nnual eport · 2016-11-29 · 6 annual report and financial statements 2014 east africa reinsurance...

Annual Report

and Financial Statements

2 14

Secured Solid Partnership

20

East Africa Reinsurance Company Limitedwww.eastafricare.com

Board of Directors and Management

Financial Highlights and Graphs

Notice of the Twenty-Second Annual General Meeting

Chairman’s Statement

Directors’ Report

Corporate Governance Statement

Social and Environmental Responsibilities Statement

Statement of Directors’ Responsibilities

Report of the Consulting Actuary

Independent Auditors’ Report

Financial Statements

Statement of Profit or Loss and other Comprehensive Income

Statement of Financial Position

Statement of Changes in Equity

Statement of Cash Flows

Notes to the Financial Statements

Supplementary Information

Short-Term Business Revenue Accounts

Long-Term Business Revenue Accounts

Proxy Form

Pictorial

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4 - 6

7

8 - 11

12

13 - 16

17

18

19 - 20

21

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23 - 25

26 - 27

28

29 - 62

63 - 64

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ContentsCorporate Information and Advisers

Registered OfficeEast Africa Reinsurance Company LimitedEARe House, 98 Riverside DriveP. O. Box 20196 - 00200,City Square, Nairobi, KenyaTel: (254 20) 4443588, Fax: (254 20) 4455391Mobile: +254 728111041, +254 733623737E-mail: [email protected] , Website: www.eastafricare.com

Company SecretaryL. A. Kimang’aCertified Public Secretary (Kenya)P. O. Box 20196 - 00200,City Square, Nairobi, Kenya

AuditorsDeloitte & ToucheCertified Public Accountants (Kenya)Deloitte Place, Waiyaki Way, MuthangariP. O. Box 40092 - 00100 GPO,Nairobi, Kenya

Principal BankersNIC Bank LimitedNIC House Branch, Masaba RoadP. O. Box 30090 - 00100 GPO,Nairobi, Kenya

Vision Statement To be the risk partner of choice in our markets.

Mission Statement To provide quality risk solutions, excellent service and enhanced value to all the stakeholders.

Core ValuesIntegrity, Commitment, Partnership, Excellence, Professionalism, Innovation.

ActuariesAlexander Forbes Financial Services (EA) LimitedArgwings Kodhek Road, Landmark PlazaP. O. Box 52439 - 00200,City Square, Nairobi, Kenya

Ranadey Professional Services1- A, Krishna NagarKondhwa KhurdPune - 411048, India

Legal AdvisorsKaplan & StrattonWilliamson House, 4th Ngong AvenueP. O. Box 40111 - 00100 GPO,Nairobi, Kenya

Hamilton Harrison & MathewsICEA Building, Kenyatta AvenueP. O. Box 30333 - 00100,Nairobi, Kenya

LJA AssociatesCavendish Block, 14 Riverside DriveP. O. Box 49594 - 00100Nairobi, Kenya

Annual Report and Financial Statements 2014

Annual Report and Financial Statements 2014 East Africa Reinsurance Company Limitedwww.eastafricare.com2 3

Board of Directors Alternate Directors

1 J. P. M. Ndegwa Chairman

2 M. P. Chandaria (DR.) OBE EBS Vice-Chairman

1 V. Bharatan

2 P. K. Mugambi

1 2 1 2

Senior Management

1 P. K. Maina Chief Executive Officer

2 L. A. Kimang’a General Manager (Finance & Administration)

1 2

3 43

5 6

7 8

3 P. K. Maina Chief Executive Officer

4 D. G. M. Hutchison

5 L. W. Muriuki (Ms.)

6 S. O. Oluoch

7 A. K. Roy

8 L. A. Kimang’a Company Secretary

3 A. S. M. Ndegwa


2014

Shs 'million

2013

Restated

Shs 'million

2012

Restated

Shs 'million

2011

Shs 'million

2010

Shs 'million

Shareholders' Funds 2,645 2,190 1,864 1,314 1,239

Share Capital 1,000 1,000 800 750 650

Total Assets 6,270 5,409 4,698 3,803 3,152

Investment Income (net) 406 393 425 134 189

Gross Premiums 3,478 2,817 2,461 2,152 1,512

Net Premiums 3,304 2,713 2,326 1,885 1,180

Net Earned Premiums 3,157 2,645 2,162 1,704 1,169

Technical Profit 334 283 202 212 177

Underwriting Profit/(Loss) 209 149 79 121 95

Profit Before Tax 539 519 404 150 210

Profit After Tax 373 366 283 102 161

Dividend 60 60 40 15 27

Short-Term and Long-Term Business Combined

2014 2013 2012 2011 2010

Net Technical Profit/Net Premiums 10% 10% 9% 11% 15%

Loss Ratio 58% 55% 54% 47% 56%

Earnings Per Share (Shs) 373 366 353 137 248

Dividend Cover 6 6 7 7 6

Return on Equity Before Tax 22% 26% 25% 12% 18%

Return on Equity After Tax 15% 18% 18% 8% 14%

Short-Term and Long-Term Business Combined

Financial Highlights - 5 Years (Combined Business)

201490.6*

USD ‘000’

2013

Restated86.3*

USD ‘000’

2012

Restated86.0*

USD ‘000’

201185.1*

USD ‘000’

201080.8*

USD ‘000’

Shareholders' Funds 29,193 25,373 21,679 15,444 15,345

Share Capital 11,038 11,586 9,302 8,813 8,050

Total Assets 69,207 62,669 54,627 44,688 39,035

Investment Income (net) 4,481 4,549 4,939 1,577 2,341

Gross Premiums 38,389 32,643 28,613 25,290 18,722

Net Premiums 36,469 31,438 27,045 22,148 14,607

Net Earned Premiums 34,846 30,643 25,143 20,028 14,476

Technical Profit 3,685 3,274 2,350 2,496 2,197

Underwriting Profit/(Loss) 2,307 1,726 923 1,426 1,179

Profit Before Tax 5,949 6,018 4,701 1,764 2,600

Profit After Tax 4,117 4,235 3,286 1,204 1,993

Dividend 662 695 465 176 338

*Exchange Rate


Notice is hereby given that the Twenty-Second Annual General Meeting of East Africa Reinsurance Company Limited will be held on Thursday, 21 May 2015, in Fedora 1, Villa Rosa Kempinski Hotel, Waiyaki Way, Nairobi at twelve noon to transact the following business:

Ordinary Business1 To confirm the minutes of the Annual General Meeting held on 22 May 2014.2 To receive, consider and, if appropriate, adopt the financial statements for the year ended 31 December 2014 and

the Chairman’s, Directors’, Actuary’s and Auditors’ reports thereon.3 To approve the payment of a dividend.4 To elect Directors.5 To approve the remuneration of the Directors.6 To note that Deloitte & Touche continue as the Company’s auditors under Section 159(2) of the Kenyan Companies

Act subject to approval by the Commissioner of Insurance as required under section 56(4) of the Kenyan Insurance Act.

7 To authorize the Directors to fix the remuneration of the Auditors.8 To transact any other business of an Annual General Meeting.

Special BusinessTo consider and, if thought fit, pass the following Resolutions as Ordinary Resolutions of the Company:

1. Increase of Authorized Share Capital “Resolved that in pursuance of Article 48 of the Company’s Articles of Association, the authorized share capital

of the Company be increased from Shs 1,000,000,000 to Shs 1,300,000,000 by the creation of a further 300,000 ordinary shares of Shs 1,000 each, such new shares to rank pari passu in all respects with the existing shares, and the Directors be and are hereby authorized to give effect to this resolution in accordance with the Articles of Association of the Company.”

2. Capitalization of retained earnings “Resolved that in pursuance of Article 120 of the Company’s Articles of Association, the sum of Shs 300,000,000

out of the unappropriated profit be capitalized and the same be applied in paying up in full at par 300,000 ordinary shares of Shs 1,000 each in the capital of the Company, such shares to be allotted and distributed as fully paid up to the Shareholders registered as at the close of business on 31 December 2014 in the proportion of three of such new share for every ten existing shares held by such members respectively and further that thereafter such shares rank pari passu in all respects with the existing shares, and the Directors be and are hereby authorized to give effect to this resolution in accordance with the Articles of Association of the Company.”

By Order of the Board

L. A. Kimang’aSecretary

26 February 2015

Note:1) Every shareholder of the Company is a corporate member and is thus entitled to appoint a proxy to attend and

vote for it on its behalf.

2) To be valid, proxy forms must be deposited at the Company’s registered office not less than 24 hours before the appointed time of the meeting.

Notice of the Twenty-Second Annual General Meeting

East Africa Reinsurance Company Limitedwww.eastafricare.com 9Annual Report and Financial Statements 20148

It is my pleasure to present the annual report and financial statements of East Africa Reinsurance Company Limited for the year ended 31 December 2014.

ResultsThe Company recorded a total gross premium income of Shs 3.48 billion, representing a 23% growth over 2013. The Company further achieved a total profit before taxation of Shs 539.5 million, representing a 4% increase over 2013. The total comprehensive income for the year stood at Shs 514.8 million, reflects a 41% improvement over 2013 resulting from improved performance in underwriting operations and management of investments coupled with a gain on property revaluation during the year.

DividendThe Board, after considering the Company’s strategic plans, recommends to the Shareholders the payment of a total dividend of Shs 60 million, a similar amount as the previous year. The consolidated profit after taxation for the year amounting to Shs 372.9 million has been added to retained earnings, out of which the dividend will be paid and the balance will be carried forward and available for the benefit of the Shareholders.

Bonus IssueThe Board recommends a bonus issue amounting to Shs 300 million to the Shareholders registered as at close of business on 31 December 2014 in the proportion of three new shares for every ten existing shares held. This will have the effect of increasing the paid up share capital of the Company from Shs 1 billion to Shs 1.3 billion, of which Shs 1 billion will for the short-term business while Shs 300 million will be for the long-term business.

Business EnvironmentKenya continues to be the Company’s main market and its economic growth in 2014 is estimated by the World

Bank at 5.4%. This growth is mainly attributable to falling oil prices and increased infrastructure investments. The falling oil prices have led to reduced inflation pressure.

During the year, Central Bank of Kenya (CBK) developed a new benchmark rate, the Kenya Bankers Reference Rate (KBRR), which is a weighted average of the Central Bank Rate and weighted 2-month moving average of 91 day Treasury bill rate. The KBRR rate was initially set in July 2014 at 9.13% per annum and this rate was maintained up to the end of the year. Alongside the KBRR, CBK also introduced the Annual Percentage Rate (APR) requiring all banks to disclose all charges relating to the credit they offer to consumers customers thereby enhancing transparency in the pricing of credit.

The annual average inflation fell slightly from 7.2% (2013: 3.7%) in January to 6.0% (2013: 7.2%) in December. The Central Bank aims to contain the inflation rate within the target level of 5% as well as maintain an improved inflation profile.

The Central Bank Rate (CBR), which is determined by the Monetary Policy Committee (MPC) was maintained at 8.5% due to the absence of fundamental structural pressure on inflation. In the investment market, the 91-day Treasury bill interest rate was 9.3% (2013:8.1%) in January but was lower at 8.6% (2013:9.5%) in December. The 182-day Treasury bill interest rate was 10.4% (2013: 8.1%) in January but was higher at 9.5% (2013: 10.4%) in December while the 364-day Treasury bill interest rate was 10.7% (2013: 11.7%) in January but was lower at 10.3 % (2013: 10.7%) in December.

During the year, the Kenya Shilling steadily depreciated against the US Dollar with the average rates of exchange moving from Shs 86.21 (2013: Shs 86.90) in January to Shs 90.44 (2013: Shs 86.31) in December. However, the exchange rate appreciated against the Sterling Pound from Shs 141.99 (2013: Shs 133.80) in January to Shs 141.45 (2013: Shs 141.37) in December and also appreciated against the Euro from Shs 117.50 (2013: Shs 115.7) in January to Shs 111.52 (2013: Shs 116.18) in December.

The equity market at the Nairobi Securities Exchange

(NSE) recorded gains in share price increases with the

NSE 20 Share Index closing the year at 5112 points from

4926 points at the end of 2013 which represents a 4%

improvement while the turnover at Shs 216 billion from

Shs 155 billion the previous year reflects a 39% growth.

Geographical Distribution of BusinessKenya contributed significantly to the Company’s business at 56% of the consolidated gross premium income for the year compared with 54% in 2013. The Kenyan market accounted for 50% of the short-term business compared with 47.5% in 2013 and was also the main source of the long-term business.

Of the foreign markets, India and Tanzania were the Company’s main sources of business with a contribution of 17% (2013: 18%) and 9% (2013: 9%) of the gross premium income of the short term business respectively.

Internationally, the reinsurance market continues to be characterized by a soft market and readily available capacity. The international reinsurers continue to hold a significant share of the reinsurance market in the African region and new players, including intermediaries, have recently entered the East African market.

Short-Term Business Underwriting PerformanceThe short-term business gross premium income at Shs 3.05 billion represents a 23% growth over the previous year. The proportional treaties continued to account for the bulk of the short-term business.

The Company’s net claims incurred at Shs 1.67 billion (2013: Shs 1.32 billion) resulted in a loss ratio of 59% (2013: 56%) primarily due to large losses in India and Tanzania.

The net acquisition ratio was at 28% compared favourably with 30% in 2013 and the management expenses ratio to net premium income improved to 3.7% from 4.8% in 2013. The combined ratio of 94.5% also compares favourably with the previous year’s ratio of 95.4%.

The largest classes were Fire, Medical and Miscellaneous Accident respectively with a combined contribution of 79% of the total short-term premium income. The largest profit-making classes in 2014 were Motor, Marine and Fire while the only loss-making classes were Medical and Engineering.

The technical profit for the short-term business at Shs 260.2 million represents a 16% improvement over 2013 while the underwriting profit at Shs 151.6 million represents a 40% improvement over the previous year. The underwriting performance for the short term business for the year reflect the best results so far in the Company’s history.

Long-Term Business Underwriting PerformanceThe gross premium income for the long-term business at Shs 431.7 million represents a 29% growth on 2013.

The proportional treaties continued to be the main

component of the long-term business while the

contribution from Group Life continued to dominate over

the contribution from the Ordinary Life.

The long-term business had an actuarial surplus of Shs 172

million compared with Shs 282.8 million in the previous

year and the Actuary recommended a transfer of Shs 39.6

million for the benefit of the Shareholders. This transfer

together with taxation thereon is in compliance with the

30% limitation applicable to the transfer of actuarial surplus.

The Actuary further recommended that the balance of the

actuarial surplus be carried forward unappropriated in the

life fund, reported under general reserve, which as at 31

December 2014 stood at Shs 259.6 million.

Management ExpensesThe total gross management expenses at Shs 181.2

million were 8% higher than the previous year while

the consolidated gross management expenses ratio to

gross consolidated premium income at 5.2% compares

favourably with the previous year’s ratio of 5.9%.

Foreign Exchange PerformanceThe total exchange loss for the year at Shs 6.3 million

compares unfavourably with the previous year’s exchange

gain of Shs 5.2 million. In this regard, Management

continues to ensure that the Company’s foreign currency

exposure is adequately managed to minimize potential

adverse effects of foreign exchange transactions.

Investment PerformanceThe total gross investment income at Shs 437.8 million

compares favourably with Shs 426 million in 2013. This

performance was achieved despite lower interest rates

prevailing during the year on account of increased

investible funds arising from improved cash collection

results coupled with higher returns on equities and

corporate bonds. The total investible funds stood at Shs

4.64 billion at 31 December 2014, representing a 18%

growth over during the year.

Investment Property - Acorn HouseDuring the year, the Company acquired an investment

property, Acorn House, located in Lavington along

James Gichuru Road, Nairobi. The property is fully let

and it is anticipated that it will appreciate over time given

the increasing property values. The property acquired

earlier, EARe House, located on Riverside Drive, Nairobi,

is for the Company’s own office accommodation.

J. P. M. Ndegwa - Chairman

Chairman’s Statement (continued)Chairman’s Statement


Assets and Shareholders’ FundsThe Company’s total assets as at 31 December 2014 amounted to Shs 6.27 billion compared with Shs 5.41 billion as at 31 December 2013.

The total Shareholders’ funds as at 31 December 2014 at Shs 2.64 billion compares favourably with Shs 2.19 billion as at 31 December 2013, reflecting a 21% growth amounting to Shs 0.45 billion during the year.

The Shareholders’ funds for the short-term business at Shs 2.09 billion comprise share capital of Shs 700 million, retained earnings of Shs 1.14 billion, revaluation reserve of Shs 227.1 million and fair value reserve of Shs 12.1 million while the Shareholders’ funds for the long-term business comprise a share capital of Shs 300 million and general reserve of Kshs 259.6 million. The consolidated total paid up share capital stood at Shs 1 billion as at 31 December 2014 (2013: Shs 1 billion).

