Annual Report & Financial statements

Transcription

1 Annual Report & Financial statements 2015

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3 1 CONTENTS PAGES Corporate information 2 Report of the directors 3 Statement of directors responsibilities 4 Report of the consulting actuary 5 Independent auditors report 6-7 Board of Directors 8 Management Team 9-10 Chairman s Statement Performance Highlights 14 Financial statements Statement of profit or loss and other comprehensive income 15 Statement of financial position Statement of changes in equity 18 Statement of cash flows 19 Notes to the financial statements Supplementary information: Life assurance business revenue accounts Appendix I - II General insurance business revenue accounts Appendix III - IV

4 2 Corporate Information DIRECTORS S G Ngaruiya - Chairman J G Njiru - Managing Director Appointed 01 April 2015 J M Wainaina A C Juma E Mwarania S Ngaine J Ngunjiri - Resigned 31 March 2015 COMPANY SECRETARY Reliable Associates Certified Public Secretaries (Kenya) P O Box 39807, Nairobi REGISTERED OFFICE Madison Insurance House Upper Hill Road P O Box 47382, Nairobi AUDITORS Ernst & Young LLP Certified Public Accountants (Kenya) Kenya Re Towers, Upper Hill Off Ragati Road P O Box 44286, Nairobi PRINCIPAL BANKERS Barclays Bank of Kenya Limited Plaza Branch P O Box 46661, Nairobi CONSULTING ACTUARIES PRINCIPAL LEGAL ADVISERS Alexander Forbes Financial Services (EA) Limited 10th Floor, Landmark Plaza ArgwingsKodhek Road P O Box 52439, Nairobi Kaplan & Stratton Williamson House 4th Ngong Avenue P O Box 40111, Nairobi

5 3 Report of the Directors The directors submit their report together with the audited financial statements of Madison Insurance Company Limited ( the company ) for the year ended 31 December 2015 which disclose the state of affairs of the company. PRINCIPAL ACTIVITIES The principal activity of the company is the transaction of long term and short term insurance business (that includes both general and healthcare products) as well as some investment products. The company also provides pension administration services. FINANCIAL RESULTS Restated KShs 000 KShs 000 Profit before tax 1,110, ,702 Tax charge (136,708) (58,088) Profit for the year transferred to reserves 973, ,614 DIVIDEND The directors do not recommend the payment of a dividend in respect of the year (2014 Nil). DIRECTORS The directors who held office during the year and to the date of this report are as disclosed on page 2. RESERVES The reserves of the Company are set out on page 11 AUDITORS Ernst & Young LLP have expressed their willingness to continue in office in accordance with the provision of section 159(2) of the Companies Act and subject to approval by the Commissioner of Insurance under section 56(4) of the Kenyan Insurance act. BY ORDER OF THE BOARD Director Nairobi 31 March 2016

6 4 Statement Of Directors Responsibilities on The Financial Statements For The Year Ended 31 December 2015 The Kenyan Companies Act requires the directors to prepare financial statements for each financial year which give a true and fair view of the state of affairs of the company as at the end of the financial year and of its operating results for that year. It also requires the directors to ensure that the company keeps proper accounting records which disclose with reasonable accuracy at any time the financial position of the company. They are also responsible for safeguarding the assets of the company. 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 Kenyan Companies Act, the Kenyan Insurance Act and for such internal controls as the directors determine are necessary to enable the preparation of financial statements that are free from material misstatements, whether due to fraud or error. The Directors accept responsibility for the annual financial statements, which have been prepared using appropriate accounting policies supported by reasonable and prudent judgments and estimates, in conformity with International Financial Reporting Standards and in the manner required by the Kenyan Companies Act and Kenyan Insurance Act. 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 company and of the company s operating results. The Directors further accept responsibility for the maintenance of accounting records which may be relied upon in the preparation of financial statements, as well as adequate systems of internal financial control. Nothing has come to the attention of the directors to indicate that the company will not remain a going concern for at least the next twelve months from the date of this statement... Director.... Director 31 March 2016

7 5 Report Of The Consulting Actuary I have conducted an actuarial valuation of the life assurance business of Madison Insurance Company Kenya Limited as at 31 December The valuation was conducted in accordance with generally accepted actuarial principles and in accordance with 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 company. In my opinion, the Life Assurance business of the company was financially sound and the actuarial value of the liabilities in respect of all classes of life insurance business did not exceed the amount of funds of the life assurance business at 31 December 2015 Name of Actuary: James I O Olubayi 31 March 2016

8 6 Independent Auditors Report to the Members of Madison Insurance Company Kenya Limited Report on the Financial Statements We have audited the accompanying financial statements of Madison Insurance Company Kenya Limited, which comprise the statement of financial position as at 31 December 2015, the statement of profit or loss and other comprehensive income, statement of changes in equity, and statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory notes, as set out on pages 15 to 80. Directors responsibility for the financial statements The Company s directors are responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards and in the manner required by the Kenyan Companies Act, the Kenyan Insurance Act and for such internal controls as the directors of the Group and the Company determine are necessary to enable the preparation of financial statements that are free of material misstatement, whether due to fraud or error. Auditor s responsibility Our responsibility is to express an opinion on 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 about whether the financial statements are free of 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 entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal controls. 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 financial statements present fairly, in all material respects, the financial position of the Company as at 31 December 2015, the financial performance and cash flows of the Company for the year then ended in accordance with the International Financial Reporting Standards and the requirements of the Kenyan Companies Act and Kenyan Insurance Act.

9 7 Report on Other Legal Requirements As required by the Kenyan Companies Act, we report to you, based on our audit, that: (a) (b) (c) we have obtained all the information and explanations which, to the best of our knowledge and belief, were considered necessary for the purposes of our audit; In our opinion, proper books of account have been kept by the company, so far as appears from our examination of those books; and The company s statement of financial position and statement of profit or loss and other comprehensive income are in agreement with the books of account. The engagement partner responsible for the audit resulting in this independent auditors report is CPA Joseph K Cheboror (P/No. 1145). Nairobi, Kenya 31 March 2016

10 8 Board of Directors From Left to Right: J Njiru, S Ngaine, S G Ngaruiya, A C Juma, J M Wainaina and E Mwarania

11 9 Management Team Joshua Njiru Managing Director Hezron Wambugu General Manager - GIB Patrick Muturi Financial Controller John Muhindi Asst. General Manager - Medical John Mugambi Underwriting Manager - GIB Morris Maina Claims Manager - GIB Rosemary Maina Manager - Claims and Care, Medical Serafina Ndirangu Human Resources Manager Christine Ronga Claims Manager, Life Stanley Chege Head of IT Samuel Chege Chief Accountant Francis Miano National Sales Manager - Ordinary Life Stanley Karanja National Sales Manager - Group Life Josephat Muthwii Underwriting Manger, Life Jane Njenga Manager, Pensions Adminstration Mercy Kago Manager, Premium Adminstration

12 10 Management Team Lillian Munyiri Legal Manager Patrick Gitonga Marketing Services Manager Kizito Nasumba Risk and Compliance Manager John Ndiritu Internal Audit Manager George Odera Deputy Manager - Actuarial Services Johnson Mung ara Credit Manager Susan Gachina Asst. Chief Accountant Gregory Kamau Asst. Chief Accountant Lucy Mwangi Agency Services Manager John Kamenyi Bancassurance Manager

13 11 Chairman s Statement Total premiums for life and general insurance (excluding retirement benefits schemes) grew from Kshs.2.67 billion to Kshs.4.77 billion, an increase of 79%. Total benefits and claims paid increased even faster from Kshs.1.56 billion to Kshs.3.04 billion, a growth of 95%. The Economy The Kenyan economy recorded a growth rate of 5.6% in 2015, a modest improvement from the growth rate of 5.3% recorded in This performance is attributable to the relatively stable macro-economic environment that prevailed in Kenya in 2015, and it was significantly better than the overall economic growth of 3.8% realised by the Sub-Saharan Africa. According to the Economic Survey 2016, sectors that registered good growth during the year included agriculture, energy, construction, transport and storage, information and communication, finance and insurance. Growth in the manufacturing sector was a modest 3.5%. The sector was adversely affected by increased costs of borrowing and the weakening of the Kenyan shilling. The tourism sector continued to suffer from the effects of security risks and the associated negative publicity. The sector contracted by 1.3% inspite of the advertising campaigns carried out in selected tourism market. However, positive signs of the sector rejuvenation were apparent. During the year, inflation eased from 6.9% in 2014 to 6.6% mainly due to lower international energy prices. However, the Kenyan shilling weakened by 13% against the US dollar despite the significant support it received from the increased diaspora remittances. The capital markets had a difficult year in The Nairobi Securities Exchange 20-share index recorded a 21% drop from 5113 recorded in December 2014 to 4040 achieved in December 2015 while the market capitalisation fell from 2316 billion to 2054 billion during the same period. Similarly, total bonds turnover decreased from Kshs.506 billion in 2014 to Kshs.305 billion in The weak performance of the capital markets impacted negatively on the investments from the insurance sector. The Insurance Industry During the year, total industry premiums (life and general insurance) grew by 9.8% from Kshs billion realised in 2014 to Kshs billion. The life insurance business recorded a growth of 8.5%, from Kshs.56.5 billion to Kshs.61.3 billion. General insurance business performed slightly better and registered a growth of 10.6%, from Kshs billion to Kshs billion. During the period under review, life insurance premiums accounted for 35.4% of the total industry production while general insurance premiums represented 64.6% of the total premiums. It is worth noting that in 2014, the global insurance industry had life premiums represent 54.8% of the global premiums while general insurance premiums had a share of 45.2%. According to the insurance industry report prepared for the year 2015 by Insurance Regulatory Authority (IRA), industry claims continued to record a higher growth rate than total industry premiums. The claims incurred by general insurance business during the year climbed to Kshs.49 billion, an increase of 17.1%, from the claims incurred of Kshs.42 billion in the prior year, against premium growth rate of 10.6%. Total benefits paid out by the life insurance business increased by 20% from Kshs billion to Kshs billion while premium growth was only 8.5%. The IRA report also states that the commissions paid by the industry grew by 17.8%, from Kshs.9.26 billion in 2014 to Kshs.10.9 billion in During the period, management expenses grew from Kshs billion to Kshs billion, an increase of 19.21%. Total industry expenses (commissions and management expenses) therefore continued to grow faster than industry premiums and consequently reduced further the underwriting margins for insurance companies. The IRA released during the year the Risk Based Supervision Framework which requires companies to be capitalised on the basis of their respective risk profile. The RBS Framework is designed to capture the risk profile of an insurer and thereafter compute the insurer s capital requirements. The framework is being implemented through the Electronic Regulatory System which is aimed at enhancing the supervisory role of the IRA through increased industry transparency and accountability. The implementation of the RBS Framework is likely to result to industry consolidation as well as to an increase in the capitalisation of the insurance companies.

14 12 Madison Insurance Results The Company recorded very good results for the year under review. Total premiums for life and general insurance (excluding retirement benefits schemes) grew from Kshs.2.67 billion to Kshs.4.77 billion, an increase of 79%. Total benefits and claims paid increased even faster from Kshs.1.56 billion to Kshs.3.04 billion, a growth of 95%. However, total expenses (commissions and management expenses) recorded a modest growth of 13.4%, from Kshs.1.27 billion in 2014 to Kshs.1.44 billion. Total comprehensive income achieved a new record of Kshs million reflecting a very good growth of 343% from Kshs million realised in Total assets increased by 62.4% from Kshs.6.6 billion achieved in 2014 to Kshs billion in 2015 while shareholders funds increased by 62% to Kshs.2.56 billion. General insurance gross premiums recorded an excellent growth of 77% from Kshs.1.51 billion to Kshs.2.68 billion, while net earned premiums grew by 110% from Kshs.930 million to Kshs.1.95 billion. The classes of business that registered excellent growth include motor private, motor commercial, medical and micro insurance. Net claims incurred increased by 91% from Kshs million to Kshs.1.06 billion while management expenses and commissions grew by 44% from Kshs million to Kshs million. An underwriting profit of Kshs million was realised during the year compared to a loss of Kshs million in The Company grew its market share of general insurance business from 1.5% to 2.4% while its industry ranking improved from position 22 to 16 out of 36 insurers. Life business gross premiums also recorded an excellent growth of 81%, from Kshs.1.15 billion to Kshs.2.09 billion. Gross premiums for ordinary life grew by 17% to Kshs million and resulted in growth of market share from 4.32% to 5.43% in Group life business gross premiums had an even higher growth of 216%, largely due to the excellent performance of the annuity business. Despite the growth in life business premiums, total expenses were well contained and increased by only 1% from million to million. Statutory reserves increased by 76% from Kshs million to Kshs.1.32 billion. Strategic Changes During the year, the Company carried out a number of changes that will enable it to undertake the demerger of the general and life businesses into two wholly-owned subsidiaries of the Madison Group. In April 2015, Joshua Njiru was transferred from Madison Asset Management Services Limited, a Group subsidiary, to Madison Insurance Company Kenya Limited and appointed the Managing Director and Principal Officer. Other management changes were also undertaken in both life and general businesses in order to enhance effectiveness in strategy implementation. A marketing department was also created to assist the Company focus more on marketing communication and customer offerings. Strategic changes were made in our medical business which included management capacity enhancement and change of the re-insurance treaty from quarter share to excess of loss. These and other strategic initiatives undertaken in 2015 were part of our strategy towards the achievement of our vision for the Madison Group. Future Outlook The Kenyan economy is projected to grow at a rate of about 6% with sectors such as agriculture, construction, transport, banking and insurance growing reasonably well. Tourism is also expected to perform much better than during the last two years. However, political activities focused on 2017 elections will cause some distraction. Inadequate rainfall and increase in regional insecurity could also affect agricultural production and growth in tourism. Growth in the financial sector is also likely to be affected by high interest rates and some loss of confidence arising from the collapse of three banks during the last 12 months. However, there is great optimism that the economy will achieve the forecast growth of 6%. The insurance industry is likely to achieve the penetration rate of 3% of gross domestic product this year resulting in total premium growth of about 12%. Competition is expected to intensify and growth of bancassurance will more than likely reach new records. The regulatory environment will continue to evolve and it is expected that the Financial Services Authority may be established in We look forward to the demerger of our life and general business operations and hope that this undertaking will be completed in The Madison Group is also hopeful that fresh capital will be injected into the Group during the next six months so as to strengthen the capital base of its subsidiaries, in line with the Risk Based Capital Framework. Appreciation On behalf of the Company and the Board of Directors, and on my own behalf, I wish to thank all our customers, brokers and agents for their valued support during the year We dedicate our energies to serve you better in 2016 and look forward to an even closer relationship. I wish to thank also the management staff and employees of the Company for the hard work and commitment they put together in order to achieve such excellent results. Finally, I thank my fellow Directors for their continued support and for their invaluable service to the Company. S.G. NGARUIYA JULY 2016

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16 14 Performance Highlights General Business Gross Wri(en Premium KShs Millions Total Assets KShs Millions 3,000 2,500 2,000 1,500 1,000 1,080 1,002 1,096 1,518 2,683 3,000 2,500 2,000 1,500 1,000 1,618 1,517 1,683 2,022 2, Life Business Total Assets KShs Millions 2,500 2,000 1,500 1, Gross Wri(en Premium KShs Millions 1,152 2, ,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000-8,050 6,149 5,271 4,427 3, Total Business Gross Wri(en Premium KShs Millions Total Assets KShs Millions 6,000 5,000 4,000 3,000 2,000 1,758 1,740 2,015 2,670 4,773 12,000 10,000 8,000 6,000 4,000 5,123 5,944 6,954 8,171 10,716 1,000 2,

17 15 Statement Profit or Loss And Other Comprehensive Income For The Year Ended 31 December 2015 Life General Assurance Insurance Total Restated Notes Business Business KShs 000 KShs 000 KShs 000 KShs 000 Gross written premiums 2,090,150 2,683,187 4,773,337 2,670,783 Gross earned premiums 4 2,090,150 2,122,347 4,212,497 2,447,879 Less: reinsurance premium ceded (53,812) (171,232) (225,044) (405,809) Net earned premiums 2,036,338 1,951,115 3,987,453 2,042,070 Fees and commissions income 5 23,605 31,342 54, ,089 Investment income 6 1,299, ,503 1,542, ,860 Other income 7 2, ,231 4,887 Total income 1,325, ,562 1,600,942 1,068,836 Gross claims and policyholder benefits payable Interest payable on deposit administration contracts Less: amounts recoverable from reinsurers 8 1,856,164 1,323,117 3,179,281 1,616, , , , (12,310) (254,751) (267,061) (299,344) Net benefits and claims 1,972,350 1,068,366 3,040,716 1,562,000 Commissions payable 184, , , ,268 Operating and other expenses , ,389 1,019, ,936 Total Expenses 712, ,822 1,437,477 1,271,204 Profit before tax 676, ,489 1,110, ,702 Taxation charge 12 (106,716) (29,992) (136,708) (58,088) Profit for the year 569, , , ,614 Other comprehensive income Total comprehensive Income 569, , , ,614 * Certain amounts shown here do not correspond to the 2014 financial statements and reflect adjustments made, refer to Note 28.

