annual report - mayfair insurance limited...vishal patel christopher harrison tushar shah -resigned...

ANNUAL

REPORT

A N D F I N A N C I A L S T A T E M E N T S

You are in safe hands

K E N YA TA N Z A N I A R W A N D AZ A M B I A

GLOBAL CREDIT RATING AGENCY

MAYFAIR INSURANCE CO. LTD

+ +A-(KE)

MAYFAIR INSURANCE CO. L

TD

THIN

K BU

SINESS GENERAL INSURANCE SURVEY

2 0 1 6

Ranked

1#

OUR PASSION IS IN YOUR

SATISFACTIONOUR PASSION IS IN YOUR

SATISFACTION

With us the needs of our customers come first. We strive for

customer satisfaction and have made it our passion and goal.

TABLE OF CONTENTS

01Company Information

03Financial Statements

02Company Report

Our Goals & Values 02

Corporate Information 03

Board of Directors 04-05

Management Team 06-07

Company Activities 08

Corporate Social Responsibility (CSR) 09

Chairman’s Statement 11-14

Report of the Directors 15

Statement of Directors’ Responsibilities 16

Report of the Consulting Actuary 17

Report of the Auditor 18-21

Income Statement 23

Statement of Comprehensive Income 24

Statement of Financial Position 25

Statement of Changes in Equity 26

Statement of Cash Flows 27

Notes to the Financial Statements 28 – 67

Company Revenue Accounts 68

You are in safe hands 1 / 01

OUR GOALS & VALUES

VISIONTo be distinguished as a reliable and innovative

Pan-African financial services leader

MISSIONTo provide financial security through reliable and

innovative insurance solutions

CORE VALUES• Integrity

• Professionalism

• Reliability

• Respect

CUSTOMER VALUE PROPOSITION• Personalization

• Simplicity

• Convenience

• Transparency

Mayfair Insurance Company Ltd2 / 01

DIRECTORSJoe W Okwach - Chairman

Joshua Chiira - Managing Director

Shehnaz Sumar

Ambrose D Rachier

Harish Shah

Bharat V Shah

Edward K Muriu

Vishal Patel

Christopher Harrison

Tushar Shah -Resigned 1st July 2016

Diana Bird - Appointed on 1 December 2016

ADVOCATESCoulson Harney

5th Floor, West Wing, ICEA Lion Centre

Riverside Park, Chiromo road

P O Box 10643 – 00100, Nairobi

BANKERSCFC Stanbic Bank Limited

Kenyatta Avenue


Kenya Commercial Bank Limited

Kipande House


MANAGEMENTJoshua Chiira- Managing Director

Sawtantar Singh - General Manager

Gurbux Singh - Assistant General Manager

James Ndegwa - Reinsurance Manager

Gibson Ndungu - Business Development Manager

Eva Wambui - Claims Manager

Catherine Ngure - Human Resource &

Administration Manager

Anand Lakhani - Branch Manager

Fredrick Karanja - Assistant Underwriting Manager

Emma Mwangi - Assistant Claims Manager

George Nyakomitta - Assistant Bancassurance Manager

Darshna Patel - Assistant Manager - Accounts

Gladys Gichogo - Assistant Finance Manager

Peter Ngugi - Assistant IT Manager

AUDITORSPricewaterhouseCoopers

PwC Tower, Waiyaki Way / Chiromo Road, Westlands

P O Box 43963 - 00100, Nairobi

SECRETARYSusan Wanjiru Gichina

Certified Company Secretary (Kenya)


HEAD OFFICEMayfair Centre, 8th Floor

Ralph Bunche Road


CORPORATE INFORMATION

VISIONTo be distinguished as a reliable and innovative

Pan-African financial services leader

MISSIONTo provide financial security through reliable and

innovative insurance solutions

CORE VALUES• Integrity

• Professionalism

• Reliability

• Respect

CUSTOMER VALUE PROPOSITION• Personalization

• Simplicity

• Convenience

• Transparency


Right Award:

Mayfair was ranked No. 1 by Think

Business Insurance Survey in the

General Insurance Category.

JOE W OKWACH

Chairman

JOSHUA CHIIRA

Managing Director

AMBROSE D RACHIER

Director

SHEHNAZ SUMAR

Director

BOARD OF DIRECTORS

GLOBAL CREDIT RATING AGENCY

MAYFAIR INSURANCE CO. LTD

+ +A-(KE) M

AYFAIR INSURANCE CO. LTD

THIN

K BU

SINESS GENERAL INSURANCE SURVEY

2 0 1 6

Ranked

1#Left Award:

Mayfair was awarded a Credit Rating of A- by

Global Credit Rating (GCR) Agency signifying

a positive stable outlook on Mayfair’s claims

paying ability as well as reflecting Mayfair’s

strengthened earnings capacity and strong

capitalization.


CHRISTOPHER HARRISON

Director

HARISH SHAH

Director

EDWARD K MURIU

Director

DIANA BIRD

Director

BHARAT V SHAH

Director

VISHAL PATEL

Director

KENYA | ZAMBIA | TANZANIA | RWANDA

Mayfair has expanded its regional presence

to better serve its customers and provide a

premier networked service.

BOARD OF DIRECTORS (CONTINUED)

LEADERSHIP WITH DIVERSE SKILLS AND EXPERIENCE


EVA WAMBUIClaims Manager

CATHERINE NGUREH.R & Administration Manager

JAMES NDEGWAReinsurance Manager

GURBUX SINGHAssistant General Manager

JOSHUA CHIIRAManaging Director

SAWTANTAR SINGHGeneral Manager

GIBSON NDUNGUBusiness Development Manager

MANAGEMENT TEAM

UPPER

LOWER


GEORGE NYAKOMITTAAssistant Bancassurance Manager

ANAND LAKHANIBranch Manager, Eldoret

PETER NGUGIAssistant IT Manager

DARSHNA PATELAssistant Manager - Accounts

EMMA MWANGIAssistant Claims Manager

GLADYS GICHOGOAssistant Finance Manager

FREDRICK KARANJAAssistant Underwriting Manager

MANAGEMENT TEAM (CONTINUED)

UPPER

LOWER


Mayfair conducted a training to brokers and agents on Underwriting and Claims processing of Political Violence, Terrorism and Motor Insurance.

Mayfair Golf sponsorship at Limuru Golf Club

Sawtantar Singh (General Manager) and Joshua Chiira (Managing Director) having a light moment at the year end christmas party.

Mayfair sponsorship of the Laugh Festival, a comedians show that hosts various comedian talent from across Africa.

Golf sponsorship Tee off at Limuru Golf Club

COMPANY ACTIVITIES


CORPORATE SOCIAL RESPONSIBILITY (CSR)

Mayfair presenting a cheque to

Starehe Boys’ Centre and School for education sponsorship

Mayfair Insurance continues to extend support to needy

children through our Corporate Social Responsibility.

We believe that education is an equalizer and focus our

support to education of needy children in our society

from various counties. Since we started the education

sponsorship program, we have witnessed good success

in the students we are supporting.

In 2016, we supported children at various levels both

in primary and high schools. Our specific sponsorship

program that supports education of children with

Albinism at The Salvation Army Thika Primary School for

the Blind and The Salvation Army Thika High School for

the Blind continues to be a success.

Mayfair expanded it’s educational sponsorship program

to students at the Starehe Boys’ Centre and

School. Plans are underway to extend

sponsorship of additional students

at Starehe Boys’ and School

Centre in the coming

year.

Our other activities in 2016 included donations to the

Cottage Fair at Shree Cutchi Leva Patel Samaj in Nairobi,

Diwali Celebrations in Eldoret, Roland Koch Children

Trust in Mombasa and Faraja Cancer Support in Eldoret.

SUPPORTING THE NEEDY

IN OUR SOCIETY


INDUSTRY LEADERS IN CONSTRUCTION

& ENGINEERING INSURANCE



BUSINESS ENVIRONMENTThe World Bank’s Kenya Economic Update (KEU) October

2016 projected a 5.9% growth in 2016, rising to 6% in

2017. The growth rode on the vibrant services sector,

enhanced construction, currency stability, and a growing

middle-class.

According to the Kenya National Bureau of Statistics

(KNBS), Kenya’s economy expanded by 5.7% in the third

quarter of 2016 compared to 5.8% in the same period in

2015. The Gross Domestic Product grew by 5.6% against

an estimated growth of 6.5%. Annual average inflation

dropped from 6.5% in November to 6.3% in December,

the lowest reading since November 2015.

The amendment of the Banking Act in August 2016 to

cap the lending rates to a maximum of 4% above the

Central Bank Rate (CBR) resulted in a substantial decline

in the interest rates during the year.

On behalf of the Board of Directors of Mayfair Insurance Company,

I am pleased to present to you the Annual Report and Financial

Statements for the year ended 31st December 2016. These accounts

have been prepared in accordance with International Financial

Reporting Standards (IFRS).

In what proved to be a challenging economic year, the Company has

been resilient and continued to enjoy a strong financial position, with

our market share increasing from 2.6% in 2015 to 3.0% in 2016.

The Company was upgraded in its Global Credit Rating in the current

year to A-, compared to the BBB+ rating in 2015, reflecting Mayfair’s

strengthened earning capacity and strong capitalization which is ex-

pected to persist going forward. The Company was also ranked 1st

position in the General Business Category by Think Business Maga-

zine.

In the Implementation of our Strategic Plan 2015 – 2019, there has

been a renewed focus on the Company’s Brand Promise in the current

year. We have undertaken a culture transformation program geared towards Customer Excellence, in order to retain our

competitive edge and sustain growth over the long- term.

THE COMPANY WAS UPGRADED IN IT’S GLOBAL CREDIT

RATING TO A-, REFLECTING MAYFAIR’S STRENGTHENED

EARNING CAPACITY AND STRONG CAPITALIZATION

,,

CHAIRMAN’S STATEMENT

DEAR STAKEHOLDERS

Joe Okwach (Chairman)


BUSINESS ENVIRONMENT (CONTINUED) In the 2016/2017 budget statement the National Trea-

sury proposed the introduction of Financial Services

Authority (FSA) Bill to Parliament for debate. The Bill is

envisaged to provide for the consolidation of the four

financial sector regulators (Insurance Regulatory Au-

thority, Capital Markets Authority, Retirements Benefits

Authority and Sacco Societies Regulatory Authority). The

proposed consolidation is expected to increase efficien-

cy in supervision of the financial sector.

BUSINESS AND FINANCIAL RESULTSMayfair Insurance Company Limited recorded a strong

performance in 2016, with Gross Written Premiums

amounting to Sh. 2.30 billion. The Company recorded

an underwriting profit of Sh 236.5 million, and an oper-

ating gross profit of Sh. 403.88 million after taking into

account investment and other income.

The shareholder’s funds amounted to Sh 1.823 billion as

at 31st December 2016. Total assets grew by 13.3% to

close at Sh 4.9 billion

DIVIDENDSThe Board recommends a first and final cash dividend of

16.67 per share amounting to Shs. 100,000,000. The Di-

rectors recognize the need to retain adequate reserves

for re-investing back to support the ambitious growth

strategy as well as meeting the statutory capital require-

ments.


GROSS WRITTEN PREMIUM PROFIT BEFORE TAX

20162015201420132012

1,258,446

1,503,286

CAGR 12.8%

1,754,276

2,025,040

2,302,052

CAGR 55.1%

20162015201420132012

44,905

327,737

360,111

402,652 403,878

Figures in Thousands (’000) Figures in Thousands (’000)

Total assets grew by 13.3% to close at Sh 4.9 billion

ABSTRACT


BOARD OF DIRECTORSOur Board of Directors sets our long-term strategy and

provides oversight on the basis of strong principles and

an appropriate tone from the top. It ensures the long-

term success of our company based on a clear strategy

and good corporate governance.

We have a strong Board of Directors with a diverse mix

of skills and experience. To further strengthen our skills

base, Ms. Diana Bird was appointed to the Board in De-

cember 2016.

The current year saw the resignation of our long serv-

ing Managing Director, Mr. Tushar Shah, and the appoint-

ment of our current Managing Director, Mr. Joshua Chiira

in July 2016.

CORPORATE GOVERNANCEWe are committed to the highest standards of Corporate

Governance and have put in place the requisite struc-

tures to ensure adherence to the existing and emerging

regulatory requirements as per the below:

The Board Audit, Risk and Compliance Committee is

chaired by Mr. Harish Shah, and included Directors Mr.

Edward Muriu, Mr. Vishal Patel, Mrs. Shehnaz Sumar, Ms

Diana Bird (appointed 1st December 2016) and Mr. Josh-

ua Chiira

The Board Investment Committee is headed by Mr. Bharat

Shah, and includes Directors Mr. Ambrose Rachier, Mr.

Harish Shah, Mrs Shehnaz Sumar and Mr. Joshua Chiira.

The Board Strategic Committee is headed by Mr. Vishal

Patel and includes Directors Mr. Christopher Harrison,

Mrs. Shehnaz Sumar, Ms Diana Bird (appointed 1st De-

cember 2016) and Mr. Joshua Chiira.

The responsible Committees charged with compliance to

corporate governance standards report regularly to the

Board of Directors


SHAREHOLDER’S FUNDS DISTRIBUTION OF ASSETS IN 2016

20162015201420132012

439,327

910,216

1,189,588

1,653,323 1,823,097

CAGR 32.9%

Figures in Thousands (’000)

We have a strong Board of Directors with a diverse mix of skills and experience

CASH (2%)CORPORATE BONDS (3%)

INVESTMENT IN ASSOCIATES (9%)

RECEIVABLES (12%)

GOVT SECURITIES (11%)

PROPERTIES & EQUIPMENT (19%)

SHARES (18%)

DEPOSITS WITH FINANCIAL INSTITUTIONS (26%)


HUMAN RESOURCESWe have strong, consistent people policies designed to

make Mayfair Insurance Company a great place to work.

