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Annual Report and Financial Statements 2014 - ICEA LION Life Assurance

Chairman's Statement 3 - 5

Corporate Information 7 - 8

Board of Directors 10 - 12

Management Team 14 - 16

Directors' Report 18

Corporate Governance Statement 20 - 24

Corporate Social Responsibility 26

Statement of Directors' Responsibilities 28

Report of Parent Company Consulting Actuary 30

Financial Performance Highlights 32

Awards and Accolades 34

Independent Auditor's Report 36

Financial Statements

Consolidated Statement of Comprehensive Income 38

Consolidated Statement of Financial Position 39

Company Statement of Financial Position 40

Consolidated Statement of Changes in Equity 41

Company Statement of Changes in Equity 42

Consolidated Statement of Cash Flows 43

Notes to the Financial Statements 44 - 103

Appendices

Company Statement of Comprehensive Income 105

Group Long Term Business Revenue Account 106

Company Long Term Business Revenue Account 107

Consolidated General Business Revenue Account 108 - 109

TABLE OF CONTENTS

1

CHAIRMAN’S STATEMENT



Introduction

I am pleased to present the audited financial statements of ICEA LION Life Assurance Company Limited for the year ended 31st December 2014.

During the year there was a continued focus on profitability underpinned by the sustained execution of our product, underwriting and pricing strategy.

The Economy

The macroeconomic stability witnessed in 2013 continued into 2014 and Kenya’s Gross Domestic Product expanded by 5.3%. Key sectors recording considerable growth included Information Communication & Technology, Building & Construction and Financial Services while Agriculture and Tourism recorded reduced fortunes. The resilience and strong performance of the private sector, the implementation of the Government’s signature projects – such as the construction of the New Standard Gauge Railway (SGR) project, the Lamu Port South Sudan Ethiopia Transport (LAPSSET) corridor project and the energy projects – as well as the exploitation of oil discoveries made in Northern Kenya all augur well for sustained and high economic growth for Kenya and the Eastern Africa region, over the medium - to long term.

In 2014, Central Bank of Kenya (CBK) developed the Kenya Bankers Reference Rate (KBRR), a new benchmark rate, which is a weighted average of the Central Bank Rate and weighted two months moving average of 91 day Treasury bill rate. The Kenya Bankers Reference Rate was set in July 2014 at 9.13%p.a., which was maintained up to the end of the year. During the year the CBK also introduced the Annual Percentage Rate (APR) that requires all banks to disclose the total cost of credit they offer to customers, enhancing transparency in credit pricing.

The equity market at the Nairobi Securities Exchange (NSE) recorded gains in share price increases with NSE 20 Share index closing the year at 5112 points compared to 4926 points at end of 2013. This represents 4% improvement while the turnover grew by 39% from Kshs 155 billion in 2013 to Kshs 216 billion in 2014.

The Kenya shilling weakened by 5% against the US dollar due to lower hard currency inflows particularly from the tourism sector and the strong growth momentum in the US economy resulting in the US dollar appreciating against most world currencies. The CBK ran a cautious monetary policy through the year that saw the Kenya Shilling enjoy stability for a prolonged period.

The annual average inflation for 2014 declined to 6.02% in December 2014 from 7.2% in December 2013. The downward trend was attributed to a slowdown in the increase of food prices and decline in fuel prices. The Central Bank aims to contain inflation rate within the target level of 5%.James P M Ndegwa

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The Insurance Industry

In 2014 the life assurance sector recorded gross written premium including retirement benefits contributions of Kshs 56.5 billion compared to Kshs 44.1 billion in 2013, which was a growth of 28.1%. The high growth is attributed to the Government insuring civil servants and disciplined forces and the purchase of bulk annuities by retirement benefit schemes converting from a defined benefit to a defined contribution basis. During the year Insurance Regulatory Authority (IRA) published the draft Insurance Bill, 2014. This bill if enacted into law will overhaul the Insurance Act to align Kenya’s Insurance Industry with international best practice by introducing a risk based supervisory model. The model measures the minimum amount of capital appropriate for a reporting entity to support its overall business operations in consideration of its size and risk profile.

Group Performance

The Group continues to be committed to the growth and development of its various types of businesses; life assurance, pensions, asset management, general insurance, trusteeship and scheme administration.

In 2014 the Group recorded growth in both premium and contributions. The consolidated premium and contributions grew by 3% to Kshs 7.58 billion from Ksh 7.37 billion in 2013. Investment and related income marginally declined from Kshs 5.995 billion in 2013 to Kshs 5.648 billion on account of slowed performance in the stock exchange and property market.

Company Performance

The Company’s total assets grew from Kshs 41.46 billion in 2013 to Kshs 47.9 billion, recording a growth of 15.5%. This growth is attributed to prudent investment management and growth in gross premiums which increased by 16.4%.

The actuarial surplus generated in 2014 was Kshs 8.98 billion, which is a 15.4% improvement over Kshs 7.78 billion achieved in 2013. In line with the good performance generous interest rates and bonuses have been credited to retirement benefit schemes under management and “with profits” ordinary life policies.

The life fund grew from Kshs 36.6 billion in 2013 to Kshs 42.3 billion in 2014. This represents a growth of 15.64%.

Our undisputed financial strength anchors our ability to live up to the guarantees and promises we make.

Awards and Recognition

ICEA LION Life Assurance has over the years been recognized for its professionalism and customer service and 2014 was no exception:

- Think Business Insurance Industry Survey

ICEA LION Life Assurance scooped the Life Insurer of the Year Award, for the second year running. Apart from retaining the much coveted accolade of Life Insurer of the Year, the Company also won the Customer Service and Risk Management awards.

- AKI Awards

Among the Company’s strength is the development of its sales team. The Company places great emphasis on its recruitment and training programmes in order to have sales agents who sell quality business. In 2014 during the Association of Kenya Insurers (AKI) Award Ceremony, the Company was the first runners up and produced the second best sales agent in Kenya.

- Best Company to Work For Survey

We emerged top in the insurance category during the Best Company to Work For Survey in 2014 organized by Deloitte Consulting (Pty) Limited of South Africa. The survey is conducted annually and aims to identify and celebrate the best companies to work for.

Towards a new strategy

ICEA LION Life is focused on maintaining its insurance statesmanship through the development of new relevant contemporary products and services that are among the first in East Africa. The Company is the first to develop term assurances with return of

premium features, and to register a retirement scheme in United Kingdom.

Our Subsidiaries

ICEA LION Life Assurance Company Limited operates four wholly owned subsidiaries in Kenya and Uganda.

Kenya Subsidiaries

ICEA LION Asset Management Limited (ILAM)

ILAM offers comprehensive investment expertise, skill and experience to private clientsand also plays a major role in the investment activities of the Group. In 2014 ILAM

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performed very well despite operating in a sector that remains highly competitive.The top line grew by 36% while profitability grew by a much sharper 51%during the same year. ILAM for the first time participated in The Think Business Awards and earned itself its own well-deserved accolades including:

- Overall Fund Manager of the Year;

- Unit Trust of the Year; and,

- Fund Manager of the Year – Pensions.

ITSL Trust Company Limited

ITSL offers scheme administration and trust services. During the year it acquired more mandates in both trusteeship and scheme administration. This enabled the company to grow its income by 25% and profits before tax by 23%.

Uganda Subsidiaries

ICEA Life Assurance Company Limited (formerly Insurance Company of East Africa (U) Limited)

In order to comply with local regulations ICEA (U) Limited was demerged in September 2014. The general business was transferred to ICEA General Insurance Company Limited while the life business was retained by the company which subsequently changed its name to ICEA Life Assurance Company Limited. In 2014 the gross premiums and contributions grew by 10%, investment income by 21% and life fund by 23%. All classes of business generated positive surplus which allowed crediting of interest and bonus declarations at competitive rates.

ICEA General Insurance Company Limited

As explained, ICEA General Insurance Company Limited is a new company incorporated in Uganda in 2013 and it took over the general business of former Insurance Company of East Africa (U) Limited. In 2014 the company was in operation for only four months. The gross premium grew by 10% while investment income grew by 11.9% due to exchange gains and higher interest rates.

Looking Ahead

Today, ICEA LION Life Assurance Company Limited is a market leader in many aspects of its businesses, and we have continued to invest to strengthen our position in the industry in a sustainable manner. We believe with our strategy, human capital and financial resources, we are well positioned to deliver growth and value in 2015 and the years beyond. We acknowledge the work ahead is hard. The market is very competitive but we are committed to our core business – insurance will continue to grow in future –and we will continue to:

- Be client focused;

- Practice and promote integrity;

- Deliver our promise; and,

- Protect and create wealth.

We will continue to launch new and innovative products that provide clear and transparent value proposition to our customers – across the value pyramid. For instance, we are introducing a Qualifying Recognised Overseas Pension Scheme (QROPS) that is a product that permits the transfer of UK Pension Funds to Kenya giving savers closer monitoring opportunities and we are pleased to be the first and only company to introduce QROPS outside South Africa.

We are also building our salesforce to drive increasing retail sales and build robust relationships with the grassroots, thereby creating high persistency levels, an initiative that is directly aimed at shoring up our profitability.

We understand that the work we do has a purpose; it affects not only the lives of the people who have placed their trust in us, but also generations of their families who will follow them. This is why we continue to hold ourselves to the highest standards to ensure we measure up to what anyone rightly should expect from their life insurer. For over 50 years we have built our business around bringing certainty and security to our customers in good and bad times. No one can predict the future but it is our business to plan and prepare for whatever the future may hold. We recognize no matter what is happening in the world around us, life goes on. We are here to help people at every stage; life insurance to protect unexpected; annuities to prepare for comfortable retirement and investment products to save for the future.

Tribute

I would like to thank our supportive clients, the many individuals and institutions, who continue to give us the privilege to serve them. We do not take this confidence in us for granted and as always we will continue to stand by you. We believe that our track record over the last 50 years is reflective of the long-term commitment we make to you. I also wish to thank our other business partners, brokers, independent agents, scheme administrators, trustees, fund managers, actuaries, re-assurers and regulators that continue to support us.

The management and staff worked throughout the year with their usual commitment and diligence, and I am grateful to the entire team. Finally, I am deeply indebted to my fellow Directors for their continued and valuable contributions and guidance during the deliberations of the Board, various committees of the Board and during Board Strategy Workshops.

James P M Ndegwa - Chairman

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CORPORATE INFORMATION



DIRECTORSJ P M Ndegwa ChairmanJ M Mutiga Chief Executive OfficerP W Kamau Non-executiveD N Ndegwa Non-executive (Alternate - E M Ndegwa) A S M Ndegwa Non-executive (Alternate - P K Mugambi)G A Maina Non-executiveD G M Hutchison* Non-executiveS O Oluoch Non-executive

*British

AUDIT, RISK & COMPLIANCE COMMITTEEP W Kamau ChairmanA S M NdegwaD G M HutchisonE M Ndegwa

BOARD ICT COMMITTEED G M Hutchison ChairmanA S M Ndegwa

FINANCE & INVESTMENT COMMITTEEA S M Ndegwa ChairmanG A Maina

NOMINATION & REMUNERATION COMMITTEEJ P M Ndegwa ChairmanA S M NdegwaG A Maina

COMPANY SECRETARYKennedy M OntitiCertified Public Secretary (Kenya)First Chartered Securities LimitedICEA LION Centre, Riverside ParkChiromo Road, WestlandsP.O. Box 30345 - 00100Nairobi

MANAGEMENT - ICEA LION LIFE ASSURANCE COMPANY LIMITEDJ M Mutiga Chief Executive OfficerE W Thinwa Assistant General Manager, OperationsR O Oyare Assistant General Manager, Ordinary LifeM O Oimo Assistant General Manager, Group Business DevelopmentC N Maina Assistant General Manager, ICTR K Nyamosi Assistant General Manager, FinanceE A Otieno Internal AuditorK O Odenyo Manager, Group Business DevelopmentF K Chomba Manager, Pension and Actuarial ServicesJ M Waichinga Manager, Ordinary Life BusinessJ M Maweu Head of Agency

REGISTERED OFFICEICEA LION CentreRiverside ParkChiromo Road, WestlandsP.O. Box 46143 - 00100Nairobi

AUDITORSPricewaterhouseCoopersCertified Public Accountants (Kenya)PwC Tower, Waiyaki Way/Chiromo Road, Westlands P.O. Box 43963 – 00100Nairobi

BANKERSNIC Bank LimitedCity Centre BranchP.O. Box 30090-00100Nairobi, Kenya

Standard Chartered Bank LimitedKenyatta Avenue BranchP.O. Box 30003-00100Nairobi

CONSULTING ACTUARIESAlexander Forbes Financial Services (E.A.) LimitedLandmark Plaza, 10th FloorArgwings Kodhek RdP.O. Box 52439-00200Nairobi

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SHARED SERVICESN K Munyi (Mrs) General Manager, Finance & StrategyM M Mahinda General Manager, Human Resources & AdministrationD A Maseke (Mrs) Manager, Risk and ComplianceR N Gitonga (Mrs) Manager, Marketing and Communications

SUBSIDIARY COMPANIES

ICEA GENERAL INSURANCE COMPANY LIMITED

J N Karionji Chief Executive Officer

NAIROBI BRANCHES:ICEA Building Branch,15th FloorKenyatta AvenueP.O. Box 46143 – 00100NairobiTel: 020 - 2750000

University Way BranchAmbank House, Ground and 9th FloorsP.O. Box 46143 – 00100NairobiTel: 020 2226921

Unga House Branch 3rd FloorMuthithi RoadP.O. Box 46143 – 00100NairobiTel: 020 3742094

Upperhill BranchWilliamson House, 7th Floor4th Ngong AvenueP.O. Box 46143 – 00100NairobiTel:020 2710400

Tulip House Branch Mombasa RoadP.O. Box 46143 – 00100NairobiTel: 020 2492437/9

Karen BranchKaren Office Park, Acacia Block1st FloorLangata RdP.O. Box 46143 - 00100NairobiTel: 0715 567368

Nakuru Branch Seguton Building,1st FloorKenyatta AvenueP.O. Box 3066 – 20100NakuruTel: 051 2211158

Mombasa Town Office BranchStandard Chartered Building2nd FloorP.O. Box 90101 – 80100MombasaTel: 041 2224646-8

Eldoret BranchSakong HouseKenyatta StreetP.O. Box 4807 – 30100EldoretTel: 053 2033237

Nyeri BranchKonahauthi BuildingKimathi WayP.O. Box 1803 – 10100NyeriTel: 061 2032106

Kisumu BranchAl Imran PlazaOginga Odinga StreetP.O. Box 3122 – 40100KisumuTel: 057 20202599

Mombasa Nyali Office BranchK K Building1st FloorLinks Road, NyaliP.O. Box 90101-80100MombasaTel: 0701 752748

Thika BranchZuri Centre4th FloorKenyatta HighwayP.O. Box 46143-00100NairobiTel: 0719 071000

Meru BranchTuskys BuildingMwendato RoadTel: 0719 071000

UPCOUNTRY BRANCHES:

ICEA LIFE ASSURANCE COMPANY LIMITED

J M Muli Chief Executive Officer

ICEA LION ASSET MANAGEMENT LIMITED

P Sigsworth Managing Director

ITSL TRUST COMPANY LIMITED

J Juma Head of Business

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BOARD OF DIRECTORS


BOARD OF DIRECTORS

Standing (left to right): A S M Ndegwa - Director | S O Oluoch - Director | G A Maina - Director | K O Ontiti - Company Secretary | P K Mugambi - Alternate Director

Seated (left to right): E M Ndegwa - Alternate Director | J M Mutiga - Chief Executive Officer | J P M Ndegwa - Chairman | D G M Hutchison - Director | P W Kamau - Director

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BOARD OF DIRECTORS

J M Mutiga

Chief Executive Officer

J P M Ndegwa

Chairman

S O Oluoch

Director

E M Ndegwa

G A Maina

Director

E M Ndegwa

Alternate Director

11


BOARD OF DIRECTORS

Director

P W Kamau

Director

P K Mugambi

Alternate Director

D G M Hutchison

Director

K O Ontiti

Company Secretary

A S M Ndegwa

12

MANAGEMENT TEAM


MANAGEMENT TEAM

Eunah Thinwa

Assistant General Manager,Operations

Richard Oyare

Assistant General Manager,Ordinary Life

Caroline Maina

Assistant General Manager,ICT

Michael Oimo

Assistant General Manager,Business Development


J M Mutiga


14


MANAGEMENT TEAM

Assistant General Manager,Finance

Enid Otieno

Internal Auditor

Felix Chomba

Manager,Pension and Actuarial Services

Kennedy Odenyo

Manager, Group Business Development

John Maweu

Head,Agency Development

Ronald Nyamosi

15


Micah M Mahinda

General Manager,Human Resources and Administration

MANAGEMENT TEAM

Nkatha Gitonga-Kinuthia

Manager, Marketing and Communications

Dorothy Maseke

Manager,Risk and Compliance

Naomi K Munyi

General Manager,Finance and Strategy

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DIRECTORS’ REPORT


The directors have the pleasure of presenting their report together with the audited financial statements of ICEA LION Life Assurance Company Limited (the “Company’’) and its subsidiaries (the “Group’’) for the year ended 31 December 2014 which disclose the state of affairs of the group and of the company.

PRINCIPAL ACTIVITIESThe principal activities of the group is the transaction of life insurance business and pension schemes administration in Kenya and the transaction of general insurance business and life insurance business and pension scheme administration in Uganda.

RESULTS

DIVIDENDSIn respect of 2014, an interim dividend of Shs 8.89 per share amounting to Shs 200 million was paid (2013: Shs 500 million, Shs 22.22 per share). The directors recommend a final dividend of Shs 8.89 per share amounting to Shs 200 million (2013: nil).

DIRECTORSThe directors who held office during the year and to the date of this report are set out on pages 10 to 12.

AUDITORPricewaterhouseCoopers were appointed auditors during the year and have expressed their willingness to continue in office in accordance with Section 159 (2) of the Companies Act.

BY ORDER OF THE BOARD

Secretary 24 March 2015 Nairobi

DIRECTORS’ REPORT

Long-term businessKsh ‘000

Short-term businessKsh ’000

TotalKsh ’000

Profit before income tax 1,093,132 419,161 1,512,293Income tax expense (252,502) (96,367) (348,869)

Profit for the year 840,630 322,794 1,163,424

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CORPORATE GOVERNANCE STATEMENT


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ICEA LION Life Assurance Company subscribes to and fully embraces the principles of good corporate governance. It is therefore committed to the objective of achieving the highest standards possible, in terms of accountability, integrity, fairness, responsibility and transparency. In pursuit of this objective, the Company has put in place formal structures to support corporate governance. These structures are regularly reviewed in order to strengthen and improve them.

The key features of the current corporate governance practices are as follows:

BOARD OF DIRECTORS

The Company’s Board is responsible for development of corporate governance practices and ensuring compliance by all the Company’s organs. It does these through Board committees and by having in place business principles and practices, internal control and risk management processes that seek to ensure preservation and growth of all the stakeholders’ value.

BOARD CHARTER AND WORK PLAN

The Board Charter contains provisions that ensure that the Board observes best practices in corporate governance and details, among other things; the size, role and functions of the Board; appointments, training, induction, tenure of directors, Board performance evaluation and remuneration of directors. The work plan has a formal schedule of matters specifically reserved for the Board attention to ensure it exercises full control over all significant matters. It sets out the schedule of meetings of the Board and its committees and the main business to be dealt with during those meetings. Additional meetings are scheduled when needed.

BOARD COMPOSITION AND APPOINTMENTS

The current Board of Directors consists of the Chief Executive Officer, and seven (7) non-executive directors including the Chairman. The directors have a good mix of skills, experience and competencies in relevant fields of expertise. Further, these directors meet the “fit and proper person criteria” as required by the Insurance Regulatory Authority. They have also filled in “fit and proper declaration forms” in compliance with the “Guidelines on Suitability of Persons” released by the Authority. Appointments to the Board are made after careful consideration.

BOARD MEETINGS AND INFORMATION FOR DIRECTORS

The Board meets at least three times a year on pre-set dates, to review and monitor the implementation of strategies/business plans, review quarterly financial results, approve financial reports and maintain an effective control over strategic, financial, operational and compliance issues. Special meetings are arranged as necessary. In carrying out the above responsibilities, the Board delegates its authority to the Chief Executive Officer to

oversee the day to day operations of the Company.

The notice of Board meetings is given in advance in accordance with the Company’s Articles of Association and is distributed together with the agenda and board papers to all the directors beforehand, covering regular business progress reports and discussion papers on specific matters. The Company Secretary is always available to attend to matters to do with the Board of Directors and Board Committees.

All reports from Insurance Regulatory Authority, Kenya Revenue Authority, auditors, actuaries and rating agencies are reviewed at Board meetings and appropriate action taken.

