilities whene(er they fall due. In other
words we can define e*cess of an insurerHs assets o(er its liabilities.
Ene of the many uses of the risk management process is to determine
the sol(ency re8uirements or standards. !hese standards can be set
from internal management perspecti(e or from regulatory perspecti(e.

82
ANALY1I1 AND INTERPRETATIONB
ANALY1I1B
-!""!=i'$ 0ata 0#,icts 1!"@#'c. (a$i' ?#t=##' t=! ,#i!0s (4&'#
<0 2012 a'0 4&'# <0 201<)
Patic&"as 4&'# <0 2012 4&'# <0 201<
1!"@#'c. (a$i' <16L 2<;L

83
INTERPRETATIONB
&s per Insurance Regulatory %e(elopment &uthority of India 3IR%&4
norms re8uired sol(ency margin is <60N and from abo(e analysis it is
found that in both periods it is higher than the re8uired limit i.e. in =une
C0 /0</ it is C<DN and in =une C0 /0<C it is /<AN.
But between two periods on =une C0, /0<C it is less than =une C0, /0</,
so risk in /0<C is more than in /0</.
I' a00iti!' t! a?!@# cit#ia th## s!(# !th# i'0icat!s a"s! =hich
sh!=s th# is* I'@!"@#0 i' a' "i%# i's&a'c# c!(,a'i#s a# as
%!""!=sB-
<. #ro(isions
/. Income on In(estments
C. Reser(e and "urplus
5.; RECCOMENDATION1B
1.Ris* sh!&"0 ?# i0#'ti%i#0 c"#a". a'0 (a'a$#0 ,!,#".B
In an Insurance -ompany, the cash flows are organized two
streamsF
a. Inflows) #remiums, In(estment, Income, Refunds, and so on
b. outflows) -laim #ayments, Reinsurance #remium, &gent
Remunerations,
"alaries, Interest and %i(idends to In(estors and so forth.
!hus, Risks could be considered along these two flows. In addition,
Insurance #roducts rely on models with +onge(ityMorbidity,
:conomic -onditions, or market -onditions.

84
2.Ris* -a(#=!* sh!&"0 ?# %a(#0 P!,#".B
& good risk framework should ha(e a strong go(ernance structure so
that board and management should know how risk are being
managed .!his in(ol(es appointing a chief risk officer 3-RE4 for risk
management.
<.Th## sh!&"0 ?# s!(# a(#'0(#'ts i' &"#s a'0
#$&"ati!'s !% IRDA %! (i'i(i+ati!' !% is* !% a' I's&a'c#
c!(,a'..
4. 7hi"# a,,!@i'$ i's&a'c# ,!"ic. %! a' i'0i@i0&a",
&'0#=it# sh!&"0 ,!,#". #Ea(i'# th# ,#s#'t stat&s !% a'
i'0i@i0&a".
5.>CONCLU1ION1B
-!( a?!@# 1t&0. it (a. ?# c!'c"&0#0 thatB
Risk management is a fundamental business practice and, as a
matter of course, all Insurance companies should formalise their
internal risk management systems. It is also an e(ol(ing area, which
is yet to be fully de(eloped. Gowe(er, attempts can be made to put
in place the system now so, that insurers can manage more

85
effecti(ely the risks to which they are e*posed. ;urther, the system
could also be used in determining the internal > regulatory capital
re8uirement for an insurer. :(en without a regulatory re8uirement,
sufficient incenti(e should come from the fact that high 8uality risk
management systems can pro(ide a decisi(e competiti(e ad(antage.
In India, the current regulatory sol(ency re8uirement does not directly
address the &sset Risks 3as the N is set to zero4 and the Non)!echnical
risks. !he regulators may want to consider using risk management
models to assess the impact of such risks on insurance companies and
if re8uired, pro(ide for the same.
&fter doing Risk Management it may be concluded as followsF)
\ Risk analysis O how safe is the system, process or item to be
in(estigated,
\ Risk e(aluation O how safe is safe enough, e.g. by comparing the
results of
the risk analysis with prescribed safety criteria,
\ Risk management O how to achie(e and ensure an ade8uate le(el of
safety.
!hus, the results of technical risk assessments are one 3often (ery
important4 part of an o(erall risk or safety assessment of an
organization.
Risk management is, at present, implemented in many large as well as
small and medium sized industries.
5.6 1UMMARYB

!his summer training project ,Ris* Ma'a$#(#'t i' TATA AIA LI-E
IN1URANCE$ gi(es an insight of o(er(iew of all the risks in(ol(ed in
Insurance -ompany and its Risk Management process.
!he main objecti(e of "tudy is to gain famirality with the present Risk
Management process being practiced in TATA AIA Li%# I's&a'c#.
&nother objecti(e was to know whether !&!& &I& +ife Insurance fulfils
all the rules and regulation enacted by IR%&.

86
!he research design is e*ploratory. &ll the data gathered are secondary
data. !he data ha(e been collected from internal sources.
!he brief finding of study is that in terms Minimum -apital
re8uirements and sol(ency re8uirements !&!& &I& fulfils the rules and
guidelines.
!he recommendations of this research are that an Insurance company
should identify its risk properly and as well as managed it properly within
Risk framework. !he management should focus on op as ma*imizing
profit through efficient risk management process.
5.10 BIBLO/RAP:YB
#ublicationsF
&nnual Reports Ef !&!& &I& +I;: IN"'R&N-:
Iarious %ocuments and #resentation of the -ompany
Research Methodology O -.R. ?othari

87
7EB1ITE1B
www.tataaia.in
www.wikipedia.in
www.encylopedia.in
www.goggle.in

88