Basic Concepts of Insurance

Agent - A person who sells insurance policies.

Annuity - A contract in which the buyer deposits money with a life insurance company for investment.
The contract provides for specific payments to be made at regular intervals for a fixed period or for
life.
Appraisal - An evaluation of a home insurance property claim by an authorized person to determine
property value or damaged property value.
Claim - A policyholder's request for reimbursement from an insurance company under a home
insurance policy for a loss to property.
Coinsurance - The percentage of each health care bill a person must pay out of their own pocket. Noncovered charges and deductibles are in addition to this amount.
Collision coverage - Pays for damage to a car without regard to who caused an accident. The company
must pay for the repair or up to the actual cash value of the vehicle, minus the deductible.
Contract - In most cases, an insurance policy. A policy is considered to be a contract between the
insurance company and the policyholder.
Endorsement - A written agreement attached to a policy expanding or limiting the benefits otherwise
payable under the policy. Also called a "rider."
Group life insurance - This type of life insurance provides coverage to a group of people under one
contract.
Indemnity plan - A health plan that allows you to go to any physician or provider you choose, but
requires that you pay for the services yourself and file claims for reimbursement.
Liability insurance - An auto insurance coverage that pays for injuries to the other party and damages
to the other vehicle resulting from an accident the policyholder caused.
Lifetime maximum -The total dollar amount a health care plan will pay over a policyholders lifetime.
Mortality charge - The cost of the insurance protection element of a universal life policy. This cost is
based on the net amount at risk under the policy, the insureds risk classification at the time of policy
purchase, and the insureds current age.
Premium - The amount paid by an insured to an insurance company to obtain or maintain an insurance
policy.
Replacement cost - Insurance coverage that pays the dollar amount needed to replace the structure
or damaged personal property without deducting for depreciation but limited by the policy's
maximum dollar amount.
Subrogation - Assignment of rights of recovery from insured.
Surcharge - An extra charge added to a premium by an insurance company.
Underwriting - The process an insurance company uses to decide whether to accept or reject an
application for a policy.
Unearned premium - The amount of a pre-paid premium that has not yet been used to buy coverage.
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Development of Insurance Company in Bangladesh & Its Present Status

The insurance industry in the country was nationalized in 1972 and through the enactment of
Insurance Corporation act VI, 1973 two corporations, namely the Sadharan Bima Corporation for
general insurance, and the Jiban Bima Corporation for life insurance in Bangladesh were established
on 14th May, 1973. The government allowed the private sector to conduct business in all areas of
insurance for the first time in 1984.
All existing companies except American Life Insurance Company (ALICO) were merged into these two
corporations. The nationalized state of Bangladesh insurance market continued until 1985 when the
government had change in policy and allowed setting up of insurance company by private sector. Over
the year, a good number of life and general insurance were in phases.
Currently, in addition to the two government corporations, 30 life insurance and 45 general insurance
companies are operating in the country.
Particulars
2012 (Tk. Million)
Premium Collection of Life Insurance
62,483
Companies
The Life Fund of the Private Sector
194,551
Insurance Companies
The Total Life Insurance Investment
166,132
The Total Life Insurance Assets
224,084
Premium Collection
of Non-Life
18,999
Insurance Companies

2013 (Tk. Million)

66,834

Growth Rate
6.96%

221,789

14.00 %

192,704
278,463
20,998

15.99%
24.27%
10.52%

The Total Non-Life Insurance Assets

48,924

50,375

2.97%

The Total Non-Life Insurance Investment

24,379

28,393

16.46%

Figure: Changes in the Financial Condition of Insurance Industry

The commitment of the government to promote development of the insurance sector is of enormous
consequence for its promising future. In view of the pro-active policy support of the government that
the sector has so far received in an unstinted manner, we are certain that within the next few years
we will be able to make insurance a very important component of the country's financial system. This
will go a long way for eradication of poverty and promoting sustainable economic growth.
Thus insurance makes a significant contribution to economic growth by improving investment climate
and promoting a more efficient mix of activities than would be undertaken in the absence of risk
management instruments. The contribution is magnified by the complementary development of
banking and non-bank financial institutions.
Though the insurance sector in Bangladesh has shown remarkable growth in recent years reflecting
product development and innovation, it was kept outside the purview of the reform programed until
the present government embarked on a set of reform measures to promote a vibrant insurance sector
to mobilize savings both from rural and urban areas and use those savings for investment in social and
economic programs and projects.

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As a first step towards achieving these objectives, Insurance Act, 2010 and Insurance Development
and Regulatory Authority Act, 2010 have been enacted. Since its inception in January 2011, Insurance
Development and Regulatory Authority (IDRA) have been working relentlessly and, in the process,
have undertaken a series of measures in an effort to transform the insurance sector into one of the
most efficient, competitive and productive sectors of the wider financial system in Bangladesh.