The General Manager (Finance and Strategy) is usually in attendance at all regular meetings of the Board and its committees to ensure that any necessary information is readily available for appropriate decision-making.

ROLE OF THE CHAIRMAN AND THE CHIEF EXECUTIVE OFFICER

The Chairman is responsible for managing the Board and providing strategic leadership to the Company while the Chief Executive Officer is responsible to the Board for running the business in accordance with instructions given by the Board. The Chief Executive Officer directs the implementation of Board decisions and instructions and the general management of the business with the assistance of the senior management team.

COMMITTEES OF THE BOARD

The Board has constituted several committees to assist it in discharging its responsibilities and obligations more effectively without abdicating its responsibility for performance and compliance.

The committees consist of at least two non-executive directors. Some members of the executive management of the Group attend by invitation. They report on their activities regularly to the Board.

The current committees are:

(a) Audit, Risk and Compliance Committee

This committee is chaired by a non-executive director. There are 3 other non-executive directors who sit in this committee. The First Chartered Securities Group Planning & Projects Director, the Chief Executive Officer, General Manager (Finance and Strategy), Assistant General Manager Finance, Internal Audit Manager and Risk and Compliance Manager attend by invitation.

Issues relating to ethics and policy holders protection are also dealt with by this committee.

CORPORATE GOVERNANCE STATEMENT


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The committee meets three times a year and is responsible for ensuring that the systems and controls, procedures and policies of the Group as well as risk management activities are properly established, monitored and reported on. The committee meets to review external auditors’ plans and reports, internal audit reports and any proposals/reports that affect the Group’s internal control environment and corporate risk management/exposure and compliance.

The Audit Risk and Compliance Committee is also responsible for monitoring and providing effective supervision of the management’s financial reporting process to ensure accurate and timely financial reporting. Additionally, the committee is responsible for ensuring entrenchment of good corporate governance practices in the Group. This committee is responsible to the Board.

(b) Finance and Investments Committee

This committee is chaired by a non-executive director. One other non-executive director also sits in this committee. The Chief Executive Officer, The Group Planning & Projects Director, the General Manager (Finance and Strategy) and Chief Executive Officer of ICEA LION Asset Management Limited attend by invitation.

The committee meets three times a year to review the financial and investment strategies, approve or recommend to the Board for approval investment projects in accordance with the Group’s investment policy, and review the performance of the investment portfolio and monitor special projects.

Issues related to assets and liability management are also dealt with by this committee.

(c) ICT Committee

This committee is composed of two non-executive directors one of whom is the chair. The First Chartered Securities Group Information System Manager, the Group Planning & Projects Director, the Chief Executive Officer, the Assistant General Manager (ICT), the General Manager Finance and Strategy as well as the Risk and Compliance Manager attend by invitation. This committee meets three times a year to review the ICT strategy including ICT security and Business Continuity Plans (BCP), approve or recommend to the Board for approval of ICT projects, review recommendations on the annual ICT budgets and monitor the implementation of ICT projects.

(d) Nominations and Remuneration Committee

The Nominations and Remuneration Committee is chaired by a non-executive director and includes two other non-executive directors. The committee meets at least twice a year or more frequently as required. This committee is responsible for making recommendations to the Board on executive remuneration and incentive policies, recruitment, retention and termination policies for senior management, remuneration framework for directors, among others. The committee is also responsible for development of a process for

evaluation and the actual evaluation of the performance of the Board, its committees and directors and succession planning. This committee is responsible to the Board.

The following tables are summaries of the attendance record of the directors at the full and the Board Committee meetings. A record of attendance is kept by the Group Company Secretary. The record of attendance at meetings is also noted in the minutes

Board Audit, Risk and Compliance Committee

Board ICT Committee

CORPORATE GOVERNANCE STATEMENT (CONTINUED)

Board of Directors

18.03.2014 26.08.2014 18.11.2014

Date

11.03.2014 29.07.2014 31.10.2014

Date

04.03.2014 25.06.2014 21.10.2014

Date


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Attended

Not Attended X

* Became a member of the committee on 18th March 2014

Nomination & Remuneration Committee

Board Finance & Investment Committee

PRINCIPAL OFFICER AND SENIOR MANAGEMENT

The Group in its commitment to strengthen efficiency and execution capability has a strong management team in place as set on pages 14 to 16 with the requisite qualifications and experience in their respective fields. This team has been approved by the Authority and meet the “fit and proper person criteria” as required by the Insurance Regulatory Authority. They also filled in “fit and proper declaration forms” in compliance with the “Guidelines on Suitability of Persons” released by the Authority.

SYSTEM OF INTERNAL CONTROL AND RISK MANAGEMENT

Like every financial service institution, the Company is exposed to a variety of risks which can have a negative impact. The Company has therefore put in place a strong integrated risk management process in the daily business activities and strategic planning to ensure sustainable value creation. The Company has strong corporate governance structures that promote effective identification, monitoring and management of risk. These structures

include well developed and documented internal procedures, clearly defined reporting lines and well structured, regular training programs for staff. The latter are intended to enable staff attain a clear appreciation of the business risk; the likely consequences of not giving adequate attention to, or failure to properly manage risk; and of the universally accepted and internally prescribed techniques of effectively managing risk.

The Company has established a fully-fledged risk management and compliance function, headed by a senior officer. This position is the focal point of in-house risk management, compliance monitoring and authentication, and related activities. This function has coordinated the setup of the risk appetite by the Board of Directors which has been cascaded to the senior management team. Regular risk assessment exercises are also conducted by this function in a bid to integrate risk management into the business. In 2014, the Company won 1st position under the Risk Management Category at the Think Business Awards.

The Company has also put in place an independent internal audit function, headed by a senior officer, which reviews the adequacy and effectiveness of the Company’s adherence to its internal controls as well as reporting on strategies, policies and procedures.

The internal control systems are designed to manage rather than eliminate the risk of failure to achieve business objectives and can provide only reasonable and not absolute assurance against material financial misstatements or loss. The systems are designed to:

• Identify and manage business risks;• Identify and adopt best business practices;• Maintain compliance with appropriate legislation and internal policies and procedures;• Maintain proper accounting records;• Provide reliable financial information; and• Safeguard assets.

The Board satisfies itself that the internal control framework is operating effectively through:

• Having terms of reference for the Board and each of its committees;• A clear organizational structure with documented delegation of authority;• Defined procedures for the approval of major transactions;• Establishment and monitoring of the Internal Control framework by the management; and• Review of the internal and external audit reports.

COMPLIANCE AND ANTI-MONEY LAUNDERING PROGRAM

The sustained success of the Company is based on trust, respect and the responsible, integrity-enriched behaviour of all employees. With its compliance and anti-money laundering program, the Company follows local and international guidelines and standards for rules-compliant and values-based corporate leadership.


04.03.2014 17.06.2014 21.10.2014

Date

17.06.2014 21.10.2014

Date


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These include the Corporate Governance Guidelines and Anti-Money Laundering Guidelines by the Insurance Regulatory Authority (IRA), the Retirement Benefits Authority (RBA), the UK Corporate Governance Code, the Organisation for Economic Co-operation and Development (OECD) Principles on Corporate Governance, The King III Report, and Financial Action Task Force (FATF) among others. By recognizing and supporting these local and international principles, the Company manages the risk of violating legal and regulatory provisions and requirements (compliance risks). This also means that our customers benefit from the fact that sustainability and social responsibility are integrated into corporate behaviour.

The standards for conduct established by the Company’s Code of Business Conduct and Ethics serve to implement these guidelines and principles which are obligatory for all employees. The Code of Conduct and other internal guidelines adopted on its basis provide all employees with clear guidance on conduct that is in accordance with the values of the Company. They provide employees with practical guidelines for making their own decisions and avoiding potential conflicts of interest. These guidelines also help employees recognize when they are approaching a critical limit, such as the acceptance of gifts or invitations from business partners. The Code of Business Conduct and Ethics also forms the basis for guidelines and controls to ensure fair dealings with the Company’s customers. In cases of doubt, the compliance department provides advice. The tasks of the compliance team includes advising the business units on laws, provisions and other regulations, the creation, implementation and monitoring of compliance with internal guidelines and standards as well as regular training of employees on the rules which are applicable to them.

A major component of the compliance program is a whistle-blower system that allows employees to alert the compliance and audit departments confidentially about irregularities. Employees who voice concerns about irregularities in good faith should not fear retribution in any form, even if the charge later turns out to be unfounded. To transmit the principles of the Code of Conduct and other compliance guidelines and controls effectively, the Company has developed interactive training programs.

ACTUARIAL FUNCTION

The Company has set up an in-house actuarial function. This function evaluates and provides advice to the insurer regarding, at a minimum, technical provisions, premium and pricing activities, and compliance with related statutory and regulatory requirements. The Company has further contracted the “Appointed Actuary” who is a Fellow of The Actuarial Society of Kenya in compliance with the Actuarial Function guidelines released by the Authority. The “Appointed Actuary” has been approved by the Authority and has access to the Board to whom it periodically reports to.

CONFLICT OF INTEREST

The directors are required to act in the best interest of the Group at all times. It is the Group’s policy to ensure that directors avoid putting themselves in positions whereby

their interests conflict with the Group’s interests. Any business transacted with thedirectors or their companies must be at arm’s length.

The Board has adopted a policy, which also applies to management and staff, which ensures that directors, management and staff disclose all possible conflict of interest sources and are required to exclude themselves in decisions where conflict of interest may arise.

DIRECTORS’ EMOLUMENTS

The aggregate amount of emoluments paid to Directors for services rendered during the financial year is disclosed in Note 39 to the financial statements for the year ended 31 December 2014.

RELATED PARTY TRANSACTIONS

There have been no materially significant related party transactions, pecuniary transactions or relationships between the Group and its Directors or Management except those disclosed in Note 39 to the financial statements for the year ended 31 December 2014.

COMPLIANCE WITH THE LAW

The Board is satisfied that the Group has, to the best of their knowledge, put in place mechanisms to ensure compliance with all the applicable laws. To the knowledge of the Board, no director, employee or agent of the Group acted or committed any indictable offence in conducting the affairs of the Group nor been involved or been used as a conduit for money laundering or any other activity incompatible with the relevant laws.

CONDUCT OF BUSINESS AND PERFORMANCE REPORTING

The Group business is conducted in accordance with a carefully formulated strategy, annual business plans and budgets which set out very clear objectives. Roles and responsibilities have been clearly defined with approved authority being delegated. Performance against the objectives is reviewed and discussed on a regular basis by the management team. Management prepares a quarterly business review report which is presented to the Board and any issues arising are fully discussed. Performance trends, forecasts as well as actual performance against budget are closely monitored.

DISCLOSURE OF INFORMATION AND RELATIONSHIP WITH THE INSURANCE REGULATORY AUTHORITY

The Group shares information on its financial position and the risks to which it is subject to. This information gives a well-rounded view of the Group and includes financial position, performance, and corporate governance among others. This information is shared with the Authority and other relevant stakeholders.



24

ACCOUNTABILITY, AUDIT AND SHAREHOLDER RELATIONS

The Board recognises its responsibility to present a balanced and understandable assessment of the Group’s financial position and prospects. The Group’s financial statements are prepared in accordance with International Financial Reporting Standards (IFRS) and the requirements of the Kenyan Companies Act and are audited in accordance with International Auditing Standards. The directors recognise and have confirmed their responsibility over the financial statements and have provided other information in this annual report that they consider useful to shareholders and other stakeholders.

RESPONSIBILITY FOR STAFF WELFARE AND TRAINING

As part of its policy, the Group recognises the need for diversity, equal opportunities, gender sensitivity and provision of a safe and conducive work environment for its entire staff. The Group assists its staff to undertake continuous professional and development training programmes to fulfil their potential. This process is appropriately managed to align staff development with the Company’s strategic and business goals and objectives, and is reinforced with appropriate remuneration and incentive systems. The company endeavours to offer superior working environment for its staff. During the year 2014, the company won the Deloitte “Best Company” to work for award in the insurance sector.

Chairman

24 March 2015

Director

24 March 2015


CORPORATE SOCIAL RESPONSIBILITY


26

CORPORATE SOCIAL RESPONSIBILITY

Corporate Social Responsibility (CSR) is an integral part of our corporate ethos and recognizes that good CSR embraces all aspects of sustainable development as we continue to affect the communities in which our businesses operate. In 2014, the company supported CSR activities in the spheres of education, health and environment. Below are some highlights from the activities we supported. In 2015, we will seek to utilize our Corporate Social Investment initiatives as a strategic tool to ensure that we adhere to our Group’s corporate governance sustainability policy that enhances the sustainability of social and natural environments. We will also wish to support a single and impactful cause that the Group can be associated with for posterity.

Our representatives are overjoyed at receiving a trophy in commemoration of our support for diabetesOur team support IRA’s Cerebral Palsy of Kenya Charity Walk

Staff members step out for children with diabetes

STATEMENT OF DIRECTORS’ RESPONSIBILITIES


28

The Companies Act, CAP 486, Laws of Kenya requires the directors to prepare financial statements for each financial year that give a true and fair view of the state of affairs of the Group and the Company as at the end of the financial year and of the Group’s profit or loss for that year. It also requires the directors to ensure that the company maintains proper accounting records that disclose, with reasonable accuracy, the financial position of the Group. The directors are also responsible for safeguarding the assets of the Group.

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

(i) designing, implementing and maintaining internal controls relevant to the preparation and fair presentation of the financial statements;

(ii) selecting and applying appropriate accounting policies; and

(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 state of the financial affairs of the Group and company as at 31 December 2014 and of the Group’s profit/loss 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 and its subsidiaries will not remain a going concern for at least twelve months from the date of this statement.

Approved by the board of directors on 24 March 2015 and signed on its behalf by:

Chairman

24 March 2015

Director

24 March 2015

STATEMENT OF DIRECTORS’ RESPONSIBILITIES

REPORT OF THE PARENT COMPANYCONSULTING ACTUARY


30

I have conducted an actuarial valuation of the long term business of ICEA LION Life Assurance Group as at 31 December 2014.

The valuation was conducted in accordance with generally accepted actuarial principles and the requirements of the Kenyan Insurance Act. Those principles require prudent provision for future outgo under contracts, generally based upon the assumptions that current conditions will continue. Provision is therefore not made for all possible contingencies.

In completing the actuarial valuation, I have relied upon the audited financial statements of the Group.

In my opinion, the long term business of the group was financially sound and the actuarial value of the liabilities in respect of all classes of long term insurance business did not exceed the amount of funds of the long term business at 31 December 2014.

James I. O. OlubayiFellow of the Institute of Actuaries24 March 2015

REPORT OF THE PARENT COMPANY CONSULTING ACTUARY

FINANCIAL PERFORMANCE HIGHLIGHTS


32

FINANCIAL PERFORMANCE HIGHLIGHTS

Gross Written Premium & Pension Contribution(Kshs Million)

Total Assets(Kshs Million)

Life Fund(Kshs Million)

8,000

7,000

6,000

5,000

4,000

3,000

2,000

1,000

02011 2012 2013 2014

4,508

5,810

7,3727,578

80,000

70,000

60,000

50,000

40,000

30,000

20,000

10,000

02011 2012 2013 2014

29,445

33,689

41,64347,860

40,000

35,000

30,000

25,000

20,000

15,000

10,000

5,000

02011 2012 2013 2014

22,231

26,639

32,575

37,892

AWARDS AND ACCOLADES


34

AWARDS AND ACCOLADES

OUR PEOPLE AND CUSTOMERS HAVE SPOKEN

CROWNED KING OF THE FINANCIAL JUNGLE: THINK BUSINESS INSURANCE AWARDS 2014

Life Assurer of the YearWinner - Customer Service | Winner - Risk Management

INDEPENDENT AUDITOR’S REPORT


36

INDEPENDENT AUDITOR’S REPORT

We have audited the accompanying consolidated financial statements of ICEA LION Life Assurance Company Limited (the “Company”) and its subsidiaries (together, the “Group”), as set out on pages 38 to 103. These financial statements comprise the consolidated statement of financial position as at 31 December 2014 and the consolidated statement of comprehensive income, consolidated statement of changes in equity and the consolidated statement of cash flow for the year then ended, together with the statement of financial position of the company standing alone as at 31 December 2014 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 the requirements of the Companies Act, CAP 486, Laws of Kenya. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.

Auditor's responsibility

Our responsibility is to express an opinion of these 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 the audit to obtain reasonable assurance whether 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 judgment, 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 controls relevant to the Company’s preparation and fair presentation of

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 audit opinion.

Opinion

In our opinion the accompanying financial statements give a true and fair view of the financial position of the Group and the Company as at 31 December 2014 and of the Group’s financial performance and cash flows of the Group for the year then ended in accordance with International Financial Reporting Standards and the Kenyan Companies Act.

Report on Other Legal Requirements

As required by the Companies Act, CAP 486, Laws of Kenya, we report to you, based on our audit, 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; and

iii) the Company’s statement of financial positionand statement of comprehensive income is in agreement with the books of account.

The engagement partner responsible for the audit resulting in this independent auditors’ report is FCPA Richard Njoroge – P/No 1244

Certified Public AccountantsNairobi, Kenya30th March 2015

Report on the Financial Statements

FINANCIAL STATEMENTS


38

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

Notes

Long term business

2014Ksh ’000

Short term business

2014Ksh ’000

Total 2014

Ksh ’000

Restated long term business

2013 Ksh ’000

Short term business

2013 Ksh ’000

Restated Total 2013

Ksh ’000

Gross earned premiums 5 2,722,290 648,219 3,370,509 2,347,054 590,155 2,937,209Less: Reinsurance premiums ceded (323,339) (301,369) (624,708) (255,096) (240,954) (496,050)

Net earned premiums 2,398,951 346,850 2,745,801 2,091,958 349,201 2,441,159

Investment income 6 5,203,023 346,217 5,549,240 5,696,803 244,423 5,941,226Commissions earned 103,140 267,704 370,844 88,377 226,430 314,807Other operating income 7 77,875 22,429 100,304 46,842 7,291 54,133Foreign exchange gains (1,018) - (1,018) - 114 114

Total investment and other income 5,383,020 636,350 6,019,370 5,832,022 478,258 6,310,280

Claims and policy holder benefits 5,543,164 239,544 5,782,708 4,524,838 268,077 4,792,915Less: amounts recoverable from insurers (126,208) (103,948) (230,156) (111,701) (117,896) (229,597)

Net claims payable 8 5,416,956 135,596 5,552,552 4,413,137 150,181 4,563,318

Commissions payable 458,881 134,307 593,188 402,209 85,098 487,307Other operating expenses 9 813,002 387,356 1,200,358 654,630 343,152 997,782

Total expenses 1,271,883 521,663 1,793,546 1,056,839 428,250 1,485,089

Results of operating activities 1,093,132 325,941 1,419,073 2,454,004 249,028 2,703,032Share of profit of associate, net of tax 20 - 93,220 93,220 - 77,011 77,011

Profit before income tax 1,093,132 419,161 1,512,293 2,454,004 326,039 2,780,043

Income tax expense 10(a) (252,502) (96,367) (348,869) (686,342) (29,213) (715,555)

Profit for the year attributable to owners of the company 840,630 322,794 1,163,424 1,767,662 296,826 2,064,488

Other comprehensive income, net of tax: Items that may subsequently be reclassified to profit

Share of associates other comprehensive income 20 - 35,946 35,946 - - -

Fair value gain arising on revaluation of available-for-sale financial assets 18(a) 6,990 175 7,165 8,008 259 8,267Exchange differences in translating foreign operations - (47,496) (47,496) 79,982 (5,971) 74,011

Other comprehensive income, net of tax 6,990 (11,375) (4,385) 87,990 (5,712) 82,278

The notes on pages 44 to 103 are an integral part of these financial statements.


