A

RESEARCH REPORT
ON

“Comparative Performance
Analysis of Life Insurance
Companies”

Submitted In Partial Fulfillment for the

Award of Degree of
POST GRADUATION DIPLOMA IN MANAGEMENT
2013-2015

SUBMITTED TO: SUBMITTED BY:

 ACKNOWLEDGEMENT

The Project titled Comparative Performance Analysis of Life Insurance Companies is

an effort to throw light on Performance Analysis. I have completed this project based on
research, under the guidance of Mr. Ansul Sharma, my faculty guide. I owe enormous
intellectual debt to her as she augmented my knowledge in the field of Performance
Analysis Of Life Insurance Companies and helped me learn about the topic and gave me
valuable insight into the subject matter. My increased spectrum of knowledge in this field is
the result of her constant supervision and direction that has helped me to absorb relevant and
high quality information.

I would like to express my profound gratitude towards GNIOT College Of Management

for giving me the opportunity to undertake the above research.

Last but not the least, I feel indebted to all those persons and organizations which have
helped me directly or indirectly in successful completion of this study.

Subhashis Sadhukhan
 DECLARATION

I Subhashis Sadhukhan a student of PGDM of GNIOT College Of

Management respectively hereby declare that the Project Report on
“Comparative Performance Analysis of Life Insurance Companies” is the
outcome of my own work and the same has not been submitted to any other
University/Institute for the award of any degree or any Professional diploma.

Subhashis Sadhukhan
 OBJECTIVES OF THE STUDY

Working capital is synonymous with current assets. There is no denying the fact that working
capital is one of the most important tool in the hands of the company for the successful
operation of the business. It is imperative for the finance manager to properly assess the
future requirement of working capital in the company. Keeping in the view this objective in
mind, the company assigned me this challenging project of estimating the future needs of
working capital of the company. The project itself speaks for the importance of the study.

 To study the insurance organization’s Performance Analysis.

 To analyze the Ratio Analysis of the insurance companies.
 To analyze the working capital.
 To study the growth LIC, HDFC, ICICI PRUDENTIAL & BAJAJ ALLIANZ.
 TABLE OF CONTENTS

 EXECUTIVE SUMMARY

 INTRODUCTION

 INTRODUCTION OF THE COMPANY

 PERFORMANCE ANALYSIS OF INSURANCE COMPANIES

 RESEARCH METHODOLOGY

 NEED FOR WORKING CAPITAL

 RATIO ANALYSIS

 RECOMMENDATION

 LIMITATIONS OF THE STUDY

 CONCLUSION

 BIBLIOGRAPHY

 ANNEXURES
EXECUTIVE SUMMARY
The insurance sector in India has come 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 reveals the 360-degree turn
witnessed over a period of almost 190 years.

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

Some of the important milestones in the life insurance business in India are:
 1912 - The Indian Life Assurance Companies Act enacted as the first statute to
regulate the life insurance business.
 1928 - The Indian Insurance Companies Act enacted to enable the government to
collect statistical information about both life and non-life insurance businesses.
 1938 - Earlier legislation consolidated and amended to by the Insurance Act with the
objective of protecting the interests of the insuring public.
 1956 - 245 Indian and foreign insurers and provident societies taken over by the
central government and nationalized. LIC formed by an Act of Parliament, viz. LIC
Act, 1956, with a capital contribution of Rs. 5 crore from the Government of India.

The General insurance business in India, on the other hand, can trace its roots to the
Triton Insurance Company Ltd., the first general insurance company established in
the year 1850 in Calcutta by the British.

Some of the important milestones in the general insurance business in India are:
 1907 - The Indian Mercantile Insurance Ltd. set up, the first company to transact all
classes of general insurance business.
 1957 - General Insurance Council, a wing of the Insurance Association of India,
frames a code of conduct for ensuring fair conduct and sound business practices.
 1968 - The Insurance Act amended to regulate investments and set minimum solvency
margins and the Tariff Advisory Committee set up.
 1972 - The General Insurance Business (Nationalization) Act, 1972 nationalized the
general insurance business in India with effect from 1st January 1973.

107 insurers amalgamated and grouped into four companies viz. the National
Insurance Company Ltd., the New India Assurance Company Ltd., the Oriental
Insurance Company Ltd. and the United India Insurance Company Ltd. GIC
incorporated as a company.
 INTRODUCTION

Almost 4,500 years ago, in the ancient land of Babylonia, traders used to bear risk of the
caravan trade by giving loans that had to be later repaid with interest when the goods arrived
safely. In 2100 BC, the Code of Hammurabi granted legal status to the practice that, perhaps,
was how insurance made its beginning.

Life insurance had its origins in ancient Rome, where citizens formed burial clubs that would
meet the funeral expenses of its members as well as help survivors by making some
payments.

As European civilization progressed, its social institutions and welfare practices also got
more and more refined. With the discovery of new lands, sea routes and the consequent
growth in trade, medieval guilds took it upon themselves to protect their member traders from
loss on account of fire, shipwrecks and the like.

Since most of the trade took place by sea, there was also the fear of pirates. So these guilds
even offered ransom for members held captive by pirates. Burial expenses and support in
times of sickness and poverty were other services offered. Essentially, all these revolved
around the concept of insurance or risk coverage. That's how old these concepts are, really.

In 1347, in Genoa, European maritime nations entered into the earliest known insurance
contract and decided to accept marine insurance as a practice.

The first step...

Insurance as we know it today owes its existence to 17th century England. In fact, it began
taking shape in 1688 at a rather interesting place called Lloyd's Coffee House in London,
where merchants, ship-owners and underwriters met to discuss and transact business. By the
end of the 18th century, Lloyd's had brewed enough business to become one of the first
modern insurance companies.

Insurance and Myth...

Back to the 17th century. In 1693, astronomer Edmond Halley constructed the first mortality
table to provide a link between the life insurance premium and the average life spans based
on statistical laws of mortality and compound interest. In 1756, Joseph Dodson reworked the
table, linking premium rate to age.

Enter companies...
The first stock companies to get into the business of insurance were chartered in England in
1720. The year 1735 saw the birth of the first insurance company in the American colonies in
Charleston, SC. In 1759, the Presbyterian Synod of Philadelphia sponsored the first life
insurance corporation in America for the benefit of ministers and their dependents. However,
it was after 1840 that life insurance really took off in a big way. The trigger: reducing
opposition from religious groups.

The growing years...

The 19th century saw huge developments in the field of insurance, with newer products
being devised to meet the growing needs of urbanization and industrialization. In 1835, the
infamous New York fire drew people's attention to the need to provide for sudden and large
losses. Two years later, Massachusetts became the first state to require companies by law to
maintain such reserves. The great Chicago fire of 1871 further emphasized how fires can
cause huge losses in densely populated modern cities. The practice of reinsurance, wherein
the risks are spread among several companies, was devised specifically for such situations.

There were more offshoots of the process of industrialization. In 1897, the British
government passed the Workmen's Compensation Act, which made it mandatory for a
company to insure its employees against industrial accidents.With the advent of the
automobile, public liability insurance, which first made its appearance in the 1880s, gained
importance and acceptance.

In the 19th century, many societies were founded to insure the life and health of their
members, while fraternal orders provided low-cost, members-only insurance.

Even today, such fraternal orders continue to provide insurance coverage to members as do
most labour organizations. Many employers sponsor group insurance policies for their
employees, providing not just life insurance, but sickness and accident benefits and old-age
pensions. Employees contribute a certain percentage of the premium for these policies.
In India...

Insurance in India can be traced back to the Vedas. For instance, yogakshema, the name of
Life Insurance Corporation of India's corporate headquarters, is derived from the Rig Veda.
The term suggests that a form of "community insurance" was prevalent around 1000 BC and
practiced by the Aryans. Burial societies of the kind found in ancient Rome were formed in
the Buddhist period to help families build houses, protect widows and children.

Bombay Mutual Assurance Society, the first Indian life assurance society, was formed in
1870. Other companies like Oriental, Bharat and Empire of India were also set up in the
1870-90s. It was during the swadeshi movement in the early 20th century that insurance
witnessed a big boom in India with several more companies being set up.

As these companies grew, the government began to exercise control on them. The Insurance
Act was passed in 1912, followed by a detailed and amended Insurance Act of 1938 that
looked into investments, expenditure and management of these companies' funds. By the
mid-1950s, there were around 170 insurance companies and 80 provident fund societies in
the country's life insurance scene. However, in the absence of regulatory systems, scams and
irregularities were almost a way of life at most of these companies.

As a result, the government decided nationalize the life assurance business in India. The Life
Insurance Corporation of India was set up in 1956 to take over around 250 life companies.
For years thereafter, insurance remained a monopoly of the public sector. It was only after
seven years of deliberation and debate - after the RN Malhotra Committee report of 1994
became the first serious document calling for the re-opening up of the insurance sector to
private players -- that the sector was finally opened up to private players in 2001.

The Insurance Regulatory & Development Authority, an autonomous insurance regulator set
up in 2000, has extensive powers to oversee the insurance business and regulate in a manner
that will safeguard the interests of the insured.

