DIRECTORS' REPORT: To the Members, The Directors have pleasure in presenting the Fortieth Annual Report on the working and affairs of the Corporation and the audited statements of account for the year ended 31st March, 2012. DIVIDEND The Board has not recommended dividend for the year under review due to the losses incurred by the Corporation. ASSETS Total assets of the Corporation was Rs. 53730.91 crores as on 31st March, 2012 as compared to Rs. 49728.56 crores as on 31st March, 2011. MANAGEMENT DISCUSSION & ANALYSIS REPORT The operations and future prospects of the Corporation is dealt in the Management Discussion and Analysis Report which forms part of the Directors' Report. INVESTMENTS The total book value of investment of the Corporation in India (representing investments, loans and deposits) amounted to Rs. 22165.74 crores as on 31.3.2012 as against Rs. 19777.80 crores in the previous year. The investment income of Rs. 2175.41 crores were apportioned to policyholders and shareholders as under: Apportioned to Policyholders: Rs. 1367.90 (Rs. In Crores) Apportioned to Shareholders: Rs. 807.51 (Rs. In Crores) The mean yield on funds with profit on sale of investments stood at 10.37%. The net NPA% (non Performing Assets) was at 0.17%. INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY (IRDA) The Corporation being a Reinsurance Company, its working and functions are governed by the Insurance Regulatory and Development Authority (IRDA). The Corporation's existing paid-up equity capital of Rs. 430 crores conforms to the specifications of the IRDA. The Accounts of the Corporation are drawn up according to the stipulations prescribed in the IRDA (Preparation of Financial Statements and Auditor's Report), Regulations, 2002. PERSONNEL AND INDUSTRIAL RELATIONS I. STATEMENT UNDER SECTION 217(A) OF COMPANIES ACT, 1956: The particulars of remuneration payable to the employees in terms of Section 217(2A) of the Companies Act, 1956 are annexed in a separate statement. II. WELFARE OF SC / ST / OBC: In consonance with the National Policy on reservation for SC/ST & OBC, GIC Re has framed rules accordingly which allow reservations and concessions/relaxation for SC/ST and OBC in recruitment and promotion wherever applicable. Special coaching classes for SC/ST employees are held in order to enable them to acquire knowledge so that they are able to give a better account of themselves in written test and interview. Dr. Ambedkar Welfare Trust of GIC Re was established during the birth centenary year of Dr. B.R. Ambedkar. The Trust implemented various Welfare Schemes for the benefit of SC/ST/OBC employees. FOREIGN EXCHANGE EARNINGS & OUTGO AND OTHER INFORMATION The particulars of Foreign Exchange earnings/outgo as required by the Companies Act under Section 217(1) (e) is given below: i) Earnings: Rs. 1782.09 crores ii) Outgo: Rs. 1575.93 crores The earnings included all receipts denominated in foreign currencies in respect of premium, recovery of claims, outward commission and investment earnings. The outgo comprised all payments in foreign currency in respect of outward premium, claims on reinsurance accepted, commission and expenses of management. Expenses on (a) Entertainment (b) Foreign Tours and (c) Publicity and Advertisement amounted to Rs. 12,82,574/-, Rs. 1,47,38,391/- and Rs. 4,33,92,688/-respectively for the year under review. ADDITIONAL INFORMATION REQUIRED UNDER COMPANIES (DISCLOSURE OF PARTICULARS IN THE REPORT OF THE BOARD OF DIRECTORS) RULES, 1988 The Company is not engaged in any manufacturing activity and as such there are no particulars to disclose under the Companies (Disclosure of Particulars in the Report of Board of Directors) Rules, 1988 as regards Conservation of Energy or Technology absorption. IMPLEMENTATION OF OFFICIAL LANGUAGE POLICY OF THE CENTRAL GOVERNMENT During the year under review, the Corporation improved its performance in implementation of Official Language Policy of the Government of India and complied with the guidelines issued by the Ministry. For implementation of Official Language Policy of the Government, inspections of various departments and Delhi office of the Corporation were carried out by the officials of Official Language Department. Seven In-House workshops were organised and four meetings of Official Language Implementation Committee were conducted during the year. ln-house quarterly journal KSHITIJ was published regularly. During Hindi week celebrations, various competitions were held. The winners of these competitions were given prizes in an Awards function. CMD's Shield was awarded to Investment Department as this department was found to be the best performing Department of the Corporation with regards to Official Language Implementation. From Republic Day 2012 onwards O.L. Department has taken an initiative of displaying everyday an Hindi-English word with its Hindi Pronunciation on every computer as a campaign to make more and more Hindi words familiar to all. The Joint Director (Rajbhasha), Ministry of Finance, New Delhi carried out an inspection and