PROFIT OF INSURANCE COMPANIES OF NEPAL

By
Sneha Awal
Bimlesh Kumar Sah
Bhagwati Pandey
Sanjina Subedi
Shristi Acharya

Submitted to

Mr. Surendra Nepal

In the partial fulfillment of the requirement for the

Masters of Business Administration (MBA)

Apex College
Kathmandu, Nepal
2022
 CHAPTER I
INTRODUCTION

Insurance is a means of protection from financial loss. It is a form of risk management,

primarily used to hedge against the risk of a contingent or uncertain loss. Insurance is a
contract, represented by a policy, in which a policyholder receives financial protection or
reimbursement against losses from an insurance company. An entity which provides
insurance is known as an insurer, an insurance company, an insurance carrier or
an underwriter. A person or entity who buys insurance is known as a policyholder, while a
person or entity covered under the policy is called an insured. The insurance transaction
involves the policyholder assuming a guaranteed, known, and relatively small loss in the
form of a payment to the insurer (a premium) in exchange for the insurer's promise to
compensate the insured in the event of a covered loss. The loss may or may not be financial,
but it must be reducible to financial terms. Furthermore, it usually involves something in
which the insured has an insurable interest established by ownership, possession, or pre-
existing relationship. There are mainly two types of insurance companies they are

1. Life Insurance
2. Non-Life Insurance

1. Life Insurance
Life insurance is a contract between an insurance policy holder and an insurer or
assurer, where the insurer promises to pay a designated beneficiary a sum of money
upon the death of an insured person (often the policy holder). Depending on the
contract, other events such as terminal illness or critical illness can also trigger
payment. The policy holder typically pays a premium, either regularly or as one lump
sum. The benefits may include other expenses, such as funeral expenses.

2. Non-Life Insurance
It is the losses that are incurred from a specific financial event are compensated to the
insured this is called non-life insurance. General insurance, property insurance and
casualty insurance are other names of non-life insurance. It can be defined as any
insurance that is not related to life insurance. People, legal liabilities and properties
 are covered under a non-life insurance policy. These losses can be caused due to
various incidents like accidents, diseases, fire, natural or man-made mishaps, etc.

Figure: 1.1 Dependent and Independent Variable

Independent
Variables

Premium

Profit
No.of policy holder
(Dependent variable)

Types of insurance

In this report, we have taken profit as a dependent variable and premium, number of policy
holder and types of insurance as an independent variable.
 CHAPTER II
Methodology

The research design is based on descriptive and analytical design. It refers to the overall
strategy that we choose to integrate the different components of the study in a cohort and
logical way. In this research qualitative research method is implemented. All the data are
collected using the secondary source through the website and annual report of life insurance
and non-life insurance. Theories and data have been searched to support the research.
Afterward, data were collected as per the planned method. After data collection analysis was
made and conclusion was drawn accordingly.

Sample of Data

Among the 40-insurance company in Nepal, we have chosen the equal number of life
insurance company and non-life insurance company. We have selected 12 life insurance
company and 12 non-life insurance company respectively.

Data collection Procedure

In order to address research objective data were analyzed using quantitative research
measures. Descriptive Statistic has been used for addressing all the research objectives.
Therefore, this section deals with statistical model used for the purpose of analysis of the
secondary data that are used in this study. To make report simple and easily understandable,
charts and diagram has been used. The appropriate data will be converted into tabular and
graphical form with the help of MS Excels and charts. Use of statistical tools like Regression
Analysis, ANOVA Table, Standard Deviation as well as Durbin Watson has been done to
analysis the result of the study.

To fulfill the research objective independent variables such as premium, number of policy
holder and type of insurance has been taken accordingly.
 CHAPTER III
ANALYSIS OF DATA

In this chapter, analysis of the data collection of the study are discussed.

Table 3.1: Descriptive Statistics

Descriptive Statistics
N Mean Std. Deviation Variance
PROFIT 24 21.0463 14.90862 222.267
PREMIUM 24 5728.4158 9500.29793 90255660.843
NPH 24 28392.4167 76193.54913 5805456929.645
TYPES 24 .50 .511 .261

Table 3.1 shows the mean and standard deviation of dependent and independent variables. It
shows that among all variables number of policy holders has the highest mean and highest
standard deviation. Types of insurance company has the lowest mean and standard deviation.

