CHAPTER - I

1. INTRODUCTION
1.1. General Background of the study
Since the origin of the human being on the earth, they have been
subjected to risks of various kinds. There are several types of risk. Some
risks are ordinary and anxious and create great difficulties. Such risks can be
avoided by means of insuring their property against fire, natural disaster like
flood, earthquake etc.
There are two broad sectors of insurance (a) Life Insurance and (b) General
Insurance: Fire, Marine, Aviation, Motor Engineering and other miscellaneous
business are covered by General insurance. Though there are different types
of insurance, Marine insurance is the first type, which had been started by
the merchant in England. In course of their business transaction with the
merchant of Italy, these Merchants were insecure of their goods and ships,
which were subjected to looting by sea pirates and also loss or damage by
the storm in the sea voyage.
As concerning Fire insurance "Fire insurance in which the sum
insured becomes payable on the happening of a fire.1
Actually speaking, the fire insurance was started first in England on
Friday Sept. 2, 1666 A.D., an important event in the history of fire insurance
occurred.2 An over in the king's bakeshop becomes over heated. The fire that
followed get out of hand and nearly succeeded in destroying the entire city
of London. The blaze raged for five days and left in its wake great
destruction of lives and properties. The destruction made people to think
something about the financial losses due to fire. Dr. Nicholas Baebon, a
1
2

E.R. Hardy Ivamy, General Principles of Insurance Law. 6th edition Butter Worths , P. 7
Mishra, M.N.Insurance principles and Practice, Seventh revised edition

doctor and successful building spectator, decided to establish a fire insurance

company. In 1667, he opened an office that offered insurance against loss to
dwellings and business building fire .The doctor was much more successful
in his insurance business than doctoring and other business and in 1690 he
formed a partnership that continued the insurance business he had formerly
operated as one man establishment.

1.2. Development of Insurance Business in Nepal.

There were altogether four insurance companies operating their business
in Nepal till 1986 A.D. Two of them were local companies, viz.
(a)

Nepal Insurance Company, 1947

A subsidiary company of Nepal Bank Ltd, which was writing
non-life business, and

(b)

Rastriya Beema Sansthan (R.B.S.), 1968

Which was writing both life and non-life business.

In addition two Indian companies had licenser to write non- life business,
which were government owned and subsidiary companies of General
Insurance Corporation (G.I.C.), India.
(c)

National Insurance Company

(d)

The Oriental Insurance Company

R.B.S. was owned by Nepal Government though there was some

shareholder equity in the general insurance branch of the company. When

it was set up in December 1967 it had intended to take up only non- life
business. After five years R.B.S. began to issue life policies also. Since
then life insurance business was transacted on a monopoly basis by
R.B.S. Before that life insurance business was transacted by LIC, India,
which was taken over by R.B.S. after Rastriya Beema Sansthan Act, 1968
2

was passed and R.B.S. was set up by the government with effect from
March, 1968.
The government began to exercise a certain measure of control on
insurance business with the pursuing of the first insurance Act, i.e. of
1968 and with marked increase in the business of life and the general
insurance, more comprehensive legislation was required. His Majesty's
Government of Nepal after enacting the Insurance Act, 1968 framed the
Insurance rules in 1969. The Insurance Act, 1968 also encouraged the
establishment of an Insurance Board aimed to act as the Insurance
controller. Insurance Board establishment in 1968 was empowered to
regulate the insurance business in Nepal. Under the Act, Insurance Board
gave permission to transact non-life business to National life and general
Insurance Co. Ltd, public sector Company in 1987. Later on 1988 it also
got permission to issue life policy from Insurance Board. There after the
life Insurance business was opened up and it leased to be the monopoly
business for R.B.S.
The period between 1987 and 1992 saw a rapid development of
Nepalese Insurance Industry. In this period more private sector
companies were eager to invest in the insurance sector. As a result of this,
a single member committee (Senior rank officer of Nepal Rastriya Bank)
was appointed by Finance Ministry, The main objective of the committee
was to explore the feasibility aspects of insurance business in Nepal. The
recommendations of the committee led to the amendment of the
Insurance.
In Nepal the insurance Sector showed rapid growth especially after
publication of the new Insurance Act 1992 and Insurance Regulation
1993 and after making the Insurance Board more powerful. Thus, till
3

1986 four Insurance Companies were organized in 1987, National life

and General insurance co. ltd, was established and between the year 1992
and 2001 thirteen new insurance companies including credit guarantee
Pvt. Ltd. was licensed by the Board, they were:
1.

Himalayan General Insurance Co. Ltd; 1994

2.

United Insurance Co. (Nepal) Ltd; 1994

3.

Credit Guarantee Corporation (Pvt.) Ltd; 1994

4.

Premier Insurance Co. (Nepal) Ltd; 1995

5.

Everest Insurance Co. Ltd; 1995

6.

Neco Insurance Co. Ltd; 1995

7.

Alliance Insurance Co. Ltd; 1997

8.

Sagarmatha Insurance Co. Ltd; 1997

9.

N.B Insurance

10.

Nepal Life Insurance; 2001

11.

Alico Life Insurance; 2001

12.

LIC Nepal; 2001

13.

