Acknowledgment:

I extend my heartfelt gratitude to Mr. Dereje, our esteemed instructor, for the insightful and
engaging risk management and insurance course. His expertise, dedication, and passion have
enriched our understanding of this critical field. Thank you for equipping us with valuable
knowledge and practical skills.

We would like to express our sincere gratitude to the Addis Ketma branch team, particularly Mr.
Solomon Teshome, the Risk Manager at Nile Insurance Company, for sharing valuable insights
and information about the company. Mr. Teshome's expertise and knowledge have been
instrumental in helping us understand the operations and risk management practices of Nile
Insurance Company. We appreciate the time and effort he has dedicated to providing us with
valuable information and guidance. Thank you to the Addis Ketma branch team and Mr. Solomon
Teshome for their support and collaboration in enhancing our understanding of risk management
practices within the insurance industry.
Introduction

Nile Insurance Company (S.C) is one of the pioneer private insurers established in April 1995 with
a capital of birr 12.5 Million. The Company has a legal entity registered with the licensing and
supervisory body of the National Bank of Ethiopia in accordance with Proclamation No-86/1994
and licenses No- 006/95.

Over the past years, the company has grown from Birr 12.5 million to 1 billion Birr capital, from
4 to 65 branches (including 3 contact offices) both in the capital and regional cities and has more
than 100,000 customers across the country. The total asset of the company has reached Birr 3.6
Billion. This tremendous growth was largely driven by the active participation of its valuable
Employees, Customers, Shareholders, and other Stakeholders. Nile provides general long-term and
Takaful insurance services.

The operations of insurance companies involve several key functions. Here are the most important
ones:

Rate Making: This refers to the process of determining insurance premiums based on risk
assessment, historical data, and statistical models.

Underwriting: Underwriters evaluate risks associated with potential policyholders and decide
whether to accept or reject insurance applications. They also set terms and conditions for coverage.

Production: This involves marketing and sales efforts to attract new policyholders. It includes
advertising, distribution channels, and customer acquisition strategies.

Claims Settlement: When policyholders experience losses covered by their insurance policies,
the claims department handles the process of assessing, validating, and compensating those claims.

Reinsurance: Insurance companies manage risk by transferring a portion of their liabilities to

other insurers through reinsurance contracts. Reinsurers help spread risk across the industry.

By doing so, we had an opportunity to investigate the how those things are experienced in real part
of the world specifically in Nile insurance. Let’s delve in to the investigation.

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As we know insurance company generally experienced in four operations. It’s not mean that being
four is a few task. When we come to in detail of each of, they are so wide and consists high tasks.
To see in detail as the manager told us:

I. Underwriting

Underwriting is the process of evaluating risks associated with potential policyholders and
deciding whether to accept or reject their applications.

Why do we need underwriting?

The underwriting function exists to ensure that a carrier is writing business that fits the company’s
risk appetite, which is determined during strategic planning. The product development department
creates programs based upon this appetite and embeds rules and guidelines within the programs to
support the selection of risks. Underwriters assess applicants' risk profiles based on factors such
as age, health, occupation, claims history and any necessary data.

- They determine the appropriate premiums and coverage terms.

- The goal is to strike a balance between risk exposure and profitability.

It’s the core operation to be effective. It also need high level attitude and knowledge to measure
the insured’s risk and set forth appropriate premium. To delve in the entire steps:

Initial Review

Underwriters make an initial review of an insurance application and supporting documents to

determine the acceptability of a submission. Standardized ACORD applications are acceptable for
most lines of business. However, Nile insurance may require proprietary supplemental applications
to gain a more complete picture of the characteristics of certain risks. If a risk does not meet a
company’s guidelines, the underwriter will decline the submission. If a submission is within the
company’s risk appetite, the underwriter will begin a deeper analysis of the risk to determine if it
is acceptable as-is or if modification is needed.

Additional Information Request

Next, an underwriter will determine what additional information is required to assess a risk. Some
submissions may contain detailed information, including loss runs, pictures, and narratives. In such

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instances, thorough underwriting can be done immediately. When we have incomplete
submissions cause delays but are not the only resource needed to complete the underwriting
process. If a submission is less complete, an underwriter will request the necessary external
information from the agent. Underwriters may order credit reports, loss control inspections, motor
vehicle reports (MVRs), and comprehensive loss underwriting exchange (CLUE) reports to help
with the risk assessment and decision process.