18 16 Statement Of Financial Position As At 31 December 2015 Life General Assurance Insurance Total Notes Business Business 2015 KShs 000 KShs 000 KShs 000 Assets Equipment 15 39,186 36,357 75,543 Investment property 16 3,975, ,000 4,542,000 Intangible assets 17 20,306 20,306 40,612 Unquoted Investments in subsidiaries 18 1,428, ,951 1,673,579 Deferred tax asset 19 96,298-96,298 Loans receivable , ,473 Quoted Investments ,436 8, ,273 Government securities 22 1,326, ,263 1,553,451 Receivables arising out of reinsurance arrangements 23 11, , ,343 Tax recoverable 12-3,384 3,384 Receivables arising out of direct insurance arrangements , ,144 Reinsurers share of insurance liabilities , , ,376 Deferred acquisition costs , ,244 Other receivables 27 62,545 74, ,699 Other investments , ,868 1,006,250 Cash and bank balances 19,493 41,826 61,319 Total assets 8,050,755 2,666,233 10,716,988 Equity and Liabilities Equity Share capital , , ,000 Statutory reserve 31 1,318,453-1,318,453 Retained earnings 32 62, , ,012 Total Equity 1,530,453 1,026,012 2,556,465 Liabilities Insurance contract liabilities 34 3,411, ,036 3,823,387 Payable under deposit administration contracts 36 2,196,077-2,196,077 Unit-linked investment contracts , ,692 Provision for unearned premium 38-1,097,150 1,097,150 Payables arising from reinsurance arrangements 39 29,895 87, ,547 Other payables 40 95,507 34, ,295 Deferred tax liability ,780 8, ,375 Total liabilities 6,520,302 1,640,221 8,160,523 Total Equity and Liabilities 8,050,755 2,663,233 10,716,988 For comparatives see page 17. The financial statements on pages 15 to 80 were approved and authorised for issue by the board of directors on 18th March 2016 and signed on its behalf by: Director Director Principal Officer

19 17 Statement Of Financial Position As At 31 December 2014 Life General Total Total Assurance Insurance 2014 At Jan 2014 business Business Restated Restated Notes KShs 000 KShs 000 KShs 000 KShs 000 Assets Equipment 15 35,817 35,817 71,634 52,170 Investment property 16 2,865, ,000 3,057,000 2,610,000 Intangible assets 17 16,676 16,676 33, Unquoted Investments in subsidiaries 18 1,368, ,169 1,685,280 1,344,125 Deferred tax asset 19-21,396 21,396 - Loans receivable , , ,042 Quoted Investments , ,868 68,692 Government securities , ,403 1,051, ,517 Receivables arising out of reinsurance arrangements 23 12, , , ,679 Tax recoverable 12-3,384 3,384 3,384 Receivables arising out of direct insurance arrangements , , ,606 Reinsurers share of insurance liabilities , , , ,731 Deferred acquisition costs 26-71,323 71,323 38,993 Other receivables , , , ,288 Other investments , , , ,727 Cash and bank balances 25,745 14,786 40,531 25,975 Total assets 6,149,149 2,022,355 8,171,504 6,597,333 Equity and Liabilities Equity Share capital , , , ,000 Statutory reserve , , ,992 Retained earnings 32 62, , , ,365 Total Equity 960, ,515 1,582,971 1,363,357 Liabilities Insurance contract liabilities 34 1,903, ,224 2,445,648 2,024,290 Payable under deposit administration contracts 36 2,264,114-2,264,114 2,087,741 Unit-linked investment contracts , , ,030 Provision for unearned premium , , ,747 Payables arising from reinsurance arrangements 39 36,703 70, ,814 68,626 Other payables , , , ,260 Deferred tax liability , , ,282 Total liabilities 5,188,693 1,399,840 6,588,533 5,593,977 Total Equity and Liabilities 6,149,149 2,022,355 8,171,504 6,957,333 * Certain amounts shown here do not correspond to the 2014 financial statements and reflect adjustments made, refer to Note 28.

20 18 Statement of changes in equity for the year ended 31 December 2015 Share Statutory Retained Capital reserve earnings Total KShs 000 KShs 000 KShs 000 KShs (Restated*) As previously stated at 1 January , , ,407 1,599,734 Prior year adjustment (Note 28) - (143,335) (93,042) (236,377) At 1 January 2014 restated 450, , ,365 1,363,357 Profit / Total Comprehensive Income for the year - 185,464 34, ,614 At 31 December , , ,515 1,582, At 1 January , , ,515 1,582,971 Profit / Total Comprehensive Income for the year - 569, , ,494 At 31 December ,000 1,318, ,012 2,556,465 * Certain amounts shown here do not correspond to the 2014 financial statements and reflect adjustments made, refer to Note 28.

21 19 Statement of cash flows For the year ended 31 December Notes KShs 000 KShs 000 Cash flow from operating activities Cash generated from operations 42(a) 1,254, ,171 Cash flow from investing activities Purchase of equipment 15 (22,901) (36,358) Purchase of investment property 16 (178,366) Purchase of intangible assets 17 (15,656) (39,461) Repayment of mortgage loans 20(a) 27,456 14,359 Loans advanced 20(a) &(b) (7,765) (15,287) Repayment of policy loans 20(b) 8,135 8,306 Purchase of quoted investments 21 (140,108) (77,054) Proceeds from disposal of quoted investments 21 11,119 42,816 Purchase of Government securities (705,761) (113,791) Purchase of commercial papers (82,081) 29,293 Sale of unit trusts Purchase of unit trusts (282) - Sale of corporate bonds (40,259) (1,478) Net cash used in investing activities (1,146,469) (187,975) Increase in cash and cash equivalents 108, ,196 Movement in cash and cash equivalents At 1 January 758, ,318 Increase for the year 108, ,196 At 31 December 42(b) 866, ,514

22 20 Notes to the financial statements For the year ended 31 December ACCOUNTING POLICIES The principal accounting policies adopted in the preparation of these financial statements are set out below: Statement of compliance The financial statements are prepared in accordance with International Financial Reporting Standards (IFRSs). 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 profit or loss and other comprehensive income. Basis of preparation The financial statements are prepared on a going concern basis in compliance with International Financial Reporting Standards (IFRS) and the requirements of the Kenyan Companies Act and The Kenyan Insurance Act. The measurement basis used is the historical cost basis, as modified by the carrying of certain investment property and certain investments at fair value, impaired assets at their recoverable amounts and actuarially determined liabilities at their present value. The financial statements are presented in Kenya Shillings (KShs), rounded to the nearest thousand, which is also the functional currency. The financial statements comprise statement of profit or loss and other comprehensive income, statement of financial position, statement of changes in equity, statement of cash flows, and explanatory notes. Income and expenses, excluding the components of other comprehensive income, are recognised in profit or loss. Other comprehensive income is recognised in the Statement of profit or loss and other comprehensive income and comprises items of income and expenses (including reclassification adjustments) that are not recognised in profit or loss as required or permitted by IFRS. Reclassification adjustments are amounts reclassified to profit or loss in the current period that were recognised in other comprehensive income in the previous periods. Transactions with the owners of the company in their capacity as owners are recognised in the statement of changes in equity. The Company presents its statement of financial position broadly in order of liquidity. The preparation of financial statements in conformity with International Financial Reporting Standards requires the use of estimates and assumptions. It also requires management to exercise its judgment in the process of applying the accounting policies adopted by the Company. Although such estimates and assumptions are based on the directors best knowledge of the information available, actual results may differ from those estimates. The judgments and estimates are reviewed at the end of each reporting period, and any revisions to such estimates are recognised in the year in which the revision is made. The areas involving the judgments of most significance to the financial statements, and the sources of estimation uncertainty that have a significant risk of resulting in a material adjustment within the next financial year, are disclosed in note (2). Adoption of new and revised International Financial Reporting Standards (IFRSs) i) New standards and amendments to published standards effective for the year ended 31 December 2015 The company applied for the first time certain standards and amendments, which are effective for annual periods beginning on or after 1 January The nature and the effect of these changes are disclosed below. Although these new standards and amendments applied for the first time in 2015, they did not have a material impact on the annual financial statements of the company. The nature and the impact of each new standard or amendment are described below: Amendments to IAS 19 Defined Benefit Plans: Employee Contributions IAS 19 requires an entity to consider contributions from employees or third parties when accounting for defined benefit plans. Where the contributions are linked to service, they should be attributed to periods of service as a negative benefit. These amendments clarify that, if the amount of the contributions is independent of the number of years of service, an entity is permitted to recognise such contributions as a reduction in the service cost in the period in which the service is rendered, instead of allocating the contributions to the periods of service. This amendment is effective for annual periods beginning on or after 1 July This amendment is not relevant to the Company, since the Company does not have a defined benefit plan.

23 21 Notes to the financial statements (Continued) 1. ACCOUNTING POLICIES (Continued) Adoption of new and revised International Financial Reporting Standards (IFRSs) (continued) Annual Improvements Cycle With the exception of the improvement relating to IFRS 2 Share-based Payment applied to share-based payment transactions with a grant date on or after 1 July 2014, all other improvements are effective for accounting periods beginning on or after 1 July The Company has applied these improvements for the first time in these financial statements. They include: IFRS 2 Share-based Payment This improvement is applied prospectively and clarifies various issues relating to the definitions of performance and service conditions which are vesting conditions. These amendments did not impact the Company s financial statements or accounting policies since it does not have share based payments. IFRS 3 Business Combinations The amendment is applied prospectively and clarifies that all contingent consideration arrangements classified as liabilities (or assets) arising from a business combination should be subsequently measured at fair value through profit or loss whether or not they fall within the scope of IAS 39. This amendment did not have any impact on the Company s financial statements. IFRS 8 Operating Segments The amendments are applied retrospectively and clarify that: An entity must disclose the judgements made by management in applying the aggregation criteria in paragraph 12 of IFRS 8, including a brief description of operating segments that have been aggregated and the economic characteristics (e.g., sales and gross margins) used to assess whether the segments are similar The reconciliation of segment assets to total assets is only required to be disclosed if the reconciliation is reported to the chief operating decision maker, similar to the required disclosure for segment liabilities The Company is not required to apply IFRS 8 since its equity instruments are not traded in a public market. i) New standards and amendments to published standards effective for the year ended 31 December 2015 (continued) IAS 16 Property, Plant and Equipment and IAS 38 Intangible Assets The amendment is applied retrospectively and clarifies in IAS 16 and IAS 38 that the asset may be revalued by reference to observable data by either adjusting the gross carrying amount of the asset to market value or by determining the market value of the carrying value and adjusting the gross carrying amount proportionately so that the resulting carrying amount equals the market value. In addition, the accumulated depreciation or amortisation is the difference between the gross and carrying amounts of the asset. This amendment did not have any impact on the Company since its assets are carried at cost. IAS 24 Related Party Disclosures The amendment is applied retrospectively and clarifies that a management entity (an entity that provides key management personnel services) is a related party subject to the related party disclosures. In addition, an entity that uses a management entity is required to disclose the expenses incurred for management services. This amendment is not relevant for the Company as it does not receive any management services from other entities.

24 22 Notes to the financial statements (Continued) 1. ACCOUNTING POLICIES (Continued) Adoption of new and revised International Financial Reporting Standards (IFRSs) (continued) Annual Improvements Cycle These improvements are effective from 1 July 2014 and the company has applied these amendments for the first time in these financial statements. They include: IFRS 3 Business Combinations The amendment is applied prospectively and clarifies for the scope exceptions within IFRS 3 that: Joint arrangements, not just joint ventures, are outside the scope of IFRS 3 This scope exception applies only to the accounting in the financial statements of the joint arrangement itself. The Company is not a joint arrangement, and thus this amendment is not relevant for the Company. IFRS 13 Fair Value Measurement The amendment is applied prospectively and clarifies that the portfolio exception in IFRS 13 can be applied not only to financial assets and financial liabilities, but also to other contracts within the scope of IAS 39. The Company does not apply the portfolio exception in IFRS 13. IAS 40 Investment Property The description of ancillary services in IAS 40 differentiates between investment property and owner-occupied property (i.e., property, plant and equipment). The amendment is applied prospectively and clarifies that IFRS 3, and not the description of ancillary services in IAS 40, is used to determine if the transaction is the purchase of an asset or a business combination. In previous periods, the company has relied on IFRS 3, not IAS 40, in determining whether an acquisition is of an asset or is a business acquisition. Thus, this amendment did not impact the accounting policy of the Company. ii) Relevant new Standards issued but not yet effective in the year ended 31 December 2015 The standards and interpretations that are issued, but not yet effective, up to the date of issuance of the Company s financial statements are disclosed below. The Company intends to adopt these standards, if applicable, when they become effective. IFRS 9 Financial Instruments In July 2014, the IASB issued the final version of IFRS 9 Financial Instruments that replaces IAS 39 Financial Instruments: Recognition and Measurement and all previous versions of IFRS 9. IFRS 9 brings together all three aspects of the accounting for financial instruments project: classification and measurement, impairment and hedge accounting. IFRS 9 is effective for annual periods beginning on or after 1 January 2018, with early application permitted. Except for hedge accounting, retrospective application is required but providing comparative information is not compulsory. For hedge accounting, the requirements are generally applied prospectively, with some limited exceptions. The Company plans to adopt the new standard on the required effective date. a) Classification and measurement The Company does not expect a significant impact on its statement of financial position or equity on applying the classification and measurement requirements of IFRS 9. It expects to continue measuring at fair value all financial assets currently held at fair value. Debt securities are expected to be measured at fair value through OCI under IFRS 9 as the Company expects not only to hold the assets to collect contractual cash flows but also to sell a significant amount on a relatively frequent basis. Loans as well as trade receivables are held to collect contractual cash flows and are expected to give rise to cash flows representing solely payments of principal and interest. Thus, the company expects that these will continue to be measured at amortised cost under IFRS 9. However, the Company will analyse the contractual cash flow characteristics of those instruments in more detail before concluding whether all those instruments meet the criteria for amortised cost measurement under IFRS 9.

25 23 Notes to the financial statements (Continued) 1. ACCOUNTING POLICIES (Continued) Adoption of new and revised International Financial Reporting Standards (IFRSs) (continued) ii) Relevant new Standards issued but not yet effective in the year ended 31 December 2015 (Continued) b) Impairment IFRS 9 requires the Company to record expected credit losses on all of its debt securities, loans and trade receivables, either on a 12-month or lifetime basis. The Company expects to apply the simplified approach and record lifetime expected losses on all trade receivables. The Company expects a significant impact on its equity due to unsecured nature of its loans and receivables, but it will need to perform a more detailed analysis which considers all reasonable and supportable information, including forward-looking elements to determine the extent of the impact. c) Hedge accounting The Company does not have hedge relationships. IFRS 14 Regulatory Deferral Accounts IFRS 14 is an optional standard that allows an entity, whose activities are subject to rate-regulation, to continue applying most of its existing accounting policies for regulatory deferral account balances upon its first-time adoption of IFRS. Entities that adopt IFRS 14 must present the regulatory deferral accounts as separate line items on the statement of financial position and present movements in these account balances as separate line items in the statement of profit or loss and OCI. The standard requires disclosure of the nature of, and risks associated with, the entity s rate-regulation and the effects of that rate-regulation on its financial statements. IFRS 14 is effective for annual periods beginning on or after 1 January Since the Company is an existing IFRS preparer, this standard would not apply. IFRS 15 Revenue from Contracts with Customers IFRS 15 was issued in May 2014 and establishes a five-step model to account for revenue arising from contracts with customers. Under IFRS 15, revenue is recognised at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer. The new revenue standard will supersede all current revenue recognition requirements under IFRS. Either a full retrospective application or a modified retrospective application is required for annual periods beginning on or after 1 January 2018, when the IASB finalises their amendments to defer the effective date of IFRS 15 by one year. Early adoption is permitted. The Company plans to adopt the new standard on the required effective date using the full retrospective method. During 2015, the Company performed a preliminary assessment of IFRS 15, which is subject to changes arising from a more detailed ongoing analysis. Furthermore, the Company is considering the clarifications issued by the IASB in an exposure draft in July 2015 and will monitor any further developments. Amendments to IFRS 11 Joint Arrangements: Accounting for Acquisitions of Interests The amendments to IFRS 11 require that a joint operator accounting for the acquisition of an interest in a joint operation, in which the activity of the joint operation constitutes a business, must apply the relevant IFRS 3 principles for business combinations accounting. The amendments also clarify that a previously held interest in a joint operation is not remeasured on the acquisition of an additional interest in the same joint operation while joint control is retained. In addition, a scope exclusion has been added to IFRS 11 to specify that the amendments do not apply when the parties sharing joint control, including the reporting entity, are under common control of the same ultimate controlling party. The amendments apply to both the acquisition of the initial interest in a joint operation and the acquisition of any additional interests in the same joint operation and are prospectively effective for annual periods beginning on or after 1 January 2016, with early adoption permitted. These amendments are not expected to have any impact on the Company. Amendments to IAS 16 and IAS 38: Clarification of Acceptable Methods of Depreciation and Amortisation The amendments clarify the principle in IAS 16 and IAS 38 that revenue reflects a pattern of economic benefits that are generated from operating a business (of which the asset is part) rather than the economic benefits that are consumed through use of the asset. As a result, a revenue-based method cannot be used to depreciate property, plant and equipment and may only be used in very limited circumstances to amortise intangible assets. The amendments are effective prospectively for annual periods beginning on or after 1 January 2016, with early adoption permitted. These amendments

26 24 Notes to the financial statements (Continued) 1. ACCOUNTING POLICIES (Continued) Adoption of new and revised International Financial Reporting Standards (IFRSs) (continued) ii)relevant new Standards issued but not yet effective in the year ended 31 December 2015 (continued) Amendments to IAS 16 and IAS 41 Agriculture: Bearer Plants The amendments change the accounting requirements for biological assets that meet the definition of bearer plants. Under the amendments, biological assets that meet the definition of bearer plants will no longer be within the scope of IAS 41. Instead, IAS 16 will apply. After initial recognition, bearer plants will be measured under IAS 16 at accumulated cost (before maturity) and using either the cost model or revaluation model (after maturity). The amendments also require that produce that grows on bearer plants will remain in the scope of IAS 41 measured at fair value less costs to sell. For government grants related to bearer plants, IAS 20 Accounting for Government Grants and Disclosure of Government Assistance will apply. The amendments are retrospectively effective for annual periods beginning on or after 1 January 2016, with early adoption permitted. These amendments are not expected to have any impact to the Company as the Company does not have any bearer plants. Amendments to IAS 27: Equity Method in Separate Financial Statements The amendments will allow entities to use the equity method to account for investments in subsidiaries, joint ventures and associates in their separate financial statements. Entities already applying IFRS and electing to change to the equity method in its separate financial statements will have to apply that change retrospectively. For first-time adopters of IFRS electing to use the equity method in its separate financial statements, they will be required to apply this method from the date of transition to IFRS. The amendments are effective for annual periods beginning on or after 1 January 2016, with early adoption permitted. These amendments will not have any impact on the Company s financial statements. Amendments to IAS 1 Disclosure Initiative The amendments to IAS 1 Presentation of Financial Statements clarify, rather than significantly change, existing IAS 1 requirements. The amendments clarify: The materiality requirements in IAS 1 That specific line items in the statement(s) of profit or loss and OCI and the statement of financial position may be disaggregated That entities have flexibility as to the order in which they present the notes to financial statements That the share of OCI of associates and joint ventures accounted for using the equity method must be presented in aggregate as a single line item, and classified between those items that will or will not be subsequently reclassified to profit or loss Furthermore, the amendments clarify the requirements that apply when additional subtotals are presented in the statement of financial position and the statement(s) of profit or loss and OCI. These amendments are effective for annual periods beginning on or after 1 January 2016, with early adoption permitted. These amendments are not expected to have any impact on the Company. Amendments to IFRS 10, IFRS 12 and IAS 28 Investment Entities: Applying the Consolidation Exception The amendments address issues that have arisen in applying the investment entities exception under IFRS 10. The amendments to IFRS 10 clarify that the exemption from presenting consolidated financial statements applies to a parent entity that is a subsidiary of an investment entity, when the investment entity measures all of its subsidiaries at fair value. Furthermore, the amendments to IFRS 10 clarify that only a subsidiary of an investment entity that is not an investment entity itself and that provides support services to the investment entity is consolidated. All other subsidiaries of an investment entity are measured at fair value. The amendments to IAS 28 allow the investor, when applying the equity method, to retain the fair value measurement applied by the investment entity associate or joint venture to its interests in subsidiaries. These amendments must be applied retrospectively and are effective for annual periods beginning on or after 1 January 2016, with early adoption permitted. These amendments are not expected to have any impact on the Company. Annual Improvements Cycle These improvements are effective for annual periods beginning on or after 1 January They include:

