ANNUAL REPORT & FINANCIAL STATEMENTS - APA ...apalife.co.ke/wp-content/uploads/2014/08/APA-Life-annual...APA LIFE ASSURANCE LIMITED (Formerly Apollo Life Assurance Limited) 1 FINANCIAL

APA LIFE ASSURANCE LIMITED (Formerly Apollo Life Assurance Limited) 1

F INANCIAL STATEMENTS

ANNUAL REPORT &

2013

HEAD OFFICE

APOLLO CENTRE, RING ROAD PARKLANDS,

WESTLANDS

P.O. BOX 30389 - 00100 NAIROBI

TEL: +254 (0) 20 364 1000

FAX: +254 (0) 20 364 1100

E-mail: [email protected]

Website: www.apalife.co.ke

BRANCH OFFICES

CITY CENTRE

6TH FLOOR, HUGHES BUILDING,

KENYATTA AVENUE

P.O. BOX 30065 - 00100, NAIROBI

TEL: +254 (0) 20 286 2000

FAX: +254 (0) 20 286 2200

NAKURU

GIDDO PLAZA, GEORGE MORARA ROAD

P.O. BOX 14188 - 20100, NAKURU

TEL: 051 221 3412/6

PILOT LINE: 020 286 2337

FAX: 051 221 3449


MOMBASA

APOLLO HOUSE, MOI AVENUE

P.O. BOX 81821 - 80100, MOMBASA

TEL: 041 222 1941/7506

PILOT LINE: 020 286 2346

FAX: 041 222 5661


KISUMU

MEGA CITY, OFF KISUMU - NAIROBI ROAD

P.O. BOX 632 - 40100, KISUMU

TEL: 057 202 4860

PILOT LINE: 020 286 2322

FAX: 057 202 4860


NAIVASHA

1ST FLOOR, EAGLE CENTRE

MBARIA KANIU ROAD

P.O. BOX 1819 - 20117, NAIVASHA

TEL: 050 202 0086

PILOT LINE: 020 286 2353

FAX: 050 202 0086


ELDORET

1ST FLOOR, IMPERIAL COURT, UGANDA ROAD

P.O. BOX 3600 - 30100, ELDORET

TEL: 053 203 0937

PILOT LINE: 020 286 2332

FAX: 053 203 0938


THIKA

4TH FLOOR, THIKA ARCADE

P.O. BOX 4400 - 01002, THIKA

TEL: 061 20196

PILOT LINE: 020 286 2300

FAX: 067 20 197


MERU

2ND FLOOR, TWIN PLAZA, GHANA ROAD

P.O. BOX 3298 - 60200, MERU

TEL: 064 31823

PILOT LINE: 020 286 2312

FAX: 064 31 821


NYERI

1ST FLOOR, PEAK BUSINESS CENTRE,

OFF KENYATTA HIGHWAY

P.O. BOX 2443 - 10100, NYERI

TEL: 061 203 0332

PILOT LINE: 020 286 2307

FAX: 061 203 0332


EMBU

2ND FLOOR, SPARKO BUILDING,

KENYATTA HIGHWAY

P.O. BOX 1817 - 60100, EMBU

TEL: 068 30 103

PILOT LINE: 020 286 2317

FAX: 068 30 104


KISII

OURU COMPLEX, KISII - KISUMU ROAD

P.O. BOX 3479 - 40200, KISII

TEL: 058 31 773

PILOT LINE: 020 286 2327

FAX: 058 31 773


MACHAKOS

ABC IMANI PLAZA, NGEI ROAD

TEL: 044 21 455

PILOT LINE: 020 286 2347

FAX: 044 21 456


OTHER GROUP COMPANIES

APA INSURANCE KENYA LIMITED

APOLLO CENTRE, RING ROAD PARKLANDS,

WESTLANDS

P.O. BOX 30389 - 00100 NAIROBI

TEL: +254 (0) 20 286 2000

FAX: +254 (0) 20 286 2200


Website: www.apainsurance.org

APA INSURANCE (UGANDA) LIMITED

CROWN HOUSE, 1ST FLOOR

KAMPALA ROAD, KAMPALA

P.O. BOX: 7651, KAMPALA

TEL: +256 (40) 425 0087 / 1103

Website: www.apainsuranceuganda.com

APOLLO ASSET MANAGEMENT

COMPANY LIMITED

APOLLO CENTRE,

RING ROAD PARKLANDS, WESTLANDS, NAIROBI

TEL: +254 020 364 1000


Website: apolloassetmanagement.co.ke

ASSOCIATES

GORDON COURT LIMITED

APOLLO CENTRE, RING ROAD, PARKLANDS

P.O. BOX: 30389 - 00100, NAIROBI

TEL: +254 020 364 1000


Website: www.apollocentre.org

RELIANCE INSURANCE COMPANY

(TANZANIA) LTD.

3RD & 4TH FLOOR RELIANCE HOUSE,

PLOT NO. 356 UPANGA, UNITED NATIONS ROAD

P.O. BOX 9826, DAR ES SALAAM

TEL: +255 (22) 212 0088 - 90

FAX: +255 (22) 211 2903


Website: www.reliancetz.com

APA LIFE ASSURANCE LIMITED (Formerly Apollo Life Assurance Limited)2

Table of ContentsVision & Mission 5

Board of Directors 6 - 7

Management 8 - 9

Corporate Information 10

Chairman’s Statement 11 - 13

Corporate Governance Statement 14 - 16

Report of the Directors 17

Statement of Directors’ Responsibilities 18

Report of the Consulting Actuary 19

Independent Auditors’ Report 20

Corporate Social Responsibility 21 - 23

Group Structure 24

Financial Statements:

Statement of Profit or Loss and Other Comprehensive Income 26

Statement of Financial Position 27

Statement of Changes in Equity 28

Statement of Cash Flows 29

Accounting Policies 32 - 40

Notes to the Financial Statements 44 - 65

Supplementary Information

Revenue Account 66


4

VISIONWe are the region’s most respected group,

creating and protecting wealth

MISSIONWe put smiles on the faces of

our stakeholders


• Doug Lacey • Pratul Shah • P.J. Shah • S.M. Shah • Ashok Shah • Rick Ashley • Mugo Kibati • Daniel Ndonye

Director Company Secretary Director Director Director Director Chairman Director


BOARD OF DIRECTORS

• Doug Lacey • Pratul Shah • P.J. Shah • S.M. Shah • Ashok Shah • Rick Ashley • Mugo Kibati • Daniel Ndonye

Director Company Secretary Director Director Director Director Chairman Director


MANAGEMENT


• Evans Manduku

Head of Group Business Development

• Daniel Mugo

Chief Finance Officer

• Benedicto Makena

National Sales Manager

• Judy Kinyanjui

Head of Human Resources

• Aggrey Mulumbi

Principal Officer

• Nashipae Orumoy

Head of Corporate Communications

• Jane Watiki

Head of Operations

• Wilbroda Odera

Project Manager

• Cynthia Arami

Business Development Manager (Pensions)

• Stephen Muiga

Business Development Manager(Credit Life & Micro Insurance)

• Evans Manduku

Head of Group Business Development

• Daniel Mugo

Chief Finance Officer

• Benedicto Makena

National Sales Manager

• Judy Kinyanjui

Head of Human Resources

• Aggrey Mulumbi

Principal Officer

• Nashipae Orumoy

Head of Corporate Communications

• Jane Watiki

Head of Operations

• Wilbroda Odera

Project Manager

• Cynthia Arami

Business Development Manager (Pensions)

• Stephen Muiga

Business Development Manager(Credit Life & Micro Insurance)



CORPORATE INFORMATION

Board of Directors

M Kibati - Chairman

D.M. Ndonye

A.K.M. Shah*

D.N.Lacey**

S.M. Shah

P.J. Shah

R.M. Ashley**

British* South African**

Independent AuditorsDeloitte & Touche

Certified Public Accountants (Kenya)

Deloitte Place, Waiyaki Way, Muthangari

P.O. Box 40029-00100

Nairobi

BankersCommercial Bank of Africa Limited

P.O. Box 30437-00100

Nairobi

Consulting Actuaries

Giles T.Waugh, FASSA, FIA

Independent Actuarial Consultant

Tel: +27 11 646 0199/ +27 83 680 7990

Johannesburg

Registered Office Apollo Centre,

07 Ring Road Parklands, Westlands

P.O. Box 30389 - 00100

Tel: +254 (0) 20 364 1000

Nairobi

Agency Offices

Apollo House,

Moi Avenue

P.O. Box 81821 - 80100,

Mombasa

Tel: 041 222 1941/7506

Hughes Building,

Kenyatta Avenue

P.O. Box 30389 - 00100,

Nairobi

Tel: +254 (0) 20 364 1000

Peak Business Centre,

off Kenyatta Highway

P.O. Box 2443 - 10100,

Nyeri

Tel: 061 203 0332

Giddo Plaza,

George Morara Road

P.O. Box 14188 - 20100

Nakuru Tel: 051 221 3412/6

CHAIRMAN’SSTATEMENT


I am pleased to present the annual report and financial statements for the year ended

31 December, 2013.

Economy

Kenya maintained a stable economic environment and fiscal discipline despite the fiscal

pressures arising from the General Elections that took place in March 2013, under the

new devolved system of governance.

Kenya’s GDP is estimated to have grown to 4.8%, a marginal improvement on the 4.6%

recorded in 2012. This was supported by the smooth transition of government; an increase

in the capital inflows brought about, partly by the increased infrastructure activities; and

single digit inflation rates as well as a stable exchange rate regime in the last 18 months.

Other contributors to the growth included the improved performances in financial

intermediation, transport and communication, wholesale and retail trade, manufacturing,

construction and mining and quarrying activities. There was a slowdown in the growth

of the agriculture and forestry sectors which impacted negatively on the economic

performance.

Inflation edged upwards to an average of 6.99% in the third quarter of 2013 compared

to an average of 6.39% during a similar period in 2012. This was influenced by the

implementation of the VAT Act 2013 leading to an increase in prices of a number of basic

commodities. Year on year inflation closed lower at 7.15% having peaked at 8.29% in

the month of September 2013.

The Central Bank of Kenya Monetary Policy Committee (“MPC”) undertook a

moderate stance on interest rates. With inflationary numbers being largely

stable, the MPC avoided calls to lower CBR rates in tandem with inflation

and argued for more policy actions to filter through the economy while

they maintained a watchful role.

Change of Name

In November 2013, the shareholders resolved to change the name of

the company from Apollo Life Assurance Limited to APA Life Assurance

Limited. The change was in line with the Group’s long-term strategy

to carry out its insurance business under a single brand. We are

committed to providing our customers with world-class services

and promise to leverage on the brand equity and maximize

value for you.

2013 Performance Review

In 2013, we recorded gross premium income of KShs.

415 Million compared to KShs 217 Million in 2012 for

the ordinary life and group life insurance business lines,

translating to 91% year on year growth. The pension

business line recorded a 29% growth in contributions from

KShs 247 Million in 2012 to KShs 318 Million.

The total profits and other comprehensive income for the

year was KShs 106 Million, representing a 200% growth on

the KShs 53 Million reported in 2012.

CHAIRMAN’S STATEMENT


The total asset base grew by 35% to stand at KShs 2.76 Billion at end

of December 2013, up from 2.04 Billion in 2012.

Our deposit administration fund maintained a steady growth of

32% to stand at KShs 1.5 Billion at end of the year, up from KShs

1.2 Billion in 2012. In consultation with our Statutory Actuary, the

Board of Directors approved a reversionary bonus of 4% on the “with

profit individual life” policies and interest of 14%, (2012: 12.50%) on

deposit administration schemes and individual pension plan funds.

The total revenue including the DAP contribution was KShs

733 Million (2012 KShs 464 Million). The notable growth is

attributable to the growth strategy that the group has put in

place. As part of the strategy, the Company undertook a key strategic

decision to re-enter the individual life business arena with products

that support individuals and families through all the stages of their

lives, providing both savings and protection needs to give financial

security to all social segments of the society, with greater focus on the

financially underserved segment. We have launched four individual

life products under the brand names APA Elimu Plan, Hosicare,

Pumzisha and Imarika which have been well received by the market.

We have also re-established our individual life agency channel with

over 100 agents already on board by mid 2014.

The shareholders supported this new business initiative by injecting

additional capital of KShs 100 Million into business. The company’s

capitalization therefore stood at KShs 250 Million; a capital much

higher than the minimum regulatory requirement of KShs 150 Million.

The Company has implemented a fully integrated life management

system that has enabled the business to fully automate its operations.

