In Sri Lanka We Believe.

Celebrating 25 years of Ceylinco Insurance PLC with a history going back to 1939 This is Our Strength The Strength of Sri Lanka.

CEYLINCO INSURANCE PLC Annual Report 2012 THE NATIONAL FLAG OF SRI LANKA Ceylinco Insurance PLC takes pride in presenting the National Flag of Sri Lanka on the cover of our annual report this year - a true representation of the national pride and unity we believe in.

Each element of the flag and its colours has a distinct meaning; collectively representing a multi-ethnic, multi-cultural Sri Lanka. Strength of Sri Lanka

At Ceylinco Insurance we have always been proud of our pedigree, our heritage and our constantly re-affirmed position as the Sri Lankan insurer of choice. Our faith in the pride and potential of Sri Lanka has always been the strength behind the work we do every day.

Today we celebrate twenty five years in business as Ceylinco Insurance PLC. Yet our history can be traced as far back as 1939, when the Company was originally registered as The Ceylon Insurance Company, which was in fact, the first Ceylonese Company ever registered.

This is our strength.

The strength of Sri Lanka. CEYLINCO INSURANCE PLC 2 Annual Report 2012

Contents Mission

Corporate Information 3 Our Mission is to provide protection and Financial Highlights 4 - 5 financial security of the highest quality to Our Journey 1987 – 2012 6 - 7 society, whilst adding to shareholders’ wealth Chairman’s Review 8 - 11 and recognising, rewarding and valuing the Review of the Managing Director / dignity of our staff. Chief Executive Officer (General Insurance) 12 - 16 Review of the Managing Director / Chief Executive Officer (Life Insurance) 17 - 20 Customer Testimonials 21 - 22 Corporate Management Discussion & Analysis 23 - 28 Sustainability Report 29 - 35 Goals Corporate Social Responsibility 36 - 37 Enterprise Risk Management - General 38 - 41 To provide an attractive return on investment Enterprise Risk Management - Life 42 - 46 to the shareholders, whilst retaining Branch Network 47 - 48 adequate funds for growth and to achieve a The Year’s Events – General 49 - 51 high degree of stability which would enable The Year’s Events – Life 52 - 54 us to hold true to our mission in all business Reinsurance Arrangements 55 conditions. Board of Directors 56 - 63 Corporate Governance 64 - 67 To be a leading provider of protection and Report of the Board Audit Committee 68 - 69 financial security in Sri Lanka and selected Report of the Remuneration Committee 70 international markets. Investment Committee Report - General 71 - 72 Investment Committee Report - Life 73 - 74 To develop highly satisfied and motivated Statement of Directors' Responsibility 75 employees at all levels, who will contribute Corporate Management - General 76 - 77 effectively and efficiently towards achieving Corporate Management – Life 78 - 79 the overall objectives of the Company. Management Staff – General 80 - 81 To contribute to the economic development Management Staff - Life 82 - 83 of Sri Lanka and enhance the quality of life of Management Staff 84 - 88 Financial Information 89 its people. Financial Statements 90 - 177 Quarterly Analysis 2012 178 Quarterly Analysis 2011 179 Ten Year Summary 180 - 181 Notice of Meeting 182 Glossary of Financial & Insurance Terms 183 - 185 Notes 186 CEYLINCO INSURANCE PLC Annual Report 2012 3

Corporate Information

Registered Office Consulting Actuaries Mr. D.H.J. Gunawardena F.C.M.A. (U.K.) “Ceylinco House” Life Insurance (“Independent” Non - Executive Director) No. 69, Janadhipathi Mawatha, Towers Watson Risk Consulting Pte. Mr. P.A. Jayawardena F.C.A., F.C.M.A., Colombo 1, Sri Lanka. Limited, F.M.A.A.T. (S.L.) No. 135, Cecil Street, - Director / Chief Financial Officer Company Registration Number #09-01, Singapore 069536. (Life Insurance) PQ 24 (Executive Director) General Insurance Legal Form M/s. K. A. Pandit Mr. N.D. Nugawela F.C.I.C. A Quoted Public Company with limited Consultants & Actuaries, - Director / Chief Operations Officer liability, incorporated in Sri Lanka in 1987. 2nd. Floor - “Churchgate House”, (General Insurance) Licensed as a Company authorized to Veer Nariman Road, (Executive Director) carry on insurance business, under the Fort, Mumbai - 400 001, India. Mr. T.N.M. Peiris B.A. (Econ.) (Hons.), F.C.A., Control of Insurance Act No. 25 of 1962 as F.C.M.A., F.C.I.C. amended by Act No. 42 of 1986 (Presently Board of Directors - Director (Finance) / Head of Finance replaced by Regulation of Insurance Mr. J.G.P. Perera Pg. Dip. M.CIM. (U.K.), (Executive Director) F.C.I.M. (U.K.) Industry Act No. 43 of 2000). - Chairman Mr. D.W.P. Upali A.C.A., M.B.A., F.C.M.A. Main Place of Business (Non-Executive Director) - Director / Chief Financial Officer (General Insurance) Life Insurance Mr. A.R. Gunawardena F.C.I.C. (Executive Director) “Ceylinco Life Tower”, - Managing Director / Chief Executive Officer No. 106, Havelock Road, (General Insurance) Gen. C.S. Weerasooriya (Retd.) Colombo 5, Sri Lanka. (Executive Director) (“Independent” Non-Executive Director) Telephone : 2461000 Mr. S.R. Abeynayake F.C.A., M.B.A. (Sri J.), Mr. R. Renganathan F.C.A., F.C.M.A. Call Centre : 2461461 (Hotline) - Managing Director / Chief Executive Officer F.C.M.A. Fax : 2437613, 2555959 (Life Insurance) - Director / Deputy Chief Financial E-mail : [email protected] (Executive Director) Officer (Life Insurance) Website : www.ceylincolife.com (Executive Director) Mr. H.D.K.P. Alwis F.C.I.C. Main Place of Business - Director / Deputy Chief Executive Officer (General Insurance) General Insurance Company Secretary (Executive Director) “Ceylinco House”, Mrs. T.N. Jasenthuliyana F.C.I.S. (U.K.), No. 69, Janadhipathi Mawatha, Mr. E.T.L. Ranasinghe M.B.A., Dip.M., F.C.P.M., F.C.C.S. Colombo 1, Sri Lanka. F.C.I.M. (U.K.), Chartered Marketer Bankers Telephone : 2485757-9 - Director / Deputy Chief Executive Officer Bank of Ceylon Call Centre : 2393939 (Life Insurance) (Executive Director) Fax : 2485701 Commercial Bank of Ceylon PLC E-mail : [email protected] Dr. W.C.J. Alwis B.Sc., F.I.I.I., F.C.I.I. (Lond.), Deutsche Bank AG (Custodian Bank) Website : www.ceylinco-insurance.com F.I.o.D. (U.K.) DFCC Vardhana Bank - Director (Technical) / Chief Technical Officer Hatton National Bank PLC The Stock Exchange Listing (Executive Director) Hongkong & Shanghai Banking The Ordinary Shares (Voting and Non Mr. P.D.M. Cooray LUTCF (U.S.A.), C.I.A.M., Corporation Ltd. Voting) of the Company are listed with the C.I.I. (AWARD) National Savings Bank Colombo Stock Exchange of Sri Lanka. - Director / Head of Human Resources & Nations Trust Bank PLC Principal Activities Training (Life Insurance) NDB Bank PLC (Executive Director) Underwriting all classes of General Pan Asia Banking Corporation PLC Insurance and Life Insurance. Mr. K.I. Dharmawardena Attorney-at- Law People’s Bank (“Independent” Non - Executive Director) Sampath Bank PLC Auditors Seylan Bank PLC Ernst & Young, Mr. P.M.B. Fernando F.C.P.M., Dip. Elect. Eng., Dip. Comp. System Design, Standard Chartered Bank Chartered Accountants, Dip. Bus. Mgmnt., Dip. Mkt. Mgmnt. Union Bank of Colombo Limited No. 201, De Saram Place, - Director / Chief Information Officer Colombo 10. (General Insurance) (Executive Director) CEYLINCO INSURANCE PLC 4 Annual Report 2012

Financial Highlights

Company Results for the year 2012 2011 Rs.'000 Rs.'000 Change % Gross Written Premium 21,923,053 19,875,117 10.30 Net Claims / Net Benefits (Excluding increase in Life Fund) 8,547,309 7,422,040 15.16 Increase in Life Insurance Fund 6,765,658 6,335,332 6.79 Investments and Other Income 5,856,407 4,926,589 18.87 Profit before Taxation 1,803,098 1,454,042 24.01 Profit after Taxation 1,653,249 1,335,495 23.79 Position at the year end Shareholders' Funds 12,562,810 10,933,192 14.91 Life Insurance Funds 45,110,789 38,203,473 18.08 Non-Life Insurance Contract Liabilities 7,561,631 6,975,423 8.40 Investments 52,188,557 47,958,148 8.82 Total Assets 68,978,544 63,138,484 9.25 Market capitalisation (Rs. Mn) 19,238 17,134 12.28

Rs. Rs. Per Ordinary Share Earnings (Basic) 62.59 50.56 Dividends - Interim paid - - - Proposed 12.50 6.50 Net Assets (Shareholders' Equity) 475.60 413.91 Market Value at the year end - voting 855.90 746.70 Market Value at the year end - non voting 330.50 343.00

Ratios Return on Total Assets % (Shareholders') 8.7 8.1 Return on Shareholders' Funds % 13.2 12.2 Dividend Cover (times) 5.0 7.8 Price Earning (times) - Voting 13.7 14.8 Price Earning (times) - Non Voting 5.3 6.8 Dividend Payout Ratio % 20 13

Premium Income- Life & Non Life Profit before Taxation Rs.Mn. Rs.Mn. 22,000 2,000

20,000 1,800 18,000 1,600 16,000 1,400 14,000 1,200 12,000 1,000 10,000 800 8,000 600 6,000

4,000 400

2,000 200

0 0 08 09 10 11 12 08 09 10 11 12 CEYLINCO INSURANCE PLC Annual Report 2012 5

Results for the year Non - Life Insurance Life Insurance 2012 2011 2012 2011 Rs.'000 Rs.'000 Change % Rs.'000 Rs.'000 Change %

Gross Written Premium 11,093,583 10,041,212 10.48 10,829,470 9,833,905 10.12 Net Claims / Net Benefits 4,556,428 4,475,745 1.80 3,990,881 2,946,295 35.45 Increase in Long Term Insurance Funds 6,765,658 6,335,332 6.79 Investments and Other Income 1,030,585 972,876 5.93 4,825,822 3,953,713 22.05 (Including Reinsurance Commission)

Transfer to Retained Earnings 995,832 796,189 25.07 Profit Before Taxation 1,803,098 1,454,042 24.01 Profit After Taxation 1,653,249 1,335,495 23.79

Position at the year end Shareholder' Equity 12,562,810 10,933,192 14.91 Long Term Insurance Funds 45,110,789 38,203,473 18.08 Non-Life Insurance Contract Liabilities 7,561,631 6,975,423 8.40 Investments 7,989,808 7,547,964 5.85 44,198,749 40,410,184 9.38 Total Assets 20,733,925 18,059,790 14.81 52,891,649 48,589,972 8.85

Results for the year Non - Life Insurance Life Insurance 2012 2011 2012 2011 Rs.Mn Rs.Mn Rs.Mn Rs.Mn

Available Solvency Margin 2,004 1,794 15,627 10,280 Required Solvency Margin 1,769 1,641 1,458 1,256 Solvency Ratio (Times) 1.13 1.09 10.72 8.19

Premium Income - Non Life Premium Income - Life Rs.Mn. Rs.Mn. 12,000 12,000

10,500 10,500

9,000 9,000

7,500 7,500

6,000 6,000

4,500 4,500

3,000 3,000

1,500 1,500

0 0 08 09 10 11 12 08 09 10 11 12 Our Journey 1987 – 2012

Ceylinco Life conferred with Overall Brand of the Year by SLIM Brand Excellence 2005

Hand-picked by Mr. C Van Winfree, a former Vice President Marketing at Metropolitan Life to structure, set up and lead the Life Division, he was appointed a Director of Ceylinco Insurance in 1987 and has led the Life Division from inception to nine consecutive years of market leadership (2004- 2012). A 2007 Chartered Accountant by profession, he worked with many international Created separate brand Launched mega consumer consultants in the formative years of icon for life division – promotion to benefit the Company to introduce professional “Ceylinco Life” policyholders and their qualifications and standards as well as 2001 family members - “Family global best practices to the life insurance 2000 Savari” industry in Sri Lanka. He played a lead role Introduced a scholarship in the introduction of the Million Dollar scheme for the benefits Round Table (MDRT) to the local industry of policy holders' children as well. He was a key member of the – “Ceylinco Life Pranama Ceylinco Insurance team when the first Scholarship “ share issue was canvassed for the initial share capital of Rs. 25 Million.

1995 First to introduce "On The Introduced professional 1999 Spot" claim settlements for insurance courses to First to introduce a Motor Insurance with Ceylinco sales force pension product VIP On The Spot 2003

Produced the first MDRT qualifier in Sri Lanka First to introduce a 1993 branded motor insurance product to the market 2000

1992 First to introduce niche products to the market Emerged as the leader in the Life Insurance 1989 1991 segment amongst the Became the first private sector private sector insurance Introduced a Direct Sales insurance company to have an companies Force revolutionizing the overseas joint venture insurance industry 1989 1989 First to introduce packaged policies to the market 2012 First Life Insurer Launched Sri Lanka's to surpass first on-line Life Rs. 10 Billion annual Insurance Plan 2012 premium income 2012 First to introduce tele underwriting The first and only in Sri Lanka insurance company to offer compensation to the other party in an accident

Ceylinco Life conferred 2010 2011 with Overall Brand Completed construction Leadership Award by of Ceylinco Life Tower World Brand Congress

2009 First to settle claims on the spot through M-Commerce 2011 2008 First to launch a public awareness campaign on life insurance and Retirement Planning – “ Life Insurance Week” and “Retirement First insurance company to Planning Month” record a profit of Rs. 1 Billion 2008 Introduced On The Spot 2008 claim settlements for First insurance company to non - motor insurance First to retain no claim provide roadside assistance bonus, regardless of to customers 24 hours a day, claims 365 days a year 2007 2004 First to introduce 2007 On-line selling

2005 The first and only Insurance Company to create 'Rest Spots' on all major highways for its customers 2003 First and only insurance company 2003 to win an International Award for First insurance company innovation, twice over, at the Asia to provide a similar Insurance Industry Awards In 1987, at the very inception of Ceylinco replacement vehicle in the Insurance, Mr. Gunawardena was appointed event of an accident as the Director in charge of the General Division. From that moment on, he has unfalteringly led the General Division of Ceylinco Insurance, throughout the 25 years of the company’s history, steering the Company to unprecedented heights. Under his stewardship Ceylinco Insurance 2008, 2010 – 2012 - Gold award – National has become the market leader in Sri Lanka Business Excellence Awards and has maintained that position for seven 2006 - 2012 - Winner - Peoples insurance straight years. He has further spearheaded brand of the year at POP awards the Division’s entry into regional markets in South Asia and the Middle East, registering 2004 - Market leader in the insurance industry unmatched success. Moreover, VIP On The 1992 - Market leader amongst the private Spot, the much celebrated ‘World First’, is sector Insurance companies his very own brain-child. And incidentally being the only CEO to continuously hold that position for 25 years in the Sri Lankan business sphere among publicly listed companies, yet another unparalleled achievement. CEYLINCO INSURANCE PLC 8 Annual Report 2012

Chairman’s Review

Year 2012 marks an Dear Shareholders the going gets tough, the tough get going.’ important milestone in the 2012 marks an important milestone in the very accurately describes the challenges and crises faced by the company in the last history of your Company. history of your company. It was 25 years 25 years and its remarkable resilience to It was 25 years ago in 1987, ago in 1987 that Ceylinco Insurance PLC overcome those challenges and crises, and Ceylinco Insurance PLC was was incorporated. Yet, the golden thread of service excellence in insurance which runs each time to emerge stronger and more incorporated. so prominently throughout the fabric of this stable than before. company was first woven not in 1987 but in You, dear Shareholders will pardon me, if 1939 when Ceylon Insurance Company was this year I deviate from the normal practice founded. It was in fact the first Ceylonese of analysing the macro environment in the company to be registered under the year under review and describing how the Companies Ordinance which was introduced company fared against the back- drop of this by the British Government in 1938. environment. This analysis, descriptions and Unfortunately the process of nationalization related statistics are comprehensively stated of insurance, which was completed in 1964, elsewhere. I will be different. I offer you three resulted in the company sliding down to quotations and will explain why I believe that a near terminal end. But subsequently they describe the inner driving forces of this, de-nationalization of insurance which was your Company. In justification I will highlight done in stages commencing 1980, gave some relevant performance figures. a new lease of life to the ailing company. Then, when in 1986 new legislation was The first quotation is from Harold Geneen introduced to permit the private sector to - Founder President of US based ITT enter the insurance industry, it saw the birth Corporation whose name is synonymous with of a successor one year later in the form of the concept of a business conglomerate. Ceylinco Insurance PLC. The truism ‘When CEYLINCO INSURANCE PLC Annual Report 2012 9

“It is an immutable law in business It is only by increasing our performance Long term relationships are built on Trust. that words are words, explanations are levels that we can fulfill that part of our Trust is built on mutual understanding explanations, promises are promises but Mission Statement which states "adding and reinforced through the consistent only performance is reality” to shareholders’ wealth". However fulfillment of promises. We have never performance by itself is not enough. It compromised on this issue. In the Yes, through our strategies of selling has to be sustainable. We have therefore aftermath of the unprecedented floods and advertising we do offer words and endorsed fully the most relevant principles late last year marketing executives and explanations and promises. But we of sustainability, namely Principles of loss adjustors/assessors worked round also observe that immutable law of Sustainable Insurance as declared by the the clock, visiting customers even before business that in the final analysis, it is United Nations Environment Programme they contacted us, and we took steps to only performance that matters. That is Finance Initiative of 2012. settle claims as fast as possible. Further why we are a very performance oriented, the claim settlement cheques were My second quotation is from Tan Suee performance driven and performance personally delivered to customers. The Chieh - Former CEO of Prudential motivated Company. From top down Life Division delivered to the homes of Assurance Company, Singapore and within the Company, each one is regularly 9,567 customers their eagerly awaited presently CEO of Ntuc Income Insurance evaluated on his/her performance. It annual bonus payments – ‘Avurudu Co-operative, Singapore. is on this evaluation that rewards and Bonus’, the total of which amounted to “People don’t buy because they recognition are bestowed. The reality of Rs. 34,069,025. This process of home understand. They buy because they feel this unrelenting focus on performance delivery was conducted by the sales staff understood.” is that for the 9th successive year we and covered every district in the island. All retained market leadership. The Life The key to our success in achieving the these payments , promptly and personally Division created history by being the first performance levels described earlier is made, were in keeping with our policy in Life Insurance in Sri Lanka to break the that we at Ceylinco Insurance more than of establishing ‘Empathy’ which really 10 Billion Rupee mark in Gross Written anyone else, understand customers’ means showing our customers that we Premium. The General Division has wants, fears, expectations and hopes and understand them. repeatedly broken the 10 Billion Rupee more importantly make customers clearly My third quotation is from Peter Drucker- mark in Gross Written Premium and in the feel that they are understood. Insurance lecturer, trainer and author, considered year under review has for the second time impacts on people at a time when they to be the undisputed management ‘guru’ in five years, passed the 11 Billion Rupee face financial loss and are emotionally at whose teachings laid the foundation of mark . These performances were achieved a low ebb. Death, natural disasters, illness, modern business management. despite the fact which I have repeated accidents, fire, robbery are the most “Business has only two functions – in previous years that we do not enjoy a unpredictable of situations. Yet in these Marketing and Innovation” level playing field. Preferential treatment situations the only thing predictable is If we accept that Marketing is the towards the government owned insurance that through proper insurance policies, the management process of identifying, company is very much prevalent and price resulting financial losses can be mitigated anticipating, understanding and fulfilling cutting on premiums, which can hurt thereby helping to regain financial stability the wants of customers in such a manner both the giver and the receiver, continues and emotional equilibrium. At times such that customers are delighted and the unabated. The more intensive competition as these speed of accessibility and speed company earns a profit, then Ceylinco gets, whether it’s fair or unfair, the higher of service are of paramount importance. Insurance has performed this function our performance levels become. For It is for this reason that Ceylinco exceedingly well. The Company’s response example when we commenced VIP On the Insurance has established the most to fulfilling the wants of customers is Spot claim settlement, Motor Engineers/ extensive branch network backed by the reflected in the total value of Net Claims Assessors were expected to be at the largest professional, support staff. By / Benefits paid - Rs.8.5 Billion. This was site of the accident within 30 minutes the end of 2012 the General Division had a 15.1% increase over the previous year of receiving the information from the 191 branches and 106 service centres. (2011). The customers’ response to the Call Centre. We have now made this 25 The Life Division had 211 branches. It is Company is reflected in their confidence minutes. 5 minutes on paper may seem our endeavor to serve our customers in which can be measured by the Total a very minor difference but 5 minutes such a manner that both we and they will Gross Written Premium – Rs. 21.9 to a customer who has met with an want to have a long term relationship. Billion. This was a 10.3% increase over accident makes a very major difference. CEYLINCO INSURANCE PLC 10 Annual Report 2012

Chairman’s Review

Long term relationships are the previous year (2011). Profit before tax The result of efficient and effective marketing built on Trust. Trust is built was Rs. 1.8 BillionThis was a 24% increase and regular introduction of innovative on mutual understanding over the previous year (2011). All this has products which add customer value resulted been possible because our marketing in Ceylinco Insurance being able, for the and reinforced through the management process has been both efficient ninth consecutive year, to retain market consistent fulfillment of and effective. leadership and for the sixth consecutive promises. We have never year, being selected as the most popular compromised on this issue. The passion for innovation has been a insurance company through the SLIM- highlight of this company throughout its Nielsen all-island survey. We were also the history. You as shareholders will recall that only insurance company to be amongst the yours is the only company in Sri Lanka to have top twenty five companies as selected by won two of the most prestigious international "Business Today". This type of achievement awards for innovation. This was at the Asia is unparalleled in the industry. Your company Insurance Industry Awards in 2003 and 2006. also won two Gold Medals at the National Each year innovative products and innovative Business Excellence Awards. Even the procedures to offer unmatched convenience Publicity and Promotional strategies have to customers have been introduced. The list been innovative. Miss Ceylinco VIP, a beauty is long so let me mention a few of them. The contest with a difference, was conducted three unique benefits for vehicles purchased throughout the year island-wide in all through a lease which were added to our VIP the regions. It generated unprecedented On the Spot policy, still remain as innovations enthusiasm and became the talk of every because no one has even remotely copied town, months before and months after it them! We introduced Warranty Insurance was held. Ceylinco Life’s Family Savari has which offers a cover against defects in become so popular that it is the virtual brand mechanical and electrical parts of new and leader in corporate promotional strategies. reconditioned vehicles. Throughout the year, An unrelenting focus on performance. A the General Division added significant value tangible assurance to customers that they additions to its existing portfolio of products, are understood. Proficiency in marketing especially by streamlining claim settlement and innovation. These are the drivers of your procedure. Test marketing also commenced Company. for new products and these will be launched in 2013. The Life Division introduced unique innovative products such as Five Benefits Proposed Dividend Policy to celebrate the 25th Anniversary. Its Consequent to the outstanding performance uncomplicated benefit package has been of your Company and in acknowledgement of attractive to customers and will enable the the steadfast loyalty of you our shareholders, Company to increase insurance penetration it is my pleasure on behalf of the Board of levels within the population. Also launched Directors to propose a dividend of Rs. 12.50 was Ceylinco Life Silver Plus to existing per share. This surpasses any previous customers to increase their life cover and dividend paid. It is unprecedented and maturity value. But the milestone innovation unparalleled. was the introduction of an On-Line Insurance Plan. Referred to as ‘protection at your My Congratulations fingertips’, Ceylife On Line is a simple term I extend my most sincere congratulations insurance plan offering a life cover of Rs. 1 to Dr Jagath Alwis – our Director (Technical) Million and above with optional accidental and Chief Technical Officer on his being death cover. The entire process of obtaining conferred a much deserved doctorate by the this policy does not take more than 10 University of Middlesex, UK. This honour was minutes. bestowed in recognition of his contribution to the international insurance industry by CEYLINCO INSURANCE PLC Annual Report 2012 11

way of papers presented at international To our Reinsurers and Reinsurance Brokers An unrelenting focus on insurance and reinsurance forums. Todate he who are our very close business partners, performance. A tangible has presented over thirty papers in thirteen I offer my sincere thanks. Their loyalty, assurance to customers countries. reflected by their sound advice and prompt that they are understood. service has helped us immeasurably to Proficiency in marketing and My Gratitude achieve the success we did during the year under review. A special and very warm ‘Thank innovation. These are the It is now my very pleasant duty to express my You’ to Swiss Re of Switzerland and Munich drivers of your Company. sincere gratitude to the many persons and Re of Germany for having contributed to organizations in which they serve, with whom Ceylinco Life’s CSR project of installing a High this Company is closely linked. Dependency and Research Unit at the Lady Ms Indrani Sugathadasa, Chairperson of the Ridgeway Hospital for children afflicted with Insurance Board of Sri Lanka (IBSL) for the Dengue. efficient regulatory services provided by her and the Directorate. To the two Managing Directors / CEOs Mr Ajith Gunawardena and Mr Rajkumar Mr Ajith Nivard Cabraal, Governor of the Renganathan, I must state that I am Central Bank of Sri Lanka for taking the right honoured to serve on the same Board as decisions to keep the Sri Lankan economy on them. I thank them for having once again the steady path of growth with stability. steered this Company through sea lanes rife with competition to become the No 1 Dr Wickrema Weerasuriya, Insurance Insurance Company. Ombudsman for his diligence and impartiality in dealing with grievances of customers, To the Board of Directors who have as thereby restoring the confidence of these in past years displayed a high degree of customers in the insurance industry. professionalism and devotion to duty. Their Dr Nalaka Godahewa, who succeeded Mr diligence and commitment have once again Tilak Karunanayake as Chairman of the SEC. placed this Company in an unassailable I am confident that under his leadership the position in the industry. stock market will soon regain its position as And finally dear Shareholders, I extend to you a vibrant and successful market attracting my most abundant thanks. Your steadfast recognized foreign investors. loyalty and your trust will never be betrayed I now pay tribute to our customers no matter what changes lie ahead. who understand us just as much as we understand them. We will always endeavour to reciprocate their ever increasing loyalty by offering more innovative products together with the highest form of service excellence.

I thank our entire staff for their loyalty and commitment which has resulted in another J.G.P. Perera year of victory for the Company. I assure Chairman them that in the most meaningful way we will continue to demonstrate that they are our 27th. February, 2013 most valuable asset.

I thank all our Agents and the Insurance Brokers who have steadfastly continued to support us by bringing in significant business. CEYLINCO INSURANCE PLC 12 Annual Report 2012

Review of the Managing Director / Chief Executive Officer (General Insurance)

“Humble determination Outlook at macroeconomic stabilization that were adopted in early 2012. The measures were in facing any challenge, In the year under review, Sri Lanka's overall needed to face the challenges of a protracted and overcoming it, is what economic growth is expected to record a recovery in the global economy, as well as defines us best” growth of 6.5%, down from a projected 8%, rapidly rising domestic credit, which fuelled according to the Central Bank of Sri Lanka. a higher than desired import demand, while Ł ‡–‡†ƒ•ij‡‘’Ž‡IJ• Although overall growth records a decline, the adverse weather conditions also hindered Insurance Brand of the economy has been responding well to policy economic performance. In December 2012, Year - 2012” for the sixth measures taken, the Central Bank affirms in year-on-year inflation was at 9.2%, while one of its publications in December 2012. In consecutive year annual average inflation was 7.6%. By the end the external sector, cumulative expenditure of 2012 both headline and core inflation have Ł Ž› •—”ƒ ‡ ‘’ƒ› on imports declined by 4.5% in the first eleven remained at single digit levels continuously months of 2012, from the corresponding among Sri Lanka’s top 25 for 47 months. companies, according to period in 2011, while the cumulative deficit in “Business Today top 25" the trade account declined by 2.1%. As a result of the contraction of the trade deficit, and Company Performance Ł ‘”–Š‡ˆ‘—”–Š›‡ƒ”Ħ the increase in other earnings, such as higher Your Company recorded yet another Gold winner in the ‘The workers’ remittances and earnings on account spectacular year in 2012, building upon Insurance Sector’, at of tourism, the current account deficit reduced the success of previous years, and truly substantially in 2012, leading to the balance consolidating its position as the market the National Business of payments improving to a surplus of over leader for the 9th consecutive year . The Excellence Awards 2012 Rs. 13 Billion (US$ 100 Million) in 2012, from a premium income of the General Division reached an unprecedented Rs.11.1 Billion, Ł ‘Ž†™ƒ”†ˆ‘”ij‘™Ž‡†‰‡ deficit of Rs.143 Billion (US$ 1,061 Million) in 2011, the same statement revealed. an increase of over Rs.1 Billion year on year. Integration” (overall) at The figure represented a growth of 10.5% the National Business These improvements are reported to be the over 2011. Meanwhile, the Motor Insurance Excellence Awards 2012 results of stringent policy measures aimed premium income stood at an impressive CEYLINCO INSURANCE PLC Annual Report 2012 13

Rs. 6.6 Billion, with Non Motor Insurance income, while Non Motor premiums will reach contributing a mammoth Rs. 4.5 Billion to the Rs.20 Billion, indicating a growth of 11.7%. total premium income of the Company. Accordingly, Motor Insurance will account for 61% of the industry turnover, with Non Motor Your Company’s growth in profitability during accounting for the balance 39%. the year being reviewed was exceptional, as the profit after tax soared to reach Meanwhile, the increase in import duty tariffs Rs. 1.65 Billion, signifying an increase of during the early part of 2012 resulted in a 23.8% over 2011. To this gargantuan figure, drastic reduction in vehicle imports, which the General Division contributed an after tax adversely impacted the growth of the vehicle profit of Rs. 657 Million, with the Life Division insurance industry. Maintaining market share contributing an impressive Rs. 996 Million. and underwriting profitability continued to Accordingly, the growth of the after tax profit be a huge challenge for the Non Life industry, of the General Division thus stands at an as price undercutting was rampant, existing unbelievable 21.9%. at extremely unethical levels in Motor Insurance. The new entrants to the insurance Further, the consolidated results too industry too have adopted the practice of recorded impressive growth figures, with the undercutting for the sake of remaining in the profit before tax reaching an exceptional market, which allows them to comfortably Rs. 2.3 Billion, and the after tax profit hitting eat into the market share of larger and more Rs. 2.1 Billion, signifying an increase of 36% established companies. over the previous year. However, insurance penetration still remains This year your Company celebrates another low in Sri Lanka, in relation to other Asian milestone, as we commemorate our 25th countries. Total premiums account for only anniversary. Over the past two and a half 1.2% of the GDP in Sri Lanka, while the decades, your Company has pioneered regional average is around 6.2%. This could many innovations, elevating the Insurance be attributed to the low per-capita income of Industry at large to a new paradigm, the country, which results in low disposable ultimately benefiting the Sri Lankan people, income levels, and the notion that Insurance enabling them to live secure, happy, more is still largely considered a risk management carefree lives. Moreover, in the last quarter tool, rather than an investment. of a century we were able to stand up to and overcome many epic challenges, which would have broken the spirit of many another Benefits to Customers company, and we continue to forge ahead In keeping with our credo of providing full today, redefining the insurance landscape, settlement of all genuine claims on the as we head further forward, impelled towards spot, the General Division paid gross claims Rs. 11.1 Bn the very zenith of achievement. amounting to Rs.5.3 Billion during 2012. General Insurance Premium Moreover, holding true to our ideology of The premium income of the General helping our customers to bounce back to Division reached an unprecedented Industry Overview Rs.11.1 Billion, an increase of over normalcy as fast as possible, most of the The General Insurance industry is expected to Rs.1 Billion year on year. The figure claims were settled on the spot. represented a growth of 10.5% record a moderate growth of around 14.6% over 2011. in premium income by the end of 2012, Furthermore, it is now ten years since we compared to the 20.8% growth recorded in introduced the revolutionary On The Spot 2011. Thus, the General Insurance premium claim settlement methodology to the market. income is expected to reach Rs.52 Billion as As we humbly celebrate our pioneering 21.9% Growth in General Insurance Profits at and 2012. efforts of a decade ago, it is intriguing to The growth of the after tax profit of note that Ceylinco Insurance is still the only Breaking that figure down into its constituent the General Division thus stands at an insurance company in Sri Lanka to settle all unbelievable 21.9%. parts, Motor Insurance will record a growth or any claims on the spot. To this date, no of 16.6%, exceeding Rs.32 Billion in premium CEYLINCO INSURANCE PLC 14 Annual Report 2012

Review of the Managing Director / Chief Executive Officer (General Insurance)

As always, your Company competitor has been able to match the speed Sustainability values its abundant human with which your Company settles claims. Your Company is extremely pleased to report resource immensely, and that we have fully accepted the Principles the year under review Distribution Network for Sustainable Insurance, which were launched by the United Nations Environment saw a vast expansion in Your Company boasts one of the largest Programme Finance Initiative in June 2012 distribution networks in Sri Lanka, counting the Ceylinco Insurance in Rio de Janeiro, Brazil. These principles nearly 300 branches and service centres, family. The sales force was have been elaborated upon further in our a network that is still rapidly expanding to increased by almost 30% to Sustainability Report. serve dthe Sri Lankan populace better, and in serve our existing customers order to hold true to the promise of getting to Furthermore, as a responsible Company, even better, while gearing any location in the island within the shortest which is both aware of, and effectively fulfils to undertake even bigger possible time. its duties towards all stakeholders, Ceylinco challenges in the future. Meanwhile, a novel concept for the third Insurance PLC, has during the past few party motorcycle and hand tractor insurance years, given high priority to sustainability market was introduced towards the latter by fully subscribing to the concept of the part of 2012, which promised absolute ‘triple bottom line’. The triple bottom line customer convenience in a very cost effective refers to the creation of economic value, manner. Accordingly, a large number of third while sustaining the environment, and being party insurance outlets were introduced, responsible to all the elements within the numbering 254, as at the end of the year societal context in which we operate. Thus, under review. However, these outlets are our Sustainability Goal is to meet the needs, to be increased to 1,000 during the first and offer optimum levels of satisfaction, to three months of 2013. The sales efforts of all our stakeholders, in such a manner that your Company were further supplemented the ability of the Company to meet the future by twelve mobile vans, spread throughout need, and offer similar, if not higher levels twelve different regions. Utilising the vast of satisfaction, to future generations of resources at hand, your Company carried out stakeholders, is not in any way compromised. two test marketing initiatives for yet another innovative insurance solution for commuters; Overseas Operations the results of which may very soon manifest Your Company’s plans of expansion beyond in the new year. the shores of Sri Lanka, in its bid to become a truly regional player, continued unabated Human Resources in 2012. Accordingly, our products are now As always, your Company values its abundant on offer in the Middle East, through strategic human resource immensely, and the year alliances with several companies operating under review saw a vast expansion in the in the United Arab Emirates, Bahrain, Kuwait, Ceylinco Insurance family. The sales force Oman and Qatar. Such strategic alliances was increased by almost 30% to serve our and joint ventures also saw an exponential existing customers even better, while gearing growth during the year under scrutiny, as to undertake even bigger challenges in the did our ongoing joint ventures in Nepal and future. the Maldives. The latest addition to our growing international presence in product Celebrating our human resource further, development is The Philippines, which the traditional overseas tour took place registed a steady growth in 2012. during the month of June 2012 for the 9th consecutive year. Accordingly, 225 Innovative Promotions staff members of the General Division were selected to participate in this tour, in Your Company has always believed in doing recognition of their exceptional contribution things differently, and this has been the to your Company during the year 2011. fundamental premise of our resounding CEYLINCO INSURANCE PLC Annual Report 2012 15

success. It was thus, that Ceylinco Insurance the sixth consecutive year. Initiated in 2006, decided to conduct a beauty contest – Miss the concept of People’s Award is unique and Ceylinco VIP, that would truly represent novel, as the public are the primary and only the whole of Sri Lanka. This mega event, judge, deciding on winners across brands, consisting of seven provincial beauty organizations and personalities. contests, would be of a hitherto unseen and unprecedented magnificence. This was Meanwhile, Ceylinco Insurance was selected indeed the first time that a beauty contest as the only Insurance Company amongst the had been held outside of Colombo on a large top 25 companies in Sri Lanka. In its October scale. 2012 edition, the “Business Today” magazine announced its top 25 companies in Sri Lanka, Accordingly, Miss Ceylinco VIP gave all selected on the basis of impressive financial beautiful and talented young women from performance during the financial year all over Sri Lanka, a spectacular platform ending December 31st 2011 and 31st March to showcases their talents, enabling 2012. In selecting the top 25 companies, them to participate in a world class event, the financial criteria under consideration while embarking on a voyage of personal covered Revenue, Share Turnover, Profit After development. They were also given a once- Tax, Growth In Turnover, Growth In Profit, in-a-lifetime opportunity to involve their Return On Equity, Growth In Earnings Per families and communities. Share, Market Capitalisation, Value Of Shares Transacted and Value Addition. According to Miss Ceylinco VIP also stood out, simply the publishers: “The Business Today Top 25 because of the unmatched value of gifts are a reflection of the companies that are and prizes the winners received. Several well confident of where they stand, and know in known and prestigious brands tied up as which direction to go within the prevailing partners for this much celebrated pageant, situation. It is a great mix of the established most of whom were customers of Ceylinco and strong blue chips in the country.” Insurance. The participants had to go through a rigorous training programme that equalled Emerging the winner in the ‘The Insurance international standards, as they were trained Sector’ at the National Business Excellence thoroughly in personal development, public Awards 2012 for the fourth year in a row, speaking, catwalk modelling, grooming etc. Ceylinco Insurance once again reaffirmed The event empowered them to become well the Company’s outstanding position as rounded and confident young women, who the torchbearer in the country’s Insurance could gracefully conquer the ramp with self Industry. Furthermore, at the same awards assured ease. ceremony, Ceylinco Insurance also bagged the Gold Award for “Knowledge Integration”, The Grand Finale of the Miss Ceylinco VIP which is an award that recognises corporate Beauty Pageant was a dazzling affair that commitment to excellence in product and gave the contestants a memorable night process innovation, not only in insurance, Rs. 12.50 – they were judged by an eminent panel of but amongst companies engaged in all Proposed Dividend Per Share judges, experts in their own chosen fields. other industries and services. The National For each contestant it was literally a dream Business Excellence Awards are organised by come true to participate in an event of such The National Chamber of Commerce of 92% magnitude and glamour. Sri Lanka. Growth A dividend with 92% growth, which Accolades Regulatory Changes surpasses any previous dividend Ceylinco Insurance, once again consolidating During the year under review, the main focus paid. It is unprecedented and its pioneering position in the Sri Lankan of the Insurance Board of Sri Lanka was unparalleled. insurance industry, was recognised as the the sustainability of the insurance industry, “People’s Insurance Brand of the Year” for CEYLINCO INSURANCE PLC 16 Annual Report 2012

Review of the Managing Director / Chief Executive Officer (General Insurance)

The Insurance Industry has with particular emphasis on monitoring the Thank You the potential of moving financial stability of the industry. According It finally remains for me to thank all the ahead with the expected to the new Act, all Insurance Companies stakeholders in our business, who have economic development should split as separate entities for General proved instrumental in driving every aspect of and Life Insurance before February 2015. of the country. Increase our business forward, and who have played a Ahead in all its endeavours, your Company crucial role in our performance this year. in per capita income is progressing steadily towards a smooth will be a positive factor transition, as required by the regulator, as Firstly, I thank His Excellency The President for the industry, as the well as complying with other regulatory and the Government of Sri Lanka for the disposable income of requirements, such as the increase of continued efforts to drive the economy in the people will increase minimum share capital and risk based capital an environment conducive for business, following the conclusion of the war. I also as a result. The industry etc., which are to be implemented in the coming years. extend my thanks to the Chairperson and should take measures to officials of The Insurance Board of Sri Lanka, increase penetration, while for their continued guidance and invaluable The Future addressing the issues of advice that have proven key to our continued affordability, while also The future holds as much promise, as it does success. Thank you also to the Governor being mindful of qualitative challenges, with projections for the country’s of the Central Bank and the government economy for 2013 being promising. The aspects. officials we liaise with on a regular basis economy is expected to grow by 7.5%, while for their untiring efforts. My heartfelt inflation is set to stabilize at mid-single digit thanks also go out to all our Reinsurers and levels (5 – 6%). Meanwhile, the trade deficit Reinsurance Brokers of international acclaim, is to improve from 15.1% of GDP to 14.4%, who continue to loyally support us in all as the overall budget deficit is to reduce to our ventures. A big thank you is also due to 5.8% of GDP, with continuous improvement in all the insurance agents and brokers who productivity levels. continuously work with us, and whose efforts have proven instrumental in growing the The Insurance Industry has the potential of business over the years. I extend my heartiest moving ahead with the expected economic wishes to all my colleagues on the board, development of the country. Increase in whose support and vision have shaped the per capita income will be a positive factor direction of this great company, and whose for the industry, as the disposable income continued support, will prove instrumental of the people will increase as a result. The to take on future challenges. I also heartily industry should take measures to increase thank all the members of our staff, without penetration, while addressing the issues whose support this Company would be unable of affordability, while also being mindful of to achieve the tremendous results it delivers qualitative aspects. year after year. And last, but not least, I wish to thank all of our loyal clients, whose As always, your Company will forge ahead, support and belief in us, been the key factors providing innovative, new insurance solutions in making us a force to be reckoned with. I to the Sri Lankan populace, while keeping conclude by saying that the future is full of a keen focus on the central figure in our challenges, but fortunately, together there is business: the all important customer. Your no hurdle that is insurmountable. Company’s ethos of prudent and disciplined business practices will no doubt propel us ever forward, enabling us to capitalise on the myriad opportunities that lie ahead. Your Company will, as always, strive to serve the A. R. Gunawardena people of Sri Lanka faster and better, with Managing Director / Chief Executive Officer innovative insurance solutions that provide (General Insurance) actual answers to existing issues. 27th. February, 2013 CEYLINCO INSURANCE PLC Annual Report 2012 17

Review of the Managing Director / Chief Executive Officer (Life Insurance)

It has come to be taken for granted that we The year reviewed was the 25th in your "To follow, without halt, one will report on success in these pages, year Company’s history, and it is certainly aim: there’s the secret of after year. That is the natural outcome of noteworthy that we have led the life success" eight years of undisputed market leadership insurance segment for more than a third of - Anna Pavlova commencing 2004, the many challenges that time, given the uneven playing field that and turbulence we faced notwithstanding. prevailed for many years and the head start So be it. I am pleased to be in the happy enjoyed by the former state-owned monopoly position once again, to report for the ninth over the private sector ‘minnows.’ While year in succession, that the Life Division there are many virtues that contribute to our has maintained its status as the largest success, I believe the principal of them to be life insurer in Sri Lanka, and done so quite our uncompromising focus on what we are forcefully. here for: to provide financial protection of the highest order against the uncertainties of the Nevertheless, lest it be imagined otherwise, future, in an ethical and sustainable manner. I would like to place on record, as always, that your company’s success does not come easy. Over the past 25 years your Company has Competition is intense, as it should be. The been tested in numerous ways. These have challenges are numerous. Market conditions been reported and commented on in years are not ideal, and the ever increasing impact past, and need not be dwelt on here. What is of the rising cost of basic needs on disposable germane is that our journey has prepared us incomes is worrying. Yet, your Company for the next phase of growth, which we look continues to prosper and grow, and it is to forward to with great eagerness. Some of our explain succinctly what drives this success plans will be touched on briefly in this review that I have quoted the words of the Russian along with some comment on policy and ballerina Anna Pavlova, one of the finest regulatory changes that are anticipated. classical ballet dancers to grace the stage. CEYLINCO INSURANCE PLC 18 Annual Report 2012

Review of the Managing Director / Chief Executive Officer (Life Insurance)

Performance review. A computation of the excess are fully compliant with the new Sri Lanka Gross Written Premium income grew by of assets over statutory liabilities, the Accounting Standards (SLFRS/LKAS) 10.12 per cent to Rs. 10.829 Billion, an Solvency Margin is an important indicator which became mandatory from increase of Rs. 996 Million over 2011, of an insurance company’s ability to meet 1st January 2012. enabling the Life Division to significantly the obligations arising from its insurance outperform the industry and secure contracts at any time. Our Solvency Benefits to policyholders Margin as at 31st December 2012 was a market share of 29 per cent in its The total benefits paid to our policyholders more than 10 times the legal requirement, segment. Your company was the first in 2012 exceeded Rs. 4 Billion, an increase providing shareholders and policyholders in the sector to surpass Rs. 10 Billion in of 1 Billion or 33.9 per cent over the yet another indicator of our financial life premium income in a year. We sold previous year. This includes maturity strength. The prevailing insurance 153,938 new life policies in 2012 at a and other survival benefits, claims, and regulations require all insurance monthly average of 12,828, achieving an annual bonuses. Your company declared companies to maintain a solvency margin overall improvement of 7.5 per cent in new a bonus payout of Rs. 2.415 Billion to not less than 5 per cent of their statutory business over 2011. 344,418 policyholders from the surplus liabilities at all times. generated by its Life Fund in 2012. This Total income of the Life Division improved includes an additional bonus payout of by 13.66 per cent to Rs. 15.402 Billion, The Life Fund 25% to this year’s bonus declaration in with Investment and Other income The Life Division made a net transfer of commemoration of our 25th anniversary. growing by a respectable 22.06 per cent. Rs. 6.765 Billion to its Life Fund for the This exceeds our bonus payout of the Our investment portfolio increased by 12 months, an increase of Rs. 430 Million previous year by Rs. 580 Million or 31.6 Rs. 3.79 Billion to Rs. 44.20 Billion as at or 6.79 per cent over the previous year’s per cent. We will also continue with our 31st December 2012, with investments transfer. As a result, our Life Fund grew by unique tradition of paying ‘Avurudu’ cash pertaining to policyholders reaching 18.08 per cent to Rs. 45.111 Billion at the bonuses to loyal policyholders, and hope Rs. 41.76 Billion, reflecting a growth of end of the year. to distribute Rs. 34.1 Million in the form of 8.88 per cent. immediately encashable cheques that will As has been stressed in previous reviews The policy/regulatory environment be home–delivered to 9,567 policyholders. These monetary benefits are in addition as well, prudent management of our New regulations under the Regulation of to a host of other benefits and value funds is fundamental to our operational Insurance Industry Act No. 43 of 2000 additions that our policyholders enjoy success. At the end of the year reviewed, necessitate the separation of General and annually. the Life Division’s investment portfolio Life insurance operations of companies comprised of Government Securities (47 by 2015. The Life Division welcomes this Subsequent to the valuation of the per cent); Licensed Private Banks (18 per requirement and is ready to implement it. Life Fund, a sum of Rs.850 Million was cent); State Banks (16 per cent); Real We have sought an exemption of stamp transferred to the Shareholders’ Fund. Estate (10 per cent); Corporate Debt (5 duty on the transfer of property, and the Together with the profits generated from per cent) and Others (4 per cent). These transfer of carry forward tax losses of the the Life Shareholders’ Fund, the total investments are made in conformity with Life Division to the new company when contribution to the Company’s profits the investment guidelines stipulated the separation takes place. We have also by the Life Division amounted to Rs. 996 under the Regulation of the Insurance sought permission to quote the new Life Million. Industry Act No 43 of 2000 and are Company share without the stipulated subject to regular monitoring by the track record of three years of profitability. Insurance Board of Sri Lanka (IBSL). Market expansion The Life Division welcomes the proposed Our efforts to expand the size of the life Total Assets of the Life Division grew by changes to the risk-based capital model insurance market by improving awareness Rs. 4.30 Billion or 8.6 per cent to Rs. 52.89 for insurance companies and the change among the masses of the need for the Billion at 31st December 2012. in the basis of valuation from the net protection life insurance offers, continued premium valuation model to the gross apace in the year reviewed. These I am also pleased to report that the Life premium valuation model. We have initiatives included the Life Insurance Division maintained its solvency margin implemented the standards pertaining to Week (LIW) programme, as well as a at impeccable levels in the year under financial instruments and our accounts Retirement Planning Month (RPM). These CEYLINCO INSURANCE PLC Annual Report 2012 19

activities target the suburbs of big cities, 2,400 locations to do so. We are also moving Gross Written Premium provincial towns and rural areas. towards e-receipts and sms receipts and income grew by 10.12 per e-reminders to facilitate this process. We also further enhanced the attraction of cent to Rs. 10.829 Billion, our hugely popular ‘Family Savari’ promotion, Another important development in 2012 an increase of Rs. 996 Million with the addition of Paris as a destination was the launch by the Life Division of over 2011, enabling the for the top five winners. The promotion, tele-underwriting, an industry practice Life Division to significantly which contributes tangibly to the sale of in developed markets, to improve outperform the industry and new policies, now offers holidays to three communications between prospective secure a market share of 29 overseas destinations, Paris, Beijing and policyholders and the insurer. The process per cent in its segment. Your Singapore in addition to a day’s outing at the begins after an applicant for life cover company was the first in Leisure World theme park for 2,000 people completes a proposal form, usually with the sector to surpass from 500 policyholder families. In all, 13,760 the assistance of a sales officer. Once the Rs. 10 Billion in life premium people belonging to the families of 3,440 application is received at our head office, income in a year. policyholders have now benefitted under the tele-underwriters begin calling applicants Family Savari programme, which is easily the at random to ensure that questions in the most generous and logistically challenging form have been accurately answered and rewards scheme in the country’s insurance that the prospective policyholders clearly sector. understand the benefits provided by the products being purchased. This helps to While our branch network in 142 locations minimise misunderstandings between the across Sri Lanka, continues to play a key role customer and the company, and eliminates in market expansion, we are now actively non-disclosure related issues at the claims exploring the development of new channels. stage. We now have a team of 25 trained These include direct marketing, online professional underwriters dedicated to tele- insurance and mobile assurance. In fact, in underwriting. Your company is the first life November 2012, we launched Sri Lanka’s insurer in Sri Lanka to use tele-underwriting, first online life insurance plan, which can be a practice that can also lead to reduced applied for and purchased entirely via the lapsing of policies. Internet. Branded Ceylife Online, the product is a simple Term Insurance Plan with optional Branch network Accidental Death Cover, offered to a new generation of IT-savvy Sri Lankans seeking The Life Division opened one new branch convenience and cost effective life insurance. in the year, maintaining our position as the The product is for persons aged 18 to 60, and life insurer with the largest branch network carries a minimum Basic Sum Assured (BSA) in the country. The highlight of our branch of Rs. 1 Million and minimum accidental expansion in 2012 was the opening of our death cover of the same amount for terms of new three-storey branch in Gampaha, in a 5 to 30 years. custom-built building owned by the company on 34.5 perches of land, and the opening We are also promoting ‘Ceylinco life Direct’ to of our new custom designed office, also encourage customers to pay their premiums Rs. 45.11 Bn on company-owned land, at Kannathiddy Life Fund through bank standing orders, to counters at Road, Jaffna. We currently own 35 blocks of Life Fund grew by 18% crossing the banks or at our branches, or via their mobile land island-wide and have constructed 13 Rs. 45 Billion mark. phones. This will release sales officers from branches on our own land. collecting premiums, giving them more time to focus on new business. The Life Division has entered into agreements with all leading banks for payment of premiums, resulting in our customers having a choice of more than CEYLINCO INSURANCE PLC 20 Annual Report 2012

Review of the Managing Director / Chief Executive Officer (Life Insurance)

The community Healthcare The future It feels almost unnecessary to report that Our subsidiary Ceylinco Healthcare As already pointed out at the beginning of the Life Division’s community interactions Services Limited (CHSL) which operates this review, selling insurance in prevailing were executed with characteristic three centres of excellence, the market conditions is never easy. We commitment and flair in 2012. It is now Ceylinco Healthcare Centre specialising expect the year ahead to pose many a given that our calendar of activities -- in screening for cancer, the Ceylinco challenges to us, but we remain confident ranging from the ‘Pranama’ scholarships Radiation Treatment Unit which is the of finding opportunities for growth within programme and the Family Savari country’s most advanced private radiation these challenges. One is reminded of the promotion to the many CSR initiatives treatment facility and the Ceylinco words of George Eliot, a leading writer of such as the ‘Waidya Hamuwa’ medical Diabetes Centre, all made good progress the Victorian era: ‘The strongest principle camps programme and the donation in 2012. of growth is human choice.’ The Life of classroom buildings to schools -- is Division is no stranger to adversity, and accomplished seamlessly. Some of these A significant development for CHSL was there have been numerous opportunities activities are detailed elsewhere in this the commencement of construction of a over the years for us to prove that ‘seeds report. I am happy to report that our second Radiation Treatment Unit which of faith are always within us; sometimes efforts to support education in under- will house Sri Lanka’s first TomoTherapy® it takes a crisis to nourish and encourage served towns and villages across Sri Treatment System for the treatment of their growth.’ Lanka reached a milestone in the year the full spectrum of cancers. The new reviewed with the donation of a classroom building in close proximity to our first My sincere thanks go to my fellow to the Damunupola Primary School in Radiation Treatment Unit at Park Street, directors, the staff, policyholders and Galigamuwa, Kegalle. This was the 50th Colombo 2, will initially comprise of two shareholders for the trust and confidence school assisted by the Life Division under floors of 4500 square feet each. The reposed in me and to the sector regulators this programme. Work commenced during TomoTherapy Hi.Art® Treatment System, for their guidance and continued support. the year on classrooms for another eight an investment of $ 3.725 Million, will be schools, which will receive the completed installed on the ground floor, which will buildings in 2013. also accommodate a Data Server room for the TomoTherapy machine, a Treatment Special mention must also be made of Planning room, Operator Station, R. Renganathan the donation of a sophisticated High mechanical room, a reception area, Managing Director / Chief Executive Dependency & Research Unit exclusively patient waiting area and the lobby. We Officer (Life Insurance) for the treatment of children afflicted by expect construction to be completed by Dengue to the Lady Ridgeway Children’s May 2013 for a proposed opening in July 27th. February, 2013 Hospital (LRH) by the Life Division and 2013. This new treatment method enables a group of well-wishers. Constructed, Image Guided Radiation Treatment (IGRT), furnished and equipped at a cost of Rs. which brings a new dimension in delivering 10.5 Million, the five-bed unit is located at precise radiation to the areas affected by Ward 1, the Professorial Ward managed cancer while sparing normal tissue. by the Colombo Medical Faculty. It serves as a specialised ICU for the management of serious cases of dengue haemorrhagic fever, and is also equipped to be a teaching unit for outstation hospitals via video conference facilities. The intention of the hospital authorities is to initially link hospitals in Trincomalee, Matara, Embilipitiya and Negombo as well as the Paediatric unit of the Rajarata University to the unit. The possibility of linking with a hospital in Lahore, Pakistan is also being explored. CEYLINCO INSURANCE PLC Annual Report 2012 21

Customer Testimonials

I consider Ceylinco Insurance as an example to all other insurance companies. This I say for two reasons. One is your innovative approach and the other is your service. When we experienced a colossal loss to one of our properties, your staff stood by us and ensured that the claim was paid with such speed, that even surprised us. Keep it up! Special mention must be made of your On The Spot Claim settlements which are unique. Furthermore, your staff is very co-operative and make insurance claims a process with minimum fuss.

Mr. B.D.R. Rajan Chairman/MD - Sun & Asoka Group of Companies

When one of our lorries met with a serious accident and had to be condemned, as it was beyond repair, Ceylinco Insurance paid our claim within 24 hours of submitting the documents. We didn’t have to move even an inch, as they came to our premises, collected all the documents and then sent us a cheque. We are ever so grateful to your Company for the exemplary manner in which our claim was handled and the professionalism displayed.

Mr. A.D. Eshan Proprietor – Abeywickrema Food City

We have been associated with Ceylinco Insurance for well over a decade, and they handle all our insurance requirements. Their delivery has always been extremely fast and prompt and their customer service has always been friendly and informative; as they always explain everything that we need to know, assisting us through every step of the way. I am beyond satisfied with the service!

Mr. Kamal C. Jayasinghe Proprietor, Ceylon Marine (Pvt) Ltd. CEYLINCO INSURANCE PLC 22 Annual Report 2012

Customer Testimonials

This was a great opportunity indeed. We enjoyed ourselves a lot. We had lots of experiences. And Ceylinco Life had organised this tour really well. They had planned everything well, from the places we stayed to the places we visited.

Mr. H.A. Vimal Nadeera Matara

Family Savari – China

I would like to thank you honestly for paying the life insurance claim for my beloved husband, Mr. S. M. Kapila Rathna. And also, I would like to thank the representative of your branch, Mr. Wimaladharma who introduced and pointed us to start a life insurance in your Company. And I highly appreciate your quick response for my husband’s death which occurred in an unexpected moment. Finally I would like to thank Ceylinco Insurance Company for procuring a great service to their clients generating a good confidence in their minds about the Company.

Mrs. R.W.M.W.N. Rathnadivakara Matale

I'm really pleased about what Ceylinco Life has done for us. We really appreciate their efforts to encourage studies, sports and other talents through various projects.

Master Prameeth Ruwan Pathirana Royal College – Colombo.

Pranama Scholarships Receipient - 2012 CEYLINCO INSURANCE PLC Annual Report 2012 23

Management Discussion & Analysis

Macro Economic Environment 2012 year-on-year, compared to the 88.7% growth In aftermath of recording a growth rate of of the trade deficit during the corresponding above 8% for two consecutive years in 2010 period in 2011. The improvement in the trade and 2011, the policymakers of the country account, the steady growth of receipts on allowed for this rapid expansion to carry account of workers’ remittances and higher on in 2012 as well. However a mix of strict earnings from tourism and transportation led policy measures aimed at macroeconomic to a narrowing of the current account deficit stabilization was forced to be adopted in to US dollars 2,052 Million in the first half of early 2012. These measures were needed to 2012. face the challenges arising from an extended For the first eleven months of 2012, workers’ recovery in the global economy, which remittances recorded a growth of 17.1%, had an impact on the export sector of the year-on-year, and amounted to US dollars country and also the rapidly rising domestic 5,432 Million. Meanwhile, substantial foreign credit, which fuelled import demand more currency inflows have been recorded in the than the desired level. In addition to that capital and financial account of the BOP adverse weather conditions also slowed during the first eleven months of 2012. down economic performance of the country Higher inflows are expected to increase especially in the last two quarters of the year foreign exchange liquidity in the market, 2012. Therefore, economic growth declined thereby strengthening the external value of to some extent, and it is projected that the rupee. overall growth in 2012 would be around 6.5%.