27 25 Notes to the financial statements (Continued) 1. ACCOUNTING POLICIES (Continued) Adoption of new and revised International Financial Reporting Standards (IFRSs) (continued) ii) Relevant new Standards issued but not yet effective in the year ended 31 December 2015 (Continued) IFRS 5 Non-current Assets Held for Sale and Discontinued Operations Assets (or disposal groups) are generally disposed of either through sale or distribution to owners. The amendment clarifies that changing from one of these disposal methods to the other would not be considered a new plan of disposal, rather it is a continuation of the original plan. There is, therefore, no interruption of the application of the requirements in IFRS 5. This amendment must be applied prospectively. IFRS 7 Financial Instruments: Disclosures (i) Servicing contracts The amendment clarifies that a servicing contract that includes a fee can constitute continuing involvement in a financial asset. An entity must assess the nature of the fee and the arrangement against the guidance for continuing involvement in IFRS 7 in order to assess whether the disclosures are required. The assessment of which servicing contracts constitute continuing involvement must be done retrospectively. However, the required disclosures would not need to be provided for any period beginning before the annual period in which the entity first applies the amendments. (ii) Applicability of the amendments to IFRS 7 to condensed interim financial statements The amendment clarifies that the offsetting disclosure requirements do not apply to condensed interim financial statements, unless such disclosures provide a significant update to the information reported in the most recent annual report. This amendment must be applied retrospectively. IAS 19 Employee Benefits The amendment clarifies that market depth of high quality corporate bonds is assessed based on the currency in which the obligation is denominated, rather than the country where the obligation is located. When there is no deep market for high quality corporate bonds in that currency, government bond rates must be used. This amendment must be applied prospectively. IAS 34 Interim Financial Reporting The amendment clarifies that the required interim disclosures must either be in the interim financial statements or incorporated by cross-reference between the interim financial statements and wherever they are included within the interim financial report (e.g., in the management commentary or risk report). The other information within the interim financial report must be available to users on the same terms as the interim financial statements and at the same time. This amendment must be applied retrospectively. These amendments are not expected to have any impact on the Company. IFRS 16 Leases The IASB issued IFRS 16 Leases on 13 January 2016.The scope of the new standard includes leases of all assets, with certain exceptions. A lease is defined as a contract, or part of acontract, that conveys the right to use an asset (the underlying asset) for a period of time in exchange for consideration. Key features The new standard requires lessees to account for all lease sunder a single on-balance sheet model (subject to certain exemptions) in a similar way to finance leases under IAS 17. Lessees recognise a liability to pay rentals with a corresponding asset, and recognise interest expense and depreciation separately. The new standard includes two recognition exemptions for lessees leases of low-value assets (e.g., personal computer) and short-term leases (i.e., leases with a lease term of 12 months or less). Reassessment of certain key considerations (e.g., lease term, variable rents based on an index or rate, discount rate) by the lessee is required upon certain events. Lessor accounting is substantially the same as today s lessor accounting, using IAS 17 s dual classification approach.

28 26 Notes to the financial statements (Continued) 1. ACCOUNTING POLICIES (Continued) Adoption of new and revised International Financial Reporting Standards (IFRSs) (continued) The new standard is effective for annual periods beginning on or after 1 January Early application is permitted, but not before an entity applies IFRS 15.The new standard permits a lessee to choose either a full retrospective or a modified retrospective transition approach. iii) Early adoption of standards The company did not early-adopt any new or amended standards in Income Recognition Gross Premium Income Short term insurance business Premium income is recognised on assumption of risks, and includes estimates of premiums due but not yet received, less an allowance for cancellations, and less unearned premiums. Unearned premiums represent the proportion of the premiums written in periods up to the reporting date that relates to the unexpired terms of policies in force at the reporting date, and is computed using the 1/365th method. Long-term insurance business Premiums are recognised as revenue/income when they are received from the policyholders/contract holder. Premiums are shown before deduction of commission. Commissions and fees Commissions and fees receivable are recognised as income in the period in which they are earned. Rental income Rental income is recognised on straight line basis over the period of the rent. Other income Investment income is stated net of investment expenses. Interest income is recognised on a time proportion basis that takes into account the effective yield on the asset. Dividends are recognised as income in the period in which the right to receive payment is established. Leases A lease is classified as a finance lease if it transfers substantially all the risks and rewards incident to ownership. All other leases are classified as operating leases. Classification is made at the inception of the lease. For a lease to be classified as a finance lease, it must meet this criterion: the lease transfers ownership of the asset to the lessee by the end of the lease term; the lessee has the option to purchase the asset at a price which is expected to be sufficiently lower than fair value at the date the option becomes exercisable, that, at the inception of the lease, it is reasonably certain that the option will be exercised; the lease term is for the major part of the economic life of the asset, even if title is not transferred; at the inception of the lease, the present value of the minimum lease payments amounts to at least substantially all of the fair value of the leased asset; or the lease assets are of a specialised nature such that only the lessee can use them without major modifications being made. Leases of assets where a significant proportion of the risks and rewards of ownership are retained by the company as a lessee are classified as financial leases. All other leases are classified as operating leases. Payments made under operating leases are charged to profit or loss on the straight-line basis over the period of the lease. Taxation Current Income tax Current income tax is the amount of income tax payable on the taxable profit for the year determined in accordance with the Kenyan Income Tax Act. Income tax expense is the aggregate amount charged/ (credited) in respect of current tax and deferred tax in determining profit or loss for the year. Current income tax assets or liabilities are based on the amount of tax expected to be paid or recovered in respect of the taxation authorities in the future.

29 27 Notes to the financial statements (Continued) 1. ACCOUNTING POLICIES (Continued) Taxation (Continued) Taxes are recognised in profit 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 is provided on the basis of the results for the year, as shown in the financial statements, adjusted in accordance with tax legislation. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted as at the reporting date. The prevailing tax rate and the amount expected to be paid are highlighted in note 12 of these financial statements. The net amount of current income tax recoverable from, or payable to, the taxation authority is included on a separate line in the statement of financial position of these financial statements. Deferred Income tax Deferred income tax is provided on temporary differences except those arising on the initial recognition of goodwill, 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 nor loss. In respect of taxable temporary differences associated with investments in subsidiaries, deferred tax assets and liabilities are not recognised where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future. In respect of deductible temporary differences associated with investments in subsidiaries, deferred tax assets are recognised only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised. Deferred income tax assets are recognised only to the extent that it is probable that future taxable profits will be available against which the temporary differences can be utilised. Deferred income tax is determined using the liability method on 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 reporting date and expected to apply when the related deferred income tax asset is realised or the deferred tax liability is settled. The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised. Unrecognised deferred tax assets are reassessed at each reporting date and are recognised to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered. The accounting of deferred tax movements is driven by the accounting treatment of the underlying transaction that lead to the temporary differences. Deferred tax relating to items recorded in profit or loss is recognised in profit or loss, while deferred tax relating to items recognised outside profit or loss is recognised outside profit or loss in other comprehensive income or equity. Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against current income tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority. Premium taxes Revenues, expenses and assets and liabilities are recognised net of the amount of sales taxes and premium taxes except: When the sales or premium tax incurred on a purchase of assets or services is not recoverable from the taxation authority, in which case the sales tax is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable, or receivables and payables that are measured with the amount of sales or premium tax included. Outstanding net amounts of sales or premium tax recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the statement of financial position. Translation of Foreign Currencies On initial recognition, all transactions are recorded in the functional currency (the currency of the primary economic environment in which the Company operates), which is Kenya Shillings. Transactions in foreign currencies during the year are converted into the functional currency using the exchange rate prevailing at the transaction date. Monetary assets and liabilities at the end of each reporting period and on date of settlement which are expressed in foreign currencies are translated into Kenya Shillings at rates ruling at that date. The resulting differences from conversion and translation are dealt with in profit or loss in the year in which they arise.

30 28 Notes to the financial statements (Continued) 1. ACCOUNTING POLICIES (Continued) Translation of Foreign Currencies (Continued) Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value is determined. The gain or loss arising on translation of nonmonetary items measured at fair value is treated in line with the recognition of gain or loss on change in fair value of the item (i.e. translation differences on items whose fair value gain or loss is recognised in other comprehensive income or profit or loss are also recognised in other comprehensive income or profit or loss, respectively). Product classification Insurance contracts are those contracts when the Company (the insurer) has accepted significant insurance risk from another party (the policyholders) by agreeing to compensate the policyholders if a specified uncertain future event (the insured event) adversely affects the policyholders. As a general guideline, the company determines whether it has significant insurance risk, by comparing benefits paid with benefits payable if the insured event did not occur. Insurance contracts can also transfer financial risk. Investment contracts are those contracts that transfer significant financial risk and no significant insurance risk. Financial risk is the risk of a possible future change in one or more of a specified interest rate, financial instrument price, commodity price, foreign exchange rate, index of price or rates, credit rating or credit index or other variable, provided in the case of a non-financial variable that the variable is not specific to a party to the contract. Once a contract has been classified as an insurance contract, it remains an insurance contract for the remainder of its lifetime, even if the insurance risk reduces significantly during this period, unless all rights and obligations are extinguished or expire. Investment contracts can, however, be reclassified as insurance contracts after inception if insurance risk becomes significant. Benefits, claims and expenses recognition Gross benefits and Claims Claims incurred comprise paid in the year and changes in the provision for outstanding claims. Claims paid represent all payments made during the year, whether arising from events during that year or earlier years. Outstanding claims represent the estimated ultimate cost of settling all claims arising from incidents occurring prior to the reporting date, but not settled at that date. Outstanding claims are computed on the basis of the best information available at the time the records for the year are closed, and include provisions for claims incurred but not reported ( IBNR ). Outstanding claims are not discounted. Claims arising on maturing policies are recognised when the claim becomes due for payment. Death claims are accounted for on notification. Surrenders are accounted for on payment. Insurance Contract Liabilities Life Insurance Life insurance liabilities are recognised when contracts are entered into and premiums are charged. These liabilities are measured by using the net premium method. The liability is determined as the sum of the discounted value of the expected future benefits, claims handling and policy administration expenses, policyholder options and guarantees and investment income from assets backing such liabilities, which are directly related to the contract, less the discounted value of the expected premiums that would be required to meet the future cash outflows based on the valuation assumptions used. At each reporting date, an assessment is made of whether the recognised life insurance liabilities are adequate. The liability value is adjusted to the extent that it is insufficient to meet expected future benefits and expenses. In performing the adequacy test, current best estimates of future contractual cash flows, including related cash flows such as claims handling and policy administration expenses, policyholder options and guarantees, as well as investment income from assets backing such liabilities, are used. The standard for recognition of Insurance contract liabilities prohibits provisions for possible claims under contracts that are not in existence at the reporting date such as catastrophe and equalization provisions as well as a test for the adequacy of recognised insurance liabilities and an impairment test for reinsurance assets. An insurer is also to keep insurance liabilities in its statement of financial position until they are discharged or cancelled, or expires, and prohibits offsetting insurance liabilities against related reinsurance assets and income or expense from reinsurance contracts against the expense or income from the related insurance contract. An insurer is permitted to remeasure designated insurance liabilities consistently in each period to reflect current market interest rates or other current estimates and assumptions.

31 29 Notes to the financial statements (Continued) 1. ACCOUNTING POLICIES (Continued) Insurance Contract Liabilities (Continued) General insurance Non-life insurance contract liabilities include the outstanding claims provision, the provision for unearned premium and the provision for premium deficiency. The outstanding claims provision is based on the estimated ultimate cost of all claims incurred but not settled at the reporting date, whether reported or not, together with related claims handling costs and reduction for the expected value of salvage and other recoveries. Delays can be experienced in the notification and settlement of certain types of claims, therefore, the ultimate cost of these cannot be known with certainty at the reporting date. The liabilities are derecognised when the obligation to pay a claim expires, is discharged or is cancelled. Deposit administration contracts The company administers the funds of a number of retirement benefit schemes. The liability of the company to the schemes has been included in the statement of financial position. Unit-linked investment contracts These liabilities are initially recognised at fair value, this being the transaction price excluding any transaction costs directly attributable to the issue of the contract. Subsequent to initial recognition investment, contract liabilities are measured at fair value through profit or loss. Deposits and withdrawals are recorded directly as an adjustment to the liability in the statement of financial position and are not recognised as gross premium in profit or loss. Fair value adjustments are performed at each reporting date and are recognised in profit or loss. Fair value is calculated as the number of units allocated to the policyholder in each unit-linked fund multiplied by the unit-price of those funds at the reporting date. The fund assets and fund liabilities used to determine the unit prices at the reporting date are valued on a basis consistent with their measurement basis in the statement of financial position. Reinsurance The company assumes and cedes reinsurance in the normal course of business, with retention limits varying by line of business. Premiums on reinsurance assumed are recognised as income in the same manner as they would be if the reinsurance were considered direct business. Premiums ceded and claims reimbursed are presented on a gross basis in profit or loss and statement of financial position as appropriate. Unearned reinsurance premium is the proportions of premium that applies to the unexpired portion of the policies that the Company has reinsured. Unearned reinsurance premiums are deferred over the term of the underlying direct insurance policies for risks-attaching contracts and over the term of the reinsurance contract for loss incurring contracts. Reinsurance assets represent balances due from reinsurance companies. Amounts recoverable from reinsurers are estimated in a manner consistent with the outstanding claims provision or settled claims associated with the reinsurer s policies and are in accordance with the related reinsurance contract. Impairment occurs when there is objective evidence as a result of an event that occurred after initial recognition of the reinsurance asset that the company may not receive all outstanding amounts due under the terms of the contract and the event has a reliably measurable impact on the amounts that the company will receive from the reinsurer. The impairment loss is recognised in profit or loss. Ceded reinsurance arrangements do not relieve the company from its obligations to policyholders. The company also assumes reinsurance risk in the normal course of business for life insurance and non-life insurance contracts where applicable. Premiums and claims on assumed reinsurance are recognised as revenue or expenses in the same manner as they would be if the reinsurance were considered direct business, taking into account the product classification of the reinsured business. Reinsurance liabilities represent balances due to reinsurance companies. Amounts payable are estimated in a manner consistent with the related reinsurance contract. Reinsurance assets or liabilities are derecognised when the contractual rights are extinguished or expire or when the contract is transferred to another party. Equipment and Depreciation Equipment is stated at historical cost less accumulated depreciation and any accumulated impairment loss. Depreciation is calculated on the straight line basis at annual rates estimated to write off the assets over the expected useful lives as follows:

32 30 Notes to the financial statements (Continued) 1. ACCOUNTING POLICIES (Continued) Equipment and Depreciation (Continued) Motor vehicles Computer Equipment Office machinery and equipment Office furniture and fittings 5 years 4 years 7 years 8 years Where the carrying amount of an asset is greater than its estimated recoverable amount, it is written down immediately to its recoverable amount. Gains and losses on disposal of equipment are determined by reference to their carrying amounts and taken into account in profit or loss. Intangible assets computer software Acquired computer software licences are capitalised on the basis of the costs incurred to acquire and bring to use the specific software. These costs are amortised over their estimated useful lives (not exceeding 5 years). Costs associated with developing or maintaining computer software programmes are recognised as an expense when incurred. Costs that are directly associated with the production of identifiable and unique software products controlled by the company, and that will probably generate economic benefits exceeding costs beyond one year, are recognised as intangible assets. These costs are amortised over their estimated useful lives (not exceeding 5 years). Gains or losses arising from de-recognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognised in profit or loss when the asset is derecognised. Investment property Investment property comprises land and buildings and parts of buildings held to earn rentals and/or for capital appreciation. They are treated as long term investments and carried at market value determined based on valuations from external independent valuers. Investment properties are not subject to depreciation. Changes in their carrying amount between the reporting period ends are processed through profit or loss. On disposal of an investment property, the difference between the net disposal proceeds and the carrying amount is charged or credited to profit or loss. Financial Instruments Financial assets The company classifies its investments into the following categories: financial assets at fair value through profit or loss, loans and insurance 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. Purchases and sales of investments are recognised on trade date (the date on which the company commits to purchase or sell the asset).financial assets 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. Financial assets at fair value through profit or loss This category has two sub-categories: financial assets held for trading and those designated at fair value through profit or loss at inception. A financial asset is classified 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 which there is evidence of short term profit-taking, or if so designated by management. Financial assets held for selling in short term include quoted stocks as well as deposits. Assets held for trading include Government securities as well as unquoted investments. The Company s unquoted investments in the subsidiaries are measured at fair value through profit and loss. The investments are carried at cost plus post-acquisition changes in the Company s share of net assets of the subsidiary. 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 company intends to sell in the short term or that it has designated as at fair value 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.

33 31 Notes to the financial statements (Continued) 1. ACCOUNTING POLICIES (Continued) Financial Instruments (Continued) Objective evidence of impairment of loans and receivables could include: significant financial difficulty of the issuer or counterparty; or default or delinquency in interest or principal payments; or it becoming probable that the borrower will enter bankruptcy or financial re-organisation. Held-to-maturity financial assets Held-to-maturity financial assets are non-derivative financial assets with fixed or determinable payments and fixed maturities - other than those that meet the definition of loans and receivables - that the company s management has the positive intention and ability to hold to maturity. 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. Subsequent measurement Available-for-sale financial assets and financial assets at fair value through profit or loss are subsequently carried at fair value. Loans and advances are recognised when cash is advanced to borrowers. 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 profit or loss in the period in which they arise. 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. When securities classified as available-for-sale are sold or impaired, the accumulated fair value adjustments are included in 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 company establishes fair value by using other 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. Impairment of financial assets The company assesses at each reporting date 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 The company derecognises a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the assets to another entity. If the company neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the company recognises its retained interest in the asset and an associated liability for amounts it may have to pay. If the company retains substantially all the risks and rewards of ownership of a transferred financial asset, the company continues to recognise the financial asset and also recognises a collateralised borrowing for the proceeds received. On derecognition of a financial asset in its entirety, the difference between the asset s carrying amount and the sum of the consideration received and receivable and the cumulative gain or loss that had been recognised in other comprehensive income and accumulated in equity is recognised in profit or loss. Financial liabilities Financial liabilities are recognised in the company s statement of financial position when the company has become a party to the contractual provisions of the instrument. Financial liabilities include insurance payables. Derecognition of financial liabilities is done when the obligation under the liability is discharged or cancelled or expired. Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognised in profit or loss.

