INSTITUTE OF MANAGEMENT AND SCIENCES
MBA (SESSION 2006-08)
“INFORMATION ABOUT THE
ACCOUNTING CYCLE OF
INSURANCE COMPANY”
PRESENTED TO:-
Sir Zia-ul Hassan Shamsi
SOURCE:
EFU GENERAL INSURANCE
COMPANY PVT. LTD.
PRESENTED BY:Asad Rauf
Shandana Nawaz
Maryam Munir
Usman Aziz
Zubair Abid
Hammad Shah
(Roll # 062118)
(Roll # 062112)
(Roll # 062121)
(Roll # 062122)
(Roll #062151)
(Roll #062143)
CONTENTS
>>>
Introduction
>>>
Mission & Vision Statement
>>>
Diversified Portfolio of Business
>>>
Management Hierarchy
>>>
Function of Finance Department
>>>
Benefits of Computer Base Accounting
>>>
Financial Statements
> Ladger
> Trial Balance
> Balance Sheet
> Profit & Loss Account
>>>
Comparative analysis on Practical and
study of Accounting
INTRODUCTION
In the early 30s of the 20th century, under the inspiration of the Quaid-e-Azam Mohammad Ali
Jinnah, there began to appear signs of economic renaissance of the Muslims of India. Shipping, Airline,
Banking and Insurance companies made their debut.
In 1932, Mr. Ghulam Mohammad, a far sighted man, established Eastern Federal Union
Insurance Company (EFU) with financial assistance from the Aga Khan III and the Nawab of Bhopal.
Mr. Abdur Rehman Siddiqui became the founder chairman. The company was originally registered at
Calcutta and operated in India (undivided) and Burma.
In 1947, on the birth of Pakistan, EFU found a new home in a new country. In Pakistan, EFU
rapidly established itself as a progressive and innovative insurer. It gave the emerging insurance
industry the leadership, the manpower and the drive needed to grow in a situation where at one time,
three-fourths of insurance was held by foreign companies.
In June 1990 the Government of Pakistan decided to allow Life Assurance business in private
sector also. On 18 November 1992, EFU Life was granted a license to carry on life assurance business.
It started operations immediately with Group Life products and in March 1994 launched its Individual
Life products. EFU entered the field of life assurance with the focus on the changing needs of the
population. The company is committed to provide its policyholders with solutions to the problems of
today's complex and rapidly changing financial environment by introducing innovative and modern
products.
In March 2000, Allianz Aktiengesellschaft (Allianz AG), a global leader in the insurance
industry with an active presence in 70 markets across 5 continents and EFU Group signed a joint
venture to form a new company for providing health insurance cover to the people of Pakistan. Allianz
EFU Health Insurance Limited, approved by the Government of Pakistan, is the first specialized health
insurance provider in the country and aims to play a pivotal role in developing the health insurance
market in Pakistan.
Traditionally the EFU name has become synonymous with progressiveness and prompts claim
settlement and now the EFU being the largest insurance group provides a full range of general, life and
health insurance services.
MISSION & VISION STATEMENT:
Being the second leading insurance company of Pakistan, our aim is to be a significant
participant in developing Pakistan's image by providing maximum insurance protection at the most
competitive price in a highly efficient manner for industrial and economic growth.
To remain the leading insurance company of Pakistan excelling in every aspect of its business
and in delivering its obligations as a good corporate citizen to its clients, employees, shareholders,
public and to the country.
DIVERSIFIED PORTFOLIO OF BUSINESS:
EFU broadly is involved in underwriting the following classes of business:

Fire and Property

Marine, Aviation and Hull

Motor

Miscellaneous business
Underlying these businesses a large variety of coverage are offered to the clients to fulfill their
needs. EFU believes in customer satisfaction by providing quality in service and products and maximum
benefits to its client. This is the reason why the company has a diversified portfolio of clients belonging
to all categories. Most of the banks are insured by the company. EFU insures petrochemical and
complex industrial risks of very high value. The company has a major share of market of engineering
business in Pakistan. It provides insurance protection to most of the private sector telecommunication
industries. The company insures most of the textile mills, sugar mills and cement factories of the
country. EFU pioneered the coverage of energy risks in Pakistan. Foreign concerns entering Pakistan to
execute construction, erection or infrastructure development projects are insured by EFU. The company
is the principal insurer in Pakistan for Kidnap & Ransom, Professional Indemnity, Product Liability and
other specialized lines.
FIRE & PROPERTY:
Fire and Property includes business underwritten under the Fire and Engineering classes of
business. During the year under review, the company grossed a premium of Rs.2, 736 million 2004:
Rs.2, 008 million) which constitutes almost 41% of our total portfolio. The portfolio grew by 39% in
business emanating from inside Pakistan, but due to heavy losses there was a deficit of Rs.142 million.
The Fire portfolio is currently being reviewed and special attention as being given to risk management
and diversification in order to bring the claims ratio down to an acceptable level
MARINE, AVIATION & TRNASPORT:
Marine, aviation and transport remains our most profitable segment. For the year ended
December 31, 2005, it contributes a major portion of the total underwriting profitability. The portfolio
showed a growth of 16% on an overall basis and 27% in business underwritten inside Pakistan. The net
claims ratio and underwriting profitability ratio was 35% and 25% respectively.
MOTOR:
The company generated a premium of Rs. 1,870 million under this class of business against Rs.
1,508 in the year 2004 showing a growth 9f 24%. For the business generated inside Pakistan, we showed
a growth of 47% bringing it up from Rs. 1,291 million to Rs. 1,892 million in 2005. The Motor portfolio
currently constitutes almost 28% of the total business from inside Pakistan. The company generated an
underwriting profit of Rs. 77 million during the year under review whereas the underwriting profit for
business inside Pakistan is Rs. 120 million. The management has taken strict measures to improve the
quality of business, increase profitability and to curtail the claims ratio by improving controls in the
motor claims settlement procedure.
MISCELLANEOUS:
The miscellaneous class of business contributes almost 38% of the overall underwriting profit of
the company. This segment has performed very well during the year under review and the profitability
has risen from 15% to 25% in the year 2005. The gross premium underwritten during the year has
increased from Rs. 621 million to Rs. 759 million showing a growth of 22%.
INVESTMENT INCOME:
The stock exchanges of the country have had an outstanding year. The KSE index stood at 9,556
points on December 31, 2005 against 6,218 points on December 31, 2004. As a matter of investment
policy of the Company, capital gains of Rs. 761 million on sale of stocks/ shares had been booked
during the year under review compared to Rs. 173 million booked last year.
The Company’s overall investment income, comprising dividend, interest & capital gains, depicted a
significant improvement at Rs. 1,147 million during theyear as aginst Rs. 493 million or 1332% growth
over last year, the break up of which is given below:-
INVESTMENT INCOME:
2006
2005
Rupees in '000
Dividend income
256,371
188,990
Return on fixed income securities
135,261
132,884
4,526
1,633
761,429
173,438
1,157,587
496,945
Provision for impairment
(10,575)
(3,351)
Net investment income
1,147,012
493,594
Return on TFCs
Gain on sale of available for sale investment
CAPITAL GAINS:
Due to the exemption of income tax from government of Pakistan on capital gains to the
insurance industry, through its Federal Budget for the year 2005-06 following sustained efforts by EFU
Insurance, the Insurance Association of Pakistan, Stock Exchanges and Federation of Pakistan Chamber
of Commerce and Industry. It not only encouraged insurance companies, but also provides them with
the opportunities to invest their surplus funds in the shares listed on Stock Exchanges from time to time
in order to increase their profits and reserves. Additionally, it would prove to be a catalyst for them to
play an effective role in the Capital Markets in order to boost it and maintain its stability and growth.
DEVELOPMENT IN INFORMATION TECHNOLOGY:
Increasing clientele and growing diversity of insurance products has placed greater demands and
challenges on the management. To meet these challenges, the company has entered into full fledged
information Technology Environment. The company has a developed Oracle Program that has been
designed, implemented and programmed in-house. This has resulted in an IT system that is tailored to
the needs of the company and its customers. The company is working towards having all the branches
and departments online and interconnected. Electronic payments of claims have been initiated at some
branches and it is expected that through connectivity all the manual payments will be converted to EPayments. For that, assistance of one of the largest and reputed financial institution has been taken..
EFU TODAY:
Today EFU continues to be a leader in the insurance industry in Pakistan:



EFU GENERAL INSURANCE LIMITED is Pakistan's pioneer general insurer with the
industry's highest premium growth in 2003 of Rs. 86 crores.
EFU LIFE ASSURANCE LIMITED is Pakistan's largest private sector life insurance
company with over 60% market share.
ALLIANZ EFU HEALTH INSURANCE LIMITED is Pakistan's first specialized health
insurer protecting over 320 groups and 100,000 persons.
EFU Group is one of the few Pakistani organizations run totally by professional
management. Another unique feature of EFU is a voluntary review mechanism by
professionals of international repute. EFU has taken Mr. Wolfram W. Karnowski, who retired at
a very senior level from Munich Re, on its Board of Directors. It has appointed Mr. Michael J
de H. Bell, a very eminent UK based actuary (retired from Wyatt Watsons and chairman of a
UK based life company). EFU has the services of Mr. S.C. (Hamid) Subjally, who retired from
a very senior position from Assicurazioni Generali, Dubai, UAE. The independent reviews by
these professionals enable the group companies to keep abreast of international changes in
the industry as well as ensure that management adopts the best international practices.
Another pillar of EFU's strength is a very close and long term (over 50 years) relationship
with its main reinsurer, ‘Munich Re’, the largest reinsurance company in the world and the
strong support of Allianz Aktiengesellschaft (Allianz AG), a global leader in the insurance
industry.
C.E.O Rafique Au Bhemgi
M.D Saif-u-din
Ex Director of fire, property &
Insurance
Ex Director of Merine, Aviation
Ex Director of motor, & Misc.
President
President
President
VicePresident
VicePresident
Assistant
a
Assistant
Manager
Clerk
VicePresident
Assistant
Manager
Manager
Assistant
Assistant
Assistant
Ex-Officer
Ex-Officer
Ex-Officer
Clerk
Clerk
Clerk
Clerk
Clerk
Function of finanace department
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Capital Budgeting
Cash Management
Credit Management
Financial Analysis and Planning
Investors Relation
Insurance and Risk Management
Tax Analysis and Planning
Pension management
Contingency fund and public account
Comparative Analysis
We find that the accounting cycle which we study is useful in our practical
life because most of the finical statements are usually same. But we find that
some organizations use different formats to make their finical statements but
using the same approach.