ANN UAL REPORT AND FINANCIAL S TATEMENT S

ENERAL INS S G U S RA E N IN Ranked C S E U S B U

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Y H T You are in safe hands

M 2016 D DIT RATI A T E NG Y 1 L CR A F . L G AI O A E R I E C B N NSURANC O C L Y G + A- + (KE) M D A T Y . L FA O IR E C INSURANC

KENYA ZAMBIA TANZANIA RWANDA OUR PASSION IS IN YOUR OUR PASSION IS IN YOUR SATISFACTIONSATISFACTION

With us the needs of our customers come first. We strive for customer satisfaction and have made it our passion and goal. You are in safe hands 1 / 01

TABLE OF CONTENTS

Our Goals & Values 02

Corporate Information 03

01 Board of Directors 04-05 Company Information Management Team 06-07

Company Activities 08

Corporate Social Responsibility (CSR) 09

Chairman’s Statement 11-14

Report of the Directors 15

02 Statement of Directors’ Responsibilities 16 Company Report Report of the Consulting Actuary 17

Report of the Auditor 18-21

Income Statement 23

Statement of Comprehensive Income 24

03 Statement of Financial Position 25 Financial Statements Statement of Changes in Equity 26

Statement of Cash Flows 27

Notes to the Financial Statements 28 – 67

Company Revenue Accounts 68 2 / 01 Mayfair Insurance Company Ltd

OUR GOALS & VALUES

VISION To be distinguished as a reliable and innovative Pan-African financial services leader

MISSION To provide financial security through reliable and innovative insurance solutions

CORE VALUES • Integrity • Professionalism • Reliability • Respect

CUSTOMER VALUE PROPOSITION • Personalization • Simplicity • Convenience • Transparency You are in safe hands 3 / 01

CORPORATE INFORMATION

DIRECTORS MANAGEMENT Joe W Okwach - Chairman Joshua Chiira- Managing Director Joshua Chiira - Managing Director Sawtantar Singh - General Manager Shehnaz Sumar Gurbux Singh - Assistant General Manager Ambrose D Rachier James Ndegwa - Reinsurance Manager Harish Shah Gibson Ndungu - Business Development Manager Bharat V Shah Eva Wambui - Claims Manager Edward K Muriu Catherine Ngure - Human Resource & Vishal Patel Administration Manager Christopher Harrison Anand Lakhani - Branch Manager Tushar Shah -Resigned 1st July 2016 Fredrick Karanja - Assistant Underwriting Manager Diana Bird - Appointed on 1 December 2016 Emma Mwangi - Assistant Claims Manager George Nyakomitta - Assistant Bancassurance Manager ADVOCATES Darshna Patel - Assistant Manager - Accounts Coulson Harney Gladys Gichogo - Assistant Finance Manager VISION 5th Floor, West Wing, ICEA Lion Centre Peter Ngugi - Assistant IT Manager To be distinguished as a reliable and innovative Riverside Park, Chiromo road Pan-African financial services leader P O Box 10643 – 00100, Nairobi AUDITORS PricewaterhouseCoopers MISSION BANKERS PwC Tower, Waiyaki Way / Chiromo Road, Westlands To provide financial security through reliable and CFC Stanbic Bank Limited P O Box 43963 - 00100, Nairobi innovative insurance solutions Kenyatta Avenue P O Box 72833 – 00200, Nairobi SECRETARY CORE VALUES Susan Wanjiru Gichina • Integrity Kenya Commercial Bank Limited Certified Company Secretary (Kenya) • Professionalism Kipande House P O Box 45761 – 00100, Nairobi • Reliability P O Box 30012 – 00100, Nairobi • Respect HEAD OFFICE Mayfair Centre, 8th Floor CUSTOMER VALUE PROPOSITION Ralph Bunche Road • Personalization P O Box 45161 – 00100, Nairobi • Simplicity • Convenience • Transparency 4 / 01 Mayfair Insurance Company Ltd

BOARD OF DIRECTORS

JOE W OKWACH JOSHUA CHIIRA Chairman Managing Director

SHEHNAZ SUMAR AMBROSE D RACHIER Director Director

Right Award: Mayfair was ranked No. 1 by Think Business Insurance Survey in the General Insurance Category.

Left Award: Mayfair was awarded a Credit Rating of A- by Global Credit Rating (GCR) Agency signifying IT RAT RA RED ING ENE L INS C A S G U L G S RA A E E N a positive stable outlook on Mayfair’s claims B N IN Ranked C O C S E L Y U S B U G

# R paying ability as well as reflecting Mayfair’s K V N

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Y H strengthened earnings capacity and strong A- T (KE) M M D 2016 D A T A T capitalization. Y L Y 1 L F . F . A O AI O IR E C R I E C INSURANC NSURANC You are in safe hands 5 / 01

BOARD OF DIRECTORS (CONTINUED)

LEADERSHIP WITH DIVERSE SKILLS AND EXPERIENCE KENYA | ZAMBIA | TANZANIA | RWANDA

CHRISTOPHER HARRISON EDWARD K MURIU BHARAT V SHAH Director Director Director

HARISH SHAH DIANA BIRD VISHAL PATEL Director Director Director

Mayfair has expanded its regional presence to better serve its customers and provide a premier networked service. 6 / 01 Mayfair Insurance Company Ltd

MANAGEMENT TEAM

UPPER JOSHUA CHIIRA SAWTANTAR SINGH JAMES NDEGWA Managing Director General Manager Reinsurance Manager

LOWER GURBUX SINGH GIBSON NDUNGU EVA WAMBUI CATHERINE NGURE Assistant General Manager Business Development Manager Claims Manager H.R & Administration Manager You are in safe hands 7 / 01

MANAGEMENT TEAM (CONTINUED)

ANAND LAKHANI FREDRICK KARANJA EMMA MWANGI UPPER Branch Manager, Eldoret Assistant Underwriting Manager Assistant Claims Manager

GEORGE NYAKOMITTA DARSHNA PATEL GLADYS GICHOGO PETER NGUGI LOWER Assistant Bancassurance Manager Assistant Manager - Accounts Assistant Finance Manager Assistant IT Manager 8 / 01 Mayfair Insurance Company Ltd

COMPANY ACTIVITIES

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

Mayfair Golf sponsorship at Limuru Golf Club Golf sponsorship Tee off at Limuru Golf Club

Sawtantar Singh (General Manager) and Joshua Chiira (Managing Mayfair sponsorship of the Laugh Festival, a comedians show Director) having a light moment at the year end christmas party. that hosts various comedian talent from across Africa. You are in safe hands 9 / 01

CORPORATE SOCIAL RESPONSIBILITY (CSR)

Mayfair Insurance continues to extend support to needy Our other activities in 2016 included donations to the children through our Corporate Social Responsibility. Cottage Fair at Shree Cutchi Leva Patel Samaj in Nairobi, Diwali Celebrations in Eldoret, Roland Koch Children We believe that education is an equalizer and focus our Trust in Mombasa and Faraja Cancer Support in Eldoret. support to education of needy children in our society from various counties. Since we started the education sponsorship program, we have witnessed good success in the students we are supporting.

In 2016, we supported children at various levels both in primary and high schools. Our specific sponsorship program that supports education of children with Albinism at The Salvation Army Thika Primary School for the Blind and The Salvation Army Thika High School for the Blind continues to be a success.

Mayfair expanded it’s educational sponsorship program Mayfair presenting a cheque to to students at the Starehe Boys’ Centre and Starehe Boys’ Centre and School for School. Plans are underway to extend education sponsorship sponsorship of additional students at Starehe Boys’ and School Centre in the coming year.

SUPPORTING THE NEEDY IN OUR SOCIETY 10 / 02 Mayfair Insurance Company Ltd

KENYA | ZAMBIA | TANZANIA | RWANDA

INDUSTRY LEADERS IN CONSTRUCTION & ENGINEERING INSURANCE You are in safe hands 11 / 02

CHAIRMAN’S STATEMENT

DEAR STAKEHOLDERS

On behalf of the Board of Directors of Mayfair Insurance Company, I am pleased to present to you the Annual Report and Financial Statements for the year ended 31st December 2016. These accounts have been prepared in accordance with International Financial Reporting Standards (IFRS).

In what proved to be a challenging economic year, the Company has been resilient and continued to enjoy a strong financial position, with our market share increasing from 2.6% in 2015 to 3.0% in 2016. The Company was upgraded in its Global Credit Rating in the current year to A-, compared to the BBB+ rating in 2015, reflecting Mayfair’s strengthened earning capacity and strong capitalization which is ex- pected to persist going forward. The Company was also ranked 1st position in the General Business Category by Think Business Maga- zine.

In the Implementation of our Strategic Plan 2015 – 2019, there has Joe Okwach (Chairman)

been a renewed focus on the Company’s Brand Promise in the current year. We have undertaken a culture transformation program geared towards Customer Excellence, in order to retain our competitive edge and sustain growth over the long- term. ,, THE COMPANY WAS UPGRADED IN IT’S GLOBAL CREDIT RATING TO A-, REFLECTING MAYFAIR’S STRENGTHENED EARNING CAPACITY AND STRONG CAPITALIZATION

BUSINESS ENVIRONMENT quarter of 2016 compared to 5.8% in the same period in 2015. The Gross Domestic Product grew by 5.6% against The World Bank’s Kenya Economic Update (KEU) October an estimated growth of 6.5%. Annual average inflation 2016 projected a 5.9% growth in 2016, rising to 6% in dropped from 6.5% in November to 6.3% in December, 2017. The growth rode on the vibrant services sector, the lowest reading since November 2015. enhanced construction, currency stability, and a growing middle-class. The amendment of the Banking Act in August 2016 to cap the lending rates to a maximum of 4% above the According to the Kenya National Bureau of Statistics Central Bank Rate (CBR) resulted in a substantial decline (KNBS), Kenya’s economy expanded by 5.7% in the third in the interest rates during the year. 12 / 02 Mayfair Insurance Company Ltd

