Beacon.Feb 2014

B E A C O N
A Newsletter by SIMCON– SIMSREE Consulting Club
Volume:2
Issue : 4 February 2014
Inside this issue:-
Six Sigma Green Belt Workshop
Guest Lecture: Mr. Prasad Akerkar
Featured Article on : Insurance Sector
Company Analysis : GIC Re
Concept of the Month: Hostile Takeover Defense
Strategies
Quiz

Six Sigma Green Belt Workshop
Volume: 2
Issue : 4
SIMCON arranged a 4 days Six Sigma green belt program from 3rd
to 7th
February for a batch of 59 students.
Sessions were taken by one of the finest faculty for Six Sigma, Mr. Vishwdeep Khatri, the CEO, of Benchmark
Six Sigma. Mr. Khatri has been engaged with leading companies in FMCG, Automotive, IT, Telecom sectors
for Lean Six Sigma initiation and deployment. Pre-course material
was distributed among the students to cover the course with pace.
Mr. Khatri employed a creative technique to increase the
involvement of students. He had divided the batch into 12 teams
and throughout the course; points were given to teams for their re-
sponses and problem solving capabilities. Competitive spirit in the
teams motivated the students to participate more actively. The
course started with introduction and definition of Six Sigma course.
After the introduction, methodology for implementation of Six
Sigma in an organization was explained. Two methodologies are
used to implement Six Sigma: DMAIC and DMADV. DMADV is
used in introduction phase of a product or process and DMAIC is
used to improve the existing process. Mr. Khatri explained practical aspects of the Six Sigma techniques; ex-
amples from manufacturing and aviation sectors were given. Students were taught to work on the statistical
software Minitab. Students learnt to do hypothesis testing and graphical techniques on Minitab. Many hypothe-
sis tests like ANOVA, 2-proportion test and Chi square test which take a lot of time while solving with pen
and paper, can be done in few seconds with Minitab. Mr. Khatri explained different graphical techniques like
frequency plots, box plots and histogram to represent the data effectively.
Different operational
techniques such as control
charts, process capability and
RPN were discussed in the
class. Along with the mathe-
matical tools, some qualitative
tools for decision making like
Delphi technique, Pugh matrix
were explained to the class. Be-
fore final examination, a mock
test was conducted. In the
mock test, students revised the
syllabus covered in course and
also got their doubts cleared by
the faculty. On the last day of
course, green belt certification examination was conducted.
Because of excellent faculty, detailed study material and enthusiasm of students, „Six Sigma Course‟
was a success. The program gave application orientation of theory and added value to students.
BEACON : Page 1
Feb. 2014
For detailed report and all industry analysis from previous Beacons together, please visit our blog :
http://simconblog.wordpress.com

Guest Lecture by Mr. Prasad Akerkar
Volume: 2
Issue : 4
On 28th
February 2014, SIMCON organized a guest lecture by Mr. Prasad Akerkar, SAP Practice Head &
Learning and Development Department Head at Larsen & Tourbo Infotech Ltd. Mr. Akerkar spoke on “ERP
System Implementation & Change Management”.
Mr. Akerkar started his lecture by explaining ba-
sics of ERP, its use and implementation in a company,
methodology and benefits in different department. He
also gave students information about the history of ERP
and how it modified the technology over the years. He
gave insights to the students about supply chain, bottle-
necks in supply chain and the role ERP plays while deal-
ing with these bottlenecks.
Mr. Akerkar talked about Business Development
Process. He made the students familiar with various con-
cepts like Make to Order, Make to Stock etc. He shared
his experiences and gave real time examples for better
understanding of students. He said that the approach,
consulting attitude, exploring and expansion plays a cru-
cial role in development of any business process. Sir
made the session very interactive by taking the example
of ERP implementation in a college (say SIMSREE) and
asking students how it could be used in various college activities like admission, lecture schedules and fi-
nance.
Sir also explained the role of ERP implementation Life
Cycle in Project Management. He gave a brief idea to the stu-
dents related to the stages through which a new Project goes
like Project Preparation, Business Blueprint, Realization, Final
Preparation and Post Go Live Support and how the real time
examples are solved. He also spoke about the role of ERP in
benefit realization and improvement of efficiency and effec-
tiveness of processes.
Students also got to know about Change Acceleration
Process (CAP) module and 7 steps involved in implementation
of CAP. They also got insights about Proposed Framework for
Change management.
The lecture was very informative and engaging. Being able to listen to and ask questions of such an
informative speaker was a real benefit to the SIMSREE students. We thank Mr. Akerkar on behalf of SIM-
CON and SIMSREE.
BEACON : Page 2
Feb. 2014