Potential Life Insurance; 2001

1.3. An overview of Neco Insurance ltd.

After the restoration of the democratic government in the country
(2046 B.S.) efforts have been geared to liberalize the economy. As a
result many types of business are flourishing up in the country. Therefore
Neco Insurance Ltd. was established under the company Act on the 1 st
Paush, 2051 (Dec. 16th, 1995) and was authorized by the Beema Samiti
(Insurance Board) to commence business w.e.f 17-2-2053 (may 30 th,
1996) with the Authorized capital of Rs. 200,000,000 issued and paid up
capital of 50,000,000.
4

Internationally renowned reinsurance companies are involved in the

reinsurance programme. They are:
(a) General Insurance Corporation, India.
(b) The Tokyo Marine and fire Insurance Co. Ltd, Japan.
(c) Arab Insurance Group, Bahrain
(d) Assicurazioni Generali, Dubai and others.
Similarly, the services of top International Brokers are utilized to
approach Lloyds' underwriters and specialized Reinsurance market for
the placement of risks of high technology like Aviation and Contractors'
All Risks/Erection All Risks.
Insurance the-word itself denotes safety, security and trust, where
one's property, possessions and valuables are safeguarded against
financial losses. An insurance company stands for this commitment to
protect your assets against some unforeseen circumstances. A new entrant
in the world of insurance. Neco Insurance Ltd. takes this commitment
seriously. It is an insurance company with a difference. Both in approach
and execution Neco Insurance Ltd. is about to change the whole concept
of what insurance is all about. Managed by experienced professionals and
promoted by reputed companies in Nepal, Neco Insurance Ltd. gives the
assurance of total commitment to customer satisfaction - a promise of
sincerity, reliability and security.
Neco Insurance Ltd. is writing only non-life business. The various
types of General Insurance policies provided in the present scenario.
There are as follow.
1)

Fire Insurance

2)

Motor Insurance
5

3)

Marine Insurance

4)

Aviation Insurance

5)

Engineering Insurance

6)

Medical Insurance

7)

Miscellaneous Insurance

Branches and Sub-branches of Neco Insurance

Head Office- Kathmandu

Regional Office - Hetauda

Sub-branch Offices-

Pokhara

Branch Office

Biratnagar

Nepalgunj

Sub-branch Office

Birgunj

Narayanghat

Sub-branch Birtamod

Promoters
7

Butwal

S.N Person
1.
Kanchan Rana
2.
Deep Maniraj Bhandari(M.D.)

S.N. Institutions
1
Rastriya Banijya Bank
2
Fund Management Company

3.
4.

Rabindra Shrestha
Bharat Raj Upreti

Neco Av. Pvt. Ltd.

1.4. Scope of the company

Neco Insurance, though has a short history is in present
working for the various insurance heads . The scope of Neco insurance is
wide. The companys primary function is to conduct non life insurance
business viz. fire insurance, moter insurance, marine insurance, aviation
insurance, engineering insurance, miscellaneous insurance etc. The surplus
of the funds collected by the way of premium is invested in fixed deposit of
bank ,treasury bills ,government bonds , equity shares etc. apart from its
employees, the company gives direct or indirect employment to various
agent, surveyors and professionals like doctor, engineer and lawyers etc.

1.5. Need of Fire Insurance in Nepal

Nepal is covered by Mountains and Hills. There are few cities, which
may be called urban areas, and most other parts of kingdom are rural areas.
Even in urban areas peoples are not insuring their property. In rural areas
many houses are built by wood and the roof covered by hays. Also most of
the houses built in one small area. Due to this fact a small spark may ignite
fire, which may be the cause of destruction of the entire village. This not
only causes the financial loss but the people also have to endure mental
trauma along with it. Every year we hear news of many houses; cattles,
goods etc. burn in the different part of the country. Nepal is a developing
country. Industries are in initial stage, if these industries are not protected
properly there will be heavy loss of capital resources. It will be a great loss
to the country as a whole. In order to protect these industries from natural
disasters the property should be insured.
On the other hand, in Nepalese business sole trading concern plays a
vital role. People should be encouraged to insure their properties in order to
9

avoid the risk of fire and other natural disasters. Also for commercial and
industrial development in the country, fire insurance should be encouraged.
We can take the case of " Singha Durbar Fire " which caused millions
of rupees of loss to the country. If Singha Durbar was insured the loss could
have been avoided.
Development of fire insurance business in Nepal also contributes to
the development of the economy by protecting the resources against the fire,
which helps to develop the economy.

1.6. Objectives of the study

1. To observe the present situation of fire insurance business in Nepal.
2. To observe the extent of popularity of Fire Insurance business in
Nepal.
3. To evaluate the trend of Fire insurance in Nepal with reference to
Neco Insurance Ltd.
4. To compare the performance with other similar type of insurance
business as per the condition of Fire insurance.
5. To provide constructive suggestions and recommendations to improve
the existing problem faced by Neco Insurance Ltd.

1.7. Statement of the problem

There are some big problems, which create difficulties in development of
fire insurance business in Nepal such as:
1. Lack of popularity: There is low popularity of fire insurance in
Nepal. Many people do not know the meaning of insurance. They do
not insure their property. Even businessmen are reluctant to insure
their property against fire and other natural disaster. Insurance is
10

technical subject. It takes very much time in order to understand it. On

the other hand most of the people are illiterate. They do not know the
importance and benefit of insurance.
2. Lack of trained Agents: Agents are the medium through which the
insurance company and the party establish relationship. Due to the
lack of trained insurance agent, the extent of popularity of fire
insurance is low. It takes a long time to convince a person to insure his
property, which can only be done through laborious and trained
agents.
3. Procedure of claim & settlement: Another cause of low popularity is
the process involved in insuring the property and in the claim
settlement. The laymen do not know many of the technical term used
in the proposal and policy form. As we have stated above, in our
country many people are not literate and the long process involved in
insuring property and claim settlement make them reluctant to insure
their property.
4. Low Income: There is a direct relationship between the income of the
people and fire insurance. As we know that most of the people are
below poverty line, their income is very limited. They have difficulty
to feed themselves with their limited income. In such a situation, the
question of insuring their property does not arise. The people can
think of protecting their property from fire and other natural disaster
only when they are able to save some of their income.
Most of the businessmen here are sole traders. The Income
from their business is low and fluctuating. In such situation paying
premium for the insurance is a burden to the sole traders. Instead of

