cfc stanbic bank - liberty kenya holdings limited

Annual Report & Financial Statements 2018 1

CfC Stanbic Bank

FINANCIALSTATEMENTS

2018

INDIVIDUAL \ FAMILY \ BUSINESS

Our offering, allows you the time, freedom and peace of mind to enjoy your life. Liberty Life, a legacy that delivers.

ADVICE INSURE INVEST

ANNUALREPORT &

2 Annual Report & Financial Statements 2018

CORPORATE INFORMATIONi Company Information

1 2018 Business Highlights and Awards

2 5 Year Performance Highlights

6 Customer Value Proposition

13 Organizational Structure

28 Chairman’s Statement

32 Managing Director’s Statement

35 Directors’ Report

36 Statement of Directors’ Responsibilities

37 Report of the Consulting Actuary

FINANCIAL STATEMENTS38 Report of the Independent Auditors

46 Statement on Corporate Governance

52 Statement of Profit or Loss and Other

Comprehensive Income

53 Statement of Financial Position

54 Statement of Changes in Equity

55 Statement of Cash Flows

56 Accounting Policies

78 Notes to the Annual Report and Financial Statements

Contents

Company Information

Liberty Life Assurance Kenya Limited (“the Company”) operates in nine towns and cities across Kenya with approximately 441 agents and 148 employees. The Company has provided insurance services to the nation since 1964 and continues to offer a range of life and pension products.

The Company is a wholly-owned subsidiary of Liberty Kenya Holdings Plc which is listed at the Nairobi Securities Exchange.

Liberty Life Assurance Kenya Limited is proud to be associated with Heritage Insurance Company Kenya Limited, also a wholly-owned subsidiary of Liberty Kenya Holdings Plc. Liberty Kenya Holdings Plc parent is South African based Liberty Holdings Limited, which is part of Standard Bank Group Limited. Liberty Holdings Limited is a Pan African financial services group with operations in 25 African countries. Liberty Holdings Limited is listed at the Johannesburg Stock Exchange.

Our VisionTo be the trusted leader in insurance and investments in Kenya.

Our PurposeImproving people’s lives by making their financial freedom possible.

Our Company Values

Involvement: Our humanity and empathy.

Innovation: Our ingenuity and curiosity to do things better.

Integrity: Our fairness and honouring our word.

Insight: Our knowledge and understanding.

Action: We roll up our sleeves and always find a way to make things happen.

Registered office Liberty House Mamlaka Road P.O. Box 30364 - 00100 Nairobi

Independent auditors KPMG Kenya ABC Towers, ABC Place, Waiyaki Way P.O. Box 40612 - 00100 GPO Nairobi, Kenya

Actuaries QED Actuaries & Consultants (Pty) Ltd 1st Floor - The Bridle, Hunts End Office Park, 38 Wierda Road West, Sandton, Johannesburg 2196, South Africa.

Principal bankers Stanbic Bank Limited Stanbic Centre Chiromo road, Westlands Nairobi, Kenya

Citibank NA Citibank House Upper Hill Road, Nairobi, Kenya

Commercial Bank of Africa Limited Mara and Ragati Roads, Upper Hill, Nairobi, Kenya

Tax consultants Ernst and Young LLP Kenya Re Towers Off Ragati Road P.O. Box 44286 - 00100 Nairobi, Kenya

i Annual Report & Financial Statements 2018


2018 Business Highlights and Awards

Headline Earnings 2018 2017

Shs ‘000 Shs ‘000

Company equity value 2.74 Billion 2.80 Billion

Company equity value per share 89.61 91.54

Profit after tax 308 Million 403 Million

Net earned premiums 2.60 Billion 2.68 Billion

Total income 4.29 Billion 5.35 Billion

Shareholder funds 2.74 Billion 2.80 Billion

Customer base

Number of pension schemes administered 29,653 25,672

Lives covered under Group Life 554,979 495,997

Number of retail customers 42,033 43,856

Staff

Number of employees 148 148

Number of agents 441 439

2nd Runners-up Most Innovative Insurance

Company

1st Runner-up Customer Service

Award - Life

2nd Runners-upRisk Management

Award

1st Runner-up Life Insurance of the Year


5 Year Performance Highlights

SHS

IN M

ILLI

ON

S

2014 2015 2016YEAR

2017 2018

2,170

2,909

2,170,170,, 00

2,90922,90992,90099

2,027

2,204

2,794

SHS

IN M

ILLI

ON

S

TOTAL ASSETS

YEAR2014 2015 2016 2017 2018

22,838

23,49623,728

24,775

23,703

SHS

IN M

ILLI

ON

S

PROFIT BEFORE TAX

GROSS PREMIUMS

2014 2015 201820172016

610468

247

613

474

YEAR

SHS

IN M

ILLI

ON

S

LIFE FUNDS

YEAR

2014 2015 2016 2017 2018

21,075

21,451

22,311

21,360

21,08421,075221,00755,


Our education plans secure your child’s future.


Our Group Life cover offers peace of mind for you and your employees and loved ones.

Our Customer Value Proposition

We commit to:• Provide friendly and reliable services• Empower and equip our staff with the means

to deliver excellent service• Maintain a clean and safe working environment• Provide customers adequate information on

our insurance and financial solutions• Undertake continuous market research to

provide relevant and competitive solutions• Act promptly on customer feedback• Resolve disputes amicably by seeking mutually

acceptable solutions

We are accessible:• We provide an online self-service portal to view

current Life and Pensions statements• We email Life and Pensions statements within

24 hours of request• We acknowledge and respond to e-mails within

24 hours• We answer phone calls by the third ring• We have a Call Centre (0711 076 222) and short

code (20120) service to receive and respond to your calls and SMSs

• We have a 24 hour presence on twitter (@LibertyLifeKe) and Facebook (LibertyLifeKenya)

• Our Nairobi office is open from 7.00am to 5.00pm on weekdays and 9.00am to 1.00pm on Saturdays

• We have offices in major cities and towns across Kenya which are open from 8.00am to 5:00pm on weekdays

We are dependable:• We provide new policy documents within 10 days• We pay funeral benefits within 48 hours• We process Group Life discharge voucher for

death claims in 5 days• We pay Life and Group Life (permanent disability

& critical illness) benefits within 5 days• We pay Pensions benefits within 10 days• We are part of Liberty Africa Insurance that has a

presence in 10 countries across Africa

We offer personalized service:• We email policy statements every month• We call regularly to give update on policy status

and benefits• We meet our Corporate customers quarterly• We offer diverse and flexible solutions tailor-

made to meet your needsmade to meet your needs

At Liberty Life, we drive a customer-centric culture in order to make financial freedom possible for all. In 2017, we launched our Customer Service Charter, which details our commitment to deliver excellent customer service by being dependable, accessible and personalized in how we interact with clients.


Organizational Structure

Liberty Life Assurance Kenya Limited is a wholly-owned subsidiary of Liberty Kenya Holdings Plc which is listed at the Nairobi SecuritiesExchange.Liberty Life Assurance Kenya Limited is proud to be associated with Heritage Insurance Company Kenya Limited, a wholly-ownedsubsidiary of Liberty Kenya Holdings Plc. Liberty Kenya Holdings Plc’s parent is South African based Liberty Holdings Limited, which is in turnowned by Standard Bank Group Limited. Liberty Holdings Limited is a Pan African financial services group with operations in 25 countries inAfrica. Liberty Holdings Limited is listed on the Johannesburg Stock Exchange (JSE) as part of the Standard Bank Group which owns 53.6% of the issued ordinary share capital.

GROUP STRUCTURE

Holdings Limited (SA) (53.6%)

Kenya Holdings Plc (57%)

Life Assurance Kenya Limited (100%) Kenya (100%) CFC Investments Limited (100%)

Tanzania (60%)

Customer Facing Units

Group Business Solutions

SUPPORTED AND ENABLED BY

STRATEGIC COMPETENCY UNITS

Retail Business Solutions RetirementBenefit Solutions

Human ResourcesFinance, Actuarial andAdministration

Marketing andCommunications Operations Risk and Compliance

Research and InnovationSales and DistributionInformation Communication

Technology(ICT)

Life Kenya

LIBERTY LIFE INTERNAL STRUCTURE


Our Stakeholders

Our stakeholders are the heart of our organization. Everything we do is geared at ensuring they have the best possible experience and impression of Liberty Life.Key stakeholder partnerships and our goals

Key partnerships and our aims Our goalsCustomerspurchase our products and services (after obtaining appropriate advice on their financial needs) to achieve financial freedom by helping them manage life’s uncertainties.

Place customers at the heart of our business decisions.

Employeessupply the necessary skills and expertise to deliver on our promises to stakeholders and to grow as individuals.

Attract, develop and retain quality employees.

Regulatorsgovern financial stability and market conduct for our industry (includes government agencies and industry associations).

Provide responsible financial services.

Communitiesembody our social relevance and compose our future customers and employees.

Enhance social relationships.

Investorsprovide our financial capital. Deliver sustainable financial results.


Our Strategy at a glance (Strategy 2020)

Vision and PurposeImproving people’s lives by making their financial freedom possible.

Value PropositionThrough the power of knowledge and expertise, we endeavour to deliver dependable, accessible and personalized service to our clients making their financial freedom possible.

PAT Kes 1,384m

Top 3 in theMarket

Employer of Choice Staff Retention 92%

GWP Kes 8,726

Customer Satisfactionindex 80%



Our Strategy at a glance (Strategy 2020) (continued)

Strategic principles

Liberty Life Kenya is the trusted leader in life insurance in Kenya. It is dedicated to:

• Understanding customer needs

• Creating solutions that deliver on the promise of financial freedom

• Delivering through strong partnerships

• Embedding ourselves as part of the fabric of Kenya

• Differentiating Liberty as an employer of choice

• Operating within the ethical and legal bounds of Kenya and Liberty Africa Insurance whilst creating long-term sustainable shareholder value

Objectives

Liberty Life’s main objectives are to:

• Feature among the top 3 in the market across all our key metrics

• Become the preferred insurance partner to Stanbic Bank, other affinity/bancassurance partners, corporates and worksites operating in Kenya

• Emerge as the most trusted and innovative insurer in the Kenyan market, across group and retail markets, by 2020

Key strategic achievements in 2018

• Implementation of the Customer Service Charter

• KCB Elimisha launched to the public

• Agency revamp project completed

• Sponsored 116 students in 2018

• Implemented Electronic Data Management System (EDMS)

• Embedded the Risk Based Capital (RBC) model in our reporting

• Implementation of the Straight Through Processing

Integrating Sustainability:1. Emerging matters in the Kenyan insurance industry(increased industry regulation and professionalization)

The regulator has a critical role to play in protecting the consumer and building an industry that generates long-term value to its shareholders and society at large.

The insurance industry in Kenya is still developing in this

regard. Liberty is in full support of this trajectory and stands as a partner to the regulator, the Insurance Regulatory Authority, in providing feedback on appropriate and carefully calibrated policy and regulations that will help build a sustainable industry in Kenya.


Our Strategy at a glance (Strategy 2020) (continued)

The Retirement Benefits Authority issued the following guidelines:-

• The Retirement Benefits (Good Governance Practices) Guidelines 2018

• The Retirement Benefits (Post-Retirement Medical Funds) Guidelines, 2018

The Finance Act 2018 also brought about further changes impacting the insurance industry. The changes were:-

1. Introduction of withholding tax on demurrage charges and insurance premiums payable to a non-resident person. This is expected to increase the cost of reinsuring risks with foreign reinsurance companies due to pricing risks to cover the tax.

2. Capital gains tax on transfer of property by general insurance companies.

3. Introduction of National Housing Development Fund (NHDF). Under the new provision, the employer and employee will each contribute 0.5% of the employee’s gross monthly earnings subject to a maximum of KShs 5,000 to the NHDF.

4. Stamp duty on life and accident policies will now be paid on monthly declarations.

5. Changes to the RBA Act making it more punitive for employers who fail to remit employee contributions.

6. Clarification on what is defined to be a deemed dividend.

How this is reflected in our strategy: We see ourselves as market leaders in terms of actuarial practices and as thought leaders in technical insurance matters. Our robust internal controls, prudent risk management and compliance with regulatory requirements and international best practices ensure we are well prepared for a changing regulatory environment. It further ensures we are equipped to meet expectations from our international partners and “do business the right way.” In this regard, we adhere to our staff policy on Ethical Business Conduct.

We have continuously worked with the regulator on the Capital Management Solvency regulations. Liberty’s capital solvency of 2.13 times (compared to regulatory 1.8 times)

is a testimony to our robust actuarial practices. Liberty also achieved a global credit rating of AA- , which is the highest that can be awarded in the Kenyan market in line with Kenya’s sovereign global credit rating.

2.Reaching new market segments and a new generation of consumers.

The insurance penetration rate in Kenya currently stands at 3 percent. Combined with relatively strong economic growth prospects, a young population and a growing middle-class – most with smart-phones, this presents a great opportunity to reach the uninsured with appropriate products.

How this is reflected in our strategy:In order to capture this opportunity, we must understand why penetration is so low. An important part of our new product development strategy for the low income segment of the population includes a strong focus on consumer education and building trust in the formal insurance system - aspects which we have found are barriers for insurance uptake. In this regard, we pride ourselves in adhering to our Liberty Group principles of Treating Customers Fairly. Furthermore, our digital strategy and implementation plan are geared towards developing simple and affordable products.

In 2018 we continued to strengthen our partnership with KCB and continued marketing the KCB Elimisha product. KCB Elimisha is an innovative education savings tool that pays out a fixed sum upon maturity of the policy or in the event of the untimely death of a parent or guardian. This provides parents comfort that they are not only saving for their children’s education, but also covered in case of unforeseen circumstances.

3. Technology disruption. Globally, every major industry is undergoing disruption thanks to innovation driven by technology. The insurance industry is no exception. Technology is playing an increasingly significant role in shaping the way insurance companies interact with consumers to deliver cost-effective products, processes and services. It is also helping us better understand consumer behaviour based on data.


How this is reflected in our strategy:Investment in our ICT and technology systems will help us deliver enhanced customer-focused, convenient and cost-efficient services. Technology will also form an important part in our underwriting platforms and distribution channels.

In 2018, we continued to implement our redefined digital strategy and identifying new user friendly digital platforms and better embracing the internet to communicate. This is one way we continue to innovate the way we do business. Our innovation on this front enabled us be recognized by the 2018 Think Business Awards as second runners-up in the Most Innovative Insurance Company category for the second year in a row.

4. Increasing focus on good governance, ethical business, corporate citizenship and sustainability.

New sustainability policies, regulations and guidelines, combined with the felt effects of corruption, unemployment, climate change, resource scarcity and an increasingly socially aware next generation of consumers, are all emerging as strong drivers for corporate sustainability strategies. Similarly, international and local investors are increasingly considering corporate sustainability risks and strategies when making investment decisions. In this regard, integrated reporting is increasingly becoming the standard way of reporting to shareholders and other stakeholders. We believe that an integrated report is a powerful management tool for creating business value while enabling improved relations with shareholders and other stakeholders. While this report is not an integrated report, we have started the journey and are formalizing our strategies, internal processes and external reporting in this regard.

How this is reflected in our strategy:Our greatest impact on society and the environment comes from our suite of financial products which provide financial security to enhance people’s lives and opportunities. Our mission is centred on providing long-term insurance aimed at securing the health, education and financial future of our clients. As members of the community and as a commercial business, we support long-term sustainable

economic development, including the evolution of a strong and professional insurance industry in Kenya to establish the foundation for increased overall wellbeing. We believe that working towards this goal presents a real opportunity to drive value in the business.

5. Our sustainability strategy Sustainability means different things to different people. In 1987, the Brundtland Commission, formally known as the World Commission on Environment and Development, defined sustainable development as: “Development that meets the needs of the present without compromising the ability of future generations to meet their own needs.” At the broadest level, it is a social movement that seeks a large-scale transformation of how we as individuals, consumers and organizations understand value.

Our sustainability strategy is centred on social, economic, environmental and governance factors. In the coming year, Liberty will continue to:

Social: deliver on both our customer and employee value propositions, while we will maintain our commitment to our community initiatives;

Economic: continue to strive for both long-term commercial and economic success;

Environmental: examine our own internal processes to further find ways to cut back on our environmental footprint; and

Governance: maintain our reputation for integrity and work on ways in which we may further improve our corporate governance to continue to be a model for the industry in Kenya.

Continuing to integrate sustainability into our operations, risk and governance models.

i) OperationsOn the operations front, we continued to implement our revised operating model. This new model seeks to leverage on synergistic opportunities existing within the Liberty Kenya Holdings plc subsidiary companies to enable us to offer a one-stop-shopping experience thanks to our short and long term product offerings between Heritage and Liberty Life. Significant scales of economy are expected to arise from this new operating model in the future.

Our Strategy at a glance (Strategy 2020) (Continued)


Our Strategy at a glance(Strategy 2020) (Continued)Continuing to integrate sustainabilityinto our operations, risk and governancemodels (Continued)

In 2018, we also continued to use our electronic data management system, which has led to significant paper and time savings. This has improved our customer experience while simultaneously adding to our bottom line. We are able to respond to our customers’ policy requests and claims more quickly, while reducing the amount of paper required. In addition, we continued to leverage our research and retail divisions to engage customers and receive their feedback to help us keep up with their needs.

ii) RiskIn the past year, we continued operating on the new risk-based capital framework to enable us to further align our capital requirements with our risk appetite.

This followed the Insurance Act 2016 Amendment that took effect in January 2017. In the year under review, Liberty Life achieved a statutory solvency score in excess of 200 percent, comfortably above the expected 180 percent regulatory target for 2018.

What this means is that Liberty Life is more than sufficiently able to meet both long and short term liabilities, debt and other obligations due to its available cash flow. In a market such as ours where companies come and go so quickly, ensuring our risk appetite is within and beyond regulated expectations is key to ensuring longevity of operations enabling us to continue to serve our customers for decades to come.

iii) GovernanceWe pride ourselves on having been leaders in the field of corporate governance in the region having benefited from the experience of a larger pan African group. Liberty has embraced the most stringent corporate governance policies as it feels strongly it is the best way to ensure it is around for its customers tomorrow.

At times it may mean we are willing to sacrifice short-term profit over long-term goals, but we feel strongly that a long term outlook will maintain our relevance long into the future. We have worked with national regulators to serve as a model for our industry in terms of establishing prudent guidelines to ensure other insurance companies operate within similar parameters to ensure transparency and longevity of operations.

And we always strive to do better and continue to improve upon areas where possible. In 2018, at the Board level, Liberty Life, we welcomed Mr. Rajesh Shah as non-executive director. He brings to the board a wealth of experience, spanning over 37 years of providing professional services, including leading complex and advisory tax assignments in the public and private sectors. As to testimony to our prowess in governance we won the Company Secretary of the Year Award.

iv) Remaining relevant in the digital age:

Our products and innovation At Liberty Life, we exist to improve people’s lives by making their financial freedom possible. We therefore offer an array of products suited for individuals, families and businesses. To deliver this promise, we continuously collect customer feedback to inform our product development initiatives. Once the product is developed, it is subjected to market testing and feedback gathered is used to improve the product. In 2018, we launched Income Draw Down, a retirement plan.


Our Products and InnovationRemaining relevant in the digital ageAt Liberty Life, we exist to improve people’s lives by making their financial freedom possible. We therefore offer an array of products suited for individuals, families and businesses.

To deliver this promise we continuously collect customer feedback to inform our product development initiatives. Once the product is developed it is subjected to market testing,and feedback gathered is used to improve the product.

In 2018 we launched an education plan to the public, KCB Elimisha, in partnership with the Kenya Commercial Bank (KCB), one of the largest commercial banks in Kenya.

“We exist to improve people’s lives by making their financial freedom possible. Through Research and Innovation we are able to develop tailor made solutions that meet the client needs. This has also aided in defining our customer value proposition which we track and monitor regularly through Net Promoter Score (NPS) and Customer Satisfaction Index. The net promoter score has improved from -16 in 2016 to +42 by December 31 2018.”

Jackline Sagwe – Head of Research and Innovation.

A D V I C E I N S U R E I N V E S TRegulated by the Insurance Regulatory Authority

For more info, Call 0711 028 000 or email [email protected] visit www.liberty.co.ke

Live it up now, and in all your tomorrows

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You at 22

You at 72


Our Products and Innovation (continued)

Liberty life products in partnership with banking institutionsIn developing products with partners such as banks, Liberty Life Kenya is able to access a wider client base thus increasing its reach and widening its footprint in the country.

KCB Elimisha

INSURANCE AGENCY

Underwritten by Liberty Life Assurance Kenya Ltd.

CONTACT US TODAYCall: 0711 087000 or 0732 187000Email: [email protected]: www.kcbgroup.com

WITH KCB ELIMISHAAn education & life insurance plan for your family’s future

PARENTHOOD IS PARENTGOOD

Corporate plansEnable employers to offer benefits to their employees either during their working life or post retirement.

Our life covers ensure that those you care about most are financially stable in the event of your demise.

• Boresha Maisha Umbrella

• Group Life

• Group Credit Life

• Group Mortgage

• Last Expense

• KWFT Maisha Plus

Education plansOur education plans secure your child’s education, even in case of a parent or guardian’s unexpected passing.

• KCB Elimisha

• Educator Endowment

• Income Builder

Life protectionGain peace of mind that your loved ones are not financially burdened when you are gone.

• Whole of Life

• Triple Diamond Plan

• Endowment Assurance

Savings plansGiving individuals an opportunity to invest for a long term goal.

• Lifevest

Retirement plansOur solutions ensure that one is able to save and receive a lump sum payment upon retirement or a series of income payments post retirement.

• Premier Income Drawdown

• Boresha Maisha - IPP

• Annuity

Funeral plansGain peace of mind that your loved ones are not financially burdened when you are gone.

• Legacy Funeral Plan

KWFT Maisha PlusKWFT Maisha plus cover is offered by KWFT to all clients at a premium of Ksh. 75. It is designed to give client’s beneficiaries peace of mind in the unfortunate event that the client passes on, and ensures they are given a proper send off. This is done in conjunction with Liberty Life Assurance Kenya Limited.

Our Products Dashboard

Our Products and Innovation (continued)


Our Business Model

Our business model relies upon the sustainable utilisation and recycling of available capital resources to create value by providing solutions to individuals, or represented groups of individuals, that are aligned with their insurance risks and investment needs. In return, we either charge an appropriate fee or derive underwriting profits through pooling similar insurable risks, enhanced by optimizing ousetting risks. We maximise our ability to generate revenue through identifying customer needs and producing innovative product solutions and effective distribution and servicing.

Capitals Inputs in 2018FINANCIAL

Pool of funds supporting business operations

• Kshs. 2.74 Billion equity capital

• Kshs. 0 debt capital

• Kshs. (543.8 Million) Net customer cash inflows

• Kshs. 23.7 Billion assets under management

• Shareholder funds

INTELLECTUAL • Balance sheet management

• Market and data analysis

• In-house and acquired software

• Experienced board and executives

• Bancassurance partnership

Institutional knowledge, product development capability, systems, procedures and protocols

HUMAN

Competencies, capabilities and experience of our employees and how they innovate, collaborate and align with Liberty Life’s objectives

• 587 total workforce, including: 441 agents 148 employees 2 qualified, Actuary 3 Chartered Accountants (ACCA) 19 Certified Public Accountants of Kenya (CPA K)

• 100 % local workforce 50% senior management is female

• 54% of staff is female Over 56% of staff are youth (incl. millennials and generationz)

NATURAL

Renewable and non-renewable resources used by Liberty to function

• Electricity

• Water

• Fuel

• Land


Corporate Governance

We believe that good corporate governance provides a solid foundation to add value for our stakeholders and achieve our strategic objectives.

ENTITY VALUE CREATIONValue is created from two main activities:

Insurance Underwriting Profit InvestmentContracted premium income for risks insured, less claims and related acquisition and service expenses (actual and expected over contract duration)

Net investment income on shareholder investment market exposures (capital invested and derived exposures from insurance contract obligations), less group administration and strategic expenses

Key strategic differentiators which drive our value creation

Understanding customer preferences and financial needsEnables us to develop appropriate new products and distribution networks for the low-income segment of the population.

Adherence to international corporate governance standardsBuilds consumer confidence and trust in our brand, while allowing us to establish partnerships and solutions with international market actors.

Utilizing technological innovation for increased customer accessibility and convenienceAllows for increased customer satisfaction through faster and more convenient services and improved fraud detection thereby helping us keep pricing at the correct level.

Management and financial reporting practicesEnsures long-term sustainability of our business and long-term stable and sustainable returns to shareholders.

Our brand as an honest and trustworthy market-leader of sustainabiltyHelps us to reach new clients in currently underserved segments of the market, including the next generation of increasingly socially aware insurance consumers.

Risk ManagementLiberty Life is committed to increasing shareholder value through the prudent management of risks inherent in the production, distribution and maintenance of the company’s products and services. The Board is mindful of achieving this objective in the interests of all stakeholders in a sustainable manner.

To ensure appropriate risk prioritization and mitigation we identify the internal and external events (including stress and scenario tests, often in conjunction with Standard Bank and regulators) that may auect our strategies and potentially impact our results, capital and reputation.



