CHAPTER - I

CHAPTER - I1. INTRODUCTION

1.1. General Background of the study Since the origin of the human being on the earth, they have been subjected to risks of various kinds. There are several types of risk. Some risks are ordinary and anxious and create great difficulties. Such risks can be avoided by means of insuring their property against fire, natural disaster like flood, earthquake etc.

There are two broad sectors of insurance (a) Life Insurance and (b) General Insurance: -

Fire, Marine, Aviation, Motor Engineering and other miscellaneous business are covered by General insurance. Though there are different types of insurance, Marine insurance is the first type, which had been started by the merchant in England. In course of their business transaction with the merchant of Italy, these Merchants were insecure of their goods and ships, which were subjected to looting by sea pirates and also loss or damage by the storm in the sea voyage.

As concerning Fire insurance "Fire insurance in which the sum insured becomes payable on the happening of a fire.

Actually speaking, the fire insurance was started first in England on Friday Sept. 2, 1666 A.D., an important event in the history of fire insurance occurred.2 An over in the king's bakeshop becomes over heated. The fire that followed get out of hand and nearly succeeded in destroying the entire city of London. The blaze raged for five days and left in its wake great destruction of lives and properties. The destruction made people to think something about the financial losses due to fire. Dr. Nicholas Baebon, a doctor and successful building spectator, decided to establish a fire insurance company. In 1667, he opened an office that offered insurance against loss to dwellings and business building fire .The doctor was much more successful in his insurance business than doctoring and other business and in 1690 he formed a partnership that continued the insurance business he had formerly operated as one man establishment.

1.2. Development of Insurance Business in Nepal.There were altogether four insurance companies operating their business in Nepal till 1986 A.D. Two of them were local companies, viz.

(a) Nepal Insurance Company, 1947

A subsidiary company of Nepal Bank Ltd, which was writing non-life business, and

(b) Rastriya Beema Sansthan (R.B.S.), 1968

Which was writing both life and non-life business.

In addition two Indian companies had licenser to write non- life business, which were government owned and subsidiary companies of General Insurance Corporation (G.I.C.), India.

(c) National Insurance Company

(d) The Oriental Insurance Company

R.B.S. was owned by Nepal Government though there was some shareholder equity in the general insurance branch of the company. When it was set up in December 1967 it had intended to take up only non- life business. After five years R.B.S. began to issue life policies also. Since then life insurance business was transacted on a monopoly basis by R.B.S. Before that life insurance business was transacted by LIC, India, which was taken over by R.B.S. after Rastriya Beema Sansthan Act, 1968 was passed and R.B.S. was set up by the government with effect from March, 1968.

The government began to exercise a certain measure of control on insurance business with the pursuing of the first insurance Act, i.e. of 1968 and with marked increase in the business of life and the general insurance, more comprehensive legislation was required. His Majesty's Government of Nepal after enacting the Insurance Act, 1968 framed the Insurance rules in 1969. The Insurance Act, 1968 also encouraged the establishment of an Insurance Board aimed to act as the Insurance controller. Insurance Board establishment in 1968 was empowered to regulate the insurance business in Nepal. Under the Act, Insurance Board gave permission to transact non-life business to National life and general Insurance Co. Ltd, public sector Company in 1987. Later on 1988 it also got permission to issue life policy from Insurance Board. There after the life Insurance business was opened up and it leased to be the monopoly business for R.B.S.

The period between 1987 and 1992 saw a rapid development of Nepalese Insurance Industry. In this period more private sector companies were eager to invest in the insurance sector. As a result of this, a single member committee (Senior rank officer of Nepal Rastriya Bank) was appointed by Finance Ministry, The main objective of the committee was to explore the feasibility aspects of insurance business in Nepal. The recommendations of the committee led to the amendment of the Insurance.

In Nepal the insurance Sector showed rapid growth especially after publication of the new Insurance Act 1992 and Insurance Regulation 1993 and after making the Insurance Board more powerful. Thus, till 1986 four Insurance Companies were organized in 1987, National life and General insurance co. ltd, was established and between the year 1992 and 2001 thirteen new insurance companies including credit guarantee Pvt. Ltd. was licensed by the Board, they were:

1. Himalayan General Insurance Co. Ltd; 1994

2. United Insurance Co. (Nepal) Ltd; 1994

3. Credit Guarantee Corporation (Pvt.) Ltd; 1994

4. Premier Insurance Co. (Nepal) Ltd; 1995

5. Everest Insurance Co. Ltd; 1995

6. Neco Insurance Co. Ltd; 1995

7. Alliance Insurance Co. Ltd; 1997

8. Sagarmatha Insurance Co. Ltd; 1997

9. N.B Insurance

10. Nepal Life Insurance; 2001

11. Alico Life Insurance; 2001

12. LIC Nepal; 2001

13. Potential Life Insurance; 20011.3. An overview of Neco Insurance ltd.After the restoration of the democratic government in the country (2046 B.S.) efforts have been geared to liberalize the economy. As a result many types of business are flourishing up in the country. Therefore Neco Insurance Ltd. was established under the company Act on the 1st Paush, 2051 (Dec. 16th, 1995) and was authorized by the Beema Samiti (Insurance Board) to commence business w.e.f 17-2-2053 (may 30th, 1996) with the Authorized capital of Rs. 200,000,000 issued and paid up capital of 50,000,000.

Internationally renowned reinsurance companies are involved in the reinsurance programme. They are:

(a) General Insurance Corporation, India.

(b) The Tokyo Marine and fire Insurance Co. Ltd, Japan.

