Term Paper on the Financial Report on Insurance Companies

Main objective of this term paper is to analysis Financial Report on different Insurance Companies. The purpose of the report is to identify the financial condition and implementation of various IFRS system and practices in insurance companies. Eventually recommendation was provided for making the IFRS system more effective and efficient for the corporation. If insurance companies adhere to the IFRS system thoroughly then will probably be always in upper hand to retained best workers in the organization in the foreseeable future.

 

International Financial Reporting Standards:

Since 2001, the new set of standards has been known as the international financial reporting standards (IFRS) and has been issued by the International Accounting Standards Board (IASB). Financial statements may not be described as complying with IFRSs unless they comply with all of the requirements of each applicable standard and each applicable interpretation.

International Financial Reporting Standards (IFRS) are Standards, Interpretations and the Framework for the Preparation and Presentation of Financial Statements (in the absence of a Standard or an Interpretation) adopted by the International Accounting Standards Board (IASB).

Many of the standards forming part of IFRS are known by the older name of International Accounting Standards (IAS). IAS were issued between 1973 and 2001 by the Board of the International Accounting Standards Committee (IASC). On 1 April 2001, the new IASB took over from the IASC the responsibility for setting International Accounting Standards. During its first meeting the new Board adopted existing IAS and SICs. The IASB has continued to develop standards calling the new standards IFRS.

  • IFRS 1 First-time Adoption of International Financial Reporting Standards
  • IFRS 2 Share-based Payment
  • IFRS 3 Business Combinations
  • IFRS 4 Insurance Contracts
  • IFRS 5 Non-current Assets Held for Sale and Discontinued Operations
  • IFRS 6 Exploration for and Evaluation of Mineral Assets
  • IFRS 7 Financial Instruments: Disclosures
  • IFRS 8 Operating Segments

The transition around the world to International Financial Reporting Standards (IFRS) – which were formerly known as International Accounting Standards (IAS) – is the most important development ever seen in the world of accounting.

The European Commission has made IFRS (a single set of high quality, understandable and enforceable global accounting standards) mandatory for all 7000 EU public companies (including some 2000 in the UK alone) as from financial year 2005.

Outside of the EU, significant regions such as Australia, Russia, South America, Africa and the Middle East either have adopted or are currently in the process of adopting IFRS, with others including the USA, Canada, China and Japan being already committed to a path of future convergence.

IAS seminars is proud to offer a broader and deeper range of IFRS courses in more worldwide locations than any other training organization.

IFRSs in Bangladesh    

The South Asian Federation of Accountants sponsored the First South Asian Accounting Summit on 18-19 April 2006 in Karachi, Pakistan. Representatives of the Institute of Chartered Accountants of Bangladesh (ICAB) presented an update on the adoption of IFRSs in Bangladesh:

Legal Framework

The Companies Act of 1994 provides basic requirements for financial reporting by all companies in Bangladesh. It is silent about either Bangladesh Accounting Standards (BASs) or International Accounting Standards (IASs/IFRSs).

Listed companies. The Securities and Exchange Commission of Bangladesh regulates financial reporting by listed companies. SER 1987 requires compliance with IASs/IFRSs as adopted in Bangladesh (these are known as Bangladesh Accounting Standards, or BASs).

Insurances. The Insurance Company Act   mandates reporting formats and disclosures based on BAS 30, which is similar to IAS 30. The Act is silent about other BAS, and compliance with BASs by insurances is mixed.

Insurance companies. The Insurance Act does not mandate compliance with BASs. In practice, insurance companies often do not follow BASs.

Other companies. Neither the law nor the by-laws of the Institute of Chartered Accountants of Bangladesh mandates compliance with BASs by unlisted companies. Actual compliance varies widely. There are no separate standards for small and medium-sized entities (SMEs).

 

Introduction:

A set of international accounting and reporting standards that will help to harmonize company financial information, improve the transparency of accounting, and ensure that investors receive more accurate and consistent reports. Statements of International Accounting Standards issued by the Board of the International Accounting Standards Committee (IASC) between 1973 and 2001 are designated International Accounting Standards.