Corporate Governance (continued)Key outputs in 2018 Stakeholder outcomesCUSTOMERS

• 626,665 lives insured

• 528 retirement schemes administered

• Kshs. 422 Million in death and disability claims paid

• New products launched to the public in 2018 (KCB Elimisha)

• Customer peace of mind through Liberty value propositions

• Responsible advice on financial needs

• Excellent customer service

• Customer satisfaction

EMPLOYEES

• Kshs. 377.2 Million paid in salaries

• Kshs. 13.69 Million invested in staff upskilling (Kshs 5.58 Million for females)

• 12.63% salaried staff voluntary turnover

• Guaranteed pay plus incentives

• Employee benefits

• Collaboration through Liberty citizenship principles

• Multi-level development and leadership programmes

• Regular performance assessments

REGULATORS

• Liberty Life CAR of 2.13x

• Participation in regulatory updates

• Kshs. 100 Million in taxes collected and paid to the Kenyan government

• Industry Ombudsmen and adjudicator findings

• Prudent risk management Business operated within risk appetite

• Improved business practices

• Fair treatment of customers

• Compliant products, policies and procedures

• Constructive engagement on policies and regulations

• Significant tax contributions to economies

COMMUNITIES

Kshs. 10.2 Million CSI spend in Kenya

• Scholarships - Kshs. 7,318,063

• Mentorship programme – Kshs. 1,412,016

• Kajiado Township / Mandela Day – Kshs. 1,316,000

• Other activities – Kshs. 153,860 27% paper reduction since 2017 implementation of EDMS

• Additional savings from energy efficiency and waste recycling

• Financial education opportunities

• Community investment

• Products genuinely supporting financial freedom

• Responsible management of waste and emissions

INVESTORS

• 11.12% normalized return on equity

• Kshs. 308 Million normalized headline earnings

• No dividends per share paid

• Returns through dividends and share price growth

• Competitive and risk adjusted returns


Our CommunityEngagements

he main objective of Corporate Social Investment (CSI) programmes initiated by Liberty Life Assurance Kenya Limited is to improve the lives of our customers, employees and the communities in which we operate in.

These initiatives cultivate a sense of customer loyalty and employee satisfaction. We have continually pursued this objective through CSI projects that are external to normal business activities of Liberty Life, and which are

not for purposes of direct profits. All projects that we undertake must have a strong developmental approach, for which we utilize company resources to benefit and uplift communities, and not primarily driven as marketing initiatives.

Our CSI policy, which has been approved by the Board and is also aligned to the Liberty Group policy, mainly focuses on education as the key pillar, while incorporating other areas of national significance. The CSI policy has the following guiding principles:

1. Strategic relevance – concerned primarily with education needs in the society.

2. Proportional payback – expenses incurred and resources allocated are covered by the notional value of the benefit derived by ensuring customer loyalty and employee satisfaction.

3. Substance – sufficient to make a real, measurable impact on society.

Education PillarIn 2018, a total of 127 high school students were signed up on the Liberty Life scholarship programme. Out of these, 33 were new selections, with 94 continuing students. Beneficiaries were either on partial or full scholarship, with 10 of them being children in need. Qualification for sponsorship on the programme is based on performance in the national Kenya Certificate of Primary Education (KCPE) examination, and it is only for the children of customers, staff or agents of Liberty Life. Academic progress of the beneficiaries is continuously monitored through review of their end-of-term performances.

We continue to leverage our established relationships with Starehe Boys’ Centre and Starehe Girls’ Centre to provide full scholarship to 10 needy students

T

4. Sustainability – projects should be sustainable for the impact to be felt by the intended beneficiaries.

In approving the CSI policy, the Board considered its impact on the company’s products, services, operations and procedures, to ensure they balance the needs of all stakeholders especially shareholders, employees, customers and the community at large.

at the moment. Beneficiaries are usually needy and deserving children whose parents (and guardians) cannot afford secondary school fees. We intend to continue nurturing these partnerships in coming years as we increase the number of full scholarships to benefit even more needy students, for enhanced contribution to the education sector. We aim to select students from different counties every year, which will eventually lead us to cover all 47 counties with the scholarship programme.

In line with our objective to maintain a close relationship with the students on the programme and the schools where they study, we conduct regular visits. The aim of these visits is to not only meet the students, but also have a mentorship session with the entire school community and explore

possible areas of partnership. In undertaking this activity, staff of Liberty Life, especially the alumnus, are involved, for an opportunity to impact the young minds.

In 2017, we visited Starehe Boys’ Centre, Starehe Girls’ Centre, Alliance Boy’s High School, Pangani Girls’ High School and Loreto Limuru Girls’ High School.

We also organized mentorship weekends for scholarship beneficiaries during school holidays, where we got to interact with the students. This has enhanced interaction and provided a mentoring opportunity to keep the students motivated and focused on achieving excellence in their academic goals.


Our CommunityEngagements (continued)

Adopt a SchoolIn 2015, Liberty Life, Heritage Insurance and Stanlib Kenya, adopted Kajiado Township Primary School. The school is situated in the arid region of Kajiado town; an area devoid of rain and where the scorching heat and semi-arid climate is a daily reality. To commemorate Nelson Mandela Day, every year the three companies set up a new initiative within the school to give the students a pleasant academic journey.

The first initiative was a water project started in 2015 to provide the school with safe and clean drinking water.

In 2016, we partnered with the school to build and stock a library to give pupils a decent place to study. We launched a pilot feeding programme to address poverty and nutritional needs affecting the pupils in 2017. Following its success, we officially launched a year-long feeding programme in 2018.

In 2018, Liberty Life initiated full sponsorship for high school education to the top performing boy and girl pupil in the school. This highly coveted prize has led to a significant improvement in in overall student performance.

“Liberty Life initiated full sponsorship for high school education to the top performing boy and girl pupil in the school.”

Health PillarIn order to impact the wider society, we continued partnering with other institutions involved in various health-related activities to enhance community welfare.

During the year, Liberty Life Kenya and Heritage Insurance sponsored the eighth edition of the Association of Kenya Insurers (AKI) Medical Camp held in Matuu, Machakos County.

The aim of the medical camps is to raise awareness on common diseases and ailments, promote good nutrition and to offer diagnostic, treatment and referral services to the community. The medical camps bring together insurance companies, community, medical personnel from nearby hospitals and health facilities.

Liberty Life Kenya and Heritage Insurance also came together to support the Faraja Cancer Trust’s White Water Rafting Challenge. The challenge is held every year to raise funds to support cancer patients and their caregivers- with the bulk of the funds going towards financing the trust’s operations. During the challenge, the Liberty Life team “Tough Jaduong” emerged overall winner.

During the year, we continued the ‘Stairwell Challenge’, where staff members engage in a contest to walk up 10 floors at Liberty House as many times as they can; and for every time they reach the topmost floor, the company donates Kshs. 400. All proceeds go towards the Kajiado Township School projects.

This challenge is organised by the CSI Committee periodically and is also meant to sensitise staff on the benefits of regular exercise and healthy living, while contributing to the needy in society. Since its launch in 2017, the initiative has raised Kshs. 441,800 that aided in the Kajiado Township feeding programme.

Other initiativesStarehe Girls’ Centre Charity WalkThe Liberty Life CSI team took part in this year’s Starehe Girls’ Charity Walk. The walk is an annual fundraising event that aims to raise money to fund the school’s operations.

The 10 kilometer walk was held at the Ngong Forest Sanctuary, with the company team walking side by side with students on the scholarship program. Liberty Life seized this opportunity to promote girls’ education under the scholarship program thus increasing the number of beneficiaries at the school.

Our CommunityEngagements (continued)

Starehe Boys’ Centre Founders’ DayLiberty Life once again supported the Annual Starehe Boys’ Founders’ Day. This event is held by the Starehe Boys’ Centre fraternity to commemorate the year the school was founded. This support comes from the existing relationship that Liberty Life has with the institution through its CSI arm.

The company currently sponsors nine students under the Liberty Life Grand Scholarship Program where five are fully sponsored and four are partially sponsored.

Rhino ChargeLiberty Life and Heritage Insurance sponsored the 30th edition of the Rhino Charge in Narok County. During the event, we distributed more than 2,000 reusable water bottles to participants in order to minimize usage of single-use plastic water bottles. The annual event is organised to raise funds to support activities of the Rhino Ark Kenya Charitable Trust, an NGO which works towards the conservation and protection of Kenya’s mountain range ecosystems, and water towers.

The reusable bottles donated by Liberty Life and Heritage Insurance went a long way in reducing plastic waste from the event. The sponsorship demonstrated the commitment by Liberty Life and Heritage Insurance to conduct business with respect for and protection of the environment.


Our CommunityLiberty at a glance

The Liberty Life CSI team presents a sponsorship cheque to Alliance High School.

The Liberty Life CSI team interacts with a class during a visit to Alliance High School.

A guest speaker at Kajiado Township where Liberty Life donated safe, clean drinking water at the local primary school.


Our CommunityLiberty at a glance (continued)

The Liberty Life team attends the AKI Medical Camp at Kajiado Township Primary School.

Part of the CSI team at Kajiado Township Primary School where Liberty Life donated safe, clean drinking water.

A medic attends to a Kajiado resident at the AKI Medical Camp.


Heritage Insurance MD Godfrey Kioi together with Liberty Life staff present a sponsorship cheque to Starehe Boys Centre during the 59th Founders’ Day celebrations.


Heritage Insurance MD Godfrey Kioi presents an award to a top student.


The Liberty Life CSI team present a sponsorship cheque to Pangani Girls High School.


The Liberty Life CSI team present a sponsorship cheque to Loreto Limuru High School.



P. N. GethiCHAIRMAN


Chairman’s Statement

Performance reviewThe year 2018 was generally a challenging one for the insurance industry in Kenya.

This, even as the overall economy stayed on the recovery path, growing by an impressive 5.7 percent. This economic growth was driven by improved agricultural production due to favourable weather conditions, coupled with increased outputs from real estate, manufacturing, wholesale and retail trade sectors. Headline inflation dropped significantly to 4.7 percent, from a high of eight percent the previous year, contributed by a notable decline in oil prices towards the end of the year. The Kenyan shilling strengthened against major currencies, during the year, due to lower currency demand from importers, improved tourism earnings and diaspora remittances, as well as increased repatriation of funds.

The equity markets were, however, on a downward trend during the year, with the Price-to-Earnings ratio declining to 11 percent below the five-year historical average of 13.1 percent. The bond market’s yield curve shifted downwards by 0.5 percent to 1.1 percent, getting steeper towards the end of the year. This depressed earnings from the insurance industry’s investments on the bourse, resulting in depressed key performance indicators.

Liberty Life Assurance Kenya Limited, despite the challenges, remained resilient, delivering a robust top-line. The Gross Premiums grew, which is mainly attributable to greater contribution of new business. This demonstrates solid business fundamentals, with regard to the future of the business. The company generated profit after tax of Shs 308 million (compared to Shs 403 million last year). Earnings declined on account of decreased investment valuations and investment income. Equities registered a fair value loss of Shs 562 million in 2018 as compared to a fair value gain of Shs 433 million in 2017.

The Board, working with the management, has initiated measures to increase the momentum of growth. This includes revamping the sales and distribution channels.

Change in directorshipWe welcomed Mr Rajesh Shah to the Board on 17 May 2018 as non-executive director. He brings to the board a wealth of experience, spanning over 37 years of providing professional services, including leading complex and advisory tax assignments in the public and private sectors. He is a member of the Institute of Certified Public Accountants of Kenya (ICPAK), in which he chairs the board of ICPAK Centre for Public Finance and Tax. He has also published technical papers and made presentations on tax, information technology, joint ventures, mergers and acquisitions, alliances, and business risk management. Please join me in welcoming Rajesh to the board.

New productsDuring the year, we continued with our track record of providing innovative life and pension products, in line with our purpose of improving lives of people by making financial freedom possible. We partnered with KCB Bank Kenya to launch KCB Elimisha, an affordable education insurance savings plan. KCB Insurance Agency, the Bank’s Bancassurance arm, is leading the rollout. The proposition is pegged on an array of benefits such as 15% premium discount on second life insured, flexible payment schedule with a discounted premium on quarterly, semi-annual and annual payment. It has terms ranging from 5 to 20 years, and is flexible with options on upgrade, downgrade and premium escalation.

Business environmentThe insurance industry weathered business headwinds, ranging from effects of the interest rate caps and regulatory changes to fraud.

Effects of the rate caps continued to affect the insurance industry, which has a symbiotic relationship with lending. When lending slows down, insurance business is also affected since it is a component of loans. Bancassurance, which is a key distribution channel, performed poorly, due to the subdued lending.

I am pleased to present to you the annual report and financial statements for the year ended 31 December 2018.


Chairman’s Statement (continued)

Ongoing shifts in the regulatory environment include new pieces of legislation that will affect how the industry operates. This includes the Insurance (Amendment Bill) 2018 and the Data Protection Bill. In addition to this, the ongoing harmonization of insurance laws across the East African Community is expected to ease business within the bloc. We remain supportive of regulatory changes that ultimately enhance access to insurance services, efficiency in conducting business, instilling professionalism and overall stability of the industry.

Rewards and recognitionDuring the year, Liberty Life Assurance Kenya Limited was recognized in the prestigious seventh annual Think Business Insurance Awards. Liberty Life received the winning prize for Young Achiever of the Year award and scooped the First runners up award in two categories, Life Insurer of the Year category and in the Customer Service category. I am pleased to present to you the annual report and financial statements for the year ended 31 December 2018.

2019 Economic outlookWe are optimistic about the fortunes of the business in the year 2019 in light of the following:

The combined impact of public spending on infrastructure and rollout of the Government’s Big Four Agenda initiatives are expected to boost the economy’s productivity. The improved economic performance will benefit the insurance industry.

The economy is expected to continue benefiting from the cooling down of political temperatures after prolonged electioneering. This has significantly nudged business and consumer confidence and we expect it to continue into 2019.

Our commitment remains the delivery of relevant and innovative solutions that confer financial freedom to our customers, thus contributing towards national development. On behalf of the Liberty Life Assurance Kenya Limited Board and staff, I pledge to continue working with regulators and our other stakeholders to make this a reality.

AcknowledgementsIn closing, I wish to salute our valued customers who continue to support Liberty for their patronage. We remain committed to offering the best possible service to one and all by being dependable and accessible at all times.

I also wish to thank our staff for the unwavering efforts to deliver on our purpose, shareholders for their support, and the rest of our stakeholder universe.

P N Gethi Chairman

14 March 2019


Honour the memory of your loved ones witha dignified funeral.


Managing Director’s Statement

At Liberty Life, we believe in taking a long-term view of all our operations. This is reflected in our investment towards understanding what our customers are saying and in our subsequent commitment to introduce products that add value to the customer.

From a business point of view, this is exemplified by the increasing contribution of new business to our gross premiums. In 2018, new business grew by an impressive 23 percent, contributing Shs 1.24 billion to the gross premiums that stood at Shs 4.6 billion. Even as we sustain contribution of new business, our focus on the customer remains at the core of our delivery.

We are a customer-centric organization and aspire to consistently deliver dependable, accessible and personalized service to our customers. During the year, we kicked off the process of revamping our agency structure to ensure that it continues to deliver value to the business. Since this is a key sales and distribution channel, we are revamping the network to ensure that it is aligned to deliver our customer value proposition. Part of this alignment includes deepening strategic partnership with our valued agents and brokers.

We also kicked off implementation of our business operating model that leverages synergies within the Liberty Kenya Holdings Group as well as the Liberty Group, in order to deliver a one-stop-shop experience. Working together with other subsidiaries within the group, this model is already bearing fruit, by leveraging economies of scale, thus leading to cost savings.

We continue to cultivate strategic partnerships that enable us to deliver financial freedom to our customers. This includes the current existing ones through bancassurance as a distribution channel, with institutions that include Stanbic Bank, Commercial Bank of Africa and KCB. Other strategic partnerships are with telcos and retailers.

We continually refine our internal processes in line with global best practices. In the immediate term, we are keenly managing our costs to ensure efficiency. We also continue to invest in research and innovation in our products and services, as well as enhance efficiency in operations for increased value to our customers. This business re-engineering process is part of our strategy to deliver growth in business volumes, greater profitability, cost savings and better customer experience. Key for us is to leverage emerging digital technologies that will not only keep us relevant to the dynamic needs of our customers,

but also automate our processes and enhance our delivery channels. Digital technology offers an opportunity to extend our reach beyond the ten cities in Kenya in which we currently have a physical presence.

At the core of all this is provision of a great place to work for each of our 148 members of staff. A conducive work environment is one that is meritorious and discrimination-free and supports efforts by staff to deliver on our customer proposition. During the year, we continued to engage staff to mobilise their support for our 2020 strategy, besides upskilling through regular training opportunities. Promoting staff welfare is a key priority and we have put in place robust guidelines for delivering this.Our sustainability agenda to invest in the communities we operate in remains on course. During the year, we continued investing in our Corporate Social Responsibility (CSR) initiatives anchored on the pillars of Education and Health. We intend to further integrate sustainability in our operations.

Going forward, and in line with our strategy of taking a long-term view, we are prioritizing technology, innovation and strategic partnerships, as pillars for delivering value to customers.

In conclusion, I wish to recognize the contribution of each member of the Liberty Life family in improving lives by delivering financial freedom. Let us continue building on our rich heritage that dates back to 1964.

Abel MundaManaging Director

14 March 2019

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Board of Directors and Senior Management

Mr P N Gethi Chairman

Mr A A Munda Managing Director

Mr M L du Toit** Non Executive Director

Mr G R May * Non Executive Director

Mr S Wenman ** Non Executive Director

Ms Rachel Mbai Non Executive Director

Ms Catherine Mitchem Non Executive Director

Mr Rajesh Shah Non Executive Director (Appointed 17th May 2018)Key* - British, ** - South African

Mr Abel Munda Managing Director

Ms Anna Manyara General Manager - Sales and Distribution

Dickson Komen Finance Manager

Mr Charles Kiboi General Manager - Information and

Communication Technology

Mr. Musili Kivuitu General Manager - Risk and Compliance

Mr. Asman Mugambi General Manager - Operations

Mr. Felix Ochieng General Manager - Human Resources

Ms. Mercy Kabangi General Manager Marketing and Communications

Ms. Jackline Sagwe Head of Research and Innovation

Key* - British, ** - South African

Ms Caroline Kioni Company Secretary

SENIOR MANAGEMENT

BOARD OF DIRECTORS

COMPANY SECRETARY


Your Future is secure with us.


Directors’ Report

Principal ActivitiesThe Company underwrites long-term insurance as defined in the Insurance Act. It also issues investment contracts to provide customers with asset management solutions for their savings and retirement needs.

Company Results and DividendProfit for the year of Shs 308,469,000 (2017 Restated: Shs 403,283,000) has been added to retained earnings. The Directors recommended and paid dividend of Shs 370 million net of tax for the year 2018; (2017 - Nil).

DirectorsThe names of the Directors who held office during the year and to the date of this report are set out on page 33. In accordance with the Company’s Articles of Association, all Directors retire and being eligible, offer themselves for re-election.

Business OverviewThe Company generated an after tax profit of Shs 308 million compared to the prior year’s Shs 403 million. Earnings declined on account of decreased investment valuations and investment income. Return on capital employed (ROCE) was 11.3% while shareholder funds improved by 0.22% and total assets decreased by 3%. Policyholder funds declined by 5%.

Risk is inherent and the Company is exposed to a variety of risks in the normal conduct of its business. The Company’s risk universe is broadly categorised into insurance, credit, market and operating risks. In order to effectively manage risk in the business, the Company has implemented a risk management governance framework that is premised on three lines of defence.

These are management, being the first line of defence, the Board and its committees being the second line of defence and finally auditors, both external and internal providing the third line of defence. The Company’s risk management objectives and policies are detailed in Note 2.

Relevant Audit InformationThe Directors in office at the date of this report confirm that:

• There is no relevant information of which the Company’s auditor is unaware; and

• Every Director has taken all the steps that they ought to have taken as a Director so as to be aware of any relevant audit information and to establish that the Company’s auditors are aware of that information

AuditorsThe auditors, KPMG Kenya, continue in office in accordance with Section 719 of the Kenyan Companies Act, 2015.

The financial statements set out on pages 52 to 102 were approved and authorised for issue by the Board of Directors on 14 March 2019.

By Order of the Board

Ms. Carol KioniCompany Secretary

14 March 2019

The directors submit their report together with the audited financial statements for the year ended 31 December 2018 which disclose the state of affairs of Liberty Life Assurance Kenya Limited.


Statement of Directors’ Responsibilities

The Directors are responsible for the preparation and presentation of financial statements of Liberty Life Assurance Kenya Limited, set out on pages 52 to 102 which comprise the statement of financial position as at 31 December 2018, 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, the notes to the financial statements which include a summary of significant accounting policies and other explanatory notes.

The Directors’ responsibilities include:• Determining that the basis of accounting described

in Accounting policy 1.2 is an acceptable basis for preparing and presenting the financial statements

• Preparation and presentation of financial statements in accordance with International Financial Reporting Standards and in the manner required by the Kenyan Companies Act, 2015;

• and for such internal control as the Directors determine is necessary to enable the preparation of financial statements that are free from material misstatements, whether due to fraud or error.

Under the Kenyan Companies Act, 2015, the Directors are required to prepare financial statements for each financial year that give a true and fair view of the financial position of the Company as at the end of the financial year and of the profit or loss of the Company for that year. It also requires the Directors to ensure the Company keeps proper accounting records that disclose with reasonable accuracy the financial position of the Company.

The Directors accept responsibility for the annual financial statements, which have been prepared using appropriate accounting policies supported by reasonable and prudent judgements and estimates, in conformity with International Financial Reporting Standards and in the manner required by the Kenyan Companies Act, 2015. The Directors are of the opinion that the financial statements give a true and fair view of the financial position of the Company and of its profit or loss.

The Directors further accept responsibility for the maintenance of accounting records that may be relied upon in the preparation of financial statements, as well as adequate systems of internal financial control.

The Directors have made an assessment of the Company’s ability to continue as a going concern and have no reason to believe the Company will not be a going concern for at least the next twelve months from the date of this statement.

Approval of the financial statementsThe financial statements, as indicated above, were approved and authorised for issue by the Board of Directors on 14 March 2019.

Mr. P. N. Gethi Mr. A. A. Munda14 March 2019 14 March 2019


We have conducted a review of the actuarial valuation of the life assurance business of Liberty Life Assurance Kenya Limited as at 31 December 2018 as performed by the Company’s actuarial function.

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

In completing the actuarial valuation, we have relied upon the financial statements of the Company as well as the data and unit values provided by the Company.

In our opinion, the life assurance business of the Company was financially sound and the actuarial value of the liabilities in aggregate for life insurance business did not exceed the amount of funds of the life insurance business as at 31 December 2018.

Ritin I Chauhan Appointed Actuary

Fellow of the Actuarial Society of South AfricaFellow of the Actuarial Society of KenyaQED Actuaries & Consultants (Pty) Ltd

Report of the Consulting Actuary


Report of the Independent Auditors to the Members of Liberty Life Assurance Kenya LimitedReport on the Audit of the Financial StatementsOpinion

We have audited the financial statements of Liberty Life Assurance Kenya Limited (“the Company”) set out on pages 52 to 102 which comprise the statement of financial position as at 31 December 2018, 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 notes to the financial statements including a summary of significant accounting policies and other explanatory information.

In our opinion, the accompanying financial statements give a true and fair view of the financial position of Liberty Life Assurance Kenya Limited as at 31 December 2018, and of the financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards and the Kenyan Companies Act, 2015.

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditors’ Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Company in accordance with the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants (IESBA Code) together with the ethical requirements that are relevant to our audit of the financial statements in Kenya and, we have fulfilled our other ethical responsibilities in accordance with these requirements and the IESBA Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Emphasis of matter

We draw attention to Note 30 of the financial statements, which describes the effects of amendment of the financial statements issued on 28 March 2019 on which we had issued our audit report dated 28 March 2019. Our opinion is not modified in respect of this matter.

Key audit matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion, and we do not provide a separate opinion on these matters.

Information Technology (IT) Systems and Controls

The key audit matter How the matter was addressed

Many financial reporting controls depend on the correct functioning of operational and financial Information Technology (IT) systems, for example interfaces between the operating systems and financial reporting systems, or automated controls that prevent or detect inaccurate or incomplete transfers of financial information. If these systems or controls fail, a significant risk of error in reported financial information can arise from the failure to transfer data appropriately between systems or inappropriate changes being made to financial data or systems. This is an area requiring particular audit attention in our audit due to the complexity of the IT infrastructure and legacy systems which require manual inputs, relative to more automated processes.

In this area our audit procedures included, among others:

• Testing general IT controls around system access and change management and testing controls over computer operations within specific applications which are required to be operating correctly to mitigate the risk of misstatement in the financial statements; With the support of our own IT specialists, we tested these controls through examining the process for approving changes to the systems, and assessing the restrictions placed on access to core systems through testing the permissions and responsibilities of those given that access; and

• With the support of our own IT specialists, we tested these controls through examining the process for approving changes to the systems, and assessing the restrictions placed on access to core systems through testing the permissions and responsibilities of those given that access.