Roles of Insurance
Insurance has evolved as a process of safeguarding the interest of people from loss and uncertainty.
It may be described as a social device to reduce or eliminate risk of loss to life and property. The
insurance industries develop financial institutions and reduce uncertainties by improving financial
resources.
1. Provide Safety and Security: Insurance provide financial support and reduce uncertainties in
business and human life. It provides safety and security against particular event. There is always a fear
of sudden loss. Insurance provides a cover against any sudden loss. For example, in case of life
insurance financial assistance is provided to the family of the insured on his death. In case of other
insurance security is provided against the loss due to fire, marine, accidents etc.
2. Generates Financial Resources: Insurance generate funds by collecting premium. These funds are
invested in government securities and stock. These funds are gainfully employed in industrial
development of a country for generating more funds and utilized for the economic development of
the country. Employment opportunities are increased by big investments leading to capital formation.
3. Life Insurance Encourages Savings: Insurance does not only protect against risks and uncertainties,
but also provides an investment channel too. Life insurance enables systematic savings due to
payment of regular premium. Life insurance provides a mode of investment. It develops a habit of
saving money by paying premium. The insured get the lump sum amount at the maturity of the
contract. Thus life insurance encourages savings.
4. Promotes Economic Growth: Insurance generates significant impact on the economy by mobilizing
domestic savings. Insurance turn accumulated capital into productive investments. Insurance enables
to mitigate loss, financial stability and promotes trade and commerce activities those results into
economic growth and development. Thus, insurance plays a crucial role in sustainable growth of an
economy.
5. Medical Support: A medical insurance considered essential in managing risk in health. Anyone can
be a victim of critical illness unexpectedly. And rising medical expense is of great concern. Medical
Insurance is one of the insurance policies that cater for different type of health risks. The insured gets
a medical support in case of medical insurance policy.
6. Spreading of Risk: Insurance facilitates spreading of risk from the insured to the insurer. The basic
principle of insurance is to spread risk among a large number of people. A large number of persons
get insurance policies and pay premium to the insurer. Whenever a loss occurs, it is compensated out
of funds of the insurer.
7. Source of Collecting Funds: Large funds are collected by the way of premium. These funds are
utilized in the industrial development of a country, which accelerates the economic growth.
Employment opportunities are increased by such big investments. Thus, insurance has become the
main source of our countries capital formation.
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Functions of Insurance
There are a number of functions that every insurance company has to perform. The functions of
insurance can be studied into two parts (i) Primary Functions, and (ii) Secondary Functions.
Primary Functions:
(i) Insurance Provides Certainty: Insurance provides certainty of payment at the uncertainty of loss.
The uncertainty of loss can be reduced by better planning and administration. But, the insurance
relieves the person from such difficult task. Moreover, if the subject matters are not adequate, the
self-provision may prove costlier.
(ii) Insurance Provides Protection: The main function of the insurance is to provide protection against
the probable chances of loss. The time and amount of loss are uncertain and at the happening of risk,
the person will suffer loss in absence of insurance. The insurance guarantees the payment of loss and
thus protects the assured from sufferings. The insurance cannot check the happening of risk but can
provide for losses at the happening of the risk.
(iii) Risk-Sharing: The risk is uncertain, and therefore, the loss arising from the risk is also uncertain.
When risk takes place, the loss is shared by all the persons who are exposed to the risk. The risksharing in ancient time was done only at time of damage or death; but today, on the basis of
probability of risk, the share is obtained from each and every insured in the shape of premium without
which protection is not guaranteed by the insurer.

Secondary functions:
(i) Prevention of Loss: The insurance joins hands with those institutions which are engaged in
preventing the losses of the society because the reduction in loss causes lesser payment to the assured
and so more saving is possible which will assist in reducing the premium. Lesser premium invites more
business and more business cause lesser share to the assured.
(ii) It Provides Capital: The insurance provides capital to the society. The accumulated funds are
invested in productive channel. The dearth of capital of the society is minimized to a greater extent
with the help of investment of insurance. The industry, the business and the individual are benefited
by the investment and loans of the insurers.
(iii) It Improves Efficiency: The insurance eliminates worries and miseries of losses at death and
destruction of property. The carefree person can devote his body and soul together for better
achievement. It improves not only his efficiency, but the efficiencies of the masses are also advanced.
(iv) It Helps Economic Progress: The insurance by protecting the society from huge losses of damage,
destruction and death, provides an initiative to work hard for the betterment of the masses. The next
factor of economic progress, the capital, is also immensely provided by the masses. The property, the
valuable assets, the man, the machine and the society cannot lose much at the disaster.

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Principles of Insurance
1. Nature of Contract: Nature of contract is a fundamental principle of insurance contract. An
insurance contract comes into existence when one party makes an offer or proposal of a contract and
the other party accepts the proposal. A contract should be simple to be a valid contract. The person
entering into a contract should enter with his free consent.
2. Principal of Utmost Good Faith: Under this insurance contract both the parties should have faith
over each other. As a client it is the duty of the insured to disclose all the facts to the insurance
company. Any fraud or misrepresentation of facts can result into cancellation of the contract.
3. Principle of Insurable Interest: Under this principle of insurance, the insured must have interest in
the subject matter of the insurance. Absence of insurance makes the contract null and void. If there is
no insurable interest, an insurance company will not issue a policy.
An insurable interest must exist at the time of the purchase of the insurance. For example, a creditor
has an insurable interest in the life of a debtor, a person is considered to have an unlimited interest in
the life of their spouse etc.
4. Principle of Indemnity: Indemnity means security or compensation against loss or damage. The
principle of indemnity is such principle of insurance stating that an insured may not be compensated
by the insurance company in an amount exceeding the insureds economic loss.
In type of insurance the insured would be compensation with the amount equivalent to the
actual loss and not the amount exceeding the loss.
This is a regulatory principal. This principle is observed more strictly in property insurance than
in life insurance.
The purpose of this principle is to set back the insured to the same financial position that
existed before the loss or damage occurred.
5. Principal of Subrogation: The principle of subrogation enables the insured to claim the amount
from the third party responsible for the loss. It allows the insurer to pursue legal methods to recover
the amount of loss, For example, if you get injured in a road accident, due to reckless driving of a third
party, the insurance company will compensate your loss and will also sue the third party to recover
the money paid as claim.
6. Double Insurance: Double insurance denotes insurance of same subject matter with two different
companies or with the same company under two different policies. Insurance is possible in case of
indemnity contract like fire, marine and property insurance.
Double insurance policy is adopted where the financial position of the insurer is doubtful. The insured
cannot recover more than the actual loss and cannot claim the whole amount from both the insurers.
7. Principle of Proximate Cause: Proximate cause literally means the nearest cause or direct cause.
This principle is applicable when the loss is the result of two or more causes. The proximate cause
means; the most dominant and most effective cause of loss is considered. This principle is applicable
when there are series of causes of damage or loss.