We have qualified, sincere, dedicated and committed

staff whose performance is managed based on the Bal-

ance Scorecard system. The directors are committed to

skills development of the staff as well as creation of an

enabling environment to realize their maximum poten-

tial.

OUTLOOK FOR 20172017 is expected to be a tough year, but we remain

positive and confident about the future growth of this

Company.

With Kenya’s next Presidential and legislative elections

scheduled for August 2017, the Economic Intelligence

Unit (EIU) predicts that political tensions will rise as

campaigning gathers momentum. Politics is bound to

take center stage and be among the key determinants of

spending and government policy. The increase in Kenya’s

political risk, is expected to negatively affect the level of

private sector investments in the country. Equally, the

Banking Act (Amendment) 2016, which capped lending

rates is also expected to have a negative impact on the

economy.

The Insurance industry is however set to grow, as

importers are required to procure marine insurance

locally, under the revised Section 20 of the Insurance

Act. The regulation was part of the 2016/17 budget

measures introduced by the National Treasury to raise

revenue for the government by ensuring that all the

insurance premiums initially paid to overseas insurers

are instead directed to local insurance companies. The

manufacturing sector, which accounts for about 14%

of the GDP, is also set to get a lift after the re-opening

of new factories including Panpaper (now Rai Paper) in

Webuye and Volkswagen Group motor assembly plant in

Thika.

Mayfair Insurance remains committed to its vision of

being distinguished as a reliable and innovative Pan-

African financial services leader by expanding our

operations into the East African region. We resonate

with our enterprise clients’ needs for the same superior

services even as they transform into multinationals with

regional presence as well target new clients in the region.

We are pleased to report that Mayfair Bank is scheduled

to begin full operations in 2017. This is expected to

further boost our premiums through the Banc-assurance

platform. We also began operations in our Rwanda

office in 2016, with operations in Tanzania picking up

at a commendable pace. The economies of Tanzania and

Rwanda are expected to register high growths of 7.1%

and 7% respectively according to the IMF. The Zambian

operations are growing steadily with profitable results.

We are optimistic that these growths together with the

political stability enjoyed in these regions, will give

Mayfair a solid future in these markets.

APPRECIATIONWe would not be where we are today without the un-

wavering support and the clear demonstration of the

confidence from our highly-esteemed Customers, Part-

ners, shareholders, management, staff and other stake

holders. I wish to thank each one of you most sincerely

for the part you played in making 2016 a success and we

look forward to even greater partnership in 2017.

Joe Okwach

Chairman

CHAIRMANS STATEMENT


REPORT OF THE DIRECTORS

The Directors submit their report together with the au-

dited financial statements for the year ended 31 Decem-

ber 2016, which disclose the state of affairs of Mayfair

Insurance Company Limited, (the “Company”). The annu-

al report and financial statements have been prepared

in accordance with section 147 to 163 of the repealed

Companies Act Cap 486, which remain inforce under the

transition rules contained in the sixth schedule, the tran-

sition and saving provisions of the Companies Act 2015.

PRINCIPAL ACTIVITIESThe principal activity of the Company is the transaction

of general insurance business.

RESULTS AND DIVIDENDProfit for the year of Shs. 285,124,000 (2015: Shs.

378,023,000) has been added to retained earnings. The

Directors recommend a first and final cash dividend of

16.67 per share amounting to Shs. 100,000,000 (2015

dividends Shs. 50,000,000 and a bonus share amounting

to Shs. 75,000,000)

DIRECTORSThe Directors who served during the year and to the date

of this report are shown on pages 4-5.

AUDITORThe Company’s auditor, PricewaterhouseCoopers, con-

tinues in office in accordance with Section 159 (2) of the

repealed Companies Act (Cap 486).

By order of the Board

Susan Wanjiru Gichina

Secretary

Nairobi

22nd March 2017


STATEMENT OF DIRECTOR’S RESPONSIBILITIES

The Companies Act 2015 requires the directors to pre-

pare financial statements for each financial year which

give a true and fair view of the financial position of the

Company at the end of the financial year and its financial

performance for the year then ended. The directors are

responsible for ensuring that the company keeps prop-

er accounting records that are sufficient to show and

explain the transactions of the company; disclose with

reasonable accuracy at any time the financial position of

the company; and that enables them to prepare financial

statements of the company that comply with prescribed

financial reporting standards and the requirements of

the Companies Act. They are also responsible for safe-

guarding the assets of the company and for taking rea-

sonable steps for the prevention and detection of fraud

and other irregularities.

The directors accept responsibility for the preparation

and presentation of these financial statements in accor-

dance with International Financial Reporting Standards

and in the manner required by the Companies Act 2015.

They also accept responsibility for:

i) Designing, implementing and maintaining internal

control as they determine necessary to enable the

preparation of financial statements that are free

from material misstatements, whether due to fraud

or error;

ii) Selecting suitable accounting policies and then ap-

ply them consistently; and

iii) Making judgements and accounting estimates that

are reasonable in the circumstances

In preparing the financial statements, the directors have

assessed the Company’s ability to continue as a going

concern and disclosed, as applicable, matters relating

to the use of going concern basis of preparation of the

financial statements. Nothing has come to the attention

of the directors to indicate that the Company will not re-

main a going concern for at least the next twelve months

from the date of this statement.

The directors acknowledge that the independent audit of

the financial statements does not relieve them of their

responsibility.

Joe Okwach Bharat Shah Joshua Chiira

Chairman Director Managing Director

22nd March 2017


REPORT OF THE CONSULTING ACTUARYFor the year ended 31 December 2016

I have conducted an Insurance Liability Valuation of the

short term business of Mayfair Insurance Company Lim-

ited as at 31st December 2016.

The valuation was conducted in accordance with the

generally accepted actuarial principles and the require-

ments of The Kenya Insurance Act. These principles re-

quire prudent provision for insurance liabilities in the

financials on a best estimate basis.

I verify that the calculation of the short term insurance

liabilities as at 31st December 2016 is appropriate.

I am satisfied that the Unearned Premium Reserve, De-

ferred Acquisition Cost, Outstanding Claims Reserve, In-

curred But Not Reported Reserve as per the valuation are

sufficient and appropriate given the nature of the busi-

ness and existing liabilities.

James I. 0. Olubayi

Fellow of the Institute of Actuaries

Alexander Forbes Financial Services (E.A.) Limited

Nairobi (22nd March 2017)


REPORT OF THE AUDITOR

REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTSWe have audited the accompanying financial statements

of Mayfair Insurance Company Limited (“the Company”)

set out on pages 11 to 56 which comprise the statement

of financial position at 31 December 2016 and the state-

ments of comprehensive income, changes in equity and

cash flows for the year then ended and the notes to the

financial statements, which include a summary of signif-

icant accounting policies.

In our opinion, the financial statements give a true and

fair view of the financial position of Mayfair Insurance

Company Limited at 31 December 2016 and its financial

performance and cash flows for the year then ended in

accordance with International Financial Reporting Stan-

dards and the requirements of the Kenyan Companies

Act 2015.

BASIS FOR OPINIONWe conducted our audit in accordance with International

Standards on Auditing (ISAs). Our responsibilities under

those standards are further described in the Auditor’s

responsibilities for the audit of the financial statements

section of our report.

We are independent of the company in accordance with

the International Ethics Standards Board for Accountants’

Code of Ethics for Professional Accountants (IESBA Code)

together with the ethical requirements that are relevant

to our audit of the financial statements in Kenya, and we

have fulfilled our ethical responsibilities in accordance

with these requirements and the IESBA Code.

We believe that the audit evidence we have obtained

is sufficient and appropriate to provide a basis for our

opinion.

Report of the independent auditor to the shareholders of Mayfair Insurance Company limited

KEY AUDIT MATTERSKey audit matters are those matters that, in our profes-

sional judgment, were of most significance in our audit

of the financial statements of the current period. These

matters were addressed in the context of our audit of the

Company financial statements as a whole, and in forming

our opinion thereon, and we do not provide a separate

opinion on these matters.

DETERMINATION OF INSURANCE CONTRACT LIABILITIESThe insurance contract liabilities included in Note 27 of

the financial statements is made up of reported claims

and incurred but not reported (“IBNR”) claims.

The gross contract liabilities represent the ultimate cost

of settling all claims arising from incidents occurring pri-

or to the end of each reporting period, but not settled at

that date.

As disclosed in Note 3 to the financial statements, the

estimation of outstanding claims involves significant

judgement given the size of the liability and the inher-

ent uncertainty in estimating expected future claims

incurred. This is particularly the case for liabilities have

been incurred at the reporting date but have not yet been

reported. There is generally less information available in

relation to these claims. They are determined annually

by the company’s consulting actuaries on the basis of the

best information available at the time the records for the

year are closed.

For general insurance contract liabilities, a range of

methods may be used to determine these provisions.

Underlying these methods are a number of explicit or

implicit assumptions relating to the expected settlement

amount and settlement patterns of claims.

The valuation of these liabilities relies on accurate data

about the volume, amount and the pattern of current and

historic claims both internal and external to the busi-

ness. Small changes in these assumptions can result in

material impacts to the estimate.



DETERMINATION OF INSURANCE CONTRACT LIABILITIES (CONTINUED)How we addressed Key Audit Matters:

We evaluated and tested controls around management

process of claim handling and reserving;

We checked a sample of claims by comparing the record-

ed amounts to supporting documents;

We performed reconciliations between the claims data

and that used to calculate the reserves;

We performed a review of the methodology and assump-

tions used by the appointed actuary to compute the re-

serve for claims incurred but not reported (IBNR) as at 31

December 2016.

We compared the assumptions to expectations based on

the Company’s historical experiences, current trends and

our own industry knowledge;

We obtained and reviewed the actuarial valuation re-

ports to confirm that the IBNR balances reported in the

financial statements were consistent with the results of

the independent actuarial valuation.

ACCOUNTING FOR JOINT ARRANGEMENTSThe Company holds interests in joint operations relating

to the development of real estate projects as detailed in

Note 17 of the financial statements.

The Company has entered into formal agreements with

other investees in these projects. For accounting purpos-

es, each arrangement’s substance is determined by the

contractual rights and obligations of the parties to the

joint arrangement and not by its legal form.

Management has accounted for them as joint operation

as disclosed in Note 17.


How we addressed Key Audit Matters:

We have reviewed remittances of the funds invested to

get comfort on the completeness and accuracy of the

Company’s cost of investment.

We have reviewed agreements for all the joint arrange-

ments

We have reviewed management accounts for each of the

joint arrangements which disclose the financial perfor-

mance and position for each of them at 31 December

2016.

VALUATION OF UNQUOTED INVESTMENTSThe Company has investments in unquoted shares as

detailed in Note 18 to the financial statements. Deter-

mination of the fair value for unquoted investments is

a significant area of judgement as the prices are not de-

rived from actively traded markets which creates a level

of subjectivity in determining the value of these assets.

Management uses a range of valuation techniques to de-

termine their fair values.

How we addressed Key Audit Matters:

We checked the number of units held by the Company to

supporting documentation.

We have reviewed the underlying assumptions where

management used by management to determine the

prices used in the valuation and subjected the manage-

ment estimate to a sensitivity analysis.

OTHER INFORMATION The directors are responsible for the other information.

The other information comprises the information includ-

ed in the annual report but does not include the financial

statements and our auditor’s report thereon.

Our opinion on the financial statements does not cover

the other information and we do not express any form of

assurance conclusion thereon.



OTHER INFORMATION (CONTINUED)In connection with our audit of the financial statements,

our responsibility is to read the other information iden-

tified above and, in doing so, consider whether the other

information is materially inconsistent with the financial

statements or our knowledge obtained in the audit, or

otherwise appears to be materially misstated. If, based

on the work we have performed on the other informa-

tion, we conclude that there is a material misstatement

of this other information, we are required to report that

fact. We have nothing to report in this regard.

RESPONSIBILITIES OF THE DIRECTORS FOR THE FINANCIAL STATEMENTSThe directors are responsible for the preparation and fair

presentation of the financial statements in accordance

with International Financial Reporting Standards and

the requirements of the Kenyan Companies Act 2015,

and for such internal control as the directors determine

is necessary to enable the preparation of financial state-

ments that are free from material misstatement, whether

due to fraud or error.

In preparing the financial statements, the directors are

responsible for assessing the Company’s ability to con-

tinue as a going concern, disclosing, as applicable, mat-

ters related to going concern and using the going concern

basis of accounting unless the directors either intend to

liquidate the Company or to cease operations, or have no

realistic alternative but to do so.

The directors are responsible for overseeing the Compa-

ny’s financial reporting process.

AUDITOR’S RESPONSIBILITIES FOR THE AUDIT OF THE FINANCIAL STATEMENTSOur objectives are to obtain reasonable assurance about

whether the financial statements as a whole are free

from material misstatement, whether due to fraud or

error, and to issue an auditor’s report that includes our

opinion. Reasonable assurance is a high level of assur-

ance, but is not a guarantee that an audit conducted in


accordance with ISAs will always detect a material mis-

statement when it exists. Misstatements can arise from

fraud or error and are considered material if, individually

or in the aggregate, they could reasonably be expected

to influence the economic decisions of users taken on

the basis of these financial statements.

As part of an audit in accordance with ISAs, we exercise

professional judgement and maintain professional scep-

ticism throughout the audit. We also:

• Identify and assess the risks of material misstate-

ment of the financial statements, whether due to

fraud or error, design and perform audit procedures

responsive to those risks, and obtain audit evidence

that is sufficient and appropriate to provide a basis

for our opinion. The risk of not detecting a material

misstatement resulting from fraud is higher than for

one resulting from error, as fraud may involve collu-

sion, forgery, intentional omissions, misrepresenta-

tions, or the override of internal control.

