Guardian General Insurance Jamaica Limited Financial Statements For the Year Ended 31 December 2015 (Expressed in Jamaican dollars unless otherwise indicated)
Index Page Independent Auditor s Report 1-2 Financial Statements Statement of Comprehensive Income 3 Statement of Financial Position 4 Statement of Changes in Equity 5 Statement of Cash Flows 6-7 8-59
8 Olivier Road Kingston 8 Jamaica, W.I. Tel: +1 876 925 2501 Fax: +1 876 755 0413 ey.com Chartered Accountants INDEPENDENT AUDITOR S REPORT To the Shareholders of Guardian General Insurance Jamaica Limited Report on the Financial Statements We have audited the accompanying financial statements of Guardian General Insurance Jamaica Limited (the Company ) which comprise the statement of financial position as at 31 December 2015 and the statements of comprehensive income, changes in equity and cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information. Management s Responsibility for the Financial Statements Management is responsible for the preparation of financial statements that give a true and fair view in accordance with International Financial Reporting Standards and the requirements of the Jamaican Companies Act, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free 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 entity s preparation of financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. A member firm of Ernst & Young Global Limited Partners: Allison Peart, Linval Freeman, Winston Robinson, Anura Jayatillake, Kayann Sudlow 1
INDEPENDENT AUDITOR S REPORT, CONTINUED To the Shareholders of Guardian General Insurance Jamaica Limited, Continued Report on the Financial Statements, Continued Opinion In our opinion, the accompanying financial statements give a true and fair view of the financial position of the Company as at 31 December 2015, and of its financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards and the requirements of the Jamaican Companies Act. Report on Additional Requirements of the Jamaican Companies Act 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. In our opinion, proper accounting records have been maintained and the financial statements are in agreement with the accounting records, and give the information required by the Jamaican Companies Act in the manner so required. Chartered Accountants Kingston, Jamaica 18 March 2016 A member firm of Ernst & Young Global Limited 2
Statement of Comprehensive Income Notes 2015 Gross premiums written 5,493,189 5,249,686 Outward reinsurance premiums (3,894,949) (3,479,293) Premiums written, net of reinsurance 1,598,240 1,770,393 Change in provision for unearned premiums 45,288 38,286 Premiums earned, net of reinsurance 1,643,528 1,808,679 Claims incurred, net of reinsurance (1,153,279) (1,360,763) Commissions earned 665,566 621,293 Commissions paid (492,231) (500,017) Change in net deferred policy acquisition costs (19,865) 8,350 Administrative expenses 8 (559,975) (556,163) Underwriting profit 83,744 21,379 Investment income 10 403,558 427,385 Other income 3,260 5,334 Foreign exchange gains 89,766 56,847 Profit before taxation 580,328 510,945 Taxation 11 (166,497) (145,027) Net profit attributable to owners of the parent 413,831 365,918 Other comprehensive income: Amount not to be reclassified to profit or loss in future periods: Re-measurement of employee benefit obligation, net of taxes 26 (600) 200 Amount to be reclassified to profit or loss in future periods: Investment fair value gain, net of taxes 27 57,241 46,584 Total other comprehensive income 56,641 46,784 Total comprehensive income attributable to owners of the parent 470,472 412,702 The accompanying notes form an integral part of these financial statements. 3
Statement of Financial Position As at 31 December 2015 2015 Restated Restated 2013 Notes ASSETS Property and equipment 12(a) 113,948 112,928 108,778 Intangible assets 12(b) 4,348 24,629 28,513 Non-current assets held for sale 12(c), 28-42,781 42,781 Investments 13 5,639,352 5,286,022 5,135,576 Due from policyholders, brokers and agents 862,626 748,538 659,618 Taxation recoverable - 20,362 54,714 Deferred policy acquisition costs 14 226,928 233,654 229,799 Recoverable from reinsurers 15 1,934,787 1,789,132 1,751,127 Other receivables 16 17,657 19,085 26,980 Cash and bank 17 890,330 592,635 552,675 Total assets 9,689,976 8,869,766 8,590,561 EQUITY Share capital 18(a) 1,138,500 1,138,500 427,000 Share options 19 2,289 2,289 1,310 Capital contribution 18(c) - - 711,500 Other capital reserves 18(b) 213,167 213,167 213,167 Revaluation reserves 27 200,291 143,050 96,466 Retained earnings 1,779,673 1,416,442 1,382,324 Total equity 3,333,920 2,913,448 2,831,767 LIABILITIES Insurance reserves 15 5,550,307 5,415,239 5,189,213 Deferred tax liabilities, net 20 124,165 83,684 38,678 Due to reinsurers and coinsurers 439,006 347,448 370,733 Other creditors 21 178,068 100,647 150,970 Employee benefit obligation 26 10,500 9,300 9,200 Taxation payable 54,010 - - Total liabilities 6,356,056 5,956,318 5,758,794 Total equity and liabilities 9,689,976 8,869,766 8,590,561 The accompanying notes form an integral part of these financial statements. On 23 February 2016, the Board of Directors authorised these financial statements for issue. David Henriques Director Peter John Thwaites Director 4
Statement of Cash Flows Cash flows from operating activities 2015 Notes Net cash provided by operating activities (page 7) 477,323 459,898 Cash flows from investing activities Purchase of property and equipment 12(a) (34,325) (51,723) Purchase of intangible assets 12(b) - (464) Proceeds from disposal of property and equipment 1,591 12,600 Proceeds from disposal of non-current assets held for sale 42,781 - Investments, net 703,032 (231,471) Net cash provided by/(used in) investing activities 713,079 (271,058) Cash flows from financing activities Dividends paid 25 (50,000) (332,000) Net cash used in financing activities (50,000) (332,000) Net increase/(decrease) in cash and cash equivalents 1,140,402 (143,160) Effect of exchange rate on cash and cash equivalents 29,127 184 Cash and cash equivalents at beginning of year 1,690,738 1,833,714 Cash and cash equivalents at end of year 2,860,267 1,690,738 Cash and cash equivalents comprise: Short-term investments 13 1,969,937 1,098,103 Cash and bank 17 890,330 592,635 2,860,267 1,690,738 The accompanying notes form an integral part of these financial statements. 6
