Financial Statement analysis of Life Insurance company

Introduction about Insurance:

Insurance is a system of spreading the risk of one onto the
shoulders of many. While it becomes somewhat impossible for a man to bear by
himself 100% loss to his own property or interest arising out of an unforeseen
contingency, insurance is a method or process which distributes the burden of
the loss on a number of persons within the group formed for this particular
purpose. Basic human trait is to be averse to the idea of risk taking. Insurance,
whether life or non-life, provides people with a reasonable degree of security
and assurance that they will be protected in the event of a calamity or failure of
any sort. Insurance may be described as a social device to reduce or eliminate
risk of loss to life and property. Under the plan of insurance, a large number of
people associate themselves by sharing risks attached to individuals. The risks,
which can be insured against, include fire, the perils of sea, death and accidents
and burglary. Any risk contingent upon these, may be insured against at a
premium commensurate with the risk involved. Thus collective bearing of risk
is insurance.

History of Indian Insurance

The history of life insurance in India dates back to 1818 when it

was conceived as a means to provide for English Widows. Interestingly in those
days a higher premium was charged for Indian lives than the non-Indian lives as
Indian lives were considered more risky for coverage. The Bombay Mutual Life
Insurance Society started its business in 1870. It was the first company to
charge same premium for both Indian and non-Indian lives. The Oriental
Assurance Company was established in 1880. The General insurance business
in India, on the other hand, can trace its roots to the Triton (Tital) Insurance
Company Limited, the first general insurance company established in the year
1850 in Calcutta by the British. Till the end of nineteenth century insurance
business was almost entirely in the hands of overseas companies.

Insurance can be defined as assurance for uncertainty. Insurance is about

something going wrong. Its’ often about things going right.; One of the
Wonders of human nature is that we never believe anything can actually go
wrong.

The insurance sector in India has come a full circle from being an open
competitive market to nationalization and back to liberalized market again.
Tracking the development in Indian insurance sector reveals the 360 degree turn
witnessed over a period of almost two centuries.

The business of life insurance in Indian in its existing form started in India in
the year 1818 with the establishment of Oriental Life. Insurance Company in
Calcutta

About Life Insurance :

Life Insurance is a contract for payment of a sum of money to the person

assured (or failing him/her, to the person entitled to receive the same) on the
happening of the event insured against. Usually the contract provides for the
payment of an amount on the date of maturity or at specified dates at periodic
intervals or at unfortunate death, if it occurs earlier. Among other things, the
contract also provides for the payment of premium periodically to the
Corporation by the assured. Life insurance is universally acknowledged to be
an institution which eliminates 'risk', substituting certainty for uncertainty and
comes to the timely aid of the family in the unfortunate event of death of the
breadwinner. By and large, life insurance is civilization’s partial solution to the
problems caused by death. Life insurance, in short, is concerned with two
hazards that stand across the life-path of every person: that of dying
prematurely leaving a dependent family to fend for itself and that of living to
old age without visible means of support.

Objectives

1. To identify the effect of Leverage, underwriting, profitability, liquidity,

Management competence index on the financial performance of insurance
companies.
2. To provide some conclusions and recommendations for top management
and decision makers at insurance companies to deal with variables that
affect financial performance In order to enhance their company financial
performance.
3. Highlights the importance of research through the development of the
work of insurance institutions
4. Data analysis and provide the best indicators for the decision maker.
5. To understand company’s position and performance better.
6. To access the earning capacity or profitability of the firm.
7. To access the operational efficiency and managerial effectiveness.
8. To access the short term as well as long term solvency of the firm
9. To identify the reasons for change in profitability and financial position
of the firm.
10. To make inter firm comparison.
11. To make forecast about future prospects of a firm.
12. To assess the progress of a firm over a period of time.
13. To help in decision making and control.