Financial Statement Analysis

SONAR BANGLA INSURANCE LIMITED

Report on Financial Statement Analysis of Sonar Bangla Insurance Limited

Prepared for:

Quazi Sagota Samina Senior Lecturer, Department of Business Administration, East West University, Dhaka.

Prepared by:

Name Arafat Rauf Md. Rezaul Karim A S M Rakib-Ul-Hassan

ID 2009-2-10-345 2009-1-10-195 2009-2-10-190

FIN 410 Section: 2 Summer: 2011

Date of Submission: 30th July 2012

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30th July, 2012 Quazi Sagota Samina Senior Lecturer Department of Business Administration East West University 43, Mohakhali C/A, Dhaka 1212 Subject: Submission of Report on Sonar Bangla Insurance Ltd. Dear Madam, We have prepared our project report on financial statement analysis, and our assigned company was Sonar Bangla Insurance ltd. It was an energizing experience throughout the semester and preparing this report further enhanced our insight about insurance companies. In very sphere of our report we tried our best to make good combination of our learning from the Risk Management and insurance course. We have concentrated our best effort to achieve the objective of the report and hope that our endeavor will serve the purpose. We believe that the knowledge and experience we have gathered during the Risk Management and insurance course will enormously help us in our future professional life. We hope that this report fulfils your requirements and your feedback will help us in our entire life, we will be obliged if you kindly approve this effort. Sincerely,

Arafat Rauf ID # 2009210345 Md. Rezaul Karim ID # 2009-1-10-195

A S M Rakib-Ul-Hassan ID # 2009-2-10-190

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Acknowledgement

First, we would like to express our gratitude to Almight y Allah for giving us the strength to complete the report within the stipulated time. We are deepl y indebted to our course instructor Quazi Sagota Samina, Senior Lecturer, East West Universit y for her guidance to prepare and to complete this report. We would like to speciall y thanks for her patience and valuable time for clearing thoughts and doubts regarding the report. Last but not least, we like to convey our fellow classmates who always gave us good advice, suggestions, inspiration and support.

Executive Summary

The report is entitl ed Fi nancial Stat em ent anal ysis of Sonar Bangl a Insurance Ltd. It st arts with t he introduct or y part of t his report including objective, scope, limitation and methodology of the stud y. At fi rst a short description of Sonar Bangl a Ins urance Lt d. has been discuss ed consisting with the compan y profile, background of the compan y, mission vision, obj ective of the compan y, m anagem ent and board of di rectors, organogram of the compan y, et c inform ation of and about the compan y. Then compan y posit ion and capital structure of the compan y has been given as this report is on financi al st atem ent anal ysis. Then their product offering has been discussed that i s what t ype of policy the y provide to and sell to custom er. Then the ratio anal ysis of t hei r fi nancial statem ent is given. Different t ypes of ratio anal ysis have been done. Thei r importance and the m eaning of the ratio is also been discussed. What is the ratio for Sonar Bangl a Insurance ltd. for year 2011 & 2010 has been calcul ated and based on comparison of two years data a concl usion has been drawn.

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Table of Content

Introduction Origin of the report Objective of the study Scope of the study Methodology of the study Limitation of the study Findings and Analysis Company profile Executive Committee Background Mission & vision Objective Organogram Company position Board committee Capital Structure Product Offering Other information Ratio Analysis Reference Attachment Balance Sheet

page

6 6 6 6 7 7 8 8 9 10 11 12 13 14 15 16 17 19 19-25 26

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Introduction

Origin of the report: This report is prepared with respect of three month course on Risk Management & Insurance. We are assigned to prepare a term paper on Financial Statement Analysis of Sonar Bangla Insurance ltd, by our honorable course instructor Quazi Sagota Samina. Our task was to make a report on companys overall information of business that cover all the important aspect of insurance and ratio analysis of the last two year financial report of Sonar Bangla Insurance ltd.

Objective of the Study:

This report has been prepared having a considerable number of objectives in front of us. Some of the objective can be mentioned as, To apply our knowledge, that we gathered from Risk Management & Insurance course, practically. To provide an overview of Sonar Bangla Insurance ltd. To measure the important ratio of Sonar Bangla Insurance ltd To determine the importance of those ratio for the company.