Statement of Cash Flows (Continued) Cash flows from operating activities Notes 2015 Net profit 413,831 365,918 Adjustments for: Depreciation of property and equipment 12(a) 31,956 30,284 Amortisation of intangible assets 12(b) 4,348 4,348 Loss on sale of property and equipment 1,347 4,689 Loss on write off of website 12(b) 15,933 - Net interest and dividend income 10 (337,788) (369,848) Income tax expense 11 154,338 123,413 Deferred tax expense 11 12,159 21,614 Employee benefit obligations 26 900 900 Unrealised exchange gains on foreign currency (62,995) (55,173) Unrealised fair value gain on investments 10 (65,770) (57,537) Share option expense 19-979 Insurance reserves 135,068 226,026 Changes in operating assets and liabilities: Due from policyholders, brokers and agents (114,088) (88,920) Deferred policy acquisition costs 6,726 (3,855) Recoverable from reinsurers (145,655) (38,005) Taxation paid (79,965) (65,669) Other receivables 1,428 7,895 Due to parent company (1,109) - Due to reinsurers and coinsurers 91,558 32,045 Other creditors 78,530 (50,323) Net cash provided by operating activities 140,752 88,781 Interest and dividend received 336,571 371,117 Net cash provided by operating activities (page 6) 477,323 459,898 The accompanying notes form an integral part of these financial statements. 7
1. Identification and activity Guardian General Insurance Jamaica Limited (the Company ) is a limited liability company, incorporated and domiciled in Jamaica, with registered office at 19 Dominica Drive, Kingston 5, Jamaica. The Company is a whollyowned subsidiary of Globe Holdings Limited which is incorporated in St. Lucia. Globe Holdings Limited is a wholly-owned subsidiary of Guardian Holdings Limited, the ultimate parent company which is incorporated in the Republic of Trinidad and Tobago. The Company is licensed to operate as a general insurance company under the Insurance Act, 2001. Its principal activity is the underwriting of property and casualty risks. 2. Significant accounting policies The principal accounting policies applied in the preparation of these financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. (a) Basis of preparation Statement of compliance These financial statements have been prepared in accordance with International Financial Reporting Standards ( IFRS ) as issued by the International Accounting Standards Board ( IASB ), and the requirements of the Jamaican Companies Act. The Company presents its statement of financial position broadly in order of liquidity. An analysis regarding recovery or settlement within twelve months after the statement of financial position date (current) and more than 12 months after the statement of financial position date (non-current) is presented in the notes. Financial assets and financial liabilities are offset and the net amount reported in the statement of financial position only when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or to realise the assets and settle the liability simultaneously. Income and expense will not be offset in the statement of comprehensive income unless required or permitted by an accounting standard or interpretation, as specifically disclosed in the accounting policies of the Company. Basis of measurement The financial statements have been prepared under the historical cost convention as modified by the revaluation of investment securities classified as fair value through profit or loss and available for sale, and noncurrent asset held for sale. Judgements 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 Company s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in Note 6. 8
2. Significant accounting policies (continued) (b) Changes in accounting standards and interpretations Current year changes The Company applied for the first time certain standards and amendments, which are effective for annual periods beginning on or after 1 January 2015. The Company has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective. The nature and the effect of these changes are disclosed below. Although these new standards and amendments applied for the first time in 2015, they did not have a material impact on the annual financial statements of the Company. The nature and the impact of each new standard or amendment are described below: Amendments to IAS 19 Defined Benefit Plans: Employee Contributions IAS 19 requires an entity to consider contributions from employees or third parties when accounting for defined benefit plans. Where the contributions are linked to service, they should be attributed to periods of service as a negative benefit. These amendments clarify that, if the amount of the contributions is independent of the number of years of service, an entity is permitted to recognise such contributions as a reduction in the service cost in the period in which the service is rendered, instead of allocating the contributions to the periods of service. This amendment is effective for annual periods beginning on or after 1 July. This amendment is not relevant to the Company, since the Company does not have a defined benefit plan. Annual Improvements 2010-2012 Cycle With the exception of the improvement relating to IFRS 2 Share-based Payment applied to share-based payment transactions with a grant date on or after 1 July, all other improvements are effective for accounting periods beginning on or after 1 July. The Company has applied these improvements for the first time in these financial statements. They include: IFRS 2 Share-based Payment This improvement is applied prospectively and clarifies various issues relating to the definitions of performance and service conditions which are vesting