Authorized Share CapitalThe authorized share capital as at 31 December 2014 comprised Shs 700 million for the short-term business and Shs 300 million for the long-term business.

The Company’s capital adequacy ratio as at 31 December 2014 at 125% was strong with 140% for the short-term business and 100% for long-term business.

Solvency MarginsThe Company’s solvency margins for the short-term business and long-term business were strong and exceeded the requirements of Section 41 of the Insurance Act (Cap 487) at 381% and 1215% respectively.

Security RatingsDuring the year, A. M. Best affirmed the Company’s international security rating of B and issuer credit rating of bb+ with a stable outlook while Global Credit Rating Co. (GCR) of South Africa affirmed the Company’s domestic security rating of A+.

Champions of Governance AwardFor the third consecutive year since 2012, the Company was awarded the 1st position in the 2014 Champions of Governance (COG) Award in the Insurance Category. The Award was sponsored by the Institute of Certified Public Secretaries of Kenya (ICPSK) jointly with other COG partners, including the Insurance Regulatory Authority (IRA) and KASNEB. This is a manifestation of the Company’s core values.

Board of Directors and Senior ManagementDuring the period, Mr. M. K. Rao who served as Alternate Director to Dr. M. P. Chandaria left the Board effective 30 September 2014, and Mr. E. Rahedi who was General Manager (Technical) served the Company up to 30 November 2014. On behalf of the Board, I thank the two gentlemen for the valuable service they rendered the Company over the years and also to extend our best wishes to them for their future endeavours.

Corporate GovernanceThe Board remained committed to the principles of corporate governance and best practice during the year and also remained committed to complying with the requirements of the Insurance Act and any other applicable legislation and regulation.

A report on the corporate governance practices in the Company is contained in the Corporate Governance Statement forming part of the 2014 Annual Report.

The Company has in place Board and Board committee evaluation systems. Both evaluations are carried out annually and the Ethics, Nominations and Remuneration Committee is responsible for the evaluation on behalf of the Board. Results of the evaluation systems are considered by the Board.

Corporate Social ResponsibilityThe Company continues with its commitment to making a contribution to society and is currently more actively involved in supporting the needy and deserving children undertake secondary education. The Company supports this key programme by consciously supporting children in primary and secondary schools to acquire IT skills.

OutlookThe Kenyan economy is projected by the World Bank to grow by 6% in 2015 and is poised to be among the fastest growing in the region but the country’s exports growth has been lagging that of imports which mainly calls for support of the manufacturing sector. Inflation is likely to stabilize in 2015 considering that the Monetary Public Committee of Central Bank of Kenya aims to reduce inflation further leading to their decision to maintain the Central Bank Rate (CBR) at 8.5% and its support for the KBRR benchmark rate which has been reduced from 9.13% to 8.54% supported by the APR requirements for transparency in credit pricing within the KBRR framework.

Chairman’s Statement (continued)Chairman’s Statement (continued)

According to the Insurance Regulatory Authority (IRA), the recent entry of multinational insurance groups into the Kenyan insurance market is primarily due to the attractiveness of the local industry in view of the increasing ease of doing business and the discovery of oil and gas in the country. The resulting growth in premiums is likely to enhance the overall level of capitalization in the industry supported by the capital inflows from such multinational insurance companies. Regarding the investment market for the insurance industry, the recently introduced 5% capital gains tax on disposal of properties and equities has a potential negative impact on such investment returns. However, on the upside, the planned launch of a derivatives exchange this year by the Nairobi Stock Exchange (NSE) aimed at giving investors a platform to hedge against risks is a positive development for insurers and reinsurers in view of their active participation on the bourse.

The expected overhaul of the Insurance Act to align the local insurance industry with the international best practice has not materialized yet. As a result, the pressing needs of the reinsurance sector remain unresolved particularly with regard to the taxation of the long-term business and the continued restriction of the transfer of actuarial surplus affecting reinsurers whose position is unique given that they have no policyholders. The challenges facing the insurance industry in implementing the imposed 10% excise duty on commissions and other charges also still remain unresolved and pose impediments to development in the industry.

In East Africa, there have been major concerns regarding mandatory cessions and tax issues. In Tanzania, the mandatory treaty cessions to Tan Re have been increased from 15% to 20% from 2015 while in Kenya the mandatory treaty cessions to Kenya Re have been increased from 18% to 20% from 2016 despite earlier plans to discontinue the cessions in view of the need for a fair playing field in the insurance industry. In Uganda, the Value Added Tax (VAT) on insurance services and withholding tax on imported reinsurance services are likely to have a major impact in that market. These developments do not support the need to encourage insurance uptake considering the prevailing low insurance penetration in the region.

TributeI take this opportunity to thank all our cedants, intermediaries, retrocessionaires, regulators, shareholders and all other business partners for their valuable support to the Company. The Company does not take this support for granted and is committed to deliver the best

reinsurance service and value to the stakeholders at all times.

I also thank my fellow directors for their valuable support and commitment to the affairs of the Company and appreciate the Management and staff for their effort and commitment resulting in the Company’s all time record results.

J. P. M. NdegwaChairman

26 February 2015


The Directors present their report together with the audited financial statements of East Africa Reinsurance Company Limited (the “Company”) for the year ended 31 December 2014 which disclose the state of affairs of the Company.

Principal Activities The principal activity of the Company is that of underwriting all classes of reinsurance and reassurance businesses as defined by the Kenyan Insurance Act.

Results and DividendThe total comprehensive income for the year amounted to Shs 514,831,000 (2013: Shs 365,524,000). The profit for the year of Shs 372,883,000 (2013: Shs 365,524,000) has been added to retained earnings.

The Directors recommend the payment of a first and final dividend of Shs 60,000,000 (2013: Shs 60,000,000) representing a dividend of Shs 60 (2013: Shs 60) per share and a dividend payout ratio of 16% (2013: 17%).

DirectorsThe Directors who held office during the year and to the date of this report are listed on page 2.

AuditorsDeloitte & Touche, having expressed their willingness, continue in office in accordance with Section 159(2) of the Kenyan Companies Act and subject to approval by the Commissioner of Insurance under Section 56(4) of the Kenyan Insurance Act.

By Order of the Board

L. A. Kimang’aSecretary

26 February 2015

East Africa Reinsurance Company Limited is fully committed to the principles of transparency, integrity and accountability and has in place a Board Charter and Work Plan as part of its corporate governance. The Directors are ultimately accountable to the stakeholders for ensuring that the Company’s business is conducted in accordance with high standards of corporate governance. Of particular importance to the Company are the observance of Shareholders’ interest, efficient practices and open corporate communication systems.

1. Board of Directors The Board is responsible for formulating the Company’s policies and strategies and ensuring that business objectives, aimed at promoting and protecting Shareholder value, are achieved. The Board also retains the overall responsibility for effective control of the Company and implements corporate governance policies of the Company. In carrying out the above responsibilities, the Board delegates its authority to the Chief Executive Officer to oversee the day to day business operations of the Company.

The Board comprises six non-executive Directors, including two independent Directors, and one executive Director (Chief Executive Officer). The Directors have diverse skills and are drawn from various sectors of the economy. The Chairman, Vice-Chairman and Chairmen of Board Committees are non-executive Directors. The General Manager (Finance and Administration) and the General Manager (Technical) are in attendance at all regular meetings of the Board and its Committees to ensure that any necessary information is readily available for appropriate decision-making.

A timetable of calendar dates for Board meetings to be held in the following year is fixed in advance by the Board. The notice of Board meetings is given in advance in accordance with the Company’s Articles of Association and is distributed together with the agenda and board papers to all the Directors beforehand. The Board and Board Committees meet regularly and at least four times annually. In accordance with the Company’s practice, one Board meeting is normally scheduled to coincide with the occasion of the Annual General Meeting.

All Insurance Regulatory Authority, Kenya Revenue Authority inspection reports, Auditors’ reports, Actuarial reports and rating agencies reports are reviewed at Board meetings and appropriate actions taken.

The Company Secretary is always available to the Board of Directors and Board Committees.

a) Directors’ Emoluments and Loans The aggregate amount of emoluments paid to Directors for services rendered during the financial year is disclosed in Note 36(d) to the financial statements for the year ended 31 December 2014. The Company does not advance loans to non-executive Directors as disclosed in note 36(c) to the financial statements.

b) Related Party TransactionsThere have been no materially significant related party transactions, pecuniary transactions or relationships between the Company and its Directors or Management except those disclosed in Note 36 to the financial statements for the year ended 31 December 2014.

2. Board CommitteesThe Board has in place three committees, namely the Finance, Investment and IT (FII) Committee; the Audit, Risk and Compliance (ARC) Committee; and the Ethics, Nominations and Remuneration (ENR) Committee.

All the committees have detailed terms of reference and hold meetings as necessary. The Committees meet and make recommendations to the Board on matters falling under their respective mandates. The Board may delegate some of its powers to any committee and may appoint any other committee, including ad hoc task forces, as and when it is deemed necessary.

Corporate Governance StatementDirectors’ Report


2. Board Committees (continued)a) Finance, Investment and IT CommitteeThe Finance, Investment and IT Committee is chaired by a non-executive member of the Board. The other members include the Chief Executive Officer and non-executive appointees of the Board. The General Manager (Finance and Administration) is in attendance. The Committee meets on a quarterly basis and is mainly responsible for financial, investment, information and communication technology, occupational health and safety matters of the Company, on behalf of the Board. The FII Committee is responsible to the Board.

b) Audit, Risk and Compliance CommitteeThe Audit, Risk and Compliance (ARC) Committee is chaired by an Independent non-executive Director. The other members are non-executive appointees of the Board with the Chief Executive Officer and the General Manager (Finance and Administration) is in attendance. The Manager (Risk and Compliance) also attends meetings of the ARC Committee by invitation. The Committee meets on a quarterly basis and is responsible for ensuring that the systems and controls, procedures and policies of the Company as well as Risk Management are properly established, monitored and reported on. The Committee receives reports from both external and internal auditors, and also monitors implementation of audit recommendations, on behalf of the Board. The ARC Committee is also responsible for monitoring and providing effective supervision of the management’s financial reporting process to ensure accurate and timely financial reporting. Additionally, the Committee is responsible for ensuring entrenchment of good corporate governance practices in the Company. The ARC Committee is responsible to the Board.

c) Ethics, Nominations and Remuneration CommitteeThe Ethics, Nominations and Remuneration (ENR) Committee is chaired by a non-executive Director. The other members are non-executive Directors and the Chief Executive Officer. The General Manager (Finance and Administration) attends by invitation. The Committee meets on as needed basis but at least once a year and is responsible for compliance with applicable laws, regulations and business ethics and conflicts of interest, including the Company’s continuous disclosure obligations. It reviews and monitors related party transactions and transactions with its cedents, intermediaries, retrocessionnaires, employees and other stakeholders to ensure that they are conducted at arm’s length, with integrity and transparency. Further, it makes recommendations to the Board on remuneration, recruitment and appointment, termination and removal, competencies, skills, knowledge, experience and incentive policies and procedures. The ENR Committee is also responsible for development of a process for evaluation of the performance of the Board, its Committees and Directors and succession planning. The ENR Committee is responsible to the Board.

3. Risk Management and Internal ControlManagement, in consultation with the Board Committees, is responsible for the Company’s day-to-day overall risk management to minimize potential adverse effects on its financial performance while the Board is responsible for the Company’s system of internal control and for reviewing its effectiveness. The Company has an ongoing process of identifying, evaluating and managing significant risks inherent in its business, by the Risk Management department. This process is also reviewed by the Internal Auditor. The Company has in place a chain of controls and a Balanced Scorecard Tool which include, but are not limited to, an annual strategic planning and budgeting process, a regular review of strategic initiatives, a well defined organizational structure which is kept under regular review by the Board, clearly laid down authority levels, and a review of quarterly financial and operating information by Management and the Board.

4. Responsibility for Staff Welfare and TrainingAs part of its policy, the Company recognizes the need for diversity, equal opportunities, gender sensitivity and provision of a safe and conducive work environment for all its staff. The Company assists its staff to undertake continuous professional and development training programmes to fulfil their potential. This process is appropriately managed to align staff development with the Company’s strategic and business goals and objectives, and is reinforced with appropriate remuneration and incentive systems.

Corporate Governance Statement (continued) Corporate Governance Statement (continued)

5. ShareholdersThe list of the Shareholders and their individual holdings at the year end was as follows:

6. Board and Committee Meetings AttendanceDuring the year, attendances at meetings of the Board and its committees, namely Finance, Investment and IT Committee and Audit, Risk and Compliance Committee, were as follows:

a) Board Meetings

2014 Holding 2013 Holding

Number of Shares

%Number

of Shares%

First Chartered Securities Limited 250,000 25.00 250,000 25.00

ICEA LION Life Assurance Company Limited 250,000 25.00 250,000 25.00

Kenindia Assurance Company Limited 159,932 15.99 159,932 15.99

General Insurance Corporation of India 147,521 14.75 147,521 14.75

GA Insurance Limited 68,580 6.86 68,580 6.86

Cannon Assurance Limited 43,865 4.39 43,865 4.39

Gateway Insurance Company Limited 30,439 3.04 30,439 3.04

Pioneer Holdings (Africa) Limited 30,000 3.00 30,000 3.00

Apollo Investments Limited 13,474 1.35 13,474 1.35

United Insurance Company Limited 6,189 0.62 6,189 0.62

Total 1,000,000 100.00 1,000,000 100.00

Name27 February

201422 May2014

21 August2014

27 November2014

J. P. M. Ndegwa (Chairman) √ √ √ √

M. P. Chandaria (Dr.) OBE EBS (Vice-Chairman) √ √ √ √

P. K. Maina (Chief Executive Officer) √ √ √ √

D. G. M. Hutchison √ √ √ √

L. W. Muriuki (Ms.) √ √ √ √

S. O. Oluoch √ √ √ √

A. K. Roy √ √ x x

In AttendanceL. A. Kimang’a (Secretary) √ √ √ √

Name19 February

20147 May 2014

6 August 2014

5 November 2014

P. K. Mugambi (Chairman) √ √ √ √

P. K. Maina (Chief Executive Officer) √ √ √ √

J. K. Kimeu √ √ √ √

M. K. Rao √ √ x *

In AttendanceL. A. Kimang’a (Secretary) √ √ √ √

b) Finance, Investment and IT (FII) Committee Meetings


Name27 February

201421 August

2014J. P. M. Ndegwa (Chairman) √ √

M. P. Chandaria (Dr.) OBE EBS (Vice-Chairman) √ √

P. K. Maina (Chief Executive Officer) √ √

D. G. M. Hutchison √ √

L. W. Muriuki (Ms.) √ √

S. O. Oluoch √ √

In AttendanceL. A. Kimang’a (Secretary) √ √

6. Board and Committee Meetings Attendance (continued)c) Audit, Risk and Compliance (ARC) Committee Meetings

d) Ethics, Nominations and Remuneration Committee

Corporate Governance Statement (continued) Social and Environmental Responsibilities Statement

Name19 February

20147 May 2014

6 August 2014

17 November 2014

D. G. M Hutchison (Chairman) √ √ √ √

J. K. Kimeu √ √ √ √

P. K. Mugambi √ √ √ √

M. K. Rao √ √ x *In AttendanceP. K. Maina (Chief Executive Officer) √ √ √ √

L. A. Kimang’a (Secretary) √ √ √ √

7. ComplianceThe Company operates within the requirements of the Kenyan Insurance Act, among other laws, and adopts certain universally accepted principles in the areas of human rights, labour standards and environment in its commitment to best practice. Additionally, the Company prepares its financial statements in accordance with International Financial Reporting Standards (IFRS) and the requirements of the Kenyan Companies Act.

√ Attended (or represented by Alternate in the case of Board meetings).X Absent with apology and valid reason for non-attendance.* Resigned from the FII Committee and ARC Committee with effect from 30 September 2014.

J. P. M. Ndegwa Chairman

26 February 2015

D. G. M. HutchisonDirector

26 February 2015

P. K. MainaPrincipal Officer

26 February 2015

East Africa Reinsurance Company Limited recognizes that social and environmental responsibilities are an integral part of its overall business practice and has in place a Corporate Social Responsibility (CSR) Charter which guides its CSR activities. The Company is committed to ensuring implementation of the social and environmental responsibility aspects that are relevant to its business. In particular, emphasis is placed on involvement in community developmental activities, care for the environment in which the Company operates and employee welfare. The Company strives to build capacity for sustainable livelihoods and our efforts are about making a difference; providing our staff with the opportunity to make a contribution to the society. Staff are fully engaged in the Company’s projects and we ensure that the one-off projects are sustainable.

During the year the Company continued to dedicate its resources towards supporting several initiatives in the key areas of focus, i.e. quality education, health, and environment. In line with its underlying commitment to creating and sustaining stakeholder value, the Board takes overall responsibility for continued development and implementation of appropriate social and environmental policies for the Company.