Insurance and Pension Contract Liabilities (See Notes 20 and 21 to the financial statements)

The key audit matter How the matter was addressed

The Company has significant policyholder liabilities representing about 90% of the Company’s total liabilities. This is an area that involves significant judgement over uncertain future outcomes, mainly the ultimate total settlement value of long-term policyholder liabilities. Economic and operating assumptions, such as investment returns, mortality and persistency (including consideration of policyholder behaviour), expenses and expense inflation, withdrawals and sensitivity analysis are the key inputs used to estimate these long-term liabilities. The assumptions made have high estimation uncertainty and changes in the estimates may lead to material impact on the valuation of the liabilities. The valuation also depends on accuracy of data extraction from the information systems. If the data used is not complete and accurate then material impacts on the valuation of policyholder liabilities may also arise.

As a result of the above factors, insurance and pension contract liabilities was considered to be a key audit matter.

Our audit procedures in this area included, among others;

• Comparing the assumptions to expectations based on the Company’s historical experience, current trends and our own industry knowledge;

• Assessing the unit fund build-up for the unit-linked products;

• Evaluating the governance around the overall Company reserving process, including the scrutiny applied by the internal and appointed external actuaries. We assessed qualifications and experience of those responsible and examined the output of the reviews to assess the scope and depth of these processes. Our evaluation of the methodologies and key assumptions enabled us to assess the quality of the challenge applied through the Company’s reserving process;

• Using our actuarial specialists to review the reserving methodology applied and analytically reviewed the valuation results presented and movements since the previous year end. We focused on understanding the methodologies applied and examined areas of judgement such as changes in valuation assumptions;

• Considering the validity of management’s liability adequacy testing by assessing the reasonableness of the projected cash flows and challenging the assumptions adopted in the context of company and industry experience data and specific product features; and

• We also considered whether the Company’s disclosures in relation to the assumptions used in the calculation of insurance contract and pension liabilities are compliant with the relevant accounting requirements in particular the sensitivities of these assumptions to alternative scenarios and inputs.

Premium income and Receivables

See accounting policy notes:

• 1.2 (c) (i)) recognition and measurement of premium income

• 1.2 (c) (vi) receivables and payables related to insurance contracts and investment contracts

• 1.2 (k) financial instruments -(impairment)

See notes to the financial statements:

• 2 (d) Management of insurance and financial risk (Credit risk)

• 3 Gross earned premiums

Report of the Independent Auditors to the Members of Liberty Life Assurance Kenya Limited (continued)Report on the Audit of the Financial Statements (continued)


Insurance and Pension Contract Liabilities (See Notes 20 and 21 to the financial statements) continued

Significant judgment is involved in premium revenue recognition, determination of unearned premiums and estimation of provisions for uncollected premiums receivables. There are inherent risks in the valuation of reinsurance assets and insurance receivables. These balances require judgement to be applied by the Company for their valuation and their processing requires manual adjustments to be made.

Our audit procedures in this area included, among others;

• Evaluation and testing of key controls over the processes designed to record and monitor premium income and insurance and reinsurance receivables;

• Inspection of management’s aged analysis for premium receivables as at 31 December 2018;

• Understanding the terms of the reinsurance programmes in place and conducting relevant substantive procedures and substantive analytical procedures to assess the reasonableness of the reinsurance assets relative to gross provisions;

• Considering credit ratings for reinsurers, facultative and brokerage entities; and

• Testing of the manual adjustments on a sample basis by tracing back to supporting documentation.

Other information

The Directors are responsible for the other information. The other information obtained at the date of this auditors’ report is information included in the Annual Report and Financial Statements, but does not include the financial statements and our auditors’ opinion thereon.

Our opinion on the financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.

In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed on the other information obtained prior to the date of this auditors’ report, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.



As stated on page 36, the Directors are responsible for the preparation of the financial statements that give a true and fair view in accordance with International Financial Reporting Standards and in the manner required by the Kenyan Companies Act, 2015 and for such internal control, as the Directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, the Directors are responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the Company or to cease operations, or have no realistic alternative but to do so.

The Directors are responsible for overseeing the Company’s financial reporting process.

Auditors’ responsibilities for the Audit of the Financial Statements to the members of Liberty Life Assurance Kenya LimitedOur objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional scepticism throughout the audit. We also:

• Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control.

• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Directors.

• Conclude on the appropriateness of the Directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s

ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors’ report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors’ report. However, future events or conditions may cause the Company to cease to continue as a going concern.

• Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

• Obtain sufficient appropriate audit evidence regarding the financial information of the Company or business activities of the Company to express an opinion on the financial statements. We are responsible for the direction, supervision and performance of the entity’s audit. We remain solely responsible for our audit opinion.

We communicate with Directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

From the matters communicated with the Directors, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditors’ report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

Report on other legal and regulatory requirements

As required by the Kenyan Companies Act, 2015 we report to you, based on our audit, that:

• In our opinion the information given in the report of the directors on page 7 is consistent with the financial statements.

• Our report on the financial statements is unqualified.

The Signing Partner responsible for the audit resulting in this independent auditors’ report is CPA Alexander Mbai – P/2172.

KPMG Kenya

8th Floor, ABC Towers Waiyaki Way

P O Box 40612

00100 Nairobi GPO

Date: 26th April 2019


The Board of Directors

MIKE Du TOITNon-Executive Director

Mike du Toit is the Liberty Africa Regional Managing Director for East Africa responsible primarily for Strategic Growth initiatives. He joined Liberty in 2010, prior to which he was Managing Director of CfC Stanbic Bank (now Stanbic Bank) having led the merger of the Stanbic and CfC Groups.

As a career banker, he has extensive experience in the financial services field across sub-Sahara Africa having worked and lived in, amongst others, Botswana, Mozambique, South Africa and Uganda.

ABEL MUNDAManaging Director

Mr. Abel Munda holds a Masters of Business Administration and is a Certified Public Accountant. He is also a fellow of the Life Office Management Institute.

Mr. Munda has a rich working experience in accounting and financial management, having worked in various senior management positions both in the USA and Africa operations of American Life Insurance Company (ALICO) for over twenty two years prior to joining CfC Life Assurance Limited (now Liberty Life Assurance Kenya Limited) in February 2005 as the Finance Director.

In February 2006 he joined CfC Bank (now Stanbic Bank) as the director in charge of Finance and Administration, a position he held for two and a half years prior to joining CfC Life (now Liberty Life Assurance Kenya Limited) in 2008 as the Managing Director.

PETER GETHIChairman

Mr. Peter Gethi was appointed to the Board on 17 December 2009. He holds a BSc (Hons) Degree in Agriculture Economics and has expansive managerial experience in Agriculture Business Management. He has been a General Manager with Kilimanjaro Plantations Limited (TZ) and Senior Group Manager with SCEM Limited (formally Standard Chartered Estate Management).

He currently works both as an Agricultural Consultant and is involved with Real Estate Development as Managing Director of Nebange Ltd. He is also the Chairman of Heritage Insurance Company Kenya Limited and a director of The Heritage Insurance Company Tanzania Ltd, Stanbic Holdings Limited, Liberty Kenya Holdings Plc (formerly Liberty Kenya Holdings Limited)and Stanbic Bank Limited.

He serves on the Audit and Risk Committees of Liberty Kenya Holdings Plc (formerly Liberty Kenya Holdings Limited), and Heritage Insurance Company Tanzania Limited.


The Board of Directors (continued)

Ms. RACHEL MBAI Non-Executive Director

Rachel Mbai is a Kenya Advocate, Com-missioner of Oaths and Notary Public. After admission as an Advocate of the High Court of Kenya, she joined Kaplan & Stratton in 1991.Her work encompasses property acquisi-tion/disposal and development, property laws, property finance and loan securities and private client work. Ms Rachel Mbai was appointed to the board of Liberty Life Assurance Kenya Limited on 30 August 2017.

STUART WENMANNon-Executive Director

Mr Wenman is the Chief Executive Liberty Africa Insurance in charge of Insurance in Africa responsible for the strategy and commercial results of all the Life and Short Term Insurance businesses outside of South Africa for Liberty Holdings.

Mr Wenman is a graduate of University of the Witwatersrand Johannesburg Area, South Africa. He has vast experience in actuarial science, risk management and insurance.

GAYLING MAYNon-Executive Director

Mr. Gayling R. May, who was appointed to the Board in December 2009, has an extensive accounting background having worked for PricewaterhouseCoopers in various countries for 37 years.

He is a Fellow of The Institute of Chartered Accounts in England and Wales (FCA), a member of the Institute of Certified Public Accountants of Kenya (CPA) and a member of the Institute of Certified Public Secretaries of Kenya (CPS).

He holds directorships in Swissport Kenya Limited, British American Tobacco Kenya Limited, Liberty Life Assurance Company Kenya Limited, Heritage Insurance Company Kenya Limited, Liberty Kenya Holdings Plc (formerly Liberty Kenya Holdings Limited).

He is currently the Regional Representative of the Eastern Africa Association, a business information service based in Nairobi, and active throughout East Africa.

Mr. RAJESH SHAHNon-Executive Director

Mr. Rajesh Shah, who was appointed to the Board in May 2018, has an extensive accounting background having being a partner at PwC for over 25 years and is well known for leading complex financial advisory and tax assignments in both the public and private sectors.

He is a Fellow of the Institute of Certified Public Accountants of Kenya, for which he serves as Chairman of the Centre for Public Finance and Tax.

Ms. CATHERINE MITCHEMNon-Executive Director

Since completing her studies in biochemistry in the U.S., Catherine’s over 20 years’ professional experience has been earned in the U.S., Middle-East, Kenya and elsewhere in Africa, and spans technology, finance and biotechnology.

Ms. Mitchem has extensive experience in areas related to information technology and information security, co-founding a Washington D.C. based cybersecurity service provider, and engaging in various initiatives to bring business enabling technology solutions to the African market. Ms Catherine Mitchem was appointed to the board of Liberty Life Assurance Kenya Limited on 17 November 2017.


MR. DICKSON KOMENManager - Finance & Administration

Mr Dickson Komen is the Manager for Finance and administration for Liberty Life. He holds MBA (Finance) and BCom (Finance) both from the University of Nairobi.

He is also Certified Public Accountant of Kenya - CPA(K) and a Certified Trustee- through the Trustee Development Program of Kenya (TDPK).

Dickson has over 10 years experience in statutory and management reporting, strategic management, budgeting, system implementations, financial controls and expenses management gained from leading financial services firms including Old Mutual.

MR. ASMAN MUGAMBIGM - Operations

He holds MSc. Actuarial Management (Heriot Watt University –UK), BSc. Actuarial Science (First Class) from The University of Nairobi. Professionally, Asman is an Associate of the Institute of Actuaries, he is a Chartered Enterprise Risk Actuary, a PRINCE 2 project Management Practitioner and a Green Belt - Lean Six Sigma professional.

Asman has over 12 years’ experience specifically in insurance having worked at Alexander Forbes as an Actuarial Consultant, Old Mutual Kenya as Head of Actuarial and Old Mutual South Africa as an Actuarial Manager. His most recent assignment was as the Head of Operations and Customer Service at UAP –Old Mutual Group.

The Senior Management

Ms. ANNA MANYARA General Manager - Sales & Distribution

MMs. Anna Manyara joined Liberty Life Kenya in 2014. She spearheaded growth in Corporate business for 2 ½ years as General Manager, before her appointment in July 2017 as General Manager- Sales & Distribution (Corporate & Retail Business).

She holds an MBA in Finance (Daystar University) and is an Associate Member of the Chartered Insurance Institute (ACII) (London). She is also a Certified Trustee- through the Trustee Development Program of Kenya (TDPK).

Anna has Six (6) years in Executive leadership and has extensive experience in Employee Benefits - in developing and Emerging Markets in African continent. She is currently undertaking the Senior Management Leadership Program at Strathmore Business School.

Anna is married and a mother of 2.She has over 16 years Life and Pensions business experience gained at leading financial services firms including Minet Kenya and Alexander Forbes (Zamara). Her last role in Zamara entailed Heading the Sales and Distribution role.


Ms. JACKLINE SAGWEHead of Resaerch and Innovation

Jackline Sagwe is the Head of Research and Innovation. She holds a Master of Science in Statistics and a Bachelor of Education (Mathematics & Economics) with First Class Honours from the University of Nairobi. She also holds one year training in Research and Policy analysis from The Kenya Institute of Public Policy and Research Analysis (KIPPRA). She is a certified Lean Six Sigma Black Belt expert with a proven record of spearheading and executing process improvement and re-engineering initiatives using Lean Six Sigma Methodology. She has also attained Fellow of Life Management Association (FLMI) a Life Office Management Association (LOMA) certification.

She has over ten years’ experience in leading and managing research projects as well as strategic initiatives. She has co-authored 12 research papers and book chapter in international peer reviewed journals. She has previously worked at ICEA LION Group, The Kenya Institute of Management, African Population and Health Research Centre (APHRC), KIPPRA, Kenya Utalii College & USIU. She is passionate about using research and innovation experience to drive business strategy and growth.

The Senior Management (continued)

Mr. CHARLES KIBOIGeneral Manager ICT

Mr. Charles Kiboi holds a B.Ed (Hons) Degree in Mathematics and Computer Science from Kenyatta University. He also holds a Higher Diploma in Information Sysytems and CPA (2) certification.

He has been with the company for 18 years, for most of which has been as head of the IT function, Charles has a wealth of experience in the IT field having worked with leading institutions in Manufacturing and Finance sectors, both private and public. Among these are East African Breweries Limited and Agriculture Finance Corporation where he held technical positions in IT.

MR. FELIX OCHIENGGeneral Manager Human Resources

Mr Felix Ochieng is the General Manager for Human Resources. He holds a Bachelor of Arts Degree (Economics) from the University of Nairobi and is a registered Human Resource Practitioner with the Institute of Human Resource Management.

He has served in various capacities within the Human Capital function in the financial sector having started at CfC Bank (now Stanbic Bank). He has also served at Southern Credit, Diamond Trust Bank, Standard Bank as Africa Human Resources Business Partner for IT and Operations (based in SA) and lately at Standard Bank Malawi as the Head of Human Capital.

Mr. MUSILI KIVUITUGeneral Manager Risk & Compliance

Mr Musili Kivuitu is the General Manager for Risk and Compliance for Liberty Life. He holds a BSc (Hons) Degree in Physics from the University of Nairobi and is a Fellow of the Association of Certified Chartered Accountants (FCCA).

He has held several roles within the group having started at CfC Bank as an Internal Audit Manager before moving to CfC Life as the Head of Finance. Previously, he worked with PwC in the assurance services.


Ms. MERCY KABANGIMercy Kabangi | General Manager, Marketing and Communication, Liberty Life Kenya

Mercy Kabangi is a seasoned External Affairs and Marketing Professional who joined Liberty Life Kenya in 2018 as the General Manager, Marketing and Communication.

She leads both Liberty Life and Heritage Insurance Kenya’s Marketing, Brand and Corporate Communication programmes to establish, grow and protect Brand Equity and market share. She is also responsible for establishing strategic relationships with key partners in pursuit of overall business objectives.

With 15 plus years’ experience in Strategic Marketing and Communication, she has worked in diverse, senior roles within the extractive industry, public institutions and utilities, information technology (IT), international humanitarian organisations, financial markets and strategic communication consultancy.

Mercy holds an MBA in Strategic Management from the University of Nairobi and has completed leadership programmes in London, United Kingdom on Crisis and Reputation Management and Media Coaching for CEOs and Company Spokespeople. She has also undertaken comparative study tours on best practices in Strategic Communication in South Africa and Australia; Project Management for Professionals Certification and the Women in Executive Leadership Programme at Strathmore University Business School. She is passionate about mentorship and is currently serving in the Kenya Girl Guides Association Task Group for PR and Advocacy.


Statement on Corporate Governance

Liberty Life Assurance Kenya Limited is committed to a transparent governance process that provides stakeholders with a high degree of confidence that the Company is being managed ethically, within prudent risk parameters and in compliance with international best practices. The Board of Directors considers sound corporate governance as pivotal to delivering responsible and sustainable growth in the interests of all stakeholders.

At Liberty Life Assurance Kenya Limited we believe that good corporate governance is integral to the structures and processes that the Board has put in place to inform, advise, manage and supervise the activities of the Company towards the achievement of its strategic objectives. Liberty Life Assurance Kenya Limited constantly monitors developments and trends in corporate governance. We are subject to various jurisdictional requirements, and therefore we conduct our operations in accordance with nationally accepted principles of good corporate governance and best practices, ensuring compliance with the highest of each of those standards. The Board prescribes to the Commonwealth Association of Corporate Governance principles and has adopted the 15 recommended guidelines and associated best practice codes.

The Directors’ exercise stewardship of the Company’s total portfolio of assets and resources with the objective of maintaining and increasing shareholder value and satisfying other stakeholders in the context of its corporate mission. They are concerned with creating a balance between economic and social goals and between individual and communal goals while encouraging the efficient use of resources, accountability in the use of power and stewardship and, as far as possible, the alignment of interests of individuals, corporations and society as a whole.

The following report includes descriptions of our Company’s corporate governance structures and procedures, along with an explanation of the work of the various Boards and how they have applied the principles of leadership, effectiveness, accountability and relations with shareholders.

Board of DirectorsThe Board of Directors consists of one executive and seven non-executive Directors who have been chosen for their business acumen and wide range of skills and experience. The Board has an appropriate mix of proficient Directors, approved by the Insurance Regulatory Authority, who are able to add value through independent judgement in the decision making process. During the year, one new non-executive director was appointed to fill the casual vacancy created.

Board responsibilitiesThe Board has ultimate responsibility for the management, general affairs, direction, performance and long term success of our business as a whole. The responsibility of the Directors is collective, taking into account their combined roles as executives and non-executives. The Board has delegated the operational running of the Company to the Managing Director who although is responsible to the Board, is able to sub-delegate some of his powers at his discretion. Matters reserved for the Board include structural and constitutional issues, corporate governance, approval of dividends, approval of overall strategy for the Company and approval of significant transactions or arrangements in relation to mergers, acquisitions, joint ventures and disposals, capital expenditure, contracts and financing.

The Board has also established committees whose actions are regularly reported to and monitored by the Board.

Board meetings and attendanceThe Board meets at least four times during the year to review the financial performance and operations of the company. Other Board meetings are held periodically to discuss topical matters and strategic issues. The Chairman presides over all meetings.

The following table reflects the attendance of Directors at five Board meetings during 2018. A director if unable to attend a Board meeting, has the opportunity beforehand to discuss any agenda item with the Chairman. Attendance is expressed as the number of meetings attended out of the number eligible to attend.

Director Attendance

Peter Gethi (Chairman) 5/5

Abel Munda (Managing Director) 5/5

Gayling May 5/5

Mike du Toit 4/5

Stuart Wenman 5/5

Catherine Mitchem 3/5

Rachel Mbai 5/5

Rajesh Shah 3/3

Appointment of DirectorsUpon consideration and recommendation from the Nominating and Corporate Governance Committee for a candidate to be nominated as an independent Director, suitable candidates are appointed by the Board to fill the casual vacancies. They are thereafter elected as directors by


Statement on Corporate Governance(continued)

Appointment of Directors (continued)

the shareholders at an AGM. All existing Directors, unless they are retiring, submit themselves for re-election every year, and shareholders vote to re-appoint them by a simple majority vote.

Board evaluationThe Board remains focused on the need for continued improvements in its effectiveness and corporate governance performance and regularly conducts self-assessment evaluations along the lines of structure, process and effectiveness.

Board induction, training and supportAll newly appointed Directors are taken through an induction programme immediately upon appointment. The Board undertakes an annual Board enhancement training, with sessions covering corporate governance principles, Board enhancements and updates on legislation in relation to the duties of directors amongst others. Any specific training needs or areas of Board improvement identified from the Board’s self-evaluation process are also addressed regularly.

RemunerationLiberty Life Assurance Kenya Limited has a clear policy on remuneration of Executive and Non-Executive directors at levels that are fair and reasonable in a competitive market for the skill, knowledge, experience, nature and size of the Board.

Conflicts of interestLiberty Life Assurance Kenya Limited attaches special importance to avoiding conflict of interest between the Company and its Directors. The Board is responsible for ensuring that there are rules in place to avoid conflicts of interest by Board members. Conflicts of interest are understood not to include transactions and other activities between companies in the Liberty Life Assurance Kenya Limited and Liberty as a group.

Authorisation of situational conflicts is given by the Board to the relevant Director. The authorisation includes conditions relating to keeping Liberty Life Assurance Kenya Limited information confidential and to their exclusion from receiving and discussing relevant information at Board meetings. Situational conflicts are reviewed annually by the Boards as part of the determination of Director Independence. In between those reviews, Directors have a duty to inform the Boards of any relevant changes to their situation. A Director may not vote on, or be counted in a quorum in relation to, any resolution of the Board in respect of any contract in which he or she has a material interest. The procedures that Liberty Life Assurance Kenya Limited has put in place to deal with conflicts of interest continue to operate effectively.

Role of the Chairman vs the Managing DirectorThe roles of the Chairman and the Managing Director are clearly defined and are not vested in the same person. The day-to-day executive management of the Company is delegated to the Managing Director whereas the running of the Board is the responsibility of the Chairman. The Managing Director directs the implementation of the Board decisions and instructions on the general management of the Company with the assistance of the Executive Management.

The roles of the Board and those of the Executive Management are separate and except for the office of the Chief Executive who acts both as a director and as a member of the Executive Management, the offices are not vested in the same persons. The Board is responsible for the long term strategic direction and profitable growth of the Company, while the Executive Management is responsible for the operational day to day running of the Company.

Board CommitteesThe Board has established two Board Committees, the Audit and Risk Committee and the Investment Committee both formally set up by Board resolutions with defined mandates.

These committees are comprised of a balanced mix of non-executive directors, Executive management and Group consultants, with experts and service providers invited to meetings on occasions to provide specific expertise. All Committees are provided with sufficient resources to undertake their duties.

Audit and Risk CommiteeThe Committee consists of five non-executive Directors. It has an approved mandate and is responsible for the monitoring of risk management, compliance and internal controls as established by the Board and executed by the management of the Company.

It regularly reviews the internal systems controls and effectiveness of financial and operational reporting through the establishment of an internal audit function. It ensures the function is independent, adequately resourced and proficient in its duties. The committee also acts as a liaison with the external auditors approving their scope of work, recommending their remuneration and reviewing their reports.

The Audit and Risk Committee reports to the Board on a quarterly basis and constantly evaluates the ability of the Company to continue as a going concern. The Managing Director, General Manager in charge of Finance and Administration, General Manager in charge of Risk and Compliance and the Senior Audit Manager regularly attend



Audit and risk Committee - (continued)

the Committee meetings to respond to issues raised by Committee members. The Company Secretary attends the Committee meetings and acts as Secretary to the Committee.The attendance of Committee members at the five meetings held in the year 2018 was as follows:

Name Directorship Status Attendanceat meetings

Gayling May (Chairman)

Non - Executive Director 5/5

Mike du Toit Non - Executive Director 5/5

Stuart Wenman Non - Executive Director 5/5

Rachel Mbai Non - Executive Director 5/5

Rajesh Shah Non - Executive Director 1/1

Investment CommitteeThe primary function of the Investment Committee is to monitor performance of the Company’s investment portfolio and to ensure that the appointed investment managers comply with the set benchmarks and performance standards. This Committee consists of three non-executive Directors and the Managing Director.The Committee determines the overall investment strategy for the Company and monitors the performance of the fund managers in achieving the strategy. The Company Secretary attends the Committee meetings and acts as Secretary to the Committee.The members of the Committee, and their attendance at the five meetings held in the year 2018 was as follows:

Name Directorship Status

Attendance at meetings

Mike du Toit(Chairman)

Non-Executive Director

5/5

Abel Munda Executive Director 5/5

Stuart Wenman Non - Executive Director

5/5

Catherine Mitchem

Non - Executive Director

4/5

Management and Operational Committees

For effective implementation of the strategic plan and operations, several management Committees have been constituted. The members of these Committees are mainly the executive management team and business unit leaders. These Committees report to the Managing Director and form the basis of development of strategic objectives and performance management for the Company.Their main areas of focus are:• Development and implementation of the strategic plan and

budgets.• Monitoring of financial and operational performance of the

Company in line with budgets and international standards.• Management and monitoring of key projects being undertaken.• Implementation and management of ICT projects.• Product innovation and development.Internal control and risk managementLiberty Life Assurance Kenya Limited is committed to increasing shareholder value through the prudent management of risks inherent in the production, distribution and maintenance of products and services. Liberty Life Assurance Kenya Limited is mindful of achieving this objective in the interests of all stakeholders. The company continues to explore opportunities to develop and grow its business sustainably, with strategic plans being subject to careful consideration of the trade-off between risk and reward, taking into account the risk appetite limits.

Ultimate responsibility for risk management resides with the Board which ensures that the Business executive is responsible and is held accountable for risk management. The Business executive is supported by risk specialists who instill risk management best practices among all staff.

The Company’s governance structures and processes are aligned with enterprise-wide value and risk management principles. In particular these structures and processes provide clarity of accountability for the management of risk.