conditions. The Company had not granted any awards during the year and thus these amendments did not impact the Company s financial statements or accounting policies. IFRS 3 Business Combinations The amendment is applied prospectively and clarifies that all contingent consideration arrangements classified as liabilities (or assets) arising from a business combination should be subsequently measured at fair value through profit or loss whether or not they fall within the scope of IAS 39. This amendment did not impact the Company s accounting policies as there were no business combinations during the year. IFRS 8 Operating Segments The amendments are applied retrospectively and clarify that: An entity must disclose the judgements made by management in applying the aggregation criteria in paragraph 12 of IFRS 8, including a brief description of operating segments that have been aggregated and the economic characteristics (e.g., sales and gross margins) used to assess whether the segments are similar The reconciliation of segment assets to total assets is only required to be disclosed if the reconciliation is reported to the chief operating decision maker, similar to the required disclosure for segment liabilities. 9
2. Significant accounting policies (continued) (b) Changes in accounting standards and interpretations (continued) Current year changes (continued) IFRS 8 Operating Segments (continued) These amendments did not have any impact on the financial statements of the Company. IAS 16 Property, Plant and Equipment and IAS 38 Intangible Assets The amendment is applied retrospectively and clarifies in IAS 16 and IAS 38 that the asset may be revalued by reference to observable data by either adjusting the gross carrying amount of the asset to market value or by determining the market value of the carrying value and adjusting the gross carrying amount proportionately so that the resulting carrying amount equals the market value. In addition, the accumulated depreciation or amortisation is the difference between the gross and carrying amounts of the asset. This amendment did not have any impact on the Company s financial statements as no revaluation adjustments were recorded by the Company during the current year. IAS 24 Related Party Disclosures The amendment is applied retrospectively and clarifies that a management entity (an entity that provides key management personnel services) is a related party subject to the related party disclosures. In addition, an entity that uses a management entity is required to disclose the expenses incurred for management services. This amendment is not relevant for the Company as it does not receive any management services from other entities. Annual Improvements 2011-2013 Cycle These improvements are effective from 1 July and the Company has applied these amendments for the first time in these financial statements. They include: IFRS 3 Business Combinations The amendment is applied prospectively and clarifies for the scope exceptions within IFRS 3 that: Joint arrangements, not just joint ventures, are outside the scope of IFRS 3 This amendment is not relevant for the Company as it has no joint arrangements. IFRS 13 Fair Value Measurement The amendment is applied prospectively and clarifies that the portfolio exception in IFRS 13 can be applied not only to financial assets and financial liabilities, but also to other contracts within the scope of IAS 39. The Company does not apply the portfolio exception in IFRS 13. IAS 40 Investment Property The description of ancillary services in IAS 40 differentiates between investment property and owner-occupied property (i.e., property, plant and equipment). The amendment is applied prospectively and clarifies that IFRS 3, and not the description of ancillary services in IAS 40, is used to determine if the transaction is the purchase of an asset or a business combination. This amendment did not impact the accounting policy of the Company. 10
2. Significant accounting policies (continued) (b) Changes in accounting standards and interpretations (continued) Future changes The standards and interpretations that are issued, but not yet effective, up to the date of issuance of the Company s financial statements are disclosed below. The Company intends to adopt these standards, if applicable, when they become effective. IFRS 9 Financial Instruments In July, the IASB issued the final version of IFRS 9 Financial Instruments that replaces IAS 39 Financial Instruments: Recognition and Measurement and all previous versions of IFRS 9. IFRS 9 brings together all three aspects of the accounting for financial instruments project: classification and measurement, impairment and hedge accounting. IFRS 9 is effective for annual periods beginning on or after 1 January 2018, with early application permitted. Except for hedge accounting, retrospective application is required but providing comparative information is not compulsory. For hedge accounting, the requirements are generally applied prospectively, with some limited exceptions. The Company plans to adopt the new standard on the required effective date. Overall, the Company expects no significant impact on its statement of financial position and equity except for the effect of applying the impairment requirements of IFRS 9. The Company expects a higher loss allowance resulting in a negative impact on equity and will perform a detailed assessment in the future to determine the extent. (i) Classification and measurement The Company does not expect a significant impact on its statement of financial position or equity on applying the classification and measurement requirements of IFRS 9. It expects to continue measuring at fair value all financial assets currently held at fair value. Quoted equity shares currently held as availablefor-sale with gains and losses recorded in OCI will be measured at fair value through profit or loss instead, which will increase volatility in recorded profit or loss. The AFS reserve currently in accumulated OCI will be reclassified to opening