Our Vision. Values. Our Mission. To become our customers most trusted savings and wealth management partner in East Africa.

Transcription

1 ANNUAL REPORT & FINANCIAL STATEMENTS AS AT 31ST DECEMBER 2014

2 Our Vision To become our customers most trusted savings and wealth management partner in East Africa. Values Integrity Respect Accountability Pushing Beyond Boundaries Our Mission Through understanding and meeting our customers needs, we will profitably expand our market for wealth accumulation and protection in East Africa.

3 TABLE OF CONTENTS CORPORATE INFORMATION 2 NOTICE OF THE ANNUAL GENERAL MEETING 3 BOARD OF DIRECTORS 4 REPORT OF THE DIRECTORS 5 CHAIRMAN S STATEMENT 6 MANAGING DIRECTOR S STATEMENT 9 CORPORATE GOVERNANCE STATEMENT 12 OLD MUTUAL STORY 16 STATEMENT OF DIRECTORS RESPONSIBILITIES 19 STATUTORY ACTUARY S REPORT 20 REPORT OF THE INDEPENDENT AUDITORS 21 STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME 22 STATEMENT OF FINANCIAL POSITION 23 STATEMENT OF CHANGES IN EQUITY 24 STATEMENT OF CASH FLOWS 25 NOTES TO THE FINANCIAL STATEMENTS 26 LIST OF THE TOP TEN SHAREHOLDERS 54 FORM OF PROXY 57 Old Mutual Life Assurance Company Limited 1

4 CORPORATE INFORMATION BOARD OF DIRECTORS P. De Beyer* - Chairman C. Nyokangi - Managing Director: Appointed on 01 August 2014 P. Mwangi - Appointed on 05 December 2014 T. C. Madzinga** R. N. Ogega P. Truyens*** A. Mutahi S. Mmbijjewe P.W. Muthoka * South African ** Zimbabwean ***Dutch COMPANY SECRETARY Ms Pauline Ngonyo Certified Public Secretary (Kenya) Old Mutual Building Mara/Hospital Roads, Upper Hill P O Box GPO Nairobi REGISTERED OFFICE Old Mutual Building Corner of Mara / Hospital Road Upper Hill P O Box GPO Nairobi Company Registration Number 1/94 AUDITORS Deloitte & Touche Certified Public Accountants (Kenya) Deloitte Place Waiyaki Way, Muthangari P O Box GPO Nairobi LEGAL ADVISERS Daly & Figgis Advocates ABC Towers, ABC Place, 6th Floor Waiyaki Way P O Box GPO Nairobi PRINCIPAL BANKERS Standard Chartered Bank Kenya Limited Kenyatta Avenue P O Box GPO Nairobi SHARE REGISTRARS Maonga Ndonye Associates Jadala Place, 3rd Floor Ngong Lane off Ngong Road P O Box Nairobi Annual Report and Financial Statements

5 NOTICE OF THE ANNUAL GENERAL MEETING NOTICE IS HEREBY GIVEN that the 21st Annual General Meeting of the Company will be held at The Intercontinental Hotel Nairobi on Friday, 29 May 2015 at a.m. to transact the following business: ORDINARY BUSINESS 1. To read the notice convening the meeting, table the proxies received and confirm the presence of a quorum. 2. To confirm the minutes of the Twentieth Annual General Meeting held on 18 July To receive, consider and adopt the audited Financial Statements for the year ended 31 December 2014 together with the reports of the Directors and Auditors thereon. 4. To note that the Directors do not recommend the payment of a dividend in respect of the Financial Year ended 31 December To re-elect Directors:- a) In accordance with Articles 17(a) and 17(b) of the Company s Articles of Association, Mr Tavaziva Chadamoyo Madzinga retires at this meeting and, being eligible, offers himself for re-election. b) In accordance with Articles 17(a) and 17(b) of the Company s Articles of Association, Ms Rose Nyaboke Ogega retires at this meeting and, being eligible, offers herself for re-election. c) In accordance with Articles 17(a) and 17(b) of the Company s Articles of Association, Ms Sheila Mary Riziki Mmbijjewe retires at this meeting and, being eligible, offers herself for re-election. 6. To approve the Directors remuneration in respect of the Financial Year ended 31 December 2014 and to authorize the Board to fix the remuneration of Directors for the current year. 7. To note that Messrs Deloitte & Touche (Kenya), having expressed their willingness would continue in office as the Company s Auditors in accordance with the provisions of Section 159(2) of the Companies Act (Cap 486), subject to approval by the Commissioner of Insurance in accordance with Section 56(4) of the Insurance Act (Cap 487), and to authorise the Directors to fix their remuneration for the ensuing financial year. 8. To consider any other business for which notice has been received. BY ORDER OF THE BOARD Pauline Ngonyo Company Secretary DATE: 27 February 2015 Note: A member entitled to attend and vote at this meeting is entitled to appoint a proxy to attend and vote on his or her behalf. A proxy need not be a member of the Company. To be valid, a form of proxy must be duly completed by the member and must be lodged at the registered office of the Company, P O Box 30059, GPO, Nairobi, not less than 48 hours before the time of the meeting. A form of proxy is provided with this report Old Mutual Life Assurance Company Limited 3

6 BOARD OF DIRECTORS Peter De Beyer Chairman Chris Nyokangi Managing Director Paul Truyens Non Executive Director Sheila Mmbijjewe Non Executive Director Peter Mwangi Executive Director Tavaziva Madzinga Non Executive Director Peter Muthoka Non Executive Director Anne Mutahi Non Executive Director Rose Ogega Non Executive Director Pauline Ngonyo Company Secretary Annual Report and Financial Statements

7 REPORT OF THE DIRECTORS The Directors present their report together with the audited financial statements of Old Mutual Life Assurance Company Limited (the company ) for the year ended 31st December ACTIVITIES The principal activity of the Company is the transaction of all classes of life assurance, savings and retirement benefits business. RESULTS Shs 000 Loss before taxation (416,430) Taxation expense (30,267) Loss for the year transferred to accumulated losses (446,697) HOLDING COMPANY The Company is a subsidiary of Old Mutual Holdings Limited which is incorporated in Kenya. The ultimate holding company is Old Mutual Plc, which is incorporated in the United Kingdom and listed on the London, Johannesburg, Malawi, Namibia, and Zimbabwe stock exchanges. At least one third of the shareholders are citizens of Kenya. DIVIDENDS The directors do not recommend the payment of a dividend during the year (2013 Nil). SHARE CAPITAL The nominal share capital was increased from 1 billion Kenya shillings to 3 billion Kenya shillings. The issued and paid up ordinary shares were increased from 72,495,684 to 217,487,052 through a rights issue where by two (2) new shares were issued for every (1) one held. DIRECTORS The current Board of Directors is set out on page 2. Mr. Morris Kihunyu passed away on 24th July Mr Rueben Java resigned as Managing Director on 1st August 2014 and was replaced by Mr. Chris Nyokangi on the same day. Mr Rueben Java resigned as Director on 30th September Mr. Peter Mwangi was appointed to the Board on 5th December AUDITORS The auditors, Deloitte & Touche, have indicated their willingness to continue in office in accordance with Section 159(2) of the Kenyan Companies Act. BY ORDER OF THE BOARD Pauline Ngonyo Company Secretary 27 February 2015 Old Mutual Life Assurance Company Limited 5

8 CHAIRMAN S STATEMENT PETER GERARD DE BEYER Annual Report and Financial Statements

9 CHAIRMAN S STATEMENT Operating Environment The economy in 2014 generally performed positively with key indices showing satisfactory outcomes. In June, Kenya successfully issued its first Eurobond with a five and ten year bond raising $2B and towards the end of the year successfully re-opened the two bonds to raise an additional $750M. Both issues were significantly oversubscribed demonstrating the significant confidence global investors have in the country and her prospects. The major challenge to the country has been the security incidents during the year that have had a persistent and negative impact mainly on tourism, resulting in a reduction in the number of visitors. Following a re-evaluation of the economic measures of the country and improvements in capturing economic performance, the economy has been estimated to be approximately 25% larger than originally estimated in 2013 at $55B. It is expected the economic growth will be 5% - 5.5% for 2014 and in excess of 6% for Listed equities performance The Nairobi Securities Exchange (NSE) 20 Share index posted marginally positive results in 2014 of 3.8% and the market capitalization weighted Nairobi All Share Index rose by 19.2%. The continued positive trend in the stock market has been led by solid corporate earnings growth and the relative attractiveness of Kenya listed equities versus other countries and other asset classes. The returns witnessed in 2014 reinforces our long held view that holders of long term policies will see their financial objectives achieved through an appropriate strategy based in part on sound equity investing principles that have a core emphasis of providing real returns. Inflation Inflation eased through the year from 7.15% in December 2013 to close out 2014 at 6.02% mainly due to prudent monetary policy applied by the Monetary Policy Committee of the Central Bank of Kenya and in the latter part of the year falling food and fuel prices. The Central Bank Rate was maintained at 8.5% throughout the year. Foreign exchange rate The Kenya Shilling appreciated modestly against a basket of currencies including the Euro, British Pound and South African Rand. It depreciated against its East African peers to the tune of 2.5% and 4.8% versus the Tanzanian and Ugandan Shilling respectively and against the US Dollar the Shilling closed the year at Kes 90.6 from KES at the start of the year depreciating by 5%. Insurance industry The gross collected insurance premiums for the industry amounted to Kshs 157.8B as at end of December 2014 compared to Kshs 131B recorded as at end of December Life insurance business grew at 27% while General Insurance business, grew by 17%. Uptake of life cover indicates increase in household income and public awareness on the need for social safety. Business performance The company had a number of noteworthy achievements in the year among these are; Enhanced brand visibility which was achieved through the questions brand campaign; Expanded distribution which led to improved life sales and recognition as a best company to work for by the Deloitte survey. The financial performance of the company was an improvement over the prior year at a comprehensive loss of KShs 134M in 2014, compared to a comprihansive loss of KShs 354M in The major drivers of this improvement were; 16% growth in net earned premium due to increased group life premiums received and 42% growth in investment income. Total assets in 2014 closed at KShs 14.5B, a 21% growth compared to 2013 due to positive returns on the main investment classes and the successful capital injection during the third quarter. Recapitalization The Company during the year raised equity capital amounting to KShs 2.1B to fund growth initiatives, whilst strengthening its balance sheet to maintain prudent solvency margins. The capital that was raised will fund the following strategic initia- tives:- Expanding our distribution channels; Enhancing our brand and product visibility; Entrance into the digital environment. Old Mutual Life Assurance Company Limited 7

10 CHAIRMAN S STATEMENT (CONTINUED) The company increased its authorized share capital from KShs 1B to KShs 3B. The additional capital was raised by way of a rights issue of 144,991,368 shares in the ratio of two additional shares for each share held at KShs 15 each. Future outlook We are optimistic that the overall economic growth will continue to be strong in This will mostly be driven by accelerated pace of implementation of key infrastructure projects, solid private sector credit growth and an increasing amount of long term foreign direct investment. These key pillars supported by sound economic management of the economy are important to fulfilling the rising prosperity ambitions of all Kenyans. According to the latest World Bank report, Kenya s economy is poised to be among the fastest growing in the World, with growth projected at 6.0% in 2015, 6.6% in 2016, and 7.0% in Insurance penetration in Kenya, at below 4%, still remains low when measured by insurance premiums as a % of GDP and this presents great opportunities for the Company. Enhanced financial education, development of innovative products, use of technology and adoption of alternative distribution channels are expected to improve penetration levels in Kenya. The devolved government also provides additional scope and we are looking at exposing our product offerings to the various counties in Kenya. We have our sights set on creating a sizeable business in the East African region as part of the Old Mutual strategic ambition of becoming the African financial services champion by becoming our clients most trusted partner, passionate about helping them achieve their long term financial goals. Proposed acquisition of effective control of UAP Holdings Limited (UAPHL) Old Mutual Holdings Limited (OMH) has entered into a Share Purchase Agreement to acquire seventy eight million nine hundred and nineteen thousand eight hundred and eighty nine (78,919,889) ordinary shares in UAPHL (representing 37.33% of the issued ordinary shares in UAPHL). Completion of the purchase is conditional upon receipt of regulatory approvals. On completion of the Proposed Transaction the combined shareholding of OMH and Old Mutual Life Assurance Company South Africa (OMLACSA) in UAPHL (being parties acting in concert) will aggregate to one hundred and twenty eight million two hundred and fifty two thousand three hundred and thirty four (128,252,334) ordinary shares representing a 60.66% equity stake in UAPHL (a controlling interest in UAPHL). This acquisition will give Old Mutual the scale and capacity to offer fully integrated financial services including life insurance, medical insurance, and general insurance as well as banking services across East Africa. As part of the integration process, it is anticipated that the UAP Life and the company will be merged. Shareholders will be approached at the appropriate time for the necessary approvals. Gratitude I would like to convey my appreciation to the management and staff for their hard work during the year. I would like to wish the former Managing Director Mr. Rueben Java all the best in his future endeavours. I would also like to congratulate the new Managing Director Mr. Chris Nyokangi who was until his appointment on 1st August 2014 the retail director and assure him of the full support of the board in discharging his duties. My appreciation goes to the Board of Directors for continuously providing strategic and expert direction to the company. My appreciation goes to our clients and business affiliates for their continued support throughout the year. We look forward to continue working with you in the future. Lastly, I thank the Government of Kenya and the regulatory authorities namely: Insurance Regulatory Authority, Retirement Benefits Authority, Capital Markets Authority and Kenya Revenue Authority who continue to provide an enabling business environment. Thank you Peter Gerard De Beyer Chairman. Annual Report and Financial Statements

