annual report and 2013 - heritage · pdf fileheritage insurance company kenya limited annual...

FOR THE YEAR ENDED 31 DECEMBER

Annual Report and Financial Statements 2013

OUR VISION

OUR MISSION

To be the leading provider of innovative insurance solutions to our chosen market by 2018.

To create an enabling environment in 2014 in order to be the leading provider of innovative insurance Solutions in our chosen market by 2018

Heritage Insurance Company Kenya LimitedAnnual Report and Financial Statements 2013

Table of Contents

Directors, Senior Management and other corporate information 2 - 6

Directors’ Report 7

Chairman’s Statement 9 - 12

Corporate Governance Report 13 - 16

Corporate Social Investment 17 - 18

Statement of Directors’ Responsibilities 19

Report of the Independent auditor 20

FINANCIAL STATEMENTS

Financial Highlights 22 - 24

Consolidated statement of profit or loss 25 - 26

Company statement of profit or loss 27

Statement of comprehensive income 28

Consolidated statement of financial position 29 - 31

Company statement of financial position 32 - 34

Consolidated statement of changes in equity 35 - 37

Company statement of changes in equity 38 - 40

Consolidated statement of cash flows 41

Company statement of cash flows 42

Notes 43 - 103

SUPPLEMENTARY INFORMATION

Consolidated revenue account 104 - 105

Company revenue account 106 - 107

Financial Record 108

Abridged Report and Financial Statements - Heritage Insurance Company Tanzania Ltd 109 - 120

Heritage Insurance Company Kenya Limited Annual Report and Financial Statements 2013 1


DIRECTORS

The Directors who held office during the year and to the date of this report were:

P N Gethi - ChairmanJ H D Milne - Managing DirectorJ M Kyungu - Executive DirectorG R May - Non- Executive DirectorM L du Toit - Non- Executive DirectorS Sejpal (Ms) - Non- Executive DirectorS C Wenman - Non- Executive DirectorC W Mwangi (Ms) - Non- Executive Director

COMPANY SECRETARY

C Kioni (Ms) | P O Box 30390 - 00100 | Nairobi

SENIOR MANAGEMENT

J H D Milne - Managing DirectorJ M Kyungu - Executive DirectorS Lugalia - Director (Finance & Administration)A P Ngunjiri - Director (Medical)B N Hiuhu (Mrs) - Director (Underwriting & Claims)B Irungu - Senior Manager (Claims)I K Kamau - Senior Manager (IT)M Mati (Ms) - Senior Manager (HR)D Mathenge - Senior Manager (Finance)E Adiedo - Senior Manager (Marketing)J Maluki (Ms) - Senior Manager (Medical)C Onyango - Senior Manager (Underwriting)

INDEPENDENT AUDITOR

PricewaterhouseCoopers, Certified Public Accountants | PwC Tower, Waiyaki Way / Chiromo RoadP.O. Box 43963 - 00100 | Nairobi

BANKERS

CfC Stanbic Bank Limited

CfC Stanbic Centre, Chiromo Road | P.O. Box 72833 - 00200, Nairobi

Commercial Bank of Africa Limited

CBA Building, Mara/ Ragati Road | P O Box 30437 - 00100, Nairobi

Corporate Information

2


Corporate Information (cont’d)

COMPANY DETAILS

REGISTERED HEAD OFFICE

CfC House, Mamlaka Road P. O. Box 30390 - 00100 Nairobi Kenya Tel: (+254) 20 2783000 Cell: 0711 039 000, 0734 101 000 Fax: (+254) 20 2727800E: info_heritage.co.ke

Mombasa Branch

Social Security House, Nkrumah Road P. O. Box 84886 - 80100 Tel: (+254) 41 2224724 / 2316638 Cell: (+254) 773 372 548Fax: (+254) 41 2224725 E: [email protected]

Eldoret Branch

Imperial Court, Waiganjo Street / Uganda Road P. O. Box 6120 - 30100 Tel: (+254) 53 20 62532Cell: (+254) 773 372 546 Fax: (+254) 53 20 31788 E: info@[email protected]

Naivasha Branch

CfC Heritage House, Moi Road P. O. Box 1319 - 320117 Tel: (+254) 50 2020466 / 673Cell: (+254) 773 372 547 Fax: (+254) 50 2020467 E: [email protected]

Nanyuki Branch

Silver Plaza, Nyeri / Nanyuki Road P. O. Box 1615 - 10400 Tel: (+254) 62 31915Cell: (+254) 773 372 545 Fax: (+254) 62 31914 E: [email protected]

Nakuru Branch

Polo Centre, Tom Mboya Street, off Kenyatta Avenue P. O. Box 4362 - 20100 Tel: (+254) 51 2213776 Fax: (+254) 51 2213774 E: [email protected]

Meru Branch

Nakumatt - Mwitu Center Bld, Meru / Nanyuki RoadP. O. Box 1911 - 60200Tel: (+254) 64 30710Fax: (+254) 64 30709Email: [email protected]

Thika Branch

Zuri Centre, 4th Floor, Kenyatta HighwayP. O. Box 7048 - 01000 Tel: (+254) 67 20406Fax: (+254) 67 20407Email: [email protected]

Machakos Branch

Town Plaza, 2nd Floor, Ngei RoadP. O. Box 786 - 90100 Tel: (+254) 44 20625Fax: (+254) 44 20624 E: [email protected]

Kitui Branch

Muli Mall, 1st Floor, Kilungya StreetP. O. Box 1322 - 90200 Tel: (+254) 44 442 2314Fax: (+254) 44 442 2315 E: [email protected]

Kisii Branch

Royal Towers, 2nd Floor, Hospital Road,P. O. Box 2003 - 40200Tel: (+254) 711 028 564E: [email protected]

SUBSIDIARIES

Heritage Tanzania

The Heritage Insurance Co. Tanzania Ltd Oyster Bay Office Complex, Plot No. 368 Msasani Road, Dar-es-salaam, TanzaniaTel: 007222664204-9Fax: 007222664210 E: [email protected]

Azali Limited

CfC House Mamlaka RoadP. O Box 30390 - 00100Nairobi Kenya

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JOSEPH M KYUNGUPETER NDERITU GETHI GAYLING MAY CLAIRE W MWANGI JOHN HD MILNE

PETER NDERITU GETHI (Chairman)

Mr Gethi holds a BSc (Hons) degree in Agricultural Economics and has expansive managerial experience in Agricultural Business Management. He has been a General Manager with Kilimanjaro Plantations Ltd (TZ) and Senior Group Manager with SCEM Ltd (formerly Standard Chartered Estate Management). He currently works both as an Agricultural Consultant and is involved with Real Estate Development as Managing Director of Nebange Ltd. He is also the Chairman of CfC Life Assurance Limited, director of Heritage Insurance Company (Tanzania) Limited, CfC Stanbic Holdings Limited and CfC Stanbic Bank Limited. He serves on the Audit & Risk Committees of Liberty Kenya Holdings Limited and Heritage Insurance Company (Tanzania) Limited.

GAYLING MAY

Mr May has an extensive accounting background and is a member of the Institute of Certified Public Accountants of Kenya (ICPAK) and a fellow of the Institute of Chartered Accountants in England and Wales (FCPA). He has worked in the UK, USA and for the most part, Kenya, and has a history of 37 years with PricewaterhouseCoopers, 32 of which was as a Partner/Regional Senior Partner. He is currently the Regional Representative of the Eastern Africa Association, a business information service based in Nairobi, but operating throughout East Africa. He holds various directorships in banks, insurance companies, manufacturing entities and an aircraft ground handling Company. He is the Chairman of the Audit and Risk Management Committee of both Heritage Insurance Company Kenya Limited and CfC Life Assurance Company Limited.

JOSEPH M KYUNGU (Executive Director)

Mr Kyungu is the Executive Director of Heritage Insurance Company Kenya Limited. He has vast knowledge and experience acquired over his 38 years in service working for Heritage Insurance. He has seen the Company through its transition over the years to its present day as one of the leading insurance players in the industry.

JOHN MILNE

Mr Milne is the Managing Director of the Heritage Insurance Company Kenya Limited. He is also a director of CfC Life Assurance Company Limited and Heritage Insurance Company (Tanzania) Limited a subsidiary of Heritage Insurance Company Kenya Limited. He has vast knowledge and experience in the insurance industry in Kenya and Tanzania. He holds an LLB (Hons) Degree.

CLAIRE W. MWANGI

Ms Mwangi is a career banker having held various Executive Director positions in CfC Stanbic Bank Kenya Limited. She was responsible for global markets business in Kenya and South Sudan and had regional responsibility for Uganda, Tanzania and Mauritius. She has also worked with Citibank in Kenya, Mauritius and Tanzania. She also holds various directorships in banks and financial services companies. She has an MBA in Finance. Ms Mwangi is a member of the Company’s Investment Committee.

The Board of Directors

4


SONAL SEJPAL MIKE DU TOIT STUART WENMAN CAROLINE KIONI

MIKE DU TOIT

Mr. du Toit is the Liberty Africa Regional Managing Director for East Africa responsible primarily for Strategic Growth initiatives. He joined Liberty in 2010, prior to which he was the Managing Director of CfC Stanbic Bank Limited having led the merger of Stanbic and CfC Groups. As a career banker, he has extensive experience in the financial services field across sub-Sahara Africa having worked and lived in, amongst others, Botswana, Mozambique, South Africa and Uganda. He is the Chairman of the Investment Committee. He also sits in the boards of Heritage Insurance Company (Tanzania) Limited and CfC Life Assurance Company Limited.

SONAL SEJPAL

Ms Sejpal is a consultant lawyer with Anjarwalla and Khanna Advocates, a member of the Africa Legal Network. She has an excellent reputation in Kenya as a corporate finance and commercial lawyer. She advises clients on a range of corporate matters, including mergers and acquisitions, joint ventures, schemes of arrangements, project finance, aviation, oil and gas projects, employment matters, commercial contracts and general corporate advice on an ad hoc basis. She is also a director of CfC Life Assurance Company Limited.

STUART WENMAN

Mr Wenman is an Executive Director of Liberty South Africa in charge of Insurance in Africa and is responsible for the strategy and commercial results of all the Life and Short Term Insurance businesses outside of South Africa for Liberty Holdings. He has vast experience in actuarial science, risk management and insurance. He has a Bsc in Actuarial Science degree, is also a Director of CfC Life Assurance Company Limited. He is a member of both Company’s Audit and Risk Management and Investment committees.

CAROLINE KIONI

Caroline Kioni joined Liberty Kenya Holdings Limited, the parent Company of Heritage Insurance Company Kenya Limited as Regional Head, Legal and Company Secretary with effect from 14 March 2011. Her prior assignment was at UAP Group, where she worked as the Group Company Secretary and Chief Legal Advisor for East Africa, a position she held from 2007 until taking up this role. Caroline began her career as a Legal Officer in Southern Credit Banking Corporation in the year 1997 and was promoted in the year 2000 to the position of Company Secretary.

Between 2001 to 2007, she worked for Bollore’ Africa Logistics as Regional Company Secretary. She holds a Masters in Business Administration from Moi University, has a Bachelor of Law degree from the University of Nairobi and a Diploma in Legal Studies from the Kenya School of law. She is also a Certified Public Secretary from the Institute of Certified Public Secretaries of Kenya and a registered member of the Law Society of Kenya.

The Board of Directors (cont’d)

5


BEATRICE HIUHU

ISAAC KAMAU

ALBERT NGUNJIRI

SENIOR MANAGEMENT

TEAM

JOHARI MALUKIMARY MATI

STEVE LUGALIA

CHRISTOPHER ONYANGO

MISSING: J H D MILNE, J KYUNGU

ELIUD ADIEDO

BONIFACE IRUNGU

DAVID MATHENGE

The Senior Management Team

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The Directors submit their report together with the audited financial statements for the year ended 31 December 2013 which disclose the state of affairs of Heritage Insurance Company Kenya Limited (the ‘Company’) and its subsidiaries (together the ‘Group’).

Principal activities

The Group underwrites all classes of non-life insurance risks as defined by the Insurance Act, with the exception of bonds investments. It also has interests in investment properties.

Results and dividends

Profit for the year ended 31 December 2013 of Shs 733 million (2012: Shs 941 million) has been added to retained earnings.

During the year the directors paid Shs 200 million as the interim dividend for 2013. The directors do not propose payment of a final dividend (2012: Shs 400 million).

Directors

The directors who held office during the year are as shown on page 2.

Auditor

The Company’s auditor, PricewaterhouseCoopers, will continue in office in accordance with Section 159(2) of the Companies Act.

By order of the Board

C Kioni

SECRETARY

31 March 2014

The Directors’ Report

7

OUR GROUP VALUES1) Be passionate about our work and utilise our

talents to add value.

2) Take initiative and responsibility.

3) Respect and appreciate constructive criticism and

the opinion of others.

4) Focus on set goals and deadlines.

5) Be proud ambassadors of our Company and Group.

6) Put our customers at the centre of our thinking

and serve them with diligence.

7) Encourage teamwork, respect and trust for one

another.

8) Take ownership for the consequences of our

actions.

9) Perform our duties with care, integrity and honesty

10) Deliver beyond expectations.

11) Constantly improve our skills and knowledge.


It gives me great pleasure to present to you the Annual Report and Financial Statements for Heritage Insurance Company Kenya Limited for the year ended 31 December 2013.

THE BUSINESS ENVIRONMENT

Macro-Economic Environment

Kenya entered 2013 on a strong economic footing and peaceful elections earlier in the year gave it an additional boost. Although there was anxiety before the elections, which may have negatively affected some businesses, the environment settled well after the elections and this was a major boost not just for businesses but also the Country’s image. Relatively stable macro-economic factors and generally prudent monetary policies favored economic growth in 2013. GDP grew by 5.2%, 4.3% and 4.4% in the first, second and third quarters of 2013 led by growth in the agriculture, construction, and financial services sectors and to some extent, manufacturing.

Overall growth in 2013 is likely to be approximately 5.0% up from 4.6 percent in 2012, helped by relatively low inflation, a stable exchange rate and manageable fiscal deficit.

As mentioned, the Kenyan Shilling was relatively stable throughout 2013, closing at Shs 86.3 to the US dollar, virtually the same as at the end of 2012. Consistent monetary policy action by the Central Bank and rising foreign exchange reserves helped buoy the Shilling. Increased foreign investment and greater investor confidence in the economy also played its part. The outlook for 2014 is that the Shilling is likely to weaken gradually, but that forex reserves will remain strong.

Year on year inflation declined during 2013 to stand at 6.8% at the year end, broadly within the CBK’s policy range. It is expected that inflation is unlikely to be a major threat in 2014.

CBK eased monetary policy in 2013 by cutting the Central Bank Rate (CBR) from 11.0% to 8.5% during the year, following containment in inflation and a need to stimulate private sector credit growth. Short term rates varied in response to changes in liquidity conditions. Lower spending by both the central and county governments affected market liquidity. Treasury bill yields dropped during the year with 91-day and 182-day rates averaging 8.8% and 9.4% from 12.7% and 13.4% in the previous year. The outlook for 2014 is that

interest rates are likely to fall, albeit marginally.

With regard to the capital market, the Nairobi Securities Exchange (NSE) continued the good performance that began in 2012 with equities ending 2013 on a firm note. Market performance was to an extent driven by the US Federal Reserve’s quantitative easing programme which sparked increased global risk appetite. A lower political risk premium after peaceful general elections improved investor confidence, while sustained company earnings and attractive valuations boosted most equities. The NSE 20 index climbed 19.2% to 4,927 points at year end and the 2014 outlook with higher economic growth and a stable macroeconomic environment should prove positive for equities.

Government bonds reflected a positive performance in 2013, whilst the yield curve corrected downwards slightly by an average of 0.07% across all tenors. Lower inflationary pressures and CBK’s policy easing measures led to lower yields. Secondary market trading declined due to volatility in money market interest rates. Liquidity conditions and uncertainty over the direction of interest rates negatively affected bond trading. Anchored inflation expectations and improved liquidity conditions are factors likely to stabilize bond yields in 2014.

Overall, we expect relative stability this year in key macro-economic indicators - inflation, interest rates and exchange rate - triggering strong consumer demand and increased economic growth. This is expected to result in good economic growth .The improved performance will largely be driven by the mining sector, credit consumption and county government spending. This provides significant opportunities to the insurance sector.

The Country expects the multinational oil companies’ confirmations of the commercial amounts of oil finds in Turkana and off the coast to spur greater economic activity. Although Industry experts indicate that Kenya could see its first oil in the next 5 -6 years, the infrastructure required will provide huge opportunities for the insurance sector. In addition, there will be increased opportunities in the SME sector which is expected to grow to service the Oil and Gas sector. Your Company has put in place robust strategies to take advantage of the opportunities provided by these developments in the economy.

Chairman’s statement

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The Socio-Political environment

The coalition government led by President Uhuru Kenyatta, elected on March 4, 2013 under the August 2010 Constitution, is facing a major test in implementing the new devolved system of government. County Governors are pushing for a referendum to amend the Constitution to increase the share of national revenue to the 47 counties, from 15% to 40%. They contend that the present allocation is not sufficient for the Counties to fund the public services expected of them by the population.

But government reports indicate that many Counties have simply not used the funds allocated to them, thus raising issues about their capacity while others have used their allocations for non-priority expenditure. The Central Government also has to deal with the aftermath of a number of crises, including the September 21, 2013 terrorist attack on an up- market mall in Nairobi.

A major fire on August 7 severely damaged Nairobi’s Jomo Kenyatta International Airport, disrupting domestic and international flights for weeks before normal flight schedules were restored.

These challenges constrain the pace of democracy, reforms and accountability. The new administration, with 18 Cabinet Secretaries appointed by the President and publicly vetted by the National Assembly, has promised to tackle fundamental issues such as youth unemployment, regional imbalances and land reforms, all of which pose political risk and insecurity particularly in areas with high poverty levels.

There is nevertheless progress in the implementation of some of the key policy and legislative processes arising from the new Constitution, including an independent judiciary, establishment of a new Supreme Court and appointment of a new Chief Justice. This new judicial system has already demonstrated its independence and authority in a number of cases.

Electoral disputes have been discharged within the timelines set under the Constitution, and the new Chief Executive of the Ethics and Anti-Corruption Authority also recently assumed office. Police reforms are also underway, following the recruitment of an Inspector-General, who heads a combined police force that was previously under two separate administrations.

Recent political reforms have strengthened Kenya’s governance record, though overall there is still much to do. The most pressing challenge in the country is to effectively implement the new devolved system of governance, while

also strengthening the capacity to cope with domestic and external shocks.

Youth unemployment, poverty and vulnerability to climate change remain critical development challenges. Recent political and economic developments have stimulated development opportunities for Kenya but concerns remain in vital areas, including food security, governance and corruption.

One of the biggest opportunities for the Company lies in the implementation of the devolved government. The Company has already identified counties with the greatest opportunities for our business and strategies are being implemented to take advantage of these new markets. The strategies will focus on developing effective distribution channels and appropriate products for the counties.

Regulatory environment

The Kenyan insurance industry continues to experience year-on-year growth in premiums. This is expected to rise to 20% in 2013 given that higher economic growth is expected in the year ahead. The Insurance Regulatory Authority’s (IRA) response to industry problems and challenges as well as innovation, global trends and local growth highlights the necessity for a robust regulatory framework.

In response to the increased incidence of fraud and the generally poor level of compliance, the IRA has responded with higher levels of monitoring insurance companies. In this context, in 2013, the IRA released 16 guidelines all of which are now in force. One key change calls for all insurers to have a risk management function, an actuarial function, a compliance function and an internal audit function. I am pleased to confirm that your Company has all these functions in place and that they are operating effectively.

There are also indications that the capital requirements for insurance companies may be reviewed in future. There is likely to be company specific capital requirements, reflecting all risks associated with insurance activities, investments and financial decisions, and all operational activities.

I am pleased to inform you that your Company’s capital position is one of the strongest in the industry and we shall be able to meet any stipulated capital requirements.

On a more specific note, the Finance Act, 2013 received Presidential Assent on 24th October 2013. Under this law an amendment was introduced to the Customs and Excise Act which called upon all financial institutions to apply a levy of 10% on all fees, charges and commissions with effect from 18th June 2013. This has led to higher costs, but more significantly,

Chairman’s statement (cont’d)

10


the amendment proposed that all persons registered under the Insurance Act would be required to apply the levy too. However, it is not clear whether premiums, re-insurance and brokerage commissions are to be included, and the matter has yet to be resolved in Court.

Business Performance in Kenya

a. Change in Accounting policy

In 2013 our holding company, Liberty Kenya Holdings Limited, reviewed its treatment of insurance liabilities (both long-term and short-term) and the relevant matching assets and recommended that the measurement of these liabilities should be aligned to Standard Bank and Liberty Holding Limited’s accounting policies which are modeled on best practice. The change in accounting policy for the Company affects only the accounting for financial assets backing the liabilities – there is therefore no change in the basis of valuing liabilities.

Accordingly, from 2013, the Company’s policy has been to fair value all financial instruments through the Income Statement at “Fair Value through Profit or Loss” as opposed to the former treatment where unrealised surpluses/losses were carried in the Statement of Financial Position for Available-for-Sale assets and were held at amortised cost for “Held-to-Maturity” assets

Management believes that this fresh policy provides reliable and more relevant financial information as it ensures that IFRS performance reporting will better reflect the economic reality of occurrences within the reporting period in terms of asset changes.In accordance with International Accounting Standard (IAS) 8, the Statements of Financial Position and Profit or Loss for 2011 and 2012 have therefore been re-stated and disclosed in the 2013 financial report to ensure uniform comparison with prior years.

b. Financial performance

Whilst the economic environment in 2013 was fairly stable, the insurance sector continues to experience challenges due to the high number of players that has resulted in rampant premium rate undercutting and the poor levels of insurance penetration. Despite the challenging business environment, the Company continues to perform well.

Overall profit before tax stood at Sh 711.1 million (2012 – Sh 974 million, as re-stated). It should be noted in this context, that the 2012 accounts included a profit of Sh 216.1 million in respect of the Life Assurance business which was subsequently transferred to CfC Life, a fellow subsidiary of Liberty Kenya Holdings Ltd. Also, with the change in accounting policy for

the valuation for financial assets, a profit of Sh. 55.2 million arising from fair value gains on shares and bonds was realised.

The effect of this change on future results will depend on the market movements in interest rates and equity prices. With this modification in policy, the Company has moved to align assets to better match liabilities in order to run a more capital efficient business with a strong focus on the technical results.

The Company registered growth in gross written premium of 4% in 2013, up from Sh 3.407 billion in 2012 to Sh 3.549 billion. Some business during the year was lost to competition as a result of premium undercutting and our declining to renew certain poor performing accounts. Your Company’s focus has always been on profitable underwriting rather than growth in volumes. However, we recognise the fact that premiums must increase and in this respect the Company is implementing a number of strategies in its distribution channels and new products that will go a long way to ensure that we achieve a greater market share.

With respect to claims, the Company’s overall Net Incurred Claims Ratio at 37.6% improved significantly over 2012 (40.8%). As a matter of record, a report published by the IRA indicated that the net incurred claims ratio for the short term industry as a whole for 2013 is likely to be approximately 57%.

Operating and other expenses were tightly controlled at Sh 936.6 million, down from Sh 1.0 billion in 2012. The result of the above has led to a 52% improvement in the underwriting profit from Sh 209.4 million in 2012 to Sh 318.3 million in 2013. Whilst events that give rise to claims are always unpredictable, the good overall result stems from a combination of measures adopted by Management to generate greater returns from previously poor performing classes of business. Overall, thus, your Company has achieved profit after tax of Sh 536.9 million.

Business Performance in Tanzania

The Tanzania insurance industry continues to grow, with 22 registered short term underwriters at 31st December 2012 and 18% uplift in gross premiums written during that year.

The general insurance underwriting result for the industry as a whole, however, is an accumulated loss of Tsh 11.9 billion in 2012 compared to Tsh 8.3 billion in 2011. Underwriting results have consistently deteriorated over the last three years, suggesting a need for insurers to improve their underwriting practices, and rates in most, if not all, classes of business. The Company has remained focused in ensuring that sound underwriting practices are maintained. Consequently it is one of the few companies in the market that consistently


11


reports an underwriting profit.

Despite significant premium undercutting in the market during 2013, our subsidiary company in Tanzania achieved premium growth of 18%, at Tsh 45.9 billion, and endorsed its position as one of the top underwriters in the market. However, claims costs increased from Tsh 5.5 billion (51% claims ratio) in 2012 to Tsh 6.4 billion (52% claims ratio) in 2013.

During the year, the Company experienced an unprecedented number of large claims on Fire and Engineering policies. Though these did not have much impact on the 2013 financial results, because of the conservative strategy we follow in net retentions, our reinsurers have been affected very badly. They have thus revised their 2014 rates significantly.

As a result of the said claims experience, our underwriting surplus dropped from Tsh 902.8 million in 2012 to Tsh 419.3 million in 2013 and overall profit before tax slipped from Tsh 5.6 billion to Tsh 1.7 billion. It needs to be said, however, that in 2012 the Company earned Tsh 3.6 billion from the disposal of one of its associates, Alliance Insurance Corporation Limited. Excluding the capital gains on the sale of shares in Alliance, Profit Before Tax was Tsh 1.69 billion compared to Tsh 1.95 billion in 2012. The drop is mainly due to the unfavorable claims experience and slight increase in expenses.

However, the Company has robust strategies in place to help ensure that in 2014 it maintains its position as the top general insurer. Meanwhile, the shareholding arrangements concerning our associate, Strategis Insurance Tanzania Limited, should be finalized in the course of 2014. We also expect to benefit from full utilization of our IT systems. In addition, we expect to take advantage of “bancassurance” opportunities in the market, paving the way for participation of banks in the distribution of insurance products to remote parts of the country.

Consolidated Results

Our consolidated group’s Gross Written Premiums rose to Sh 5.7 billion from Sh 5.5 billion while the Profit Before Tax at the year end was Sh 906.0 million. This is less than 2012 because of the transfer to our co-subsidiary, CfC Life Assurance Limited, of all previous long term business, in addition to the prior year profit on sale of one of our associates in Tanzania.

Outlook for the future

Looking to 2014 and beyond, we expect market conditions to remain favorable but not without challenges. The outlook for Kenya’s economy is positive, but the attainment of high economic growth is hinged on the progressive implementation

of the Constitution, the success of devolution and a sustained conducive socio-economic and political climate.

In the wider region, there are changes, challenges and opportunities and our ambitious 5-year strategy covering the period 2014-18 addresses these.

Meanwhile, we look to better discipline in the Insurance Sectors in both Kenya and Tanzania and firm regulatory control over widespread rate-cutting particularly in the motor class of business.

In all we are confident that 2014 will be another good year for your Company.

Appreciation

In closing, let me express my thanks and appreciation to our Managing Director, John Milne, who will be retiring this year after 20 years of successfully steering the Company to the heights that it has reached. I wish him well in his retirement. I would also like to thank all Directors for their advice, guidance and time - this is well appreciated.

Special thanks also go to the following:

• our clients, brokers, agents, intermediaries and all other business partners – we recognize your support and assistance and we are most grateful for this.

• the Regulatory Authorities in both Kenya and Tanzania – we appreciate their importance and value the relationships we have with them and

• our staff without whom we could never have achieved the results we have – your unselfish efforts are valued.

And finally, I would like to thank the shareholders for continuing to believe in the Company’s vision for growth and profitability.

