People's Insurance Limited Prospectus

PEOPLE’S INSURANCE LIMITED

PROSPECTUS

INVITATION TO INVEST IN THE INITIAL PUBLIC OFFERING OF PEOPLE’S INSURANCE LIMITED THROUGH AN OFFER FOR SUBSCRIPTION OF FIFTY MILLION (50,000,000) NEW ORDINARY SHARES AT LKR 15/- PER SHARE

Joint Financial Advisors and Managers to the Issue

INVESTMENT BANKING UNIT

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All resident Applicants should indicate in the Application for Shares, their NIC number or the company registration number as the case may be, the passport number may be indicated only if the Applicant does not have an NIC number.

As per the Directive of the Securities and Exchange Commission made under Circular No. 08/2010 dated November 22, 2010 and Circular No. 13/2010 issued by the Central Depository System (Private) Limited (CDS) dated November 30, 2010, all Shares allotted must be directly uploaded to the CDS accounts. As such, all Applicants should indicate their CDS account number in the Application Form. Applicants who do not have a CDS account are advised to open a valid CDS account prior to submitting the Application, in order to facilitate the uploading of allotted Shares to their CDS account.

Please note that upon the allotment of Shares under this Offer, the allotted Shares would be credited to the Applicant’s CDS account so indicated. Please note that SHARE CERTIFICATES SHALL NOT BE ISSUED.

Any Application which does not carry a valid CDS account number or indicates a number of a CDS account which is not opened at the time of closure of the subscription list or which indicates an inaccurate/incorrect CDS account number, shall be rejected and no allotment will be made.

You can open a CDS account through any member/trading member of the Colombo Stock Exchange (CSE) as set out in Annexure F or through any Custodian Bank as set out in Annexure G of this Prospectus.

People’s Insurance Limited (hereinafter referred to as “People’s Insurance”, “PIL” or “Company”) intends to meet the minimum Public Holding requirement set out in Rule 2.1.2(d) of the CSE Listing Rules which stipulates that 25% of the total number of shares for which a listing is sought to be in the hands of a minimum number of 1,000 public shareholders, holding not less than 100 shares each, on the completion of the Issue pursuant to which the listing of the entire Ordinary Shares of the Company will take place on the ‘Main Board’ of the CSE.

However, in the event where the Company is unable to meet the aforementioned minimum Public Holding requirement, the Company would alternatively opt for a listing on the ‘Diri Savi’ Board of the CSE, subject to meeting the minimum public holding requirement set out in Rule 2.1.3(c) of the CSE Listing Rules which stipulates that 10% of the total number of shares for which a listing is sought should be in the hands of a minimum number of 200 public shareholders as morefully detailed in Section 3.6 – “Listing” of this Prospectus.

The delivery of this Prospectus shall not under any circumstance constitute a representation or create any implication or suggestion that there has been no material change in the affairs of the Company since the date of this Prospectus. Any materials changes in the affairs of the Company will be notified via an addendum.

If you are in doubt regarding the contents of this document or if you require any advice in this regard, you should consult your Stockbroker, Bank Manager, Lawyer or any other professional advisor.

This Prospectus is dated November 30, 2015

People’s Insurance Limited - Initial Public Offering | i The Colombo Stock Exchange (“CSE”) has taken reasonable care to ensure full and fair disclosure of information in this Prospectus. However, the CSE assumes no responsibility for the accuracy of the statements made, opinions expressed or reports included in the Prospectus. Moreover, the CSE does not regulate the pricing of the shares, which is decided solely by the Company.

This Prospectus has been prepared from the information provided by PIL and its Directors and/or from publicly available sources. The Company and its Directors having made all reasonable inquiries, confirm that to the best of their knowledge and belief, the information contained herein is true and correct in all material respects and that there are no other material facts, the omission of which would make any statement herein misleading.

Where representations regarding the future performance of People’s Insurance have been given in this Prospectus, such representations have been made after due and careful enquiry of the information available to the Company and making assumptions that are considered to be reasonable at the present point in time in their best judgment.

The Company accepts responsibility for the information contained in this Prospectus. While the Company has taken reasonable care to ensure full and fair disclosure of information, prospective investors are advised to carefully read this Prospectus and rely on their own examination and assessment of the Company including the risks involved prior to making any investment decision.

No person is authorised to give any information or make any representation not contained in this Prospectus and if given or made, any such information or representation must not be relied upon as having been authorised by the Company.

ii | People’s Insurance Limited - Initial Public Offering REGISTRATION OF THE PROSPECTUS

A copy of this Prospectus has been delivered to the Registrar General of Companies in Sri Lanka for registration. The following documents were also attached to the copy of the Prospectus delivered to the Registrar General of Companies.

. The written consent of the Joint Financial Advisors and Managers to the Issue

The Joint Managers to the Issue have given and have not before the delivery of a copy of the Prospectus for registration withdrawn their written consent for the inclusion of their name as Joint Financial Advisors and Managers to the Issue and for the inclusion of the research report in the form in which it is included in the Prospectus.

. The written consent of the Registrars to the Issue

The Registrars to the Issue have given and have not before the delivery of a copy of the Prospectus for registration withdrawn their written consent for the inclusion of their name as Registrars to the Issue in the Prospectus.

. The written consent of the Auditors and Reporting Accountants to the Company and to the Issue

The Auditors and Reporting Accountants to the Company have given and have not before the delivery of a copy of the Prospectus for registration withdrawn their written consent for the inclusion of their name as Auditors and Reporting Accountants to the Company and to the Issue and for the inclusion of their report in the form and context in which it is included in the Prospectus.

. The written consent of the Lawyers to the Issue

The Lawyers to the Issue have given and have not before the delivery of a copy of the Prospectus for registration withdrawn their written consent for the inclusion of their name as Lawyers to the Issue in the Prospectus.

. The written consent of the Bankers to the Company and the Issue

The Bankers to the Company and the Issue have given and have not before the delivery of a copy of the Prospectus for registration withdrawn their written consent for the inclusion of their names as Bankers to the Company and the Issue in the Prospectus.

. The written consent of the Company Secretary

The Company Secretary has given and has not before the delivery of a copy of the Prospectus for registration withdrawn his written consent for the inclusion of his name as Company Secretary in the Prospectus.

A declaration made by each of the Directors of the Company confirming that each of them have read the provisions of the Companies Act relating to the issue of the Prospectus and that those provisions have been complied with.

People’s Insurance Limited - Initial Public Offering | iii

Registration of the Prospectus in Jurisdictions Outside of Sri Lanka

This Prospectus has not been registered with any authority outside of Sri Lanka. Non-resident investors may be affected by the laws of the jurisdictions of their residence. Such investors are responsible to comply with the laws relevant to the country of residence and the laws of Sri Lanka, when making their investment.

Representation

Forward Looking Statements

Any statements included in this Prospectus that are not statements of historical fact constitute “Forward Looking Statements”. These can be identified by the use of forward looking terms such as “expect”, “anticipate”, “intend”, “may”, “plan to”, “believe”, “could” and similar terms or variations of such terms. However, these words are not the exclusive means of identifying Forward Looking Statements. As such, all statements pertaining to expected financial position, business strategy, plans and prospects of the Company are classified as Forward Looking Statements.

Such Forward Looking Statements involve known and unknown risks, uncertainties and other factors including but not limited to regulatory changes in the sectors in which the Company operates and its ability to respond to them, the Company’s ability to successfully adapt to technological changes, exposure to market risks, general economic and fiscal policies of Sri Lanka, inflationary pressures, the performance of financial markets both globally and locally, changes in domestic and foreign laws, regulation of taxes and changes in competition in the industry and further uncertainties that may or may not be in the control of the Company.

Such factors may cause actual results, performance and achievements to materially differ from any future results, performance or achievements expressed or implied by Forward Looking Statements herein. Forward Looking Statements are also based on numerous assumptions regarding the Company’s present and future business strategies and the environment in which the Company will operate in the future.

Given the risks and uncertainties that may cause the Company’s actual future results, performance or achievements to materially differ from that expected, expressed or implied by Forward Looking Statements in this Prospectus, investors are advised not to place sole reliance on such statements.

Investment Considerations

It is important that this Prospectus is read carefully prior to making an investment decision. For information concerning certain risk factors, which should be considered by prospective investors, see “Investment Considerations and Associated Risk Factors” in Section 11.0 of this Prospectus.

iv | People’s Insurance Limited - Initial Public Offering

Presentation of Currency Information and Other Numerical Data

The financial statements of the Company and currency values of economic data or industry data in a local context will be expressed in Sri Lanka Rupees. References in the Prospectus to “LKR”, “Rupees”, and “Rs.” are references to the lawful currency of Sri Lanka. Reference to “USD” is with reference to United States Dollars, the official currency of the United States of America.

Certain numerical figures in the Prospectus have been subject to rounding adjustments; accordingly, numerical figures shown as totals in certain tables may not be an arithmetic aggregation of the figures that precede them.

Presentation of Macroeconomic and Industry Data

Economic and industry data used throughout this Prospectus are derived from the Central Bank of Sri Lanka (CBSL), Insurance Board of Sri Lanka (IBSL) and various other industry data sources, which the Company believes to be reliable, but the accuracy and completeness of that information is not guaranteed. Similarly, industry surveys and other publications, while believed to be reliable, have not been independently verified and neither the Company nor the Joint Managers to the Issue make any representation as to the accuracy of that information.

People’s Insurance Limited - Initial Public Offering | v TABLE OF CONTENTS

SALIENT FEATURES OF THE ISSUE AT A GLANCE ...... 1 DEFINITIONS/INTERPRETATIONS ...... 2 1 .0 CORPORATE INFORMATION ...... 5 2 .0 RELEVANT PARTIES TO THE ISSUE ...... 6 3 .0 DETAILS OF THE ISSUE ...... 7 3.1 The issue ...... 7 3.2 Nature of the new shares ...... 7 3.3 Size of the issue ...... 7 3.4 Share issue price ...... 7 3.5 Purpose of listing and objectives of the issue ...... 10 3.6 Listing ...... 12. 3.7 Cost of the issue ...... 12 3.8 Brokerage ...... 13 3.9 Minimum subscription and underwriting ...... 13 3.10 Opening of subscription list and issue closing date ...... 13 3.11 Inspection of documents ...... 13 4 .0 PROCEDURE FOR APPLICATION ...... 15 4.1 Eligible applicants ...... 15 4.2 The procedure for application ...... 15 4.3 Payment of application monies ...... 22 4.4 Rejection of applications ...... 25 4.5 Banking of payments ...... 26 4.6 Returning of monies on rejected applications ...... 26 4.7 Basis of allotment ...... 27 4.8 Refunds on applications ...... 28 4.9 Successful applicants and cds lodgement ...... 29 4.10 Declaration to the cse and secondary market trading ...... 30 5 .0 BUSINESS OPERATIONS OF PEOPLE’S INSURANCE LIMITED ...... 31. 5.1 Overview of people’s insurance ...... 31 5.2 Products offered ...... 32 5.3 Customer service ...... 34 5.4 Branch network ...... 34 5.5 Human resources ...... 35 5.6 Accolades and recognition ...... 35 5.7 Future direction of pil ...... 36 5.8 Assumptions relating to the future plans of pil ...... 37 6 .0 NON-LIFE INSURANCE SECTOR ...... 38 6.1 Overview of global non-life insurance sector ...... 38 6.2 Overview of sri lankan insurance sector ...... 41 6.3 Overview of sri lankan non-life insurance sector ...... 44 7 .0 CORPORATE STRUCTURE ...... 48 7.1 Board of directors ...... 48 7.2 Profiles of the board of directors ...... 48 7.3 Other directorships held by the board ...... 50 7.4 Directors’ interest in shares ...... 51 7.5 Corporate governance practices ...... 52 . 7.6 Senior management ...... 56 7.7 Statement – managing director ...... 57 vi | People’s Insurance Limited - Initial Public Offering 8 .0 OTHER INFORMATION ...... 58 8.1 Degree of dependence on customers, borrowers or suppliers ...... 58 8.2 Dividends ...... 58 8.3 Details of material indebtedness ...... 58 8.4 Working capital ...... 59 8.5 Litigation, disputes and contingent liabilities ...... 59 8.6 Management agreements ...... 60 8.7 Material contracts ...... 60 8.8 Details of commissions paid ...... 60 8.9 Details of benefits paid to promoters ...... 60 8.10 Details of transactions relating to property ...... 60 9 .0 CAPITAL STRUCTURE ...... 61 9.1 An overview of the capital structure ...... 61 9.2 Shareholding structure pre and post ipo ...... 61 9.3 Free transferability of shares ...... 63 9.4 Other securities ...... 64 9.5 Share re-purchases or redemptions ...... 64 9.6 Takeover offers ...... 64 10 .0 MANAGEMENT DISCUSSION AND ANALYSIS ...... 65 10.1 Summarised financials for the five years ended december 31, 2014 ...... 65 10.2 Operational review for the five year period ended december 31, 2014 ...... 65 10.3 Recent performance of pil ...... 71 11 .0 INVESTMENT CONSIDERATIONS AND ASSOCIATED RISK FACTORS ...... 73 11.1 Risks related to the insurance sector ...... 73 . 11.2 Risks related to the business operations ...... 73 11.3 Risks related to future plans ...... 75 11.4 Capital market related risks ...... 76 12 .0 TAXATION ...... 78 13 .0 STATUTORY DECLARATIONS ...... 80

ANNEXURE A: ACCOUNTANTS’ REPORT AND FIVE YEAR SUMMARY ...... 83. ANNEXURE B: INDEPENDENT AUDITORS’ REPORT AND AUDITED FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED DECEMBER 31, 2014 ...... 99 ANNEXURE C: INTERIM FINANCIAL STATEMENTS AND LIMITED REVIEW FOR THE PERIOD ENDED AUGUST 31, 2015 ...... 153 ANNEXURE D: INTERIM FINANCIAL STATEMENTS FOR THE PERIOD ENDED OCTOBER 31, 2015 ...... 167 ANNEXURE E: RESEARCH REPORT PUBLISHED BY JOINT FINANCIAL ADVISORS AND MANAGERS TO THE ISSUE TO ASCERTAIN THE VALUE OF PEOPLE’S INSURANCE LIMITED’S ORDINARY SHARES ...... 179 ANNEXURE F: COLLECTION POINTS ...... 199 ANNEXURE G: CUSTODIAN BANKS ...... 205

People’s Insurance Limited - Initial Public Offering | vii LIST OF FIGURES

Figure 5.1 - Pre-Ipo Group Structure ...... 31 Figure 5.2 - Branch Network ...... 34 Graph 6.1 - Non-Life Real Premium Growth By Region (2013 & 2014) ...... 38 Graph 6.2 - Gross Written Premium And Insurance Sector Penetration ...... 41 Graph 6.3 - Growth In Gross Written Premium By Class Of Insurance (2010 – 2014) ...... 44 Graph 6.4 - Breakup Of The Asset Base – Non-Life Insurance (2013-2014) ...... 46 Graph 10.1 - Pil’s Distribution Network Through Plf And People’s Bank ...... 66 Graph 10.2 - Segmental Breakdown Of Pil’s Gross Written Premium (2010 – 2014) ...... 67 Graph 10.3 - Market Share Of Non-Life Insurance Industry (2014) ...... 67 Graph 10.4 - Pil’s Financial Asset Composition Between 2010 And 2014 ...... 69 Graph 10.5 - Profit After Tax (Pat) From 2010 - 2014 ...... 70 .

LIST OF TABLES

Table 5.1 - Branch Distribution ...... 35 Table 5.2 - Carder Breakup ...... 35 Table 6.1 - Comparison Of The Insurance Industry Penetration Amongst Asian Emerging Peers ...... 42 Table 6.2 - Retention And Net Claims Ratios By Non-Life Insurance Category ...... 45 Table 7.1 - Details Of People’s Insurance Limited Board Of Directors ...... 48 Table 7.2 - Other Directorships ...... 50 Table 7.3 - Directors’ Shareholdings In Pil As At October 16, 2015 ...... 51 Table 7.4 - Composition Of The Board Of Directors ...... 52 Table 8.1 - Dividend History ...... 58 Table 8.2 - Leases, Lease Purchases, Hire Purchases And Capital Commitments As At October 31, 2015 ...... 59 Table 9.1 - Stated Capital Of People’s Insurance Limited ...... 61 Table 9.2 - Shareholding Structure – Pre And Post Ipo ...... 61 Table 9.3 - Shares Locked-In – Pre Ipo ...... 62 Table 9.4 - Shares Locked-In – Post Ipo ...... 62 Table 9.5 - Shareholders – Pre Ipo ...... 62 Table 10.1 - Summarised Audited Income Statements ...... 65 Table 10.2 - Summarised Audited Statements Of Financial Position ...... 65 Table 10.3 - Pil Vs. Industry Net Combined Ratio Comparison (2010 – 2014) ...... 68 Table 10.4 - Pil’s Solvency Ratio Between 2011 And 2014 ...... 70 . Table 10.5 - Comparison Of Pil’s Admissible Assets And Investments In Government Securities ...... 70 Table 10.6 - Pil’s Risk Based Car Between 2012 And 2015 ...... 71 Table 10.7 - Summarised Income Statements ...... 71 Table 10.8 - Summarised Statements Of Financial Position ...... 72

viii | People’s Insurance Limited - Initial Public Offering SALIENT FEATURES OF THE ISSUE AT A GLANCE

Issuer People’s Insurance Limited

Number and Type of Securities to be 50,000,000 new Ordinary Shares of the Company Issued

Share Issue Price LKR 15.00 per Share Amount to be Raised LKR 750,000,000 Minimum Subscription per Application Minimum subscription per Application is 100 New Shares (LKR 1,500). Applications exceeding the minimum subscription should be in multiples of 100 New Shares. The minimum subscription of 100 Shares will be allocated to each Applicant. Issue Opening Date December 16, 2015 Issue Closing Date January 07, 2016 or such earlier date on which the Issue of 50,000,000 New Shares is oversubscribed Refer Section 3.10 of this Prospectus for further details on the Issue Closing Date. Earliest Issue Closing Date December 16, 2015 Basis of Allotment As described in Section 4.7 of this Prospectus CSE Listing To be listed on the Main Board of the CSE subject to compliance with the minimum Public Holding requirement stipulated in Rule 2.1.2 (d) of the CSE Listing Rules and SEC Directives. In the event where such requirement is not met, the Company would seek a listing on the Diri Savi Board of the CSE, subject to meeting the minimum public holding requirement set out in Rule 2.1.3 (c) of the CSE Listing Rules.

People’s Insurance Limited - Initial Public Offering | 1

DEFINITIONS/INTERPRETATIONS

The following definitions/interpretations apply throughout this Prospectus, unless the context otherwise requires:

“Applicant/s” Any investor who submits an Application Form under this Prospectus “Application Form”, “Application” The application form that constitutes part of this Prospectus through which the investors may apply for the New Shares

“Articles of Association” Articles of Association of People’s Insurance Limited “Auditors and Reporting Ernst & Young Accountants to the Company and the Issue” “AWPLR” Last quoted Average Weighted Prime Lending Rate published by the Central Bank of Sri Lanka “Bn” Billion “bps” Basis Points “c.” Circa “CAGR” Cumulative Annual Growth Rate “CAR” Capital Adequacy Ratio “CBSL” Central Bank of Sri Lanka “CDS” Central Depository Systems (Private) Limited “Companies Act” Companies Act No. 07 of 2007 (as amended) “CSE” Colombo Stock Exchange “Directors” The Directors for the time being of the Company, unless otherwise stated “EPS” Earnings Per Share “ESC” Economic Service Charge “Foreign Investor” . Citizens of Sri Lanka who are resident outside Sri lanka and above 18 years of age; . Corporate bodies incorporated or established outside Sri lanka; . Foregin citizens above 18 years of age (irrespective of whether they are resident in Sri Lanka or overseas); . Regional and country funds approved by the SEC Please refer Section 4.1 for further information. “FY” Financial Year “GDP” Gross Domestic Product “GWP” Gross Written Premium “IBSL” Insurance Board of Sri Lanka “ICASL” Institute of Chartered Accountants of Sri Lanka “IMF” International Monetary Fund “IPO” Initial Public Offering “Issue Closing Date” The date of closure of the subscription list as set out in Section 3.10 of this Prospectus “Issue”, “Offer” An invitation to the public by the Company to subscribe to the Offered Shares to be issued via an offer for subscription as detailed in this Prospectus

2 | People’s Insurance Limited - Initial Public Offering

“Joint Financial Advisors and Acuity Partners (Private) Limited, NDB Investment Bank Limited and Managers to the Issue”, “Joint People’s Bank-Investment Banking Unit Managers to the Issue” “Lawyers to the Issue” F J & G De Saram “LKR”, “Rs.”, “Rupees” Sri Lanka Rupees “Local Time” Sri Lanka Time “Market Day” Any day on which the CSE is open for trading “MCR” Minimum Capital Requirement “Mn” Million “NAV” Net Asset Value “NBT” Nation Building Tax “New Shares”, “Offered Shares” Fifty Million (50,000,000) new Ordinary Shares to be issued by the Company to the public at the Share Issue Price “NIC” National Identity Card

“NITF” National Insurance Trust Fund “OECD” Organisation for Economic Co-operation and Development “Opening Date” The date of opening of the subscription list as set out in Section 3.10 of this Prospectus “Ordinary Shares”, “Shares”, Ordinary shares of the Company, with the right to one vote on a poll “Issued and Paid up Ordinary at a meeting of the Company on any resolution, the right to an equal Shares” share in dividends paid by the Company and the right to an equal share in the distribution of the surplus assets of the Company in liquidation. “P/E” Price Earnings Ratio “PB” People’s Bank “People’s Leasing”, “PLF” People’s Leasing & Finance PLC “People’s Leasing Group” People’s Leasing and its subsidiaries; PIL, PLFM, PLPD, PM and PLHP “PIL”, “People’s Insurance”, “the People’s Insurance Limited Company”, “Issuer” “PLFM” People’s Leasing Fleet Management Limited “PLHP” People’s Leasing Havelock Properties Limited “PLPD” People’s Leasing Property Development Limited “PM” People's Microfinance Limited “POA” Power of Attorney “Prospectus” This Prospectus dated November 30, 2015 issued by the Company “RBC” Risk Based Capital “Retail Individual Investor” Local and foreign investor/s who apply for up to a maximum of 6,600 Shares (including 6,600 Shares) (value of not more than LKR 100,000). “Registrars to the Issue” S S P Corporate Services (Private) Limited “ROE” Return on Equity “SEC” The Securities and Exchange Commission of Sri Lanka “Share Offer Price”, “Share Issue The price at which the New Shares will be offered to the Public, as Price” detailed in this Prospectus, i.e. LKR 15.00 per Ordinary Share “SLAS”, “SLFRS”, “LKAS” Sri Lanka Accounting Standards “Stated Capital” The Stated Capital of People’s Insurance Limited

People’s Insurance Limited - Initial Public Offering | 3

“TAC” Total Available Capital “The Board”, “The Board of The Board of Directors of People’s Insurance Limited Directors” “TTM” Trailing Twelve Months “UK” United Kingdom “Unit Trust Investor Category” Growth and balanced Unit Trusts operated by managing companies licensed under the SEC to operate such Unit Trusts, where such Unit Trusts comprises of not less than 500 Unit Holders resident in Sri Lanka who together hold at least 50% of that Unit Trust, as per SEC Directive dated June 06, 2011 (Ref: SEC/Leg/11/06/01) “Unit Holder” An individual who has made an investment in units not exceeding the value of LKR 10,000,000/- in a particular Unit Trust Fund that subscribes for Shares, as per SEC Directive dated June 06, 2011 (Ref: SEC/Leg/11/06/01) “USA”, “United States” The United States of America “USD” United States Dollars “VAT” Value Added Tax “WHT” Withholding Tax “YTD” Year to Date “YoY” Year on Year

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1.0 CORPORATE INFORMATION

The Company/Issuer People’s Insurance Limited Registered Office 1161, Maradana Road Colombo 08, Sri Lanka Tel :+ 94 11 2631631 Fax: +94 11 2631190 Head Office and Principal Place of 53, Dharmapala Mawatha Business Colombo 03, Sri Lanka Tel: +94 11 2206406 Fax:+94 11 2206436 Legal Form of the Company A Public Limited Liability Company Incorporated in Sri Lanka on July 22, 2009 under the Companies Act No. 07 of 2007 (as amended) and an insurance company registered under the Regulation of Insurance Industry Act No. 43 of 2000 (as amended). Please refer Section 5.1 for further information. Company Registration Number PB 3754 (as a Public Company) Place of Incorporation Colombo, Sri Lanka Company Secretary Mr. Rohan Pathirage 75, People’s Bank Head Office Sir Chittampalam A Gardiner Mawatha Colombo 02, Sri Lanka Tel : +94 11 2436562 Fax: +94 11 2434550 Bankers to the Company People’s Bank 75, Sir Chittampalam A Gardiner Mawatha Colombo 02, Sri Lanka Tel : +94 11 2327841-6 Auditors to the Company Messrs. Ernst & Young (Chartered Accountants) 201, De Saram Place Colombo 10, Sri Lanka Tel : +94 11 2463500 Fax: +94 11 2697369 Board of Directors Mr. Jehan P. Amaratunga - Chairman/Non-Executive Non-Independent Director Mr. N. Vasantha Kumar - Director/Non-Executive Non-Independent Director Mr. D. P. Kumarage - Managing Director/Executive Director Mr. Lakshman Abeysekera - Non-Executive Independent Director* Ms. Fathima Farah Hussain - Non-Executive Independent Director*

*On October 20, 2015, the Board appointed Mr. Lakshman Abeysekera and Ms. Fathima Farah Hussain as Non-Executive Independent Directors subject to the approval of IBSL. People’s Insurance Limited - Initial Public Offering | 5

2.0 RELEVANT PARTIES TO THE ISSUE

Joint Financial Advisors and Acuity Partners (Private) Limited Managers to the Issue 53, Dharmapala Mawatha Colombo 03, Sri Lanka (For the provision of research report Tel: +94 11 2206206 and to advise the Company on the Fax: +94 11 2437149 IPO) NDB Investment Bank Limited 40, Navam Mawatha Colombo 02, Sri Lanka Tel: +94 11 2300385 Fax: +94 11 2300393

People’s Bank - Investment Banking Unit People’s Bank Head Office, 13th Floor 75, Sir Chittampalam A Gardiner Mawatha Colombo 02, Sri Lanka Tel: +94 11 2206795-6 Fax: +94 11 2458842 Lawyers to the Issue Messrs. F J & G De Saram (Attorneys-at-Law) 216, De Saram Place Colombo 10, Sri Lanka Tel: +94 11 4718200 Fax: +94 11 4718220 Auditors and Reporting Accountants Messrs. Ernst & Young (Chartered Accountants) to the Issue 201, De Saram Place Colombo 10, Sri Lanka Tel: +94 11 2463500 Fax: +94 11 2697369

Registrars to the Issue S S P Corporate Services (Private) Limited 101, Inner Flower Road Colombo 03, Sri Lanka Tel: +94 11 2573894/+94 11 2576871 Fax: +94 11 2573609

Bankers to the Issue People’s Bank 75, Sir Chittampalam A Gardiner Mawatha Colombo 02, Sri Lanka Tel : +94 11 2327841-6

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3.0 DETAILS OF THE ISSUE

3.1 The Issue

The Issue contemplated herein shall constitute an invitation made to the general public to purchase Fifty Million (50,000,000) new Ordinary Shares of the Company at the Share Issue Price of Sri Lanka Rupees Fifteen (LKR 15.00) per Ordinary Share.

3.2 Nature of the New Shares

The Offered Shares shall, upon allotment, rank equal and pari passu in all respects with the existing Ordinary Shares of the Company and each New Share shall confer on the holder thereof the right to one vote on a poll at a meeting of the Company on any resolution, the right to an equal share in any dividend that may be paid by the Company after the allotment of the Offered Shares and the right to an equal share in the distribution of the surplus assets of the Company in a liquidation.

3.3 Size of the Issue

If fully subscribed, the Issue would raise Sri Lankan Rupees Seven Hundred and Fifty Million (LKR 750,000,000).

3.4 Share Issue Price

The Share Issue Price will be Sri Lanka Rupees Fifteen (LKR 15.00) per Share. The Board of Directors of PIL is of the opinion that the Share Issue Price is fair and reasonable to the Company and to all existing shareholders of the Company.

The Share Issue Price was determined by the Company in consultation with the Joint Managers to the Issue, Acuity Partners, NDB Investment Bank and People’s Bank-Investment Banking Unit in accordance with the research report compiled by the Joint Managers to the Issue in line with Rule 3.1.4 (c) (ii) of the CSE Listing Rules. A copy of the research report is enclosed as Annexure E of this Prospectus.

The NAV per share and the Price to Book Value at the Share Issue Price are as follows;

As at Net Assets Value Net Assets Value P/BV at the Share (LKR Mn) per Share (LKR) Issue Price (x) August 31, 2015 – Actual 1,587.9 10.59 1.417 August 31, 2015 – Proforma* 1,467.9 9.79 1.532 October 31, 2015 – Actual 1,431.8 9.55 1.571

*Proforma NAV refers to NAV of c.LKR 1,588 million as at August 31, 2015 which was adjusted for interim dividend of LKR 120,000,000 declared and paid on September 25, 2015 and 150,000,000 shares subsequent to the share split on October 13, 2015.

The investors should read the following summary with the risk factors included under Section 11 of this Prospectus and the details of the Company and its financial statements included in this Prospectus.

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3.4.1 Quantitative Factors

The following quantitative aspects were also taken into consideration, when determining the Issue Price:

Earnings per Share (EPS), Return on Equity (ROE) and Price to Earning Ratio (P/E Ratio)

For the Period Ended Basic Earnings Diluted Earnings Return on P/E Ratio per Share (LKR)* per Share (LKR)* Equity (%) December 31, 2012 - Audited 1.56 1.56 32.4 NM December 31, 2013 - Audited 2.47 2.47 38.1 NM December 31, 2014 - Audited 3.00 3.00 36.1 NM Average EPS 2.35 2.35 08 Months Ended August 31, 2015 2.02 2.02 20.2 NM 08 Months Ended August 31, 2015 † 3.02 3.02 30.2 NM 10 Months Ended October 31, 2015 2.47 2.47 26.1 NM 10 Months Ended October 31, 2015 † 2.97 2.97 31.3 NM

* Weighted average number of shares were considered as 150,000,000 (Post Share Split) † Annualised ratios Note: PIL does not have any dilutive instruments in its capital structure NM-Not Meaningful (due to the non-availability of market price for the shares of PIL prior to IPO)

Price to Earnings Ratio (P/E Ratio)

The P/E Ratio in relation to the Share Issue Price of LKR 15.00 per share is, . Based on the basic EPS of PIL for the financial year ended December 31, 2014 of LKR 3.00, the P/E Ratio is 5.0 times. . Based on the Average EPS of LKR 2.35, the P/E Ratio is 6.4 times.

The P/E Ratio range of the industry peers is as given below; P/E Ratio Based on the P/E Ratio based Name of the Peer Audited Earnings for the on TTM Earnings

Company Year Ended for the Year Ended December 31, 2014* June 30, 2015* Highest HNB Assurance PLC 9.8 times 10.6 times Lowest Janashakthi Insurance PLC 6.6 times 7.6 times Industry Composite** 8.1 times 9.2 times

Source – CSE (Comparable listed insurance companies) and Company Annual Reports *Market Prices as at September 30, 2015 have been used in computation of the P/E Ratios ** Sector Classification – Insurance (All listed peers are operating as either life insurers or composite insurers and there are no market competitors that are operating only as general insurance providers. Therefore, the companies with significant exposure to Non-Life Insurance sector were considered i.e. Asian Alliance PLC, HNB Assurance PLC, and Janashakthi Insurance PLC)

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Net Asset Value (NAV) and Price to Book Value Ratio (P/BV Ratio)

The P/BV Ratio in relation to the Share Issue Price of LKR 15.00 is, . Based on the NAV for the financial year ended December 31, 2014 of LKR 9.40 (considering the number of shares subsequent to the share split), the P/BV Ratio is 1.596 times. . Based on the proforma NAV* for the 8 months ended August 31, 2015 of LKR 9.79, the P/BV Ratio is 1.532 times. . Based on the NAV for the 8 months ended August 31, 2015 of LKR 10.59, the P/BV Ratio is 1.417 times. . Based on the NAV for the 10 months ended October 31, 2015 of LKR 9.55, the P/BV Ratio is 1.571 times. *Proforma NAV refers to NAV of c.LKR 1,588 million as at August 31, 2015 which was adjusted for interim dividend of LKR 120,000,000 declared and paid on September 25, 2015 and 150,000,000 shares subsequent to the share split on October 13, 2015.

The P/BV Ratio range of the industry peers is as given below; P/BV Ratio Based on P/BV Ratio based Name of the Peer the Audited NAV as at on NAV as at Company December 31, 2014* June 30, 2015* Highest Asian Alliance PLC 2.9 times 2.9 times Lowest Janashakthi Insurance PLC 1.3 times 1.6 times Industry Composite** 1.8 times 2.0 times

Source – CSE (Comparable listed insurance companies and Company Annual Reports *Market Prices as at September 30, 2015 have been used in computation of the P/BV Ratios ** Sector Classification – Insurance (All listed peers are operating as either life insurers or composite insurers and there are no market competitors that are operating only as general insurance providers. Therefore, the companies with significant exposure to Non-Life Insurance sector were considered i.e. Asian Alliance PLC, HNB Assurance PLC, and Janashakthi Insurance PLC)

Peer Entity Accounting Ratios

A peer company comparison of the quantitative factors discussed above using market data as at September 30, 2015 and the audited financials for the year ended December 31, 2014 is provided below; Net Asset Value Earnings per P/E P/BV Return on Peer Company per Share* Share (EPS)* Ratio Ratio Equity (%) (LKR) (LKR) (x) (x) Asian Alliance PLC 6.3 2.0 9.2 2.9 31.8 HNB Assurance PLC 48.3 8.4 9.8 1.7 17.3 Janashakthi Insurance PLC 14.3 2.9 6.6 1.3 20.4

Source – CSE (Comparable listed insurance companies), Company Annual Reports and Company Audited Financial Statements as at December 31, 2014 Sector Classification – Insurance (All listed peers are operating as either life insurers or composite insurers and there are no market competitors that are operating only as general insurance providers. Therefore, the companies with significant exposure to Non-Life Insurance sector were considered i.e. Asian Alliance PLC, HNB Assurance PLC, and Janashakthi Insurance PLC)

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A peer company comparison of the quantitative factors discussed above using market data as at September 30, 2015 and TTM operations for the period ended June 30, 2015 is provided below; Net Asset Earnings per P/E P/BV Return on Peer Company Value per Share (EPS)* Ratio Ratio Equity (%) Share* (LKR) (LKR) (x) (x) Asian Alliance PLC 6.5 1.8 10.4 2.9 27.5 HNB Assurance PLC 45.2 7.8 10.6 1.8 17.2 Janashakthi Insurance PLC 12.1 2.5 7.6 1.6 20.8

Source – CSE (Comparable Listed Insurance Companies), Company Annual Reports and Company Audited Financial Statements as at December 31, 2014 Sector Classification – Insurance (All listed peers are operating as either life insurers or composite insurers and there are no market competitors that are operating only as general insurance providers. Therefore, the companies with significant exposure to Non-Life Insurance sector were considered i.e. Asian Alliance PLC, HNB Assurance PLC, and Janashakthi Insurance PLC)

3.4.2 Qualitative Factors

The following qualitative factors were considered by the Company when arriving at the Share Issue Price.

1. PIL’s position as a member of the People’s Bank Group PIL is part of the People’s Bank Group, a financial conglomerate with significant government control. Hence, the Company is benefitted from intra-group revenue and cost synergies. Those synergies were considered when arriving at forecast financials. 2. Low cost operating model of PIL PIL has an expenses ratio lower than its peers mainly owing to its low cost distribution strategy through the use of PLF network and the substantial captive business resulting in low marketing expenditure. 3. PIL’s strategy to enhance contribution from non-captive business sources The Company has already recruited over 20 new marketing personnel to improve its retail non-captive business, while also developing the broker and corporate channels. It was assumed that this initiative would support PIL’s strategy of improving non-captive business. 4. PIL’s branch expansion strategy PIL is planning to establish three new branches by 2017. It intends to add a branch each from 2018 onwards. This is another initiative targeting at improving non-captive business. It was assumed this initiative would yield positive results to the Company.

3.5 Purpose of Listing and Objectives of the Issue

The Company intends to list its Shares on the CSE and raise funds in order to; i. Meet the regulatory requirement of listing the Company on a licensed stock exchange prior to February 07, 2016 as per Section 52(1) of the Regulation of Insurance Industry (Amendment) Act No. 3 of 2011. ii. Further strengthen the equity base of the Company and thereby the Capital Adequacy Ratio (CAR) under the Risk Based Capital (RBC) regime implemented by IBSL effective from 2016.

In addition, the listing through the IPO would facilitate PIL to broad-base the ownership of the Company as per the ‘Public Holding’ requirement of the CSE, which would strengthen its identity through increased visibility and brand image amongst the public.

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The funds raised to strengthen the equity base of the Company, to meet objective (ii) stated above would be invested in financial securities during FY 2016 keeping in line with the asset allocation strategy of PIL. The proposed asset allocation for the funds raised through the IPO is expected to be as follows;

Corporate Debt 50% Fixed Deposits 25% Government Securities 15% Equity 10% 100%

The funds raised through the IPO would not be utilised for any related party transactions.

Specific Risks Relating to the Objectives of the Issue PIL is of the view that the Company would be able to meet the regulatory requirement of listing the Company on the CSE. In the event the Company is unable to meet objective (i) stated above due to a failure in fufilling the Public Holding requirements of the CSE as per Rule 2.1.2(d) or 2.1.3(c) of the CSE Listing Rules, the Application amounts will be returned to the Applicants as morefully explained in Section 3.6. Furthermore, the Company would consult IBSL on the possibility of obtaining an extension on the deadline for listing in such an event.

It should be noted that the CAR of PIL as at September 30, 2015 amounted to 199% and is comfortably placed with a significantly higher CAR than the minimum regulatory requirement of 120% as stipulated by IBSL. The funds raised through the IPO would further enhance the existing CAR mentioned above to much comfortable levels (post IPO) enabling the Company to carryout its growth strategy. Any shortfall in the funds raised via the IPO, would not have an impact on the capital adequacy levels required under the RBC framework in 2016. In such an instance, the Company would explore other sources of funding to support any capital adequacy requirements arising from future business growth.

The Company does not foresee any risks or delays in deploying the funds within FY 2016 as per the asset allocation mentioned above. However, it should be noted that allocation mix could vary depending on the risk return profile of the available instruments, liquidity of the same and the general market conditions prevailing at the time of investment.

Given the nature of the business, the Company does not foresee any deviations from its objectives or delays in deploying the funds raised via the IPO as mentioned above during the time frames stipulated. However, if the funds raised via the IPO is utilised for any purpose, other than the purposes mentioned above, the Company will make necessary disclosures to the shareholders via the CSE and take necessary steps to obtain the approvals of the relevant parties including the shareholders as appropriate at that point in time.

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3.6 Listing

The Issue herein contemplated comprises of Fifty Million (50,000,000) new Ordinary Shares of the Company. If fully subscribed, the New Shares will amount to 25% of the issued and paid up Ordinary Shares of the Company, subsequent to the Issue.

An application has been made to the CSE for permission for a listing of the entire issued and paid up Ordinary Shares of the Company subsequent to the Issue.

PIL has already complied with Rule 2.1.2 (a), Rule 2.1.2 (b) and Rule 2.1.2 (c) of the CSE Listing Rules.

It is expected that the Company will meet the minimum Public Holding requirement [Rule 2.1.2 (d)] of the CSE Listing Rules on the completion of the Issue pursuant to which the listing of the entire Ordinary Shares of the Company will take place on the Main Board of the CSE. The minimum public holding requirement stipulates that, 25% of the total number of shares for which a listing is sought should be in the hands of a minimum number of 1,000 public shareholders, holding not less than 100 shares each.

In the event of an undersubscription where PIL is unable to meet the requirement of Rule 2.1.2(d) of the CSE Listing Rules, upon closure of the Issue, the Company would alternatively opt for a listing on the ‘Diri Savi’ Board of the CSE, subject to meeting the minimum public holding requirement set out in Rule 2.1.3 (c) which stipulates that 10% of the total number of shares for which a listing is sought should be in the hands of a minimum number of 200 public shareholders.

However, in the event where PIL is unable to meet the requirement of Rule 2.1.2 (d) or 2.1.3 (c) of the CSE Listing Rules as mentioned above, upon closure of the Issue, the Ordinary Shares of the Company will not be listed on the CSE. In such an event the subscription amounts will be returned to the Applicants.

It should be noted that the aforesaid public holding requirements would be calculated by considering all Shares that are freely tradable on the date of listing.

The shares mentioned in Table 9.3 – Shares Locked-in - Pre IPO, will be locked in for 6 months from the date of listing to be in compliance with CSE Listing Rules 2.1.1(d) and will not be available for trading.

3.7 Cost of the Issue

The total costs associated with the Issue are estimated to be c. LKR 37 million amounting to c. 4.9% of the size of the IPO. These include all direct costs and expenses associated with the Issue, inclusive of but not limited to the initial listing fees to the CSE, management/advisory fees payable to the Joint Financial Advisors and Managers to the Issue, brokerage commission, fees for the registrar function, legal, consultancy and accountancy fees, advertising and promotional costs, printing costs and stamp duty. The costs will be recovered from the proceeds of the Issue.

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3.8 Brokerage

Brokerage at the rate of zero decimal five per centum (0.5%) of the value of the New Shares will be paid in respect of the number of New Shares allotted on Applications bearing the original seal of any bank operating in Sri Lanka or a member/trading member of the CSE or Acuity Partners (Private) Limited or NDB Investment Bank Limited or People’s Bank Investment Banking Unit or any other intermediary appointed by the Company and Joint Managers to the Issue involved in the marketing of the Issue.

3.9 Minimum Subscription and Underwriting

There is no minimum amount required to be raised in this Issue.

The Company has not entered into any underwriting arrangement with regards to this Issue.

