CHAPTER # 3

FUNCTIONING OF INSURANCE
COMPANIES

Functioning of SLIC
The Pakistan Credit Rating Agency (Pacra) has
assigned the Insurer Financial Strength (IFS) rating
of “AAA” (Triple A) to State Life Insurance
Corporation of Pakistan (SLIC). The rating denotes
SLIC’s exceptionally strong capacity to meet
policyholder and contract obligations.

At the same time, risk factors are considered

minimal, and the impact of the adverse business and economic factors is expected
to be extremely small. The rating reflects state-owned SLIC’s leading position in
life insurance business in Pakistan. This is supplemented by the corporation’s
extensive distribution network, good management quality, comprehensive
information system, and growing business volumes.

In return, the client agrees to pay recurring premiums--a fancy word for payments--to the
insurance company on a regular basis, often monthly or yearly. The insurance company collects
its premiums from all clients, invests that money in extremely safe investments, such as
government bonds, securities etc…and keeps capital on hand to pay claims made by its clients.

SLIC Insurance business model

Underwriting Department

The business model is to collect more in premium and investment income than is paid out in
losses, and to also offer a competitive price which consumers will accept. Profit can be reduced
to a simple equation: Profit = earned premium + investment income - incurred loss -
underwriting expenses.

Insurers make money in two ways:

1. Through underwriting, the process by which insurers select the risks to insure and decide
how much in premiums to charge for accepting those risks.
2. By investing the premiums they collect from insured parties.

Underwriting is done on the basis of two grounds:

 Financial Grounds
Medical Grounds

Policy holder services (New business department)

Claims and loss handling is the materialized utility of insurance; it is the actual "product" paid
for Claims may be filed by insured directly with the insurer or through brokers or agents. The
insurer may require that the claim be filed on its own proprietary forms, or may accept claims on
a standard industry form.

CLAIMS

Insurance company claims departments employ a large number of claims adjusters supported by
a staff of records management and data entry clerks. Incoming claims are classified based on
severity and are assigned to adjusters whose settlement authority varies with their knowledge
and experience. Every claim is covered by filling a claim paper before 90 days of receiving
money.

Early Claims covered by 1. Nominee’s statement 2. Doctor statement 3. Employer statement

Marketing Department

Insurers will often use insurance agents to initially market or underwrite their customers. Agents
can be captive, meaning they write only for one company, or independent, meaning that they can
issue policies from several companies. Win back strategy is used by Slic by giving prizes to its
old customers. Target market is every person sweeper to president of Pakistan how have
savings.

Agency Department

Commissions to agents represent a significant portion of an insurance cost and insurers such as
State life that sell policies directly via mass marketing campaigns can offer lower prices pay
35% initial commission to its SO’s. The existence and success of companies using insurance
agents (with higher prices) is likely due to improved and personalized customers.
 FINANCE DEPARTMENT AT SLIC

Finance Department

The finance department of SLIC is headed by the General Manager (Finance), who reports to the
MD and CEO. There are four other departments under the Finance Departments. These are:
1. Accounts Department
2. Actuary Department
3. Investment Department
4. Audit Department

The Accounts Department

The Accounts Department functions like any other Accounts department. It is concerned with
the disbursement of salaries, reimbursements, incentives, commissions to agents. It also handles
the payments due to other agencies with which the Company interacts, viz. event management
companies etc. The work of an Accounts department assumes much importance in an insurance
company because it has to be able to pay the claims arising time to time.

The Actuary Department

The Actuary Department is the “Pricing Department” of an insurance company. It must be

understood that the basic premise on which the insurance companies work is “use the corpus of
policy holders for disbursement for any claim”. Mortality table is used for policy prices.
Based on this principle, this department decides the amount of premium to be charged from a
client for a particular policy. This is normally done with the help of Mortality Tables, which can
either be prepared by the company itself, or the company can use the existing tables available for
its use. The Actuary Department is also responsible for Asset-Liability Management of
the insurance company.