11

paying premium for insurance purpose from their limited income, they
prefer investing in the business in order to expand it.
5. Lack of Consciousness: - Because of low popularity fire insurance is
unknown to many people. They are not aware of the security provided
by the insurance. In Nepal fire insurance is not widespread. This is
confined to the small area of few cities like Kathmandu, Biratnagar,
Pokhara, Birgunj, Nepalgunj etc. In these cities also, limited people
(industrialists and businessmen) are aware of insurance. Due to the
organizational problem in Nepal, operation of insurance companies is
confined only within the selected cities. This clearly shows the lack of
consciousness of fire insurance among people.
6. Lack of Information or advertising: Advertising done by the
insurance company is not effective at all. Distributing few leaf lets
about the information and services, their offer is not enough to
convince people to insure. It needs systematic and full-scale
advertisement about the benefits of insurance, especially in a country
like Nepal where very few people are aware of pros of insurance.

1.8. Limitation of the study

There are some limitations of this assignment report which may be pointed
as:
1. Due to limited time frame comprehensive information could not be
obtained from the insurance sector.
2. There are very few published books and articles regarding fire
insurance business. So the writing of this report has to depend on
limited information available.
3. Limitation of Secondary data and statistical tools are also be the
limitation of this report.
12

4. The micro topics of fire insurance are not sufficient to cover the fire
insurance of all other same types of organization so it is also limitation
of this field work study.
5. Because of lack of accuracy and appropriateness of secondary data,
they could not give the exact information satisfactorily for the need of
study.
6. The fieldwork report is entirely based on the information provided by
Neco insurance Ltd., as audited data is not available for the current
year, the data up to previous year i.e. FY 2059/2060 is used for
presentation purpose.

1.9. Chapter scheme of the study

The report writing divided into four parts as- Chapter I, Chapter II,
and Chapter III and Chapter IV. Chapter I includes Introduction (General
Background of the study, Development of Insurance Business in Nepal, An
overview of Neco Insurance ltd., Scope of the company, Need of Fire
Insurance in Nepal, Objectives of the study, Statement of the Problem,
Limitations of the study, Chapter scheme of the study). Chapter II includes
methodology of study including the sample size, sources of data and
statistical tools applied. Alike, Chapter III includes Conditions and
Stipulations of Standard Fire policy, Presentation & Analysis of Data with
Study

Results.

Chapter

IV

covers

Summary,

Conclusions

&

Recommendations. Also the supplementary section as Bibliography,

Appendix been attached at the final section.

13

Chapter II
2. Methodology of study
2.1. Introduction
This study is based on an appropriate research methodology. The
application of methodology is in the fact the eye and ear of the study. It
helps to analyze the data in finding the cause and effect of relationship to see
how company is performing and how the company is servicing. All the
information presented in this fieldwork is mainly extracted from Neco
insurance limited. The performance of the firm and the activities that are
being undertaken is thoroughly analyzed and necessary matters have been
carefully presented in this project work. Brochure, companys policy and
annual general meeting reports of Neco insurance Ltd. has also been
consulted. For the research we need data, collected through various relevant
and appropriate sources. The data are collected, quantified, analyzed and
compared to reflect the financial performance of the company. The data
collection for the project is done through the frequent visits to the Neco
insurance company Ltd. and with special reference to the specific people,
materials and the books available.

2.2. Field work procedure

First of all, the purpose of this report writing was determined and the
main stuffs to be included were selected by through investigation on the
specific field. Many books and the proposal of the Insurance Company were
studied. The necessary data for the report being provided by the friend of
mine turned helpful during and till the completion of the report.

14

I have also consulted a few assignment reports of the seniors and also the
suggestions of my teachers. So, this report is the outcome of support and
encouragement of different entities.

2.3. Methods of Data Collection

Both primary and secondary sources of data were collected for the
fieldwork. It was a comprehensive exercise. The primary data generated the
information on the Neco and Beema Samiti while the secondary data
provided the insight of the insurance sector for analysis.
a) Primary data
b) Secondary data
(a)

Primary data: Primary data was obtained through Interview and

questioner methods with the officers of Neco & Beema Samiti. The
methods elicited valuable information useful for the fieldwork.

(b)

Secondary data: This study is mainly based on the secondary data

relating to the study of fire insurance position, as they available
from the Neco and Beema Samiti. There are very few published
books and articles regarding fire insurance business. So the writing
of this report has to depend on secondary data, which also provides
the valuable information about need, problem and historical
background of fire insurance business in Nepal, which is published
by Neco insurance through its annual report.

2.4. Statistical Tools Applied

Neco insurance has started its operation since 8 years. The
performance of the company has been satisfactory and expected to get even
better, as the concept of risk sharing is increasing and it has been
15

successfully standing with its strong goodwill. The past and the present
performance record has been presented in the form of table, pie-chart and
bar diagram wherever necessity of it was felt. Thus, table and diagrams are
used as statistical tools in this field work report.

2.5. Data period

This study has covered the data period ranging from F/Y 2052/2053
to 2059/2060.

2.6. Research design

Analytical as well as descriptive design has been used.

16

Chapter III
3. Data Presentation and Analysis
3.1 Conditions and Stipulations of Standard Fire Policy
The standard fire policy form is prescribed by the tariff. The
conditions regulate the fire policy contract. There are twenty printed
conditions present in standard fire policy. They are enlisted in serially as
given below:
1.