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Classification of Insurance
Insurance can be classified into two types. They are:
1. Life Insurance
2. Non-Life Insurance
1. Life Insurance: The insurances that are involved in the reduction of risk related with the human life.
This type of insurance is also called personal insurance, individual insurance etc. Life insurance can
be classified into the following categories.
a) Term Life Insurance: A policy with a set duration limit on the coverage period. Once the policy
is expired, it is up to the policy owner to decide whether to renew the term life insurance
policy or to let the coverage end. This type of insurance policy contrasts with permanent life
insurance, in which duration extends until the policy owner reaches 100 years of age (i.e.
death).
These types of policies provide a stated benefit upon the death of the policy owner, provided
that the death occurs within a specific time period.
b) Permanent Life Insurance: An umbrella term for life insurance plans that do not expire (unlike
term life insurance) and combine a death benefit with a savings portion. This savings portion
can build a cash value-against which the policy owner can borrow funds, or in some instances,
the owner can withdraw the cash value to help meet future goals, such as paying for a child's
college education. The two main types of permanent life insurance are whole and universal
life insurance policies.
To borrow against the savings portion of a permanent life insurance policy, there is usually a
waiting period after the purchase of your policy for sufficient cash value to accumulate. Also,
if the amount of the unpaid interest on your loan plus your outstanding loan balance exceeds
the amount of your policy's cash value, your policy and all coverage will terminate.
Permanent life insurance policies enjoy favorable tax treatment. The growth of cash value is
generally on a tax-deferred basis, meaning that you pay no taxes on any earnings in the policy
so long as the policy remains active. Provided you adhere to certain premium limits, money
can be taken out of the policy without being subject to taxes since policy loans generally are
not considered taxable income. Generally, withdrawals up to the amount of premiums paid
can be taken without being taxed.
2. Non-Life Insurance: Non-life insurance, also called property and casualty insurance, is a type of
coverage that is very common and covers businesses and individuals. It protects them, monetarily,
from disaster by providing money in the event of financial crisis. Some non-life insurances are:
a)
b)
c)
d)
e)
f)
g)
h)

Casualty Insurance
Health Insurance
Business and commercial insurance
Agricultural Insurance
Aviation Insurance
Car Insurance
Engineering Insurance
Fire Insurance

i) Health Insurance
j) Critical Illness Insurance
k) Home Insurance
l) Marine Insurance
m) Motor Insurance
n) Shop Insurance
o) Travel Insurance etc.

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Insurance Development and Regulatory Authority

The official authority which is mainly responsible for the growth of insurance industry and its proper
regulation and control is Insurance Development and Regulatory Authority (IDRA). Parliament on 03
March 2010 passed two insurance laws in a bid to further strengthen the regulatory framework and
make the industry operationally vibrant. The new laws, came in to effect on 18 March 2010, are
Insurance Act 2010 and IDRA 2010.
There are 77 insurance companies operating in the country and they need to be regulated under
comprehensive laws and guidelines and supervised by a strong regulatory authority. The Insurance
Act 2010 said the sector needs to be managed properly and he strengthened by reducing business
risks, and local and international insurance laws need to be harmonized considering the socioeconomic aspect of the country, and protect the interest of policy holders and other beneficiaries.
And, hence comes the idea of Insurance Development and Regulatory Authority (IDRA).
Vision of IDRA
To make the insurance industry the premier financial service provider in the country and beyond
focusing an efficient corporate sector and capital market securing ever evolving aspiration of society
penetrating deep into all segments for high economic growth.
Mission of IDRA
Our mission is to protect the interest of the policy holders and other stakeholders under insurance
policy, supervise and regulate the insurance industry effectively, ensure orderly and systematic
growth of the insurance industry and for matters connected therewith or incidental thereto.
Existing IDRA Profile

M. Shefaque Ahmed, Actuary Chairman

Md. Quddus Khan, Member
Sultan-Ul-Abedine Molla, Member
Zuber Ahmed Khan, Member
Md. Murshid Alam, Member

Regulations Set by IDRA

1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.

Appointment of Consultants or Advisors

Fees for Inspection and Supply of Public Published Prospectus
Investments of Assets of Islamic Insurers Regulations
Licensing of Brokers
Licensing of Life Insurance Agents
Licensing of Non-Life Insurance Agents
Life Insurance Policy Holders Protection Fund
Paid-Up Capital and Share Holdings of an Insurance Company
Registers of Policies and Claims
Registration of Insurance Companies
Reinsurance for Life Insurance Business in Foreign Countries
Reinsurance for Non-Life Insurance Business in Foreign Countries
Review of Orders
Statistics

