TABLE OF CONTENTS

Declaration

Certificate from company guide

Certificate from faculty guide

Acknowledgements

Executive summary

1. Introduction 1
2. Industrial analysis 3
2.1 Porters five forces analysis
3. SWOT Analysis. 7
4. Comparative analysis 8
4.1 IDBI FEDERAL WHOLE LIFE
4.2 IDBI FEDERAL CHILDSURANCE
5. Financial statement analysis 14
5.1 Position of current asset
5.2 Position of current liability
5.3 Net working capital
5.4 Ratio analysis
5.4.1 Current Ratio
5.4.2 Loss Ratio
5.4.3 Expense Ratio
5.4.4 Operating Ratio
5.4.5 Commission Ratio
6. Risk classification in life insurance. 21
6.1 Underwriting
6.2 Reinsurance
6.3 Premium charging factors
6.4 Selection
6.5 Enterprise Risk Management
6.6 Investment of funds
7. Findings. 28
8. Corporate Learning 32
9. Conclusion 33
10. Annexure.. 34
11. References 38
 EXECUTIVE SUMMARY
The objective of the report was to:

To assess and analyze the risk and insurance management

To analyze the financial statements of the company
To do the comparative analysis of IDBI Federal with other private companies
To derive corporate learning from internship

During the internship IRDA training and product training was given through which we got to know
about the rules and regulations of the insurance industry and about the products into which the
company is dealing and through which it takes on the risk of helping the customers during crisis
situation. Followed by product training client interaction was done for the understanding of the
product and thereby combating with the needs of the customer. Meeting clients and making them
aware of the product helped in enhancing the skill of customer analysis. Before selling any product it
is necessary to analyse what the customer wants and then reacting accordingly.

The report has been divided into four parts:

Comparative analysis
Financial statement analysis
Risk assessment and classification
Corporate learning

A comparative analysis of products of IDBI FEDERAL with other products is being done to show why
the companys products are unique and the results showed that IDBI Federal is giving higher returns.

FINANCIAL POSITION
The financial statement analysis of IDBI Federal is also done which contains the calculated values
representing the financial position of the firm for the year 2010, 2011, 2012, and 2013. A ratio
analysis is carried out which represents the management efficiency and overall profitability of the
organization. Results show that the company has an improving current ratio but it needs to manage
its expenses.

RISK ASSESSMENT OF THE COMPANY

Through risk assessment we got to know about the areas where the company is more open to risk.
While investing customers money the company has to carefully asses as to how the investments are
to be made as a little variation can expose the company to major risk. For risk assessment both
primary and secondary means of data were used.
 INTRODUCTION
Insurance sector in India is a colossal one and is growing at a speedy rate of 1520%. Together with
banking services, insurance services add about 7% to the countrys GDP. A welldeveloped and
evolved insurance sector is a boon for economic development as it provides long term funds for
infrastructure development at the same time strengthening the risk taking ability of the country.

However, as the economic scenarios become increasingly complex and volatile, it is almost certain
that there will be more deleveraged financial system and substantially different regulatory
environments. In the midst of all this, what should insurers focus on in this changing environment?
This report focuses upon the changing dynamic of the insurance industry and risk management
framework and practices.

The study aims at analyzing the classes of risks which an insurance industry faces. Both primary and
secondary means of collecting data are used. For primary data a survey among the company
employees was done and the same was analyzed through Microsoft excel. The major risks that the
company faces are while investing the customers money into debt and equity. Though equity is
more prone to risks but they also give higher returns. The company also pools their risk by the
means of reinsurance as well and they feel that paying premiums for reinsurance is worth a good
amount. The report also talks about the types of selections that an insurance industry makes for
charging different premium from different people. Also a conversation with actuarial student was
held which gave enough information about the risk management in insurance.

For secondary data various life insurance books and actuary books were referred.

Also the comparative analysis of the products of IDBI FEDERAL is done with other insurance
companies which showed that the companys product is better than the others.

Financial statement analysis is done to check the profitability of the company. Ratio analysis is used
to depict the financial position of the company which showed improved figures over the years.

The objective of the report was to:

To assess and analyze the risk and insurance management

To analyze the financial statements of the company
To do the comparative analysis of IDBI Federal with other private companies
To derive corporate learning from internship

The limitations of the study were:

Financial flexibility
Growth rate
Accessibility to companys information
Industry dynamics and market conditions
 COMPANY BACKGROUND

IDBI Federal Life Insurance is a joint venture between three major financial organizations-
I. IDBI bank or the Industrial Development Bank of India, which is the tenth largest development
bank in the world in terms of reach. IDBI Bank has been instrumental not only in the industrial
development of the country but also has been instrumental in sponsoring the development of the
key financial institutes of India- National Stock Exchange of India Limited (NSE) and National
Securities Depository Limited, Stock Holding Corporation of India Limited (SHCIL) and Credit Analysis
and Research Ltd.(CARE).
II. Federal Bank, which is a major Indian Commercial Bank in the private sector.
III. Ageas, which was formerly known as Fortis. It is an international insurance group with heritage
spanning over 180 years and is ranked among the top 20 insurance companies in Europe.

These three financial giants came together in the form of a joint venture in March 2008 to form the
IDBI Federal Life Insurance Corporation Ltd. In this venture IDBI Bank owns 48% equity while Federal
Bank and Ageas own 26% equity each Headquartered in Mumbai, the organisation is currently
headed by Mr RM Malla, Chairman and Mr Vignesh Shahane, MD and CEO.
Through continuous process of innovation in product and service delivery IDBI Federal aims to
deliver world class wealth management, protection and retirement solutions that provide value and
convenience to the Indian consumers. The company offers its service through its vast networks of
branches of its partner banks, IDBI Bank and Federal Bank as well its own network of vast and ever
growing financial advisors and insurance agents.
 INDUSTRIAL ANALYSIS

As a result of globalization, deregulation and terrorist attacks, the insurance industry has gone
through a tremendous transformation over the past decade.

In the simplest terms, insurance of any type is all about managing risk. For example, in life insurance,
the insurance company attempts to manage mortality (death) rates among its clients. The insurance
company collects premiums from policy holders, invests the money (usually in low risk investments),
and then reimburses this money once the person passes away or the policy matures. A person called
an actuary constantly crunches demographic data to estimate the life of a person. This is why
characteristics such as age/sex/smoker/etc. all affect the premium that a policy holder must pay.
The greater the chance that a person will have a shorter life span than the average, the higher the
premium that person will have to pay.