Misdescription (Condition No.1): The result of misdescription and

misrepresentation is serious. The insurer has no liability ends, if he
proves misrepresentation by insured. It may be regarding property
insured or material misdescription of property. This emphasis that the
duty of utmost good, in parties to cover the exact property. Therefore
accuracy in translation of the property to be insured is of vital
importance. The policy drafter should take particular care in avoiding
terms, which are capable of being interpreted wider than it was
originally intended. Terms must be specified and have no dual
Meaning.

2.

Premium Payment (Condition No.2): The payment against Premium

by the insured shall be deemed unless a printed from of receipt for the
same-has been given to the insured. The condition deals about the
proof of premium payment (a) premium be paid (b) Form of printed
receipt be obtained, (c) It should be signed by an official or agent of
the company. Unless premium paid in advance with out any
specification, no risk is covered.

17

3.

Other Insurance (Condition No.3): This condition deals that the

insured shall give notice to the company of any insurance or
insurance affected, or which may be subsequently be affected. In
practice warranties of this policy over ride this condition. Other
insurances are declared while replaying on the extent of loss.

4.

Fall/Displacement (Condition No.4): This condition provides for

automatically termination of cover in the event of collapse of the
building or of any important part of the building if it goes to change
the original risk. The fall or displacement may subject to the building
or its contents to an increased risk of fire. The cover is not canceled or
terminated if the collapse is caused by fire. The responsibility is to
prove falls on the insured.

5.

Exclusion (losses) (condition No.5): This condition is excluded the

following losses from the standard fire policy.
Loss by theft during or after occurrence of fire.
Loss or damage to property occasioned by its own fermentation,
natural heating or spontaneous combustion or by its undergoing
any heating or drying process.
Loss by burning of public Authority or subterranean fire.

6.

Exclusion (perils) (condition No.6): This condition is excluded the

loss or damage caused by following listed perils.
Earthquake, volcanic eruption or other convulsions of nature.
Typhoon, Hurricane, Tornado, Cyclone or other atmospheric
disturbance.
18

 War, invasion, act of foreign enemy, hostilities or war like operation

or civil war.
Mutiny, riot, military or popular rising, insurrection rebellion,
revolution, martial law or state of siege.
Explosion (where fire is not ensued)
Burning, whether accidental or otherwise of forest, bush and jungle
and the clearing of lands by fire. Some of the above perils may be
covered to charge extra premium as prop ride in Fire Tariff.
7. Property Exclusion (condition N0. 7): This condition is excluded the
following articles/properties from this insurance cover unless these are
not mentioned with value separately in the policy:
Goods help in trust or on commission.
Bullion (Gold, Silver etc) or unset precious stone.
Any curiosity or work of art for an amount exceeding Rs. 1000/ Manuscripts, plans, drawings or designs, patterns, models or moulds.
Securities, obligations or documents of any kinds, stamps coin or
paper currency notes, cheques, books of account or other business
books, computer system records.
Explosives.
8. Alteration (condition N0. 8): This condition deals with alteration in the
risk originally proposed, if any change it should be recorded by the
insurer unless, no ability attaches on the insurer. These are as under: If trade or process or nature of occupation or other circumstances
affecting the building insured or containing the insured property be
19

change in such a way as to increase the risk of loss or damage by

fire.
If the building insured or containing insured property becomes
unoccupied or so remains for a period of more than 30 days.
If the property insured be removed to any other building or place other
than that which it is herein stated to be insured.
If the interest in the property insured passes from the insurers other
wise than by will or operation of law. The insurer's liability will
not end if the following conditions fulfilled:
i.

The change was notified to insurer,

ii.

Change was endorsed in policy,

iii.

If the insured dies, the policy is automatically transferred

to his legal heirs. Another point is to determine the
increase in risk. Change of interest does not affect a
bank's interest.

It provides for stoppage of cover in case of material alteration in subject

matter, if no notice was given and no acceptance of insurer was got for
these changes.
9.

Marine clause (condition No.9): This condition provides that fire policy
would not pay earlier than the Marine policy should the subject matter
of insurance be covered under a marine policy. If one property is insured
under Marine and Fire policies then the payment of compensation is to
be first from Marine and any balance left of the loss to be met by fire
policy.

20

10. Cancellation (condition No.10): This condition provides for the

cancellation of the policy by either party (Insured or insurer) by giving
notice to the other party. If the insured cancelled the policy the refund
premium is made according to short period scale as provide in fire tariff.
11. Claim procedure (condition N0.11): On the happening of any loss or
damage the insured shall forthwith give notice thereof to the company
and shall within 15 days after the or damage or such further time as the
company may in writing to allow in that behalf, deliver to the company.
Immediate notice of loss;
Written statement of particulars of the property lost or damaged;
Proof of loss at his expenses;
Particulars of all other insurance, if any.
12. Right of entry (condition No.12): This condition of the policy
complies in the event of loss; the insurer has the following rights.
To enter the insured premises
To take the possession of the insured property
Salvage of the insured property and
Sell the property on behalf of concerned parties. The insured cannot
abandon his property to insurer.
13. Fraud/Arson clause (condition No.13): This condition expressly deals
that if the claim put forward is fraudulent or the loss is willfully caused
by the insured, the benefits are forfeited. The circumstances are
following: 21

 The claim is fraudulent;

The claim is based on a false declaration or made claim;
Use of fraudulent means to claim.
14. Reinstatement (Condition No.14): This insurer may pay compensation
for loss or damage property in cash or replace/reinstate the insured. The
expenses are to be limited to the cost of reinstating to the condition just
before damage putting insured in the position prior to loss.
15.

Subrogation (condition No. 15): Insurer must be assisted with

information and proof available to insured to proceed against the third
party. This arises when third party is liable for the damage under law.

