CREDIT RATING REPORT

On
PIONEER INSURNCE COMPANY LIMITED

2013

Presented by:

1. Md. Abdullah-Al-Mobin
2. Asif Nur
3. Md. Lokman Hossain
4. Md. Monir Hossain
 CREDIT RATING REPORT
On
PIONEER INSURNCE COMPANY LIMITED

1.0 RATIONALE

………………………………………………………………………………………………..
Pioneer Insurance Company Limited (PICL) has high claim paying ability based on the
financial up to December 31, 2013 and other relevant qualitative and
quantitative information up-to the date of rating. The reaffirmation reflects PICL's good
financials performance, Improving Solvency, good market share, diversified shareholding
pattern with Institutional shareholding, good fixed asset Investment, good reinsurance
arrangement with loca1 and foreign reinsurers, experienced management team etc.

PICL sources significant business from renowned group of companies, banks as well as
multinational clients. The company continues to deliver improved services taking due care of
the compliance requirements with good underwriting and financial performance. Based on the
financial statement of 2013, its business income rose to Tk.l,874.91 million from Tk, I,701.27
million In 2012.With the same token, underwriting profit rose to Tk.255.02 million from
Tk.216.57 million while Profit after Tax (PAT) also moved upward to Tk.212.84 million from
Tk.207.17 million during the above periods. Consequently, gross underwriting margin has
found good and stood at 58.00% in 2013 against 57.48% in 2012. ROAI and ROAE also have
been found good due to improved profit generation against assets and equity base. We
views PICL's Investment strategy as diversified and secured with around 73% of its funds
residing in cash and fixed deposits as well as in fixed income Instruments and rest 27% in
capital market investment. Moreover, in spite of capital market debacle the company has
significant hidden strength of Tk.253.37 million as on May 31, 2014 considering market value
of Tk.590.31 million against book value of Tk.336.94 million.

The company maintained a significant Improvement in capital commensurate with its business
profile and raised paid-up capital to Tk.424.13 million which is beyond from regulatory
minimum level of Tk.400 million. Moreover, recent move to issue 20% bonus shares will
further boost up its capital base to Tk.508.96 million. Besides, PICL has made significant fixed
assets investment of Tk,295.51 million to 2013 for office spaces In Dhaka and Chittagong
which enhanced its overall solvency.

On the other hand, in spite of business growth, underwriting performance n fire segment is
yet not good. However, improvement in underwriting performance in fire will enhance its overall
performance in competitive market arena. Our expectation the company continues its
prudent underwriting approach, improve solvency, business and underwriting portfolio etc.

CPA rated in this category is adjudged to offer very high claim paying ability, Protection
factors are strong with modest risk, but may vary slightly over time due to economic and/or
underwriting conditions.

………. The company with “Stable Outlook” from the industry viewpoint for overall
industry growth and policy and regulations implicated by regulatory authority as well as new
Insurance Act. ……………………
2.0 CORPORATE PROFILE

2.1 The Genesis

Pioneer Insurance company Limited (PICL), a second generation non-life insurance company,
was incorporated on March 25, 1996 as a public limited company under the Companies Act,
1994. The company started the business with the vision to foster the industrial and economic
growth of the country by providing maximum insurance protection at the most competitive
price in a highly efficient manner. PICL started its commercial operations on May 13, 1996.
The company started its business with a paid-up capital of Tk.60.00 million against an
authorized capital of Tk.200.00 million being sponsored by several renowned business houses
of the country having involvement in diversified business. Meanwhile, both authorized and
Paid up capital of the company have been enhanced to Tk.1,000.00 million and Tk,424.13
million respectively as on December 31, 2013. PICL went Into Initial public offering in 2001
and shares of the company are traded as 'A' category issue with both the bourses of the
country. The company has been operating its business with a network of 40 branches in
different districts or the country. During the last couple of years the company achieved
phenomenal growth in terms of business. PICL has awarded second position on ICMAB Best
Corporate Award-2O12". The company earned gross premium of TK.l,874.91 million and
made underwriting profit of Tk.255.02 million In 2013. PICL also earned gross premium of
Tk.505.46 million and made Profit after Tax (PAT) of Tk.65.44 million in lQ, 2014. Total
market capitalization of PICL stood at Tk.2,280.10 million as on September 3, 2014.
Mr. A.K.M Rahmatullah, a renowned industrialist and an honorable member of Parliament of
Peoples Republic Of Bangladesh is the Chairman of the Board while a management team
consisting of a group of experienced professionals is being led by Managing Director Mr.
Q.A.F.M. Serajul Islam. The Company has been operating its business from its Head Office
located at Symphony (5th floor), Plot# SE (F) 9, Road# 142, South Avenue, Gulshan-1,
Dhaka-1212.

2.2 Ownership Pattern

Shareholding pattern of PICL has been found diversified. Shareholding pattern as on March
31, 2014 reveals that total outstanding shares of the company stood at 42.41 million held by
sponsors, institutional investors and general public. Out of the above outstanding shares,
68.35% shares are held by the sponsors, 16.20% by institutions while rest 15.45% shares are
held by the general public. While analyzing the shareholding pattern of the sponsor
shareholders, it has been revealed that Board Chairman Mr. A.K.M. Rahmatullah holds the
highest 4.33% shares of the company under individual capacity.

2.3 Market Share

The non-life Insurance Industry of Bangladesh reported a gross. premium of Tk.22.8l billion in
2013 (provisional) and Tk.2l.64 billion in 2012 which was being shared by 46 companies
including the Government owned Sadharan Bima Corporation (SBC) having gross premium of
Tk.2.41 billion (provisional) in 2013 (Tk.2.19 billion in 2011). Out of total gross premium of
Tk.20,49 billion (excluding SBC), PICL has earned Tk.l,874.91 million securing second
position in non-life insurance sector in 2013. Green Delta has placed 1st position by earning
Tk.2,610.97 million during the above period. Considering the SBC's gross premium, market
share of the company has been found good and improved to 8.22% in 2013 from 7.86% in
2012. Without considering the SBC's portion, PICL's market share also improved to 9.18%
from 8.75% during the above periods respectively.
2.4 Branch Network

Branch network of PICL has been found good in comparison to many second generation
companies. The company is presently operating its business with a wide branch network of 39
branches (excluding local office) at different strategically important areas of the country
having concentration in Dhaka and Chittagong. Out of the above 39 branches, 18 branches
are in Dhaka, 8 in Chittagong, 8 in Rajshahi, 3 in Khulna, 1 each in Sylhet and Barishal
division. The above branch network is in strategic areas and business hubs or the country which
might put the company in the comfort zone to enhance its business volume.

