B E A C O N A Newsletter by SIMCON– SIMSREE Consulting Club

Volume:2

Issue : 4 February 2014

Inside this issue:-

Six Sigma Green Belt Workshop

Guest Lecture: Mr. Prasad Akerkar

Featured Article on : Insurance Sector

Company Analysis : GIC Re

Concept of the Month: Hostile Takeover Defense

Strategies

Quiz

Six Sigma Green Belt Workshop Volume: 2

Issue : 4

SIMCON arranged a 4 days Six Sigma green belt program from 3rd to 7th February for a batch of 59 students.

Sessions were taken by one of the finest faculty for Six Sigma, Mr. Vishwdeep Khatri, the CEO, of Benchmark

Six Sigma. Mr. Khatri has been engaged with leading companies in FMCG, Automotive, IT, Telecom sectors

for Lean Six Sigma initiation and deployment. Pre-course material

was distributed among the students to cover the course with pace.

Mr. Khatri employed a creative technique to increase the

involvement of students. He had divided the batch into 12 teams

and throughout the course; points were given to teams for their re-

sponses and problem solving capabilities. Competitive spirit in the

teams motivated the students to participate more actively. The

course started with introduction and definition of Six Sigma course.

After the introduction, methodology for implementation of Six

Sigma in an organization was explained. Two methodologies are

used to implement Six Sigma: DMAIC and DMADV. DMADV is

used in introduction phase of a product or process and DMAIC is

used to improve the existing process. Mr. Khatri explained practical aspects of the Six Sigma techniques; ex-

amples from manufacturing and aviation sectors were given. Students were taught to work on the statistical

software Minitab. Students learnt to do hypothesis testing and graphical techniques on Minitab. Many hypothe-

sis tests like ANOVA, 2-proportion test and Chi square test which take a lot of time while solving with pen

and paper, can be done in few seconds with Minitab. Mr. Khatri explained different graphical techniques like

frequency plots, box plots and histogram to represent the data effectively.

Different operational

techniques such as control

charts, process capability and

RPN were discussed in the

class. Along with the mathe-

matical tools, some qualitative

tools for decision making like

Delphi technique, Pugh matrix

were explained to the class. Be-

fore final examination, a mock

test was conducted. In the

mock test, students revised the

syllabus covered in course and

also got their doubts cleared by

the faculty. On the last day of

course, green belt certification examination was conducted.

Because of excellent faculty, detailed study material and enthusiasm of students, „Six Sigma Course‟

was a success. The program gave application orientation of theory and added value to students.

BEACON : Page 1

Feb. 2014

For detailed report and all industry analysis from previous Beacons together, please visit our blog :

http://simconblog.wordpress.com

Guest Lecture by Mr. Prasad Akerkar Volume: 2

Issue : 4

On 28th February 2014, SIMCON organized a guest lecture by Mr. Prasad Akerkar, SAP Practice Head &

Learning and Development Department Head at Larsen & Tourbo Infotech Ltd. Mr. Akerkar spoke on “ERP

System Implementation & Change Management”.

Mr. Akerkar started his lecture by explaining ba-

sics of ERP, its use and implementation in a company,

methodology and benefits in different department. He

also gave students information about the history of ERP

and how it modified the technology over the years. He

gave insights to the students about supply chain, bottle-

necks in supply chain and the role ERP plays while deal-

ing with these bottlenecks.

Mr. Akerkar talked about Business Development

Process. He made the students familiar with various con-

cepts like Make to Order, Make to Stock etc. He shared

his experiences and gave real time examples for better

understanding of students. He said that the approach,

consulting attitude, exploring and expansion plays a cru-

cial role in development of any business process. Sir

made the session very interactive by taking the example

of ERP implementation in a college (say SIMSREE) and

asking students how it could be used in various college activities like admission, lecture schedules and fi-

nance.

Sir also explained the role of ERP implementation Life

Cycle in Project Management. He gave a brief idea to the stu-

dents related to the stages through which a new Project goes

like Project Preparation, Business Blueprint, Realization, Final

Preparation and Post Go Live Support and how the real time

examples are solved. He also spoke about the role of ERP in

benefit realization and improvement of efficiency and effec-

tiveness of processes.

Students also got to know about Change Acceleration

Process (CAP) module and 7 steps involved in implementation

of CAP. They also got insights about Proposed Framework for

Change management.