INDUSTRY ANALYSIS : INSURANCE
Volume: 2
Issue : 4
Introduction
One of the most critical aspect to secure the livelihood
of an individual or his family is the insurance of the valuable
assets related to the person, be it his life, his health or his other
possessions like house, vehicles etc. Realizing the value created
by insurance, Government of India, rather almost governments
of all major countries, have made it compulsory for insurance of
the maximum chunk of population.
The insurance in India is a USD 72bn industry and
reinsurance is a USD 41bn industry. Reinsurance means insur-
ance for the insurance companies, wherein insurance companies
cede their amount (insure the amount) from various portfolios
to a reinsurer so that in the times of contingency the reinsurer
will pay claims for a fixed portion. The purpose of reinsurance
being timely payment of dues and reduced load on the insurance
company in terms of capital available and solvency.
With a CAGR of 25% pa in insurance premiums from
2003 to 2010, the insurance market in India is surely booming
at a high pace. Still the penetration of insurance remains at 4%
for life insurance and 0.7% for non-life insurance. With the fi-
nancial inclusion mandate by RBI, it is required that a maxi-
mum chunk of population be insured. To achieve this vision the
government is trying to enhance insurance penetration through
tax saving on insurance products, mandate for compulsory in-
surance in case of items like vehicles, house etc.
Segments in Insurance Industry
The Insurance Regulatory and Development Authority
(IRDA) which was established under the IRDA Act in 1999, is
responsible for regulating, promoting and ensuring growth of
the insurance and reinsurance business in India.
Porter’s 5 Forces Model
Barriers to Entry
The Indian Insurance Industry is characterized by significant
barriers to entry, including licensing restrictions and capital
requirements, as well as scale economies.
Threat of Substitutes
Most insurance companies offer similar suite of services and
thus, there are plenty of substitutes available. A company can
differentiate only in terms of value it offers to its customers.
The threat of substitutes is thus high.
Bargaining Power of Suppliers
The suppliers of insurance company provide the company with
capital. The suppliers of capital to the insurance company under
the regulations may not pose a big threat. Hence the bargaining
power of suppliers is low for the industry.
Bargaining Power of Consumers
High brand loyalty for a company and low differentiation be-
tween the products will discourage individuals to shift from one
insurer to another. An individual will, therefore, have low bar-
gaining power. However large corporate clients of the industry
like airlines, pharmaceuticals, etc. which pay millions of dollars
per year as insurance premium have a high bargaining power
because they are the high margin customers for the industry.
Intensity of Rivalry
Competitiveness in the Indian insurance sector, with large num-
ber of players and low differentiation between their products, is
high. Spending on advertisements continue to grow and market-
ing budgets as well as strategies are becoming more aggressive.
BEACON : Page 3
Feb. 2014