1. Support to SocietyThe Company continues to be a committed corporate citizen. In this regard, the Company, through its staff, continues to support worthwhile community programmes and initiatives, particularly those undertaken by deserving charities in the health, social and child welfare sectors. The Company also extends assistance towards expansion of facilities in the provision of quality education.

During the year ended 31 December 2014 and to the date of this report, the Company contributed towards:

i) Sponsorship of education of rehabilitated street and other needy children.

ii) Provision of education for the girl child.

iii) Provision of sanitary towels to secondary school girls.

iv) Sponsorship of needy top candidates to join national/provincial secondary schools in Kenya.

v) Activities of secondary and primary schools serving needy children.

vi) Graduate and undergraduate internship programmes within the Company.

vii) Activities organized by professional institutes aimed at promoting professionalism in Kenya.

viii) Activities organized by associations and organizations in the insurance industry aimed at developing the industry.

ix) Breast cancer awareness programme.

x) Polio eradication initiative.

2. Protection of EnvironmentThe Company is conscious of the need to protect the environment and, in this regard, supports efforts to promote its conservation. The Company’s premises are environmental friendly exhibiting nature and the Company has continued to preserve trees and other natural vegetation. The Company’s offices have plenty of natural lighting and environmental features.


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The Kenyan Companies Act requires the Directors to prepare financial statements for each financial year which give a true and fair view of the state of affairs of the Company as at the end of the financial year and of its operating results for that year. It also requires the directors to ensure that the Company keeps proper accounting records which disclose with reasonable accuracy at any time the financial position of the Company. They are also responsible for safeguarding the assets of the Company.

The Directors are responsible for the preparation of financial statements that give a true and fair view in accordance with International Financial Reporting Standards and the requirements of the Kenyan Companies Act, and for such internal controls as the directors determine are necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

The Directors accept responsibility for the annual financial statements, which have been prepared using appropriate accounting policies supported by reasonable and prudent judgments and estimates, in conformity with International Financial Reporting Standards and in the manner required by the Kenyan Companies Act. The Directors are of the opinion that the financial statements give a true and fair view of the state of the financial affairs of the Company and of its operating results. The Directors further accept responsibility for the maintenance of accounting records which may be relied upon in the preparation of financial statements, as well as adequate systems of internal financial control.

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

Statement of Directors’ Responsibilities Report of the Consulting Actuary

I have conducted an actuarial valuation of the long-term business of East Africa Reinsurance Company Limited as at 31 December 2014.

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, I have relied upon the audited financial statements of the company.

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

J. I. O. OlubayiFellow of the Institute of the ActuariesAlexander Forbes Financial Services (E.A.) LimitedNairobi

26 February 2015


Report of the Consulting Actuary

I have conducted an insurance liability valuation of the short-term business of East Africa Reinsurance Company Limited as at 31 December 2014.

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 the insurance liabilities.

I verify that the calculation of the short term insurance liabilities as at 31 December 2014 is appropriate. I am satisfied that the insurance liabilities as per the valuation are sufficiently prudent and appropriate given the nature of the business and existing liabilities.

J. I. O. OlubayiFellow of the Institute of the ActuariesAlexander Forbes Financial Services (E.A.) LimitedNairobi

26 February 2015

Report on Financial StatementsWe have audited the accompanying financial statements of East Africa Reinsurance Company Limited, set out on pages 22 to 62, which comprise the statement of financial position as at 31 December 2014, and the statement of profit or loss and other comprehensive income, statement of changes in equity and statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory notes.

Directors’ Responsibility for the Financial StatementsThe directors are responsible for the preparation of financial statements that give a true and fair view in accordance with International Financial Reporting Standards and the requirements of the Kenyan Companies Act, and for such internal controls as the directors determine are necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

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

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we considered the internal controls relevant to the company’s preparation of financial statements that give a true and fair view in order to design audit procedures that were appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal controls. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial statements.

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

OpinionIn our opinion, the financial statements give a true and fair view of the state of financial affairs of the company as at 31 December 2014 and of its financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards and the requirements of the Kenyan Companies Act.

Report on Other Legal RequirementsAs required by the Kenyan Companies Act we report to you, based on our audit, that:i) we have obtained all the information and explanations which, to the best of our knowledge and belief, were

necessary for the purposes of our audit;

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

iii) the company’s statement of financial position (balance sheet) and statement of profit or loss and other comprehensive income (profit and loss account) are in agreement with the books of account.

The engagement partner responsible for the audit resulting in this independent auditors’ report is CPA J W Wangai - P/No 1118.

Certified Public Accountants (Kenya)Nairobi, Kenya26 February 2015

Independent Auditors’ Report to the Members of East Africa Reinsurance Company Limited


Notes Short-term Long-term Total Short-term Long-term Total business business 2014 business business 2013 restated restated Shs’000 Shs’000 Shs’000 Shs’000 Shs’000 Shs’000 Gross written premiums 7(a) 3,046,645 431,706 3,478,351 2,482,237 335,219 2,817,456 Movement in gross unearned premiums reserve 8 (147,217) - (147,217) (67,397) - (67,397)

Gross earned premiums 7(b) 2,899,428 431,706 3,331,134 2,414,840 335,219 2,750,059Retrocession premiums 7(c) (83,729) (90,501) (174,230) (43,263) (60,778) (104,041) Movement in retro unearned premium reserves 8 207 - 207 (1,219) - (1,219)

Net earned premiums 2,815,906 341,205 3,157,111 2,370,358 274,441 2,644,799 Investment and other income 10 322,940 83,549 406,489 318,511 74,104 392,615 Gain on disposal of equipment - - - 2 - 2Risk premium rebates earned 6,065 26,166 32,231 2,156 18,572 20,728

Net income 3,144,911 450,920 3,595,831 2,691,027 367,117 3,058,144

Gross claims incurred 11 1,629,873 212,824 1,842,697 1,252,121 150,650 1,402,771 Amounts recoverable from retrocessionaires 41,837 (65,703) (23,866) 65,424 (16,293) 49,131

Net claims incurred 1,671,710 147,121 1,818,831 1,317,545 134,357 1,451,902 Operating and other expenses 12 267,034 64,786 331,820 245,374 41,750 287,124Risk premium rebates 801,158 104,555 905,713 723,213 76,479 799,692

Total expenses 2,739,902 316,462 3,056,364 2,286,132 252,586 2,538,718

Profit before taxation 405,009 134,458 539,467 404,895 114,531 519,426 Transfer of actuarial surplus 39,690 (39,690) - 65,265 (65,265) -

Total profit before taxation 444,699 94,768 539,467 470,160 49,266 519,426Taxation charge 14 (125,724) (40,860) (166,584) (122,114) (31,788) (153,902)

Profit for the year 318,975 53,908 372,883 348,046 17,478 365,524

Other comprehensive incomeItems that may not subsequently be classified to profit or loss Gain on revaluation of property and equipment 202,783 - 202,783 - - -Deferred taxation on revaluation of property and equipment 21 (60,835) - (60,835) - - - 141,948 - 141,948 - - -

Total other comprehensive income for the year 141,948 - 141,948 - - -

Total comprehensive income for the year 460,923 53,908 514,831 348,046 17,478 365,524

Earnings per share (basic and diluted) 15 372.88 365.52

The financial statements on pages 22 to 62 were approved and authorized for issue by the Board of Directors on 26 February 2015 and were signed on its behalf by:

Short-term Long-term Total Notes business business 2014 Shs ‘000 Shs ‘000 Shs ‘000Capital Employed Share capital 17 700,000 300,000 1,000,000Fair value reserve 12,136 - 12,136Revaluation reserve 227,078 - 227,078General reserve 18(a) - 259,631 259,631Retained earnings 18(b) 1,145,941 - 1,145,941

Shareholders’ funds 2,085,155 559,631 2,644,786

Represented By Assets Property and equipment 19(a) 403,660 - 403,660Intangible assets 20 - 4,571 4,571Investment properties 19(b) 735,809 - 735,809Equity investments 22 109,077 9,479 118,556Mortgage loans - staff 23 34,395 - 34,395Receivables arising out of retrocession arrangements 52,579 - 52,579Receivables arising out of reinsurance arrangements 550,700 13,351 564,051Retrocessionaires’ share of reinsurance liabilities 24(a) 23,440 9,969 33,409Deferred risk premium rebates 24(b) 362,034 - 362,034Corporate tax recoverable 14(c) 8,068 8,970 17,038Other receivables 25 151,106 40,549 191,655Corporate bonds 26 376,482 54,753 431,235Government securities 27 461,170 210,156 671,326Deposits with financial institutions 28 2,082,941 530,670 2,613,611Cash and bank balances 34 28,574 7,762 36,336

Total assets 5,380,035 890,230 6,270,265 Liabilities Deferred risk premium rebates arising from retrocession arrangements 24(b) 461 - 461Reinsurance/reassurance contract liabilities 30 1,251,079 172,310 1,423,389Deferred taxation 21 90,476 111,270 201,746Provision for unearned premiums 31 1,194,580 - 1,194,580Payables arising from retrocession arrangements 44,767 11,641 56,408Payables arising from reinsurance arrangements 384,451 14,514 398,965Other payables 32 329,066 20,864 349,930 Total liabilities 3,294,880 330,599 3,625,479 Net assets 2,085,155 559,631 2,644,786

Statement of Profit or Loss and Other Comprehensive Income Statement of Financial Position

For the year ended 31 December 2014 As at 31 December 2014


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26 February 2015


Short-term Long-term Total Notes business business 2013 restated restatedCapital Employed Shs ‘000 Shs ‘000 Shs ‘000Share capital 17 700,000 300,000 1,000,000Fair value reserve 13,970 - 13,970Revaluation reserve 89,745 - 89,745General reserve 18(a) - 205,723 205,723Retained earnings 18(b) 880,517 - 880,517


Represented By Assets Property and equipment 19 212,167 - 212,167Equity investments 22 42,366 8,474 50,840Mortgage loans - staff 23 34,369 - 34,369Receivables arising out of retrocession arrangements 43,291 - 43,291Receivables arising out of reinsurance arrangements 635,571 15,348 650,919Retrocessionaires’ share of reinsurance liabilities 24(a) 128,928 9,246 138,174Deferred risk premium rebates 24(b) 285,909 - 285,909Other receivables 25 157,759 828 158,587Corporate bonds 26 68,309 7,662 75,971Government securities 27 575,313 250,780 826,093Deposits with financial institutions 28 2,294,728 526,147 2,820,875Cash and bank balances 34 96,935 14,791 111,726

Total assets 4,575,645 833,276 5,408,921 Liabilities Deferred risk premium rebates arising from retrocession arrangements 24(b) 85 - 85Reinsurance/reassurance contract liabilities 30 1,163,546 105,160 1,268,706Deferred taxation 21 31,253 88,166 119,419Provision for unearned premiums 31 971,238 - 971,238Payables arising from retrocession arrangements 47,829 7,150 54,979Payables arising from reinsurance arrangements 364,351 4,790 369,141Other payables 32 302,367 120,460 422,827Corporate tax payable 14(c) 10,744 1,827 12,571 Total liabilities 2,891,413 327,553 3,218,966 Net assets 1,684,232 505,723 2,189,955


Statement of Financial Position Statement of Financial Position

As at 31 December 2013 As at 31 December 2012


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26 February 2015

Short-term Long-term Total Notes business business 2012 restated restatedCapital Employed Shs ‘000 Shs ‘000 Shs ‘000Share capital 650,000 150,000 800,000Fair value reserve 15,936 - 15,936Revaluation reserve 94,360 - 94,360General reserve 37 (a) - 188,245 188,245Retained earnings 765,890 - 765,890


Represented By Assets Property and equipment 225,010 - 225,010Equity investments - - -Mortgage loans - staff 18,149 - 18,149Receivables arising out of retrocession arrangements 92,170 - 92,170Receivables arising out of reinsurance arrangements 455,709 8,250 463,959Retrocessionaires’ share of reinsurance liabilities 217,310 18,933 236,243Deferred risk premium rebates 254,941 - 254,941Other receivables 150,667 4,425 155,092Corporate bonds 77,313 8,935 86,248Government securities 333,690 167,792 501,482Deposits with financial institutions 2,157,019 449,628 2,606,647Cash and bank balances 34,238 23,819 58,057

Total assets 4,016,216 681,782 4,697,998 Liabilities Deferred risk premium rebates arising from retrocession arrangements 434 - 434Reinsurance/reassurance contract liabilities 1,019,908 132,708 1,152,616Deferred taxation 32,439 80,676 113,115Provision for unearned premiums 872,873 - 872,873Payables arising from retrocession arrangements 58,399 26,628 85,027Payables arising from reinsurance arrangements 289,023 19,584 308,607Other payables 172,862 78,267 251,129Taxation payable 44,092 5,674 49,766 Total liabilities 2,490,030 343,537 2,833,567 Net assets 1,526,186 338,245 1,864,431



The reserve accounts in the statement of changes in equity are explained below:

• Therevaluationsurplusisnotdistributableandrepresentsthesurplusarisingfromtherevaluationofpropertyandequipment, net of related deferred taxation.

• Thefairvaluereserverepresentsthecumulativesurplusordeficitarisingfromrevaluationofavailable-for-saleinvestment based on the market values of the investments at the end of the reporting period. This reserve is not distributable.

• Retainedearnings representaccumulatedprofit retainedby theCompanyafterpaymentofdividends to theshareholders. The amount is available for distribution to shareholders.

• GeneralreserverepresentaccumulatedprofitforlifebusinessaftertransfertoShareholdersandisstatednetofprovision for deferred tax. Distribution of the fund is restricted by the Insurance Act.

Statement of Changes in Equity Statement of Changes in Equity

For the Year Ended 31 December 2014 For the Year Ended 31 December 2014

Share Revaluation Fair value Retained General capital reserve reserve earnings reserve Total Shs’000’ Shs’000’ Shs’000’ Shs’000’ Shs’000’ Shs’000’ At 1 January 2012 As previously reported 750,000 - 28,150 536,119 1,314,269Prior year adjustment (note 37) - - - - 145,404 145,404As restated 750,000 - 28,150 536,119 145,404 1,459,673 Bonus issue 50,000 - - (50,000) - - Profit for the year - - - 282,557 42,841 325,398 Other comprehensive income - 94,360 (12,214) 12,214 - 94,360

Total other comprehensive income - 94,360 (12,214) 294,771 42,841 419,758 Dividend paid – declared in 2011 - - - (15,000) - (15,000) As at 31 December 2012 800,000 94,360 15,936 765,890 188,245 1,864,431

At 1 January 2013 As previously reported 800,000 94,360 15,936 765,890 - 1,676,186Prior year adjustment (note 37) - - - - 188,245 188,245

As restated 800,000 94,360 15,936 765,890 188,245 1,864,431 Bonus issue 200,000 - - (200,000) - - Profit for the year - - - 348,046 17,478 365,524 Fair value reserve - - (1,966) 1,966 - - Transfer of excess depreciation - (6,593) - 6,593 - -Deferred taxation on excess depreciation - 1,978 - (1,978) - - Dividend paid – declared in 2012 - - - (40,000) - (40,000)

As at 31 December 2013 1,000,000 89,745 13,970 880,517 205,723 2,189,955

Share Revaluation Fair value Retained General capital reserve reserve earnings reserve Total Shs’000’ Shs’000’ Shs’000’ Shs’000’ Shs’000’ Shs’000’ At 1 January 2014 As previously reported 1,000,000 89,745 13,970 880,517 - 1,984,232Prior year adjustment (note 37) - - - - 205,723 205,723As restated 1,000,000 89,745 13,970 880,517 205,723 2,189,955 Profit for the year - - - 318,975 53,908 372,883 Other comprehensive income - 141,948 - - - 141,948

Total other comprehensive income - 141,948 - 318,975 53,908 514,831 Fair value reserve - - (1,834) 1,834 - - Transfer of excess depreciation - (6,593) - 6,593 - -Deferred taxation on excess depreciation - 1,978 - (1,978) - - Dividend paid – declared in 2013 - - - (60,000) - (60,000)

As at 31 December 2014 1,000,000 227,078 12,136 1,145,941 259,631 2,644,786


2014 2013 Notes Shs ‘000 Shs ‘000

Cash flows from operating activities Cash generated from operations 35 525,866 447,140Taxation paid 14(c) (174,702) (184,792) Net cash generated from operating activities 351,164 262,348 Cash flows from investing activities Investment income received 426,987 422,082Redemption/(purchase) of Government securities 207,042 (356,352)Purchase of corporate bonds (355,264) 10,277Investment in deposits with financial institutions maturing over 3 months 263,765 (603,955) Purchase of property and equipment 19(a) (696) (1,078)Purchase of investment property 19(b) (735,809) -Purchase of intangible asset (software) 20 (6,856) -Purchase of quoted shares 22 (133,257) (46,903)Mortgage loans advanced 23 (7,200) (18,958)Mortgage loans repaid 23 7,174 2,738Proceeds of disposal of motor vehicles and equipment - 2,002Proceeds of disposal of quoted shares 76,335 -

Net cash used in investing activities (257,779) (590,147)

Cash flows from financing activities Dividends paid (60,000) (40,000)

Net increase/(decrease) in cash and cash equivalents 33,385 (367,799) Cash and cash equivalents at 1 January 539,637 907,436 Cash and cash equivalents at 31 December 34 573,022 539,637

Statement of Cash Flows Notes to the Financial Statements


1. Reporting Entity East Africa Reinsurance Company Limited is incorporated in Kenya under the Companies Act as a private limited liability Company and is domiciled in Kenya. The address of its registered office is as follows:

EARe House98 Riverside DriveP. O. Box 20196 - 00200 City Square Nairobi, Kenya

The Company is organised into two main divisions, short-term (general) business and long-term (life) business. Long-term business relates to the underwriting of life risks relating to insured persons. Short-term business relates to all other categories of the insurance business accepted by the Company, analysed into several sub-classes of business based on the nature of the assumed risks.