• Obtain an understanding of internal control relevant

to the audit in order to design audit procedures that

are appropriate in the circumstances, but not for the

purpose of expressing an opinion on the effective-

ness of the Company’s internal control.

• Evaluate the appropriateness of accounting policies

used and the reasonableness of accounting esti-

mates and related disclosures made by the direc-

tors.

• Conclude on the appropriateness of the directors’

use of the going concern basis of accounting and,

based on the audit evidence obtained, whether a

material uncertainty exists related to events or con-

ditions that may cast significant doubt on the Com-

pany’s ability to continue as a going concern. If we

conclude that a material uncertainty exists, we are

required to draw attention in our auditor’s report to

the related disclosures in the financial statements

or, if such disclosures are inadequate, to modify our

opinion.



AUDITOR’S RESPONSIBILITIES FOR THE AUDIT OF THE FINANCIAL STATE-MENTS (CONTINUED)• Our conclusions are based on the audit evidence ob-

tained up to the date of our auditor’s report. Howev-

er, future events or conditions may cause the Com-

pany to cease to continue as a going concern.

• Evaluate the overall presentation, structure and

content of the financial statements, including the

disclosures, and whether the financial statements

represent the underlying transactions and events in

a manner that achieves fair presentation.

• Obtain sufficient appropriate audit evidence regard-

ing the financial information of the entities or busi-

ness activities within the Company to express an

opinion on the financial statements. We are respon-

sible for the direction, supervision and performance

of the Company audit. We remain solely responsible

for our audit opinion.

We communicate with the directors regarding, among

other matters, the planned scope and timing of the audit

and significant audit findings, including any significant

deficiencies in internal control that we identify during

our audit.

We also provide the directors with a statement that we

have complied with relevant ethical requirements re-

garding independence, and to communicate with them

all relationships and other matters that may reasonably

be thought to bear on our independence, and where ap-

plicable, related safeguards.

From the matters communicated with the directors, we

determine those matters that were of most significance

in the audit of the financial statements of the current

period and are therefore the key audit matters. We de-

scribe these matters in our auditor’s report unless law or

regulation precludes public disclosure about the matter

or when, in extremely rare circumstances, we determine

that a matter should not be communicated in our report


because the adverse consequences of doing so would

reasonably be expected to outweigh the public interest

benefits of such communication.

REPORT ON OTHER LEGAL REQUIRE-MENTSAs required by the Kenyan Companies Act 2015 we re-

port to you, based on our audit, that:

i) we have obtained all the information and explana-

tions 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 ex-

amination of those books;

iii) the company’s statement of financial position and

statement of comprehensive income are in agree-

ment with the books of account.

The engagement partner responsible for the audit result-

ing in this independent auditor’s report is CPA Bernice

Kimacia - P/No. 1457

PricewaterhouseCoopers

Certified Public Accountants

Nairobi (22nd March 2017)


EXPERIENCED & TRUSTEDPROVIDERS OF MARINE

CARGO INSURANCE


END TO END PROTECTION

Mayfair Insurance Company Ltd22 /

INCOME STATEMENTFor the year ended 31 December 2016

Notes 2016 2015

Shs ’000 Shs ’000

Gross earned premiums 5 2,268,746 1,962,982

Less: reinsurance premiums ceded (1,134,667) (965,348)

Net earned premiums 1,134,079 997,634

Investment income 6 207,401 193,601

Commissions earned 273,599 235,630

Other income 7 19,885 2,651

Total income 1,634,964 1,429,516

Net claims incurred 8 (522,538) (398,917)

Operating and other expenses 9 (374,506) (350,875)

Commissions payable (342,391) (277,072)

Total expenses (1,239,435) (1,026,864)

Share of profit of associate after tax 16 8,350 -

Profit before income tax 403,879 402,652

Income tax expense 11 (118,755) (24,629)

Profit for the year 285,124 378,023

The notes on pages 28 to 67 are an integral part of these financial statements.


STATEMENT OF COMPREHENSIVE INCOMEFor the year ended 31 December 2016

Notes 2016 2015

Shs ’000 Shs ’000

Profit for the year 285,124 378,023

Other comprehensive income:

Items that will not be reclassified to profit or loss

Fair value (losses)/gains on available for sale

equity investments 18 (81,885) 35,668

Exchange gain on available for sale

equity investments 18 531 36,431

Surplus on revaluation of building 16,846 15,309

Deferred income tax on revaluation surplus 31 (842) (1,696)

(65,350) 85,712

Total comprehensive income for the year 219,774 463,735

Items in the statement above are disclosed net of tax.



STATEMENT OF FINANCIAL POSITIONAs At 31 December 2016

Notes 2016 2015

Shs ’000 Shs ’000

ASSETS

Property and equipment 13 300,153 277,152

Intangible assets 14 17,858 9,335

Investment properties 15 434,974 404,913

Investment in joint arrangements 17 269,822 264,222

Investment in associate 16 65,372 57,022

Available for sale equity investments 18 714,140 737,590

Receivables arising out of direct insurance 415,440 297,175

Receivables arising out of reinsurance arrangements 11,642 6,114

Reinsurers’ share of technical provisions and reserves 19 826,386 681,956

Deferred acquisition costs 20 147,217 129,811

Other receivables 21 49,507 87,785

Government securities - held to maturity 22 430,268 429,352

Corporate bonds - held to maturity 23 111,380 129,477

Deposits with financial institutions 24 1,039,416 763,718

Current income tax 11 2,075 718

Cash and cash equivalents 69,776 55,003

TOTAL ASSETS 4,905,426 4,331,343

EQUITY AND LIABILITIES

Equity attributable to owners

Share capital 26 600,000 525,000

Investment revaluation reserve 242,336 323,690

Property revaluation reserve 95,852 84,746

Retained earnings 784,909 594,887

Proposed dividends 100,000 125,000

Total equity 1,823,097 1,653,323

Liabilities

Outstanding claims provision 27 1,560,348 1,373,280

Unearned premiums reserve 29 966,042 841,313

Payables arising from insurance arrangements 20,444 12,821

Payables arising out of reinsurance arrangements 337,403 311,936

Deferred reinsurance commissions 30 83,388 69,238

Deferred income tax 31 43,621 32,329

Other payables 32 71,083 37,103

Total liabilities 3,082,329 2,678,020

TOTAL EQUITY AND LIABILITIES 4,905,426 4,331,343

The financial statements on pages 23 to 68 were approved for issue by the Board of Directors on 22 March 2017 and

signed on its behalf by:

Joe Okwach Bharat Shah Joshua ChiiraChairman Director Managing Director



STATEMENT OF CHANGES IN EQUITYFor the year ended 31 December 2016

Notes Share Investments Property Retained Proposed Total

Capital Revaluation Revaluation Earnings Dividends Equity

Reserve Reserve

Shs ’000 Shs ’000 Shs ’000 Shs ’000 Shs ’000 Shs ’000

Balance at 1 January 2015 350,000 251,591 74,784 513,213 - 1,189,588

Profit for the year - - - 378,023 - 378,023

Other comprehensive income: - 72,099 13,613 - - 85,712

Transfer of excess depreciation - - (3,477) 3,477 - -

Deferred tax on excess depreciation - - (174) 174 - -

Transactions with owner:

Issue of bonus shares - 2015 26 175,000 - - (175,000) - -

Proposed dividends - 2016 26 - - - (125,000) 125,000 -

Total transactions with owners

recognised directly in equity 175,000 - - (300,000) 125,000 -

Balance at 31 December 2015 525,000 323,690 84,746 594,887 125,000 1,653,323

Balance at 1 January 2016 525,000 323,690 84,746 594,887 125,000 1,653,323

Profit for the year - - - 285,124 - 285,124

Other comprehensive income: - (81,354) 16,004 - - (65,350)

Transfer of excess depreciation - - (4,665) 4,665 - -

Deferred tax on excess depreciation - - (233) 233 - -

Transactions with owner:

Dividends: 36 - - - - - -

Issue of bonus shares - 2015 26 75,000 - - - (75,000) -

Proposed dividends - 2016 26 - - - (100,000) 100,000 -

Total transactions with owners

recognised directly in equity 75,000 - - (100,000) (25,000) (50,000)

Balance at 31 December 2016 600,000 242,336 95,852 784,909 100,000 1,823,097



STATEMENT OF CASH FLOWSFor the year ended 31 December 2016

Notes 2016 2015

Shs ’000 Shs ’000

Cash flows from operating activities

Cash generated from operations 33 582,772 445,537

Income tax paid (109,662) (151,006)

Net cash generated from operating activities 473,110 294,531

Cash flows from investing activities

Purchase of property, plant and equipment 13 (29,781) (12,509)

Purchase of intangible assets 14 (20,246) (13,342)

Net investment in associate 16 (8,350) -

Investment in joint arrangements 17 (5,600) (1,190)

Purchase of available for sale equity investments 18 (57,904) (29,467)

Net investments in treasury bonds maturing after 90 days 22 (27,769) (250,339)

Net investments in corporate bonds 23 (1,903) (17,313)

Net cash used in investing activities (151,553) (324,160)

Cash flows from financing activities

Dividends paid to shareholders 36 (50,000) -

Net cash generated from financing activities (50,000) -

Net (decrease)/increase in cash and cash equivalents 271,557 (29,629)

Cash and cash equivalents at beginning of year 837,635 867,264

Cash and cash equivalents at end of year 33(b) 1,109,192 837,635



NOTESNotes to the Financial Statements

1 GENERAL INFORMATION Mayfair Insurance Company Limited (“the Compa-

ny”) deals with general insurance business and is

incorporated in Kenya under the Companies Act as

a private limited liability Company. The Company is

domiciled in Kenya and the address of its registered

office is:

Mayfair Centre, 8th floor, Ralph Bunche Road

PO Box 45161

Nairobi 00100.

For the Kenyan Companies Act reporting purposes,

the balance sheet is represented by the statement of

financial position and profit and loss account by the

statement of comprehensive income in these finan-

cial statements.

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The principal accounting policies applied in the

preparation of these financial statements are set out

below. These policies have been consistently ap-

plied to all years presented, unless otherwise stated.

a) BASIS OF PREPARATION The financial statements have been prepared in

accordance with International Financial Reporting

Standards (“IFRS”). The measurement basis applied

is the historical cost basis, except as disclosed in the

accounting policies below.

The preparation of financial statements in conformi-

ty with IFRS requires the use of certain critical ac-

counting estimates. It also requires the Directors to

exercise judgement in the process of applying the

Company’s accounting policies. The areas involv-

ing a higher degree of judgement or complexity, or

where assumptions and estimates are significant to

the financial statements, are disclosed in Note 3.

Changes in accounting policy and disclosures

(i) New standards, amendments and interpretations

adopted by the Company

A number of amendments to standards arising from

the annual improvement to IFRSs became effective

for the first time in the financial year commencing

1 January 2016 and none of them had an impact on

the Company’s financial statements.

IFRS 3 – clarifies that an obligation to pay contin-

gent consideration is classified as financial liability

or equity under the principles in IAS 32 and that all

non-equity contingent consideration (financial and

non-financial) is measured at fair value at each re-

porting date.

IFRS 3 – clarifies that IFRS 3 does not apply to the ac-

counting for the formation of any joint arrangement.

IFRS 13 confirms that short-term receivables and

payables can continue to be measured at invoice

amounts if the impact of discounting is immaterial.

IFRS 13 – clarifies that the portfolio exception in IFRS

13 (measuring the fair value of a group of financial

assets and financial liabilities on a net basis) applies

to all contracts within the scope of IAS 39 or IFRS 9.

IAS 16 and IAS 38 – clarifies how the gross carrying

amount and accumulated depreciation are treat-

ed where an entity measures its assets at revalued

amounts.

IAS 24 – where an entity receives management per-

sonnel services from a third party (a management

entity), the fees paid for those services must be dis-

closed by the reporting entity, but not the compen-

sation paid by the management entity to its employ-

ees or Directors.


IAS 40 – clarifies that IAS 40 and IFRS 3 are not mutu-

ally exclusive when distinguishing between invest-

ment property and owner-occupied property and

determining whether the acquisition of an invest-

ment property is a business combination.

IFRS 11, ‘Joint arrangements’. This amendment adds

new guidance on how to account for the acquisition

of an interest in a joint operation that constitutes

a business. The amendments specify the appropri-

ate accounting treatment for such acquisitions. The

amendment is effective for annual periods begin-

ning on or after 1 January 2016.

IFRS 10, ‘Consolidated financial statements’ and IAS

28, ‘Investments in associates and joint ventures’.

These amendments address an inconsistency be-

tween the requirements in IFRS 10 and those in IAS

28 in dealing with the sale or contribution of assets

between an investor and its associate or joint ven-

ture. The main consequence of the amendments is

that a full gain or loss is recognised when a trans-

action involves a business (whether it is housed in a

subsidiary or not). A partial gain or loss is recognised

when a transaction involves assets that do not con-

stitute a business, even if these assets are housed in

a subsidiary. The amendments are effective for an-

nual periods beginning on or after 1 January 2016.

IAS 1, ‘Presentation of financial statements’ These

amendments are as part of the IASB initiative to

improve presentation and disclosure in financial re-

ports. Effective for annual periods beginning on or

after 1 January 2016.

Annual improvements 2015. These set of amend-

ments, effective 1 January 2016, impacts 4 stan-

dards:

■ IFRS 5, ‘Non-current assets held for sale and discon-

tinued operations’ regarding methods of disposal.

■ IFRS 7, ‘Financial instruments: Disclosures’, (with

consequential amendments to IFRS 1) regarding ser-

vicing contracts.

■ IAS 19, ‘Employee benefits’ regarding discount rates.

■ IAS 34, ‘Interim financial reporting’ regarding disclo-

sure of information

Other standards, amendments and interpretations

which are effective for the financial year beginning

on 1 January 2016 are not material to the Company.