The key benefits that we will derive from the new system include

efficient and more effective service delivery to our clients and producers

through self-service client and agent portals. The system will enable us

to fully exploit the opportunities presented in the alternative distribution

channels of bancassurance and mobile platforms. Through this

service differentiation initiative, we aim continuously to benchmark

our service delivery to the best practices worldwide.

As a business, we have put emphasis on best underwriting, claims

settlement and management practices. Our commitment and success

in these initiatives were best demonstrated and acknowledged by the

Industry through its representative body AKI which awarded us the

1st Runners Up Group Life Best Practice Award for 2013; and by the

independent Think Business Awards at which we won the Best Claims

Settlement Award for 2013.

As part of the strategy, staff development and training has become

an important milestone in our Human Capital Development. This,

together with emphasis on a new incentivisation process, will see a

strong motivated workforce.

Future Outlook

The East African economies are expected to continue benefitting from

stable interest rates at lower levels than those experienced in the

second half of 2013 and first quarter of 2014. The improved weather

conditions, continued prudent macroeconomic management and

improving business confidence will underpin the growth. The World

Bank has forecasted that Kenya is expected to accelerate to at least

5% growth in 2014.

Significant capital spends in infrastructure and consumption-led

growth are likely to propel GDP growth to higher levels in 2015-2016.

These are expected to positively impact the levels of disposable income

available to individual households. We aim to be at the forefront of

providers, seeking to increase our share of the increased incomes.

While remaining cognizant of the prevailing market conditions, the

company’s commitment to its long term strategy and a disciplined

execution of the same has enabled us to remain on a positive growth

trajectory. We plan to sustain the growth momentum through a

lean but efficient operating structure, strengthened individual life

agency distribution network, product development targeting specific

underserved segments and strong use of the alternative distribution

channels. The company will continue to seek to be acclaimed for its

distinguished services and delivery of the insurance promise by both

the industry players and independent bodies. We plan to enhance

our market share and contribute to the deepening of life assurance

penetration in the country.

Following the recent enactment of the NSSF 2013 Act, we have

been engaging our customers and the public on the requirements

of the new law. We have committed to help our customers navigate

through, and attain full compliance with, the requirements by

placing their Tier II pensions business with us. This will help our

Deposit Administration Portfolio to achieve significant growth this year

and beyond.

We are confident that these initiatives will translate into improved

earnings for our shareholders.

Acknowledgement

My appreciation to the policy holders, the intermediaries and our

business partners for their support, I wish to thank the management

and staff for their commitment, loyalty and dedication in driving

the Company forward. Finally, I wish to thank my fellow Directors

and record my appreciation for their continued support and

considered advice.

Mugo Kibati Chairman

14 April, 2014


Introduction:

Good corporate governance is key to the integrity of corporations,

financial institutions and markets and is central to the health of

our economies and their stability. Corporate governance plays a

leading role in determining how corporations and their boards and

management are directed, controlled and held to account. Corporate

governance therefore encompasses the systems, practices and

procedures by which an individual corporation regulates itself in order

to remain competitive, ethical, sustainable and fair.

The board of APA Life Assurance Limited follows principles of openness,

integrity and accountability in its stewardship of the Company’s affairs.

It recognizes the developing nature of corporate governance and

assesses the Company’s compliance with generally accepted corporate

governance practice on a regular basis. The role of the Board is

to ensure compliance by focusing on and providing the company

overall strategic direction and policy-making. It is also responsible

for the Company’s performance review through accountability while

ensuring appropriate monitoring and supervision. The Board is also

responsible for the overall system of internal control and for reviewing

its effectiveness. The controls are designed to safeguard the Company’s

assets and also ensure the reliability of financial information. A senior

management team, comprising directors and senior managers, meets

regularly to consider issues of operational and strategic importance to

the Company.

Below are the key features of the existing corporate governance

practices within APA Life Assurance Limited:

Board of Directors

The Board of Directors consists of seven non-executive directors of

which three directors are independent and all of whom have been

appointed in accordance with the provisions of the Insurance Act

and the Corporate Governance Guidelines issued by the Insurance

Regulatory Authority. The Chairman of the Board is an independent

non-executive director. The Board is responsible for setting the direction

of the Company through the establishment of strategic objectives, key

policies and the approval of budgets. It monitors the implementation

of strategies and policies through a structured approach to reporting

by executive management leading to consequent accountability.

The directors are actively involved in, and bring strong independent

judgment to bear on board deliberations and discussions. These

directors have a wide range of knowledge and experience of local and

international markets which is applied to the formulation of strategic

objectives and decision making.

All directors have access to the advice and services of the company

secretary (who also sits in every committee and board meeting) and

are entitled to obtain independent professional advice on company

affairs at the Company’s expense.

Committees of the Board

To assist the Board better discharge its responsibilities, the Board has

constituted several Board Committees, comprising a balanced mix of

non-executive directors, senior management, consultants, experts and

service providers are on occasion invited to the Board as circumstances

dictate to provide their expertise. The delegation by the Board to these

committees does not detract the Board from its ultimate collective

accountability for the performance and good governance of the Company.

Each Board Committee has a Charter which contains provisions

relating to; their powers, membership and duties.

The Board Committees are as follows:

• Investment Committee

• Audit Committee

• Information Communication Technology Committee

• Remuneration Committee

3. Internal Control

The Company has implemented and maintains internal controls

designed to provide reasonable assurance as to the integrity

and reliability of the financial statements and to adequately

safeguard and maintain accountability of the Company’s assets.

Such controls are based on established policies and procedures

and are implemented by trained personnel with appropriate

segregation of duties. The effectiveness of the system of internal

controls is monitored regularly through operational meetings.

4. Related Party Transactions

The related party transactions with the Company during the year

ended 31 December, 2013 are detailed under note 62 on page 63

of the annual report and financial statements. The remuneration for

directors consists of fees and sitting allowances for their services in

connection with the Committee and Board meetings.

CORPORATE GOVERNANCE STATEMENT


CORPORATE GOVERNANCE STATEMENT (CONTINUED)

5. Social and Environmental Responsibilities

The Board is conscious of the Company’s social and environmental responsibilities. Particular attention is given to projects which have a long

term positive impact on the society and the environment. These include provision of clean drinking water and sponsorship of childrens education.

The Company encourages staff to participate and actively support their various causes.

6. Going Concern

The directors have made an assessment of the ‘Company’s Ability to Continue’ as a going concern and are satisfied that the Company has

the resources to continue in business for the foreseeable future. Therefore the financial statements continue to be prepared on the going

concern basis.

M Kibati A K M Shah Chairman Director

14 April, 2014

REPORT OF THE DIRECTORS


The directors submit their report together with the audited financial statements of APA Life Assurance Limited (the “Company”) for the year ended

31 December, 2013 which disclose the state of affairs of the Company.

Incorporation And Registered Office

The Company is incorporated in Kenya under the Companies Act and is domiciled in Kenya. The registered office is situated at Apollo Centre, 07

Ring Road Parklands, Westlands, P. O. Box 30389 – 00100, Nairobi.

Change Of Company Name

The Company changed its name from Apollo Life Assurance Limited to APA Life Assurance Limited effective 5 November, 2013.

Principal Activities

The principal activity of the Company is the transaction of long term insurance business.

ResultsLong-term Shareholders’ 2013 2012

business funds Total Total

Shs’000 Shs’000 Shs’000 Shs’000

(Loss)/profit before taxation (97,423) 10,614 (86,809) (66,224)

Taxation charge (2,864) (1,483) (4,347) (4,330)

(Loss)/profit for the year (100,287) 9,131 (91,156) (70,554)

Other comprehensive income 167,037 31,371 198,408 123,544

Total comprehensive income 66,750 40,502 107,252 52,990

Dividends

The directors recommend a first and final dividend of Shs 25,000,000 (2012: 30,000,000) in respect of the year.

Directors

The current Board of Directors is as listed on page 4 and 5.

Auditors

The Company’s independent auditors Deloitte & Touche, retire at the next Annual General Meeting. They are however not eligible for

reappointment as they have completed the mandatory maximum 7 years allowed under the Kenyan Insurance regulations.

Authorisation Of Financial Statements

The financial statements of APA Insurance Limited for the year ended 31 Decembe, 2013 were authorised for issue in accordance with a resolution of

the directors on 14 April, 2014. The shareholders have the power to amend the financial statements after issue.

By Order Of The Board

P.H.ShahCompany SecretaryNairobi

14 April, 2014


STATEMENT OF DIRECTORS’ RESPONSIBILITIES

The Kenyan Companies Act requires the directors to prepare financial statements for each financial year which give a true and fair view of the state

of affairs of the Company, as at the end of the financial year, and of its operating results for that year. It also requires the directors to ensure that

the Company keeps proper accounting records which disclose, with reasonable accuracy, at any time, the financial position of the Company. They

are also responsible for safeguarding the assets of the Company.

The directors are responsible for the preparation of financial statements that give a true and fair view in accordance with International Financial

Reporting Standards and in the manner required by the Kenyan Companies Act, and for such internal controls as directors determine are necessary

to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

The directors accept responsibility for the annual financial statements, which have been prepared using appropriate accounting policies supported by

reasonable and prudent judgments and estimates, in conformity with International Financial Reporting Standards and in the manner required by the

Kenyan Companies Act. The directors are of the opinion that the financial statements give a true and fair view of the state of the financial affairs of

the Company and of its operating results. The directors further accept responsibility for the maintenance of accounting records which may be relied

upon in the preparation of financial statements, as well as adequate systems of internal financial control.

Nothing has come to the attention of the directors to indicate that the Company will not remain a going concern for at least the next twelve months

from the date of this statement.

M. Kibati A. K. M. Shah

Chairman Director

14 April, 2014


REPORT OF THE CONSULTING ACTUARY TO THE MEMBERS OF APA LIFE ASSURANCE LIMITEDI have conducted an actuarial valuation of the long term business of APA Life Assurance Limited as at 31 December, 2013.

The valuation was conducted in accordance with generally accepted actuarial principles and the requirements of the Kenyan Insurance Act. Those

principles require prudent provision for future outgo under contracts, generally based upon the assumptions that current conditions will continue.

Provision is therefore not made for all possible contingencies.

In completing the actuarial valuation, I have relied upon the audited financial statements of the company.

In my opinion, the company was financially sound and the actuarial value of the liabilities in respect of all classes of business did not exceed the

amount of funds of the business at 31 December, 2013.

Giles T Waugh, FASSA, FIA

Independent Actuarial Consultant

14 April, 2014


INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF APA LIFE ASSURANCE LIMITED(Formerly Apollo Life Assurance Limited)Report on the Financial Statements

We have audited the accompanying financial statements of APA Life Assurance Limited, set out on pages 24 to 63, which comprise the statement

of financial position as at 31 December, 2013, and the statement of profit or loss and other comprehensive income, statement of changes in equity

and the statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory notes.

Directors’ Responsibility for the Financial Statements

The directors are responsible for the preparation of financial statements that give a true and fair view in accordance with International Financial

Reporting Standards in the manner required of the Kenyan Companies Act, and for such internal controls as directors determine are necessary to

enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with

International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain

reasonable assurance whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures

selected depend on our judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud

or error. In making those risk assessments, we considered the internal controls relevant to the company’s preparation of financial statements that

give a true and fair view in order to design audit procedures that were appropriate in the circumstances, but not for the purpose of expressing an

opinion on the effectiveness of the company’s internal controls. An audit also includes evaluating the appropriateness of accounting policies used

and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial statements.

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

Opinion

In our opinion, the financial statements give a true and fair view of the state of financial affairs of the Company as at 31 December, 2013 and of its

financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards and the requirements

of the Kenyan Companies Act.

Report on Other Legal Requirements

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

(i) we have obtained all the information and explanations which, to the best of our knowledge and belief, were necessary for the purposes of

our audit;

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

(iii) and the Company’s statement of financial position (balance sheet) and the statement of profit or loss and other comprehensive income (profit

and loss account) are in agreement with the books of account.

The engagement partner responsible for the audit resulting in this independent auditors’ report.

J W Wangai P/No 1118.

Deloitte & Touche

Certified Public Accountants (Kenya)

Nairobi, Kenya

22 April, 2014

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CORPORATE SOCIAL RESPONSIBILITY

APA LIFE ASSURANCE LIMITED (Formerly Apollo Life Assurance Limited)


CORPORATE SOCIAL RESPONSIBILITYIn 2013, APA continued investing in long term focus areas of

corporate social responsibility. Our objective remains the long term

sustainable projects that uplift the standards of the communities that

we partner with or support. The Company has strived to better the

lives of those in marginalised areas as well as those who are socially

and economically challenged. We are determined to do business in

ways that honour ethical values, comply with regulatory and other

legal requirements, respect humanity and the environment. We aim

to fulfil our social responsibility to all stakeholders through the various

initiatives and projects we undertake.