retained earnings. Debt securities are expected to be measured at fair value through OCI under IFRS 9 as the Company expects not only to hold the assets to collect contractual cash flows but also to sell a significant amount on a relatively frequent basis. (ii) Impairment IFRS 9 requires the Company to record expected credit losses on all of its debt securities, loans and trade receivables, either on a 12-month or lifetime basis. The Company expects to apply the simplified approach and record lifetime expected losses on all trade receivables. The Company expects a significant impact on its equity due to unsecured nature of its loans and receivables, but it will need to perform a more detailed analysis which considers all reasonable and supportable information, including forward-looking elements to determine the extent of the impact. (iii) Hedge accounting This amendment would not apply as the Company does not apply hedge accounting. IFRS 14 Regulatory Deferral Accounts IFRS 14 is an optional standard that allows an entity, whose activities are subject to rate-regulation, to continue applying most of its existing accounting policies for regulatory deferral account balances upon its first-time adoption of IFRS. Entities that adopt IFRS 14 must present the regulatory deferral accounts as separate line items on the statement of financial position and present movements in these account balances as separate line items in the statement of profit or loss and OCI. The standard requires disclosure of the nature of, and risks associated with, the entity s rate-regulation and the effects of that rate-regulation on its financial statements. IFRS 14 is effective for annual periods beginning on or after 1 January 2016. Since the Company is an existing IFRS preparer, this standard would not apply. 11
2. Significant accounting policies (continued) (b) Changes in accounting standards and interpretations (continued) Future changes (continued) IFRS 15 Revenue from Contracts with Customers IFRS 15 was issued in May and establishes a five-step model to account for revenue arising from contracts with customers. Under IFRS 15, revenue is recognised at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer. The new revenue standard will supersede all current revenue recognition requirements under IFRS. Either a full retrospective application or a modified retrospective application is required for annual periods beginning on or after 1 January 2018, when the IASB finalises their amendments to defer the effective date of IFRS 15 by one year. Early adoption is permitted. The Company plans to adopt the new standard on the required effective date using the full retrospective method. During 2015, the Company performed a preliminary assessment of IFRS 15, which is subject to changes arising from a more detailed ongoing analysis. Furthermore, the Company is considering the clarifications issued by the IASB in an exposure draft in July 2015 and will monitor any further developments. IFRS 16 Leases This new standard requires lesees to account for all leases under a single on-balance sheet model, subject to certain exemptions in a similar way to finance leases under IAS 17. Lesees recognize a liability to pay rentals with a corresponding asset, and recognize interest expense and depreciation separately. The standard provides guidance on the two recognition exemptions for leases leases of low value assets and short-term leases with a term of 12 months or less. Lessor accounting is substantially the same as IAS 17. IFRS 16 is effective for annual periods beginning on or after 1 January 2019. Early adoption is permitted but not before the Company applies IFRS 15. The directors and management have not yet assessed the impact of the application of this standard on the Company s financial statements. Amendments to IFRS 11 Joint Arrangements: Accounting for Acquisitions of Interests The amendments to IFRS 11 require that a joint operator accounting for the acquisition of an interest in a joint operation, in which the activity of the joint operation constitutes a business, must apply the relevant IFRS 3 principles for business combinations accounting. The amendments also clarify that a previously held interest in a joint operation is not remeasured on the acquisition of an additional interest in the same joint operation while joint control is retained. In addition, a scope exclusion has been added to IFRS 11 to specify that the amendments do not apply when the parties sharing joint control, including the reporting entity, are under common control of the same ultimate controlling party. The amendments apply to both the acquisition of the initial interest in a joint operation and the acquisition of any additional interests in the same joint operation and are prospectively effective for annual periods beginning on or after 1 January 2016, with early adoption permitted. These amendments are not expected to have any impact on the Company s financial statements. Amendments to IAS 16 and IAS 38: Clarification of Acceptable Methods of Depreciation and Amortisation The amendments clarify the principle in IAS 16 and IAS 38 that revenue reflects a pattern of economic benefits that are generated from operating a business (of which the asset is part) rather than the economic benefits that are consumed through use of the asset. As a result, a revenue-based method cannot be used to depreciate property, plant and equipment and may only be used in very limited circumstances to amortise intangible assets. The amendments are effective prospectively for annual periods beginning on or after 1 January 2016, with early adoption permitted. These amendments are not expected to have any impact on the Company s financial statements as the Company has not used a revenue-based method to depreciate its non-current assets. 12