(ii) New and revised standards and interpretations not

yet adopted

A number of new standards and amendments to

standards and interpretations are effective for annu-

al periods beginning after 1 January 2015, and have

not been applied in preparing these financial state-

ment. 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 classi-

fication, measurement and recognition of financial

assets and financial liabilities. The complete version

of IFRS 9 was issued on July 2015. It replaces the

guidance in IAS 39 that relates to the classification

and measurement of financial instruments. IFRS 9 re-

tains but simplifies the mixed measurements model

and establishes three primary measurement cate-

gories for financial assets: amortised cost, fair value

through OCI and fair value through profit or loss. The

basis of classification depends on the entity’s model

and the contractual cash flow characteristics of the

financial asset. Investments in equity instruments

are required to be measured at fair value through

profit or loss with the irrevocable option at inception

to changes in fair value in OCI not recycling. There

is now a new expected credit losses model that re-

places the incurred loss impairment model used in

IAS 39. For financial liabilities there were no chang-

es to classification and measurement except for the

recognition of changes in own credit risk in other

comprehensive income, for liabilities designated at

fair value through profit or loss. IFRS 9 relaxes the

requirements for hedge effectiveness by replacing

the bright line hedge effectiveness tests. It requires

an economic relationship between the hedged item

NOTESNotes to the Financial Statements (continued)


and hedging instrument and for the ‘hedged ratio’ to

be the same as the one management actually use for

risk management purposes. Contemporaneous doc-

umentation is still required but is different to that

currently prepared under IAS 39. The standard is

effective for accounting periods beginning on or af-

ter 1 January 2018. Early adoption is permitted. The

Company is yet to assess IFRS 9’s full impact.

Amendment to IAS 12 – Income taxes (1 January

2017) - The amendments were issued to clarify the

requirements for recognising deferred tax assets on

unrealised losses. The amendments clarify the ac-

counting for deferred tax where an asset is measured

at fair value and that fair value is below the asset’s

tax base. They also clarify certain other aspects of

accounting for deferred tax assets. The amendments

clarify the existing guidance under IAS 12. They do

not change the underlying principles for the recog-

nition of deferred tax assets.

Amendment to IAS 7 – Cash flow statements taxes (1

January 2017) - In January 2016, the International

Accounting Standards Board (IASB) issued an amend-

ment to IAS 7 introducing an additional disclosure

that will enable users of financial statements to

evaluate changes in liabilities arising from financ-

ing activities. The amendment responds to requests

from investors for information that helps them

better understand changes in an entity’s debt. The

amendment will affect every entity preparing IFRS

financial statements. However, the information re-

quired should be readily available. Preparers should

consider how best to present the additional informa-

tion to explain the changes in liabilities arising from

financing activities.

IFRS 15, ‘Revenue from contracts with customers’

deals with revenue recognition and establishes prin-

ciples for reporting useful information to users of fi-

nancial statements about the nature, amount, timing

and uncertainty of revenue and cash flows arising

from an entity’s contracts with customers.

Revenue is recognised when a customer obtains

control of a good or service and thus has the abili-

ty to direct the use and obtain the benefits from the

good or service. The standard replaces IAS 18 ‘Reve-

nue’ and IAS 11 ‘Construction contracts’ and related

interpretations. The standard is effective for annual

periods beginning on or after 1 January 2018 and

earlier application is permitted. The Company is as-

sessing the impact of IFRS 15.

IFRS 16, ‘Leases’. After ten years of joint drafting by

the IASB and FASB they decided that lessees should

be required to recognise assets and liabilities arising

from all leases (with limited exceptions) on the bal-

ance sheet. Lessor accounting has not substantially

changed in the new standard. The model reflects

that, at the start of a lease, the lessee obtains the

right to use an asset for a period of time and has an

obligation to pay for that right. In response to con-

cerns expressed about the cost and complexity to

apply the requirements to large volumes of small

assets, the IASB decided not to require a lessee to

recognise assets and liabilities for short-term leases

(less than 12 months), and leases for which the un-

derlying asset is of low value (such as laptops and of-

fice furniture).A lessee measures lease liabilities at

the present value of future lease payments. A lessee

measures lease assets, initially at the same amount

as lease liabilities, and also includes costs directly

related to entering into the lease. Lease assets are

amortised in a similar way to other assets such as

property, plant and equipment.


2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT.)

(ii) New and revised standards and interpretations not

yet adopted (continued)


This approach will result in a more faithful repre-

sentation of a lessee’s assets and liabilities and,

together with enhanced disclosures, will provide

greater transparency of a lessee’s financial leverage

and capital employed. One of the implications of the

new standard is that there will be a change to key

financial ratios derived from a lessee’s assets and

liabilities (for example, leverage and performance

ratios).IFRS 16 supersedes IAS 17, ‘Leases’, IFRIC 4,

‘Determining whether an Arrangement contains a

Lease’, SIC 15, ‘Operating Leases – Incentives’ and

SIC 27, ‘Evaluating the Substance of Transactions In-

volving the Legal Form of a Lease’.

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.

b) FOREIGN CURRENCY TRANSLATION

(a) Functional and presentation currency

Items included in the financial statements are mea-

sured using the currency of the primary economic

environment in which the entity operates (‘the func-

tional currency’). The financial statements are pre-

sented in Kenya Shillings in thousands (Shs) which is

the Company’s functional currency.

(b) Transactions and balances

Foreign currency transactions are translated into the

functional currency using the exchange rates pre-

vailing at the dates of the transactions or valuations

where items are re-measured. 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

profit or loss.

Foreign exchange gains and losses that relate to bor-

rowings and cash and cash equivalents are present-

ed in profit or loss within ‘finance income or cost’. All

other foreign exchange gains and losses are present-

ed in profit or loss within ‘other income or expenses’.

c) REVENUE RECOGNITION The Company recognises revenue when the amount

of revenue can be reliably measured, it is probable

that future economic benefits will flow to the Com-

pany and when specific criteria have been met for

each of the Company’s activities as described below.

Premium income for general business is recognised

on assumption of risks, and includes estimates of

premiums due but not yet received, less unearned

premiums. Unearned premiums represent the pro-

portion of the premiums written in periods up to

the accounting date which relate to the unexpired

terms of policies in force at the reporting date, and

are calculated using the 24th basis. The proportion

attributable to subsequent periods is deferred as a

provision for unearned premiums.

Commissions receivable are recognised as income in

the period in which they are earned.

Investment income is stated net of investment ex-

penses. Interest income for all interest bearing fi-

nancial instruments is recognised using the effective

interest method. Dividends income on available for

sale equities is recognised as income in the period

in which the right to receive payment is established.

Rental income from operating leases is recognised

on a straight line basis over the term of the lease.

Reinsurance

The Company assumes and cedes reinsurance in

the normal course of business, with retention limits

varying by line of business. Premiums on reinsur-

ance assumed are recognised as income in the same

manner as they would be if the reinsurance were

considered direct business. Premiums ceded and

claims reimbursed are presented on a gross basis in

profit and loss and statement of financial position as

appropriate.



Reinsurance assets represent balances due from re-

insurance companies. Amounts recoverable from re-

insurers are estimated in a manner consistent with

the outstanding claims provision or settled claims

associated with the reinsurer’s policies and are in

accordance with the related reinsurance contract.

Impairment occurs when there is objective evidence

as a result of an event that occurred after initial rec-

ognition of the reinsurance asset that the Company

may not receive all outstanding amounts due under

the terms of the contract and the event has a reliably

measurable impact on the amounts that the Compa-

ny will receive from the reinsurer. The impairment

loss is recognised in the profit or loss.

Ceded reinsurance arrangements do not relieve the

Company from its obligations to policyholders. The

Company also assumes reinsurance risk in the nor-

mal course of business for life insurance and non-

life insurance contracts where applicable. Premiums

and claims on assumed reinsurance are recognised

as revenue or expenses in the same manner as they

would be if the reinsurance were considered direct

business, taking into account the product classifica-

tion of the reinsured business. Reinsurance liabili-

ties represent balances due to reinsurance compa-

nies. Amounts payable are estimated in a manner

consistent with the related reinsurance contract.

Reinsurance assets or liabilities are derecognised

when the contractual rights are extinguished or ex-

pire or when the contract is transferred to another

party.

d) INSURANCE RECEIVABLES Insurance receivables are recognised when due and

measured on initial recognition at the fair value of

the consideration received or receivable. Subse-

quent to initial recognition, insurance receivables

are measured at amortised cost, using the effective

interest method. The carrying value of insurance

receivables is reviewed for impairment whenever

events or circumstances indicate that the carrying

amount may not be recoverable, with the impair-

ment loss recognised in profit or loss.

e) CLAIMS INCURRED 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 ear-

lier years. Outstanding claims provisions represent

the estimated ultimate cost of settling all claims

arising from incidents occurring prior to the report-

ing date, but not settled at that date. Outstanding

claims provisions are computed on the basis of the

best information available at the time the records for

date based on the Company’s experience but subject

to the minimum percentage set by the Commission-

er of Insurance. Outstanding claims are not discount-

ed.

f) COMMISSIONS PAYABLE AND DEFERRED ACQUISITION COSTS

A proportion of commission payable is deferred and

amortised over the period in which the related pre-

miums are earned. Deferred acquisition costs repre-

sent a proportion of acquisition costs that relate to

policies that are in force at the year end.



c) REVENUE RECOGNITION (CONT.) Reinsurance (continued)


g) INSURANCE CONTRACT LIABILITIES

The outstanding claims provision, which are based

on the estimated ultimate cost of all claims incurred

but not settled at the reporting date, whether report-

ed or not, together with related claims handling costs

and reduction for the expected value of salvage and

other recoveries. Delays can be experienced in the

notification and settlement of certain types of claims

and therefore the ultimate cost of this category of

claims cannot be known with certainty at the report-

ing date. The liability is calculated at the reporting

date using a range of standard actuarial claim pro-

jection techniques, based on empirical data and

current assumptions that may include a margin for

adverse deviation. The liability is not discounted for

the time value of money. No provision for equalisa-

tion or catastrophe reserves is recognised. The liabil-

ities are derecognised when the contract expires, is

discharged or is cancelled.

The provision for unearned premiums represents

premiums received for risks that have not yet ex-

pired. Generally the reserve is released over the

term of the contract at which time it is recognised as

premium income.

h) INVESTMENT PROPERTY Investment properties comprise land and buildings

and parts of buildings held to earn rentals and/or for

capital appreciation. They are carried at fair value,

determined periodically by external independent

valuers. Fair value is based on open market basis de-

termined using the highest and best use valuation

model.

Investment properties are not subject to deprecia-

tion. Gains and losses arising from changes in the

fair value of investment property are included in

profit or loss in the period in which they arise.

On disposal of an investment property, the differ-

ence between the net disposal proceeds and the

carrying amount is charged or credited to the profit

or loss for the year.

i) PROPERTY, PLANT AND EQUIPMENT

Property and equipment are stated at cost or as pro-

fessionally revalued from time to time less accumu-

lated depreciation and any accumulated impairment

losses.

Any surplus arising on the revaluation is recognised

in other comprehensive income and accumulated in

the revaluation reserve. Decreases that offset pre-

vious increases of the same asset are recognised

in charged to profit or loss. On subsequent sale or

retirement of a revalued property, the attributable

revaluation surplus remaining in the revaluation re-

serve is transferred directly to retained earnings.

The last valuation was done in December 2016 on an

open market value basis using the highest and best

use valuation model.

Depreciation is calculated on a reducing balance ba-

sis to write down the cost of each asset to its residual

value over its estimated useful life at the following

annual rates:

Building Over the period of the lease

Partitioning 12.5%

Motor vehicles 25%

Furniture, fittings and equipment 12.5%

Computer hardware 30%

The annual depreciation on the revaluation surplus

element of property, plant and equipment is trans-

ferred from the revaluation surplus to retained earn-

ings net of the resultant deferred tax.

Gains and losses on disposal of property and equip-

ment are determined by reference to their carrying

amounts.

Subsequent costs are included in the asset’s carrying

amount or recognised as a separate asset, as appro-

priate, only when it is probable that future econom-

ic benefits associated with the item will flow to the

Company and the cost of the item can be measured



reliably. The carrying amount of the replaced part is

derecognised. All other repairs and maintenance are

charged to profit or loss during the financial period

in which they are incurred.

Increases in the carrying amount arising on reval-

uation of land and buildings are credited to other

comprehensive income and shown as revaluation

reserve in equity. Decreases that offset previous

increases of the same asset are charged in other

comprehensive income and debited against the re-

valuation reserve, all other decreases are charged to

profit or loss. Each year the difference between de-

preciation based on the revalued carrying amount of

the asset (the depreciation charged to profit or loss)

and depreciation based on the asset’s original cost is

transferred from the revaluation reserve to retained

earnings.

j) LEASES Leases in which a significant portion of the risks and

rewards of ownership are retained by the lessor are

classified as operating leases. Payments made un-

der operating leases (net of any incentives received

from the lessor) are charged to profit or loss on a

straight-line basis over the period of the lease.

k) FINANCIAL ASSETS The Company classifies its financial assets in the

following categories: financial assets at fair val-

ue through profit or loss, loans and receivables,

held-to-maturity and available-for-sale. The direc-

tors determine the classification of its financial as-

sets at initial recognition and depends on the pur-

pose for which the investments were acquired.

Classification(i) Financial assets at fair value through profit or loss

This category comprises 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 into the ‘financial assets

at fair value through profit or loss’ category at incep-

tion if acquired principally for the purpose of selling in

the short term, if it forms part of a portfolio of financial

assets in which there is evidence of short-term prof-

it-taking, or if so designated by management. Deriva-

tives are also classified as held for trading unless they

are designated as hedges.