39

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

Notes

Long term business

2014Ksh ’000

Short term business

2014Ksh ’000

Total 2014

Ksh ’000


2013 Ksh ’000

Short term business

2013 Ksh ’000

Restated Total 2013

Ksh ’000

Restated Total 2012

Ksh ’000AssetsMotor vehicle and equipment 15(a) 212,191 43,624 255,815 222,177 30,827 253,004 52,380Intangible assets 16 47,765 2,569 50,334 29 2,072 2,101 4,761Investment properties 17 8,901,480 1,098,640 10,000,120 8,098,000 989,000 9,087,000 7,232,600Equity securities at:- available for sale 18(a) 59,250 3,565 62,815 41,881 2,554 44,435 20,708- fair value through profit or loss 18(a) 5,930,534 - 5,930,534 4,633,571 - 4,633,571 3,272,518Investment in associates 20 - 625,224 625,224 - 496,058 496,058 419,047Due from long term business - 324,817 324,817 - 200,117 200,117 264,548Current income tax 4,368 13,472 17,840 4,371 13,720 18,091 12,005Kenya motor pool balances 21 - 39,310 39,310 - 32,628 32,628 28,826Corporate bonds held to maturity 26 1,463,086 10,556 1,473,642 1,206,684 9,891 1,216,575 1,382,064Government securities:- held to maturity 27 22,305,888 89,274 22,395,162 18,731,648 116,471 18,848,119 16,647,080- held for trading 27 2,137,852 176,908 2,314,760 2,316,904 110,631 2,427,535 -Deposits with financial institutions 29 2,110,609 374,204 2,484,813 2,071,034 416,247 2,487,281 2,464,314Mortgage loans 22(a) 362,300 - 362,300 301,779 - 301,779 268,475Policy loans 22(b) 318,263 - 318,263 224,817 - 224,817 166,882Deferred acquisition costs 23 - 43,701 43,701 - 39,374 39,374 23,738Receivables arising from reinsurance arrangements 5,300 84,832 90,132 363 144,668 145,031 85,322Receivables arising from direct insurance arrangements - 272,597 272,597 - 264,021 264,021 242,316Reinsurer’s share of insurance contracts liabilities 24 24,770 180,080 204,850 49,735 141,329 191,064 182,689Other receivables 25 239,541 115,753 355,294 328,461 161,621 490,082 599,385Cash and bank balances 169,665 44,443 214,108 198,331 42,179 240,510 317,631Statutory deposits 23,489 - 23,489 - - - -

Total assets 44,316,351 3,543,569 47,859,920 38,429,785 3,213,408 41,643,193 33,687,289

Equity and LiabilitiesEquityOrdinary shares 30 150,000 300,000 450,000 150,000 300,000 450,000 450,000Statutory reserve 13 4,394,583 257,200 4,651,783 4,035,153 - 4,035,153 2,477,491Revaluation reserve 13 16,551 38,539 55,090 10,535 1,444 11,979 3,712Translation reserve 13 (1,598) (114,438) (116,036) (33,146) (35,394) (68,540) (142,551)Retained earnings 92,536 2,225,573 2,318,109 21,857 1,949,458 1,971,315 1,964,489Proposed dividends - - - - - - 180,000

Total equity 4,652,072 2,706,874 7,358,946 4,184,399 2,215,508 6,399,907 4,933,141

LiabilitiesUnearned premiums 31 - 147,279 147,279 - 141,944 141,944 134,852Insurance contract liabilities 32 144,583 272,998 417,581 179,164 234,117 413,281 370,375Payables arising from reinsurance arrangements - 50,391 50,391 - 44,757 44,757 80,362Payables arising from direct insurance arrangements - 18,925 18,925 - 87,033 87,033 60,774Payable under deposit administration contracts 34 27,595,600 - 27,595,600 23,968,958 - 23,968,958 19,329,468Due to short term business 324,817 - 324,817 200,117 - 200,117 264,548Policy holder funds 10,151,415 - 10,151,415 8,606,167 - 8,606,167 7,309,581Other payables 35 292,963 181,999 474,962 268,848 352,347 621,195 566,661Current income tax - 960 960 - 13,400 13,400 30,607Deferred income tax 36 1,154,901 164,143 1,319,044 1,022,132 124,302 1,146,434 606,920

Total liabilities 39,664,279 836,695 40,500,974 34,245,386 997,900 35,243,286 28,754,148

The financial statements on pages 38 to 103 were approved by and authorised for issue by the board of directors on 24 March 2015 and were signed on its behalf by:

Chairman Director Principal officer


40

COMPANY STATEMENT OF FINANCIAL POSITION

The financial statements on pages 38 to 103 were approved by and authorised for issue by the board of directors on 24 March 2015 and were signed on its behalf by:

Chairman Director Principal officer

Notes

Long term business

2014Ksh ’000

Short term business

2014Ksh ’000

Total2014

Ksh ’000


2013 Ksh ’000

Short term business

2013 Ksh ’000

Restated Total 2013

Ksh ’000

Restated Total 2012

Ksh ’000

AssetsMotor vehicle and equipment 15(b) 203,203 - 203,203 222,177 - 222,177 23,074Intangible assets 16 47,765 - 47,765 29 - 29 214Investment properties 17 8,901,480 1,098,640 10,000,120 8,098,000 989,000 9,087,000 7,232,600Equity investments at fair value through profit or loss 18(b) 5,930,534 - 5,930,534 4,633,571 - 4,633,571 3,272,518Investment in subsidiaries 19 9,823 338,101 347,924 9,823 200,080 209,903 209,903Investment in associate 20 - 328,567 328,567 - 328,567 328,567 328,567Kenya motor pool balances 21 - 39,310 39,310 - 32,628 32,628 28,826Mortgage loans 22(a) 362,300 - 362,300 301,779 - 301,779 268,475Policy loans 22(b) 288,863 - 288,863 198,778 - 198,778 145,521Receivables arising from reinsurance arrangements 1,316 7,408 8,724 - 7,408 7,408 24,214Receivables arising from direct insurance arrangements - - - - - - 4,097

Reinsurers’ share of insurance liabilities 24 17,409 - 17,409 49,735 - 49,735 41,308Other receivables 25 138,712 42,667 181,379 182,788 39,776 222,564 385,201Current income tax 4,368 10,258 14,626 4,368 12,671 17,039 5,737Due from long term business - 220,139 220,139 - 200,117 200,117 264,548Corporate bonds held to maturity 26 1,463,086 - 1,463,086 1,206,684 - 1,206,684 1,327,385Government securities held to maturity 27 21,876,355 38,031 21,914,386 18,371,356 38,141 18,409,497 16,202,375Government securities held for trading 27 2,137,852 - 2,137,852 2,316,904 - 2,316,904 -Commercial paper held to maturity - - - - - - 54,679Deposits with financial institutions 29 1,531,620 270,241 1,801,861 1,614,381 282,866 1,897,247 1,999,707Cash and bank balances 131,828 4,103 135,931 188,956 16,371 205,327 271,094

Total assets 43,046,514 2,397,465 45,443,979 37,399,329 2,147,625 39,546,954 32,090,043

Equity and LiabilitiesEquityOrdinary shares 30 150,000 300,000 450,000 150,000 300,000 450,000 450,000Statutory reserve 13 4,379,934 - 4,379,934 3,842,754 - 3,842,754 2,254,154Retained earnings - 1,894,660 1,894,660 - 1,651,541 1,651,541 1,949,934

Total equity 4,529,934 2,194,660 6,724,594 3,992,754 1,951,541 5,994,295 4,654,088

LiabilitiesInsurance contract liabilities 32 130,376 - 130,376 167,055 - 167,055 176,542Payables arising from direct insurance arrangements - 18,925 18,925 - 9,525 9,525 -

Payable under deposit administration contracts 34 27,045,462 - 27,045,462 23,480,022 - 23,480,022 18,997,389Due to investing activities business 220,139 - 220,139 200,117 - 200,117 264,548Policy holder funds 9,692,000 - 9,692,000 8,223,695 - 8,223,695 7,040,733Other payables 35 273,702 18,027 291,729 313,554 52,154 365,708 321,511Current income tax - - - - - - 27,979Deferred income tax 36 1,154,901 165,853 1,320,754 1,022,132 134,405 1,156,537 607,253

Total liabilities 38,516,580 202,805 38,719,385 33,406,575 196,084 33,602,659 27,435,955


41

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Share capital Ksh ‘000

Statutory reserve

Ksh ‘000

Revaluation reserve

Ksh ‘000

Translation reserve

Ksh ‘000

Retained earningsKsh ‘000

Proposed dividendsKsh ‘000

TotalKsh ‘000

Balance as at 1 January 2013 (as previously reported) 450,000 2,930,101 3,712 (142,551) 1,964,489 180,000 5,385,751

Prior period adjustment:Deferred income tax on actuarial reserve (Note 41) - (452,610) - - - - (452,610)

Balance as at 1 January 2013 (Restated) 450,000 2,477,491 3,712 (142,551) 1,964,489 180,000 4,933,141

Total comprehensive income for the year - 1,767,662 8,267 74,011 296,826 - 2,146,766Transfer from statutory reserve - (210,000) - - 210,000 - -Final dividend paid for 2012 - - - - - (180,000) (180,000)Interim dividend declared for 2013 - - - - (500,000) - (500,000)

Balance as at 31 December 2013 (restated) 450,000 4,035,153 11,979 (68,540) 1,971,315 - 6,399,907

Balance as at 1 January 2014 (as previously reported) 450,000 5,057,285 11,979 (68,540) 1,971,315 - 7,422,039

Prior period adjustment:Deferred income tax on actuarial reserves (Note 41) - (1,022,132) - - - - (1,022,132)

Balance as at 1 January 2014 (Restated) 450,000 4,035,153 11,979 (68,540) 1,971,315 - 6,399,907

Total comprehensive income for the year - 840,630 43,111 (47,496) 322,794 - 1,159,039Transfer from statutory reserve - (224,000) - - 224,000 - -Interim dividend paid in 2014 - - - - (200,000) - (200,000)

Balance as at 31 December 2014 450,000 4,651,783 55,090 (116,036) 2,318,109 - 7,358,946



42

COMPANY STATEMENT OF CHANGES IN EQUITY

Notes

Share capital

Ksh ’000

Statutory reserve

Ksh ’000

Retainedearnings Ksh ’000

Proposed dividendsKsh ’000

TotalKsh ’000

Balance as at 1 January 2013 (as previously reported) 450,000 2,706,764 1,769,934 180,000 5,106,698

Prior period adjustment:Deferred tax on actuarial reserve (Note 41) - (452,610) - - (452,610)

Balance as at 1 January 2013 (Restated) 450,000 2,254,154 1,769,934 180,000 4,654,088

Total comprehensive income for the year - 1,798,600 171,607 - 1,970,207Transfer from statutory reserve 13 - (210,000) 210,000 - -

Transaction with ownersFinal dividend paid for 2012 - - - (180,000) (180,000)Interim dividends paid in 2013 - - (500,000) - (500,000)

Balance as at 31 December 2013 (Restated) 450,000 3,842,754 1,651,541 - 5,944,295

As previously reported 1 January 2014 450,000 4,864,886 1,651,541 - 6,966,427

Prior period adjustment:Deferred income tax on surplus (Note 41) - (1,022,132) - - (1,022,132)

Balance as at 1 January 2014 (restated) 450,000 3,842,754 1,651,541 - 5,944,295

Total comprehensive income for the year - 761,180 219,119 - 980,299

Transfer from statutory reserve 13 - (224,000) 224,000 - -

Transaction with ownersInterim dividends paid in 2014 - - (200,000) - (200,000)

Balance as at 31 December 2014 450,000 4,379,934 1,894,660 - 6,724,594



43

Notes2014

Ksh ’000

Restated 2013

Ksh ’000

Cash flows from operating activitiesCash generated from operations 37(a) 1,042,106 5,381,306Interest income 3,415,448 3,023,076Income tax paid (188,448) (199,821)

Net cash generated from operating activities 4,269,106 8,204,561

Cash flows from investing activitiesPurchase of property and equipment 15(a) (106,454) (225,763)Purchase of intangible assets 16 (55,754) -Refurbishment of investment property 17 (469,832) (798,511)

Proceeds from disposal of property and equipment - 446

Purchase of quoted shares (1,042,255) (460,986)

Purchase of corporate bonds (477,347) (25,680)

Purchase of government securities (4,635,541) (7,497,865)

Policy loans advanced (152,468) (81,915)

Policy loans recovered 57,676 25,715

Mortgage loans advanced (89,692) (55,897)

Mortgage loans recovered 29,171 22,593

Uplift of deposit with financial institutions (94,089) -

Proceeds from disposal of quoted shares 675,237 437,267

Redemption of corporate bonds 220,859 124,317

Maturity of commercial paper - 555,000

Proceeds from disposal of government securities 1,260,610 -

Dividend income on equity investments 222,507 133,160

Rental income 530,203 377,581

Statutory deposit (23,489) -

Net cash used in investing activities (4,150,658) (7,970,538)

Cash flows from financing activitiesDividends paid (200,000) (680,000)

Decrease in cash and cash equivalents (81,552) (445,977)

Cash and cash equivalents at 1 January 2,403,997 2,781,945

Effect of translation (41,408) 68,028

CONSOLIDATED STATEMENT OF CASH FLOWS


44

1 - GENERAL INFORMATION

ICEA LION Life Assurance Company Limited is incorporated in Kenya under the Companies Act as a private limited liability company and is domiciled in Kenya. The address of its registered office is:

ICEA LION CentreRiverside ParkChiromo Road, WestlandsP.O. Box 46143-00100Nairobi

For the Kenyan Companies Act reporting purposes, in these financial statements the balance sheet is represented by/equivalent to the statement of financial position and the profit and loss account is presented in the statement of comprehensive income.

2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The principal accounting policies applied in the preparation of these financial statements are set out below. These policies have been consistently applied to all years presented, unless otherwise stated.

(a) Basis of preparation The consolidated financial statements of ICEA LION Life Assurance Company Limited have been prepared in accordance with International Financial Reporting Standards (IFRS) and IFRS Interpretations Committee (IFRS IC) applicable to companies reporting under IFRS. The consolidated financial statements have been prepared under the historical cost convention, as modified by the revaluation of investment properties, available-for-sale financial assets, and financial assets and financial liabilities at fair value through profit or loss.

The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the group’s accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in note 3.

Changes in accounting policy and disclosures

(i) New and amended standards adopted by the Group

The following standards have been adopted by the Group for the first time for the financial year beginning on or after 1 January 2014 and have a material impact on the Group:

Amendment to IAS 32, ‘Financial instruments: Presentation’ on offsetting financial assets and financial liabilities.

This amendment clarifies that the right of set-off must not be contingent on a future event. It must also be legally enforceable for all counterparties in the normal course of business, as well as in the event of default, insolvency or bankruptcy. The amendment also considers settlement mechanisms. The amendment did not have a significant effect on the Group financial statements.

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

NOTES TO THE FINANCIAL STATEMENTS


45

Other standards, amendments and interpretations which are effective for the financial year beginning on 1 January 2014 are not material to the Group.

(ii) New standards and interpretations not yet adopted

A number of new standards and amendments to standards and interpretations are effective for annual periods beginning after 1 January 2014, 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 Group, except the following set out below:

IFRIC 21, ‘Levies’, sets out the accounting for an obligation to pay a levy if that liability is within the scope of IAS 37 ‘Provisions’.

The interpretation addresses what the obligating event is that gives rise to pay a levy and when a liability should be recognised. The Group is not currently subjected to significant levies so the impact on the Group is not material.

IFRS 9, ‘Financial instruments’, addresses the classification, measurement and recognition of financial assets and financial liabilities.

The complete version of IFRS 9 was issued in July 2014. It replaces the guidance in IAS 39 that relates to the classification and measurement of financial instruments. IFRS 9 retains but simplifies the mixed measurement model and establishes three primary measurement categories for financial assets: amortised cost, fair value through OCI and fair value through P&L. The basis of classification depends on the entity’s business model and the contractual cash flow characteristics of the financial asset. Investments in equity instruments are required to be measured at fair value through profit or loss with the irrevocable option at inception to present changes in fair value in OCI not recycling. There is now a new expected credit losses model that replaces the incurred loss impairment model used in IAS 39. For financial liabilities there were no changes to classification and measurement except for the recognition of changes in own credit risk in other comprehensive income, for liabilities designated at fair value through profit or loss. IFRS 9 relaxes the requirements for hedge effectiveness by replacing the bright line hedge effectiveness tests. It requires an economic relationship between the hedged item and hedging instrument and for the ‘hedged ratio’ to be the same as the one management actually use for risk management purposes. Contemporaneous documentation is still required but is different to that currently prepared under IAS 39. The standard is effective for accounting periods beginning on or after 1 January 2018. Early adoption is permitted. The Group is yet to assess IFRS 9’s full impact.

IFRS 15, ‘Revenue from contracts with customers’ deals with revenue recognition and establishes principles for reporting useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity’s contracts with customers. Revenue is recognised when a customer obtains control of a good or service and thus has the ability to direct the use and obtain the benefits from the good or service.

The standard replaces IAS 18 ‘Revenue’ and IAS 11 ‘Construction contracts’ and related interpretations. The standard is effective for annual periods beginning on or after 1 January 2017 and earlier application is permitted. The Group is assessing the impact of IFRS 15.

Amendment to IAS 39, ‘Financial instruments: Recognition and measurement’ on the novation of derivatives and the continuation of hedge accounting.

This amendment considers legislative changes to ‘over-the-counter’ derivatives and the establishment of central counterparties. Under IAS 39 novation of derivatives to central counterparties would result in discontinuance of hedge accounting. The amendment provides relief from discontinuing hedge accounting when novation of a hedging instrument meets specified criteria. The Group has applied the amendment and there has been no significant impact on the Group financial statements as a result.

NOTES TO THE FINANCIAL STATEMENTS (continued)2 - Summary of significant accounting policies (continued)(a) Basis of preparation (continued)Changes in accounting policy and disclosures (continued)


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

(b) Business reorganisation

In accounting for transfer of assets and liabilities received from other entities within the First Chartered Securities Group, which this group is part of, the group recognises the assets and liabilities transferred at their carrying amounts in the books of the transferring entity at the date of the transfer. The difference between the consideration paid or received in respect of net assets or net liabilities respectively and carrying amounts of assets and liabilities at the date of the transfer is dealt with through equity.

(c) Basis of consolidation

ii) Subsidiaries

Subsidiaries 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 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 recognizes 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.

If the business combination is achieved in stages, the acquisition date carrying value of the acquirer’s previously held equity interest in the acquire is re-measured to fair value at the acquisition date; any gains or losses arising from such re-measurement are recognised in profit or loss.

Any contingent consideration to be transferred by the group is recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration that is deemed to be an asset or liability is recognised in accordance with IAS 39 either in profit or loss or as a change to other comprehensive income. Contingent consideration that is classified as equity is not re-measured, and its subsequent settlement is accounted

for within equity.

The excess of the consideration transferred the amount of any non-controlling interest in the acquiree and the acquisition-date fair value of any previous equity interest in the acquiree over the fair value of the identifiable net assets acquired is recorded as goodwill. If the total of consideration transferred, non-controlling interest recognised and previously held interest measured is less than the fair value of the net assets of the subsidiary acquired in the case of a bargain purchase, the difference is recognised directly in the income statement.

Inter-company transactions, balances and unrealized gains on transactions between group companies are eliminated. Unrealized losses are also eliminated. When necessary amounts reported by subsidiaries have been adjusted to conform with the group’s accounting policies.

ii) Changes in ownership interests in subsidiaries without change of control

Transactions with non-controlling interests that do not result in loss of control are accounted for as equity transactions – that is, as transactions with the owners in their capacity as owners. The difference between fair value of any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is recorded in equity. Gains or losses on disposals to non-controlling interests are also recorded in equity.

iii) Disposal of subsidiaries

When the group ceases to have control any retained interest in the entity is remeasured to its fair value at the date when control is lost, with the change in carrying amount recognised in profit or loss. The fair value is the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate, joint venture or financial asset. In addition, any amounts previously recognised in other comprehensive income in respect of that entity are accounted for as if the group had directly disposed of the related assets or liabilities. This may mean that amounts previously recognised in other comprehensive income are reclassified to profit or loss. Investment in subsidiaries in the company books are carried at cost less provisions for impairment.

(d) Insurance and investment contracts - classification

The 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 is at least 10% more than the benefits payable if the insured event did not occur.

NOTES TO THE FINANCIAL STATEMENTS (continued)2 - Summary of significant accounting policies (continued)(a) Basis of preparation (continued)Changes in accounting policy and disclosures (continued)


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Investment contracts are those contracts that transfer financial risk with no significant insurance risk. A number of insurance and investment contracts contain discretionary participation features (DPF). This feature entitles the holder to receive, as a supplement to guaranteed benefits, additional benefits or bonuses.

Insurance contracts and investment contract with DPF

(a) Recognition and measurement

Insurance contracts and investment contracts with DPF are classified into four main categories, depending on the duration of risk and whether or not the terms and conditions are fixed.

(i) Short-term insurance contracts

These contracts are casualty, property and short-duration life insurance contracts.

- Casualty insurance contracts protect the group’s customers against the risk of causing harm to third parties as a result of their legitimate activities.

- Property insurance contracts mainly compensate the group’s customers for damage

suffered to their properties or for the value of property lost.

- Short-duration life insurance contracts protect the group’s customers from the consequences of events (such as death or disability) that would affect the ability of the customer or his/her dependants to maintain their current level of income.

For all these contracts, premiums are recognised as revenue (earned premiums) proportionally over the period of coverage. The portion of premium received on in-force contracts that relates to unexpired risks at the balance sheet date is reported as the unearned premium liability. Premiums are shown before deduction of commission.