Social Investment

The following areas have become hallmarks in APA’s social investment:

(A) Aminipoa Maji Maisha

The Apollo Group and partners continued operating in arid and semi-

arid areas providing clean and reliable water for needy communities

through construction of sand dams. IkyaKwoko Self Help Group in

Machakos County were the beneficiaries of a sand dam in 2013. The

community, which has over 1500 households, finally has access to

clean and safe water for domestic use. The water will also be used for

irrigation of crops and trees planted by the river bed.

In order to ensure sustainability of the sand dams, the APA team visits

the communities which have benefited from the dams built in the past.

The benefiting communities are responsible for the maintenance of

the dams. The transformation of the landscape to leafy, green with

thick bushes is amazing. The water tables also significantly rise as

evidenced by scrapping sand from the river bed and water flowing

easily.

Testimonial

One beneficiary, Mr. Mongela says that the Kyandune sand dam

has brought positive transformation to his family and the community

in general. Previously, he depended on rain for farming. But due to

inadequate rainfall and perennial drought, common occurrences

in the area, he was struggling to feed his family. The variability of

rainfall patterns meant that sometimes he could harvest and others

he could not.

During the extreme dry seasons, Mongela’s family would seek relief

food from the chief’s camp and the non-governmental organisations

working in the area. The family would also walk for long distances in

search of water for their domestic needs. Mr. Mongela notes that all

these hassles are gone with the construction of the sand dam and is

very grateful to the Apollo Group.

(B) Youth Initiative Programmes

I. APA/ Apollo bursary fund

The bursary fund, now in its 6th year, has 8 students in high schools

and 4 students in university and colleges. The fund mainly supports

secondary school education costs for the best performing boy and

girl in Kenya Certificate of Primary Examination (KCPE) from Chelata

Primary School. Chelata serves residents of Githogoro and Huruma

which are informal settlements. The mean score performance of

the school has been increasing due to the internal competition. The

Apollo Group also conducts mentorship and motivation clinics during

school holidays for the Chelata students.

II. Recreation Through Sports

The Runda Youth Sports Association (RYSA) football team which is suported by Apollo Group is now in the Football Kenya Federation League - Nairobi County. The league, recognised by Football Kenya and FIFA is a stepping stone for the team to qualify for the National Premier League. The team was 2nd Runners Up in last season’s

Federation League.

APA Apollo Group CEO, Ashok Shah pumps water from a borehore as residents of Kyandune village fill their jerry cans.

APA Life General Manager Aggrey Mulumbi hands over a sponsorship cheque to Michael Kioni, the top student from last year’s KCPE Examination at Chelata Primary School.


The team has also opened a cyber café to supplement the incomes

and support their members who are not fully employed. The Apollo

Group has currently employed 4 staff previously under RYSA and

Chelata bursary programmes who are active members of the

sports team.

III. Environment Conservation

The Ngongeri farm, started 2 years ago in partnership with Egerton

University students at Njoro Campus, has continued to expand.

We have planted over 20,000 trees. The tree planting exercise

is held annually and we invite staff, clients and students of Njoro

campus to join us in planting the trees, which is our contribution in

conserving the Mau forest.

The Human Resource Administration Communication and ICT

departments also planted trees at Chelata Primary School as part

of their departmental initiatives. The students and RYSA youth also

participated in the exercise.

IV. Other Initiatives

1. Underwriting and Business Development - Visited Prayers Beyond

Boundaries children home in Naivasha

2. Claims and Legal - Visited Nairobi Children Home in Lower Kabete

3. Finance and Internal Audit - Visited Ngu Nyumu primary school in

Kariobangi

4. Health - Visited Kangemi Health Centre

5. City Centre Branch - Visited ABC Children’s Home in Kariobangi

Workplace Welfare

Staff numbers have increased significantly in the past one year due

to expansion in different counties. We have also experienced organic

growth which has led to need of more staff.

On education and training, we have organised numerous staff

trainings in the last year. The trainings have been on technical skills

as well as soft skills, including management. A free health clinic was

organised for all staff members at the annual Team Building event.

Office safety is vital and hence fire marshal training has also been

conducted at Head Office.

The internship placement programme continues with more emphasis

on training to ensure the students from College of Insurance and

various universities are equipped with practical lessons and job skills.

Graduate Management Trainees

The first graduate trainee programme was successfully completed in

December. Six trainees completed the year long course. The trainees were

excited to be assigned to various business units. The 2014 graduate trainee

programme has commenced with 5 candidates being selected from the

leading universities across the country. These trainees will undergo one and

a half years intensive training in various aspects of the business.

Job Shadow Training

Job Shadow is a programme designed to bring home the relevance

of schoolwork and provides students with hands-on experience of

their dream jobs. This programme is facilitated by Junior Achievement

Kenya. We were happy to host twenty students from various secondary

schools across Nairobi. As employers, this gave us an opportunity to

make an impression on the emerging workforce.

Ashok Shah presents a Shs 1 million cheque to Professor Tuitoek of Egerton University during the Mau Conservation Race.

Some RYSA team members during the kit presentation by APA.

CORPORATE SOCIAL RESPONSIBILITY (CONTINUED)


GROUP STRUCTURE

.

..

.

. .

APA LIFE ASSURANCE LIMITED (Formerly Apollo Life Assurance Limited)

STATEMENT OFPROFIT OR LOSS AND

OTHER COMPREHENSIVE INCOME



STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOMEFOR THE YEAR ENDED 31 DECEMBER 2013

Long-term Shareholders’ 2013 2012

Notes business funds Total Total

Shs’000 Shs’000 Shs’000 Shs’000

Gross premium income earned 3 414,920 - 414,920 217,031

Reinsurance premium ceded (200,428) - (200,428) (116,922)

Net earned premium 214,492 - 214,492 100,109

Investment income 4 190,181 14,187 204,368 178,172

Commissions earned 45,663 - 45,663 29,654

Total income 450,336 14,187 464,523 307,935

Claims and policyholders’ benefits 5 (407,883) - (407,883) (280,601)

Operating and other expenses 6 (101,506) (3,573) (105,079) (68,743)

Commissions payable (38,370) - (38,370) (17,812)

Total claims and expenses (547,759) (3,573) (551,332) (367,156)

(Loss)/profit from operations (97,423) 10,614 (86,809) (59,221)

Provision for diminution in value of equity shares suspended from trading 12 - - - (7,003)

(Loss)/profit before taxation (97,423) 10,614 (86,809) (66,224)

Taxation charge 8(a) (2,864) (1,483) (4,347) (4,330)

(Loss)/profit for the year (100,287) 9,131 (91,156) (70,554)

Other comprehensive income:

Items that may be reclassified subsequently to profit or loss

-fair value gain from quoted equities 12 152,187 29,273 181,460 111,941

-fair value gain on government securities 17(b) 14,850 2,098 16,948 11,603

Total other comprehensive income for the year 167,037 31,371 198,408 123,544

Total profit and other comprehensive income 66,750 40,502 107,252 52,990

Appropriated as follows:


-Transfer to shareholders (28,949) 28,949 - -

-Taxation on transfer to shareholders 8(a) - (8,685) (8,685) (15,349)


Allocated to:

-Investment revaluation reserve - 31,371 31,371 18,025

-Retained earnings - 29,395 29,395 35,726

-Statutory reserves 37,801 - 37,801 (16,110)

Total 37,801 60,766 98,567 37,641


STATEMENT OF FINANCIAL POSITIONAS AT 31 DECEMBER 2013

2013 2012

Notes Shs’000 Shs’000

Assets

Intangible asset 10 12,593 2,006

Equipment 9 5,843 5,001

Investment properties 11 327,500 285,000

Quoted equity investments - available for sale 12 772,899 483,856

Unquoted equity investments 13 23,008 41,880

Life policy loans 4,402 4,680

Investment in unit trusts 14 39,021 41,823

Reinsurers’ share of insurance liabilities 15 22,514 34,687

Receivables arising from reinsurance arrangements - 5,151

Current tax receivable 8(b) 8,615 -

Other receivables 16 104,598 28,085

Government securities - held to maturity 17(a) 584,800 372,198

- available for sale 17(b) 373,046 301,161

Commercial paper and corporate bonds 18 82,252 36,310

Deposits with financial institutions 19 369,364 395,827

Cash and bank balances 31,905 1,261

Total assets 2,762,360 2,038,926

Equity and Reserves

Share capital 20 250,000 150,000

Investment revaluation reserve 29,624 (1,747)

Retained earnings 21 41,345 41,950

Shareholders’ funds 320,969 190,203

Statutory reserve 22 157,180 119,379

Total statutory reserves and shareholders’ funds 478,149 309,582

Liabilities

Insurance contract liabilities 24 607,981 502,837

Payables under deposit administration contracts 26 1,548,759 1,171,253

Payables arising from reinsurance arrangements 42,426 -

Current tax payable 8(b) - 2,067

Other payables 27 85,045 53,187

Total liabilities 2,284,211 1,729,344

Total equity and liabilities 2,762,360 2,038,926

The financial statements on pages 24 to 63 were approved and authorised for issue by the board of directors on 14 April, 2014 and were signed on its behalf by:

M. Kibati A. K. M. Shah Director Director


STATEMENT OF CHANGES IN EQUITYFOR THE YEAR ENDED 31 DECEMBER 2013

Total Total

Share capital

Investmentrevaluation

reserveRetained earnings

Shareholders’ funds

Statutory reserves

Shareholder and

statutory reserves

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

At January, 2012 150,000 (19,772) 6,224 136,452 135,489 271,941

Total comprehensive income for the year - 18,025 35,726 53,751 (16,110) 37,641

At 31 December, 2012 150,000 (1,747) 41,950 190,203 119,379 309,582

At January, 2013 150,000 (1,747) 41,950 190,203 119,379 309,582

Issue of new shares 100,000 - - 100,000 - 100,000

Transfer from statement of comprehensive income for the year - 31,371 29,395 60,766 37,801 98,567

Dividends paid - 2012 - - (30,000) (30,000) - (30,000)

At 31 December, 2013 250,000 29,624 41,345 320,969 157,180 478,149

The investments revaluation reserve represents the cumulative unrealised gains and losses on revaluation of available for sale financial assets at each reporting date. The reserve is not distributable.


STATEMENT OF CASH FLOWSFOR THE YEAR ENDED 31 DECEMBER 2013

2013 2012

Notes Shs’000 Shs’000

Cash flow from operating activities

Cash generated from operations 28 (a) 236,108 184,843

Interest received 98,106 96,041

Income tax paid 8 (b) (23,714) -

Net cash inflow from operating activities 310,500 280,884

Cash flow from investing activities

Purchase of equipment 9 (3,415) (326)

Additions to intangible asset 10 (10,587) (2,006)

Proceeds from disposal of investment property 11 - 95,000

Purchase of quoted shares 12 (246,968) (89,899)

Proceeds from disposal of quoted shares 198,295 72,623

Net investment in unit trusts 441 1,742

Net policy loans recovered/(advanced) (278) (1,177)

Net investment in corporate bonds (45,942) 9,841

Net investment in government securities (267,535) (50,241)

Uplift/(placement) of deposit with financial institutions 120,598 (248,979)

Net cash outflow from investing activities (255,391) (213,421)

Cash flow from financing activities

Issue of new shares 20 100,000 -

Dividends paid 23 (30,000) -

Net cash inflow from financing activities 70,000 -

Increase in cash and cash equivalents 125,109 67,463

Movement in cash and cash equivalents:

At start of year 147,709 80,246

Increase 125,109 67,463

At end of year 28 (b) 272,818 147,709

APA ELIMUThis is a cover that takes care of yourchild’s education expenses and carrieson doing so even if the policy holder

passes away


HOSICAREThis cover pays you KShs 1000 for

each day you are hospitalised whetherdue to an accident or illness



The principal accounting policies adopted in the preparation of these

financial statements are set out below:

a. Statement of compliance

The financial statements have been prepared in accordance with

International Financial Reporting Standards (IFRS). The principal

accounting policies adopted remain unchanged from the previous

year and are set out below.

b. Adoption of new and revised International Financial Reporting standards

i) New standards and amendments to published standards effective

for the year ended 31 December, 2013

The following new and revised IFRSs were effective in the current

year and had no material impact on the amounts reported in

these financial statements.