Financial assets designated as at fair value through

profit or loss at inception are those that are:

■ Held in internal funds to match insurance and invest-

ment contracts liabilities that are linked to the chang-

es in fair value of these assets. The designation of

these assets to be at fair value through profit or loss

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; and

■ Managed and whose performance is evaluated on a

fair value basis. Information about these financial as-

sets is provided internally on a fair value basis to the

Company’s key management personnel. The Com-

pany’s investment strategy is to invest in equity and

debt securities and to evaluate them with reference to

their fair values. Assets that are part of these portfoli-

os are designated upon initial recognition at fair value

through profit or loss.



i) PROPERTY, PLANT AND EQUIPMENT (CONT.)


(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 that the Company intends to sell in the short

term or that it has designated as at fair value through

profit or loss;

(b) those that the Company upon initial recognition des-

ignates as available-for-sale; or

(c) those for which the holder may not recover substan-

tially all of its initial investment, other than because

of credit deterioration.

The Company’s loans and receivables comprise trade

and other receivables’ and cash and cash equiva-

lents’ in the statement of financial position.

(iii) Available for sale financial assets

Available-for-sale financial assets are financial as-

sets that are intended to be held for an indefinite pe-

riod of time, which may be sold in response to needs

for liquidity or changes in interest rates, exchange

rates or equity prices or that are not classified as

loans and receivables, held-to-maturity investments

or financial assets at fair value through profit or loss.

(iv) Held-to-maturity financial assets

Held-to-maturity investments are non-derivative fi-

nancial assets with fixed or determinable payments

and fixed maturities that the directors have the pos-

itive intention and ability to hold to maturity, other

than:

(a) those that the Company upon initial recognition des-

ignates as at fair value through profit or loss;

(b) those that the Company designates as available-for-

sale; and

(c) those that meet the definition of loans and receiv-

ables.

Recognition and measurement

Regular purchases and sales of financial assets are

recognised on trade-date – the date on which the

Company commits to purchase or sell the asset.

Financial assets are initially recognised at fair value

plus, in the case of all financial assets not carried at

fair value through profit or loss, transaction costs

that are directly attributable to their acquisition. Fi-

nancial assets carried at fair value through profit or

loss are initially recognised at fair value, and trans-

action costs are expensed in profit or loss.

Financial assets are derecognised when the rights to

receive cash flows from them have expired or where

they have been transferred and the Company has

also transferred substantially all risks and rewards

of ownership.

Available-for-sale financial assets and financial as-

sets at fair value through profit or loss are subse-

quently carried at fair value. Loans and receivables

and held-to-maturity financial assets are carried at

amortised cost using the effective interest method.

Gains and losses arising from changes in the fair

value of the ‘financial assets at fair value through

profit or loss’ category are included in profit or loss

in the period in which they arise. Dividend income

from financial assets at fair value through profit or

loss is recognised in profit or loss as part of invest-

ment income when the Company’s right to receive

payments is established.

Changes in the fair value of monetary and non-mon-

etary securities classified as available-for-sale are

recognised in other comprehensive income.

When securities classified as available-for-sale are

sold or impaired, the accumulated fair value adjust-

ments recognised in other comprehensive income

are included in profit or loss as net realised gains on

financial assets.



Interest on available-for-sale securities calculated

using the effective interest method is recognised in

profit or loss. Dividends on available-for-sale equity

instruments are recognised in profit or loss when the

Company’s right to receive payments is established.

Both are included in the investment income line.

De-recognition of financial instruments

A financial asset (or, when applicable, a part of a fi-

nancial asset or part of a group of similar financial

assets) is derecognised when:

■ The rights to receive cash flows from the asset have

expired

■ The Company retains the right to receive cash flows

from the asset, or has assumed an obligation to pay

them in full without material delay to a third party

under a ‘pass-through’ arrangement and either

(a) the Company has transferred substantially all the

risks and rewards of the asset, or

(b) the Company has neither transferred nor retained

substantially all the risks and rewards of the asset,

but has transferred control of the asset.

When the Company has transferred its right to re-

ceive cash flows from an asset and has neither

transferred nor retained substantially all the risks

and rewards of the asset nor transferred control of

the asset, the asset is recognised to the extent of

the Company’s continuing involvement in the as-

set. Continuing involvement that takes the form of a

guarantee over the transferred asset is measured at

the lower of the original carrying amount of the as-

set and the maximum amount of consideration that

the Company could be required to repay.

In that case, the Company also recognises an asso-

ciated liability. The transferred asset and the asso-

ciated liability are measured on a basis that reflects

the rights and obligations that the Company has re-

tained.

Continuing involvement that takes the form of a

guarantee over the transferred asset is measured at

the lower of the original carrying amount of the as-

set and the maximum amount of consideration that

the Company could be required to repay.

Financial liabilities are derecognised when the ob-

ligation under the liability is discharged, cancelled

or expired. When the existing liability is replaced by

another from the same lender on substantially dif-

ferent terms, or the terms of an existing liability are

substantially modified, such an exchange or modifi-

cation is treated as a de recognition of the original

liability and the recognition of a new liability, and

the difference in the respective carrying amounts is

recognised in the income statement.

Determination of fair value

For financial instruments traded in active markets,

the determination of fair values of financial assets

and financial liabilities is based on the price that

would be received to sell an asset or paid to transfer

a liability in an orderly transaction between market

participants at the measurement date. This includes

listed equity securities and quoted debt instruments

on major exchange (NSE, USE). The quoted market

price used for financial assets held by the company

is the current bid price.

A financial instrument is regarded as quoted in an ac-

tive market if quoted prices are readily and regularly

available from an exchange, dealer, broker, industry,

pricing service or regulatory agency, and those pric-

es represent actual and regularly occurring market

transactions on an arm’s length basis. If the above

criteria are not met, the market is regarded as being

inactive.



k) FINANCIAL ASSETS (CONT.)(iv) Held-to-maturity financial assets (continued)

Recognition and measurement (continued)


For example a market is inactive when there is a

wide bid-offer spread or significant increase in the

bid-offer spread or there are few recent transactions.

For all other financial instruments, fair value is de-

termined using valuation techniques. In these tech-

niques, fair values are estimated from observable

data in respect of similar financial instruments, us-

ing models to estimate the present value of expect-

ed future cash flows or other valuation techniques,

using inputs existing at the dates of the statement of

financial position.

Fair values are categorised into three levels in a fair

value hierarchy based on the degree to which the

inputs to the measurement are observable and the

significance of the inputs to the fair value measure-

ment in its entirety:

■ Level 1 fair value measurements are those derived

from quoted prices (unadjusted) in active markets

for identical assets or liabilities.


from inputs other than quoted prices included with-

in Level 1 that are observable for the asset or liabil-

ity, either directly (i.e. as prices) or indirectly (i.e.

derived from prices).


from valuation techniques that include inputs for

the asset or liability that are not based on observ-

able market data (unobservable inputs).

l) IMPAIRMENT OF ASSETS(a) Financial assets carried at amortised cost

The Company assesses at the end of each reporting

period whether there is objective evidence that a fi-

nancial asset or group of financial assets is impaired.

A financial asset or a group of financial assets is im-

paired and impairment losses are incurred only if

there is objective evidence of impairment as a result

of one or more events that occurred after the 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.

For loans and receivables category, 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 cred-

it losses that have not been incurred) discounted at

the financial asset’s original effective interest rate.

The carrying amount of the asset is reduced and the

amount of the loss is recognised in the consolidated

statement of profit or loss. If a loan or held-to-matu-

rity investment has a variable interest rate, the dis-

count rate for measuring any impairment loss is the

current effective interest rate determined under the

contract. As a practical expedient, the Company may

measure impairment on the basis of an instrument’s

fair value using an observable market price. If, in a

subsequent period, the amount of the impairment

loss decreases and the decrease can be related ob-

jectively to an event occurring after the impairment

was recognised (such as an improvement in the

debtor’s credit rating), the reversal of the previous-

ly recognised impairment loss is recognised in the

statement of profit or loss.

(b) Assets classified as available for sale

The Company assesses at the end of each reporting

period whether there is objective evidence that a

financial asset or a group of financial assets is im-

paired.

For debt securities, if any such evidence exists the

cumulative loss – measured as the difference be-

tween the acquisition cost and the current fair val-

ue, less any impairment loss on that financial asset

previously recognised in profit or loss – is removed

from equity and recognised in profit or loss. If, in a

subsequent period, the fair value of a debt instru-

ment classified as available for sale increases and

the increase can be objectively related to an event

occurring after the impairment loss was recognised

in profit or loss, the impairment loss is reversed



through the consolidated statement of profit or loss.

For equity investments, a significant or prolonged

decline in the fair value of the security below its cost

is also evidence that the assets are impaired. If any

such evidence exists the cumulative loss – measured

as the difference between the acquisition cost and

the current fair value, less any impairment loss on

that financial asset previously recognised in profit

or loss – is removed from equity and recognised in

profit or loss. Impairment losses recognised in the

statement of profit or loss on equity instruments are

not reversed through the statement of profit or loss.

(c) Impairment of other non-financial assets

Intangible assets that have an indefinite useful life

or intangible assets not ready to use are not subject

to amortisation and are tested annually for impair-

ment. Assets that are subject to amortisation are re-

viewed for impairment whenever events or changes

in circumstances indicate that the carrying amount

may not be recoverable. An impairment loss is rec-

ognised for the amount by which the asset’s carrying

amount exceeds its recoverable amount. The recov-

erable amount is the higher of an asset’s fair value

less costs of disposal and value in use. For the pur-

poses of assessing impairment, assets are grouped

at the lowest levels for which there are largely in-

dependent cash inflows (cash-generating units).

Prior impairments of nonfinancial assets (other than

goodwill) are reviewed for possible reversal at each

reporting date.

m) CASH AND CASH EQUIVALENTS Cash and cash equivalents include cash in hand,

deposits held at call with banks, other short term

highly liquid investments with original maturities

of three months or less, and bank overdrafts. Bank

overdrafts are shown within borrowings in current

liabilities

n) SHARE CAPITAL Ordinary shares are classified as ‘share capital’ in

equity. Any premium received over and above the par

value of the shares is classified as ‘share premium’ in

equity.

Incremental costs directly attributable to the issue

of new ordinary shares are shown in equity as

deduction from the proceeds.

o) DIVIDENDS Dividends on ordinary shares are charged to equity

in the period in which they are declared. Proposed

dividends are shown as a separate component of

equity until declared.

p) JOINT ARRANGEMENTS The Company has applied IFRS 11 to all joint

arrangements as of 1 January 2016. Under IFRS 11

investments in joint arrangements are classified as

either joint operations or joint ventures depending

on the contractual rights and obligations each

investor. Joint operations arise where a joint operator

has rights to the assets and obligations relating to

the arrangement and hence accounts for its interest

in assets, liabilities, revenue and expenses. Joint

ventures arise where the joint operator has rights to

the net assets of the arrangement and hence equity

accounts for its interest. The Company has assessed

the nature of its joint arrangements and determined

them to be joint operations. Joint operations are

accounted for using the equity method.

Under the equity method of accounting, interests

in joint operations are initially recognised at cost

and adjusted thereafter to recognise the Company’s

share of the post-acquisition profits or losses and

movements in other comprehensive income. When

the Company’s share of losses in a joint venture

equals or exceeds its interests in the joint ventures

(which includes any long-term interests that, in

substance, form part of the group’s net investment

in the joint ventures), the group does not recognise

further losses, unless it has incurred obligations or

made payments on behalf of the joint ventures.



l) IMPAIRMENT OF ASSETS (CONT.)(b) Assets classified as available for sale (continued)


q) COMMISSIONS PAYABLE AND DEFERRED ACQUISITION COSTS

A proportion of commissions payable is deferred

and amortised over the period in which the related

premium is earned. Deferred acquisition costs

represent a proportion of commissions payable and

other acquisition costs that relate to the unexpired

term of the policies that are in force at the year end.

r) CLAIMS INCURRED 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 provisions

represent the estimated ultimate cost of settling all

claims arising from incidents occurring prior to the

end of each reporting period, but not settled at that

date. Outstanding claims provisions 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”) at the end of each reporting period based on

the group’s experience but subject to the minimum

percentage set by the Commissioner of Insurance.

Outstanding claims are not discounted.

s) GENERAL INSURANCE CONTRACT LIABILITIES

General insurance contract liabilities are recognised

when contracts are entered into and premiums

are charged. These liabilities are known as the

outstanding claims provision, which are based on

the estimated ultimate cost of all claims incurred

but not settled at the end of each reporting period,

whether reported or not, together with related

claims handling costs and reduction for the expected

value of salvage and other recoveries. Delays can be

experienced in the notification and settlement of

certain types of claims and therefore the ultimate

cost of this category of claims cannot be known

with certainty at the end of each reporting period.

The liability is calculated at the reporting date

using a range of standard actuarial claim projection

techniques, based on empirical data and current

assumptions that may include a margin for adverse

deviation. The liability is not discounted for the

time value of money. No provision for equalisation

or catastrophe reserves is recognised. The liabilities

are derecognised when the contract expires, is

discharged or is cancelled.

The provision for unearned premiums represents

premiums received for risks that have not yet

expired. Generally the reserve is released over the

term of the contract at which time it is recognised as

premium income.

t) INCOME TAX EXPENSE Income tax expense is the aggregate amount

charged/(credited) in respect of current tax and

deferred tax in determining the profit or loss for

the year. Tax is recognised in the profit or loss

except when it relates to items recognised in other

comprehensive income, in which case it is also

recognised in other comprehensive income, or to

items recognised directly in equity, in which case it

is also recognised directly in equity.

(a) Current income tax

Current income tax is the amount of income tax

payable on the taxable profit for the year, and any

adjustment to tax payable in respect of prior years,

determined in accordance with the Kenyan Income

Tax Act. The current income tax charge is calculated

on the basis of the tax enacted or substantively

enacted at the reporting date. The Directors

periodically evaluate positions taken in tax returns

with respect to situations in which applicable tax

regulation is subject to interpretation. It establishes

provisions where appropriate on the basis of

amounts expected to be paid to the tax authorities.