3.0 INSURANCE INDUSTRY

Insurance industry of Bangladesh has a long history of evolution. About a century back,
couple of insurance companies started both non-life insurance business during the
British regime in India. However, insurance business got the momentum during the Pakistan
regime. Later, GoB established the Bangladesh Insurance Corporation under "The Bangladesh
Insurance Corporation Order, 1972" for the purpose of management, administration and
development of insurance and re-insurance business in Bangladesh. On the establishment of
this corporation the Pakistan Insurance Corporation in Bangladesh dissolved and the Pakistan
Insurance Corporation Act, 1952 in its application to Bangladesh also stood repealed. In order
to provide for the management of the nationalized insurance business, a holding corporation
with 4 subsidiary corporations was created. Out of the 4 subsidiaries, 2 were exclusively for
life and 2 for non-life insurance business. The holding Corporation was, however, named
"Jatiya Bima Corporation''. On the May 4, 1973, the Insurance Corporation Ordinance No. VII
of 1973 was promulgated and subsequently enacted as Act VI of 1973 providing for the
establishment of a Jiban Bima Corporation for the purpose of taking over the undertaking of
the Surma Jiban Bima Corporation and the Rupsa Jiban Bima Corporation; and a Sadharan
Bima Corporation for the purpose of taking over the undertakings of the Karnaphuli Bima
Corporation and for the dissolution of the Jatiya Bima Corporation.

Insurance industry of Bangladesh has suffered from undue political interference, fraudulent
claims, inadequate risk assessments and limited quality private sector participation. In order
to reduce risk of Insurance business two Acts namely Insurance Development and Regulatory
Authority Act, 2010 and Insurance Act, 2010 has been enacted and replaced the-age old
insurance laws. The Department of insurance has been abolished and substituted by the five-
member Insurance Development Regulatory Authority (IDRA). For further enhancing the
solvency position, the paid up capital for non-life and life Insurance companies have been raised
to Tk.400 million and Tk.300 million respectively. The number of Directors of a
company has been fixed to 20 including 2 Independent Directors and debarred the Directors
of an insurance company to be a Director of another insurance company of same class and of
a bank or a financial institution simultaneously. The new law also introduced mandatory
solvency margin for the insurance companies. Besides, the insurance companies will be
required to ensure international accounting standard, separate Islamic Insurance from
conventional ones and put a limit on commission expenses. The law also allowed (foreign
investment in non-life insurance sector. With the promulgation of the Acts, the insurance
industry has been placed under the Ministry of Finance from the Ministry of commerce. IDRA
has been formed in line with the section 3, 5 (1) and 6 of the Insurance Development and
Regulatory Authority Act-2010. IDRA has taken initiative to develop of Bangladesh insurance
industry as well as to regulate the industry within the purview of the Insurance Act. 2010 so
as to ensure a level playing field for all companies. Within a short span of time the authority
has succeeded in taking the industry to different height. IDRA has taken action by fixing 15%
commission to stop unbridled competition and hefty commission of the insurance companies.
The authority also barred on credit business and investment in land & building and discourage
in- house business. Besides, IDRA also introduced offsite supervision by applying CARAMEL
rating like central bank's CAMELS rating based on seven key indicators- capital adequacy,
asset quality, reinsurance, actuarial issues, management efficiency, earnings & profitability
and liquidity. Insurers hope that the authority will bring significant changes in the industry if
IDRA is allowed to work as an independent authority.

4.0 CORPORATE GOVERNANCE

4.1 Board of Directors and its Committees

As per section 76(1) of Insurance Act'2010, Board may be constituted by twelve sponsors, six
public and two Independent Directors. The Board of PICL has been constituted of 14 Directors
including two Independent Directors as on December 31, 2013. The Board is currently Chaired
by Mr. A.K.M Rahmatullah, a renowned industrialist and a Member of Parliament of Peoples
Republic of Bangladesh. The other members of the Board have immense exposure to
diversified industrial sectors like pharmaceuticals, textiles, fabrics, hospitals, fashions,
toiletries, tanneries, footwear/leather goods, chemicals, garments, real estate etc. The Board
mainly deals with policy matters and strategic aspects of the company and also evaluates
operational and business performance of the company and gives directives to the
management. The Board held 7 meetings in 2013 and 2012 each. The Board also has three
members Audit Committee (AC) Chaired by Mr. Abdul Muyeed Chowdhury, Independent
Director. AC is responsible to the Board for its observation and overall activities relating to
internal audit & external audit reports, statement of financial position, finding out suspected
infringement or laws, rules & regulations along with other functions. In addition, the Board
also has formed three sub-committees namely Claims Committee (CC), Investment
subcommittee and Budget subcommittee. CC consists of 5 five members including Managing
Director and is Chaired by Board Chairman to deal with the approval of claims of more than
Tk.0.50 million. Investment subcommittee consists of four members including Managing
Director and is chaired by Chairman of the Board to determine policies and implement
decisions about all matters relating to investment. Budget-subcommittee consists of three
members Chaired by Mr. Syed Nasim Manzur to approve the budget as placed by the
Managing Director and reviews the gap between the expected and actual results.

4.2 Management Team

The management of PICL is run by an experienced team led by Mr. Q.A.F.M. Serajul Islam, as
the Managing Director. Mr. Islam joined the company as Additional Managing Director in 2005
and he has long experience in insurance industry. Prior to joining the company he was Deputy
Managing Director of Pragati Insurance Ltd. and Deputy General Manager of SBC. PICL has
expanded its management team with more experienced individuals during the period under
surveillance in 2013. Seven Deputy Managing Directors (DMDs) has been added to previous
eight DMDs. Moreover, seven Assistant Managing Directors (AMD), eight Executive Directors
(EO), thirteen General Managers (GM), thirteen Senior Deputy General Managers (SDGM),
eighteen Deputy General Manager (DGM) and thirty seven Assistant General Managers (AGM)
assist Managing Director. The activities of the company are being carried out through
ten departments namely Business Development, Underwriting, Branch Control & Management
information System, Reinsurance, Claims, Accounts, Internal Audit, IT, Share and Human
Resource department. In order to run the company's functions smoothly, PICL has five
members management committee Chaired by the Managing Director. The committee
members discuss company's policy matter and important decisions to give feed back to the
Board. The committee held 8 meetings in 2013 against 8 in 2012.
4.3 IT Infrastructure and MIS