The insurance industry of India consists of 51 insurance companies of which 24 are in life insurance
business and 27 are non-life insurers. Among the life insurers, Life Insurance Corporation (LIC) is the
sole public sector company. Apart from that, among the non-life insurers there are six public sector
insurers. In addition to these, there is sole national reinsurer, namely, General Insurance
Corporation of India. Other stakeholders in Indian Insurance market include Agents (Individual and
Corporate), Brokers, Surveyors and Third Party Administrators servicing Health Insurance claims.
Out of 27 non-life insurance companies, 4 private sector insurers are registered to underwrite
policies exclusively in Health, Personal Accident and Travel insurance segments. They are Star Health
and Allied Insurance Company Ltd, Apollo Munich Health Insurance Company Ltd, Max Bupa Health
Insurance Company Ltd and Religare Health Insurance Company Ltd. There are two more specialized
insurers belonging to public sector, namely, Export Credit Guarantee Corporation of India for Credit
Insurance and Agriculture Insurance Company Ltd for Crop Insurance.

The insurance sector in India has become a full circle from being an open competitive market to
nationalization and back to a liberalized market again. Tracing the developments in the Indian
insurance sector reviles the 360-degre turn witnessed over a period of almost two centuries.

As per the latest estimates, the total premium income generated by life and general insurance in
India is estimated at around 1.95% of GDP. However Indias share of world insurance market has
shown an increase of 10% from 0.31% in 1996-97 to 0.34% in 1997-98. Indias market share in the
life insurance business showed a real growth of 11% there by outperforming global average of 7.7%.
Non-life insurance business grew by 3.1% against global average of 0.20%. In India insurance
pending per capita was among the last in the world at $7.6 compared to $7 in the previous year.
Amongst the emerging economies, India is one of the least insured countries but the potential for
further growth is phenomenal, as a significant portion of its population is in services and the life
expectancy also increased over the years.

There are three major factors that we must consider when analysing an insurance company.

1. Leverage. The first thing is checking the quality and strength of the balance sheet. Everyday
insurers are taking in premiums and paying out claims to policyholders. The ability to meet
their obligations toward these policy holders is extremely important. Companies should
strike a balance between high returns while keeping leverage intact. A company that is
highly leveraged might not be able to meet financial obligations when a large catastrophic
event occurs. The following three things act to increase leverage:
1) Writing more insurance policies
2) Dependence on reinsurance
3) Use of debt

Reinsurance allows a company to pass off some of the risk exposure to other insurers
(usually a good thing), but be careful. Too much dependence on reinsurance means that the
company is not keeping a fair portion of responsibility for each premium dollar.
2. Liquidity. The first test of an insurer's ability to meet financial obligations is the acid test. It
tests whether a firm has enough short-term assets (without selling inventory) to cover its
immediate liabilities. Also take a close look at cash flow. An insurer should almost always
have a positive cash flow.
3. Profitability. As with any company, profitability is a key determinant for deciding whether to
invest. For an insurance company, there are two components of profits that we must
consider: premium/underwriting income and investment income.
PORTERS FIVE FORCES ANALYSIS

MODERATE Threat of
new
entrants

Competitive
Bargaining rivalry Bargaining
LOW power of power of
suppliers within the buyers HIGH
industry

Threat of
substitutes
HIGH

1. Threat of New Entrants. The average entrepreneur can't come along and start a large
insurance company. The license to start an insurance company is worth 100 crores. The
threat of new entrants lies within the insurance industry itself. Some companies have carved
out niche areas in which they underwrite insurance. These insurance companies are fearful
of being squeezed out by the big players. Another threat for many insurance companies is
other financial services companies entering the market. What would it take for a bank or
investment bank to start offering insurance products? So the threat of new entrants in an
insurance industry seems to be moderate.
2. Bargaining Power of Suppliers. Bargaining power of suppliers is linked to the number of
competitors in the field. The more life insurance carriers there are the less bargaining power
each carrier has individually. Since there are many life insurance carriers in the industry the
bargaining power of suppliers is low.
3. Bargaining Power of Buyers. The individual doesn't pose much of a threat to the insurance
industry. Large corporate clients have a lot more bargaining power with insurance
companies. Large corporate clients like airlines and pharmaceutical companies pay millions
of dollars a year in premiums. Insurance companies try extremely hard to get high-margin
corporate clients. So the bargaining power of buyers is high.
4. Threat of Substitutes. There is no substitute for a product like insurance as this is the only
one which provides risk cover. There is no other substitute which provides risk cover or
shares risk, therefore we can say that the threat of substitute is very low.
5. Competitive Rivalry. The insurance industry is becoming highly competitive. The difference
between one insurance company and another is usually not that great. As a result, insurance
has become more like a commodity - an area in which the insurance company with the low
cost structure, greater efficiency and better customer service will beat out competitors.
Insurance companies also use higher investment returns and a variety of insurance
investment products to try to lure in customers. In the long run, we're likely to see more
consolidation in the insurance industry. Larger companies prefer to take over or merge with
other companies rather than spend the money to market and advertise to people. Therefore
we can say that the competitive rivalry is high.
 SWOT ANALYSIS
SWOT analysis of IDBI Federal Life Insurance represents analysing strength, weakness, opportunities
and threat of the company which are as follows:

STRENGTH

The major strength of IDBI Federal Life Insurance Company is its sponsor companies which
are IDBI Bank, Federal Bank and Fortis.
Because of its innovative ideas it is the first insurance company to collect 100 cr. within five
years of its commencement of business.
Strength of IDBI Federal is its combined network of more than 1600 branches of IDBI bank
and Federal bank.
Superior customer service with huge network and innovative products
High level of customer (both internal & external) satisfaction because of its management
policy.
Large pool of technically skilled workforce with deep knowledge of insurance market.

WEAKNESS

The major weakness of IDBI Federal is the constraint sectorial growth due to low
unemployment level.
Low confidence of people in private insurance company.
The corporate clients under group schemes and salary savings schemes are captured by
other major players.