The lecture was very informative and engaging. Being able to listen to and ask questions of such an

informative speaker was a real benefit to the SIMSREE students. We thank Mr. Akerkar on behalf of SIM-

CON and SIMSREE.

BEACON : Page 2

Feb. 2014

For detailed report and all industry analysis from previous Beacons together, please visit our blog :

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INDUSTRY ANALYSIS : INSURANCE Volume: 2

Issue : 4

Introduction One of the most critical aspect to secure the livelihood

of an individual or his family is the insurance of the valuable

assets related to the person, be it his life, his health or his other

possessions like house, vehicles etc. Realizing the value created

by insurance, Government of India, rather almost governments

of all major countries, have made it compulsory for insurance of

the maximum chunk of population.

The insurance in India is a USD 72bn industry and

reinsurance is a USD 41bn industry. Reinsurance means insur-

ance for the insurance companies, wherein insurance companies

cede their amount (insure the amount) from various portfolios

to a reinsurer so that in the times of contingency the reinsurer

will pay claims for a fixed portion. The purpose of reinsurance

being timely payment of dues and reduced load on the insurance

company in terms of capital available and solvency.

With a CAGR of 25% pa in insurance premiums from

2003 to 2010, the insurance market in India is surely booming

at a high pace. Still the penetration of insurance remains at 4%

for life insurance and 0.7% for non-life insurance. With the fi-

nancial inclusion mandate by RBI, it is required that a maxi-

mum chunk of population be insured. To achieve this vision the

government is trying to enhance insurance penetration through

tax saving on insurance products, mandate for compulsory in-

surance in case of items like vehicles, house etc.

Segments in Insurance Industry

The Insurance Regulatory and Development Authority

(IRDA) which was established under the IRDA Act in 1999, is

responsible for regulating, promoting and ensuring growth of

the insurance and reinsurance business in India.

Porter’s 5 Forces Model

Barriers to Entry

The Indian Insurance Industry is characterized by significant

barriers to entry, including licensing restrictions and capital

requirements, as well as scale economies.

Threat of Substitutes

Most insurance companies offer similar suite of services and

thus, there are plenty of substitutes available. A company can

differentiate only in terms of value it offers to its customers.

The threat of substitutes is thus high.

Bargaining Power of Suppliers

The suppliers of insurance company provide the company with

capital. The suppliers of capital to the insurance company under

the regulations may not pose a big threat. Hence the bargaining

power of suppliers is low for the industry.

Bargaining Power of Consumers

High brand loyalty for a company and low differentiation be-

tween the products will discourage individuals to shift from one

insurer to another. An individual will, therefore, have low bar-

gaining power. However large corporate clients of the industry

like airlines, pharmaceuticals, etc. which pay millions of dollars

per year as insurance premium have a high bargaining power

because they are the high margin customers for the industry.

Intensity of Rivalry

Competitiveness in the Indian insurance sector, with large num-

ber of players and low differentiation between their products, is

high. Spending on advertisements continue to grow and market-

ing budgets as well as strategies are becoming more aggressive.

BEACON : Page 3

Feb. 2014

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INDUSTRY ANALYSIS : INSURANCE Volume: 2

Issue : 4

Impact analysis

Privatization of insurance and reinsurance sector

This resulted in end of monopoly of LIC and GIC in life and

non-life sector respectively and in 2000 GIC was declared as

Indian reinsurer. Allowance of private players resulted in there

being almost 40 private players in the insurance market. How-

ever, LIC continues to be the market leader, though its market

share has declined from 98% in 2003 to 70% in 2010. GIC still

remains the only reinsurer within India but a lot of other players

are reinsuring in India through fronting modes like Swiss Re,

Munich Re etc.

Allowance of FDI upto 26% in insurance sector

This resulted in large no. of private players forming partnership

with foreign players with the partnership being Indian player

74% and the foreign player at 26%. In order to better meet the

demands of the Indian market, it is suggested that the FDI in

insurance be raised to 49%. Besides causing an improvement in

funding and risk assessment expertise in this sector, it has also

led to an improved product portfolio and better reach of the

product with urban insurance cover experiencing a sudden

boom.

Trends

Tie ups with an Indian insurer by foreign players

With a cap at 26% for FDI, many insurers have been trying to

form partnership with Indian banks to start business in a big

way in India. Large untapped market calls for higher underwrit-

ing capacity and keeping this in mind many private Indian play-

ers and foreign players are vying for government‟s proposal to

increase FDI in insurance to 49%.