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Accounts, Audit, Actuary Report and Statements (IFRS 4, IAS 19, IAS 26)
IFRS 4 (Insurance Contracts): According to IFRS 4, an insurance contract is a contract under which one
party (the insurer) accepts significant insurance risk from another party (the policyholder) by agreeing
to compensate the policyholder if a specified uncertain future event (the insured event) adversely
affects the policyholder.
The IFRS 4 Applies to all insurance contracts (including reinsurance contracts) that an entity issues and
to reinsurance contracts that it holds, except for specified contracts covered by other IFRSs.
Does not apply to other assets and liabilities of an insurer, such as financial assets and financial
liabilities within the scope of IFRS 9 Financial Instruments.
Does not address accounting by policyholders.
The IFRS 4 exempts an insurer temporarily (i.e. during phase I of this project) from some requirements
of other IFRSs, including the requirement to consider the Framework in selecting accounting policies
for insurance contracts. However, the IFRS:
a) Prohibits provisions for possible claims under contracts that are not in existence at the end of
the reporting period (such as catastrophe and equalization provisions).
b) Requires a test for the adequacy of recognized insurance liabilities and an impairment test for
reinsurance assets.
c) Requires an insurer to keep insurance liabilities in its statement of financial position until they
are discharged or cancelled, or expire, and to present insurance liabilities without offsetting
them against related reinsurance assets.
The IFRS 4 permits an insurer to change its accounting policies for insurance contracts only if, as a
result, its financial statements present information that is more relevant and no less reliable, or more
reliable and no less relevant. In particular, an insurer cannot introduce any of the following practices,
although it may continue using accounting policies that involve them:
i. Measuring insurance liabilities on an undiscounted basis.
ii. Measuring contractual rights to future investment management fees at an amount that
exceeds their fair value as implied by a comparison with current fees charged by other market
participants for similar services.
iii. Using non-uniform accounting policies for the insurance liabilities of subsidiaries.
The IFRS 4 permits the introduction of an accounting policy that involves re-measuring designated
insurance liabilities consistently in each period to reflect current market interest rates (and, if the
insurer so elects, other current estimates and assumptions). Without this permission, an insurer would
have been required to apply the change in accounting policies consistently to all similar liabilities.
The IFRS 4 requires disclosure to help users understand:
a. The amounts in the insurers financial statements that arise from insurance contracts.
b. The nature and extent of risks arising from insurance contracts.

Page | 8

IAS 19 (Employee Benefits): In line with IAS 19, employee benefits are all forms of consideration given
by an entity in exchange for service rendered by employees or for the termination of employment.
A. Short-Term Employee Benefits
Short-term employee benefits are employee benefits (other than termination benefits) that are
expected to be settled wholly before twelve months after the end of the annual reporting period in
which the employees render the related service.
When an employee has rendered service to an entity during an accounting period, the entity shall
recognize the undiscounted amount of short-term employee benefits expected to be paid in exchange
for that service:
As a liability (accrued expense), after deducting any amount already paid. If the amount
already paid exceeds the undiscounted amount of the benefits, an entity shall recognize that
excess as an asset (prepaid expense) to the extent that the prepayment will lead to, for
example, a reduction in future payments or a cash refund.
As an expense, unless another IFRS requires or permits the inclusion of the benefits in the cost
of an asset.
B. Post-Employment Benefits
Post-employment benefits are employee benefits (other than termination benefits and short-term
employee benefits) that are payable after the completion of employment. Post-employment benefit
plans are formal or informal arrangements under which an entity provides post-employment benefits
for one or more employees. Post-employment benefit plans are classified into two categories
a) Defined contribution plans
b) Defined benefit plans
The classification of these categories depend on the economic substance of the plan as derived from
its principal terms and conditions.
a) Defined Contribution Plans
Defined contribution plans are post-employment benefit plans under which an entity pays fixed
contributions into a separate entity (a fund) and will have no legal or constructive obligation to pay
further contributions if the fund does not hold sufficient assets to pay all employee benefits relating
to employee service in the current and prior periods. Thus, the amount of the post-employment
benefits received by the employee is determined by the amount of contributions paid by an entity to
a post-employment benefit plan or to an insurance company, together with investment returns arising
from the contributions.
When an employee has rendered service to an entity during a period, the entity shall recognise the
contribution payable to a defined contribution plan in exchange for that service:
As a liability (accrued expense), after deducting any contribution already paid. If the
contribution already paid exceeds the contribution due for service before the end of the
reporting period, an entity shall recognize that excess as an asset (prepaid expense) to the
extent that the prepayment will lead to, for example, a reduction in future payments or a cash
refund.
Page | 9

 As an expense, unless another IFRS requires or permits the inclusion of the contribution in the
cost of an asset.
b) Defined Benefit Plans
Defined benefit plans are post-employment benefit plans other than defined contribution plans.
Under defined benefit plans:
The entitys obligation is to provide the agreed benefits to current and former employees; and
Actuarial risk (that benefits will cost more than expected) and investment risk fall, in
substance, on the entity. If actuarial or investment experience are worse than expected, the
entitys obligation may be increased.
Accounting by an entity for defined benefit plans involves the following steps:
a) Determining the deficit or surplus. This involves:
i. Using an actuarial technique, the projected unit credit method, to make a reliable
estimate of the ultimate cost to the entity of the benefit that employees have earned in
return for their service in the current and prior periods. This requires an entity to
determine how much benefit is attributable to the current and prior periods and to make
estimates (actuarial assumptions) about demographic variables (such as employee
turnover and mortality) and financial variables (such as future increases in salaries and
medical costs) that will affect the cost of the benefit;
ii. Discounting that benefit in order to determine the present value of the defined benefit
obligation and the current service cost;
iii. Deducting the fair value of any plan assets from the present value of the defined benefit
obligation;
b) Determining the amount of and the net defined benefit liability (asset) as the amount of the
deficit or surplus determined in (a), adjusted for any effect of limiting a net defined benefit
asset to the asset ceiling.
c) Determining amounts to be recognized in profit and loss:
i. Current service cost.
ii. Any past service cost and gain or loss on settlement.
iii. Net interest on the net defined benefit liability (asset).
d) Determining the re-measurements of the net defined benefit liability (asset), to be recognized
in other comprehensive income, comprising:
i. Actuarial gains and losses;
ii. Return on plan assets, excluding amounts included in net interest on the net defined
benefit liability (asset); and
iii. Any change in the effect of the asset ceiling, excluding amounts included in net interest
on the net defined benefit liability (asset).
Where an entity has more than one defined benefit plan, the entity applies these procedures for each
material plan separately.

