bajaj allianz general insurance co ltd Management discussions

BAJAJ ALLIANZ GENERAL INSURANCE COMPANY LIMITED ANNUAL REPORT 2010-2011 MANAGEMENT DISCUSSION AND ANALYSIS With respect to the operations of the Bajaj Allianz General Insurance Company Limited for the year ended 31st March 2011 and results thereof, the management of the Company confirms and declares that: 1. The registration certificate granted by Insurance Regulatory and Development Authority (IRDA) is valid and the same has been renewed for the year 2011-12. 2. We certify that all dues payable to the statutory authorities have been duly paid except where the Company has preferred appeals. 3. The shareholding pattern is in accordance with the statutory and regulatory requirements. No shares have been transferred during the year. 4. The management has not invested any funds of holders of policies in India, directly or indirectly outside India. 5. The required solvency margins under the Insurance Act, 1938 have been maintained. 6. We certify that the values of all the assets have been reviewed on the date of Balance Sheet and in managements belief, the assets set forth in the Balance Sheet are shown in the aggregate at amounts not exceeding their realizable or market value. 7. As a general insurer, the Company is exposed to a variety of risks. The primary risks are that of frequency of claims as measured by the number of claims in relation to number of policies outstanding and severity risk as measured by the average amount per claim. The frequency and severity risk varies according to lines of business. The Company has a multi layer reinsurance program which seeks to optimize the retention of risk at each policy level as well as at the level of lines of business. The Companys retention of risks varies according to lines of business and is decided after considering relevant factors such as capital and solvency position, available reinsurance capacity and adequacy of reinsurance terms. The automatic reinsurance program of the Company is designed as multi-layer treaties combining proportional reinsurance (where the Company and the reinsurer share in the premium and claims in an agreed proportion) and non-proportional reinsurance. The limits under the treaties are set based on accumulation of risks by location and category, after considering the exposure based on Probable Maximum Loss, where applicable, and the expected frequency of claim events. The Company is exposed to catastrophe risk, which is mitigated by a separate non-proportional reinsurance treaty, which limits the Companys exposure to any single covered event. In addition to treaties, the Company also purchases, where required, on a case-to-case basis, facultative reinsurance for specific policies, where either treaty limits are inadequate or the risk is not covered by the terms of the reinsurance treaties. The reinsurance program of the Company is filed with the IRDA. The Company has offsite disaster recovery centers for its data backups. The Company has in place a risk management process which, inter alia, identifies major risks that the Company is exposed to and sets out action plans for managing such risks. The Company has a separate internal audit team which audits the operations at its offices. Key operational risks and compliances are audited according to an audit plan approved by the Audit Committee of the Board of Directors. The Company has an Anti Money Laundering Policy and a Whistle Blower System in place, duly approved by the Board of Directors. The investment portfolio is also diversified within limits set under the IRDA regulations. The Company has also appointed an independent audit firm to undertake the concurrent audit of investment transactions and related processes, report of which is submitted to the Audit Committee on a quarterly basis. The Company has a Risk Management Committee of the Board of Directors which advises the Board on risk management decisions, report on the risk exposures and the actions taken to manage the exposures. In addition, the Company also has an internal Risk Committee consisting of various departmental representatives, chaired by the Chief Risk Officer, which reviews the top risks as well as the risk processes and compliance with the Risk Management Policy of the Company. The Company also has a Policyholders Protection Committee of the Board of Directors. 