P.N Gethi

Chairman31 March 2014Heritage Insurance Company Kenya Limited.


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Corporate Governance Report

IntroductionCorporate Governance is the system by which corporations are directed, controlled and held to account. This encompasses the systems, practices and procedures by which the individual corporation regulates itself in order to remain competitive, sustainable and relevant.

The Board of Heritage Insurance Company Kenya Limited follows principles of openness, integrity and accountability in its stewardship of the Company’s affairs. It recognises the developing nature of corporate governance and assesses the Company’s compliance with generally accepted corporate practices on a regular basis, directly and through its Board committees and Management.

The role of the Board is to ensure conformance by focusing on and providing the Company overall strategic direction and policy-making as well as performance review through accountability and ensuring appropriate monitoring and supervision. Whilst the day to day running of the business of the Company is delegated to the Managing Director, the Board is responsible for the overall system of internal control and for reviewing its effectiveness. The controls are designed to both safeguard the Company’s assets and ensure the reliability of financial information, so that the Company’s objectives of increased growth in profitability and shareholder value are realised. Set out below are the key features of the existing corporate governance practices within the Company.

Board of DirectorsThe Board of Directors consists of two executive directors and six non-executive directors who have been chosen for their business acumen and wide range of skills and experience. The Chairman is a non-executive director and the Board meets formally at least four times a year. During the year five meetings were held and the attendance by the directors was as follows:

P – Present A – Absent with apologies

The Board is responsible for setting the direction of the Company through the establishment of strategic objectives, key policies and the approval of budgets. It monitors the implementation of strategies and policies through a structured approach to reporting by executive management and consequent accountability.

The non-executive directors are actively involved in and bring strong independent judgement on Board deliberations and discussions. These directors have a wide range of knowledge and experience of local and international markets that is applied to the formulation of strategic objectives and decision making.

The Board meets regularly and retains full and effective control over the Company. To assist the Board in the discharge of its responsibilities, a number of Board committees have been established, details of which are provided below.

All directors have access to the advice and services of the Company Secretary and are entitled to obtain independent professional advice at the Company’s expense. A senior management team, comprising executive directors and senior managers meets regularly to consider issues of operational and strategic importance to the Company.

The Directors’ Affairs Committee

The Remuneration Committee of the Company has been superseded by the Directors’ Affairs Committee of Liberty Kenya Holdings Limited.

The Committee, at an overall level, checks the remuneration levels and conditions of service of staff, other than executives, to ensure that these are fair, appropriate and in line with the Company’s remuneration philosophy.

Audit and Risk Committee

The Board has constituted an Audit and Risk Committee to be responsible for the oversight of effective internal controls, risk management and compliance of all the companies in the group. The Committee consists of four non-executive directors, two of whom are independent directors. The Committee met as follows during the year:

11.02.2013 24.04.2013 10.05.2013 06.06.2013 06.11.2013

G R May - Chairman P P P P P

M L du Toit - Member P P P P P

S C Wenman-Member P P P P P

S Sejpal - Member A P P P P

P – Present A – Absent with apologies

Director 21.02.2013 02.05.2013 01.08.2013 19.11.2013 10.12.2013

J H D Milne P P P P P

J M Kyungu P P A P P

C W Mwangi P P P P P

S C Wenman P P P A A

G R May P P P P P

P N Gethi P P P P P

M L du Toit P P P P P

S Sejpal P P P P P

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All members of the Committee have appropriate qualities and skills and are independent of management.

The Audit and Risk Committee plays the key role of reinforcing best practice in Corporate Governance particularly in the areas of internal controls and risk management.

The Committee meets at least four times every year to approve the financial statements, review risk management, compliance and internal control matters and acts as the primary focus of the Company’s relationship with the external auditors. The Committee has a constructive working relationship with management and regularly invites them to attend Committee meetings.

The Committee provides oversight responsibility for financial reporting and ensures the integrity of published financial information, which starts with the procedure for managing financial risks and internal financial controls. On a quarterly basis, the Committee will discuss the financial statements with management and annually with the external auditors.

The Committee reviews the capabilities, qualifications, and resources, scope of work and findings of the internal audit function. It requests presentations and information from management on specific issues.

Investment CommitteeThe Company’s investments are managed by professional asset managers in accordance with a Board-approved investment strategy. The asset managers are monitored by an Investment Committee that has been established by the Board. The members of this Committee include three non-executive directors, the Managing Director, and appropriate personnel from the Finance department. The Committee meets at least quarterly and is responsible for determining and monitoring the Company’s overall investment strategy. In particular the Committee monitors performance of the Company’s investment portfolio and ensures that the appointed investment managers comply with the set benchmarks and performance standards. The Committee met in the year as follows:

11.02.2013 24.04.2013 10.05.2013 06.06.2013 06.11.2013

M L du Toit - Chairman P P P P P

C W Mwangi - Member P P P P P

S C Wenman-Member P P P P P

J H D Milne - Member P P P P P

P – Present

Management and Operational Committees

For effective implementation of the Strategic Plan and operations, several Management Committees have been constituted. The members of these committees are mainly the executive management team and other senior managers. Three of the key committees are as follows:

1) The Management BoardThis is a Committee of Management and comprises the Managing Director, the Executive Director, and three Divisional Directors. The Committee meets monthly and its main mandate is to deal with strategic and operational issues and to improve communication and coordination within the various business units. The meetings also review the Company’s performance and progress of implementation of the Strategic Plan. It also deals with any significant operational or strategic issues that affect or require the involvement of other companies within the Group.

2) Credit Management CommitteeThe Company has a Credit Management Committee. This is a Committee of Management and is chaired by the Director (Finance and Administration). The members of this Committee are as follows:S Lugalia - ChairmanP Butiko - SecretaryJ H D Milne - MemberJ M Kyungu - MemberA Kinya - MemberA P Ngunjiri - MemberJ Kinuthia - MemberD Mathenge - MemberE Adiedo - Member

The Committee meets monthly or whenever the need arises. Its main responsibilities are:

a) To ensure compliance with the Company’s Credit Policy.b) To ensure that all monies owed to the Company are

promptly collected in accordance with the stipulated credit terms and other arrangements.

c) Take appropriate measures for dealing with defaultersd) Recommend to the Board, through the Managing

Director, provisions for doubtful debts and write off of any un-collectible debts.

3) The Human Resources Committee

This is a Committee of Management and comprises the Managing Director, Director (Finance & Administration), Director (Medical) and the Human Resources Manager, who is also the secretary to the Committee.

Corporate Governance Report (cont’d)

14


The Committee’s main responsibilties are as follows:

• Develop general and specific policies on staff remuneration, terms and conditions of service and performance management;

• Ensure that the Company’s human resource policies are in line with the best market practice;

• Review employment equity, skills development and succession planning;

• Ensure that salary reviews for the staff are consistent with those of the market and with the performance of the Company;

• Make recommendations on senior staff appointments and promotions;

• Ensure compliance with the relevant legislation in respect of all matters relating to human resources;

• Develop and review a code of ethics and evaluate all cases of unethical behaviours;

The Commitee meets bi-monthly or as required and its recommendations are made to the Management Board.

The Committee may seek external professional advice if deemed necessary in order to carry out its responsibilities.

Internal Control and Risk Management

The Company has implemented and maintains internal controls designed to provide reasonable assurance as to the integrity and reliability of the financial statements and to adequately safeguard and maintain accountability of the Company’s assets.

Such controls are based on established policies and procedures and are implemented by trained personnel with appropriate segregation of duties. The effectiveness of the system of internal controls is monitored regularly through operational meetings, the internal audit function and the annual external audit.

Corporate Social Investment (CSI)

The Board is conscious of the Company’s social responsibilities of achieving commercial success in ways that honour ethical values, compliance, with legal requirements and respect for people, communities and natural environment.

The Board considers the impact of the Company’s and Group’s actions and operates in a way that balances short-

term profit needs with society’s long-term needs. It has instituted a set of policies, practices and programs that are integrated throughout business operations and decision-making processes that are supported and rewarded by top management.

This process involves the balancing and management of the internal stakeholder relationships and interests so as to add value to the business and achieve a sustainable positive impact on society.

Internally, the business has developed a code of conduct for all employees that enables them to make the right decisions, fit into the company culture and expectations and deters unethical behaviour. It recognises the positive role of business in upholding and promoting adherence to universal standards of human rights. The code attempts to articulate the core values of the business and reminds individuals of some of their more obvious responsibilities.

Staff welfare programs have been developed and implemented to improve on their interests and contribution to the business. This involves the financial support of a staff social club for socialising, leisure and development, employee development and career advancement activities such as free professional education support and encouraging of employee volunteering in the community.

In recognition of the importance of Corporate Social Investment to the business, the Company has constituted a Committee for Corporate Social Responsibility. This Committee has set guidelines for the Company’s CSI involvement. To support the Company’s CSI activities, the Board has committed an allocation of 2 % of the Company’s annual Profit After Tax (with a minimum of Shs 2.5M) to go towards the financing of the Company’s CSI activities.

The Board and management, in evaluation of the stakeholder analysis, have identified the following sectors of the economy as requiring the attention and intervention of the business:

i) Health sector especially the care for terminally ill

ii) Education sector particularly for under privileged children

Some of the key highlights of the Company’s CSI activities during the year included:

a) Participated in the Mater Heart Run, a key initiative of the Mater Hospital that is focused on providing heart surgery to needy children from all over the country.


15


b) A major medical camp at Ndurarua Primary School, in the Riruta area of Nairobi. A huge number of residents of this poor suburb of Nairobi benefited from the services that we provided in conjunction with the Kenya Society for the Blind.

c) The Company is currently sponsoring seventeen children from needy families through their Secondary, College and University education.

During the year, the Company spent a total of Shs 3.3 million on CSI activities and Shs 16.8 million on employee training.

The operations of the business are conducted in a manner that improves the work environment. The Company has developed health and safety procedures and systems in line with the NEMA requirements and best practices. Where possible, activities are conducted in a manner that reduces air, water, solid waste and noise pollution.

Deliberate attempts are made to review possible environmental abuse by clients and business recommendations made by management and the Board to eliminate this.

The Company and Group provide equal opportunities of employment. An HIV/AIDS policy has been in place for the last five years and appropriate support is provided to staff members as necessary.

The products of the business are designed not to be defective or harmful to the society. Clear and accurate product descriptions are provided for every policy. The pricing of products is done based on a pricing model that is commercially sound and avoids misleading and anti-competitive pricing. Our products ensure that the consumers are protected as demonstrated by the positive evaluation, reputation and trust.

Our advertising campaigns give full and truthful disclosures about our products. Responsible customer education is carried out internally and through our vast distribution network and this is encouraged by our good business practices.


16


Corporate Social Investment Pictorial

BEYOND ZERO CAMPAIGN

CSI Patron Steve Lugalia (centre) with other staff from Liberty Kenya Group present a cheque of Shs 750,000 to First Lady Margaret Kenyatta towards supporting The Beyond Zero Campaign. The campaign is in support of maternal healthcare for disadvantaged mothers.

MATER HEART RUN

Director – Health Business, Mr. Albert Ngunjiri (centre) and CSI Chairperson Joy Kaguri, presents a cheque of Shs 250,000 to the Chairman of the Board of Trustees of Mater Heart Fund in support of the Mater Heart Run. In the picture is a young girl who is a beneficiary of the Heart Fund.

MATER HEART RUN

Some of the staff who participated in the Mater Heart Run where the Company donated Shs 250,000.

17


KAWANGWARE MEDICAL CAMP

Residents of Kawangware registering during a medical camp held by the Company. The purpose of the camp was to screen and treat eyesight related ailments for the local members of the community. This was done in conjuction with the Kemya Society for the Blind.

Corporate Social Investment Pictorial (cont’d)

EYE CLINIC

Some of the enthusiastic children who were screened and treated during a medical camp organized by the Company in Ndurarua Primary School, Kawangware.

KENYA SOCIETY FOR THE BLIND MOUNTAIN CLIMB

Members of staff who climbed Mt. Longonot during the Kenya Society for the Blind Annual Charity Climb. This climb is meant to raise funds for the society’s operations. Heritage is a corporate member of the society. This year we donated Shs 100,000.

18


Statement of Directors’ Responsibilities

The Kenyan Companies Act requires the directors to prepare financial statements for each financial year which give a true and fair view of the state of affairs of the company as at the end of the financial year and of its profit or loss for that year. It is also requires the directors to ensure that the company maintains proper accounting records that disclose, with reasonable accuracy, the financial position of the company. The directors are also responsible for safeguarding the assets of the company.

The directors accept responsibility for the preparation and fair presentation of financial statements that are free from material misstatements whether due to fraud or error. They also accept responsibility for:

(i) Designing, implementing and maintaining internal controls as they determine necessary to enable the preparation of financial statements that are free from material misstatements, whether due to fraud or error;

(ii) Selecting and applying appropriate accounting policies;

(iii) Making accounting estimates and judgments that are reasonable in the circumstances.

The Directors are of the opinion that the financial statements give a true and fair view of the financial position of the company at 31 December 2013 and of the Company’s financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards and the requirements of the Kenyan Companies Act.

Nothing has come to the attention of the Directors to indicate that the company will not remain a going concern for at least the next twelve months from the date of this statement.

Approved by the board of directors on 31 March 2014 and signed on its behalf by:.

P N GETHI J H D MILNE

Chairman Director

19


Report on the financial statements

We have audited the accompanying financial statements of Heritage Insurance Company Kenya Limited (the ‘Company’) and its subsidiaries (together, the ‘Group’) as set out on pages 25 to 103. These financial statements comprise the consolidated statement of financial position at 31 December 2013, and the consolidated statement of profit or loss, consolidated statement of comprehensive income, consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, together with the statement of profit or loss, statement of comprehensive income and the statement of changes in equity of the Company for the year then ended, and a summary of significant accounting policies and other explanatory notes.

Directors’ responsibility for the financial statements

The directors are responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards and with the requirements of the Companies Act and for such internal control, as the directors determine necessary to enable the preparation of financial statements that are free from material misstatements, whether due to fraud or error.

Auditor’s responsibility

Our responsibility is to express an opinion on the financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform our audit to obtain reasonable assurance that the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk

assessments, the auditor considers internal control relevant to the Company’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Opinion

In our opinion the accompanying financial statements give a true and fair view of the state of the Group and of the Company’s financial affairs at 31 December 2013 and of its profit and cash flows for the year then ended in accordance with International Financial Reporting Standards and the Kenyan Companies Act.

Report on other legal requirements

The Kenya’s Companies Act requires that in carrying out our audit we consider and report to you on the following matters. We confirm that:

i) we have obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purposes of our audit;

ii) in our opinion proper books of account have been kept by the company, so far as appears from our examination of those books;

iii) the company’s statement of financial position and statement of profit or loss are in agreement with the books of account.

The engagement partner responsible for the audit resulting in this independent auditor’s report is Kang’e Saiti - P/No. 1652.

Certified Public Accountants 11 April 2014Nairobi

Report of the Independent Auditor to the Members of Heritage Insurance Company Kenya Limited


20



21


Profit before tax

Gross written premiums

Keny

a Sh

s - M

illio

nsKe

nya

Shs

- Mill

ions

7,000

6,000

5,000

4,000

3,000

2,000

1,000

0

0

100

200

300

400

500

600

700

800

900

1,000

1,100

1,200

1,300

2004

2004

2,078.3

424.1

454.8 469.2

304.5

475.3

780.4

1,213.7

906.0

711.1974.0

646.9

278.5

129.1158.6

364.3357.2

197.1

346.5

281.3

1,0386 1,116.51,308.6 1,505.2

1,712.21,919.0

2,477.1

3,248.9

3,406.7 3,549.1

2,263.82,242.1

3,068.1

3,841.7

4.297.9

5,399.8

5,530.46,027.0

2005

2005

2006

2006

2007

2007

2008

2008

2009

2009

2010

2010

2011

2011

2012

2012

2013

2013

Financial highlights

22


Underwriting proft

Shareholders funds

Keny

a Sh

s - M

illio

nsKe

nya

Shs

- Bill

ions

0

0

0.5

1.0

1.5

2.0

2.5

3.0

-50

50

100

150

200

250

300

350

400

-100

258.6

333.0

144.7

54.4

39.5

47.2

113.4

70.945.0

-16.7

-49.8

2.09

1.90

1.44

1.85

1.751.30

1.53

1.74

1.58

1.84 1.79

1.662.10

2.02

1.69

2.07

2.40 2.322.59

2.72

10.4

22.3 28.45.8 7.8 -17.1

139.4

209.4

310.4

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Financial highlights (cont’d)

23


Total assets

Keny

a Sh

s - B

illio

ns

0

2

4

6

8

10

12

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

3.483.80

4.48 4.524.47

5.06

6.16 5.98

4.81

4.66

6.04

5.60

6.41 6.73 6.78

8.57 8.609.57

8.01

9.89

Financial highlights (cont’d)

24


Consolidated Statement of Profit or Loss - for the year ended 31 December 2013

Notes Long term Short term Total business business 2013 Shs’000 Shs’000 Shs’000

Gross earned premiums 3 - 5,773,599 5,773,599

Less: reinsurance premium ceded - (3,172,157) (3,172,157)

Net earned premiums - 2,601,442 2,601,442

Investment income 4 - 643,229 643,229

Commissions earned - 566,066 566,066

Other income 5 - 8,574 8,574

Net income - 3,819,311 3,819,311

Claims and policyholder benefits 6 - 6,463,348 6,463,348

Less: amounts recoverable from re-insurers - (5,406,739) (5,406,739)

Net claims payable - 1,056,609 1,056,609

Operating and other expenses 7 - 1,236,059 1,236,059

Commissions payable - 613,287 613,287

Operating profit - 913,356 913,356

Share of loss from associates 17 - (7,387) (7,387)

Profit before income tax - 905,969 905,969

Income tax expense 9 - (172,680) (172,680)

Profit for the year - 733,289 733,289

Attributable to:

Owners of the Company - 652,276 652,276

Non-controlling interests - 81,013 81,013

- 733,289 733,289

Financial Statements

25


Consolidated Statement of Profit or Loss - for the year ended 31 December 2012

Notes Long term Short term Total business business 2012 (Restated) (Restated) (Restated)

Shs’000 Shs’000 Shs’000

Gross earned premiums 3 1,017 5,511,377 5,512,394

Less: reinsurance premium ceded (28) (2,822,191) (2,822,219)

Net earned premiums 989 2,689,186 2,690,175

Investment income 4 424,395 625,308 1,049,703

Commissions earned 6,364 594,178 600,542

Other income 5 - 212,103 212,103

Net income 431,748 4,120,775 4,552,523

Claims and policyholder benefits 6 174,054 1,808,671 1,982,725

Less: amounts recoverable from re-insurers 4,661 (671,575) (666,914)

Net claims payable 178,715 1,137,096 1,315,811

Operating and other expenses 7 35,503 1,307,023 1,342,526

Commissions payable 1,433 698,313 699,746

Operating profit 216,097 978,343 1,194,440

Share of profit from associates 17 - 19,229 19,229

Profit before income tax 216,097 997,572 1,213,669

Income tax expense 9 (2,931) (269,508) (272,439)

Profit for the year 213,166 728,064 941,230

Attributable to:

Owners of the Company 213,166 677,443 890,609

Non- Controlling interests - 50,621 50,621

213,166 728,064 941,230

Financial Statements (cont’d)

26


Company Statement of Profit or Loss – for the year ended 31 December 2013

Notes Long term Short term Total business business 2013 Shs’000 Shs’000 Shs’000

Gross earned premiums 3 - 3,438,808 3,438,808

Less: reinsurance premium ceded - (1,502,399) (1,502,399)

Net earned premiums - 1,936,409 1,936,409

Investment income 4 - 416,801 416,801

Commissions earned - 383,453 383,453

Other income 5 - 2,456 2,456

Net income - 2,739,119 2,739,119

Claims and policyholder benefits 6 - 1,299,534 1,299,534

Less: amounts recoverable from re-insurers - (589,104) (589,104)

Net claims payable - 710,430 710,430

Operating and other expenses 7 - 936,615 936,615

Commissions payable - 380,948 380,948


Income tax expense 9 - (174,215) (174,215) Profit for the year - 536,911 536,911

Company Statement of Profit or Loss – for the year ended 31 December 2012

Notes Long term Short term Total business business 2012 (Restated) (Restated) (Restated) Shs’000 Shs’000 Shs’000

Gross earned premiums 3 1,017 3,361,544 3,362,561

Less: reinsurance premium ceded (28) (1,259,361) (1,259,389)

Net earned premiums 989 2,102,183 2,103,172

Investment income 4 424,395 599,267 1,023,662

Commissions earned 6,364 392,106 398,470

Other income 5 - 12,600 12,600

Net income 431,748 3,106,156 3,537,904

Claims and policyholder benefits 6 174,054 1,435,442 1,609,496

Less: amounts recoverable from re-insurers 4,661 (595,779) (591,118)

Net claims payable 178,715 839,663 1,018,378

Operating and other expenses 7 35,503 1,010,660 1,046,163

Commissions payable 1,433 497,914 499,347

Profit before income tax 216,097 757,919 974,016

Income tax expense 9 (2,931) (115,457) (118,388)



27


Consolidated statement of comprehensive income

Long term Short term Total Long term Short term Total

business business 2013 business business 2012

(Restated) (Restated) (Restated)

Notes Shs’000 Shs’000 Shs’000 Shs’000 Shs’000 Shs’000

Profit for the year - 733,289 733,289 213,166 728,064 941,230

Other comprehensive income net of tax:

Items that will not be reclassified to profit or loss:

- Share of other comprehensive income in associate - 6,065 6,065 - - -

- Currency translation - 11,115 11,115 - 6,711 6,711

Total other comprehensive income - 17,180 17,180 - 6,711 6,711

Total comprehensive income for the year - 750,469 750,469 213,166 734,775 947,941

Attributable to:

Owners of the Company - 665,206 665,206 213,166 681,576 894,742

Non-controlling interests - 85,263 85,263 - 53,199 53,199


Company statement of comprehensive income


business business 2013 business business 2012

(Restated) (Restated) (Restated)

Notes Shs’000 Shs’000 Shs’000 Shs’000 Shs’000 Shs’000 Profit for the year - 536,911 536,911 213,166 642,462 855,628

Other comprehensive income net of tax:

Items that will not be reclassified to profit or loss:

- Other comprehensive income - 6,067 6,067 5,629 - 5,629

Total other comprehensive income - 6,067 6,067 5,629 - 5,629



28


Consolidated statement of financial position at 31 December 2013

Notes Long term Short term Total business business 2013Capital Employed Shs’000 Shs’000 Shs’000

Share capital 11 - 500,000 500,000

Retained earnings 14 - 1,728,113 1,728,113

Statutory reserve 15 - 144,733 144,733

Currency translation reserve - (25,213) (25,213)


Total Equity - 2,722,438 2,722,438

REPRESENTED BY:

Assets

Property and equipment 18 - 121,325 121,325

Intangible assets 19 - 3,722 3,722

Investment property 20 - 247,000 247,000

Equity investments at fair value through profit or loss (quoted) 21(i) - 354,045 354,045

Equity investments at fair value through profit or loss (unquoted) 21(ii) - 156,697 156,697

Government securities at fair value through profit or loss 21(iii) - 1,614,816 1,614,816

Corporate bond and short term notes - 172,390 172,390

Investment in associates 17 - 70,042 70,042

Loans and receivables 22 - 379,889 379,889

Receivables arising out of reinsurance arrangements - 329,309 329,309

Receivables arising out of direct insurance arrangements - 734,933 734,933

Reinsurers’ share of insurance liabilities 23 - 3,745,124 3,745,124

Other receivables 25 - 340,511 340,511

Deferred acquisition costs 24 - 118,459 118,459

Current income tax - 24,684 24,684

Deferred income tax asset 33 - 65,037 65,037

Deposits with financial institutions 27 - 1,240,606 1,240,606

Cash and bank balance 37(i) - 168,885 168,885

Total assets - 9,887,474 9,887,474

Liabilities

Insurance contract liabilities 29 - 3,762,406 3,762,406

Unearned premium 32 - 2,545,845 2,545,845


Creditors arising from reinsurance arrangements - 472,820 472,820

Amounts due to related companies 34 - 45,590 45,590

Creditors arising from direct insurance arrangements - 34,616 34,616

Deferred acquisition income 24 - 76,324 76,324

Other payables 34 - 221,014 221,014

Total liabilities - 7,165,036 7,165,036

Total net assets - 2,722,438 2,722,438

The financial statements on pages 25 to 103 were approved for issue by the Board of Directors on 31 March 2014 and signed on its behalf by:

P N GETHI G R MAY J H D MILNEDirector Director Principal Officer


29



Notes Long term Short term Total business business 2012 (Restated) (Restated) (Restated)Capital Employed Shs’000 Shs’000 Shs’000Share capital 11 - 500,000 500,000


Statutory reserve 15 - 133,113 133,113

Proposed dividends - 400,000 400,000


Non controlling interests - 310,714 310,714

Total Equity - 2,593,141 2,593,141

REPRESENTED BY:

Assets












Reinsurers’ share of insurance liabilities 23 - 1,920,560 1,920,560




Deferred income tax asset 33 - 50,205 50,205

Deposits with financial institutions 27 - 1,014,266 1,014,266

Cash and bank balances 37(i) - 235,021 235,021

Total assets - 8,011,061 8,011,061

Liabilities








Other payables 34 - 252,350 252,350


Total net assets - 2,593,141 2,593,141


30



Notes Long term Short term Total business business 2011 (Restated) (Restated) (Restated)Capital Employed Shs’000 Shs’000 Shs’000Share capital 11 150,000 350,000 500,000

Retained earnings 14 (218,795) 976,787 757,992

Statutory reserve 15 273,980 160,705 434,685



Total Equity 205,185 1,755,003 1,960,188

REPRESENTED BY:

Assets

Property and equipment 18 25,186 142,012 167,198



Equity investments at fair value through profit or loss (quoted) 21(i) 249,790 366,887 616,677

Equity investments at fair value through profit or loss (unquoted) 21(ii) 29,115 198,395 227,510

Government securities at fair value through profit or loss 21(iii) 1,024,875 1,028,128 2,053,003

Corporate bond and short term notes 222,726 404,895 627,621


Loans and receivables 22 48,369 241,094 289,463



Reinsurers’ share of insurance liabilities 23 14,383 2,036,495 2,050,878

Other receivables 25 634 95,563 96,197



Deferred income tax 33 1,966 35,434 37,400

Deposits with financial institutions 27 212,316 536,518 748,834

Cash and bank balances 37(i) 9 321,406 321,415

Total assets 1,829,369 7,377,963 9,207,332

Liabilities

Insurance contract liabilities 29 45,026 2,344,514 2,389,540

Amounts payable under deposit administration contracts 31 1,648,645 - 1,648,645


Current income tax 32,978 - 32,978

Creditors arising from reinsurance arrangements 4,793 481,567 486,360


Amount (due to long-term) / from short term business (174,801) 174,801 -

Creditors arising from direct insurance arrangements 24,374 48,358 72,732


Other payables 34 13,034 139,585 152,619

Bank overdraft 37(i) 30,135 41,025 71,160

Total liabilities 1,624,184 5,622,960 7,247,144

Total net assets 205,185 1,755,003 1,960,188


31


Company statement of financial position at 31 December 2013

Notes Long term Short term Total business business 2013Capital Employed Shs’000 Shs’000 Shs’000Share capital 11 - 500,000 500,000