2. Significant accounting policies (continued) (b) Changes in accounting standards and interpretations (continued) Future changes (continued) Amendments to IAS 16 and IAS 41 Agriculture: Bearer Plants The amendments change the accounting requirements for biological assets that meet the definition of bearer plants. Under the amendments, biological assets that meet the definition of bearer plants will no longer be within the scope of IAS 41. Instead, IAS 16 will apply. After initial recognition, bearer plants will be measured under IAS 16 at accumulated cost (before maturity) and using either the cost model or revaluation model (after maturity). The amendments also require that produce that grows on bearer plants will remain in the scope of IAS 41 measured at fair value less costs to sell. For government grants related to bearer plants, IAS 20 Accounting for Government Grants and Disclosure of Government Assistance will apply. The amendments are retrospectively effective for annual periods beginning on or after 1 January 2016, with early adoption permitted. These amendments are not expected to have any impact to the Company s financial statements as the Company does not have any bearer plants. Amendments to IAS 27: Equity Method in Separate Financial Statements The amendments will allow entities to use the equity method to account for investments in subsidiaries, joint ventures and associates in their separate financial statements. Entities already applying IFRS and electing to change to the equity method in its separate financial statements will have to apply that change retrospectively. For first-time adopters of IFRS electing to use the equity method in its separate financial statements, they will be required to apply this method from the date of transition to IFRS. The amendments are effective for annual periods beginning on or after 1 January 2016, with early adoption permitted. These amendments will not have any impact on the Company s financial statements. Amendments to IFRS 10 and IAS 28: Sale or Contribution of Assets between an Investor and its Associate or Joint Venture The amendments address the conflict between IFRS 10 and IAS 28 in dealing with the loss of control of a subsidiary that is sold or contributed to an associate or joint venture. The amendments clarify that the gain or loss resulting from the sale or contribution of assets that constitute a business, as defined in IFRS 3, between an investor and its associate or joint venture, is recognised in full. Any gain or loss resulting from the sale or contribution of assets that do not constitute a business, however, is recognised only to the extent of unrelated investors interests in the associate or joint venture. These amendments must be applied prospectively and are effective for annual periods beginning on or after 1 January 2016, with early adoption permitted. These amendments are not expected to have any impact on the Company s financial statements. Amendments to IAS 1 Disclosure Initiative The amendments to IAS 1 Presentation of Financial Statements clarify, rather than significantly change, existing IAS 1 requirements. The amendments clarify: The materiality requirements in IAS 1 That specific line items in the statement(s) of profit or loss and OCI and the statement of financial position may be disaggregated That entities have flexibility as to the order in which they present the notes to financial statements That the share of OCI of associates and joint ventures accounted for using the equity method must be presented in aggregate as a single line item, and classified between those items that will or will not be subsequently reclassified to profit or loss. 13
2. Significant accounting policies (continued) (b) Changes in accounting standards and interpretations (continued) Future changes (continued) Amendments to IAS 1 Disclosure Initiative (continued) Furthermore, the amendments clarify the requirements that apply when additional subtotals are presented in the statement of financial position and the statement(s) of profit or loss and OCI. These amendments are effective for annual periods beginning on or after 1 January 2016, with early adoption permitted. These amendments are not expected to have any impact on the Company s financial statements. Amendments to IFRS 10, IFRS 12 and IAS 28 Investment Entities: Applying the Consolidation Exception The amendments address issues that have arisen in applying the investment entities exception under IFRS 10. The amendments to IFRS 10 clarify that the exemption from presenting consolidated financial statements applies to a parent entity that is a subsidiary of an investment entity, when the investment entity measures all of its subsidiaries at fair value. Furthermore, the amendments to IFRS 10 clarify that only a subsidiary of an investment entity that is not an investment entity itself and that provides support services to the investment entity is consolidated. All other subsidiaries of an investment entity are measured at fair value. The amendments to IAS 28 allow the investor, when applying the equity method, to retain the fair value measurement applied by the investment entity associate or joint venture to its interests in subsidiaries. These amendments are not expected to have any impact on the Company s financial statements. Annual Improvements 2012- Cycle These improvements are effective for annual periods beginning on or after 1 January 2016. They include: IFRS 5 Non-current Assets Held for Sale and Discontinued Operations Assets (or disposal groups) are generally disposed of either through sale or distribution to owners. The amendment clarifies that changing from one of these disposal methods to the other would not be considered a new plan of disposal, rather it is a continuation of the original plan. There is, therefore, no interruption of the application of the requirements in IFRS 5. This amendment must be applied prospectively. IFRS 7 Financial Instruments: Disclosures (i) Servicing contracts The amendment clarifies that a servicing contract that includes a fee can constitute continuing involvement in a financial asset. An entity must assess the nature of the fee and the arrangement against the guidance for continuing involvement in IFRS 7 in