International Accounting Standards (IASs) were issued by the IASC from 1973 to 2000. The IASB replaced the IASC in 2001. Since then, the IASB has amended some IASs and has proposed to amend others, has replaced some IASs with new International Financial Reporting Standards (IFRSs), and has adopted or proposed certain new IFRSs on topics for which there was no previous IAS. Through committees, both the IASC and the IASB also have issued Interpretations of Standards.

The Companies Act 1994, which replaced the Companies Act 1913, provides the requirements for preparation and publication of financial statements, disclosures, among other provisions. However, in most cases, the Act lacks clarity with regard to statutory requirements on disclosures in the financial statements of the incorporated companies. The formats for presentation of financial statements and requirements on disclosures prescribed in the Act need updating or removing. Moreover, some accounting requirements prescribed by the Act are incompatible with International Accounting Standards (IAS). For example, contrary to IAS, the Companies Act requires capitalization of gains and losses arising from changes in foreign exchange rates under all circumstances. Inconsistencies between IAS and the Companies Act need to be eliminated. The committee, which has been formed by the Government for updating the Companies Act, should take it into consideration.

 Accounting requirements set by the Insurance Companies Act 1991 are in addition to the requirements set by Companies Act 1994. The Insurance Companies Act prescribes the format of balance sheet and income statement, including disclosure requirements that each insurance must follow for regulatory reporting to the Insuranceing Inspection Department of the Bangladesh Insurance. The same accounting and financial reporting rules are required to be followed by insurances in preparing financial statements for external users. The Insurance Companies Act empowered the Bangladesh Insurance to approve appointment of insurance auditors. In practice, the Bangladesh Insurance maintains a list of approved auditors. The list contains both large and small audit firms.

International Accounting Standards (IASs) were issued by the IASC from 1973 to 2000. The IASB replaced the IASC in 2001. Since then, the IASB has amended some IASs and has proposed to amend others, has replaced some IASs with new International Financial Reporting Standards (IFRSs), and has adopted or proposed certain new IFRSs on topics for which there was no previous IAS. Through committees, both the IASC and the IASB also have issued Interpretations of Standards.

Acountants, ICAB regulates its members; however, it has no legal mandate for setting accounting standards. Despite that, ICAB develops and issues BAS, which are not legally binding by corporate management. The ICAB expects its members, who prepare and audit financial statements, to observe the local standards. The ICAB has a standard-setting committee that selects particular IAS as the basis for drafting BAS. The BAS is prepared by adapting IAS to reflect specific local requirements under Bangladesh laws and regulations. The draft BAS is submitted to the Council of the ICAB for discussion, finalization, and adoption.

 

Insurance sector in Bangladesh:

There are various insurance companies are existing in our Bangladesh. Some companies are as follows:

AGRANINS( Agrani Insurance Co. Ltd. )
GLOBALINS( Global Insurance Ltd. )
POPULARLIF( Popular Life Insurance Co. Ltd. )
FAREASTLIF( Fareast Islami Life Insurance Co. Ltd. )
MEGHNALIFE( Meghna Life Insurance Co. Ltd. )
NITOLINS( Nitol Insurance Co. Ltd. )
PROGRESLIF( Progressive Life Insurance Co. Ltd. )
ASIAPACINS( Asia Pacific General Insurance Co. Ltd. )
SONARBAINS( Sonar Bangla Insurance Ltd. )
PRAGATILIF( Pragati Life Insurance Ltd. )
PRIMELIFE( Prime Islami Life Insurance Ltd. )
PARAMOUNT( Paramount Insurance Company Ltd. )
CITYGENINS( City General Insurance Co. Ltd. )
CONTININS( Continental Insurance Ltd. )
TAKAFULINS( Takaful Islami Insurance Limited )
STANDARINS( Standard Insurance Limited )
NORTHRNINS (Northern General Insurance Company Ltd. )
REPUBLIC( Republic Insurance Company Limited )
ASIAINS( Asia Insurance Limited )
RUPALILIFE( Rupali Life Insurance Company Limited )

Financial footing with an Authorized Capital BD Tk. 300 million out of which sponsor Directors paid up capital of BD Tk. 60 million. We have already been taken steps to float public share of BD Tk. 90 million. The main features of the Company is stated as below-