The assessment and evaluation of the risk is based on the information collected by the underwriter.
Information needed for underwriting purpose is obtained from the following sources:

Proposal form (a formal application document that an individual fills out when applying for an
insurance policy)

Medical report

Attending physician’s statement

Agents/salesman’s report

 And interviews

Coverage Determination

If a risk meets the company’s designated criteria as submitted, the underwriter will approve the
submission and move to the rating process. Sometimes marginal submissions are acceptable if
coverage modifications are made. The underwriter may suggest deductible options, limits options,
limitation endorsements, or other modifications that make the risk acceptable. If the risk does not
fit the desired profile and cannot be modified, the underwriter must decline the risk.

Pricing

Once coverage determinations are made, the next step in underwriting is to set the account’s
pricing. Some lines of coverage allow certain levels of optional pricing. Discretionary pricing
refers to the ability of an individual underwriter to credit or debit an account or a portion of an
account based on the merits of the risk, program, or agency segmentation.

Policy Issuance

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After an agent receives a quote and the insured purchases coverage, policies must be issued. The
company is required to deliver the policy to the insured in most cases. These policies are either
delivered electronically or mailed to the insured with a copy to the agent.

After all of underwriting in insurance businesses, the basic operations involve three primary
actions:

I) Acceptance: When the applicant meets the eligibility criteria and qualifies for coverage,
they receive an offer from the insurer.

II) Modified acceptance: In cases where there are specific conditions attached to the policy
because the applicant poses higher risk than average, this results in modified acceptance.
An example would be requesting additional premium payment or imposing certain
exclusions or limitations within the coverage.

III) Rejection: If the application doesn't meet the established underwriting guidelines or if
the risk assessment indicates it's not economically viable for the insurer to issue a policy,
then the application gets rejected.

 These processes aim to mitigate risk effectively while providing appropriate coverages to
eligible parties. Additionally, underwriters must continuously monitor existing policies and
update their risk assessments accordingly throughout the policy period.

In conclusion, insurance underwriters execute two critical functions: reviewing new business and
renewing business, including proper risk selection, appropriate pricing, and maintenance of the
company’s risk appetite. The underwriting department safeguards the strategic plan and targets the
business segments determined during the strategic management process.

1. Which properties can be reinsured?

Most of the time, Nile insurance company reinsure all types of properties worth eight million (8m)
or more.

2. The criteria for insuring the property.

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The criteria for insuring a vehicle, residential home, commercial property, factory, and machinery
generally include detailed evaluations of the respective properties and their associated risks. Below
are the typical criteria for each type of insurance:

2.1) Vehicle Insurance

a) Vehicle Information: Make, model, and year. Vehicle Identification Number (VIN).Mileage and
condition.

b) Ownership and Use: Whether the vehicle is owned, leased, or financed. Primary use (personal,
business, commercial).

c) Driver Information: Age, gender, and driving experience of the primary driver. Driving history,
including any past accidents or violations.

d) Safety and Security Features: Presence of airbags, anti-lock brakes, alarms, tracking devices.

e) Geographical Factors: Location where the vehicle is primarily parked and driven. Local crime
rates and accident statistics.

f) Insurance and Claims History: Previous insurance coverage and claims made on the vehicle.

2.2) Residential and Commercial Home Insurance

a) Property Details: Type of dwelling (single-family home, condo, apartment).Age, size, and
construction materials of the home. Condition of the property and any recent renovations.

b) Location: Proximity to fire hydrants and stations. Risk of natural disasters (flood, earthquake,
etc.) Neighborhood crime rates, Occupancy, Owner-occupied or rented out. Number of residents
and their personal profiles.

c) Security Features: Presence of alarm systems, smoke detectors, and security cameras.

d) Previous Claims: History of insurance claims on the property.

e) Business Details: Nature of business operations conducted on the property. Number of

employees and clients visiting the premises.

2.3) Factory Insurance

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a) Facility Details: Type of manufacturing or industrial processes conducted. Size and construction
of the factory. Age and condition of the facility.

b) Operational Risks: Types of materials used and stored (flammable, hazardous).Machinery and
equipment used and their maintenance records.

c) Safety Protocols: Fire safety measures, emergency exits, and worker safety programs.
Compliance with occupational health and safety regulations.

d) Location: Proximity to other buildings and residential areas. Risk of natural disasters.

e) Insurance and Claims History: Past insurance claims and incident reports.