The Company has adopted the ‘three lines of defence’ model for managing risk. This model defines the roles, responsibilities and accountabilities for managing, reporting and escalating risks and issues. The model incorporates the oversight, management and assurance of risk management, essentially giving three independent views of risk in the organisation. The implementation of this model helps ensure that risk management is embedded in the culture of



Assurance

Governance

Management Oversight

Board of Directors and Key Sub-Committees

Liberty Life Executives and Key Sub-Committees

First line of defenceBusiness UnitExecutive CommitteeManagement of Operations

Second line of defenceStatutory ActuariesPolicy and Oversight• Head of Risk

Third line of defence• Internal Audit servicesand independent ExternalAuditors

the organisation and provides assurance to the Board and senior management that risk management is effective.Within this structure the Company relies on the Board, its

Governance and the ‘Three Lines of Defence’ modelThe chart below depicts Liberty Life Assurance Kenya Limited risk management governance model:

Roles and responsibilities within the governance modelThe roles, responsibilities and accountabilities for managing, reporting and escalating risks and issues have been defined as follows:a) Oversight Board of Directors and Standing Committees The Board of directors and standing committees of the

Board provide an oversight function of the Company’s risk management activities. Their accountabilities, membership and related information are described in the following commentary.

b) Management Committees The Managing Director utilises the Company Executive

Committee and key management committees to manage the components of risk.

c) First line of defence - Business Unit Management• Business unit management is accountable for:• Managing day-to-day risk exposures by applying

appropriate procedures, internal controls and company policies;

• The effectiveness of risk management and risk outcomes, and for allocating resources to execute risk management activities;

• Tracking risk events and losses, identifying issues and implementing remedial actions to address these issues; and

• Reporting and escalating material risks and issues to the relevant governance bodies as deemed appropriate.

standing committees and the Company executive committee to provide oversight of the operation of the Company’s enterprise-wide value and risk management.


d) Second line of defence - Head of Risk and Compliance, Statutory Actuaries, Company and Business Unit Risk Policy and Oversight functions

The individuals responsible for these positions are primarily responsible for verification and identification of key risks and provide the day-to-day interface between the Board’s standing committees and management. Their objective is to assist in the effective management of the risks identified within the Company. Various assurances are also provided by these functions and reported to the Board, regulators and other authorised stakeholder representatives.

e) Third line of defence - Assurance This comprises the Company’s assurance functions that are

intended to provide an independent and balanced view of all aspects of risk management (both first and second line of defence) across the Company to the various governance bodies within the organisation.

The Company’s key risk management objectives are to:• Grow shareholder value by generating a long-term

sustainable return on capital;• Ensure the protection of policyholder and investor interests

by maintaining adequate solvency levels;• Meet the statutory requirements regulated and monitored

by the IRA and other regulators; and• Ensure that capital and resources are strategically focused

on activities that generate the greatest value on a risk adjusted basis.

The management of risks is currently focused on managing shareholder exposures within strategic limits, whilst ensuring sufficient allocation of capital on both a regulatory and economic capital basis.

The framework is based upon the following principles:• Identification of risks• Clarity of accountability and ownership of risks• Risk appetite needs to be set making use of limits and

controls and the risks need to be managed accordingly• Risk quantification and measurement• Risk monitoring and reporting• Assessment of value creation on a risk adjusted basis

The Company enhances the risk management framework designed to achieve enterprise-wide value optimisation (value creation, value realisation and value protection) through the following six business capabilities:

• Capital funding and risk transfer• Strategic planning and capital allocation• Asset-liability and investment management• Product development and pricing• Performance management and incentivization• External communication and reporting risk management and

mitigation

Business ethicsThe Board subscribes to the highest levels of professionalism and integrity in conducting Liberty Life Assurance Kenya Limited business and in dealing with stakeholders. All Liberty Life Assurance Kenya Limited employees and representatives are expected to act in a manner that inspires trust and confidence from the general public. All employees within the Company are required to sign the Company’s Code of Conduct. The Code sets out the Company’s commitment to ethical behaviour in the conduct of its business. Appropriate codes of conduct are driven by governance practice (code of ethics, corporate citizenship code etc.), statutory and regulatory requirements, service objectives (service level agreements, business protocols, business excellence models) and the corporate governance framework itself. Management are required to ensure there is compliance with the code.

Strategic driveThe Liberty Life Assurance Kenya Limited Year 2015 to Year 2020 strategy has been developed by Staff and Management in liaison with the Board and was approved in Year 2015. The strategy is reviewed annually and built into the budgeting process for the respective years. At each quarterly Board meeting, the Board is briefed by Management of the progress made to achieve the various checkpoints as detailed in the strategic plan.

Statement on Corporate Governance(continued)Roles and responsibilities within the governance model (continued)


Take your financial stability to the next level.


Statement of Profit or Loss and other comprehensive income for the year ended31 December 2018

2018 2017 Restated* Note(s) Shs’000 Shs’000

Gross earned premiums 3 2,794,292 2,908,658Less: reinsurance premium ceded 3 (192,952) (228,980)

Net earned premiums 2,601,340 2,679,678

Commissions earned 122,407 130,825Investment income 4 1,824,470 1,719,571Interest income on financial assetsheld at amortised cost 4 227,555 310,512Investment (losses)/gains 4 (503,801) 492,000Fee income 15,638 14,641

Total Income 4,287,609 5,347,227

Claims and policyholder benefits payable 5 2,290,612 3,288,260Claims recoverable from reinsurers 5 11,441 (66,434)

Net insurance benefits and claims 2,302,053 3,221,826

Commissions payable 355,996 326,954Operating and other expenses 6 1,155,623 1,185,726

Total expenses and commissions 1,511,619 1,512,680

Total outflow 3,813,672 4,734,506

Profit before income tax 473,937 612,721

Income tax expense 8 (165,468) (209,438)

Profit for the year 308,469 403,283

Other Comprehensive Income Items that will not be reclassified to profit or loss: Gains on revaluation of land and buildings 11 14,879 85,429Change in long term policyholder insuranceliabilities (OCI)- effect of shadow accounting 11 (11,259) (64,879)Less: Deferred income tax on revaluation ofland and buildings 25 (1,086) (6,165)

Total items that will not be reclassified to profit or loss 2,534 14,385

Other comprehensive income for the year net of taxation 2,534 14,385

Total Comprehensive Income 311,003 417,668

* See note 1.2 (s)

The accounting policies on pages 56 to 76 and the notes on pages 78 to 102 form an integral part of the annual report and financial statements.


Statement of Financial Position as at31 December 2018

2018 2017 2016 Restated* Restated* Note(s) Shs’000 Shs’000 Shs’000

EquityShare capital 10 612,340 612,340 612,340Retained earnings - deficit 12 (315,548) (323,314) (339,874)Reserves 11&13 2,446,868 2,513,631 2,112,523

Total Equity 2,743,660 2,802,657 2,384,989AssetsProperty, plant and equipment 14 807,939 823,394 760,195Intangible assets 15 117,048 111,146 82,382Prepaid operating lease rentals - 596 607Investment property 16 1,081,555 1,191,434 1,166,863Held-to-maturity investments 17(c) - 4,664,543 5,277,985Financial investments 17(a,b&d) 18,446,952 15,891,428 12,995,756Deferred acquisition costs 35,594 17,589 15,012Insurance receivables 91,341 66,079 59,899Reinsurance receivables 50,906 47,405 -Re-insurers’ share of technical provisions and 18 76,172 118,490 120,848Current income tax recoverable 8 - 15,043 7,439Other assets 19 182,191 381,288 175,350Deposits with financial institutions 26 2,454,944 1,214,386 2,876,830Cash and bank balances 26 233,293 232,001 188,999Non-current assets held for sale 29 125,000 - -

Total Assets 23,702,935 24,774,822 23,728,165

LiabilitiesInsurance contract liabilities 20 2,884,246 3,037,878 2,986,030Policyholder liabilities underinvestment contracts 20 9,892,067 8,926,121 6,111,588Investment contracts with discretionaryparticipation features 21 5,860,977 7,833,598 10,367,517Outstanding claims 306,745 319,583 -Provision for unearned premiums 22 207,894 89,016 99,383Deferred income tax 25 1,059,981 1,085,120 906,120Creditors arising from reinsurancearrangements 47,032 86,926 49,207Other payables 23 548,903 593,923 528,398Current income tax 8 151,430 - -

Total Liabilities 20,959,275 21,972,165 21,343,176

Net Assets 2,743,660 2,802,657 2,384,989

* See note 1.2 (s)The financial statements and the notes on pages 52 to 102, were approved and authorised for issue by the Board of Directors on the 14 March 2019 and were signed on its behalf by:

P N Gethi G R May Mr A MundaChairman Non-Executive Director Managing DirectorThe accounting policies on pages 56 to76 and the notes on pages 78 to 102 form an integral part of the annual report and financial statements.


Statement of Changes in Equity

Share capital Statutory Revaluation Retained Total equity reserve reserve earnings Note(s) Shs’000 Shs’000 Shs’000 Shs’0002018Opening balance as previously reported 612,340 2,064,220 376,565 (315,464) 2,737,661Prior period adjustments 1.2(s)Change in liabilities - application ofshadow accounting - - (78,632) - (78,632)Gain on land revaluation - 67,062 84,416 - 151,477Deferred tax adjustments - - - (7,850) (7,850)Balance at 1 January 2018 as restated 612,340 2,131,282 382,349 (323,314) 2,802,657Profit for the year - - - 308,469 308,469Net of gain on revaluation of land andbuildings and change in liabilities 11 - - 3,620 - 3,620Recognition of deferred income taxon revaluation 25 - - (1,086) - (1,086)Total Comprehensive Income for the year - - 2,534 308,469 311,003Transfer from retained earnings tostatutory reserves 12&13 - 300,703 - (300,703) - Transfer from statutory reserves toshareholder funds 12&13 - (370,000) - 370,000 -Dividends 9 - - (370,000) (370,000)Total transactions with ownersof the Company - (69,297) - (300,703) (370,000)Balance at 31 December 2018 612,340 2,061,985 384,883 (315,548) 2,743,660

2017 Opening balance as previously reported 612,340 1,678,688 322,315 (339,121) 2,274,222Prior period adjustments 1.2(s) - Change in liabilities - application ofshadow accounting - - (37,432) - (37,432)Gain on land revaluation - 65,871 83,081 - 148,952Deferred tax adjustments - - - (753) (753)Balance at 1 January 2017 as restated 612,340 1,744,559 367,964 (339,874) 2,384,989Profit for the year - - - 403,283 403,283Net of gain on revaluation of landand buildings and change in liabilities 11 - - 20,550 - 20,550Recognition of deferred incometax on revaluation 25 - - (6,165) - (6,165)Total Comprehensive Income for the year - - 14,385 403,283 417,668Transfer from retained earnings tostatutory reserves 12&13 386,723 - (386,723) -Total transactions with ownersof the Company - 386,723 - (386,723) -Balance at 31 December 2017 612,340 2,131,282 382,349 (323,314) 2,802,657



Statement of Cash Flows for the year ended31 December 2018

2018 2017 Restated* Note(s) Shs’000 Shs’000

Cash flows from operating activitiesCash used in operations 27 (2,021,079) (1,724,693)Interest income 2,068,535 2,020,969Tax paid 8 (26,199) (44,207)Net Cash from operating activities 21,257 252,069

Cash flows from investing activities Purchase of property, plant and equipment 14 (13,767) (42,516)Sale of property, plant and equipment 14 6,389 -Purchase of other intangible assets 15 (50,153) (62,384)Cash inflows from equities 17(a((i) 788,318 225,422Cash outflows from equities 17(a(i)) (998,960) (1,168,625)Cash inflows from Govt and other securities - FV through Profit or Loss 17(a(ii)) 4,857,990 1,664,125Cash outflows from Govt and other securities - FV through Profit or Loss 17(a(ii)) (3,203,810) (2,329,303)Cash inflows from Government Securities - HTM 17(c) - 675,424Cash outflows from Government Securities - HTM 17(c) - (237,903)Cash inflows from policy loans 17(d(ii)) 43,835 88,304Cash outflows from policy loans 17(d(ii)) (62,815) (54,293)Cash outflows from Treasury Bills 17(b(ii)) (5,797,544) (5,918,921)Cash inflows from Treasury Bills 17(b(ii)) 5,812,341 5,196,018Cash inflows from mortgage loans 17(d(i)) 104,718 62,490Cash outflows from mortgage loans 17(d(i)) (62,077) (102,372Cash inflows from staff loans 17(d(iii)) 38,604 47,903Cash outflows from staff loans 17(d(iii)) (33,246) (47,361)Dividend income 160,770 132,48

Net Cash from/(used) in investing activities 1,590,593 (1,871,511)

Cash Flows from financing activities Dividends paid (370,000) -Net Cash used in financing activities (370,000) - Total Cash movement for the year 1,241,850 (1,619,442)Cash at the beginning of the year 1,446,387 3,065,82Total Cash at end of the year 26 2,688,237 1,446,387

* See note 1.2 (s)



Accounting PoliciesPresentation of annual report and financial statements

1.1 - Reporting entityLiberty Life Assurance Kenya Limited (“the Company”) is incorporated in Kenya under the Kenyan Companies Act, 2015 and is domiciled in Kenya. The address of its registered office is:-

Liberty House Mamlaka RdP.O. Box 30364-00100Nairobi

The Company is engaged in long-term insurance that comprises Life Assurance, Endowment, Unit-Linked products and Pension Administration contracts. Life assurance business relates to the underwriting of risks relating to death of an insured person with the option of taking additional cover to offer financial protection following the diagnosis or treatment of illnesses deemed critical. Endowment products provide an additional benefit at maturity provided the life assured survives to the end of the term and thus are commonly used as savings vehicles for education among other financial goals. Under the unit-linked savings products, a portion of the premium paid is invested in various asset classes depending on the policy holder’s risk appetite and investment needs and the remaining premium is used to provide insurance cover. All life contracts are subject to the payment of premiums either over the policy term or over the continuance of the life of an insured person. Pension contract relates to administration of pension scheme funds.For Kenyan Companies Act, 2015 reporting purposes, the balance sheet is represented by the statement of financial position and the profit or loss by the statement of profit or loss and other comprehensive income in these financial statements.

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

a) Basis of preparation The financial statements have been prepared in accordance

with International Financial Reporting Standards (“IFRS”) and the manner required by the Kenyan Companies Act, 2015. The measurement basis applied include the historical cost basis and fair value basis.

The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires the directors to exercise judgement in the process of applying the Company’s accounting policies. The areas involving a higher degree of judgement or complexity, or where assumptions and estimates are significant to the financial statements, are disclosed in Accounting policy 1.3.

b) New standards and interpretationsi) New standards and interpretations effective and adopted

during the year.

The Company has adopted the following new standards and amendments during the year ended 31 December 2018, including consequential amendments to other standards with the date of initial application by the Company being 1 January 2018. The nature and effects of the changes are explained below:New standards or amendments• IFRS 9 Financial instruments• IFRS 15 Revenue from contracts with customers• Classification and measurement of share-based payment

transactions (amendments to IFRS 2)• Applying IFRS 9 Financial instruments with IFRS 4 Insurance

contracts (amendment to IFRS 4)• IFRIC 22 Foreign currency transactions and advance

consideration• IAS 40 Transfers of investment property

IFRS 9 Financial instrumentsThe Company has applied IFRS 9 retrospectively, but has elected not to restate comparative information. As a result, the comparative information provided continues to be accounted for in accordance with the Company’s previous accounting policy for financial instruments (application of IAS 39). As a result of adoption of IFRS 9, the Company adopted certain consequential amendments to IAS 1 Presentation of Financial Statements, which requires the disclosure of interest revenue on the effective interest rate method, as well as impairment losses on financial assets held at amortised cost.As a result of the changes to IAS 1, the Company re-assessed the disclosures relating to financial liabilities designated at fair value through profit or loss under IFRS 9, and changed the presentation for any movements that are not of a capital nature or related to foreign currency translation. For the year ended 31 December 2018, these movements have been disclosed as fair value adjustments and finance charges are no longer separately disclosed.In addition, the Company adopted the consequential amendments to IFRS 7 Financial Instruments: Disclosures, which were applied in the 2018 financial year. Comparative disclosures have not been restated.Accounting policies applied from 1 January 2018 in respect of financial instrumentsi) Financial assets IFRS 9 applies two criteria to determine how financial assets

should be classified and measured, namely;• the entity’s business model for managing the financial assets; and• the contractual cash flow characteristics of the financial asset. Under IAS 39 Financial Instruments: Recognition and

Measurement, the Company designated the significant majority of financial assets at fair value through profit or loss. The Company has applied IFRS 9’s classification and measurement requirements based on the facts and circumstances of the various business models at the date of adoption of IFRS 9 in determining the transition adjustment.


Accounting Policies - (continued)1.2 - Summary of significant accounting policies (continued)b) New standards and interpretations (continued)b) (i) New standards and interpretations effective and adoptedduring the yeari) - Financial assets (continued)

• The business model of Liberty Life Assurance Kenya Limited is fair value through profit or loss (default) for all financial assets. The only exception being intercompany funding loans, which are held to collect contractual cash flows and classified at amortised cost.

• Application of the business model approach results in changes to classification for certain components of “Prepayments and other receivables” and “Cash and cash equivalents”. Under IFRS 9, they are all now classified at amortised cost. Previously certain components were designated at fair value through profit or loss under IAS 39. Due to the short-term nature of these financial instruments, there was no material impact on the change in measurement nor were there any impairment provisions on adoption of IFRS 9 as at 1 January 2018.

ii) Financial liabilities Financial liabilities classification and measurement under IFRS 9

has not changed significantly from IAS 39. The financial liabilities are either held at fair value (either required or designated) or at amortised cost.

The classification and measurement of subcomponents of other payables are classified at amortised cost under IFRS 9, rather than as previously designated at fair value through profit or loss under IAS 39.


Effect on the classification of financial assets and financial liabilities on application of IFRS 9The following table shows the original classification and carrying amount under IAS 39, and the new carrying amount under IFRS 9 for each class of the Company’s financial assets and financial liabilities as at 1 January 2018.

Kshs’000 Original New Original New Difference classification classification carrying carrying (Note 4) under IAS under IFRS amount amount 39 9 under IAS under IFRS 39 9 Financial assets Equity instruments Listed equities Designated FVPL 3,591,757 3,591,757 FVPL 3,591,757 3,591,757 Debt instruments Treasury Bonds HTM Amortised FVPL 3,035,042 2,924,334 (110,708) cost Treasury Bonds FV Designated FVPL 7,050,422 7,050,422 - FVPL Corporate Bonds HTM Amortised FVPL 1,629,501 1,598,348 (31,153) cost Treasury Bills Designated FVPL 3,636,643 3,636,643 - FVPL 15,351,608 15,209,747 (141,861)

Loans and receivables Policy loans Amortised Amortised 1,096,368 1,096,368 - cost cost Staff loans Amortised Amortised 93,173 93,173 - cost cost Mortgage loans Amortised Amortised 423,065 423,065 - cost cost 1,612,606 1,612,606 -

Prepayments and other receivables (excluding IFRS 4 insurance balances) Other assets Amortised Amortised 336,590 336,590 - cost cost Cash and cash equivalents Cash at bank and on hand Amortised Amortised 232,001 232,001 - cost cost Short-term cash deposits Amortised Amortised 1,214,386 1,214,386 - cost cost

1,446,387 1,446,387 -Financial liabilities Other payables (excluding Designated Amortised 229,829 229,829 -insurance payables) FVPL cost -

Accounting Policies - (continued)1.2 - Summary of significant accounting policies (continued)b) New standards and interpretations (continued)b) (i) New standards and interpretations effective and adoptedduring the year



IFRS 15 Revenue from Contracts with CustomersIFRS 15 established a comprehensive framework for determining and reporting the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity’s contracts with customers. It replaces all existing revenue standards and their related interpretations in IFRS and applies to all contracts with customers except for contracts that are within the scope of other standards on leases, insurance contracts and financial instruments and therefore does not impact the majority of the Company’s revenue.The standard outlines the principles that must be applied to measure and recognise revenue with the core principle being that revenue should be recognised at an amount that reflects the consideration to which an entity expects to be entitled in exchange for fulfilling its performance obligations to a customer. The principles in IFRS 15 must be applied using the following 5 step model:

i) Identify the contract(s) with a customer;ii) Identify the performance obligations in the contract;iii) Determine the transaction price;iv) Allocate the transaction price to the performance obligations in

the contract; andv) Recognise revenue when or as the entity satisfies its

performance obligations.Furthermore, the transaction price is determined by including an assessment of any variable consideration where the entity’s performance may result in additional revenues based on the achievement of agreed KPIs. Such amounts are only included based on the expected value or the most likely outcome method, and only to the extent that it is highly probable that no revenue reversal will occur.The Company has adopted IFRS 15 using the cumulative effect method (without practical expedients), with the effect of initially applying this standard recognised at the date of initial application (i.e. 1 January 2018). Accordingly, the information presented for 2017 has not been restated. Additionally, the disclosure requirements in IFRS 15 have not generally been applied to comparative information. Apart from providing more qualitative disclosures on the Company’s revenue transactions, the application of IFRS 15 has not had a significant impact on the financial position and/or financial performance of the Company. As at the date of initial application, no adjustments were required to the Company’s performance or financial position.Classification and Measurement of Share-based Payment Transactions (Amendments to IFRS 2)The following clarifications and amendments are contained in the pronouncement:

i) Accounting for cash-settled share-based payment transactions that include a performance condition

Up until this point, IFRS 2 contained no guidance on how vesting conditions affect the fair value of liabilities for cash-settled share-based payments. IASB has now added guidance that introduces accounting requirements for cash-settled share-based payments that follows the same approach as used for equity-settled share-based payments.

ii) Classification of share-based payment transactions with net settlement features

IASB has introduced an exception into IFRS 2 so that a share-based payment where the entity settles the share-based payment arrangement net is classified as equity-settled in its entirety provided the share-based payment would have been classified as equity-settled had it not included the net settlement feature.

iii) Accounting for modifications of share-based payment transactions from cash-settled to equity-settled

Up until this point, IFRS 2 did not specifically address situations where a cash-settled share-based payment changes to an equity-settled share-based payment because of modifications of the terms and conditions. The IASB has introduced the following clarifications:

• On such modifications, the original liability recognised in respect of the cash-settled share-based payment is derecognised and the equity-settled share-based payment is recognised at the modification date fair value to the extent services have been rendered up to the modification date. Any difference between the carrying amount of the liability as at the modification date and the amount recognised in equity at the same date would be recognised in profit and loss immediately.

The amendments are effective for annual periods beginning on or after 1 January 2018. Earlier application is permitted. The amendments are to be applied prospectively. However, retrospective application if allowed if this is possible without the use of hindsight. If an entity applies the amendments retrospectively, it must do so for all of the amendments described above.

The adoption of these changes did not affect the amounts and disclosures of the Company’s financial statements.

Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts (Amendments to IFRS 4)

The amendments in Applying IFRS 9 ‘Financial Instruments’ with IFRS 4 ‘Insurance Contracts’ (Amendments to IFRS 4) provide two options for entities that issue insurance contracts within the scope of IFRS 4:

• an option that permits entities to reclassify, from profit or loss to other comprehensive income, some of the income or expenses arising from designated financial assets; this is the so-called overlay approach;

• an optional temporary exemption from applying IFRS 9 for entities whose predominant activity is issuing contracts within the scope of IFRS 4; this is the so-called deferral approach.

The application of both approaches is optional and an entity is permitted to stop applying them before the new insurance contracts standard is applied.

An entity applies the overlay approach retrospectively to qualifying financial assets when it first applies IFRS 9. Application of the overlay approach requires disclosure of sufficient information to enable users of financial statements to understand how the amount reclassified in the reporting


period is calculated and the effect of that reclassification on the financial statements.

An entity applies the deferral approach for annual periods beginning on or after 1 January 2018. Predominance is assessed at the reporting entity level at the annual reporting date that immediately precedes 1 April 2016. Application of the deferral approach needs to be disclosed together with information that enables users of financial statements to understand how the insurer qualified for the temporary exemption and to compare insurers applying the temporary exemption with entities applying IFRS 9. The deferral can only be made use of for the three years following 1 January 2018. Predominance is only reassessed if there is a change in the entity’s activities.

The impact of adoption of IFRS 9 is captured in the table above under IFRS 9 financial instruments.

IFRIC Interpretation 22 Foreign Currency Transactions and Advance Consideration

This interpretation applies to a foreign currency transaction (or part of it) when an entity recognises a non-monetary asset or non-monetary liability arising from the payment or receipt of advance consideration before the entity recognises the related asset, expense or income (or part of it).

This interpretation stipulates that the date of the transaction for the purpose of determining the exchange rate to use on initial recognition of the related asset, expense or income (or part of it) is the date on which an entity initially recognises the non- monetary asset or non-monetary liability arising from the payment or receipt of advance consideration:

(a) at fair value; or(b) at the fair value of the consideration paid or received at a

date other than the date of initial recognition of the non- monetary asset or non-monetary liability arising from advance consideration (for example, the measurement of goodwill applying IFRS 3 Business Combinations).

The amendments apply retrospectively for annual periods beginning on or after 1 January 2018, with early application permitted.

The adoption of these changes did not affect the amounts and disclosures of the Company’s financial statements.

Transfers of Investment Property (Amendments to IAS 40) The IASB has amended the requirements in IAS 40 Investment

property on when a company should transfer a property asset to, or from, investment property.

