General Economic Review of Pakistag,Mg1

8/6/2019 General Economic Review of Pakistag,Mg1

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1 | P a g e H a i l e y C o l l e g e o f B a n k i n g & F i n a n c e

HAILEY COLLEGE OF BANKING ANDFINANCE

University of the Punjab, Lahore

Course Title:

Principles of Reinsurance

Presented to:

Sir Liaquat Ali Khan

Research Assignment title:

State Life Insurance Corporation 0f Pakistan


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Presented By:

Nida Asghar------------------------------Mi09MBA003

Ansa Sahar-------------------------------Mi09MBA013

Sahar Arif--------------------------------Mi09MBA015

Amna Ijaz--------------------------------Mi09MBA020

Sameera Rasheed----------------------------Mi09MBA059

Yasmeen Younas-----------------------------Mi09MBA063

Mehak Zahra----------------------------------Mi09MBA064

Huma Afzal-----------------------------------Mi09MBA065

Faiza Lateef-----------------------------------Mi09MBA067

MBA IRM 4th Semester

Session 2009-2011


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ACKNOWLEDGMENTS

Great is Allah and great is His mercy. Who taught by the pen, taught

men what he knew not. It is through his boundless grace and infinite mercy

that we have been able to bring out this. Special praise is for our beloved Holy

Prophet (SAW) who is inspiration for all who seek knowledge and is symbol

of knowledge and complete guidance for humanity as a whole.

We do not have words to express deep gratitude and thanks to our

respected teacher and project supervisorMR. Liaquat Ali Khan who helped us

and encourage us in every possible way and took personal interest to complete

this in time. We also extend our sincere appreciation to all our friends and class

fellows.

Words are lacking to express obligations to our affectionate Parents

their love, good wishes, inspirations and unceasing prayers, without which

the present destination would have been mere a dream.

All our prayers and gratitudes for them, who pray for us, help us, and

encourage us to achieve our goal.

Nida Asghar Faiza Lateef

Ansa Sahar

Sahar Arif

Amna Ijaz

Sameera Rasheed

Yasmeen Younas

Mehak Zahra

Huma Afzal

\


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Summary____________________________________________________________________4

Introduction________________

y General Economic Review of Pakistan______________________________________5y Insurance Industry Economic Review _____________________________________ 7y History Of Reinsurance ________________________________________________ 9y History of Life Insurance Corporation ____________________________________11y Nationalization_______________________________________________________13y Products Of State Life Insurance Corporation ______________________________ 14y Hypothesis__________________________________________________________25

Research questions_______________________________________________27 Objective of study________________________________________________36 Methodological notes_____________________________________________37 Source of Data__________________________________________________38 Limitations of data_______________________________________________40 Literature review_______________________________________________42

Data collection____________________________________________________________46

Data analysis____________________________________________________________48

Recommendation__________________________________________________________49

Conclusion ______________________________________________________________51

Bibliography_____________________________________________________________53

Dedication______________________________________________________________54


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Executive Summary

We are given a Reinsurance Research Project by our respectable

teacher Mr. Liaquat Ali Khan. We decided to conduct a research project on State Life

Insurance Corporation of Pakistan. We collected the data from their website and also

through various interviews and annual report of State Life Insurance Corporation.

Analyzing the reinsurance arrangements of State life Insurance Corporation gave us

insight on their retention limit and the various contracts arrangement they have for

various classes of business. From this we concluded several points late in this report.

We studied the various reinsurance companies of which the State Life Insurance

Corporation had direct relation with and gave the related information in this report.

Furthermore we studied the various types and methods of reinsurance, adding on to it the

various products of Reinsurance Companies.

We visited State Life Insurance Corporation of Pakistan several times and learnt a lot

about their environment and found that the staff of State Life is very corporative.


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General Economic Review of Pakistan

There is a slow growth in the economy of Pakistan. Global economy also remained

unstable due to financial market turmoil. Besides this, the International economy has also

hit by soaring inflation, particularly rise in prices of oil, food and other commodities.

These factors had its impact on economy of Pakistan which is already facing power

crisis, high fuel rates, softening of external demand and fluctuations in exchange rates.

With a new government coming to power in 2008, the need to adjust policies and counter

the burden on the fiscal position had become a challenging task. Fortunately the prices of

some of the major commodities which Pakistan imports have fallen. This is a favorable

influence on Pakistan Economy.

Like other stock markets the world over, Stock Exchanges of Pakistan also faced down

turn. Ultimately, the Karachi Stock Exchange imposed 'Floor Mechanism' on the closing

price of securities as on August 27, 2008, to prevent further fall in the stock prices. On

December 15, 2008 this floor was removed. The benchmark index immediately fell to a

two-and-a-half year low.

Inspire of these extraordinary conditions 2007-2008, Pakistan's economy recorded a growth of

5.8 percent, as against 6.8 percent 2006-2007 and this year's target of 7.2 percent. In the

medium-term perspective, Pakistan's growth performance is still striking, with real GDP growing

at an average rate of 7.0 percent per annum over the last five years (2004-08). The growth of this

magnitude not only shows its resistance but also provides a source of optimism that regaining the

growth momentum through reforms is very much a plausible assumption.


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Insurance IndustryEconomic ReviewDuring the last 4 years, gross premium ofGeneral Insurance companies in Pakistan grew

by approximately 15% annually while the penetration of the sector reached 0.4% (Rs. 33

billion) ofGDP by the end of 2007. The growth in the gross premium was mainly

attributable to the decent economic growth during this era.

According to an independent source, the gross premium of the General Insurance in

Pakistan is projected to end at Rs. 35 billion mark in 2008. While this would be a growth

of 6% over 2007, insurance penetration is projected to be lower at 0.33% at the end of

2008 versus that of 0.4% a year earlier. The decline in insurance penetration is

attributable to the overall economic slowdown, particularly to the bleak auto sector

performance.