INDUSTRY ANALYSIS : INSURANCE
Volume: 2
Issue : 4
Impact analysis
Privatization of insurance and reinsurance sector
This resulted in end of monopoly of LIC and GIC in life and
non-life sector respectively and in 2000 GIC was declared as
Indian reinsurer. Allowance of private players resulted in there
being almost 40 private players in the insurance market. How-
ever, LIC continues to be the market leader, though its market
share has declined from 98% in 2003 to 70% in 2010. GIC still
remains the only reinsurer within India but a lot of other players
are reinsuring in India through fronting modes like Swiss Re,
Munich Re etc.
Allowance of FDI upto 26% in insurance sector
This resulted in large no. of private players forming partnership
with foreign players with the partnership being Indian player
74% and the foreign player at 26%. In order to better meet the
demands of the Indian market, it is suggested that the FDI in
insurance be raised to 49%. Besides causing an improvement in
funding and risk assessment expertise in this sector, it has also
led to an improved product portfolio and better reach of the
product with urban insurance cover experiencing a sudden
boom.
Trends
Tie ups with an Indian insurer by foreign players
With a cap at 26% for FDI, many insurers have been trying to
form partnership with Indian banks to start business in a big
way in India. Large untapped market calls for higher underwrit-
ing capacity and keeping this in mind many private Indian play-
ers and foreign players are vying for government‟s proposal to
increase FDI in insurance to 49%.
Retroceding to foreign players
With the cap on minimum amount to be ceded to Indian rein-
surer reduced to 5% for non-life insurance, insurers are getting
better options for ceding the insurance amount by doing the
same to foreign players who offer better premiums and better
expertise in terms of risk management. Foreign players having
an association with GIC Re to have reinsurance branches or
fronting possibilities within India
Maximum retention within India
In order to maximize reinsurance retention within India, IRDA
has consistently tried to develop policies that will secure the
market for GIC. With non-life insurance ceding minimum
limit at 5% and for life insurance it is expected to be around
30% (maximum limit), GIC gets a secured chunk of orders.
Electronic claim disbursements
According to the latest circular on unclaimed amount, issued by
the Insurance Regulatory and Development Authority (IRDA),
life and non-life insurance companies had around Rs.1,372.64
crore of unclaimed amount in FY10, which increased to
Rs.4,865.81 crore by FY13. To plug this increase (of more than
200% or an annual increase of about 52%), IRDA has mandated
that settlements such as paying maturity benefits or insurance
claims be made through electronic transfers only. Electronic
settlements means quick and direct payments, which is why
IRDA has made it mandatory to remit proceeds of all insurance
claims only through the electronic mode from the next fiscal.
Electronic clearance is mandatory for new policyholders and the
insurer will have to collect bank details along with documentary
proofs. For existing life policyholders, it is optional. The insurer
has to inform policyholders of this option in the next six
months. To pay the death claims, the insurer will need bank
account details of the nominee as well. There are a few excep-
tions to the rule. Small-ticket policies are exempt from elec-
tronic transfer. If the payment does not exceed Rs. 10,000 for a
life insurance policy, or Rs. 25,000 for a non-life policy, the
insurer can pay by cheque.
References:
 Handbook on Indian Insurance Statistics 2011-12 published
by IRDA
 IBEF – Indian Insurance Industry Analysis Presentation
 KPMG – Insurance Industry Road Ahead
 Deloitte – Indian Insurance Sector Innovate Now Or Stag-
nate
 PWC – Reinsurance 2020: Breaking the mould
 IRDA Annual Report, 2012-13
 Indian Express Article “Global reinsurance firms gearing
up to enter India” - January 20, 2014
 HBR Working Paper - Understanding the Incentives of
Commissions Motivated Agents: Theory and Evidence
from the Indian Life Insurance Market
 Comments on the “IRDA‟s (Life Insurance-Reinsurance)
Regulations, 2013, Global Federation of Insurance Associa-
tions (GFIA): http://www.gfiainsurance.org/en/upload/
positionpapers/GFIA-13-09%20Letter%20to%20IRDA.pdf
 Press Information Bureau: http://pib.nic.in/newsite/
erelease.aspx?relid=35141
BEACON : Page 4
Feb. 2014

COMPANY ANALYSIS : GIC Re
Volume: 2
Issue : 4
Introduction
The entire general insurance business in India was
nationalised by General Insurance Business (Nationalisation)
Act, 1972 (GIBNA). The Government of India (GOI),
through Nationalisation took over the shares of 55 Indian
insurance companies and the undertakings of 52 insurers car-
rying on general insurance business.
General Insurance Corporation of India (GIC) was
formed in pursuance of Section 9(1) of GIBNA. It was incor-
porated on 22 November 1972 under the Companies Act,
1956 as a private company limited by shares. GIC was
formed for the purpose of superintending, controlling and
carrying on the business of general insurance.
As soon as GIC was formed, GOI transferred all the
shares it held of the general insurance companies to GIC.
Simultaneously, the nationalised undertakings were trans-
ferred to Indian insurance companies. After a process of
mergers among Indian insurance companies, four companies
were left as fully owned subsidiary companies of GIC:
1) National Insurance Company Limited
2) The New India Assurance Company Limited
3) The Oriental Insurance Company Limited
4) United India Insurance Company Limited.
The next landmark happened on 19th April 2000,
when the Insurance Regulatory and Development Authority
Act, 1999 (IRDAA) came into force. This act also introduced
amendment to GIBNA and the Insurance Act, 1938. An
amendment to GIBNA removed the exclusive privilege of
GIC and its subsidiaries carrying on general insurance in In-
dia.
In November 2000, GIC was re-notified as the In-
dian Reinsurer and through administrative instruction, its
supervisory role over subsidiaries was ended.
This was followed by the General Insurance Busi-
ness (Nationalisation) Amendment Act of 2002. Coming into
effect from 21 March 2003, this amendment ended GIC's role
as a holding company of its subsidiaries. The ownership of
the subsidiaries was transferred to GOI, which in turn di-
vested its stake in the companies through listings on Indian
stock exchanges.
For detailed report and all company analysis from previous Beacons together, please visit our blog:
BEACON : Page 5
Feb. 2014
Offerings
As a result of the various reforms introduced by the
GOI, GIC became the sole Reinsurer in India, and is now
called GIC Re. It provides reinsurance to the direct general
insurance companies in the Indian market.GIC receives statu-
tory cession of 5% on each and every policy subject to certain
limits.
GIC Re has its registered office and headquarters in Mumbai.
GIC Re has also diversified its operations and is now emerging
as an important Reinsurer in SAARC countries, Southeast
Asia, Middle East, Africaand Europe. GIC Re has expanded its
international operations through branches in London, Moscow,
etc. and is further planning to establish offices in key regions
across the globe.
SWOT Analysis:

COMPANY ANALYSIS : GIC Re
Volume: 2
Issue : 4
Leadership
Financials:
(in Rs. Crores)
Sector wise premium breakup:
Chief Executive Officer Mr. Ashok Kumar Roy
Chief Marketing Officer Mr. P Venkatramaiah
Chief Investment Officer Mr. N Mohan
Chief of Internal Audit Mr. P Venkatramaiah
Chief Financial Officer Mr. P Venkatramaiah
Chief Risk Officer Ms.MadhulikaBhasker
Chief Compliance Officer Ms.Suchita Gupta
Appointed Actuary
(General Insurance)
Mr.Ashok K Garg
Appointed Actuary (Life
Insurance)
Ms.Padmaja R
For detailed report and all company analysis from previous Beacons together, please visit our blog:
BEACON : Page 6
Feb. 2014
Last year i.e 2011-12 had been catastrophic to the reinsurance
industry overall due to various natural calamities such as Japan
tsunami, floods in Thailand, Australia and New Zealand, and
also Uttarakhand floods for which there were approximately
over 400 claims amounting to over Rs. 1400 crores. This year
largely has been the claims free year which reflects in the PAT
of Rs.2,344 crores compared to a loss of Rs. 2467 crore last
year.
Business strategy
Foray into international markets:
GIC Re already generates around 40% of its premiums from
overseasbusiness and is one of the leadingreinsurers in the Mid-
dle East. Its ambition to become a top five global player (itis
currently 15th on a premium basis) includes plans to acquire
syndicates at Lloyd‟s. Llyod‟s is a market where members
come together as syndicates to insure and spread risks.It would
serve as an excellent platform for GIC Re to do international
business.
Technology Changes:
In 2011, GIC Re implemented an online platform for online
reinsurance exchange called e-thru. GIC Re's online platform
allows reinsurance buyers to submit their proposal and buy
protection online in a seamless manner.
Conclusion:
GIC the national reinsurer is performing well in the country.
Analysis concludes that business of GIC as a Reinsurer has
recorded a continuous growth pattern in last five years in terms
of its Earned premium and profit. Reinsurance is essential for
the insurance security and GIC as a National Reinsurer is main-
taining its role as the protector of Insurance business in India.
References:
 http://gicofindia.com/index.php?lang=en
 http://www.business-standard.com/article/finance/30-of-
life-insurers-risks-may-go-to-gic-re-113101100219_1.html
 http://www.financialexpress.com/news/irda-panel-for-
cutting-compulsory-cession-to-5-/1084099
 http://www.thehindubusinessline.com/industry-and-
economy/banking
Heads 2009-10 2010-11 2011-12 2012-13
Gross Premium 9,737 11,681 13,618 15,086
Earned Premium 8,076 9,544 11,316 13,771
Incurred Claims 6,856 8,626 14,128 10,942
Net Commission 1,930 1,926 2,282 2,905
PBT 1,290 1,189 (-)2,490 2,382
PAT 1,775 1,033 (-)2,467 2,344
Total Assets 43,842 49,729 53,731 59,939
Dividend % 82 48 0 109
Combined Ratio 110 111 143 104.1