8. The Company does not have insurance operations in any other country. 9. The settlement time for claims depends on various factors pertaining to various lines of business, such as cause of loss, the nature of claim, etc. Typically, claims which result in total or partial destruction of assets or records (such as those caused by Acts of God), those where adequate documentation to establish the claims are awaited and those which are the subject matter of judicial processes (such as Motor Third Party claims) tend to have longer settlement times, which are beyond the control of the Company. The Company has internal processes for regular review of claims outstanding as well as paid by these factors. The average claims settlement time during the preceding 5 years is given in Annexure-I and ageing analysis of claims registered and not settled (excluding provision for IBNR /IBNER and claims relating to inward re-insurance from terrorism pool and the Indian Motor Third Party Insurance Pool) is given in Annexure-II to this Report. 10. We certify that the values, as shown in the Balance Sheet, of the investments which consists of fixed income securities, equity shares and mutual fund units that have been valued as per accounting policies prescribed by IRDA. For fixed income securities, the market value is based on procedure issued by Fixed Income and Money Market and Derivative Dealers Association (FIMMDA). The investment in equity shares is valued at market value. The investments in the Mutual Funds are valued at the Net Asset Values (NAV) of these Mutual Funds as on the Balance Sheet date, if any. 11. Most of the Companys investments are in fixed income securities and deposits. The fixed income securities are mainly approved Government securities and bonds rated AA and above. The primary aim while investing is to generate adequate return while minimizing risk. The emphasis is also on the liquidity of investments to ensure that the Company meets all its obligations related to Claims and other operations. The Company monitors the cash position daily and seasonal liquidity needs are considered while planning maturities of investments. None of the fixed income investments have had any delays in servicing of interest or principal amounts. Based on the past track record, the management has reasonable confidence in the quality and expected performance of the investments, in line with the objectives. 12. The management of Bajaj Allianz General Insurance Company Limited certifies that: a) The financial statements of Bajaj Allianz General Insurance Company Limited have been prepared in accordance with the applicable accounting standards and principles and policies with no material departures; b) The management has adopted accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of the affairs of the Company at the end of the financial year and of the operating profit and of the profit of the Company for the year; c) The management has taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the applicable provisions of the Insurance Act, 1938 (4 of 1938) and Companies Act, 1956 (1 of 1956), for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities; and d) The financial statements have been prepared on a going concern basis; e) The management has set up an internal audit system commensurate with the size and nature of the business and the same was operational throughout the year. 13. The schedule of payments which have been made to individuals, firms, companies and organizations