Annual Report and Financial Statements 2013 FOR THE YEAR ENDED 31 DECEMBER

Transcription

1 Annual Report and Financial Statements 2013 FOR THE YEAR ENDED 31 DECEMBER

2 OUR VISION To be the leading provider of innovative insurance solutions to our chosen market by OUR MISSION To create an enabling environment in 2014 in order to be the leading provider of innovative insurance Solutions in our chosen market by 2018

3 Heritage Insurance Company Kenya Limited 1 Table of Contents Directors, Senior Management and other corporate information 2-6 Directors Report 7 Chairman s Statement 9-12 Corporate Governance Report Corporate Social Investment Statement of Directors Responsibilities 19 Report of the Independent auditor 20 FINANCIAL STATEMENTS Financial Highlights Consolidated statement of profit or loss Company statement of profit or loss 27 Statement of comprehensive income 28 Consolidated statement of financial position Company statement of financial position Consolidated statement of changes in equity Company statement of changes in equity Consolidated statement of cash flows 41 Company statement of cash flows 42 Notes SUPPLEMENTARY INFORMATION Consolidated revenue account Company revenue account Financial Record 108 Abridged Report and Financial Statements - Heritage Insurance Company Tanzania Ltd

4 2 Heritage Insurance Company Kenya Limited Corporate Information DIRECTORS The Directors who held office during the year and to the date of this report were: P N Gethi - Chairman J H D Milne - Managing Director J M Kyungu - Executive Director G R May - Non- Executive Director M L du Toit - Non- Executive Director S Sejpal (Ms) - Non- Executive Director S C Wenman - Non- Executive Director C W Mwangi (Ms) - Non- Executive Director COMPANY SECRETARY C Kioni (Ms) P O Box Nairobi SENIOR MANAGEMENT J H D Milne - Managing Director J M Kyungu - Executive Director S Lugalia - Director (Finance & Administration) A P Ngunjiri - Director (Medical) B N Hiuhu (Mrs) - Director (Underwriting & Claims) B Irungu - Senior Manager (Claims) I K Kamau - Senior Manager (IT) M Mati (Ms) - Senior Manager (HR) D Mathenge - Senior Manager (Finance) E Adiedo - Senior Manager (Marketing) J Maluki (Ms) - Senior Manager (Medical) C Onyango - Senior Manager (Underwriting) INDEPENDENT AUDITOR PricewaterhouseCoopers, Certified Public Accountants PwC Tower, Waiyaki Way / Chiromo Road P.O. Box Nairobi BANKERS CfC Stanbic Bank Limited CfC Stanbic Centre, Chiromo Road P.O. Box , Nairobi Commercial Bank of Africa Limited CBA Building, Mara/ Ragati Road P O Box , Nairobi

5 Heritage Insurance Company Kenya Limited 3 Corporate Information (cont d) COMPANY DETAILS REGISTERED HEAD OFFICE CfC House, Mamlaka Road P. O. Box Nairobi Kenya Tel: (+254) Cell: , Fax: (+254) E: info_heritage.co.ke Mombasa Branch Social Security House, Nkrumah Road P. O. Box Tel: (+254) / Cell: (+254) Fax: (+254) E: [email protected] Eldoret Branch Imperial Court, Waiganjo Street / Uganda Road P. O. Box Tel: (+254) Cell: (+254) Fax: (+254) E: info@[email protected] Naivasha Branch CfC Heritage House, Moi Road P. O. Box Tel: (+254) / 673 Cell: (+254) Fax: (+254) E: [email protected] Nanyuki Branch Silver Plaza, Nyeri / Nanyuki Road P. O. Box Tel: (+254) Cell: (+254) Fax: (+254) E: [email protected] Nakuru Branch Polo Centre, Tom Mboya Street, off Kenyatta Avenue P. O. Box Tel: (+254) Fax: (+254) E: [email protected] Meru Branch Nakumatt - Mwitu Center Bld, Meru / Nanyuki Road P. O. Box Tel: (+254) Fax: (+254) [email protected] Thika Branch Zuri Centre, 4th Floor, Kenyatta Highway P. O. Box Tel: (+254) Fax: (+254) [email protected] Machakos Branch Town Plaza, 2nd Floor, Ngei Road P. O. Box Tel: (+254) Fax: (+254) E: [email protected] Kitui Branch Muli Mall, 1st Floor, Kilungya Street P. O. Box Tel: (+254) Fax: (+254) E: [email protected] Kisii Branch Royal Towers, 2nd Floor, Hospital Road, P. O. Box Tel: (+254) E: [email protected] Heritage Tanzania SUBSIDIARIES The Heritage Insurance Co. Tanzania Ltd Oyster Bay Office Complex, Plot No. 368 Msasani Road, Dar-es-salaam, Tanzania Tel: Fax: E: [email protected] Azali Limited CfC House Mamlaka Road P. O Box Nairobi Kenya

6 4 Heritage Insurance Company Kenya Limited The Board of Directors PETER NDERITU GETHI JOSEPH M KYUNGU CLAIRE W MWANGI JOHN HD MILNE GAYLING MAY PETER NDERITU GETHI (Chairman) Mr Gethi holds a BSc (Hons) degree in Agricultural Economics and has expansive managerial experience in Agricultural Business Management. He has been a General Manager with Kilimanjaro Plantations Ltd (TZ) and Senior Group Manager with SCEM Ltd (formerly Standard Chartered Estate Management). He currently works both as an Agricultural Consultant and is involved with Real Estate Development as Managing Director of Nebange Ltd. He is also the Chairman of CfC Life Assurance Limited, director of Heritage Insurance Company (Tanzania) Limited, CfC Stanbic Holdings Limited and CfC Stanbic Bank Limited. He serves on the Audit & Risk Committees of Liberty Kenya Holdings Limited and Heritage Insurance Company (Tanzania) Limited. JOSEPH M KYUNGU (Executive Director) Mr Kyungu is the Executive Director of Heritage Insurance Company Kenya Limited. He has vast knowledge and experience acquired over his 38 years in service working for Heritage Insurance. He has seen the Company through its transition over the years to its present day as one of the leading insurance players in the industry. CLAIRE W. MWANGI Ms Mwangi is a career banker having held various Executive Director positions in CfC Stanbic Bank Kenya Limited. She was responsible for global markets business in Kenya and South Sudan and had regional responsibility for Uganda, Tanzania and Mauritius. She has also worked with Citibank in Kenya, Mauritius and Tanzania. She also holds various directorships in banks and financial services companies. She has an MBA in Finance. Ms Mwangi is a member of the Company s Investment Committee. JOHN MILNE Mr Milne is the Managing Director of the Heritage Insurance Company Kenya Limited. He is also a director of CfC Life Assurance Company Limited and Heritage Insurance Company (Tanzania) Limited a subsidiary of Heritage Insurance Company Kenya Limited. He has vast knowledge and experience in the insurance industry in Kenya and Tanzania. He holds an LLB (Hons) Degree. GAYLING MAY Mr May has an extensive accounting background and is a member of the Institute of Certified Public Accountants of Kenya (ICPAK) and a fellow of the Institute of Chartered Accountants in England and Wales (FCPA). He has worked in the UK, USA and for the most part, Kenya, and has a history of 37 years with PricewaterhouseCoopers, 32 of which was as a Partner/Regional Senior Partner. He is currently the Regional Representative of the Eastern Africa Association, a business information service based in Nairobi, but operating throughout East Africa. He holds various directorships in banks, insurance companies, manufacturing entities and an aircraft ground handling Company. He is the Chairman of the Audit and Risk Management Committee of both Heritage Insurance Company Kenya Limited and CfC Life Assurance Company Limited.

7 Heritage Insurance Company Kenya Limited 5 The Board of Directors (cont d) SONAL SEJPAL MIKE DU TOIT STUART WENMAN CAROLINE KIONI SONAL SEJPAL Ms Sejpal is a consultant lawyer with Anjarwalla and Khanna Advocates, a member of the Africa Legal Network. She has an excellent reputation in Kenya as a corporate finance and commercial lawyer. She advises clients on a range of corporate matters, including mergers and acquisitions, joint ventures, schemes of arrangements, project finance, aviation, oil and gas projects, employment matters, commercial contracts and general corporate advice on an ad hoc basis. She is also a director of CfC Life Assurance Company Limited. MIKE DU TOIT Mr. du Toit is the Liberty Africa Regional Managing Director for East Africa responsible primarily for Strategic Growth initiatives. He joined Liberty in 2010, prior to which he was the Managing Director of CfC Stanbic Bank Limited having led the merger of Stanbic and CfC Groups. As a career banker, he has extensive experience in the financial services field across sub-sahara Africa having worked and lived in, amongst others, Botswana, Mozambique, South Africa and Uganda. He is the Chairman of the Investment Committee. He also sits in the boards of Heritage Insurance Company (Tanzania) Limited and CfC Life Assurance Company Limited. STUART WENMAN Mr Wenman is an Executive Director of Liberty South Africa in charge of Insurance in Africa and is responsible for the strategy and commercial results of all the Life and Short Term Insurance businesses outside of South Africa for Liberty Holdings. He has vast experience in actuarial science, risk management and insurance. He has a Bsc in Actuarial Science degree, is also a Director of CfC Life Assurance Company Limited. He is a member of both Company s Audit and Risk Management and Investment committees. CAROLINE KIONI Caroline Kioni joined Liberty Kenya Holdings Limited, the parent Company of Heritage Insurance Company Kenya Limited as Regional Head, Legal and Company Secretary with effect from 14 March Her prior assignment was at UAP Group, where she worked as the Group Company Secretary and Chief Legal Advisor for East Africa, a position she held from 2007 until taking up this role. Caroline began her career as a Legal Officer in Southern Credit Banking Corporation in the year 1997 and was promoted in the year 2000 to the position of Company Secretary. Between 2001 to 2007, she worked for Bollore Africa Logistics as Regional Company Secretary. She holds a Masters in Business Administration from Moi University, has a Bachelor of Law degree from the University of Nairobi and a Diploma in Legal Studies from the Kenya School of law. She is also a Certified Public Secretary from the Institute of Certified Public Secretaries of Kenya and a registered member of the Law Society of Kenya.

8 Heritage Insurance Company Kenya Limited 6 The Senior Management Team STEVE LUGALIA ALBERT NGUNJIRI BEATRICE HIUHU DAVID MATHENGE SENIOR MANAGEMENT TEAM ISAAC KAMAU CHRISTOPHER ONYANGO MISSING: J H D MILNE, J KYUNGU ELIUD ADIEDO MARY MATI BONIFACE IRUNGU JOHARI MALUKI

9 Heritage Insurance Company Kenya Limited 7 The Directors Report The Directors submit their report together with the audited financial statements for the year ended 31 December 2013 which disclose the state of affairs of Heritage Insurance Company Kenya Limited (the Company ) and its subsidiaries (together the Group ). Principal activities The Group underwrites all classes of non-life insurance risks as defined by the Insurance Act, with the exception of bonds investments. It also has interests in investment properties. Results and dividends Profit for the year ended 31 December 2013 of Shs 733 million (2012: Shs 941 million) has been added to retained earnings. During the year the directors paid Shs 200 million as the interim dividend for The directors do not propose payment of a final dividend (2012: Shs 400 million). Directors The directors who held office during the year are as shown on page 2. Auditor The Company s auditor, PricewaterhouseCoopers, will continue in office in accordance with Section 159(2) of the Companies Act. By order of the Board C Kioni SECRETARY 31 March 2014

10 OUR GROUP VALUES 1) Be passionate about our work and utilise our talents to add value. 2) Take initiative and responsibility. 3) Respect and appreciate constructive criticism and the opinion of others. 4) Focus on set goals and deadlines. 5) Be proud ambassadors of our Company and Group. 6) Put our customers at the centre of our thinking and serve them with diligence. 7) Encourage teamwork, respect and trust for one another. 8) Take ownership for the consequences of our actions. 9) Perform our duties with care, integrity and honesty 10) Deliver beyond expectations. 11) Constantly improve our skills and knowledge.

11 Heritage Insurance Company Kenya Limited 9 Chairman s statement It gives me great pleasure to present to you the Annual Report and Financial Statements for Heritage Insurance Company Kenya Limited for the year ended 31 December THE BUSINESS ENVIRONMENT Macro-Economic Environment Kenya entered 2013 on a strong economic footing and peaceful elections earlier in the year gave it an additional boost. Although there was anxiety before the elections, which may have negatively affected some businesses, the environment settled well after the elections and this was a major boost not just for businesses but also the Country s image. Relatively stable macro-economic factors and generally prudent monetary policies favored economic growth in GDP grew by 5.2%, 4.3% and 4.4% in the first, second and third quarters of 2013 led by growth in the agriculture, construction, and financial services sectors and to some extent, manufacturing. Overall growth in 2013 is likely to be approximately 5.0% up from 4.6 percent in 2012, helped by relatively low inflation, a stable exchange rate and manageable fiscal deficit. As mentioned, the Kenyan Shilling was relatively stable throughout 2013, closing at Shs 86.3 to the US dollar, virtually the same as at the end of Consistent monetary policy action by the Central Bank and rising foreign exchange reserves helped buoy the Shilling. Increased foreign investment and greater investor confidence in the economy also played its part. The outlook for 2014 is that the Shilling is likely to weaken gradually, but that forex reserves will remain strong. Year on year inflation declined during 2013 to stand at 6.8% at the year end, broadly within the CBK s policy range. It is expected that inflation is unlikely to be a major threat in CBK eased monetary policy in 2013 by cutting the Central Bank Rate (CBR) from 11.0% to 8.5% during the year, following containment in inflation and a need to stimulate private sector credit growth. Short term rates varied in response to changes in liquidity conditions. Lower spending by both the central and county governments affected market liquidity. Treasury bill yields dropped during the year with 91- day and 182-day rates averaging 8.8% and 9.4% from 12.7% and 13.4% in the previous year. The outlook for 2014 is that interest rates are likely to fall, albeit marginally. With regard to the capital market, the Nairobi Securities Exchange (NSE) continued the good performance that began in 2012 with equities ending 2013 on a firm note. Market performance was to an extent driven by the US Federal Reserve s quantitative easing programme which sparked increased global risk appetite. A lower political risk premium after peaceful general elections improved investor confidence, while sustained company earnings and attractive valuations boosted most equities. The NSE 20 index climbed 19.2% to 4,927 points at year end and the 2014 outlook with higher economic growth and a stable macroeconomic environment should prove positive for equities. Government bonds reflected a positive performance in 2013, whilst the yield curve corrected downwards slightly by an average of 0.07% across all tenors. Lower inflationary pressures and CBK s policy easing measures led to lower yields. Secondary market trading declined due to volatility in money market interest rates. Liquidity conditions and uncertainty over the direction of interest rates negatively affected bond trading. Anchored inflation expectations and improved liquidity conditions are factors likely to stabilize bond yields in Overall, we expect relative stability this year in key macroeconomic indicators - inflation, interest rates and exchange rate - triggering strong consumer demand and increased economic growth. This is expected to result in good economic growth.the improved performance will largely be driven by the mining sector, credit consumption and county government spending. This provides significant opportunities to the insurance sector. The Country expects the multinational oil companies confirmations of the commercial amounts of oil finds in Turkana and off the coast to spur greater economic activity. Although Industry experts indicate that Kenya could see its first oil in the next 5-6 years, the infrastructure required will provide huge opportunities for the insurance sector. In addition, there will be increased opportunities in the SME sector which is expected to grow to service the Oil and Gas sector. Your Company has put in place robust strategies to take advantage of the opportunities provided by these developments in the economy.

12 10 Heritage Insurance Company Kenya Limited Chairman s statement (cont d) The Socio-Political environment The coalition government led by President Uhuru Kenyatta, elected on March 4, 2013 under the August 2010 Constitution, is facing a major test in implementing the new devolved system of government. County Governors are pushing for a referendum to amend the Constitution to increase the share of national revenue to the 47 counties, from 15% to 40%. They contend that the present allocation is not sufficient for the Counties to fund the public services expected of them by the population. But government reports indicate that many Counties have simply not used the funds allocated to them, thus raising issues about their capacity while others have used their allocations for non-priority expenditure. The Central Government also has to deal with the aftermath of a number of crises, including the September 21, 2013 terrorist attack on an up- market mall in Nairobi. A major fire on August 7 severely damaged Nairobi s Jomo Kenyatta International Airport, disrupting domestic and international flights for weeks before normal flight schedules were restored. These challenges constrain the pace of democracy, reforms and accountability. The new administration, with 18 Cabinet Secretaries appointed by the President and publicly vetted by the National Assembly, has promised to tackle fundamental issues such as youth unemployment, regional imbalances and land reforms, all of which pose political risk and insecurity particularly in areas with high poverty levels. There is nevertheless progress in the implementation of some of the key policy and legislative processes arising from the new Constitution, including an independent judiciary, establishment of a new Supreme Court and appointment of a new Chief Justice. This new judicial system has already demonstrated its independence and authority in a number of cases. Electoral disputes have been discharged within the timelines set under the Constitution, and the new Chief Executive of the Ethics and Anti-Corruption Authority also recently assumed office. Police reforms are also underway, following the recruitment of an Inspector-General, who heads a combined police force that was previously under two separate administrations. Recent political reforms have strengthened Kenya s governance record, though overall there is still much to do. The most pressing challenge in the country is to effectively implement the new devolved system of governance, while also strengthening the capacity to cope with domestic and external shocks. Youth unemployment, poverty and vulnerability to climate change remain critical development challenges. Recent political and economic developments have stimulated development opportunities for Kenya but concerns remain in vital areas, including food security, governance and corruption. One of the biggest opportunities for the Company lies in the implementation of the devolved government. The Company has already identified counties with the greatest opportunities for our business and strategies are being implemented to take advantage of these new markets. The strategies will focus on developing effective distribution channels and appropriate products for the counties. Regulatory environment The Kenyan insurance industry continues to experience yearon-year growth in premiums. This is expected to rise to 20% in 2013 given that higher economic growth is expected in the year ahead. The Insurance Regulatory Authority s (IRA) response to industry problems and challenges as well as innovation, global trends and local growth highlights the necessity for a robust regulatory framework. In response to the increased incidence of fraud and the generally poor level of compliance, the IRA has responded with higher levels of monitoring insurance companies. In this context, in 2013, the IRA released 16 guidelines all of which are now in force. One key change calls for all insurers to have a risk management function, an actuarial function, a compliance function and an internal audit function. I am pleased to confirm that your Company has all these functions in place and that they are operating effectively. There are also indications that the capital requirements for insurance companies may be reviewed in future. There is likely to be company specific capital requirements, reflecting all risks associated with insurance activities, investments and financial decisions, and all operational activities. I am pleased to inform you that your Company s capital position is one of the strongest in the industry and we shall be able to meet any stipulated capital requirements. On a more specific note, the Finance Act, 2013 received Presidential Assent on 24th October Under this law an amendment was introduced to the Customs and Excise Act which called upon all financial institutions to apply a levy of 10% on all fees, charges and commissions with effect from 18th June This has led to higher costs, but more significantly,

13 Heritage Insurance Company Kenya Limited 11 Chairman s statement (cont d) the amendment proposed that all persons registered under the Insurance Act would be required to apply the levy too. However, it is not clear whether premiums, re-insurance and brokerage commissions are to be included, and the matter has yet to be resolved in Court. Business Performance in Kenya a. Change in Accounting policy In 2013 our holding company, Liberty Kenya Holdings Limited, reviewed its treatment of insurance liabilities (both long-term and short-term) and the relevant matching assets and recommended that the measurement of these liabilities should be aligned to Standard Bank and Liberty Holding Limited s accounting policies which are modeled on best practice. The change in accounting policy for the Company affects only the accounting for financial assets backing the liabilities there is therefore no change in the basis of valuing liabilities. Accordingly, from 2013, the Company s policy has been to fair value all financial instruments through the Income Statement at Fair Value through Profit or Loss as opposed to the former treatment where unrealised surpluses/losses were carried in the Statement of Financial Position for Availablefor-Sale assets and were held at amortised cost for Held-to- Maturity assets Management believes that this fresh policy provides reliable and more relevant financial information as it ensures that IFRS performance reporting will better reflect the economic reality of occurrences within the reporting period in terms of asset changes.in accordance with International Accounting Standard (IAS) 8, the Statements of Financial Position and Profit or Loss for 2011 and 2012 have therefore been re-stated and disclosed in the 2013 financial report to ensure uniform comparison with prior years. b. Financial performance Whilst the economic environment in 2013 was fairly stable, the insurance sector continues to experience challenges due to the high number of players that has resulted in rampant premium rate undercutting and the poor levels of insurance penetration. Despite the challenging business environment, the Company continues to perform well. Overall profit before tax stood at Sh million (2012 Sh 974 million, as re-stated). It should be noted in this context, that the 2012 accounts included a profit of Sh million in respect of the Life Assurance business which was subsequently transferred to CfC Life, a fellow subsidiary of Liberty Kenya Holdings Ltd. Also, with the change in accounting policy for the valuation for financial assets, a profit of Sh million arising from fair value gains on shares and bonds was realised. The effect of this change on future results will depend on the market movements in interest rates and equity prices. With this modification in policy, the Company has moved to align assets to better match liabilities in order to run a more capital efficient business with a strong focus on the technical results. The Company registered growth in gross written premium of 4% in 2013, up from Sh billion in 2012 to Sh billion. Some business during the year was lost to competition as a result of premium undercutting and our declining to renew certain poor performing accounts. Your Company s focus has always been on profitable underwriting rather than growth in volumes. However, we recognise the fact that premiums must increase and in this respect the Company is implementing a number of strategies in its distribution channels and new products that will go a long way to ensure that we achieve a greater market share. With respect to claims, the Company s overall Net Incurred Claims Ratio at 37.6% improved significantly over 2012 (40.8%). As a matter of record, a report published by the IRA indicated that the net incurred claims ratio for the short term industry as a whole for 2013 is likely to be approximately 57%. Operating and other expenses were tightly controlled at Sh million, down from Sh 1.0 billion in The result of the above has led to a 52% improvement in the underwriting profit from Sh million in 2012 to Sh million in Whilst events that give rise to claims are always unpredictable, the good overall result stems from a combination of measures adopted by Management to generate greater returns from previously poor performing classes of business. Overall, thus, your Company has achieved profit after tax of Sh million. Business Performance in Tanzania The Tanzania insurance industry continues to grow, with 22 registered short term underwriters at 31st December 2012 and 18% uplift in gross premiums written during that year. The general insurance underwriting result for the industry as a whole, however, is an accumulated loss of Tsh 11.9 billion in 2012 compared to Tsh 8.3 billion in Underwriting results have consistently deteriorated over the last three years, suggesting a need for insurers to improve their underwriting practices, and rates in most, if not all, classes of business. The Company has remained focused in ensuring that sound underwriting practices are maintained. Consequently it is one of the few companies in the market that consistently

14 12 Heritage Insurance Company Kenya Limited Chairman s statement (cont d) reports an underwriting profit. Despite significant premium undercutting in the market during 2013, our subsidiary company in Tanzania achieved premium growth of 18%, at Tsh 45.9 billion, and endorsed its position as one of the top underwriters in the market. However, claims costs increased from Tsh 5.5 billion (51% claims ratio) in 2012 to Tsh 6.4 billion (52% claims ratio) in During the year, the Company experienced an unprecedented number of large claims on Fire and Engineering policies. Though these did not have much impact on the 2013 financial results, because of the conservative strategy we follow in net retentions, our reinsurers have been affected very badly. They have thus revised their 2014 rates significantly. As a result of the said claims experience, our underwriting surplus dropped from Tsh million in 2012 to Tsh million in 2013 and overall profit before tax slipped from Tsh 5.6 billion to Tsh 1.7 billion. It needs to be said, however, that in 2012 the Company earned Tsh 3.6 billion from the disposal of one of its associates, Alliance Insurance Corporation Limited. Excluding the capital gains on the sale of shares in Alliance, Profit Before Tax was Tsh 1.69 billion compared to Tsh 1.95 billion in The drop is mainly due to the unfavorable claims experience and slight increase in expenses. However, the Company has robust strategies in place to help ensure that in 2014 it maintains its position as the top general insurer. Meanwhile, the shareholding arrangements concerning our associate, Strategis Insurance Tanzania Limited, should be finalized in the course of We also expect to benefit from full utilization of our IT systems. In addition, we expect to take advantage of bancassurance opportunities in the market, paving the way for participation of banks in the distribution of insurance products to remote parts of the country. Consolidated Results Our consolidated group s Gross Written Premiums rose to Sh 5.7 billion from Sh 5.5 billion while the Profit Before Tax at the year end was Sh million. This is less than 2012 because of the transfer to our co-subsidiary, CfC Life Assurance Limited, of all previous long term business, in addition to the prior year profit on sale of one of our associates in Tanzania. Outlook for the future Looking to 2014 and beyond, we expect market conditions to remain favorable but not without challenges. The outlook for Kenya s economy is positive, but the attainment of high economic growth is hinged on the progressive implementation of the Constitution, the success of devolution and a sustained conducive socio-economic and political climate. In the wider region, there are changes, challenges and opportunities and our ambitious 5-year strategy covering the period addresses these. Meanwhile, we look to better discipline in the Insurance Sectors in both Kenya and Tanzania and firm regulatory control over widespread rate-cutting particularly in the motor class of business. In all we are confident that 2014 will be another good year for your Company. Appreciation In closing, let me express my thanks and appreciation to our Managing Director, John Milne, who will be retiring this year after 20 years of successfully steering the Company to the heights that it has reached. I wish him well in his retirement. I would also like to thank all Directors for their advice, guidance and time - this is well appreciated. Special thanks also go to the following: our clients, brokers, agents, intermediaries and all other business partners we recognize your support and assistance and we are most grateful for this. the Regulatory Authorities in both Kenya and Tanzania we appreciate their importance and value the relationships we have with them and our staff without whom we could never have achieved the results we have your unselfish efforts are valued. And finally, I would like to thank the shareholders for continuing to believe in the Company s vision for growth and profitability. P.N Gethi Chairman 31 March 2014 Heritage Insurance Company Kenya Limited.