Scope of the Study:

From this report we learnt many things about insurance companies and especially about Sonar Bangla Insurance ltd. It is one of the renowned insurance company of Bangladesh. By analyzing it we come to know about their current business strategies, their business success and also about the financial ability and many more other related information. We also come to know about the
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financial market position of the organization through ratio analysis. As a student of finance it is very much essential to know about the ratio analysis. Book knowledge is not enough to understand one companys financial performance. For that reason we analyse thoroughly the company to gather real life financial knowledge.

Methodology of the Study:

We have used both secondary data to conduct the study. The sources are: Secondary sources: Secondary information was collected from the books and the web site of Sonar Bangla Insurance ltd. We have collected much of the information through the internet and those are mentioned in the reference page.

Limitation of the Study

Although we have tried our best to make this term paper perfect but there were some limitations that obstructed us from doing so. We have faced some problems while preparing this report. Some of the limitations encountered while making this report are as follows: Collecting information/data was little bit tough. As the annual report of insurance company is different with the typical companys, find out the exact data from the report was very much difficult. It was difficult to arrange a suitable time for all members. There was also lack of experience which made limitations in the report
We took information from their different reports & publications. So, reports may vary from time. We also couldnt explain everything in details as there was limitation of time.

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Findings and Analysis Sonar Bangla Insurance Limited

Sonar Bangla Insurance Limited engages in the provision of insurance products. The company offers fire insurance for industrial all risks, consequential loss, dwelling, house and contents, and hotel combined; marine cargo insurance comprising steamer or powered vessel, rail/lorry/truck, inland rail or road conveyance, inland cargoes, and air cargo insurance; and motor insurance for commercial vehicles, private vehicles, and motor cycles/scooters. It also provides marine hull insurance, including engineering, machinery, and electronic equipment insurance, as well as insurance for deterioration of stock, boiler and pressure vessels, erection all risks, contractor's all risks, and consequential loss; and miscellaneous/accident insurance, which include burglary and house breaking, cash in safe, cash in transit, cash on counter, people personal accident, workmen's compensation, business interruption, overseas med claim and holiday, study and employment, fidelity guarantee, health, personal accident, travel, public liability, and professional liability insurance. The company was incorporated in 2000 and is based in Dhaka, Bangladesh.

Company Profile for Sonar Bangla Insurance Ltd

Sonar Bangla Insurance Ltd. is an insurance company that offers a wide range of property and casualty insurance products and services. The Company underwrites marine, fire, and accident insurance.
Contact Information:Sonar Bangla Insurance Ltd
Address of the Company: Address: Paramount Heights(14th floor), 65/2/1, Box Culvert Road, Paltan, Dhaka-1000 Contact Phone: Fax: E-mail: Web Address: (8802) 7170453-4, 9571402 88-02-9569164 sbi222@yahoo.com, sonarbanglains@ya http://sonarbanglains.com

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Key Executive of Sonar Bangla Insurance Ltd.

Sheikh Kabir Hossain Chairman A B M Mesbahur Rahman Deputy Managing Director Md Zakir Hossain Additional Managing Director Md Abdul Khaleque Miah Additional Managing Director Abdur Rouf Gomosta Secretary Md Jamil Ahmed General Manager K U M Mehbub Elahi General Manager Md Jamal Uddin Hera General Manager Md Delower Hossain General Manager Dulal Miah Munshi General Manager Md Kamal Sikder General Manager Md Gias UddinAsstt General Manager

A K M Iftekhar Ahmad CEO/Managing Director Quamrul Isllam Bitu Deputy Managing Director Md Shahadat Hossain Additional Managing Director Md Wahiduzzaman Additional Managing Director Md Mujibur Rahman Senior General Manager Md Anwaruzzaman General Manager A B M Hasangir General Manager Md Akhter Hossain General Manager Md Aroj Ali Miah General Manager Dipak Kumar Roy General Manager Md Hafiz Ullah General Manager

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Background

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Mission & Vision

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Objective

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Organogram

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Company Position

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Board Committees

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Capital Structure

The Company has a strong capital base having sufficient security deposit with Bangladesh Bank ensuring a safety valve for the Company's clientele. The Capital Structure is as follows:

a) b)

Authorized Capital Subscribed 'and paid up Capital i) Sponsor/Directors 35%

: :

Tk. 20,00,00,000/- (Takes Twenty crore) Tk. 18,15,00,000/- (Taka Eighteen Crore fifteen Lac) Tk. 6,35,25,000/- (Taka six crore Thirty Five Lac Twenty Five Thousand) Tk. 11,79,75,000/- (Taka Eleven crore Seventy Nine Lac Seventy Five Thousand)

ii) Public-65%

Claim Settlement
As a matter of principal and true our Company always attach topmost importance on prompt settlement of claim. We have already all claims lodged with complete and documents.