order to assess whether the disclosures are required. The assessment of which servicing contracts constitute continuing involvement must be done retrospectively. However, the required disclosures would not need to be provided for any period beginning before the annual period in which the entity first applies the amendments. (ii) Applicability of the amendments to IFRS 7 to condensed interim financial statements The amendment clarifies that the offsetting disclosure requirements do not apply to condensed interim financial statements, unless such disclosures provide a significant update to the information reported in the most recent annual report. This amendment must be applied retrospectively. IAS 19 Employee Benefits The amendment clarifies that market depth of high quality corporate bonds is assessed based on the currency in which the obligation is denominated, rather than the country where the obligation is located. When there is no deep market for high quality corporate bonds in that currency, government bond rates must be used. This amendment must be applied prospectively. 14
2. Significant accounting policies (continued) (b) Changes in accounting standards and interpretations (continued) Future changes (continued) IAS 34 Interim Financial Reporting The amendment clarifies that the required interim disclosures must either be in the interim financial statements or incorporated by cross-reference between the interim financial statements and wherever they are included within the interim financial report (e.g., in the management commentary or risk report). The other information within the interim financial report must be available to users on the same terms as the interim financial statements and at the same time. This amendment must be applied retrospectively. These amendments are not expected to have any impact on the Company s financial statements. (c) Revenue recognition Underwriting income Premiums are recognised over the life of the policies written. The portion of premiums written in the current year which relates to coverage in subsequent years is deferred as unearned premiums (Note 2(f)). Commissions earned on the reinsurance of risks are credited to revenue over the life of the policies. Interest income Interest income for all interest bearing financial instruments is recognised within investment income in the statement of comprehensive income using the effective interest method. Dividend Dividend income for equities is recognised when the right to receive payment is established. (d) Insurance contracts Insurance contracts are those contracts that transfer significant insurance risk. The Company s insurance contracts are classified as short-term insurance contracts which include casualty and property insurance contracts. Casualty insurance contracts protect the Company s customers against the risk of causing harm to third parties as a result of their legitimate activities. Damages covered include both contractual and non-contractual events. The typical protection offered is designed for employers who become legally liable to pay compensation to injured employees (employer s liability) and business customers who become liable to pay compensation to a third party for bodily harm or property damage (public liability). Property insurance contracts mainly compensate the Company s customers for damage suffered to their properties or for the value of property lost. Customers who undertake commercial activities on their premises could also receive compensation for loss of earnings caused by the inability to use the insured properties in their business activities (business interruption cover). Premiums are recognised as revenue (earned premiums) proportionally over the period of coverage. The portion of premium received on in-force contracts that relates to unexpired risk at the statement of financial position date is reported as the unearned premium liability. Premiums are shown before deductible commission. 15
2. Significant accounting policies (continued) (d) Insurance contracts (continued) Claims and loss adjustments expenses are charged to the statement of comprehensive income as incurred based on estimated liability for compensation owed to contract holders or third parties damaged by the contract holders. They include direct and indirect claims settlement costs and arise from events that have occurred up to the statement of financial position date even if they have not yet been reported to the Company. The Company does not discount its liabilities for unpaid claims other than for disability claims. Liabilities for unpaid claims are estimated using the input of assessments for individual cases reported to the Company. Statistical analysis is used to estimate claims incurred but not reported, as well as the expected ultimate cost of more complex claims that may be affected by external factors. (e) Receivables and payables related to insurance 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 Company reduces the carrying amount of the insurance receivable accordingly and recognises the impairment loss in the statement of comprehensive income. (f) Provision for unearned premiums The provision for unearned premiums represents the proportion of premiums written relating to periods of insurance subsequent to the statement of financial position date and is calculated on the 365th basis. (g) Provision for unexpired risks The provision for unexpired risks is determined by the appointed actuary and represents the expected future costs associated with the unexpired portion of policies in force as of the statement of financial position date, in excess of the net unearned premium minus net deferred policy acquisition costs. (h) Provision for claims outstanding The provision for claims outstanding represents estimates of the cost of settling claims made, but not paid as of the statement of financial position date, less expected reinsurance recoveries. The provision for claims incurred but not reported ( IBNR ) is actuarially determined by the appointed actuary in accordance with the actuarial regulations of the Insurance Act, 2001. (i) Reinsurance Contracts entered into by the Company with reinsurers under which the Company is compensated for losses on one or more contracts issued by the Company are classified as reinsurance contracts. The benefits to which the Company is entitled under its reinsurance contracts held are recognised as reinsurance assets. These assets consist of short term balances due from reinsurers as well as longer term receivables that are dependent on the expected claims and benefits arising under the related reinsurance contracts. Amounts recoverable from or due to reinsurers are measured consistently with 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. 16