2.4) Machinery Insurance

a) Machinery Details: Type, make, and model of the machinery. Age, condition, and usage history.

b) Operational Environment: Conditions under which the machinery operates (indoor, outdoor,
hazardous environments).Frequency and intensity of use.

c) Maintenance Records: Regular maintenance and servicing records. History of repairs and
upgrades.

d) Operator Information: Experience and training of personnel operating the machinery. Safety
measures in place for machinery operation.

e) Insurance History: Previous claims related to the machinery.

Generally, the criteria for all types of properties are;

- Existence of subject matter of insurance (Example: Building, Cargo, Vehicles etc).

- The Insured’s Insurable Interest in the subject matter (Ex: Owners of property, Bank’s interest in
the property): In order to insure, the insured should have insurable interest in the property.

II. Production

In the context of insurance businesses, production primarily relates to the sales and distribution of
new insurance policies. The main activities involved in insurance production are identifying
potential clients through marketing efforts, referrals, or leads generated internally or externally.

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Generating qualified leads using various methods including cold calling, networking events,
seminars, and digital marketing channels. Conducting initial evaluation of prospects, gathering
necessary information, and preliminary risk assessment before submitting the application for
formal underwriting approval. Reviewing applications and documentation, ensuring
completeness, and initiating underwriting procedures. Once the underwriting process confirms
eligibility and acceptable risk levels, the insurance policy is issued and bound. Ongoing
communication between the broker or agent and client regarding policy changes, renewals, claims
handling, and any updates related to the policy. Coordinating with internal teams to handle post-
issuance tasks, such as setting up accounts, generating invoices, and distributing welcome
materials to newly acquired clients. Managing and settling claims efficiently and fairly,
maintaining open lines of communication with both the claimants and policyholders. Handling
requests for policy cancellation or nonrenewal and managing any resulting administrative tasks.
Providing regular reports and statistics to senior management to track performance metrics and
identify areas for improvement.

III. Rating making.

Rate making is the process of pricing of an insurance. In insurance it’s difficult to know in advance
what actual costs are, unlike the price of other product. Rate making in the insurance business
refers to the process of determining premiums that an insurer charges its clients for coverage. This
involves analyzing various risk factors, historical loss data, expense ratios, competition, and other
market conditions to arrive at pricing structures that will ensure the financial viability and
profitability of our company.

The rate-making process at Nile Insurance Company (S.C) involves several steps to determine
insurance premiums. Here’s an overview:

Data Collection and Analysis: Nile Insurance collects data on various factors, including historical
claims, policyholder demographics, and risk characteristics. Actuaries analyze this data to identify
patterns and trends.

Risk Assessment: Underwriters assess the risk associated with different policyholders. They
consider factors such as the type of coverage, the insured property, and the policyholder’s history.

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Pricing Models: Actuaries develop pricing models based on statistical techniques. These models
estimate the probability of claims occurring and calculate the expected cost of providing coverage.

Loss Ratio Calculation: The loss ratio (claims paid divided by premiums collected) is a key metric.
Nile Insurance aims for a balanced loss ratio to ensure profitability while meeting policyholder
needs.

Profit Margin: The Company adds a profit margin to cover operating expenses, administrative
costs, and generate profits for shareholders.

Competitive Analysis: Nile Insurance considers market conditions and competitors’ pricing. They
aim to offer competitive rates while maintaining financial stability.

Regulatory Compliance: The Company ensures that its rates comply with regulatory guidelines set
by the National Bank of Ethiopia.

Remember that rate-making is a dynamic process, and Nile Insurance continually reviews and
adjusts its rates based on changing risk profiles and market dynamics

Nile Insurance company follow those Key components of the rate-making process include:

How to calculate premium for private and commercial vehicle in Nile insurance.

a) If the sum insured of the private (code 2) vehicle is 3,000,000. Calculate annual premium for
the vehicle.

If passenger carrying capacity is = 4 person and,

Cylinder capacity is = 1200 cc

Premium calculation:

- Sum insured (SI) = 3,000,000

- Personal accident benefit for passenger and driver (PAB) (use only for private vehicle).