Claims and loss adjustment expenses are charged to profit or loss for the year as incurred based on the estimated liability for compensation owed to contract holders or third parties damaged by the contract holders. They include direct and indirect claims settlement costs and arise from events that have occurred up to the end of the reporting period even if they have not yet been reported to the group. The group does not discount its liabilities for unpaid claims other than for disability claims. Liabilities for unpaid claims are estimated using the input of assessments for individual cases reported to the group and statistical analyses for the claims incurred but not reported, and to estimate the expected ultimate cost of more complex claims that may be affected by external factors (such as court decisions).

(ii) Long-term insurance contracts with fixed and guaranteed terms

These contracts insure human life events over a long duration. However, insurance premiums are recognised directly as liabilities. These liabilities are increased by credited interest (in the case of universal life contracts) or change in the unit prices (in the case of unit-linked contracts) and are decreased by policy administration fees, mortality and surrender charges and any withdrawals. These liabilities are the contract holders’ account balances.

Revenue consists of fees deducted for mortality, policy administration and surrender charges. Interest or changes in the unit prices credited to the account balances and excess benefit claims in excess of the account balances incurred in the period are charged as expenses in the profit or loss for the year.

(iii) Investment contracts with DPF

Contributions are recognised directly as liabilities. These liabilities are increased by credited interest and are decreased by administration fees and any withdrawals. These liabilities are the contract holders’ account balances. Revenue consists of fees deducted for administration.

(b) 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 (classified within loans and receivables), as well longer term receivables (classified as reinsurance assets) 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 recognizes that impairment loss in the profit or loss for the year.

NOTES TO THE FINANCIAL STATEMENTS (continued)2 - Summary of significant accounting policies (continued)(d) Insurance and investment contracts - classification (continued)


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(c) Receivables and payables related to insurance contracts and investment contracts

Receivables and payables related to insurance contracts and investment contracts are amounts due from/due to agents, brokers and insurance contract holders.

If collection is expected in one year or less (or in the normal operating cycle of the business if longer), they are a classified as current assets. If not, they are presented as non-current assets.

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 the profit or loss for the year.

(d) Salvage and subrogation reimbursements

Some insurance contracts permit the group to sell (usually damaged) property acquired in settling a claim (i.e, salvage). The group may also have the right to pursue third parties for payment of some or all costs (i.e, 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) Deferred policy acquisition costs (DAC)

Commissions and other acquisition costs that vary with and are related to securing new contracts and renewing existing contracts are capitalized as an intangible asset (DAC). All other costs are recognised as expenses when incurred. The DAC is subsequently amortized over the life of the contracts.

Investment contracts without DPF

The group issues investment contracts with fixed and guaranteed terms.

For investment contracts with fixed and guaranteed terms, the amortized 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.

Investment contracts are subsequently measured at amortized cost and use the effective interest method.

(e) Revenue recognition (non-insurance contracts)

Revenue comprises the fair value for services, net of value-added tax, after eliminating revenue within the group. Revenue is recognised as follows:

(a) Rendering of services

Revenue arising from asset management and other related services offered by the group are recognised in the accounting period in which the services are rendered.

Fees consist primarily of investment management fees arising from services rendered in conjunction with the issue and management of investment contracts where the group actively manages the consideration received from its customers to fund a return that is based on the investment profile that the customer selected on origination of the instrument. These services comprise the activity of trading financial assets in order to reproduce the contractual returns that the group’s customers expect to receive from their investments. Such activities generate revenue that is recognised by reference to the stage of completion of the contractual services. In all cases, these services comprise an indeterminate number of acts over the life of the individual contracts. For practical purposes, the group recognizes these fees on a straight-line basis over the estimated life of the contract.

(b) Investment income

(i) Rental income

Rental income is recognised as income in the period in which it is earned.

(ii) Dividend income

Dividend income from equity securities is recognised when the group’s right to receive payment has been established provided that it is probable that the economic benefits will flow to the fund and the amount of income can be measured reliably.

(iii) Interest income

Interest income from a financial asset is recognised when it is probable that the economic benefits will flow to the group and the amount of income can be measured reliably. Interest income is accrued on a time basis by reference to the principal outstanding and at the effective interest rate applicable which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset’s net carrying amount on initial recognition.

NOTES TO THE FINANCIAL STATEMENTS (continued)2 - Summary of significant accounting policies (continued)(d) Insurance and investment contracts - classification (continued)


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(f) Deposit administration contracts The group administers the funds of a number of retirement benefit schemes. The liabilities of the group to the schemes have been treated as payables within the statement of financial position. (g) Provisions for liabilities and charges Entitlements to annual leave are recognised when they accrue to employees. Provision is made for the estimated liability in respect of annual leave accrued on the reporting period end.

(h) Motor vehicle and equipment Motor vehicle and equipment is stated at cost less accumulated depreciation and any accumulated impairment losses.

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, on the following bases:

Motor vehicles: 25%

Furniture fittings and equipment: 12.5%

Computer equipment: 30%

The residual values of items of motor vehicle and equipment and their estimated useful lives are reviewed at each reporting period end 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.

(i) Intangible assets

Intangible assets comprise of computer software costs which are stated at cost less accumulated amortisation and any impairment losses. Amortisation is calculated to write off the cost of computer software on a straight line basis over its estimated useful life of 3 years.

(j) Investment properties

Investment properties comprise land and buildings and parts of buildings held to earn rentals and/or for capital appreciation. They are carried at fair value, determined annually by external independent valuers. Fair value is based on open market basis

determined using the highest and best use valuation model.

Investment properties are not subject to depreciation. Gains and losses arising from changes in the fair value of investment property are included in profit or loss in the period in which they arise.

On disposal of an investment property, the difference between the net disposal proceeds and the carrying amount is charged or credited to the profit or loss for the year.

(k) Financial instruments

The group classifies its investments into the following categories: financial assets at fair value through profit or loss, loans and receivables, held-to-maturity financial assets and available-for-sale financial assets. The classification depends on the purpose for which the investments were acquired. Management determines the classification of its investments at initial recognition and re-evaluates this at every reporting date.

Financial assets at fair value through profit and loss

This category has two sub-categories: financial assets held for trading and those designated as fair value financial assets through profit or loss at inception. A financial asset is classified into this category at inception if acquired principally for the purpose of selling in the short term, if it forms part of a portfolio of financial assets in which there is evidence of short term profit-taking, or if so designated by management.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market other than those that the group intends to sell in the short term or that it has designated as fair value financial assets through profit or loss or available-for-sale. Receivables arising from insurance contracts are also classified in this category and are reviewed for impairment as part of the impairment review of loans and receivables.

Held to maturity financial assets

Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturities that management has the positive intention and ability to hold to maturity. Where a sale occurs other than an insignificant amount of held-to-maturity assets, the entire category would be tainted and classified as available for sale.

NOTES TO THE FINANCIAL STATEMENTS (continued)2 - Summary of significant accounting policies (continued)


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NOTES TO THE FINANCIAL STATEMENTS (continued)2 - Summary of significant accounting policies (continued)(k) Financial instruments (continued)

Available-for-sale financial assets

Available-for-sale financial assets are non-derivative financial assets that are either designated in this category or not classified in any of the other categories.

Purchases and sales of investments are recognised on trade date – the date on which the group commits to purchase or sell the asset. Investments are initially recognised at fair value plus, in the case of all financial assets not carried at fair value through profit or loss, transaction costs that are directly attributable to their acquisition. Investments are derecognised when the rights to receive cash flows from the investments have expired or where they have been transferred and the group has also transferred substantially all risks and rewards of ownership.

Measurement of financial assets

Available-for-sale financial assets and financial assets at fair value through profit or loss are subsequently carried at fair value. Loans and receivables and held-to-maturity financial assets are carried at amortised cost using the effective interest method. Realised and unrealised gains and losses arising from changes in the fair value of the ‘financial assets at fair value through profit or loss’ category are included in the profit or loss for the year. Unrealised gains and losses arising from changes in the fair value of non-monetary securities classified as available-for-sale are recognised in other comprehensive income and accumulated under a separate statement of changes in equity heading. When securities classified as available-for-sale are sold or impaired, the accumulated fair value adjustments are included in the profit or loss as net realised gains/losses on financial assets.

The fair values of quoted investments are based on current bid prices. If the market for a financial asset is not active, the group establishes fair value by using valuation techniques. These include the use of recent arm’s length transactions, reference to other instruments that are substantially the same and discounted cash flow analysis.

Unquoted investments are classified as available-for-sale investments. They are shown at fair value unless their value cannot be reliably measured in which case when they are carried at cost less provision for impairment.

Impairment of financial assets

The group assesses at each reporting period end whether there is objective evidence that a financial asset (or group of financial assets) is impaired. Impairment losses are recognised if there is objective evidence of impairment as a result of one or more events that have occurred after the initial recognition of the asset, and that those events have an impact on the estimated future cash flows of the financial asset that can be reliably estimated. The impairment loss so recognised is measured as the difference between

the asset’s carrying amount and the present value of estimated future cash flows, discounted at the financial asset’s original effective interest rate.

Derecognition of financial assets

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.

Financial liabilities

After initial recognition, the group measures all financial liabilities including customer deposits other than liabilities held for trading at amortised cost. Liabilities held for trading (financial liabilities acquired principally for the purpose of generating a profit from short-term fluctuations in price or dealer’s margin) are subsequently measured at their fair values.

Derecognition of financial liabilities

The Group derecognises financial liabilities when, and only when, the Group’s obligations are discharged, cancelled or they expire. The difference between the carrying amount of the financial liability derecognised and the consideration paid and payable is recognised in profit or loss.

(l) Cash and cash equivalents

In the consolidated statement of cash flows, cash and cash equivalents includes cash in 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) Translation of foreign currencies and operations

Functional and presentation currency

Items 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 rounded to the nearest thousand (“Shs”), which is the Group’s presentation currency.

Transactions and balances

In preparing the financial statements of individual entities in the group, transactions in foreign currencies during the year are recorded at rates ruling at the transaction dates.


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Assets and liabilities at the end of each reporting period which are expressed in foreign currencies are translated at rates ruling at that date. The resulting differences are dealt with in the statement of comprehensive income in the year in which they arise.

The individual financial statements of each group entity are presented in the currency of the primary economic environment in which the entity operates. For the purpose of the consolidated financial statements, the results and financial position of each group entity are expressed in Kenya shillings, which is the functional currency of the company and the presentation currency for the consolidated financial statements.

For the purpose of presenting consolidated financial statements, the assets and liabilities of the group’s foreign operations are translated to Kenya shillings using exchange rates prevailing at the end of each reporting period. Income and expense items are translated at the average exchange rates for the period, unless exchange rates fluctuated significantly during that period, in which case the exchange rates at the dates of the transactions are used. Exchange differences arising, if any, are classified as equity and recognised in other comprehensive income and accumulated in equity under the groups’ currency translation reserve. Such differences are recognised in profit or loss in the period in which the foreign operation is disposed of.

(n) Accounting for leases

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to one of the companies in the group as a lessee. All other leases are classified as operating leases.

Payments made under operating leases are charged to profit or loss on a straight-line basis over the period of the lease.

Rental income from operating leases is recognised on a straight-line basis over the term of the relevant lease.

(o) Income taxes

Income tax expense is the aggregate amount charged/(credited) in respect of current tax and deferred tax in determining the profit or loss for the year. Tax is recognised in theprofit or loss except when it relates to items recognised in other comprehensive income, in which case it is also recognised in other comprehensive income, or to items recognised directly in equity, in which case it is also recognised directly in equity.

Current income tax

Current income tax is the amount of income tax payable on the taxable profit for the year, and any adjustment to tax payable in respect of prior years, determined in accordance

with the Kenyan Income Tax Act. Current income tax is the amount of income tax payable on the taxable profit for the year, and any adjustment to tax payable in respect of prior years, determined in accordance with the Kenyan Income Tax Act.

Deferred income tax

Deferred income tax is provided in full on all temporary differences except those arising on the initial recognition of an asset or liability, other than a business combination, that at the time of the transaction affects neither the accounting nor taxable profit or loss. Deferred income tax is determined 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, using tax rates and laws enacted or substantively enacted at the balance sheet date and expected to apply when the related deferred income tax asset is realised or the deferred 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 temporary differences can be utilised.

Deferred income tax liabilities are provided on taxable temporary differences arising from investments in subsidiaries, associates and joint arrangements, except for deferred income tax liability 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. Generally the group is unable to control the reversal of the temporary difference for associates. Only where there is an agreement in place that gives the group the ability to control the reversal of the temporary difference not recognised.

Deferred income tax assets are recognised on deductible temporary differences arising from investments in subsidiaries, associates and joint arrangements only to the extent that it is probable the temporary difference will reverse in the future and there is sufficient taxable profit available against which the temporary difference can be utilised.

Recognised and unrecognised deferred tax assets are reassessed at the end of each reporting period and, if appropriate, the recognised amount is adjusted to reflect the extent that it has become probable that future taxable profits will allow the deferred tax asset to be recovered.

Deferred income tax assets and liabilities are offset when there is a legally enforceableright to offset current income tax assets against current income tax liabilities and when the deferred income taxes assets and liabilities relate to income taxes levied by the same taxation authority on the same entity.

NOTES TO THE FINANCIAL STATEMENTS (continued)2 - Summary of significant accounting policies (continued)(m) Translation of foreign currencies and operations (continued)


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(p) Retirement benefit obligations The group operates a defined contribution scheme for its employees. The assets of the scheme are held in separate trustee administered funds, which are funded from contributions from both the group and employees. The employees of the group are also members of the statutory National Social Security Fund (“NSSF”).The group’s contributions to the defined contribution scheme and NSSF are charged to the profit or loss in the year to which they relate.

(q) Dividends

Dividends on ordinary shares are charged to retained earnings in the year in which they are paid. Dividend distributions to the group’s shareholders are recognised as a liability in the group’s financial statements in the year in which the dividends are approved by the shareholders. Proposed dividends are shown as a separate component of equity.

(r) Share capital

Ordinary shares are recognised at par value and classified as ‘share capital’ in equity. Any amounts received over and above the par value of the shares issued are classified as ‘share premium’ in equity.

Incremental costs directly attributable to the issue of new ordinary shares or options are shown in equity as a deduction, net of tax, from the proceeds.

Shares are classified as equity when there is no obligation to transfer cash or other assets.

3 - CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS IN APPLYING ACCOUNTING POLICIES

The group makes 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.

The ultimate liability arising from claims made under insurance contracts

The main assumption underlying techniques applied in the estimation of this liability isthat the group’s past claims experience can be used to project future claims development and hence ultimate claims costs. As such, these methods extrapolate the development of paid and incurred losses, average costs per claim and claim numbers based onthe observed development of earlier years and expected loss ratios. Historical claims

development is mainly analysed by accident years.

Additional qualitative judgment is used to assess the extent to which past trends may not apply in future, (for example, to reflect one-off occurrences, changes in external or market factors such as public attitudes to claiming, economic conditions, levels of claims inflation, judicial decisions and legislation, as well as internal factors such as portfolio mix, policy conditions and claims handling procedures) in order to arrive at the estimated ultimate cost of claims that present the likely outcome from the range of possible outcomes, taking account of all the uncertainties involved.

A margin for adverse deviation may also be included in the liability valuation. Outstanding claims are computed on the basis of the best information available at the time the records for the year are closed, and include additional provisions for claims incurred but not reported (“IBNR”) at the end of the reporting period based on the group’s experience but subject to the minimum percentages set by the Insurance Regulatory Authority.

Incurred but not reported claims

Estimates are made for claims Incurred But Not Reported (IBNR) as at yearend based on the historical claims development statistics and evaluation of the current, past and future assumptions. Using the chain ladder model, the group has developed estimates of expected claims outstanding.

Valuation of investment properties

Estimates are made in determining valuations of investment properties. The group management uses experts in determination of the values to adopt.

Held-to-maturity financial assets

The group follows the guidance of IAS 39 on classifying non-derivative financial assets with fixed or determinable payments and fixed maturity as held-to-maturity. This classification requires significant judgment. In making this judgment, the group evaluates its intention and ability to hold such assets to maturity. If the group fails to hold these financial assets to maturity other than for the specific circumstances – for example, selling an insignificant amount close to maturity – it will be required to reclassify the entire class as available-for-sale. The assets would therefore be measured at fair value not amortised cost.

NOTES TO THE FINANCIAL STATEMENTS (continued)2 - Summary of significant accounting policies (continued)


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NOTES TO THE FINANCIAL STATEMENTS (continued)3 - Critical accounting estimates and judgments in applying accounting policies (continued)

4 - MANAGEMENT OF INSURANCE AND FINANCIAL RISK

The group’s activities expose it to a variety of financial and insurance risks. The group’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.

The disclosures below summarises the way the group manages key risks:

4.1 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 group 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 by a change in any subset of the portfolio. The group 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.

4.1.1. General insurance contracts

(a) Frequency and severity of claims

The frequency and severity of claims can be affected by several factors. The most significant are the increasing level of awards for the damage suffered as a result of road accidents and injuries to agricultural employees. Estimated inflation is also a significant factor due to the long period typically required to settle these cases.

The group manages these risks through its underwriting strategy, adequate reinsurance arrangements and proactive claims handling.

The underwriting strategy attempts to ensure that the underwritten risks are well diversified in terms of type and amount of risk, industry and geography. Underwriting limits are in place to enforce appropriate risk selection criteria. For example, the group has the right not to renew individual policies, it can impose deductibles and it has the right to reject the payment of a fraudulent claim. Insurance contracts also entitle the group to pursue third parties for payment of some or all costs (for example, subrogation).

The reinsurance arrangements include excess, surplus and catastrophe coverage. The effect of such reinsurance arrangements is that the group should not suffer total net insurance losses of more than set limits per class of business in any one year. In addition to the overall group reinsurance programme, individual business units are permitted to purchase additional reinsurance protection.

The group has specialised claims units dealing with the mitigation of risks surrounding known claims. This unit investigates all claims and adjusts them where necessary. The claims records are reviewed individually at least semi-annually and adjusted to reflect the latest information on the underlying facts, current law, jurisdiction, contractual terms and conditions, and other factors. The group actively manages and pursues early settlements of claims to reduce its exposure to unpredictable developments.

(b) Sources of uncertainty in the estimation of future claim payments

Claims on all insurance contracts are payable on a claims-occurrence basis. The group is liable for all insured events that occurred during the term of the contract, even if the loss is discovered after the end of the contract term. As a result, claims are settled over a long period of time and a large element of the claims provision relates to incurred but not reported claims (IBNR). There are several variables that affect the amount and timing of cash flows from these contracts. These mainly relate to the inherent risks of the business activities carried out by individual contract holders and the risk management procedures they have adopted. The compensation paid on these contracts is the monetary awards granted for bodily injury suffered and damage or loss to property.

The estimated cost of claims includes direct expenses to be incurred in settling claims, net of the expected subrogation value and other recoveries. The group takes all reasonable steps to ensure that it has appropriate information regarding its claims exposures. However, given the uncertainty in establishing claims provisions, it is likely that the final outcome will prove to be different from the original liability established. The liability for these contracts comprise a provision for IBNR, a provision for reported claims not yet paid and a provision for unexpired risks at the end of the reporting period.

In estimating the liability for the cost of reported claims not yet paid, the group considers any information available from loss adjusters and information on the cost of settling


54

claims with similar characteristics in previous periods.

4.1.2. Long-term insurance contracts

(a) Frequency and severity of claims

For contracts where death is the insured risk, the most significant factors that could increase the overall frequency of claims are epidemics such as AIDS or widespread changes in lifestyle, such as eating, smoking, exercise habits resulting in earlier deaths or more claims than expected.

For contracts that survival is the insured risk, the most significant factor is continued improvement in medical science and social conditions that would increase longevity.

At present, these risks are monitored very closely and reassurance arrangements are in place to protect the impact of severity of claims and frequency from one event. There is also an underwriting policy in place which is strictly followed.

The underwriting strategy adopted is intended to ensure that the risks underwritten are well diversified in terms of type of risk and level of insured benefits. Medical selection is also included in underwriting procedures with premiums varied to reflect the health condition and family medical history of the insured. The group has retention limits for standard risks (from a medical point of view). The group does not have in place any reinsurance for contracts that insure survival risk but every year reserves are set aside to support the liabilities arising from such contracts. Insurance risk for contracts disclosed in this note is also affected by policyholder’s right to pay reduced premiums or no future premiums or terminate the contract completely.

The table below presents the concentration of insured benefits across three bands of insured benefits per individual life assured. The benefit insured figures are shown gross and net of the reinsurance contracts described above. At year-end, none of these insurance contracts had triggered a recovery under the reinsurance held by the Company.