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C. Other Long-Term Employee Benefits

Other long-term employee benefits are all employee benefits other than short-term employee
benefits, post- employment benefits and termination benefits.
The Standard requires a simplified method of accounting for other long-term employee benefits.
Unlike the accounting required for post-employment benefits, this method does not recognize remeasurements in other comprehensive income.
D. Termination Benefits
Termination benefits are employee benefits provided in exchange for the termination of an
employees employment as a result of either:
a) An entitys decision to terminate an employees employment before the normal retirement
date; or
b) An employees decision to accept an offer of benefits in exchange for the termination of
employment.
An entity shall recognize a liability and expense for termination benefits at the earlier of the following
dates:
a) When the entity can no longer withdraw the offer of those benefits; and
b) When the entity recognizes costs for a restructuring that is within the scope of IAS 37 and
involves the payment of termination benefits.

IAS 26 (Accounting and Reporting by Retirement Benefit Plans): In accordance with IAS 26,
retirement benefit plans are arrangements whereby an entity provides benefits for employees on or
after termination of service (either in the form of an annual income or as a lump sum) when such
benefits, or the contributions towards them, can be determined or estimated in advance of retirement
from the provisions of a document or from the entity's practices.
Some retirement benefit plans have sponsors other than employers; this Standard also applies to the
financial statements of such plans.
A. Defined Contribution Plans
Defined contribution plans are retirement benefit plans under which amounts to be paid as retirement
benefits are determined by contributions to a fund together with investment earnings thereon.
The financial statements of a defined contribution plan shall contain a statement of net assets
available for benefits and a description of the funding policy.
B. Defined Benefit Plans
Defined benefit plans are retirement benefit plans under which amounts to be paid as retirement
benefits are determined by reference to a formula usually based on employees earnings and/or years
of service.
The objective of reporting by a defined benefit plan is periodically to provide information about the
financial resources and activities of the plan that is useful in assessing the relationships between the
Page | 11

accumulation of resources and plan benefits over time. The financial statements of a defined benefit
plan shall contain either:
a) A statement that shows:
i. The net assets available for benefits;
ii. The actuarial present value of promised retirement benefits, distinguishing between
vested benefits and non-vested benefits; and
iii. The resulting excess or deficit; or
b) A statement of net assets available for benefits including either:
i. A note disclosing the actuarial present value of promised retirement benefits,
distinguishing between vested benefits and non-vested benefits; or
ii. A reference to this information in an accompanying actuarial report.
If an actuarial valuation has not been prepared at the date of the financial statements, the most recent
valuation shall be used as a base and the date of the valuation disclosed. [Paragraph A]
For the purposes of paragraph A, the actuarial present value of promised retirement benefits shall be
based on the benefits promised under the terms of the plan on service rendered to date using either
current salary levels or projected salary levels with disclosure of the basis used. The effect of any
changes in actuarial assumptions that have had a significant effect on the actuarial present value of
promised retirement benefits shall also be disclosed.
The financial statements shall explain the relationship between the actuarial present value of
promised retirement benefits and the net assets available for benefits, and the policy for the funding
of promised benefits.
C. All plans
Retirement benefit plan investments shall be carried at fair value. In the case of marketable securities
fair value is market value. Where plan investments are held for which an estimate of fair value is not
possible disclosure shall be made of the reason why fair value is not used.
The financial statements of a retirement benefit plan, whether defined benefit or defined
contribution, shall also contain the following information:
a) A statement of changes in net assets available for benefits;
b) A summary of significant accounting policies; and
c) A description of the plan and the effect of any changes in the plan during the period.

Actuary
Actuaries are the persons who mathematically evaluate the probability of events and quantify the
contingent outcomes in order to minimize the impacts of financial losses associated with uncertain,
undesirable events.
According to dictionary.com, a person qualified to calculate commercial risks and probabilities
involving uncertain future events, especially in such contexts as life assurance is called an actuary. He
computes premium rates, dividends, risks, etc., according to probabilities based on statistical records.

Page | 12

Trowbridge, Charles L. (1989) states, an actuary is a business professional who deals with the financial
impact of risk and uncertainty. Actuaries provide assessments of financial security systems, with a
focus on their complexity, their mathematics, and their mechanisms.
Since many events, such as death, cannot be avoided, it is helpful to take measures to minimize their
financial impact when they occur. These risks can affect both sides of the balance sheet, and require
asset management, liability management, and valuation skills. Analytical skills, business knowledge,
and understanding of human behavior and the vagaries of information systems are required to design
and manage programs that control risk.
Actuaries' insurance disciplines include life insurance; health insurance; pensions, annuities, and asset
management; social welfare programs; property insurance; casualty and general insurance; and
reinsurance, to name some.
Some notable actuaries can be Nathaniel Bowditch, Harald Cramr, James Dodson, Edmond Halley,
James C. Hickman, David X. Li, Edward Rowe Mores, and William Morgan etc.