The Agriculture sector rebounded growing Inflation by 10.3% in the first half of 2012 from a The rate of annual average inflation contraction of 1.4% in the first half of 2011. decreased continuously to 5.6% in May 2012 The strong performance in the Agriculture from 6.7% in December 2011.This trend sector was mainly on account of the bumper reversed subsequently and increased to 7.6% paddy harvest in the Maha season, an in December 2012. The upward price revision increase in the production of vegetables and of diesel, petrol, kerosene, LP gas, wheat highland crops and a substantial increase flour, bread and milk powder in line with price in fish production. However this sector is movements in international markets, along expected to make a decline in the final with the depreciation of the rupee exerted two quarters of the year 2012 on year to upward pressure on the CCPI. year basis as a result of the drought that Rs. 1.65 Bn Profit After Tax prevailed. The Industry sector also registered Tourism a robust growth of 10.2% during the first half Company’s growth in profitability during At present, the tourism industry has become the year being reviewed was exceptional, of 2012. a major component in bringing about the as the profit after tax soared to reach economic boom in post-conflict Sri Lanka Rs. 1.65 Billion, signifying an increase of 23.8% over 2011. External Sector Performance and it achieved a notable milestone of arrival Corrective policy measures adopted by of 1,000,000 tourists in year 2012. The the Central Bank and the government tourism industry recorded a 16.8% annual in early 2012 have helped to a certain growth over year 2011. extent in containing the trade deficit while strengthening financial and capital inflows Government Finance & Monetary Policy Rs. 5.3 Bn and stabilizing the Balance of Payment Gross Claim Paid in General Insurance Fiscal policy strategy announced in the (BOP) position. Imports began to decelerate The General Division paid gross claims budget for 2012 was aimed at further amounting to Rs.5.3 Billion during and recorded a negative growth from April strengthening the fiscal consolidation 2012, holding true to the ideology of through August 2012. Accordingly, the process by enhancing revenue, rationalizing helping our customers to bounce back growth of the trade deficit during the first to normalcy as fast as possible, most of recurrent expenditure and maintaining public eight months of 2012 was contained to 6.3%, the claims were settled on the spot. investment at a desirable level to support the CEYLINCO INSURANCE PLC 24 Annual Report 2012

Management Discussion & Analysis

The insurance industry in economic growth prospects of the country. It target set out in the Monetary Programme. 2012 experienced a growth was expected that the budget deficit would As a result, growth of broad money is also be reduced to 6.2% of GDP from 6.9% of GDP expected to moderate further to a lower level in total assets, premium income and profitability at a in 2011. Government revenue was expected in future. to increase as a result of the major tax slower pace compared to the reforms introduced in 2011 and 2012 aimed Prospects for 2013 year 2011. at broadening and simplifying the tax system The Sri Lankan economy is expected to to improve revenue mobilization. Further, return to its high growth route, expanding by The subdued growth rate measures were taken to rationalize recurrent around 7.5% in 2013 with the performance recorded in the Non Life expenditure while maintaining capital in all sectors of the economy. The expenditure at a desired level. Insurance Market was mainly Agriculture sector is expected to revive due to the low growth in Total revenue collection in nominal terms from the setbacks faced in 2012 due to underpinning economic increased by 12.6% to Rs. 556 Billion during the unfavorable weather conditions that sectors especially in the 2nd the first seven months of 2012. However, as prevailed in major cultivation areas. The half of the year. a percentage of estimated GDP, government Industry sector, especially factory industry, is revenue declined to 7.4% during the first expected to expand its contribution to overall seven months of 2012 from 7.6% in the economic growth with the gradual recovery corresponding period of the previous year. of global demand. The Services sector, For the seven months ended July 2012, the which was adversely affected by the decline total revenue was only 50.3% of the original in global demand and policy measures estimate for 2012. The shortfall was mainly implemented to curb imports, is expected to due to the reduction in VAT revenue collection bounce back with the gradual recovery of the which was adversely affected by the slowing global economy. Accordingly, the contribution down of imports and economic activity and from external trade and transport and the downward revision of VAT rates in 2011. communication sub sectors is expected to rise in 2013 with the increase in port and Total expenditure and net lending during aviation activities. the first seven months of 2012 increased to 13.1% of estimated GDP from 12.0% of GDP Insurance Industry during the same period in 2011 due to an The insurance industry in 2012 experienced increase in both recurrent expenditure and a growth in total assets, premium income capital expenditure and net lending. and profitability at a slower pace compared The Central Bank continued to conduct to the year 2011. There were 22 insurance monetary policy within a monetary targeting companies in operation as at end of 2012. framework and policy measures implemented Out of these, twelve companies were were aimed at bringing down credit and composite insurers, seven companies monetary expansion to levels consistent engaged exclusively in general insurance and with monetary projections.The significant the other three companies underwrote only tightening of monetary policy along with the the long term insurance business. depreciation of the rupee and higher taxes on The total Gross Written Premium of Insurance the importation of motor vehicles, resulted Companies rose by 9.87% to Rs. 88,063 Million in the year-on-year growth of credit to the in the year 2012. The total GWP represents private sector slowing down to 28.7% by long term insurance premium of Rs. 37,068 August 2012 from 35.2% in March 2012 and Million with an increase of 5.52% compared to 34.5% at end 2011. Credit growth from end the previous year. General Insurance Premium 2011 to August 2012 was 13.9%. A further recorded during the year 2012 was Rs.50,995 control in the growth of credit to the private Million. The increase in this sector over the sector is in process as banks are committed previous year was 13.13%. to meet the credit ceiling, thereby containing the growth in private sector credit within the CEYLINCO INSURANCE PLC Annual Report 2012 25

The subdued growth rate recorded in the Non companies have recorded a significant dip Life Insurance Market was mainly due to the due to the fiscal measures taken by the low growth in underpinning economic sectors Government to remove the anomaly in the especially in the 2nd half of the year. The trade account of the country. fiscal and monetary policies adopted by the Government to stabilize the economy largely Despite these adverse developments, the contributed to the restrained growth pace economy sustained its growth momentum of these economic sectors. During the year at a slightly lower note which resulted in 2012, the Motor vehicle registrations, which higher per capita GNP. This increase positively is correlated to premium growth in insurance impacted the Life Insurance Industry of the country. Insurance Industry Statistics

2012 2011

Industry Premium Income ( Rs. Million) 88,063 80,202 Growth rate 9.8% 17.18% Life Premium Income ( Rs. Million) 37.068 35,129 Growth rate 5.52% 12.79% Amid fierce competition, our superlative financial performance Non-Life hinges on discipline, strategic Premium Income ( Rs. Million) 50,995 45,073 thinking and measured risk taking. Growth rate 13.13% 20.86%

* Figures are provisional

Financial Performance Premium Composition

Gross Written Premium (GWP) Motor insurance premium (VIP) income of Rs. 6,619 Million represented 60% of The Company achieved an overall GWP of the total Non-Life premium income. The Rs. 21,923 Million during the year 2012 as balance premium income of Rs. 4,475 against Rs. 19,875 Million recorded in the Million corresponds to 40% of total Non-Life previous year. The increase of Rs. 2,048 premium income of the Company, obtained Million together by both divisions of the through all other classes of business such as Company records an encouraging growth of Fire, Marine, Health and Miscellaneous. 10% over the previous year. There was no significant change in product Long Term Insurance Funds Non-Life Division composition during the year compared to the Rs.Mn. 45,000 The Gross Written Premium of the Non-Life previous year. Apart from motor insurance, 40,000 division was Rs. 11,094 Million in 2012. It the miscellaneous class tops the premium recorded a 10% growth over the year 2011. income with Rs. 2,047 Million and followed by 35,000 the Fire premium income of Rs. 1,285 Million Increased economic opportunities were 30,000 offered to the industry, which were duly in 2012. 25,000 harnessed through innovative strategies Financial Review 20,000 adopted by the Company. This helped to achieve a positive growth in 2012 as well in a The Company has ceded Rs. 2,245 Million 15,000 premium to reinsurers during the year fiercely competitive market. 10,000 2012. The ceded premium has increased by 22% compared to the previous year. This 5,000

has restricted the NRP growth to 8% of the 0 company in 2012. 08 09 10 11 12 CEYLINCO INSURANCE PLC 26 Annual Report 2012

Management Discussion & Analysis

“The Company achieved an overall GWP of Rs. 21,923 Million during the year 2012 as against Rs. 19,875 Million recorded in the previous year. The increase of Rs. 2,048 Million together by both divisions of the Company records an encouraging growth of 10% over the previous year.”

The Net Combined Ratio remained 99.17% Division sold 153,938 new policies during the in 2012. This was mainly due to the increase year 2012. The growth was a result of winning in Net Expenses Ratio which was increased the confidence of customers by fulfilling by 8.48% compared to the previous year. The insurance needs with professionalism over a adverse increase is substantially being set- period of 25 years. off by the recorded decrease in Net Loss ratio Life Fund achieved an impressive growth Premium Income - Non Life (decreased by 8.11%compared to 2011). rate of 18% in 2012 and stood at Rs. 45,111 Rs.Mn. 12,000 The Company has incurred Rs. 4,556 Million Million as at 31st December 2012. This is an as Net Claims compared to the Rs. 4,476 increase of Rs.6,766 Million over the year. 10,500 Million in 2011. The Net profit of the Non-Life 9,000 division was Rs. 657 Million, a 22% increase Financial Review over the previous year. 7,500 In 2012 Rs. 850 Million transferred from Life Policy Holders' Fund to the Share Holders' The total assets of the Non-Life division 6,000 Fund. increased 14.8% in 2012 compared to 2011. 4,500 The key contributor to the increase was the The total assets of the Life Division grew by 3,000 investments made during the year. The total Rs.4,197 Million and it represented a growth investment of the Non-Life division were of 8.6% over the previous year. Investment 1,500 Rs.7,989 Million as at 31st December 2012. income and the other income of the Life 0 Division improved to Rs. 4,826 Million from 08 09 10 11 12 Solvency and Technical Reserves Rs.3,954 Million in 2011. The Non Life Division was able to maintain a healthy solvency margin over the levels Total Net Claim benefits paid by Life Division Premium Income - Life stipulated by Insurance Board of Sri Lanka. for the year 2012 was Rs.3,991 Million Rs.Mn. compared to the previous year's figure 12,000 2012 of Rs.2,946 Million. This is an increase of Rs.1,045 Million over a period of one year. 10,500 Rs. Million 9,000 Available Solvency Margin 2,004 Solvency Margin – Life Division Required Solvency Margin 1,769 7,500 2012 Solvency Ratio (times) 1.13 6,000 Rs. Million

4,500 Life Division Available Solvency Margin 15,627 Required Solvency Margin 1,458 3,000 Gross written premium of the Life Division increased by 10% to 10,829 Million. The Life Solvency Ratio (times) 10.72 1,500

0 08 09 10 11 12 CEYLINCO INSURANCE PLC Annual Report 2012 27

Share Information During the year under review, voting share of the company reached to the highest share price in the history of Ceylinco Insurance PLC recording Rs. 1,250 per share. This represents the level of confidence placed by the investors and superior management performance in the competitive environment.

Year ended Year ended 31-Dec-2012 31-Dec-2011

NET ASSETS PER SHARE Book value Rs. 475.6 413.9

EARNINGS Earnings per share Rs. 62.6 50.6 Price Earnings Ratio (times) – Voting 13.7 14.8 Price Earnings Ratio (times) - Non Voting 5.3 6.8

Dividends Interim & Final Dividend Rs. 12.50 6.50 Our Strategic approach involves Share Price – Voting analysis, evaluation and corrective action going hand-in-hand. High Rs. 1,250.00 950 Low Rs. 505.70 380 Last transaction Rs. 855.90 746.7

Share Price - Non-Voting High Rs. 350 369.9 Low Rs. 200.2 257.2 Last transaction Rs. 330.5 343

Share trading – Voting No.of transactions 1,186 1,982 No.of Shares traded 939,380 6,188,200 Value of shares traded Rs. Mn. 744.46 3,921.88

Share trading - Non – Voting No.of transactions 699 1,774 No.of Shares traded 165,000 1,930,100 Value of shares traded Rs. Mn. 50.90 614.95 Rs. 850 Mn Life Fund Transferred Days traded – Voting No.of days traded 154 154 In 2012 Rs. 850 Million transferred from Total no.of market days 242 239 Life Policy Holders' Fund to the Share Holders' Fund. % of Market days traded 63.64 64.44 CEYLINCO INSURANCE PLC 28 Annual Report 2012

Management Discussion & Analysis

Year ended Year ended Dividend per share Rs. 31-Dec-2012 31-Dec-2011 15.0 Days traded - Non – Voting 13.5 No.of days traded 157 193 12.0 Total no.of market days 242 239

10.5 % of Market days traded 64.88 80.75

9.0 Market capitalisation– Voting 7.5 Value (Rs.Millions) 17,118 14,934 6.0 % of market 0.79 0.67 4.5

3.0 Market capitalisation - Non- Voting

1.5 Value (Rs.Millions) 2,119.96 2,200.17 % of market 0.10 0.10 0 08 09 10 11 12 Price movements CSE All Share Price Index 5,643 6,074 CSE Milanka Price Index 5,119 5,229 Net Assets Per Share Rs. Ceylinco Insurance Share price – Voting Rs. 855.90 746.70 500 Ceylinco Insurance Share price - Non- Voting Rs. 330.50 343.00

450

400

350

300

250

200

150

100

50

0 08 09 10 11 12

Earnings Per Share Rs. 70

63

56

49

42

35

28

21

14

7

0 08 09 10 11 12 CEYLINCO INSURANCE PLC Annual Report 2012 29

Sustainability Report

While the format of this report is based on GRI 2.2 the Global Reporting Initiative (GRI) Version Primary brands, products and/ or services. 3.1 we are pleased to declare that we are in The flagship brand of the General Division is Ceylinco VIP On the Spot which is the agreement with the Principles of Sustainable leading motor insurance policy. The Life Division has several long term policies Insurance (PSI) which is an initiative of the connected with the brand Ceylinco Life United Nations Environment Programme Finance Initiative, published in 2012. The four GRI 2.3 principles are: Operational structure of the organization including main divisions, operating ∫ We will embed in our decision-making companies, subsidiaries and joint ventures. environmental, social and governance issues relevant to our insurance business.

∫ We will work together with our clients and Ceylinco Insurance PLC business partners to raise awareness of environmental , social and governance Board of Directors issues, manage risk and develop solutions. General Division Life Division ∫ We will work together with governments, regulators and other key stake holders to promote widespread action across Managing Director/ CEO Managing Director/ CEO society on environmental, social and governance issues.

∫ We will demonstrate accountability and Executive Directors Executive Directors transparency in regularly disclosing publicly our progress in implementing the Principles. Insurance Subsidiaries (a) Insurance Subsidiaries (d) Operations Operations 1. STRATEGY AND ANALYSIS Associate Associate GRI 1.1 Companies (b) Companies (e) Statement from most senior decision maker of the organization about the relevance of Strategic Sustainability to the organization and its Alliances (c) strategy. Head Office Head Office Refer Reviews of Managing Director/ CEO of City Office Branches General Division and Managing Director/ CEO Branches of Life Division (a) Subsidiaries (d) Subsidiaries 2. ORGANISATIONAL PROFILE Ceylinco Insurance Co. (Pvt.) Ltd. - Maldives Serene Resorts Ltd. Energy Lanka Holdings Ltd. Ceylinco Seraka Ltd. GRI 2.1 Ceyhydro Developers (Pvt.) Ltd. Ceylinco Healthcare Services Ltd. Ceypower Cascades (Pvt.) Ltd. Name of Organisation Energy Generators (Pvt.) Ltd. (e) Associate Companies Citizens Development Ceylinco Insurance PLC Ceylinco Investcorp (Pvt.) Ltd. CEG Education Holdings (Pvt.) Ltd. Business Finance PLC

(b) Associate Companies Ceylinco Homes International (Pvt.) Ltd. Sagaramatha Insurance Ltd. (Nepal)

(c) Strategic Alliances in- Dubai * Bahrain * Oman * Kuwait * Qatar CEYLINCO INSURANCE PLC 30 Annual Report 2012

Sustainability Report

GRI 2.4 by the financial loss the insured/ Location of the organisation’s headquarters customer is estimated to incur if and when the risk materializes. Refer Corporate Information. (B) Prioritizing topics within the Report GRI 2.5 The process of prioritizing is guided by Number of countries where the organization operates the requirements of GRI Version 3 and Refer GRI 2.3 in accordance with the requirements of – GRI 2.6 Nature of ownership and legal form ∫ Sri Lanka Accounting Standards (SLAS) which encompasses International Refer Corporate Information. Financial Reporting Standards (IFRS)

GRI 2.7 ∫ Companies Act No. 07 of 2007 Markets served (including geographic break down) ∫ Regulation of Insurance Industry Act General Division : The entire spectrum of business organizations, not – for profit No. 43 of 2000 organizations, project developers and individuals. ∫ Statement of Recommended Practice Life Division: Individuals ranging from High Net Worth to Middle to Low Income. These for Insurance Contracts (SORP), sectors are serviced through Group Policies or Individual Policies. adopted by the Institute of Chartered Accountants of Sri Lanka (ICASL) Number of Branches - see below. These factors ensure that there is a Location of Branches: Refer ‘Our Branch Network’ high level of transparency maintained throughout the Sustainability Report Division No. of Branches No. of Service Centres Total General 191 106 297 (C) Identifying stakeholders the Life 211 - 211 organization expects to use the report * Shareholders * Regulators * Reinsurers * Investors * Business GRI 2.8 GRI 3.2 Community * Customers * Employees Scale of the reporting organisation Date of previous report GRI 3.7 Refer GRI LA 1 and Financial Highlights 2011 –Included in Annual Report of 2011 State any specific limitations on the GRI 2.9 GRI 3.3 Reporting Cycle scope or boundary of the report Significant changes during reporting Annual Such limitations are in accordance with period regarding size structure, or the regulations specified under GRI 3.5 (B) GRI 3.4 ownership Contact point for questions regarding the GRI 3.8 Refer ‘Report of the Directors’. report or its contents Basis for reporting on Joint Ventures, GRI 2.10 Company Secretary : Subsidiaries, leased facilities etc… which Awards received during reporting period email : [email protected] can significantly affect comparability from period to period. Refer 'The year's Events'. GRI 3.5 This is also in accordance with the 3. REPORT PARAMETERS GRI Process for defining report content regulations specified under Refer GRI 3.5 (B) 3.1 Reporting period (A) Materiality Calendar Year. By definition insurance is the transfer of RISK from one party (the insured / customer) to another (the insurer/ organisation). The risk being quantified CEYLINCO INSURANCE PLC Annual Report 2012 31

GRI 3.9 / 3.10 GRI 4.4 there is no direct or indirect interest in Not relevant for this Report Mechanism for shareholders and contracts or proposed contracts with this employees to provide recommendations organization. GRI 3.11 or direction to the highest governance GRI 4.7 Significant changes from previous body Process for determining the qualifications reporting periods in the scope, boundary Shareholders: These are specified in the and expertise of the members of the or measurement methods applied in this Articles of Association. report highest governance body for guiding the organisation’s strategy on economic, Changes have been introduced in Employees: Mechanism for employees to environmental and social topics. accordance with the requirements of provide recommendations or directions the International Financial Reporting to the Board of Directors consist of both Refer ‘Board Appointments’ under Standards ( IFRS). formal and informal channels which will be Corporate Governance through the Corporate Management and 4. GOVERNANCE, COMMITMENTS AND Executive Directors. GRI 4.8 ENGAGEMENTS Internally developed statements of Formal Channels GRI 4.1 mission or values, codes of conduct Bi-monthly Development Meetings. and principles relevant to economic, Governance Structure of the organization, Chaired by: Managing Director/CEO environmental and social performance. including committees under the highest Participants: Corporate Management governance body responsible for specific Refer to Mission Statement and Corporate tasks, such as setting strategy or Monthly Regional Meetings Goals. These are regularly quoted at organizational oversight Chaired By: Regional Manager training programmes as being motivating forces. A booklet on Code of Conduct is Refer ‘Corporate Governance’. Participants: Branch Managers given to each employee on being made GRI 4.2 Weekly Branch Meetings permanent. Chaired By: Branch Manager Indicate whether Chair of the highest Participants: Branch Staff GRI 4.9 governing body is also an executive officer Procedures of the highest governance and the reason for this arrangement Weekly Departmental Meetings body for overseeing the organisation’s The Chair of the highest governing body Chaired By: Head of Department identification and management of which is the Board of Directors, is not an Participants: Department Staff economic, environmental and social executive officer. Informal performance, including relevant risks GRI 4.3 Branch Visits by Executive Directors and and opportunities and adherence or compliance with internationally agreed Composition of Board according to General Manager (Branches) during which standards, codes of conduct and gender and executive non executive one- to- one discussions are held with principles. members staff members. Executive Directors overlooking the Executive Non Total Gender GRI 4.5 key areas of management monitor Executive Not Relevant for this Report. performance levels every week and take 12 04 16 M corrective action where necessary. In GRI 4.6 addition they submit reports at Board Note:The Articles of Association specifies that Processes in place for the highest Meetings and these are subject to detailed the maximum number of Directors is 16 governance body to ensure conflicts of discussion. interest are avoided GRI 10 Members of the highest governance body who are Directors of other companies Processes for evaluating the highest with whom this organization has had governance body’s own performance, transactions during the year are found particularly with respect to economic, under Report of Directors. Other than environmental and social performance. this declarations have been received that CEYLINCO INSURANCE PLC 32 Annual Report 2012

Sustainability Report

Performance levels of all Executive GRI EC 4 – EC 7 contains ‘ Non Classified’ information. Directors are monitored by the two Chief Not applicable The blank side is used for the above Executive Officers/ MDs. mentioned purpose. GRI EC 8 GRI 4.11 100% of large envelopes used for Internal Development and impact of infrastructure Distribution of documents are used Explain whether and how the investments and services provided envelopes. precautionary approach or principle is primarily for public benefit through addressed by the organization. Especially commercial, in-kind or pro-bono Newspapers: Dispatched for recycling the approach to Risk Management. engagement after I month if not required for reference. Refer ‘Enterprise Risk Management’ Refer ‘Corporate Social Responsibility’. Plastic bottles, used plastic ball point GRI 4.12 ENVIRONMENT PERFORMANCE pens: Dispatched for recycling. Externally developed economic, INDICATORS GRI EN 4 environmental and social charters, GRI EN 2 principles or other initiatives to which the Indirect energy consumption by primary Percentage of materials used that are organization subscribes or endorses. source recycled input materials Principles of Sustainable Insurance. Life Division’s four storeyed, 10,275 sq.ft. Paper: 95% of paper used for Internal branch office in Kurunegala is continuing Reports, Memos and Instructions which GRI 4.13 to maintain its programme for effective for purpose of effectiveness are not sent Associations in which the organisation energy conservation and can be described via computer is paper on which one side has membership as a ‘green building.’ * Ceylon Chamber of Commerce * Insurance Association of Sri Lanka LABOUR PRACTICES AND DECENT WORK PERFORMANCE INDICATORS * Sri Lanka Insurance Institute. (Employment)

GRI 4.14 GRI LA 1 List of Stakeholder Groups engaged by Total workforce by Permanent / Contract and gender the organisation Permanent General Life Contract General Life Refer Item C under GRI 3.5 Employees Employees ECONOMIC PERFORMANCE INDICATORS Male 1,991 802 Male 695 9 GRI EC 1 Female 368 160 Female 95 12 Direct Economic value generated and TOTAL 2,359 962 TOTAL 790 21 distributed, including revenues, operating costs, employee compensation, donations Employment by Main Categories and other community investments, retained earnings, payments to capital providers and governments Refer ‘Financial Statements’.

GRI EC 2 Not applicable.

GRI EC 3 Coverage of the organisation’s defined Sales 39% IT 02% benefit plan obligations Underwriting 29% Minor Staff 04% Accounts 10% Others 16% Refer ‘Employee Benefits’ under Notes to the Financial Statements CEYLINCO INSURANCE PLC Annual Report 2012 33

GRI LA 2 GRI LA 11 GRI SO 5 Total number of employee turnover. Programmes for skills management Public policy positions and participation in public policy development and lobbying Gender General Life Refer GRI LA 10 1. Mr A.R. Gunawardena - Managing Male 152 83 GRI LA 12 Director/ CEO (General) Female 35 29 Percentage of employees receiving Member of the Technical Advisory performance and career development Committee of the Government GRI LA 3 reviews by category and frequency. Strikes, Riots, Civil Commotion & Terrorism Fund which is functioning Benefits provided to full time employees Employee Category Frequency that are not provided to temporary or part under the National Insurance Trust Sales & Marketing Monthly time employees Fund. (NITF) Technical Monthly A wide package of benefits are available 2. Mr E.T.L. Ranasinghe – Director/ All Others Bi-Annually to all permanent employees. These Deputy Chief Executive Officer ( Life) benefits very significantly exceed the Alternate Member of the Executive stipulated Statutory Benefits. GRI LA 13 and 14 Committee of the Insurance The organization is an equal opportunity As an additional benefit the General Association of Sri Lanka (IASL). employer and no discrimination is made Division in 2012 formed a government between gender on salary issues. 3. Dr. W.C.J. Alwis – Director (Technical) approved Banking Co-operative Society / Chief Technical Officer to which membership is voluntary GRI LA 15 Return to work and retention (a) Alternate Member of the Technical rates after parental (maternal) leave. GRI LA 4 to 9 Advisory Committee of the Not relevant Leave Granted Returned Government Strikes, Riots, Civil to work Commotion & Terrorism Fund which GRI LA 10 General 5 5 is functioning under the National Average hours of training per Insurance Trust Fund. (NITF) Life 4 3 year per employee per category. (b) Member of the Executive Committee (Excluding On the Job which is SOCIETY PERFORMANCE INDICATORS of the Insurance Association of Sri continuous) GRI SO 1 Lanka (IASL) Category Av. Hrs Type of Not relevant (c) Vice President of the Ceylon Society Training for Prevention of Accidents (CeSPA) GRI SO 2 Sales & Marketing >72 Workshops Technical 48 Workshops Percentage and total number of business (d) President and Chairman of Executive Managers 32 Seminars. units analysed for risks related to Committee of the Association of Workshops corruption. Insurers and Reinsurers of Developing IT 32 Workshops. All business units are regularly checked Countries (AIRDC) Out Bound for irregular/corrupt practices. (e) Presented a paper on Microinsurance Call Centre/ at seminar organized by Association Nerve Centre 24 Workshops. GRI SO 4 of Insurers and Reinsurers of Out Bound Actions taken in response to incidents of Developing Countries (AIRDC) in Secretaries corruption Manilla, Philippines & Others 24 Seminars. Proven cases or self confessed cases of Workshops misappropriation of the organisation’s 4. Mr D.W.P. Upali – Director/ Chief funds result in the termination of the Financial Officer (General) employee’s services. In other instances Member of the Financial Technical of corruption disciplinary action in Sub-Committee of Insurance accordance with the seriousness of the Association of Sri Lanka (IASL) offence is taken. CEYLINCO INSURANCE PLC 34 Annual Report 2012

Sustainability Report

5. Mr P.A. Jayawardena – Director / GRI SO 6 Chief Financial Officer (Life) Total value of financial and in-kind contributions to political parties, politicians and Alternate Member of the Financial related institutions by country Technical Sub-Committee of None. Insurance Association of Sri Lanka (IASL) GRI SO 7 Total number of legal actions against the organization for anti-competitive behavior, anti 6. Mr Bonnie Fernando – Director / - trust and monopoly practices and their outcomes Head of Information Technology (General) None.

Member of the Information GRI SO 8 Technology Sub- Committee of Monetary value of significant fines and total number of non-monetary sanctions for Insurance Association of Sri Lanka non-compliance with laws and regulations (IASL) None.

7. Mr H.D.A.N. Perera - General Manager PRODUCT RESPONSIBILTY PERFORMANCE INDICATORS - Technical (General ) (a) Member of the Working Committee GRI PR 1 to 4 of the Government Strikes, Riots, Civil Not relevant Commotion & Terrorism Fund which GRI PR 5 is functioning under the National Insurance Trust Fund. (NITF) Practices related to customer satisfaction including results of surveys measuring customer satisfaction (b) Member of the General Insurance General Division: Every genuine claim must be settled On the Spot or within a few days Forum (GIF) of the Insurance and the claim cheque delivered to the customer’s door step. Every inquiry or complaint Association of Sri Lanka (IASL). has to be responded within 24 hours.

8 Mr Asoka Sirisena - Senior Assistant The Call Centre which operates 24/365 is the first to receive the customer’s intimation of General Manager - Technical (Life) an accident. In addition to passing the information to the relevant automobile engineer (a) Council Member of the Sri Lanka who has to go to the site of the accident, the Call Centre follows up with the customer Insurance Institute (SLII) inquiring about the quality of service received.

(b) Member of Life Insurance Forum Av. no. of Positive Negative Reasons Remarks of the Insurance Association of Sri calls / day Responses Responses Lanka (IASL). 350 96% 4% Having to report This is a legal 9. Mr Sujeewa Kumarapperuma – accident to Police requirement and has Senior Assistant General Manager - to be done by the Actuarial (Life) driver of the vehicle.

Council Member of Actuarial Every branch conducts monthly random surveys to ascertain customer satisfaction levels Association of Sri Lanka (AASL) regarding Claim Settlement. The average number of customers interviewed per Branch during 2012 was 360 of which : 10. Mr K.Sankaramoorthy – Chief Manager - Financial Services Average no. Positive Negative Reasons for Remarks (General) Interviewed Responses Responses Negative

Chairman Sub Committee of FTSC of 360 98.5% 1.5% ∫ Delay in claim When there is a doubt Insurance Association of Sri Lanka on settlement the claim is investigated IFRS implementation. ∫ Disagreement on and if necessary part amount paid settlement is made. CEYLINCO INSURANCE PLC Annual Report 2012 35

Life Division GRI PR 7 Total number of incidents of non- The objective is to settle every valid claim compliance with regulations and within 30 days of receiving one. During voluntary codes concerning marketing the year under review over 95% of death communications including advertising, claims received were settled. Thereby the promotion and sponsorship by type and Life Division created customer satisfaction outcome levels of the highest level and maintained its record of being the best in claim None. settlement in the Life Insurance Sector of GRI PR 8 and 9 the Industry. Not relevant Type of Claim Number Value (Rs. M) Death 1,398 393,853,605 Medical 15,316 110,408,790 TOTAL 16,714 504,262,395

GRI PR 6 Programmes for adherence to laws, standards and voluntary codes concerning marketing communications, including advertising , promotion and sponsorships The organisation observes a voluntary code of ethics regarding marketing communications which is based on the Standards of Practice formulated by the American Association of Advertising Agencies (AAAA). The 5 Point Guideline is:

∫ No false or misleading statement will be included.

∫ No false or inaccurate testimonials will be included.

∫ No misleading statement will be made regarding price ( Premium)

∫ No claims will be made about product benefits which are false, exaggerated or unsubstantiated.

∫ No statement or visual will be included which can be deemed to be indecent or which can cause offence to any ethnic, gender, religious or age group. CEYLINCO INSURANCE PLC 36 Annual Report 2012

Corporate Social Responsibility

Completes 50th school infrastructure The Life Division paid tribute to the The donation of this unit is one of several Development project sacrifice of a gallant soldier by providing activities connected with Ceylinco Life’s funds for the construction of a house 25th anniversary, celebrated on 14th for a war-hero who was disabled in the January 2013. liberation effort.

With Rs.1 Million provided by the Life Division, a new house was constructed in Hevanapalassa in Nikaweratiya for Pte R.D.C Sanadheera of the Gajaba Regiment of Sri Lanka Army.

The contribution was made via the ‘Seva Vanitha’ Unit of the Ministry of Defence. The Life Division’s community initiative to support education in under-served Improves comforts at Lady Ridgeway towns and villages across Sri Lanka Hospital reached a milestone with the donation of a classroom to the Damunupola Primary School in Galigamuwa, Kegalle, - the 50th school assisted under the programme.

The school, which accommodates 182 students, was one of four schools to receive classrooms under this initiative in the latter half of 2012. Serving as a specialised ICU for the Other recipients in this latest phase of The Life Division donated 25 foldable management of serious cases of dengue the programme were the Batukanna beds, renovated the lighting and electrical haemorrhagic fever, the new unit is Primary School in Uragasmanhandiya, system, installed fans and repaired also equipped to be a teaching unit for Ambalangoda (128 students), defective sections of the concrete soffit of outstation hospitals via video conference the Sudarshana Bodhi Vidyalaya, Ward 1 of the Lady Ridgeway Hospital, as facilities. The intention of the hospital Anuradhapura (140 students) and the a special community project. authorities is to initially link hospitals in Hewessa Primary School in Matugama Trincomalee, Matara, Embilipitiya and (412 students). Ceylinco Life donates specialised Negombo as well as the Paediatric unit of the Rajarata University to the unit. The Dengue treatment facility to LRH Work has begun on classrooms for possibility of linking with a hospital in another eight schools, which will receive A sophisticated High Dependency Lahore, Pakistan is also being studied. the completed buildings in 2013. & Research Unit exclusively for the treatment of children afflicted by Dengue; The other contributors to the project Funds house for war-hero constructed, furnished and equipped at a were Swiss Re of Switzerland, Munich cost of Rs.10.5 Million has been donated Re of Germany, Mr. and Mrs. Hemaka to the Lady Ridgeway Children’s Hospital Amarasuriya along with Dileeka and (LRH) by Ceylinco Life and a group of well- Thushan Amarasuriya (in memory of wishers. their son and brother Damith Shamindra Amarasuriya), Mr. and Mrs. Arthur The five-bed unit is located at Ward Senanayake along with Annika and 1, the Professorial Ward managed by Alexandria Senanayake (in memory of the Colombo Medical Faculty with a their son and brother Alastair Yasvanth multi-disciplinary panel of specialist Senanayake). Ms. Yoko Nonobe and Ceylon consultants, and meets a critical need at Oxygen Ltd. the country’s premier hospital for children. CEYLINCO INSURANCE PLC Annual Report 2012 37

Healthcare to thousands under Educates Jaffna school children on Similarly, another blood donation camp ‘Waidya Hamuwa’ road safety was conducted by the Pilimatalawa branch, where over 75 pints of blood was donated to the National Blood Transfusion Service with the participation of several customers and staff members.

Assistance to rebuild a temple in Vavuniya The Life Division educated 250 schoolchildren from 27 schools in Jaffna on road safety, by conducting a major awareness programme on the subject in collaboration with the Colombo Traffic Police and the Jaffna Police.

The Company also presented 250 Traffic Jackets to the children who act as traffic wardens at their respective schools, at this half-day programme which focused on several aspects including public safety, road usage and traffic rules and The Life Division further strengthened its regulations. commitment to its flagship community project ‘Waidya Hamuwa’ (Meet the Among the schools which were Doctor), by conducting 13 free medical represented at the workshop were St. camps that benefited more than 3,400 John’s College – Jaffna, Christian College people in 2012. – Kopay, Ladies College – Manipay, Hindu College – Chavakachcheri, Central Ceylinco Insurance – General, together Among the areas at which these camps College – Atchuvely and A. M. C. School – with the staff, assisted the Mankulam were held were Thissmaharamaya, Uduppiddy. Viharaya in Mankulam, a long neglected Madawachchiya, Kahatagasdigiliya, temple in this war torn area, to re-build wattegama and Baddegama. Blood Donation Camps in the “ Ranwata” and the “Bo maluwa” for Kiribathgoda / Pilimatalawa the benefit of the devotees in the area. People who visited these medical camps were provided consultations with General Practitioners, checks by eye specialists and opticians as well as free ECGs, blood pressure and blood sugar tests. The checks covered the general condition of the persons examined and included oral and dental condition, vision, hearing, the cardio vascular system, respiratory tract, abdomen, skin, joints and central nervous system. All participants underwent a The Kiribathgoda Branch of the General structured examination and were provided Division, under the supervision of the with a medical report containing the blood bank, conducted the Annual Blood doctor’s findings and recommendations. Donation camp for the 17th consecutive year. Over 130 donors took part in 2012, enabling the Company to make this years effort a huge success. CEYLINCO INSURANCE PLC 38 Annual Report 2012

Enterprise Risk Management General Division

The process of ERM is very “A successful enterprise risk - Allows a more prospective view of an much in line with business management (ERM) initiative can affect insurer's risk profile and capital needs. realities and challenges the likelihood and consequences of risks - Is a highly tailored analytic process encountered at the customer materializing, as well as deliver benefits that recognizes each insurer's unique related to better informed strategic requirement level, at the structure, products, mix of business, interface with them which decisions, successful delivery of change potential earnings streams, cash flows, are then embedded to our and increased operational efficiency.” and investment strategy. products, converting them to - Chartered Institute of Management a risk that we manage. Accountants (UK). - Is a process that recognizes the benefits and risks of a diversified base of The status of the global economic cycle at products, investments, and geographic present , triggered by the World Financial spread of risk that can quantify the Crisis in 2008 invites companies to benefits of uncorrelated or partially include different industries , economies correlated risks. and economic projections in analyzing, measuring and controlling risks with the (Standard & Poor’s Ratings Direct domino effects experienced by the world October 17, 2005) businesses. The process of ERM helps our company In the above background, Enterprise risk to review the products, casflows, management (ERM), with it’s process reinsurance policies, investments and of Identifying, assessing & analyzing, Human resource training as our ERM Developing Action plans, Implementing policies has to meet both objectives of; and Monitoring and Controlling can lead organizations to accept the correct level of a) Managing Risks risks permitted by the stake holder appetite b) Seizing opportunities and permitted by the capital structure. Infrastructure to Manage the Risks of Measure & Control the Company.

ERM Committee The process of ERM is very much in line

Monitor & Identify with business realities and challenges Implement encountered at the customer requirement Risk Management level, at the interface with them which are then embedded to our products, converting them to a risk that we manage. Similarly the requirements of other stakeholders are converted to performance targets and Plan Assess & Action Analyze included in the ERM strategy to arrive at the best fit level of operational targets in line with the Risk-Return formula most suitable. (Diagram : leadershipchamps.wordpress.com)

For an Insurer being in business involving accepting, sharing and managing risks : Enterprise Risk Management (ERM): CEYLINCO INSURANCE PLC Annual Report 2012 39

The ERM committee comprises of directors to represent the strategic objectives and functional heads to include the ground realities. The ERM committee analyzes the organizational internal and external environment along with the organization’s current position. The committee with this knowledge; identify, measure and respond to risk.

In order to manage risks, the Company has following sub committees;

Ł ‹•ƒƒ‰‡‡–‘‹––‡‡ The committee reviews risks relating to Business, Underwriting, Claims handling, Information Technology, Human Resources and Reinsurance. Risks are constantly evaluated and their mitigation strategized Ł ˜‡•–‡–‘‹––‡‡ extensively. Evaluation of investments management in the context of macro economic environment and portfolio returns and risks are main functions of investment committee. The Company obtains external consultant to provide his expertise to benefit the Company.

Ł —†‹–‘‹––‡‡ The Audit committee monitors the risks arising from operations, ensure effective internal audit procedures and the reporting compliances.

Ł Marketing Communication and the Customer Relation Process This process ensures that the Insurance solutions offered by the Company are in line with the requirements of the market, communication is accurate and the experience at the customer’s end is what was promised. CEYLINCO INSURANCE PLC 40 Annual Report 2012

Enterprise Risk Management General Division

Risk Description How we manage 1.) Strategic Risk 1.a) Marketing Risk Gap between product offered and Customer Inputs by sales executives are constantly extracted requirements at Board level to ensure conformity. Movements in sales patterns and product mix is closely OR monitored to identify cause. All inputs and findings The operations do not meet Social or Economic are Discussed with sales staff by corporate Requirements management in formulating product strategies. 1.b) Regulatory Risk The Company fails to meet the Regulations We look at the global changes taking place and governing the insurance Industry or relevant laws world wide best practices. Then compare our of the land. This is common to areas of business present status with such Benchmarks and improve. Process, products and assets. The constant and co-operative dialogue helps The risk enhances with the ability of the Regulator Company to identify the direction of the Regulator to amend the requirements. Which calls for greater and also any deviations are corrected at earliest. adoptability across The business. 1.c) Reputational Risk Negative perceptions arising in the Society caused The Company ensures that the marketing by an incident different to what the society expects communication process does not create unrealistic from us. expectations. Customers could discuss their concerns with company officials at any level. 2.) Underwriting Risk 2.a) Pricing / Exposure When the pricing does not reflect the risk accepted, The underwriting profitability of all products are Risk the gap creates an insufficiency to meet the claims closely monitored and this is evident in the income or makes the product too expensive to trigger a statement. sale. The Company’s relevant functional team asseses Further the exposure to a particular type of the risk profile and pricing along with Risks business area or single entity can create an transferred through Re insurance. imbalance in risk profile. 2.b) Re Insurance Risk This has two components. Firstly the risk of not The Company has always followed a rational re insuring and secondly the risk of Re insurer re insurance policy, with profitability and Risk defaulting claims due to inability or refusing claims exposure in a balance. due to technical reasons. The portfolio of re insurers are carefully studied to avoid over exposure to a given Re insurer and also the past experience with them and their terms are studied in depth prior to selection. 2.c) Credit Risk Credit risk is the risk of debtors of the Company All credit business are granted after careful defaulting payment. evaluation of customer profile, past records and

future potential. Debtors are carefully monitored by finance department. CEYLINCO INSURANCE PLC Annual Report 2012 41

Risk Description How we manage 3.) Financial Market Risk 3.a) Concentration Risk The risk arises when the portfolios of Investments Investment Committee periodically asses the Macro and assets are not prudently diversified. Both Economic environment and Potential impact on our default risk and risk on return would increase. Investments.

Portfolio of a General Insurer has to meet both The control tools such as risk measures, cut loss objectives of Return as well as liquidity, while both limits and the overall asset structure are reviewed remain negatively correlated. to be in line with present economy, guidelines of the regulator and the overall company strategy. 3.b) Liquidity Risk Liquidity risk is where a company does not have The potential liabilities, cash inflow forecasts are enough cash or arrangements to meet payments as matched to manage liquidity. they fall due. Further, the sound relationships maintained with the financial markets, including the interbank markets help smooth cashflow and better yields. 3.c) Default Risk The risk of default on the interest or capital of The investment committee sets clear investment investments. Primarily caused by the financial limits for institutions as well as instruments, further weakness of an institution that we made an to the guide lines of the regulator and follow-ups on investment. compliance and prudency. 3.d) Market Risks The risk is caused mainly by the Interest Rate, The investment committee closely monitor the Exchange Rate and Equity Market price Fluctuations maturity structure, duration, investment sectors which has a direct impact on the Income, Balance and the macro Economy to trigger cut losses and Sheet and Solvency. any changes or adjustments to policies to maintain a sound portfolio. 4.) Operational Risks 4.a) Information The IT system is fully integrated and is the single The risks are overcome by sophisticated firewalls, Technology Risk best source for accuracy and speed of service. This authority limits and module partitioning. enhances the risk of technology being obsolete, Further effective back up systems and recovery communication breakdown and security of arrangements secure the IT platform. The information. modifications done for modules to be in line with customer and internal requirements make the system upto date with overall requirements. 4.b) People Risk Knowledge has become one of the Strongest assets The Company has encouraging financial and of our company. To Extract the best yield of this non financial incentive schemes to motivate the knowledge the motivation level of people plays a employees. major role. The risk of loosing this Human capital could be a great disadvantage. 4.c) Control Risk This is the risk that internal procedures not being Authority limits, live audits and reporting followed and misuse of Company assets and procedures along with cash limits and safe locker fraudulent reporting. systems combine to minimize this risk. CEYLINCO INSURANCE PLC 42 Annual Report 2012

Enterprise Risk Management Life Division

“Risk is our Opportunity”, “Risk The Enterprise Risk Management Management is Our Stability” Framework Being a risk management solutions provider The Enterprise Risk Management (ERM) to our customers, management of risks Framework of established in Ceylinco Life identified is challenging task which geared helps to ensure that risk is managed across towards the Vision of Ceylinco Life. Having the departments in a holistic manner, established Enterprise Risk Management as is integrated into our culture, business an integral part of the governance system practices and business plans, is inclusive at Ceylinco Life, methods and processes of all levels of staff and is applied in a are placed to identify, assess measure and consistent manner. monitor risks within the business resulting to achieve the objectives of ERM - continued The two-tier collaborative risk model is shown growth, earnings stability, continuity of in Figure 1, which involves strengthening and operations, survival, reduction in anxiety, enhancing risk governance and management meeting externally imposed obligations, good practices all Levels are placed across the citizenship and social responsibility. organization.

Internal Board of Directors Auditor (Life)

Technical ALM Operational IT Committee Strategic Regulatory Committee Committee Committee Committee Committee

Technical Risk Investments/ Operational Systems Risk Business Risk Regulatory (Underwriting/ Liquidity Risk Risk Risk Claims/ Actuarial

Figure 1: Two Tier Collaborative Risk Model CEYLINCO INSURANCE PLC Annual Report 2012 43

The Board of Directors IT Committee The Board of Directors provides an oversight The IT Committee oversees the risks and supervisory role of the entire risk relating to information, communication and management framework. The findings of technology (i.e. ICT risks). each of the six committees are discussed with the Directors and necessary actions The IT Committee is headed by the Chief are initiated. Chief Risk Officer (CRO) is Information Officer. appointed by the Board and responsible for proper ERM process is established. Strategic Committee

CRO of Ceylinco Life is Director- Deputy Chief The Strategic Committee mainly oversees the Financial Officer. Business Risks related to Life Business.

The Business Risk Committee is headed by Technical Committee Deputy General Manager (Marketing). Technical Committee oversees the risks that are immerged from Technical/Underwriting/ Regulatory Committee Claims and Actuarial aspects related to Life Insurance Business. The Regulatory Committee mainly oversees the Risks related to regulatory requirements The Technical Committee is headed by and compliances. Assistant General Manager (Technical). The Regulatory Committee has co-leadership given by Senior Manager (Actuarial) and Asset Liability Management Committee Manager (Legal). (ALM) The Asset Liability Management (ALM) The governance framework was reviewed Committee oversees the risks directly during the year and expanded further to pertaining to both Assets and Liabilities. In strengthen the process. Chief Risk Officer recent times, the global approach has been provides his contribution at each committee to manage assets and liabilities together. level discussions while an independent review is made by Internal Auditor communicated The Investment Committee is headed by directly to the Board. Portfolio Manager (Investments).

Operational Committee The Operational Committee monitors the operational risks faced by the Company. Operational Risk relates to the loss arising from failed internal processes, people and external events.

The Operational Risk Committee is headed by Senior Assistant General Manager (Operations). CEYLINCO INSURANCE PLC 44 Annual Report 2012

Enterprise Risk Management Life Division

Determine Risk Level business operations will have a higher priority Having assessed the consequence and rating than those with a minor consequence likelihood of major risks, a risk level will be and lower likelihood. determined. Risks which may have a larger consequence and a higher likelihood on

Almost Certain Critical 5

Likely High Risk 4

Possible Medium Risk

Likelihood 3

Unlikely Low Risk 2

Rare 1 Insignificant Minor Moderate Major Critical 1 2 3 4 5 Consequence

Risk treatment guidelines:

Risk Level Risk Treatment Guidelines Critical Immediate action is required to actively manage risk and limit exposure

High Cost / benefit analysis may be required to assess extent to which risk should be treated - monitor to help ensure risk does not adversely change over time Medium Constant / regular monitoring is required to help ensure risk exposure is managed effectively, disruptions minimized and outcomes monitored Low Effectively manage through routine procedures and appropriate internal controls CEYLINCO INSURANCE PLC Annual Report 2012 45

Summary of Risk Categories

Risk Category Strategy and Control Business Risk

Risks that affect the company objectives ∫ Strategic Planning meeting is held quarterly basis and addresses the all risk areas are basically identified as business risks. affecting Objectives of the Life Business. Appropriate decisions are taken by Business risk arises due to the changes of ensuring the set objectives are achieved. internal and external environment from its expected behavior leading delay or hinders the ∫ Environmental Scanning, market research results, other strategic models are achievement of company objectives. considered for decision making. ∫ Carrying out performance evaluation process.

Regulatory Risk

Risks arising due to non compliance of ∫ Separate compliance officer has been appointed to oversee the compliance relevant laws, regulations, practices or ethical procedure. standards. ∫ Comprehensive checklist has been incorporated to the monthly reporting mechanism.

∫ Regular consultation with in-house legal officers and updating process is established. Technical Risks

Risks arising in the areas of underwriting, ∫ Assign Life fund valuation to Towers Watson and defined benefit plans valuation by actuarial and claims such as mortality risk, M/s. K.A. Pandit. morbidity risk, underwriting risk, reinsurance basis risk, claims settlement risk, customer ∫ Review underwriting limits periodically. credit risk etc. are considered. ∫ Staff rotation and training.

∫ Pricing is done by from Towers Watson/Milliman actuarial consultants.

∫ Tele underwriting process . Investment/Liquidity Risks

Risks related to investment/Liquidity such as ∫ Investments are reviewed weekly basis for decision making. Credit Risk of counterparty, Interest risk, Re- investment risk, Inflation risk, concentration ∫ Ongoing counterparties evaluation (default rating and limits). risk, Political and social risks are considered. ∫ Continuous Interest and inflation monitoring process against the yield/real rate.

∫ Adopt systematic reinvestment system providing higher yield.

∫ Maintain Overdraft Facilities, Repo investments to strengthen the liquidity ratio. (for emergency liquidity issues) . CEYLINCO INSURANCE PLC 46 Annual Report 2012

Enterprise Risk Management Life Division

Risk Category Strategy and Control IT Risks

Risks emerge due to technological ∫ Continuous scanning of IT control environment and strengthen security activities infrastructure and information systems and measures required. are addressed. Hacking and Viruses, Data Leakages, Data Pilfering, Data Integrity of ∫ Conduct training and awareness programs for risk related issues. Core-systems, Usage of Private Devices, ∫ Periodical reviews of agreements, policies and practices. Service Providers support etc. are some of ∫ Vendor reviews and assessments. them ∫ Audit reviews. Operational Risks

It concerns the risk of generating losses derived ∫ Monthly Branch visits and branch audits from failures or lack of adequacy of internal processes, people or external events. Risk of ∫ Job rotation and authorization limits within the approval cycles. Fraud and errors, Risk of Business execution ∫ Close supervision and appoint custodians for processes and assets. failures, Risk of circumventing Company ∫ Perform business intelligence practices. policies and authorized limits are few of them. ∫ Tele underwriting process.

∫ Perform internal audits and technical audits.

∫ Obtain fidelity guarantee insurance coverage.

Business Continuity Planning stakeholders are looked after even during In the year under review, Ceylinco a disaster. Life decided to look beyond the mere This initiative steered by a committee pecuniary aspects of any possible consisting of all Life Division Board emergency and bring the expectations Members and Senior Management of of the insured to the focus even under the Company has already completed such trying circumstances. It was in the Risk Assessment targeting high this light that Ceylinco Life decided to impact-low frequency events and overhaul its business continuity plan and actions are being taken to address risks align it to international best practices. requiring treatment. The organization The search for a party who could provide has also completed the Business Impact such international best practices led us to Assessment while identifying the Recovery Disaster Recovery Institute International Time Objectives and Recovery Capacity (DRII) of USA Road Map and Somaratna Objectives and currently is in the process Consultants (Pvt) Ltd. who have been of identifying and evaluating the Business providing BCP Consultancy Services Continuity Strategies. since 2000 and whose Lead Consultant/ Director is the only Master Business It is anticipated that the total Business Continuity Professional certified by Continuity Plan will be ready for DRII in South Asia. Arising out of this implementation by 31st March, 2013 current initiative CIL is expected to have and adequate plans will be put in place to a robust BCP which will have necessary develop a robust framework for Business and near sufficient plans to respond to a Continuity Planning for the organization low frequency-high impact incident and so that stakeholder value is protected recover from the same to ensure that even through a disaster situation. expectations of the insured and other CEYLINCO INSURANCE PLC Annual Report 2012 47

Branch Network

Dharga Town Kaduruwela ∫ General Division ∏ ∏ ∏ Digana ∏ Kaduwela ∏ ∫ Life Division ∫ Dikwella ∏ Kahatagasdigiliya ∏ ∫ Divulapitiya ∏ ∫ Kahathuduwa ∏ Ahangama ∏ Dummalasuriya ∏ Kahawatta ∏ Akkaraipattu ∏ ∫ Eheliyagoda ∏ ∫ Kalawana ∏ ∫ Akurana ∏ Elpitiya ∏ ∫ Kalawanchikudy ∫ Akuressa ∏ ∫ Embilipitiya ∏ ∫ Kalmunai ∏ ∫ Alawwa ∏ ∫ Embuldeniya ∏ Kalpitiya ∏ Aluthgama ∏ ∫ Enderamulla ∏ Kalutara ∏ ∫ Ambalangoda ∏ ∫ Eppawala ∏ Kamburapitiya ∏ ∫ Ambalantota ∏ ∫ Eravur ∏ Kamburugamuwa ∏ Ampara ∏ ∫ Fort ∏ Kandana ∏ ∫ Anamaduwa ∏ ∫ Galagedara ∏ Kandy ∏ ∫ Angunakolapelessa ∏ Galaha ∏ Kantale ∏ ∫ Anuradhapura ∏ ∫ Galenbindunuwewa ∏ ∫ Karapitiya ∏ Arawwala ∏ Galewela ∏ Katana ∏ Atchuvely ∏ ∫ Galgamuwa ∏ ∫ Kattankudy ∏ Athurugiriya ∏ ∫ Galle ∏ ∫ Katugastota ∏ ∫ Attidiya ∏ Galnewa ∏ Katunayake ∏ Averiwatte ∏ Gampaha ∏ ∫ Katupotha ∏ Avissawella ∏ ∫ Gampaha BOC ∏ Katuwana ∏ Baddegama ∏ ∫ Gampola ∏ ∫ Katuwapitiya ∏ Badulla ∏ ∫ Ganemulla ∏ ∫ Kegalle ∏ ∫ Baduraliya ∏ Gelioya ∏ Kegalle Main Street ∏ Bakamuna ∏ Giriulla ∏ Kekirawa ∏ ∫ Balangoda ∏ ∫ Godagama ∏ Kelaniya ∏ ∫ Balapitiya ∏ Godakawela ∏ ∫ Kesbewa ∫ Bambalapitiya ∏ Gomarankadawala ∏ Keselwatta ∏ Bandaragama ∏ ∫ Grandpass ∏ Kilinochchi ∏ Bandarawela ∏ ∫ Habaraduwa ∏ Kinniya ∏ Batapola ∏ Habarana ∏ Kiribathgoda ∏ Battaramulla ∏ ∫ Hakmana ∏ Kiriella ∏ Batticaloa ∏ ∫ Haldummulla ∏ Kirindiwela ∏ ∫ Beliatta ∏ ∫ Halgaswita ∏ Kirulapone ∫ Beruwala ∏ Hali-Ela ∏ Kobeigane ∏ Bibile ∏ Hambantota ∏ Kochchikade ∏ ∫ Bingiriya ∏ Hanwella ∏ ∫ Kohuwala ∏ Biyagama ∏ Hatharaliyadda ∏ Kollupitiya ∏ Boralesgamuwa ∏ ∫ Hatton ∏ ∫ Kolonna ∏ Borella ∏ ∫ Hedeniya ∏ Kolonnawa ∏ ∫ Borupana ∏ Hemmathagama ∏ Kotahena ∏ ∫ Chankanai ∏ Hendala ∏ Kotikawatte ∏ Chawakachcheri ∏ ∫ Hettipola ∏ Kotiyakumbura ∏ Chilaw ∏ ∫ Hikkaduwa ∏ Kottawa ∏ ∫ Chunnakam ∏ ∫ Hingurakgoda ∏ ∫ Kuliyapitiya ∏ ∫ City Office ∫Hingurana ∏ Kurunegala ∏ ∫ Dambulla ∏ ∫ Hiripitiya ∏ Kuruwita ∏ Dankotuwa ∏ ∫ Homagama ∏ ∫ Lunugamwehera ∏ Dehiattakandiya ∏ ∫ Horana ∏ ∫ Mahabage ∏ Dehiwala ∏ Horowpathana ∏ Mahaiyawa ∏ Deiyandara ∏ Imaduwa ∏ Mahara ∏ Dekatana ∏ Imbulgoda ∏ Maharagama ∏ ∫ Delgoda ∫Ingiriya ∏ ∫ Mahawewa ∏ Dematagoda ∏ Ja-Ela ∏ ∫ Mahiyangana ∏ ∫ Deniyaya ∏ ∫ Jaffna ∏ ∫ Maho ∏ ∫ Deraniyagala ∏ Kadawatha ∏ ∫ Malabe ∏ ∫ CEYLINCO INSURANCE PLC 48 Annual Report 2012

Branch Network

Maligawatte ∏ Pannala ∏ ∫ Uhana ∏ Manipay ∏ ∫ Pannipitiya ∏ Uragasmanhandiya ∏ ∫ Mannar ∏ ∫ Passara ∏ Urubokka ∏ Maoya ∏ Peliyagoda ∏ Valaichchenai ∏ ∫ Maradana ∏ ∫ Pelmadulla ∏ ∫ Vavuniya ∏ ∫ Marandagahamula ∏ Peradeniya ∫Veyangoda ∏ ∫ Marawila ∏ Pettah ∏ VIP Centre ∏ Maruthamunai ∏ Pilimathalawa ∏ ∫ Wadduwa ∏ ∫ Matale ∏ ∫ Piliyandala ∏ ∫ Walasmulla ∏ Matara ∏ ∫ Pita Kotte ∏ Warakapola ∏ ∫ Mattakkuliya ∏ Pitabeddara ∏ Wariyapola ∏ ∫ Matugama ∏ ∫ Pitigala ∏ Wattala ∏ ∫ Mawanella ∏ ∫ Polgahawela ∏ Wattegama ∏ ∫ Mawaramandiya ∏ Polonnaruwa ∏ Weeraketiya ∏ Mawathagama ∏ ∫ Poojapitiya ∏ Welimada ∏ ∫ Medawachchiya ∏ ∫ Pottuvil ∏ Welipillewa ∏ Meegalewa ∏ Pulmuddai ∏ Weliveriya ∏ ∫ Melsiripura ∏ ∫ Pussellawa ∏ Wellawatte ∏ ∫ Messenger Street ∏ Puttalam ∏ ∫ Wellawaya ∏ ∫ Middeniya ∏ ∫ Puttalam Road Welmilla ∏ Minuwangoda ∏ ∫ - Kurunegala ∏ Wennappuwa ∏ ∫ Mirigama ∏ ∫ Raddoluwa ∏ Yakkala ∏ ∫ Miriswatte ∏ Ragama ∏ ∫ Yakkalamulla ∏ Moneragala ∏ ∫ Rajagiriya ∏ Yatiyantota ∏ Moragahahena ∏ Rakwana ∏ Moratumulla ∏ Rambukkana ∏ ∫ Moratuwa ∏ ∫ Ranna ∏ Morawaka ∏ Ratmalana ∏ Mount Lavinia ∏ Ratnapura ∏ ∫ Ceylinco “VIP” Rest Spots Mulleriyawa ∏ Rideegama ∏ Induruwa Muttur ∏ Rikillagaskada ∏ ∫ Kitulgala Naiwala ∏ Ruwanwella ∏ ∫ Kuruwita Narahenpita ∏ Sammanthurai ∏ Melsiripura Narammala ∏ ∫ Sea Street Branch ∏ Pusselawa Nattandiya ∏ ∫ Seeduwa ∏ Tangalle Naula ∏ Serunuwara ∏ Warakapola Nawalapitiya ∏ Sevanagala ∏ Negambo ∏ ∫ Siyambalanduwa ∏ Nelliaddi ∏ ∫ Siyambalape ∏ Neluwa ∏ ∫ Sooriyawewa ∏ ∫ Nikaweratiya ∏ ∫ Tangalle ∏ Nittambuwa ∏ ∫ Teldeniya ∏ ∫ Nivithigala ∏ Thalawa ∏ Nochchiyagama ∏ ∫ Thalawakele ∏ Norochcholai ∏ Thalawathugoda ∏ Nugegoda ∏ ∫ Thalgaswela ∏ Nugegoda II ∏ Thambuttegama ∏ ∫ Nuwara Eliya ∏ ∫ Thanamalwila ∏ Padalangala ∏ Thimbirigasyaya ∏ Padaviya ∏ ∫ Thirappane ∏ Padiyathalawa ∏ Tissamaharama ∏ ∫ Padukka ∏ Town Hall ∏ Pallebedda ∏ Trincomalee ∏ ∫ Pamunugama ∏ Udawalawa ∏ Panadura ∏ ∫ Udubaddawa ∏ Panchikawatta ∏ Udugama ∏ Panduwasnuwara ∫Udugampola ∏ CEYLINCO INSURANCE PLC Annual Report 2012 49

The Year’s Events - General

Miss Ceylinco VIP crowned in a glittering ceremony Miss Ceylinco VIP beauty contest, a glittering pageant that gave participants from all over the island a unique platform to display their talents, was won by Miss Tharuka Wanniarachchi who represented the Western Province. Miss Asanki De Silva was chosen as the 1st Runner-up, with Miss Rukshani Subasinghe emerging the 2nd runner up.