11 MANAGING DIRECTOR S STATEMENT CHRIS NYOKANGI Old Mutual Life Assurance Company Limited 9

12 MANAGING DIRECTOR S STATEMENT The 2014 company strategy focused on Gaining Scale in East Africa to enhance our reach beyond Kenya, building on a stable base, improved governance and growth. The major strategic achievements were:- Expanded distribution, which led to a 60% increase in the life sales. Reduction of the financial loss by 38% through increase in premiums and investment income. Enhance brand visibility, which saw us invest KShs 91M to undertake the questions brand campaign from June 2014 and promote financial literacy that is a key ingredient to improve insurance penetration. This led to an increase in spontaneous awareness from 6% in January 2014 to 38% by end of December Financial performance The company recorded a comprehensive loss of KShs 134M in 2014 compared to a loss of KShs 354M in The major driver of this improvement is informed by an increased net earned premium coupled with an increased net investment income. Key financial performance highlights included:- Gross earned premiums grew by 16% in line with higher sales within the retail affluent channel, higher group life premiums received and new business acquisition in the year. The improved premiums gave rise to 15% reinsurance premiums ceded in line with the company s reinsurance and risk mitigation strategy; Net investment income grew by 42% due gain on investible assets; Net fee and commission income grew by 29% in line with increased contributions received for unit linked investments products and higher reassurance commission; Claims and benefits grew by 10% due to higher group life death claims; Commissions and other acquisition costs grew by 27% due to the expanded distribution drive which resulted to higher fixed and variable pay-outs; Operational and administration expenses grew by 16% largely due to impact of brand campaign and distribution expenses; Total assets under management grew by 7% due to positive investment performance and Insurance contract liabilities and unit linked investment contract liabilities grew by 4% and 5% respectively due to increased growth in funds driven by increased premiums, contributions and investment income. Capital Adequacy Requirements The capital cover which measures ratio of excess assets to Capital Adequacy Requirements increased from 1.2X as at the end of 2013 to 4.1X as at end of 2014 mainly driven by the recapitalization that was done within the year. The recapitalization is to fund growth while preventing excess assets from falling below the minimum capital requirements thus ensuring compliance with the regulatory requirements. People and Our Community In 2014 and for the third time in a row, Old Mutual was certified by the CRF Institute as a Top Employer which certifies that Old Mutual Kenya creates excellent working conditions for its employees. We were also recognized as a best company to work for by the Deloitte Survey in These awards are in tandem with our objective of creating a culture of excellence within our people. Old Mutual Kenya continues to benchmark ourselves in Human Capital Practices in the industry in areas such as Remuneration, Recognition, Culture and Talent Management. We also continue to provide global mobility opportunities for our people to the wider Old Mutual Group in order to give them access to experiences and opportunities they would not get in their current roles. As part of our Corporate Social Initiatives, we continue to support education with sponsorship of students at Starehe Girls and Starehe Boys Centers. We also participated in the Mater Heart run and Standard Chartered marathon whose proceeds go towards the treatment of needy children within our society. Annual Report and Financial Statements

13 MANAGING DIRECTOR S STATEMENT (CONTINUED) Risk and Governance We continually adopt a pro-active approach to the management of risks within the organization. Our risk approach entails focus on embedding risk management, governance and security frameworks, training and creating awareness on risk, compliance, financial crime and security and providing assurance to the stakeholders on the adequacy of risk and compliance oversight Old Mutual Plc. Financial Performance In the year ended 31 December 2014, the Group reported an adjusted operating profit of 1.6B up 16% in constant currency and had funds under management of 319.4B up 6% in constant currency. Old Mutual Plc. has appropriate and resilient levels of capital, liquidity and leverage. It has a global footprint with more than 16 million customers in total. The Group s focus for 2015 is on integrating acquisitions, delivering operational improvements and creating value from the investments made. Insurance industry outlook and future We will continue to create awareness about the importance of insurance through our financial education programs such as the Questions Campaign that was undertaken in the course of the year to drive demand. The company is at the forefront of developing innovative products that meet the needs of our customers and adopting alternative distribution channels in order to increase penetration levels. We remain committed to making a meaningful impact in the communities that we serve through delivering cutting edge products, first class client servicing, multiple distribution channels and all these informed by the need for customer centricity. Thank you Chris Nyokangi Managing Director. Old Mutual Life Assurance Company Limited 11

14 CORPORATE GOVERNANCE STATEMENT INTRODUCTION Old Mutual views good governance as a vital ingredient of operating a successful business, so that we can provide assurance to shareholders, customers and regulators that the businesses are being properly managed and controlled. During 2010, the Old Mutual Group (Group) rolled out the new Group Operating Model which is an overarching governance structure, incorporating principles of governance to facilitate effective and dynamic management and oversight of a Group containing several regulated entities, in different jurisdictions. These overarching governance structures are set out in the Group Operating Manual (the Manual) which contains the internal operating framework and governance structure for the Group. The Board passed a resolution to adhere to the Manual with effect from 31 December 2010, noting that it is a governance framework for the promotion of efficiency and mitigation of risks, both in the interests of the Company and the Group, whilst maintaining the primacy of the fiduciary duties of the Board. The Board is satisfied that the Company has made every practical effort to comply with all material aspects of King III during the review period, insofar as it was applicable to wholly owned subsidiaries, insofar as they are not in conflict with the Manual and the regulatory guidelines. THE BOARD The Company has a balanced unitary board comprising a majority of independent and non-executive directors. The Board currently has nine members, two of whom are executive, one is non-executive while six are independent directors. The former Managing Director, Mr. Rueben Java relocated back to Old Mutual Zimbabwe and was replaced by Mr. Chris Nyokangi with effect from1st August The non-executive Chairman of the Board is Mr. Peter De Beyer. The Board has a Charter which defines its functions, accountabilities and responsibilities. The Directors are provided with appropriate and timely information by management so that they can maintain full and effective control over the strategic financial, operational and compliance issues. The day-to-day running of the business of the Company is delegated to the Managing Director but the Board is responsible for establishing and maintaining the Company s system of internal controls so that the objectives of profitable growth and shareholder value are realized. Selection and succession planning The selection and appointment of directors is effected through a formal and transparent process and is conducted by the Group Remuneration and Nominations Committee. Emphasis is placed on achieving a balance of skills, experience and knowledge. A formal orientation programme exists to familiarize incoming directors with the Company s operations, senior management and its business environment and to induct them in their fiduciary duties and responsibilities. Rotation and retirement Newly appointed non-executive directors hold office only until the next annual general meeting at which they retire and become available for re-election by the shareholders on the recommendations of the Board. All directors except the Managing Director are subject to retirement by rotation and re-election by the shareholders at least once every three years. Executive directors have no fixed term of appointment, but are subject to short-term notice periods, typically three months. They retire from the Board at age 61, while non-executive directors retire at age 70. Performance and assessment The Board meets regularly, having met five times in 2014 including one session devoted to strategy, performance review and business planning. It may also meet as and when required to deal with specific matters that may arise between scheduled meetings. Access to company resources All directors have access to management, including the Company Secretary, and to such information as is needed to carry out their duties and responsibilities fully and effectively. The Company Secretary provides support to the Board to ensure its effective functioning and proper administration of Board proceedings. The Company ensures that the non-executive directors are kept informed on latest developments regarding the Company s business and industry-wide issues through a formal communication process. Annual Report and Financial Statements

15 CORPORATE GOVERNANCE STATEMENT (CONTINUED) Chairman and Managing Director The roles of the Chairman and Managing Director are separate. The executive management of the Company is the responsibility of the Managing Director, Chris Nyokangi. MANAGEMENT COMMITTEE The Managing Director has set up a Management Committee to assist him in discharging the duties and responsibilities that have been delegated by the Board. BOARD COMMITTEES The Audit, Risk & Compliance Committee and the Group Remuneration and Nominations committees are constituted at the Holdings company level with a mandate of oversight across all the subsidiaries including Old Mutual Life Assurance Company Limited. The committees are chaired by an independent non-executive director, and are free to take independent professional advice as and when necessary. Committee members remuneration All non-executive directors are remunerated for their services to the committee. Audit, Risk and Compliance Committee Members: Rose N. Ogega (Chairperson), Anne Mutahi, and Paul Truyens The committee, which comprises independent non-executive directors, meets quarterly during the year with senior management, which includes the Group CEO, Managing Director, the Company Secretary, Chief Risk Officer, the Chief Finance Officer and the Group Internal Auditors. The independent external auditors also attend these meetings to ensure that their independence is not impaired and have unrestricted access to the committee and to its chairperson. The Committee met five times in the year under review. Ad hoc meetings are held as required. Principal functions The committee serves in an advisory capacity to the Board and assists the directors to discharge their duties relating to the safeguarding of assets, the operation of adequate systems, risk management and compliance, the review of financial information and the preparation of the annual financial statements. This includes satisfying the Board that adequate internal, operating and financial controls are in place and that material corporate risks have been identified and are being effectively managed and monitored. Group Remunerations and Nominations Committee Members: Peter Muthoka (Chairman), Paul Truyens and Tavaziva Madzinga The Group Remuneration and Nominations Committee is mandated to, among other responsibilities, review regularly, the structure, size and composition of the Old Mutual Holdings Board and its Committees as well as other Old Mutual Kenya operating entities Boards, including Old Mutual Life Assurance Company Ltd and make recommendations to the Boards with regard to any adjustments that are deemed necessary to ensure the required mix of skills, experience, diversity and other qualities exist for effectiveness of those bodies. Directors Emoluments and Loans The aggregate amount of emoluments paid to directors for services rendered during 2014 is disclosed in Note 10 to the Financial Statements. In the year under review, directors have received no benefits other than fees and no loans to directors have been advanced. Internal Control Enviroment The Board acknowledges its overall responsibility for the Company s system of internal control and for reviewing its effectiveness, whilst executive management is accountable to the Board for monitoring the system of internal control and for providing assurance to the Board that it has done so. Old Mutual Life Assurance Company Limited 13