Undoubtedly, the Motor segment has been regarded as the major growth propeller for the

insurance sector in last 5 years. This was mainly attributable to abundance financing

facilities and rise in personal income. The growth of the sector however, remained

stagnant in 2008 on the back of subdued car sales and industrial production. Moreover,

slowdown in the trade activities amid global economic crisis also affected the Marine

insurance. The insurance industry grew at a rate of 6% in CY09, the same rate observed

in the last 2 years. However the industry has a lot of room to grow, taking in account the

fact that the industry only represents 0.8 percent penetration rate ie insurance premium


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represent only 0.8 percent, which is the lowest among the comparable countries.

The reason for a somewhat low performance can be associated with the emergence of

macroeconomic instability since late 2007, turmoil in global financial markets anddislocation of the domestic equity market along with the deteriorating security situation,

posed substantial challenges to the sector in 2008.

Moreover, the year 2009 was a difficult year at both the local as well as the global

economic front. The global recession and the stagnant domestic economy during 2009

had an impact on the General insurance industry of Pakistan. The year 2009 was highly

volatile due to the worst global economic recession triggered by credit crisis. The country

s economy was also adversely affected by high inflation rate, severe liquidity crunch, a

steep decline in the value of Pak rupee and unfavorable conditions prevailing in capital

markets.

Another problematic factor for the insurance companies is the increase in the Reinsurance

rates by the major Reinsurance companies in the world. As reported in many international

journals the reinsurance companies have increased their rates due to growing demand of

Reinsurance and changing risk environment.


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History of Reinsurance

There is nothing in the early history of insurance which suggests practices that approach

in any way our modern reinsurance procedure. The earliest reinsurances first appeared in

transport, especially marine insurance, at a comparatively late date (14th or 15th century).

Marine insurance in antiquity was conducted chiefly by individuals, more or less in a

speculative manner, without a statistical foundation and without a retrospective data on

loss experience. Single ships and their cargoes in ancient times often had a value

disproportionately large to other private holdings, and the whole of the private fortune of

the insurer often hung on the outcome of a single voyage or marine adventure. The perils

of the sea were greater also considering the rudimentary state of the shipbuilders art.

It can readily be understood why marine underwriters wanted someone to share their risk.

After having effected insurances whether on the ship, on the cargo or on both, or on the

lives of the captain and crew, an underwriter often would become worried and try to sell

parts of his contracts to others and necessarily at a higher rate. At first risks on parts of

voyages were assigned to other, usually the more dangerous parts.

First Reinsurance Contract:

The first reinsurance contract on record related to the year 1370, when an underwriter

named GUILANO GRILLO contracted with GOFFREDO BENAIRA and MARTINO

SACEO to reinsure a ship on part of the voyage from the GENOA to the harbor of

Bruges.


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Other arrangements of this kind were no doubt, made in single instances for many years,

but reinsurance contracts in the modern sense of the world were unknown.

Development of Reinsurance:

The development of reinsurance in the modern sense may be credited chiefly to the fire

insurance business. Following the industrial revolution of the last third of the eighteenth

century, the growth of the factory system gave rise to the existence of things and interest

which rendered insurance in large amounts. Reinsurance developed slowly at first.

Insurers of fire risks had, until the amounts of insurance requested became too great,

adopted the practice of charging different premium for different classes of risk and by

limiting their commitments in certain areas.

The First Independent Reinsurance Company:

In 1846, the first reinsurance company was founded in Germany. THE COLOGNE

REINSURANCE COMPANY, this was the idea of MEVISSEN. He held that an

independent reinsurance company would be no competitor of the direct writing

companies and it was certain to be welcomed by and to receive a good volume of

business from those companies.

This marked the establishment of reinsurance as a specific, independent branch of the

business and thus extended to todays form.


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HISTORY OF STATE LIFE INSURANCE

CORPORATION OF PAKISTAN


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History of Life Insurance in Pakistan

At the time of independence of Pakistan in 1947, the number of insurance companies operating

in Pakistan was limited. Some of them had both life and general department. Some foreign

companies were also operating and different agency systems including the general agency were

being used. Some companies had their head office in cities, which were left in territories now

forming parts of India, and thus their operations in areas forming Pakistan were wound up. The

remaining companies both local and foreign were left in the market and they strived to spread the

message of life insurance in their own way. Their agency structures, commission rates, premium

and bonus rates and policy contracts varied. In quarter of a century after the emergence of

Pakistan, the number of companies rose to 32. Each company had its own working pattern and

agency system. The number of field management tiers was also different in different companies


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Nationalization of Life Insurance

The life insurance business in Pakistan was natona1ized under a Presidential Order on 19th

March. 1972. It was executed in two stages.

In the first stage which covered the period 19th March to 31st October. 1972, the management of

32 life insurance companies was taken over by the Government. Trustees and sub-trustees were

appointed by the Government to takeover different companies and to co-ordinate and guide their

activities. The Government constituted Life Insurance Management Board (LIMB). The Boards

terms included the task of recommending a permanent set up of life insurance within the

framework of nationalization. The Board recommended establishing a single Corporation with

three units.

The second phase of nationalization started by establishment of Single Corporation called State

Life Insurance Corporation of Pakistan with 3 Units called A, B, and C Beema* Units operating

throughout Pakistan and competing with one another.

On October 1975, the 3 Units merged and different zones were created. Initially there were five

zones with their Zonal Offices at Karachi, Hyderabad, Lahore, Rawalpindi and Peshawar. The

figure has since Increased to 26 Zones less than four different Regions, South, Central, North and

Multan headed by very able and competent executives.

By the grace of Allah the almighty, State Life has made steady progress in all fields of its

operations. The future is even brighter as the Corporation is making very positive strategies for


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not only maintaining its market leadership but displaying beyond an doubt that it deserves the

matchless corporate image created during the last more than three decades.