found that the implementation of Official Language in the Corporation was satisfactory. Senior executives and official of Official Language Department attended Salahkaar Samiti meeting held at New Delhi. GIC Re was awarded 2nd prize by Town Official Language Implementation Committee for the best performance in use of official language during the year. VIGILANCE The Vigilance Department of the Corporation is headed by Chief Vigilance Officer in the rank of Deputy General Manager. The emphasis of the Vigilance Department is on preventive vigilance. The Department also focuses on various systems improvement initiatives. Since the focus of the Organisation, in concurrence with CVC guidelines, is to take proactive steps to avoid vigilance situation, Audit Reports are studied and remarks made by Auditors are analysed. Surprise inspections are conducted periodically & lapses studied from vigilance angle; based on this, suggestions are advised for improvisation of systems and procedures of the Organisation. Importance of preventive vigilance are conveyed to all employees of GIC Re as an integral part of the training modules. The sole purpose of vigilance training is to focus and accept vigilance as an organisational objective and create an atmosphere conducive to "Zero Corruption" functioning, with role clarity and clear sense of direction. To improve vigilance administration CVO and other officers also participate in the vigilance training programmes/workshops conducted by reputed organisations. Periodical discussions are held with the officials of various departments to ensure financial & office discipline and imbibe a culture of value & ethics in the organisation. INTERNAL AUDIT DEPARTMENT The Corporation has systems and controls in place which cover almost all areas of operations such as underwriting, claims, investment and finance. The Corporation has been utilizing the services of professional audit firm M/s. Mayra & Khatri for Internal Audit and Concurrent Audit functions during the year 2011-12. The internal audit team conducts audit of various departments on concurrent basis and also reviews the prevalent systems, and submits their report together with suitable recommendations, to the management on a monthly basis. The main audit findings and recommendations are placed before Audit Committee of the Board (ACB) for consideration. Status of progress on the implementation of approved recommendations by the Audit Committee of the Board is reported to ACB from time to time. Reinsurance Underwriting Operations covering Treaty Acceptances and Cash Call Settlements and also Settlement of Accounts were audited on concurrent basis. Similarly, Investment operations were also subjected to audit on a concurrent basis, covering primary and secondary market transactions, Subsidiary Government Ledger (SGL) reconciliation for Central/State Government Securities and review of deployment of surplus funds. In line with RBI directions, audit confirmation of correctness of balances in SGL/CSGL account is sent to RBI, at the end of each month. Besides major expenditure incurred, both Revenue and Capital were also subjected to audit. Other operational departments were also covered by audit during the financial year. RTI ACT, 2005 The Corporation has in place the stipulated structure to implement the RTI Act 2005, in the organisation. The setup is headed by General Manager designated as the Transparency Officer. A Deputy General Manager functions as the Appellate Authority, an Assistant General Manager is the Central Public Information Officer, while a Chief Manager discharges the duties of Assistant Public Information Officer under the provisions of the Act. The corporate website www.gicofindia.in also hosts information as relevant to the Corporation, under the Act. The Corporation in view of its core activity of reinsurance business, does not have much interaction with the public at large and as such does not receive many applications under the Act. However, due to GIC Re's position as the erstwhile Holding Company GIC Re continues to receive Applications from the customers of the four Public Sector Companies, under the Act, for their grievances with these companies. During the period under review (2011-12) the Corporation received forty applications and three appeals under the RTI Act, 2005. All the applications were duly replied and appeals were disposed of well within the stipulated time period. INFORMATION TECHNOLOGY MANAGEMENT GROUP (ITMG) The Information Technology Management Group of GIC Re takes care of the IT infrastructure to the Corporation and ensures that the latest technology in hardware, software and networking is implemented in the organisation in line with the corporate mission statement of applying "state-of-the-art" technology. As a prelude to the SAP Functional Upgrade of the SAP software to the latest ERP platform ECC 6.0, a scoping activity was undertaken for most modules of the software for effort estimation. The Functional Upgrade proposes better leveraging of the SAP environment with the objective