A Study of Disclosure of Accounting Policies in BAJAJ Allianz Insurance Company and ICICI Prudential Insurance Company”
- 1. Submitted by AHMED YAKOOB YOUSIF M.COM-ACCOUNTING
- 2. The Accounting Standard 1 deals with the disclosure of significant accounts policies, followed by preparing and presenting financial statements .The view presented in the financial statements of an enterprise of its state of affairs and of the profit or loss can be significantly affected by the accounting policies followed in them. The accounting policies followed vary from enterprise to enterprise. Disclosure of significant accounting policies followed is necessary and is required by law in some cases if the view presented is to be properly appreciated.
- 3. The Institute of Chartered Accountants of India has, in Standard issued by it, recommended the disclosure of certain accounting policies, e.g., translation policies in respect of foreign currency items. In general, however, accounting policies are not at present regularly and fully disclosed in all financial statements. Many enterprises include in the Notes on the Accounts, descriptions of some of the significant accounting policies. But the nature and degree of disclosures vary considerably between Disclosure of Accounting Policies the corporate and the non-corporate sectors and between units in the same sector.
- 4. 1:- To Analyze the present system of financial reporting. 2:-To examine norms of disclosure. 3:-To evaluate the practices of disclosure and the implication. 4:-To understand the limitation in the prevailing system.
- 5. A company reports periodic financial statements that are complete, "fair" and conform to Indian GAAP, IFRS rules. In accounting or finance parlance, "fair" means accurate or objective. Complete financial reports include a balance sheet (also referred to as statement of financial position), statement of income (P&L), statement of cash flows and statement of retained earnings (otherwise known as statement of equity).
- 6. • The accounting policies refer to the specific accounting principles and the methods of applying those principles adopted by the enterprise in the preparation and presentation of financial statements. • There is no single list of accounting policies which are applicable to all circumstances. The differing circumstances in which enterprises operate in a situation of diverse and complex economic activity make alternative accounting principles and methods of applying those principles acceptable . • The choice of the appropriate accounting principles and the methods of applying those principles in the specific circumstances of each enterprise call for considerable judgment by the management of the enterprise.
- 7. • The various Standards of the Institute of Chartered Accountants of India combined with the efforts of government and other regulatory agencies and progressive managements have reduced in recent years the number of acceptable alternatives particularly in the case of corporate enterprises. • While continuing efforts in this regard in future are likely to reduce the number still further, the availability of alternative accounting principles and methods of applying those principles is not likely to be eliminated altogether in view of the differing circumstances faced by the enterprises.
- 8. To ensure proper understanding of financial statements, it is necessary that all significant accounting policies adopted in the preparation and presentation of financial statements should be disclosed. Such disclosure should form part of the financial statements. In addition, such disclosure must at one place in the annual report. Examples of matters in respect of which disclosure of accounting policies adopted will be required are contained in paragraph. This list of examples is not, however, intended to be exhaustive.
- 9. • Any change in an accounting policy which has a material effect should be disclosed. The amount by which any item in the financial statements is affected by such change should also be disclosed to the extent . • Where such amount is not ascertainable, wholly or in part, the fact should be indicated. If a change is made in the accounting policies which has no material effect on the financial statements for the current period but which is reasonably expected to have a material effect in later periods, the fact of such change should be appropriately disclosed in the period in which the change is adopted. • Disclosure of accounting policies or of changes therein cannot remedy a wrong or inappropriate treatment of the item in the accounts.
- 10. In order to obtain the result, has used the following Ratio: 1. PREMIUM TO TOTAL INCOME RATIO: A Premium to income ratio is the percentage an insurance company’s income that comes from the premiums i.e. its income from operating activities.
- 11. A surplus ratio is often used in the context of a "surplus to-income ratio." This metric is a measure of an insurance company's financial strength, and divides an insurance company's net written premiums by its surplus reserves. 3. TOTAL INCOME TO INVESTMENT RATIO A performance measure used to evaluate the efficiency of an investment or to compare the
- 12. To calculate ROI, the benefit (return) of an investment is divided by the cost of the investment; the result is expressed as a percentage or a ratio. 4. REVENUE TO TOTAL INCOME RATIO The return on revenue (ROR) is tool for measuring the profitability performance of a company from year to year. This ratio compares the net income and the revenue. The only difference between net income and revenue is the expenses.
- 13. An increase in ROR is means that the company is generating higher net income with lesser expenses. This ratio can help the management in controlling the expenses. A decrease in return on revenue can give indications of rising expenses.