The event proved to be the biggest beauty pageant Sri Lanka has ever seen, with the grand finale of Miss Ceylinco VIP culminating in a gala event, which saw the first ever “Miss Ceylinco VIP” walk the ramp. The pageant was unique in that it was held in seven provinces involving over 1,100 applicants, who were auditioned and selected on criteria ranging from beauty and confidence to independence and graciousness. Three contestants were selected from each mini-pageant held in the provinces and represented their respective province at the Grand Finale.

This was the first time that a beauty contest was held out of Colombo on such a grand scale and taken to the provinces. Miss Ceylinco VIP gave the talented young women in the provinces a wide platform to showcases their talents, and enabled them to participate in a world class event while embarking on a voyage of personal development. They were also given the unique opportunity of involving their families and communities in their localities.

Miss Ceylinco VIP also stood out as a pageant because of the simply unmatched value of gifts and prizes the winners received. Several well known and prestigious brands were tied up as partners for this much celebrated pageant, most of whom are customers of Ceylinco Insurance. The participants had to go through a rigorous training programme that matched international standards, as they were thoroughly trained in personal development, public speaking, modelling, grooming etc, empowering them to become well rounded and confident young women, who could gracefully conquer the ramp with ease and self assurance; which indeed, they did.

The Grand Finale of the Miss Ceylinco VIP Beauty Pageant was a dazzling event that gave the contestants a memorable night – they were judged by an eminent panel of judges, whose opinion truly mattered, being experts in their own chosen fields. For each contestant, it was literally a dream come true to participate in an event of such magnitude and glamour. Miss Tharaka Wanniarachchi whose outstanding talent won her the crown, plans to develop her career goals of being a model and an actress further and engage in activities that reinforce her title as the first ever Miss Ceylinco VIP. CEYLINCO INSURANCE PLC 50 Annual Report 2012

The Year’s Events - General

Ceylinco Insurance – General Salutes Ceylinco Insurance invited to the Its Valiant Heroes AIRDC Executive Board Ceylinco Insurance, Sri Lanka’s leading Insurer, was honoured with the invitation to represent Sri Lanka on the Executive Board of the prestigious Association of Insurers and Reinsurers of Developing Countries (AIRDC). The Executive Board of AIRDC constitutes 15 representatives from full member nations. The People’s Awards, conducted by the Sri Lanka Institute of Marketing (SLIM) in AIRDC was formally established during association with Neilsen Lanka (Pvt.) Ltd, the 2nd Third World Insurance Congress recognise and honour brands that have in Buenos Aires, Argentina in 1980 . A won the hearts of Sri Lankans. Having non-political and a non-governmental being chosen for the People’s Awards for organization, whose members come from the sixth year running, Ceylinco Insurance insurance or reinsurance entities, the has reaffirmed its prestigious position as AIRDC is domestically incorporated and the most preferred Choice of the People owned by nations, bodies or organizations of Sri Lanka. The selections reflect the of developing countries. The Association’s opinions of people from all regions and principle objective is to develop and communities. Ceylinco Insurance – General, recognised expand international collaboration and and handsomely rewarded its dynamic cooperation in the fields of insurance and Ceylinco Insurance wins top honours and dedicated sales team, at the Annual reinsurance of every kind. Sales Conference and Awards Ceremony with two Gold awards for the 4th year 2011, held in March 2012. The glittering Member nations of AIRDC include at the National Business Excellence event showcased the company’s countries such as Bahrain, Bangladesh, Awards 2012. outstanding talent, rewarding its top China, India, Indonesia, Korea, Malaysia, performers, who overcame all obstacles, Nepal, Pakistan, Philippines, Singapore, in order to provide their customers with an Sri Lanka, Thailand and Vietnam from unparalleled service throughout the year. Asia, Egypt, Ghana, Kenya, Nigeria, The event was graced by the Governor of Senegal, Seychelles, Zambia and Zaire the Central Bank of Sri Lanka - Hon. Ajith representing the African continent and Nivaard Cabral, as the Chief Guest. Belize, Colombia, Cuba and Uruguay representing Latin America. The event, held under the theme: “Realising Our Customers' Dreams” was Ceylinco Insurance emerged as attended by over 1,000 sales personnel, the People’s Choice for the sixth Emerging the winner in the ‘Insurance and senior members of the staff. Over consecutive year Sector’ at the National Business 550 sales personnel received awards, Excellence Awards 2012 for the fourth accorded on a rigorous rewards criteria: Ceylinco Insurance, once again year in a row, Ceylinco Insurance has the top achievers were categorised as consolidating its pioneering position once again reaffirmed the company’s Members, Certificate Members, and the in the Sri Lankan insurance industry, outstanding position as the torchbearer Bronze, Silver and Gold categories, rising was recognised as the “People’s in the country’s insurance industry. to the very zenith, the much coveted Hall Insurance Brand of the Year” for the Ceylinco Insurance also bagged the Gold of Fame. Along with the rewards based sixth consecutive year. Initiated in 2006, the concept of the Peoples Award is award for “Knowledge Integration” which on these categories, four new members unique and novel, where people are the is an award that recognises a corporate were recognised and welcomed into the primary and only source of deciding commitment to excellence in product and prestigious Hall of Fame. who the winners are across the brands, process innovation, not only in insurance organizations and personalities. but amongst companies engaged in all CEYLINCO INSURANCE PLC Annual Report 2012 51

other industries and services. Held for covered Revenue, Share turnover Profit the ninth consecutive year in 2012, The after tax, growth in turnover Growth National Business Excellence Awards are in profit, Return on equity, Growth in organised by The National Chamber of Earnings per share, Market Capitalization, Commerce of Sri Lanka. Value of Shares Transacted and Value Addition. According to Business Today The National Business Excellence Awards “The Business Today Top 25 is a reflection are widely accepted as truly measuring of the companies that are confident of corporate performance and business where they stand and know in which excellence among corporates. Among the direction to go within the prevailing criteria used for the selection process situation. It is a great mix of the a company’s commitment towards the established and strong blue chips in the country’s socio-economic development country”. and its ability to adopt efficient systems in running successful business operations. Three Wheel Owners get-together The companies are also evaluated on extended to North and East adapting to proper business ethics and advocating best practices in corporate governance and transparency, reflecting sustainable market competitiveness all 26 teams, representing the regions and outstanding leadership skills and and the City Office. The Uwa region won performance. The companies selected are the trophy, whilst the Southern region further measured on the leadership roles emerged as runners-up. It was an ideal they occupy in their respective industries. opportunity for the staff members to meet and mix amongst their colleagues and Ceylinco Insurance Earns Honours as friends, spread throughout the island. the Only Insurer amongst Sri Lanka’s “Three Wheel Himiyange Suhada Top 25 Companies Employees rewarded with a tour to Hamuwa”. A series of get-togethers for Ceylinco Insurance was selected as the three wheel owners and their families was Bangkok only insurance company among the top extended to North and Eastern Provinces 25 companies in Sri Lanka. In its October during the year 2012. The events were 2012 edition, “Business Today” magazine a big success with almost all the three announced its top 25 companies in Sri wheel owners in these towns participating Lanka, selected on the basis of impressive at the events with their families, financial performance during the financial numbering over 400. The events were year ending December 31,2011 and March held in a carnival atmosphere with games, 31,2012. entertainment and refreshments served. In selecting the top 25 companies, the Games were also conducted for the entire financial criteria under consideration family and valuable gifts were given to the winners. For the ninth year in a row, the traditional tour to Bangkok took place during the Inter Department Cricket Tournament month of June 2012. 225 staff members - 2012 of the General Division were selected to participate in this tour, in recognition The Annual Inter Department / Region of their exceptional contribution during cricket tournament was held in November the year 2012. Many sightseeing tours 2012 at the BRC grounds. Employees and excursions etc were organized for and their families numbering over 1400 the first timers, while a full day’s brain participated in this colorful event, which storming session was also held with the turned out to be an unforgettable day for participation of the entire group. CEYLINCO INSURANCE PLC 52 Annual Report 2012

The Year’s Events - Life

Presents another Rs. 8.5 Million in cash bonuses represent a practice begun "Pranama Scholarships" by the Life Division in 2004 to reward loyalty.

Launches Sri Lanka’s first online life insurance plan

and overseas trips to Bangkok and Singapore including Star Cruises. Another 170 young Sri Lankans received Branch Sales Heads, Unit Heads and Ceylinco Life Pranama scholarships worth Rs.8.5 Million at the 11th annual Sales Consultants from all districts in scholarships presentation in 2012. Sri Lanka participated in the Achiever’s Night. Branches in the Jaffna peninsula Since its inception the programme and the Eastern province, as well as many Sri Lanka’s first online life insurance plan, has rewarded 1,464 students with rural towns featured prominently in the which can be applied for and purchased scholarships worth more than Rs.75 honours list. entirely via the Internet, was launched by Million, in recognition of academic the Life Division, establishing yet another potential and achievements. Distributes Rs. 1,868 Million in Annual industry milestone. & Cash bonuses The scholarship recipients included 32 Portrayed aptly as ‘Protection at Your students who excelled at the Year 5 Fingertips,’ Ceylife Online is a simple scholarship examination in 2011, twenty Term Insurance Plan with optional five students who excelled at the G.C.E. Accidental Death Cover, offered on (O/L) in 2011, 25 students placed 1st in www.ceylincolife.com to a new generation their districts at the G.C.E. Advanced Level of IT-savvy Sri Lankans seeking convenience and 75 students placed 2nd, 3rd and 4th and cost effective life insurance. in their districts at this examination and ten national merit award recipients who The product is for persons aged 18 had excelled at the national level in sports, to 60, and carries a minimum Basic aesthetics, invention and creativity. Sum Assured (BSA) of Rs. 1 Million and More than 348,000 policyholders of the minimum accidental death cover of the Additionally, special cash awards of Life Division received bonuses totalling a same amount for terms of 5 to 30 years. Rs.25,000 were presented to each of Since it is offered online, policyholders the students who achieved the highest record Rs.1.87 Billion in April 2012 with benefit from significantly lower premiums, marks islandwide in mathematics, biology, the despatch of annual bonus certificates and receive instant printable receipts and commerce and arts at the G.C.E (A/L) and cash bonuses. automatic confirmation of transactions examinations in 2011. Of these recipients, 339,368 policyholders via email and SMS. received Rs.1.834 Billion in the form of Fetes high flyers at Achiever’s Night bonus certificates and another 9,567 Policyholders make merry in China The Life Division honoured 250 top policyholders, who completed 10, 15 and and Leisure World achievers in 2012 for their contribution to 20 years received Rs. 34.1 Million in cash the Company’s stellar growth in 2011. bonuses before the Sinhala and Tamil New From walking on the Great Wall of China Year. to plummeting down the water slides of The Achiever’s Night event was followed by Leisure World, policyholders of the Life five-star dining and entertainment after The annual bonuses were in respect of Division were treated to experiences of a each of the Company’s high flyers had the surplus generated by the Life Fund in lifetime when the 5th Family Savari got been rewarded with trophies, certificates the finacial year 2011, while the ‘Avurudu’ underway in April 2012. CEYLINCO INSURANCE PLC Annual Report 2012 53

Relocates Gampaha branch to a new company-owned building

Comprising of 3,500 square feet of purpose-designed space on two floors, the Jaffna branch offers spacious fully air- conditioned customer service areas and office space on the ground floor, a well- The Company took 15 policyholders and equipped training room on the first floor their family members, a total of 60 people, and plentiful customer parking facilities. to China for an all-expenses paid holiday in Beijing and 2000 people representing 500 Launches 5th ‘Life Insurance Week’ policyholders and their family members to The Life Division conducted its fifth annual the theme park in Avissawella. ‘Life Insurance Week,’ to create greater The Life Division ceremonially declared awareness on the importance of life Policyholders on sensational open its new three-storey branch in insurance. Singapore ‘Savari’ Gampaha, in a custom-built building owned by the company. Members of the sales team visited individuals who had been identified The showpiece edifice built on 34.5 through surveys as potential leads perches of land, is the new home of during the designated period. They also Ceylinco Life’s first-ever branch office, presented a special gift pack to the opened in Gampaha in 1988, the year the children of those visited. company commenced operations. The Life Insurance Week was preceded Around 200 Sri Lankans from all parts of Situated at 91, Bauddhaloka Mawatha, by a media campaign focussing on true Sri Lanka came together in Singapore at a Gampaha, the new office serves as an accounts of how people have benefited by fun-filled four-day family holiday as the Life operational nucleus for the branches in obtaining life insurance. Division concluded the fifth edition of ‘Family the Gampaha area. Savari’ programme, which annually rewards Over the past four years, an additional 50,000 families have received the policyholders and Retirement Plan holders. New branch in Jaffna protection of life insurance as a result of The visit to Singapore included a city Ten years after opening the company’s this initiative. tour, visits to Chinatown, the esplanade, first branch in Jaffna, the Life Division reiterated its commitment to the botanical gardens, the fountain of wealth, Senior Sales Managers at 2012 MDRT a laser show at Marina Bay, a tour of residents of the city by building a custom- Experience Conference Sentosa including cable car rides, a visit to designed new office on company-owned Images of Singapore, Underwater World, land at 37-41 Kannathiddy Road, Jaffna. Thirteen senior Sales Managers of the and Dolphin lagoon, the Song of the Sea Life Division were among 4,500 top notch The 30th branch to be located in a show, Crane Dance show and shopping. international insurance professionals from company-owned building, the new branch Policyholders and their families were 46 countries at the Million Dollar Round is home to 32 sales consultants and eight provided with 4-star hotel accommodation Table (MDRT) Experience Conference 2012 sales supervisors working under the Head and all meals. in Bangkok, Thailand. of Branch. CEYLINCO INSURANCE PLC 54 Annual Report 2012

The Year’s Events - Life

Their attendance at this prestigious international forum was intended to enhance professionalism and enable them to benefit from the sharing of experience by senior representatives of leading international insurers.

Launches Tele-underwriting in Sri Lanka

The Life Division launched tele- underwriting in Sri Lanka in 2012, adopting an industry practice in developed markets to improve communications between prospective policyholders and the insurer.

Intended to minimise misunderstandings between insured and insurer, and eliminate non-disclosure related issues at the claims stage, tele-underwriting is carried out by a team of 25 trained professional underwriters.

Ceylinco Life is the first life insurer in Sri Lanka to use tele-underwriting, a practice that can also lead to reduced lapsing of policies. CEYLINCO INSURANCE PLC Annual Report 2012 55

Reinsurance Arrangements

NET RETENTIONS PER EVENT UNDER VARIOUS CLASSES OF INSURANCE - (GENERAL INSURANCE)

Class Net Retention per event including catastrophic events (Rs.)

Fire including Consequential Loss & Engineering 40,000,000/- Personal Accident including Travel Insurance 2,000,000/- All other Miscellaneous classes 5,000,000/- Marine Cargo & Marine Hull 15,000,000/- Motor Insurance including Third Party Liabilities Non Natural Catastrophic Events 10,000,000/- Natural Catastrophic Events 20,000,000/- Strike, Riots & Civil Commotion Nil Terrorism Nil

Claims above these limits are recoverable under our Reinsurance Programme.

RETENTIONS OF RISK UNDER VARIOUS CLASSES OF INSURANCE - (LIFE INSURANCE) Class Maximum Net Retention per Life (Rs.)

Life / Accident 1,000,000/- Critical Illness 250,000/-

MAJOR TEN REINSURERS - (GENERAL INSURANCE) Reinsurer Country of Origin

Swiss Reinsurance Company Switzerland SCOR Re France Lloyd’s of London United Kingdom R+V Versicherung AG Germany Toa Reinsurance Company Limited Japan General Insurance Corporation (GIC Re) India Sirius International Insurance Corporation (Publ) Sweden Trust Re Bahrain Taiping Reinsurance Co. Ltd. Hong Kong Malaysian Reinsurance Berhad Malaysia

REINSURERS - (LIFE INSURANCE) Reinsurer Country of Origin

Swiss Reinsurance Company Ltd. Switzerland Munich Reinsurance Company Germany

The security rating of all Reinsurers are in compliance with the minimum security guidelines issued by the Insurance Board of Sri Lanka dated 19.12.2003. CEYLINCO INSURANCE PLC 56 Annual Report 2012

Board of Directors CEYLINCO INSURANCE PLC Annual Report 2012 57

Left to Right Mr. J.G.P. Perera - Chairman Mr. A.R. Gunawardena - Managing Director / Chief Executive Officer (General) Mr. R. Renganathan - Managing Director / Chief Executive Officer (Life) Mr. H.D.K.P. Alwis - Director / Deputy Chief Executive Officer (General)) Mr. E.T.L. Ranasinghe - Director / Deputy Chief Executive Officer (Life) Dr. W.C.J. Alwis - Director (Technical) / Chief Technical Officer Mr. P.D.M. Cooray - Director / Head of Human Resources & Training (Life) Mr. K.I. Dharmawardena - Director CEYLINCO INSURANCE PLC 58 Annual Report 2012

Board of Directors CEYLINCO INSURANCE PLC Annual Report 2012 59

Left to Right Mr. P.M.B. Fernando - Director / Chief Information Officer (General) Mr. D.H.J. Gunawardena - Director Mr. P.A. Jayawardena - Director / Chief Financial Officer (Life) Mr. N.D. Nugawela - Director / Chief Operations Officer (General) Mr. T.N.M. Peiris - Director (Finance) / Head of Finance Mr. D.W.P. Upali - Director / Chief Financial Officer (General) Gen. C.S. Weerasooriya (Retd.) - Director Mr. S.R. Abeynayake - Director / Deputy Chief Financial Officer (Life) CEYLINCO INSURANCE PLC 60 Annual Report 2012

Board of Directors

Mr. J.G.P. Perera Mr. A.R. Gunawardena in the Middle East, in countries such as - Chairman - Managing Director / Chief Executive the United Arab Emirates, Bahrain, Kuwait, Officer (General) Oman and Qatar. Mr. J. Godwin Perera holds a Post He successfully negotiated key joint Graduate Diploma in Marketing from Mr. Ajith Gunawardena joined the Ceylinco ventures with Indian giants Larsen the Chartered Institute of Marketing Group in 1978 as a Sales Manager, & Toubro and the Aditya Birla Group; of UK (CIM) and is also a Fellow of that attached to the Polonnaruwa Branch of alliances which resulted in the cement Institute. A former President of the Sri The Finance, speedily rising to the position brand – Ultra Tech, abundantly available Lanka Institute of Marketing (SLIM) he of Assistant General Manager – City Office. throughout Sri Lanka. Under the aegis of was awarded Honorary Membership these joint ventures, the L & T Infocity, for his services in marketing education At The Finance, Mr. Gunawardena was the largest ever Call Centre in Asia, was where as the senior lecturer in SLIM’s instrumental in initiating the first-ever established. faculty he lectured to students preparing leasing and project financing division in Sri Lanka. Moreover, he set up the hire for the CIM and SLIM examinations. He Mr. Ajith Gunawardena has been the purchase scheme for consumer durables is a Life Member of the Organisation of unyielding strength behind numerous and import financing; pioneering concepts Professional Associations (OPA) – having other projects for Ceylinco, including in the sphere of finance companies in Sri been nominated by SLIM and a member of power and energy projects in Belihuloya, Lanka. Furthermore, the first ever venture the Sri Lanka Institute of Directors. Loggaloya and Rajjammana. capital company to be established in Sri Mr. Perera has served in both the public Lanka, was also his brainchild. sector and private sector and held the Mr. R. Renganathan He was appointed Director In Charge of positions of Head of Marketing – Bank - Managing Director / Chief Executive the General Division of Ceylinco Insurance of Ceylon; Group Marketing Consultant Officer (Life) – Aitken Spence PLC; Director Corporate in 1987. He introduced the visionary concept of a direct sales force for the Planning – Lanka Milk Foods PLC. He A Chartered Accountant by profession insurance industry in Sri Lanka. His was has also served in several government Mr. R. Renganathan joined Ceylinco the idea that transformed the sphere of appointed committees such as the Consolidated in 1983. He was entrusted insurance forevermore – On The Spot Steering Committee for the accelerated with the task of setting up the Life Claim Settlement! This unprecedented development of the Bandaranaike Division of Ceylinco Insurance after the idea, which amounted to a global first, International Airport to make it a South Government of Sri Lanka permitted private has been embraced and adopted by many Asian Hub Airport; the Committee to make insurers to enter the Insurance Industry other insurers the world over. In fact, this recommendations for the Apparel Industry in 1987. to meet the challenge of the termination very concept won the coveted Innovation of the Multi Fibre Agreement; Committee of the Year Award at the Asian Insurance A firm believer in the miracle of Life to visit Japan and South Korea and study Industry Awards in 2003. Under his able insurance, with a vision of protecting the concept of Trading Houses with a view leadership, Ceylinco Insurance received a every Sri Lankan family with a Ceylinco of introducing it to Sri Lanka. rare accolade – that of being among the Life insurance policy, he has put together top four General Insurance Companies a team of professionals who share this He is the author of several articles on in Asia, in 2000 and once again clinched common objective. Ceylinco Insurance Marketing, Management and on Tourism the Innovation of the Year Award at the PLC has continued to maintain market all of which were serialized in newspapers Asia Insurance Industry Awards in 2006. leadership in the Sri Lanka Insurance and in a leading business magazine. Last Under his guidance Ceylinco Insurance Industry and Ceylinco Life has won the year his book ‘When the going gets tough; has held the position of market leader Asia Insurance Review Award for Corporate the tough get going’ which is a history of in Sri Lanka, continuously since 2004. Social Responsibility in the Asian Region. Ceylinco Insurance was launched. Mr. Ajith Gunawardena was also behind Mr. Renganathan is also a member of the the first ever overseas joint venture LIMRA India/Sri Lanka Executive Board for Ceylinco Insurance – Sagarmatha and was invited to speak at the LOMAL/ Insurance of Nepal, the concept of which, LIMRA Strategic Issue Conference which later on, extended to the Maldives. Several was held in Kuala Lumpur. strategic alliances were also formed under his leadership with insurance companies Upon achieving success in the field of Life Insurance, he has now ventured into CEYLINCO INSURANCE PLC Annual Report 2012 61

the healthcare sector with the idea of He was further involved in successfully Member of the Chartered Insurance providing affordable healthcare facilities implementing a unique system for Institute, London (ACII) in 1985 and a to the people of Sri Lanka. Therefore, with the insurance sales force, regarding Fellow Member (FCII) in 1990. Also a the affiliation of the Washington Cancer effectively prospecting clients. The Fellow Member of the Indian Insurance Institute he initially set up a Cancer visionary methodology, practiced by the Institute (FIII), he is a Chartered Insurer by Detection Centre and a Diabetes Centre. gamut of the sales force at all levels, profession. Dr. Alwis is a Fellow Member of He has now set up a Cancer Treatment has resulted in stupendous results for the Institute of Directors, U.K. Centre with the latest state of the art individual sales personnel, as well as technology. the Company as a whole. The system Dr. Alwis joined Ceylinco Insurance in question has also paved the way to Company in March, 1988 as the He is the Chairman of Ceylinco Healthcare monitor and manage the direct sales force Reinsurance Manager and also served in Services Ltd. of Ceylinco Insurance – General. the capacity of Chief Manager (Technical), Deputy General Manager (Technical) Mr. H.D.K.P. Alwis before being appointed to the Board as Mr. E.T.L. Ranasinghe the Director (Technical) in January, 1993 - Director / Deputy Chief Executive Officer - Director / Deputy Chief Executive Officer and continues in the same position to (General) (Life) date.

Mr. Alwis joined the Company on 15th. Mr. Ranasinghe has over 30 years of He presently serves on the Boards of a May, 1990 and prior to joining the experience in the mercantile sector in couple of leading Eduction Institutions as Company from 1978 he worked at M/s. sales, marketing and strategic planning. the Chairman. Hatton National Bank, Lever Brothers He holds a MBA from the Postgraduate He is one of the past Presidents of the (Ceylon) Limited and Richard Peiris Institute of Management (PIM), University Insurance Association of Sri Lanka (IASL) & Company in the field of Sales and of Sri Jayawardenepura. He is also a and the Vice President of the Ceylon Marketing. He joined Ceylinco Insurance Chartered Marketer and a Fellow of the Society for Prevention of Accidents (General Insurance Division) as a Regional Chartered Institute of Marketing, UK. (CESPA). Manager and was promoted as Assistant He joined Ceylinco Limited as a Product General Manager in 1992, as Senior Manager in September, 1986 and is one of Dr. Alwis is also the President / Chairman Assistant General Manager in 1996 and as the pioneer members of the team to set of the Executive Board of the Association Deputy General Manager in 1998. He was up the Ceylinco Insurance PLC, when the of Insurers and Reinsurers of Developing appointed to the Board on the 10th. of Company commenced operations in 1988. Countries for 2012/2013. January, 2001, and currently serves as the Director / Deputy Chief Executive Officer He is a Founder Member of the Chartered He was conferred a Honorary Doctorate of Ceylinco Insurance PLC - General Institute of Marketing, Sri Lanka Region from the University of Middlesex of United Division. and has held several Positions in the Kingdom in October, 2012. Executive Committee, including that of the He was instrumental in spearheading the Senior Vice Chairman in the past. Strategic Alliances with leading Insurance Mr. P.D.M. Cooray Companies in the Middle East (UAE, He currently serves as the Deputy Chief - Director / Head of Human Resources & Bahrain, Kuwait, Oman and Qatar), where Executive Director of Ceylinco Insurance Training (Life) Ceylinco Insurance promotes unique PLC - Life Division and is also a Director of insurance solutions to migrant workers of Ceylinco Healthcare Services Limited. Mr. Cooray joined in March, 1985 as all nationalities residing in the Gulf. the Chief Instructor of the Key Security Dr. W.C.J. Alwis Services Limited. He has been an He was also the key figure behind setting employee of Ceylinco Insurance, since up the Ceylinco Insurance branch network - Director (Technical) / Chief Technical Officer it’s inception. He started his career in the in Sri Lanka, under the guidance of the Sri Lankan Air Force as a Commissioned MD/CEO – Mr. Ajith Gunawardena, which Dr. Jagath Alwis graduated as a Officer. His career at Ceylinco Insurance has become one of the key factors in the Bachelor of Science (B.Sc.) majoring in commenced as an Assistant Manager Company’s exponential growth in a fast- Mathematics and Physics and joined the (Training), and in January, 1990 he paced economy. National Insurance Corporation in 1982 was promoted as Manager (Human as a Trainee. He became an Associate Resources), thereafter he held the CEYLINCO INSURANCE PLC 62 Annual Report 2012

Board of Directors

posts of Assistant General Manager Law, Criminal Law, ICT Law and Business and Engineering Apprentices’ Final at (Administration and Human Resources) Law and has provided legal consultancy the University of Sri Lanka, Katubedda and Assistant General Manager (Training). services to several large scale ICT and Campus. Mr. Fernando is a Fellow Member In 1998 he was promoted to the post of Business Projects both in Sri Lanka and of Institute of Certified Professional Deputy General Manager (Training). Mr. abroad. Presently he practices as a Legal Managers. Cooray was appointed as a Director to the Consultant in ICT and Business Law. He Board of Ceylinco Insurance in September, is the Chairman of Wanasevana Pvt. Ltd. Mr. D.H.J. Gunawardena 2001. He is the Chairman of the Remuneration - Director Committee and a member of the Audit Mr. Cooray is a Fellow of the Life Committee of Ceylinco Insurance PLC. Mr. Mr. Herschel Gunawardena is a Fellow of Underwriters’ Training Council (LUTCF) Dharmawardena is an “Independent” Non the Chartered Institute of Management U.S.A. and a Chartered Insurance Agency Executive Director. Manager (CIAM). He played a very active Accountants, U.K. and a Chartered Global role in setting up the Sales Force of Management Accountant. He has around Mr. P.M.B. Fernando Ceylinco Life. He is an internationally forty years of experience in various reputed speaker who has addressed many - Director / Chief Information Officer industries including shipping, airline, Life Insurance conventions and was the (General) mining, export and import trading with first South Asian non-member to address over twenty years of General Management the MDRT which is the most prestigious Mr.Fernando was appointed to the Board experience. Life Insurance convention in the world. in October 2008 and heads the entire IT operation of Ceylinco Insurance PLC Mr. Gunawardena is the Chairman of - General Division. Mr. Fernando has Citizens Development Business Finance Mr. K.I. Dharmawardena a 15 year experience at International PLC. He is also a Director of Hunter & - Director Computers Limited (ICL). During this Company PLC, Lanka Canneries (Pvt.) period he gained an in-depth experience Limited, Heath & Co. (Ceylon) Limited and An Attorney-at-Law by profession Mr. and knowledge in Computer Hardware, Pelwatte Dairy Industries Limited. Dharmawardena was admitted to the Networking and Software. At the time of Mr. Gunawardena is the Chairman of the Bar in 1976 with first class honours and leaving ICL he held the post of Systems Audit Committee and a member of the thereafter joined the Attorney General’s Engineer. He Joined Ceylinco Insurance in Remuneration Committee of Ceylinco Department in 1978 where he served January 1993. until his retirement in 1999 holding the Insurance PLC. He is an Independent Non positions of State Counsel, Senior State Mr. Fernando was responsible for setting Executive Director of Ceylinco Insurance Counsel and Deputy Solicitor General. He up the Network which connects all the PLC. has a Masters Degree in International branches of the General Division through and Comparative Law from the Brussels a virtual private network. Further, he Mr. P.A. Jayawardena University and is a Fellow of the Nuffield was responsible for developing the fully - Director / Chief Financial Officer (Life) Foundation and Japan Foundation. integrated Insurance application including Mr. Dharmawardena has undertaken the On the Spot claim settlement process Mr. Palitha Jayawardene counts over 25 extensive legal research at the Institute which revolutionized Motor Insurance years of experience in the field of finance. of Advanced Legal Studies, University in Sri Lanka. He was also responsible He is a Fellow Member of the Institute of of London and the United Nations Far for setting up of computer systems for Chartered Accountants of Sri Lanka and of Eastern Institute in Tokyo, Japan. He Ceylinco insurance overseas operations. the Institute of the Certified Management has specialized in ICT and Business Law Accountants of Sri Lanka. He joined the Mr. Fernando has distinctions in NIBM’s and held many prestigious positions in Life Division of the Company in 1990 as Diploma in Computer Systems Design Sri Lanka and overseas. In Sri Lanka he Chief Accountant (Branches) and was and in Computer Applications for Science served as a Visiting Lecturer at the Sri invited to the Board in 2005. and Technology from the University of Lanka Open University and Informatics Sri Lanka, Colombo Campus. He also Institute of Computer Studies and He serves as a Director of Ceylinco has Diplomas in Business Management pioneered many research projects in Sri Healthcare Services Limited as well. (NIBM) and Marketing Management Lanka leading to Law reform in the fields (SLIDA). Further he has also completed of ICT Law, Evidence and Criminal Law. He the Diploma in Electrical Engineering has extensive legal experience in Public CEYLINCO INSURANCE PLC Annual Report 2012 63

Mr. N.D. Nugawela and the finances are documented in an IT a number of hydro power projects within - Director / Chief Operations Officer platform. Internal Audit Department was the group. (General) introduced by him and the Department works directly under his supervision as an General C.S. Weerasooriya (Retired) Mr. Nugawela was appointed to the Independent Unit. - Director Board in September, 2001 and overlooks Having worked at M/s. Associated the administration of the Company’s General C.S. Weerasooriya (Retired) is Motorways PLC as an Accountant for General Insurance branches. Having had the fourth ‘Independent’ – Non Executive 1 ½ years, he joined The Finance over 10 years experience at Insurance Director appointed to the Board of Company PLC as the Chief Accountant Corporation where he obtained a Diploma Ceylinco Insurance PLC. His appointment in 1986 and excelled to Deputy Chief in Insurance. He joined Ceylinco Limited was with effect from 02nd. August, 2010. Executive Director and was on the Board as a Liaison Officer in late 1980. In till 2010. He also heads the Ceyfco Group April, 1989 he joined Ceylinco Insurance He received his education at St. Thomas’s as the Chairman and serves on the (General Insurance Division) as a Branch College, Mount Lavinia and is a graduate Boards of Subsidiary Companies. Manager and was promoted as a Regional of the Pakistan Military Academy, Kakul Sales Manager in 1991, as an Assistant and the National Defence College in India. General Manager in 1994 and as a Senior Mr. D.W.P. Upali He was appointed Commander of the Sri Assistant General Manager in 1998. He - Director / Chief Financial Officer Lanka Army on 16th. December, 1998 held the post of Deputy General Manager (General) and after an illustrious 35 year military (Branches) with effect from 2001. career, was appointed Sri Lanka’s High Mr. Upali Witharana joined Ceylinco Commissioner to Pakistan - a position he Mr. Nugawela monitors the Technical and Insurance PLC as an Assistant General held for six years. During this period he Claims functions of General Insurance and Manager – Finance (General Insurance was also the Ambassador Extraordinary is overall in-charge of the “Nerve Centre” Division) on 04th. January, 1999. He is a and Plenipotentiary for Sri Lanka to for claims processing. Chartered Accountant and is an Associate Tajikistan and Kyrgyzstan. Member of the Institute of Chartered His decades of experience in the military Mr. T.N.M. Peiris Accountants of Sri Lanka and a Fellow and diplomatic corps, administrative Member of the Institute of Certified - Director (Finance) / Head of Finance skills, integrity and acumen are an asset Management Accountants of Sri Lanka. to the Board of Ceylinco Insurance PLC. Mr. Nihal Peiris graduated with Honors He also holds a Master of Business from the Sri Jayawardenapura University Administration Degree from the University Mr. S.R. Abeynayake with a Bachelor of Arts Degree (Economics of Colombo. Mr. Witharana has over 30 Special) in 1982. He became an Associate years of management experience in the - Director/Deputy Chief Financial Officer Member of the Institute of Chartered Insurance industry both in Sri Lanka and (Life) Accountants in 1984 and thereafter overseas. Mr. Ranga Abeynayake counts fifteen became a Fellow Member of the Institute. He is a past Chairman of the Finance years of experience in the field of Finance. He is also a Fellow Member of the Institute Technical Sub-Committee of the He holds a MBA from the Postgraduate of Certified Management Accountants of Insurance Association of Sri Lanka (IASL). Sri Lanka. Institute of Management (PIM), University Mr. Witharana was appointed to the of Sri Jayawardenepura. He is also He joined Ceylinco Insurance as a Finance Board of Ceylinco Insurance PLC on the a Fellow Member of the Institute of Manager in 1989 and was appointed to 25th. of October, 2005. He also serves Chartered Accountants of Sri Lanka and the Board in August 1990. At present as the Finance Director/Director in other of the Institute of Certified Management he heads the Finance Division of the Associate and Subsidiary Companies Accountants of Sri Lanka. He joined the Company. He introduced the profit center of Ceylinco Insurance. In addition to his Life Division of the Company in March, concept where all branches and units are contribution in the financial management 1998 as Financial Accountant and held monitored according to the performance. in the Ceylinco Insurance group, he the post of Deputy General Manager He has also introduced the Finance & extends his capabilities by leading a team (Finance) – Life Insurance, at the time he Administrative Manual of the Company of professionals in the capacity of the was appointed to the Board of Ceylinco which indicates all procedures, principals CEO to successfully develop and manage Insurance PLC from 01st. February, 2011. and systems adopted by the Company, CEYLINCO INSURANCE PLC 64 Annual Report 2012

Corporate Governance

Good corporate governance is vital to jointly by the Institute of Chartered approved through circular resolutions create confidence and engagement Accountants of Sri Lanka and the when deemed appropriate. During the between companies and their Securities and Exchange Commission of year 2012, the Board has maintained an stakeholders, so contributing to the long Sri Lanka published by the Colombo Stock excellent record of attendance to the term success of the business. Yet even Exchange. meetings. The attendance of the Directors where good corporate governance is in at the Board meetings during the year is place, governance reporting remains Board of Directors detailed under the Directors' Report. for the most part standard. Corporate The Board is accountable to the governance refers to the set of systems, Stakeholders that the business is Board Performance principles and processes by which a conducted in an appropriate manner and The Company does not have a formal company is governed. They provide the the financial and non-financial targets procedure for the evaluation of Board guidelines as to how the company can of the Company are achieved. The Board performance, however all Directors be directed or controlled such that it consists of sixteen Directors, out of which dedicate adequate time and effort to the can execute its goals and objectives in four, including the Chairman, function in affairs of the Company. Further the Board a manner that adds to the value of the a Non Executive capacity. The Company ensures contribution of all Directors are company and is also beneficial for all is headed by an effective Board Members made to achieve the corporate objectives. stakeholders in the long term. with professionals and business leaders drawn from different backgrounds such Board Interaction with Shareholders The Board of Directors of Ceylinco as, insurance, finance, marketing, law, etc, The Board of Directors encourages its Insurance constantly endeavour to satisfy whose profiles are given on pages 60 to 63. shareholders to attend and to actively the legitimate claims of all stakeholders participate at the AGM. The Board of and to fulfill the Company’s economic Board Appointments Directors invites the external auditors environment and social responsibilities in Formal and transparent procedure for to be present at the AGM to answer any an responsible and transparent manner. new Board appointments is maintained queries raised by shareholders. The Board In order to achieve this goal the Board of as per the Articles of Association of the of Directors arranges the Chairmen and/or Directors ensures that the right strategy Company and applicable statutes and members of the Board Sub-Committees and controls are in place to deliver value regulations. The Company believes that to be available at the AGM to answer to shareholders, employees and the professional qualifications, business queries raised by shareholders. All items society. As a responsible entity, Ceylinco experience and personal qualities of the of business to be considered at the AGM Insurance places a strong emphasis on members of the Board are of paramount are included with the Notice of Meeting. corporate governance, striving to both importance and above factors are taken align business practices with the best into consideration when the decisions are Directors Remuneration interest of all stakeholders, and maximize made for new appointments. All the new The Remuneration Committee consisting transparency through timely information Board appointments are communicated exclusively of Non-Executive Directors is disclosure and financial reporting. to the shareholders via Colombo Stock empowered to recommend the agreed Exchange. terms and conditions, financial package The Board of Directors ensures and retirement plans of the Directors. sustainable growth of the Company by Board Functioning Such decisions are reviewed and approved directing and monitoring the activities There is a clear division of responsibilities by the Board of Directors. in an efficient manner. The Directors on the role of the Chief Executive Officers uphold integrity and transparency in all and the Chairman. The Chairman is Board Committees their activities. The strategic direction responsible for leading the Board and of the Company is set and managed The extent of Company adherence to for its effectiveness. The CEOs’ roles are by the Board of Directors to achieve the rules on Corporate Governance and to conduct business operations of the stakeholders’ expectations. the mandatory requirements in respect Company with the assistance of Corporate to Board Committees as specified in This section of the Annual Report Management. the Listing Rules of the Colombo Stock demonstrates the Corporate Governance Exchange and the level of compliance Compliance details at Ceylinco Insurance Board Meetings maintained by the Company are analyzed below. and its adherence to the “Code of Best Seven Board meetings were held during Practice on Corporate Governance’ issued the year under review. Decisions were also CEYLINCO INSURANCE PLC Annual Report 2012 65

Rule No: Rule of Corporate Governance Status of Details Compliance 7.10.1 Two or one third of Directors, whichever is higher, should Will be Complied Five required, among the Board be Non – Executive Directors. of Directors, only 4 Directors are Non-Executive Directors. 7.10.2 (a) Two or 1/3 of Non-Executive Directors appointed to Complied The Board comprises three the Board of Directors, whichever is higher shall be independent Non-Executive “independent”. Directors. 7.10.2 (b) Each Non-Executive Director to submit a declaration Complied The Non Executive Directors of his/her independence or non independence in the have submitted the declaration. prescribed format. 7.10.3 (a) The names of Directors determined to be independent Complied Please refer page 03. should be disclosed in the annual report. 7.10.3 (b) In the event a Director does not qualify as independent Not applicable No such determination as the criteria set out in corporate governance, but if the required. Board is of the opinion that the Director is nevertheless independent, that shall specify the criteria not met and basis of the determination in the annual report. 7.10.3 (c) A brief resume of each Director including the areas of Complied Please refer pages 60 - 63. expertise should be published in the annual report.

7.10.3 (d) Provide a brief resume of new Director appointments to Complied A brief resume of each such the Board. new appointment has been provided to the CSE as specified 7.10.5 A listed company shall have a Remuneration Committee. Complied Please refer page 70.

7.10.5 (a) The Remuneration Committee shall comprise a Complied The Remuneration Committee minimum of two independent Non Executive Directors consists of two independent or Non-Executive Directors majority of whom shall be Non Executive Directors independent whichever is higher. One Non Executive Director shall be appointed as Complied Mr. K.I. Dharmawardena Chairman of the Committee by the Board functions as Chairman of the Remuneration Committee. 7.10.5 (b) The Remuneration Committee shall recommend the Complied Please Refer Page 70. Remuneration of the Chief Executive Officers and the Executive Directors. CEYLINCO INSURANCE PLC 66 Annual Report 2012

Corporate Governance

Rule No: Rule of Corporate Governance Status of Details Compliance 7.10.5 (c) The annual report should set out:

The names of Directors comprising the Remuneration Complied Please refer page 67. Committee

A statement of remuneration policy Complied Please refer page 70.

The aggregate remuneration paid to Executive and Non Complied Please refer page 169. Executive Directors. 7.10.6 A listed Company shall have an Audit Committee Complied Please refer pages 68 - 69. 7.10.6 (a) The Audit Committee shall comprise a minimum Complied The Audit Committee consists of two independent Non-Executive Directors or a of two independent Non- Non-Executive Directors a majority of whom shall be Executive Directors. independent, whichever is higher. One Non-Executive Director shall be appointed as Complied Mr. D.H.J. Gunawardena Chairman of the Audit Committee by the Board. functions as the Chairman of the Audit Committee The Chairman or one member of the committee should Complied Chairman of the Audit be a member of a recognized professional accounting Committee is Fellow Member body. of the Chartered Institute of Management Accountants (UK) The Chief Executive Officers and Chief Financial Officers Complied Please refer Pages 68 - 69. shall attend Audit Committee meetings 7.10.6 (b) Confirmation of functions of the Audit Committee are in Complied Please refer pages 68 - 69. accordance with the rules. 7.10.6 (c) The annual report should set out: Complied Please refer page 67.

The names of the Directors who comprise the Audit committee The Audit Committee should make a determination of Complied Please refer pages 68 -69. the independence of the auditors and shall disclose the basis for such determination. A report by the Audit Committee setting out the manner Complied Please refer pages 68 -69. of compliance of the functions during the period. CEYLINCO INSURANCE PLC Annual Report 2012 67

Details of the Board Committees

Audit Committee Remuneration Committee Chairman Mr. D.H.J. Gunawardena Mr. K.I. Dharmawardena (Non Executive) Members Mr. K.I. Dharmawardena Mr. D.H.J. Gunawardena (Non Executive) Secretary Mrs. T.N. Jasenthuliyana Mrs. T.N. Jasenthuliyana Invitees CEO CEO Director – Finance Chief Financial Officer Director – Finance GM – Finance Head of Internal Audit External Auditors Agenda Available Available Planned Frequency Quarterly Bi-annually Notice for meeting As per agreed annual calendar As per agreed annual calendar Professional Advice Available Available Terms of Reference Available Available Objectives Review and make recommendations to the Board for Review and approve remuneration approval of annual accounts of the Company including policy applicable to the employees the quarterly financial statements of the company in line with the industry benchmarks Review the effectiveness of the risk management and internal control processes and make recommendations Ensure that the company has for improvement, acceptable performance appraisal systems for all employees Review the compliance with financial reporting requirements and other relevant legislation. Review and recommend to the Review the corporate compliance with the Regulation Board the remunerations to be of the Insurance Industry Act, Regulation of the paid to Directors and Senior Insurance Board of Sri Lanka and other applicable Management. regulations.

Review internal and external audit plans and reports of internal and external auditors and follow up on recommendations

Review the scope of annual audit and its fee with the External Auditors and the Management.

Determine the External Auditors fee and make recommendations to the Board on their appointment and their ceasing to hold office. CEYLINCO INSURANCE PLC 68 Annual Report 2012

Report of the Board Audit Committee

This report provides details of the role of Objectives and Authority reasonability of estimates, judgmental the Board Audit Committee of Ceylinco The main objectives of the Audit factors and appropriateness of significant Insurance PLC and the responsibilities Committee are to assist the Board accounting policies adopted in the entrusted to the Audit Committee by in discharging its responsibilities preparation of financial statements. the Board of Directors, in the year under towards ensuring the integrity of the consideration. Company’s financial statements, to Internal Audit assess the effectiveness of the control The selected internal audit reports were environment and ensure the objectivity Composition tabled and reviewed by the Committee. and independence of External and Internal The Audit Committee consists of two Progress on implementation of internal Auditors. The other objectives of the Audit Independent Non-Executive Directors audit recommendations were regularly Committee are as follows: with the Company Secretary acting as analyzed by the Committee and steps its Secretary. The membership of the were taken to strengthen the control ∫ To oversee the Company’s financial Committee during the year 2012 was as environment. During the year under review reporting process with a view follows. the Terms of Reference of the Committee to ensuring the reliability of were reviewed and amended to include the information provided to the Mr. D.H.J. Gunawardena (Independent/ further responsibilities with regard to risk shareholders. Non-Executive Director) - Chairman management processes and controls. Mr. K.I. Dharmawardena (Independent/ ∫ To assist the Board in ensuring that Non-Executive Director) - Member sound Corporate Governance practices External Audit are upheld within the Company. Mr. D.H.J. Gunawardena is a Fellow The Audit Committee met with the External Auditors to discuss the Member of the Chartered Institute of ∫ To review the Company’s compliance audit scope and plan prior to their Management Accountants (UK). A brief with statutory and regulatory commencement of the audit. The External profile of each member is given on pages requirements. 60 to 63 of this Annual Report. Auditors were given adequate access to ∫ To review the Company’s internal whatever information they needed for the The functions of the Audit Committee are control systems and take steps to audit. governed by an Audit Committee Charter, strengthen them whenever it is found which is reviewed annually. necessary to do so. The Committee studied and discussed the Report of the Auditors and the ∫ To review and approve the Internal Management Letter issued by them along Meetings and Attendance Audit Department’s plan of activities with the management responses thereto The Committee met seven times during the and monitor its execution. and the action taken was reviewed. The financial year under review. The attendance Committee also reviewed the non –audit of the members at these meetings is ∫ To satisfy itself of the effectiveness services provided by the external auditors recorded in page 91 of this Annual Report. of the Company’s risk management to ensure that their independence and processes to identify and mitigate objectivity was safeguarded. The Head of Finance, Chief Financial risks. Officers, General Manager – Finance (Branches), the Chief Internal Auditors of ∫ To assess the independence of the Statutory and Regulatory Compliance the two divisions and other members of the External Auditors and monitor the The Committee reviewed the Quarterly management are invited to attend these performance of Internal and External Regulatory Compliance Reports submitted meetings when necessary. Additionally, Auditors. by management and observed that the Internal Auditors and External Auditors the Company’s compliance framework attend some of these meetings by The Committee, after due deliberation, provides reasonable assurance that all invitation. recommends the quarterly and annual the relevant statues, rules, regulations, financial statements and related code of ethics and standard of conduct The proceedings of the Audit Committee documents for the approval of the Board. have been followed. Instances of non are periodically reported to the Board of It focuses on fair presentation, disclosure, compliance if any, are included in the Directors. CEYLINCO INSURANCE PLC Annual Report 2012 69

Audit Committee’s reports to the Board of Directors and followed up to ensure appropriate corrective action. This procedure ensures that compliance with all statutory and regulatory requirements is effectively monitored.

Conclusion Based on the reports submitted by the External and Internal Auditors, the Committee is satisfied that the internal controls and procedures in place for assessing and managing risks are adequately designed and operate effectively and is of the view that they provide reasonable assurance that the Company’s assets are safeguarded and that the financial statements of the Company are reliable. The Audit Committee is satisfied that the financial position of the Company is regularly monitored and that steps are being taken to continuously improve the control environment maintained within the Company.

The Audit Committee having looked into the independence and performance of the External Auditors recommended to the Board that Messrs. Ernst & Young, Chartered Accountants be re-appointed as Statutory Auditors of the Company for the financial year ending 31st December 2013, subject to approval by the shareholders at the forthcoming Annual General Meeting.

D.H.J. Gunawardena Chairman – Audit Committee

27th. February, 2013 CEYLINCO INSURANCE PLC 70 Annual Report 2012

Report of the Remuneration Committee

The Remuneration Committee consists of The Minutes of the Committee are two Independent Non-Executive Directors, circulated to and affirmed by the one of whom functions as the Chairman Board of Directors. Details of executive of the Committee. The two Independent remuneration are included under Key Non-Executive Directors are free from Management Personnel compensation on any business or other relationship which page 169 of the Annual Report. may interfere with the execution of their independent judgment. The Chief Executive Officers as well as other Key Management Personnel attend the meetings by invitation of the Committee. The Remuneration Committee formally K.I. Dharmawardena met twice during the year 2012. Chairman – Remuneration Committee

The overall duties of the Remuneration 27th. February, 2013 Committee are:

∫ To review and to approve the Remuneration Policy of the Company.

∫ To recommend to the Board of Directors, the remuneration to be paid to the Board of Directors, their perquisites and allowances.

In discharging its responsibilities, the Committee has, undertaken a thorough review and made recommendations to the remuneration policy of the Company. In addition to that, advised on structuring remuneration packages that enable to attract, motivate and retain high quality individuals with talent. CEYLINCO INSURANCE PLC Annual Report 2012 71

Investment Committee Report - General

Composition ∫ Mr. Nihal Peiris - Director / Head of ∫ Formulation of investment strategy. With the Company placing great emphasis Finance (Chairman of Committee) ∫ Asset allocation of investment funds. on Enterprise Risk Management, the ∫ Mr. D.W.P Upali - Director / Chief framework to managing key business Financial Officer ∫ Review fund performance for the risks have assumed singular importance. month and on a cumulative basis. Foremost amongst the business ∫ Mr. Herschel Gunawardena - Non- risks encountered by any insurance Executive Director ∫ Manage risk exposure. organization is the management of ∫ Review compliance with internal and financial risks. ∫ Mr. Mangala Boyagoda - Consultant external investment regulations. At Ceylinco Insurance PLC a vibrant ∫ Mr. Nilantha Piyadasa - General Investment Committee oversees the Manager (Finance - Branches) Synopsis of Activities effective management of the different ∫ Mr. Kasun Nanayakkara - Deputy The objective of the Investment dimensions of investment risk. These General Manager (Ceylinco Investcorp Committee is to ensure that the portfolio include the dynamic management of – Treasury / Fund Management Unit of the General Division is managed liquidity risk, interest rate risk, foreign for General Division) in conformity with set guide lines, exchange risk, equity risk, concentration complying with statutory requirements risk and credit and market risks. A and evaluating portfolio performance Terms of Reference dedicated Treasury Division implements under ever changing investment climate the decisions taken by the Investment The Committee is responsible to manage of the country. The investment portfolio Committee. the general investment portfolios objectives of General division encompass consisting of both tangible and non- the aspects of Income, Liquidity and Risk During the year under review, the Treasury tangible assets and to develop portfolio management. Division placed emphasis on further management guidelines as per the Board strengthening its solvency position for approved Investment Policy. During the year the General Division General Insurance through the effective managed the following Investment management of solvency margins and The Committee focuses on the following in Portfolio; solvency ratios. As a result of prudent discharging its responsibilities: management of admissible assets and liabilities, the Solvency Ratio for General Insurance was considerably enhanced. Thus the Company has comfortably Real Estate complied with the Solvency Margins criteria laid down by the Insurance Board Gold Strategic of Sri Lanka, in 2004. Investment Ceylinco Insurance Increasing inflows from premium Equity General Division income necessitated the Treasury Trading Division, under the supervision of the Equity Investment Committee to focus on developing strategies to convert illiquid non-tangible investments to tangible Government liquid investments. These measures Securities were adopted with a view to further strengthening the Company’s liquidity Fixed Income position. Corporate Debt (LKR and USD) The members of the Ceylinco Insurance PLC General Division Investment Committee include; CEYLINCO INSURANCE PLC 72 Annual Report 2012

Investment Committee Report - General

The Investment Committee for the - Provided guidelines to Treasury General Division carried out the functions / Investment Management Unit set out below during the year ended 31st and the Finance Department. December 2012; - During the year, the Committee ∫ The Investment Committee reviewed regularly reviewed conformity the macroeconomic environment of of operations with the set the country with special emphasis guidelines. on significant changes and events that took place in the recent past ∫ The Committee also placed emphasis which has the possibility to alter on further strengthening the solvency the investment climate of the position for General Insurance country. Further, the committee through the effective management of alsoconsidered the research reports solvency margins and solvency ratios. on investment market trends which Thus the Company has comfortably were closely monitored by the complied with the Solvency Margins Treasury /Investment management criteria laid down by the Insurance unit in order to take informed Board of Sri Lanka, in 2004. investment decisions.

∫ Treasury /Investment management unit carried out its operations by considering the investment market trends and developing research reports which facilitated the decision T.N.M. Peiris making of the investment committee. Chairman – Investment Committee The Finance department provided (General) continuous support through detailed 27th. February, 2013 analysis of portfolio income and mark to market status of investments.

∫ All Investment committee decisions were made based on proposals by Treasury / Investment Management unit. All such proposals were discussed at length and evaluated in detail with emphasis on possible outcomes under different scenarios resulting from macro environment changes.

∫ The committee was also engaged in the following activities for the year ended 31st December 2012;

- Formulated/ Amended investment objectives, policies , procedures and direction CEYLINCO INSURANCE PLC Annual Report 2012 73

Investment Committee Report - Life

The Investment Committee of Ceylinco The committee obtains external Quality of Investments Insurance PLC- Life Division is appointed professional advice on matters within The investment decision making process by the Board of Directors of the Company. the purview of the committee and also involves an inherent trade-off between The investment division manages a invites professional advisors with relevant risk and return. The main emphasis of portfolio valued at 45.7 Billion as at 31st experience to attend meetings and assist the investment committee is to build December 2012. The portfolio can be in its duties. an optimum balance between the rate regarded as one of the largest investment of return and the credit quality of the portfolios in Sri Lanka. The portfolio is Objectives investments. The investment committee invested according to diverse investment The objectives of the investment prudently concentrates on investments objectives and varied risk preferences to committee include: with high credit quality. The following table ensure an attractive, steady and secure elaborates the credit rating structure of return. 1. Recommend investment strategies. the portfolio as at 31st December 2012.

2. Review and update the investment Scope decision making process. The Investment Committee provides a key oversight function with regard to the 3. Set procedures for the management investment decision-making process of investment portfolios. and investment related functions of 4. Set procedures for management of the Company. The committee provides investment related functions. guidance to the investment Managers on the investment objectives of the portfolios 5. Monitor investment performance. and the broad investment strategy to be adopted in investing policy holders’ funds. 6. Ensure the portfolios are managed to achieve their investment objectives As depicted below the investment whilst maintaining the appropriate committee plays a pivotal role in risk appetite. investment decision making process. 7. Adhere to regulatory requirements.

Investment Decision Making Process

Level One Level Two Level Three

Investment Reguation of Company Limits Appraisal Insurance Industry Act

Investment Internal Determinations Committee

Board Approval External Solvency Rules to enhance limit CEYLINCO INSURANCE PLC 74 Annual Report 2012

Investment Committee Report - Life

Credit Rating of investments of Ceylinco Insurance PLC – Life Fund as at 31st. December, 2012.

Credit Issuer/Instrument Exposure (%) Rating Risk Free Government of Sri Lanka 47.14 AAA Fixed Deposit Investments in Licensed and Specialized 8.27 Commercial Banks AA+ Fixed Deposit Investments in Licensed and Specialized 9.93 Commercial Banks AA Fixed Deposit Investments in Licensed and Specialized 10.05 Commercial Banks Corporate Debt instruments 1.16 Equities 0.14 Total 11.35 AA- Fixed Deposit Investments in Licensed and Specialized 8.37 Commercial Banks A+ Corporate Debt instruments 1.94 A- Fixed Deposit Investments in Licensed and Specialized 0.32 Commercial Banks Corporate Debt instruments 1.06 Total 1.39 BBB+ Corporate Debt instruments 0.26 BBB Fixed Deposit Investments in Licensed and Specialized 0.10 Commercial Banks Corporate Debt instruments 0.55 Equities 0.21 Total 0.85 Fixed asset, Investment properties and Other assets 10.50

Members 4. Mr. S.R. Abeynayake The committee comprises of 5 members - Director / Dy.CFO - Life of whom 4 are Directors, the Company 5. Mr. S. Kumarapperuma actuary. The Company has also invited a - Snr. AGM (Actuarial) veteran from the industry to serve as a consultant and to attend the investment Meetings and Attendance committee meetings. The Investment The investment committee meeting is Committee meetings are scheduled once convened weekly chaired by Managing a week. The meeting will be organized by Director / CEO - Life. Management the investment division officers. representation from the areas of The following members served on the Investment, Actuarial, Systems and investment committee during the year Marketing are attended at the meetings on invitation of the committee. 1. Mr. R.Renganathan - Managing Director / CEO - Life 2. Mr. E.T.L.Ranasinghe R. Renganathan - Director / Deputy CEO - Life Chairman – Investment Committee (Life) 3. Mr. P.A.Jayawardena 27th. February, 2013 - Director / CFO - Life CEYLINCO INSURANCE PLC Annual Report 2012 75

Statement of Directors’ Responsibility

The responsibilities of the Directors in relation to the financial statements of the Company differ from the responsibilities of the COMPLIANCE REPORT Auditors, which are set out in their report appearing on page 101 In respect of the Financial Year ended 31st December, The Companies Act No. 7 of 2007, requires the Directors to 2012 of Ceylinco Insurance PLC: prepare financial statements for each financial year giving a true ‡ $OOGRFXPHQWVUHTXLUHGE\WKH&RPSDQLHV$FW1RRI and fair view of the state of affairs of the Company as at end of WREHILOHGZLWKWKH5HJLVWUDURI&RPSDQLHVKDYH EHHQGXO\ILOHGDQG&RPSOLDQFHKDVEHHQPDGHZLWKDOO the financial year and of the Profit or Loss of the Company for the RWKHU OHJDO UHTXLUHPHQWV LQ FRQQHFWLRQ ZLWK WKH VDLG financial year. In preparing the financial statements appropriate &RPSDQLHV$FW accounting policies have been selected and applied consistently, ‡ $OO'LYLGHQGFKHTXHVKDYHEHHQGLVSDWFKHGE\WKHGXH reasonable and prudent judgements and estimates have been GDWH made and applicable accounting standards have been followed.