The results of the two divisions are presented separately in the statement of profit or loss and other comprehensive income on page 22 and in the acCompanying notes. The statement of financial position on pages 23, 24 and 25 and the acCompanying notes disclose the assets attributable to the long-term and short-term business separately.

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

(i) Basis of preparationa) Statement of compliance The financial statements have been prepared in accordance with International Financial Reporting Standards.For the Kenyan Companies Act reporting purposes, in these financial statements the balance sheet is represented by/equivalent to the statement of financial position and the profit and loss account is equivalent to in the statement of profit or loss.

Application of new and revised International Financial Reporting Standards (IFRS)(i) New standards and amendments to published standards effective for the year ended 31 December 2014There were no new and revised IFRSs that were effective in the current year that had impact on the amounts reported in these financial statements. reported in these financial statements.

ii) Relevant new and revised IFRSs in issue but not yet effective for the year ended 31 December 2014IFRS 9 Financial InstrumentsIFRS 9, issued in November 2009, introduced new requirements for the classification and measurement of financial assets. IFRS 9 was amended in October 2010 to include requirements for the classification and measurement of financial liabilities and for derecognition.

Key requirements of IFRS 9:• All recognisedfinancial assets that arewithin the scopeof IAS39Financial Instruments:Recognitionand

Measurement are required to be subsequently measured at amortised cost or fair value. Specifically, debt investments that are held within a business model whose objective is to collect the contractual cash flows, and that have contractual cash flows that are solely payments of principal and interest on the principal outstanding are generally measured at amortised cost at the end of subsequent accounting periods. All other debt investments and equity investments are measured at their fair value at the end of subsequent accounting periods. In addition, under IFRS 9, entities may make an irrevocable election to present subsequent changes in the fair value of an equity investment (that is not held for trading) in other comprehensive income, with only dividend income generally recognised in profit or loss.


2. Accounting Policies (continued)Adoption of new and revised International Financial Reporting Standards (IFRS) (continued)

iii) Relevant new and revised IFRSs in issue but not yet effective for the year ended 31 December 2014IFRS 9 Financial Instruments (Continued)• With regard to the measurement of financial

liabilities designated as at fair value through profit or loss, IFRS 9 requires that the amount of change in the fair value of the financial liability that is attributable to changes in the credit risk of that liability is presented in other comprehensive income, unless the recognition of the effects of changes in the liability’s credit risk in other comprehensive income would create or enlarge an accounting mismatch in profit or loss. Changes in fair value attributable to a financial liability’s credit risk are not subsequently reclassified to profit or loss. Under IAS 39, the entire amount of the change in the fair value of the financial liability designated as fair value through profit or loss is presented in profit or loss.

The Directors of the Company anticipate that the application of IFRS 9 in the future may have a significant impact on amounts reported in respect of the Company’s financial assets and financial liabilities. However, it is not practicable to provide a reasonable estimate of the effect of IFRS 9 until a detailed review has been completed by the Company.

IFRS 15 Revenue from Contracts with CustomersIn May 2014, IFRS 15 was issued which establishes a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. IFRS 15 will supersede the current revenue recognition guidance including IAS 18 Revenue, IAS 11 Construction Contracts and the related Interpretations when it becomes effective.

The core principle of IFRS 15 is that an entity should recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Specifically, the Standard introduces a 5-step approach to revenue recognition:

Step 1: Identify the contract(s) with a customer;Step 2: Identify the performance obligations in the contract;

Step 3: Determine the transaction price;Step 4: Allocate the transaction price to the performance obligations in the contract; andStep 5: Recognise revenue when (or as) the entity satisfies a performance obligation

Under IFRS 15, an entity recognises revenue when (or as) a performance obligation is satisfied, i.e. when ‘control’ of the goods or services underlying the particular performance obligation is transferred to the customer. Far more prescriptive guidance has been added in IFRS 15 to deal with specific scenarios. Furthermore, extensive disclosures are required by IFRS 15. The directors of the Company anticipate that the application of IFRS 15 in the future may not have a significant impact on amounts reported in respect of the Company’s financial statements.

iv) Early adoption of standardsThe Company did not early-adopt any new or amended standards in 2014.

ii) Basis of measurement The financial statements are prepared in accordance with International Financial Reporting Standards (IFRS). The measurement basis applied is the historical cost basis, except where otherwise stated in the accounting policies below. The financial statements are presented in Kenya Shillings Thousands rounded to the nearest thousand (Sh’000). The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the Company’s accounting policies. The areas involving a higher degree of judgment or complexity, or where assumptions and estimates are significant to the financial statements, are disclosed in note 3.

For purposes of the Kenyan Companies Act, the statement of financial position is equivalent to the balance sheet while the profit and loss account is presented in the statement of profit or loss and other comprehensive income.

iii) Functional and presentation currenciesItems included in the financial statements of the Company are measured using the currency of the primary economic environment in which the entity operates (the functional currency). The Company’s functional and presentation currency is the Kenya Shilling (Sh).

Notes to the Financial Statements (continued)Notes to the Financial Statements (continued)

For the Year Ended 31 December 2014For the Year Ended 31 December 2014

iv) Use of estimates and judgments The preparation of financial statements requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities and disclosure of contingent assets and contingent liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reported year. Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the year in which the estimate is revised and in any future periods affected.

During the year, the areas involving a higher degree of judgment or complexity or where assumptions and estimates are significant to the financial statements are disclosed in note 3.

Reinsurance contracts (i) Classification The Company underwrites reinsurance risk from reinsurance contracts or financial risk or both. Reinsurance contracts are those contracts that transfer significant reinsurance risk. Such contracts may also transfer financial risk. As a general guideline, the Company defines as significant reinsurance risk, the possibility of having to pay benefits on the occurrence of a reinsured event that are at least 10% more than the benefits payable if the reinsured event did not occur.

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

a. Short-term reinsurance business This represents reinsurance business of any class or classes not being long-term reassurance business.

Classes of General Reinsurance include Aviation, Engineering, Fire (domestic risks, industrial and commercial risks), Liability, Marine, Motor (private vehicles and commercial vehicles), Personal Accident, Theft, Workmen’s Compensation, Employer’s Liability, Medical and Miscellaneous (i.e. class of business not included under those listed above). The Company’s main classes, which account for over 75% of the income, are described below.

Miscellaneous Accident reinsurance business comprises the business of effecting and carrying out contracts of reinsurance which are not principally or wholly of any types included in other classes of business but shall include reinsurance of bonds of all types, reinsurance of livestock and crop reinsurance.

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

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

b. Long-term reassurance business This includes reassurance business of all or any of the following classes, namely, ordinary life reassurance business, group life reassurance business and business incidental to any such class of business.

Ordinary life reassurance business comprises the business of, or in relation to, the issuing of, or the undertaking of liability to pay money on death (not being death by accident or in specified sickness only) or on the happening of any contingency dependent on the termination or continuance of human life (either with or without provision for a benefit under a continuous disability reinsurance contract), and include a contract which is subject to the payment of premiums for a term dependent on the termination or continuance of human life.

Group life reassurance business comprises life reassurance business, being business of, or in relation to, the issuing of or the undertaking of liability under group life and permanent health reinsurance policy.

(ii) Recognition and measurementThe Company incorporates actual results reported by cedant companies up to the third quarter of each year. Reinsurance income and expenditure transactions for the fourth quarter of the year are based on estimates developed with the assistance of the actuaries. Further details of the process of developing these estimates are disclosed on note 3.


2. Accounting Policies (continued)(ii) Recognition and measurement (continued)The results of the reinsurance business are determined on an annual basis whereby the incurred cost of claims, commissions and related expenses are charged against the net earned proportion of premiums as follows:

a. Premium income Gross earned premiums comprise gross premiums including accrued fourth quarter estimated pipeline premiums (being premiums written by cedants but not reported to the Company at the end of each reporting period) relating to risks assumed in the year after accounting for any movement in gross unearned premiums. Unearned premiums for the short-term business represent that proportion of premiums written in the period that are attributable to the subsequent accounting period and are estimated, based on the internationally acceptable eighths (8ths) method, net of deductions. There are no unearned premiums, with regard to non-proportional treaty business.

b. Claims incurred Claims incurred comprise actual claims paid as at third quarter and accrued paid fourth quarter estimated pipeline claims (being claims paid by cedants but not reported to the Company at the end of each reporting period) and changes in the provision for reinsurance contract liabilities. Claims paid represent all payments made during the year, whether arising from events during that or earlier years. Reinsurance contract liabilities represent the ultimate cost of settling all claims arising from incidents occurring prior to the end of each reporting period, but not settled at that date. They are determined annually by the Company’s consulting actuaries on the basis of the best information available at the time the records for the year are closed, and include any provisions for claims incurred but not reported (IBNR).

c. Risk premium rebates paid and earned A proportion of total risk premium rebates payable is deferred and amortized over the period in which the related premium is earned. Risk premium rebates receivable are recognized as income in the period in which they are earned.

d. Deferred risk premium rebates payable (RPR)Deferred risk premium rebates payable represent a proportion of the risk premium rebates incurred and revenue receivable that relate to policies that are in force at the year end.

e. Liability adequacy test At the end of each reporting period, liability adequacy tests are performed to ensure the adequacy of the contract liabilities net of related deferred RPR. 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 RPR and by subsequently establishing a provision for losses arising from liability adequacy tests (the unexpired risk provision).

Long-term reassurance 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.

f. Retrocession contracts held Contracts entered into by the Company with retrocessionnaires under which the Company is compensated for losses on one or more contracts issued by the Company and that meet the classification requirements for reinsurance contracts are classified as retrocession contracts held. Contracts that do not meet these classification requirements are classified as financial assets.

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



The impairment loss is also calculated following the same method used for these financial assets.

g. Receivables and payables related to reinsurance contracts Receivables and payables are recognized when due. These include amounts due to and from cedants and brokers. If there is objective evidence that the reinsurance receivable is impaired, the Company reduces the carrying amount of the reinsurance receivable accordingly and recognizes that impairment loss through profit or loss. The Company gathers the objective evidence that a reinsurance 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.

Other income recognition Investment income is stated net of investment expenses. Interest income is recognized on a time proportion basis that takes into account the effective yield on the asset.

Dividends are recognized as income in the period in which the Company’s right to receive payment as a shareholder is established.

Property and equipmentAll property and equipment are initially recorded at cost. Land and buildings are subsequently shown at market value, based on periodic valuations by external independent valuers, less subsequent depreciation and any accumulated impairment losses. Equipment are stated at historical cost less depreciation and any accumulated impairment losses.

Increases in the carrying amount of property arising from revaluations are credited to other comprehensive income and accumulated in a revaluation reserve under a separate heading in the statement of changes in equity. Decreases that offset previous increases of the same asset are charged against other comprehensive income; all other decreases are charged to the profit or loss. Any accumulated depreciation at the date of the revaluation is eliminated against the gross carrying amount of the asset. Depreciation is calculated on property and equipment on the 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:

Building (3.57%) 28 yearsMotor vehicles (25.0%) 4 yearsComputer equipment & software (33.33%) 3 yearsFurniture, fittings & office equipment (12.5%) 8 years

Property and equipment values are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount may not be recoverable. Where the carrying amount of an asset is greater than its estimated recoverable amount, it is written down immediately to its recoverable amount.

Gains and losses on disposal of property and equipment are determined by reference to their carrying amounts and are taken into account in determining operating profit.

Intangible assets – Computer softwareAcquired computer software and related licenses are stated at cost less accumulated amortisation. Acquired computer software licenses are capitalised on the basis of cost incurred to acquire and bring to use the specific software.

Costs associated with developing or maintaining computer software programmes are recognized 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 recognized as intangible assets. Direct costs include software development, employee costs and appropriate portion of relevant overheads.

Amortisation is recognized in profit or loss on the straight-line basis over the estimated useful life of the software, from the date that it is available for use, not exceeding 3 years.

Investment propertyInvestment property, which is property held to earn rentals, is stated at its fair value, at the reporting date as determined through its revaluation by external valuers on the basis of the highest and best use. Gains or losses arising from changes in fair value of the investment property are included in profit or loss in the period in which they arise net of deferred taxes.

Financial instrumentsA financial asset or liability is recognized when the Company becomes party to the contractual provisions of the instrument.


2. Accounting Policies (continued)Financial instruments (continued)A. Financial assetsClassificationThe Company classifies its financial assets into the following categories: Financial assets at fair value through profit or loss; loans, advances and receivables; held- to- maturity investments; and available-for-sale assets. Management determines the appropriate classification of its investments at initial recognition.

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

Loans and receivablesLoans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise when the Company provides money, goods or services directly to a debtor with no intention of trading the receivable.

Term depositsTerm deposits are classified as held to maturity and are measured at amortized cost.

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

Available-for-sale financial assetsThis category represents financial assets that are not (a) financial assets at fair value through profit or loss, (b) loans, advances and receivables, or (c) financial assets held to maturity.

RecognitionFinancial assets are initially recognized at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets are derecognized when the rights to receive cash flows from the financial assets have expired or where the Company has transferred substantially all risks and rewards of

ownership.Available-for-sale financial assets and financial assets at fair value through profit or loss are subsequently carried at fair value. Loans and receivables and held-to-maturity investments are carried at amortized cost using the effective interest method. Gains and losses arising from changes in the fair value of “financial assets at fair value through profit or loss” are included in the profit or loss in the period in which they arise. Gains and losses arising from changes in the fair value of available-for-sale financial assets are recognized in other comprehensive income, until the financial asset is derecognized or impaired, at which time the cumulative gain or loss previously recognized in other comprehensive income is recognized in the statement of comprehensive income. Dividends on available-for-sale equity instruments are recognized in the profit or loss when the Company’s right to receive payment is established.

Fair values of quoted investments in active markets are based on quoted bid prices. Equity securities for which fair values cannot be measured reliably are measured at cost less impairment.

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

a) significant financial difficulty of the borrower or investee entity;

b) a breach of contract, such as default or delinquency in interest or principal repayments;

c) the Company granting to the borrower, for economic or legal reasons relating to the borrower’s financial difficulty, a concession that the Company would not otherwise consider;

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

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

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

- adverse changes in the payment status of borrowers or investee in the group; or

- national or local economic conditions that correlate with defaults on the assets in the group.

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

(i) Assets carried at amortized costThe Company first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, and individually or collectively for financial assets that are not individually significant. If the Company determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is or continues to be recognized are not included in a collective assessment of impairment.

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

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

foreclosure is probable.For the purposes of a collective evaluation of impairment, financial assets are grouped on the basis of similar credit risk characteristics (i.e. on the basis of the Company’s grading process that considers asset type, industry, geographical location, collateral type, past-due status and other relevant factors). Those characteristics are relevant to the estimation of future cash flows for groups of such assets by being indicative of the borrowers’ ability to pay all amounts due according to the contractual terms of the assets being evaluated.

Future cash flows in a group of financial assets that are collectively evaluated for impairment are estimated on the basis of the contractual cash flows of the assets in the group and historical loss experience for assets with credit risk characteristics similar to those in the group. Historical loss experience is adjusted on the basis of current observable data to reflect the effects of current conditions that did not affect the period on which the historical loss experience is based and to remove the effects of conditions in the historical period that do not exist currently.

When a receivable is uncollectible, it is written off against the related provision for the borrower’s impairment. Such debts are written off after all the necessary procedures have been completed and the amount of the loss has been determined. Subsequent recoveries of amounts previously written off decrease the amount of the provision for the receivable impairment in the profit or loss.

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

(ii) Assets carried at fair valueIn the case of equity investments classified as available for sale, a significant or prolonged decline in the fair value of the security below its cost is considered in determining whether the assets are impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss - measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognized in profit or loss - is removed from other comprehensive income and recognized through profit or loss.




2. Accounting Policies (continued)Financial instruments (continued)A. Financial assets (continued)(ii) Assets carried at fair value (continued)Impairment losses recognized through profit or loss on equity instruments are not reversed through profit or loss. If, in a subsequent period, the fair value of a debt instrument classified as available-for-sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognized in profit or loss, the impairment loss is reversed through profit or loss.