Maximum insured loss

Year ended 31 December 2014Class of business

Kshs 0m - 15m Kshs 15m - 250mKshs 250m and

aboveTotal

Ksh ’000

Ordinary life Gross 16,356,211 1,209,141 - 17,565,352Net 14,771,894 246,271 - 15,018,165

Group life Gross 933,289 12,421,274 110,495,177 123,849,740Net 923,631 8,749,496 58,211,612 67,884,739

15,695,525 8,995,767 58,211,612 82,902,904

Year ended 31 December 2013Class of business

Ordinary life Gross 11,769,648 565,831 - 12,335,479Net 10,456,285 118,716 - 10,575,001

Group life Gross 924,422 12,110,045 84,280,608 97,315,075Net 923,374 8,814,017 49,651,150 59,388,541

11,379,659 8,932,733 49,651,150 69,963,542

NOTES TO THE FINANCIAL STATEMENTS (continued)4 - Management of Insurance and Financial Risk (continued)4.1 Insurance risk (continued)


55

(b) Life insurance contracts sensitivity analysis

The actuarial assumptions used as at 31 December 2014 are unlikely to change significantly to result in material variation in actuarial liabilities.

(c) Sources of uncertainty in the estimation of future benefit payments and premium receipts

Uncertainty in the estimation of future benefit payments and premium receipts arises from unpredictability of long term changes in overall levels of mortality and variability in policy

holder behaviours.

The group uses appropriate base tables of standard mortality according to the type of contract being written. An investigation into the actual experience is carried out every year.

(d) Process used to decide on assumptions

The process and assumptions for long-term contracts to determine liabilities are decided by the group’s appointed actuary and are contained in the Statutory Actuarial Valuation

Report as at 31st December 2014. The Actuarial method and basis used are those set out in the Insurance Act.

These assumptions relate to; mortality, morbidity, persistency, investment returns, and expenses.

(e) Income tax expense

It has been assumed that the current tax legislation and rates continue unaltered.

The group engages in long and short term insurance contracts and funds the insurance liabilities with a portfolio of equity and debt securities exposed to market risk. During the year, the group increased the portion of financial assets invested in debt securities to mitigate the impact of the volatility of equity prices experienced in recent years.

An analysis of the group’s and company’s financial assets and its liabilities is presented on the following page:



56


GROUPFinancial assets

Long term business

2014Ksh ‘000

Short term business &

investment activities

2014Ksh ‘000

Total 2014

Kshs ‘000

Total 2013

Ksh ’000

Debt securities held to maturity:- Government securities 22,305,888 89,274 22,395,162 18,848,119- Corporate bonds 1,463,086 10,556 1,473,642 1,216,575 - Deposits with financial institutions 2,110,609 374,204 2,484,813 2,487,281Equity securities:- At fair value through profit or loss 5,930,534 - 5,930,534 4,633,571- Available for sale 59,250 3,565 62,815 44,435- Treasury bonds 2,137,852 176,908 2,314,760 2,427,535Mortgage loans 362,300 - 362,300 301,779

Policy loans 318,263 - 318,263 224,817Deferred acquisition costs - 43,701 43,701 39,374Receivables arising out of reinsurance arrangements 5,300 84,832 90,132 145,031

Receivables arising out of direct insurance arrangements - 272,597 272,597 264,021

Cash and bank balances 169,665 44,443 214,108 240,510

Total financial assets 34,862,747 1,100,080 35,962,827 30,873,048

Financial liabilitiesInsurance contracts 144,583 272,998 417,581 413,281

Unearned premiums - 147,279 147,279 141,944

Payables arising from reinsurance arrangements - 50,391 50,391 44,757

Payables arising from direct insurance arrangements - 18,925 18,925 87,033

Less assets arising from reinsurance contracts held short term (24,770) (180,080) (204,850) (191,064)

Payables under deposit administration contracts 27,595,600 - 27,595,600 23,968,958

Total financial liabilities 27,715,413 309,513 28,024,926 24,464,909


57

COMPANYFinancial assets

Long term business

2014Ksh ‘000

Short term business and

investment activities

2014Ksh ‘000

Total 2014

Kshs ‘000

Total 2013

Ksh ’000

Debt securities held to maturity:- Government securities 21,876,355 38,031 21,914,386 18,409,497- Corporate bonds 1,463,086 - 1,463,086 1,206,684 - Deposits with financial institutions 1,531,620 270,241 1,801,861 1,897,247Equity securities:- At fair value through profit or loss 5,930,534 - 5,930,534 4,633,571- Treasury bonds 2,137,852 - 2,137,852 2,316,904Mortgage loans 362,300 - 362,300 301,779Policy loans 288,863 - 288,863 198,778Receivables arising out of reinsurance arrangements 1,316 7,408 8,724 7,408Cash and bank balances 131,828 4,103 135,931 205,327

Total financial assets 33,723,754 319,783 34,043,537 29,177,195

Financial liabilitiesInsurance contracts 130,376 - 130,376 167,055Payable arising from direct insurance arrangements - 18,925 18,925 9,525Less assets arising from reinsurance contracts held short-term (17,409) - (17,409) (49,735)Payables under deposit administration contracts 27,045,462 - 27,045,462 23,480,022

Total financial liabilities 27,158,429 18,925 21,177,354 23,606,867

Insurance liabilities are not directly sensitive to the level of market interest rates, as they are undiscounted and contractually non-interest bearing. However, due to the time value of money and the impact of interest rates on the level of bodily injury incurred by the group’s policy holders (where a reduction of interest rate would normally produce a higher insurance liability), the group matches the cash flows of assets and liabilities in this portfolio by estimating their mean duration.

The mean duration of liabilities is calculated using historical claims data to determine the expected settlement pattern for claims arising from the insurance contracts in force at the balance sheet date (both incurred claims and future claims arising from the unexpired risks at the end of the reporting period). The mean durations are:

2014 2013

Net insurance liabilities - life risk 0.2 years 0.2 yearsNet short term insurance liabilities - property risk 1.0 years 1.0 yearsNet short term insurance liabilities - casualty risk 3.0 years 3.0 yearsFinancial assets (excluding equity securities) 1.0 years 1.0 years



58

Contractual cash flows (undiscounted)


Carrying amount

31.12.2014Ksh ‘000

No stated maturityKsh ‘000

0-1 yearsKsh ‘000

1 - 2 yearsKsh ‘000


3 - 4 yearsKsh ’000

>5 yearsKsh ’000

Debt securities:Held to maturity:- Government securities - fixed rate 89,274 - 8,728 42,515 - - 38,031- Corporate bonds - fixed rate 10,556 - - - - - 10.556- Government securities held for trading 176,908 - 8,589 - - 78,891 89,428

- Fixed deposits 374,204 - 374,204 - - - -Equity securities at fair value through profit and loss 3,565 3,565 - - - - -Deferred acquisition costs 43,701 43,701 - - - - -Cash and cash equivalents 44,443 - 44,443 - - - -Receivables arising out of reinsurance arrangements 84,832 84,832 - - - - -Receivables arising out of direct insurance arrangements 272,597 272,597 - - - - -

1,100,080 404,695 435,964 42,515 - 78,891 138,015

Financial liabilitiesInsurance contracts - short term 272,998 272,998 - - - - -Less assets arising from reinsurance contracts held short term (180,080) (180,080) - - - - -Payables arising from reinsurance arrangements 50,391 50,391 - - - - -Payables arising from direct insurance arrangements 18,925 18,925 - - - -Unearned premiums 147,279 147,279 - - - - -

309,513 309,513 - - - - -

Difference in contractual cash flows 790,567 95,182 435,964 42,515 - 78,891 138,015

The table below shows the contractual timing of cash flows arising from assets and liabilities included in the group’s Assets and Liabilities Management (ALM) framework for management of short term insurance contracts as of 31 December 2014:



59

The table below shows the contractual timing of cash flows arising from assets and liabilities included in the group’s Assets and Liabilities Management (ALM) framework for management of short-term insurance contracts as of 31 December 2013:


Financial assets

Carrying amount

31.12.2013Ksh ‘000


0-1 yearsKsh ‘000




>5 yearsKsh ’000

Debt securities:Held to maturity:- Government securities - fixed rate 116,471 - 8,341 69,989 - - 38,141- Corporate bonds - fixed rate 9,891 - - - - - 9,891- Government securities held for trading 110,631 - 3,337 32,170 - 2,798 72,326

- Fixed deposits 416,247 - 416,247 - - - -Equity securities available for sale 2,554 2,554 - - - - -Cash and cash equivalents 42,179 - 42,179 - - - -Deferred acquisition costs 39,374 - 39,374 - - - -Receivables arising out of reinsurance arrangements 144,668 - 144,668 - - - -Receivables arising out of direct insurance arrangements 264,021 - 264,021 - - - -

1,146,036 2,554 918,167 102,159 - 2,798 120,358

Financial liabilitiesInsurance contracts - short term 376,061 376,061 - - - - -Payables arisng from direct insurance arrangements 44,757 44,757 - - - - -Payables arising from reinsurance arrangements 87,033 87,033 - - - - -Less assets arising from reinsurance contracts (141,329) (141,329) - - - -

366,522 366,522 - - - - -

Difference in contractual cash flows 779,514 (363,968) 918,167 102,159 - 2,798 120,358



60


The table below shows the contractual timing of cash flows arising from assets and liabilities included in the company’s Assets and Liabilities Management (ALM) framework for management of Short-term insurance contracts as of 31 December 2014:



Carrying amount

31.12.2014Ksh ‘000


0-1 yearsKsh ‘000




>5 yearsKsh ’000

Debt securities:Held to maturity:- Government securities - fixed rate 38,031 - - - - - 38,031- Fixed deposits 270,241 - 270,241 - - - -Cash and cash equivalents 4,103 - 4,103 - - - -Receivables arising out of reinsurance arrangements 7,408 7,408 - - - - -

319,783 7,408 274,344 - - - 38,031

Financial liabilitiesPayables arising from direct insurance arrangements 18,925 18,925 - - - - -

18,925 18,925 - - - - -

Difference in contractual cash flows 300,858 (11,517) 274,344 - - - 38,031

The table below shows the contractual timing of cash flows arising from assets and liabilities included in the company’s Assets and Liabilities Management (ALM) framework for management of Short-term insurance contracts as of 31 December 2013:


Financial assets

Carrying amount

31.12.2013Ksh ‘000


0-1 yearsKsh ‘000




>5 yearsKsh ’000

Debt securities:Held to maturity:- Government securities - fixed rate 38,141 - - - - - 38,141- Fixed deposits 282,866 - 282,866 - - - -Cash and cash equivalents 16,371 - 16,371 - - - -Receivables arising out of reinsurance arrangements 7,408 7,408 - - - - -

344,786 7,408 299,237 - - - 38,141

Financial liabilitiesPayables arising from direct insurance arrangements 9,525 9,525 - - - - -

9,525 9,525 - - - - -

Difference in contractual cash flows 335,261 (2,117) 299,237 - - - 38,141


61

The table below shows the contractual timing of cash flows arising from assets and liabilities included in the group’s Assets and Liabilities Management (ALM) framework for management of long-term insurance contracts as of 31 December 2014:



Carrying amount 31.12.2014Ksh ‘000


0-1 yearsKsh ‘000




>5 yearsKsh ’000

Debt securities:Held to maturity:- Government securities 22,305,888 - 1,021,334 1,051,755 1,126,774 785,507 18,320,518- Corporate bonds 1,463,086 - 1,005 267,045 124,447 706,198 364,391- Deposit with financial institutions 2,110,609 - 2,110,609 - - - -

Equity securities:- At fair value through profit or loss 5,930,534 5,930,534 - - - - -- Available for sale 59,250 59,250 - - - - --Treasury bonds 2,137,852 - - - - - 2,137,852Mortgage loans 362,300 - 3,195 - 45,789 - 313,316Policy loans 318,263 - 23,109 44,267 82,643 30,584 137,660Receivables arising out of reinsurance arrangements 5,300 5,300 - - - - -Cash and bank balances 169,665 - 169,665 - - - -

34,862,747 5,995,084 3,328,917 1,363,067 1,379,653 1,522,289 21,273,737

Long term insurance liabilitiesInsurance contracts - long term 144,583 144,583 - - - - -Payables arising from direct insurance arrangements - - - - - - -Less assets arising from reinsurance contracts (24,770) (24,770) - - - - -Payables under deposit administration contracts 27,595,600 27,595,600 - - - - -

27,715,413 27,715,413 - - - - -

Difference in contractual cash flows 7,147,334 21,720,329 3,328,917 1,363,067 1,379,653 1,522,289 21,273,737



62

The table below shows the contractual timing of cash flows arising from assets and liabilities included in the group’s Assets and Liabilities Management (ALM) framework for management of long-term insurance contracts as of 31 December 2013:



Carrying amount

31.12.2013Ksh ‘000


0-1 yearsKsh ‘000




>5 yearsKsh ’000

Debt securities:Held to maturity:- Government securities 18,731,648 - 513,296 1,307,695 625,547 872,720 15,412,390- Corporate bonds 1,206,684 - 217,534 125,555 345,057 223,720 294,818- Fixed deposits 2,071,034 - 2,071,034 - - - -

Equity securities available for sale 4,633,571 4,633,571 - - - - -Mortgage loans 301,779 - 3,617 - 42,371 - 255,791Policy loans 224,817 - 29,793 - 132,444 - 62,580Receivables arising out of reinsurance arrangements 363 363 - - - - -Equity securities available for sale 41,881 - 41,881 - - - -Cash and cash equivalents 198,331 - 198,331Government securities held for trading 2,316,904 - - 53,190 - 102,440 2,161,274

29,727,012 4,633,934 3,075,486 1,486,440 1,145,419 1,198,880 18,186,853

Long term insurance liabilitiesInsurance contracts - long term - - - - - - -Payables arising from direct insurance arrangements 179,164 179,164 - - - - -Payables arising from reinsurance arrangements - - - - - - -Less assets arising from reinsurance contracts (363) (363) - - - - -Payables under deposit administration contracts 23,968,958 23,968,958 - - - - -

24,147,759 24,147,759 - - - - -

Difference in cash flows 5,579,253 (19,513,825) 3,075,486 1,486,440 1,145,419 1,198,880 18,186,853



63


The table below shows the contractual timing of cash flows arising from assets and liabilities included in the company’s Assets and Liabilities Management (ALM) framework for management of long-term insurance contracts as of 31 December 2014:



Carrying amount

31.12.2014Ksh ‘000


0-1 yearsKsh ‘000




>5 yearsKsh ’000

Debt securities:Held to maturity:- Government securities 21,876,355 - 1,021,334 622,222 1,126,774 785,507 18,320,518- Corporate bonds 1,463,086 - 1,005 267,045 124,447 706,198 364,391-Deposits with financial institutions 1,531,620 - 1,531,620 - - - -

Equity securities:-At fair value through profit or loss 5,930,534 5,930,534 - - - - --Treasury bonds 2,137,852 - - - - - 2,137,852Mortgage loans 362,300 - 3,195 - 45,789 - 313,316Policy loans 288,863 - 13,554 44,267 62,779 30,583 137,660Receivables arising out of reinsurance arrangements 1,316 1,316 - - - - -Cash and bank balances 131,828 - 131,828 - - - -

33,723,754 5,931,850 2,702,536 933,534 1,359,809 1,522,288 21,273,737

Long term insurance liabilitiesInsurance contracts - long term 130,376 130,376 - - - - -Less assets arising from reinsurance contracts (17,409) (17,409) - - - - -Payables under deposit administration contracts 27,045,462 27,045,462 - - - - -

27,158,429 27,158,429 - - - -

Difference in contractual cash flows 6,565,325 (21,226,579) 2,702,536 933,534 1,359,809 1,522,288 21,273,737


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4.2 Financial Risk

The group is exposed to a range of financial risks through its financial assets, financial liabilities, reinsurance assets and insurance liabilities. The most important components of this financial risk are market risk (including interest rate risk, equity price risk and currency risk), credit risk and liquidity risk.

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’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the group’s financial performance. It manages these positions with an Asset Liability Management (ALM) framework that has been developed to achieve investment returns in excess of obligations under insurance contracts. The group produces regular reports at portfolio and asset and liability class level that are circulated to the group’s key management personnel. The principal technique of the group’s ALM is to match assets to the liabilities arising from insurance contracts by reference to the type of benefits payable to contract holders. The group’s ALM is also integrated with the management of the financial risks associated with the group’s other financial assets and liabilities not directly associated with insurance and investment

The table below shows the contractual timing of cash flows arising from assets and liabilities included in the company’s Assets and Liabilities Management (ALM) framework for management of long-term insurance contracts as of 31 December 2013:



Carrying amount

31.12.2013Ksh ‘000


0-1 yearsKsh ‘000




>5 yearsKsh ’000

Debt securities:Held to maturity:- Government securities 18,371,356 - 493,524 967,175 625,657 872,720 15,412,280- Corporate bonds 1,206,684 - 217,534 122,555 345,057 223,720 297,818-Deposits with financial institutions 1,614,381 - 1,614,381 - - - -Equity securities:-At fair value through profit or loss 4,633,571 4,633,571 - - - - --Treasury bonds 2,316,904 - - 53,190 - 102,440 2,161,274Mortgage loans 301,779 - 3,617 9,273 1,622 7,715 279,552Policy loans 198,778 - 20,303 - 115,895 - 62,580Receivables arising out of reinsurance arrangements 188,956 - 188,956 - - - -Cash and bank balances - - - - - - -

28,832,409 4,633,571 2,583,315 1,152,193 1,088,231 1,206,595 18,213,504

Long term insurance liabilitiesInsurance contracts - long term 167,055 167,055 - - - - -Less assets arising from reinsurance contracts (49,735) (49,735) - - - - -Payables under deposit administration contracts 23,480,022 23,480,022 - - - - -

23,597,342 23,597,342 - - - -

Difference in contractual cash flows 5,235,067 (18,963,771) 2,538,315 1,152,193 1,088,231 1,206,595 18,213,504



65

GROUPAssets

Long term business 2014

Ksh ‘000

Short term business and

investment activities 2014

Ksh ‘000Total 2014

Kshs ‘000Total 2013

Ksh ’000

Mortgage loans 362,300 - 362,300 301,779Policy loans 288,863 - 288,863 198,778Corporate bonds held to maturity 1,463,086 - 1,463,086 1,206,684Government securities held to maturity 21,876,355 38,031 21,914,386 18,409,497Government securities held for trading 2,137,852 - 2,137,852 2,316,904Deposits with financial institutions 1,531,620 270,241 1,801,861 1,897,247

Total interest bearing assets 27,660,076 308,272 27,968,348 24,330,889

COMPANYAssetsMortgage loans 362,300 - 362,300 301,779Policy loans 318,263 - 318,263 224,817Corporate bonds held to maturity 1,463,086 10,556 1,473,642 1,216,575Government securities held to maturity 22,305,888 89,274 22,395,162 18,848,119Government securities held for trading 2,137,852 176,908 2,314,760 2,427,535Deposits with financial institutions 2,110,609 374,204 2,484,813 2,487,281

Total interest bearing assets 28,697,998 650,942 29,348,940 25,506,106

liabilities (in particular, borrowings and investments in foreign operations). The group does not use hedge accounting.

The group has not changed the processes used to manage its risks from previous periods. The notes below explain how financial risks are managed using the categories utilised in the group’s ALM framework. The sensitivity analyses below are based on a change in one assumption while holding all other assumptions constant:

(a) Market risk

(i) Interest rate risk

Interest rate risk arises primarily from investments in fixed interest securities. The sensitivity analysis for interest rate risk illustrates how changes in the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates at the reporting date. For financial instruments and insurance contracts described in this note, the sensitivity is solely associated with the financial instruments as the carrying amounts of the latter are not directly affected by changes in market risks.

The group’s management monitors the sensitivity of reported interest rate movements on a monthly basis by assessing the expected changes in the different portfolios due to a parallel movement of plus 1 percentage points in all yield curves of financial assets and financial liabilities. These particular exposures illustrate the group’s overall exposure to interest rate sensitivities included in the group’s ALM framework and its impact in the group’s profit or loss by business.

An increase/decrease of one percentage point in interest yields would result in additional profit/loss for the year of Shs 267.7 Million (2013: Shs202 Million) investment income in long-term business and Shs 6.4 Million (2013 :Shs 6.9 Million) in short-term business.

As at 31 December, the group had the following interest bearing financial assets.

NOTES TO THE FINANCIAL STATEMENTS (continued)4 - Management of Insurance and Financial Risk (continued)4.2 Financial risk (continued)


66

(ii) Equity price risk

The group is exposed to equity securities price risk as a result of its holdings in equity investments, classified as financial assets at fair value through profit or loss. Exposure to equity shares in aggregate are monitored in order to ensure compliance with the relevant regulatory limits for solvency purposes. Investments held are listed and traded on the Nairobi Securities Exchange and the Uganda Securities Exchange.

The group has a defined investment policy which sets limits on the group’s exposure to equities both in aggregate terms and by industry. This policy of diversification is used to manage the group’s price risk arising from its investments in equity securities.