Total Equity - 1,785,450 1,785,450

REPRESENTED BY:

Assets




Investment in subsidiary 16 - 88,370 88,370








Reinsurers’ share of insurance liabilities 23 - 863,272 863,272

Deferred acquisition costs 24 - (281) (281)


Deferred income tax 33 - 51,518 51,518

Deposits with financial institutions 27 - 620,373 620,373


Total assets - 4,658,916 4,658,916

Liabilities





Amount due to related companies 34 - 45,590 45,590


Other payables 34 - 159,767 159,767


Total net assets - 1,785,450 1,785,450

The financial statements on pages 25 to 103 were approved for issue by the Board of Directors on 31 March 2014 and signed on its behalf by:

P N GETHI G R MAY J H D MILNEDirector Director Principal Officer


32



Notes Long term Short term Total business business 2012 (Restated) (Restated) (Restated)Capital Employed Shs’000 Shs’000 Shs’000Share capital 11 - 500,000 500,000

Retained earnings 14 - 942,472 942,472

Proposed dividend - 400,000 400,000

Total Equity - 1,842,472 1,842,472

REPRESENTED BY:

Assets












Reinsurers’ share of insurance liabilities 23 - 779,028 779,028



Deferred income tax 33 - 34,606 34,606

Deposits with financial institutions 27 - 628,298 628,298


Total assets - 4,810,836 4,810,836

Liabilities







Other payables 34 - 216,978 216,978


Total net assets - 1,842,472 1,842,472


33



Notes Long term Short term Total business business 2011 (Restated) (Restated) (Restated)Capital Employed Shs’000 Shs’000 Shs’000Share capital 11 150,000 350,000 500,000

Retained earnings 14 (218,795) 700,010 481,215

Statutory reserves 273,980 - 273,980

Total Equity 205,185 1,050,010 1,255,195

REPRESENTED BY:

Assets

Property and equipment 18 25,186 111,708 136,894




Equity investments at fair value through profit or loss (quoted) 21(i) 249,790 274,435 524,225

Equity investments at fair value through profit or loss (unquoted) 21(ii) 29,115 174,258 203,373

Government securities at fair value through profit or loss 21(iii) 1,024,875 825,009 1,849,884

Corporate bond and short term notes 222,726 182,655 405,381

Loans and receivables 22 48,369 241,094 289,463



Reinsurers’ share of insurance liabilities 23 14,383 523,898 538,281


Other receivables 25 634 129,100 129,734


Deferred income tax 33 1,966 21,444 23,410

Deposits with financial institutions 27 212,316 231,794 444,110

Cash and bank balances 37(i) 9 248,681 248,690

Total assets 1,829,369 3,821,216 5,650,585

Liabilities

Insurance contract liabilities 29 45,026 1,062,798 1,107,824

Payable under deposit administration contracts 1,648,645 - 1,648,645


Current income tax 32,978 - 32,978

Creditors arising from reinsurance arrangements 4,793 4,165 8,958


Amounts (due to general) / from longterm business (174,801) 174,801 -

Creditors arising from direct insurance arrangements 24,374 48,358 72,732

Other payables 34 13,034 90,901 103,935

Bank Overdraft 30,135 - 30,135

Total liabilities 1,624,184 2,771,206 4,395,390

Total net assets 205,185 1,050,010 1,255,195


34


Cons

olid

ated

sta

tem

ent

of c

hang

es in

equ

ity

as a

t 31

Dec

embe

r 20

13

Sh

are

Capi

tal

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luat

ion

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Janu

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as r

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ted

500

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-

182,

231

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133,

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868)

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0 31

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633,

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stm

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due

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(182

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- 14

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2013

(res

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- 65

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- 81

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Curr

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Fin

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35


Cons

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- 67

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tran

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1,50

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1 2,

246

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36


Cons

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402,

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ustm

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due

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(390

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) (1

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- 37

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ac

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recl

assi

ficat

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1 Ja

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y 20

11 (r

esta

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350

,00

0

150

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0

- -

120

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2 14

3,95

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6,0

99)

1,12

8,91

5 21

1,67

4

35,0

00

30

0,4

69

2,4

14,1

60

Profi

t for

the

year

- -

- -

- -

- 17

9,87

7 (2

76,7

31)

- 19

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(7

7,30

1)

Oth

er c

ompr

ehen

sive

inco

me:

Curr

ency

tran

slat

ion

-

- -

- -

(2,3

57)

(1,1

50)

(5,5

77)

- -

(7,0

45)

(16,

129)

Tran

sfer

to

cont

inge

ncy

rese

rve

-

- -

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19,1

03

- (1

9,10

3)

- -

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sfer

to

stat

utor

y re

serv

e

- -

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153,

738

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- (1

53,7

38)

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-

Oth

er c

ompr

ehen

sive

inco

me

-

- -

- 15

3,73

8 16

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6 (1

,150

) (2

4,6

80)

(153

,738

) -

(7,0

45)

(1

6,12

9)

Tota

l com

preh

ensi

ve in

com

e fo

r ye

ar

- -

- -

153,

738

16,7

46

(1,1

50)

155,

197

(430

,469

) -

12,5

08

(93,

430

)

Tran

sact

ions

wit

h ow

ners

:

Div

iden

ds

-

fina

l for

20

10 p

aid

-

- -

- -

- -

(27,

325)

-

- (1

8,21

7)

(45,

542)

-

inte

rim

for

2011

pai

d

- -

- -

- -

- (2

80,0

00

) -

- -

(280

,00

0)

-

fina

l for

20

10 p

aid

-

- -

- -

- -

- -

(35,

00

0)

- (3

5,0

00

)

At

31 D

ecem

ber

2011

350

,00

0

150

,00

0

- -

273,

980

16

0,7

05

(27,

249)

97

6,78

7 (2

18,7

95)

- 29

4,7

60

1,96

0,1

88

37


Company statement of changes in equity as at 31 December 2013

Notes Share Revaluation Retained Proposed Capital reserve earnings dividend Total Short term Short term Long term Short term Long term Short term Business Business Business Business Business Business Shs’000 Shs’000 Shs’000 Shs’000 Shs’000 Shs’000 Shs’000

At 1 January 2013 as previously reported 500,000 157,041 - 808,343 - 400,000 1,865,384

Adjustments due to change in accounting policy: 2 - (157,041) - 134,129 - - (22,912)

As 1 January 2013 (restated) 500,000 - - 942,472 - 400,000 1,842,472

Profit for the year - - - 536,911 - - 536,911

Other comprehensive income: - - - 6,067 - - 6,067

Other comprehensive income - - - 6,067 - - 6,067

Total comprehensive income for the year - - - 542,978 - - 542,978

Transactions with owners:

Dividends

- final 2012 paid 10 - - - - - (400,000) (400,000)

- interim for 2013 paid 10 - - - (200,000) - - (200,000)

As at 31 December 2013 500,000 - - 1,285,450 - - 1,785,450


38



Notes Share Statutory Revaluation Retained Proposed Total Capital Reserve Reserve earnings dividend Short term Long term Long term Short term Long term Short term Long term Short term Long term Business Business Business Business Business Business Business Business Business Shs’000 Shs’000 Shs’000 Shs’000 Shs’000 Shs’000 Shs’000 Shs’000 Shs’000 Shs’000

At 1 January 2012 350,000 150,000 273,980 103,038 (33,390) 734,980 2,985 - - 1,581,593

Adjustments due to change 2 - - - (103,038) 33,390 (34,970) (221,780) - - (326,398) in accounting policy: 2011

At 1 January 2012 (restated) 350,000 150,000 273,980 - - 700,010 (218,795) - - 1,255,195

Profit for the year - - - - - 642,462 213,166 - - 855,628

Other comprehensive income - - - - - - 5,629 - - 5,629

Total comprehensive - - - - - 642,462 218,795 - - 861,257 income for the year

Transfer of shares from 150,000 (150,000) - - - - - - - - long term business

Transfer through - - (273,980) - - - - - - (273,980) Business reorganisation


Dividends

- interim for 2011 paid 10 - - - - - - - - - -

- final for 2012 proposed 10 - - - - - (400,000) - 400,000 - -

As at 31 December 2012 500,000 - - - - 942,472 - 400,000 - 1,842,472


39



Share Statutory Revaluation Retained Proposed Total Capital reserve reserve earnings dividend Short term Long term Long term Long term Short term Short term Long term Long term Business Business Business Business Business Business Business Business Shs’000 Shs’000 Shs’000 Shs’000 Shs’000 Shs’000 Shs’000 Shs’000 Shs’000

At 1 January 2011 350,000 150,000 120,242 194,482 355,867 533,799 (3,530) 35,000 1,735,860

Adjustments due to change in - - - (194,482) (355,867) 370,221 215,204 - 35,076 accounting policy:

At 1 January 2011 (restated) 350,000 150,000 120,242 - - 904,020 211,674 35,000 1,770,936

Adjustments due to change in - - - - - (405,191) (436,984) - (842,175) accounting policy: 2011

Profit for the year – as reported - - - - - 481,181 160,253 - 641,434

Profit for the year – restated - - - - - 75,990 (276,731) (200,741)

Other comprehensive income

Transfer from statutory reserve - - 153,738 - - - (153,738) - -

Other comprehensive income - - 153,738 - - - (153,738) - -

Total comprehensive income for the year - - 153,738 - - 75,990 (430,469) - (200,741)


Dividends

- interim for 2010 paid - - - - - (280,000) - - (280,000)

- final for 2010 paid - - - - - - - (35,000) (35,000)

As at 31 December 2011 350,000 150,000 273,980 - - 700,010 (218,795) - 1,255,195


40


Consolidated statement of cash flows for the year ended 31 December 2013

Long term Short term Total Long term Short term Total Notes business business 2013 business business 2012 (Restated) (Restated) (Restated) Shs’000 Shs’000 Shs’000 Shs’000 Shs’000 Shs’000

Operating activities

Cash generated from operations 37(ii) - 172,711 172,711 - (83,328) (83,328)

Interest, dividend and rental income received - 566,882 566,882 - 401,562 401,562

Income tax paid - (323,402) (323,402) - (134,962) (134,962)

Net cash from operating activities - 416,191 416,191 - 183,272 183,272

Investing activities

Purchase of property, equipment 18 - (28,581) (28,581) - (25,361) (25,361) and investment property

Purchase of intangibles 19 - (2,193) (2,193) - (1,397) (1,397)

Purchase of quoted shares 21 - (24,062) (24,062) - (1,832) (1,832)

Purchase of government securities 21 - (758,225) (758,225) - (429,306) (429,306)

Purchase of investment property 20 - - - - (1,541) (1,541)

Loans advanced 22 - (180,844) (180,844) - (84,613) (84,613)

Loans repaid 22 - 70,871 70,871 - 55,791 55,791

Proceeds from disposal of property 18 - 71 71 - 6,029 6,029 and equipment

Proceeds from disposal of quoted equity securities - 1,425 1,425

Proceeds from disposal of unquoted 21(iii) - 85,358 85,358 - 238,413 238,413 equity securities

Proceeds from disposal of government securities - 945,820 945,820 - 248,000 248,000

Proceeds from disposal of investment property 20 - 55,000 55,000 - - -

Dividend received from associate - - - - 31,175 31,175

Purchase of additional shares in Strategis 17 - (26,880) (26,880)

Proceeds from sale of investment in Alliance 17 - - - - 444,469 444,469

Net investment in government securities - - - - (396,248) (396,248)

Net investment in corporate bonds and - 231,093 231,093 - 15,537 15,537 short term notes

Net cash flow in investing activities - 356,554 356,554 - 99,116 99,116

Financing activities

Transfer of shares from Long-term business - - - 150,000 150,000

Dividends paid 10 - (600,000) (600,000) - - -

Net cash used in financing activities - 160,204 160,204 - 150,000 150,000

Increase in cash and cash equivalents - 160,204 160,204 - 150,000 150,000

Movement in cash and cash equivalents

At start of the year 37(i) - 1,249,287 1,249,287 - 816,899 816,899

Increase - 160,204 160,204 - 432,388 432,388

At end of the year 37(i) - 1,409,491 1,409,491 - 1,249,287 1,249,287


41


Company statement of cash flows for the year ended 31 December 2013

Notes Long term Short term Total Long term Short term Total business business 2013 business business 2012 (Restated) (Restated) (Restated) Shs’000 Shs’000 Shs’000 Shs’000 Shs’000 Shs’000

Operating activities

Cash generated from operations 37(ii) - 116,063 116,063 - 316,161 316,161

Interest, dividend and rental income received - 363,345 363,345 - 329,777 329,777

Income tax paid - (215,091) (215,091) - (89,894) (89,894)

Net cash from operating activities - 264,317 264,317 - 556,044 556,044

Investing activities

Purchase of property, equipment 18 - (26,485) (26,485) - (17,821) (17,821) and investment property

Purchase of intangibles 19 - (2,193) (2,193) - (1,397) (1,397)

Purchase of quoted shares 21 - (1,096) (1,096) - (1,832) (1,832)

Purchase government securities 21 - (719,235) (719,235) - (429,306) (429,306)

Purchase of investment property 20 - - - - (1,541) (1,541)

Loans advanced 22 - (180,844) (180,844) - (84,613) (84,613)

Loans repaid 22 - 70,871 70,871 - 55,791 55,791

Proceeds from disposal of property - - - - 8,500 8,500 and equipment

Proceeds from disposal of equity investments - 85,358 85,358 - 238,413 238,413

Proceeds from disposal of 21(iii) - 916,288 916,288 - 248,000 248,000 government securities

Proceeds from disposal of investment 20 - 55,000 55,000 - - - Property

Net investment in government securities - - - - (395,353) (395,353)

Net investment in corporate bonds and - 26,893 26,893 - 13,010 13,010 short term notes

Net cash used in investing activities - 224,557 224,557 - (368,149) (368,149)

Financing activities

Transfer of shares from long-term Business - - - - 150,000 150,000

Dividends paid 10 - (600,000) (600,000) - - -

Net cash used in financing activities - (600,000) (600,000) - 150,000 150,000

Increase in cash and cash equivalents - (111,126) (111,126) - 337,895 337,895

Movement in cash and cash equivalents

At start of the year 37(i) - 818,372 818,372 - 480,477 480,477

Increase - (111,126) (111,126) - 337,895 337,895

At end of the year 37(i) - 707,246 707,246 - 818,372 818,372


42


1. General information

The Company is incorporated in Kenya under the Companies Act and is domiciled in Kenya. The address of its registered office is

CfC HouseMamlaka RoadPO Box 30390 - 00100Nairobi.

The Group underwrites all classes of Short-term (General) insurance risks as defined by the Insurance Act.

For Kenyan Companies Act reporting purposes, the balance sheet is represented by a statement of financial position and the profit and loss account by the statement of profit or loss in these financial statements.

2. Summary of significant accounting policiesThe principal accounting policies adopted in the preparation of these financial statements are set out below. These policies have been consistently applied to all the periods presented unless otherwise stated.

(a) Basis of preparationThe financial statements are prepared in accordance with and comply with International Financial Reporting Standards (IFRS). The financial statements are presented in the functional currency, Kenya Shillings (Shs), rounded to the nearest thousand, and prepared under the historical cost convention, as modified by the carrying of investment property and available-for-sale investments at fair value and actuarially determined liabilities at their present value.

The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgement or complexity or where assumptions and estimates are significant to the financial statements are discussed in Note 39.

Changes in accounting Policies and disclosures(i) New and amended standards adoptedThe following standards have been adopted by the Company for the first time for the financial year beginning on 1 January 2013 and none has a material impact on the Company:

Amendment to IAS 1, ‘Presentation of Financial Statements ‘ regarding other comprehensive income. The main change resulting from these amendments is a requirement for entities to group items presented in ‘other comprehensive income’

(OCI) on the basis of whether they are potentially reclassifiable to profit or loss subsequently (reclassification adjustments). The amendment only affects presentation on the face of the statement of comprehensive income.

Amendment to IFRS 7, ‘Financial instruments: Disclosures’, on asset and liability offsetting. This amendment includes new disclosures to facilitate comparison between those entities that prepare IFRS financial statements to those that prepare financial statements in accordance with US GAAP. The impact has been increased disclosure in the financial statements.

IFRS 10, ‘Consolidated Financial Statements’ builds on existing principles by identifying the concept of control as the determining factor in whether an entity should be included within the consolidated financial statements of the parent. The standard provides additional guidance to assist in the determination of control where this is difficult to assess.

IFRS 11, ‘Joint arrangements’ focuses on the rights and obligations of the parties to the arrangement rather than its legal form. There are two types of joint arrangements: joint operations and joint ventures. Joint operations arise where the investors have rights to the assets and obligations for the liabilities of an arrangement.

A joint operator accounts for its share of the assets, liabilities, revenue and expenses. Joint ventures arise where the investors have rights to the net assets of the arrangement; joint ventures are accounted for under the equity method. Proportional consolidation of joint arrangements is no longer permitted. See note 39 for the impact of adoption on the financial statements.

IFRS 12, ‘Disclosures of interests in other entities’ includes the disclosure requirements for all forms of interests in other entities, including joint arrangements, associates, structured entities and other off balance sheet vehicles. The impact of adopting IFRS 12 has been increased by disclosures in the financial statements.

IFRS 13, ‘Fair value measurement’, aims to improve consistency and reduce complexity by providing a precise definition of fair value and a single source of fair value measurement and disclosure requirements for use across IFRSs. The requirements, which are largely aligned between IFRSs and US GAAP, do not extend the use of fair value accounting but provide guidance on how it should be applied where its use is already required or permitted by other standards within IFRSs. The adoption of IFRS 13 has increased the extent of fair value disclosures in the financial statements.

Amendments to IAS 36, ‘Impairment of assets’, on the

Notes

43


Notes (cont’d)Summary of significant accounting policies (cont’d)

recoverable amount disclosures for non-financial assets. This amendment removed certain disclosures of the recoverable amount of CGUs which had been included in IAS 36 by the issue of IFRS 13. There are no other new or revised standards or interpretations issued and effective that would be expected to have a material impact on the Group.

ii) Standards, amendments and interpretations to existing standards that are not yet effective and have not been early adopted by the Company

A number of new standards and amendments to standards and interpretations are effective for annual periods beginning after 1 January 2013, and have not been applied in preparing these financial statements. None of these is expected to have a significant effect on the financial statements of the Company, except the following set out below:

IFRS 9, ‘Financial instruments’, addresses the classification, measurement and recognition of financial assets and financial liabilities. IFRS 9 was issued in November 2009 and October 2010. It replaces the parts of IAS 39 that relate to the classification and measurement of financial instruments. IFRS 9 requires financial assets to be classified into two measurement categories: those measured as at fair value and those measured at amortised cost. The determination is made at initial recognition. The classification depends on the entity’s business model for managing its financial instruments and the contractual cash flow characteristics of the instrument. For financial liabilities, the standard retains most of the IAS 39 requirements. The main change is that, in cases where the fair value option is taken for financial liabilities, the part of a fair value change due to an entity’s own credit risk is recorded in other comprehensive income rather than profit or loss, unless this creates an accounting mismatch. The Company is yet to assess IFRS 9’s full impact. The Company will also consider the impact of the remaining phases of IFRS 9 when completed by the Board

IFRIC 21, ‘Levies’, sets out the accounting for an obligation to pay a levy that is not income tax. The interpretation addresses what the obligating event is that gives rise to pay a levy and when should a liability be recognised. The Company is not currently subjected to significant levies so the impact on the Company is not material.

Annual improvements 2010-2012 and 2011-2013 cycles –

These are collections of 7 and 4 amendments to standards respectively as part of the IASB’s programme to annual improvements. The amendments are all effective for annual periods beginning on or after 1 July 2014 and the directors are currently assessing the impact of these improvements on their financial statements.

There are no other IFRSs or IFRIC interpretations that are not yet effective that would be expected to have a material impact on the Company

(iii) Change in accounting Policy for Financial assets (Restatements)

The Company changed the accounting basis of its financial assets aligning this to the Group’s accounting policies. In making the policy change the Company has taken advantage of the provisions in IFRS 4 Insurance Contracts which allow an entity to reclassify the basis of measurement of its financial instruments. Financial instruments which were previously classified as available for sale were reclassified to financial assets through profit or loss. This was done so as to match the movements in policyholder liabilities with the fair value movements in corresponding financial assets at fair value through profit or loss. The impact of this policy change has been accounted for retrospectively in line with IAS 8 Accounting policies, changes in accounting estimates and errors and is shown on the summary of adjustments below. The change in accounting policy for the Company only affects the accounting for the financial assets backing up the liabilities – there is no change in the basis of valuing liabilities.

Accordingly, with effect from 2013, the Group’s policy is to fair value all financial instruments through the Income Statement at Fair Value through Profit or Loss as opposed to where unrealised surpluses/losses we carried in the Statement of Financial Position for Available For Sale assets and held at amortised cost for Held to Maturity Assets. Management takes the view that this policy provides reliable and more relevant information because it ensures that IFRS performance reporting will better reflect the economic reality of what occurred within the reporting period in terms of changes in asset values.

The overall impact of the restatements on the profit or loss, statement of financial position and statement of comprehensive income is as follows:

44


RestatementsConsolidated statement of financial position

As previously Revaluation Restated As previously Revaluation Restated reported reserve reported reserve 31 December 31 December 31 December 31 December 2011 2011 2012 2012

Shs’ 000 Shs’ 000 Shs’ 000 Shs’ 000 Shs’ 000 Shs’ 000

Ordinary share capital 500,000 - 500,000 500,000 - 500,000Revaluation reserve 119,981 (119,981) - 182,231 (182,231) -Retained earnings 985,509 (227,517) 757,992 1,127,211 148,971 1,276,182Statutory reserve 434,685 - 434,685 133,113 - 133,113Proposed dividends - - - 400,000 - 400,000Currency translation (27,249) - (27,249) (26,868) - (26,868)Equity attributable to equity holders 2,012,926 (347,498) 1,665,428 2,315,687 (33,260) 2,282,427Non-controlling interests 308,826 (14,066) 294,760 317,613 (6,899) 310,714Total equity 2,321,752 (361,564) 1,960,188 2,633,300 (40,159) 2,593,141REPRESENTED BY: Property and equity 167,198 - 167,198 127,875 - 127,875Intangibles assets 19,413 - 19,413 4,316 - 4,316Investment property 468,253 - 468,253 261,600 - 261,600Investment in associates 364,906 - 364,906 45,047 - 45,047Quoted equity investments 616,677 - 616,677 201,029 - 201,029Unquoted equity investments 227,510 - 227,510 212,387 - 212,387Available for sale government securities 751,773 1,301,230 2,053,003 610,545 1,176,341 1,786,886Government securities held to maturity 1,598,188 (1,598,188) - (1,196,586) (1,196,586) -Corporate bond and short term notes 692,229 (64,608) 627,621 423,399 (19,915) 403,484Loans and receivables 289,463 - 289,463 269,916 - 269,916Receivable arising from reinsurance 199,216 - 199,216 198,889 - 198,889Receivable arising from direct insurance 740,012 - 740,012 630,679 - 630,679Reinsurers’ share of insurance liabilities 2,050,878 - 2,050,878 1,920,560 - 1,920,560Other receivables 96,197 - 96,197 551,819 - 551,819Deferred acquisition costs 139,124 - 139,124 95,951 - 95,951Current income tax 40,212 - 40,212 1,131 - 1,131Deferred income tax 37,400 - 37,400 50,205 - 50,205Deposits with financial institutions 748,834 - 748,834 1,014,266 - 1,014,266Cash and bank balances 321,415 - 321,415 235,021 - 235,021Total assets 9,568,898 (361,566) 9,207,332 8,051,221 (40,160) 8,011,061Insurance contract 2,389,540 - 2,389,540 2,193,927 - 2,193,927Deposit administration liabilities 1,648,645 - 1,648,645 - - -Unearned premium reserve 2,266,074 - 2,266,074 2,288,019 - 2,288,019Current income tax 32,978 - 32,978 128,930 - 128,930Deferred acquisition 79,950 - 79,950 83,574 - 83,574Creditors arising from reinsurance 486,360 - 486,360 348,780 - 348,780Due to related Companies 47,086 - 47,086 76,927 - 76,927Creditors arising from direct insurance arrangements 72,732 - 72,732 45,413 - 45,413Other payables 152,619 - 152,619 252,350 - 252,350Bank overdraft 71,160 - 71,160 - - -Total liabilities 7,247,144 - 7,247,144 5,417,920 - 5,417,920Net Assets 2,321,754 (361,566) 1,960,188 2,633,301 (40,160) 2,593,141

Notes (cont’d)Summary of significant accounting policies (cont’d)Restatements (cont’d)

45


Consolidated statement of profit or loss - summary of adjustments

31 December Revaluation 31 December 2012 gains 2012 As previously Restated reported Shs’000 Shs’000 Shs’000

Gross earned premium revenue 5,512,394 - 5,512,394

Less: Outward reinsurance (2,822,219) - (2,822,219)

Net insurance premium revenue 2,690,175 - 2,690,175

1,576,690 285,658 1,862,348

Commissions earned 600,542 - 600,542

Investment income 764,045 285,658 1,049,703

Other income 212,103 - 212,103

Total income 4,266,865 285,658 4,552,523

Claims and policyholder benefits payable 1,982,725 - 1,982,725

Amounts recoverable from reinsurers (666,914) - (666,914)

Net insurance benefits and claims 1,315,811 - 1,315,811

Total expenses and commissions 2,042,272 - 2,042,272

Commissions payable 699,746 - 699,746

Other operating expenses 1,342,526 - 1,342,526

Result of operating activities 908,782 285,658 1,194,440

Earnings from associates 19,229 19,229

Profit before income tax 928,011 285,658 1,213,669

Income tax expense (272,439) - (272,439)


Attributable to :

Owners of the parent 595,247 295,362 890,609

Non-controlling interest 60,325 (9,704) 50,621

655,572 285,658 941,230

Notes (cont’d)

Summary of significant accounting policies (cont’d)Restatements (cont’d)

46


Notes (cont’d)

Summary of significant accounting policies (cont’d)Restatements (cont’d)

Consolidated statement of comprehensive income - summary of adjustments

2012 2012 As previously Revaluation

reported reserve Restated Shs ‘000 Shs’000 Shs ‘000


Other comprehensive income/(expenses) (net of tax):

Gains / (losses) on valuation of available for sale financial assets

- quoted shares 25,163 (25,163) -

- unquoted shares 16,443 (16,443) -

- government securities 66,691 (66,691) -

Currency translation 6,743 (32) 6,711

Total comprehensive income for the year 770,612 177,329 947,941

Total comprehensive income attributable to:

Equity holders of parent 724,579 170,163 894,742

Non- controlling interest 46,033 7,166 53,199

Total comprehensive income for the year 770,612 177,329 947,941

IAS 1 requires an entity to present a statement of financial position at the beginning of the earliest comparative period when it restates its financial statements as detailed above.

47


(b) Consolidation(i) SubsidiariesSubsidiaries are all entities (including structured entities) over which the group has control. The group controls an entity when the group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the group. They are deconsolidated from the date that control ceases.

The Group applies the acquisition method of accounting to account for business combinations. The consideration transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred to the former owners of the acquiree and the equity interests issued by the Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. The Group recognises any non-controlling interest in the acquiree on an acquisition-by-acquisition basis, either at fair value or at the non-controlling interest’s proportionate share of the recognised amounts of acquiree’s identifiable net assets. Acquisition-related costs are expensed as incurred.