16 CORPORATE GOVERNANCE STATEMENT (CONTINUED) Internal Control Enviroment(Continued) Executive management has implemented an internal control system designed to facilitate effective and efficient operation of the Company aimed at enabling management to respond appropriately to significant business, operational, financial, compliance and other risks to achieving the Company s business objectives. These include protecting policyholders interests, safeguarding shareholders investments, safeguarding assets from inappropriate use or from loss and fraud, and ensuring that liabilities are identified and managed, and addressing any social, environmental or ethical matters that are significant for the Company s business. The system of internal control also helps to ensure the quality of internal and external reporting, compliance with applicable laws and regulations, and internal policies with respect to the conduct of business. The Company s internal control system is designed to manage, rather than eliminate, the risk of failure to achieve the Company s business objectives, and can only provide reasonable, and not absolute, assurance against material misstatement or loss. Approach to Risk Management Creating long-term shareholder and policyholder value is the Company s overriding business objective and the Company derives its approach to risk management and control from a shareholder value perspective. As a result, the business manages a broad range of risk categories and specifically includes Strategic Risk and Enterprise Risk Management ( ERM ). The Company s overall approach is to understand the diversity and full breadth of risk to its objectives, and to respond to it appropriately, with a strong emphasis on implementing controls that reduce residual risk to a level calculated to optimize the level of return on investment. However, risk management is not limited solely to risks that may adversely affect the Company s ability to achieve its objectives; it is also about identifying and seizing new opportunities while ensuring that the risks are understood, evaluated and appropriately managed. Risk Governance A risk governance model based on three lines of defence complements the formal governance structures described earlier in this report. This model distinguishes between functions owning and managing risks, functions overseeing risks and functions providing independent assurance. The first line of defence The Company s Board sets its risk appetite, approves the strategy for managing risk and is responsible for the system of internal control. The Managing Director supported by the management team, has overall responsibility for the management of risks facing the Company and is supported in the management of these risks by Line Management. Line Management and staff have the primary responsibility for managing risk. They take ownership for the identification, assessment, management, monitoring and reporting of enterprise risks arising within their areas of responsibility. The second line of defence This comprises the Head of Risk and Governance and the Statutory Actuary. The Head of Risk and Governance recommends the Company s Risk Policies for approval by the Audit, Risk and Compliance Committee, provides objective oversight and co-ordinates ERM activities in conjunction with other specialist risk related functions. The Chief Risk Officer is not accountable for the day-to-day management of financial and non-financial risks. The third line of defence This provides independent objective assurance on the effectiveness of the management of enterprise risks across the Company. This is provided by the Internal Audit function, External Audit function and the Audit, Risk and Compliance Committee. Risk Policies Risk policies, for each major risk category to which the Company is exposed, have been established and approved by the Management and the Board. These are designed to provide management with guiding principles within which to manage risks. Annual Report and Financial Statements

17 CORPORATE GOVERNANCE STATEMENT (CONTINUED) Corporate Social Responsibility Old Mutual Life Assurance Company Limited is committed to the creation of a stable and prosperous society and invests in socially responsible business activities. Amongst the endeavours that we participate in include the support of initiatives in health and education. During the year, we made donations to various charitable institutions for the betterment of the welfare of the many people that they support. Peter De Beyer Director Chris Nyokangi Director 27 February 2015 Old Mutual Life Assurance Company Limited 15

18 OLD MUTUAL STORY This was a defining year as we made greater strides in elevating the Old Mutual brand to support our continued growth and our engagements in the community we serve in. Brand Campaign 2014 The delivery on our promise of growth for the company, inspired the intentional engagement with the public last year. Through partnership with brand ambassadors who are porpular, the goal to increase our customer base would be achieved through enhancing identification of the Old Mutual brand and the financial solutions we offer. This was launched in June 2014 and kicked off with Television and newspaper adverts in the first phase, and an on the ground engagement in the second phase. Financial Education Our passion is firmly rooted in empowering individuals to achieve their financial goals. This journey can only begin with enlightening these individuals on the money management and savings habits. As part of the brand campaign, Old Mutual ran country wide financial education classes. These forums were interactive and provided the opportunity for Kenyans to ask finance related questions and recieve answers from financial experts to allow for informed financial decision making. Our financial education sessions are still available to Corporates and individuals. Corporate Social Investment The support for attainment of education for promising yet disadvantaged children continued to be realized through our partnership with the Starehe Boys and Starehe Girls centre. Our interest in making a contribution to the health needs in our community was realized through partnership with Mater Heart Run which sponsors heart surgery for children and Standard Chartered Marathon whose proceeds go towards alleviating blindness. As an integrated family of Faulu and Old Mutual Kenya, we jointly supported the Chosen Children of promise charity based in Kawangware. This was through a medical camp, sports day and mentorship program for the youth following completion of their primary education. The engagement allowed us give back to society as a team. Top Employer Award Old Mutual Kenya was listed among the seven (7) top employers in the country. The Top Employers Institute globally certifies excellence in the conditions organisations create for the development of their employees after conducting months of research into an organization s HR environment. Old Mutual Kenya was awarded the Top Employers Kenya 2015 Certification at a gala dinner in South Africa. Annual Report and Financial Statements

19 THE YEAR THAT WAS Brand Campaign 2014 Financial Education Road shows Great Talks Fun Day Old Mutual Life Assurance Company Limited 17

20 CORPORATE SOCIAL INVESTMENT Chosen Children of Promise Standard Chartered Marathon The Mater Heart Run TOP EMPLOYER AWARD Annual Report and Financial Statements 2014

21 Great Talks STATEMENT OF DIRECTORS RESPONSIBILITIES The Kenyan Companies Act requires the directors to prepare financial statements for each financial year which give a true and fair view of the state of affairs of the company as at the end of the financial year and of its 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 of financial statements that give a true and fair view in accordance with International Financial Reporting Standards and the requirements of the Kenyan Companies Act, and for such internal controls as the directors determine are necessary to enable the preparation of financial statements that are free from material misstatement, 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. 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 its 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. Peter De Beyer Director Chris Nyokangi Director 27 February 2015 Old Mutual Life Assurance Company Limited 19

22 STATUTORY ACTUARY S REPORT I have conducted an actuarial review of the Company as at 31 December 2014, according to generally accepted actuarial principles and in accordance with the requirements of the Kenya Insurance Act. Contracts classified as insurance and investment contracts with discretionary participation features have been valued using the Financial Soundness Valuation (FSV) method. Contracts classified as investment contracts (without discretionary participation in profit) have been valued at fair value as per IAS 39, Financial Instruments: Recognition and Measurement ( IAS 39 ). Policyholders reasonable benefit expectations have been taken into account in valuing policy liabilities. Further notes to this report, including a description of the valuation basis, are provided in Note 4 to the annual financial statements, which can be found on pages 37 and 38. Actuarial statement of financial position 2014 Shs M 2013 Shs M Total value of assets 13, Total value of policy liabilities (10,754) (10 314) Excess assets over liabilities 2, Capital adequacy requirements (CAR) Ratio of excess assets to CAR Certification of statutory financial position I hereby certify that: The valuation on the Published basis of the Company as at 31 December 2014, the results of which are summarised above, has been produced in accordance with the requirements of the International Financial Reporting Standards; and The Company was financially sound on the statutory basis as at the valuation date. Giles Waugh Statutory Actuary FASSA Cape Town, South Africa 27 February 2015 Annual Report and Financial Statements

23 INDEPENDENT AUDITORS REPORT Report on the financial statements We have audited the financial statements of Old Mutual Life Assurance Company Limited set out on pages 22 to 53 which comprise the statement of financial position at 31 December 2014, and 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 information. Directors Responsibility for the Financial Statements The Directors are responsible for the preparation of financial statements that give a true and fair view in accordance with International Financial Reporting Standards and the requirements of the Kenyan Companies Act, and for such internal controls as the Directors determine are necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors 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 whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we considered the internal controls relevant to the entity s preparation of financial statements that give a true and fair view in order to design audit procedures that were 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 accompanying financial statements give a true and fair view of the state of financial affairs of the company as at 31 December 2014 and of its financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards and the requirements of the Kenyan Companies Act. Report on Other Legal Requirements As required by the Kenyan Companies Act we report to you, based on our audit, that: i) we have obtained all the information and explanations which, to the best of our knowledge and belief, were necessary for the purposes of our audit; ii) in our opinion, proper books of account have been kept by the company, so far as appears from our examination of those books; and iii) the company s statement of financial position (balance sheet) and statement of profit or loss and other comprehensive income (profit and loss account) are in agreement with the books of account. The engagement partner responsible for the audit resulting in this independent auditors report is CPA Fredrick Aloo P/No Certified Public Accountants (Kenya) Nairobi, Kenya 27 February 2015 Old Mutual Life Assurance Company Limited 21

24 STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2014 Notes Shs 000 Shs 000 Gross earned premiums 5 668, ,272 Insurance premium ceded to reinsurers 5 (216,625) (188,227) Net earned premium 452, ,045 Net investment income 6 748, ,562 Fair value change on investment property 13 15,341 47,263 Net fee and commission income 8 399, ,652 Total revenue 1,615,493 1,272,522 EXPENSES Claims and benefits 5 (598,746) (544,365) Increase in provision for insurance contract liabilities 20 (160,316) (391,026) Commissions and other acquisition costs 9 (201,907) (159,533) Other operating and administration expenses 10 (1,070,954) (922,091) Total expenses (2,031,923) (2,017,015) Loss before taxation (416,430) (744,493) Taxation 11 (30,267) - Loss for the year (446,697) (744,493) OTHER COMPREHENSIVE INCOME Items that will not be reclassified subsequently to profit or loss Revaluation of leasehold land and buildings 14 65,159 - Surplus dealt through equity 7 65,159 - Items that may be reclassified subsequently to profit or loss Fair value gains on available-for-sale financial assets 7 247, ,622 Total other comprehensive income net of income tax 312, ,622 TOTAL COMPREHENSIVE LOSS FOR THE YEAR (134,314) (353,871) Annual Report and Financial Statements

25 STATEMENT OF FINANCIAL POSITION As at 31 december 2014 Notes Shs 000 Shs 000 ASSETS Intangible assets 12 1,261 3,089 Investment property , ,000 Property and equipment , ,661 Financial assets at fair value through profit or loss 15 4,254,453 3,742,281 Available-for-sale financial assets 15 4,822,469 4,391,552 Loans secured by mortgages on real property 15 30,869 42,922 Loans on life insurance within their surrender values , ,067 Amounts due from group companies 16 9,556 17,779 Tax recoverable 11(c) 64,790 45,235 Insurance and other receivables ,866 94,100 Cash and cash equivalents 19 3,114,893 1,724,088 Total assets 14,535,806 12,037,774 LIABILITIES Insurance contract liabilities 20 4,511,524 4,348,768 Investment contract liabilities 21 6,242,136 5,965,682 Amounts due to reinsurers 7,776 41,613 Deferred revenue on investment contracts 22 15,734 17,636 Amounts due to group companies 16 72,228 78,397 Loan due to holding company ,300 Insurance and other payables , ,530 Outstanding claims 403, ,227 Total liabilities 11,823,629 11,366,153 SHAREHOLDERS EQUITY Share capital and premium 25 4,059,827 1,884,957 Available for sale reserve 1,269,472 1,022,248 Property revaluation reserve 217, ,116 Accumulated losses (2,834,397) (2,387,700) Total equity 2,712, ,621 Total liabilities and shareholders equity 14,535,806 12,037,774 The financial statements set out on pages 22 to 53 were approved by the Board of Directors on 27th February 2015 and authorised on its behalf by: Peter De Beyer Director Chris Nyokangi Director Old Mutual Life Assurance Company Limited 23

26 STATEMENT OF CHANGES IN EQUITY AS AT 31 DECEMBER 2014 Share Investment Property capital and revaluation revaluation Accumulated premium reserve* reserve** losses Total Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 At 1 January ,884, , ,116 (1,643,207) 1,025,492 Total comprehensive income/(loss) for the year - 390,622 - (744,493) (353,871) At 31 December ,884,957 1,022, ,116 (2,387,700) 671,621 At 1 January ,884,957 1,022, ,116 (2,387,700) 671,621 Capital injection 2,174, ,174,870 Total comprehensive income/(loss) - 247,224 65,159 (446,697) (134,314) At 31 December ,059,827 1,269, ,275 (2,834,397) 2,712,177 * The investment revaluation reserve represents the net cumulative surplus arising from revaluation of available for sale investments. The revaluation reserve is not distributable. ** Property revaluation reserve represents the surplus arising from revaluation of leasehold land and buildings and is not distributable. Annual Report and Financial Statements