Investment management meetings are held monthly. At these meetings, senior managers meet to discuss investment return and concentration of the equity investments.

Listed equity securities represent 12.5% (2013: 9.53%) of total assets. If equity market indices had increased/decreased by 5%, with all other variables held constant, and all the group’s equity investments moving according to the historical correlation with the index, the profit for the year would increase/decrease by Shs 233.9 million (2013: Shs 164 million)

(iii) Currency risk

Foreign exchange currency risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The group’s financial assets are primarily denominated in the same currencies as its insurance contract liabilities, which mitigate the foreign currency exchange rate risk. The currency risk is also effectively managed by ensuring that the transactions between the group and other parties are designated in the functional currencies of the individual group companies.

At 31 December 2014, if the Kenya shilling had weakened/strengthened by 1% against the Uganda Shillings with all other variables held constant the profit before tax for the year would have been increased/decreased by Shs 3.9 million (2013: Shs 3.2 million) mainly as a result of ICEA Life Assurance (U) Company Limited and ICEA General Insurance (U) Company Limited operations.

(b) Credit risk

The group 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 group is exposed to credit risk are:

- reinsurers' share of insurance liabillities;- amounts due from reinsurers in respect of claims already paid;- amounts due from insurance contract holders;- amounts due from insurance intermediaries; and- amounts due from corporate bond issuers- cash and cash equivalents (including fixed deposits)

The group manages 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 regular 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 group’s liability as primary insurer. If a reinsurer fails to pay a claim, the group remains liable for the payment to the policyholder. The creditworthiness of reinsurers is considered on annual basis by reviewing their financial strength prior to finalisation of any contract.

In addition, management assesses the creditworthiness of all reinsurers and intermediaries by reviewing credit grades provided by rating agencies and other publicly available financial information. The recent payment history of reinsurers is also used to update the reinsurance purchasing strategy. In certain circumstances, deposits from reinsurers are also held as collateral.

NOTES TO THE FINANCIAL STATEMENTS (continued)4 - Management of Insurance and Financial Risk (continued)4.2 Financial risk (continued)(a) Market risk (continued)


67

The table below shows the carrying amounts of assets bearing credit risk:

GROUP

2014Kshs ‘000

2013Ksh ’000

Government securities held to maturity 22,395,162 18,848119Government securities held for trading 2,314,760 2,427,535Receivables arising from insurance contracts held 272,597 264,021Receivables arising from reinsurance contracts held 90,132 145,031Mortgage loans 362,300 301,779Policy loans 318,263 224,817Corporate bonds 1,473,642 1,216,575Deposits with financial institutions 2,484,813 2,487,281Cash and bank balances 214,108 240,510

Total assets bearing credit risk 29,925,777 26,155,668

COMPANYGovernment securities held to maturity 21,914,386 18,409,497Government securities held for trading 2,137,852 2,316,904Receivables arising from insurance contracts held - -Receivables arising from reinsurance contracts held 8,724 7,408Mortgage loans 362,300 301,779Policy loans 288,863 198,778Corporate bonds 1,463,086 1,206,684Deposits with financial institutions 1,801,861 205,327Cash and bank balances 135,931 205,327

Total assets bearing credit risk 28,113,003 24,493,624

The exposure to individual counterparties is also managed through other mechanisms, such as the right of offset where counterparties are both debtors and creditors of the group. Management information reported to the directors include details of provisions for impairment on receivables and subsequent write offs.

NOTES TO THE FINANCIAL STATEMENTS (continued)4 - Management of Insurance and Financial Risk (continued)4.2 Financial risk (continued)(a) Credit risk (continued)


68

Classification of credit risk bearing assets

The table below represents the maximum credit risk exposure to the group attributable to receivables arising out of direct insurance and reinsurance contracts as at 31 December 2014 and 2013, after taking into account credit enhancements attached:

GROUP31 December 2014

Gross amountsKshs ‘000

Impairment allowances

Kshs ‘000Net amounts

Kshs ‘000

Receivables from direct insuranceNeither past due nor impaired - - - -Past due but not impaired 272,597 - 272,597 82%Impaired 60,955 (60,995) - 18%

333,552 (60,995) 272,597 100%

Receivables from reinsurance contractsNeither past due nor impaired 90,132 - 90,132 100%Past due but not impaired - - - -Impaired - - - -

90,132 - 90,132 100%

31 December 2013Receivables from direct insuranceNeither past due nor impaired - - - -Past due but not impaired 264,021 - 264,021 92%Impaired 24,216 (24,216) - 8%

288,237 24,216 264,021 100%

Receivables from reinsurance contractsNeither past due nor impaired - - - -Past due but not impaired 145,031 - 145,031 100%Impaired - - - -

145,031 - 145,031 100%

NOTES TO THE FINANCIAL STATEMENTS (continued)4 - Management of Insurance and Financial Risk (continued)(b) Credit Risk (continued)


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The table below represents the maximum credit risk exposure to the Company attributable to receivables arising out of direct insurance and reinsurance contracts as at 31 December 2014 and 2013, after taking into account credit enhancements attached:

COMPANY31 December 2014

Gross amountsKshs ‘000

Impairment allowances

Kshs ‘000Net amounts

Kshs ‘000

Receivables from direct insurance - - - -Neither past due nor impaired - - - -Past due but not impaired - - - -Impaired - - - -

- - - -

Receivables from reinsurance contractsNeither past due nor impaired 8,724 - 8,724 100%Past due but not impaired - - - -Impaired - - - -

8,724 - 8,724 100%

31 December 2013Receivables from direct insuranceNeither past due nor impaired - - - -Past due but not impaired - - - -Impaired - - - -

- - - -

Receivables from reinsurance contractsNeither past due nor impaired - - - -Past due but not impaired 7,408 - 7,408 100%Impaired - - - -

7,408 - 7,408 100%

The customers under the fully performing category are paying their debts as they continue trading. The default rate is low.

The debt that is overdue is not impaired and continues to be paid. The credit control department is actively following this debt. In addition, the group hhas receivables due from reinsurer’s hence any default would be offset from the payables arising from reinsurance contracts.

The debt that is impaired has been fully provided for. However, debt collectors as well as the following up on the impaired debt.

Management makes regular reviews to assess the degree of compliance with the group’s procedures on credit. Exposures to individual policyholders and groups of policyholders are



70


tracked within the on-going 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 management.

(c) Liquidity risk

Liquidity risk is the risk that cash may not be available to pay obligations when due at a reasonable cost. The primary liquidity risk of the group is the obligation to pay claims to policyholders as they fall due. The projected settlement of these liabilities is modelled, on a regular basis, using actuarial techniques. The board sets limits on the minimum proportion of maturing funds available to meet such calls and on the minimum level of borrowing facilities that should be in place to cover anticipated liabilities and unexpected levels of demand.

The table below analyses the group’s financial liabilities into relevant maturity groupings based on the remaining period at the end of each reporting period to the contractual maturity date. The amounts disclosed in the table below are the contractual undiscounted cash flows. Balances due within 12 months equal their carrying amounts, as the impact of discounting is not significant. The maturity analysis of other liabilities and assets is contained in note 4.

GROUPAt 31 December 2014

0 - 1 yearKshs ‘000

Over 1 yearKshs ‘000

TotalKshs ‘000

Payables arising from reinsurance arrangements 50,391 - 50,391Other payables 474,962 - 474,962

525,353 - 525,353

At 31 December 2013Payables arising from reinsurance arrangements 44,757 - 44,757Other payables 621,195 - 621,195

665,952 - 665,952

The table below analyses the company’s financial liabilities into relevant maturity groupings based on the remaining period at the end of each reporting period to the contractual maturity date. The amounts disclosed in the table below are the contractual undiscounted cash flows. Balances due within 12 months equal their carrying amounts, as the impact of discounting is not significant. The maturity analysis of other liabilities and assets is contained in note 4.

COMPANYAt 31 December 2014

0 - 1 yearKshs ‘000

Over 1 yearKshs ‘000

TotalKshs ‘000

Payables arising from reinsurance arrangements 18,925 - 18,925Other payables 291,729 - 291,729

310,654 - 310,654

At 31 December 2013Payables arising from reinsurance arrangements 9,525 - 9,525Other payables 365,708 - 365,708

375,233 - 375,233


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(d) Fair value estimation

The table below analyses financial instruments carried at fair value, by valuation method. The different levels have been defined as follows:

- 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 financial assets and liabilities measured at fair value at 31 December 2014 and 31 December 2013:

GROUP31 December 2014

Level 1Kshs ‘000

Level 2Kshs ‘000

Level 3Kshs ‘000

TotalKshs ‘000

Available for sale financial assets- Equity instrumentsFinancial assets at fair value through profit or loss 62,815 - - 62,815- Equity securities 5,930,534 - - 5,930,534- Debt securities 2,314,760 - - 2,314,760

Total financial assets 8,308,109 - - 8,308,109

31 December 2013Available for sale financial assets- Equity instrumentsFinancial assets at fair value through profit or loss 44,435 - - 44,435-Equity securities 4,633,571 - 4,633,571- Debt securities 2,427,535 - - 2,427,535


There were no transfers between levels 1, 2 and 3 in the period (2013: none).

Reconciliation of level 3 fair value measurements

There were no financial assets or financial liabilities measured at fair value on level 3 fair value. The directors consider the carrying amounts of financial assets and financial liabilities recognised in the consolidated financial statements approximate their fair values.

NOTES TO THE FINANCIAL STATEMENTS (continued)4 - Management of Insurance and Financial Risk (continued)4.2 Financial risk (continued)


72

The following table presents the company’s financial assets and liabilities measured at fair value at 31 December 2014 and 31 December 2013:

COMPANY31 December 2014

Level 1Kshs ‘000

Level 2Kshs ‘000

Level 3Kshs ‘000

TotalKshs ‘000

Available for sale financial assets- Equity instrumentsFinancial assets at fair value through profit or loss - - - -- Equity securities 5,930,534 - - 5,930,534- Debt securities 2,137,852 - - 2,137,852


31 December 2013Available for sale financial assets- Equity instrumentsFinancial assets at fair value through profit or loss - - - --Equity securities 4,633,571 - - 4,633,571- Debt securities 2,316,904 - - 2,316,904


There were no transfers between levels 1, 2 and 3 in the period (2013: none).

Reconciliation of level 3 fair value measurements

There were no financial assets or financial liabilities measured at fair value on level 3 fair value. The directors consider the carrying amounts of financial assets and financial liabilities recognised in the consolidated financial statements approximate their fair values.

(e) Capital management

The group maintains an efficient capital structure from a combination of equity shareholders’ funds and borrowings, consistent with the group’s risk profile and the regulatory and market requirements of its business.

The group’s objectives in managing its capital are:

- to match the profile of its assets and liabilities, taking account of the risks inherent in the business;- to maintain financial strength to support new business growth;- to satisfy the requirements of its policyholders, regulators and rating agencies;- to retain financial flexibility by maintaining strong liquidity and access to a range of capital markets;- to allocate capital efficiently to support growth;- to safeguard the group’s ability to continue as a going concern so that it can continue to provide returns for shareholders and benefits for other stakeholders; and- to provide an adequate return to shareholders by pricing insurance contracts commensurate with the level of risk.

NOTES TO THE FINANCIAL STATEMENTS (continued)4 - Management of Insurance and Financial Risk (continued)4.2 Financial risk (continued)(d) Fair value estimation (continued)


73

An important aspect of the group’s overall capital management process is the setting of target risk-adjusted rate of return which is aligned to performance objectives and ensures that the group is focused on the creation of value for shareholders.

The group has a number of sources of capital available to it and seeks to optimise its debt to equity structure in order to ensure that it can consistently maximise returns to shareholders. The group considers not only the traditional sources of capital funding but the alternative sources of capital including reinsurance, as appropriate, when assessing its deployment and usage of capital. The group manages as capital all items that are eligible to be treated as capital for regulatory purposes.

Insurance entities in Kenya are governed by the Insurance Act and as such are subject to insurance solvency regulations which specify the minimum amount and type of capital that must be held in addition to the insurance liabilities.

Effective 14th June, 2007, in accordance with Kenya Gazette Supplement No 61, Legal Notice No 97, insurance companies operating in Kenya are now required to have the following minimum level of paid up capital:

- Composite insurance companies: Shs 450 million- General insurance business companies: Shs 300 million and- Long term insurance business companies: Shs 150 million

The Uganda Insurance Act require each insurance company to hold the minimum level of paid up capital as follows:

- General insurance business companies: Ushs4 billion and- Long term insurance business companies: Ushs3 billion

The group manages capital in accordance with these rules and has embedded in its ALM framework the necessary tests to ensure continuous and full compliance with such regulations. The group has complied with all externally imposed capital requirements throughout the year.

2014Kshs ‘000

2013Kshs ‘000

Admitted assets 44,337,795 38,609,051Admitted liabilities 38,719,385 33,602,659

Margin 5,618,410 5,006,392

Required margin 1,935,969 1,680,133

NOTES TO THE FINANCIAL STATEMENTS (continued)4 - Management of Insurance and Financial Risk (continued)(e) Capital management (continued)


74

2014Kshs ‘000

2013Kshs ‘000

Long-term business:Ordinary life 1,956,224 1,737,932Group life 766,066 609,122

2,722,290 2,347,054

Short-term business:Motor 161,434 141,729Fire 70,651 72,652Personal accident 196,298 109,726Other 219,836 266,048

648,219 590,155

3,370,509 2,937,209

5 - GROSS EARNED PREMIUMS

The group is organised into two main divisions, General insurance and Long term business. Long term business relates to the underwriting of risks relating to death of an insured person, and includes contracts subject to the payment of premiums for a term dependent on the termination or continuance of the life of an insured person. General insurance business relates to all other categories of short term insurance business underwritten by the group, analysed into several sub-classes of business based on the nature of the assumed risks. The premium income of the group is analysed between the main classes of business as shown below:

NOTES TO THE FINANCIAL STATEMENTS (continued)


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6 - INVESTMENT INCOME - GROUP

Investments held to maturity

Long term business

2014Kshs ‘000

Short term business

2014Kshs ‘000

Total 2014

Kshs ‘000

Total 2013

Kshs ‘000

Interest from Government securities 2,930,703 15,533 2,946,236 2,617,892Interest from corporate bonds 135,595 - 135,595 139,227Interest from commercial papers - 1,700 1,700 321Interest from bank deposits 162,207 61,344 223,551 209,583Interest from unit trusts - 2,845 2,845 1,810

3,228,505 81,422 3,309,927 2,968,833

Investments held at fair value through profit or lossFair value gains on equity investments 839,560 - 839,560 1,279,564Dividends receivable from equity investments 172,426 50,081 222,507 133,160Gain on disposal of equity investments 103,507 - 103,507 71,095Fair value gains on treasury bonds 55,471 3,866 59,337 798Fair value gains on unit trusts - 45 45 63Interest income on treasury bonds - 14,968 14,968 9,267Interest income on unit trusts - - - 720

1,170,964 68,960 1,239,924 1,494,667

Loans and receivablesLoan interest receivable - mortgages 50,763 - 50,763 -Loan interest receivable - policy loans 25,034 - 25,034 44,194

75,797 - 75,797 44,194

Other investmentsFair value gains on investment properties (note 17) 268,993 109,640 378,633 1,055,889Rental income from investment properties 453,725 76,478 530,203 377,581

722,718 186,118 908,836 1,433,470

Other investments incomeMiscellaneous (loss)/income 5,039 9,717 14,756 62

Net investment income 5,203,023 346,217 5,549,240 5,941,226



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7 - OTHER OPERATING INCOME

Long term business

2014Kshs ‘000

Short term business

2014Kshs ‘000

Total 2014

Kshs ‘000

Total 2013

Kshs ‘000

Management fees on unit linked product 13,791 - 13,791 19,768Gain on disposal of property and equipment - 7 7 345Others 64,084 22,422 86,506 34,020

77,875 22,429 100,304 54,133

8 - CLAIMS AND POLICY HOLDER BENEFITS PAYABLE

Long term insurance business2014

Kshs ‘0002013

Kshs ‘000

Death and disabilty claims 345,035 372,790Life maturity claims 235,108 154,015Surrenders 68,598 50,899Annuity payments 493,002 472,186Interest payable to policy holders and on deposit admin contracts 3,179,389 2,636,732Increase in actuarial liabilities 1,222,032 838,216Reassurance recoveries (126,208) (111,701)

5,416,956 4,413,137

General insurance businessMotor 54,713 65,012Fire 13,805 9,881Personal accident 97,278 91,090Other 73,748 102,094Reinsurance recoveries (103,948) (117,896)

135,596 150,181

Total claims and policy holder benefits payable 5,552,552 4,563,318



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9 - OTHER OPERATING EXPENSES

2014Kshs ‘000

2013Kshs ‘000

Employee benefit expense* 594,027 534,453Auditors’ remuneration 9,188 7,587Directors' emoluments - fees 4,397 6,172Directors' emoluments - other 29,133 28,200Depreciation and amortization 43,139 29,379Impairment charge for doubtful receivables - premium debtors 60,953 24,216Repairs and maintenance expenditure 7,234 17,162Rental charges 64,000 44,714Business promotions 33,001 26,322Insurance premiums 20,110 10,976Bank charges 16,543 16,961Printing & stationery 17,915 14,846Other 300,718 236,794

1,200,358 997,782

Employee benefit expenseEmployee benefit expense comprise the following:- Salaries and wages 390,488 386,615- Social security benefit costs 6,951 25,188- Retirement benefit costs 78,688 35,586- Performance bonus 85,285 56,619- Medical expenses 15,334 23,602- Training 17,281 6,843

594,027 534,453



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10 - INCOME TAX EXPENSE

GROUPDetails

2014Kshs ‘000

(Restated)2013 Kshs ‘000

Current income tax 176,259 176,041Deferred income tax (Note 36) 172,610 539,514

Income tax expense 348,869 715,555

The income tax expense on the group’s profit before tax differs from the theoretical amount that would arise using the weighted average tax rate applicable to profits of the consolidated entities as follows:

2014Kshs ‘000

(Restated)2013 Kshs ‘000

Profit before income tax 1,512,293 2,780,043

Tax calculated at domestic tax rates applicable to profits in the respective countries 30% (2013: 30%) 453,688 834,013

Tax effects of:- Income not subject to tax (323,295) (132,703)- Expenses not deductible for tax purposes 218,476 39,309- Utilisation of previously unrecognised tax losses - (25,064)

Income tax expense 348,869 715,555

11 - PROFIT FOR THE YEARProfit after tax dealt within the company financial statements of ICEA LION Life Assurance Company Limited is Shs 980,299,000 (2013: Shs 1,970,207,000).

12 - EARNINGS PER SHARE

2014Kshs ‘000

2013 Kshs ‘000

Profit for the year (Shs ‘000) 1,163,424 2,064,488Number of ordinary shares (short term business) 22,500 22,500

Basic earnings per share (Shs) 51.71 91.76

Basic earnings per share have been calculated by dividing the profit for the year for the parent company by the weighted average number of ordinary shares in issue during the year.



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The basic earnings per share is the same as the diluted earnings per share.

There have been no other transactions involving ordinary shares or potential ordinary shares between the reporting date and the date of completion of these financial statements.

13 - RESERVES

Statutory reserves

Transfer from statutory reserve relates to the proportion of the life assurance business surplus which is distributable as dividends and therefore transferred to retained earnings.

The statutory reserve relates to:

- The surplus on the long term business which is not distributable as dividends as per the requirements of the Insurance Act.

- The contingency reserve under the Uganda subsidiary which is set up under Section 47(2) (c) of the Uganda Insurance Statute 1996. The reserve is provided for at the greater of 2% of the gross premium income, and 15% of net profit each year effective from 1996 and is required to accumulate until it reaches the greater of either minimum paid up capital or 50% of the net premiums written.

Revaluation reserve

Revaluation reserve relates to gains and losses arising from changes in the fair value of non-monetary securities classified as available-for-sale. The reserve is not distributable.

Currency translation reserve

Currency translation reserve relates to translation gains and losses arising as a result of translating opening shareholders’ equity using exchange rates at the close of the period rather than exchange rates at the beginning of the period on consolidation of the subsidiaries.

14 - DIVIDENDS

In 2014, an interim dividend of Shs 8.9 (2013: Shs 22.2) per share amounting to Shs 200,000,000 (2013: Shs 500,000,000) was paid. The directors propose a final dividend of Shs 8.9 per share amounting to Shs 200,000,000 (2013: nil).