Investments in subsidiaries are accounted for at cost less impairment. Cost is adjusted to reflect changes in consideration arising from contingent consideration amendment. Cost also includes directly attributable cost of investment.

Inter-company transactions, balances and unrealised gains on transactions between group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.

(ii) AssociatesAssociates are all entities over which the Group has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Investments in associates are accounted for by the equity method of accounting and are initially recognised at cost.

The Group’s share of its associates’ post-acquisition profits or losses is recognised in the income statement, and its share

of post-acquisition movements in reserves is recognised in reserves. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. When the Group’s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate.

Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group’s interest in the associates. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of associates have been changed where necessary to ensure consistency with the policies adopted by the Group.

(c) Functional currency and translation of foreign currencies

(i) Functional and presentation currencyItems included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (‘the functional currency’). The consolidated financial statements are presented in Kenya Shillings thousands (Shs), except where indicated.

(ii) Transactions and balances in group entitiesForeign currency transactions are translated into the functional currency of the respective entity using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement.

Translation differences on non-monetary items, such as equities classified as available-for-sale financial assets, are included in other comprehensive income.

(iii) Consolidation of group entities The results and financial position of all the group entities (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows:

(i) assets and liabilities for each statement of financial position presented are translated at the closing rate at the date of that statement of financial position;

Notes (cont’d)

Summary of significant accounting policies (cont’d)

48


(ii) income and expenses for each income statement are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income expenses are translated at the dates of the transactions); and

(iii) all resulting exchange differences are recognised as a separate component of equity.

On consolidation, exchange differences arising from the translation of the net investment in foreign entities are taken to shareholders’ equity. When a foreign operation is sold, such exchange differences are recognised in the profit and loss account as part of the gain or loss on sale.

Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate.

(d) Insurance Contracts• ClassificationThe Group issues contracts that transfer insurance risk or financial risk or both. Insurance contracts are those contracts that transfer significant insurance risk. Such contracts may also transfer financial risk. As a general guideline, the group defines as significant insurance risk, the possibility of having to pay benefits on the occurrence of an insured event that are at least 10% more than the benefits payable if the insured event did not occur.

Investment contracts are those contracts that transfer financial risk with no significant insurance risk. See accounting policy for these contracts under 2(f).

A number of insurance and investment contracts contain a discretionary participation feature (DPF). This feature entitles the holder to receive, as a supplement to guaranteed benefits, additional benefits or bonuses:

(a) that are likely to be a significant portion of the total contractual benefits;

(b) whose amount or timing is contractually at the discretion of the Group; and

(c) that are contractually based on:

(i) the performance of a specified pool of contracts or a specified type of contract;

(ii) realised and/or unrealised investment returns on a specified pool of assets held by the Group; or

(iii) The profit or loss of the Company, fund or other

entity that issues the contract.

Insurance contracts and investment contracts are classified into two main categories, depending on the duration of risk and as per the provisions of the Insurance Act.

(i) Short term insurance businessMeans insurance business of any class or classes not being long term insurance business.

Classes of Short term Insurance include Aviation insurance, Engineering insurance, Fire insurance - domestic risks, Fire insurance - industrial and commercial risks, Liability insurance, Marine Insurance, Motor insurance - private vehicles , Motor insurance - commercial vehicles, Personal accident insurance, Theft insurance ,Workmen’s Compensation and Employer’s Liability insurance and Miscellaneous insurance (i.e. class of business not included under those listed above)

Motor insurance business means the business of affecting and carrying out contracts of insurance against loss of, or damage to, or arising out of or in connection with the use of, motor vehicles, inclusive of third party risks but exclusive of transit risks.

Personal Accident insurance business means the business of affecting and carrying out contracts of insurance against risks of the persons insured sustaining injury as the result of an accident or of an accident of a specified class or dying as the result of an accident or of an accident of a specified class or becoming incapacitated in consequence of disease or of disease of a specified class.

Fire insurance business means the business of affecting and carrying out contracts of insurance, otherwise than incidental to some other class of insurance business against loss or damage to property due to fire, explosion, storm and other occurrences customarily included among the risks insured against in the fire insurance business.

• Recognitionandmeasurementi. Premium income For short term insurance business, premium income is recognised on assumption of risks, and includes estimates of premiums due but not yet received, less an allowance for cancellations, and less unearned premium. Unearned premiums represent the proportion of the premiums written in periods up to the accounting date that relates to the unexpired terms of policies in force at the financial reporting date, and is computed using the 1/24th method. Premiums are shown before deduction of commission and are gross of any taxes or duties levied on premiums.

Notes (cont’d)


49


ii. ClaimsA liability for contractual benefits that are expected to be incurred in the future is recorded when the premiums are recognised. The liability is determined as the sum of the expected discounted value of the benefit payments and the future administration expenses that are directly related to the contract, less the expected discounted value of the theoretical premiums that would be required to meet the benefits and administration expenses based on the valuation assumptions used (the valuation premiums). The liability is based on assumptions as to mortality, persistency, maintenance expenses and investment income that are established at the time the contract is issued. A margin for adverse deviations is included in the assumptions.

Where insurance contracts have a single premium or a limited number of premium payments due over a significantly shorter period than the period during which benefits are provided, the excess of the premiums payable over the valuation premiums is deferred and recognised as income in line with the decrease of unexpired insurance risk of the contracts in-force or, for annuities in force, in line with the decrease of the amount of future benefits expected to be paid.

The liabilities are recalculated at each financial reporting date using the assumptions established at inception of the contracts.

For short term insurance business, claims incurred comprise claims paid in the year and changes in the provision for outstanding claims. Claims paid represent all payments made during the year, whether arising from events during that or earlier years. Outstanding claims represent the estimated ultimate cost of settling all claims arising from incidents occurring prior to the financial reporting date, but not settled at that date. Outstanding claims are computed on the basis of the best information available at the time the records for the year are closed, and include provisions for claims incurred but not reported (“IBNR”). Outstanding claims are not discounted.

iii. Commissions payable and deferred acquisition costs (“DAC”)

A proportion of commission’s payable is deferred and amortised over the period in which the related premium is earned. Deferred acquisition costs represent a proportion of acquisition costs that relate to policies that are in force at the year end.

iv. Liability adequacy testAt each financial reporting date, liability adequacy tests are performed to ensure the adequacy of the contract liabilities net of related DAC. In performing these tests, current best estimates of future contractual cash flows and claims handling and administration expenses, as well as investment income from the assets backing such liabilities, are used. Any deficiency is immediately charged to profit or loss initially by writing off DAC and by subsequently establishing a provision for losses arising from liability adequacy tests (the unexpired risk provision).

Long-term insurance contracts are measured based on assumptions set out at the inception of the contract. When the liability adequacy test requires the adoption of new best estimate assumptions, such assumptions (without margins for adverse deviation) are used for the subsequent measurement of these liabilities.

v. Reinsurance contracts held

Contracts entered into by the Group with reinsurers under which the Group is compensated for losses on one or more contracts issued by the Group and that meet the classification requirements for insurance contracts are classified as reinsurance contracts held. Contracts that do not meet these classification requirements are classified as financial assets. Insurance contracts entered into by the Group under which the contract holder is another insurer (inwards reinsurance) are included with insurance contracts.

The benefits to which the Group is entitled under its reinsurance contracts held are recognised as reinsurance assets. These assets consist of short-term balances due from reinsurers, as well as longer term receivables that are dependent on the expected claims and benefits arising under the related reinsured insurance contracts. Amounts recoverable from or due to reinsurers are measured consistently with the amounts associated with the reinsured insurance contracts and in accordance with the terms of each reinsurance contract. Reinsurance liabilities are primarily premiums payable for reinsurance contracts and are recognised as an expense when due.

The Group assesses its reinsurance assets for impairment on a quarterly basis. If there is objective evidence that the reinsurance asset is impaired, the Group reduces the carrying amount of the reinsurance asset to its recoverable amount and recognises that impairment loss in the income statement. The Group gathers the objective evidence that a reinsurance asset is impaired using the same process adopted for financial assets held at amortised cost. The impairment loss

Notes (cont’d)


50


is also calculated following the same method used for these financial assets. These processes are described in Note 2 (k).

vi. Receivables and payables related to insurance contracts and investment contracts

Receivables and payables are recognised when due. These include amounts due to and from agents, brokers and insurance contract holders.

If there is objective evidence that the insurance receivable is impaired, the Group reduces the carrying amount of the insurance receivable accordingly and recognises that impairment loss in profit or loss. The processes followed by the Group in assessing impairment of these receivables are described in Note 2 (k)

vii. Salvage and subrogation reimbursementsSome insurance contracts permit the Group to sell (usually damaged) property acquired in settling a claim (for example, salvage). The Group may also have the right to pursue third parties for payment of some or all costs (for example, subrogation).

Estimates of salvage recoveries are included as an allowance in the measurement of the insurance liability for claims, and salvage property is recognised in other assets when the liability is settled. The allowance is the amount that can reasonably be recovered from the disposal of the property.

Subrogation reimbursements are also considered as an allowance in the measurement of the insurance liability for claims and are recognised in other assets when the liability is settled. The allowance is the assessment of the amount that can be recovered from the action against the liable third party.

(e) Other income recognitionCommissions receivable are recognised as income in the period in which they are earned.

Investment income is stated net of investment expenses. Interest income is recognised on a time proportion basis that takes into account the effective yield on the asset. Dividends are recognised as income in the period in which the right to receive payment is established. Rental income is recognised as income in the period in which it is earned.

(f) Investment contractsThe Group issues investment contracts without fixed terms (unit-linked) and investment contracts with fixed and guaranteed terms (fixed interest rate). The investment contracts include funds administered for a number of retirement benefit schemes.

Investment contracts without fixed terms are financial liabilities whose fair value is dependent on the fair value of underlying financial assets, derivatives and/or investment property (these contracts are also known as unit-linked investment contracts) and are designated at inception as at fair value through profit or loss. The Group designates these investment contracts to be measured at fair value through profit or loss because it eliminates or significantly reduces a measurement or recognition inconsistency (sometimes referred to as ‘an accounting mismatch’) that would otherwise arise from measuring assets or liabilities or recognising the gains and losses on them on different bases. See Note 2 (j) for the financial assets backing these liabilities.

The best evidence of the fair value of these financial liabilities at initial recognition is the transaction price (i.e. the fair value received) unless the fair value of that instrument is evidenced by comparison with other observable current market transactions in the same instrument or based on a valuation technique whose variables include only data from observable markets. When such evidence exists, the Group recognises profit on day 1. The Group has not recognised any profit on initial measurement of these investment contracts because the difference is attributed to the prepayment liability recognised for the future investment management services that the Group will render to each contract holder.

The Group’s main valuation techniques incorporate all factors that market participants would consider and make maximum use of observable market data. The fair value of financial liabilities for investment contracts without fixed terms is determined using the current unit values in which the contractual benefits are denominated. These unit values reflect the fair values of the financial assets contained within the Group’s unitised investment funds linked to the financial liability. The fair value of the financial liabilities is obtained by multiplying the number of units attributed to each contract holder at the balance sheet date by the unit value for the same date.

When the investment contract has an embedded put or surrender option, the fair value of the financial liability is never less than the amount payable on surrender, discounted for the required notice period, where applicable.

For investment contracts with fixed and guaranteed terms, the amortised cost basis is used. In this case, the liability is initially measured at its fair value less transaction costs that are incremental and directly attributable to the acquisition or issue of the contract.

Notes (cont’d)


51


Subsequent measurement of investment contracts at amortised cost uses the effective interest method. This method requires the determination of an interest rate (the effective interest rate) that exactly discounts to the net carrying amount of the financial liability, the estimated future cash payments or receipts through the expected life of the financial instrument or, when appropriate, a shorter period if the holder has the option to redeem the instrument earlier than maturity.

The Group re-estimates at each reporting date the expected future cash flows and recalculates the carrying amount of the financial liability by computing the present value of estimated future cash flows using the financial liability’s original effective interest rate. Any adjustment is immediately recognised as income or expense in profit or loss.

(g) Property and equipmentAll property and equipment are initially recorded at cost. All property and equipment is stated at historical cost less depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items.

Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the income statement during the financial period in which they are incurred.

Freehold land is not depreciated. Depreciation is calculated on other property and equipment on the straight line basis to write down the cost of each asset, to its residual value over its estimated useful life as follows:

Buildings 25 - 50 yearsEquipment and motor vehicles 3 - 10 years

Asset residual values and their estimated useful lives are reviewed at each financial reporting date and adjusted if appropriate. Where the carrying amount of an asset is greater than its estimated recoverable amount, it is written down immediately to its recoverable amount.

Gains and losses on disposal of property, plant and equipment are determined by reference to their carrying amounts and are included in the income statement.

(h) Intangible assetsIntangible assets relate to computer software.

Acquired computer software licences are capitalised on the basis of the costs incurred to acquire and bring to use

the specific software. These costs are amortised over their estimated useful lives (3 - 5 years). Costs associated with developing or maintaining computer software programmes are recognised as an expense as incurred. Costs that are directly associated with the production of identifiable and unique software products controlled by the Group, and that will probably generate economic benefits exceeding costs beyond one year, are recognised as intangible assets. Direct costs include the software development employee costs and an appropriate portion of relevant overheads.

Computer software development costs recognised as assets are amortised over their estimated useful lives (not exceeding three years). Intangible assets comprise capitalised software costs. Acquired computer software licenses are capitalized on the basis of the costs incurred to acquire and bring to use the specific software. These costs are amortised over their estimated useful lives (three to five years). Costs associated with developing or maintaining computer software programmes are recognised as an expense as incurred. Costs that are directly associated with the production of identifiable and unique software products controlled by the Group, and that will probably generate economic benefits exceeding costs beyond one year, are recognised as intangible assets. Direct costs include the software development employee costs and an appropriate portion of relevant overheads. Computer software development costs recognised as assets are amortised over their estimated useful lives.

(i) Investment property Buildings, or part of a building, (freehold or held under a finance lease) and land (freehold or held under an operating lease) held for long term rental yields and/or capital appreciation and are not occupied by any company in the group are classified as investment property under non-current assets. Investment property is carried at fair value, representing open market value determined annually by external valuers. Changes in fair values are included in investment income in the profit and loss account.

The Group reclassifies investment property to Property, Plant and Equipment (PPE) upon change in use of the building from commercial to owner-occupied.

(j) Financial assetsThe Group classifies its financial assets into the following categories: financial assets at fair value through profit or loss; and loans and receivables. Management determines the appropriate classification of its financial assets at initial recognition and re-evaluates such designation at every reporting date.

Notes (cont’d)


52


(i) Financial assets at fair value through profit or lossThis category has two sub-categories: financial assets held for trading, and those designated at fair value through profit or loss at inception. A financial asset is classified as held for trading if acquired principally for the purpose of selling in the short term. Derivatives are also categorised as held for trading. Financial assets are designated at fair value through profit or loss when:

- doing so significantly reduces or eliminates a measurement inconsistency; or

- they form part of a Group of financial assets that is managed and evaluated on a fair value basis in accordance with a documented risk management or investment strategy and reported to key management personnel on that basis.

(ii) Loans and receivablesLoans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market, other than: (a) those classified as held for trading and those that the Group on initial recognition designates as at fair value through profit and loss; (b) those that the Group upon initial recognition designates as available-for-sale; or (c) those for which the holder may not recover substantially all of its initial investment, other than because of credit deterioration.

Regular way purchases and sales of financial assets at fair value through profit or loss are recognised on trade-date – the date on which the Group commits to purchase or sell the asset.

Financial assets are initially recognised at fair value plus, for all financial assets except those carried at fair value through profit or loss, transaction costs. Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or where the Group has transferred substantially all risks and rewards of ownership.

Loans, advances and receivables financial assets are carried at amortised cost using the effective interest method. Financial assets at fair value through profit or loss are carried at fair value. Gains and losses arising from changes in the fair value of ‘financial assets at fair value through profit or loss’ are included in the profit or loss Statement in the period in which they arise. Gains and losses arising from changes in the fair value of financial assets are recognised directly in equity until the financial asset is derecognised or impaired, at which time the cumulative gain or loss previously recognised in equity is recognised in the income statement. However, interest calculated using the effective interest method is recognised

in the income statement.

Dividends on equity instruments are recognised in the Profit or Loss Statement when the Group’s right to receive payment is established.

Fair values of quoted investments in active markets are based on current bid prices. Fair values for unlisted equity securities are estimated using valuation techniques. These include the use of recent arm’s length transactions, discounted cash flow analysis and other valuation techniques commonly used by market participants. Equity securities for which fair values cannot be measured reliably are recognised at cost less impairment.

(k) Impairment of financial assets The Group assesses at each financial reporting date whether there is objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after initial recognition of the asset (a ‘loss event’) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. Objective evidence that a financial asset or group of assets is impaired includes observable data that comes to the attention of the Group about the following loss events:

a) significant financial difficulty of the borrower;b) a breach of contract, such as default or delinquency in

interest or principal repayments;c) the Group granting to the borrower, for economic or legal

reasons relating to the borrower’s financial difficulty, a concession that the Company would not otherwise consider;

d) it becoming probable that the borrower will enter bankruptcy or other financial reorganisation;

e) the disappearance of an active market for that financial asset because of financial difficulties; or

f) observable data indicating that there is a measurable decrease in the estimated future cash flows from a group of financial assets since the initial recognition of those assets, although the decrease cannot yet be identified with the individual financial assets in the group, including:

- adverse changes in the payment status of borrowers in the Group; or

- National or local economic conditions that correlate with defaults on the assets in the Group.

Notes (cont’d)


53


The estimated period between a loss occurring and its identification is determined by management for each identified portfolio

(i) Assets carried at amortised cost The Group assesses whether objective evidence of impairment exists individually for financial assets.

If there is objective evidence that an impairment loss on financial assets carried at amortised cost has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial instrument’s original effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognised in the income statement. If a loan or held-to-maturity asset has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract. As a practical expedient, the Group may measure impairment on the basis of an instrument’s fair value using an observable market price.

The calculation of the present value of the estimated future cash flows of a collateralised financial asset reflects the cash flows that may result from foreclosure less costs for obtaining and selling the collateral, whether or not foreclosure is probable.

When a loan is uncollectible, it is written off against the related provision for loan impairment. Such loans are written off after all the necessary procedures have been completed and the amount of the loss has been determined. Subsequent recoveries of amounts previously written off decrease the amount of the provision for loan impairment in the income statement.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised (such as an improvement in the debtor’s credit rating), the previously recognised impairment loss is reversed by adjusting the allowance account. The amount of the reversal is recognised in the income statement.

(ii) Renegotiated loansLoans that are either subject to collective impairment assessment or individually significant and whose terms have been renegotiated are no longer considered to be past due but are treated as new loans. In subsequent years, the renegotiated terms apply in determining whether the asset is considered to be past due.

(l) Cash and cash equivalentsCash and cash equivalents are carried in the date of financial reporting at amortised cost. For the purposes of the cash flow statement, cash and cash equivalents comprise cash on hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less, and bank overdrafts.

(m) LeasesLeases of assets where a significant proportion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases are charged to income on a straight-line basis over the period of the lease.

(n) Employee benefits (i) Retirement benefit obligationsThe Group operates a defined contribution retirement benefit scheme for its employees.

A defined contribution plan is a pension plan under which the Group companies pay fixed contributions into a separate entity. The Group has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods.

The assets of all schemes are held in separate trustee administered funds, which are funded by contributions from both the Group and employees. The Group and all its employees also contribute to the appropriate national Social Security Fund, which are defined contribution schemes. The Group’s contributions to the defined contribution schemes are charged to profit or loss in the year to which they relate.

(ii) Other entitlements.

Employee entitlements to long service awards are recognised when they accrue to employees. A provision is made for the estimated liability for such entitlements as a result of services rendered by employees up to the date of financial reporting.

The estimated monetary liability for employees’ accrued annual leave entitlement at the financial reporting date is recognised as an expense accrual.

(o) Income tax expenseIncome tax expense is the aggregate of the charge to the income statement in respect of current income tax and deferred income tax.

Current income tax is the amount of income tax payable on the taxable profit for the period determined in accordance with the relevant tax legislation.

Notes (cont’d)


54


Deferred income tax is provided in full, using the liability method, on all temporary differences arising between the tax bases of assets and liabilities and their carrying values for financial reporting purposes. However, if the deferred income tax arises from the initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit nor loss, it is not accounted for. Deferred income tax is determined using tax rates and laws that have been enacted or substantively enacted at the financial reporting date and are expected to apply when the related deferred income tax liability is settled.

Deferred income tax assets are recognised only to the extent that it is probable that future taxable profits will be available against which the temporary differences can be utilised.

Deferred income tax is provided on temporary differences arising on investments in subsidiaries and associates, except where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future.

(p) DividendsDividends payable to the Group’s shareholders are charged to equity in the period in which they are declared. Proposed dividends are shown as a separate component of equity until declared.

(q) ComparativesWhere necessary, comparative figures have been adjusted to conform to changes to presentation in the current year.

3. Gross earned premiums

The premium income of the Group and Company can be analysed between the main classes of business as shown below:

Group 2013 2012 Shs’000 Shs’000Short term insurance business:

Motor 1,181,519 1,269,246

Fire 1,546,051 1,523,389

Personal accident 800,159 1,663,237

Other 2,245,870 1,055,505

5,773,599 5,511,377

Long term business:

Group Life - 1,017

5,773,599 5,512,394

Company 2013 2012 Shs’000 Shs’000Short term insurance business:

Motor 830,772 982,964

Fire 451,100 442,029

Personal accident 284,291 1,203,616

Others 1,872,645 732,935

3,438,808 3,361,544

Long term business:

Group Life - 1,017

3,438,808 3,362,561

Notes (cont’d)


55


4. Investment income

Group Long term Short term Total Long term Short term Total business business 2013 business business 2012 (Restated) (Restated) (Restated) Shs’000 Shs’000 Shs’000 Shs’000 Shs’000 Shs’000

Interest from government securities - 186,440 186,440 129,179 166,158 295,337

Bank deposit interest - 117,740 117,740 36,062 96,777 132,839

Interest from corporate bonds and commercial paper - 45,774 45,774 16,126 49,890 66,016

Loan interest receivable - 34,785 34,785 4,136 30,143 34,279

Rental income from investment property - 8,200 8,200 2,728 20,634 23,362

Fair value gains on investment property (Note 20) - 40,400 40,400 22,459 23,347 45,806

Dividends receivable from equity investments - 20,932 20,932 3,113 37,960 41,073

Realised gains on sale of financial assets - 153,011 153,011 70,444 71,377 141,821

Impairment provision on investment in associate - 5,199 5,199 - (12,341) (12,341)

Fair value gains recognised in profit or loss - 30,748 30,748 140,148 141,363 281,511

Total investment income - 643,229 643,229 424,395 625,308 1,049,703

Company Long term Short term Total Long term Short term Total Business Business 2013 Business Business 2012 (Restated) (Restated) (Restated) Shs’000 Shs’000 Shs’000 Shs’000 Shs’000 Shs’000

Interest from government securities - 154,444 154,444 129,179 139,008 268,187

Bank deposit interest - 63,960 63,960 36,062 60,947 97,009

Interest from corporate bonds and commercial paper - 22,467 22,467 16,126 23,686 39,812

Loan interest receivable - 34,785 34,785 4,136 30,143 34,279

Rental income from investment property - 708 708 2,728 8,042 10,770

Fair value gains on investment property (Note 20) - 22,000 22,000 22,459 24,447 46,906

Dividends receivable from equity investments - 39,688 39,688 3,113 75,993 79,106

Realised gains on sale of financial assets - 30,748 30,748 70,444 71,377 141,821

Fair value gains recognised in profit or loss - 48,001 48,001 140,148 165,624 305,772

Total investment income - 416,801 416,801 424,395 599,267 1,023,662

The financial assets were revalued through the statement of profit or loss following the change in accounting policy as disclosed on page 44.

Notes (cont’d)

56


5. Other income

Group Long term Short term Total Long term Short term Total business business 2013 business business 2012 Shs’000 Shs’000 Shs’000 Shs’000 Shs’000 Shs’000

Gain on disposal of property and equipment - 13 13 - 8,925 8,925

Profit from Kenya Motor Insurance Pool - 2,443 2,443 - 960 960

Profit on disposal of Associate - Alliance Insurance (Note 17) - - - - 197,712 197,712

Foreign exchange gain - 5,744 5,744 - - -

Other - 374 374 - 4,506 4,506

- 8,574 8,574 - 212,103 212,103

Company Long term Short term Total Long term Short term Total business business 2013 business business 2012 Shs’000 Shs’000 Shs’000 Shs’000 Shs’000 Shs’000

Gains on disposal of property and equipment - 13 13 - 7,134 7,134

Profit from Kenya Motor Insurance Pool - 2,443 2,443 - 960 960

Other - - - - 4,506 4,506

- 2,456 2,456 - 12,600 12,600

Notes (cont’d)

57


6. Claims and policyholder benefits payable

Group 2013 2012 Shs’000 Shs’000

i) Short term business

Claims payable by principal class of business:

- Motor 590,576 609,943

- Fire 4,795,523 7,257

- Personal accident 82,222 779,218

- Other 995,027 412,253

6,463,348 1,808,671

ii) Long term business

Insurance contracts with fixed and guaranteed terms - (1,005)

- death, maturity and surrender benefits

Interest payable on deposit administration contracts - 175,059

- 174,054

Total claims and policyholder benefits 6,463,348 1,982,725

Company 2013 2012

Shs’000 Shs’000

iii) Short term business

Claims payable by principal class of business:

- Motor 409,735 428,479

- Fire 23,141 190,480

- Personal accident 60,330 752,898

- Other 806,328 63,585

1,299,534 1,435,442

iv) Long term business

Insurance contracts with fixed and guaranteed terms

- death, maturity and surrender benefits - (1,005)

Interest payable on deposit administration contracts - 175,059

- 174,054

Total claims and policyholder benefits 1,299,534 1,609,496

Notes (cont’d)

58


7. Operating and other expenses


Employee benefits expense (note 8) - 711,425 711,425 12,154 696,497 708,651

Auditors’ remuneration - 10,620 10,620 1,943 9,440 11,383

Depreciation (note 18) - 39,293 39,293 397 42,393 42,790

Amortisation of intangible assets (note 19) - 2,787 2,787 - 16,472 16,472

Impairment charge for doubtful receivables - 9,646 9,646 - 58,334 58,334

Operating lease rentals - land and buildings - 82,203 82,203 4,753 74,951 79,704

Repairs and maintenance expenditure - 26,259 26,259 486 36,237 36,723

Other - 353,826 353,826 15,770 372,699 388,469

- 1,236,059 1,236,059 35,503 1,307,023 1,342,526


Employee benefits expense (note 8) - 568,693 568,693 12,154 573,223 585,377

Auditors’ remuneration - 3,373 3,373 1,943 4,797 6,740

Depreciation (note 18) - 32,033 32,033 397 31,006 31,403

Amortisation of intangible assets (note 19) - 2,514 2,514 - 2,079 2,079

Impairment charge for doubtful receivables - 9,646 9,646 - 50,906 50,906

Operating lease rentals - land and buildings - 67,290 67,290 4,753 51,482 56,235

Repairs and maintenance expenditure - 23,590 23,590 486 33,248 33,734

Other - 229,476 229,476 15,770 263,919 279,689

- 936,615 936,615 35,503 1,010,660 1,046,163

Notes (cont’d)

59


8. Employee benefits expense


Employee benefit expense includes the following:

- salaries and wages - 477,115 477,115 15,327 408,025 423,352

- social security benefit costs - 46,373 46,373 - 41,618 41,618

- retirement benefit costs (defined contribution scheme) - 464 464 - 18,752 18,752

Other - 187,473 187,473 (3,173) 228,102 224,929

- 711,425 711,425 12,154 696,497 708,651

The number of persons employed by the Group at the end of the year was 228 (2012:220).