34 32 Notes to the financial statements (Continued) 1. ACCOUNTING POLICIES (Continued) Financial Instruments (Continued) Subsequent measurement of financial liabilities should be at fair value except for those that arise when a transfer of a financial asset does not qualify for derecognition, or that are accounted for using the continuing-involvement method, are subject to particular measurement requirements. Cash and cash equivalents Cash and cash equivalents are carried in the statement of financial position at amortised cost. For the purposes of the cash flow statement, cash and cash equivalents comprise cash on hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less, and bank overdrafts. During the year there was no bank overdraft. Employee entitlements The estimated monetary liability for employees accrued annual leave entitlement at year end is recognised as an expense accrual. Short-term employee benefits are expected to be settled wholly before twelve months after the end of the annual reporting period in which the employees render the related service whereas other long-term employee benefits are not expected to be settled wholly before twelve months after the end of the annual reporting period in which the employees render the related service. IAS 19R also requires that when an employee has rendered service to an entity during an accounting period, the entity shall recognise the undiscounted amount of short-term employee benefits expected to be paid in exchange for that service: as a liability (accrued expense), after deducting any amount already paid. If the amount already paid exceeds the undiscounted amount of the benefits, an entity shall recognise that excess as an asset (prepaid expense)to the extent that the prepayment will lead to, for example, a reduction in future payments or cash refund. as an expense, unless another IFRS requires or permits the inclusion of the benefits in the cost of an asset Application of IAS 19R has not materially impacted the company s financial statements. Retirement benefit obligations The company 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 company and employees. The employees of the company are also members of the National Social Security Fund ( NSSF ). The company s contributions to the defined contribution scheme and NSSF are charged to profit or loss in the year to which they relate. Deferred Acquisition Costs (DAC) Those direct and indirect costs incurred during the financial period arising from the writing or renewing of insurance contracts, are deferred to the extent that these costs are recoverable out of future premiums. All other acquisition costs are recognised as an expense when incurred. Subsequent to initial recognition DAC for life insurance are amortised over the expected life of the contracts as a constant percentage of expected premiums. DAC for general insurance and health products are amortised over the period in which the related revenues are earned. There insurers share of deferred acquisition costs is amortised in the same manner as the underlying asset amortisation is recorded in the income statement. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are accounted for by changing the amortisation period and are treated as a change inanaccountingestimate. An impairment review is performed at each reporting date or more frequently when an indicationofimpairment arises. When the recoverable amount is less than the carrying value, an impairment loss isrecognised in profit or loss. DAC are derecognised when the related contracts are either settled or disposed of. Fair Value Hierarchy The company specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources; unobservable inputs reflect the company s market assumptions. These two types of inputs have created the following fair value hierarchy: Level 1 Quoted prices in active markets for identical assets or liabilities. This level includes equity securities and debt instruments listed on the Nairobi Securities Exchange. Level 2 Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly as prices or indirectly as derived from prices.

35 33 Notes to the financial statements (Continued) 1. ACCOUNTING POLICIES (Continued) Fair Value Hierarchy (Continued) Level 3 inputs for the assets or liabilities that are not based on observable market data (unobservable inputs). This level includes equity investments and debt instruments with significant unobservable components. This hierarchy requires the use of observable market data when available. The company considers relevant and observable market prices in its valuations where possible. Dividends Payable The company recognises a liability to make distributions to equity holders when the distribution is authorised and distribution is no longer at the discretion of the Company. Dividends on ordinary shares are charged to equity in the period in which they are declared. Comparatives Where necessary, comparative figures have been adjusted to conform to changes in presentation in the current year. Refer to note 28 on the prior year adjustments. 2. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY In the process of applying the company s accounting policies, management has made estimates and assumptions that affect the reported amounts of assets and liabilities within the next financial year. Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The key areas of judgment in applying the company s accounting policies are dealt with below: (i) Critical accounting judgements in applying the company s accounting policies The ultimate liability arising from claims made under short term insurance contracts The main assumption underlying techniques applied in the estimation of this liability is that a company 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 on the 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. All contracts are subject to a liability adequacy test, which reflects management s best current estimate of future cash flows. Long term insurance contracts-process used to decide on assumptions, changes in assumptions and sensitivity analysis The determination of the liabilities under long-term insurance contracts is dependent on estimates made by the company. The estimation of future benefit payments from long-term insurance contracts is the company s most critical accounting estimate. There are several sources of uncertainty that need to be considered in the estimate of the liability that the company will ultimately pay for such claims. Estimates are also made as to future investment income arising from the assets backing long-term insurance contracts. These estimates are based on current market returns as well as expectations about future economic and financial developments. Mortality and Morbidity Assumptions are based on standard industry and national tables, according to the type of contract written and the territory in which the insured person resides. They reflect recent historical experience and are adjusted when appropriate to reflect the Group s own experiences. An appropriate, but not excessive, prudent allowance is made for expected future improvements. Assumptions are differentiated by sex, underwriting class and contract type. An increase in rates will lead to a larger number of claims (and claims could occur sooner than anticipated), which will increase the expenditure and reduce profits for the shareholders. The incidence of disability claims is derived from industry experience studies, adjusted where appropriate for Madison Life s own experience. The same is true for the incidence of recovery from disability.

36 34 Notes to the financial statements (Continued) 2. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY (Continued) (i) Critical accounting judgements in applying the company s accounting policies (Continued) Medical The incidence of medical claims is derived from the risk premium rates determined from annual investigations. This is adjusted where appropriate to allow for the future expected experience. Withdrawal The withdrawal assumptions are based on the most recent withdrawal investigations taking into account past as well as expected future trends. The withdrawal rates are analysed by product type and policy duration. These withdrawal rates vary considerably by duration, policy term and Company. Typically the rates are higher for risk type products versus investment type products, and are higher at early durations. Expenses An expense analysis is performed on the actual expenses incurred in the calendar year preceding the current year end. The expenses are split between acquisition, maintenance and non-recurring expenses. The individual annual maintenance cost per policy, which forms the base for future projections are KShs 14,851(2014: KShs 18,888).The expenses derived from this analysis are adjusted accordingly by an expense inflation assumption to obtain an appropriate expense base assumption to be used in the calculation of the insurance. Correlation No correlations between assumptions are allowed. Sensitivity analysis The Net Premium Valuation (NPV) actuarial method used to value the actuarial liabilities of long term insurance business is not very sensitive to changes in the key assumptions used in determining the actuarial liabilities. The key assumptions will need to change very significantly for the actuarial liabilities to change by a relatively small percentage. The company underwrites long term insurance business contracts with fixed and guaranteed terms as set out in the individual policy contracts with its clients. For actuarial liabilities under these contracts the key actuarial assumptions are unchanged for the duration of the contract. (ii) Key sources of estimation uncertainty Impairment losses At the reporting date, the company reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss. Where it is not possible to estimate the recoverable amount of an individual asset, the company estimates the recoverable amount of the cash generating unit to which the asset belongs. In assessing whether there is any indication that the tangible and intangible assets may be impaired, the Company considers the following indications: there are observable indications that the asset s value has declined during the period significantly more than would be expected as a result of the passage of time or normal use. significant changes with an adverse effect on the entity have taken place during the period, or will take place in the near future, in the technological, market, economic or legal environment in which the entity operates or in the market to which an asset is dedicated. market interest rates or other market rates of return on investments have increased during the period, and those increases are likely to affect the discount rate used in calculating an asset s value in use and decrease the asset s recoverable amount materially. the carrying amount of the net assets of the entity is more than its market capitalization. evidence is available of obsolescence or physical damage of an asset. significant changes with an adverse effect on the entity have taken place during the period, or are expected to take place in the near future, in the extent to which, or manner in which, an asset is used or is expected to be used. These changes include the asset becoming idle, plans to discontinue or restructure the operation to which an asset belongs, plans to dispose of an asset before the previously expected date, and reassessing the useful life of an asset as finite rather than indefinite. Operating lease commitments Company as lessor The Company has entered into commercial property leases on its investment property portfolio. The Company has determined, based on an evaluation of the terms and conditions of the arrangements, such as the lease term not constituting a substantial portion of the economic life of the commercial property, that it retains all the significant risks and rewards of ownership of these properties and accounts for the contracts as operating leases.

37 35 Notes to the financial statements (Continued) 2. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY (Continued) (ii) Key sources of estimation uncertainty (Continued) Held -to-maturity financial assets The Company follows the guidance of IAS 39 in 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 Company evaluates its intention and ability to hold such assets to maturity. If the Company fails to keep 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. Receivables Critical estimates are made by the directors in determining the recoverable amount of receivables. The carrying value of insurance receivables is reviewed for impairment whenever events or circumstances indicate that the carrying amount may not be recoverable, with the impairment loss recorded in profit or loss. Income taxes Significant judgment is required in determining the Company s provision for income taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. The Company recognises liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. Where the final outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provision in the period in which such determination is made. Deferred tax restatement Uncertainties exist with respect to the interpretation of complex tax regulations and the amount and timing of future taxable income. Given the long-term nature and complexity of existing contractual agreements, differences arising between the actual results and the assumptions made, or future changes to such assumptions, could necessitate future adjustments to tax income and expense already recorded. The Company establishes provisions, based on reasonable estimates, for possible consequences of audits by the tax authorities. The amount of such provisions is based on various factors, such as experience of previous tax audits and differing interpretations of tax regulations by the taxable entity and the tax authority. Such differences of interpretation may arise on a wide variety of issues, depending on the prevailing conditions prevailing. Deferred tax assets are recognised for all unused tax losses to the extent that it is probable that taxable profit will be available against which the losses can be utilised. Significant management judgement is required to determine the amount of deferred tax assets that can be recognised, based on the likely timing and the level of future taxable profits together with future tax planning strategies. Fair value of financial instruments When the fair value of financial assets and financial liabilities recorded in the statement of financial position cannot be derived from active markets, their fair value is determined using valuation techniques including the discounted cash flow model. The inputs to these models are taken from observable markets where possible, but where this is not feasible, a degree of judgment is required in establishing fair values. The judgments include considerations of inputs such as liquidity risk, credit risk and volatility. Changes in assumptions about these factors could affect the reported fair value of financial instruments. See Notes 18, and 37for further discussion. Revaluation of investment property The Company carries investment property at fair value, with changes in fair value being recognised in profit and loss. Investment property isvalued on the basis of open market value by independent valuers, BageineKaranjaMbuu Limited. Refer to note 16 where detailed assumptions have been disclosed. Contingent liabilities The Company is exposed to various contingent liabilities in the normal course of business including a number of legal cases. The Directors evaluate the status of these exposures on a regular basis to assess the probability of the Company incurring related liabilities. However, provisions are only made in the financial statements where, based on the Directors evaluation, a present obligation has been established. Judgment and assumptions are required in: assessing the existence of a present obligation (legal or constructive) as a result of a past event, assessing the probability that an outflow of resources embodying economic benefits will be required to settle the obligation; and Estimating the amount of the obligation to be paid out.

38 36 Notes to the financial statements (Continued) 3. MANAGEMENT OF INSURANCE AND FINANCIAL RISK The Company s activities expose it to a variety of financial and insurance risks. The company s overall risk management programme focuses on the identification and management of risks and seeks to minimise potential adverse effects on its financial performance, by use of underwriting guidelines and capacity limits, reinsurance planning, credit policy governing the acceptance of clients, and defined criteria for the approval of intermediaries and reinsurers. Investment policies are in place which help manage liquidity and seek to maximise return within an acceptable level of interest rate risk. The disclosures below summarise the way the company manages key risks: Insurance risk Insurance risk in the Company arises from: fluctuations in the timing, frequency and severity of claims and claims settlements relative to expectations; unexpected claims arising from a single source; inaccurate pricing of risks or inappropriate underwriting of risks when underwritten. These can be classified as the core insurance risk. Other risks include reinsurance planning risk which results from or emanates from inadequate reinsurance protection or other risk transfer techniques and the risk of inadequate reserves. Core insurance risk This risk is managed through diversification across a large portfolio of insurance contracts; careful selection guided by a conservative underwriting philosophy; continuous monitoring of the business performance per class and per client and corrective action taken as deemed appropriate; a minimum of one review of each policy at renewal to determine whether the risk remains within the acceptable criteria; having a business acceptance criteria which is reviewed from time to time based on the experience and other developments and having a mechanism of identifying, quantifying and accumulating exposures to contain them within the set underwriting limits. Reinsurance planning Reinsurance purchases are reviewed annually to verify that the levels of protection being sought reflect developments in exposure and risk appetite of the Company. The risks with sum assured above the company retention capacity are reinsured and the annual reinsurance programme is filled with the regulator for approval. The basis of this purchase is underpinned by the Company s experience, financial modelling by and exposure of the reinsurance broker. The reinsurance is placed with providers who meet the Company s counter party security requirements. Claims reserving The Company s reserving policy is guided by the prudence concept. Estimates are made of the estimated cost of settling a claim based on the best available information on registration of a claim, and this is updated as and when additional information is obtained and annual reviews done to ensure that the reserves are adequate. Management is regularly provided with claims settlement reports to inform on the reserving performance. Long term insurance contracts Life insurance contracts offered by the Company include term assurance, endowment, anticipated endowments, credit life insurance, group life insurance, group mortgage insurance and pension administration. Term assurance contracts are conventional regular premium products where lump sum benefits are payable on death or permanent disability. The endowments pay a sum assured either on death or maturity of the contract. The anticipated endowment pay assume assured on death or maturity, but also have partial maturities payable to the client in regular instalments during the contract based on survival. The endowments contracts have a surrender value. Death benefits of endowment products are subject to a guaranteed minimum amount. The maturity value usually depends on the investment performance of the underlying assets. For contracts with discretionary participation features (DPF), the guaranteed minimum may be increased by the addition of bonuses. These are set at a level that takes account of expected market fluctuations, such that the cost of the guarantee is generally met by the investment performance of the assets backing the liability. However, in circumstances when there has been a significant fall in investment markets, the guaranteed maturity benefits may exceed investment performance and these guarantees become valuable to the policyholder. Group credit life insurance is a contract that is provided to financial institutions that provides protection against death or permanent and total disability of a borrower. The contract pays a sum assured equivalent to the outstanding loan on death or permanent and total disability of the borrower. Group mortgage is a contract designed for long term borrowing to finance for assets such as houses, land or cars. The policy pays the outstanding loan in case of death or permanent and total disability of the borrower. Group life insurance is a contract that provides a life cover to a Group of people and pays a sum assured on death. The most common group life cover is the employee group life which is taken up by the employer for its employees and it provides life insurance as a multiple of an employee s annual remuneration.

39 37 Notes to the financial statements (Continued) 3. MANAGEMENT OF INSURANCE AND FINANCIAL RISK (Continued) Long term insurance contracts (Continued) Pension administration provides an avenue for saving for clients. The Company acts as a pension administrator and has appointed a fund manager to invest the pension fund. Retirement benefits are expressed in the form of an annuity payable at retirement age. If death occurs before retirement, contracts generally return the value of the fund accumulated or premiums. Most contracts give the policyholder the option at retirement to take a cash sum at guaranteed conversion rates allowing the policyholders the option of taking the more valuable of the two. The main risks that the Company is exposed to are as follows: Mortality risk risk of loss arising due to policyholder death experience being different than expected Morbidity risk risk of loss arising due to policyholder health experience being different than expected Investment return risk risk of loss arising from actual returns being different than expected Expense risk risk of loss arising from expense experience being different than expected Policyholder decision risk risk of loss arising due to policyholder experiences (lapses and surrenders) being different than expected These risks do not vary significantly in relation to the location of the risk insured by the Company, type of risk insured or by industry. The Company s underwriting strategy is designed to ensure that risks are well diversified in terms of type of risk and level of insured benefits. This is largely achieved through diversification across industry sectors and geography, the use of medical screening in order to ensure that pricing takes account of current health conditions and family medical history, regular review of actual claims experience and product pricing, as well as detailed claims handling procedures. Underwriting limits are in place to enforce appropriate risk selection criteria. For example, the Company has the right not to renew individual policies, it can impose deductibles and it has the right to reject the payment of fraudulent claims. Insurance contracts also entitle the Company to pursue third parties for payment of some or all costs. The Company further enforces a policy of actively managing and promptly pursuing claims, in order to reduce its exposure to unpredictable future developments that can negatively impact the Company. For contracts for which death or disability is the insured risk, the significant factors that could increase the overall frequency of claims are epidemics, widespread changes in lifestyle and natural disasters, resulting in earlier or more claims than expected. Companywide reinsurance limits of KShs. 1,000,000 on any single life are in place. For contracts with DPF, the participating nature of these contracts results in a significant portion of the insurance risk being shared with the insured party. For contracts without DPF the Company charges for death and disability risks on a quarterly basis. Under these contracts the Company has the right to alter these charges to take account of death and disability experience, thereby mitigating the risks to the Company. The insurance risk described above is also affected by the contract holder s right to pay reduced premiums or no future premiums, to terminate the contract completely or to exercise guaranteed annuity options. As a result, the amount of insurance risk is also subject to contract holder behaviour. Key assumptions Material judgment is required in determining the liabilities and in the choice of assumptions. Assumptions in use are based on past experience, current internal data, external market indices and benchmarks which reflect current observable market prices and other published information. Assumptions and prudent estimates are determined at the date of valuation and no credit is taken for possible beneficial effects of voluntary withdrawals. Assumptions are further evaluated on a continuous basis in order to ensure realistic and reasonable valuations.the key assumption underlying the liability estimates is that the Company s future claims development will follow a similar pattern to past claims development experience. This includes assumptions in respect of average claim costs, claim handling costs, claim inflation factors, interest rate variations, salvage recovery proceeds, health care cost, judicial decisions and changes in government legislation, public attitude to claiming, economic conditions, internal factors such as portfolio mix, policy conditions and claims handling procedures as well as claim numbers for each accident year. The other key assumptions to which the estimation of liabilities is particularly sensitive are as follows:

40 38 Notes to the financial statements (Continued) 3. MANAGEMENT OF INSURANCE AND FINANCIAL RISK (Continued) Long term insurance contracts (Continued) Mortality and morbidity rates Assumptions are based on standard industry and national tables, according to the type of contract written and the territory in which the insured person resides. They reflect recent historical experience and are adjusted when appropriate to reflect the Company s own experiences. An appropriate, but not excessive, prudent allowance is made for expected future improvements. Assumptions are differentiated by sex, underwriting class and contract type. An increase in rates will lead to a larger number of claims (and claims could occur sooner than anticipated), which will increase the expenditure and reduce profits for the shareholders. Longevity Assumptions are based on standard industry and national tables, adjusted when appropriate to reflect the Company s own risk experience. An appropriate but not excessive prudent allowance is made for expected future improvements. Assumptions are differentiated by sex, underwriting class and contract type. An increase in longevity rates will lead to an increase in the number of annuity payments made, which will increase the expenditure and reduce profits for the shareholders. Investment return` The weighted average rate of return is derived based on a model portfolio that is assumed to back liabilities, consistent with the long term asset allocation strategy. These estimates are based on current market returns as well as expectations about future economic and financial developments. An increase in investment return would lead to a reduction in expenditure and an increase in profits for the shareholders. Expenses Operating expense assumptions reflect the projected costs of maintaining and servicing in force policies and associated overhead expenses. The current level of expenses is taken as an appropriate expense base, adjusted for expected expense inflation if appropriate. An increase in the level of expenses would result in an increase in expenditure thereby reducing profits for the shareholders. Lapse and surrender rates Lapses relate to the termination of policies due to non payment of premiums. Surrenders relate to the voluntary termination of policies by policyholders. Policy termination assumptions are determined using statistical measures based on the Company s experience and vary by product type, policy duration and sales trends. An increase in lapse rates early in the life of the policy would tend to reduce profits for shareholders, but later increases are broadly neutral in effect. Discount rate Life insurance liabilities are determined as the sum of the discounted value of the expected benefits and future administration expenses directly related to the contract, less the discounted value of the expected theoretical premiums that would be required to meet these future cash outflows. Discount rates are based on current industry risk rates, adjusted for the Company s own risk exposure. A decrease in the discount rate will increase the value of the insurance liability and therefore reduce profits for the shareholders. The risk under any one insurance contract arises from the possibility that the insured event occurs and the uncertainty of the amount of the resulting claim. By the very nature of an insurance contract, this risk is random and therefore unpredictable. For a portfolio of insurance contracts where the theory of probability is applied to pricing and provisioning, the principal risk that the company faces under its insurance contracts is that the actual claims and benefit payments exceed the carrying amount of the insurance liabilities. This could occur because the frequency or severity of claims and benefits are greater than estimated. Insurance events are random and the actual number and amount of claims and benefits will vary from year to year from the level established using statistical techniques. Experience shows that the larger the portfolio of similar insurance contracts, the smaller the relative variability of the expected outcome will be. In addition, a more diversified portfolio is less likely to be affected across the board by a change in any subset of the portfolio. The company has developed its insurance underwriting strategy to diversify the type of insurance risks accepted and within each of these categories to achieve a sufficiently large population of risks to reduce the variability of the expected outcome.