The Company shall seek a listing irrespective of whether the Issue is fully subscribed or not (subject to the Company satisfying the requirement of the CSE Listing Rules for such a listing as morefully described in Section 3.6 of this Prospectus). In the event of an undersubscription (subject to the Company satisfying the minimum public holding requirement as stipulated in Rule 2.1.2 (d) or 2.1.3 (c) of the CSE Listing Rules), the subscribers will be allotted the Shares they have applied for and the funds raised will be utilised to meet objective (ii) of the Issue, as stipulated in Section 3.5 of this Prospectus.

However, in the event of an undersubscription, and if the Company is unable to fulfil the minimum public holding requirement as stipulated in Rule 2.1.2 (d) or 2.1.3 (c) of the CSE Listing Rules, the money collected will be returned to the Applicants and the Company will not be listed on the CSE.

3.10 Opening of Subscription List and Issue Closing Date

The subscription list for the New Shares will open at 9.00 a.m. on December 16, 2015 and shall, subject to the occurrence of the events in the following paragraph, remain open for fourteen (14) Market Days (including the date of opening) until closure at 4.30 p.m. on January 07, 2016.

In the event of an oversubscription of the 50,000,000 New Shares, the Company shall inform the CSE in writing immediately of such fact and the subscription list will be closed at 4.30 p.m. on the same day on which it is fully subscribed. Also, the Board reserves the discretion to close the subscription list on any Market Day within the period of fourteen (14) Market Days, irrespective of whether the Issue is oversubscribed or not, by providing one (01) Market Day’s prior notice to the CSE.

3.11 Inspection of Documents

Articles of Association, Auditors’ Reports and Audited Financial Statements for the five (5) financial years ended December 31, 2014 (i.e. the five (5) financial years immediately preceding the date of this Prospectus), Interim Financial Statements for the eight (8) months ended August 31, 2015 and ten (10) months ended October 31, 2015 of the Company, research report by the Joint Financial Advisors and Managers to the Issue, management agreements and all other relevant documents, would be made available for inspection by the public during normal working hours at the registered office of the Company, No. 161, Maradana Road, Colombo 08, before seven (7) market days prior to the Issue Opening Date and for a period not less than fourteen (14) Market Days as per Rule 3.1.19 (a) of the CSE Listing Rules.

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The Prospectus, Application Form and Articles of Association of the Company will be available on the website of the CSE, www.cse.lk, on the website of the Company, www.peoplesinsurance.lk and on the websites of the Joint Managers to the Issue, www.acuity.lk, www.ndbib.com and www.peoplesbank.lk/products/investment_banking_unit for a period of not less than fourteen (14) Market Days as stipulated in Rule 3.1.19 (b) of the CSE Listing Rules.

The research report prepared jointly by NDB Investment Bank, Acuity Partners and People’s Bank - Investment Banking Unit, justifying the Share Issue Price will be available on the website of the CSE, www.cse.lk, on the Company website, www.peoplesinsurance.lk and on the websites of the Joint Managers to the Issue, www.ndbib.com, www.acuity.lk, and www.peoplesbank.lk/products/ investment_banking_unit from the date hereof, for a period not less than two (2) months as stipulated in Rule 3.1.19 (c) of the CSE Listing Rules.

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4.0 PROCEDURE FOR APPLICATION

4.1 Eligible Applicants

Applications are invited from the following categories of investors, having a valid CDS account in the Central Depository System (Private) Limited (CDS Account):

i. Citizens of Sri Lanka who are resident in or outside Sri Lanka and above 18 years of age; or ii. Companies, corporations or institutions incorporated or established within Sri Lanka; or iii. Corporate bodies incorporated or established outside Sri Lanka; or iv. Approved unit trusts licensed by the SEC; or v. Approved provident funds and contributory pension schemes registered/incorporated/ established in Sri Lanka (in this case, Applications should be in the name of the Trustee/Board of Management in order to facilitate the opening of the CDS account); or vi. Foreign citizens above 18 years of age (irrespective of whether they are resident in Sri Lanka or overseas); or vii. Global, regional and country funds approved by the SEC.

Applications made by individuals less than 18 years of age or those in the names of sole proprietorships, partnerships, unincorporated trusts and non-corporate bodies will be rejected.

Applications submitted under the Unit Trust Investor Category should conform to the criteria defined by the SEC Directive dated June 06, 2011 (Ref: SEC/LEG/11/06/01).

Eligible Applicants may fall into one of the following categories.

i. Retail Individual Investor Category ii. Unit Trust Investor Category iii. Non-Retail Investor Category iv. Employee Category

Please refer Section 4.2.1 for the definitions of the aforementioned categories.

4.2 The Procedure for Application

Applicants applying for the New Shares should submit their Applications in the manner set out in this Prospectus.

The Prospectus will be made available free of charge from the collection points listed in Annexure F. The Prospectus can also be downloaded from www.cse.lk, www.peoplesinsurance.lk, www.acuity.lk, www.ndbib.com and www.peoplesbank.lk/products/investment_banking_unit.

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4.2.1 How to Apply

APPLICANTS, EXCEPT FOR THE APPLICANTS APPLYING UNDER THE EMPLOYEE CATEGORY SHOULD APPLY ONLY THROUGH ONE INVESTOR CATEGORY (INCLUDING JOINT APPLICANTS) AND WOULD BE PERMITTED TO SUBMIT ONLY ONE APPLICATION FORM. TWO OR MORE APPLICATIONS SUBMITTED BY THE SAME APPLICANT, EXCEPT FOR THE APPLICANTS APPLYING UNDER THE EMPLOYEE CATEGORY, EITHER UNDER THE SAME CATEGORY OR DIFFERENT CATEGORY WILL BE CONSTRUED AS MULTIPLE APPLICATIONS AND WILL BE REJECTED.

Only one Application should be made by an Applicant under the Employee Category. Additionally an Applicant may make a further Application (One [1] only) either under the Retail Individual Category or Non Retail Category which will not be construed as multiple Applications and will not be rejected.

Only one Application should be made by an Applicant under the Unit Trust Category.

Applicants must apply for the New Shares on the Application Form, which constitutes part of this Prospectus. The Application Form should be legibly completed and be received by the Registrars to the Issue.

Retail Individual and Non-Retail Investor Category

Applicants falling under the Retail Individual and Non-Retail Investor Categories should apply for the Shares on the WHITE coloured Application Form printed for this purpose, which constitutes part of this Prospectus. Such Application Forms will be made available from the collection points listed in Annexure F and can also be downloaded from www.cse.lk, www.peoplesinsurance.lk, www.acuity.lk, www.ndbib.com and www.peoplesbank.lk/products/investment_banking_unit. Exact size copies of the Application form printed on WHITE coloured paper as specified herein will also be permissible under the Retail Individual and Non-Retail Investor Categories. The completed Application Forms should be submitted to the Registrars to the Issue in accordance with Section 4.2.8 of the Prospectus.

In this instance, local and foreign individual investor/s who apply for up to a maximum of 6,600 Shares (including 6,600 Shares) (value of not more than LKR 100,000) will be deemed as Retail Individual investors for share allotment purposes.

All non-resident Applicants and corporate Applicants should ensure that the passport number/company registration number and the CDS Identification Number (CDS ID) are stated in the relevant cages of the Application Form.

Employee Category

Applicants applying under the Employee Category must apply for the Shares only using the separate GREEN coloured Application Form printed for this purpose, which constitutes part of this Prospectus. Such Application Forms will only be made available through the branches of PIL and People’s Leasing. Employees applying under this category shall be required to apply under their respective individual names using only the correctly coloured Application Form and should not apply as joint Applicants.

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Application Forms properly and legibly filled in accordance with the instructions thereof, along with the applicable remittance (cheque or bank draft or bank guarantee only) for the full amount payable on the Application and the company seal/rubber stamp of the respective employer placed thereon should be submitted to the Head of Human Resource (People’s Leasing) for verification as eligible employees and for onward transmission to the Registrars to the Issue in accordance with Section 4.2.8.

Employees shall NOT submit Applications directly to the Registrars to the Issue. No photocopies of the coloured Application Form would be permissible.

‘Employee Category’ includes, Employees of People’s Leasing Group who have been in service under the respective companies as at October 31, 2015 and have not submitted their resignation as at the date of opening of the subscription list.

Unit Trust Investor Category

Applicants applying under the Unit Trust Investor Category must apply for the Shares using the separate YELLOW coloured Application Form printed for this purpose, which constitutes part of this Prospectus. Such Application Forms will be made available through the Joint Managers to the Issue, Acuity Partners (Private) Limited, 53, Dharmapala Mawatha, Colombo 03 or NDB Investment Bank Limited, 40, Navam Mawatha, Colombo 02 or People’s Bank-Investment Banking Unit, No. 75, Sir Chittampalam A Gardiner Mawatha, Colombo 02. Exact size copies of the Application Form printed on YELLOW coloured paper as specified herein will also be permissible under the Unit Trust Investor Category. The completed Application Forms should be submitted to the Joint Managers to the Issue who will forward the same to the Registrars to the Issue in accordance with Section 4.2.8.

Applications submitted under the Unit Trust Investor Category should submit a confirmation by the trustee confirming that such unit trust is in conformity with the criteria defined by the SEC Directive dated June 06, 2011 (Ref: SEC/Leg/11/06/01) and CSE Listing Rules, 3.1.5(b)(ii).

‘Unit Trust Investors’ as defined by the SEC Directive dated June 06, 2011 (Ref: SEC/Leg/11/06/01), shall mean growth and balanced Unit Trusts operated by managing companies licensed under the SEC to operate such Unit Trusts, where such Unit Trusts comprises of not less than 500 Unit Holders resident in Sri Lanka who together hold at least 50% of that Unit Trust.

An Applicant of a Joint Application, applying through another Application Form, except under the Employee Category, is deemed to have made multiple Applications and will be rejected.

An Applicant who has made an Application under a margin trading account should not apply individually or jointly on a separate Application Form, except under the Employee Category. Such Applications will also be construed as multiple Applications and will be rejected.

Subject to the above, the Company/Joint Managers/Registrars to the Issue reserve the right to reject multiple Applications and suspected multiple Applications which are not allowed or to accept only one Application Form at their discretion.

Notwithstanding any provision contained herein, the Board of Directors shall reserve the right to refuse any Application or to accept any Application in full or part, for whatsoever reason.

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Please note that Applicant information such as full name, address, NIC number/passport number and residency will be downloaded from the database of CDS, based on the CDS account number/CDS ID indicated in the Application Form. Such information shall take precedence over information provided in the Application Form.

Application Forms stating third party CDS accounts instead of their own CDS account numbers, except in the case of margin trading accounts will be rejected.

Care must be taken to follow the instructions on the reverse of the Application Form. Applications that do not strictly conform to such instructions and additional conditions set out hereunder or which are illegible may be rejected.

You can open a CDS account through any member/trading member of the Colombo Stock Exchange (CSE) as set out in Annexure F or through any Custodian Bank as set out in Annexure G of this Prospectus.

PLEASE NOTE THAT AN ALLOTMENT OF SHARES WILL ONLY BE MADE IF YOU HAVE A VALID CDS ACCOUNT AT THE TIME OF SUBMISSION OF APPLICATION.

Applicants have the option of having their Shares ‘locked’ in the CDS. Shares that are ‘locked’ will not be available for trading purposes and will not be visible to the participant. Such Applicants would have to fill in the relevant section in the Application Form for this purpose. If the Applicant has not specified that the Shares need to be deposited to his/her ‘locked’ balance in the CDS account, the said Shares would be deposited to Applicant’s ‘trading’ balance in the CDS account.

Operation of a ‘locked’ balance in the CDS In order to preserve the confidentiality of shareholder information and to ensure that securities are not made available for trading for those shareholders who do not want to trade the securities, the CDS provides a mechanism where securities can be ‘locked’ in the CDS account.

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The CDS maintains two balances for each CDS account, namely a ‘trading’ balance and a ‘locked’ balance. The trading balance would be visible to the CDS participant and all dealings and trading would be permitted on the said trading balance, as done normally.

As opposed to the trading balance, the locked balance will not be visible to the CDS participant and all dealings on such locked balance would be suspended thereby maintaining the confidentiality of the information and also safeguarding the account holder from any unauthorised sale by a broker.

At the option and request of an account holder, the CDS would transfer a named quantity of securities from the locked balance to the trading balance of a CDS account and/or from the trading balance to the locked balance.

4.2.2 Number of Shares Applied

Application should be made for a minimum of One Hundred (100) Shares [for a value of Sri Lankan Rupees One Thousand Five Hundred (LKR 1,500/-)] and in multiples of One Hundred (100) Shares thereof.

Applications made for less than One Hundred (100) Shares or for a number which is not in multiples of One Hundred (100) Shares will be rejected and the accompanying cheques, bank drafts or bank guarantees will not be sent for clearing but be returned via ordinary post at the risk of the Applicant, or in the case of Joint Applicants, the first named Applicant. The cheque or bank draft or bank guarantee or RTGS transfer should be issued/carried out to the exact value of the number of Shares applied for multiplied by the Share Issue Price. Cheques, bank drafts, bank guarantees or RTGS transfers not conforming to the above requirement will be rejected at the outset.

Please refer Section 4.3.1 for details with respect to the mode of remittance.

4.2.3 Identification Information

All Applicants should disclose their identification/registration information by filling in the space provided in the Application Form for this purpose.

Applicants are requested to state their residency and nationality in the appropriate spaces provided in the Application Form.

The NIC, passport, or company registration number as the case may be, must be stated in the Application Form and any Application Form which does not provide the appropriate identification information will be rejected.

Resident Applicants may use the passport for purposes of identification only if they do not have a NIC number.

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Tabulated below is the relevant identification information that a prospective investor should provide depending on the legal status: Citizenship/Legal Form Identification Information NIC Number Passport Company Common Seal CDS ID Number Registration or Rubber Number Number Stamp Sri Lanka Citizens  Sri Lanka Citizens with no  NIC Number* Foreign Citizens**   Corporate Entities***   

* In the case of Sri Lankan citizens, the passport number will be accepted only when the NIC number is not available. The CDS account must be for the same passport number. ** Foreign citizens must state the passport number and the CDS ID number in the space provided. *** The company registration number and the CDS ID number must be provided. The common seal or rubber stamp should be affixed and the Application Form duly signed as stipulated in the constitutional documents of such Applicants.

A valid CDS account number must be stated in the Application Form and any Application Form which does not provide the appropriate identification information will be rejected. All non-resident Applicants and corporate Applicants should ensure that the passport number/company registration number and the CDS Identification Number (CDS ID) are stated in the relevant cages of the Application Form. All information about the Applicant (i.e. name, address, nationality and NIC or passport number) will be downloaded from the database of the CDS, based on the number given in the Application Form. In the event of any discrepancy between the information in the CDS and in the Application Form, the information in the CDS shall take precedence.

If the CDS account number is not indicated in the Application Form, or the number indicated in the form is found to be inaccurate/incorrect, or the account number indicated is not opened at the time of closing the Offering such Application will be rejected and no allotments of Shares will be made.

4.2.4 Key Responsibility of a Non-Resident Investor

Non-resident investors may be affected by the laws of the jurisdiction of their residence. If non-resident investors wish to apply for the New Shares, it is their responsibility to comply with the laws relevant to the jurisdiction of their residence and of Sri Lanka.

4.2.5 Margin Trading

Applicants who wish to apply through their margin trading account should submit the Applications in the name of the “margin provider/Applicant’s name” signed by the margin provider.

The Applicants should state the relevant CDS account number relating to the margin trading account in the space provided for the CDS account number in the Application Form. The Shares shall be uploaded to the CDS account indicated in the Application Form.

The NIC, passport, or company registration number of the Applicant as the case may be, must be stated in the Application Form.

20 | People’s Insurance Limited - Initial Public Offering Resident Applicants may use the passport for purposes of identification, only if they do not have a NIC number.

A photocopy of the margin trading agreement must be submitted along with the Application.

Please note that the margin provider can apply under its own name and such Applications will not be construed as multiple Applications. Details regarding multiple Applications are available under Section 4.2.1.

4.2.6 Applications Made Under Power of Attorney

In the case of Applications made under Power of Attorney (POA), a copy of the said POA, certified by a Notary Public to be a true copy of the original, should be lodged with the Registrars to the Issue along with the Application Form. The original POA should not be attached.

4.2.7 Joint Applications

If the ownership of the Shares is desired in the name of one Applicant, full details should be given only under the heading, SOLE/FIRST APPLICANT in the Applicant Forms. In the case of joint Applicants, the signatures and particulars in respect of all Applicants must be given under the relevant headings in the Application Form.

Joint Application Forms are permitted only for natural persons not exceeding three Applicants. Joint Applicants should note that there should not be a combination of residents of Sri Lanka and non-residents. An Applicant of a joint Application shall not apply through a separate Application Form either individually or jointly.

4.2.8 Submission of Applications

Application Forms under the Retail Individual and Non-Retail Investor categories properly and legibly filled in accordance with the instructions thereof, along with the applicable remittance (cheque or bank draft or bank guarantee or RTGS transfer only) for the full amount payable on Application Form should be enclosed in a sealed envelope marked “People’s Insurance Limited – IPO” on the top left-hand corner and be addressed and dispatched by post or courier or delivered by hand to the Registrars to the Issue at the following address prior to 4.30 p.m. Local Time on the Issue Closing Date.

S S P Corporate Services (Private) Limited 101, Inner Flower Road Colombo 3, Sri Lanka

Applications may also be handed over to the Joint Financial Advisors and Managers to the Issue, Bankers to the Issue and its designated branches, members and trading members of the CSE as set out in Annexure F prior to 4.30 p.m. Local Time on the Issue Closing Date.

In the case of investors applying under the Employee Category, the Application Forms should be submitted to the Head of Human Resource (People’s Leasing) who will forward the same to the Registrars to the Issue.

People’s Insurance Limited - Initial Public Offering | 21 In the case of investors applying under the Unit Trust Category the Application Forms should be submitted to the Joint Managers to the Issue who will forward the same to the Registrars to the Issue.

In the case of Applications dispatched by post, such Applications should reach the Registrars to the Issue not later than 4.30 p.m. Local Time on the Market Day immediately following the Issue Closing Date.

Any Applications received after the above deadlines shall be rejected even though the courier or post mark is dated prior to the Issue Closing Date.

4.3 Payment of Application Monies

4.3.1 Mode of Remittance

(a) Payment in full for the total value of Shares applied for should be made separately in respect of each Application either by cheque or bank draft or bank guarantee drawn upon a licensed commercial bank operating in Sri Lanka or RTGS transfer directed through any licensed commercial bank operating in Sri Lanka, as the case may be subject to (b) and (c) below. The remittances on Applications will be deposited in a separate bank account in the name of “People’s Insurance Limited – IPO”.

(b) The amount payable should be calculated by multiplying the number of Shares applied for under a particular category by the Share Issue Price of LKR 15.00. If there is a discrepancy in the amount payable and the amount specified in the cheque/bank draft or bank guarantee, the Application will be rejected.

(c) Payments for Applications for Shares of a value below Sri Lanka Rupees One Hundred Million (LKR 100,000,000/-) may be supported by a cheque or bank draft or bank guarantee. In such instances, Application Form should be accompanied by only one cheque or bank draft or bank guarantee and should be issued for the full amount indicated in the Application Form. Any Application for Shares of a value below Sri Lanka Rupees One Hundred Million (LKR 100,000,000/-) accompanied by two or more cheques or bank drafts or bank guarantees will be rejected at the outset.

Applicants making Applications for Shares of a value above and inclusive of Sri Lanka Rupees One Hundred Million (LKR 100,000,000/-) will be permitted to submit multiple bank drafts (not cheques) or multiple bank guarantees or single RTGS transfer on the Issue Opening Date. Such Applicants are required to attach a list to the Application Form giving details of payment, such as the amount of bank draft/bank guarantee, name of bank, name of branch and bank draft number/bank guarantee number. Applications for Shares of a value above Sri Lanka Rupees One Hundred Million (LKR 100,000,000/-) accompanied by multiple bank drafts or multiple bank guarantees will not be rejected.

Cash will not be accepted. Anyone wishing to pay cash should obtain a bank draft from a licensed commercial bank in Sri Lanka.

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4.3.2 Cheques or Bank Drafts – Resident Sri Lankan Investors

Cheques or bank drafts should be drawn on any Licensed Commercial Bank in Sri Lanka and crossed “Account Payee Only” and made payable to “People’s Insurance Limited – IPO”.

Cheques or bank drafts accompanying Application Forms made for less than One Hundred (100) Shares, i.e. for a value less than Sri Lanka Rupees One Thousand Five Hundred Only (LKR 1,500/-) or for a number which is not in multiples of One Hundred (100) Shares (as mentioned in Section 4.2.2) will not be sent for clearing and shall be returned via ordinary post at the risk of the Applicant, or in the case of joint Applicants, to the first named Applicant.

In the event that cheques are not realised within two (2) Market Days from the date of presenting the same to the bank for clearing, the Directors reserve the right to reject the Applications and return the Application monies. No allocation of Shares will be made to such Applicants.

Applicants residing in outstation areas from which cheque clearance may take over two (2) Market Days are advised to make payment via bank drafts to avoid any delays.

Cheques must be honoured on the first presentation to the bank for the Application to be valid. Applications supported by cheques which are not honoured on first presentation will be rejected.

4.3.3 Bank Guarantees – Resident Sri Lankan Investors

Applications made by resident Sri Lankan investors backed by bank guarantees presented in line with the requirements set out in Section 4.3.1 will be accepted. Bank guarantees will be presented to the respective banks only after the New Shares have been allotted. Bank guarantees should be issued by any Licensed Commercial Bank in Sri Lanka and in favour of “People’s Insurance Limited – IPO” in a manner acceptable to the Company and payable on demand.

Bank guarantees should be valid for a minimum of one (1) month from the date of opening of the Offer (i.e December 16, 2015).

Applicants are advised to ensure that sufficient funds/facilities are available in order to honour the bank guarantees, inclusive of charges when called upon to do so by the Registrars to the Issue. It is advisable that the Applicants discuss with their respective bankers the matters with regard to the issuance of bank guarantees and all charges involved. All expenses with regard to such bank guarantees should be borne by the Applicants.

4.3.4 RTGS Transfers – Resident Sri Lankan Investors

In case of RTGS transfers (only for Application valued above and inclusive of Sri Lanka Rupees One Hundred Million (LKR 100,000,000/-), such transfers should be made to the credit of “People’s Insurance Limited – IPO” bearing the account number 331100160006168 at People’s Bank with value on the Issue Opening Date (i.e. the funds to be made available to the above account/s).

People’s Insurance Limited - Initial Public Offering | 23

The Applicants should obtain a confirmation from the Applicant’s bank, to the effect that arrangements have been made to transfer payment in full for the total value of Shares applied for to the credit of “People’s Insurance Limited – IPO” bearing the account number 331100160006168 at People’s Bank with value on Issue Opening Date (i.e. the fund to be made available to the above account on the Issue Opening Date and should be attached to the Application Form.

4.3.5 Foreign Currency Remittances

This section is applicable to; i. Citizens of Sri Lanka who are above 18 years of age and resident overseas; ii. Corporate bodies incorporated or established outside Sri Lanka; iii. Regional or country funds approved by the SEC; iv. Foreign citizens (irrespective of whether they are resident in Sri Lanka or overseas) who are above 18 years of age.

The abovementioned Applicants should make their payments using one of the following methods as the case may be.

(a) A foreign investor may invest through a “Securities Investment Account” (SIA) maintained with any licensed commercial bank in Sri Lanka. The procedure for arranging payments through a SIA is presented below; - A Foreign Investor may use the services of a custodian bank as an intermediary when investing in the Sri Lankan securities market; - The intermediary may open a SIA, on investor’s behalf; - In conjunction with the SIA, an account with the CDS must be opened in case the investor does not already possess a valid CDS account; - In respect of regional or country funds investing for the first time in Sri Lanka, the intermediary will facilitate the approval process regulated by the SEC; - Payment for Shares should be made through a bank draft or bank guarantee issued by a licensed commercial bank in Sri Lanka or through a RTGS transfer against the funds arranged through the SIA and made payable to “People’s Insurance Limited – IPO”.

(b) A foreign investor may invest through inward remittances of foreign currency held in a Foreign Currency Banking Unit (FCBU) account of the Applicant maintained with any licenced commercial bank in Sri Lanka. The procedure for arranging payments through a FCBU account is presented below; - The Applicant should forward the Application Form supported by an unconditional bank guarantee drawn on the Applicant’s FCBU account pending allotment of the Offered Shares with confirmation from the LCB that upon notification of the allotment of Shares, the allotment value would be remitted through the Applicant’s SIA. - Upon allotment of Offered Shares, foreign currency to the extent of the Sri Lanka Rupee equivalent value of Offered Shared allotted would be called on the bank guarantee drawn on the Applicant’s FCBU account. - The requisite funds would then be credited to a SIA opened in favour of the Applicant via the aforementioned FCBU account. This procedure would protect a prospective investor from any losses accruing due to fluctuating exchange rates.

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(c) In addition to the payments made through SIA and FCBU as mentioned above, a foreign citizen resident in Sri Lanka under the Resident Guest Scheme may invest through a Resident Guest Foreign Currency Account (RGFCA) or Resident Guest Rupee Current Account (RGRCA) that investors maintain with any LCB in Sri Lanka. An investor who wishes to avail him/herself of this facility should make the payment for New Shares through a bank draft or an unconditional bank guarantee in Sri Lanka Rupees or by converting foreign currency funds available in the RGFCA/RGRCA as the case maybe (based on the guidelines provided by the Exchange Control Department of the CBSL) and made payable to “People’s Insurance Limited – IPO”.

Cheques or bank drafts or bank guarantees or RTGS transfers should be endorsed by the issuing custodian bank, to the effect that, arrangements have been made to facilitate such payment to be made against funds available in the individual’s SIA account. The endorsement must be clearly indicated on the cheque or bank draft or the bank guarantee. Alternatively, a document detailing the endorsement could be submitted along with the payment and Application.

Any refund payments to Foreign Investors are made in terms of Section 4.8 of this Prospectus.

Applications supported by foreign currency remittances should be made in conformity with requisite declarations accompanied by the documentation stipulated by the Controller of Exchange of the Central Bank of Sri Lanka.

4.3.6 Restrictions Applicable to Foreign Citizens Resident in Sri Lanka

Foreign citizens resident in Sri Lanka may make payments through Sri Lanka Rupee Accounts, only if they possess dual citizenship where one such citizenship is Sri Lankan. Foreign citizens having Sri Lankan citizenship should attach a certified copy of the citizenship certificate with the Application Form.

Foreign citizens residing in Sri Lanka having valid residency visas should note that they cannot make remittances via cheques or bank drafts or bank guarantees or RTGS transfers drawn upon Sri Lanka Rupee accounts maintained with any licensed commercial bank in Sri Lanka but may do so via SIA account as detailed in Section 4.3.5 above. Applications made by foreign citizens not in accordance to the foregoing shall be rejected.

4.4 Rejection of Applications

i. Application Forms which are incomplete in any way and/or are not in accordance with the terms and conditions set out in this Prospectus will be rejected at the absolute discretion of the Company/Joint Managers/Registrars to the Issue. ii. Any Application Form which does not provide the NIC, passport (where NIC is not available) or company registration number as the case may be, will be rejected. iii. Applications delivered by hand or by courier after 4.30 p.m. Local Time on the Issue Closing Date will be rejected. Applications received by post after 4.30 p.m. Local Time on the succeeding Market Day immediately following the Issue Closing Date, will also be rejected even if they carry a postmark date earlier than the Closing Date. iv. Applications made for less than One Hundred (100) Shares or for a number which is not in multiple of One Hundred (100) Shares will be rejected.

People’s Insurance Limited - Initial Public Offering | 25

v. An Application which does not carry a CDS account number, or indicates a number of a CDS account which is not opened at the time of the closure of the subscription list (either at the time fixed for closing or on the date on which the Offering is subscribed), or which indicates an inaccurate/incorrect CDS account number, shall be rejected and no allotment of Shares will be made. vi. Application Forms stating third party CDS accounts instead of their own CDS account numbers, except in the case of margin trading accounts, will be rejected. vii. Applicants (other than the Employee Applicants) should apply only through one investor category and would be permitted to submit only one Application Form. Two or more Applications submitted by the same Applicant (other than the Employee Applicants) either under the same category or different categories will be construed as multiple Applications and will be rejected. viii. Application Forms submitted under a respective investor category, using the incorrectly coloured Application Forms will be rejected. ix. The company reserves the right to reject multiple Applications and suspected multiple Applications which are not allowed, as mentioned in Section 4.2.1. x. Payment for Applications of New Shares of a value below Sri Lanka Rupees One Hundred Million (LKR 100,000,000/-) accompanying two or more cheques and bank drafts or bank guarantees as mentioned in Section 4.3.1, will be rejected at the outset. xi. Applications made by individuals below 18 years of age or those in the names of sole proprietorships, partnerships, unincorporated trusts and non-corporate bodies will be rejected.

Notwithstanding any provision contained herein, the Board of Directors shall reserve the right to refuse any Application or to accept any Application in full or part, for whatsoever reason.

4.5 Banking of Payments

All cheques or bank drafts or bank guarantees received in respect of Applications will not be banked or called on until the Market Day after the Issue Closing Date of the subscription list, in terms of the CSE Listing Rules.

4.6 Returning of Monies on Rejected Applications

Where an Application Form is rejected, the cheque or bank draft or bank guarantee received in respect of the Application will be returned via ordinary post at the risk of the Applicant. In the case of joint Applicants, the cheque or bank draft or bank guarantee received in respect of the Application will be returned to the first named Applicant.

Where the Application Form is accepted and the cheque or bank draft or bank guarantee is not honoured by the bank at the first presentation, the Application will also be rejected and the dishonoured cheque or bank draft or bank guarantee will be returned via ordinary post at the risk of the Applicant. In the case of joint Applicants, the dishonoured cheque or bank draft or bank guarantee will be returned to the first named Applicant.

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4.7 Basis of Allotment

The allotment of the New Shares will be made to the various categories of Applicants, as set out below: Investor Category Percentage of Issue (%) Unit Trusts * 10% Retail Individual 40% Employees ** 5% Non-Retail 45% 100% * Unit Trust Investors should be growth or balanced unit trusts operated by managing companies licensed by the SEC, where such unit trusts comprise of not less than 500 unit holders resident in Sri Lanka who together hold at least 50% of that fund as per the Direction issued by the SEC (Ref: SEC/LEG/11/03/36 of March 10, 2011. Only one Application should be made under each category. ** Employees of People’s Leasing Group. The basis of allotment for the Employees Category will be at the discretion of the Board of Directors of the Company taking into consideration factors such as seniority, etc.

Applications submitted under the Unit Trust Investor Category should accompany a confirmation by the trustee confirming that such unit trust is in conformity with the criteria defined by the SEC Directive dated June 06, 2011 (Ref: SEC/Leg/11/06/01) and CSE Listing Rules, 3.1.5(b)(ii).

Local and foreign investor/s who apply for up to a maximum of 6,600 Shares (including 6,600 Shares) (value of not more than LKR 100,000) will be deemed as Retail Individual Investors for share allotment purposes.

Investors who do not fall under the Retail Individual Investor definition stated above will be deemed as Non-Retail investors for share allotment purposes.

In determining the basis of allotment within the Retail Individual Investor Category, investors who subscribe for a smaller number of shares shall be given priority.

The investor categories have been selected to ensure the broadest possible spread of shareholders while treating all Applicants in a fair manner as may be decided by the Board at its discretion.

In the event of an undersubscription in the Employee Category, the Retail Individual Investor Category shall be given first priority, followed by the Unit Trust Investor category in allotment of the under subscribed Shares.

In the event of an undersubscription in the Unit Trust investor Category, the Retail Individual investor category shall be given first priority followed by Employee Category, in allotment of the under subscribed Shares.

In the event of an undersubscription in the Retail Individual Investor Category, the Unit Trust investor Category shall be given first priority followed by Employee Category, in allotment of the under subscribed Shares.

In the event of an undersubscription in the non-retail investor category, Retail Individual Investor Category will be given first priority followed by Unit Trust investor category in the allotment of the under-subscribed Shares.

People’s Insurance Limited - Initial Public Offering | 27

Redistribution will not apply in the event of an oversubscription or undersubscription in all four categories stated above.

Subject to the above, the Board of Directors of the Company will endeavour to decide and announce to the CSE the basis of allotments as soon as practicable so as to ensure compliance with the Listing Rules. Upon the allotment being decided, an announcement will be made to the CSE.

In the event of an over subscription of any one or more of the categories mentioned above, the basis of allotment will be decided by the Board of Directors of the Company in a fair and equitable manner.

A written confirmation informing successful Applicants on their allotment of New Shares will be dispatched within ten (10) Market Days from the Issue Closing Date as required by the CSE.

4.8 Refunds on Applications

Where an Application is accepted only in part or rejected in its entirety subsequent to cheques being realised, the balance/entirety of the monies received on Application as the case may be, will be refunded, such refunds will be made on or before the expiry of ten (10) Market Days from the Issue Closing Date (excluding the Issue Closing Date) as required by the CSE Listing Rules. As required by Section 2.4(k) of the CSE Listing Rules, Applicants would be entitled to receive interest at the rate of last quoted Average Weighted Prime Lending Rate (AWPLR) published during the immediately preceding week by the CBSL or any other authority (in the event Central Bank of Sri Lanka ceases to publish the AWPLR) plus five per centum (5.00%) for the delayed period on any refunds not made by the expiry of the aforementioned period.

It is the responsibility of Non-Residents/Foreign Investors to ensure that their SIA details are accurately provided under “Refund Payment Intructions” on the Application Form to forward the refund to SIA through which the application was made.

Refunds via Sri Lanka Inter-bank Payment Systems (SLIPS)

1. The refund payment will be made to the bank account specified by the Applicant through the SLIPS on or before the expiry of ten (10) Market Days from the Issue Closing Date (excluding the Closure Date) as required by the CSE Listing Rules and a payment advice shall be issued to the Applicant provided that the Applicant has submitted accurate and complete details of Applicant’s bank account in the Application Form. However, SLIPS transfers are subject to a maximum limit of Sri Lanka Rupees Five Million (LKR 5,000,000/-) imposed by the CBSL with effect from October 29, 2010 as per Operating Instruction Circular No. 11/2010 dated October 25, 2010.

2. Even though the Applicant has requested for SLIPS transfer for refund amounts and submitted accurate and complete details of the bank account in the Application Form, refund amounts exceeding Sri Lanka Rupees Five Million (LKR 5,000,000/-) will be made by a crossed cheque in favour of the Applicant and sent by ordinary post at the risk of the Applicant. In the case of a joint Application, a crossed cheque will be drawn in favour of the Applicant whose name appears first in the Application Form.

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3. In the event the refund payment is effected via SLIPS based on the bank account details provided by the Applicant in the Application Form, but is rejected by the Applicant’s bank due to inaccurate or incomplete information, such refund payments would be made via a crossed cheque in favour of the Applicant and sent by ordinary post at the risk of the Applicant. In such instances, the Company together with the Registrars to the Issue will send the refund cheques to such Applicants at the earliest possible time and the Applicant should not hold the Company or the Registrars to the Issue accountable for such delays.

Bank codes and branch codes could be obtained from the following website, through the Quick Links access; http://www.lankaclear.com/products_and_services/sl_interbank_payment_system_guideline.php

Refunds via Crossed Cheque

1. If the Applicant has not provided details of the bank account in the Application Form or has provided inaccurate or incomplete details of the bank account with respect to refunds via SLIPS, the refund payment will be made by a crossed cheque in favour of the Applicant and sent by ordinary post at the risk of the Applicant. In the case of a joint Application, a crossed cheque will be drawn in favour of the Applicant whose name appears first in the Application Form.

2. A request for cancellation of crossing on the refund cheque, in instances where the Applicant does not maintain a current account, should be addressed to the Registrars to the Issue in writing, stating the cheque number and the fact that the Applicant does not maintain a current account. The refund cheque and a clear photocopy of the Applicant’s NIC should accompany the letter.

In the event of a refund cheque being delivered by hand by a third party to the Registrars to the Issue for cancellation of crossing, a letter of authorisation signed by the Applicant stating the NIC number of such third party should also be presented with the refund cheque. Refund cheques on which the crossings have been cancelled by the Registrars to the Issue should preferably be collected in person or by third party authorised by the Applicant. Where an Applicant has requested the delivery of the cheque on which the crossing has been cancelled via post, such cheque will be sent at the risk of the Applicant.

4.9 Successful Applicants and CDS Lodgement

The Shares allotted will be directly uploaded to the respective CDS accounts given in the Application Forms before the expiry of eighteen (18) Market Days from the Issue Closing Date as requested by the CSE Listing Rules.

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You can open a CDS account through any member/trading member of the Colombo Stock Exchange (CSE) as set out in Annexure F or through any Custodian Bank as set out in Annexure G of this Prospectus.

A written confirmation, upon the completion of crediting the respective CDS accounts will be sent to the shareholder within two (2) Market Days of crediting the CDS accounts by ordinary post to the address provided by each shareholder in their respective Applications.

Refer Section 4.2.1 for the definition of “locked”.

New Shares shall not be transferable by the shareholders during the period between the date of allotment of the New Shares and up to the date of listing (excluding the date of listing) of the Ordinary Shares on the CSE. Further, the Company shall not allot any Shares of the Company (other than the allotment of New Shares) or transfer existing Shares during the interim period between the date of the Initial Listing Application and the date of listing of the Shares of the Company.

Upon the Ordinary Shares being listed on the CSE, such Shares shall be freely transferable except for those Shares mentioned in Section 9.2 of this Prospectus, which will be locked-in to be in compliant with CSE Listing Rules 2.1.1(d).

4.10 Declaration to the CSE and Secondary Market Trading

The Company will submit to the CSE a “Declaration” on the Market Day immediately following the day on which the Applicants’ CDS accounts are credited with the New Shares. Trading of the Ordinary Shares on the secondary market will commence on or before the third (3rd) Market Day from the receipt of the Declaration by the CSE as per the CSE Listing Rules.

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5.0 BUSINESS OPERATIONS OF PEOPLE’S INSURANCE LIMITED

5.1 Overview of People’s Insurance

People’s Insurance Limited (formerly known as “People’s Leasing Insurance Limited”), was incorporated as a public limited liability company on July 22, 2009 under the Companies Act No. 7 of 2007 and was registered as a non-life insurance provider under the Regulation of Insurance Industry Act No. 43 of 2000. The Company is a fully owned subsidiary of People’s Leasing & Finance PLC (PLF), which in turn is a 75% owned subsidiary of People’s Bank (PB).

The Company commenced operations in January 2010, with its main focus being on motor insurance, although many other non-life insurance products were also offered to its clients. The Company demonstrated an impressive growth since commencement of operations by exceeding LKR 2.4 Bn in terms of the Gross Written Premium in its second year of operations and by becoming the fifth largest non-life insurance firm in terms of premium volume in Sri Lanka by the third year, as per IBSL annual report for 2012. Furthermore, by the end of the second year in operation, the Company’s total asset base amounted to LKR 2.5 Bn.

PIL is supported by two strong and leading financial institutions, PB and PLF in Sri Lanka and this has assisted the Company to strengthen its position in the market. The Company uses a two pronged approach for increasing its market share, where by PIL focuses on leveraging on the business opportunities that arise through the parent companies, whilst also growing its direct customer base. The operations of the parent entities give rise to a clientele in the form of leases, who enter into lease agreements with PLF and also borrowers of PB. Furthermore, referrals from the parent entities and the island wide presence PIL enjoys through the ‘window operations’ within PLF’s branch network provide the Company with a unique opportunity to access an existing and potential client base.

FIGURE 5.1 – PRE-IPO GROUP STRUCTURE

People’s Bank

75.00%

People’s Leasing & Finance PLC

100.00%

People’s Insurance Limited

The Company has also entered into a bancassurance agreement dated February 28, 2013 with PB, which will enable PIL to approach the vast customer base of PB. Under this agreement, the Company has arranged to place its representatives at the PB regional offices, in order to effectively expand its customer base.

In addition to the clients directly referred by the parent entities and the clients accessed through the parent entities’ operations, the strong brand name and reputation associated with the group also assist in the development of PIL’s business.

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The Company intends to broadbase its clientele by building a strong non-captive direct customer base. PIL is focussing on the retail sector as well as small to medium enterprises with a strict mandate to generate non-captive retail business in this regard. The Company has already deployed more than 20 marketing personnel stationed at PLF branches in key locations covering the island, in addition to developing the broker, agent and corporate channels under the supervision of a staff member well experienced in developing and managing these distribution channels. The Company also extended its reach through two regional offices in Galle and Negombo, whilst also streamlining the operations and providing training and incentives for staff members to broaden the direct customer base.

Whilst aiming at expanding the direct customer base, the Company is keen to ensure that proper diligence is exercised in selecting clients, in order to maintain the quality of the existing portfolio as well as to sustain a low cost distribution network together with the positive underwriting results.

Whilst ensuring compliance with regulatory requirements and upholding ethical business practises, PIL concentrates on employee development and recognition, engaging with the community and advocating green campaigns. Furthermore, the Company is keen to maintain pricing discipline in order to maintain underwriting profitability.

5.2 Products Offered

Product Name Description Lifestyle Products Motor Vehicle Insurance This covers the motor vehicle against loss or damage caused by accidents and any legal liability to third parties for bodily injury or property damage. Additional covers are available under comprehensive motor insurance. Dwelling Fire The standard policy provides indemnity in the event of destruction or damage to the property (building and/or contents) insured by fire or lightning and domestic explosion. Storm, flood, earthquake, tsunami, strike and riot, terrorism, malicious damage, bursting of pipes and impact by vehicles and aircraft are optional covers. Home Insurance Home insurance is specially designed to provide essential insurance for the policyholder’s home/family in a single policy. Basic cover includes loss/damage to the building and contents due to fire and lightning, domestic explosion, storm, flood, earthquake, tsunami, impact by vehicles and aircrafts, bursting of water pipes, apparatus, accidental breakage of glass and burglary. The cover also includes cost of alternative accommodation and loss of rents. Optional covers are for malicious damages, riot and strikes, terrorism and fire damage to electrical appliances, personal accident cover for family members, workmen's compensation cover for domestic employees and personal/ family liability cover. Personal Accident This product covers the policyholder for bodily injury or death arising from an accident. This is especially valuable for a self-employed individuals where the earnings may cease on disablement. Travel Provides comprehensive cover, including overseas medical assistance, loss of travel documents, luggage and personal effects, personal accident and trip delay.