Employee benefit expense includes the following:

- salaries and wages - 344,395 344,395 15,327 293,987 309,314

- social security benefit costs - 36,361 36,361 - 32,382 32,382

- retirement benefit costs (defined contribution scheme) - 464 464 - 18,752 18,752

Other - 187,473 187,473 (3,173) 228,102 224,929

- 568,693 568,693 12,154 573,223 585,377

The number of persons employed by the Company at the end of the year was 173 (2012:165).

Notes (cont’d)

60


9. Income tax expense

Group Long term Short term Total Long term Short term Total Business Business 2013 Business Business 2012 Shs’000 Shs’000 Shs’000 Shs’000 Shs’000 Shs’000

Current income tax - 168,818 168,818 965 302,973 303,938Deferred income tax (Note 33) - 3,862 3,862 1,966 (33,465) (31,499)

- 172,680 172,680 2,931 269,508 272,439

The Group’s and Company’s current tax charge is computed in accordance with income tax rules applicable to composite insurance companies. A reconciliation of the tax charge is shown below:


Profit before income tax - 905,969 905,969 216,097 997,572 1,213,669

Tax calculated at a tax rate of 30% - 271,791 271,791 64,829 299,272 364,101Tax effect of: The difference between transfer from Long - - - (64,829) - (64,829) term business and accounting profitIncome not subject to tax - (140,324) (140,324) - (112,899) (112,899)Share of profits of associates - 2,216 2,216 - 75,478 75,478Expenses not deductible for tax purposes - 38,997 38,997 2,931 7,657 10,588 Income tax charge - 172,680 172,680 2,931 269,508 272,439

Company Long term Short term Total Long term Short term Total Business Business 2013 Business Business 2012 Shs’000 Shs’000 Shs’000 Shs’000 Shs’000 Shs’000

Current income tax - 172,433 172,433 965 147,313 148,278Deferred income tax (Note 33) - 1,782 1,782 1,966 (31,856) (29,890)

174,215 174,215 2,931 115,457 118,388

The Company’s current tax charge is computed in accordance with income tax rules applicable to composite Kenyan insurance companies. A reconciliation of the tax charge is shown below:

Long term Short term Total Long term Short term Total business business 2013 business business 2012 Shs’000 Shs’000 Shs’000 Shs’000 Shs’000 Shs’000

Profit before income tax - 711,126 711,126 216,097 757,919 974,016

Tax calculated at a tax rate of 30% - 213,338 213,338 64,829 227,376 292,205

Tax effect of:

The difference between transfer from Long - - - (64,829) - (64,829) term business and accounting profit

Income not subject to tax - (63,980) (63,980) - (120,508) (120,508)

Expenses not deductible for tax purposes - 24,857 24,857 2,931 8,589 11,520

Tax charge - 174,215 174,215 2,931 115,457 118,388

There was no tax charge relating to components of other comprehensive income

Notes (cont’d)

61


10. Dividends

Proposed dividends are accounted for as a separate component of equity until they have been ratified at an annual general meeting. The Directors proposed and paid an interim dividend of Shs 8 (2012: Shs 16) per share, amounting to a total of Shs 200 Million (2012: Final: Shs 400 Million).

11. Share capital

The total authorised number of ordinary shares is 25 Million with a par value of Shs 20 per share. At 31 December 2013, 25 Million ordinary shares were in issue (2012: 25 Million ordinary shares).All issued shares are fully paid.

Group and Company Long term Short term Total Long term Short term Total business business 2013 business business 2012 Shs’000 Shs’000 Shs’000 Shs’000 Shs’000 Shs’000

At start of the year - 500,000 500,000 150,000 350,000 500,000

Transfer through Business re-organisation - - - (150,000) 150,000 -

As at end of the year - 500,000 500,000 - 500,000 500,000

12. Transfer of statutory reserve

The transfer from revaluation reserve relates to the accumulated fair value movement in financial instrument through the profit or loss account in line with the group accounting policy.

13. Change in accounting policy - Revaluation reserve and fair value reserve

The Company and Group adopted group’s accounting policy on the financials. Some of the financial assets have consequently been fair valued through the profit or loss statement.

14 Retained earnings

The retained earnings balance represents the amount available for dividend distribution to the shareholders of the Company, except for cumulative fair value gains on the Company’s investment properties of Shs 158.7 Million (2012: 136.7 Million) whose distribution is subject to restrictions imposed by the Kenyan Insurance Act.

15. Statutory reserve

Statutory reserve comprises:

Group Long term Short term Total Long term Short term Total business business 2013 business business 2012 Shs’000 Shs’000 Shs’000 Shs’000 Shs’000 Shs’000Statutory reserve – Kenya (i) - - - 273,980 - 273,980

Contingency reserve – Tanzania (ii) - 144,733 144,733 - 133,113 133,113

Transfer through re-organisation - - - (273,980) - (273,980)

- 144,733 144,733 - 133,113 133,113

CompanyStatutory reserve – Kenya (i) - - - 273,980 - 273,980

Transfer through re-organisation - - - (273,980) - (273,980)

Statutory reserve – Kenya (i) - - - - - -

Notes (cont’d)

62


i) Movements in the statutory reserves are shown in the statement of changes in equity on pages 35 to 40. The nature and purpose of each of the reserves is as follows:

The Tanzania subsidiary is required to maintain a capital reserve in accordance with the Tanzania Insurance Act. Amounts appropriated to the capital reserve are calculated at 20% of the after tax profit of the subsidiary, accumulated on an annual basis.

ii) A contingency reserve is maintained by the Tanzania subsidiary as required by the Tanzania Insurance Act. The reserve is calculated annually as the greater of 3% of net written premium or 20% of the net profit. This reserve shall accumulate until it reaches the minimum paid-up share capital or 50% of the net premiums, whichever is greater.

16. Investment in subsidiary

The Company had the following subsidiaries at 31 December 2013

Name Country of Nature of Proportion Proportion Proportion Proportion incorporation business of ordinary of ordinary of ordinary of prefere- and place shares directly shares held share held nce shares of business held by the by the by held by the parent (%) group (%) non-controlling group (%) interests (%)

The Heritage Insurance Company (T) Limited Tanzania Insurance 60% 60% 40% -

Azali Limited Kenya Property 100% 100% - - Ownership

All subsidiary undertakings are included in the consolidation. The proportion of the voting rights in the subsidiary undertakings held directly by the parent company do not differ from the proportion of ordinary shares held. The parent company further does not have any shareholdings in the preference shares of subsidiary undertakings included in the group.


Investment in The Heritage Insurance - 82,721 82,721 - 82,721 82,721

Company (T) Limited (60%)

Investment in Azali Limited (100%) - 5,649 5,649 - 5,649 5,649

- 88,370 88,370 - 88,370 88,370

17. Investment in associates

Set out below are the associates of the group as at 31 December 2013, which, in the opinion of the directors, are material to the group. The associates as listed below have share capital consisting solely of ordinary shares, which are held directly by the group; the country of incorporation or registration is also their principal place of business.

Nature of investment in associates - 2013 and 2012

Name of Entity Place of business / % of Nature of the Measurement country of ownership relationship method incorporation interest

2013

Strategis Insurance Company (Tanzania) Limited Tanzania 43.04% Note (i) Equity

2012

Strategis Insurance Company (Tanzania) Limited Tanzania 39.18% Note (i) Equity

Alliance Insurance Corporation Limited Tanzania 45% Note (ii) EquityNote (i) Strategis Insurance Company Limited provides group health insurance plans for the Tanzanian Industry to cover their employees and their dependants

Note (ii) Alliance Insurance Corporation Limited provides General Insurance business in the Tanzanian Industry. This was disposed off in 2012.

Notes (cont’d)

Statutory reserve (cont’d)

63


Group Strategis Alliance Strategis Alliance Insurance Insurance Insurance Insurance Company Corp. Total Company Corp. Total (Tanzania) Limited Limited 2013 (Tanzania) Limited Limited 2012 Shs’000 Shs’000 Shs’000 Shs’000 Shs’000 Shs’000

At start of the year 45,047 - 45,047 73,848 291,058 364,906

Share of prior year adjustment - - - 424 (3,372) (2,948)

Share of other comprehensive income 5,528 - 5,528 318 17,620 17,938

Exchange differences (26) - (26) 231 902 1,133

Provision for impairment - - - (12,402) - (12,402)

Disposal of investment in Alliance Insurance - - - - (311,787) (311,787)

Share of post acquisition (loss)/ profit (7,387) - (7,387) (17,372) 36,601 19,229

Additions – Strategies Shares 26,880 - 26,880 - - -

Dividend received - - - - (31,022) (31,022)

At end of the year 70,042 - 70,042 45,047 - 45,047

The Group concluded the disposal of its interest (indirect through Heritage Insurance Tanzania Limited) in Alliance Insurance Corporation Tanzania Limited in December 2012. Regulatory approval was granted by the Commissioner, Tanzania Insurance Regulatory Authority (TIRA) on 21 December 2012. The realized gain was as follows:

2013 2012 Shs’000 Shs’000

Investment in Alliance Insurance Corporation Limited as at 1 January 2012 - 280,123

Share of loss after tax - (30,312)

Dividend received - 35,763

Realised fair value reserve - (47,044)

Proceeds on disposal of shares - (440,508)

Currency adjustment - 4,266 - (197,712)

The Group`s interests in the associate, which is unlisted,is as follows:

Assets Liabilities Revenue Loss % Interest Loss on % held interest held Shs’000 Shs’000 Shs’000 Shs’000 Shs’000

Strategis Insurance (Tanzania) Limited 197,674 96,668 179,664 (17, 163) 43% (7,387)

Total at end of 2013 197,674 96,668 179,664 (17,163) (7,387)

Strategis Insurance (Tanzania) Limited 416,088 260,898 279,221 (31,499) 39% (12,341)

Total at end of 2012 416,088 260,898 279,221 (31,499) (12,341)

Notes (cont’d)

Investment in associate (cont’d)

64


18. Property and equipment

Short term business Long term business Total Buildings Motor Fittings & Short term Buildings Fittings & Long term vehicles equipment Total equipment TotalYear ended 31 December 2013: Shs’000 Shs’000 Shs’000 Shs’000 Shs’000 Shs’000 Shs’000 Shs’000

Cost or valuation

At start of the year 18,894 42,707 307,225 368,826 - - - 368,826

Additions - - 28,583 28,583 - - - 28,583

Fair value gains 4,260 - - 4,260 - - - 4,260

Currency translation - 37 16 53 - - - 53

Disposal - - (2,561) (2,561) - - - (2,561)

At end of the year 23,154 42,744 333,263 399,161 - - - 399,161

Depreciation

At start of the year - 29,723 211,228 240,951 - - - 240,951

Charge for the year - 5,500 33,793 39,293 - - - 39,293

On disposal - - (2,560) (2,560) - - - (2,560)


At end of the year - 35,249 242,587 277,836 - - - 277,836

Net book amount at 23,154 7,495 90,676 121,325 - - 121,325 31 December 2013

Equipment with a cost of Shs 118,212,426 (2012 – Shs 107,875,975) was fully depreciated as at 31 December 2013.

The notional depreciation charge in respect of this equipment amounts to Shs. 17,823,251 (2012 – Shs 15,886,598)

Notes (cont’d)

65


Group Short term business Long term business Total Buildings Motor Fittings & Short term Buildings Fittings & Long term vehicles equipment Total equipment TotalYear ended 31 December 2012: Shs’000 Shs’000 Shs’000 Shs’000 Shs’000 Shs’000 Shs’000 Shs’000

Cost or valuation

At start of the year 14,170 64,805 288,192 367,167 25,322 4,908 30,230 397,397

Additions - 1,254 24,107 25,361 - - 25,361

Fair value gains 4,724 - - 4,724 - - 4,724

Currency translation - 65 200 265 - - 265

Disposal - (23,417) (5,274) (28,691) - - (28,691)

Transfer through business - - - - (25,322) (4,908) (30,230) (30,230) reorganisation

At end of the year 18,894 42,707 307,225 368,826 - - - 368,826

Depreciation

At start of the year - 45,520 179,635 225,155 857 4,187 5,044 230,199

Charge for the year - 6,205 36,188 42,393 216 181 397 42,790

On disposal - (22,051) (4,814) (26,865) - - - (26,865)


Transfer through business - - - - (1,073) (4,368) (5,441) (5,441) reorganisation

At end of the year - 29,723 211,228 240,951 - - - 240,951

Net book amount at 18,894 12,984 95,997 127,875 - - - 127,875 31 December 2012

Company

Short term Business Long term Business

Motor Fittings & Short term Buildings Fittings & Long term Total

vehicles equipment Total equipment Total

Year ended 31 December 2013: Shs’000 Shs’000 Shs’000 Shs’000 Shs’000 Shs’000 Shs’000

Cost

At start of the year 12,832 301,169 314,001 - - - 314,001

Additions - 26,485 26,485 - - - 26,485

Disposals - (1,753) (1,753) - - - (1,753)

At end of the year 12,832 325,901 338,733 - - - 338,733

Depreciation

At start of the year 3,757 213,087 216,844 - - - 216,844

Charge for the year 2,914 29,119 32,033 - - - 32,033

Disposals - (1,753) (1,753) - - - (1,753)

At end of the year 6,671 240,453 247,124 - - - 247,124

Net book amount at

31 December 2013 6,161 85,448 91,609 - - - 91,609

Notes (cont’d)

Property and equipment (cont’d)

66


Company Short term Business Long term Business Motor Fittings & Short term Buildings Fittings & Long term Total

vehicles equipment Total equipment Total

Year ended 31 December 2012: Shs’000 Shs’000 Shs’000 Shs’000 Shs’000 Shs’000 Shs’000

Cost

At start of the year 31,992 285,439 317,431 25,322 4,908 30,230 347,661

Additions 75 17,746 17,821 - - - 17,821

Disposals (19,235) (2,016) (21,251) - - - (21,251)

Transfer through business reorganisation - - - (25,322) (4,908) (30,230) (30,230)

At end of the year 12,832 301,169 314,001 - - - 314,001

Depreciation

At start of the year 18,722 187,001 205,723 857 4,187 5,044 210,767

Charge for the year 2,904 28,102 31,006 216 181 397 31,403

Disposals (17,869) (2,016) (19,885) - - - (19,885)

Transfer through business reorganisation - - - (1,073) (4,368) (5,441) (5,441)

At end of the year 3,757 213,087 216,844 - - - 216,844

Net book amount at

31 December 2012 9,075 88,082 97,157 - - - 97,157

Notes (cont’d)

Property and equipment (cont’d)

67


19. Intangible Assets

For the year ended 31 December 2013 Group Company Long term Short term Total Long term Short term Total Business Business 2013 Business Business 2013 Shs’000 Shs’000 Shs’000 Shs’000 Shs’000 Shs’000

Cost:

At start of the year - 86,449 86,449 - 31,070 31,070

Additions - 2,193 2,193 - 2,193 2,193

At end of the year - 88,642 88,642 - 33,263 33,263

Amortisation:


Charge for the year - 2,787 2,787 - 2,514 2,514

At end of the year - 84,920 84,920 - 29,541 29,541

Net book amount At 31 December 2013 - 3,722 3,722 - 3,722 3,722

For the year ended 31 December 2012 Group Company Long term Short term Total Long term Short term Total Business Business 2012 Business Business 2012 Shs’000 Shs’000 Shs’000 Shs’000 Shs’000 Shs’000

Cost:

At start of the year 630 84,910 85,540 630 29,673 30,303

Additions - 1,397 1,397 - 1,397 1,397

Currency translation - 142 142 - - -

At end of the year 630 86,449 87,079 630 31,070 31,700

Amortisation:

At start of the year 630 65,497 66,127 630 24,948 25,578

Charge for the year - 16,472 16,472 - 2,079 2,079

Currency translation - 164 164 - - -

At end of the year 630 82,133 82,763 630 27,027 27,657

Net book amount At 31 December 2012 - 4,316 4,316 - 4,043 4,043

Intangible assets with a cost of Shs. 20,692,535 (2012 – Shs 20,674,207) were fully amortised as at 31 December 2013.

The notional amortisation charge in respect of these assets amounts to Shs 4,138,507 (2012 – Shs 4,134,841)

Notes (cont’d)

68


20. Investment property



Additions - - - - 1,541 1,541

Transfer to long-term - - - 231,541 (231,541) -

Disposals - (55,000) (55,000) - - -

Fair value gains (Note 4) - 40,400 40,400 22,459 23,347 45,806

Transfer through business reorganisation - - - (254,000) - (254,000)

At end of the year - 247,000 247,000 - 261,600 261,600



Additions - - - - 1,541 1,541

Transfer to long term - - - 231,541 (231,541) -

Disposals - (55,000) (55,000) - - -

Fair value gains (Note 4) - 22,000 22,000 22,459 24,447 46,906


At end of the year - 147,000 147,000 - 180,000 180,000

The investment properties were last revalued in November 2013 by Lloyd Masika Limited, certified and registered independent valuers, on the basis of the open market value for existing use.

Notes (cont’d)

69


21. Fair value through profit or loss investments


(i) Quoted shares


Additions - 24,062 24,062 6,315 1,832 8,147

Disposals - (1,425) (1,425) (144,880) (166,872) (311,752)

Fair value gains / (losses) - 129,421 129,421 26,314 (1,151) 25,163

Currency translation - 958 958 - 333 333


At end of the year - 354,045 354,045 - 201,029 201,029


Quoted shares


Additions - 1,096 1,096 6,315 1,832 8,147

Disposals - - - (144,880) (166,872) (311,752)

Fair value gains/ (losses) - 25,155 25,155 26,314 (7,006) 19,308


At end of the year - 128,640 128,640 - 102,389 102,389


(ii) Unquoted shares:


Disposals - (54,630) (54,630) - - -

Currency translation - 53 53 - 79 79

Fair value gains/ (losses) - (1,113) (1,113) 2,530 13,913 16,443


At end of the year - 156,697 156,697 - 212,387 212,387

Notes (cont’d)

70



Unquoted shares:


Disposals - (54,630) (54,630) - - -

Fair value gains/ (losses) - (1,113) (1,113) 2,530 13,913 16,443


At end of the year - 132,428 132,428 - 188,171 188,171

Group Long term Short term Total Long term Short term Total business business 2013 business business 2012 (Restated) (Restated) (Restated Shs’000 Shs’000 Shs’000 Shs’000 Shs’000 Shs’000 (iii) Government securities:

At start of the year - 1,786,886 1,786,886 384,848 366,925 751,773

Restatement - - - 640,027 661,203 1,301,230

Additions - 758,225 758,225 146,122 851,943 998,065

Disposals - (945,820) (945,820) (202,034) (274,389) (476,423)

Fair value gain/(loss) - 15,525 15,525 103,738 181,204 284,942

Transfer through business reorganisation - - - (1,072,701) - (1,072,701)

At end of the year - 1,614,816 1,614,816 - 1,786,886 1,786,886

Company Long term Short term Total Long term Short term Total business business 2013 business business 2012 (Restated) (Restated) (Restated Shs’000 Shs’000 Shs’000 Shs’000 Shs’000 Shs’000

Government securities:

At start of the year - 1,574,744 1,574,744 384,848 366,925 751,773

Restatement - - - 640,027 458,085 1,098,112

Additions - 719,235 719,235 146,122 824,659 970,781

Disposals - (916,288) (916,288) (202,034) (248,000) (450,034)

Fair value gain/(loss) - 19,154 19,154 103,738 173,075 276,813

Transfer through business reorganisation - - - (1,072,701) - (1,072,701)

At end of the year - 1,396,845 1,396,845 - 1,574,744 1,574,744

Notes (cont’d)

Fair value through profit or loss investments (cont’d)

71


22. Loans and receivables Group and Company


Mortgage loans:

At start of the year - 222,504 222,504 45,711 163,117 208,828 Re-classification Warwick investment - - - - 32,558 32,558 from Other Loans to MortgagesLoans advanced - 148,661 148,661 - 61,326 61,326Loan repayments - (39,202) (39,202) (11,715) (34,497) (46,212)At end of the year - 331,963 331,963 33,996 222,504 256,500

Maturity profile of mortgage loans:

Loans maturing:

Within 1 year - - - - 28,229 28,229In 1-5 years - 46,656 46,656 29,336 - 29,336In over 5 years - 285,307 285,307 4,660 194,275 198,935 - 331,963 331,963 33,996 222,504 256,500

Group and Company Long term Short term Total Long term Short term Total business business 2013 business business 2012 Shs’000 Shs’000 Shs’000 Shs’000 Shs’000 Shs’000

Other loans

At start of the year - 47,412 47,412 2,658 77,977 80,635Loans advanced - 32,182 32,182 - 23,287 23,287

Loan repayments - (31,668) (31,668) (1,722) (21,294) (23,016)

Re-classification Warwick investment - - - - (32,558) (32,558) from other loans to mortgages

At end of the year - 47,926 47,926 936 47,412 48,348

Maturity profile of other loans:

Loans maturing:

Within 1 year - 7,636 7,636 225 3,081 3,306

In 1-5 years - 40,290 40,290 711 44,331 45,042

- 47,926 47,926 936 47,412 48,348

Other loans are made up of staff development and car loans.


Book amount of:

Mortgage loans - 331,963 331,963 33,996 222,504 256,500

Other loans - 47,926 47,926 936 47,412 48,348


Total loans and receivables at year end - 379,889 379,889 - 269,916 269,916

There is no concentration of credit risk with respect to mortgage, policy and other loans.

Notes (cont’d)

72


23. Reinsurers’ share of insurance liabilities


Reinsurers’ share of:

- unearned premium (Note 32) - 1,489,900 1,489,900 - 1,281,783 1,281,783

- notified claims outstanding (Note 30) - 1,873,593 1,873,593 3,110 529,737 532,847

- claims incurred but not reported (Note 30) - 381,631 381,631 - 109,041 109,041

-Transfer through business reorganisation - - - (3,110) - (3,110)

- 3,745,124 3,745,124 - 1,920,560 1,920,560


Reinsurers’ share of:

- unearned premium (Note 32) - 681,056 681,056 - 597,271 597,271

- notified claims outstanding (Note 30) - 146,087 146,087 3,110 148,886 151,996

- claims incurred but not reported (Note 30) - 36,129 36,129 - 32,871 32,871

-Transfer through business reorganisation - - - (3,110) - (3,110)

- 863,272 863,272 - 779,028 779,028

Amounts due from reinsurers in respect of claims already paid by the Company on contracts that are reinsured are included in receivables arising out of reinsurance arrangements on the Statement of Financial Position. Reinsurers’ share of insurance liabilities is classified as current assets. Movements in the above reinsurance assets are shown in note 30.

Notes (cont’d)

73


24. Deferred acquisition costs

Group Short term Business 2013 2012 Shs’000 Shs’000

Assets

At start of the year 95,951 139,124

Additions 275,839 264,504

Amortisation charge (253,511) (307,880)

Currency translation 180 203

At end of the year 118,459 95,951

Liabilities

At start of the year (83,574) (79,950)

Additions (191,764) (208,999)

Amortisation charge 199,197 205,637

Currency translation (183) (262)

At end of the year (76,324) (83,574)

Company Short term business 2013 2012

Shs’000 Shs’000


Additions 2,504 42,501

Amortisation charge (16,651) (105,808)

At end of the year (281) 13,866

25. Other receivables


Due from related companies

(Note 38 (v)) - 187,433 187,433 - 39,612 39,612

Prepayments - 24,347 24,347 - 28,249 28,249

Operating lease rentals - 1,846 1,846 - 1,506 1,506

Other - 126,885 126,885 40,503 482,452 522,955


- 340,511 340,511 - 551,819 551,819

Notes (cont’d)

74



Due from related companies (Note 38v) - 63,675 63,675 - 56,797 56,797

Prepayments - 14,823 14,823 - 5,004 5,004

Other - 126,885 126,885 40,503 174,623 215,126


- 205,383 205,383 - 236,424 236,424

26. Government securities


Treasury bills and bonds maturing:

- Within 1 year - - - 267,365 865,756 1,133,121

- In 1 – 5 years - 1,614,816 1,614,816 165,899 921,130 1,087,029

- After 5 years - - - 449,315 - 449,315


- 1,614,816 1,614,816 - 1,786,886 1,786,886


Treasury bills and bonds maturing:

- Within 1 year - - - 267,365 865,756 1,133,121

- In 1 – 5 years - 1,396,845 1,396,845 165,899 708,988 874,887

- After 5 years - - - 449,315 - 449,315


- 1,396,845 1,396,845 - 1,574,744 1,574,744

Notes (cont’d)

Other receivables (cont’d)

75


27. Deposits with financial institutions

The following table summarises the maturity of deposits with Financial Institutions

Group Company Long term Short term Total Long term Short term Total business business 2013 business business 2013 Shs’000 Shs’000 Shs’000 Shs’000 Shs’000 Shs’000

Maturing within 90 days - 663,724 663,724 - 620,373 620,373

Maturing within 90 – 360 days - 576,882 576,882 - - -

Total - 1,240,606 1,240,606 - 620,373 620,373

Group Company


Maturing within 90 days 431,020 477,023 908,043 431,020 343,893 774,913

Maturing within 90 – 360 days - 537,243 537,243 - 284,405 284,405

Transfer through business reorganisation (431,020) - (431,020) (431,020) - (431,020)

Total - 1,014,266 1,014,266 - 628,298 628,298

28. Weighted average effective interest rates

The following table summarises the weighted average effective interest rates at the period end on the principal interest-bearing investments:

Group Company

2013 2012 2013 2012

% % % %

Mortgage loans 9 10 9 10

Government securities 12 9 12 12

Deposits with financial institutions 11 8 11 13

Corporate bonds 12 11 12 12

Deposits with financial institution have an average maturity of 3 to 4 months (2012: 3 to 4 months), while corporate bonds have an average maturity of 1 to 6 years (2012:1 to 7 years).

Notes (cont’d)

76


29. Insurance contract liabilities

Group Company

2013 2012 2013 2012

Shs’000 Shs’000 Shs’000 Shs’000

Short term non-life insurance contracts

- claims reported and claims handling expenses 3,140,701 1,844,380 926,054 1,017,049

- claims incurred but not reported 621,705 349,547 192,237 190,149

Total – short term 3,762,406 2,193,927 1,118,291 1,207,198

Long term insurance contracts

- claims reported and claims handling expenses - 8,294 - 8,294

- actuarial value of long term liabilities - 20,810 - 20,810

Transferred through business reorganisation - (29,104) - (29,104)

Total – long term - - - -

Total gross insurance liabilities 3,762,406 2,193,927 1,118,291 1,207,198

Movements in insurance liabilities and reinsurance assets are shown in note 30.

i) Short term non-life insurance contracts

Gross claims reported, claims handling expenses liabilities and the liability for claims incurred but not reported are net of expected recoveries from salvage and subrogation. The expected recoveries at the end of 2013 and 2012 are not material.