PRODUCTS OF STATE LIFE INSURANCECORPORATION

State Life Insurance Company provides cover to their customers under two categories:

y Individual life plans

y Group life and pension plans


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INDIVIDUAL LIFE PLANSIndividual life plans include the following covers:

y Whole Life Assurance:It is a unique combination of protection and savings at a very economical premium. Death at anytime before age 85 years terminates payment of premiums and the sum insured and attachedbonuses become payable. In the event the insured survives to the policy anniversary at age 85years, the policy matures and the sum insured plus bonuses become payable. Under this plan therates of bonuses are usually much higher than the other plans and they help in increasing notonly protection but also the investment element of the policy substantially.

This plan is best suited for youngsters who have at initial stages of their careers and cannot

afford to pay high premiums. Individuals who anticipate requirement of a lump sum in far futurecan also opt this plan.

y Endowment Assurance:Its a safest and surest method of guaranteed cash provision either at a specified time or at death(Allah forbid). Under these policies, the sum insured plus bonuses are payable at the end of thespecified number of years or at death of the life insured if earlier. Premiums are payable for thespecified number of years or till death, if earlier. The benefits under the plan can be furtherincreased by attaching supplementary covers.

The plan serves the requirements of a family in various shapes by way of financial help atretirement, education of children or provision of capital for business.

y Sadabahar Plan:Sadabahar is an anticipated endowment type with-profit plan that provides lump sum benefit atcertain stages during the premium-paying term or on earlier death. In addition, this plan has abuilt-in Accidental Death Benefit (ADB) rider so that the policyholder gets an additional sumassured in case of death due to an accident.

This plan is a safe instrument for cash provision at the time of need. With this plan, the policyholder can secure greater protection and continued prosperity for the family at anaffordable cost.

Admissible Ages and Terms this plan is available to all members of the general public, agedfrom 20 to 60 years nearest birthday. Both males and females may purchase this plan. Termsoffered under this plan are 12, 15, 18, 21, 24, 27 and 30 years.


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y Anticipated Endowment Assurance:This is a modified form of endowment assurance and is also called Three Payment Plan.Besides fulfilling the long-term financial needs, it also helps in meeting the short-term financialexigencies. As the name suggests, the plan offers three payments throughout term of the policy.

The plan offers survival benefits equal to 25% of sum insured on completion of 1/3rd and 2/3rdterm of the policy. If the policyholder does not withdraw the survival benefits, a very attractivespecial reversionary bonus is available. On completion of term of the policy, the remaining 50%sum insured plus accrued bonuses shall be payable. If the life insured expires during term of the policy, sum insured, accrued bonuses, unclaimed survival benefits and special reversionarybonuses are payable.

The plan is suitable for the individuals who have long-term financial needs but also anticipaterequirement of money relatively earlier. This Payment Plan helps fulfilling these short-termfinancial needs without terminating the actual contract.

y Shad Abad Assurance:Shad Abad Plan is an extended form of endowment assurance. The benefits under the policyincrease manifold in the event of death of the life insured.

On completion of term of policy, sum insured plus

bonuses attached to the policy are payable. However, ondeath during the policy term, the death benefitconsists of double of sum insured with accrued bonuses. Incase of death due to accident, the death benefit consists of four times the sum insured plus bonuses. The coverage can be further widened byattaching supplementary covers with the policy.


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This plan meets the requirements of those who appreciate the basic savings purpose ofendowment assurance but also like some additional cover to protect loved ones in case they die,Allah forbid, before maturity.

y Jeevan Sathi Assurance:

This is a joint life plan and covers lives of two partners say husband and wife simultaneously.Premiums are payable till the end of the specified term or till death of either of the insured persons, if earlier. The plancontains extensive benefits; anoverview of which appears asunder:

On the death of the first life, the suminsured will be paid to the

survivor. Further premiums under the policy will be waived, but theinsurance protection of the second lifewill continue. Also, the policy willcontinue to participate in profits of theCorporation. On death of thesecond life, again the sum insured willbe paid together with the attachingbonuses. In this event the policy will terminate.

If the second life survives the term of the policy, he or she will be paid sum insured together withthe attached bonuses, even though the sum insured has been paid once, on the death of the firstlife. If both the lives survive the term of the policy, the sum insured will be paid to them jointly,only once, together with the attached bonuses. Different supplementary covers are also availablefor increasing coverage under the policy.

Jeevan Sathi Plan is best suited for those married couples who want to enjoy insurance coveragefor a comparatively lesser premium. Moreover, housewives who are otherwise not insurable canalso enjoy the benefits of insurance policy through this plan.

y Child Education &

Marriage Assurance:

Child Education & Marriage Assurance is a plan forthe protection of childs future. It provides a lumpsum benefit for the child at the completion of thepolicy term. On completion of term of the policy, full


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sum insured together with the accrued bonuses become payable to the policyholder.

If the policyholder dies (Allah forbid) before completion of the term, a family income benefit ofRs 240 per 1000 sum insured per annum is paid to the child until the completion of policy term.Further, future premiums under the policy are waived and policy remains in force with full sum

insured and continues to participate in State Lifes surplus and receive bonuses. Upon thecompletion of policy term, the child gets two options of either getting the proceeds in a lumpsum or in five equal installments.

Child Education & Marriage Plan is suited for the parents who are conscious about the future oftheir children. The term of the plan is such that the lump sum benefit becomes payable when thechild attains a predetermined age of 18, 21 or 25 years. These ages may be selected consideringthe occasion at which children generally need financial assistance for higher education, marriage,or setting up business. Depending upon your individual needs, the plan is available in twoseparate versions of with and without built-in family income benefit. In addition to parent, thisplan can also be affected by grandparents, uncles, aunts or any other person who is paying for the

maintenance of the child

y Child Protection Assurance:This is a joint life assurance and covers the lives of child and either of the parents. If thepolicyholder and the child both survive full term of the policy, sum insured and accrued bonusesbecome payable. If the policyholder dies before completion of term of the policy the payment of premiums ceases and the child is paid an income of Rs 100/- per thousand sum insured perannum till the completion of the policy term. On completion of policy term, sum insuredinclusive of bonuses accrued till the death of the policyholder is paid to the child.