The amendments are effective for periods beginning on or after 1 January 2018. Earlier application is permitted. An entity applies the amendments to changes in use that occur on or after the beginning of the annual reporting period in which the entity first applies the amendments.

Changes

The amendments in Transfers of Investment Property (Amendments to IAS 40) are:

• Paragraph 57 has been amended to state that an entity shall transfer a property to, or from, investment property when, and only when, there is evidence of a change in use. A change of use occurs if property meets, or ceases to meet, the definition of investment property. A change in management’s intentions for the use of a property by itself does not constitute evidence of a change in use.

• The list of evidence in paragraph 57(a) – (d) was designated as non-exhaustive list of examples instead of the previous exhaustive list.

The adoption of these changes did not have a significant impact on the financial statements of the Company.

ii) New and amended standards and interpretations in issue but not yet effective for the year ended 31 December 2018.A number of new standards, amendments to standards and interpretations are not yet effective for the year ended 31 December 2018, and have not been applied in preparing these financial statements.The Company does not plan to adopt these standards early. These are summarised below:

New standard or amendments

Effective for annual periods beginning on or after

• IFRS 16 Leases 1 January 2019

• IFRIC 23 Income Tax exposure

1 January 2019

• IFRS 9 Prepayment Features with Negative Compensation

1 January 2019

• IAS 28 Long-term Interests in Associate and Joint Ventures

1 January 2019

• IFRS 17 Insurance Contracts

1 January 2022

• Sale or Contribution of Assets between an Investor and its Associate or Company (Amendments to IFRS 10 and IAS 28).

Deferred indefinitely


Applying IFRS 9 Financial Instruments with IFRS 4 InsuranceContracts (Amendments to IFRS 4) (continued)


IFRS 16: LeasesOn 13 January 2016, the IASB issued IFRS 16 Leases, completing the IASB’s project to improve the financial reporting of leases. IFRS 16 replaces the previous leases standard, IAS 17 Leases, and related interpretations.The objective of IFRS 16 is to report information that (a) faithfully represents lease transactions and (b) provides a basis for users of financial statements to assess the amount, timing and uncertainty of cash flows arising from leases. To meet that objective, a lessee should recognise assets and liabilities arising from a lease.IFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract, i.e. the customer (‘lessee’) and the supplier (‘lessor’). The standard defines a lease as a contract that conveys to the customer (‘lessee’) the right to use an asset for a period of time in exchange for consideration.A company assesses whether a contract contains a lease on the basis of whether the customer has the right to control the use of an identified asset for a period of time.The standard eliminates the classification of leases as either operating leases or finance leases for a lessee and introduces a single lessee accounting model. All leases are treated in a similar way to finance leases. Applying that model significantly affects the accounting and presentation of leases and consequently, the lessee is required to recognise:

(a) assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value. A company recognises the present value of the unavoidable lease payments and shows them either as lease assets (right- of-use assets) or together with property, plant and equipment. If lease payments are made over time, a company also recognises a financial liability representing its obligation to make future lease payments.

(b) depreciation of lease assets and interest on lease liabilities in profit or loss over the lease term; and

(c) separate the total amount of cash paid into a principal portion (presented within financing activities) and interest (typically presented within either operating or financing activities) in the statement of cash flows

IFRS 16 substantially carries forward the lessor accounting requirements in IAS 17. Accordingly, a lessor continues to classify its leases as operating leases or finance leases, and to account for those two types of leases differently. However, compared to IAS 17, IFRS 16 requires a lessor to disclose additional information about how it manages the risks related to its residual interest in assets subject to leases.The standard does not require a company to recognise assets and liabilities for:

(a) short-term leases (i.e. leases of 12 months or less) and;(b) leases of low-value assets

The new Standard is effective for annual periods beginning on or after 1 January 2019. Early application is permitted insofar as the recently issued revenue Standard, IFRS 15 Revenue from Contracts with Customers is also applied.

Potential Impact of IFRS 16 to the CompanyLiberty as a lessorLiberty, has operating leases only. Enhanced disclosures are required to improve information disclosed about a lessor’s risk exposure, particularly to residual value risk with any rights it retains in underlying assets.Liberty as a lesseeLiberty performed an assessment of contracts and it was concluded that leases of properties were the only material class of underlying assets that will be recognised as right-of-use assets. All other classes of underlying assets will be treated as leases of low value and be expensed on a monthly basis. Liberty will also apply the exemption for short-term leases.The Company will recognise right-of-use assets and lease liabilities for its operating leases of property under IAS 17. Previously, the Company recognised operating lease expenses on a straight-line basis over the term of the lease. The nature of expenses related to those leases will now change from operating lease charges to depreciation charges for right-of-use assets and interest expense on lease liabilities. IFRS 16 will result in the front-loading of expenses as interest expense charges will be higher during the initial years of the lease, and decrease as the lease liability unwinds. The impact of the difference is not expected to be material for the CompanyBased on an assessment of leases as at 1 January 2019, the Company estimates that it will recognise right-of-use assets and equivalent lease liabilities of about Shs. 9.7 million as at 1 January 2019. TransitionLiberty will apply IFRS 16 initially on 1 January 2019, using the modified retrospective approach. Comparatives are not restated under this approach.

IFRIC 23 Clarification on accounting for Income Tax exposuresIFRIC 23 is effective for annual reporting periods beginning on or after January 1, 2019. Earlier application is permitted. The interpretation is to be applied to the determination of taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates, when there is uncertainty over income tax treatments under IAS 12.The requirements are applied by recognizing the cumulative effect of initially applying them in retained earnings, or in other appropriate components of equity, at the start of the reporting period in which an entity first applies them, without adjusting comparative information. Full retrospective application is permitted, if an entity can do so without using hindsight.IFRIC 23 clarifies the accounting for income tax treatments that have yet to be accepted by tax authorities, whilst also aiming to enhance transparency.

Accounting Policies - (continued)1.2 - Summary of significant accounting policies (continued)b) New standards and interpretations (continued)b) (ii) New and amended standards and interpretations in issue but not yet

effective for the year ended 31 December 2018 (continued)


IFRIC 23 explains how to recognise and measure deferred and current income tax assets and liabilities where there is uncertainty over a tax treatment.An uncertain tax treatment is any tax treatment applied by an entity where there is uncertainty over whether that treatment will be accepted by the tax authority.If an entity concludes that it is probable that the tax authority will accept an uncertain tax treatment that has been taken or is expected to be taken on a tax return, it should determine its accounting for income taxes consistently with that tax treatment. If an entity concludes that it is not probable that the treatment will be accepted, it should reflect the effect of the uncertainty in its income tax accounting in the period in which that determination is made. Uncertainty is reflected in the overall measurement of tax and separate provision is not allowed.The entity is required to measure the impact of the uncertainty using the method that best predicts the resolution of the uncertainty (that is, the entity should use either the most likely amount method or the expected value method when measuring an uncertainty).The entity will also need to provide disclosures, under existing disclosure requirements, about

(a) judgments made;(b) assumptions and other estimates used; and(c) potential impact of uncertainties not reflected.

The adoption of these changes will not have a significant impact on the financial statements of the Company. Prepayment Features with Negative Compensation (Amendments to IFRS 9)The amendments clarify that financial assets containing prepayment features with negative compensation can now be measured at amortised cost or at fair value through other comprehensive income (FVOCI) if they meet the other relevant requirements of IFRS 9.Management is currently evaluating the impact of the new standard to the Company’s financial statements.The amendments apply for annual periods beginning on or after 1 January 2019 with retrospective application, early adoption is permitted.Long-term Interests in Associates and Joint Ventures (Amendment to IAS 28)The amendments clarify that an entity applies IFRS 9 to long-term interests in an associate and joint venture that form part of the net investment in the associate or joint venture but to which the equity method is not applied.The adoption of these standard will not have an impact on the financial statements of the Company.The amendments apply for annual periods beginning on or after 1 January 2019 with retrospective application, early adoption is permitted.

IFRS 17 Insurance ContractsIFRS 17 Insurance Contracts sets out the requirements that an entity

should apply in reporting information about insurance contracts it issues and reinsurance contracts it holds. An entity shall apply IFRS 17 Insurance Contracts to:

(a) insurance contracts, including reinsurance contracts it issues;(b) reinsurance contracts it holds; and(c) investment contracts with discretionary participation features it

issues, provided the entity also issues insurance contracts.IFRS 17 requires an entity that issues insurance contracts to report them on the statement of financial position as the total of:

(a) the fulfilment cash flows—the current estimates of amounts that the entity expects to collect from premiums and pay out for claims, benefits and expenses, including an adjustment for the timing and risk of those amounts; and

(b) the contractual service margin—the expected profit for providing insurance coverage. The expected profit for providing insurance coverage is recognised in profit or loss over time as the insurance coverage is provided.

IFRS 17 requires an entity to recognise profits as it delivers insurance services, rather than when it receives premiums, as well as to provide information about insurance contract profits that the Company expects to recognise in the future. IFRS 17 requires an entity to distinguish between groups of contracts expected to be profit making and groups of contracts expected to be loss making. Any expected losses arising from loss-making, or onerous contracts are accounted for in profit or loss as soon as the Company determines that losses are expected. IFRS 17 requires the entity to update the fulfilment cash flows at each reporting date, using current estimates of the amount, timing and uncertainty of cash flows and of discount rates. The entity:

(a) accounts for changes to estimates of future cash flows from one reporting date to another either as an amount in profit or loss or as an adjustment to the expected profit for providing insurance coverage, depending on the type of change and the reason for it; and

(b) chooses where to present the effects of some changes in discount rates—either in profit or loss or in other comprehensive income.

IFRS 17 also requires disclosures to enable users of financial statements to understand the amounts recognised in the entity’s statement of financial position and statement of profit or loss and other comprehensive income, and to assess the risks the Company faces from issuing insurance contracts.IFRS 17 replaces IFRS 4 Insurance Contracts. IFRS 17 is effective for financial periods commencing on or after 1 January 2022. An entity shall apply the standard retrospectively unless impracticable. A company can choose to apply IFRS 17 before that date, but only if it also applies IFRS 9 Financial Instruments and IFRS 15 Revenue from Contracts with Customers.The adoption of these changes is expected to affect the amounts and disclosures of the Company’s financial statements. The impact is in the process of being quantified.Sale or Contribution of Assets between an Investor and its Associate or Company (Amendments to IFRS 10 and IAS 28)

Accounting Policies - (continued)1.2 - Summary of significant accounting policies (continued)b) New standards and interpretations (continued)b) (ii) New and amended standards and interpretations in issue but not yet


IFRIC 23 Clarification on accounting for IncomeTax Exposures (continued)


The amendments require the full gain to be recognised when assets transferred between an investor and its associate or company meet the definition of a ‘business’ under IFRS 3 Business Combinations. Where the assets transferred do not meet the definition of a business, a partial gain to the extent of unrelated investors’ interests in the associate or company is recognised. The definition of a business is key to determining the extent of the gain to be recognised.The effective date for these changes has now been postponed until the completion of a broader review.

c) Insurance ContractsClassificationThe Company issues contracts that transfer insurance risk or financial risk or both. Insurance contracts are those contracts that transfer significant insurance risk. Such contracts may also transfer financial risk. As a general guideline, the Company defines as significant insurance risk, the possibility of having to pay benefits on the occurrence of an insured event that are at least 10% more than the benefits payable if the insured event did not occur.Investment contracts are those contracts that transfer financial risk with no significant insurance risk. The accounting policy for these contracts is described under accounting policy 1.2 (e) to the financial statements.Insurance contracts and investment contracts are classified into one main category, depending on the duration of risk and as per the provisions of the Kenyan Insurance Act.

Recognition andMeasurementi) Premium Income Premiums are recognised as revenue when they become

payable by the contract holder. Premiums are shown before deduction of commission.

ii) Claims Benefits are recorded as an expense when they are incurred.

Claims arising on maturing policies are recognised when the claim becomes due for payment. Death claims are accounted for on notification. Surrenders are accounted for on payment.

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

Where insurance contracts have a single premium or a limited number of premium payments due over a significantly shorter

period than the period during which benefits are provided, the excess of the premiums payable over the valuation premiums is deferred and recognised as income in line with the decrease of unexpired insurance risk of the contracts in-force or for annuities in force, in line with the decrease of the amount of future benefits expected to be paid.

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

iii) Commissions payable and deferred acquisition costs (“DAC”) Deferred acquisition costs represent the proportion of

commissions payable and other acquisition costs that relate to policies that are in force at the year end where the premium has not been earned. DAC is recognised as an asset and is subsequently amortised over the life of the contracts in line with premium revenue using assumptions consistent with those used in calculating future policy benefit liabilities.

iv) Liability adequacy test At each financial reporting date, liability adequacy tests are

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

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

v) Reinsurance contracts held Contracts entered into by the Company with re-insurers

under which the Company is compensated for losses on one or more contracts issued by the Company and that meet the classification requirements for insurance contracts are classified as reinsurance contracts held. Contracts that do not meet these classification requirements are classified as financial assets. Insurance contracts entered into by the Company under which the contract holder is another insurer (inward reinsurance) are included with insurance contracts. During the twelve months ended 31 December 2018, the Company did not enter into any inward reinsurance contracts (2017: Nil).

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

Accounting Policies - (continued)1.2 - Summary of significant accounting policies (Continued)b) New standards and interpretations (continued)b) (ii) New and amended standards and interpretations in issue but not yet


IFRS 17 Insurance Contracts (continued)


Reinsurance liabilities are primarily premiums payable for reinsurance contracts and are recognised as an expense when due.

The Company assesses its reinsurance assets for impairment on a quarterly basis. If there is objective evidence that the reinsurance asset is impaired, the Company reduces the carrying amount of the reinsurance asset to its recoverable amount and recognises that impairment loss in the profit or loss. The Company gathers the objective evidence that a reinsurance asset is impaired using the same process adopted for financial assets held at amortised cost. The impairment loss is also calculated following the same method used for these financial assets. These processes are described in accounting policy 1.2 (k).

vi) Receivables and payables related to insurance contracts and

investment contracts Receivables and payables are recognised when due. These

include amounts due to and from agents and insurance contract holders.

If there is objective evidence that the insurance receivable is impaired, the Company reduces the carrying amount of the insurance receivable accordingly and recognises that impairment loss in the profit or loss. The Company gathers the objective evidence that an insurance receivable is impaired using the same process adopted for loans and receivables. The impairment loss is also calculated under the same method used for these financial assets. These processes are described in Accounting policy 1.2 (k).

d) Revenue recognition The company has adopted IFRS 15 using the cumulative effect

method (without practical expedients), with the effect of initially applying this standard recognised at the date of initial application (i.e. 1 January 2018). Accordingly, the information presented for 2017 has not been restated. Additionally, the disclosure requirements in IFRS 15 have not generally been applied to comparative information. Apart from providing more qualitative disclosures on the company’s revenue transactions, the application of IFRS 15 has not had a significant impact on the financial position and/or financial performance of the company. As at the date of initial application, no adjustments were required to the company’s performance or financial position.

IFRS 15 established a comprehensive framework for determining and reporting the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity’s contracts with customers. It replaces all existing revenue standards and their related interpretations in IFRS and applies to all contracts with customers except for contracts that are within the scope of other standards on leases, insurance contracts and financial instruments and therefore does not impact the majority of the company’s revenue.

The standard outlines the principles thats must be applied to measure and recognise revenue with the core principle being

that revenue should be recognised at an amount that reflects the consideration to which an entity expects to be entitled in exchange for fulfilling its performance obligations to a customer. The principles in IFRS 15 must be applied using the following 5 step model:

i) Identify the contract(s) with a customer;ii) Identify the performance obligations in the contract;iii) Determine the transaction price;iv) Allocate the transaction price to the performance obligations in

the contract; andv) Recognise revenue when or as the entity satisfies its

performance obligations Furthermore, the transaction price is determined by including

an assessment of any variable consideration where the entity’s performance may result in additional revenues based on the achievement of agreed KPIs. Such amounts are only included based on the expected value or the most likely outcome method, and only to the extent that it is highly probable that no revenue reversal will occur.

i) Insurance premium revenue The revenue recognition policy relating to insurance contracts is

set out under accounting policy 1.2 (c) above.ii) Commissions earned Commissions receivable are recognised as income in the period

in which they are earned.iii) Rendering of services Revenue arising from asset management and other related

services offered by the Company are recognised in the accounting period in which the services are rendered. Fees consist primarily of investment management fees arising from services rendered in conjunction with the issue and management of investment contracts where the Company actively manages the consideration received from its customers to fund a return that is based on the investment profile that the customer selected on origination of the instrument.

These services comprise the activity of trading financial assets in order to reproduce the contractual returns that the Company’s customers expect to receive from their investments. Such activities generate revenue that is recognised by reference to the stage of completion of the contractual services. In all cases, these services comprise an indeterminate number of acts over the life of the individual contracts. For practical purposes, the Company recognises these fees on a straight-line basis over the estimated life of the contract. Certain upfront payments received for asset management services (‘front-end fees’) are deferred and amortised in proportion to the stage of completion of the service for which they were paid.

The Company charges its customers for asset management and other related services using the following different approaches:

• Front-end fees to cover policy set up costs and commission are charged to the client on inception. This approach is used particularly for single premium contracts. The consideration

Accounting Policies - (continued)1.2 - Summary of significant accounting policies (continued)

c) Insurance contracts (continued)v) Reinsurance contracts held (continued)


received is recognised as income to the company as and when it is received; and

• Regular fees are charged to the customer periodically (monthly, quarterly or annually) either directly or by making a deduction from invested funds. Regular charges billed in advance are recognised as income to the company over the billing period.

iv) Interest income Interest income for all interest-bearing financial instruments,

including financial instruments measured at fair value through profit or loss, is recognised within “investment income’ (Note 4) in the profit or loss using the effective interest rate method. When a receivable is impaired, the Company reduces the carrying amount to its recoverable amount, being the estimated future cash flow discounted at the original effective interest rate of the instrument, and continues unwinding the discount as interest income.

v) Dividend income Dividend income for equities is recognised when the right to

receive payment is established – this is the ex-dividend date for equity securities.

e) Investment contracts The Company designates investment contracts with fixed

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

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

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

f) Functional currency and translation of foreign currenciesi) Functional and presentation currency Items included in the financial statements are measured using

the currency of the primary economic environment in which the entity operates (‘the functional currency’). The financial statements are presented in Kenya Shillings (“Shs”) which is the Company’s functional currency.

ii) Transactions and balances Foreign currency transactions are translated into the functional

currency of the respective entity using the exchange rates

prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the profit or loss.

Foreign exchange gains and losses that relate to borrowings and cash and cash equivalents are presented in the profit or loss within ‘finance income or cost’. All other foreign exchange gains and losses are presented in profit or loss within ‘other income’ or ‘other expenses’.

g) Property and equipment All categories of property and equipment are initially recorded

at cost. Buildings are subsequently shown at market value, based on annual valuations by external independent valuers, less subsequent depreciation. Property and equipment are subsequently measured at historical cost less depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items.

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

Increases in the carrying amount of buildings arising on revaluation are credited to a revaluation reserve. Decreases that offset previous increases of the same asset are charged against the revaluation reserve; all other decreases are charged to the profit or loss. Each year the difference between depreciation based on the revalued carrying amount of the asset (the depreciation charged to the profit or loss) and depreciation based on the asset’s original cost is transferred from the revaluation reserve to retained earnings.

Depreciation is calculated on a straight line basis to write down the cost of each asset, or the revalued amount, to its residual value over its estimated useful life as follows:Buildings 25 - 40 yearsFurniture, Fittings and Equipment 3 - 10 yearsMotor Vehicles 4 years

The above rates are for both current and comparative periods.

The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each financial reporting date.

Property and equipment is reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the


d) Revenue recognition (Continued)


higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units).

Gains and losses on disposal of property and equipment are determined by reference to their carrying amounts and are taken into account in determining profit or loss. On disposal of revalued assets, amounts in the revaluation reserve relating to that asset are transferred to retained earnings.

h) Investment property Investment properties comprise land and buildings and parts

of buildings held to earn rentals and/or for capital appreciation. Investment property is subsequently measured at fair value, determined annually by external independent valuers. Fair value is based on active market prices as adjusted, if necessary, for any difference in the nature, condition or location of the specific asset.

Investment properties are not subject to depreciation. Changes in their carrying amount between financial reporting dates are recorded, net of deferred tax, through the profit or loss. On disposal of an investment property, the difference between the net disposal proceeds and the carrying amount is charged or credited to the profit or loss.

i) Intangible assets Acquired computer software licences are capitalised on the basis

of the costs incurred to acquire and bring to use the specific software. These costs are amortised over their estimated useful lives (three to five years).

Costs associated with developing or maintaining computer software programmes are recognised as an expense as incurred. Costs that are directly associated with the production of identifiable and unique software products controlled by the Company, and that will probably generate economic benefits exceeding costs beyond one year, are recognised as intangible assets. Direct costs include the software development, employee costs and an appropriate portion of relevant overheads.

Computer software development costs recognised as assets are amortised over their estimated useful lives (not exceeding five years).

j) Impairment of non-financial assets Assets that have an indefinite useful life are not subject to

amortisation and are tested annually for impairment. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash

flows (cash-generating units). Non-financial assets other than goodwill that suffered impairment are reviewed for possible reversal of the impairment at each reporting date.

k) Financial instruments The company adopted IFRS 9 retrospectively on 1 January

2018, but has elected not to restate comparative information. As a result, the comparative information provided continues to be accounted for in accordance with the company’s previous accounting policy for financial instruments (application of IAS 39). For ease of reference, the accounting policies include references to IFRS 9 and IAS 39. For noting, IFRS 9 did not change initial recognition, derecognition, offsetting or the fair values of financial instruments at fair value (IFRS 13).

As permitted under IFRS 9, the company has elected to continue to apply the hedge accounting requirements of IAS 39.

All financial instruments are measured initially at fair value plus directly attributable transaction costs and fees, except for those financial instruments that are subsequently measured at fair value through profit or loss where such transaction costs and fees are immediately recognised in profit or loss. Financial instruments are recognised (derecognised) on the date the company commits to purchase (sell) the instruments (trade date accounting).

i) Financial Assets Financial assets include financial investments, assets held for

trading and for hedging, interests in associates and interests in joint ventures measured at fair value through profit or loss, repurchase agreements, scrip and collateral assets, components of receivables that are not measured under IFRS 4, cash and cash equivalents and intercompany balances.

Financial assets under IFRS 9Financial assets are classified and measured based on the business model and nature of cash flows associated with the instrument as follows:

• Amortised costA debt instrument that meets both of the following conditions (other than those designated at fair value through profit or loss):

• Held within a business model whose objective is to hold the debt instrument (financial asset) in order to collect contractual cash flows.

• The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. This assessment includes determining the objective of holding the asset and whether the contractual cash flows are consistent with a basic lending arrangement.

Subsequent to initial measurement, the financial assets are measured at amortised cost using the effective interest method with interest recognised in interest income, less any expected credit impairment losses which are recognised as part of credit impairment charges.


g) Property and equipment (continued)


Directly attributable transaction costs and fees received are capitalised and amortised through interest income as part of the effective interest rate. Interest income is shown as a separate line on the face of the income statement (combined with interest income on financial assets held at fair value through OCI)

• Fair value through other comprehensive income (OCI) Upon adoption of IFRS 9, the company has no equity

instruments that have been elected to be measured at fair value through other comprehensive income.

A debt instrument that meets both the following conditions (other than those designated at fair value through profit or loss):

• Held within a business model in which the debt instrument (financial asset) is managed to both collect contractual cash flows and sell financial assets; and

• The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

This assessment includes determining the objective of holding the asset and whether the contractual cash flows are consistent with a basic lending arrangement.

• Fair value through other comprehensive income (OCI) (continued)

Subsequent to initial measurement, the financial assets are measured at fair value, with gains and losses recognised directly in the fair value through OCI reserve. When a debt financial asset is disposed of, the cumulative fair value adjustments, previously recognised in OCI, are reclassified to fair value adjustments on financial instruments.

Interest income on debt financial assets is recognised in interest income in terms of the effective interest method. Interest income from these assets is shown as a separate line on the face of the statement of profit or loss (combined with interest from financial assets held at amortised cost).

• Held for trading Those financial assets acquired principally for the purpose of

selling in the near term (including all derivative financial assets) and those that form part of a portfolio of identified financial instruments that are managed together and for which there is evidence of a recent actual pattern of short-term profit taking.

Subsequent to initial measurement, the financial assets are measured at fair value, with gains and losses arising from changes in fair value recognised in fair value adjustments.

• Designated at fair value through profit or loss Financial assets are designated to be measured at fair value

through profit or loss to eliminate or significantly reduce an accounting mismatch that would otherwise arise.

Subsequent to initial measurement, the financial assets are measured at fair value, with fair value gains and losses (including interest and dividends) on financial assets are recognised in the

income statement as part of fair value gains or losses on financial instruments.

• Fair value through profit or loss (default) Financial assets that are not classified into one of the above

mentioned financial asset categories; and/ or where the business model is that performance is assessed on a fair value basis.

Fair value gains and losses on the financial asset are recognised in the income statement as part of fair value gains or losses on financial instruments.