15 Heritage Insurance Company Kenya Limited 13 Corporate Governance Report Introduction Corporate Governance is the system by which corporations are directed, controlled and held to account. This encompasses the systems, practices and procedures by which the individual corporation regulates itself in order to remain competitive, sustainable and relevant. The Board of Heritage Insurance Company Kenya Limited follows principles of openness, integrity and accountability in its stewardship of the Company s affairs. It recognises the developing nature of corporate governance and assesses the Company s compliance with generally accepted corporate practices on a regular basis, directly and through its Board committees and Management. The role of the Board is to ensure conformance by focusing on and providing the Company overall strategic direction and policy-making as well as performance review through accountability and ensuring appropriate monitoring and supervision. Whilst the day to day running of the business of the Company is delegated to the Managing Director, the Board is responsible for the overall system of internal control and for reviewing its effectiveness. The controls are designed to both safeguard the Company s assets and ensure the reliability of financial information, so that the Company s objectives of increased growth in profitability and shareholder value are realised. Set out below are the key features of the existing corporate governance practices within the Company. Board of Directors The Board of Directors consists of two executive directors and six non-executive directors who have been chosen for their business acumen and wide range of skills and experience. The Chairman is a non-executive director and the Board meets formally at least four times a year. During the year five meetings were held and the attendance by the directors was as follows: Director J H D Milne P P P P P J M Kyungu P P A P P C W Mwangi P P P P P S C Wenman P P P A A G R May P P P P P P N Gethi P P P P P M L du Toit P P P P P S Sejpal P P P P P P Present A Absent with apologies The Board is responsible for setting the direction of the Company through the establishment of strategic objectives, key policies and the approval of budgets. It monitors the implementation of strategies and policies through a structured approach to reporting by executive management and consequent accountability. The non-executive directors are actively involved in and bring strong independent judgement on Board deliberations and discussions. These directors have a wide range of knowledge and experience of local and international markets that is applied to the formulation of strategic objectives and decision making. The Board meets regularly and retains full and effective control over the Company. To assist the Board in the discharge of its responsibilities, a number of Board committees have been established, details of which are provided below. All directors have access to the advice and services of the Company Secretary and are entitled to obtain independent professional advice at the Company s expense. A senior management team, comprising executive directors and senior managers meets regularly to consider issues of operational and strategic importance to the Company. The Directors Affairs Committee The Remuneration Committee of the Company has been superseded by the Directors Affairs Committee of Liberty Kenya Holdings Limited. The Committee, at an overall level, checks the remuneration levels and conditions of service of staff, other than executives, to ensure that these are fair, appropriate and in line with the Company s remuneration philosophy. Audit and Risk Committee The Board has constituted an Audit and Risk Committee to be responsible for the oversight of effective internal controls, risk management and compliance of all the companies in the group. The Committee consists of four non-executive directors, two of whom are independent directors. The Committee met as follows during the year: G R May - Chairman P P P P P M L du Toit - Member P P P P P S C Wenman-Member P P P P P S Sejpal - Member A P P P P P Present A Absent with apologies

16 14 Heritage Insurance Company Kenya Limited Corporate Governance Report (cont d) All members of the Committee have appropriate qualities and skills and are independent of management. The Audit and Risk Committee plays the key role of reinforcing best practice in Corporate Governance particularly in the areas of internal controls and risk management. The Committee meets at least four times every year to approve the financial statements, review risk management, compliance and internal control matters and acts as the primary focus of the Company s relationship with the external auditors. The Committee has a constructive working relationship with management and regularly invites them to attend Committee meetings. The Committee provides oversight responsibility for financial reporting and ensures the integrity of published financial information, which starts with the procedure for managing financial risks and internal financial controls. On a quarterly basis, the Committee will discuss the financial statements with management and annually with the external auditors. The Committee reviews the capabilities, qualifications, and resources, scope of work and findings of the internal audit function. It requests presentations and information from management on specific issues. Investment Committee The Company s investments are managed by professional asset managers in accordance with a Board-approved investment strategy. The asset managers are monitored by an Investment Committee that has been established by the Board. The members of this Committee include three nonexecutive directors, the Managing Director, and appropriate personnel from the Finance department. The Committee meets at least quarterly and is responsible for determining and monitoring the Company s overall investment strategy. In particular the Committee monitors performance of the Company s investment portfolio and ensures that the appointed investment managers comply with the set benchmarks and performance standards. The Committee met in the year as follows: M L du Toit - Chairman P P P P P C W Mwangi - Member P P P P P S C Wenman-Member P P P P P J H D Milne - Member P P P P P P Present Management and Operational Committees For effective implementation of the Strategic Plan and operations, several Management Committees have been constituted. The members of these committees are mainly the executive management team and other senior managers. Three of the key committees are as follows: 1) The Management Board This is a Committee of Management and comprises the Managing Director, the Executive Director, and three Divisional Directors. The Committee meets monthly and its main mandate is to deal with strategic and operational issues and to improve communication and coordination within the various business units. The meetings also review the Company s performance and progress of implementation of the Strategic Plan. It also deals with any significant operational or strategic issues that affect or require the involvement of other companies within the Group. 2) Credit Management Committee The Company has a Credit Management Committee. This is a Committee of Management and is chaired by the Director (Finance and Administration). The members of this Committee are as follows: S Lugalia - Chairman P Butiko - Secretary J H D Milne - Member J M Kyungu - Member A Kinya - Member A P Ngunjiri - Member J Kinuthia - Member D Mathenge - Member E Adiedo - Member The Committee meets monthly or whenever the need arises. Its main responsibilities are: a) To ensure compliance with the Company s Credit Policy. b) To ensure that all monies owed to the Company are promptly collected in accordance with the stipulated credit terms and other arrangements. c) Take appropriate measures for dealing with defaulters d) Recommend to the Board, through the Managing Director, provisions for doubtful debts and write off of any un-collectible debts. 3) The Human Resources Committee This is a Committee of Management and comprises the Managing Director, Director (Finance & Administration), Director (Medical) and the Human Resources Manager, who is also the secretary to the Committee.

17 Heritage Insurance Company Kenya Limited 15 Corporate Governance Report (cont d) The Committee s main responsibilties are as follows: Develop general and specific policies on staff remuneration, terms and conditions of service and performance management; Ensure that the Company s human resource policies are in line with the best market practice; Review employment equity, skills development and succession planning; Ensure that salary reviews for the staff are consistent with those of the market and with the performance of the Company; Make recommendations on senior staff appointments and promotions; Ensure compliance with the relevant legislation in respect of all matters relating to human resources; Develop and review a code of ethics and evaluate all cases of unethical behaviours; The Commitee meets bi-monthly or as required and its recommendations are made to the Management Board. The Committee may seek external professional advice if deemed necessary in order to carry out its responsibilities. Internal Control and Risk Management The Company has implemented and maintains internal controls designed to provide reasonable assurance as to the integrity and reliability of the financial statements and to adequately safeguard and maintain accountability of the Company s assets. Such controls are based on established policies and procedures and are implemented by trained personnel with appropriate segregation of duties. The effectiveness of the system of internal controls is monitored regularly through operational meetings, the internal audit function and the annual external audit. Corporate Social Investment (CSI) The Board is conscious of the Company s social responsibilities of achieving commercial success in ways that honour ethical values, compliance, with legal requirements and respect for people, communities and natural environment. The Board considers the impact of the Company s and Group s actions and operates in a way that balances shortterm profit needs with society s long-term needs. It has instituted a set of policies, practices and programs that are integrated throughout business operations and decisionmaking processes that are supported and rewarded by top management. This process involves the balancing and management of the internal stakeholder relationships and interests so as to add value to the business and achieve a sustainable positive impact on society. Internally, the business has developed a code of conduct for all employees that enables them to make the right decisions, fit into the company culture and expectations and deters unethical behaviour. It recognises the positive role of business in upholding and promoting adherence to universal standards of human rights. The code attempts to articulate the core values of the business and reminds individuals of some of their more obvious responsibilities. Staff welfare programs have been developed and implemented to improve on their interests and contribution to the business. This involves the financial support of a staff social club for socialising, leisure and development, employee development and career advancement activities such as free professional education support and encouraging of employee volunteering in the community. In recognition of the importance of Corporate Social Investment to the business, the Company has constituted a Committee for Corporate Social Responsibility. This Committee has set guidelines for the Company s CSI involvement. To support the Company s CSI activities, the Board has committed an allocation of 2 % of the Company s annual Profit After Tax (with a minimum of Shs 2.5M) to go towards the financing of the Company s CSI activities. The Board and management, in evaluation of the stakeholder analysis, have identified the following sectors of the economy as requiring the attention and intervention of the business: i) Health sector especially the care for terminally ill ii) Education sector particularly for under privileged children Some of the key highlights of the Company s CSI activities during the year included: a) Participated in the Mater Heart Run, a key initiative of the Mater Hospital that is focused on providing heart surgery to needy children from all over the country.

18 16 Heritage Insurance Company Kenya Limited Corporate Governance Report (cont d) b) A major medical camp at Ndurarua Primary School, in the Riruta area of Nairobi. A huge number of residents of this poor suburb of Nairobi benefited from the services that we provided in conjunction with the Kenya Society for the Blind. c) The Company is currently sponsoring seventeen children from needy families through their Secondary, College and University education. During the year, the Company spent a total of Shs 3.3 million on CSI activities and Shs 16.8 million on employee training. The operations of the business are conducted in a manner that improves the work environment. The Company has developed health and safety procedures and systems in line with the NEMA requirements and best practices. Where possible, activities are conducted in a manner that reduces air, water, solid waste and noise pollution. Deliberate attempts are made to review possible environmental abuse by clients and business recommendations made by management and the Board to eliminate this. The Company and Group provide equal opportunities of employment. An HIV/AIDS policy has been in place for the last five years and appropriate support is provided to staff members as necessary. The products of the business are designed not to be defective or harmful to the society. Clear and accurate product descriptions are provided for every policy. The pricing of products is done based on a pricing model that is commercially sound and avoids misleading and anti-competitive pricing. Our products ensure that the consumers are protected as demonstrated by the positive evaluation, reputation and trust. Our advertising campaigns give full and truthful disclosures about our products. Responsible customer education is carried out internally and through our vast distribution network and this is encouraged by our good business practices.

19 Heritage Insurance Company Kenya Limited 17 Corporate Social Investment Pictorial BEYOND ZERO CAMPAIGN CSI Patron Steve Lugalia (centre) with other staff from Liberty Kenya Group present a cheque of Shs 750,000 to First Lady Margaret Kenyatta towards supporting The Beyond Zero Campaign. The campaign is in support of maternal healthcare for disadvantaged mothers. MATER HEART RUN Director Health Business, Mr. Albert Ngunjiri (centre) and CSI Chairperson Joy Kaguri, presents a cheque of Shs 250,000 to the Chairman of the Board of Trustees of Mater Heart Fund in support of the Mater Heart Run. In the picture is a young girl who is a beneficiary of the Heart Fund. MATER HEART RUN Some of the staff who participated in the Mater Heart Run where the Company donated Shs 250,000.

20 18 Heritage Insurance Company Kenya Limited Corporate Social Investment Pictorial (cont d) KAWANGWARE MEDICAL CAMP Residents of Kawangware registering during a medical camp held by the Company. The purpose of the camp was to screen and treat eyesight related ailments for the local members of the community. This was done in conjuction with the Kemya Society for the Blind. EYE CLINIC Some of the enthusiastic children who were screened and treated during a medical camp organized by the Company in Ndurarua Primary School, Kawangware. KENYA SOCIETY FOR THE BLIND MOUNTAIN CLIMB Members of staff who climbed Mt. Longonot during the Kenya Society for the Blind Annual Charity Climb. This climb is meant to raise funds for the society s operations. Heritage is a corporate member of the society. This year we donated Shs 100,000.

21 Heritage Insurance Company Kenya Limited 19 Statement of Directors Responsibilities The Kenyan Companies Act requires the directors to prepare financial statements for each financial year which give a true and fair view of the state of affairs of the company as at the end of the financial year and of its profit or loss for that year. It is also requires the directors to ensure that the company maintains proper accounting records that disclose, with reasonable accuracy, the financial position of the company. The directors are also responsible for safeguarding the assets of the company. The directors accept responsibility for the preparation and fair presentation of financial statements that are free from material misstatements whether due to fraud or error. They also accept responsibility for: (i) Designing, implementing and maintaining internal controls as they determine necessary to enable the preparation of financial statements that are free from material misstatements, whether due to fraud or error; (ii) (iii) Selecting and applying appropriate accounting policies; Making accounting estimates and judgments that are reasonable in the circumstances. The Directors are of the opinion that the financial statements give a true and fair view of the financial position of the company at 31 December 2013 and of the Company s 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. 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. Approved by the board of directors on 31 March 2014 and signed on its behalf by:. P N GETHI Chairman J H D MILNE Director

22 20 Heritage Insurance Company Kenya Limited Report of the Independent Auditor to the Members of Heritage Insurance Company Kenya Limited Report on the financial statements We have audited the accompanying financial statements of Heritage Insurance Company Kenya Limited (the Company ) and its subsidiaries (together, the Group ) as set out on pages 25 to 103. These financial statements comprise the consolidated statement of financial position at 31 December 2013, and the consolidated statement of profit or loss, consolidated statement of comprehensive income, consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, together with the statement of profit or loss, statement of comprehensive income and the statement of changes in equity of the Company for the year then ended, and a summary of significant accounting policies and other explanatory notes. Directors responsibility for the financial statements The directors are responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards and with the requirements of the Companies Act and for such internal control, as the directors determine necessary to enable the preparation of financial statements that are free from material misstatements, whether due to fraud or error. Auditor s responsibility Our responsibility is to express an opinion on the 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 our audit to obtain reasonable assurance that the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Company s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Opinion In our opinion the accompanying financial statements give a true and fair view of the state of the Group and of the Company s financial affairs at 31 December 2013 and of its profit and cash flows for the year then ended in accordance with International Financial Reporting Standards and the Kenyan Companies Act. Report on other legal requirements The Kenya s Companies Act requires that in carrying out our audit we consider and report to you on the following matters. We confirm 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 and statement of profit or loss are in agreement with the books of account. The engagement partner responsible for the audit resulting in this independent auditor s report is Kang e Saiti - P/No Certified Public Accountants 11 April 2014 Nairobi

23 Heritage Insurance Company Kenya Limited 21 FINANCIAL STATEMENTS

24 22 Heritage Insurance Company Kenya Limited Financial highlights Gross written premiums Kenya Shs - Millions 7,000 6,000 5,000 4,000 3,000 2,000 1, , , ,0386 1, , , , , , , , , , , , , , , Profit before tax 1,300 1,200 1,100 1,213.7 Kenya Shs - Millions 1,

25 Heritage Insurance Company Kenya Limited 23 Financial highlights (cont d) Underwriting proft 400 Kenya Shs - Millions Shareholders funds Kenya Shs - Billions

26 24 Heritage Insurance Company Kenya Limited Financial highlights (cont d) Total assets 12 Kenya Shs - Billions

27 Heritage Insurance Company Kenya Limited 25 Financial Statements Consolidated Statement of Profit or Loss - for the year ended 31 December 2013 Notes Long term Short term Total business business 2013 Shs 000 Shs 000 Shs 000 Gross earned premiums 3-5,773,599 5,773,599 Less: reinsurance premium ceded - (3,172,157) (3,172,157) Net earned premiums - 2,601,442 2,601,442 Investment income 4-643, ,229 Commissions earned - 566, ,066 Other income 5-8,574 8,574 Net income - 3,819,311 3,819,311 Claims and policyholder benefits 6-6,463,348 6,463,348 Less: amounts recoverable from re-insurers - (5,406,739) (5,406,739) Net claims payable - 1,056,609 1,056,609 Operating and other expenses 7-1,236,059 1,236,059 Commissions payable - 613, ,287 Operating profit - 913, ,356 Share of loss from associates 17 - (7,387) (7,387) Profit before income tax - 905, ,969 Income tax expense 9 - (172,680) (172,680) Profit for the year - 733, ,289 Attributable to: Owners of the Company - 652, ,276 Non-controlling interests - 81,013 81, , ,289

28 26 Heritage Insurance Company Kenya Limited Financial Statements (cont d) Consolidated Statement of Profit or Loss - for the year ended 31 December 2012 Notes Long term Short term Total business business 2012 (Restated) (Restated) (Restated) Shs 000 Shs 000 Shs 000 Gross earned premiums 3 1,017 5,511,377 5,512,394 Less: reinsurance premium ceded (28) (2,822,191) (2,822,219) Net earned premiums 989 2,689,186 2,690,175 Investment income 4 424, ,308 1,049,703 Commissions earned 6, , ,542 Other income 5-212, ,103 Net income 431,748 4,120,775 4,552,523 Claims and policyholder benefits 6 174,054 1,808,671 1,982,725 Less: amounts recoverable from re-insurers 4,661 (671,575) (666,914) Net claims payable 178,715 1,137,096 1,315,811 Operating and other expenses 7 35,503 1,307,023 1,342,526 Commissions payable 1, , ,746 Operating profit 216, ,343 1,194,440 Share of profit from associates 17-19,229 19,229 Profit before income tax 216, ,572 1,213,669 Income tax expense 9 (2,931) (269,508) (272,439) Profit for the year 213, , ,230 Attributable to: Owners of the Company 213, , ,609 Non- Controlling interests - 50,621 50, , , ,230

29 Heritage Insurance Company Kenya Limited 27 Financial Statements (cont d) Company Statement of Profit or Loss for the year ended 31 December 2013 Notes Long term Short term Total business business 2013 Shs 000 Shs 000 Shs 000 Gross earned premiums 3-3,438,808 3,438,808 Less: reinsurance premium ceded - (1,502,399) (1,502,399) Net earned premiums - 1,936,409 1,936,409 Investment income 4-416, ,801 Commissions earned - 383, ,453 Other income 5-2,456 2,456 Net income - 2,739,119 2,739,119 Claims and policyholder benefits 6-1,299,534 1,299,534 Less: amounts recoverable from re-insurers - (589,104) (589,104) Net claims payable - 710, ,430 Operating and other expenses 7-936, ,615 Commissions payable - 380, ,948 Profit before income tax - 711, ,126 Income tax expense 9 - (174,215) (174,215) Profit for the year - 536, ,911 Company Statement of Profit or Loss for the year ended 31 December 2012 Notes Long term Short term Total business business 2012 (Restated) (Restated) (Restated) Shs 000 Shs 000 Shs 000 Gross earned premiums 3 1,017 3,361,544 3,362,561 Less: reinsurance premium ceded (28) (1,259,361) (1,259,389) Net earned premiums 989 2,102,183 2,103,172 Investment income 4 424, ,267 1,023,662 Commissions earned 6, , ,470 Other income 5-12,600 12,600 Net income 431,748 3,106,156 3,537,904 Claims and policyholder benefits 6 174,054 1,435,442 1,609,496 Less: amounts recoverable from re-insurers 4,661 (595,779) (591,118) Net claims payable 178, ,663 1,018,378 Operating and other expenses 7 35,503 1,010,660 1,046,163 Commissions payable 1, , ,347 Profit before income tax 216, , ,016 Income tax expense 9 (2,931) (115,457) (118,388) Profit for the year 213, , ,628

30 28 Heritage Insurance Company Kenya Limited Financial Statements (cont d) Consolidated statement of comprehensive income Long term Short term Total Long term Short term Total business business 2013 business business 2012 (Restated) (Restated) (Restated) Notes Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Profit for the year - 733, , , , ,230 Other comprehensive income net of tax: Items that will not be reclassified to profit or loss: - Share of other comprehensive income in associate - 6,065 6, Currency translation - 11,115 11,115-6,711 6,711 Total other comprehensive income - 17,180 17,180-6,711 6,711 Total comprehensive income for the year - 750, , , , ,941 Attributable to: Owners of the Company - 665, , , , ,742 Non-controlling interests - 85,263 85,263-53,199 53,199 Total comprehensive income for the year - 750, , , , ,941 Company statement of comprehensive income Long term Short term Total Long term Short term Total business business 2013 business business 2012 (Restated) (Restated) (Restated) Notes Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Profit for the year - 536, , , , ,628 Other comprehensive income net of tax: Items that will not be reclassified to profit or loss: - Other comprehensive income - 6,067 6,067 5,629-5,629 Total other comprehensive income - 6,067 6,067 5,629-5,629 Total comprehensive income for the year - 542, , , , ,257

31 Heritage Insurance Company Kenya Limited 29 Financial Statements (cont d) Consolidated statement of financial position at 31 December 2013 Notes Long term Short term Total business business 2013 Capital Employed Shs 000 Shs 000 Shs 000 Share capital , ,000 Retained earnings 14-1,728,113 1,728,113 Statutory reserve , ,733 Currency translation reserve - (25,213) (25,213) Non-controlling interests - 374, ,805 Total Equity - 2,722,438 2,722,438 REPRESENTED BY: Assets Property and equipment , ,325 Intangible assets 19-3,722 3,722 Investment property , ,000 Equity investments at fair value through profit or loss (quoted) 21(i) - 354, ,045 Equity investments at fair value through profit or loss (unquoted) 21(ii) - 156, ,697 Government securities at fair value through profit or loss 21(iii) - 1,614,816 1,614,816 Corporate bond and short term notes - 172, ,390 Investment in associates 17-70,042 70,042 Loans and receivables , ,889 Receivables arising out of reinsurance arrangements - 329, ,309 Receivables arising out of direct insurance arrangements - 734, ,933 Reinsurers share of insurance liabilities 23-3,745,124 3,745,124 Other receivables , ,511 Deferred acquisition costs , ,459 Current income tax - 24,684 24,684 Deferred income tax asset 33-65,037 65,037 Deposits with financial institutions 27-1,240,606 1,240,606 Cash and bank balance 37(i) - 168, ,885 Total assets - 9,887,474 9,887,474 Liabilities Insurance contract liabilities 29-3,762,406 3,762,406 Unearned premium 32-2,545,845 2,545,845 Current income tax - 6,421 6,421 Creditors arising from reinsurance arrangements - 472, ,820 Amounts due to related companies 34-45,590 45,590 Creditors arising from direct insurance arrangements - 34,616 34,616 Deferred acquisition income 24-76,324 76,324 Other payables , ,014 Total liabilities - 7,165,036 7,165,036 Total net assets - 2,722,438 2,722,438 The financial statements on pages 25 to 103 were approved for issue by the Board of Directors on 31 March 2014 and signed on its behalf by: P N GETHI G R MAY J H D MILNE Director Director Principal Officer

32 30 Heritage Insurance Company Kenya Limited Financial Statements (cont d) Consolidated statement of financial position at 31 December 2012 Notes Long term Short term Total business business 2012 (Restated) (Restated) (Restated) Capital Employed Shs 000 Shs 000 Shs 000 Share capital , ,000 Retained earnings 14-1,276,182 1,276,182 Statutory reserve , ,113 Proposed dividends - 400, ,000 Currency translation reserve - (26,868) (26,868) Non controlling interests - 310, ,714 Total Equity - 2,593,141 2,593,141 REPRESENTED BY: Assets Property and equipment , ,875 Intangible assets 19-4,316 4,316 Investment property , ,600 Equity investments at fair value through profit or loss (quoted) 21(i) - 201, ,029 Equity investments at fair value through profit or loss (unquoted) 21(ii) - 212, ,387 Government securities at fair value through profit or loss 21(iii) - 1,786,886 1,786,886 Corporate bond and short term notes - 403, ,484 Investment in associates 17-45,047 45,047 Loans and receivables , ,916 Receivables arising out of reinsurance arrangements - 198, ,889 Receivables arising out of direct insurance arrangements - 630, ,679 Reinsurers share of insurance liabilities 23-1,920,560 1,920,560 Other receivables , ,819 Deferred acquisition costs 24-95,951 95,951 Current income tax - 1,131 1,131 Deferred income tax asset 33-50,205 50,205 Deposits with financial institutions 27-1,014,266 1,014,266 Cash and bank balances 37(i) - 235, ,021 Total assets - 8,011,061 8,011,061 Liabilities Insurance contract liabilities 29-2,193,927 2,193,927 Unearned premium 32-2,288,019 2,288,019 Current income tax - 128, ,930 Creditors arising from reinsurance arrangements - 348, ,780 Amounts due to related companies 34-76,927 76,927 Creditors arising from direct insurance arrangements - 45,413 45,413 Deferred acquisition income 24-83,574 83,574 Other payables , ,350 Total liabilities - 5,417,920 5,417,920 Total net assets - 2,593,141 2,593,141

33 Heritage Insurance Company Kenya Limited 31 Financial Statements (cont d) Consolidated statement of financial position at 31 December 2011 Notes Long term Short term Total business business 2011 (Restated) (Restated) (Restated) Capital Employed Shs 000 Shs 000 Shs 000 Share capital , , ,000 Retained earnings 14 (218,795) 976, ,992 Statutory reserve , , ,685 Currency translation reserve - (27,249) (27,249) Non-controlling interests - 294, ,760 Total Equity 205,185 1,755,003 1,960,188 REPRESENTED BY: Assets Property and equipment 18 25, , ,198 Intangible assets 19-19,413 19,413 Investment property , ,253 Equity investments at fair value through profit or loss (quoted) 21(i) 249, , ,677 Equity investments at fair value through profit or loss (unquoted) 21(ii) 29, , ,510 Government securities at fair value through profit or loss 21(iii) 1,024,875 1,028,128 2,053,003 Corporate bond and short term notes 222, , ,621 Investment in associates , ,906 Loans and receivables 22 48, , ,463 Receivables arising out of reinsurance arrangements - 199, ,216 Receivables arising out of direct insurance arrangements - 740, ,012 Reinsurers share of insurance liabilities 23 14,383 2,036,495 2,050,878 Other receivables ,563 96,197 Deferred acquisition costs , ,124 Current income tax - 40,212 40,212 Deferred income tax 33 1,966 35,434 37,400 Deposits with financial institutions , , ,834 Cash and bank balances 37(i) 9 321, ,415 Total assets 1,829,369 7,377,963 9,207,332 Liabilities Insurance contract liabilities 29 45,026 2,344,514 2,389,540 Amounts payable under deposit administration contracts 31 1,648,645-1,648,645 Unearned premium 32-2,266,074 2,266,074 Current income tax 32,978-32,978 Creditors arising from reinsurance arrangements 4, , ,360 Amounts due to related companies 34-47,086 47,086 Amount (due to long-term) / from short term business (174,801) 174,801 - Creditors arising from direct insurance arrangements 24,374 48,358 72,732 Deferred acquisition income 24-79,950 79,950 Other payables 34 13, , ,619 Bank overdraft 37(i) 30,135 41,025 71,160 Total liabilities 1,624,184 5,622,960 7,247,144 Total net assets 205,185 1,755,003 1,960,188