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Business Products Commercial Fire Covers loss or damage to the property caused by fire or lightning and Insurance domestic explosion. This insurance is usually extended to cover loss or damage due to storm and flood, earthquake, explosion, malicious damage, impact damage, burst pipes, strike, riot and terrorism, etc.

Business Interruption Covers loss of net profit and fixed charges (shortfall in gross profit) (Consequential Loss) following interruption of business caused by risks which are insured Insurance under a fire policy. Plate Glass Insurance Covers against accidental breakage, where breakage means a fracture through the entire thickness as opposed to mere scratching or chipping. Burglary Insurance Covers any loss/damage to the contents and buildings by any burglary or hold up. Fidelity Guarantee Covers loss of money or goods either belonging to employers or for Insurance which they are responsible as a result of acts or fraud or dishonesty by an employee. Machinery/Electronic Covers unforeseen and sudden damage to machinery by any Equipment Insurance accidental cause whilst at work or at rest and during cleaning, inspection, overhaul or removal to other position in the premises. Contractor's All Risks Covers loss or damage to contract works and all other materials on Insurance site as well as legal liability to third parties arising out of the performance of a contract. Workmen's Provides payment for accidental bodily injury and/or disease Compensation Insurance sustained by employees whilst in the course of employment. Public Liability Insurance Covers the insured's legal liability for accidental bodily injury or loss of or damage to property whilst in the course of business. It also covers legal fees, costs and expenses that may be incurred because of the accidents. Motor Vehicle Insurance Covers the motor vehicle against loss or damage caused by accidents and the legal liability to third party for bodily injury or property damage. Optional additional covers are available under comprehensive motor policies Marine (Cargo) Insurance Covers loss or damage to goods whilst in transit by land and sea. Cargo transported by air is also covered by this policy. Goods In Transit Covers loss of or damage to property caused by fire, theft or Insurance accidental means whilst being transported, loaded or unloaded from any road vehicle belonging to or hired by the insured. PIL SME Insurance Simplified and customised policy covering selected risks as per customer requirements, especially designed for small and medium enterprises (SMEs). Travel Provides comprehensive cover, including overseas medical assistance, loss of travel documents, luggage and personal effects, personal accident and trip delay.

People’s Insurance Limited - Initial Public Offering | 33

5.3 Customer Service

PIL strives to extend the best service standards to its customers, thus increasing customer satisfaction levels, the number of repeat customers and the overall longevity of operations. Communication with customers is maintained on a consistent basis whereby the Company uses customer feedback to improve the productivity of the operations and the effectiveness of the products. Claims management is especially focused on by the management, whereby the Company expects to provide an outstanding experience for its customers.

Along with the above, the Company also operates a 24x7 call centre facility with state-of-the-art technology and well trained customer service representatives in order to extend a personalised and interactive service to its customers. This facility enables customers to report any accidents or request for a claims assessment and provides them with speedy solutions to any queries or complaints.

PIL constantly looks into developing new insurance products in order to cater to the changing requirements of its policyholders and to add value to its brand.

5.4 Branch Network

The Company has a strong presence over the island, with the head office, the motor centre, two regional offices and 73 window offices within the PLF branches as at October 31, 2015.

FIGURE 5.2 – BRANCH NETWORK

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TABLE 5.1 - BRANCH DISTRIBUTION Province Number of Branches/Window Offices Northern Province 3 Window Offices North Central Province 3 Window Offices North Western Province 5 Window Offices 1 Head Office 1 Motor Centre Western Province 1 Regional Office 29 Window Offices 1 Regional Office Southern Province 8 Window Offices Eastern Province 4 Window Offices Central Province 10 Window Offices Uva Province 6 Window Offices Sabaragamuwa Province 5 Window Offices 1 Head Office 1 Motor Centre Total 2 Regional Offices 73 Window Offices

In addition to the above, PIL also has personnel placed in 25 PB regional offices.

5.5 Human Resources

From the initial 15 employees at the commencement of operations, the Company’s cardre has grown to 284 employees as at October 31, 2015.

The breakup of the cardre as at October 31, 2015 is as given below;

TABLE 5.2 – CARDRE BREAKUP Manager 13 Executive 10 Non-Executive 261 284

As at the date of this Prospectus, there are no labour unions, significant agreements entered into between the labour unions and the Company or action pending against the Company in any Labour Tribunal.

5.6 Accolades and Recognition

Despite the Company being in operation for only five years, it has been recognised and awarded for excellence in varying aspects.

12th Vision Awards Annual Report Competition 2012 - Asia-Pacific . Excellence within the Insurance Industry - Gold . Top 10 Sri Lankan Annual Reports of 2012

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13th Vision Awards Annual Report Competition 2013 - Asia-Pacific . Excellence within the Insurance Industry - Gold . Best Annual Report Narrative Honours . Top 80 Annual Reports in the Asia-Pacific Region

14th Vision Awards Annual Report Competition 2014 - Asia-Pacific . Excellence within the Insurance Industry - Gold . Top 50 Annual Reports in the Asia-Pacific Region

The first annual report of the Company prepared for the financial year 2012 was recognised at the Vision Awards organised by the League of American Communication Professionals (LACP). Subsequently in 2013 and 2014 annual reports were also recognised and awarded at the 13th and 14th Vision Awards Annual Report Competitions. LACP, Florida, USA is an organisation established in 2001 to set up a forum to discuss the best-in-class practices within the profession and to recognise those who demonstrate exemplary communication capabilities. Nearly 1,000 corporates competed each year at these awards, representing 25 countries. 2013 was the first time that PIL received a special regional achievement honours for the best annual report narrative.

28th International ARC Awards 2013 . World-wide Bronze Award, Non-traditional Annual Report Category - Insurance

PIL’s annual report for 2013 was recognised with the World-wide Bronze Award in the Non-traditional Annual Report Category - Insurance, at the 28th International ARC Awards competition. Over 2,000 entries from 31 countries across the world competed at 2013 awards. ARC Awards competition is organised by MerComm Inc., New York, USA, an independent awards organisation dedicated to defining the standards of excellence in communication and recognises individuals whose work has made an outstanding contribution to their organisations.

Institute of Chartered Accountants of Sri Lanka Annual Report Awards 2013 . Insurance Companies Certificate of Compliance

Institute of Chartered Accountants of Sri Lanka Annual Report Awards 2014 . Insurance Companies Certificate of Compliance

The very first annual report of the Company (2012) and the annual report for 2013 were presented with Certificates of Compliance at the Annual Report Awards organised by the Institute of Chartered Accountants of Sri Lanka (ICASL) in 2013 and 2014 respectively.

5.7 Future Direction of PIL

The Company intends to increase its market share by acquiring non-captive business. PIL has strategically placed marketing personnel for this purpose whilst pursuing business opportunities via corporate and broker insurance channels. This is in addition to the captive business that is routed via the parent entities and the group synergies that the Company expects to continue focusing on.

In this regard, PIL expects to increase business volumes generated from PB through the bancassurance agreement dated February 28, 2013 in addition to the growth expected in the business volumes routed through PLF.

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In the medium to long term, once the retail sales personnel generate a sizable business volume and/or considering the requirement for branches, the Company expects to open up branches in strategic locations. The Company is also in discussion with several banks in order to promote the Company’s policies through their banking networks.

In terms of pricing of its policies, the management of PIL is keen to maintain pricing discipline, in order to ensure that the underwriting results are not compromised. The combined ratio is expected to be maintained below 100% in order to ensure the continued profitability of the Company, while maintaining a sustainable growth in the top-line. Investment portfolio of PIL will be managed prudently and reviewed regularly in order to mitigate the risks associated with the investments.

The above plans to grow the business operations of the Company is expected to be supported by the training opportunities that will be extended to the employees, investment in modern technology and adopting a more structured approach to risk management. PIL expects to develop its own web presence with enhanced features such as an online payment mechanism to stay ahead of the technological changes that are taking place in the industry.

The risk factors associated with the future plans of PIL are detailed in Section 11.

5.8 Assumptions Relating to the Future Plans of PIL

The above mentioned future plans of the Company would be dependent on market and industry conditions prevailing at the time of execution. Furthermore, the strategies are also based on the primary assumption that there will be no material changes in the regulatory environment. Any significant changes in the economy, industry, competition or regulatory environment may require an amendment to the plans and strategies of PIL.

The following assumptions were made with regards to the economy, industry and level of competition when deducing the aforementioned plan.

1. GDP growth and insurance penetration Sri Lanka achieved a GDP growth rate in excess of 6% for the last five years and is expected to grow not less than 8% for the next five years as per the CBSL road map for 2015. We are of the view that the industry growth would coincide with GDP growth rate during the next five years and hence the industry would, at a minimum, be able to maintain the current level of industry penetration.

2. Disposable income and vehicle affordability in Sri Lanka The Company assumed that the disposable income would continue to grow at a pace not less than the expected GDP growth. Further, it was assumed that vehicle affordability would have a positive relationship with disposable income.

3. General insurance industry may go through a phase of consolidation We expect the General Insurance industry to go through a phase of consolidation following the segregation of composite insurance companies and the adaption of Risk Based Capital framework. General Insurance companies with limited capital and underwriting losses may not be able to stand alone and would be compelled to merge with the industry peers. Such industry consolidation might ensure pricing discipline among remaining companies and could change the nature of competition in General Insurance. People’s Insurance Limited - Initial Public Offering | 37

6.0 NON-LIFE INSURANCE SECTOR

6.1 Overview of Global Non-Life Insurance Sector

6.1.1 Premium Growth

The non-life insurance real premium growth in 2014 amounted to 2.9%, slightly above the 2.7% growth in the previous year, mainly driven by the recovery in Advanced Europe and North America, although the Advanced Asia segment and Oceania recorded slower growth rates as shown in Graph 6.1 below. The advanced economies recorded an overall growth of 1.8% which was a 0.4% growth over the previous year.

The advanced European region returned to a ‘slow growth’ state after years of decline or near zero growth, mainly owing to the recovery of economic conditions in the region. During the years of crisis the premiums from every main line of business within the non-life sector, except private medical insurance experienced a rapid decline as explained by Swiss Re. The private medical insurance segment has continued to grow at an annual average of 2% since 2007 and was the main reason for the premiums to remain marginally above the pre- crisis range.

GRAPH 6.1 - NON-LIFE REAL PREMIUM GROWTH BY REGION (2013 AND 2014)

Middle East & Central Asia

Latin America

Emerging Europe

Emerging Emerging Asia

Africa

Oceania

North America

Advanced Europe Advanced Advanced Asia

-3 -1 1 3 5 7 9 11 13 15 Non-Life Real Premium Growth Rate (%)

2014 2013 Source – Swiss Re Economic Research & Consulting, Sigma 04/2015, “World Insurance in 2014: Back to Life”, media.swissre.com/documents/sigma4_2015_en.pdf

As shown in Graph 6.1, the emerging economies’ real non-life premiums grew at 8% in 2014, with very strong growth rates in the Emerging Asia and Middle East and Central Asia. China and India made the largest contribution for this growth with direct written premiums of USD 151.1 Mn and USD 14.6 Mn respectively whilst countries such as Cambodia, Laos and Myanmar recording real premium growth rates of over 15% in 2014, as per the Swiss Re Sigma Explorer Database (www.sigma-explorer.com/index.html).

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The Middle Eastern and Central Asian region experienced a growth in the non-life sector supported by the relatively stable economic conditions and certain mandatory insurance regulations that were brought in. Furthermore, certain government initiatives within the region to introduce compulsory medical insurance and the growing popularity of takaful insurance products also contributed towards this growth and are expected to drive future growth as well.

The non-life premiums in the Latin American region underwent a decline in 2014, mainly as a result of the slower economic growth with the large markets such as Brazil, Argentina, Mexico and Peru being adversely affected. The slower growth in the African region was attributed to the slower premium growth in South Africa.

Emerging Europe or Central and Eastern European region was the only segment to record a negative growth in the real non-life premiums in 2014. This was mainly as a result of the premium deterioration in Russia as a result of the Ukrainian conflict.

6.1.2 Penetration

With the slower economic growth in the advanced economies and the recent economic crisis which affected many of these countries, the growth in the market penetration in these markets have been low over last several years. A trend of reducing motor insurance premiums in the advanced markets has been observed by experts and it is expected that other business lines such as liability insurance and new risk covers will offset this reduction. However, according to McKinsey & Company (Global Insurance Pools, 4th Edition, 2014, “Global Insurance Industry Insights: An In-depth Perspective”), these expectations have not been realised yet. Fire and property business lines have continued a growth trend.

Over the last four years, the non-life premium growth in the emerging markets has surpassed the growth in the life segment. Further to this, since 2006 it has been observed that the non-life premiums have grown by 1.5 times the average economic growth in each year, in the emerging economies as per Swiss Re, Sigma 04/2015. These factors have contributed towards the increase in the non-life segment market penetration.

In the emerging markets the motor segment continued to account for more than half of both the premiums and the premium growth in 2014.

6.1.3 Losses and Profitability

In 2014, insured and uninsured losses due to catastrophes was estimated to be USD 110 Mn, with Asia being the hardest hit due to the cyclones in the Pacific and other natural disasters in the region. In 2014, losses covered by the insurers due to natural and manmade disasters amounted to USD 28 Bn and USD 7 Bn respectively. The large gap between the total losses and the losses covered by the insurers were as a result of the low insurance penetration in mainly the emerging markets and the advanced markets as well, as analysed by Swiss Re, Sigma 04/2015.

In advanced Asia the profitability remained solid, with the non-life underwriting results continuing to improve in Japan with the absence of any major natural catastrophe related losses. However, the increasing motor claims in South Korea and Hong Kong together with the rising claims in long term healthcare, casualty and marine insurance in South Korea are of concern.

With no significant natural catastrophes affecting the emerging Asian region the profitability of the insurers was stable as illustrated in Swiss Re, Sigma 04/2015 report.

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6.1.4 Future Outlook

With lower price increases and sluggish economic recovery, the North American and advanced European regions are expected to have slower non-life insurance growth. Many advanced Asian countries are likely to experience a challenging period, although Japan is expected to have a slightly higher premium due to increased trade and investment activities and South Korea is expected to have higher premiums due to motor premium rate hikes and re-pricing of private medical insurance policies.

Overall, the advanced markets are expected to have mixed results due to improving global economic conditions which will result in premium growth while also being slightly hindered by the premium rates which are expected to remain low.

In Latin America, the non-life segment is expected to be subdued due to low economic growth, while the emerging European region is expected to experience declining non-life premiums in 2015 on an overall basis, with Russia’s premiums reducing due to recession and the other countries improving slightly due to better economic conditions.

Emerging Asia’s insurance growth outlook remains favourable despite a lower expected economic growth. The economic growth rate for 2015 for the Asia Pacific region is expected to be 5.6%, as per the International Monetary Fund’s World Economic and Financial Surveys, “World Economic Outlook – April 2015”, (www.imf.org/external/pubs/ft/weo/2015/01/pdf/text.pdf), which is still above the economic growth forecasts for the developed markets. The growing demand for insurance driven by the increasing income levels is predicted to be the main driver of the insurance market over the next decade. Further to this, the insufficient coverage for natural disasters is also expected to be a major driver of the market. Owing to these factors, the premium growth is expected to outperform economic growth, while emerging Asia is forecast to be the highest growth region, by industry experts such as Munich Re, Insurance Market Outlook–May 2015 (https://www.munichre.com/site/ corporate/get/documents_E354758228/mr/assetpool.shared/Documents/0_Corporate%20Website/ 6_Media%20Relations/Company%20News/Munich-Re-Insurance-Market-Outlook-2015-en.pdf).

Strong growth is expected in the Chinese, Indian and Indonesian markets, as a result of government initiatives and policies that will either directly or indirectly affect the insurance segment penetration. The political stability in Thailand is also expected to affect the non-life segment favourably, as per the Asia insurance Review, “Emerging Asia: China leads growth in life and non-life sectors”, June 25, 2015, (www.asiainsurancereview.com/News/View-NewsLetter-Article?id=33103&Type=eDaily). In addition, the development in the emerging Asian countries in terms of the infrastructural improvements and the increased catastrophe risk in the region are expected to drive the non-life segment further. Furthermore, the increasing real estate and financial asset values together with the expansion in the middle to high income categories are expected to boost the non-life insurance segment through higher protection levels and personal insurance such as health insurances as per Ernst & Young, “2015 Global Insurance Outlook”, (www.ey.com/Publication/vwLUAssets/ey-2015-global-insurance- outlook/$FILE/ey-2015-global-insurance -outlook.pdf)

Overall the profitability of the non-life insurers is expected to be under pressure as a result of the low growth rates and low investment returns as per Swiss Re, Sigma 04/2015.

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6.2 Overview of Sri Lankan Insurance Sector

As at end 2014, prior to the segregation of businesses as discussed in Section 6.2.1, 21 insurance companies were registered with the IBSL, of which 12 were providing life as well as non-life insurance, 3 were engaged in life insurance only whilst the balance 6 provided non-life insurance services.

As per the provisional figures provided by the IBSL for 2014 in their annual report, the insurance sector grew by 5.14% reflecting a declining growth trend which has been prevalent since 2012, despite the steady growth in nominal GDP. The total Gross Written Premium (GWP) amounted to LKR 99.87 Bn in 2014, with the life insurance sector contributing LKR 44.61 Bn and the general insurance contributing LKR 55.26 Bn.

The significant growth rates ranging between 11% - 18% recorded from 2010 to 2012 were mainly linked to the post was resurgence in the economy, which is seen to ease off over the last couple of years in Graph 6.2.

GRAPH 6.2 - GROSS WRITTEN PREMIUM AND INSURANCE SECTOR PENETRATION

Source – IBSL Annual Report 2011 - 2014

The growth in the insurance sector was not reflected in its market penetration measured in terms of the contribution to GDP, which was as a result of the nominal GDP growth surpassing the insurance sector growth from 2008 to 2014. The penetration levels of only 1.02% in 2014 placed Sri Lanka below most of its emerging market peers in Asia as reflected in Table 6.1.

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TABLE 6.1 – COMPARISON OF THE INSURANCE INDUSTRY PENETRATION AMONGST ASIAN EMERGING PEERS Country Total Insurance Sector Penetration Thailand 5.80% Malaysia 4.80% India 3.30% China 3.20% Philippines 2.00% Macao 1.90% Indonesia 1.70% Vietnam 1.40% Sri Lanka 1.02% Pakistan 0.80%

Source – Swiss Re Economic Research & Consulting, Sigma 04/2015, “World Insurance in 2014: Back to Life”, media.swissre.com/documents/sigma4_2015_en.pdf & IBSL Annual Report 2014

The main reasons for the low penetration levels are low disposable income levels, the relatively low awareness on the insurance concept and its benefits and the most often used ‘push’ sales strategy, which leads to a higher lapse ratio, as per IBSL and Fitch Ratings, “2015 Outlook: Sri Lanka Insurance Sector”. In addition to this, free access to the state supported medical facilities also dampens the need for and hinders the growth in the health related insurance policies.

However, the reducing penetration levels together with the lower growth rates indicate the need for awareness creation amongst the consumers as well as the requirement to develop insurance products that are in line with the policyholder requirements. A shift from insurance being considered a ‘luxury’ to a ‘basic necessity’ would be crucial for the insurance industry to reach its potential. Furthermore, moving away from the ‘push’ sales strategy towards a more education driven and need creation strategy would benefit the industry and the policyholders since this will result in a knowledge driven purchase.

The low penetration levels show the infancy of the industry when compared with peers and its potential to grow rapidly with the proper identification of the issues such as the lack of awareness. This also presents an opportunity to introduce newer products to cater to the various segments of the market ranging from the sophisticated to the grassroots level clientele, based on their individual requirements.

The asset base (after eliminating intersegment transactions) of the insurance sector was recorded at LKR 406.83 Bn by end 2014, recording a growth of 13.81% over the asset base as at end 2013. Of this over 60% was attributable to life insurance, as per the IBSL Annual Report for 2014.

6.2.1 Regulatory Changes Affecting the Insurance Industry

The Sri Lankan insurance industry is monitored and regulated by the IBSL, to ensure that “the insurance business in Sri Lanka is transacted with integrity and in a professional and prudent manner with a view to safeguarding the interests of policyholders and potential policyholders.”

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Furthermore, the legal framework for the industry is provided through the Regulation of Insurance Industry Act No. 43 of 2000 and the Amendment Act No. 27 of 2007 and Amendment Act No. 3 of 2011. Over the past few years the regulator has incorporated the following major changes to the legislation with a view to developing the industry and adopting global practises;

. Segregation of Composite Insurance Business - As per Section 53 of the Regulation of Insurance Industry (Amendment) Act No. 3 of 2011, composite insurance companies were required to segregate the two business lines into two separate companies on or before February 2015. With the segregation the number of insurance companies operating in Sri Lanka increased with effect from January through June 2015.

At present, post segregation, 29 insurance companies are operating in Sri Lanka, of which 11 companies are operating as life insurance providers and 14 are specialising in non-life insurance business. 4 insurers are operating as composite insurers and have not yet completed the segregation process.

. Revision of the Minimum Capital Requirement – an upward revision to the Minimum Capital Requirement (MCR) to LKR 500 Mn for each business line, from the current LKR 100 Mn was introduced and this was to be complied with on or before February 2015.

. Risk Based Capital (RBC) Model – the introduction of this model will require the industry to shift from the rule based regime with regard to the capital requirements towards a risk based method. The new rules are expected to replace the presently used Solvency Margin Rules with the insurers expected to comply with the RBC rules from 2016.

. Mandatory Requirement to be listed – a mandatory requirement for insurers to be listed on a stock exchange licensed under the Securities & Exchange Commission of Sri Lanka Act No. 36 of 1987 was introduced. Composite insurers are required to segregate their business prior to listing, as mentioned above, and the listing needs to be obtained prior February 07, 2016.

Any new entities, including companies formed upon segregation which are registered as insurers after the Amendment Act No. 3 of 2011 are required to obtain a listing within three years from being issued their insurance license.

In this regard, IBSL has also indicated that, subject to necessary approvals being obtained, exemptions maybe provided to; i) Insurance companies with over 85% foreign shareholding where the parent entity is listed on an approved stock exchange, and to ii) Government held insurance companies, Sri Lanka Insurance Corporation and NITF

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6.3 Overview of Sri Lankan Non-Life Insurance Sector

The general insurance sub sector contributed 55.33% (LKR 55.26 Bn) of the total GWP of the sector in 2014, recording a growth of 3.66% over the 2013 as per IBSL Annual Report 2014. This was a lower growth when compared with the growth rate of 7.28% which was recorded in the previous year.

GRAPH 6.3 - GROWTH IN GROSS WRITTEN PREMIUM BY CLASS OF INSURANCE (2010 – 2014)

Source – IBSL Annual Reports 2011 - 2014

Fire and Miscellaneous insurance categories experienced drastic reductions in their growth rates over 2013, contributing toward the overall reduction in the growth rate as shown in Graph 6.3 above. Despite having higher growth rates in 2014, Fire and Motor insurance failed to contribute significantly towards the non-life sector GWP.

Motor insurance contributes to over 63% of the non-life insurance GWP, with its gross written premiums amounting to LKR 34.9 Mn in 2014 (IBSL Annual Report 2014). Along with the high price competition amongst the insurance providers in the motor category, the risk retained by the insurance providers is also high, as depicted by the high retention ratio in Table 6.2. The retention ratio has increased in 2014, when compared with the slightly lower retention in 2013. In 2014, the motor claims ratio increased to 64.68% although this remained below the claims ratios for fire and miscellaneous and the overall sector. However, since motor insurance accounts for more than half of the total sector’s GWP, any growth in the claims ratio combined with the severe price competition is likely to put pressure on the profitability of the non-life sector.

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TABLE 6.2 – RETENTION AND NET CLAIMS RATIOS BY NON-LIFE INSURANCE CATEGORY Year Category 2010 2011 2012 2013 2014 Retention Ratio 98.49% 98.57% 98.49% 97.39% 98.28% Motor Net Claims Ratio 63.92% 65.39% 62.25% 62.11% 64.68% Retention Ratio 15.55% 23.92% 23.63% 23.48% 19.08% Fire Net Claims Ratio 48.21% 42.28% 36.06% 57.64% 69.72% Retention Ratio 45.71% 49.50% 30.83% 44.39% 40.64% Marine Net Claims Ratio 32.05% 28.93% 59.78% 53.71% 40.22% Retention Ratio 73.56% 74.79% 74.32% 77.60% 79.36% Miscellaneous Net Claims Ratio 58.52% 66.05% 65.15% 57.37% 69.40% Overall Non- Retention Ratio 78.97% 82.40% 82.50% 82.39% 83.25% Life Sector Net Claims Ratio 61.27% 63.78% 61.81% 60.83% 65.42% Source – IBSL Annual Reports 2011 - 2014

The fire and marine insurance retention rates declined in 2014, reflecting a higher risk being passed on to the reinsurers, potentially due to the higher risk associated with the policies and the inability to absorb the financial risk directly by the insurer, as reflected in Table 6.2 above.

Health and surgical insurance was the highest contributor within the miscellaneous insurance category, with a GWP of LKR 6.3 Bn and a contribution of 11.58% towards the GWP of the non-life segment in 2014 (IBSL Annual Report 2014). This contribution level places health and surgical insurance as the second highest contributor within the non-life segment, surpassing fire and marine. With the expanding middle income category in the economy, the preference for private medical facilities is increasing. As a result, the health insurance premiums are expected to grow at a steady rate over the next few years, although this will be directly linked with the quality and ease of access to the state funded medical facilities and the growth of disposable income.

Although health insurance continues to increase its contribution to the non-life segment, with the aging population and the significant increase observed in the private medical expenses, the claims ratio is likely to be high for this category of insurance, which may be reflected in the relatively high claims ratio for the miscellaneous category.

6.3.1 Competition

Both segments of the Sri Lankan insurance industry is dominated by large players. In the non-life insurance sector, the top 5 insurers accounted for the major portion of the market with a combined market share of approximately 68.07% which is on a declining trend whereby the market share enjoyed by the smaller players is observed to be increasing from 2007 onwards, as reflected in the IBSL Annual Report 2014.

PIL surpassed AIA to achieve the fifth position in its third year of operations (2012), as per the market share information provided in the IBSL Annual Report 2012 and maintained the position in 2013 and 2014, further illustrating the strong growth potential available for newer players in the market. This shifting market shares reflect the developments in the insurance market in Sri Lanka, whereby the smaller players are competing strongly with the previously dominant players.

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6.3.2 Asset Base

The total industry asset base of LKR 406.8 Bn as at end 2014 consisted of LKR 249.8 Bn in assets pertaining to life insurance, LKR 163.8 Bn attributable to the non-life insurance and intersegment transactions of LKR 6.8 Bn, including the shareholders assets as per the information provided by IBSL in the Annual Report for 2014. The non-life asset base increased by 10.39% in 2014.

GRAPH 6.4 – BREAKUP OF THE ASSET BASE – NON-LIFE INSURANCE (2013-2014)

2014

2013

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Government Securities Equities Corporate Debt Land & Building Deposits Other Assets

Source – IBSL Annual Reports 2011 - 2014

A shift from government securities to equity and corporate debt was evident in 2014 as seen in Graph 6.4, which could be as a result of the low interest environment, the income tax waiver on listed corporate debenture investments and better performance of the equity markets when compared to the previous years.

The total investment income from the non-life investment base amounted to LKR 8.21 Bn in 2014 resulting in an investment yield of 7.53%, which was lower than the yield of 7.61% for 2013 as per IBSL Annual Report 2014. This decline was mainly due to the fall in interest rates in 2014, the drop in gold prices and the inadequate returns from the equity markets.

6.3.3 Solvency Margins

Insurance providers are expected to meet the minimum solvency margins as stipulated by the regulator. For non-life insurance, the solvency margins are calculated as the difference between the value of assets and value of liabilities, as defined in Solvency Margin (General Insurance) Rules 2004 made under Section 26 of the Regulation of Insurance Industry Act, No. 43 of 2000.

In 2014, all non-life insurance providers recorded solvency ratio above the minimum requirement of 1.00, with the industry average reaching 2.39 (IBSL Annual Report 2014).

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With the introduction of the Risk Based Capital model, the methodology used to compute the solvency margin will change, where the insurers will be required to comply with the following requirements; . Minimum Total Available Capital (TAC) of LKR 500 Mn, where TAC will be computed as the total of tier 1 and tier 2 capital less capital deductions. . Capital Adequacy Ratio (CAR) of over 120%, where the CAR is calculated as Total Available Capital over the Risk Based Capital.

6.3.4 Future Outlook

The low penetration levels when compared with the regional peers and the increasing income levels are expected to support the steady growth of the overall insurance industry, over the next few years. However, since the segregation of businesses occurred at the beginning of 2015, many insurers are expected to face initial operational difficulties and are expected to streamline their processes in order to smoothen out their operations.

The changes made to the vehicle valuation by Sri Lanka Customs and the duty structures, through the Extraordinary Gazette No. 1933/16 of September 15, 2015 is expected to have an adverse impact on the vehicle imports and motor vehicle insurance category in the short term. The intense competition in the motor insurance sub-class is expected to continue, with insurers developing innovative policy features to attract clients.

The health insurance category is expected to increase over the next decade supported by increasing disposable income and growing need for higher quality private sector healthcare facilities. The scope for marine insurance is expected to be limited, despite the increased marine traffic calling in at the Colombo and Hambantota ports, since the majority of the volume will be through transhipment. Fire insurance will be heavily dependent on the development of the real estate and industrial sectors of the economy.

Given the heavy competition that is expected to continue in the motor segment and the high claims ratio of health insurance, many insurers are expected to continue making underwriting losses. The investment income will be mainly dependent on the interest rate regime and the performance of the equity market, and will determine the overall profitability of the non-life insurance sector.

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7.0 CORPORATE STRUCTURE

7.1 Board of Directors

The Board of Directors guides and supervises the business and operations of the Company. The Board consists of two (02) Non-Executive Independent Directors, two (02) Non-Executive Non-Independent Directors (including the Chairman) and One (01) Executive Director. As at the date of this Prospectus, the composition of the Board is as follows.

TABLE 7.1 - DETAILS OF PEOPLE’S INSURANCE LIMITED BOARD OF DIRECTORS Name Age Address Designation Mr. Jehan P. Amaratunga 56 5, Rajawatte Terrace, Chairman/Non-Executive Colombo 03 Non-Independent Director Mr. N. Vasantha Kumar 57 189/8A, Sama Mawatha, Non-Executive Non-Independent Nawala, Rajagiriya Director Mr. D. P. Kumarage 68 74, Devala Road, Managing Director/Executive Director Makola Road, Makola Mr. L. Abeysekera 54 35, Weherakanda Road, Non-Executive Independent Director Beddegana, Pitakotte Ms. Fathima Farah Hussain 42 22, Austin Place, Non-Executive Independent Director Colombo 08

*On October 20, 2015, the Board appointed Mr. Lakshman Abeysekera and Ms. Fathima Farah Hussain as Non- Executive Independent Directors subject to the approval of IBSL.

7.2 Profiles of the Board of Directors

Mr. Jehan P. Amaratunga - Chairman/Non-Executive Non-Independent Director

Mr. Amaratunga assumed duties as the Chairman of PIL in July 2010. He presently serves as the Group Executive Deputy Chairman of MTD Walkers PLC, which is a leading infrastructure development company that is listed on the Main Board of the CSE and also serves as a Director of People’s Bank, People’s Leasing & Finance PLC, JAT Holdings (Private) Limited and Sri Lanka Institute of Information Technology (SLIIT). He is a Member of the Institute of Chartered Accountants of Sri Lanka (ICASL) and is a Fellow Chartered Management Accountant. He was awarded First in Order of Merit Prize at the final level examination of the ICASL. He is also a Member of the Council, University of Colombo.

Mr. Amaratunga has over 30 years of extensive experience in finance and management and has been a Consultant and Director to a large number of corporations and private entities. Amongst his many achievements, he has presented a paper titled "Value for Money Accounting" at the National Conference of the ICASL in 1987. He was also a Member of the Governing Council of the ICASL.

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Mr. N. Vasantha Kumar - Non-Executive Non-Independent Director

Mr. N. Vasantha Kumar was appointed as a Director of PIL in May 2011. He presently serves as the CEO/GM of People’s Bank and is a Director of People’s Leasing & Finance PLC, People’s Leasing Property Development Limited, People’s Leasing Havelock Properties Limited, People’s Travels (Private) Limited, People’s Merchant Finance PLC, Credit Information Bureau, National Payment Council, Lanka Financial Services Bureau, Financial Ombudsman Sri Lanka (Guarantee) Limited and Sri Lanka Banker’s Association (Guarantee) Limited.

He is a Member of the Governing Board of the Institute of Bankers of Sri Lanka. He holds a Master’s Degree in Business Administration and counts over 34 years of experience in treasury management. He was the Past President of the Association of Primary Dealers and of the Sri Lanka Forex Association and served as Treasurer at ANZ Grindlays Bank, Colombo for many years.

Mr. D. P. Kumarage - Managing Director/Executive Director

Mr. Kumarage was appointed as the Managing Director of PIL in July 2009. He has been functioning as the CEO/GM of People’s Leasing & Finance PLC since September 1997. He is also the Managing Director of People’s Leasing Fleet Management Limited, People’s Leasing Property Development Limited, People’s Leasing Havelock Properties Limited and People’s Microfinance Limited.

He has over 34 years experience in banking and finance at PB and retired as a Deputy General Manager. He holds a Postgraduate Diploma in Modern Banking and is a Finalist of the Chartered Institute of Management Accountants UK. He is the Vice President of the Asian Leasing and Finance Association and was the Chairman of the Leasing Association of Sri Lanka. In addition, he serves as a Non-Executive Director of SANASA Development Bank PLC, People’s Merchant Finance PLC and Lanka Ashok Leyland PLC.

Mr. Lakshman Abeysekera - Non-Executive Independent Director

Mr. Abeysekera, Chartered Accountant, was appointed as a Non-Executive Independent Director of PIL on October 20, 2015 subject to the approval of IBSL. He possesses over 25 years experience in Accounting and Management fields. He currently functions as a Non-Executive Director of Sanasa Development Bank PLC, and Director of JanRich Foods Limited, NovEx Pharmaceuticals Limited and a Governing Council Member of AAT Sri Lanka. He has held the positions of Chief Financial Officer at Emerchemie NB (Ceylon) Limited, Accountant at Hoechst (Ceylon) Limited and was the Senior Accountant at Lankem Ceylon Limited.

Mr. Abeysekera is a Fellow Member of the ICASL, a Fellow Member of the Association of Accounting Technicians of Sri Lanka and has a MBA from the Postgraduate Institute of Management, University of Sri Jayawardenapura.

Ms. Fathima Farah Hussain - Non-Executive Independent Director

Ms. Hussain, an insurance professional was appointed as a Non-Executive Independent Director of PIL on October 20, 2015 subject to the approval of IBSL. She possesses over 10 years experience as an Insurance Agent and as a private wealth management consultant specialising in the promotion of Takaful insurance and other Islamic Products.

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She has also worked as General Manager of HG Knitwear (Private) Limited and as the Private Secretary, to the Minister of Tertiary Education and Training Sri Lanka for the period of December 2001 to February 2004. Ms. Hussain is qualified as an Insurance Agent from the Insurance Board of Sri Lanka and has an Associate Degree (Deans List, 47 credits complete) from the Eastern Connecticut State University, United States of America.

Mr. Rohan Pathirage - Company Secretary

Mr. Pathirage was appointed as the Company Secretary of PIL in July 2009. At present, he is the Secretary to the Board of Directors of PB. He also serves as the Company Secretary of People’s Leasing & Finance PLC, People’s Leasing Fleet Management Limited, People’s Leasing Property Development Limited, People’s Leasing Havelock Properties Limited, People’s Microfinance Limited and People’s Travels (Private) Limited.

He is an Attorney-at-Law with a Bachelor of Laws Degree from the University of Colombo. He holds an MBA in Bank Management from the Massey University in New Zealand.

7.3 Other Directorships Held by the Board

TABLE 7.2 - OTHER DIRECTORSHIPS Name of Director Other Directorships Held Mr. Jehan P. Amaratunga . MTD Walkers PLC . People’s Bank . People’s Leasing & Finance PLC . JAT Holdings (Private) Limited . Sri Lanka Institute of Information Technology Mr. N. Vasantha Kumar . People’s Leasing & Finance PLC . People’s Leasing Property Development Limited . People’s Leasing Havelock Properties Limited . People’s Travels (Private) Limited . People’s Merchange Finance PLC . Credit Information Bureau of Sri Lanka . National Payment Council . Lanka Financial Services Bureau . Financial Ombudsman Sri Lanka (Guarantee) Limited . Sri Lanka Banker’s Association (Guarantee) Limited Mr. D. P. Kumarage . People’s Leasing Fleet Management Limited . People’s Leasing Property Development Limited . People’s Leasing Havelock Properties Limited . People’s Microfinance Limited . SANASA Development Bank PLC . People’s Merchant Finance PLC . Lanka Ashok Leyland PLC Mr. L. Abeysekera . SANASA Development Bank PLC . NovEx Pharmaceuticals Limited . JanRich Foods Limited Ms. Fathima Farah Hussain None

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7.4 Directors’ Interest in Shares

7.4.1 Directors’ Direct and Indirect Shareholdings in the Company

The Directors’ direct shareholdings in the Company as at October 16, 2015 are tabulated below.

TABLE 7.3 – DIRECTORS’ SHAREHOLDINGS IN PIL AS AT OCTOBER 16, 2015 Number of Percentage of Name of Director Shares Held Shareholding (%) Mr. Jehan P. Amaratunga Nil - Mr. N. Vasantha Kumar Nil - Mr. D. P. Kumarage Nil - Mr. L. Abeysekera Nil - Ms. Fathima Farah Hussain Nil -

7.4.2 Sale or Purchase of Shares by the Directors

There were no sales, transfers or purchases of shares made by the Directors of the Company during the last 12 months prior to the date of this Prospectus.

7.4.3 Directors’ Emoluments

The Directors were remunerated in the form of fees, salaries, bonuses and profit sharing payments during FY 2014 to an approximate extent of LKR 370,000. The Directors are expected to be remunerated in the form of fees, salaries, bonuses and profit sharing payments during FY 2015 to an approximate extent of LKR 1,100,000, taking into consideration the revision of director’s emoluments and the emoluments payable to the directors appointed during FY 2015.

7.4.4 Directors’ Interest in Assets

The Directors hold no interest in assets acquired, disposed or leased by the Company during the two years preceding the IPO. Furthermore, it is not proposed that the Directors will hold any interest in assets to be acquired, disposed or leased by the Company in the two years subsequent to the IPO.

7.4.5 Directors’ Interest in Material Contracts

There are no contracts or arrangements in force as at October 16, 2015 in which the Directors of the Company are materially interested in relation to the business of the Company.

Please refer Note 13 of the Interim Financial Statements for the ten (10) months ended October 31, 2015 provided in Annexure D of this Prospectus for details of the assets/investments held by and the transactions associated with companies related to PIL.

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7.4.6 Statement - Board of Directors

No Director or a person nominated to become a Director of the Company is or was involved in any of the following events:

. A petition under any bankruptcy laws filed against such person or any partnership in which he was a partner or any corporation of which he was an executive officer; . Convicted for fraud, misappropriation or breach of trust or any other similar offence which the CSE considers a disqualification.

7.5 Corporate Governance Practices

The Board firmly believes that corporate governance is fundamental to the Company’s competitiveness, growth and sustainability. Hence, the Board strives to discharge their duties with high ethical values and accountability in their commitment to good governance practices. The Board of PIL recognizes the fact that corporate governance is about effective, transparent and accountable governance of affairs of a company and that the purpose of corporate governance is to facilitate effective entrepreneurial and prudent management that can deliver long-term success of the Company.

Furthermore, the importance of corporate governance in creating value for all stakeholders is appreciated and in this regard the Company has taken the necessary steps to design their corporate governance framework to protect the interest of all the stakeholders.

The Board of Directors strives to follow and adopt the provisions and guidelines set out in the Code of Best Practise on Corporate Governance jointly issued by the Institute of Chartered Accountants of Sri Lanka and the Securities and Exchange Commission, on a voluntary basis.

The constitution of the Board in compliance with the listing rules of the CSE is as follows:

TABLE 7.4 – COMPOSITION OF THE BOARD OF DIRECTORS Type Number of Directors Names of Directors Non-Executive Independent Directors Mr. L. Abeysekera 2 Ms. Fathima Farah Hussain Non-Executive Non-Independent Mr. Jehan P. Amaratunga 2 Directors Mr. N. Vasantha Kumar Executive Director 1 Mr. D. P. Kumarage Total 5

The Board has also appointed the following committees as required to support the corporate governance functions: . Board Audit Committee . Remuneration and Nomination Committee . Related Party Transaction Review Committee

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7.5.1 Board Audit Committee

The Board audit committee constitutes the following Independent Directors, whereas the Managing Director, Chief Operating Officer and Senior Manager-Finance attend the meetings by invitation and Mr. Udesh Gunawardena, Assistant General Manager-Internal Audit of People’s Leasing & Finance Group acts as the secretary to the Committee.

Mr. Lakshman Abeysekera (Non-Executive Independent Director) - Chairman Ms. Fathima Farah Hussain (Non-Executive Independent Director) Mr. N. Vasantha Kumar (Non-Executive Non-Independent Director)

The audit committee is empowered by the Board of Directors to oversee the financial reporting, internal controls, internal audit, whistleblowing and assessment of independence and performance of external auditors. The main roles of the audit committee include;

. Ensuring that a good financial reporting system is in place and well managed in order to give accurate, appropriate and timely information to the Management, regulatory authorities and shareholders in accordance with Sri Lanka Accounting Standards (SLFRS/LKAS), Regulation of Insurance Industry Act, Companies Act and other financial reporting related regulations and requirements. . Keeping under review the Company’s internal controls and risk management systems and ensuring the procedures are adequate to meet the requirements of the Sri Lanka Auditing Standards. . Ensuring that the conduct of the business is in compliance with the applicable laws and regulations and policies of the Company. . Assessing the independence and monitoring the performance and functions of internal and external auditors. . To make recommendations to the board pertaining to appointment, re-appointment and removal of external auditors and to approve the remuneration and terms of engagement of the external auditors. . Assessing the Company’s ability to continue as a going concern in the foreseeable future

The committee meets regularly and adequately throughout the financial year to discharge its duties.