PAB = 20 birr for each person

So, PAB = 20×4 = 80......for passengers

= 20×1 = 20.....for driver

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- Total PAB = 100 birr

- Third party insurance (Tp) = 555.35 birr

- Revenue Stump (RVS) = 5 birr

- Own Damage (OD) = 3,000,000 × 1.01% = 30,300 birr

Total premium = PAB + Tp + RVS + OD

= 100 + 555.35 + 5 + 30,300

Total premium = 30,960.35 Birr

b) If the sum insured of the commercial (code 3) vehicle is 3,000,000 birr. Calculate anual
premium for the vehicle.

If: - The purpose of the vehicle is Car hire

-passenger carrying capacity is = 4 person

- Cylinder capacity is = 1200 cc.

Premium calculation:

- Sum insured (SI) = 3,000,000

- Third party insurance (Tp) = 1,028.35 birr

- Revenue Stump (RVS) = 5 birr

- Own Damage (OD) = 3,000,000 × 1.58% = 47,400 birr

Total premium =Tp + RVS + OD

= 1,028.35 + 5 + 47,400

Total premium = 48,433.35 Birr

The premium calculation for vehicle insurance involves assessing multiple risk factors and
applying adjustments based on the specific details of the vehicle, the driver, and the intended use.

IV. Claims Management:

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Claims management involves handling policyholders' claims when they experience a covered loss
or event. The claim settlement process in insurance is a crucial aspect of the industry that ensures
policyholders receive the benefits they are entitled to in case of covered events. Here is a detailed
overview of the claim settlement process in insurance:

Claim Reporting:

The first step in the claim settlement process is for the policyholder to report the claim to the
insurance company. This can be done through various channels, such as phone, email, online
portal, or mobile app. The policyholder needs to provide details of the incident, including the date,
time, location, and nature of the loss or damage. They may also need to submit supporting
documentation, such as photos, police reports, or medical records.

Claim Processing:

Once the claim is reported, the insurance company initiates the claim processing phase. This
involves assigning a claims adjuster or examiner to investigate the claim and assess the extent of
the loss. The claims adjuster will review the policy terms and conditions to determine coverage
eligibility and verify the policyholder's claim against the policy provisions. The adjuster may
conduct on-site inspections, interview witnesses, gather evidence, and collaborate with experts
(e.g., forensic specialists, medical professionals) to evaluate the claim accurately.

Claim Evaluation:

After gathering all relevant information and assessing the claim, the insurance company evaluates
the claim to determine the amount of compensation owed to the policyholder. The evaluation
process considers factors such as the policy coverage limits, deductibles, exclusions, depreciation,
and any applicable endorsements or riders. The insurer may also compare the claim amount with
similar claims, industry standards, and market rates to ensure a fair and reasonable settlement.

Claim Settlement:

Once the claim evaluation is completed, the insurance company communicates the settlement offer
to the policyholder. This offer outlines the amount of compensation that will be provided to cover
the insured loss. The policyholder can accept the settlement offer, negotiate for a higher amount if
they believe they are entitled to more compensation, or appeal the decision if they disagree with

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the assessment. Upon acceptance of the settlement offer, the insurance company disburses the
payment to the policyholder through various payment methods, such as check, direct deposit, or
electronic transfer depend on the compensation ideology. Nyla have all the four compensation
method so far.

Claim Resolution:

After the settlement payment is made, the claim is considered resolved, and the insurance
company closes the claim file. The policyholder should review the settlement agreement and
ensure all terms are met. In some cases, additional follow-up may be required to address any
outstanding issues or provide further assistance to the policyholder in recovering from the loss.

Claim Review and Feedback:

Post-settlement, insurance companies often conduct internal reviews of claims handling processes
to identify areas for improvement and ensure compliance with regulatory requirements.
Policyholder feedback on their claim experience is valuable for insurers to enhance customer
satisfaction and service quality. He said that those things are very important to evaluate how we
are going to achieve the organization’s objective. Feedback mechanisms such as surveys or
customer reviews help insurers gauge performance and make necessary adjustments.

Overall, an efficient and transparent claim settlement process is essential for maintaining trust
between insurers and policyholders. By following a structured approach to handling claims with
prompt communication, fair evaluation, and timely settlements, insurance companies can uphold
their commitment to providing financial protection and support to their customers in times of need.