Retroceding to foreign players

With the cap on minimum amount to be ceded to Indian rein-

surer reduced to 5% for non-life insurance, insurers are getting

better options for ceding the insurance amount by doing the

same to foreign players who offer better premiums and better

expertise in terms of risk management. Foreign players having

an association with GIC Re to have reinsurance branches or

fronting possibilities within India

Maximum retention within India

In order to maximize reinsurance retention within India, IRDA

has consistently tried to develop policies that will secure the

market for GIC. With non-life insurance ceding minimum

limit at 5% and for life insurance it is expected to be around

30% (maximum limit), GIC gets a secured chunk of orders.

Electronic claim disbursements

According to the latest circular on unclaimed amount, issued by

the Insurance Regulatory and Development Authority (IRDA),

life and non-life insurance companies had around Rs.1,372.64

crore of unclaimed amount in FY10, which increased to

Rs.4,865.81 crore by FY13. To plug this increase (of more than

200% or an annual increase of about 52%), IRDA has mandated

that settlements such as paying maturity benefits or insurance

claims be made through electronic transfers only. Electronic

settlements means quick and direct payments, which is why

IRDA has made it mandatory to remit proceeds of all insurance

claims only through the electronic mode from the next fiscal.

Electronic clearance is mandatory for new policyholders and the

insurer will have to collect bank details along with documentary

proofs. For existing life policyholders, it is optional. The insurer

has to inform policyholders of this option in the next six

months. To pay the death claims, the insurer will need bank

account details of the nominee as well. There are a few excep-

tions to the rule. Small-ticket policies are exempt from elec-

tronic transfer. If the payment does not exceed Rs. 10,000 for a

life insurance policy, or Rs. 25,000 for a non-life policy, the

insurer can pay by cheque.

References:

Handbook on Indian Insurance Statistics 2011-12 published

by IRDA

IBEF – Indian Insurance Industry Analysis Presentation

KPMG – Insurance Industry Road Ahead

Deloitte – Indian Insurance Sector Innovate Now Or Stag-

nate

PWC – Reinsurance 2020: Breaking the mould

IRDA Annual Report, 2012-13

Indian Express Article “Global reinsurance firms gearing

up to enter India” - January 20, 2014

HBR Working Paper - Understanding the Incentives of

Commissions Motivated Agents: Theory and Evidence

from the Indian Life Insurance Market

Comments on the “IRDA‟s (Life Insurance-Reinsurance)

Regulations, 2013, Global Federation of Insurance Associa-

tions (GFIA): http://www.gfiainsurance.org/en/upload/

positionpapers/GFIA-13-09%20Letter%20to%20IRDA.pdf

Press Information Bureau: http://pib.nic.in/newsite/

erelease.aspx?relid=35141

BEACON : Page 4

Feb. 2014

For detailed report and all industry analysis from previous Beacons together, please visit our blog :

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COMPANY ANALYSIS : GIC Re Volume: 2

Issue : 4

Introduction

The entire general insurance business in India was

nationalised by General Insurance Business (Nationalisation)

Act, 1972 (GIBNA). The Government of India (GOI),

through Nationalisation took over the shares of 55 Indian

insurance companies and the undertakings of 52 insurers car-

rying on general insurance business.

General Insurance Corporation of India (GIC) was

formed in pursuance of Section 9(1) of GIBNA. It was incor-

porated on 22 November 1972 under the Companies Act,

1956 as a private company limited by shares. GIC was

formed for the purpose of superintending, controlling and

carrying on the business of general insurance.

As soon as GIC was formed, GOI transferred all the

shares it held of the general insurance companies to GIC.

Simultaneously, the nationalised undertakings were trans-

ferred to Indian insurance companies. After a process of

mergers among Indian insurance companies, four companies

were left as fully owned subsidiary companies of GIC:

1) National Insurance Company Limited

2) The New India Assurance Company Limited

3) The Oriental Insurance Company Limited

4) United India Insurance Company Limited.

The next landmark happened on 19th April 2000,

when the Insurance Regulatory and Development Authority

Act, 1999 (IRDAA) came into force. This act also introduced

amendment to GIBNA and the Insurance Act, 1938. An

amendment to GIBNA removed the exclusive privilege of

GIC and its subsidiaries carrying on general insurance in In-

dia.

In November 2000, GIC was re-notified as the In-

dian Reinsurer and through administrative instruction, its

supervisory role over subsidiaries was ended.