CHAIRMAN’S STATEMENT

BUSINESS ENVIRONMENT amounting to Sh. 2.30 billion. The Company recorded (CONTINUED) an underwriting profit of Sh 236.5 million, and an oper- ating gross profit of Sh. 403.88 million after taking into In the 2016/2017 budget statement the National Trea- account investment and other income. sury proposed the introduction of Financial Services The shareholder’s funds amounted to Sh 1.823 billion as Authority (FSA) Bill to Parliament for debate. The Bill is at 31st December 2016. Total assets grew by 13.3% to envisaged to provide for the consolidation of the four close at Sh 4.9 billion financial sector regulators (Insurance Regulatory Au- thority, Capital Markets Authority, Retirements Benefits Authority and Sacco Societies Regulatory Authority). The DIVIDENDS The Board recommends a first and final cash dividend of proposed consolidation is expected to increase efficien- 16.67 per share amounting to Shs. 100,000,000. The Di- cy in supervision of the financial sector. rectors recognize the need to retain adequate reserves BUSINESS AND FINANCIAL RESULTS for re-investing back to support the ambitious growth strategy as well as meeting the statutory capital require- Mayfair Insurance Company Limited recorded a strong ments. performance in 2016, with Gross Written Premiums

GROSS WRITTEN PREMIUM PROFIT BEFORE TAX

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

2,302,052

2,025,040 402,652 403,878 CAGR 55.1% CAGR 12.8% 1,754,276 360,111 1,503,286 327,737 1,258,446

44,905

2012 2013 201 2015 2016 2012 2013 201 2015 2016

ABSTRACT Total assets grew by 13.3% to close at Sh 4.9 billion You are in safe hands 13 / 02

CHAIRMAN’S STATEMENT

SHAREHOLDER’S FUNDS DISTRIBUTION OF ASSETS IN 2016

Figures in Thousands (’000)

1,823,097 CORPORATE BONDS (3%) CASH (2%) 1,653,323 INVESTMENT IN DEPOSITS ASSOCIATES (9%) WITH FINANCIAL INSTITUTIONS (26%)

CAGR 32.9% 1,189,588 RECEIVABLES (12%) 910,216

GOVT SECURITIES (11%) 439,327 SHARES (18%)

PROPERTIES & EQUIPMENT (19%)

2012 2013 201 2015 2016

BOARD OF DIRECTORS CORPORATE GOVERNANCE Our Board of Directors sets our long-term strategy and We are committed to the highest standards of Corporate provides oversight on the basis of strong principles and Governance and have put in place the requisite struc- an appropriate tone from the top. It ensures the long- tures to ensure adherence to the existing and emerging term success of our company based on a clear strategy regulatory requirements as per the below: and good corporate governance. The Board Audit, Risk and Compliance Committee is We have a strong Board of Directors with a diverse mix chaired by Mr. Harish Shah, and included Directors Mr. of skills and experience. To further strengthen our skills Edward Muriu, Mr. Vishal Patel, Mrs. Shehnaz Sumar, Ms base, Ms. Diana Bird was appointed to the Board in De- Diana Bird (appointed 1st December 2016) and Mr. Josh- cember 2016. ua Chiira

The current year saw the resignation of our long serv- The Board Investment Committee is headed by Mr. Bharat ing Managing Director, Mr. Tushar Shah, and the appoint- Shah, and includes Directors Mr. Ambrose Rachier, Mr. ment of our current Managing Director, Mr. Joshua Chiira Harish Shah, Mrs Shehnaz Sumar and Mr. Joshua Chiira. in July 2016. The Board Strategic Committee is headed by Mr. Vishal Patel and includes Directors Mr. Christopher Harrison, Mrs. Shehnaz Sumar, Ms Diana Bird (appointed 1st De- We have a strong Board of cember 2016) and Mr. Joshua Chiira. Directors with a diverse mix of skills and experience The responsible Committees charged with compliance to corporate governance standards report regularly to the Board of Directors 14 / 02 Mayfair Insurance Company Ltd

CHAIRMANS STATEMENT

HUMAN RESOURCES Mayfair Insurance remains committed to its vision of being distinguished as a reliable and innovative Pan- We have strong, consistent people policies designed to African financial services leader by expanding our make Mayfair Insurance Company a great place to work. operations into the East African region. We resonate We have qualified, sincere, dedicated and committed with our enterprise clients’ needs for the same superior staff whose performance is managed based on the Bal- services even as they transform into multinationals with ance Scorecard system. The directors are committed to regional presence as well target new clients in the region. skills development of the staff as well as creation of an enabling environment to realize their maximum poten- We are pleased to report that Mayfair Bank is scheduled tial. to begin full operations in 2017. This is expected to OUTLOOK FOR 2017 further boost our premiums through the Banc-assurance platform. We also began operations in our Rwanda 2017 is expected to be a tough year, but we remain office in 2016, with operations in Tanzania picking up positive and confident about the future growth of this at a commendable pace. The economies of Tanzania and Company. Rwanda are expected to register high growths of 7.1% and 7% respectively according to the IMF. The Zambian With Kenya’s next Presidential and legislative elections operations are growing steadily with profitable results. scheduled for August 2017, the Economic Intelligence Unit (EIU) predicts that political tensions will rise as We are optimistic that these growths together with the campaigning gathers momentum. Politics is bound to political stability enjoyed in these regions, will give take center stage and be among the key determinants of Mayfair a solid future in these markets. spending and government policy. The increase in Kenya’s political risk, is expected to negatively affect the level of private sector investments in the country. Equally, the APPRECIATION We would not be where we are today without the un- Banking Act (Amendment) 2016, which capped lending wavering support and the clear demonstration of the rates is also expected to have a negative impact on the confidence from our highly-esteemed Customers, Part- economy. ners, shareholders, management, staff and other stake holders. I wish to thank each one of you most sincerely The Insurance industry is however set to grow, as for the part you played in making 2016 a success and we importers are required to procure marine insurance look forward to even greater partnership in 2017. locally, under the revised Section 20 of the Insurance Act. The regulation was part of the 2016/17 budget measures introduced by the National Treasury to raise revenue for the government by ensuring that all the insurance premiums initially paid to overseas insurers are instead directed to local insurance companies. The manufacturing sector, which accounts for about 14% Joe Okwach of the GDP, is also set to get a lift after the re-opening Chairman of new factories including Panpaper (now Rai Paper) in Webuye and Volkswagen Group motor assembly plant in Thika. You are in safe hands 15 / 02

REPORT OF THE DIRECTORS

The Directors submit their report together with the au- DIRECTORS dited financial statements for the year ended 31 Decem- The Directors who served during the year and to the date ber 2016, which disclose the state of affairs of Mayfair of this report are shown on pages 4-5. Insurance Company Limited, (the “Company”). The annu- al report and financial statements have been prepared AUDITOR in accordance with section 147 to 163 of the repealed The Company’s auditor, PricewaterhouseCoopers, con- Companies Act Cap 486, which remain inforce under the tinues in office in accordance with Section 159 (2) of the transition rules contained in the sixth schedule, the tran- repealed Companies Act (Cap 486). sition and saving provisions of the Companies Act 2015.

PRINCIPAL ACTIVITIES By order of the Board The principal activity of the Company is the transaction of general insurance business.

RESULTS AND DIVIDEND Profit for the year of Shs. 285,124,000 (2015: Shs. 378,023,000) has been added to retained earnings. The Susan Wanjiru Gichina Directors recommend a first and final cash dividend of Secretary 16.67 per share amounting to Shs. 100,000,000 (2015 Nairobi dividends Shs. 50,000,000 and a bonus share amounting 22nd March 2017 to Shs. 75,000,000) 16 / 02 Mayfair Insurance Company Ltd

STATEMENT OF DIRECTOR’S RESPONSIBILITIES

The Companies Act 2015 requires the directors to pre- i) Designing, implementing and maintaining internal pare financial statements for each financial year which control as they determine necessary to enable the give a true and fair view of the financial position of the preparation of financial statements that are free Company at the end of the financial year and its financial from material misstatements, whether due to fraud performance for the year then ended. The directors are or error; responsible for ensuring that the company keeps prop- er accounting records that are sufficient to show and ii) Selecting suitable accounting policies and then ap- explain the transactions of the company; disclose with ply them consistently; and reasonable accuracy at any time the financial position of the company; and that enables them to prepare financial iii) Making judgements and accounting estimates that statements of the company that comply with prescribed are reasonable in the circumstances financial reporting standards and the requirements of the Companies Act. They are also responsible for safe- In preparing the financial statements, the directors have guarding the assets of the company and for taking rea- assessed the Company’s ability to continue as a going sonable steps for the prevention and detection of fraud concern and disclosed, as applicable, matters relating and other irregularities. to the use of going concern basis of preparation of the financial statements. Nothing has come to the attention The directors accept responsibility for the preparation of the directors to indicate that the Company will not re- and presentation of these financial statements in accor- main a going concern for at least the next twelve months dance with International Financial Reporting Standards from the date of this statement. and in the manner required by the Companies Act 2015. They also accept responsibility for: The directors acknowledge that the independent audit of the financial statements does not relieve them of their responsibility.

Joe Okwach Bharat Shah Joshua Chiira Chairman Director Managing Director

22nd March 2017 You are in safe hands 17 / 02

REPORT OF THE CONSULTING ACTUARY For the year ended 31 December 2016

I have conducted an Insurance Liability Valuation of the I verify that the calculation of the short term insurance short term business of Mayfair Insurance Company Lim- liabilities as at 31st December 2016 is appropriate. ited as at 31st December 2016. I am satisfied that the Unearned Premium Reserve, De- The valuation was conducted in accordance with the ferred Acquisition Cost, Outstanding Claims Reserve, In- generally accepted actuarial principles and the require- curred But Not Reported Reserve as per the valuation are ments of The Kenya Insurance Act. These principles re- sufficient and appropriate given the nature of the busi- quire prudent provision for insurance liabilities in the ness and existing liabilities. financials on a best estimate basis.