2. Significant accounting policies (continued) (i) Reinsurance (continued) Estimated amounts of reinsurance recoverable, which represent the unearned portion of premiums ceded to the reinsurers are included in recoverable from reinsurers on the statement of financial position. The Company relies upon reinsurance agreements to limit the potential for losses and to increase its capacity to write insurance. Reinsurance arrangements are effected under reinsurance treaties and by negotiation on individual risks. Reinsurance does not relieve the Company from liability to its policyholders. To the extent that a reinsurer may be unable to pay losses for which it is liable under the terms of the reinsurance agreement, the Company is exposed to the risk of continued liability for such losses. However, in an effort to reduce the risk of non-payment, the Company requires all of its reinsurers to have a Standard & Poor or equivalent rating of A- or better. The Company assesses its reinsurance assets for impairment. If there is objective evidence that the reinsurance asset is impaired, the Company reduces the carrying amount of the reinsurance asset to its recoverable amount and recognises that impairment loss in the statement of comprehensive income. (j) Unearned commission The unearned commission represents the actual commission income on premium ceded on proportional reinsurance contracts relating to the unexpired period of risk carried. The income is deferred as unearned commission reserves, and amortised over the period in which the commissions are expected to be earned. These reserves are calculated on the 365th method. (k) Deferred policy acquisition costs ( DAC ) Commissions and other acquisition costs that vary with and are related to securing new contracts and renewing existing contracts are deferred and recognised as an asset. All other costs are recognised as expenses when incurred. The DAC is subsequently amortised as premium is earned over the life of the contracts. (l) Property and equipment and intangible assets Property and equipment are stated at historical cost less depreciation, with the exception of freehold land and buildings which were revalued for the first time on 1 January 2013 (Note 12(b)). Intangible assets are stated at historical cost less amortisation. Historical cost includes expenditure directly attributable to the acquisition of the items. Acquired computer software licences and website development costs are capitalised as intangible assets on the basis of the costs incurred to acquire and bring to use the specific software. Costs that are directly associated with the development of identifiable and unique software products controlled by the Company, and that will probably generate economic benefits exceeding costs beyond one year, are also recognised as intangible assets. Subsequent costs are included in the asset s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Company and the cost of the item can be measured reliably. Repairs and maintenance are charged to the statement of comprehensive income during the financial period in which they are incurred. 17
2. Significant accounting policies (continued) (l) Property and equipment and intangible assets (continued) Property and equipment and intangible asset with the exception of freehold land, on which no depreciation is provided, are depreciated/amortised using the straight line method to allocate the cost of the assets to the residual values over their estimated useful lives, as follows: Computer equipment 33 1/3% Furniture and fixtures 10% - 20% Motor vehicles 20% Leasehold improvements Shorter of period of lease or useful life of asset Intangible assets 33 1/3% The residual values and useful lives are reviewed, and adjusted if appropriate, at each statement of financial position date. An asset s carrying amount is written down immediately to its recoverable amount if the asset s carrying amount is greater than its estimated recoverable amount. Gains and losses on disposals are determined by comparing the proceeds with their carrying amount. These are included in the statement of comprehensive income. (m) Foreign currency translation (i) Functional and presentation currency Items included in the financial statements of the Company are measured using the currency of the primary economic environment in which the Company operates ( the functional currency ). The financial statements are presented in Jamaican dollars, which is the Company s functional and presentation currency. (ii) Transaction and balances Foreign currency transactions are translated into the functional currency 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 statement of comprehensive income. (n) Investments Investment securities are classified as financial assets at fair value through profit or loss and available-forsale. Management determines the appropriate classification of investments at the time of purchase. Financial assets classified as fair value through profit or loss have 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 or if it forms part of a portfolio of financial assets in which there is evidence of short term profit-taking. Financial assets designated as fair value through profit or loss at inception by the Company, are those that are managed and whose performance is evaluated on a fair value basis. Information about these financial assets is provided internally on a fair value basis to the Company s key management personnel. 18