OPPURTUNITIES

Only 10% of Indian population is covered by insurance policy out of 30% insurable
population.
Due to liberalization it can operate globally.
Fast track carrier development opportunities on an industrial wide basis.
After liberalization it is expected that insurance business is roughly 400 billion rupees per
year now which shows big opportunities and market for IDBI Federal Life Insurance.
The existing LIC and GIC have created a large group of dissatisfied customers due to the
poor quality of service. Hence there will be shift of large number of customers for other
players.

THREATS

Big public insurance companies like LIC, National Insurance Companies Limited, Oriental Life
Insurance etc. are the biggest threats to IDBI Federal Life Insurance.
Large potential market attracts new rivals.
 COMPARATIVE ANALYSIS
LIFESURANCE WHOLE LIFE VS LIC JEEVAN ANAND

Lifesurance Whole Life provides higher benefits than LIC

1 What is LIC Jeevan Anand plan?

Lump sum payout at the end of selected premium payment term and life cover for Whole of
life
In case of death during the PPT SA along with vested bonuses is paid
On survival till the end of premium payment sum assured along with vested bonuses is paid
In case of death after premium payment term basic sum assured is paid
Option to choose accidental benefit

2 Advantage Lifesurance Whole Life

Features not available under LIC Jeevan Anand
Lumsump payout on reaching 100 years of age
Guranteed additions in the first five years at Rs.50 per 1000 of guaranteed sum assured
No Bonuses after premium payment
Higher bonus projected for Lifesurance Whole Life at the end of PPT as compared to
Jeevan Anand; at gross return of 8% p.a

Plus
Benefits paid are higher

Benefit Illustration:
Illustration for benefits for 30 year male, PPT 20 years and premium of 11,872.
Guaranteed Benefits.
LIC- 2, 00,000 (Sum Assured)
IDBI Federal 1, 65,095 (Sum Assured) + (41, 274 GA) = 2, 06,368

@4% 880,534 @8%

%%
583,234 331,860

At 100 years of
257,567 age
At the end of PPT
388,139
325,000
209,588 216,000

IDBI Federal LIC IDBI Federal LIC

CHILDSURANCE PLAN

IDBI FEDERAL CHILDSURANCE PLAN

The Childsurance product offered by IDBI Federal Life Insurance helps the parents to plan and secure
his/her childs future.

FEATURES
In this case the insured person is the parent or the guardian and the child is covered as a
nominee.
The age limit of the child ranges from 1 month to 17 years.
Childsurance provides equal payouts either at the last 5 years of the policy, depending on
the plan chosen.
Right from the 1st year the insurer is entitled to receive revisionary bonus.
Along with that terminal and interim bonus will also be paid at the time of maturity.
In case of the parents unfortunate death, the policy will still exist; the future premiums will
be waived off and the child will continue to be covered.

RELIANCE LIFE CHILD PLAN (CHILD PAR)

A protection and savings plan with regular pay option and inbuilt waiver of premium. It offers
guaranteed payout in the last 3 policy years and bonus at maturity.

FEATURES
Policy terms of 10 to 20 years
Premium payment term equal to policy term
Maturity benefit under this plan
25% of Base Sum Assured paid out in each of the last 3 policy years.
Guaranteed Sum Assured (25% of Base Sum Assured plus high sum assured benefit if any).
Bonuses accrued from the first policy year to be paid out at maturity
Death benefit: maximum of
Minimum Sum Assured* on death plus vested bonuses or
105% of all premiums paid as on date of death
Waiver of premium benefit and policy will continue without accrual of bonuses

ADVANTAGE CHILDSURANCE
ING MERA AASHIRVAD
(Child Non-Par Endowment/Money back)

A Child protection and savings plan with limited pay option. It offers a maturity benefit of 100% or
105% of Sum Assured chosen with the option of staggered or lump sum payout.

FEATURES
Policy terms of PPT plus 5 years are allowed
Premium payment terms range from 10 to 20 depending on the age of the child e.g. if age of
child is 0 years then PPT allowed is from 13 to 20 years
Two Maturity benefit options are allowed under this plan
Staggered payout for 5 years after PPT with 7.5%, 7.5% , 10%, 10% and 65% payouts
of Sum Assured (SA)
Lump sum payout at maturity of 105% plus
Death benefit
SA (higher of 10 times AP or 105% of all premiums paid) on death
Future premiums waived off and benefits (Lump sum payout or staggered payouts)
will continue as per policy
Maximum age at entry is 50 years

ADVANTAGE CHILDSURANCE

STAR UNION DAI-ICHILIFE BRIGHT CHILD PLAN

A Child protection and savings plan with limited pay option. It offers a maturity benefit of up to
125% of Basic Sum Assured (BSA) chosen.

FEATURES
Policy terms of 24 years less than age of child at entry
Premium payment term up to child age 18 (18 years less age of child at entry) or 10
years
Two Maturity benefit options are allowed under this plan
Career Endowment: Payouts of 50% of BSA at age 18 of child, 20% of BSA at age 21 and 30%
along with benefit booster at age 24
Wedding Endowment: Payouts of 20% of BSA at age 18 of child, 30% of BSA at age 21 and
50% along with benefit booster at age 24
Benefit booster ranges from 1% to 25% depending on age of child at entry and benefit
option chosen
Death benefit
Highest of 10 times AP or Guaranteed maturity benefit or 105% of all premiums paid or Basic
Sum Assured
 Future premiums are waived off and benefits will continue as per policy
Maximum age at entry is 45 years

ADVANTAGE CHILDSURANCE

AEGON RELIGARE EDUCARE ADVANTAGE

A protection and savings plan with limited pay option and inbuilt waiver of premium. It offers
guaranteed payout in the last 4 policy years and bonus at maturity.

FEATURES
Policy terms of 14, 16 and 20 years
Premium payment term of 10, 12 and 16 years corresponding to policy terms above
Maturity benefit under this plan
Percentage of SA paid out in the last 4 policy years of 40%, 20% 20% and 20% respectively.
Bonuses accrued from the first policy year to be paid out at maturity.
Death benefit
Higher of 10 times of annualized Base Premium or Sum Assured along with accrued bonus, if
any. Total Death Benefit will be subject to a minimum of 105% of Base Premiums paid till
date
Guaranteed yearly payouts without any deductions as per the predetermined schedule.
Accidental death and disability rider can be attached to the policy.

ADVANTAGE CHILDSURANCE
Higher Maturity Benefit
inAEGON for Limited Pay but
bypaying one extrapremium

Sum Assured is higher in

Childsurance hence the
guaranteed benefitis higher
DLF PRAMERICA FUTURE IDOLS GOLD +
A long term Child protection and savings plan with limited pay and regular pay options. It offers a
maturity benefit of 125% of base sum assured along with accumulated bonuses.