  • The Company is equipped with a team of highly qualified young and experienced management personnel headed by professionally qualified Managing Director Mr. Md. Ezhar Hossain ABIA.
  • Within the frame work of existing tariff, this Company charges the most economic and competitive premium rate ensuring maximum security at minimum cost.• The Company has got necessary Re-insurance arrangement under which it can underwrite any risk of any value.
  • This Company takes utmost care in handling and settling claims with due promptitude with a view to giving timely indemnity to the unfortunate members of the clientele.
    Asia Insurance Limited is a leading general insurance company in private sector with a sound and strong
    The sponsor Directors of the Company are renowned business magnets and reputed Industrialists in the Country. Mr. Yussuf Abdullah Harun FCA, former President of the FBCCI is leading the Company as Chairman of the Board.

 

Company Profile :
                            ASIA INSURANCE
Date of Incorporation:30th April 2000
Date of Commencement of Business :30th April 2000
Date of Registration to Carry on General Insurance Business:30th May 2000
Registered & Head Office :T.K Bhaban (7th Floor), 13 Karwan Bazar, Dhaka-1215, Bangladesh.
Authorized Share Capital:Tk. 30,00,00,000/- cr which is dividend into Tk. 30,00,000/- shares of
Tk.100/- each.
Approved Paid-up Capital:Tk.15,00,00,000/- which is divided into 15,00,000 shares of  Tk. 100/- each
Present Paid-up Capital:Tk. 6,00,00,000/- which is divided into 6,00,000 shares of   Tk. 100/- each,
ownership of the Sponsor Shareholders.
Chairman:Mr. Yussuf Abdullah Harun, FCA
Vice-Chairman:Mr. Mohammed Jamal Ullah
Chairman (Executive Committee):Mr. Abul Bashar Choudhury
Managing Director:Mr. Md. Ezhar Hossain,ABIA
Company Secretary:Mr. Md. Atique Ullah Majumder, LL.B. (Hons.) LL. M.

 

Federal Insurance

Company Profile

Federal Insurance Company Limited is a name in the field of Insurance Industry in Bangladesh representing a  perfect combination of expert knowledge and diverse experience. The board of directors of the company  consists of leading industrialists, exporters, importers and businessmen of the country who play a major role in the sphere of trade, commerce and industry including insurance business. The  company was registered on the 11th November, 1987 and obtained Insurance Registration Certificate on the 17th November and was formally inaugurated on the 20th December, 1987 for underwriting Marine, Fire, Motor, Personal Accident, Aviation and miscellaneous Insurances.

The vast experience of the members of the Board of Directors of the Company, their financial standing, personal image and social status coupled with technically qualified, highly experienced and a dedicated management team have made this Company one of the leading private general insurance organizations in this country within a very short period.

CAPITAL STRUCTURE OF THE COMPANY

Authorized Capital                : TK. 2,00,00,000 /=

Issued, Subscribed

and Paid Up Capital         : Tk. 9,10,69,400 /=

 

PRAGATI  INSURANCE  LIMITED

It was established in 1986. A group of young entrepreneurs of Bangladesh who had earlier launched a commercial Bank in the private sector sponsored the company with 30 million Taka capital. Sponsors included shipping magnets, Engineers, Road Builders, Top Garment Exporters and Importers.

Market size of Bangladesh in the non-life sector was Tk. 1,050 million in 1986. It has grown to Tk. 5,967.119 million in 2006. With the arrival of private sector power companies like AES, gas giants like UNOCAL, SHELL and discovery of new off shore gas in the Bay of Bengal and other private sector infrastructure industry in the country, it is expected that there would be quantum jump in the non-life insurance premium portfolio in Bangladesh once the decision as to utilization or export of gas is taken by the Govt.

Besides, we insure all traditional lines of non-life insurance businesses viz. – Fire & allied risks including flood, cyclone, earthquake, Typhoon, malicious damage, burglary, riot, strike, damage, house breaking, industrial all risks, DOS, machinery break-down, loss of profit, business interruption, CAR/EAR, personal accident including workmen compensation, motor insurance of all descriptions & value, Travel medical & medical insurance.

Paid-up capital of the company is Tk.188.83 million and Reserves including capital reserves stood at Tk.784.92 million thus making an equity base of Tk.780.51 million as of December 2006.

Total Asset as of 31st December, 2005 stood  at over Tk.1,404.54 million.