2. Significant accounting policies (continued) (n) Investments (continued) Investments classified as fair value through profit or loss are initially recognized and subsequently measured at fair value. All related transaction costs for these investments are expensed. Investments are derecognised when the rights to receive cash flows from the investments have expired or have been transferred and the Company transfers all risks and rewards of ownership. Gains or losses arising from changes in the fair value of financial assets at fair value through profit or loss are presented in the statement of comprehensive income within investment and finance income in the period in which they arise. Available-for-sale investments are stated at fair value, except where fair value cannot be reliably determined, in which case they are stated at cost, with any movements in fair value included in investment revaluation reserve. The fair value of available-for-sale investments is based on their quoted market bid price at the reporting date. Where a quoted market price is not available, fair value is estimated using discounted cash flow techniques. Available-for-sale investments are recognised or derecognised by the Company on the date they commit to purchase or sell the investments. All purchases and sales of investment securities are recognised at settlement date. (o) Income taxes Taxation expense in the statement of comprehensive income comprises current and deferred income tax charges. Current income tax charges are based on taxable profits for the year, which differ from the profit before tax reported because it excludes items that are taxable or deductible in other years, and items that are never taxable or deductible. The Company s liability for current income tax is calculated at tax rates that have been enacted at statement of financial position date. Deferred tax is the tax expected to be paid or recovered on differences between the carrying amounts of assets and liabilities and the corresponding tax bases. Deferred tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Currently enacted tax rates are used in the determination of deferred income tax. Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. Deferred tax is charged or credited in the statement of comprehensive income, except in instances where deferred tax relates to items recognised directly in other comprehensive income, in which case, deferred tax is charged or credited to other comprehensive income. Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current income tax liabilities and when the deferred taxes relate to the same fiscal liability. 19
2. Significant accounting policies (continued) (p) Employee benefits (i) Pension scheme The Company operates a defined contribution scheme. A defined contribution scheme is a pension plan under which the Company pays fixed contributions into a separate entity. The Company has no legal 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 contributions are recognised as employees benefit expense when they are due. Prepaid contributions are recognised as an asset to the extent that a cash refund or reduction in the future payments is available. (ii) Leave accrual Employees entitlements to annual leave are recognised when they accrue to employees. A provision is made for the estimated liability for annual leave as a result of services rendered by employees up to the statement of financial position date. (iii) Termination benefits Termination benefits are payable whenever an employee s employment is terminated before the normal retirement date or whenever an employee accepts voluntary redundancy in exchange for these benefits. The Company recognises termination benefits when it is demonstrably committed to either terminate the employment of current employees according to a detailed formal plan without the possibility of withdrawal or to provide termination benefits as a result of an offer made to encourage voluntary redundancy. Benefits falling due more than twelve (12) months after the statement of financial position date are discounted to present value. (iv) Employee benefit obligations Post retirement medical benefits are provided for the pensioners of the Company. Post retirement obligation included in the financial statements has been actuarially determined by an independent qualified actuary that was appointed by management. The actuarial valuation was conducted in accordance with the requirements of IAS 19, using the projected unit credit method. (v) Share-based compensation Guardian Holdings Limited and its subsidiaries (the Group ) participate in an equity-settled sharebased compensation plan operated by the holding company. The fair value of the employee services received in exchange for the grant of the options is recognised as an expense. The total amount to be expensed over the vesting period is determined by reference to the fair value of options granted, excluding the impact of any non-market vesting conditions (for example, net profit growth target). Nonmarket vesting conditions are included in the assumptions about the number of options that are expected to become exercisable. At the statement of financial position date, the Group revises its estimate of the number of options that are expected to become exercisable. It recognises the impact of the revision of original estimates, if any, in the statement of comprehensive income, and a corresponding adjustment to equity over the remaining vesting period. When the options are exercised, the proceeds received net of any transaction costs are credited to the share options reserve. (q) Provisions Provisions are recognised when there is a present legal or constructive obligation as a result of past events, if it is probable that an outflow of resources will be required to settle the obligation and a reliable estimate of the amount of the obligation can be made. 20