FEATURES
Policy terms of 15, 20 and 25 years are allowed
Premium payment terms are: 8 and 10 for 15 PT; 12 and 20 for 20 PT; 15 and 25 for 25 PT
Maturity Benefit: 125% of Base Sum Assured (BSA) paid at maturity along with all the
accumulated bonuses
Death benefit* (DSA plus accrued bonuses):
Step 1: 50% of BSA paid immediately on death
Step 2: 1% of BSA paid every month till the end of the policy term for a minimum of 36
months
Step 3: 125% BSA payable on scheduled maturity
Compounded reversionary bonus, starts from the first policy year
Maximum age at entry is 40 to 50 years depending on policy term
Maximum Maturity Age 65

CHILDSURANCE ADVANTAGE

Limited Pay

Regular Pay

HDFC YOUNGSTAR UDAAN

A participating endowment & money back plan with limited pay option and inbuilt waiver of
premium. It offers guaranteed additions in the first 5yrs.

FEATURES
Policy terms of 15 to 25years
Premium payment term of 7, 10 and Policy term minus 5
Maturity benefit under this plan
Endowment (Aspiration):100% SA+ GA
Money Back Last 5 years (% of SA):
 Bonuses accrued from the first policy year to be paid out at maturity.
Death benefit
Classic: Higher of SA on death and 105% of all premiums paid plus accrued GA and bonuses.
Plan terminates.
Classic waiver: Higher of SA on death and 105% of all premiums paid future premiums are
waived off, plus policy continues as it is.
Option of monthly payouts available.
Plan is available with short Medical Questionnaire

CHILDSURANCE ADVANTAGE

From the above comparisons we can see that amongst all the products offered by the insurance
companies IDBI FEDERAL offers higher benefits and returns.
 FINANCIAL STATEMENT ANALYSIS

POSITION OF CURRENT ASSETS

Table 1: Position of Current Assets

current assests 2010 2011 2012 2013
cash and bank balance 10,85,278 7,80,962 7,95,318 9,99,287
Advances and other assets 8,45,114 11,57,004 20,08,823 16,37,296
Sub Total 19,30,392 19,37,966 28,04,141 26,36,583

Figure 1: Position of Current Assets

POSITION OF CURRENT LIABILITIES

Table 2: Position of Current Liabilities

Current Liabilities 2010 2011 2012 2013
Current Liabilities 19,12,272 18,70,864 22,24,786 17,47,056

Figure 2: Position of Current Liabilities

NET WORKING CAPITAL
Working capital refers to the cash a business requires for day-to-day operations, or, more
specifically, for financing the conversion of raw materials into finished goods, which the company
sells for payment. Among the most important items of working capital are levels of inventory,
accounts receivable and accounts payable. Analysts look at these items for signs of a company's
efficiency and financial Insurance companies, for instance, receive premium payments up front
before having to make any payments; however, insurance companies do have unpredictable cash
outflow as claims come in.

Table 3: Position of Net Working Capital

2010 2011 2012 2013
Total current assets (A) 19,30,392 19,37,966 28,04,141 26,36,583
Total current liabilities (B) 19,12,272 18,70,864 22,24,786 17,47,056
Net working capital (A-B) 18,120 67,102 5,79,355 8,89,527

Figure 3: Position of Net Working Capital

RATIO ANALYSIS

CURRENT RATIO

Table 4: Current Ratio

current assets 2010 2011 2012 2013
cash and bank balance 10,85,278 7,80,962 7,95,318 9,99,287
advances and other assets 8,45,114 11,57,004 20,08,823 16,37,296
Sub Total (a) 19,30,392 19,37,966 28,04,141 26,36,583

current liabilities 19,12,272 18,70,864 22,24,786 17,47,056

current ratio 1.0094756 1.0358669 1.26040932 1.5091577

current ratio
2

1.5

1
current ratio
0.5

0
1 2 3 4

Figure 4: Current Ratio

LOSS RATIO
A loss ratio is a ratio of losses to gains, used normally in a financial context. It is the opposite of the
gross profit ratio. For insurance, the loss ratio is the ratio of total losses incurred (paid and reserved)
in claims plus adjustment expenses divided by the total premiums earned. For example, if an
insurance company pays $60 in claims for every $100 in collected premiums, then its loss ratio is
60% with a profit ratio/margin of 40% or $40. Loss ratios vary depending on the type of insurance.
For example, for health insurance the loss ratio tends to be higher than for property and casualty
such as car insurance. This is an indicator of how well an insurance company is doing. This ratio
reflects if companies are collecting premiums higher than the amount paid in claims or if it is not
collecting enough premiums to cover claims. Companies that have high loss claims may be
experiencing financial trouble.

Table 5: Loss Ratio

Particulars 2010 2011 2012 2013
Claims 35,113 76,493 8,48,730 29,67,714
Net Premiums Earned 56,90,168 80,64,863 73,11,588 79,79,564
Loss Ratio 0.006171 0.009485 0.11608 0.371914
Loss Ratio Percentage 0.617082 0.948472 11.60801 37.19143
 Figure 5: Loss Percentage Ratio

Comparison with LIC

Table 6: IDBI Federal and LIC
IDBI Federal 2012 2013
Claims 8,48,730 29,67,714
Net Premiums Earned 73,11,588 79,79,964
Loss Ratio 0.116080118 0.371895663
Loss Ratio(%) 11.60801183 37.18956627
LIC Life Insurance
Claims 1362896400 1187337600
Net Premiums Earned 2085897200 2028029000
Loss Ratio 0.653386178 0.585463817
Loss Ratio(%) 65.33861784 58.54638173

The comparison with LIC is made as it is the industry giant and existing for many years.IDBI Life being
a new company claims received is very less as compared to Life Insurance industry. So loss ratio of
IDBI Federal was very low in beginning years but increasing consistently day by day and coming
nearer to industry average which is 40-60%.This is the indication of company growing well and good
claim settlements.

EXPENSE RATIO
The percentage of insurance premiums used to pay for an insurers expenses, including overhead,
marketing and commissions. Expense ratio is calculated as underwriting expense divided by net
premiums earned. With the help of Expense ratio we get to know that the expenses of management
with respect to the premiums earned in that financial year.