The domestic insurance industry in India is estimated to be around US$ 60.5 billion by 2010, of which
US$ 35 billion will come from rural and semi-urban areas. While the life insurance market is expected
to grow to US$ 35 billion, non-life insurance market will touch an estimated US$ 25 billion. 
With the largest number of life insurance policies in force in the world, India’s insurance
sector accounted for 4.1 per cent of GDP in 2006-07, up from 1.2 per cent in 1999-2000, far
ahead of China where insurance accounts for just 1.7 per cent of the GDP and even the US
where insurance penetration stands at 4 per cent of the GDP. One area that continues to cause
concern is the number of customer grievances in insurance, especially in a few specific
classes. This calls for more transparency in designing the contract wording and on insisting
that the applicant is sufficiently informed about the coverage and more particularly the
exclusions. In addition, the legislation itself requires to be transformed to meet the needs of
the emerging markets. The Law Commission of India which has gone extensively into the
various insurance laws has submitted its report. Further, the expert committee headed by Mr.
K.P. Narasimhan has also submitted its proposals requiring amendments to the laws. The
demand for health insurance covers has seen a healthy increase, and today the sector is the
fastest growing segment in the non-life insurance industry in India, which grew at over 40%
last year. It is also emerging as an increasingly significant line of business for life insurance
companies. During the last five years, the premium from health insurance products in non-life
companies has grown from 675 crores in 2001-02 to Rs 3200 crores in 2006-07, almost 5
times its level 5 years back. While this rate of growth appears to be very healthy, it is on a
low base, and health insurance penetration in the country continues to be low. Only about 25
million persons are presently covered for health through commercial insurance, in a country
of over 1.1 billion people. Overall, the Indian health sector is still characterized by the near
absence of any significant risk protection against major health-related expenditure, as
insurance and other organized forms of payment for health services, including ESIS, CGHS
and other such schemes barely constitute a tenth of all health expenditure in the country.
Almost four-fifths of the health spending in the country is private, out-of-pocket expenditure.
In the absence of such protection, the financial impact of hospitalization can be very
pronounced, and indeed is reported as one of the leading causes of impoverishment in the
country

Indian insurance companies recorded a 19.9 per cent growth in premium in dollar terms
(adjusted for inflation) in 2006-07, compared to the world market growth rate of 2.9 per cent.
This rate of growth of the industry looks particularly impressive when seen against the fact
that the combined penetration of both life and non-life is less than 2 per cent of the GDP
compared to world average of 7.52 per cent. Clearly, the scope for growth is enormous.
Led by the Life Insurance Corporation (LIC), the life insurance industry registered a growth
of 110 per cent in fiscal 2006-07, taking the total business to US$ 19.2 billion from the
previous year’s US$ 9.1 billion. The life insurance market has grown rapidly over the past six
years, with new business premiums growing at over 40 per cent per year owing to the entry of
a host of new players with significant growth aspirations and capital commitments.

The total life insurance market premiums is likely to more than double from the current US$
40 billion to US$ 80-US$100 billion by 2012, says a study by McKinsey. The study titled
‘India Insurance 2012: Fortune Favours the Bold,’ expects a rise in premiums between 5.1
and 6.2 per cent of the GDP in 2012 from the current 4.1 per cent driven by greater insurance
intensity per capita as the average per capita income increases and rise in penetration in urban
and rural areas. The life insurance premium contributions per capita have jumped from a
little over US$ 7 in 1999-2000 (pre-liberalization) to US$ 38.5 in 2006-07.

Life insurance penetration in India - which was less than 1 per cent till 1990-91 - increased to
2.53 per cent in 2005, and to 3 per cent in 2006-07. While the impetus for growth has come
from both public and private insurers, the number of players in this segment have also
increased to 16 (15 in private sector), with Life Insurance Corporation (LIC) being the
dominant player (market share of over 74 per cent).

The general insurance industry grew 11.6 per cent between April and November in 2007-08
with robust performances by private players. The 13 non-life insurers collected US$ 4.7
billion in premium against US$ 4.2 billion in the same period last year. While the public
sector could increase its premiums by just 3.57 per cent, 9 private sector players clocked
premium growth of 26.49 per cent. Private sector players’ market share has grown to about
40 per cent in FY08 as compared to the public sector’s 60 per cent.

INSURANCE SECTOR POLICY BY GOVERNMENT

• Foreign direct investment up to 26 per cent is permitted under the automatic route
subject to obtaining a license from the IRDA.

• IRDA has removed administered pricing mechanism, i.e. de-tariffing in respect of fire
and engineering along with motor insurance of general insurance for premium,
effective from 1 January, 2007.

• The control rates on fire, engineering and workmen’s compensation insurance classes
has been removed from 1 September, 2007.
• Some state governments have also taken a dynamic role in this sector. The
Government of Andhra Pradesh after piloting the ‘Arogya Sri’ health insurance
scheme in three districts plans to issue health cards to 18 million BPL (below the
poverty line) families. As a result, about 60 million of the State’s 80 million people
will have insurance cover. The Karnataka Government has partnered with the private
sector to provide coverage at a low cost in the Yeshaswini Insurance scheme.
Launched in 2002, the scheme provides coverage for major surgical operations,
including those pertaining to pre-existing conditions, to Indian farmers who
previously had no access to insurance.

With less than 10 per cent of the population having some sort of health insurance, the
potential market for health insurance is huge. A McKinsey-CII report estimates the number of
potential insurable lives at 315 million. In 2006-07, the fast-growing Indian health insurance
business grew 40 per cent to US$ 812 million. The sector is projected to grow to US$ 5.75
billion by 2010.

Some Developments in The Indian Insurance Industry follows;

• Societe Generale has entered into a joint venture with India Bulls Financial Services
for a life insurance joint venture in India through its French life insurance company
Sogecap.

• Tata have formed a joint venture with US based American Int. Group (AIG) Max
India has formed a joint venture with US based life insurance company, New York
Life.

• Indian Farmers’ Fertilizer Cooperative (IFFCO) has formed a joint venture with
Tokio Marine and Fire of Japan to form IFFCO Tokio General Insurance Company.

• State Bank of India has formed a joint venture with Cardiff SA of France (the
insurance arm of BNP Paribas Bank) as SBICardiff Life.

• ICICI has joined hands with UK based Prudential- ICICI Prudential Life Insurance.

Insurance in India has been spurred by product innovation, streamlining of sales and
distribution channels along with targeted advertising and marketing campaigns.

The kid’s insurance segment in the insurance sector is witnessing increased activity.
Children’s products such as ICICI Prudential Life’s ‘SmartKid’, Birla Sun Life’s ‘Children’s
Dream Plan’, or HDFC Standard ‘Life’s Young Star Plus’, are on a consistent growth path.
According to industry estimates, currently, 20-30 per cent of business of many companies
comes from children-specific insurance policies alone.

Emerging lifestyle trends amid a changing fabric of the Indian society have also modified
social and financial behaviour. For instance, an increase in the number of working women
has led to a demand for life insurance policies, which in turn has helped women through a
micro-entrepreneurship initiative (women have flexibility - managing home and being
financially independent as distributors of insurance).

In the Health segment, currently, health insurance products in India narrowly cover
hospitalization benefits with a sum-assured limit. India’s private health insurance sector could
cover a number of secondary and tertiary preventive measures such as screening for cancer or
diabetes, and preventive health check ups as well as disease management programs for
specific conditions, which would be beneficial for insured and insurers alike. The
combination of rising income levels and awareness as well as broader coverage in India is
bound to grow overall healthcare costs. This is the experience in nearly every developed
country, where healthcare costs have been growing at a rapid rate for decades, for most years
well in excess of aggregate inflation. In response, health insurers in other markets are
developing new techniques to achieve better medical outcomes at lower costs. A number of
the tools developed in that context, such as network tiering for consumers and episode
contracting for providers appear relevant for an emerging market setting.

Private sector group and individual health insurance coverage in India today focuses on
hospitalization benefits with a limited sum assured. While this provides valuable coverage,
preventive care techniques are important to improve medical outcomes and to provide cost-
effective health insurance. In India, there remains a huge need for simple primary prevention
that largely falls into the public domain. However, the private health insurance can make
important contributions at the secondary and tertiary prevention levels.

The rapid growth of insurance industry, especially in the life segment has brought to the fore
a number of issues which is a vital link between the insured and insurer. In order to spread
the message of insurance to the far corners of the country, the IRDA had enlarged the scope
of the intermediaries’ structure from the traditional tied agents to the corporate agent, micro
insurance agent, the Banc assurance mode and the referral system. Insurers have also adopted
other channels of sales to suit e-selling such as computer points at convenient locations, on-
line insurance purchase etc.
These systems have been in place for some time now, some of them for the last eight years.
Some of the practices that have crept into the system in terms of remuneration or
reimbursement of expenses or incentive schemes and so on require a detailed examination to
ascertain whether they are in conformity with the provision of the Insurance Act and their
impact on the acquisition cost.
 INTRODUCTION OF THE COMPANY

HDFC

The company was incorporated on 14th August 2000 under the name of HDFC
Standard Life Insurance Company Limited.

Their ambition from as far back as October 1995 was to be the first private
company to re-enter the life insurance market in India. On the 23rd of
October 2000, this ambition was realized when HDFC Standard Life was the
only life company to be granted a certificate of registration.

HDFC are the main shareholders in HDFC Standard Life, with 81.4%, while
Standard Life owns 18.6%. Given Standard Life's existing investment in the
HDFC Group, this is the maximum investment allowed under current
regulations.

HDFC and Standard Life have a long and close relationship built upon shared
values and trust. The ambition of HDFC Standard Life is to mirror the
success of the parent companies and be the yardstick by which all other
insurance company's in India are measured.

Their Mission:

They aim to be the top new life insurance company in the market.

This does not just mean being the largest or the most productive company in
the market, rather it is a combination of several things like-

 Customer service of the highest order

 Value for money for customers
 Professionalism in carrying out business
 Innovative products to cater to different needs of different customers
  Use of technology to improve service standards
 Increasing market share

Their Values:

 SECURITY: Providing long term financial security to policy holders

will be their constant Endeavour. We will be doing this by offering life
insurance and pension products.
 TRUST: We appreciate the trust placed by their policy holders in us.
Hence, we will aim to manage their investments very carefully and live
up to this trust.
 INNOVATION: Recognizing the different needs of their customers, we
will be offering a range of innovative products to meet these needs.

Their mission is to be the best new life insurance company in India and these
are the values that will guide us in this.

HDFC has always been market-oriented and dynamic with respect to resource
mobilization as well as its lending Programme. This renders it more than
capable to meet the new challenges that have emerged. Over the years, HDFC
has developed a vast client base of borrowers, depositors, shareholders and
agents, and it hopes to capitalize on this loyal and satisfied client base for
future growth. Internal systems have been developed to be robust and agile,
to take into account changes in the volatile external environment.

HDFC has developed a network of institutions through partnerships with

some of the best institutions in the world, for providing specialized financial
services. Each institution is being fine-tuned for a specific market, while
offering the entire HDFC customer base the highest standards of quality in
product design, facilities and service.