(c) Arab Insurance Group, Bahrain

(d) Assicurazioni Generali, Dubai and others.

Similarly, the services of top International Brokers are utilized to approach Lloyds' underwriters and specialized Reinsurance market for the placement of risks of high technology like Aviation and Contractors' All Risks/Erection All Risks.

Insurance the-word itself denotes safety, security and trust, where one's property, possessions and valuables are safeguarded against financial losses. An insurance company stands for this commitment to protect your assets against some unforeseen circumstances. A new entrant in the world of insurance. Neco Insurance Ltd. takes this commitment seriously. It is an insurance company with a difference. Both in approach and execution Neco Insurance Ltd. is about to change the whole concept of what insurance is all about. Managed by experienced professionals and promoted by reputed companies in Nepal, Neco Insurance Ltd. gives the assurance of total commitment to customer satisfaction - a promise of sincerity, reliability and security.

Neco Insurance Ltd. is writing only non-life business. The various types of General Insurance policies provided in the present scenario.

There are as follow.

1) Fire Insurance

2) Motor Insurance

3) Marine Insurance

4) Aviation Insurance

5) Engineering Insurance

6) Medical Insurance

7) Miscellaneous InsuranceBranches and Sub-branches of Neco Insurance

SHAPE \* MERGEFORMAT

PromotersS.NPersonS.N.Institutions

1.Kanchan Rana1Rastriya Banijya Bank

2.Deep Maniraj Bhandari(M.D.)2Fund Management Company

3.Rabindra Shrestha3Neco Av. Pvt. Ltd.

4.Bharat Raj Upreti

1.4. Scope of the company

Neco Insurance, though has a short history is in present working for the various insurance heads . The scope of Neco insurance is wide. The companys primary function is to conduct non life insurance business viz. fire insurance, moter insurance, marine insurance, aviation insurance, engineering insurance, miscellaneous insurance etc. The surplus of the funds collected by the way of premium is invested in fixed deposit of bank ,treasury bills ,government bonds , equity shares etc. apart from its employees, the company gives direct or indirect employment to various agent, surveyors and professionals like doctor, engineer and lawyers etc.

1.5. Need of Fire Insurance in Nepal

Nepal is covered by Mountains and Hills. There are few cities, which may be called urban areas, and most other parts of kingdom are rural areas. Even in urban areas peoples are not insuring their property. In rural areas many houses are built by wood and the roof covered by hays. Also most of the houses built in one small area. Due to this fact a small spark may ignite fire, which may be the cause of destruction of the entire village. This not only causes the financial loss but the people also have to endure mental trauma along with it. Every year we hear news of many houses; cattles, goods etc. burn in the different part of the country. Nepal is a developing country. Industries are in initial stage, if these industries are not protected properly there will be heavy loss of capital resources. It will be a great loss to the country as a whole. In order to protect these industries from natural disasters the property should be insured.

On the other hand, in Nepalese business sole trading concern plays a vital role. People should be encouraged to insure their properties in order to avoid the risk of fire and other natural disasters. Also for commercial and industrial development in the country, fire insurance should be encouraged.

We can take the case of " Singha Durbar Fire " which caused millions of rupees of loss to the country. If Singha Durbar was insured the loss could have been avoided.

Development of fire insurance business in Nepal also contributes to the development of the economy by protecting the resources against the fire, which helps to develop the economy.

1.6. Objectives of the study

1. To observe the present situation of fire insurance business in Nepal.

2. To observe the extent of popularity of Fire Insurance business in Nepal.

3. To evaluate the trend of Fire insurance in Nepal with reference to Neco Insurance Ltd.

4. To compare the performance with other similar type of insurance business as per the condition of Fire insurance.

5. To provide constructive suggestions and recommendations to improve the existing problem faced by Neco Insurance Ltd.

1.7. Statement of the problem

There are some big problems, which create difficulties in development of fire insurance business in Nepal such as:

1. Lack of popularity: There is low popularity of fire insurance in Nepal. Many people do not know the meaning of insurance. They do not insure their property. Even businessmen are reluctant to insure their property against fire and other natural disaster. Insurance is technical subject. It takes very much time in order to understand it. On the other hand most of the people are illiterate. They do not know the importance and benefit of insurance.

2. Lack of trained Agents: Agents are the medium through which the insurance company and the party establish relationship. Due to the lack of trained insurance agent, the extent of popularity of fire insurance is low. It takes a long time to convince a person to insure his property, which can only be done through laborious and trained agents.

3. Procedure of claim & settlement: Another cause of low popularity is the process involved in insuring the property and in the claim settlement. The laymen do not know many of the technical term used in the proposal and policy form. As we have stated above, in our country many people are not literate and the long process involved in insuring property and claim settlement make them reluctant to insure their property.

4. Low Income: There is a direct relationship between the income of the people and fire insurance. As we know that most of the people are below poverty line, their income is very limited. They have difficulty to feed themselves with their limited income. In such a situation, the question of insuring their property does not arise. The people can think of protecting their property from fire and other natural disaster only when they are able to save some of their income.

Most of the businessmen here are sole traders. The Income from their business is low and fluctuating. In such situation paying premium for the insurance is a burden to the sole traders. Instead of paying premium for insurance purpose from their limited income, they prefer investing in the business in order to expand it.

5. Lack of Consciousness: - Because of low popularity fire insurance is unknown to many people. They are not aware of the security provided by the insurance. In Nepal fire insurance is not widespread. This is confined to the small area of few cities like Kathmandu, Biratnagar, Pokhara, Birgunj, Nepalgunj etc. In these cities also, limited people (industrialists and businessmen) are aware of insurance. Due to the organizational problem in Nepal, operation of insurance companies is confined only within the selected cities. This clearly shows the lack of consciousness of fire insurance among people.