Table 7: Expense Ratio

Particulars 2010 2011 2012 2013
Expenses of management 14,85,033 20,99,677 18,85,039 19,31,080
Net premium earned 56,90,168 80,64,863 73,11,588 79,79,964
Expense Ratio 0.260982277 0.26034875 0.257815 0.241991
Expense Ratio(%) 26.09822768 26.03487499 25.78153 24.19911
 Figure 6: Expense Percentage Ratio

Comparison with LIC

IDBI Federal
Expenses Of Management
Net Premiums Earned
Expense Ratio
Expense Ratio(%)
LIC Life Insurance
Expenses Of Management
Net Premiums Earned
Expense Ratio
Expense Ratio(%)
Table 8: IDBI Federal and LIC
2012 2013
18,85,039 19,31,080
73,11,588 79,79,964
0.257815265 0.241991067
25.78152653 24.19910666
314756400 289500300
2085897200 2028029000
0.150897369 0.142749586
15.08973692 14.27495859

After comparison it can be seen that IDBI Federal is having little higher management expenses than
that of industry average. The industry average is near about 16-17%. LIC is having almost same
expense ratio as that of industry average. As IDBI will gain the experience effect the expenses will go
down and will converge to industry average. Improvement can be done about cutting management
expenses down and bringing it towards industry average.
OPERATING RATIO
It is the combined ratio less the net investment income ratio (net investment income to net
premiums earned). The operating ratio measures a companys overall operational profitability from
underwriting and investment activities. This ratio does not reflect other operating income/expenses,
capital gains or income taxes.Operating ratio reflects the ability of the company to make profit. As
the value of the ratio is low company has earned more profit in that year.

Table 9: Operating Ratio

Particulars 2010 2011 2012 2013
Claims 35,113 76,493 8,48,730 29,67,714
Expenses Of Management 14,85,033 20,99,677 18,85,039 19,31,080
Net Income From Investment 11,30,753 9,34,440 1,86,004 19,50,450
Net Premium Earned 56,90,168 80,64,863 73,11,588 79,79,964
Operating Ratio 0.222865211 0.241815394 0.364619601 0.493312162
Operating Ratio(%) 22.2865211 24.1815394 36.4619601 49.3312162

Figure 7: Operating Percentage Ratio

Comparison with LIC

Table 10: IDBI Federal and LIC

IDBI Federal 2012 2013
Claims 8,48,730 29,67,714
Expenses Of Management 18,85,039 19,31,080
Net Income From Investment 1,86,004 19,50,450
Net Premiums Earned 73,11,588 79,79,964
Operating Ratio 0.364619601 0.493312162
Operating Ratio(%) 36.4619601 49.3312162
LIC Life Insurance
Claims 1362896400 1187337600
Expenses Of Management 314756400 289500300
Net Income From Investment 1038821000 902668700
Net Premiums Earned 2085897200 2028029000
Operating Ratio 0.536897311 0.503920244
Operating Ratio(%) 53.6897311 50.3920244
Average operating ratio of the industry is 60%. But IDBI Federal is operating way below the industry
average so having very high profitability. It is so because as being new company claims paid are very
low as claims go up the ratio will settle to industry average.

COMMISSION RATIO
Commission Ratio gives the ratio of commission with respect to new premiums earned.

Table 11: Commission Ratio

Particulars 2010 2011 2012 2013
Commission 4,41,890 6,66,310 6,39,245 8,80,883
Net premium earned 56,90,168 80,64,863 73,11,588 79,79,964
Commission Ratio 0.077658516 0.082618886 0.087429 0.110387
Commission Ratio(%) 7.765851553 8.26188864 8.742902 11.03868

Figure 8: Commission Percentage Ratio

Comparison with LIC

Table 12: IDBI Federal and LIC
IDBI Federal 2012 2013
Commission 6,39,245 8,80,883
Net Premium Earned 73,11,588 79,79,964
Commission Ratio 0.087429024 0.110386839
Commission Ratio(%) 8.742902363 11.03868388
LIC Life Insurance
Commission 140356327 147679801
Net premium earned 2085897200 2028029000
Commission Ratio 0.067288228 0.072819373
Commission Ratio(%) 6.72882283 7.281937339

The average commission ratio of the industry is 6.5 7 %. I found that commission expenses of IDBI
Federal are slightly higher than that of industry average and LIC as well. So the commission expenses
need to be reduced.
 RISK CLASSIFICATION IN LIFE INSURANCE
Life insurance companies provide a service of pooling independent homogeneous risks. The process
by which insured lives are separated into different homogeneous groups for premium rating
purposes, according to the risk they present, is called risk classification. It involves trying to identify
any risk factors specific to the individual that might influence the likely risk of that individual.

UNDERWRITING
Underwriting refers to the process that insurance companies use to assess the eligibility of a
customer to receive their products. Careful underwriting is the mechanism by which the company
ensures that its risk groups are homogeneous. The risk groups are defined by the use of rating
factors, e.g. age, medical history, height, weight, lifestyle. A company should continue to add rating
factors to its underwriting system until the differences in mortality between the different categories
of the next rating factors are indistinguishable from the random variation between lives that remains
after using the current list of rating factors.

Medical underwriting: Medical underwriting is the process of assessing your medical history.
For example; if you disclosed that you had a history of high blood pressure, the underwriter
at the insurance company might request a report from your doctor. Requesting information
from your doctor or any relevant medical professional cannot be done without your
permission. All medical information gathered is strictly confidential and this is only viewed
by those who have a direct role in assessing your application.
Financial underwriting : Financial underwriting is more commonly used when applying for an
income protection policy. The purpose of financial underwriting is to make sure that the
cover amount which you apply for is appropriate for your financial situation. It makes sure
you don't over insure yourself, and keeps your premiums down. As with medical
underwriting, you can be sure that the information disclosed is completely confidential.

REINSURANCE
Reinsurance is insurance that is purchased by an insurance company from one or more other
insurance companies (the "reinsurer") directly or through a broker as a means of risk management,
sometimes in practice including tax mitigation and other reasons described below. The ceding
company and the reinsurer enter into a reinsurance agreement which details the conditions upon
which the reinsurer would pay a share of the claims incurred by the ceding company. The reinsurer is
paid a "reinsurance premium" by the ceding company, which issues insurance policies to its own
policyholders.