7.5.2 Remuneration and Nomination Committee

The remuneration and nomination committee consists of the following directors;

Mr. Jehan P. Amaratunga (Non Executive Non-Independent Director) - Chairman Ms. Fathima Farah Hussain (Non-Executive Independent Director) Mr. Lakshman Abeysekera (Non-Executive Independent Director)

The Managing Director or Chief Operating Officer shall be invited to attend meetings convened to discuss the performance and remuneration of Executive Directors, Chief Operating Officer and Key Management Personnel and he/she shall be consulted thereon and permitted to make proposals as necessary. The Company Secretary will act as the secretary of the committee.

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The main duties of the remuneration and nomination committee are as follows;

. Responsible for the remuneration policy and its specific application to the executive directors and key management personnel . Make recommendations to the Board on the remuneration and incentive framework of the executive directors and Key Management Personnel, including any proposed equity incentive awards, terminal benefits/pension rights, etc. and make decisions (as relevant) on their remuneration and incentive awards; . Evaluate the performance of the executive directors and Key Management Personnel, management development plans and succession planning of the Company; . Responsible for formalising the strategic human resource policy; . Recommend and ensuring that appropriate service contracts are available for the executive directors and Key Management Personnel; . Determine the terms of any compensation package in the event of early termination of the contract of any executive directors or Key Management Personnel . Make recommendations to the Board regarding the content to be included in the Annual Report on directors’ remuneration. Propose a suitable charter for the appointment and reappointment of Directors to the Board and to act in accordance with such charter in proposing appointments and reappointments to the Board. . Identify few suitable candidates to the Board, for the purpose of appointing the most suitable candidate/s to fill any vacancy/vacancies of the Board and consider all re-appointments to the Board; . Act in accordance with the provisions of the Companies Act No. 7 of 2007 (as amended), Regulation of Insurance Industry Act No. 43 of 2000 (as amended), Articles of Association of the Company and the Corporate Governance Rules contained in the Listing Rules of the Colombo Stock Exchange in recommending such appointments or re-appointments of Directors to the Board; . Provide advice and recommendations to the Board or the Chairman (as the case may be)on any such appointment or reappointment; . Consider and determine if a director is able to and has been adequately carrying out his/her duties as a Director taking into consideration the Director’s number of listed company boards on which he/she is represented and other principal commitments and if necessary specify/propose the maximum number of listed company board representations which any Director may hold and disclose the same in the Annual Report. . Regularly review the structure, size, composition and competencies (including the skills, knowledge and experience) of the Board and make recommendations to the Board with regard to any changes that needs to be introduced . A member of the Committee should not participate in decisions relating to his own appointment.

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7.5.3 Related Party Transactions Review Committee

The related party transactions review committee consists of the following directors;

Ms. Fathima Farah Hussain (Non Executive Independent Director) – Chairman Mr. Lakshman Abeysekera (Non Executive Independent Director) Mr. D. P. Kumarage (Executive Director)

The committee meets at least once a quarter to discuss and approve all proposed related party transactions of the Company that do not fall within the exceptions stipulated in Rule 27 of the Code of Best Practices on Related Party Transactions – December 2013. However, a meeting maybe convened by the secretary of the committee at the request of the chairman of the committee to discuss and approve any urgent related party transaction of the Company as and when deemed necessary.

The purpose of the committee is to review in advance all proposed related party transactions other than those transactions explicitly exempted in the Code of Best Practices on Related Party Transactions – December 2013. Accordingly, except for transactions mentioned under Rule 27 of the Code of Best Practices on Related Party Transactions - December 2013, all other related party transactions should be reviewed by the committee either prior to the transaction being entered into or, if the transaction is expressed to be conditional on such review, prior to the completion of the transaction. The duties of the committee comprises of the following;

. Review in advance all proposed related party transactions of the Company except those explicitly exempted in the Code of Best Practices on Related Party Transactions - December 2013 . Adopt policies and procedures to review related party transactions of the Company . Determine whether such related party transaction require the approval of the Board or Sshareholders of the Company as determined in Rule 13 of the Code of Best Practices on Related Party Transactions - December 2013, and if necessary forward the same for their approval . If related party transactions are ongoing (recurrent related party transactions) the committee shall establish guidelines for senior management to follow in its ongoing dealings with the relevant related party. Thereafter, the committee on an annual basis shall review and assess ongoing relationships with the related party to see that they are in compliance with the committee’s guidelines and that the related party transactions remain appropriate. . Ensure that no director of the Company shall participate in any discussion of a proposed telated party Ttransaction for which he or she is a related party, unless such director is requested to do so by the committee for the express purpose of providing information concerning the related party transaction to the committee. . If there is any potential conflict in any related party transaction, the committee may recommend the creation of a special committee to review and approve the proposed related party transaction. . Ensure that immediate market disclosures and disclosures in the annual rReport as required by the Code of Best Practices on Related Party Transactions - December 2013 are made in a timely and detailed manner

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7.6 Senior Management

The senior management team of the Company is headed by the Managing Director. The senior management personnel set out below are responsible for managing the affairs of PIL in addition to managing their key responsibilities.

Mr. D. P. Kumarage - Managing Director

Refer profile under Section 7.2.

Mr. Nimal Perera - Chief Operating Officer

Mr. Perera joined PIL in September 2009 as the Chief Operating Officer. Prior to his appointment, he served as General Manager - General at Asian Alliance Insurance PLC. He has over 45 years of experience in the insurance industry, both in Sri Lanka and overseas. He was a CEO/General Manager of the National Insurance Corporation Limited, HNB Assurance PLC, General Manager - General Insurance at Union Assurance PLC and Fide´ Insurance Limited Malawi. Mr. Perera is a Fellow of the Chartered Insurance Institute. He is a Member of the Asia-Pacific Risk and Insurance Association and Pan-Asia Risk and Insurance Management Association.

Ms. Jeevani Kariyawasam - Chief Manager - Operations

Ms. Kariyawasam joined PIL in October 2009 and has been in charge of the operations of the Company since then. She counts over 20 years of experience in the insurance industry including experience at National Insurance Corporation and HNB Assurance PLC. Ms. Kariyawasam holds a BSc. Honours Degree in Bio Science from the University of Colombo. She is an Associate of the Chartered Insurance Institute, UK.

Mr. Nilushan Somarathna - Senior Manager - Finance

Mr. Somarathna joined PIL in August 2012 and has been heading the finance department since then. Prior to joining PIL, he served as Manager - Finance at Union Assurance PLC. He altogether has over 11 years of finance and audit experience, including previous experience at Union Assurance PLC and PricewaterhouseCoopers. Nilushan has a BSc. Business Administration (Special) Degree from the University of Sri Jayewardenepura. He is a Fellow Member of the ICASL and a prize winner of the intermediate examination conducted by ICASL. He also holds a Master’s Degree in Business Administration (MBA) from the University of Southern Queensland, Australia.

Ms. Kanthi Kempitiya - Senior Manager - Motor Underwriting

Ms. Kempitiya joined PIL in October 2009. She has more than 32 years of experience in the insurance industry including the areas of underwriting, claims, administration and business development. Ms. Kempitiya holds a BSc. Honours Degree in Physical Science from the University of Jaffna and a Post Graduate Diploma in Statistics from the University of Sri Jayewardenepura. She is an Associate of the Insurance Institute of India.

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Mr. Hareendra Dissanayaka - Senior Manager - Motor Claims

Mr. Dissanayaka joined PIL in October 2009. He started his career at HNB Assurance PLC and counts over 11 years of experience in the insurance industry. He is an Associate of the Insurance Institute of India and holds a Diploma in Insurance from the Chartered Insurance Institute, UK.

7.6.1 Senior Management Emoluments

The Senior Management was remunerated in the form of salaries and bonuses during FY 2014 to an extent of LKR 18,527,563. The Senior Management is expected to be remunerated in the form of salaries and bonuses during FY 2015 to an approximate extent of LKR 18,910,915.

The Company pays a ‘shared services’ fee for the services provided by the parent entity, PLF, which includes a portion for the services rendered by the Managing Director.

7.7 Statement – Managing Director

The Managing Director of the Company has not been involved in any of the following:

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8.0 OTHER INFORMATION

8.1 Degree of Dependence on Customers, Borrowers or Suppliers

The majority of PIL’s business and customers are referred to it by, PLF and PB. PLF’s contribution accounted for c. 80% of PIL’s GWP for the ten (10) months ended October 31, 2015, down from c. 83% in 2014. Furthermore, PB accounted for c. 10% of PIL’s GWP for the ten (10) months ended October 31, 2015, compared to c. 11% in 2014. However, the Company is presently attempting to improve the non-captive market via the retail sales personnel as well as the corporate and broker network. The development in the non-captive business segment will reduce the dependence on the PLF and PB for future business volumes.

There is no material dependency on key customers, borrowers or suppliers in terms of the overall business operations of the Company other than the instances discussed above.

8.2 Dividends

8.2.1 Dividend Policy

The Company may, subject to the provisions of the Articles of Association and the Companies Act No. 07 of 2007, make dividend payments by way of interim and final dividends to its shareholders in relation to the profits made from time to time. Such dividends will be paid after taking into consideration the Company’s earnings, stated capital investment requirements and other financial conditions.

8.2.2 Dividend History

The Company has declared and paid the following dividends during the last three financial years immediately preceding the date of this Prospectus;

TABLE 8.1 – DIVIDEND HISTORY Financial Year Ended (LKR) December 31, 2014 December 31, 2013 December 31, 2012 Interim Dividends 90,000,000 90,000,000 - Final Dividends 120,000,000 45,000,000 60,000,000 Total Dividend for the Year 210,000,000 135,000,000 60,000,000 Number of Shares 60,000,000 60,000,000 60,000,000 Dividend Per Share 3.50 2.25 1.00

On September 25, 2015, the Company declared and paid an interim dividend of LKR 2.00 per share (based on the number of shares before the shares split), amounting to LKR 120,000,000 relating to FY 2015.

8.3 Details of Material Indebtedness

There were no balances due to/from related parties of PIL including inter-company balances as at October 31, 2015, except for the balances detailed in Note 13 of the Interim Financial Statements for the ten (10) months ended October 31, 2015 provided in Annexure D of this Prospectus.

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The particulars of leases, lease purchases, hire purchases and capital commitments as at October 31, 2015 are as given below;

TABLE 8.2 – LEASES, LEASE PURCHASES, HIRE PURCHASES AND CAPITAL COMMITMENTS AS AT OCTOBER 31, 2015 Bank/Financial Property Leased/ Period Instalment Institution/Lessor on Hire People’s Leasing Fleet Agreement for hiring December 13, 2011 to Monthly rental Management Limited computers December 12, 2015 is LKR 44,960 (48 months) People’s Leasing Fleet Agreement for hiring April 01, 2010 until Monthly rental Management Limited motor vehicles terminated with the mutual is LKR 124,896 consent of both parties People’s Leasing Fleet Agreement for hiring August 02, 2013 until Monthly rental Management Limited motor vehicles terminated with the mutual is LKR 85,000 consent of both parties Acuity Partners Sub lease agreement July 01, 2015 to July 01, 2017 Monthly rental (Private) Limited for hiring 3 floors of is LKR 1,612,800 building

There were no mortgages or charges on assets of PIL as at October 31, 2015 except for a fixed deposit of LKR 10 Mn which has been pledged against the overdraft facility obtained from PB. Overdraft facility obtained from PB is LKR 9 Mn and the unused facility as at October 31, 2015 was LKR 9 Mn.

There were no material contingent liabilities, including acceptances and guarantees outstanding as at October 31, 2015 other than in the ordinary course of business. There were no outstanding loan capital, term loans and other borrowing including liabilities under acceptance or acceptance credit as at October 31, 2015 and PIL is not materially indebted to any other institution or individual.

8.4 Working Capital

The Board is of the opinion that the working capital is sufficient for the purpose of carrying out day to day operations of the Company.

8.5 Litigation, Disputes and Contingent Liabilities

As at October 31, 2015 there are no material legal, arbitration or mediation proceedings pending against the Company that would materially affect the current financial position or future operations or profits of the Company. The Company was not involved in any legal, arbitration or mediation proceedings in the recent past which had any significant effects on the Company’s financial position or profitability. Further, as at October 31, 2015 there are no penalties imposed by any regulatory or state authority against the Company.

As at October 31, 2015, the Company has no pending litigation instituted by or against the Company nor had the Company incurred any expenses in respect of litigation except for expenses incurred in respect of actions instituted by third parties against the customers of the Company in respect of claim settlements to which the Company has been made party in its capacity as an insurer.

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8.6 Management Agreements

There are no management agreements as at October 31, 2015, except for the memorandum of understanding signed with PLF for the usage of centralised services and resources as part of the group strategy to enhance the performance of subsidiaries within the group through economies of scale and cost rationalisation.

Through this arrangement, PLF has agreed to continue to provide PIL with the services including human resource management, information communication technology, internal audit services, building space, utility and other facilities, yard premises and office space to PIL employees at PLF branches. PIL has agreed to pay the fees and charges for the provision of these services on an arm’s length basis. These fees and charges are based on factors that are subject to constant change with the operational improvements of PIL, including but not limited to, number of employees, nature of software licenses, extent of staff support required etc. Furthermore, the fees will be reviewed and revised either at the end of each financial year or on the occurrence of any significant change to the scope of any one or more of the said services.

Aggregate expenses incurred for the above services during FY 2014 amounted to LKR 39,885,085 and approximately LKR 41,232,474 is expected to be paid for similar services during the FY 2015.

8.7 Material Contracts

There are no material contracts entered into by the Company other than those contracts entered into in the ordinary course of business.

8.8 Details of Commissions Paid

No commission has been paid in the two (2) years preceding the issue or payable for subscribing or agreeing to subscribe or procuring or agreeing to procure subscriptions for any Shares of the Company.

8.9 Details of Benefits Paid to Promoters

No benefit has been paid or given within the two (2) years preceding the Issue and there are no benefits intended to be paid or given to any promoter.

8.10 Details of Transactions Relating to Property

There were no transactions relating to the property within the two (2) years preceding the Issue in which any vendor of the property to the Company or any person who is or was at the time of the transaction, a promoter or a director or proposed director of the Company had any interest, direct or indirect.

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9.0 CAPITAL STRUCTURE

As at the date of this Prospectus, the Stated Capital of the Company is Sri Lanka Rupees Six Hundred Million (LKR 600,000,000/-) divided into One Hundred and Fifty Million (150,000,000) fully paid up Ordinary Shares.

9.1 An Overview of the Capital Structure

The detailed breakdown of the Stated Capital of PIL is given below.

TABLE 9.1 - STATED CAPITAL OF PEOPLE’S INSURANCE LIMITED October 16, 2015 December 31, 2014 December 31, 2013 Stated Capital (LKR) 600,000,000 600,000,000 600,000,000 Number of Ordinary Shares in Issue 150,000,000* 60,000,000 60,000,000 *A share split of two (02) existing Ordinary Shares into five (05) Ordinary Shares was carried out on October 13, 2015.

9.2 Shareholding Structure Pre and Post IPO

The current and the post IPO shareholding structures of PIL are illustrated below.

TABLE 9.2 - SHAREHOLDING STRUCTURE – PRE AND POST IPO Name Pre IPO Post IPO Number of Number of % % Ordinary Shares Ordinary Shares Existing Shareholders 150,000,000 100% 150,000,000 75% IPO Shareholders - - 50,000,000 25% Total 150,000,000 100% 200,000,000 100%

In terms of CSE Listing Rule 2.1.1(d)(i), the shares continued to be held by all existing “Non-Public” shareholders, as defined in Section 9.3, namely the 150,000,000 shares, held by PLF as shown in Tables 9.3 and 9.4, would be subject to a “lock-in” for a period of six (6) months from the date of listing. As such, these shares would not be available for secondary market trading on the CSE upon PIL obtaining a listing of its shares subsequent to the IPO contemplated via this Prospectus until the expiry of the aforesaid six (6) months period from the respective date of listing.

Since there were no share allotments or share transfers during the period of twelve (12) months immediately preceding the date of an Initial Listing Application, no further shares will be subject to a lock-in, in terms of CSE Listing Rule 2.1.1 (d)(iii) or 2.1.1 (d)(iv), except for the shares mentioned above.

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TABLE 9.3 – SHARES LOCKED-IN – PRE IPO Category of Locked-in Shares Months After Which Number of Number of Shares as Shareholders the Shares will be Shares a Percentage of Total (Pre-Listing) Available for Trading Number of Shares in Issue (Pre-Listing) Shares held by Non-Public Shareholders prior to the 6 months from the Non-Public 150,000,000 100% date of the Initial Listing date of listing Application - Locked-in Public * Not Locked-in - - - Total 150,000,000 100% * ‘Public’ defined under the definition mentioned in CSE Listing Rules 2.1.1(d) (Refer Section 9.3 of the Prospectus)

The Company hereby confirms that the information furnished herewith shall remain unchanged to the date of listing.

Pre-IPO Public Holding (Shares held by the ‘Public’ as a percentage (%) of the total Pre-IPO number of Shares), as per the ‘Public’ definition provided in the CSE Listing Rules is 0%.

TABLE 9.4 – SHARES LOCKED-IN – POST IPO Category of Locked-in Shares Months After Which Number of Number of Shares as a Shareholders the Shares will be Shares Percentage of Total (Post-Listing) Available for Trading Number of Shares in Issue (Post-Listing) Locked-in 6 months from the date Non-Public 150,000,000 75% (Pre IPO Shares) of listing Not Locked-in (Pre IPO Public * - - - Shares) Public* Not Locked-in (IPO Shares) - 50,000,000 25% Total 200,000,000 100% * ‘Public’ defined under the definition mentioned in CSE Listing Rules 2.1.1(d) (Refer Section 9.3 of the Prospectus)

Post-IPO Public Holding (total unlocked-Shares post-IPO that will be held by the Public as a percentage (%) of the total Shares in issue Post-IPO), as per the ‘Public’ definition provided in the CSE Listing Rules is 25%.

Tabulated below are the shareholding details of the Company as at October 16, 2015.

TABLE 9.5 - SHAREHOLDERS – PRE IPO Name Number of Ordinary Shares % People’s Leasing & Finance PLC (sole shareholder) 150,000,000 100 Total 150,000,000 100

There were no share transfers relating to the sole shareholder mentioned above, during the period of twelve (12) months immediately preceding the date of the Initial Listing Application.

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9.3 Free Transferability of Shares

In accordance with CSE Listing Rule 2.1.1(d):

. All Shares held by “Non-Public Shareholders”* prior to twelve (12) months from the date of an Initial Listing Application shall be locked-in for a period of six (06) months from the date of listing of the entity. . All Shares held by “Public Shareholders”** prior to twelve (12) months from the date of an Initial Listing Application shall not be locked-in. . All shares acquired by way of a transfer from another shareholder (irrespective of being Non- Public or Public Shareholders) during the period of twelve (12) months immediately preceding the date of an Initial Listing Application shall be locked in for a minimum of six (6) months from the date of listing or twelve (12) months from the date of acquisition of those shares, whichever is longer. . All Shares acquired by way of an allotment during the period of twelve (12) months immediately preceding the date of an initial listing application shall be dealt with by the discretion vested in the Securities and Exchange Commission under Section 28A of the Securities and Exchange Commission of Sri Lanka Act No. 36 of 1987 where the Commission grants a waiver to an entity in terms of the said provision.

* Non-Public Shareholders, shall mean the following parties who hold, directly or indirectly, shares of the Company; a) its parent, any subsidiary or associate companies or any subsidiaries or associates of its parent company; b) its Directors who are holding office as directors of the entity and their close family members; c) Chief Executive Officer and his/her close family members; d) Key Management Personnel and their close family members; e) Any party acting in concert with the parties set out in a), b), c) and d) above; f) Shareholders whose shares are in a locked account with the CDS due to a statutory or regulatory requirement other than those shareholders exempted under (h) below and whose shares have been subject to a voluntary lock-in at the option of the shareholder g) Employees of the Company, who have been allotted shares of a Listed Entity which are directly or indirectly controlled by the management or the majority shareholder of the Company h) Any Entity or an individual or individuals jointly or severally holding 5% or more of the shares of the Listed Entity if the Company is a Diri Savi Board Entity and 10% or more of the shares if the Company is a Main Board Entity, except where such shareholder is; i. a statutory institution managing funds belonging to contributors or investors who are members of the public; or ii. an entity established as a unit trust or any other investment fund approved by the SEC; or iii. not a related party declared in terms of Sri Lanka Accounting Standards or a party acting in concert declared in terms of the Company Takeovers and Mergers Code.

‘Close Family Member’ shall mean the spouse or a financially dependent child.

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‘Key Management Personnel’ shall mean those persons having authority and responsibility for planning, directing and controlling the activities of the Company, directly or indirectly, including any director (whether executive or otherwise) of the Company.

** Public Shareholders shall mean any party who hold Shares of the Company other than the parties identified as ‘Non-Public Shareholders’ abovementioned.

The details of the lock-in periods for the shares are mentioned in Table 9.3 and 9.4 above, and the shares that will be subject to a lock-in will not be will be available for trading.

9.4 Other Securities

The Company has not issued any convertible debt securities or any other class of shares other than the shares stated above. Further there are no securities of the same or other class subscribed or sold privately in conjunction with this IPO.

9.5 Share Re-Purchases or Redemptions

The Company has not engaged in any share re-purchase, redemption or stated capital reduction exercises in the two (2) years preceding the date of this Prospectus.

9.6 Takeover Offers

There have been no takeover offers by third parties in respect of the Company’s Shares during the past two (2) years and no takeover offers have been made by the Company in respect of shares of third parties.

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10.0 MANAGEMENT DISCUSSION AND ANALYSIS

10.1 Summarised Financials for the Five Years Ended December 31, 2014

TABLE 10.1 - SUMMARISED AUDITED INCOME STATEMENTS (LKR Mn)

For the Year Ended December 31, 2010 2011 2012 2013 2014 CAGR Gross Written Premium 933 2,415 2,944 3,251 3,441 38.6% Net Earned Premium 231 1,478 2,448 2,800 2,990 89.6% Net Claims 222 1,235 1,970 2,120 2,163 76.7% Underwriting and Net Acquisition 11 145 244 292 311 131.3% Costs Other Operating and Administration 60 110 192 281 365 57.0% Expenses Underwriting Results -61 -13 42 107 152 n/a Interest Income 20 91 254 353 303 96.8% Total Investment Income 20 89 267 372 385 109.1% Profit Before Tax -34 94 324 501 573 n/a Profit After Tax -30 72 235 371 450 n/a

TABLE 10.2 - SUMMARISED AUDITED STATEMENTS OF FINANCIAL POSITION (LKR Mn)

As at December 31, 2010 2011 2012 2013 2014 CAGR Financial Investments 514 1,763 2,609 3,190 3,645 63.2% Insurance Receivables 318 406 361 435 524 13.3% Other Assets 86 372 349 396 589 61.8% Total Assets 918 2,541 3,319 4,021 4,758 50.9%

Total Equity 217 587 863 1,085 1,410 59.7% Outstanding Claims Provision 91 527 753 974 1,203 90.8% Provision For Unearned Premium 529 1,223 1,413 1,542 1,698 33.8% Other Liabilities 81 204 290 420 447 53.3% Total Equity and Liabilities 918 2,541 3,319 4,021 4,758 50.9%

10.2 Operational Review for the Five Year Period Ended December 31, 2014

10.2.1 Gross Written Premium (GWP)

PIL’s GWP which was LKR 933 Mn in 2010, continued its growth trajectory posting a CAGR of 38.6% from 2010 to 2014 to reach LKR 3,441 Mn. The Company’s 2014 GWP, up by 5.8% YoY, was less than the 10.4% growth in 2013. This slowdown in the pace of growth can be primarily attributed to the overall slowdown in the industry’s pace of growth (non-life growth of just 3.7% in 2014 compared to 7.3% in 2013 due to adverse conditions in the Motor segment), coupled with the increasing saturation of the Company’s operations.

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PIL’s parent company (PLF), People’s Bank (PB) and other sister companies in the PLF Group bring in slightly over 90% of its revenue. Thus PIL operates a predominantly captive business model and has a two pronged growth strategy;

(1) Further enhance collaboration with its parent and group to optimise synergies; and (2) Build and strengthen a direct customer base by exploiting growth opportunities in the retail and small and medium enterprises sector.

The Company is able to access PLF’s customer base through referrals and leveraging on PLF’s widespread branch network in order to acquire further non-captive business (PIL currently operates 74 window offices in PLF branches with 4 more added in the current year to date). GWP from PLF grew by a CAGR of 21.7%, from LKR 1,607 Mn in 2011 to LKR 2,895 Mn in 2014, accounting for 84.1% of total revenue in 2014. Additionally, PIL acquired insurance business from construction projects carried out by its sister company, People’s Leasing Property Development Limited. Moreover, the Company looked to cement its bancassurance agreement with PB during 2014 in order to tap into the large customer base of PB (through its personnel placed in 25 PB regional offices). The Company also operates two regional offices in Negombo and Galle as well as its head office in Colombo.

GRAPH 10.1 – PIL’S DISTRIBUTION NETWORK THROUGH PLF AND PEOPLE’S BANK 80 70 60 50 40 30 20 10 0 2011 2012 2013 2014

People's Leasing and Finance PLC People's Bank

Source: PIL Annual Reports

Echoing industry trends, the motor insurance segment was the highest contributor to GWP over the five year period accounting for 82.0% of total GWP between 2010 and 2014. Policies issued for private cars and dual purpose vehicles accounted for a combined 42.0%, while the remainder was shared between other policies. Accordingly, PIL’s GWP is highly sensitive to duty on vehicle imports and has mirrored the performance of the motor segment during its five years of operations. A reduction of vehicle import duty in 2011 saw an acceleration in vehicle imports resulting in YoY Motor GWP growth of 188.7% and 22.3% in 2011 and 2012 respectively. In contrast, the pace of Motor GWP growth slowed to 10.9% YoY in 2013, due to the efforts of the government to curb vehicle imports to manage depreciation of the Rupee. Other underlying trends in the industry such as the intense competition within the motor space, weak exchange rates and the higher duty structure towards the end of the previous year resulted in Motor GWP growth slowing down further to 5.5% YoY in 2014. Fire insurance is the second largest contributor to PIL in terms of GWP accounting for 8.4% in 2014 (contracting 170 bps YoY).

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The negative growth rate of 11.1% YoY in the Fire segment reflected the overall slowdown in the Sri Lankan fire insurance business which posted a negative growth rate of 1.0% in 2014. This was further compounded by a one-off reduction in the premium of a policy issued to a bank in view of a drop in gold prices and exposure. The remaining GWP of PIL is comprised of Marine and Miscellaneous insurance, contributing 0.4% and 7.9% in 2014 respectively.

GRAPH 10.2 - SEGMENTAL BREAKDOWN OF PIL’S GROSS WRITTEN PREMIUM (2010 – 2014) 100.0% 90.0% 80.0% 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% 2010 2011 2012 2013 2014 Motor Fire Miscellaneous Marine

Source: PIL Annual Reports

PIL was able to maintain its position as the fifth largest non-life insurer in terms of GWP in Sri Lanka with a share of c.6% in 2014 after a mere five years of operations (up 16 bps YoY) (IBSL Annual Report 2014). Heavyweights in the non-life space, Sri Lanka Insurance Corporation, Janashakthi Insurance PLC and Union Assurance PLC marginally lost market share during 2014, while Ceylinco Insurance PLC recorded growth in market share. Other insurers outside the top five continued to gain share, accounting for 31.9% market share in 2014 (up 205 bps YoY), highlighting the fierce level of competition within the industry.

GRAPH 10.3 - MARKET SHARE OF NON-LIFE INSURANCE INDUSTRY (2014)

21.9%

31.9% SLIC Ceylinco Janashakthi UAL

19.5% PIL Other 6.0%

9.0% 11.8%

Source: IBSL Annual Report 2014

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10.2.2 Net Combined Ratio

The net combined ratio came in at 94.9% in 2014, compared to 126.8% in 2010. The overall net claims ratio of PIL also continued its declining trend from 83.6% in 2011 to 72.3% in 2014, primarily on the back of a contraction in the motor net claims ratio to 73.1% in 2014 from 79.6% in 2011. Motor insurance claims represent 90.0% of the overall net claims incurred and thus have a significant impact on the overall claims ratio. The falling trajectory of the total net claims ratio indicates that the Company is on track to move towards the industry average of 65.0%. The overall net claims ratio for the Sri Lankan non-life industry in 2014 was 65.4%, while the motor net claim ratio came in at 64.7%. In addition, PIL reported net claims ratios that were lower than the preceding year for its fire, marine and miscellaneous segments further aiding the decline in overall net claims ratio.

PIL’s net expense ratio includes underwriting and net acquisition costs, depreciation and amortisation, and other operating and administrative expenses. The Company’s net expense ratio for 2014 was 22.6% compared to the industry average of 44.2%. The vast deviation observed over the years in Table 10.3 below is predominantly driven by the company’s low cost operating model whereby business captured through referrals from PLF’s clientele incurs minimal administrative costs. Additionally, PIL’s 74 window offices in PLF’s branches attributes to nominal charges and allows the Company to acquire non-captive business by leveraging PLF’s wide branch network in strategic locations. Moreover, PLF’s assistance in controlling centralised functions such as human resource management, logistics, corporate affairs and information technology has further aided the Company to maintain overheads at minimal levels.

A lower net expense ratio when compared to industry average, as well as a steadily declining net claims ratio, resulted in PIL posting a net combined ratio of 94.9% in 2014 as opposed to an industry average of 109.7%.

TABLE 10.3 – PIL VS. INDUSTRY NET COMBINED RATIO COMPARISON (2010 – 2014) Description 2010 2011 2012 2013 2014 Net Claims Ratio (%) PIL 96.1 83.6 80.5 75.7 72.3 Industry 61.3 63.8 61.8 60.8 65.4 Net Expense Ratio (%) PIL 30.7 17.3 17.8 20.5 22.6 Industry 39.6 38.0 38.5 41.3 44.2 Net Combined Ratio (%) PIL 126.8 100.9 98.3 96.2 94.9 Industry 100.9 101.8 100.3 102.1 109.7 Source: PIL and IBSL Annual Report 2014

10.2.3 Net Investment Income and composition of the Financial Investment Portfolio

PIL’s financial investment portfolio increased to LKR 3,645 Mn in 2014 (growing at a CAGR of 63.2% between 2010 and 2014), owing to growth of the business and higher profitability. The Company’s investment portfolio mainly comprised fixed deposits, government securities and debentures which accounted for 42.8%, 30.6% and 18.1% respectively in 2014. The most significant change in financial assets composition was the increase in exposure to corporate debentures as a proportion of the total investment portfolio to 18.1% in 2014, from nil in 2011. The shift in portfolio composition was in view of benefitting from tax free returns on listed corporate debentures and in order to improve the overall return on financial assets amid the prevalent low interest rate environment. 68 | People’s Insurance Limited - Initial Public Offering

The remainder of PIL’s financial asset portfolio comprises investment in listed shares and unit trusts. The Company’s exposure to listed shares as a percentage of its total portfolio expanded from 0.8% in 2011 to 6.3% in 2014 in order to offset the reduction in investment income due to low interest rates from 2013 onwards, and to diversify its portfolio.

Accordingly, the Company’s investment in government securities as a share of the total portfolio contracted to 30.6% during 2014, from 68.5% in 2011.

GRAPH 10.4 – PIL’S FINANCIAL ASSET COMPOSITION BETWEEN 2010 AND 2014 100.0% 90.0% 80.0% 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% 2010 2011 2012 2013 2014

Fixed deposits Government securities Debentures Listed shares Others

Source: PIL Annual Reports

PIL’s net investment income (comprising interest income, dividend income and net fair value gains) came in at LKR 385 Mn in 2014, a marginal increase from LKR 372 Mn in the preceding year. The net fair value gains from PIL’s listed shares offset the reduction in interest income resulting from declining interest rates in 2014.

Average yields earned by the Company from fixed deposits and debentures declined to 10.0% and 10.9% in 2014 from 14.2% and 14.9% in 2013 respectively. Furthermore, repurchase agreements and government securities registered yields of 5.6% and 9.0% in 2014 compared to corresponding figures of 9.8% and 12.5% in 2013.

Investments in listed shares posted a net fair value gain of 36.9% in 2014 compared to 10.6% in 2013. The Company’s investment strategy of increasing the proportion of listed shares in its investment portfolio reaped rewards as the Colombo Stock Exchange posted an impressive performance over the year (with the ASPI growing by 23.4% YoY to reach 7,299 at the end of 2014). The Company maintains the risk profile of its investment portfolio by using such balanced approach to mitigate risk and achieve the maximum return possible. Consequently, the Company’s investment strategy helped them dampen the negative impact of low interest rates on total returns.

10.2.4 Profitability

PIL recorded underwriting profits for the third consecutive year, growing at a commendable CAGR of 90.3% from LKR 42 Mn in 2012 to LKR 152 Mn in 2014, primarily owing to the decline in the Company’s net combined ratio overtime. Fuelled by growing underwriting profits and healthy portfolio returns, PIL’s PAT margin has expanded to 13.2% in 2014 from 8.6% in 2012.

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GRAPH 10.5- PROFIT AFTER TAX (PAT) FROM 2010 - 2014 500 18.0%

400 15.0%

300 12.0%

LKR Mn 200 9.0%

100 6.0%

- 3.0% 2010 2011 2012 2013 2014 (100) 0.0% PAT PAT margin

Source: PIL Annual Reports

10.2.5 Solvency Margin

PIL has complied with IBSL regulations to ensure that its solvency margin is above the stipulated solvency margin over the operational period. Net admissible assets grew from LKR 486 Mn in 2011 to LKR 1,009 Mn in 2014, which improved PIL’s solvency ratio from 1.12 to 1.60. Additionally, the Company has maintained its stated capital at LKR 600 Mn which is above the revised required minimum capital level of LKR 500 Mn.

TABLE 10.4 – PIL’S SOLVENCY RATIO BETWEEN 2011 AND 2014 (LKR Mn) 2011 2012 2013 2014 For the Year Ended December 31, Value of Admissible Assets 2,144 2,953 3,573 4,063 Total Liabilities Including Technical Reserves 1,658 2,163 2,683 3,054 Net Admissible Assets 486 790 889 1,009 Required Solvency Margin 434 528 586 629 Excess Over Required Solvency Margin 51 262 304 379 Solvency Ratio 1.12 1.50 1.52 1.60 Source: PIL Annual Reports

Furthermore, Table 10.5 below illustrates that PIL has complied with section 25 (1) of the Regulation of Insurance Industry Act No. 43 of 2000 and subsequent revisions by the IBSL regarding minimum approved assets and investment in government securities.

TABLE 10.5 – COMPARISON OF PIL’S ADMISSIBLE ASSETS AND INVESTMENTS IN GOVERNMENT SECURITIES (LKR Mn) For the Year Ended December 31, 2011 2012 2013 2014 Approved Assets Maintained 1,752 2,591 3,573 4,063 Technical Reserves 1,459 1,879 2,238 2,582 Approved Assets in Excess of the Technical Reserve 293 712 1,335 1,481 Investment in Government Securities (20% of the Technical 292 376 448 516 Reserves) Investment in Government Securities 1,208 1,251 1,237 1,115 Excess Over Required Investment in Government Securities 916 876 789 598 Source: PIL Annual Reports

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10.2.6 Compliance with Risk Based Capital (RBC) Requirements

All insurance companies are expected to adopt RBC regime with effect from 2016 as per IBSL ruling, replacing the existing rule based solvency regime. PIL is well above the supervisory target Capital Adequacy Ratio (CAR) of 120% under RBC, having met these guidelines since 2012 as shown in Graph 10.7 below. PIL’s total available capital as at Septmber 30, 2015 was LKR 1,451 Mn, resulting in a Risk based CAR of 199%.

TABLE 10.6 – PIL’S RISK BASED CAR BETWEEN 2012 AND 2015 (LKR Mn) (except ratios) As at, Dec 31, 2012 Dec 31, 2013 Dec 31, 2014 Sept 30, 2015 Tier 1 Capital 862 1,037 1,443 1,611 Tier 2 Capital 2 0 0 0 Deductions 10 120 95 160 Total Available Capital 854 918 1,348 1,451 Risk Based Capital Required 514 561 672 731 Risk Based CAR 166% 164% 200% 199% Supervisory Target CAR 120% 120% 120% 120% Source: PIL

10.3 Recent Performance of PIL

The performance of PIL for the ten months ended October 31, 2015 is presented below compared to the corresponding period in 2014.

TABLE 10.7 - SUMMARISED INCOME STATEMENTS

(LKR Mn) Summarised Income Statements For the Ten Months Ended October 31, 2014 2015 YoY Gross Written Premium 2,888 3,180 10.1% Net Earned Premium 2,479 2,688 8.4% Net Claims 1,796 1,857 3.4% Underwriting and Net Acquisition Costs 257 277 7.7% Other Operating and Administrative Expenses 298 346 16% Underwriting Results 127 208 63% Interest Income 255 235 -8.0% Total Investment Income 363 294 -19.0% Profit Before Tax 490 501 2.3% Profit After Tax 382 371 -3.0% Source: PIL

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Summary of PIL’s financial position as at October 31, 2015 is illustrated below along with the corresponding figures as at December 31, 2014.

TABLE 10.8 – SUMMARISED STATEMENTS OF FINANCIAL POSITION (LKR Mn) Summarised Statements of Financial Position As At December 31, 2014 October 31, 2015 Financial Investments 3,645 4,063 Insurance Receivables 524 639 Other Assets 589 527 Total Assets 4,758 5,229

Total Equity 1,410 1,432 Insurance Liabilities 2,901 3,100 Other Liabilities 447 697 Total Equity And Liabilities 4,758 5,229 Source: PIL

PIL has continued its growth momentum over YTD October 31, 2015 (YTD15) posting GWP of LKR 3,180 Mn (up 10.1% YoY). Its combined ratio declined further over the period reaching 92.3% during YTD15 as opposed to 94.9% in the corresponding period in 2014. This was primarily driven by a fall in the net claims ratio to 69.1% in YTD15 from 72.4% during the same period in 2014. The net expense ratio increased marginally to 23.2% in YTD15 compared to 22.4% during the same period in 2014. Improved claims ratio expanded the underwriting profit margin to 7.7% in YTD15 compared to 5.1% in the period ending October 31, 2014.

Net investment income declined 19.0% YoY to LKR 294 Mn during YTD15, partially due to an 8.0% YoY drop in interest income to LKR 235 Mn, reflecting sustained low interest rate levels throughout 2015. Investment income was suffered further from lacklustre capital markets in 2015, resulting reduced fair value gains for PIL. Overall annualised yield on financial assets dropped to 9.2% for the period ended October 31, 2015, compared to 11.3% for the full year 2014. Total financial investments stood at LKR 4,063 Mn as at YTD15 compared to LKR 3,645 Mn as at December 31, 2014.

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11.0 INVESTMENT CONSIDERATIONS AND ASSOCIATED RISK FACTORS

Prior to investing in the New Shares, prospective investors should pay particular attention to the fact that the Company and its business activities are subject to a number of risk factors which may be within or outside the control of the Company.

The risk factors that follow may be considered material to investors in making an informed judgment on the Company. If any of the considerations and uncertainties given below develops into actual events, the Company’s business, financial conditions or results of operations and prospects could be adversely affected. However, given the importance of the industry and the strategic initiatives employed by the Company, the business operations of the Company is expected to be sustainable to the foreseeable future.

11.1 Risks Related to the Insurance Sector

Government Policy and Regulations: The insurance sector is monitored and regulated by IBSL, with the primary intention of safeguarding the interest of the policyholders, while overseeing the development of the industry. Any major regulatory changes that are introduced, such as the Risk Based Capital framework and the business segregation, will have a direct impact on the operations and performance of insurance sector entities. However, the strict supervision by the regulators reduces the risk of liquidation and malpractice within the sector. This strict monitoring process provides a sense of security for the investors as well as the policyholders.

Additionally custom duties and other tariffs imposed on vehicle imports may affect motor insurance premiums, which account for a significant portion of General Insurance business.

Macro-economic Risks: Change in economic factors such as the GDP growth rate, disposable income levels and the financial market performance pose a direct risk to the Company’s financial performance. Additionally prevailing interest rate regime and monetary policy of the country would also have an impact on the investment income in the insurance sector.

11.2 Risks Related to the Business Operations

11.2.1 Underwriting Risks

The Company is exposed to the following risks as a result of engaging in the insurance operations.

Exposure Risk: The Company faces an exposure risk if a policy is accepted at a price which is not adequate to meet probable cost of claims. In order to mitigate this risk, the Company continuously reviews the policy profitability, pricing and the terms and conditions while also providing training, guidance, instructions and a proper procedure to the underwriting staff. Further, the Company also takes necessary steps to ensure that the reinsurance policy is confirmed prior to issuing the insurance policy.

Claims Settlement Risk: This is the risk of disputes arising with regard to claim settlements. This can lead to customer dissatisfaction as well as the need for arbitration. Therefore, the Company adopts practises which help reduce this risk, such as, explaining the terms and conditions of the policy to the policyholder, maintaining and following a claim manual, checking the policy terms with the claim request, maintaining payment authority limits, carrying out cross analysis of information etc.

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Reserving Risk: Any unexpected and unbudgeted increases in claims gives rise to reserving risk. Maintaining the reserves based on timely information and reviewing the reserves periodically, together with the quarterly use of the services of an independent actuary helps PIL to maintain the reserving risk at an acceptable level.

Reinsurance Risk: The risk of a default by a reinsurer and the inadequacy of the risk transferred to the reinsurer results in the reinsurance risk. Using reputed and stable reinsurers and reviewing the reinsurance panel and the rating of the reinsurers are some of the measures taken by the Company to reduce the reinsurance risk.