Group Of Companies

 HDFCSLIC
 HDFC Bank
  HDFC Mutual Funds
 HDFC Securities
 HDFC realty.com
 Intelnet
 Credit Information Bureau (India) Limited
The Standard Life Insurance Assurance Company

• Founded in 1825
• Mutual Life Insurance Company since 1925
• Largest mutual life insurance company in Europe
• Assets under management over ₹ 2384907 crores (£244.2 bn) Total
assets under management : ₹ 2384907 Crores
• EEV Operating profit before tax 2013 : ₹ 549390 Crores ( £ 915 m)
• AA2 rated by Standard & Poor’s and Moody’s

Financial Strengths of the company

• Total assets under management: ₹ 2384907 Crores

• EEV Operating profit before tax 2013 : ₹ 549390 Crores

• AA2 rated by Standard & Poor’s and Moody’s

About Standard Life

Standard Life has been looking after its customers for over 180 years, and
currently over 7 million people rely on them for their financial needs. We
have assets under management which are worth more than the combined
market value of Shell, Reuters, Tesco, Cadbury Schweppes and Marks &
Spencer.

Financial Security

Standard Life has the financial strength to remain secure and competitive. We
aim to offer products that provide competitive returns to their customers
while maintaining an adequate level of financial strength to ensure their
security. Like most people, you want to know that your financial future is in
good hands. Standard Life places a great deal of importance on getting your
money to work hard for you; that's why we believe you can have confidence
in us.

Standard Life has been awarded the "Raising Standards" quality mark.
This shows that we:

 use clear language to describe their products on key documents,

 have appropriate products and
 Provide a quality service for our customers.

The quality mark covers products bought by individuals including pensions,

long-term savings and protection. We were independently tested against a
number of rigorous standards. And we have to continue to pass these tests
every year to keep using the quality mark.

Standard Life won the Money Marketing 'Company of the Year' award in
March 2005 for the seventh year running.

Mission statement of HDFCSLIC Ltd.

The company is aim to be the top new life insurance company in the market.

This does not just mean being the largest or the most productive company in

The market, rather it is a combination of several things like:-

 Customer services of the highest order.

 Value for money for customer.
 Professionalism in carrying out business.
 Innovative products to cater to different needs of different customer.
 Use of technology to improve service standard.
 Increasing market share.

Future Plans of HDFCSLIC Ltd.

 To enhance sales by increasing the number of Financial Consultant and

 Corporate agents.

 The company is planning to decentralize its Underwriting facility.

 To increase the Branches to 500 across The India in upcoming year that is 2008

At HDFC Standard Life, we offer a bouquet of insurance solutions to meet every need. We
cater to both, individuals as well as to companies looking to provide benefits to their
employees. This section gives you details of all our products. We have incorporated various
downloadable forms and product details so that you can make an informed choice about
buying a policy.

For individuals, we have a range of protection, investment, pension and savings plans that
assist and nurture dreams apart from providing protection. You can choose from a range of
products to suit your life-stage and needs.

For organisations we have a host of customised solutions that range from Group Term
Insurance, Gratuity, Leave Encashment and Superannuation Products. These affordable plans
apart from providing long term value to the employees help in enhancing goodwill of the
company.

ICICI PRUDENTIAL

ICICI bank is India’s second largest bank with total assets of about Rs. 1 trillion and a
network of about 540 branches and offices and over 1,000 ATMs. ICICI Bank offers a wide
range of banking products and financial services to corporate and retail customers through a
variety of delivery channels and through its specialized subsidiaries and affiliates in the areas
of investment banking, life and non life insurance, venture capital, asset management and
information technology.

ICIC Bank’s equity shares are listed in India on stock exchanges at Chennai, Delhi, Kolkata
and Vadodara, the Stock Exchange, Mumbai and the National Stock Exchange of India
Limited and its American Depositary Receipts (ADRs) are listed on the New York Stock
Exchange (NYSE). The Bank offers a broad spectrum of financial services to individuals and
companies including deposit accounts, commercial banking, mortgagees, car loans, personal
loans, corporate and trade finance, credit and debit cards and other banking services.

About Prudential

Established in 1848, prudential is a leading international financial services company in the

UK, with some US$276 billion funds under-management and more than 13 million customers
worldwide. Prudential has brought to market an integrated range of financial services
products that now includes life assurance, pensions, mutual funds, banking, investment
management and general insurance. In Asia, prudential is UK’s largest life insurance
company with a vast network of 22 life and manual fund operations in twelve countries –
China, Hong Kong, India, Indonesia, Japan, Korea, Malaysia, the Philippines, Singapore,
Taiwan, Thailand and Vietnam. Since 1923, Prudential has championed customer centric
products and services supported by over 60,000 staff and agents across the region.

About the Company (ICICI Prudential)

ICICI and prudential came together in 1993 to provide mutual fund products in India and
today are the largest private sector mutual fund company in India.

ICICI prudential was amongst the first private sector insurance companies to begin operations
in December 2000 after receiving approval from Insurance Regulatory Development
Authority (IRDA).

ICICI Prudential’s equity base stands at Rs. 3.75 billion, with ICIC Bank and Prudential plc
holding 74% and 26% stake respectively. As of December 31, 2002, the company had issued
nearly 230,000 policies with a sum assured of over Rs. 6,500 crore and premium income in
excess of Rs. 340 crore. Today the company is the #1 private life insurers in the country.

ICICI prudential has recruited and trained over 16,000 insurance agents to interface with and
advise customers, and has the highest number amongst private life insurers on the renowned
million-dollar round table (MDRT).

Their latest venture ICICI prudential life plans to take care of the insurance needs at various
stages of life.

ICICI prudential life insurance company has mopped up a premium income of Rs. 75 crore
for the year ended March 31, 2004 reflecting a 106 per cent growth over corresponding
period last year. It has sold 4.7 lacs policies during the year, against one lakh policies sold in
fiscal 2002.

ICICI prudential has cornered about 31 percent of the private sector insurance market, which
today accounts for 10 percent of incremental sales of the entire industry. Average premium is
Rs. 18000+ majority of 1.2 lakh policies sold by ICICI prudential in last quarter of fiscal
2004 were pension and unit-linked plan. Pension products accounts 25 per cent of the sales
giving ICICI prudential an overall industry share of 25 percent.

Protection plans

These are very good plan for those who want protection (especially) for their family because
happiness and security for our family is all that we want. However, the uncertainties of life
often worry you. Unfortunate events can make you are no longer around. Life insurance can
help ease many of those worries. It ensures that your loved ones are adequately provided for
and that their future is secure, no matter what the uncertainty.

Saving Plans

Most endowment policies are a good way of saving for the future. A policy can be designed
to make your savings grow and have them available to you at the end of a fixed number of
years. Or, a policy could provide you with an income every three or four years.
Smart Kid

A plan which gives child the freedom to pursue their dreams, the strength to face challenges,
the guarantee to live life to its fullest whatever be the uncertainty. As parents, your biggest
concern is that of securing the future of your child. In today’s world, with ever increasing
competition, escalating cost of education and uncertain financial markets, it is very important
to plan for your child’s future. It is a plan that provides guaranteed benefits to your child
along with the life insurance cover. Smart kid is so designed that it provides money at all the
critical milestones in his/her life, whatever be the uncertainties.

Save ‘n’ Protect

Being the head of the family requires that you bear quite a few responsibilities. Some of these
include: being able to fund your child’s higher education, your daughter’s wedding, your own
cozy nest and realize all your other dreams.
Cash Back

As an individual you have to be financially prepared for various milestones in your life. If
you are newly married, you need to plan for a baby a few years from now. If you have
teenage children you need to plan for their university education. What you need is a plan
to meet your periodic financial, requirement with the added benefit of insurance
protection.
 Retirement Plans

When a person grows old both the physical capacity as well as the financial capacity of that
person become weak and at some time inefficient and as a result what ever the standard of
living that the person maintained in his young get deteriorated with span of time. It is not in
the power anybody to return the physical strength back to the person but with some
retirement plans i.e. pension plans the financial strength can be regained by the person in
order to maintain his present standard of living.

BAJAJ ALLIANZ

Bajaj Allianz Life Insurance Company Limited is a joint venture between Bajaj Auto
Limited and Allianz AG of Germany. Both enjoy a reputation of expertise, stability and
strength.

Bajaj Allianz Life Insurance received the Insurance Regulatory and Development Authority
(IRDA) certificate of Registration (R3) on May 2nd, 2001 to conduct Life Insurance business
(including Health Insurance business) in India. The Company has an authorized and paid up
capital of Rs 110 crores. Bajaj Auto holds 74% and the remaining 26% is held by Allianz,
AG, Germany.

In its first year of operations, the company has acquired the No. 1 status among the private
life insurers. As on 31st March 2006 Bajaj Allianz Life Insurance maintained its leadership
position by garnering the premium income of Rs.3113 crore. Bajaj Allianz has made a profit
after tax of Rs.52 crores.
Bajaj Allianz today has a network of 42 offices spread across the length and breadth of the
country. From Surat to Siliguri and Jammu to Thiruvananthapuram, all the offices are
interconnected with the Head Office at Pune.

In the first half of the current financial year, 2004-05, Bajaj Allianz garnered a premium
income of Rs. 405 crores, achieving a growth of 84% and registered a 52% growth in Net
profits of Rs.20 Crores over the last year for the same period. In the financial year 2003-04,
the premium earned was Rs.480 Crores, which is a jump of 60% and the profit zoomed by
125% to Rs. 21.6 Crores

Vision
 • To be the first choice insurer for customers.
 • To be the preferred employer for staff in the insurance industry.
 • To be the number one insurer for creating shareholder value

Mission
As a responsible, customer focused market leader, we will strive to understand the insurance
needs of the consumers and translate it into affordable products that deliver value for money.

A Partnership Based on Synergy

Bajaj Allianz Life Insurance Company offers technical excellence in all areas of Traditional
and ULIP Plan of Life Insurance. This partnership successfully combines Bajaj Auto's in-
depth understanding of the local market and extensive distribution network with the global
experience and technical expertise of the Allianz Group. As a registered Indian Insurance
Company and a capital base of Rs. 110 crores, the company is

 Fully licensed to underwrite all lines of Life insurance business.

 With management control by Allianz AG

Individual Plans

 UNITGAIN
A Unit Linked Plan

 RISK CARE
Pure Term Plan
 TERM CARE
Term Plan with Return-of-Premium

 INVESTGAIN
An Endowment Plan

 LIFETIME CARE
Whole Life Plan

 CHILDGAIN
Children's Policy

 LOAN PROTECTOR
A Mortgage Reducing Term Insurance Plan

 CASHGAIN
Money Back Plan

 KEYMAN INSURANCE
A Promising Business Opportunity

 SWARNA VISHRANTI
Retirement Plan

 UNITGAIN PLUS
Unit Link plan with higher allocation

 LIFELONG GAIN PLAN

A lifetime of security for your family

 RIDERS UNITGAIN PLUS

While the basic life insurance

 MAHILAGAIN RIDER
The unique plan that takes care of you and your loved ones.