If the child dies (Allah forbid) before maturity of the policy and during lifetime of the policyholder, the death claim payable to the policyholder depends on the age at death of thechild.

As the name suggests, the plan is suitable for parents who want to cater future financial needs oftheir children incase of death of the breadwinner of the family. The plan has a unique feature ofproviding coverage on the life of child. The coverage of the policy can further be widened byattaching supplementary covers.

y Sunehri Policy:Sunehri Policy is an innovative life insurance product. It is flexible, secure and meets thechallenges of inflation quite economically. Under a special feature of this plan, from third policyyear onwards, sum insured under the policy and premium will increase by 6% per annum withoutproviding any evidence of insurability. From the third policy year onward, the policyholder isprovided with a statement showing the build up of cash value of the policy and sum insured for


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the year. The policy also participates in the surplus of State Life and currently the rate of bonusis Rs 105 per thousand per annum of the adjusted opening cash value.

Death Benefit: If the life insured dies during first two years of policy issue, then the initial basicsum insured will be payable. If the life insured expires in third or later policy years, the death

benefit payable will be equal to sum insured applicable to the policy year of death plus adjustedopening cash value.

Maturity Benefit: Policy matures on policy anniversary nearest to age 70 years of the lifeinsured. The maturity benefit equals to cash value of the policy at age 70.

The plan is suitable for individuals who have started their career and expect increase in theirincome over a certain period of time say a year or two. The increase in premium and sum insuredhelps them to meet their increased insurance requirement with increase in incomes.

y Shehnai Policy:Shehnai Policy is an innovative life insurance product. It provides a solution to the problems ofmany concerned parents who want to save now in order to provide for their childrens highereducation, marriage and other expenses when the need arises. The term of the plan is such thatthe lump sum benefit becomes payable as the child attains the age of 25 years.

Shehnai Policy also caters from the ravages of inflation. This is done by the option of automaticincrease of 6% per annum in sum insured and premium from third policy year onward. From thefourth policy year onward, the policyholder is provided with a statement showing the build up ofcash value of the policy and sum insured for the year. The policy also participates in the surplus

of State Life and currently the rate of bonus is Rs 105 per thousand per annum of the adjustedopening cash value.

Maturity Benefit: The policy matures when the child attains age 25 years. At maturity the cashvalue of the policy is paid to the child. The cash value includes all the bonuses attached with thepolicy.

Death Benefit: If the life insured dies during term of the policy, premium payments stop and thesum insured applicable to the policy year of death is deferred to be payable when the childattains age of 25. At the time of death of the life insured, the said sum insured is added to theadjusted opening cash value to be called the enhanced cash value and participates in StateLifes surplus until it is paid out to the child when he or she attains the age of 25 years. The childwill have an option of either collecting the benefit in a lump sum or in five equal annualinstallments.


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State Life offers a number of supplementary covers to enhance coverage under different plans.These supplementary covers can be attached with the main policy and are not availableexclusively.

Accident Death & Indemnity Benefit (AIB):

This supplementary cover provides for payment of additional amount equal to the sum insuredunder the policy in the event of death by accidental means, or in the event of loss of two or morelimbs or loss of sight in both eyes. One-half of the sums insured will be paid for loss of one limb;one-third of sum insured in the event of loss of one eye and one-fourth of sum insured will be paid for loss of thumb and index finger. Moreover, weekly indemnities are also available fortotal and partial disability of the life insured as a result of the accident. If the life insuredbecomes permanent and total disable, an annuity of 10% of sum insured will be payable for a

maximum period of ten years.

AIB is suitable for office commuters and individuals who travel and use different modes oftransport. The rates of premium for this supplementary benefit range from Rs 4 to Rs10 perthousand sum insured depending upon the occupational rating of proposer for standard liveswhose age should be between 18 to 55 years.

AIB can be attached with following plans:

y Whole Life Assurancey Endowment Assurancey

Anticipated Endowment Assurancey Jeevan Sathi Assurancey Child Education & Marriage Assurancey Shad Abad Assurancey Shehnai Policyy Child Protection Assurance (For adult life only)y Muhafiz Plus Assurancey Nigehban Plany Optional Maturity Plan

Accidental Death Benefit (ADB):

This supplementary cover will provide for payment of an additional amount equal to sum insuredin the event of death by an accident as defined in the contract. On payment of a modest premium,a handsome accidental coverage is obtained through this supplementary cover. ADB is highlyrecommended for individuals who travel daily through road transport.


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The cover is available to lives between 5 and 55 years of ages. Maximum term of thissupplementary benefit is not allowed to exceed the premium paying term of the basic policy, or60 years of age of the life proposed whichever is earlier.

ADB can be attached with following plans:

y Whole Life Assurancey Endowment Assurancey Anticipated Endowment Assurancey Jeevan Sathi Assurancey Child Education & Marriage Assurancey Shehnai Policyy Child Protection Assurancey Muhafiz Plus Assurancey Nigehban Plany Optional Maturity Plan

Family Income Benefit (FIB):

This supplementary cover provides that incase of death of the life insured during term of thiscover, an annuity of 10% to 50% per annum of the basic sum insured will be payable till thecompletion of term of this cover. For instance, if a life insured has taken 25% FIB supplementarycover for 20 years on his policy having sum insured of Rs 1,000,000. If the life insured expiresduring term of FIB, say at the end of fourth year, an annual sum of Rs 250,000 will be payablefor rest of 16 years.

While the basic plan provides a lump sum, FIB provides a regular stream of income to thedependents and helps in meeting the day to day expenses. This supplementary cover is availableto lives between 18 and 55 years of ages

Waiver of Premium (WP):

This supplementary cover provides for waiver of due premiums in the event of the life insuredsTotal and Permanent Disability caused by accident as defined in the contract. With the help ofWP, the life insured gets relieved of vagaries of paying premiums incase of his or her beingincapacitated as a result of accident. The rate of premium for standard risk will be Rs 0.50 to1.00 per thousand of sum insured depending upon the age of life insured.