Credit Risk: This is the risk associated with the policyholders or intermediaries not settling dues owed to the Company. Granting credit only based on the approved policy, frequently follow-up procedures, and policy cancellations upon non-settlement and provisioning are some of the steps taken by PIL to lessen the credit risk associated with its business operations.

11.2.2 Regulatory and Compliance Risk

This is the risk of not complying with applicable regulatory requirements including but not limited to the minimum capital requirement, solvency ratios and asset allocation. Not complying with regulatory requirements would result in the Company being warned by regulatory authorities leading up to a revocation of the Company’s insurance license. Given the significance of this risk, the management reviews any regulatory changes frequently and assesses their impact on the Company. Additionally, a compliance checklist with relevant officials’ sign-off is maintained together with regular board papers on compliance and ongoing communications with the regulators.

11.2.3 Investment Related Risks

Market Risk: Adverse movements in the market prices and the resultant fall in the value of investments would expose the Company to the risk of incurring losses. Due to the significant impact this could have on the profitability of PIL, the Company does not take speculative investment decisions and bases all its investment decisions on fundamentals. Furthermore, the equity portfolio is regularly monitored by the Managing Director and the whole investment portfolio is reviewed by the Board of Directors on a monthly basis.

Credit Risk: The credit risk with regard to the investment made by the Company would entail the potential risk of a borrower failing to meet the obligations as per the agreed terms, whereby PIL may face difficulties in recovering the principal and interest payments. In order to reduce the exposure to credit risk, the Company evaluates the credit rating of the investee company prior to making the investment and ensures that the single exposure limits recommended by IBSL is strictly adhered to.

Concentration Risk: The risk arising due to a lack of diversification in terms of industry, geographical area or a type of security. The monthly review of the investment portfolio by the Board together with the strict adherence to the single exposure limits enables the Company to reduce the concentration risk. Furthermore, the detailed analysis carried out prior to making any equity investments enables the Company to identify diversification opportunities.

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Liquidity Risk: This is the risk that arises as a result of not being able to trade or convert an investment quickly into cash in order to prevent or minimise a loss. Considering the cash flow requirements of the Company prior to making investment decisions, regular review of maturity periods and maintaining adequate buffers to meet contingencies assist PIL in reducing liquidity risk.

11.2.4 Operational Risk

This is the risk caused by the failure in routine operational functions of the company, arising as a result of a failure in systems, procedures, processes, failure of the employees to comply with set rules and regulations or through human error.

As a mitigation strategy, the company places special emphasis on maintaining a backup, ensuring the security and stability of information systems, training employees to ensure that they have comprehensive knowledge and skills required to perform their respective roles satisfactorily, reviewing and appraising the skills of employees, reviewing internal controls and carrying out internal audits.

11.2.5 Exposure to Increased Competition

At present, PIL is one of the few general insurance providers that records an underwriting profit. A significant change in the competitive environment in terms of either new entrants may expose the Company to stronger competition, and a potential reduction in market share. However, the strong backing and captive business routed through the parent entities, provides PIL with a sustainable competitive advantage over its peers. Furthermore, recent regulatory changes particularly in relation to increased minimum capital requirements and consolidation of existing insurance providers would act as deterrents to potential new entrants who intend to compete on price.

11.3 Risks Related to Future Plans

The future plans and strategies of the Company discussed in Section 5.7 will be subject to the risk factors mentioned under Section 11.1 and 11.2, in addition to the specific risks mentioned below.

11.3.1 Expansion to Non-captive Markets

PIL may encounter stiff competition when expanding its business into non-captive markets. The competition could compel PIL to reduce premiums and incur additional operating costs.

PIL intends to optimize its existing distribution network to counter the competition. The company intends to utilize the existing window offices at PLF and People’s Bank to secure non-captive business. PIL intends to mobilize its sales staff, with a specific mandate to seek business opportunities beyond PLF, through these window offices.

Given the island wide branch network of PLF and People’s Bank, PIL would have a wider access to new markets. PIL’s own branches would be established in locations expected to generate high turnover. This focused expansion strategy would enable the company to expand with a low overhead cost while accessing a wider market without a significant compromise in pricing discipline.

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11.3.2 Financial position and performance of People’s Leasing & Finance (PLF) PLC

The PLF’s contribution accounted for c. 80% of PIL’s GWP during for the ten (10) months ended October 31, 2015, down from c. 83% in 2014. Notwithstanding the gradual reduction, PLF is expected to contribute positively to PIL for the foreseeable future. Hence, the financial position and performance of PLF would have an impact on PIL’s future business performance. However, given PLF’s AA-(lka) rating by Fitch Ratings Lanka Limited and its superior market position in the leasing industry, the likelihood of such an occurrence is remote. Furthermore, PLF’s affiliation to PB, a wholly owned state bank and the second largest Licensed Commercial Bank in Sri Lanka, gives further stability to PLF.

PIL also intends to make a concerted effort to grow its non-captive business sources in the future in order to reduce its exposure to the parent company. The strategies formulated by PIL in this regard are explained in Section 5.7 of this Prospectus.

11.3.3 Taxation on Financial Assets

PIL, similar to peers in the industry, invests in listed debentures and unit trusts, which provide tax-free returns to the Company. Any changes in tax legislation pertaining to the returns made via such financial instruments could have an impact on the overall future performance of the Company.

The Company’s total exposure to listed debentures and unit trusts was less than 20% in 2014 and such allocation is also regulated by the IBSL. Hence, the financial impact resulting from a revocation and/or discontinuation of such tax concessions would be fairly moderate.

11.4 Capital Market Related Risks

11.4.1 Non-existence of prior market for the Shares

Prior to the IPO there has been no public market for the Company’s Shares. There can be no assurance that an active trading market for the Shares will develop or if developed, will be sustained, or that the market price of the Shares shall not decline below the Share Issue Price. The Share Issue Price may not be indicative of the market price for the Company’s Shares after completion of the IPO.

11.4.2 Price volatility in the secondary market

The price of the Shares may fluctuate due to and not limited to the following: variations in operating results, changes in operating environment, transitions in the regulatory front, strategic alliances or acquisitions, industrial or environmental laws, fluctuations in the market prices for products or raw materials, macroeconomic factors and external events. Price of Shares may follow general investor sentiment prevalent in the market at a given time. In addition, the price of the Shares in the market will fluctuate as a result of share trading volumes.

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11.4.3 Shares May Not be a Suitable Investment for All Investors

Each potential investor in Shares must determine the suitability of that investment in light of its own circumstances. In particular, each potential investor should: . have sufficient knowledge and experience to evaluate Shares, the merits and risks of investing in Shares and the information contained or incorporated by reference in this Prospectus; . have access to, and knowledge of, appropriate analytical tools to evaluate, in the context of its particular financial situation, an investment in Shares and the impact the Shares will have on its overall investment portfolio; . have sufficient financial resources and liquidity to bear all of the risks of an investment in Shares, including where the settlement currency is different from the currency in which such investor’s principal financial activities are denominated; . understand thoroughly the terms of Shares and be familiar with any relevant indices and financial markets; and . be able to evaluate (either alone or with the help of a financial advisor) possible scenarios for economic, interest rate and other factors that may affect its investment and its ability to bear the applicable risks.

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12.0 TAXATION

The following information is an overview of selected taxation and other regulations that may be relevant to the Company and potential investors with regard to share transactions in the Democratic Socialist Republic of Sri Lanka. The discussion does not claim to be a comprehensive explanation of regulations and consideration that pertain to the purchase, ownership and disposition of the New Shares. The explanations are based on provisions effective in Sri Lanka at the time of printing of this Prospectus. Investors are advised to consult their own advisors prior to engaging in transitions relating to the Issue.

Income Tax

Taxation will be based on the elements of income and expenditure as reported in the financial statements and computed in accordance with the provisions of the Inland Revenue Act No. 10 of 2006 (as amended). PIL is liable for Income Tax at the rate of 28%.

However, in terms of the Inland Revenue (Amendment) Act No. 18 of 2013, if after listing its shares in the CSE the Company issues not less than 20 per centum (20%) of its shares to the general public, the income tax rate applicable to the Company will be reduced by fifty per centum (50%) for this year of assessment and for the following two (2) years of assessment provided that the Company continues to maintain not less than twenty per centum (20%) of holding of its shares by the general public after listing. In conjuction with the IPO, the Company intends to avail this benefit provided that the requisite requirements are met.

Value Added Tax

PIL’s total value addition is subjected to 11% Value Added Tax under the Value Added Tax Act No. 14 of 2002.

Nation Building Tax

The Company is liable to pay Nation Building Tax on the Gross Written Premium at the rate of 2% as per the Nation Building Tax Act No. 09 of 2009.

Stamp Duty

The Company is liable to pay Stamp Duty at the rate of LKR 5/- for every LKR 1,000/- or part thereof of the aggregate value of the New Shares in terms of the Stamp Duty Act No. 12 of 2006.

Share Transaction Levy (on commencement of trading of Shares on the CSE)

Upon the listing of the shares of the Company, a transaction levy at the rate of 0.3% on the sales and purchases of all share transactions is charged from both the buyer and the seller in terms of the Finance Act No. 5 of 2005 as amended.

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Withholding Tax (WHT) for Dividends

In general, dividends distributed by resident companies out of taxable income to resident or non- resident shareholders are subject to WHT at the rate of 10% under Section 153 of the Inland Revenue Act No. 10 of 2006 (as amended). The Company is required to deduct dividend tax at source and remit the same to the Department of Inland Revenue.

Other than the WHT referred to above, dividends paid on shares to shareholders of the Company will not be subject to any other Sri Lankan tax. Dividend income received by a company resident in Sri Lanka from another company resident in Sri Lanka does not form part of statutory income and is therefore not taxable in the hands of the recipient company.

Levy of Cess on General Insurance

PIL is subject to a Cess Levy of 0.4% of the total net premium of General Insurance business under section 7 of the Regulation of Insurance Industry Act, No. 43 of 2000 (as amended). The levy of cess paid by insurers are credited to ‘Policyholders’ Protection Fund’ established under Section 103 of the same Act.

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13.0 STATUTORY DECLARATIONS

Statutory Declaration by the Directors

November 30, 2015

We the undersigned, who are named in the Prospectus as Directors of PIL, hereby declare and confirm that we have read the provisions of the CSE Listing Rules and of the Companies Act No. 07 of 2007 and any amendments to it relating to the issue of this Prospectus, and that those provisions have been complied with.

This Prospectus has been seen and approved by us and we collectively and individually accept full responsibility for the accuracy of the information given and confirm that after making all reasonable enquiries and to the best of our knowledge and belief, there are no other facts the omission of which would make any statement herein misleading or inaccurate. Where representations regarding the future performance of PIL have been given in the Prospectus, such representations have been made after due and careful enquiry of the information available to PIL and making assumptions that are considered to be reasonable at the present point in time in our best judgement.

The parties to the Issue have submitted declarations to the Company declaring that they have complied with all regulatory requirements applicable to such parties, and that such parties have no conflict of interest with the Company.

Name Designation Signature Mr. Jehan P. Amaratunga Chairman/Non-Executive Non-Independent Director Sgd. Mr. N. Vasantha Kumar Non-Executive Non-Independent Director Sgd. Mr. D. P. Kumarage Managing Director/Executive Director Sgd. Mr. Lakshman Abeysekera Non-Executive Independent Director Sgd. Ms. Fathima Farah Hussain Non-Executive Independent Director Sgd.

Statutory Declaration by the Joint Managers to the Issue – Acuity Partners (Private) Limited

We, Acuity Partners (Private) Limited, of 53, Dharmapala Mawatha, Colombo 3 being the Joint Financial Advisors and Managers to the Issue of PIL, hereby declare and confirm to the best of our knowledge and belief that the Prospectus constitutes full and true disclosure of all material facts about the Issue and of PIL, whose Ordinary Shares are being Issued.

Signed by two Directors of Acuity Partners (Private) Limited, being duly authorised thereto, at Colombo on this 30th day of November 2015.

Sgd. Sgd. Director Director

80 | People’s Insurance Limited - Initial Public Offering

Statutory Declaration by the Joint Managers to the Issue – NDB Investment Bank Limited

We, NDB Investment Bank Limited, of 40, Navam Mawatha, Colombo 2 being the Joint Financial Advisors and Managers to the Issue of PIL, hereby declare and confirm to the best of our knowledge and belief that the Prospectus constitutes full and true disclosure of all material facts about the Issue and of PIL, whose Ordinary Shares are being Issued.

The Common Seal of NDB Investment Bank Limited affixed on this 30th day of November 2015 at Colombo in the presence of two Directors.

Sgd. Sgd. Director Director

Statutory Declaration by the Joint Managers to the Issue – People’s Bank - Investment Banking Unit

We, People’s Bank - Investment Banking Unit of People’s Bank Head Office, 13th Floor, 75, Sir Chittampalam A Gardiner Mawatha, Colombo 2 being the Joint Financial Advisors and Managers to the Issue of PIL, hereby declare and confirm to the best of our knowledge and belief that the Prospectus constitutes full and true disclosure of all material facts about the Issue and of PIL, whose Ordinary Shares are being Issued.

The Common Seal of People’s Bank affixed on this 30th day of November 2015 at Colombo in the presence of two Directors and Secretary to the Board of Directors of People’s Bank.

Sgd. Secretary to the Board of Directors

Sgd. Sgd. Director Director

Statutory Declaration by the Company

An application has been made to the CSE for permission to deal in and for a listing for all of the Ordinary Shares of the Company and those Ordinary Shares which are the subject of this Issue. Such permission will be granted when shares are listed on the CSE. The CSE assumes no responsibility for the correctness of any of the statements made or opinions expressed or reports included in this Prospectus. Listing on the CSE is not to be taken as an indication of the merits of the Company or of the Shares Issued.

The Common Seal of People’s Insurance Limited affixed on this 30th day of November 2015 at Colombo in the presence of two Directors.

Sgd. Sgd. Director Director

People’s Insurance Limited - Initial Public Offering | 81

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ANNEXURE A: ACCOUNTANTS’ REPORT AND FIVE YEAR SUMMARY

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People’s Insurance Limited – Initial Public Offering |

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ANNEXURE B: INDEPENDENT AUDITORS’ REPORT AND AUDITED FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED DECEMBER 31, 2014

People’s Insurance Limited - Initial Public Offering | 99 People’s Insurance Limited – Initial Public Offering |

INDEPENDENT AUDITOR’S REPORT

INDEPENDENT AUDITORS’ REPORT TO THE SHAREHOLDERS that are appropriate in the circumstances, but not for the purpose of OF PEOPLE’S INSURANCE LIMITED expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies Report on the Financial Statements used and the reasonableness of accounting estimates made by Board, as well We have audited the accompanying financial statements of People’s as evaluating the overall presentation of the financial statements. Insurance Limited, (“the Company”), which comprise the statement of financial position as at 31 December 2014, and the statement of income, We believe that the audit evidence we have obtained is sufficient and statement of comprehensive income, statement of changes in equity and, appropriate to provide a basis for our audit opinion. cash flow statement for the year then ended, and a summary of significant accounting policies and other explanatory information. (set out on pages 140 Opinion to 184.) In our opinion, the financial statements give a true and fair view of the financial position of the Company as at 31 December 2014, and of its Board’s Responsibility for the Financial Statements financial performance and cash flows for the year then ended in accordance The Board of Directors (“Board”) is responsible for the preparation of with Sri Lanka Accounting Standards. these financial statements that give a true and fair view in accordance with Sri Lanka Accounting Standards, and for such internal controls as Board Report on other legal and regulatory requirements determines is necessary to enable the preparation of financial statements As required by Section 163(2) of the Companies Act No. 7 of 2007, we state that are free from material misstatement, whether due to fraud or error. the following: a) The basis of opinion and Scope and Limitations of the audit are as stated Auditor’s Responsibility above. Our responsibility is to express an opinion on these financial statements b) In our opinion : based on our audit. We conducted our audit in accordance with Sri Lanka - We have obtained all the information and explanations that were Auditing Standards. Those standards require that we comply with ethical required for the audit and, as far as appears from our examination, requirements and plan and perform the audit to obtain reasonable assurance proper accounting records have been kept by the Company, about whether the financial statements are free from material misstatement. - The financial statements of the Company, comply with the requirements of Section 151 of the Companies Act. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures As required by Section 47(2) of the regulation of Insurance Industry Act, selected depend on the auditor’s judgment, including the assessment of No. 43 of 2000, we state that, the accounting records of the Company have the risks of material misstatement of the financial statements, whether due been maintained in the manner required by the rules issued by the Insurance to fraud or error. In making those risk assessments, the auditor considers Board of Sri Lanka, so as to clearly indicate the true and fair view of the internal control relevant to the entity’s preparation of the financial financial position of the Company. statements that give a true and fair view in order to design audit procedures

23 March 2015 Colombo

100 | People’s Insurance Limited - Initial Public Offering STATEMENT OF INCOME

For the year ended 31 December 2014 2013 Notes Rs. Rs.

Revenue 3 3,411,464,345 3,194,839,580

Gross written premium 4 3,440,608,282 3,251,084,198 Net change in reserve for unearned insurance premium (155,403,811) (139,438,161) Gross earned premium 3,285,204,471 3,111,646,037 Premium ceded to reinsurers (293,936,371) (321,929,713) Net change in reserve for unearned reinsurance premium (800,936) 10,764,506 Net earned premium 2,990,467,164 2,800,480,830

Claims and expenses Net claims 5 (2,162,703,667) (2,120,218,765) Underwriting and net acquisition costs 6 (310,773,268) (292,259,004) Other operating and administrative expenses 7 (365,149,241) (281,481,769) Total claims and expenses (2,838,626,176) (2,693,959,538)

Underwriting results 151,840,988 106,521,292

Other revenue Fee income 8 32,260,290 19,159,311 Interest and dividend income 9 314,786,047 358,792,809 Net fair value gains 10 70,523,465 13,210,206 Other operating revenue 11 3,427,379 3,196,424 Total other revenue 420,997,181 394,358,750

Profit before tax 12 572,838,169 500,880,042 Income tax expense 13 (122,711,070) (130,055,888) Profit for the year 450,127,099 370,824,154

Basic earnings per share 14 7.50 6.18 Dividend per share 15 3.50 2.25

The notes to the financial statements on pages 140 to 184 form an integral part of the financial statements.

People’s Insurance Limited - Initial Public Offering | 101 STATEMENT OF COMPREHENSIVE INCOME

For the year ended 31 December 2014 2013 Notes Rs. Rs.

Profit for the year 450,127,099 370,824,154

Other comprehensive income

Other comprehensive income to be reclassified to statement of income Available-for-sale financial instruments Reclassification during the year to statement of income (4,263,439) (1,679,666) Net change in fair value during the year 13,353,136 3,037,746 Deferred tax effect 1,575,378 (228,017) Other comprehensive income to be reclassified to statement of income 10,665,075 1,130,063

Other comprehensive income not to be reclassified to statement of income: Re-measurement loss on defined benefit plans 26 (631,969) (74,855) Other comprehensive loss not to be reclassified to statement of income (631,969) (74,855) Other comprehensive income for the year, net of tax 10,033,106 1,055,208 Total comprehensive income for the year, net of tax 460,160,205 371,879,362

The notes to the financial statements on pages 140 to 184 form an integral part of the financial statements.

102 | People’s Insurance Limited - Initial Public Offering STATEMENT OF FINANCIAL POSITION

As at 31 December 2014 2013 Notes Rs. Rs.

Assets Intangible assets 16 48,940,550 61,716,770 Property, plant and equipment 17 26,056,186 28,310,298 Financial investments 18 3,644,915,439 3,190,344,558 Reinsurance receivables 19 137,282,451 111,005,222 Insurance receivables 20 523,732,541 435,019,566 Deferred expenses 21 180,766,259 167,355,627 Other assets 22 11,942,400 22,204,603 Cash and cash equivalents 23 184,614,106 5,221,146 Total assets 4,758,249,932 4,021,177,790

Equity and liabilities Equity Stated capital 24 600,000,000 600,000,000 Retained earnings 797,803,529 482,676,430 Available-for-sale reserves 13,004,499 2,339,424 Other reserves (766,576) (134,607) Total equity 1,410,041,452 1,084,881,247

Liabilities Insurance liabilities 25 2,901,132,149 2,516,037,432 Employee defined benefit obligations 26 4,432,438 2,493,213 Other financial liabilities 27 276,831,117 292,615,952 Other liabilities 28 23,703,110 21,854,020 Reinsurance payables 62,262,572 23,979,310 Income tax payables 62,430,094 58,940,609 Deferred tax liabilities 29 13,576,697 18,344,385 Bank overdraft 30 3,840,303 2,031,622 Total liabilities 3,348,208,480 2,936,296,543 Total equity and liabilities 4,758,249,932 4,021,177,790

The notes to the financial statements on pages 140 to 184 form an integral part of the financial statements. These financial statements are in compliance with the requirements of the Companies Act No. 07 of 2007.

Nilushan Somarathna Chief Financial Officer The Board of Directors is responsible for the preparation and presentation of these financial statements. Signed for and on behalf of the Board by:

Jehan P. Amaratunga D. P. Kumarage Chairman Managing Director 23 March 2015 Colombo

People’s Insurance Limited - Initial Public Offering | 103 STATEMENT OF CHANGES IN EQUITY

Stated Retained Available-for- Other Total capital earnings sale reserves reserves Rs. Rs. Rs. Rs. Rs.

Balance as at 1 January 2013 600,000,000 261,852,276 1,209,360 (59,752) 863,001,884 Profit for the year - 370,824,154 - - 370,824,154 Re-measurement loss on defined benefit plans - - - (74,855) (74,855) Net change in fair value of available-for-sale financial assets - - 1,130,064 - 1,130,064 Dividend paid during the year - (150,000,000) - - (150,000,000) Balance as at 31 December 2013 600,000,000 482,676,430 2,339,424 (134,607) 1,084,881,247 Profit for the year - 450,127,099 - - 450,127,099 Re-measurement loss on defined benefit plans - - - (631,969) (631,969) Net change in fair value of available-for-sale financial assets - 10,665,075 - 10,665,075 Dividend paid during the year - (135,000,000) - - (135,000,000) Balance as at 31 December 2014 600,000,000 797,803,529 13,004,499 (766,576) 1,410,041,452

The notes to the financial statements on pages 140 to 184 form an integral part of the financial statements.

104 | People’s Insurance Limited - Initial Public Offering STATEMENT OF CASH FLOWS

For the year ended 31 December 2014 2013 Notes Rs. Rs.

Operating activities Premium received from customers 3,351,895,307 3,183,419,916 Reinsurance premium paid (332,219,628) (276,640,825) Claims paid (1,967,811,816) (1,932,812,498) Reinsurance receipts in respect of claims 7,238,168 16,119,967 Interest received 284,586,940 273,646,244 Dividends received 12,250,322 5,292,894 Other operating cash flows (510,532,478) (493,556,116) Cash flows from operating activities A 845,406,815 775,469,582 Income tax paid (112,693,074) (61,561,000) Net cash flows from operating activities 732,713,741 713,908,582

Investing activities Purchase of liquid investments (12,167,139,525) (14,047,409,877) Purchase of other investments (1,769,668,218) (3,458,575,621) Maturity proceeds of liquid investments 12,222,181,704 14,297,649,225 Sale of other investments 1,303,106,980 2,736,641,848 Purchase of property, plant and equipment (8,610,403) (11,834,333) Purchase of intangible assets - (60,000,000) Net cash flows used in investing activities (420,129,463) (543,528,758)

Net cash flows before financing activities 312,584,279 170,379,824

Financing activities Ordinary dividend paid (135,000,000) (150,000,000) Net cash flows used in financing activities (135,000,000) (150,000,000) Net increase in cash and cash equivalents B 177,584,279 20,379,824

The notes to the financial statements on pages 140 to 184 form an integral part of the financial statements.

People’s Insurance Limited - Initial Public Offering | 105 Notes to the Statement of Cash Flows

For the year ended 31 December 2014 2013 Notes Rs. Rs.

A. Cash flows from operating activities

Profit before tax 572,838,169 500,880,042 Unrealised gain on listed shares at market value 10 (35,675,809) (13,210,206) Provision for retirement benefit obligations 26 1,307,256 1,031,964 Depreciation and amortisation expenses 7 23,640,735 10,697,998 Provision/(reversal of provision) for impairment - Insurance receivables 1,713,687 (266,732)

Changes in working capital Increase in reinsurance assets (26,277,229) (36,622,297) Increase in insurance receivables and other assets (88,171,593) (153,533,031) Increase in deferred expenses (13,410,632) (11,832,546) Increase in insurance liabilities 385,094,718 344,335,959 Increase in creditors 24,347,513 133,988,431 Cash flows from operating activities 845,406,815 775,469,582

B. Increase in cash and cash equivalents

Net cash and cash equivalents at the end of the year 23 180,773,803 3,189,524 Less: Net cash and cash equivalents at the beginning of the year 3,189,524 (17,190,300) Increase in cash and cash equivalents during the year 177,584,279 20,379,824

106 | People’s Insurance Limited - Initial Public Offering NOTES TO THE FINANCIAL STATEMENTS

1. CORPORATE INFORMATION 2.3 Going concern 1.1 Reporting entity The Directors have made an assessment of the Company’s ability to continue People’s Insurance Limited is a public limited liability company incorporated as a going concern and do not intended either to liquidate or to cease and domiciled in Sri Lanka. The registered office of the Company is situated trading. at No. 1161, Maradana Road, Colombo 08 and the principal place of business is situated at No. 53, Dharmapala Mawatha, Colombo 03. 2.4 Date of authorisation for issue The financial statements of People’s Insurance Limited for the year ended 31 1.2 Parent entity and ultimate parent entity December 2014 were authorised for issue on 23 March 2015. The Company’s parent entity is People’s Leasing & Finance PLC. The Company’s ultimate parent undertaking and controlling entity is People’s 2.5 Summary of significant accounting policies Bank which is owned by the Government of Sri Lanka. a) Product classification Insurance contracts are those contracts when the Company (the insurer) has 1.3 Principal activities and nature of operations accepted significant insurance risk from another party (the policyholders) The principal activity of the Company is carrying out non-life insurance by agreeing to compensate the policyholders, if a specified uncertain future business. event (the insured event) adversely affects the policyholders. As a general guideline, the Company determines whether it has significant insurance risk, 1.4 Responsibility for financial statements by comparing benefits paid with benefits payable, if the insured event did The Board of Directors is responsible for preparation and presentation of not occur. Insurance contracts can also transfer financial risk. these financial statements. Once a contract has been classified as an insurance contract, it remains an 1.5 Number of employees insurance contract for the remainder of its lifetime, even if the insurance risk The staff strength of the company as at 31 December 2014 was 245 reduces significantly during this period, unless all rights and obligations are (2013 - 210). extinguished or expire.

b) Revenue recognition 2. ACCOUNTING POLICIES Gross written premium 2.1 Basis of preparation Non-life insurance gross written premium comprises the total premium The financial statements of the People’s Insurance Limited (the Company) are receivable for the whole period of cover provided by contracts entered into presented in Sri Lankan Rupees on the historical cost basis except available- during the accounting period and are recognised on the date on which the for-sale investments and financial assets at fair value through profit or loss, policy commences. all of which have been measured at fair value and insurance liabilities which have been acturially valued. No adjustments have been made for inflationary Reinsurance premium fact. Non-life gross reinsurance premium written comprises the total premium payable for the whole cover provided by contracts entered into the period 2.2 Statement of compliance and is recognised on the date on which the policy incepts. Premium includes The financial statements of the Company have been prepared in accordance any adjustments arising in the accounting period in respect of reinsurance with Sri Lanka Accounting Standards (SLFRS /LKAS) as issued by the Institute contracts incepting in prior accounting periods. of Chartered Accountants of Sri Lanka and the preparation and presentation of these financial statements are in compliance with the Companies Act No. Unearned premium reserve 07 of 2007 and the Regulation of Insurance Industry Act No. 43 of 2000. Unearned premium reserve represents the portion of the premium written in the year but relating to the unexpired term of coverage. Unearned premium is calculated on the 365 basis.

People’s Insurance Limited - Initial Public Offering | 107 Unearned reinsurance premium reserve Reinsurance claims Unearned reinsurance premium is the proportion of premium written in Reinsurance claims are recognised when the related gross insurance claim is a year that relates to periods of risk after the reporting date. Unearned recognised according to the terms of the relevant contract. reinsurance premium is deferred over the term of the underlying direct insurance policies. d) Underwriting results Underwriting results represent the difference between premium earned on Interest and dividend income insurance policies and expenses incurred including claim expenses. Interest income is recognised in the statement of income as it accrues and is calculated by using the effective interest rate method. Fees and commissions e) Taxes that are an integral part of the effective yield of the financial asset or Current income tax liability are recognised as an adjustment to the effective interest rate of the Current income tax assets and liabilities for the current period are measured instrument. at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are Dividend income is recognised when the right to receive payment is those that are enacted or substantively enacted by the reporting date. established. For listed securities, this is the date the security is listed as ex- Current income tax assets and liabilities also include adjustments for tax dividend. expected to be payable or recoverable in respect of previous periods.

Net fair value gains Current income tax relating to items recognised directly in equity or other Net fair value gains recorded in the statement of income on investments comprehensive income is recognised in equity or other comprehensive include gains and losses on financial assets. Gains and losses on the sale of income and not in the statement of income. Management periodically investments are calculated as the difference between net sales proceeds and evaluates positions taken in the tax returns with respect to situations in the original or amortised cost and are recorded on occurrence of the sale which applicable tax regulations are subject to interpretation and establishes transaction. provisions where appropriate. c) Claims and expenses recognition Deferred tax Gross claims Deferred tax is provided using the liability method on temporary differences Gross claims for non-life insurance include all claims occurring during the at the reporting date between the tax bases of assets and liabilities and their year, whether reported or not, related internal and external claims handling carrying amounts for financial reporting purposes. costs that are directly related to the processing and settlement of claims, a reduction for the value of salvage and other recoveries and any adjustments Deferred tax liabilities are recognised for all taxable temporary differences, to claims outstanding from previous years. except:

Claims expenses and liabilities for outstanding claims are recognised in • When the deferred tax liability arises from the initial recognition of respect of direct insurance business. The liability covers claims reported but goodwill or of an asset or liability in a transaction that is not a business not yet paid, incurred but not reported claims (IBNR) and the anticipated combination and, at the time of the transaction, affects neither the direct and indirect costs of settling those claims. Claims outstanding are accounting profit nor taxable profit or loss. assessed by review of individual claim files and estimating changes in the ultimate cost of settling claim. The provision in respect of IBNR is actuarially • In respect of taxable temporary differences associated with investments valued on an annual basis to ensure a more realistic estimation of the future in subsidiaries, associates and interests in joint ventures, where the liability based on past experience and trends. timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

108 | People’s Insurance Limited - Initial Public Offering Notes to the Financial Statements

Deferred tax assets are recognised for all deductible temporary differences, Non-monetary items that are measured in terms of historical cost in a carry forward of unused tax credits and unused tax losses, to the extent that foreign currency are translated using the exchange rate as at the date of it is probable that taxable profit will be available against which the deductible the initial transaction and are not subsequently restated. Non-monetary temporary differences, and the carry forward of unused tax credits and items measured at fair value in a foreign currency are translated using the unused tax losses can be utilised except where the deferred tax asset relating exchange rates at the date when the fair value was determined. to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at g ) Intangible assets the time of the transaction, affects neither the accounting profit nor taxable Intangible assets acquired separately are measured on initial recognition at profit or loss. cost. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and any accumulated impairment losses. The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient Intangible assets with finite lives are amortised over the useful economic taxable profit will be available to allow all or part of the deferred income tax asset to be utilised. Unrecognised deferred tax assets are reassessed at each life. The amortisation period and the amortisation method for an intangible reporting date and are recognised to the extent that it has become probable asset with a finite useful life are reviewed at least at each financial year end. that future taxable profit will allow the deferred tax asset to be recovered. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are accounted for by Deferred tax assets and liabilities are measured at the tax rates that are changing the amortisation period or method, as appropriate, and they are expected to apply to the year when the asset is realised or the liability treated as changes in accounting estimates. The amortisation expense on is settled, based on tax rates (and tax laws) that have been enacted or intangible assets with finite lives is recognised in the statement of income in substantively enacted at the reporting date. the expense category consistent with the function of the intangible asset.

Deferred tax relating to items recognised outside profit or loss is recognised Amortisation is calculated using the straight-line method to write down the outside profit or loss. Deferred tax items are recognised in correlation to the cost of intangible assets to their residual values over their estimated useful underlying transaction either in other comprehensive income or directly in lives as follows equity.

Deferred tax assets and deferred tax liabilities are offset, if a legally Asset Class Useful Life Amortisation Method enforceable right exists to set off-current tax assets against current income Computer software 5 years Straight line method tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority. h) Impairment of non-financial assets The Company assesses at each reporting date whether there is an indication f) Foreign currency translation that an asset may be impaired. If any indication exists, or when annual The Company’s financial statements are presented in Sri Lankan Rupees impairment testing for an asset is required, the Company estimates the which is also the Company’s functional currency. asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s or cash-generating unit’s (CGU) fair value less costs to sell and Transactions in foreign currencies are initially recorded at the functional currency rate prevailing at the date of the transaction. its value in use. Where the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down Monetary assets and liabilities denominated in foreign currencies are to its recoverable amount. In assessing value in use, the estimated future retranslated at the functional currency rate of exchange ruling at the cash flows are discounted to their present value using a pre-tax discount rate reporting date. that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs to sell, an All differences are taken to the statement of income. appropriate valuation model is used. These calculations are corroborated by

People’s Insurance Limited - Initial Public Offering | 109 valuation multiples, quoted share prices for publicly traded companies or j) Financial assets other available fair value indicators. Initial recognition and subsequent measurement Financial assets within the scope of LKAS 39 are classified as financial An assessment is made at each reporting date as to whether there is any assets at fair value through profit or loss, loans and receivables, held to indication that previously recognised impairment losses may no longer exist maturity investments and available-for-sale financial assets as appropriate. or may have decreased. If such indication exists, the Company estimates the The Company determines the classification of its financial assets at initial asset’s or CGU’s recoverable amount. A previously recognised impairment recognition. loss is reversed, only if there has been a change in the assumptions used to determine the asset’s recoverable amount since the last impairment loss was However, the Company did not have any investment classfied as held to recognised. The reversal is limited so that the carrying amount of the asset maturity investments during the year. does not exceed its recoverable amount, nor exceeds the carrying amount that would have been determined, net of depreciation, had no impairment Financial assets are recognised initially at fair value plus, in the case of loss been recognised for the asset in prior years. Such reversal is investments not at fair value through profit or loss, directly attributable recognised in the statement of income. transaction costs. i) Property plant and equipment The classification depends on the purpose for which the investments were Property, plant and equipment is stated at cost excluding the cost of day-to- acquired or originated. day servicing, less accumulated depreciation and accumulated impairment in value. Changes in the expected useful life are accounted for by changing the The financial assets are recorded based on the trade date. amortisation period or method, as appropriate, and treated as changes in accounting estimates. Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss include financial assets Depreciation is calculated using the straight-line method to write down the held for trading. The Company evaluated its financial assets at fair value cost of property, plant and equipment to their residual values over their through profit and loss (held for trading) whether the intent to sell them estimated useful lives. Depreciation charge begins when an assets is available in the near term is still appropriate. When the Company is unable to trade for use. Land is not depreciated. The estimated useful lives are as follows. these financial assets due to inactive markets and management’s intent to sell them in the foreseeable future significantly changes, the Company Asset Class Useful Life may elect to reclassify these financial assets in rare circumstances. The reclassification to loans and receivables, available-for-sale or held to maturity Computer hardware 5 years depends on the nature of the asset. Office equipment 5 years Furniture and fittings 5 years Loans and other receivables Motor vehicle 5 years Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. These An item of property, plant and equipment is derecognised upon disposal or investments are initially recognised at cost, being the fair value of the when no future economic benefits are expected from its use or disposal. Any consideration paid for the acquisition of the investment. All transaction gain or loss arising on derecognising of the asset (calculated as the difference costs directly attributable to the acquisition are also included in the cost between the net disposal proceeds and the carrying amount of the assets) is of the investment. After initial measurement, loans and receivables are recognised in the statement of income in the year the asset is derecognised. measured at amortised cost, using the effective interest rate method (EIR) less impairment. Gains and losses are recognised in the statement of income when the investments are derecognised or impaired, as well as through the amortisation process.

110 | People’s Insurance Limited - Initial Public Offering Notes to the Financial Statements

Available-for-sale financial assets or not, the asset is included in a group of financial assets with similar Available-for-sale financial assets are non-derivative financial assets that credit risk characteristics and that group of financial assets is collectively are designated as available-for-sale or are not classified in any of the three assessed for impairment. Assets that are individually assessed for preceding categories. These investments are initially recorded at fair value. impairment and for which an impairment loss is, or continues to be, After initial measurement, available-for-sale financial assets are measured at recognised are not included in a collective assessment of impairment. fair value. Fair value gains and losses are reported as a separate component The impairment assessment is performed at each reporting date. in other comprehensive income until the investment is derecognised or the investment is determined to be impaired. If, in a subsequent period, the amount of the impairment loss decreases and that decrease can be related objectively to an event occurring after On de-recognition or impairment, the cumulative fair value gains and losses the impairment was recognised, the previously recognised impairment previously reported in equity are transferred to the statement of income. loss is reversed. Any subsequent reversal of an impairment loss is recognised in the statement of income, to the extent that the carrying Fair value of financial instruments value of the asset does not exceed its amortised cost at the reversal date. The fair value of financial instruments that are actively traded in organised financial markets is determined by reference to quoted market prices. • Available-for-sale financial investments If an available-for-sale financial asset is impaired, an amount comprising For financial instruments where there is not an active market, the fair value is the difference between its costs (net of any principal repayment and determined by using appropriate valuation techniques. Valuation techniques amortisation) and its current fair value, less any impairment loss include the discounted cash flow method and comparison to similar previously recognised in other comprehensive income, is transferred instruments for which market observable prices exist. from equity to the statement of income. Reversals in respect of equity instruments classified as available-for-sale are not recognised in the Impairment of financial assets statement of income. The Company assesses at each balance sheet date whether a financial asset or group of financial assets is impaired. Reversals of impairment losses on debt instruments classified at available-for-sale are reversed through the statement of income, if the • Assets carried at amortised cost increase in the fair value of the instruments can be objectively related to If there is objective evidence that an impairment loss on assets carried at an event occurring after the impairment losses were recognised in the amortised cost has been incurred, the amount of the impairment loss is statement of income. measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future expected • Financial assets carried at cost credit losses that have not been incurred) discounted at the financial if there is objective evidence that an impairment loss has been incurred asset’s original effective interest rate. The carrying amount of the asset is on an unquoted equity instrument that is not carried at fair value reduced and the loss is recorded in the statement of income. because its fair value cannot be reliably measured, or on a derivative asset that is linked to and must be settled by delivery of such an The Company first assesses whether objective evidence of impairment unquoted equity instrument, the amount of the impairment loss is exists individually for financial assets that are individually significant and measured as the difference between the carrying amount of the financial individually or collectively for financial assets that are not individually asset and the present value of estimated future cash flows discounted significant. If it is determined that no objective evidence of impairment at the current market rate of return for a similar financial asset. Such exists for an individually assessed financial asset, whether significant impairment losses shall not be reversed.

People’s Insurance Limited - Initial Public Offering | 111 De-recognition of financial assets Reinsurance receivables are reviewed for impairment at each reporting A financial asset (or, when applicable, a part of a financial asset or part of a date or more frequently when an indication of impairment arises during group of similar financial assets) is derecognised when: the reporting year. Impairment occurs when there is objective evidence as a result of an event that occurred after initial recognition of the reinsurance • The rights to receive cash flows from the asset have expired; asset that the Company may not receive all outstanding amounts due under • The Company retains the right to receive cash flows from the asset, but the terms of the contract and the event has a reliably measurable impact has assumed an obligation to pay them in full without material delay to a on the amounts that the Company will receive from the reinsurer. The third party under a ‘pass-through’ arrangement; impairment loss is recorded in the statement of income. • The Company has transferred its rights to receive cash flows from the asset and either: Ceded reinsurance arrangements do not relieve the Company from its o has transferred substantially all the risks and rewards of the asset, or obligations to policyholders. o has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset. Reinsurance liabilities represent balances due to reinsurance companies. Amounts payable are estimated in a manner consistent with the related When the Company has transferred its right to receive cash flows from an reinsurance contract. asset and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is Premiums and claims are presented on a gross basis for both ceded and recognised to the extent of the company’s continuing involvement in the assumed reinsurance. asset. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount Reinsurance assets or liabilities are derecognised when the contractual rights of the asset and the maximum amount of consideration that the Company are extinguished or expire or when the contract is transferred to another could be required to repay. party.