16. Contribution (condition No.16): This condition deals with multiple

insurance on the same subject matter. The payment of claim shall be
made on pro-rata share of loss. Suppose a person insured the same
subject matter with more than one insurer, and then each insurer will
pay only a ratable proportion of the loss.
17. Average/Under Insurance clause (condition No.17): If the sum insured
is valued at a lower price than the property on the date of loss, then the
insurer will pay in the same proportion the insured sum bears to the
value of property the insured is penalized for under insurance.
18. Arbitration (condition No. 18): In case of dispute under the policy on
the amount of claim, the condition provides to refer the dispute to
22

arbitrator to be appointed by both the parties. But whether claim is

insured or not has to be decided by the court of law.
19. Limitation (condition No.19): The insured forfeits his claim if he does
not take the claim to the court within 12 months from the date of
occurrence of loss or damage.
20. Communication (condition No. 20): All notices and communications to
the insurer are to be in writing only. A breach of these conditions
mentioned above has different effect under different conditions.
Extraneous Perils
The Fire policy may be extended to cover the following perils by payment of
extra premium.
A.

Explosion/Implosion: Under explosion extension, internal explosion

known as implosion is also covered but loses to Baileas, Economizers
or vessels Machinery or apparatus in which storm is generated
resulting from their own explosion are excluded. If the property
insured more than one policy, the policy extended to cover explosion
risk will liable only pro-rata with other fire insurance policy whether
or not the other policy is extended to cover the risk of explosion.

B.

Riot, Strike and Malicious (vandalism) Damages: The riot and strike
damages are also covered the loss due to disturbance of public peace.
It is not essential a riot defined as in law. This extension not provides
to cover the losses caused by delay, loss of market, consequential loss,
23

losses caused by total or partial cessation of work or retardation,

interruption or cessation of any process or operation or omission of
any kind. Under this extraneous. Perils two types of coverage are
provided: - (1) Riot strike Damage & (2) Riot Fire Damage
1.

Riot Strike Damage: - Any loss or damage due to strike besides

the aforesaid exclusions are covered under this coverage.

2.

Riot Fire Damages: Loss or damage occurred due to fire during

the course of riot is covered only. The commencement of this
extension is to be effective after the 15 days from the date of
receipt of premium in case of grant to mid-term cover.

C.

Earthquake: Under this extension, two types of cover are available:

I.
II.

Damage due Earthquake & shock and

Earthquake fire & shock

This extension excludes the loss/damage due to flood, overflow of

sea, lakes reservoirs and rivers caused by earthquake.
D.

Storm, Flood, cyclone, Hurricane, Tornado, Tempest & Inundation:

Direct loss or damage due to aforementioned perils is easy to
determine as signs/reports are covered under this extension whether
damage due to rainwater or overflow of drainage or storm water pipes
without causing inunatcian is not covered. The term flood is not to be
understood in the common sense of term flood in the river or lakes but
24

accumulation of water due to jammed/choked drains would also

deemed as flood.
E.

Spontaneous combustion: Under this extension loss damage due to

mere overheating and consequent deterioration (not by fire arising
from spontaneous combustion) is not covered.

F.

Aircraft Damage: This extension provides to cover loss or damage

caused by aircraft and other aerial devices and/or articles dropped
therefore are included.

G.

Terrorism: This extension covered loss or damage arises by terrorist

and similar types of activities as proved by the local authorities by
charging nominal premium.

3.2. Presentation of Data

In this chapter the study has been made from various aspects of the
existing fire insurance business in Neco Insurance Ltd. Viz. Premium
income of the company, claim paid, re-insurance premium and operating
income (profit) from the fiscal year 052/53 to 059/060 B.S.
The Fundamentals objectives of the study is to analyze the financial
statement as well as to analysis the trends of premium collection, payment of
claim, re- insurance premium, and to evaluate operating profit for knowing
past trends and current status of the Neco insurance Ltd. for making more
clear and to present relevant manner. Using some related data, tabular,

25

analytical or statically tools/techniques are mentioned in this chapter. It is

hoped that it also makes simplicity for understanding the things.

3.2.1. Premium Income

Premium is the main source of earning of the insurance companies.
The following table shows the premium earned by the company for various
types of non-life business. Also the premium earned for fire insurance has
been separately shown.
Table - 3.1
Status of Fire Premium on Total Premium
Fiscal Year

Fire Premium

% increased

Total Premium

% of fire premium on total premium

052/53
053/54
054/55
055/56
056/57
057/58
058/59
059/60

281952
6924386
12100594
13157553
17784773
18899229
22905319
24898659

2355.87
74.75
8.73
35.17
6.37
21.19
8.70

673380
55432899
104849465
118649259
149849045
188488701
218086558
168091383

41.87
12.49
11.54
11.09
11.87
10.02
5.02
14.81

Source: Annual Report of NECO

From the above table- 3.1 we can see that there is an increasing trend
of fire insurance premium in the recent years. In the year 2053/54 there has
been an increase of 2355.87% on fire premium. It is an abnormal increased
percentage shown in the fiscal year 2053/54 because the business just has
been started at Jestha 17, 2053 and In this F/Y the duration of business
transaction was only one and half month. In the following year 054/55, the
premium increased has been noted 74.75% which is no greater increase in
percentage compared to 2355.87%, but the volume of premium is slightly
greater than that of previous year increase, which is quite satisfactorily.