Actuary Valuation
An actuarial valuation is a type of appraisal which requires making economic and demographic
assumptions in order to estimate future liabilities. The assumptions are typically based on a mix of
statistical studies and experienced judgment. Since assumptions are often derived from long-term
data, unusual short-term conditions or unanticipated trends can occasionally cause problems.
Requirements for Actuarial Valuation
An actuarial valuation will be performed annually for the purpose of monitoring the financial health
of the plan and the Boards funding policy objectives. The actuarial valuation shall:
1. Measure the plans financial position assuming the plan continues for the long-term future, and
assuming the plan were to be wound up on the valuation date;
2. Use assumptions which, both individually and in aggregate, are acceptable to both the plans
actuary and the Board;
3. Use assumptions and margin for adverse deviations which reflect the Boards funding policy
objectives;
4. Monitor the margin for adverse deviations by looking at the difference between:
A. the financial position of the plan based on the utilized funding assumptions, in aggregate,
and
B. the financial position of the plan based on a best estimate of the contingencies which
impact on the plan (as jointly agreed by the actuary and the Board);
5. Monitor the potential impact of asset mix risk on contributions by:
A. measuring the financial position of the plan using minimum risk assumptions, and
B. measuring the potential variability of contributions in the short term; and
6. Monitor the plans maturity levels.

Page | 13

The assumptions used in the ongoing funding valuation shall reflect the long-term nature of the plans
obligations but may be adjusted in the short term to recognize fluctuations around long term trends
and the plan stakeholders ability to adjust their contributions.
The actuarial cost method shall be recommended by the actuary to align with the Boards funding
policy objectives after considering the plans current and expected future levels of plan maturity.
Actuarial Valuations Policy
Unless otherwise agreed by the Board, the assets at the valuation date for the ongoing plan funding
basis shall be recognized as the market value of assets adjusted to remove some of the short term
random fluctuations in the market value investment return. The method used for smoothing out these
short-term fluctuations in the market value investment return shall conform to accepted actuarial
practice and shall align with the Boards funding policy objectives.
An actuarial valuation will be performed annually for information and planning purposes. The Board
will determine whether it is prudent to have the actuary prepare an actuarial funding valuation report
to be filed with the regulators. An actuarial funding valuation report will be prepared at least once
every three years.

Commissions and Rebates

According to insurance act 1938 section 40A,
1. No person shall pay or contract to pay an insurance agent, and no insurance agent shall receive or
contract to receive by way of commission or remuneration in any form in respect of any policy of life
insurance issued in Bangladesh by an insurer after the commencement of the Insurance (Amendment)
Ordinance, 1970, and effected through an insurance agent, an amount exceeding such maximum
percentage or below such minimum percentage as may be prescribed: Provided that in prescribing
such percentages regard shall be had to
(a) The type of the life insurance business;
(b) The term of the policy;
(c) The amount of business procured by the agent during a calendar year;
(d) The number of policies lapsing from out of the business procured by the agent;
(e) The age of the insurer; and
(f) Whether or not the agent has successfully completed a course of training.
2. No person shall pay or contract to pay to an insurance agent, and no insurance agent shall receive
or contract to receive by way of commission or remuneration in any form, in respect of any policy of
general insurance issued in Bangladesh by an insurer and effected through an insurance agent an
amount exceeding(a) Where the policy relates to fire or miscellaneous insurance, fifteen per cent of the premium
payable on the policy; and
Page | 14

(b) Where the policy relates to marine insurance, ten per cent of the premium payable on the
policy provided that a further amount not exceeding five per cent of the premium payable on
the policy may be paid to an insurance agent who procures a yearly business yielding a
premium income of not less than thirty thousand Taka and satisfies such other conditions as
may be prescribed.
3. No person shall pay or contract to pay to any employer of agents and no employer of agents shall
receive or contract to receive, by way of commission, over-riding commission or any other
remuneration in any form, in respect of any policy of general insurance issued by an insurer in
Bangladesh, and effected through an employer of agents, an amount exceeding(a) In the case referred to in clause (a) of sub-section (2), fifteen per cent of the premium
payable on the policy; and
(b) In the case referred to in clause (b) of sub-section (2), ten per cent of the premium payable
on the policy,
Inclusive of any commission payable to any insurance agent in respect of the said policy provided that
a further amount not exceeding five per cent of the premium payable on a policy may be paid to an
employer of agents who procures a yearly business yielding a premium income of not less than one
lakh Taka and satisfies such other conditions as may be prescribed:
Provided further that the Government may, in such circumstances and to such extent and for such
period as may be specified, authorize the payment of commission or remuneration exceeding the
limits specified in this sub-section to an employer of agents acting on behalf of an insurer incorporated
or domiciled elsewhere than in Bangladesh if such employer of agents carries out and has continuously
carried out in his own office duties on behalf of the insurer which would otherwise have been
performed by the insurer.

Insurance Management Expense

Expenses of management means all charges wherever incurred whether directly or indirectly, and
includes:(i) Commission payments of all kinds;
(ii) A proper share of expenses capitalized; and
(iii) in the case of an insurer having his principal place of business outside Bangladesh, a proper share
of head office expenses which shall not exceed such percentage of the total net premiums, that is to
say, gross premiums written direct in Bangladesh plus reinsurances accepted minus reinsurances
ceded during the year in respect of life insurance business transacted by him in Bangladesh as may be
prescribed, but does not in the case of an insurer having his principal place of business in Bangladesh
include any share of head office expenses in respect of life insurance business transacted by him
outside Bangladesh.

Page | 15

Distribution of Dividend
The true profit derived from Life Business is dealt with in accordance with the Companys Articles. In
a public company consisting of shareholders, certain proportion of the surplus would be utilized in
distribution as dividends amongst the shareholders.

Bonus
It is the share of profit payable by the life insurance company to policyholders. A bonus is declared
whenever a valuation is held. The profit allocated to the policyholders is distributed as bonuses on
with policy policies. In a public company consisting of shareholders, after distributing dividends to
the shareholders the remainder would be allocated towards bonuses on with profit policies.
Bonus is mainly of 3 types.
1. Cash Bonus which is to be paid to policy-holders in cash as soon as it is declared after
valuation.
2. Bonus in Reduction of Premium which is applied for reducing further premium.
3. Reversionary Bonus which is added to the policy amount and is paid along with the policy
amount when it is due for payment. In other words, this type of bonus becomes actually
receivable when the policy becomes a claim.