Investment
Company’s investment portfolio is well balanced. Position in brief, as of December, 2003, stood as below:

Amount (Tk.)
Govt. BondTk.4,500,000
Shares & Debentures
(Revalued as per IAS-25 )
Tk.215,725,829
Land (Freehold)Tk. 356,626,207
Land & BuildingTk. 175,294,893
TotalTk. 752,146,929


Claim Settlement:
Client’s service and prompt settlement of claims are the key to the success and growth of the company. Claims are settled immediately on completion of the required formalities by the insured and the surveyors. The company has settled claims of over Tk. 1,764.40 million since it started operation in 1986 till 2005. The gross premium earned and gross claims settled during the last 5(five) years stood as under:

 

(Taka In Million)

20022003200420052006
Gross Premium earned350.39468.74507.70632.07695.43
Gross claim settled126.64254.79126.38183.22314.39

Re-Insurance arrangement: Company’ portfolio is adequately reinsured both at home and abroad. Fire and allied risks are covered by surplus and Auto-Fac Treaties. Marine Cargo risks are also covered by surplus & Auto-Fac Treaties. Motor risks are covered by 3 layer XL  Treaties. Engineering and Misc. risks are covered by Surplus Treaty. The company has also cover for fire and marine cargo own retained portfolio. Company’s gross premium income, Reinsurance cession  and net premium retention for the year 2005 were as under (Taka in Million):

FireMarineMotor  & MiscTotal

 

Gross premium258277160695
Reinsurance
Cessions
198.93132.8925.28357.10
Retained
premium
45.04136.2093.75274.99

Performence at a glance

Taka in Million

 FINANCIAL PERFORMANCE

2004 2005200620072008
Gross Premium507.70632.07 965.43 802.76979.08
Net Premium234.15274.97303.68341.97412.81
Net claim94.9056.3263.0658.4248.65
Underwriting profit47.8254.0364.1877.9099.24
Investment income23.6437.5137.0974.7469.84
Income from financial services & capital gain24.6427.2239.8846.7249.46
Net profit before tax75.7198.35121.97176.84198.82
Net profit after tax54.9678.3594.47142.66118.07
SHARE CAPITAL AND RESERVE
Paid-up Capital151.09188.83217.16249.73

 

337.13
Share holders Equity766.99780.51948.141865.56

 

2023.56
Total Reserves779.29784.92882.911787.361686.37

Assets
Investment in Shares and Securities169.55163.35220.22242.58361.64
Cash, FDR and Bank Balances380.93344.67475.59510.34532.12
Land418.89420.57356.63849.701322.16
Total Assets1,380.241,404.541,546.01

 

2,449.02662.46

RATIOS
Dividend in Percent20+25(Stock)15+15(Stock)15+15(Stock)35(Stock)20+15(Stock)
EPS36.4041.4956.1756.7846.84
P/E Times19.299.456.948.4520.28
Solvency Surplus830.80863.641,022.321,899.002044.48

 

Other Activities

Financial Operation

Pragati has been in financial sector operation like share underwriting, trusteeship to the debenture issues, trading of shares and other securities at both primary and secondary market.

Pragati-RPR Centre

Pragati has built a 16 storied high rise building at Kawran Bazar, Dhaka -1215 under a joint venture programme with Rhone Poulenc Rorer (RPR) Bangladesh Ltd which has completely changed the sky line of the area. Out of 16, 4 floors (2nd to 5th) belong to RPR and rest 12 floors belong to Pragati. The Head Office of the company is situated at the 12th, 13th & 14th floors.

Pragati has a big chunk of land measuring 86 kathas in the prime location of Dhaka. The land is situated on the corner of Panthapath and Sonargaon Road crossing opposite Sonargaon Hotel. Various alternatives are being examined by the company for proper utilization of the land.Land Development

 

Rupali Insurance Ltd

Under the prudent leadership and unstinted support from the Board of Directors Rupali Insurance Company diversified it’s activities to include a wide range of Insurance Services with a net work of 42 branches in Bangladesh. It is a matter of pride that a man of great personality, well-reputed industrialist and Ex-President of Bangladesh Garment Manufacturers and Exporters Association (BGMEA) Mr. Mostafa Golam Quddus is the Chairman of the Board of Directors of the Company.