The Investment Department

SLIC invest most of its funds in real state business. The Investment Department is responsible
for the investment of the money of the investors. These guidelines are:

1. Not less than 50% of the funds will be invested in Government Securities (G-Sec).
2. Up to15% of the corpus will be invested in infrastructure, social and rural sectors.
3. Not less than 20% can be invested in government and other equities.
4. Remaining 15% can be invested in “unapproved” equities.

 Less than 5 year loss

 Within 5 year break even
  More than 5 year profit

Audit Department

The audit department is usually charged with creating and implementing procedures, controls
and oversight for all business areas that have input into the financial books and records of a
company. It also usually has responsibility for correcting any deficiencies noted by the
independent accountants.

HR & human resource development

Departments are the entities organizations form to organize people, reporting relationships, and
work in a way that best supports the accomplishment of the organization's goals. Departments
are usually organized by functions such as human resources, marketing, administration, and
sales.

State Life basically deals in following line of Business

 Conventional Life insurance (Home Business)
 Annuities
 Universal Life Business (Gulf Business)
 Pension Services
 Group Life Insurance

Services in SLIC

Supplementary contract
Nominees

Automatic investment plan of SLIC

Key Features SLIC Investment Plan

· Two plan options to choose from Ready-made and Tailor-made
· Regular, limited, single premium paying options
· Unmatched flexibility through our ‘Exchange Option’
· Liquidity in the form of partial withdrawal
· Option to avail of Accidental Death Benefit, Accidental Total, Premium Disability and
 How does this Plan work?
As a customer you will have the liberty to choose between the Ready-made and Tailor-made
Plan options. The premium contributions made by you, net of Premium Allocation Charges and
Sum Assured Related Charges are invested in fund/funds of your choice and units are allocated
Depending on the price of units for the fund/funds.
The Fund Value is the total value of units that you hold in the fund/ funds. The Mortality
Charges and Policy Administration Charges are deducted through cancellation of units, whereas
the Fund Management Charge is priced in the Unit Value.

State life Automatic Investment Plan

Basic Plan Minimum Maximum

Age at Entry 6 month 60 years last birthday

Premium pay term 5 years 30 years

Min Sum Assured Regular / Limited Premium: Annualized Premium for 5 years or Annualized
Premium for half of the policy term, whichever higher.
Single Premium 125% of the single premium amount
Max Sum Assured No Limit
Minimum premium

Single Premium ------Rs 20,000

Min Top Up amount------Rs 2,000

Premium Limited
option Premium

Rs 10,000 Rs 20,000

Rs5,000 Rs10,000

Rs 2,500 Rs 5,000

Rs 1,000 Rs 2,000
 Children's Plan
Children’s Plan is designed to provide a lump sum to the child at maturity. It also provides
financial security to the child in the future, even in case of the insured parent’s unfortunate death
during the policy term. Children’s Plan receives simple reversionary bonuses, which are usually
added annually. This is a flexible plan with three options for you to choose from, depending on
your requirements. The details of these options are explained in the next section.
You will have the choice of 3 options at the start of the policy.

Tax Benefits
The premiums you pay will be eligible for tax relief under Section 88 of the Income Tax Act,
1961. The benefits received under the policy are eligible for tax relief under Section 100 (10D)
of the income tax act, 1961.
Eligibility
Eligibility Age

Minimum Age of Entry 18 years

Maximum Age of Entry 60 years

Maximum Age of Maturity 75 years

Min. Term: 10 years

Max. Term: 25 years

Payment options
 Yearly
half-yearly
quarterly modes
depending on your convenience

Investment Portfolio and Investment Income Of SLIC

The major portion of SLIC’s investment comprise of government securities (69%),
corporate debts (2%), Equities (11%), Investment property (1%), Bank deposits (9%) and Loans
against policies (8%) as at 31.12.2010. The balanced composition of the investment portfolio

IP
helps SLIC to earn a good rate of return, the benefit of which is ultimately passed on to the

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policyholders. In 2010, State Life was able to earn an investment income of Rs. 27.6 billion as
compared to Rs. 21 billion in 2009. This growth in investment income reflects an increase of
32% during this duration.

The sales process

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