Offsetting of financial instruments l) Reinsurance receivables Financial assets and financial liabilities are offset and the net amount is Re-insurance receivables are recognised when due and measured on initial reported in the statement of financial position if, and only if, there is a recognition at the fair value of the consideration received or receivable. The currently enforceable legal right to offset the recognised amounts and carrying value of insurance receivables is reviewed for impairment whenever there is an intention to settle on a net basis, or to realise the assets and events or circumstances indicate that the carrying amount may not be settle the liabilities simultaneously. Income and expense will not be offset recoverable, with the impairment loss recorded in the statement of income. in the statement of income unless required or permitted by any accounting standard or interpretation, as specifically disclosed in the accounting policies m) Insurance receivables of the Company. Premium receivables are recognised when due and measured on initial recognition at the fair value of the consideration received or receivable. The k) Reinsurance carrying value of insurance receivables is reviewed for impairment whenever The Company cedes insurance risk in the normal course of business for events or circumstances indicate that the carrying amount may not be all of its businesses. Reinsurance receivables represent balances due from recoverable, with the impairment loss recorded in the statement of income. reinsurance companies. Amounts recoverable from reinsurers are estimated in a manner consistent with the outstanding claims provision or settled n) Deferred expenses claims associated with the reinsurer’s policies and are in accordance with the Deferred acquisition costs (DAC) related reinsurance contract. The costs of acquiring new businesses including commission, underwriting, marketing and policy issue expenses, which vary with and directly related

112 | People’s Insurance Limited - Initial Public Offering Notes to the Financial Statements

to production of new businesses are deferred to the extent that these costs The liability is not discounted for the time value of money. No provision are recoverable out of future premiums. All other acquisition costs are for equalisation or catastrophe reserves is recognised. The liabilities are recognised as an expense when incurred. Subsequent to initial recognition, derecognised when the contract expires, is discharged or is cancelled. DAC for non-life insurance is amortised over the period on the basis UPR is amortised The provision for unearned premium represents premiums received for risks that have not yet expired. Generally the reserve is released over the term Changes in the expected useful life or the expected pattern of consumption of the contract and is recognised as premium income. At each reporting of future economic benefits embodied in the asset are accounted for date, the Company reviews its unexpired risk and a liability adequacy test by changing the amortisation period and are treated as a change in an is performed to determine whether there is any overall excess of expected accounting estimate. claims and deferred acquisition costs over unearned premiums. This calculation uses current estimates of future contractual cash flows after DAC is derecognised when the related contracts are either expired or taking account of the investment return expected to arise on assets relating cancelled. to the relevant non-life insurance technical provisions. If these estimates show that the carrying amount of the unearned premiums is inadequate, the Reinsurance commissions deficiency is recognised in the statement of income by setting up a provision Commissions receivable on outwards reinsurance contracts are deferred and for liability adequacy. amortised on a straight line basis over the term of the expected premiums payable. q) Other financial liabilities Financial liabilities are recognised initially at fair value plus any directly o) Cash and cash equivalents attributable transaction costs. Subsequent to initial recognition, these Cash and cash equivalents are defined as cash in hand and balances at bank, financial liabilities are measured at amortised cost using the effective interest deemed deposits readily convertible to known amounts of cash and subject method. Other financial liabilities consist of amount due to related parties to insignificant risk of changes in value. and other creditors including accruals and outstanding commission payable.

For the purpose of statement of cash flows, cash and cash equivalents r) De-recognition of financial liabilities and insurance payable consists of cash in hand and balances at bank net of outstanding bank Financial liabilities and insurance payables are derecognised when the overdraft. obligation under the liability is discharged, cancelled or expired. p) Insurance contract liabilities s) Post employment benefits Non-life insurance contract liabilities Defined benefit Plan Non-life insurance contract liabilities are recognised when contracts are A defined benefit plan is a post-employment benefit plan other than a entered into and premiums are charged. These liabilities are known as the defined contribution plan. The Company’s net obligation in respect of outstanding claims provision, which are based on the estimated ultimate defined benefit plans is calculated by estimating the amount of future benefit cost of all claims incurred but not settled at the balance sheet date, whether that employees have earned in return for their service in the current and reported or not, together with related claims handling costs and reduction prior periods; and discounting that benefit to determine its present value. for the expected value of salvage and other recoveries. Delays can be The calculation is performed annually by a qualified independent actuary experienced in the notification and settlement of certain types of claims, using the projected unit credit (PUC) method as recommended by therefore the ultimate cost of these cannot be known with certainty at the LKAS 19 - Employee Benefits. balance sheet date. The liability is calculated at the reporting date using a range of standard actuarial claim projection techniques, based on empirical The Re-measurenent of the net define benefit liability, which comprises data and current assumptions that may include a margin for adverse actuarial gains and losses are charged or credited to statement of deviation.

People’s Insurance Limited - Initial Public Offering | 113 comprehensive income in the period in which they arise. The assumptions Dividends on ordinary share capital based on which the results of the actuarial valuation was determined, are Dividends on ordinary shares are recognised as a liability and deducted from included in Note 26 to the financial statements. equity when they are approved by the Company’s shareholders. Interim dividends are deducted from equity when they are paid. However, according to the Payment of Gratuity Act No. 12 of 1983, the liability for the gratuity payment to an employee arises only on the 2.6 Significant accounting estimates and assumptions completion of 5 years of continued service with the Company. The provision The preparation of the Company’s financial statements requires management of the Company is not externally funded. to make judgments, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities and the disclosure of Defined contribution plans contingent liabilities, at the reporting date. However, uncertainty about these A defined contribution plan is a post employment plan under which an assumptions and estimates could result in outcomes that could require a entity pays fixed contributions into a separate entity and will have no legal or material adjustment to the carrying amount of the asset or liability affected constructive obligation to pay a further amount. Obligations for contributions in future periods. to Provident Fund under the Provident Fund Act No. 15 of 1958 as amended and Trust Fund under the Trust Fund Act No. 46 of 1980, covering all Estimates and assumptions employees are recognised as an employee benefit expense in profit and The key assumptions concerning the future and other key sources of loss when they are due. The Company contributes 12% and 3% of gross estimation uncertainty at the reporting date, that have a significant risk emoluments of employees as provident fund and trust fund contribution of causing a material adjustment to the carrying amounts of assets and respectively. liabilities within the next financial year are discussed below. t) Provisions Insurance contract liabilities General For non-life insurance contracts, estimates have to be made both for the Provisions are recognised when the Company has a present obligation expected ultimate cost of claims reported at the reporting date and for (legal or constructive) as a result of a past event, and it is probable that the expected ultimate cost of claims incurred but not yet reported at the an outflow of resources embodying economic benefits will be required to reporting date (IBNR). It can take a significant period of time before the settle the obligation and a reliable estimate can be made of the amount of ultimate claims cost can be established with certainty and for some type of the obligation. Where the Company expects some or all of a provision to be policies, IBNR claims form the majority of the liability in the statement of reimbursed, the reimbursement is recognised as a separate asset but only financial position. when the reimbursement is virtually certain. The expense relating to any provision is presented in the statement of income net of any reimbursement. The ultimate cost of outstanding claims is estimated by using a range of If the effect of the time value of money is material, provisions are discounting standard actuarial claims projection techniques, such as Chain Ladder using a current pre-tax rate that reflects, where appropriate, the risks specific method, Bornheutter-Ferguson method and Frequency/Severity method. to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost. The main assumption underlying these techniques is that a company’s past claims development experience can be used to project future claims u) Equity movements development and hence ultimate claims costs. As such, these methods Stated capital extrapolate the development of paid and incurred losses, average costs per The Company has issued ordinary shares that are classified as equity. claim and claim numbers based on the observed development of earlier Incremental external costs that are directly attributable to the issue of these years and expected loss ratios. Historical claims development is mainly shares are recognised in equity, net of tax. analysed by accident years, but can also be further analysed by geographical

114 | People’s Insurance Limited - Initial Public Offering Notes to the Financial Statements

area, as well as by significant business lines and claim types. Large claims are Sri Lanka Accounting Standard (SLFRS) 9 - Financial instruments: Classification usually separately addressed, either by being reserved at the face value of and measurement loss adjuster estimates or separately projected in order to reflect their future In December 2014, the CA Sri Lanka issued the final version of SLFRS development. In most cases, no explicit assumptions are made regarding 9 - Financial Instruments Classification and Measurement which reflects all future rates of claims inflation or loss ratios. Instead, the assumptions used phases of the financial instruments project and replaces LKAS 39 Financial are those implicit in the historical claims development data on which the Instruments: Recognition and Measurement. The standard introduces new projections are based. requirements for classification and measurement, impairment and hedge accounting. SLFRS 9 is effective for annual periods beginning on or after 1 Additional qualitative judgment is used to assess the extent to which past January 2018, with early application permitted. trends may not apply in future, (for example to reflect one-off occurrences, changes in external or market factors such as public attitudes to claiming, Retrospective application is required, but comparative information is not economic conditions, levels of claims inflation, judicial decisions and compulsory. The adoption of SLFRS 9 will have an effect on the classification legislation, as well as internal factors such as portfolio mix, policy features and measurement of the Company’s financial assets, but no impact on the and claims handling procedures) in order to arrive at the estimated ultimate classification and measurement of the Company’s financial liabilities. cost of claims that present the likely outcome from the range of possible outcomes, taking account of all the uncertainties involved. Sri Lanka Accounting Standard (SLFRS) 15 - Revenue from contracts with customers Similar judgments, estimates and assumptions are employed in the SLFRS 15 establishes a comprehensive framework for determining whether, assessment of adequacy of provisions for unearned premium. Judgment how much and when revenue is recognised. It replaces existing revenue is also required in determining whether the pattern of insurance service recognition guidance, including Sri Lanka Accounting Standard (LKAS) 18 - provided by a contract requires amortisation of unearned premium on a Revenue, Sri Lanka Accounting Standard (LKAS) 11 - Construction Contracts basis other than time apportionment. and International Financial Reporting Interpretations Committee (IFRIC) 13 - Customer Loyalty Programmes. This standard is effective for the annual The net carrying value at the reporting date of non-life insurance contract periods beginning on or after 1 January 2017. liabilities which include case reserves held by the Company and the incurred but not reported (IBNR) claims on undiscounted 75% confidence level is The Company will adopt these standards when they become effective. Rs. 1,065,944,842 (2013: Rs. 863,814,822). Pending the completion of detailed review, the financial impact is not reasonably estimable as at the date of publication of these financial Defined benefit plan statements. The Company measures the present value of the promised retirement benefits of gratuity which is a defined benefit plan using the projected unit credit (PUC) method.

2.7 New standards and interpretation not yet adopted The following SLFRSs have been issued by the Institute of Chartered Accountants of Sri Lanka (CA Sri Lanka) that have an effective date in the future and have not been applied in preparing these financial statements. Those SLFRSs will have an effect on the accounting policies currently adopted by the Company and may have an impact on the future financial statements.

People’s Insurance Limited - Initial Public Offering | 115 3. REVENUE

For the year ended 31 December 2014 2013 Rs. Rs.

Net earned premium 2,990,467,164 2,800,480,830 Total other revenue 420,997,181 394,358,750 3,411,464,345 3,194,839,580

4. GROSS WRITTEN PREMIUM

Premium income for the year by major classes of business is as follows;

For the year ended 31 December 2014 2013 Rs. Rs.

Motor 2,864,946,555 2,715,710,122 Fire 290,695,112 326,835,343 Marine 13,180,567 5,114,780 Miscellaneous 271,786,048 203,423,953 3,440,608,282 3,251,084,198

5. NET CLAIMS

For the year ended 31 December 2014 2013 Rs. Rs.

Claims paid (1,967,811,816) (1,932,812,496) Claims ceded to reinsurers 7,238,168 55,055,846 Gross change in contract liabilities (236,131,383) (215,662,306) Change in contract liabilities ceded to reinsurers 34,001,364 (26,799,809) (2,162,703,667) (2,120,218,765)

116 | People’s Insurance Limited - Initial Public Offering Notes to the Financial Statements

6. UNDERWRITING AND NET ACQUISITION COSTS

For the year ended 31 December 2014 2013 Rs. Rs.

Acquisition cost (351,915,222) (336,399,216) Change in deferred acquisition cost 12,678,975 13,921,943 (339,236,247) (322,477,273) Reinsurance commission 27,731,324 32,307,667 Change in unearned commission reserve 731,655 (2,089,398) 28,462,979 30,218,269 (310,773,268) (292,259,004)

7. OTHER OPERATING AND ADMINISTRATIVE EXPENSES

For the year ended 31 December 2014 2013 Notes Rs. Rs.

Staff expenses 7.1 (92,005,194) (64,669,034) Administrative expenses (247,789,625) (206,381,469) Depreciation and amortisation (23,640,735) (10,697,998) Net impairment gain/(loss) (1,713,687) 266,732 (365,149,241) (281,481,769)

7.1 Staff expenses Wages and salaries (80,689,533) (56,422,500) Contribution to defined benefit plan (1,307,256) (1,031,960) Staff benefit expenses (1,064,543) (698,265) Contributions made to the provident and trust fund (8,943,862) (6,516,309) (92,005,194) (64,669,034)

8. FEE INCOME

For the year ended 31 December 2014 2013 Rs. Rs.

Policy fee 21,920,734 9,402,323 Administration fee 10,339,556 9,756,988 32,260,290 19,159,311

People’s Insurance Limited - Initial Public Offering | 117 9. INTEREST AND DIVIDEND INCOME

For the year ended 31 December 2014 2013 Rs. Rs.

Financial assets at fair value through profit or loss Dividend income 8,463,877 5,292,894 Available-for-sale financial assets Interest income 89,989,113 131,337,558 Dividend income 3,786,445 - Loans and receivables Interest income 212,546,612 222,162,357 314,786,047 358,792,809

10. NET FAIR VALUE GAINS

For the year ended 31 December 2014 2013 Rs. Rs.

Net fair value gains on financial assets at fair value through profit or loss - Realised 34,847,656 - - Unrealised 35,675,809 13,210,206 70,523,465 13,210,206

11. OTHER OPERATING REVENUE

For the year ended 31 December 2014 2013 Rs. Rs.

Other income 3,427,379 3,196,424

118 | People’s Insurance Limited - Initial Public Offering Notes to the Financial Statements

12. PROFIT BEFORE TAX The profit before tax for the year is stated after charging the following expenses;

For the year ended 31 December 2014 2013 Rs. Rs.

Auditors' remuneration - Statutory audit services (1,530,000) (1,076,000) - Other services (958,500) (3,023,384) Legal fees - (686,670) Depreciation (10,864,515) (8,737,481) Directors' emoluments (370,000) (380,000)

13. INCOME TAX EXPENSE The major components of income tax expense for the years ended 31 December are as follows:

For the year ended 31 December 2014 2013 Rs. Rs.

Current Tax Income tax on current year’s profits 127,892,117 113,174,545 Under/(over) provision for income tax in respect of previous year (1,968,738) 78,129 125,923,379 113,252,674

Deferred tax Origination of deferred tax liability (542,983) (17,113,124) Origination of deferred tax assets 3,755,292 309,910 (3,212,309) 16,803,214 Income tax expense 122,711,070 130,055,888

13.1 Tax recorded in other comprehensive income Origination of deferred tax liability 1,575,378 228,017 Total tax charge recognised in other comprehensive income 1,575,378 228,017

People’s Insurance Limited - Initial Public Offering | 119 13.2 Numerical reconciliation between tax charge in statement of income and the product of accounting profit multiplied by the applicable tax rate

For the year ended 31 December 2014 2013 Rs. Rs.

Accounting profit before tax 572,838,169 500,880,042 Aggregate allowable income (138,086,574) (44,752,088) Aggregate allowable expenditure (13,874,804) (72,868,173) Aggregate disallowable expenditure 35,880,767 20,935,023 456,757,558 404,194,804 Statutory tax rate 28% 28% Tax at applicable rate 127,892,116 113,174,545 Under/(over) provision in respect of previous year (1,968,737) 78,129 Deferred tax charged (3,212,309) 16,803,214 Total Income tax expense 122,711,070 130,055,888

13.3 The Company is liable to pay income tax at the rate of 28% of its taxable profits in accordance with the provisions of the Inland Revenue Act No. 10 of 2006 and subsequent amendments thereto.

14. BASIC EARNINGS PER SHARE Basic earnings per share is calculated by dividing the profit for the year attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding at the reporting date.

For the year ended 31 December 2014 2013

Amount used as the numerator Net profit attributable to ordinary shareholders (Rs.) 450,127,099 370,824,154

Number of ordinary shares used as denominator Weighted average number of ordinary shares in issue 60,000,000 60,000,000

Basic earnings per share (Rs.) 7.50 6.18

120 | People’s Insurance Limited - Initial Public Offering Notes to the Financial Statements

15. DIVIDENDS The Board of Directors of the Company has authorised a final dividend of Rs. 2.00 per share for the financial year ended 31 December 2014, subsequent to the reporting date. In accordance with LKAS 10, Events after the Reporting Date, this dividend has not been recognised as a liability in the financial statements as at 31 December 2014.

2014 2013

Interim dividend paid (Rs.) 90,000,000 90,000,000 Final dividend authorised (Rs.) 120,000,000 45,000,000 Total dividend for the year 210,000,000 135,000,000 Number of ordinary shares 60,000,000 60,000,000 Dividend per share (Rs.) 3.50 2.25

16. INTANGIBLE ASSETS

Software Total Rs. Rs.

Cost Balance as at 1 January 2013 4,021,180 4,021,180 Additions 60,000,000 60,000,000 Balance as at 31 December 2013 64,021,180 64,021,180 Additions - - As at 31 December 2014 64,021,180 64,021,180

Amortisation Balance as at 1 January 2013 528,190 528,190 Amortisation charge for the year 1,776,220 1,776,220 As at 31 December 2013 2,304,410 2,304,410 Amortisation charge for the year 12,776,220 12,776,220 As at 31 December 2014 15,080,630 15,080,630

Carrying amount As at 31 December 2014 48,940,550 48,940,550 As at 31 December 2013 61,716,770 61,716,770

People’s Insurance Limited - Initial Public Offering | 121 17. PROPERY, PLANT AND EQUIPMENT

Computer Equipment Furniture Motor Total hardware and fittings vehicles Rs. Rs. Rs. Rs. Rs.

Cost Balance as at 1 January 2013 13,440,710 15,386,998 8,121,477 426,719 37,375,904 Additions 4,777,800 6,032,504 1,024,030 - 11,834,334 Disposals - - - (315,964) (315,964) As at 31 December 2013 18,218,510 21,419,502 9,145,507 110,755 48,894,274 Additions 3,524,500 4,366,900 719,003 - 8,610,403 As at 31 December 2014 21,743,010 25,786,402 9,864,510 110,755 57,504,677

Depreciation Balance as at 1 January 2013 3,860,133 5,245,909 2,568,736 171,718 11,846,496 Depreciation charge for the year 3,273,772 3,799,165 1,784,576 64,279 8,921,792 Disposals - - - (184,312) (184,312) As at 31 December 2013 7,133,905 9,045,074 4,353,312 51,685 20,583,976 Depreciation charge for the year 4,079,248 4,817,767 1,945,349 22,151 10,864,515 As at 31 December 2014 11,213,153 13,862,841 6,298,661 73,836 31,448,491

Net book value As at 31 December 2014 10,529,857 11,923,561 3,565,849 36,919 26,056,186 As at 31 December 2013 11,084,605 12,374,428 4,792,195 59,070 28,310,298

122 | People’s Insurance Limited - Initial Public Offering Notes to the Financial Statements

18. FINANCIAL INVESTMENTS The Company’s financial investments are summarised below by measurement category.

As at 31.12.2014 31.12.2013 Notes Rs. Rs.

Fair value through profit or loss 18.1 228,202,390 154,314,032 Loans and receivables 18.2 2,464,562,014 1,877,674,705 Available-for-sale 18.3 952,151,035 1,158,355,821 3,644,915,439 3,190,344,558

A comparison of the fair values and carrying values of the financial investments is given below.

As at 31.12.2014 31.12.2013 Carrying Fair Carrying Fair value value value value Notes Rs. Rs. Rs. Rs.

Fair value through profit or loss 18.1 228,202,390 228,202,390 154,314,032 154,314,032 Loans and receivables 18.2 2,464,562,014 2,481,347,584 1,877,674,705 1,885,606,275 Available-for-sale 18.3 952,151,035 952,151,035 1,158,355,821 1,158,355,821 3,644,915,439 3,661,701,009 3,190,344,558 3,198,276,128

18.1 Fair value through profit or loss

As at 31.12.2014 31.12.2013 Rs. Rs.

Listed shares 228,202,390 154,314,032 228,202,390 154,314,032

People’s Insurance Limited - Initial Public Offering | 123 Details of investment in listed shares are given below.

2014 2013 No. of Cost Rs. Carrying No. of Cost Rs. Carrying shares value/Fair shares value/Fair value value Rs. Rs. Rs. Rs.

Bank, Finance and Insurance Seylan Bank PLC 202,284 7,667,199 13,447,343 202,284 7,667,199 7,878,580 Hatton National Bank PLC 100,000 10,821,340 15,290,000 214,088 23,167,190 25,476,472 Nations Trust Bank PLC - - - 300,000 15,329,141 18,660,000 Commercial Bank of Ceylon PLC 242,863 23,270,762 38,686,527 453,384 43,226,959 51,268,252 National Development Bank 60,855 8,651,089 15,213,750 60,855 8,651,089 9,767,228 Sampath Bank PLC 300,000 57,331,235 70,890,000 125,000 21,351,285 21,487,500 Sector Total 107,741,625 153,527,620 119,392,863 134,538,032

Diversified Holdings John Keells Holdings PLC 88,837 18,600,422 22,209,250 - - - Sector Total 18,600,422 22,209,250 - - -

Health Care Asiri Hospital Holdings PLC 500,000 11,259,844 10,800,000 - - - Sector Total 11,259,844 10,800,000 - -

Beverage Food and Tobacco Distilleries Company of Sri Lanka PLC 100,000 12,000,000 21,000,000 100,000 12,000,000 19,300,000 Sector Total 12,000,000 21,000,000 12,000,000 19,300,000

Chemicals and Pharmaceuticals CIC Holdings PLC 176,512 15,003,520 15,003,520 - - - Sector Total 15,003,520 15,003,520 - - -

Motors United Motors Lanka PLC 50,000 5,000,000 5,180,000 - - - Sector Total 5,000,000 5,180,000 - - -

Plantations Horana Plantations PLC 20,000 767,956 482,000 20,000 767,956 476,000 Sector Total 767,956 482,000 767,956 476,000 Total 170,373,367 228,202,390 132,160,819 154,314,032

124 | People’s Insurance Limited - Initial Public Offering Notes to the Financial Statements

18. FINANCIAL INVESTMENTS (Contd.)

18.2 Loans and receivables

As at 31.12.2014 31.12.2013 Rs. Rs.

Amortised cost Repurchase agreements 223,649,982 127,131,760 Staff loans 17,038,349 13,818,724 Rent deposit 1,334,217 1,101,472 Fixed deposits with financial institutions 1,558,430,780 1,382,231,160 Savings accounts 2,664,587 814,344 Listed debentures 661,444,099 352,577,245 2,464,562,014 1,877,674,705

Fair value Repurchase agreements 223,649,982 127,131,760 Staff loans 18,881,507 14,550,582 Rent deposit 1,334,217 1,101,472 Fixed deposits with financial institutions 1,563,225,398 1,410,198,117 Savings accounts 2,664,587 814,344 Listed debentures 671,591,893 331,810,000 2,481,347,584 1,885,606,275

18.3 Available-for-sale As at 31.12.2014 31.12.2013 Rs. Rs.

Government securities 890,999,955 1,109,491,753 Unit trust 61,151,080 48,864,068 952,151,035 1,158,355,821

People’s Insurance Limited - Initial Public Offering | 125 18.4 Movement in financial investments Fair value through Loans and Available- profit or loss receivables for-sale Rs. Rs. Rs.

As at 1 January 2013 95,966,334 1,523,712,492 989,687,594 Purchases 45,727,375 15,900,914,572 1,658,141,943 Maturities (1,130,011) (15,546,952,359) (1,490,831,797) Fair value gains recorded in statement of income 13,750,334 - - Fair value gains recorded in statement of comprehensive income - - 1,358,081 As at 31 December 2013 154,314,032 1,877,674,705 1,158,355,821

Purchases 118,382,778 11,769,496,346 2,162,232,816 Maturities (80,170,229) (11,182,609,037) (2,377,527,300) Fair value gains recorded in statement of income 35,675,809 - - Fair value gains recorded in statement of comprehensive income - - 9,089,698 As at 31 December 2014 228,202,390 2,464,562,014 952,151,035

18.5 Fair value of financial investments 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. loans and receivables).

Assets for which fair value approximates carrying value For financial assets/liabilities that have a short term maturity (less than three months), it is assumed that the carrying amounts approximate to their fair value. The following table lists those financial instruments for which their carring amounts are a reasonable approximation of fair value due to their short term nature. This assumption is also applied to savings accounts without a specific maturity.

Assets Liabilities Cash in hand and balances at bank Bank overdraft Repurchase agreements Outstanding commission payable Fixed deposits with less than three months remaining maturity Amounts due to related parties Savings accounts Other creditors including accrued expenses Insurance receivables Reinsurance payables Reinsurance receivables

126 | People’s Insurance Limited - Initial Public Offering Notes to the Financial Statements

18. FINANCIAL INVESTMENTS (Contd.)

18.6 Determination of fair value and fair values hierarchy The Company uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:

• Level 1: Quoted/listed (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 • Level 3: Techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market data.

Financial assets measured using a valuation technique based on assumptions that are supported by prices from observable current market transactions are assets for which pricing is obtained via pricing services, but where prices have not been determined in an active market, financial assets with fair values based on broker quotes.

Non-market observable input means that fair values are determined, in whole or in part, using a valuation technique (model) based on assumptionsat are neither supported by prices from observable current market transactions in the same instrument, nor are they based on available market data.

Level 1 Level 2 Level 3 Fair value Rs. Rs. Rs. Rs.

As at 31 December 2013 Fair value through profit or loss Listed shares 154,314,032 - - 154,314,032 Available-for-sale Unit trust 48,864,068 - - 48,864,068 Government securities 1,109,491,752 - - 1,109,491,752 Loans and receivables Staff loans - 14,550,582 - - Fixed deposits with more than three months remaining maturity - 1,004,422,054 - - Listed debentures - 331,810,000 - - 1,312,669,852 1,350,782,636 - 1,312,669,852

As at 31 December 2014 Fair value through profit or loss Listed shares 228,202,390 - - 228,202,390 Available-for-sale Unit trust 61,151,080 - - 61,151,080 Government securities 890,999,955 - - 890,999,955 Loans and receivables Staff loans - 18,881,505 - 18,881,505 Fixed deposits with more than three months remaining maturity - 1,056,657,617 - 1,056,657,617 Listed debentures - 661,444,099 - 661,444,099 - 1,736,983,221 - 1,736,983,221

People’s Insurance Limited - Initial Public Offering | 127 19. REINSURANCE RECEIVABLES

As at 31.12.2014 31.12.2013 Notes Rs. Rs.

Reinsurance receivables on outstanding claims 25.1 137,282,451 110,522,501 Reinsurance receivables on paid claims of facultative and co-insurance - 482,721 137,282,451 111,005,222

20. INSURANCE RECEIVABLES

As at 31.12.2014 31.12.2013 Rs. Rs.

Premium receivables 527,647,272 437,194,314 Less: Provision for impairment (3,914,731) (2,174,748) 523,732,541 435,019,566

21. DEFERRED EXPENSES

As at 31.12.2014 31.12.2013 Rs. Rs.

Balance as at 1 January 167,355,627 155,523,082 Change in commission reserves 12,678,326 13,921,943 Change in reinsurance commission reserve 732,306 (2,089,398) Balance as at 31 December 180,766,259 167,355,627

22. OTHER ASSETS

As at 31.12.2014 31.12.2013 Rs. Rs.

Advances, deposits and prepayments 9,561,212 12,211,707 Other receivables 664,840 8,990,303 Inventory 1,716,348 1,002,593 11,942,400 22,204,603

128 | People’s Insurance Limited - Initial Public Offering Notes to the Financial Statements

23. CASH AND CASH EQUIVALENTS

As at 31.12.2014 31.12.2013 Rs. Rs.

Cash in hand and balance at bank 184,614,106 5,221,146 184,614,106 5,221,146

23.1 For the purposes of the cash flow statement, cash and cash equivalents include cash in hand and balance at bank and investments in money market instruments, net of outstanding bank overdrafts. Cash equivalents at the end of the financial year as shown in the statement of cash flows can be reconciled to the related items in the statement of financial position as follows:

As at 31.12.2014 31.12.2013 Notes Rs. Rs.

Cash in hand and balance at bank 184,614,106 5,221,146 Bank overdraft 30 (3,840,303) (2,031,622) 180,773,803 3,189,524

24. STATED CAPITAL

As at 31.12.2014 31.12.2013

Stated capital (Rs.) 600,000,000 600,000,000 Allotted and fully paid number of ordinary shares 60,000,000 60,000,000

25. INSURANCE LIABILITIES

As at 31.12.2014 31.12.2013 Notes Rs. Rs.

Outstanding claims provision (gross) 25.1 1,203,227,293 974,337,323 Provision for unearned premium (net) 25.3 1,697,904,856 1,541,700,109 2,901,132,149 2,516,037,432

People’s Insurance Limited - Initial Public Offering | 129 25.1 Insurance provision

As at 31.12.2014 31.12.2013 Gross Reinsurance Net Gross Reinsurance Net insurance liabilities insurance liabilities contract contract liabilities liabilities Notes Rs. Rs. Rs. Rs. Rs. Rs.

Claims outstanding 800,605,066 (73,560,225) 727,044,841 711,448,887 (63,634,065) 647,814,822 Claims incurred but not reported (IBNR) 402,622,227 (63,722,226) 338,900,001 262,888,436 (46,888,436) 216,000,000 Total claims outstanding 25.2 1,203,227,293 (137,282,451) 1,065,944,842 974,337,323 (110,522,501) 863,814,822

Provision for unearned premium 25.3 1,759,515,526 (61,610,670) 1,697,904,856 1,604,111,715 (62,411,606) 1,541,700,109 2,962,742,819 (198,893,121) 2,763,849,698 2,578,449,038 (172,934,107) 2,405,514,931

25.2 Total claims outstanding

2014 2013 Gross Reinsurance Net Gross Reinsurance Net liabilities liabilities liabilities liabilities Rs. Rs. Rs. Rs. Rs. Rs.

As at 1 January 974,337,323 (110,522,501) 863,814,822 753,323,659 (137,322,313) 616,001,346 Claims incurred in the current accident year 2,196,701,786 (33,998,118) 2,162,703,668 2,155,076,001 (28,256,034) 2,126,819,967 Claims paid during the year (1,967,811,816) 7,238,168 (1,960,573,648) (1,934,062,337) 55,055,846 (1,879,006,491) As at 31 December 1,203,227,293 (137,282,451) 1,065,944,842 974,337,323 (110,522,501) 863,814,822

25.3 Provision for unearned premium

2014 2013 Gross liabilities Reinsurance Net liabilities Gross liabilities Reinsurance Net liabilities Rs. Rs. Rs. Rs. Rs. Rs.

As at 1 January 1,604,111,715 (62,411,606) 1,541,700,109 1,464,673,554 (51,647,100) 1,413,026,454 Premium written during the year 3,440,608,282 (293,936,371) 3,146,671,911 3,251,084,198 (321,929,713) 2,929,154,485 Premium earned during the year (3,285,204,471) 294,737,307 (2,990,467,164) (3,111,646,037) 311,165,207 (2,800,480,830) As at 31 December 1,759,515,526 (61,610,670) 1,697,904,856 1,604,111,715 (62,411,606) 1,541,700,109

130 | People’s Insurance Limited - Initial Public Offering Notes to the Financial Statements

26. EMPLOYEE DEFINED BENEFIT OBLIGATIONS

2014 2013 Rs. Rs.

As at 1 January 2,493,213 1,386,394 Interest cost 299,185 189,682 Current service cost 1,008,071 842,282 Re-measurement loss 631,969 74,855 As at 31 December 4,432,438 2,493,213

For the year ended 31 December 2014 2013 Rs. Rs.

Expense recognised in statement of income Interest cost 299,185 189,682 Current service cost 1,008,071 842,282 Total amount recognised in the statement of income 1,307,256 1,031,964

Expense recognised in statement of comprehensive income Re-measurement loss recognised in statement of comprehensive income 631,969 74,855 Total amount recognised in statement of comprehensive income 631,969 74,855

As at 31.12.2014 31.12.2013

Principal actuarial assumptions used (a) Discount rate 9% 12% (b) Salary increase 7% 10% (c) Incidence of withdrawal 20 Years 8.0% 8.0% 25 Years 7.5% 7.5% 30 Years 7.0% 7.0% 35 Years 5.0% 5.0% 40 Years 1.5% 1.5% 45 Years 0.9% 0.9% 50 Years 0.0% 0.0%

People’s Insurance Limited - Initial Public Offering | 131 27. OTHER FINANCIAL LIABILITIES

As at 31.12.2014 31.12.2013 Rs. Rs. Notes Carrying Fair Carrying Fair value value value value

Other creditors including accrued expenses 109,482,286 109,482,286 83,598,981 83,598,981 Outstanding commission payable 132,457,379 132,457,379 127,983,833 127,983,833 Amounts due to related parties 27.1 34,891,452 34,891,452 81,033,138 81,033,138 276,831,117 276,831,117 292,615,952 292,615,952

27.1 Amounts due to related parties 31.12.2014 31.12.2013 Rs. Rs.

People’s Leasing Fleet Management Limited 410,544 23,351 People’s Leasing & Finance PLC 34,480,908 81,009,787 34,891,452 81,033,138

28. OTHER LIABILITIES 31.12.2014 31.12.2013 Rs. Rs.

Government levies payable 23,703,110 21,854,020

29. DEFERRED TAX LIABILITY

As at 31.12.2014 31.12.2013 Rs. Rs.

Recognised deferred tax asset Employee define benefit obligations 1,241,083 698,100

Recognised deferred tax liability Intangible assets and property, plant and equipment (15,674,835) (18,344,161) Revaluation of available-for-sale financial assets to fair value 857,055 (698,324) (14,817,780) (19,042,485) Recognised net deferred tax liability at 28% (13,576,697) (18,344,385)

132 | People’s Insurance Limited - Initial Public Offering Notes to the Financial Statements

30. BANK OVERDRAFT 31.12.2014 31.12.2013 Rs. Rs.

Bank overdraft 3,840,303 2,031,622

The bank overdraft facility amounting to Rs. 9,000,000 is subject to variable overdraft interest rate of People’s Bank. The overdraft facility is secured by a fixed deposit of Rs. 10,000,000 and as at the reporting date, unused overdraft facility amounted to Rs. 9,000,000.

31. MATURITY ANALYSIS OF ASSETS AND LIABILITIES BASED ON THE REMAINING MATURITIES AT THE REPORTING DATE

As at 31.12.2014 31.12.2013 Carrying Less than More than Carrying Less than More than amount 12 months 12 months amount 12 months 12 months Rs. Rs. Rs. Rs. Rs. Rs.

Assets Intangible assets 48,940,550 - 48,940,550 61,716,770 - 61,716,770 Property, plant and equipment 26,056,186 - 26,056,186 28,310,298 - 28,310,298 Financial investments 3,644,915,439 2,902,617,324 742,298,115 3,190,344,558 2,774,270,177 416,074,381 Reinsurance receivables 137,282,451 137,282,451 - 111,005,222 111,005,222 - Insurance receivables 523,732,541 523,732,541 - 435,019,566 435,019,566 - Deferred expenses 180,766,259 180,766,259 - 167,355,627 167,355,627 - Other assets 11,942,400 11,942,400 - 22,204,603 22,204,603 - Cash and cash equivalents 184,614,106 184,614,106 - 5,221,146 5,221,146 - Total assets 4,758,249,932 3,940,955,081 817,294,851 4,021,177,790 3,515,076,341 506,101,449

Equity and liabilities Equity Stated capital 600,000,000 - 600,000,000 600,000,000 - 600,000,000 Revenue reserves 810,041,452 - 810,041,452 484,881,247 - 484,881,247 Total equity 1,410,041,452 - 1,410,041,452 1,084,881,247 - 1,084,881,247

Liabilities Insurance liabilities 2,901,132,149 2,840,191,683 60,940,466 2,516,037,432 2,461,441,810 54,595,622 Employee defined benefit obligations 4,432,438 - 4,432,438 2,493,213 - 2,493,213 Other financial liabilities 276,831,117 276,831,117 - 292,615,952 292,615,952 - Other liabilities 23,703,110 23,703,110 - 21,854,020 21,854,020 - Reinsurance payable 62,262,572 62,262,572 - 23,979,310 23,979,310 - Income tax payable 62,430,094 62,430,094 - 58,940,609 58,940,609 - Deferred tax liability 13,576,697 - 13,576,697 18,344,385 - 18,344,385 Bank overdraft 3,840,303 3,840,303 - 2,031,622 2,031,622 - Total liabilities 3,348,208,480 3,330,199,345 18,009,135 2,936,296,543 2,915,458,945 20,837,598 Total equity and liabilities 4,758,249,932 3,330,199,345 1,428,050,587 4,021,177,790 2,915,458,945 1,105,718,845

People’s Insurance Limited - Initial Public Offering | 133 32. RISK MANAGEMENT FRAMEWORK (a) Governance framework The Board of Directors of the Company has the overall responsibility for the establishment and oversight of the Company’s risk management framework.

The Company’s risk management policies are established to identify and analyse the risks faced by the Company to set appropriate risk limits and controls and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions, products and services offered. The Company, through its training and management standards and procedures, aims to develop a disciplined and constructive control environment in which all employees understand their roles and obligations.

The Board is ultimately responsible for monitoring compliance with the Company’s risk management policies and procedures. The Board is assisted in these functions by Internal Audit and the Board Audit Committee. The Internal Audit undertakes both regular and ad-hoc reviews of risk management controls and procedures, the results of which are reported to the Board.

An enterprise risk management committee which consists of the Management is in place to strengthen the risk management process. In addition, the Company’s risks are assessed and monitored at the group level by the Integrated Risk Management Committee of its immediate parent company, People’s Leasing & Finance PLC.

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

As an insurer, the operations of the Company are subject to regulatory supervision of the Insurance Board of Sri Lanka (IBSL). The Company has taken necessary action to comply with and complied with applicable regulations throughout the year.

(i) Financial risks

Nature and extent of risk arising from financial instruments The Company has exposure to the following risks from financial instruments. • Credit risk • Liquidity risk • Market risk • Concentration risk

This note presents information about the Company’s exposure to each of the above risks and the Company’s objectives, policies and processes for measuring and managing risks.

134 | People’s Insurance Limited - Initial Public Offering Notes to the Financial Statements

32. RISK MANAGEMENT FRAMEWORK (Contd.)

• Credit risk Credit risk is the risk of financial loss to the Company, if a customer or counterparty to a financial instrument fails to meet its contractual obligations in accordance with agreed terms and arises principally from the Company’s premium receivables, reinsurance receivables, investments in debt securities and deposits with financial institutions such as fixed deposits, demand deposits, etc.

Management of credit risk The Company has developed a credit policy approved by the Board and credit is granted based on the said policy for the policyholders. The Company has taken the premium warranty clause which was imposed by the Insurance Board of Sri Lanka (IBSL) into consideration when developing the aforementioned credit policy. As a result of rigours follow up of outstanding premiums, the policies which are not settled within the approved credit periods are cancelled on a regular basis. The Company checks the status of the outstanding premium before settling claims to reduce the credit risk. The Company has implemented an impairment review for premium receivables periodically and provide for the same based on the results of the review.

Credit risk with regard to reinsurance receivables is mitigated by selecting the reinsurers with higher credit ratings and reviewing their ratings periodically. The following table depicts the re-insurers of the Company with their ratings.

Reinsurer Ratings Issuing Agency Asia Capital Reinsurance Group Pte Ltd. A- (Excellent) A. M. Best General Insurance Corporation of India A- (Excellent) A. M. Best Labuan Reinsurance (L) Ltd. A- (Excellent) A. M. Best Malaysian Reinsurance Berhad A- (Excellent) A. M. Best Swiss Reinsurance Company Ltd. A+ (Superior) A. M. Best Trust International Insurance and Reinsurance Company A- (Excellent) A. M. Best Lloyd’s A (Excellent) A. M. Best A+ (Strong) Standard & Poor’s

In addition to the above reinsurers, the company makes the compulsory contributions to the National Insurance Trust Fund rated ‘AAA’ by RAM ratings in a regular basis.

The Company evaluates credit ratings of the respective investee and/or respective issue prior to the investment decisions are made. In addition, the Company focuses on tolerable levels concentration risk and portfolio monitoring in line with the Company’s risk appetite. A stringent process is in place to comply with the single investment exposure limits prescribed by the regulator, the IBSL.

Credit exposure The Company's maximum exposure to credit risk for the components of the statement of financial position at 31 December 2014 and 2013 is the carrying amounts of respective financial instruments.

The table below provides information regarding the credit risk exposure of the Company's financial instruments by classifying them according to the credit ratings of counterparties obtained from Fitch Ratings Lanka, RAM Ratings Lanka and A.M.Best.

People’s Insurance Limited - Initial Public Offering | 135 As at 31 December 2014 Neither past-due nor impaired Past-due but Total Risk free AAA to AA- A+ to A- BBB+ to BB- Non-rated not impaired Available-for-sale financial assets Investments in government securities 890,999,955 - - - - - 890,999,955 Loans and receivables Repurchase agreements 223,649,982 - - - - - 223,649,982 Debentures - 497,423,111 153,706,794 10,314,193 - - 661,444,098 Fixed deposits - 805,861,966 723,137,820 29,039,497 - - 1,558,039,283 Savings accounts - 2,664,587 - - - - 2,664,587 Staff loans and rent deposits - - - - 18,372,566 - 18,372,566 Insurance receivables (gross) - 450,430,266 - - 55,977,728 21,213,324 527,621,318 Reinsurance receivables - 39,578,389 97,704,062 - - - 137,282,451 Cash in hand and balance at bank - 184,467,736 - - 146,370 - 184,614,106 Total 1,114,649,937 1,980,426,055 974,548,676 39,353,690 74,496,664 21,213,324 4,204,688,346

As at 31 December 2013 Neither past-due nor impaired Past-due but Total Risk free AAA to AA- A+ to A- BBB+ to BB- Non-rated not impaired Available-for-sale financial assets Investments in government securities 1,109,491,753 - - - - - 1,109,491,753 Loans and receivables Repurchase agreements 127,131,761 - - - - - 127,131,761 Debentures - 216,793,303 125,565,931 10,218,012 - - 352,577,246 Fixed deposits - 1,011,536,664 344,693,506 26,000,991 - - 1,382,231,161 Savings accounts - 814,344 - - - - 814,344 Staff loans and rent deposits - - - - 14,920,196 - 14,920,196 Insurance receivables (gross) - 406,234,829 - - 20,289,313 10,670,491 437,194,633 Reinsurance receivables - 33,279,416 77,651,976 - 73,831 - 111,005,223 Cash in hand and balance at bank - 5,100,920 - - 120,227 - 5,221,147 Total 1,236,623,514 1,673,759,476 547,911,413 36,219,003 35,403,567 10,670,491 3,540,587,464

136 | People’s Insurance Limited - Initial Public Offering Notes to the Financial Statements

32. RISK MANAGEMENT FRAMEWORK (Contd.)

Collateral adequacy 2014 2013 Rs. Rs. Carrying value of investments in repurchase agreements 223,649,982 127,131,761 Fair value of collaterals 250,124,500 140,257,100 Excess value of collaterals 26,474,518 13,125,339

• Liquidity risk Liquidity risk is the risk that the Company will encounter difficulty in meeting obligations associated with its financial liabilities that are settled by delivering cash or another financial asset.