34 32 Heritage Insurance Company Kenya Limited Financial Statements (cont d) Company statement of financial position at 31 December 2013 Notes Long term Short term Total business business 2013 Capital Employed Shs 000 Shs 000 Shs 000 Share capital , ,000 Retained earnings 14-1,285,450 1,285,450 Total Equity - 1,785,450 1,785,450 REPRESENTED BY: Assets Property and equipment 18-91,609 91,609 Intangible assets 19-3,722 3,722 Investment property , ,000 Investment in subsidiary 16-88,370 88,370 Equity investments at fair value through profit or loss (quoted) 21(i) - 128, ,640 Equity investments at fair value through profit or loss (unquoted) 21(ii) - 132, ,428 Government securities at fair value through profit or loss 21(iii) - 1,396,845 1,396,845 Corporate bond and short term notes - 147, ,085 Loans and receivables , ,889 Receivables arising out of reinsurance arrangements - 90,213 90,213 Receivables arising out of direct insurance arrangements - 225, ,977 Reinsurers share of insurance liabilities , ,272 Deferred acquisition costs 24 - (281) (281) Other receivables , ,383 Deferred income tax 33-51,518 51,518 Deposits with financial institutions , ,373 Cash and bank balances 37(i) - 86,873 86,873 Total assets - 4,658,916 4,658,916 Liabilities Insurance contract liabilities 29-1,118,291 1,118,291 Unearned premium 32-1,497,502 1,497,502 Current income tax - 6,421 6,421 Creditors arising from reinsurance arrangements - 11,279 11,279 Amount due to related companies 34-45,590 45,590 Creditors arising from direct insurance arrangements - 34,616 34,616 Other payables , ,767 Total liabilities - 2,873,466 2,873,466 Total net assets - 1,785,450 1,785,450 The financial statements on pages 25 to 103 were approved for issue by the Board of Directors on 31 March 2014 and signed on its behalf by: P N GETHI G R MAY J H D MILNE Director Director Principal Officer

35 Heritage Insurance Company Kenya Limited 33 Financial Statements (cont d) Company statement of financial position at 31 December 2012 Notes Long term Short term Total business business 2012 (Restated) (Restated) (Restated) Capital Employed Shs 000 Shs 000 Shs 000 Share capital , ,000 Retained earnings , ,472 Proposed dividend - 400, ,000 Total Equity - 1,842,472 1,842,472 REPRESENTED BY: Assets Property and equipment 18-97,157 97,157 Intangible assets 19-4,043 4,043 Investment property , ,000 Investment in subsidiary 16-88,370 88,370 Equity investments at fair value through profit or loss (quoted) 21(i) - 102, ,389 Equity investments at fair value through profit or loss (unquoted) 21(ii) - 188, ,171 Government securities at fair value through profit or loss 21(iii) - 1,574,744 1,574,744 Corporate bond and short term notes - 173, ,979 Loans and receivables , ,916 Receivables arising out of reinsurance arrangements - 39,144 39,144 Receivables arising out of direct insurance arrangements - 210, ,627 Reinsurers share of insurance liabilities , ,028 Deferred acquisition costs 24-13,866 13,866 Other receivables , ,424 Deferred income tax 33-34,606 34,606 Deposits with financial institutions , ,298 Cash and bank balances 37(i) - 190, ,074 Total assets - 4,810,836 4,810,836 Liabilities Insurance contract liabilities 29-1,207,198 1,207,198 Unearned premium 32-1,387,247 1,387,247 Current income tax - 30,385 30,385 Creditors arising from reinsurance arrangements - 4,216 4,216 Amount due to related companies 34-76,927 76,927 Creditors arising from direct insurance arrangements - 45,413 45,413 Other payables , ,978 Total liabilities - 2,968,364 2,968,364 Total net assets - 1,842,472 1,842,472

36 34 Heritage Insurance Company Kenya Limited Financial Statements (cont d) Company statement of financial position at 31 December 2011 Notes Long term Short term Total business business 2011 (Restated) (Restated) (Restated) Capital Employed Shs 000 Shs 000 Shs 000 Share capital , , ,000 Retained earnings 14 (218,795) 700, ,215 Statutory reserves 273, ,980 Total Equity 205,185 1,050,010 1,255,195 REPRESENTED BY: Assets Property and equipment 18 25, , ,894 Intangible assets 19-4,725 4,725 Investment property , ,553 Investment in subsidiary 16-88,370 88,370 Equity investments at fair value through profit or loss (quoted) 21(i) 249, , ,225 Equity investments at fair value through profit or loss (unquoted) 21(ii) 29, , ,373 Government securities at fair value through profit or loss 21(iii) 1,024, ,009 1,849,884 Corporate bond and short term notes 222, , ,381 Loans and receivables 22 48, , ,463 Receivables arising out of reinsurance arrangements - 68,713 68,713 Receivables arising out of direct insurance arrangements - 205, ,573 Reinsurers share of insurance liabilities 23 14, , ,281 Deferred acquisition costs 24-77,173 77,173 Other receivables , ,734 Current income tax - 27,033 27,033 Deferred income tax 33 1,966 21,444 23,410 Deposits with financial institutions , , ,110 Cash and bank balances 37(i) 9 248, ,690 Total assets 1,829,369 3,821,216 5,650,585 Liabilities Insurance contract liabilities 29 45,026 1,062,798 1,107,824 Payable under deposit administration contracts 1,648,645-1,648,645 Unearned premium 32-1,343,097 1,343,097 Current income tax 32,978-32,978 Creditors arising from reinsurance arrangements 4,793 4,165 8,958 Amount due to related companies 34-47,086 47,086 Amounts (due to general) / from longterm business (174,801) 174,801 - Creditors arising from direct insurance arrangements 24,374 48,358 72,732 Other payables 34 13,034 90, ,935 Bank Overdraft 30,135-30,135 Total liabilities 1,624,184 2,771,206 4,395,390 Total net assets 205,185 1,050,010 1,255,195

37 Heritage Insurance Company Kenya Limited 35 Financial Statements (cont d) Consolidated statement of changes in equity as at 31 December 2013 Share Capital Revaluation Statutory Currency Retained Proposed Non Total reserve reserve translation earnings dividends controlling Equity interest Short Long Short Long Long Short Short Short Long Short Short term term term term term term term term term term term Business Business Business Business Business Business Business Business Business Business Business Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 At 1 January 2013 as reported 500, , ,113 (26,868) 1,127, , ,614 2,633,300 Adjustments due to change in - - (182,231) , (6,900) (40,159) accounting policy: At 1 January 2013 (restated) 500, ,113 (26,868) 1,276, , ,714 2,593,141 Profit for the year , , ,289 Other comprehensive income: Currency translation ,655 5, ,251 11,115 Transfer to statutory reserves ,412 - (11,412) Other comprehensive income , ,065 Other comprehensive income ,620 1,655 (346) - - 4,251 17,180 Total comprehensive income for year ,620 1, , , ,469 Transactions with owners: Dividends - Final for 2012 paid (400,000) - (400,000) - Final proposed paid (21,172) (21,172) - Interim for 2013 paid (200,000) (200,000) At 31 December , ,733 (25,213) 1,728, ,805 2,722,438

38 36 Heritage Insurance Company Kenya Limited Consolidated statement of changes in equity as at 31 December 2012 Share Revaluation Statutory Currency Retained Proposed Non Total Capital reserve reserve translation earnings dividends controlling Equity interest Short Long Short Long Long Short Short Short Long Short Short term term term term term term term term term term term Business Business Business Business Business Business Business Business Business Business Business Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 At 1 January 2012 as reported 350, , ,371 (33,390) 273, ,705 (27,249) 982,524 2, ,826 2,321,752 Adjustments due to change in - - (153,371) 33, (5,737) (221,780) - (14,066) (361,564) accounting policy: 2011 At 1 January 2012 (restated) 350, , , ,705 (27,249) 976,787 (218,795) - 294,760 1,960,188 Profit for the year , ,166-50, ,230 Other comprehensive income: Currency translation , , ,578 6,711 Transfer from statutory reserves (29,098) - 29, Other comprehensive income (27,592) , ,578 6,711 Total comprehensive income for year (27,592) , ,166-53, ,941 Transfer of shares from long 150,000 (150,000) term business Transfer through business reorganisation (273,980) , (268,351) Transactions with owners: Dividends - Final for 2011 paid (9,392) - - (37,245) (46,637) - Final for 2012 proposed (400,000) - 400, At 31 December , ,113 (26,868) 1,276, , ,714 2,593,141

39 Heritage Insurance Company Kenya Limited 37 Consolidated statement of changes in equity as at 31 December 2011 Share Capital Revaluation Statutory Currency Retained Proposed Non Total reserve reserve translation earnings dividends controlling Equity interest Short Long Short Long Long Short Short Short Long Short Short term term term term term term term term term term term Business Business Business Business Business Business Business Business Business Business Business Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 At 1 January 2011 as reported 50, , , , , ,959 (26,099) 758,694 (3,530) 35, ,192 2,402,704 Adjustments due to change in - - (390,764) (194,482) , ,204-11,277 11,456 accounting policy and reclassifications At 1 January 2011 (restated) 350, , , ,959 (26,099) 1,128, ,674 35, ,469 2,414,160 Profit for the year ,877 (276,731) - 19,553 (77,301) Other comprehensive income: Currency translation (2,357) (1,150) (5,577) - - (7,045) (16,129) Transfer to contingency reserve ,103 - (19,103) Transfer to statutory reserve , (153,738) Other comprehensive income ,738 16,746 (1,150) (24,680) (153,738) - (7,045) (16,129) Total comprehensive income for year ,738 16,746 (1,150) 155,197 (430,469) - 12,508 (93,430) Transactions with owners: Dividends - final for 2010 paid (27,325) - - (18,217) (45,542) - interim for 2011 paid (280,000) (280,000) - final for 2010 paid (35,000) - (35,000) At 31 December , , , ,705 (27,249) 976,787 (218,795) - 294,760 1,960,188

40 38 Heritage Insurance Company Kenya Limited Financial Statements (cont d) Company statement of changes in equity as at 31 December 2013 Notes Share Revaluation Retained Proposed Capital reserve earnings dividend Total Short term Short term Long term Short term Long term Short term Business Business Business Business Business Business Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 At 1 January 2013 as previously reported 500, , , ,000 1,865,384 Adjustments due to change in accounting policy: 2 - (157,041) - 134, (22,912) As 1 January 2013 (restated) 500, , ,000 1,842,472 Profit for the year , ,911 Other comprehensive income: , ,067 Other comprehensive income , ,067 Total comprehensive income for the year , ,978 Transactions with owners: Dividends - final 2012 paid (400,000) (400,000) - interim for 2013 paid (200,000) - - (200,000) As at 31 December , ,285, ,785,450

41 Heritage Insurance Company Kenya Limited 39 Financial Statements (cont d) Company statement of changes in equity as at 31 December 2012 Notes Share Statutory Revaluation Retained Proposed Total Capital Reserve Reserve earnings dividend Short term Long term Long term Short term Long term Short term Long term Short term Long term Business Business Business Business Business Business Business Business Business Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 At 1 January , , , ,038 (33,390) 734,980 2, ,581,593 Adjustments due to change (103,038) 33,390 (34,970) (221,780) - - (326,398) in accounting policy: 2011 At 1 January 2012 (restated) 350, , , ,010 (218,795) - - 1,255,195 Profit for the year , , ,628 Other comprehensive income , ,629 Total comprehensive , , ,257 income for the year Transfer of shares from 150,000 (150,000) long term business Transfer through - - (273,980) (273,980) Business reorganisation Transactions with owners: Dividends - interim for 2011 paid final for 2012 proposed (400,000) - 400, As at 31 December , , ,000-1,842,472

42 40 Heritage Insurance Company Kenya Limited Financial Statements (cont d) Company statement of changes in equity as at 31 December 2011 Share Statutory Revaluation Retained Proposed Total Capital reserve reserve earnings dividend Short term Long term Long term Long term Short term Short term Long term Long term Business Business Business Business Business Business Business Business Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 At 1 January , , , , , ,799 (3,530) 35,000 1,735,860 Adjustments due to change in (194,482) (355,867) 370, ,204-35,076 accounting policy: At 1 January 2011 (restated) 350, , , , ,674 35,000 1,770,936 Adjustments due to change in (405,191) (436,984) - (842,175) accounting policy: 2011 Profit for the year as reported , , ,434 Profit for the year restated ,990 (276,731) (200,741) Other comprehensive income Transfer from statutory reserve , (153,738) - - Other comprehensive income , (153,738) - - Total comprehensive income for the year , ,990 (430,469) - (200,741) Transactions with owners: Dividends - interim for 2010 paid (280,000) - - (280,000) - final for 2010 paid (35,000) (35,000) As at 31 December , , , ,010 (218,795) - 1,255,195

43 Heritage Insurance Company Kenya Limited 41 Financial Statements (cont d) Consolidated statement of cash flows for the year ended 31 December 2013 Long term Short term Total Long term Short term Total Notes business business 2013 business business 2012 (Restated) (Restated) (Restated) Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Operating activities Cash generated from operations 37(ii) - 172, ,711 - (83,328) (83,328) Interest, dividend and rental income received - 566, , , ,562 Income tax paid - (323,402) (323,402) - (134,962) (134,962) Net cash from operating activities - 416, , , ,272 Investing activities Purchase of property, equipment 18 - (28,581) (28,581) - (25,361) (25,361) and investment property Purchase of intangibles 19 - (2,193) (2,193) - (1,397) (1,397) Purchase of quoted shares 21 - (24,062) (24,062) - (1,832) (1,832) Purchase of government securities 21 - (758,225) (758,225) - (429,306) (429,306) Purchase of investment property (1,541) (1,541) Loans advanced 22 - (180,844) (180,844) - (84,613) (84,613) Loans repaid 22-70,871 70,871-55,791 55,791 Proceeds from disposal of property ,029 6,029 and equipment Proceeds from disposal of quoted equity securities - 1,425 1,425 Proceeds from disposal of unquoted 21(iii) - 85,358 85, , ,413 equity securities Proceeds from disposal of government securities - 945, , , ,000 Proceeds from disposal of investment property 20-55,000 55, Dividend received from associate ,175 31,175 Purchase of additional shares in Strategis 17 - (26,880) (26,880) Proceeds from sale of investment in Alliance , ,469 Net investment in government securities (396,248) (396,248) Net investment in corporate bonds and - 231, ,093-15,537 15,537 short term notes Net cash flow in investing activities - 356, ,554-99,116 99,116 Financing activities Transfer of shares from Long-term business , ,000 Dividends paid 10 - (600,000) (600,000) Net cash used in financing activities - 160, , , ,000 Increase in cash and cash equivalents - 160, , , ,000 Movement in cash and cash equivalents At start of the year 37(i) - 1,249,287 1,249, , ,899 Increase - 160, , , ,388 At end of the year 37(i) - 1,409,491 1,409,491-1,249,287 1,249,287

44 42 Heritage Insurance Company Kenya Limited Financial Statements (cont d) Company statement of cash flows for the year ended 31 December 2013 Notes Long term Short term Total Long term Short term Total business business 2013 business business 2012 (Restated) (Restated) (Restated) Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Operating activities Cash generated from operations 37(ii) - 116, , , ,161 Interest, dividend and rental income received - 363, , , ,777 Income tax paid - (215,091) (215,091) - (89,894) (89,894) Net cash from operating activities - 264, , , ,044 Investing activities Purchase of property, equipment 18 - (26,485) (26,485) - (17,821) (17,821) and investment property Purchase of intangibles 19 - (2,193) (2,193) - (1,397) (1,397) Purchase of quoted shares 21 - (1,096) (1,096) - (1,832) (1,832) Purchase government securities 21 - (719,235) (719,235) - (429,306) (429,306) Purchase of investment property (1,541) (1,541) Loans advanced 22 - (180,844) (180,844) - (84,613) (84,613) Loans repaid 22-70,871 70,871-55,791 55,791 Proceeds from disposal of property ,500 8,500 and equipment Proceeds from disposal of equity investments - 85,358 85, , ,413 Proceeds from disposal of 21(iii) - 916, , , ,000 government securities Proceeds from disposal of investment 20-55,000 55, Property Net investment in government securities (395,353) (395,353) Net investment in corporate bonds and - 26,893 26,893-13,010 13,010 short term notes Net cash used in investing activities - 224, ,557 - (368,149) (368,149) Financing activities Transfer of shares from long-term Business , ,000 Dividends paid 10 - (600,000) (600,000) Net cash used in financing activities - (600,000) (600,000) - 150, ,000 Increase in cash and cash equivalents - (111,126) (111,126) - 337, ,895 Movement in cash and cash equivalents At start of the year 37(i) - 818, , , ,477 Increase - (111,126) (111,126) - 337, ,895 At end of the year 37(i) - 707, , , ,372

45 Heritage Insurance Company Kenya Limited 43 Notes 1. General information The Company is incorporated in Kenya under the Companies Act and is domiciled in Kenya. The address of its registered office is CfC House Mamlaka Road PO Box Nairobi. The Group underwrites all classes of Short-term (General) insurance risks as defined by the Insurance Act. For Kenyan Companies Act reporting purposes, the balance sheet is represented by a statement of financial position and the profit and loss account by the statement of profit or loss in these financial statements. 2. Summary of significant 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 periods presented unless otherwise stated. (a) Basis of preparation The financial statements are prepared in accordance with and comply with International Financial Reporting Standards (IFRS). The financial statements are presented in the functional currency, Kenya Shillings (Shs), rounded to the nearest thousand, and prepared under the historical cost convention, as modified by the carrying of investment property and available-for-sale investments at fair value and actuarially determined liabilities at their present value. The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group s accounting policies. The areas involving a higher degree of judgement or complexity or where assumptions and estimates are significant to the financial statements are discussed in Note 39. Changes in accounting Policies and disclosures (i) New and amended standards adopted The following standards have been adopted by the Company for the first time for the financial year beginning on 1 January 2013 and none has a material impact on the Company: Amendment to IAS 1, Presentation of Financial Statements regarding other comprehensive income. The main change resulting from these amendments is a requirement for entities to group items presented in other comprehensive income (OCI) on the basis of whether they are potentially reclassifiable to profit or loss subsequently (reclassification adjustments). The amendment only affects presentation on the face of the statement of comprehensive income. Amendment to IFRS 7, Financial instruments: Disclosures, on asset and liability offsetting. This amendment includes new disclosures to facilitate comparison between those entities that prepare IFRS financial statements to those that prepare financial statements in accordance with US GAAP. The impact has been increased disclosure in the financial statements. IFRS 10, Consolidated Financial Statements builds on existing principles by identifying the concept of control as the determining factor in whether an entity should be included within the consolidated financial statements of the parent. The standard provides additional guidance to assist in the determination of control where this is difficult to assess. IFRS 11, Joint arrangements focuses on the rights and obligations of the parties to the arrangement rather than its legal form. There are two types of joint arrangements: joint operations and joint ventures. Joint operations arise where the investors have rights to the assets and obligations for the liabilities of an arrangement. A joint operator accounts for its share of the assets, liabilities, revenue and expenses. Joint ventures arise where the investors have rights to the net assets of the arrangement; joint ventures are accounted for under the equity method. Proportional consolidation of joint arrangements is no longer permitted. See note 39 for the impact of adoption on the financial statements. IFRS 12, Disclosures of interests in other entities includes the disclosure requirements for all forms of interests in other entities, including joint arrangements, associates, structured entities and other off balance sheet vehicles. The impact of adopting IFRS 12 has been increased by disclosures in the financial statements. IFRS 13, Fair value measurement, aims to improve consistency and reduce complexity by providing a precise definition of fair value and a single source of fair value measurement and disclosure requirements for use across IFRSs. The requirements, which are largely aligned between IFRSs and US GAAP, do not extend the use of fair value accounting but provide guidance on how it should be applied where its use is already required or permitted by other standards within IFRSs. The adoption of IFRS 13 has increased the extent of fair value disclosures in the financial statements. Amendments to IAS 36, Impairment of assets, on the

46 44 Heritage Insurance Company Kenya Limited Notes (cont d) Summary of significant accounting policies (cont d) recoverable amount disclosures for non-financial assets. This amendment removed certain disclosures of the recoverable amount of CGUs which had been included in IAS 36 by the issue of IFRS 13. There are no other new or revised standards or interpretations issued and effective that would be expected to have a material impact on the Group. ii) Standards, amendments and interpretations to existing standards that are not yet effective and have not been early adopted by the Company A number of new standards and amendments to standards and interpretations are effective for annual periods beginning after 1 January 2013, and have not been applied in preparing these financial statements. None of these is expected to have a significant effect on the financial statements of the Company, except the following set out below: IFRS 9, Financial instruments, addresses the classification, measurement and recognition of financial assets and financial liabilities. IFRS 9 was issued in November 2009 and October It replaces the parts of IAS 39 that relate to the classification and measurement of financial instruments. IFRS 9 requires financial assets to be classified into two measurement categories: those measured as at fair value and those measured at amortised cost. The determination is made at initial recognition. The classification depends on the entity s business model for managing its financial instruments and the contractual cash flow characteristics of the instrument. For financial liabilities, the standard retains most of the IAS 39 requirements. The main change is that, in cases where the fair value option is taken for financial liabilities, the part of a fair value change due to an entity s own credit risk is recorded in other comprehensive income rather than profit or loss, unless this creates an accounting mismatch. The Company is yet to assess IFRS 9 s full impact. The Company will also consider the impact of the remaining phases of IFRS 9 when completed by the Board IFRIC 21, Levies, sets out the accounting for an obligation to pay a levy that is not income tax. The interpretation addresses what the obligating event is that gives rise to pay a levy and when should a liability be recognised. The Company is not currently subjected to significant levies so the impact on the Company is not material. Annual improvements and cycles These are collections of 7 and 4 amendments to standards respectively as part of the IASB s programme to annual improvements. The amendments are all effective for annual periods beginning on or after 1 July 2014 and the directors are currently assessing the impact of these improvements on their financial statements. There are no other IFRSs or IFRIC interpretations that are not yet effective that would be expected to have a material impact on the Company (iii) Change in accounting Policy for Financial assets (Restatements) The Company changed the accounting basis of its financial assets aligning this to the Group s accounting policies. In making the policy change the Company has taken advantage of the provisions in IFRS 4 Insurance Contracts which allow an entity to reclassify the basis of measurement of its financial instruments. Financial instruments which were previously classified as available for sale were reclassified to financial assets through profit or loss. This was done so as to match the movements in policyholder liabilities with the fair value movements in corresponding financial assets at fair value through profit or loss. The impact of this policy change has been accounted for retrospectively in line with IAS 8 Accounting policies, changes in accounting estimates and errors and is shown on the summary of adjustments below. The change in accounting policy for the Company only affects the accounting for the financial assets backing up the liabilities there is no change in the basis of valuing liabilities. Accordingly, with effect from 2013, the Group s policy is to fair value all financial instruments through the Income Statement at Fair Value through Profit or Loss as opposed to where unrealised surpluses/losses we carried in the Statement of Financial Position for Available For Sale assets and held at amortised cost for Held to Maturity Assets. Management takes the view that this policy provides reliable and more relevant information because it ensures that IFRS performance reporting will better reflect the economic reality of what occurred within the reporting period in terms of changes in asset values. The overall impact of the restatements on the profit or loss, statement of financial position and statement of comprehensive income is as follows:

47 Heritage Insurance Company Kenya Limited 45 Notes (cont d) Summary of significant accounting policies (cont d) Restatements (cont d) Restatements Consolidated statement of financial position As previously Revaluation Restated As previously Revaluation Restated reported reserve reported reserve 31 December 31 December 31 December 31 December Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Ordinary share capital 500, , , ,000 Revaluation reserve 119,981 (119,981) - 182,231 (182,231) - Retained earnings 985,509 (227,517) 757,992 1,127, ,971 1,276,182 Statutory reserve 434, , , ,113 Proposed dividends , ,000 Currency translation (27,249) - (27,249) (26,868) - (26,868) Equity attributable to equity holders 2,012,926 (347,498) 1,665,428 2,315,687 (33,260) 2,282,427 Non-controlling interests 308,826 (14,066) 294, ,613 (6,899) 310,714 Total equity 2,321,752 (361,564) 1,960,188 2,633,300 (40,159) 2,593,141 REPRESENTED BY: Property and equity 167, , , ,875 Intangibles assets 19,413-19,413 4,316-4,316 Investment property 468, , , ,600 Investment in associates 364, ,906 45,047-45,047 Quoted equity investments 616, , , ,029 Unquoted equity investments 227, , , ,387 Available for sale government securities 751,773 1,301,230 2,053, ,545 1,176,341 1,786,886 Government securities held to maturity 1,598,188 (1,598,188) - (1,196,586) (1,196,586) - Corporate bond and short term notes 692,229 (64,608) 627, ,399 (19,915) 403,484 Loans and receivables 289, , , ,916 Receivable arising from reinsurance 199, , , ,889 Receivable arising from direct insurance 740, , , ,679 Reinsurers share of insurance liabilities 2,050,878-2,050,878 1,920,560-1,920,560 Other receivables 96,197-96, , ,819 Deferred acquisition costs 139, ,124 95,951-95,951 Current income tax 40,212-40,212 1,131-1,131 Deferred income tax 37,400-37,400 50,205-50,205 Deposits with financial institutions 748, ,834 1,014,266-1,014,266 Cash and bank balances 321, , , ,021 Total assets 9,568,898 (361,566) 9,207,332 8,051,221 (40,160) 8,011,061 Insurance contract 2,389,540-2,389,540 2,193,927-2,193,927 Deposit administration liabilities 1,648,645-1,648, Unearned premium reserve 2,266,074-2,266,074 2,288,019-2,288,019 Current income tax 32,978-32, , ,930 Deferred acquisition 79,950-79,950 83,574-83,574 Creditors arising from reinsurance 486, , , ,780 Due to related Companies 47,086-47,086 76,927-76,927 Creditors arising from direct insurance arrangements 72,732-72,732 45,413-45,413 Other payables 152, , , ,350 Bank overdraft 71,160-71, Total liabilities 7,247,144-7,247,144 5,417,920-5,417,920 Net Assets 2,321,754 (361,566) 1,960,188 2,633,301 (40,160) 2,593,141

48 46 Heritage Insurance Company Kenya Limited Notes (cont d) Summary of significant accounting policies (cont d) Restatements (cont d) Consolidated statement of profit or loss - summary of adjustments 31 December Revaluation 31 December 2012 gains 2012 As previously Restated reported Shs 000 Shs 000 Shs 000 Gross earned premium revenue 5,512,394-5,512,394 Less: Outward reinsurance (2,822,219) - (2,822,219) Net insurance premium revenue 2,690,175-2,690,175 1,576, ,658 1,862,348 Commissions earned 600, ,542 Investment income 764, ,658 1,049,703 Other income 212, ,103 Total income 4,266, ,658 4,552,523 Claims and policyholder benefits payable 1,982,725-1,982,725 Amounts recoverable from reinsurers (666,914) - (666,914) Net insurance benefits and claims 1,315,811-1,315,811 Total expenses and commissions 2,042,272-2,042,272 Commissions payable 699, ,746 Other operating expenses 1,342,526-1,342,526 Result of operating activities 908, ,658 1,194,440 Earnings from associates 19,229 19,229 Profit before income tax 928, ,658 1,213,669 Income tax expense (272,439) - (272,439) Profit for the year 655, , ,230 Attributable to : Owners of the parent 595, , ,609 Non-controlling interest 60,325 (9,704) 50, , , ,230

49 Heritage Insurance Company Kenya Limited 47 Notes (cont d) Summary of significant accounting policies (cont d) Restatements (cont d) Consolidated statement of comprehensive income - summary of adjustments As previously Revaluation reported reserve Restated Shs 000 Shs 000 Shs 000 Profit for the year 655, , ,230 Other comprehensive income/(expenses) (net of tax): Gains / (losses) on valuation of available for sale financial assets - quoted shares 25,163 (25,163) - - unquoted shares 16,443 (16,443) - - government securities 66,691 (66,691) - Currency translation 6,743 (32) 6,711 Total comprehensive income for the year 770, , ,941 Total comprehensive income attributable to: Equity holders of parent 724, , ,742 Non- controlling interest 46,033 7,166 53,199 Total comprehensive income for the year 770, , ,941 IAS 1 requires an entity to present a statement of financial position at the beginning of the earliest comparative period when it restates its financial statements as detailed above.