WP is available to lives between 18 and 55 years of ages.

Special Waiver of Premium (SWP):


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This supplementary cover will provide for waiver of premiums under the policy incase of the lifeinsureds Total and Permanent Disability due to accident or disease which renders him unable toengage in any occupation.

With the help of SWP, the life insured gets relieved of vagaries of paying premiums incase of his

or her being incapacitated as a result of accident or disease. SWP is available to lives between 20and 55 years of ages

Term Insurance (TI):

In the event of death of the life insured during term of TI supplementary cover, the sum insuredwill be payable in addition to the benefits payable under the basic policy. Suppose, Mr. A,covered under a policy of Rs 1,000,000, and also attaches TI supplementary cover with his

policy. Incase of his death during term of TI, a sum equal to Rs 1,000,000 will be payable underthis supplementary cover. This will be in addition to the benefits payable under main policy.

This supplementary cover is an excellent opportunity for individuals who want to enhancecoverage of their policy substantially on payment of a meager amount of premium. TI isavailable to lives between 18 and 55 years of age. Shad Abad Assurance

Guaranteed Insurability (GI):

Under this supplementary cover, State Life gives the policyholder a right to purchase additionallife insurance up to specified maximum amounts on specified further dates at standard rates,without evidence of insurability being required at such later dates.

The specific further dates on which additional insurance can be taken are the policy anniversariesof the basic policy nearest the 25th, 28th, 31st, 34th, 37th and 40th birthdays of the life insured.Thus the option dates for various issue ages

Issue Ages No of Option Dates Option Date Ages

10 24

25 27

28-30

31-33

6

5

4

3

25, 28, 31, 34, 37, 40

28, 31, 34, 37, 40

31, 34, 37, 40

34, 37, 40


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34-36

37

2

1

37, 40

40

This supplementary cover is available only to standard lives between 10 and 37 years of ages andwho are not engaged in hazardous occupations. Only one GI will be issued on the life of any oneperson. GI is available only at the time of issue of the basic policy and can not be attached to thepolicy after its issuance.

y

Refund of Premium Rider (RPR):

RPR provides for refund of premiums paid under the policy in the event of death of the life

insured during term of the policy. It is an ideal form of enhancing the life cover under the policywith a modest increase in premium.

This supplementary cover is available to lives between 20 and 60 years of ages. The availableterm ranges from 10 to 25 years

Hospital and Surgical Benefits (H&S):

This supplementary cover provides benefits in case of hospitalization of the life insured, in StateLifes approved hospitals, as a result of sickness or accident. On payment of double amount of

premium specified for H&S, the benefits and their limits will also be doubled.

H&S is available to lives between 18 and 50 years of ages. The available term ranges from 10 to25 years.


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We are able to significantly enhance our big business all

the way through betterment in PUBLIC RELATIONS

(PR)*

which includes product promotion through

advertisements.


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Research Questions:

1. What are the reinsurance arrangements of this State life InsuranceCorporation?

yThe corporation maintains the risk premium re-insurancearrangements with Swiss Re and Munich Re-insurance.

2. What is the retention limit of the corporation for individual life perpolicy?

yThe net retention limit of the corporation for individual life isRupees 2.5 Million per policy.

3. What is the retention limit of the corporation for group life insurancepolicy?

yThe net retention limit of the corporation for group life is Rs 2Million per person of risk.

4. How the reinsurance premium is recorded by the corporation?yRe-insurance premium is recorded as an expense evenly over the

period of the re-insurance contract and is off-set against the premium

income of the respective year.

5. Is State life Insurance Corporation is using facultative and treatyreinsurances?

yState Life Insurance Corporation is currently using both facultativeand treaty reinsurances.

6. Is State Life Insurance Corporation itself is also accepting reinsurancefrom other companies or not?


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yNo, State life Insurance Corporation itself do not accept reinsuranceform other companies. It only transacts the insurance business.

7. Is State Life Insurance Corporation reinsures specific classes ofBusiness?

yState Life Insurance Corporation has reinsurance arrangements forall classes of business.

8. Is the present Reinsurance Arrangement adequate or it needs somechanges or improvements?

yAt present the Reinsurance arrangement of State Life InsuranceCorporation needs no changes and improvements. It is yet adequate.

9. Why did State Life Insurance Corporation chose Swiss-Re andMunich-Re Insurance Companies as for their reinsurance

arrangements, why didnt they choose any Local Reinsurance

Company for the same?

yAs State Life Insurance Corporation is the biggest insurancecorporation of Pakistan, it is necessary for the insurance company toreinsure from a company whose size of business is much more than

the insurance company wanting to reinsure. Thus State Life chose

Swiss-Re and Munich-Re insurance Company for reinsuring

purposes.


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Swiss Reinsurance Company Limited :

History:

The Swiss Reinsurance Company of Zurich was founded on 19 December 1863 by theHelvetia General Insurance Company (now using the trade name of Helvetia insurance)in St. Gallen, the Schweizerische Kreditanstalt (Credit Suisse) in Zurich and the BaslerHandelsbank (predecessor of UBS AG) bank in Basel.On 10/11 May 1861, more than 500 houses went up in flames in the town ofGlarus. Twothirds of the town sank into rubble and ashes; around 3000 inhabitants were madehomeless. Like the fire of Hamburg in 1842 (which led to the foundation of the first professional reinsurers in Germany, the great fire of Glarus in 1861 showed thatinsurance coverage was totally inadequate in Switzerland in the event of such a

catastrophe. Hence the need to provide more effective means of coping with the risksposed by such devastation.The Swiss Reinsurance Company was the lead insurer of the World Trade Center duringthe September 11 attacks which led to an insurance dispute with the owner, SilversteinProperties.In 2009, Warren Buffett invested $2.6 billion as a part of Swiss Re's raising equitycapital.[5][6] Berkshire Hathaway already owns a 3% stake, with rights to own more than20%.