Concept of the Month
Hostile takeover Defense strategies
Hostile takeover is an acquisition of a company X (called the target company) by another company Y where the former does not want to
be purchased or does not to be acquired by the particular company Y (called the targeting company or bidder), who is making a bid. Such
an acquisition is possible only when X is a publicly traded company. If X has issued 100
shares and Y purchases 51 shares, Y now has a controlling stake in X and forms X to agree to
the hostile bid.
Hostile takeover Defense strategies are generally classified into two categories:
A) Proactive: These are implemented before the hostile bid and discourage potential bid-
ders.
B) Reactive: These are a response to the hostile bid.
Proactive defense strategies
Staggered Board: A company with a staggered board does not elect its board members annually. Instead, only a section of a board can be
replaced every year. For example, a company may have a 9-member board, where only 3 are replaced every year. Thus to replace the en-
tire board, 3 years will be needed. The targeting company thus has to wait for 2 elections to gain majority in the board. It prevents the
acquirer to gain control of the whole board instantly
Supermajority: Instead of the normal 51% simple majority approval, a merger will need approval
of 67%-85% shareholders.
Dual-class stock: There are two classes of stocks, for example one class has 1 vote per share and
other class has 10 votes per share. The stock with superior voting rights is retained by the manage-
ment and shareholders friendly to the management.
Golden parachutes: Few employees like the CEO have contracts worded such that they will get a
large cash or stock bonus if they are fired on acquisition. This makes the company unattractive for
the bidder. Though this is seen as a tool for employee retention and attracting new talent, it rewards
the CEO if he does a terrible job and allows the company to be acquired.
Poison Pill: Poison pill is the most powerful weapon in the target‟s arsenal and can be of different
types. A flip-in pill makes it possible for the targeted company to issue preferred shares which only
existing shareholders have the rights to buy. A flip-over pill issues rights rather than issuing pre-
ferred shares to existing shareholders. These provisions though built as proactive measures are
used only the hostile bid is initiated.
Reactive defense strategies:
White Knight and White Squire: White Knight is a common strategy to combat a hostile takeover
bid. The target company allows a white knight, a more friendly company to acquire a majority stake in
the company. Though acquisition is not the objective of this strategy, it is the most frequent outcome
when the white knights acquire the target. White Squire is a variation in which a more friendly com-
pany is allowed to acquire a large enough stake so that the targeting company‟s bid is hindered. This
strategy safeguards the company from acquisition.
Greenmail: When the bidder‟s intentions are short-term gains and not long-termed corporate control,
the target company repurchases a large block held by a single shareholder or group of shareholders at
a premium and signs a standstill agreement with them, wherein the bidder agrees not to buy the com-
pany‟s shares for a period of time, generally more than 5 years.
Crown jewels defense: The most priced division of the target company is separated into another company or sold off to a more friendly
company, making the parent company less attractive.
People pill: The core management and high-level managers threaten to resign on acquisition.
BEACON : Page 7
Feb. 2014
Volume: 2
Issue : 4

QUIZ OF FEBRUARY
Answers of last beacon January 2014 Quiz :
1. Mr. Satya Nadella
2. General Electrics
3. X- Tumblr
4. Argentina
5. Volkswagen Beetle
1. He is considered as "pioneer in computer science and artificial intelligence." MIT Technology Review
TR100 named him as one of the top 100 innovators in the world under the age of 35. In Oct 2012
Bloomberg Billionaires Index listed him as 27th richest man.
2. Headquartered in California, the company serves 180 countries. In early 20th century it be-
came a part of “Seven Sisters” which dominated the world oil industry. One of the predeces-
sors of company was convicted of criminal conspiracy for their part in the Great American
streetcar scandal. The company is among top 20 companies in Fortune 500 listed company.
3. He is a pioneer of automobile industry. After the bankruptcy in 1936 he tried his luck in
bowling alley in 1940. Here he is at a scoring table with customers.
4. A software freedom activist is best known for launching
GNU project. He is a programmer from MIT Artificial Intelli-
gence Laboratory and pioneered the concept of Copyleft.
5. Identify the brand from images.
ANSWERS : JANUARY ISSUE
BEACON : Page 8
Feb. 2014
Volume: 2
Issue : 4
Answer To: simcon.simsree@simsree.net with Subject= simcon_quiz_feb_2014
Winner will be recognized.
All Correct Answers will be published in next month’s Edition.
Contributions invited:
To make this feature a successful effort, we seek continued involvement and contribution from our readers, that is
YOU. We invite articles and trivia on themes related to consulting. Be it industry news, consulting trends, a joke, a cartoon or
feedback, we are eager to hear from you. So go ahead, do your research, pen down your thoughts and mail your entries to sim-
con.simsree@gmail.com.
Best Regards, Our FB page : https://www.facebook.com/SimCon
SIMCON –SIMSREE CONSULTING CLUB Mail To: simcon.simsree@gmail.com
Winner:-
Pratima Bawa
MMS, SIMSREE

Beacon.Feb 2014

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