Amendments to IFRS 7 Disclosures - Offsetting Financial

Assets and Financial Liabilities

The amendments to IFRS 7 require entities to disclose information

about rights of offset and related arrangements (such as

collateral posting requirements) for financial instruments under

an enforceable master netting agreement or similar arrangement.

The application of the amendment had no effect on the Company’s

financial statements as the Company did not have any offsetting

arrangements in place.

New and revised standards on consolidation and joint

arrangements, associates and disclosures

In May 2011, a package of five standards in consolidation

and joint arrangements, associates and disclosures was issued

comprising IFRS 10 Consolidated Financial Statements, IFRS

11 Joint Arrangements, IFRS 12 Disclosure of Interests in Other

Entities, IASs 27 (as revised in 2011) Separate Financial Statements

and IAS 28 (as revised in 2011) Investments in Associates and

Joint Ventures. Subsequent to the issue of these standards,

amendements to IFRS 10, IFRS 11 and IFRS 12 were issued to

clarify certain guidance on first application of the standards.

Application of these standards has not had any impact on

the disclosures or the amounts recognised in these financial

statements as it has not resulted in the Company changing the

way it recognises its subsidiaries, associates and joint ventures.

IFRS 13 Fair Value Measurement

The scope of IFRS 13 is broad; the fair value measurement

requirements of IFRS 13 apply to both financial instrument items

and non-financial instrument items for which other IFRSs require or

permit fair value measurements and disclosures about fair value

measurements, except for share-based payment transactions that

are within the scope of IFRS 2 Share-based Payment, leasing

transactions that are within the scope of IAS 17 Leases, and

measurements that have some similarities to fair value but are not

fair value (e.g. net realisable value for the purposes of measuring

inventories or value in use for impairment assessment purposes).

IFRS 13 defines fair value as the price that would be received to sell

an asset or paid to transfer a liability in an orderly transaction in

the principal (or most advantageous) market at the measurement

date under current market conditions. Fair value under IFRS 13 is

an exit price regardless of whether that price is directly observable

or estimated using another valuation technique. Also, IFRS 13

includes extensive disclosure requirements.

IFRS 13 requires prospective application from 1 January, 2013.

In addition, specific transitional provisions were given to entities

such that they need not apply the disclosure requirements set out

in the standard in comparative information provided for periods

before the initial application of the Standard. In accordance with

these transitional provisions, the Company has not made any new

disclosures required by IFRS 13 for the 2012 comparative period.

Other than the additional disclosures, the application of IFRS 13

has not had any material impact on the amounts recognised in

the financial statements.

Amendments to IAS 1 Presentation of Items of Other

Comprehensive Income

The amendments introduce new terminology, the use of which is

not mandatory, for the statement of comprehensive income and

income statement. Under the amendments to IAS 1, the ‘statement

of comprehensive income’ is renamed as the ‘statement of profit

or loss and other comprehensive income’ (and the ‘income

statement’ is renamed as the ‘statement of profit or loss’). The

amendments to IAS 1 retain the option to present profit or loss and

other comprehensive income in either a single statement or in two

separate but consecutive statements. However, the amendments

to IAS 1 require items of other comprehensive income to be

grouped into two categories in the other comprehensive income

section: (a) items that will not be reclassified subsequently to profit

or loss and (b) items that may be reclassified subsequently to profit

ACCOUNTING POLICIES FOR THE YEAR ENDED 31 DECEMBER 2013


or loss when specific conditions are met. Income tax on items of other

comprehensive income is required to be allocated on the same basis

- the amendments do not change the option to present items of

other comprehensive income either before tax or net of tax. The new

terminologies have been adopted in these financial statements.

Amendments to IAS 1 Presentation of Financial

Statements (as part of the Annual Improvements to

IFRSs 2009 - 2011 Cycle issued in May 2012)

The Annual Improvements to IFRSs 2009 - 2011 have made

a number of amendments to IFRSs. The amendments that are

relevant to the company are the amendments to IAS 1 regarding

when a statement of financial position as at the beginning of the

preceding period (third statement of financial position) and the

related notes are required to be presented. The amendments

specify that a third statement of financial position is required when

a) an entity applies an accounting policy retrospectively, or makes a

retrospective restatement or reclassification of items in its financial

statements, and b) the retrospective application, restatement or

reclassification has a material effect on the information in the

third statement of financial position. The amendments specify that

related notes are not required to accompany the third statement

of financial position.

IAS 19 Employee Benefits (as revised in 2011)

IAS 19 (as revised in 2011) changes the accounting for defined

benefit plans and termination benefits. The most significant

change relates to the accounting for changes in defined benefit

obligations and plan assets. The amendments require the

recognition of changes in defined benefit obligations and in the

fair value of plan assets when they occur, and hence eliminate

the ‘corridor approach’ permitted under the previous version of

IAS 19 and accelerate the recognition of past service costs. All

actuarial gains and losses are recognised immediately through

other comprehensive income in order for the net pension asset

or liability recognised in the consolidated statement of financial

position to reflect the full value of the plan deficit or surplus.

Furthermore, the interest cost and expected return on plan assets

used in the previous version of IAS 19 are replaced with a ‘net

interest’ amount under IAS 19 (as revised in 2011), which is

calculated by applying the discount rate to the net defined benefit

liability or asset.

This amendment had no effect on the company’s financial

statements as the company does not operate a defined

benefit plan.

ii) Relevant new and amended standards and interpretations in issue

but not yet effective in the year ended 31 December, 2013

New and Amendments to standards

Effective for annual periods beginning on or after

IFRS 9 1 January, 2015

Amendments to IFRS 9 and IFRS 7 1 January, 2015

Amendments to IFRS 10, IFRS 12 and IAS 27 1 January, 2014

Amendments to IAS 32 1 January, 2014

iii) Impact of new and amended standards and interpretations on the

financial statements for the year ended 31 December, 2013 and

future annual periods

IFRS 9 Financial Instruments

IFRS 9, issued in November 2009, introduced new requirements for

the classification and measurement of financial assets. IFRS 9 was

amended in October 2010 to include requirements for the classification

and measurement of financial liabilities and for derecognition.

Key requirements of IFRS 9:

• All recognised financial assets that are within the scope of

IAS 39 Financial Instruments: Recognition and Measurement

are required to be subsequently measured at amortised

cost or fair value. Specifically, debt investments that are

held within a business model whose objective is to collect

the contractual cash flows, and that have contractual cash

flows that are solely payments of principal and interest on the

principal outstanding are generally measured at amortised

cost at the end of subsequent accounting periods. All other

debt investments and equity investments are measured at

their fair value at the end of subsequent accounting periods.

In addition, under IFRS 9, entities may make an irrevocable

election to present subsequent changes in the fair value of

an equity investment (that is not held for trading) in other

comprehensive income, with only dividend income generally

recognised in profit or loss.

ACCOUNTING POLICIES (CONTINUED)Adoption of new and revised International Financial Reporting standards (Continued)

i) New standards and amendments to published standards effective for the year ended 31 December, 2013 (Continued)


Key requirements of IFRS 9 (continued)

With regard to the measurement of financial liabilities designated

as at fair value through profit or loss, IFRS 9 requires that the

amount of change in the fair value of the financial liability that is

attributable to changes in the credit risk of that liability is presented

in other comprehensive income, unless the recognition of the effects

of changes in the liability’s credit risk in other comprehensive income

would create or enlarge an accounting mismatch in profit or loss.

Changes in fair value attributable to a financial liability’s credit risk

are not subsequently reclassified to profit or loss. Under IAS 39, the

entire amount of the change in the fair value of the financial liability

designated as fair value through profit or loss is presented in profit or

loss. The directors of the company anticipate that the application of

IFRS 9 in the future may have a significant impact on amounts reported

in respect of the company’s financial assets and financial liabilities

(e.g. the company’s investments in redeemable notes that are currently

classified as available-for-sale investments will have to be measured

at fair value at the end of subsequent reporting periods, with changes

in the fair value being recognised in profit or loss). However, it is not

practicable to provide a reasonable estimate of the effect of IFRS 9 until

a detailed review has been completed.

iii) Impact of new and amended standards and interpretations

on the financial statements for the year ended 31 December,

2013 and future annual periods

Amendments to IFRS 10, IFRS 12 and IAS 27 Investment Entities

The amendments to IFRS 10 define an investment entity and require a

reporting entity that meets the definition of an investment entity not to

consolidate its subsidiaries but instead to measure its subsidiaries at fair

value through profit or loss in its consolidated and separate financial

statements. To qualify as an investment entity, a reporting entity is

required to:

• Obtain funds from one or more investors for the

purpose of providing them with professional investment

management services.

• Commit to its investor(s) that its business purpose is to

invest funds solely for returns from capital appreciation,

investment income, or both.

• Measure and evaluate performance of substantially all of

its investments on a fair value basis.

Consequential amendments have been made to IFRS 12 and

IAS 27 to introduce new disclosure requirements for investment

entities. The directors of the company do not anticipate that

the investment entities amendments will have any effect on

the company’s financial statements as the Company is not an

investment entity.

Amendments to IAS 32 Offsetting Financial Assets and Financial Liabilities

The amendments to IAS 32 clarify the requirements relating

to the offset of financial assets and financial liabilities.

Specifically, the amendments clarify the meaning of ‘currently

has a legally enforceable right of set-off’ and ‘simultaneous

realisation and settlement’.

The directors of the company do not anticipate that the

application of these amendments to IAS 32 will have a

significant impact on the company’s financial statements.

Recoverable Amount Disclosures for Non-Financial Assets (Amendments to IAS 36)

Amends IAS 36 Impairment of Assets to reduce the

circumstances in which the recoverable amount of assets or

cash-generating units is required to be disclosed, clarify the

disclosures required, and to introduce an explicit requirement

to disclose the discount rate used in determining impairment

(or reversals) where recoverable amount (based on fair value

less costs of disposal) is determined using a present value

technique.




Novation of Derivatives and Continuation of Hedge

Accounting (Amendments to IAS 39)

Amends IAS 39 Financial Instruments: Recognition and

Measurement to make it clear that there is no need to

discontinue hedge accounting if a hedging derivative is

novated, provided certain criteria are met.

A novation indicates an event where the original parties to

a derivative agree that one or more clearing counterparties

replace their original counterparty to become the new

counterparty to each of the parties. In order to apply the

amendments and continue hedge accounting, novation to a

central counterparty (CCP) must happen as a consequence of



laws or regulations or the introduction of laws or regulations.




Annual improvements: 2010-2012 cycle

The annual improvements 2010-2012 cycle makes

amendments to the following standards:

• IFRS 2 — Amends the definitions of ‘vesting condition’ and

‘market condition’ and adds definitions for ‘performance

condition’ and ‘service condition’.

• IFRS 3 — Require contingent consideration that is

classified as an asset or a liability to be measured at fair

value at each reporting date.

• IFRS 8 — Requires disclosure of the judgments made

by management in applying the aggregation criteria to

operating segments, clarify reconciliations of segment

assets only required if segment assets are reported

regularly.

• IFRS 13 — Clarify that issuing IFRS 13 and amending IFRS

9 and IAS 39 did not remove the ability to measure certain

short-term receivables and payables on an undiscounted

basis (amends basis for conclusions only).

• IAS 16 and IAS 38 — Clarify that the gross amount of

property, plant and equipment is adjusted in a manner

consistent with a revaluation of the carrying amount.

• IAS 24 — Clarify how payments to entities providing

management services are to be disclosed.

Annual improvements: 2011-2013 cycle

Makes amendments to the following standards:

• IFRS 1 — Clarify which versions of IFRSs can be used on

initial adoption (amends basis for conclusions only).

• IFRS 3 — Clarify that IFRS 3 excludes from its scope the

accounting for the formation of a joint arrangement in the

financial statements of the joint arrangement itself.

• IFRS 13 — Clarify the scope of the portfolio exception in

paragraph 52.

• IAS 40 — Clarifying the interrelationship of IFRS 3 and

IAS 40 when classifying property as investment property

or owner-occupied property.

These IFRS improvements are effective for accounting periods

beginning on or after 1 January, 2014. The directors of

the company do not anticipate that the application of these

improvements to IFRSs will have a significant impact on the

company’s financial statements.

iii) Early adoption of standards

The company did not early-adopt any new or amended

standards in 2013.

c. Basis of preparation

The financial statements are prepared under the historical cost

convention, as modified by the revaluation and the carrying

of certain assets at their fair values.

d. Revenue recognition

Premiums are recognised as revenue when earned from

the policyholders. Premiums are shown before deduction of

commission.

Commissions receivable are recognised as income in the

period in which they are earned.

Interest income is recognised on a time proportion basis that

takes into account the effective yield on the asset.