NOTES TO THE FINANCIAL STATEMENTS (continued)12 - Earnings per Share (continued)


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15 - MOTOR VEHICLE AND EQUIPMENT

(a) GROUPMotor vehicles

Kshs ‘000Computers

Kshs ‘000

Fittings and equipmentKshs ‘000

Work in progressKshs ‘000

TotalKshs ‘000

COSTAt 1 January 2013 34,519 95,377 93,422 - 223,318Additions 11,768 17,325 30,135 166,535 225,763Disposals (7,434) - - - (7,434)Exchange difference 461 1,008 2,441 - 3,910

39,314 113,710 125,998 166,535 445,557

At 1 January 2014 39,314 113,710 125,998 166,535 445,557Additions 4,851 57,087 44,516 - 106,454Disposals (6,096) (4,095) - - (10,191)Transfer from W.I.P. - - 101,880 (101,880) -Exchange difference (321) (1,979) (1,701) - (4,001)

At 31 December 2014 37,748 164,723 270,693 - 473,164

DEPRECIATIONAt 1 January 2013 18,196 86,500 66,242 - 170,938

Charge for the year 9,142 10,586 6,991 - 26,719Eliminated on disposals (7,333) - - - (7,333)Exchange differences 167 753 1,309 - 2,229

20,172 97,839 74,542 - 192,553

At 1 January 2014 20,172 97,839 74,542 - 192,553Charge for the year 7,889 12,800 14,929 - 35,618Eliminated on disposals (6,096) (4,095) - - (10,191)Exchange differences (44) (197) (390) - (631)

At 31 December 2014 21,921 106,347 89,081 - 217,349

NET BOOK VALUEAt 31 December 2014 15,827 58,376 181,612 - 255,815

At 31 December 2013 19,142 15,871 51,456 166,535 253,004


The gross carrying amount of fully depreciated assets that are still in use as at 31 December 2014 is Shs 158,031,042 (2013:Shs 114,080,349). Such assets would have attracted a notional depreciation of Shs 37,079,434 (2013: Shs 30,286,447).


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(b) COMPANYMotor vehicles

Kshs ‘000Computers

Kshs ‘000

Fittings and equipmentKshs ‘000

Work in progressKshs ‘000

TotalKshs ‘000

COSTAt 1 January 2013 23,855 77,417 50,965 - 152,237Additions 11,635 10,650 26,551 166,535 215,371Disposals (7,300) - - - (7,300)

28,190 88,067 77,516 166,535 360,308

At 1 January 2014 28,190 88,067 77,516 166,535 360,308Additions 4,158 48,325 21,557 - 74,040Disposals - - - - -Transfer of W.I.P. - - 101,880 (101,880) -Transfer to investment property - - - (64,655) (64,655)

At 31 December 2014 32,348 136,392 200,953 - 369,693

DEPRECIATIONAt 1 January 2013 14,567 71,786 42,810 - 129,163Charge for the year 6,378 6,656 3,234 - 16,268Eliminated on disposals (7,300) - - - (7,300)

13,645 78,442 46,044 138,131

At 1 January 2014 13,645 78,442 46,044 - 138,131Charge for the year 5,943 10,802 11,614 - 28,359

At 31 December 2014 19,588 89,244 57,658 - 166,490

NET BOOK VALUEAt 31 December 2014 12,760 47,148 143,295 - 203,203

At 31 December 2013 14,545 9,625 31,472 166,535 222,177

The work in progress as at the end of December 2013 was completed in 2014 and has been included in the specific classes of fixed assets.

NOTES TO THE FINANCIAL STATEMENTS (continued)15 - Motor Vehicle & Equipment (continued)


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16 - INTANGIBLE ASSETS

GROUP AND COMPANY - LONG TERM BUSINESS2014

Kshs ‘0002013

Kshs ‘000

COSTAt 1 January 9,944 9,944Additions 53,003 -

At 31 December 62,947 9,944

DEPRECIATIONAt 1 January 9,915 9,730Charge for the year 5,267 185

At 31 December 15,182 9,915

NET BOOK VALUEAt 31 December 47,765 29

GROUP - SHORT TERM BUSINESSCOhSTAt 1 January 8,252 8,252Additions 2,751 -

At 31 December 11,003 8,252

DEPRECIATIONAt 1 January 6,180 3,705Charge for the year 2,254 2,475

At 31 December 8,434 6,180

NET BOOK VALUEAt 31 December 2,569 2,072



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Valuation technique used to derive level 2 fair values

Level 2 fair value of land and building has been derived using the sales comparison approach. Sales prices of comparable land and buildings in close proximity are adjusted for differences in key attributes such as property size and location.

17 - INVESTMENT PROPERTIES - GROUP AND COMPANY

Long term business

Kshs ‘000

Short term business

Kshs ‘000

Total 2014

Kshs ‘000

Total 2013

Kshs ‘000

At start of year 8,098,000 989,000 9,087,000 7,232,600Transfer from W.I.P. (note 15(b)) 64,655 - 64,655 -Additions 469,832 - 469,832 798,511Fair value gains (note 6) 268,993 109,640 378,633 1,055,889

At year end 8,901,480 1,098,640 10,000,120 9,087,000

The investment properties were last revalued on 31 December 2014 by Kiragu & Mwangi Limited, independent valuers, on an open market basis using the highest and best use principle. The properties are managed by Knight Frank Kenya Limited. The rental income received from the investment properties was Shs 530,203,000 (2013: Shs 377,581,000).

The table below analyses the non-financial assets carried at fair value, by valuation method. The different levels have been defined as follows:

- 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).

At 31 December 2014Level 1

Kshs ‘000Level 2

Kshs ‘000Level 3

Kshs ‘000Total

Kshs ‘000

Investment property - 10,000,120 - 10,000,120

At 31 December 2013Investment property - 9,087,000 - 9,087,000



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18 - EQUITY INVESTMENTS

(a) GROUP

Long term business

2014 Kshs ‘000

Short term business

2014Kshs ‘000

Total 2014

Kshs ‘000

Total 2013

Kshs ‘000

Quoted investments - available for saleAt 1 January 41,881 2,554 44,435 20,708Additions 12,813 - 12,813 13,325Disposals - - - -Fair value gains 6,990 175 7,165 8,267Exchange adjustments (2,434) 836 (1,598) 2,135

At 31 December 59,250 3,565 62,815 44,435

Quoted investments - at fair value through profit or lossAt 1 January 4,633,571 - 4,633,571 3,272,518Additions 1,029,442 - 1,029,442 447,661Disposals (572,039) - (572,039) (366,172)Fair value gains (note 6) 839,560 - 839,560 1,279,564

At 31 December 5,930,534 - 5,930,534 4,633,571

(b) COMPANYQuoted investments - at fair value through profit or lossAt 1 January 4,633,571 - 4,633,571 3,272,518Additions 1,029,442 - 1,029,442 447,661Disposals (572,039) - (572,539) (366,172)Fair value gains 839,560 - 839,560 1,279,564

At 31 December 5,930,534 - 5,930,534 4,633,571



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19 - INVESTMENTS IN SUBSIDIARIES - AT COST

Long term Kshs ‘000

Short termKshs ‘000

2014Kshs ‘000

2013Kshs ‘000

ICEA LION Asset Management Limited - 34,596 34,596 34,596ITSL Trust Company Limited - 10,000 10,000 10,000Riverside Park Limited 9,823 - 9,823 9,823ICEA Life Assurance Company Limited - 151,234 151,234 151,234ICEA Asset Management Limited - 4,250 4,250 4,250ICEA General Insurance Company Limited - 138,021 138,021 -

9,823 338,101 347,924 209,903

All the above subsidiaries are effectively 100% owned by ICEA LION Life Assurance Company Limited.

Subsidiary Principal business activity

ICEA LION Asset Management Limited Management of investment portfolios for clients.

ITSL Trust Company Limited Provision of administration and trustee services to retirement benefit schemes and other clients.

ICEA Life Assurance Company Limited

Upon the demerger of former ICEA (U) Limited on 1 September 2014, the former ICEA (U) Limited transformed into ICEA Life Assurance Company Limited and now transacts life insurance business and pension scheme administration after transferring the general business to ICEA General Insurance Company Limited.

ICEA General Insurance Company LimitedThis subsidiary was incorporated in 2014 as a result of the demerger of ICEA (U) Limited on 1 September 2014 to transact the general insurance business.

Riverside Park Limited The company ceased trading on 31 December 1996 and transferred its investment properties to the parent company, ICEA LION Life Assurance Company Limited.

ICEA Asset Management Limited Management of Investment Portfolios for clients in Uganda.



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20 - INVESTMENTS IN ASSOCIATE

(a) GROUP-ACCOUNTED FOR USING EQUITY METHOD

The company has a 25% equity interest in East Africa Reinsurance Company Limited. The share of net assets of the associate as at 31 December is made up as follows:

Company’s shares of net assets:2014

Kshs ‘0002013

Kshs ‘000

At 1 January 496,058 419,047Share of after tax profit 93,220 77,011Share of other comprehensive income 35,946 -

At 31 December 625,224 496,058

Further information on the associate company is shown below:

Company Share Capital % owned Country of incorporation Principal activity

East Africa Reinsurance Company Limited Shs 1,000,000 25% KenyaUnderwriting all classes of reinsurance and reassurance businesses

A summary of financial information as of 31 December 2014 in respect of the associate company is set out below:

2014Kshs ‘000

2013Kshs ‘000

Total assets 6,270,265 5,408,921Total liabilities (3,769,369) (3,424,689)

Net assets 2,500,896 1,984,232

Group’s share of the net assets 625,224 496,058

Net earned premiums 3,595,832 2,644,799

Profit before income tax 539,468 494,457Income tax expense (166,584) (146,411)Profit for the year 372,884 348,046Other comprehensive income 143,782 1,966

Total comprehensive income for the year 516,666 350,012



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(b) COMPANY-ACCOUNTED FOR AT COST

The company has a 25% equity interest in East Africa Reinsurance Company Limited. The cost of acquisition of the associate as at 31 December is made up as follows:

2014Kshs ‘000

2013Kshs ‘000

328,567 328,567

21 - KENYA MOTOR INSURANCE POOL - GROUP AND COMPANY

ACCOUNTED FOR USING EQUITY METHOD

This represents the group’s share of net assets of the pool. This balance is recoverable from the pool through a refund amount due upon discontinuation of the pool as well as a share of investment income generated by the pool’s investments annually. The following amount is included in the group’s consolidated and company financial statements as a result of the equity method consolidation of Kenya Motor Insurance Pool.

(a) Details of the joint venture as at the end of the reporting period are as follows:

Name Country of incorporation and operation Principal activity Proportion of ownership interest and

voting power held by the company

2014 2013

Kenya Motor Insurance Pool KenyaSharing of pool business and risks by insurance companies in Kenya underwriting life insurance business.

5.34% 7.53%

(b) The movement in the amount due is shown below:

2014Kshs ‘000

2013Kshs ‘000

At 1 January 32,628 28,826Net increase in group share of net assets of the pool 6,682 3,802

31 December 39,310 32,628

NOTES TO THE FINANCIAL STATEMENTS (continued)20 - Investments in Associate (continued)


88

22 - LOANS RECEIVABLE

(a) MORTGAGE LOANS - GROUP AND COMPANY2014

Kshs ‘0002013

Kshs ‘000

At 1 January 301,779 268,475Loans advanced 89,692 55,897Interest charged 19,054 16,482Loans repayments (48,225) (39,075)

At 31 December 362,300 301,779

MATURITY PROFILE OF MORTGAGE LOANS:Loans maturing:Within 1 year 3,195 3,6171 to 5 years 45,789 42,371Over 5 years 313,316 255,791

362,300 301,779

(b) POLICY LOANSGROUPAt 1 January 224,817 166,882Loans advanced 152,468 81,915Interest charged 28,679 27,522Loans repayments (86,355) (53,237)Exchange adjustments (1,346) 1,735

At 31 December 318,263 224,817

MATURITY PROFILE OF POLICY LOANS:Loans maturing:Within 1 year 23,109 29,7931 - 5 years 209,381 132,444Over 5 years 85,773 62,580

318,263 224,817



89

COMPANY2014

Kshs ‘0002013

Kshs ‘000

At 1 January 198,778 145,521Loans advanced 134,329 67,258Interest charged 25,034 25,379Loans repayments (69,278) (39,380)

At 31 December 288,863 198,778

MATURITY PROFILE OF POLICY LOANS:Loans maturing:Within 1 year 13,554 20,3031 - 5 years 189,536 115,895Over 5 years 85,773 62,580

288,863 198,778

23 - DEFERRED ACQUISITION COSTS (GROUP)

At start of the year 39,374 23,738Net increase 4,327 15,636

At end of the year 43,701 39,374

Commissions and other acquisition costs that vary with and are related to securing new contracts and renewing existing contracts are capitalized as an intangible asset. All other costs are recognised as expenses when incurred. The deferred policy acquisition costs are subsequently amortized over the life of the contracts.

24 - REINSURER'S SHARE OF INSURANCE LIABILITIES

GROUP COMPANY

2014Kshs ‘000

2013Kshs ‘000

2014Kshs ‘000

2013Kshs ‘000

Reinsurer’s share of:- notified claims outstanding 204,850 191,064 17,409 49,735

NOTES TO THE FINANCIAL STATEMENTS (continued)22 - Loans Receivable (continued)(b) Policy Loans (continued)


90

25 - OTHER RECEIVABLES

GROUP

Long term business

2014Kshs ‘000

Short term business

2014Kshs ‘000

Total 2014

Kshs ‘000

Total 2013

Kshs ‘000

Due from related companies 93,615 26,305 119,920 77,115Staff advances 40,001 11,957 51,958 42,621Others 105,925 77,491 183,416 370,346

239,541 115,753 355,294 490,082

COMPANYDue from related companies (Note 39) 39,008 25,977 64,985 138,782Staff advances 37,163 2,747 39,910 29,026Others 62,541 13,943 76,484 54,756

138,712 42,667 181,379 222,564

26 - CORPORATE BONDS

GROUPCorporate bonds maturing:- within 1 year 1,005 - 1,005 217,534- 1 to 5 years 1,097,690 - 1,097,690 795,886- After 5 years 364,391 10,556 374,947 203,155

1,463,086 10,556 1,473,642 1,216,575

COMPANYCorporate bonds maturing:- within 1 year 1,005 - 1,005 217,534- 1 to 5 years 1,097,690 - 1,097,690 795,886- After 5 years 364,391 - 364,391 193,264

1,463,086 - 1,463,086 1,206,684



91

27 - GOVERNMENT SECURITIES

GROUP

Long term business

2014Kshs ‘000

Short term business

2014Kshs ‘000

Total 2014

Kshs ‘000

Total 2013

Kshs ‘000

Held to maturityTreasury bills and bond maturing:- within 1 year 1,168,868 11,148 1,180,016 513,286- 1 to 5 years 2,816,502 40,095 2,856,597 3,845,318- After 5 years 18,320,518 38,031 18,358,549 14,489,515

22,305,888 89,274 22,395,162 18,848,119

Held for tradingTreasury bills and bonds maturing:- within 1 year - - - 3,337- 1 to 5 years - 72,517 72,517 190,599- After 5 years 2,137,852 104,391 2,242,243 2,233,599

2,137,852 176,908 2,314,760 2,427,535

COMPANYHeld to maturityTreasury bills and bond maturing:- within 1 year 1,021,334 - 1,021,334 493,524- 1 to 5 years 2,534,503 - 2,534,503 3,426,468- After 5 years 18,320,518 38,031 18,358,549 14,489,505

21,876,355 38,031 21,914,386 18,409,497

Held for tradingTreasury bills and bonds maturing:- within 1 year - - - -- 1 to 5 years - - - 155,630- After 5 years 2,137,852 - 2,137,852 2,161,274

2,137,852 - 2,137,852 2,316,904


Treasury bonds amounting to Shs 2,479,000,000 (2013: Shs 1,879,000,000) are held under lien with the Central Bank of Kenya.


92

28 - WEIGHTED AVERAGE EFFECTIVE RATES - GROUP AND COMPANYThe following table summarises the weighted average effective interest rates at the year end on the principle interest bearing investments.

2014 2013

Mortgage loans 15% 15%Policy loans 13% 13%Government securities 13% 14%Corporate bonds 10% 11%

29 - DEPOSITS WITH FINANCIAL INSTITUTIONS

GROUP

Long term business

2014Kshs ‘000

Short term business

2014Kshs ‘000

Total 2014

Kshs ‘000

Total 2013

Kshs ‘000

Maturing within 90 days 1,766,050 300,879 2,066,929 2,163,486Maturing after 90 days 344,559 73,325 417,884 323,795

2,110,609 374,204 2,484,813 2,487,281

COMPANYMaturing within 90 days 1,531,620 270,241 1,801,861 1,897,247

The weighted average effective interest rate for deposits due with financial institutions as at 31 December 2014 was 12% per annum (2013 – 12.1%)

30 - SHARE CAPITAL - GROUP AND COMPANY

Ordinary shares

Number of shares

Short termKshs ‘000

Long termKshs ‘000

TotalKshs ‘000

Balance at 1 January 2013, 31 December 2013 and 31 December 2014 22,500,000 150,0000 300,000 450,000

The total authorised number of ordinary shares is 22,500,000 with a par value of Shs 20 per share. All issued shares are fully paid.



93

31 - PROVISIONS FOR UNEARNED PREMIUM AND UNEXPIRED RISKS

These provisions represent the liability for short term business contracts where the company’s obligations had not expired at the year end. The unexpired risk provision relates to insurance contracts for which the company expects to pay claims in excess of the related unearned premium provision. Movements in the two reserves are shown below:

GROUP2014

Kshs ‘0002013

Kshs ‘000

At 1 January 141,944 134,852Increase 5,335 7,092

At 31 December 147,279 141,944

32 - INSURANCE CONTRACT LIABILITIES

GROUP2014

Kshs ‘0002013

Kshs ‘000

(a) Long term insurance contracts- claims reported and claims handling expenses 144,583 179,164

(b) Short term non-life insurance contracts:- claims reported and claims handling expenses 237,390 203,580- claims incurred but not reported 35,608 30,537

Total - short term 272,998 234,117

417,581 413,281

COMPANY(a) Long term insurance contracts- claims reported and claims handling expenses 130,376 167,055

Movements in insurance liabilities and reinsurance assets are shown in note 33.



94

33 - MOVEMENTS IN INSURANCE LIABILITIES AND REINSURANCE ASSETS

At 1 JanuaryGross

Kshs ‘000Reinsurance

Kshs ‘000

Net 2014

Kshs ‘000Gross

Kshs ‘000Reinsurance

Kshs ‘000

Net 2013

Kshs ‘000

Notified claims 203,580 (122,895) 80,685 163,896 (122,939) 40,957IBNR 30,537 (18,434) 12,103 24,584 (18,441) 6,143

Total as at 1 January 234,117 (141,329) 92,788 188,480 (141,380) 47,100

Claims incurred in current year 84,272 64,365 148,637 258,231 108,050 366,281Payment for claims (64,310) (24,647) (88,957) (227,001) (117,896) (344,897)Increase in liabilities arising from current year claims - - - - 19,692 19,692Exchange difference 18,919 (30,755) (11,836) 14,407 (9,795) 4,612

Total as at 31 December 2014 272,998 (132,366) 140,632 234,117 (141,329) 92,788

Notified claims 237,390 (115,101) 122,289 203,580 (122,895) 80,685IBNR 36,608 (17,265) 18,343 30,537 (18,434) 12,103

At 31 December 272,998 (132,366) 140,632 234,117 (141,329) 92,788



95

34 - AMOUNTS PAYABLE UNDER DEPOSIT ADMINISTRATION CONTRACTS

Deposit administration contracts are recorded at amortised cost. Movements in amounts payable under deposit administration contracts during the year were as shown below. The liabilities are shown inclusive of interest accumulated to 31 December. Interest was declared and credited to the customer accounts at a weighted average rate of 12% for the year (2013: 12%).