- 14. An increase in the ROR is an indication that the expenses of the company are being facilitated efficiently. These insights can help to see a clearer picture of the expenses and it can help to control expenses. 5. CURRENT RATIO The current ratio is a financial ratio that measures whether or not a firm has enough resources to pay its debts over the next 12 months. It compares a firm’s current to its current liabilities. It is expressed as follows: Current ratio = Current Assets / Current liabilities
- 15. Leverage ratios indicate the proportion of debt in the financial structure of the company, as compared to owner’s funds. A high leverage ratio indicates high financial risk on the company, and vice versa. Examples of leverage ratios are debt equity ratio and long term debt to total capitalization ratio.
- 16. Any ratio that measures a company's ability to generate cash flow relative to some metric, often the amount invested in the company. Profitability ratios are useful in fundamental analysis which investigates the financial health of companies. An example of a profitability ratio is the return on investment which is the amount of revenue an investment generates as a percentage of the amount of capital invested over a given period of time. Other exames include return on sales, return on equity, and return on common equity.
- 17. The solvency ratio of an insurance company is the size of its capital relative to all risks it has taken. The solvency ratio is most often defined as: Net. Assets / Net.premium.written
- 18. It is a measure of what it costs to investment run an insurance company to. An expense ratio is determined through an annual calculation, where operating expenses are divided by Net premium. The lower the ratio the better is the company.
- 19. A valuation ratio of a company's current share price compared to its per-share earnings. In general, a high P/E suggests that investors are expecting higher earnings growth in the future compared to companies with a lower P/E. However, the P/E ratio doesn't tell us the whole story by itself. It's usually more useful to compare the P/E ratios of one company to other companies in the same industry, to the market in general or against the company's own historical P/E.
- 20. Ration Analysis of Bajaj Allianz insurance company and ICICI Prudential Insurance Company. 4-3PREMIUMS TO TOTAL INCOME RATIO 1.Table showing premiums to total ratio RS(000) Bajaj Allianz Mar_2010 Mar_2011 Mar_2012 Mar_2013 Mar_2014 premiums 113,913,657 95,751,789 74,336,163 68,350,575 57,753,234 total income 214,191,848 135,279,037 74,058,093 98,801,643 107,265,020 pre./income % 53.18300302 70.78095108 100.3754755 69.1795935 53.84162889 ICICI PRU Mar_2010 Mar_2011 Mar_2012 Mar_2013 Mar_2014 premiums 164758330 178,169,762 139,278,800 134,172,372 122,826,527 total income 345,886,387 241,946,905 141,497,819 201,629,910 216,112,958 pre./income % 47.6336555 73.64002528 98.43176452 66.5438833 56.8344111
- 21. 4- 4 Surplus to total income ratio:- (2)Table showing surplus to total income ratio RS (000) Bajaj Allianz 31-Mar-10 31-Mar-11 31-Mar-12 31-Mar-13 31-Mar-14 Surplus 4,594,512 9,387,392 12,120,800 11,290,073 9,381,713 Total income 214,191,848 135,279,037 74,058,093 98,801,643 107,265,020 sur/income 2.145045221 6.939280622 16.36661101 11.42700937 8.74629306 ICICI PRODETIAL 31-Mar-10 31-Mar-11 31-Mar-12 31-Mar-13 31-Mar-14 Surplus 1,071,882 947,218 16,281,158 17,871,693 15,772,946 Total income 345,886,387 241,946,905 101,599,467 158,783,937 216,112,958 sur/income 0.309894243 0.391498292 16.02484588 11.25535324 7.298473051
- 22. 4- 5- Total income to Investment Ratio:- (3)Table showing total income Investment ratio RS(000) BAJAJ ALLIANZ 31-Mar-10 31-Mar-11 31-Mar-12 31-Mar-13 31-Mar-14 TotalIncome 214,191,848 135,279,037 74,058,093 98,801,643 107,265,020 Investment 392,640,450 383,373,816 394,485,970 392,749,002 330,449,200 inve./income 54.55165101 35.28645707 18.7733148 25.1564339 32.4603661 ICICI 31-Mar-10 31-Mar-11 31-Mar-12 31-Mar-13 31-Mar-14 TotalIncome 345,886,387 241,946,905 101,599,467 158,783,937 216,112,958 Investment 801,100,540 740,838,997 718,250,690 701,869,283 603,002,925 inve./income 43.17640168 32.65850016 14.14540472 22.623007 35.8394543