Dividends receivable are 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.



e. Claims incurred

Claims and policyholders’ benefits payable comprise claims paid in

the year and changes in the provision for insurance contract liabilities.

Claims paid represent all payments made during the year, whether

arising from events occurring during that or earlier years. Insurance

contract liabilities represent the estimated ultimate cost of settling all

claims arising from incidents occurring prior to the end of the reporting

period, but not settled at that date. Insurance contract liabilities 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

intimated but not paid. Insurance contract liabilities are not discounted.

Claims arising on maturing policies are recognised when the claim

becomes due for payment. Death claims are accounted for on

notification. Surrenders are accounted for on payment.

f. Deposit administration contracts

The Company administers the funds of a number of retirement benefit

schemes. The Company’s liabilities in relation to these schemes have

been treated as payables in the statement of financial position. The

liabilities with respect to the deposit administration contracts are

determined by the Consulting Actuary on an annual basis.

g. Reinsurance

The Company assumes and cedes reinsurance in the normal course

of business, with retention limits varying by line of business. Premiums

on reinsurance 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 reinsurance

companies. Amounts recoverable from reinsurers 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 recognition 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 company 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 normal 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 classification of the

reinsured business. Reinsurance liabilities represent balances due to

reinsurance companies. 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 expire or when the contract is transferred

to another party.

h. Equipment

All equipment are initially recorded at cost less depreciation and any

accumulated impairment losses. The useful lives used in determining

depreciation charge are:

Computer equipment 3 years

Motor vehicles 4 years

Furniture fittings and equipment 8 years

The residual values of items of equipment and their estimated useful lives

are reviewed at the reporting date and adjusted if appropriate. Where

the carrying amount of an asset is greater than its estimated recoverable

amount, it is written down immediately to its recoverable amount.

Gains and losses on disposal of property and equipment are

determined by reference to their carrying amounts.

i. Intangible assets – Computer software

Intangible assets comprise of computer software costs which are stated

at cost less accumulated amortisation and any impairment losses.

Amortisation is calculated to write off the cost of computer software on

a straight line basis over its estimated useful life of five years.

j. Investment properties

Investment properties comprises land and buildings held to earn

rentals and/or for capital appreciation. They are carried at fair value,

determined at the reporting date by valuation experts with experience

and knowledge of the locations where the properties are located. Fair

value is based on active market prices as adjusted, if necessary, for

any difference in the nature, condition or location of the specific asset.

ACCOUNTING POLICIES (CONTINUED)


Investment Properties (Continued)

Investment properties are not subject to depreciation. Changes in their

carrying amount between end of reporting periods are dealt with,

through profit or loss for the year. Upon disposal of an investment

property, the difference between the net disposal proceeds and the

carrying amount is charged or credited to profit or loss for the year.

k. Financial Instruments

Financial assets

The company classifies its financial assets into the following

categories: financial assets at fair value through profit or loss, loans

and receivables, held-to-maturity financial assets and available-

for-sale financial assets. The classification adopted for a particular

investment depends on the purpose for which the investment

was acquired. Management determines the classification of its

investments at initial recognition and re-evaluates this at every

reporting period end.

i) Financial assets at fair value through profit or loss (“FVTPL”)

This category has two sub-categories: financial assets held

for trading and those designated at fair value through profit

or loss at inception. A financial asset is classified into this

category at inception if acquired principally for the purpose

of selling in the year, if it forms part of a portfolio of financial

assets in which there is evidence of profit-taking or if so

designated by management.

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. Receivables arising from insurance contracts are also

classified in this category and are reviewed for impairment as

part of the impairment review of loans and receivables.

iii) Held-to-maturity financial assets

Held-to-maturity financial assets are non-derivative financial

assets with fixed or determinable payments and fixed

maturities – other than those that meet the definition of loans

and receivables – that the company’s management has the

positive intention and ability to hold to maturity.

iv) Available-for-sale financial assets

This classification represents financial assets that are not (a)

financial assets at fair value through profit or loss, (b) loans

and receivables, or (c) financial assets held to maturity.

Recognition of financial assets

Financial assets are initially recognised cost plus transaction costs.

Available-for-sale financial assets and financial assets at fair value

through profit or loss are subsequently carried at fair value. Loans

and receivables and held-to-maturity investments are carried at

amortised cost using the effective interest method. Gains and losses

arising from changes in the fair value of “financial assets at fair

value through profit or loss” are dealt with in the profit or loss in the

period in which they arise. Gains and losses arising from changes

in the fair value of available-for-sale financial assets are recognised

through other comprehensive income and accumulated under a

separate heading of fair value reserve in the statement of changes in

equity, until the financial asset is derecognised or impaired, at which

time the cumulative gain or loss previously recognised through other

comprehensive income is recognised in the profit or loss for the year.

Effective interest method

The effective interest method is a method of calculating the amortised

cost of a financial asset and of allocating interest income over the

relevant period. The effective interest rate is the rate that exactly

discounts estimated cash receipts including all fees, transaction costs

and premiums or discounts through the expected life of the financial

asset, or, where appropriate, a shorter period.

Impairment of financial assets

Financial assets, other than those at fair value through profit or loss,

are assessed for indicators of impairment at each reporting date.

Financial assets are impaired where there is objective evidence

that, as a result of one or more events that occurred after the initial

recognition of the financial asset, the estimated future cash flows of

the investment have been impacted.

Objective evidence of impairment for receivables could include the

Company’s past experience of collecting payments, an increase in the

number of delayed payments past the average credit period as well

as observable changes in national or local economic conditions that

correlate with default on receivables.

The carrying amount of the financial asset is reduced by the

impairment loss directly for all financial assets with the exception of

trade receivables, where the carrying amount is reduced through the

use of an allowance account. When a trade receivable is considered

uncollectible, it is written off against the allowance account. Subsequent

recoveries of amounts previously written off are recognized as income

in the profit and loss account. Changes in the carrying amount of the

allowance account are recognised in profit or loss.



Derecognition of financial assets

The company derecognises a financial asset only when the contractual

rights to the cash flows from the asset expire; or it transfers the financial

asset and substantially all the risks and rewards of ownership of the

asset to another entity. If the company neither transfers nor retains

substantially all the risks and rewards of ownership and continues

to control the transferred asset, the company recognises its retained

interest in the asset and an associated liability for amounts it may have

to pay. If the company retains substantially all the risks and rewards

of ownership of a transferred financial asset, the company continues

to recognise the financial asset and also recognises a collateralised

borrowing for the proceeds received.

l. Financial liabilities and equity instruments issued by the Company

Debt and equity instruments are classified as either financial liabilities or as

equity in accordance with the substance of the contractual arrangement.

Classification as debt or equity

An equity instrument is any contract that evidences a residual interest

in the assets of an entity after deducting all of its liabilities. Equity

instruments issued by the Company are recorded at the proceeds

received, net of direct issue costs.

Financial liabilities

Financial liabilities, including borrowings, are initially measured at

fair value, net of transaction costs and are subsequently measured

at amortised cost using the effective interest method, with interest

expense recognised on an effective yield basis. The effective interest

method is a method of calculating the amortised cost of a financial

liability and of allocating interest expense over the relevant period.

The effective interest rate is the rate that exactly discounts estimated

future cash payments through the expected life of the financial liability,

or, where appropriate, a shorter period.

Derecognition of financial liabilities

The company derecognises financial liabilities when, and only when,

the company’s obligations are discharged, cancelled or they expire.

m. Translation of foreign currencies

Transactions in foreign currencies during the year are converted into

Kenya Shillings at rates ruling at the transaction dates. Assets and

liabilities at the statement of financial position date which are expressed

in foreign currencies are translated into Kenya Shillings at rates ruling

at that date. The resulting differences from conversion and translation

are dealt with in profit or loss for the year.

n. Accounting for leases

Leases of assets where a significant proportion of the risks and

rewards of ownership are retained by the company as a lessee are

classified as finance leases. All other leases are classified as operating

leases. Payments made under operating leases are charged to profit

or loss for the year on the straight-line basis over the term of the lease.

o. Employee entitlements

Employee entitlements to long service awards are recognised when

they accrue to employees. A provision is made for the estimated

liability for such entitlements as a result of services rendered by

employees up to the reporting date. The estimated monetary liability

for employees’ accrued annual leave entitlement at the reporting date

is recognised as an expense accrual.

p. Fair value hierarchy

The Company specifies a hierarchy of valuation techniques based on

whether the inputs to those valuation techniques are observable or

unobservable. Observable inputs reflect market data obtained from

independent sources; unobservable inputs reflect the company’s

market assumptions. These two types of inputs have created the

following fair value hierarchy:

• Level 1 – Quoted prices in active markets for identical assets

or liabilities. This level includes equity securities and debt

instruments traded on the Nairobi Securities Exchange.

• Level 2 – Inputs other than quoted prices included within Level

1 that are observable for the asset or liability, either directly as

prices or indirectly as derived from prices.

• Level 3 – inputs for the assets or liabilities that are not based

on observable market data (unobservable inputs). This

level includes equity investments and debt instruments with

significant unobservable components.

This hierarchy requires the use of observable market data when

available. The company considers relevant and observable market

prices in its valuations where possible.

ACCOUNTING POLICIES (CONTINUED)Impairment of financial assets (continued)


q. Income tax

Tax charge/(credit) comprises current tax and deferred tax. Tax

is recognised as charge/(credit) and included in the profit or loss,

except to the extent that the tax arises from a transaction which is

recognised in other comprehensive income, in which case the tax is

also recognised in other comprehensive income.

Current tax is computed in accordance with the Kenyan income tax

laws applicable to insurance companies.

Deferred tax is provided, using the liability method, for all temporary

differences arising between the tax bases of assets and liabilities and

their carrying values for financial reporting purposes. Tax rates enacted

or substantively enacted at the reporting date are used to determine

deferred tax.

Deferred 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 tax assets and liabilities are

offset when there is a legally enforceable right to offset current tax

assets against current tax liabilities.

r. 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, which is funded from contributions from both the

company and employees. Contributions are determined by the rules

of the scheme.

The Company also contributes to the statutory defined contribution

pension scheme, the National Social Security Fund (NSSF). Contributions

to this scheme are determined by local statute and are currently governed

by the newly introduced NSSF Act. 2013 under ( implementation.)

The Company’s obligations to these schemes are charged to profit or

loss in the year they fall due.

s. Comparatives

Where necessary, comparative figures have been adjusted to conform

to changes in presentation in the current year.

t. Critical accounting judgements and key sources of estimation uncertainty

In the process of applying the company’s accounting policies,

management has made estimates and assumptions that affect the

reported amounts of assets and liabilities within the next financial year.

Estimates and judgments are continually evaluated and are based on

historical experience and other factors, including expectations of future

events that are believed to be reasonable under the circumstances.

i) Critical accounting judgments in applying the company’s accounting policies

The key areas of judgment in applying the company’s accounting

policies are dealt with as follows:

Future benefit payments from long-term insurance contracts

The estimation of future benefit payments from long-term

insurance contracts is one of the company’s most critical

accounting estimates. There are several sources of uncertainty

that need to be considered in the estimate of the liability that the

Company will ultimately pay for such claims.

The determination of the liabilities under long-term insurance

contracts is dependent on estimates made by the Company.

Estimates are made as to the expected number of deaths for

each of the years in which the Company is exposed to risk.

The Company bases these estimates on standard mortality

tables that reflect historical mortality experience. The estimated

number of deaths determines the value of the benefit payments

and the value of the valuation premiums. The main source of

uncertainty is that epidemics such as AIDS could result in future

mortality being significantly worse than in the past for the age

groups in which the Company has significant exposure to

mortality risk.

However, continuing improvements in medical care and social

conditions could result in improvements in longevity in excess

of those allowed for in the estimates used to determine the

liability for contracts where the Company is exposed to longevity

risk. For contracts without fixed terms and with discretionary

participation in profits, it is assumed that the Company will be

able to increase mortality risk charges in future years in line with

emerging mortality experience. Estimates are also made as to

future investment income arising from the assets backing long-

term insurance contracts.



These estimates are based on current market returns as well as

expectations about future economic and financial developments.

The average estimated rate of investment return is 12.50% p.a.

(2012: 12.50% p.a).