(b) Deferred income tax

Deferred income tax is recognised, using the

liability method, on temporary differences arising

between the tax bases of assets and liabilities and

their carrying amounts in the financial statements.

However, deferred income tax is not accounted for if

it arises from initial recognition of an asset or liability

in a transaction other than a business combination

that at the time of the transaction affects neither

accounting nor taxable profit or loss. Deferred

income tax is determined using tax rates (and laws)

that have been enacted or substantively enacted at

the reporting date and are expected to apply when

the related deferred income tax asset is realised or

the deferred income tax liability is settled.

Deferred income tax assets are recognised only to

the extent that it is probable that future taxable

profits will be available against which the temporary

differences can be utilised.

Deferred income tax assets and liabilities are offset

when there is a legally enforceable right to offset

current tax assets against current tax liabilities and

when the deferred income taxes assets and liabilities

relate to income taxes levied by the same taxation

authority on either the same taxable entity or

different taxable entities where there is an intention

to settle the balances on a net basis.

u) EMPLOYEE BENEFITS(i) Retirement benefit obligations

The Company operates a defined contribution

scheme for its employees. The assets of the scheme

are held in a separate trustee administered fund.

The scheme is funded by contributions from both

the employees and the employer, with the employer

contributing 5% while the employee contribution

is voluntary. The Company also contributes to the

statutory defined contribution pension scheme, the

National Social Security Fund (NSSF). Contributions

to these schemes are determined by local statute

and are currently limited to Shs 200 per employee

per month.

3 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS

Estimates and judgements are continually evaluated

and are based on historical experience and other fac-

tors, including experience of future events that are

believed to be reasonable under the circumstances.

The Company makes estimates and assumptions

concerning the future. The resulting accounting es-

timates will, by definition, seldom equal the related

actual results. The estimates and assumptions that

have a significant risk of causing a material adjust-

ment to the carrying amounts of assets and liabili-

ties within the next financial year are addressed be-

low.

The ultimate liability arising from claims made un-

der insurance contracts

Estimates have to be made both for the expected ul-

timate cost of claims reported at the reporting date

and for the expected ultimate cost of claims incurred

but not yet reported at the statement of financial po-

sition date (IBNR). It can take a significant period of

time before the ultimate claims cost can be estab-

lished with certainty.

All contracts are subject to a liability adequacy test,

which reflects management’s best current estimate

of future cash flows. The ultimate cost of outstand-

ing claims is estimated by using a range of standard

actuarial claims projection techniques.

The main assumption underlying techniques applied

in the estimation of this liability is that the Compa-

ny’s past claims experience can be used to project

future claims development and hence, ultimate

claims costs. As such, these methods extrapolate the



t) INCOME TAX EXPENSE (CONT.)


development of paid and incurred losses, average

costs per claim and claim numbers based on the ob-

served development of earlier years and expected

loss ratios. Historical claims development is mainly

analysed by accident years , as well as by significant

business lines. Large claims are usually separately

addressed, either by being reserved at the face val-

ue of loss adjuster estimates or separately projected

in order to reflect their future development. In most

cases, no explicit assumptions are made regarding

future rates of claims inflation or loss ratios. Instead,

the assumptions used are those implicit in the his-

torical claims development data on which the pro-

jections are based.

Additional qualitative judgment is used to assess the

extent to which past trends may not apply in future,

(for example to reflect one-off occurrences, changes

in external or market factors such as public attitudes

to claiming, economic conditions, levels of claims’

inflation, judicial decisions and legislation, as well

as internal factors such as portfolio mix, policy con-

ditions and claims handling procedures) in order to

arrive at the estimated ultimate cost of claims that

present the likely outcome from the range of possi-

ble outcomes, taking account of all the uncertainties

involved.

Fair value of financial instruments

The fair value of financial instruments where no ac-

tive market exists or where quoted prices are not

otherwise available are determined by using valu-

ation techniques. In these cases the fair values are

estimated from observable data in respect of sim-

ilar financial instruments or using models. Where

market observable inputs are not available, they

are estimated based on appropriate assumptions.

Where valuation techniques (for example, models)

are used to determine fair values, they are validat-

ed and periodically reviewed by qualified personnel

independent of those that sourced them. All models

are certified before they are used, and models are

calibrated to ensure that outputs reflect actual data

and comparative market prices. To the extent practi-

cal, models use only observable data; however, areas

such as credit risk (both own credit risk and counter-

party risk), volatilities and correlations require man-

agement to make estimates.

4 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

The Company’s activities expose it to a variety of

insurance and financial risks. Financial risks include

credit risk, liquidity risk and market risk which in-

cludes the effects of changes in property values,

debt and equity market prices, foreign currency ex-

change rates and interest rates.

The Company’s overall risk management programme

focuses on the unpredictability of financial markets,

identification and management of risks. It 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 cri-

teria for the approval of intermediaries and reinsur-

ers. Investment policies are in place which help man-

age liquidity, and seek to maximise return within an

acceptable level of interest rate risk.

Financial risk management is carried out by the fi-

nance department under policies approved by the

Board of Directors. The board provides written prin-

ciples for overall risk management, as well as written

policies covering specific areas such as foreign ex-

change risk, interest rate risk, credit risk and invest-

ment of excess liquidity



4.1 INSURANCE RISK The risk under any one insurance contract is the pos-

sibility that the insured event occurs and the uncer-

tainty of the amount of the resulting claim. By the

very nature of an insurance contract, this risk is ran-

dom and therefore unpredictable.

For a portfolio of insurance contracts where the

theory of probability is applied to pricing and pro-

visioning, 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 ran-

dom, and the actual number and amount of claims

and benefits will vary from year to year from the lev-

el established using statistical techniques.

Factors that aggravate insurance risk include lack of

risk diversification in terms of type and amount of

risk, geographical location and type of industry cov-

ered.

Insurance risk in the Company arises from:

(a) Fluctuations in the timing, frequency and severity of

claims and claims settlements relative to expecta-

tions;

(b) Unexpected claims arising from a single source;

(c) Inaccurate pricing of risks or inappropriate under-

writing of risks when underwritten;

(d) Inadequate reinsurance protection or other risk

transfer techniques; and

(e) Inadequate reserves

(a), (b) and (c) can be classified as the core insurance

risk, (d) relates to reinsurance planning, while (e) is

about reserving.

Core insurance risk

This risk is managed through:

■ Diversification across a large portfolio of insurance

contracts;

■ Careful selection guided by a conservative under-

writing philosophy;

■ Continuous monitoring of the business performance

per class and per client and corrective action taken

as deemed appropriate;

■ A minimum of one review of each policy at renewal

to determine whether the risk remains within the ac-

ceptable criteria;

■ Having a business acceptance criteria which is re-

viewed from time to time based on the experience

and other developments; and

■ Having a mechanism of identifying, quantifying and

accumulating exposures to contain them within the

set underwriting limits.

Reinsurance planning

Reinsurance purchases are reviewed annually to ver-

ify that the levels of protection being sought reflect

developments in exposure and risk appetite of the

Company. The bases of these purchases is under-

pinned by the Company’s experience, financial mod-

elling by and exposure of the reinsurance broker.

Reinsurance is placed with providers who meet the

Company’s counter-party security requirements.

Claims reserving

The Company’s reserving policy is guided by the pru-

dence concept. Estimates are made of the estimated

cost of settling a claim based on the best available

information upon registration of a claim, and this is

updated as and when additional information is ob-

tained and annual reviews done to ensure that the

reserves are adequate. Management is regularly pro-

vided with claims settlement reports to inform on

the reserving performance.



Gross Reinsurance Net

liabilities share Liabilities

31 December 2016 Shs’000 Shs’000 Shs’000

Motor 481,961 363 481,598

Fire 155,962 146,490 9,472

Workmen’s compensation 630,621 3,163 627,458

Marine 69,578 14,232 55,346

Personal accident 12,954 9,115 3,839

Engineering 48,511 21,218 27,293

Aviation 321 320 1

Miscellaneous 13,074 149 12,925

Theft 15,701 1,707 13,994

Others 131,665 119,591 12,074

Total 1,560,348 316,348 1,244,000

Gross Reinsurance Net

liabilities share Liabilities

31 December 2015 Shs’000 Shs’000 Shs’000

Motor 478,244 3,596 474,648

Fire 75,777 58,818 16,959

Workmen’s compensation 501,006 2,764 498,242

Marine 81,436 26,238 55,197

Personal accident 13,611 11,341 2,270

Engineering 120,732 97,307 23,425

Aviation 396 356 40

Miscellaneous 20,887 859 20,028

Theft 73,722 61,704 12,018

Others 7,469 356 7,113

Total 1,373,280 263,340 1,109,940


The table below sets out the concentration of general insurance contract liabilities by type of contract:


4.2 FINANCIAL RISKS(i) Financial risk management

The Company is exposed to financial risk through its financial assets, financial liabilities, reinsurance assets and in-

surance liabilities. In particular the key financial risk is that the proceeds from its financial assets are not sufficient

to fund the obligations arising from its insurance and investment contracts. The most important components of

this financial risk are interest rate risk, equity price risk, currency risk and credit risk. These risks arise from open

positions in interest rate, currency and equity products, all of which are exposed to general and specific market

movements. The risks that the Company primarily faces due to the nature of its investments and liabilities are in-

terest rate risk and equity price risk. Appraisal of investment portfolio is done on a regular basis and the investment

spread reviewed depending on the existing interest rates.

(a) Market risk

Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of

changes in market prices and comprises of three types of risk: interest rate risks, equity price risk and foreign ex-

change currency risk. The sensitivity analysis below is based on a change in one assumption while holding all other

assumptions constant:

i Interest rate risk

The Company is exposed to the risk that the level of interest income and in effect the cash flows will fluctuate due

to changes in market interest rates. To manage this risk, the Company ensures that the investment maturity profiles

are well spread.

The sensitivity analysis presented below shows how profit and equity would change if the interest rates had in-

creased/(decreased) on the reporting date with all other variables held constant.


ii Equity price risk

Equity price risk is the risk that the fair value of fu-

ture cash flows of a financial instrument will fluctu-

ate because of changes in market prices (other than

those arising from interest rate risk or currency risk),

whether those changes are caused by factors specif-

ic to the individual financial instrument or its issuer,

or factors affecting all similar financial instruments

traded in the market.

The Company is exposed to equity securities price

risk as a result of its holdings in equity investments

2016 (Shs’000) 2015 (Shs’000)

Effect on Effect on Effect on Effect on

profit equity profit equity

+ 5 percentage point movement 4,384 4,384 35,073 33,828

- 5 percentage point movement (4,384) (4,384) (35,073) (33,828)

which are listed and traded on the Nairobi Securities

Exchange. Exposure to equity price risks in aggre-

gate is monitored in order to ensure compliance with

the relevant regulatory limits for solvency purposes.

The Company has a defined investment policy which

sets limits on the company’s exposure to equity se-

curities both in aggregate terms and by category/

share. This policy of diversification is used to man-

age the Company’s price risk arising from its invest-

ments in equity securities.


iii Foreign exchange currency risk

Foreign exchange currency risk is the risk that the

fair value of future cash flows of a financial instru-

ment will fluctuate because of changes in foreign

exchange rates. Management believes that there is

minimal risk of significant losses due to exchange

rate fluctuations.

The following sensitivity analysis shows how profit

and other comprehensive income would change if

the exchange rates increased/(decreased) by 5% on

the reporting date with all other variables held con-

stant, mainly as a result of translation of US Dollar

denominated available for sale equity investments

and foreign currency denominated bank balances.

(b) Credit risk

Credit risk is the risk that one party to a financial in-

strument will cause a financial loss to the Company

by failing to discharge a contractual obligation. The

following policies and procedures are in place to

mitigate the Company’s exposure to credit risk:

■ Net exposure limits are set for each counterparty or

group of counterparties i.e. limits are set for invest-

ments and cash deposits, and minimum credit rat-

ings for investments that may be held.

■ Reinsurance is placed with counterparties that have

a good credit rating.

■ Ongoing monitoring by the management credit com-

mittee.

The exposure to individual counterparties is also

managed through other mechanisms, such as the

right of offset where counterparties are both debtors

and creditors of the Company. Management infor-

mation reported to the Directors include details of

provisions for impairment on receivables and subse-

quent write offs. Exposures to individual policyhold-

ers and groups of policyholders are collected within

the ongoing monitoring of the controls associated

with regulatory solvency.

The sensitivity analysis presented below shows how other comprehensive income would change if the market

prices increased/(decreased) by 5% on the reporting date with all other variables held constant.


2016 2015

Shs’000 Shs’000

Effect on other comprehensive income

+ 5 percentage point movement 30,457 13,349

- 5 percentage point movement (30,457) (13,349)

2016 2015

Shs’000 Shs’000

Effect on other comprehensive income

+ 5 percentage point movement 15,782 10,147

- 5 percentage point movement (15,782) (10,147)


4.2 FINANCIAL RISKS (CONTINUED)(b) Credit risk (continued)

The table below shows the carrying amounts of financial assets bearing credit risk

The debt that is past due relates to amounts held in a local financial institution that is under statutory management.

The recoverability of this balance is dependent on resolution of a dispute between the institution and the Central

Bank of Kenya but the Directors are confident that the amount will be recovered.

Government securities are generally considered risk free because the risk of loss is remote.