The Directors are responsible for ensuring that the Company keeps sufficient accounting records to disclose with reasonable 0UV 71-DVHQWKXOL\DQD &RPSDQ\6HFUHWDU\6HQLRU$VVLVWDQW*HQHUDO0DQDJHU accuracy, the financial position of the Company and for ensuring WK)HEUXDU\ that the financial statements have been prepared and presented in accordance with the Sri Lanka Accounting Standards and provide the information required by the Companies Act No. 7 of 2007. They are also responsible for taking reasonable measures to safeguard the assets of the Company and in that context to have a proper regard to the establishment of appropriate systems of internal control with a view to preventing and detecting fraud and other irregularities.

The Directors continue to adopt the going concern basis in preparing Accounts. The Directors, after making enquiries and following a review of the Company’s budget for 2013 to 2014 including cash flows and borrowing facilities, consider that the Company has adequate resources to continue in operation.

BY ORDER OF THE BOARD

Mrs. T. N. Jasenthuliyana Company Secretary / Senior Assistant General Manager

27th. February, 2013 CEYLINCO INSURANCE PLC 76 Annual Report 2012

Corporate Management - General

01. Mr. A.R.S. Wijayapura General Manager (City)

02. Mr. M. Seneviratne General Manager (Legal)

03. Mr. R.A. Gunathilake General Manager (Branches)

04. Mr. H.D.A.N. Perera General Manager (Technical)

05. Mr. R.A. Ranasinghe General Manager (City) 1 2 3 4

06. Mr. J.D.S.N. Piyadasa General Manager - Finance (Branches)

07. Mr. K.V.D.W. Wijegunaratne Deputy General Manager (Branches)

08. Mr. A.M.D. Alagiyawanna Senior Assistant General Manager

09. Mr. H.A.I. Jayawardena Senior Assistant General Manager

10. Mrs. T.N. Jasenthuliyana 5 6 7 8 Company Secretary / Senior Assistant General Manager

11. Mr. M. Premaratne Senior Assistant General Manager (Financial Services - City)

12. Mr. N.S. Rajapakse Senior Assistant General Manager (Marketing)

13. Mr. A.B. Wijeyatunge Senior Assistant General Manager (Financial Services - Head Office) 9 10 11 12 14. Mr. C.E. Wimalasuriya Senior Assistant General Manager (Technical)

15. Mr. D. Munasinghe Assistant General Manager (Marine)

16. Mrs. R.M. Abeywardena Assistant General Manager (Legal)

17. Mr. I.P. Abeywickrama Assistant General Manager (Suwa Sampatha)

18. Mr. A.P.R. De Mel 13 14 15 16 Assistant General Manager (Risk Management)

19. Mr. J.A.N.C. Fernando Assistant General Manager

17 18 19 CEYLINCO INSURANCE PLC Annual Report 2012 77

20. Mr. S.K. Jayasundara Assistant General Manager (Miscellaneous)

21. Mr. A.L.J. Atapattu Assistant General Manager (Northern Region)

22. Mr. S. Thilakeshwaran Assistant General Manager (Eastern Region) 20 21 22 23 23. Mr. R.S. Arulananthan Assistant General Manager (Western Region)

24. Mr. I.A.K.J.P. Illangakoon Assistant General Manager (Central Region)

25. Mr. P.L.S. Hemantha Assistant General Manager (Uva Region)

26. Mr. V.D.C. Wickramaratne Regional Manager

24 25 26 27 27. Mr. R.S. Joseph Regional Manager

28. Mr. H.J.S. Kumara Regional Manager

29. Mr. M.W.T. Pushpakumara Regional Manager

30. Mr. K.J.N. Perera Regional Manager

31. Mr. R.B.R. Wijeratne Acting Regional Manager 28 29 30

31 CEYLINCO INSURANCE PLC 78 Annual Report 2012

Corporate Management - Life

01. Mr. P.A.J. Jayawardena Senior Deputy General Manager (Business Development)

02. Mrs. R.M.U.K. Ratnayake Deputy General Manageress (Information & Communication Technology)

03. Mr. A.H.R. Udayasiri Deputy General Manager (Business Development) 1 2 3 4 04. Mr. L.A.H.D. Abeywickrama Deputy General Manager (Business Development)

05. Mr. T.N.Y. Morseth Senior Assistant General Manager (Training)

06. Mr. E.R.S.S. Hemachandra Senior Assistant General Manager (Marketing)

07. Mr. J.P. Abhayaratne Senior Assistant General Manager 5 6 7 8 (Operations)

08. Mr. M. Thenuwara Senior Assistant General Manager (Business Development)

09. Mr. W.A.W.C. Wijesinghe Senior Assistant General Manager (Business Development)

10. Mr. S. Kumarapperuma Senior Assistant General Manager (Actuarial) 11. Mr. A. Sirisena 9 10 11 12 Senior Assistant General Manager (Technical)

12. Mrs. I.A. De Mel Assistant General Manageress (Administrative Services)

13. Mr. G.A.D.L. Nayanappriya Assistant General Manager (Internal Audit)

14. Mr. A.C.S. Munaweera Assistant General Manager (Sales Administration) 13 14 15 16 15. Mr. P.P.D.V. Hemakumara Assistant General Manager (ICT) / Assistant Chief Information Officer

16. Mr. T.D. De Silva Assistant General Manager (Projects)

17. Mr. C.B. Herath Assistant General Manager (ICT) / Deputy Chief Information Officer

18. Mr. H.A.H.E. Gunawardena Assistant General Manager (Training) 17 18 19 19. Mr. M.H. Usoof Assistant General Manager (Finance) CEYLINCO INSURANCE PLC Annual Report 2012 79

20. Mr. W.R.M. Wickramasinghe Consultant (Legal)

21. Mrs. D.J.K. Vithanage Senior Manageress (Customer Services)

22. Mr. L.V. Keragala Senior Manager (Customer Relations)

23. Mr. J.S. Karunaratne Consultant 20 21 22 23 24. Mr. M.S.J.L.B. Weerakoon Senior Manager (Business Development)

25. Mr. R.M.P. Bandara Senior Manager (Business Development)

26. Mr. H.A. Suraweera Senior Manager (Events & Promotions)

27. Mr. D.D.S. Dissanayake Senior Manager (Projects)

28. Mr. T. Vijayanath Senior Manager (Business Development)

24 25 26 27 29. Mr. B.S.E.M Perera Senior Manager (Customer Services)

30. Mr. N.K. Rajapakse Senior Manager (I.T. Operations)

31. Miss. S.K. Gunatilleke Senior Manageress (Actuarial)

32. Mr. D.S. Thilakarathna Senior Manager (Business Development)

33. Mr. W.G.S. Chandrasiri Senior Manager (Business Development) 28 29 30 31 34. Mr. J.L.N. Jayawardena Senior Manager (Customer Services)

35. Mr. P. Silva Senior Manager (Administration)

36. Mr. U.S. Sivasubramaniam Senior Manager / Deputy Head of Marketing

32 33 34 35

36 CEYLINCO INSURANCE PLC 80 Annual Report 2012

Management Staff - General

Corporate Sales Management

01. Mr. H.C.S. Hemantha Senior Manager (Corporate Accounts)

02. Mr. L.M.M.B. Karaliyadde Senior Manager (Corporate Accounts)

03. Mr. S.A. Priyantha Senior Manager (Corporate Accounts) 04. Mr. W.M.A.C. Sanjana 1 2 3 4 Senior Manager (Corporate Accounts)

05. Mr. V.S.D. De Mel Senior Manager (Corporate Accounts)

06. Mr. W.P.N. De Alwis Senior Manager (Corporate Accounts)

07. Mr. M.A.S. Rupathunga Senior Manager (Corporate Accounts) 5 6 7 8 08. Mr. K. Alikhan Senior Manager (Corporate Accounts)

09. Mr. U.A.R. Sanjeewa Senior Manager (Corporate Accounts)

10. Mr. B.D.C. Perera Senior Manager (Corporate Accounts)

11. Mr. M.A.V. Priyadarshana Senior Manager 9 10 11 12 (Corporate Accounts)

12. Mr. M.D.S.R.L. Jayasekara Senior Manager (Corporate Accounts)

13. Mr. L.M.R.S. Lansakara Senior Manager (Corporate Accounts)

14. Mr. I.K. Weerakkody Senior Manager (Corporate Accounts)

15. Mr. W. George 13 14 15 16 Senior Manager (Corporate Accounts)

16. Mr. K.K.V.K. Priyasad Senior Manager (Corporate Accounts)

17. Mr. N. Hettiarachchi Senior Manager (Corporate Accounts)

18. Mr. S.A.D.L. Sural Senior Manager (Corporate Accounts) 17 18 CEYLINCO INSURANCE PLC Annual Report 2012 81

Regional / Area Sales Managers

01. Mr. S.K. De Alwis Regional Sales Manager

02. Mr. R. Seneviratne Area Sales Manager

03. Mr. E.C.I. Fernando Area Sales Manager

04. Mr. M.D.N. De S. Amarasekara Area Sales Manager 1 2 3 4 05. Mr. B.N.T. Rupasinghe Area Sales Manager

06. Mr. C.N. Weerasuriya Area Sales Manager

07. Mr. K.P.L.A. Balawardena Area Sales Manager

08. Mr. D.S. Karunaratne Area Sales Manager

09. Mr. W.P.S. Pemachandra Area Sales Manager

5 6 7 8 10. Mr. M.A.L. Ravindra Area Sales Manager

11. Mr. J.S. Rajapaksha Area Sales Manager

12. Mr. V. Nissanka Area Sales Manager

9 10 11

12 CEYLINCO INSURANCE PLC 82 Annual Report 2012

Management Staff - Life

01. Mr. T. Thiyagarajah Manager (Life Operations)

02. Mr. A.S. Hettikanda Manager (Claims)

03. Mr. B.A. Nandalal Manager (Business Development)

04. Mr. E.R. Kannangara Manager (Systems)

05. Mr. N.D. Kurukulasuriya Manager (Portfolio) 1 2 3 4

06. Mr. A.A.U.C. Adikari Category Manager

07. Mr. G.A.H. Chandana Manager (Finance)

08. Mr. R.M.S. Wijeyesekera Manager (Systems)

09. Mr. R.S. Deheragoda Manager (Business Intelligence)

10. Mr. R.D. Vipulatheja 5 6 7 8 Manager (Training)

11. Mr. V.M.G. Kariyawasam Manager (DB Infrastructure Solutions)

12. Mr. L.G.H.A. Saman Kumara Manager (Technical)

13. Mr. C.R.P. Liyanage Manager (Group Assurance)

14. Mr. P.A.C.D. Wijayasekara Manager (Internal Audit)

15. Mr. S.K.N. De Silva 9 10 11 12 Manager (Financial Services)

16. Mr. P.U.C. Pathinagoda Manager (Information Systems Audit)

17. Mr. K.I. Weththasinghe Manager (Legal)

18. Mr. C.D. Karunarathna Brand Manager

19. Mr. P.M.J.S.K. Rathnayaka Manager (Business Development) 13 14 15 16

17 18 19 CEYLINCO INSURANCE PLC Annual Report 2012 83

Senior Sales Management - Life

01. Mr. M.H.Y.A. Silva Assistant Manager (Business Development)

02. Mr. K. Sumanthiran Assistant Manager (Business Development)

03. Mr. N.K. Subapanditha Acting Assistant Manager (Business Development) 1 2 34 04. Mr. P.P. Sri Kalyaniwansa Acting Assistant Manager (Business Development)

05. Mr. K.L.U Priyantha Assistant Manager (Business Development)

06. Mr. D.R.M.T.N.D. Bandara Acting Assistant Manager (Business Development)

5 6 CEYLINCO INSURANCE PLC 84 Annual Report 2012

Management Staff

HEAD OFFICE – Assistant General Manager (Legal) Senior Managers (Corporate Accounts) LIFE & GENERAL DIVISIONS Mrs. R.M. Abeywardena K. Alikhan Attorney-at-Law & Notary Public W.P.N. De Alwis Company Secretary / Senior V.S.D. De Mel Assistant General Manager Assistant General Manager W. George (Miscellaneous Insurance) Mrs. T.N. Jasenthuliyana H.C.S. Hemantha S.K. Jayasundara F.C.I.S.(U.K.), F.C.P.M., F.C.C.S. N. Hettiarachchi M.D.S.R.L. Jayasekara Senior Assistant General Manager Assistant General Manager L.M.M.B. Karaliyadde (Financial Services - Head Office) (Risk Management) L.M.R.S. Lansakara B.Com.(Special) A.B. Wijayatunga M.C.P.M. A.P.R. De Mel A.M.I. Mech. E. B.D.C. Perera Manager (Company Secretarial) Assistant General Manager M.A.V. Priyadarshana Mrs. A.L.D.E.H. De Silva (Suwa Sampatha Insurance) S.A. Priyantha I.P. Abeywickrama K.K.V.K. Priyasad Assistant General Manager M.A.S. Rupathunga GENERAL DIVISION J.A.N.C. Fernando M.B.A. (India) W.M.A.C. Sanjana U.A.R. Sanjeewa General Manager (Technical) Assistant General Manager S.A.D.L. Sural H.D.A.N. Perera (Central Region) I.K. Weerakkody General Manager (City) I.A.K.J.P. Illangakoon Chief Technical Manager (Automobile) R.A. Ranasinghe Assistant General Manager A.R. Pietersz M.I.A.E. (S.L.) General Manager (City) (Western Region) Senior Legal Officers A.R.S. Wijayapura R.S. Arulananthan S.A.K. Haputhanthri Attorney-at-Law, General Manager (Legal) Assistant General Manager Commissioner for Oath M. Seneviratne LL.B.(Sri Lanka) & (Eastern Region) S.T. Lamabadusuriya LL.B., Attorney-at-Law S. Thilakeshwaran Attorney-at-Law & Notary Public, Commissioner for Oath, Regd. Co.Sec. General Manager - Finance (Branches) Assistant General Manager L.P.C. Madhavila J.D.S.N. Piyadasa (Northern Region) Attorney-at-Law & Notary Public, B.Sc. (Pub. Admin.)(Hons.), F.C.A. A.L.J. Atapattu A.C.I.C Commissioner for Oath

General Manager (Branches) Assistant General Manager Mrs. H.M. Pethiyagoda LL.B., R.A. Gunathilake Attorney-at-Law & Notary Public, (Uva Region) Commissioner for Oath P.L.S. Hemantha Deputy General Manager (Branches) Mrs. D.R. Wickramasinghe K.V.D.W. Wijegunaratne Regional Managers Attorney-at-Law & Notary Public, R.S. Joseph Commissioner for Oath Senior Assistant General Managers A.M.D. Alagiyawanna B.A.(Econ.)(Hons.) H.J.S. Kumara Senior Risk Engineers B.G.N.I.B. Basnayake B.Sc.(Eng.) H.A.I. Jayawardena K.J.N. Perera M.W.T. Pushpakumara C.C. Ekanayake B.Sc., M.I.E.E. (U.K.), Senior Assistant General Manager A.M.I.E. (S.L.) V.D.C. Wickramaratne (Financial Services - City Office) L.K. Karunaratne M. Premaratne A.C.A., F.C.M.A. Acting Regional Manager E.M.N. Lasantha B.Sc. (Eng.) R.B.R. Wijeratne A.C.I.C. Senior Assistant General Manager M.N. Ranasinghe B.Sc.(Eng.) (Marketing) Chief Manager (Internal Audit) R.K. Wijeyasinghe B.Sc. (Eng.), A.M.I.E. (S.L.), PG. Dip. Elect. Eng.(S.L.) N.S. Rajapakse Dip.M.(U.K.), M.C.P.M. A.A.U.S.S. Wijeratne A.C.A., A.C.M.A. Risk Engineers Senior Assistant General Manager Chief Managers (Financial Services) M.P.P.U. Chulasiri B.Sc.(Eng.), A.M.I.E. (S.L.) (Technical) J. Rambukkana B.Com. (Special) C.E. Wimalasuriya A.C.I.C. S. Dhatparan B.Eng. (U.K.) K. Sankaramoorthy A.C.A., A.S.C.M.A., R. Janarththanan B.Eng. (U.K.) Assistant General Manager M.B.A. (Sri J.) (Marine Insurance) U.K.U. Wijeratne N.S. Kaluthantrige B.Sc. (Eng.) D. Munasinghe H.D.J.K. Perera B.Sc. CEYLINCO INSURANCE PLC Annual Report 2012 85

J.A.T.I. Perera N.D.T. (Mech. Eng.) Managers (Internal Audit) Technical Managers N.S. Weerakoon W.A.S.H.A.D. Jaksa W.R.N. Dep J.M.A.R.P. Jayakody R.T. Hemage B.Sc. (Agriculture) Senior Manager (Internal Audit) B.Sc.(Busi. Admin.) (Special), A.C.A. R.P.D.U. Indrajith J.A.A.K. Jayasinghe B.Com.(Special), P.U.U. Perera B.Com. C.J. Mapalagama A.C.I.C., M.A.A.T. Manager (Information Systems Audit) Manager (Recoveries - Marine Insurance) Senior Manager (Reinsurance) K.N.N. Madarasinghe S.L.D.C. Sisira B.Com. (Hons.) S.F.F. De Silva Managers (Financial Services) Senior Managers (Financial Services) Manager (Customer Care) R.M.A. Bandara B.Sc. (Busi. Admin.) (Special) W.R.R.A. Perera B.S. Baddage A.C.A., W.P.A. Bandara B.Sc. (Accountancy)(Special) D.R.N. Damsiri B.Sc. (Busi. Admin.) (Special) Senior Area Automobile Engineers Mrs. W.P.S. Jayasinghe P.F.R. Fernando C.J. Amarakoon B.Sc .(Busi. Admin.)(Special) S.L.W. Fernando K.P.U.D. Gunasekara B.C.P. Kumara K.L.R.D. Silva A.I. Gunawardana O.B.R. Perera W.A. Soysa H.C. Heenatigala M.S.R. Piumwardena V.S. Warnapura M.M.D.H. Kandangoda A.S. Sarathchandran S.P.U.K. Priyadarsha Mrs. S.H.S.D. Sumanathilake A.C.A., A.C.M.A. Manager (Training) R.G.C. Priyankara A.K.M. Wickramasinghe W.A.M. Susantha B.Sc. (Bus. Admin.)(Sp.), B.B. Mgt. (Sp.) (Hons.) M.S.L.I.T.A.D., M.I.T.D. (S.L.) Area Automobile Engineers Senior Product Manager Technical Managers (Automobile) E.M.P.B. Ekanayake I.E. Abeyratne M.C.I.M. (U.K.), D.B. Rajaguru M.E.V. Fernando Dip.M. (U.K.), M.B.A. (U.K.), S.H. Sanath B.Sc. (Eng.) Chartered Marketer (U.K.), H.A.K. Hemantha M.S.L.I.M., Adv. Dip. MA Technical Managers (Underwriting) B.I. Moses V.A.L.C. De Silva M.S.V. Perera Senior Manager (Marine Survey) W.R.S. Fernando K.M.I. Rajawatta T.A. Wickramaratne Mrs. M.W.S.N. Mangalie Regional Sales Manager (Branches) Senior Technical Manager (Automobile) K.M.C.S. Perera S.K. De Alwis B.S.B. Jayasekara P.L. Sumanapala Area Sales Managers (Branches) Senior Technical Managers (Underwriting) Technical Managers (Claims) M.D.N. De S. Amarasekera M.D.R.D. Gunatillake I.M. Karunasena K.P.L.A. Balawardena B.I.U. Kumara Mrs. T.K.K. Ratnayake E.C.I. Fernando Senior Technical Managers J.K. Wanigathunga B.Sc. (Mkt. Mgt.) (Sp.), D.S. Karunaratne Miss. P. Dambegoda M.B.A. (Sri J.) A.M.S.L.I.M., L.I.I.I. V. Nissanka M.M.D. Dias Manager - Information Technology W.P.S. Pemachandra H.M.T. Herath B.Sc. (Mkt. Mgt.) (Special) (Branch Operations) J.S. Rajapakse K.W.M.A. Kulatunga D.P. Ratnapala B.Sc. (I.T.) (U.S.A.) M.A.L. Ravindra A.A. Nandana Mrs. N.D.D.J. Serasinghe Manager (Systems) B.N.T. Rupasinghe H.A. Dikkumbura R. Seneviratne Senior Managers C.N. Weerasuriya J.R. Amarasinghe Manager - Information Technology (Research & Development) T.D. Athapaththu Attorney-at-Law, B.A., LL.B., PG. Dip. (Dev. St. & Pub. Policy) H.A.R. Dharmaratne B.I.T., C.S.A. Ferdinands Dip. Comp. System Design, M.B.A. (U.S.A.) CEYLINCO INSURANCE PLC 86 Annual Report 2012

Management Staff

Senior Sales Managers (City) D.M.R.N. Dissanayake Branch Managers H.B.N. Bandara W.M.D.C.B. Dissanayake D.A.S. De Silva W.M.C.J. Bandara K.C.S. Fernando L.P.D. Dharmasuriya Miss. K.A.D. De Silva M.B.I.N. Fernando P.C.N. Dias M.C.A. Fernando M.S.R.M. Fernando D.S.R. Dissanayake D.J. Gunawardena Dip. M. (U.K.), B.R. De S. Gardiyawasam M.P.S. Divithurugama A.C.I.M. (U.K.) S.K.K. Gunarathna J.M.R.K.D. Galgamuwa T.M.R.K. Kurukula D.P.R. Gunasiri W.G.S.L. Gamage M. Marwan P.U.I. Gunawardena V.K. Gunathilake T.S.R. Peiris S. Gurusinghe L.A.I.A. Jayasena W.A.S. Prasanna I.G.D. Idirideera H.D. Madugoda M.A.S. Priyadarshana S.P. Jagathsiri C.S. Mahalekamgedara R.V.N.S. Rajapaksha D.D.S.S. Kumar H.P.V.U. Mahindaratne K.S. Sanjeewa P.V. Kumara B.P.J. Mendis S.U. Thalakumbura W.S.A. Kumarasiri U.L.M.C. Perera R.T.D.W. Tilakaratne D.S. Menik Kadawara D.B.J. Prasad W.M.J. Weerasekara W.M.R.B. Naranpanawa K.M.R. Ranasinghe P.W.H.M. Panwilawaththa P.J. Raweendra Sales Managers (City) P. Partheepan P.S.M. Rerukana H.G.N.L. Ariyaratne T.A.B. Peiris P.L.N.C. Sampath A.K.N. Chandima L.T.P. Perera C.J. Udugala S. De Alwis C. Pratheepan N.P. Wadugodapitiya M.D.D. Dissantha B.A.S. Priyadarshana M.S. Weerasinghe L.A.S. Edirisinghe H.K.M. Priyankara W.K. Wijeratne H.K.Y. Gunasekara N.J. Rajapakshe P. Jayasinghe H.M.N.T. Ranathunge J.K.C. Jayawardena R.P.S.R. Randunu K.D.D. Kumara D.L.W. Rathnayaka K.M.S.N. Kumara W.A.D.S.A. Rodrigo B.G.S. Mendis K.M.P. Rohan D.A.H. Prasad J.E. Rulach R.U. Sampath K. Sakthivadivel V. Sivakumar K.P.S. Senaratne N.J. Thavachchelvam K.R.U. Silva M.D.J. Thilina S.J.S. Silva W.D. Silva Sales Managers (Branches) S.T. Somathilaka C.I. Abenayaka A.V. Upul K.A.A.P. Abhaya Wickrama C.H. Vitharana A.M.W.J. Adikari D.S.P. Weerasinghe P.G.N.S. Amarakoon W.A.C.R. Weerasinghe A.D.W.I. Anushan W.L.D.K. Weerasuriya T. Athithan W.M.R.B. Wijekoon K.M.U. Chandraratne A.S. Wijethunga L.H.M.L. Dayananda F.B.G.N.S. Wijewardhena W.P.G.S.D. De Silva D.M.M. Deshapriya D.H.M.J. Dharmapriya CEYLINCO INSURANCE PLC Annual Report 2012 87

LIFE DIVISION Assistant General Manager Senior Manager (IT Operations) (Sales Administration) N.K. Rajapakse M.B.C.S., C.I.T.P. Senior Deputy General Manager A.C.S. Munaweera LUTCF (U.S.A.), C.I.A.M. Senior Manageress (Actuarial) (Business Development) Assistant General Manager Miss. S.K. Gunatilleke B.Sc. (Hons.) Maths P.A.J. Jayawardena LUTCF (U.S.A.), C.I.A.M. (Information & Communication (U.K.), PG. Dip. Actuarial Science (U.K.), M. Sc. (Actuarial Science)(U.K.), F.I.A. (U.K.) Deputy General Manageress Technology) / Assistant Chief Information Officer (Information & Communication Senior Manager (Administration) Technology) P.P.D.V. Hemakumara C.I.S.A. (U.S.A.), M.B.C.S. (U.K.), Dip. Mgt. (India), M.B.A. (India), P. Silva M.B.A. (U.K.), A.I.E.A. (U.K.) Mrs. R.M.U.K. Ratnayake M.C.S.S.L.(S.L. ) M.B.C.S., C.I.T.P., C.I.S.A.(U.S.A.), Senior Manager / Deputy Head of M.Sc. (Comp.Sc.)(Colombo), M.C.S. Assistant General Manager (Projects) Marketing T.D. De Silva B.B.A. (Hons.), A.C.C.A., M.B.A. U.S. Sivasubramaniam A.C.M.A., Deputy General Managers (University of Colombo) M.B.A. (Colombo), M.C.I.M. (Business Development) L.A.H.D. Abeywickrama LUTCF (U.S.A.), Assistant General Manager (ICT) / Manager (Life Operations) C.I.A.M., M.B.A. (Rajarata) Deputy Chief Information Officer T. Thiyagarajah B.Sc.(Hons.) A.H.R. Udayasiri B.Sc. (Cey.), LUTCF (U.S.A.), C.B. Herath B.Sc., M.B.A. (Sri J.), M.B.C.S., Managers (Business Development) C.I.A.M. PG. Dip. (Bus. & Fin. Admin.) B.A. Nandalal Senior Assistant General Manager Assistant General Manager (Training) P.M.J.S.K. Ratnayake (Training) H.A.H.E. Gunawardena C.I.A.M., Manager (Claims) T.N.Y. Morseth C.I.A.M., LUTCF (U.S.A.) LUTCF (U.S.A.) A.S. Hettikanda ANZIIF Senior Assistant General Manager Assistant General Manager (Finance) (Snr. Associate), Cert. C.I.I. (U.K.) (Marketing) M.H. Usoof B.Com., F.C.A. Manager (Portfolio) E.R.S.S. Hemachandra A.C.M.A.(U.K.), M.B.A. (Aust.), Dip. Mkt. (U.K.), F.C.I.M. (U.K.), Consultant (Legal) N.D. Kurukulasuriya C.P.A., A.C.M.A., M.C.P.M., M.B.A. (Sri J.) Chartered Marketer, LUTCF (U.S.A.) W.R.M. Wickramasinghe M.C.P.M., Attorney-at-Law & Notary Public, Senior Assistant General Manager Commissioner for Oath, Regd. Co. Sec. Category Manager (Operations) A.A.U.C. Adikari M.C.I.M. (U.K.), Senior Managers (Customer Services) Chartered Marketer (U.K.), J.P. Abhayaratne Dip. Mgt., B.B.A. (U.S.A), M.S.L.I.M. (S.L.), P. Mkt. (S.L.) M.B.A. (U.K.) J.L.N. Jayawardena B.S.E.M. Perera Senior Assistant General Managers Mrs. D.J.K. Vithanage Managers (Systems) (Business Development) E.R. Kannangara M.I.D.P.M. (U.K.), Senior Manager (Customer Relations) M.B.C.S., C.I.T.P., M.Sc. (I.T.), M.C.S. M. Thenuwara LUTCF (U.S.A.), C.I.A.M. L.V. Keragala Dip. Mkt. (U.K.) M.B.A. (India), W.A.W.C. Wijesinghe LUTCF (U.S.A.), R.M.S. Wijeyesekera M.B.C.S. (U.K.) C.I.A.M. Consultant Senior Assistant General Manager J.S. Karunaratne A.C.I.I., Chartered Insurer Manager (Business Intelligence) (Actuarial) R.S. Deheragoda Senior Managers (Business Development) S. Kumarapperuma B.Sc. (Hons.), LUTCF (U.S.A.) Manager (Corporate Sales) PG. Dip. Act. Sci. (U.K.), R.M.P. Bandara M.B.A. (University of Colombo) W.G.S. Chandrasiri M. Priyaviraj D.S. Thilakarathna Senior Assistant General Manager T. Vijayanath Manager (Finance) (Technical) M.S.J.L.B. Weerakoon G.A.H. Chandana B.Sc. Mgt. (Sp.) (Hons.), A.C.A., A.C.M.A. A. Sirisena A.C.I.I. (Lond.), D.M.U. (A.M.S.), Chartered Insurer, M.B.A. (India) Senior Manager (Events & Promotions) Manager (Training) H.A. Suraweera B.Sc. (Mkt. Mgt.) (Special), R.D. Vipulatheja LUTCF (U.S.A.), A.F.A. Assistant General Manageress Chartered Marketer (Administrative Services) Manager (DB Infrastructure Solutions) Senior Manager (Projects) Mrs. I.A. De Mel V.M.G. Kariyawasam M.Sc. (I.T.), D.D.S. Dissanayake Bsc. (Eng.), B.Sc.(Hons.) M.I.S., A.C.S.A., PG.Dip.(I.T.) Assistant General Manager Attorney-at-Law (Internal Audit) G.A.D.L. Nayanappriya A.C.A. CEYLINCO INSURANCE PLC 88 Annual Report 2012

Management Staff

Manager (Technical) LIFE DIVISION L.G.H.A. Saman Kumara A.C.I.I., BRANCHES A.I.I.I., LL.B, Attorney-at-Law Regional Sales Manager Manager (Group Assurance) A.K.D.D.C. Perera C.R.P. Liyanage Dip. M. (U.K.), B.B.D.M. (Aus.), M.B.A. (Aus.) Acting Regional Sales Managers M.N. Abdeen Manager (Financial Services) H.M.J. Banda S.K.N. De Silva Pg. Dip.(Bus.Fin. & Admin.) B.B.G. Gunathilake D.S. Hettiarachchi Manager (Information Systems Audit) B. Nanthykumar F.I.A.B. P.U.C. Pathinagoda B.Sc., C.I.S.A. (U.S.A.) T. Nirojan W.H. Sarathchandra Manager (Internal Audit) E.H.D.J. Shantha P.A.C.D. Wijayasekera A.C.A., A.C.M.A., F.M.A.A.T. P.K. Siriwardane I.B.L. Wijesinghe B.A. Manager (Legal) K.I. Weththasinghe Senior Branch Sales Managers Attorney-at-Law & Notary Public, P.V. Abayaratne Regd. Co.Sec. S.N. Hettiarachchi Y.C. Liyanage Brand Manager N. Pushpaharan C.D. Karunarathna A.C.I.M. (U.K.)

Assistant Managers Senior Manageress – Corporate Sales (Business Development) (Ceylinco Seraka Ltd.) K.L.U. Priyantha Mrs. R.S. Panagoda M.F.A. (LIMRA -U.S.A.) M.H.Y.A. Silva K. Sumanthiran

Acting Assistant Managers (Business Development) D.R.M.T.N.D. Bandara P.P. Sri Kalyaniwansa N.K. Subapanditha

Zonal Managers N.T. Seneviratne M.T.A. Peiris CEYLINCO INSURANCE PLC Annual Report 2012 89

Financial Information

Financial Statements Financial Calendar 2013 Report of the Directors 90 -98 Annual Report 2012 28th. February, 2013 Actuarial Report (General) 99 Annual General Meeting 09th. April, 2013 Actuarial Report (Life) 100 Final Dividend Proposed 09th. April, 2013 Report of the Auditors 101 Ex-Dividend From 10th. April, 2013 Group Consolidated Statement of Financial Position 102 Final Dividend Payable 19th. April, 2013 Group Consolidated Income Statement 103 Interim Report - 1st. Quarter 15th. May, 2013 Group Consolidated Statement of Comprehensive Income 104 Interim Report - 2nd. Quarter 15th. August, 2013 Group Consolidated Statement of Changes in Equity 105 Interim Report - 3rd. Quarter 15th. November, 2013 Group Consolidated Statement of Cash Flows 106 -107 Interim Report - 4th. Quarter 28th. February, 2014 Insurance Revenue Account - Company 108 Supplementory Statement of Financial Position - Life Division 109 Notes to the Supplementory Statement of Financial Position - Life Division 110 - 113 Notes to the Consolidated Financial Statements 114 -177 CEYLINCO INSURANCE PLC 90 Annual Report 2012

Report of the Directors

The Directors are pleased to submit their report together with the Audited Statements of Income, Comprehensive Income, Changes in Equity, Cash Flow and the Statement of Financial Position of Ceylinco Insurance Group for the year ended 31st. December, 2012, and the Report of the Auditors thereon.

Review of Operations The Chairman’s and the Joint Managing Directors’ Reviews of General and Life Divisions on pages 8 to 20 contain a detailed description of General and Life Insurance operations carried out in the year under review and projected developments.

Principal Activities of the Group The principal activities of the Group constitute underwriting all classes of General Insurance, Life Insurance, Management of Investment, Health Care Operations, Education and Power Generation.

Results of the Financial Year Group Company 2012 2011 2012 2011 Rs.‘000 Rs.‘000 Rs.‘000 Rs.‘000

Profit After Taxation (After Minority Interest) 1,953,108 1,507,861 1,653,249 1,335,495 Add : Balance Brought Forward 5,931,099 3,141,183 5,517,473 3,031,125

Changes in Ownership in Group Companies 18,987 74,282 - - Adjustment due to Structural Reorganisation - 56,920 - - SLFRS Adjustment -Life fund - (60,283) - (60,283) Revaluation Reserve -Transfer on Disposal 10,478 - 10,478 - Other Comprehensive Income for the Period 288,855 1,356,416 288,855 1,356,416 Funds Available for Appropriation 8,202,527 6,076,379 7,470,055 5,662,753 Appropriation : Dividend Paid - Final (171,694) (145,280) (171,694) (145,280) Unappropriated Profit Carried Forward 8,030,833 5,931,099 7,298,361 5,517,473

Transfer to Reserves and Provisions There were no transfers other than those mentioned above to or from reserves or provisions except for normal amounts set aside for items such as depreciation, outstanding claims and unexpired risks as shown in the accounts.

Share Capital During the Financial Year under review, no shares were issued.

The Stated Capital of the Company as at 31st. December, 2012 was Rs. 1,324,822,000/= and is represented by issued and fully paid 20,000,000 voting ordinary shares and 6,414,480 non voting ordinary shares.

Dividends The Directors recommend a first and final dividend of Rs. 12/50 per share for the year ended 31st. December, 2012, payable on 19th. April, 2013. CEYLINCO INSURANCE PLC Annual Report 2012 91

Directors Messers. J.G.P. Perera, A.R. Gunawardena, R. Renganathan, H.D.K.P. Alwis, E.T.L. Ranasinghe, W.C.J. Alwis, P.D.M. Cooray, K.I. Dharmawardena, P.M.B. Fernando, D.H.J. Gunawardena, P.A. Jayawardena, N.D. Nugawela, T.N.M. Peiris, D.W.P. Upali, Gen. C.S. Weerasooriya (Retired) and S.R. Abeynayake were the Directors of the Company during the financial year ended 31st. December, 2012.

In accordance with the Articles of Association of the Company, Dr. W.C.J. Alwis, Messers. D.H.J. Gunawardena, P.A. Jayawardena and D.W.P. Upali retire by rotation and being eligible, offer themselves for re-election.

An Ordinary Resolution was approved by the Shareholders at the last Annual General Meeting of the Company held on 03rd. April, 2012 for the election of Mr. Juvanel Godwin Peter Perera as a Director being over 70 years, wherein the age limit specified in Section 210 of the Companies Act No. 07 of 2007 will not apply. Mr. Perera’s appointment will be valid for one year from his appointed date.

In accordance with the Companies Act No. 07 of 2007, Mr. J.G.P. Perera has to retire thereafter and being eligible offers himself for re-election. Mr. Perera being a Director was 75 years of age in December, 2012, a Special Notice has been received from a shareholder to move a resolution as an ordinary resolution that Mr. Juvanel Godwin Peter Perera be re-elected as a Director and that the age limit specified in Section 210 of the Companies Act No. 07 of 2007 shall not apply to Mr. Juvanel Godwin Peter Perera.

Directors’ Meetings The number of Board Meetings held during the financial year under review were seven meetings and the number of meetings attended by each Director of the Company were as follows :

Names of Directors No. of Board Meetings attended

Mr. J.G.P. Perera 07 Mr. A.R. Gunawardena 07 Mr. R. Renganathan 07 Mr. H.D.K.P. Alwis 07 Mr. E.T.L. Ranasinghe 06 Dr. W.C.J. Alwis 07 Mr. P.D.M. Cooray 06 Mr. K.I. Dharmawardena 07 Mr. P.M.B. Fernando 07 Mr. D.H.J. Gunawardena 07 Mr. P.A. Jayawardena 06 Mr. N.D. Nugawela 07 Mr. T.N.M. Peiris 07 Mr. D.W.P. Upali 06 Gen. C.S. Weerasooriya (Retd.) 06 Mr. S.R. Abeynayake 07 CEYLINCO INSURANCE PLC 92 Annual Report 2012

Report of the Directors

Directors’ Interest in Shares The Memorandum and Articles of Association of the Company do not stipulate the Directors to hold shares of the Company, as qualifying shares.

Directors’ Interest in Shares of the Company are as follows: Voting Shares Non Voting Shares as at as at as at as at 31.12.2012 31.12.2011 31.12.2012 31.12.2011

Mr. J.G.P. Perera NIL NIL NIL NIL Mr. A.R. Gunawardena (Mr. A.R. Gunawardena 130 voting shares and 55 non voting shares; and joint with Mrs. K.S. Gunawardena 119,359 voting shares and 8,600 non voting shares) 119,489 119,489 8,655 8,655 Mr. R. Renganathan (Mr. R. Renganathan 121,124 voting shares and joint with Mrs T.R.S. Renganathan 3,626 voting shares) 124,750 124,750 NIL NIL Mr. H.D.K.P. Alwis 861 861 Mr. H.D.K.P. Alwis joint with Mrs. S.R. Alwis 2,000 2,000 Mr. E.T.L. Ranasinghe 7,098 7,098 NIL NIL Dr. W.C.J. Alwis 526,692 526,692 219,041 219,041 Mr. P.D.M. Cooray 6,050 6,050 NIL NIL Mr. K.I. Dharmawardena 28 28 NIL NIL Waldock Mackenzie Limited / Mr. K.I. Dharmawardena 10,736 16,536 NIL NIL Mr. P.M.B. Fernando 500 500 1,000 1,000 Mr. D.H.J. Gunawardena NIL NIL NIL NIL Mr. P.A. Jayawardena 1,316 1,316 134 134 Mr. N.D. Nugawela 1,200 1,200 510 510 Mr. T.N.M. Peiris 22,492 22,492 2,000 2,000 Mr. D.W.P. Upali 500 500 512 512 Gen. C.S. Weerasooriya (Retd.) NIL NIL NIL NIL Mr. S.R. Abeynayake 7,858 7,858 200 200

The Directors’ dealings of the Shares of the Company are in line with the regulations of the Colombo Stock Exchange and in keeping with the regulations of the Company.

Directors’ Interest in Contracts The Directors of the Company have no direct or indirect interest in any contract or proposed contract with the Company except those specified in the annexed schedule, which have been disclosed and declared at meetings of Directors. CEYLINCO INSURANCE PLC Annual Report 2012 93

Corporate Governance The Audit Committee held seven meetings and the Remuneration Committee held two meetings during the year 2012.

The number of meetings attended by each Director (who are members of the respective committees) are as follows:

Name of Committee Member Audit Remuneration Committee Committee

Mr. D.H.J. Gunawardena 07 02 Mr. K.I. Dharmawardena 07 02 Mr. T.N.M. Peiris 07 02 Mr. P.A. Jayawardena 05 Non Member Mr. D.W.P. Upali 05 Non Member

The three Non Executive “independent” Directors have duly submitted to the Board their declarations as to their “independence”, and the other Non Executive Director also has submitted his declaration. These have been tabled at the Board Meetings.

Analysis of Shareholders (Voting)

Holding Range Number of Number of % (Shares) Shareholders Shares

1 to 1,000 2,243 557,142 2.79 1,001 to 5,000 400 763,009 3.81 5,001 to 10,000 65 456,000 2.28 10,001 to 50,000 37 716,520 3.58 50,001 to 100,000 2 133,529 0.67 100,001 to 500,000 3 681,364 3.41 500,001 to 1,000,000 6 3,788,982 18.94 Over 1,000,000 4 12,903,454 64.52 Total as at 31st. Dec. 2012 2,760 20,000,000 100.00

Analysis of Shareholders (Non - Voting)

Holding Range Number of Number of % (Shares) Shareholders Shares

1 to 1,000 1,285 346,601 5.40 1,001 to 5,000 86 209,205 3.26 5,001 to 10,000 17 133,747 2.09 10,001 to 50,000 17 393,598 6.14 50,001 to 100,000 3 216,115 3.37 100,001 to 500,000 7 1,553,914 24.22 500,001 to 1,000,000 0 0 0 Over 1,000,000 2 3,561,300 55.52 Total as at 31st. Dec. 2012 1,417 6,414,480 100.00 CEYLINCO INSURANCE PLC 94 Annual Report 2012

Report of the Directors

Percentage of “Public Holding” (as defined by the Colombo Stock Exchange Circular amended in January, 2004) is 37.7% of the issued voting share capital and 40.83% of the issued non-voting share capital.

Analysis of Shareholdings Institutional / Non - Institutional

Shareholder Number of Total Holdings Category Shareholders Shareholdings %

(Voting) Individuals 2,590 3,877,718 19.39 Institutions 170 16,122,282 80.61 2,760 20,000,000 100.00

(Non - Voting) Individuals 1,363 1,315,501 20.51 Institutions 54 5,098,979 79.49 1,417 6,414,480 100.00

Donations During the year charitable donations amounting to Rs. 3.5 Million were made by the Company.

Taxation The Company is liable for income tax at 28%.

The Income Tax Liability of the General Division for the year amounted to Rs. 112.5 Million and no tax liability arose on the Life Insurance businesses due to tax losses. CEYLINCO INSURANCE PLC Annual Report 2012 95

Capital Expenditure & Capital Commitments The total expenditure on acquisition of Property, Plant and Equipment during the year amounted to Rs. 862 Million.

The 20 major shareholders as at 31.12.2012 (Voting)

Shareholder Holding as at % of the Holding as at 31/12/2012 issued share 31/12/2011 No. of Shares Capital No. of Shares as at 31/12/2012

Ciesot (Private) Limited 4,571,891 22.86 4,571,891 Global Rubber Industries (Private) Limited 4,357,419 21.79 4,034,964 Pictet & Cie 2,136,100 10.68 2,136,100 Ceylinco Insurance PLC A/C No. 03 (Employees’ Gratuity Trust Fund) 1,838,044 9.19 1,811,544 Mr. Prabhash Subasinghe 908,890 4.54 1,047,100 Ceylinco Insurance PLC A/C No. 04 (Pension Fund) 737,900 3.69 737,900 Citizens Development Business Finance PLC 564,000 2.82 564,000 Dr. Watuthanthrige Chakrine Jagath Alwis 526,692 2.63 526,692 Global Sea Foods (Private) Limited 526,100 2.63 525,000 Castle Realty (Private) Limited 525,400 2.63 525,400 Ceylinco Insurance PLC – A/C No. 05 (The Pension Trust Fund of Ceylinco Insurance PLC) 440,881 2.20 352,300 Mr. Rajkumar Renganathan (Mr. R. Renganathan 121,124 shares and joint with Mrs. T.R.S. Renganathan 3,626 shares) 124,750 0.62 124,750 Mr. Ajith Rohan Gunawardena (Mr. A.R. Gunawardena 130 shares and joint with Mrs. K.S. Gunawardena 119,359 shares) 119,489 0.60 119,489 Mr. Frederick Germain Noel Mendis 82,989 0.41 -- Mr. Jivaka Lalith Bhupendra Kotelawala (Mr. J.L.B. Kotelawala 36,745 shares and joint with Mrs. S.P.C. Kotelawala 18,141 shares) 54,886 0.27 54,886 David Pieris Motor Company Limited 50,540 0.25 -- DPMC Assetline Holdings (Private) Limited Account No. 01 42,534 0.21 -- Mr. Morarji Meghji Udeshi (joint with Mrs. M.M. Udeshi (Deceased) and Mrs. A.A. Merchant 9,815 shares and joint with Mrs. A.A. Merchant 31,262 shares) 41,077 0.21 41,277 The Finance Company Ltd. (Employees’ Medical Fund) 36,284 0.18 36,284 Bank of Ceylon A/C Eagle Growth Fund 35,000 0.18 35,000 CEYLINCO INSURANCE PLC 96 Annual Report 2012

Report of the Directors

The 20 major shareholders as at 31.12.2012 (Non Voting)

Shareholder Holding as at % of the Holding as at 31/12/2012 issued share 31/12/2011 No. of Shares Capital No. of Shares as at 31/12/2012

Pershing LLC S/A Averbach Grauson & Co. 2,489,200 38.81 2,473,300 Ceyfco Property Company (Private) Limited 1,072,100 16.71 1,072,100 J.B. Cocoshell (Pvt.) Ltd. 471,773 7.35 457,700 Bharath Investments (Pte.) Ltd. 269,200 4.20 269,200 Dr. Watuthanthrige Chakrine Jagath Alwis 219,041 3.41 219,041 Pictet & Cie 200,000 3.12 200,000 Mr. Piyadasa Rathnayaka 175,000 2.73 175,000 Gold Investment Limited 118,500 1.85 118,500 E.W. Balasuriya & Company (Private) Limited 100,400 1.57 100,400 Askold (Private) Limited 80,000 1.25 80,000 Waldock Mackenzie Ltd./Mr. M.Z.M. Wafik 75,210 1.17 69,400 Mr. Husein Nuruddain Esufally 60,905 0.95 50,000 Mr. Gulzar Hussein Ibrahim Jafferjee 45,000 0.70 45,000 Mr. Isaac Morris Dabah 44,900 0.70 44,900 DFCC Bank A/C 1 43,971 0.69 43,971 Mr. Murtaza Ali Jafferjee 42,500 0.66 42,500 HSBC International Nominees Limited-MSNY – Kelusa Master Fund Ltd. 28,772 0.45 28,772 Deutsche Bank AG-Comtrust Equity Fund 25,890 0.40 20,000 Mr. Abbasally Nuruddin Esufally 25,000 0.39 25,000 Mr. Murtazaali Abidhussen Hassanaly Esufally 24,990 0.39 10,000

Property, Plant & Equipment The details of Property, Plant and Equipment of the Company are shown in the “Notes to Financial Statements”. (Pages 138 to 140)

The market value of Property, Plant and Equipment are considered not materially different to the book values as given in “Notes to the Financial Statements”. Property, Plant and Equipment are carried in the books at Rs. 5.6 Billion.

Current Assets The Directors of the Company have taken reasonable steps to ascertain that whatever current assets of the Company which were unlikely to realise their book values in the ordinary course of business have been written down to their estimated realisable values or adequate provisions have been made for the differences between those values.

Post-Balance Sheet Events & Unusual Items Since the end of the financial year, no change in the assets of the Company have arisen which secures the liabilities of any other persons.

In the opinion of the Directors, no item, transaction or event of a material nature has arisen in the interval between the end of the financial year and the date of this report which would affect substantially, the results of the operations of the Company for the current financial year. CEYLINCO INSURANCE PLC Annual Report 2012 97

Human Resources It is a Company policy to provide equal opportunities in the recruitment and employment of staff. During the year under review, the Company has taken numerous measures to ensure staff contentment at all levels. As at December, 2012, there were 3,321 employees in the permanent service of the Company.

Actuarial Valuation – Life Fund The last actuarial valuation of the Life Fund was done as at 31.12.2012. In accordance with the Actuarial Report dated 27th. February, 2013 a surplus of Rs. 850 Million was transferred to life shareholders’ fund from life policyholders’ fund.

The next statutory valuation is due for the financial year ended 31st. December, 2013.

Actuarial Valuation - General Insurance - IBNR / IBNER The Company has appointed M/s. K.A. Pandit, Consultant Actuaries to certify the IBNR/IBNER provisions made in the accounts as at 31.12.2012.

After reviewing the relevant information and Actuarial studies the Actuaries have recommended to make a net IBNR/IBNER provision of Rs. 199.9 Million. The Company has already made this provision in the accounts as at 31.12.2012.

Auditors The Accounts for the year have been audited by M/s. Ernst & Young (Chartered Accountants) who expressed their willingness to continue in office. In accordance with the Companies’ Act No. 7 of 2007, a resolution relating to their re-appointment and authorising the Directors to fix their remuneration will be proposed at the forthcoming Annual General Meeting.

The fees paid to the Auditors are disclosed in note 33 on page 158 to the Financial Statements.

The Auditors of the Company, Messrs. Ernst & Young do not have any relationship with the Company other than that as the Auditors.

BY ORDER OF THE BOARD

A. R. Gunawardena Managing Director / Chief Executive Officer (General Insurance)

R. Renganathan Managing Director / Chief Executive Officer (Life Insurance)

Mrs. T. N. Jasenthuliyana Company Secretary / Company Secretary / Senior Assistant General Manager Senior Assistant General Manager 27th. February, 2013 CEYLINCO INSURANCE PLC 98 Annual Report 2012

Report of the Directors (Annexure)

Directors’ Interests in Contracts No Director of the Company is directly or indirectly interested in the contracts of the Company.

The following is a schedule where the Directors of this Company held Directorships in other companies during the period 01.01.2012 to 31.12.2012 in which this Company has had transactions during the year 2012.

Name of Company Mr. A.R. Gunawardena Mr. R. Renganathan Mr. Alwis H.D.K.P. Mr. Ranasinghe E.T.L. Mr. Alwis W.C.J. Dr. Jayawardena P.A. Mr. Nugawela N.D. Mr. Peiris T.N.M. Mr. Upali D.W.P. Mr. S.R. Abeynayake Mr. Fernando P.M.B. Mr. Gunawardena D.H.J. Mr. 1 American Education Centre Ltd. 9 9 9 9 2 Ceyfco Property Co. (Pvt.) Ltd 9 9 3 Ceyhydro Developers (Pvt.) Ltd. 9 9 9 9 9 4 Ceylinco Health Care Services Ltd. 9 9 9 5 Ceylinco Insurance Company (Pvt.) Ltd. (Maldives) 9 9 9 9 9 9 6 Ceylinco Investcorp (Pvt.) Ltd. 9 9 9 9 9 9 7 Ceylinco Seraka Ltd. 9 9 9 9 8 Ceypower Cascades (Pvt.) Ltd. 9 9 9 9 9 9 CGL Educational Services (Ceylinco Group Library) 9 9 9 10 Citizens Development Business Finance PLC (formerly Ceylinco Development Bank Ltd.) 9 9 11 Energy Generators (Pvt.) Ltd. 9 9 9 9 9 9 12 International College of Business & Technology Ltd. 9 9 9 9 9 13 Serene Resorts Ltd. 9 9 9 9 14 Ultratech Ceylinco (Pvt.) Ltd. 9 9 15 Energy Lanka Holdings Ltd. 9 9 9 9 9 9 CEYLINCO INSURANCE PLC Annual Report 2012 99

Actuarial Report (General) CEYLINCO INSURANCE PLC 100 Annual Report 2012

Actuarial Report (Life) CEYLINCO INSURANCE PLC Annual Report 2012 101

Report of the Auditors

INDEPENDENT AUDITOR’S REPORT TO THE SHAREHOLDERS OF Opinion CEYLINCO INSURANCE PLC In our opinion, so far as appears from our examination, the Company maintained proper accounting records for the year ended 31 December 2012 and the Report on the Financial Statements financial statements give a true and fair view of the Company’s state of affairs as at 31 December 2012 and its profit and cash flows for the year then ended in We have audited the accompanying financial statements of Ceylinco Insurance accordance with Sri Lanka Accounting Standards. PLC (“Company”), the consolidated financial statements of the company and its subsidiaries as at that date which comprise the statements of financial position as In our opinion, the consolidated financial statements give a true and fair view at 31 December 2012, and the income statements, statements of comprehensive of the state of affairs as at 31 December 2012 and the profit and cash flows income, statements of changes in equity and statement of cash flows for the for the year then ended, in accordance with Sri Lanka Accounting Standards year then ended, and a summary of significant accounting policies and other of the Company and its subsidiaries dealt with thereby, so far as concerns the explanatory notes. shareholders of the Company.

Management’s Responsibility for the Financial Statements Report on Other Legal and Regulatory Requirements Management is responsible for the preparation and fair presentation of these The financial statements also comply with the requirements of Section 151(2) and financial statements in accordance with Sri Lanka Accounting standards. This sections 153(2) to 153(7) of the Companies Act No 07 of 2007. responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are The accounting records of Ceylinco Insurance PLC has been maintained by the free from material misstatement, whether due to fraud or error; selecting and management in the manner required by the rules made by the Insurance Board applying appropriate accounting policies; and making accounting estimates that of Sri Lanka established under the regulation of Insurance Industry Act No. 43 of are reasonable in the circumstances. 2000 and Regulation of Insurance Industry (Amendment) Act No. 3 of 2011, so as to clearly indicate the true and fair view of the financial position of the insurer. Scope of Audit and the Basis of Opinion Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Sri Lanka Auditing Standards. Those standards require that we plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. 27 February 2013 Colombo. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting policies used and significant estimates made by management, as well as evaluating the overall financial statement presentation.

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. We therefore believe that our audit provides a reasonable basis for our opinion. CEYLINCO INSURANCE PLC 102 Annual Report 2012

Consolidated Statement of Financial Position

As at 31 December 2012 Group Company Page 2012 2011 2011.01.01 2012 2011 2011.01.01 No Note Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Assets Goodwill 135 6 193,162 193,162 - - - - Intangible Assets 135 7 76,706 73,827 90,704 54,313 58,800 82,696 Deferred Expenses 148 15 598,935 558,877 514,100 580,704 549,512 507,080 Property, Plant and Equipment 138 9 8,751,457 7,394,394 6,995,865 5,608,690 5,044,660 5,208,858 Investment Properties 141 10 3,178,308 3,233,089 2,611,863 3,178,308 3,233,089 2,611,863 Investment in Subsidiaries 136 8.a - - - 1,387,459 1,387,459 1,282,169 Investment in Associates 137 8.b 985,044 788,966 392,987 349,508 346,700 184,032 Financial Instruments Held to Maturity Financial Assets 142 11(a) 23,377,454 17,322,609 11,085,884 23,216,452 17,246,626 11,085,884 Loans and Receivables 143 11(b) 21,005,567 22,204,115 14,913,559 20,548,421 21,668,216 14,731,314 Available-for-sale Financial Assets 143 11(c) 3,443,050 3,385,146 2,238,949 3,426,525 3,363,685 2,238,822 Financial Assets at Fair Value Through Profit or Loss 143 11(d) 81,884 712,373 3,069,316 81,884 712,373 3,069,316 Employee Gratuity Benefit Asset 151 20 508,333 278,635 - 508,333 278,635 - Employee Pension Benefit Asset 152 21 579,053 373,347 - 579,053 373,347 - Reinsurance Receivables 146 12 2,140,307 1,905,304 2,413,562 2,079,104 1,854,919 2,394,028 Income Tax Receivable 146 13(a) 819,894 660,836 518,458 846,058 679,465 518,458 Deferred Tax Assets 146 13(b) 547,741 587,462 733,386 542,339 581,200 733,386 Insurance Receivables 147 14 3,707,216 3,005,604 3,150,513 3,474,264 2,819,783 3,044,288 Accrued Income 148 17 1,719,567 1,935,214 1,652,074 1,719,405 1,930,013 1,648,865 Other Assets 148 16 702,258 668,542 612,968 371,990 478,328 451,830 Cash and Cash Equivalents 148 18 672,540 769,003 750,780 425,734 531,674 575,517 Total Assets 73,088,476 66,050,505 51,744,968 68,978,544 63,138,484 50,368,406 Equity and Liabilities Equity Attributable to Equity Holders of Parent Stated Capital 154 25 1,324,822 1,324,822 1,324,822 1,324,822 1,324,822 1,324,822 Retained Earnings 8,030,833 5,931,099 3,141,183 7,298,361 5,517,473 3,031,125 Retained Reserves 2,375,781 2,506,812 2,364,215 2,264,634 2,404,616 2,364,215 Revaluation Reserves 2,137,318 2,149,541 1,344,336 1,674,993 1,686,281 827,395

Total Ordinary Shareholders’ Equity 13,868,754 11,912,274 8,174,556 12,562,810 10,933,192 7,547,557 Non-Controlling Interests 564,737 460,473 152,070 - - - Total Equity 14,433,491 12,372,747 8,326,626 12,562,810 10,933,192 7,547,557 Liabilities Life Insurance Contract Liabilities 149 19(a) 45,110,789 38,203,473 31,868,141 45,110,789 38,203,473 31,868,141 Unit Linked Fund -Life 157,657 146,659 115,269 157,657 146,659 115,269 Non Life Insurance Contract Liabilities 149 19(b) 7,753,381 7,107,745 6,609,196 7,561,631 6,975,423 6,530,794 Employee Gratuity Benefit Liability 151 20 59,315 61,804 262,634 - - 257,693 Employee Pension Benefit Liability 152 21 - - 414,960 - - 414,960 Deferred Revenue 164,183 130,435 129,943 129,285 110,841 129,169 Borrowings 153 22 1,494,653 1,229,651 411,501 324,356 558,278 368,560 Other Financial Liabilities 153 23 - 3,856,822 798,727 - 3,856,822 798,727 Deferred Tax Liabilities 147 13 (d) 70,787 37,207 25,367 - - - Reinsurance Payables 774,238 246,080 398,388 619,183 246,080 388,912 Trade and Other Payables 153 24 3,069,982 2,657,882 2,384,216 2,512,833 2,107,716 1,948,624 Total Liabilities 58,654,985 53,677,758 43,418,342 56,415,734 52,205,292 42,820,849 Total Equity and Liabilities 73,088,476 66,050,505 51,744,968 68,978,544 63,138,484 50,368,406

The above Statement of Financial Position is to be read in conjunction with the notes to the Financial Statements on pages 114 to 177 which form an integral part of the financilal statements. These Financial Statemernts are prepared in compliance with the requirements of the Companies Act No.07 of 2007.

...... Chief Financial Officer - Non Life Insurance Chief Financial Officer - Life Insurance D.W.P. Upali P.A. Jayawardena

The Board of Directors are responsible for the preparation and presentation of these Financial Statements. On behalf of the Board.