- 23. 4-6-REVENUE TO TOTAL INCOME RATIO:- (4)Table showing revenue to total income ratio RS (000) BAJAJ ALLIANZ 31-Mar-10 31-Mar-11 31-Mar-12 31-Mar-13 31-Mar-14 REVENUE 5,422,868 10,570,390 13,112,019 12,856,364 10,245,912 TOTAL INCOME 214,191,848 135,279,037 74,058,093 98,801,643 107,265,020 INCOME/REVENUE% 2.531780761 7.813767923 17.70504542 13.0122978 9.55196018 ICICI 31-Mar-10 31-Mar-11 31-Mar-12 31-Mar-13 31-Mar-14 REVENUE 2,579,685 8,076,228 13,841,737 14,959,392 15,666,555 TOTAL INCOME 345,886,387 241,946,905 101,599,467 158,783,937 216,112,958 INCOME/REVENUE% 0.745818597 3.338016661 13.62382836 9.42122502 7.2492437
- 24. (5)Table showing current ratio RS (000) INTERPRETATION:- According to the chart we can see that Bajaj life Insurance Current ratio Is higher than the ICICI company. We can say that Bajaj life insurance has enough liquidity to make payment of their creditor. Bajaj Allianz 31-Mar-10 31-Mar-11 31-Mar-12 31-Mar-13 31-Mar-14 current Asset 5298538 8217555 9746988 16440913 18330514 current Libilities11178937 10569104 12023681 15855026 16505302 CA/CL% 0.4739751 0.777507 0.810649 1.0369528 1.1105834 ICICI prudential31-Mar-10 31-Mar-11 31-Mar-12 31-Mar-13 31-Mar-14 current Asset 6020039 6650451 9464700 13077782 1870311 current Libilities16015853 15945762 17683905 20167949 2031727 CA/CL% 0.37588 0.417067 0.535215 0.6484438 0.9205523
- 25. (6)Table showing leverage ratio RS (000) (6)Table showing leverage ratio RS (000) INTERPRETATION:- From the above we can say that Bajaj Life Insurance have less Leverage ratio helps identify the weak areas of the company internally and help the share holders make a judgment about their investments which indicates lower financial risk on the company. Bajaj Allianz is in a better position as compared to ICICI. In the year 2010 Bajaj had a higher leverage but it has improved the position in the last five years. BAJAJ 31-Mar-10 31-Mar-11 31-Mar-12 31-Mar-14 31-Mar-14 Debt 314,467,991 367,325,924 356,589,133 333,192,532 332,092,566 Total assets 330,449,200 392,749,002 394,485,970 383,373,816 392,640,450 laverage % 95.163792 93.526889 90.393363 86.910613 84.579306 ICICI 31-Mar-10 31-Mar-11 31-Mar-12 31-Mar-13 31-Mar-14 Debt 558832459 660135361 661,138,737 687,344,370 746,242,104 Total assets 603,002,925 701,869,283 718,250,690 743,719,110 801,100,540 laverage % 92.67491679 94.05388966 92.04846528 92.4198882 93.15211596
- 26. (7)Table showing profitability ratio RS(000) INTERPRETATION:- From the above we can say that Bajaj life insurance have higher profitability ratio than the ICICI Prudential. So ratios indicate how well a company is performing at generating profits or revenues relative to a certain metric. But in the year 2014 the net profit ratio has declined, which is a cause of concern. BAJAJ 31-Mar-10 31-Mar-11 31-Mar-12 31-Mar-13 31-Mar-14 NET Profit 5,422,868 10,816,647 13,495,776 13,435,673 11,621,934 Assets 330,449,200 392,749,002 394,485,970 383,373,816 392,640,450 Profitability % 1.6410595 2.7540864 3.4211042 3.5045881 2.9599431 ICICI 31-Mar-10 31-Mar-11 31-Mar-12 31-Mar-13 31-Mar-14 NET Profit 2,579,685 8,076,228 13,841,737 14,959,392 15,666,555 Assets 603,002,925 701,869,283 718,250,690 743,719,110 801,100,540 Profitability % 0.4278064 1.1506741 1.9271457 2.0114304 1.9556291
- 27. (8)Table showing solvency ratio RS (000) INTERPRETATION:- In the above graph it is shown that Bajaj Life insurance company is starting doing well from 2011 and facing only Ahead as compare to the ICICI life insurance company and ICICI from 2011 start declining which means that the ICICI Should either reduce debt or increase the Component of equity in its capital Structure. The solvency ratio is only one of the metrics used to determine whether a company can stay solvent. Other solvency ratios include debt to equity, total debt to total assets, and interest coverage ratio. BAJAJ 31-Mar-10 31-Mar-11 31-Mar-12 31-Mar-13 31-Mar-14 Equity 12,106,640 22,494,057 35,606,071 48,440,691 58,708,347 Debt 314,467,991 367,325,924 356,589,133 333,192,532 332,092,566 solvensy ratio % 3.8498799 6.1237325 9.9851812 14.5383484 17.678308 ICICI 31-Mar-10 31-Mar-11 31-Mar-12 31-Mar-13 31-Mar-14 Equity 47,862,154 47,957,658 49,519,784 48,412,083 49,818,045 Debt 542,816,606 644,189,599 661,138,737 687,344,370 746,242,104 solvensy ratio % 8.817371 7.4446495 7.4900745 7.04335194 6.6758556
- 28. (9)Chart showing expenses ratio INTERPRETATION:- From the above graph it is clear that Bajaj life insurance is Expenses ratio is more compare to the ICICI. Bajaj need to enhance efficiency and try to reduce its expenses.