6. Lack of Information or advertising: Advertising done by the insurance company is not effective at all. Distributing few leaf lets about the information and services, their offer is not enough to convince people to insure. It needs systematic and full-scale advertisement about the benefits of insurance, especially in a country like Nepal where very few people are aware of pros of insurance.

1.8. Limitation of the study

There are some limitations of this assignment report which may be pointed as:

1. Due to limited time frame comprehensive information could not be obtained from the insurance sector.

2. There are very few published books and articles regarding fire insurance business. So the writing of this report has to depend on limited information available.

3. Limitation of Secondary data and statistical tools are also be the limitation of this report.

4. The micro topics of fire insurance are not sufficient to cover the fire insurance of all other same types of organization so it is also limitation of this field work study.

5. Because of lack of accuracy and appropriateness of secondary data, they could not give the exact information satisfactorily for the need of study.

6. The fieldwork report is entirely based on the information provided by Neco insurance Ltd., as audited data is not available for the current year, the data up to previous year i.e. FY 2059/2060 is used for presentation purpose.

1.9. Chapter scheme of the study

The report writing divided into four parts as- Chapter I, Chapter II, and Chapter III and Chapter IV. Chapter I includes Introduction (General Background of the study, Development of Insurance Business in Nepal, An overview of Neco Insurance ltd., Scope of the company, Need of Fire Insurance in Nepal, Objectives of the study, Statement of the Problem, Limitations of the study, Chapter scheme of the study). Chapter II includes methodology of study including the sample size, sources of data and statistical tools applied. Alike, Chapter III includes Conditions and Stipulations of Standard Fire policy, Presentation & Analysis of Data with Study Results. Chapter IV covers Summary, Conclusions & Recommendations. Also the supplementary section as Bibliography, Appendix been attached at the final section.

Chapter II

2. Methodology of study

2.1. IntroductionThis study is based on an appropriate research methodology. The application of methodology is in the fact the eye and ear of the study. It helps to analyze the data in finding the cause and effect of relationship to see how company is performing and how the company is servicing. All the information presented in this fieldwork is mainly extracted from Neco insurance limited. The performance of the firm and the activities that are being undertaken is thoroughly analyzed and necessary matters have been carefully presented in this project work. Brochure, companys policy and annual general meeting reports of Neco insurance Ltd. has also been consulted. For the research we need data, collected through various relevant and appropriate sources. The data are collected, quantified, analyzed and compared to reflect the financial performance of the company. The data collection for the project is done through the frequent visits to the Neco insurance company Ltd. and with special reference to the specific people, materials and the books available.

2.2. Field work procedure

First of all, the purpose of this report writing was determined and the main stuffs to be included were selected by through investigation on the specific field. Many books and the proposal of the Insurance Company were studied. The necessary data for the report being provided by the friend of mine turned helpful during and till the completion of the report.

I have also consulted a few assignment reports of the seniors and also the suggestions of my teachers. So, this report is the outcome of support and encouragement of different entities.

2.3. Methods of Data Collection

Both primary and secondary sources of data were collected for the fieldwork. It was a comprehensive exercise. The primary data generated the information on the Neco and Beema Samiti while the secondary data provided the insight of the insurance sector for analysis.

a) Primary data

b) Secondary data

(a) Primary data: Primary data was obtained through Interview and questioner methods with the officers of Neco & Beema Samiti. The methods elicited valuable information useful for the fieldwork.

(b) Secondary data: This study is mainly based on the secondary data relating to the study of fire insurance position, as they available from the Neco and Beema Samiti. There are very few published books and articles regarding fire insurance business. So the writing of this report has to depend on secondary data, which also provides the valuable information about need, problem and historical background of fire insurance business in Nepal, which is published by Neco insurance through its annual report.

2.4. Statistical Tools Applied

Neco insurance has started its operation since 8 years. The performance of the company has been satisfactory and expected to get even better, as the concept of risk sharing is increasing and it has been successfully standing with its strong goodwill. The past and the present performance record has been presented in the form of table, pie-chart and bar diagram wherever necessity of it was felt. Thus, table and diagrams are used as statistical tools in this field work report.

2.5. Data period

This study has covered the data period ranging from F/Y 2052/2053 to 2059/2060.

2.6. Research design

Analytical as well as descriptive design has been used.

Chapter III

3. Data Presentation and Analysis

3.1 Conditions and Stipulations of Standard Fire Policy

The standard fire policy form is prescribed by the tariff. The conditions regulate the fire policy contract. There are twenty printed conditions present in standard fire policy. They are enlisted in serially as given below:

1.Misdescription (Condition No.1): The result of misdescription and misrepresentation is serious. The insurer has no liability ends, if he proves misrepresentation by insured. It may be regarding property insured or material misdescription of property. This emphasis that the duty of utmost good, in parties to cover the exact property. Therefore accuracy in translation of the property to be insured is of vital importance. The policy drafter should take particular care in avoiding terms, which are capable of being interpreted wider than it was originally intended. Terms must be specified and have no dual Meaning.

2.Premium Payment (Condition No.2): The payment against Premium by the insured shall be deemed unless a printed from of receipt for the same-has been given to the insured. The condition deals about the proof of premium payment (a) premium be paid (b) Form of printed receipt be obtained, (c) It should be signed by an official or agent of the company. Unless premium paid in advance with out any specification, no risk is covered.