in which the Directors of the Company are interested is given as Annexure-III. For and on behalf of the Board of Directors Rahul Bajaj Heinz Dollberg Niraj Bajaj Chairman Senior Consultant Director Sanjiv Bajaj Kamesh Goyal Ranjit Gupta Director Alternate Director Director S.H. Khan Suraj Mehta Manu Tandon Director Director Director Hemant Kaul V. Jeyaraman Onkar Kothari Managing Director Chief Financial Officer Company Secretary & CEO Date : 6th May, 2011 Place: Pune. Annexure I: Average Claims Settlement Time during preceding 5 years: 2006-07 2007-08 2008-09 No. of Average No. of Average No. of Average Line of Claims Settlement Claims Settlement Claims Settlement Business Time Time Time (days) (days) (days) Fire 5,705 82 5,821 91 6,182 107 Marine 10,465 43 8,457 59 7,053 84 Motor OD 198,797 23 269,229 24 329,283 24 Health 52,273 29 64,469 19 77,742 21 Others 12,048 38 16,342 88 35,052 65 Weighted 279,288 38 364,318 28 455,312 29 Average 2009-10 2010-11 No. of Average No. of Average Line of Claims Settlement Claims Settlement Business Time Time (days) (days) Fire 5,992 95 5,551 87 Marine 8,530 73 9,794 60 Motor OD 362,481 23 412,110 20 Health 99,648 35 98,953 35 Others 11,364 81 16,437 46 Weighted 488,015 28 542,845 25 Average Note: The above analysis doesnt include Motor Third party claims, typically settled through MACT and other judicial forums. Annexure II: Ageing analysis of Claims registered and not settled: As at 31st March 2007: Amt in Rs. Lacs Line of Fire Marine Motor OD Motor TP Business Period Nos Amt Nos Amt Nos Amt Nos Amt 0-30 days 151 657 403 590 4795 1171 1162 2949 31 days-6 221 1370 545 851 2717 1341 2705 3952 months 6 months to 1 year 138 823 209 426 414 229 2578 3609 1 year to 5 years 98 435 85 322 169 104 2856 4068 > 5 years - - - - - - - - As at 31st March 2007: Amt in Rs. Lacs Line of Health Others Total Business Period Nos Amt Nos Amt Nos Amt 0-30 days 1453 502 1014 802 8978 6670 31 days-6 435 230 1753 1697 8376 9440 months 6 months to 1 year 70 85 1094 1164 4503 6337 1 year to 5 years 23 50 421 894 3652 5873 > 5 years - - - - - - As at 31st March 2008: Amt in Rs. Lacs Line of Fire Marine Motor OD Motor TP Business Period Nos Amt Nos Amt Nos Amt Nos Amt 0-30 days 166 693 320 466 5191 2202 1261 1117 31 days-6 286 1447 580 1099 3544 2886 5604 6301 months 6 months 232 1221 201 377 532 542 4197 5718 to 1 year 1 year to 5 148 834 129 493 321 292 6258 9540 years > 5 years - - - - 3 4 63 136 As at 31st March 2008: Amt in Rs. Lacs Line of Health Others Total Business Period Nos Amt Nos Amt Nos Amt 0-30 days 2227 702 1266 1031 10431 6213 31 days-6 849 428 2238 2298 13101 14458 months 6 months 124 361 1542 2064 6828 10282 to 1 year 1 year to 5 89 119 736 1229 7681 12507 years > 5 years 1 1 1 - 68 140 As at 31st March 2009: Amt in Rs. Lacs Line of Fire Marine Motor OD Motor TP Business Period Nos Amt Nos Amt Nos Amt Nos Amt 0-30 days 161 2499 282 594 4590 2532 2526 1286 31 days-6 204 2137 442 1463 2439 3839 8761 5081 months 6 months to 1 year 128 1545 177 707 417 800 7288 5468 1 year to 5 years 175 1028 101 435 630 643 12201 15112 > 5 years - - 2 1 9 9 242 378 As at 31st March 2009: Amt in Rs. Lacs Line of Health Others Total Business Period Nos Amt Nos Amt Nos Amt 0-30 days 2382 876 1407 1337 11348 9125 31 days-6 732 312 1904 2510 14782 15342 months 6 months to 1 year 181 81 730 1487 8921 10088 1 year to 5 years 161 384 1886 2926 15154 20528 > 5 years 1 1 5 6 259 395 As at 31st March 2010: Amt in Rs. Lacs Line of Fire Marine Motor OD Motor TP Business Period Nos Amt Nos Amt Nos Amt Nos Amt 0 - 30 Days 142 811 358 502 4357 2593 1834 976 31 days-6 moths 233 2596 392 1556 2194 3138 9072 4350 6 months to 1 Year 99 1128 118 738 350 878 9634 4911 1 year to 5 Year 190 1876 101 880 854 971 22317 21316 > 5 year 8 114 21 40 22 17 567 825 As at 31st March 2010: Amt in Rs. Lacs Line of Health Others Total Business Period Nos Amt Nos Amt Nos Amt 0 - 30 Days 2026 824 1008 1176 9725 