27 STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2014 Notes Shs 000 Shs 000 Loss before tax (416,430) (744,493) Non-cash movements and adjustments to profit before tax 27(a) (922,917) (1,053,061) Changes in working capital 27(b) 500,233 1,297,706 Interest received 423, ,440 Cash used in operating activities (415,992) (180,408) Income tax paid (49,823) (19,374) Net cash used in operating activities (465,815) (199,782) Cash flows from investing activities Purchase of property and equipment (10,951) (21,382) Purchase of available-for-sale financial assets (798,367) (146,987) Proceeds from sale of available-for-sale financial assets 965, ,459 Net movement of treasury bonds (512,172) (912,571) Net movement of mortgages on real property 12,053 7,839 Net movement of loans with surrender values 75,034 48,556 Dividend received 69,219 68,091 Net cash used in investing activities (199,950) (509,995) Cash flows from financing activities Proceeds from issue of share capital 2,056,570 - Loan from Old Mutual Holdings Limited - 118,300 Net cash generated from financing activities 2,056, ,300 Net increase/(decrease) in cash and cash equivalents 1,390,805 (591,477) Cash and cash equivalents at beginning of year 1,724,088 2,315,565 Cash and cash equivalents at end of year 19 3,114,893 1,724,088 Old Mutual Life Assurance Company Limited 25

28 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER GENERAL INFORMATION Old Mutual Life Assurance Company Limited is a limited company incorporated in Kenya under the Kenya Companies Act and is domiciled in Kenya. Its parent company is Old Mutual Holdings Limited which is incorporated in Kenya, and the ultimate holding company is Old Mutual Plc. which is incorporated in United Kingdom. The address of its registered office and principal place of business is disclosed under corporate information on page 2. Old Mutual Life Assurance Company Limited underwrites life insurance risks, such as those associated with death and disability. It also issues a diversified portfolio of investment contracts to provide its customers with asset management solutions for their savings and retirement needs. 2. ACCOUNTING POLICIES (a) Statement of compliance The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS). For the Kenyan Companies Act reporting purposes, in these financial statements the balance sheet is represented by or is 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. (b) Adoption of new and revised International Financial Reporting Standards (IFRSs) and interpretations (IFRIC) (i) Relevant new standards and amendments to published standards effective for the year ended 31 December 2014 Several new and revised standards and interpretations became effective during the year. The directors have evaluated the impact of their new standards and interpretations and none of them had an impact on the company s financial statements. (ii) Relevant new and amended standards and interpretations in issue but not yet effective in the year ended 31 December New and Amendments to standards Effective for annual periods beginning on or after IFRS 9 1 January 2018 (iii) Impact of relevant new standards and amendments to published standards effective for the year ended 31 December 2014 IFRS 9 Financial Instruments IFRS 9, issued in November 2009, introduced new requirements for the classification and measurement of financial assets. IFRS 9 was amended in October 2010 to include requirements for the classification and measurement of financial liabilities and for derecognition. The directors of the company anticipate that the application of IFRS 9 in the future may have an impact on amounts reported in respect of the company s financial assets and financial liabilities. However, it is not practicable to provide a reasonable estimate of the effect of IFRS 9 until a detailed review has been completed by the company. (iv) Early adoption of standards The company did not early-adopt any new or amended standards in Basis of preparation The financial statements have been prepared under the historical cost convention except for buildings, property and equipment, investment property, available-for-sale financial assets and financial assets and financial liabilities (including derivative instruments) at fair value through income statement, equity or liabilities which are stated at fair value. Annual Report and Financial Statements

29 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) 2. ACCOUNTING POLICIES (CONTINUED) Functional and presentation currency These financial statements are presented in Kenya shillings (Shs) which is the company s functional currency, the currency of primary economic environment in which the entity operates. Except as otherwise indicated, financial information presented in Kenya Shillings has been rounded to the nearest thousand (Shs 000). Revenue Revenue comprises premium income from insurance contracts and investment contracts with a discretionary participating feature, fee income from investment management contracts, commission income and investment income. Revenue is accounted for in accordance with the particular accounting policies as set out below. Insurance and investment contracts Classification of contracts Insurance contracts Contracts under which the Company accepts significant insurance risk from another party (the policyholder) by agreeing to compensate the policyholder or other beneficiary if a specified uncertain future event (the insured event) adversely affects the policyholder are classified as insurance contracts. Insurance risk is risk other than financial risk. Financial risk is the risk of a possible future change in one or more of a specified interest rate, security price, commodity price, foreign exchange rate, index of prices or rates, a 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. Insurance risk is significant if, and only if, an insured event could cause an insurer to pay significant additional benefits in any scenario, excluding scenarios that lack commercial substance. If significant additional benefits would be payable in scenarios that have commercial substance, significant insurance risk exists even if the insured event is extremely unlikely or even if the expected present value of contingent cash flows is a small proportion of the expected present value of all the remaining contractual cash flows. A contract that is classified as an insurance contract remains an insurance contract until all rights and obligations are extinguished or expire. Investment contracts Contracts under which the transfer of insurance risk to the Company from the policyholder is not significant are classified as investment contracts. Contracts with a discretionary participating feature Contracts with a discretionary participating feature are those under which the policyholder holds a contractual right to receive additional payments as a supplement to guaranteed minimum payments. These additional payments, the amount or timing of which is at the Company s discretion, represent a significant portion of the total contractual payments and are contractually based on (i) the performance of a specified pool of contracts or a specified type of contract or (ii) realised and/or unrealised investment returns on a specified pool of assets held by the Company. Contracts with a discretionary participating feature may be classified either as insurance contracts or investment contracts. All contracts with a discretionary participating feature are accounted for in the same manner as insurance contracts. Premiums on contracts Premiums and annuity considerations receivable under insurance contracts and investment contracts with a discretionary participating feature are stated gross of commission, and exclude taxes and levies. Premiums in respect of insurance contracts and investment contracts with a discretionary participation feature are recognised when due for payment. Outward reinsurance premiums are recognised when due for payment. Old Mutual Life Assurance Company Limited 27

30 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) 2. ACCOUNTING POLICIES (CONTINUED) Premiums on contracts (Continued) Amounts received under investment contracts other than those with a discretionary participating feature are recorded as deposits and added to investment contract liabilities. Revenue on investment management service contracts Fees charged for investment management services provided in conjunction with an investment contract are recognised as revenue in the income statement as the services are provided. Initial fees, which exceed the level of recurring fees and relate to the future provision of services are deferred and amortised over a period of 10 years. Claims on contracts Claims and benefits incurred in respect of insurance contracts and investment contracts with a discretionary participating feature include maturities, annuities, surrenders, death and disability payments and are recognised in the income statement. Maturity and annuity claims are recorded as they fall due for payment. Death and disability claims and surrenders are accounted for when notified. Reinsurance recoveries are accounted for in the same period as the related claim. Amounts paid under investment contracts other than those with a discretionary participating feature are recorded as deductions from investment contract liabilities. Insurance contract liabilities Insurance contract provisions are measured using the Financial Soundness Valuation (FSV) method as set out in the guidelines issued by the Kenyan Insurance Act. Under this guideline, provisions are valued using realistic expectations of future experience, with compulsory margins for prudence and deferral of profit emergence. Provisions for investment contracts with a discretionary participating feature are also measured using the FSV method. Surplus allocated to policyholders but not yet distributed (i.e. bonus smoothing reserve) related to these contracts is included as a provision. Derivatives embedded in an insurance contract are not separated and measured at fair value if the embedded derivative itself qualifies for recognition as an insurance contract. The entire contract is measured as described above. The Company performs liability adequacy testing on its insurance liabilities (including insurance liabilities with discretionary participating features) to ensure that the carrying amount of its liabilities is sufficient in view of estimated future cash flows. When performing the liability adequacy test, the Company discounts all contractual cash flows and compares this amount to the carrying value of the liability. Where a shortfall is identified, an additional provision is made. The provision estimation techniques and assumptions are periodically reviewed, with any changes in estimates reflected in the income statement as they occur. These are described in more detail in the notes to the Statutory Actuary s report on page 20 and in the note on insurance risk on page 53. Whilst the directors consider that the gross insurance contract provisions and the related reinsurance recovery are fairly stated on the basis of the information currently available to them, the ultimate liability will vary as a result of subsequent information and events and may result in significant adjustments to the amount provided. Investment contract liabilities Liabilities for investment contracts without a discretionary participating feature are classified as financial liabilities at fair value through profit or loss and are recorded at fair value. For unit linked contracts, this is calculated as the account balance, which is the value of the units allocated to the policyholder, based on the value of the assets in the fund (adjusted for tax). Annual Report and Financial Statements

31 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) 2. ACCOUNTING POLICIES (CONTINUED) Acquisition costs Costs that are directly attributable to securing an investment management contract are deferred if they can be identified separately and measured reliably and it is probable that they will be recovered. The deferred costs represent the contractual right to benefit from providing investment management services and are amortised over a period of 10 years. Intangible assets Intangible assets are measured at cost on initial recognition. Following initial recognition, intangible assets are carried at cost less accumulated amortisation and impairment losses. Intangible assets are amortised over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method is reviewed at least each financial year-end. Changes in expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset is accounted for by changing the amortisation period or method, as appropriate, and treated as changes in accounting estimates. Subsequent expenditure on capitalised intangible assets is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. Investment property Investment properties are stated at fair value. External valuations are obtained on such a basis as to ensure that substantially all properties are valued annually. In the event of a material change in market conditions between the valuation date and statement of financial position date an internal valuation is performed and adjustments made to reflect any material changes in value. Surpluses and deficits arising from changes in fair value are reflected in the income statement and investment contract liabilities. Property and equipment (i) Owned assets Property and equipment which includes buildings, computer equipment, motor vehicles, fixtures and furniture, are stated at cost or valuation less accumulated depreciation and impairment losses. (ii) Depreciation Depreciation is charged on a straight-line basis over the estimated useful lives of the assets. The rates of depreciation used are summarized on the table below: Asset class Depreciation Useful life rate % (years) Buildings Furniture and fittings 20 5 Motor vehicle 25 4 Computer equipment 25 4 (iii) Reclassification to investment property When the use of a property changes from owner-occupied to investment property, the property is re-measured to fair value and reclassified as investment property. When the use of a property changes, that it is reclassified as property and equipment, its fair value at the date of reclassification becomes its cost for subsequent accounting. Old Mutual Life Assurance Company Limited 29

32 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) 2. ACCOUNTING POLICIES (CONTINUED) Taxation Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the statement of financial position date, and any adjustment to tax payable in respect of previous years. Additional income taxes that arise from the distribution of dividends are recognised at the same time as the liability to pay the related dividend is recognised. Deferred taxation is provided using the statement of financial position liability method, based on temporary differences. Temporary differences are differences between the carrying amounts of assets and liabilities for financial reporting purposes and their tax base. The amount of deferred taxation provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities using tax rates enacted or substantively enacted at the statement of financial position date. Deferred taxation is charged to the income statement except to the extent that it relates to a transaction that is recognised directly in equity. The effect on deferred taxation of any changes in tax rates is recognised in the income statement, except to the extent that it relates to items previously charged or credited directly to equity. Deferred tax liability is not recognised on temporary differences that arise from: Initial recognition of an asset or liability in a transaction that is not a business combination which, at the time of transaction, affects neither the accounting nor taxable profit or loss; and temporary differences associated with investment in subsidiaries and associates 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. A deferred tax asset is recognised to the extent that it is probable that future taxable income will be available, against which the unutilised tax losses and deductible temporary differences can be used. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefits will be realised. Reinsurance Reinsurance asset comprises contracts with reinsurers under which the Company is compensated for losses on one or more contracts which are classified as insurance contracts. Reinsurance on contracts that do not meet this classification are classified as financial assets. Reinsurance asset principally includes the reinsurers share of liabilities in respect of contracts with policyholders. Amounts recoverable under reinsurance contracts are recognised in a manner consistent with the reinsured risks and in accordance with the terms of the reinsurance contract. Reinsurance is presented in the statement of financial position on a gross basis. Reinsurance assets are assessed for impairment at each statement of financial position date. An asset is deemed impaired if there is objective evidence, as a result of an event that occurred after its initial recognition, that the Company may not recover all amounts due, and that the event has a reliably measurable impact on the amounts that the Company will receive from the reinsurer. Financial instruments Financial instruments comprise investments and securities, loans and advances, including amounts due by/to group companies, derivative instruments, cash and cash equivalents. Recognition and de-recognition of financial instruments Financial instruments are recognised when, and only when, the Company becomes a party to the contractual provisions of the particular instrument. The Company de-recognises a financial asset when and only when: The contractual rights to the cash flows arising from the financial asset have expired or been forfeited by the Company; or It transfers the financial asset including substantially all the risks and rewards of ownership of the asset; or Annual Report and Financial Statements