...... A.R. Gunawardena R. Renganathan T.N.M. Peiris Managing Director / Chief Executive Managing Director / Chief Executive Director - Finance Officer (Non - Life Insurance) Officer (Life Insurance)

27th. February, 2013 CEYLINCO INSURANCE PLC Annual Report 2012 103

Consolidated Income Statement

For the year ended 31 December 2012 Group Company Page 2012 2011 Change 2012 2011 Change No Note Rs.'000 Rs.'000 % Rs.'000 Rs.'000 %

Net Income 155 26(c) 27,114,875 22,933,515 18 25,054,625 22,306,974 12 Gross Written Premiums 154 26(a) 22,636,715 20,216,205 12 21,923,053 19,875,117 10 Premiums Ceded to Reinsurers 154 26(b) (3,054,914) (2,304,434) 33 (2,498,904) (2,071,748) 21 Net Written Premiums 19,581,801 17,911,771 9 19,424,149 17,803,369 9 Net Change in Reserve for Unearned Premium (259,309) (454,518) (43) (225,931) (422,984) (47) Net Earned Premium 19,322,492 17,457,253 11 19,198,218 17,380,385 10 Revenue from Subsidiaries 1,823,984 514,921 254 - - 21,146,476 17,972,174 19,198,218 17,380,385

Fees and Commission Income 156 27 422,030 385,354 10 365,335 362,518 1 Investment Income 156 28 5,497,496 4,081,024 35 5,454,822 4,070,526 34 Realised Gains 156 29 16,330 347,911 (95) 3,707 346,493 (99) Fair Value Gains and Losses 156 30 32,543 147,052 (78) 32,543 147,052 (78) Other Revenue 5,968,399 4,961,341 5,856,407 4,926,589

Gross Benefits and Claims Paid 157 31(a) (9,121,618) (8,038,540) 13 (9,037,190) (8,005,639) 13 Claims Ceded to Reinsurers 157 31(b) 707,813 1,116,713 (37) 649,381 1,096,187 (41) Gross Change in Contract Liabilities 157 31(c) (7,142,009) (6,391,362) 12 (7,125,935) (6,356,976) 12 Change in Contract Liabilities Ceded to Reinsurers 157 31(d) 211,595 (453,732) (147) 200,777 (490,944) (141) Net Benefits and Claims (15,344,219) (13,766,921) (15,312,967) (13,757,372)

Cost of Sales of Subsidiaries (527,518) (127,809) 313 - - Acquisition Cost 158 34 (2,460,859) (2,206,946) 12 (2,431,579) (2,189,869) 11

Other Operating and Administrative Expenses 158 33 (6,584,574) (5,222,348) 26 (5,497,845) (4,875,800) 13 Finance Cost 158 32 (55,726) (42,703) 30 (9,136) (29,891) (69)

Total Benefits, Claims and Other Expenses (24,972,896) (21,366,727) (23,251,527) (20,852,932) Profit Before Share of Associates 2,141,979 1,566,788 1,803,098 1,454,042 Share of Profit of Associates 137 8(b) 180,494 111,189 62 - - Profit Before Tax 2,322,473 1,677,977 38 1,803,098 1,454,042 24 Income Tax Expense 159 36 (227,794) (140,147) 63 (149,849) (118,547) 26 Profit for the Year 2,094,679 1,537,830 36 1,653,249 1,335,495 24

Profit Attributable to: Equity Holders of the Parent 1,953,108 1,507,861 1,653,249 1,335,495 Non-Controlling Interests 141,571 29,969 - - 2,094,679 1,537,830 1,653,249 1,335,495

Basic Earnings Per Share 160 38 73.94 57.09 62.59 50.56

Dividend Per Share -Proposed 160 37 12.50 6.50 12.50 6.50 CEYLINCO INSURANCE PLC 104 Annual Report 2012

Consolidated Statement of Comprehensive Income

For the year ended 31 December 2012

Group Company Page 2012 2011 2012 2011 No Note Rs.'000 Rs.'000 Rs.'000 Rs.'000

Profit for the Year 2,094,679 1,537,830 1,653,249 1,335,495 Other Comprehensive Income 160 39 Exchange Differences on Translating Foreign Operations 4,953 (15,866) - - Revaluation Surplus/ (Deficit) During the Year (1,048) 1,048,231 - 1,043,447 Net Gain/(Loss) on Available-for-sale Assets (12,471) 81,276 (18,925) (29,077) Actuarial Gain on Defined Benefit Plans 288,855 1,356,416 288,855 1,356,416 Income Tax relating to Components of Other Comprehensive Income (1,400) (174,546) (1,513) (175,366) Other Comprehensive Income for the Year, Net of Tax 278,889 2,295,511 268,417 2,195,420 Total Comprehensive Income for the Year, Net of Tax 2,373,568 3,833,341 1,921,666 3,530,915 Total Comprehensive Income Attributable to: Equity Holders of the Parent 2,229,541 3,751,796 1,921,666 3,530,915 Non-Controlling Interests 144,027 81,545 - - 2,373,568 3,833,341 1,921,666 3,530,915 CEYLINCO INSURANCE PLC Annual Report 2012 105

Consolidated Statement of Changes in Equity Reserves Reserves Equity Interests Equity 1,324,822 827,395 2,116,698 3,031,125 247,517 - 7,547,557 - 7,547,557 - 7,547,557 - 247,517 3,031,125 2,116,698 827,395 1,324,822 1,324,822 827,395 2,057,437 3,397,454 - - 7,607,108 - 7,607,108 - 7,607,108 - - 3,397,454 2,057,437 827,395 1,324,822 1,324,822 1,344,336 2,057,437 3,493,254 - - 8,219,849 152,070 8,371,919 152,070 8,219,849 - - 3,493,254 2,057,437 1,344,336 1,324,822 1,324,822 1,344,336 2,116,698 3,141,183 247,517 - 8,174,556 152,070 8,326,626 152,070 8,174,556 - 247,517 3,141,183 2,116,698 1,344,336 1,324,822

Balance as at 31st December 2012 1,324,822 1,674,993 2,057,437 7,298,361 207,197 - 12,562,810 - 12,562,810 Other Comprehensive Income for the Period Other Comprehensive Income for - - - 288,855 (20,438) - 268,417 - 268,417 Revaluation Reserve Transfer on Disposal ReserveRevaluation Transfer - (11,288) - 10,478 - - (810) (810) SLFRS Adjustment -Life Fund Fund SLFRS Adjustment -Life the Year Net Profit for - - - (119,544) - - 1,653,249 - - - (119,544) - 1,653,249 (119,544) - 1,653,249 Balance as at 31st December 2011 Final Dividend Paid 1,324,822 1,686,281 2,176,981 5,517,473 227,635 - - 10,933,192 - - 10,933,192 - (171,694) - - (171,694) - (171,694) SLFRS Adjustment -Life Fund Fund SLFRS Adjustment -Life the Period Other Comprehensive Income for - 858,886 - - - 1,356,416 (19,882) 60,283 (60,283) - 2,195,420 - - - 2,195,420 - - Net Profit for the Year the Year Net Profit for - - - 1,335,495 - - 1,335,495 - 1,335,495 Balance as at 31st December 2012 Company Balance as at 1st January 2011 SLFRS to of Transition Effect 1,324,822 2,137,318 2,057,437 8,030,833 324,892 (6,548) 13,868,754 - 564,737 14,433,491 - 59,261 (366,329) 247,517 - (59,551) - (59,551) Final Dividend Paid - - - (145,280) - - (145,280) - (145,280) Balance as at 1st January 2011 SLFRS Adjustment -Life Fund Fund SLFRS Adjustment -Life the Period Other Comprehensive Income for - - (935) - 288,855 (119,544) (14,459) 2,972 - 276,433 - 2,456 278,889 - (119,544) - (119,544) Revaluation Reserve Transfer on Disposal ReserveRevaluation Transfer (11,288) 10,478 (810) - (810) Net Profit for the Period Net Profit for - - - 1,953,108 - - 1,953,108 141,571 2,094,679 Dividend of Subsidiary Company Share Issue 8.a.1) note Changes in Control Subsidaries (Refer ------18,987 - - - - - 18,987 (105,276) - (86,289) - (187) (187) 65,700 65,700 For the year ended 31 December 2012 the year For Group Balance as at 31st December 2011 Final Dividend of Parent Company Ordinary Foreign Available- 1,324,822 Total 2,149,541 2,176,981 - 5,931,099 339,351 (9,520) - 11,912,274 460,473 12,372,747 - (171,694) - - (171,694) - (171,694) SLFRS adjustment -Life fund SLFRS adjustment -Life the Period Other Comprehensive Income for - 805,205 - 1,356,416 91,834 60,283 (9,520) (60,283) 2,243,935 51,576 - 2,295,511 - - Assets Earnings Reserves Reserves Capital Currency Other Share- Non- for-sale Stated Revaluation Retained Retained Financial Translation Holders’ Controlling Total Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Net Profit for the Period Net Profit for - - - 1,507,861 - - 1,507,861 29,969 1,537,830 Balance as at 1st January 2011 Adjustment due to Structural Reorganisation Structural Reorganisation Adjustment due to - - - 56,920 - - 56,920 - 56,920 Effect of Transition to SLFRS to of Transition Effect Balance as at 1st January 2011 - - 59,261 (352,071) 247,517 - (45,293) - (45,293) Dividend of Subsidiary Company Changes in Ownership Group companies ------74,282 - - - - 74,282 - 231,913 306,195 - (5,055) (5,055) Final Dividend of Parent Company - - - (145,280) - - (145,280) - (145,280) CEYLINCO INSURANCE PLC 106 Annual Report 2012

Consolidated Statement of Cash Flows

For the year ended 31 December 2012 Group Company 2012 2011 2012 2011 Rs.'000 Rs.'000 Rs.'000 Rs.'000

Operating activities Payments to policyholders (9,121,618) (8,038,540) (9,037,190) (8,005,639) Receipts from policyholders/customers 24,024,995 20,991,357 21,528,430 20,214,574 Payments to reinsurers (2,526,761) (2,456,736) (2,125,806) (2,214,575) Receipts from reinsurers 1,130,714 1,545,926 907,793 1,486,242 Payments to suppliers and employees (9,578,854) (6,294,922) (7,809,444) (5,933,794) Purchase of fair value through profit or loss financial assets (2,635,016) (1,164,076) (2,635,016) (1,164,076) Proceeds from disposals of fair value through profit or loss financial assets 3,310,483 3,508,039 3,310,483 3,584,022 Purchase of available-for-sale financial assets (68,700,136) (16,399,310) (68,700,136) (16,399,310) Proceeds from sale of available-for-sale financial assets 66,351,413 151,535 66,351,413 149,470 Maturity of available-for-sale financial assets 2,278,724 15,106,396 2,273,788 15,106,396 Purchase of held-to-maturity financial assets (13,352,601) (18,487,348) (13,267,582) (18,487,348) Maturity of held-to-maturity financial assets 7,085,500 12,209,749 7,085,500 12,209,749 Purchase of loans and receivables (177,025,549) (169,117,257) (176,966,905) (169,068,612) Maturity of loans and receivables 177,965,159 161,694,589 177,807,147 161,603,163 Purchase of investment properties (21,969) (10,472) (21,969) (10,472) Rental income on investment properties 52,326 53,757 52,326 53,757 Proceeds from sale of Investment properties 16,750 12,074 16,750 12,074 Repo Borrowings (3,856,822) 3,050,408 (3,856,822) 3,050,408 Other income 285,003 130,577 262,339 166,796 Dividend income received 80,793 101,060 96,227 101,060 Interest income received 5,627,581 3,473,798 5,626,266 3,495,151 Finance costs paid (63,499) (40,494) (9,136) (29,891) Income tax paid (316,487) (279,336) (279,094) (302,734) Gratuity paid (76,109) (50,798) (71,466) (47,515) Net cash flows from operating activities 934,020 (310,024) 537,896 (431,104)

Investing activities Investment of a subsidiary, net of cash acquired - (38,450) - (10,000) Investment in Associate (16,210) (16,210) Proceeds from sale of property, plant and equipment 649,070 936,487 582,426 935,614 Purchase of intangible assets (38,795) (38,000) (28,596) (28,879) Increase in loans to related parties 17,900 - - - Purchase of property and equipment (1,754,869) (699,342) (792,050) (537,702) Net cash flows used in investing activities (1,126,694) 144,485 (238,220) 342,823

Financing activities Proceeds from issue of shares 36,700 208,377 - - Proceeds/(Repayment) of Loans 511,895 (116,552) - -

Dividends paid to equityholders (195,491) (153,089) (171,694) (145,280) Net cash flows used in financing activities 353,104 (61,264) (171,694) (145,280) Net (decrease)/increase in cash and cash equivalents 160,430 (226,803) 127,982 (233,561) Cash and cash equivalents at 1 January 149,465 376,268 (26,604) 206,957 Cash and cash equivalents at 31 December 309,895 149,465 101,378 (26,604)

CEYLINCO INSURANCE PLC Annual Report 2012 107

For the year ended 31 December 2012 Group Company 2012 2011 2012 2011 Rs.'000 Rs.'000 Rs.'000 Rs.'000

Cash generated from operating activities

Profit before tax 2,141,979 1,566,788 1,803,098 1,454,042 Purchase of fair value through profit or loss financial assets (2,635,016) (1,164,076) (2,635,016) (1,164,076) Proceeds from disposals of fair value through profit or loss financial assets 3,310,483 3,584,022 3,310,483 3,584,022 Purchase of available-for-sale financial assets (68,700,136) (16,399,310) (68,700,136) (16,399,310) Proceeds from sale of available-for-sale financial assets 2,278,728 149,470 2,273,788 149,470 Maturity of available-for-sale financial assets 66,351,409 15,108,461 66,351,413 15,106,396 Purchase of held-to-maturity financial assets (13,352,601) (18,487,348) (13,267,582) (18,487,348) Maturity of held-to-maturity financial assets 7,085,500 12,209,749 7,085,500 12,209,749 Non-cash items Realised gains recorded in the income statement (14,943) (353,484) (3,707) (352,610) Fair value gains recorded in the income statement (36,955) (140,866) (32,543) (140,866) Expenses deferred during the year (40,059) (44,776) (31,192) (42,432) Reversal of Provision - 96,876 - 96,876 Amortisation of intangible assets 35,916 53,401 33,083 52,775 Depreciation of property, plant and equipment 391,510 391,799 226,202 298,299 Gain on sale of Investments (64,016) (44,780) (54,352) (44,780) Foreign Exchange Gains/losses (47,450) (17,435) (65,232) - Movements in items in the statement of financial position (Increase)/Decrease in reinsurance assets (136,629) 508,258 (224,185) 539,109 (Increase)/Decrease in insurance receivables (540,964) 336,013 (654,481) 329,114 (Increase)/Decrease in loans and receivables 1,387,267 (7,498,651) 1,445,113 (7,465,449) Increase in life insurance contract liabilities 6,918,314 6,366,722 6,918,314 6,366,722 Increase in non-life insurance contract liabilities 546,438 498,550 586,208 444,629 (Increase)/Decrease in Trade and other debtors (561,499) 484,283 (292,768) 615,743 (Increase) in Deferred Revenue 33,748 (18,285) 18,444 (18,328) Increase in other financial liabilities (3,856,822) 3,050,408 (3,856,822) 3,050,408 (Decrease)/increase in trade and other payables 751,490 (266,477) 583,360 (310,525) Income taxes paid (311,672) (279,336) (279,094) (302,734) Cash generated from operating activities 934,020 (310,024) 537,896 (431,104)

CEYLINCO INSURANCE PLC 108 Annual Report 2012

Insurance Revenue Account - Company

For the year ended 31st December, 2012 2011 % Glossary item Rs. '000 Rs. '000 Change

Non - Life Insurance Gross Written Premium 20 11,093,583 10,041,212 10.48 Net Earned Premium 31 8,622,152 7,782,907 10.78 Net Claims Incurred 36 (4,556,428) (4,475,745) 1.80 Underwriting and net acquisition costs (including reinsurance) 43 and 2 (709,502) (589,532) 20.35 Underwriting Result 55 3,356,222 2,717,630

Other Operating, Investments Related and Administrative Expenses (3,283,926) (2,712,239) 21.08 Investment and Other Income 736,134 674,463 9.14 Interest Expense (1,163) (22,000) (94.72) Profits from Operations after Interest Expense 807,267 657,854 22.71

Key ratios Non - Life Insurance

Net loss Ratio 33 52.85 57.51 (8.11) Net Expense Ratio 32 46.33 42.71 8.48 Net Combined Ratio 30 99.17 100.21 (1.04)

Life Insurance Gross Written Premium 19 10,829,470 9,833,905 10.12 Net Written Premium (Net of Reinsurance Premium and Commission) 35 10,576,066 9,597,478 10.20 Investment and Other Income attributable to Policyholders 4,689,494 3,899,615 20.26 Net Benefits Payable (3,990,881) (2,946,294) 35.45 Increase in Long Term Insurance Fund (6,765,658) (6,335,332) 6.79 Commissions 13 (1,427,626) (1,301,923) 9.66 Operating and Administrative Expenses attributable to Policyholders (2,223,467) (2,145,315) 3.64 Interest Expense (7,928) (7,890) 0.48 SLFRS Adjustment attributable to policyholders - (60,339) Surplus from Life Insurance Business 25 850,000 700,000 21.43

SLFRS Adjustment attributable to policyholders - 60,339 Surplus from Life Insurance Business 850,000 700,000 Investment & other income not attributable to Policyholders 136,328 54,098 Operating and Administrative Expenses not attributable to Policyholders 9,504 (18,248) Profits from Operations after Interest Expense 995,832 796,189 CEYLINCO INSURANCE PLC Annual Report 2012 109

Supplementary Statement of Financial Position - Life Division

As at 31st December 2012 2011 2011.01.01 Note Page No Rs.'000 Rs.'000 Rs.'000 Assets Intangible Assets 01 110 15,105 42,396 82,695 Property, Plant & Equipment 02 110 3,906,294 3,396,145 3,090,739 Investment Property 03 111 2,068,806 2,068,806 1,224,986 Investments in Subsidiaries 04 111 521,000 521,000 521,000 Investments in Associates 05 111 271,922 271,922 125,462 Financial Instruments Held-to-Maturity Financial Assets 06(a) 111 23,216,454 17,246,627 11,085,885 Loans and Receivables 06(b) 111 17,840,216 19,369,580 13,553,916 Available-for-Sale Financial Assets 06(c) 112 198,469 219,881 255,941 Financial Assets at Fair Value through Profit or Loss 06(d) 112 81,884 712,374 3,069,316 Employee Pension Benefit Asset 426,602 338,287 - Employee Gratuity Benefit Asset 61,943 - - Loans to Policyholders 892,558 771,905 698,071 Reinsurance Receivable 07 112 47,266 23,857 72,022 Deferred Tax Asset 335,564 335,564 420,628 Other Assets 08 112 1,226,693 1,042,053 966,501 Accrued Income 09 113 1,540,914 1,835,487 1,594,010 Cash and Cash Equivalents 239,960 498,742 240,626 Total Assets 52,891,651 48,694,628 37,001,799

Equity and Liabilities Equity and Reserves Stated Capital - Non Voting 10 113 358,752 358,752 358,752 Retained Earnings 11 113 3,819,395 2,891,412 2,221,782 Revaluation Reserve 1,075,969 1,087,257 191,190 Available-for-Sale Financial Assets Reserve 790,787 595,117 (33,056) Transitional Provision - Life Fund - 119,544 59,261 Total Equity 6,044,903 5,052,082 2,797,929

Liabilities Insurance Provision - Long Term Fund 12 113 45,110,789 38,203,473 31,868,140 Insurance Provision - Unit Linked Fund 157,657 146,659 115,269 Employee Pension Benefit Obligation - - 194,823 Employee Gratuity Benefit Obligation - 104,650 188,665 Obligation to Repurchase Securities - 3,591,822 541,414 Other Liabilities 13 113 1,216,775 1,036,932 941,350 Reinsurance Payable 37,171 27,142 147,555 Bank Overdraft 324,356 531,868 206,654 Total Liabilities 46,846,749 43,642,542 34,203,870

Total Equity and Liabilities 52,891,651 48,694,628 37,001,799 CEYLINCO INSURANCE PLC 110 Annual Report 2012

Notes to the Supplementary Statement of Financial Position - Life Division

01 Intangible Assets Leasehold Computer Total Right Software Rs.'000 Rs.'000 Rs.'000 Cost At 1 January 2011 - 270,757 270,757 Cost capitalized/Transfers 6,008 6,468 12,476 At 31 December 2011 6,008 277,225 283,233 Cost capitalized/Transfers - 2,262 2,262 At 31 December 2012 6,008 279,487 285,495 Less: Accumulated Amortization At 1 January 2011 - 188,062 188,062 Amortization 419 52,356 52,775 At 31 December 2011 419 240,418 240,837 Amortization 70 29,483 29,553 At 31 December 2012 489 269,901 270,390

Carrying Amount At 01 January 2011 - 82,695 82,695 At 31 December 2011 5,589 36,807 42,396 At 31 December 2012 5,519 9,586 15,105

02 Property, Plant & Equipment Freehold Building Motor Office Computer Furniture & Total Land Vehicles Equipment Equipment Fittings Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Cost At 1 January 2011 909,307 1,712,968 303,243 336,282 444,352 222,160 3,928,312 Additions/Transfer 179,399 257,757 42,108 31,211 24,558 19,996 555,029 Revaluation 672,261 38,243 - - - - 710,504 Disposals/Transfers (307,249) (640,878) (38,002) (25,999) (18,120) (3,093) (1,033,341) At 31 December 2011 1,453,718 1,368,090 307,349 341,494 450,790 239,063 4,160,504 Additions/Transfer 352,627 122,132 134,730 53,049 24,102 16,050 702,690 Disposals/Transfers (27,324) - (74,091) (3,758) (4,102) (2,054) (111,329) At 31 December 2012 1,779,021 1,490,222 367,988 390,785 470,790 253,059 4,751,865 Less: Accumulated Depreciation At 1 January 2011 - 115,003 121,275 119,564 376,955 108,567 841,364 Depreciation - 34,482 36,087 34,359 24,321 20,299 149,548 Revaluation - (104,824) - - - - (104,824) Disposals/Transfers - (44,661) (22,276) (18,559) (17,799) (2,456) (105,751) At 31 December 2011 - - 135,086 135,364 383,477 126,410 780,337 Depreciation - 28,343 39,712 37,315 23,631 19,311 148,313 Disposals/Transfers - - (49,106) (2,379) (3,988) (1,132) (56,605) At 31 December 2012 - 28,343 125,692 170,300 403,120 144,589 872,045 Add: Capital Work in Progress At 1 January 2011 ------3,791 At 31 December 2011 ------15,978 At 31 December 2012 ------26,474 Carrying Amount At 01 January 2011 909,307 1,597,965 181,968 216,718 67,397 113,593 3,090,739 At 31 December 2011 1,453,718 1,368,090 172,263 206,130 67,313 112,653 3,396,145 At 31 December 2012 1,779,021 1,461,879 242,296 220,485 67,670 108,470 3,906,294 CEYLINCO INSURANCE PLC Annual Report 2012 111

03 Investment Property 2012 2011 2011.01.01 (Rs.'000) (Rs.'000) (Rs.'000) Balance at the Beginning of the Year 2,068,806 1,224,986 1,261,939 Fair Value Gains - 132,890 - Transfers During The Year - 710,930 22,399 Disposal - - (59,352) Balance at the End of the Year 2,068,806 2,068,806 1,224,986

04 Investment In Subsidiaries 2012 2011 2011.01.01 No of Shares Cost No of Shares Cost No of Shares Cost (Rs.'000) (Rs.'000) (Rs.'000) Ceylinco Health Care Services Ltd 52,100,000 521,000 52,100,000 521,000 52,100,000 521,000 Ceylinco Seraka Ltd 5,000 - 5,000 - 5,000 - Serene Resorts Ltd 1,500,000 - 1,500,000 - 1,500,000 - 521,000 521,000 521,000

05 Investment In Associates 2012 2011 2011.01.01 No. of Cost Fair value No. of Cost Fair value No. of Cost Fair value Shares Shares Shares (Rs.'000) (Rs.'000) (Rs.'000) (Rs.'000) (Rs.'000) (Rs.'000) Citizens Development Business Finance Ltd - Voting 14,642,163 271,922 600,329 14,642,163 271,922 1,014,325 12,546,249 125,462 657423 271,922 600,329 271,922 1,014,325 125,462 657,423

06 Financial Instruments The Company’s financial instruments are summarized by categories as follows: Note 2012 2011 2011.01.01 (Rs.'000) (Rs.'000) (Rs.'000) Financial instruments Held-to-maturity financial assets 06(a) 23,216,454 17,246,627 11,085,885 Loans and receivables 06(b) 17,840,216 19,369,580 13,553,916 Available-for-sale financial assets 06 (c) 198,469 219,881 255,941 Financial assets at fair value through profit or loss 06(d) 81,884 712,374 3,069,316 Total financial instruments 41,337,023 37,548,462 27,965,059

06 (a) Held-to-maturity financial assets Amortized cost Treasury Bills 37,728 4,140 245,853 Treasury Bonds 21,673,441 15,755,747 8,930,989 Debentures - Quoted 1,505,284 1,486,740 1,909,043 Total held-to-maturity financial assets at amortized cost 23,216,454 17,246,627 11,085,885

06 (b) Loans and receivables Amortized cost Staff Loans other than vehicle loans 204,750 200,857 221,816 Vehicle Loans 192,440 218,824 258,705 Repo Investments 136,397 103,822 31,414 Debentures (unquoted) 700,000 975,000 450,000 Term deposits 16,650,512 17,909,812 12,615,164 Deffered Staff Benefit (43,882) (38,735) (23,183) Total loans and receivables at amortized cost 17,840,216 19,369,580 13,553,916 CEYLINCO INSURANCE PLC 112 Annual Report 2012

Notes to the Supplementary Statement of Financial Position - Life Division

06 (c) Available-for-sale financial assets 2012 2011 2011.01.01 (Rs.'000) (Rs.'000) (Rs.'000) Fair Value Treasury bond 55,028 57,521 52,588 Long Term Investments - Quoted 9,841 19,661 10,655 Long Term Investments -Unquoted 1,714 1,714 1,714 Preference Shares 131,886 140,984 140,984 Promissory Notes - - 50,000 Total available-for-sale financial assets at fair value 198,469 219,881 255,941

06 (d) Financial assets at fair value through profit or loss Fair Value Treasury Bonds - 601,877 3,069,316 Short term Investments - Quoted 81,884 110,497 - Total financial assets at fair value through profit or loss 81,884 712,374 3,069,316

07 Reinsurance Recoverable 2012 2011 2011.01.01 (Rs.'000) (Rs.'000) (Rs.'000) Re-Insurance Receivable - Swiss 22,813 5,292 20,935 Re-Insurance Receivable - Munich 24,433 18,565 51,087 Total reinsurance assets 47,246 23,857 72,022

08 Other Assets Note 2012 2011 2011.01.01 (Rs.'000) (Rs.'000) (Rs.'000) Advances, Deposits & Prepayments 6,117 33,921 40,478 Notional tax Receivable 08 (a) 833,301 678,451 590,373 WHT Recoverable 08 (b) 44,230 41,809 29,023 Inventories 51,021 35,974 35,194 Premium Receivable 190,201 137,290 119,328 Deffered Staff Benefit 44,963 38,735 23,183 CIESOT (Pvt) Ltd. - - 92,742 Amount due from Non Life Division 56,861 75,874 36,181 1,226,693 1,042,053 966,501

08 (a) Notional Tax Receivable Notional Tax 1,186,187 1,043,170 955,092 Notional Tax Suspense account (352,886) (364,719) (364,719) At the End of the Year 833,301 678,451 590,373

08 (b) Withholding Tax Receivable WHT Receivable 68,063 65,642 52,856 Provision for WHT (23,833) (23,833) (23,833) At the End of the Year 44,230 41,809 29,023 CEYLINCO INSURANCE PLC Annual Report 2012 113

09 Accrued income 2012 2011 2011.01.01 (Rs.'000) (Rs.'000) (Rs.'000) Interest income Receivable 1,540,914 1,835,487 1,594,010 1,540,914 1,835,487 1,594,010

10 Ordinary Share - Non Voting 2012 2011 2011.01.01 (Rs.'000) (Rs.'000) (Rs.'000) 2,050,010 Ordinary Shares - Non Voting 358,752 358,752 358,752 358,752 358,752 358,752

11 Retained earnings 2012 2011 2011.01.01 (Rs.'000) (Rs.'000) (Rs.'000) At the Beginning of the Year 2,891,412 2,221,782 1,994,835 Transfer From Policy holders During the year 850,000 700,000 600,000 Share Holders Profit or Loss 57,348 (3,895) (9,004) Revaluation transferred during the year 10,478 - - Dividend Paid (78,325) (66,275) (60,250) IFRS Adjustment to the Share Hodlers 88,482 39,800 (303,799) At the end of the year 3,819,395 2,891,412 2,221,782

12 Insurance Provision - Long Term Fund 2012 2011 2011.01.01 (Rs.'000) (Rs.'000) (Rs.'000) At the Beginning of the Year 38,203,473 31,868,141 26,449,967 Addition during the year 7,615,658 7,035,332 6,018,173 Transfer to Shareholders' Funds (850,000) (700,000) (600,000) SLFRS adjustment to the Policy holdres 141,658 At the end of the year 45,110,789 38,203,473 31,868,140

13 Other Liabilities 2012 2011 2011.01.01 (Rs.'000) (Rs.'000) (Rs.'000) Creditors & accruals 581,618 496,204 426,321 Amounts due to related Companies 37,155 37,155 37,155 Death Claim Payable 72,033 69,736 72,671 Policyholders payments in Advance 367,488 281,195 252,892 Agency commission payable 158,481 152,642 152,311 1,216,775 1,036,926 941,350 CEYLINCO INSURANCE PLC 114 Annual Report 2012

Notes to the Consolidated Financial Statements

1. Corporate Information “SLFRS”) applicable for periods beginning on or after 1 January 2012. 1.1 General Ceylinco Insurance Company PLC (the Company) is For all periods up to and including the year ended a public limited liability company incorporated and 31 December 2011, the Group prepared its financial domiciled in Sri Lanka and whose shares are publicly statements in accordance with previous Sri Lanka traded on the Colombo stock exchange. The registered Accounting Standards (SLAS). These financial office of the Company is located at 69, Janadhipathi statements, for the year ended 31 December 2012, are Mawatha, Colombo 1.The main places of business of the first, the Group has prepared in accordance with Life Insurance is located at “Ceylinco Life Tower” 106, SLFRSs.. Havelock Road, Colombo 05 and the main place of business of General Insurance is located at “Ceylinco The effect of transition to SLFRS on previously published House” 69, Janadhipathi Mawatha, Colombo 1. The financial positions; financial performances and cash additional corporate information is given on page 3. flows of the Company and Group are given in Notes A1.1, A1.2, A1.3 to financial statements. In the annual report of the Board of Directors and in the financial statements, “the Company” refers to Ceylinco Exemptions applied Insurance PLC as the holding company and “the Group” SLFRS 1 First Time Adoption of Sri Lankan Financial refers to the companies whose accounts have been Reporting Standards allows first- time adopters certain consolidated therein. exemptions from the retrospective application of certain SLFRS. All companies in the Group are limited liability companies incorporated and domiciled in Sri Lanka except one The Group has applied the following exemptions: subsidiary and one associate which are incorporated and domiciled in the Republic of Maldives and Republic of The Group has elected to disclose the following amounts Nepal respectively. prospectively from the date of transition (SLFRS ordinarily requires the amounts for the current and 1.2 Principal Activities and Nature of Operations previous four annual periods to be disclosed): (I) the During the year, the principal activities of the Company present value of the defined benefit obligation, the fair and the other group companies were underwriting of all value of the plan assets and the surplus or deficit in the classes of General Insurance, Life Insurance, Healthcare plan; and (ii) the experience adjustments arising on the Services, Fund Management, Power Generation and plan liabilities and the plan assets. Education Services. A cumulative currency translation difference for foreign operation is deemed to be zero as at 1 January 2011. 1.3 Ultimate Parent Company The Company has no identified parent Company. The Group has designated unquoted equity instruments held at 1 January 2011 as available-for-sale 1.4 Date of Authorization for issue investments. The Consolidated Financial Statements of Ceylinco Insurance PLC for the year ended 31 December 2012 Estimates was authorized for issue in accordance with a resolution The estimates at 1 January 2011 and at December of the Board of Directors on 27th February, 2013. 31, 2011 are consistent with those made for the same dates in accordance with previous standards 2 Basis of Preparation (after adjustments to reflect any differences in accounting policies) apart from the following items 2.1 Statement of Compliance where application of previous standards did not require The consolidated financial statements of the Group have estimation: been prepared in accordance with Sri Lanka Accounting Standards comprising SLFRS and LKAS (hereafter ∫ Available-for-sale financial assets – unquoted equity shares CEYLINCO INSURANCE PLC Annual Report 2012 115

The estimates used by the Group to present these ∫ Recognizes the fair value of any investment retained amounts in accordance with SLFRS reflect conditions ∫ Recognizes any surplus or deficit in profit or loss at1 January 2011, the date of transition to SLFRS and as ∫ Reclassifies the parent’s share of components of December 31, 2011. previously recognised in other comprehensive income to profit or loss or retained earnings, as 2.2 Basis of Measurement appropriate. The financial statements have been prepared on the historical cost basis except for the following: Transactions Eliminated on Consolidation Intra-group balances and transactions, and any ∫ Investment property is measured at fair value unrealized income expenses arising from intra-group ∫ Financial assets and Financial liabilities that have transactions and dividend, are eliminated in preparing been measured at fair value the consolidated financial statements. ∫ Land and buildings are stated at revalued amounts Business Combination 2.3 Functional and Presentation Currency Business combinations were accounted for using the These financial statements are presented in Sri Lankan purchase method. Transaction costs directly attributable Rupees, which is the Company’s functional currency. All to the acquisition formed part of the acquisition costs. financial information presented in Sri Lankan Rupees The non-controlling interest (formerly known as minority rounded to the nearest thousand. interest) was measured at the proportionate share of the acquiree’s identifiable net assets. 2.4 Basis of Consolidation Business combinations are accounted for using 2.4.1 Subsidiaries the acquisition method. The cost of an acquisition Subsidiaries are entities controlled by the Group. Control is measured as the aggregate of the consideration exists when the Group has the power to govern the transferred measured at acquisition date fair value financial and operating policies of an entity so as to and the amount of any non-controlling interest in the obtain benefits from its activities. The consolidated acquiree. For each business combination, the Group financial statements comprise the financial statements elects whether to measure the non-controlling interest of the Group as at 31 December each year. Subsidiaries in the acquiree at fair value or at the proportionate share are fully consolidated from the date of acquisition, of the acquiree’s identifiable net assets. Acquisition- being the date on which the Group obtains control, related costs are expensed as incurred and included in and continue to be consolidated until the date when administrative expenses. such control ceases. The financial statements of the subsidiaries are prepared for the same reporting year When the Group acquires a business, it assesses the as the parent company, using consistent accounting financial assets and liabilities assumed for appropriate policies. Losses within a subsidiary are attributed to classification and designation in accordance with the non-controlling interest even if this results in a the contractual terms, economic circumstances and deficit balance. A change in the ownership interest of a pertinent conditions as at the acquisition date. This subsidiary, without a loss of control, is accounted for as includes the separation of embedded derivatives in host an equity transaction. If the Group loses control over a contracts by the acquiree. subsidiary, it: If the business combination is achieved in stages, the ∫ Derecognizes the assets (including goodwill) and previously held equity interest is remeasured at its liabilities of the subsidiary acquisition date fair value and any resulting gain or loss ∫ Derecognizes the carrying amount of any non- is recognised in profit or loss. controlling interest Any contingent consideration to be transferred by the ∫ Derecognizes the cumulative translation differences acquirer will be recognised at fair value at the acquisition recorded in equity date. Contingent consideration classified as an asset ∫ Recognizes the fair value of the consideration or liability that is a financial instrument and within the received CEYLINCO INSURANCE PLC 116 Annual Report 2012

Notes to the Consolidated Financial Statements

scope of LKAS 39 Financial Instruments: Recognition adjustments to align the accounting policies with those and Measurement, is measured at fair value with of the Group, from the date that significant influence changes in fair value recognised either in either profit commences until the date that significant influence or loss or as a change to other comprehensive income. ceases. If the contingent consideration is not within the scope of LKAS 39, it is measured in accordance with the When the Group’s share of losses exceeds its interest appropriate SLFRS. Contingent consideration that is in an equity accounted investees, the carrying amount classified as equity is not remeasured and subsequent of that interest (including any long-term investments) settlement is accounted for within equity. is reduced to nil and the recognition of further losses is discontinued except to the extent that the Group has Goodwill is initially measured at cost, being the excess of an obligation or has made payments on behalf of the the aggregate of the consideration transferred and the investees. amount recognised for non-controlling interest over the net identifiable assets acquired and liabilities assumed. After application of the equity method, the Group determines whether it is necessary to recognize an If the fair value of the net assets acquired is in excess additional impairment loss on the Group’s investment of the aggregate consideration transferred, the gain in associates. The Group determines at each reporting is recognised in profit or loss.After initial recognition, date, whether there is any objective evidence that the goodwill is measured at cost less any accumulated investment in the associate is impaired. If this is the impairment losses. For the purpose of impairment case, the Group calculates the amount of impairment testing, goodwill acquired in a business combination as the difference between the recoverable amount of is, from the acquisition date, allocated to each of the the associate and its carrying value and recognizes the Group’s cash-generating units that are expected to amount in the ‘share of profit of an associate’ in the benefit from the combination, irrespective of whether income statement. other assets or liabilities of the acquiree are assigned to those units. Upon loss of significant influence over the associate, the Group measures and recognizes any remaining Where goodwill has been allocated to a cash-generating investment at its fair value. Any differences between the unit and part of the operation within that unit is disposed carrying amount of the associate upon loss of significant of, the goodwill associated with the disposed operation influence and the fair value of the remaining investment is included in the carrying amount of the operation and proceeds from disposal are recognized in profit or when determining the gain or loss on disposal. Goodwill loss. disposed in these circumstance is measured based on the relative values of the disposed operation and the 3 Significant Accounting Policies portion of the cash-generating unit retained. The accounting policies have been applied consistently to all periods presented in these financial statements of 2.4.2 Associates(equity accounted investees) the Company and Group. Associates are those entities in which the Group has significant influence, but not control, over the financial (a) Product classification and operating policies. Significant influence is presumed Insurance contracts are those contracts to exist when the Group holds between 20 and 50 when the Group (the insurer) has accepted percent of the voting power of another entity. Associates significant insurance risk from another party are accounted for using the equity method (equity (the policyholders) by agreeing to compensate accounted investees) and are initially recognized at cost. the policyholders if a specified uncertain future event (the insured event) adversely affects the The Group’s investment includes goodwill identified policyholders. As a general guideline, the Group on acquisition, net of any accumulated impairment determines whether it has significant insurance risk, losses. The consolidated financial statements include by comparing benefits paid with benefits payable if the Group’s share of the income and expenses and the insured event did not occur. equity movements of equity accounted investees, after CEYLINCO INSURANCE PLC Annual Report 2012 117

Insurance contracts are further classified as being The useful lives of intangible assets are assessed to either with or without DPF. DPF is a contractual right be either finite or indefinite. to receive, as a supplement to guaranteed benefits, additional benefits that are: Intangible assets with finite lives are amortised over the useful economic life and assessed for ∫ Likely to be a significant portion of the total impairment whenever there is an indication that the contractual benefits intangible asset may be impaired. The amortization ∫ The amount or timing of which is contractually period and the amortization method for an at the discretion of the issuer intangible asset with a finite useful life are reviewed ∫ That are contractually based on: at least at each financial year end. Changes in the expected useful life or the expected pattern of - The performance of a specified pool of consumption of future economic benefits embodied contracts or a specified type of contract in the asset are accounted for by changing the - Realized and or unrealized investment returns amortization period or method, as appropriate, and on a specified pool of assets held by the issuer are treated as changes in accounting estimates. - The profit or loss of the company, fund or other The amortization expense on intangible assets with entity that issues the contract finite lives is recognised in the income statement in the expense category consistent with the function of the intangible asset. The estimated useful lives for (b) Deferred acquisition costs (DAC) the current and comparative periods are as follows: Those direct and indirect costs incurred during the financial period arising from the writing or renewing Item Useful Life of insurance contracts are deferred to the extent Computer software 03 - 05 Years that these costs are recoverable out of future Leasehold rights 15 - 99 Years premiums. Intangible assets with indefinite useful lives are DAC for general insurance is amortised over the tested for impairment annually either individually or period in which the related revenues are earned. at the cash generating unit level. Such intangibles The reinsurers’ share of deferred acquisition costs are not amortised. The useful life of an intangible is amortised in the same manner as the underlying asset with an indefinite life is reviewed annually asset amortization is recorded in the income to determine whether indefinite life assessment statement. An impairment review is performed continues to be supportable. If not, the change in at each reporting date or more frequently when the useful life assessment from indefinite to finite an indication of impairment arises. When the is made on a prospective basis. Gains or losses recoverable amount is less than the carrying value arising from derecognition of an intangible asset an impairment loss is recognised in the income are measured as the difference between the net statement. DAC are also considered in the liability disposal proceeds and the carrying amount of the adequacy test for each reporting period. DAC are asset and are recognised in the income statement derecognized when the related contracts are either when the asset is derecognized. settled or disposed of. (d) Segment Reporting (c) Intangible assets A segment is a distinguishable component of the Intangible assets acquired separately are measured Group that is engaged either in providing related on initial recognition at cost. The cost of intangible products or services (business segment), or in assets acquired in a business combination is their providing products or services within a particular fair value as at the date of acquisition. Following economic environment (geographical segment), initial recognition, intangible assets are carried at which is subject to risks and returns that are cost less any accumulated amortization and any different from those of other segments. The Group’s accumulated impairment losses. primary format for segment reporting is based on business segments. The business segments are CEYLINCO INSURANCE PLC 118 Annual Report 2012

Notes to the Consolidated Financial Statements

determined based on the Group’s management and Subsequent measurement internal reporting structure. The subsequent measurement of financial assets depends on their classification as follows: Inter-segment pricing is determined on an arm’s length basis. Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss Segment results, assets and liabilities include items include financial assets held for trading and those directly attributable to a segment as well as those designated upon initial recognition at fair value that can be allocated on a reasonable basis. through profit or loss. Investments typically bought The activities of the Group are located mainly in with the intention to sell in the near future are Sri Lanka. Consequently, the economic environment classified as held for trading. in which the Group operated is not subject to Subsequent to initial recognition, these investments risks and rewards that are significantly different are remeasured at fair value. Fair value adjustments on a geographical basis. Hence disclosure by and realized gains and losses are recognised in the geographical region is not provided. income statement.

(e) Financial assets The Group evaluated its financial assets at fair Initial recognition and measurement value through profit and loss (held for trading) Financial assets within the scope of LKAS 39 are whether the intent to sell them in the near term classified as financial assets at fair value through is still appropriate. When the Group is unable to profit or loss, loans and receivables, held to maturity trade these financial assets due to inactive markets investments, available-for-sale financial assets, as and management’s intent to sell them in the appropriate. foreseeable future significantly changes, the Group Financial assets are recognised initially at fair may elect to reclassify these financial assets in rare value plus, in the case of investments not at fair circumstances. The reclassification to loans and value through profit or loss, directly attributable receivables, available-for-sale or held to maturity transaction costs. depends on the nature of the asset. This evaluation does not affect any financial assets designated at The classification depends on the purpose fair value through profit or loss using the fair value for which the investments were acquired or option at designation. originated. Financial assets are classified as at fair value through profit or loss where the Group’s Available-for-sale financial assets documented investment strategy is to manage Available-for-sale financial investments include financial investments on a fair value basis, equity and debt securities. Equity investments because the related liabilities are also managed classified as available-for-sale are those, which are on this basis. The available-for-sale and held to neither classified as held for trading nor designated maturity categories are used when the relevant at fair value through profit or loss. liability (including shareholders’ funds) is passively Debt securities in this category are those that are managed and/or carried at amortised cost. intended to be held for an indefinite period of time Purchases or sales of financial assets that require and which may be sold in response to needs for delivery of assets within a time frame established by liquidity or in response to changes in the market regulation or convention in the marketplace (regular conditions. way trades) are recognised on the settlement date. After initial measurement, available-for-sale The Group’s financial assets include cash and short- financial assets are subsequently measured at fair term deposits, loans and receivables, quoted and value with unrealized gains or losses recognised as unquoted financial instruments. other comprehensive income in the available-for- sale reserve until the asset is derecognized, at which time, the cumulative gain or loss is recognised CEYLINCO INSURANCE PLC Annual Report 2012 119

in other operating income, or determined to be derecognized or impaired, as well as through the impaired, or the cumulative loss is recognised in the amortization process. income statement in finance costs and removed from the available-for-sale reserve. Held to maturity financial assets Non-derivative financial assets with fixed or The Group evaluated its available-for-sale financial determinable payments and fixed maturities are assets to determine whether the ability and classified as held to maturity when the Group intention to sell them in the near term would still be has the positive intention and ability to hold until appropriate. In the case where the Group is unable maturity. to trade these financial assets due to inactive markets and management’s intention significantly These investments are initially recognised at cost, changes to do so in the foreseeable future, the being the fair value of the consideration paid for Group may elect to reclassify these financial assets the acquisition of the investment. All transaction in rare circumstances. Reclassification to loans and costs directly attributable to the acquisition are also receivables is permitted when the financial asset included in the cost of the investment. After initial meets the definition of loans and receivables and measurement, held to maturity financial assets are management has the intention and ability to hold measured at amortised cost, using the EIR method, these assets for the foreseeable future or until less impairment. Gains and losses are recognised maturity. The reclassification to held to maturity in the income statement when the investments are is permitted only when the entity has the ability derecognized or impaired, as well as through the and intention to hold the financial asset until amortization process. maturity. For a financial asset reclassified out of Derecognition of financial assets the available-for-sale category, any previous gain A financial asset (or, when applicable, a part of a or loss on that asset that has been recognised financial asset or part of a group of similar financial in equity is amortised to profit or loss over the assets) is derecognized when: remaining life of the investment using the EIR. Any difference between the new amortised cost and ∫ The rights to receive cash flows from the asset the expected cash flows is also amortised over the have expired remaining life of the asset using the EIR. If the asset is subsequently determined to be impaired then ∫ The Group retains the right to receive cash flows the amount recorded in equity is reclassified to the from the asset or has assumed an obligation income statement. to pay the received cash flows in full without material delay to a third party under a ‘pass- Loans and other receivables through’ arrangement; and either: Loans and receivables are non-derivative financial assets with fixed or determinable payments that are (a) The Group has transferred substantially all not quoted in an active market. These investments the risks and rewards of the asset; or are initially recognised at cost, being the fair value (b) The Group has neither transferred nor of the consideration paid for the acquisition of the retained substantially all the risks and investment. rewards of the asset, but has transferred After initial measurement, loans and receivables control of the asset. are measured at amortised cost, using the effective When the Group has transferred its right to receive interest rate method (EIR) less impairment. cash flows from an asset or has entered into a pass Amortised cost is calculated by taking into account through arrangement, and has neither transferred any discount or premium on acquisition and fee or nor retained substantially all the risks and rewards costs that are an integral part of the EIR. The EIR of the asset nor transferred control of the asset, amortization is included in finance income in the the asset is recognised to the extent of the Group’s income statement. Gains and losses are recognised continuing involvement in the asset. in the income statement when the investments are CEYLINCO INSURANCE PLC 120 Annual Report 2012

Notes to the Consolidated Financial Statements

(f) Impairment of financial assets the discount rate for measuring any impairment loss The Group assesses at each reporting date whether is the current effective interest rate. a financial asset or group of financial assets is impaired. A financial asset or a group of financial The carrying amount of the asset is reduced through assets is deemed to be impaired if, and only if, there the use of an allowance account and the amount is objective evidence of impairment as a result of of the loss is recognised in the income statement. one or more events that has occurred after the Interest income continues to be accrued on the initial recognition of the asset (an incurred ‘loss reduced carrying amount and is accrued using the event’) and that loss event has an impact on the rate of interest used to discount the future cash estimated future cash flows of the financial asset flows for the purpose of measuring the impairment or the group of financial assets that can be reliably loss. The interest income is recorded as part of estimated. investment income in the income statement. . Loans together with the associated allowance are written Evidence of impairment may include indications that off when there is no realistic prospect of future the debtors or a group of debtors is experiencing recovery and all collateral has been realized or has significant financial difficulty, default or delinquency been transferred to the Group. If, in a subsequent in interest or principal payments, the probability year, the amount of the estimated impairment that they will enter bankruptcy or other financial loss increases or decreases because of an event reorganisation and where observable data indicate occurring after the impairment was recognised, the that there is a measurable decrease in the previously recognised impairment loss is increased estimated future cash flows, such as changes in or reduced by adjusting the allowance account. If arrears or economic conditions that correlate with a future write-off is later recovered, the recovery defaults. is credited to the ‘finance cost’ in the income statement. Financial assets carried at amortised cost For financial assets carried at amortised cost, the For the purpose of a collective evaluation of Group first assesses individually whether objective impairment, financial assets are grouped on the evidence of impairment exists individually for basis of the Group’s internal credit grading system, financial assets that are individually significant, which considers credit risk characteristics such as or collectively for financial assets that are not asset type, industry, geographical location, collateral individually significant. If the Group determines type, past-due status and other relevant factors. that no objective evidence of impairment exists for an individually assessed financial asset, Future cash flows on a group of financial assets whether significant or not, it includes the asset in that are collectively evaluated for impairment are a group of financial assets with similar credit risk estimated on the basis of historical loss experience characteristics and collectively assesses them for for assets with credit risk characteristics similar impairment. Assets that are individually assessed to those in the group. Historical loss experience for impairment and for which an impairment loss is, is adjusted on the basis of current observable or continues to be, recognised are not included in a data to reflect the effects of current conditions on collective assessment of impairment. which the historical loss experience is based and to remove the effects of conditions in the historical If there is objective evidence that an impairment period that do not exist currently. Estimates of loss on assets carried at amortised cost has been changes in future cash flows reflect, and are incurred, the amount of the impairment loss is directionally consistent with, changes in related measured as the difference between the carrying observable data from year to year (such as changes amount of the asset and the present value of in unemployment rates, property prices, commodity estimated future cash flows (excluding future prices, payment status, or other factors that are expected credit losses that have not been incurred) indicative of incurred losses in the group and their discounted at the financial asset’s original effective magnitude). The methodology and assumptions interest rate. If a loan has a variable interest rate, used for estimating future cash flows are reviewed CEYLINCO INSURANCE PLC Annual Report 2012 121

regularly to reduce any differences between loss (g) Offsetting of financial instruments estimates and actual loss experience. Financial assets and financial liabilities are offset and the net amount is reported in the consolidated Available-for-sale financial investments statement of financial position if, and only if, there For available-for-sale financial investments, the is a currently enforceable legal right to offset Group assesses at each reporting date whether derecognized amounts and there is an intention there is objective evidence that an investment or a to settle on a net basis, or to realize the assets group of investments is impaired. and settle the liabilities simultaneously. Income In the case of equity investments classified as and expense will not be offset in the consolidated available-for-sale, objective evidence would include income statement unless required or permitted a ‘significant or prolonged’ decline in the fair value by any accounting standard or interpretation, as of the investment below its cost. ‘Significant’ is to be specifically disclosed in the accounting policies of evaluated against the original cost of the investment the Group. and ‘prolonged’ against the period in which the (h) Fair value of financial instruments fair value has been below its original cost. Where The fair value of financial instruments that are there is evidence of impairment, the cumulative actively traded in organized financial markets is loss – measured as the difference between the determined by reference to quoted market bid acquisition cost and the current fair value, less prices for assets and offer prices for liabilities, at any impairment loss on that investment previously the close of business on the reporting date, without recognised in the income statement – is removed any deduction for transaction costs. For units in from other comprehensive income and recognized unit trusts and shares in open ended investment in the income statement. Impairment losses on companies, fair value is determined by reference to equity investments are not reversed through the published net asset values. income statement; increases in their fair value after impairment are recognised directly in other For financial instruments where there is not an comprehensive income. active market, the fair value is determined by using appropriate valuation techniques. Valuation In the case of debt instruments classified as techniques include the discounted cash flow available-for-sale, impairment is assessed based method, net assets, comparison to similar on the same criteria as financial assets carried at instruments for which market observable prices amortised cost. However, the amount recorded for exist and other relevant valuation models. impairment is the cumulative loss measured as the difference between the amortised cost and the The fair value of repo and call deposits with credit current fair value, less any impairment loss on that institutions is their carrying value. The carrying value investment previously recognised in the income is the cost of the investment and accrued interest. statement. Future interest income continues to be The fair value of fixed interest bearing deposits is accrued based on the reduced carrying amount of estimated using discounted cash flow techniques. the asset and is accrued using the rate of interest Expected cash flows are discounted at current used to discount the future cash flows for the market rates for similar instruments at the reporting purpose of measuring the impairment loss. The date. interest income is recorded as part of finance income. If, in a subsequent year, the fair value of If the fair value can not be measured reliably, a debt instrument increases and the increase can these financial instruments are measured at be objectively related to an event occurring after cost, being the fair value of the consideration the impairment loss was recognised in the income paid for the acquisition of the investment or the statement, the impairment loss is reversed through amount received on issuing the financial liability. the income statement. All transaction costs directly attributable to the acquisition are also included in the cost of the investment. CEYLINCO INSURANCE PLC 122 Annual Report 2012

Notes to the Consolidated Financial Statements

(i) Reinsurance carrying value of insurance receivables is reviewed Reinsurance assets include the balances due from for impairment whenever events or circumstances both insurance and reinsurance companies for paid indicate that the carrying amount may not be and unpaid losses and loss adjustment expenses. recoverable, with the impairment loss recorded in Amounts recoverable from reinsurers are estimated the income statement. in a manner consistent with the claim liability associated with the reinsurance policy. Insurance receivables are derecognized when the derecognizing criteria for financial assets have been The Group also assumes reinsurance risk in the met. normal course of business for life insurance and non-life insurance contracts where applicable. (k) Taxes ∫ Income Tax Premiums and claims on assumed reinsurance are Income tax expense comprises current and recognised as revenue or expenses in the same deferred tax. Income tax expense is recognised manner as they would be if the reinsurance were in profit or loss except to the extent that it considered direct business, taking into account the relates to items recognised directly in equity product classification of the reinsured business. or other comprehensive income, in which Reinsurance liabilities represent balances due case it is recognised in equity or statement of to reinsurance companies. Amounts payable are comprehensive income. estimated in a manner consistent with the related reinsurance contract. Current tax is the expected tax payable on the taxable income for the year, using tax Premiums and claims are presented on a gross rates enacted or substantively enacted at the basis for both ceded and assumed reinsurance. reporting date, and any adjustment to tax Reinsurance assets or liabilities are derecognized payable in respect of previous years. when the contractual rights are extinguished or The Inland Revenue Act No. 10 of 2006 and expire or when the contract is transferred to another amendments there to as well as relevant Board party. of Investment (BOI) regulations are applied in Reinsurance assets include the balances due from determining the taxable income/loss of the both insurance and reinsurance companies for paid Company and its subsidiaries. and unpaid losses and loss adjustment expenses. Subsidiaries of the Company, are tax exempt Amounts recoverable from reinsures are estimated and tax liable under concessionary rates (Please in a manner consistent with the claim liability refer Note No. 36). associated with the reinsurance policy. ∫ Deferred tax If a reinsurance asset is impaired, the company Deferred tax is provided using the liability reduces the carrying amount accordingly and is method on temporary differences at the recognized in profit or loss. A reinsurance asset is reporting date between the tax bases of assets impaired if there is objective evidence, as a result of and liabilities and their carrying amounts for an event that occurred after the initial recognition financial reporting purposes. of the reinsurance asset, that the company may not receive all amounts due to it under the terms of the - Deferred tax liabilities are recognised for all contract, and the event has a reliably measurable taxable temporary differences, except: impact on the amount that the company will receive from the re-insurer. (A) When the deferred tax liability arises from the initial recognition of goodwill or of an (j) Insurance receivables asset or liability in a transaction that is Insurance receivables are recognised when due not a business combination and, at the and measured on initial recognition at the fair value time of the transaction, affects neither the of the consideration received or receivable. The accounting profit nor taxable profit or loss. CEYLINCO INSURANCE PLC Annual Report 2012 123

(B) In respect of taxable temporary settled, based on tax rates (and tax laws) that differences associated with investments have been enacted or substantively enacted at in subsidiaries, associates and interests the reporting date. in joint ventures, where the timing of the Deferred tax relating to items recognised outside reversal of the temporary differences can profit or loss is recognised outside profit or loss. be controlled and it is probable that the Deferred tax items are recognised in correlation temporary differences will not reverse in the foreseeable future. to the underlying transaction either in other comprehensive income or directly in equity. Deferred tax assets are recognised for all deductible temporary differences, carry forward Deferred tax assets and deferred tax liabilities of unused tax credits and unused tax losses, to are offset, if a legally enforceable right exists to the extent that it is probable that taxable profit set off current tax assets against current income will be available against which the deductible tax liabilities and the deferred taxes relate to temporary differences, and the carry forward of the same taxable entity and the same taxation unused tax credits and unused tax losses can be authority. utilized except: ∫ Sales taxes and premium taxes

- Where the deferred tax asset relating Revenues, expenses and assets are to the deductible temporary difference recognised net of the amount of sales arises from the initial recognition of an taxes and premium taxes except: asset or liability in a transaction that is Where the sales or premium tax incurred not a business combination and, at the on a purchase of assets or services is not time of the transaction, affects neither the recoverable from the taxation authority, accounting profit nor taxable profit or loss. in which case, the sales tax is recognised - In respect of deductible temporary as part of the cost of acquisition of the differences associated with investments asset or as part of the expense item as in subsidiaries, associates and interests applicable. in joint ventures, deferred tax assets are Receivables and payables that are stated recognised only to the extent that it is with the amount of sales or premium tax probable that the temporary differences included. will reverse in the foreseeable future and taxable profit will be available against Outstanding net amounts of sales or premium which the temporary differences can be tax recoverable from, or payable to, the taxation utilized. authority is included as part of receivables or payables in the statement of financial position. The carrying amount of deferred tax assets is reviewed at each reporting date and reduced (l) Investment Properties to the extent that it is no longer probable that Investment properties are measured initially at cost, sufficient taxable profit will be available to allow including transaction costs. The carrying amount all or part of the deferred income tax asset to includes the cost of replacing part of an existing be utilized. Unrecognized deferred tax assets investment property at the time that cost is incurred are reassessed at each reporting date and are if the recognition criteria are met; and excludes recognised to the extent that it has become the costs of day-to-day servicing of an investment probable that future taxable profit will allow the property. Subsequent to initial recognition, deferred tax asset to be recovered. investment properties are stated at fair value, which reflects market conditions at the reporting date. Deferred tax assets and liabilities are measured Gains or losses arising from changes in the fair at the tax rates that are expected to apply to the values of investment properties are included in the year when the asset is realized or the liability is income statement in the year in which they arise. CEYLINCO INSURANCE PLC 124 Annual Report 2012

Notes to the Consolidated Financial Statements

Fair values are evaluated annually by an accredited intended use, and the costs of dismantling external, independent valuer, applying a valuation and removing the items and restoring the model, when there are indications of fair value site on which they are located. Purchased changes in investment property. software that is integral to the functionality of the related equipment is capitalised as Investment properties are derecognized either when part of that equipment. Borrowing costs they have been disposed of, or when the investment related to the acquisition or constructions of property is permanently withdrawn from use and qualifying assets are capitalised. no future economic benefit is expected from its disposal. Any gains or losses on the retirement or When parts of an item of property, plant disposal of an investment property are recognised and equipment have different useful lives, in the income statement in the year of retirement or they are accounted for as separate items disposal. (major components) of property, plant and equipment. Gains and losses on disposal of Transfers are made to or from investment property an item of property, plant and equipment only when there is a change in use evidenced by the are determined by comparing the proceeds end of owner-occupation, commencement of an from disposal with the carrying amount operating lease to another party or completion of of property, plant and equipment, and are construction or development. For a transfer from recognised net within “other income” in profit investment property to owner occupied property, or loss. When revalue assets are sold, the the deemed cost for subsequent accounting is the amounts included in the revaluation surplus fair value at the date of change in use. If owner- reserve are transferred to retained earnings. occupied property becomes an investment property, the Group accounts for such property in accordance (ii) Subsequent Costs with the policy stated under property and equipment The cost of replacing part of an item of up to the date of the change in use. property, plant and equipment is recognised in the carrying amount of the item if it is (m) Investment in Subsidiaries probable that the future economic benefits Investments in Subsidiaries are treated as long - embodied within the part will flow to the term investments and valued at cost in separate Group and its cost can be measured reliably. financial statements of the Company. The carrying amount of the replaced part is (n) Investments in Associates derecognised. The costs of the day-to-day Investments in Associates are recognized at cost in servicing of property, plant and equipment the separate financial statements of the company are recognised in profit or loss as incurred. and accounted under equity method in consolidated (iii) Depreciation financial statements. Depreciation is recognized in profit or loss (o) Property, Plant and Equipment on a straight-line basis over the estimated useful lives of each part of an item of (i) Recognition and Measurement property, plant and equipment. Land is not Items of property, plant and equipment is depreciated. The assets are depreciated from stated at cost or valuation less accumulated the month it is available for use and cease to depreciation. depreciate from the month of disposal.