- 29. (10)Chart showing price earnings ratio INTERPRETATION: - According to the chart we can see that the ICICI price earnings ratio is higher than BAJAJ. According to the chart we can say that insurance company has good market reputation but Bajaj stock price is higher than other insurance company.
- 30. 5-1-FINDINGS (a)Disclosure of accounting polices:- During the last five years Bajaj Allianz has been disclosed about its accounting policy by all basic of preparation, use of Estimates including ((Valuation shareholder investment and non- liked policyholder investment)). Valuation linked business, valuation discounted fund, and transfer of investment. Addition of that it also disclosed by loans, fixed asset and Depreciation, impairment of assets, accounting for lease, Employee Benefits, Transaction of foreign currency, Taxation and segment report.
- 31. -ICICI Prudential have been disclosed about Basic of Preparation, use of estimates, Revenue recognition, Income from linked fund/ income earning on investment, income from operation leases, Reinsurance premium, benefits Pained, and acquisition costs, during the last five years. Hence, disclosure of Bajaj Allianz is more item than ICICI Prudential and it better disclose for internal and external information users. (b)Both companies have been decrease in net premiums and total income as the following:- -Bajaj had decreasing in net premium at 49% and 49.9% in its total income during the period. - ICICI had decreasing in net premium at 25.4% and 37.5% in its total income. The reduction of Bajaj is more than ICICI’s reduction.
- 32. (c) Surplus to total income have been affected by decreasing of total income, while the surplus of both companies in increased. Bajaj’s surplus has been increased at 104%. While, ICICI’s surplus increased at 1307% during the 2010-2014. (d)Total income to investment ratio, also have been decreased resulting of decreasing in total income. Investment of Bajaj decreased at 15.8% and ICICI’s investment decreased at 24.75. (e)Revenue to total income ratio have been increased during the period, resulting in the increasing of revenue in both companies Bajaj’s revenue increased at 88.9% and 507% for ICICI’s revenue. (f)Current ratio have been increased for both companies under study during the period, Bajaj exceeded in last two years. (g)Leverage ratio for Bajaj has been decreased from 95% to 84.5% resulting of increasing in its debt at 5% during the period. While, ICICI maintained same level of leverage ratio during the period.
- 33. (h)Profitability ratio have been increased in both companies resulting to increased the both net profit and total assets during the period, net profit of Bajaj increased at 114.3%, and 511% for ICICI. (i)Solvency ratio for Bajaj has been increased from 3.8% to 17.6% during the period, but ICICI’s ratio decreased from 8.81% to 6.67% resulting the increased of equity together with same level of debt in Bajaj, but ICICI has same equity and increased in its debt. ICICI has more financial risk than Bajaj. (j)Expenses ratio for Bajaj increased from 17.6% to 25.5% resulting to increase of expenses with decreased of its premium. While ICICI’s ratio has been decreased at little bit from 15% to 12%, this because increased the expenses index together with net premium. (k)Price earnings per share ratio decreased little bit in Bajaj which is from 6.2 to 4.1 during the period, while ICICI has sharp decreased during 2011-12 100 to 35 and continued decreasing to 10.9 at last year.
- 34. 1-Both of Companies should improve its external policy specific with their customers to increase their Net premium and Total Income. 2- Both of companies should improve their investment to increase their Total Income. -For Company of BAJAJ ALLIANZ:- (a)Profitability of Bajaj Allianz has been increased but still unsatisfactory, the company should try to increase its net profit. (b)Bajaj Allianz should reduce its expenses if possible.
- 35. -For Company of ICICI Prudential:- (a)ICICI should improve its disclosure in its accounting policy such as valuation shareholder investment and non liked policy holder’s investment, valuation liked business valuation discounted fund and etc all of those are important to provide the investors and shareholder by good information. (b)ICICI prudential try to improve it current assets or repay current Ratio which is 1. (c)ICICI prudential should maintain more equity share capital to repay its debt in order to get better position.
- 36. As per study Bajaj Allianz Insurance Company is having better disclosure policy as compare to ICICI prudential. Bajaj Allianz percentage of premium divided by income was higher than ICICI prudential and in 2010 Bajaj Allianz having 100% premium to total income so we can say that Bajaj Allianz performing good. ICICI prudential Insurance Company has not performed well in the life Insurance sector but if we talk about other sector it has work well, and Bajaj Allianz Insurance Company is doing well in life Insurance sector. ICICI prudential have less profitability performance of a Company 2010 – 11 was very less it means the expenses are more, so ROR is less than Net income and Bajaj Allianz was having high revenue from 2010- 14 so it means the expenses are under control and Bajaj Allianz Insurance Company is more efficient.
- 37. THANK YOU