50 48 Heritage Insurance Company Kenya Limited Notes (cont d) Summary of significant accounting policies (cont d) (b) Consolidation (i) Subsidiaries Subsidiaries are all entities (including structured entities) over which the group has control. The group controls an entity when the group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the group. They are deconsolidated from the date that control ceases. The Group applies the acquisition method of accounting to account for business combinations. The consideration transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred to the former owners of the acquiree and the equity interests issued by the Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. The Group recognises any non-controlling interest in the acquiree on an acquisition-by-acquisition basis, either at fair value or at the non-controlling interest s proportionate share of the recognised amounts of acquiree s identifiable net assets. Acquisition-related costs are expensed as incurred. Investments in subsidiaries are accounted for at cost less impairment. Cost is adjusted to reflect changes in consideration arising from contingent consideration amendment. Cost also includes directly attributable cost of investment. Inter-company transactions, balances and unrealised gains on transactions between group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. (ii) Associates Associates are all entities over which the Group has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Investments in associates are accounted for by the equity method of accounting and are initially recognised at cost. The Group s share of its associates post-acquisition profits or losses is recognised in the income statement, and its share of post-acquisition movements in reserves is recognised in reserves. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. When the Group s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate. Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group s interest in the associates. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of associates have been changed where necessary to ensure consistency with the policies adopted by the Group. (c) Functional currency and translation of foreign currencies (i) Functional and presentation currency Items included in the financial statements of each of the Group s entities are measured using the currency of the primary economic environment in which the entity operates ( the functional currency ). The consolidated financial statements are presented in Kenya Shillings thousands (Shs), except where indicated. (ii) Transactions and balances in group entities Foreign currency transactions are translated into the functional currency of the respective entity using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement. Translation differences on non-monetary items, such as equities classified as available-for-sale financial assets, are included in other comprehensive income. (iii) Consolidation of group entities The results and financial position of all the group entities (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows: (i) assets and liabilities for each statement of financial position presented are translated at the closing rate at the date of that statement of financial position;

51 Heritage Insurance Company Kenya Limited 49 Notes (cont d) Summary of significant accounting policies (cont d) (ii) income and expenses for each income statement are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income expenses are translated at the dates of the transactions); and (iii) all resulting exchange differences are recognised as a separate component of equity. On consolidation, exchange differences arising from the translation of the net investment in foreign entities are taken to shareholders equity. When a foreign operation is sold, such exchange differences are recognised in the profit and loss account as part of the gain or loss on sale. Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate. (d) Insurance Contracts Classification The Group issues contracts that transfer insurance risk or financial risk or both. Insurance contracts are those contracts that transfer significant insurance risk. Such contracts may also transfer financial risk. As a general guideline, the group defines as significant insurance risk, the possibility of having to pay benefits on the occurrence of an insured event that are at least 10% more than the benefits payable if the insured event did not occur. Investment contracts are those contracts that transfer financial risk with no significant insurance risk. See accounting policy for these contracts under 2(f). A number of insurance and investment contracts contain a discretionary participation feature (DPF). This feature entitles the holder to receive, as a supplement to guaranteed benefits, additional benefits or bonuses: (a) that are likely to be a significant portion of the total contractual benefits; (b) whose amount or timing is contractually at the discretion of the Group; and (c) that are contractually based on: (i) the performance of a specified pool of contracts or a specified type of contract; (ii) realised and/or unrealised investment returns on a specified pool of assets held by the Group; or (iii) The profit or loss of the Company, fund or other entity that issues the contract. Insurance contracts and investment contracts are classified into two main categories, depending on the duration of risk and as per the provisions of the Insurance Act. (i) Short term insurance business Means insurance business of any class or classes not being long term insurance business. Classes of Short term Insurance include Aviation insurance, Engineering insurance, Fire insurance - domestic risks, Fire insurance - industrial and commercial risks, Liability insurance, Marine Insurance, Motor insurance - private vehicles, Motor insurance - commercial vehicles, Personal accident insurance, Theft insurance,workmen s Compensation and Employer s Liability insurance and Miscellaneous insurance (i.e. class of business not included under those listed above) Motor insurance business means the business of affecting and carrying out contracts of insurance 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. Personal Accident insurance business means the business of affecting and carrying out contracts of insurance against risks of the persons insured sustaining injury as the result of an accident or of an accident of a specified class or dying as the result of an accident or of an accident of a specified class or becoming incapacitated in consequence of disease or of disease of a specified class. Fire insurance business means the business of affecting and carrying out contracts of insurance, otherwise than incidental to some other class of insurance 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. Recognition and measurement i. Premium income For short term insurance business, premium income is recognised on assumption of risks, and includes estimates of premiums due but not yet received, less an allowance for cancellations, and less unearned premium. Unearned premiums represent the proportion of the premiums written in periods up to the accounting date that relates to the unexpired terms of policies in force at the financial reporting date, and is computed using the 1/24th method. Premiums are shown before deduction of commission and are gross of any taxes or duties levied on premiums.

52 50 Heritage Insurance Company Kenya Limited Notes (cont d) Summary of significant accounting policies (cont d) ii. Claims A liability for contractual benefits that are expected to be incurred in the future is recorded when the premiums are recognised. The liability is determined as the sum of the expected discounted value of the benefit payments and the future administration expenses that are directly related to the contract, less the expected discounted value of the theoretical premiums that would be required to meet the benefits and administration expenses based on the valuation assumptions used (the valuation premiums). The liability is based on assumptions as to mortality, persistency, maintenance expenses and investment income that are established at the time the contract is issued. A margin for adverse deviations is included in the assumptions. Where insurance contracts have a single premium or a limited number of premium payments due over a significantly shorter period than the period during which benefits are provided, the excess of the premiums payable over the valuation premiums is deferred and recognised as income in line with the decrease of unexpired insurance risk of the contracts inforce or, for annuities in force, in line with the decrease of the amount of future benefits expected to be paid. The liabilities are recalculated at each financial reporting date using the assumptions established at inception of the contracts. For short term insurance business, claims incurred comprise claims paid in the year and changes in the provision for outstanding claims. Claims paid represent all payments made during the year, whether arising from events during that or earlier years. Outstanding claims represent the estimated ultimate cost of settling all claims arising from incidents occurring prior to the financial reporting date, but not settled at that date. Outstanding claims are computed on the basis of the best information available at the time the records for the year are closed, and include provisions for claims incurred but not reported ( IBNR ). Outstanding claims are not discounted. iii. Commissions payable and deferred acquisition costs ( DAC ) A proportion of commission s payable is deferred and amortised over the period in which the related premium is earned. Deferred acquisition costs represent a proportion of acquisition costs that relate to policies that are in force at the year end. iv. Liability adequacy test At each financial reporting date, liability adequacy tests are performed to ensure the adequacy of the contract liabilities net of related DAC. In performing these tests, current best estimates of future contractual cash flows and claims handling and administration expenses, as well as investment income from the assets backing such liabilities, are used. Any deficiency is immediately charged to profit or loss initially by writing off DAC and by subsequently establishing a provision for losses arising from liability adequacy tests (the unexpired risk provision). Long-term insurance contracts are measured based on assumptions set out at the inception of the contract. When the liability adequacy test requires the adoption of new best estimate assumptions, such assumptions (without margins for adverse deviation) are used for the subsequent measurement of these liabilities. v. Reinsurance contracts held Contracts entered into by the Group with reinsurers under which the Group is compensated for losses on one or more contracts issued by the Group and that meet the classification requirements for insurance contracts are classified as reinsurance contracts held. Contracts that do not meet these classification requirements are classified as financial assets. Insurance contracts entered into by the Group under which the contract holder is another insurer (inwards reinsurance) are included with insurance contracts. The benefits to which the Group is entitled under its reinsurance contracts held are recognised as reinsurance assets. These assets consist of short-term balances due from reinsurers, 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 recognised as an expense when due. The Group assesses its reinsurance assets for impairment on a quarterly basis. If there is objective evidence that the reinsurance asset is impaired, the Group reduces the carrying amount of the reinsurance asset to its recoverable amount and recognises that impairment loss in the income statement. The Group gathers the objective evidence that a reinsurance asset is impaired using the same process adopted for financial assets held at amortised cost. The impairment loss

53 Heritage Insurance Company Kenya Limited 51 Notes (cont d) Summary of significant accounting policies (cont d) is also calculated following the same method used for these financial assets. These processes are described in Note 2 (k). vi. Receivables and payables related to insurance contracts and investment contracts Receivables and payables are recognised when due. These include amounts due to and from agents, brokers and insurance contract holders. If there is objective evidence that the insurance receivable is impaired, the Group reduces the carrying amount of the insurance receivable accordingly and recognises that impairment loss in profit or loss. The processes followed by the Group in assessing impairment of these receivables are described in Note 2 (k) vii. Salvage and subrogation reimbursements Some insurance contracts permit the Group to sell (usually damaged) property acquired in settling a claim (for example, salvage). The Group may also have the right to pursue third parties for payment of some or all costs (for example, subrogation). Estimates of salvage recoveries are included as an allowance in the measurement of the insurance liability for claims, and salvage property is recognised in other assets when the liability is settled. The allowance is the amount that can reasonably be recovered from the disposal of the property. Subrogation reimbursements are also considered as an allowance in the measurement of the insurance liability for claims and are recognised in other assets when the liability is settled. The allowance is the assessment of the amount that can be recovered from the action against the liable third party. (e) Other income recognition Commissions receivable are recognised as income in the period in which they are earned. Investment income is stated net of investment expenses. Interest income is recognised on a time proportion basis that takes into account the effective yield on the asset. Dividends are recognised as income in the period in which the right to receive payment is established. Rental income is recognised as income in the period in which it is earned. (f) Investment contracts The Group issues investment contracts without fixed terms (unit-linked) and investment contracts with fixed and guaranteed terms (fixed interest rate). The investment contracts include funds administered for a number of retirement benefit schemes. Investment contracts without fixed terms are financial liabilities whose fair value is dependent on the fair value of underlying financial assets, derivatives and/or investment property (these contracts are also known as unit-linked investment contracts) and are designated at inception as at fair value through profit or loss. The Group designates these investment contracts to be measured at fair value through profit or loss because it eliminates or significantly reduces a measurement or recognition inconsistency (sometimes referred to as an accounting mismatch ) that would otherwise arise from measuring assets or liabilities or recognising the gains and losses on them on different bases. See Note 2 (j) for the financial assets backing these liabilities. The best evidence of the fair value of these financial liabilities at initial recognition is the transaction price (i.e. the fair value received) unless the fair value of that instrument is evidenced by comparison with other observable current market transactions in the same instrument or based on a valuation technique whose variables include only data from observable markets. When such evidence exists, the Group recognises profit on day 1. The Group has not recognised any profit on initial measurement of these investment contracts because the difference is attributed to the prepayment liability recognised for the future investment management services that the Group will render to each contract holder. The Group s main valuation techniques incorporate all factors that market participants would consider and make maximum use of observable market data. The fair value of financial liabilities for investment contracts without fixed terms is determined using the current unit values in which the contractual benefits are denominated. These unit values reflect the fair values of the financial assets contained within the Group s unitised investment funds linked to the financial liability. The fair value of the financial liabilities is obtained by multiplying the number of units attributed to each contract holder at the balance sheet date by the unit value for the same date. When the investment contract has an embedded put or surrender option, the fair value of the financial liability is never less than the amount payable on surrender, discounted for the required notice period, where applicable. For investment contracts with fixed and guaranteed terms, the amortised cost basis is used. In this case, the liability is initially measured at its fair value less transaction costs that are incremental and directly attributable to the acquisition or issue of the contract.

54 52 Heritage Insurance Company Kenya Limited Notes (cont d) Summary of significant accounting policies (cont d) Subsequent measurement of investment contracts at amortised cost uses the effective interest method. This method requires the determination of an interest rate (the effective interest rate) that exactly discounts to the net carrying amount of the financial liability, the estimated future cash payments or receipts through the expected life of the financial instrument or, when appropriate, a shorter period if the holder has the option to redeem the instrument earlier than maturity. The Group re-estimates at each reporting date the expected future cash flows and recalculates the carrying amount of the financial liability by computing the present value of estimated future cash flows using the financial liability s original effective interest rate. Any adjustment is immediately recognised as income or expense in profit or loss. (g) Property and equipment All property and equipment are initially recorded at cost. All property and equipment is stated at historical cost less depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Subsequent costs are included in the asset s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the income statement during the financial period in which they are incurred. Freehold land is not depreciated. Depreciation is calculated on other property and equipment on the straight line basis to write down the cost of each asset, to its residual value over its estimated useful life as follows: Buildings Equipment and motor vehicles years 3-10 years Asset residual values and their estimated useful lives are reviewed at each financial reporting date and adjusted if appropriate. Where the carrying amount of an asset is greater than its estimated recoverable amount, it is written down immediately to its recoverable amount. Gains and losses on disposal of property, plant and equipment are determined by reference to their carrying amounts and are included in the income statement. (h) Intangible assets Intangible assets relate to computer software. Acquired computer software licences are capitalised on the basis of the costs incurred to acquire and bring to use the specific software. These costs are amortised over their estimated useful lives (3-5 years). Costs associated with developing or maintaining computer software programmes are recognised as an expense as incurred. Costs that are directly associated with the production of identifiable and unique software products controlled by the Group, and that will probably generate economic benefits exceeding costs beyond one year, are recognised as intangible assets. Direct costs include the software development employee costs and an appropriate portion of relevant overheads. Computer software development costs recognised as assets are amortised over their estimated useful lives (not exceeding three years). Intangible assets comprise capitalised software costs. Acquired computer software licenses are capitalized on the basis of the costs incurred to acquire and bring to use the specific software. These costs are amortised over their estimated useful lives (three to five years). Costs associated with developing or maintaining computer software programmes are recognised as an expense as incurred. Costs that are directly associated with the production of identifiable and unique software products controlled by the Group, and that will probably generate economic benefits exceeding costs beyond one year, are recognised as intangible assets. Direct costs include the software development employee costs and an appropriate portion of relevant overheads. Computer software development costs recognised as assets are amortised over their estimated useful lives. (i) Investment property Buildings, or part of a building, (freehold or held under a finance lease) and land (freehold or held under an operating lease) held for long term rental yields and/or capital appreciation and are not occupied by any company in the group are classified as investment property under non-current assets. Investment property is carried at fair value, representing open market value determined annually by external valuers. Changes in fair values are included in investment income in the profit and loss account. The Group reclassifies investment property to Property, Plant and Equipment (PPE) upon change in use of the building from commercial to owner-occupied. (j) Financial assets The Group classifies its financial assets into the following categories: financial assets at fair value through profit or loss; and loans and receivables. Management determines the appropriate classification of its financial assets at initial recognition and re-evaluates such designation at every reporting date.

55 Heritage Insurance Company Kenya Limited 53 Notes (cont d) Summary of significant accounting policies (cont d) (i) Financial assets at fair value through profit or loss This category has two sub-categories: financial assets held for trading, and those designated at fair value through profit or loss at inception. A financial asset is classified as held for trading if acquired principally for the purpose of selling in the short term. Derivatives are also categorised as held for trading. Financial assets are designated at fair value through profit or loss when: - doing so significantly reduces or eliminates a measurement inconsistency; or - they form part of a Group of financial assets that is managed and evaluated on a fair value basis in accordance with a documented risk management or investment strategy and reported to key management personnel on that basis. (ii) Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market, other than: (a) those classified as held for trading and those that the Group on initial recognition designates as at fair value through profit and loss; (b) those that the Group upon initial recognition designates as available-for-sale; or (c) those for which the holder may not recover substantially all of its initial investment, other than because of credit deterioration. Regular way purchases and sales of financial assets at fair value through profit or loss are recognised on trade-date the date on which the Group commits to purchase or sell the asset. Financial assets are initially recognised at fair value plus, for all financial assets except those carried at fair value through profit or loss, transaction costs. Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or where the Group has transferred substantially all risks and rewards of ownership. Loans, advances and receivables financial assets are carried at amortised cost using the effective interest method. Financial assets at fair value through profit or loss are carried at fair value. 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 Statement in the period in which they arise. Gains and losses arising from changes in the fair value of financial assets are recognised directly in equity until the financial asset is derecognised or impaired, at which time the cumulative gain or loss previously recognised in equity is recognised in the income statement. However, interest calculated using the effective interest method is recognised in the income statement. Dividends on equity instruments are recognised in the Profit or Loss Statement when the Group s right to receive payment is established. Fair values of quoted investments in active markets are based on current bid prices. Fair values for unlisted equity securities are estimated using valuation techniques. These include the use of recent arm s length transactions, discounted cash flow analysis and other valuation techniques commonly used by market participants. Equity securities for which fair values cannot be measured reliably are recognised at cost less impairment. (k) Impairment of financial assets The Group assesses at each financial reporting date 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 Group about the following loss events: a) significant financial difficulty of the borrower; b) a breach of contract, such as default or delinquency in interest or principal repayments; c) the Group 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 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 in the Group; or - National or local economic conditions that correlate with defaults on the assets in the Group.

56 54 Heritage Insurance Company Kenya Limited Notes (cont d) Summary of significant accounting policies (cont d) The estimated period between a loss occurring and its identification is determined by management for each identified portfolio (i) Assets carried at amortised cost The Group assesses whether objective evidence of impairment exists individually for financial assets. If there is objective evidence that an impairment loss on financial assets carried at amortised 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 recognised in the income statement. If a loan 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 Group 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. When a loan is uncollectible, it is written off against the related provision for loan impairment. Such loans 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 loan impairment in the income statement. 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 recognised (such as an improvement in the debtor s credit rating), the previously recognised impairment loss is reversed by adjusting the allowance account. The amount of the reversal is recognised in the income statement. (ii) Renegotiated loans Loans that are either subject to collective impairment assessment or individually significant and whose terms have been renegotiated are no longer considered to be past due but are treated as new loans. In subsequent years, the renegotiated terms apply in determining whether the asset is considered to be past due. (l) Cash and cash equivalents Cash and cash equivalents are carried in the date of financial reporting at amortised cost. For the purposes of the cash flow statement, cash and cash equivalents comprise cash on hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less, and bank overdrafts. (m) Leases Leases of assets where a significant proportion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases are charged to income on a straight-line basis over the period of the lease. (n) Employee benefits (i) Retirement benefit obligations The Group operates a defined contribution retirement benefit scheme for its employees. A defined contribution plan is a pension plan under which the Group companies pay fixed contributions into a separate entity. The Group has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods. The assets of all schemes are held in separate trustee administered funds, which are funded by contributions from both the Group and employees. The Group and all its employees also contribute to the appropriate national Social Security Fund, which are defined contribution schemes. The Group s contributions to the defined contribution schemes are charged to profit or loss in the year to which they relate. (ii) Other entitlements. Employee entitlements to long service awards are recognised when they accrue to employees. A provision is made for the estimated liability for such entitlements as a result of services rendered by employees up to the date of financial reporting. The estimated monetary liability for employees accrued annual leave entitlement at the financial reporting date is recognised as an expense accrual. (o) Income tax expense Income tax expense is the aggregate of the charge to the income statement in respect of current income tax and deferred income tax. Current income tax is the amount of income tax payable on the taxable profit for the period determined in accordance with the relevant tax legislation.

57 Heritage Insurance Company Kenya Limited 55 Notes (cont d) Summary of significant accounting policies (cont d) Deferred income tax is provided in full, using the liability method, on all temporary differences arising between the tax bases of assets and liabilities and their carrying values for financial reporting purposes. However, if the deferred income tax arises from the initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit nor loss, it is not accounted for. Deferred income tax is determined using tax rates and laws that have been enacted or substantively enacted at the financial reporting date and are expected to apply when the related deferred income tax liability is settled. Deferred income tax assets are recognised only to the extent that it is probable that future taxable profits will be available against which the temporary differences can be utilised. 3. Gross earned premiums Deferred income tax is provided on temporary differences arising on investments in subsidiaries and associates, except where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future. (p) Dividends Dividends payable to the Group s shareholders are charged to equity in the period in which they are declared. Proposed dividends are shown as a separate component of equity until declared. (q) Comparatives Where necessary, comparative figures have been adjusted to conform to changes to presentation in the current year. The premium income of the Group and Company can be analysed between the main classes of business as shown below: Short term insurance business: Group Shs 000 Shs 000 Motor 1,181,519 1,269,246 Fire 1,546,051 1,523,389 Personal accident 800,159 1,663,237 Other 2,245,870 1,055,505 Long term business: 5,773,599 5,511,377 Group Life - 1,017 Short term insurance business: 5,773,599 5,512,394 Company Shs 000 Shs 000 Motor 830, ,964 Fire 451, ,029 Personal accident 284,291 1,203,616 Others 1,872, ,935 Long term business: 3,438,808 3,361,544 Group Life - 1,017 3,438,808 3,362,561

58 56 Heritage Insurance Company Kenya Limited Notes (cont d) 4. Investment income Group Long term Short term Total Long term Short term Total business business 2013 business business 2012 (Restated) (Restated) (Restated) Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Interest from government securities - 186, , , , ,337 Bank deposit interest - 117, ,740 36,062 96, ,839 Interest from corporate bonds and commercial paper - 45,774 45,774 16,126 49,890 66,016 Loan interest receivable - 34,785 34,785 4,136 30,143 34,279 Rental income from investment property - 8,200 8,200 2,728 20,634 23,362 Fair value gains on investment property (Note 20) - 40,400 40,400 22,459 23,347 45,806 Dividends receivable from equity investments - 20,932 20,932 3,113 37,960 41,073 Realised gains on sale of financial assets - 153, ,011 70,444 71, ,821 Impairment provision on investment in associate - 5,199 5,199 - (12,341) (12,341) Fair value gains recognised in profit or loss - 30,748 30, , , ,511 Total investment income - 643, , , ,308 1,049,703 Company Long term Short term Total Long term Short term Total Business Business 2013 Business Business 2012 (Restated) (Restated) (Restated) Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Interest from government securities - 154, , , , ,187 Bank deposit interest - 63,960 63,960 36,062 60,947 97,009 Interest from corporate bonds and commercial paper - 22,467 22,467 16,126 23,686 39,812 Loan interest receivable - 34,785 34,785 4,136 30,143 34,279 Rental income from investment property ,728 8,042 10,770 Fair value gains on investment property (Note 20) - 22,000 22,000 22,459 24,447 46,906 Dividends receivable from equity investments - 39,688 39,688 3,113 75,993 79,106 Realised gains on sale of financial assets - 30,748 30,748 70,444 71, ,821 Fair value gains recognised in profit or loss - 48,001 48, , , ,772 Total investment income - 416, , , ,267 1,023,662 The financial assets were revalued through the statement of profit or loss following the change in accounting policy as disclosed on page 44.

59 Heritage Insurance Company Kenya Limited 57 Notes (cont d) 5. Other income Group Long term Short term Total Long term Short term Total business business 2013 business business 2012 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Gain on disposal of property and equipment ,925 8,925 Profit from Kenya Motor Insurance Pool - 2,443 2, Profit on disposal of Associate - Alliance Insurance (Note 17) , ,712 Foreign exchange gain - 5,744 5, Other ,506 4,506-8,574 8, , ,103 Company Long term Short term Total Long term Short term Total business business 2013 business business 2012 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Gains on disposal of property and equipment ,134 7,134 Profit from Kenya Motor Insurance Pool - 2,443 2, Other ,506 4,506-2,456 2,456-12,600 12,600

60 58 Heritage Insurance Company Kenya Limited Notes (cont d) 6. Claims and policyholder benefits payable i) Short term business Claims payable by principal class of business: Group Shs 000 Shs Motor 590, ,943 - Fire 4,795,523 7,257 - Personal accident 82, ,218 - Other 995, ,253 ii) Long term business 6,463,348 1,808,671 Insurance contracts with fixed and guaranteed terms - (1,005) - death, maturity and surrender benefits Interest payable on deposit administration contracts - 175, ,054 Total claims and policyholder benefits 6,463,348 1,982,725 iii) Short term business Claims payable by principal class of business: Company Shs 000 Shs Motor 409, ,479 - Fire 23, ,480 - Personal accident 60, ,898 - Other 806,328 63,585 iv) Long term business Insurance contracts with fixed and guaranteed terms 1,299,534 1,435,442 - death, maturity and surrender benefits - (1,005) Interest payable on deposit administration contracts - 175, ,054 Total claims and policyholder benefits 1,299,534 1,609,496

61 Heritage Insurance Company Kenya Limited 59 Notes (cont d) 7. Operating and other expenses Group Long term Short term Total Long term Short term Total business business 2013 business business 2012 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Employee benefits expense (note 8) - 711, ,425 12, , ,651 Auditors remuneration - 10,620 10,620 1,943 9,440 11,383 Depreciation (note 18) - 39,293 39, ,393 42,790 Amortisation of intangible assets (note 19) - 2,787 2,787-16,472 16,472 Impairment charge for doubtful receivables - 9,646 9,646-58,334 58,334 Operating lease rentals - land and buildings - 82,203 82,203 4,753 74,951 79,704 Repairs and maintenance expenditure - 26,259 26, ,237 36,723 Other - 353, ,826 15, , ,469-1,236,059 1,236,059 35,503 1,307,023 1,342,526 Company Long term Short term Total Long term Short term Total business business 2013 business business 2012 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Employee benefits expense (note 8) - 568, ,693 12, , ,377 Auditors remuneration - 3,373 3,373 1,943 4,797 6,740 Depreciation (note 18) - 32,033 32, ,006 31,403 Amortisation of intangible assets (note 19) - 2,514 2,514-2,079 2,079 Impairment charge for doubtful receivables - 9,646 9,646-50,906 50,906 Operating lease rentals - land and buildings - 67,290 67,290 4,753 51,482 56,235 Repairs and maintenance expenditure - 23,590 23, ,248 33,734 Other - 229, ,476 15, , , , ,615 35,503 1,010,660 1,046,163

62 60 Heritage Insurance Company Kenya Limited Notes (cont d) 8. Employee benefits expense Employee benefit expense includes the following: Group Long term Short term Total Long term Short term Total business business 2013 business business 2012 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs salaries and wages - 477, ,115 15, , ,352 - social security benefit costs - 46,373 46,373-41,618 41,618 - retirement benefit costs (defined contribution scheme) ,752 18,752 Other - 187, ,473 (3,173) 228, , , ,425 12, , ,651 The number of persons employed by the Group at the end of the year was 228 (2012:220). Employee benefit expense includes the following: Company Long term Short term Total Long term Short term Total business business 2013 business business 2012 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs salaries and wages - 344, ,395 15, , ,314 - social security benefit costs - 36,361 36,361-32,382 32,382 - retirement benefit costs (defined contribution scheme) ,752 18,752 Other - 187, ,473 (3,173) 228, , , ,693 12, , ,377 The number of persons employed by the Company at the end of the year was 173 (2012:165).