James I. 0. Olubayi Fellow of the Institute of Actuaries Alexander Forbes Financial Services (E.A.) Limited Nairobi (22nd March 2017) 18 / 02 Mayfair Insurance Company Ltd

REPORT OF THE AUDITOR Report of the independent auditor to the shareholders of Mayfair Insurance Company limited

REPORT ON THE AUDIT OF THE KEY AUDIT MATTERS FINANCIAL STATEMENTS Key audit matters are those matters that, in our profes- We have audited the accompanying financial statements sional judgment, were of most significance in our audit of Mayfair Insurance Company Limited (“the Company”) of the financial statements of the current period. These set out on pages 11 to 56 which comprise the statement matters were addressed in the context of our audit of the of financial position at 31 December 2016 and the state- Company financial statements as a whole, and in forming ments of comprehensive income, changes in equity and our opinion thereon, and we do not provide a separate cash flows for the year then ended and the notes to the opinion on these matters. financial statements, which include a summary of signif- icant accounting policies. DETERMINATION OF INSURANCE CONTRACT LIABILITIES In our opinion, the financial statements give a true and The insurance contract liabilities included in Note 27 of fair view of the financial position of Mayfair Insurance the financial statements is made up of reported claims Company Limited at 31 December 2016 and its financial and incurred but not reported (“IBNR”) claims. performance and cash flows for the year then ended in accordance with International Financial Reporting Stan- The gross contract liabilities represent the ultimate cost dards and the requirements of the Kenyan Companies of settling all claims arising from incidents occurring pri- Act 2015. or to the end of each reporting period, but not settled at that date. BASIS FOR OPINION We conducted our audit in accordance with International As disclosed in Note 3 to the financial statements, the Standards on Auditing (ISAs). Our responsibilities under estimation of outstanding claims involves significant those standards are further described in the Auditor’s judgement given the size of the liability and the inher- responsibilities for the audit of the financial statements ent uncertainty in estimating expected future claims section of our report. incurred. This is particularly the case for liabilities have been incurred at the reporting date but have not yet been We are independent of the company in accordance with reported. There is generally less information available in the International Ethics Standards Board for Accountants’ relation to these claims. They are determined annually Code of Ethics for Professional Accountants (IESBA Code) by the company’s consulting actuaries on the basis of the together with the ethical requirements that are relevant best information available at the time the records for the to our audit of the financial statements in Kenya, and we year are closed. have fulfilled our ethical responsibilities in accordance with these requirements and the IESBA Code. For general insurance contract liabilities, a range of methods may be used to determine these provisions. We believe that the audit evidence we have obtained Underlying these methods are a number of explicit or is sufficient and appropriate to provide a basis for our implicit assumptions relating to the expected settlement opinion. amount and settlement patterns of claims.

The valuation of these liabilities relies on accurate data about the volume, amount and the pattern of current and historic claims both internal and external to the busi- ness. Small changes in these assumptions can result in material impacts to the estimate. You are in safe hands 19 / 02

REPORT OF THE AUDITOR Report of the independent auditor to the shareholders of Mayfair Insurance Company limited

DETERMINATION OF INSURANCE How we addressed Key Audit Matters: CONTRACT LIABILITIES (CONTINUED) We have reviewed remittances of the funds invested to get comfort on the completeness and accuracy of the How we addressed Key Audit Matters: Company’s cost of investment. We evaluated and tested controls around management process of claim handling and reserving; We have reviewed agreements for all the joint arrange- ments We checked a sample of claims by comparing the record- ed amounts to supporting documents; We have reviewed management accounts for each of the joint arrangements which disclose the financial perfor- We performed reconciliations between the claims data mance and position for each of them at 31 December and that used to calculate the reserves; 2016.

We performed a review of the methodology and assump- tions used by the appointed actuary to compute the re- VALUATION OF UNQUOTED serve for claims incurred but not reported (IBNR) as at 31 INVESTMENTS The Company has investments in unquoted shares as December 2016. detailed in Note 18 to the financial statements. Deter- mination of the fair value for unquoted investments is We compared the assumptions to expectations based on a significant area of judgement as the prices are not de- the Company’s historical experiences, current trends and rived from actively traded markets which creates a level our own industry knowledge; of subjectivity in determining the value of these assets. Management uses a range of valuation techniques to de- We obtained and reviewed the actuarial valuation re- termine their fair values. ports to confirm that the IBNR balances reported in the financial statements were consistent with the results of How we addressed Key Audit Matters: the independent actuarial valuation. We checked the number of units held by the Company to ACCOUNTING FOR JOINT supporting documentation. ARRANGEMENTS We have reviewed the underlying assumptions where The Company holds interests in joint operations relating management used by management to determine the to the development of real estate projects as detailed in prices used in the valuation and subjected the manage- Note 17 of the financial statements. ment estimate to a sensitivity analysis.

The Company has entered into formal agreements with other investees in these projects. For accounting purpos- OTHER INFORMATION The directors are responsible for the other information. es, each arrangement’s substance is determined by the The other information comprises the information includ- contractual rights and obligations of the parties to the ed in the annual report but does not include the financial joint arrangement and not by its legal form. statements and our auditor’s report thereon.

Management has accounted for them as joint operation Our opinion on the financial statements does not cover as disclosed in Note 17. the other information and we do not express any form of assurance conclusion thereon. 20 / 02 Mayfair Insurance Company Ltd

REPORT OF THE AUDITOR Report of the independent auditor to the shareholders of Mayfair Insurance Company limited

OTHER INFORMATION (CONTINUED) accordance with ISAs will always detect a material mis- statement when it exists. Misstatements can arise from In connection with our audit of the financial statements, fraud or error and are considered material if, individually our responsibility is to read the other information iden- or in the aggregate, they could reasonably be expected tified above and, in doing so, consider whether the other to influence the economic decisions of users taken on information is materially inconsistent with the financial the basis of these financial statements. statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based As part of an audit in accordance with ISAs, we exercise on the work we have performed on the other informa- professional judgement and maintain professional scep- tion, we conclude that there is a material misstatement ticism throughout the audit. We also: of this other information, we are required to report that fact. We have nothing to report in this regard. • Identify and assess the risks of material misstate- RESPONSIBILITIES OF THE DIRECTORS ment of the financial statements, whether due to FOR THE FINANCIAL STATEMENTS fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence The directors are responsible for the preparation and fair that is sufficient and appropriate to provide a basis presentation of the financial statements in accordance for our opinion. The risk of not detecting a material with International Financial Reporting Standards and misstatement resulting from fraud is higher than for the requirements of the Kenyan Companies Act 2015, one resulting from error, as fraud may involve collu- and for such internal control as the directors determine sion, forgery, intentional omissions, misrepresenta- is necessary to enable the preparation of financial state- tions, or the override of internal control. ments that are free from material misstatement, whether due to fraud or error. • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that In preparing the financial statements, the directors are are appropriate in the circumstances, but not for the responsible for assessing the Company’s ability to con- purpose of expressing an opinion on the effective- tinue as a going concern, disclosing, as applicable, mat- ness of the Company’s internal control. ters related to going concern and using the going concern basis of accounting unless the directors either intend to • Evaluate the appropriateness of accounting policies liquidate the Company or to cease operations, or have no used and the reasonableness of accounting esti- realistic alternative but to do so. mates and related disclosures made by the direc- tors. The directors are responsible for overseeing the Compa- ny’s financial reporting process. • Conclude on the appropriateness of the directors’ AUDITOR’S RESPONSIBILITIES FOR use of the going concern basis of accounting and, THE AUDIT OF THE FINANCIAL based on the audit evidence obtained, whether a STATEMENTS material uncertainty exists related to events or con- ditions that may cast significant doubt on the Com- Our objectives are to obtain reasonable assurance about pany’s ability to continue as a going concern. If we whether the financial statements as a whole are free conclude that a material uncertainty exists, we are from material misstatement, whether due to fraud or required to draw attention in our auditor’s report to error, and to issue an auditor’s report that includes our the related disclosures in the financial statements opinion. Reasonable assurance is a high level of assur- or, if such disclosures are inadequate, to modify our ance, but is not a guarantee that an audit conducted in opinion. You are in safe hands 21 / 02

REPORT OF THE AUDITOR Report of the independent auditor to the shareholders of Mayfair Insurance Company limited

AUDITOR’S RESPONSIBILITIES FOR because the adverse consequences of doing so would THE AUDIT OF THE FINANCIAL STATE- reasonably be expected to outweigh the public interest MENTS (CONTINUED) benefits of such communication. • Our conclusions are based on the audit evidence ob- tained up to the date of our auditor’s report. Howev- REPORT ON OTHER LEGAL REQUIRE- er, future events or conditions may cause the Com- MENTS As required by the Kenyan Companies Act 2015 we re- pany to cease to continue as a going concern. port to you, based on our audit, that:

• Evaluate the overall presentation, structure and i) we have obtained all the information and explana- content of the financial statements, including the tions which to the best of our knowledge and belief disclosures, and whether the financial statements were necessary for the purposes of our audit; represent the underlying transactions and events in a manner that achieves fair presentation. ii) in our opinion proper books of account have been kept by the company, so far as appears from our ex- • Obtain sufficient appropriate audit evidence regard- amination of those books; ing the financial information of the entities or busi- ness activities within the Company to express an iii) the company’s statement of financial position and opinion on the financial statements. We are respon- statement of comprehensive income are in agree- sible for the direction, supervision and performance ment with the books of account. of the Company audit. We remain solely responsible for our audit opinion. The engagement partner responsible for the audit result- ing in this independent auditor’s report is CPA Bernice We communicate with the directors regarding, among Kimacia - P/No. 1457 other matters, the planned scope and timing of the audit and significant audit findings, including any significant PricewaterhouseCoopers deficiencies in internal control that we identify during Certified Public Accountants our audit. Nairobi (22nd March 2017)

We also provide the directors with a statement that we have complied with relevant ethical requirements re- garding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where ap- plicable, related safeguards.

From the matters communicated with the directors, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We de- scribe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report 22 / Mayfair Insurance Company Ltd

EXPERIENCED & TRUSTED END TO END PROTECTION PROVIDERS OF MARINE CARGO INSURANCE

KENYA | ZAMBIA | TANZANIA | RWANDA You are in safe hands 23 / 03

INCOME STATEMENT For the year ended 31 December 2016

Notes 2016 2015 Shs ’000 Shs ’000 Gross earned premiums 5 2,268,746 1,962,982 Less: reinsurance premiums ceded (1,134,667) (965,348)

Net earned premiums 1,134,079 997,634

Investment income 6 207,401 193,601 Commissions earned 273,599 235,630 Other income 7 19,885 2,651

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

Net claims incurred 8 (522,538) (398,917) Operating and other expenses 9 (374,506) (350,875) Commissions payable (342,391) (277,072)

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

Share of profit of associate after tax 16 8,350 - Profit before income tax 403,879 402,652

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

Profit for the year 285,124 378,023

The notes on pages 28 to 67 are an integral part of these financial statements. 24 / 03 Mayfair Insurance Company Ltd

STATEMENT OF COMPREHENSIVE INCOME For the year ended 31 December 2016

Notes 2016 2015 Shs ’000 Shs ’000 Profit for the year 285,124 378,023 Other comprehensive income: Items that will not be reclassified to profit or loss Fair value (losses)/gains on available for sale equity investments 18 (81,885) 35,668 Exchange gain on available for sale equity investments 18 531 36,431 Surplus on revaluation of building 16,846 15,309 Deferred income tax on revaluation surplus 31 (842) (1,696) (65,350) 85,712

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

Items in the statement above are disclosed net of tax.