41 39 Notes to the financial statements (Continued) 3. MANAGEMENT OF INSURANCE AND FINANCIAL RISK (Continued) General Insurance Business Class of Business KShs 0m 15m KShs 15m - 250m Total KShs 0m 15m KShs 15m - 250m Total KShs 000 KShs 000 KShs 000 KShs 000 KShs 000 KShs 000 Fire & Con. Loss Gross 17,344-17,344 13,617 77,000 90,617 Net 7,427-7, ,016 3,549 Domestic Package Gross 1,566-1, Net 1,512-1, Engineering Gross 10,179-10,179 17,167 70,000 87,167 Net 1,962-1, ,219 2,763 C.A.R. Gross 2,861-2, Net 1,011-1, Burglary Gross 1,852-1,852 3,355-3,355 Net 1,397-1,397 2,325-2,325 Money Gross ,059-4,059 Net ,813-2,813 All Risks Gross 23,189-23,189 18,549-18,549 Net 18,586-18,586 17,957-17,957 Fidelity Guarantee Gross 4,843-4,843 6,897-6,897 Net 2,569-2,569 4,779-4,779 Personal Accident Gross 85,234-85, , ,989 Net 78,485-78,485 41,353-41,353 Marine Cargo Gross 2,933-2,933 2,961-2,961 Net 1,136-1, W.C.A. Gross 17,310-17,310 4,247-4,247 Net 9,503-9,503 4,204-4,204 Public Liability Gross 17,965-17,965 6,854-6,854 Net 14,511-14,511 5,523-5,523 Motor Gross 196, , , ,394 P. Indemnity (Doctors) Net 187, , , ,151 Gross 29,530-29,530 25,616-25,616 Net 9,103-9,103 25,611-25,611 Gross 412, , , , ,224 Total Net 335, , ,711 5, ,944 Life Assurance Business Ordinary life Gross 15,777-15,777-28,766 28,766 Net 15,777-15,777-28,766 28,766 Group life Gross 80,267-80,267-47,055 47,055 Net 57,620-57,620-37,009 37,009 Total Gross 96,044-96,044-75,821 75,821 Net 73,397-73,397-65,775 65,775 Gross 508, , , , ,045 Grand Total Net 408, , ,711 71, ,721 The concentration by sector or maximum insured loss at the end of the year is broadly consistent with the prior year.

42 40 Notes to the financial statements (Continued) 3. MANAGEMENT OF INSURANCE AND FINANCIAL RISK (Continued) Insurance risk (continued) Claims development table The following tables show the estimates of cumulative incurred claims, including both claims notified and incurred but not reported claims (IBNR) for each successive year at each reporting date, together with cumulative payments to date. General Insurance Business Accident year Total Kshs 000 Kshs 000 Kshs 000 Kshs 000 Kshs 000 Kshs 000 Kshs 000 Kshs 000 At the end of accident year 240, , , , , ,542 1,052,414 4,255,004 One year later 46,758 89, ,529 65, ,778 98, ,566 Two years later 3,928 8,206 8,475 3,783 1, ,550 Three years later 574 2,100 5, ,868 Four years later 2, ,558 Five years later Six years Current estimate of cumulative claims Less cumulative payments to date Claims Incurred but not reported Total gross claims outstanding claims 295, , , , , ,978 1,160,781 4,961,758 (294,474) (538,018) (872,181) (675,144) (608,775) (761,312) (1,052,415) (4,802,319) 727 3,661 4,566 6,983 13,470 21, , , ,587 Total gross claims liability included in the statement of financial position 412,026

43 41 Notes to the financial statements (Continued) 3. MANAGEMENT OF INSURANCE AND FINANCIAL RISK (Continued) Insurance risk (continued) Life assurance contracts sensitivity analysis The actuarial assumptions used as at 31 December 2015 are unlikely to change significantly to result in material variation in actuarial liabilities. Shown in the table below are the sensitivities of the value of insurance liabilities disclosed in this note to various changes in assumptions used in the estimation of insurance liabilities. Each value is shown with only the indicated variable being changed and holding all other assumptions constant. In practice, this is unlikely to occur and changes in some of the assumptions may be correlated. Policyholder s Liabilities (Net of Reinsurance) 31 December December 2014 KShs. '000' % change KShs. '000' % change Main basis 5,570,663 4,074,797 Expenses plus 10% 5,570, % 4,074, % Mortality and other claims experience plus 10% 5,566, % 4,072, % Interest rate less 1% 5,716, % 4,140, % Expense inflation plus 1% 5,570, % 4,074, % Withdrawals plus 10% 5,570, % 4,074, % Financial risk The company is exposed to a range of financial risks through its financial assets, financial liabilities, reinsurance assets and insurance liabilities. In particular, the key financial risk is that the proceeds from its financial assets are not sufficient to fund the obligations arising from insurance policies as they fall due. 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 company primarily faces due to the nature of its investments and liabilities are interest rate risk and equity price risk. The company s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the company 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 company produces regular reports at portfolio and asset and liability class level that are circulated to the company s key management personnel. The principal technique of the company 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 company s ALM is also integrated with the management of the financial risks associated with the company s other financial assets and liabilities not directly associated with insurance and investment liabilities (in particular, borrowings and investments in foreign operations). The company does not use hedge accounting. The company 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 company s ALM framework. Short and long term insurance contracts The company engages in short and long term insurance contracts and funds the insurance liabilities with a portfolio of equity and debt securities exposed to market risk. An analysis of the company s financial assets and its short term insurance liabilities is presented below:

44 42 Notes to the financial statements (Continued) 3. MANAGEMENT OF INSURANCE AND FINANCIAL RISK (Continued) Financial risk (Continued) Restated Life Assurance Business KShs 000 KShs 000 Financial assets Held to maturity: - Treasury bonds 1,308, ,443 - Deposits with financial institutions 427, ,041 At fair value through profit or loss: - Designated upon initial recognition - Unquoted investments 1,428,628 1,368,111 - Held for trading - Quoted investments 183, ,868 - Corporate Bonds 84,664 72,992 -Commercial Paper 83,161 19,598 - Unit Trust 30,794 30,512 Loans and receivables: - Treasury bills 17, ,752 - Loans receivable 114, ,769 - Receivables arising out of reinsurance arrangements 11,113 12,724 - Cash and bank balances 19,493 25,745 Total 3,709,714 2,931,555 Financial liabilities Insurance liabilities at fair value through profit or loss Insurance contracts liabilities 3,411,351 1,903,424 Less reinsurers share of insurance liabilities (147,707) (106,205) Payable under deposit administration contracts 2,196,077 2,264,114 Unit linked investment contracts 263, ,101 Payables arising from reinsurance arrangements 29,895 36,703 Total 5,753,308 4,476,137

45 43 Notes to the financial statements (Continued) 3. MANAGEMENT OF INSURANCE AND FINANCIAL RISK (Continued) Financial risk (continued Restated General Insurance Business KShs 000 KShs 000 Financial assets Held to maturity: -Government securities 227, ,403 -Deposits with financial institutions 379, ,940 At fair value through profit or loss: -Quoted investments 8, Unquoted investments 244, ,169 Loans and Receivables -Receivables arising out of reinsurance arrangements 343, ,896 -Receivables arising out of direct insurance arrangements 471, ,266 Cash and bank balances 41,826 14,786 Total 1,717,119 1,125,460 Financial liabilities Insurance contracts liabilities 412, ,224 Payables arising from reinsurance arrangements 87,652 70,111 Less reinsurers share of insurance liabilities (132,669) (267,066) Total 367, ,269 Long and short-term 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 company s policyholders (where a reduction of interest rate would normally produce a higher insurance liability), the company 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 reporting date (both incurred claims and future claims arising from the unexpired risks at the reporting date). The mean durations are 0.81 years (2014: 0.9 years) for short term insurance liabilities related to property and casualty risk.

46 44 Notes to the financial statements (Continued) 3. MANAGEMENT OF INSURANCE AND FINANCIAL RISK (Continued) Financial risk (Continued) The table below indicates the contractual timing of cash flows arising from assets and liabilities included in the company s ALM framework for management of long term and short term insurance contracts as of 31 December 2015: Life Assurance Business Total No stated maturity Contractual and expected cash flows (undiscounted) yr 1-2yrs 2-3yrs 3-4yrs >5yrs KShs 000 KShs 000 KShs 000 KShs 000 KShs 000 KShs 000 KShs 000 Financial assets Debt securities held to maturity: Government securities 1,720,722-32,984 55,735-75,046 1,556,957 At fair value through profit or loss: - - Quoted investments 183, , Unquoted Investments 1,428,628 1,428, Loans receivable 192,598-16,865 17,291 17,741 18, ,503 Receivables arising out of reinsurance arrangements 11, ,113 - Deposits with financial institutions 484, , Corporate Bonds 95,619-95, Commercial Paper 94,145 94, Unit Trusts 31,409 31, Cash and bank balance 19,493 19, Total 4,261,950 1,662, ,400 73,026 17, ,357 1,679,460 Financial liabilities: Insurance contracts liabilities 3,411, , , , ,503 2,322,947 Payable under deposit administration contract 2,415,685 2,415, Unit linked investments 290,061-17,403 20,304 31,905 33, ,776 Payables arising from reinsurance arrangements 29,895-29, Less: reinsurance share of insurance liabilities (147,707) - (147,707) Total 5,999,285 2,415,685 84, , , ,176 2,509,723 Net contractual cash flows (1,737,335) (752,719) 640,334 (162,499) (352,369) (279,819) (830,263)

47 45 Notes to the financial statements (Continued) 3. MANAGEMENT OF INSURANCE AND FINANCIAL RISK (Continued) Financial risk (Continued) 31 December 2014 Restated Financial assets Debt securities held to maturity: Government securities 1,466, ,048 11,487-22,626 1,111,172 At fair value through profit or loss: Quoted investments 101, , Unquoted Investments 1,368,111 1,368,111 Loans receivable 217,873-16,738 24, ,349 Receivables arising out of reinsurance arrangements 12,724-12, Deposits with financial institutions 250, , Corporate Bonds 81,751-81, Commercial Paper 21,950-21, Unit Trusts 30,512 30, Cash and bank balance 25,745 25, Total 3,577,793 1,526, ,137 36,273-22,626 1,287,521 Financial liabilities: Insurance contracts liabilities 1,903, , , , ,175 1,119,973 Payable under deposit administration contract 2,490,525 2,490, Unit linked investments 578,420-72,033 42,173 79,135 78, ,730 Payables arising from reinsurance arrangements 36,703-36, Less: reinsurance share of insurance liabilities (106,205) - (106,205) Total 4,902,867 2,490, , , , ,524 1,426,703 Net contractual cash flows (1,325,074) (964,289) 567,844 (160,447) (322,102) (306,898) (139,182) The life assurance business has other non-financial assets of KShs4,341,039,000(2014 KShs 3,218,092,000) as shown in the statement of financial position on page 9.

48 46 Notes to the financial statements (Continued) 3. MANAGEMENT OF INSURANCE AND FINANCIAL RISK (Continued) Financial risk (Continued) General Insurance Business No stated Contractual and expected cash flows Total maturity (undiscounted) 31Dec yr 1-2 yrs 2-3 yrs > 5 yrs Financial assets KShs 000 KShs 000 KShs 000 KShs 000 KShs 000 KShs 000 Held to maturity debt securities: Government securities 282,789-48,929-56, ,263 At fair value through profit or loss: Quoted investments 8,837 8, Unquoted investments 244, , Receivables arising out of reinsurance arrangements 343, , Receivables arising out of direct insurance arrangements 471, , Deposits with financial institutions 384, , Cash and bank balance 41,826 41, Total 1,777, ,614 1,247,971-56, ,263 Financial Liabilities Insurance contracts liabilities 412, , Payables arising from reinsurance arrangements 87,652-87, Less: reinsurance share of insurance liabilities (132,669) - (132,669) Total 367, , Net contractual cash flows 1,410, , ,952-56, ,263` 31 December 2014 Financial assets Held to maturity debt securities: Government securities 150,407-77, ,407 At fair value through profit or loss: Unquoted investments 317, , Receivables arising out of reinsurance arrangements 219, , Receivables arising out of direct insurance arrangements 209, , Deposits with financial institutions 284, , Cash and bank balance 14,786 14, Total 1,195, , , ,407 Financial Liabilities Insurance contracts liabilities 542, , Payables arising from reinsurance arrangements 70,111-70, Less: reinsurance share of insurance liabilities (446,713) (446,713) Total 165,622 95,511 70, Net contractual cash flows 1,030, , , ,407

49 47 Notes to the financial statements (Continued) 3. MANAGEMENT OF INSURANCE AND FINANCIAL RISK (Continued) Financial risk (Continued) (a) Market risk (i) Interest rate risk The company is exposed to the risk that the level of interest income and in effect the cash flows will fluctuate due to changes in market interest rates. To manage this, the company ensures that the investment maturity profiles are well spread. The company 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 5 percentage points in all yield curves of financial assets and financial liabilities. These particular exposures illustrate the company s overall exposure to interest rate sensitivities included in the company s ALM framework and its impact on the company s profit or loss by business. A 5% increase/decrease in interest yields would result in additional profit/loss for the period ofkshs 12,817,800 (2014: KShs 7,521,228). (ii) Equity price risk The company 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 the price risk associated from investments in equity shares in aggregate is 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. The company has a defined investment policy which sets limits on the company s exposure to equities both in aggregate terms and by industry. This policy of diversification is used to manage the company s price risk arising from its investments in equity securities. Investment management meetings are held monthly. At these meetings, senior managers discuss investment return and concentration of the equity investments. Listed equity securities represent 2% (2014: 2%) of total assets. If equity market indices had increased/ decreased by 5 %, with all other variables held constant, and all the company s equity investments moving according to the historical correlation with the index, the profit for the year would increase/decrease by KShs9,613,650(2014: KShs 5,093,390). (iii) Currency risk Foreign currency exchange risk arises when future commercial transactions or recognised assets and liabilities are denominated in a currency that is not the company s functional currency. The company primarily transacts in the Kenya shilling and its assets and liabilities are denominated in the same currency. The company s exposure to currency risk is minimal.

50 48 Notes to the financial statements (Continued) 3. MANAGEMENT OF INSURANCE AND FINANCIAL RISK (Continued) Financial risk (Continued) (b) Credit risk The company has exposure to credit risk, which is the risk that a counterparty will be unable to pay amounts in full when due. Key areas where the company is exposed to credit risk are: reinsurers share of insurance liabilities; amounts due from reinsurers in respect of claims already paid; amounts due from insurance contract holders; amounts due from insurance intermediaries; amounts due from corporate bond issuers; and bank balances (including fixed deposits) The company manages the levels of credit risk it accepts by placing limits on its exposure to a single counterparty or Company s 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 company s liability as primary insurer. If a reinsurer fails to pay a claim, the company 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. The table below indicates the carrying amounts of assets bearing credit risk: Financial Life General Total Total Assurance Insurance KShs'000 KShs'000 KShs'000 KShs'000 Debt securities Held to maturity - Government Securities 1,326, ,263 1,553,451 1,051,098 At fair value through profit or loss - Government Securities - - Loans receivable 114, , ,769 Receivables arising out of direct insurance arrangements - 471, , ,266 Receivables arising out of reinsurance arrangements 11, , , ,620 Reinsurers share of insurance liabilities 147, , , ,918 Other receivables 62,545 74, , ,982 Deposits with financial institutions 427, , , ,981 Corporate Bonds 84,644 23, ,032 72,992 Commercial Paper 83,161 18, ,679 19,558 Unit trusts 30,794-30,794 30,512 Cash and bank balances 19,493 41,826 61,319 40,531 2,307,792 1,670,155 3,977,947 3,126,227 The exposure to individual counterparties is also managed through mechanisms, such as the right of offset where counterparties are both debtors and creditors of the company. Management information reported to the directors include details of provisions for impairment of receivables and subsequent write offs

51 49 Notes to the financial statements (Continued) 3. MANAGEMENT OF INSURANCE AND FINANCIAL RISK (Continued) Financial risk (Continued) (b) Credit risk (Continued) Classification of credit risk bearing assets The table below represents credit risk exposure on receivables from direct insurance arrangements and reinsurance contracts as at 31 December 2015 and 2014, before taking into account credit enhancements attached Gross Amounts Impairment Allowances Net Amounts KShs 000 KShs 000 KShs 000 % Receivables from direct insurance contracts Neither past due nor impaired 42,123 42,123 9% Past due but not impaired Between 15 and 30 days 147, ,122 31% Between 31 and 60 days 163, ,023 35% Over 60 days 118, ,876 25% Total trade receivables not impaired 471, ,144 Impaired 49,740 (49,740) - 520,884 (49,740) 471,144 Receivables from reinsurance contracts a) Life Assurance Business Neither past due nor impaired 11,113 11,113 3% b) General Insurance Business - Neither past due nor impaired 343, ,230 97% Impaired 13,847 (13,847) - 368,190 (13,847) 354, % Receivables from direct insurance contracts Neither past due nor impaired 36,214-36,214 16% Past due but not impaired Between 15 and 30 days 107, ,938 47% Between 31 and 60 days 53,274-53,274 23% Over 60 days 11,840-11,840 5% Total trade receivables not impaired 209, ,266 Impaired 31,972 (31,972) - 241,238 (31,972) 209,266 Receivables from reinsurance contracts a) Life Assurance Business Neither past due nor impaired 12,724-12,724 5% b) General Insurance Business Neither past due nor impaired 219, ,896 95% 232, ,620 In determining that the receivables are impaired, the factors considered included age of debt, the efforts employed in recovery of debt and the ability of the debtor to pay the amounts due.