Management of liquidity risk The Company’s approach to managing liquidity is to ensure that funds available are adequate to meet claim payments to its policyholders and to ensure operational expenses are paid when they are due.

The main sources of the Company’s funding are capital and gross written premium. The Company also maintains a portfolio of readily marketable securities to strengthen its liquidity position. Investment durations are diversified depending on the cash flow needs of the Company and maturity periods are regularly reviewed. Cash flow analysis is done prior to investments are made.

The Company's treaty agreements with reinsurers contain clauses permitting the immediate draw down of funds to meet claim payments should claim events exceed a certain agreed size.

Exposure to liquidity risk The Company monitors the liquidity position of the Company to asses funding requirements. Liquid assets include cash and short term investments and bills purchased. The Company also monitors maturity profile of its assets and liabilities.

Contractual maturities of undiscounted cash flows of financial assets and financial liabilities.

People’s Insurance Limited - Initial Public Offering | 137 As at 31 December 2014

Financial Assets/Liabilities 0-6 months 7-12 months 1-2 years 3-5 years No stated Total maturity Financial Assets Fair value through profit or loss Listed shares - - - - 228,202,390 228,202,390 Available-for-sale financial assets Investments in government securities 680,714,500 230,574,300 - - - 911,288,800 Investments in unit trust - - - - 61,151,080 61,151,080 Loans and receivables Repurchase agreements 223,809,208 - - - - 223,809,208 Debentures 14,715,969 60,701,561 135,042,038 668,158,688 - 878,618,256 Fixed deposits 1,030,724,174 532,965,580 - - - 1,563,689,754 Savings accounts - - - - 814,344 814,344 Staff loans and rent deposits 2,697,144 2,697,144 6,626,474 12,779,614 - 24,800,376 Insurance receivables 523,732,541 - - - - 523,732,541 Reinsurance receivables 137,282,451 - - - - 137,282,451 Cash in hand and balance at bank 184,614,106 - - - - 184,614,106 Total 2,798,290,093 826,938,585 141,668,512 680,938,302 290,167,814 4,738,003,306

Financial Liabilities Due to banks 3,840,303 - - - - 3,840,303 Insurance liabilities and reinsurance payables 2,053,166,723 849,287,532 4,352,890 56,587,576 - 2,963,394,721 Other financial liabilities 276,831,117 - - - - 276,831,117 Total 2,333,838,143 849,287,532 4,352,890 56,587,576 - 3,244,066,141

138 | People’s Insurance Limited - Initial Public Offering Notes to the Financial Statements

32. RISK MANAGEMENT FRAMEWORK (Contd.)

As at 31 December 2013 0-6 months 7-12 months 1-2 years 3-5 years No stated Total maturity Financial Assets Fair value through profit or loss Listed shares - - - - 154,314,032 154,314,032 Available-for-sale financial assets Investments in government securities 858,673,659 250,818,095 - - - 1,109,491,754 Investments in unit trust 48,864,068 48,864,068 Loans and receivables Repurchase agreements 127,131,761 - - - - 127,131,761 Debentures 39,903,128 11,345,115 51,608,930 473,093,918 - 575,951,091 Fixed deposits 956,144,115 488,193,542 - - - 1,444,337,657 Savings accounts - - - - 814,344 814,344 Staff loans and rent deposits 2,856,620 1,885,286 4,536,400 11,202,346 - 20,480,652 Insurance receivables 435,019,566 - - - - 435,019,566 Reinsurance receivables 111,005,222 - - - - 111,005,222 Cash in hand and balance at bank 5,221,147 - - - - 5,221,147 Total 2,535,955,218 752,242,038 56,145,330 484,296,264 203,992,444 4,032,631,294

Financial Liabilities Due to banks 2,031,622 - - - - 2,031,622 Insurance liabilities and reinsurance 1,710,663,082 774,758,038 3,899,669 50,695,953 - 2,540,016,742 payables Other financial liabilities 292,615,952 - - - - 292,615,952 Total 2,005,310,656 774,758,038 3,899,669 50,695,953 - 2,834,664,316

• Market risk This refers to the risk of losing value of investments due to adverse movement in assets prices and possibility for an investor to experience losses due to factors that affect the overall performance of the financial markets. This principally comprises of interest rate risk and equity risks.

People’s Insurance Limited - Initial Public Offering | 139 Management of market risk The Company makes investment decisions based on the fundamentals rather than on speculative motive. Only a limited percentage of the total investment portfolio is invested in equity investments. Equity investment portfolio is monitored by the Managing Director on a regular basis and the overall investment portfolio is reviewed by the Board on a monthly basis. The interest rate risk is managed by maintaining the investment portfolio with a considerable investment in fixed income securities.

• Concentration risk This refers to the risk that the Company will suffer from lack of diversification, investing too heavily in one industry, one geographic area or one type of security.

Management of concentration risk To comply with the risk tolerance and appetite of the Company, a significant amount of total investments are made in government securities which are risk free. A careful analysis is done before investing in equity investments. A stringent process is in place to comply with the single investment exposure limits prescribed by the IBSL. In addition, the Board of Directors reviews the Company’s investments portfolio on a monthly basis.

Composition of the Company’s financial investments as at 31 December 2014 is given below.

Category Composition Rs. Government securities 30.58% 1,114,649,937 Corporate debts 18.14% 661,444,099 Listed shares 6.26% 228,202,390 Fixed deposits 42.76% 1,558,430,780 Unit trusts 1.68% 61,151,080 Others 0.58% 21,037,153 Total 100.00% 3,644,915,439

Sensitivity analysis on market risk, equity risk and interest rate risk Sensitivity analysis for interest rate risk reflects the changes in the fair value or future cash flows of a financial instrument at the reporting date will fluctuate in response to assumed movements in market interest rates. The sensitivity of reported fair value of financial instruments is monitored by assessing the projected changes in the fair value of financial instruments held by the portfolios in response to assumed parallel shift in the yield curve by +/- 100 basis points and +/-200 basis points.

140 | People’s Insurance Limited - Initial Public Offering Notes to the Financial Statements

32. RISK MANAGEMENT FRAMEWORK (Contd.)

Sensitivity analysis for equity risk reflects how changes in the fair value of equity securities at the reporting date will fluctuate in response to assumed changes in equity market prices. The movements in the fair value of equity securities monitored by assessing the projected changes in the fair value of equity securities held by the portfolios in response to assumed equity price movements of +/- 10% and +/- 20%.

2014 2013 Impact to; Net asset value Profit before tax Other Net asset value Profit before tax Other comprehensive comprehensive income before income before tax tax Rs. Rs. Rs. Rs. Rs. Rs. Interest rate risk Government securities +100 basis points (3,306,846) - (3,306,846) (3,103,852) - (3,103,852) -100 basis points 3,340,227 - 3,340,227 3,141,197 - 3,141,197 +200 basis points (6,580,858) - (6,580,858) (6,171,157) - (6,171,157) -200 basis points 6,714,394 - 6,714,394 6,320,564 - 6,320,564

Equity market risk 10% increase in equity market prices 22,820,239 22,820,239 - 15,431,403 12,305,930 - 10% decrease in equity market prices (22,820,239) (22,820,239) - (15,431,403) (15,431,403) - 20% increase in equity market prices 45,640,478 45,640,478 - 30,862,806 30,862,806 - 20% decrease in equity market prices (45,640,478) (45,640,478) - (30,862,806) (30,862,806) -

(ii) Insurance risks Nature and extent of risks arising from insurance contracts

Objectives, policies and processes for managing risks arising from insurance contracts The Company willingly assumes risks of other organisations as the Company’s prime value creation activity. This is the core of the insurance business and there is no perfect way of measuring the potential impact on insured risk. For non-life insurance business, most significant risks arise from climate changes, natural disasters and terrorist activities.

The above risk exposure is mitigated by diversification across a large portfolio of insurance contracts and geographical areas. The Company’s risk management framework focuses on strategic risk, assumed risks and the potential risks. The Company identifies and categorises risks in terms of their source, their impact on the Company and preferred strategies for dealing with them.

People’s Insurance Limited - Initial Public Offering | 141 Method used to manage risks

Risk appetite and risk tolerance The Company has made a strategic decision to maintain a risk appetite moderately above the average of the insurance market, since it allows the best potential for creating shareholder value at an acceptable level of risk. The Company manages the volatility and potential downward risk through diversification.

Identification of shock losses There are three areas of risk which have the potential to materially damage economic value that the Company identified at present as having the greatest potential for shock losses. They are catastrophe, reserving and equity investment risk. The Company manages the risk of shock losses by setting limits on the tolerance for specific risks and on the amount of capital that the Company is willing to expose.

The table below sets out the concentration of insurance claim liabilities by type of contract.

31 December 2014 31 December 2013 Gross liabilities Reinsurance Net liabilities Gross liabilities Reinsurance Net liabilities receivable receivable

Motor 828,500,077 47,930,632 780,569,445 661,932,224 16,980,378 644,951,846 Marine 4,215,966 1,731,306 2,484,660 18,677,871 1,633,271 17,044,599 Fire 133,001,095 60,110,630 72,890,465 99,674,233 51,325,736 48,348,498 Miscellaneous 237,510,155 27,509,883 210,000,272 194,052,995 40,583,116 153,469,879 Total 1,203,227,293 137,282,451 1,065,944,842 974,337,323 110,522,501 863,814,822

142 | People’s Insurance Limited - Initial Public Offering Notes to the Financial Statements

32. RISK MANAGEMENT FRAMEWORK (Contd.)

Claims development table The following tables show the estimates of cumulative incurred claims for each quarter, together with cumulative payments to date.

Gross non-life insurance outstanding claims provision for 2014 (All figures are in Rupees thousands unless otherwise stated)

Accident Current estimate of cumulative claims incurred Period 2010 Q1 2010 Q2 2010 Q3 2010 Q4 2011 Q1 2011 Q2 2011 Q3 2011 Q4 2012 Q1 2012 Q2 2012 Q3 2012 Q4 2013 Q1 2013 Q2 2013 Q3 2013 Q4 2014 Q1 2014 Q2 2014 Q3 2014 Q4 Total 2014 Q4 - (25) - (502) (600) (139) (1,443) (568) (1,870) 8,826 380 4,918 2,234 2,340 (2,411) 3,587 8,245 (56,768) 75,000 449,979 2014 Q3 - - 66 (187) (142) 211 559 (2,228) 367 531 (76) 3,846 (5,482) 2,790 4,423 6,351 (69,924) 97,355 535,592 2014 Q2 - 1,626 - 178 220 1,416 (272) 797 1,181 1,328 88 (655) 12,168 3,508 2,363 (64,359) 92,325 469,869 2014 Q1 - 4 250 55 977 (229) 574 2,444 3,800 (5,833) 1,865 9,695 6,761 12,800 (63,027) 60,828 438,800 2013 Q4 - 4 - (100) (2,280) 392 (6,664) 4,942 2,839 2,727 5,726 995 4,260 (62,136) 62,041 467,873 2013 Q3 - (735) 518 (212) (201) 525 9,604 (591) 1,372 (3,771) 4,072 10,576 (54,728) 98,546 493,284 2013 Q2 - 184 (50) 256 126 3,043 7,217 3,797 4,927 16,834 3,885 (32,213) 24,817 444,460 2013 Q1 - (34) 2,550 767 5,921 3,532 6,739 14,195 9,242 17,305 (57,356) (154,997) 563,677 2012 Q4 (60) 67 1,023 940 (344) 61,976 (190) 5,720 (55,206) (36,313) (87,480) 664,923 2012 Q3 50 (1,538) (334) (3,390) (886) (62,462) (2,465) (38,633) 11,266 (23,199) 673,687 2012 Q2 - 1,659 (86) 5,476 1,480 2,945 361 (62,895) 74,405 428,667 2012 Q1 (11) 177 (169) 420 2,851 (2,651) (42,538) 79,027 392,184

2011 Q4 30 (273) 619 1,278 2,360 (45,833) 67,234 439,597 2011 Q3 141 273 (712) 6,604 (24,514) (174,650) 335,265 2011 Q2 (63) (297) (2,479) (14,654) 33,484 585,382 2011 Q1 50 445 (5,856) 17,656 178,613 2010 Q4 92 (282) (1,664) 111,155 2010 Q3 94 (4,264) 72,186 2010 Q2 (814) 33,388 2010 Q1 3,762 Current 3,271 30,379 65,862 125,740 197,065 373,458 373,981 445,604 444,507 407,102 544,791 507,088 553,707 502,308 496,673 474,280 469,446 510,456 610,592 449,979 7,586,289 estimate of cumulative claims incurred

People’s Insurance Limited - Initial Public Offering | 143 Gross non-life insurance outstanding claims provision for 2013 (All figures are in Rupees thousands unless otherwise stated)

2014 Q3 - - (3) (2) (6,439) (1,480) (845) (874) (317) (1,040) (1,470) (2,204) (4,155) (4,082) (3,219) (9,607) (29,846) (219,093) (255,702) 2014 Q2 - (1,626) - (215) (58) (587) (1,092) (1,295) (2,267) (401) (1,916) (3,983) (4,540) (7,510) (9,726) (17,371) (200,025) (209,251) 2014 Q1 - (4) (34) (334) (1,029) (1,001) (384) (796) (1,078) (3,145) (2,687) (3,946) (4,964) (15,425) (26,841) (205,614) (206,375) 2013 Q4 - (7) (19) (26) (6,616) (4,091) (1,400) (3,352) (3,016) (2,655) (29,960) (4,961) (14,245) (30,991) (200,372) (213,652) 2013 Q3 - (800) - (214) (125) (375) (965) (1,858) (5,233) (2,545) (7,942) (9,841) (39,703) (225,008) (233,264) 2013 Q2 - (18) (3) (1,862) (133) (25,614) (1,058) (2,001) (5,595) (2,496) (7,712) (38,536) (164,773) (204,099) 2013 Q1 - (3) (73) (470) (2,106) (593) (1,895) (5,392) (4,878) (3,996) (21,190) (101,828) (295,205) 2012 Q4 - (46) (3) (484) (316) (783) (1,502) (9,357) (12,203) (5,021) (88,665) (313,342) 2012 Q3 - (26) (38) (638) (1,825) (1,595) (4,657) (22,541) (15,170) (93,897) (324,686) 2012 Q2 - (5) (19) (3,058) (1,864) (27,756) 616 (13,938) (146,926) (246,174) 2012 Q1 (19) (2) (321) (495) (6,763) (32,163) (28,859) (158,460) (219,499) 2011 Q4 - (668) (331) 2,694 (5,098) (10,704) (127,395) (195,737) 2011 Q3 (141) (297) (502) (10,432) (11,150) (95,480) (181,098) 2011 Q2 - (232) (468) (7,710) (59,982) (125,395) 2011 Q1 (215) (1,536) (3,469) (48,920) (81,575) 2010 Q4 (319) (2,245) (28,676) (52,889) 2010 Q3 (29) (11,230) (25,985) 2010 Q2 (1,736) (10,981) 2010 Q1 (812) Cumulative (3,271) (29,814) (59,944) (125,078) (185,739) (327,617) (351,526) (417,284) (417,880) (361,661) (488,514) (479,672) (529,993) (489,960) (477,454) (453,898) (445,137) (455,198) (467,776) (218,268) (6,785,684) payments to date Total gross - 565 5,918 662 11,326 45,841 22,455 28,320 26,627 45,441 56,277 27,416 23,714 12,348 19,219 20,382 24,309 55,258 142,816 231,711 800,605 claims outstanding

144 | People’s Insurance Limited - Initial Public Offering Notes to the Financial Statements

32. RISK MANAGEMENT FRAMEWORK (Contd.)

Net non-life insurance outstanding claims provision for 2014 (All figures are in Rupees thousands unless otherwise stated)

Accident Current estimate of cumulative claims incurred Period 2010 Q1 2010 Q2 2010 Q3 2010 Q4 2011 Q1 2011 Q2 2011 Q3 2011 Q4 2012 Q1 2012 Q2 2012 Q3 2012 Q4 2013 Q1 2013 Q2 2013 Q3 2013 Q4 2014 Q1 2014 Q2 2014 Q3 2014 Q4 Total 2014 Q4 - (25) - (502) (600) (143) (1,443) (575) (1,873) 8,815 380 4,822 2,234 2,327 (2,411) 3,580 8,247 (56,752) 74,306 447,175 2014 Q3 - - 66 (187) 678 211 559 (2,228) 372 499 (16) 3,812 (5,482) 2,019 4,422 6,393 (69,970) 97,953 534,147 2014 Q2 - 1,626 - 178 220 1,416 (272) 806 1,227 1,347 15 (651) 12,168 3,455 2,361 (64,367) 92,272 458,732 2014 Q1 - 4 250 55 962 (229) 573 2,447 3,765 (5,822) 1,807 9,652 6,766 12,576 (61,949) 60,781 436,984 2013 Q4 - 4 - (100) (2,280) 396 (6,662) 4,969 2,889 2,491 6,211 1,419 4,067 (61,964) 64,719 467,172 2013 Q3 - (735) 518 (207) (2,760) 540 9,669 (493) 3,717 3,077 4,099 10,591 (46,314) 99,543 488,446 2013 Q2 - 184 (50) 257 143 3,087 7,217 3,800 4,927 9,848 10,051 (32,508) 24,532 439,970 2013 Q1 - (34) 2,550 770 9,358 3,538 6,717 14,105 9,240 17,305 (60,184) (151,658) 553,950 2012 Q4 (60) 189 905 932 (412) 2,930 (139) 4,408 1,514 (34,491) (86,842) 656,765 2012 Q3 50 (1,662) (217) (3,361) (810) (1,900) (4,028) 3,925 (46,215) (23,560) 624,160 2012 Q2 - 1,659 (82) 5,471 1,498 1,423 2,634 (63,125) 74,288 425,309 2012 Q1 (11) 177 (176) 425 5,180 4,725 (42,396) 70,572 385,494 2011 Q4 30 1,033 (685) 1,298 3,321 (52,215) 65,544 392,484 2011 Q3 141 411 (624) 6,821 (24,839) 27,765 333,024 2011 Q2 (63) (388) (844) (14,715) 31,561 275,047 2011 Q1 51 (1,044) (5,014) 18,213 172,394 2010 Q4 (68) (634) (3,256) 109,385 2010 Q3 94 (4,113) 71,742 2010 Q2 (814) 33,034 2010 Q1 3,762 Current 3,112 29,686 65,083 124,733 193,614 266,591 370,997 431,095 439,345 404,818 499,681 502,244 551,921 497,926 495,588 473,559 467,533 499,933 608,453 447,175 7,373,087 estimate of cumulative claims incurred

People’s Insurance Limited - Initial Public Offering | 145 Net non-life insurance outstanding claims provision for 2013 (All figures are in Rupees thousands unless otherwise stated)

Accident Cumulative payments to date Period 2010 Q1 2010 Q2 2010 Q3 2010 Q4 2011 Q1 2011 Q2 2011 Q3 2011 Q4 2012 Q1 2012 Q2 2012 Q3 2012 Q4 2013 Q1 2013 Q2 2013 Q3 2013 Q4 2014 Q1 2014 Q2 2014 Q3 2014 Q4 Total 2014 Q4 - (88) - (23) (660) - (992) (1,683) (1,698) (291) (2,286) (920) (2,408) (2,852) (4,032) (7,654) (8,887) (26,802) (211,387) (217,320) 2014 Q3 - - (3) (2) (4,659) (1,480) (845) (874) (317) (1,040) (1,470) (2,204) (4,155) (4,082) (3,218) (9,605) (29,774) (218,718) (255,358) 2014 Q2 - (1,626) - (215) (58) (587) (1,092) (1,295) (2,267) (390) (1,819) (3,852) (4,540) (7,114) (9,712) (17,300) (199,169) (208,415) 2014 Q1 - (4) (34) (334) (1,014) (1,001) (384) (793) (1,044) (2,923) (2,685) (3,946) (4,919) (15,095) (27,795) (205,402) (206,128) 2013 Q4 - (7) (19) (26) (6,616) (4,091) (1,400) (3,352) (3,016) (2,644) (8,637) (4,961) (13,997) (30,727) (199,444) (213,483) 2013 Q3 - (800) - (214) (125) (375) (965) (1,858) (4,836) (2,542) (7,940) (9,788) (39,233) (223,250) (233,138) 2013 Q2 - (18) (3) (1,862) (133) (614) (1,058) (2,001) (5,594) (2,496) (7,548) (37,737) (164,618) (203,701) 2013 Q1 - (3) (73) (470) (1,942) (582) (1,895) (5,273) (4,859) (3,996) (21,117) (99,258) (295,014) 2012 Q4 - (46) (3) (484) (313) (783) (1,502) (8,018) (12,033) (5,023) (88,309) (312,488) 2012 Q3 - (22) (38) (618) (1,825) (1,593) (4,643) (10,031) (14,962) (93,877) (322,749) 2012 Q2 - (5) (19) (3,058) (1,864) (2,740) 712 (13,656) (146,659) (244,350) 2012 Q1 (19) (2) (314) (495) (6,782) (10,429) (26,833) (158,460) (217,020) 2011 Q4 - (668) (331) 2,695 (5,077) (10,468) (126,800) (195,487) 2011 Q3 (141) (297) (502) (10,431) (11,149) (95,174) (180,866) 2011 Q2 - (232) (468) (7,710) (59,845) (124,941) 2011 Q1 (215) (1,215) (3,469) (48,920) (80,276) 2010 Q4 (159) (2,081) (28,348) (51,903) 2010 Q3 (30) (11,216) (25,541) 2010 Q2 (1,736) (10,791) 2010 Q1 (812) Cumulative (3,112) (29,121) (59,165) (124,070) (182,338) (254,858) (348,563) (402,781) (414,305) (359,572) (464,560) (475,154) (528,884) (486,821) (477,339) (453,444) (443,958) (453,935) (466,745) (217,320) (6,646,045) payments to date Total gross - 565 5,918 663 11,276 11,733 22,434 28,314 25,040 45,246 35,121 27,090 23,037 11,105 18,249 20,115 23,575 45,998 141,708 229,855 727,042 claims outstanding

146 | People’s Insurance Limited - Initial Public Offering Notes to the Financial Statements

33. RELATED PARTY TRANSACTIONS The Company carries out transactions in the ordinary course of business with parties who are defined as related parties in Sri Lanka Accounting Standard (LKAS) 24, Related Party Disclosures.

Details of the related party transactions are reported below.

33.1 Transactions and outstanding balances with the ultimate parent - Peopleʼs Bank

Transactions For the year ended 31 December 2014 2013 Rs. Rs.

Insurance premium in respect of their own policies 239,529,213 270,711,671 Insurance premium in respect of customers introduced 78,682,553 52,151,197 Service charge expense 11,178,781 7,472,476 Claims expense 43,623,889 81,379,659 Investment in repurchase agreements (Including reinvestments made during the year) 9,976,020,281 14,126,382,728 Settlement of repurchase agreements (Including settlement for reinvestments) 9,879,502,059 14,297,649,225 Investment income from overnight repurchase agreements 9,788,373 18,706,383 Treasury bills purchased 2,183,864,677 1,608,509,078 Interest income from fixed deposits 7,774,084 3,629,445 Interest income from savings account 53,161 16,474 Building rent expense 900,000 900,000

Outstanding balances As at 31 December 2014 2013 Rs. Rs.

Insurance premium receivable in respect of their own policies 9,378,675 189,973 Insurance premium receivable in respect of customers introduced 11,082,787 5,149,326 Service charge expense payable 3,806,307 2,074,364 Claims outstanding 241,165,187 194,263,050 Fixed deposits 96,967,838 79,064,515 Savings account 1,784,137 3,270,509 Building rent expenses payable 75,000 75,000 Cash at bank 182,683,599 1,837,049 Bank overdraft 3,840,303 2,031,623

People’s Insurance Limited - Initial Public Offering | 147 33.2 Transactions and outstanding balances with the immediate parent - Peopleʼs Leasing & Finance PLC

Transactions For the year ended 31 December 2014 2013 Rs. Rs.

Insurance premium in respect of their own policies 89,190,076 49,807,194 Insurance premium in respect of customers introduced 2,805,516,015 2,711,748,263 Service charges 346,426,949 329,243,839 Claims expense 775,408 452,625 Shared service expense Note 13,905,121 27,176,358 Purchase of intangible asset - 60,000,000 Debenture interest 17,076,388 12,785,847 interest income from savings account 110,517 304,176 Interest income from fixed deposits 8,883,473 9,939,254 Interest income from commercial papers - 3,249,043 Building rent expenses 8,026,653 2,990,301

Outstanding balances As at 31 December 2014 2013 Rs. Rs.

Insurance premium receivable in respect of their own policies 4,004,663 1,555,369 Insurance premium receivable in respect of customers introduced 458,352,198 400,130,139 Service charges payable 163,872,624 149,820,484 Claims outstanding 175,000 603,345 Debentures 100,000,000 100,000,000 Savings account 2,664,587 814,344 Fixed deposits 73,429,575 72,302,837 Building rent expenses payable 6,301,541 203,571 Current account 34,480,908 81,009,787

Note: Shared service expenses mainly include amounts payable in respect of information and communication technology, human resources and logistics services provided to the Company during the year.

148 | People’s Insurance Limited - Initial Public Offering Notes to the Financial Statements

33. RELATED PARTY TRANSACTIONS (Contd.)

33.3 Transactions and outstanding balances with the key management personnel According to the Sri Lanka Accounting Standard (LKAS) 24, Related Party Disclosures, key management personnel are those having authority and responsibility for planning, directing and controlling the activities of the entity.

People's Insurance Limited considers its Board of Directors and their immediate family members as the key management personnel of the Company.

Transactions For the year ended 31 December 2014 2013 Rs. Rs.

Directors' fees 370,000 380,000

33.4 Transactions and outstanding balances with other related companies People's Leasing Fleet Management Limited

Transactions For the year ended 31 December 2014 2013 Rs. Rs.

Insurance premium in respect of their own policies 6,516,461 4,727,726 Vehicle hiring expenses 2,410,579 1,575,488

Outstanding balances As at 31 December 2014 2013 Rs. Rs.

Insurance premium receivable 490,947 185,414 Current account balance 410,545 23,351

Peopleʼs Leasing Property Development Limited Transactions For the year ended 31 December 2014 2013 Rs. Rs.

Insurance premium in respect of their own policies 2,594,079 1,978,947

People’s Insurance Limited - Initial Public Offering | 149 Peopleʼs Leasing Microfinance Limited Transactions For the year ended 31 December 2014 2013 Rs. Rs.

Insurance premium in respect of their own policies 2,859,094 634,660 Insurance premium in respect of customers introduced 9,885,597 5,195,876 Service charges 1,090,645 659,709

Outstanding balances As at 31 December 2014 2013 Rs. Rs.

Insurance premium receivable in respect of their own policies 614,473 68,227 Insurance premium receivable in respect of customers introduced 2,976,987 585,922 Service charges payable 704,761 252,610

People's Merchant Finance PLC Transactions For the year ended 31 December 2014 2013 Rs. Rs.

Insurance premium in respect of their own policies 969,162 442,748 Insurance premium in respect of customers introduced 502,074 922,864 Service charges 50,959 52,486

Outstanding balances As at 31 December 2014 2013 Rs. Rs.

Insurance premium receivable in respect of their own policies 858,426 - Insurance premium receivable in respect of customers introduced 62,070 46,540 Service charges payable 74,389 88,958

150 | People’s Insurance Limited - Initial Public Offering Notes to the Financial Statements

33. RELATED PARTY TRANSACTIONS (Contd.)

33.5 Transactions with the Government of Sri Lanka and its related entities Since the Government of Sri Lanka directly controls the Company’s ultimate parent, the Company has considered the Government of Sri Lanka and other entities which are controlled, jointly controlled or significantly influenced by the Government of Sri Lanka as related parties according to LKAS 24, Related Party Disclosures.

The Company enters into transactions, arrangements and agreements with the Government of Sri Lanka and its related entities and significant transactions have been reported where applicable.

Transactions entered into with the Government of Sri Lanka and its related entities, relating to the ordinary course of business are detailed below.

Payment of statutory rates and taxes Payment for utilities mainly comprising telephone, electricity and water Payment for employment retirement benefits - EPF and ETF Transactions with National Insurance Trust Fund on reinsurance arrangements

34 ASSETS PLEDGED The following asset has been pledged as a security for liabilities.

Nature of asset Nature of liability 2014 2013 Classification Rs. Rs.

Fixed deposit - People's Bank Bank overdraft facility 10,000,000 10,000,000 Loans and receivables

35 EVENTS AFTER THE REPORTING DATE The Board of Directors of the Company has declared a final dividend of Rs. 2.00 per share for the financial year ended 31 december 2014.

In accordance with LKAS 10, Events After the Reporting Period, the final dividend has not been recognised as a liability in the financial statements as at 31 December 2014.

There have been no events subsequent to the reporting date, which would have any material effect on the Company, other than disclosed above.

36 COMMITMENTS AND CONTINGENCIES The Company does not have any significant capital commitments and contingencies as at the reporting date, which require disclosure in the financial statements.

People’s Insurance Limited - Initial Public Offering | 151 This page is intentionally left blank

ANNEXURE C: INTERIM FINANCIAL STATEMENTS AND LIMITED REVIEW FOR THE EIGHT MONTHS ENDED AUGUST 31, 2015

People’s Insurance Limited - Initial Public Offering | 153 154 | People’s Insurance Limited - Initial Public Offering People’s Insurance Limited - Initial Public Offering | 155 156 | People’s Insurance Limited - Initial Public Offering People’s Insurance Limited - Initial Public Offering | 157 158 | People’s Insurance Limited - Initial Public Offering People’s Insurance Limited - Initial Public Offering | 159 160 | People’s Insurance Limited - Initial Public Offering People’s Insurance Limited - Initial Public Offering | 161 162 | People’s Insurance Limited - Initial Public Offering People’s Insurance Limited - Initial Public Offering | 163 164 | People’s Insurance Limited - Initial Public Offering People’s Insurance Limited - Initial Public Offering | 165 This page is intentionally left blank

ANNEXURE D: INTERIM FINANCIAL STATEMENTS FOR THE TEN MONTHS ENDED OCTOBER 31, 2015

People’s Insurance Limited - Initial Public Offering | 167 168 | People’s Insurance Limited - Initial Public Offering People’s Insurance Limited - Initial Public Offering | 169 170 | People’s Insurance Limited - Initial Public Offering People’s Insurance Limited - Initial Public Offering | 171 172 | People’s Insurance Limited - Initial Public Offering People’s Insurance Limited - Initial Public Offering | 173 174 | People’s Insurance Limited - Initial Public Offering People’s Insurance Limited - Initial Public Offering | 175 176 | People’s Insurance Limited - Initial Public Offering People’s Insurance Limited - Initial Public Offering | 177 178 | People’s Insurance Limited - Initial Public Offering

ANNEXURE E: RESEARCH REPORT PUBLISHED BY JOINT FINANCIAL ADVISORS AND MANAGERS TO THE ISSUE TO ASCERTAIN THE VALUE OF PEOPLE’S INSURANCE LIMITED’S ORDINARY SHARES

People’s Insurance Limited - Initial Public Offering | 179

VALUATION

PEOPLE’S INSURANCE LIMITED

AS AT

AUGUST 31, 2015

Joint Financial Advisors and Managers to the Issue

INVESTMENT BANKING UNIT

October 14, 2015

180 | People’s Insurance Limited - Initial Public Offering

INVESTMENT BANKING UNIT No. 40, Navam Mawatha, 53, Dharmapala Mawatha, No. 75, Chittampalam A Gardiner Mawatha, Colombo 02, Colombo 03, Colombo 02, Sri Lanka. Sri Lanka. Sri Lanka. Tel: +94 11 2300385 Tel: +94 11 2206206 Tel: +94 11 2206795-6 Fax: +94 11 2300393 Fax: +94 11 2437149 Fax: +94 11 2458842 Email: [email protected] Email: [email protected] Email: [email protected]

October 14, 2015 Board of Directors, People’s Insurance Limited, No. 53, Dharmapala Mawatha, Colombo 03.

Dear Sir,

Valuation of People’s Insurance Limited (“PIL”) shares as at August 31, 2015

We, NDB Investment Bank Limited, Acuity Partners (Private) Limited and People’s Bank Investment Banking Unit in the capacity of Joint Financial Advisors and Managers to the Initial Public Offering (IPO) of PIL, wish to submit the enclosed Research Report in accordance with Section 3.1.4. c (ii) of the Listing Rules of the Colombo Stock Exchange.

We have carried out a detailed analysis of the business operations of PIL to arrive at the fair value of PIL’s shares based on three valuation methodologies and the results have been summarised below.

Valuation Method Residual Income (1) Justified PBV (2) Median Peer PBV (3) Average of (1), (2), & (3) Equity Value (LKR MN) 2,414.5 2,975.3 2,670.7 2,686.9 Value per Share (LKR) 16.10 19.84 17.80 17.91

We believe that PIL shares would have a fair value of LKR 17.91 per share, given the Company’s business fundamentals and the industry dynamics in General Insurance industry.

Considering your intention to offer an upside to potential investors and the healthy marketability of shares, we recommend an offer price of LKR 15.00 per share for the purpose of the IPO. The recommended offer price is expected to offer an upside of c. 19.4% to potential investors.

The detailed Research Report is enclosed herewith for your reference.

Thank you.

Yours faithfully,

People’s Insurance Limited - Initial Public Offering | 181 CONTENTS

1.0 BACKGROUND ...... 1 2.0 VALUATION METHODOLOGY ...... 1

2.1 RESIDUAL INCOME METHOD ...... 2 2.2 JUSTIFIED PBV METHOD ...... 3 2.3 PRICE MULTIPLE METHOD ...... 3 3.0 FORECASTING METHODOLOGY AND SOURCES OF INFORMATION ...... 4 4.0 FORECAST ASSUMPTIONS ...... 4

4.1 INDUSTRY OUTLOOK ...... 4 4.2 BUSINESS STRATEGY ...... 5 4.3 GROSS WRITTEN PREMIUM ...... 5 4.4 REINSURANCE PREMIUM ...... 6 4.5 CLAIMS AND EXPENSES ...... 6 4.6 UNDERWRITING PROFITS ...... 7 4.7 INVESTMENT INCOME ...... 7 4.8 FUNDS RAISED FROM INITIAL PUBLIC OFFERING ...... 8 4.9 INSURANCE LIABILITY ...... 8 4.10 EXPECTED CAPITAL ADEQUACY RATIO (CAR) ...... 8 5.0 FORECAST FINANCIAL STATEMENTS ...... 9

5.1 FORECAST INCOME STATEMENTS ...... 9 5.2 FORECAST BALANCE SHEETS ...... 10 6.0 VALUATION RESULTS ...... 11

6.1 RESIDUAL INCOME METHOD ...... 11 6.2 JUSTIFIED PBV METHOD ...... 11 6.3 PRICE MULTIPLE METHODS ...... 12 7.0 PROPOSED IPO ISSUE PRICE ...... 13 8.0 RESEARCH TEAM ...... 14 9.0 DISCLAIMER ...... 16

182 | People’s Insurance Limited - Initial Public Offering

INVESTMENT BANKING UNIT

1.0 BACKGROUND People's Insurance Limited (“PIL” or “the Company”), a fully owned subsidiary of People's Leasing & Finance PLC (“PLF”), commenced commercial operations in 2010 as a non-life (general) insurer licensed by the Insurance Board of Sri Lanka.

During a short period of time, PIL has grown at a significant pace and is, at present, within the top five general insurance companies in the country in terms of Gross Written Premiums (Source: IBSL Annual report 2014). The Board of Directors of PIL has decided to list the Company on the Colombo Stock Exchange to be in compliance with the regulatory guidelines.

In compliance with Section 3.1.4. c (ii) of Listing Rules of the Colombo Stock Exchange (“CSE”), NDB Investment Bank Limited, Acuity Partners (Private) Limited and People’s Bank Investment Banking Unit (hereinafter referred to as “The Joint Managers”), in the capacity of Joint Financial Advisors and Managers to the Initial Public Offering (IPO), has carried out a valuation on the share of PIL for the purpose of ascertaining the issue price.

The assessed valuation and the underlying assumptions pertaining to the same are set out in this Research Report.

2.0 VALUATION METHODOLOGY Some of the most commonly used techniques amongst the many different methodologies used in valuing companies are given below:

1. Discounted Free Cash Flow (DCF) Method 2. Net Asset Value Method 3. Residual Income Method 4. Justified PBV Method 5. Price Multiples Method

Given due consideration to PIL’s business model and the industry in which it operates, the Joint Managers believe not all valuation methodologies could be considered as appropriate.

The Joint Managers did not consider Discounted Free Cash Flow (DCF) method since it is less relevant for insurance sector due to the fact that not all of the capital is free to be distributed / deployed as dividends or share repurchases/investments. Further, the level of required capital varies with the risks of the liabilities that it underwrites, the assets it buy with the proceeds from the liabilities, and the cash flow and duration mismatches between the assets and the liabilities. Further, Net Asset Value may not be suitable for a company which operates as a going concern.

Considering the above, the Joint Managers have carried out the valuation of PIL based on the Residual Income, Justified PBV approaches, and Price Multiples approach.

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2.1 Residual Income Method Residual Income (“RI”) emphasis on the excess net income a firm generates over and above the required rate of return for its shareholders. In order to determine a fair value for the business operation of PIL, the RI method was considered as an appropriate technique, taking into account the fact that it is an ongoing business, dealing primarily in financial assets.

Residual Income for a given year is determined as below.

𝑡𝑡 𝑡𝑡 𝑡𝑡−1 𝑡𝑡−1 where, 𝑅𝑅𝑅𝑅 = 𝐸𝐸 − (𝑟𝑟 × 𝐵𝐵 ) = (𝑅𝑅𝑅𝑅𝑅𝑅 − 𝑟𝑟) × 𝐵𝐵

RIt = residual income in year t

Et = expected earnings for year t r = required return on equity

Bt-1 = book value of equity in year t-1 ROE = expected return on equity

The fair value of a share under RI method is determined by adding present values of expected residual incomes to the current book value of equity. The fair value calculation, as per the RI method, can be summarised as below.

𝑡𝑡−1 𝑅𝑅𝑅𝑅𝑡𝑡 𝑉𝑉0 = 𝐵𝐵0 + {∑ 𝑡𝑡} + 𝑡𝑡 where, 𝑡𝑡=1 (1 + 𝑟𝑟) 𝑇𝑇𝑇𝑇

V0 = intrinsic value in year 0

B0 = book value of equity in year 0

RIt = residual income in year t r = required return on equity

TVt = terminal value at year t

The Terminal Value at year t (TVt) in a continuing residual income model is calculated using the following standard formula.

𝑅𝑅𝑅𝑅𝑡𝑡 𝑇𝑇𝑇𝑇𝑡𝑡 = 𝑡𝑡−1 where, (1 + 𝑟𝑟 − 𝜔𝜔)(1 + 𝑟𝑟)

TVt = terminal value at year t

RIt = residual income in year t r = required return on equity ω = persistence factor

The persistence factor determines the sustainability of excess net income over required rate of return. If the excess net income is expected to continue perpetually then the persistent factor is assumed as “1”. Accordingly if it is expected to diminish just after the initial forecast period persistent factor is assumed as “0”. The persistence factor could be any value between “0” and “1” depending on the Joint Managers’ estimate on firm’s ability to persist with its competitive advantage.

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2.2 Justified PBV Method The Justified Price-to-Book Value is a form of intrinsic value calculation where it indicates the warranted PBV multiple given a company’s expected Return on Equity, Sustainable Growth Rate, and its Cost of Equity. The Joint Managers believe Justified PBV is an appropriate method to determine the fair value of the business operation of PIL as it is determined through an analysis of business fundamentals and widely used by analyst to evaluate finance and insurance companies.

The Justified PBV ratio based on forecast fundamentals can be calculated as:

𝑅𝑅𝑅𝑅𝑅𝑅 − 𝑔𝑔 𝐽𝐽𝐽𝐽𝐽𝐽𝐽𝐽𝐽𝐽𝐽𝐽𝐽𝐽𝐽𝐽𝐽𝐽 𝑃𝑃𝑃𝑃𝑃𝑃 𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟 = where, 𝑟𝑟 − 𝑔𝑔 ROE = expected return on equity r = required return on equity g = expected growth rate in dividends/earnings

2.3 Price Multiple Method PIL can be valued based on the price multiples of its listed peers. The commonly used price multiples to calculate relative value of a share are Price-to-Earnings (P/E) and Price to Book value (PBV) ratios.

The relative value for PIL shares using peer Price-to-Earnings ratio would be calculated as follows:

where, 𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃 = 𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹 𝐸𝐸𝐸𝐸𝑆𝑆 ∗ 𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴 𝑃𝑃𝑃𝑃𝑃𝑃 EPS = earnings per share PER = Price-to-Earnings ratio/Relative

The relative value for PIL shares using peer average Price-to-Book Value ratio would be calculated as follows:

where, 𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃 = 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 ∗ 𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴 𝑃𝑃𝑃𝑃𝑃𝑃 BVPS =book value per share PBV = Price-to-Book Value ratio

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3.0 FORECASTING METHODOLOGY AND SOURCES OF INFORMATION The requisite inputs for the Residual Income Approach and Justified PBV Approach were derived explicitly from forecast financial statements of PIL. The following methodology was adopted in forecasting the financial statements of PIL: I. The financial statements were forecasted for a period of five years based on the business plans of PIL; II. Input from the Management of PIL were obtained with a view to better understand the nature of the operations; III. The Audited Financial Statements and the Management Accounts were analysed in order to review the historical performance of PIL and to identify possible trends and key performance indicators; IV. Future growth plans of PIL have been duly incorporated in the forecast financials based on discussions with the Management. V. The forecast financial performance was assessed in light of the future outlook of insurance industry for the next five years.

It should be noted that this valuation exercise was carried out based on the discussions with the management of PIL together with the information provided by PIL.