The Company uses chain-ladder techniques to estimate the ultimate cost of claims and the IBNR provision. Chain ladder techniques are used as they are an appropriate technique for mature classes of business that have a relatively stable development pattern. This involves the analysis of historical claims development factors and the selection of estimated development factors based on this historical pattern. The selected development factors are then applied to cumulative claims data for each accident year that is not fully developed to produce an estimated ultimate claims cost for each accident year.

The development of insurance liabilities provides a measure of the Company’s ability to estimate the ultimate value of claims. The table below illustrates how the group’s estimate of total claims outstanding for each accident year has changed at successive year ends.

Notes (cont’d)

77


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Notes (cont’d)

Insurance contract liabilities (cont’d)

78


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pany

Acc

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7 20

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20

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Notes (cont’d)

Insurance contract liabilities (cont’d)

79


30. Movements in insurance liabilities and reinsurance assets

a) Short term insurance business

Group 2013 2012 Gross Reinsurance Net Gross Reinsurance Net

Notified claims 1,844,380 529,737 1,314,643 1,986,164 819,641 1,166,523

Incurred but not reported 349,547 109,041 240,506 358,350 110,168 248,182

Total at beginning of the year 2,193,927 638,778 1,555,149 2,344,514 929,809 1,414,705

Cash paid for claims settled in year (4,984,894) (3,873,266) (1,111,628) (2,403,957) (1,402,216) (1,001,741)

Increase in liabilities

– arising from current year claims 5,765,032 5,006,670 758,362 1,055,570 592,181 463,389

– arising from prior year claims 785,580 476,680 308,900 1,192,137 516,429 675,708

Currency translation 2,761 2,362 399 5,663 2,575 3,088

Total at end of the year 3,762,406 2,251,224 1,511,182 2,193,927 638,778 1,555,149

Notified claims 3,140,701 1,869,593 1,271,108 1,844,380 529,737 1,314,643


Total at end of the year 3,762,406 2,251,224 1,511,182 2,193,927 638,778 1,555,149

Company 2013 2012 Gross Reinsurance Net Gross Reinsurance Net

Notified claims 1,017,049 148,886 868,163 875,366 120,165 755,201


Total at beginning of the year 1,207,198 181,757 1,025,441 1,062,798 145,999 916,798

Cash paid for claims settled in year (1,388,441) (588,646) (799,795) (1,291,041) (560,021) (731,020)

Increase in liabilities

– arising from current year claims 513,954 112,425 401,529 394,929 76,055 318,874

– arising from prior year claims 785,580 476,680 308,900 1,040,513 519,724 520,789

Total At end of the year 1,118,291 182,216 936,075 1,207,198 181,757 1,025,441

Notified claims 926,054 146,087 779,967 1,017,049 148,886 868,163


Total At end of the year 1,118,291 182,216 936,075 1,207,198 181,757 1,025,441

Notes (cont’d)

80


b) Long term insurance business (Group and Company)

2013 2012 Gross Reinsurance Net Gross Reinsurance Net

At beginning of year - - - 45,026 14,383 30,643

Liabilities released for payments - - - (14,918) (6,612) (8,306)

Other movements - - - (1,004) (4,661) 3,657

Transfer through business reorganisation - - - (29,104) (3,110) (25,994)

At end of the year - - - - - -

31. Amounts payable under deposit administration contracts (Group and Company)

2013 2012 Shs’000 Shs’000

At 1 January - 1,648,645

Pension fund deposits received - 223,791

Surrenders and annuities paid - (164,482)

Interest payable to policyholders - 175,059

Transfer through business reorganisation - (1,883,013)

At 31 December - -

32. Unearned premium

Unearned premium represents the liability for short term business contracts where the Group and Company’s obligations are not expired at the year end. Movement in the reserve is shown below:

Group 2013 2012 Gross Reinsurance Net Gross Reinsurance Net

Unearned premium

At beginning of the year 2,288,019 1,281,782 1,006,237 2,266,074 1,106,686 1,159,388

Increase in the period (net) 255,848 206,615 49,233 18,912 173,242 (154,330)

Currency translation 1,978 1,503 475 3,033 1,855 1,178

At end of the year 2,545,845 1,489,900 1,055,945 2,288,019 1,281,783 1,006,236

Company 2013 2012 Gross Reinsurance Net Gross Reinsurance Net

Unearned premium

At beginning of the year 1,387,247 597,271 789,976 1,343,097 377,899 965,198

Increase in the year (net) 110,255 83,785 26,470 44,150 219,372 (175,222)

At end of the year 1,497,502 681,056 816,446 1,387,247 597,271 789,976

Notes (cont’d)

Movements in insurance liabilities and reinsurance assets (cont’d)

81


33. Deferred income tax

Deferred tax is calculated, in full, on all temporary differences under the liability method using a principal tax rate of 30% (2012: 30%). The movement on the deferred income tax account is as follows:

Group Company

2013 2012 2013 2012 Shs`000 Shs`000 Shs`000 Shs`000

At start of the year 50,205 37,400 34,606 23,410

Profit or loss (credit)/charge (Note 9) (3,862) 31,499 (1,782) 29,890

Deferred tax effect on fair value gains of government securities 18,694 (18,694) 18,694 (18,694)

At end of the year 65,037 50,205 51,518 34,606

Deferred tax assets and liabilities, deferred tax charge/(credit) in the statement of profit or loss account are attributable to the following items:

Group Short term business 1.1.13 Charged/ Charged/ 31.12.13 1.1.12 Charged/ Charged/ 31.12.12 (credited) (credited) (credited) (credited) to P/L to Equity to P/L to Equity Shs’000 Shs’000 Shs’000 Shs’000 Shs’000 Shs’000 Shs’000 Shs’000

Property and equipment:

- on historical cost basis (21,560) (1,664) - (23,224) (20,143) (1,417) - (21,560)

Investment property 8,668 - - 8,668 8,668 - - 8,668 fair value gains

Provisions (55,287) 5,613 - (49,674) (25,205) (30,082) - (55,287)

Deferred tax effect 18,694 - (18,694) - - - 18,694 18,694 on fair value gains of government securities

Currency translation (720) (87) - (807) (720) - - (720)

Total (50,205) 3,862 (18,694) (65,037) (37,400) (31,499) 18,694 (50,205)

Company Short term business 1.1.13 Charged/ Charged/ 31.12.13 1.1.12 Charged/ Charged/ 31.12.12 (credited) (credited) (credited) (credited) to P/L to Equity to P/L to Equity Shs’000 Shs’000 Shs’000 Shs’000 Shs’000 Shs’000 Shs’000 Shs’000

Property and equipment:

- on historical cost basis (12,466) (1,664) - (14,130) (11,100) (1,366) - (12,466)

Provisions (40,834) 3,446 - (37,388) (12,310) (28,524) - (40,834)

Fair value gains (18,694 - (18,694) - - - 18,694 18,694

Total (34,606) 1,782 (18,694) (51,518) (23,410) (29,890) 18,694 (34,606)

Notes (cont’d)

82


34. Other payables

Group


business business 2013 business business 2012 Shs’000 Shs’000 Shs’000 Shs’000 Shs’000 Shs’000

Amounts due to related companies (Note 38) - 45,590 45,590 - 76,927 76,927

- 45,590 45,590 - 76,927 76,927

Accrued expenses - 132,633 132,633 - 123,857 123,857

Other liabilities - 88,381 88,381 18,787 128,493 147,280


- 221,014 221,014 - 252,350 252,350

- 266,604 266,604 - 329,277 329,277

Company



Amounts due to related companies (Note 38) - 45,590 45,590 - 76,927 76,927

- 45,590 45,590 - 76,927 76,927

Accrued expenses - 97,612 97,612 - 91,692 91,692

Other liabilities - 62,155 62,155 18,787 125,286 144,073


- 159,767 159,767 - 216,978 216,978

- 205,357 205,357 - 293,905 293,905

Other payables are classified as current liabilities

35. Contingent liabilities

In common with the insurance industry in general, the Group companies are subject to litigation arising in the normal course of insurance business. The directors are of the opinion that this litigation will not have a material effect on the financial position or profits of the Group and Company.

36. Capital commitments

The Company has committed to the following Capital expenditure in regard to a new Enterprise Resource Program (ERP) as at 31 December 2013 (2012: Nil).

Expected expenditure Shs’000

Policy Administration Software 27,980

Financial Management System - SAP 12,752

Total 40,732

Notes (cont’d)

83


37. Notes to the cash flow statement

i) Cash and cash equivalents

Group Company



As at 31 December 2013

Cash and bank balances - 168,885 168,885 - 86,873 86,873

Deposits with financial institutions - 1,240,606 1,240,606 - 620,373 620,373

- 1,409,491 1,409,491 - 707,246 707,246

Group Company



As at 31 December 2013

Cash and bank balances - 235,021 235,021 - 190,074 190,074

Deposits with financial institutions - 1,014,266 1,014,266 - 628,298 628,298

- 1,249,287 1,249,287 - 818,372 818,372

Notes (cont’d)

84


ii) Cash generated from operations - Group for the year ended 31 December 2013

Reconciliation of profit before tax to cash generated from operations:

Group Long term Short term Total business business 2013 Shs’000 Shs’000 Shs’000


Adjustments for:

Interest rent and dividend income - (566,882) (566,882)

Depreciation (Note 18) - 39,293 39,293

Amortisation of intangibles (Note 19) - 2,787 2,787

Profit on sale of property and equipment - (70) (70)

Fair value loss on financial assets of associates - (5,528) (5,528)

Fair value gains on investment property - (40,400) (40,400)

Fair value gains due to change of accounting policy - (148,033) (148,033)

Profit on sale of fair value financial investments - (31,027) (31,027)

Effect of deferred tax on policy change - 6,067 6,067

Share of results of associates - 7,387 7,387

Changes in:

Receivables arising out of reinsurance arrangements - (130,420) (130,420)

Insurance contract liabilities - 1,568,479 1,568,479

Provision for unearned premiums - 257,826 257,826

Deferred acquisition costs - (7,250) (7,250)

Re-insurers’ share of insurance liabilities - (1,824,564) (1,824,564)

Other payables - 50,568 50,568

Other receivables - 84,545 84,545

Currency translation - 4,024 4,024

Cash generated from operations - 172,771 172,771

Notes (cont’d)

Notes to the cash flow statement (cont’d)

85


iii) Cash generated from operations - Company for the year ended 31 December 2013


Company Long term Short term Total business business 2013 Shs’000 Shs’000 Shs’000


Adjustments for:




Fair value gain on investment property - (22,000) (22,000)

Fair value gain through profit or loss - (43,196) (43,196)

Profit on sale of government securities - (30,727) (30,727)

Effect of deferred tax on policy change - 6,067 6,067

Changes in:

Receivables arising out of reinsurance arrangements - (51,069) (51,069)

Insurance contract liabilities - (88,907) (88,907)


Deferred acquisition costs - 14,147 14,147

Re-insurers’ share of insurance liabilities - (84,244) (84,244)

Other payables - (92,282) (92,282)



Notes (cont’d)


86


ii) Cash generated from operations - Group for the year ended 31 December 2012


Group Long term Short term Total business business 2012 Shs’000 Shs`000 Shs’000


Adjustments for:




Profit on sale of property and equipment - (8,901) (8,901)

Profit on disposal of investment in Alliance - (197,712) (197,712)

Fair value gain of investment property - (23,347) (23,347)

Fair value gain on financial assets of associates - (17,939) (17,939)

Fair value gain due to change in accounting policy - (144,834) (144,834)

Profit on sale investments - (71,377) (71,377)

Investment property transferred - 231,541 231,541

Share of results of associates - (19,229) (19,229)

Changes in:

Receivables arising out of reinsurance arrangements - 327 327

Insurance contract liabilities - (150,587) (150,587)


Deferred acquisition costs - 3,624 3,624

Re-insurers’ share of insurance liabilities - 115,935 115,935

Other payables - (167,933) (167,933)

Other receivables - (303,751) (303,751)

Currency translation - (5,965) (5,965)

Cash generated from operations - (83,328) (83,328)

Notes (cont’d)


87


iii) Cash generated from operations - Company for the year ended 31 December 2012


Company Long term Short term Total business business 2012 Shs’000 Shs’000 Shs’000


Adjustments for:




Profit on disposal of investment property - (7,134) (7,134)

Fair value gain on investment property - (24,447) (24,447)

Fair value gain on financial assets - (198,669) (198,669)

Profit on sale government securities - (71,377) (71,377)

Investment property transferred

231,541 231,541

Changes in:


Insurance contract liabilities - 144,400 144,400

Payable under deposit administration contracts - 44,150 44,150


Deferred acquisition costs - (255,130) (255,130)

Re-insurers’ share of insurance liabilities - (21,776) (21,776)

Other payables - (109,069) (109,069)



38 Related party transactions

The Company is controlled by Liberty Kenya Holdings Limited, incorporated in Kenya, which owns 100% of the Company’s shares. The ultimate parent company is Standard Bank South Africa. There are other companies which are related to Heritage Insurance Company Kenya Limited through common shareholdings or common directorships. The following transactions were carried out with related parties:

i) Gross premiums written

Group Long term Short term Total Long term Short term Total business business 2013 business business 2012 Shs’000 Shs`000 Shs’000 Shs’000 Shs’000 Shs’000

CfC Stanbic Bank Ltd - 280,702 280,702 - 228,702 228,702

Stanlib Kenya Ltd - 9,292 9,292 - 6,124 6,124

CfC Life Assurance Ltd - 65,657 65,657 - 42,425 42,425

Strategis Insurance (Tanzania) Ltd - 45,881 45,881 - 40,490 40,490

- 401,532 401,532 - 317,741 317,741

Notes (cont’d)


88


Company Long term Short term Total Long term Short term Total business business 2013 business business 2012 Shs’000 Shs`000 Shs’000 Shs’000 Shs’000 Shs’000


Stanlib Kenya Ltd - 9,292 9,292 - 5,567 5,567

CfC Life Assurance Ltd - 65,657 65,657 - 38,568 38,568

Azali Ltd - 654 654 - 209 209

- 356,305 356,305 - 252,255 252,255

ii) Claims incurred



Stanlib Kenya Limited - 1,238 1,238 - 6,490 6,490

CfC Life Assurance Co Ltd - 20,963 20,963 - 30,878 30,878

- 125,754 125,754 - 126,466 126,466



Stanlib Kenya Limited - 1,125 1,125 - 6,377 6,377

CfC Life Assurance Co Ltd - 20,963 20,963 - 30,636 30,636

- 125,641 125,641 - 125,920 125,920

iii) Rental expense/(income)


Rent paid to CfC Life Assurance Ltd - 41,089 41,089 4,753 32,371 37,124

- 41,089 41,089 4,753 32,371 37,124

Rent received from CfC Stanbic Bank Ltd - (7,492) (7,492) - (7,492) (7,492)

- (7,492) (7,492) - (7,492) (7,492)

Notes (cont’d)

Related party transactions (cont’d)

89



Rent paid to CfC Life Assurance Ltd - 41,089 41,089 4,753 32,371 37,124

Rent paid to Azali Ltd - 1,873 1,873 - 1,873 1,873

- 42,962 42,962 4,753 34,244 38,997

iv) Interest earned on related party balances

Group and Company Long term Short term Total Long term Short term Total business business 2013 business business 2012 Shs’000 Shs`000 Shs’000 Shs’000 Shs’000 Shs’000

Interest on bank deposits with CfC Stanbic Bank Ltd - 3,117 3,117 - 13,164 13,164

Interest on loan to CfC Stanbic Holdings Ltd - - - - 2,627 2,627

- 3,117 3,117 - 15,791 15,791

v) Outstanding balances with related parties


Due from Liberty Life Uganda Ltd - 73 73 - 48 48

Due from Liberty Kenya Holdings Ltd - 8,720 8,720 - - -

Due from Strategies Insurance Ltd - - - - 39,391 39,391

Due from CfC Stanbic Bank Ltd - 4,351 4,351 - - -

Due from Liberty Health (RSA) Ltd - 636 636 - - -

Due from Mac Group Ltd - 173,653 173,653 - - -

Due from Stanlib Kenya Ltd - - - - 173 173

- 187,433 187,433 - 39,612 39,612

Payables to CfC Stanbic Bank Ltd - 16,299 16,299 - 4,564 4,564

Payables to Liberty Holdings (RSA) Ltd - 9,649 9,649 - 22,577 22,577

Payable to Stanlib Kenya Ltd - 2,165 2,165 - - -

Payables to CfC Life Assurance Co Ltd - 17,477 17,477 - 49,786 49,786

- 45,590 45,590 - 76,927 76,927

Notes (cont’d)


90



Due from Liberty Kenya Holdings Ltd - 8,720 8,720 - - -

Due from Stanlib Kenya Ltd - - - - 173 173

Due from Liberty Health (RSA) Ltd - 636 636 - - -

Due from Liberty Uganda Ltd - 73 73 - 48 48

Due from Heritage (T) Ltd - 12,119 12,119 - 14,977 14,977

Due from Azali Ltd - 42,127 42,127 - 41,599 41,599

- 63,675 63,675 - 56,797 56,797

Due to CfC Stanbic Bank Ltd - 16,299 16,299 - 4,564 4,564

Due to Liberty Holdings –South Africa Ltd - 9,649 9,649 - 22,577 22,577

Due to Stanlib Kenya Ltd - 2,165 2,165 - - -

Due to CfC Life Assurance Co Ltd - 17,477 17,477 - 49,786 49,786

- 45,590 45,590 - 76,927 76,927

Balances due from related parties are interest free and have no specific repayment period.

vi) Investments in related parties


CfC Stanbic Bank Ltd – deposits and bank balances - 41,999 41,999 - 167,977 167,977

- 41,999 41,999 - 167,977 167,977

vii) Advances to related parties

Group and Company Long term Short term Total Long term Short term Total business business 2013 business business 2012Staff mortgages - 285,306 285,306 - 194,275 194,275

Other Loans - 47,927 47,927 - 47,153 47,153

- 333,233 333,233 - 241,428 241,428

Notes (cont’d)


91


viii) Loans to directors and key management staff of the Company



Additions - 26,080 26,080 - 26,810 26,810

Loan repayments received - (14,465) (14,465) - (2,959) (2,959)

At end of the year - 46,181 46,181 - 34,566 34,566

ix) Directors’ remuneration

Group Long term Short term Total Long term Short term Total business business 2013 business business 2012 Shs’000 Shs`000 Shs’000 Shs’000 Shs’000 Shs’000 Directors’ fees - 11,857 11,857 855 4,218 5,073

Other remuneration - 88,744 88,744 - 74,146 74,146

- 100,601 100,601 855 78,364 79,219


Directors’ fees - 4,093 4,093 855 3,397 4,252

Other remuneration - 88,744 88,744 - 73,941 73,941

- 92,837 92,837 855 77,338 78,193

Key management personnel remuneration (excluding directors)

Group Long term Short term Total Long term Short term Total business business 2013 business business 2012 Shs’000 Shs`000 Shs’000 Shs’000 Shs’000 Shs’000 Post-employment and other short term benefits - 67,610 67,610 - 61,464 61,464

- 67,610 67,610 - 61,464 61,464

Company Post-employment and other short term benefits - 36,769 36,769 - 33,426 33,426

- 36,769 36,769 - 33,426 33,426

Notes (cont’d)


92


39. Critical accounting estimates and judgements in applying accounting policies

The Group (and Company) make estimates and assumptions that affect the reported amounts of assets and liabilities within the next financial year. Estimates and judgements are continually evaluated and based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

Estimates are made for Short term business claims and claims Incurred But Not Reported (IBNR) as at the period end based on the historical claims development statistics and evaluation of the current, past and future assumptions. Using the chain ladder model, the Company has developed estimates of expected claims outstanding.

The development of insurance liabilities provides a measure of the Company’s ability to estimate the ultimate value of the claims. The carrying amounts of insurance liabilities as at the end of the year period and as at 31 December 2013 are set out in note 30.

40. Management of insurance and financial risk

The Company’s activities expose it to a variety of risks, including insurance risk, financial risk, credit risk, and the effects of changes in property values, debt and equity market prices, foreign currency exchange rates and interest rates and liquidity risks. The Company’s overall risk management programme focuses on the identification and management of risks and seeks to minimise potential adverse effects on its financial performance, by use of underwriting guidelines and capacity limits, reinsurance planning, credit policy governing the acceptance of clients, and defined criteria for the approval of intermediaries and reinsurers. Investment policies are in place which help manage liquidity, and seek to maximise return within an acceptable level of interest rate risk. This section summarises the way the company manages key risks:

Insurance risk

The risk under any one insurance contract is the possibility that the insured event occurs and the uncertainty of the amount of the resulting claim. By the very nature of an insurance contract, this risk is random and therefore unpredictable.

For a portfolio of insurance contracts where the theory of probability is applied to pricing and provisioning, the principal risk that the company faces under its insurance contracts is that the actual claims and benefit payments exceed the carrying amount of the insurance liabilities. This could occur because the frequency or severity of claims and benefits are greater than estimated. Insurance events are random and the actual number and amount of claims and benefits will vary from year to year from the level established using statistical techniques.

Experience shows that the larger the portfolio of similar insurance contracts, the smaller the relative variability about the expected outcome will be. In addition, a more diversified portfolio is less likely to be affected across the board by a change in any subset of the portfolio. The company has developed its insurance underwriting strategy to diversify the type of insurance risks accepted and within each of these categories to achieve a sufficiently large population of risks to reduce the variability of the expected outcome.

Factors that aggravate insurance risk include lack of risk diversification in terms of type and amount of risk, geographical location and type of industry covered.

The following tables disclose the concentration of insurance liabilities by the class of business in which the contract holder operates and by the maximum insured loss limit included in the terms of the policy:

The following tables disclose the concentration of insurance liabilities by the class of business in which the contract holder operates and by the maximum insured loss limit included in the terms of the policy:

Notes (cont’d)

93


Group

Year ended 31 December 2013

Class of business Maximum insured loss (Shs’000)

Short term insurance business Shs 0 - Shs 15M Shs 15M-Shs250M Over Shs 250M Total

Motor Gross 21,900,573 369,896 - 22,270,469

Net 19,560,681 369,896 - 19,930,577

Fire Gross 49,740,129 85,697,718 561,490,366 696,928,213

Net 48,660,957 69,696,055 13,777,509 132,134,521

Personal accident Gross 14,173,227 16,692,437 2,768,257 33,633,921

Net 14,168,660 16,684,725 2,768,257 33,621,642

Other Gross 30,724,737 37,603,286 169,436,956 237,764,979

Net 31,314,452 69,647,476 3,725,066 104,686,994

Total Gross 116,538,666 140,363,337 733,695,579 990,597,582

Net 113,704,750 156,398,152 20,270,832 290,373,734

The concentration by sector or maximum insured loss at the end of the year is broadly consistent with the prior year.

Company




Motor Gross 17,751,516 369,896 - 18,121,412

Net 17,751,516 369,896 - 18,121,412

Fire Gross 42,417,653 85,697,718 99,956,125 228,071,496

Net 42,230,114 69,696,055 13,777,509 125,703,678


Net 14,168,660 16,684,725 2,768,257 33,621,642

Other Gross 17,582,562 37,603,286 10,721,672 65,907,520

Net 16,868,675 30,666,981 3,725,066 51,260,722

Total Gross 91,924,958 140,363,337 113,446,054 345,734,349

Net 91,018,965 117,417,657 20,270,832 228,707,454

The concentration by sector or maximum insured loss at the end of the year is broadly consistent with the prior year

Notes (cont’d)

Critical accounting estimates and judgements in applying accounting policies (cont’d)

94


Group




Motor Gross 21,229,163 2,114,776 - 23,343,939

Net 19,328,444 1,042,000 - 20,370,444

Fire Gross 42,514,879 550,406,103 95,611,015 688,531,997

Net 38,211,205 71,693,482 11,419,400 121,324,087


Net 16,137,600 10,079,440 2,771,600 28,988,640

Other Gross 31,916,698 191,747,191 7,462,600 231,126,489

Net 28,928,879 63,561,790 3,770,880 96,261,549

Life assurance business

Group Life Gross 7,020,522 1,594,198 - 8,614,720

Net 3,684,764 94,500 - 3,779,264

Other Gross 1,527,249 2,630,535 - 4,157,784

Net 691,263 31,500 - 722,763

Total Gross 124,380,511 761,092,103 106,538,115 992,010,729

Net 106,982,155 146,502,712 17,961,880 271,446,747

The concentration by sector or maximum insured loss at the end of the year is broadly consistent with the prior year.

Company




Motor Gross 17,818,900 350,078 - 18,168,978

Net 17,818,900 350,078 - 18,168,978

Fire Gross 35,134,640 85,231,140 95,611,015 215,976,795

Net 35,058,490 69,498,900 11,419,400 115,976,790


Net 16,137,600 10,079,440 2,771,600 28,988,640

Other Gross 19,427,760 40,920,900 7,462,600 67,811,260

Net 18,559,000 35,579,700 3,770,880 57,909,580

Long term business

Group Life Gross 7,020,522 1,594,198 - 8,614,720

Net 3,684,764 94,500 - 3,779,264

Other Gross 1,527,249 2,630,535 - 4,157,784

Net 691,263 31,500 - 722,763

Total Gross 101,101,071 143,326,151 106,538,115 350,965,337

Net 91,950,017 115,634,118 17,961,880 225,546,015

The concentration by sector or maximum insured loss at the end of the year is broadly consistent with the prior year

Notes (cont’d)

Critical accounting estimates and judgements in applying accounting policies (cont’d)

95


Financial risk

The Group is exposed to financial risk through its financial assets, financial liabilities (investment contracts and borrowings), reinsurance assets and insurance liabilities. In particular the key financial risk is that the proceeds from its financial assets are not sufficient to fund the obligations arising from its insurance and investment contracts. The most important types of risk are credit risk, liquidity risk and market risk. Market risk includes currency risk, interest rate risk, equity price risk and other price risks.

These risks arise from open positions in interest rate, currency and equity products, all of which are exposed to general and specific market movements. The risks that the Group primarily faces due to the nature of its investments and liabilities are interest rate risk and equity price risk.

The Group manages these positions through an Investment Committee and investment policy that has been developed to achieve long term investment return in excess of its obligations under insurance and investment contracts. The principal technique of the company is to match assets to the liabilities arising from insurance and investment contracts by reference to the type of benefits payable to contract holders. For each distinct category of liabilities, a separate portfolio of assets is maintained. Funds are applied to investments that fit the criteria developed as being acceptable and optimize the return on investment.

Asset Liability Matching (ALM) Balance sheet of the Company as at 31 December 2013

Asset class Policy Holders % Share Holder % Policy Holders % Share Holder %

2013 2013 2012 2012

Sh’000 Sh’000 Sh’000 Sh’000

Investible assets 1,247,296 47% 1,387,140 66% 1,981,465 59% 865,857 60%

Non investible 1,011,484 39% 531,036 25% 979,372 29% 402,524 28%

Inadmissible assets 368,292 14% 175,732 8% 404,600 12% 177,017 12%

Total 2,627,072 2,093,908 3,365,437 1,445,399

Liabilities 2,627,072 100% 246,394 100% 2,598,661 100% 369,703 100%

Excess - 1,847,514 766,776 1,075,696

(a) Credit risk

The Company has exposure to credit risk, which is the risk that a counterparty will be unable to pay amounts in full when due. Key areas where the Company is exposed to credit risk are:

• receivables arising out of direct insurance arrangements;

• receivables arising out of reinsurance arrangements; and

• reinsurers’ share of insurance liabilities.