B. Financial LiabilitiesFinancial liabilities are initially recognized at fair value. After initial recognition, the Company measures all financial liabilities at amortized cost.

Cash and cash equivalentsCash and cash equivalents are carried in the statement of financial position at cost. For the purposes of the statement of cash flows, cash and cash equivalents comprise cash on hand, deposits held at call with banks, and government securities and deposits with financial institutions with original maturities of 90 days or less.

Dividends Proposed dividends are not accrued until they have been ratified at the Annual General Meeting. Translation of foreign currenciesTransactions in foreign currencies during the year are converted into Kenya Shillings, the functional currency, at rates ruling at the transaction dates. Assets and liabilities at the end of each reporting period which are expressed in foreign currencies are translated into Kenya Shillings at rates ruling at that date. The resulting differences from conversion and translation are dealt with through profit or loss in the year in which they arise.

LeasesLeases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the Company as a lessee. All other leases are classified as operating leases.

When a lease includes land and buildings elements, the Company assesses the classification of each element as either a finance lease or an operating lease. In determining classification of the land element, an important consideration is that land normally has an

indefinite economic life. Therefore the finance lease or operating lease classification of the land is considered a critical area of judgment. See note 3 to these financial statements.

The Company as lessorAssets held under finance leases are recognized as assets of the Company at their fair value at the date of acquisition. The corresponding liability to the lessor is included in the statement of financial position as a finance lease obligation. Finance costs, which represent the difference between the total leasing commitments and the fair value of the assets acquired, are charged to the statement of comprehensive income over the term of the relevant lease so as to produce a constant periodic rate of charge on the remaining balance of the obligations for each accounting period.

The Company as lesseeRentals payable under operating leases are charged to income on a straight-line basis over the term of the relevant lease.

Employee entitlementsThe estimated monetary liability for employees’ accrued annual leave entitlement at the end of each reporting period is recognized as an expense accrual.

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 through profit or loss in the year to which they relate.

Share capitalOrdinary shares are classified as equity.

TaxationIncome tax expense represents the sum of the current tax payable and the deferred taxation. Tax is recognized as an expense/(income) and included in the profit or loss except to the extent that the tax arises from a transaction which is recognized in other comprehensive income. Current tax is computed in accordance with the Kenyan income tax laws applicable to insurance companies.



Deferred tax is provided, using the liability method, for all temporary differences arising between the tax bases of assets and liabilities and their carrying values for financial reporting purposes. Tax rates enacted or substantively enacted at the end of each reporting period are used to determine deferred tax. Deferred tax assets are recognized only to the extent that it is probable that future taxable profits will be available against which the temporary differences can be utilized, while deferred tax liabilities are recognized for all taxable temporary differences. ComparativesWhere necessary, comparative figures have been adjusted to conform to changes in presentation in the current year.

3. Critical Accounting Estimates and Judgments in Applying Accounting PoliciesThe Company makes estimates and assumptions that affect the reported amounts of assets and liabilities within the next financial year. Estimates and judgments are continually evaluated based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

(i) Critical judgments in applying the Company’s accounting policiesa) Future benefit paymentsThe estimation of future benefit payments in relation to long-term reassurance and short-term reinsurance contracts is the Company’s most critical accounting estimate for the long-term business. There are several sources of uncertainty that need to be considered in the estimate of the liability that the Company will ultimately pay for such claims. The determination of the liabilities under short-term reinsurance contracts and long-term reinsurance contracts is undertaken by the Company’s consulting actuaries on an annual basis. Further details on this process are disclosed in note 30.

b) Reinsurance income and expense transactionsThe Company adopted a third quarter cut-off date for recording its reinsurance income and expenses in 2006. Consequently, the fourth quarter numbers have been booked based on estimates arrived at together with the support of the Company’s actuary.

Reinsurance premiums receivable have been estimated by annualising the income recorded on statements received from cedant companies, based on annual

premium projections provided by them. Retrocession premiums payable, commissions receivable and acquisition costs have been estimated by application of the appropriate ratios to the annualised reinsurance premiums receivable.

Outstanding claims have been projected using chain ladder techniques. Further details of this are presented in note 30.

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

d) ImpairmentAt the end of each reporting period, the Company reviews the carrying amounts of its assets to determine whether there is any objective evidence that those assets have suffered an impairment loss. If any such evidence exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss. Where it is not possible to estimate the recoverable amount of an individual asset, the Company estimates the recoverable amount of the cash generating unit to which the asset belongs.

e) Classification of leases of land and buildings as finance or operating leasesAt the inception of each lease of land or building, the Company considers the substance rather than the form of the lease contract. Examples of situations that individually or in combination would normally lead to a lease being classified as a finance lease are:• The lease transfers ownership of the asset to the

lessee by the end of the lease term; • Thelesseehastheoptiontopurchasetheassetata

price that is expected to be sufficiently lower than the fair value at the date the option becomes exercisable for it to be reasonably certain, at the inception of the lease, that the option will be exercised;

• Theleasetermisforthemajorpartoftheeconomiclife of the asset even if title is not transferred;


3. Critical Accounting Estimates and Judgments in Applying Accounting Policies (continued)(i) Critical judgments in applying the Company’s accounting policies (continued)

e) Classification of leases of land and buildings as finance or operating leases (continued)• Attheinceptionoftheleasethepresentvalueoftheminimumleasepaymentsamountstoatleastsubstantiallyallofthe

fair value of the leased asset; and • Theleasedassetsareofsuchaspecialisednaturethatonlythelesseecanusethemwithoutmajormodifications.

The Company also considers indicators of situations that individually or in combination could also lead to a lease being classified as a finance lease. Examples of such indicators include:• Ifthelesseecancancelthelease,thelessor’slossesassociatedwiththecancellationarebornebythelessee;• gainsorlossesfromthefluctuationinthefairvalueoftheresidualaccruetothelessee(forexample,intheform

of a rent rebate equalling most of the sales proceeds at the end of the lease); and • thelesseehastheabilitytocontinuetheleaseforasecondaryperiodatarentthatissubstantiallylowerthan

market rent.

(ii) Key sources of estimation uncertainty

Equipment and intangible assetsCritical estimates are made by the directors in determining depreciation/amortisation rates for property, equipment and intangible assets.

4. Insurance Risk ManagementThe risk under any one reinsurance contract is the possibility that the reinsured event occurs and the uncertainty of the amount of the resulting claim. By the very nature of a reinsurance contract, this risk is random and therefore unpredictable.

For a portfolio of reinsurance contracts where the theory of probability is applied to pricing and provisioning, the principal risk that the Company faces under its reinsurance contracts is that the actual claims and benefit payments may exceed the carrying amount of the reinsurance liabilities and the pricing is inadequate to meet its obligations. 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 reinsurance contracts, the smaller the relative variability about the expected outcome will be. In addition, a more diversified portfolio is less likely to be affected across the board by a change in any subset of the portfolio. The Company has developed its reinsurance underwriting strategy to diversify the type of 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 reinsurance risk include lack of risk diversification in terms of type and amount of risk, geographical location and type of industry covered.

The Company minimizes its exposure by purchasing retrocession protection from credible counter parties.

The tables below provide disclosure of the concentration of reinsurance exposure by the main classes of business in which the Company operates. The amounts are the carrying amounts of the reinsurance exposure (gross and net of reinsurance) arising from reinsurance contracts:



Class of Business Total Exposure

Short-term business

0 - 20 million

Shs ’000

20 - 250 million

Shs ’000

250 - 1,000 million

Shs ’000Total

Shs ’000

Fire Gross 1,836,739 14,707,227 5,889,226 22,433,192

Net 1,836,739 14,707,227 5,889,226 22,433,192

Miscellaneous Gross 1,950,111 2,688,647 - 4,638,758

Net 1,950,111 2,688,647 - 4,638,758

Motor Gross 852,062 539,191 - 1,391,253

Net 852,062 539,191 - 1,391,253

Others Gross 1,392,656 5,001,908 1,909,362 8,303,926

Net 1,392,656 5,001,908 1,909,362 8,303,926

Long-term business

Ordinary life Gross 2,245,653 238,860 - 2,484,513

Net 1,463,754 38,121 - 1,501,875

Group life Gross 63,214,149 6,400,041 - 69,614,190

Net 47,094,554 1,989,832 - 49,084,386

Gross 71,491,370 29,575,874 7,798,588 108,865,832

Total Net 54,589,876 24,964,926 7,798,588 87,353,390

Year ended 31 December 2014

The Company’s earthquake exposure for the Nairobi zone is estimated at Shs 69,907,263,158 (2013: Shs 68,837,232,000).

The Company’s retention (net exposure) is protected by retrocession treaties as follows:

The concentration by sector or maximum underwriting limits at the end of the year is broadly consistent with the prior year with the exception of long term business which had a significant increase in the volume of business.

Class Limit (Shs)

General reinsurance businessProperty 1,460 million in excess of 40 million

Marine 115 million in excess of 40 million

Miscellaneous Accident 70 million in excess of 30 million

Life reassurance businessLife business 100 million in excess of 5 million

15 line surplus (2 million retention per life)




Class of Business Total Exposure

Short-term business

0 - 20 million

Shs ’000

20 - 250 million

Shs ’000

250 - 1,000 million

Shs ’000Total

Shs ’000

Fire Gross 1,887,430 13,064,943 5,846,579 20,798,952

Net 1,887,430 13,064,943 5,846,579 20,798,952

Miscellaneous Gross 1,765,318 1,793,706 - 3,559,024

Net 1,765,318 1,793,706 - 3,559,024

Motor Gross 501,213 3,056,205 - 3,557,418

Net 501,213 3,056,205 - 3,557,418

Others Gross 1,475,701 5,604,643 2,738,586 9,818,930

Net 1,475,701 5,604,643 2,738,586 9,818,930

Long-term business

Ordinary life Gross 2,472,376 262,975 - 2,735,351

Net 916,316 37,595 - 953,911

Group life Gross 45,111,747 4,567,285 - 49,679,032

Net 33,295,425 1,502,714 - 34,798,139

Gross 53,213,785 28,349,757 8,585,165 90,148,707

Total Net 39,841,403 25,059,806 8,585,165 73,486,374

Year ended 31 December 2013

5. Financial Risk ManagementThe Company is exposed to financial risk through its financial assets, retrocession assets and reinsurance 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 reinsurance and investment contracts. The most important types of risk are credit risk, liquidity risk, market risk and other operational risks. Market risk includes currency risk, interest rate risk, equity price risk and other price risks.

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

The Company strives to manage these positions within an asset-liability management framework to ensure that the liabilities arising from reinsurance and investment contracts are adequately covered.

Market risk(i) Foreign exchange riskThe Company deals with clients in a number of countries and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the US dollar, Uganda Shilling and Tanzania Shilling. Foreign exchange risk arises from future commercial transactions, recognized assets and liabilities in foreign Operations. The currency profile of the Company’s assets and liabilities is presented in note 39 on page 62. The Company’s net assets are mainly dominated in the base currency (Kenya Shs).

At 31 December 2014, if the Kenya Shilling had weakened/strengthened by 10% against the US dollar with all other variables held constant, the net assets for the year would have been Shs 418,978 (2013: Shs 13,154,200) higher/lower,

mainly as a result of translation differences on US dollar denominated trade receivables, trade payables and bank balances. This is insignificant as the portion of US Dollar denominated net assets constitute only 0.1 % (2013: 6.2%) of the Company’s net assets.

(ii) Price riskThe Company is exposed to equity securities price risk because of investments in quoted shares and tradable bonds classified as at 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 tradable bonds securities, the Company diversifies its portfolio. Diversification of the portfolio is done in accordance with limits set by the Board and in accordance with the Insurance Act of Kenya. All quoted shares held by the Company are traded on the Nairobi Securities Exchange (NSE) and the management of the equity portfolio is outsourced to professional asset managers and is diversified across industries. The Company has a conservative investment policy with regard to equities and available for sale assets. As at 31 December 2014 investments in securities constituted only 2.0% (2013: 1.0%) of the total assets .

At 31 December 2014, if the share prices at the NSE had increased/decreased by 10% with all other variables held constant and all the Company’s equity instruments moved according to the historical correlation to the index, post tax profit for the year would have been Shs 10,958,987 (2013: Shs 4,067,200) higher/lower, and equity would have been Shs 10,958,987 (2013: Shs 4,067,200) higher/lower.

(iii) Interest rate riskThe principal risk to which financial assets and liabilities are exposed is the risk of loss from fluctuations in the future cash flows or fair values of financial instrument because of a change in market interest rates. Interest rate risk is managed principally through monitoring interest rate gaps. The board of directors is the monitoring body for compliance with these limits and is assisted by risk management in its day-to-day monitoring activities.

The interest earning financial assets that the Company holds include investments in government securities, mortgage loans and short-term deposits.

The sensitivity analysis presented below shows how profit and equity would change if the interest rates had increased/(decreased) on the reporting date with all other variables held constant.

2014Sh’000

2013Sh’000

Effect on profit

Effect on equity

Effect on profit

Effect on equity

+ 5 percentage point movement 165,327 165,327 184,067 184,067

- 5 percentage point movement (165,327) (165,327) (184,067) (184,067)

Credit riskThe 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:• receivablesarisingoutofreinsurancearrangements;• receivablesarisingoutofretrocessionarrangements;and

• retrocessionnaires’shareofreinsuranceliabilities.

Other areas where credit risk arises include cash and cash equivalents and deposits with banks and other receivables. Investments in Government Securities are deemed adequately secured by the Government of Kenya with no inherent default risk. 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 review. Limits on the level of credit risk by category and territory are reviewed regularly by management.




5. Financial Risk Management (continued)

Credit risk (continued)The exposure to individual counterparties is also managed through other mechanisms, such as the right of offset where counterparties are both debtors and creditors of the Company. Management information reported to the Company includes details of provisions for impairment on loans and receivables and subsequent write-offs. Internal audit makes regular reviews to assess the degree of compliance with the Company procedures on credit.

Liquidity riskLiquidity risk is the risk that the Company will be unable to meet its payment obligations associated with its financial liabilities as they fall due and to replace funds when they are withdrawn. The Company is exposed to daily calls on its available cash for claims settlement and other expenses. The Company maintains adequate cash resources to meet all of these needs and does not require overdraft facilities. Management monitors the level of call deposits to ensure their adequacy to cover expenditure at unexpected levels of demand. These call deposits are placed at competitive interest rates.

The table below presents the cash flows payable by the Company under financial liabilities and assets respectively by remaining contractual maturities at the end of the reporting period.

Balances due within 12 months equal their carrying balances as the impact of discounting is not significant.

Liabilities

Maximum exposure to credit risk before collateral held is as below; 2014 2013 Shs ‘000 Shs ‘000

Other receivables (excluding prepayments) 184,494 155,249Receivables arising out of reinsurance arrangements 564,051 650,919Receivables arising out of retrocession arrangements 52,579 43,291Government securities held to maturity (note 27) 671,326 826,093Loans receivable (mortgage loans) (note 23) 34,395 34,369Deposits with financial institutions (note 28) 2,613,611 2,820,875Bank balances (note 34) 36,336 111,726Corporate bonds (note 26) 431,235 75,971

4,588,027 4,718,493

Neither past due nor impaired - up to 90 days 435,293 398,490- 91 to 181 days 73,010 108,854- 182 to 273 days 46,342 99,223Past due but not impaired 174,296 123,417Impaired 106,224 75,816 835,165 805,800Less provision for impairment (106,224) (75,816)

Total 728,941 729,984

Receivables arising out of reinsurance arrangements are made up of:Receivables arising out of reinsurance arrangements (third parties) 564,051 650,919Other receivables – related parties (note 25) 164,890 79,065 Total 728,941 729,984

All receivables past due by more than 365 days are considered to be impaired, and are carried at their estimated recoverable value.Of the total gross amount of impaired receivables, the following amounts have been individually assessed:

- brokers 96,681 72,086- insurance companies 9,543 3,730

106,224 75,816

No collateral is held for any of the above assets. All receivables that are neither past due nor 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 receivables arising out of reinsurance arrangements (which are due within 60 days after close of each quarter).

Up to 1 1-3 3-12 1-5 Over 5 month months months years years Total Shs ‘000 Shs ‘000 Shs ‘000 Shs‘000 Shs ‘000 Shs ‘000 At 31 December 2014 Reinsurance contract liabilities 1,423,389 - - - - 1,423,389Payables arising out of retrocession arrangements 56,408 - - - - 56,408Payables arising out of reinsurance arrangements 398,965 - - - - 398,965Other payables 319,569 - 319,569

Total financial liabilities (contractual maturity dates) 2,198,331 - - - - 2,198,331

At 31 December 2013 Reinsurance contract liabilities 1,268,706 - - - - 1,268,706Payables arising out of retrocession arrangements 54,979 - - - - 54,979Payables arising out of reinsurance arrangements 369,141 - - - - 369,141Other payables 378,757 - - - - 378,757

Total financial liabilities (contractual maturity dates) 2,071,583 - - - - 2,071,583

Fair value of financial assets and liabilities(i) Financial instruments not measured at fair valueNo disclosures are provided in respect of fair value of financial instruments not measured at fair value because financial instruments carrying amounts are a reasonable approximation of their fair values.