4.0 FORECAST ASSUMPTIONS

4.1 Industry Outlook Gross Written Premiums for General insurance industry grew by 3.7% to LKR 55.3 Bn in 2014. The industry growth rate has plummeted from 23.4% in 2011 to 3.7% in 2014. However, the General Insurance penetration of 0.56% in 2014, one of the lowest in Emerging Asian markets, suggests that there is much upside potential, particularly in non-motor segments.

General Insurance industry is generally considered to be positively correlated with the GDP growth. Sri Lanka achieved a GDP growth in excess of 6% for the last five years and it is expected to grow not less than 5% for the next five years. We are of the view that the industry growth would coincide with GDP growth rate during the next five years and hence the industry would, at a minimum, be able to maintain the current level of industry penetration.

2010 2011 2012 2013 2014 Gross Written Premium (LKR MN) Fire 5,012 5,376 5,422 6,304 6,242 Marine 1,499 1,678 1,918 1,796 1,812 Motor 20,949 27,141 31,638 33,157 34,945 Miscellaneous 7,641 9,134 10,717 12,054 12,262 Total 35,101 43,329 49,694 53,311 55,262 YoY GWP Growth Rate Fire 7.3% 0.9% 16.3% -1.0% Marine 12.0% 14.3% -6.3% 0.9% Motor 29.6% 16.6% 4.8% 5.4% Miscellaneous 19.5% 17.3% 12.5% 1.7% Total 23.4% 14.7% 7.3% 3.7%

General Insurance Penetration 0.63% 0.66% 0.66% 0.61% 0.56% Gross Domestic Product (LKR Bn) 5,604 6,544 7,579 8,674 9,785 GDP Growth Rate 8.0% 8.2% 6.3% 7.2% 7.4% Source: IBSL Annual Report 2014

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4.2 Business Strategy At present, a significant portion of PIL’s business is generated through captive sources, viz. PLF and People’s Bank. The Company’s primary focus in the next three to five years would be to capture non- captive business whilst maintaining steady growth for its existing operations.

As per the discussions with the Management, we understand that several initiatives have been taken to position PIL in order to capture non-captive businesses with a view to reducing the reliance of captive sources:

. Retail channels: 20 marketing personnel of PIL have been stationed in PLF offices to bring in new retail business from outside PLF . Corporate / Broker channels: Personnel have been recruited with a specific mandate to seek business opportunities via corporate accounts and insurance brokerage houses

Further, we note that the branch network is to be increased to five from the existing two by 2017. In order to encompass the above growth plans, the following assumptions have been used for the purpose of this valuation.

Assumptions Number of new branches to be opened 3 Capital expenses per branch (LKR MN) 1.5 GWP per branch (LKR MN) 25.0 Employees per branch 4

It has also been assumed that PIL would continue to open one new branch per year beyond 2017.

4.3 Gross Written Premium Albeit moderate GWP growth in FY2014, since its inception in 2010 PIL has grown at a rapid pace to record GWP in excess of LKR 3.4Bn. The Company, which at present stands among the top five non-life insurance companies in the country can attribute much of its growth to its captive business source and parent, PLF.

As highlighted in the Company’s business strategy, whilst maintaining steady growth in its captive business, the management will aim to focus on business outside that of PLF to continue the growth trajectory of the Company. However, post assessing the highly competitive non-life insurance industry in the country; a continuation of the aggressive growth rates experienced by PIL in the past would be unlikely.

Considering the above, the Joint Managers believe that PIL would achieve a Total GWP CAGR of 7.5% for the next five years from 2015 – 2019. The composition of GWP is expected to remain at current levels throughout the forecast period with the dominant motor segment contributing nearly 85%. The following GWP levels have been assumed in preparing the financial projections for the Company.

LKR MN 2014A 2015F 2016F 2017F 2018F 2019F 5 Yr. CAGR Motor GWP 2,864.9 3,151.4 3,424.8 3,713.3 3,965.1 4,194.6 7.9% Growth in Motor GWP 5.5% 10.0% 8.7% 8.4% 6.8% 5.8% Non-Motor GWP 575.7 554.6 602.0 652.3 696.6 743.9 5.3% Growth in Non-Motor GWP 7.5% -3.7% 8.6% 8.4% 6.8% 6.8% Total GWP 3,440.6 3,706.0 4,026.8 4,365.6 4,661.7 4,938.5 7.5% Growth in Total GWP 5.8% 7.7% 8.7% 8.4% 6.8% 5.9%

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4.4 Reinsurance Premium The Joint Managers expect Total Reinsurance Premium ceded to be c. 8.0% of Gross Written Premium during the forecast period. The forecast Reinsurance Premium Ceded as a % of GWP for each asset class is shown below.

Reinsurance Premium Ceded as a % of GWP Motor 3.0% Marine 90.0% Fire 65.0% Miscellaneous 7.0%

4.5 Claims and Expenses

4.5.1 Net Claims PIL’s Net Claims Ratio was at 72.6% in FY2014, declining steadily from 83.6% in FY2011. However, the industry average net Claims Ratio was 65.4% during the same period. The industry average Claims Ratio remained higher than PIL throughout last five years because of PIL’s high proportion of captive business, which generally incur higher claims, and aggressive pricing at the establishment stage. The Joint Managers expect a continuation of the gradual decline in net claims ratio in line with Management forecasts and PIL’s strategy of focusing on growing its non-captive business.

4.5.2 Net Acquisition Costs The Joint Managers are of the view that PIL’s net Acquisition Cost would remained around 11.3% for the forecast period based on the Company’s operating history and the regulatory restrictions placed on such costs as per IBSL guidelines.

4.5.3 Operating Expenses PIL enjoys a significantly lower Operating Cost ratio compared to its industry peers due to its business model, which mainly focuses on captive business from its affiliated companies. PIL’s Net Expense Ratio (including Net Acquisition Cost) stood at 22.6% cf. the industry average of 40.4% in 2014. However, expanding in to non-captive business expected to increase the Operational Cost Ratio of PIL since the expansion would result in increased Administrative Overheads and Sales and Marketing Expenses. The Joint Managers expect PIL’s the operating cost ratio to increase to 15.5% by 2019F.

It should be noted that PIL and PLF have agreed to continue current shared services arrangement, hence that current cost structure for captive business is expected to continue to the foreseeable future.

4.5.4 Combined Ratio The Joint Managers expect PIL’s Combined Ratio to be around 94% during the forecast period. PIL’s business strategy of targeting non-captive business while maintaining the captive business would support the steady decline in Net Claims Ratio but it simultaneously increases its operating costs. Hence the steady decline of Net Claims Ratio to 67.4% in 2019F from 72.3% in 2014 is expected to get offset by the increase in Operating Cost Ratio to 15.5% in 2019F from 12.2% in 2014.

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The key components of Combined Ratios used in the financial projections are depicted below:

94.9 93.5 94.8 94.3 94.1 94.1

12.2 12.9 14.5 14.7 15.2 15.5 10.4 11.1 11.2 11.2 11.3 11.3

72.3 69.4 69.1 68.4 67.6 67.4

2014A 2015F 2016F 2017F 2018F 2019F

Claims Ratio Acquisition Cost Ratio Operational Cost Ratio Combined Ratio

4.6 Underwriting Profits PIL is one of the few companies in the Sri Lankan General Insurance sector to make underwriting profits, owing to its Combined Ratio being below 100%, since 2012. The Company has been able to keep the Combined Ratio less than 100% due to its access to captive business from People’s Bank Group. The Joint Managers assumed that the Combined Ratio would be maintained around 94% for the forecast period. Hence, PIL is expected to earn underwriting profits throughout the forecast period at the following amounts.

LKR MN 2014A 2015F 2016F 2017F 2018F 2019F Underwriting Profits 151.8 212.6 201.3 218.2 242.6 255.2 Underwriting Profit Margin 5.1% 6.5% 5.7% 5.7% 5.9% 5.9%

4.7 Investment Income The Joint Managers assumed that PIL would hold the investment portfolio composition it maintained in year 2014 for the rest of forecast period. Hence fixed deposits, government securities, and debentures would account for c.43%, 24% and 18% of the total portfolio respectively, throughout the forecast period.

Total return on investment securities of the said portfolio has been assumed based on a spread above the risk free rate. The Joint Managers have assumed a short term risk free rate of 6.5%, as indicated by 91- day Treasury Bill rate, for year 2015 and 7.0% for the rest of the forecast period with a view that rates would remain at present single digit levels given the sustainable macroeconomic growth environment.

The Joint Managers expect Total Return on Financial Assets to range from 8.3 - 9.1% during the forecast period.

LKR MN 2014A 2015F 2016F 2017F 2018F 2019F Investment Income 385.3 321.2 417.3 499.1 555.3 607.6 Average Financial Assets 3,512.5 3,996.2 4,789.7 5,685.7 6,240.3 6,828.9 Return on Financial Assets % 11.3% 8.3% 8.9% 9.0% 9.1% 9.1%

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4.8 Funds Raised from Initial Public Offering The Joint Managers made the following assumptions with respect to the funds raised from IPO.

I. PIL would be able to raise LKR 750,000,000 from the Initial Public Offering; II. The total cost of the IPO would be approximately 5% of the total funds raised; III. IPO proceeds would be available to the Company by January 2016 IV. PIL would be eligible for 50% tax concession for the subsequent three year period subject to meeting the 20% public shareholder threshold. Hence, the Joint Managers assumed an income tax rate of 14% from 2016F to 2018F. V. The return on IPO proceeds has been assumed to be in line with the return on the existing investment portfolio.

4.9 Insurance Liability The Joint Managers estimated the movement in Unearned Premium Reserves and the Total Claims Outstanding as a % of Gross Written Premium. Claims Incurred But Not Reported (IBNR) was estimated as a percentage of Total Claims incurred for a given year. The summary of forecasting bases and assumptions are given below.

Insurance Liability Forecasting Basis Assumption Unearned Premium Reserves Net Change in Reserves as a % of GWP 4.2% Claims outstanding Claims Outstanding as a % of GWP 22.3% Incurred But Not Reported Claims IBNR as a % of Total Claims incurred 20.0%

The resultant insurance liability for the forecast period as follows.

LKR MN 2015F 2016F 2017F 2018F 2019F Provision for Unearned Premium 1,855.4 2,026.5 2,212.0 2,410.0 2,619.9 Claims Outstanding 824.6 896.0 971.3 1,037.2 1,098.8 Claims Incurred But Not Reported 451.3 487.9 523.7 552.8 583.5 Total Insurance Liability 3,131.3 3,410.4 3,707.0 4,000.1 4,302.2

4.10 Expected Capital Adequacy Ratio (CAR) PIL’s Risk Based CAR stood at 231% on June 30, 2015, well above the regulatory minimum of 120%. The Joint Managers expect PIL to maintain a healthy Risk Based Capital Adequacy Ratio throughout the forecast period. It was assumed that PIL would maintain the asset allocation strategy of its current investment portfolio during the forecast period. Hence, forecasts are not subject to additional risks arising from changes in asset allocation. We expect the funds raised via the IPO to provide additional capital buffers against increased underwriting risks associated with PIL’s expansion into non-captive business together with changes in idiosyncratic risks and correlations among financial asset classes.

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5.0 FORECAST FINANCIAL STATEMENTS

5.1 Forecast Income Statements

LKR MN 2014A 2015F 2016F 2017F 2018F 2019F Gross Written Premium 3,440.6 3,706.0 4,026.8 4,365.6 4,661.7 4,938.5 Premium Ceded to Reinsurers (293.9) (297.9) (323.6) (350.7) (374.5) (398.8) Net Change in Unearned Premium (156.2) (157.5) (171.1) (185.5) (198.1) (209.8) Net Earned Premium 2,990.5 3,250.7 3,532.2 3,829.4 4,089.1 4,329.9

Net Claims and Benefits (2,162.7) (2,256.7) (2,439.6) (2,618.5) (2,764.1) (2,917.4) Net Acquisition Costs (310.8) (361.7) (396.8) (430.8) (460.3) (487.4) Operating Expenses (365.1) (419.6) (513.3) (562.0) (622.1) (670.0)

Underwriting Profits 151.8 212.6 182.6 218.2 242.6 255.2

Fee and Other Operating Income 35.7 37.0 40.0 43.3 46.1 48.8 Investment Income 385.3 321.2 417.3 499.1 555.3 607.6 Total Other Revenue 421.0 358.1 457.3 542.4 601.4 656.4

Profit Before Tax 572.8 570.7 639.9 760.6 844.1 911.6 Income Tax (122.7) (138.9) (76.3) (90.7) (100.9) (217.4) Profit After Tax 450.1 431.8 563.6 669.8 743.2 694.1

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5.2 Forecast Balance Sheets

LKR MN 2014A 2015F 2016F 2017F 2018F 2019F ASSETS Financial Investment 3,644.9 4,064.2 5,295.0 5,821.4 6,376.7 6,969.7 Reinsurance Receivables 137.3 148.9 161.8 175.4 187.2 199.4 Insurance Receivables 523.7 558.4 606.8 657.8 702.4 744.2 Deferred Acquisition Cost 180.8 192.7 209.4 227.0 242.4 256.8 Other Assets 271.6 170.2 177.1 179.7 190.1 206.3 Total Assets 4,758.2 5,134.6 6,450.2 7,061.4 7,698.9 8,376.4

Equity Stated Capital 600.0 600.0 1,331.3 1,331.3 1,331.3 1,331.3 Other Reserves 810.0 905.9 1,187.7 1,455.6 1,752.9 2,030.6 Total Equity 1,410.0 1,505.9 2,519.0 2,786.9 3,084.2 3,361.8

Liabilities Outstanding Claims Provision 1,203.2 1,275.9 1,383.9 1,495.0 1,590.0 1,682.3 Provision for Unearned Premium 1,697.9 1,855.4 2,026.5 2,212.0 2,410.0 2,619.9 Other Liabilities 447.1 497.3 520.8 567.5 614.7 712.4 Total Liabilities 3,348.2 3,628.6 3,931.2 4,274.5 4,614.7 5,014.6

Total Equity and Liabilities 4,758.2 5,134.6 6,450.2 7,061.4 7,698.9 8,376.4

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6.0 VALUATION RESULTS The following section illustrates key valuation assumptions and the resultant equity valuations as at August 31, 2015 for the Company based on the three methods discussed in this Research Report.

6.1 Residual Income Method

Assumptions

10 Year Treasury Bond Rate (a) †10.0%

Corporate Bond Premium (b) 1.0%

Equity Risk Premium (c) 6.0%

Cost of Equity (a + b + c) 17.0%

Persistence Factor ‡0.9 †Source: Central Bank of Sri Lanka as at 31 August 2015 ‡The Joint Managers believe PIL would be able to maintain its competitive advantage over its peers for a significant period. Accordingly, a persistent factor of 0.9 has been assumed.

LKR MN 2015F 2016F 2017F 2018F 2019F Net Income (a) 129.6 563.6 669.8 743.2 694.1 Equity Charge (b) 83.0 379.6 427.5 472.9 523.4 Residual Income (a-b) 46.6 183.9 242.4 270.2 170.8

Market Value Added 946.6 Beginning Net Asset Value 1,467.9 Equity Value 2,414.5

Based on the Residual Income Approach the total equity value of PIL amounts to LKR 2.4 Bn with a per share value of LKR 16.10

6.2 Justified PBV Method

2016F 2017F 2018F 2019F Average Return On Equity (%) 23.7% 25.2% 25.3% 21.5% 24.0% Earnings Retention Ratio (%) 50.0% 40.0% 40.0% 40.0% 44.0% Sustainable Growth Rate (%) 11.8% 10.1% 10.1% 8.6% 10.2%

Justified PBV Forecast Average ROE% (a) 24.0% Forecast Sustainable Growth (b) 10.2% Cost of Equity (c) 17.0% Justified PBV (a-b)/(c-b) 2.03x Beginning Net Asset Value (LKR MN) 1,467.9 Equity Value (LKR MN) 2,975.3

Based on the Justified PBV Approach the total equity value of PIL amounts to LKR 3.0 Bn with a per share value of LKR 19.84

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6.3 Price Multiples Methods The companies in the insurance sector currently listed on the Colombo Stock Exchange are either into life insurance business or are composite insurers. Considering levels of liquidity in the secondary market and the percentage of non-life insurance business, the Joint Managers have selected Asian Alliance Insurance (AAIC), HNB Assurance (HASU) and Janashakthi Insurance (JINS) as the peer group for PIL. Salient information pertaining to these listed peers are given below.

Peers P/E (x) PBV (x) ROE (%) Non-Life GWP % AAIC 10.4 2.9 27.5% 36.1% HASU 10.6 1.8 17.2% 49.8% JINS 7.6 1.6 20.8% 75.8% Mean 9.5 2.1 21.8% nm Median 10.4 1.8 20.8% nm Based on prices as at August 31, 2015 Earnings TTM to June 30, 2015 Book Value as at June 30, 2015

The Joint Managers decided to use Peer Median PBV to determine the Relative value of PIL shares as it closely reflects the industry attributes when compared to P/E.

Relative Value Based on PBV Peer Group Median PBV 1.8 Book Value per share (Aug 2015) 9.79 Market Value per share 17.80 Equity Value (LKR MN) 2,670.7

Based on the Peer Group Median PBV the total equity value of PIL amounts to LKR 2.7 Bn with a per share value of LKR 17.80

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7.0 PROPOSED IPO ISSUE PRICE A summary of the valuation results highlighted in the preceding sections are given below:

Residual Median Peer

Income Justified PBV PBV Average Equity Value (LKR MN) 2,414.5 2,975.3 2,670.7 2,686.9 Value per Share (LKR) 16.10 19.84 17.80 17.91 P/E Ratio (2014A) (x) 5.4 6.6 5.9 6.0 P/E Ratio (2015F) (x) 5.6 6.9 6.2 6.2 Post-IPO P/E (2016F) (x) 5.6 6.6 6.1 6.1 Pre-IPO PBV (31 Aug 2015) (x) 1.6 2.0 1.8 1.8 Post-IPO PBV (31 Aug 2015) (x) 1.4 1.7 1.6 1.6

Given the Company’s business fundamentals and the industry dynamics, the Joint Managers believe PIL shares would have a fair value of c. LKR 17.91 per share.

The Joint Managers understand that the Board of Directors of PIL intends to offer an upside to IPO investors, in a range of 15%-20%, over and above the cost of equity of 17% as an incentive to subscribe for its shares. Considering the Board of Director’s intentions and the healthy marketability of shares post- IPO, the Joint Managers propose an offer price of LKR 15.00 per share.

Average Value per Share (LKR) 17.91

Proposed IPO Price (LKR) 15.00

Expected Upside to IPO investors c.19.4%

Given the proposed IPO offer price of LKR15.00 per share, PIL would have to issue 50,000,000 shares to raise LKR 750 MN. The resultant Stated Capital, Net Assets Value and the number of share of PIL before and after IPO would be as follows.

Pre-IPO Post-IPO Stated Capital 600.0 1,350.0 Net Assets Value (LKR MN) 1,467.9* 2,199.2‡ Number of shares (MN) 150.0† 200.0 * Net Assets Value as at August 31, 2015 adjusted for declared dividend of LKR 120 MN on September 25, 2015. ‡ Estimated issue cost is LKR37 MN and it was assumed 50% of the issue cost would be allowed to offset against the gross IPO proceeds. † Number of shares after the subdivision of shares on October 13, 2015

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8.0 RESEARCH TEAM

NDB INVESTMENT BANK LIMITED

Nilendra Weerasinghe – Assistant Vice President

Nilendra specializes in the structuring and placement of IPOs with over five years of experience in investment banking. Nilendra has been part of the NDBIB team for numerous IPOs managed by the company including that of People’s Leasing, Singer Finance, Access Engineering, Union Bank and Mackwoods Energy. He has a wide array of experience in project financing, loan syndications and mergers and acquisitions.

Nilendra is a CFA Charterholder and a graduate in Computer Science and Engineering with a first class honours degree from the University of Moratuwa. He also holds an MBA in Strategy and Operations from the National University of Singapore. His previous work experience includes Goldman Sachs in Singapore where he was involved in advising and raising equity funds via IPO for clients in the Southeast Asian region.

Viraj Wijesinghe – Assistant Vice President

Viraj possesses over eight years of experience in corporate finance, financial risk management, and investment banking. He joined NDB investment bank as an Assistant Vice President in 2014. Prior to joining NDB Group he was with the Universal Enterprises Private Limited, the largest leisure group in Republic of Maldives, functioning as their Group Treasury Manager.

Viraj was successful in planning and implementing a derivatives based hedging strategy to manage Universal’s Foreign Exchange and Interest rate exposures. Further he was responsible for liquidity management, corporate finance and management reporting functions of Universal. Prior to Universal, Viraj worked with Amba Research as an offshore investment analyst. At Amba, he worked with prominent Buy-side and Sell-side clients in major financial markets, successfully catering to their diverse investment analysis requirements.

Viraj is a CFA Charterholder, a certified Financial Risk Manager (FRM) from Global Association of Risk Professionals (GARP) in USA and an Associate Member of CIMA (UK). He also holds a BBA, specialized in Finance, from the University of Colombo.

Rukshan Aponso – Assistant Manager

Rukshan joined the NDB Group in 2013 and has since then been actively involved in transactions carried out by NDBIB. Prior to joining NDB, he worked as an Associate Consultant in the Corporate Finance and Strategy Division of PricewaterhouseCoopers. He counts for over 5 years of experience in valuation and structuring. Rukshan holds a B.Sc. Mathematics and Economics, First Class, University of London. He is currently a candidate for CFA – level III.

ACUITY PARTNERS (PRIVATE) LIMITED

Shehan Cooray – Senior Vice President – Corporate Finance

Shehan joined Acuity from HNB, where he worked in the Corporate Finance Division of the Bank and was involved in numerous equity & debt capital raising transactions. Notable transactions which he has worked on include the GDR offering on the Luxembourg Stock Exchange by HNB and numerous IPO’s and Private Placements including Textured Jersey, Vallibel One and Hemas Holdings. He has over 9 years’ experience in finance including company valuations & advisory, securities placement and structured finance.

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INVESTMENT BANKING UNIT

Before joining HNB, Shehan has worked as an analyst at Fitch Ratings Lanka, the local affiliate of Fitch Inc., focusing primarily on Corporates and Structured Finance. He has covered a wide range of industry sectors including telecommunications, conglomerates and commodities.

Shehan has a Bachelor of Science degree in Development Economics with First Class Honours from the University of London, UK and a Master of Science in Corporate & International Finance from the University of Durham, UK.

Amani Ranaweera – Assistant Vice President – Corporate Finance

Amani has over 3 years’ experience in auditing, management consultancy & taxation and she has worked as a Financial Analyst at the Distilleries Corporation of Sri Lanka (DCSL) for over a year, prior to joining Acuity Partners in 2011.

Amani is a member of the Chartered Institute of Management Accountants (CIMA) UK, a member of the Institute of Chartered Accountants of Sri Lanka (ICASL) and is an affiliate of the Association of Chartered Certified Accountants (ACCA), UK. She has a Bachelor of Science degree in Banking & Finance from the University of London – London School of Economics and Political Science, with First Class Honours and a Master of Science degree in Finance from the University of Liverpool, with a distinction.

Amani has over 4 years’ experience in valuations, restructuring and advisory. She is currently working on equity raising and restructuring projects, while she has completed the IPO for Amana Bank and advisory projects for clients in the tourism & service sectors.

PEOPLES BANK INVESTMENT BANKING UNIT

D Pubudu Champike – Chief Manager

Pubudu Champike is a CFA Charterholder and an associate member of both the Institute Chartered Accountants of Sri Lanka and the Institute of Bankers of Sri Lanka. He is also equipped with a Diploma in Treasury, Investment and Risk Management from the Institute of Bankers of Sri Lanka and holds ACI dealing certificate. He obtained his B.Sc. Business Administration (Special) Degree with a first class in Financial Management from the University of Sri Jayewardenepura in the year 2000 and completed his Master of Business Administration from the Postgraduate Institute of Management.

He joined to the People’s Bank as a Management Trainee in 2002 and counts over 10 years of experience in Treasury Management. In 2011, he joined the Investment banking unit. He has been instrumental in arranging, structuring and the marketing of the landmark securitization and the debenture transactions that brought wide acclaim to the PBIBU.

Lakmal Jayarathne – Investment Analyst

Lakmal Jayarathne is an Associate member of Chartered Management Accountant UK and a Chartered Global Management Accountant. He obtained his Master of Business Administration from Federation University of Australia in 2012 and holds a Diploma in Investment & Portfolio Management from Institute of Bankers of Sri Lanka. Further he is an Associate member of Institute of Bankers of Sri Lanka.

He started his career as a Regional Finance Coordinator attached to the People’s Bank finance Department and moved to Treasury Unit of the bank in 2009. In 2011, he joined the Investment banking unit and contributed to significant financial market transactions which were handled by the People bank IBU.

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INVESTMENT BANKING UNIT

9.0 DISCLAIMER The information, forecasts, analyses, assumptions and opinions contained herein have been compiled or arrived at solely based on information provided to the Joint Managers by the Client/PIL. Such information has not been independently verified and no guarantee, representation or warranty, expressed or implied is made as to its accuracy, completeness or correctness. Nothing contained in this Presentation Material is, or shall be relied upon as, a promise or representation by the Joint Managers. All such information is subject to change without notice and such changes could be due to unforeseen circumstances. This Presentation Material is for information purposes only and does not purport to be a complete description of the subject matter presented herein.

Any estimate, projection, opinion, forecast and valuation contained in this Presentation Material involve significant elements of subjective judgment and analysis, which may or may not be correct. No representation is made that any estimate, projection or forecast will be achieved. The actual future events may vary significantly from the estimates, projections, forecasts or valuation and each estimate, projection, forecast or valuation is based on a number of assumptions and is subject to matters which are outside the control of the Joint Managers. Verification of assets of PIL and evaluation of agreements between clients of PIL have not been carried out during this exercise.

Accordingly, the Joint Managers shall not be liable for any loss or damage howsoever arising as a result of any person acting or refrain from acting in reliance or any information, forecast analysis and opinion contained herein.

The recipients of this Presentation Material and/or Investors are expected to carry out their own independent evaluations taking into consideration macro-economic variables and other relevant conditions.

The valuation presented herein is valid for a period of three months (03) from the date of this Report i.e. October 14, 2015, however, subject to there being no material changes to the parameters impacting operations of PIL.

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ANNEXURE F: COLLECTION POINTS

People’s Insurance Limited - Initial Public Offering | 199 Copies of the Prospectus and the Application Form can be obtained free of charge from the following collection points.

Joint Managers to the Issue Acuity Partners (Private) Limited NDB Investment Bank Limited People’s Bank Investment Banking Unit 53, Dharmapala Mawatha, 40, Nawam Mawatha, People’s Bank Head Office, Colombo 3 Colombo 2 13th Floor, Tel: 011 2206206 Tel: 011 2300385 75, Sir Chittampalam Gardiner Mawatha, Colombo 2 Tel: 011 2206795-6

Members & Trading Members of the CSE Acuity Stockbrokers (Private) Limited Asha Phillips Securities Limited 53, Dharmapala Mawatha, 2nd Floor, Lakshmans Building, Colombo 03 321, Galle Road, Tel: 011 2206206 Colombo 03 Tel: 011 2429100

Asia Securities (Private) Limited Assetline Securities (Private) Limited 2nd Floor, 120, 120A, Pannipitiya Road, 176/1 - 2/1, Thimbirigasyaya Road, Battaramulla Colombo 05 Tel: 011 4700111 Tel. 011 7722000

Bartleet Religare Securities (Private) Limited Candor Equities Limited Level G, ‘Bartleet House’ Level 8, South Wing, ‘Millennium House’, 65, Braybrooke Place, 46/58, Nawam Mawatha, Colombo 02 Colombo 02 Tel: 011 5220200 Tel: 011 2359100

Capital Trust Securities (Private) Limited Claridge Stockbrokers (Private) Limited 42, Mohamed Macan Markar Mawatha, 10, Gnanartha Pradeepa Mawatha, Colombo 03 Colombo 08 Tel: 011 2174174-5 Tel: 011 2697974

CT CLSA Stockbrokers (Private) Limited Capital Alliance Securities (Private) Limited 4-14, Majestic City, Level 5, ‘Millenium House’, 10, Station Road, 46/58, Navam Mawatha, Colombo 04 Colombo 02 Tel: 011 2552290-4 Tel: 011 2317777

Enterprise Ceylon Capital (Private) Limited Entrust Capital Markets (Private) Limited 27th Floor, East Tower, Level 15, East Tower, World Trade Centre, Echelon Square, World Trade Centre, Echelon Square, Colombo 01 Colombo 01 Tel: 011 2333000, 011 2147147 Tel: 011 5500600, 0115500698

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First Capital Equities (Private) Limited First Guardian Equities (Private) Limited 347/1/1, Dr. Colvin R De Silva Mawatha, 32nd Floor, East Tower, World Trade Centre, Colombo 02 Colombo 01 Tel: 011 2145000 Tel: 011 5884400

J B Securities (Private) Limited John Keells Stock Brokers (Private) Limited 150, St. Joseph Street, 186, Vauxhall Street, Colombo 14 Colombo 02 Tel: 011 2490900 Tel: 011 2306250, 011 2342066-7

Lanka Securities (Private) Limited LOLC Securities Limited 228/1, Galle Road, Level 18, West Tower, World Trade Centre, Colombo 04, Echelon Square, Colombo 01 Tel: 011 4706757, 011 2554942 Tel: 011 7880880

Nation Lanka Equities (Private) Limited NDB Securities (Private) Limited 44, Guildford Crescent, 5th Floor, NDB Building, 40, Navam Mawatha Colombo 07 Colombo 02 Tel: 011 4889061-3, 011 2684483 Tel: 011 2314170-8, 011 2131000

Navara Securities (Private) Limited Richard Pieris Securities (Private) Limited 25 – 2/1, Milepost Avenue, 55/20, Vauxhall Lane, Colombo 03 Colombo 02 Tel: 011 2358700/20 Tel: 011 7448900, 011 5900800

SC Securities (Private) Limited SMB Securities (Private) Limited 5th Floor, 102/1, Dr. N M Perera Mawatha, 26B, Alwis Place, (formerly Cotta Road), Colombo 03 Colombo 08 T: 011 4711000, 011 4711001 Tel: 011 4388138

Softlogic Stockbrokers (Private) Limited Somerville Stockbrokers (Private) Limited 6, 37th Lane, 137, Vauxhall Street, Queens Road, Colombo 02 Colombo 03 Tel: 011 2329201-5, 011 2332827, 011 2338292-3 Tel: 011 7277000

Taprobane Securities (Private) Limited TKS Securities (Private) Limited 2nd Floor, 10, Gothami Road, 4th Floor, 245, Dharmapala Mawatha, Colombo 08 Colombo 07 Tel: 011 5328200 Tel: 011 7857799

People’s Insurance Limited – Initial Public Offering | 2

People’s Insurance Limited - Initial Public Offering | 201 People’s Insurance Branches

Branch Name Branch Address Telephone Head Office 53, Dharmapala Mawatha, Colombo 03 011-2206406 Motor Centre 167, Union Place, Colombo 02 011-2377880 Galle 118, Matara Road, Galle 091-2248671 Negombo 159, Colombo Road, Negombo 031-2235514

People’s Leasing Branches

Branch Name Branch Address Telephone Akuressa 77, Matara Road, Akuressa 041-2284711, 041-2284903 Ambalangoda 15A, Wickramasooriya Road, Ambalangoda 091-2255647 Ambalanthota 32 1/1, Tissa Road, Ambalanthota 047-2225265 Ampara 149, Kumarasiri Building, Nidahas Mawatha, Ampara 063-2223053 Anuradhapura 387, Harischandra Mawatha, Anuradhapura 025-2224903 Awissawella 15, Kudagama Road, Awissawella 036-2233791 Badulla 33.9, Modern Complex, Cocowatta Road, Badulla 055-2223903 - 4 Balangoda 118, A.Barnes Rathwaththa Mawatha, Balangoda 045-2289500 Bandarawela 35/2D, Welimada Road, Bandarawela 057-2221145 Battaramulla 261, Main Street, Battaramulla 011-2886820 Batticaloa 26, New Kalmunai Road, Batticaloa 065-2226512 Bentota 147, Galle Road, Bentota 034-2271630 Chilaw 10, Colombo Road, Chilaw 032-2224101 Chunnakam 15, K.K.S. Road, Chunnakam 021-2241105 Colpetty 385, Galle Road, Colombo 03 0112-376476 Dambulla 513/1, Kadapaha, Anuradhapura Road, Dambulla 066-2284252 Dehiwala 119, Galle Road, Dehiwala 011-2720720 Deniyaya 144, Main Street, Deniyaya 041-2273341, 041-2273713-4 Digana 118, Rajawella 2, Rajawella 081-2376923 Elpitiya 40, Ambalangoda Road, Elpitiya 091-2290837 Embilipitiya 122, New Town Road, Embilipitiya 047-2261971 Galle 118, Matara Road, Galle 091-2247521 Gampaha 65, Yakkala Road, Gampaha 033-2232732 Gampola 131, Nuwara Eliya Road, Gampola 081-2353030, 081-2354151, 081-2354159, 081-2354179 Giriulla Sangarakshitha Vidyala Building, Ground Floor, 037-2288801 Kurunegala Road, Giriulla Grandpass 361 Grandpass Road, Colombo 14 011-2340013 Hambantota 102/K, Baddewela Road, Hambanthota 047-2221276 Hatton 199/B/1, Dimbulla Road, Hatton 051-2225683 Havelock 62 Havelock Road, Colombo 05 011-2592424 Head office 1161, Maradana Road, Colombo 08 011-2631631 Homagama 121/3, Highlevel Road, Homagama 011-2098141 Horana 101, Rathnapura Road, Horana 034-2267701 - 6 Ja-Ela 112/A, Negambo Road, Ja-Ela 011-228074

People’s Insurance Limited – Initial Public Offering | 3

202 | People’s Insurance Limited - Initial Public Offering Branch Name Branch Address Telephone Jaffna 12, Stanley Road, Jaffna 021-2228031 Kadawatha 657A, Kandy Road, Bandarawatta, Kadawatha 011-2926908 - 10 Kaduwela 501/1, Awissawella Road, Kaduwela 011-2548580 Kalawanchikudi Ward No. 9, Main Street, Kalawanchikudi 065-2251660, 065-22516621 Kalmunai 82, Main Street, Kalmunai 067-2225486 Kalutara 314 1/1 Main Street, Kalutara South 034-2235799 Kandy 177, D S Senanayaka Weediya, Kandy 081-2236280 Kandy - Alsafa 45, Katugasthota Road, Kandy 081-2205043 Kanthale 72/1, Agrabodhi Mawatha, Kantale 026-2234484 Kattankudy 187, Main Street, Kattankudy 065-2248341 Kegalle 345, Main Street, Kegalle 035-2230101 Kekirawa 12/A, Thalawa Road, Kekirawa 025-2264821 Kelaniya 965, Kandy Road, Wedamulla, Kelaniya 011-2914112 Kilinochchi 253, Kandy Road, Kilinochchi 021-2280125 Kirindiwela 153, Sujaya Building, Gampaha Road, Kirindiwela 033-5622733 Kuliyapitiya 88, Kurunegala Road, Kuliyapitiya 037-2283490, 037-2281353, 037-2281357 Kurunegala 103A, Colombo Road, Kurunegala 037-2221582 Mahaiyawa 288, Katugasthota Road, Kandy 081-2205947 Maharagama 134/C/2, High Level Road, Maragama 011-2851628 Mahiyanganaya 3, Siri Jayasanka Building, Kandy Road, Mahiyanganaya 055-2257739 Mannar 109, Hospital Road, Sinnakadai, Mannar 023-2251342 Matale 96/1/1, King's Street, Matale 066-2226400 Matara 45/A, Anagarika Dharmapala Mawatha, Matara 041-2220129 Mathugama 4/29, Agalawaththa Road, Mathugama 034-2249230, 034-2249231 Melsiripura 237, Dambulla Road, Melsiripura 037-2250229 Mirigama 69/A, Giriulla Road, Mirigama 033-2275256 - 8 Metropolitan 67, Sir Chittampalam A Gardiner Mawatha, Colombo 02 011-2481000 Minuwangoda 26/H, Colombo Road, Minuwangoda 011-2298641 Monaragala 32, Pothuvil Road, Monaragala 055-2277485 Moratuwa 207- 1/1, New Galle Road, Moratuwella, Moratuwa 011-2648471 Mutur Main Street, Muttur 026-2238276 Nawalapitiya 75, Ambagamuwa Road, Nawalapitiya 054-2224481-3 Negombo 29/1, Colombo Road, Negambo 031-2223230 Neluwa 8, Dellawa Road, Neluwa 091-2255647 Nittambuwa 83, Kandy Rd, Nittambuwa 033-2298110 Nugegoda 290, Highlevel Road, Nugegoda 011-2813990 Nuwara Eliya 36, K. Ramanathan Complex, Park Road, Nuwara Eliya 052-2224120 Panadura 482, Arthur V. Dias Mawatha, Panadura 038-2237331, 038-2244397 Pettah 319, Main Street, Colombo 11 011-2437708 Pilimathalawa 174, Kandy Road, Pilimathalawa 081-2056336 - 8, 081-2575277 Piliyandala 71, Moratuwa Road, Piliyandala 011-2609835 Polonnaruwa 407, Main Street, Kaduruwela, Polonnaruwa 027-2225793 Puttalam 97B, Kurunegala Road, Puttalam 032-2266893 - 4 Ratnapura 102, Colombo Road, Ratnapura 045-2224755

People’s Insurance Limited – Initial Public Offering | 4

People’s Insurance Limited - Initial Public Offering | 203 Branch Name Branch Address Telephone Tangalle 138A, Matara Road, Tangalle 047-2242501 - 2 Thambuttegama 326, Queen Junction, Kurunegala Road, 025-2276180, 025-2275511 Thambuttegama Thissamaharamaya 171, Main Street, Tissamaharama 047-2239703, 047-2239671-2 Trincomalee 445/1, Dockyard Road, Trincomalee 026-2225285 Union Place 167, Union Place, Colombo 02 011-2377877 Vavuniya 91/1, Station Road, Vavuniya 024-2225485 WardPlace 24A, Ward Place, Colombo 07 011-2678691 Wariyapola 41, Kurunegala Road, Wariyapola 037-2233426 Wattala 540, Negombo Road, Wattala 011-2948441, 011-2981835 Welimada 11 A, Boralanda Road, Welimada 057-2244994, 057-2244996-7 Wellawatta 507, Wellawatta, Colombo 06 011-2361562 - 3 Wellawaya 128, Monaragala Road, Wellawaya 055-2274035, 055-2274045 Wennappuwa 327 1/1, Colombo Road, Wennappuwa 031-2245663

People’s Bank Branches

Branch Name Branch Address Telephone Kandy 17, Dalada Veediya, Kandy 081-2222757, 081-2222589 Kurunegala Dambulla Road, Kurunegala 037-2222330, 037-2227988 Kegalle 380, Main Street, Kegalle 035-2231501, 035-2222412 Galle - Main Street Ground Floor of Richard Pathirana Library, Wackwella 091-2234365, 091-2247145 Road, Galle Lucky Plaza 70, St. Anthony's Mawatha, Colombo 03 011-5634115, 011-2576531, 011-2370538 Headquarters Head Office, Colombo 02 011-2436948, 011-4710568 Kiribathgoda 63, Kandy Road, Kiribathgoda 011-4812695, 011-4812695 Negombo 72, Greens Road, Negombo 031-2231381, 031-2222289 Panadura 341, Galle Road, Panadura 038-2236193, 038-2232671 Matara Uyanwatta 58/2, Uyanwatte Road, Matara 041-2222116, 041-2222777 Ratnapura Main 5, Sirimavo Bandaranayake Mawatha, Ratnapura 045-2223770, 045-2222178

People’s Insurance Limited – Initial Public Offering | 5

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ANNEXURE G: CUSTODIAN BANKS

People’s Insurance Limited - Initial Public Offering | 205

Bank of Ceylon Banque Indosuez Head Office,11th Floor, C/O Hatton National Bank PLC, 4, Bank of Ceylon Mawatha, Cinnamon Gardens Branch, Colombo 01 251, Dharmapala Mawatha, T: 011 2317777, 011 2448348, Colombo 07 011 2338742/55, 011 2544333 T: 011 2681720

Citi Bank, N A Commercial Bank of Ceylon PLC P.O Box 888, Commercial House, 65 C, Dharmapala Mawatha, 21, Sir Razik Fareed Mawatha, Colombo 07 Colombo 01 T: 011 2447316/8, 011 2449061, T: 011 2445010-15, 011 238193-5, 011 2328526, 011 4794700 011 430420, 011 2336700

Deutsche Bank AG Hatton National Bank PLC P.O Box 314, Head Office , 5th Floor, 86, Galle Road, 479, T. B. Jayah Mawatha, Colombo 03 Colombo 10 T: 011 2447062, 011 2438057 T: 011 2664664

The Hong Kong and Shanghai Banking Corporation Nations Trust Bank PLC Limited 256, Sri Ramanathan Mawatha, 24, Sir Baron Jayathilake Mawatha, Colombo 01 Colombo 15 T: 011 2325435, 011 2446591, T: 011 4313131 011 2446303, 011 2346422

Pan Asia Banking Corporation PLC People’s Bank Head Office, Head Office, 5th Floor, 450, Galle Road, Sir Chittampalam A Gardiner Mawatha, Colombo 02 Colombo 03 T: 011 2781481, 011 237841-9, T: 011 2565565 011 2446315-6, 011 2430561

Public Bank Berhad Sampath Bank PLC 340, R A De Mel Mawatha, 110, Sir James Peiris Mawatha, Colombo 03 Colombo 02 T: 011 2576289, 011 7290200-07 T: 011 5331441

Seylan Bank PLC Standard Chartered Bank Level 8, Ceylinco Seylan Towers, P.O Box 112, 90, Galle Road, Colombo 03 37, York Street, T: 011 2456789, 011 4701812, Colombo 01 011 4701819, 011 4701829 T: 011 4794400, 011 2480000

State Bank of India Union Bank of Colombo PLC 16, Sir Baron Jayathilake Mawatha, 64, Galle Road, Colombo 01 Colombo 03 T: 011 2326133-5, 011 2439405-6 T: 011 2374100 011 2447166, 011 2472097

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