 UNITGAIN EASY PENSION PLUS

A Plan that enables you retire with laughter     
lines not worry lines
  SWARNA RAKSHA-ROC
A plan that provids you with regular income   for life.

 HEALTHCARE
This is a three-year health insurance plan, with life insurance benefit.

 UG PREMIER
Upfront Allocation of 105% of single premium on day

 UG SUPER
Highest allocation Upto 93% Guaranteed life cover 

 FAMILYGAIN
The only Unitlinked insurance plan with     ethical equity fund.

 SafeCare Economy-SP
An investment that provides financial security and liquidity.

Group Plans

 GROUP CREDIT SHIELD

Available for Employer - Employee Groups
and Non Employer-Employee Groups

 GROUP TERM LIFE

Available for Employer - Employee Groups
and Non Employer-Employee Groups

 GROUP TERM LIFE SCHEME

in lieu of EDLI (Employees Deposit Linked Insurance)

 GROUP SUPERANNUATION SCHEME

GROUP GRATUITY CARE SCHEME
Giving your Employees and their families the heartening reassurance of your care
and financial security.

Life Insurance Corporation Of India

Life Insurance Corporation of India (LIC) is an Indian state-owned insurance
group and investment company headquartered in Mumbai. It is the largest insurance company
in India with an estimated asset value of  1560482 crore (US$250 billion). As of 2013 it had
total life fund of Rs.1433103.14 crore with total value of policies sold of 367.82 lakh that
year.

The company was founded in 1956 when the Parliament of India passed the Life Insurance of
India Act that nationalised the private insurance industry in India. Over 245 insurance
companies and provident societies were merged to create the state owned Life Insurance
Corporation.

Objectives Of LIC

 Spread Life Insurance widely and in particular to the rural areas and to the socially
and economically backward classes with a view to reaching all insurable persons in
the country and providing them adequate financial cover against death at a reasonable
cost. 

 Maximize mobilization of people's savings by making insurance-linked savings

adequately attractive. 
 Bear in mind, in the investment of funds, the primary obligation to its policyholders,
whose money it holds in trust, without losing sight of the interest of the community as
a whole; the funds to be deployed to the best advantage of the investors as well as the
community as a whole, keeping in view national priorities and obligations of
attractive return. 
 Conduct business with utmost economy and with the full realization that the moneys
belong to the policyholders. 
 Act as trustees of the insured public in their individual and collective capacities.
 Meet the various life insurance needs of the community that would arise in the
changing social and economic environment. 
 Involve all people working in the Corporation to the best of their capability in
furthering the interests of the insured public by providing efficient service with
courtesy. 
 Promote amongst all agents and employees of the Corporation a sense of
participation, pride and job satisfaction through discharge of their duties with
dedication towards achievement of Corporate Objective.
Mission 
"Explore and enhance the quality of life of people through financial security by providing
products and services of aspired attributes with competitive returns, and by rendering
resources for economic development." 

Vision
"A trans-nationally competitive financial conglomerate of significance to societies and Pride
of India."

Operations
Today, the LIC has 8 zonal offices, around 109 divisional offices, 2,048 branches and 992
satellite offices and corporate offices;[1] it also has 54 customer zones and 25 metro-area
service hubs located in different cities and towns of India. It also has a network of 1,337,064
individual agents, 242 Corporate Agents, 79 Referral Agents, 98 Brokers and 42 Banks for
soliciting life insurance business from the public.

Initiatives
Golden Jubilee Foundation
LIC Golden Jubilee Foundation was established in 2006 as a charity organization. This entity
has the aim of promoting education, alleviation of poverty, and providing better living
conditions for the under privileged. Out of all the activities conducted by the organisation,
Golden Jubilee Scholarship awards is the best known. Each year, this award is given to the
meritorious students in standard XII of school education or equivalent, who wish to continue
their studies and have a parental income less than  100000 (US$1,600).

Holdings In Various Companies

LIC holds shares worth about Rs 2.33 lakh crore in all the Nifty companies put together, but
it lowered its holding in a total of 27 Nifty companies during the quarter.

The cumulative value of LIC holding in these 27 companies fell by little over Rs 8,000 crore
during the quarter shows the analysis of changes in their shareholding patterns.Individually,
LIC is estimated to have sold shares worth Rs 500-1,000 crore in each of Mahindra &
Mahindra, HDFC Bank, ICICI Bank, Tata Motors, L&T, HDFC, Wipro, SBI, Maruti Suzuki,
Dr Reddys and Bajaj Auto.

The insurance behemoth also trimmed holdings in Ambuja Cements, Cipla, TCS, Lupin and
Asian Paints. A marginal decline was also witnessed in its stakes in companies such as IDFC,
Hindustan Unilever, Grasim, ACC, BPCL, Bank of Baroda, Punjab National Bank, Sun
Pharma and Tata Power.
On the other hand, LIC further ramped up its stake in a total of 14 Nifty constituents with
purchase of shares worth an estimated Rs 4,000 crore.

The major companies where LIC has raised its stake include Infosys, RIL and Cairn India.
Other such companies are ITC, Power Grid Corp, NTPC, Siemens, Bharti Airtel and Hero
MotoCorp.

The state-run insurer also marginally hiked its exposure in Ultratech, Gail India, Ranbaxy,
Kotak Mahindra Bank and HCL Technologies, while its shareholding remained almost
unchanged in companies like ONGC, Tata Steel, BHEL and Reliance Infra.

Among the Nifty companies, LIC’s holding in terms of value is estimated to be highest in
ITC (Rs 27,326 crore), followed by RIL (Rs 21,659 crore), ONGC (Rs 17,764 crore), SBI
(Rs 17,058 crore), L&T (Rs 16,800 crore), and ICICI Bank (Rs 10,006 crore).

Plans
LIC of India offers a variety of Insurance products to its customers like life insurance plans,
pension plans, unit-linked plans, group schemes, health plans and special plans.
Term Plans:

 LIC Anmol Jeewan II

 LIC Amulya Jeewan II
 LIC Online e-Term Plan
 LIC's New Term Assurance Rider - (UIN: 512B210V01)

 Pension Plans:

 LIC Jeevan Akshay – VI

 LIC New Jeevan Nidhi
 Varishtha Pension Bima Yojana

Money Back Plans:

 LIC's New Money Back Plan- 20 Years

 LIC's New Money Back Plan- 25 years
 LIC's New Beema Bachat
 LIC's Jeevan Shagun
Endowment Plans:

 Single Premium Endowment Plan

 New Endowment Plan
 LIC New Jeevan Anand Plan
 LIC's Jeevan Rakshak

ULIP Plans:

 LIC Endowment Plus

 PERFORMANCE ANALYSIS OF INSURANCE
COMPANIES
MEASURING THE PERFORMANCE OF AN INSURANCE COMPANY

The measures of performance for an insurance, company are different from other industries in the
sense that most of the factors of performance are rough estimates. However, the performance
measurement essential involves the following steps:

• Ensuring suitable measurements of performance

• Use for standardized procedures
• Constant review of measures and procedures

Criteria of performance differ from company to company and country to country. Still, the
following are generally recognized as most common measures:

A. External
B. Operational
C. Ratio-based external measures of performance includes parameters of-.
(a) Service: Service to the policyholders is measured in terms of speed and fairness of claims
settlement, the extent of coverage’s and reasonableness of underwriting practices. "Service entails
a ready response to policy holders inquiries, the recognition and implementation of all rights
under a contact and flexibility in ammeding contracts to ; meet the financial needs of in succeeds.
Liberty with respect to cancellation features and stability of practices are other criteria." 1 The
service quality may be measured by the number and type of complaints from policyholder on
various aspects like policy servicing, claims handling, premius payments etc.

(b) Cost: The insurance companies may be compared on the basis of prices of insurance
products. The cost of services-as included in the prices may effectively evaluation insurance since
actuarial calculations don of differ significantly among insucceds.

(c) Equity among Policyholders: It means that insured pays a premium reflecting the hazards
presented. When there is perfect equity, law of averages does not work and there is no credibility:
Insurance are bond to generate credibility. So, the rate stretcher should efficiently reflect the risk
expose.

(d) Financial Strength: It is the earliest, quantifiable criteria. The financial strength can be
measured in terms of adjusted net worth, policyholder surplus, rescues or financial ratios. Though
the financial data is derived from published (and prescribed) financial sentiment, yet care must be
taken since financial statements are often affected by varying accounting policies interpretations
and presentation.

The appraisal of an insurance company's effectiveness requires its evaluation in functional areas.
These include the following:

(a) Organization and Management: Design of the organization structure, quality of

management, specialized training etc.
(b) Product research and development: response to dynamic market conditions, attempting
new market approach and exhibiting a fresh enthusiasm about a product line affects insurer's
performance. .
(c) Underwriting and Re-insurance: codification of rating criteria, supervision of procedures,
review of reinsurance programs for maximizing opportunities. (d) Proving flexibility offered to
the extent not regulated by the authority
(e) Claims Control: speedy follow-.up on claim and procedures, systematic and frequent review
of files. Ideally the delays between occurrence and reporting of claims, between reporting of
claims and investigation and between investigation and settlement should be minimized. -.
(f) Marketing: average selling cost free unit combined with loss experience is an ideal measure.
"Effective marketing requires an agency force that is vital a minimum policy size is maintained at
an adequate or economical level, and an average size of written premiums that is profitable.
(g) Investments: return and quality, of the portfolio
(h) Financial Planning: range of plans
(i) Adaptability to Environment: adaptation to local needs and awareness of the special
characteristics of different markets.
ASSET LIABILITY MANAGEMENT (ALM)

ALM is the most important activity for the financial managers in an insurance company in the
sense that cash flows arising out of assets and liabilities must match together to support the
insurer's strategic objective of solvency and profitability. "ALM is a cash flow management
program for coordinating the financial effects of the insurer's product liabilities and with the
financial effects of the business investment though ALM, financial managers identify the patterns
of company's cash out flows and them construct a portfolio of assets that will produce patterns
of cash inflows which when combined with the cash inflows from operations are sufficient to
meet the company's obligations on time. In applying ALM principles, an insures estimates the
timing and amount of claims that a product will generate in a specified period".
Various sophisticated techniques including forecasting, circulation, duration based hedging
etc. are used in ALM.