(ii) Fair value hierarchyThe Company specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources; unobservable inputs reflect the Company’s market assumptions. These two types of inputs have created the following fair value hierarchy:• Level1–Quotedpricesinactivemarketsforidenticalassetsorliabilities.Thislevelincludesequitysecuritiesand

debt instruments listed on the Nairobi Securities Exchange.• Level2–InputsotherthanquotedpricesincludedwithinLevel1thatareobservablefortheassetorliability,

either directly as prices or indirectly as derived from prices.• Level3–Inputsfortheassetsorliabilitiesthatarenotbasedonobservablemarketdata(unobservableinputs).

This level includes equity investments and debt instruments with significant unobservable components.

Receivables arising out of reinsurance arrangements are summarised below: 2014 2013 Shs ‘000 Shs ‘000

2014 2013 Shs ‘000 Shs ‘000


2014 2013 Shs ‘000 Shs ‘000 Shs ‘000Short-term business Aviation 4,297 265Engineering 204,037 174,525Fire 1,319,942 1,221,015Liability 10,146 12,826Marine 201,516 215,170Motor 225,915 206,798Personal accident 4,485 9,981Theft 209 -Workmen’s compensation 762 15,186Medical 756,310 299,746Miscellaneous 319,026 326,725

3,046,645 2,482,237

Long-term business Ordinary life 25,369 27,575Group life 406,337 307,644

431,706 335,219 Gross written premiums 3,478,351 2,817,456

b) Gross Earned Premiums

Short-term business Aviation 4,217 199Engineering 196,304 171,143Fire 1,273,487 1,135,626Liability 11,047 10,505Marine 210,654 198,000Motor 249,245 228,228Personal accident 6,791 7,297Theft 194 52Workmen’s compensation 10,233 5,714Medical 617,835 330,671Miscellaneous 319,421 327,405

2,899,428 2,414,840Long-term business Ordinary life 25,369 27,575Group life 406,337 307,644

431,706 335,219 Gross earned premiums 3,331,134 2,750,059


For the Year Ended 31 December 2014

5. Financial Risk Management (continued)Fair value of financial assets and liabilities (continued)(ii) Fair value hierarchy (continued)This hierarchy requires the use of observable market data when available. The Company considers relevant and observable market prices in its valuations where possible.

There were no transfers between levels 1, 2 and 3 in the period (2013: none). The table below shows an analysis of financial instruments recorded at fair value by level of the fair value hierarchy.

6. Capital Risk ManagementThe Company’s objectives when managing capital, which is a broader concept than the ‘equity’ on the statement of financial positions, are:• tocomplywiththecapitalrequirementsassetoutintheInsuranceAct;• tocomplywithregulatorysolvencyrequirementsassetoutintheInsuranceAct;• tosafeguardtheCompany’sabilitytocontinueasagoingconcern,sothatitcancontinuetoprovidereturnsto

shareholders and benefits for other stakeholders; • toprovideanadequatereturntoshareholdersbypricingreinsuranceandinvestmentcontractscommensurately

with the level of risk;• tosafeguardtheCompany’scapitalbyarrangingadequatecoverwithcrediblesecurities;and• tohaveanadequatelevelofriskbasedcapital.

The Insurance Act requires each reinsurance Company to hold the minimum level of paid up capital of Shs 500 million. At Shs 1 billion (short-term business: Shs 700 million; long-term business: Shs 300 million), the Company’s share capital was in excess of the minimum capital requirement as at 31 December 2014.

The Company is subject to solvency regulations in respect of its reinsurance and investment contracts.

Short-term businesses are required to maintain a solvency margin in accordance with the Insurance Act, i.e admitted assets less admitted liabilities equivalent to the higher of Shs 10 million or 15% of the net premium income during the preceding financial year.

Long-term businesses are required to maintain a solvency margin in accordance with the Insurance Act, i.e. admitted assets less admitted liabilities equivalent to the higher of Shs 10 million or 5% of total admitted liabilities.

As at 31 December 2014, the Company’s solvency margins for both short-term and long-term business were strong at 381 % (2013: 320%) and 1,215 % (2013: 679%) respectively.

Financial assets Fair value as atFair value hierarchy

Valuation technique(s)

and key inputs

Significant unobservable

inputs

Relationship of unobservable inputs to fair

value

31/12/14Sh’000

31/12/13Sh’000

Land 350,000 163,565 Level 2Market comparable approach- Highest

and best useN/A N/A

Building 50,000 43,043 Level 2Market comparable approach- Highest

and best useN/A N/A

Equity investments

118,556 50,840 Level 1 Active Market N/A N/A

7. Gross Written, Gross Earned and Retrocession PremiumsThe gross written, earned and retrocession premiums of the Company can be analysed between the main classes of business as shown below.a) Gross Written Premiums



2014 2013 Retro- Retro- Gross cession Net Gross cession Net Shs ‘000 Shs ‘000 Shs ‘000 Shs ‘000 Shs ‘000 Shs ‘000

As presented in the statement of profit or loss 147,217 207 147,010 67,397 (1,219) 68,616

Represented by: Increase/(decrease) inprovision for unearned premiums (note 31) 223,342 583 222,759 98,365 (1,568) 99,933

Less: Increase/(decrease)in deferred risk premiumrebates and revenue (note 24(b)) 76,125 376 75,749 30,968 (349) 31,317 At end of year 147,217 207 147,010 67,397 (1,219) 68,616



2014 2013 Shs ‘000 Shs ‘000 Shs ‘000Short-term business Aviation - -Engineering 533 (14,534)Fire 72,569 50,023Liability 3 34Marine 2,625 6,400Motor 133 22Personal accident (52) (23)Miscellaneous 7,918 1,341

83,729 43,263Long-term businessOrdinary life 7,664 8,537Group life 82,837 52,241

90,501 60,778 Total retrocession premiums 174,230 104,041

7. Gross Written, Gross Earned and Retrocession Premiums (continued)

c) Retrocession Premiums

8. Reconciliation of the Movement in Gross Provision for Unearned Premium and Deferred Risk Premium Rebates

9 Geographical SegmentsThe Board of Directors analyses performance based on the geographical coverage. The Company’s main geographical segments of business are:(i) Kenya.(ii) Common Market for Eastern and Southern Africa (COMESA), other than Kenya.(iii) Non-COMESA.

A major non-COMESA country outside Africa is India. No one customer (2013: none) exceeds 10% of the total revenue.The segment information provided to the Board of Directors for the reported segments is as below:

a) The following shows the analysis of net earned premium, net claims incurred and retrocession premium by region:

Net earned premium Net claims incurred Retrocessions

2014Shs ‘000

2013Shs ‘000

2014Shs ‘000

2013Shs ‘000

2014Shs ‘000

2013Shs ‘000

Short-term business

Kenya 1,402,098 1,124,772 879,232 728,469 28,540 16,690

COMESA 377,506 355,868 227,915 126,020 - 1,010

Non - COMESA 1,036,302 889,718 564,563 463,056 55,189 25,563

2,815,906 2,370,358 1,671,710 1,317,545 83,729 43,263

Long-term business

Kenya 333,942 271,459 146,776 133,902 29,865 19,814

COMESA 6,344 1,289 139 455 - -

Non - COMESA 919 1,693 206 - 60,636 40,964

341,205 274,441 147,121 134,357 90,501 60,778

b) Total carrying amount of assets by geographical location:

2014Assets

Shs’000’ Percentage

2013Assets

Shs’000’ Percentage

Kenya 5,876,371 94% 4,791,630 89%

COMESA 113,579 2% 190,029 3%

Non-COMESA 280,315 4% 427,262 8%

6,270,265 100% 5,408,921 100%

c) Total cost incurred in year 2014 to acquire motor vehicles, equipment, property and computer software:

2014Shs’000’ Percentage

2013Shs’000’ Percentage

Kenya 696 100% 1,078 100%




Short-term Long-term Business Business Total Shs ‘000 Shs ‘000 Shs ‘000For year ended 31 December 2014Interest from Government securities 56,182 27,942 84,124Bank deposit interest 227,107 55,356 282,463Loan interest receivable 2,215 - 2,215Dividends receivable from equity investments 2,098 164 2,262Realised gain on sale of equity investments at fair value through profit or loss 10,741 3,127 13,868Unrealised fair value gains on equity investments at fair value through profit or loss (note 22) (1,440) (1,634) (3,074)Corporate bond interest 20,307 2,739 23,046Rental income 31,725 - 31,725Other 1,152 - 1,152 350,087 87,694 437,781 Investment expenses (27,147) (4,145) (31,292) Investment and other income (net) for 2014 322,940 83,549 406,489

For year ended 31 December 2013

Interest from Government securities 49,728 21,918 71,646Bank deposit interest 279,998 54,810 334,808Loan interest receivable 1,942 - 1,942Dividends receivable from equity investments 222 44 266Unrealised fair value gains on equity investments at fair value through profit or loss (note 22) 3,246 691 3,937Corporate bond interest 9,029 1,031 10,060Other 3,360 - 3,360 347,525 78,494 426,019 Investment expenses (29,014) (4,390) (33,404) Investment and other income (net) for 2013 318,511 74,104 392,615

For year ended 31 December 2014Loans and receivables (including cash and bank balances) 262,199 55,356 317,555Financial assets held to maturity 87,888 32,339 120,227 Total 350,087 87,695 437,782

For year ended 31 December 2013Loans and receivables (including cash and bank balances) 285,300 54,810 340,110Financial assets held to maturity 62,225 23,684 85,909 Total 347,525 78,494 426,019

10. Investment Income 2014 2013 Shs ‘000 Shs ‘000Short-term business Claims payable by principal class of business: Aviation 105 588Engineering 217,271 80,369Fire 591,866 551,160Liability 2,752 4,031Marine 9,732 138,333Motor 12,982 151,506Personal accident (2,226) (1,724)Theft 34 (137)Workmen’s compensation (3,885) 9,313Medical 670,156 198,338Miscellaneous accident 131,086 120,344

1,629,873 1,252,121

Long-term business actuarial liabilities Reinsurance contracts relating to fixed andguaranteed terms: Death benefits - Ordinary life 1,478 (1,453)- Group life 144,294 179,304Increase in reassurance contract liabilities: - Group life 67,052 (27,201)

212,824 150,650

Total short-term and long-term business 1,842,697 1,402,771

12. Operating and other ExpensesThe following are included in operating and other expenses:Directors’ emoluments; - executive 34,694 28,183 - non executive 2,650 3,220Employee emoluments 99,722 89,749Medical costs 4,021 3,726Auditors’ remuneration 3,063 2,599Depreciation (note 19) 11,985 11,921Amortisation of intangible assets (note 20) 2,285 -Net foreign exchange losses/(gains) 6,296 (5,154)Impairment charge for doubtful receivables -reinsurance premiums receivables 30,408 15,419

13. Employee Benefit Expenses Salaries and wages 126,337 110,534Retirement benefit costs 8,022 7,342National social security benefit costs 57 56

134,416 117,932

The number of persons employed by the Company at the year end was 18 (2013: 20).

11. Gross Claims Incurred


16. DividendsIn respect of the current year, the Directors propose that a first and final dividend of Shs 60 (2013: Shs 60) per share amounting Shs 60,000,000 (2013: Shs 60,000,000) be paid out to shareholders. This is subject to approval by the Shareholders at the Annual General Meeting to be held on 21 May 2015 and has therefore not been included as a liability in these financial statements.

Payment of dividends is subject to withholding tax, where applicable, at the rate of either 5% or 10%, depending on residency of the individual Shareholders.

17. Share Capital

Short-term Long-term 2014 2013 business business Total Total Shs ‘000 Shs ‘000 Shs ‘000 Shs ‘000

Current taxation 127,336 17,757 145,093 147,597Deferred taxation: (Credit)/charge for the year (note 21) (1,612) 23,103 21,491 6,305

125,724 40,860 166,584 153,902



14. Taxationa) Taxation charge

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


Profit before taxation 405,009 134,458 539,467 519,426

Tax calculated at a tax rate of 30% (Long-term business 30% of 80,990,000) 121,503 17,757 139,260 145,772Tax effect of income not subject to tax (2,422) - (2,422) (3,202)Tax effect of expenses not deductible for tax purposes 6,643 - 6,643 3,841Deferred tax on the life surplus - 23,103 23,103 7,491 Tax charge 125,724 40,860 166,584 153,902

c) Corporate tax payable

At 1 January 10,744 1,827 12,571 49,766Taxation charge for the year 127,336 17,757 145,093 147,597Paid in the year (146,148) (28,554) (174,702) (184,792)

At 31 December (8,068) (8,970) (17,038) 12,571

2014 2013 Total Total Shs ‘000 Shs ‘000

b) Reconciliation of taxation charge to expected tax based on accounting profit

15. Earnings Per ShareEarnings per ordinary share of Shs 1,000 each are calculated by dividing the profit for the year attributable to Shareholders by the weighted average number of ordinary shares issued as follows:

There were no potentially dilutive shares outstanding as at 31 December 2014 and 31 December 2013. Diluted earnings per share is therefore the same as basic earnings per share.

Profit attributable to Shareholders (Shs‘000’) 372,883 365,524

Weighted average number of shares No. No.

As at 31 December 1,000,000 1,000,000

Earnings per share (Shs) – basic and diluted 372.88 365.52


Authorized, issued and fully paid up share capital 1,000,000 (2013: 1000,000)ordinary shares of Shs 1,000 700,000 300,000 1,000,000 1,000,000

Furniture, Motor fittings and Computer Land Building vehicles equipment equipment Total Shs ‘000’ Shs ‘000’ Shs ‘000’ Shs ‘000’ Shs ‘000’ Shs ‘000’COST At 1 January 2013 171,000 54,024 10,893 10,969 6,551 253,437 Additions - - - 330 748 1,078Disposals - - (8,000) - - (8,000) At 31 December 2013 171,000 54,024 2,893 11,299 7,299 246,515 At 1 January 2014 171,000 54,024 2,893 11,299 7,299 246,515Additions - - - - 696 696Disposals - - - - (640) (640)Revaluation Surplus 179,000 (4,024) - - - 174,976 At 31 December 2014 350,000 50,000 2,893 11,299 7,355 421,547

ACCUMULATED DEPRECIATION At 1 January 2013 - 9,024 7,569 5,796 6,038 28,427 Charge for the year 7,435 1,957 656 1,290 583 11,921Eliminated on disposals - - (6,000) - - (6,000) At 31 December 2013 7,435 10,981 2,225 7,086 6,621 34,348

19. (a) Property and Equipment

18. a) General Reserve The general reserve represent accumulated profit for life business after transfer to shareholders and provision of deferred tax.

b) Retained Earnings The retained earnings balance represents the amount available for distribution to the shareholders of the Company.




Furniture, Motor fittings and Computer Land Building vehicles equipment equipment Total Shs ‘000’ Shs ‘000’ Shs ‘000’ Shs ‘000’ Shs ‘000’ Shs ‘000’ At 1 January 2014 7,435 10,981 2,225 7,086 6,621 34,348Charge for the year 7,435 1,957 668 1,278 647 11,985Eliminated on disposals - - (639) (639)Eliminated on revaluation (14,870) (12,937) - - - (27,807) At 31 December 2014 - - 2,893 8,364 6,629 17,887 NET BOOK VALUE As at 31 December 2014 350,000 50,000 - 2,935 726 403,660 As at 31 December 2013 163,565 43,043 668 4,213 678 212,167 NET BOOK VALUE (Cost basis) As at 31 December 2014 35,215 40,387 - 2,935 726 79,263

As at 31 December 2013 36,090 42,311 668 4,213 678 83,960

19. Property and Equipment (continued)

The leasehold land and buildings were last revalued as at 31 December 2014 by Lloyd Masika Limited, independent valuers on the basis of open market value for existing use. The valuation which conforms to International Valuation Standards was determined by reference to open market values. The effective date of the valuation was 31 December 2014. The Company revalues its land and buildings every 3 years. The land meets the definition of a finance lease.

Included above are assets with a total cost of Shs 10,919,357 (2013: Shs 7,326,910) which were fully depreciated as at 31 December 2014. The normal depreciation charge on these assets would have been Shs 2,958,054 (2013: Shs 2,205,603).

Details of the fair value hierarchy of the Company’s property held at fair value are as follows:

19 (b) Investment Properties

The Company purchased an investment property, Acorn House, during the year ended 31 December 2014. The total acquisition cost was Sh 735,809,000. The Directors have considered the acquisition cost to approximate the fair value as at the end of the reporting period date. The investment property will be carried at valuation.