The reinsurer may be either a specialist reinsurance company, which only undertakes reinsurance
business, or another insurance company. Insurance companies that sell reinsurance refer to the
business as 'assumed reinsurance'.

A healthy reinsurance marketplace helps to ensure that insurance companies can remain solvent
(financially viable), particularly after a major disaster such as a major hurricane, because the risks
and costs are spread.

IDBI Federal Life Insurance Company has a reinsurer as the insurance companies need some
cushioning for repayment of premiums. There are two types of reinsurance:

1. Excess of loss- retention limit of m amount. For e.g.: x is claim and if x>m then reinsurer pays
the excess amount and if x<m then the whole amount x is being paid by the insurance
company. This type of reinsurance is more suitable for general insurance companies.
 2. Proportionate- A fixed per cent is set which is being paid by the insurance company and the
rest amount is being paid by the reinsurer. This type of insurance is more suitable for life
insurance companies.

PREMIUM CHARGING FACTORS

1. Occupation occupation can have several direct and indirect effects on mortality and
morbidity. Occupation determines a persons environment for 40 or more hours each week.
The environment may be rural or urban; the occupation may involve exposure to harmful
substances, e.g. chemicals, or to potentially dangerous situations, e.g. working at heights.
Much of this is moderated by health and safety at work regulations.
It is not always easy to obtain a reliable estimate of mortality rates for a particular
occupation. The rates estimated will be unreliable if deaths are not recorded under the same
category of occupation as are the lives in the exposed to risk.
2. Nutrition Nutrition has an important influence on morbidity and in the longer term on
mortality. Poor quality nutrition can increase the risk of contracting many diseases and
hinder recovery from sickness. In the longer term the burden of increased sickness can
influence mortality. Sick people are more likely to die prematurely. Inappropriate nutrition
may be the result of economic factors e.g. lack of income to buy appropriate foods, or the
result of a lack of health and personal education resulting in poor nutritional choices.
3. Housing the standard of housing encompasses not only all aspects of the physical quality
of housing (state of repair, construction, heating, sanitation) but also the way in which the
housing is used. These factors have an important influence on morbidity, particularly that
related to infectious diseases and thus on mortality in longer term.
4. Climate and geographical location Climate and geographical location are closely linked.
Levels and patterns of rainfall and temperature lead to an environment that is amicable to
certain kinds of diseases, e.g. those associated with tropical regions. Some effects may be
accentuated or mitigated depending upon the development of an area, e.g. industry leading
to better roads and communications.
Natural disasters will also affect mortality and morbidity rates, and may be correlated to
particular climates and geographical locations.
5. Education Education influences the awareness of components of a healthy lifestyle which
reduces morbidity and mortality rates. It encompasses both formal education and more
general awareness resulting from public health and associated campaigns. This effect
manifests itself through many proximate determinants:
Increased income
Choice of a better diet
The taking of exercise
Personal health care
Moderation in alcohol consumption, smoking
Awareness of dangers of drug abuse
Awareness of a safe sexual lifestyle
6. Genetics Genetics may give information about the likelihood of a person contracting
particular diseases, and therefore may provide improved information about the chances of
sickness or death. Such information may be used in isolation for the particular life in
question or, more usefully, by combining it with the life histories of the current and past
generations of the family.
7. Mortality convergences
SELECTION
Selection is the process by which lives are divided into separate groups so that the mortality (or
morbidity) within each group is homogeneous. That is, the experience of all lives within a particular
group can be satisfactorily modelled by the same characteristics model of mortality or morbidity.
Lives in different classes will be charged according to different premium scales, which reflect the
mortality differences between the classes. The difference in mortality levels between groups is
called the size of the select effect.
Commonly occurring kinds of selection are classified into categories:
1. Temporary initial selection This selection occurs when heterogeneity is present in a group
that was selected on the basis of a criterion whose effects wear off over time. The relative
numbers at each duration since selection in the select group will affect the risk levels within
the select group. For e.g. lives who have been infected with the HIV virus. Mortality rates
will be a function of duration since infection. Individuals infected five years ago will
experience higher mortality rates than others of the same age that are infected only one
year ago.
2. Class selection Each group is specified by a category or class of a particular characteristic
of the population, e.g. sex with categories of male and female, occupation with categories
of manual and non-manual employment. The life tables are different for each class. There
are no common features to the models; they are different for all ages. For example:
Different races have different susceptibilities to disease.
Individuals who have lived abroad may have been exposed to tropical diseases.
More highly paid individuals have a higher standard of living and experience lower
mortality rates.
3. Time selection A mortality investigation carried out over a number of years involves
grouping together lives that attain the same age in different time periods. Where time
selection is occurring then the combined sample of data taken at different times will be
heterogeneous with respect to the lives true underlying mortality rates. Hence the average
rate will not reflect the true underlying rates for each life over the investigation period. For
example: individuals living 20 years ago experienced higher mortality rates than individuals
of the same age living today.
4. Adverse selection This is characterised by the way in which the select groups are formed
rather than by the characteristics of those groups. So any of the previous forms of selection
may also exhibit adverse selection. It usually involves an element of self-selection, which
acts to disrupt a controlled selection process which is being imposed on the lives. This
adverse selection tends to reduce the effectiveness of the controlled selection. For
example- individuals who purchase an annuity at retirement are more likely to be in good
health than the general population. If these individuals thought that they were likely to die
in the near future they would not convert a capital lump sum into a lifetime annuity as this
would represent a poor investment.
5. Spurious selection When homogeneous groups are formed we usually tacitly infer that the
factors used to define each group are the cause of the differences in mortality observed
between the groups. However, there may be other differences in composition between the
groups, and it is these differences rather than the differences in the factors used to form the
groups that are the true causes of the observed mortality differences. For example-
Increasing the strictness of underwriting for life insurance products will lead to a
lighter mortality experience. This will give the false impression that mortality is
improving at a quicker rate than it really is.
The mortality of individuals of the same age tends to be higher in the north of
present than in the south. This gives the impression that class selection is present in
respect of regions. However, when the comparison is restricted to individuals in the
 same occupation, the apparent difference diminishes. This is explained by
differences in the relative numbers in high and low risk occupations.

ENTERPRISE RISK MANAGEMENT

Enterprise risk management is a process, effected by an entitys board of directors, management

and other personnel, applied in strategy setting and across the enterprise, designed to identify
potential events that may affect the entity, and manage risk to be within its risk appetite, to provide
reasonable assurance regarding the achievement of entity objectives.