Other areas where credit risk arises include cash and cash equivalents, corporate bonds, commercial papers, loans receivable, government securities and deposits with banks and other receivables.

The Group has no significant concentrations of credit risk. The Group structures the levels of credit risk it accepts by placing limits on its exposure to a single counterparty, or groups of counterparty, and to geographical and industry segments. Such risks are subject to an annual or more frequent review. Limits on the level of credit risk by category and territory are approved quarterly by the Board of Directors.

Reinsurance is used to manage insurance risk. This does not, however, discharge the company’s liability as primary insurer. If a re-insurer fails to pay a claim for any reason, the company remains liable for the payment to the policyholder. The creditworthiness of reinsurers is considered on an annual basis by reviewing their financial strength prior to finalisation of any contract.

The exposure to individual counterparties is also managed by other mechanisms, such as the right of offset where counterparties are both debtors and creditors of the company. Management information reported to the company includes details of provisions for impairment on loans and receivables and subsequent write-offs. Internal audit makes regular reviews to assess the degree of compliance with the company procedures on credit. Exposures to individual policyholders and groups of policyholders are collected within the ongoing monitoring of the controls associated with regulatory solvency. Where there exists significant exposure to individual policyholders, or homogenous groups of policyholders, a financial analysis equivalent to that conducted for reinsurers is carried out by the company risk department.

Notes (cont’d)

96


The credit quality of financial assets that are neither past due nor impaired can be assessed by reference to the external credit ratings if available or historical information about counterparty default rate. None of the Company’s credit counterparties has an external credit rating other than the government of Kenya which has a B+ rating. For credit risk counterparties without an external credit rating, the group classifies them as follows.

Group 1- New customers/related parties

Group 2- Existing customers/related parties with no defaults in the past

Group 3- Existing customer/related parties with some defaults in the past. All defaults were fully recovered.

Maximum exposure to credit risk before collateral held

Group Credit quality 2013 2012 Shs’000 Shs’000

Receivables arising out of reinsurance arrangements Group 2 329,309 198,889

Receivables arising out of direct insurance arrangements See analysis below 734,933 630,679

Other receivables (excluding prepayment) Group 2 340,511 551,767

Reinsurers’ share of insurance liabilities Group 2 3,745,124 1,921,101

Government securities B+ 1,614,816 1,786,886

Corporate bond and short term notes Group 2 172,390 403,484

Loans receivable Group 2 379,889 269,916

Deposits with financial institutions Group 2 1,240,606 1,014,266

Cash and bank balances Group 2 168,885 235,021

8,726,463 7,012,009

Company Credit quality 2013 2012 Shs’000 Shs’000

Receivables arising out of reinsurance arrangements Group 2 90,213 39,144

Receivables arising out of direct insurance arrangements See analysis below 225,977 210,627

Other receivables (excluding prepayment) Group 2 205,383 236,424

Reinsurers’ share of insurance liabilities Group 2 863,272 779,028

Government securities B+ 1,396,845 1,574,744

Corporate bond and short term notes Group 2 147,085 173,979

Loans receivable Group 2 379,889 269,916

Deposits with financial institutions Group 2 620,373 628,298

Cash and bank balances Group 2 86,873 190,074

4,015,910 4,102,234

Collaterals are held for mortgage and car loans only; all other assets are collateral free. Some receivables that are past due but not impaired are not within their approved credit limits, and have had their terms renegotiated

None of the above assets are past due or impaired except for the receivables arising out of direct insurance arrangements (which are due within 60 days of the end of the month in which they are invoiced except those related to Motor and Fire Insurance policies which are due on inception of insurance cover):

Notes (cont’d)

Financial risk (cont’d)

97


Financial assets that are past due or impaired

Group Credit Quality 2013 2012 Shs’000 Shs’000

Receivables arising out of direct insurance arrangements are summarised as follows:

Neither past due nor impaired Group 2 416,895 374,305

Past due but not impaired Group 2 256,054 261,834

Impaired Group 3 205,230 213,852

Gross 878,179 849,991

Less: allowance for impairment (205,230) (213,852)

Net 672,949 636,139

Financial assets that are past due or impaired

Company Credit Quality 2013 2012 Shs’000 Shs’000

Receivables arising out of direct insurance arrangements are summarised as follows:

Past due but not impaired Group 2 225,977 210,627

Impaired Group 3 142,191 131,059

Gross 368,168 341,686

Less: allowance for impairment (142,191) (131,059)

Net 225,977 210,627

Receivables arising out of direct insurance arrangements past due but not impaired;

2013 2012Group Shs’000 Shs’000

Past due but not impaired:

- by up to 30 days 55,207 240,328

- by 31 to 60 days 54,505 29,197

- Over 61 days 563,237 366,614

Total past due but not impaired 672,949 636,139

Receivables arising out of direct insurance arrangements past due but not impaired

2013 2012Company Shs’000 Shs’000

Past due but not impaired:

- by up to 30 days 55,207 38,622

- by 31 to 60 days 54,505 26,137

- Over 61 days 116,265 145,868

Total past due but not impaired 225,977 210,627

All receivables past due by more than 360 days are carried at their estimated recoverable value. No collateral is held on Impaired debts.

Notes (cont’d)


98


Allowance for impairment

Group Direct insurance arrangements 2013 2012 Shs’000 Shs’000

Individually assessed impaired receivables

- brokers 144,309 139,576

- agents 31,309 35,470

- insurance companies 13,691 22,134

- direct clients 15,921 16,672

205,230 213,852

Company Direct insurance arrangements 2013 2012 Shs’000 Shs’000

Individually assessed impaired receivables

- brokers 87,191 63,456

- agents 31,309 35,470

- insurance companies 13,691 22,133

- direct clients 10,000 10,000

142,191 131,059

No collateral was held in relation to the receivables that are past due or impaired

The movement in allowance for impairment account is as below:

Group 2013 2012 Shs’000 Shs’000


Charge to profit or loss (7,797) 66,936

Write-off - -

Currency translation (824) (482)


Company At start of the year 131,059 80,039

Charge to profit or loss 11,132 51,020

Write-off - -


Notes (cont’d)


99


(b) Market risk

(i) Foreign exchange risk

The Group operates internationally and is exposed to foreign exchange risk arising from various foreign currency transactions, primarily with respect to the US dollar. Foreign exchange risk arises from our reinsurance dealings with foreign reinsurance brokers. This risk is significant, particularly in respect of the subsidiary in Tanzania, and has in the past been mitigated through the use of a dollar-denominated account. In the year ending 31 December 2013, we had an equivalent of Shs 10.2M (2012: Shs. 6.2M) in reinsurance balances denominated in foreign currency and foreign currency deposit accounts. The impact of normal exchange fluctuations in the Kenya and Tanzania shilling against the US dollar would not have a material effect on Groups results.

(ii) Price risk

The Group is exposed to equity securities price risk because of investments in quoted and unquoted shares classified either as available-for-sale or at fair value through the profit or loss. The Group is not exposed to commodity price risk. To manage its price risk arising from investments in equity and debt securities, the Group diversifies its portfolio. Diversification of the portfolio is done in accordance with limits set by the Group in the Investment Policy. All quoted shares held by the Group are traded on the Stock Exchange.

At 31 December 2013, if the market prices of equity had increased/decreased by 5% all other variables held constant, the fair value of equities held by the Company would have changed by Shs 13,053,000 (31 December 2012: Shs 14,528,000). This would result in a change in ‘other comprehensive income’.

At 31 December 2013, if the market prices of equity had increased/decreased by 5% all other variables held constant, the fair value of equities held by the Group would have changed by Shs 23,304,000 (31 December 2012 Shs 15,814,000). This would result in a change in ‘other comprehensive income’.

Short term business

The Company is exposed to premium rate under-cutting by other market players particularly on the big corporate accounts leading to potential loss of business.

(iii) Cash flow and fair value interest rate risk

Fixed interest rate financial instruments expose the Group to fair value interest rate risk. Variable interest rate financial instruments expose the Group to cash flow interest rate risk.

The Group’s fixed interest rate financial instruments are government securities, deposits with financial institutions and corporate bonds.

No limits are placed on the ratio of variable rate financial instruments to fixed rate financial instruments.

At 31 December 2013, if the interest rate of the fixed interest bearing instruments increased/decreased by 1% all other variables held constant, the profit of the Company would have changed by Shs. 26,698,000 (31 December 2012 Shs. 44,755,000).

At 31 December 2013, if the interest rate of the fixed interest bearing instruments increased/decreased by 1% all other variables held constant, the profit of the Group would have changed by Shs. 35,519,000 (31 December 2012 Shs. 35,147,000).

(c) Liquidity risk

Liquidity risk is the risk that the Company is unable to meet its payment obligations associated with its financial liabilities as they fall due and to replace funds when they are withdrawn.

The Group is exposed to daily calls on its available cash for claims settlement and other administration expenses. The Group does not maintain cash resources to meet all of these needs but maintains a balanced portfolio of short term and long term investments to suit the Company’s settlement cycle. Experience shows that reinvestment of maturing funds can be predicted with a high level of certainty and therefore can be matched to maturing liabilities. Large unexpected payments are met out of call deposits conveniently placed with various financial institutions at competitive interest rates. Prompt premium collection ensures that the day-to-day liquidity requirements of the Group are adequately met.

The table below presents the cash flows payable and receivable by the Group under liabilities and assets respectively by remaining contractual maturities at the balance sheet date. All figures are in thousands of Kenya Shillings.

Notes (cont’d)

100


Liquidity

Group Up to 1 1-3 3-12 1-5 Over 5As at 31 December 2013: month months months years years Total Shs’000 Shs’000 Shs’000 Shs’000 Shs’000 Shs’000

Liabilities

Insurance contract liabilities 361,137 268,651 2,393,747 579,050 159,821 3,762,406

Creditors arising from reinsurance arrangements - - 472,821 - - 472,821

Other payables 49,844 159,403 11,767 - - 221,014

Creditors arising from direct insurance arrangements - - 34,616 - - 34,616

Total financial liabilities (expected maturity dates) 410,981 428,054 2,912,951 579,050 159,821 4,490,857

Company Up to 1 1-3 3-12 1-5 Over 5As at 31 December 2013: month months months years years Total Shs’000 Shs’000 Shs’000 Shs’000 Shs’000 Shs’000

Liabilities

Insurance contract liabilities 361,137 268,651 179,100 149,582 159,821 1,118,291


Other payables 49,844 98,156 11,767 - - 159,767


Total financial liabilities (expected maturity dates) 410,981 366,807 236,762 149,582 159,821 1,323,953

Group Up to 1 1-3 3-12 1-5 Over 5As at 31 December 2012: month months months years years Total Shs’000 Shs’000 Shs’000 Shs’000 Shs’000 Shs’000

Liabilities

Insurance contract liabilities 708,030 526,707 1,461,935 464,183 313,338 3,474,193


Other payables 91,692 241,200 21,646 - - 354,538


Bank overdraft 41,025 - - - - 41,025

Total financial liabilities (expected maturity dates) 840,747 767,907 2,446,723 464,183 313,338 4,832,898

Company Up to 1 1-3 3-12 1-5 Over 5As at 31 December 2013: month months months years years Total Shs’000 Shs’000 Shs’000 Shs’000 Shs’000 Shs’000

Liabilities

Insurance contract liabilities 708,030 526,707 351,137 293,264 313,338 2,192,476


Other payables 91,692 180,567 21,646 - - 293,905


Total financial liabilities (expected maturity dates) 799,722 707,274 810,270 293,264 313,338 2,923,868

Notes (cont’d)

Market risk (cont’d)

101


(d) Capital management

The Group’s capital comprises the paid up share capital and the solvency margin required to meet the requirements of the insurance regulator. The Group’s objectives when managing capital, which is a broader concept than the ‘equity’ on the balance sheets, are:

• to comply with the capital requirements as set out in the Insurance Act;

• to comply with regulatory solvency requirements as set out in the Insurance Act. This is consistently carried out to ensure the Company’s ability to meet all its obligations as they fall due is not compromised.

• to safeguard the company’s ability to continue as a going concern, so that it can continue to provide returns to shareholders and benefits for other stakeholders; and

• to provide an adequate return to shareholders by pricing insurance and investment contracts commensurately with the level of risk.

The Insurance Act requires each insurance company to hold the minimum level of paid up capital as follows;

• Composite insurance companies Shs 450 million ;

• Short term insurance business companies Shs 300 million and

• Long term insurance business companies Shs 150 million

The Company had a share capital of 25,000,000 fully paid up shares totalling Shs 500 Million made up as follows:

• Short term business Shs 500 Million

This was in excess of the minimum requirement

The Groups paid up capital at the end of 2013 and 2012 is presented in Note 11. The table below summarises the capital requirements of the company and its subsidiary in the various jurisdiction that the Company operates.

Kenya Tanzania Short-term Short-term division division Shs’000 Tshs’000

Regulatory requirement 350,000 1,000,000

Amount of capital held by the company 500,000 4,000,000

Solvency

Short term insurance businesses are required to keep a solvency margin i.e. admitted assets less admitted liabilities equivalent to the higher of Shs 10 million or 15% of the net premium income during the preceding financial year.

During the period the Group held the minimum paid up capital required. The Company has met the required solvency margin as at 31 December 2013. The following table sets out an analysis of the solvency margin as at 31 December 2013:

Solvency margin

Company ( per (Sec 41 (1) (a) and 41 (2) (a))

Long term Short term Total Long term Short term Total Business Business 2013 Business Business 2012 Shs’ 000 Shs’ 000 Shs’ 000 Shs’ 000 Shs’ 000 Shs’ 000

Total admitted assets - 4,113,284 4,113,284 - 4,215,916 4,215,916

Total admitted liabilities - (2,873,467) (2,873,467) - (2,968,364) (2,968,364)

Add: 5% of admitted liabilities - - - - - -

Add: 15% of previous year’s net

written premium for short term business - (315,327) (315,327) - (356,444) (356,444)

Total liabilities and minimum requirement - (3,188,794) (3,188,794) - (3,324,808) (3,324,808)

Solvency margin - 924,490 924,490 - 891,108 891,108

Notes (cont’d)

102


e) Fair value estimation

IFRS 7 requires disclosure of fair value measurements by level of the following fair value measurement hierarchy for financial instruments that are measured at fair value:

• Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1).

• Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (level 2).

• Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (level 3).

The following table presents the Group’s assets that are measured at fair value at 31 December 2013.

Group Company As at 31 December 2013 Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total Assets Shs’000 Shs’000 Shs’000 Shs’000 Shs’000 Shs’000 Shs’000 Shs’000

Financial assets

– Quoted shares 354,045 - - 354,045 128,640 - - 128,640

– Unquoted shares - - 156,697 156,697 - - 132,428 132,428

– Bonds - 1,396,845 - 1,396,845 - 1,396,845 - 1,396,845

Investment property - 247,000 - 247,000 - 147,000 - 147,000

Total assets 354,045 1,643,845 156,697 2,154,587 128,640 1,543,845 132,428 1,804,913

Group Company As at 31 December 2012 Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total Assets Shs’000 Shs’000 Shs’000 Shs’000 Shs’000 Shs’000 Shs’000 Shs’000

Financial assets

– Quoted shares 201,029 - - 201,029 102,389 - - 102,389

– Unquoted shares - - 212,029 212,029 - - 188,171 188,171

– Bonds - 1,574,744 - 1,574,744 - 1,574,744 - 1,574,744

Investment property - 261,600 - 261,600 - 180,000 - 180,000

Total assets 201,029 1,836,344 212,029 2,249,402 102,389 1,754,744 188,171 2,045,304

The fair value of other classes of financial assets and liabilities that are not traded in an active market (for example, unquoted equity investments) is determined by using valuation techniques. These valuation techniques maximise the use of observable market data where it is available and rely as little as possible on entity specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in level 2.

If one or more of the significant inputs is not based on observable market data, the instrument is included in level 3.

Specific valuation techniques used to value financial instruments include:

• Quoted market prices or dealer quotes for similar instruments

• The fair value government security is calculated as the present value of the estimated future cash flows based on observable yield curves.

• Other techniques, such as discounted cash flow analysis, are used to determine fair value for the remaining financial instruments.

Note that all of the resulting fair value estimates are included in level 2 or 3 .There were no transfers into or our of level 3 during the period

Notes (cont’d)

103


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207,5

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- 62

1,802

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206,

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(3

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(967

) 9,

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1,538

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: Rei

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4,71

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556,

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1,142

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6 35

4,43

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Supplementary information (cont’d)

104


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2,82

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5,40

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717,

617

469,

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297,

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960

138,

890

51,6

08

647,8

78

37,8

01

34,5

69

300,

118

1,962

,000

Chan

ge in

gro

ss o

/s c

laim

s 8,

487

(510

) (3

20,9

93)

4,17

8 16

,117

(101

) 23

,743

70

,350

38

,297

(2

3,10

3)

22,3

86

2,97

8 4,

842

(153

,329

)

Less

: Rei

nsur

ance

reco

vera

ble

22,0

55

(206

) (1

13,6

73)

(3,9

14)

11,3

45

(98)

29

,325

12

,939

15

,320

49

4,22

0 3,

706

29

200,

527

671,5

75

Net

cla

ims

incu

rred

9,

421

30,19

5 90

,940

17

,863

17

,429

(3

) 37

1,378

19

6,30

1 74

,585

13

0,55

5 56

,481

37

,518

10

4,43

3 1,1

37,0

96

Com

mis

sion

s re

ceiv

able

(6

2,02

4)

(324

) (1

80,7

79)

(32,

232)

(1

2,29

3)

- (6

,341

) (5

,149)

(2

4,31

0)

(250

,215

) (1

,646

) (2

,325

) (1

6,54

0)

(594

,178)

Com

mis

sion

s pa

yabl

e 49

,017

21

,509

13

6,72

7 28

,215

24

,980

-

71,9

58

49,5

70

95,3

45

128,

271

15,9

48

47,4

64

29,3

09

698,

313

Expe

nses

of m

anag

emen

t 23

,247

43

,122

102,

909

45,9

75

26,11

9 -

218,

536

144,

183

104,

504

324,

859

26,4

85

69,9

11

59,5

33

1,189

,383

Tota

l exp

ense

s an

d co

mm

issi

ons

10,2

40

64,3

07

58,8

57

41,9

58

38,8

06

- 28

4,15

3 18

8,60

4 17

5,53

9 20

2,91

5 40

,787

11

5,05

0 72

,303

1,2

93,5

18

Unde

rwrit

ing

profi

t/ (l

oss)

12

,779

30

,900

(2

3,19

3)

30,8

11

14,12

7 3

62,0

86

84,7

63

47,7

49

(75,

477)

(9

,280

) 68

,090

15

,219

25

8,57

8 tr

ansf

erre

d to

P &

L a

ccou

nt -

2012

Key

ratio

s:

Loss

rati

o (n

et c

laim

s in

curr

ed

/ ne

t ear

ned

prem

ium

) 29

24

69

20

25

-

52

42

25

51

64

16

59

42

Com

mis

sion

s ra

tio

(com

mis

sion

s

paya

ble

/ gr

oss

prem

ium

wri

tten

) 15

15

11

9

16

- 10

11

22

12

14

19

12

13

Expe

nse

rati

o (m

anag

emen

t exp

ense

s

/

gros

s w

ritt

en p

rem

ium

) 8

30

8 14

17

-

31

31

27

31

28

28

16

21


105


Com

pany

Sho

rt t

erm

insu

ranc

e bu

sine

ss r

even

ue a

ccou

nt –

20

13

Clas

s of

insu

ranc

e En

gine

Fi

re

Fire

Mot

or

Mot

or

Pers

onal

Mis

cel

2013

Busi

ness

-e

ring

Dom

estic

In

dust

rial

Liab

ility

M

arin

e Av

iatio

n Pr

ivat

e Co

mm

erci

al

Acci

dent

M

edic

al

Thef

t W

.C.A

-la

neou

s To

tal

Sh

s`00

0 Sh

s’000

Sh

s’000

Sh

s’000

Sh

s’000

Sh

s’000

Sh

s’000

Sh

s’000

Sh

s’000

Sh

s’000

Sh

s’000

Sh

s’000

Sh

s’000

Sh

s’000

Gro

ss p

rem

ium

s w

ritt

en

211,

224

137,

703

317,

487

174

,742

61

,373

-

464

,134

37

4,2

79

259,

613

1,11

8,24

1 85

,684

21

9,83

0

124

,752

3,5

49,0

62

Chan

ge in

gro

ss U

PR

(97,

327)

2,

884

(6,9

74)

(42,

466)

29

7 -

514

(8,1

55)

24,6

77

25,1

54

(1,4

64)

(7,0

74)

(321

) (1

10,2

55)

Less

: rei

nsur

ance

pay

able

87

,480

8,

430

22

6,23

5 88

,779

11

,264

-

14,9

28

12,2

10

27,2

82

962,

030

91

4 4

,194

58

,651

1,

502,

397

Net

ear

ned

prem

ium

s 26

,417

13

2,15

7 84

,278

4

3,4

97

50,4

06

- 4

49,

720

35

3,91

4

257,

00

8 18

1,36

5 83

,30

6 20

8,56

2 65

,780

1,

936,

410

Gro

ss c

laim

s pa

id

5,94

7 35

,751

39

,631

8,

948

6,85

6 -

300

,317

15

4,4

44

60,0

43

682,

953

29,5

43

45,6

26

18,3

83

1,38

8,44

2

Chan

ge in

gro

ss o

/s c

laim

s 2,

174

92

(52,

333)

13

,058

(4

,768

) 2,

754

(38,

591)

(6

,434

) 28

7 77

4 (1

2,48

1)

1,0

31

5,52

9 (8

8,90

8)

Less

: Rei

nsur

ance

rec

over

able

1,

231

(998

) (4

,959

) 12

,428

(7

58)

88

14,1

95

2,94

9 1,

217

556,

870

1,

278

(224

) 5,

787

589,

104

Net

cla

ims

incu

rred

6,

890

36

,84

1 (7

,74

3)

9,57

8 2,

846

2,66

6 24

7,53

1 14

5,0

61

59,1

13

126,

857

15,7

84

46,

881

18,1

25

710

,430

Com

mis

sion

s re

ceiv

able

(1

9,79

7)

(467

) (5

6,32

9)

(22,

761)

(3

19)

- (1

72)

(1,2

68)

(6,3

17)

(264

,386

) -

(963

) (1

0,6

74)

(383

,453

)

Com

mis

sion

s pa

yabl

e 12

,889

21

,240

58

,80

2 15

,50

4 13

,479

-

41,2

42

32,5

05

69,2

73

51,1

94

11,1

25

40,8

39

12,8

56

380

,948

Expe

nses

of m

anag

emen

t

21,0

03

43,4

86

74,1

24

22,4

69

18,7

84

- 14

5,93

0

117,

733

81,5

33

258,

742

26,9

40

69,1

17

38,2

14

918,

075

Tota

l exp

ense

s an

d

co

mm

issi

ons

14,0

95

64,2

59

76,5

97

15,2

12

31,9

44

-

187,

00

0

148,

970

14

4,4

89

45,

550

38

,065

10

8,99

3 4

0,3

96

915,

570

Und

erw

riti

ng p

rofit

/(lo

ss)

5,4

32

31,0

57

15,4

24

18,7

07

15,6

16

(2,6

66)

15,1

89

59,8

83

53,4

06

8,95

8 29

,457

52

,688

7,

259

310

,410

Tran

sfer

red

to P

& L

acc

ount

Key

rati

os:

Loss

rati

o (n

et c

laim

s in

curr

ed

/ ne

t ear

ned

prem

ium

) 26

28

(9

) 22

6

- 55

41

23

70

19

22

28

37

Com

mis

sion

s ra

tio

(com

mis

sion

s pa

yabl

e

/

gros

s pr

em w

ritt

en)

6 15

19

9

22

- 9

9 27

5

13

19

10

11

Expe

nse

rati

o (m

anag

emen

t exp

s

/

gros

s w

ritt

en p

rem

) 10

32

23

13

31

-

31

31

31

23

31

31

31

26


106


Com

pany

Sho

rt t

erm

insu

ranc

e bu

sine

ss r

even

ue a

ccou

nt –

20

12

Clas

s of

insu

ranc

e En

gine

Fi

re

Fire

Mot

or

Mot

or

Pers

onal

Mis

cel

2012

Busi

ness

-e

ring

Dom

estic

In

dust

rial

Liab

ility

M

arin

e Av

iatio

n Pr

ivat

e Co

mm

erci

al

Acci

dent

M

edic

al

Thef

t W

.C.A

-la

neou

s To

tal

Sh

s`00

0 Sh

s’000

Sh

s’000

Sh

s’000

Sh

s’000

Sh

s’000

Sh

s’000

Sh

s’000

Sh

s’000

Sh

s’000

Sh

s’000

Sh

s’000

Sh

s’000

Sh

s’000

Gro

ss p

rem

ium

s w

ritt

en

160

,717

14

1,69

7 30

7,91

8 14

2,53

5 62

,513

-

503,

919

346,

680

29

7,15

0

1,0

35,7

64

81,3

81

208,

328

117,

092

3,4

05,

694

Chan

ge in

gro

ss U

PR

(25,

142)

(1

,342

) (6

,243

) (9

26)

35

- 87

,428

44

,937

(3

9,83

2)

(89,

466)

39

7 39

9 (1

5,39

5)

(45,

150

)

Less

: rei

nsur

ance

pay

able

12

0,4

18

14,9

53

220

,724

10

2,55

8 8,

553

- 6,

430

11

,961

31

,848

68

8,30

5 2,

432

3,97

6 47

,20

3 1,

259,

361

Net

ear

ned

prem

ium

s 15

,157

12

5,4

02

80,9

51

39,0

51

53,9

95

- 58

4,9

17

379,

656

225,

470

25

7,99

3 79

,34

6 20

4,7

51

54,4

94

2,10

1,18

3

Gro

ss c

laim

s pa

id

4,2

11

30,4

99

105,

279

6,48

0

11,4

79

- 27

3,12

6 10

0,7

24

35,0

06

647,

878

29,1

69

33,2

40

13,9

50

1,29

1,0

41

Chan

ge in

gro

ss o

/s c

laim

s 9,

661

(510

) 55

,211

4

,064

(1

,171

) (1

01)

19

,943

34

,686

28

,579

(2

3,10

3)

15,8

20

5,0

66

(3,7

43)

144

,40

2

Less

: Rei

nsur

ance

rec

over

able

8,6

07

(20

6)

100

,959

36

7 (3

02)

(9

8)

(7,4

00

) (3

,135

) 3,

967

494

,220

(2

,512

) (1

9)

1,33

2 59

5,78

0

Net

cla

ims

incu

rred

5,

265

30,1

95

59,5

31

10,1

77

10,6

10

(3)

300

,469

13

8,54

5 59

,618

13

0,5

55

47,

501

38,3

25

8,87

5 83

9,66

3

Com

mis

sion

s re

ceiv

able

(3

9,25

3)

(324

) (6

2,14

9)

(20

,20

9)

(540

) -

- (3

38)

(8,2

63)

(250

,215

) (1

15)

- (1

0,7

00

) (3

92,1

06)