26

In the year 2055/56, 2056/57,057/58,058/59 the percentage increase is

only 8.73%, 35.17%,6.37 %,21.19 respectively which is very disappointing
one. The reason of decrease in premium income compared to the previous
year may be either the new insurance companies entered into the market and
the insurance business is diluted among the companies or the service
rendered by the company to the customer is not very attractive. But in the
fiscal year 059/60 the percentage of fire premium is simply increased and
reached up to 8.70%. This increase is a positive sign to the increase in the
insurance business of the company.
Table showing the calculation of coefficient of correlation between
total premium and fire premium (the value of coefficient of correlation has
been derived by the help of computerized excel program)
Table 3.2
Correlation between Total Premium and Fire Premium
Fiscal Year
052/53
053/54
054/55
055/56
056/57
057/58
058/59
059/60
r=0.5649020

Fire Premium

Total Premium

281952
6924386
12100594
13157553
17784773
18899229
22905319
24898659

673380
55432899
104849465
118649259
149849045
188488701
218086558
168091383

The formula for computation is; rxy=

xy
x . y
2

The above analysis result shows that the coefficient of correlation between
total premium and fire premium is positive i.e. r = 0.5649020. Thus we can

27

conclude that the total premium and fire premium are positively correlated
i.e. two variables move in same direction.
This Bar diagram and pie-chart show clear figure of insurance of fire
premium in different fiscal year.

Figure 3.1
Bar diagram of Fire Premium & Total premium
Bar Diagram of Fire Prem ium and Total Prem ium

250000000

Amount

200000000

150000000
Fire Premium
Total Premium
100000000

50000000

052/53 053/54 054/55 055/56 056/57 057/58 058/59 059/60

Fiscal Year

28

Figure 3.2
Pie- Chart of Fire Premium
281952
6924386
24898659

12100594
13157553

22905319
17784773
18899229

052/53
053/54
054/55
055/56
056/57
057/58
058/59
059/60

Figure 3.3
Pie Chart of Total Premium

673380
55432899

168091383

104849465

118649259
218086558
149849045
188488701

052/53
053/54
054/55
055/56
056/57
057/58
058/59
059/60

Now, we are going to analysis the contribution of fire premium to the

total premium of Neco Insurance Ltd. In 052/53 the contribution of fire
premium towards total premium is 41.87% but in 053/54, 054/55, 055/56,
056/57,058/59 its contribution towards total premium is decline to 12.49%,
29

11.54%, 11.09%, 11.87%, 10.02 respectively. But in the fiscal year 059/60
the fire premium on total Premium is found to be increase to 14.81%. This
figure shows that the fire insurance premium has been increasing, while
contribution towards total premium is slightly decreasing. It means that the
other types of general insurance like marine, motor, engineering, aviation &
miscellaneous have outstripped the contribution of fire insurance. Other
types of general business have been increasing very fast than fire insurance.
This clearly supports our assumption that the Neco Insurance ltd. is passive.
Their promotional activity is respect of fire insurance is not good. They are
not trying their best to increase fire insurance business in these years.

3.2.2. Claim Paid

Claim is sum paid by the insurer to the insured that has lost their
property due to fire or other natural disaster against which the property has
been insured.
Table - 3.3
Status of Net Fire Premium and Net Claim paid on Fire.
Fiscal Year
052/53
053/54
054/55
055/56
056/57
057/58
058/59
059/60

Net fire Premium

Net claim paid

% of claim paid on

21853
708588
4408531
5073636
5898831
5606766
6694831
6389634

on fire
492
6852
329190
144442
713829
1811010
924882

premium
0.069
0.16
6.49
2.45
12.73
27.05
14.47

Source: Annual Report of NECO

In the fiscal year 052/53 there has been no claim paid. This is because
of the opening year, time duration is very short i.e. one and half month of
30

this company and the volume of net fire premium was not very large
compared to the following years.
In the following years 2053/54 and 54/55 the percentage of claim paid
is 0.069% and 0.16% respectively. The figures indicate that in these two
years, the amount of claim paid is very low but slightly increasing trend. But
in next fiscal year 055/56, 056/57, 057/58, 058/59 the percentage of claim
paid was increased in fire insurance was noted 6.49%, 2.45%, 12.73%,
27.05% respectively.
In the last fiscal year 059/60 the percentage of claim paid is 14.47%,
which is decrease than previous year. From the above calculation we can
predict that the percentage of claim paid on fire premium is fluctuating in the
different fiscal years, although, the percentage of claim paid increase from
one year to another year. It is not so worse for the company because the
claim paid percentage is very low comparing with net fire premium
collection.
Table showing the calculation of coefficient of correlation between net
fire premium and net claim paid on fire (the value of coefficient of
correlation has been derived by the help of computerized excel program)

31

Table 3.4
Correlation between Net fire Premium and Net claim paid on fire
Fiscal Year
052/53
053/54
054/55
055/56
056/57
057/58
058/59
059/60
r = 0.634757

Net fire Premium

21853
708588
4408531
5073636
5898831
5606766
6694831
6389634

The formula for computation is; rxy=

Net claim paid on fire

xy
x . y
2

492
6852
329190
144442
713829
1811010
924882

The above analysis result shows that the coefficient of correlation between
net fire premium and net claim paid on fire is positive i.e. r = 0.634757.
Thus we can conclude that net fire premium and net claim paid on fire are
positively correlated i.e. two variables move in same direction.
The following figure will show the picture of net claim paid compared
to fire premium.

32

Figure - 3.4

8000000
7000000
6000000
5000000
4000000
3000000
2000000
1000000
0

Net fire
Premium
21,853
Net claim
paid on fire -

05
3/
54
05
4/
55
05
5/
56
05
6/
57
05
7/
58
05
8/
59
05
9/
60

Amount

Bar diagram of Net Fire Premium and Net Claim paid

Fiscal Year

Figure 3.5
Pie Chart of Net claim paid
492

6852
329190

924882

144442
713829

1811010

33

052/53
053/54
054/55
055/56
056/57
057/58
058/59
059/60

In the figure, the claims paid on the first three fiscal years are
negligible in comparison to their net fire premium. But in the fiscal year
058/59 and 059/60 the net claims paid is higher then preceding two years.
Although the above situation stated that company is very healthy and also
help to increase the profit.