Cost includes expenditure that is directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials and direct labour, any other costs directly attributable to bringing the asset to a working condition for its CEYLINCO INSURANCE PLC Annual Report 2012 125

The estimated useful lives for the current and (p) Inventories comparative periods are as follows: Inventories include all consumable items and are measured at the lower of cost and net realizable Item Useful Life value. Cost is generally determined by reference to Buildings 50-70 Years weighted average cost. Net realizable value is the Improvement on estimated market price in the ordinary course of leasehold Building 04-06 Years business less any estimated expense to sell.

Furniture and Fittings 05-10 Years The cost incurred in bringing inventories to its Office Equipment 03-10 Years present location and condition is accounted using Computer Equipment 02-05 Years the following cost formulae.

Motor Vehicles 04-05 Years Stationery Plant & Machinery Course Materials } First in First out Basis /Project Equipment 4-33 Years Books Civil Construction 57-60 Years (q) Impairment of Non-Financial Assets Medical Equipments 05 Years The carrying amounts of the Group’s non-financial Electric Equipment 05 Years assets, are reviewed at each reporting date to determine whether there is any indication of Depreciation methods, useful lives and impairment. If any such indication exists, then the residual values are reviewed at each reporting asset’s recoverable amount is estimated. date. The recoverable amount of an asset or cash- (iv) Revaluations generating unit is the greater of its value in use and Revaluation is performed on freehold land its fair value less costs to sell. In assessing value in and building by professionally qualified use, the estimated future cash flows are discounted valuers using the open market value. Land to their present value using a pre-tax discount rate and buildings are revalued in every three that reflects current market assessments of the years. time value of money and the risks specific to the The revaluation surplus is recognized on asset. the net carrying value of the asset and is An impairment loss is recognised if the carrying transferred to a revaluation reserve after amount of an asset or its cash-generating unit restating the asset at the revalued amount. exceeds its estimated recoverable amount. The revaluation reserve is transferred Impairment losses are recognised in profit or loss. to retained earnings at the point of derecognition. An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment (v) De-recognition losses recognised in prior periods are assessed at An item of property, plant and equipment each reporting date for any indications that the loss is de-recognised upon disposal or when has decreased or no longer exists. An impairment no future economic benefits are expected loss is reversed if there has been a change in the from its use. Any gain or loss arising on estimates used to determine the recoverable derecognition of the asset (calculated as the amount. An impairment loss is reversed only to the difference between the net disposal proceeds extent that the asset’s carrying amount does not and the carrying amount of the asset) is exceed the carrying amount that would have been recognised in profit and loss in the year the determined, net of depreciation or amortisation, if asset is de-recognised. no impairment loss had been recognised. CEYLINCO INSURANCE PLC 126 Annual Report 2012

Notes to the Consolidated Financial Statements

(r) Cash and Cash Equivalents period. Foreign currency differences arising on Cash and cash equivalents comprise cash balances, retranslation are recognized in profit or loss and call deposits. Bank overdrafts are included in The Group’s consolidated financial statements the balance sheet under current liabilities. are presented in rupees which is also the parent For cash flow purposes, cash and cash equivalents company’s functional currency. Each company in the are presented net of bank overdraft. Group determines its own functional currency and items included in the financial statements of each (s) Leasing entity are measured using that functional currency. Group as a lessee i) Transactions and balances Finance leases that transfer to the Group Transactions in foreign currencies are initially substantially all the risks and benefits incidental to recorded at the functional currency rate ownership of theleased item, are capitalised at the prevailing at the date of the transaction. commencement of the lease at the fair value of the Monetary assets and liabilities denominated leased property or, if lower, at the present value of in foreign currencies are retranslated at the the minimum lease payments. Lease payments are functional currency rate of exchange ruling at apportioned between finance charges and reduction the reporting date. All differences are taken of the lease liability so as to achieve a constant to the income statement. rate of interest on the remaining balance of the liability. Finance charges are recognised in finance ii) Group companies cost in the income statement. Leased assets The assets and liabilities of foreign are depreciated over the useful life of the asset. operations are translated into rupees at the However, if there is no reasonable certainty that the rate of exchange prevailing at the reporting Group will obtain ownership by the end of the lease date and their income statements are term, the asset is depreciated over the shorter of translated at exchange rates prevailing at the estimated useful life of the asset and the lease the date of the transactions. The exchange term. differences arising on the translation are recognised in other comprehensive income. Leases which do not transfer to the Group On disposal of a foreign operation, the substantially all the risks and benefits incidental to component of other comprehensive income ownership of the leased items are operating leases. relating to that particular foreign operation is Operating lease payments are recognised as an recognised in the income statement. expense in the income statement on a straight line basis over the lease term. Contingent rentals are (u) Life Insurance contract liabilities recognised as an expense in the period in which they Life insurance liabilities are recognised when are incurred. contracts are entered into and premiums are charged. These liabilities are measured by using the (t) Foreign Currency Transactions net premium method. The liability is determined as Transactions in foreign currencies are translated the sum of the discounted value of the expected to the functional currency of Group entities at future benefits less the discounted value of the exchange rates at the dates of the transactions. expected net premiums. The liability is based on Monetary assets and liabilities denominated mortality tables and discount rates prescribed by in foreign currencies at the reporting date are the insurance regulator (IBSL). Adjustments to the retranslated to the functional currency at the liabilities at each reporting date are recorded in exchange rate at that date. The foreign currency the income statement. The liability is derecognised gain or loss on monetary items is the difference when the contract expires, is discharged or is between the cost in the functional currency at the cancelled. At each reporting date, an assessment beginning of the period adjusted for payments is made of whether the recognised life insurance during the period and the cost in foreign currency liabilities are adequate, by using an existing liability translated at the exchange rate at the end of the CEYLINCO INSURANCE PLC Annual Report 2012 127

adequacy test. The liability value is adjusted to the deferred acquisition costs) is inadequate, the deficiency extent that it is insufficient to meet future benefits. is recognised in the income statement by setting up a Impairment losses resulting from liability adequacy provision for premium deficiency. testing can be reversed in future years if the impairment no longer exists (w) Financial liabilities – initial recognition and subsequent measurement (v) Non-life insurance contract liabilities Non-life insurance contract liabilities include the Initial recognition and measurement outstanding claims provision, the provision for All financial liabilities are recognised initially at fair unearned premium and the provision for premium value and in the case of loans and borrowings, plus deficiency. The outstanding claims provision is directly attributable transaction costs. based on the estimated ultimate cost of all claims The Group’s financial liabilities include trade and incurred but not settled at the reporting date, other payables, borrowings, and reinsurance whether reported or not, together with related payables. claims handling costs and reduction for the expected value of salvage and other recoveries. Subsequent measurement Delays can be experienced in the notification and The subsequent measurement of financial liabilities settlement of certain types of claims, therefore as follows: the ultimate cost of these cannot be known with certainty at the reporting date. The liability is Interest bearing loans and borrowings calculated at the reporting date using a range of After initial recognition, interest bearing loans standard actuarial claim projection techniques, and borrowings are subsequently measured based on empirical data and current assumptions at amortised cost using the effective interest that may include a margin for adverse deviation. rate method. Gains and losses are recognised The liability is not discounted for the time value in the income statement when the liabilities are of money. No provision for equalization or derecognized as well as through the effective catastrophe reserves is recognised. The liabilities interest rate method (EIR) amortization process. are derecognized when the obligation to pay a claim Derecognition of financial liabilities expires, is discharged or is cancelled. A financial liability is derecognized when the The provision comprises of reserve for the net unearned obligation under the liability is discharged or premium, reserve for the deferred acquisition cost cancelled or expires. (net), reserve for gross outstanding claims and the (x) Insurance payables incurred but not reported (IBNR) provision. Unearned Insurance payables are recognised when due and premium, deferred acquisition cost and the reserve for measured on initial recognition at the fair value of gross outstanding claims are stated according to the the consideration received less directly attributable industry practices whereas the IBNR reserve is decided transaction costs. by an independent external actuary to estimate the outstanding liabilities as of reporting date. Derecognition insurance payables Insurance payables are derecognised when the At each reporting date the Group reviews its unexpired obligation under the liability is discharged, cancelled risk and a liability adequacy test is performed as laid out or expired. under SLFRS 4 to determine whether there is any overall excess of expected claims and deferred acquisition (y) Provisions-General costs over unearned premiums. This calculation uses Provisions are recognized when the Group has a current estimates of future contractual cash flows after present obligation (legal or constructive) as a result taking account of the investment return expected to of a past event, and it is probable that an outflow arise on assets relating to the relevant non life insurance of resources embodying economic benefits will technical provisions. If these estimates show that the be required to settle the obligation and a reliable carrying amount of the unearned premiums (less related estimate can be made of the amount of the obligation. CEYLINCO INSURANCE PLC 128 Annual Report 2012

Notes to the Consolidated Financial Statements

(z) Defined Contribution Plans However, according to the payment of gratuity act A defined contribution plan is a post-employment No. 12 0f 1983, the liability for gratuity payments benefit plan under which an entity pays fixed to an employee arises on the completion of five contributions (%) into a separate entity and will have years of continued service with the company. The no legal or constructive obligation to pay further provision is externally funded. amounts. Obligations for contributions to a defined contribution pension plan are recognised as an (bb) Short-Term Benefits employee benefit expense in profit or loss when they Short-term employee benefit obligations are are due. measured on an undiscounted basis and are expensed as the related service is provided. A (aa) Pensions and other post employment benefits liability is recognized for the amount expected to The Group operates a defined benefit pension be paid under short-term cash bonus if the Group plan, which requires contributions to be made to a has a present legal or constructive obligation to pay separately administered fund. The cost of providing this amount as a result of past service provided by benefits under the defined benefit plan is determined the employee and the obligation can be estimated separately using the projected unit credit valuation reliably. method. Actuarial gains and losses are recognised as income or expense. (cc) Stated Capital The Group has issued ordinary shares that are The defined benefit asset or liability comprises classified as equity. Incremental external costs that the present value of the defined benefit obligation are directly attributable to the issue of these shares less the fair value of plan assets out of which the are recognised in equity, net of tax. obligations are to be settled directly. (dd) Dividends on Ordinary Share Capital Plan assets are assets that are held by a long-term Dividends on ordinary shares are recognised as a employee benefit fund. Plan assets are not available liability and deducted from equity when they are to creditors of the Group nor can they be paid directly approved by the Group’s shareholders. Interim to the Group. dividends are deducted from equity when they are paid. Dividends for the year that are approved after Fair value is based on market price information and, the reporting date are dealt with as an event after in the case of quoted securities, it is the published the reporting date. market price. The value of any defined benefit asset is restricted to the sum of any past service cost and (ee) Earnings Per Share actuarial gains and losses not yet recognised and Basic earnings per share amounts is calculated by the present value of any economic benefits available dividing the net profit for the year attributable to in the form of refunds from the plan or reductions in ordinary shareholders of the parent by the weighted future contributions to the plan. average number of ordinary shares outstanding at the reporting date. The amount recognized as defined benefit liabilities has been netted with the fair value of the plan assets (ff) Gross Written Premium of the reporting period. Any surplus in plan assets has been measured based on the requirements of 1.) Non Life Insurance LKAS 19 – Employee Benefits, Para 58 and IFRIC Gross written premium is generally 14 - The Limit on a Defined Benefit Asset, Minimum recognized as written upon inception of Funding Requirements and their Interaction. the policy. Upon inception of the contract, premiums are recorded as written and are Acturial gains and losses for the defined benefit earned primarily on a pro-rata basis over the plans are recognized in full in the period in which they occur in Other Comprehensive Income. term of the related policy coverage. However, for those contracts for which the period of risk differs significantly from the contract period, premiums are earned over the CEYLINCO INSURANCE PLC Annual Report 2012 129

period of risk in proportion to the amount of avenues i.e. from screening packages insurance protection provided. and screening tests. All such revenue is recognized in the Statement of Income on 2.) Life Insurance accrual basis. Gross premium on life Insurance Contracts are recognised as revenue when payable (2) Services by the policyholder. For single premium Revenue is recognised in the accounting business, revenue is recognised on the date periods in which the services are rendered on which the policy is effective. (3) Power Generation (gg) Reinsurance Premium Revenue is recognized in the accounting 1.) Non Life Insurance period in which the power is generated and Reinsurance premium expense is accounted supplied to national grid. for in the same accounting period as the gross written premium to which it relates. (4) Education Revenue from rendering of services is 2.) Life Insurance recognized in the period in which the services Onward reinsurance premiums are are rendered. recognized when payable. Reinsurance recoveries are credited to match the relevant (jj) Acquisition Costs gross claims. 1.) Non Life Insurance (hh) Unearned Premiums– Non Life Insurance Acquisition costs, representing commissions, which vary with and are directly related to Unearned premiums reserve represents the portion the production of business, are deferred of the premium written in the year but relating to the and amortized over the period in which unexpired term of coverage. Unearned premiums the related written premiums are earned. are calculated on the 1/24th basis except for the Reinsurance commission is also treated in Marine and Title Policies in accordance with the the same manner within deferred acquisition Control of Insurance Regulations. costs.

The basis of calculating unearned premiums for 2.) Life Insurance Marine and Title Policies are as follows, Commission Expense is charged to the period Class of the Basis in which it’s incurred. Commission payable on Policy accrued premium is recognised to the extent that these costs are recoverable out of future Marine 60% in the same month premiums. 40% after three months of underwriting the policy (kk) Claims Title 60% in the same year 40% is deferred until the 1.) Non Life Insurance validity of the policy expires. Claims expenses and liabilities for outstanding claims are recognized in (ii) Revenue from Other Operations (1) Healthcare Segment Income of the Company comprises of two CEYLINCO INSURANCE PLC 130 Annual Report 2012

Notes to the Consolidated Financial Statements

respect of direct and inwards reinsurance recognised as revenue when the related business. The liability covers claims reported services are performed. but not yet paid, incurred but not reported claims (“IBNR”) and the anticipated direct 3.) Investment income and indirect costs of settling those claims. Interest income is recognised in the income Claims outstanding are assessed by review statement as it accrues and is calculated by of individual claim files estimating changes using the effective interest rate method. in the ultimate cost of settling claim. The provision in respect of IBNR& IBNER (Incurred Investment income also includes dividends But Not Enough Reported)are actuarially when the right to receive payment is valued to ensure a more realistic estimation established. For listed securities, this is the of the future liability based on the past date the security is listed as ex dividend. experience and trends. 4.) Realized gains and losses Actuarial valuation is performed on an annual Realized gains and losses recorded in the basis. income statement on investments include gains and losses on financial assets and While the Directors consider that the investment properties. Gains and losses on provision for claims is fairly stated on the the sale of investments are calculated as basis of information currently available, the ultimate liability will vary as a result of the difference between net sales proceeds subsequent information and events. This and the original or amortised cost and may result in adjustments to the amounts are recorded on occurrence of the sale provided. Such amounts are reflected in the transaction. financial statements for estimates of that (mm) Finance Cost period. The methods used and the estimates Finance cost is recognized as expenditure in the made are reviewed regularly. period in which they are incurred. However, finance 2.) Life Insurance costs are directly attributable to the acquisition, Death claims are recorded on the basis of the construction or production of assets that take notification received. Maturities and annuity a substantial period of time to get ready for its payments are recorded when due. Interim intended use or sale, are capitalized as part of the payments and surrenders are accounted at assets. the time of settlement. (nn) Cash Flow Statement 3.) Reinsurance on claims The cash flow statement has been prepared using the “direct method”. Reinsurance on claims are recognized when the related gross insurance claim is recognised according to the terms of the 3.1.1 Use of Judgments ,Estimates and Assumptions relevant contract. The preparation of financial statements in conformity with Sri Lanka Accounting Standards (LKAS and SLFRS) (ll) Other Income requires management to make judgements, estimates and assumptions that affect the application of 1.) Rental Income accounting policies and the reported amounts of assets, Rental income from property is recognized in liabilities, income and expenses. Actual results may profit or loss on a straight line basis over the differ from these estimates. term of the lease. Estimates and underlying assumptions are based on 2.) Fees and commission income historical experience and various other factors that are Insurance contract policyholders are charged believed to be reasonable under the circumstances, the for policy administration services, surrenders and other contract fees. These fees are CEYLINCO INSURANCE PLC Annual Report 2012 131

results of which form the basis of making the judgments (i) SLFRS 9 -Financial Instruments: Classification and about the carrying amount of assets and liabilities that Measurement are not readily apparent from other sources. SLFRS 9, as issued reflects the first phase of work on replacement of LKAS 39 and applies to classification and Estimates and underlying assumptions are reviewed on measurement of financial assets and liabilities. an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are (ii) SLFRS 13 -Fair Value Measurement revised and in any future periods affected. SLFRS 13 establishes a single source of guidance Information about significant areas of estimation under SLFRS for all fair value measurements. SLFRS 13 uncertainty and critical judgments in applying provides guidance on all fair value measurements under accounting policies that have the most significant effect SLFRS. on the amounts recognized in the financial statements SLFRS 9 and SLFRS 13 will be effective for financial is included in the following notes: periods beginning on or after 01 January 2015 and 2014 Critical Accounting Judgment, Disclosure respectively. Estimates and Assumptions Reference In addition to the above, following standards have also Note Page been issued and will be effective from 01 January 2014. Impairment of assets (Income Tax) 13 (a) 146 SLFRS 10 -Consolidated Financial Statements Unearned premium and SLFRS 11 – Joint Arrangements deferred acquisition cost 15 & 19. b. (2) 148 & 150 SLFRS 12 -Disclosure of Interests in Other Entities Insurance provision - Life 19 (a) 149 Reserve for gross outstanding claims 19. b. (1) 150 The Group will adopt these standards when they become Valuation of investment property 10 141 effective. Pending a detailed review, the financial impact Deferred tax - utilization of tax losses 13 (b) 146 is not reasonably estimable as at the date of publication Measurement of defined benefit obligation 20 151 of these financial statements.

4. New Accounting Standards issued but not effective as at balance sheet date The following SLFRS have been issued by the Institute of Chartered Accountants of Sri Lanka that have an effective date in the future. Those SLFRS will have an effect on the accounting policies currently adopted by the Group and may have an impact on the future financial statements. CEYLINCO INSURANCE PLC 132 Annual Report 2012

Notes to the Consolidated Financial Statements

5. Segment information For management purposes, the Group is organised into business units based on their products and services and has following reportable operating segments as follows:

∫ The life insurance segment offers a wide range of whole life, term assurance, unitised pensions, guaranteed pensions, pure endowment pensions and mortgage endowment products. ∫ The non-life insurance segment comprises of products namely motor, fire, engineering,marine, employers' liability and miscellaneous. ∫ Healthcare segment includes: - Healthcare center for Cancer Screening - Radiation Treatment units - Diabetes Center ∫ Male Foreign operations- this segment offers non-life products in Maldives. ∫ Education segment includes primary,secondary,high education courses through various subsidiary companies. ∫ Power generation segment business is to generate and distribute hydro power to national grid. ∫ Other segment includes investment management & training facility services. Transaction between operating segments are set on an arm’s length basis in a manner similar to transactions with third parties. Segment income, expenses and results will include those transfers between business segments which will then be eliminated on consolidation

Segment income statement for the year ended 31 December 2012 Foreign Adjustments Life Non-life operation Education Power Other and insurance insurance Healthcare Male generation operations eliminations Total Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000

Gross premiums 10,829,470 11,093,583 - 713,662 - - - - 22,636,715 Premiums ceded to reinsurers (253,404) (2,245,500) - (556,010) - - - - (3,054,914) Change in Reserve for Unearned premium - (225,931) - (33,378) - - - - (259,309) Net premiums 10,576,066 8,622,152 - 124,274 - - - - 19,322,492 Income from Subsidiaries - - 219,353 1,451,393 134,904 52,666 (34,332) 1,823,984 Fees and commission income 70,884 294,451 - 61,629 - 5,342 (10,276) 422,030 Investment income 4,700,717 754,105 23,707 11,439 18,924 3,819 219 (15,434) 5,497,496 Realised gains 21,678 (17,971) - - 12,573 50 - - 16,330 Fair value Gains and losses 32,543 ------32,543 Other revenue 4,825,822 1,030,585 243,060 73,068 1,482,890 138,773 58,227 (60,042) 7,792,383 Segment revenue 15,401,888 9,652,737 243,060 197,342 1,482,890 138,773 58,227 (60,042) 27,114,875 Gross benefits and claims paid (4,092,738) (4,944,452) - (84,428) - - - - (9,121,618) Claims ceded to reinsurers 101,857 547,524 - 58,432 - - - - 707,813 Gross change in contract liabilities (6,765,658) (360,277) - (16,074) - - - - (7,142,009) Change in contract liabilities ceded to reinsurers - 200,777 - 10,818 - - - - 211,595 Cost of sales of Subsidiaries - - (47,044) - (420,086) (33,793) (26,595) - (527,518) Net benefits and claims (10,756,539) (4,556,428) (47,044) (31,252) (420,086) (33,793) (26,595) - (15,871,737) Acquisition cost (1,427,626) (1,003,953) - (29,280) - - - (2,460,859) Other operating and administrative expenses (2,213,918) (3,283,927) (163,555) (110,196) (738,411) (77,458) (14,489) 17,380 (6,584,574) Finance costs (7,973) (1,163) (163) (6,155) (38,422) (28,369) (709) 27,228 (55,726) Other expenses (3,649,517) (4,289,043) (163,718) (145,631) (776,833) (105,827) (15,198) 44,608 (9,101,159) Segment benefits, claims and other expenses (14,406,056) (8,845,471) (210,762) (176,883) (1,196,919) (139,620) (41,793) 44,608 (24,972,896) Share of profit of an associate ------180,494 - 180,494 Segment results 995,832 807,266 32,298 20,459 285,971 (847) 196,928 (15,434) 2,322,473 CEYLINCO INSURANCE PLC Annual Report 2012 133

5. Segment information (cont’d) Segment income statement for the year ended 31 December 2011 Foreign Adjustments Life Non-life operation Education Power Other and insurance insurance Healthcare Male generation operations eliminations Total Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000

Gross premiums 9,833,905 10,041,212 - 341,088 - - - - 20,216,205 Premiums ceded to reinsurers (236,427) (1,835,321) - (232,686) - - - - (2,304,434) Change in Reserve for Unearned premium - (422,984) - (31,534) - - - - (454,518) Net premiums 9,597,478 7,782,907 - 76,868 - - - - 17,457,253 Income from Subsidiaries - - 217,121 - 78,602 213,051 43,639 (37,492) 514,921 Fees and commission income 64,105 298,413 - 32,797 - - (9,961) 385,354 Investment income 3,633,690 436,836 12,853 9,154 2,525 4,156 535 (18,725) 4,081,024 Realised gains 20,036 326,457 - - 544 874 - - 347,911 Fair value Gains and losses 235,882 (88,830) ------147,052 Other revenue 3,953,713 972,876 229,974 41,951 81,671 218,081 44,174 (66,178) 5,476,262 Segment revenue 13,551,191 8,755,783 229,974 118,819 81,671 218,081 44,174 (66,178) 22,933,515 Gross benefits and claims paid (3,056,300) (4,949,339) - (32,901) - - - - (8,038,540) Claims ceded to reinsurers 110,005 986,182 - 20,526 - - - - 1,116,713 Gross change in contract liabilities (6,335,332) (21,644) - (34,386) - - - - (6,391,362) Change in contract liabilities ceded to reinsurers - (490,944) - 37,212 - - - - (453,732) Cost of sales of Subsidiaries - - (44,862) - (24,031) (29,847) (29,069) - (127,809) Net benefits and claims (9,281,627) (4,475,745) (44,862) (9,549) (24,031) (29,847) (29,069) - (13,894,730)

Acquisition cost (1,301,923) (887,946) - (17,077) - - - - (2,206,946) Other operating and administrative expenses (2,163,561) (2,712,239) (159,353) (66,588) (45,441) (83,968) (12,799) 21,602 (5,222,347) Finance costs (7,891) (22,000) (211) (7,022) (2,537) (28,525) (369) 25,851 (42,704) Other expenses (3,473,375) (3,622,185) (159,564) (90,687) (47,978) (112,493) (13,168) 47,453 (7,471,997) Segment benefits, claims and other expenses (12,755,002) (8,097,930) (204,426) (100,236) (72,009) (142,340) (42,237) 47,453 (21,366,727) Share of profit of an associate ------111,189 - 111,189 Segment results 796,189 657,853 25,548 18,583 9,662 75,741 113,126 (18,725) 1,677,977 CEYLINCO INSURANCE PLC 134 Annual Report 2012

Notes to the Consolidated Financial Statements

5. Segment information (cont’d) Segment statement of financial position at 31 December 2012 Foreign Adjustments Life Non-life operation Education Power Other and insurance insurance Healthcare Male generation operations eliminations Total Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000

Intangible assets (incl. goodwill) 15,105 39,208 595 - 202,764 12,194 - - 269,866 Property, Plant & Equipment 3,906,297 1,702,393 207,416 4,222 844,316 2,075,513 11,300 - 8,751,457 Investment Property 2,068,806 1,109,502 ------3,178,308 Investment in associates 271,921 77,587 - - - - - 635,536 985,044 Investments in Subsidiaries 521,000 866,459 - - - 26,147 990 (1,414,596) - Financial instruments 41,337,022 5,936,260 241,743 177,722 45,862 8,481 360,982 (200,117) 47,907,955 Reinsurance assets 47,266 2,031,838 - 61,203 - - - - 2,140,307 Insurance/Trade receivables 1,082,759 2,391,505 1,883 91,657 90,312 32,422 35,208 (18,530) 3,707,216 Other assets 3,641,473 6,579,173 1,592 190,223 141,042 223,269 9,291 (4,637,740) 6,148,323 Total assets 52,891,649 20,733,925 453,229 525,027 1,324,296 2,378,026 417,771 (5,635,447) 73,088,476 Insurance contract liabilities 45,268,446 7,561,631 - 191,750 - - - - 53,021,827 Other liabilities 6,225,329 2,007,357 21,184 218,239 786,897 801,723 403,799 (4,831,370) 5,633,158 Total liabilities 51,493,775 9,568,988 21,184 409,989 786,897 801,723 403,799 (4,831,370) 58,654,985

Segment statement of financial position at 31 December 2011

Intangible assets (incl. goodwill) 42,397 16,403 1,380 - 194,531 12,278 - - 266,989 Property, Plant & Equipment 3,396,144 1,648,516 249,968 2,333 397,574 1,686,709 13,149 - 7,394,393 Investment Property 2,068,806 1,164,283 ------3,233,089 Investment in an associate 271,921 74,779 - - - - - 442,266 788,966 Investments in Subsidiaries 521,000 866,459 - - - 39,642 990 (1,428,091) - Financial instruments 37,548,457 5,442,443 178,252 90,943 203,266 64,470 366,526 (270,114) 43,624,243 Reinsurance assets 23,857 1,831,062 50,386 - - - - 1,905,305 Insurance/Trade receivables 909,195 1,910,588 2,671 52,710 84,129 46,199 24,691 (24,579) 3,005,604 Other assets 3,808,195 5,105,257 448 208,012 96,493 120,077 4,713 (3,511,279) 5,831,916 Total assets 48,589,972 18,059,790 432,719 404,384 975,993 1,969,375 410,069 (4,791,797) 66,050,505 Insurance contract liabilities 38,350,132 6,975,423 - 132,323 - - - - 45,457,878 Other liabilities 8,699,034 1,691,984 20,566 179,704 689,620 321,624 421,793 (3,804,445) 8,219,880 Total liabilities 47,049,166 8,667,407 20,566 312,027 689,620 321,624 421,793 (3,804,445) 53,677,758 CEYLINCO INSURANCE PLC Annual Report 2012 135

6. Goodwill Group 2012 2011 Rs.'000 Rs.'000 Cost At 1 January 193,162 - Cost - acquisition of subsidiaries - 193,162 At 31 December 193,162 193,162

Accumulated impairment At 1 January - - At 31 December - - Carrying amount At 31 December 193,162 193,162

The amount represents Goodwill reflected in the CEG Education Holdings (Pvt)Ltd.'s books.

7. Intangible assets Group Company Lease computer Lease hold software hold computer right & License Total right software Total Note Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000

Cost At 1 January 2011 9,250 281,021 290,271 - 270,757 270,757 Cost capitalised 29,954 8,046 38,000 22,411 6,468 28,879 At 31 December 2011 39,204 289,067 328,271 22,411 277,225 299,636 Cost capitalised 542 38,253 38,795 - 28,596 28,596 At 31 December 2012 39,746 327,320 367,066 22,411 305,821 328,232

Accumulated amortisation and impairment At 1 January 2011 3,888 195,679 199,567 - 188,061 188,061 Amortisation 33 1,045 53,832 54,877 419 52,356 52,775 At 31 December 2011 4,933 249,511 254,444 419 240,417 240,836 Amortisation 33 2,031 33,885 35,916 1,405 31,678 33,083 At 31 December 2012 6,964 283,396 290,360 1,824 272,095 273,919

Carrying amount At 01 Januray 2011 5,362 85,342 90,704 - 82,696 82,696 At 31 December 2011 34,271 39,556 73,827 21,992 36,808 58,800 At 31 December 2012 32,782 43,924 76,706 20,587 33,726 54,313 CEYLINCO INSURANCE PLC 136 Annual Report 2012

Notes to the Consolidated Financial Statements

8. a. Investment in subsidiaries Investments in Subsidiaries ( Unquoted) Company % holding Number of Shares Cost 2012 2011 2011.01.01 2012 2011 2011.01.01 2012 2011 2011.01.01 Rs.'000 Rs.'000 Rs.'000

Serene Resorts Ltd. 100% 100% 100% 2,000,000 2,000,000 2,000,000 - - - Ceylinco Seraka Ltd 5% 5% 5% 5,000 5,000 5,000 - - - Ceylinco Healthcare Services Ltd. 99% 99% 99% 52,100,000 52,100,000 52,100,000 521,000 521,000 521,000 Ceypower Cascades (Pvt) Ltd. - 80% 55% - 13,870,313 4,125,000 - 148,500 55,000 Ceylinco Investcorp (Pvt) Ltd. 75% 75% 75% 112,500 112,500 112,500 1,125 1,125 1,125 Ceylinco Insurance Company (Pvt) Ltd (Maldives) 60% 60% 60% 9,339 9,339 9,339 42,723 42,723 42,723 Energy Lanka Holdings Ltd 100% - - 166,603,438 - - 666,414 - - Cey Hydro Developers Ltd. - 95% 80% - 49,091,034 10,800,000 - 517,914 135,000 Energy Generators (Pvt) Ltd. 35% 35% 100% 60,907,250 60,907,250 924,999 60,907 60,907 50,907 International College of Business & Technology Ltd. 6% 6% - 150,000 150,000 - 1,500 1,500 - CEG Education Holdings (Pvt) Ltd 63% 63% - 2,912,499 2,912,499 - 64,007 64,007 - American Education Centre Ltd. 13% 13% - 460,000 460,000 - 4,600 4,600 -

Preference shares Ceypower Cascades (Pvt) Ltd. - 15% - - 9,745,313 - - 93,500 Cey Hydro Developers Ltd. - - 38,291,034 - - 382,914 International College of Business and Technology Ltd.-10% 195,828 195,828 - 1,958 1,958 - International College of Business and Technology Ltd.-08% 2,322,500 2,322,500 - 23,225 23,225 - 1,387,459 1,387,459 1,282,169

8.a.1 Ceylinco Insurance Direct investment in Ceyhydro Developers (Pvt) Ltd and Ceypower Cascades (Pvt. Ltd has been transferred to Energy Lanka Holdings Ltd. and Ceylinco Insurance PLC has obtained shares of Energy Lanka Holdings Ltd.The value of adjustment arising from such swap has been incorporated in equity statement under changes in control in subsidiaries.

8.a.2 On 7th December 2011, Ceylinco Insurance Plc has obtained 40% ordinary shares investment of the CEG Education Holdings (Pvt) Ltd. that was originally held by Premium Securities (Pvt)Ltd. in settlement of funds provided to Premium Securities (Pvt)Ltd. The management of Ceylinco Insurance PLC considered the 40% ordinary shares investment of the CEG Education Holdings (Pvt) Ltd. to have fair value of Rs.55.9 Mn.On 7th December 2011, the Ceylinco Insurance Plc has consolidated CEG Education Group on a prospective basis by incorporating the assets and liabilities of such group to the consolidated financial statements. The value of adjustments arising from such consolidation amounting to Rs. 56.9 Mn has been reflected in the consolidated equity statement as adjustment due to structural reorganisation.

CEYLINCO INSURANCE PLC Annual Report 2012 137

8. b Investment in associates Company / Group Investments in Associates

Company % holding Number of Shares Cost 2012 2011 2011.01.01 2012 2011 2011.01.01 2012 2011 2011.01.01 Rs.'000 Rs.'000 Rs.'000

Quoted Investments Citizens Development Business Finance PLC 35.60% 35.60% 35.60% 16,815,991 16,722,383 14,134,781 317,901 315,093 139,890 Unquoted Investments Ceylinco Homes International Ltd. 32.50% 32.50% 32.50% 1,305,000 1,305,000 1,305,000 13,050 13,050 13,050 Sagaramatha insurance Ltd 20.00% 20.00% 20.00% 157,980 157,980 157,980 18,557 18,557 18,557 Ceylinco Tourist Hotels Ltd. 25.50% - - 260,296 - - 12,535 Company / Group Investments in Associates (At Cost) 349,508 346,700 184,032

Group Negative Goodwill on Acquisition Ceylinco Homes International Ltd. 13,218 13,218 13,218 Citizens Development Business Finance PLC 14,485 14,485 14,485 Group share of Associates Companies Retained Assets Ceylinco Homes International Ltd. 21,039 22,839 49,263 Sagaramatha Insurance Ltd 81,770 33,881 14,258 Citizens Development Business Finance PLC 505,024 357,843 117,731 Group Investments in Associates ( Equity Basis) 985,044 788,966 392,987

Group 2012 2011 Rs.'000 Rs.'000

Share of associate’s statement of financial position Total Assets 7,147,039 4,972,650

Total Liabilities (6,161,995) (4,183,684) Net assets 985,044 788,966

Share of associate’s revenue and profit Revenue 1,266,877 920,632 Profit 180,494 111,189 CEYLINCO INSURANCE PLC 138 Annual Report 2012

Notes to the Consolidated Financial Statements

9. Property, Plant and Equipment Group Freehold Building Plant & Motor Office Computer Furniture & Capital Total Land Machinery Vehicles Equipment Equipment Fittings WIP Note Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Cost/Valuation At 1 January 2011 1,562,794 2,509,544 1,807,642 1,278,420 459,426 710,973 480,262 3,791 8,812,852 Additions/Transfers 181,601 257,757 27,230 184,150 39,648 51,399 42,785 230,558 1,015,128 Acquisition of subsidiary 85,666 234,186 18,093 95,565 128,381 57,834 71,353 - 691,078 Revaluation 749,503 100,911 ------850,414 Disposals (451,374) (679,778) (857) (945,369) (34,474) (47,453) (19,539) - (2,178,844) At 31 December 2011 2,128,190 2,422,620 1,852,108 612,766 592,981 772,753 574,861 234,349 9,190,628 Additions/Transfers 843,570 140,733 17,280 198,428 95,178 55,260 39,240 435,939 1,825,628 Disposals (27,324) - - (138,519) (4,852) (6,936) (3,141) - (180,772) At 31 December 2012 2,944,436 2,563,353 1,869,388 672,675 683,307 821,077 610,960 670,288 10,835,484

Accumulated depreciation At 1 January 2011 - 146,239 150,809 520,835 183,641 592,322 223,141 - 1,816,987 Depreciation 33 - 53,841 78,589 122,172 44,787 46,165 45,221 - 390,775 Acquisition of subsidiary 60,337 8,110 40,440 94,736 39,113 49,710 - 292,446 Revaluation - (149,116) - - - - - (149,116) Disposals - (46,476) (672) (423,722) (25,074) (45,508) (13,406) - (554,858) At 31 December 2011 - 64,825 236,836 259,725 298,090 632,092 304,666 - 1,796,234 Depreciation 33 59,536 78,459 77,081 70,035 54,315 52,084 - 391,510 Disposals - - - (91,780) (3,358) (6,685) (1,894) - (103,717) At 31 December 2012 - 124,361 315,295 245,026 364,767 679,722 354,856 - 2,084,027

Carrying amount At 01 January 2011 1,562,794 2,363,305 1,656,833 757,585 275,785 118,651 257,121 3,791 6,995,865 At 31 December 2011 2,128,190 2,357,795 1,615,272 353,041 294,891 140,661 270,195 234,349 7,394,394 At 31 December 2012 2,944,436 2,438,992 1,554,093 427,649 318,540 141,355 256,104 670,288 8,751,457

Company

Cost/Valuation At 1 January 2011 1,495,811 2,498,127 31,959 1,255,566 444,051 698,088 414,228 3,791 6,841,621 Additions/Transfers 179,399 257,757 2,188 169,881 39,028 50,154 38,290 12,187 748,884 Revaluation 749,503 100,911 ------850,414 Disposals (444,252) (679,778) (857) (944,213) (34,361) (46,211) (18,342) - (2,168,014) At 31 December 2011 1,980,461 2,177,017 33,290 481,234 448,718 702,031 434,176 15,978 6,272,905 Additions/Transfers 396,127 138,632 7,543 164,754 60,886 50,379 33,738 10,496 862,555 Disposals (27,324) - - (115,685) (4,852) (6,936) (2,906) - (157,703) At 31 December 2012 2,349,264 2,315,649 40,833 530,303 504,752 745,474 465,008 26,474 6,977,757

Accumulated depreciation At 1 January 2011 - 146,239 16,551 514,255 174,618 581,498 199,602 - 1,632,763 Depreciation 33 - 49,672 3,164 118,408 43,493 45,492 38,070 - 298,299 Revaluation - (149,116) ------(149,116) Disposals - (46,476) (671) (422,566) (25,074) (45,508) (13,406) - (553,701) At 31 December 2011 - 319 19,044 210,097 193,037 581,482 224,266 - 1,228,245 Depreciation 33 - 44,851 3,184 49,856 46,816 44,685 36,810 - 226,202 Disposals - - - (73,678) (3,123) (6,685) (1,894) - (85,380) At 31 December 2012 - 45,170 22,228 186,275 236,730 619,482 259,182 - 1,369,067

Carrying amount At 01 January 2011 1,495,811 2,351,888 15,408 741,311 269,433 116,590 214,626 3,791 5,208,858 At 31 December 2011 1,980,461 2,176,698 14,246 271,137 255,681 120,549 209,910 15,978 5,044,660 At 31 December 2012 2,349,264 2,270,479 18,605 344,028 268,022 125,992 205,826 26,474 5,608,690

CEYLINCO INSURANCE PLC Annual Report 2012 139

Details of Freehold Land & Building of Company

Addresses Building Extent Cost/ Value of Land Sq. Ft. Valuation Rs.'000 Rs.'000

Non - Life Insurance

282, High Level Road, Kottawa 2,625 Condominium 7,500 3,469

97, Bauddhaloka Mawatha, Gampaha 10,436 A-0-R-0-P 16.50 60,000 33,000

42/1, Mihidu Mawatha, Kurunegala 7,600 A-0-R-0-P 8.2 60,000 16,400

583/ 63 Liyanagemulla , Seeduwa 34,465 A-6-R-0-P 11.70 210,000 175,650

60 ,Yovunpitiya Watte, Gnanawimala Mawatha. 7,776 A-0-R-1-P 29 41,000 6,900 Kosgoda , Balapitiya

63, Janadhipathi Mawatha, Colombo 1. - A-0-R-0-P 13.84 110,500 110,500

3 rd,4 th, 7 th & 11 th Floors of Ceylinco House Building 43,468 540,000 - 69, "Ceylinco House", Janadhipathi Mawatha, Colombo 1.

167 /30 ,Avissawella Road , Wellampitiya 21,722 23,370 -

46 / 34, "VIP Centre", Nawam Mawatha , Colombo 2. 19,534 A-0-R-0-P 19.00 225,000 152,000

Panagoda 2,500 A-0-R-0-P 20.3 2,900 -

72, Pamunuwa, Maharagama - A-0-R-0-P 31 500 500

Madabawita, Warakapola 650 A-0-R-0-P 20.00 5,250 3,000

Malangama, Kuruwita 650 A-0-R-0-P 15.00 5,600 3,750

Induruwa, Kosgoda 650 A-0-R-0-P 24.30 7,000 4,860

Ibbagamuwa, Melsiripura 650 A-0-R-1-P 00.00 7,750 5,600

Unakuruwa , Tangalle 650 A-0-R-1-P 38.88 5,000 2,500

Bibilioya, Kithulgala 5,577 A-1-R-3-P 27.00 19,300 6,005

Ibbanwewa, Pussellawa 650 A-0-R-0-P 11.60 5,000 2,610

598, Galle Road, Colombo 3. 6,022 A-0-R-0-P 11.00 60,000 43,500

Total 1,395,670 570,244

Land and Buildings of the Non-Life Division as at 31st December 2011, other than at Panagoda, No.72 Pamunuwa , Maharagama were assessed as at 31st December 2011 by Mr.K.T.D. Tissera Chartered Valuation Surveyor.

Land and Buildings of Life Division as at 31st December 2011 were revalued by the qualified independent valuers Mr.W.A.D.Sarath Kumara and Mr.M.P.Panagoda (Incorporated valuers). The net revaluation surplus was transferred to Revaluation Reserve. CEYLINCO INSURANCE PLC 140 Annual Report 2012

Notes to the Consolidated Financial Statements

Addresses Building Extent Cost/ Value of Land Sq. Ft. Valuation Rs.'000 Rs.'000

Life Insurance

115, Greens Road, Negombo 8,188 A-0-R-0-P-15.00 56,043 22,500

Life Centre' 134, Galle Road, Colombo. 3 18,423 A-0-R-0-P-20.10 227,557 175,890

63, Janadhipathi Mawatha, Colombo 1. - A-0-R-0-P-13.84 117,640 117,640

60,Colombo Road,Kaluwella, Galle 11,785 A-0-R-0-P-16.10 85,000 32,200

5th Floor, No.69, "Ceylinco House" Janadhipathi Mawatha, Colombo-01 11,320 176,585 -

54,Harichchandra Mawatha, Anuradhapura 17,500 A-0-R-1-P-10.00 119,864 35,476

Serene Resorts, Bopitiya Road, Uswetakeiyyawa 55,000 A-02-R-03-P-30 226,106 94,000

Middleway Ltd. Building 167/30, Avissawella Road, Wellampitiya. 21,722 A-00-R-01-P-3.74 37,852 -

No. 06, Station Road, Matara 3,000 A-0-R-0-P-9.275 45,520 38,820

Main Street, Tissamaharama 8,468 A-0-R-1-P-0 43,055 12,000

Dharmapala Mawatha , Rathnapura 2,400 A-0-R-0-P-35.5 59,907 53,250

No. 264, Galle Road , Panadura A-0-R-0-P-23 29,000 29,000

No. 423, Main Street , Kalutara 12,615 A-0-R-0-P-32.75 108,715 26,200

No, 327, Badulla RD , Bandarawela A-0-R-0-P-17.01 11,000 11,000

No. 106, Havelock Road, Colombo 05 62,807 A-0-R-0-P-35.2 857,834 282,160

Block No. 32, Mistry Hills, Nuwara Eliya 5,400 A-0-R-0-P-26.9 32,119 9,082

No15 , Rexdias Mavatha, Wennappuwa A-0-R-0-P-37.4 23,375 23,375

No 91, Bauddhaloka Mv, Gampaha A-0-R-0-P-32.5 65,000 65,000

40, Rajapihilla Mawatha, Kurunegala 11,020 A-0-R-0-P-15.5 104,652 15,500

Kurunegala Road, Chilaw A-0-R-0-P-30.0 13,500 13,500

No 38, Abdul Gafoor Mawatha, Colombo 03 A-0-R-0-P-44.5 245,000 245,000

No 406, Galle Road Rawatawatta, Moratuwa 4,500 A-0-R-0-P.39.73 70,000 59,550

No. 37,39 & 41, Vannarpannai, South East in the Parish of Vannarpannai, Jaffna A-0.1233-R-0-P-0 38,250 38,250

No.22, Lloyd's Avenue, Batticaloa A-0-R-0-P-23.83 27,000 27,000 Total 2,820,574 1,426,393

Life Insurance - Land and Buildings recognised at cost

No.91, Bauddhaloka Mw, Gampaha 8,975 69,566

No. 37,39 & 41, Vannarpannai, South East in the Parish of Vannarpannai, Jaffna 4,655 26,476

No.02, Gower Street, Colombo -05 (Cost of Land Rs. 352,628,366) A-0- R-1-P-27.25 352,627 352,627

Total -Life Insurance 3,269,243 1,779,020

Company -Total 4,664,913 2,349,264 CEYLINCO INSURANCE PLC Annual Report 2012 141

10. Investment properties Group Company 2012 2011 2012 2011 Rs.'000 Rs.'000 Rs.'000 Rs.'000

At 1 January 3,233,089 2,611,863 3,233,089 2,611,863 Additions/Transfers 21,969 721,402 21,969 721,402 Transfers (60,000) (145,171) (60,000) (145,171) Disposal (16,750) (12,074) (16,750) (12,074) Fair value gains - 57,069 - 57,069 At 31 December 3,178,308 3,233,089 3,178,308 3,233,089

Details of Investment Property of Company Building Extent Value of Value of Total Sq. Ft. Perches Land Building Rs.'000 Rs.'000 Rs.'000

Non - Life Insurance No.2, R.A.De Mel Mawatha,Colombo-04 12432 A-0-R-0-P-11 104,289 49,044 153,333 No,34, Muhandiram ED Dabare Mawatha, Colombo-05 (4 Apartments) 6306 118,100 118,100 Wewa Road,Wickramasinghepura,Battaramulla (2 Houses) 5525 A-0-R-0-P-20 14,560 30,440 45,000 Matagoda Road, Hendala, Wattala (4 Houses) 10107 A-0-R-0-P-35.2 11,653 35,747 47,400 Erewwala, Pannipitiya (4 Houses) 7648 A-0-R-0-P-33.9 15,808 30,742 46,550 Siyanepura, Horogolla, Nittambuwa A-0-R-0-P-50.0 15,000 - 15,000 No.260/21, Kendaliyadaapaluwa, Ganemulla (1 House) 890 A-0-R-0-P-12 2,100 3,400 5,500 Ideal Park, Nainamadama West, Wennappuwa A-0-R-0-P-12.5 2,250 - 2,250 Wewa Road,Wickramasinghepura,Battaramulla (8 Houses) 23824 A-0-R-0-P-82.3 56,936 120,564 177,500 No.110, Maya Avenue, Wellawatha North, Colombo-06 A-0-R-0-P-28.5 121,000 - 121,000 Averihena, Thalangama (9 Houses) 23824 A-0-R-0-P-131.1 74,980 154,539 229,519 Ilimbemukalana Estate, Horana A-0-R-0-P-12.90 3,800 - 3,800 Erewwala, Pannipitiya A-0-R-0-P-24.7 5,900 - 5,900 Siyanepura, Horogolla, Nittambuwa (1 House) 2087 A-0-R-0-P-11.5 3,375 9,125 12,500 Matagoda Road, Hendala, Wattala (1 House) 2908 A-0-R-0-P-8.65 3,027 8,773 11,800 Digorella, Moratuwa A-0-R-0-P-30 9,350 - 9,350 Dehiwela 138/1 & 138 Galle Road, Mount Lavinia A-0-R-0-P-27.55 66,000 - 66,000 135/11 Vanaguru Mawatha, Hokandara 1460 A-0-R-0-P-7.73 2,706 5,294 8,000 135/10, Vanaguru Mawatha, Hokandara 1978 A-0-R-0-P-9.67 3,384 6,616 10,000 Attidiya, Kawdana A-0-R-0-P-24.0 21,000 - 21,000 Sub Total 537,118 572,384 1,109,502

Life Insurance Nuwara Eliya, Block No.31 & 07 Mistry Hills A-0-R-0-P-13.6 4,387 - 4,387 No. 97D, Palawatha Daganana Road, Minuwangoda A-2-R-2-P-22.0 16,000 - 16,000 No. 70, Park Street, Colombo 02 A-0-R-1-P-32.40 543,000 - 543,000 No. 36, Talbot Town, Lane1, Galle 6573 A-0-R-0-P-20 70,000 17,250 87,250 No.27, Fifth Cross Street, Nambimulla, Ambalangoda 5620 A-0-R-0-P-20 30,000 21,300 51,300 No. 115, Green Road, Negombo A-0-R-0-P-37.5 78,750 - 78,750 No.63, King Street, Kandy 14670 A-0-R-1-P-1.25 206,250 40,750 247,000 Anagarika Dharmapala Mawatha, Matara 7211 A-0-R-0-P-26.44 66,100 21,900 88,000 No. 401, Main Street, Panadura 4150 A-0-R-0-P-44.12 110,000 - 110,000 No. 428, R. A. De Mel Mv, Colombo 03 8300 Condominium - 100,000 100,000 No.38, Rajapihilla Mawatha, Kurunegala A-0-R-0-P-23.93 24,000 - 24,000 No. 60, Park Street, Colombo 02 34854 A-0-R-1-P-2.82 299,740 160,260 460,000 7th Floor of Ceylinco House 4907 - 79,324 79,324 6th Floor of Ceylinco House - 179,795 179,795

Sub Total 1,448,227 620,579 2,068,806

Company Total 1,985,345 1,192,963 3,178,308

As at 31st December 2011, investment properties were valued by qualified valuers Mr.W.A.D.Sarath Kumara, Mr.M.P.Panagoda and Mr.K.D.T.Tissera

The fair value of investment property reflects the actual market value situation and circumstances as of the reporting date.

Golden Key Building situated at No 2, Lauries Place, Colombo 04, which is jointly owned by the Company & Golden Key Credit Card Company Limited, Mortgaged to Seylan Bank PLC by Golden Key Credit Card Company Limited to obtain loan facility. (value of the property amounting to Rs.153Mn). CEYLINCO INSURANCE PLC 142 Annual Report 2012

Notes to the Consolidated Financial Statements

11. Financial instruments and fair va lues of financial instruments The Group’s financial instruments are summarised by categories as follows: Company 2012 2011 2011.01.01 2012 2011 2011.01.01 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Held to maturity financial assets 23,377,454 17,322,609 11,085,884 23,216,452 17,246,626 11,085,884 Loans and receivables 21,005,567 22,204,115 14,913,559 20,548,421 21,668,216 14,731,314 Available-for-sale financial assets 3,443,050 3,385,146 2,238,949 3,426,525 3,363,685 2,238,822 Financial assets at fair value through profit or loss 81,884 712,373 3,069,316 81,884 712,373 3,069,316 Total financial instruments 47,907,955 43,624,243 31,307,708 47,273,282 42,990,900 31,125,336

The following table compares the fair values of the financial instruments to their carrying values:

Group Company 2012 2011 2012 2011 Carrying Fair Carrying Fair Carrying Fair Carrying Fair value value value value value value value value Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Held to maturity financial assets 23,377,454 22,965,741 17,322,609 17,264,843 23,216,452 22,804,739 17,246,626 17,188,860 Loans and receivables 21,005,567 21,005,567 22,204,115 22,204,115 20,548,421 20,548,421 21,668,216 21,668,216 Available-for-sale financial assets 3,443,050 3,443,050 3,385,146 3,385,146 3,426,525 3,426,525 3,363,685 3,363,685 Financial assets at fair value through profit or loss 81,884 81,884 712,373 712,373 81,884 81,884 712,373 712,373 Total financial instruments 47,907,955 47,496,242 43,624,243 43,566,477 47,273,282 46,861,569 42,990,900 42,933,134

11.(a) Held to maturity financial assets Group Company 2012 2011 2011.01.01 2012 2011 2011.01.01 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Fair value Treasury Bills 38,789 4,357 245,144 38,789 4,357 245,144 Treasury Bonds 21,260,667 15,697,763 9,708,594 21,260,667 15,697,763 9,708,594 Term Deposits 161,002 75,983 - - - - Debentures - Quoted 1,505,283 1,486,740 1,909,042 1,505,283 1,486,740 1,909,042 Total held to maturity financial assets at fair value 22,965,741 17,264,843 11,862,780 22,804,739 17,188,860 11,862,780

Amortised cost Treasury Bills 37,728 4,140 245,853 37,728 4,140 245,853 Treasury Bonds 21,673,441 15,755,746 8,930,989 21,673,441 15,755,746 8,930,989 Term Deposits 161,002 75,983 - - - - Debentures - Quoted 1,505,283 1,486,740 1,909,042 1,505,283 1,486,740 1,909,042 Total held to maturity financial assets at amortised cost 23,377,454 17,322,609 11,085,884 23,216,452 17,246,626 11,085,884

CEYLINCO INSURANCE PLC Annual Report 2012 143

11. Financial instruments and fair values of financial instruments (cont'd) 11.(b) Loans and receivables Group Company 2012 2011 2011.01.01 2012 2011 2011.01.01 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Loans to related parties - - 244,375 - - 377,855 Receivables from related parties 141,220 200,459 - 150,536 218,745 - Staff Vehicle loans 155,512 184,822 240,122 155,512 184,822 240,122 Staff Loans other than vehicle loans 391,146 366,036 373,151 389,472 364,784 373,151 Repo Investment 161,293 120,825 42,435 136,397 103,822 31,414 Debentures - Unquoted 958,000 1,003,000 506,369 958,000 1,003,000 506,369 Term Deposits 19,025,729 20,155,815 13,193,668 18,758,504 19,793,043 13,077,548 Commercial papers - - 124,855 - - 124,855 Promisory notes 172,667 173,158 188,584 - - Total loans and receivables at amortised cost 21,005,567 22,204,115 14,913,559 20,548,421 21,668,216 14,731,314

11.(c) Available-for-sale financial assets Treasury Bonds & Bills 2,406,002 2,355,691 1,556,558 2,406,002 2,355,691 1,556,558 Unquoted Share Investment 442,630 408,871 353,030 442,630 408,871 353,030 Unquoted preference share investment 161,886 161,886 187,069 161,886 161,886 187,069 Quoted debentures 11,110 - 25,000 11,110 - 25,000 Quoted preference share investment - 9,098 9,098 - 9,098 9,098 Quoted Share Investment 181,182 249,600 58,194 164,657 228,139 58,067 Promisery notes - - 50,000 - - 50,000 Unit Trust Investments 240,240 200,000 - 240,240 200,000 - Total available-for-sale financial assets at fair value 3,443,050 3,385,146 2,238,949 3,426,525 3,363,685 2,238,822

11.(d) Financial assets at fair value through profit or loss Fair value Treasury Bonds - 601,877 3,069,316 - 601,877 3,069,316 Short Term Investment - Quoted 81,884 110,496 - 81,884 110,496 - Total financial assets at fair value through profit or loss 81,884 712,373 3,069,316 81,884 712,373 3,069,316

CEYLINCO INSURANCE PLC 144 Annual Report 2012

Notes to the Consolidated Financial Statements

11. Financial instruments and fair values of financial instruments (cont'd) 11.(e) Carrying values of financial instruments -Company Fair value through Held to Loans and Available- profit or maturity receivables for-sale loss Total Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000 At 1 January 2011 11,085,884 14,731,314 2,238,822 3,069,316 31,125,336 Purchases 18,487,348 169,068,612 16,399,310 1,164,076 205,119,346 Maturities (12,209,749) (161,603,163) (15,106,396) - (188,919,308) Disposals - - (149,470) (3,584,022) (3,733,492) Fair value gains recorded in the income statement - - - 63,003 63,003 Fair value gains recorded in other comprehensive income - (512,747) (18,581) - (531,328) Amortisation adjustment (116,857) (15,800) - - (132,657) At 31 December 2011 17,246,626 21,668,216 3,363,685 712,373 42,990,900 Purchases 13,267,582 176,966,905 68,700,136 2,635,016 261,569,639 Maturities (7,085,500) (177,807,147) (66,351,413) - (251,244,060) Disposals - - (2,273,788) (3,310,483) (5,584,271) Fair value gains recorded in the income statement - - - 44,978 44,978 Fair value gains recorded in other comprehensive income - - (12,095) - (12,095) Reclassification 275,000 (275,000) - - - Amortisation adjustment (487,256) (4,553) - - (491,809) At 31 December 2012 23,216,452 20,548,421 3,426,525 81,884 47,273,282

Fair value of financial assets and liabilities not carried at fair value The following describes the methodologies and assumptions used to determine fair values for those financial instruments which are not already recorded at fair value in the financial statements (i.e., held to maturity and loans and receivables).

Assets for which fair value approximates carrying value For financial assets and financial liabilities that have a short-term maturity (less than three months), it is assumed that the carrying amounts approximate to their fair value. This assumption is also applied to demand deposits, and savings accounts without a specific maturity.

Fixed rate financial instruments The fair value of fixed rate financial assets and liabilities carried at amortised cost are estimated by comparing market interest rates when they were first recognised with current market rates for similar financial instruments.

For quoted debt instruments the fair values are determined based on quoted market prices.