6882 31 days-6 moths 943 454 1347 1960 14181 14054 6 months to 1 Year 235 987 761 1019 11197 9661 1 year to 5 Year 173 248 2212 3579 25847 28871 > 5 year 6 2 23 57 647 1054 As at 31st March 2011: Amt in Rs. Lacs Line of Fire Marine Motor OD Motor TP Business Period Nos Amt Nos Amt Nos Amt Nos Amt 0 - 30 Days 139 742 353 480 4,254 2,670 1,811 1,073 31 days- 6 moths 172 2,020 490 1,380 2,575 3,706 7,214 4,891 6 months to 1 Year 85 2,476 147 707 329 547 8,175 5,239 1 year to 5 Year 235 1,620 155 1,423 1,080 1,603 31,011 25,354 > 5 year 29 284 25 119 56 41 1,228 1,606 As at 31st March 2011: Amt in Rs. Lacs Line of Health Others Total Business Period Nos Amt Nos Amt Nos Amt 0 - 30 Days 2,052 1,110 952 1,019 9,561 7,094 31 days- 6 moths 685 258 1,239 1,764 12,375 14,020 6 months to 1 Year 100 50 575 676 9,411 9,695 1 year to 5 Year 211 260 2,354 3,585 35,046 33,845 > 5 year 12 14 62 144 1,412 2,208 Annexure-III: Particulars of Payments made to entities where Directors are interested: Amt in Rs. Lacs Entity in which Interested Payment of during Director is as the year interested & Name of the Director 1. Bajaj Finserv Limited & Rahul Bajaj Director Rent paid for office premise 171.67 Sanjiv Bajaj Director Insurance premiums received 11.68 S.H. Khan Director Insurance claims paid 1.81 Payments for common area 180.67 2. Bajaj Auto Limited & Rahul Bajaj Director Insurance premiums received 793.36 Niraj Bajaj Director Insurance claims paid 433.43 Sanjiv Bajaj Director Purchase of Investment 494.04 Service Charge paid/payable 18.71 3. Bajaj Holdings Investments Limited & Rahul Bajaj Director Insurance premiums received 7.66 Sanjiv Bajaj Director Insurance claims paid 0.06 S.H. Khan Director Purchase of Investment 1,018.18 4. Bajaj Allianz Financial Distributors & Limited Ranjit Gupta Director Insurance premiums received 11.19 Heinz Dollberg Senior Consultant Insurance claims paid 6.05 Kamesh Goyal Director Manpower supply charges 6,346.52 Billable expenses 156.46 Insurance premium received as an agent 1.36 Insurance Commission paid 0.14 Service Charge paid/payable 0.04 5. Bajaj Electricals Limited & Rahul Bajaj Shareholding Insurance premium received 216.12 exceeds 2% Niraj Bajaj Shareholding exceeds 2% Insurance claims paid 26.92 6. Bajaj Finance Limited & Rahul Bajaj Director Insurance premium received 14.42 Dipak Poddar Director Insurance claims paid 2.34 Sanjiv Bajaj Director Service Charge paid/payable 0.24 Investment in Corporate Bonds 1,000.00 7. Bajaj Allianz Life Rahul Bajaj Director Expenditure incurred Insurance by Company Limited & Bajaj Allianz Life Insurance 986.63 Dr. Werner Director Expenditure incurred on Zedelius behalf of Bajaj Allianz Life Insurance (510.36) Sanjiv Bajaj Director Insurance Premiums received from Bajaj Allianz Life Insurance 519.67 Niraj Bajaj Director Insurance Claims paid to Bajaj Allianz Life Insurance 727.87 Sanjay Asher Director Insurance premium Paid to Bajaj Allianz Life Insurance 192.41 Suraj Mehta Director Insurance claims Received from Bajaj Allianz Life Insurance 42.69 S.H. Khan Director Manu Tandon Director Ranjit Gupta Director Heinz Dollberg Senior Consultant Kamesh Goyal Director 8. Bajaj Financial Solutions Limited & Rahul Bajaj Director Insurance premium received 0.87 Sanjiv Bajaj Director 9. Mukand Engineers Limited & Director Insurance premium received 31.26 Niraj Bajaj Insurance claims paid 14.64 10. Mukand Limited & Rahul Bajaj Director Insurance premium received 249.47 Sanjiv Bajaj Relative is a Director Insurance claims paid 95.06 Niraj Bajaj Director 11. Mukund Bekaert wire Industries Private Limited & Niraj Bajaj Director Insurance premium received 12.02 Insurance claims paid 2.59 12. Hind Musafir Agency Limited & Rahul Bajaj Shareholding Travel Agency services 309.47 exceeds 2% Niraj Bajaj Shareholding Insurance premium received 1.82 exceeds 2% Sanjiv Bajaj Relative is Insurance claims paid 0.07 a Director Service Charge paid/payable 4.54