The IT infrastructure of PICL has been found good and improving. The IT related activities are
being carried by experienced IT professionals under direct supervision of Mr. A. K. M. Jashim
Uddin Ahmed, Deputy Managing Director. The company currently uses in-house developed
software by the IT department for its official requirement. The company uses desktop
computers in the head office connected with local Area Network (LAN) supported by one
server. In addition, the company has an additional server for backup requirement. All the
branches in Dhaka city are connected with Wide Area Network (WAN). PICL already took steps
to connect Wide Area Network (WAN) of all branches n dimensional focus. Under the above
backdrop, fax, internet and postal mail are used to make correspondence with the branches.
The company uses tally software for Accounts department. Besides, PICL already adopted
various software for underwriting, re-insurance and HR. However, the company is yet to
develop integrated software for the smooth management information system. However, as
per IDRA circular to digitalize the whole insurance industry under same umbrella, PICL has
been awaiting to develop IT as per instructions from IDRA.

4.4 Human Resources Management

PICL has an experienced management team with wide exposure in non-life insurance industry.
The quality or human resources has been found good. PICL has been carrying out its business
with total staff strength of 510 as on December 31, 2013. The company recruited good
number or employees in consecutive three years in 2011-2013. PICL recruited 67, 72 & 64
employees while promoted 90, 12 & 79 employees in 2013, 2012 and 2011 respectively.
However; 20, 6 and 3 different level executives left the company during the above periods.
The company has documented service rule for the employees to create congenial working
environment. The company provides some Long-term benefits to their employees like
provident fund, gratuity, group insurance facilities, benevolent fund, Personal Accident
Insurance Policy, Group Hospitalization Plan Insurance Policy, house building loan etc. The
company has in house training institute and the company is currently developing its human
resources through arranging necessary training program, conducting different motivational
program, ensuring sound working environment and continuous job evaluation process.
Moreover, newly recruited officials get on-the job training before they are designated for a
particular office of responsibility. The training programs are related to fundamental course of
non-life insurance, basic course of general Insurance, advanced course of fire insurance,
advance course of engineering insurance, efficiency development in management, reinsurance
management, international general insurance foundation course and other basic English and
computer foundation courses. 28 different level executives attended different training
program in home and abroad in 2013 against 26 in 2012.

4.5 Marketing Strategy

PICL follows aggressive marketing policy to procure business. The business of the company is
mainly focused on fire policies with particular emphasize on garments, textiles,
pharmaceuticals, telecommunication and power generation sectors. The company has a good
marketing department consisting of 202 personnel as on December 31, 2013 and 209
commission agents. Marketing related functions of the company are being carried out by the
Business Development Department· under the direct supervision of Mr. Al-Moeiz Laiwala,
who is a Deputy Managing Director of the company. Out of total gross premium Tk.l,832.16
million (excluding PSB received from SBC), PICL earned 18.05% of its gross premium from in-

house business in 2013 while the same was 21.13% in 2012. PICL also earned PSB income of
2.32% and 2.10% during the above periods respectively. While analyzing the business
composition, it has been revealed that PICL underwrote 33 high valued risks in 2013 against
24 in 2012. Gross premium from the top twenty clients stood at Tk.740.64 million which was
39.58% of total gross premium earnings having good corporate and multinational exposure.
PICL earned maximum portion of its premium from garments & textiles sectors of large group
such as- Square- Tk.103.63 million, Noman-Tk.101.24 million, ACI-Tk.75.47 million, Apex-
Tk.72.15 million, Bashundhara- Tk.51.45 million, PRAN-RFL Tk.48.90 million etc.

5.0 BUSINESS PROFILE

5.1 Business Mix

PICL carries out all types of non-life insurance business as per the Insurance Act. Total
underwriting risk of the company stood at Tk.668.58 billion in 2013 against Tk.748.84 billion
in 2012. The above underwritten risk was constituted of Tk.353.71billion (Tk.361.67 billion in
2012) in fire business, Tk.149.63 billion (Tk.215.33 billion in 2012) in marine business,
Tk.13.59 billion (Tk.12.09 billion in 2012) in motor business and Tk.151.65 billion (Tk.159.75
billion in 2012) in miscellaneous business category. The income mix against the above
business classes revealed that fire business contributed the highest 42.99% portion of total
gross premium, followed by 34.56% from marine, 12.30% from motor and rest 10.15% from
miscellaneous business category in 2013. While analyzing the zonal breakdown of policies, it
has been found that the business portfolio is highly concentrated towards Dhaka zone like
other market players having 77.04% underwriting risk (85.24% in 2012) and 77.5% gross
premium earnings (79.34% In 2012) in 2013. After Dhaka zone, the company has
considerable exposure in Chittagong zone with 20.33% underwriting risk and 10.50% gross
premium while other zone has small exposure with 2.63% of underwriting risk and 11.65%
gross premium during the above period.

5.2 Reinsurance

In accordance with the present rule, 50% of the re-insurable non-life insurance business shall
be reinsured with Sadharan Bima Corporation (SBC) and the remaining to be reinsured either
with the SBC or any other reinsurer inside or outside Bangladesh. PICL in line with the
existing regulation, takes its 50% reinsurance arrangement with SBC while rest is reinsured
with overseas re-insurers i.e, Malaysian Re; GIC of India; Best Re, Malaysia and some other
foreign reinsurers, The Reinsurance Department of the company is headed by Mr. Tank Ur
Rahman, who has been serving PICL as Deputy Managing Director and has well experience in
re-insurance. PICL has surplus treaty and for all classes of business except motor and
miscellaneous business, for which the company has excess of loss treaty. PICL also has,
facultative re-insurance arrangement for all classes of business having sum insured greater
than treaty capacity. In addition to the above, the company's retained portion is protected by
Risk XL and CAT XL treaty with overseas reinsurers for all classes of business. PICL
underwrote total risk of Tk.668.58 billion in 2013 against which reinsurance coverage was
Tk.370.10 billion representing 55.36% (56.44% in 2012) gross reinsurance coverage.