52 50 Notes to the financial statements (Continued) 3. MANAGEMENT OF INSURANCE AND FINANCIAL RISK (Continued) Financial risk (Continued) (b) Credit risk (Continued) Credit quality of an intermediary is assessed based on an extensive credit rating scorecard and credit limits are defined in accordance with this assessment. The receivables under the fully performing category, neither past due nor impaired 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. The debt that is impaired has been fully provided for. However, debt collectors as well as management are actively following up on the impaired debt. Management makes regular reviews to assess the degree of compliance with the company s procedures on credit. Exposures to individual policyholders and groups of policyholders are collected within the ongoing monitoring of the controls associated with regulatory solvency. Where there exists significant exposure to individual policyholders, or homogenous groups of policyholders, a financial analysis equivalent to that conducted for reinsurers is carried out by the 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 company 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. (d) Capital management The company maintains an efficient capital structure from a combination of equity shareholders funds and borrowings, consistent with the company s risk profile and the regulatory and market requirements of its business. The company 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 company 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 commensurately with the level of risk. An important aspect of the company 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 company is focused on the creation of value for shareholders. The company 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 company 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 company manages as capital all items that are eligible to be treated as capital for regulatory purposes. The company is regulated by the Insurance Regulatory Authority in Kenya and is subject to insurance solvency regulations which specify the minimum amount and type of capital that must be held in addition to the insurance liabilities. The company 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 company has complied with all externally imposed capital requirements throughout the year. The Kenyan Insurance Acts requires a composite insurance company to hold a minimum paid up capital of KShs 450 million.

53 51 Notes to the financial statements (Continued) 3. MANAGEMENT OF INSURANCE AND FINANCIAL RISK (Continued) Financial risk (Continued) The constitution of capital managed by the company is as shown below: Restated KShs 000 KShs 000 Share capital 450, ,000 Statutory reserve 1,318, ,456 Retained earnings 788, ,515 Equity 2,556,465 1,582,971 Gearing 0% 0% 4. GROSS EARNED PREMIUMS The company is organised into two main divisions, general insurance and life assurance. Life assurance 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 written by the company, analysed into several sub-classes of business based on the nature of the assumed risks. The premium income of the company can be analysed between the main classes of business as shown below: Restated Life assurance business: KShs 000 KShs 000 Ordinary life 912, ,739 Group Life 1,178, ,322 2,090,150 1,152,061 General insurance business: Motor 1,098, ,122 Fire 81,506 56,260 Personal accident 508, ,522 Other 434, ,914 2,122,347 1,295,818 4,212,497 2,447,879

54 52 5. FEES AND COMMISSIONS INCOME Life Assurance Business General Insurance Business Total 2015 Total 2014 KShs'000 KShs'000 KShs'000 KShs'000 Fees 12,843-12,843 11,101 Commissions 10,762 31,342 42,104 88,988 23,605 31,342 54, ,089 Fees income arises from administration charges on retirement benefit schemes. Commissions arise from premium ceded to reinsures. 6. INVESTMENT INCOME Life Assurance Business General Insurance Business Total 2015 Total 2014 KShs'000 KShs'000 KShs'000 KShs'000 Rental income 38,474-38,474 36,114 Fair value gains on investment properties (Note 16) 1,110, ,634 1,306, ,000 Fair value losson quoted investments (38,187) (397) (38,584) 275 Dividends received - 48 Loan interest receivable 15,808-15,808 13,460 Interest on related party advances ,241 Mortgage interest written off (11,655) Interest from staff advances Fair Value gains on unquoted investments ,155 Bank deposit interest 46,726 37,102 83,828 20,289 Interest from government securities- held to maturity 141,756 14, , ,866 Impairment allowances (15,329) (4,800) (20,129) - 1,299, ,503 1,542, ,860 Total 2015 KShs'000 Total 2014 KShs'000 Below is an analysis of investment income earned on financial assets by category of asset; Held-to-maturity investments 156, ,866 At fair value through profit or loss - -quoted shares (38,584) 275 -unquoted shares (11,701) 341,155 Loans and receivables (including cash and bank balances) 91,221 29,402 Dividend income earned on financial assets at fair value through profit or loss - 48 Total interest income earned on financial assets 197, ,746

55 53 7. OTHER INCOME Life Assurance Business General Insurance Business Total 2015 Total 2014 KShs'000 KShs'000 KShs'000 KShs'000 Sundry income 2, ,231 4,887 Sundry income arises from bid offer spread on surrender of unit-linked investment contracts, charges for lost policy documents and sale of COMESA insurance cards 8. GROSS CLAIMS AND POLICYHOLDER BENEFITS PAYABLE Total 2015 KShs'000 Total 2014 KShs'000 i) Long term business Insurance contracts with fixed and guaranteed terms - Death, maturity and surrender benefits 438, ,657 - Increase in policyholder liabilities 1,418, ,896 1,856, ,553 ii) Short term business Claims payable by principal class of business: - Motor 653, ,126 - Fire 6,720 49,077 - Personal Accident 544, ,878 - Others 118,503 86,518 1,323, ,599 3,179,281 1,616, INTEREST PAYABLE ON DEPOSIT ADMINISTRATION CONTRACTS Life Assurance Business General Insurance Business Total 2015 Total 2014 KShs'000 KShs'000 KShs'000 KShs'000 Interest payable 128, , , AMOUNT RECOVERABLE FROM REINSURERS Life Assurance Business General Insurance Business Total 2015 Total 2014 KShs'000 KShs'000 KShs'000 KShs'000 Reinsurance Recoverable 12, , , ,344

56 OPERATING AND OTHER EXPENSES Life Assurance Business General Insurance Business Total 2015 Total 2014 KShs'000 KShs'000 KShs'000 KShs'000 Staff costs 145, , , ,667 Auditors remuneration 1,796 1,783 3,579 3,210 Depreciation (note 15) 11,115 7,877 18,992 16,882 Amortisation of intangible assets (note 17) 4,198 4,198 8,396 6,512 Impairment of premium receivables - 31,614 31,614 20,190 Repairs and maintenance 6,374 2,402 8,776 23,690 Directors emoluments 13,406 11,233 24,639 19,058 Distribution and advertising 178, , , ,497 Rent 43,292 25,011 68,303 49,840 Premium tax 9,185 25,089 34,274 20,414 Printing and stationery 7,932 5,293 13,225 38,274 Business travels 14,055 5,839 19,894 13,136 Legal fees ,357 18,967 11,009 Other expenses 92, , , , , ,389 1,019, ,936 STAFF COSTS Staff costs include the following: - Salaries and wages 135, , , ,688 - Social security benefit costs defined contribution plan expense 9,527 11,811 21,338 20, , , , ,667

57 TAXATION Total 2015 KShs'000 Total 2014 KShs'000 (a) Statement of profit or loss Current taxation charge - - Deferred tax credit/(charge) (note 19) 66,306 21,396 Deferred tax charge on life fund surplus (note 19) (203,014) (79,484) (136,708) (58,088) (b) Statement of Financial Position At 1 January and 31 December (3,384) (3,384) c) Reconciliation of the tax charge is shown below Profit before tax 1,110, ,702 Tax calculated at a tax rate of 30% 333,061 83,311 Tax effect of income not subject to tax (344,430) (91,470) Tax effect of expenses not deductible for tax purposes 11,369 8,159 Deferred tax on tax losses 66,306 21,396 Deferred tax asset not recognised Deferred tax on actuarial surplus (Note 20) (203,014) (79,484) Taxation charge (136,708) (58,088) 13. DIVIDENDS The directors do not recommend the payment of a dividend (2014 Nil). 14. EARNINGS PER SHARE BASIC AND DILUTED Basic earnings per share is calculated based on the profit attributable to shareholders divided by the weighted average number of ordinary shares in issue in each period as follows: Total 2015 KShs'000 Total 2014 KShs'000 Profit attributable to ordinary shareholders 403,497 34,149 Weighted average number of shares (in thousands) 22,500 22,500 Earnings per share (KShs) Basic and diluted There were no dilutive shares during the year.

58 EQUIPMENT a) Life Assurance Business Motor Vehicles Office machinery and equipment Office partitions, furniture and fittings KShs 000 KShs 000 KShs 000 KShs 000 Year ended 31 December 2015 Cost At 1 January ,072 48,109 55, ,033 Additions - 9,468 5,016 14,484 Total At 31 December ,072 57,577 60, ,517 Depreciation At 1 January ,014 38,699 29,503 69,216 Charge for the year 19 6,577 4,519 11,115 At 31 December ,033 45,276 34,022 80,331 Net book amount at 31 December ,301 26,846 39,186 Year ended 31 December 2014 Cost At 1 January ,072 40,389 45,469 86,930 Additions - 7,789 10,390 18,179 Disposals - (69) (7) (76) At 31 December ,072 48,109 55, ,033 Depreciation At 1 January ,558 25,487 60,845 Charge for the year 214 4,210 4,017 8,441 Eliminated on disposals - (69) (1) (70) At 31 December ,014 38,699 29,503 69,216 Net book amount at 31 December ,410 26,349 35,817

59 EQUIPMENT (Continued) b) General Insurance Business Motor Vehicles Office machinery and equipment Office partitions, furniture and fittings KShs 000 KShs 000 KShs 000 KShs 000 Year ended 31 December 2015 Cost At 1 January ,072 48,109 55, ,033 Additions - 4,358 4,059 8,417 Disposals Total At 31 December ,072 52,467 59, ,450 Depreciation At 1 January ,015 38,699 29,503 69,217 Charge for the year 19 3,471 4,387 7,877 Eliminated on disposals At 31 December ,033 42,170 33,890 77,094 Net book amount at 31 December ,297 26,021 36,357 Year ended 31 December 2014 Cost At 1 January ,072 40,389 45,469 86,930 Additions - 7,789 10,390 18,179 Disposals - (69) (7) (76) At 31 December ,072 48,109 55, ,033 Depreciation At 1 January ,558 25,487 60,845 Charge for the year 214 4,210 4,017 8,441 Eliminated on disposals - (69) (1) (70) At 31 December ,014 38,699 29,503 69,216 Net book amount at 31 December ,410 26,349 35,817

60 INVESTMENT PROPERTY Life Assurance Business General Insurance Business Total 2015 Total 2014 KShs 000 KShs 000 KShs 000 KShs 000 As at 31 December ,975, ,000 4,542,000 3,057,000 3,975, ,000 4,542,000 3,057,000 At start of year 2,865, ,000 3,057,000 2,610,000 Additions 178, ,366 - Gains on revaluation(note 6) 1,110, ,634 1,306, ,000 3,975, ,000 4,542,000 3,057,000 Rental income arising from investments properties during the year was KShs 38,474,000 (2014 KShs 35,734,940). The company has contractual obligations under the lease to maintain the properties. Rent income is recorded net of repairs and maintenance costs. The company s investment properties were valued as at 31 December 2015, by BageineKaranjaMbuu Limited, independent valuers, on the basis of the market value for the existing use. In arriving at the value of the of the investment property, the valuer used capitalization of the rental income using the year purchase method. This method involves the projection of a series of cash flows on a real property interest. To this projected cash flow series, a market-derived discount rate is applied to establish the present value of the income stream associated with the asset. The duration of the cash flows and the specific timing of inflows and outflows are determined by events such as rent reviews, lease renewal and related re-letting, redevelopment, or refurbishment. The appropriate duration is typically driven by market behaviour that is a characteristic of the class of real property. Periodic cash flow is typically estimated as gross income less vacancy, non-recoverable expenses, collection losses, lease incentives, maintenance cost, agent and commission costs and other operating and management expenses. The series of periodic net operating income, along with an estimate of the terminal value anticipated at the end of the projection period, is then discounted. Generally, a change in the assumption made for the estimated rental value is accompanied by: i) a directionally similar change in the rent growth per annum and discount rate (and exit yield) ii) an opposite change in the long term vacancy rate Description of valuation techniques used and key inputs to valuation on investment properties as at 31 December 2015: Valuation technique Significant unobservable Inputs Average Capitalised rent income (year purchase) method Net annual rent 38,474,000 Annual rent growth rate 7.5% Discounting rate 13% Description of valuation techniques used and key inputs to valuation on investment properties as at 31 December 2014: Valuation technique Significant unobservable Inputs Average Capitalised rent income (year purchase) method Net annual rent 36,114,000 Annual rent growth rate 7.5% Discounting rate 13%

61 INVESTMENT PROPERTY (Continued) Considering the physical economic parameters in the country and the trends in property markets, management is of the opinion that there will not be significant change in the inputs to the valuation method during the year. The valuation takes into account recent prices of similar properties with adjustments made to reflect any changes in economic conditions since the date of the transactions at those prices. If physical economic parameters had changed by 2 %, with all other variables held constant, the investment property value would increase/decrease by KShs81,307,177 (2014: KShs54,723,919). Valuations are performed on an annual basis and the fair value gains and losses are recorded within profit or loss. The fair valuation basis takes into account the existing use and the tenancies and also considers the normal lease structure for similar buildings. Expenses incurred on rental generating properties was KShs. 17,469,373 (2014: KShs. 17,429,270) while expenses for nonrental generating property was KShs.397,023 (2014: KShs. 378,788). The following table shows an analysis of investment properties recorded at fair value by level of the fair value hierarchy Level 1 Level 2 Level 3 Total Ksh 000 Ksh 000 Ksh 000 Ksh 000 Investment properties - - 4,542,000 4,542, Investment properties - - 3,057,000 3,057,000

62 INTANGIBLE ASSETS Software Life Assurance Business General Insurance Business KShs 000 KShs 000 KShs 000 Year ended 31 December 2015 Cost: At 1 January and 31 December ,530 42,530 85,060 Additions 7,828 7,828 15,656 Total 50,358 50, ,716 Amortisation At 1 January ,854 25,854 51,708 Charge for the year 4,198 4,198 8,396 At 31 December ,052 30,052 60,104 Net Book Value At 31 December ,306 20,306 40,612 Year ended 31 December 2014 Cost: At 1 January and 31 December ,800 22,800 45,600 Additions 19,730 19,730 39,460 42,530 42,530 85,060 Amortisation At 1 January ,598 22,598 45,196 Charge for the year 3,256 3,256 6,512 At 31 December ,854 25,854 51,708 Net Book Value At 31 December ,676 16,676 33,352

63 UNQUOTED INVESTMENT Life Assurance Business General Insurance Business Total 2015 KShs 000 KShs 000 KShs 000 Total 2014 Windsor Investments (Kenya) Limited 1,323, ,951 1,568,266 1,568,267 Oltukai Mara Limited 105, , ,013 1,428, ,951 1,673,579 1,685,280 At start of year 1,368, ,169 1,685,280 1,344,125 Transfers 72,218 (72,218) - - (Loss)/Gains on revaluation (note 6) (11,701) - (11,701) 341,155 1,428, ,951 1,673,579 1,685,280 The investment in subsidiaries represents investment in related companies all incorporated in Kenya as follows: Shareholding Principal activity Oltukai Mara Ltd 66.1% Tourism Windsor Investments (Kenya) Limited 74.7% Land and Hotel industry ====== According to IFRS 10, a parent need not present consolidated financial statements if it meets all the following conditions: (i) it is a wholly-owned subsidiary or is a partially-owned subsidiary of another entity and all its other owners, including those not otherwise entitled to vote, have been informed about, and do not object to, the parent not presenting consolidated financial statements; (ii) its debt or equity instruments are not traded in a public market (a domestic or foreign stock exchange or an over-thecounter market, including local and regional markets); (iii) it did not file, nor is it in the process of filing, its financial statements with a securities commission or other regulatory organisation for the purpose of issuing any class of instruments in a public market; and (iv) its ultimate or any intermediate parent produces consolidated financial statements that are available for public use and comply with IFRS s. The company is a wholly owned subsidiary of Madison Group Limited a company incorporated in Kenya and produces consolidated financial statements available for public use. The financial statements of Oltukai Mara Limited and Windsor Investment (Kenya) Limited will be consolidated at this holding company s level. The address of Madison Group is disclosed on note 44. The table below shows an analysis of financial instruments recorded at fair value by level of the fair value hierarchy; 2015 Level 1 Level 2 Level 3 Total Ksh 000 Ksh 000 Ksh 000 Ksh 000 At fair value through profit or loss - unquoted instruments - - 1,673,579 1,673, At fair value through profit or loss - Unquoted instruments - - 1,685,280 1,685,280