Held-to-maturity investments

The company follows the guidance of IAS 39 in classifying

non-derivative financial assets with fixed or determinable

payments and fixed maturity as held-to-maturity. This

classification requires significant judgment. In making this

judgment, the company evaluates its intention and ability

to hold such investments to maturity. If the company fails to

hold these investments to maturity other than for the specific

circumstances - for example, selling more than an insignificant

amount close to maturity - it will be required to reclassify

the entire class as available-for-sale.The investments would

therefore be measured at fair value and not at amortised cost.

ii) Key sources of estimation uncertainty

Impairment losses

At the reporting date, the company reviews the carrying

amounts of its tangible and intangible assets to determine

whether there is any indication that those assets have

suffered an impairment loss. If any such indication exists,

the recoverable amount of the asset is estimated in order to

determine the extent of the impairment loss.

Where it is not possible to estimate the recoverable amount

of an individual asset, the company estimates the recoverable

amount of the cash generating unit to which the asset belongs.

Equipment

Critical estimates are made by the company’s directors in

determining depreciation rates and useful lives for equipment.

Incurred but not reported claims

Estimates are made for claims Incurred But Not Reported

(IBNR) as at the year end based on the historical claims

development statistics and evaluation of the current, past and

future assumptions. Using the chain ladder model, the group

has developed estimates of expected claims outstanding.

ACCOUNTING POLICIES (CONTINUED)t. Critical accounting judgments in applying and key sources of estimation of uncertainity (continued)

(i) Critical judgments in applying the Company’s accounting policies (Continued)

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1 INCORPORATION AND REGISTERED OFFICE

APA Life Assurance Limited (formerly Apollo Life Assurance Limited) is a limited liability company incorporated in Kenya under the Kenyan

Companies Act and domiciled in Kenya. The parent company, which is the ultimate holding company is Apollo Investments Limited

which is incorporated in Kenya. The address of its registered office is 07 Apollo Centre, Ring Road Parklands, Westlands, Nairobi.

2 RISK MANAGEMENT OBJECTIVES AND POLICIES

The Company’s activities expose it to a variety of risks, including insurance risk, financial risk, credit risk, and the effects of changes in property

values, debt and equity market prices, foreign currency exchange rates and interest rates. The Company’s overall risk management programme

focuses on the identification and management of risks and seeks to minimise potential adverse effects on its financial performance, by use of

underwriting guidelines and capacity limits, reinsurance planning, credit policy governing the acceptance of clients, and defined criteria for the

approval of intermediaries and reinsurers. Investment policies are in place which help manage liquidity, and seek to maximize return within an

acceptable level of interest rate risk. The Company manages key risks as follows:

2.1 Insurance risk management

The risk under any one insurance contract is the possibility that the insured event occurs and the uncertainty of the amount of the

resulting claim. By the very nature of an insurance contract, this risk is random and therefore unpredictable.

For a portfolio of insurance contracts where the theory of probability is applied to pricing and provisioning, the principal risk that the

Company faces under its insurance contracts is that the actual claims and benefit payments exceed the carrying amount of the insurance

liabilities. This could occur because the frequency or severity of claims and benefits are greater than estimated. Insurance events are

random and the actual number and amount of claims and benefits will vary from year to year from the level established using statistical

techniques. Experience shows that the larger the portfolio of similar insurance contracts, the smaller the relative variability of the

expected outcome will be. In addition, a more diversified portfolio is less likely to be affected across the board by a change in any subset

of the portfolio. The Company has developed its insurance underwriting and investment strategy to diversify the type of risks accepted

and within each of these categories to achieve a sufficiently large population of risks to reduce the variability of the expected outcome.

Factors that aggravate insurance risk include lack of risk diversification in terms of type and amount of risk, geographical, local and type

of industry covered.

The Company’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimize

potential adverse effects on the Company’s financial performance. It manages these positions within an asset-liability management

(ALM) framework that has been developed to achieve investment returns in excess of obligations under insurance contracts. The

Company produces regular reports at portfolio, legal entity and asset and liability class level that are circulated to the Company’s

key management personnel. The principal technique of the company’s ALM framework is to match assets to the liabilities arising from

insurance contracts by reference to the type of benefits payable to contract holders. Separate portfolios of assets are maintained for

with-profit business, non-linked non profit business, and unit-linked business. For the purposes of the ALM framework, the Company

does not manage the fund for future appropriations as a liability. The Company’s ALM is also integrated with the management of the

financial risks associated with the Company’s other financial assets and liabilities not directly associated with insurance and investment

liabilities. The Company does not use hedge accounting.

The Company has not changed the processes used to manage its risks from previous periods. The notes below explain how insurance

risks are managed using the categories utilised in the Company’s ALM framework.

NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2013


NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2013 (CONTINUED)

The Company engages in long-term insurance contracts and funds the insurance liabilities with a portfolio of equity and debt securities exposed to

market risk. An analysis of the Company’s financial assets and its long-term insurance liabilities is presented below:

2013 2012

Financial assets Shs’000 Shs’000

Debt securities:

- Government securities - held to maturity 584,800 372,198

- available for sale 373,046 301,161

- Commercial paper & corporate bonds 82,252 36,310

- Investment in unit trusts 39,021 41,823

Equity securities:- listed 772,899 483,856

- unlisted 23,008 41,880

Receivables from reinsurance contracts and life policy loans 26,916 44,518

Deposits with financial institutions 369,364 395,827

Bank and cash balances 31,905 1,262

Total 2,303,211 1,718,835

Insurance contracts 607,981 502,837

Payable under deposit administration contracts 1,548,759 1,171,253

Payables arising from reinsurance contracts 42,426 -

Total 2,199,166 1,674,090

Under certain contracts, the Company has offered guaranteed annuity options. In determining the value of these options, estimates have been made

as to the percentage of contract holders that will exercise them. There is not enough historical information available on which to base these estimates.


2 RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED)

2.1 Insurance risk management (continued)

The table below shows the contractual timing of undiscounted cash flows arising from assets and liabilities included in the Company’s

ALM framework for management of long term insurance contracts movement as at 31 December, 2013

Total No stated 0-1 1-5 >5

maturity year years years

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

Financial assets

Debt securities:

Government bonds and treasury bills fixed rate

- held to maturity 734,294 - 159,886 166,202 408,206

- available for sale 380,588 380,588 - - -

Listed securities-fixed rate 97,232 9,568 15,285 13,125 59,254

Equity securities:

- listed 772,899 772,899 - - -

- unlisted 23,008 23,008 - - -

Investment in unit trusts 39,021 3,903 7,804 27,314 -

Life policy loans and receivables from reinsurance contracts 26,916 - 26,916 - -

Cash and cash equivalents 401,269 - 401,269 - -

Total 2,475,227 1,189,966 611,160 206,641 467,460

Liabilities

Insurance contracts 607,981 35,000 63,003 351,109 158,869

Payables arising from reinsurance arrangements 42,426 - 42,426 - -

Payables under deposit insurance contracts 1,548,759 1,548,759 - - -

Total 2,199,166 1,583,759 105,429 351,109 158,869

Difference in contractual cash flows 276,061 (393,793) 505,731 (144,468) 308,591




2.1 Insurance risk management (Continued)

The table below shows the contractual timing of discounted cash flows arising from assets and liabilities included in the Company’s Asset

Liability Management framework for management of long term insurance contracts movement as at 31 December, 2012.

Total No stated 0-1 1-5 >5

maturity year years years

Financial assets Shs’000 Shs’000 Shs’000 Shs’000 Shs’000

Debt securities:

-Government bonds and treasury bills fixed rate

- Held to maturity 417,160 - 56,801 78,734 281,625

- Available for sale 331,157 331,157 - - -

Listed securities-fixed rate 39,941 - - 5,550 34,391

Equity securities:

-Listed 483,856 483,856 - - -

-Unlisted 41,880 41,880 - - -

Investment in unit trusts 41,823 - 11,248 30,575 -

Life policy loans and receivables from reinsurance contracts 44,518 - 44,518 - -

Cash and cash equivalents 397,088 - 397,088 - -

Total 1,797,423 856,893 509,655 114,859 316,016

Liabilities

Insurance contracts 502,837 35,000 103,134 124,047 240,656

Payables under deposit insurance contracts 1,171,253 1,171,253 - - -

Payables arising from reinsurance contracts held - - - - -

Total 1,674,090 1,206,253 103,134 124,047 240,656

Difference in contractual cash flows 123,333 (349,360) 406,521 (9,188) 75,360




2.2 Financial risk management (Continued)

The Company is exposed to a range of financial risks through its financial assets, financial liabilities (investment contracts and

borrowings), reinsurance assets and policyholder liabilities. In particular, the key financial risk is that the proceeds from financial

assets are not sufficient to fund the obligations arising from insurance policies and investment contracts as they fall due. The most

important components of this financial risk are market risk (including interest rate risk, equity price risk and currency risk), credit risk and

liquidity risk.

These risks arise from open positions in interest rate, currency and equity products, all of which are exposed to general and specific

market movements. The risks that the Company primarily faces due to the nature of its investments and liabilities are interest rate risk

and equity price risk.

(a) Market risks

(i) Interest rate risk

Interest rate risk arises primarily from investments in fixed interest securities. In addition to the extent that claims costs are related

to interest rates, liabilities to policyholders are exposed to interest rate risk. Insurance and non profit investment contracts have

benefit payments that are fixed and guaranteed at the inception of the contract. The financial component of these benefits is

usually a guaranteed fixed interest rate (for the insurance contracts, this rate may apply to maturity and/or death benefits) and

hence the Company’s primary financial risk on these contracts is the risk that interest income and capital redemptions from the

financial assets backing the liabilities are insufficient to fund the guaranteed benefits payable.

The Company monitors interest rate risk by calculating the mean duration of the investment portfolio and of the liabilities to

policyholders under insurance and investment contracts. The mean duration is an indicator of the sensitivity of the assets and

liabilities to changes in current interest rates. The mean duration of the liabilities is determined by means of projecting expected

cash flows from the contracts using best estimates of mortality and voluntary terminations. This is calculated in a consistent

manner with the prior year. Any gap between the mean duration of the assets and the estimated mean duration of the liabilities

is minimised by means of buying and selling fixed interest securities of different durations.

The sensitivity analysis for interest rate risk illustrates how changes in the fair value or future cash flows of a financial instrument

will fluctuate because of changes in market interest rates at the reporting date. For the guaranteed element of liabilities under

with-profits contracts, changes in interest rate will not cause a change to the amount of the liability because their carrying

amounts are not affected by the level of market interest rates. However the with profits element of the liabilities is directly

affected by changes in the level of interest rates to the extent that they affect the carrying amount of the assets held in the

with profits funds.

The Company’s management monitors the sensitivity of reported interest rate movements on a monthly basis by assessing the

expected changes in the different portfolios.

Interest bearing instruments securities represent 51.70% (2012: 54.4%) of total investments. If interest rates in market indices

had increased / decreased by a further 5%, with all other variables held constant, and all the Company’s investments

moving according to the historical correlation with the index, income would increase / decrease by Shs 71.8million

(2012: Shs 55.5million).





(a) Market risks (continued)

(ii) Equity price risk

The Company is exposed to equity securities price risk as a result of its holdings in equity investments, classified as financial

assets available for sale. Exposures to individual companies and to equity shares in aggregate are monitored in order to

ensure compliance with the relevant regulatory limits for solvency purposes. Investments held are listed and traded on the

Nairobi Stock Exchange and other recognised stock exchanges.

The Company has a defined investment policy which sets limits on the Company’s exposure to equities both in aggregate

terms and by geography, industry and counterparty. This policy of diversification is used to manage the Company’s price

risk arising from its investments in equity securities. Investment management meetings are held daily. At these meetings,

senior investment managers meet to discuss investment return and concentration across the Company.

The sensitivity analysis for equity risk illustrates how changes in the fair value of equity securities will fluctuate because of

changes to market prices, whether those changes are caused by factors specific to the individual equity issuer, or factors

affecting all similar equity securities traded in the market.

Listed equities securities represent 97% (2012: 92%) of total equity investments. If equity market indices had increased

/ decreased by a further 5%, with all other variables held constant, and all the Company’s equity investments

moving according to the historical correlation with the index, equity would increase / decrease by Shs 38.6 million

(2012: Shs 24.2 million).

(iii) Currency risk

Foreign currency exchange risk arises when future commercial transactions or recognised assets and liabilities are

denominated in a currency that is not the entity’s functional currency. The Company primarily transacts in the Kenya shilling

and its assets and liabilities are denominated in the same currency. The Company is therefore not exposed to currency risk.

(b) Credit risk

Credit risk is the risk that a counterparty will be unable to pay amounts in full when due. Key areas where the Company is

exposed to credit risk are:

• reinsurers’ share of insurance liabilities and reserves;

• amounts due from reinsurers in respect of claims already paid;

• amounts due from insurance contract holders;

• amounts due from insurance intermediaries;

• amounts due from corporate bond issuers and

• amount held with financial institutions - under cash and cash equivalents

The Company manages the levels of credit risk it accepts by placing limits on its exposure to a single counterparty, or groups of

counterparties and to geographical and industry segments. Such risks are subject to regular review. Limits on the level of credit

risk by category and territory are approved quarterly by the board of directors.