Profit
After making provision for bad and doubtful debts, depreciation of assets and any other matter
determined by the Board, the SadharanBima Corporation may out of its net annual profits, establish
a reserve fund and any surplus remaining thereafter shall be paid to the Government.
If as a result of an investigation undertaken by the JibanBima Corporation relating to actuarial
valuation any surplus emerges, ninety five percent of such surplus or such higher percentage thereof
as the Government may approve shall be allocated to or reserved for the life insurance policyholders
of the Corporation and the remainder shall be paid to the Government.
The profits of an insurance company cannot be ascertained every year from the preparation of
Revenue Account. In order to ascertain profits, periodical valuations have to be made by the
companys actuary who finds out the exact liability of the company upon all policies in force. The
balance of Life Assurance Fund, after allowing for such liability and all other contingencies, is then
utilized in declaring dividends to shareholders, bonuses to policyholders and transfers to reserve funds
etc.

Registers
Register of Policies and Register of Claims
According to Insurance Act, 1938, section 14, every insurer, in the case of an insurer specified in subclause (a)(ii) or sub-clause (b) of clause (9) of section 2 in respect of all business transacted by him,
and in the case of any other insurer in respect of the insurance business transacted by him in India,
shall maintainPage | 16

(a) a register or record of policies, in which shall be entered, in respect of every policy issued
by the insurer, the name and address of the policy-holder, the date when the policy was
effected and a record of any transfer, assignment or nomination of which the insurer has
notice, and
(b) a register or record of claims, in which shall be entered every claim made together with
the date of the claim, the name and address of the claimant and the date on which the claim
was discharged, or, in the case of a claim which is rejected, the date of rejection and the
grounds there for.
Register of Insurance Agents
According to Insurance Act, 1938, section 43, every insurer and every person who acting on behalf of
an insurer employs insurance agents shall maintain a register showing the name and address of every
insurance agent appointed by him and the date on which his appointment began and the date, if any,
on which his appointment ceased.
Registers and Books
According to Insurance Act, 1938, section 79, every provident society shall keep at its principal office
in Bangladesh
(a) Such registers in such form as may be prescribed
(b) A cash book in Which shall be entered separately for each class of contingency separately
specified in Section 65 all sums received and expended by the society and matters in respect
of which the receipt or expenditure takes place,
(c) A ledger;
(d) A journal.

Submission of Returns
According to Insurance Act, 1938, section 15,
(1) The audited accounts and statements referred to in section 11 or sub-section (5) of section 13 and
the abstract and statement referred to in section 13 shall be printed, and four copies thereof shall be
furnished as returns to the Controller of Insurance in the case of the accounts and statements referred
to in section 11 or sub-section (5) of section 13 within six months and in the case of the abstract and
statement referred to in section 13 within nine months from the end of the period to which they refer.
Provided that the said period of six months shall in the case of insurers having their principal place of
business or domicile outside Pakistan and in the case of insurers constituted, incorporated or
domiciled in Pakistan but also carrying on business outside Pakistan be extended by three months,
and provided further that the Controller may in any case extend the time allowed by this sub-section
for the furnishing of such returns by a further period not exceeding one month.

Page | 17

(2) Of the four copies so furnished one shall designed in the case of a company by the chairman and
two directors and by the principal officer of the company and, if the company has a managing director
by that director in the case of a firm, by two partners of the firm, and, in the case of an insurer being
an individual, by the insurer himself and one shall be signed by the auditor who made the audit or the
actuary who made the valuation, as the case may be.
(3) Where the insurer's principal place of business or domicile is outside Pakistan, he shall forward to
the Controller of Insurance, along with the documents referred to in section 11, the balance-sheet,
profit and loss account and revenue account and the valuation reports and valuation statements, if
any, which the insurer is required to file with the public authority of the country in which the insurer
is constituted, incorporated or domiciled, or, where such documents are not required to be filed, a
certified statement showing the total assets and liabilities of the insurer at the close of the period
covered by the said documents and his total income and expenditure during that period.

Re-Insurance
Reinsurance occurs when multiple insurance companies share risk by purchasing insurance policies
from other insurers to limit the total loss the original insurer would experience in case of disaster. By
spreading risk, an individual insurance company can take on clients whose coverage would be too
great of a burden for the single insurance company to handle alone. When reinsurance occurs, the
premium paid by the insured is typically shared by all of the insurance companies involved.
Functions of Re-insurance
Reinsurance can help a company by providing:
1. Risk Transfer - Companies can share or transfer of specific risks with other companies
2. Arbitrage - Additional profits can be garnered by purchasing insurance elsewhere for less than
the premium the company collects from policyholders.
3. Capital Management - Companies can avoid having to absorb large losses by passing risk; this
frees up additional capital.
4. Solvency Margins - The purchase of surplus relief insurance allows companies to accept new
clients and avoid the need to raise additional capital.
5. Expertise - The expertise of another insurer can help a company obtain a proper rating and
premium.
Re-insurance Business in Bangladesh
After establishment of private Insurance Companies in the year 1985 in Bangladesh, Government
authorized ShadharaonBima Corporation (SBC) to accept 100% reinsurance of private insurance
companys. SBC in its role as a re-insurer has lent support to the private insurance companies in
Bangladesh in a big way. In view of the huge net-worth and retention capacity, SBC has accepted both
treaty and facultative businesses from the private insurance companies.
In respect of reinsurance, the Insurance Corporation (Amendment) Act 1990 provides that fifty
percent of a companys reinsurance business must be placed with the SBC and remaining fifty percent
may be reinsured either with SBC or with any other insurer in Bangladesh or abroad. SBC is doing
direct insurance as well as private insurance companys reinsurance.