64 UNQUOTED INVESTMENT (Continued) The valuation was done on the basis of cost plus post-acquisition changes in the Company s share of net assets of the subsidiary. The unobservable input used for the fair value measurements included consideration of all information about market participant s observation that was reasonably available. Level Valuation technique Significant unobservable inputs Sensitivity used Effect on fair value Level 3 Cost plus post-acquisition changes in the Company s share of net assets of the subsidiary Open market value of land and properties 18% 301,244,220 If open market value of land and properties had to increase/decrease by 18%, with all other variables held constant, the fair value of unquoted investments would increase/decrease by KShs 301,244,220(2014: KShs 303,350,400). 19. DEFERRED TAX Deferred tax is calculated, in full, on all temporary differences under the liability method using the principal rate of 30% (2014: 30%) 2015 At 1 January Recognised in At Restated profit or loss 31 December KShs '000 KShs '000 KShs '000 The net deferred tax liability is attributable to the following items: Accelerated depreciation for tax purposes ,245 Leave provisions Revaluation gains on property - (9,832) (9,832) Tax losses 202,185 (106,964) 95,221 Deferred tax asset not recognised (181,866) 181,866 - Deferred tax life fund surplus (320,766) (203,014) (523,780) (299,370) (136,707) (436,077) Deferred tax asset 21,396 74,902 96,298 Deferred tax liability (320,766) (211,609) (532,375) 2014 Restated The net deferred tax liability is attributable to the following items: Accelerated depreciation for tax purposes 475 (86) 389 Leave provisions Tax losses 180,716 21, ,185 Deferred tax asset not recognised (181,866) - (181,866) Deferred tax life fund surplus (241,282) (79,484) (320,766) (241,282) (58,088) (299,370) Deferred tax asset - 21,396 21,396 Deferred tax liability (241,282) (79,484) (320,766)

65 LOANS RECEIVABLE Life Assurance a) Mortgage loans KSh 000 KSh 000 At 1 January 35,095 36,373 Loan advanced 5,000 10,000 Interest charged 859 3,081 Loan repayments Provisions for impairment (775) (27,456) (2,704) Loans impaired - (11,655) At 31 December 12,723 35,095 Maturity profile of mortgage loans: Loans maturing: Within 1 year 6,752 14,945 Between 1-5 years 3,971 19,759 Over 5 years 2, Past due but not impaired 12,723 35,095 b) Policy loans At 1 January 99, ,669 Loans advanced 2,765 5,287 Interest charged 14,949 10,379 Loan repayments (8,135) (8,306) Impaired loans 109, ,029 (7,503) (8,355) At 31 December 101,750 99,674 Maturity profile of policy loans: Loans maturing: Within 1 year 8,505 8,632 Between 1-5 years 93,245 91, ,750 99,674 - Mortgage loans 12,723 35,095 - Policy loans 101,750 99,674 Total loans receivable at 31 December 114, ,769

66 LOANS RECEIVABLE Life Assurance (Continued) c) Impairment of loans Mortgage Loans Policy Loans KShs '000 KShs '000 KShs '000 KShs '000 At 1 January Additional provision 775 7,503 8,278 20,020 Impaired - (7,503) (7,503) (20,020) At 31 December d) Ageing analysis Gross Impairment Net 2015 Amounts allowances amounts KShs 000 KShs 000 KShs 000 Neither past due nor impaired - Within 1 year 10,943-10,943 Between 1-5 years 97,216-97,216 Over 5 years 2,000-2,000 Past due but not impaired Over 1 year 4,314-4,314 Total loans receivables not impaired 114, ,473 Impaired 8,278 (8,278) - 122,751 (8,278) 114, Neither past due nor impaired Within 1 year 19,263-19,263 Between 1-5 years 96,626-96,626 Over 5 years Past due but not impaired Over 1 year 18,489-18,489 Total loans receivables not impaired 134, ,769 Impaired 20,020 (20,020) - 154,789 (20,020) 134,769 There is no concentration of credit risk with respect to mortgage and policy loans. The mortgage and policy loans are secured by mortgaged property and policies respectively.the weighted average effective interest rates on the mortgage and policy loans was 12.5% and 16% respectively (2014: 12.5% and 16%). In the opinion of the directors the current level of provisions provides a prudent assessment of the quality the mortgage and policy loans receivable.

67 QUOTED INVESTMENTS Life Assurance Business General Insurance Business Total 2015 Total 2014 KShs'000 KShs'000 KShs'000 KShs'000 At start of year 101, ,868 68,692 Additions 130,874 9, ,108 77,054 Disposals (11,119) (11,119) (42,816) Fair value gains (38,187 (397) (38,584 (1,062) 183,436 8, , ,868 The table below shows an analysis of financial instruments recorded at fair value by level of the fair value hierarchy Level 1 Level 2 Level 3 Total Ksh 000 Ksh 000 Ksh 000 Ksh 000 At fair value through profit or loss - Quoted investments 192, , Quoted investments 101, , GOVERNMENT SECURITIES Life Assurance Business General Insurance Business Total 2015 Total 2014 KShs'000 KShs'000 KShs'000 KShs'000 Treasury bills loans and receivables Maturing within 90 days after the reporting date: Redemption value 20,000 21,100 41, ,000 Less unearned interest (2,096) (2,410) (4,506) (6,998) 17,904 18,690 36, ,002 Treasury bonds held to maturity: Maturing within one year 9,058 20,236 29, ,397 Maturing within 2-5 years 101,238 49, ,685 23,536 Maturing after 5 years 1,197, ,890 1,336, ,163 1,308, ,573 1,516, ,096 1,326, ,263 1,553,451 1,051,098 Treasury bonds and treasury bills amounting to KShs million424,862,870(2014 KShs249.8 million) are held by the Central Bank of Kenya under lien in accordance with Section 32 of the Kenyan Insurance Act. The effective interest rate on Treasury bills as 31 December 2015 was 12.03% % per annum ( %).The effective interest rate on Treasury bonds as at 31 December 2015 was 15.25% per annum ( %).

68 RECEIVABLES ARISING OUT OF REINSURANCE ARRANGEMENTS Life Assurance Business General Insurance Business Total 2015 Total 2014 KShs 000 KShs 000 KShs 000 KShs 000 Gross amounts 11, , , ,620 Less impairment allowances - (13,847) (13,847) - 11, , , , RECEIVABLES ARISING OUT OF DIRECT INSURANCE ARRANGEMENTS Gross amounts - 520, , ,238 Less impairment allowances - (49,740) (49,740) (31,972) - 471, , ,266 As at 31 December 2015, receivables arising out of direct insurance arrangements amounting to KShs 49,740,000 (2014: KShs31,972,000) were fully impaired and provided for. Movements in the provisions were as follows: KShs KShs At 1 January (31,972) (11,782) Additional provision (Note 11) (17,768) (20,190) At 31 December (49,740) (31,972) 25. REINSURERS SHARE OF INSURANCE LIABILITIES Life Assurance Business KShs'000 General Insurance Business KShs'000 Total 2015 Total 2014 Reinsurers share of: - unearned premium (note 37) - 56,092 56, ,647 - notified claims outstanding (note 34 (a)) - 67,856 67, ,748 - claims incurred but not reported (note 34 (a) - 8,721 8,721 16,318 - long-term insurance business (note 34 (b)) 147, , , , , , ,918

69 DEFERRED ACQUISITION COSTS KShs KShs At beginning of year 70,513 38,993 Expenses deferred 107,886 83,381 Amortisation (63,155) (51,861) At end of year 115,244 70, OTHER RECEIVABLES Life Assurance Business KShs'000 General Insurance Business KShs'000 Total 2015 Restated Total 2014 Due from related companies (Note 44) 8,418-8, ,784 Prepayments - 6,296 6,296 3,146 Staff debtors 4,906 2,626 7,532 5,745 Rent debtors 7,045 1,692 8,737 4,767 Deposits 6,831 2,498 9,329 10,139 Agent advances 6, ,881 34,502 Sundry debtors 29,342 9,037 38,379 74,031 Insurance premium finance receivables - 51,127 51,127 70,868 62,545 74, , ,982 Terms and conditions of other receivables. Due from related companies: As per the agreed repayment periods within one year. Interest bearing. Prepayments: The prepayment period not more than 90 days. Noninterest bearing Staff debtors: Within six months. Noninterest bearing Rent debtors: Within the current rent quarter. Noninterest bearing Deposits: As per the agreed duration of the deposit contract. Noninterest bearing Sundry debtors: Within one month. Noninterest bearing

70 PRIOR YEAR ADJUSTMENT (a) Prior year adjustment for annuities The company has over the years accounted for annuity business under the deposit administration contacts. A review of the annuity contracts shows that annuity contracts are insurance contracts, since there is an uncertain future event, that is the mortality of the annuitant. The company changed its accounting for annuities from being recognised under the deposit administration contacts, to being recognised under insurance contract liabilities witihin the life business with effect from 1 January 2015 in order to conform with International Financial Reporting Standards and to ensure comparability of financial statements with other insurance companies transacting annuity business. The resulting reclassifications, have been disclosed as prior period adjustments. As previously Adjustment As restated stated 2013 KShs 000 KShs 000 KShs 000 Statement of profit or loss and other comprehensive income Net earned premiums (1,514,437) (138,439) (1,652,876) Net claims and benefits 1,390, ,439 1,528,660 Statement of financial position Insurance contract liabilities (1,704,781) (319,509) (2,024,290) Payables under deposit administration contracts (2,407,250) 319,509 (2,087,741) 2014 Statement of profit or loss and other comprehensive income Net earned premiums (1,787,053) (255,017) (2,042,070) Net claims and benefits 1,306, ,017 1,562,000 Statement of financial position Insurance contract liabilities (1,942,569) (503,079) (2,445,648) Payables under deposit administration contracts (2,767,193) 503,079 (2,264,114)

71 PRIOR YEAR ADJUSTMENT (Continued) (b) Overstated other receivables In the year 2012 and prior years, the interdivision balances between the Life and General Business lines were not properly reconciled to expenses, thereby resulting in an unreconciled balance of KShs 298 million posted under trade and other receivables and offset against amounts due to related parties of KShs 300 million. These amounts were subsequently reconciledto expenses between Life and General Business, thereby resulting in changes in the profits for the years, and hence a decrease in the Statutory Reserve amounting to Kshs 205 million, in the Life Business and a decrease in the retained earnings amounting to KShs. 93 million in the General Business. Other payables increased by Kshs 300 million and trade and other receivables increased by a net of KShs. 2 million. The resulting adjustments have been disclosed as prior period adjustments. The effect of the above restatements has been disclosed from the perspective of the company as follows: As previously stated Adjustment As restated 2013 KShs 000 KShs 000 KShs 000 Statement of financial position Deferred tax liability (302,712) 61,430 (241,282) Other receivables 251,095 2, ,288 Other Payables (88,260) (300,000) (388,260) Statutory reserve (706,327) 143,335 (562,992) Retained earnings (443,407) 93,042 (350,365) Statement of changes in equity Statutory reserve (706,327) 143,335 (562,992) Retained earnings (443,407) 93,042 (350,365) 2014 Statement of financial position Deferred tax liability (382,196) 61,430 (320,766) Trade and other receivables 301,789 2, ,982 Other payables (113,255) (300,000) (413,255) Statutory reserve (891,791) 143,335 (748,456) Revenue reserve (477,557) 93,042 (384,515) Statement of changes in equity Statutory reserve (891,791) 143,335 (748,456) Revenue reserve (477,557) 93,042 (384,515)

72 OTHER INVESTMENTS Life Assurance Business General Insurance Business Total 2015 Total 2014 KShs'000 KShs'000 KShs'000 KShs'000 Bank deposits 427, , , ,981 Commercial paper 83,161 18, ,679 19,598 Corporate bonds 88,164 25, ,252 72,992 Unit trusts 30,794-30,794 30,512 Less impairment allowances (3,628) (4,800) (8,428) - 626, ,868 1,006, ,083 These are various investments such as, corporate bonds and deposits in market funds of which NIC Bank Limited and Equity Bank Limited are the key holders. These investments are on call and are managed by Madison Asset Management Services Limited as the fund managers. The effective interest rate on Bank deposits as at 31 December 2015 was 13.01% ( %), on Corporate bonds as at 31 December 2015 was 13.49% ( %) and on Unit trusts as at 31 December 2015 was 13.62% ( %). 30. SHARE CAPITAL Authorised, issued and fully paid: 22,500,000 shares of KShs 20 each No. of shares KShs 000 KShs 000 Life assurance business 7,500, , ,000 General insurance business 15,000, , ,000 Total 22,500, , , STATUTORY RESERVE The statutory reserve represents the surplus on the life assurance business which is not distributable as dividends as per the requirements ofthe Kenyan Insurance Act. Transfer from statutory reserves relates to the proportion of the life assurance business surplus which is distributable as dividends and therefore transferred to revenue reserve. The Act restricts the amounts of surplus of the long-term business available for distribution to shareholders to 30% of the accumulated profits of the Long term business Movements in the statutory reserve are shown in the statement of changes in equity on page RETAINED EARNINGS The retained earnings balance represents the amount available for dividend distribution to the shareholders of the Company. Retained earnings include fair value gains on revaluation of investment properties which are unrealised and whose distribution is subject to restrictions imposed by the Kenya Insurance Act. At 31 December 2015, the unrealised fair value gains on revaluation of investment properties amounted to KShs. 1,306,634,000 (2014: KShs. 447,000,000).

73 OVER DRAFT FACILITY Authorised, issued and fully paid: 22,500,000 shares of KShs 20 each KShs 000 KShs % bank overdraft (General Business) - 5,000 The bank overdraft is subject to an average variable interest rate of 5.8% (2014:5.8%) the bank overdraft is secured by a charge over certain Company assets. As at the reporting date, the company did not have an overdraft facility (2014: KShs. 5,000,000) 34. INSURANCE CONTRACT LIABILITIES Restated KShs 000 KShs 000 General insurance contracts - claims reported and claims handling expenses(note 34(a)) 252, ,717 - claims incurred but not reported (note 34(a)) 159,439 87,507 Total short term 412, ,224 Long term insurance contracts - claims reported and claims handling expenses 96,044 75,821 - actuarial value of long term liabilities 3,315,307 1,827,603 Total long term 3,411,351 1,903,424 Total gross insurance liabilities 3,823,387 2,445,648 Movements in insurance liabilities and reinsurance assets are shown in note 35. General insurance contracts: Gross claims reported, claims handling expenses liabilities and the liability for claims incurred but not reported are net of expected recoveries from salvage and subrogation

74 MOVEMENTS IN INSURANCE LIABILITIES AND REINSURANCE ASSETS a) General insurance business 2015 KShs KShs 000 Gross Re-insurance Net Gross Reinsurance Net Notified claims 454,717 (250,748) 203, ,181 (280,707) 229,474 Incurred but not reported 87,507 (16,318) 71,189 45,359 (24,957) 20,402 Total at beginning of year 542,224 (267,066) 275, ,540 (305,664) 249,876 Cash paid for claims settled in year (1,262,818) 254,751 (1,008,067) (847,599) 289,298 (558,301) Increase in liabilities 1,132,630 (64,262) 1,068, ,285 (250,702) 583,583 Total at end of year 412,036 (76,577) 335, ,226 (267,068) 275,158 Notified claims 252,597 (67,856) 184, ,717 (250,748) 203,969 Incurred but not reported 159,439 (8,721) 150,718 87,507 (16,318) 71,190 Total at the end of year 412,036 (76,577) 335, ,224 (267,066) 275,159 b) Life Assurance business 2015 KShs KShs 000 Gross Re-insurance Net Gross Reinsurance Net At 1 January 1,903,424 (106,205) 1,797,219 1,468,750 (75,634) 1,393,116 Premiums received 2,090,150 (53,812) 2,036,338 1,152,061 (40,617) 1,111,444 Liabilities released for payments (438,038) 12,310 (425,728) (346,657) 10,046 (336,611) Changes in actuarial liabilities (144,185) - (144,185) (370,731) - (370,731) At 31 December 3,411,351 (147,707) 3,263,644 1,903,423 (106,205) 1,797, 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. Restated KShs 000 KShs 000 At 1 January 2,264,114 2,087,741 Pension fund deposits received 260, ,445 Surrenders, annuities paid and commissions (444,987) (288,052) Interest payable to policyholders 116, ,980 At 31 December 2,196,077 2,264,114

75 UNIT-LINKED INVESTMENT CONTRACTS Unit-linked investment contracts are designated as contracts at fair value through profit or loss. The benefits offered under these contracts are based on the return of a portfolio of equities and debt securities. The maturity value of the financial liabilities is determined by the fair value of the linked assets. There will be no difference between the carrying amount and the maturity amount at maturity date KShs 000 KShs 000 At 1 January 378, ,030 Contributions received 57,747 69,666 Surrenders (144,080) (121,583) Change in actuarial valuation (28,076) 14,988 At 31 December 263, ,101 Fair value is calculated as the number of units allocated to the policyholder in each unit-linked fund multiplied by the unit-price of those funds at the reporting date. The fund assets and fund liabilities used to determine the unit prices at the reporting date are valued on a basis consistent with their measurement basis in the statement of financial position. The table below shows an analysis of unit linked investment contracts recorded at fair value by level of the fair value hierarchy; Level 1 Level 2 Level 3 Total 2015 Ksh 000 Ksh 000 Ksh 000 Ksh 000 At fair value through profit or loss - unit-linked investments , , At fair value through profit or loss - unit-linked investments , ,101 Level Valuation technique Significant unobservable inputs Sensitivity used Effect on fair value Level 3 Number of units allocated to the policyholder in each unit-linked fund multiplied by the unit-price Market value of assets of the fund 5% 13,184 If the unitprice had to increase/decrease by 5%, with all other variables held constant, the fair value of unit linked liabilities would increase/decrease by KShs. 13,184,600 (2014: KShs18,905,060).