3.Other Insurance (Condition No.3): This condition deals that the insured shall give notice to the company of any insurance or insurance affected, or which may be subsequently be affected. In practice warranties of this policy over ride this condition. Other insurances are declared while replaying on the extent of loss.

4.Fall/Displacement (Condition No.4): This condition provides for automatically termination of cover in the event of collapse of the building or of any important part of the building if it goes to change the original risk. The fall or displacement may subject to the building or its contents to an increased risk of fire. The cover is not canceled or terminated if the collapse is caused by fire. The responsibility is to prove falls on the insured.

5.Exclusion (losses) (condition No.5): This condition is excluded the following losses from the standard fire policy.

Loss by theft during or after occurrence of fire.

Loss or damage to property occasioned by its own fermentation, natural heating or spontaneous combustion or by its undergoing any heating or drying process.

Loss by burning of public Authority or subterranean fire.

6.Exclusion (perils) (condition No.6): This condition is excluded the loss or damage caused by following listed perils.

Earthquake, volcanic eruption or other convulsions of nature.

Typhoon, Hurricane, Tornado, Cyclone or other atmospheric disturbance.

War, invasion, act of foreign enemy, hostilities or war like operation or civil war.

Mutiny, riot, military or popular rising, insurrection rebellion, revolution, martial law or state of siege.

Explosion (where fire is not ensued)

Burning, whether accidental or otherwise of forest, bush and jungle and the clearing of lands by fire. Some of the above perils may be covered to charge extra premium as prop ride in Fire Tariff.

7. Property Exclusion (condition N0. 7): This condition is excluded the following articles/properties from this insurance cover unless these are not mentioned with value separately in the policy:

Goods help in trust or on commission.

Bullion (Gold, Silver etc) or unset precious stone.

Any curiosity or work of art for an amount exceeding Rs. 1000/-

Manuscripts, plans, drawings or designs, patterns, models or moulds.

Securities, obligations or documents of any kinds, stamps coin or paper currency notes, cheques, books of account or other business books, computer system records.

Explosives.

8. Alteration (condition N0. 8): This condition deals with alteration in the risk originally proposed, if any change it should be recorded by the insurer unless, no ability attaches on the insurer. These are as under: -

If trade or process or nature of occupation or other circumstances affecting the building insured or containing the insured property be change in such a way as to increase the risk of loss or damage by fire.

If the building insured or containing insured property becomes unoccupied or so remains for a period of more than 30 days.

If the property insured be removed to any other building or place other than that which it is herein stated to be insured.

If the interest in the property insured passes from the insurers other wise than by will or operation of law. The insurer's liability will not end if the following conditions fulfilled:

i. The change was notified to insurer,

ii. Change was endorsed in policy,

iii. If the insured dies, the policy is automatically transferred to his legal heirs. Another point is to determine the increase in risk. Change of interest does not affect a bank's interest.

It provides for stoppage of cover in case of material alteration in subject matter, if no notice was given and no acceptance of insurer was got for these changes.

9.Marine clause (condition No.9): This condition provides that fire policy would not pay earlier than the Marine policy should the subject matter of insurance be covered under a marine policy. If one property is insured under Marine and Fire policies then the payment of compensation is to be first from Marine and any balance left of the loss to be met by fire policy.

10.Cancellation (condition No.10): This condition provides for the cancellation of the policy by either party (Insured or insurer) by giving notice to the other party. If the insured cancelled the policy the refund premium is made according to short period scale as provide in fire tariff.

11. Claim procedure (condition N0.11): On the happening of any loss or damage the insured shall forthwith give notice thereof to the company and shall within 15 days after the or damage or such further time as the company may in writing to allow in that behalf, deliver to the company.

Immediate notice of loss;

Written statement of particulars of the property lost or damaged;

Proof of loss at his expenses;

Particulars of all other insurance, if any.

12. Right of entry (condition No.12): This condition of the policy

complies in the event of loss; the insurer has the following rights.

To enter the insured premises

To take the possession of the insured property

Salvage of the insured property and

Sell the property on behalf of concerned parties. The insured cannot abandon his property to insurer.

13. Fraud/Arson clause (condition No.13): This condition expressly deals that if the claim put forward is fraudulent or the loss is willfully caused by the insured, the benefits are forfeited. The circumstances are following: -

The claim is fraudulent;

The claim is based on a false declaration or made claim;

Use of fraudulent means to claim.

14.Reinstatement (Condition No.14): This insurer may pay compensation for loss or damage property in cash or replace/reinstate the insured. The expenses are to be limited to the cost of reinstating to the condition just before damage putting insured in the position prior to loss.

15. Subrogation (condition No. 15): Insurer must be assisted with information and proof available to insured to proceed against the third party. This arises when third party is liable for the damage under law.

16. Contribution (condition No.16): This condition deals with multiple insurance on the same subject matter. The payment of claim shall be made on pro-rata share of loss. Suppose a person insured the same subject matter with more than one insurer, and then each insurer will pay only a ratable proportion of the loss.

17. Average/Under Insurance clause (condition No.17): If the sum insured is valued at a lower price than the property on the date of loss, then the insurer will pay in the same proportion the insured sum bears to the value of property the insured is penalized for under insurance.

18. Arbitration (condition No. 18): In case of dispute under the policy on the amount of claim, the condition provides to refer the dispute to arbitrator to be appointed by both the parties. But whether claim is insured or not has to be decided by the court of law.

19. Limitation (condition No.19): The insured forfeits his claim if he does not take the claim to the court within 12 months from the date of occurrence of loss or damage.

20. Communication (condition No. 20): All notices and communications to the insurer are to be in writing only. A breach of these conditions mentioned above has different effect under different conditions.