63 Heritage Insurance Company Kenya Limited 61 Notes (cont d) 9. Income tax expense Group Long term Short term Total Long term Short term Total Business Business 2013 Business Business 2012 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Current income tax - 168, , , ,938 Deferred income tax (Note 33) - 3,862 3,862 1,966 (33,465) (31,499) - 172, ,680 2, , ,439 The Group s and Company s current tax charge is computed in accordance with income tax rules applicable to composite insurance companies. A reconciliation of the tax charge is shown below: Group Long term Short term Total Long term Short term Total business business 2013 business business 2012 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Profit before income tax - 905, , , ,572 1,213,669 Tax calculated at a tax rate of 30% - 271, ,791 64, , ,101 Tax effect of: The difference between transfer from Long (64,829) - (64,829) term business and accounting profit Income not subject to tax - (140,324) (140,324) - (112,899) (112,899) Share of profits of associates - 2,216 2,216-75,478 75,478 Expenses not deductible for tax purposes - 38,997 38,997 2,931 7,657 10,588 Income tax charge - 172, ,680 2, , ,439 Company Long term Short term Total Long term Short term Total Business Business 2013 Business Business 2012 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Current income tax - 172, , , ,278 Deferred income tax (Note 33) - 1,782 1,782 1,966 (31,856) (29,890) 174, ,215 2, , ,388 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: Long term Short term Total Long term Short term Total business business 2013 business business 2012 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Profit before income tax - 711, , , , ,016 Tax calculated at a tax rate of 30% - 213, ,338 64, , ,205 Tax effect of: The difference between transfer from Long (64,829) - (64,829) term business and accounting profit Income not subject to tax - (63,980) (63,980) - (120,508) (120,508) Expenses not deductible for tax purposes - 24,857 24,857 2,931 8,589 11,520 Tax charge - 174, ,215 2, , ,388 There was no tax charge relating to components of other comprehensive income

64 62 Heritage Insurance Company Kenya Limited Notes (cont d) 10. Dividends Proposed dividends are accounted for as a separate component of equity until they have been ratified at an annual general meeting. The Directors proposed and paid an interim dividend of Shs 8 (2012: Shs 16) per share, amounting to a total of Shs 200 Million (2012: Final: Shs 400 Million). 11. Share capital The total authorised number of ordinary shares is 25 Million with a par value of Shs 20 per share. At 31 December 2013, 25 Million ordinary shares were in issue (2012: 25 Million ordinary shares).all issued shares are fully paid. Group and Company Long term Short term Total Long term Short term Total business business 2013 business business 2012 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 At start of the year - 500, , , , ,000 Transfer through Business re-organisation (150,000) 150,000 - As at end of the year - 500, , , , Transfer of statutory reserve The transfer from revaluation reserve relates to the accumulated fair value movement in financial instrument through the profit or loss account in line with the group accounting policy. 13. Change in accounting policy - Revaluation reserve and fair value reserve The Company and Group adopted group s accounting policy on the financials. Some of the financial assets have consequently been fair valued through the profit or loss statement. 14 Retained earnings The retained earnings balance represents the amount available for dividend distribution to the shareholders of the Company, except for cumulative fair value gains on the Company s investment properties of Shs Million (2012: Million) whose distribution is subject to restrictions imposed by the Kenyan Insurance Act. 15. Statutory reserve Statutory reserve comprises: Group Long term Short term Total Long term Short term Total business business 2013 business business 2012 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Statutory reserve Kenya (i) , ,980 Contingency reserve Tanzania (ii) - 144, , , ,113 Transfer through re-organisation (273,980) - (273,980) - 144, , , ,113 Company Statutory reserve Kenya (i) , ,980 Transfer through re-organisation (273,980) - (273,980) Statutory reserve Kenya (i)

65 Heritage Insurance Company Kenya Limited 63 Notes (cont d) Statutory reserve (cont d) i) Movements in the statutory reserves are shown in the statement of changes in equity on pages 35 to 40. The nature and purpose of each of the reserves is as follows: The Tanzania subsidiary is required to maintain a capital reserve in accordance with the Tanzania Insurance Act. Amounts appropriated to the capital reserve are calculated at 20% of the after tax profit of the subsidiary, accumulated on an annual basis. ii) A contingency reserve is maintained by the Tanzania subsidiary as required by the Tanzania Insurance Act. The reserve is calculated annually as the greater of 3% of net written premium or 20% of the net profit. This reserve shall accumulate until it reaches the minimum paid-up share capital or 50% of the net premiums, whichever is greater. 16. Investment in subsidiary The Company had the following subsidiaries at 31 December 2013 Name Country of Nature of Proportion Proportion Proportion Proportion incorporation business of ordinary of ordinary of ordinary of prefereand place shares directly shares held share held nce shares of business held by the by the by held by the parent (%) group (%) non-controlling group (%) interests (%) The Heritage Insurance Company (T) Limited Tanzania Insurance 60% 60% 40% - Azali Limited Kenya Property 100% 100% - - Ownership All subsidiary undertakings are included in the consolidation. The proportion of the voting rights in the subsidiary undertakings held directly by the parent company do not differ from the proportion of ordinary shares held. The parent company further does not have any shareholdings in the preference shares of subsidiary undertakings included in the group. Company Long term Short term Total Long term Short term Total business business 2013 business business 2012 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Investment in The Heritage Insurance - 82,721 82,721-82,721 82,721 Company (T) Limited (60%) Investment in Azali Limited (100%) - 5,649 5,649-5,649 5, Investment in associates - 88,370 88,370-88,370 88,370 Set out below are the associates of the group as at 31 December 2013, which, in the opinion of the directors, are material to the group. The associates as listed below have share capital consisting solely of ordinary shares, which are held directly by the group; the country of incorporation or registration is also their principal place of business. Nature of investment in associates and 2012 Name of Entity Place of business / % of Nature of the Measurement country of ownership relationship method incorporation interest 2013 Strategis Insurance Company (Tanzania) Limited Tanzania 43.04% Note (i) Equity 2012 Strategis Insurance Company (Tanzania) Limited Tanzania 39.18% Note (i) Equity Alliance Insurance Corporation Limited Tanzania 45% Note (ii) Equity Note (i) Strategis Insurance Company Limited provides group health insurance plans for the Tanzanian Industry to cover their employees and their dependants Note (ii) Alliance Insurance Corporation Limited provides General Insurance business in the Tanzanian Industry. This was disposed off in 2012.

66 64 Heritage Insurance Company Kenya Limited Notes (cont d) Investment in associate (cont d) Group Strategis Alliance Strategis Alliance Insurance Insurance Insurance Insurance Company Corp. Total Company Corp. Total (Tanzania) Limited Limited 2013 (Tanzania) Limited Limited 2012 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 At start of the year 45,047-45,047 73, , ,906 Share of prior year adjustment (3,372) (2,948) Share of other comprehensive income 5,528-5, ,620 17,938 Exchange differences (26) - (26) ,133 Provision for impairment (12,402) - (12,402) Disposal of investment in Alliance Insurance (311,787) (311,787) Share of post acquisition (loss)/ profit (7,387) - (7,387) (17,372) 36,601 19,229 Additions Strategies Shares 26,880-26, Dividend received (31,022) (31,022) At end of the year 70,042-70,042 45,047-45,047 The Group concluded the disposal of its interest (indirect through Heritage Insurance Tanzania Limited) in Alliance Insurance Corporation Tanzania Limited in December Regulatory approval was granted by the Commissioner, Tanzania Insurance Regulatory Authority (TIRA) on 21 December The realized gain was as follows: Shs 000 Shs 000 Investment in Alliance Insurance Corporation Limited as at 1 January ,123 Share of loss after tax - (30,312) Dividend received - 35,763 Realised fair value reserve - (47,044) Proceeds on disposal of shares - (440,508) Currency adjustment - 4,266 - (197,712) The Group`s interests in the associate, which is unlisted,is as follows: Assets Liabilities Revenue Loss % Interest Loss on % held interest held Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Strategis Insurance (Tanzania) Limited 197,674 96, ,664 (17, 163) 43% (7,387) Total at end of ,674 96, ,664 (17,163) (7,387) Strategis Insurance (Tanzania) Limited 416, , ,221 (31,499) 39% (12,341) Total at end of , , ,221 (31,499) (12,341)

67 Heritage Insurance Company Kenya Limited 65 Notes (cont d) 18. Property and equipment Short term business Long term business Total Buildings Motor Fittings & Short term Buildings Fittings & Long term vehicles equipment Total equipment Total Year ended 31 December 2013: Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Cost or valuation At start of the year 18,894 42, , , ,826 Additions ,583 28, ,583 Fair value gains 4, , ,260 Currency translation Disposal - - (2,561) (2,561) (2,561) At end of the year 23,154 42, , , ,161 Depreciation At start of the year - 29, , , ,951 Charge for the year - 5,500 33,793 39, ,293 On disposal - - (2,560) (2,560) (2,560) Currency translation At end of the year - 35, , , ,836 Net book amount at 23,154 7,495 90, , , December 2013 Equipment with a cost of Shs 118,212,426 (2012 Shs 107,875,975) was fully depreciated as at 31 December The notional depreciation charge in respect of this equipment amounts to Shs. 17,823,251 (2012 Shs 15,886,598)

68 66 Heritage Insurance Company Kenya Limited Notes (cont d) Property and equipment (cont d) Group Short term business Long term business Total Buildings Motor Fittings & Short term Buildings Fittings & Long term vehicles equipment Total equipment Total Year ended 31 December 2012: Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Cost or valuation At start of the year 14,170 64, , ,167 25,322 4,908 30, ,397 Additions - 1,254 24,107 25, ,361 Fair value gains 4, , ,724 Currency translation Disposal - (23,417) (5,274) (28,691) - - (28,691) Transfer through business (25,322) (4,908) (30,230) (30,230) reorganisation At end of the year 18,894 42, , , ,826 Depreciation At start of the year - 45, , , ,187 5, ,199 Charge for the year - 6,205 36,188 42, ,790 On disposal - (22,051) (4,814) (26,865) (26,865) Currency translation Transfer through business (1,073) (4,368) (5,441) (5,441) reorganisation At end of the year - 29, , , ,951 Net book amount at 18,894 12,984 95, , , December 2012 Company Short term Business Long term Business Motor Fittings & Short term Buildings Fittings & Long term Total vehicles equipment Total equipment Total Year ended 31 December 2013: Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Cost At start of the year 12, , , ,001 Additions - 26,485 26, ,485 Disposals - (1,753) (1,753) (1,753) At end of the year 12, , , ,733 Depreciation At start of the year 3, , , ,844 Charge for the year 2,914 29,119 32, ,033 Disposals - (1,753) (1,753) (1,753) At end of the year 6, , , ,124 Net book amount at 31 December ,161 85,448 91, ,609

69 Heritage Insurance Company Kenya Limited 67 Notes (cont d) Property and equipment (cont d) Company Short term Business Long term Business Motor Fittings & Short term Buildings Fittings & Long term Total vehicles equipment Total equipment Total Year ended 31 December 2012: Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Cost At start of the year 31, , ,431 25,322 4,908 30, ,661 Additions 75 17,746 17, ,821 Disposals (19,235) (2,016) (21,251) (21,251) Transfer through business reorganisation (25,322) (4,908) (30,230) (30,230) At end of the year 12, , , ,001 Depreciation At start of the year 18, , , ,187 5, ,767 Charge for the year 2,904 28,102 31, ,403 Disposals (17,869) (2,016) (19,885) (19,885) Transfer through business reorganisation (1,073) (4,368) (5,441) (5,441) At end of the year 3, , , ,844 Net book amount at 31 December ,075 88,082 97, ,157

70 68 Heritage Insurance Company Kenya Limited Notes (cont d) 19. Intangible Assets For the year ended 31 December 2013 Group Company Long term Short term Total Long term Short term Total Business Business 2013 Business Business 2013 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Cost: At start of the year - 86,449 86,449-31,070 31,070 Additions - 2,193 2,193-2,193 2,193 At end of the year - 88,642 88,642-33,263 33,263 Amortisation: At start of the year - 82,133 82,133-27,027 27,027 Charge for the year - 2,787 2,787-2,514 2,514 At end of the year - 84,920 84,920-29,541 29,541 Net book amount At 31 December ,722 3,722-3,722 3,722 For the year ended 31 December 2012 Group Company Long term Short term Total Long term Short term Total Business Business 2012 Business Business 2012 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Cost: At start of the year ,910 85, ,673 30,303 Additions - 1,397 1,397-1,397 1,397 Currency translation At end of the year ,449 87, ,070 31,700 Amortisation: At start of the year ,497 66, ,948 25,578 Charge for the year - 16,472 16,472-2,079 2,079 Currency translation At end of the year ,133 82, ,027 27,657 Net book amount At 31 December ,316 4,316-4,043 4,043 Intangible assets with a cost of Shs. 20,692,535 (2012 Shs 20,674,207) were fully amortised as at 31 December The notional amortisation charge in respect of these assets amounts to Shs 4,138,507 (2012 Shs 4,134,841)

71 Heritage Insurance Company Kenya Limited 69 Notes (cont d) 20. Investment property Group Long term Short term Total Long term Short term Total business business 2013 business business 2012 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 At start of the year - 261, , , ,253 Additions ,541 1,541 Transfer to long-term ,541 (231,541) - Disposals - (55,000) (55,000) Fair value gains (Note 4) - 40,400 40,400 22,459 23,347 45,806 Transfer through business reorganisation (254,000) - (254,000) At end of the year - 247, , , ,600 Company Long term Short term Total Long term Short term Total business business 2013 business business 2012 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 At start of the year - 180, , , ,553 Additions ,541 1,541 Transfer to long term ,541 (231,541) - Disposals - (55,000) (55,000) Fair value gains (Note 4) - 22,000 22,000 22,459 24,447 46,906 Transfer through business reorganisation (254,000) - (254,000) At end of the year - 147, , , ,000 The investment properties were last revalued in November 2013 by Lloyd Masika Limited, certified and registered independent valuers, on the basis of the open market value for existing use.

72 70 Heritage Insurance Company Kenya Limited Notes (cont d) 21. Fair value through profit or loss investments (i) Quoted shares Group Long term Short term Total Long term Short term Total business business 2013 business business 2012 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 At start of the year - 201, , , , ,677 Additions - 24,062 24,062 6,315 1,832 8,147 Disposals - (1,425) (1,425) (144,880) (166,872) (311,752) Fair value gains / (losses) - 129, ,421 26,314 (1,151) 25,163 Currency translation Transfer through business reorganisation (137,539) - (137,539) At end of the year - 354, , , ,029 Quoted shares Company Long term Short term Total Long term Short term Total business business 2013 business business 2012 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 At start of the year - 102, , , , ,225 Additions - 1,096 1,096 6,315 1,832 8,147 Disposals (144,880) (166,872) (311,752) Fair value gains/ (losses) - 25,155 25,155 26,314 (7,006) 19,308 Transfer through business reorganisation (137,539) - (137,539) At end of the year - 128, , , ,389 (ii) Unquoted shares: Group Long term Short term Total Long term Short term Total business business 2013 business business 2012 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 At start of the year - 212, ,387 29, , ,510 Disposals - (54,630) (54,630) Currency translation Fair value gains/ (losses) - (1,113) (1,113) 2,530 13,913 16,443 Transfer through business reorganisation (31,645) - (31,645) At end of the year - 156, , , ,387

73 Heritage Insurance Company Kenya Limited 71 Notes (cont d) Fair value through profit or loss investments (cont d) Unquoted shares: Company Long term Short term Total Long term Short term Total business business 2013 business business 2012 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 At start of the year - 188, ,171 29, , ,373 Disposals - (54,630) (54,630) Fair value gains/ (losses) - (1,113) (1,113) 2,530 13,913 16,443 Transfer through business reorganisation (31,645) - (31,645) At end of the year - 132, , , ,171 (iii) Government securities: Group Long term Short term Total Long term Short term Total business business 2013 business business 2012 (Restated) (Restated) (Restated Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 At start of the year - 1,786,886 1,786, , , ,773 Restatement , ,203 1,301,230 Additions - 758, , , , ,065 Disposals - (945,820) (945,820) (202,034) (274,389) (476,423) Fair value gain/(loss) - 15,525 15, , , ,942 Transfer through business reorganisation (1,072,701) - (1,072,701) At end of the year - 1,614,816 1,614,816-1,786,886 1,786,886 Government securities: Company Long term Short term Total Long term Short term Total business business 2013 business business 2012 (Restated) (Restated) (Restated Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 At start of the year - 1,574,744 1,574, , , ,773 Restatement , ,085 1,098,112 Additions - 719, , , , ,781 Disposals - (916,288) (916,288) (202,034) (248,000) (450,034) Fair value gain/(loss) - 19,154 19, , , ,813 Transfer through business reorganisation (1,072,701) - (1,072,701) At end of the year - 1,396,845 1,396,845-1,574,744 1,574,744

74 72 Heritage Insurance Company Kenya Limited Notes (cont d) 22. Loans and receivables Group and Company Mortgage loans: Long term Short term Total Long term Short term Total business business 2013 business business 2012 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 At start of the year - 222, ,504 45, , ,828 Re-classification Warwick investment ,558 32,558 from Other Loans to Mortgages Loans advanced - 148, ,661-61,326 61,326 Loan repayments - (39,202) (39,202) (11,715) (34,497) (46,212) At end of the year - 331, ,963 33, , ,500 Maturity profile of mortgage loans: Loans maturing: Within 1 year ,229 28,229 In 1-5 years - 46,656 46,656 29,336-29,336 In over 5 years - 285, ,307 4, , , , ,963 33, , ,500 Other loans Group and Company Long term Short term Total Long term Short term Total business business 2013 business business 2012 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 At start of the year - 47,412 47,412 2,658 77,977 80,635 Loans advanced - 32,182 32,182-23,287 23,287 Loan repayments - (31,668) (31,668) (1,722) (21,294) (23,016) Re-classification Warwick investment (32,558) (32,558) from other loans to mortgages At end of the year - 47,926 47, ,412 48,348 Maturity profile of other loans: Loans maturing: Within 1 year - 7,636 7, ,081 3,306 In 1-5 years - 40,290 40, ,331 45,042-47,926 47, ,412 48,348 Other loans are made up of staff development and car loans. Long term Short term Total Long term Short term Total business business 2013 business business 2012 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Book amount of: Mortgage loans - 331, ,963 33, , ,500 Other loans - 47,926 47, ,412 48,348 Transfer through business reorganisation (34,932) - (34,932) Total loans and receivables at year end - 379, , , ,916 There is no concentration of credit risk with respect to mortgage, policy and other loans.

75 Heritage Insurance Company Kenya Limited 73 Notes (cont d) 23. Reinsurers share of insurance liabilities Reinsurers share of: Group Long term Short term Total Long term Short term Total business business 2013 business business 2012 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs unearned premium (Note 32) - 1,489,900 1,489,900-1,281,783 1,281,783 - notified claims outstanding (Note 30) - 1,873,593 1,873,593 3, , ,847 - claims incurred but not reported (Note 30) - 381, , , ,041 -Transfer through business reorganisation (3,110) - (3,110) - 3,745,124 3,745,124-1,920,560 1,920,560 Reinsurers share of: Company Long term Short term Total Long term Short term Total business business 2013 business business 2012 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs unearned premium (Note 32) - 681, , , ,271 - notified claims outstanding (Note 30) - 146, ,087 3, , ,996 - claims incurred but not reported (Note 30) - 36,129 36,129-32,871 32,871 -Transfer through business reorganisation (3,110) - (3,110) - 863, , , ,028 Amounts due from reinsurers in respect of claims already paid by the Company on contracts that are reinsured are included in receivables arising out of reinsurance arrangements on the Statement of Financial Position. Reinsurers share of insurance liabilities is classified as current assets. Movements in the above reinsurance assets are shown in note 30.

76 74 Heritage Insurance Company Kenya Limited Notes (cont d) 24. Deferred acquisition costs Assets Group Short term Business Shs 000 Shs 000 At start of the year 95, ,124 Additions 275, ,504 Amortisation charge (253,511) (307,880) Currency translation At end of the year 118,459 95,951 Liabilities At start of the year (83,574) (79,950) Additions (191,764) (208,999) Amortisation charge 199, ,637 Currency translation (183) (262) At end of the year (76,324) (83,574) Company Short term business Shs 000 Shs 000 At start of the year 13,866 77,173 Additions 2,504 42,501 Amortisation charge (16,651) (105,808) At end of the year (281) 13, Other receivables Due from related companies Group Long term Short term Total Long term Short term Total business business 2013 business business 2012 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 (Note 38 (v)) - 187, ,433-39,612 39,612 Prepayments - 24,347 24,347-28,249 28,249 Operating lease rentals - 1,846 1,846-1,506 1,506 Other - 126, ,885 40, , ,955 Transfer through business reorganisation (40,503) - (40,503) - 340, , , ,819

77 Heritage Insurance Company Kenya Limited 75 Notes (cont d) Other receivables (cont d) Company Long term Short term Total Long term Short term Total business business 2013 business business 2012 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Due from related companies (Note 38v) - 63,675 63,675-56,797 56,797 Prepayments - 14,823 14,823-5,004 5,004 Other - 126, ,885 40, , ,126 Transfer through business reorganisation (40,503) - (40,503) - 205, , , , Government securities Treasury bills and bonds maturing: Group Long term Short term Total Long term Short term Total business business 2013 business business 2012 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs Within 1 year , ,756 1,133,121 - In 1 5 years - 1,614,816 1,614, , ,130 1,087,029 - After 5 years , ,315 Transfer through business reorganisation (882,579) - (882,579) - 1,614,816 1,614,816-1,786,886 1,786,886 Treasury bills and bonds maturing: Company Long term Short term Total Long term Short term Total business business 2013 business business 2012 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs Within 1 year , ,756 1,133,121 - In 1 5 years - 1,396,845 1,396, , , ,887 - After 5 years , ,315 Transfer through business reorganisation (882,579) - (882,579) - 1,396,845 1,396,845-1,574,744 1,574,744

78 76 Heritage Insurance Company Kenya Limited Notes (cont d) 27. Deposits with financial institutions The following table summarises the maturity of deposits with Financial Institutions Group Company Long term Short term Total Long term Short term Total business business 2013 business business 2013 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Maturing within 90 days - 663, , , ,373 Maturing within days - 576, , Total - 1,240,606 1,240, , ,373 Group Company Long term Short term Total Long term Short term Total business business 2012 business business 2012 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Maturing within 90 days 431, , , , , ,913 Maturing within days - 537, , , ,405 Transfer through business reorganisation (431,020) - (431,020) (431,020) - (431,020) Total - 1,014,266 1,014, , , Weighted average effective interest rates The following table summarises the weighted average effective interest rates at the period end on the principal interest-bearing investments: Group Company % % % % Mortgage loans Government securities Deposits with financial institutions Corporate bonds Deposits with financial institution have an average maturity of 3 to 4 months (2012: 3 to 4 months), while corporate bonds have an average maturity of 1 to 6 years (2012:1 to 7 years).

79 Heritage Insurance Company Kenya Limited 77 Notes (cont d) 29. Insurance contract liabilities Group Company Shs 000 Shs 000 Shs 000 Shs 000 Short term non-life insurance contracts - claims reported and claims handling expenses 3,140,701 1,844, ,054 1,017,049 - claims incurred but not reported 621, , , ,149 Total short term 3,762,406 2,193,927 1,118,291 1,207,198 Long term insurance contracts - claims reported and claims handling expenses - 8,294-8,294 - actuarial value of long term liabilities - 20,810-20,810 Transferred through business reorganisation - (29,104) - (29,104) Total long term Total gross insurance liabilities 3,762,406 2,193,927 1,118,291 1,207,198 Movements in insurance liabilities and reinsurance assets are shown in note 30. i) Short term non-life insurance contracts Gross claims reported, claims handling expenses liabilities and the liability for claims incurred but not reported are net of expected recoveries from salvage and subrogation. The expected recoveries at the end of 2013 and 2012 are not material. The Company uses chain-ladder techniques to estimate the ultimate cost of claims and 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. The development of insurance liabilities provides a measure of the Company s ability to estimate the ultimate value of claims. The table below illustrates how the group s estimate of total claims outstanding for each accident year has changed at successive year ends.