INVESTMENT TRENDS OF INSURANCE COMPANIES IN INDIA

Every insurance company in India has to invest its funds in specified Securities as laid down
by IRDA (Investment of Insurance Companies) Regulation 2000. The following exhibit,
shows the investment patterns of life and non-life insurance companies for the financial year
2007-08.

Ratio-Based Analysis
The obvious purpose of ratio analyses is to gauge the financial position and performance of a
business organizations from the reported financial statements so as to felicitate decision-
making. Financial statements of insurer generally suffers from following limitation:

(1) The statement, by nature, are interim since the actual status of an insurance company
cannot be known with certainty, unless the business is sold or liquidated.
(2) The loss reserves, Created in books are rough estimates provisional in nature and cannot
be accurate and precise
(3) Transactions summarized in the statements occur at different times are subject to
balancing, inflation and other factors and can therefore be misleading without adjustments.
(4) Insurers reputation number and quality of personnel are generally not reflected. The
analyst needs performance criteria, which are susceptible to easy comparison, and bench
mark of performance that reveal important relationships between the elements of insurance
company financial statements.

Ratios are commonly used to express, measure, analyze and interpret these financial
relationships.

Though every financial ratio serves a useful purpose in evaluation of an insurer, safe
conclusion cannot be drawn from a review of a single ratio. Therefore, all ratios are to be
examined and inferences be drawn. Familiarity with the insurer in question is an important
complement to ratio analysis following insurance ratios are generally calculated:

(a) Loss Ratio = Loss incurred / premium earned

36.92
40 35.32 34.68
36.63 35.88
33.61 34.02
35 29.33 31.09
30.98 31.21
33.21

30
25 2011
20 2012
15 2013
10
5
0
LIC HDFC ICICI BAJAJ
PRU. ALLIANZ
 Expenses Incurred
(2) Expense Ratio = premium written

This ratio is commonly used to determine the cost of acquisition. However, it may be distorted by
special marketing practices by the particular commission structure of a given company.

60 49.34
48.32 48.95 47.26 48.66
50 46.32
39.62
38.56 39.18 39.11 39.45 38.22
40 2011
30 2012
20 2013
10
0
LIC HDFC ICICI BAJAJ
PRU. ALLIANZ
(3) Cover Ratio = Loss Reserves + Policyholder's Surplus
In countries like TJK, this ratio is used as a measure of financial strength.

24.5 23.88
24 23.65 23.54 23.65 23.64

23.5 23.18
22.97
23 22.54 2011
22.31
22.5 22.16 22.12

22 21.62
2012
21.5 2013
21
20.5
20
LIC HDFC ICICI BAJAJ
PRU. ALLIANZ
(4) Interest realization ratio = Interest earned /Interest projected

37
35.68 35.83
36 35.56
34.86
34.86
34.21
35 34.28
33.99 33.74
33.65 33.66 2011
34
2012
33 32.52
2013
32
31
30
LIC HDFC ICICI PRU. BAJAJ
ALLIANZ
 RESEARCH METHODOLOGY

Methodology includes the overall research procedures, which are followed in the research
study. This includes Research design, the sampling procedures, and the data collection
method and analysis procedures. To broad methodologies can be used to answer any research
question-experimental research and non-experimental research. The major difference between
the two methodologies lies in the control of extraneous variables by the intervention of the
investigator in the experimental research.

RESEARCH DESIGN
A research design is defined, as the specification of methods and procedures for
acquiring the Information needed. It is a plant or organizing framework for doing the study
and collecting the data. Designing a research plan requires decisions all the data sources,
research approaches, Research instruments, sampling plan and contact methods.

Research design is mainly of following types: -

1. Exploratory research.
2. Descriptive studies
3. Casual studies

EXPLORATORY RESEARCH
The major purposes of exploratory studies are the identification of problems, the
more precise Formulation of problems and the formulations of new alternative courses of
action. The design of exploratory studies is characterized by a great amount of flexibility and
ad-hoc veracity.

DESCRIPTIVE STUDIES
Descriptive research in contrast to exploratory research is marked by the prior
formulation of specific research Questions. The investigator already knows a substantial
amount about the research problem. Perhaps as a Result of an exploratory study, before the
project is initiated. Descriptive research is also characterized by a Preplanned and structured
design.
CASUAL OR EXPERIMENTAL DESIGN
A casual design investigates the cause and effect relationships between two or
more variables. The hypothesis is tested and the experiment is done. There are following
types of casual designs:
I. After only design
II. Before after design
III. Before after with control group design
IV. Four groups, six studies design
V. After only with control group design.
VI. Consumer panel design
VII. Exposit facto design

B) DATA COLLECTION METHOD

PRIMARY SECONDARY

Direct personal Interview

Indirect personal Interview Published Sources Unpublished Sources

Information from correspondents Govt.publication

Mailed questionnaire Report Committees & Commissions

Question filled by enumerators. Private Publication

Research Institute

PRIMARY DATA
These data are collected first time as original data. The data is recorded as observed or
encountered. Essentially they are raw materials. They may be combined, totaled but they
have not extensively been statistically processed. For example, data obtained by the peoples.
SECONDARY DATA
Sources of Secondary Data
Following are the main sources of secondary data:
1. Official Publications: Publications of the LIC, HDFC, ICICI PRUDENTIAL &
BAJAJ ALLIANZ or the by the corporate office of LIC, HDFC, ICICI
PRUDENTIAL & BAJAJ ALLIANZ.
2. Publications Relating to Trade: Publications of the trade associations, stock
exchange, trade union etc.
3. Journal/ Newspapers etc.: Some newspapers/ Journals collect and publish their own
data, e.g. Indian Journal of economics, economist, Economic Times.
4. Data Collected by Industry Associations: For example, data available with LIC,
HDFC, ICICI PRUDENTIAL & BAJAJ ALLIANZ.
5. Unpublished Data: Data may be obtained from several companies, organizations,
working in the same areas. For example, data on LIC, HDFC, ICICI
PRUDENTIAL & BAJAJ ALLIANZ by magazines.

Data Collection Method

The following methods of data collection which I used in my project:
(i) Observation Method and
(ii) Personal Interview

Observation Method:
This is the most commonly used method of data collection especially in studies relating to
behavioural sciences. Accurate watching and noting of phenomenon as they occur in
nature with regard to cause and effect or mutual relation is called observation method of
data collection.

Characteristics of Observation Method These are as follows:

Direct Method: In observation method data is collected through direct contact with
phenomenon under study. In this method sensory organs particularly eye, ear, voice are
used.
Requires in-depth study: In this method, the observer goes to the field and makes the
study of the phenomenon in an in-depth company to acquire data.
Collection follows observation: In this method, the investigator first of all observes
the things and then collects the data.
Relationship between the cause and effect: Observation method leads to development
of relationship between the cause and effect of the events.
Scientific method for collecting dependable data: This is the most scientific method
for collection of dependable data. Observations are planned and recorded systematically.
There should be checks and balances on this methodology.
Selective and purposeful collection: The observations are made with definite purpose.
Collection of materials is done according to a particular purpose.

2. Interview Method
Under this method of we collect data in LIC, HDFC, ICICI PRUDENTIAL & BAJAJ
ALLIANZ and face to face contact with the persons from whom the information is to be
obtained (known as informants). The interviewer asks them questions pertaining to
the survey and collects the desired information. Thus, the we collect data about the
working conditions of the workers of LIC, HDFC, ICICI PRUDENTIAL & BAJAJ
ALLIANZ and obtain the information. The information obtained are first hand or
original in character.

The following are the main characteristics of interview method:

a) It is close contact or interaction including conversation between the managerial level and
Executives of LIC, HDFC, ICICI PRUDENTIAL & BAJAJ ALLIANZ.
b) The interview we took in the LIC, HDFC, ICICI PRUDENTIAL & BAJAJ
ALLIANZ, such as knowing the ideas and views of others.
 NEED FOR WORKING CAPITAL

Along with the fixed capital almost every business requiring working capital though the
extent of working capital requirement differs in different businesses. Working capital is
needed for purchasing raw materials. The raw material is then converted into finished goods
by incurring some additional costs on it. Now goods are sold. Sales do not convert into cash
instantly because there is invariably some credit sales. Thus, there exists a time lag between
sales of goods and receipt of cash. During this period, expenses are to be incurred for
continuing the business operations. For this purpose working capital is needed which shall be
involved from the purchase of raw materials to the realization of cash. The time period,
which is required to convert raw materials to the realization of cash? The time period, which
is required to convert raw materials into finished goods and then into cash is known as
operating cycle or cash cycle. The time need for working capital can also be explained with
the help of operating cycle. Operating cycle of a manufacturing concern involves five phases:
 Conversion of cash into raw material
 Conversion of raw material into work in progress
 Conversion of work in progress into finished goods
 Conversion of finished goods into debtors by credit sales
 Conversion of finished goods into cash by realizing cash from them.

Operating Cycle
Thus the operating cycle starts from cash, finishes at cash and then again restarts from cash.
Net for working capitals depends upon period of operating cycle. Greater the period more
will be the need for working capital. Period of operating cycle in a manufacturing concern is
greater than period of operating cycle in a trading concern because in training units cash is
directly converted into finished goods.
Because of the time involved in an operating cycle there is a need of working capital in the
form of current assets. Firms have to keep adequate stock of raw materials to avoid risk of
non-availability of raw materials. Similarly, concerns must have adequate stock of finished
goods to meet the demand in market on continuous basis and to avoid being out of stock..
In addition to all these, concerns have to necessarily keep cash to pay the manufacturing
expenses etc. and to meet the contingencies.
 CASH

Debtors and bills

receivables
Raw

Finished Work- in - Progress

Permanent and temporary working capital

Working capital in a business is needed because of operating cycle. But the need for working
capital does not come to an end after the cycle is completed. Since the operating cycle is a
continuous process there remains a need for continuous supply of working capital. However,
the amount of working capita required is not constant throughout the year but keeps
fluctuating. On the basis of this concept, working capital is classified into two types.