V. Risk Diversification and Reinsurance:

Reinsurance is a strategic partnership where insurers transfer a portion of their risk exposure to
other reinsurers. Insurers purchase reinsurance to spread risk and enhance financial stability. May
the reinsurance include facultative (individual policies), treaty (portfolio-based), and quota share
(proportional sharing). Reinsurers absorb significant parts of major losses, allowing primary
carriers to manage moderate risk levels. An insurer seeking reinsurance protection submits an
application form to one or more reinsurers, providing detailed information about the proposed risks
and their expected losses. The reinsurer reviews the application, assesses the risks involved, and
decides if they want to provide coverage and at what premium. After agreeing on the terms and

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conditions of the contract, the original insurer places the reinsurance cover with the chosen
reinsurer(s). This can be done through various channels like brokers, treaty negotiations, or
facultative placements. Both parties exchange premium payments – the insurer pays the primary
premium received from the policyholders to the reinsurer, while the reinsurer receives ceded
premiums from the insurer. These amounts depend on the agreed share of the risk between the two
parties. When a loss event happens, the insurer handles the initial claim and processes it according
to its internal procedures. Once approved, the insurer informs the reinsurer about the claim and
shares any necessary documents and information. The reinsurer examines the claim and determines
whether it qualifies under the reinsurance agreement. They may also conduct their own
investigations to verify the facts and determine the appropriate level of coverage and
compensation. Upon approving the claim, the reinsurer issues instructions to the insurer regarding
the settlement amount and any further actions required. The insurer then settles the claim with the
policyholder and passes on the reinsurer's contribution to cover the payout. Throughout the
duration of the reinsurance agreement, both parties maintain communication and administrative
responsibilities. This includes regular reporting, adjustments to pricing structures, renewals, and
ongoing management of the relationship. Effective collaboration ensures smooth operations and
successful risk transfer between the insurer and reinsurer.

 Overall, these stages enable insurers to effectively manage risk, control costs, and stabilize
financial performance by engaging in strategic partnerships through reinsurance
arrangements.

Based on what the staff manager told us: Nile insurance reinsured by following reinsurer
companies by 1, PTA and 2, Africa Reinsurance Corporation, nevertheless, he was secret to share
the retention limit of the company and the amount of cession by those reinsurere.

These operations collectively contribute to an insurance company's success in providing reliable

coverage to policyholders while maintaining financial viability. The operational process of an
insurance company involves various interconnected activities that ensure the smooth functioning
of the organization, from policy issuance to claims processing and customer service.

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Customer Service: Insurance companies provide customer service to policyholders for inquiries,
policy changes, claims assistance, and other service-related matters. Customer service channels
may include call centers, online portals, mobile apps, email support, and agent interactions.

Risk Management: Insurance companies engage in risk management practices to assess and
mitigate potential risks that could impact their financial stability. Risk management activities
include identifying risks, setting risk tolerance levels, implementing risk control measures, and
monitoring risk exposure.

Compliance and Regulatory Requirements: Insurance companies must comply with regulatory
requirements set by government authorities to operate legally in the insurance industry.
Compliance activities involve adhering to licensing regulations, financial reporting standards,
consumer protection laws, and other industry-specific regulations.

Technology and Data Management: Insurance companies leverage technology solutions for
policy administration, claims processing, data analytics, customer relationship management
(CRM), and other operational functions. Data management practices ensure the security, accuracy,
and accessibility of customer information, policy data, financial records, and other critical data
assets.

Financial Management: Insurance companies manage financial resources effectively to support

their operations, investments, reserves, and profitability goals. Financial management activities
include budgeting, accounting, investment management, solvency monitoring, and financial
reporting.

Performance Monitoring and Continuous Improvement: Insurance companies track key

performance indicators (KPIs) related to operational efficiency, customer satisfaction, claims
ratios, underwriting results, and financial performance. Continuous improvement initiatives aim
to optimize processes, enhance service quality, mitigate risks, and adapt to changing market
dynamics.

By effectively managing these operational components, insurance companies can deliver value to
policyholders, maintain financial stability, comply with regulatory requirements, and sustain long-
term growth in a competitive insurance market. Continuous innovation, customer-centric
strategies, and operational excellence are key drivers for success in the insurance industry.

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