Extraneous Perils

The Fire policy may be extended to cover the following perils by payment of extra premium.

A. Explosion/Implosion: Under explosion extension, internal explosion known as implosion is also covered but loses to Baileas, Economizers or vessels Machinery or apparatus in which storm is generated resulting from their own explosion are excluded. If the property insured more than one policy, the policy extended to cover explosion risk will liable only pro-rata with other fire insurance policy whether or not the other policy is extended to cover the risk of explosion.

B. Riot, Strike and Malicious (vandalism) Damages: The riot and strike damages are also covered the loss due to disturbance of public peace. It is not essential a riot defined as in law. This extension not provides to cover the losses caused by delay, loss of market, consequential loss, losses caused by total or partial cessation of work or retardation, interruption or cessation of any process or operation or omission of any kind. Under this extraneous. Perils two types of coverage are provided: - (1) Riot strike Damage & (2) Riot Fire Damage

1. Riot Strike Damage: - Any loss or damage due to strike besides the aforesaid exclusions are covered under this coverage.

2. Riot Fire Damages: Loss or damage occurred due to fire during the course of riot is covered only. The commencement of this extension is to be effective after the 15 days from the date of receipt of premium in case of grant to mid-term cover.

C. Earthquake: Under this extension, two types of cover are available:

I. Damage due Earthquake & shock and

II. Earthquake fire & shock

This extension excludes the loss/damage due to flood, overflow of sea, lakes reservoirs and rivers caused by earthquake.

D. Storm, Flood, cyclone, Hurricane, Tornado, Tempest & Inundation: Direct loss or damage due to aforementioned perils is easy to determine as signs/reports are covered under this extension whether damage due to rainwater or overflow of drainage or storm water pipes without causing inunatcian is not covered. The term flood is not to be understood in the common sense of term flood in the river or lakes but accumulation of water due to jammed/choked drains would also deemed as flood.

E. Spontaneous combustion: Under this extension loss damage due to mere overheating and consequent deterioration (not by fire arising from spontaneous combustion) is not covered.

F. Aircraft Damage: This extension provides to cover loss or damage caused by aircraft and other aerial devices and/or articles dropped therefore are included.

G. Terrorism: This extension covered loss or damage arises by terrorist and similar types of activities as proved by the local authorities by charging nominal premium.

3.2. Presentation of Data

In this chapter the study has been made from various aspects of the existing fire insurance business in Neco Insurance Ltd. Viz. Premium income of the company, claim paid, re-insurance premium and operating income (profit) from the fiscal year 052/53 to 059/060 B.S.

The Fundamentals objectives of the study is to analyze the financial statement as well as to analysis the trends of premium collection, payment of claim, re- insurance premium, and to evaluate operating profit for knowing past trends and current status of the Neco insurance Ltd. for making more clear and to present relevant manner. Using some related data, tabular, analytical or statically tools/techniques are mentioned in this chapter. It is hoped that it also makes simplicity for understanding the things.

3.2.1. Premium Income

Premium is the main source of earning of the insurance companies. The following table shows the premium earned by the company for various types of non-life business. Also the premium earned for fire insurance has been separately shown.

Table - 3.1

Status of Fire Premium on Total Premium

Fiscal YearFire Premium% increasedTotal Premium% of fire premium on total premium

052/53281952-67338041.87

053/5469243862355.875543289912.49

054/551210059474.7510484946511.54

055/56131575538.7311864925911.09

056/571778477335.1714984904511.87

057/58188992296.37 18848870110.02

058/592290531921.192180865585.02

059/60248986598.7016809138314.81

Source: Annual Report of NECO

From the above table- 3.1 we can see that there is an increasing trend of fire insurance premium in the recent years. In the year 2053/54 there has been an increase of 2355.87% on fire premium. It is an abnormal increased percentage shown in the fiscal year 2053/54 because the business just has been started at Jestha 17, 2053 and In this F/Y the duration of business transaction was only one and half month. In the following year 054/55, the premium increased has been noted 74.75% which is no greater increase in percentage compared to 2355.87%, but the volume of premium is slightly greater than that of previous year increase, which is quite satisfactorily.

In the year 2055/56, 2056/57,057/58,058/59 the percentage increase is only 8.73%, 35.17%,6.37 %,21.19 respectively which is very disappointing one. The reason of decrease in premium income compared to the previous year may be either the new insurance companies entered into the market and the insurance business is diluted among the companies or the service rendered by the company to the customer is not very attractive. But in the fiscal year 059/60 the percentage of fire premium is simply increased and reached up to 8.70%. This increase is a positive sign to the increase in the insurance business of the company.

Table showing the calculation of coefficient of correlation between total premium and fire premium (the value of coefficient of correlation has been derived by the help of computerized excel program)

Table 3.2

Correlation between Total Premium and Fire Premium

Fiscal YearFire PremiumTotal Premium

052/53281952673380

053/54692438655432899

054/5512100594104849465

055/5613157553118649259

056/5717784773149849045

057/5818899229188488701

058/5922905319218086558

059/6024898659168091383

r=0.5649020

The formula for computation is; rxy=

The above analysis result shows that the coefficient of correlation between total premium and fire premium is positive i.e. r = 0.5649020. Thus we can conclude that the total premium and fire premium are positively correlated i.e. two variables move in same direction.

This Bar diagram and pie-chart show clear figure of insurance of fire premium in different fiscal year.