The objectives in this case may be

1) Strategic highlevel goals, aligned with and supporting its mission.

2) Operations effective and efficient use of its resources.

3) Reporting reliability of reporting.

4) Compliance compliance with applicable laws and regulations

Further, Enterprise risk management consists of eight interrelated components. These are derived
from the way management runs an enterprise and are integrated with the management process.
There is a direct relationship between objectives, which are what an entity strives to achieve, and
enterprise risk management components, which represent what is needed to achieve them. This
relationship is depicted below. This depiction portrays the ability to focus on the entirety of an
entitys enterprise risk management, or by objectives category, component, entity unit, or any
subset thereof.

Under the ERM framework, the following risks are covered:

(1) Investments Risk

(2) Credit Risk

(3) Liquidity risk

(4) Operational Risk

(1) Investments (Market or Financial) risk: Risk due to movements in the level of financial variables
such as interest rates, FOREX rates, stock prices etc. The main components of Market risk are:

Interestrate risk Losses due to change in Interestrates. The volatility in the yield of 10 year
government bond in India in the past 10 years can be observed below:

Equity and property risk Losses due to drop in equity prices.

 Currency risk Losses due to adverse movements in FOREX rates. The most traded currency
contract on Indian exchanges is $/INR.

(2) Credit Risk: Risks due to default by and change in the credit rating of those to whom the
company has an exposure. Ex Reinsurance companies, Companies in which we have invested
funds. The main components of credit risks are:

Business credit risk Failure of a reinsurer.

Invested asset credit risk Nonperformance of invested assets.

Quantification / Management:

Leverage Analysis

Leverage ratio measures the extent to which a company utilizes its debt to finance
the assets. A company with significantly having more debt than equity is considered
to be highly leveraged. The financial leverage measures the ability of insurance
companies to manage their conditions related with unexpected losses of market.
Leverage ratios can also provide an indication of a company's long-term solvency. In
order to increase the leverage of the company, the company should have more
insurance policies, policies of reinsurance and make use of debt.

(3) Liquidity risk: Risk that Cash Sources (Cash inflows from Insurance productsPremiums and
Deposits, Asset Cash flows, Asset sales etc.) are insufficient to meet Cash Needs (Product cash
outflows, Operating cash outflows, contingent cash needs).

Quantification / Management:

Liquidity Stress Scenario analysis: GoalTo ensure sufficient liquidity in the asset portfolio
to provide for timely payment of potential cash demands under bothNormal and extreme
business conditions. Scenarios can be:

Changing interest rates Increase in interest rates might result in more

withdrawals due to availability of alternative investment options.

Liquidity needs from insurance claims/ large operational loss

Loss of a key distributional channel.

Liquidity Analysis

Current ratio is a financial ratio that measures whether a company has the adequate
resources to pay off short-term debt obligations as they fall due. The higher the
current ratio is, the more capable the company is to pay its obligations. A current
ratio of 2:1 is usually considered the benchmark. A ratio less than one suggest that
the company may not have sufficient resources to settle its short-term debt.
 Solvency analysis

Solvency ratio is the ability of a company to meet its long-term fixed expenses and
to accomplish long-term expansion and growth. A solvency ratio of greater than 20%
is considered financially healthy. The higher the ratio, the better equipped a
company is to pay off its debts and survive in the long term. It has to be maintained
by all the Insurance Companies in India whether it is Private or Public sector. As per
the IRDA (Assets, Liabilities, and Solvency Margin of Insurers) Rules 2000, both life
and general insurance companies need to maintain solvency margins.

(4) AssetLiability Management Risk: Risk arising due to mismatch on account of duration of Assets
(bonds) and duration of Liabilities i.e. the mismatch of interest rate sensitivity to assets and liabilities
leading to impact on companys surplus

Quantification / Management:

Profitability Analysis

Return on assets is a profitability ratio which measures how far a company is profitable in
relation to its total assets. ROA tells the investor how well a company uses its assets to
generate income. It is a key indicator of the overall productivity of the company, and shows
the percentage of profit, company earns in relative to its total resources. A negative ROA
suggests that a company is not properly utilizing its capital, and may have disputed
management. A company with negative ROA, means it is investing a high amount of capital
into its production and simultaneously receiving little income. The company can have a high
return on assets even if it is bearing low profit margin.

INVESTMENT OF FUNDS
The investment policy has to ensure that the assets cover the liabilities to policyholders. The assets
should be managed in a sound and prudent manner to match the liabilities and the risk return profile
of the company. The investment of funds by life and general insurance companies has to be
necessarily different. The life insurance companies are in a position to invest in long-term
investments. The case is different for general insurance business where liabilities are short term in
nature and the investments have to be accordingly made in short term assets. The investment
department of the insurance companies formulates the investment policy of the organisation. All
investments are made according to the broad parameters set by them keeping in mind the company
objectives and regulatory constraints. The factors to be considered while investing are: The term of
the instrument, returns, risk, liquidity, marketability, credit rating of the instrument, etc. Along with
these, the size and timing of claim payments also have to be considered. The acquisitions,
supervision, maintenance of assets, product profile in the portfolio or any change in the asset
portfolio have to be made as per the policy considerations. Though insurance companies provide
solutions to risk of others, they have their own risk, both operational and financial. Investments
always come with risk. However the degree of risk varies based on the types of investments and the
term.
Long-term investments in equity provide higher returns though the risk involved is higher while
short-term instruments have low return. The liquidity and marketability for short term instrument
are higher than long-term equity instruments. So the insurance company has to make a careful
analysis of its requirements before making any investment decision. It is advisable for the insurance
companies to avoid large exposure in equities, which are quite risky in nature since they have to
ensure the safety of the assets and provide assured returns to the policyholders. Need for regulating
the investments of the insurance companies. The regulations aim to ensure the safety of funds
which belong to the policyholders. To maintain solvency of the insurer to enable it to service the
claims as and when they arise Regulations serve to make insurance available at reasonable cost. The
loss occurring in some segments have to be made up through higher profits in other activities. The
companys focus on generating a higher return from investments to be able to offer better returns
to policyholders at reasonable cost and also to offset underwriting losses if any competition may
result in the need for lowering the premium. So a higher income has to be generated through
investments In case of lower interest rate regime, it compels companies to concentrate on high
return investment. The prudential norms ensure that the insurers do not over invest in a particular
company or a group of companies or in a particular industry. This ensures diversification of the
portfolio and reduction of investment risk Regulations prevent an insurer to exercise control over a
company through higher shareholding as prudential norms are in place.
As per the section 27A of the Act, every insurer carrying on the business of life insurance shall invest
and at all times keep invested its investible funds in the manner set out as follows;
Solvency Margin
This regulation deals with preparation of different statements by the insurer. The statements include
valuation of assets, determination of amount of liabilities and determination of solvency margin. All
insurance companies are required to maintain the solvency ratio of 1.5 at all times.
Distribution of Surplus
A life insurer may, on the advice of his appointed actuary, reserve a part of the actuarial surplus (also
referred to as valuation surplus) arising out of a valuation of assets and liabilities made for a financial
year in accordance with IRDA (Actuarial Report and Abstract) Regulations, 2000, to its shareholders,
which shall be:-
(a) one hundred per cent, in case of a life fund maintained for non-participating policy holders.
(b) one ninth of the surplus allocated to policy holders in case of a life fund maintained for
participating policy holders.
In case of any difficulty to meet the above norms the insurer must obtain prior approval from IRDA.
Also an insurer should not allocate or reserve actuarial surplus exceeding ten per cent to its
shareholders.
 FINDINGS
Q1 Does IDBI Federal Life Insurance Company has a Reinsurer?