The notes on pages 28 to 67 are an integral part of these financial statements. You are in safe hands 25 / 03

STATEMENT OF FINANCIAL POSITION As At 31 December 2016

Notes 2016 2015 Shs ’000 Shs ’000 ASSETS Property and equipment 13 300,153 277,152 Intangible assets 14 17,858 9,335 Investment properties 15 434,974 404,913 Investment in joint arrangements 17 269,822 264,222 Investment in associate 16 65,372 57,022 Available for sale equity investments 18 714,140 737,590 Receivables arising out of direct insurance 415,440 297,175 Receivables arising out of reinsurance arrangements 11,642 6,114 Reinsurers’ share of technical provisions and reserves 19 826,386 681,956 Deferred acquisition costs 20 147,217 129,811 Other receivables 21 49,507 87,785 Government securities - held to maturity 22 430,268 429,352 Corporate bonds - held to maturity 23 111,380 129,477 Deposits with financial institutions 24 1,039,416 763,718 Current income tax 11 2,075 718 Cash and cash equivalents 69,776 55,003

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

EQUITY AND LIABILITIES Equity attributable to owners Share capital 26 600,000 525,000 Investment revaluation reserve 242,336 323,690 Property revaluation reserve 95,852 84,746 Retained earnings 784,909 594,887 Proposed dividends 100,000 125,000 Total equity 1,823,097 1,653,323

Liabilities Outstanding claims provision 27 1,560,348 1,373,280 Unearned premiums reserve 29 966,042 841,313 Payables arising from insurance arrangements 20,444 12,821 Payables arising out of reinsurance arrangements 337,403 311,936 Deferred reinsurance commissions 30 83,388 69,238 Deferred income tax 31 43,621 32,329 Other payables 32 71,083 37,103 Total liabilities 3,082,329 2,678,020

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

The financial statements on pages 23 to 68 were approved for issue by the Board of Directors on 22 March 2017 and signed on its behalf by: Joe Okwach Bharat Shah Joshua Chiira Chairman Director Managing Director The notes on pages 28 to 67 are an integral part of these financial statements. 26 / 03 Mayfair Insurance Company Ltd

STATEMENT OF CHANGES IN EQUITY For the year ended 31 December 2016

Notes Share Investments Property Retained Proposed Total Capital Revaluation Revaluation Earnings Dividends Equity Reserve Reserve Shs ’000 Shs ’000 Shs ’000 Shs ’000 Shs ’000 Shs ’000 Balance at 1 January 2015 350,000 251,591 74,784 513,213 - 1,189,588

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

Other comprehensive income: - 72,099 13,613 - - 85,712 Transfer of excess depreciation - - (3,477) 3,477 - - Deferred tax on excess depreciation - - (174) 174 - -

Transactions with owner: Issue of bonus shares - 2015 26 175,000 - - (175,000) - - Proposed dividends - 2016 26 - - - (125,000) 125,000 -

Total transactions with owners recognised directly in equity 175,000 - - (300,000) 125,000 -

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

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

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

Other comprehensive income: - (81,354) 16,004 - - (65,350) Transfer of excess depreciation - - (4,665) 4,665 - - Deferred tax on excess depreciation - - (233) 233 - -

Transactions with owner: Dividends: 36 ------Issue of bonus shares - 2015 26 75,000 - - - (75,000) - Proposed dividends - 2016 26 - - - (100,000) 100,000 -

Total transactions with owners recognised directly in equity 75,000 - - (100,000) (25,000) (50,000)

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

The notes on pages 28 to 67 are an integral part of these financial statements. You are in safe hands 27 / 03

STATEMENT OF CASH FLOWS For the year ended 31 December 2016

Notes 2016 2015 Shs ’000 Shs ’000 Cash flows from operating activities Cash generated from operations 33 582,772 445,537 Income tax paid (109,662) (151,006)

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

Cash flows from investing activities Purchase of property, plant and equipment 13 (29,781) (12,509) Purchase of intangible assets 14 (20,246) (13,342) Net investment in associate 16 (8,350) - Investment in joint arrangements 17 (5,600) (1,190) Purchase of available for sale equity investments 18 (57,904) (29,467) Net investments in treasury bonds maturing after 90 days 22 (27,769) (250,339) Net investments in corporate bonds 23 (1,903) (17,313)

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

Cash flows from financing activities Dividends paid to shareholders 36 (50,000) -

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

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

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

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

The notes on pages 28 to 67 are an integral part of these financial statements. 28 / 03 Mayfair Insurance Company Ltd

NOTES Notes to the Financial Statements

1 GENERAL INFORMATION Changes in accounting policy and Mayfair Insurance Company Limited (“the Compa- disclosures ny”) deals with general insurance business and is (i) New standards, amendments and interpretations incorporated in Kenya under the Companies Act as adopted by the Company a private limited liability Company. The Company is A number of amendments to standards arising from domiciled in Kenya and the address of its registered the annual improvement to IFRSs became effective office is: for the first time in the financial year commencing 1 January 2016 and none of them had an impact on Mayfair Centre, 8th floor, Ralph Bunche Road the Company’s financial statements. PO Box 45161 Nairobi 00100. IFRS 3 – clarifies that an obligation to pay contin- gent consideration is classified as financial liability For the Kenyan Companies Act reporting purposes, or equity under the principles in IAS 32 and that all the balance sheet is represented by the statement of non-equity contingent consideration (financial and financial position and profit and loss account by the non-financial) is measured at fair value at each re- statement of comprehensive income in these finan- porting date. cial statements. IFRS 3 – clarifies that IFRS 3 does not apply to the ac- 2 SUMMARY OF SIGNIFICANT counting for the formation of any joint arrangement. ACCOUNTING POLICIES The principal accounting policies applied in the IFRS 13 confirms that short-term receivables and preparation of these financial statements are set out payables can continue to be measured at invoice below. These policies have been consistently ap- amounts if the impact of discounting is immaterial. plied to all years presented, unless otherwise stated. IFRS 13 – clarifies that the portfolio exception in IFRS a) BASIS OF PREPARATION 13 (measuring the fair value of a group of financial The financial statements have been prepared in assets and financial liabilities on a net basis) applies accordance with International Financial Reporting to all contracts within the scope of IAS 39 or IFRS 9. Standards (“IFRS”). The measurement basis applied is the historical cost basis, except as disclosed in the IAS 16 and IAS 38 – clarifies how the gross carrying accounting policies below. amount and accumulated depreciation are treat- ed where an entity measures its assets at revalued The preparation of financial statements in conformi- amounts. ty with IFRS requires the use of certain critical ac- counting estimates. It also requires the Directors to IAS 24 – where an entity receives management per- exercise judgement in the process of applying the sonnel services from a third party (a management Company’s accounting policies. The areas involv- entity), the fees paid for those services must be dis- ing a higher degree of judgement or complexity, or closed by the reporting entity, but not the compen- where assumptions and estimates are significant to sation paid by the management entity to its employ- the financial statements, are disclosed in Note 3. ees or Directors. You are in safe hands 29 / 03

NOTES Notes to the Financial Statements (continued)

IAS 40 – clarifies that IAS 40 and IFRS 3 are not mutu- ■■ IAS 19, ‘Employee benefits’ regarding discount rates. ally exclusive when distinguishing between invest- ment property and owner-occupied property and ■■ IAS 34, ‘Interim financial reporting’ regarding disclo- determining whether the acquisition of an invest- sure of information ment property is a business combination. Other standards, amendments and interpretations IFRS 11, ‘Joint arrangements’. This amendment adds which are effective for the financial year beginning new guidance on how to account for the acquisition on 1 January 2016 are not material to the Company. of an interest in a joint operation that constitutes a business. The amendments specify the appropri- (ii) New and revised standards and interpretations not ate accounting treatment for such acquisitions. The yet adopted amendment is effective for annual periods begin- A number of new standards and amendments to ning on or after 1 January 2016. standards and interpretations are effective for annu- al periods beginning after 1 January 2015, and have IFRS 10, ‘Consolidated financial statements’ and IAS not been applied in preparing these financial state- 28, ‘Investments in associates and joint ventures’. ment. None of these is expected to have a significant These amendments address an inconsistency be- effect on the financial statements of the Company, tween the requirements in IFRS 10 and those in IAS except the following set out below. 28 in dealing with the sale or contribution of assets between an investor and its associate or joint ven- IFRS 9, ‘Financial instruments’, addresses the classi- ture. The main consequence of the amendments is fication, measurement and recognition of financial that a full gain or loss is recognised when a trans- assets and financial liabilities. The complete version action involves a business (whether it is housed in a of IFRS 9 was issued on July 2015. It replaces the subsidiary or not). A partial gain or loss is recognised guidance in IAS 39 that relates to the classification when a transaction involves assets that do not con- and measurement of financial instruments. IFRS 9 re- stitute a business, even if these assets are housed in tains but simplifies the mixed measurements model a subsidiary. The amendments are effective for an- and establishes three primary measurement cate- nual periods beginning on or after 1 January 2016. gories for financial assets: amortised cost, fair value through OCI and fair value through profit or loss. The IAS 1, ‘Presentation of financial statements’ These basis of classification depends on the entity’s model amendments are as part of the IASB initiative to and the contractual cash flow characteristics of the improve presentation and disclosure in financial re- financial asset. Investments in equity instruments ports. Effective for annual periods beginning on or are required to be measured at fair value through after 1 January 2016. profit or loss with the irrevocable option at inception to changes in fair value in OCI not recycling. There Annual improvements 2015. These set of amend- is now a new expected credit losses model that re- ments, effective 1 January 2016, impacts 4 stan- places the incurred loss impairment model used in dards: IAS 39. For financial liabilities there were no chang- es to classification and measurement except for the ■■ IFRS 5, ‘Non-current assets held for sale and discon- recognition of changes in own credit risk in other tinued operations’ regarding methods of disposal. comprehensive income, for liabilities designated at fair value through profit or loss. IFRS 9 relaxes the ■■ IFRS 7, ‘Financial instruments: Disclosures’, (with requirements for hedge effectiveness by replacing consequential amendments to IFRS 1) regarding ser- the bright line hedge effectiveness tests. It requires vicing contracts. an economic relationship between the hedged item 30 / 03 Mayfair Insurance Company Ltd

NOTES Notes to the Financial Statements (continued)