5.3 Claim Settlement

PICL has prescribed claim settlement procedure which starts with receiving a letter from the
client. Subsequent to the letter, PICL appoints a government licensed surveyor for the
assessment of loss according to the claim report from the surveyor, the documents and the
survey report are scrutinized and placed before the authority for approval of the claim. The
claim department is headed by a Deputy Managing Director having wide experience in claim
settlement. MD can approve claim up to lk.0.50 million. Any claims beyond the above limits
are placed to claim committee, Though P1CL settled a significant amount gross claim of
Tk.337.10 million in 2013, a substantial amount of claim yet remain outstanding, however,
maximum portion has been reinsured, Due to substantial outstanding claim incurred of
Tk.l,650.00 million in fire segment with reinsurance coverage of Tk.l,648.50 million on
Aswad Composite Mills Limited, a concern of Palmal Group PICL has substantial outstanding
claims of Tk.1,810.57 million of which PICL's portion was Tk.44.02 million and re insurance
coverage was Tk.1,766.56 million. Out of the above outstanding claim, maximum 94.75%
remain in fire, 3% in miscellaneous, 1.44% in marine and rest 0.81% in motor business
category. PICL has paid in-house claim of Tk.8.08 million in 2013 against Tk.5.87 million in
2012.

5.4 Underwriting Quality and Expertise

Overall underwriting quality as well as underwriting performance of PICL has been found
good and improving during the period under surveillance. Underwriting profit of PICL rose
to Tk.255.02 million in 2013 from Tk.216.57 million in 2012 and Tk.123.31 million in
2011 against Tk.61.95 million in 2010 indicating 17.76% growth in 2013 and 72.20%
growth in 2012 due to increase of net premium earnings as well as reduction in
management expenses. Like all other non-life insurance companies in Bangladesh PICL
follows Central Rating Committee approved tariff named as Bangladesh Fire Tariff,
Bangladesh Marine Tariff and Bangladesh Motor tariff. The underwriting department of
PICL is functioning to undertake any risk under the leadership of long professional
expertise. The overall underwriting activities are being carried out under the direct
supervision of Mr. A.K.M. Jashim Uddin Ahmed, who is serving the company as Deputy
Managing Director (DMD) having long experience in insurance industry. In addition, the
long experienced Managing Director also adds value to underwriting. PICL has
underwriting department comprising of 1 General Manager, 1 Senior Deputy General
Managers, 1 Deputy General Managers and 2 Assistant General Mangers.
5.5 Sectoral Business Review
………………………………………………………
We reviewed the class wise business as follows:

5.5.1 Fire Business

Underwriting performance of PICL in fire business is yet to be developed as it suffered

consecutive underwriting loss in three years. Though gross premium earning from this
segment increased to Tk.806.13 million in 2013 from Tk.703.42 million in 2012 and
Tk.695.39 million in 2011, PICL suffered underwriting loss of Tk.43.17 million, Tk.48.10
million and Tk.8.47 million during the above periods respectively. Due to low retention
ratio as well as substantial amount of claim payment and incurred expenses, the company
suffered above underwriting losses. Total underwriting risk in this business segment has
also been found large and stood at Tk.353.71 billion in 2013 while it was Tk.361.67 billion
in 2012 against reinsurance coverage of Tk.299.27 billion in 2013 indicating 84.61%
(90.60% in 2012) re-insurance coverage. Though gross premium increased by 14.60%,
reinsurance premium in this segment rose by to 14.78% in 2013. Consequently, retention
ratio slightly moved downward to 21.10% from 21.22% during the above periods
respectively. Due to low retention ratio arising out of insuring high valued risk
assignments, the basic earning power of the segment has been affected although reinsurance
protection has been ensured and a significant amount (Tk.149.54 million) has been earned
from commission on reinsurance ceded. Consequently, adjusted net premium earnings rose
to Tk.319.64 million in 2013 from Tk.279.99 million in 2012. Expense ratio declined to
69.27% in 2013 from 74.48% in 2012 due to comparatively higher growth of adjusted net
premium earnings against expenses. Due to substantial net claim payment of Tk.133.07
million in 2013 against Tk.1l6.52 million in 2012, claim ratio has been found high and
stood at 41.63% and 41.61% during the above periods respectively. Though combine ratio
declined to 110.90% in 2013 from 116.09% in 2012 due to cumulative effect of above
mentioned decreased expense ratio, it is yet high.

5.5.2 Marine Business

Marine business of PICL is good among the business segment as maximum underwriting
profit come from marine. Underwriting profit in this segment increased to Tk.194.31
million in 2013 from Tk.169.82 million in 2012 due to improvement in gross premium
earnings as well as declined in agency commission and management expenses. Gross
premium earnings rose to Tk.647.93 million in 2013 from Tk.631.84 million in 2012,
however, adjusted net premium earnings declined to Tk.412.54 million from Tk.435.19
million during the above periods respectively. Agency commission declined to Tk.94.98
million in 2013 from Tk.l04.27 million 2012 while management expenses also declined to
Tk.80.10 million from Tk.87.51 million during the above periods respectively. Moreover,
net claim payment rose to Tk.592.21 million in 2013 from Tk.552.92 million. Total
underwriting risk in this business segment declined to Tk.149.63 billion in 2013 from
Tk.215.33 billion in 2012 against reinsurance coverage of Tk.51.97 billion in 2013
indicating 34.73% (26.33% in 2012) re-insurance coverage. Retention ratio also declined to
57.89% in 2013 from 62.92% in 2012 due to comparatively higher growth of reinsurance
premium against gross premium earnings, however, it has been found good. Management
expenses in this segment decreased by 8.79% in 2013 while agency commission also declined by
8.92% during the above period. Consequently, expense ratio decreased to 42.44% in 2013 from
44.14% in 2012. However, claim ratio rose substantially to 14.91% from 2.61% due to
substantial increase net claim payment against adjusted net premium earning during the above
periods respectively.