(A) Permanent working capital

The need for working capital or current assets fluctuates from time to time. However, to carry
on day-to-day operations of the business without any obstacles, a certain minimum level of
raw materials, work in progress, finished goods and cash must be maintained on a continuous
basis. The amount needed to regular working capital. The amount involved as permanent
working capital has to be from long term sources of finance e.g., debentures long-term loans
etc.
(B) Temporary or variable working capital
Any amount over and above the permanent level of working capital is called temporary,
fluctuation or variable working capital. Due to seasonal changes, level of business activities
working activities is higher than normal during some months of year and therefore additional
 working capital will be requiring along with the permanent working capital. It is so because
during peak season, demand rise and more due to excessive sales. Additional working capital
thus needed is known as temporary capital because once the season is over; the additional
demand will be no more. Need for temporary working capital should be met from short term
sources of finance e.g., short term loans etc. that can be refunded when it is not required.

FINANCING OF WORKING CAPITAL

After determining the requirement of working capital, the next important task before the
financial manager is to select the appropriate sources of working capital. There are mainly
two sources include equity shares, preference shares, debentures, retained earnings,
depreciation and long term financial institutions. A short-term source includes short-term
loans, trade creditors, commercial paper, factoring and public deposits etc. there are basically
three approaches to determine an appropriate financing mix of various sources. These are as
follows:

1. MATCHING APPROACH OR HEDGING APPROACH

According to this approach, a firm should adopt a financial plan, which involves the matching
of expected life of the sources of funds raised to financial assets. Matching approach suggests
that long-term funds should be used to finance the permanent portion of current assets
requirements in a manner similar to the financing of fixed assets. The temporary requirements
on the other hand should be financed with short-term funds. The firm fixed assets are
permanent. Current assets are financed with long term funds and as the level of these assets
increases, the long term financing level also increase.
 TEMPORARY CURRENT
ASSETS

SHORT TERM
AMOUNT FINANCING

PERMANENT LONG TERM

CURRENT ASSETS FINANCING

FIXED ASSETS

TIME

2. CONSERVATIVE APPROACH
Conservative approach suggests that the firm should depend more on long-term funds for its
needs. Under a conservative plan its permanent current assets and a past of temporary current
assets with long-term sources of finance. Thus, during the periods when the firm has no
 temporary current assets, it preserves liquidity by investing surplus funds into marketable
securities. Since conservative plan relies heavily on long term financing.

TEMPORARY CURRENT
ASSETS SHORT TERM
FINANCING

AMOUNT

LONG TERM
PERMANENT CURRENT ASSETS
FINANCING

FIXED ASSETS

TIME

3. AGGRESSIVE APPROACH

In contrast to conservative approach, however the firm may be aggressive in financing its
assets. A firm is said to follow an aggressive policy, when it uses more short-term funds. The
firm finances a part of its permanent current assets with short term financing. This makes the
firm more risky. The diagram of aggressive financing approach is given below.
 TEMPORARY CURRENT
ASSETS

SHORT TERM
FINANCING

AMOUNT

PERMANENT CURRENT ASSETS

LONG TERM
FINANCING

FIXED ASSETS

TIME

FACTORS DETERMINING WORKING CAPITAL EQUIREMENT

NATURE OF BUSINESS

Working capital requirements of a firm are basically relayed to nature of business. For,
instance public utilities have a very limited need for working capital and have to largely
invent in fixed assets. Their working capital requirements are minimal because they have
cash sales only and supply services and not products. On the other extreme, trading and
financial firms have a very less investment infixed assets and a large investment in working
capital. This so they have to maintain a sufficient amount of cash, inventories and book debts.
Working capital requirements of a manufacturing firm. However these would vary from
industry falls between these two extremes, that is, public utility and firms. However these
would vary from industry to industry depending on their asset structure.

SIZE OF BUSINESS

The size of business also has an important influence on its working capital requirements. Size
measure the scale of operations obliviously, larger the size greater would be the need of
working capital. On the other hand, smaller firms would require lesser amount of working
capital.

LENGTH OF MANUFACTURING CYCLE

The manufacturing cycle refers to the time involved in manufacturing of goods. It starts with
the purchase and use of raw materials and complete with the production of the finished
goods. Thus, the larger the time span of the manufacturing cycle, larger will be the working
capital requirements of the firms and vice-versa.

BUSINESS CYCLE

Most firms experience cyclical fluctuations in demand for their products and services. These
fluctuations affect the working capital requirements, particularly the temporary working
capital requirement. During the upswing in the business activity, the sales will increase.
Correspondingly, the firm’s investment in inventories and book debts will also increase.
Additional funds may be required to invest in fixed assets and the resultant increase in
working capital to meet the increased demand. On the other hand, during downswing, sale
will fall and cons equations influence the size of working capital mainly through the effect on
inventories.

PRODUCTION POLICY

In the case of seasonal demand for certain products, the production may either be confined
only to the periods when goods are purchased or production may be carried on steadily
throughout the year. During the slack season it will have to maintain its labor force physical
facilities without adequate production and sale. During peak period the firm will have to
operate at its full capacity to meet the demand, which be will very inconvenient and
expensive. On the other hand the steadily production policy will result in accumulation of
inventories during the off seasons periods requiring an increasing amount of working capital
and the firm will be exposed to greater inventory costs and risk.

CREDIT POLICY OF THE FIRM

The credit policy of the firm has bearing on the magnitude of working capital by determining
the level of book debts. Larger credit sales will result in higher book debts and more working
capital. Credit terms extended by an enterprise is affecting by the prevailing trade practices as
well as changing economic conditions. Under the situation of acute competition, there would
be a pressure to grant generous credit terms. The firm should evaluate the credit standing of
new customers and periodic review of new customers. Similarly, collection of debts should
monitor properly for timely payment by them. This will avoid problem of having excess
working capital.

DEMAND CONDITIONS
Most of the firm experience seasonal and cyclical fluctuations in the demand for their
products and services. These variations affect the working capital of the business. Seasonal
variations not only affect the working capital, but also create production problems. During
period of peak demand, increasing production may be expensive for the firm. Similarly it will
be more expensive during slack periods when the firm has to sustain its working capital force
and physical facilities without adequate production and sales. The increasing level of
inventories during the slack season will require increasing funds to be tied up in the working
capital for the same month. Therefore, financial arrangements for seasonal working capital
requirements must be made in advance. However the financial plans should be flexible
enough to take care of some abrupt seasonal variation.
PROFIT MARGINS AND PROFIT APPORTION

A high profit margin would generate more internal funds thereby contributing to the working
capital pool. The net profit is the source of working capital to the extent it has been earned in
cash. But, in practice the net cash inflows from operations cannot be considered as cash
available for use at the end of cash cycle. Even as the company’s operations are in progress,
cash is used for augmented stock, book debts and fixed assets. It is important to see that cash
has been used for rightful purpose.
The availability of internal funds for working capital requirements is determined not merely
by the profit margin but also on the manner of appropriating profits. The availability of such
funds for the working capital depends on the profit appropriations for taxation, dividend and
depreciation and reserves. Higher the amount of the dividends, less will be the contribution
towards working capital funds, an increase in tax liability will lead to an increase in working
capital requirements and vice versa. However tax liability can be reduced through proper tax
planning. Depreciation as allowed under income tax rules helps to save tax.

PRICE LEVEL CHANGES

Changes in the price level also influence the requirements of working capital. Rising prices
would necessitate the need of more funds for maintaining the existing level of activity. Thus
more working capital will be required. However the firm can revise the process with rising
price level. The price rise does not uniformly affect all the commodities. Thus the implication
of price level changes will vary from company to company.

OPERATING EFFICIENCY
The operating efficiency of the firm related to the optimum utilization of the resources at the
minimum costs. Efficiency of operations accelerates the pace of the cash cycle and improves
the working capital turnover. Better utilization of resources improves profitability and, thus,
helps in releasing the pressure on working capital.
 ADEQUACY OF WORKING CAPITAL
The firm should maintain a sound working capital position. It should have adequate working
capital to run its business operations. Both excessive as well as inadequate working capital
positions are dangerous from firm’s point of view.

The danger of excessive working capital is as follows:

1. It results in unnecessary accumulation of inventories. Thus chance of inventory
mishandling, waste, theft and losses increases.
2. It is the indication of defective credit policy and slack collection period.
Consequently, higher incidence of bad debts results, which adversely affects profits.
3. Excessive working capital makes management complacent, which degenerates into
material inefficiency.

Inadequate working capital is also bad and has following dangers:

1. It stagnates growth. It becomes difficult for the firm to undertake profitable projects for non-
availability of working capital funds.
2. Fixed assets are not efficiently utilized for the lack of the working capital funds. Thus, the
firm’s profitability would deteriorate.
3. The firm loses its reputation when it is not in position to honor its short term obligations.

As a result the firm faces the tight credit terms. An enlightened management should,
therefore, maintain a right amount of working capital. Only then proper functioning of
business operations will be ensured. Sound financial and statistical techniques, supported by
judgment should predict the quantum of working capital needed at different time periods. A
firm net working capital is not only important as an index of liquidity, but it also used as the
measure of the firm’s risk. Lenders consider a positive working capital as a measure of
safety. All other things being equal, the more the net working capital a firm has, the less risky
that it will default in meeting its current financial obligations. Lenders such as commercial
banks insist that the firm should maintain a minimum net working capital.
 ADVANTAGES OF ADEQUATE WORKING CAPITAL

 Solvency of the business: Adequate working capital helps in maintain solvency of the
business by providing uninterrupted flow of production.
 Goodwill: Sufficient working capital enables a business concern to make prompt payment
and helps in creating and maintaining goodwill.
 Easy loan: A concern having adequate working capital can arrange loan from banks and
other sources on easy and favorable terms.
 Cash discount: Adequate working capital also enables a concern avail cash discounts on
the purchase and hence in reduces cost.
 Regular supply of raw material: Sufficient working capital ensures regular supply of raw
material and continuous production.
 Regular payment of salaries, Wages and other day-to-day commitment: A company
which has adequate working capital can make regular payments of salaries, wages and
other day to day commitments which raises the morale of its employees, increases their
efficiency, reduces stages and costs.
 Ability to face crisis: Adequate working capital enables a company to face business crises
in emergencies such as depression because during such period, generally there is much
pressure on working capital.