The group have offices in over 20 countries. In Europe, Swiss Re have offices located inDenmark, France, Germany, Italy, Luxembourg, Netherlands, Slovak Republic, Spain,Switzerland and the United Kingdom. In Asia, the group have offices in the followingcountries: Australia, China, Hong Kong, India, Israel, Japan, Malaysia, Singapore, SouthKorea. Their only African office is located in South Africa. There are also offices in thefollowing American countries: Barbados, Brazil, Canada, Mexico, United States.(US$1.18 billion) to a group formed of IVG Immobilien AG ofGermany and Evans

Randall of Mayfair.

Reinsurance Products:

Swiss Reinsurance Company Ltd provides reinsurance products, insurance-based capitalmarket instruments, and risk management services worldwide. It offers variousreinsurance products covering property, liability, motor, and accident risks; life andhealth risks comprising individual and group life, disability, critical illness, and annuityproducts; and specialty risks, such as engineering, aviation, and marine. The companyalso provides risk transfer solutions; manages corporate credit and equity portfolios; andoffers office space and apartments for rent. In addition, Swiss Reinsurance Company


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provides Admin Re, a solution through which the company acquires closed blocks of in-force life and health insurance business through acquisition or reinsurance, and assumesresponsibility for administering the underlying policies. It serves insurers, corporationsand businesses, brokers and agents, and governments and NGOs. The company wasfounded in 1863 and is headquartered in Zurich, Switzerland.

Products and Services:

Products:Reinsurance:Property & Casualty ReinsuranceLife & Health ReinsuranceAgricultural reinsuranceAviation & Space

EngineeringMarineNuclear energyInsurance:Commercial InsuranceIndustrial Risk Insurer (IRI)Admin ReFinancial MarketsReal EstateCarbon Credit Fund

Services:Client services and toolsE-businessAsset ManagementConsultingInsurance Research

1.Property

The Property teams of Swiss Re provide innovative, tailor-made coverages tocorporations across the globe. Leveraging the Swiss Re Group's diversified portfolio,financial strength and underwriting expertise, highly-skilled and experienced teams offerthe customers among the highest capacity available in the marketplace, as well asunparallel expertise on structured property programmes.From insuring automotive operations to valuable cargo to protecting assets of financialinstitutions, their experts have a specific solution that suits the business needs.


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OurProperty teams offers

y General Propertyy Excess & Surplus Property: U.S.y Satellite Hull Insurancey Airline Hull Risky Airline Manufacturer Coveragey Outage Risk Solutionsy Commercial Crimey Comprehensive Crime Coveragey Contingency Coveragesy Fine Art & Specie Coveragey Single Carrier

2.Casualty

The Casualty teams of Swiss Re provide innovative, tailor-made coverages tocorporations across the globe. Leveraging the Swiss Re Group's diversified portfolio,financial strength and underwriting expertise, our highly-skilled and experienced teamsoffer our customers among the highest capacity available in the marketplace, as well asunparallel expertise on structured casualty programmes.From insuring automotive manufacturing to providing lead umbrella policies to coveringengineers' fees and damages when they are legally responsible, their experts have aspecific solution that suits their business needs.

Our Casualty teams offer

y General Casualtyy Excess & Surplus Casualty: U.S.y Lead Umbrella: U.S.y Construction Professional Indemnity & General

Liabilityy Technology E&Oy Outage Risk Solutionsy Weather and Commodity Price Risk Solutions

3.Professional & Management LiabilityThe Professional & Management Liability products of Swiss Re provide financial

protection for organisations and their executives, as well as other professionals, againstallegations of wrong-doing, mismanagement, negligence, and other related exposures.Backed by the diversified portfolio and financial strength of the Swiss re Group, theyprovide high-quality protection to thousands of companies, financial institutions, not-for-profit and healthcare organisations through their customer-oriented approach, innovativeproducts, loss control expertise, global breadth and local presence.


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OurProfessional & Management solutions for organisations, executives &

professionals

y Directors & Officers Liabilityy Fiduciary Liabilityy Employment Practices Liabilityy Lawyers Professional Liability (Large U.S. Law Firms)y Lawyers Professional Liability (Small/Medium-Sized

U.S. Law Firms)y Lawyers Professional Liability (Large Law Firms

Worldwide, excluding the U.S.)y Lawyers Professional Liability - Risk Management

Alert for Florida Insurance Defense Attorneysy Professional Indemnity for Accounting Firms,

Management & Actuarial Consultantsy Professional Indemnity for Financial Institutionsy Technology E&Oy Construction Professional Indemnity & General

Liabilityy Healthcare Liability


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Munich Reinsurance Company

History:

In 1880, Carl von Thieme, a native of Erfurt, whose father was the director of Thuringia,foundedMnchener Rckversicherungs-Gesellschafttogether with Wilhelm von Finck(co-owner of the Merck Finck & Co bank) and Theodor von Cramer-Klett. This wasfollowed by the founding of Allianz Versicherungs-Gesellschaft in 1890. Carl vonThieme was head of Munich Re until 1921, and Wilhelm von Finck served as Chairmanof the supervisory board until 1924. Munich Re became renowned after the San FranciscoEarthquake of 1906 as the only insurer that remained solvent after paying out all theclaims.

Structure:Besides its reinsurance business, the Munich Re Group also transacts primary insurancebusiness through the ERGO Group, and, since 1999, asset management through MEAG(MUNICH ERGO AssetManagement GmbH). In 2010, the Groups gross premiumswritten totalled around 45.5bn.

Reinsurance:Munich Re has around 5,000 clients (insurance companies) in about 150 countries. It

assumes part of the risk covered by these insurance companies, as well as providingcomprehensive advice on insurance business. In addition to its Munich head office,Munich Re has more than 50 Business Units around the world. Munich Re providesreinsurance cover for life, health, casualty, transport, aviation, space, fire and engineering business. In 2010, gross premiums written in the reinsurance segment amounted toaround 23.6bn.