Level 1 Level 2 Level 3 Total Shs ‘000 Shs ‘000 Shs ‘000 Shs ‘000

31 December 2014 - Property and equipment - 400,000 - 400,000

31 December 2013 - Property and equipment - 206,608 - 206,608

Short-term Long-term business business Total Shs ‘000 Shs ‘000 Shs ‘000COST At 1 January 11,804 - 11,804Acquisitions - 6,856 6,856 At 31 December 2014 11,804 6,856 18,660 AMORTISATION At 1 January 2013 and 1 January 2014 11,804 - 11,804Charge for the year - 2,285 2,285

At 31 December 2014 11,804 2,285 14,089

NET BOOK VALUE As at 31 December 2014 - 4,571 4,571

As at 31 December 2013 - - -

20. Intangible Assets (Computer Software)

21. Deferred Taxation

Deferred income tax is calculated, in full, on all temporary differences under the liability method using a principal tax rate of 30% (2013: 30%). The movement on the deferred income tax account is as follows:

Short-term Long-term 2014 2013 business business Total Total restated Shs ‘000 Shs ‘000 Shs ‘000 Shs ‘000

At 1 January (31,253) (88,167) (119,420) (113,114)Profit/(loss) credit (note 14(a)) 1,612 (23,103) (21,491) (6,305)Charged to other comprehensive income (60,835) - (60,835) -

At 31 December (90,476) (111,270) (201,746) (119,419)

The deferred tax liability is attributable to the following items:Deferred tax liability: Revaluation surplus on leasehold land and building 99,299 - 99,299 38,462Unrealised exchange gains - - - 2,694Life surplus - 111,270 111,270 88,166

99,299 111,270 210,569 129,322Deferred tax asset: Unrealised exchange loss (1,355) - (1,355) -Provisions (6,606) - (6,606) (9,785)Excess depreciation over capital allowance (862) - (862) (118)

(8,823) - (8,823) (9,903) Net deferred tax liability 90,476 111,270 201,746 119,419




22. Equity Investments - At Fair Value through Profit or Loss Short-term Long-term business business Total Shs ‘000 Shs ‘000 Shs ‘000Year ended 31 December 2014Quoted investments: At 1 January 2014 42,366 8,474 50,840Purchase 115,136 18,121 133,257Disposals (46,985) (15,482) (62,467)Fair value losses (note 10) (1,440) (1,634) (3,074)

At 31 December 2014 109,077 9,479 118,556

Year ended 31 December 2013Quoted investments: At 1 January 2013 - - -Purchase 39,120 7,783 46,903Fair value gains (note 10) 3,246 691 3,937

At 31 December 2013 42,366 8,474 50,840

2014 2013 Shs ‘000 Shs ‘000

At 1 January 34,369 18,149Loans advanced 7,200 18,958Loan repayments (7,174) (2,738) At 31 December 34,395 34,369

This represents mortgage loans extended to members of staff. There were no impairment losses recorded against mortgage loans for the years ended 31 December 2013 and 31 December 2014.

23. Mortgage Loans – Staff

2014 2013 Shs ‘000 Shs ‘000 Loans maturing: Within 1 year 4,646 2,701In 1-5 years 13,923 11,602In over 5 years 15,826 20,066 34,395 34,369

Lending commitments:There were no mortgage loans approved but not advanced at 31 December 2014 (2013: Nil).

Maturity profile of mortgage loans

Short-term Long-term business business TotalAt 31 December 2014 Shs ‘000 Shs ‘000 Shs ‘000Retrocessionaires’ share of: Unearned premiums (note 31) 988 - 988Outstanding claims 22,452 9,969 32,421 23,440 9,969 33,409

At 31 December 2013 Retrocessionaires’ share of: Unearned premiums (note 31) 405 - 405Outstanding claims 128,523 9,246 137,769 128,928 9,246 138,174

24. a) Retrocessionaires’ Share of Reinsurance Liabilities

Amounts due from retrocessionaires in respect of claims already paid by the Company on contracts that are reinsured are included in receivables arising out of reinsurance arrangements in the statement of financial position. Movements in the above retrocession assets are shown in Notes 30 and 31.

24. b) Deferred Risk Premium Rebates arising from Retrocession Arrangements


At 1 January 285,909 85 285,824 254,941 434 254,507Increase/(decrease) in the period (note 8) 76,125 376 75,749 30,968 (349) 31,317

At 31 December 362,034 461 361,573 285,909 85 285,824


Due from related companies (note 36(b)) 140,196 24,694 164,890 79,065Due from short-term to long- term business (note 32) - 15,853 15,853 72,896Car loans – staff* 3,751 - 3,751 3,288Prepayments and other receivables 7,159 2 7,161 3,338 151,106 40,549 191,655 158,587

25. Other Receivables

*These are car loans extended to members of staff. There were no impairment losses recorded against car loans in 2014 (2013: Nil).




Short-term Long-term Business Business Total Shs ‘000 Shs ‘000 Shs ‘000(Held to maturity - At amortized costAt 31 December 2014Deposits maturing:Within 90 days 445,901 38,510 484,411In 91 days – 1 year 1,637,040 492,160 2,129,200

2,082,941 530,670 2,613,611

At 31 December 2013Deposits maturing:Within 90 days 365,405 62,506 427,911In 91 days – 1 year 1,929,323 463,641 2,392,964

2,294,728 526,147 2,820,875

28. Deposits With Financial Institutions

29. Weighted Average Effective Interest RatesThe following table summarises the weighted average effective interest rates at the year end on the principal interest-bearing investments:

2014 2013S % % Government securities 12 12Corporate bonds 13 13Deposits with financial institutions 12 11Mortgage loans (on reducing balance) 5 5

2014 2013S Shs ‘000 Shs ‘000 Total short-term reinsurance contracts: Claims (gross) reported and claims handling expenses including incurred but not reported claims 1,251,079 1,163,546Long-term reassurance contracts Claims (gross) reported and claims handling expenses 172,310 105,160 Total gross contract liabilities 1,423,389 1,268,706

30. Reinsurance/Reassurance Contract Liabilities

A) Short-term reinsurance contractThe claims development history for the short-term business is not presented in these financial statements as the amount and the timing of claims payments to cedent companies is resolved within the year that claims are reported by the cedent companies.

The Company’s actuaries use chain-ladder techniques to estimate the ultimate cost of claims including the IBNR provision. Chain ladder techniques are used as they are an appropriate technique for mature classes of business that have a relatively stable development pattern. This involves the analysis of historical claims development factors and the selection of estimated development factors based on this historical pattern. The selected development factors are then applied to cumulative claims data for each accident year that is not fully developed to produce an estimated ultimate claims cost for each accident year.


Short-term Long-term Business Business Total Shs ‘000 Shs ‘000 Shs ‘000(At amortized cost)At 31 December 2014Corporate bonds maturing: In over 5 years 376,482 54,753 431,235

At 31 December 2013

Corporate bonds maturing: In over 5 years 68,309 7,662 75,971

27. Government Securities - Held To Maturity(At amortized cost)At 31 December 2014In 91 days to 1 year 25,000 - 25,000Less unearned discount (1,807) - (1,807)

23,193 - 23,193

Treasury bonds maturing:Within 90 days 52,275 - 52,275In 91 days – 1 year 67,963 31,379 99,342

In 1 year – 5 years 188,231 75,538 263,769In over 5 years 129,508 103,239 232,747

437,977 210,156 648,133

461,170 210,156 671,326

At 31 December 2013

In 91 days – 1 year 320,000 135,000 455,000Less unearned discount (16,780) (7,660) (24,440)

303,220 127,340 430,560

Treasury bonds maturing:In 1 year – 5 years 182,960 36,427 219,387In over 5 years 89,133 87,013 176,146

272,093 123,440 395,533

575,313 250,780 826,093

26. Corporate Bonds - Held To Maturity

Government Securities - Held To Maturity - (At Amortized Cost)Treasury bonds include Shs 290,000,000 (2013: Shs 255,000,000) relating to securities held under lien by the Central Bank of Kenya in compliance with the requirements of section 32 of the Insurance Act (CAP 487). These securities cannot be transferred or sold by the Company without the approval of Commissioner of Insurance.




30. Reinsurance/Reassurance Contract Liabilities

(continued)B) Long-term reassurance contractsThe Company underwrites three types of long-term reassurance contracts, namely ordinary life, supplementary benefits under ordinary life and group life business. Ordinary life business is written on a ‘risk premium’ basis. This type of business can thus be viewed as a series of one year renewable term assurances reinsured on guaranteed risk premium rates on a specific cohort of business and hence valued as such. Supplementary benefits under ordinary life business are written on a similar basis as ordinary life business. Group life business is also written on a ‘risk premium’ basis but with less guarantees as the risk premium rates used at each policy anniversary date can change.

This type of business lends itself to an actuarial method where liabilities are determined as a percentage of the annual office premiums written. The method makes implicit assumptions regarding expected experience in respect of lapses, expenses and a margin for uncertainty on these assumptions. The liabilities are determined by the Company on the advice of its consulting actuaries, and actuarial valuations are carried out on an annual basis.

a) Valuation assumptions – Long-term reassurance contractsThe latest actuarial valuation of the Company’s life fund was undertaken as at 31 December 2014 by the consulting actuaries, Alexander Forbes Financial Services (EA) Limited. The valuation was conducted in accordance with generally accepted actuarial principles and in accordance with the requirements of the Kenya Insurance Act, 1987 (CAP 487). The method used is akin to a Net Premium Valuation (NPV) method, but where the actuarial liabilities are expressed as a percentage of the annual office premiums written.

This method and principles used were considered to be appropriate because they arrive at prudent and conservative actuarial liabilities at the valuation date. The actuarial principles used require prudent provision for future outgo under the contracts written, generally based upon the assumptions that current conditions will continue. Explicit provision is therefore not made for all possible contingencies. In addition, the actuarial reserves arrived at using this method and assumptions will be no less than those arrived at using the minimum valuation basis set out in the Insurance, Act 1987 (CAP 487).

The significant valuation assumptions for the actuarial valuation as at 31 December 2014 are summarised below.

The same assumptions were used in 2013. a) Valuation assumptions – Long-term reassurance contractsi) MortalityThe Company uses the A1949/52 ultimate mortality table as a base table of standard mortality rates. Statistical methods are used to adjust the mortality rates reflected on the base table based on the Company’s experience of improvement or worsening of mortality.

There are no explicit reserves established to take account of the possible deterioration of mortality experience in respect of HIV/AIDS related deaths. For group life contracts, there is the safety valve of changing the premium rates on a yearly basis as the contracts are written on an annual basis with no mortality guarantees.

i) Investments returnsThe actuarial valuation as at 31 December 2014 does not use an explicit technical rate of return.

The weighted average rate of return earned on the assets backing the life fund in 2014 was 36.6 % p.a. (2013: 25.8% p.a.) and the average over the last two years was 34.1% p.a.

ii) Expenses and expense inflationThe current level of management expenses is taken to be an appropriate expense base. The actuarial method used does not make explicit assumptions on the level of expenses and expense inflation.

b) Sensitivity analysisThe actuarial method used is not very sensitive to changes in the key assumptions used in determining the actuarial liabilities. The key actuarial assumptions will need to change very significantly for the actuarial liabilities to change by a relatively small percentage.

The Company underwrites long-term insurance contracts with fixed and guaranteed terms only as set out in its various reinsurance programmes with its cedents. For liabilities under these contracts key assumptions are unchanged for the duration of the contract.

31 Provision For Unearned PremiumsThis provision represents the liability for short-term business contracts where the Company’s obligations are not expired at the year end. The Company uses the eighths (8ths) method to compute UPR. Movement in the reserve is shown below:


At 1 January 971,238 (405) 970,833 872,873 (1,973) 870,900Increase/(decrease) inthe period (note 8) 223,342 (583) 222,759 98,365 1,568 99,933At 31 December

1,194,580 (988) 1,193,592 971,238 (405) 970,833

(Note 24) (Note 24)


Due to related parties (note 36(b)) 129,171 16,755 145,926 215,629Due to long-term business from short-term (note 25) 15,853 - 15,853 72,896Accrued expenses and other liabilities 184,042 4,109 188,151 134,302 329,066 20,864 349,930 422,827

32. Other Payables

33. Commitments and Contingent Liabilities

a) Capital Commitments 2014 2013 Shs ‘000 Shs ‘000 Authorised and contracted for 15,000 200Authorised but not contracted for - - 15,000 200

These relates to general improvement works at EARe House property.

b) Contingent liabilitiesReinsurance Premium Finance – As at 31 December 2014, the Company had not guaranteed Reinsurance Premium Finance facility to insurance companies (2013: Nil). The Company is only required to meet the obligations under the facility in the event of default by the insurance companies.


Cash and bank balances 28,574 7,762 36,336 111,726Treasury bonds maturing within 90 days (note 27) 52,275 - 52,275 -Deposits with financial institutions maturing within 90 days (note 28) 445,901 38,510 484,411 427,911 526,750 46,272 573,022 539,637

34. Cash and Cash Equivalents

Annual Report and Financial Statements 201460 East Africa Reinsurance Company Limitedwww.eastafricare.com 61

2014 2013S Shs ‘000 Shs ‘000

The Company has various related parties, most of whom are related by virtue of being Shareholders, and partly due to common directorships. The other related parties include staff of the Company.

a) Transactions with related parties during the yearThe following transactions were carried out with related parties during the year:Net earned premium 715,712 784,001Net claims incurred 453,230 524,331Interest earned on bank deposits 40,105 10,999 Transactions with related parties are in the ordinary course of business and on terms and conditions similar to those offered to other clients.

b) Outstanding balances with related parties i) Reinsurance balances Premiums receivable from related parties 164,861 79,036 Loss reserves in respect of related parties 29 29

Due from related parties (note 25) 164,890 79,065

ii) Premiums payable to related parties (note 32) 145,926 215,629

iii) Mortgage loans Mortgage receivable from related parties (note 23) 34,395 34,369

Mortgage loan balances and movements thereon are in respect of loans extended to the Company’s officers at terms prescribed in the Company policy.

iv) Term deposits and bank balances Fixed deposits 136,468 312,247 Cash balance 32,957 108,993

169,425 421,240

35. Note to the Statement of Cash Flows

36. Related Parties



2014 2013S Shs ‘000 Shs ‘000 Reconciliation of profit before taxation to net cash generated from operations

Profit before taxation 539,467 519,426Adjusted for: Investment income (440,855) (422,082)Depreciation (note 19) 11,985 11,921Amortisation – intangible assets (note 20) 2,285 -Loss/(gain) on disposal of equipment 1 (2)Change in fair value of quoted shares (note 10) 3,074 (3,937)Changes in: - Reinsurance and reassurance contract liabilities 154,682 116,090- Unearned premium reserves and deferred acquisition revenue 223,803 98,016- Trade and other payables 15,398 181,863- Trade and other receivables 16,026 (54,155) Net cash generated from operations 525,866 447,140

2014 2013 Shs ‘000 Shs ‘000d) Directors’ remunerationDirectors’ remuneration 34,694 28,183Directors’ fees 2,650 3,220 37,344 31,403

e) Key management personnel remunerationSalaries 89,548 59,506National social security benefit costs 9 10Retirement benefit costs 4,414 4,136Medical costs 1,980 1,344 95,951 64,996

37. Prior Year AdjustmentsThe prior year adjustments have been processed in relation to creation of a general reserve for the long term business. In previous years, actuarial surpluses on the life business were treated as reassurance contract liabilities, a treatment that has since been reviewed following a new guideline issued by the Institute of Certified Public Accountants of Kenya. Accordingly, the financial statements for the financial years ended 31 December 2013 and 31 December 2012 have been restated. The effect of the restatement on the financial statements is summarised below.

As previously reported long-term business as at 31 December 2012

Shs’000Adjustments

Shs’000

As restated long-term business as at 31 December 2012

Shs’000

Non current liability

Reinsurance/reassurance contract liabilities

401,629 (268,921) 132,708

Deferred tax liability - 80,676 80,676

Net movement (188,245)

Capital and reservesGeneral reserve - 188,245 188,245

As previously reported long term business as at 31 December 2013

Shs’000Adjustments

Shs’000

As restated long term business as at 31 December 2013

Shs’000

Non current liability

Reinsurance/reassurance contract liabilities

399,049 (293,889) 105,160

Deferred tax liability - 88,166 88,166

Net movement (205,723)

Capital and reservesGeneral reserve - 205,723 205,723

(a) Year ended 31 December 2012

(b) Year ended 31 December 2013

2014 2013 Shs ‘000 Shs ‘000

c) Loans to directors of the CompanyThe Company did not advance loans to its directors in 2014 (2013: Nil).

