PRESENTATION ON SIP WORK ON RISK MANAGEMENT IN IDBI FEDERAL LIFE INSURANCE CO. LTD.

SUBMITTED TO Dr. R.K.Jena

SUBMITTED BY: Pratik Gupta 2012215 PGDM(Fin.)

OBJECTIVE
1. To do a research in financial risk management for IDBI FEDERAL LIFE INSURANCE CO. LTD. 2. To conduct a survey for observing the investment pattern of people. 3. To sell the insurance policies of IDBI FEDERAL LIFE INSURANCE CO. LTD. Mainly Termsurance and Incomesurance.

INTRODUCTION
What is a Risk?

What is Risk Management?

Why there is a need of risk management? Why in insurance industry?

TYPES OF RISK

INDUSTRY HIGHLIGHTS
Indian insurance industry is a flourishing industry with several national and international players
The annual growth rate of the Indian insurance industry varies between 15% - 20%

FDI in insurance industry in India has hiked to 49%

Indian insurance industry contributes 7% to GDP.

How does insurance work?

COMPANY PROFILE
IDBI Federal Life Insurance Co Ltd is a joint-venture of IDBI Bank, Indias premier development and commercial bank, Federal Bank, one of Indias leading private sector banks and Ageas, a multinational insurance giant based out of Europe. In this venture, IDBI Bank owns 48% equity while Federal Bank and Ageas own 26% equity each. . IDBI Federal breaks-even in Five years. Posts maiden profit of Rs 9.24 crore New Business Premium ( APR1) grows by 23%, compared to industrys negative growth of -15%. Achieves 44% increase in the number of new business policies sold. Product mix further shifts to long-term traditional products, thereby driving profitability through product-mix. Traditional products account for 83% of new business premium. 13th month persistency improves to 76%. Among top 5 companies in persistency experience. AUM (Assets under Management) up by 24% to Rs 2,732 crore. For the calendar year 2012, IDBI Federals Equity Fund ranked No 1 among 72 ULIP funds bearing testimony to the companys fund management expertise.

SWOT ANALYSIS
strengths Superior customer service weaknesses Insufficient management cover opportunities 300 million people uninsured threats People trust Big public sector insurance Very high competition prevailing in the industry.

Products have required accreditations

Could extend to overseas broadly.

Lower response time

New specialist applications. Could seek better customer deals.

Fast-track career development opportunities on an industry-wide basis

Vulnerable to reactive attack by major competitors

Skilled manpower

Lack of infrastructure in rural areas could constrain investment

SOME SUGGESTED TECHNIQUES

1. Currency Forward Exchange Eliminates risk by fixing the exchange rate at which future trade will take place. A future contract states the exchange rate for future payments at a current rate. 2. Currency Swaps Manager borrows in a hard (strong) currency and finances the project in the local currency. Thus, hard currency is swapped for the local currency, allowing hard currency to financing. 3. Use Local Currency The use of local currency in developing countries to finance the projects can be an advantage because it reduces reliance on foreign currency. 4. Interest Rate Forward Agreement (FRA) These agreements are similar to future contracts. E. g. Manager borrows 5 Mn. for six months, when the current loan has been paid, but manager expects the interest rate to rise. This expected rise in interest rate can be compensated by FRA.

Continued
6. Interest Rate Swap This is an agreement between two parties to pay each other a series of cash flows, based on fixed or floating interest rate, in the same currency, over a given period of time. 7. RPI Swaps (Retail Price Index-linked) Manager is in receipt of fixed cash flows. And the inflation is expected. Thus, manager makes this swap agreement and pays to other party cash flows and receives cash flow that will have the same purchasing power through time.

RISK MANAGEMENT AT IDBI FEDERAL

GAP Analysis Internal Rating System Duration-GAP Analysis

Sensitivity Analysis

Value at Risk (VaR)

Securitization

Risk Adjusted Rate of Return on Capital (RAROC)

OBJECTIVE-II
Survey for observing the investment pattern of people. Questionaire was formed. How people were approached? Locations where the people were approached. Difficulties in the survey. Observations done.

OBJECTIVE-III
To sell the insurance policies of IDBI FEDERAL LIFE INSURANCE CO. LTD. Mainly Termsurance and Incomesurance. Termsurance plan Incomesurance plan How people were approached. Difficulties faced in selling. No. of policies sold.

INTERPRETATIONS AND RESULTS

Regarding use of risk management techniques, it is found that internal rating system and risk adjusted rate of return on capital are important. The effectiveness of risk measurement in banks depends on efficient Management Information System, computerization and net working of the branch activities. Functions of risk management should actually be bank specific dictated by the size and quality of balance sheet, complexity of functions, technical/ professional manpower and the status of MIS in place in that bank. From analysis of survey forms I found that small town and district level investor invest there most of money in land and property. The second choice of their investment is gold. So from these result I found that these investor want to play safe and required good returns also. Also, they invest in insurance plans just to get tax benefits. Also, during selling I found that IDBI FEDERAL lacks the communication to its target customers.

LIMITATIONS AND RECOMMENDATIONS

Lack of proper database affected the search work. To understand the overall working of insurance market, risk drivers the period of 60 days is not enough. The data searched and used using online search engines cant be held true as 100% Correct. The study was conducted to understand risk management followed in the organization as per data collected actual practices may differ within the organization