Com

mis

sion

s pa

yabl

e 33

,461

21

,50

9 65

,258

16

,365

13

,544

-

51,0

56

33,8

21

68,7

73

128,

271

10,7

94

39,9

13

15,1

49

497,

914

Expe

nses

of m

anag

emen

t

12,0

08

43,1

22

70,1

44

19,3

01

18,1

55

- 15

3,43

7 10

5,62

2 90

,350

32

4,8

59

24,5

72

63,4

33

21,3

30

946,

333

Tota

l exp

ense

s &

com

mis

sion

s 6,

216

64,3

07

73,2

53

15,4

57

31,1

59

- 20

4,4

93

139,

105

150

,860

20

2,91

5 35

,251

10

3,34

6 25

,779

1,

052

,14

1

Und

erw

riti

ng p

rofit

/(lo

ss)

3,67

6 30

,90

0

(51,

833)

13

,417

12

,226

3

79,9

55

102,

00

6 14

,992

(7

5,4

77)

(3,4

06)

63

,080

19

,84

0

209,

379

Tran

sfer

red

to P

& L

acc

ount

Key

rati

os:

Loss

rati

o (n

et c

laim

s in

curr

ed

/ ne

t ear

ned

prem

ium

) 35

24

74

26

19

-

51

36

26

51

60

19

16

40

Com

mis

sion

s ra

tio

(com

mis

sion

s

pa

yabl

e /

gros

s pr

em w

ritt

en)

21

15

21

11

22

- 10

10

23

12

13

19

13

15

Expe

nse

rati

o (m

anag

emen

t exp

s

/ gr

oss

wri

tten

pre

m)

7 30

23

14

29

-

30

30

30

31

30

30

19

28


107


HER

ITA

GE

INSU

RA

NCE

CO

MPA

NY

KEN

YA L

IMIT

ED -

FIN

AN

CIA

L R

ECO

RD

(CO

MPA

NY

)

FOR

TH

E TE

N Y

EAR

S EN

DED

31

DEC

EMB

ER 2

013

20

13

2012

20

11

2010

20

09

200

8 20

07

200

6 20

05

20

04

20

03

Res

tate

d

Sh

s’0

00

Sh

s’0

00

Sh

s’0

00

Sh

s’0

00

Sh

s’0

00

Sh

s’0

00

Sh

s’0

00

Sh

s’0

00

S

hs’0

00

S

hs’0

00

S

hs’0

00

Gro

ss W

ritt

en P

rem

ium

3,

549,

062

3,

406,

711

3,38

2,89

5 2,

649,

262

2,0

62,0

94

1,87

6,66

0

1,65

6,37

1 1,

409,

622

1,21

5,78

8 1,

153,

705

1,18

1,33

7

Net

Wri

tten

Pre

miu

m

1,96

2,88

0

1,92

7,95

0

2,37

1,46

0

2,25

7,20

4 1,

731,

328

1,57

5,41

0

1,33

8,47

1 95

4,8

68

789,

162

742,

224

789

,941

Prem

ium

ear

ned

1,93

6,41

0

2,10

3,17

2 2,

463,

819

1,93

6,87

4 1,

647,

516

1,4

29,5

98

1,17

9,24

0

873,

480

76

4,2

04

716,

929

786,

294

Clai

ms

incu

rred

71

0,4

30

839,

663

1,19

3,55

7 1,

053

,624

94

6,52

4 86

2,59

8 63

5,97

5 44

0,4

10

465,

163

488,

137

616,

572

Net

com

mis

sion

(2

,50

4)

100

,878

18

8,79

2 22

5,45

7 20

0,0

51

139,

908

94,4

39

60,7

82

50,7

38

53,7

32

28,5

99

Expe

nses

91

8,0

76

982,

838

882,

751

631,

643

499,

923

428,

671

421,

132

355,

103

271,

877

248,

135

250

,870

PRO

FIT

AN

D L

OSS

Und

erw

riti

ng p

rofit

/(lo

ss)

tran

sfer

red

to p

/l a

ccou

nt

310

,40

8 17

9,79

3 19

8,71

9 26

,150

1,

018

(1

,579

) 27

,694

17

,185

(2

3,57

4)

(73,

075

) (1

09,

747)

Polic

yhol

der

bonu

ses

& In

tere

st

– D

A s

chem

es (L

ong-

term

Bus

ines

s)

- (1

78,7

15)

(94

,416

) (1

40,9

77)

(73,

010

) (8

0,6

64)

(110

,860

) (1

11,3

21)

(56,

424)

(4

1,56

2)

-

Inve

stm

ent

and

othe

r in

com

e 41

9,25

7 72

6,34

3 56

5,20

5 40

2,43

7 21

2,13

2 30

0,8

17

465,

407

470

,323

29

1,0

86

315,

321

303,

566

Expe

nses

not

cha

rged

to

re

venu

e A

ccou

nt

(18,

539)

(6

3,32

4)

(22,

589)

(9

,074

) (1

1,0

29)

(47,

317)

(1

7,95

9)

(19,

014

) (1

4,0

20)

(2,2

05)

(

2,78

7)

Taxa

tion

(1

74,2

15)

(118

,388

) (1

03,

021

) (8

1,37

6)

(85,

936)

(9

3,57

4)

(81,

490

) (7

4,3

10)

(56,

197)

(3

8,32

9)

(

20,7

09)

Ope

rati

ng p

rofit

att

ribu

ted

to

Shar

ehol

der

536,

911

545,

709

543,

898

197,

160

43

,175

77

,683

28

2,79

2 28

2,86

5 14

0,8

71

160

,151

170

,323

Div

iden

ds

200

,00

0

400

,00

0

280

,00

0

435,

00

0

- 21

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108

Heritage Tanzania Abridged Annual Reports


DIRECTORS

The directors of the Company at the date of this report, all of whom have served since 1 January 2013, are shown on page 112.

COMPANY SECRETARY

Gemma MoshyP O Box 78196Dar es Salaam

SENIOR MANAGEMENT

Anil Chopra, MBA, AIII Chief Executive Officer

Ian Baigrie, NTC5, COP General Manager - Underwriting & Claims

Puneet Jain, ACA, ACS Chief Financial Officer

INDEPENDENT AUDITORS

PricewaterhouseCoopers 369 Toure Drive, Oyster BayPO Box 45 Dar es Salaam, Tanzania

REGISTERED OFFICE

Oyster Bay Office Complex 368 Msasani Road, Oyster BayPO Box 7390 Dar es Salaam,Tanzania

PRINCIPAL BANKERS

Citibank Tanzania Limited36 Upanga RoadPO Box 71625 Dar es Salaam,Tanzania

110


Chairman’s Statement

I once again have the pleasure of presenting the Annual Report for the financial year ended 31 December 2013. The Company has completed 15 years of business operations and despite many challenges in the operating environment maintained its preeminence in the Tanzanian insurance industry.

Market conditions

The Tanzanian economy continued to grow at a robust rate of around 7%. The overall macroeconomic performance has been stable with inflation declining to single digit. During the year shilling remained quite stable against major international currencies.

The newly found natural gas resources will play an important role in country’s economic transformation over the medium term. The expected Investments in the Oil and Gas sector will have cascading effect on other sectors of the economy.

The insurance industry expects growth in terms of business generated considering the volume of oil and gas business expected to be underwritten locally. The Insurance Market in Tanzania continued to grow at a higher rate than national nominal GDP, but underwriting results of the Industry as a whole have been consistently deteriorating over last few years, mainly due to excessive competition leading to downward pressure on the premium rates.

The Insurance business requires scale to maintain and support adequate level of services to their clientele, as also to develop and foster higher level of skills and expertise locally.

Business Performance

The gross written premium grew by 18% over the previous year. The net earned premium increased by 14%. Investment income grew by 22% over the previous year.

The underwriting profit declined to TShs 419 million in 2013 from TShs 903 million in 2012, mainly due to many large fire claims which occurred in 2013. As a result, the profit before tax at TShs 1,690 million is marginally lower in 2013 compared with profit before tax of TShs 1,955 million in 2012, excluding profit from the disposal of an equity interest in an Associate.

Reinsurance

The global reinsurance market had a challenging year in terms of ever increasing incidents of natural catastrophes and weather events. However the global reinsurance premium rates remained stable due to over capacity in the reinsurance market.

The Company’s reinsurance program underwent significant changes due to a number of large losses which occurred during the year. The Company is implementing suitable

measures to minimize the impact of these changes.

Operations

There were many large fire and engineering claims reported during the year. The Company has handled these claims in a very professional manner thus enhancing the reputation of the Company among our business partners and clients.

Operating expenses remained higher than the international benchmark of 10% of Gross Written Premium. There will be continuing focus on reducing the cost base of the business, and improving the top line.

Vodacom Faraja, a scheme to provide funeral benefits has been introduced on the MPesa platform. This is an effort to expand the market base.

Investments

Investments continue to be guided by Insurance Regulations and are overseen by the Investment Committee of the Board with the objective of maintaining investments in well secured institutions which deliver the best return and guarantee liquidity in the environment of short term insurance.

Prospects for 2014

The Company will continue to maintain focus on its core market segment of large corporate clients. It also will be making efforts to develop and strengthen business relationships with new business partners to broaden its client base.

Acknowledgements

I would like to extend my sincere thanks to all our brokers, customers, business partners and reinsurers for their continued support and reposing trust in the Company.

I thank the management and employees of the Company for their commitment to the values and ideals that Heritage represents.

I also acknowledge the support and guidance provided by the Commissioner of Insurance and his office.

Finally, my thanks go to my fellow Directors for their valuable guidance and support in all our endeavors.

YOGESH M. MANEK

CHAIRMAN

111


1 The Directors submit their report together with the audited financial statements for the year ended 31 December 2013, which disclose the state of affairs of The Heritage Insurance Company Tanzania Limited (“the Company”).

2 Incorporation

The Company is incorporated in Tanzania under the Companies Act as a limited liability company.

3 Vision

Our vision is to be the obvious and preferred choice of risk partner for buyers, intermediaries and reinsurers, and the point of reference for the Tanzania insurance industry.

4 Mission

Our mission is to maintain a viable and sustainable risk transfer enterprise that maximises returns for key stakeholder groups – our shareholders, business partners and staff.

5 Prinicipal activities

The Company is registered for general insurance business, which is its principal activity.

6 Composition of the board of directors

The directors of the Company at the date of this report and who have served since

1 January 2013, except where otherwise stated, are:-

Name Position Nationality

Yogesh M Manek Chairman TanzanianNanalal L Chohan Director TanzanianJohn H D Milne Director South African Michael L du Toit Director South African Juma V Mwapachu Director Tanzanian Stephen Lugalia Director Kenyan Peter N Gethi Director Kenyan

Alternate director

Name Position Nationality

Vinod. K. Dhall Alternate to Mr Nanalal. Indian L. Chohan

7 Company secretary

The Company’s Secretary as at the date of the report was Mrs. Gemma Moshy.

8 Corporate governance

The Board of Directors consists of 7 directors and 1 alternate director. None of the directors hold executive positions in the Company. The Board takes overall responsibility for the Company, including responsibility for identifying key risk areas, considering and monitoring investment decisions, considering significant financial matters, and reviewing the performance of management business plans and budgets. The Board is also responsible for ensuring that a comprehensive system of internal control policies and procedures is operative, and for compliance with sound corporate governance principles.

The Board is required to meet at least four times a year. The Board delegates the day to day management of the business to the Chief Executive Officer assisted by the Management Team. The Management Team is invited to attend board meetings and facilitate the effective control of the Company’s operational activities, acting as a medium of communication and coordination between the various departments.

The Company is committed to the principles of effective corporate governance. The Directors also recognize the importance of integrity, transparency and accountability. During the year the Board had the following Board sub-committees to ensure a high standard of corporate governance throughout the Company.

Board Audit and Risk Committee

No. Name Position

1 Vinod K. Dhall Chairman2 John H. D. Milne Member 3 Stephen Lugalia Member4 Peter N Gethi Member

Board Investment Committee

No. Name Position

1 Yogesh M. Manek Chairman2 John H. D. Milne Member3 Vinod K. Dhall Member

Board Human Resources and Remuneration Committee

No. Name Position

1 John H. D. Milne Chairman2 Yogesh M. Manek Member3 Juma V. Mwapachu Member (Appointed July 2013)

REPORT OF THE DIRECTORS

112


During the year the Board of Directors held 6 meetings. The Board sub-committees held the following number of meetings: Audit and Risk Committee 5; Investment Committee 6; and Human Resources and Remuneration Committee 3 meetings.

9 Risk management and internal control

The Board accepts final responsibility for the risk management and internal control systems of the Company. It is the task of management to ensure that adequate internal financial and operational control systems are developed and maintained on an ongoing basis in order to provide reasonable assurance regarding:

• The effectiveness and efficiency of operations;• The safeguarding of the Company’s assets;• Compliance with applicable laws and regulations;• The reliability of accounting records;• Business sustainability under normal as well as adverse

conditions; and• Responsible behaviors towards all stakeholders.

The efficiency of any internal control system is dependent on the strict observance of prescribed measures. There is always a risk of non-compliance with such measures by staff. Whilst no system of internal control can provide absolute assurance against misstatement or losses, the Company’s system is designed to provide the Board with reasonable assurance that the procedures in place are operating effectively.

The Board assessed the internal control systems throughout the financial year ended 31 December 2013 and is of the opinion that they met accepted criteria.

The Board performs risk and internal control assessment through the Board Audit and Risk Committee.

10 Capital structure

The Company’s capital structure for the year under review is shown in Note 14 to the financial statements.

11 Management team

The management of the Company is under the Chief Executive Officer, assisted by the following:-

• Chief Financial Officer;• General Manager - Underwriting & Claims• Human Resources Officer and• Systems Administration Manager.

12. Shareholders of the company

The total number of shareholders during the year 2013 is 2 (2012: 2 shareholders). One director, Mr. Yogesh M. Manek has an indirect interest in 37.44% of the shares of the Company through his shareholding in MAC Group Tanzania Limited. No other director holds shares of the Company.

The shares of the Company are held as follows:

Name of the Shareholder 2013 2012

number number

of Shares of Shares Heritage Insurance

Company Limited 36,000 36,000 MAC Group Tanzania

Limited 24,000 24,000 60,000 60,000

13 Future Development funds

The Company will continue to improve its profitability through the introduction of innovative products and focusing on value-added customer services while carefully managing both costs and risks. The Company will continue to focus on improving productivity and introducing new products to the market.

Based on gross premium written in the current year, the Company is one of the largest private insurance Company in Tanzania. After deducting reinsurance premium, the Company registered net earned premium of TShs 12,323 million (2012: TShs 10,771 million).

The directors believe that the Company is well placed to consolidate its position as a leading Company in the market during the next two to three years.

14 Performance for the year

During the year the Company recorded a net profit after tax for the year of TShs 1,733 million (2012: TShs 2,922 million).

15 Transfer to reserve

An amount of TShs 347 million (2012: TShs 584 million), has been transferred from the retained earnings to a contingency reserve, in accordance with Regulation 27 (2) (b) of the Insurance Act 2009.

Report of the directors (cont’d)

113


16 Dividend

The directors propose payment of a dividend of TShs 1.5 billion equivalent to TShs 25,000 per share (2012: TShs 964 million equivalent to TShs 16,073 per share).

17 Resources

Employees with appropriate skills and experience in running the business are a key resource available to the Company and they assist in pursuing the Company’s business objectives.

18 Principles risks and uncertainities

The principal financial risks that may significantly affect the Company’s strategies and development are mainly insurance risk, credit risk, debt and equity market price, foreign currency exchange rate and interest rate risk. More details of the risks facing the Company are provided in Note 3 to the financial statements.

19 Serious prejudicial matters

In the opinion of the directors, there are no serious prejudicial matters that can affect the Company.

20 Solvency

The Board of directors confirms that applicable accounting standards have been followed and that the financial statements have been prepared on a going concern basis. The Board of directors has reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future.

21 Employees’ welfare

Management and employees’ relationship

There was continued good relation between employees and management for the year 2013. There were no unresolved complaints received by Management from the employees during the year. A healthy relationship continues to exist between management and staff.

The Company is an equal opportunity employer. It gives equal access to employment opportunities and ensures that the best available person is appointed to any given position free from discrimination of any kind.

Training facilities

During the year the Company spent TShs 17 million (2012: TShs 20 million) for staff training in order to improve employees technical skills and hence effectiveness. Training programs have been and are continually being

developed to ensure employees are adequately trained at all levels. All employees have some form of annual training to upgrade skills and enhance development.

Medical assistance

All members of staff and their spouses up to a maximum number of four beneficiaries (dependants) for each employee were availed medical services by the Company through medical insurance.

Persons with disabilities

Applications for employment by disabled persons are always considered, bearing in mind the aptitude of the applicant concerned. In the event of members of staff becoming disabled, every effort is made to ensure that their employment with the Company continues and appropriate training is arranged. It is the policy of the Company that training, career development and promotion of persons with disabilities should, as far as possible, be identical to that of other employees.

Employees benefit plan

The Company pays contributions to publicly administered pension plan on mandatory basis which qualifies to be a defined contribution plan. The number of employees during the year was 47 (2012: 46).

22 Gender parity

The Company had 47 employees, out of which 22 were female and 25 were male (2012: female 22, male 24).

23 Related party transactions

All related party transactions and balances are disclosed in note 38 to these financial statements.

24 POLITICAL AND CHARITABLE DONATIONS

The Company did not make any political donations during the year. Donations made to charitable and other organizations during the year amounted to TShs 2.8 million (2012: TShs 12.3 million).

25 RELATIONSHIP WITH STAKEHOLDERS

The Company continued to maintain a good relationship with all stakeholders including the regulators.

26 CORPORATE SOCIAL RESPONSIBILITY (CSR)

The Company encourages its employees’ initiatives on participating in the CSR activities. Various activities were carried out during the year including visiting orphanage centres.


114


27 Auditors

The auditors, PricewaterhouseCoopers, have expressed their willingness to continue in office and are eligible for re-appointment. A resolution proposing an appointment of the Company’s auditors for the year ending 31 December 2014 will be put to the Annual General Meeting.

By order of the board

Yogesh M Manek

Chairman


115


The Directors confirm that suitable accounting policies have been used and applied consistently and reasonable and prudent judgments and estimates have been made in the preparation of the financial statements for the year ended 31 December 2013. The directors also confirm that applicable accounting standards have been followed and that the financial statements have been prepared on the going concern basis.

The directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Company and which enable them to ensure that the financial statements comply with the Companies Act, CAP 212 Act No. 12 of 2002. They are responsible for safeguarding the assets of the Company and, hence, for taking reasonable steps for the prevention and detection of fraud or other irregularities.

No matters have come to the attention of the directors to indicate that the Company will not remain a going concern for at least the ensuing financial year.

Yogesh M Manek John HD Milne

Chairman Director

Statement of directors’ responsibilities

116


Statement of Profit and Loss and other Comprehensive Income

2013 2012 TShs’000 TShs’000

Insurance premium revenue 43,263,685 39,449,432

Insurance premium ceded to reinsurers (30,940,639) (28,677,937)

Net insurance premium revenue 12,323,046 10,771,495

Investment income 2,189,333 1,564,857

Commission earned 3,383,823 3,708,030

Profit on disposal of Associate - 3,628,008

Other income 113,365 32,872

Net income 18,009,567 19,705,262

Insurance claims (95,685,466) (6,848,751)

Insurance claims recovered from reinsurers 89,270,772 1,390,862

Net insurance claims (6,414,694) (5,457,889)

Operating expenses (5,462,735) (5,323,611)

Finance costs - (16,655)

Commission expense (4,305,226) (3,677,322)

Profit from operations 1,826,912 5,229,785

Share of (loss)/ profit from associates (136,872) 352,847

Profit before income tax 1,690,040 5,582,632

Income tax credit/ (expense) 42,685 (2,660,196)

Profit for the year 1,732,725 2,922,436

Other comprehensive income:

Items that may be subsequently reclassified to profit or loss:

Gain on fair valuation of available for sale financial assets (AFS) 1,913,277 107,438

Transfer to profit or loss of share of other comprehensive income on disposal of Alliance - (1,205,240)

Transfer to profit or loss of fair valuation of available for sale financial assets (AFS) on disposal of TOL (5,992) -

Share of other comprehensive income of associates 100,714 327,585

Total comprehensive income for the year 3,740,724 2,152,219

Financial statements

117


Statement of of financial position as at 31 December 2013

2013 2012 TShs’000 TShs’000

ASSETS

Property and equipment 119,561 215,917

Intangible assets - 4,979

Held for sale investment in associates 1,276,161 822,569

Available-for-sale quoted equity investments 4,106,903 1,801,159

Available-for-sale unquoted investment 442,182 442,182

Receivables arising out of direct insurance arrangements 9,273,178 7,670,125

Receivables arising out of reinsurance arrangements 4,356,327 2,916,944

Reinsurers’ share of insurance liabilities 52,507,339 20,844,369

Deferred acquisition cost 2,163,443 1,498,872

Deferred income tax 243,176 82,205

Income tax recoverable 444,303 -

Other receivables 3,334,577 6,754,658

Government securities held to maturity 4,320,771 4,156,118

Corporate bonds held to maturity 449,705 4,223,296

Deposits with financial institutions 11,300,640 7,047,774

Cash and bank balances 1,493,985 820,461

Total assets 95,832,251 59,501,628

LIABILITIES

Insurance contract liabilities 48,175,775 18,017,676

Unearned premiums 19,100,808 16,448,097

Payables arising from reinsurance arrangements 8,409,292 6,291,742

Deferred acquisition income 1,390,629 1,526,058

Income tax payable - 1,644,426

Other payables 1,320,438 914,640

Total liabilities 78,396,942 44,842,639

EQUITY

Share capital 6,000,000 6,000,000

Contingency reserve 4,075,177 3,728,632

Fair value reserve 2,774,627 766,627

Retained earnings 3,085,505 3,199,326

Proposed dividend 1,500,000 964,404

Total equity 17,435,309 14,658,989

Total equity and liabilities 95,832,251 59,501,628

The financial statements were approved for issue by the board of directors and signed on its behalf by:

YOGESH M. MANEK JOHN H.D.MILNE ANIL CHOPRA

CHAIRMAN DIRECTOR CHIEF EXECUTIVE OFFICER

Financial statements (cont’d)

118

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945

221,

960

29

1,81

6 42

9,99

6 61

7,13

1 37

2,22

4 46

,143

15

9,25

7 54

8,91

7 4

,30

5,22

6 3,

677,

322

Expe

nses

of m

anag

emen

t

125,

521

558,

478

491,

097

13

1,65

7 90

8,68

6 1,

358,

424

242,

025

23

,912

95

,081

63

2,78

6 4

,567

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4

,441

,512

Tota

l exp

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s an

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mm

issi

ons

63,8

12

79,9

57

507,

448

160

,026

1,

240

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1,

840

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51

8,26

4 59

,444

21

7,16

8 80

1,87

1 5,

489,

070

4

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,80

5

Und

erw

riti

ng p

rofit

/(lo

ss)

26

7,32

8 (1

15,4

71)

347,

263

(81,

917)

11

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(6

32,8

79)

650

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(6

6,20

9)

44

0,8

93

(40

1,39

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419

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90

2,80

1

Key

rati

os

Loss

rati

o

23%

10

4%

-2%

71

%

35%

62

%

19%

10

4%

-3

%

84

%

52%

51

%

Com

mis

sion

rati

o

15%

6%

5%

12

%

15%

14

%

18%

22

%

20

%

12%

9%

9%

Expe

nse

rati

o

5%

3%

12%

5%

3

2%

32%

12

%

11%

1

2%

1

4%

10%

11

%

Ann

ual R

epor

t an

d Fi

nanc

ial S

tate

men

ts 2

013

119

Fina

ncia

l sta

tem

ents

(con

t’d)

Gen

eral

Insu

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e B

usin

ess

Rev

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Acc

ount

20

12

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insu

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e Bu

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re

Mot

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2012

20

11

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dust

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2 4

5

6 7

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rem

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wri

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2,73

7,23

8 18

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711

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13

3,53

2,93

6 1,

771,

453

238,

485

806,

746

4,6

52,7

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38,9

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PR

(294

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(3

3,69

1)

(3

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(22

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5)

460

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(5

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)

Gro

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2,

442,

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19,8

42,9

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1,57

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2,

152,

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3,10

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1,85

9,33

8 20

4,7

94

7

67,4

90

4,4

23,5

23

39,4

49,4

32

31,9

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59

Less

: rei

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2,

125,

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19,0

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6 1,

274

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4 5

00

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66

6,0

52

530

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46

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2

475

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1,

919,

599

28,6

77,9

37

22,5

62,3

87

Net

ear

ned

prem

ium

s 31

7,15

0

837,

725

946,

507

300

,34

5 1,

651,

713

2,4

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37

1,32

8,59

9 15

8,59

2

291

,90

3 2,

503,

924

10

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9,

391,

672

Net

Wri

tten

42

1,37

5 85

0,6

17

956,

031

29

9,0

91

1,5

68,1

87

2,73

9,58

6 1,

256,

712

183,

741

6

18,9

08

2,26

8,61

2 11

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10

,192

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Gro

ss c

laim

s pa

id

344

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3,

541,

195

60,3

97

21,6

10

700

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1,

905,

356

304

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158

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24

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5,

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187

12,3

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16

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69

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17

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(3

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157,

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(5,4

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66)

6,74

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2

Less

: Rei

nsur

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rec

over

able

24

6,76

7 (3

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) (7

8,56

4)

213,

723

294

,949

67

3,91

0

208,

331

114

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4

8

80

3,65

5,25

6 1,

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9,

364

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Net

cla

ims

incu

rred

76

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57

6,35

0

141,

057

12

5,11

7 1,

059

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1,

301,

172

274

,64

0

164

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(1

4,7

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1,75

3,4

49

5,4

57,8

89

5,4

67,6

74

Com

mis

sion

rec

eiva

ble

(4

17,8

57)

(2,0

79,1

54)

(220

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) (2

29,8

28)

(88

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) (1

16,3

65)

(294

,462

) (2

8,0

85)

(

42,6

65)

(190

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0)

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030

) (3

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)

Com

mis

sion

pay

able

28

5,45

8 1,

213,

745

217,

445

223,

995

288,

987

383,

547

487,

598

94,5

77

138,

570

34

3,40

1 3,

677,

322

2,54

2,97

6

Expe

nses

of m

anag

emen

t

206,

227

601,

239

489,

464

14

6,13

7 70

7,59

9 1,

194

,572

25

9,71

7 35

,10

2

118

,877

68

2,57

8 4

,441

,512

4

,450

,760

Tota

l exp

ense

s an

d co

mm

issi

ons

73,8

28

(264

,170

) 48

6,28

4 14

0,3

04

908,

297

1,46

1,75

4 45

2,85

3 10

1,59

4

214

,782

835

,279

4

,410

,80

5 3,

830

,50

7

Und

erw

riti

ng p

rofit

/(lo

ss)

16

7,0

40

52

5,54

5 31

9,16

6 34

,924

(316

,416

) (3

27,8

89)

601,

106

(10

7,78

6)

91,9

15

(84

,80

4)

902,

801

93,4

91

Key

rati

os

Loss

rati

o

24%

69

%

15%

42

%

64

%

53%

21

%

104%

-

5%

70%

51

%

58%

Com

mis

sion

rati

o

10%

7%

7%

13

%

14

%

11%

19

%

16%

1

7%

11%

9%

7%

Expe

nse

rati

o

8%

3%

15%

9%

34%

34

%

15%

15

%

15%

15

%

11%

12

%

Ann

ual R

epor

t an

d Fi

nanc

ial S

tate

men

ts 2

013

120

Fina

ncia

l sta

tem

ents

(con

t’d)


NOTES

121


NOTES

122

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