Spectrum of Reinsurance Services:From casualty and property to special fields such as marine and aviation, they work hard

to ensure that their clients success by offering reinsurance solutions, analysis andconsulting services as well as software tools that are vital to their business. Apart fromthe tailored solutions Munich Re provide, the main reasons clients turn to Munich Re areour global expertise, financial strength and reliability.


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Lines of BusinessCasualtyPropertyMarine

Special Lines

ReTakaful by Munich ReMunich Res retakaful unit is a fully-fledged retakaful operator licensed by BankNegaraMalaysia in December 2007 to conduct worldwide general (non-life) and family (life)retakaful business. Based in Kuala Lumpur, Malaysia we are set up to be Munich Re'sinternational retakaful hub.In line with AAOIFI standards Munich Re is operating on a pure wakala model for both

family and general retakaful.

Munich Re addresses the specific needs of Islamic societies by using the Groupsexceptional technical expertise in providing viable techniques to implement the rules setby Sharia-scholars. This not only fosters mutually profitable growth in local markets, butalso benefits the development of the global takaful industry. In addition, our clients profitfrom the excellent financial solidity and the technical expertise of the Munich Re Group.

Munich Res retakaful unit in Kuala Lumpur operates as a branch of Munich Re and hasfull and unconditional financial backing from Munich Re. The latest ratings clearlydemonstrate that we are one of the financially strongest retakaful operators worldwide.


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Objectives of Study

1. Objective of study are to have appropriate and practical knowledge ofreinsurance.

2. To know, how insurer seek reinsurance.3. What are the parameters on which the reinsurance is sought.4. Whether insurer are willing to seek proportional or non proportional

reinsurance according to their needs and for what kind of classes ofbusiness.

5. Having this study of the insurance company the research will help while weare working in the same company.


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Methodological Notes:For collecting data these methods are used:

1.Interviews

Interviews were taken from:

yCentral Zonal head

2.InternetData of State Life Insurance Corporation, Swiss Re and Munich Reinsurance Company

was collected from their respective websites.

3.Annual ReportAnnual report was taken from the central regional office of stat life insurance corporationLahore Pakistan.


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Sources Of Data


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Sources of data:

Two sources of data were used to collect material:

1. Primary data2. Secondary datayPrimary data:

State Life Insurance Corporations Annual report.

ySites:www.statlife.com.pk

www.swissre.com

www.munichre.com/

www.casact.org/pubs/proceed/proceed29/29022.pdf

www.marclife.com/publications/History%20of%20reinsurance.

ySecondary Data:Interviews.


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Limitation of Data


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Limitation of data

Level of risk:As stat life is nationalized organization so they suffer many limitation such as limited budget dueto which many corporate and marketing strategies adopted by state life fail to give expectedresults.

Amount of variation in the possible results:State life has certain successful marketing strategies but some time they face sudden changes intheir business due to instability of politics and inflation of economy and also advancement intechnology is given them tough time.

Rigid policies of government:Stat life also suffer due to rigid policies like in case of recruitment their hiring new employeesafter a long period of time and their staff is not educated, less professional and are not passionateabout their work. The problem in their employee is that there is no fear of losing job, because oflong procedure of firing.

Reaction of competitive:As its a business strategy to do some thing better then the competitor. So if State Life startsintroducing some new plans to the promotion sector the competitors also start some thing andprobably better then them.


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Reinsurance Types:

Proportional

Proportional reinsurance (the types of which are quota share and surplus reinsurance)involves one or more reinsurers taking a stated percent share of each policy that

an insurerproduces ("writes"). This means that the reinsurerwill receive that stated

percentage of each dollar of premiums and will pay that percentage of each dollar of

losses. In addition, the reinsurerwill allow a "ceding commission" to theinsurerto cover

the initial costs incurred by the insured (marketing, underwriting, claims etc.).

The insurermay seek such coverage for several reasons. First, the insurermay not have

sufficient capital to prudently retain all of the exposure that it is capable of producing.

For example, it may only be able to offer $1 million in coverage, but by purchasing

proportional reinsurance it might double or triple that limit. Premiums and losses are then

shared on apro rata basis. For example, an insurance company might purchase a

50% quota share treaty; in this case they would share half of all premium and losses

with the reinsurer. In a 75% quota share, they would share (cede) 3/4 of all premiums and

losses.

The other form of proportional reinsurance is surplus share or surplus of line treaty. In

this case, a retained line is defined as the ceding company's retention - say $100,000. In

a 9 line surplus treaty the reinsurerwould then accept up to $900,000 (9 lines). So if the

insurance company issues a policy for $100,000, they would keep all of the premiums

and losses from that policy. If they issue a $200,000 policy, they would give (cede) half

of the premiums and losses to the reinsurer(1 line each). The maximum underwriting

capacity of the cedant would be $ 1,000,000 in this example. Surplus treaties are also

known as variable quota shares.

Non-proportional

Non-proportional reinsurance only responds if the loss suffered by the insurerexceeds

a certain amount, which is called the "retention" or "priority." An example of this form of

reinsurance is where the insureris prepared to accept a loss of $1 million for any loss

which may occur and they purchase a layer of reinsurance of $4 million in excess of $1

million. If a loss of $3 million occurs, then insurerwill retain $1 million and will recover

$2 million from its reinsurer(s). In this example, the reinsured will retain any loss

exceeding $5 million unless they have purchased a further excess layer (second layer) of

say $10 million excess of $5 million.


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The main forms of non-proportional reinsurance are excess of loss and stop loss.