So keeping in views all these point we can say that a business should have adequate working
capital.

IMPORTANCE OF INVENTORY
Inventory constitutes the large stock component of current assets in any organizations. Poor
management of inventories therefore may result in business failures. A production function
depends to a large extent upon inventory management.
Inventory is a usable resource, which is physical and tangible such as materials.
Inventory could be raw material, work in progress (wip), finished good or the spare parts and
other indirect materials.
Effectiveness of the material production function depends to a large extent upon inventory
management.
 FUNCTIONS OF INVENTORY MANAGEMENT

 Regularizing demand and supply.

 Economizing purchases or production by lot buying or batch production.
 Allowing organizations to cope with perishable materials.
Application of ABC Analysis
This approach helps the material manager to exercise selective control and focus his attention
only on a few items when he confronted with lacs of stores items. Any sound stock control
system should ensure that every item gets right amount of attention at the right time. ABC
analysis makes it possible with considerably less effort by its selective approach.

Degree of Control

‘A’ class items form a substantial part of total consumption in rupees and so it must draw out
attention. Up-to-date and accurate records should be maintained for these items. The
inventory should be kept at a minimum by putting blanket orders covering annual
requirement and then arranging frequent deliveries from vendors.

‘B’ class items should have normal or moderate control made possible by good records and
regular attention.

‘C’ class items have required little or no control.

For analysis purpose at ANDHRA BANK & AXIS BANK the MAIS system support is taken
for extracting reports. Through above system the value-wise report of closing stock can be
taken. The closing stock report is classified three classes representing items above 10, 00,000
item between 50,000 to 10, 00,000 and less than 50,000. The items classified in the Group are
analyzed by the Manager (CMM) and concerned engineer to determine whether the items are
of regular nature and should be classified either as “B” or “C”. There are 31000 thousand
item are available in the stock and value is 40 crores. The current status of stock remains
available in MAIS stream.

Sr. No. Type of No. of Items Value

Inventory (in crores)
1. “A” 22,000 17

2. “B” 10,000 12

3. “C” 18,000 11

At ANDHARA BANK following method of inventory control are followed

Maximum Level
It is calculated by considering these elements
1. Normal consumption or 1 year consumption
2. Scheduled activities
3. Suddenly / unexpected requirement of material
4. Reviews

Minimum Level
 1. Basis for setting a minimum level of material
2. Lead time
3. Lead time = Difference between placing of order and receipt material.
4. Reorder Level time consumption
5. Re-order level depends on the Minimum level and lead-time.

Re-Order Level
Basis for setting reorder level
Lead-time

Lead-time is of 2 types:
 Administrative lead-time
 Supplier lead-time
Supplier may be local, East, West, North, South region of India
Supplier may be from outside of India

ORDERING PROCEDURE
At ANDHRA BANK & AXIS BANK “A” classes items includes the spares part used in the
Reactor, Turbine or generator, which relates to mainly related to operation. These items are
less in numbers but have very high value. ‘A’ class items require careful and accurate
determination of order quantities and order points based on exact requirements. They should
be subjected to frequent reviews to reduce possibility of overstocking. The time-to-time
analysis is done if any material is surplus it can be sent to other units where these are
required.
A reasonably good analysis for order quantities and other words points is required for ‘B’
items but the stock may be reviewed less frequently or only when major changes occur.
No such computation is required for C items.
These items should be brought in bulk, may be for full year.

1. VIP treatment may be accorded to ‘A’ items in all activities such as processing of purchase
orders, receiving, inspection, movement on the shop floor, etc with an object to reduce
lead-time and average inventory.
2. No such treatment is necessary for ‘B’ items. Normal plants procedures should take care of
inward and outward flow of these items.
3. No priority is assigned to ‘C’ items.
SAFETY STOCK
‘A’ class item stock should be kept less.
‘C’ contrary to ‘A’ class items.
‘B’ class items a moderate policy is required.

The following can be safety stock for 3 categories of items:

“A” class items ½ month stock

“B” class items 1 month stock

“C” class items 2 month stock

‘A’ items merit a tightly controlled inventory system with constant attention by the purchase
manager and stores management.

‘B’ items require a formalized inventory system with periodic attention by purchase and
stores management.

‘C’ items use a simpler system designed to cause the least trouble for the purchase and stores
department.
CASH MANAGEMENT

Cash is the important current asset for the operations of the business. Cash is the basic input
needed to keep the business running on a continuous basis; it is also the ultimate output
expected to be realized by selling the service or product manufactured by the firm. The firm
should keep sufficient cash, neither more nor les. Cash shortage will disrupt the firm’s
manufacturing operating while excessive cash will simply remain idle, without contributing
anything towards the firm’s profitability. Thus, a major function of the financial manager is
to maintain a sound cash position.

Cash is the money, which a firm can disburse immediately without any restriction. The term
cash includes coins. Currency and cheques held by the firm, and balances in its bank
accounts. Sometimes near cash items, such as marketable securities or bank times deposits
are also included in cash. The basic characteristic of near cash assets is that they can readily
be converted into cash. Generally, when a firm has excess cash, it invests it in marketable
securities. This kind of investment contributes come profit to the firm.

FACTS OF CASH MANAGEMENT

Cash management is concerned with the managing of; (1) cash flows into and out of the firm,
(2) cash flow within the firm, and (3) cash balances held by the firm at a point of time by
financing deficit or investing surplus cash. It can be represented by a cash management cycle
as shown following. Sales generated cash, which has to be disbursed out. The surplus cash
has to be invested while deficit has to be borrowed. Cash management seeks to accomplish
this cycle at a minimum cost. At the same time, it also seek o achieve liquidity and control.
Cash management assumes more importance than other current assets because cash is the
most significant and the least productive asset then a firm holds. It is significant because it is
used to pay the firm’s obligations. However, cash is unproductive. Unlike fixed assets or
inventories, it does not produce foods for sale. Therefore, the aim of cash management is to
maintain adequate control over cash position to keep the firm sufficiently liquid and to use
excess cash in some profitable way.
MANAGEMENT CYCLE

Cash management is also important because it is difficult to predict cash flows accurately,
particularly the inflows, and there is no perfect coincidence between the inflows and outflows
of cash. During some periods cash outflows will excess cash inflows, because payments for
taxes, dividends, or seasonal inventory build up. At other times, cash inflow will be more
than cash payments because there may be large cash sales and debtors may be realized in
large sums promptly. Further, cash management is significant because cash constitutes the
smallest portion of the total current assets, yet management’s considerable time is devoted in
managing it. In recent past, a number of innovations have been done in cash management
techniques. An obvious aim of the firm these days is to manage its cash affairs in such a way
as to keep cash balance at a minimum level and to invest the surplus cash in profitable
investment opportunities.

In order to resolve the uncertainty about cash flows prediction and lack of synchronization
between cash receipts and payments, the firm should develop appropriate strategies for cash
management. The firm should evolve strategies regarding the following four facets of cash
management:

 Cash planning: Cash inflows and outflows should be planned to project cash surplus
or deficit for each period of the planning period. Cash budget should be prepared for
this purpose.
 Managing the cash flows: The flow of cash should be properly managed. The cash
inflows should be accelerated while, as far as possible, the cash outflow should be
decelerated.
 Optimum cash level: The firm should decide about the appropriate level of cash
balances. The cost of excess cash and danger of cash deficiency should be matched to
determent the optimum level of cash balances.
 Investing surplus cash: The surplus cash balances should be properly invested to
earn he firm should decide about the division of such cash balance between
alternative shout-term investment opportunities such as bank deposits, marketable
securities, or inter-corporate lending.
MOTIVES FOR HOLDING CASH

The firm’s need to hold cash may be attributed to the following three motives:

 The transactions motive

 The precautionary motive
 The speculative motive
 The compensation motive

TRANSACTION MOTIVE

The transactions motive requires a firm to hold cash to conduct its business in the ordinary
course. The firm needs cash primarily to make payments for purchases, wages and salaries,
other operating expenses, taxes, dividends etc. the need to hold cash would not arise if there
were perfect synchronization between cash receipts and cash payments, i.e. enough cash is
received when the payment has to be made. But cash receipts and payments are not perfectly
synchronized. For those periods, when cash payments exceed cash receipts, the firm should
maintain some a\cash balance to be able to make required payments. For transactions
purpose, a firm may invest its cash in marketable securities. Usually, the firm will purchase
securities whose maturity corresponds with some anticipated payments, such as dividends, or
tax in the future. Notice that the transactions motive mainly refers to holding cash to meet
anticipated payments whose timing is not perfectly matched with cash receipts.

PRECAUTIONARY MOTIVE

The precautionary motive is the need to hold cash to meet contingencies in the future. It
provides a cushion pt buffer to withstand some unexpected emergency. The precautionary
amount of cash depends upon the predictability of cash flows. It cash flows can be predicted
with accuracy, less cash will be maintained for an emergency. The amount of precautionary
cash is also influenced by the firm’s ability to borrow at shout notice when the need arises.
Stronger the ability of the firm to borrow at short notice, less the need for precautionary
balance. The precautionary balance may be kept in cash and marketable securities. The
amount of cash set aside for precautionary reasons is not expected to earn anything.
Therefore, the firm should attempt to earn some profit on it. Such funds should be invested in
high-liquid and low-risk marketable securities. Precautionary balance should, thus, be held
more in marketable securities and relatively less in cash.
SPECULATIVE MOTIVE

The speculative motive relates to the holding of cash for investing in profit-making
opportunities as and when they arise. The opportunity to make profit may arise when it is
expected that interest rated will rise and security prices will fall. Securities can be purchased
when the interest rate is expected to fall. The firm will benefit by the subsequent fall in
interest rates and increase in security prices. The firm may also speculate on materials’ prices.
If it expected that material’s price will fall, the firm can postpone materials’ purchasing and
make purchased in future when price actually falls. Some firms may hold cash for
speculations. Thus, the primary motives to hold cash and marketable securities are: the
transactions and the precautionary motives.

COMPENSATION MOTIVE

Yet another motive to hold cash balances is to compensate banks for providing certain
services and loans.

