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FUNDS FLOW ANALYSIS OF THE INSURANCE COMPANIES IN NIGERIA

ABSTRACT

Working capital or cash equivalents are referred to as funds. Working capital is a pretty straightforward idea. It’s a term that refers to the difference between current assets and current liabilities. The excess is frequently referred to as “Net working capital,” and it may also be referred to as a company’s assets that are convertible into other assets in the normal course of business.

The concepts of funds flow analysis may be referred to as the following terms:

 

Sources and application of funds statement; funds flow statement; movement of funds statements, and statement of changes in financial statement.

 

Because the profit and loss account and balance sheet only indicate the company’s disposition at the beginning and end of the year, funds flow analysis is required.

The researcher opted to perform a study on funds flow analysis in the insurance sector in order to discover the unique ways in which this industry raises trades and uses funds.

To make the study easier, two hypotheses were drawn experimentally, and then a field study was conducted to determine if the hypothesis was valid or not. Data was gathered from both primary and secondary sources. However, due to a lack of primary data, the researcher relied heavily on secondary sources, such as oral interviews with top executives at a few insurance companies and the distribution of questionnaires to 100 insurance companies.

This study not only identified issues, but also proposed solutions to the problems that the insurance business faces.

CHAPTER ONE

INTRODUCTION

BACKGROUND OF THE STUDY

Cash and cash equivalents, as well as working capital, are referred to as funds. While the following words can be used to describe the ideas of funds flow analysis:

Statements on the origins and use of funding;

 

a financial statement;

 

a declaration of funds movement;

 

declaration of financial position changes

 

The need for funds flow analysis arises from the fact that the profit and loss statement and the balance sheet only show the company’s disposition at the beginning and end of the accounting period, but do not show or identify the movements in assets and liabilities throughout the year, or their impact on net liquid funds.

Funds given by or utilized in the activities of an enterprise should be reported separately from other sources or uses of funds in the statement of changes in financial condition. Items that are not part of the business’s regular operations should usually be mentioned separately in the financial statement.

However, “cash” are as necessary to an organization as “blood” is to a human individual, and no organization can exist or continue to operate without sufficient funds to pay its short- and long-term obligations, as well as day-to-day operations.

Funds given by or utilized in the activities of an enterprise should be reported separately from other sources or uses of funds in the statement of changes in financial condition. Items that are not part of the business’s regular operations should usually be mentioned separately in the financial statement.

However, “funds” are as important to an organization as “blood” is to a human being, and no organization can exist or continue to operate without sufficient funds to meet its short- and long-term obligations, as well as day-to-day operations.

Due to the unique nature of the industry, the funds consist of the following:

clients’ premium income

The researcher decided to conduct a study on funds flow analysis in the insurance industry in order to discover the unique ways in which this industry raises trades and uses its funds.

Previously, insurance Decree No. 59 of 1976 required the maintenance of separate funds accounts for insurance funds such as;

funds for life insurance; and

Non-life insurance or general business funds are examples of non-life insurance.

As a result, each fund account is kept to account for premium income generated by that department. However, the researcher hopes to do a comparison analysis of all direct insurance businesses in Nigeria’s gross premium income.

STATEMENT OF THE PROBLEMS

Funds given by or utilized in the activities of an enterprise should be reported separately from other sources or uses of funds in the statement of changes in financial condition. Items that are not part of the business’s regular operations should usually be mentioned separately in the financial statement.

Many Nigerians are baffled as to how insurance companies make money. Many questions have arisen as a result of their prejudice and inquisitiveness, including:

What are the funding sources for the insurance industry?

How are the money of shareholders/policyholders managed?

Why are claims not being fulfilled?

Why is the public’s perception of the insurance industry so negative?

What role does the insurance industry play in Nigeria’s economic development?

To what extent has premium income played a role?

PURPOSE/OBJECTIVES OF THE STUDY

Individuals and organizations who plan to invest in the insurance industry for a long time, say 10 to 20 years, require information to assist them in deciding between alternative investments after taking into account factors such as inflation, capital and money market interest rates, and time value for money. The recommendations and solutions provided by this study would guide industry executives in making rational decisions about investments, financing, and dividends.

SIGNIFICANCE OF THE STUDY

The researcher proposed writing a paper on the aforesaid issue in order to identify the primary sources of funds in the insurance sector, as well as investigate various areas of fund utilization or application. This will answer questions like, “How do insurance firms make money?” This topic is also important because insurance funds are funded by premium income from clients or policyholders, who would like to understand, analyze, and interpret the direction of their investments as well.

The article will also address the insurance industry’s negative reputation in the area of claim settlement. The impact of inflation on insurance will be discussed as well. The insurance industry’s role and position in the economy are also discussed.

SCOPE AND LIMITATION OF THE STUDY

This study is an empirical examination of the Nigerian insurance market, with a focus on the capital flow situation. As a result, this research is expected to encompass the entire industry. However, due to financial and time constraints, the researcher was unable to analyze each company individually because the number of firms engaged is large (about 136), and a study of just ten organizations may not accurately reflect the industry’s funds flow status.

The researcher hopes to rely more on secondary data published by the Nigerian Reinsurance Corporation as well as primary data acquired through a survey in the future.

Data collection issues were another element that tended to limit the scope of this study.

RESEARCH HYPOTHESIS

The following hypotheses have been proposed for investigation as part of this study:

H1 That Gross Premium Income is increasing at a rate of more than 20% each year on average.

 

between 1992 and 1997 in the industry

 

That gross premium income hasn’t been increasing at a rate of 2% each year on average

 

Between 1992 and 1997, the industry grew by more than 20%.

 

H1: The industry’s total investment expenditure is equal to its total revenue.

 

Between 1992 and 1996, there was an average increase of more than 75%.

 

That is the ratio of total investment spending to total revenue in the industry.

 

Between 1992 and 1996, the average was less than 75%.

 

H1 That the average claim percentage to total premium income is

 

Between 1992 and 1996, the industry’s (GPI) increased by more than 46%.

 

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