76 PROVISION FOR UNEARNED PREMIUM Movement in unearned premium reserves (UPR) is shown below: Gross Re-insurance Net Gross Reinsurance Net KShs 000 KShs 000 KShs 000 KShs 000 KShs 000 KShs 000 At 1 January 659,865 (179,647) 480, ,747 (111,433) 257,314 Premium written in the year 2,683,187 (171,232) 2,511,955 1,518,722 (365,184) 1,153,538 Premium earned during the year (2,245,902) 294,787 (1,951,115) (1,227,604) 296,970 (930,634) At 31 December 1,097,150 (56,092) 1,041, ,865 (179,647) 480, PAYABLES ARISING OUT OF REINSURANCE ARRANGEMENTS Life Assurance Business General Insurance Business Total 2015 Total 2014 KShs 000 KShs 000 KShs 000 KShs 000 Gross amounts 29,895 87, , , OTHER PAYABLES Life Assurance Business General Insurance Business Total 2015 Total 2014 KShs 000 KShs 000 KShs 000 KShs 000 Amounts due to related companies (Note 44(i)) - 15,906 15, ,000 Accrued expenses 11, ,163 20,118 Other liabilities 84,436 18, ,226 80,107 Terms and conditions of trade and other payables 95,507 34, , ,225 Due from related companies: Accrued expenses: Other liabilities: Within one year. Interest bearing. Within six months. Non-interest bearing. Within six months. Non-interest bearing. 41. ACTUARIAL VALUE OF POLICYHOLDER LIABILITIES The actuarial valuation of the life fund was carried out by The Alexander Forbes Financial Services Limited who are statutory actuaries and consultants. As at 31 December 2015, their actuarial review revealed that the life fund had an actuarial surplus of KShs1,391,806,820 (2014-1,261,010,656) before declaration of the interest and bonuses to policyholders. The statutory actuaries do not recommend a transfer from the life fund to retained earnings. (2014: Nil)

77 (a) NOTES TO THE STATEMENT OF CASHFLOWS KShs 000 KShs 000 Reconciliation of profit before tax to cash used in operations: Profit before tax: 1,110, ,702 Adjustments for: Depreciation (Note 15) 18,992 16,882 Amortisation of intangible asset (Note 17) 8,396 6,513 Gain on sale of equipment - 12 Loan interest (Note 20 (a) & (b)) (15,808) (13,460) Impairment of mortgage loans Policy loan surrenders (Note 20 (b)) 7,503 8,355 Fair value loss/(gain) on unquoted investments (Note 18) 11,701 (341,155) Fair value loss/(gain) on quoted investments (Note 21) 38,584 1,062 Impairment of deposits 8,428 - Fair value gain on investment property (Note 16) (1,306,634) (447,000) Changes in: - Insurance contract liabilities 1,377, ,358 - payables under deposit administration contracts (68,037) 176,373 - unit linked investment contracts (114,409) (36,929) - provision for unearned premium 437, ,118 - payables arising from reinsurance arrangements 10,733 38,186 - other payables (282,930) 24,965 - receivables arising out of reinsurance arrangements (121,723) 47,059 - receivables arising out of direct insurance arrangements (261,878) 67,340 - reinsurers share of insurance liabilities 272,541 (60,187) - deferred acquisition costs (43,922) (32,330) - other receivables 167,283 (50,693) Cash used in operations 1,254, ,171 (b) CASH AND CASH EQUIVALENTS For the purposes of the statement of cash flows, cash and cash equivalents comprise the following: KShs 000 KShs 000 Cash and bank balances 61,319 40,531 Deposits with financial institutions 768, ,981 Treasury bills maturing within 90 days of the date of acquisition 36, , , ,515

78 CONTINGENT LIABILITIES a) Capital commitments and operating lease The Company has no capital commitments at the reporting date. The Company has entered into commercial property leases on its investment property portfolio, consisting of the Company s surplus office buildings. These non cancellable leases have remaining terms of between one and five years. All leases include a clause to enable upward revision of the rental charge on an annual basis according to prevailing market conditions. Future minimum lease rentals receivable under non cancellable operating leases as at 31 December are as follows: The company as a lessor: Net rental income earned during the year was KShs 38,474,000(2014 KShs. 35,734,940). At the reporting date, the company had contracted with tenants for the following future lease receivables: KShs 000 KShs 000 Within one year 18,376 16,197 Within the second to fifth year inclusive 113, ,553 Later than five years 18,055 15, , ,713 Leases are negotiated for an average term of six years. The company as a lessee: The Company has entered into commercial leases on certain property and equipment. These leases have an average life of between three and six years, with a renewal option included in the contracts. There are no restrictions placed upon the Company by entering into the leases. Future minimum rental payable under non cancellable operating leasesasat31 December2015 are as follows: KShs 000 KShs 000 Within one year 36,199 1,042 Within the second to fifth year inclusive 92,016 58,117 Later than five years 4,036 10, ,251 69,417 Operating lease payments represent rental payable by the company for certain of its office premises.

79 RELATED PARTIES The company is wholly owned by Madison Group Limited. There are other companies, which are related to Madison Insurance Company Kenya Limited since they are members of Madison Group Limited. Oltukai Mara Limited and Windsor Investment (Kenya) Limited are subsidiaries of Madison Insurance Company Kenya Limited. The Company enter into transactions with its related parties and key management personnel in the normal course of business. The sales to and purchases from related parties are made at normal market prices. Details of significant transactions carried out during the year with related parties are as follows: a) Transactions with related parties KShs 000 KShs 000 Sale of Insurance and investment contracts 7,200 4,535 Claims incurred on insurance contracts 169 2,119 b). Balances with related parties 2015 KShs 000 Restated 2014 KShs 000 i) Receivables from and payables to related parties Receivables from related companies (note 27) Oltukai Mara Limited - 20,102 Amedo Centres Kenya Limited - 9,600 Madison Asset Management Services Limited 7,138 3,868 Madison Group Limited 1,280 67,214 8, ,784 Payables to related companies (note 40) 15, ,000 Outstanding balances as at the reporting date are unsecured and interest free. Settlement will take place in cash. There were no doubtful debts as at the reporting date and no bad debt expense in the year. (2015: Nil) KShs 000 KShs 000 ii) Mortgage loans to related parties Vitas Limited Jimflo Limited 2,810 14,010 2,810 14,202 The loan to related party is payable in full by 30 June The loan is secured by a charge on property and interest is charged at 10% p.a.

80 RELATED PARTIES (Continued) c) Compensation to key management personnel Key management personnel of the Company include all directors and senior management. The summary compensation of the key management personnel for the year is as follow: KShs 000 KShs 000 Directors remuneration 22,466 19,058 Short term benefits fees for services as directors 2,173 2,053 Key management remuneration 33,542 31,093 58,181 52,204

81 STATEMENT OF FINANCIAL POSTION CLASSIFICATION Below is a disclosure of statements of financial position presenting the current and non-current assets and the current and non-current liabilities; Life General Restated assurance insurance Total Total business Business Notes KShs 000 KShs 000 KShs 000 KShs 000 Non-Current Assets Equipment 15 39,186 36,357 75,543 71,634 Investment property 16 3,975, ,000 4,542,000 3,057,000 Intangible assets 17 20,306 20,306 40,612 33,352 Unquoted Investments in subsidiaries 18 1,428, ,951 1,673,579 1,685,280 Deferred tax asset 19 96,298-96,298 21,396 Loans receivable 20 99,216-99, ,192 Quoted Investments ,436 8, , ,868 Government securities 22 1,308, ,573 1,516, ,698 Total non-current assets 7,150,354 1,086,024 8,236,378 5,785,420 Current Assets Loans receivable 20 15,257-15,257 23,577 Government securities 22 17,904 18,690 36, ,400 Receivables arising out of reinsurance arrangements 23 11, , , ,620 Tax recoverable 12-3,384 3,384 3,384 Receivables arising out of direct insurance arrangements , , ,266 Reinsurers share of insurance liabilities , , , ,918 Deferred acquisition costs , ,244 71,323 Other receivables 27 62,545 74, , ,980 Other investments , ,868 1,006, ,083 Cash and bank balances 19,493 41,826 61,319 40,531 Total current assets 900,401 1,580,210 2,480,611 2,394,082 Total assets 8,050,755 2,666,234 10,716,989 8,179,502 Non-Current Liabilities Insurance contract liabilities 34 3,326,039-3,326,039 1,676,896 Payable under deposit administration contracts 36 2,196,077-2,196,077 2,264,114 Unit-linked investment contracts , , ,786 Deferred tax liability ,780 8, , ,766 Total non-current liabilities 6,290,939 8,595 6,299,534 4,575,562 Current Liabilities Insurance contract liabilities 34 85, , , ,752 Unit-linked investment contracts 37 18,649-18,649 64,315 Provision for unearned premium 38-1,097,150 1,097, ,865 Payables arising from reinsurance arrangements 39 29,895 87, , ,814 Other payables 40 95,507 34, , ,225 Total current liabilities 229,363 1,631,626 1,860,989 2,012,971 Total liabilities 6,520,302 1,640,221 8,160,523 6,588,533

82 INCORPORATION AND REGISTERED OFFICE The company is incorporated in Kenya under the Companies Act and is domiciled in Kenya. The address of its registered office is Madison Insurance House, Upper Hill Road, and P. O. Box Nairobi, Kenya. The holding company is Madison Group Limited a company domiciled and incorporated in Kenya under the Companies Act. The address of its registered office is Madison Insurance House, Upper Hill Road, P. O Box Nairobi, Kenya. 47. CURRENCY The financial statements are presented in Kenya Shillings Thousands (KShs 000). 48. EVENTS AFTER REPORTING DATE The financial statements are adjusted to reflect events that occurred between the reporting date and the date when the financial statements are authorised for issue, provided they give evidence of conditions that existed at the reporting date. Events that are indicative of conditions that arose after the reporting date are disclosed, but do not result in an adjustment of the financial statements themselves. The directors are not aware of any material adjusting or non-adjusting events after the reporting date which should be disclosed in this report.

83 81 APPENDIX I Ordinary Group Deposit Total Life Life Administration 2015 KShs 000 KShs 000 KShs 000 KShs 000 Gross earned premiums 912,087 1,178,063-2,090,150 Reinsurance premium ceded - (53,812) - (53,812) Net earned premiums 912,087 1,124,251-2,036,338 Investment income 631, , ,545 1,299,261 Other income 2, ,514 Commissions earned - 10,762 12,843 23,605 Total Income 633, , ,388 1,325,380 Life and health claims 6,711 51,893-58,604 Surrenders and annuity payments 186, , ,433 Less: amounts recoverable from reinsurers - (12,310) - (12,310) Interest payable to policy holders , ,496 Change in actuarial liability 421,706 1,024,498 (28,077) 1,418,127 Net claims and policyholder benefits payable 614,773 1,257, ,419 1,972,350 Commissions payable 129,193 48,726 6, ,870 Operating and other expenses 394, ,725 28, ,785 Total expenses 523, ,451 35, ,655 Profit before tax 406, ,010 42, ,713 Tax Charge (25,791) (68,103) (12,822) (106,716) Profit for the year 381, ,907 29, ,997

84 82 APPENDIX II Ordinary Group Deposit Total Life Life Administration 2014 KShs 000 KShs 000 KShs 000 KShs 000 Gross earned premiums 779, ,322-1,152,061 Reinsurance premium ceded - (40,617) - (40,617) - Net earned premiums 779, ,705-1,111,444 Investment income 497,470 31, , ,047 Other income 4, ,262 Commissions earned - 7,612 11,101 18,713 Total Income 501,732 38, , ,022 Life and health claims 11,124 35,176-46,300 Surrenders and annuity payments 236,281 64, ,357 Less: amounts recoverable from reinsurers - (10,046) - (10,046) Interest payable to policy holders , ,192 Change in actuarial liability 242, ,654 14, ,896 Net claims and policyholder benefits payable 489, , ,180 1,003,699 Operating and other expenses 416,042 89,510 46, ,308 Commissions payable 141,195 5,456 8, ,511 Total expenses 557,237 94,966 55, ,819 Profit before tax 234,575 21,594 8, ,948 Tax Charge (70,372) (6,478) (2,634) (79,484) Profit for the year 164,203 15,116 6, ,464

85 83 APPENDIX III Personal Fire Fire Motor Motor Accident Dec-15 Dec-14 Engineering Domestic Industrial Liability Marine Private Commercial Medical &Others Theft WIBA Misc Total Total Class of insurance Shs'000 Shs'000 Shs'000 Shs'000 Shs'000 Shs'000 Shs'000 Shs'000 Shs'000 Shs'000 Shs'000 Shs000 Shs 000 Shs 000 Gross Premium Written 61,964 29,963 67,754 89,658 7, , , ,071 23,323 17,494 35, ,781 2,683,187 1,518,721 Change in Gross UPR (12,515) (11,298) (4,913) 10,458 (203) (79,636) (231,060) (188,382) (5,905) (38,418) (560,840) (222,707) Gross Earned Premium 49,449 18,665 62, ,116 7, , , ,689 23,360 18,489 29, ,363 2,122,347 1,296,014 Less: Reinsurance Payable (35,791) (1,023) (35,031) (13,739) (4,486) (7,053) (47,773) (2,743) (4,824) (35) (1,320) (17,414) (171,232) (365,388) Net Earned Premiums 13,658 17,642 27,810 86,377 2, , , ,946 18,536 18,453 28, ,949 1,951, ,626 Claims Gross Claims paid 2, ,391 47,399 1, , , ,680 4,043 4,435 3,435 48,844 1,262, ,316 Change in gross o/s claims (391) 870 3,779 7, (21,239) 29,892 43,921 (6,840) (6,047) 5,300 3,547 60,299 25,283 Reinsurance recoverable (1,737) (19) (343) (7) (204) (94,094) (41,745) (114,112) (420) (100) - (1,970) (254,751) (289,298) Net Claims Incurred 517 1,531 4,827 54,548 1, , , ,489 (3,217) (1,712) 8,735 50,421 1,068, ,301 Commissions Receivable (9,482) (457) (13,028) (3,420) (737) (621) (700) - (1,340) - (27) (1,530) (31,342) (81,376) Commissions Payable 12,772 4,921 15,713 21,886 1,434 39,261 53,665 49,096 2,664 2,254 6,071 23, , ,757 Management Expenses 5,240 5,795 6,552 15, , , ,266 3,704 3,496 6,820 50, , ,628 Total Expenses and Commissions 8,530 10,259 9,237 33,667 1, , , ,362 5,028 5,750 12,864 72, , ,009 Underwriting profit(loss) 4,611 5,852 13,746 (1,838) (399) 15, ,216 (123,905) 16,725 14,415 6,560 89, ,652 (109,684)

86 84 APPENDIX IV Personal Fire Fire Motor Motor Accident Dec-14 Dec-13 Engineering Domestic Industrial Liability Marine Private Commercial Medical &Others Theft WIBA Misc Total Total Class of insurance Shs'000 Shs'000 Shs'000 Shs'000 Shs'000 Shs'000 Shs'000 Shs'000 Shs'000 Shs'000 Shs'000 Shs000 Shs 000 Shs 000 Gross Premium Written 18,373 21,137 57,883 88,619 9, , , ,628 14,448 19,824 28,136 72,555 1,518,721 1,096,411 Change in Gross UPR (2,401) (14,638) (8,122) (16,183) (183) (68,865) (98,382) (28,602) 8,048 (4,093) (6,906) 17,620 (222,707) (32,323) Gross Earned Premium 15,972 6,499 49,761 72,436 9, , , ,026 22,496 15,731 21,230 90,175 1,296,014 1,064,088 Less: Reinsurance Payable (6,197) (4,161) (43,904) (9,889) (5,356) (1,292) (998) (279,579) (4,319) 7 (588) (9,112) (365,388) (297,142) Net Earned Premiums 9,775 2,338 5,857 62,547 4, , , ,447 18,177 15,738 20,642 81, , ,946 Net written premiums 12,176 16,976 13,979 78,730 4, , , ,251 10,129 19,831 27,549 63,444 1,153, ,269 Claims - - Gross Claims paid 2,681 2,649 48,699 13, , , ,748 5,301 2,373 11,894 20, , ,925 Change in gross o/s claims Reinsurance recoverable 1, (2,438) 20, ,957 (20,716) (4,681) 12,510 4,729 2,816 5,041 25,283 43, (27,149) (200) - (21,791) (14,208) (225,950) (289,298) (252,142) Net Claims Incurred 4,420 2,816 19,112 33, ,737 94, ,117 17,811 7,102 14,710 25, , ,094 Commissions Receivable (1,887) (470) (15,425) (2,799) (50) (3) (2,006) (55,875) (1,296) - (175) (1,390) (81,376) (71,757) Commissions Payable 5,064 4,080 9,910 17,126 1,643 23,232 42,550 46,563 1,030 1,880 4,563 7, , ,538 Management Expenses 4,823 5,548 15,193 23,260 2,559 71, , ,216 3,792 5,203 7,385 19, , ,500 Total Expenses and Commissions 8,000 9,158 9,678 37,587 4,152 94, , ,904 3,526 7,083 11,773 24, , ,281 Underwriting profit(loss) (2,645) (9,636) (22,933) (8,968) (657) (71,845) 98,173 (114,574) (3,160) 1,553 (5,841) 30,849 (109,684) (11,429)

87 85 Notes

88 86

89 87 Our Branch Network NAIROBI REGION: HEAD OFFICE Upper Hill Close P.O Box Nairobi Tel: , Mobile: BURUBURU BRANCH Buruburu Business Complex, 4th Floor, Mumias South Road P.O. Box Nairobi Tel: CITY SQUARE BRANCH Finance House, 8th Floor, Loita Street P.O. Box Nairobi Tel: , INDUSTRIAL AREA BRANCH Kamkis Building, 3rd Floor P.O. Box , Nairobi Tel: , MOI AVENUE BRANCH Contrust House, 2nd Floor, Moi Avenue P.O. Box Nairobi Tel: , NGONG ROAD BRANCH Morning Side Office Park, Ground Floor, Ngong Road P.O. Box Nairobi Tel: WESTLANDS BRANCH Reliance Centre, 4th Floor Woodvale Groove Westlands, 4th Floor P.O Box KITENGELA BRANCH Kitengela Capital Centre, 2nd Floor, Namanga Road P.O. Box Nairobi Tel: MACHAKOS BRANCH Kiamba Mall, 4th Floor Ngei Road P.O. Box Machakos Tel: ONGATA RONGAI BRANCH Tyme Arcade, 2nd Floor Room 201, Magadi Road WESTERN REGION: ELDORET BRANCH Kiptagich House, 8th Floor, Uganda Road P.O. Box , Eldoret Tel: / KAKAMEGA BRANCH Mega Mall Plaza, 2nd Floor. Kakamega-Kisumu Highway Opposite Muliro Gardens P.O. Box Kakamega Tel: KERICHO BRANCH AGC Bethany Centre, 2nd Floor P.O. Box Kericho Tel: KISII BRANCH Ouru Complex, 2nd Floor, Kisii-Kisumu Road P.O. Box Kisii Tel: KISUMU BRANCH Re-insurance Plaza, 5th and 6th Floor, Kenyatta Highway P.O. Box Kisumu Tel: , KITALE BRANCH Nakumatt Mega Centre, 1st Floor, Makasembo Road P.O. Box Kitale Tel: , HOMABAY BRANCH Along Bank Road Opp Maseno University Tel /1 COAST REGION: MALINDI BRANCH Elite Plaza, 1st Floor Kenyatta Avenue P.O. Box Malindi Tel: MOMBASA BRANCH TSS Building, 11th Floor Nkurumah Road P.O. Box Mombasa Tel: / CENTRAL REGION: EMBU BRANCH Embu Motors Building, 2nd & 3rd Floor Kenyatta Avenue P.O. Box Embu Tel: , NAKURU BRANCH Shiv Plaza, 3rd Floor Kenyatta Avenue P.O. Box Nakuru Tel: , MERU BRANCH Mwalimu Plaza, Mezzanine Floor, 3rd Floor Gakoromone Road P.O. Box Meru Tel: / NYERI BRANCH Konahauthi Building, 1st Floor, Kanisa Road P.O.Box Nyeri Tel: THIKA BRANCH Thika Arcade, 4th Floor, Kenyatta Highway P.O. Box Thika Tel: ,