CEYLINCO INSURANCE PLC Annual Report 2012 145

11.(f) Determination of fair value and fair values hierarchy The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique: Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly and Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market data

The following table shows an analysis of financial instruments recorded at fair value by level of the fair value hierarchy:

2012 2011 2011.01.01 Company Total fair Total fair Total fair Level 1 Level 2 Level 3 value Level 1 Level 2 Level 3 value Level 1 Level 2 Level 3 value Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Financial assets Financial assets at Fair value through Profit/loss Equity securities 81,884 - - 81,884 110,496 - - 110,496 - - - - Debt securities - - - - 601,877 - - 601,877 3,069,316 - - 3,069,316 81,884 - - 81,884 712,373 - - 712,373 3,069,316 - - 3,069,316

Available-for-sale financial assets: Equity securities 164,657 - 442,630 607,287 228,140 - 408,871 637,011 58,067 - 408,211 466,278 Debt securities 2,657,352 - 161,886 2,819,238 2,555,691 - 170,983 2,726,674 1,581,560 - 190,984 1,772,544 2,822,009 - 604,516 3,426,525 2,783,831 - 579,854 3,363,685 1,639,627 - 599,195 2,238,822 Total financial assets 2,903,893 - 604,516 3,508,409 3,496,204 - 579,854 4,076,058 4,708,943 - 599,195 5,308,138

Financial liabilities Repo borrowings - - - - 3,856,822 - - 3,856,822 798,727 - - 798,727

Reconciliation of movements in level 3 financial instruments measured at fair value

The following table shows a reconciliation of the opening and closing recorded amount of Level 3 financial assets which are recorded at fair value:

Company Total gains/(loss) At 1 in other At 31 January comprehen- Settle- December 2012 sive income ments 2012 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Financial assets Available-for-sale financial assets: Debt securities 170,983 - (9,097) 161,886 Equities 408,871 33,759 442,630 Total Level 3 financial assets 579,854 33,759 (9,097) 604,516

In case of change in assumptions having 10% variation, the effect to Other comprehensive income could be as follows: Effect of Effect of possible possible Carrying alternate Carrying alternate amount assumptions amount assumptions 31-12-2011 31-12-2012 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Debt Securities 170,983 17,098 161,886 16,188 Equity Securities 408,871 40,887 442,630 44,263 579,854 57,985 604,516 60,451 CEYLINCO INSURANCE PLC 146 Annual Report 2012

Notes to the Consolidated Financial Statements

12. Reinsurance Receivables Group Company 2012 2011 01.01.2011 2012 2011 01.01.2011 Note Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Reinsurance of insurance contracts 19 2,140,307 1,905,304 2,413,562 2,079,104 1,854,919 2,394,028 Total reinsurance receivables 2,140,307 1,905,304 2,413,562 2,079,104 1,854,919 2,394,028

The carrying amounts disclosed above is in respect of the reinsurance of insurance contracts approximate fair value at the reporting date.

13. Taxation 13.(a) Tax receivable Group Company 2012 2011 2012 2011 Rs.'000 Rs.'000 Rs.'000 Rs.'000 At 1 January 660,836 518,458 679,465 518,458 Amounts recorded in the income statement (157,429) (154,958) (112,501) (141,727) Notional tax recognised 222,839 200,519 222,839 200,519 Payments made on-account during the year 93,648 96,817 56,255 102,215 At 31 December 819,894 660,836 846,058 679,465

Included in the Income Tax Recoverable is an amount of Rs.833,301,396 recognised as Notional Tax Credit available in the Life Division.

The Notional Tax Credit available was recognised in the Balance Sheet based on its realisability in the foreseeable future.

In arriving at the asset value as at the year end the following assumptions were used. 1. Increase in investment income - 12% per annum after year 2012 (2011-13%). 2. Management and commission expense will increase based on the past trends. (2011-11%) 3. Commission expenses will increase 13% (2011-11%) 4. Allowable & .Disallowable expenses will increase based on the projections.(2011- 4%). 5. Profit on disposal of Fixed assets will remain static (2011-loss will be increased by 5%) 6. Discount rate 10% (2011-11%)

The Department of Inland Revenue has issued VAT assessments for the taxable periods of the years 2003 and 2004 mainly imposing VAT on Reinsurance recoveries and reinsurance discounts. Upon the determination of the Commissioner General of Inland Revenue, holding the position they are chargeable with VAT, Company appealed to the Tax appeals Commission. As of the date the matter is pending the decision of the Tax appeals Commission.Based on the grounds of appeals and the submissions made by the company's tax consultants, the best estimate of future expense to settle this obligation can not be reasonably measured"

13.(b) Deferred tax Asset- Company Other comprehensive Income statement Statement of Income Statement financial position 2012 2011 2012 2011 2012 2011 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Losses carried forward - - 252,721 137,114 633,244 885,965 Temparory Difference from Retirement Benefit Obligation - - (31,089) (37,157) 397,800 366,711 Temparory Difference from Property Plant and Equipment - - (184,284) (123,137) (311,826) (496,110) Revaluation reserve - (184,561) - - (184,561) (184,561) Available for sale financial assets 1,513 9,195 - - 7,682 9,195 Deferred tax expense/(income) 1,513 (175,366) 37,348 (23,180) Deferred tax asset 542,339 581,200

Total deferred tax Assets Company 2012 2011 Rs.'000 Rs.'000 At 1 January 581,200 733,386 Amounts recorded in the income statement (37,348) 23,180 Amounts recorded in other comprehensive income (1,513) (175,366) At 31 December 542,339 581,200

A deferred tax asset is recognised for a tax loss carried forward only to the extent that realisation of the related tax benefit is probable.

CEYLINCO INSURANCE PLC Annual Report 2012 147

13.(c) Deferred tax Asset- Group Other comprehensive Income statement Statement of Income Statement financial position 2012 2011 2012 2011 2012 2011 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Losses carried forward - - 257,465 137,114 634,762 892,227 Temporary Difference from Retirement Benefit Obligation - - (34,977) (37,157) 401,688 366,711 Temporary Difference from Property Plant and Equipment - - (184,280) (123,137) (311,830) (496,110) Revaluation reserve - (99,498) - - (184,561) (184,561) Available for sale financial assets 1,513 9,195 - - 7,682 9,195 Deferred tax expense/(income) 1,513 (90,303) 38,208 (23,180) Deferred tax asset 547,741 587,462

Total deferred tax Assets Group 2012 2011 Rs.'000 Rs.'000 At 1 January 587,462 733,386 Amounts recorded in the income statement (38,208) 23,180 Amounts recorded in other comprehensive income (1,513) (175,366) Acquisition of subsidiaries - 6,262 At 31 December 547,741 587,462

A deferred tax asset is recognised for a tax loss carry forward only to the extent that realisation of the related tax benefit is probable.

13.(d) Deferred tax Liabilities- Group Consolidated Consolidated Consolidated Other comprehensive Income statement Statement of Income Statement financial position 2012 2011 2012 2011 2012 2011 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Temporary Difference from Retirement Benefit Obligation - - 2,449 (7,989) 1,249 3,698 Temporary Difference from Property Plant and Equipment - - 5,234 16,358 (15,858) (10,624) Revaluation reserve (113) (820) - - (30,168) (30,281) Temporary Difference from Retained Reserves of Associates - - 26,010 - (26,010) - Deferred tax expense/(income) (113) (820) 33,693 8,369 Deferred tax liability (70,787) (37,207)

Total deferred tax liability Group 2012 2011 Rs.'000 Rs.'000 At 1 January 37,207 25,367 Amounts recorded in the income statement 33,693 8,369 Amounts recorded in other comprehensive income (113) (820) Acquisition of subsidiaries - 4,291 At 31 December 70,787 37,207

A deferred tax asset is recognised for a tax loss carried forward only to the extent that realisation of the related tax benefit is probable.

14. Insurance receivables Group Company 2012 2011 2011.01.01 2012 2011 2011.01.01 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Due from policyholders 3,565,921 2,872,493 3,103,897 3,474,264 2,819,783 3,044,288 Due from Trade Debtors 141,295 133,111 46,616 - - - Total insurance receivables 3,707,216 3,005,604 3,150,513 3,474,264 2,819,783 3,044,288

CEYLINCO INSURANCE PLC 148 Annual Report 2012

Notes to the Consolidated Financial Statements

15. Deferred expenses Group Company Deferred Deferred Acquisition Acquisition Costs (DAC) Costs (DAC) Insurance Insurance contracts contracts Rs.'000 Rs.'000 At 1 January 2011 514,100 507,080 Expenses deferred 915,646 930,378 Amortisation (870,869) (887,946) At 31 December 2011 558,877 549,512 Expenses deferred 1,073,291 1,035,145 Amortisation (1,033,233) (1,003,953) At 31 December 2012 598,935 580,704

16. Other assets Group Company 2012 2011 2011.01.01 2012 2011 2011.01.01 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Advances, Deposits & Prepayments 427,010 284,192 228,651 186,714 131,650 194,638 Inventories 69,651 56,556 57,626 63,855 51,702 55,132 Gold 3,096 86,688 - 3,096 86,688 - Deferred staff benefits 105,582 98,555 87,989 105,582 98,555 87,989 Other Receivables 96,919 142,551 238,702 12,743 109,733 114,071 702,258 668,542 612,968 371,990 478,328 451,830

17. Accrued Income Group Company 2012 2011 2011.01.01 2012 2011 2011.01.01 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Interest Income Receivable 1,719,567 1,935,214 1,652,074 1,719,405 1,930,013 1,648,865

18. Cash and cash equivalents Group Company 2012 2011 2011.01.01 2012 2011 2011.01.01 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Cash in hand and at Bank 672,540 769,003 750,780 425,734 531,674 575,517 Total cash and cash equivalents 672,540 769,003 750,780 425,734 531,674 575,517

The carrying amounts disclosed above reasonably approximate fair value at the reporting date.

The cash and cash equivalents position for cash flow purposes, net of overdraft,( as per Note 22). is Rs. 101,378,000 (2011 Rs.-(26,604,000)). and for Group Rs. 309,895,000 (2011 Rs. 149,465,000)

19. Insurance contract liabilities Group 2012 2011 2011.01.01 Note Rs.'000 Rs.'000 Rs.'000 Life insurance Contract 19(a) 45,110,789 38,203,473 31,868,141 Non-life insurance contracts 19(b) 7,753,381 7,107,745 6,609,196 Total insurance contract liabilities 52,864,170 45,311,218 38,477,337

Company Note Rs.'000 Rs.'000 Rs.'000 Life insurance Contract 19(a) 45,110,789 38,203,473 31,868,141 Non-life insurance contracts 19(b) 7,561,631 6,975,423 6,530,794 Total insurance contract liabilities 52,672,420 45,178,896 38,398,935

Unearned premium reserve included in non-life insurance contract liabilities had been presented on net basis.

The Company's actuaries have performed Liability Adequacy Test in accordance with SLFRS -4 requirements. CEYLINCO INSURANCE PLC Annual Report 2012 149

19. Insurance contract liabilities (cont'd) 19. (a) Life insurance contract liabilities Insurance Total Insurance contract gross contract liabilities insurance liabilities without contract with DPF DPF liabilities Rs.'000 Rs.'000 Rs.'000 At 1 January 2012 18,813,393 19,390,079 38,203,472 Gross Premium Income 4,872,104 5,957,366 10,829,470 Premiums ceded to reinsurers (11,240) (242,164) (253,404) Liabilities paid for death, maturities, surrenders, benefits and claims (1,287,783) (2,703,098) (3,990,881) Investment return 2,309,153 2,317,209 4,626,362 Reinsurance commission income 618 62,086 62,704 Other operating and Admin Expenses (1,118,818) (1,112,148) (2,230,966) Underwriting and net Acquisition Cost (846,994) (580,632) (1,427,626) Net Transfer to Shareholder (105,346) (744,654) (850,000) SLFRS Adjutsment 63,731 77,927 141,658 At 31 December 2012 22,688,818 22,421,971 45,110,789

Insurance Total Insurance contract gross contract liabilities insurance liabilities without contract with DPF DPF liabilities Rs.'000 Rs.'000 Rs.'000 At 1 January 2011 15,785,524 16,082,617 31,868,141 Gross Premium Income 4,133,794 5,700,063 9,833,857 Premiums ceded to reinsurers (19,166) (217,261) (236,427) Liabilities paid for death, maturities, surrenders, benefits and claims (1,139,672) (1,806,623) (2,946,295) Investment return 1,910,236 1,917,603 3,827,839 Reinsurance commission income 5,601 56,204 61,805 Other operating and Admin Expenses (1,073,937) (1,129,587) (2,203,524) Underwriting and net Acquisition Cost (706,081) (595,842) (1,301,923) Net Transfer to Shareholder (82,906) (617,094) (700,000) At 31 December 2011 18,813,393 19,390,080 38,203,473

19. (b) Non-life insurance contract liabilities Group 2012 2011 Insurance Insurance contract contract liabilities liabilities Note Rs.'000 Rs.'000 Provision for reported claims by policyholders 2,554,759 2,191,942 Provision for claims IBNR/IBNER 227,294 203,784 Outstanding claims provision 19 (b).1 2,782,053 2,395,726 Provision for unearned premiums 19.(b).2 4,971,328 4,712,019 Total non life insurance contract liabilities 7,753,381 7,107,745

Non-life insurance contract liabilities Company 2012 2011 Insurance Insurance contract contract liabilities liabilities Note Rs.'000 Rs.'000 Provision for reported claims by policyholders 2,475,897 2,130,018 Provision for claims IBNR/IBNER 199,946 185,548 Outstanding claims provision 19 (b).1 2,675,843 2,315,566 Provision for unearned premiums 19.(b).2 4,885,788 4,659,857 Total non life insurance contract liabilities 7,561,631 6,975,423 Non-life Technical Reserves 5,190,707 5,207,923

CEYLINCO INSURANCE PLC 150 Annual Report 2012

Notes to the Consolidated Financial Statements

19. b. (1) Outstanding claims provision Group 2012 2011 Insurance Insurance contract Reinsurance contract Reinsurance liabilities of liabilities Net liabilities of liabilities Net Note Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000 At 1 January 2,395,726 1,881,448 514,278 2,351,695 2,341,540 10,155 Claims incurred in the current accident year 5,399,247 815,904 4,583,343 5,007,897 524,331 4,483,566 Other movements in claims incurred in prior accident years 5,983 1,646 4,337 30,393 28,646 1,747 Claims paid during the year 31(a) & 31 (b) (5,018,903) (605,957) (4,412,946) (4,994,259) (1,013,069) (3,981,190) At 31 December 2,782,053 2,093,041 689,012 2,395,726 1,881,448 514,278

Outstanding claims provision Company 2012 2011 Insurance Insurance contract Reinsurance contract Reinsurance liabilities of liabilities Net liabilities of liabilities Net Note Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000 At 1 January 2,315,566 1,831,062 484,504 2,293,922 2,322,006 (28,084) Claims incurred in the current accident year 5,298,746 746,654 4,552,092 4,932,622 503,805 4,428,817 Other movements in claims incurred in prior accident years 5,983 1,646 4,337 38,361 (8,567) 46,928 Claims paid during the year 31(a) & 31 (b) (4,944,452) (547,524) (4,396,928) (4,949,339) (986,182) (3,963,157) At 31 December 2,675,843 2,031,838 644,005 2,315,566 1,831,062 484,504

Reinsurance receivable on paid claims are included under above Reinsurance receivables amounting to Rs. 112,333,000 In 2012 and Rs. 410,910,000 in 2011 respectively.

Significant delays occur in the notification of claims and a substantial measure of experience and judgment is involved in assessing outstanding liabilities, the ultimate cost of which cannot be known with certainty as of the reporting date.

The incurred but not reported (IBNR) and incurred but not enough reported (IBNER) claim reserve have been actuarially computed by M/S K.A.Pandit - Consultants and Actuaries.The valuation is performed on an annual basis.

The reserves are determined based on the information currently available .However, it is inherent to the nature of the business written that the ultimate liability may vary as a result of subsequent developments.

19. b. (2) Provision for unearned premiums 2012 2011 Group Insurance Insurance contract contract liabilities liabilities Rs.'000 Rs.'000 At 1 January 4,712,019 4,257,501 Premiums written in the year 9,005,735 8,314,293 Premiums earned during the year (8,746,426) (7,859,775) At 31 December 4,971,328 4,712,019

Company

At 1 January 4,659,857 4,236,873 Premiums written in the year 8,848,082 8,205,891 Premiums earned during the year (8,622,151) (7,782,907) At 31 December 4,885,788 4,659,857 CEYLINCO INSURANCE PLC Annual Report 2012 151

20. Gratuity Benefit Obligation/(Asset) The amounts recognised in the income statement are as follows:

Goup Company 2012 2011 2012 2011 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Current service cost 75,089 101,325 76,500 85,332 Interest cost on benefit obligation 134,527 119,556 130,968 117,698 Expected return on plan assets (158,832) (91,928) (158,832) (91,928) 50,784 128,953 48,636 111,102 Net actuarial (gain)/loss recognised in the other comprehesive income (206,868) (601,233) (206,868) (601,233)

The amounts recognised in the statement of financial position at the reporting date are as follows: Goup Company 2012 2011 2012 2011 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Present value of the defined benefit obligation 1,420,714 1,309,681 1,420,714 1,309,681 Fair value of plan assets (1,929,047) (1,588,316) (1,929,047) (1,588,316) Net defined benefit obligation/(Assets) (508,333) (278,635) (508,333) (278,635) Total net defined benefit obligation/(Assets) (508,333) (278,635) (508,333) (278,635)

The movement in the defined benefit obligation is as follows: Goup Company 2012 2011 2012 2011 Rs.'000 Rs.'000 Rs.'000 Rs.'000 At 1 January 1,371,485 1,224,213 1,309,681 1,176,977 Current service cost 75,089 101,325 76,500 85,332 Interest cost 134,527 119,556 130,968 117,698 Benefits paid (76,103) (50,798) (71,466) (47,515) Actuarial (gains)/ losses (24,969) (22,811) (24,969) (22,811) At 31 December 1,480,029 1,371,485 1,420,714 1,309,681 Defined Gratuity Benefit obligation of the company (1,420,714) (1,309,681) - - Gratuity Obligation -Subsidiaries 59,315 61,804 - -

The Gratuity benefit obligation is valued by M/S.K.A.Pandit Actuarial valuer. The movement in the plan assets is as follows: Company 2012 2011 Rs.'000 Rs.'000 At 1 January (1,588,316) (919,284) Expected return on plan assets (158,832) (91,928) Contribution Paid by employer - (7,728) Actuarial gains (181,899) (578,422) Benefit Paid - 9,046 At 31 December (1,929,047) (1,588,316)

The distribution of the plan assets at the reporting date is as follows: 2012 2011 Rs.'000 Rs.'000 Treasury bonds/bills 113,977 166,003 Investment in Shares 1,608,289 1,352,530 corporate debentures 18,000 30,500 Other Assets 188,781 39,284 Total plan assets 1,929,047 1,588,317

Gratuity funds's plan assets include investment in equity shares of Ceylinco Insurance PLC, market value amounting to Rs. 1,608,289,000 at the balance sheet date.(2011- Rs.1,352,530,000) The overall expected rate of return on assets is determined based on market expectations prevailing on that date, applicable to the period over which the obligation is to be settled. The principal actuarial assumptions used in determining the pension benefit obligation for the Group’s plan assets are as follows: 2012 2011 Future salary increases 8.50% 8.50% Discount rate 11.00% 10.00% Expected rate of return on plan assets 11.00% 10.00% CEYLINCO INSURANCE PLC 152 Annual Report 2012

Notes to the Consolidated Financial Statements

21. Pension Benefit (Obligation)/Asset The Company has two defined benefit pension plans, both of which require contributions to be made to separately administered funds namely Pension Trust Fund of Ceylinco Insurance PLC and Pension Fund of Ceylinco Insurance PLC.

In 2012 the changes in the defined benefit obligation, fair value of plan assets and unrecognised past service costs :

Acturial gains Interest Recognised (losses) Current cost on Expected in Income in other Contributions 31st January service benefit return on Statement Benefit comprehesive by December 2012 cost obligation plan assets Note paid income employer 2012 Defined benefit Obligation (917,361) (13,174) (91,736) - (104,910) 20,571 (2,138) - (1,003,838) Fair value of plan assets 1,290,708 - - 129,071 129,071 (20,571) 84,125 99,558 1,582,891

Total recognised benefit (liability) / Asset 373,347 (13,174) (91,736) 129,071 24,161 - 81,987 99,558 579,053

In 2011 the changes in the defined benefit obligation, fair value of plan assets and unrecognised past service costs :

Acturial gains Fair Value of Interest Recognised (losses) Castle Realty January Current cost on Expected in Income in other (Pvt) Ltd Contributions 2011 service benefit return on Statement Benefit comprehesive in Other by 31st cost obligation plan assets Note paid income Comprehensive employer December income 2012 Defined benefit Obligation (982,229) (14,105) (98,223) - (112,328) 17,265 159,931 - - (917,361) Fair value of plan assets 567,269 - - 56,727 56,727 (17,265) 287,992 307,260 88,726 1,290,708

Total recognised benefit (liability) / Asset (414,960) (14,105) (98,223) 56,727 (55,601) - 447,922 307,260 88,726 373,347

Pension benefit Obligation is valued by M/s K.A Pandit Actuarial Valuers .

Projected pension benefit obligation has been valued based on projected unit cost method.

Actuarial gains and losses have been recognised immediately in the statement of Other Comprehensive Income.

The principal assumptions used in determining pension and post-employment medical benefit obligations for the Company’s plans are shown below:

2012 2011 Discount rate 11% 11% Rate of return on Plan Assets Current 11% 11% Previous 10% 10% Salary Escalation rate Scheme A 0% 0% Scheme B,C & D 10% 10% Attrition rate 1% 1% Retirement age Scheme A 60 Yrs 60 Yrs Scheme B,C & D 55Yrs 55Yrs Mortality Table PA 90 PA 90

Pension fund's plan assets include investment in equity shares of Ceylinco Insurance PLC and its, market value amounting to Rs. 1,491,158,375/- at the reporting date. ( 2011 - Rs. 1,206,3678,520/-) CEYLINCO INSURANCE PLC Annual Report 2012 153

22. Borrowings Group Company 2012 2011 2011.01.01 2012 2011 2011.01.01 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Bank Overdraft 362,645 619,538 374,512 324,356 558,278 368,560 Borrowings 1,132,008 610,113 36,989 - - - Total borrowings 1,494,653 1,229,651 411,501 324,356 558,278 368,560

22.(a) Current borrowings Short-term loans were obtained at variable rates and it is assumed that the carrying value approximates fair value.

The assets pledged against borrowings are disclosed in Note 44.

23. Other financial liabilities Group Company 2012 2011 2011.01.01 2012 2011 2011.01.01 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Repo borrowings - 3,856,822 798,727 - 3,856,822 798,727 - 3,856,822 798,727 - 3,856,822 798,727

24. Trade and other payables Group Company 2012 2011 2011.01.01 2012 2011 2011.01.01 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Policyholders payment in Advance 367,488 281,195 252,892 367,488 281,195 252,892 Agency commission payable 544,619 498,089 484,663 532,220 489,944 477,652 Payables to related parties 90,087 199,170 81,429 90,087 87,607 81,429 Government Levies 159,969 166,024 157,581 159,894 165,377 157,581 Trade creditors & Accrued Expenses 1,835,786 1,443,668 1,334,980 1,291,112 1,013,857 906,399 Death Claims payable 72,033 69,736 72,671 72,032 69,736 72,671 3,069,982 2,657,882 2,384,216 2,512,833 2,107,716 1,948,624

The carrying amounts disclosed above reasonably approximate to fair value at the reporting date.

All amounts are payable within one year. CEYLINCO INSURANCE PLC 154 Annual Report 2012

Notes to the Consolidated Financial Statements

25. Stated Capital Group Company 2012 2011 2011.01.01 2012 2011 2011.01.01 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Classes of Shares 97,500,000 Ordinary Shares 2,500,000 Unclassified Shares 100,000,000 Non Voting Ordinary Shares Issued & Fully Paid Ordinary shares - Voting (25(a)) 200,000 200,000 200,000 200,000 200,000 200,000 Ordinary shares - Non Voting (25(b)) 1,122,534 1,122,534 1,122,534 1,122,534 1,122,534 1,122,534 Share Premium (25(c)) 2,288 2,288 2,288 2,288 2,288 2,288 1,324,822 1,324,822 1,324,822 1,324,822 1,324,822 1,324,822

The holders of ordinary shares - both voting and non-voting, are entitled to receive dividends as declared from time to time and voting ordinary shareholders are entitled to one vote per share at meetings of the Company. Group Company 2012 2011 2011.01.01 2012 2011 2011.01.01 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000

25.(a) Ordinary Shares - Voting Balance as at January 200,000 200,000 200,000 200,000 200,000 200,000 20,000,000 Ordinary Shares Voting 200,000 200,000 200,000 200,000 200,000 200,000

25.(b) Ordinary Shares - Non - Voting Balance as at January 1,122,534 1,122,534 1,122,534 1,122,534 1,122,534 1,122,534 6,414,480 Ordinary shares - NonVoting 1,122,534 1,122,534 1,122,534 1,122,534 1,122,534 1,122,534

25.(c) Share Premium Balance as at year end 2,288 2,288 2,288 2,288 2,288 2,288 2,288 2,288 2,288 2,288 2,288 2,288

26. Net premiums 26.(a) Gross premiums on insurance contracts Group Company 2012 2011 2012 2011 Notes Rs.'000 Rs.'000 Rs.'000 Rs.'000 Life insurance 26 (a) 2 10,829,470 9,833,905 10,829,470 9,833,905 Non-life insurance 26 (a) 1. 11,807,245 10,382,300 11,093,583 10,041,212 gross written premiums 22,636,715 20,216,205 21,923,053 19,875,117

26.(b) Premiums ceded to reinsurers on insurance contracts Life insurance 26 (b) 2. 253,404 236,427 253,404 236,427 Non-life insurance 26 (b) 1. 2,801,510 2,068,007 2,245,500 1,835,321 premiums ceded to reinsurers 3,054,914 2,304,434 2,498,904 2,071,748 CEYLINCO INSURANCE PLC Annual Report 2012 155

26. Net premiums (Cont'd) Gross Written Premium The premium income for the year by major classes of business is as follows. Group Company 2012 2011 Change 2012 2011 Change Rs.'000 Rs.'000 % Rs.'000 Rs.'000 %

26. (a) 1 Non - Life Insurance Fire 1,559,301 1,195,355 30 1,285,467 1,144,420 12 Motor 6,667,857 6,036,611 10 6,619,229 6,030,572 10 Marine 593,374 516,474 15 402,534 385,990 4 Miscellaneous 2,212,787 1,993,259 11 2,047,347 1,888,067 8 Engineering 653,009 555,732 18 618,089 509,121 21 Employers' Liability 120,917 84,869 42 120,917 83,042 46 11,807,245 10,382,300 14 11,093,583 10,041,212 10

The Gross written premium of 2012 includes Rs.43,512,902/- and US$ 214,784 (2011- Rs.15,993,161 and US$ 14,405) which are collected on behalf of co-insurance partners.

Group Company 2012 2011 Change 2012 2011 Change Rs.'000 Rs.'000 % Rs.'000 Rs.'000 % 26 (a) 2 Life Insurance 10,829,470 9,833,905 10 10,829,470 9,833,905 10

Total Gross Written premium 22,636,715 20,216,205 12 21,923,053 19,875,117 10

Annualised New Business Life premium 3,652,930 3,502,889 4 3,652,930 3,502,889 4

Premium Ceded to Reinsurers Group Company 2012 2011 Change 2012 2011 Change Rs.'000 Rs.'000 % Rs.'000 Rs.'000 %

26 (b) 1 Non- Life Insurance Fire 1,281,549 932,967 37 1,013,735 883,577 15 Motor 122,320 100,030 22 117,457 99,605 18 Marine 321,892 241,125 33 155,501 117,144 33 Miscellaneous 644,496 402,904 60 571,233 379,770 50 Engineering 421,962 381,796 11 378,283 347,683 9 Employers' Liability 9,291 9,185 1 9,291 7,542 23 2,801,510 2,068,007 35 2,245,500 1,835,321 22 National Insurance Trust Fund Compulsory Reinsurance Cessions 175,634 267,213 (34) 175,634 267,213 (34) Strike , Riots, Civil Commotion 586,585 464,692 26 586,585 464,692 26 Foreign ReInsurers 1,966,926 1,318,525 49 1,410,916 1,085,839 30 Local coinsurance partners 72,365 17,577 312 72,365 17,577 312 2,801,510 2,068,007 35 2,245,500 1,835,321 22 26 (b) 2 Life Insurance Foreign Reinsurers 253,404 236,427 7 253,404 236,427 7 Total Premium Ceded to Reinsurers 3,054,914 2,304,434 32 2,498,904 2,071,748 21

26 (c) Net Income Net income represents total Net Earned premium, Other Revenue and Revenue from subsidaries (group). CEYLINCO INSURANCE PLC 156 Annual Report 2012

Notes to the Consolidated Financial Statements

27. Fees and commission income Group Company 2012 2011 2012 2011 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Reinsurance commission income 418,784 383,054 357,155 360,218 Other fees 3246 2,300 8,180 2,300 Total fees and commission income 422,030 385,354 365,335 362,518

28. Investment income Group Company 2012 2011 2012 2011 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rental income from investment properties 52,326 46,070 52,326 46,070 Fair value gain/l(loss) on Gold - (6,186) - (6,186) Financial assets at fair value through profit or loss (held for trading purposes) Interest income 160,016 858,478 160,016 858,478 Held to maturity financial assets interest income 2,158,922 1,178,034 2,149,886 1,178,034 Available-for-sale financial assets Interest income 222,901 154,759 222,901 154,759 Dividend income 81,250 82,364 96,227 101,060 Loans and receivables interest income 2,526,110 1,582,210 2,491,108 1,562,546 Interest Income from Staff Loan 34,697 29,005 34,697 29,005 Cash and cash equivalents interest income 58 1,182 - - Other operating revenue 261,216 155,108 247,661 146,760 Total investment income 5,497,496 4,081,024 5,454,822 4,070,526

29. Realised gains Group Company 2012 2011 2012 2011 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Property,Plant and equipment Realised gains 41,727 280,607 30,391 279,214 Available-for-sale financial assets Realised gains Equity securities 1,287 44,805 - 44,780 Debt securities - 22,499 - 22,499 Realised losses - Equity securities (5) - (5) - Debt securities (26,679) - (26,679) - Total realised gains for available-for-sale financial assets (25,397) 67,304 (26,684) 67,279 Total realised gains 16,330 347,911 3,707 346,493

30. Fair value gains and losses Group Company 2012 2011 2012 2011 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Fair value gains on investment properties - 44,061 - 44,061 Fair value gains on financial assets at fair value through profit or loss (held for trading purposes) 32,543 102,991 32,543 102,991 Total fair value gains and losses 32,543 147,052 32,543 147,052 CEYLINCO INSURANCE PLC Annual Report 2012 157

31. Net benefits and claims Group Company 2012 2011 2012 2011 Rs.'000 Rs.'000 Rs.'000 Rs.'000

31.(a) Gross benefits and claims paid Life insurance contracts 4,092,738 3,056,300 4,092,738 3,056,300 Non-life insurance contracts 5,028,880 4,982,240 4,944,452 4,949,339 Total gross benefits and claims paid 9,121,618 8,038,540 9,037,190 8,005,639

31.(b) Claims ceded to reinsurers Life insurance contracts (101,857) (110,005) (101,857) (110,005) Non-life insurance contracts (605,956) (1,006,708) (547,524) (986,182) Total claims ceded to reinsurers (707,813) (1,116,713) (649,381) (1,096,187)

31.(c) Gross change in contract liabilities Change in life insurance contract liabilities 6,765,658 6,335,332 6,765,658 6,335,332 Change in non-life insurance contract outstanding claims provision 376,351 56,030 360,277 21,644 Total gross change in contract liabilities 7,142,009 6,391,362 7,125,935 6,356,976

31.(d) Change in contract liabilities ceded to reinsurers Change in non-life insurance contract outstanding claims provision (211,595) 453,732 (200,777) 490,944 Total change in contract liabilities ceded to reinsurers (211,595) 453,732 (200,777) 490,944 Net benefits and claims 15,344,219 13,766,921 15,312,967 13,757,372

Net benefits and claims - Non Life Insurance 4,587,680 4,485,294 4,556,428 4,475,745 Net benefits and claims - Life Insurance (Including Life Fund increase) 10,756,539 9,281,627 10,756,539 9,281,627 15,344,219 13,766,921 15,312,967 13,757,372

Gross claims and benefits (Excluding Life fund increase) Claims - death,disability and hospitalisation 504,262 474,201 504,262 474,201 Policy Maturities 2,280,137 1,444,870 2,280,137 1,444,870 Interim payments on Anticipated Endowment plans 715,946 653,981 715,946 653,981 Surrenders 544,571 420,341 544,571 420,341 Cash Bonus expenses 34,069 38,152 34,069 38,152 Annuities 13,752 24,755 13,752 24,755 4,092,737 3,056,300 4,092,737 3,056,300 Reinsurance recoveries (101,857) (110,005) (101,857) (110,005) Life Insurance net claims and benefits 3,990,880 2,946,295 3,990,880 2,946,295

Non - Life Net claims incurred Gross Claims Incurred 5,405,231 5,038,270 5,304,729 4,970,983 Reinsurance Recoveries (817,551) (552,976) (748,301) (495,238) Total Net Claims incurred 4,587,680 4,485,294 4,556,428 4,475,745

The analysis by major classes of business is as follows-non-life Fire 229,530 202,243 215,433 201,582 Motor 3,324,434 3,249,029 3,319,635 3,246,793 Marine 115,946 90,894 108,391 95,435 Miscellaneous 657,124 732,369 653,010 721,435 Engineering 212,724 172,738 212,111 172,480 Employer's Liability 47,922 38,021 47,848 38,020 4,587,680 4,485,294 4,556,428 4,475,745 CEYLINCO INSURANCE PLC 158 Annual Report 2012

Notes to the Consolidated Financial Statements

32. Finance costs Group Company 2012 2011 2012 2011 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Current borrowings Interest expense on bank overdraft 10,600 30,515 9,136 29,891 Interest expense on loans 45,126 12,188 - - Total finance cost 55,726 42,703 9,136 29,891

33. Other operating and administrative expenses Group Company 2012 2011 2012 2011 Note Rs.'000 Rs.'000 Rs.'000 Rs.'000 Reversal of Impairment in value of Investments (3,548) (63,014) (3,548) (63,014) Amortisation of intangible assets 7 35,916 54,877 33,083 52,775 Depreciation on property and equipment 9 391,510 390,775 226,202 298,299 Other Operating Expenses 2,266,362 1,609,141 1,900,587 1,490,098 Auditors’ remuneration 5,502 5,241 5,320 4,332 Employee benefits expense 35 2,862,030 2,443,465 2,501,358 2,335,822 Net foreign exchange adjustments 18,251 24,375 - - Selling expenses 1,000,181 754,215 827,664 754,215 Legal Expenses 4,352 1,673 3,620 1,673 Donations 4,018 1,600 3,560 1,600 Total other operating and administrative expenses 6,584,574 5,222,348 5,497,845 4,875,800

34. Acquisition costs Group Company 2012 2011 2012 2011 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Fees and commission expenses 2,492,051 2,249,377 2,462,771 2,232,300 Deferred expenses (580,704) (549,512) (580,704) (549,512) Amortisation of deferred expenses 549,512 507,081 549,512 507,081 2,460,859 2,206,946 2,431,579 2,189,869

35. Employee benefits expense Group Company 2012 2011 2012 2011 Note Rs.'000 Rs.'000 Rs.'000 Rs.'000 Wages and salaries including bonus & incentives 2,290,070 1,858,171 1,998,653 1,761,821 Employees' Provident Fund 199,473 162,632 178,491 157,045 Employees' Trust Fund 49,776 40,663 44,531 39,261 Defined gratuity benefit costs 20 50,784 128,953 48,636 111,102 Other staff related cost 271,927 253,046 231,048 266,593 Total employee benefits expense 33 2,862,030 2,443,465 2,501,358 2,335,822

CIESOT (Pvt) Limited, owns 22.86% of the shares of Ceylinco Insurance PLC and it was incorporated exclusively to act as a Trustee to manage a Trust Fund for the benefit of Employees of Ceylinco Insurance PLC. The Trustees manage and distributes the benefits to Employees as per the Trust Deed executed for the purpose. CEYLINCO INSURANCE PLC Annual Report 2012 159

36. Income tax expense The major components of income tax expense for the years ended 31 December 2012 and 2011 are: 36.(a) Current year tax charge Group Company 2012 2011 2012 2011 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Current tax Income tax 145,030 115,646 108,351 102,361 Over/under provision in respect of previous year 10,863 39,312 4,150 39,366 Total current tax 155,893 154,958 112,501 141,727 Deferred tax Origination of temporary differences (note 13b, 13c and 13d) 71,901 (14,811) 37,348 (23,180) Total income tax expense 227,794 140,147 149,849 118,547

36.(b) Tax recorded in other comprehensive income (Note 39) Deferred tax (1,400) (174,546) (1,513) (175,366) Total tax charge to other comprehensive income (1,400) (174,546) (1,513) (175,366)

36.(c) Reconciliation of tax charge Company Reconciliation of effective tax rate 2012 2011 Rs.000 Rs.000 Profit for the period 1,803,098 1,454,042 Total income tax expense 112,501 141,727 Profit liable for income tax 1,690,598 1,312,315 Profits from Life Insurance business (995,832) (796,189) Profits Liable for income tax-General Insurance 627,252 578,554 Income tax using the Company’s domestic tax rate 175,631 161,995 Tax exempt income (71,320) (120,303) Net non-deductible/(deductible) expenses 62,383 112,200 Tax effect of loss claimed for the year (58,343) (51,531) Over / (Under) Provision of Previous Years 4,150 39,366 112,501 141,727

Group Reconciliation of effective tax rate

Profit for the period 2,094,679 1,537,830 Total income tax expense/(income) 227,794 140,147 Profit before income Tax 2,322,473 1,677,977 Profit from Life business (995,832) (796,189) Accounting (profits)/losses of subsidiaries exempt from taxes 13,024 (49,283) Accounting (profits)/losses of subsidiaries which are tax losses 18,365 82 Profits liable for income tax 1,358,030 832,587 Income tax using the Company’s domestic tax rate 380,248 233,124 Tax exempt income (93,776) (187,374) Net non-deductible/(deductible) expenses (74,593) 122,493 Loss claimed for the year (65,313) (52,604) Social responsibility levy - 7 Over / (Under) Provision of Previous Years 10,863 39,312 157,429 154,958

*Taxable profits of Long-Term insurance business is computed on investment income less management expenses and allowable expenses. Ceylinco Health Care Services Ltd is liable to pay tax at 12% on its business income & 28% on its investment income." The Statutory income from business of Ceypower Cascades (Pvt) Ltd is exempt from income tax for a period of 5 years from the date of commencement of commercial operations under the section 17(2) of BOI Act, No. 4 of 1978. The company is liable to pay income tax at 10% from the year of assessment 2011/2012.Other income is liable for tax at the normal rate. The Statutory income from business of Cey Hydro Developers (Pvt) Ltd is exempt from income tax for a period of 5 years from the date of commercial operations under the section 17(2) of BOI Act, No. 4 of 1978. The exemption continues until year of assessment 2013/2014. Other income of the Company is liable for tax at the normal rate. CEYLINCO INSURANCE PLC 160 Annual Report 2012

Notes to the Consolidated Financial Statements

37. Dividends paid and proposed Company 2012 2011 Rs.'000 Rs.'000 Final Proposed Dividend 330,181 171,694 No. of Shares in issue for the year ('000) 26,414 26,414 Dividend per share (Rs.) Proposed Final 12.50 6.50

The Board of Directors has proposed a Final dividend of Rs. 12.50 per share (Rs. 330,181,000/-) for the year ended 31st December, 2012 which is to be approved by the shareholders at the Annual General Meeting to be held on 9th April 2013. As stipulated by LKAS -10 - Events After the Balance Sheet Date, this proposed dividend is disclosed, but not recognized as a liability as at 31st December, 2012. However, the final dividend proposed has been taken into consideration for the purpose of computing Dividend per Share.

38. Earnings per share Basic Earnings per Share has been calculated by dividing profit after taxation by the weighted average Ordinary Shares in issue at the year end.

Group Company 2012 2011 2012 2011 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Profit for the year 1,953,108 1,507,861 1,653,249 1,335,495 Weighted Average Number of Ordinary Shares ('000) 26,414 26,414 26414 26,414 Basic Earnings per Ordinary Share (Rs.) 73.94 57.09 62.59 50.56

There were no potential dilutive Ordinary Shares outstanding at any time during the year. Therefore, diluted earnings per share is same as basic earnings per share shown above.

39. Income tax effects relating to other comprehensive income 2012 2011 Company Tax Tax Before tax (expense) Net of tax Before tax (expense) Net of tax amount benefit amount amount benefit amount Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Net gain/(loss) on Available-for-sale financial assets (18,925) (1,513) (20,438) (29,077) 9,195 (19,882) Actuarial gain on defined benefit plans 288,855 - 288,855 1,356,416 - 1,356,416 Revaluation surplus/(Deficit) during the year - - - 1,043,447 (184,561) 858,886 Total 269,930 (1,513) 268,417 2,370,786 (175,366) 2,195,420

Group

Exchange differences on translating foreign operations 4,953 - 4,953 (15,866) - (15,866) Net gain/(loss) on Available-for-sale financial assets (12,471) (1,513) (13,984) 81,276 9,195 90,471 Actuarial gain on defined benefit plans 288,855 - 288,855 1,356,416 - 1,356,416 Revaluation surplus/(Deficit) during the year (1,048) 113 (935) 1,048,231 (183,741) 864,490 Total 280,289 (1,400) 278,889 2,470,057 (174,546) 2,295,511 CEYLINCO INSURANCE PLC Annual Report 2012 161

40. Risk management framework 40.(a) Governance framework The primary objective of the Group’s risk and financial management framework is to protect the Group’s shareholders from events that hinder the sustainable achievement of financial performance objectives, including failing to exploit opportunities. Key management recognises the critical importance of having efficient and effective risk management systems in place.

The Company has established a risk management process with specified objectives with clear tasks. The board of directors and senior management manages the risks through various committees and delegated authorities. The reviews of risks on regular basis and the startegies adopted timely ensures the risk managemet function an important activity within the organisation.

The risks are identified with clear understanding of market environment, regulatory enivronment and macro economic changes. The company has well experienced and skilled directors who could assess the risks and execute appropriate strategies and achieve the targets with less negative effect to shareholders.

40.(b) Capital management objectives, policies and approach The Group has established the following capital management objectives, policies and approach to managing the risks that affect its capital position: - To maintain the required level of stability of the Group thereby providing a degree of security to policyholders - To allocate capital efficiently and support the development of business by ensuring that returns on capital employed meet the requirements of its capital providers and of its shareholders - To retain financial flexibility by maintaining strong liquidity and access to a range of capital markets - To align the profile of assets and liabilities taking account of risks inherent in the business - To maintain financial strength to support new business growth and to satisfy the requirements of the policyholders, regulators and stakeholders

Operations of the Group are also subject to regulatory requirements within the jurisdictions in which it operates. Such regulations not only prescribe approval and monitoring of activities, but also impose certain restrictive provisions (e.g., capital adequacy) to minimise the risk of default and insolvency on the part of the insurance companies to meet unforeseen liabilities as these arise.

The Company maintains capital, investments and solvency as per the regulations prescribed by Insurance board of Sri Lanka. (IBSL). New changes in regulations are timely adopted and necessary changes are made to internal processes.

Approach to capital management The Group allocates capital to businesses as required and ensures the sufficient returns to shareholders and policyholders.The assets and liabilities management establishes the required level of liquidity and reduces the risks of the company and achieves the required capital levels of the company.

The primary source of capital used by the Group is equity shareholders’ funds. The Group also utilises, where efficient to do so, sources of capital such as reinsurance.

The returns expectations are regularly forecast and comparisons are made in order to ensure the requirements of stakeholders are achieved.

The Group has had no significant changes in its policies and processes to its capital structure during the past year from previous years.

40.(c) Regulatory framework Regulators are primarily interested in protecting the rights of policyholders and monitor them closely to ensure that the Group is satisfactorily managing affairs for their benefit. At the same time, regulators are also interested in ensuring that the Group maintains an appropriate solvency position to meet unforeseen liabilities arising from economic shocks or natural disasters.

The Company is regulated by Insurance board of Sri lanka with the objective of protecting shareholders and policyholders. There are various regulations and directive the company is expected to adhere in order to achieve the expected norms, which leads the company to maintain required solvency and maintain sufficient capital.

Financial risks arise due to movements in market rates.The risks mainly involve interets rates risks, share price changes etc. The company manages these risks through various strategies adopted at asset liability committee, investment committee and risk management committees.

CEYLINCO INSURANCE PLC 162 Annual Report 2012

Notes to the Consolidated Financial Statements

41. Insurance and financial risk 41.(a) Insurance risk The principal insurance risk the Group faces is that the actual claims and benefit payments or the timing thereof, differ from expectations. This is influenced by the frequency of claims, severity of claims, actual benefits paid and subsequent development of long–term claims. Therefore, the objective of the Group is to ensure that sufficient reserves are available to cover these liabilities.

The variability of risks is also improved by careful selection and implementation of underwriting strategy guidelines, as well as the use of reinsurance arrangements. The Group has entered into reinsurance treaties with world's leading reinsurers as a part of its risks mitigation programme. All reinsurance is designed to mitigate the group’s net exposure to a single claim as well as to catastrophe losses.

Amounts recoverable from reinsurers are estimated in a manner consistent with the outstanding claims provision and are in accordance with the reinsurance contracts. Although the Group has reinsurance arrangements, it is not relieved of its direct obligations to its policyholders and thus a credit exposure exists with respect to ceded insurance, to the extent that any reinsurer is unable to meet its obligations assumed under such reinsurance agreements. The Group’s placement of reinsurance is diversified such that it is not dependent on a single reinsurer. The Group has all reinsurance arrangements with many leading reinsurance companies.

41.a.(1) Life insurance contracts Life insurance contracts offered by the Group include: whole life, term assurance and endowment plans.

Whole life and term assurance are conventional regular premium products when lump sum benefits are payable on death.

Death and maturity benefits of endowment products are subject to a guaranteed minimum amount. For contracts with DPF the guaranteed minimum may be increased by the additions such as bonuses.

The main risks that the Group is exposed to are as follows: Mortality risk – risk of loss arising due to policyholder death experience being different than expected Morbidity risk – risk of loss arising due to policyholder health experience being different than expected Investment return risk – risk of loss arising from actual returns being different than expected Expense risk – risk of loss arising from expense experience being different than expected Policyholder decision risk – risk of loss arising due to policyholder experiences (lapses and surrenders) being different than expected These risks do not vary significantly in relation to the location of the risk insured by the Group.

The Group’s underwriting strategy is designed to ensure that risks are well diversified in terms of type of risk and level of insured benefits. This is largely achieved through diversification across industry sectors and geography, the use of medical screening in order to ensure that premium charged takes account of current health conditions and family medical history, regular review of actual claims experience and product pricing, as well as detailed claims handling procedures. Underwriting limits are in place to enforce appropriate risk selection criteria. For example, the Group has the right not to revive individual policies and it has the right to reject the payment of fraudulent claims. Insurance contracts also entitle the Group to pursue third parties for payment of some or all costs. The Group further enforces a policy of actively managing and promptly pursuing claims, in order to reduce its exposure to unpredictable future developments that can negatively impact the Group. For contracts when death or disability is the insured risk, the significant factors that could increase the overall frequency of claims are epidemics, widespread changes in lifestyle and natural disasters, resulting in earlier or more claims than expected.

The insurance risk described above is also affected by the contract holder’s right to pay reduced premiums or no future premiums, to terminate the contract completely. As a result,the amount of insurance risk is also subject to contract holder behaviour.

Non-Life Insurance The main risk faced by non-life insurance business is that the actual claims are varying from the expected claims from different types of policies. The company minimises the risks by evaluating the business in detail and charges the correct premiums sothat the company has sufficient reserves to meet any unforseen claims.

There are other types of risks such as reinsurance, default risk, credit risk, concentration risk and liquidity risks market risks.The company's risk management polcies and processes mitigate the impact of these risks and also benefits the organisation by accepting some calculated risks at appropriate times. CEYLINCO INSURANCE PLC Annual Report 2012 163

41. Insurance and financial risk (cont’d) Expense risk – risk of loss arising from expense experience being different than expected Policyholder decision risk – risk of loss arising due to policyholder experiences (lapses and surrenders) being different than expected

These risks do not vary significantly in relation to the location of the risk insured by the Group.

The Group’s underwriting strategy is designed to ensure that risks are well diversified in terms of type of risk and level of insured benefits. This is largely achieved through diversification across industry sectors and geography, the use of medical screening in order to ensure that premium charged takes account of current health conditions and family medical history, regular review of actual claims experience and product pricing, as well as detailed claims handling procedures. Underwriting limits are in place to enforce appropriate risk selection criteria. For example, the Group has the right not to revive individual policies and it has the right to reject the payment of fraudulent claims. Insurance contracts also entitle the Group to pursue third parties for payment of some or all costs. The Group further enforces a policy of actively managing and promptly pursuing claims, in order to reduce its exposure to unpredictable future developments that can negatively impact the Group. For contracts when death or disability is the insured risk, the significant factors that could increase the overall frequency of claims are epidemics, widespread changes in lifestyle and natural disasters, resulting in earlier or more claims than expected.

The insurance risk described above is also affected by the contract holder’s right to pay reduced premiums or no future premiums, to terminate the contract completely. As a result,the amount of insurance risk is also subject to contract holder behaviour.

41.a.(2) Non-Life Insurance The main risk faced by non-life insurance business is that the actual claims are varying from the expected claims from different types of policies. The company minimises the risks by evaluating the business in detail and charges the correct premiums sothat the company has sufficient reserves to meet any unforseen claims.

There are other types of risks such as reinsurance, default risk, credit risk, concentration risk and liquidity risks market risks.The company's risk management polcies and processes mitigate the impact of these riska and also benefits the organisation by accepting some calculated risks at appropriate times.

Non-life insurance contracts The non-life insurance principally issues the following types of general insurance contracts: motor,marine,engineering, fire,suwa sampatha and miscellaneous products. Risks under non-life insurance policies usually cover twelve months duration. For general insurance contracts, the most significant risks arise from accidents,climate changes, natural disasters and terrorist activities. For longer tail claims that take some years to settle, there is also inflation risk.

These risks do not vary significantly in relation to the location of the risk insured by the Group, type of risk insured and by industry.

The above risk exposure is mitigated by diversification across a large portfolio of insurance contracts and geographical areas. The variability of risks is improved by careful selection and implementation of underwriting strategies, which are designed to ensure that risks are diversified in terms of type of risk and level of insured benefits. Furthermore,strict claim review policies to assess all new and ongoing claims, regular detailed review of claims handling procedures and frequent investigation of possible fraudulent claims are all policies and procedures put in place to reduce the risk exposure of the non-life. Further on the spot claims settlement procedures also helps to reduce the exposure to unpredictable future developments that can negatively impact the business. Inflation risk is mitigated by taking expected inflation into account when estimating insurance contract liabilities.

The non-life has also limited its exposure by arranging reinsurance contracts with rated Reinsurers internationally.

41.(b) Credit risk Credit risk is the risk that one party to a financial instrument will cause a financial loss to the other party by failing to discharge an obligation.

The following policies and procedures are in place to mitigate the Life Division's exposure to credit risk: - Credit risk policy is set based on the the assessment and IBSL determination. Accordingly Life Division has the maximum amounts and limits that may be advanced to counterparties by reference to their long–term credit ratings. Policy is monitored at each reporting date or when required for changes in the risk environment. - Reinsurance is placed with counterparties that have a good credit rating. At each reporting date, an assessment of creditworthiness of reinsurers are performed and updates the reinsurance purchase strategy, ascertaining suitable allowance for impairment. - The credit risk in respect of customer balances incurred on non–payment of premiums or contributions will only persist during the grace period specified in the policy document until expiry, when the policy is either paid up or terminated. Commission paid to intermediaries is netted off against amounts receivable from them to reduce the risk of doubtful debts.

The following processes/activities of General division reduces the credit risk of finaical instruments - Credit risk polciy is based on the IBSL determination.The maximum exposures to each type of financial instrument is limited based on the poilcy. - The investment committee evaluates the exposure and the new investments in instruments in order to reduce the risks. - The regular review by the Board also minimises the credit risks. CEYLINCO INSURANCE PLC 164 Annual Report 2012

Notes to the Consolidated Financial Statements

41. Insurance and financial risk (cont’d) Credit exposure The table below shows the maximum exposure to credit risk for the components of the statement of financial position and items such as future commitments.

2012 2011 Group Company Group Company 31 December 2012 Note Rs.'000 Rs.'000 Rs.'000 Rs.'000 Financial instruments Held-to-maturity financial assets Debt securities 11(a) 23,377,454 23,216,452 17,322,609 17,246,626

Loans and receivables Debt securities 11(b) 20,317,689 19,852,901 21,452,798 20,899,865 Other 11(b) 687,878 695,520 751,317 768,351

Available-for-sale financial assets Equity securities 11(c) 623,812 607,287 658,471 637,011 Debt securities 11(c) 2,819,238 2,819,238 2,726,675 2,726,674

Financial assets at fair value through profit or loss Equity securities 11(d) 81,884 81,884 110,496 110,496 Debt securities 11(d) - 601,877 601,877 Reinsurance assets 12 2,140,307 2,079,104 1,905,304 1,854,919 Insurance receivables 14 3,707,216 3,474,264 3,005,604 2,819,783 Cash and cash equivalents 18 672,540 425,734 769,003 531,674 Total credit risk exposure 54,428,018 53,252,384 49,304,154 48,197,276

Industry analysis 31 December 2012 Financial Manufacturing Services Government Services and Petroleum Others Total Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Assets Held-to-maturity financial assets Debt securities 1,461,662 21,754,790 - - - 23,216,452 1,461,662 21,754,790 - - - 23,216,452 Loans and receivables Term Deposits 18,758,504 - - - - 18,758,504 Repo Investments 136,397 - - - 136,397 Unquoted Debentures 958,000 - - - - 958,000 Staff and vehicle Loans - - - - 544,983 544,983 Other Loans - - - 150,536 150,536 19,716,504 136,397 - - 695,520 20,548,421 Available-for-sale financial assets Equity securities 136,816 - 5,629 448,757 16,085 607,287 Debt securities 251,350 2,537,888 - - 30,000 2,819,238 388,166 2,537,888 5,629 448,757 46,085 3,426,525 Financial assets at fair value through profit or loss Equity securities 65,201 - - 112 16,571 81,884 65,201 - - 112 16,571 81,884 Total credit risk exposure 21,631,533 24,429,075 5,629 448,869 758,176 47,273,282 CEYLINCO INSURANCE PLC Annual Report 2012 165

41. Insurance and financial risk (cont’d)

31 December 2011 Financial Manufacturing Services Government Services and Petroleum Others Total Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Held-to-maturity financial assets Debt securities 1,443,167 15,803,459 - - - 17,246,626 1,443,167 15,803,459 - - - 17,246,626

Loans and receivables Term Deposits 19,793,043 - - - - 19,793,043 Repo Investments 103,822 - - - 103,822 Unquoted Debentures 1,003,000 - 1,003,000 Staff and vehicle Loans - - - - 549,606 549,606 Other Loans - - - - 218,745 218,745 20,796,043 103,822 - - 768,351 21,668,216

Available-for-sale financial assets - Equity securities 183,085 - 4,371 432,941 16,613 637,010 Debt securities 340,984 2,355,691 - - 30,000 2,726,675 524,069 2,355,691 4,371 432,941 46,613 3,363,685

Financial assets at fair value through profit or loss Equity securities 63,811 - 18 17 46,650 110,496 Debt securities - 601,877 - - 601,877 63,811 601,877 18 17 46,650 712,373

Total credit risk exposure 22,827,090 18,864,849 4,389 432,958 861,614 42,990,900 CEYLINCO INSURANCE PLC 166 Annual Report 2012

Notes to the Consolidated Financial Statements - - - - ,990,900 Not AAA AA+ AA AA- A+ A A- BBB+ BBB BB+ BB B rated Total Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000 3,844,399 4,637,000 6,761,403 3,670,000 - 250,100 321,911 - 368,000 - - 3,961,322 2,295,546 - 8,960,960 695,608 3,033,425 20,548,421 - 516,100 1,784,488 - 310,000 25,000 - 380,944 400,431 21,668,216 22,707,262 22,707,262 2,295,546 9,525,537 3,033,436 575,323 516,100 1,917,933 24,353 310,738 25,000 526 380,944 1,678,202 42 27,964,737 27,964,737 4,637,000 7,341,802 3,670,034 574,090 250,100 596,911 102,588 368,190 - 980 - 1,766,849 47,273,282

Total Available-for-sale financial Available-for-sale assets securitiesEquity Debt securities value Financial assets at fair 2,406,003 - - - 11,110 4,051 - - - financial Available-for-sale - assets - securities Equity - Debt securities value Financial assets at fair - - through profit or loss securitiesEquity - - 393 2,355,691 Debt securities 190 - - - 28,090 - - 734 - 601,877 980 - - - - 63,793 - - - - 602,066 402,125 - 11 - 2,819,238 607,287 - 20 ------738 ------526 - - - - 634,619 - - - 637,010 370,984 2,726,675 - - 18,582 110,496 - - 601,877 Held-to-maturity financial assets Debt securitiesLoans and receivables 21,711,169 - 500,050 through profit or loss securitiesEquity Total - 574,074 31 December 2011 Financial instruments - 3,166 275,000 Held-to-maturity financial assets 102,588 - Debt securities 65,187 Loans and receivables - 34 - 15,759,889 16 - - 500,050 - - 53,570 - 23,216,452 - 575,303 - - 133,445 - 24,353 ------13,480 81,884 - 253,586 17,246,626 The below table indicates the rating of investments as at 31st December 2012& 2011. 31 December 2012 Financial instruments 41. Insurance and financial risk (cont’d) CEYLINCO INSURANCE PLC Annual Report 2012 167

41. Insurance and financial risk (cont’d) 41.(c) Liquidity risk Liquidity risk is the risk that an entity will encounter difficulty in meeting obligations associated with financial instruments. Even at a catastrophic events liquidity risk of Life Division is low as the cash inflow is greater than cash outflow.

The following policies and procedures are in place to mitigate the Life Division's exposure to liquidity risk: - Assessement and determination of Liquidity risk in order to maintain optimal cash balances - Guidelines are set for asset allocations, portfolio limit structures and maturity profiles of assets, in order to ensure sufficient funding available to meet insurance and investment contracts obligations. - Contingency funding plans are in place, which specify minimum proportions of funds to meet emergency calls as well as specifying events that would trigger such plans. The liquidity risks in General division is where the company does not have enough cash/arranagements to meet payments./commitments as they fall due. Following processes/activities are in place to minimise the liquidity risk. - The regular maintenance of investments in accordance with the IBSL guidelines. - The investment committee reviews the liquidity levels and take appropriate actions to improve the liquidity - Effiicent forecasting of future commitments and making investments to meet the payouts, mitigate any possible liquiidty concerns.

41.(d) Market risk Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk comprises three types of risk: foreign exchange rates (currency risk), market interest rates (interest rate risk) and market prices (price risk).

The investment committee reviews the impact of market risks and corrective actions are suggested regularly.

(i) Currency risk The Group has no significant concentration of currency risk.

However, the investments in foreign currency deposist is subject to currency risks. Since the company makes some payments in foreign currency the impact of risk is minimised. Further the investment in subsidiary in Maldives is exposed to exchange rate risk.(translation risk.)

(ii) Interest rate risk Interest rate risk is the risk that the value or future cash flows of a financial instrument will fluctuate because of changes market interest rates.

Floating rate instruments expose the company to cash flow interest risk, whereas fixed interest rate instruments expose the company to fair value interest risk.

The company’s interest risk policy identifies the volatile nature of Sri Lankan interest rate environment. Therefore the company closely monitors the re- investment calander of the investment fund and obtains internal and external expert openion on the behaviour of interest rate environment in taking re-investment decsions.

Company maintains mix of short term and long term asset mix and also maintains interest rate sensitive and Inflation rate sensitive asset classes in managing the interest rate risk. The policy also requires it to manage the maturities of interest bearing financial assets and interest bearing financial liabilities.