33 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) 2. ACCOUNTING POLICIES (CONTINUED) Financial instruments (Continued) Recognition and de-recognition of financial instruments (Continued) It transfers the financial asset, neither retaining nor transferring substantially all the risks and rewards of ownership of the asset, but no longer retains control of the asset. A financial liability is de-recognised when and only when the liability is extinguished, that is, when the obligation specified in the contract is discharged, cancelled or has expired. The difference between the carrying amount of a financial liability (or part thereof) extinguished or transferred to another party and consideration paid, including any non-cash assets transferred or liabilities assumed, is recognised in the income statement. All purchases and sales of financial assets carried at fair value through profit or loss that require delivery within the time frame established by regulation or market convention ( regular way purchases and sales) are recognised at trade date, which is the date that the Company commits to purchase or sell the asset. Otherwise such transactions are treated as derivatives until settlement occurs. Fair value measurement considerations The fair values of quoted financial assets are based on quoted prices. If the market for a financial asset is not active, the Company establishes fair value using valuation techniques that refer as far as possible to observable market data. These include the use of recent arm s-length transactions, reference to other instruments that are substantially the same, discounted cash flow analysis and option pricing models. To the extent that the fair values of unlisted equity instruments cannot be measured reliably, such instruments are carried at cost less impairments. These impairments are not subsequently reversed. Categories of financial instruments Financial instruments are categorised financial assets and financial liabilities at fair value through profit and loss, loans and receivables or available-for-sale financial assets. An analysis of the Company s balance sheet, showing the categorisation of financial instruments is set out in Note 15. Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss comprise financial assets classified as held for trading (including derivative instruments that are not used as hedging instruments) and those that the Company has elected to designate as at fair value through profit or loss. Financial assets at fair value through profit or loss are initially recognised at fair value excluding transaction costs directly attributable to their acquisition which are recognised immediately in the income statement. After initial recognition, financial assets at fair value through profit or loss are measured at fair value with resulting fair value gains or losses adjustment being recognised directly in the income statement. Financial assets that the Company has elected to designate at fair value through profit or loss are those where this designation either eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise when using a different measurement basis or those that are managed, evaluated and reported on using a fair value basis in accordance with a documented risk management and/or investment strategy. This election is in respect of financial assets held to support liabilities in respect of contracts with policyholders. All related fair value gains and losses are included in investment income. Interest earned whilst holding financial assets at fair value through profit or loss is included in interest income. Dividends received are included in dividend income. Available-for-sale financial assets Available-for-sale financial assets are those non-derivative financial assets that are designated as available-for-sale or not classified in any other financial asset categories. Old Mutual Life Assurance Company Limited 31

34 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) 2. ACCOUNTING POLICIES (CONTINUED) Financial instruments (Continued) Available-for-sale financial assets (Continued) Available-for-sale financial assets are initially recognised at fair value plus transaction costs that are directly attributable to their acquisition. After initial recognition available-for-sale financial assets are measured at fair value with gains or losses being recognised as a separate component in other comprehensive income until the investment is derecognised or until the investment is determined to be impaired at which time the cumulative loss previously reported in other comprehensive income is included in the income statement. Investments are derecognised when the rights to receive cash flows from the investments have expired or where they have been transferred and the Company has also transferred substantially all risks and rewards of ownership. Where available-for-sale financial assets are interest-bearing, interest calculated using the effective interest method is recognised in the income statement as investment income. 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 designated by the Company as at fair value through profit or loss or availablefor-sale. Loans and receivables are initially recognised at fair value. Subsequent to initial measurement, loans and receivables are measured at amortised cost using the effective interest method less any impairment losses. Interest received is recognised as part of investment income. All loans and receivables are recognised when cash is advanced to borrowers. Derivative financial instruments Derivative instruments, including options, futures, forwards and swaps are used to economically hedge against market and currency movements in the values of assets and liabilities. Derivative instruments are classified as financial assets or financial liabilities at fair value through profit or loss - held for trading. Listed derivatives are stated at quoted prices. Unlisted derivative instruments are valued using standard market valuation techniques. Hedge accounting is not applied. All gains and losses, whether realised or unrealised, are recognised in the income statement as investment income. Cash and cash equivalents For the purposes of the cash flow statement, cash and cash equivalents comprise balances with less than 90 days maturity from the date of acquisition, including cash and balances with banks but excluding cash and cash equivalent instruments held for investing purposes. It excludes cash balances held in policyholder investment portfolios. Cash balances include cash collateral held. Financial liabilities All loans and borrowings are initially recognised at fair value less directly attributable transaction costs. After initial recognition, loans and borrowings are measured at amortised cost using the effective interest method. Gains and losses are recognised in the income statement when the liabilities are derecognised as well as through the amortisation process, i.e. finance cost Interest income and expense Interest income and expense is recognised in the income statement using the effective interest method taking into account the expected timing and amount of cash flows. Interest income and expense includes the amortisation of any discount or premium or other differences between the initial carrying amount of an interest-bearing instrument and its amount at maturity calculated on an effective interest method. Interest earned on financial assets is presented as part of investment income. Dividend income Dividend income is recognised in full on the ex-dividend date as investment income. Dividends from certain redeemable preference shares are recognised as income on a time proportion basis, taking account of the principal outstanding and the effective rate over the period to maturity, when it is probable such income will accrue to the Company. Annual Report and Financial Statements

35 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) 2. ACCOUNTING POLICIES (CONTINUED) Financial liabilities (Continued) Offsetting Financial assets and financial liabilities are offset and the net amount reported in the statement of financial position only when there is a legally enforceable right to set off and there is intention to settle on a net basis, or to realise the asset and settle the liability simultaneously. Income and expense items are offset only to the extent that their related instruments have been offset in the statement of financial position. Lending of securities The equities or bonds on loan, and not the collateral security, are reflected in the statement of financial position of the Company at year-end. Scrip lending fees received are included under fee income. The Company continues to recognise the related income on the equities and bonds on loan. Impairment of financial assets The company assesses at each statement of financial position date whether there is any objective evidence that a financial asset or group of financial assets, excluding financial assets at fair value through profit or loss, is impaired. Assets carried at amortised cost If there is objective evidence that an impairment loss on loans or receivables carried at amortised cost has been incurred, the amount of the loss is measured as the difference between asset s carrying amount and the present value of estimated future cash flows (excluding credit losses that have not been incurred) discounted at the financial asset s original effective interest rate. The carrying amount of the asset is reduced either directly or through use of an allowance account. The impairment loss is recognised in net profit or loss. The Company first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, and individually or collectively for financial assets that are not individually significant. If it is determined that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, the asset is included in a group of financial assets with similar credit risk characteristics and that group is collectively assessed for impairment. Assets that are individually assessed for impairment and for which an impairment loss is or continues to be recognised are not included in a collective assessment of impairment. Lending of securities If, in a subsequent period, the amount of impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed. Any subsequent reversal of an impairment loss is recognised in net profit or loss, to the extent that the carrying value of the asset does not exceed its amortised cost at the reversal date. Available-for-sale financial assets If an available-for-sale financial asset is impaired, an amount comprising the difference between its cost (net of any principal payment and amortisation) and its current value, less any impairment loss previously recognised in net profit or loss, is transferred from equity to the income statement. Reversals in respect of equity instruments classified as available-for-sale are not recognised in net profit or loss. Reversals of impairment losses on available-for-sale debt instruments are reversed through net profit or loss, if the increase in fair value of the instrument can be objectively related to an event occurring after the impairment loss was recognised in net profit or loss. Foreign currency translation Foreign currency transactions are measured using Kenya shillings, the Company s functional currency, on initial recognition by applying the spot exchange rate between the functional currency and the foreign currency at the date of the transaction. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at yearend exchange rates of assets and liabilities denominated in foreign currencies, whether monetary or non-monetary, are recognised in the income statement as part of investment income. Old Mutual Life Assurance Company Limited 33

36 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) 2. ACCOUNTING POLICIES (CONTINUED) Employee benefits Defined contribution plan Contributions in respect of defined contribution retirement plans are recognised as an expense in the income statement as incurred. The majority of the company s employees are eligible for retirement benefits under a defined contribution plan provided through a separate fund arrangement. The assets of the scheme are held in separate trustee administered funds, which are funded by contributions from both the company and employees. Employees are also members of National Social Security Fund contributions to which are done by the employee and the employer. Contributions to the defined contribution plan and to the National Social Security Fund are charged to the income statement as incurred. Provisions Provisions are recognised when the Company has a present legal or constructive obligation as a result of past events, for which it is probable that an outflow of economic benefits will occur, and where a reliable estimate can be made of the amount of the obligation. Where the Company expects some or all of a provision to be reimbursed, for example under the Company s insurance arrangements, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain. The expense relating to any provision is presented in the income statement net of any reimbursement. If the effect of discounting is material, provisions are discounted. The discount rate used is a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. Future operating costs or losses are not provided for. Leave Accrual for annual leave is made as employees earn it and reduced when taken. Leases Operating leases Leases where a significant portion of the risks and rewards of ownership are retained by the lessor, are classified as operating leases. As lessee All leases entered into by the company have been operating leases. Payments made under operating leases are charged to the income statement on a straight-line basis over the period of the lease. Leases of land are considered as finance leases and accounted for as property and equipment. As lessor When assets are leased out under a finance lease, the present value of the lease payments is recognised as a receivable. The difference between the gross receivable and the present value of the receivable is recognised as unearned finance income. Lease income is recognised over the term of the lease using the net investment method (before income tax expense), which reflects a constant periodic rate of return. To date, the company has not leased out any assets under finance leases. Impairment of other assets The carrying amounts of the Company s other assets, other than financial assets and deferred tax assets, are reviewed at each statement of financial position date to determine whether there is any indication of impairment. If any such indication exists, the asset s recoverable amount is estimated. The recoverable amount is the greater of the fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using pre-tax discount rate that reflects current market assessment of the time value of money and of the risks specific to the asset. For an asset that does not generate largely independent cash flows, the recoverable amount is determined for the cash-generating unit to which the asset belongs. Annual Report and Financial Statements

37 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) 2. ACCOUNTING POLICIES (CONTINUED) Impairment of other assets (Continued) An impairment loss is recognised whenever the carrying amount of the asset exceeds its recoverable amount. Impairment losses are recognised in profit or loss for the period. An impairment loss is reversed to profit or loss for the period if there has been a change in the estimates used to determine the recoverable amount. Dividends Dividends payable on ordinary shares are charged to retained earnings in the period in which they are declared. Proposed dividends are not accrued for until ratified in an Annual General Meeting. Borrowing costs Borrowing costs are recognised as an expense in the period in which they are incurred. Financial instruments IAS 1: Presentation of Financial Statements Capital Disclosure requires extensive disclosures about the significance of financial instruments for an entity s financial position and performance, and qualitative and quantitative disclosures on the nature and extent of risks. IFRS 7 and amended IAS 1, which became mandatory for the company s 2007 financial statements, require extensive additional disclosures with respect to group; financial instruments and share capital. Investments Investments are generally stated at the following values: (i) Mortgages and loans are classified as loans and receivables and valued at amortised cost. (ii) Investment properties at professional valuation (iii) Government securities are classified as financial assets held at fair value through profit or loss. (iv) Quoted preference and ordinary shares are classified as available for sale through equity and are valued at fair value on the statement of financial position date, based on market prices. (v) Unquoted ordinary shares are classified as available for sale and are valued at fair value or directors valuation. The unrealised gains and losses arising from the valuation of properties are dealt with in the revenue account for long-term business. The unrealised gains and losses on valuation of quoted and unquoted shares are credited to the available for sale reserve in respect of shareholders and to the revenue account in respect of long-term business. The realised gains on disposal of quoted shares are credited to retained earnings in respect of shareholders and to the revenue account for long-term business. Claims Claims expense comprises claims due in the year and changes in the provisions for outstanding claims. Maturity and annuity claims are recorded as they fall due for payment. Death claims and surrenders are recorded when notified. Commissions and expenses of management Commissions and expenses of management are allocated/charged to the relevant revenue accounts as incurred in the management of each class of business. Offsetting Financial assets and liabilities are offset and the net amount reported on the statement of financial position when there is a legally enforceable right to offset the recognised amount and there is an intention to settle on a net basis, or to realise the asset and settle the liability simultaneously. Comparatives Where necessary the comparative information has been changed to agree to the current year presentation. Old Mutual Life Assurance Company Limited 35