This was followed by the General Insurance Busi-

ness (Nationalisation) Amendment Act of 2002. Coming into

effect from 21 March 2003, this amendment ended GIC's role

as a holding company of its subsidiaries. The ownership of

the subsidiaries was transferred to GOI, which in turn di-

vested its stake in the companies through listings on Indian

stock exchanges.

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BEACON : Page 5

Feb. 2014

Offerings

As a result of the various reforms introduced by the

GOI, GIC became the sole Reinsurer in India, and is now

called GIC Re. It provides reinsurance to the direct general

insurance companies in the Indian market.GIC receives statu-

tory cession of 5% on each and every policy subject to certain

limits.

GIC Re has its registered office and headquarters in Mumbai.

GIC Re has also diversified its operations and is now emerging

as an important Reinsurer in SAARC countries, Southeast

Asia, Middle East, Africaand Europe. GIC Re has expanded its

international operations through branches in London, Moscow,

etc. and is further planning to establish offices in key regions

across the globe.

SWOT Analysis:

COMPANY ANALYSIS : GIC Re Volume: 2

Issue : 4

Leadership

Financials:

(in Rs. Crores)

Sector wise premium breakup:

Chief Executive Officer Mr. Ashok Kumar Roy

Chief Marketing Officer Mr. P Venkatramaiah

Chief Investment Officer Mr. N Mohan

Chief of Internal Audit Mr. P Venkatramaiah

Chief Financial Officer Mr. P Venkatramaiah

Chief Risk Officer Ms.MadhulikaBhasker

Chief Compliance Officer Ms.Suchita Gupta

Appointed Actuary

(General Insurance)

Mr.Ashok K Garg

Appointed Actuary (Life

Insurance)

Ms.Padmaja R

For detailed report and all company analysis from previous Beacons together, please visit our blog:

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BEACON : Page 6

Feb. 2014

Last year i.e 2011-12 had been catastrophic to the reinsurance

industry overall due to various natural calamities such as Japan

tsunami, floods in Thailand, Australia and New Zealand, and

also Uttarakhand floods for which there were approximately

over 400 claims amounting to over Rs. 1400 crores. This year

largely has been the claims free year which reflects in the PAT

of Rs.2,344 crores compared to a loss of Rs. 2467 crore last

year.

Business strategy

Foray into international markets:

GIC Re already generates around 40% of its premiums from

overseasbusiness and is one of the leadingreinsurers in the Mid-

dle East. Its ambition to become a top five global player (itis

currently 15th on a premium basis) includes plans to acquire

syndicates at Lloyd‟s. Llyod‟s is a market where members

come together as syndicates to insure and spread risks.It would

serve as an excellent platform for GIC Re to do international

business.

Technology Changes:

In 2011, GIC Re implemented an online platform for online

reinsurance exchange called e-thru. GIC Re's online platform

allows reinsurance buyers to submit their proposal and buy

protection online in a seamless manner.

Conclusion: GIC the national reinsurer is performing well in the country.

Analysis concludes that business of GIC as a Reinsurer has

recorded a continuous growth pattern in last five years in terms

of its Earned premium and profit. Reinsurance is essential for

the insurance security and GIC as a National Reinsurer is main-

taining its role as the protector of Insurance business in India.

References:

http://gicofindia.com/index.php?lang=en

http://www.business-standard.com/article/finance/30-of-

life-insurers-risks-may-go-to-gic-re-113101100219_1.html

http://www.financialexpress.com/news/irda-panel-for-

cutting-compulsory-cession-to-5-/1084099

http://www.thehindubusinessline.com/industry-and-

economy/banking

Heads 2009-10 2010-11 2011-12 2012-13

Gross Premium 9,737 11,681 13,618 15,086

Earned Premium 8,076 9,544 11,316 13,771

Incurred Claims 6,856 8,626 14,128 10,942

Net Commission 1,930 1,926 2,282 2,905

PBT 1,290 1,189 (-)2,490 2,382

PAT 1,775 1,033 (-)2,467 2,344

Total Assets 43,842 49,729 53,731 59,939

Dividend % 82 48 0 109

Combined Ratio 110 111 143 104.1

Concept of the Month

Hostile takeover Defense strategies

Hostile takeover is an acquisition of a company X (called the target company) by another company Y where the former does not want to

be purchased or does not to be acquired by the particular company Y (called the targeting company or bidder), who is making a bid. Such

an acquisition is possible only when X is a publicly traded company. If X has issued 100

shares and Y purchases 51 shares, Y now has a controlling stake in X and forms X to agree to

the hostile bid.