Figure 3.1

Bar diagram of Fire Premium & Total premium

Figure 3.2

Pie- Chart of Fire Premium

Figure 3.3

Pie Chart of Total Premium

Now, we are going to analysis the contribution of fire premium to the total premium of Neco Insurance Ltd. In 052/53 the contribution of fire premium towards total premium is 41.87% but in 053/54, 054/55, 055/56, 056/57,058/59 its contribution towards total premium is decline to 12.49%, 11.54%, 11.09%, 11.87%, 10.02 respectively. But in the fiscal year 059/60 the fire premium on total Premium is found to be increase to 14.81%. This figure shows that the fire insurance premium has been increasing, while contribution towards total premium is slightly decreasing. It means that the other types of general insurance like marine, motor, engineering, aviation & miscellaneous have outstripped the contribution of fire insurance. Other types of general business have been increasing very fast than fire insurance. This clearly supports our assumption that the Neco Insurance ltd. is passive. Their promotional activity is respect of fire insurance is not good. They are not trying their best to increase fire insurance business in these years.

3.2.2. Claim Paid

Claim is sum paid by the insurer to the insured that has lost their property due to fire or other natural disaster against which the property has been insured.

Table - 3.3

Status of Net Fire Premium and Net Claim paid on Fire.Fiscal YearNet fire PremiumNet claim paid on fire% of claim paid on premium

052/5321853--

053/547085884920.069

054/55440853168520.16

055/5650736363291906.49

056/5758988311444422.45

057/58560676671382912.73

058/596694831181101027.05

059/60638963492488214.47

Source: Annual Report of NECO

In the fiscal year 052/53 there has been no claim paid. This is because of the opening year, time duration is very short i.e. one and half month of this company and the volume of net fire premium was not very large compared to the following years.

In the following years 2053/54 and 54/55 the percentage of claim paid is 0.069% and 0.16% respectively. The figures indicate that in these two years, the amount of claim paid is very low but slightly increasing trend. But in next fiscal year 055/56, 056/57, 057/58, 058/59 the percentage of claim paid was increased in fire insurance was noted 6.49%, 2.45%, 12.73%, 27.05% respectively.

In the last fiscal year 059/60 the percentage of claim paid is 14.47%, which is decrease than previous year. From the above calculation we can predict that the percentage of claim paid on fire premium is fluctuating in the different fiscal years, although, the percentage of claim paid increase from one year to another year. It is not so worse for the company because the claim paid percentage is very low comparing with net fire premium collection.

Table showing the calculation of coefficient of correlation between net fire premium and net claim paid on fire (the value of coefficient of correlation has been derived by the help of computerized excel program)

Table 3.4

Correlation between Net fire Premium and Net claim paid on fireFiscal YearNet fire PremiumNet claim paid on fire

052/5321853-

053/54708588492

054/5544085316852

055/565073636329190

056/575898831144442

057/585606766713829

058/5966948311811010

059/606389634924882

r = 0.634757

The formula for computation is; rxy=

The above analysis result shows that the coefficient of correlation between net fire premium and net claim paid on fire is positive i.e. r = 0.634757. Thus we can conclude that net fire premium and net claim paid on fire are positively correlated i.e. two variables move in same direction.

The following figure will show the picture of net claim paid compared to fire premium.

Figure - 3.4

Bar diagram of Net Fire Premium and Net Claim paid

Figure 3.5

Pie Chart of Net claim paid

In the figure, the claims paid on the first three fiscal years are negligible in comparison to their net fire premium. But in the fiscal year 058/59 and 059/60 the net claims paid is higher then preceding two years. Although the above situation stated that company is very healthy and also help to increase the profit.

3.2.3. Reinsurance

Reinsurance is an arrangement whereby an original insurer who has insured a risk insures part of that risk again with another insurer, that is to say, reinsures a part of the risk in order to diminish his own liability. It other words, reinsurance is the transfer of insurance business from one insurer to another.

Large risks are encountered in all section of insurance business. It doesn't matter if it is marine or fire, life or non-life. It is for this reason that re-insurance is required in all departments with the objective of providing a greater spread of risk. So when a heavy claim is made on the insurance company, which issued the policy, the burden will be borne by other insurance companies as well.

There is most important role of reinsurance for pure operation of insurance business. For this reason Neco Insurance Ltd. has reinsurance contract with different national insurance company like Premier insurance co., Sagarmatha Insurance Co. and National Insurance Co. etc. The company has also reinsurance contract with various foreign renowned insurance companies such as General Insurance Corporation India; The Tokyo Marine and fire Insurance Co. Ltd. Japan, Arab Insurance Group, Bahrain; Assicurazioni Generali, Dubai and others.

The following table shows the reinsurance premium from fire-premium of Neco Insurance Ltd. for different fiscal years.

Table- 3.5

Status of reinsurance premium on fire and fire premium

Fiscal YearRe-insurance Premium on fireFire Premium% of Re insurance Premium on fire

052/5326009928195292.25

053/546215798692438689.77

054/5576920621210059463.57

055/5680839171315755361.44

056/57118879421778477366.84

057/58132924631889922970.33

058/59162104882290531970.77

059/60185090252489865974.33

Source: Annual Report of NecoThis table shows re-insurance statement of five years. In the year 052/53, the percentage of re-insurance premium is 92.25%. It means that more than 90% premium income has been paid for re-insurance of their business. It shows that due to the establish year, the company has not taken high risk and to secured his business by re-insurance. So the company re-insured high percentage.

However, in the year 053/54, 054/55, 055/56,056/57, 057/58, 058/59 the percentage of re-insurance on premium is declining to 89.77%, 63.57% , 61.44%, 66.84%, 70.33%, 70.77% respectively but in the year 059/60 the percentage remains on 74.33%. This shows that the company is heavy depending on re-insurance in their business. But this decreasing trend of re-insurance is a very healthy sign. Though there has been increasing trend in premium income, the re-insurance business is decreasing. It means the company wants to retain more business with them. It also indicates that the company is expanding their capacity with the increase premium income.