ImpairmentExpected credit losses (ECL) are recognised on debt financial assets classified as at either amortised cost or fair value through OCI and financial guarantee contracts that are not designated at fair value through profit or loss.The measurement basis of the ECL of a financial asset includes assessing whether there has been a significant increase in credit risk (SICR) at the reporting date which includes forward-looking information that is available without undue cost or effort at the reporting date about past events, current conditions and forecasts of future economic conditions. A significant change in credit risk (SICR) is when there is a material change in the probability of default, since origination. The measurement basis of the ECL, which is set out in the table that follows, is measured as the unbiased and probability-weighted amount that is determined by evaluating a range of possible outcomes, the time value of money and forward-looking information.

Stage 1 A 12-month ECL is calculated for financial assets which are neither credit-impaired on origination nor for which there has been a SICR.

Stage 2 A lifetime ECL allowance is calculated for financial assets that are assessed to have displayed a SICR since origination and are not considered low credit risk.

Stage 3 Alifetime ECL is calculated for financial assets that are assessed to be credit impaired. The following criteria are used in determining whether the financial asset is impaired:• Default: A financial asset is considered to be in default

when there is objective evidence of impairment. Exposures which are overdue for more than 90 days are also considered to be in default.

• Significant financial difficulty of borrower and/or modification.

• Probability of bankruptcy or financial reorganisation.• Disappearance of an active market due to financial

difficulties.

ECLs are recognised as a deduction from the gross carrying amount of the asset. Therefore assets subject to ECLs are disclosed on a net basis, in the statement of financial position. The gross ECLs are disclosed in the note.

Accounting Policies - (continued)1.2 - Summary of significant accounting policies (continued)k) Financial instruments (continued)

Financial assets under IFRS 9 (continued)


Financial assets are written off when there is no reasonable expectation of recovery. Financial assets which are written off may still be subject to enforcement activities.Cash and cash equivalentsCash and cash equivalents comprise:

• balance with banks• highly liquid short-term funds on deposit; and• cash on hand

Instruments included in this category are those with an initial term of three months or less from the acquisition date. It does not include money market securities held for investment. Cash and cash equivalents are classified according to the business model assessment, either at fair value through profit or loss default, or at amortised cost. Due to the short-term nature of cash and cash equivalents, the amortised cost approximates fair value.Prepayments and other receivablesPrepayments and other receivables are initially measured at fair value through profit or loss, with subsequent measurement at fair value through profit or loss (default) or at amortised cost. Those balances at amortised cost are subject to ECL impairment testing. The company has elected to apply the simplified approach for trade receivables that do not contain a significant financing component, contract assets and lease receivables. This means that the entity assesses lifetime losses on day one, and does not have to do the three stage testing as per the general ECL calculation. Financial assets under IAS 39Under IAS 39, financial assets within the company were classified either as:

• Fair value through profit or loss being financial assets held-for- trading, financial assets held for hedging and designated at fair value through profit or loss at inception; or

• Loans and receivables, measured at amortised cost.The Company classifies its financial assets into the following categories: financial assets at fair value through profit or loss; loans, advances and receivables; cash and cash equivalent and held-to-maturity financial assets. Management determines the appropriate classification of its financial assets at initial recognition.In general, financial assets within the company were designated on initial recognition as at fair value through profit or loss, in line with the group’s strategy to manage financial investments acquired to match its insurance and investment contract liabilities. In addition, shareholders’ equity is invested under a formal capital management strategy that actively measures performance on a fair value basis. Interest income and dividends received on financial assets at fair value through profit or loss were recognised separately as investment income.Financial assets carried at amortised cost were subjected to IAS 39’s incurred loss impairment model.

Reclassification (IFRS 9 and IAS 39)Reclassifications of financial assets under IFRS 9 are permitted when, and only when, the company changes its business model for managing financial assets, in which case all affected financial

assets are reclassified. Under IAS 39, financial assets could only be reclassified in rare circumstances.Derecognition (IFRS 9 and IAS 39)Financial assets are derecognised when the contractual rights to receive cash flows from the investments have expired or on trade date when they have been transferred and the company has also transferred substantially all risks and rewards of ownership. Non- cash financial assets pledged, where the counterparty has the right to sell or repledge the assets to a third party, are classified as repurchase agreements, scrip and collateral assets.

ii) Financial liabilities under IFRS 9Financial liabilities include financial liabilities under investment contracts, third-party financial liabilities arising on consolidation of mutual funds, financial liabilities, liabilities held for trading and for hedging, repurchase agreements liabilities and collateral deposits payable and other payables.Financial liabilities are classified and measured as follows:Nature

Held-for-trading

Those financial liabilities incurred principally for the purpose of repurchasing in the near term (including all derivative financial liabilities) and those that form part of a portfolio of identified financial instruments that are managed together and for which there is evidence of a recent actual pattern of short-term profit taking.

Designated at fair value through profit or loss

Financial liabilities are designated to be measured at fair value if in doing so it would eliminate or significantly reduce an accounting mismatch that would otherwise arise where the financial liabilities are managed and their performance evaluated and reported on a fair value basis.

Amortised cost

All other financial liabilities not included in the above categoriesii) Financial liabilities under IFRS 9 (continued)

Subsequent measurement

Held-for-trading

Fair value, with gains and losses arising from changes in fair value recognised in fair value adjustments on financial instruments..

Designated at fair value through profit or loss

• Fair value, with gains and losses arising from changes in fair value (including finance costs but excluding fair value gains and losses attributable to own credit risk) recognised in the fair value adjustments on financial instruments.

• Fair value gains and losses attributable to changes in own credit risk are recognised within OCI, unless this would create or enlarge an accounting mismatch in which case the own credit risk changes are recognised within profit or loss.

Amortised cost

Amortised cost using the effective interest method recognised in interest expense.

Accounting Policies - (continued)1.2 - Summary of significant accounting policies (continued)k) Financial instruments (continued)

Impairment (Continued)


Other payablesOther payables are initially measured at fair value through profit or loss, with subsequent measurement either at fair value through profit or loss (default) or at amortised cost, depending on the business model assessment.

Financial liabilities under IAS 39Financial liabilities under IAS 39 were either held for trading liabilities at fair value through profit or loss, financial liabilities designated at fair value through profit or loss, or classified at amortised cost. Under IAS 39, finance costs for financial liabilities designated at fair value through profit or loss were separated from the fair value movement.Reclassification – a financial liability may not be reclassified.Derecognition (IFRS 9 and IAS 39) – financial liabilities are derecognised when they are extinguished, that is when the obligation is discharged, cancelled or expires.Inter-company loans (IFRS 9 and IAS 39)Based on an assessment of the business model and contractual cash flows under IFRS 9, in the company financial statements, inter-company loans (being financial instruments) are classified

Accounting Policies - (continued)1.2 Summary of significant policies (continued)k) Financial instruments (continued)

at amortised cost. Under IAS 39, they were designated on initial recognition at fair value through profit or loss. Inter-company balances are callable on demand.

iii) Financial guarantee contractsA financial guarantee contract is a contract that requires the company (issuer) to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payment when due in accordance with the original or modified terms of a debt instrument.Financial guarantee contracts are initially recognised at fair value, which is generally equal to the premium received, and then amortised over the life of the financial guarantee. Financial guarantee contracts (that are not designated at fair value through profit or loss) are subsequently measured at the higher of the:

• The amount determined in accordance with the expected credit loss model in IFRS 9; and

• The amount initially recognised (fair value) less, where appropriate, the cumulative amount of income recognised in accordance with the principles of IFRS 15.

iv) Derivative financial instruments

General Initial recognition Subsequent Measurement

Derivative financial instruments is:• Financial asset when fair value is positive• Financial liability when fair value is negative

Initially recognised at fair value on the date the derivative contract was entered.The best evidence of fair value at initial recognition is the transaction price (i.e. the fair value of the consideration given or received) unless the fair value of that instrument is evidenced by comparison with other observable current market transactions in the same instrument or based on a valuation technique whose variables include only observable market data

Subsequently measured at fair value.Fair values of exchange-traded derivatives are obtained from quoted market prices. Fair values of over-the-counter derivatives are obtained using valuation techniques, including discounted cash flow models and option pricing models.The method of recognising fair value gains and losses depends on whether the derivatives are designated as:• hedging instruments, and if so, the nature of the hedge relationship; or• held for trading instruments.

v) Hedge accounting

Type of hedge Nature and treatment

Derivatives that qualify for cash flow hedge accounting

Those derivatives designated as hedges of highly probable future cash flows attributable to a recognised asset or liability.Hedge accounting is applied provided certain criteria are met.The company documents, at the inception of the hedge relationship, the relationship between hedged items and hedging instruments, as well as its risk management objective and strategy for undertaking various hedging relationships• The company documents its assessment, both at the inception of the hedge and on an ongoing

basis, of whether the hedging instruments are highly effective in offsetting changes in fair values or cash flows of hedged items.


Accounting Policies - (continued)1.2 Summary of significant policies (continued)k) Financial instruments (continued)

v) Hedge accounting (continued)

Cash flow hedges The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges are recognised in the cash flow hedging reserve in the statement of comprehensive income. The ineffective part of any gain or loss is recognised immediately in profit or loss as investment income gains or losses.Amounts recognised in other comprehensive income (OCI) are transferred to profit or loss in the periods in which the hedged forecast cash flows affect profit or loss.If the derivative expires, is sold, terminated, exercised, no longer meets the criteria for cash flow hedge accounting, or the designation is revoked, then hedge accounting is discontinued. The cumulative gains or losses recognised in OCI remain in OCI until the forecast transaction affects profit or loss in the case of a financial asset or a financial liability. If the forecast transaction is no longer expected to occur, the cumulative gains and losses recognised in OCI are immediately transferred to profit or loss as investment gains or losses

Derivatives that do not qualify for hedge accounting

All gains and losses from changes in the fair values of derivatives that do not qualify for hedge accounting are recognised immediately in profit or loss as investment gains or losses.

l) Accounting for leases Leases of property, plant and equipment where the Company

assumes substantially all the risks and rewards of ownership are classified as finance leases. Assets acquired under finance leases are capitalised at the inception of the lease at the lower of their fair value and the estimated present value of the underlying lease payments. Each lease payment is allocated between the liability and finance charges so as to achieve a constant rate on the finance balance outstanding. The corresponding rental obligations, net of finance charges, are included in non-current liabilities. The interest element of the finance charge is charged to the profit or loss over the lease period. Property, plant and equipment acquired under finance leases are depreciated over the estimated useful life of the asset.

Liberty will apply IFRS 16 initially on 1 January 2019, using the modified retrospective approach. Comparatives are not restated under this approach.

m) Share capital Ordinary shares are classified as ‘share capital’ in equity; any

premium received over and above the par value of the shares is classified as ‘share premium’ in equity.

n) Employee entitlementsEmployee entitlements to long service awards are recognised when they accrue to employees. A provision is made for the estimated liability for such entitlements as a result of services rendered by employees up to the financial reporting date.The estimated monetary liability for employees’ accrued annual leave entitlement at the financial reporting date is recognised as an expense accrual.

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

p) Income taxi. Current income tax The tax expense for the period comprises current and

deferred income tax. Tax is recognised in profit or loss, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in equity respectively.

Current income tax is the amount of income tax payable on the taxable profit for the year determined in accordance with the relevant tax legislation and any adjustment to tax payable or receivable in respect of previous years. It is measured using tax rates enacted or substantively enacted at the reporting date. Current tax also includes any tax arising from dividends. The current income tax charge is calculated on the basis of the tax enacted or substantively enacted at the statement of financial position date. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.

ii. Deferred income tax Deferred income tax is recognised on temporary differences

arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements as well as on the accumulated undistributed shareholder surplus. However, deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantively enacted at the statement of financial position date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.

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


Accounting Policies - (continued)1.2 Summary of significant policies (continued)

ii) Deferred income tax (continued)

Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income taxes assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.

q) Dividends Dividends on ordinary shares are charged to equity in the period

in which they are declared. Proposed and interim dividends are accounted for as a separate component of equity until they have been ratified at an Annual General Meeting.

r) Comparatives Where necessary, comparative information has been adjusted

to conform to changes in presentation in the current year.

s) Restatements during the yeara) Accounting policy changes

i) Revaluation gains on owner-occupied properties and the adoption of shadow accounting

The company has properties split between investment and owner occupied. The revaluation of owner-occupied property under IAS 16 is recognised directly in other comprehensive income. IFRS 4 Insurance Contracts allows, under certain circumstances, a concept called shadow accounting to be adopted. Shadow accounting is a practice that can be used to avoid, in limited cases, certain unintended mismatches in income statement, principally where the recognition of unrealised investment returns and any consequential changes to policyholder liabilities are not in sync. IFRS 4 paragraph 30 explains shadow accounting as follows:

“In some accounting models, realised gains or losses on an insurer’s assets have a direct effect on the measurement of some of or all of (a) its insurance liabilities, (b) related deferred acquisition costs and (c) related intangible assets. An insurer is permitted but not required, to change its accounting policies so that a recognised but unrealised gain or loss on an asset affects those measurements in the same way that a realised gain or loss does. The related adjustment to the insurance liability shall be recognised in other comprehensive income if, and only if, the unrealised gains or losses are recognised in other comprehensive income. This practice is sometimes described as ‘shadow accounting’ “.

The mismatch occurs as the adjustment to policyholders’ liabilities is included in the income statement. In 2018, the company elected to adopt shadow accounting to correct the mismatch. The impact of this policy change has been accounted

for retrospectively in line with IAS 8 Accounting policies, changes in accounting estimates and errors and is shown on the summary of adjustments below.

ii) Deferred tax In 2013, the Company adopted the Group policy to recognise

deferred income tax on the undistributed portion of the life fund surplus. Consequently, the company did correct this but elected to adjust the consequential deferred tax directly within equity. It was noted that this is out of line with IAS 12 and thus the company made the correction in 2018 to align with IAS 12. The impact has been accounted for retrospectively in line with IAS 8 Accounting policies, changes in accounting estimates and errors. The overall impact on the current and prior years statement of profit or loss and statement of financial position is shown on the summary of adjustments.

iii) Treatment of leasehold land The company has properties split between owner occupied

and investments property that are erected on leasehold land with a long duration lease term. IAS 40 Investment Properties envisages this circumstance and allows for both the lease and accompanying improvements to be the unit of account for fair value purposes. The company had however ignored the revaluation gains on leasehold land component and only accounts for the building component in the determination of fair value for accounting for owner occupied and investment properties. The company thus decided to make the correction in 2018 to include leasehold land component in determining the fair value of the property in accordance with IAS 40. Thereafter, the property values should be pro rata split between investment and owner occupied property. The impact has been accounted for retrospectively in line with IAS 8 Accounting policies, changes in accounting estimates and errors.

b) Contracts reclassificationi) IFRS classification of deposit administration contract

liabilities The deposit administration liabilities are classified as investment

contracts under IAS 39 Financial Instruments in the financial statements of Liberty Kenya Holdings plc (the parent company). These contracts do however have a discretionary participation feature (DPF) and should be classified as investment contracts with DPF, which are within the scope of IFRS 4 Insurance Contracts. The DPF feature entitles the holder to receive benefits or bonuses whose amount or timing is contractually at the discretion of the issuer. The impact of changing the classification is a presentation change as the contracts are valued largely on a similar basis. Contributions should be recognised in the income statement as premium income, rather than fair value adjustments/ gross premiums valuation liabilities adjustment. The impact has been accounted for retrospectively in line with IAS 8 Accounting policies, changes in accounting estimates and errors.


Accounting Policies - (continued)1.2 Summary of significant policies -(continued)s) Restatements during the year - (continued)

The impact of the above changes to the statement of financial position as at 31 December 2016 and 2017 and the statement of profit or loss and other comprehensive income for the year ended 31 December 2017 is as follows: income for the year ended 31 December 2017 is as follows:

Statement of financial position

As Application Land Deferred Restated previously of shadow revaluation tax 31 Dec reported accounting 2016 2016 Shs ‘000 Shs ‘000 Shs ‘000 Shs ‘000 Shs ‘000

EquityShare capital 612,340 - - - 612,340Revaluation reserves 322,315 (37,432) 83,081 - 367,964Retained earnings (339,121) - - (753) (339,874)Statutory reserves 1,678,688 - 65,871 - 1,744,559Total Equity 2,274,222 (37,432) 148,952 (753) 2,384,989AssetsProperty and equipment 613,058 - 147,137 - 760,195Intangible assets 82,382 - - - 82,382Prepaid operating lease rentals 607 - - - 607Investment properties 1,049,000 - 117,863 - 1,166,863Government and other securities held-to- maturity 5,277,985 - - - 5,277,985Financial assets at fair value through profit or loss 8,518,729 - - - 8,518,729Loans and receivables 1,601,041 - - - 1,601,041Treasury bills 2,875,986 - - - 2,875,986Deferred acquisition costs 15,012 - - - 15,012Insurance receivables 59,899 - - - 59,899Reasssurers’ share of technical provisions and reserves 120,848 - - - 120,848Current income tax recoverable 7,439 - - - 7,439Other assets 175,350 - - - 175,350Deposits with financial institutions 2,876,830 - - - 2,876,830Cash and bank balances 188,999 - - - 188,999Total Assets 23,463,165 - 265,000 - 23,728,165

LiabilitiesInsurance contract liabilities 8,991,932 53,475 52,211 - 9,097,618Payable under deposit administration contracts 10,367,517 - - - 10,367,517Outstanding claims 294,933 - - - 294,933Provision for unearned premiums 99,383 - - - 99,383Deferred income tax liabilities 857,573 (16,043) 63,837 753 906,120Creditors arising from reassurance arrangements 49,207 - - - 49,207Other payables 528,398 - - - 528,398Total liabilities 21,188,943 37,432 116,048 753 21,343,176

Net Assets 2,274,222 (37,432) 148,952 (753) 2,384,989


Accounting Policies - (continued)1.2 Summary of significant policies - (continued)s) Restatements during the year - (continued)


As Application Land Deferred Restated previously of shadow revaluation tax 31 Dec reported accounting 2016 2017 Shs ‘000 Shs ‘000 Shs ‘000 Shs ‘000 Shs ‘000

EquityShare capital 612,340 - - - 612,340Revaluation reserves 376,565 (78,632) 84,416 - 382,349Retained earnings ((315,464) - - (7,850) (323,314)Statutory reserves 2,064,220 - 67,062- 2,131,282Total Equity 2,737,661 (78,632) 151,478 (7,850) 2,802,657AssetsProperty and equipment 668,328 - 155,066 - 823,394Intangible assets 111,146 - - - 111,146Prepaid operating lease rentals 596 - - - 596Investment properties 1,066,500 - 124,934 - 1,191,434Government and other securities held-to- maturity 4,664,543 - - - 4,664,543Financial assets at fair value through profit or loss 10,642,179 - - - 10,642,179Loans and receivables 1,612,606 - - - 1,612,606Treasury bills 3,636,643 - - - 3,636,643Deferred acquisition costs 17,589 - - - 17,589Insurance receivables 66,079 - - - 66,079Reasssurers’ share of technical provisions and reserves 47,405 - - - 47,405Current income tax recoverable 118,490 - - - 118,490Other assets 381,288 - - - 381,288Deposits with financial institutions 1,214,386 - - - 1,214,386Cash and bank balances 232,001 - - - 1,214,386Total Assets 24,494,822 - 280,000 - 24,774,822

LiabilitiesInsurance contract liabilities 9,664,908 112,332 63,603 - 9,840,843Payable under deposit administration contracts 9,956,754 - - - 9,956,754Outstanding claims 319,583 - - - 319,583Provision for unearned premiums 89,016 - - - 89,016Deferred income tax liabilities 1,046,051 (33,700) 64,919 7,850 1,085,120Creditors arising from reassurance arrangements 86,926 - - - 86,926Other payables 593,923 - - - 593,923Total liabilities 21,757,161 78,632 128,522 7,850 21,972,165

Net Assets 2,737,661 (78,632) 151,478 (7,850) 2,802,657


As previously Application Deferred tax Land IFRS Restated reported of shadow revaluation classification of 31 Dec 2017 accounting DA contract 2017 liabilities Shs’000 Shs’000 Shs’000 Shs’000 Shs’000 Shs’000

Gross earned premiums 2,177,817 - - - 730,841 2,908,658Less: reinsurance premium ceded (228,980) - - - - (228,980)

Net earned premiums 1,948,837 - - - 730,841 2,679,678

Investment income 2,515,012 - 7,071 - - 2,522,083Commissions earned 130,825 - - - - 130,825Fee Income 14,641 - - - - 14,641Total revenue 4,609,315 - 7,071 - 730,841 5,347,227

Claims and policyholder benefits Payable 2,552,049 - 5,370 - 730,841 3,288,260Claims recoverable from re-insurers (66,434) - - - - - Net Insurance Benefits and Claims 2,485,615 - 5,370 - 730,841 4,734,506Commissions payable 326,954 - - - - 326,954Operating and other expenses 1,185,726 - - - - 1,185,726Total out-flow 3,998,295 - 5,370 - 730,841 4,734,506Profit before tax 611,020 - 1,701 - - 612,721Income tax (expense)/ Credit - - (510) (172,325) - (172,835)Profit/(loss) for the year 574,417 - 1,191 (172,325) - 403,283 Other Comprehensive Income Items that will not be reclassified to profit or loss:Profit/(loss) for the year 574,417 - 1,191 (172,325) - 403,283Gain on revaluation of land and buildings 77,500 - 7,929 - - 85,429 Change in long-term policyholder insurance - (64,878) - - - (64,878)liabilities (application of shadow accounting)Less: Deferred tax adjustment (23,250) - - 17,084 - (6,166)Total other comprehensive income forthe year net of taxation 54,250 (64,878) 7,929 17,084 - 14,385Total comprehensive incomefor the year 628,667 (64,878) 9,120 (155,241) - 417,668

Accounting Policies - (continued)1.2 Summary of significant policies (continued)s) Restatements during the year - (continued)

Statement of profit or loss and other comprehensive income


As previously Fair gain on Change in Change in Restated * as at reported land policyholder profit 31 dec 2017 revaluation liabilities before 2017 tax Shs’000 Shs’000 Shs’000 Shs’000 Shs’000

Cash flows from operating activitiesCash used in operations (1,724,693) (7,071) 5,370 1,701 (1,724,693)Interest income 2,020,969 - - - 2,020,969Tax paid (44,207) - - - (44,207)Net cash from operating activities 252,069 (7,071) 5,370 1,701 252,069Cash flows from investing activities Purchase of property, plant and equipment (42,516) - - - (42,516)Sale of property, plant and equipment - - - - -Purchase of other intangible assets (62,384) - - - (62,384)Cash inflows from equities 225,422 - - - 225,422Cash outflows from equities (1,168,625) - - - (1,168,625)Cash inflows from Govt and other securities - FV through Profit or Loss 1,664,125 - - - 1,664,125Cash outflows from Govt and othersecurities- FV through Profit or Loss (2,329,303) - - - (2,329,303)Cash inflows from governmentsecurities - HTM 675,424 - - - 675,424Cash outflows from governmentsecurities - HTM (237,903) - - - (237,903)Cash inflows from policy loans 88,304 - - - 88,304Cash outflows from policy loans (54,293) - - - (54,293)Cash outflows from Treasury bills (5,918,921) - - - (5,918,921)Cash inflows from Treasury bills 5,196,018 - - - 5,196,018Cash inflows from mortgage loans 62,490 - - - 62,490Cash outflows from mortgage loans (102,372) - - - (102,372)Cash inflows from staff loans 47,903 - - - 47,903Cash outflows from staff loans (47,361) - - - (47,361)Dividend income 132,481 - - - 132,481Net cash used in investing activities (1,871,511) - - - (1,871,511)

Net cash used in financing activities - - - - -

Total cash movement for the year (1,619,442) (7,071) 5,370 1,701 (1,619,442)Cash at the beginning of the year 3,065,829 - - - 3,065,829Total cash at end of the year 1,446,387 (7,071) 5,370 1,701 1,446,387

Accounting Policies - (continued)1.2 Summary of significant policies (continued)s) Restatements during the year - (continued)

Statement of cash flows


The Company makes estimates and assumptions that affect the reported amounts of assets and liabilities within the next financial year. Estimates and judgements are continually evaluated and based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances

a) Fair values of financial assets Fair values of certain financial assets recognised in the financial

statements may be determined in whole or part using valuation techniques based on assumptions that are supported by prices from current market transactions or observable market data.

The fair values of financial instruments that are not quoted in active markets are determined by using valuation techniques. Where valuation techniques (for example models) are used to determine fair values, they are validated and periodically independently reviewed by qualified senior personnel. All models are certified before they are used, and models are calibrated to ensure that outputs reflect actual data and comparative market prices. To the extent practical, models use observable data. However, areas such as credit risk (both own and counter-party), volatilities and correlations require management to make estimates.

b) Insurance contract liabilities The Company determines its liabilities on its long-term

insurance contracts on a realistic basis, namely the Gross Premium Valuation (GPV) method.