2 SUMMARY OF SIGNIFICANT IFRS 15, ‘Revenue from contracts with customers’ ACCOUNTING POLICIES (CONT.) deals with revenue recognition and establishes prin- ciples for reporting useful information to users of fi- (ii) New and revised standards and interpretations not nancial statements about the nature, amount, timing yet adopted (continued) and uncertainty of revenue and cash flows arising from an entity’s contracts with customers. and hedging instrument and for the ‘hedged ratio’ to be the same as the one management actually use for Revenue is recognised when a customer obtains risk management purposes. Contemporaneous doc- control of a good or service and thus has the abili- umentation is still required but is different to that ty to direct the use and obtain the benefits from the currently prepared under IAS 39. The standard is good or service. The standard replaces IAS 18 ‘Reve- effective for accounting periods beginning on or af- nue’ and IAS 11 ‘Construction contracts’ and related ter 1 January 2018. Early adoption is permitted. The interpretations. The standard is effective for annual Company is yet to assess IFRS 9’s full impact. periods beginning on or after 1 January 2018 and earlier application is permitted. The Company is as- Amendment to IAS 12 – Income taxes (1 January sessing the impact of IFRS 15. 2017) - The amendments were issued to clarify the requirements for recognising deferred tax assets on IFRS 16, ‘Leases’. After ten years of joint drafting by unrealised losses. The amendments clarify the ac- the IASB and FASB they decided that lessees should counting for deferred tax where an asset is measured be required to recognise assets and liabilities arising at fair value and that fair value is below the asset’s from all leases (with limited exceptions) on the bal- tax base. They also clarify certain other aspects of ance sheet. Lessor accounting has not substantially accounting for deferred tax assets. The amendments changed in the new standard. The model reflects clarify the existing guidance under IAS 12. They do that, at the start of a lease, the lessee obtains the not change the underlying principles for the recog- right to use an asset for a period of time and has an nition of deferred tax assets. obligation to pay for that right. In response to con- cerns expressed about the cost and complexity to Amendment to IAS 7 – Cash flow statements taxes (1 apply the requirements to large volumes of small January 2017) - In January 2016, the International assets, the IASB decided not to require a lessee to Accounting Standards Board (IASB) issued an amend- recognise assets and liabilities for short-term leases ment to IAS 7 introducing an additional disclosure (less than 12 months), and leases for which the un- that will enable users of financial statements to derlying asset is of low value (such as laptops and of- evaluate changes in liabilities arising from financ- fice furniture).A lessee measures lease liabilities at ing activities. The amendment responds to requests the present value of future lease payments. A lessee from investors for information that helps them measures lease assets, initially at the same amount better understand changes in an entity’s debt. The as lease liabilities, and also includes costs directly amendment will affect every entity preparing IFRS related to entering into the lease. Lease assets are financial statements. However, the information re- amortised in a similar way to other assets such as quired should be readily available. Preparers should property, plant and equipment. consider how best to present the additional informa- tion to explain the changes in liabilities arising from financing activities. You are in safe hands 31 / 03

NOTES Notes to the Financial Statements (continued)

This approach will result in a more faithful repre- c) REVENUE RECOGNITION sentation of a lessee’s assets and liabilities and, The Company recognises revenue when the amount together with enhanced disclosures, will provide of revenue can be reliably measured, it is probable greater transparency of a lessee’s financial leverage that future economic benefits will flow to the Com- and capital employed. One of the implications of the pany and when specific criteria have been met for new standard is that there will be a change to key each of the Company’s activities as described below. financial ratios derived from a lessee’s assets and liabilities (for example, leverage and performance Premium income for general business is recognised ratios).IFRS 16 supersedes IAS 17, ‘Leases’, IFRIC 4, on assumption of risks, and includes estimates of ‘Determining whether an Arrangement contains a premiums due but not yet received, less unearned Lease’, SIC 15, ‘Operating Leases – Incentives’ and premiums. Unearned premiums represent the pro- SIC 27, ‘Evaluating the Substance of Transactions In- portion of the premiums written in periods up to volving the Legal Form of a Lease’. the accounting date which relate to the unexpired terms of policies in force at the reporting date, and There are no other IFRSs or IFRIC interpretations that are calculated using the 24th basis. The proportion are not yet effective that would be expected to have attributable to subsequent periods is deferred as a a material impact on the Company. provision for unearned premiums. b) FOREIGN CURRENCY Commissions receivable are recognised as income in TRANSLATION the period in which they are earned. (a) Functional and presentation currency Items included in the financial statements are mea- Investment income is stated net of investment ex- sured using the currency of the primary economic penses. Interest income for all interest bearing fi- environment in which the entity operates (‘the func- nancial instruments is recognised using the effective tional currency’). The financial statements are pre- interest method. Dividends income on available for sented in Kenya Shillings in thousands (Shs) which is sale equities is recognised as income in the period the Company’s functional currency. in which the right to receive payment is established. Rental income from operating leases is recognised (b) Transactions and balances on a straight line basis over the term of the lease. Foreign currency transactions are translated into the functional currency using the exchange rates pre- Reinsurance vailing at the dates of the transactions or valuations The Company assumes and cedes reinsurance in where items are re-measured. Foreign exchange the normal course of business, with retention limits gains and losses resulting from the settlement of varying by line of business. Premiums on reinsur- such transactions and from the translation at year- ance assumed are recognised as income in the same end exchange rates of monetary assets and liabilities manner as they would be if the reinsurance were denominated in foreign currencies are recognised in considered direct business. Premiums ceded and profit or loss. claims reimbursed are presented on a gross basis in profit and loss and statement of financial position as Foreign exchange gains and losses that relate to bor- appropriate. rowings and cash and cash equivalents are present- ed in profit or loss within ‘finance income or cost’. All other foreign exchange gains and losses are present- ed in profit or loss within ‘other income or expenses’. 32 / 03 Mayfair Insurance Company Ltd

NOTES Notes to the Financial Statements (continued)

2 SUMMARY OF SIGNIFICANT d) INSURANCE RECEIVABLES ACCOUNTING POLICIES (CONT.) Insurance receivables are recognised when due and measured on initial recognition at the fair value of c) REVENUE RECOGNITION (CONT.) the consideration received or receivable. Subse- Reinsurance (continued) quent to initial recognition, insurance receivables Reinsurance assets represent balances due from re- are measured at amortised cost, using the effective insurance companies. Amounts recoverable from re- interest method. The carrying value of insurance insurers are estimated in a manner consistent with receivables is reviewed for impairment whenever the outstanding claims provision or settled claims events or circumstances indicate that the carrying associated with the reinsurer’s policies and are in amount may not be recoverable, with the impair- accordance with the related reinsurance contract. ment loss recognised in profit or loss.

Impairment occurs when there is objective evidence e) CLAIMS INCURRED as a result of an event that occurred after initial rec- Claims incurred comprise claims paid in the year ognition of the reinsurance asset that the Company and changes in the provision for outstanding claims. may not receive all outstanding amounts due under Claims paid represent all payments made during the the terms of the contract and the event has a reliably year, whether arising from events during that or ear- measurable impact on the amounts that the Compa- lier years. Outstanding claims provisions represent ny will receive from the reinsurer. The impairment the estimated ultimate cost of settling all claims loss is recognised in the profit or loss. arising from incidents occurring prior to the report- ing date, but not settled at that date. Outstanding Ceded reinsurance arrangements do not relieve the claims provisions are computed on the basis of the Company from its obligations to policyholders. The best information available at the time the records for Company also assumes reinsurance risk in the nor- date based on the Company’s experience but subject mal course of business for life insurance and non- to the minimum percentage set by the Commission- life insurance contracts where applicable. Premiums er of Insurance. Outstanding claims are not discount- and claims on assumed reinsurance are recognised ed. as revenue or expenses in the same manner as they would be if the reinsurance were considered direct f) COMMISSIONS PAYABLE AND business, taking into account the product classifica- DEFERRED ACQUISITION COSTS tion of the reinsured business. Reinsurance liabili- A proportion of commission payable is deferred and ties represent balances due to reinsurance compa- amortised over the period in which the related pre- nies. Amounts payable are estimated in a manner miums are earned. Deferred acquisition costs repre- consistent with the related reinsurance contract. sent a proportion of acquisition costs that relate to policies that are in force at the year end. Reinsurance assets or liabilities are derecognised when the contractual rights are extinguished or ex- pire or when the contract is transferred to another party. You are in safe hands 33 / 03

NOTES Notes to the Financial Statements (continued) g) INSURANCE CONTRACT i) PROPERTY, PLANT AND LIABILITIES EQUIPMENT The outstanding claims provision, which are based Property and equipment are stated at cost or as pro- on the estimated ultimate cost of all claims incurred fessionally revalued from time to time less accumu- but not settled at the reporting date, whether report- lated depreciation and any accumulated impairment ed or not, together with related claims handling costs losses. and reduction for the expected value of salvage and other recoveries. Delays can be experienced in the Any surplus arising on the revaluation is recognised notification and settlement of certain types of claims in other comprehensive income and accumulated in and therefore the ultimate cost of this category of the revaluation reserve. Decreases that offset pre- claims cannot be known with certainty at the report- vious increases of the same asset are recognised ing date. The liability is calculated at the reporting in charged to profit or loss. On subsequent sale or date using a range of standard actuarial claim pro- retirement of a revalued property, the attributable jection techniques, based on empirical data and revaluation surplus remaining in the revaluation re- current assumptions that may include a margin for serve is transferred directly to retained earnings. adverse deviation. The liability is not discounted for the time value of money. No provision for equalisa- The last valuation was done in December 2016 on an tion or catastrophe reserves is recognised. The liabil- open market value basis using the highest and best ities are derecognised when the contract expires, is use valuation model. discharged or is cancelled. Depreciation is calculated on a reducing balance ba- The provision for unearned premiums represents sis to write down the cost of each asset to its residual premiums received for risks that have not yet ex- value over its estimated useful life at the following pired. Generally the reserve is released over the annual rates: term of the contract at which time it is recognised as premium income. Building Over the period of the lease Partitioning 12.5% h) INVESTMENT PROPERTY Motor vehicles 25% Investment properties comprise land and buildings Furniture, fittings and equipment 12.5% and parts of buildings held to earn rentals and/or for Computer hardware 30% capital appreciation. They are carried at fair value, determined periodically by external independent The annual depreciation on the revaluation surplus valuers. Fair value is based on open market basis de- element of property, plant and equipment is trans- termined using the highest and best use valuation ferred from the revaluation surplus to retained earn- model. ings net of the resultant deferred tax.