80 78 Heritage Insurance Company Kenya Limited Notes (cont d) Insurance contract liabilities (cont d) Group Accident year Total Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Estimate of ultimate claims costs: at end of accident year 1,358,466 1,509,583 2,299,670 1,792,364 2,595,300 2,153,401 6,871,501 18,580,285 one year later 1,416,997 1,634,986 2,365,409 1,638,109 2,495,156 1,940,019-11,490,675 two years later 1,316,189 1,630,817 2,261,343 2,435,751 2,370, ,014,338 three years later 1,102,069 1,588,027 1,533,321 2,377, ,600,823 four years later 1,050,443 1,344,377 1,509, ,904,747 five years later 1,014,155 1,328, ,342,572 six years later 1,014, ,014,929 Current estimate 1,014,929 1,328,416 1,509,927 2,377,406 2,370,239 1,940,019 6,871,501 17,412,437 of cumulative claims Less: cumulative (966,919) (1,243,890) (1,453,811) (2,322,396) (2,171,389) (1,494,283) (4,417,021) (14,069,709) payments to date Liability in the statement 48,010 84,526 56,116 55, ,849 3,342, ,736 2,454,480 of financial position Liability in respect of prior years ,441 Incurred but not reported ,237 Total gross claims liability 48,010 84,526 56,116 55, , ,736 2,454,480 3,762,406 included in the balance sheet

81 Heritage Insurance Company Kenya Limited 79 Notes (cont d) Insurance contract liabilities (cont d) Company Accident year Total Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Estimate of ultimate claims costs: at end of accident year 738, , ,726 1,078,406 1,509,430 1,345,393 1,107,198 7,649,054 one year later 789,607 1,049,484 1,014,168 1,127,469 1,635,486 1,450,935-7,067,149 two years later 790,392 1,035,060 1,018,832 1,154,658 1,638, ,637,315 three years later 787,295 1,036,868 1,021,656 1,128, ,974,316 four years later 771,513 1,044,495 1,008, ,824,276 five years later 767,150 1,067, ,834,182 six years later 764, ,729 Current estimate of 764,729 1,067,031 1,008,268 1,128,497 1,638,374 1,450,935 1,107,198 8,165,032 cumulative claims Less: cumulative (753,627) (1,030,035) (989,852) (1,095,651) (1,470,287) (1,190,184) (876,170) (7,405,806) payments to date Liability in the statement of 11,102 36,996 18,416 32, , , , ,226 financial position Liability in respect of prior years ,828 Incurred but not reported ,237 Total gross claims liability 11,102 36,996 18,416 32, , , ,028 1,118,291 included in the balance sheet

82 80 Heritage Insurance Company Kenya Limited Notes (cont d) 30. Movements in insurance liabilities and reinsurance assets a) Short term insurance business Group Gross Reinsurance Net Gross Reinsurance Net Notified claims 1,844, ,737 1,314,643 1,986, ,641 1,166,523 Incurred but not reported 349, , , , , ,182 Total at beginning of the year 2,193, ,778 1,555,149 2,344, ,809 1,414,705 Cash paid for claims settled in year (4,984,894) (3,873,266) (1,111,628) (2,403,957) (1,402,216) (1,001,741) Increase in liabilities arising from current year claims 5,765,032 5,006, ,362 1,055, , ,389 arising from prior year claims 785, , ,900 1,192, , ,708 Currency translation 2,761 2, ,663 2,575 3,088 Total at end of the year 3,762,406 2,251,224 1,511,182 2,193, ,778 1,555,149 Notified claims 3,140,701 1,869,593 1,271,108 1,844, ,737 1,314,643 Incurred but not reported 621, , , , , ,506 Total at end of the year 3,762,406 2,251,224 1,511,182 2,193, ,778 1,555,149 Company Gross Reinsurance Net Gross Reinsurance Net Notified claims 1,017, , , , , ,201 Incurred but not reported 190,149 32, , ,432 25, ,597 Total at beginning of the year 1,207, ,757 1,025,441 1,062, , ,798 Cash paid for claims settled in year (1,388,441) (588,646) (799,795) (1,291,041) (560,021) (731,020) Increase in liabilities arising from current year claims 513, , , ,929 76, ,874 arising from prior year claims 785, , ,900 1,040, , ,789 Total At end of the year 1,118, , ,075 1,207, ,757 1,025,441 Notified claims 926, , ,967 1,017, , ,163 Incurred but not reported 192,237 36, , ,149 32, ,278 Total At end of the year 1,118, , ,075 1,207, ,757 1,025,441

83 Heritage Insurance Company Kenya Limited 81 Notes (cont d) Movements in insurance liabilities and reinsurance assets (cont d) b) Long term insurance business (Group and Company) Gross Reinsurance Net Gross Reinsurance Net At beginning of year ,026 14,383 30,643 Liabilities released for payments (14,918) (6,612) (8,306) Other movements (1,004) (4,661) 3,657 Transfer through business reorganisation (29,104) (3,110) (25,994) At end of the year Amounts payable under deposit administration contracts (Group and Company) Shs 000 Shs 000 At 1 January - 1,648,645 Pension fund deposits received - 223,791 Surrenders and annuities paid - (164,482) Interest payable to policyholders - 175,059 Transfer through business reorganisation - (1,883,013) At 31 December Unearned premium Unearned premium represents the liability for short term business contracts where the Group and Company s obligations are not expired at the year end. Movement in the reserve is shown below: Unearned premium Group Gross Reinsurance Net Gross Reinsurance Net At beginning of the year 2,288,019 1,281,782 1,006,237 2,266,074 1,106,686 1,159,388 Increase in the period (net) 255, ,615 49,233 18, ,242 (154,330) Currency translation 1,978 1, ,033 1,855 1,178 At end of the year 2,545,845 1,489,900 1,055,945 2,288,019 1,281,783 1,006,236 Unearned premium Company Gross Reinsurance Net Gross Reinsurance Net At beginning of the year 1,387, , ,976 1,343, , ,198 Increase in the year (net) 110,255 83,785 26,470 44, ,372 (175,222) At end of the year 1,497, , ,446 1,387, , ,976

84 82 Heritage Insurance Company Kenya Limited Notes (cont d) 33. Deferred income tax Deferred tax is calculated, in full, on all temporary differences under the liability method using a principal tax rate of 30% (2012: 30%). The movement on the deferred income tax account is as follows: Group Company Shs`000 Shs`000 Shs`000 Shs`000 At start of the year 50,205 37,400 34,606 23,410 Profit or loss (credit)/charge (Note 9) (3,862) 31,499 (1,782) 29,890 Deferred tax effect on fair value gains of government securities 18,694 (18,694) 18,694 (18,694) At end of the year 65,037 50,205 51,518 34,606 Deferred tax assets and liabilities, deferred tax charge/(credit) in the statement of profit or loss account are attributable to the following items: Property and equipment: Group Short term business Charged/ Charged/ Charged/ Charged/ (credited) (credited) (credited) (credited) to P/L to Equity to P/L to Equity Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs on historical cost basis (21,560) (1,664) - (23,224) (20,143) (1,417) - (21,560) Investment property 8, ,668 8, ,668 fair value gains Provisions (55,287) 5,613 - (49,674) (25,205) (30,082) - (55,287) Deferred tax effect 18,694 - (18,694) ,694 18,694 on fair value gains of government securities Currency translation (720) (87) - (807) (720) - - (720) Total (50,205) 3,862 (18,694) (65,037) (37,400) (31,499) 18,694 (50,205) Property and equipment: Company Short term business Charged/ Charged/ Charged/ Charged/ (credited) (credited) (credited) (credited) to P/L to Equity to P/L to Equity Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs on historical cost basis (12,466) (1,664) - (14,130) (11,100) (1,366) - (12,466) Provisions (40,834) 3,446 - (37,388) (12,310) (28,524) - (40,834) Fair value gains (18,694 - (18,694) ,694 18,694 Total (34,606) 1,782 (18,694) (51,518) (23,410) (29,890) 18,694 (34,606)

85 Heritage Insurance Company Kenya Limited 83 Notes (cont d) 34. Other payables Group Long term Short term Total Long term Short term Total business business 2013 business business 2012 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Amounts due to related companies (Note 38) - 45,590 45,590-76,927 76,927-45,590 45,590-76,927 76,927 Accrued expenses - 132, , , ,857 Other liabilities - 88,381 88,381 18, , ,280 Transfer through business reorganisation (18,787) - (18,787) - 221, , , , , , , ,277 Company Long term Short term Total Long term Short term Total business business 2013 business business 2012 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Amounts due to related companies (Note 38) - 45,590 45,590-76,927 76,927-45,590 45,590-76,927 76,927 Accrued expenses - 97,612 97,612-91,692 91,692 Other liabilities - 62,155 62,155 18, , ,073 Transfer through business reorganisation (18,787) - (18,787) - 159, , , , , , , ,905 Other payables are classified as current liabilities 35. Contingent liabilities In common with the insurance industry in general, the Group companies are subject to litigation arising in the normal course of insurance business. The directors are of the opinion that this litigation will not have a material effect on the financial position or profits of the Group and Company. 36. Capital commitments The Company has committed to the following Capital expenditure in regard to a new Enterprise Resource Program (ERP) as at 31 December 2013 (2012: Nil). Expected expenditure Shs 000 Policy Administration Software 27,980 Financial Management System - SAP 12,752 Total 40,732

86 84 Heritage Insurance Company Kenya Limited Notes (cont d) 37. Notes to the cash flow statement i) Cash and cash equivalents As at 31 December 2013 Group Company Long term Short term Total Long term Short term Total business business 2013 business business 2013 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Cash and bank balances - 168, ,885-86,873 86,873 Deposits with financial institutions - 1,240,606 1,240, , ,373-1,409,491 1,409, , ,246 As at 31 December 2013 Group Company Long term Short term Total Long term Short term Total business business 2013 business business 2013 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Cash and bank balances - 235, , , ,074 Deposits with financial institutions - 1,014,266 1,014, , ,298-1,249,287 1,249, , ,372

87 Heritage Insurance Company Kenya Limited 85 Notes (cont d) Notes to the cash flow statement (cont d) ii) Cash generated from operations - Group for the year ended 31 December 2013 Reconciliation of profit before tax to cash generated from operations: Group Long term Short term Total business business 2013 Shs 000 Shs 000 Shs 000 Profit before income tax - 905, ,969 Adjustments for: Interest rent and dividend income - (566,882) (566,882) Depreciation (Note 18) - 39,293 39,293 Amortisation of intangibles (Note 19) - 2,787 2,787 Profit on sale of property and equipment - (70) (70) Fair value loss on financial assets of associates - (5,528) (5,528) Fair value gains on investment property - (40,400) (40,400) Fair value gains due to change of accounting policy - (148,033) (148,033) Profit on sale of fair value financial investments - (31,027) (31,027) Effect of deferred tax on policy change - 6,067 6,067 Share of results of associates - 7,387 7,387 Changes in: Receivables arising out of reinsurance arrangements - (130,420) (130,420) Insurance contract liabilities - 1,568,479 1,568,479 Provision for unearned premiums - 257, ,826 Deferred acquisition costs - (7,250) (7,250) Re-insurers share of insurance liabilities - (1,824,564) (1,824,564) Other payables - 50,568 50,568 Other receivables - 84,545 84,545 Currency translation - 4,024 4,024 Cash generated from operations - 172, ,771

88 86 Heritage Insurance Company Kenya Limited Notes (cont d) Notes to the cash flow statement (cont d) iii) Cash generated from operations - Company for the year ended 31 December 2013 Reconciliation of profit before tax to cash generated from operations: Company Long term Short term Total business business 2013 Shs 000 Shs 000 Shs 000 Profit before income tax - 711, ,126 Adjustments for: Interest rent and dividend income - (363,345) (363,345) Depreciation (Note 18) - 32,033 32,033 Amortisation of intangibles (Note 19) - 2,514 2,514 Fair value gain on investment property - (22,000) (22,000) Fair value gain through profit or loss - (43,196) (43,196) Profit on sale of government securities - (30,727) (30,727) Effect of deferred tax on policy change - 6,067 6,067 Changes in: Receivables arising out of reinsurance arrangements - (51,069) (51,069) Insurance contract liabilities - (88,907) (88,907) Provision for unearned premiums - 110, ,255 Deferred acquisition costs - 14,147 14,147 Re-insurers share of insurance liabilities - (84,244) (84,244) Other payables - (92,282) (92,282) Other receivables - 15,691 15,691 Cash generated from operations - 116, ,063

89 Heritage Insurance Company Kenya Limited 87 Notes (cont d) Notes to the cash flow statement (cont d) ii) Cash generated from operations - Group for the year ended 31 December 2012 Reconciliation of profit before tax to cash generated from operations: Group Long term Short term Total business business 2012 Shs 000 Shs`000 Shs 000 Profit before income tax - 997, ,572 Adjustments for: Interest rent and dividend income - (401,562) (401,562) Depreciation (Note 18) - 42,393 42,393 Amortisation of intangibles (Note 19) - 16,472 16,472 Profit on sale of property and equipment - (8,901) (8,901) Profit on disposal of investment in Alliance - (197,712) (197,712) Fair value gain of investment property - (23,347) (23,347) Fair value gain on financial assets of associates - (17,939) (17,939) Fair value gain due to change in accounting policy - (144,834) (144,834) Profit on sale investments - (71,377) (71,377) Investment property transferred - 231, ,541 Share of results of associates - (19,229) (19,229) Changes in: Receivables arising out of reinsurance arrangements Insurance contract liabilities - (150,587) (150,587) Provision for unearned premiums - 21,945 21,945 Deferred acquisition costs - 3,624 3,624 Re-insurers share of insurance liabilities - 115, ,935 Other payables - (167,933) (167,933) Other receivables - (303,751) (303,751) Currency translation - (5,965) (5,965) Cash generated from operations - (83,328) (83,328)

90 88 Heritage Insurance Company Kenya Limited Notes (cont d) Notes to the cash flow statement (cont d) iii) Cash generated from operations - Company for the year ended 31 December 2012 Reconciliation of profit before tax to cash generated from operations: Company Long term Short term Total business business 2012 Shs 000 Shs 000 Shs 000 Profit before income tax - 757, ,919 Adjustments for: Interest rent and dividend income - (329,777) (329,777) Depreciation (Note 18) - 31,006 31,006 Amortisation of intangibles (Note 19) - 2,079 2,079 Profit on disposal of investment property - (7,134) (7,134) Fair value gain on investment property - (24,447) (24,447) Fair value gain on financial assets - (198,669) (198,669) Profit on sale government securities - (71,377) (71,377) Investment property transferred Changes in: 231, ,541 Receivables arising out of reinsurance arrangements - 29,569 29,569 Insurance contract liabilities - 144, ,400 Payable under deposit administration contracts - 44,150 44,150 Provision for unearned premiums - 63,307 63,307 Deferred acquisition costs - (255,130) (255,130) Re-insurers share of insurance liabilities - (21,776) (21,776) Other payables - (109,069) (109,069) Other receivables - 29,569 29,569 Cash generated from operations - 316, , Related party transactions The Company is controlled by Liberty Kenya Holdings Limited, incorporated in Kenya, which owns 100% of the Company s shares. The ultimate parent company is Standard Bank South Africa. There are other companies which are related to Heritage Insurance Company Kenya Limited through common shareholdings or common directorships. The following transactions were carried out with related parties: i) Gross premiums written Group Long term Short term Total Long term Short term Total business business 2013 business business 2012 Shs 000 Shs`000 Shs 000 Shs 000 Shs 000 Shs 000 CfC Stanbic Bank Ltd - 280, , , ,702 Stanlib Kenya Ltd - 9,292 9,292-6,124 6,124 CfC Life Assurance Ltd - 65,657 65,657-42,425 42,425 Strategis Insurance (Tanzania) Ltd - 45,881 45,881-40,490 40, , , , ,741

91 Heritage Insurance Company Kenya Limited 89 Notes (cont d) Related party transactions (cont d) Company Long term Short term Total Long term Short term Total business business 2013 business business 2012 Shs 000 Shs`000 Shs 000 Shs 000 Shs 000 Shs 000 CfC Stanbic Bank Ltd - 280, , , ,911 Stanlib Kenya Ltd - 9,292 9,292-5,567 5,567 CfC Life Assurance Ltd - 65,657 65,657-38,568 38,568 Azali Ltd , , , ,255 ii) Claims incurred Group Long term Short term Total Long term Short term Total business business 2013 business business 2012 Shs 000 Shs`000 Shs 000 Shs 000 Shs 000 Shs 000 CfC Stanbic Bank Ltd - 103, ,553-89,099 89,099 Stanlib Kenya Limited - 1,238 1,238-6,490 6,490 CfC Life Assurance Co Ltd - 20,963 20,963-30,878 30, , , , ,466 Company Long term Short term Total Long term Short term Total business business 2013 business business 2012 Shs 000 Shs`000 Shs 000 Shs 000 Shs 000 Shs 000 CfC Stanbic Bank Ltd - 103, ,553-88,908 88,908 Stanlib Kenya Limited - 1,125 1,125-6,377 6,377 CfC Life Assurance Co Ltd - 20,963 20,963-30,636 30, , , , ,920 iii) Rental expense/(income) Group Long term Short term Total Long term Short term Total business business 2013 business business 2012 Shs 000 Shs`000 Shs 000 Shs 000 Shs 000 Shs 000 Rent paid to CfC Life Assurance Ltd - 41,089 41,089 4,753 32,371 37,124-41,089 41,089 4,753 32,371 37,124 Rent received from CfC Stanbic Bank Ltd - (7,492) (7,492) - (7,492) (7,492) - (7,492) (7,492) - (7,492) (7,492)

92 90 Heritage Insurance Company Kenya Limited Notes (cont d) Related party transactions (cont d) Company Long term Short term Total Long term Short term Total business business 2013 business business 2012 Shs 000 Shs`000 Shs 000 Shs 000 Shs 000 Shs 000 Rent paid to CfC Life Assurance Ltd - 41,089 41,089 4,753 32,371 37,124 Rent paid to Azali Ltd - 1,873 1,873-1,873 1,873 iv) Interest earned on related party balances - 42,962 42,962 4,753 34,244 38,997 Group and Company Long term Short term Total Long term Short term Total business business 2013 business business 2012 Shs 000 Shs`000 Shs 000 Shs 000 Shs 000 Shs 000 Interest on bank deposits with CfC Stanbic Bank Ltd - 3,117 3,117-13,164 13,164 Interest on loan to CfC Stanbic Holdings Ltd ,627 2,627 v) Outstanding balances with related parties - 3,117 3,117-15,791 15,791 Group Long term Short term Total Long term Short term Total business business 2013 business business 2012 Shs 000 Shs`000 Shs 000 Shs 000 Shs 000 Shs 000 Due from Liberty Life Uganda Ltd Due from Liberty Kenya Holdings Ltd - 8,720 8, Due from Strategies Insurance Ltd ,391 39,391 Due from CfC Stanbic Bank Ltd - 4,351 4, Due from Liberty Health (RSA) Ltd Due from Mac Group Ltd - 173, , Due from Stanlib Kenya Ltd , ,433-39,612 39,612 Payables to CfC Stanbic Bank Ltd - 16,299 16,299-4,564 4,564 Payables to Liberty Holdings (RSA) Ltd - 9,649 9,649-22,577 22,577 Payable to Stanlib Kenya Ltd - 2,165 2, Payables to CfC Life Assurance Co Ltd - 17,477 17,477-49,786 49,786-45,590 45,590-76,927 76,927

93 Heritage Insurance Company Kenya Limited 91 Notes (cont d) Related party transactions (cont d) Company Long term Short term Total Long term Short term Total business business 2013 business business 2012 Shs 000 Shs`000 Shs 000 Shs 000 Shs 000 Shs 000 Due from Liberty Kenya Holdings Ltd - 8,720 8, Due from Stanlib Kenya Ltd Due from Liberty Health (RSA) Ltd Due from Liberty Uganda Ltd Due from Heritage (T) Ltd - 12,119 12,119-14,977 14,977 Due from Azali Ltd - 42,127 42,127-41,599 41,599-63,675 63,675-56,797 56,797 Due to CfC Stanbic Bank Ltd - 16,299 16,299-4,564 4,564 Due to Liberty Holdings South Africa Ltd - 9,649 9,649-22,577 22,577 Due to Stanlib Kenya Ltd - 2,165 2, Due to CfC Life Assurance Co Ltd - 17,477 17,477-49,786 49,786-45,590 45,590-76,927 76,927 Balances due from related parties are interest free and have no specific repayment period. vi) Investments in related parties Group and Company Long term Short term Total Long term Short term Total business business 2013 business business 2012 Shs 000 Shs`000 Shs 000 Shs 000 Shs 000 Shs 000 CfC Stanbic Bank Ltd deposits and bank balances - 41,999 41, , ,977-41,999 41, , ,977 vii) Advances to related parties Group and Company Long term Short term Total Long term Short term Total business business 2013 business business 2012 Staff mortgages - 285, , , ,275 Other Loans - 47,927 47,927-47,153 47, , , , ,428

94 92 Heritage Insurance Company Kenya Limited Notes (cont d) Related party transactions (cont d) viii) Loans to directors and key management staff of the Company Group and Company Long term Short term Total Long term Short term Total business business 2013 business business 2012 Shs 000 Shs`000 Shs 000 Shs 000 Shs 000 Shs 000 At start of the year - 34,566 34,566-10,715 10,715 Additions - 26,080 26,080-26,810 26,810 Loan repayments received - (14,465) (14,465) - (2,959) (2,959) At end of the year - 46,181 46,181-34,566 34,566 ix) Directors remuneration Group Long term Short term Total Long term Short term Total business business 2013 business business 2012 Shs 000 Shs`000 Shs 000 Shs 000 Shs 000 Shs 000 Directors fees - 11,857 11, ,218 5,073 Other remuneration - 88,744 88,744-74,146 74, , , ,364 79,219 Company Long term Short term Total Long term Short term Total business business 2013 business business 2012 Shs 000 Shs`000 Shs 000 Shs 000 Shs 000 Shs 000 Directors fees - 4,093 4, ,397 4,252 Other remuneration - 88,744 88,744-73,941 73,941-92,837 92, ,338 78,193 Key management personnel remuneration (excluding directors) Group Long term Short term Total Long term Short term Total business business 2013 business business 2012 Shs 000 Shs`000 Shs 000 Shs 000 Shs 000 Shs 000 Post-employment and other short term benefits - 67,610 67,610-61,464 61,464-67,610 67,610-61,464 61,464 Company Post-employment and other short term benefits - 36,769 36,769-33,426 33,426-36,769 36,769-33,426 33,426

95 Heritage Insurance Company Kenya Limited 93 Notes (cont d) 39. Critical accounting estimates and judgements in applying accounting policies The Group (and Company) make estimates and assumptions that affect the reported amounts of assets and liabilities within the next financial year. Estimates and judgements are continually evaluated and based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Estimates are made for Short term business claims and claims Incurred But Not Reported (IBNR) as at the period end based on the historical claims development statistics and evaluation of the current, past and future assumptions. Using the chain ladder model, the Company has developed estimates of expected claims outstanding. The development of insurance liabilities provides a measure of the Company s ability to estimate the ultimate value of the claims. The carrying amounts of insurance liabilities as at the end of the year period and as at 31 December 2013 are set out in note Management of insurance and financial risk The Company s activities expose it to a variety of risks, including insurance risk, financial risk, credit risk, and the effects of changes in property values, debt and equity market prices, foreign currency exchange rates and interest rates and liquidity risks. The Company s overall risk management programme focuses on the identification and management of risks and seeks to minimise potential adverse effects on its financial performance, by use of underwriting guidelines and capacity limits, reinsurance planning, credit policy governing the acceptance of clients, and defined criteria for the approval of intermediaries and reinsurers. Investment policies are in place which help manage liquidity, and seek to maximise return within an acceptable level of interest rate risk. This section summarises the way the company manages key risks: Insurance risk The risk under any one insurance contract is the possibility that the insured event occurs and the uncertainty of the amount of the resulting claim. By the very nature of an insurance contract, this risk is random and therefore unpredictable. For a portfolio of insurance contracts where the theory of probability is applied to pricing and provisioning, the principal risk that the company faces under its insurance contracts is that the actual claims and benefit payments exceed the carrying amount of the insurance liabilities. This could occur because the frequency or severity of claims and benefits are greater than estimated. Insurance events are random and the actual number and amount of claims and benefits will vary from year to year from the level established using statistical techniques. Experience shows that the larger the portfolio of similar insurance contracts, the smaller the relative variability about the expected outcome will be. In addition, a more diversified portfolio is less likely to be affected across the board by a change in any subset of the portfolio. The company has developed its insurance underwriting strategy to diversify the type of insurance risks accepted and within each of these categories to achieve a sufficiently large population of risks to reduce the variability of the expected outcome. Factors that aggravate insurance risk include lack of risk diversification in terms of type and amount of risk, geographical location and type of industry covered. The following tables disclose the concentration of insurance liabilities by the class of business in which the contract holder operates and by the maximum insured loss limit included in the terms of the policy: The following tables disclose the concentration of insurance liabilities by the class of business in which the contract holder operates and by the maximum insured loss limit included in the terms of the policy:

96 94 Heritage Insurance Company Kenya Limited Notes (cont d) Critical accounting estimates and judgements in applying accounting policies (cont d) Group Year ended 31 December 2013 Class of business Maximum insured loss (Shs 000) Short term insurance business Shs 0 - Shs 15M Shs 15M-Shs250M Over Shs 250M Total Motor Gross 21,900, ,896-22,270,469 Net 19,560, ,896-19,930,577 Fire Gross 49,740,129 85,697, ,490, ,928,213 Net 48,660,957 69,696,055 13,777, ,134,521 Personal accident Gross 14,173,227 16,692,437 2,768,257 33,633,921 Net 14,168,660 16,684,725 2,768,257 33,621,642 Other Gross 30,724,737 37,603, ,436, ,764,979 Net 31,314,452 69,647,476 3,725, ,686,994 Total Gross 116,538, ,363, ,695, ,597,582 Net 113,704, ,398,152 20,270, ,373,734 The concentration by sector or maximum insured loss at the end of the year is broadly consistent with the prior year. Company Year ended 31 December 2013 Class of business Maximum insured loss (Shs 000) Short term insurance business Shs 0 - Shs 15M Shs 15M-Shs250M Over Shs 250M Total Motor Gross 17,751, ,896-18,121,412 Net 17,751, ,896-18,121,412 Fire Gross 42,417,653 85,697,718 99,956, ,071,496 Net 42,230,114 69,696,055 13,777, ,703,678 Personal accident Gross 14,173,227 16,692,437 2,768,257 33,633,921 Net 14,168,660 16,684,725 2,768,257 33,621,642 Other Gross 17,582,562 37,603,286 10,721,672 65,907,520 Net 16,868,675 30,666,981 3,725,066 51,260,722 Total Gross 91,924, ,363, ,446, ,734,349 Net 91,018, ,417,657 20,270, ,707,454 The concentration by sector or maximum insured loss at the end of the year is broadly consistent with the prior year