Re-insurance Protection
We have executed re-insurance Treaty agreement with the state owned Sadhararan Bima Corporation and have obtained adequate Re-insurance cover from them. Our business is fully protected under the said cover and therefore, we are in a position to underwrite any; amount of risk with confidence. Besides we have access to foreign insurance technical experts and can obtain any advice as may be required at the shortest possible time.

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Product Offering
The company deals in fire, marine, Motor and all kinds of Miscellaneous Insurance including Health, Personal accident etc. The Company underwrites risks involved in trade and properties and thus provides their security through insurance and re-insurance services. Some of our popular Insurance products are as follows: Motor Insurance (comprehensive/Act Liability) i. Motor Insurance for Commercial Vehicle

ii. Motor Insurance iii. Motor Insurance for Motor Cycle/Scooter

Fire Insurance i. Fire Insurance (including Allied Perils)

ii. Industrial All Risks(IAR) iii. Fire Insurance Consequential Loss iv. Fire Insurance Dwelling, House and Content v. Fire Insurance Hotel Combined

Marine Cargo Insurance I. Marine Cargo Insurance transit by Steamer or Powered Vessel(import/export)

II. Marine cargo Insurance transit by Rail/Lorry/Truck(import/export) III. Marine cargo Insurance transit by Inland Rail or Road conveyance IV. Marine cargo Insurance transit by Inland cargoes (water bone) V. Marine cargo Insurance transit by Air cargo (import/Export)

Marine Hull Insurance (TLO and TC) Engineering Insurance Page | 17

I.

Machinery Insurance (Machinery Breakdown)

II. Deterioration of Stock (DOS) III. Boiler And Pressure Vessel (BPV) IV. Electronic Equipment Insurance(EEI) V. Erection All Risks (EAR) VI. Contractor's All Risks (CAR) VII. Engineering Insurance Consequential Loss

Miscellaneous/Accident Insurance I. Burglary And House Breaking Insurance

II. Cash in Safe (CIS) III. Cash in Transit (CIT) IV. Cash on Counter(COC) V. People Personal Accident (PPA) VI. Workmen's compensation (WC) VII. Business Interruption VIII. Overseas Medi Claim and Holiday Insurance IX. Study and Employment (OMI) X. Fidelity Guarantee Insurance XI. Health Insurance XII. Personal Accident (PA) XIII. Travel Insurance (All kinds) XIV. Public Liability (PL) XV. Professional Liability

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Other Information of the company

Listing Year Market Category Electronic Share Share Percentage: Remark

2006 A

Sponsor/Director 31 Govt.0

Institute 0

Foreign 0

Public 69

1. The Face Value of the securities has been changed into TK 10. The No. of Shares, Market Lot, EPS, NAV and DPS have been changed accordingly.

Basic Information: Authorized Capital in BDT* (mn) Paid-up Capital in BDT* (mn) Face Value Total no. of Securities

1000.0 224.0 52 Week's Range 23.2 - 586.75

10.0 22360800

Market Lot Business Segment

500 Insurance

Ratio Analysis of Sonar Bangla Insurance Ltd (SBINS)

1. Liquidity Ratio : Current ratio of 2011: Current ratio of 2011:

= =

=.7989 =.7302

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liquidity ratio
0.8 0.75 0.7 0.65 2011 2010

Higher the value better for the company. It can be seen that the company position of 2011 is better then 2010.
2. Underwriting Ratios: 2.1. Loss Ratio of 2011: Loss Ratio of 2010:

= =

=0.2785 = 0.1987

Loss Ratio
0.3 0.2 0.1 0 2011 2010

Loss ratio shows what percentages of payouts are being settled with recipients. Lower loss ratio is better because less amount of loss the company has to pay. Higher loss ratios may be indicates that an insurance company may need better risk management policies to guard against future possible insurance payouts. 2.2. Expense Ratio of 2011: =0.020827

Expense Ratio of 2010:

=0.021421

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Expense ratio
0.0215

0.021

0.0205 2011 2010

Underwriting expenses are the costs of obtaining new policies from insurance carriers. It shows proportion of loss of issuing share. The lower the expense ratio the better for the company, because it means more profits to the insurance company. Here 2011 is better than the 2010. Underwriting expense is the expense of policy issuance, commission pay to the seller of the insurance such cost. 2.3. Combined Loss/Expense Ratio of 2011: 2.4. Combined Loss/Expense Ratio of 2010: =.2785+.020827=.299327 =.1987+.021421=.220121

combined loss ratio

0.3 0.2 0.1 0 2011 2010

This figure measures claims losses and operating expenses against premiums earned. It shows proportion of loss out of premium. The lower the figure, the better for the company. The combined ratio is the total of estimated claims expenses for a period plus overhead expenses as a percentage of earned premiums. A ratio below 100 percent represents a measure of profitability and the efficiency of an insurance firms underwriting efficiency. Ratios above 100 percent denote a failure to earn sufficient premiums to cover expected claims. High ratios can usually occur either because of under pricing and/or because of unexpected high claims. 2.5. Ratio of net written premiums to policyholder Surplus of 2011: =

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2.6. Ratio of net written premiums to policyholder Surplus of 2010 :

ratio of net written premium

0.0215

0.021

0.0205 2011 2010

This ratio is measures the level of capital surplus necessary to write premiums. An insurance company must have an asset heavy balance sheet to pay out claims. Industry statuary surplus is the amount by which assets exceed liabilities. For instances, a ratio 0.95 to 1 means that insurers are writing less than $1.00 worth of premium for every $1.00 of surplus. A ratio of 1.02 to -1 means insures are writing about $1.02 for every $1.00 in premiums.

3. Profitability Ratio: 3.1. Return on Revenue of 2011 : Return on Revenue of 2010: = = =0.5145 =1.0111

return on revenue
1.5 1 0.5 0 2011 2010

This figure determines the profitability of an insurance company. It is the profit after all expenses and taxes are paid by the insurance company.

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3.2. Return on Assets of 2011 : Return on Assets of 2010 :

= =

= 0.073622 = 0.13395

return on assets
0.15 0.1 0.05 0 2011 2010

USBR calculates the return on assets by dividing net operating income by Mean average assets. This figure shows the profitability on existing investment securities and premiums. The higher the return on assets the better the company is enhancing its return on existing liquid assets.

3.3. Return on Equity of 2011 : Return on Equity: of 2010

= =

=0.1293 = 0.20530

return on equity
0.3 0.2 0.1 0 2011 2010

The figure shows the net profits that are returned to shareholders. The higher the return on equity, the more profitable the company has been become and the possibility of enhanced dividends to Page | 23

shareholders.

3.4. Investment Yield of 2011 : Investment Yield of 2010 :

=3.3254 = 1.537816

investment yield
4 3 2 1 0 2011 2010

4.

This is the return received on an insurance companys assets. The investment yield is obtained by dividing the average investment assets into the net investment income before income taxes. Leverage Ratio: Debt Ratio of 2011: Debt Ratio of 2010: =0.430090 =0.346977

debt ratio
0.6 0.4 0.2 0 2011 2010

Proportion of total liabilities out of total assets. lower the ratio the better for the company. The condition of 2010 was better then 2011.

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5. Market Ratio: 5.1. Price Earnings Ratio of 2011: Price Earnings Ratio of 2010: = = = 25.73 = 55.16

price earning ratio

60 40 20 0 2011 2010

Higher the ratio the better market condition of the company. 5.2. Market/Book Value of Equity of 2011 : Market/Book Value of Equity of 2010 : = = =3.1929 =0.69

5.3. Book Value Per Share of 2011 : Book Value Per Share of 2010 :

= 13.94 = 132.52

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Reference

1. Sonar Bangla Insurance official website ,see http://www.sonarbanglains.com/site/index.php 2. Bloomberg Business Weak, Sonar Bangla Insurance Ltd (SBINS:Dhaka) see http://investing.businessweek.com/research/stocks/snapshot/snapshot.asp?ticker=SBINS:BD accessed 25th July 2012 3. Bloomberg, Sonar Bangla Insurance Ltd see http://www.bloomberg.com/quote/SBINS:BD accessed 25th July 2012 4. Website of Dhaka Stock Exchange see http://www.dsebd.org/displayCompany.php?name=SONARBAINS accessed 25th July 2012

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