GROUP2014

Kshs ‘0002013

Kshs ‘000

At 1 January 23,968,958 19,329,468Pension fund deposits received 4,195,557 4,435,093Surrenders (3,367,985) (2,194,249)Tax on unregistered schemes (85,628) (66,662)Interest payable to policy holders 2,897,918 2,429,840Adjustment in actuarial liabilities 11,776 (41,134)Exchange adjustments (24,996) 76,602

At 31 December 27,595,600 23,968,958

COMPANYAt 1 January 23,480,022 18,997,389Pension fund depsoits received 4,020,729 4,275,101Surrenders (3,240,609) (2,111,094)Tax on unregistered schemes (85,626) (66,662)Interest payable to policy holders 2,865,209 2,407,995Adjustment in actuarial liabilities 5,737 (22,707)

At 31 December 27,045,462 23,480,022



96

35 - OTHER PAYABLES

GROUP

Long term business

2014Kshs ‘000

Short term business

2014Kshs ‘000

Total 2014

Kshs ‘000

Total 2013

Kshs ‘000

Amounts due to related companies (Note 39) - - - 25,156Accrued expenses 86,347 - 86,347 105,170Motor pool liabilities - - - 1,914Rent deposits - 6,493 6,493 6,493Other liabilities 206,616 175,506 382,122 482,462

292,963 181,999 474,962 621,195

COMPANYAmounts due to related companies (Note 39) 31,679 8 31,687 64,366Accrued expenses 86,347 - 86,347 83,461Motor pool liabilities - - - 1,914Rent deposits - 6,493 6,493 6,493Other liabilities 155,676 11,526 167,202 209,374

273,702 18,027 291,729 365,708


36 - DEFERRED INCOME TAX (RESTATED)

Deferred income tax is calculated on all temporary differences under the liability method using a principal tax rate of 30% (2013: 30%). Deferred tax assets and liabilities are attributable to the following items:

Deferred tax - GROUPYear ended 31st December 2014

Restated at 1 Jan 2014

Kshs ‘000

Credited/Charged to Profit

and LossKshs ‘000

Credited/Charged to OCI

Kshs ‘000At 31 Dec 2014

Kshs ‘000

Deferred income tax assetProperty, plant and equipment on historical cost basis (1,552) (378) - (1,930)Unrealised exchange gains (463) 342 - (121)Investment property - - - -Provision for liabilities and charges (53,350) 7,638 - (45,712)Tax losses carried forward (1,401) 128 - (1,273)

(56,766) 7,730 - (49,036)


97


Kshs ‘000


and LossKshs ‘000


Kshs ‘000At 31 Dec 2014

Kshs ‘000

Deferred income tax liabilityProperty, plant and equipment- on historical cost basis 2,246 (1,944) - 302- on revaluation surplus 478 1,164 - 1,642Fair value gainson investment property 178,344 32,892 - 211,236Actuarial surplus 1,022,132 132,768 - 1,154,900

1,203,200 164,880 - 1,368,080

Net deferred tax liability 1,146,434 172,610 - 1,319,044

Year ended 31st December 2013


Kshs ‘000


and LossKshs ‘000


Kshs ‘000

RestatedAt 31 Dec 2013

Kshs ‘000

Deferred income tax assetProperty, plant and equipment on historical cost basis (710) (842) - (1,552)Unrealised exchange gains (43) (420) - (463)Provision for liabilities and charges (761) (52,589) - (53,350)Tax losses carried forward (394) (1,007) - (1,401)

(1,908) (54,858) - (56,766)

Deferred income tax liabilityProperty, plant and equipment- on historical cost basis 988 1,258 - 2,246- on revaluation surplus 587 (109) - 478Investment property 154,643 23,701 - 178,344Actuarial surplus 452,610 569,522 - 1,022,132

608,828 594,372 - 1,203,200

Net deferred tax liability 606,920 539,514 - 1,146,434

NOTES TO THE FINANCIAL STATEMENTS (continued)36 - Deferred income tax (restated) (continued)Deferred Tax - Group (continued)


98

NOTES TO THE FINANCIAL STATEMENTS (continued)36 - Deferred income tax (restated) (continued)

Deferred tax - COMPANYYear ended 31st December 2014


Kshs ‘000


and LossKshs ‘000


Kshs ‘000At 31 Dec 2014

Kshs ‘000

Deferred income tax assetProvision for liabilities and charges (43,939) (1,443) - (45,382)

(43,939) (1,443) - (45,382)

Deferred income tax liabilityFair value gains on Investment property 178,344 32,892 - 211,236Actuarial surplus 1,022,132 132,768 - 1,154,900

1,200,476 165,660 - 1,366,136

Net deferred tax liability 1,156,537 164,217 - 1,320,754


Kshs ‘000


and LossKshs ‘000


Kshs ‘000

RestatedAt 31 Dec 2013

Kshs ‘000

Deferred income tax assetProvision for liabilites and charges - (43,939) - (43,939)

- (43,939) - (43,939)

Deferred income tax liabilityInvestment property 154,643 23,701 - 178,344Actuarial Surplus 452,610 569,522 - 1,022,132

607,253 593,223 - 1,200,476

Net deferred tax liability 607,253 549,284 - 1,156,537


99

37 - CASH GENERATED FROM OPERATIONS

(a) Reconciliation of profit before taxation to cash generated from operations2014

Kshs ‘0002013

Kshs ‘000

Profit before tax 1,512,293 2,780,043Adjustments for:Depreciation and amortisation 43,139 29,379Gain on disposal of property and equipment - (345)Share of associate profits (93,220) (77,011)Gain on sale of shares (103,507) (71,095)Fair value gains on investment properties (378,633) (1,055,889)Fair value gains on treasury bonds (59,382) (861)Fair value gain of quoted shares (839,560) 1,279,564Dividend income (222,507) (133,160)Rental income (530,203) (377,581)Interest income (3,415,448) (3,023,076)

Changes in working capital:Trade and other receivables 156,316 76Technical provisions 5,181,525 5,986,074Trade and other payables (208,707) 45,188

Cash generated from operations 1,042,106 5,381,306

(b) Cash and cash equivalentsCash and bank balances 214,108 240,510Deposits with financial institutions (note 29) 2,066,9292 2,163,486

2,281,037 2,403,996



100

38 - CAPITAL COMMITMENTS

GROUP COMPANY

2014Kshs ‘000

2013Kshs ‘000

2014Kshs ‘000

2013Kshs ‘000

Property and equipment 194,448 94,570 194,448 94,570

Capital expenditure not contracted for at the end of the reporting period date was as follows:

39 - RELATED PARTY BALANCES AND TRANSACTIONS

The company is incorporated in Kenya under the Companies Act and is domiciled in Kenya. The ultimate holding company is Asset Managers Limited, which is incorporated in Kenya. In the normal course of business, the group transacts with the following related entities:

- ICEA LION Asset Management Limited – 100% subsidiary

- ITSL Trust Company Limited – 100% subsidiary

- ICEA General Insurance Company Limited – 100% subsidiary

- ICEA Life Assurance Company Limited – 100% subsidiary

- ICEA Asset Management Limited - 100% subsidiary

- ICEA LION General Insurance Company Limited - common ownership

- Knight Frank Kenya Limited - common ownership

- First Chartered Securities Limited - common ownership



101

(i) Transactions with related parties2014

Kshs ‘0002013

Kshs ‘000

Management fees - ICEA LION Asset Management Limited 46,018 32,211ITSL Trust Company Limited 12,268 12,268Deposits held with other related institutions - NIC Bank 74,886 116,889

(ii) Outstanding balances with related partiesDue to related parties

GROUPICEA LION General Insurance Company Limited - 25,156

- 25,156

COMPANYRiverside Park Limited 31,679 31,682Knight Frank Kenya Limited - -ICEA LION Asset Management Limited - 7,520ICEA LION General Insurance Co. Limited - 25,156ICEA Trust Company Limited 8 8

31,687 64,366

Due from related parties

GROUPICEA LION General Insurance Company Limited 23,587 68,957First Chartered Securities Limited 11,409 8,158Knight Frank Kenya Limited 62 -

35,058 77,115

COMPANYICEA LION General Insurance Company Limited 23,480 68,957ICEA General Insurance Company Limited 16,774 43,341ICEA Life Assurance Company Limited 2,746 -ICEA LION Asset Management Limited 7,814 12,890First Chartered Securities Limited 11,409 8,158ITSL Trust Company Limited 947 3,683Riverside Park Limited 3 3

NOTES TO THE FINANCIAL STATEMENTS (continued)39 - Related Party Balances and Transactions (continued)


102

2014Kshs ‘000

2013Kshs ‘000

Knight Frank Kenya Limited 62 -ICEA Asset Management Limited 1,750 1,750

64,985 138,782

(iii) Key management and directors’ remunerationCOMPANYDirectors’ emoluments - fees 2,028 6,172Directors’ emoluments - other 29,070 28,200Key management remuneration 91,201 82,910

122,999 117,282

GROUPDirectors’ emolument - fees 4,397 6,172Directors’ emoluments - other 62,027 56,561Key management remuneration 164,507 149,957

230,931 212,690

40 - CONTINGENT LIABILITIES

The group operates in the insurance industry and is subject to legal proceedings in the normal course of business. While it is not practicable to forecast or determine the final results of all pending or threatened legal proceedings, management does not believe that such proceedings (including pending litigation) will have a material effect on its results and financial position of the group. However provisions for claims have been made as far as management believe the claim will be paid. The group is also subject to insurance solvency regulations in all the territories where it operates and has complied with all these solvency regulations. There are no contingencies associated with the group’s compliance or lack of compliance with such regulations.

NOTES TO THE FINANCIAL STATEMENTS (continued)39 - Related Party Balances and Transactions (continued)


103

41 - PRIOR YEAR ADJUSTMENT

During the year management has adopted the guidance issued by the Institute of Certified Public Accountants (ICPAK) on the treatment of deferred income tax relating to actuarial surplus on life funds. The guidance requires life insurance companies to account for deferred tax on the whole actuarial surplus. The guidance is based on the institute’s interpretation of IAS 12, Income Taxes.

The Company had not accounted for deferred tax on actuarial surplus in previous years. Management has retrospectively recognised the deferred tax liability for the year ended 31 December 2012 and 31 December 2013 of Shs 452,610,000 and Shs 569,522,000 respectively, as shown below:

The impact has been accounted for retrospectively in line with IAS 8 Accounting policies, changes in accounting estimates and errors. The overall impact on the current and prior years statement of profit or loss and statement of financial position is as follows:

On the income statement for the year ended 31 December 2013;

Kshs ‘000GROUP

Kshs ‘000COMPANY

Net profit for 2013 as previously stated 2,634,010 2,539,729Movement in deferred tax liability (569,522) (569,522)

Profit for the year as restated 2,064,488 1,970,207

On the statement of financial position as at 31 December 2013;

Deferred income tax

As previously stated 124,302 134,405Adjustment in 2012 to correct deferred income tax 452,610 452,610Adjustment in 2013 to correct deferred income tax 569,522 569,522

Restated 1,146,434 1,156,537

Net assets as at 31 December

As previously stated 7,422,039 6,966,427Adjustment for deferred tax (1,022,132) (1,022,132)

As restated 6,399,907 5,944,295


APPENDICES


105

Long term business

2014Kshs ‘000

Short term business

2014Kshs ‘000

Total 2014

Kshs ‘000

Long term business

2013Kshs ‘000

Short term business

2013Kshs ‘000

Total 2013

Kshs ‘000

Gross earned premiums 2,440,760 - 2,440,760 2,097,397 - 2,097,397Less: reinsurance premiums ceded (291,363) - (291,363) (234,755) - (234,755)

Net earned premiums 2,149,397 - 2,149,397 1,862,642 - 1,862,642

Investment income 5,054,363 298,611 5,352,974 5,598,390 207,401 5,805,791Commissions earned 81,990 - 81,990 74,852 - 74,852Other income 77,875 757 78,632 52,835 9,570 62,405

Total investment and other income 5,214,228 299,368 5,513,596 5,726,077 216,971 5,943,048

Claims and policy holder benefits payable 5,384,774 - 5,384,774 4,364,335 - 4,364,335

Less: amounts recoverable from reinsurers (117,322) - (117,322) (111,701) - (111,701)

Net claims payable 5,267,452 - 5,267,452 4,252,634 - 4,252,634

Operating and other expenses 713,046 9,780 722,826 539,052 37,906 576,958Commissions payable 393,179 - 393,179 338,911 - 338,911

Total expenses 1,106,225 9,780 1,116,005 877,963 37,906 915,869

Profit before income tax 989,948 289,588 1,279,536 2,458,122 179,065 2,637,187Income tax expense (228,768) (70,469) (299,237) (659,522) (7,458) (666,980)

Profit for the year 761,180 219,119 980,299 1,798,600 171,607 1,970,207

Other comprehensive income - - - - - -

Total comprehensive income 761,180 219,119 980,299 1,798,600 171,607 1,970,207

APPENDIX I - COMPANY STATEMENT OF COMPREHENSIVE INCOME


106

Other Superannuation

Kshs ‘000

Ordinary Life Fund

Kshs ‘000

Deposit Administration

Kshs ‘000

Total 2014

Kshs ‘000

Total 2013

(Restated)Kshs ‘000

Net premiums writtenGross premiums written 766,066 1,956,224 - 2,722,290 2,347,054Reassurance premium (194,380) (128,959) - (323,339) (255,096)

Net earned premiums 571,686 1,827,265 - 2,398,951 2,091,958

Exchange fluctuation (129) (332) (557) (1,018) -Investment income 708,098 775,520 3,797,280 5,280,898 5,749,637Commissions earned 64,972 38,168 - 103,140 88,377

Total investment and other income 772,941 813,356 3,796,723 5,383,020 5,838,014

Claims paid; life and death 132,570 94,030 - 226,600 261,089Surrenders 493,001 295,933 - 788,934 677,099Interest payable to policy holders - 281,471 2,897,918 3,179,389 2,636,732Increase in actuarial liabilities 322,054 888,205 11,774 1,222,033 838,217

Total claims 947,625 1,559,639 2,909,692 5,416,956 4,413,137

Premium tax 452 17,577 - 18,029 12,370Commissions payable 42,704 372,061 44,116 458,881 402,209Operating expenses 161,888 401,848 231,237 794,973 642,260

Total expenses 205,044 791,486 275,353 1,271,883 1,056,839

Increase in funds during the year 191,958 289,496 611,678 1,093,132 2,459,996

Income tax expense (64,037) (48,106) (140,359) (252,502) (686,342)

Fund at the end of the year 127,921 241,390 471,319 840,630 1,773,654

APPENDIX II - GROUP LONG TERM BUSINESS REVENUE ACCOUNT


107

APPENDIX III - COMPANY LONG TERM BUSINESS REVENUE ACCOUNT

Group Life AssuranceKshs ‘000

Ordinary Life Fund

Kshs ‘000

Deposit Administration

Kshs ‘000

Total 2014

Kshs ‘000

Total 2013

(Restated)Kshs ‘000

Gross earned premiums 732,910 1,707,850 - 2,440,760 2,097,397Less: reassurance premiums ceded (168,477) (122,886) - (291,363) (234,755)

Net earned premiums 564,433 1,584,964 - 2,149,397 1,862,642

Investment income 691,397 725,235 3,715,606 5,132,238 5,651,224Commissions earned 47,119 34,871 - 81,990 74,852

Total investment and other income 738,516 760,106 3,715,606 5,214,228 5,726,076

Claims paid; life and death 122,493 93,197 - 215,690 206,533Surrenders/annuities 493,001 279,669 - 772,670 660,705Interest payable to policy holders - 254,641 2,865,209 3,119,850 2,614,888Adjustment in actuarial liabilities 348,268 805,237 5,737 1,159,242 770,509

Total claims 963,762 1,432,744 2,870,946 5,267,452 4,252,635

Premium tax - 14,770 - 14,770 12,370Commissions payable 38,635 310,826 43,718 393,179 338,911Operating expenses 125,163 359,900 213,213 698,276 526,683

Total expenses 163,798 685,496 256,931 1,106,225 877,964

Increase in funds during the year 175,389 226,830 587,729 989,948 2,458,119

Income tax expense (62,214) (41,095) (125,459) (228,768) (659,522)

Fund at the end of the year 113,175 185,735 462,270 761,180 1,798,597


108

AviationKsh ‘000

Fire industrialKsh ‘000

Fire domesticKsh ‘000

Personal accidentKsh ‘000

MedicalKsh ‘000

Workmen’s

compensation

Ksh ‘000Marine

Ksh ‘000

Engineering

Ksh ‘000

Public liability

Ksh ‘000Theft

Ksh ‘000

Miscellaneous

Kshs ‘000

Motor Private

Ksh ‘000

Motor Commer

cialKsh ‘000

2014 Total

Ksh ‘000

Gross Premium written 8,998 68,350 2,301 99,670 96,628 31,611 34,434 63,403 27,801 43,337 22,475 50,689 110,745 660,442

Changes in gross UPR - (396) 921 (9,445) (14,851) 6,953 (2,740) (11,751) (607) 2,991 (3,862) 17,978 9,203 (5,606)

Gross earned premiums 8,998 67,954 3,222 90,225 81,777 38,564 31,694 51,652 27,194 46,328 18,613 68,667 119,948 654,836

Less: Reinsurance payable (8,998) (48,697) (1,227) (43,258) (67,640) (2,105) (16,907) (41,377) (10,335) (2,890) (14,207) (6,192) (37,536) (301,369)

Net earned premium - 19,257 1,995 46,967 14,137 36,459 14,787 10,276 16,859 43,438 4,406 62,475 82,412 353,467

Claims paid - 12,869 935 38,034 59,244 9,604 6,313 15,870 5,588 15,421 4,485 25,648 29,065 223,076

Changes in gross outstanding claims - 123 7 (2,168) 7,500 652 1,333 558 604 5,564 22 (3,394) 1,585 12,386

Claims recoverable - (9,008) (527) (16,490) (41,471) (592) (3,623) (11,790) (1,705) (1,788) (3,473) (3,090) (10,392) (103,949)

Total claims incurred - 3,984 415 19,376 25,273 9,664 4,023 4,638 4,487 19,197 1,034 19,164 20,258 131,513

Commissions payable 1,367 14,284 456 20,661 12,856 6,950 7,035 13,261 5,737 9,993 4,460 6,334 14,760 118,154

Commissions receivable (3,003) (19,923) (485) (16,591) (17,619) (514) (6,210) (16,838) (4,367) (707) (4,596) (1,381) (6,053) (98,287)

Operating expenses 1,270 18,552 596 29,488 26,909 9,664 10,166 13,526 5,582 13,235 6,018 14,241 26,989 176,236

Total expenses (366) 12,913 567 33,558 22,146 16,100 10,991 9,949 6,952 22,521 5,882 19,194 35,696 196,103

Underwriting profit/(loss) 366 2,360 1,013 (5,967) (33,282) 10,695 (227) (4,312) 5420 1,720 (2,510) 24,117 26,458 25,851

APPENDIX IV - CONSOLIDATED GENERAL BUSINESS REVENUE ACCOUNT


109

AviationKsh ‘000

Fire industrialKsh ‘000

Fire domesticKsh ‘000

Personal accidentKsh ‘000

MedicalKsh ‘000

Workmen’s

compensation

Ksh ‘000Marine

Ksh ‘000

Engineering

Ksh ‘000

Public liability

Ksh ‘000Theft

Ksh ‘000

Miscellaneous

Kshs ‘000

Motor Private

Ksh ‘000

Motor Commer

cialKsh ‘000

2013 Total

Ksh ‘000

Gross Premium written 22,194 72,548 3,373 93,686 50,872 35,349 29,239 44,851 24,012 35,011 15,442 67,380 93,767 587,724

Changes in gross UPR - (3,860) 113 15,741 3,842 3,169 3,141 (3,536) (138) 1,048 413 (11,658) (10,197) (1,922)

Gross earned premiums 22,194 68,688 3,486 109,427 54,714 38,518 32,380 41,315 23,874 36,059 15,855 55,722 83,570 585,802

Less: Reinsurance payable (22,194) (38,324) (753) (27,089) (38,131) (1,346) (15,932) (28,822) (16,775) (9,975) (11,678) (15,417) (14,519) (230,980)

Net earned premium - 30,364 2,733 82,338 16,583 37,172 16,448 12,493 7,099 26,084 4,177 40,305 69,051 354,823

Claims paid 2,874 10,184 195 91,141 36,619 9,152 4,140 11,924 1,219 3,855 - 27,163 28,535 227,001

Changes in gross outstanding claims - (513) 15 (51) 385 927 7,426 595 2,231 20,709 38 3,175 6,139 41,076

Claims recoverable (2,874) (6,496) - (54,319) (29,879) (3,585) (1,492) (11,720) (612) (6,082) - (648) (189) (117,896)

Total claims incurred - 3,175 210 36,771 7,125 6,494 10,074 799 2,838 18,482 38 29,690 34,485 150,181

Premium tax

Commissions payable 38 14,739 615 17,467 5,338 6,892 3,162 11,930 3,508 5,462 2,733 7,012 10,379 89,275

Commissions receivable (2,344) (17,634) (373) (22,2700 (5,617) (3) (2,589) (10,349) (4,488) (262) (5,671) (98) (118) (71,816)

Operating expenses 5,672 18,499 865 23,916 12,992 9,041 7,474 11,413 6,125 8,952 3,932 17,219 23,969 150,069

Total expenses 3,366 15,604 1,107 19,113 12,713 15,930 8,047 12,994 5,145 14,152 994 24,133 34,230 167,528

Underwriting profit/(loss) (3,366) 11,585 1,416 26,454 (3,255) 14,748 (1,673) (1,300) (884) (6,550) 3,145 (13,518) (336) 37,113

APPENDIX V - CONSOLIDATED GENERAL BUSINESS REVENUE ACCOUNT


110

NOTES


111

NOTES


112

NOTES

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