3.2.3. Reinsurance
Reinsurance is an arrangement whereby an original insurer who has
insured a risk insures part of that risk again with another insurer, that is to
say, reinsures a part of the risk in order to diminish his own liability. It other
words, reinsurance is the transfer of insurance business from one insurer to
another.
Large risks are encountered in all section of insurance business. It
doesn't matter if it is marine or fire, life or non-life. It is for this reason that
re-insurance is required in all departments with the objective of providing a
greater spread of risk. So when a heavy claim is made on the insurance
company, which issued the policy, the burden will be borne by other
insurance companies as well.
There is most important role of reinsurance for pure operation of
insurance business. For this reason Neco Insurance Ltd. has reinsurance
contract with different national insurance company like Premier insurance
co., Sagarmatha Insurance Co. and National Insurance Co. etc. The company
has also reinsurance contract with various foreign renowned insurance
companies such as General Insurance Corporation India; The Tokyo Marine
and fire Insurance Co. Ltd. Japan, Arab Insurance Group, Bahrain;
Assicurazioni Generali, Dubai and others.
34

The following table shows the reinsurance premium from firepremium of Neco Insurance Ltd. for different fiscal years.
Table- 3.5
Status of reinsurance premium on fire and fire premium
Fiscal Year
052/53
053/54
054/55
055/56
056/57
057/58
058/59
059/60

Re-insurance
Premium on fire
260099
6215798
7692062
8083917
11887942
13292463
16210488
18509025

Fire Premium
281952
6924386
12100594
13157553
17784773
18899229
22905319
24898659

% of Re insurance
Premium on fire
92.25
89.77
63.57
61.44
66.84
70.33
70.77
74.33

Source: Annual Report of Neco

This table shows re-insurance statement of five years. In the year

052/53, the percentage of re-insurance premium is 92.25%. It means that
more than 90% premium income has been paid for re-insurance of their
business. It shows that due to the establish year, the company has not taken
high risk and to secured his business by re-insurance. So the company reinsured high percentage.
However, in the year 053/54, 054/55, 055/56,056/57, 057/58, 058/59
the percentage of re-insurance on premium is declining to 89.77%, 63.57% ,
61.44%, 66.84%, 70.33%, 70.77% respectively but in the year 059/60 the
percentage remains on 74.33%. This shows that the company is heavy
depending on re-insurance in their business. But this decreasing trend of reinsurance is a very healthy sign. Though there has been increasing trend in
premium income, the re-insurance business is decreasing. It means the

35

company wants to retain more business with them. It also indicates that the
company is expanding their capacity with the increase premium income.
Transaction of re-insurance business within the country between
different companies is less than the business for re-insurance in the foreign
international companies'. Placing of reinsurance business in foreign
companies means paying foreign currency. It means heavy foreign currency
outflow from country. Instead re-insurance among different foreign
companies within the country is preferred.
This Bar- diagram and pie chart will show a clear picture of reinsurance business of Neco Insurance Ltd. from Fiscal year 2052/53 to
059/60
Figure - 3.6
Bar-diagram of reinsurance premium and fire premium
25000000

052/53
053/54
054/55
055/56
056/57
057/58
058/59
059/60

20000000
15000000
10000000
5000000
0

Re-insurance Premium on
fire

Fire Premium

Figure 3.7
Pie Chart of Re Insurance Premium
36

Re-insurance Premium
on fire
Fire Premium

Here, we can see that there is increasing trend of fire insurance

premium but trend of re-insurance premium of the company is decreasing in
the ratio of fire premium, which is a good sign of the company.

3.2.4. Income (Profit):

Income or the profit is the measuring rod of the company's
performance. Also for the survival of the company income is necessary. On
the other hand, for the expansion of the company, profit plays a vital role
because it is one of the important sources of financing, more profit means
more financing. Hence, the long run survival as well as expansion of the
business is helped by the income generation of the company.
As for profit concerning to Neco Insurance Ltd. following table shows
the profit of five years.

37

Table - 3.6
Status of Fire Premium and Operating Profit On Fire
Fiscal Year

052/53
053/54
054/55
055/56
056/57
057/58
058/59
059/60

Fire

operating

% of profit on

% change on

premium

profit on

premium

Operating profit

281952
6924386
12100594
13157553
17784773
18899229
22905319
24898659

fire
(185969)
1667806
3335437
5538786
7813011
7694106
7991069
6277479

-65.96
24.09
27.56
42.10
43.93
40.71
34.88
25.29

on fire
(996.82)
99.99
66.06
41.06
(1.52)
3.86
(21.44)

Source: - Annual Report of Neco.

As shown in table 3.4, the operating income (profit) for the year
052/53 is -65.96% (loss) of the premium income, which is heavy loss. It is
because of established year and very short period one and half month, in this
year 92.25% of its premium is re-insured to other companies and also high
managerial expenses and other expenses are beard by the company.
In

the

following

years

053/54,

054/55,

055/56,

056/57,

057/58,058/59,059/60 there is high increasing trend in income of the

company, which is very good symbol. In those years the percentage of
income on premium is 24.09%, 27.56%, 42.10%, 43.93%, 40.71%, 34.88%,
25.29% respectively.
Similarly, the table shows changes in percentage of operating profit on
fire i.e. increased or decreased. The change percentage is negative in F/Y
053/54 and increasing to 99.99% in F/Y 054/55 then decreasing till F/Y
059/60, which shows that its performance is unsatisfactory.