Table 3.2: Correlations

Correlations
NPH PREMIUM PROFIT TYPES
NPH Pearson Correlation 1 .011 -.009 .207
Sig. (2-tailed) .960 .967 .333
N 24 24 24 24
PREMIUM Pearson Correlation .011 1 .362 .328
Sig. (2-tailed) .960 .083 .118
N 24 24 24 24
PROFIT Pearson Correlation -.009 .362 1 -.281
Sig. (2-tailed) .967 .083 .183
N 24 24 24 24
TYPES Pearson Correlation .207 .328 -.281 1
Sig. (2-tailed) .333 .118 .183
N 24 24 24 24
Table 3.3: Model Summary

Model Summaryb
Adjusted R Std. Error of the
Model R R Square Square Estimate Durbin-Watson
1 .525 a
.275 .167 13.61009 2.160
a. Predictors: (Constant), NPH, PREMIUM, TYPES
b. Dependent Variable: PROFIT

(r2) = 0.275 i.e 27.5% of variation in profit is explained by number of policy holders,
premium and types of insurance company.
Adjusted r2 = 0.167 i.e 16.7% of variation in profit is explained by number of policy holders,
premium and types of insurance company after adjusting by degree of freedom.

Standard Error of the Estimate (S.E) = 13.61009 i.e The variability of observed value of
profit around regression line is 13.61009.

Table 3.4: ANOVA Table

ANOVAa
Model Sum of Squares df Mean Square F Sig.
1 Regression 1407.450 3 469.150 2.533 .086b
Residual 3704.690 20 185.234
Total 5112.139 23
a. Dependent Variable: PROFIT
b. Predictors: (Constant), NPH, PREMIUM, TYPES

From the regression ANNOVA Table 3.4, it can be inferred that the number of policy holders,
premium and types of insurance company. are predicator of relationship between dependent
variables profit where significance is 0.086.
 Table 3.5: Coefficient Table

Coefficientsa
Standardized
Unstandardized Coefficients Coefficients Collinearity Statistics
Model B Std. Error Beta t Sig. Tolerance VIF
1 (Constant) 21.714 3.929 5.526 .000
TYPES -12.395 6.207 -.420 -1.997 .060 .818 1.222
PREMIUM .001 .000 .512 2.500 .021 .865 1.156
NPH 1.642 .000 .084 .427 .674 .939 1.065
a. Dependent Variable: PROFIT

As per the data collected, the regression equation based on the coefficient of variables can be
given as:
Profit (p)= 21.714 – 12.395*T+0.001*PRE+1.642*NPH
where,
T= Types of insurance company
PRE= Premium
NPH= No. of policy holders

Table 3.6: Collinearity Diagnostics

Collinearity Diagnosticsa
Variance Proportions
Model Dimension Eigenvalue Condition Index (Constant) TYPES PREMIUM NPH
1 1 2.415 1.000 .06 .06 .06 .05
2 .825 1.710 .01 .00 .17 .76
3 .455 2.304 .40 .04 .68 .16
4 .305 2.815 .53 .90 .08 .03
a. Dependent Variable: PROFIT
Table 3.7: Residuals Statistics

Residuals Statisticsa
Minimum Maximum Mean Std. Deviation N
Predicted Value 10.8365 47.7742 21.0463 7.82263 24
Std. Predicted Value -1.305 3.417 .000 1.000 24
Standard Error of Predicted 3.491 13.398 4.949 2.580 24
Value
Adjusted Predicted Value 9.2870 117.0466 27.0088 25.07824 24
Residual -17.63652 30.76014 .00000 12.69147 24
Std. Residual -1.296 2.260 .000 .933 24
Stud. Residual -1.350 2.355 -.076 1.035 24
Deleted Residual -100.71662 33.39336 -5.96255 26.67974 24
Stud. Deleted Residual -1.380 2.700 -.052 1.092 24
Mahal. Distance .555 21.331 2.875 5.492 24
Cook's Distance .000 13.268 .711 2.755 24
Centered Leverage Value .024 .927 .125 .239 24
a. Dependent Variable: PROFIT

Figure: 3.1 Residual Analysis for Normality

According to the figure 3.1, the residual analysis for normality is non normal.
Figure: 3.2: Residual analysis of homoscedasticity

According to the figure 3.2, there exists heteroscedasticity residual.

 Findings and Conclusion

According to the research followings are the findings of the study:

i. Out of the 40-insurance company in Nepal we have taken the sample of 24 life and non-
life insurance company.
ii. According to the analysis number of policy holders has the highest mean 28392.4167 and higher
standard deviation 76193.54913.
iii. In case of types of insurance companies p-value (0.060) > α (0.05) Hence, there is exist
no relationship between types of insurance companies and profit of insurance companies.
iv. In case of insurance premium p-value (0.02) < α (0.05) Hence, there is exist relationship
between insurance premium and profit of insurance companies.
v. In case of number of policy holders p-value (0.674) > α (0.05) Hence, there is exist no
relationship between number of policy holders and profit of insurance companies.
vi. There exists auto correlation among their residual.
vii. The residual analysis for normality is non-normal residual.