Page | 18

SBC is the largest General Insurance Corporation in Bangladesh doing direct Business to the tune of
BDT 886 million in the year 2005. During the same period its reinsurance premium income was BDT
2627 million.
SBC is a shareholder of Asian Reinsurance Corporation. SBCs major portfolio comprises of fire, marine
cargo, aviation and engineering business. SBC also accepts reinsurance business from overseas market
through its intermediaries and as well as directly.
The sound financial backing and rich experience earned over the years in the field of insurance,
reinsurance and financial services (which includes investment, risk improvement services etc), brings
SBC in an ideal position of a professional reinsurer in Bangladesh.
At the present growing economy in Bangladesh the premium income of SBC is also increasing day by
day and nearly all the organizations place 100% of their reinsurance enterprise with the SBC.

Role of Insurance Academy in Bangladesh

1. Provide Training Program: It provides special training and educational program all over the
country for making insurance to boost up the condition of insurance in Bangladesh.
2. Provide Diploma Education: Bangladesh Insurance Academy (BIA) provides diploma
education for making people more trained and expert in insurance industry.
3. Conduct research on the insurance industry.
4. Conduct in-service training for officers and employees of the public and private sector
insurance organizations.
5. Train up insurance officers of other organizations.
6. Publish research works and books on insurance.
7. Establish close contacts with local and foreign academic institutions, organize joint courses
and invite students and trainees from abroad.

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Appendix
List of Non-Life Insurance Companies
1.

Agrani Insurance Company Ltd.

2.

Asia Insurance Ltd.

3.

Asia Pacific Gen Insurance Co. Ltd.

4.

Bangladesh Co-Operatives Ins. Ltd.

5.

Bangladesh General Insurance Co. Ltd.

6.

Bangladesh National Insurance Co.Ltd.

7.

Central Insurance Company Ltd.

8.

City Gen. Insurance Company Ltd.

9.

Continental Insurance Ltd.

10.

Crystal Insurance Company Ltd.

11.

Desh Gen. Insurance Company Ltd.

12.

Eastern Insurance Company Ltd.

13.

Eastland Insurance Company Ltd.

14.

Express Insurance Ltd.

15.

Federal Insurance Company Ltd.

16.

Global Insurance Ltd.

17.

Green Delta Insurance Co. Ltd.

18.

Islami Commercial Insurance Co. Ltd.

19.

Islami Insurance Bangladesh Ltd.

20.

Janata Insurance Company Ltd.

21.

Karnaphuli Insurance Company Ltd.

22.

Meghna Insurance Company Ltd.

23.

Mercantile Insurance Company Ltd.

Page | 20

24.

Nitol Insurance Company Ltd.

25.

Northern Gen.Insurance Company Ltd.

26.

Peoples Insurance Company Ltd.

27.

Phonix Insurance Company Ltd.

28.

Pioneer Insurance Company Ltd.

29.

Pragati Insurance Ltd.

30.

Pramount Insurance Company Ltd.

31.

Prime Insurance Company Ltd.

32.

Provati Insurance Company Ltd.

33.

Purabi Gen Insurance Company Ltd.

34.

Reliance Insurance Ltd.

35.

Republic Insurance Company Ltd.

36.

Rupali Insurance Company Ltd.

37.

Sonar Bangla Insurance Company Ltd.

38.

South Asia Insurance Company Ltd.

39.

Standard Insurance Ltd.

40.

Takaful Islami Insurance Ltd.

41.

Dhaka Insurance Ltd.

42.

Union Insurance Company Ltd.

43.

United Insurance Company Ltd.

44.

Sena Kalyan Insurance Company Ltd.

45.

Sikder Insurance Company Ltd.

Page | 21

List of Life Insurance Companies

1.

American Life Insurance Company (Foreign Company)

2.

Baira Life Insurance Company Ltd.

3.

Delta Life Insurance Company Ltd.

4.

Farest Islami Life Insurance Co. Ltd.

5.

Golden Life Insurance Ltd.

6.

Homeland Life Insurance Company Ltd.

7.

Meghna Life Insurance Company Ltd.

8.

National Life Insurance Company Ltd.

9.

Padma Islami Life Insurance Company Ltd.

10.

Popular Life Insurance Company Ltd.

11.

Pragati Life Insurance Ltd.

12.

Prime Islami Life Insurance Company Ltd.

13.

Progressive Life Insurance Company Ltd.

14.

Rupali Life Insurance Company Ltd.

15.

Sandhani Life Insurance Company Ltd.

16.

Sunflower Life Insurance Company Ltd.

17.

Sunlife Insurance Company Ltd.

18.

Zenith Islami Life Insurance Ltd.

19.

Mercantile Islami Life Insurance Ltd.

20.

Nrb Global Life Insurance Company Ltd.

21.

Guardian Life Insurance Ltd.

22.

Chartered Life Insurance Company Ltd.

23.

Best Life Insurance Company Ltd.

24.

Protective Islami Life Insurance Co. Ltd.

Page | 22

25.

Sonali Life Insurance Co. Ltd.

26.

Sawdesh Life Insurance Co. Ltd.

27.

Diamond Life Insurance Co. Ltd.

28.

Alpha Islami Life Insurance Ltd.

29.

Trust Islami Life Insurance Co. Ltd.

30.

Jamuna Life Insurance Ltd.

List of the Insurance Companies in Public Sector

1.

Sadharan Bima Corporation (Gen. Ins)

2.

Jiban Bima Corporation (Life Ins.)

Page | 23