2014 2013 Shs ‘000 Shs ‘000


Year

End

ed 3

1 D

ecem

ber

2014

– S

uppl

emen

tary

Info

rmat

ion

Notes to the Financial Statements (continued)


2013 2012S Shs ‘000 Shs ‘000 Results for the year

Long-term business Profit for the year as previously reported - -Prior period adjustments 17,478 42,839 Profit for the year as restated 17,478 42,839

Made up of

Movement in reinsurance contract liabilities 24,968 61,200Deferred tax charge on the movement (7,490) 18,361

Net amounts 17,478 42,839

38. Events Subsequent to Year EndThere were no material subsequent events after the reporting date requiring disclosure in these financial statements as at the date of the financial statements approval.

39. Foreign Exchange RiskThe Company operates within and outside Kenya. The various currencies to which the Company was exposed at 31 December 2014 are summarised in the table below (all amounts expressed in Kenya Shillings):

37. Prior Year Adjustments

Kshs US$ Other Total ‘000’ ‘000’ ‘000’ ‘000’Assets Mortgage loans 34,395 - - 34,395Receivables arising out of retrocession arrangements 52,579 - - 52,579Receivables arising out of reinsurance arrangements 184,354 4,953 374,744 564,051Other receivables 158,597 - 33,058 191,655Government securities held to maturity 671,327 - - 671,327Deposits with financial institutions 2,610,232 - 3,379 2,613,611Corporate bonds 431,235 - - 431,235Bank balances 22,793 13,120 423 36,336 Total assets 4,165,512 18,073 411,604 4,595,189

Liabilities Payables arising out of retrocession arrangements 56,408 - - 56,408Payables arising from reinsurance arrangements 156,116 13,883 228,965 398,964Other payables 347,686 - 2,244 349,930

Total liabilities 560,210 13,883 231,209 805,302

Net position

At 31 December 2014 3,605,302 4,190 180,395 3,789,887

At 31 December 2013 3,547,746 123,213 204,554 3,874,884

In the opinion of the directors, the Company’s foreign currency exposure has been adequately managed to minimise potential adverse effects. Cla

ss o

f Rei

nsur

ance

Busi

ness

Avi

atio

n

Shs

‘000

Engi

neer

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Shs

‘000

Fire

Shs’

000

Liab

ility

Shs’

000

Mar

ine

Shs’

000

Mot

or

Shs’

000

Pers

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Acc

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t

Shs’

000

Thef

t

Shs’

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Wor

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Com

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Shs’

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Med

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Shs’

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Mis

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Acc

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Shs’

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2014

Tota

l

Shs’

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Gro

ss w

ritte

n pr

emiu

ms

4,29

720

4,50

91,

315,

233

10,1

2620

1,34

222

2,85

74,

334

209

762

756,

310

320,

493

3,04

0,47

2

Cha

nge

in p

ortf

olio

pre

miu

ms

-(4

72)

4,70

920

174

3,05

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1-

--

(1,4

67)

6,17

3

Gro

ss p

rem

ium

s4,

297

204,

037

1,31

9,94

210

,146

201,

516

225,

915

4,48

520

976

275

6,31

031

9,02

63,

046,

645

Cha

nge

in g

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UPR

807,

733

46,4

55(9

01)

(9,1

38)

(23,

330)

(2,3

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15(9

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8,47

5(3

95)

147,

217

Gro

ss e

arne

d pr

emiu

ms

4,21

719

6,30

41,

273,

487

11,0

4721

0,65

424

9,24

56,

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194

10,2

3361

7,83

531

9,42

12,

899,

428

Retr

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pre

miu

ms

-53

372

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32,

625

133

(52)

--

-7,

918

83,7

29

Cha

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in re

tro

UPR

-62

--

6865

(2)

--

-14

207

Net

ear

ned

prem

ium

s4,

217

195,

833

1,20

0,91

811

,044

208,

097

249,

177

6,84

119

410

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617,

835

311,

517

2,81

5,90

6

Gro

ss c

laim

s pa

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710

6,21

566

8,36

82,

441

60,4

5089

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55-

429,

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185,

179

1,54

2,34

0

Cha

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out

stan

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cla

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(72)

111,

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(76,

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311

(50,

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(76,

417)

(3,2

15)

(21)

(3,8

85)

241,

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(54,

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87,5

33

Retr

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cla

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Cha

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cla

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Net

cla

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209,

899

641,

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2,90

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16,0

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)(2

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8,83

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513

123

19(1

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149

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Risk

pre

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64,7

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6,99

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53,2

4223

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5286

184,

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94,0

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1,15

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Taxe

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49,

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33,9

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26,

188

3,02

97

24

15,1

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88,8

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138,

372

207,

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516

314

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260,

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155

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108,

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s1,

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81,6

3545

2,43

92,

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66,5

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1,14

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117

226,

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125,

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(loss

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107,

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5,14

413

1,18

119

9,13

77,

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156

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41.4

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Net

risk

pre

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s ra

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reba

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net w

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32%

28%

23%

26%

10%

22%

25%

11%

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29%

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Cla

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Busi

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Avi

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Shs

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Shs

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Fire

Shs’

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Liab

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Shs’

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Mar

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Pers

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2013

Tota

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Gro

ss w

ritte

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265

174,

525

1,17

9,59

512

,774

215,

297

214,

465

9,24

9-

15,1

8629

9,74

633

4,98

72,

456,

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Cha

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pre

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--

41,4

2052

(127

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2-

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62)

26,1

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Gro

ss p

rem

ium

s26

517

4,52

51,

221,

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12,8

2621

5,17

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6,79

89,

981

-15

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299,

746

326,

725

2,48

2,23

7

Cha

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ross

UPR

663,

382

85,3

892,

321

17,1

70(2

1,43

0)2,

684

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9,47

2(3

0,92

5)(6

80)

67,3

97

Gro

ss e

arne

d pr

emiu

ms

199

171,

143

1,13

5,62

610

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198,

000

228,

228

7,29

752

5,71

433

0,67

132

7,40

52,

414,

840

Retr

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pre

miu

ms

-(1

4,53

4)50

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346,

400

22(2

3)-

--

1,34

143

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Cha

nge

in re

tro

UPR

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(562

)(6

)(6

7)(8

4)-

--

(305

)(2

15)

(1,2

19)

Net

ear

ned

prem

ium

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918

5,69

71,

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041

10,4

6519

1,53

322

8,12

27,

320

525,

714

330,

366

325,

849

2,37

0,35

8

Gro

ss c

laim

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id51

174

,100

444,

564

3,53

279

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159,

290

1,40

8(1

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6,49

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0,06

012

9,59

51,

108,

482

Cha

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in G

ross

out

stan

ding

cla

ims

776,

269

106,

596

499

59,2

12(7

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)(3

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)52

2,82

3(1

1,72

2)(9

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3,63

9

Retr

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cla

ims

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158

7,04

965

81,

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3,70

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936

21,3

89

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4,03

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141

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(106

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(30)

(117

)(3

77)

(86,

813)

Net

cla

ims

incu

rred

588

79,7

6462

8,14

93,

272

136,

912

148,

915

(1,6

21)

(154

)9,

343

198,

592

113,

785

1,31

7,54

5

Risk

pre

miu

m re

bate

s ea

rned

(1)

1,10

06,

085

(283

)(2

,790

)-

--

--

(1,9

55)

2,15

6

Risk

pre

miu

m re

bate

s 59

62,7

0037

8,95

63,

219

61,7

4513

,333

1,88

4-

-86

,279

115,

038

723,

213

Taxe

s an

d ot

her c

harg

es5

9,06

136

,247

347

5,72

52,

255

756

--

13,3

6139

,354

107,1

11

Tech

nica

l pro

fit/(l

oss)

(454

)35

,272

47,7

743,

344

(15,

639)

63,6

196,

301

206

(3,6

29)

32,1

3455

,717

224,

645

Expe

nses

of m

anag

emen

t 12

8,16

057

,088

600

10,0

609,

669

467

-71

014

,015

15,2

7611

6,05

7

Tota

l exp

ense

s an

d ris

k pr

emiu

m re

bate

s77

78,8

2146

6,20

64,

449

80,3

2025

,257

3,10

7-

710

113,

655

171,

623

944,

225

Und

erw

ritin

g pr

ofit/

(loss

) (4

66)

27,11

2(9

,314

)2,

744

(25,

699)

53,9

505,

834

206

(4,3

39)

18,11

940

,441

108,

588

Key

ratio

s:

Net

loss

ratio

(net

claim

s inc

urre

d/ne

t ear

ned

prem

ium

s)29

5.5%

43.0

%57

.9%

31.3

%71

.5%

65.3

%(2

2.1%

)(2

96.2

%)

163.

5%60

.1%

34.9

%55

.6%

Net

risk

pre

miu

m re

bate

s ra

tio (n

et ri

sk p

rem

ium

reb

ates

/net

writ

ten

prem

ium

s)23

.0%

33.0

%33

.0%

27.0

%31

.0%

6.0%

20.0

%0.

0%0.

0%29

.0%

35.0

%30

.0%

Tota

l exp

ense

ratio

(tot

al n

et e

xpen

ses

and

net

risk

pre

miu

m re

bate

s/ne

t writ

ten

prem

ium

)29

.0%

45.0

%40

.0%

35.0

%37

.0%

12.0

%34

.0%

0.0%

5.0%

38.0

%51

.0%

38.0

%

Year

End

ed 3

1 D

ecem

ber

2013

– S

uppl

emen

tary

Info

rmat

ion

Shor

t-Te

rm B

usin

ess

Rev

enue

Acc

ount

For

The

Yea

r En

ded

31

Dec

emb

er 2

013

The

shor

t - te

rm b

usin

ess r

even

ue a

ccou

nt w

as a

ppro

ved

by th

e Bo

ard

of D

irect

ors o

n 26

Feb

ruar

y 20

15 a

nd w

as si

gned

on

its b

ehal

f by:

Ordinary life Group life 2014 business business Total Shs ‘000 Shs ‘000 Shs ‘000

Gross earned premiums 25,369 406,337 431,706Retrocession premiums (7,664) (82,837) (90,501) Net earned premiums 17,705 323,500 341,205 Investment income 4,910 78,639 83,549Risk premium rebates earned 1,325 24,841 26,166 Net income 23,940 426,981 450,920 Gross claims 1,478 144,294 145,722Recoveries - (65,076) (65,076)Change in long-term liabilities 3,677 62,748 66,425 Net claims and treaty benefits payable 5,155 141,966 147,121 Operating and other expenses 6,264 58,522 64,786Risk premium rebates 5,192 99,363 104,555 Total expenses 16,611 299,851 316,462 Profit before taxation 7,329 127,129 134,458Taxation charge (2,401) (38,459) (40,860)Other comprehensive income - - - Profit after taxation 4,928 88,670 93,598Transfer to general business (2,332) (37,358) (39,690) Long-term business profit after taxation 2,596 51,312 53,908


Long-Term Business Revenue Account for the Year Ended 31 December 2014

The long-term revenue account was approved by the Board of Directors on 26 February 2015 and were signed on its behalf by:


26 February 2015


26 February 2015


26 February 2015

J. P

. M. N

degw

a C

hair

man

26 F

ebru

ary

2015

D. G

. M. H

utch

ison

Dire

cto

r

26 F

ebru

ary

2015

P. K

. Mai

naP

rinc

ipal

Offi

cer

26 F

ebru

ary

2015


Ordinary life Group life 2013 business business Total Shs ‘000 Shs ‘000 Shs ‘000

Gross earned premiums 27,575 307,644 335,219Retrocession premiums (8,537) (52,241) (60,778) Net earned premiums 19,038 255,403 274,441 Investment income 5,928 68,176 74,104Risk premium rebates earned 2,866 15,706 18,572 Net income 27,832 339,285 367,117 Gross claims (1,453) 179,304 177,851Recoveries - (25,635) (25,635)Change in long-term liabilities (1,429) (16,430) (17,859) Net claims and treaty benefits payable (2,882) 137,239 134,357 Operating and other expenses 3,339 38,411 41,750Risk premium rebates 5,073 71,406 76,479 Total expenses 5,530 247,056 252,586 Profit before taxation 22,302 92,229 114,531Taxation charge (2,543) (29,245) (31,788) Profit after taxation 19,759 62,984 82,743Transfer to general business (18,360) (46,905) (65,265) Long-term business profit after taxation 1,399 16,079 17,478

The long-term revenue account was approved by the Board of Directors on 26 February 2015 and were signed on its behalf by:


26 February 2015


26 February 2015


26 February 2015


Long-Term Business Revenue Account for the Year Ended 31 December 2013 East Africa Reinsurance Company Limited

We (name in full)

of (address)

being members of East Africa Reinsurance Company Limited, hereby appoint

of (address)

and failing him/her

of (address)

as our proxy to vote for us on our behalf at the Twenty-Second Annual General Meeting of the Company to be held held on Thursday, 21 May 2015, at twelve noon and at any adjournment thereof.

Signed this day of 2015

Signature(s)

If a member however wishes to indicate their vote prior to the Annual General Meeting, please tick in the appropriate box:

Ordinary Business1. To adopt the financial statements for the year ended 31 December 2015 and the Chairman’s, Directors’, Actuary’s and Auditors’ reports thereon.

2. To approve the payment of a dividend.

3. To elect Directors.

4. To approve the remuneration of the Directors.

5. To note that Deloitte & Touche continue as the Company’s Auditors under section 159 (2) of the Companies Act subject to approval by the Commissioner of Insurance.

6. To authorize the Directors to fix the remuneration of the Auditors.

IMPORTANT NOTES1. This proxy form must be under seal or under the hand of an Officer or Attorney duly authorised in writing in that

behalf, as each of the members of the Company is a corporate member.

2. A person appointed to act as proxy need not be a member of the Company.

3. This proxy shall be deemed to confer authority to demand a poll.

4. To be valid, proxy forms should be completed and returned to the Company Secretary, East Africa Reinsurance Company Limited, P. O. Box 20196, 00200 City Square, Nairobi to reach him not later than twenty-four hours before the time appointed for holding the Meeting or adjourned Meeting and in default, the instrument of the proxy shall not be treated as valid, and no proxy form shall be valid twelve months from the date of its execution.

Proxy Form

For Against

Annual Report and Financial Statements 20144

Management - From Left to RightR. K. Kogo (Chief Accountant), V. Maithya (HR & Admin Manager), D. K. Kirui ( Manager - Life), P. K. Maina ( CEO), D. Mitoko (Manager - Non Life), B. K. Chirchir - IT Manager), M. Kamau (Actuarial Officer) and L. A. Kimang’a (GM Finance & Admin).

Staff - Front Row from left to rightV. Maithya, R. Akayezu, B. K. Chirchir, J. Kimondo, J. Kimonye, E. Kigen, S. Bironga, H. Kamau, A. Miyogo, F. Muchoki and S. Shah.

Back Row from left to rightA. Moseti, R. K. Kogo, P. K. Maina, D. O. Mitoko, M. Kamau, M. Kimondo, D. K. Kirui, R. O. Muganda, L. A. Kimang’a and L. Murerwa.

Acorn House - Investment Property in Nairobi acquired by

the Company in 2014.

Award - EARe staff members receiving the 2014 Insurance

Sector Champions of Governance (COG) Winner’s Award from

ICPSK and other COG patners including KASNEB and IRA.

Corporate Social Responsibilty

EARe staff presenting a cheque at Lavington Mixed Secondary School for school fees for deserving students with poor background. The Company paid school fees in various schools for a total of 41 students, some of whom are former street students in rehabilitation centres.

EARe staff donating sanitary towels at Muthangari Primary School. The Company distributed sanitary towels in various school for disadvantaged girls who cannot afford such essential items making them frequently skip classes which eventually affects their performance.

Early 2015, we started setting up a second computer lab at Kileleshwa Primary School, an ongoing project. We believe technology has increased globalization and is a powerful tool in innovation, improving the standard of living and preserving the environment. Our CSR flagship project thus aims at enhancing understanding of ICT by students from disadvantaged background. Initially, EARe established a computer lab at Muthangari Primary School.

East Africa Reinsurance Company Limitedwww.eastafricare.com

EARe remains committed to corporate social responsibility (CSR) – acting responsibly, operating sustainably, and contributing to the communities in which we operate. Besides, our commitment is not only to delivering best service but also to transforming lives, communities and environment. Our key goal is to impact our community in direct ways through education while upholding the significance to our stakeholders.

While our corporate social responsibility manifests itself in the way we run our business, our CSR program on education is aimed at identifying needy but bright students who are in dire need of school fees funding. Sponsorship cases are assessed to identify the extent of financial and emotional support. Follow up on our sponsored students’ progress is closely monitored through academic reports, visits and interaction during holidays aimed at academic excellence and moral upright development.

East Africa Reinsurance Company LimitedEARe House, 98 Riverside Drive,P. O. Box 20196 - 00200 Nairobi, KenyaTel: +254 20 4443588Fax: +254 2 4455391Mobile: +254 728111041; +254 733623737Email: [email protected]

www.eastafricare.com

nnual eport · 2016-11-29 · 6 annual report and financial statements 2014 east africa reinsurance...

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