41.(e) Operational risks Operational risk is the risk of loss arising from system failure, human error, fraud or external events. When controls fail to perform, operational risks can cause damage to reputation, have legal or regulatory implications or can lead to financial loss. The Group cannot expect to eliminate all operational risks, but by initiating a rigorous control framework and by monitoring and responding to potential risks, the Group is able to manage the risks. Controls include effective segregation of duties, access controls, authorisation and reconciliation procedures, staff education and assessment processes, including the use of internal audit. Business risks such as changes in environment, technology and the industry are monitored through the strategic management and budgeting process.

CEYLINCO INSURANCE PLC 168 Annual Report 2012

Notes to the Consolidated Financial Statements

42. Contingencies and commitments 42.(a) Legal proceedings and regulations The Company operates in the insurance industry and is subject to legal proceeding in the normal course of business. While it is not practicable to forecast or determine the final results of all pending or threatened legal proceedings, management does not believe that such proceedings (including litigations) will have a material effect on its results and financial position.

42.(b) Capital commitments and operating leases The Group has no capital commitments as at the reporting date.

The Company has committed to pay operating lease rentals on vehicles amounting to Rs.598,802,169 (2011- Rs.181,802,992) as at reporting date.

43. Assets Pledged The following assets have been pledged as security for liabilities.

Nature of Assets Nature of Liability Carrying Amount Included under Rs.'000 Building-Non Life Division Mortgaged to Seylan Bank PLC by Golden Key Credit Card Company Limited to obtain loan facility (Note 9) 153,000 Investment Property

Fixed Deposit-Non Life Division Pledged to Seylan Bank PLC to obtain bank overdraft facilities. 61,700 Loans & Receivables

Treasury Bonds-Life Division Pledged to Seylan Bank PLC to obtain banking facilities. 139,200 Held to Maturities

Fixed Deposits-Life Division Pledged to Nations Trust Bank PLC to obtain banking facilities 100 Loans & Receivables Pledged to Commercial Bank of Ceylon PLC to obtain banking facilities. 500 Loans & Receivables Pledged to Seylan Bank PLC to obtain banking facilities. 50 Loans & Receivables

44. Related party disclosures 44.1

Related Party Transaction Nature of Transaction Amount of transactions / outstanding balances (Rs.) (i) 2012 2011 (a) The aggregate value of transactions and outstanding balances relating to key management personnel and entities over which they have control or significant influence were as follows

Directors Mr.J.G.P.Perera, Mr. A.R.Gunawardena, Mr. R.Renganathan, Aggregated amounts of premium received from the 17,543,776 30,622,663 Mr.H.D.K.P.Alwis, Mr.W.C.J.Alwis, Mr.P.D.M.Cooray, group companies under normal terms of insurance Mr.P.M.B.Fernando, Mr.P.A.Jayawardena, Mr.Nugewela, contracts Mr.T.N.M.Peiris, Mr.E.T.L. Ranasinghe Mr.D.W.P Upali, Mr.K.I.Dharmawardena, Mr.D.H.J.Gunawardena, Aggregated amounts of claim paid to the group Gen.C.S.Weerasooriya (Retd.), Mr.S.R.Abeynayake companies under normal terms of insurance contracts 1,176,357 50,521,184 (b) Transactions with Associate Companies Name of the company Nature of the transaction Amount of the transaction (Rs.) Citizens Development Business Finance PLC Insurance Premium received 3,114,891 19,990,949 Citizens Development Business Finance PLC Dividend Received 4,888,517 - Citizens Development Business Finance PLC Claims payment 111,300 - Citizens Development Business Finance PLC Purchase of shares - 207,727,070 Citizens Development Business Finance PLC Sales of shares - 71,791,820 CEYLINCO INSURANCE PLC Annual Report 2012 169

(c) Transaction entered into where the company has the ability to control the other party as subsidiaries are listed below; Name of the company Nature of the transaction Amount of the transaction ( Rs.) ( Rs.) American Education Centre Pvt Ltd Dividend Received - 802,500 American Education Centre Pvt Ltd Insurance Premium received 5,231,522 4,150,774 Ceylinco Investcorp (Pvt.) Ltd. Fund Management fee paid 4,119,016 5,736,726 Ceylinco Investcorp (Pvt.) Ltd. Insurance Premium received 967,003 - Ceylinco Investcorp (Pvt.) Ltd. Dividend Received 506,250 - Ceypower Cascades (Pvt) Ltd Insurance Premium received 86,984 103,052 Ceypower Cascades (Pvt) Ltd Dividend Received - 18,274,922 CEG Education Holdings (Pvt) Ltd Insurance Premium received 203,342 172,371 Energy Lanka Holdings (Pvt) Ltd. Dividend Received 9,996,206 - Energy Generators (Pvt) Ltd. Insurance Premium received 2,798,494 - International College of Business & Technologies Ltd. Insurance Premium received 3,548,765 2,954,540 International College of Business & Technologies Ltd. Dividend Received 5,336,656 2,329,450 Ceylinco Insurance Company(Pvt) Ltd-Maldives Dividend Income received 4,932,000 - Ceylinco Insurance Company(Pvt) Ltd-Maldives Reinsurance Settlements - 158,926,431 Ceylinco Insurance Company(Pvt) Ltd-Maldives Reinsurance Premium Received - 149,370,140 Ceylinco Insurance Company(Pvt) Ltd-Maldives Management fee received - 4,362,000 Ceylinco Insurance Company(Pvt) Ltd-Maldives Interest income received - 5,599,302 Ceylinco Health Care Services Ltd Medical Fees for staff & Customers 7,575,945 5,903,715 Ceylinco Health Care Services Ltd Insurance Premium received 1,682,295 1,586,994 Ceylinco Seraka Ltd Service Charges 4,470,000 4,410,000 Serene Resorts Ltd Training Expenses 19,830,000 4,675,000 CAS Recoveries & Custodial Services (Pvt) Ltd Settlement of Promisory Notes - 50,000,000 Ceylinco Investcorp (Pvt.) Ltd. Settlement of Promisory Notes - 42,010,000 Wycherley International School (Pvt) Ltd Insurance Premium received - 1,205,746

(ii) Key Management Personnel Compensation Key Managerial Persons include members of the Short-term employee benefits received from the Company 309,930,046 337,612,814 Board of Directors; Short-term employee benefits received from the Subsidiaries 35,220,353 18,001,000 Other long term /post employment benefits 112,894,957 72,368,156 (iii) Other related party transactions These are non insurance related transactions entered into with related companies.

Name of the company Nature of the transaction Amount of the transaction (Rs.) (Rs.) CGL Education Services Ltd. Contribution paid 2,159,625 - Ultratech Cement Lanka (Pvt)Ltd. Dividend Received 27,000,000 - Ceylinco Group Library, Ceylinco Hotels, Ceylinco Printing Stationary, Ceylinco Express (Pvt) Ltd Other transactions - 2,117,220 CEYLINCO INSURANCE PLC 170 Annual Report 2012

Notes to the Consolidated Financial Statements

44.2. (a) Balance outstanding as at 31 December 2012 in respect of premium receivables from related entities

Name of the company 2012 2011 Amount Amount (Rs.) (Rs.) American Education Centre Ltd 453,088 306,135 Citizens Development Business Finance PLC 418,103 2,193,474 Ceylinco Healthcare Services (Pvt) ltd - 1,340,648 Wycherley International School (Pvt)Ltd - 1,205,746

44.2. (b) Investment in Fixed Deposits Name of the company 2012 2011 Amount Amount (Rs.) (Rs.) Citizens Development Business Finance PLC 18,000,000 -

44.2. (C) Investment in associate No restrictions are placed on the ability of the associate to transfer funds to the parent company in the form of cash dividends or for the repayment of loans when due.

No guarantees or collaterals were provided to the associate.

45 Events after the reporting date No circumstances have arisen since the reporting date which require adjustment or disclosure in financial statements other than those disclosed in Note 37. CEYLINCO INSURANCE PLC Annual Report 2012 171

A1.1. Notes to the financial statements - First-time adoption of LKAS/SLFRS (a) Reconciliation of equity reported under previous SLAS to equity reported under SLAS (LKAS/SLFRS)

Company Group Note SLAS Adjustments LKAS/SLFRS SLAS Adjustments LKAS/SLFRS 1 January 2011 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Assets Intangible assets 82,696 - 82,696 90,704 - 90,704 Deferred expenses i - 507,080 507,080 - 514,100 514,100 Property and equipment 5,208,858 - 5,208,858 6,995,865 - 6,995,865 Investment properties 2,611,863 - 2,611,863 2,611,863 - 2,611,863 Investment in subsidiaries 1,282,169 - 1,282,169 - - - Investment in associates ii 165,475 18,557 184,032 360,172 32,815 392,987 Financial Instruments - Held to maturity financial assets iii 11,112,759 (26,875) 11,085,884 11,112,759 (26,875) 11,085,884 Loans and receivables iii.a. 14,819,303 (87,989) 14,731,314 15,001,548 (87,989) 14,913,559 Available-for-sale financial assets iv,ii 1,973,707 265,115 2,238,822 1,973,834 265,115 2,238,949 Financial assets at fair value through profit or loss v 3,042,006 27,310 3,069,316 3,042,006 27,310 3,069,316 Reinsurance assets 2,394,028 - 2,394,028 2,413,562 - 2,413,562 Income tax receivable 518,458 - 518,458 518,458 - 518,458 Deferred tax assets v.a. 489,235 244,151 733,386 489,235 244,151 733,386 Insurance receivables v.b. 2,957,100 87,188 3,044,288 3,063,325 87,188 3,150,513 Accrued Income vi 1,725,541 (76,676) 1,648,865 1,728,754 (76,680) 1,652,074 Other assets vi.a 373,930 77,900 451,830 535,068 77,900 612,968 Cash and cash equivalents 575,517 - 575,517 750,780 - 750,780 Total assets 49,332,645 1,035,761 50,368,406 50,687,933 1,057,035 51,744,968 Equity and liabilities Equity Issued share capital 1,324,822 - 1,324,822 1,324,822 - 1,324,822 Retained earnings vii 3,397,454 (366,329) 3,031,125 3,493,254 (352,071) 3,141,183 Retained Reserves viii 2,057,437 306,778 2,364,215 2,057,437 306,778 2,364,215 Revaluation reserves 827,395 - 827,395 1,344,336 - 1,344,336 Total ordinary shareholders’ equity 7,607,108 (59,551) 7,547,557 8,219,849 (45,293) 8,174,556 Non-controlling interests - - - 152,070 - 152,070 Total equity 7,607,108 7,547,557 8,371,919 8,326,626 Liabilities Life Insurance contract liabilities 31,983,410 - 31,983,410 31,983,410 - 31,983,410 Non Life Insurance contract liabilities ix 6,152,883 377,911 6,530,794 6,225,043 384,153 6,609,196 Pension benefit obligation ix.a - 414,960 414,960 - 414,960 414,960 Gratuity benefit obligation x 109,147 148,546 257,693 114,088 148,546 262,634 Deferred Revenue xi 129,169 129,169 129,943 129,943 Borrowings 368,560 - 368,560 411,501 - 411,501 Other financial liabilities 798,727 - 798,727 798,727 - 798,727 Deferred tax liabilities - - - 25,367 - 25,367 Reinsurance payables 388,912 - 388,912 398,388 - 398,388 Trade and other payables xii 1,923,898 24,726 1,948,624 2,359,490 24,726 2,384,216 Total liabilities 41,725,537 1,095,312 42,820,849 42,316,014 1,102,328 43,418,342 Total equity and liabilities 49,332,645 1,035,761 50,368,406 50,687,933 1,057,035 51,744,968 CEYLINCO INSURANCE PLC 172 Annual Report 2012

Notes to the Consolidated Financial Statements

A1.2. Notes to the financial statements - First-time adoption of LKAS/SLFRS (cont’d) Reconciliation of equity reported under previous SLAS to equity reported under SLAS (LKAS/SLFRS)

31 December 2011 Company Group Note SLAS Adjustments LKAS/SLFRS SLAS Adjustments LKAS/SLFRS Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000

Assets Goodwill - - 193,162 - 193,162 Intangible assets 58,800 - 58,800 73,827 - 73,827 Deferred expenses i - 549,512 549,512 558,877 558,877 Property and equipment i.a 5,044,660 - 5,044,660 7,388,295 6,099 7,394,394 Investment properties 3,233,089 - 3,233,089 3,233,089 - 3,233,089 Investment in subsidiaries 1,387,459 - 1,387,459 - - Investment in an associate ii 328,143 18,557 346,700 782,457 6,509 788,966 Financial Instruments Held to maturity financial assets iii 17,248,022 (1,396) 17,246,626 17,324,005 (1,396) 17,322,609 Loans and receivables iii.a 21,766,771 (98,555) 21,668,216 22,302,670 (98,555) 22,204,115 Available-for-sale financial assets iv,ii 3,118,538 245,147 3,363,685 3,143,282 241,864 3,385,146 Financial assets at fair value through profit or loss v 701,527 10,846 712,373 701,527 10,846 712,373 Employee Gratuity benefit asset x - 278,635 278,635 278,635 278,635 Employee pension benefit asset ix.a - 373,347 373,347 - 373,347 373,347 Reinsurance assets 1,854,919 - 1,854,919 1,905,304 - 1,905,304 Income tax receivable 679,465 - 679,465 660,836 - 660,836 Deferred tax assets v.a 304,672 276,528 581,200 310,934 276,528 587,462 Insurance receivables v.b 2,701,820 117,963 2,819,783 2,887,641 117,963 3,005,604 Accrued Income vi 1,979,179 (49,166) 1,930,013 1,984,380 (49,166) 1,935,214 Other assets vi.a 393,056 85,272 478,328 578,547 89,995 668,542 Cash and cash equivalents 531,674 - 531,674 769,003 - 769,003 Total assets 61,331,794 1,806,690 63,138,484 64,238,959 1,811,546 66,050,505 Equity and liabilities Equity attributable to equity holders of parent Issued share capital 1,324,822 - 1,324,822 1,324,822 - 1,324,822 Retained earnings vii 4,381,505 1,135,968 5,517,473 4,905,481 1,025,618 5,931,099 Retained Reserves viii 2,057,437 347,179 2,404,616 2,057,437 449,375 2,506,812 Revaluation reserves viii.a 1,686,281 - 1,686,281 2,150,126 (585) 2,149,541 Total ordinary shareholders’ equity 9,450,045 1,483,147 10,933,192 10,437,866 1,474,408 11,912,274 Non-controlling interests viii.b - - - 454,717 5,756 460,473 Total equity 9,450,045 10,933,192 10,892,583 12,372,747

Liabilities Life Insurance contract liabilities 38,350,132 - 38,350,132 38,350,132 - 38,350,132 Non Life Insurance contract liabilities ix 6,536,751 438,672 6,975,423 6,679,303 428,442 7,107,745 Gratuity benefit obligation x 247,157 (247,157) - 307,846 (246,042) 61,804 Deferred Revenue xi - 110,841 110,841 130,435 130,435 Borrowings 558,278 - 558,278 1,229,651 - 1,229,651 Other financial liabilities 3,856,822 - 3,856,822 3,856,822 - 3,856,822 Deferred tax liabilities - - - 37,207 - 37,207 Reinsurance payables 246,080 - 246,080 246,080 - 246,080 Trade and other payables xii 2,086,529 21,187 2,107,716 2,639,335 18,547 2,657,882 Total liabilities 51,881,749 323,543 52,205,292 53,346,376 331,382 53,677,758 Total equity and liabilities 61,331,794 1,806,690 63,138,484 64,238,959 1,811,546 66,050,505 CEYLINCO INSURANCE PLC Annual Report 2012 173

A1.3. Notes to the financial statements - First-time adoption of LKAS/SLFRS (cont’d) Reconciliation of Statement of Income under previous SLAS to income reported under New SLAS (LKAS/SLFRS)

31 December 2011 Company Group Notes SLAS Adjustments LKAS/SLFRS SLAS Adjustments LKAS/SLFRS Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Net Income 22,228,835 78,139 22,306,974 22,837,941 95,574 22,933,515 Gross written premiums 1 19,857,155 17,962 19,875,117 20,198,243 17,962 20,216,205 Premiums ceded to reinsurers (2,071,748) - (2,071,748) (2,304,434) - (2,304,434) Net written premiums 17,785,407 17,962 17,803,369 17,893,809 17,962 17,911,771 Net change in Reserve for unearned premium (422,984) - (422,984) (454,518) - (454,518) Net Earned premium 17,362,423 17,962 17,380,385 17,439,291 17,962 17,457,253 Revenue from Subsidiaries 514,921 - 514,921 17,362,423 17,962 17,380,385 17,954,212 17,962 17,972,174 - Fees and commission income 362,518 - 362,518 385,354 - 385,354 Investment income 4,021,196 49,330 4,070,526 4,014,259 66,765 4,081,024 Realised gains 346,493 - 346,493 347,911 - 347,911 Fair value gains and losses 136,205 10,847 147,052 136,205 10,847 147,052 Other revenue 2 4,866,412 60,177 4,926,589 4,883,729 77,612 4,961,341

Gross benefits and claims paid (8,005,639) - (8,005,639) (8,038,540) - (8,038,540) Claims ceded to reinsurers 1,096,187 - 1,096,187 1,116,713 - 1,116,713 Gross change in contract liabilities (6,356,976) - (6,356,976) (6,391,362) - (6,391,362) Change in contract liabilities ceded to reinsurers (490,944) - (490,944) (453,732) - (453,732) Net benefits and claims (13,757,372) - (13,757,372) (13,766,921) - (13,766,921)

Cost of sales of subsidiaries - - - (127,809) - (127,809) Acquisition cost 3 (2,194,888) 5,019 (2,189,869) (2,211,965) 5,019 (2,206,946)

Other operating and administrative expenses 4 (4,975,626) 99,826 (4,875,800) (5,324,409) 102,061 (5,222,348) Finance cost (29,891) - (29,891) (42,703) - (42,703)

Total benefits, claims and other expenses (20,957,777) - (20,852,932) (21,473,807) - (21,366,727) Profit before share of associates 1,271,058 182,984 1,454,042 1,364,134 202,654 1,566,788 Share of profit of associates 5 - - 191,977 (80,788) 111,189 Profit before tax 1,271,058 182,984 1,454,042 1,556,111 121,866 1,677,977 Income tax expense 6 (141,727) 23,180 (118,547) (163,327) 23,180 (140,147) Profit for the year 1,129,331 206,164 1,335,495 1,392,784 145,046 1,537,830 CEYLINCO INSURANCE PLC 174 Annual Report 2012

Notes to the Consolidated Financial Statements

First-time adoption of LKAS/SLFRS A1.1. & A.1.2 Notes to the financial statements - First-time adoption of LKAS/SLFRS (cont’d) Statement of Financial Position Company Group 2011 2011.01.01 2011 2011.01.01 Rs.'000 Rs.'000 Rs.'000 Rs.'000 i Deferred Expenses Under SLAS, deferred expenses were netted off against Non-Life Insurance liabilities. Under SLFRS 549,512 507,080 558,877 514,100 these amounts are included under assets. i.a. Property, Plant & Equipment Under SLFRS, Property, Plant and Equipment have been reassessed and adjustments incorporated accordingly. - - 6,099 - ii Investment in Associate The company has recognised the significant influence on the Associate and accounted under equity method in Consolidation. 18,557 18,557 52,438 32,815 Fair value changes arising from SLFRS application to Associate investments. - - (45,929) - 18,557 18,557 6,509 32,815 iii Held to Maturity Investments Under SLFRS, the calculation of interest on investments has been reassessed and accounted on amortised cost basis using effective interest rate method. (1,396) (26,875) (1,396) (26,875) iii.a. Loans & Receivables Under SLAS, staff loans were recorded at cost less repayments. Such loans have been assessed at fair value and the difference between fair value and previous SLAS carrying amount, is shown as deferred asset. (98,555) (87,989) (98,555) (87,989) iv Available For Sale Finacial Assets (AFS) Under SLAS, these investments were accounted at cost less provisions. However, as per the requirements of SLFRS the Group has designated such investments as AFS investments and measured at fair value. 263,704 283,672 260,421 283,672

The company has recognised the significant influence on the Associate and accounted accordingly. (18,557) (18,557) (18,557) (18,557) 245,147 265,115 241,864 265,115 v Financial Assets at Fair Value Through Profit or Loss (FVTPL) Under SLAS, these investments were accounted at cost less provisions. However, as per the requirements of SLFRS the Group has designated such investments as FVTPL investments and measured at fair value. 10,846 27,310 10,846 27,310 v.a. Deferred Tax Assets Deferred tax was recognised on Available For Sale reserve arising due to application of SLFRS. 9,197 - 9,197 - Recognition of Deferred tax on Gratuity obligation as per LKAS 12. (Income Taxes) 267,331 244,151 267,331 244,151

276,528 244,151 276,528 244,151 v.b Insurance Receivables The Company adopted the industry practice of accounting Life premium on cash basis. Due to the transition ot SLFRS, Life premium has been accounted under accrual basis. 137,290 119,328 137,290 119,328

SLAS required provision for impairment of receivables to consists of both a specific amount for incurred losses and a general amount for expected future losses. SLFRS does not permit recognition of impairment for expected future losses and insted required on a collection based on objective evidence that there has been an impairment. (19,327) (32,140) (19,327) (32,140) 117,963 87,188 117,963 87,188 CEYLINCO INSURANCE PLC Annual Report 2012 175

A1.1. & A.1.2 Notes to the financial statements - First-time adoption of LKAS/SLFRS (cont’d) Statement of Financial Position Company Group 2011 2011.01.01 2011 2011.01.01 Rs.'000 Rs.'000 Rs.'000 Rs.'000 vi Accrued Income The interest on financial instruments has been calculated on amortised cost basis as per SLFRS. (49,166) (76,676) (49,166) (76,676) vi.a Other Assets Fair value adjustment has been made for investment in Gold as per SLFRS. (6,186) - (6,186) - Other assets values have been reassessed in order to reflect the fair values according to SLFRS. (7,098) (10,088) (2,375) (10,088) Under SLAS, staff loans were recorded at cost less repayments. Such loans have been assessed at fair value and the difference between fair value and previous SLAS carrying amount, is shown as deferred asset. 98,556 87,988 98,556 87,988 85,272 77,900 89,995 77,900 vii Retained Earnings Under SLAS, the gratuity contributions were expensed and accounted. SLFRS requires 525,792 (148,546) 525,792 (148,546) Gratuity benefit plan assets(net) of liabilities and actuarial gains and losses and related income statement adjustments to be recognised. Recognition of the effect of measuring financial assets in accordance with LKAS 39. (Financial Instruments) 2,075 (75) 2,075 (75) Recognition of the impact of Exchange difference in translating Foreign operations adjustment. - - 9,295 - Other assets values were reassessed in order to reflect the fair values according to SLFRS. (7,098) (10,088) (6,098) (10,088) SLAS required provision for impairment of receivables to consists of both a specific amount for incurred losses and a general amount for expected future losses. SLFRS does not permit recognition of impairment for expected future losses and insted required on a collection based on objective evidence that there has been an impairment. (19,327) (32,140) (19,327) (32,140) Recognition of the effect of SLFRS application in Group Companies - - (154,527) - Under SLAS, the pension contributions were expensed and accounted. SLFRS requires excess of the fair value of the plan assets over the present value of defined benefit obligation. Actuarial gains and losses and related income statement adjustments made. 373,347 (414,960) 373,347 (414,960) Recognition of deferred tax on gratuity obligation as per LKAS 12. (Income Taxes) 267,331 244,151 267,331 244,151 Under SLAS, the rent on operating leases were accounted as per agreements. Rent (6,151) (4,671) (6,151) (4,671) has been recognised on straight line basis as per the requirements of LKAS 17. (Leases) Recognition of the impact of equity accounting for investment in associate recognised. - - 33,881 14,258 1,135,968 (366,329) 1,025,618 (352,071) viii Retained Reserves Under SLAS, some of the investments were accounted at cost minus provisions. However, 218,440 247,517 330,156 247,517 as per the requirements of SLFRS the Group has designated such investments as AFS investments and measured at fair value.The fair value changes are recognised as AFS reserves. Recognition of the impact of exchange difference in translating foreign operations as reserve. - - (9,520) - In complying with SLFRS, fair value gains relating to life policyholders' investments are separately recognised as reserves. 119,542 59,261 119,542 59,261 Deferred tax has been recognised on Available For Sale reserve arising due to application of SLFRS. 9,197 - 9,197 - 347,179 306,778 449,375 306,778 viii.a Revaluation Reserve Recognition of the changes of revaluation reserve of the associate company. - - (585) - CEYLINCO INSURANCE PLC 176 Annual Report 2012

Notes to the Consolidated Financial Statements

A1.1. & A.1.2 Notes to the financial statements - First-time adoption of LKAS/SLFRS (cont’d) Statement of Financial Position Company Group 2011 2011.01.01 2011 2011.01.01 Rs.'000 Rs.'000 Rs.'000 Rs.'000 viii.b Non-Controlling Interests Recognition of the changes in fair value of financial instruments in compliance with SLFRS. - - 3,966 -

The impact of exchange difference in translating foreign operations adjustment. - - 1,790 - - - 5,756 - ix Non-Life Insurance Contract Liabilities Under SLAS, defferred expenses were netted with Insurance liabilities - Non-Life, SLFRS requires deferred expenses to be recognised separately 549,512 507,080 558,877 514,100 Under SLAS, defferred revenue were netted with Insurance liabilities - Non-Life, SLFRS requires deferred revenue to be recognised separately (110,841) (129,169) (130,435) (129,947) 438,672 377,911 428,442 384,153 ix.a Employee Pension Benefit Liability Under SLAS, the pension contributions were expensed and accounted. SLFRS requires recognition of employee pension benefit plan assets(net) of liabilities. (373,347) 414,960 (373,347) 414,960 x Employee Gratuity Benefit Liability Under SLAS, the gratuity contributions were expensed and accounted. SLFRS requires the recognition of employee gratuity benefit plan assets(net) of liabilities. (525,792) 148,546 (524,677) 148,546 xi Deferred Revenue Under SLAS, these were included in Non-Life Insurance liabilities. As per SLFRS amount of deferred revenue is separately recognised as liability. 110,841 129,169 130,435 129,943 xii Trade & Other Payables Under SLAS, the rent on operating leases were accounted as per agreements. Rent has been recognised on straight line basis as per the requirements of SLFRS. 6,151 4,671 6,151 4,671 Other payables values were reassessed and adjusted according to SLFRS. - - (2,640) -

The Company adopted the industry practice of accounting life premium on cash basis. According to the requirements of SLFRS Life premium has been accounted under accrual basis. As a result, the commission payable also recognised in line with SLFRS. 15,036 20,055 15,036 20,055

21,187 24,726 18,547 24,726 CEYLINCO INSURANCE PLC Annual Report 2012 177

A1.3 Notes to the financial statements - First-time adoption of LKAS/SLFRS (cont’d) Statement of Comprehensive Income Company Group 2011 2011 Rs.'000 Rs.'000

1 Gross Written Premium The Company adopted the industry practice of accounting life premium on cash basis. According to the requirements of SLFRS life premium has been accounted under accrual basis. 17,962 17,962

2 Other Revenue Recognition of the effect of staff loan interest income and value change in interest 55,516 55,516 accrual due to yield method on financial instruments. Recognition of fair value adjustment, made for investment in Gold as per SLFRS. (6,186) (6,186) Recognition of the effect of fair value adjustment on financial instruments as per the requirements of SLFRS. 10,847 10,847 Recognition of the impact of exchange difference in translating foreign operations classified as reserve, which was recognised in the income statement. - 17,435 60,177 77,612 3 Acquisition Cost The Company adopted the industry practice of accounting life premium on cash basis. According to the requirements of SLFRS life premium has been accounted under accrual basis. As a result, the commission expense was recognised in line with SLFRS. (5,019) (5,019)

4 Other Operating & Administrative Expenses Recognition of the impact of retirement benefit obligations treatment as per LKAS 19. (Employee benefits) 73,108 73,108 Recognition of the effect of reversal of provision for fall in value of investments in quoted shares. 8,277 8,277 Reassessment of fair value of non-life premium receivables were carried out and necessary 12,813 12,813 measurement changes made. Under SLAS, the rent on operating leases were accounted as per agreements. Rent (1,480) (1,480) has been recognised on straight line basis as per the requirements of LKAS 17.(Leases) Reassessment of fair values of other assets. 2,990 2,990

Under SLAS, staff loans were recorded at cost and as per the requirements of SLFRS (29,006) (29,006) staff loan has been accounted on amortised cost basis.

Under SLFRS, Property, Plant and equipmet have been reassessed and adjustments made accordingly. - 2,235

Under SLAS, the pension contributions were expensed and accounted. SLFRS requires 33,124 33,124 related income statements adjustments to be recognised. 99,826 102,061

5 Share of Profits of Associates Recognition of the effect on profits due to the recognition of the significant influence on the Associate. - 19,623 Recognition of the change in the profits of associates due to application of SLFRS. - (100,411) - (80,788)

6 Tax Expense Recognition of deferred tax on gratuity obligation as required by LKAS 12 (Income Taxes). (23,180) (23,180) CEYLINCO INSURANCE PLC 178 Annual Report 2012

Quarterly Analysis 2012

Consolidated Statement of Income (values are to the nearest rupees thousand) 1st quarter 2nd quarter 3 rd quarter 4th quarter Total Jan- Mar.12 Apr- Jun.12 Jul- Sep.12 Oct- Dec.12 Jan- Dec.12 Gross written premiums 5,505,410 5,285,247 5,788,302 6,057,756 22,636,715 Premiums ceded to reinsurers (704,672) (630,231) (871,088) (848,923) (3,054,914) Net written premiums 4,800,738 4,655,016 4,917,214 5,208,833 19,581,801 Net change in Reserve for unearned premium (294,993) 24,459 (134,284) 145,509 (259,309) Net Earned premium 4,505,745 4,679,475 4,782,930 5,354,342 19,322,492 Revenue from Subsidiaries 441,119 436,430 433,121 513,314 1,823,984 4,946,864 5,115,905 5,216,051 5,867,656 21,146,476 Investment income 1,040,387 1,102,545 1,408,872 1,945,692 5,497,496 Other Income 91,553 53,753 50,561 (143,748) 52,119 Other revenue 1,131,940 1,156,298 1,459,433 1,801,944 5,549,615 Net benefits and claims (1,919,681) (1,816,446) (2,150,228) (2,692,206) (8,578,561) Increase in Life Insurance Fund (1,729,110) (1,845,200) (1,889,014) (1,302,334) (6,765,658) Cost of sales of subsidiaries (108,370) (129,118) (123,297) (166,733) (527,518) Acquisition cost (Net) (531,757) (546,000) (513,730) (450,588) (2,042,075) Other operating and administrative expenses (1,505,078) (1,817,602) (1,761,597) (1,500,297) (6,584,574) Finance cost (27,562) 19,893 (45,163) (2,894) (55,726) Total benefits, claims and other expenses (5,821,558) (6,134,473) (6,483,029) (6,115,052) (24,554,112) Profit before share of an associate 257,246 137,730 192,455 1,554,548 2,141,979 Share of profit of an associate 56,662 45,288 33,241 45,303 180,494 Profit before tax 313,908 183,018 225,696 1,599,851 2,322,473 Income tax expense (40,456) (27,877) (35,414) (124,047) (227,794) Profit for the year 273,452 155,141 190,282 1,475,804 2,094,679

Company Statement of Income (values are to the nearest rupees thousand) 1st quarter 2nd quarter 3 rd quarter 4th quarter Total Jan- Mar.12 Apr- Jun.12 Jul- Sep.12 Oct- Dec.12 Jan- Dec.12 Gross written premiums 5,352,437 5,125,084 5,579,219 5,866,313 21,923,053 Premiums ceded to reinsurers (582,222) (508,242) (703,143) (705,297) (2,498,904) Net written premiums 4,770,215 4,616,842 4,876,076 5,161,016 19,424,149 Net change in Reserve for unearned premium (293,640) 33,663 (117,324) 151,370 (225,931) Net Earned premium 4,476,575 4,650,505 4,758,752 5,312,386 19,198,218 4,476,575 4,650,505 4,758,752 5,312,386 19,198,218 Investment income 1,038,479 1,103,166 1,389,964 1,923,213 5,454,822 Other Income 66,904 34,995 55,345 (112,814) 44,430 Other revenue 1,105,383 1,138,161 1,445,309 1,810,399 5,499,252 Net benefits and claims (1,915,523) (1,814,723) (2,146,758) (2,670,305) (8,547,309) Increase in Life Insurance Fund (1,729,110) (1,845,200) (1,889,014) (1,302,334) (6,765,658) Acquisition cost (Net) (537,965) (554,015) (520,586) (461,858) (2,074,424) Other operating and administrative expenses (1,253,659) (1,529,654) (1,520,572) (1,193,960) (5,497,845) Finance cost (10,053) (8,068) (8,136) 17,121 (9,136) Total benefits, claims and other expenses (5,446,310) (5,751,660) (6,085,066) (5,611,336) (22,894,372) Profit before tax 135,648 37,006 118,995 1,511,449 1,803,098 Income tax expense (31,912) (18,633) (24,615) (74,689) (149,849) Profit for the year 103,736 18,373 94,380 1,436,760 1,653,249 CEYLINCO INSURANCE PLC Annual Report 2012 179

Quarterly Analysis 2011

Consolidated Statement of Income (values are to the nearest rupees thousand) 1st quarter 2nd quarter 3 rd quarter 4th quarter Total Jan- Mar.11 Apr- Jun.11 Jul- Sep.11 Oct- Dec.11 Jan- Dec.11 Gross written premiums 4,892,607 4,853,508 5,113,935 5,356,155 20,216,205 Premiums ceded to reinsurers (526,859) (531,321) (527,449) (718,805) (2,304,434) Net written premiums 4,365,748 4,322,187 4,586,486 4,637,350 17,911,771 Net change in Reserve for unearned premium (259,564) (926) (123,959) (70,069) (454,518) Net Earned premium 4,106,184 4,321,261 4,462,527 4,567,281 17,457,253 Revenue from Subsidiaries 156,462 87,899 55,069 215,491 514,921 4,262,646 4,409,160 4,517,596 4,782,772 17,972,174 Investment income 995,251 912,746 980,011 1,193,016 4,081,024 Other Income 56,498 30,991 96,681 313,093 497,263 Other revenue 1,051,749 943,737 1,076,692 1,506,109 4,578,287 Net benefits and claims (1,769,157) (1,907,486) (2,075,843) (1,679,103) (7,431,589) Increase in Life Insurance Fund (1,500,096) (1,641,896) (1,656,805) (1,536,535) (6,335,332) Cost of sales of subsidiaries (19,421) (16,962) (18,916) (72,510) (127,809) Acquisition cost (Net) (494,283) (490,970) (492,907) (345,732) (1,823,892) Other operating and administrative expenses (1,252,642) (1,207,265) (1,278,272) (1,484,169) (5,222,348) Finance cost (27,447) (12,234) (24,017) 20,995 (42,703) Total benefits, claims and other expenses (5,063,046) (5,276,813) (5,546,760) (5,097,054) (20,983,673) Profit before share of an associate 251,349 76,084 47,528 1,191,827 1,566,788 Share of profit of an associate 95,756 6,268 57,439 (48,274) 111,189 Profit before tax 347,105 82,352 104,967 1,143,553 1,677,977 Income tax expense (40,274) (27,501) (11,251) (61,121) (140,147) Profit for the year 306,831 54,851 93,716 1,082,432 1,537,830

Company Statement of Income (values are to the nearest rupees thousand) 1st quarter 2nd quarter 3 rd quarter 4th quarter Total Jan- Mar.11 Apr- Jun.11 Jul- Sep.11 Oct- Dec.11 Jan- Dec.11 Gross written premiums 4,829,291 4,769,671 5,057,454 5,218,701 19,875,117 Premiums ceded to reinsurers (487,410) (476,414) (493,558) (614,366) (2,071,748) Net written premiums 4,341,881 4,293,257 4,563,896 4,604,335 17,803,369 Net change in Reserve for unearned premium (248,019) 13,561 (124,613) (63,913) (422,984) Net Earned premium 4,093,862 4,306,818 4,439,283 4,540,422 17,380,385 Investment income 1,005,275 879,000 992,128 1,194,123 4,070,526 Other Income 53,509 63,064 77,337 301,935 495,845 Other revenue 1,058,784 942,064 1,069,465 1,496,058 4,566,371 Net benefits and claims (1,773,339) (1,901,516) (2,075,571) (1,671,614) (7,422,040) Increase in Life Insurance Fund (1,500,096) (1,641,896) (1,656,805) (1,536,535) (6,335,332) Acquisition cost (Net) (492,942) (495,300) (498,297) (343,112) (1,829,651) Other operating and administrative expenses (1,175,452) (1,136,222) (1,216,576) (1,347,550) (4,875,800) Finance cost (11,010) (5,526) (23,635) 10,280 (29,891) Total benefits, claims and other expenses (4,952,839) (5,180,460) (5,470,884) (4,888,531) (20,492,714) Profit before tax 199,807 68,422 37,864 1,147,949 1,454,042 Income tax expense (39,283) (24,932) (10,073) (44,259) (118,547) Profit for the year 160,524 43,490 27,791 1,103,690 1,335,495 CEYLINCO INSURANCE PLC 180 Annual Report 2012

Ten Year Summary 00 469 90,000 ,885,769 1,281,493 7,782,234 7,782,234 9,282,918 9,158,469 1 12,912,039 789 607,378 0,581 9,282,918 76,026 11,556,013 697,658 697,658 1,346,141 1,063,365 856,398 2,312,866 1,867,801 4,374,778 1,598,980 47 10,044,792 8,675,540 47 10,044,792 8,675,540 ,723 17,785,641 12,912,039

Note: Financial information for the years 2011 and 2012 are based on LKAS/SLFRS and balance years are based on SLAS. are based on SLAS. and balance years 2011 and 2012 are based on LKAS/SLFRS the years for Note: Financial information 2011 and 2012.. the years for include financial instruments Investments Number of employees Number of employees Nos. 3,321 3,067 3,744 3,649 3,645 3,360 3,015 2,617 2,217 2,087 Net profit per employee Net profit per employee Rs.'000 699.329 547.107 301,988 241.950 179.628 310,577 274,540 238.286 173.560 127.935 Revenue per employee per employee Revenue Rs.Mn 8.165 7.478 5,415 5.331 5.514 4.942 4.712 4.417 3.879 3.100 Employee Information Information Employee Dividend per share Rs. 12.50 6.50 5.50 5.00 3.00 3.00 2.50 2.70 2.00 2.00 Market capitalisation Rs.Mn 19,238 17,134 9,352 5,261 4,930 3,700 3,350 1500 798 590.40 Price earnings (times) - Non Voting Price earnings (times) - Non Voting Rs. 4.47 6.01 7.42 5.17 6.84 - - - - - Non -Voting Earnings per share Price earnings (times) - Voting Rs. Rs. 11.58 330.50 13.08 73.94 343.00 57.09 10.47 270.00 36.41 8.48 134.25 25.96 9.43 145.00 21.21 3.64 - 50.78 4.09 - 40.93 2.41 31.18 - 2.08 19.24 - 2.65 13.38 - Market price per share 31st December Voting Rs. 855.90 746.70 381.00 220.00 200.00 185.00 167.50 75.00 40.00 35.5 Investor Information (%) on net assets Return per share (Rs.) Net assets 16.75 525.04 450.98 14.09 309.47 13.76 262.62 12.84 237.84 10.42 225.27 23.16 177.2 23.32 138.92 22.57 85.06 22.54 80.94 19.80 Total Liabilities Total 52,891,651 48,694,628 37,001,800 30,643,765 25,031,117 19,385,321 16,235,632 13,614,690 10,92 Unit linked Fund Unit linked Fund and Other Liabilities Equity 7,623,205 10,344,494 157,657 5,018,390 146,659 4,091,127 115,269 3,628,724 102,671 2,480,438 2,319,967 101,428 1,715,043 69,829 875, 18,254 - - - Liabilities Insurance provision - Life 45,110,789 38,203,473 31,868,141 26,449,967 21,300,965 16,835,054 13,897,411 11,899,6 Total Assets Total 52,891,651 48,694,628 37,001,800 30,643,765 25,031,117 19,385,321 16,235,632 13,614,690 10,920,581 Other assets Other assets 4,771,500 4,845,898 3,991,859 4,383,642 3,041,298 2,203,246 1,328,237 976,758 874,831 644,286 Investments Investments 44,198,752 40,410,190 29,836,507 23,361,974 19,421,328 14,893,802 13,018,389 11,143,958 8,982,385 Property, plant and equipment Property, 3,906,294 3,396,144 3,090,739 2,763,072 2,414,207 2,197,883 1,782,929 1,493,974 Long Term - Supplemental Long Term Assets Intangible Assets 15,105 42,396 82,695 135,077 154,284 90,390 106,077 - - - Equity and liabilities Total 73,088,476 66,050,505 51,744,968 43,413,858 40,107,053 32,366,724 26,711,940 22,137 Liabilities Total 58,654,985 53,677,758 43,418,342 36,453,652 33,786,880 27,821,693 23,131,842 19,340,447 16,0 Other Liabilities 5,633,158 8,219,881 4,825,736 3,823,922 6,154,833 4,905,160 3,740,463 3,600,272 1,656,456 Unit Linked Fund Unit Linked Fund Insurance provision - Non- Life 7,753,381 7,107,745 157,657 6,609,196 146,659 6,077,091 6,229,654 115,269 6,011,650 102,671 5,475,714 101,428 3,840,528 69,829 18,254 Minority interest Minority interest Liabilities Insurance provision - Life 45,110,789 564,737 38,203,473 31,868,141 460,473 26,449,967 152,070 21,300,965 16,835,054 85,680 13,897,411 37,713 11,899,6 39,670 36,129 18,928 11,957 9,885 Retained Reserves Retained reserveRevaluation capital and reserve Total 13,868,754 2,375,781 2,137,318 11,912,274 2,506,812 2,149,541 8,174,556 2,364,215 1,344,336 6,874,506 2,007,437 828,560 6,282,460 2,007,437 4,505,361 828,560 2,007,437 3,543,969 1,507,437 574,458 2,778,348 1,108,839 578,708 1, 758,839 578,971 7 80,672 80,672 Retained earnings Retained 8,030,833 5,931,099 3,141,183 2,713,687 2,121,641 1,721,178 1,255,536 888,250 658,563 295, Equity and Liabilities Issued share capital 1,324,822 1,324,822 1,324,822 1,324,822 1,324,822 202,288 202,288 202,288 199,584 180,0 Total Assets Total 73,088,476 66,050,505 51,744,968 43,413,858 40,107,052 32,366,723 26,711,943 22,137,724 17,785,64 Other assets Other assets 12,189,006 10,935,986 10,345,841 10,507,756 9,582,762 7,975,817 6,352,847 4,256,005 4,362,391 1 Investments Investments 52,071,307 47,646,298 34,312,558 26,587,015 24,175,139 18,941,220 16,261,196 14,593,030 11,110,384 Statement of Financial Position the nearest rupees thousand) (values are to plant and equipment Property, 8,751,457 2011 2012 7,394,394 2010 2009 2008 2006 2007 2004 2003 2005 6,995,865 6,183,990 6,194,867 5,359,296 3,991,823 3,288,689 Group Assets Intangible Assets 76,706 73,827 90,704 135,077 154,284 90,390 106,077 CEYLINCO INSURANCE PLC Annual Report 2012 181 2 6,202 5,352 16,105 469,199 2,286,423 2,957,424 (1,312,831) 90 3,042,654 548 160,092 ,293 128,371 0,641 3,721,207 08,332 5,243,847 9,542,031 6,763,861 (1,550,546) (866,841) (1,550,546) 845,894 1,099,984 854,855) (1,369,252) (1,804,375) ,893,137) (5,989,448) (4,518,672) (1,615,387) (1,180,471) (859,044) (1,354,774) (966,371) (797,362) 7) (3,003,620) (2,181,924) (1,674,325) 4) (497,347) (241,443) (70,561) ,339) (747,423) (642,101) (460,459) Profit for the year the year Profit for 2,094,679 1,537,830 1,001,614 694,476 485,315 1,013,199 826,496 623,816 381,938 266,463 Income Tax Expenses Expenses Income Tax (227,794) (140,147) (129,030) (188,401) (169,430) (30,339) - - (751) (9) Profit before Taxation Taxation Profit before 2,322,473 1,677,977 1,130,644 882,877 654,745 1,043,538 826,496 623,816 382,689 266,47 Income from Associates Income from Associates 180,494 111,189 70,945 26,138 11,452 2,816 12,924 7,130 (2,548) 23,736 Interest Expenses Expenses Interest (55,726) (42,704) (92,112) (93,597) (99,583) (82,078) (36,506) (47,179) (43,189) (33,466) Operating profit expenses interest before 2,197,705 1,609,492 1,151,811 950,336 742,876 1,122,800 850,078 663,865 428,426 27 Operating and administrative expenses (9,045,433) (7,429,293) (4,989,690) (4,994,844) (6,205,001) (4,784,789) (3,853,41 Benefit losses and expenses Other revenue (15,871,737) (13,894,730) (14,063,375) (13,360,812) (13,096,401) 7,792,383 (10,695,940) 5,476,262 (9,504,502) 4,274,722 (7 4,130,665 3,463,427 2,137,152 1,680,373 1,361,544 1,091,466 1,22 Net earned Premium 19,322,492 17,457,253 15,930,153 15,175,328 16,580,852 14,466,377 12,527,623 10,199,078 7,5 Revenue Revenue 27,114,875 22,933,515 20,272,380 19,369,887 20,098,842 16,603,530 14,207,996 11,560,622 8,599,798 6, Business ( Group) Total Gross written premium 22,636,715 20,216,205 18,020,408 16,675,601 20,087,177 17,536,819 15,279,136 12,826,843 Operating profit before Interest Expenses Interest Expenses Operating profit before 1,003,805 804,080 601,823 495,766 449,613 400,397 294,414 216,448 169 Operating & Administrative expenses (2,213,918) (2,163,561) (2,217,267) (2,056,891) (2,517,582) (2,043,840) (1,635,423) Increase in Life Insurance fund Increase in Life (6,765,658) (6,335,332) (5,418,174) (4,417,313) (4,374,916) (2,933,386) (1,991,776) (1, Commission (net of reinsurance commission) (1,356,742) (1,237,818) (1,171,497) (1,079,487) (1,244,224) (1,036,412) (795 Net claims and benefit (3,990,881) (2,946,295) (2,685,361) (2,698,277) (2,113,092) (1,762,458) (1,946,001) (1,452,636) Investment income and other 4,754,938 3,889,608 3,454,269 3,352,433 2,639,208 1,526,900 1,200,559 972,481 premium Net written 10,576,066 9,597,478 8,639,853 7,395,301 8,060,219 6,649,593 5,462,394 4,653,655 3,851,669 Life Gross written Premium 10,829,470 9,833,905 8,786,121 7,522,328 8,257,279 6,847,185 5,717,887 4,793,650 3,961,3 Operating profit before Interest Expenses Interest Expenses Operating profit before 808,430 679,853 370,341 378,425 337,265 726,991 547,760 441,885 277, Acquisition Expenses (net of reinsurance commission) Acquisition Expenses Operating & Administrative expenses (709,502) (589,533) (478,770) (3,283,926) (511,595) (2,712,239) (2,498,266) (581,211) (2,607,201) (565,862) (3,366,099) (537,21 (2,607,414) (2,157,533) Investment income and other Net claims 736,134 674,463 438,080 (4,556,428) 482,853 (4,475,745) 606,068 (4,339,864) (4,677,027) 510,173 (4,766,689) 397,912 (4,380,504) (4,220,634) 316,062 (3,306,866) 215,988 (2,173,189) 1 Net earned premium 8,622,152 7,782,907 7,249,160 7,691,395 8,445,196 7,770,598 7,065,229 5,545,423 3,656,663 Statement of Comprehensive Income the nearest rupees thousand) (values are to Premium Gross written 11,093,583 2012 2011 2010 2009 2008 2007 2006 10,041,212 2004 2003 2005 9,224,608 9,081,297 11,287,233 10,350,684 9,561,249 8,033,193 5,58 Group Non- Life CEYLINCO INSURANCE PLC 182 Annual Report 2012

Notice of Meeting

Notice is hereby given that the Twenty Sixth ∫ To re-elect Mr. Juvanel Godwin Peter Note : Annual General Meeting of the Shareholders Perera, who retires at the Annual General Any shareholder unable to attend the of the Company will be held on Tuesday, Meeting as a Director, in terms of Section Meeting may appoint another to attend 09th. April, 2013 at 10.30 a.m. at the “Raja 210 of the Companies Act No. 07 of and vote for him and such proxy need not Bojun” Restaurant, Seylan Towers, No. 90, 2007. Special Notice having been given be a shareholder of the Company. Galle Road, Colombo 3 and the business to be pursuant to Sections 210 and 211 of A Form of Proxy is attached to the brought before the meeting will be : the Companies Act No. 07 of 2007 of Report. The completed Form of Proxy the intention to propose the following should be deposited at the Head Office ∫ To read the Notice convening the Meeting. resolution as an ordinary resolution : of the Company at 5th. Floor - “Ceylinco House”, 69, Janadhipathi Mawatha, ∫ Chairman’s Address. “Resolved that Mr. Juvanel Godwin Peter Colombo 1, before 10.30 a.m. on 07th. Perera who will be 76 years in December, ∫ Address by the Joint Managing Directors. April, 2013. 2013 be re-elected as a Director of the ∫ To receive, consider and adopt the Company and it is specifically declared Shareholders/Proxyholders should bring Report of the Directors and the Financial that the age limit specified in Section 210 with them their National Identity Card Statements for the year ended 31st. of the Companies Act No. 07 of 2007 shall or any form of valid identification when December, 2012 and the Report of the not apply to Mr. Juvanel Godwin Peter attending the meeting. Auditors thereon. Perera.” It is proposed to post ordinary dividend ∫ To declare a Dividend for the year ended ∫ To authorise the Directors to determine warrants on 19th. April, 2013 and 31st. December, 2012. payments for charitable purposes for the in accordance with the rules of the year 2013. Colombo Stock Exchange, the shares of ∫ To re-elect Dr. Watuthanthrige Chakrine the Company will be quoted ex-dividend Jagath Alwis, who retires by rotation at ∫ To re-appoint Auditors and authorise the with effect from 10th. April, 2013. the Annual General Meeting in terms of Board of Directors to determine their Article 95, as a Director. remuneration.

∫ To re-elect Mr. Don Herschel Jayaprithi ∫ To transact any other business of which Gunawardena, who retires by rotation at due notice shall be given. the Annual General Meeting in terms of Article 95, as a Director.

∫ To re-elect Mr. Palitha Abeysekera By Order of the Board Jayawardena, who retires by rotation at the Annual General Meeting in terms of Article 95, as a Director.

∫ To re-elect Mr. Denagama Witharana (Mrs.) Thushara N. Jasenthuliyana Patabandige Upali, who retires by rotation Company Secretary / Senior Assistant at the Annual General Meeting in terms of General Manager Article 95, as a Director. 28th. February, 2013 CEYLINCO INSURANCE PLC Annual Report 2012 183

Glossary of Financial & Insurance Terms

1 Acquisition Expenses - Long Term fixed period if less. If the payment 12 Claims Outstanding - Long Term Insurance starts at the outset of the contract,it Insurance is an immediate annuity. If it starts All expenses which vary with and are The amounts provided to cover the at some point in the future, it is a primarily related to, the acquisition of estimated ultimate cost of settling deferred annuity. new insurance contracts. claims arising out of events which have been notified by the Balance 7 Beneficiary 2 Acquisition Expenses - General Sheet date, being sums due to All expenses which vary with and are The person or financial institution (for beneficiaries together with claims primarily related to the acquisition e.g. a trust fund) named in the policy handling expenses, less amounts of new insurance contracts and as the recipient of insurance money already paid in respect of those the renewal of existing insurance in the event of the policyholder’s claims. contracts. death. 13 Commission 8 Bonus 3 Actuary Remuneration to an intermediary for An expert concerned with the Bonus is a method of distribution of services such as selling and servicing application of probability and surplus amongst the participating an insurer’s products.This is one statistical theory to problems of policyholders of a Life Insurance component of acquisition expenses. insurance, investment, financial Company. A bonus is an enhancement (No.1 and No.2) management and demography. to the basic sum assured under a contract and is declared as a 14 Deferred Acquisition Expenses 4 Actuarial Valuation percentage of the sum assured. / Deferred Acquisition Expense A determination by an actuary at a Reserve 9 Claims specific date of the value of a life Expenses which vary with and are The amount payable under a insurance Company’s assets and its primarily related to the acquisition of contract of insurance arising from liabilities. The purpose of a valuation new insurance contracts and renewal occurrence of an insured event such is to ensure that the Company of existing contracts, which are as destruction or damage of property holds adequate assets to fund the deferred as they relate to a period of and related death or injuries, the Company’s liabilities. risk subsequent to the Balance Sheet incurring of hospital or medicall bills, date. 5 Admissible Assets death or disability of the insured and Assets that are included in gratuity claims. 15 Dividend Cover determining an insurer’s statutory Profits after tax divided by Dividend 10 Claims Incurred solvency margin, specified under the measures the number of times The aggregate of all claims paid rules made by the Insurance Board dividends are covered by distributable during the accounting period together of Sri Lanka under the regulation of profits for the period. Insurance Industry Act No. 43 of 2000 with attributable claims handling (No 50 and No. 51) expenses, where appropriate, 16 Earned Premium adjusted by the gross claims reserve Written premium (No.56) adjusted 6 Annuity (No.18) at the beginning and end of by the unearned premium reserve the accounting period. A series of regular payments. (No.55) at the beginning and end of Annuities include annuities, where the accounting period. payments are made at definite 11 Claims Incurred But not Reported (IBNR) times and life annuities where 17 Earnings Per Share payments depend on the survival A Reserve to cover the expected cost Net Profits of the Company after tax of an annuitant. A life Annuity is a of losses that have occurred by the divided by the Number of Ordinary contract that provides a regular Balance Sheet date but have not yet shares in issue. payment, typically monthly, during been reported to the insurer. the life time of the policyholder or a CEYLINCO INSURANCE PLC 184 Annual Report 2012

Glossary of Financial & Insurance Terms

18 Gross Claims Reserve - General 24 Interim Payments (e.g. commissions, taxes, staff, selling The amount provided, including Periodic payments to the and operating expenses). claims incurred but not reported policyholders on a specific type of Formula : (No.11) and claims handling policy. expenses, to cover the estimated Reinsurance commission ultimate cost, arising out of events 25 Life Surplus (net of acquisition expenses) occurred by the end of the accounting The excess of the assets over the and expenses excluding period, less amounts already paid in liabilities as determined by the non technical expenses respect of those claims. actuary and after the distribution of dividends to policyholders. Net Earned Premium 19 Gross Written Premium - Life Premium to which the insurer is 26 Lapsed Policy 33 Net Loss Ratio - Non Life A formula used by insurers to relate contractually entitled and receivable A policy terminated at the end of net claims incurred (No.36) to net in the accounting period. the grace period because of non - earned premium (i.e. after deducting payment of premiums. 20 Gross Written Premium - General relevant reinsurances) Premium which an insurer is 27 Long Term Insurance Formula: contractually entitled to receive from Commonly referred to life insurance Net claims incurred the insured in relation to contracts of contracts, as opposed to annual Non Net earned Premium insurance. - Life insurance policies. 34 Net Assets Per Share 21 Insurance 28 Market Capitalisation Net assets attributable to Insurance is a contract whereby Number of shares in issue multiplied Shareholders’ equity divided by one party the insurer, in return for by the market value of each share as the number of Ordinary shares a consideration i.e, the premium, at the Balance Sheet date. issued. undertakes to pay to the other party - the insured, a sum of money 29 Maturity 35 Net Written Premium or its equivalent in kind, upon the The time at which payment of the happening of a specified event that Gross Written Premium (No.19 and sum insured under a Life Insurance is contrary to the interest of the No.20) less reinsurance payable policy falls due at the end of its term. insured. (No.42) 30 Net Combined Ratio - General 22 Insurance Provision - General 36 Net Claims Incurred This ratio indicates the profitability of This comprises of the gross claims Claims incurred (No.10) less the insurer’s operations by combining reserve (No.18), unearned premium reinsurance recoveries. the net loss ratio (No. 33) with net reserve (No.55) net of re-insurance expense ratio. and the deferred acquisition 37 Non Life Insurance expenses 31 Net Earned Premium Non Life Insurance and General Insurance have the identical meaning. 23 Insurance Provision - Long Term Gross Written Premium adjusted for the reinsurance incurred and for the The funds or funds to be maintained 38 Policy increase or decrease in Unearned by an insurer in respect of its The printed document issued to the Premium (No. 55) Long Term insurance business in policyholder by the Company stating accordance with the Regulation of 32 Net Expense Ratio - General the terms of the insurance contract. Insurance Industry Act. A formula used by insurance companies to relate to income to acquisition and administrative CEYLINCO INSURANCE PLC Annual Report 2012 185

39 Policy Loan 46 Segment (a) Rs.50 Million; or Under an insurance policy, the Constituent business units grouped (b) A sum equivalent to 20% of Net amount that can be borrowed at a in terms of nature and similarity of written premium; or specific rate of interest from the operations. (c) A sum equivalent to 40% of the issuing Company by the policyholder, average net outstanding claims who used the value of the policy as 47 Return on Shareholders’ for the three years immediately collateral for the loan. In the event Equity preceeding the current year. the policyholder dies with the debt Profits after tax divided by the Capital partially or fully unpaid, the insurance employed as at Balance Sheet date. 53 Surplus company deducts the amount This is the excess of assets held by borrowed, plus any accumulated 48 Return on Total Assets interest, from the amount the Company after deducting the Profits after Tax divided by Total payable. actuarial liability and the provision for assets attributable to Shareholders. margin of solvency as determined by 40 Price Earning Ratio the actuary at the actuarial valuation. 49 Revenue Reserve Market Price of a share divided by An account which shows a financial 54 Surrender earnings per share. summary of the insurance related The amounts refundable to Life revenue transactions for the 41 Premium policyholders when they terminate accounting period. their insurance contracts after a The payment of one of the regular specific period. periodic payments that a policyholder 50 Rider makes to own an insurance policy. An amendment to an insurance policy 55 Underwriting Result that modifies the policy by expanding 42 Reinstatement This is the profit generated purely or restricting its benefits or excluding from the Non life Insurance business The restoration of a lapsed policy to certain conditions from coverage. without taking into account the full force and effect. The Company investment income and other non- requires evidence of insurability and 51 Solvency Margin - Life technical income and expenses. payment of past due premiums plus The difference between the value of interest. assets and the value of liabilities, 56 Unearned Premium / Unearned required to be maintained by the 43 Reinsurance Premium Reserve insurer who carries on Long Term It represents the portion of premium A method of insurance arranged by insurance business as defined in the already entered in the accounts as insurers to share the exposure of Regulation of Insurance Industry Act due but which relates to a period of risks accepted. No.43 of 2000. risk subsequent to the Balance Sheet date. 44 Reinsurance Commission 52 Solvency Margin - Non Life Commission received or receivable in The solvency margin is the difference 57 Written Premium respect of premium paid or payable between the value of the admissible Total premium received or due from to a reinsurer. assets and the value of the liabilities, all sources, including premiums required to be maintained by any for reinsurance assumed, during a 45 Reinsurance Premium insurer who carries on general period. The premium payable to the insurance business. The minimum reinsurer. solvency margin shall not be less than the highest of the following. CEYLINCO INSURANCE PLC 186 Annual Report 2012

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