38 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) 3. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS IN APPLYING THE COMPANY S ACCOUNTING POLICIES 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 judgements 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. Critical accounting estimates are those which involve the most complex or subjective judgements or assessments. The areas of the Company s business that typically require such estimates are life insurance contract provisions, determination of the fair value for financial assets and liabilities, provisions, impairment charges and share-based payment liabilities. The fair values of financial assets and liabilities are classified and accounted for in accordance with the policies set out above. They are valued on the basis of listed market prices in so far as this is possible. If prices are not readily determinable, fair value is based either on internal valuation models or management estimates of amounts that could be realised under current market conditions. Fair values of certain financial instruments including derivative instruments together with fair values of share-based payment liabilities are determined using pricing models that consider, among other factors, contractual and market prices, correlations, yield curves, credit spreads, and volatility factors. The nature and the key assumptions made in determining provisions are disclosed in Note 2. Assets are subject to regular impairment reviews as required. Impairments are measured as the difference between the cost (or amortised cost) of a particular asset and the current fair value or recoverable amount. Impairments are recorded in the income statement in the period in which they occur. The Company s policy in relation to investment securities is described in Note 2. The critical areas of accounting estimates and judgements in relation to the preparation of these financial statements are as set out below: a) Critical judgements in applying accounting policies. Deferred income tax 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 judgment is required to determine the amount of deferred tax assets that can be recognised, based upon the likely timing and level of future taxable profits together with future tax planning strategies. b) Key sources of estimation uncertainty Property and equipment Critical estimates are made by directors in determining the useful lives and residual values to equipment based on the intended use of the assets and the economic lives of those assets. Subsequent changes in circumstances or prospective utilisation of the assets concerned could result in the actual useful lives or residual values differing from initial estimates. Impairment of assets At each reporting date, the company reviews the carrying amount of its financial and tangible assets to determine whether there is any indication that the assets have suffered impairment. If any such indication exists, the asset s recoverable amount is estimated and an impairment loss is recognised in the profit or loss whenever the carrying amount of the asset exceeds its recoverable amount. Annual Report and Financial Statements

39 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) 4. NOTES TO THE STATUTORY ACTUARY S REPORT 2014 shs M 2013 shs M (a) Analysis of change in excess assets on published reporting basis Excess assets at end of year 2, Excess assets at beginning of year 672 1,025 Change in excess assets on published reporting basis during the year 2,040 (353) (b) Analysis of change in excess assets on published reporting basis The change in the excess assets on the published reporting basis has arisen from the following main sources: Total comprehensive income (134) (353) Amounts dealt with in equity statement: Issue of share capital 2,174 - Change in excess assets on published reporting basis during the year 2,040 (353) (c) Valuation assumptions IFRS applies for published reporting purposes. Under IFRS, contracts need to be classified as investment, financial instruments with discretionary participating features or insurance. Investment management contracts provide both a financial instrument and an investment management service component. Fees and expenses associated with the investment management service component are subject to IAS 18. The published valuation of insurance contracts and investment contracts with discretionary participating features is performed as at 31 December 2014 using the Financial Soundness Valuation method, in accordance with SAP 104 issued by the Actuarial Society of South Africa. This means that the assumptions used for valuing liabilities are based on realistic expectations of future experience, plus margins for prudence. The result of the valuation method and assumptions is such that profits are released appropriately over the term of each policy, and avoid premature recognition of profits that may give rise to losses in later years. Negative per policy reserves are set to zero. Liabilities under investment contracts without discretionary participation are valued at fair value in accordance with IAS 39. A Deferred Acquisition Cost (DAC) asset (set up in the past for incremental expenses, and amortised over the expected term of the contract) is no longer held. A Deferred Revenue Liability (DRL) is set up for excess initial fees, and is amortised over the expected term of the contract. Significant valuation assumptions are summarised below: (i) Mortality The company uses the following base tables of standard mortality: Individual Business Old Generation Assurances A49-52 select Individual Business Old Generation Annuities a (55) ultimate Individual Business New Generation Risk Products use an internal mortality table. Statistical methods are used to adjust the rates reflected on the above tables based on the company s expected future experience for each class of business. In particular allowance has been made for the expected deterioration in assured lives mortality due to AIDS. (ii) Persistency Liabilities include allowance for potential surrenders and lapses, with reference to the company s most recent experience, adjusted for any expected differences in future experience. Old Mutual Life Assurance Company Limited 37

40 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) 4. NOTES TO THE STATUTORY ACTUARY S REPORT (CONTINUED) (c) Valuation assumptions (Continued) (iii) Investment returns For the current valuation, the rate of return before tax used for each relevant class was: Individual Business With Profits 11.8% p.a ( % p.a.) Individual Business Annuities and New Generation 10.3% p.a ( % p.a.) (iv) Expenses, tax and inflation The current level of expenses is taken to be an appropriate expense base. Expense inflation is assumed to be 8.6% (2013: 8.6%). It has been assumed that the current tax legislation and rates continue 5. DIVISION RESULTS Statement of Retail Corporate Total Retail Corporate Total comprehensive income Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Division revenue Gross earned premiums 333, , , , , ,272 Outward reinsurance (46,128) (170,497) (216,625) (67,224) (121,003) (188,227) Net earned premium 287, , , , , ,045 Investment income net of realised losses 707,350 38, , ,006 7, ,226 Fee and commission income 341,238 58, , ,125 41, ,652 Division expenses Claims and benefits (471,210) (127,536) (598,746) (462,998) (81,367) (544,365) Change in provision for insurance contract liabilities (87,353) (72,963) (160,316) (352,843) (38,183) (391,026) Commissions and other acquisition costs (179,399) (22,508) (201,907) (139,565) (19,968) (159,533) Operating and administration Expenses (948,300) (38,366) (986,666) (795,209) (36,705) (831,914) Division result (349,854) - (349,854) (455,732) (11,183) (466,915) Shs 000 Shs INVESTMENT INCOME Dividend income 69,219 68,091 Net gain on financial assets at fair value through profit and loss 63,221 53,748 Interest income on loans and receivables 153,356 55,377 Interest income on cash and cash equivalents 423, , , ,656 Net rental income 39,388 30,906 Investment income (net of investment losses) 748, ,562 Annual Report and Financial Statements

41 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) 7. FAIR VALUE CHANGES THROUGH OTHER COMPREHENSIVE INCOME Shs 000 Shs 000 Revaluation of leasehold land and building (22) - Net gain on financial assets available-for-sale 247, , , , NET FEE AND COMMISSION INCOME Investment contracts Investment management fees 328, ,320 Commission income 69,174 55,219 Change in deferred revenue 1,903 2, , , COMMISSIONS AND OTHER ACQUISITION COSTS Commission expenses 145, ,023 Other acquisition costs 56,745 48, , , OTHER OPERATING AND ADMINISTRATION EXPENSES Amortisation of intangibles 1,828 2,523 Asset management expenses 41,037 37,173 Depreciation of property and equipment 31,406 48,955 Other operating expenses 640, , , ,087 Auditors remuneration Statutory audit services - current year 4,908 4,965 Statutory audit services - prior year 80-4,988 4,965 Directors emoluments: - As directors 10,633 9,886 - As executives 15,601 15,118 26,234 25,004 Old Mutual Life Assurance Company Limited 39

42 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) Shs 000 Shs OTHER OPERATING AND ADMINISTRATION EXPENSES (CONTINUED) Staff costs: Wages and salaries 281, ,436 Social security costs Defined contribution plans 30,440 30,744 Group life assurance 12,367 13, , ,035 1,070, , TAXATION (a) Taxation charge Current tax - current year - - Current tax - prior year 30,267 - Deferred tax charge/ (credit) 7,596 (10,314) 37,863 (10,314) Deferred tax not recognised (7,596) 10,314 30,267 - The prior year current tax charge is in regard to tax paid on the tax assessment for the year 2004 to 2009 where a waiver of 55% was granted leading to the payment of the balance of 45% to Kenya Revenue Authority. (b) Reconciliation of taxation (credit)/charge to expected tax based on accounting (loss)/profit Shs 000 Shs 000 Accounting (loss)/profit before taxation (416,430) (744,493) Tax at the applicable rate of 30% (124,929) (223,348) Tax effect of expenses not deductible for tax purposes (24,032) (47,334) Other movements 156, ,368 Prior under provision of current tax 30,267 - Deferred tax not recognised (7,596) 10,314 30,267 - (c) Tax recoverable relates to prior period taxes paid and withholding taxes recoverable from the Kenya Revenue Authority. At beginning of the year 45,235 25,861 Charge for the year - - Paid during the year 19,555 19,374 At end of the year 64,790 45,235 Annual Report and Financial Statements

43 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) 12. INTANGIBLE ASSETS Shs 000 Shs 000 COST At 1 January 235, ,470 At 31 December 235, ,470 DEPRECIATION At 1 January (232,381) (229,858) Amortisation charge for the year (1,828) (2,523) At 31 December (234,209) (232,381) NET BOOK VALUE At 31 December 1,261 3,089 The intangible assets comprise financial reporting software. 13. INVESTMENT PROPERTY Carrying amount at beginning and end of year 857, ,000 Fair value movement during the year: - Profit or loss 15,341 47,263 - Investment contract liabilities 18,659 59, , ,000 Comprising: Leasehold land and building 891, ,000 On 31st December 2014, Roack Consult Limited professionally valued the company s investment property on open market value basis. The resulting surplus was credited to the income statement and investment contract liabilities Shs 000 Shs 000 The income generated from the property is as follows: Rental income from investment property 75,230 70,303 Direct operating expense arising from rented out investment property (5,494) (4,612) 69,736 65,691 Old Mutual Life Assurance Company Limited 41

44 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) 14. PROPERTY AND EQUIPMENT Computer equipment Furniture Leasehold & motor & office land Buildings vehicles equipment Total Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 COST At 1 January , ,244 99,672 81, ,705 Additions ,342 9,040 21,382 At 31 December , , ,014 90, ,087 At 1 January , , ,014 90, ,087 Additions - 1,165 5,614 4,172 10,951 Change in fair value 185,000 (60,000) ,000 At 31 December , , ,628 95,001 1,102,038 DEPRECIATION At 1 January 2013 (2,307) (16,411) (64,194) (52,559) (135,471) Depreciation charge for the year (5,562) (12,685) (17,677) (13,031) (48,955) At 31 December 2013 (7,869) (29,096) (81,871) (65,590) (184,426) At 1 January 2014 (7,869) (29,096) (81,871) (65,590) (184,426) Change in fair value 7,869 11, ,410 Depreciation charge for the year - (4,344) (14,051) (13,011) (31,406) At 31 December (21,899) (95,922) (78,601) (196,422) NET BOOK VALUE At 31 December , ,510 21,706 16, ,616 At 31 December , ,148 30,143 25, ,661 Had the leasehold land and buildings been carried at cost, the carrying value would be: Shs 000 Shs 000 Cost 379, ,137 Accumulated depreciation (46,625) (39,446) Net book value 332, ,691 Annual Report and Financial Statements