Hostile takeover Defense strategies are generally classified into two categories:

A) Proactive: These are implemented before the hostile bid and discourage potential bid-

ders.

B) Reactive: These are a response to the hostile bid.

Proactive defense strategies

Staggered Board: A company with a staggered board does not elect its board members annually. Instead, only a section of a board can be

replaced every year. For example, a company may have a 9-member board, where only 3 are replaced every year. Thus to replace the en-

tire board, 3 years will be needed. The targeting company thus has to wait for 2 elections to gain majority in the board. It prevents the

acquirer to gain control of the whole board instantly

Supermajority: Instead of the normal 51% simple majority approval, a merger will need approval

of 67%-85% shareholders.

Dual-class stock: There are two classes of stocks, for example one class has 1 vote per share and

other class has 10 votes per share. The stock with superior voting rights is retained by the manage-

ment and shareholders friendly to the management.

Golden parachutes: Few employees like the CEO have contracts worded such that they will get a

large cash or stock bonus if they are fired on acquisition. This makes the company unattractive for

the bidder. Though this is seen as a tool for employee retention and attracting new talent, it rewards

the CEO if he does a terrible job and allows the company to be acquired.

Poison Pill: Poison pill is the most powerful weapon in the target‟s arsenal and can be of different

types. A flip-in pill makes it possible for the targeted company to issue preferred shares which only

existing shareholders have the rights to buy. A flip-over pill issues rights rather than issuing pre-

ferred shares to existing shareholders. These provisions though built as proactive measures are

used only the hostile bid is initiated.

Reactive defense strategies:

White Knight and White Squire: White Knight is a common strategy to combat a hostile takeover

bid. The target company allows a white knight, a more friendly company to acquire a majority stake in

the company. Though acquisition is not the objective of this strategy, it is the most frequent outcome

when the white knights acquire the target. White Squire is a variation in which a more friendly com-

pany is allowed to acquire a large enough stake so that the targeting company‟s bid is hindered. This

strategy safeguards the company from acquisition.

Greenmail: When the bidder‟s intentions are short-term gains and not long-termed corporate control,

the target company repurchases a large block held by a single shareholder or group of shareholders at

a premium and signs a standstill agreement with them, wherein the bidder agrees not to buy the com-

pany‟s shares for a period of time, generally more than 5 years.

Crown jewels defense: The most priced division of the target company is separated into another company or sold off to a more friendly

company, making the parent company less attractive.

People pill: The core management and high-level managers threaten to resign on acquisition.

BEACON : Page 7

Feb. 2014 Volume: 2

Issue : 4

QUIZ OF FEBRUARY

Answers of last beacon January 2014 Quiz :

1. Mr. Satya Nadella

2. General Electrics

3. X- Tumblr

4. Argentina

5. Volkswagen Beetle

1. He is considered as "pioneer in computer science and artificial intelligence." MIT Technology Review

TR100 named him as one of the top 100 innovators in the world under the age of 35. In Oct 2012

Bloomberg Billionaires Index listed him as 27th richest man.

2. Headquartered in California, the company serves 180 countries. In early 20th century it be-

came a part of “Seven Sisters” which dominated the world oil industry. One of the predeces-

sors of company was convicted of criminal conspiracy for their part in the Great American

streetcar scandal. The company is among top 20 companies in Fortune 500 listed company.

3. He is a pioneer of automobile industry. After the bankruptcy in 1936 he tried his luck in

bowling alley in 1940. Here he is at a scoring table with customers.

4. A software freedom activist is best known for launching

GNU project. He is a programmer from MIT Artificial Intelli-

gence Laboratory and pioneered the concept of Copyleft.

5. Identify the brand from images.

ANSWERS : JANUARY ISSUE

BEACON : Page 8

Feb. 2014

Volume: 2

Issue : 4

Answer To: simcon.simsree@simsree.net with Subject= simcon_quiz_feb_2014

Winner will be recognized.

All Correct Answers will be published in next month’s Edition.

Contributions invited:

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feedback, we are eager to hear from you. So go ahead, do your research, pen down your thoughts and mail your entries to sim-

con.simsree@gmail.com.

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SIMCON –SIMSREE CONSULTING CLUB Mail To: simcon.simsree@gmail.com

Winner:-

Pratima Bawa

MMS, SIMSREE