Row Labels Yes (blank) Grand Total

21 6 6
22 17 17
23 14 14
24 1 1
25 1 1
27 2 2
30 1 1
33 1 1
35 1 1
36 2 2
38 1 1
42 1 1
54 1 1
Jindal 1 1
(blank)
Grand Total 50 50

Yes
21
22
23
24

Q2 Is the premium amount paid to reinsurance good or bad?

Row Labels Good (blank) Grand Total

21 6 6
22 17 17
23 14 14
24 1 1
25 1 1
27 2 2
30 1 1
33 1 1
35 1 1
36 2 2
38 1 1
42 1 1
54 1 1
Jindal 1 1
(blank)
Grand Total 50 50

Good
21
22
23
24
Q3 Rate the importance of criteria for deciding premium

AGE

Important
21
22
23
24

OCCUPATION

Important
21
22
23
24

WORKING ATMOSPHERE

Important
21
22
23
24

HEALTH

Important
21
22
23
24
GEOGRAPHICAL LOCATION

Important
21
22
23
24

HOBBIES

Important
21
22
23
24

Q4 which of them involves more risk?

Debt Equity (blank) Grand Total

Count of Which of them involves more risk? 1 49 50

Equity

Total

Q5 which of the following gives higher returns?

Debt Equity Equity, Debt (blank) Grand Total

Count of Which of the following higher returns? 2 47 1 50

Equity

Total

Q6 does the policy of charging constant premium over the years sufficient enough to pay off claims?
 Yes

Total

Q7 which risk can actually lead to probability of ultimate ruin?

Credit

Total

Q8 Does IDBI Federal Life Insurance Company promotes adverse selection in deciding premium
through any of the factors?

No

Total
 CORPORATE LEARNINGS
Client interaction provided with a way to deal with customer needs and analyse them in a proper
manner so that all their needs are satisfactorily met.

An opportunity to visit the company headquarters was given to have a clear view of how the
financial work is done which made me clear with the knowhow of the finance and risk department.

A live experience of how the corporate world is run and how all the things like contacting people,
managing meetings and scheduling things are done.

For any sales to be successful it is necessary to build and maintain a good relationship with the client
then only one can do the actual selling.

Whenever we meet new people we get a lot of exposure and also our communication skills are
improved.

Overall the experience of this summer internship program is worth relishing as it gave away a lot of
things to learn.
 CONCLUSION
Through the comparative analysis done we can see that the product of IDBI Federal gives higher
returns as compared to other life insurance companies.

In the financial statement analysis we can see that though the companys current ratio and net
working capital are improving but the company still needs to work on its expenses to improve
profitability and match up with industry averages.

Through the survey conducted we can conclude that insurance companies rely heavily upon the
reinsurers to pool their risk. Also equities are more exposed to risk as compared to debt but we get
higher returns in equities as compared to debt.
Credit risk can lead to ultimate ruin of the company.
Adverse selection is not preferred as it can prove to be very risky so the company avoids the practice
of adverse selection.
Investment is one major thing which insurance companies need to do carefully as any minor
discrepancy can lead to huge losses and distrust on customers part.
ANNEXURES
http://www.idbifederal.com/Pages/FinancialStatement.aspx?Year=null
(All the financial statements have been taken from the public disclosure of IDBI Federal Life
Insurance Company. The link for the following has been provided above).
 QUESTIONNAIRE

Risk Management in IDBI Federal Life Insurance Company

Dear Sir/madam, i am ANSHUL GUPTA, student of DSB, doing PGDM as part of the curriculum; I am
conducting a research on Risk management. I request you to kindly give your valuable time to fill this
questionnaire.

* Required

Name *

CCC

Age *

Gender *

Designation *

Does IDBI Federal Life Insurance Company have a reinsurer? *

o Yes
o No

Is the premium amount paid to reinsurer a good investment or a bad one? *

o Good
o Bad

Rate the importance of criteria for deciding premium *

Not Somewhat Most
Neutral Important
important important important

Age

Occupation
 Not Somewhat Most
Neutral Important
important important important

Working
atmosphere

Health

Geographical
location

Hobbies

Which of them involves more risk? *

o Equity
o Debt

Which of the following higher returns? *

o Equity
o Debt

Does the policy of charging constant premium over the years covers claim involved? *

o Yes
o No

Which risk can actually lead to probability of ultimate ruin of the company? *

o Investment
o Credit
o Liquidity
o Operational

Does IDBI Federal Life Insurance Company promote adverse selection in deciding premium
through any of the factors?

o Yes
o No
 REFERENCES
www.idbifederal.com
www.google.com
Life Assurance management (IC 25 Insurance Institute of India)
Life Assurance Finance (IC 26 Insurance Institute of India)
Risk management in the insurance business sector - MFC Artes Grficas, S.L.
Risk management and insurance planning
http://www.actuaries.org/EVENTS/Seminars/New_Delhi/Chapters/page-216to233.pdf