Investment properties are not subject to deprecia- Gains and losses on disposal of property and equip- tion. Gains and losses arising from changes in the ment are determined by reference to their carrying fair value of investment property are included in amounts. profit or loss in the period in which they arise. Subsequent costs are included in the asset’s carrying On disposal of an investment property, the differ- amount or recognised as a separate asset, as appro- ence between the net disposal proceeds and the priate, only when it is probable that future econom- carrying amount is charged or credited to the profit ic benefits associated with the item will flow to the or loss for the year. Company and the cost of the item can be measured 34 / 03 Mayfair Insurance Company Ltd

NOTES Notes to the Financial Statements (continued)

2 SUMMARY OF SIGNIFICANT Classification ACCOUNTING POLICIES (CONT.) (i) Financial assets at fair value through profit or loss This category comprises two sub-categories: financial i) PROPERTY, PLANT AND assets held for trading, and those designated at fair EQUIPMENT (CONT.) value through profit or loss at inception. reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are A financial asset is classified into the ‘financial assets charged to profit or loss during the financial period at fair value through profit or loss’ category at incep- in which they are incurred. tion if acquired principally for the purpose of selling in the short term, if it forms part of a portfolio of financial Increases in the carrying amount arising on reval- assets in which there is evidence of short-term prof- uation of land and buildings are credited to other it-taking, or if so designated by management. Deriva- comprehensive income and shown as revaluation tives are also classified as held for trading unless they reserve in equity. Decreases that offset previous are designated as hedges. increases of the same asset are charged in other comprehensive income and debited against the re- Financial assets designated as at fair value through valuation reserve, all other decreases are charged to profit or loss at inception are those that are: profit or loss. Each year the difference between de- preciation based on the revalued carrying amount of ■■ Held in internal funds to match insurance and invest- the asset (the depreciation charged to profit or loss) ment contracts liabilities that are linked to the chang- and depreciation based on the asset’s original cost is es in fair value of these assets. The designation of transferred from the revaluation reserve to retained these assets to be at fair value through profit or loss earnings. eliminates or significantly reduces a measurement or recognition inconsistency (sometimes referred to as j) LEASES ‘an accounting mismatch’) that would otherwise arise Leases in which a significant portion of the risks and from measuring assets or liabilities or recognising the rewards of ownership are retained by the lessor are gains and losses on them on different bases; and classified as operating leases. Payments made un- der operating leases (net of any incentives received ■■ Managed and whose performance is evaluated on a from the lessor) are charged to profit or loss on a fair value basis. Information about these financial as- straight-line basis over the period of the lease. sets is provided internally on a fair value basis to the Company’s key management personnel. The Com- k) FINANCIAL ASSETS pany’s investment strategy is to invest in equity and The Company classifies its financial assets in the debt securities and to evaluate them with reference to following categories: financial assets at fair val- their fair values. Assets that are part of these portfoli- ue through profit or loss, loans and receivables, os are designated upon initial recognition at fair value held-to-maturity and available-for-sale. The direc- through profit or loss. tors determine the classification of its financial as- sets at initial recognition and depends on the pur- pose for which the investments were acquired. You are in safe hands 35 / 03

NOTES Notes to the Financial Statements (continued)

(ii) Loans and receivables Recognition and measurement Loans and receivables are non-derivative financial Regular purchases and sales of financial assets are assets with fixed or determinable payments that are recognised on trade-date – the date on which the not quoted in an active market, other than: Company commits to purchase or sell the asset.

(a) those that the Company intends to sell in the short Financial assets are initially recognised at fair value term or that it has designated as at fair value through plus, in the case of all financial assets not carried at profit or loss; fair value through profit or loss, transaction costs (b) those that the Company upon initial recognition des- that are directly attributable to their acquisition. Fi- ignates as available-for-sale; or nancial assets carried at fair value through profit or (c) those for which the holder may not recover substan- loss are initially recognised at fair value, and trans- tially all of its initial investment, other than because action costs are expensed in profit or loss. of credit deterioration. Financial assets are derecognised when the rights to The Company’s loans and receivables comprise trade receive cash flows from them have expired or where and other receivables’ and cash and cash equiva- they have been transferred and the Company has lents’ in the statement of financial position. also transferred substantially all risks and rewards of ownership. (iii) Available for sale financial assets Available-for-sale financial assets are financial as- Available-for-sale financial assets and financial as- sets that are intended to be held for an indefinite pe- sets at fair value through profit or loss are subse- riod of time, which may be sold in response to needs quently carried at fair value. Loans and receivables for liquidity or changes in interest rates, exchange and held-to-maturity financial assets are carried at rates or equity prices or that are not classified as amortised cost using the effective interest method. loans and receivables, held-to-maturity investments or financial assets at fair value through profit or loss. Gains and losses arising from changes in the fair value of the ‘financial assets at fair value through (iv) Held-to-maturity financial assets profit or loss’ category are included in profit or loss Held-to-maturity investments are non-derivative fi- in the period in which they arise. Dividend income nancial assets with fixed or determinable payments from financial assets at fair value through profit or and fixed maturities that the directors have the pos- loss is recognised in profit or loss as part of invest- itive intention and ability to hold to maturity, other ment income when the Company’s right to receive than: payments is established.

(a) those that the Company upon initial recognition des- Changes in the fair value of monetary and non-mon- ignates as at fair value through profit or loss; etary securities classified as available-for-sale are (b) those that the Company designates as available-for- recognised in other comprehensive income. sale; and (c) those that meet the definition of loans and receiv- When securities classified as available-for-sale are ables. sold or impaired, the accumulated fair value adjust- ments recognised in other comprehensive income are included in profit or loss as net realised gains on financial assets. 36 / 03 Mayfair Insurance Company Ltd

NOTES Notes to the Financial Statements (continued)

2 SUMMARY OF SIGNIFICANT In that case, the Company also recognises an asso- ACCOUNTING POLICIES (CONT.) ciated liability. The transferred asset and the asso- ciated liability are measured on a basis that reflects k) FINANCIAL ASSETS (CONT.) the rights and obligations that the Company has re- tained. (iv) Held-to-maturity financial assets (continued) Recognition and measurement (continued) Continuing involvement that takes the form of a Interest on available-for-sale securities calculated guarantee over the transferred asset is measured at using the effective interest method is recognised in the lower of the original carrying amount of the as- profit or loss. Dividends on available-for-sale equity set and the maximum amount of consideration that instruments are recognised in profit or loss when the the Company could be required to repay. Company’s right to receive payments is established. Both are included in the investment income line. Financial liabilities are derecognised when the ob- ligation under the liability is discharged, cancelled De-recognition of financial instruments or expired. When the existing liability is replaced by A financial asset (or, when applicable, a part of a fi- another from the same lender on substantially dif- nancial asset or part of a group of similar financial ferent terms, or the terms of an existing liability are assets) is derecognised when: substantially modified, such an exchange or modifi- cation is treated as a de recognition of the original ■■ The rights to receive cash flows from the asset have liability and the recognition of a new liability, and expired the difference in the respective carrying amounts is recognised in the income statement. ■■ The Company retains the right to receive cash flows from the asset, or has assumed an obligation to pay Determination of fair value them in full without material delay to a third party For financial instruments traded in active markets, under a ‘pass-through’ arrangement and either the determination of fair values of financial assets and financial liabilities is based on the price that (a) the Company has transferred substantially all the would be received to sell an asset or paid to transfer risks and rewards of the asset, or a liability in an orderly transaction between market participants at the measurement date. This includes (b) the Company has neither transferred nor retained listed equity securities and quoted debt instruments substantially all the risks and rewards of the asset, on major exchange (NSE, USE). The quoted market but has transferred control of the asset. price used for financial assets held by the company is the current bid price. When the Company has transferred its right to re- ceive cash flows from an asset and has neither A financial instrument is regarded as quoted in an ac- transferred nor retained substantially all the risks tive market if quoted prices are readily and regularly and rewards of the asset nor transferred control of available from an exchange, dealer, broker, industry, the asset, the asset is recognised to the extent of pricing service or regulatory agency, and those pric- the Company’s continuing involvement in the as- es represent actual and regularly occurring market set. Continuing involvement that takes the form of a transactions on an arm’s length basis. If the above guarantee over the transferred asset is measured at criteria are not met, the market is regarded as being the lower of the original carrying amount of the as- inactive. set and the maximum amount of consideration that the Company could be required to repay. You are in safe hands 37 / 03

NOTES Notes to the Financial Statements (continued)

For example a market is inactive when there is a event (or events) has an impact on the estimated wide bid-offer spread or significant increase in the future cash flows of the financial asset or group of bid-offer spread or there are few recent transactions. financial assets that can be reliably estimated.

For all other financial instruments, fair value is de- For loans and receivables category, the amount of termined using valuation techniques. In these tech- the loss is measured as the difference between the niques, fair values are estimated from observable asset’s carrying amount and the present value of data in respect of similar financial instruments, us- estimated future cash flows (excluding future cred- ing models to estimate the present value of expect- it losses that have not been incurred) discounted at ed future cash flows or other valuation techniques, the financial asset’s original effective interest rate. using inputs existing at the dates of the statement of The carrying amount of the asset is reduced and the financial position. amount of the loss is recognised in the consolidated statement of profit or loss. If a loan or held-to-matu- Fair values are categorised into three levels in a fair rity investment has a variable interest rate, the dis- value hierarchy based on the degree to which the count rate for measuring any impairment loss is the inputs to the measurement are observable and the current effective interest rate determined under the significance of the inputs to the fair value measure- contract. As a practical expedient, the Company may ment in its entirety: measure impairment on the basis of an instrument’s fair value using an observable market price. If, in a ■■ Level 1 fair value measurements are those derived subsequent period, the amount of the impairment from quoted prices (unadjusted) in active markets loss decreases and the decrease can be related ob- for identical assets or liabilities. jectively to an event occurring after the impairment was recognised (such as an improvement in the ■■ Level 2 fair value measurements are those derived debtor’s credit rating), the reversal of the previous- from inputs other than quoted prices included with- ly recognised impairment loss is recognised in the in Level 1 that are observable for the asset or liabil- statement of profit or loss. ity, either directly (i.e. as prices) or indirectly (i.e. derived from prices). (b) Assets classified as available for sale The Company assesses at the end of each reporting ■■ Level 3 fair value measurements are those derived period whether there is objective evidence that a from valuation techniques that include inputs for financial asset or a group of financial assets isim- the asset or liability that are not based on observ- paired. able market data (unobservable inputs). For debt securities, if any such evidence exists the l) IMPAIRMENT OF ASSETS cumulative loss – measured as the difference be- (a) Financial assets carried at amortised cost tween the acquisition cost and the current fair val- The Company assesses at the end of each reporting ue, less any impairment loss on that financial asset period whether there is objective evidence that a fi- previously recognised in profit or loss – is removed nancial asset or group of financial assets is impaired. from equity and recognised in profit or loss. If, in a A financial asset or a group of financial assets is im- subsequent period, the fair value of a debt instru- paired and impairment losses are incurred only if ment classified as available for sale increases and there is objective evidence of impairment as a result the increase can be objectively related to an event of one or more events that occurred after the initial occurring after the impairment loss was recognised recognition of the asset (a ‘loss event’) and that loss in profit or loss, the impairment loss is reversed 38 / 03 Mayfair Insurance Company Ltd