Transaction of re-insurance business within the country between different companies is less than the business for re-insurance in the foreign international companies'. Placing of reinsurance business in foreign companies means paying foreign currency. It means heavy foreign currency outflow from country. Instead re-insurance among different foreign companies within the country is preferred.

This Bar- diagram and pie chart will show a clear picture of re-insurance business of Neco Insurance Ltd. from Fiscal year 2052/53 to 059/60

Figure - 3.6

Bar-diagram of reinsurance premium and fire premium

Figure 3.7

Pie Chart of Re Insurance Premium

Here, we can see that there is increasing trend of fire insurance premium but trend of re-insurance premium of the company is decreasing in the ratio of fire premium, which is a good sign of the company.

3.2.4. Income (Profit):

Income or the profit is the measuring rod of the company's performance. Also for the survival of the company income is necessary. On the other hand, for the expansion of the company, profit plays a vital role because it is one of the important sources of financing, more profit means more financing. Hence, the long run survival as well as expansion of the business is helped by the income generation of the company.

As for profit concerning to Neco Insurance Ltd. following table shows the profit of five years.

Table - 3.6

Status of Fire Premium and Operating Profit On Fire

Fiscal YearFire premiumoperating profit on fire% of profit on premium% change on

Operating profit on fire

052/53281952(185969)-65.96 -

053/546924386166780624.09(996.82)

054/5512100594333543727.5699.99

055/5613157553553878642.1066.06

056/5717784773781301143.93 41.06

057/5818899229769410640.71(1.52)

058/5922905319799106934.883.86

059/6024898659627747925.29(21.44)

Source: - Annual Report of Neco.

As shown in table 3.4, the operating income (profit) for the year 052/53 is -65.96% (loss) of the premium income, which is heavy loss. It is because of established year and very short period one and half month, in this year 92.25% of its premium is re-insured to other companies and also high managerial expenses and other expenses are beard by the company.

In the following years 053/54, 054/55, 055/56, 056/57, 057/58,058/59,059/60 there is high increasing trend in income of the company, which is very good symbol. In those years the percentage of income on premium is 24.09%, 27.56%, 42.10%, 43.93%, 40.71%, 34.88%, 25.29% respectively.

Similarly, the table shows changes in percentage of operating profit on fire i.e. increased or decreased. The change percentage is negative in F/Y 053/54 and increasing to 99.99% in F/Y 054/55 then decreasing till F/Y 059/60, which shows that its performance is unsatisfactory.

The bar- diagram and pie chart will show in clear picture of operating profit on fire premium of Neco Insurance Ltd. from fiscal year 052/53 to 059/60.

Figure 3.8

Figure 3.9

Pie chart of operating profit

From the above stated figure out of the fiscal year 2052/53 all other fiscal years like 053/54, 054/55, 055/56 ,056/57,057/58,058/59,059/60 have show the increasing trend of operating profit on fire premium. This indicates the good sign for the betterment of the company as per fire insurance business. However the % of Re- insurance premium on fire premium is heavy amount, the company success to make the satisfactory profit in the different fiscal year. This increasing trend of profit makes the company strong and expanse the volume of business widely. By the operating profit of fire insurance may cover the other sectors loss arising to the company.

3.3. Major findings

I have found several critical points while analysis the data, they are mentioned below:

1. The percentage of fire insurance on total premium is decreasing till F/Y 058/59 but increasing in F/Y 059/60.

2. The correlation between total premium and fire premium is positive i.e. r= 0.5649020.

3. The percentage of claim paid on premium is very low during F/Y 053/54 and 054/55. But it is increasing till F/Y 058/59 and decreasing in F/Y 059/60.

4. The correlation between net fire premium and net claim paid on fire is positive i.e. r=0.634757.

5. The percentage of reinsurance premium on fire premium is decreasing till F/Y058/59 but in the F/Y059/60 the percentage remains on 74.33%.

6. The percentage of profit on premium is in high increasing trend.

7. The change percentage is increasing in F/Y 054/55 but decreasing till F/Y 059/60.

CHAPTER- IV

4. Summary, Conclusion and Recommendation

4.1. Summary

Fire insurance is the important branch of insurance business one can feel safe after insuring his property against fire and other hazards like explosion, riot, civil commotion, and earthquake. Nobody knows when a fire incurs and his property will be destroyed. In order to avoid such insecurities from mind fire insurance is the surest possible way of protecting one's property is advance. Fire insurance has vital role to play in our country when trade and commercial activities are increasing day by day.

The main objective of this research is to explore the present situations to observe its popularity to evaluate the trend to compare the fire insurance with other similar company and give suggestions for the betterment of the fire business.

While studying different facts of the fire insurance business from Neco Insurance Company, some problems have been identified. Prospect of fire insurance is very high but due to concentration of business in limited cities, most of the people are unknown to fire insurance. Among the masses, it is not much popular, as it ought to be. It is because, insurance companies are not doing well to promote it and government also is not serious on promotional activities. The companies are depending on big industries and are not trying to sell their policy to small entrepreneurs. Low income is also another factor, which has been affecting fire insurance business. In our country most of the business is sole trading concern. The income of these concerns is very limited. So trails are reluctant to insure their property. The company should come forward with efforts to make them aware of the advantages of insuring their property.