97 Heritage Insurance Company Kenya Limited 95 Notes (cont d) Critical accounting estimates and judgements in applying accounting policies (cont d) Group Year ended 31 December 2012 Class of business Maximum insured loss (Shs 000) Short term insurance business Shs 0 - Shs 15M Shs 15M-Shs250M Over Shs 250M Total Motor Gross 21,229,163 2,114,776-23,343,939 Net 19,328,444 1,042,000-20,370,444 Fire Gross 42,514, ,406,103 95,611, ,531,997 Net 38,211,205 71,693,482 11,419, ,324,087 Personal accident Gross 20,172,000 12,599,300 3,464,500 36,235,800 Net 16,137,600 10,079,440 2,771,600 28,988,640 Other Gross 31,916, ,747,191 7,462, ,126,489 Net 28,928,879 63,561,790 3,770,880 96,261,549 Life assurance business Group Life Gross 7,020,522 1,594,198-8,614,720 Net 3,684,764 94,500-3,779,264 Other Gross 1,527,249 2,630,535-4,157,784 Net 691,263 31, ,763 Total Gross 124,380, ,092, ,538, ,010,729 Net 106,982, ,502,712 17,961, ,446,747 The concentration by sector or maximum insured loss at the end of the year is broadly consistent with the prior year. Company Year ended 31 December 2012 Class of business Maximum insured loss (Shs 000) Short term insurance business Shs 0 - Shs 15M Shs 15M-Shs250M Over Shs 250M Total Motor Gross 17,818, ,078-18,168,978 Net 17,818, ,078-18,168,978 Fire Gross 35,134,640 85,231,140 95,611, ,976,795 Net 35,058,490 69,498,900 11,419, ,976,790 Personal accident Gross 20,172,000 12,599,300 3,464,500 36,235,800 Net 16,137,600 10,079,440 2,771,600 28,988,640 Other Gross 19,427,760 40,920,900 7,462,600 67,811,260 Net 18,559,000 35,579,700 3,770,880 57,909,580 Long term business Group Life Gross 7,020,522 1,594,198-8,614,720 Net 3,684,764 94,500-3,779,264 Other Gross 1,527,249 2,630,535-4,157,784 Net 691,263 31, ,763 Total Gross 101,101, ,326, ,538, ,965,337 Net 91,950, ,634,118 17,961, ,546,015 The concentration by sector or maximum insured loss at the end of the year is broadly consistent with the prior year

98 96 Heritage Insurance Company Kenya Limited Notes (cont d) Financial risk The Group is exposed to financial risk through its financial assets, financial liabilities (investment contracts and borrowings), reinsurance assets and insurance liabilities. In particular the key financial risk is that the proceeds from its financial assets are not sufficient to fund the obligations arising from its insurance and investment contracts. The most important types of risk are credit risk, liquidity risk and market risk. 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 Group primarily faces due to the nature of its investments and liabilities are interest rate risk and equity price risk. The Group manages these positions through an Investment Committee and investment policy that has been developed to achieve long term investment return in excess of its obligations under insurance and investment contracts. The principal technique of the company is to match assets to the liabilities arising from insurance and investment contracts by reference to the type of benefits payable to contract holders. For each distinct category of liabilities, a separate portfolio of assets is maintained. Funds are applied to investments that fit the criteria developed as being acceptable and optimize the return on investment. Asset Liability Matching (ALM) Balance sheet of the Company as at 31 December 2013 Asset class Policy Holders % Share Holder % Policy Holders % Share Holder % Sh 000 Sh 000 Sh 000 Sh 000 Investible assets 1,247,296 47% 1,387,140 66% 1,981,465 59% 865,857 60% Non investible 1,011,484 39% 531,036 25% 979,372 29% 402,524 28% Inadmissible assets 368,292 14% 175,732 8% 404,600 12% 177,017 12% Total 2,627,072 2,093,908 3,365,437 1,445,399 Liabilities 2,627, % 246, % 2,598, % 369, % Excess - 1,847, ,776 1,075,696 (a) Credit risk The Company has exposure to credit risk, which is the risk that a counterparty will be unable to pay amounts in full when due. Key areas where the Company is exposed to credit risk are: receivables arising out of direct insurance arrangements; receivables arising out of reinsurance arrangements; and reinsurers share of insurance liabilities. Other areas where credit risk arises include cash and cash equivalents, corporate bonds, commercial papers, loans receivable, government securities and deposits with banks and other receivables. The Group has no significant concentrations of credit risk. The Group structures the levels of credit risk it accepts by placing limits on its exposure to a single counterparty, or groups of counterparty, and to geographical and industry segments. Such risks are subject to an annual or more frequent review. Limits on the level of credit risk by category and territory are approved quarterly by the Board of Directors. Reinsurance is used to manage insurance risk. This does not, however, discharge the company s liability as primary insurer. If a re-insurer fails to pay a claim for any reason, the company remains liable for the payment to the policyholder. The creditworthiness of reinsurers is considered on an annual basis by reviewing their financial strength prior to finalisation of any contract. The exposure to individual counterparties is also managed by other mechanisms, such as the right of offset where counterparties are both debtors and creditors of the company. Management information reported to the company includes details of provisions for impairment on loans and receivables and subsequent write-offs. Internal audit makes regular reviews to assess the degree of compliance with the company procedures on credit. Exposures to individual policyholders and groups of policyholders are collected within the ongoing monitoring of the controls associated with regulatory solvency. Where there exists significant exposure to individual policyholders, or homogenous groups of policyholders, a financial analysis equivalent to that conducted for reinsurers is carried out by the company risk department.

99 Heritage Insurance Company Kenya Limited 97 Notes (cont d) Financial risk (cont d) The credit quality of financial assets that are neither past due nor impaired can be assessed by reference to the external credit ratings if available or historical information about counterparty default rate. None of the Company s credit counterparties has an external credit rating other than the government of Kenya which has a B+ rating. For credit risk counterparties without an external credit rating, the group classifies them as follows. Group 1- New customers/related parties Group 2- Existing customers/related parties with no defaults in the past Group 3- Existing customer/related parties with some defaults in the past. All defaults were fully recovered. Maximum exposure to credit risk before collateral held Group Credit quality Shs 000 Shs 000 Receivables arising out of reinsurance arrangements Group 2 329, ,889 Receivables arising out of direct insurance arrangements See analysis below 734, ,679 Other receivables (excluding prepayment) Group 2 340, ,767 Reinsurers share of insurance liabilities Group 2 3,745,124 1,921,101 Government securities B+ 1,614,816 1,786,886 Corporate bond and short term notes Group 2 172, ,484 Loans receivable Group 2 379, ,916 Deposits with financial institutions Group 2 1,240,606 1,014,266 Cash and bank balances Group 2 168, ,021 8,726,463 7,012,009 Company Credit quality Shs 000 Shs 000 Receivables arising out of reinsurance arrangements Group 2 90,213 39,144 Receivables arising out of direct insurance arrangements See analysis below 225, ,627 Other receivables (excluding prepayment) Group 2 205, ,424 Reinsurers share of insurance liabilities Group 2 863, ,028 Government securities B+ 1,396,845 1,574,744 Corporate bond and short term notes Group 2 147, ,979 Loans receivable Group 2 379, ,916 Deposits with financial institutions Group 2 620, ,298 Cash and bank balances Group 2 86, ,074 4,015,910 4,102,234 Collaterals are held for mortgage and car loans only; all other assets are collateral free. Some receivables that are past due but not impaired are not within their approved credit limits, and have had their terms renegotiated None of the above assets are past due or impaired except for the receivables arising out of direct insurance arrangements (which are due within 60 days of the end of the month in which they are invoiced except those related to Motor and Fire Insurance policies which are due on inception of insurance cover):

100 98 Heritage Insurance Company Kenya Limited Notes (cont d) Financial risk (cont d) Financial assets that are past due or impaired Group Credit Quality Shs 000 Shs 000 Receivables arising out of direct insurance arrangements are summarised as follows: Neither past due nor impaired Group 2 416, ,305 Past due but not impaired Group 2 256, ,834 Impaired Group 3 205, ,852 Gross 878, ,991 Less: allowance for impairment (205,230) (213,852) Net 672, ,139 Financial assets that are past due or impaired Company Credit Quality Shs 000 Shs 000 Receivables arising out of direct insurance arrangements are summarised as follows: Past due but not impaired Group 2 225, ,627 Impaired Group 3 142, ,059 Gross 368, ,686 Less: allowance for impairment (142,191) (131,059) Net 225, ,627 Receivables arising out of direct insurance arrangements past due but not impaired; Group Shs 000 Shs 000 Past due but not impaired: - by up to 30 days 55, ,328 - by 31 to 60 days 54,505 29,197 - Over 61 days 563, ,614 Total past due but not impaired 672, ,139 Receivables arising out of direct insurance arrangements past due but not impaired Company Shs 000 Shs 000 Past due but not impaired: - by up to 30 days 55,207 38,622 - by 31 to 60 days 54,505 26,137 - Over 61 days 116, ,868 Total past due but not impaired 225, ,627 All receivables past due by more than 360 days are carried at their estimated recoverable value. No collateral is held on Impaired debts.

101 Heritage Insurance Company Kenya Limited 99 Notes (cont d) Financial risk (cont d) Allowance for impairment Group Individually assessed impaired receivables Direct insurance arrangements Shs 000 Shs brokers 144, ,576 - agents 31,309 35,470 - insurance companies 13,691 22,134 - direct clients 15,921 16, , ,852 Company Direct insurance arrangements Shs 000 Shs 000 Individually assessed impaired receivables - brokers 87,191 63,456 - agents 31,309 35,470 - insurance companies 13,691 22,133 - direct clients 10,000 10, , ,059 No collateral was held in relation to the receivables that are past due or impaired The movement in allowance for impairment account is as below: Group Shs 000 Shs 000 At start of the year 213, ,398 Charge to profit or loss (7,797) 66,936 Write-off - - Currency translation (824) (482) At end of the year 205, ,852 Company At start of the year 131,059 80,039 Charge to profit or loss 11,132 51,020 Write-off - - At end of the year 142, ,059

102 100 Heritage Insurance Company Kenya Limited Notes (cont d) (b) Market risk (i) Foreign exchange risk The Group operates internationally and is exposed to foreign exchange risk arising from various foreign currency transactions, primarily with respect to the US dollar. Foreign exchange risk arises from our reinsurance dealings with foreign reinsurance brokers. This risk is significant, particularly in respect of the subsidiary in Tanzania, and has in the past been mitigated through the use of a dollar-denominated account. In the year ending 31 December 2013, we had an equivalent of Shs 10.2M (2012: Shs. 6.2M) in reinsurance balances denominated in foreign currency and foreign currency deposit accounts. The impact of normal exchange fluctuations in the Kenya and Tanzania shilling against the US dollar would not have a material effect on Groups results. (ii) Price risk The Group is exposed to equity securities price risk because of investments in quoted and unquoted shares classified either as available-for-sale or at fair value through the profit or loss. The Group is not exposed to commodity price risk. To manage its price risk arising from investments in equity and debt securities, the Group diversifies its portfolio. Diversification of the portfolio is done in accordance with limits set by the Group in the Investment Policy. All quoted shares held by the Group are traded on the Stock Exchange. At 31 December 2013, if the market prices of equity had increased/decreased by 5% all other variables held constant, the fair value of equities held by the Company would have changed by Shs 13,053,000 (31 December 2012: Shs 14,528,000). This would result in a change in other comprehensive income. At 31 December 2013, if the market prices of equity had increased/decreased by 5% all other variables held constant, the fair value of equities held by the Group would have changed by Shs 23,304,000 (31 December 2012 Shs 15,814,000). This would result in a change in other comprehensive income. Short term business The Company is exposed to premium rate under-cutting by other market players particularly on the big corporate accounts leading to potential loss of business. (iii) Cash flow and fair value interest rate risk Fixed interest rate financial instruments expose the Group to fair value interest rate risk. Variable interest rate financial instruments expose the Group to cash flow interest rate risk. The Group s fixed interest rate financial instruments are government securities, deposits with financial institutions and corporate bonds. No limits are placed on the ratio of variable rate financial instruments to fixed rate financial instruments. At 31 December 2013, if the interest rate of the fixed interest bearing instruments increased/decreased by 1% all other variables held constant, the profit of the Company would have changed by Shs. 26,698,000 (31 December 2012 Shs. 44,755,000). At 31 December 2013, if the interest rate of the fixed interest bearing instruments increased/decreased by 1% all other variables held constant, the profit of the Group would have changed by Shs. 35,519,000 (31 December 2012 Shs. 35,147,000). (c) Liquidity risk Liquidity risk is the risk that the Company is unable to meet its payment obligations associated with its financial liabilities as they fall due and to replace funds when they are withdrawn. The Group is exposed to daily calls on its available cash for claims settlement and other administration expenses. The Group does not maintain cash resources to meet all of these needs but maintains a balanced portfolio of short term and long term investments to suit the Company s settlement cycle. Experience shows that reinvestment of maturing funds can be predicted with a high level of certainty and therefore can be matched to maturing liabilities. Large unexpected payments are met out of call deposits conveniently placed with various financial institutions at competitive interest rates. Prompt premium collection ensures that the day-to-day liquidity requirements of the Group are adequately met. The table below presents the cash flows payable and receivable by the Group under liabilities and assets respectively by remaining contractual maturities at the balance sheet date. All figures are in thousands of Kenya Shillings.

103 Heritage Insurance Company Kenya Limited 101 Notes (cont d) Market risk (cont d) Liquidity Group Up to Over 5 As at 31 December 2013: month months months years years Total Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Liabilities Insurance contract liabilities 361, ,651 2,393, , ,821 3,762,406 Creditors arising from reinsurance arrangements , ,821 Other payables 49, ,403 11, ,014 Creditors arising from direct insurance arrangements , ,616 Total financial liabilities (expected maturity dates) 410, ,054 2,912, , ,821 4,490,857 Company Up to Over 5 As at 31 December 2013: month months months years years Total Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Liabilities Insurance contract liabilities 361, , , , ,821 1,118,291 Creditors arising from reinsurance arrangements , ,279 Other payables 49,844 98,156 11, ,767 Creditors arising from direct insurance arrangements , ,616 Total financial liabilities (expected maturity dates) 410, , , , ,821 1,323,953 Group Up to Over 5 As at 31 December 2012: month months months years years Total Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Liabilities Insurance contract liabilities 708, ,707 1,461, , ,338 3,474,193 Creditors arising from reinsurance arrangements , ,328 Other payables 91, ,200 21, ,538 Creditors arising from direct insurance arrangements , ,814 Bank overdraft 41, ,025 Total financial liabilities (expected maturity dates) 840, ,907 2,446, , ,338 4,832,898 Company Up to Over 5 As at 31 December 2013: month months months years years Total Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Liabilities Insurance contract liabilities 708, , , , ,338 2,192,476 Creditors arising from reinsurance arrangements , ,074 Other payables 91, ,567 21, ,905 Creditors arising from direct insurance arrangements , ,413 Total financial liabilities (expected maturity dates) 799, , , , ,338 2,923,868

104 102 Heritage Insurance Company Kenya Limited Notes (cont d) (d) Capital management The Group s capital comprises the paid up share capital and the solvency margin required to meet the requirements of the insurance regulator. The Group s objectives when managing capital, which is a broader concept than the equity on the balance sheets, are: to comply with the capital requirements as set out in the Insurance Act; to comply with regulatory solvency requirements as set out in the Insurance Act. This is consistently carried out to ensure the Company s ability to meet all its obligations as they fall due is not compromised. to safeguard the company s ability to continue as a going concern, so that it can continue to provide returns to shareholders and benefits for other stakeholders; and to provide an adequate return to shareholders by pricing insurance and investment contracts commensurately with the level of risk. The Insurance Act requires each insurance company to hold the minimum level of paid up capital as follows; Composite insurance companies Shs 450 million ; Short term insurance business companies Shs 300 million and Long term insurance business companies Shs 150 million The Company had a share capital of 25,000,000 fully paid up shares totalling Shs 500 Million made up as follows: Short term business Shs 500 Million This was in excess of the minimum requirement The Groups paid up capital at the end of 2013 and 2012 is presented in Note 11. The table below summarises the capital requirements of the company and its subsidiary in the various jurisdiction that the Company operates. Kenya Short-term division Shs 000 Tanzania Short-term division Tshs 000 Regulatory requirement 350,000 1,000,000 Amount of capital held by the company 500,000 4,000,000 Solvency Short term insurance businesses are required to keep a solvency margin 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. During the period the Group held the minimum paid up capital required. The Company has met the required solvency margin as at 31 December The following table sets out an analysis of the solvency margin as at 31 December 2013: Solvency margin Company ( per (Sec 41 (1) (a) and 41 (2) (a)) Long term Short term Total Long term Short term Total Business Business 2013 Business Business 2012 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Total admitted assets - 4,113,284 4,113,284-4,215,916 4,215,916 Total admitted liabilities - (2,873,467) (2,873,467) - (2,968,364) (2,968,364) Add: 5% of admitted liabilities Add: 15% of previous year s net written premium for short term business - (315,327) (315,327) - (356,444) (356,444) Total liabilities and minimum requirement - (3,188,794) (3,188,794) - (3,324,808) (3,324,808) Solvency margin - 924, , , ,108

105 Heritage Insurance Company Kenya Limited 103 Notes (cont d) e) Fair value estimation IFRS 7 requires disclosure of fair value measurements by level of the following fair value measurement hierarchy for financial instruments that are measured at fair value: Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1). Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (level 2). Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (level 3). The following table presents the Group s assets that are measured at fair value at 31 December Group Company As at 31 December 2013 Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total Assets Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Financial assets Quoted shares 354, , , ,640 Unquoted shares , , , ,428 Bonds - 1,396,845-1,396,845-1,396,845-1,396,845 Investment property - 247, , , ,000 Total assets 354,045 1,643, ,697 2,154, ,640 1,543, ,428 1,804,913 Group Company As at 31 December 2012 Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total Assets Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Financial assets Quoted shares 201, , , ,389 Unquoted shares , , , ,171 Bonds - 1,574,744-1,574,744-1,574,744-1,574,744 Investment property - 261, , , ,000 Total assets 201,029 1,836, ,029 2,249, ,389 1,754, ,171 2,045,304 The fair value of other classes of financial assets and liabilities that are not traded in an active market (for example, unquoted equity investments) is determined by using valuation techniques. These valuation techniques maximise the use of observable market data where it is available and rely as little as possible on entity specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in level 2. If one or more of the significant inputs is not based on observable market data, the instrument is included in level 3. Specific valuation techniques used to value financial instruments include: Quoted market prices or dealer quotes for similar instruments The fair value government security is calculated as the present value of the estimated future cash flows based on observable yield curves. Other techniques, such as discounted cash flow analysis, are used to determine fair value for the remaining financial instruments. Note that all of the resulting fair value estimates are included in level 2 or 3.There were no transfers into or our of level 3 during the period

106 104 Heritage Insurance Company Kenya Limited Supplementary information (cont d) Consolidated Short term insurance business revenue account 2013 Class of insurance Engine Fire Fire Motor Motor Personal Miscel 2013 Business -ering Domestic Industrial Liability Marine Aviation Private Commercial Accident Medical Theft W.C.A -laneous Total Shs`000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Gross premiums written 342, ,703 1,510, , , , , ,526 1,118,241 97, , ,986 6,027,013 Change in gross UPR (85,603) 2,884 (105,355) (66,775) (24,277) - (13,288) (27,744) 19,235 25,154 (693) (16,183) 39,231 (253,414) Less: reinsurance payable 207,401 8,430 1,275, , ,234-59,229 42,059 54, ,030 3,461 4, ,576 3,172,157 Net earned premiums 49, , ,928 88,550 65, , , , ,365 92, , ,641 2,601,442 Gross claims paid 75,998 35,751 3,152,259 11,748 25, , ,545 85, ,953 47,110 46, ,248 4,924,728 Change in gross o/s claims 27, ,607,422 6,726 (39,028) 2,754 (25,208) (26,807) (3,626) 774 (20,274) (967) 9,322 1,538,622 Less: Reinsurance recoverable 91,167 (998) 4,719,857 9,968 (26,528) 88 56,404 (2,288) 8, ,870 1,142 (563) (6,802) 5,406,741 Net claims incurred 12,273 36,841 39,824 8,506 13,391 2, , ,026 73, ,857 25,694 45, ,372 1,056,609 Commissions receivable (42,870) (467) (161,643) (36,294) (12,864) - (7,453) (6,570) (11,497) (264,386) (573) (2,969) (31,731) (579,317) Commissions payable 32,632 21, ,292 29,920 27,555-74,546 55,710 89,361 51,194 13,615 49,434 43, ,538 Expenses of management 27,777 43, ,263 48,972 25, , ,772 94, ,742 28,230 74,248 72,363 1,164,575 Total expenses and commissions 17,539 64,259 80,912 42,598 40, , , ,458 45,550 41, ,713 83,671 1,211,796 Underwriting profit/ (loss) 19,858 31,057 9,192 37,446 11,195 (2,666) (18,965) 60,491 88,506 8,958 25,885 76,482 (14,402) 333,037 transferred to P & L account Key ratios: Loss ratio (net claims incurred / net earned premium) Commissions ratio (commissions payable / gross premium written) Expense ratio (management expenses / gross written premium)

107 Heritage Insurance Company Kenya Limited 105 Supplementary information (cont d) Consolidated Short term insurance business revenue account 2012 Class of insurance Engine Fire Fire Motor Motor Personal Miscel 2012 Business -ering Domestic Industrial Liability Marine Aviation Private Commercial Accident Medical Theft W.C.A -laneous Total Shs`000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Gross premiums written 309, ,697 1,300, , , , , ,687 1,035,764 94, , ,649 5,530,413 Change in gross UPR (41,177) (1,342) 82,968 (11,792) (5,173) - 63,894 48,162 (35,043) (89,466) (1,439) (1,740) (26,887) (19,035) Less: reinsurance payable 236,268 14,953 1,256, ,842 78,003-42,727 39,235 60, ,305 4,950 29, ,812 2,822,191 Net earned premiums 32, , ,604 90,632 70, , , , ,993 87, , ,949 2,689,186 Gross claims paid 22,989 30, ,260 9,771 12, , ,890 51, ,878 37,801 34, ,118 1,962,000 Change in gross o/s claims 8,487 (510) (320,993) 4,178 16,117 (101) 23,743 70,350 38,297 (23,103) 22,386 2,978 4,842 (153,329) Less: Reinsurance recoverable 22,055 (206) (113,673) (3,914) 11,345 (98) 29,325 12,939 15, ,220 3, , ,575 Net claims incurred 9,421 30,195 90,940 17,863 17,429 (3) 371, ,301 74, ,555 56,481 37, ,433 1,137,096 Commissions receivable (62,024) (324) (180,779) (32,232) (12,293) - (6,341) (5,149) (24,310) (250,215) (1,646) (2,325) (16,540) (594,178) Commissions payable 49,017 21, ,727 28,215 24,980-71,958 49,570 95, ,271 15,948 47,464 29, ,313 Expenses of management 23,247 43, ,909 45,975 26, , , , ,859 26,485 69,911 59,533 1,189,383 Total expenses and commissions 10,240 64,307 58,857 41,958 38, , , , ,915 40, ,050 72,303 1,293,518 Underwriting profit/ (loss) 12,779 30,900 (23,193) 30,811 14, ,086 84,763 47,749 (75,477) (9,280) 68,090 15, ,578 transferred to P & L account Key ratios: Loss ratio (net claims incurred / net earned premium) Commissions ratio (commissions payable / gross premium written) Expense ratio (management expenses / gross written premium)

108 106 Heritage Insurance Company Kenya Limited Supplementary information (cont d) Company Short term insurance business revenue account 2013 Class of insurance Engine Fire Fire Motor Motor Personal Miscel 2013 Business -ering Domestic Industrial Liability Marine Aviation Private Commercial Accident Medical Theft W.C.A -laneous Total Shs`000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Gross premiums written 211, , , ,742 61, , , ,613 1,118,241 85, , ,752 3,549,062 Change in gross UPR (97,327) 2,884 (6,974) (42,466) (8,155) 24,677 25,154 (1,464) (7,074) (321) (110,255) Less: reinsurance payable 87,480 8, ,235 88,779 11,264-14,928 12,210 27, , ,194 58,651 1,502,397 Net earned premiums 26, ,157 84,278 43,497 50, , , , ,365 83, ,562 65,780 1,936,410 Gross claims paid 5,947 35,751 39,631 8,948 6, , ,444 60, ,953 29,543 45,626 18,383 1,388,442 Change in gross o/s claims 2, (52,333) 13,058 (4,768) 2,754 (38,591) (6,434) (12,481) 1,031 5,529 (88,908) Less: Reinsurance recoverable 1,231 (998) (4,959) 12,428 (758) 88 14,195 2,949 1, ,870 1,278 (224) 5, ,104 Net claims incurred 6,890 36,841 (7,743) 9,578 2,846 2, , ,061 59, ,857 15,784 46,881 18, ,430 Commissions receivable (19,797) (467) (56,329) (22,761) (319) - (172) (1,268) (6,317) (264,386) - (963) (10,674) (383,453) Commissions payable 12,889 21,240 58,802 15,504 13,479-41,242 32,505 69,273 51,194 11,125 40,839 12, ,948 Expenses of management 21,003 43,486 74,124 22,469 18, , ,733 81, ,742 26,940 69,117 38, ,075 Total expenses and commissions 14,095 64,259 76,597 15,212 31, , , ,489 45,550 38, ,993 40, ,570 Underwriting profit/(loss) 5,432 31,057 15,424 18,707 15,616 (2,666) 15,189 59,883 53,406 8,958 29,457 52,688 7, ,410 Transferred to P & L account Key ratios: Loss ratio (net claims incurred / net earned premium) (9) Commissions ratio (commissions payable / gross prem written) Expense ratio (management exps / gross written prem)

109 Heritage Insurance Company Kenya Limited 107 Supplementary information (cont d) Company Short term insurance business revenue account 2012 Class of insurance Engine Fire Fire Motor Motor Personal Miscel 2012 Business -ering Domestic Industrial Liability Marine Aviation Private Commercial Accident Medical Theft W.C.A -laneous Total Shs`000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Gross premiums written 160, , , ,535 62, , , ,150 1,035,764 81, , ,092 3,405,694 Change in gross UPR (25,142) (1,342) (6,243) (926) 35-87,428 44,937 (39,832) (89,466) (15,395) (45,150) Less: reinsurance payable 120,418 14, , ,558 8,553-6,430 11,961 31, ,305 2,432 3,976 47,203 1,259,361 Net earned premiums 15, ,402 80,951 39,051 53, , , , ,993 79, ,751 54,494 2,101,183 Gross claims paid 4,211 30, ,279 6,480 11, , ,724 35, ,878 29,169 33,240 13,950 1,291,041 Change in gross o/s claims 9,661 (510) 55,211 4,064 (1,171) (101) 19,943 34,686 28,579 (23,103) 15,820 5,066 (3,743) 144,402 Less: Reinsurance recoverable 8,607 (206) 100, (302) (98) (7,400) (3,135) 3, ,220 (2,512) (19) 1, ,780 Net claims incurred 5,265 30,195 59,531 10,177 10,610 (3) 300, ,545 59, ,555 47,501 38,325 8, ,663 Commissions receivable (39,253) (324) (62,149) (20,209) (540) - - (338) (8,263) (250,215) (115) - (10,700) (392,106) Commissions payable 33,461 21,509 65,258 16,365 13,544-51,056 33,821 68, ,271 10,794 39,913 15, ,914 Expenses of management 12,008 43,122 70,144 19,301 18, , ,622 90, ,859 24,572 63,433 21, ,333 Total expenses & commissions 6,216 64,307 73,253 15,457 31, , , , ,915 35, ,346 25,779 1,052,141 Underwriting profit/(loss) 3,676 30,900 (51,833) 13,417 12, , ,006 14,992 (75,477) (3,406) 63,080 19, ,379 Transferred to P & L account Key ratios: Loss ratio (net claims incurred / net earned premium) Commissions ratio (commissions payable / gross prem written) Expense ratio (management exps / gross written prem)

110 108 Heritage Insurance Company Kenya Limited Supplementary information (cont d) HERITAGE INSURANCE COMPANY KENYA LIMITED - FINANCIAL RECORD (COMPANY) FOR THE TEN YEARS ENDED 31 DECEMBER Restated Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Gross Written Premium 3,549,062 3,406,711 3,382,895 2,649,262 2,062,094 1,876,660 1,656,371 1,409,622 1,215,788 1,153,705 1,181,337 Net Written Premium 1,962,880 1,927,950 2,371,460 2,257,204 1,731,328 1,575,410 1,338, , , , ,941 Premium earned 1,936,410 2,103,172 2,463,819 1,936,874 1,647,516 1,429,598 1,179, , , , ,294 Claims incurred 710, ,663 1,193,557 1,053, , , , , , , ,572 Net commission (2,504) 100, , , , ,908 94,439 60,782 50,738 53,732 28,599 Expenses 918, , , , , , , , , , ,870 PROFIT AND LOSS Underwriting profit/(loss) transferred to p/l account 310, , ,719 26,150 1,018 (1,579) 27,694 17,185 (23,574) (73,075) (109,747) Policyholder bonuses & Interest DA schemes (Long-term Business) - (178,715) (94,416) (140,977) (73,010) (80,664) (110,860) (111,321) (56,424) (41,562) - Investment and other income 419, , , , , , , , , , ,566 Expenses not charged to revenue Account (18,539) (63,324) (22,589) (9,074) (11,029) (47,317) (17,959) (19,014) (14,020) (2,205) (2,787) Taxation (174,215) (118,388) (103,021) (81,376) (85,936) (93,574) (81,490) (74,310) (56,197) (38,329) (20,709) Operating profit attributed to Shareholder 536, , , ,160 43,175 77, , , , , ,323 Dividends 200, , , , , , ,000 60,000 40,000 40,000 SHARE HOLDERS FUNDS Share capital 500, , , , , , , , , , ,000 Retained profit and reserves 1,285,450 1,384,078 1,071,201 1,235,860 1,032, ,627 1,217, , , ,513 1,369,427 1,785,450 1,884,078 1,571,201 1,735,860 1,532,915 1,303,627 1,717,987 1,437,464 1,439,196 1,280,513 1,769,427 Insurance funds including claims and provisions 1,752,521 1,815,417 3,562,956 3,645,473 2,979,447 2,641,698 2,318,149 2,011,201 1,773,646 1,654,838 1,530,264 SHARE INFORMATION 3,537,971 3,699,495 5,134,157 5,381,333 4,253,559 3,945,325 4,036,136 3,860,069 3,212,842 2,935,351 3,299,691 Earning per share Shs Dividend per share Shs Note: Effective 1 January 2012 Long term Business was transferred to CfC Life through a business re-organisation process, the figures for 2013 show only Short-term Business. The figures have been restated to show the combined position for Short-term and Long-term business from 2003 to The earnings per share for 2003 are based on an issued capital of 17,500,000 ordinary shares. The earnings per share for 2004, 2005, 2006, 2007, 2008, 2009, 2010, 2011, 2012 and 2013 are based on an issued capital of 25,000,000 ordinary shares.