5.5.3 Motor Business

Though underwriting profit in motor segment declined in 2013. Overall underwriting

performance in this business has been found good. Underwriting profit in motor moved
downward to Tk.90.13 million in 2013 from Tk.97.46 million in 2012 due to substantial
increase (29.38%) of net claim payment. Total underwriting risk in this segment increased to
Tk.13.59 billion in 2013 from Tk.12.09 billion in 2012 having 100% retention in its own
capacity gross premium earning this segment moved upward to Tk.230.57 million in 2013
from Tk.216.77 in 2012 while net premium earnings also rose to Tk.227 million from Tk.21l.19
million during the above periods respectively. Consequently, retention ratio in
motor business rose to 98.28:% in 2013 from 98.01% 2012 due to good retention in its own
capacity. Management expense and agency commission in this segment has been found low in
comparison to gross and adjusted net premium earnings. Consequently, expense ratio found
good and declined to 27.89% in 20.13 from 34.81% in 2012. However, claim ratio rose to
29.86% in 2013 from 25.01% in 2012 due to substantial increase of net claim payment
against adjusted net premium earnings.

5.5.4 Miscellaneous Business

Overall underwriting performance in miscellaneous segment has been found average during
the period under surveillance as it moved to profitability against underwriting loss in previous
year. PICL made underwriting profit or Tk.13.75 million in 2013 against underwriting loss of
Tk.2.61 million in 2012 due to significant growth of gross premium as well as adjusted net
premium earnings. Gross premium rose to Tk. 190.28 million in 2013 from Tk.149.24 million
in 2012 while net premium earnings also moved upward significantly to Tk.103.13 million
Tk.34.46 million during the above periods respectively. Consequently, adjusted net premium
earnings also rose to Tk.111.49 million in 2013 from TK.43.87 million in 2012. Net claim
payment rose by 36.10% while management expenses and agency commission rose by
22.43% and 17 .68% respectively in 2013. Retention ratio improved significantly to 54.20%
in 2013 from 23.090% in 2012 due to comparatively higher growth gross premium earnings
against reinsurance premium. Total underwriting risk in this segment decreased to Tk.15l.65
billion in 2013 from Tk.159.75 billion in 2012 while reinsurance coverage was Tk.18.82 billion
in 2013 indicating 13.02% reinsurance coverage (23.98% in 2012). Though net claim
payment rose by 36.10%, claim ratio declined to 18.47% in 2013 from 34.49% in 2012 due
to comparatively higher growth of adjusted net premium earnings in 2013. Moreover, the
company significantly pulled down its management expenses and agency commission in 2013.
Consequently, expense ratio declined to 42.94% in 2013 from 90.99% in 2012. Due to
significant decrease of claim ratio and expense ratio, combined ratio also moved downward to
61.41% in 2013 from 125.48% in 2012 which lifted its overall profitability.

5.6 Retention Capacity

Retention limit or private sector general insurance companies are revised from time to time
depending on the financial strength, underwriting expertise etc. As per latest proportional
treaty (for the period April 1, 2014 to March 31, 2015), retention limit of PICL with SBC and
overseas reinsurance reveals fire class retention of Tk.25.00 million, marine cargo of Tk.25.00
million, marine hull of Tk.5.00 million and engineering of Tk.13.75 million. In addition, the
company has excess of loss treaty with overseas reinsurers which further reduces the net
retention of fire business to Tk.1.50 million, marine cargo to Tk.1.00 million and motor to
Tk.0.75 million. Engineering and miscellaneous class to Tk.0.50 million. Total treaty capacity
of the company under different business segment has been found good with fire business of
Tk.1,400.00 million (including auto facultative/2nd surplus), marine cargo of Tk.525.00
million, marine hull Tk.95.00 million and engineering class of Tk.750.00 million.

5.7 Investment Portfolio

Investment portfolio of PICL has been found good and diversified during the period under
surveillance in 2013. Total investment rose to Tk.1,261.99 million in 2013 from
Tk.l.238.85 million in 2012. Out of above investment, Tk.792.55 million (Tk.887.89 mill
on in 2012) was invested in FDR followed by Tk.336.67 million (Tk.284.35 million in
2012) in shares, Tk.l07.77 million (Tk.57.61 million in 2012) in STD account and Tk.25.00
million in Bond (Tk.9.00 million in 2012). PICL has enhanced its investment in bond to
Tk.25.00 million with compliance of its regulatory requirement under section 23 & 24 of
insurance Act, 2010. Besides, PICL has made significant fixed assets investment of
Tk.295.51 million in 2013 to purchase office spaces in prime location of Dhaka and
Chittagong which has enhanced its investment quality. All investment decisions of the
company are being carried out by Accounts department through the Investment Sub-
Committee under the direct supervision of MD which comprising of four Directors with
Chairmanship of Mr. Syed Nasim Manzur. The company holds significant no. of IPO
shares of Mutual Trust Bank Limited which flourished its overall investment portfolio and
made considerable amount of unrealized gain. Total unrealized gain stood at Tk.253.37
million as on May 31, 2014 considering MV of Tk.590.31 million against BV of Tk.336.94
million. Due to volatility in capital market, PICL has made provision of Tk.6.57 million in
2013. Inspite of significant investment in capital market, income from this segment
decreased to Tk.0.33 million in 2013 from Tk.7.70 million in 2012, however, dividend
income rose to Tk.13.18 million from Tk.9.90 million during the above periods respectively.
Interest from FDR also declined to Tk.76.89 million in 2013 from Tk.84.96 million in 2012
due to decline of FDR base. Consequently ROAI declined 7.60% from 9.37% during the
above periods respectively. When analyzing maturity bucket, CRISL observed that out of
FDR base of Tk.775.74 million as on May 31, 2014, Tk.692.49 million is lying on 3
months maturity bucket, Tk.61.22 million on 6 months and rest Tk.22.03 million on 1 to 3
years maturity bucket indicating good investment management for quick liquidity and
Claim settlement.