The data analysis of different years of Neco insurance ltd. indicates that if the premium goes up the profit will be high and vice versa. For this reason, the company should raise the premium income by making promotional activities. Direct link between the customer and the company is possible only by the help of agents. So the company should recruit more trained agents in different parts of the company and encourage them to bring business.

For analytical research, all the data are collected from Neco Insurance Ltd. and Insurance Board (Beema Samiti). Analysis has been done on the basis of the data available regarding premium income, claim paid, re-insurance and income (profit) of five years (i.e. from F/Y 052/53 to 059/60).

4.2. Conclusion

The study based on the data of Neco Insurance Ltd. has revealed the sample of scope for extending fire insurance business in Nepal. Though, now concentrated in some cities the fire insurance has great significance. It saves scare resources and utilizes them in business and industry. It is also a medium of accumulating scattered resources, which is invested in government bond, securities and fixed deposit. Present concentration of fire insurance in some cities can be expanded in other parts of the country as well. It will create employment opportunity and jobs to the people. Increasing profit from this business is another important factor for their growth. Thus, it can be concluded that fire insurance plays a vital role in the development of commerce and industries and has great significance in developing the economy. It has a very good prospect as well.

4.3. Recommendation

Based on the summary and findings some important suggestions and recommendations are drawn to improve the current position of the company, which are listed below.

1. Research should be made by experienced person of the related field to search new insurance market, for which the company should appoint its professional agents.

2. Company should improve the outstanding premium collection by providing attractive collection scheme or incentives to the policyholder and encouraging them to pay earlier or in time.

3. Company should improve its liquidity position by adopting new strategies to reduce the level of current liabilities or to invest more on liquid assets. The company should also reduce the outstanding claim to Make sound liquidity position.

4. Company should make effective investment portfolio by investing its resources on government securities and bonds for liquidity consideration, as well as for safety measure. Major portion of the funds should be invested in stocks of financially reputed (strong) companies to earn high rate of return.

5. Adequate publicity and advertising should be made to inform people the need and importance of insurance for the development of insurance market.

6. The company should make and adopt new, clear and sound policy to involve more and more areas in insurance business from different sector.

7. The company should make prompt payment of the claim to customer to establish good relation and to maintain its popularity.

8. The company should provide training to the staff of the company to make its administration effective and efficient and recruit trained person.

9. The company should take action to reduce its managerial and other nominal expenses and have to be sincere for increasing profit.

Head Office- Kathmandu

Regional Office - Hetauda

Sub-branch Offices-

Pokhara

Nepalgunj

Branch Office

Sub-branch Office

Biratnagar

Sub-branch Birtamod

Birgunj

Narayanghat

Butwal

E.R. Hardy Ivamy, General Principles of Insurance Law. 6th edition Butter Worths , P. 7

2 Mishra, M.N.Insurance principles and Practice, Seventh revised edition

PAGE 13

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Fire Premium

Total Premium

Fiscal Year

Amount

Bar Diagram of Fire Premium and Total Premium

Chart1

281952673380

692438655432899

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Fire Premium

Total Premium

Fiscal Year

Amount

Bar Diagram of Fire Premium and Total Premium

Sheet1

Fiscal Year

052/53053/54054/55055/56056/57057/58058/59059/60

Fire Premium2819526924386121005941315755317784773188992292290531924898659

Total Premium67338055432899104849465118649259149849045188488701218086558168091383

Sheet2

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17784773149849045

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24898659168091383

Fire Premium

Total Premium

Fiscal Year

Amount

Bar Diagram of Fire Premium and Total Premium

Sheet3

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708588492

44085316852

5073636329190

5898831144442

5606766713829

66948311811010

6389634924882

Net fire Premium 21,853

Net claim paid on fire -

Fiscal Year

Amount

Chart1

281952673380

692438655432899

12100594104849465

13157553118649259

17784773149849045

18899229188488701

22905319218086558

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Fire Premium

Total Premium

Fiscal Year

Amount

Bar Diagram of Fire Premium and Total Premium

Sheet1

Fiscal Year

052/53053/54054/55055/56056/57057/58058/59059/60

Fire Premium2819526924386121005941315755317784773188992292290531924898659

Total Premium67338055432899104849465118649259149849045188488701218086558168091383

Sheet2

Sheet2

281952673380

692438655432899

12100594104849465

13157553118649259

17784773149849045

18899229188488701

22905319218086558

24898659168091383

Fire Premium

Total Premium

Fiscal Year

Amount

Bar Diagram of Fire Premium and Total Premium

Sheet3

Fiscal Year052/53053/54054/55055/56056/57057/58058/59059/60

Net fire Premium21,853708588440853150736365898831560676666948316389634

Net claim paid on fire-4926,8523291901444427138291811010924882

Sheet3

00

00

00

00

00

00

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Net fire Premium 21,853

Net claim paid on fire -

Fiscal Year

Amount

_1177397211.xlsChart1

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Fire premium

operating profit on fire

Fiscal Year

Amount

Bar Digram of Fire Premium and Operating Profit on Fire

Sheet1

Fiscal YearFire premiumoperating profit on fire% of profit on premium% change on

Operating profit on fire

052/53281952-185969-65.96-

053/546924386166780624.09-996.82

054/5512100594333543727.5699.99

055/5613157553553878642.166.06

056/5717784773781301143.9341.06

057/5818899229769410640.71-1.52

058/5922905319799106934.883.86

059/6024898659627747925.29-21.44

Sheet1

00

00

00

00

00

00

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00

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Fire premium

operating profit on fire

Fiscal Year

Amount

Bar Digram of Fire Premium and Operating Profit on Fire

Sheet2

Sheet3

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