of achieving improved efficiency in business processes. The Electronic Data Interchange (Broker Connectivity) pilot project named "eThru" was completed during the year and was officially launched at a public function in September 2011. Two major business partners have on-boarded this platform which involved setting up a Web gateway for providing access through Internet/ VPN and use of Web Forms or Web Services for exchange of messages. This project is based on the ACORD XML messaging standards applicable for Reinsurance and Large Commercials (RLC). An e-accounting initiative involving an international broker has been taken up in the second phase of this project aimed at achieving a comprehensive industry platform. There is an in-house Data Centre at Suraksha and a Disaster Recovery site at Bengaluru which is stable and operational. It is proposed to outsource the data centre operations as well as extend the disaster recovery site for both SAP and non-SAP applications for professional management of the same and optimise uptime efficiency. Digitisation of documents numbering around 6.55 lakhs have been completed during 2011-12 under the Document Management System. The total number of documents digitised since inception of the DMS implementation is around 41 lakhs. It is proposed to integrate the current system with SAP during the Functional Upgrade to enable faster and seamless conversion of documents into electronic mode. During 2011-12, around 280 employees were trained in-house on various modules of SAP. An initiative was taken up to send employees for full-fledged certificate courses from SAP on various modules implemented at GIC Re in order to develop in-house professional expertise on the ERR There are 4 certified SAP professionals in the Finance section as a result of this initiative. There is a Business Continuity Plan (BCP) for IT operations designed to reduce risk from an unexpected disruption of the critical functions/operations necessary for the survival of the organization and includes all issues related to recovery of information systems and data, which are critical for business operations. This is part of the overall ERM framework currently put in place in the Corporation. An email server solution has been implemented to retrieve mails received on an external server during disasters spanning up to 2 days. As a part of this BCP, an alternate site has been set up at the Stock Exchange Towers premises of the Corporation which will ensure continuity of critical operations during a disaster. In order to comply with the regulatory requirements of IRDA for the investment portfolio, the limit management project was taken up and completed during the year. As Manager to the Indian Motor Declined Risks Pool, GIC Re is in the process of developing a real time data capturing system for the Pool. Indian Motor Third Party Insurance Pool (IMTPIP): As per the directive of IRDA, Indian Motor Third Party Insurance Pool was setup by all General Insurers in India to collectively service Commercial Vehicle Third Party Insurance business. This arrangement was effective from 1st April, 2007. The pooling of business among all insurers was achieved through a multi-lateral reinsurance arrangement between the Underwriting Insurer and GIC Re. The Participation of GIC Re in the pooled business was to the extent of statutory reinsurance cessions. The balance was shared among all the registered general insurers writing motor insurance business in proportion to their Market Share. The Pool accounts for the fifth year (2011-12) have been audited and closed, the relevant information incorporated into the books of accounts of GIC Re and all Member Companies. During the year 2011-12, 20 Member Companies including GIC Re, participated in the pooling arrangement. The total premium pooled for the year 2011-12 (March 2011 to February 2012) was Rs. 5,994.47 crore with 1.01 crore policies. The incurred claim amount was Rs. 7,125.59 crore with an operating loss of Rs. 2,315.45 crore. In the pooled business, Rs. 599.45 crore was booked for GIC Re's account with incurred claims of Rs. 712.56 crore and an operating loss of Rs. 231.49 crore. GIC Re earned Pool Administrator Fee (for March 2011 @0.75% & from April 2011 @0.50% of pooled premium) to meet all the expenses related to the Pool. For this purpose GIC Re has setup a separate Motor Pool Department with adequate manpower, hardware and software system. The net income earned of Rs. 28.97 crore (service charges income of Rs. 30.97 crore less expenses of Rs. 2 crore) is included in Miscellaneous Income of GIC Re. TRAINING/HRD Keeping in view GIC Re's role as Global Reinsurer, GIC Re Learning Academy has been imparting training to all levels of employees both internally and externally. In the year 2011-12 training was imparted to all levels of employees both internally and externally. Various programmes were conducted for the employees at GIC Re Learning Academy, National Insurance Academy, Pune and other Reputed Institutes. Training department has also been assisting other