Banks provide a variety of services to business firms, such as clearance of cheque, supply of
credit information, transfer of funds, etc. while for some of the services banks charge a
commission or free, for others they seek indirect compensation. Usually clients are required
to maintain a minimum balance of cash at the bank. Since this balance cannot be utilized by
the firms for transaction purpose, the banks themselves can use the amount to earn a return.
To be compensated for their services indirectly in this form, they require the client to always
keep a bank balance sufficient to earn a return equal to the cost of services. Such balances are
compensating balances.

Compensating balances are also required by some loan agreements between a bank and its
customers. During periods when the supply of credit is restricted and interest rates are rising,
banks require a borrower to maintain a minimum balance in his account as a condition
precedent to the grant of loan. This is presumably to “compensate” the bank for a rise in the
interest rate during the period when the loan will be pending.

The compensating cash balances can either of two forms:

(1) An absolute minimum. Say, Rs. 5 lakhs, below which the actual bank balance will never
fall.

(2) A minimum average balance, say, Rs. 5 lakhs over the month.

The first alternative is more restrictive as the average amount of cash held during the month
must be above Rs. 5 lakhs by the amount of transaction balance. From the firm’s viewpoint
this is obviously dead money.

Under the second alternative, the balance could fall to zero one day provided it was Rs. 10
lakhs some other day with average working to Rs. 5 lakhs.

Of the four primary motives of holding cash balances, the two most important are the
transactions motive and the compensation motive. Business firms normally do not speculate
and need not have speculative balances. The requirement of precautionary balances can be
met out of short-term borrowings.
 RATIO ANALYSIS
Any successful business owner is constantly evaluating the performance of his or her
company, comparing it with the company's historical figures, with its industry competitors,
and even with successful businesses from other industries. To complete a thorough
examination of your company's effectiveness, however, you need to look at more than just
easily attainable numbers like sales, profits, and total assets. You must be able to read
between the lines of your financial statements and make the seemingly inconsequential
numbers accessible and comprehensible.

This massive data overload could seem staggering. Luckily, there are many well-tested ratios
out there that make the task a bit less daunting. Comparative ratio analysis helps you identify
and quantify your company's strengths and weaknesses, evaluate its financial position, and
understand the risks you may be taking.

As with any other form of analysis, comparative ratio techniques aren't definitive and their
results shouldn't be viewed as gospel. Many off-the-balance-sheet factors can play a role in
the success or failure of a company. But, when used in concert with various other business
evaluation processes, comparative ratios are invaluable.

LIQUIDITY RATIO

Liquidity refers to the ability of concern to meet its current obligations as and when these
become due. The short term obligations are met by realizing amount assets should either be
liquid or near liquidity. These should be converted into cash for paying obligations of short-
term liabilities, if current assets can pay off current liabilities, then liquidity position will be
satisfactory. On the other hand, if current liabilities may not be easily met out of current
assets then liquidity position will be bad. To measure the liquidity of a firm, the following
ratio can be calculated:

Current ratio
Quick or acid test or liquid ratio
Absolute liquidity ratio
CURRENT RATIO

This ratio explains the relationship between current assets and current liabilities of business.
The formula for calculating the ratio is:

Current ratio= Current Assets

Current liabilities

Comparative Current Ratio of LIC, HDFC, ICICI PRUDENTIAL & BAJAJ

ALLIANZ:

0.6
0.51 0.52
0.48
0.5 0.46 0.45 0.46
0.41 0.42 0.410.42
0.39 0.39
0.4
2006
0.3 2007
0.2 2008

0.1
0
LIC HDFC ICICI PRU BAJAJ
ALLIANZ
QUICK RATIO :

Quick ratio indicates whether the firm is in a position to pay its current liabilities with in a

month or immediately. As such the quick ratio calculated by calculated by dividing liquid

assets by current liabilities.

Quick ratio= Quick assets

Current liabilities

16 13.64
13.33
14 12.21
13.02
12.03
12.89
12.33 12.63
11.4411.48 11.55
12 11.14

10 2006
8 2007
6 2008
4
2
0
LIC HDFC ICICI PRU BAJAJ
ALLIANZ
Fixed Turnover Ratio:

A financial ratio of net sales to fixed assets. The fixed-asset turnover ratio measures a
company's ability to generate net sales from fixed-asset investments - specifically property,
plant and equipment (PP&E) - net of depreciation. A higher fixed-asset turnover ratio shows
that the company has been more effective in using the investment in fixed assets to generate
revenues.

The fixed-asset turnover ratio is calculated as:

8 7.5 7.3
7.2
6.9 6.8 6.9 7
7 6.5
6.2 6.4 6.3
6
6
5 2011
4 2012
3 2013
2
1
0
LIC HDFC ICICI PRU BAJAJ
ALLIANZ
Dividend Payout Ratio

The percentage of earnings paid to shareholders in dividends.

Calculated as:

Comparative Divided Payout Ratio (Net Profit) of LIC, HDFC, ICICI

PRUDENTIAL & BAJAJ ALLIANZ

45 41.62 41.35
38.21
37.69 37.35
40 33.62 34.65 33.21
32.56 33.08
35 28.33
29.63
30
2011
25
2012
20
15 2013
10
5
0
LIC HDFC ICICI PRU BAJAJ
ALLIANZ
Comparative Divided Payout Ratio (Cash Profit) of LIC, HDFC, ICICI
PRUDENTIAL & BAJAJ ALLIANZ

45 39.52
39.78
41.32
36.85 36.03
40 33.62 35.02
34.67 35.91
33.91 34.23 35.15
35
30
2011
25
2012
20
2013
15
10
5
0
LIC HDFC ICICI PRU BAJAJ
ALLIANZ
Retention Ratio
The percent of earnings credited to retained earnings. In other words, the proportion of net
income that is not paid out as dividends.

Calculated as:

80
68.32 61.01
59.33
70 60.21 60.56 55.32 59.28 59.32
59.88
55.97 57.32 57.81
60
50 2011
40 2012
30 2013
20
10
0
LIC HDFC ICICI PRU BAJAJ
ALLIANZ
Cash Earning Retention Ratio

90 77.05
80 71.23 74.38 75.32 68.52
65.21
69.99 71.98 65.32
64.35
70 63.02 64.36

60
2006
50
2007
40
30 2008
20
10
0
LIC HDFC ICICI PRU BAJAJ
ALLIANZ
Financial Charges Coverage’s Ratio

A ratio that indicates a firm's ability to satisfy fixed financing expenses, such as interest and
leases. It is calculated as the following:

1.8 1.65 1.56

1.55
1.52 1.42
1.6 1.331.45 1.45
1.25 1.33
1.4 1.28
1.23
1.2
2011
1
2012
0.8
2013
0.6
0.4
0.2
0
LIC HDFC ICICI PRU BAJAJ
ALLIANZ
 RECOMMENDATION
On the basis of my detailed discussion and observation with the head of department of LIC,
HDFC, ICICI PRUDENTIAL & BAJAJ ALLIANZ, I am providing the following
suggestion and recommendation to improve the following ratio:

 Gross profit, net profit, net worth ratio is very low in 2008, which require the due
attention of the management. Possible reasons should be identified, thoroughly investigate
and remedial measures should be taken to improve the situation if the same require action.

 The operating cost ratio is very high in the year 2008 as compared to 2007 it is because of
increasing in the operational cost of the corporation for the generation of electricity. The
management of the corporation should take necessary step to reduce its operating costs.

 The working capital, fixed asset, and total capital turnover ratio are more than 1. So the
corporation should make certain policy to utilize the capital employed, its working capital
and fixed assets to its ability.

 The current ratio is much higher than 2:1 in both the year, which shows that the fund in
corporation is ideal, it is not effectively utilized. The management of the corporation
should make the policy to invest the funds in other profitable opportunities.

 Cash, bank balance, loans & advances should be used properly so as to meet current
liabilities.

 Management of credit sales policy should be done efficiently so as to decrease debtor

collection period.
 LIMITATIONS OF THE STUDY

In spite of best efforts of the investigator the study was subjected to following
limitations:

1. Some officers were too busy to give a sincere response to investigators and hence their
response may not relate to real picture.
2. Manager sometime denied disclosing some important financial matters, which can be
helpful in this study.
3. Some information related to the study, which had been collected from the company was
rounded off because of some influence.
4. At some place approximate figures had been taken as per instruction of company officers.
5. The time period given to me for the completion of the project was short in such a short
span of time it is difficult to complete any project in detail.
6. Some information in LIC, HDFC, ICICI PRUDENTIAL & BAJAJ ALLIANZ was
highly confidential due to which some calculations are not made.
 CONCLUSION

The traditional structure-conduct-performance framework makes the explicit prediction that

market structure determines market conduct, performance and power. The empirical evidence
shows that a link between market structure and market conduct, performance and/or power is
not present. "Prices" and profits are not statistically significantly related to various sellers of
insurance companies as concentration measure and do not follow any explicit trend over time.

According to the current market scenario the insurance companies having the various
variation in the insurance market.

As we are comparing to the four companies as HDFC, LIC, ICICI PRUDENTIAL & BAJA
ALLIANZ.

As performance wise LIC & HDFC Standard Life Insurance having the similar profit
approximately while Bajaj Allianz &ICICI PRUDENTIAL having the similar profit but if we
see the comparison between ICICI PRUDENTIAL & LIC is not having the good
performance regarding to ICICI PRUDENTIAL but LIC here good share of market.

And in financially way the all the companies having approximately same profit but in the
session of 2008 all the companies fluctuate the same state approximately.
 BIBLIOGRAPHY

I have referred various sources to collect the data relating to my project. I have also searched
various websites to gather information about my project. Like I have referred –

(1) Financial Management by I M Pandey

(2) Management Accounting by Sharama & S .N. Gupta

(3) Financial Management by M. Y. Khan & P. V. Jain

(4) Financial Management by S. P. Rostogi

(5) Financial Management by Ravi M. Kishor

(6)Financial Management by M.D. Agrawal

WEBSITES

 www.iif.edu.com
 www.quickmba.com
 www.iimahd.ernet.in
 www.google.com
 www.altavista.com
ANNEXURES
 BALANCE SHEET
(All Balance Sheet are in Thousands)

LIC
HDFC STANTARD LIFE INSURANCE COMPANY LTD.
ICICI PRUDENTIAL
BAJAJ ALLIANZ