NOTES Notes to the Financial Statements (continued)

2 SUMMARY OF SIGNIFICANT n) SHARE CAPITAL ACCOUNTING POLICIES (CONT.) Ordinary shares are classified as ‘share capital’ in equity. Any premium received over and above the par l) IMPAIRMENT OF ASSETS (CONT.) value of the shares is classified as ‘share premium’ in (b) Assets classified as available for sale (continued) equity. through the consolidated statement of profit or loss. For equity investments, a significant or prolonged Incremental costs directly attributable to the issue decline in the fair value of the security below its cost of new ordinary shares are shown in equity as is also evidence that the assets are impaired. If any deduction from the proceeds. such evidence exists the cumulative loss – measured as the difference between the acquisition cost and o) DIVIDENDS the current fair value, less any impairment loss on Dividends on ordinary shares are charged to equity that financial asset previously recognised in profit in the period in which they are declared. Proposed or loss – is removed from equity and recognised in dividends are shown as a separate component of profit or loss. Impairment losses recognised in the equity until declared. statement of profit or loss on equity instruments are not reversed through the statement of profit or loss. p) JOINT ARRANGEMENTS The Company has applied IFRS 11 to all joint (c) Impairment of other non-financial assets arrangements as of 1 January 2016. Under IFRS 11 Intangible assets that have an indefinite useful life investments in joint arrangements are classified as or intangible assets not ready to use are not subject either joint operations or joint ventures depending to amortisation and are tested annually for impair- on the contractual rights and obligations each ment. Assets that are subject to amortisation are re- investor. Joint operations arise where a joint operator viewed for impairment whenever events or changes has rights to the assets and obligations relating to in circumstances indicate that the carrying amount the arrangement and hence accounts for its interest may not be recoverable. An impairment loss is rec- in assets, liabilities, revenue and expenses. Joint ognised for the amount by which the asset’s carrying ventures arise where the joint operator has rights to amount exceeds its recoverable amount. The recov- the net assets of the arrangement and hence equity erable amount is the higher of an asset’s fair value accounts for its interest. The Company has assessed less costs of disposal and value in use. For the pur- the nature of its joint arrangements and determined poses of assessing impairment, assets are grouped them to be joint operations. Joint operations are at the lowest levels for which there are largely in- accounted for using the equity method. dependent cash inflows (cash-generating units). Prior impairments of nonfinancial assets (other than Under the equity method of accounting, interests goodwill) are reviewed for possible reversal at each in joint operations are initially recognised at cost reporting date. and adjusted thereafter to recognise the Company’s share of the post-acquisition profits or losses and m) CASH AND CASH EQUIVALENTS movements in other comprehensive income. When Cash and cash equivalents include cash in hand, the Company’s share of losses in a joint venture deposits held at call with banks, other short term equals or exceeds its interests in the joint ventures highly liquid investments with original maturities (which includes any long-term interests that, in of three months or less, and bank overdrafts. Bank substance, form part of the group’s net investment overdrafts are shown within borrowings in current in the joint ventures), the group does not recognise liabilities further losses, unless it has incurred obligations or made payments on behalf of the joint ventures. You are in safe hands 39 / 03

NOTES Notes to the Financial Statements (continued) q) COMMISSIONS PAYABLE AND DEFERRED ACQUISITION COSTS The liability is calculated at the reporting date A proportion of commissions payable is deferred using a range of standard actuarial claim projection and amortised over the period in which the related techniques, based on empirical data and current premium is earned. Deferred acquisition costs assumptions that may include a margin for adverse represent a proportion of commissions payable and deviation. The liability is not discounted for the other acquisition costs that relate to the unexpired time value of money. No provision for equalisation term of the policies that are in force at the year end. or catastrophe reserves is recognised. The liabilities are derecognised when the contract expires, is r) CLAIMS INCURRED discharged or is cancelled. Claims incurred comprise claims paid in the year and changes in the provision for outstanding claims. The provision for unearned premiums represents Claims paid represent all payments made during premiums received for risks that have not yet the year, whether arising from events during that expired. Generally the reserve is released over the or earlier years. Outstanding claims provisions term of the contract at which time it is recognised as represent the estimated ultimate cost of settling all premium income. claims arising from incidents occurring prior to the end of each reporting period, but not settled at that t) INCOME TAX EXPENSE date. Outstanding claims provisions are computed Income tax expense is the aggregate amount on the basis of the best information available at the charged/(credited) in respect of current tax and time the records for the year are closed, and include deferred tax in determining the profit or loss for provisions for claims incurred but not reported the year. Tax is recognised in the profit or loss (“IBNR”) at the end of each reporting period based on except when it relates to items recognised in other the group’s experience but subject to the minimum comprehensive income, in which case it is also percentage set by the Commissioner of Insurance. recognised in other comprehensive income, or to Outstanding claims are not discounted. items recognised directly in equity, in which case it is also recognised directly in equity. s) GENERAL INSURANCE CONTRACT LIABILITIES (a) Current income tax General insurance contract liabilities are recognised Current income tax is the amount of income tax when contracts are entered into and premiums payable on the taxable profit for the year, and any are charged. These liabilities are known as the adjustment to tax payable in respect of prior years, outstanding claims provision, which are based on determined in accordance with the Kenyan Income the estimated ultimate cost of all claims incurred Tax Act. The current income tax charge is calculated but not settled at the end of each reporting period, on the basis of the tax enacted or substantively whether reported or not, together with related enacted at the reporting date. The Directors claims handling costs and reduction for the expected periodically evaluate positions taken in tax returns value of salvage and other recoveries. Delays can be with respect to situations in which applicable tax experienced in the notification and settlement of regulation is subject to interpretation. It establishes certain types of claims and therefore the ultimate provisions where appropriate on the basis of cost of this category of claims cannot be known amounts expected to be paid to the tax authorities. with certainty at the end of each reporting period. 40 / 03 Mayfair Insurance Company Ltd

NOTES Notes to the Financial Statements (continued)

2 SUMMARY OF SIGNIFICANT statutory defined contribution pension scheme, the ACCOUNTING POLICIES (CONT.) National Social Security Fund (NSSF). Contributions to these schemes are determined by local statute t) INCOME TAX EXPENSE (CONT.) and are currently limited to Shs 200 per employee per month. (b) Deferred income tax Deferred income tax is recognised, using the liability method, on temporary differences arising 3 CRITICAL ACCOUNTING ESTIMATES between the tax bases of assets and liabilities and AND JUDGEMENTS Estimates and judgements are continually evaluated their carrying amounts in the financial statements. and are based on historical experience and other fac- However, deferred income tax is not accounted for if tors, including experience of future events that are it arises from initial recognition of an asset or liability believed to be reasonable under the circumstances. in a transaction other than a business combination that at the time of the transaction affects neither The Company makes estimates and assumptions accounting nor taxable profit or loss. Deferred concerning the future. The resulting accounting es- income tax is determined using tax rates (and laws) timates will, by definition, seldom equal the related that have been enacted or substantively enacted at actual results. The estimates and assumptions that the reporting date and are expected to apply when have a significant risk of causing a material adjust- the related deferred income tax asset is realised or ment to the carrying amounts of assets and liabili- the deferred income tax liability is settled. ties within the next financial year are addressed be- low. Deferred income tax assets are recognised only to the extent that it is probable that future taxable The ultimate liability arising from claims made un- profits will be available against which the temporary der insurance contracts differences can be utilised. Estimates have to be made both for the expected ul- timate cost of claims reported at the reporting date Deferred income tax assets and liabilities are offset and for the expected ultimate cost of claims incurred when there is a legally enforceable right to offset but not yet reported at the statement of financial po- current tax assets against current tax liabilities and sition date (IBNR). It can take a significant period of when the deferred income taxes assets and liabilities time before the ultimate claims cost can be estab- relate to income taxes levied by the same taxation lished with certainty. authority on either the same taxable entity or different taxable entities where there is an intention All contracts are subject to a liability adequacy test, to settle the balances on a net basis. which reflects management’s best current estimate u) EMPLOYEE BENEFITS of future cash flows. The ultimate cost of outstand- ing claims is estimated by using a range of standard (i) Retirement benefit obligations actuarial claims projection techniques. The Company operates a defined contribution scheme for its employees. The assets of the scheme The main assumption underlying techniques applied are held in a separate trustee administered fund. in the estimation of this liability is that the Compa- The scheme is funded by contributions from both ny’s past claims experience can be used to project the employees and the employer, with the employer future claims development and hence, ultimate contributing 5% while the employee contribution claims costs. As such, these methods extrapolate the is voluntary. The Company also contributes to the You are in safe hands 41 / 03

NOTES Notes to the Financial Statements (continued)

development of paid and incurred losses, average ed and periodically reviewed by qualified personnel costs per claim and claim numbers based on the ob- independent of those that sourced them. All models served development of earlier years and expected are certified before they are used, and models are loss ratios. Historical claims development is mainly calibrated to ensure that outputs reflect actual data analysed by accident years , as well as by significant and comparative market prices. To the extent practi- business lines. Large claims are usually separately cal, models use only observable data; however, areas addressed, either by being reserved at the face val- such as credit risk (both own credit risk and counter- ue of loss adjuster estimates or separately projected party risk), volatilities and correlations require man- in order to reflect their future development. In most agement to make estimates. cases, no explicit assumptions are made regarding future rates of claims inflation or loss ratios. Instead, 4 FINANCIAL RISK MANAGEMENT the assumptions used are those implicit in the his- OBJECTIVES AND POLICIES torical claims development data on which the pro- jections are based. The Company’s activities expose it to a variety of insurance and financial risks. Financial risks include Additional qualitative judgment is used to assess the credit risk, liquidity risk and market risk which in- extent to which past trends may not apply in future, cludes the effects of changes in property values, (for example to reflect one-off occurrences, changes debt and equity market prices, foreign currency ex- in external or market factors such as public attitudes change rates and interest rates. to claiming, economic conditions, levels of claims’ inflation, judicial decisions and legislation, as well The Company’s overall risk management programme as internal factors such as portfolio mix, policy con- focuses on the unpredictability of financial markets, ditions and claims handling procedures) in order to identification and management of risks. It seeks to arrive at the estimated ultimate cost of claims that minimise potential adverse effects on its financial present the likely outcome from the range of possi- performance by use of underwriting guidelines and ble outcomes, taking account of all the uncertainties capacity limits, reinsurance planning, credit policy involved. governing the acceptance of clients and defined cri- teria for the approval of intermediaries and reinsur- Fair value of financial instruments ers. Investment policies are in place which help man- The fair value of financial instruments where no ac- age liquidity, and seek to maximise return within an tive market exists or where quoted prices are not acceptable level of interest rate risk. otherwise available are determined by using valu- ation techniques. In these cases the fair values are Financial risk management is carried out by the fi- estimated from observable data in respect of sim- nance department under policies approved by the ilar financial instruments or using models. Where Board of Directors. The board provides written prin- market observable inputs are not available, they ciples for overall risk management, as well as written are estimated based on appropriate assumptions. policies covering specific areas such as foreign ex- Where valuation techniques (for example, models) change risk, interest rate risk, credit risk and invest- are used to determine fair values, they are validat- ment of excess liquidity 42 / 03 Mayfair Insurance Company Ltd