45 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) PROPERTY AND EQUIPMENT (CONTINUED) Buildings and freehold land were last revalued on 31st December 2014, by Roack Consult Limited, Nairobi, Kenya, independent valuers. Valuations were made on the basis of the open market value that reflects recent transaction prices for similar properties. In estimating the fair value of the properties, the highest and best use of the properties is their current use.the book values were adjusted to the revalued amounts and the resultant surplus net of deferred income tax was credited to investment contract liabilities and statement of comprehensive income. 15. FINANCIAL ASSETS At fair value through profit Available Loans and and loss for sale receivables Total Shs 000 Shs 000 Shs 000 Shs December 2014 Loans secured by mortgages on real property ,869 30,869 Loans on life insurance within their surrender values , ,033 Financial assets at fair value through profit or loss 4,254, ,254,453 Financial assets - available for sale listed - 4,529,981-4,529,981 Financial assets - available for sale unlisted - 292, ,488-4,822,469-4,822,469 4,254,453 4,822, ,902 9,370, December 2013 Loans secured by mortgages on real property ,922 42,922 Loans on life insurance within their surrender values , ,067 Financial assets at fair value through profit or loss 3,742, ,742,281 Financial assets - available for sale - listed - 4,073,589-4,073,589 Financial assets - available for sale - unlisted - 317, ,963-4,391,552-4,391,552 3,742,281 4,391, ,989 8,514,822 Old Mutual Life Assurance Company Limited 43

46 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) 16. AMOUNTS DUE FROM/ (TO) GROUP COMPANIES Amounts Amounts Amounts Amounts due from due to due from due to Shs 000 Shs 000 Shs 000 Shs 000 Old Mutual Investment Services (Kenya) Limited 2, Old Mutual Investment Group Limited 1,732 (2,557) 3,336 (4,142) Old Mutual Holdings Limited 183-3,910 - Old Mutual Africa Limited 2,261-5,301 - Old Mutual South Africa Limited 1,140-2,011 - Old Mutual Securities Limited 1,093-2,173 - Old Mutual Emerging Markets 508-1,048 - Old Mutual Plc - (600) - - Old Mutual Life Assurance Company (South Africa) Limited - (69,071) - (74,255) 9,556 (72,228) 17,779 (78,397) The amounts due from or to group companies above are unsecured, interest free and are not subject to fixed terms of repayment Shs 000 Shs INSURANCE AND OTHER RECEIVABLES Prepayments and other debtors 171,409 93,134 Accrued investment income 6, ,866 94, LONG TERM LOANS Due to Old Mutual Holdings Limited - 118, , CASH AND CASH EQUIVALENTS Cash at bank and in hand 149, ,829 Unit trusts 17,457 5,054 Deposits with banks 2,948,135 1,509,205 3,114,893 1,724,088 Annual Report and Financial Statements

47 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) CASH AND CASH EQUIVALENTS (CONTINUED) Shs 000 Shs 000 Movement in unit trusts during the year was as follows: Opening balance 5,054 4,736 Investments (including re-invested interest) 12, ,457 5, INSURANCE CONTRACT LIABILITIES Future policyholders benefits Opening balance 4,348,768 3,951,933 Movement in the year (income statement) 160, ,026 Returns allocated from shareholder funds 2,440 5,809 Closing balance 4,511,524 4,348, INVESTMENT CONTRACT LIABILITIES Composition of liabilities in respect of investment contracts: Liabilities at fair value through profit or loss 6,242,136 5,965,682 Movement in liabilities fair valued through profit or loss: Balance at beginning of year 5,965,682 5,116,639 New contributions received 976, ,622 Withdrawals (1,487,985) (964,421) Fair value gains on financial assets 378, ,093 Revaluation of investment property 18,659 59,737 Revaluation of leasehold land and building 79,251 - Investments returns 354, ,900 Fees deducted (40,583) (51,079) Other movements (2,440) (5,809) Balance at end of year 6,242,136 5,965, DEFERRED REVENUE ON INVESTMENT CONTRACTS Balance at beginning of year 17,636 19,750 Amortisation (1,902) (2,114) Balance at end of year 15,734 17, INSURANCE AND OTHER PAYABLES Unclaimed dividends 10,812 10,860 Trade creditors and accruals 559, , , ,530 Old Mutual Life Assurance Company Limited 45

48 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) INSURANCE AND OTHER PAYABLES (CONTINUED) Shs 000 Shs 000 Movement in unclaimed dividends during the year was as follows: Payable at beginning of year 10,860 10,868 Paid during the year (48) (8) Payable at end of year 10,812 10, DEFERRED TAX (a) Unrecognised deferred tax asset The deferred taxation asset is attributable to the following items: Tax losses carried forward 271, ,739 Deferred tax on revaluation surplus (65,181) (45,635) Deferred tax asset not recognised (205,961) (233,104) - - The movement on the deferred taxation account is as follows: At beginning of year - - Charge/ (credit) to profit or loss 7,596 (10,314) 7,596 (10,314) Deferred tax not recognised (7,596) 10, Deferred tax asset due to accumulated losses have not been recognised due to the uncertainties regarding the ability of the company to generate sufficient profits in the foreseeable future to enable it utilize the tax losses. As at 31 December 2014, the company had taxable losses amounting to Shs 903,807,148 (2013: Shs 929,129,009). The Kenyan tax laws now allow for tax losses to be carried forward for a maximum period of 4 years. The year 2015 will be the first year that tax losses related to the year 2010 cannot be carried forward unless the companies are granted exemption by KRA to carry forward the losses or they are able to generate sufficient taxable profits to utilize the losses. Should the company fail to get exemptions for the carry forward of tax losses, or fail to make taxable profits to utilise the losses, the company will be required to write off accumulated tax losses as at 31 December 2011 for the next financial year ended 31 December 2014 amounting to Kshs 469,770,000. Annual Report and Financial Statements

49 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) 25. SHARE CAPITAL AND PREMIUM Shs 000 Shs 000 Share capital: Authorised share capital 300,000,000 Ordinary shares of Shs 10 each 3,000,000 1,000,000 Issued and paid up: At 1 January 72,495,684 Ordinary shares of Shs 10 each 724, ,957 Issued in the year 144,991,368 Ordinary shares of Shs 10 each 1,449,914 - As at 31 December 217,487,052 ( ,495,684) Ordinary Shares of Shs 10 each 2,174, ,957 Share premium: At 1 January 1,160,000 1,160,000 Issued in the year 144,991,368 Ordinary shares of Shs 5 each 724,956 - As at 31 December 1,884,956 1,160,000 At 31 December total share capital and share premium 4,059,827 1,884,957 The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the company. 26. AVAILABLE-FOR-SALE RESERVE The fair value reserve comprises the cumulative net change in the fair value of available-for-sale financial assets until the investments are derecognised or impaired. The surplus arising from available-for-sale financial instruments attributable to investment contracts are credited directly to investment contract liabilities. The surplus attributed to insurance contract liabilities are recorded through equity in the available for sale reserve. Old Mutual Life Assurance Company Limited 47

50 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) 27. NOTES TO THE STATEMENT OF CASH FLOWS Shs 000 Shs 000 (a) Non-cash movements and adjustments to loss before tax Depreciation 31,406 48,955 Amortisation of intangible assets 1,828 2,523 Interest income (423,122) (319,440) Dividend income (69,219) (68,091) Gain on sale of available-for-sale financial assets (129,115) (116,283) Fair value adjustment on investment property (34,000) (107,000) Fair value adjustment on available-for-sale (300,695) (493,725) (922,917) (1,053,061) 2014 (b) Changes in working capital comprises Increase in insurance and other receivables (83,766) (5,187) Decrease (increase) in amounts due from group companies 8,223 (8,374) Net increase in insurance contract liabilities 162, ,763 (Decrease)/increase in amounts due to reinsurers (33,837) 28,277 (Decrease)/increase in amounts due to group companies (6,169) 42,707 Increase/(decrease) in claims, insurance and other payables 178,474 (3,481) Increase in investment contracts liabilities 276, ,115 Decrease in deferred revenue liability (1,902) (2,114) 500,233 1,297, RELATED PARTY DISCLOSURES During the year the company entered into the following transactions with related companies: Asset management fees Old Mutual Investment Group 26,411 24,444 Rental income Old Mutual Investment Services (Kenya) Ltd 3,101 3,101 Old Mutual Investment Group 2,915 2,915 6,016 6,016 Actuarial services Old Mutual Life Assurance Company (South Africa) Ltd 35,253 32,452 Internal audit services Old Mutual Life Assurance Company (South Africa) Ltd 1,893 5,142 Investment in Unit Trust Old Mutual Investment Services (Kenya) Ltd 17,457 5,054 Provident Fund Contributions Old Mutual Kenya Staff Provident Fund - 66,454 Directors emoluments 26,234 25,004 The transactions with the related companies are at arm s length. Annual Report and Financial Statements

51 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) 29. OPERATING LEASES Lessee Non-cancellable operating lease rentals are payable as follows: Within 1 year 6,841 10,938 Between 1-5 years 1,857 11,218 Above 5 years - - 8,698 22,156 During the year an amount of Kshs 14,283,409 (2013 Kshs 9,827,705) was recognised as an expense in respect of operating leases. Lessor The company leases out its investment property. The future minimum lease payments under non-cancellable leases are as follows: Within 1 year 77,447 84,816 Between 1-5 years 199, ,116 Above 5 years 23,328 45, FINANCIAL RISK MANAGEMENT 300, ,075 Risk management forms an important part of the governance structures for the company. This section outlines the various types of risks faced by the company and the strategies adopted to minimise the effect of the risks. Management of risk is the responsibility of the board of directors but the daily monitoring has been delegated to the executive committee with a dedicated risk and compliance officer. Through its risk management structure the company seeks to manage the following key risks: Liquidity, Market, Interest rate, Credit, Insurance and Capital risks. Operational and reputational risks are inherent in the business and are managed through internal processes and controls. The Company s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on its financial performance. The Board Audit, Risk and Compliance committee is responsible for monitoring compliance with group risk management policies and procedures and for reviewing the robustness of the risk management framework. The company is exposed to financial risk through its financial assets, financial liabilities, reinsurance assets and insurance liabilities. In particular, the key financial risk is that proceeds from its financial assets may not be sufficient to fund the obligations arising from its insurance and investment contracts. Financial risk management strategy and policy 2013 Shs Shs 000 The company manages these positions within an asset liability (ALM) framework that has been developed to achieve long-term investment returns in excess of its obligations under benefits payable to contract holders, as well as seeking to maximise the return on shareholders funds, all within an acceptable framework. For each distinct category of liabilities, a separate portfolio of assets is maintained. The insurance contracts retain substantial exposure to the extent that the benefits payable to policyholders are not linked to the performance of the underlying assets and/or contract holder enjoy options embedded in their contracts which are not matched by identical options in the underlying investments. These exposures include duration risk, credit risk and market risk. The notes below explain how financial risks are managed using the categories utilised in the ALM framework. Old Mutual Life Assurance Company Limited 49

52 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FINANCIAL RISK MANAGEMENT (CONTINUED) Financial risk management strategy and policy (Continued) i) Credit risk Credit risk is the risk that a counterparty will be unable to pay amounts in full when due. Credit risk arises from cash and cash equivalents and fixed deposits held in banks, interest bearing investments with Government of Kenya and commercial paper and corporate bonds with various entities. The Government of Kenya (GoK) has a long term rating of B+ (Stable) by Standard and Poors and has not defaulted on debt obligation in the past. The company has appointed an investments manager who takes overall responsibility for carrying out a quarterly due diligence investigation on banks to determine those that qualify for deposits placement. The criteria used in the due diligence process is rigorous and adopts parameters such as capital adequacy, liquidity, non performing loan ratio and other non financial ratios in determining qualified institutions. Based on the outcome of this investigation a maximum exposure is set for each financial institution. To invest in the corporate bond, the bond must in addition to CMA approval be guaranteed by an approved bank or by an international financial institution whose rating meets set requirements. ii) Market risk Market risk is the risk that changes in market prices, which include currency exchange rates, interest rates and share prices (NSE index), will affect the value or future cash flows of a financial instrument. Market risk arises from open positions in interest rates and foreign currencies, both of which are exposed to general and specific market movements and changes in the level of volatility. The objective of market risk management is to manage and control risk exposures within acceptable limits, while optimising return. Overall responsibility for the management of market risk rests with the Assets Managers. The company through its board of directors defines investment mandates to be used by the Asset Manager. iii) Price risk The Company is exposed to the equity and bond markets, which present a risk of partial or total loss of capital. The price of the units is directly linked to the price of the underlying securities and any loss on the value of the underlying securities will result in a diminution of the unit price. The Investment Manager moderates this risk through a careful selection and diversification of securities and other financial instruments within specified limits. The Investment manager conducts research on overall economic performance and determines probable sector performances and, therefore, asset allocation. Typically, the choice of investment involves the following steps tailored to minimize the level of exposure to asset classes and specific securities: Strategic Asset Allocation (SAA) SAA is the first step in the selection process and sets the minimums and maximums for each asset class. During this process a long term guideline is developed taking into account the investment objectives, which include the asset and liability profile and the maturity profile of funds. All this is done under the guide of in-depth research by the asset managers research department. Tactical Asset Allocation (TAA) TAA sets the short term objectives (quarterly) ranges for each asset class allowing the manager to take advantage of prevailing market conditions, they then identify actual assets invested in within each investment class but within the overall strategic range. The selection of the specific securities invested in is reviewed monthly by an investment committee. Each asset class is benchmarked against appropriate market indices with the primary objective of outperforming the indices over the medium to longer term. Annual Report and Financial Statements