6.0 PERFORMANCE

6.1 Financial Performance

The financial performance of PICL has been found good and improving. The above
performance has been cropped up due to significant underwriting profit and interest on FDR

income during the period under surveillance. Though some key financial performance
indicators moved downward in 2013, these have been found good. Consolidated gross
premium earnings of the company increased significantly to Tk.l,874.91 million in 2013
from Tk.l,701.27 million in 2012 against Tk.1,598.60 million in 2011 and 1,252.37 million
in 2010 while net premium also rose to Tk.876.03 million from Tk.792.48 million during
the above periods respectively. PICL's underwriting profit also rose to Tk.255.02 million in
2013 from Tk.216.57 million in 2012 due to significant adjusted net premium earnings.
Moreover, due to significant FDR base, interest on FDR stood at Tk.8l.51 million in 2013.
Moreover, PICL has earned Tk.13.I8 million in 2013 against Tk.9.90 million in 2012 from
dividend income. Consequently, Profit before Tax (PBT) and Profit after Tax (PAT) has
been improved in 2013. PBT moved upward to Tk.297.84 million in 2013 from Tk.277.17
million in 2012 while PAT also rose to Tk.212.84 million from Tk.207.17 million during
the above periods respectively. Gross underwriting margin rose slightly to 58.00% in 2013
from 57.48% in 2012 and 46.43% in 2011 against 41.41% in 2010 while net underwriting
margin also increased to 23.78% from 22.32% during the above periods respectively.
However, Pre-tax operating margin moved downward to 27.77% in 2013 from 28.57% in
2012 due to comparatively higher growth adjusted net premium earnings against PBT.
Moreover, Return on Average Asset (ROAA) and Return on Average Equity (ROAE)
declined in 2013. ROAA declined to 15.68% in 2013 from 16.83% in 2012 but it was
increased 16.23% in 2011 from 14.41% in 2010 while ROAE also moved downward to
20.05% from 23.25% during the above periods respectively due to comparatively higher
growth of average assets and equity against PAT however, these were found good. Due to
low income from investment. i.e. especially from shares, Return on Average Investment
(ROAI) also decreased to 7.60% in 2013 from 9.37% in 2012 but it has been decreased to
14.55% in 2011 from 20.72% in 2010.

6.2 Technical Analysis

Technical performance of P1CL which is measured in terms of retention ratio expense ratio and
claim ratio have been found good and improving during the period under surveillance
retention ratio stood at 46.72% in 2013 against 46.58% in 2012. Agency commission rose by
1.26% due to increase of overall business while management expense declined by 0.86%,
however, adjusted net premium earning rose by 10.55% consequently, expense ratio
improved and declined to 47.38% in 2013 from 52.23% in 2012. However claim ratio has
been found high and rose to 26.43% from 20.18% due to comparatively higher- growth of
claim expenses against adjusted net premium earning during the above period respectively.
PICL has reduced its overall expenses in 2013. Due to significant non-marine business, its
allowed management expenses of Tk.543.42 indicating 0.11% lower than allowable limit in
2013. The same was 5.21% higher in 2012, while analyzing the overall efficiency, it has been
revealed that the combined ratio slightly rose to 73.81% in 2013 from 72.41% in 2012 due to the
cumulative effect of aforementioned decreased of expenses ratio claim ratio in some extent.
7.0 BALANCE SHEET STRENGTH

7.1 solvencies Analysis

The equity of PJCL has been found improving. As per Insurance Act 2010.The paid up capital
has been fixed at Tk.400 million as minimum capital requirement for all non-life insurance
companies, whereas PICL has crossed the above capital base and enhanced to Tk.424.12
million as on December 31, 2013. Moreover, the recent move of the company to Issue 20%
bonus share offer w II further enhance the capital base. The equity base of the company rose
to Tk. l,141.1l million in 2013 from Tk.975.90 million in 2012 registering 17.60% growth.
Beside, P1CL has purchased ·office space of 22,632 sft in Dhaka and Chittagong With
renovation having FSV of Tk.304.57 million as on December 31, 2013 which has enhanced its
overall solvency. The equity consist of 37% paid-up capital, 37.30% reserve for exceptional
losses, 12.50% share premium, 7.40% proposed bonus share, 5.40% retained earning while
remaining 0.40% general reserve. While analyzing overall solvency position it has been found
Improving In terms of relative measurement as maximum solvency indicators improved in
2013. External liabilities to equity ratio decreased to 0.37X in 2013 from 0.40X in 2012, 0.43X
in 2011 and 0.49X in 2010 due to significant improvement in equity. Total capital & fund to
total assets slightly rose to 74.74% in 2013 from 74.30% in 2012. Exceptional loss reserve to net
premium ratio also slightly increased to 9.68% from 9.49% during the above periods
respectively. Net worth to total assets also increased to 55.06% in 2013 from 56.63% in 2012,
52.99% in 2011 and 48.85% in 2010 due to comparatively higher growth of net worth against
total assets indicating improving equity backup against assets. However, internal capital
Generation Ratio (ICGR) Of PICL decreased to 17.65% from 20.94% during the above periods
respectively, nevertheless, it has been found good. Insurance liability to total asset has been
increased to 6.18% in 2013 from 4.62% in 2012 due to comparative increase of liability against
assets reflecting increased outstanding liabilities against total assets. Unexpired risk reserve to
net claim ratio declined to 1.29X in 2013 from 1.74X in 2012 due to comparative increase of risk
reserve against net claim payment which was 1.56X in 2011 against 1.29X in 2010.

7.2 Liquidity and funding

Though maximum liquidity indicators registered a downward trend, liquidity position of (PICL)
has been found sound. Total current assets of the company declined to Tk. 1.581.00 million
2013 from TK.1,660.54 million in 2012 but it was Tk.1,410.84 million in 2011 against
Tk.907.16 million in 2010. However, it has been found sound to settle claim as well as to deliver
its day to day obligation with more safety and efficiency. FDR base declined
to TK.792.55 million in 2013 from Tk.887.89 million in 2012. Total insurance fund moved
upward to TK.367.04 million from TK.341.95 million during the above periods' respectively
indicating 7.59% growth. However, liquid assets to insurance fund ratio declined to 3.45X In
2013 from 3.89X in 2012 due to comparatively higher growth of insurance fund against liquid
assets to total assets ratio also declined to 62.53% in 2013 from 74.91% in 2012 due to
significant fixed asset growth In its assets composition against liquid assets. Due to comparative
increase of current Liability against current asset, current ratio of the company declined to 2.39X
n 2013 from 2.72X in 2012. Liquid asset to net claim also Decreased to 4.47X from 6.78X
during, the above period respectively due to comparatively higher growth of net claim payment
against liquid assets. Liquid assets to total current liability ratio also decreased to 1.92X in 2013
from 2.17X in 2012. The maturity structure of fixed deposit reveals flexibility to support the
liquidity requirement of the company to meet up the claims and other operational expenses in case
of need, which Put the temporary claim paying ability in more comfortable position .Moreover,
net operating cash flow has moved upward to Tk.394.49 million in 2013 from Tk.161.44 million
in 2012 due to significant business and other income against decline of management expenses.
8.0 RISK MANAGEMENT

8.1 Industries risk

Too many insurance companies in a small market pose significant risk for all companies.
The two acts Insurance development and Regulatory Authority Act, 2010' Insurance Act,
2010' has brought significant changes in the regulation of the Industry. For further enhancing
the solvency position, the paid up capital for non-life and life Insurance companies have been
raised to Tk.400 million and Tk.300 million respectively. Moreover, mandatory credit rating for

the Insurance companies created a positive vibration in the industry as the institutional
Insured expect for good credit rating to safeguard their interest. The same will pressurize the
underperforming (non Investment grade) Insurance companies to retain their market share.
Moreover, IDRA has licensed two more non-life insurance companies in small market.