The GPV method makes explicit assumptions on expected future deaths, investment returns, lapses, expenses and bonuses as well as margins for uncertainty on these assumptions. Assumptions used are based on recent experience investigations conducted by the company while taking into consideration prior year assumptions and the outlook of future experience.

i) Mortality An appropriate base table of standard mortality is chosen

depending on the type of contract and class of business. Industry standard tables are used for all classes of business. Estimates are made as to the expected number of deaths for each of the years in which the Company is exposed to risk. The Company bases these estimates on standard mortality tables that reflect historical mortality experience. The estimated number of deaths determines the value of the benefit payments and the value of the valuation premiums. The main source of uncertainty is that epidemics such as AIDS could result in future mortality being significantly worse than in the past for the age groups in which the Company has significant exposure to mortality risk. However, continuing improvements in medical care and social conditions could result in improvements in longevity in excess of those allowed for in the estimates used to determine the liability for contracts where the Company is exposed to longevity risk.

An investigation into mortality experience is performed annually. The investigation period extends over the latest four full years for all classes of business. The results of the investigation are used to make decisions on whether to continue using the industry table or change to other appropriate tables that best match experience.

ii) Morbidity The incidence of disability claims is derived from industry

experience studies, adjusted where appropriate for Liberty Life Assurance Kenya Limited’s own experience. The same is true for the incidence of recovery from disability.

iii) Withdrawal The withdrawal assumptions are based on the most recent

withdrawal investigations taking into account past as well as expected future trends. The withdrawal rates are analysed by product type and policy duration. These withdrawal rates vary considerably by duration, policy term and company. Typically the rates are higher for risk type products versus investment type products, and are higher at early durations.

iv) Correlation No correlations between assumptions are allowed for.

Accounting Policies - (continued)1.3 Critical accounting estimates and judgement in applying accounting policies


Peace is the best state of mind.


Notes to the Annual Report and Financial Statements

2. Management of Insurance and Financial risk The Company’s activities expose it to a variety of risks, including

insurance risk, financial risk, credit risk, and the effects of changes in debt and equity market prices, foreign currency exchange rates and interest rates. The Company’s overall risk management programme focuses on the identification and management of risks and seeks to minimise potential adverse effects on its financial performance, by use of underwriting guidelines and capacity limits, reinsurance planning, credit policy governing the acceptance of clients, and defined criteria for the approval of intermediaries and reinsurers. Investment policies are in place which help manage liquidity, and seek to maximise return within an acceptable level of interest rate risk.

This section summarizes the way the Company manages key risks:

a) Insurance risk

The risk under any one insurance contract is the possibility that the insured event occurs and the uncertainty of the amount of the resulting claim. By the very nature of an insurance contract, this risk is random and therefore unpredictable.

For a portfolio of insurance contracts where the theory of probability is applied to pricing and provisioning, the principal risk that the Company faces under its insurance contracts is that the actual claims and benefit payments exceed the carrying amount of the insurance liabilities. This could occur because the frequency or severity of claims and benefits are greater than estimated. Insurance events are random and the actual number

and amount of claims and benefits will vary from year to year from the level established using statistical techniques.

Experience shows that the larger the portfolio of similar insurance contracts, the smaller the relative variability about the expected outcome will be. In addition, a more diversified portfolio is less likely to be affected across the board by a change in any sub-set of the portfolio. The Company has developed its insurance underwriting strategy to diversify the type of insurance risks accepted and within each of these categories to achieve a sufficiently large population of risks to reduce the variability of the expected outcome. Factors that aggravate insurance risk include lack of risk diversification in terms of type and amount of risk, geographical location and type of industry covered.

Liberty Life Assurance Kenya Limited uses reinsurance to manage its mortality risk and provide cover in catastrophic events for both its Individual and Group Life lines.

The following tables disclose the concentration of insurance liabilities by the class of business in which the contract holder operates and by the maximum insured loss limit included in the terms of the policy. The amounts are the carrying amounts of the insurance liabilities (gross and net of re-insurance) arising from insurance contracts:

The concentration by sector or maximum insured loss at the end of the year is broadly consistent with the prior year.

Year ended 31 December 2018 Class of business Between Shs 0m - Maximum insured loss Shs 250m TotalLife assurance business Shs 15m Between Shs 15m - and above Shs 250m Shs’000 Shs’000 Shs’000 Shs’000Ordinary life Gross 38,362,013 535,248 - 38,897,261 Net 37,707,439 - - 37,707,439Annuity Gross 29,950 - - 29,950Net 29,950 - 29,950Group life Gross 252,933,982 56,802,220 2,317,593 312,053,795Net 175,715,577 - - 175,715,577Total Gross 291,325,945 57,337,468 2,317,593 350,981,006

Net 213,452,966 - - 213,452,966


Notes to the Annual Report and Financial Statements2. Management of Insurance and Financial risk (Continued)

Year ended 31 December 2017 Class of business Between Shs 0m - Maximum insured loss Shs 250m TotalLife assurance business Shs 15m Between Shs 15m - and above Shs 250m Shs’000 Shs’000 Shs’000 Shs’000Ordinary life Gross 36,818,803 513,718 - 37,332,521Net 36,190,656 - - 36,190,656Annuity Gross 29,817 - - 29,817Net 29,817 - - 29,817Group life Gross 56,684,824 128,547,316 - 185,232,140Net 46,315,603 - 46,315,603Total Gross 93,533,444 129,061,034 - 222,594,478Net 82,536,076 - - 82,536,076b) Financial risk

The Company is exposed to financial risk through its financial assets, financial liabilities (investment contracts), reinsurance assets and insurance liabilities. In particular the key financial risk is that the proceeds from its financial assets are not sufficient to fund the obligations arising from its insurance and investment contracts. The most important components of this financial risk are interest rate risk, equity price risk, currency risk and credit risk.

These risks arise from open positions in interest rate, currency and equity products, all of which are exposed to general and specific market movements. The risks that the Company primarily faces due to the nature of its investments and liabilities are interest rate risk and equity price risk.

The Company manages these positions within an asset liability management (ALM) framework that has been developed to achieve long-term investment returns in excess of its obligations under insurance and investment contracts, and being cognisant of the need to ensure that there is sufficient capital to meet the Company’s obligations. The principal technique of the Company’s ALM is to match assets to the liabilities arising from insurance and investment contracts by reference to the type of benefits payable to contract holders.

c) Market risk

i) Foreign exchange risk The Company underwrites some policies contracted in US

dollars. In addition, the Company has cash balances held in foreign denominated accounts with local banks. This exposes the Company to foreign exchange risk arising from various currency exposures, primarily with respect to the US dollar. Foreign exchange risk arises from future commercial transactions, recognised assets and liabilities and net investments in foreign currencies.

At 31 December 2018, if the Shilling had weakened/strengthened by 5% against the US dollar with all other variables held constant, the Company’s post tax profit/(loss) for the period would have been Shs 3,455,558 (2017: Shs 3,389,369) higher/lower, mainly

as a result of US dollar investments and bank balances.

ii) Price risk

The Company is exposed to equity securities price risk because of investments in quoted equities and debt instruments classified as fair value through profit or loss. The Company is not exposed to commodity price risk. To manage its price risk arising from investments in equity and debt securities, the Company diversifies its portfolio. Diversification of the portfolio is done in accordance with limits set by the Company and the Insurance Act. All quoted shares held by the Company are traded on the Nairobi Securities Exchange (NSE).

At 31 December 2018, if the NSE Index had increased/decreased by 5% with all other variables held constant and all the Company’s equity instruments moved according to the historical correlation to the index, the value of equities held would have been Shs 162,036,943 (2017 : Shs 179,587,861) higher/lower.

iii) Cash flow and fair value interest rate risk Fixed interest rate financial instruments expose the Company

to fair value interest rate risk. Variable interest rate financial instruments expose the Company to cash flow interest rate risk. The Company’s fixed interest rate financial instruments are government securities and deposits with financial institutions.

No limits are placed on the ratio of variable rate financial instruments to fixed rate financial instruments. The Company manages its cash flow interest rate risk by diversification of its portfolio mix. The sensitivity analysis for interest rate risk illustrates how changes in the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates at the reporting date.

For liabilities under long-term insurance contracts with fixed and guaranteed terms, changes in interest rate will cause a change to the amount of the liability.



d) Credit risk

The Company has exposure to credit risk, which is the risk that a counterparty will be unable to pay amounts in full when due. Key areas where the Company is exposed to credit risk are: Insurance receivables; Reinsurance receivables; and Reinsurers’ share of insurance liabilities.

Other areas where credit risk arises include cash at bank, corporate bonds and deposits with banks, reinsurer’s share of insurance contract liabilities and other receivables. The Company has no significant concentrations of credit risk. The Company structures the levels of credit risk it accepts by placing limits on its exposure to a single counterparty, or groups of counterparty, and to geographical and industry segments. Such risks are subject to an annual or more frequent review.

Reinsurance is used to manage insurance risk. This does not, however, discharge the Company’s liability as primary insurer. If a reinsurer fails to pay a claim for any reason, the Company remains liable for the payment to the policyholder. The creditworthiness of reinsurers is considered on an annual basis by reviewing their financial strength prior to finalisation of any contract. The exposure to individual counterparties is also managed by other mechanisms, such as the right of offset where counterparties are both debtors and creditors of the Company. Management information reported to the Company includes details of provisions for impairment on loans and receivables and subsequent write-offs. Internal audit makes regular reviews to

assess the degree of compliance with the Company’s procedures on credit. Exposures to individual policy holders and groups of policy holders are collected within the ongoing monitoring of the controls associated with regulatory solvency. Where there exists significant exposure to individual policy holders, or homogenous groups of policyholders, a financial analysis equivalent to that conducted for reinsurers is carried out by the Company’s underwriting department.

The credit quality of financial assets that are neither past due nor impaired can be assessed by reference to the external credit ratings if available, or historical information about counterparty default rates. None of the company’s credit counterparties has external credit rating except the government of Kenya which has a B+ rating. For credit risk counterparties without external credit rating, the company classifies them as follows.

Group 1 - New customers/related partiesGroup 2 - Existing customers/related parties with no defaults in the pastGroup 3 - Existing customers /related parties with some default in the past. All defaults were fully recoveredThe amount that best represents the Company’s maximum exposure to credit risk at 31 December 2018 is made up as follows:

Maximum exposure to credit risk before collateral held Credit quality 2017 2018 grouping Shs’000 Shs’000

Receivables arising out of reinsurance arrangements Group 2 127,078 165,895Receivables arising out of direct insurance arrangements Group 2 91,341 66,079Government and other securities held-to-maturity B+ - 4,664,543Fair value through Profit or Loss assets B+ 16,892,901 14,278,822Deposits with financial institutions Group 2 2,454,944 1,214,386Mortgage Loans Group 2 380,424 423,065Policy loans Group 2 1,085,812 1,096,368Staff loans Group 2 87,815 93,173Other receivables Group 2 217,784 398,877Cash at bank Group 2 233,293 232,001At end of year 21,571,392 22,633,209All mortgage loans have the property secured as collateral while policy loans have the surrender value of the policy secured as collateral. In the


case of car loans, the cars are secured as security. All receivables that are neither past due or impaired are within their approved credit limits, and no receivables have had their terms renegotiated.None of the above assets are past due or impaired except for insurance receivables (which are due upon invoicing):Financial assets that are past due or impairedInsurance receivables Financial assets that are past due or impaired

Insurance receivables 2018 2017 Shs’000 Shs’000

Insurance receivables 91,341 66,079 91,341 66,079

Ageing analysis 2018 2017 Shs’000 Shs’000

- 0 to 30 days 42,875 25,951- by 31 to 60 days 4,917 4,736- by 61 to 150 days 28,846 2,037- by 151 to 360 days 14,703 33,355Total insurance receivables 91,341 66,079

All receivables outstanding for more than 365 days have been fully provisioned.

Notes to the Annual Report and Financial Statements2. Management of Insurance and Financial risk ( Continued)d) Credit risk (Continued)


e) Liquidity riskLiquidity risk is the risk that the Company is unable to meet its payment obligations associated with its financial liabilities as they fall due and to replace funds when they are withdrawn.

The table below presents the cash flows receivable and payable by the Company under financial assets and liabilities by remaining contractual maturities at the Statement of financial position date, except insurance contract liabilities which are stated at their expected maturities. All figures are in thousands of Kenya Shillings.

As at 31 December 2018 1 - 3 months 3 - 12 months 1 - 5 years Over 5 years TotalLiabilities Shs’000 Shs’000 Shs’000 Shs’000 Shs’000Insurance contract liabilities - 162,939 903,075 8,931,027 9,997,041Payable under pension contracts - (28,245) 1,080,115 7,588,379 8,640,249Provision for unearned premiums 207,894 - - - 207,894Creditors arising from reinsurance arrangements 47,032 - - - 47,032Outstanding claims 306,745 - - - 306,745Other payables 700,332 - - - 700,332Total financial liabilities (expected maturity dates) 1,262,003 134,694 1,983,190 16,519,406 19,899,293

AssetsOther Receivable (Note 18,19 & 20 c) 309,268 - - - 309,268Receivables arising out of direct insurancearrangements Government securities: 71,635 19,706 - - - Held-to-maturity - - - - 91,341- Fair value through Profit or Loss 184,563 1,305,079 3,294,781 8,491,592 13,276,015Loans receivable 1,554,051 - - - 1,554,051Commercial Papers - - - Treasury bills 3,616,886 - - 3,616,886Deposits with financial institutions 2,454,944 - - - 2,454,944Cash and bank balances 233,293 - - 233,293Total financial assets (contractual maturity dates) 8,424,640 1,324,785 3,294,781 8,491,592 21,535,798

As at 31 December 2017 1 - 3 months 3 - 12 months 1 - 5 years Over 5 years TotalLiabilities Shs’000 Shs’000 Shs’000 Shs’000 Shs’000Insurance contract liabilities - 160,393 888,965 8,791,486 9,840,844Payable under pension contracts - (32,547) 1,244,691 8,744,610 9,956,754Provision for unearned premiums 89,016 - - - 89,016Creditors arising from reinsurance arrangements 86,926 86,926Outstanding Claims 319,583 - - - 319,583Other payables 593,923 - - 593,923Total financial liabilities (expected maturity dates) 1,089,448 127,846 2,133,656 17,536,096 20,887,046



Notes to the Annual Report and Financial Statements2. Management of Insurance and Financial risk ( continued)e) Liquidity risk (Continued)

As at 31 December 2017 1 - 3 months 3 - 12 months 1 - 5 years Over 5 years TotalAssets Shs’000 Shs’000 Shs’000 Shs’000 Shs’000Other Receivables (Note 19 & 20 c) 547,183 - - - 547,183Receivables arising out of direct 31,968 34,111 - - 66,079Insurance arrangements Government securities:- Held-to-maturity - 283,976 1,247,668 3,132,899 4,664,543- Fair value through Profit or Loss - 1,614,398 3,696,943 5,330,838 10,642,179Loans receivable 1,612,606 - - 1,612,606Treasury bills 3,636,643 - - - 3,636,643Deposits with financial institutions 1,214,386 - - - 1,214,386Cash and bank balances 232,001 - - -232,001Total financial assets (contractual maturity dates) 7,274,787 1,932,485 4,944,611 8,463,737 22,615,620

Long-term insurance and pension contracts can be surrendered before maturity for a cash surrender value specified in the contractual terms and conditions. Prudent liquidity risk management includes maintaining sufficient cash balances to cover anticipated surrenders before the contractual maturity dates. In addition, the Company invests only a limited proportion of its assets in investments that are not actively traded. The Company’s listed securities are considered readily realisable, as they are actively traded on the Nairobi Securities Exchange.

f) Capital managementThe Company’s objectives when managing capital, which is a broader concept than the ‘equity’ on the Statement of Financial Position, are:

• To comply with the capital requirements as set out in the Insurance Act;

• To comply with regulatory solvency requirements as set out in

the Insurance Act;• To safeguard the Company’s ability to continue as a going

concern, so that it can continue to provide returns to shareholders and benefits for other stakeholders; and

• To provide an adequate return to shareholders by pricing insurance and investment contracts commensurately with the level of risk.

The Insurance Act requires the insurance Company to hold the minimum level of paid up capital of Shs 400 million.

Long-term insurance businesses are required to keep a solvency margin i.e. admitted assets less admitted liabilities equivalent.

During the year the Company held the minimum paid up capital required and met the required solvency margin for its long- term business. The Company’s paid up capital at 31 December 2018 and 31 December 2017 is reflected on Note 10.


Notes to the Annual Report and Financial Statements2. Management of Insurance and Financial risk (Continued)f) Capital management (Continued)

The solvency margin of the Company as at 31 December 2018 and 31 December 2017 is illustrated below:

Capital Adequacy Ratio (CAR) 2018 2017 Shs’000 Shs’000Credit Risk Capital 539,529 565,736Market Risk Capital 623,012 507,623Insurance Risk Capital 203,277 199,913Operations Risk Capital 254,657 235,782Risk Based Capital 1,103,513 1,021,723Total Capital Available (TCA) 2,351,894 2,333,684Absolute Amount Minimum 400,000 400,000Volume of Business Minimum 924,806 970,169Risk Based Capital Minimum 1,103,513 1,021,723Minimum Required Capital 1,103,513 1,021,723Solvency ratio 213% 228%

The Company’s solvency is computed in accordance with the Insurance Regulatory Authority of Kenya’s Risk Based Capital model. In the year under review, the Company’s solvency score was 213% (2017: 228%).

g) Fair value estimationIFRS 7 requires disclosure of fair value measurements for financial assets that are measured at fair value by level of the following fair value measurement hierarchy:Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1). Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (level 2). Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (level 3).The following table presents the Company’s assets and liabilities that are measured at fair value.

As at 31 December 2018 Level 1 Level 2 Level 3 Total Shs’000 Shs’000 Shs’000 Shs’000AssetsFinancial assets at fair valueFair value through Profit or Loss financial assets:- Equity securities 3,240,739 - - 3,240,739- Debt investments - 10,035,276 - 10,035,276Investment property - - 1,206,555 1,206,555Buildings - - 728,445 728,445Total assets 3,240,739 10,035,276 1,935,000 15,211,015

As at 31 December 2017 Level 1 Level 2 Level 3 Total Shs’000 Shs’000 Shs’000 Shs’000Financial assets at fair valueFair value through Profit or Loss financial assets: - Equity securities 3,591,757 - - 3,591,757- Debt investments - - 7,050,422 7,050,422Investment property - - 1,191,434 1,191,434Buildings - - 713,566 713,566Total assets 3,591,757 7,050,422 1,905,000 12,547,179


Notes to the Annual Report and Financial Statements2. Management of Insurance and Financial risk (Continued)g) Fair value estimation (Continued)

The fair value of financial instruments traded in active markets is based on quoted market prices at the financial reporting date. A market is regarded as active if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service, or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm’s length basis. The quoted market price used for financial assets held by the group is the current bid price. These instruments are included in level 1. Instruments included in level 1 comprise primarily listed on the Nairobi Securities Exchange (NSE) equity investments classified as trading securities or available-for-sale.

The fair value of financial instruments that are not traded in an active market (for example, government securities) is determined by using valuation techniques. These valuation techniques maximise the use of observable market data where it is available and rely as little as possible on entity specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in level 2.

If one or more of the significant inputs is not based on observable market data, the instrument is included in level 3. Specific valuation techniques used to value financial instruments include:

• Quoted market prices or dealer quotes for similar instruments.

• The fair value of government securities is determined using yield curve based on prices of similar securities traded on the Nairobi Securities Exchange.

Other techniques, such as discounted cash flow analysis, are used to determine fair value for the remaining financial instruments.

3. Gross Earned Premiums

Life Assurance Business: 2018 2017 Shs’000 Shs’000Ordinary Life 1,312,051 1,306,445Pension 503,268 730,841Annuity 96,121 14,682Group Life 1,001,708 846,292Unearned Premium Reserves (118,856) 10,398Gross Earned Premiums 2,794,292 2,908,658

Less: Reinsurance PremiumsOrdinary Life (3,793) (4,454)Group Life (189,159) (224,526)Reinsurance Premiums (192,952) (228,980)

Net Earned Premiums 2,601,340 2,679,678


Notes to the Annual Report and Financial Statements

4. Investment income 2018 2017 Shs’000 Shs’000

Interest on Government securities 1,614,400 1,494,640

Interest on bank deposits 74,655 165,404

Rental income from investment property 98,448 114,256

Fair value gain on investment property 15,121 24,571

Fair value gain / (loss) on financial assets (377,061) 467,429

Interest on corporate bonds 226,580 213,158

Interest on loans & receivables 152,900 145,108

Dividend income 160,770 132,481

Other investment income (116,712) 68,653

Investment expenses (96,516) (116,117)

Impairment of financial assets (Note 17 (a)) (62,500) (187,500)

Day one loss on initial adoption of IFRS 9 (Note 1.2 (b)) (141,861) -

Total investment income 1,548,224 2,522,083

5. Claims and policyholder benefits 2018 2017 Shs’000 Shs’000Insurance contracts with fixed and guaranteed terms:

Death, maturity and surrender benefits paid and payable 2,481,822 2,193,621

(Decrease) / Increase in policyholder liabilities (880,933) 431,392

Interest payable on deposit contracts 689,723 663,247

Total Gross claims and policyholder benefits payable 2,290,612 3,288,260

Less claims recoverable 11,441 (66,434)

Total Net claims and policyholder benefits payable 2,302,053 3,221,826


6. Operating and other expenses 2018 2017 Shs’000 Shs’000

The following items are included within operating and other expenses:Staff costs ( Note 7) 485,346 471,350Statutory audit fees 8,250 10,735Taxation fees 3,111 1,822Actuarial fees 16,631 15,189Legal fees 1,504 1,892Premium collection charges 26,595 24,462Premium tax and stamp duty 21,931 21,335Rent and related expenses 89,191 85,627Advertising 50,671 56,49Depreciation 21,406 19,408Amortisation of intangible assets 44,251 33,620System costs 42,124 44,859Agency expenses 225,676 248,776Transfer pricing 92,263 87,855Deferred acquisition costs (17,791) (2,466)Establishment expenses (84,504) (65,527)Training expenses 13,689 15,363Sponsorship and awards 25,467 10,680Travelling expenses 16,792 17,75Printing and stationery 7,590 11,828Communication expenses 12,187 11,629Office expenses 33,777 34,264Recruitment and relocation 2,575 1,491Other expenses 16,891 27,293

Total operating expenses 1,155,623 1,185,726

7. Staff costs 2018 2017 Shs’000 Shs’000Staff costs include the following:

Social security benefit costs 290 277Retirement benefit cost 35,088 30,749Salaries and wages 377,186 346,147Annual staff bonus 21,027 41,585Other staff emoluments 51,755 52,592

Total staff costs 485,346 471,350

Notes to the Annual Report and Financial Statements (Continued)



8. Income tax expense 2018 2017 Shs’000 Shs’000


At the start of the year 15,043 7,439Instalment tax paid 26,199 44,207Current income tax charge (33,121) (36,603)Tax on proposed dividends (158,572) -Prior year tax adjustment (979) -

At end of the year (151,430) 15,043

(Liability)/asset

Income tax (payable)/recoverable (151,430) 15,043

(151,430) 15,043

Statement of profit or lossCurrent year tax charge (33,121) (36,603)Deferred taxation (Note 25) (132,347) (172,835)

(165,468) (209,438)

9. DividendsIn 2018, the directors proposed and paid dividends of Shs 370 million (after tax); 2017, no dividend was proposed or paid.

10. Share capital Issued

2018 2017 Shs ‘000 Shs ‘000

Ordinary 612,340 612,340

The total authorised number of ordinary shares is 30,617,000 with a par value of Shs 20 per share. As at 31 December 2018, all issued shares had been fully paid up.

All ordinary shares rank equally with regard to the company’s residual asset , are entitled to receive dividends declared from time to time and are entitled to one vote per share at general meetings of the company.

11.Revaluation reserves

Revaluation reserves comprise the revaluation surplus on buildings and freehold land (included within property and equipment) which is a non distributable reserve.

Revaluation reserve - Buildings

2018 2017 Shs ‘000 Shs ‘000

At start of year 382,349 367,964Revaluation gain for the year 14,879 85,429Deferred income tax amount (Note 25) (1,086) (6,165)Change in actuarial liabilities - effect of shadow accounting (11,259) (64,879)

At end of year 384,883 382,349


12. Retained earnings

The retained earnings balance represents the amount available for dividend distribution to the shareholders of the Company, with the exception of cumulative fair value gain on the Company’s investment properties of Shs. 950,765,580 (2017 - Shs. 935,644,446) whose distribution is subject to restrictions imposed by the Insurance Regulatory Authority.

2018 2017 Shs’000 Shs’000

As at 1 January (323,314) (339,874)Profit for the year 308,469 403,283Transfers from retained earnings to statutory reserves (300,703) (386,723)Transfer from statutory reserves to shareholder funds 370,000 -Dividend paid (370,000) -

As at 31 December (315,548) (323,314)

13. Statutory reserve (continued)

During the current and prior year, there was no transfer of assets from the statutory reserve and other reserves to the shareholder fund. It is recommended that no transfers are made or dividends paid without these being justified by an actuarial valuation.