Fully

performing Past due Impaired Total

Shs’000 Shs’000 Shs’000 Shs’000

31 December 2016

Receivable arising out of direct insurance arrangements 415,440 - - 415,440

Receivable arising out of reinsurance arrangements 11,642 - - 11,642

Held to maturity:

- Government securities 430,268 - - 430,268

- Corporate bonds 111,380 - - 111,380

- Deposits with financial institutions 1,039,416 - - 1,039,416

Other receivables:

- Deposits with institutions under statutory management - - 10,000 10,000

Cash and bank balances 69,776 - - 69,776

2,077,922 - 10,000 2,087,922

31 December 2015

Receivable arising out of direct insurance arrangements 297,175 - - 297,175

Receivable arising out of reinsurance arrangements 6,114 - - 6,114

Held to maturity:

-Government securities 429,352 - - 429,352

-Corporate bonds 109,477 - - 109,477

-Deposits with financial institutions 763,718 - - 763,718

Other receivables:

- Deposits with institutions under statutory management - 45,934 - 45,934

Cash and bank balances 55,003 - - 55,003

1,660,839 45,934 - 1,706,773


Between Over Over

1 – 3 months 3 months 12 months Total

Shs’000 Shs’000 Shs’000 Shs’000

31 December 2016

Payables arising from

- reinsurance arrangements 337,403 - - 337,403

- insurance arrangements 20,444 - - 20,444

Outstanding claims provisions 1,560,348 - - 1,560,348

1,918,195 - - 1,918,195

At 31 December 2015

Payables arising from

- reinsurance arrangements 311,936 - - 311,936

- insurance arrangements 12,821 - - 12,821

Outstanding claims provisions 1,373,280 - - 1,373,280

1,698,037 - - 1,698,037

(c) Liquidity risk

Liquidity risk is the risk that the company will encounter difficulty in meeting obligations associated with financial

liabilities. Ultimate responsibility for liquidity risk management rests with the Board of Directors, which has devel-

oped and put in place an appropriate liquidity risk management framework for the management of the Company’s

short, medium and long-term funding and liquidity management requirements. The Company manages liquidity

risk by maintaining adequate reserves and banking facilities, by continuously monitoring forecast and actual cash

flows and matching the maturity profiles of financial assets and liabilities

The table below analyses the Company’s financial liabilities that will be settled on a net basis into relevant matu-

rity groupings based on the remaining period at the reporting date to the contractual maturity date. The amounts

disclosed in the table below are the contractual undiscounted cash flows. Balances due within 12 months equal

their carrying balances, as the impact of discounting is not significant.

(ii) Capital Management

The Company’s objectives in managing its capital

are:

■ to match the profile of its assets and liabilities, tak-

ing account of the risks inherent in the business;

■ to maintain financial strength to support new busi-

ness growth;

■ to satisfy the requirements of its policyholders, reg-

ulators and rating agencies;

■ to retain financial flexibility by maintaining strong

liquidity and access to a range of capital markets;

■ to allocate capital efficiently to support growth



■ to safeguard the Company’s ability to continue as a

going concern so that it can continue to provide re-

turns for shareholders and benefits for other stake-

holders; and

■ to provide an adequate return to shareholders by

pricing insurance contracts commensurately with

the level of risk.

■ to comply with the capital requirements as set out in

the Insurance Act.

■ to comply with the regulatory solvency require-

ments as set out in the Insurance Act.

An important aspect of the Company’s overall capital

management process is the setting of target risk-ad-

justed rate of return which is aligned to performance

objectives and ensures that the Company is focused

on the creation of value for shareholders.

The Company has a number of sources of capital

available to it and seeks to optimise its debt to equi-

ty structure in order to ensure that it can consistent-

ly maximise returns to shareholders. The Company

considers not only the traditional sources of capital

funding but the alternative sources of capital in-

cluding reinsurance, as appropriate, when assessing

its deployment and usage of capital. The Company

manages as capital all items that are eligible to be

treated as capital for regulatory purposes.

The Insurance Act requires each insurance company

to hold the minimum level of paid up capital de-

pending on the insurance business they carry.

General insurance business is required to maintain

the higher of the following as its minimum capital;

■ Shs 300 million; or

■ risk based capital determined by the Insurance Reg-

ulatory Authority (IRA) from time to time; or

■ 20% of net written premiums of the preceding fi-

nancial year

Life insurance business is required to maintain the

higher of the following as its minimum capital;

■ Shs 150 million; or

■ risk based capital determined by the Insurance Reg-

ulatory Authority (IRA) from time to time; or

■ 5% of liabilities of the life business for the financial

year

The Company manages capital in accordance with

these rules and has embedded in its ALM framework

the necessary tests to ensure continuous and full

compliance with such regulations.

The solvency margin of the Company as at 31 De-

cember 2016 and 2015 is illustrated below.


2016 2015

Shs’000 Shs’000

Admitted assets 3,335,442 2,961,865

Admitted liabilities 2,169,887 1,996,063

Margin 1,165,555 965,802

Required margin 561,987 523,723

4.2 FINANCIAL RISKS (CONTINUED)(iii) Capital Management (continued)


(iv) Fair value estimation

The table below analyses financial instruments car-

ried at fair value, by valuation method. The different

levels have been defined as follows:

■ Quoted prices (unadjusted) in active markets for

identical assets or liabilities (Level 1).

■ Inputs other than quoted prices included within lev-

el 1 that are observable for the asset or liability, ei-

ther directly (that is, as prices) or indirectly (that is,

derived from prices) (Level 2).

5 GROSS EARNED PREMIUMS


■ Inputs for the asset or liability that are not based on

observable market data (that is, unobservable in-

puts) (Level 3).

The following table presents the Company’s finan-

cial assets and liabilities measured at fair value at 31

December 2016 and 31 December 2015

2016 2015

Shs’000 Shs’000

Motor 520,330 518,850

Fire 713,458 502,453

Workmen’s compensation 361,225 312,952

Marine 149,262 93,909

Personal accident 34,761 36,584

Engineering 190,762 223,270

Aviation 15,984 8,041

Miscellaneous 141,856 125,951

Theft 112,285 117,239

Others 28,823 23,733

2,268,746 1,962,982

Level 1 Level 2 Level 3 Total

Shs’000 Shs’000 Shs’000 Shs’000

31 December 2016

Available for sale

- Equity instruments 164,948 549,192 - 714,140

31 December 2015

Available for sale



6 INVESTMENT INCOME

Fair value gain on investment properties (Note 15) 19,373 18,603

Interest on bank deposits 88,641 89,238

Interest on Government securities 47,462 43,142

Rental income from investment properties (Note 15) 25,348 21,941

Dividends receivable on equity instruments 12,887 5,636

Interest on corporate bonds 13,690 13,880

Interest on commercial papers - 1,161

207,401 193,601

Investment income earned on financial assets, analysed by category

of financial asset, is as follows:

Loans and receivables (including bank and cash balances) 88,641 89,238

Held-to-maturity investments 61,152 58,183

Available for sale financial assets 12,887 5,636

Investment income earned on non financial assets 44,721 40,544

Total investment income 207,401 193,601

7 OTHER INCOME

8 CLAIMS INCURRED

Miscellaneous income 19,599 1,406

Foreign exchange gains 286 1,245

19,885 2,651

2016 2015

Shs’000 Shs’000

Claims paid by principal class of business:

Motor 251,623 127,658

Workmen’s compensation 194,320 211,794

Marine 14,898 24,523

Theft 15,599 2,226

Fire 15,445 14,094

Engineering 26,998 22,787

Personal accident 4,754 (6,732)

Other (1,099) 2,567

522,538 398,917



10 STAFF COSTS

2016 2015

Shs’000 Shs’000

Salaries and benefits 158,760 150,963

Defined contribution retirement schemes

- Pension fund 12,553 11,433

- National Social Security fund 150 202

171,463 162,598


9 OPERATING AND OTHER EXPENSES

Staff costs (note 10) 171,463 162,598

Depreciation of property, plant and equipment (note 13) 20,877 18,560

Amortisation of computer software (note 14) 11,723 5,498

Subscriptions 1,499 1,960

Repairs and maintenance expenditure 4,588 4,182

Rent, rates and parking 6,234 5,488

Printing and stationery 7,804 6,475

Telephone and postage 4,415 6,312

Travelling and entertainment 16,083 15,808

Advertising costs 10,586 19,973

Licences and insurance 5,143 3,164

Auditors’ remuneration 3,635 3,102

Directors’ emoluments 2,688 2,209

Premium tax 26,610 19,276

Other expenses 81,158 76,270

374,506 350,875


11 INCOME TAX EXPENSE

2016 2015

Shs’000 Shs’000

Current tax expense in respect of the year 108,305 99,883

Deferred income tax – charge recognised (Note 31) (7,699) 7,333

Over provision of deferred tax in prior years 18,149 (82,587)

Total income tax expense 118,755 24,629

At 1 January (718) 50,405

Taxation charge - Note (a) 108,305 99,883

Tax paid (109,662) (151,006)

At 31 December (2,075) (718)


Tax calculated at a tax rate of 30% 121,164 120,796

Tax effect of:

- Income not subject to tax (28,143) (17,700)

- Expenses not deductible for tax purposes 7,585 4,120

- Over provision of deferred tax in prior years 18,149 (82,587)

118,755 24,629

a) Taxation charge

c) Corporate tax payable

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

The Company’s income tax expense is computed in accordance with income

tax rules applicable to general insurance companies

12 EARNINGS PER SHARE – BASIC AND DILUTED

Profit for the year (Shs ‘000) 285,124 378,023

Weighted average number of shares in issue during the year 6,000,000 5,250,000

Earnings per share (basic and diluted) (Shs) 47.52 72.00



13 PROPERTY AND EQUIPMENT


Furniture

Motor Computer fittings and

Building Partitioning vehicles equipment equipment Total

Cost or valuation Shs’000 Shs’000 Shs’000 Shs’000 Shs’000 Shs’000

At 1 January 2015 178,570 47,670 9,180 13,686 56,012 305,118

Additions - 3,317 4,682 2,620 1,890 12,509

Transfer from investment

property 17,297 - - - - 17,297

Surplus on revaluation 9,793 - - - - 9,793

Disposals - (1,951) - (409) (6,028) (8,388)

At 31 December 2015 205,660 49,036 13,862 15,897 51,874 336,329

At 1 January 2016 205,660 49,036 13,862 15,897 51,874 336,329

Additions - 14,872 3,000 1,131 10,778 29,781

Surplus on revaluation 10,302 - - - - 10,302

Disposals - - (5,650) - - (5,650)

At 31 December 2016 215,962 63,908 11,212 17,028 62,652 370,762

Comprising

At cost 82,708 63,908 11,212 17,028 62,652 237,508

At valuation - 2016 133,254 - - - - 133,254

At 31 December 2016 215,962 63,908 11,212 17,028 62,652 370,762

Depreciation

At 1 January 2015 - 15,830 3,762 9,225 20,268 49,085

Charge for the year 5,515 4,203 2,525 2,119 4,198 18,560

Eliminated on disposal - (586) - (391) (1,976) (2,953)

Reversal on revaluation (5,515) - - - - (5,515)

At 31 December 2015 - 19,447 6,287 10,953 22,490 59,177

At 1 January 2016 - 19,447 6,287 10,953 22,490 59,177

Charge for the year 6,544 5,534 1,957 1,822 5,020 20,877

Eliminated on disposal (2,901) (2,901)

Reversal on revaluation (6,544) (6,544)

At 31 December 2016 - 24,981 5,343 12,775 27,510 70,609


13 PROPERTY AND EQUIPMENT (CONTINUED)

Furniture

Motor Computer fittings and

Building Partitioning vehicles equipment equipment Total

Shs’000 Shs’000 Shs’000 Shs’000 Shs’000 Shs’000

Net book value

At 31 December 2016 215,962 38,927 5,869 4,353 35,042 300,153

At 31 December 2015 205,660 29,589 7,575 4,944 29,384 277,152

Net book value (Cost basis)

At 31 December 2016 62,014 38,927 5,869 4,353 35,042 146,205

At 31 December 2015 66,875 29,589 7,575 4,944 29,384 138,367

The building was valued by Gimco Limited, registered valuers, on an open market value basis using the highest and

best use valuation principle.

The different levels have been defined as follows:

- 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).

Details of the fair value hierarchy of the Company’s property held at fair value as at 31 December 2016 are as

follows:


Shs’000 Shs’000 Shs’000 Shs’000

31 December 2016

- Property, plant and equipment - 215,962 - 215,962

31 December 2015

- Property, plant and equipment - 205,660 - 205,660



14 INTANGIBLE ASSETS - COMPUTER SOFTWARE

15 INVESTMENT PROPERTIES

Cost

At 1 January 27,663 14,721

Additions 20,246 13,342

Disposals - (400)

At 31 December 47,909 27,663

Amortisation

At 1 January 18,328 12,830

Charge for the year 11,723 5,498

At 31 December 30,051 18,328

Net book value 17,858 9,335

Revaluation

At 1 January 404,913 389,357

Additions 10,688 14,250

Transfer to Property and Equipment - (17,297)

Fair value gain* (Note 6) 19,373 18,603

At 31 December 434,974 404,913

Investment properties comprise a building and leasehold land. The building constructed on the land is held for the

purposes of earning rental income and capital appreciation. The investment properties are held at fair value. The

properties were valued by Gimco Limited, registered valuers, on an open market value basis using the highest and

best use valuation principle.

Rental income arising from investment properties during the year amounted to Ksh 25,348,041 (2015: Ksh

21,941,482) as disclosed in note 6. Expenses relating to investment property amounted to Ksh 1,171,729 (2015:

Ksh 1,477,456).