8.2 BUSINESS RISK MANAGAMENT

PICL has adopted its own underwriting guideline to mitigate the business risk. The company has
formed a three members Risk Inspection Team led by the Head of internal audit department. The
other two members are one from the underwriting department of the Head Office and the other is
the concerned underwriting officer. The head of underwriting examines the report after necessary
consultation with team members and forwards the same to the Managing Director with his
observation and recommendation. Managing Director finally makes the decision whether to
accept the risk as standard or with some modification. Moreover, underwriting professionals at
branch level are given specific instruction and guidelines time to time from Head Office
regarding underwriting of different types of policies. Among the different classes of business
PICL has more concentration in fire (52.90% of total underwriting risk) and miscellaneous
(22.68% underwriting risk) business segment which are categorized under high to medium risk
category. During 2013, among the different class of business, PICL earned maximum gross
premium from fire business (43% of total gross premium) indicating business risk in some
extent.

8.3 Internal control risk management

Internal control is the process of ensuring transparency and accountability which can enhance
the operating efficiency in the organization. Internal control risk arises from non compliance of
rules and regulation of an organization which puts an Impact on business performance. PICL
has separate Internal Audit department (IAD) besides the board audit Committee to ensure
proper internal control of the company. Audit department is composed of three members
headed by Mr. S.M. Nazrul Islam Bhuyan, who has been serving as Sr. DGM to look Into the insight or
branches and head office with the main purpose of looking at the compliance Issues
as per the provisions of the insurance Act and submit the report to Managing Director. IAD
verifies all business records procured by the branch and examines all documents, registers,
books maintained by the branches. All expenses including agency commission, collections and
deposits are also checked by tile IAD. The above department conducted audit 32 branches in
20l3 against 25 in 2012.

8.4 Catastrophe Risk management

Bangladesh is vulnerable to natural disaster which exposes PICL to catastrophic risks like other
companies In the Industry. Therefore Tile Company arranges CAT excess of loss treaty with
overseas reinsurer. The company has combined fire, marine cargo, engineering and
miscellaneous CAT XL treaty of TK.60.00 million in excess of Tk.2.50 million and motor CAT
XL treaty of Tk.49.25 million in excess of Tk.0.75 million. However, PICL did not encounter any
catastrophic loss in 2013 & 2012.

8.5 Financial Risk

The applicable income tax rate for insurance companies is presently fixed at 42.50% on the
taxable net profit. In 2012 and 2013, PICL kept significant amount of Tk.85.00 million and
Tk.70.00 million respectively as income tax provision. Assessment of the accounting year upto
2013 yet to be settled and held for under processing in appeal and tribunal. However, PICL paid
Tk. 36.38 million in 2013 as tax.

9.0 OBSERVATION SUMMARY

Rating Comforts: Rating Concerns:

* Good financial performance * Consecutive underwriting loss
* Improving solvency position in fire business
* Sound liquidity * Decline of key liquidity indicators
* Good market share * Noticeable outstanding claim
* Diversified ownership pattern with * High claim ratio in fire and motor
institutional shareholding segment
* Good re-insurance arrangement with
local and foreign re-insurance
* Diversified investment portfolio
* Experienced management team
* Good fixed asset investment

Business Prospects: Business Challenges:

* Product diversification * Too many companies in small market
* Compliance of new Insurance Act * Emergence of foreign companies
* Compliance of new Insurance Act

10.0 PROSPECTS

The Business prospects of the general insurance companies particularly depend on smooth and
sound operation of trade and commerce which is positively corrected with the stable
macroeconomic fundamental of the country. Deposit of slow signs of recover of global financial
market and institution effects of the global solo down are widely viewed in FY2010. i.e thought-
out the whole of FY2010, affecting the growth momentum in our export, manufacturing and
investment activities. Finally, recent changes in insurance industry (Insurance Development &
Regulatory Act 2010 and insurance Act 2010) are likely to bring positive changes in the
insurance sector to make it vibrant and operationally sound. Based on the overall global,
macroeconomic and industry outlook, insurance industry is presumed to encounter tough time
for which all the market player including PICL should take cautious steps to adopt itself with
the local and as well as global changes. To keep away from unhealthy competition PICL has
emphasized to run new & innovative policy.
11.0 CORPORATE INFORMATION

Date of Incorporation: March 25, 1996

Date of Commencement of Business: May 13 1996

Board of Directors

SL. No. NAME POSITION

1. Mr. A.K.M. Rahmatullah, MP Chairman
2. Mr. Tapan Chowdhury Director
3. Mr. M Anis Ud Dowla Director
4. Mr. Syed Nasim Manzur Director
5. Mr. Alamgir Shamsul Alamin Director
6. Ms. Shusmita Anis Director
7. Ms. Fahama Khan Director
8. Mr. M.A. Majed Director
9. Ms. Parveen Akter Director
10. Ms. Rozina Afroze Director
11. Ms. Sanchita Chowdhury Director
12. Mr. Syed Abdus Sobhan Director
13. Mr. Abdul-Muyeed Chowdhury Independent Director
14. Mr. A Matin Chowdhury Independent Director
15. Captain A. B Tajul Islam (Retd.) MP Independent Director
Key Management:

SL. No. NAME DESIGNATION

1. Mr. Q. A. F. M. Serajul Islam Managing Director
2. Mr. S.M. Mizanur Rahman Deputy Managing Director & CS
3. Mr. Dipak Kumar Chakraborty Deputy Managing Director
4. Mr. Al Moeiz Laiwala Deputy Managing Director
5. Mr. Salimur Reza Chowdhury Deputy Managing Director
6. Ms. Shamima Faizy Deputy Managing Director
7. Mr. Showkat Hossain Siddiki Deputy Managing Director
8. Mr. Shariful Islam Chowdhury Deputy Managing Director
9. Mr. Mohd. Abu Taiyab Deputy Managing Director
10. Mr. Abdul Momen Deputy Managing Director
11. Mr. Zakir Hossain Deputy Managing Director
12. Mr. A. K. M. Jashim Uddin Ahmed Deputy Managing Director
13. Mr. Shabbir Ahmedullah Sinha Deputy Managing Director
14. Mr. Monjurul Haque Deputy Managing Director
15. Mr. Gazi Md. Sarwarul Alam Deputy Managing Director
16. Mr. Tarik Ur Rahman Deputy Managing Director
17. Mr. Md. Abidul Haque Assistant Managing Director
18. Mr. Md. Mahabbatur Rahman Khan Assistant Managing Director
19. Mr. Salim Sajjad Haque Assistant Managing Director
20. Mr. Md. Nazrul Islam Talukder Assistant Managing Director
21. Mr. Khandaker Saad Ullah Assistant Managing Director
22. Mr. Sk. Rahat Ahmed Assistant Managing Director
23. Mr. Gazi Shawkat Hossain Assistant Managing Director
24. Mr. Md. Nurunnabi Siddique Executive Director
25. Mr. Ava Dutta Executive Director
26. Mr. Shahidul Islam Executive Director
27. Mr. Ahmed Tazdiqul Mowla Executive Director
28. Mr. Ruhel Das Karmaker Executive Director
29. Mr. Md. Musa Reza Siddiqul Executive Director
30. Mr. Md. Abdul Mannan Executive Director
31. Mr. Md. Mustafa Sarwar Executive Director
32. Mr. Dhruba Kumar Guha Chief Financial Officer
33. Mr. S. M. Nazmul Islam Bhuiyan Head of Internal Audit
12.0 FINANCIALS

12.1 Balance Sheet as at December 31

(Tk. in million)
PARTICULARS 2013 2012 2011 2010
ASSETS
Cash in Hand 2.70 1.88 2.04 1.72
Cash with Banks 900.33 945.50 806.60 343.31
Cash and Bank Balance 903.03 947.38 808.63 345.03
Stamps in Hand 2.11 2.06 2.71 4.00
Adv. Depo. & Prepmt. (Sundry Debtors) 311.57 330.60 229.39 257.87
Outstanding Int./Divi./Rent 27.62 96.16 93.48 51.54
Investment in Securities (ST) 336.68 284.35 276.63 248.72
Total Current Assets 1,581.01 1,660.54 1,410.84 907.16
Investment in Securities (LT) 25.00 9.00 9.00 9.00
Fixed Assets 418.62 100.47 100.30 80.05
Stock of Stationary 2.07 2.57 1.53 1.84
Non Current Assets 445.69 112.04 110.82 90.89
Total Assets 2,026.70 1,772.58 1,521.66 998.05
Paid up Capital 424.13 353.44 271.88 187.50
Reserve for Exceptional Loss 427.83 343.00 267.78 196.38
Share Premium 144.00 144.00 144.00 31.50
General Reserve 4.50 4.50 4.50 4.50
Retained Earning 62.42 60.27 36.67 67.63
Proposed Bonus Share 84.83 70.69 81.56
Shareholder’s equity 1,147.71 975.90 806.39 487.51
Fund Balance 0.00 0.00 0.00 0.00
Fire Insurance 68.04 59.71 56.66 29.34
Marine Insurance 161.34 179.66 117.73 97.56
Motor Insurance 921.09 84.47 89.82 71.84
Miscellaneous Insurance 46.57 17.30 25.86 20.69
Balance of Fund Account 367.04 341.15 290.08 219.42
Estimated Liab. of Outstanding Claims 87.59 56.68 78.31 54.33
Total Insurance Fund 454.63 407.83 368.38 273.76
Premium Deposit 21.54 22.13 29.34 58.56
Amount Due to other person/bodies carrying 37.64 15.20 28.25 37.66
insurance business
Sundry Creditors 104.56 130.45 138.85 140.56
Proposed Dividend 42.41 35.34 0.00 0.00
Current Liab. 206.15 203.12 346.89 236.78
Total Current Liab. including Insurance Fund 660.77 610.95 715.27 510.54
Provision for Income Tax 218.22 185.73 150.45
Total Liab. 878.99 796.68 715.27 510.54
Total Liab. and Shareholder’s Equity 2,026.70 1,772.58 1,521.66 998.05
12.2 Profit and Loss Account for the year ended on December 31
(Tk. in million)
PARTICULARS 2013 2012 2011 2010
Net Underwriting P/L 255.02 216.57 123.61 61.95
Interest on FDR & STD 81.51 91.57 52.94 30.55
P/L from Sale of Shares 0.33 7.70 27.87 84.96
Dividend Income 13.18 9.90 42.41 1.07
Gross Investment and Other Interest Income 95.02 109.18 123.22
Other Income 0.08 0.01 0.07 0.25
Total Income 350.12 325.76 246.90 179.54
Management Expenses (P/L A/C) 35.26 33.79 28.45 31.35
Depreciation Expenses 17.02 14.80 13.92 17.89
Total Management Expenses 52.28 48.59 42.37 49.24
Profit before Tax 297.84 277.17 204.52 130.30
Provision for Tax 85.00 70.00 30.00
Profit after Tax 212.84 207.17 174.52

12.3 Consolidated Revenue Account for the year ended on December 31

(Tk. in million)
PARTICULARS 2013 2012 2011 2010
Gross Premium 1,884.91 1,701.27 1,598.60 1,252.37
Re-insurance Premium 998.88 908.79 880.09 721.07
Net Premium less Re-Insurance 876.03 792.48 718.51 531.31
Commission on Re-Insurance ceded & others 196.55 177.77 172.45 148.12
Adjusted Net Premium 1,072.58 970.25 890.96 679.42
Opening Balance 341.15 920.08 219.42 160.71
Total 1,413.73 1,260.32 1,110.38 840.14
Net Claims Paid 283.50 195.82 185.96 169.53
Agency Commission Paid 274.63 271.21 306.78 236.73
Expenses of Management 233.54 235.57 203.96 152.50
Profit Transferred to P/L A/C 255.02 216.57 123.61 61.95
Balance (C/F) 367.04 341.15 290.08 219.42