2018 2017 Shs’000 Shs’000

As at 1 January 2,131,282 1,744,559

Transfers from retained earnings to statutory reserves 300,703 386,723

Transfer from statutory reserves to shareholder funds (370,000) -

As at 31 December 2,061,985 2,131,282

The total un-appropriated surplus in the life fund is Shs 2,446,868,000 (2017 :Shs 2,513,630,000) analysed as follows: 2018 2017 Shs’000 Shs’000Amount in statutory reserve 2,061,985 2,131,282

Amount in revaluation reserve 384,883 382,349

As at 31 December 2,446,868 2,513,631

14. Property, plant and equipment 2018 2017 Cost or Accumulated Carrying value Cost or Accumulated Carrying value revaluation depreciation revaluation depreciation Shs’000 Shs’000 Shs’000 Shs’000 Shs’000 Shs’000

Buildings 728,445 - 728,445 713,566 - 713,566Motor vehicles 36,565 (23,901) 12,664 32,689 (19,110) 13,579Computers and equipment 205,768 (167,136) 38,632 196,758 (154,115) 42,643Furniture, fixtures and fittings 440,322 (423,653) 16,669 441,054 (415,396) 25,658Leasehold improvements 87,528 (75,999) 11,529 97,385 (69,437) 27,948Total 1,498,628 (690,689) 807,939 1,481,452 (658,058) 823,394


Reconciliation of property, plant and equipment - 2018

Opening Additions Disposals Revaluations Depreciation Cumulated Total balance depreciation on disposal Shs’000 Shs’000 Shs’000 Shs’000 Shs’000 Shs’000 Shs’000Buildings 713,566 - - 14,879 - - 728,445Motor vehicles 13,579 4,200 (324) - (5,115) 324 12,664Computers and equipment 42,643 9,010 - - (13,021) - 38,632Furniture, fixtures and fittings 25,658 557 (1,288) - (8,769) 511 16,669Leasehold improvements 27,948 - (9,857) - (10,807) 4,245 11,529 823,394 13,767 (11,469) 14,879 (37,712) 5,080 807,939

Reconciliation of property, plant and equipment - 2017

Opening Additions Disposals Revaluations Depreciation Cumulated Total balance depreciation on disposal Shs’000 Shs’000 Shs’000 Shs’000 Shs’000 Shs’000 Shs’000

Buildings 628,137 - - 85,429 - - 713,566Motor vehicles 2,612 14,395 (13,991) - (3,428) 13,991 13,579Computers and equipment 32,966 21,538 (159) (131) (11,611) 40 42,643Furniture, fixtures and equipment 55,040 4,336 - 861 (34,579) - 25,658Leasehold improvements 41,440 2,247 - (731) (15,008) - 27,948 760,195 42,516 (14,150) 85,428 (64,626) 14,031 823,394

Included in property and equipment as at 31 December 2018 are fully depreciated assets with a cost of Shs 873,029,298 (31 December 2017 - Shs 585,359,519). The notional annual depreciation charge on these assets would have been Shs 134,362,445 (2017 - Shs 106,096,518).

15. Intangible assets

2018 2017 Cost / Accumulated Carrying Cost / Accumulated Carrying Valuation amortisation value Valuation amortisation value Shs’000 Shs’000 Shs’000 Shs’000 Shs’000 Shs’000

Intangible assets 494,532 (377,484) 117,04 444,379 (333,233) 111,146

Reconciliation of intangible assets - 2018

Opening Additions Amortisation Total balance Shs’000 Shs’000 Shs’000 Shs’000

Intangible assets 111,146 50,153 (44,251) 117,048

Reconciliation of intangible assets - 2017

Opening Additions Amortisation Total balance Shs’000 Shs’000 Shs’000 Shs’000

Intangible assets 82,382 62,384 (33,620) 111,146




16. Investment property

2018 2017 Cost / Accumulated Carrying Cost / Accumulated Carrying Valuation amortisation value Valuation amortisation value Shs’000 Shs’000 Shs’000 Shs’000 Shs’000 Shs’000

Investment property 1,081,555 - 1,081,555 1,191,434 - 1,191,434

Reconciliation of investment property - 2018

Opening Disposals Classified as Fair value Total balance held for sale adjustments Shs’000 Shs’000 Shs’000 Shs’000 Shs’000Investment property 1,191,434 - (125,000) 15,121 1,081,555

Reconciliation of investment property - 2017

Opening Fair value Total balance adjustments Shs’000 Shs’000 Shs’000

Investment property 1,166,863 24,571 1,191,434

There are three methods used in property valuation, namely: market (comparable sales) approach, income/investment approach and cost approach. For Liberty House , all the above methods of valuation were used with emphasis given to the income approach since it is a commercial/investment property which is owner occupied and let to various tenants.

This method has also been closely compared with the recent trends in the market where such accommodations are sold as office suites in which case relevant adjustments have been made to reflect the attributes of the property. Investment properties are carried at fair value, which has been determined based on valuations carried out by Tysons Limited, a registered independent valuer who has an appropriate recognised professional qualification and experience in the category of the property being valued, as at 31 December 2018.

The fair value represents the amount at which the assets could be exchanged at an arm’s length transaction between a willing buyer and a willing seller. The valuation is based on the property’s anticipated rental income.

The valuations are carried out on an annual basis and the fair value gains and losses are recorded in the profit or loss.

The property rental income earned by the Company from its investment properties, leased out to third parties under operating leases as at 31 December 2018, amounted to Shs 98,447,771 (2017: Shs 114,255,695). Direct operating expenses arising on the investment property amounted to Shs 51,009,865 (2017: Shs 53,321,545).

17. Financial instrumentsa) Equities & long-term debt securities: 2018 2017 Shs’000 Shs’000Equity securities

- Listed 3,240,739 3,591,757Listed debt securities:Government securities 9,024,991 7,050,422Corporate bonds 1,010,285 -Total 13,276,015 10,642,179


92 Annual Report & Financial Statement 2018

Movements in fair value through Profit or Loss assets during the year are as follows: 2018 2017 Shs’000 Shs’000i) Equity securities:At start of year 3,591,757 2,215,474Additions 998,960 1,168,625Disposals (788,318) (225,422)Fair value gain/(loss) (561,660) 433,080As at 31 December 3,240,739 3,591,757ii) Listed debt securities:At start of year 7,050,422 6,303,255Additions 3,203,810 2,329,303Disposals (4,857,990) (1,664,125)Accrued interest 55,103 47,354Impairment of corporate bond (62,500) -Fair value gain/(loss) (18,113) 34,635Reclassification from HTM to FVTPL 4,664,543 -As at 31 December 10,035,275 7,050,422Maturity analysis:< 1 year 1,489,642 1,614,3981 - 5 years 3,294,781 3,696,9435 - 10 years 3,912,628 1,642,787> 10 years 4,578,963 3,688,051Total 13,276,014 10,642,179b) Commercial paper and Treasury billsTreasury bills 3,616,886 3,636,643ii) Treasury billsAt start of year 3,636,643 2,875,986Additions 5,797,544 5,918,921Disposals (5,812,341) (5,196,018)Accrued interest (4,960) 37,754As at 31 December 3,616,886 3,636,643

c) Government and other securities held-to-maturity Listed debt securities:Listed debt securitiesGovernment securities - 3,035,042Corporate bonds - 1,629,501As at 31 December - 4,664,543At start of year 4,664,543 5,277,985Additions - 237,903Reclassification from HTM to FVTPL (4,664,543) -Maturities - (675,424)Impairment of corporate bond - (187,500)Accrued interest - 11,579As at 31 December - 4,664,543



Notes to the Annual Report and Financial Statements (Continued)17. Financial instruments (Continued)c) Government and other securities held-to-maturity (Continued)

c) Government and other securities held-to-maturity ( cotinued)

2018 2017 Shs’000 Shs’000Maturity analysis:< 1 year - 283,9761 - 5 years - 1,247,6685 - 10 years - 1,933,923> 10 years - 1,198,976Total - 4,664,543

i) Government securitiesAt start of year 3,035,042 3,155,776Additions - 107,903Reclassification from HTM to FVTPL (3,035,042) -Maturities - (248,083)Accrued interest - 19,446

At end of year - 3,035,042

ii) Corporate bondsAt start of year 1,629,501 2,122,209Additions - 130,000Reclassification from HTM to FVTPL (1,629,501) -Maturities - (427,341) Impairment - Chase Bank - (187,500)Accrued interest - (7,867)At end of year - 1,629,501

As at 31 December 2018 a total of Shs 1,235,600,000 (2017: Shs 1,185,600,000) of the government securities classified as held-to-maturity were held under lien by the Central Bank of Kenya as prescribed by the Kenyan Insurance Act section 32 (1(a)).

Notes to the Annual Report and Financial Statements (Continued)17. Financial instruments (Continued)c) Government and other securities held-to-maturity (Continued)

The company has impaired Shs 187.5 million of the Shs 250 million invested in the Chase Bank (K) Limited (in receivership) corporate bonds based on the Directors assessment of recoverability.

2018 2017 Shs’000 Shs’000d) Loans and receivablesMortgage loans 380,424 423,065Policy loans 1,085,812 1,096,368Staff loans 87,815 93,173As at 31 December 1,554,051 1,612,606Movements in loans and receivables during the year are as follows:At start of year 1,612,606 1,601,041Loan advanced 158,138 204,028Repayments (187,157) (198,697)Accrued interest (29,536) 6,234

As at 31 December 1,554,051 1,612,606i) Mortgage loansAt start of year 423,065 383,051Loan advanced 62,077 102,372Repayments (104,718) (62,490)Accrued interest - 132As at 31 December 380,424 423,065

ii) Policy loansAt start of year 1,096,368 1,124,276Loan advanced 62,815 54,293Repayments (43,835) (88,304)Other movements including accrued interest (29,536) 6,103As at 31 December 1,085,812 1,096,368

iii) Staff loansAt start of year 93,173 93,714Loan advanced 33,246 47,361Repayments (38,604) (47,903)Accrued interest - 1As at 31 December 87,815 93,173

18. Re-insurers’ share of technical provisions and reserves Re-insurers’ share of:- notified claims outstanding 76,172 118,490Total 76,172 118,490

Amounts due from reinsurers in respect of claims already paid by the Company on contracts that are reinsured are included in reinsurance receivables on the Statement of financial position.

94 Annual Report & Financial Statement 2018



2018 2017 Shs’000 Shs’00019. Other assets Receivables from group companies 5,845 220,433Prepayments 84,341 44,698Other receivables 92,005 116,157As at 31 December 182,191 381,288

20. Insurance contract liabilities a) Movements in insurance contract liabilities 2018 2017 Shs’000 Shs’000As at 1 January 3,037,878 2,986,030Premiums received 2,098,072 1,948,837Maturities/payment to policyholders (1,857,328) (1,569,843)Interest payable to policyholders 175,028 384,299Other movements* (569,404) (711,445)As at 31 December 2,884,246 3,037,878

b) Movements in policyholder investment contract liabilities 2018 2017 Shs’000 Shs’000As at 1 January 8,926,121 6,111,588Premiums received 1,717,430 1,594,142Maturities/payment to policyholders (1,001,322) (778,821)Interest payable to policyholders 593,364 969,495Other movements* (343,526) 1,029,717As at 31 December 9,892,067 8,926,121

* Other movements relate to (decrease)/increase in actuarial liabilities.

c) Movements in insurance contract liabilities and reinsurance assets:Insurance contract liabilities d.) Movements in the re-insurance assets are as shown below: 31 December 2018 31 December 2017 Gross Reinsurance Net Gross Reinsurance NetShs’000 Shs’000 Shs’000 Shs’000 Shs’000 Shs’0002,884,246 (127,078) 2,757,168 3,037,878 (165,895) 2,871,9832,884,246 (127,078) 2,757,168 3,037,878 (165,895) 2,871,983

2018 2017 Shs’000 Shs’000Opening balance 165,895 120,848Current year movement (38,817) 45,047Total as at 31 December 127,078 165,895



20. Insurance contract liabilities (Continued)

1) Long-term insurance contracts

The Company determines its liabilities on the long-term insurance contracts on a realistic basis, namely the Gross Premium Valuation (GPV) method.

The GPV method makes explicit assumptions on expected future deaths, investment returns, lapses, expenses and bonuses as well as margins for uncertainty on these assumptions. Assumptions used are based on recent experience investigations conducted by the company while taking into consideration prior year assumptions and the outlook of future experience.

The liabilities are determined by the Company on the advice of the consulting actuary and actuarial valuations are carried out on an annual basis. The latest actuarial valuation of the Company’s life fund was undertaken as at 31 December 2018 by the consulting actuaries – QED Actuaries and Consultants (Pty) Limited.

2) Valuation assumptions:

The significant valuation assumptions for the actuarial valuation as at 31 December 2018 are summarised below:

i) Mortality

The GPV basis uses 100% of the KE 2007/2010 mortality table. Mortality assumption is based on recent mortality investigations conducted by the company while taking into consideration prior year assumptions and the outlook of future experience.

For Group Life contracts which are only valued as an IBNR, there is a mitigating effect of changing premium rates on an annual basis as contracts are reviewed annually and no mortality guarantees are offered.

ii) Investment returns

The GPV actuarial valuation as at 31 December 2018 used an expected future investment return of 13% compounded annually for individual long term insurance contracts and annuity business. On the GPV basis, the valuation interest rate assumption allows for a margin over the expected future investment return, hence strengthening the prudence in the GPV valuation basis.

The weighted average rate of return on a Fair Value basis as earned by the assets backing the life fund for the year ended 31 December 2018 was 7.28% p.a. (2017: 12.11% p.a.) and the average over the last three years was 9.78% p.a.

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

iii) Expenses and expense inflation

The current level of management expenses is taken to be an appropriate expense base for the GPV basis. The expense assumption is derived from the recent expense investigation. The purpose of the investigation was to split of expenses between initial and renewal expenses. The result of the investigation showed that the initial and renewal expenses decreased in real terms comparative to prior year.

For the GPV basis an appropriate assumption is made on the increase of renewal expenses. An expense inflation of 9.3% (2017: 9.8%) is assumed.

iv) Withdrawals

The GPV method allows assumptions to be set on the rate of termination of an insurance contract following a failure to pay premiums (lapse) or the voluntarily termination before the insurance contract maturity (surrender) per policy year.

The withdrawal assumption is derived from recent withdrawal experience investigation conducted by the Company while taking into consideration prior year assumptions and the outlook of future experience.


20. Insurance contract liabilities (continued)

v) Sensitivity analysis

The sensitivity of the GPV results has been tested to certain key assumptions by calculating the effect of assumptions not being met. The results of the sensitivity analysis (in Shs’000) can be summarized as follows:

2018 2017 Shs’000 %Change Shs’000 % Change

Main basis 18,637,290 - % 19,621,662 - %Expenses plus 10% 18,756,569 0.6 % 19,733,492 0.6 %Mortality and other claim experience plus 10% 18,682,020 0.2 % 19,631,726 0.1 %Interest rate less 1% 18,706,248 0.4 % 19,692,784 0.4 %Expense inflation plus 1% 18,668,974 0.2 % 19,660,116 0.2 %Withdrawals plus 10% 18,641,018 - % 19,601,300 (0.1)%

As can be seen from the above table, the valuation results depend on the assumptions made. If these assumptions are not realized in practice, then the surplus in the Life Fund would differ from that expected.

It should be noted that the sensitivity calculations have been done independently. This means that interactions between various factors have not been considered. For instance, in the event of withdrawals increasing, it is likely that per policy expenses will also increase. Thus, when considering various scenarios, one needs to use an interplay of the above figures. This has not been allowed for in the above analysis.

The table below shows a reconciliation between the IRA (Insurance Regulatory Authority) statutory basis and the current basis (point estimate) used by Liberty Life Assurance Kenya Limited.

Point Estimate Yield Curve Difference Shs’000 Shs’000 Shs’000Retail life 6,594,492,792 6,816,542,519 222,049,727Lifevest 3,251,454,220 3,258,514,868 7,060,648Group Life 151,094,212 151,094,212 -DA 8,640,248,892 8,601,766,401 (38,482,491) 18,637,290,116 18,827,918,000 190,627,884

The difference is caused by use of yield curve plus 20% risk margin to calculate liabilities as stipulated under the Statutory Basis compared with liabili-ties calculated using a point estimate on the yield curve under the IFRS basis.

21. Movement in investment contracts with discretionary participation features

Pension contracts are recorded at amortised cost. Movements in amounts payable under pension contracts during the year were as shown below. The liabilities are shown exclusive of interest accumulated to 31 December 2018. Interest was declared and credited to the customer accounts at a weighted average rate of 4% for the Boresha Maisha Guaranteed Fund and 2% for the normal pension guaranteed fund for the year ended 31 December 2018. (2017: 7%).

2018 2017 Shs’000 Shs’000At start of year 7,833,598 10,367,517Pension fund deposits received 503,268 730,841Surrenders and annuities paid (2,315,746) (2,182,309)Interest payable to policyholders 381,716 869,288* Other movements (541,859) (1,951,739)As at 31 December 5,860,977 7,833,598* Other movements relate to (decrease)/increase in actuarial liabilities.



22. Unearned premiums

2018 2017 Gross Reinsurance Net Gross Reinsurance Net Shs’000 Shs’000 Shs’000 Shs’000 Shs’000 Shs’000

At beginning of year 89,016 - 89,016 99,383 - 99,383

Change in the period (net) 118,878 - 118,878 (10,367) - (10,367)

As at 31 December 207,894 - 207,894 89,016 - 89,016

23. Other liabilities

2018 2017 Shs’000 Shs’000Due to related companies 18,236 52,456Accrued expenses 239,848 149,547Maturities 267,677 364,093Employee bonus 23,142 27,827 548,903 593,923

24. Contingent liabilities and commitments

“Liberty Life Assurance Kenya Limited has agents who are paid direct commissions. These agents are charged withholding tax at a rate of 10% for commission paid. However, an initial assessment by KRA indicated that the agents are treated as normal employees of Liberty Life Assurance Kenya Limited and thus PAYE should be calculated and remitted to the tax authority. Assessment notice of Shs 158m was subsequently issued by KRA which the company is in the process of formally responding”.Operating lease commitmentsThe future minimum lease payments under non-cancellable operating leases are as follows: 2018 2017 Shs’000 Shs’000

Not later than 1 year 20,427 14,647Later than 1 year and not later than 5 years 67,866 53,237As at 31 December 88,293 67,884

As LessorNot later than 1 year 14,470 42,067Later than 1 year and not later than 5 years 125,638 214,775As at 31 December 140,108 256,842

25. Deferred income tax Deferred tax liability 1,059,981 1,085,120

Deferred income tax is calculated, in full, on all temporary differences under the liability method using the enacted tax rate of 30% (2017 :30%).The movement on the deferred income tax account is as follows: 2018 2017 Shs’000 Shs’000

At start of year 1,085,120 906,120Income statement (26,225) 172,835Deferred tax on owner occupied property revaluation 1,086 6,165As at 31 December 1,059,981 1,085,120




26. Cash and cash equivalentsFor the purposes of the Statement of Cash flows, cash and cash equivalents comprise the following:

2018 2017 Shs’000 Shs’000Cash at bank and in hand 233,293 232,001Deposits with financial institutions 2,454,944 1,214,386 2,688,237 1,446,387

27. Net cash used in operating activities

2018 2017 Shs’000 Shs’000Profit before taxation Note(s) 473,937 612,721Adjustments for:Interest received 4 (2,068,535) (2,020,969)Depreciation 14 37,711 64,637Amortisation of intangible assets 15 44,251 33,620Amortisation of operating lease rentals 4 11 11Fair value gain on investment property 4 (15,121) (24,571)Foreign exchange gain 4 (233) (1,325)Impairment of financial assets 4 62,500 187,500Dividend income 4 (160,770) (132,481)Fund management fees 4 51,010 49,840Other net investment income 4 537,419 (580,409)Changes in:Insurance contract liabilities 20 156,197 678,349Outstanding claims (12,838) 24,650Provision for unearned premium 22 118,878 (10,367)Pension contract liabilities (1,316,505) (410,763)Other liabilities (83,744) 41,931Creditors arising from reinsurance (39,894) 37,719Deferred acquisition costs (18,005) (2,577)Reinsurance receivables 38,817 -Receivables arising from direct insurance (25,262) (6,180)Other assets 238,740 (220,981)Prepayments (39,643) (45,048)Net cash used in operating activities (2,021,079) (1,724,693)

28. Related party transactionsThe Company is controlled by Liberty Kenya Holdings Plc (LKH) incorporated in Kenya. The ultimate parent of the Company is Standard Bank Plc, a Company incorporated in the Republic of South Africa. There are other companies which are related to Liberty Life Assurance Limited through common shareholdings or common directorships.The following transactions were carried out with related parties:



28. Related party transactions (continued)a) Investments held in related companies 2018 2017 Shs’000 Shs’000Stanbic Bank LimitedBank deposits 377,227 118,139Corporate bonds 84,018 85,920Fair value through profit or loss: quoted shares 27,674 32,984Stanbic Uganda (Quoted shares) 173 1,356STANLIB Kenya LimitedFahari Income Real Estate Investment Trust (I-REIT) 190,275 187,250 679,367 425,649Amounts held by related parties are interest bearing at 12.95% on corporate bonds and 7% on bank deposit. All other balances due to/ from related parties are not interest bearing but affected by market price volatility.

b) Investment management expenses charged by related companiesSTANLIB Kenya LimitedManagement fees 48,347 47,844SGB Securities Stock brokerage fees - 564Stanbic Bank Limited 15.866 12,188

Custodial fees 64,123 60,596

The investment management expenses due to related parties is at a rate of 0.25% of the market value of the assets.c) Income received from related party investmentsStanbic Bank Limited Dividend received 1,889 1,347Interest on corporate bonds 10,845 10,845Rental income 559 393STANLIB Kenya LimitedRental income 10,012 10,181Heritage Insurance Company Kenya LimitedRental income 31,187 38,632 54,492 61,398The income received from related party investment was dividend at the rate of Kshs 4 per every share held, 12.95% for corporate bonds, rental income is Kshs 120 per square foot.d) Outstanding balances with related parties i) Receivable from: Liberty Assurance Uganda Limited 1,751 2,137Heritage Insurance Company Tanzania Limited 2,493 1,091Liberty Kenya Holdings Limited 52 212,248E.A Underwriters Limited - 386Charter Insurance Malawi 1,549 548STANLIB Kenya Limited - 4,023 5,845 220,433


28. Related party transactions (continued)

2018 2017 Shs’000 Shs’000ii) Payables to:Heritage Insurance Company Kenya Limited 12,187 25,061STANLIB Kenya Limited 1,184 -Liberty Holdings Limited (South Africa) 4,864 27,395 18,235 52,456The amounts due from related parties are non interest bearing and will be paid using cash and cash equivalents. The amounts are receivable within one year.The amounts due to related parties are non interest bearing and will be paid using cash and cash equivalents. The amounts are payable within one year.

2018 2017 Shs’000 Shs’000e) Key management compensationSalaries and other short-term employment benefits 109,654 101,316 109,654 101,316

2018 2017 Shs’000 Shs’000f) Directors’ remunerationFees for services as a director 9,306 7,897Other emoluments (included in (e) above) 41,787 41,958 51,093 49,855

29. Discontinued operations or disposal groups or non-current assets held for sale The company has decided not to continue holding Karen road property as investment property and therefore its classification changes to non-current assets held for sale. The following conditions have been met:

• management is committed to a plan to sell• the asset is available for immediate sale• an active programme to locate a buyer is initiated• the sale is highly probable, within 12 months of classification as held for sale (subject to limited exceptions)• the asset is being actively marketed for sale at a sales price reasonable in relation to its fair value• actions required to complete the plan indicate that it is unlikely that plan will be significantly changed or withdrawn The decision was made by the

board of directors to discontinue this operation due the lack of return on investment.Assets and liabilities 2018 2017 Shs’000 Shs’000Non-current assets held for saleInvestment property 125,000 -



30. Subsequent events

Subsequent to the financial statements being issued on 28 March 2019, the income tax expense, current and deferred tax liabilities were amended to align to the updated tax computations issued by the company’s tax advisors on 3 April 2019 and to the financial statements previously approved and authorised for issue by the directors on 14 March 2019. The following tables summarise the impact on the financial statements:Statement of profit or loss and other comprehensive income for the year ended 31 December 2018

As per financial statements issued on 28th March 2019 Adjustments As restated Shs’000 Shs’000 Shs’000Profit before income tax 473,937 - 473,937Income tax expense (106,572) (58,896) (165,468)Profit after tax 367,365 (58,896) 308,469Total comprehensive income 369,899 (58,896) 311,003

Statement of financial position as at 31 December 2018

As per financial statements issued on 28th March 2019 Adjustments As restated Shs’000 Shs’000 Shs’000Total assets 23,702,935 - 23,702,935Deferred income tax 1,048,657 11,324 1,059,981Current income tax 103,858 47,572 151,430Others 19,747,864 - 19,747,864Total liabilities 20,900,379 58,896 20,959,275Retained earnings - deficit (256,652) (58,896) (315,548)Others 3,059,208 - 3,059,208Total equity 2,802,556 (58,896) 2,743,660Net assets 2,802,556 (58,896) 2,743,660

There is no impact on the cash flows for the year ended 31 December 2018.



Notes

Liberty Head Office Liberty House, Mamlaka Road | P. O. Box 30364 - 00100 Nairobi, Kenya | Contact Centre +254 711 076 222

Tel | (+254) 20 286 6000 | Mobile | 0711 028 000 | Fax | (+254) 20 271 8365 | Email | [email protected] | Web | www.liberty.co.ke

cfc stanbic bank - liberty kenya holdings limited

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