2016 2015

Shs’000 Shs’000



16 INVESTMENT IN ASSOCIATE

2016 2015

Shs’000 Shs’000

At 1 January 57,022 48,777

Reversal of revaluation loss 8,350 -

Reversal of revaluation loss - 8,245

At 31 December 65,372 57,022

Further information on the associate company is shown below:

Company % owned Country of Incorporation

Mayfair Insurance Company Zambia Limited 40% Zambia

A summary of financial information as of 31st December 2016 in respect of the associate company is set out below:

2016

Shs’000

Total assets 678,849

Total liabilities (515,420)

Net assets 163,429

Company’s share of net assets 65,372

Net earned premiums 224,982

Profit before income tax 17,987

Income tax expense (10,648)

Profit for the year 7,339


The Company has a 40% equity interest in Mayfair Insurance Company Zambia Limited. The share of net assets of

the associate as at 31 December is as shown below

Details of the fair value hierarchy of the Company’s Investment property held at fair value as at 31 December 2016

are as follows:


Shs’000 Shs’000 Shs’000 Shs’000

31 December 2016 - 434,947 - 434,947

31 December 2015 - 404,913 - 404,913


Proportion of

ownership

Principal Place of interest held by 2016 2015

Name of joint arrangement activity incorporation the Company Shs’000 Shs’000

Mayfair Estates Limited Real Estate Kenya 50% 69,850 69,350

Kitisuru Development Limited Real Estate Kenya 20% 88,503 87,903

Sealine Holdings Limited Real Estate Kenya 20% 68,829 64,329

Rushmore Investments Limited Real Estate Kenya 20% 42,640 42,640

269,822 264,222


The Company holds interests in joint operations for the acquisition and the development of real estate projects in

the above companies. Currently, the Company has deposited funds with the Companies that are serving as vehicles

for execution of joint arrangement projects. The joint operations have not yet commenced full operation.

17 INVESTMENT IN JOINT ARRANGEMENTS

2016 2015

Shs’000 Shs’000

At 1 January 264,222 263,032

Additions 5,600 1,190

At 31 December 269,822 264,222


18 AVAILABLE FOR SALE EQUITY INSTRUMENTS

The unquoted investments relate to ordinary shares

in PTA Reinsurance Company Limited, Family Bank

Company Limited, UAP Insurance and Mayfair Bank.

The investments are carried at fair value and are de-

nominated in the US Dollar in the case of the invest-

ment in PTA Reinsurance and in Kenya shillings in all

other cases. The investments denominated in for-

eign currencies are translated into Kenya Shillings at

the rates of exchange ruling at the end of reporting

period. The exchange gains and losses are dealt with

through other comprehensive income.

Details of the fair value hierarchy of the Company’s

Available for sale financial instruments as at 31 De-

cember 2016 are as follows:



Shs’000 Shs’000 Shs’000 Shs’000

31 December 2016

Available for sale


December 2015

Available for sale


Unquoted

Quoted equity

shares investments Total

Shs’000 Shs’000 Shs’000

2016

At 1 January 226,352 511,238 737,590

Additions 6,550 51,354 57,904

Exchange gains - 531 531

Fair value gains through other comprehensive income (67,954) (13,931) (81,885)

At 31 December 164,948 549,192 714,140

2015

At 1 January 266,971 377,298 644,269

Additions 14,089 15,378 29,467

Disposals - - -

Exchange gains - 35,668 35,668

Fair value gains/(losses) through other comprehensive income (54,708) 82,894 28,186

At 31 December 226,352 511,238 737,590


22 GOVERNMENT SECURITIES - Held to maturity

23 CORPORATE BONDS - Held to maturity

Treasury bills and bonds maturing:

Within 90 days - 18,914

In 1 to 5 years 40,261 20,142

More than 5 years 390,007 390,296

430,268 429,352

KenGen - Public Infrastructure Bond 7,972 10,577

Guarantee Trust Bank Limited 10,000 10,000

British American Insurance Bond 43,380 41,000

UAP Holdings Bond 16,467 15,600

NIC Bank Bond 33,561 32,300

111,380 109,477


2016 2015

Shs’000 Shs’000

Reinsurers’ share of

- unearned premiums 510,039 418,616

- notified claims (note 27) 254,603 202,622

- claims incurred but not reported (note 27) 61,744 60,718

826,386 681,956

At 1 January 129,811 87,614

Increase/ (decrease) in the year 17,406 42,197

At 31 December 147,217 129,811

Deposit held at financial institution under statutory management 10,000 25,934

Prepayments and deposits 1,732 2,463

Sundry receivables 37,775 59,388

49,507 87,785

19 REINSURERS’ SHARE OF TECHNICAL PROVISIONS AND RESERVES

20 DEFERRED ACQUISITION COSTS

21 OTHER RECEIVABLES


25 WEIGHTED AVERAGE EFFECTIVE INTEREST RATES

24 DEPOSITS WITH FINANCIAL INSTITUTIONS - Held to maturity

23 CORPORATE BONDS - Held to maturity (continued)

The following table summarises the weighted average effective interest 2016 2015

rates realised during the year on interest-bearing investments: % %

Government securities 12.2 12.25

Deposits with financial institutions 11.8 16.49

Corporate bonds 12.0 12.58

Deposits maturing within 3 months: 1,039,416 763,718

Movement in corporate bonds: 7,972 10,577

At 1 January 109,477 112,164

Accrued Interest 4,591 -

Disposals (2,688) -

Amortization - (2,687)

At 31 December 111,380 109,477

26 SHARE CAPITAL

Authorised:

7,500,000 ordinary shares of Sh 100 each 750,000 750,000

Issued and fully paid:

5,250,000 (2015: 3,500,000) ordinary shares of Sh 100 each 600,000 525,000

Movement

At 1 January 525,000 350,000

Capitalization of dividends 75,000 175,000

At 31 December 600,000 525,000

2016 2015

Shs’000 Shs’000

2016 2015

Shs’000 Shs’000



The development of insurance liabilities provides a measure of the Company’s ability to estimate the ultimate val-

ue of claims. The table below illustrates how the Company’ estimate of total claims outstanding for each accident

year has changed at successive year ends.

Accident year 2012 2013 2014 2015 2016 Total

Shs’000 Shs’000 Shs’000 Shs’000 Shs’000 Shs’000

Cumulative incurred claims

estimate

At end of accident year 698,440 1,935,716 651,593 727,803 769,828 4,783,380

One year later 633,309 927,564 575,794 845,832 2,982,499

Two years later 572,163 899,825 625,718 2,097,706

Three years later 554,408 915,545 1,469,953

Four years later 541,766 541,766

Current estimate of

cumulative claims 541,766 915,545 625,718 845,832 769,828 3,698,689

Less: Cumulative payments

to date (498,644) (699,365) (395,537) (477,509) (407,083) (2,478,138)

Liability in the statement

of financial position 43,122 216,180 230,181 368,323 362,745 1,220,551

Liability in respect of

prior years 116,688

Incurred but not reported 223,109

Total gross claims liability

included in the statement

of financial position 1,560,348


27 OUTSTANDING CLAIMS PROVISION

At 1 January 1,373,280 1,359,830

Claims incurred and claim handling expenses 762,375 423,572

Payments for claims and claims handling expenses (798,416) (654,013)

Claims incurred but not reported 223,109 207,891

At 31 December 1,560,348 1,373,280

2016 2015

Shs’000 Shs’000


28 MOVEMENTS IN INSURANCE LIABILITIES AND REINSURANCE ASSETS

The table below shows the movement in the Company’s outstanding claims provision and related reinsurance

share of outstanding claims.

Gross outstanding Reinsurance

claims share Net

2016 Shs’000 Shs’000 Shs’000

At 1 January 2016

Notified claims 1,165,389 202,622 962,767

Incurred but not reported 207,891 60,718 147,173

Total at beginning of year 1,373,280 263,340 1,109,940

Claims paid in year 798,418 409,939 388,479

Increase in liabilities:-

- Arising from current year claims 793,951 406,120 387,831

- Arising from prior year claims 191,535 56,827 134,708

At end of year 1,560,348 316,348 1,244,000

Notified claim 1,337,239 254,604 1,082,635


Total at end of year 1,560,348 316,348 1,244,000

2015

At 1 January 2015

Notified claims 1,151,042 162,588 988,454


Total at beginning of year 1,395,830 268,260 1,127,570

Claims paid in year 654,013 237,413 416,600

Decrease in liabilities:-

- Arising from current year claims 641,783 234,253 407,530

- Arising from prior year claims 10,320 1,760 8,560

At end of year 1,373,280 263,340 1,109,940

Notified claims 1,165,389 202,622 962,767


Total at end of year 1,373,280 263,340 1,109,940



29 UNEARNED PREMIUMS RESERVE

30 DEFERRED REINSURANCE COMMISSIONS

31 DEFERRED INCOME TAX

At 1 January 841,313 691,613

Increase in the year 124,729 149,700

At 31 December 966,042 841,313

At 1 January 69,238 84,643

Increase in the year 14,150 (15,405)

At 31 December 83,388 69,238

Deferred income tax is calculated using the enacted tax rate of 30% (2015: 30%). Deferred tax assets and liabili-

ties, and the deferred tax charge / (credit) in the statement of profit or loss (P/L) and in other comprehensive income

(OCI) are attributable to the following items:

2016 2015

Shs’000 Shs’000


At 1 Jan (Credited/ (Credited)/ At 31 Dec

2016 charged charged 2016

to P/L to OCI

Year ended 31 December 2016 Shs’000 Shs’000 Shs’000 Shs’000

Deferred income tax asset

Leave pay provision (1,970) (291) - (2,261)

(1,970) (291) - (2,261)

Deferred income tax liability

Accelerated capital allowances 8,708 2,157 - 10,865

Unrealised exchange gains 431 497 - 928

Revaluation surplus 14,460 18,787 842 34,089

Interest receivable 10,700 (10,700) - -

34,299 10,741 842 45,882

Net deferred tax liability/(asset) 32,329 10,450 842 43,621


31 DEFERRED INCOME TAX

32 OTHER PAYABLES


At 1 Jan (Credited/ (Credited)/ At 31 Dec

2015 charged charged 2015

to P/L to OCI

Year ended 31 December 2015 Shs’000 Shs’000 Shs’000 Shs’000

Deferred income tax asset

Unrealised exchange losses (1,966) 1966 - -

Leave pay provision (1,898) 72 - (1,970)

(3,864) 2,038 - (1,970)

Deferred income tax liability

Accelerated capital allowances 15,560 (6,852) 8,708

Unrealised exchange gains 1371 (940) 431

Revaluation surplus 92,820 76,664 1,696 14,460

Interest receivable - 10,700 - 10,700

109,751 79,572 1,696 34,299

Net deferred tax liability/(asset) 105,887 81,610 1,969 32,329

The charge to other comprehensive income relates to:

2016 2015

Shs’000 Shs’000

Items that will not be reclassified subsequently to profit or loss:

Surplus on revaluation of property and equipment 842 1,696

842 1,696

2016 2015

Shs’000 Shs’000

Accrued expenses 8,669 7,596

Other liabilities 62,414 29,507

71,083 37,103



33 NOTES TO THE STATEMENT OF CASH FLOWS

(a)

(b)

2016 2015

Shs’000 Shs’000

Cash generated from operations

Reconciliation of profit before income tax to cash generated from operations;


Adjustments for:

Depreciation (note 13) 20,877 18,560

Amortisation of intangible asset (note 14) 11,723 5,498

Fair value gain on investment properties (19,373) (18,603)

Changes in:

- receivables arising out of reinsurance arrangements (5,528) 5,240

- receivables arising out of direct insurance arrangements (118,265) (73,919)

- reinsurers share of technical provisions and reserves (144,430) (82,724)

- deferred acquisition cost (17,406) (42,197)

- other receivables 58,278 (14,726)

- outstanding claims provisions 187,068 (22,550)

- unearned premiums reserve 124,729 149,700

- payables arising out of reinsurance arrangements 25,467 152,878

- payables arising out of direct insurance arrangements 7,623 7,393

- deferred reinsurance commission 14,150 (15,405)

- other payables 33,980 (26,260)

Cash generated from operations 582,772 445,537

Analysis of cash and cash equivalents

Cash and bank balances 69,776 55,003

Government securities maturing within 3 months (note 22) - 18,914

Deposits with financial institutions maturing in 3 months (note 24) 1,039,416 763,718

At 31 December 1,109,192 837,635


34 RELATED PARTIES

2016 2015

Shs’000 Shs’000

The following transactions were carried out with related parties:

Directors’ fees 2,688 2,209

Directors and key management remuneration 77,444 58,118

Gross earned premiums

Related partied 1,381 9,700

36 DIVIDENDS

2016 2015

Shs’000 Shs’000

The movement in the dividend account is as follows:

Payable at 1 January 125,000 175,000

Final dividend declared 100,000 125,000

Dividends paid (125,000) (175,000)

At 31 December 100,000 125,000

The Directors recommend a first and final cash dividend of 16.67 per share amounting to Shs. 100,000,000 (2015

dividends Shs. 50,000,000 and a bonus share amounting to Shs. 75,000,000)

The movement in the dividend account is as follows:



38 INCORPORATION

39 CURRENCY

Outstanding commitments under operating leases are as follows:

Company as a lessor:

Not later than one year 27,883 25,853

Amounts charged to the profit or loss in the

Year in respect of operating leases 24,176 20,465

The Company is incorporated in Kenya under the Companies Act and is resident in Kenya.

These financial statements are presented in Kenya Shillings thousands (Shs ‘000).

37 OPERATING LEASE COMMITMENTS

2016 2015

Shs’000 Shs’000



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WE ARE

RELIABLE

Over the years we have grown to become one of

the most reliable insurance companies in the region.

This is why indusrty leaders trust us - WE INSURE

INDUSTRY LEADERS

KENYAMayfair Centre, 8th Floor Ralph Bunche Road, Nairobi+254 20 2999000, +254 724/733 [email protected]

ZAMBIA

WWW.MAYFAIR.CO.KE

Lubuto House Lubuto Road, Rhodes Park, Lusaka+260 211 255182/[email protected]

TANZANIATAN-RE House, 2nd Floor Longido Street, Upanga, Dar es Salaam +255 22 2922337/338, +255 785 [email protected]

RWANDAMakuza Peace Plaza Building, 2nd Floor KN4, Avenue de la Paix, Nyarugenge, Kigali+250 788 [email protected]

You are in safe hands

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