Excess of loss reinsurance can have three forms - "Per RiskXL" (Working XL), "Per

Occurrence or Per Event XL" (Catastrophe or Cat XL), and "Aggregate XL". In per

risk, the cedants insurance policy limits are greater than the reinsurance retention. For

example, an insurance company might insure commercial property risks with policy

limits up to $10 million, and then buy per risk reinsurance of $5 million in excess of $5

million. In this case a loss of $6 million on that policy will result in the recovery of $1

million from the reinsurer.

In catastrophe excess of loss, the cedants per risk retention is usually less than the cat

reinsurance retention (this is not important as these contracts usually contain a 2 risk

warranty i.e. they are designed to protect the reinsured against catastrophic events that

involve more than 1 policy). For example, an insurance company issues homeowner's

policies with limits of up to $500,000 and then buys catastrophe reinsurance of

$22,000,000 in excess of $3,000,000. In that case, the insurance company would only

recover from reinsurers in the event of multiple policy losses in one event (i.e., hurricane,

earthquake, flood, etc.).

Reinsurance Methods:There are two basic methods of reinsurance:

1.Facultative ReinsuranceIn facultative reinsurance, the ceding company cedes and the reinsurer assumes all

or part of the risk assumed by a particular specified insurance policy. Facultative

reinsurance is negotiated separately for each insurance contract that is reinsured.

Facultative reinsurance normally is purchased by ceding companies for individual

risks not covered by their reinsurance treaties, for amounts in excess of the

monetary limits of their reinsurance treaties and for unusual risks. Underwriting

expenses and, in particular, personnel costs,are higher relative to premiums

written on facultative business because each risk is individually underwritten andadministered. The ability to separately evaluate each risk reinsured, however,

increases the probability that the underwriter can price the contract to more

accurately reflect the risks involved.

2. Treaty Reinsurance


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It is a method of reinsurance requiring the insurerand the reinsurerto formulate

and execute a reinsurance contract. The reinsurerthen covers all the insurance

policies coming within the scope of that contract. There are two basic methods of

treaty reinsurance:

Quota Share Treaty Reinsurance, and Excess of Loss Treaty Reinsurance.

In the past 30 years there has been a major shift from Quota Share toExcess of

Loss in theproperty and casualty fields.


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Data Collection:

Before selecting and collecting data first we decided on whichfields we have to work being State Life Insurance Corporation:

E.g. we work on the answers of the following questions:1. Is it necessary for me to reinsure or its better the other way around?2. How much of the amount should I retain and how much should I reinsure?3. Should I reinsure some specific classes of business or should I reinsure allclasses of business?4. Should I reinsure locally?? If no then what are the reasons for reinsuring from aforeign companies?

5. Should I choose only one company for reinsuring or choose more than onereinsurance company?6. What would be the procedure as a consequence of a claim arising from throughreinsurance contract?7. Should I reinsure Facultatively or should I go for treaty reinsurance?


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Data Analysis:

An Analysis of the above data reveals the following:1. There is a tremendous potential to be exploited relating to the development

of insurance sector of Pakistan.2. Similarly, there is a tremendous potential to be exploited relating to the

growth and development of the concept of reinsurance sector of Pakistan.3. Stakeholders moot is needed to develop a marketing strategy and promoting

reinsurance Culture in Pakistan.4. There should be a Specialized Reinsurance company locally available

having a larger capital than the other insurance companies of Pakistan, as inthis way the reinsurance business will groom here Locally moreover it willbe a cost effective way for the reinsured.


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RECOMMENDATIONS:

IF WE HAVE TO MPROVE OUR BUSINESS WE HAVE TO STRONGLY WORK

ON FOLLOWING:-

01-Customer Relationship Management and Consumer Protectionin Life Insurance Product;

02-Dimensions of Service Quality ;

03-Poor Service Attributes

04-Improve your retention rates

Reversing the Market

y Consumers involved & drives decision making.y Market moves to efficient providers.y Need for intermediation reduced & costs lowery Products simple and bought

Stakeholder Products Simplified Sales


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Conclusion

It is hoped that the stakeholders will rise to the occasion and the Government of Pakistan,

Securities & Exchange Commission of Pakistan and other regulatory bodies, Ministry of

Commerce, Insurance Companies, Insured Persons, Students, Teachers and other

representatives of civil society will make an enriched contribution in strengthening the

frontier of HRM / HRD so that the yawning gap which existed in the past to serve the

insurance sector is minimized and there is a real flourish of Insurance Sector to serve

the economy of the country in a befitting manner. Earlier this is done the better.

Furthermore Government of Pakistan should make sure that the reinsurance industry in

Pakistan is also developing. Because what we need is to make sure that in Pakistan there

are also volumetric reinsurance companies so that Insurance corporations may reinsure

locally that would be cost effective and easy to handle as well.

The global economic scenario and uncertain political situation is a challenge to the

insurance industry and equally to your company. Viewing difficult period ahead, the

company has drawn appropriate strategies to remain as a leading and innovative insurer

both locally as well as internationally.The Company continues to focus in terms of growth of premium while at the same time

maintaining profitability and high ethical standard.

They have made a difference in the insurance industry and continue to strive to provide

leadership. Together with the aim to face the challenges of today by ensuring operational

excellence and quality standard to meet expectations of stakeholders.


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Bibliography


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Bibliography

Websites:

y www.statlife.com.pky www.swissre.comy www.munichre.com/y www.casact.org/pubs/proceed/proceed29/29022.pdfy www.marclife.com/publications/History%20of%20reinsurance

Personal visits:y MADAM SIDRA YASMEEN

( Sales Representative)&

y SIR ABBAS GHAMAN( Sales Manager)

STATE LIFE INSURANCE CORPORATIONIQBAL TOWN, LAHORE

y MUHAMMAD JAMEEL(Assistant General Manager)STATE LIFE INSURANCE CORPORATIONCENTRAL ZONE, LAHORE

( VISITED ON 13TH

MAY)


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Dedication

To our loving parents and respected teacher , without who inspired andtireless efforts this project would not have been possible.

General Economic Review of Pakistag,Mg1

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Transcript of General Economic Review of Pakistag,Mg1