38

The bar- diagram and pie chart will show in clear picture of operating
profit on fire premium of Neco Insurance Ltd. from fiscal year 052/53 to
059/60.
Figure 3.8

Bar Digram of Fire Premium and Operating

Profit on Fire
20000000

Fire premium
operating profit on fire
9/
60

05

8/
59

7/
58

05

6/
57

05

05

5/
56

4/
55

05

3/
54

05

05

-10000000

2/
53

10000000
0
05

Amount

30000000

Fiscal Year

Figure 3.9
Pie chart of operating profit

-65.96%
20.4
Fire premium

-185969

operating profit on fire

281952

39

% of profit on premium
4th Qtr

From the above stated figure out of the fiscal year 2052/53 all other fiscal
years like 053/54, 054/55, 055/56 ,056/57,057/58,058/59,059/60 have show
the increasing trend of operating profit on fire premium. This indicates the
good sign for the betterment of the company as per fire insurance business.
However the % of Re- insurance premium on fire premium is heavy amount,
the company success to make the satisfactory profit in the different fiscal
year. This increasing trend of profit makes the company strong and expanse
the volume of business widely. By the operating profit of fire insurance may
cover the other sectors loss arising to the company.

3.3. Major findings

I have found several critical points while analysis the data, they are
mentioned below:
1. The percentage of fire insurance on total premium is decreasing till
F/Y 058/59 but increasing in F/Y 059/60.
2. The correlation between total premium and fire premium is positive
i.e. r= 0.5649020.
3. The percentage of claim paid on premium is very low during F/Y
053/54 and 054/55. But it is increasing till F/Y 058/59 and
decreasing in F/Y 059/60.
4. The correlation between net fire premium and net claim paid on fire
is positive i.e. r=0.634757.
5. The percentage of reinsurance premium on fire premium is
decreasing till F/Y058/59 but in the F/Y059/60 the percentage
remains on 74.33%.
6. The percentage of profit on premium is in high increasing trend.

40

7. The change percentage is increasing in F/Y 054/55 but decreasing

till F/Y 059/60.

41

CHAPTER- IV
4. Summary, Conclusion and Recommendation
4.1. Summary
Fire insurance is the important branch of insurance business one can
feel safe after insuring his property against fire and other hazards like
explosion, riot, civil commotion, and earthquake. Nobody knows when a fire
incurs and his property will be destroyed. In order to avoid such insecurities
from mind fire insurance is the surest possible way of protecting one's
property is advance. Fire insurance has vital role to play in our country when
trade and commercial activities are increasing day by day.
The main objective of this research is to explore the present situations
to observe its popularity to evaluate the trend to compare the fire insurance
with other similar company and give suggestions for the betterment of the
fire business.
While studying different facts of the fire insurance business from
Neco Insurance Company, some problems have been identified. Prospect of
fire insurance is very high but due to concentration of business in limited
cities, most of the people are unknown to fire insurance. Among the masses,
it is not much popular, as it ought to be. It is because, insurance companies
are not doing well to promote it and government also is not serious on
promotional activities. The companies are depending on big industries and
are not trying to sell their policy to small entrepreneurs. Low income is also
another factor, which has been affecting fire insurance business. In our
country most of the business is sole trading concern. The income of these
concerns is very limited. So trails are reluctant to insure their property. The
company should come forward with efforts to make them aware of the
advantages of insuring their property.
42

The data analysis of different years of Neco insurance ltd. indicates

that if the premium goes up the profit will be high and vice versa. For this
reason, the company should raise the premium income by making
promotional activities. Direct link between the customer and the company is
possible only by the help of agents. So the company should recruit more
trained agents in different parts of the company and encourage them to bring
business.
For analytical research, all the data are collected from Neco Insurance
Ltd. and Insurance Board (Beema Samiti). Analysis has been done on the
basis of the data available regarding premium income, claim paid, reinsurance and income (profit) of five years (i.e. from F/Y 052/53 to 059/60).
4.2. Conclusion
The study based on the data of Neco Insurance Ltd. has revealed the
sample of scope for extending fire insurance business in Nepal. Though,
now concentrated in some cities the fire insurance has great significance. It
saves scare resources and utilizes them in business and industry. It is also a
medium of accumulating scattered resources, which is invested in
government bond, securities and fixed deposit. Present concentration of fire
insurance in some cities can be expanded in other parts of the country as
well. It will create employment opportunity and jobs to the people.
Increasing profit from this business is another important factor for their
growth. Thus, it can be concluded that fire insurance plays a vital role in the
development of commerce and industries and has great significance in
developing the economy. It has a very good prospect as well.

43

4.3. Recommendation
Based on the summary and findings some important suggestions and
recommendations are drawn to improve the current position of the
company, which are listed below.
1. Research should be made by experienced person of the related field to
search new insurance market, for which the company should appoint
its professional agents.
2. Company should improve the outstanding premium collection by
providing attractive collection scheme or incentives to the
policyholder and encouraging them to pay earlier or in time.
3. Company should improve its liquidity position by adopting new
strategies to reduce the level of current liabilities or to invest more on
liquid assets. The company should also reduce the outstanding claim
to Make sound liquidity position.
4. Company should make effective investment portfolio by investing its
resources on government securities and bonds for liquidity
consideration, as well as for safety measure. Major portion of the
funds should be invested in stocks of financially reputed (strong)
companies to earn high rate of return.
5. Adequate publicity and advertising should be made to inform people
the need and importance of insurance for the development of
insurance market.
6. The company should make and adopt new, clear and sound policy to
involve more and more areas in insurance business from different
sector.

44

7. The company should make prompt payment of the claim to customer

to establish good relation and to maintain its popularity.
8. The company should provide training to the staff of the company to
make its administration effective and efficient and recruit trained
person.
9. The company should take action to reduce its managerial and other
nominal expenses and have to be sincere for increasing profit.

45