53 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FINANCIAL RISK MANAGEMENT (CONTINUED) Financial risk management strategy and policy (Continued) iv) Interest rate risk The company is exposed to various risks associated with the effects of fluctuations in prevailing levels of market interest rates on both fair values and cash flows. Interest margins may increase as a result of such changes but may reduce or create losses in the event that unexpected movements arise. The individual life and employees benefits businesses have due regard to the nature of the liabilities and guarantees given to policyholders. The interest rate risk of such liabilities is managed by investing in assets of similar duration. The asset managers through the investment committee closely monitors interest rate trends to minimise the potential adverse impact of rate changes. The tables below set out the carrying amounts, by maturity of the company s financial instruments that are exposed to interest rate risk. Participating profile of financial assets and liabilities (including insurance) exposed to interest rate risk Effective 6 months More than interest rate or less months years 2 years Total % Shs 000 Shs 000 Shs 000 Shs 000 Shs December 2014 Treasury bonds & bills 11.40% 393, , ,833 2,551,278 3,816,392 Loan secured by mortgages on real property 14.00% ,869 30,869 Deposits with banks 10.71% 2,948, ,948,135 Unit trusts 7.06% 17, ,457 Corporate bonds 10.51% , , ,060 Loans on life insurance policies 20.00% 263, , December ,622, , ,962 2,941,078 7,513,946 Treasury bonds 11.04% 366, , ,590 2,293,946 3,391,564 Loan secured by mortgages on real property 14.00% ,922 42,922 Deposits with banks 9.51% 1,178, , ,509,205 Unit trusts 7.66% 5, ,054 Corporate bonds 10.44% - 66, , ,717 Loans on life insurance policies 20.00% 338, ,067 Sensitivity analysis 1,887, , ,590 2,620,829 5,637,529 As at 31 December 2014, if interest rates had changed by 1% with all other variables remaining constant, the impact on profit and equity would have been as: % Change Shs 000 Shs % 75,139 56,375-1% (75,139) (56,375) Old Mutual Life Assurance Company Limited 51

54 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FINANCIAL RISK MANAGEMENT (CONTINUED) Financial risk management strategy and policy (Continued) v) Liquidity risk Expected cash demands arise day-to-day to fund anticipated policyholder benefits, expenses and investment activities. Under stressed conditions, unexpected cash demands could arise primarily from an increase in the level of policyholders either terminating policies with material cash surrender values, or not renewing them when they mature, and from an increase in the level of borrowers renewing or extending their loans when they mature. The ability of Old Mutual Life Assurance Company Limited, to fund its cash requirements depends upon it receiving dividends, distributions and other payments from its operations. To manage this risk, liquidity management policies and procedures have been designed to ensure we have adequate liquidity available to cover financial obligations as they come due, and to sustain and grow operations in both normal and stressed conditions. These take into account any legal, regulatory, tax, operational or economic impediments. Liquidity risk is reduced by having policy liabilities that are well-diversified by product, market, and policyholder. We design insurance products to encourage policyholders to maintain their policies in-force, thereby generating a diversified and stable flow of recurring premium income. We establish and implement investment strategies that match the term profile of the assets to the liabilities they support, taking into account the potential for the unexpected. We forecast and monitor actual daily operating liquidity and cash movements in local operations as well as centrally, to ensure liquidity is available and cash is employed optimally. The table below analyses assets and liabilities into current and non-current categories based on the remaining period at statement of financial position date to settlement date: Current Non-current Total Shs 000 Shs 000 Shs December 2014 Insurance and other receivables 177, ,866 Deferred revenue on investment contracts - (15,734) (15,734) Insurance and other payables (570,335) - (570,335) 31 December 2013 Insurance and other receivables 94,100-94,100 Deferred revenue on investment contracts - (17,636) (17,636) Insurance and other payables (513,530) - (513,530) vi) Capital management The company s objectives when managing capital, on the statement of financial positions, are to comply with the capital requirements set by the regulators and safeguard the group s ability to continue as a going concern so that it can continue to provide returns for shareholders and benefits for other stakeholders as well as maintain a strong capital base to support the development of its business. Statutory capital and the use of working capital are monitored regularly by management, employing techniques based on guidelines developed by the regulatory authorities for supervisory purposes. Returns on capital adequacy are filed with the regulators on a regular basis. The company is subject to the externally imposed capital requirements. The Insurance Act imposes a minimum capital requirement of Shs 150 million and a margin of solvency requirement of total assets not less than admitted liabilities and ten million shillings or 5% of the admitted liabilities whichever is higher. The company met these minimum requirements during the year. Annual Report and Financial Statements

55 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FINANCIAL RISK MANAGEMENT (CONTINUED) Financial risk management strategy and policy (Continued) vii) Insurance risk management The company issues contracts that transfer insurance risk or financial risk or both. The risk under any one insurance contract is the possibility that the insured event occurs and the uncertainty of the amount of the resulting claim. By the very nature of an insurance contract, this risk is random and therefore unpredictable. For a portfolio of insurance contracts where the theory of probability is applied to pricing and provisioning, the principal risk that the company faces under its insurance contracts is that the actual claims and benefit payments exceed the carrying amount of the insurance liabilities. This could occur because the frequency or severity of claims and benefits are greater than estimated. Insurance events are random and the actual number and amount of claims and benefits will vary from year to year the estimate established using statistical techniques. 31. INSURANCE AND INVESTMENT CONTRACTS CLASSIFICATION The company continues to apply the same accounting policies for the recognition and measurement of obligations arising from insurance contracts and investment contracts with Discretionary Participation Feature (DPF) that it issues (including related deferred acquisition costs and other related intangible assets for insurance contracts and investment contracts with DPF) and reinsurance contracts that it holds. The company developed its accounting policies for insurance contracts before the adoption of International Financial Reporting Standard (IFRS) 4 and in the absence of a specific standard for insurance contracts. The adoption of IFRS 4 resulted in the reclassification of the other reserves in equity to present separately the equity component of DPF. IFRS 4 has affected the disclosures with respect to insurance contracts issued, reinsurance contracts held and investment contracts with DPF. 32. CONTINGENT LIABILITIES The company has the following contingent liabilities: (i) A contingent liability arising from the amendment to the Customs and Excise Act in 2013 indicating that all persons registered under the Insurance Act are required to charge 10% excise duty on all fees, charges inclusive of premium and commissions levied by a financial institution. The Association of Kenya Insurers is engaging with the revenue authority and treasury to amend this piece of legislation to exclude commissions from the ambit of Excise duty payable. (ii) A contingent liability arising from the interpretation of the Insurance Act Cap 487 on treatment of Policy Holders Compensation Fund levy. The Act requires the levy to be deducted on commencement of a policy. The company is liasing with the Insurance Regulatory Authority with a view to resolve within INCORPORATION The company is incorporated as a limited company in Kenya under the Kenya Companies Act, and is domiciled in Kenya. 34. CURRENCY These financial statements are presented in Kenya shillings (Shs) which is the company s functional currency, the currency of primary economic environment in which the entity operates. Except as otherwise indicated, financial information presented in Kenya Shillings has been rounded to the nearest thousand (Shs 000). Old Mutual Life Assurance Company Limited 53

56 TOP TEN SHAREHOLDERS AS AT 31 DECEMBER 2014 NO. A/C NO. NAME OF SHAREHOLDER NO OF SHARES % 1 1 OLD MUTUAL HOLDINGS LTD 145,063, P O BOX 30059, NAIROBI, KENYA TIDANGA LIMITED 54,371, P O BOX NAIROBI KENYA HIROKO LIMITED 3,879, P O BOX NAIROBI KENYA AVIN GALOT 1,944, P O BOX NAIROBI KENYA NGUGI KIUNA 1,096, P O BOX NAIROBI KENYA DHIMANTILAL S. SHAH 457, P O BOX MOMBASA KENYA ESTATE OF THE LATE JAMES EVANS NJOGU 194, P O BOX NAIROBI KENYA MAHENDRA G. PATEL 125, P O BOX NAIROBI KENYA SHAH, VIPINCHANDRA DHIRAJLAL 123, P O BOX NAIROBI KENYA VIMAL VELJI DHARAMSHI SHAH 108, P O BOX NAIROBI KENYA Total Number of Shares held by Top 10 Shareholders 207,363, Shares held by the Other 1429 Shareholders 10,123, TOTAL 217,487, Annual Report and Financial Statements

57 Website: Call: Old Mutual Old Mutual Life Assurance Company Limited 55

58 School fees Emergency Business Retirement Life Cover Plot Chama Construction Medical Car What is your Financial Plan? TALK TO US ABOUT FINANCIAL SOLUTIONS SMS FINANCIAL SOLUTIONS to or Call: today! Website: Call: Old Mutual Annual Report and Financial Statements

59 OLD MUTUAL LIFE ASSURANCE COMPANY LIMITED FORM OF PROXY I/WE (names in block letters) Of (address) Being a member/s of the Old Mutual Life Assurance Company Limited, hereby appoint: (Name in block letters) Of Or failing him, the duly appointed Chairman of the meeting to be my/our proxy, to vote on my/our behalf as indicated below on the ordinary resolutions, with or without modification, as set out in the notice dated 27 February 2015 convening the Annual General Meeting of the Company to be held at The Intercontinental Hotel Nairobi on Friday, 29 May 2015 at 11 a.m. or at any adjournment thereof. As witness my/our hand this day of 2015 Signature Please indicate with a tick in the appropriate block how you wish your vote to be cast: Agenda Ordinary Business For Against Item 2. To confirm the minutes of the 20th Annual General Meeting held on 18th July To receive, consider and adopt the audited Financial Statements for the year ended 31 December 2014 together with the reports of the Directors and Auditors thereon. 4. To consider and adopt the recommendation of the Directors that no dividend be declared in respect of the Financial Year ended 31 December Election of Directors: a) To re-elect Mr. Tavaziva Chadamoyo Madzinga, a Director retiring in accordance with Articles 17(a) and 17(b) of the Company s Articles of Association. b) To re-elect Ms. Rose Nyaboke Ogega, a Director retiring in accordance with Articles 17(a) and 17(b) of the Company s Articles of Association. c) To re-elect Ms. Sheila Mary Riziki Mmbijjewe, a Director retiring in accordance with Articles 17(a) and 17(b) of the Company s Articles of Association. 6. To approve the Directors remuneration in respect of the Financial Year ended 31 December 2014 and to authorize the Board to fix the remuneration of Directors for the current year. 7. To note that Messrs Deloitte & Touche (Kenya) would continue in office as the Company s Auditors in accordance with the provisions of section 159(2) of the Companies Act (Cap 486), subject to approval by the Commissioner of Insurance in accordance with Section 56(4) of the Insurance Act (Cap 487), and to authorise the Directors to fix their remuneration for the ensuing financial year. Notes: This proxy form is to be delivered to the Company s registered office not later than a.m. on 26th May In case of a Corporation, the proxy form must be under its Common Seal. If a member does not indicate how their proxy is to vote, the proxy may vote as they think fit. Old Mutual Life Assurance Company Limited 57

60 Website: Call: Old Mutual