It is also worth mentioning that the Ex-President of Bangladesh Garment Manufacturers and Exporters Association (BGMEA) Mr. Kazi Maniruzzaman a leading industrialist and a man of reputation is one of the Directors of the Company.

We have the pleasure to add that Mr. M. Azizul Huq Former Inspector General of Police, Government of the People’s Republic of Bangladesh & Former Advisor to the Caretaker Government of Bangladesh joined the Company as Management and Financial Consultant in 1998 after retirement.

The Company is managed by a team of highly qualified and experienced professionals headed by the Managing Director Mr. P. K. Roy, FCA, FCS having vast expertise and experience in the field of Insurance, Re-insurance and Financial Management to his credit.

 

Paid up Capital:

The Company started its functioning with Paid up Capital of Tk.30.00 million as subscribed by the sponsor shareholders and it has gone into public subscription in 1995 for share of Tk.30.00 million at 50% premium. The paid-up capital of the company is now 60.00 million. Tabulation of capital structures of our Company is shown as under:-

Capital Structure

[ Taka in million ]
Authorized Capital200.00
Paid-up Capital :
Sponsors               57.13
Public Subscription  57.13
Paid-up Capital114.26

 

Reserve:

Reserve for Exceptional Losses in 2008 stood at Tk. 169 million including Tk. 8 million raised during the year out of net profit. Besides, Reserve for Unexpired Risks stood at Tk. 122 million. It may be mentioned here that the reserve for Exceptional Losses is higher than the Paid-up-Capital of Tk. 114 million.

Assets:

  • Total assets of the company stood at Tk. 615 million in 2008 compared to Tk. 559 million in 2007. This includes the book value of the 12 storied building of the Company at Tk. 101 million, the present market value of which is much higher. Six floors measuring 13,512 sft. of the building have been leased out to different parties including 1 life Insurance Companies.

Underwriting profit in the year 2008 amounted to Tk. 43 million compared to Tk. 29 Million in 2007. Net profit before tax stood at Tk. 53 million as against Tk. 37 million in 2007.

 

IFRS AND IAS followed by Bangladeshi Insurance companies:

Neither insurance company in Bangladesh follow IFRS strictly. But companies follow IAS to some extent.

Here we give some IAS which are followed by the insurance companies in different fashion.

 

Recommendation:                                      

In Bangladesh the insurance companies do not follow the IFRS rules only some of the leading banks follow the IFRS rules. The insurance companies clearly follow the relative act of IAS. So it is mandatory for these companies to follow IFRS rules clearly to provide related parties adequate information.

Steps should be taken to ensure that the legal and regulatory requirements on accounting and financial reporting fully protect the public interest. This recommendation might necessitate the enactment of a new Financial Reporting Act and the repeal of the provisions on accounting and financial reporting in Companies Act 1994, Insurance Companies And other related regulations. It will be easy to update accounting and financial reporting requirements from time to time by simply amending the single Financial Reporting Act. The new Act should focus on making legal arrangements for the following:

Fully adopt IAS/IFRS and ISA (International Standard of Auditing) without modifications and ensure mandatory observance of these standards. Adopt IAS/IFRS and related interpretations issued by the IASB as legally enforceable standards applicable to the preparation of the legal entity and consolidated financial statements of all public interest entities. The audit of financial statements prepared by public interest entities should be carried out in accordance with ISA (International Standard of Auditing) and other related pronouncements issued by IFAC. Also mandate the IFAC Code of Ethics for Professional Accountants for all practicing accountants and auditors.

 

Conclusion:

International Accounting Standards (IASs) were issued by the IASC from 1973 to 2000. The IASB replaced the IASC in 2001. Since then, the IASB has amended some IASs and has proposed to amend others, has replaced some IASs with new International Financial Reporting Standards (IFRSs), and has adopted or proposed certain new IFRSs on topics for which there was no previous IAS. Through committees, both the IASC and the IASB also have issued Interpretations of Standards.

The ICMAB can play a vital role in the implementation of IAS since it provides training to existing and potential corporate accountants. To ensure IAS compliance when preparing corporate financial statements, corporate accountants should have access to effective and high-quality training programs. ICMAB capacity should be strengthened to provide effective training on practical application of IAS.