programmes being conducted by various departments of GIC Re. INVESTMENT IN INSURANCE COMPANIES DOMESTIC OPERATIONS Agriculture Insurance Company of India Ltd. (AICIL) The Corporation holds 35% equity of AICIL and NABARD holds 30% while the balance is held equally to the extent of 8.75% by the four public sector non-life insurance companies. Company has declared dividend of 12.5% for financial year 2011-12. OVERSEAS OPERATIONS GIC Re has 4 overseas offices, viz., a Representative Office in Moscow and Branch Offices in London, Dubai and Malaysia. The Corporation has exposure in the share capital of Kenindia Assurance Company Ltd., Kenya, India International Insurance Pte. Ltd., Singapore, Asian Reinsurance Corporation, Bangkok, and East Africa Reinsurance Company Ltd., Kenya. During the year, LIC (Mauritius) Offshore Ltd., Mauritius, has wound up the operations. LONDON BRANCH (UK) During the current financial year 2011-12, the Gross Premium written by the Branch was GBP 46.1 mn compared to GBP 41.41 mm last year and incurred a profit of GBP 6.30 mn as against a loss of GBP 4.48 mn last year. DUBAI BRANCH (UAE) During the current financial year 2011-12, the Gross Premium written by the Branch is AED 1195.85 mn compared to AED 865 mn last year and incurred a loss of AED 583.37 as against a profit of AED 8.7 mn last year. MALAYSIA BRANCH GIC Re has opened the Malaysia Branch in November, 2010. During the current financial year 2011-12, the Gross Premium written by the Branch is RM 261.80 mn and incurred a loss of RM 188.23 mn. KENINDIA ASSURANCE CO. LTD., KENYA The paid up share capital of the Company is Kshs 561mn. GIC Re has been allotted 80590 bonus shares during the year. The total shares held by GIC Re is 515,777 shares of Kshs 100 each as on 31.12.2011. The Corporations holding in the share capital of the Company is 9.19%. Further, Kenindia has declared a dividend of Kshs 5/-per share for the year ended 31st December, 2011. INDIA INTERNATIONAL INSURANCE PTE. LTD., SINGAPORE Corporation holds 20% shares in India International Insurance Pte. Ltd., which has a share capital of S$ 50 million. The total shareholding of GIC Re in the Company is 10 mn shares each of 1 S$. The Company has declared the dividend of 5% for the financial year 2011. ASIAN REINSURANCE CORPORATION, BANGKOK The Corporation is holding 20.64% of the share capital as Associate Member of Asian Re in addition to holding 3.24% of the share capital as its Regular Member on behalf of the Government of India. The Company has not declared any dividend for the year 2011. EAST AFRICA REINSURANCE COMPANY LTD., KENYA The Corporation has 14.75% stake in the share capital of East Africa Reinsurance Company Ltd., an existing profit making reinsurance company in Kenya. During the year, the Company has declared bonus issue of shares in the proportion of two new shares for every thirteen existing shares. The Corporation has received 14,752 Bonus Shares. The Company declared a dividend of 2% on the increased share capital for the year 2011. DIRECTORS' RESPONSIBILITY STATEMENT Pursuant to the provisions of Section 217 (2AA) of the Companies Act, 1956, the Directors confirm that: 1. In the preparation of the annual accounts, the applicable Accounting Standards have been followed along with proper explanations relating to material departures; 2. Appropriate accounting policies have been selected and applied consistently and have made judgements and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Corporation at the end of the financial year 2011-12 and of the profit or loss of the Corporation for that period; 3. Proper and sufficient care has been taken for the maintenance of adequate accounting records in accordance with the provisions of this Act for safeguarding the assets of the Corporation and for preventing and detecting fraud and other irregularities; 4. The annual accounts have been prepared on a going concern basis. AUDITORS M/s. Contractor, Nayak & Kishnadwala and M/s. Manubhai & Co. were appointed as Joint Auditors to audit the accounts of the Corporation for the financial year 2011-12 by the Comptroller & Auditor General of India under Section 619 of the Companies Act, 1956. SUBMISSION OF ACCOUNTS BEFORE PARLIAMENT As confirmed by the Ministry of Finance, Insurance Division, the Annual Report of the Corporation for the year 2010-11 along with Directors' Report were placed before both the Houses of Parliament under Section 619(A) read with 619(B) of the Companies Act, 1956 as per details given below: LOK SABHA 9th December, 2011. RAJYA SABHA 13th December, 2011 ACKNOWLEDGEMENT The Board places on record its deep appreciation of the agents, brokers, staff and officers of the Corporation for their valuable contribution in achieving its plans and goals. The Directors are thankful for the guidance and support extended by Ministry of Finance, IRDA, and Principal Director of Commercial Audit and Ex-Officio Member, Audit Board-1, Mumbai. For and on behalf of the Board A. K. Roy Chairman-cum-Managing Director Date: 1st June, 2012 Place: Mumbai |