(b) Credit risk (Continued)

Reinsurance is used to manage insurance risk. This does not, however, discharge the company of its liability as the primary

insurer. If a reinsurer fails to pay a claim, the company remains liable for the payment to the policyholder. The creditworthiness

of reinsurers is considered on an annual basis by reviewing their financial strength prior to finalization of any contract. In

addition, management assesses the creditworthiness of all reinsurers and intermediaries by reviewing credit grades provided

by rating agencies and other publicly available financial information. The recent payment history of reinsurers is also used to

update the reinsurance purchasing strategy.

Management information reported to the directors include details of provisions for impairment on receivables and subsequent

write offs. Internal audit makes regular reviews to assess the degree of compliance with the company’s procedures on credit.

Exposures to individual policyholders and groups of policyholders are within the ongoing monitoring of the controls associated

with regulatory solvency. Where there exists significant exposure to individual policyholders or homogenous groups of

policyholders, a financial analysis is carried out by the management.

The Company’s assets bearing credit risk are summarized below:

2013 2012

Shs ‘000 Shs ‘000

Investment in unit trust 39,021 41,823

Government securities 957,846 673,358

Reinsurers share of insurance liabilities 22,514 34,687

Other receivables 104,597 28,085

Corporate bonds and commercial paper 82,252 36,310

Deposits with financial institutions 369,364 397,088

Total assets bearing credit risk 1,575,594 1,211,351

The assets reported above include Shs 39.0million (2012: Shs 41.8) related to the assets backing unit linked contracts. The

holders of these contracts bear the credit risk arising from these assets. The assets above also include assets held in the with-

profits funds where the company is able to transfer part of the credit risk arising from these assets to holders of with-profits

investment and insurance contracts to the extent that the future level of discretionary bonuses can be reduced to absorb any

associated credit losses (as well as losses arising from all other financial risks). During the year, there was no financial asset that

was past due and impaired.

(c) Liquidity risk

Liquidity risk is the risk that cash may not be available at a reasonable cost to pay obligations as they fall due. The primary

liquidity risk of the Company is the obligation to pay claims to policyholders as they fall due. The projected settlement of these

liabilities is modelled, on a regular basis, using actuarial techniques. The board sets limits on the minimum proportion of

maturing funds available to meet such calls and on the minimum level of borrowing facilities that should be in place to cover

anticipated liabilities and unexpected levels of demand.





(c) Liquidity risk (continued)

The table below provides the contractual maturity analysis of the Company’s financial liabilities at 31 December, 2013:

No stated maturity

Less than 1 year

More than 1 year Total

Sh’000 Sh’000 Sh’000 Sh’000

Insurance contract liabilities 607,981 - - 607,981

Payables under deposit insurance contracts 1,548,759 - - 1,548,759

Other payables - 85,045 - 85,488

The table below provides a contractual maturity analysis of the Company’s financial liabilities as at 31 December, 2012:

No stated maturity

Less than 1 year

More than 1 year Total

Sh’000 Sh’000 Sh’000 Sh’000

Insurance contract liabilities 35,000 103,134 364,703 502,837

Payables under deposit insurance contracts 1,171,253 - - 1,171,253

Other payables - 53,187 - 53,187

(d) Unit-linked contracts

For unit-linked contracts the Company matches all the liabilities with assets in the portfolio on which the unit prices are based.

There is therefore no interest, price, currency or credit risk for the Company on these contracts.




2.3 Fair value hierarchy

The following table shows an analysis of assets recorded at fair value by level of the fair value hierarchy.

Level 1 Level 2 Level 3 Total

31 December, 2013 Shs’000 Shs’000 Shs’000 Shs’000

Available for sale

- Government securities 373,046 - - 373,046

- Quoted equities 772,899 - - 772,899

Investment properties - 327,500 - 327,500

Total 1,145,945 327,500 - 1,473,445

31 December, 2012

Available for sale

- Government securities 301,161 - - 301,161

- Quoted equities 483,856 - - 483,856

Investment properties - 285,000 - 285,000

Total 785,017 285,000 - 1,070,017

2.4 Capital risk management

The Company maintains an efficient capital structure from a combination of equity shareholders’ funds and borrowings, consistent with

the Company’s risk profile and the regulatory and market requirements of its business.

The Company is subject to a number of regulatory capital tests and also employs a number of realistic tests to allocate capital and

manage risk.

In reporting the Company’s financial strength, capital and solvency is measured using the regulations prescribed by the Insurance

Regulatory Authority (IRA). These regulatory capital tests are based upon required levels of solvency capital and a series of prudent

assumptions in respect of the type of business written by the Company.

The Company’s objectives in managing its capital are:

• to match the profile of its assets and liabilities, taking account of the risks inherent in the business;

• to maintain financial strength to support business growth;

• to satisfy the requirements of its policyholders, regulators 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; and

• to manage exposures to movement in exchange rates.




2.4 Capital Risk Management (Continued)

An important aspect of the Company’s overall capital management process is the setting of target risk-adjusted rates of return for

individual business units, which are aligned to performance objectives and ensure 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 equity structure in order to ensure that

it can consistently maximise returns to shareholders. The Company considers not only the traditional sources of capital funding but the

alternative sources of capital including 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 Company is regulated by the Insurance Regulatory Authority and is subject to insurance solvency regulations which specify the

minimum amount and type of capital that must be held in addition to the insurance liabilities. Long term insurance companies operating

in Kenya are required to have a minimum paid up capital of Shs 150 million.

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 Company has complied with all externally imposed capital requirements

throughout the year.

The constitution of capital managed by the Company is as shown below:

2013 2012

Shs’000 Shs’000

Share capital 250,000 150,000

Investment revaluation reserve 29,624 (1,747)

Retained earnings 41,345 41,950

Statutory reserve 157,180 119,379

Shareholders’ funds and statutory reserves 478,149 309,582

3 GROSS EARNED PREMIUM INCOME

The Company is organised into two main divisions - ordinary life and group life business. Long term business relates to the underwriting of risks

relating to death of an insured person, and includes contracts subject to the payment of premiums for a term dependent on the termination or

continuance of the life of an insured person. The premium income of the Company is analysed between the main classes of business as shown

below:

Class of business 2013 2012

Shs ‘000 Shs ‘000

Ordinary life 20,338 26,006

Group life 394,582 191,025

Total 414,920 217,031



4 INVESTMENT INCOME2013

Shs ‘000

2012

Shs ‘000

Interest from Government securities 60,710 68,419

Bank deposit interest 37,396 27,622

Rental income from investment properties 10,865 11,428

Dividends received from equity investments 15,696 18,571

Fair value gain on investment properties (note 11) 42,500 30,000

Fair value (loss)/gain from unit trust contracts(note 14) (3,243) 2,069

Realised gain on the sale of financial assets - 1,706

Realised gain on sale of quoted equities 40,038 17,736

Other income 406 621

Total 407,883 178,172

5 CLAIMS AND POLICYHOLDERS’ BENEFITS PAYABLE

Life and death claims 49,065 14,800

Surrenders and annuity payments 35,808 29,103

Maturities 21,360 27,791

Increase in actuarial value of insurance contract liabilities 128,680 87,986

Interest declared on deposit administration contracts 172,970 120,921

Total 407,883 280,601



6 OPERATING AND OTHER EXPENSES

2013 2012

Shs ‘000 Shs ‘000

Staff costs (note 7) 47,664 37,637

Accrued leave 1,023 163

Auditors’ remuneration 2,135 1,986

Directors emoluments – fees 3,372 2,875

Depreciation (note 9) 2,573 2,361

Repairs and maintenance expenditure 465 69

Rent of office space 8,227 7,155

Advertising and promotion 15,030 2,723

Professional fees 4,859 2,644

Business levies and taxes 1,556 838

Insurances costs 1,450 1,125

Traveling, motor vehicle and accommodation 3,850 2,367

License and subscriptions 571 599

Others 12,304 6,201

Total 105,079 68,743

7 STAFF COSTS

Salaries and wages 42,357 33,397

Social security benefit costs 126 103

Retirement benefit costs 5,181 4,137

Total 47,664 37,637



8 TAXATION

(A) Current Taxation

2013 2012

Shs ‘000 Shs ‘000

Current income tax charge 13,032 19,679

Reconciliation of taxation charge to the expected taxation based on accounting profit

Profit on account of shareholders 4,948 9,880

Excess management expenses 9,546 4,555

Transfer to shareholders 28,949 51,162

Total taxable income 43,443 65,597

Tax applicable at the rate of 30% (2012: 30%) 13,032 19,679

Represented by:

Tax on profit on account of shareholders 1,483 2,964

Tax on excess of management expenses charged to life business 2,864 1,366

Tax on transfer to shareholders 8,685 15,349

Total 13,032 19,679

(B) Taxation (Recoverable)/ Payable

At 1 January 2,067 (17,612)

Tax paid during the year (23,714) -

Current taxation charge (note 8(a)) 13,032 19,679

At 31 December (8,615) 2,067



9 EQUIPMENT

Motorvehicles Computers

Furniture, fittings &

equipment

Total

Shs’000 Shs’000 Shs’000 Shs’000

At cost:

At 1 January, 2012 6,961 3,851 5,542 16,354

Additions - 219 107 326

At 31 December, 2012 6,961 4,070 5,649 16,680

At 1 January, 2013 6,961 4,070 5,649 16,680

Additions - 2,306 1,109 3,415

At 31 December, 2013 6,961 6,376 6,758 20,095

Depreciation:

At 1 January, 2012 3,665 3,421 2,232 9,318

Charge for the year 1,440 297 624 2,361

At 31 December, 2012 5,105 3,718 2,856 11,679

At 1 January, 2013 5,105 3,718 2,856 11,679

Charge for the year 1,365 491 717 2,573

At 31 December, 2013 6,470 4,209 3,573 14,252

Net book value:

At 31 December, 2013 491 2,167 3,185 5,843

At 31 December, 2012 1,856 352 2,793 5,001

10 INTANGIBLE ASSET (WORK IN PROGRESS)

2013 2012

Shs ‘000 Shs ‘000

At 1 January, 2013 2,006 -

Additions 10,587 2,006

At 31 December 12,593 2,006

The Company is implementing a new software system which is expected to be complete and in use during 2014.



11 INVESTMENT PROPERTIES

2013 2012

Shs ‘000 Shs ‘000

At 1 January 285,000 350,000

Disposals -

(95,000)

Fair value gains 42,500 30,000

At 31 December 327,500 285,000

Investment properties are stated at fair value as determined by the directors based on the market conditions prevailing at the end of the

reporting period. The directors were guided by the independent valuation carried by Axis Real Estate Limited, as at 31 December, 2013, on

the basis of open market value for existing use. The resultant change in fair value has been included in profit for the year.

The fair value is supported by market evidence and represents the amount at which assets could be exchanged between knowledgeable,

willing buyer and seller in an arm’s length transaction at the date of valuation. The fair valuation basis takes into account the existing use,

the tenancies and considers the normal lease structure for similar buildings.

The net rental income generated by investment properties during the year amounted to Shs 10,986,000 (2012: Shs 11,428,000).

12 QUOTED EQUITY INVESTMENTS

Available for sale

2013 2012

Shs ‘000 Shs ‘000

At 1 January 483,856 361,642

Additions 246,968 89,899

Reclassified from unquoted equities (Note13) 18,872 -

Disposals (158,257) (72,623)

Provision for diminution in value of equity shares suspended from trading - (7,003)

Fair value gains 181,460 111,941

At 31 December 772,899 483,856

Investments in quoted shares are carried at fair value based on the market values at close of business on 31 December, except the

investment in CMC Holdings Limited (a Company suspended from trading on the NSE) which has been valued at Shs 13 per share based

on a take-over offer price made to all the shareholders of the Company by Al-Futtaim Auto & Machinery Limited.

Fair value gains are recognised through other comprehensive income.



13 UNQUOTED EQUITY INVESTMENTS

2013 2012

Shs’000 Shs’000

At 1 January 41,880 41,880

Reclassified to quoted shares available for sale (Note12) (18,872) -

At 31 December 23,008 41,880

The investment held at year end comprises investment in shares of unquoted companies and is carried at cost. Based on the impairment

testing performed at the end of the reporting period, the directors do not consider the investments to be impaired (2012: Nil).