111 Heritage Tanzania Abridged Annual Reports

112 110 Heritage Insurance Company Kenya Limited DIRECTORS The directors of the Company at the date of this report, all of whom have served since 1 January 2013, are shown on page 112. COMPANY SECRETARY Gemma Moshy P O Box Dar es Salaam SENIOR MANAGEMENT Anil Chopra, MBA, AIII Chief Executive Officer Ian Baigrie, NTC5, COP General Manager - Underwriting & Claims Puneet Jain, ACA, ACS Chief Financial Officer INDEPENDENT AUDITORS PricewaterhouseCoopers 369 Toure Drive, Oyster Bay PO Box 45 Dar es Salaam, Tanzania REGISTERED OFFICE Oyster Bay Office Complex 368 Msasani Road, Oyster Bay PO Box 7390 Dar es Salaam, Tanzania PRINCIPAL BANKERS Citibank Tanzania Limited 36 Upanga Road PO Box Dar es Salaam, Tanzania

113 Heritage Insurance Company Kenya Limited 111 Chairman s Statement I once again have the pleasure of presenting the Annual Report for the financial year ended 31 December The Company has completed 15 years of business operations and despite many challenges in the operating environment maintained its preeminence in the Tanzanian insurance industry. Market conditions The Tanzanian economy continued to grow at a robust rate of around 7%. The overall macroeconomic performance has been stable with inflation declining to single digit. During the year shilling remained quite stable against major international currencies. The newly found natural gas resources will play an important role in country s economic transformation over the medium term. The expected Investments in the Oil and Gas sector will have cascading effect on other sectors of the economy. The insurance industry expects growth in terms of business generated considering the volume of oil and gas business expected to be underwritten locally. The Insurance Market in Tanzania continued to grow at a higher rate than national nominal GDP, but underwriting results of the Industry as a whole have been consistently deteriorating over last few years, mainly due to excessive competition leading to downward pressure on the premium rates. The Insurance business requires scale to maintain and support adequate level of services to their clientele, as also to develop and foster higher level of skills and expertise locally. Business Performance The gross written premium grew by 18% over the previous year. The net earned premium increased by 14%. Investment income grew by 22% over the previous year. The underwriting profit declined to TShs 419 million in 2013 from TShs 903 million in 2012, mainly due to many large fire claims which occurred in As a result, the profit before tax at TShs 1,690 million is marginally lower in 2013 compared with profit before tax of TShs 1,955 million in 2012, excluding profit from the disposal of an equity interest in an Associate. Reinsurance The global reinsurance market had a challenging year in terms of ever increasing incidents of natural catastrophes and weather events. However the global reinsurance premium rates remained stable due to over capacity in the reinsurance market. The Company s reinsurance program underwent significant changes due to a number of large losses which occurred during the year. The Company is implementing suitable measures to minimize the impact of these changes. Operations There were many large fire and engineering claims reported during the year. The Company has handled these claims in a very professional manner thus enhancing the reputation of the Company among our business partners and clients. Operating expenses remained higher than the international benchmark of 10% of Gross Written Premium. There will be continuing focus on reducing the cost base of the business, and improving the top line. Vodacom Faraja, a scheme to provide funeral benefits has been introduced on the MPesa platform. This is an effort to expand the market base. Investments Investments continue to be guided by Insurance Regulations and are overseen by the Investment Committee of the Board with the objective of maintaining investments in well secured institutions which deliver the best return and guarantee liquidity in the environment of short term insurance. Prospects for 2014 The Company will continue to maintain focus on its core market segment of large corporate clients. It also will be making efforts to develop and strengthen business relationships with new business partners to broaden its client base. Acknowledgements I would like to extend my sincere thanks to all our brokers, customers, business partners and reinsurers for their continued support and reposing trust in the Company. I thank the management and employees of the Company for their commitment to the values and ideals that Heritage represents. I also acknowledge the support and guidance provided by the Commissioner of Insurance and his office. Finally, my thanks go to my fellow Directors for their valuable guidance and support in all our endeavors. YOGESH M. MANEK CHAIRMAN

114 112 Heritage Insurance Company Kenya Limited REPORT OF THE DIRECTORS 1 The Directors submit their report together with the audited financial statements for the year ended 31 December 2013, which disclose the state of affairs of The Heritage Insurance Company Tanzania Limited ( the Company ). 2 Incorporation The Company is incorporated in Tanzania under the Companies Act as a limited liability company. 3 Vision Our vision is to be the obvious and preferred choice of risk partner for buyers, intermediaries and reinsurers, and the point of reference for the Tanzania insurance industry. 4 Mission Our mission is to maintain a viable and sustainable risk transfer enterprise that maximises returns for key stakeholder groups our shareholders, business partners and staff. 5 Prinicipal activities The Company is registered for general insurance business, which is its principal activity. 6 Composition of the board of directors The directors of the Company at the date of this report and who have served since 1 January 2013, except where otherwise stated, are:- Name Position Nationality Yogesh M Manek Chairman Tanzanian Nanalal L Chohan Director Tanzanian John H D Milne Director South African Michael L du Toit Director South African Juma V Mwapachu Director Tanzanian Stephen Lugalia Director Kenyan Peter N Gethi Director Kenyan Alternate director Name Position Nationality Vinod. K. Dhall Alternate to Mr Nanalal. Indian L. Chohan 7 Company secretary The Company s Secretary as at the date of the report was Mrs. Gemma Moshy. 8 Corporate governance The Board of Directors consists of 7 directors and 1 alternate director. None of the directors hold executive positions in the Company. The Board takes overall responsibility for the Company, including responsibility for identifying key risk areas, considering and monitoring investment decisions, considering significant financial matters, and reviewing the performance of management business plans and budgets. The Board is also responsible for ensuring that a comprehensive system of internal control policies and procedures is operative, and for compliance with sound corporate governance principles. The Board is required to meet at least four times a year. The Board delegates the day to day management of the business to the Chief Executive Officer assisted by the Management Team. The Management Team is invited to attend board meetings and facilitate the effective control of the Company s operational activities, acting as a medium of communication and coordination between the various departments. The Company is committed to the principles of effective corporate governance. The Directors also recognize the importance of integrity, transparency and accountability. During the year the Board had the following Board sub-committees to ensure a high standard of corporate governance throughout the Company. Board Audit and Risk Committee No. Name Position 1 Vinod K. Dhall Chairman 2 John H. D. Milne Member 3 Stephen Lugalia Member 4 Peter N Gethi Member Board Investment Committee No. Name Position 1 Yogesh M. Manek Chairman 2 John H. D. Milne Member 3 Vinod K. Dhall Member Board Human Resources and Remuneration Committee No. Name Position 1 John H. D. Milne Chairman 2 Yogesh M. Manek Member 3 Juma V. Mwapachu Member (Appointed July 2013)

115 Heritage Insurance Company Kenya Limited 113 Report of the directors (cont d) During the year the Board of Directors held 6 meetings. The Board sub-committees held the following number of meetings: Audit and Risk Committee 5; Investment Committee 6; and Human Resources and Remuneration Committee 3 meetings. 9 Risk management and internal control The Board accepts final responsibility for the risk management and internal control systems of the Company. It is the task of management to ensure that adequate internal financial and operational control systems are developed and maintained on an ongoing basis in order to provide reasonable assurance regarding: The effectiveness and efficiency of operations; The safeguarding of the Company s assets; Compliance with applicable laws and regulations; The reliability of accounting records; Business sustainability under normal as well as adverse conditions; and Responsible behaviors towards all stakeholders. The efficiency of any internal control system is dependent on the strict observance of prescribed measures. There is always a risk of non-compliance with such measures by staff. Whilst no system of internal control can provide absolute assurance against misstatement or losses, the Company s system is designed to provide the Board with reasonable assurance that the procedures in place are operating effectively. The Board assessed the internal control systems throughout the financial year ended 31 December 2013 and is of the opinion that they met accepted criteria. The Board performs risk and internal control assessment through the Board Audit and Risk Committee. 10 Capital structure The Company s capital structure for the year under review is shown in Note 14 to the financial statements. 11 Management team The management of the Company is under the Chief Executive Officer, assisted by the following:- Chief Financial Officer; General Manager - Underwriting & Claims Human Resources Officer and Systems Administration Manager. 12. Shareholders of the company The total number of shareholders during the year 2013 is 2 (2012: 2 shareholders). One director, Mr. Yogesh M. Manek has an indirect interest in 37.44% of the shares of the Company through his shareholding in MAC Group Tanzania Limited. No other director holds shares of the Company. The shares of the Company are held as follows: Name of the Shareholder number number of Shares of Shares Heritage Insurance Company Limited 36,000 36,000 MAC Group Tanzania Limited 24,000 24,000 60,000 60, Future Development funds The Company will continue to improve its profitability through the introduction of innovative products and focusing on value-added customer services while carefully managing both costs and risks. The Company will continue to focus on improving productivity and introducing new products to the market. Based on gross premium written in the current year, the Company is one of the largest private insurance Company in Tanzania. After deducting reinsurance premium, the Company registered net earned premium of TShs 12,323 million (2012: TShs 10,771 million). The directors believe that the Company is well placed to consolidate its position as a leading Company in the market during the next two to three years. 14 Performance for the year During the year the Company recorded a net profit after tax for the year of TShs 1,733 million (2012: TShs 2,922 million). 15 Transfer to reserve An amount of TShs 347 million (2012: TShs 584 million), has been transferred from the retained earnings to a contingency reserve, in accordance with Regulation 27 (2) (b) of the Insurance Act 2009.

116 114 Heritage Insurance Company Kenya Limited Report of the directors (cont d) 16 Dividend The directors propose payment of a dividend of TShs 1.5 billion equivalent to TShs 25,000 per share (2012: TShs 964 million equivalent to TShs 16,073 per share). 17 Resources Employees with appropriate skills and experience in running the business are a key resource available to the Company and they assist in pursuing the Company s business objectives. 18 Principles risks and uncertainities The principal financial risks that may significantly affect the Company s strategies and development are mainly insurance risk, credit risk, debt and equity market price, foreign currency exchange rate and interest rate risk. More details of the risks facing the Company are provided in Note 3 to the financial statements. 19 Serious prejudicial matters In the opinion of the directors, there are no serious prejudicial matters that can affect the Company. 20 Solvency The Board of directors confirms that applicable accounting standards have been followed and that the financial statements have been prepared on a going concern basis. The Board of directors has reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future. 21 Employees welfare Management and employees relationship There was continued good relation between employees and management for the year There were no unresolved complaints received by Management from the employees during the year. A healthy relationship continues to exist between management and staff. The Company is an equal opportunity employer. It gives equal access to employment opportunities and ensures that the best available person is appointed to any given position free from discrimination of any kind. Training facilities During the year the Company spent TShs 17 million (2012: TShs 20 million) for staff training in order to improve employees technical skills and hence effectiveness. Training programs have been and are continually being developed to ensure employees are adequately trained at all levels. All employees have some form of annual training to upgrade skills and enhance development. Medical assistance All members of staff and their spouses up to a maximum number of four beneficiaries (dependants) for each employee were availed medical services by the Company through medical insurance. Persons with disabilities Applications for employment by disabled persons are always considered, bearing in mind the aptitude of the applicant concerned. In the event of members of staff becoming disabled, every effort is made to ensure that their employment with the Company continues and appropriate training is arranged. It is the policy of the Company that training, career development and promotion of persons with disabilities should, as far as possible, be identical to that of other employees. Employees benefit plan The Company pays contributions to publicly administered pension plan on mandatory basis which qualifies to be a defined contribution plan. The number of employees during the year was 47 (2012: 46). 22 Gender parity The Company had 47 employees, out of which 22 were female and 25 were male (2012: female 22, male 24). 23 Related party transactions All related party transactions and balances are disclosed in note 38 to these financial statements. 24 POLITICAL AND CHARITABLE DONATIONS The Company did not make any political donations during the year. Donations made to charitable and other organizations during the year amounted to TShs 2.8 million (2012: TShs 12.3 million). 25 RELATIONSHIP WITH STAKEHOLDERS The Company continued to maintain a good relationship with all stakeholders including the regulators. 26 CORPORATE SOCIAL RESPONSIBILITY (CSR) The Company encourages its employees initiatives on participating in the CSR activities. Various activities were carried out during the year including visiting orphanage centres.

117 Heritage Insurance Company Kenya Limited 115 Report of the directors (cont d) 27 Auditors The auditors, PricewaterhouseCoopers, have expressed their willingness to continue in office and are eligible for re-appointment. A resolution proposing an appointment of the Company s auditors for the year ending 31 December 2014 will be put to the Annual General Meeting. By order of the board Yogesh M Manek Chairman

118 116 Heritage Insurance Company Kenya Limited Statement of directors responsibilities The Directors confirm that suitable accounting policies have been used and applied consistently and reasonable and prudent judgments and estimates have been made in the preparation of the financial statements for the year ended 31 December The directors also confirm that applicable accounting standards have been followed and that the financial statements have been prepared on the going concern basis. The directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Company and which enable them to ensure that the financial statements comply with the Companies Act, CAP 212 Act No. 12 of They are responsible for safeguarding the assets of the Company and, hence, for taking reasonable steps for the prevention and detection of fraud or other irregularities. No matters have come to the attention of the directors to indicate that the Company will not remain a going concern for at least the ensuing financial year. Yogesh M Manek Chairman John HD Milne Director

119 Heritage Insurance Company Kenya Limited 117 Financial statements Statement of Profit and Loss and other Comprehensive Income TShs 000 TShs 000 Insurance premium revenue 43,263,685 39,449,432 Insurance premium ceded to reinsurers (30,940,639) (28,677,937) Net insurance premium revenue 12,323,046 10,771,495 Investment income 2,189,333 1,564,857 Commission earned 3,383,823 3,708,030 Profit on disposal of Associate - 3,628,008 Other income 113,365 32,872 Net income 18,009,567 19,705,262 Insurance claims (95,685,466) (6,848,751) Insurance claims recovered from reinsurers 89,270,772 1,390,862 Net insurance claims (6,414,694) (5,457,889) Operating expenses (5,462,735) (5,323,611) Finance costs - (16,655) Commission expense (4,305,226) (3,677,322) Profit from operations 1,826,912 5,229,785 Share of (loss)/ profit from associates (136,872) 352,847 Profit before income tax 1,690,040 5,582,632 Income tax credit/ (expense) 42,685 (2,660,196) Profit for the year 1,732,725 2,922,436 Other comprehensive income: Items that may be subsequently reclassified to profit or loss: Gain on fair valuation of available for sale financial assets (AFS) 1,913, ,438 Transfer to profit or loss of share of other comprehensive income on disposal of Alliance - (1,205,240) Transfer to profit or loss of fair valuation of available for sale financial assets (AFS) on disposal of TOL (5,992) - Share of other comprehensive income of associates 100, ,585 Total comprehensive income for the year 3,740,724 2,152,219

120 118 Heritage Insurance Company Kenya Limited Financial statements (cont d) Statement of of financial position as at 31 December 2013 ASSETS TShs 000 TShs 000 Property and equipment 119, ,917 Intangible assets - 4,979 Held for sale investment in associates 1,276, ,569 Available-for-sale quoted equity investments 4,106,903 1,801,159 Available-for-sale unquoted investment 442, ,182 Receivables arising out of direct insurance arrangements 9,273,178 7,670,125 Receivables arising out of reinsurance arrangements 4,356,327 2,916,944 Reinsurers share of insurance liabilities 52,507,339 20,844,369 Deferred acquisition cost 2,163,443 1,498,872 Deferred income tax 243,176 82,205 Income tax recoverable 444,303 - Other receivables 3,334,577 6,754,658 Government securities held to maturity 4,320,771 4,156,118 Corporate bonds held to maturity 449,705 4,223,296 Deposits with financial institutions 11,300,640 7,047,774 Cash and bank balances 1,493, ,461 Total assets 95,832,251 59,501,628 LIABILITIES Insurance contract liabilities 48,175,775 18,017,676 Unearned premiums 19,100,808 16,448,097 Payables arising from reinsurance arrangements 8,409,292 6,291,742 Deferred acquisition income 1,390,629 1,526,058 Income tax payable - 1,644,426 Other payables 1,320, ,640 Total liabilities 78,396,942 44,842,639 EQUITY Share capital 6,000,000 6,000,000 Contingency reserve 4,075,177 3,728,632 Fair value reserve 2,774, ,627 Retained earnings 3,085,505 3,199,326 Proposed dividend 1,500, ,404 Total equity 17,435,309 14,658,989 Total equity and liabilities 95,832,251 59,501,628 The financial statements were approved for issue by the board of directors and signed on its behalf by: YOGESH M. MANEK JOHN H.D.MILNE ANIL CHOPRA CHAIRMAN DIRECTOR CHIEF EXECUTIVE OFFICER

121 119 Financial statements (cont d) General Insurance Business Revenue Account 2013 Class of insurance Business Fire Motor Personal Workmen s Miscell Engineering Industrial Liability Marine Commercial Private Accident Theft Compe- aneous Total Total nsation Class code TShs 000 TShs 000 TShs 000 TShs 000 TShs 000 TShs 000 TShs 000 TShs 000 TShs 000 TShs 000 TShs 000 TShs 000 Gross premium written 2,435,760 22,112,438 4,087,558 2,507,182 2,852,746 4,265,334 2,055, , ,166 4,581,208 45,916,396 38,988,586 Change in gross UPR 217,246 (1,822,994) (450,441) (455,357) (362,980) (255,751) (100,841) 14,285 (168,793) 732,915 (2,652,711) 460,846 Gross earned premiums 2,653,006 20,289,444 3,637,117 2,051,825 2,489,766 4,009,583 1,954, , ,374 5,314,123 43,263,685 39,449,432 Less: reinsurance payable 2,222,137 19,443,555 2,802,275 1,778, , , ,595 47,188-2,759,581 30,940,638 28,677,937 Net earned premiums 430, , , ,502 1,936,673 3,188,692 1,440, , ,374 2,554,542 12,323,047 10,771,495 Net Written 264, , , ,595 2,286,457 3,487,289 1,549, , ,591 2,574,573 12,737,785 11,162,860 Gross claims paid 1,298,037 57,676,991 51, , ,426 2,515, , ,517 13,052 1,850,499 65,527,368 12,312,116 Change in gross o/s claims 468,215 30,755,252 (117,333) (634,834) (377,503) 247,983 (72,505) (144,401) (37,023) 70,249 30,158,100 (5,463,366) Less: Reinsurance recoverable 1,666,523 87,550,840 (45,585) (477,510) (97,043) 782, ,543 (2,526) (6,284) (233,313) 89,270,772 1,390,861 Net claims incurred 99, ,403 (19,869) 195, ,966 1,980, , ,642 (17,687) 2,154,061 6,414,696 5,457,889 Commission receivable (427,548) (1,730,466) (205,609) (263,447) (98,239) (134,917) (95,985) (10,611) (37,170) (379,833) (3,383,823) (3,708,030) Commission payable 365,839 1,251, , , , , ,224 46, , ,917 4,305,226 3,677,322 Expenses of management 125, , , , ,686 1,358, ,025 23,912 95, ,786 4,567,667 4,441,512 Total expenses and commissions 63,812 79, , ,026 1,240,443 1,840, ,264 59, , ,871 5,489,070 4,410,805 Underwriting profit/(loss) 267,328 (115,471) 347,263 (81,917) 11,264 (632,879) 650,399 (66,209) 440,893 (401,390) 419, ,801 Key ratios Loss ratio 23% 104% -2% 71% 35% 62% 19% 104% -3% 84% 52% 51% Commission ratio 15% 6% 5% 12% 15% 14% 18% 22% 20% 12% 9% 9% Expense ratio 5% 3% 12% 5% 32% 32% 12% 11% 12% 14% 10% 11%

122 120 Financial statements (cont d) General Insurance Business Revenue Account 2012 Class of insurance Business Fire Motor Personal Workmen s Miscell Engineering Industrial Liability Marine Commercial Private Accident Theft Compe- aneous Total Total nsation Class code TShs 000 TShs 000 TShs 000 TShs 000 TShs 000 TShs 000 TShs 000 TShs 000 TShs 000 TShs 000 TShs 000 TShs 000 Gross premium written 2,737,238 18,205,929 3,279,711 1,670,307 2,093,013 3,532,936 1,771, , ,746 4,652,768 38,988,586 37,317,807 Change in gross UPR (294,242) 1,637,024 (199,398) (95,558) 59,174 (431,847) 87,885 (33,691) (39,256) (229,245) 460,846 (5,363,748) Gross earned premiums 2,442,996 19,842,953 3,080,313 1, ,152,187 3,101,089 1,859, , ,490 4,423,523 39,449,432 31,954,059 Less: reinsurance payable 2,125,846 19,005,228 2,133,806 1,274, , , ,739 46, ,587 1,919,599 28,677,937 22,562,387 Net earned premiums 317, , , ,345 1,651,713 2,435,037 1,328, , ,903 2,503,924 10,771,495 9,391,672 Net Written 421, , , ,091 1,568,187 2,739,586 1,256, , ,908 2,268,612 11,162,860 10,192,127 Gross claims paid 344,584 3,541,195 60,397 21, ,342 1,905, , ,397 24,395 5,251,187 12,312,116 8,086,493 Change in gross o/s claims (21,535) (6,903,340) 2, , ,439 69, , ,491 (38,309) 157,518 (5,463,366) 6,745,472 Less: Reinsurance recoverable 246,767 (3,938,495) (78,564) 213, , , , , ,655,256 1,390,861 9,364,291 Net claims incurred 76, , , ,117 1,059,832 1,301, , ,784 (14,794) 1,753,449 5,457,889 5,467,674 Commission receivable (417,857) (2,079,154) (220,625) (229,828) (88,289) (116,365) (294,462) (28,085) (42,665) (190,700) (3,708,030) (3,163,229) Commission payable 285,458 1,213, , , , , ,598 94, , ,401 3,677,322 2,542,976 Expenses of management 206, , , , ,599 1,194, ,717 35, , ,578 4,441,512 4,450,760 Total expenses and commissions 73,828 (264,170) 486, , ,297 1,461, , , , ,279 4,410,805 3,830,507 Underwriting profit/(loss) 167, , ,166 34,924 (316,416) (327,889) 601,106 (107,786) 91,915 (84,804) 902,801 93,491 Key ratios Loss ratio 24% 69% 15% 42% 64% 53% 21% 104% -5% 70% 51% 58% Commission ratio 10% 7% 7% 13% 14% 11% 19% 16% 17% 11% 9% 7% Expense ratio 8% 3% 15% 9% 34% 34% 15% 15% 15% 15% 11% 12%

123 Heritage Insurance Company Kenya Limited 121 NOTES

124 122 Heritage Insurance Company Kenya Limited NOTES

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