During the year, shares held at equity holding of I & M Bank Limited were swapped for listed equities of I&M Holdings Limited (previously

City Trust Limited). They have consequently been reclassified to quoted equities held as available for sale.

14 INVESTMENT IN UNIT TRUSTS

2013 2012

Shs’000 Shs’000

At 1 January 41,823 41,496

Additions 2,733 4,700

Withdrawals & fees (2,292) (6,442)

Net change in fund value (3,243) 2,069

At 31 December 39,021 41,823

Unit trusts are unit linked investment contracts designated as financial assets at fair value through profit or loss. These funds are managed

by Old Mutual Asset Managers (K) Limited. The benefits offered under the contract are based on the return of the portfolio of equities and

debt securities. The maturity value of the financial liabilities is determined by the fair value of the linked assets held by Old Mutual Asset

Managers (K) Limited.

15 REINSURERS’ SHARE OF INSURANCE LIABILITIES

2013 2012

Shs’000 Shs’000

At 31 December (note 25) 22,514 34,687

Amounts due from reinsurers in respect of claims outstanding with the Company on contracts that are reinsured are included as reinsurers’

share of liabilities in the statement of financial position



16 OTHER RECEIVABLES

2013 2012

Shs’000 Shs’000

Due from a related company (note 30) - 179

Prepayments and deposits 7,500 7,273

Staff advances 4,736 2,157

Rent receivables 5,286 1,638

Accrued dividend income 1,664 5,210

Trade debtors 32,947 8,576

Proceeds receivables from disposal of shares 47,373 -

Others 5,092 3,052

At 31 December 104,598 28,085

17 GOVERNMENT SECURITIES

(A) Government Securities - Held To Maturity

Treasury bills and bonds maturing:

- In 1 year 158,094 25,101

- In 1- 5 years 111,010 135,668

- After 5 years 315,696 211,429

Total 584,800 372,198

(B) Government Securities-Available For SaleAt January 301,161 240,785

Additions 120,658 74,700

Sales - (23,077)

Maturity (65,721) (2,850)

Fair value gain 16,948 11,603

Total 373,046 301,161

These bonds are carried at fair values based on the Nairobi Securities Exchange mid prices as at 31 December.

18 COMMERCIAL PAPER & CORPORATE BONDS

Commercial paper and bonds held to maturity:

- In 1 -5 years 5,193 9,420

- Over 5 years 77,059 26,890

Total 82,252 36,310



19 DEPOSITS WITH FINANCIAL INSTITUTIONS

2013 2012

Shs’000 Shs’000

Held to maturity:

- Within 90 days 240,913 146,448

- Within 1 year 128,451 249,379

Total 369,364 395,827

20 SHARE CAPITAL

Authorised Share Capital

2,500,000 (2012: 1,500,000) ordinary shares of Shs 100 each 250,000 150,000

Issued and fully paid Share Capital:

2,500,000 (2012: 1,500,000) ordinary shares of Shs 100 each 250,000 150,000

On 20 August, 2013, the shareholders of the Company approved the issuance of 999,998 new ordinary shares of Shs 100 each whose

amount has since been paid.

21 RETAINED EARNINGS

The retained earnings represent the transfer of accumulated surpluses from the long-term insurance business net of tax. Movement in the

retained earnings is shown in the statement of changes in equity on page 26.

22 STATUTORY RESERVE

The statutory reserve represents actuarial surpluses from the long term business whose distribution is subject to restrictions imposed by the

Insurance Act. The Act restricts the amounts of surpluses of the long-term business available for distribution to shareholders to 30% of the

accumulated surplus of the long term insurance business. The movement in the statutory reserve is shown in the statement of changes in

equity on page 26.

23 DIVIDENDS

The directors recommend a first and final dividend of Shs 25,000,000 in respect of the year. (2012: Shs 30,000,000). The financial

statements for the year ended 31 December, 2013 do not reflect this resolution which will be accounted for in shareholders’ equity as an

appropriation of retained profits in the year ending 31 December, 2014.

During the year, the 2013 final dividend of Shs 30,000,000 (2012: Shs Nil) was fully disbursed to shareholders. Payment of dividends is

subject to withholding tax at a rate of either 5% or 10% depending on the residence of the shareholder.

24 INSURANCE CONTRACT LIABILITIES

2013 2012

Long term insurance contracts at 31 December Shs’000 Shs’000

- claims reported and claims handling expenses 63,003 61,785

- actuarial liabilities with respect to contracts in force 544,978 441,052

Total 607,981 502,837

Insurance contract liabilities comprises gross claims reported, claims handling expenses and actuarial liabilities with respect to all contracts

in force for ordinary and group life business.



25 MOVEMENTS IN INSURANCE LIABILITIES AND REINSURANCE ASSETS

2013 2012

Gross Reinsurance Net Gross Reinsurance Net

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

At start of year 502,837 (34,687) 468,150 433,606 (33,447) 400,159

Cash paid for claims settled in the year (99,830) 65,316 (34,514) (101,530) 19,406 (82,124)

Total 403,007 30,629 433,636 332,076 (14,041) 318,035

(Decrease)/Increase in liabilities arising -

- from prior year claims 165,005 (32,148) 132,857 110,863 (16,406) 94,457

- from current year claims 39,969 (20,995) 18,974 59,898 (4,240) 55,658

Total increase in liabilities 204,974 (53,143) 151,831 170,761 (20,646) 150,115

Total 607,981 (22,514) 585,467 502,837 (34,687) 468,150

Notified claims 63,003 (22,514) 40,489 61,785 (34,687) 27,098

Actuarial value of life contract liabilities 544,978 - 544,978 441,052 - 441,052

Total at the end of year 607,981 (22,514) 585,467 502,837 (34,687) 468,150

26 AMOUNTS PAYABLE UNDER DEPOSIT ADMINISTRATION CONTRACTS

Movements in amounts payable under deposit administration contracts during the year are as shown below. The liabilities are shown

inclusive of interest accumulated to 31 December. Interest was declared and credited to the customer accounts at a weighted average rate of

14.00% (2012:12.50%). During the year, bonus stabilisation reserve has been increased by Shs 24,754,000 for the benefit of policyholders

to be utilised in future years.

2013 2012

Shs’000 Shs’000

At 1 January 1,171,253 881,596

Pension fund deposits received 318,400 246,708

Interest payable to policyholders 172,970 120,921

Bonus stabilisation reserve 24,754 20,000

Pension fund withdrawals (138,618) (97,972)

At 31 December 1,548,759 1,171,253

27 OTHER PAYABLES

Due to related companies (note 30) 3,466 4,321

Accrued expenses 29,675 9,594

Accrued leave costs 2,083 974

Rental deposits 1,976 2,515

Premium deposits 32,468 25,671

Other liabilities 15,377 10,112

At 31 December 85,045 53,187



28 (A) NOTES TO THE STATEMENT OF CASH FLOWS

2013 2012

Shs’000 Shs’000

Reconciliation of profit before taxation to cash generated from operations:

Loss before taxation (86,809) (66,224)

Adjustments for:

Interest income 4 (98,106) (96,041)

Profit on sale of available for sale financial assets 4 (40,038) (19,442)

Depreciation charge 9 2,573 2,362

Fair value gain on investment properties 11 (42,500) (30,000)

Provision for diminution in value of equity shares suspended from trading 12(b) - 7,003

Fair value loss/ (gain) on unit trust investments 14 3,243 (2,069)

Changes in:

- technical provisions 494,823 357,650

- receivables arising from reinsurance arrangement 47,577 (6,960)

- other payables 31,858 21,772

- other receivables (76,513) 16,792

Cash generated from operations 236,108 184,843

(B) CASH AND CASH EQUIVALENTS

For the purposes of the cash flow statement, cash and cash equivalents comprise the following:

Cash and bank balances 31,905 1,261

Deposits with financial institutions (note 19) 240,913 146,448

Total 272,818 147,709

29 CONTINGENT LIABILITIES

In common with the insurance industry in general, the Company is subject to litigation arising in the normal course of insurance business.

At the reporting date, there was no litigation that the Company was aware of. The directors are of the opinion that any litigation that may

arise from this source will not have a material effect on the financial position or profits of the Company.



30 COMMITMENTS

Capital expenditure contracted for at the end of the reporting period date but not recognised in the financial statements is as follows:

2013 2012

Shs’000 Shs’000

Authorised and contracted for 30,000 24,317

Authorised but not contracted for 44,759 43,500

Total 74,759 67,817

Operating Lease Commitments

The future minimum lease payments under operating leases are as follows:

Due not later than 1 year 8,227 7,834

Due after 1 year and not later than 5 years 41,135 36,036

Later than 5 years 9,461 9,009

Total 58,823 52,879

31 RELATED PARTIES

In the normal course of business, insurance policies are sold to related parties at terms and conditions similar to those offered to major

clients. The Company is a wholly owned subsidiary of Apollo Investments Limited, also incorporated in Kenya. Apollo Holdings Limited,

Apollo Asset Management Company Limited, Gordon Court Limited and APA Insurance Limited are related to Apa Life Assurance Limited

through common shareholdings and directorships.

Outstanding balances with related parties 2013 2012

Shs’ 000 Shs’ 000

(i) Due from related parties (note 15)

Due from Apollo Investments Limited - -

Due from Apollo Asset Management Company Limited - 179

Total - 179

(ii) Due to related parties (note 27)

Due to Apollo Investment Limited 3,355 2,006

Due to Gordon Court Limited 102 30

Due to APA Insurance Limited 9 2,285

Total 3,466 4,321



31 RELATED PARTIES (CONTINUED)

(iii) Related party transactions

2013 2012

Shs’000 Shs’000

Apollo Asset Management Company Limited

Payment of asset management fees 5,253 3,528

Gordon Court Company Limited Payment of office rent /space 8,227 7,834

APA Insurance Limited Receipt of pension contribution (deposit administration) 48,757 41,115

Sale of group life assurance 3,710 2,581

Purchase of medical insurance premiums 1,127 1,779

Purchase of property & motor vehicle insurance 323 241

Total 67,397 57,078

(iv) Key management and directors’ compensation

Directors’ fees 3,372 2,875

Other remuneration - -

Key management compensation 31,229 25,393

Total 34,601 28,268

32 WEIGHTED AVERAGE EFFECTIVE INTEREST RATES

The following table summarises the Company’s weighted average effective interest rates realised during the year on the principal interest-

bearing investments:

2013 2012

% %

Government securities 12 12

Deposits with financial institutions 15 15

Commercial paper & corporate bonds 12 12

33 CURRENCY

The financial statements are presented in Kenya shillings thousands (Shs’000).



Ordinary Life Group Life (DAP) Total Total

business business Other 2013 2012

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

Gross earned premium 20,338 394,582 - 414,920 217,031

Reinsurance premiums ceded - (200,428) - (200,428) (116,922)

Net earned premium 20,338 194,154 - 214,492 100,109

Investment income 41,914 28,757 119,510 190,181 165,930

Commission earned - 45,663 - 45,663 29,654

Total income 62,252 268,574 119,510 450,336 295,693

Claims and policy holder benefit -

Life and death claims (365) (48,701) - (49,066) (14,800)

Surrenders and annuity payments (659) (35,148) - (35,807) (29,103)

Maturities (21,360) - - (21,360) (27,791)

Increase actuarial value of insurance contract liabilities/reserves 2,350 (106,276) (24,754) (128,680) (87,986)

Interest on deposit administration contracts - - (172,970) (172,970) (120,921)

Net claims and policyholder benefits payable (20,034) (190,125) (197,724) (407,883) (280,601)

Expenses -

Operating and other expenses (25,186) (63,695) (12,625) (101,506) (66,381)

Commissions payable (563) (33,865) (3,942) (38,370) (17,812)

Total expenses and commissions (25,749) (97,560) (16,567) (139,876) (84,193)

Profit/(loss) the year before taxation 16,469 (19,111) (94,781) (97,423) (69,101)

Income tax - (2,864) - (2,864) (1,366)

Profit/(loss) for the year after taxation 16,469 (21,975) (94,781) (100,287) (70,467)

The above supplementary information was approved by the board of directors on 14 April, 2014 and signed on its behalf by:

M. Kibati A. K. M. Shah

Chairman Director

SUPPLEMENTARY INFORMATION

REVENUE ACCOUNT FOR THE YEAR ENDED 31 DECEMBER 2013



Documents

ANNUAL REPORT & FINANCIAL STATEMENTS - APA ...apalife.co.ke/wp-content/uploads/2014/08/APA-Life-annual...APA LIFE ASSURANCE LIMITED (Formerly Apollo Life Assurance Limited) 1 FINANCIAL