NOTES Notes to the Financial Statements (continued)

4.1 INSURANCE RISK Core insurance risk This risk is managed through: The risk under any one insurance contract is the pos- sibility that the insured event occurs and the uncer- ■■ Diversification across a large portfolio of insurance tainty of the amount of the resulting claim. By the contracts; very nature of an insurance contract, this risk is ran- dom and therefore unpredictable. ■■ Careful selection guided by a conservative under- writing philosophy; For a portfolio of insurance contracts where the theory of probability is applied to pricing and pro- ■■ Continuous monitoring of the business performance visioning, the principal risk that the Company faces per class and per client and corrective action taken under its insurance contracts is that the actual claims as deemed appropriate; and benefit payments exceed the carrying amount of the insurance liabilities. This could occur because ■■ A minimum of one review of each policy at renewal the frequency or severity of claims and benefits are to determine whether the risk remains within the ac- greater than estimated. Insurance events are ran- ceptable criteria; dom, and the actual number and amount of claims and benefits will vary from year to year from the lev- ■■ Having a business acceptance criteria which is re- el established using statistical techniques. viewed from time to time based on the experience and other developments; and Factors that aggravate insurance risk include lack of risk diversification in terms of type and amount of ■■ Having a mechanism of identifying, quantifying and risk, geographical location and type of industry cov- accumulating exposures to contain them within the ered. set underwriting limits.

Insurance risk in the Company arises from: Reinsurance planning Reinsurance purchases are reviewed annually to ver- (a) Fluctuations in the timing, frequency and severity of ify that the levels of protection being sought reflect claims and claims settlements relative to expecta- developments in exposure and risk appetite of the tions; Company. The bases of these purchases is under- pinned by the Company’s experience, financial mod- (b) Unexpected claims arising from a single source; elling by and exposure of the reinsurance broker. Reinsurance is placed with providers who meet the (c) Inaccurate pricing of risks or inappropriate under- Company’s counter-party security requirements. writing of risks when underwritten;

Claims reserving (d) Inadequate reinsurance protection or other risk The Company’s reserving policy is guided by the pru- transfer techniques; and dence concept. Estimates are made of the estimated cost of settling a claim based on the best available (e) Inadequate reserves information upon registration of a claim, and this is updated as and when additional information is ob- (a), (b) and (c) can be classified as the core insurance tained and annual reviews done to ensure that the risk, (d) relates to reinsurance planning, while (e) is reserves are adequate. Management is regularly pro- about reserving. vided with claims settlement reports to inform on the reserving performance. You are in safe hands 43 / 03

NOTES Notes to the Financial Statements (continued)

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

Gross Reinsurance Net liabilities share Liabilities 31 December 2016 Shs’000 Shs’000 Shs’000 Motor 481,961 363 481,598 Fire 155,962 146,490 9,472 Workmen’s compensation 630,621 3,163 627,458 Marine 69,578 14,232 55,346 Personal accident 12,954 9,115 3,839 Engineering 48,511 21,218 27,293 Aviation 321 320 1 Miscellaneous 13,074 149 12,925 Theft 15,701 1,707 13,994 Others 131,665 119,591 12,074

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

Gross Reinsurance Net liabilities share Liabilities 31 December 2015 Shs’000 Shs’000 Shs’000 Motor 478,244 3,596 474,648 Fire 75,777 58,818 16,959 Workmen’s compensation 501,006 2,764 498,242 Marine 81,436 26,238 55,197 Personal accident 13,611 11,341 2,270 Engineering 120,732 97,307 23,425 Aviation 396 356 40 Miscellaneous 20,887 859 20,028 Theft 73,722 61,704 12,018 Others 7,469 356 7,113

Total 1,373,280 263,340 1,109,940 44 / 03 Mayfair Insurance Company Ltd

NOTES Notes to the Financial Statements (continued)

4.2 FINANCIAL RISKS (i) Financial risk management The Company is exposed to financial risk through its financial assets, financial liabilities, reinsurance assets and in- surance liabilities. In particular the key financial risk is that the proceeds from its financial assets are not sufficient to fund the obligations arising from its insurance and investment contracts. The most important components of this financial risk are interest rate risk, equity price risk, currency risk and credit risk. These risks arise from open positions in interest rate, currency and equity products, all of which are exposed to general and specific market movements. The risks that the Company primarily faces due to the nature of its investments and liabilities are in- terest rate risk and equity price risk. Appraisal of investment portfolio is done on a regular basis and the investment spread reviewed depending on the existing interest rates.

(a) Market risk Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices and comprises of three types of risk: interest rate risks, equity price risk and foreign ex- change currency risk. The sensitivity analysis below is based on a change in one assumption while holding all other assumptions constant: i Interest rate risk The Company is exposed to the risk that the level of interest income and in effect the cash flows will fluctuate due to changes in market interest rates. To manage this risk, the Company ensures that the investment maturity profiles are well spread.

The sensitivity analysis presented below shows how profit and equity would change if the interest rates had in- creased/(decreased) on the reporting date with all other variables held constant.

2016 (Shs’000) 2015 (Shs’000) Effect on Effect on Effect on Effect on profit equity profit equity + 5 percentage point movement 4,384 4,384 35,073 33,828 - 5 percentage point movement (4,384) (4,384) (35,073) (33,828)

ii Equity price risk which are listed and traded on the Nairobi Securities Equity price risk is the risk that the fair value of fu- Exchange. Exposure to equity price risks in aggre- ture cash flows of a financial instrument will fluctu- gate is monitored in order to ensure compliance with ate because of changes in market prices (other than the relevant regulatory limits for solvency purposes. those arising from interest rate risk or currency risk), whether those changes are caused by factors specif- The Company has a defined investment policy which ic to the individual financial instrument or its issuer, sets limits on the company’s exposure to equity se- or factors affecting all similar financial instruments curities both in aggregate terms and by category/ traded in the market. share. This policy of diversification is used to man- age the Company’s price risk arising from its invest- The Company is exposed to equity securities price ments in equity securities. risk as a result of its holdings in equity investments You are in safe hands 45 / 03

NOTES Notes to the Financial Statements (continued)

The sensitivity analysis presented below shows how other comprehensive income would change if the market prices increased/(decreased) by 5% on the reporting date with all other variables held constant.

2016 2015 Shs’000 Shs’000 Effect on other comprehensive income + 5 percentage point movement 30,457 13,349 - 5 percentage point movement (30,457) (13,349)

iii Foreign exchange currency risk The following sensitivity analysis shows how profit Foreign exchange currency risk is the risk that the and other comprehensive income would change if fair value of future cash flows of a financial instru- the exchange rates increased/(decreased) by 5% on ment will fluctuate because of changes in foreign the reporting date with all other variables held con- exchange rates. Management believes that there is stant, mainly as a result of translation of US Dollar minimal risk of significant losses due to exchange denominated available for sale equity investments rate fluctuations. and foreign currency denominated bank balances.

2016 2015 Shs’000 Shs’000 Effect on other comprehensive income + 5 percentage point movement 15,782 10,147 - 5 percentage point movement (15,782) (10,147)

(b) Credit risk ■■ Ongoing monitoring by the management credit com- Credit risk is the risk that one party to a financial in- mittee. strument will cause a financial loss to the Company by failing to discharge a contractual obligation. The The exposure to individual counterparties is also following policies and procedures are in place to managed through other mechanisms, such as the mitigate the Company’s exposure to credit risk: right of offset where counterparties are both debtors and creditors of the Company. Management infor- ■■ Net exposure limits are set for each counterparty or mation reported to the Directors include details of group of counterparties i.e. limits are set for invest- provisions for impairment on receivables and subse- ments and cash deposits, and minimum credit rat- quent write offs. Exposures to individual policyhold- ings for investments that may be held. ers and groups of policyholders are collected within the ongoing monitoring of the controls associated ■■ Reinsurance is placed with counterparties that have with regulatory solvency. a good credit rating.

46 / 03 Mayfair Insurance Company Ltd

NOTES Notes to the Financial Statements (continued)

4.2 FINANCIAL RISKS (CONTINUED) (b) Credit risk (continued) The table below shows the carrying amounts of financial assets bearing credit risk

Fully performing Past due Impaired Total Shs’000 Shs’000 Shs’000 Shs’000 31 December 2016

Receivable arising out of direct insurance arrangements 415,440 - - 415,440 Receivable arising out of reinsurance arrangements 11,642 - - 11,642 Held to maturity: - Government securities 430,268 - - 430,268 - Corporate bonds 111,380 - - 111,380 - Deposits with financial institutions 1,039,416 - - 1,039,416 Other receivables: - Deposits with institutions under statutory management - - 10,000 10,000 Cash and bank balances 69,776 - - 69,776

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

31 December 2015

Receivable arising out of direct insurance arrangements 297,175 - - 297,175 Receivable arising out of reinsurance arrangements 6,114 - - 6,114 Held to maturity: -Government securities 429,352 - - 429,352 -Corporate bonds 109,477 - - 109,477 -Deposits with financial institutions 763,718 - - 763,718 Other receivables: - Deposits with institutions under statutory management - 45,934 - 45,934 Cash and bank balances 55,003 - - 55,003

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

The debt that is past due relates to amounts held in a local financial institution that is under statutory management. The recoverability of this balance is dependent on resolution of a dispute between the institution and the Central Bank of Kenya but the Directors are confident that the amount will be recovered.

Government securities are generally considered risk free because the risk of loss is remote. You are in safe hands 47 / 03

NOTES Notes to the Financial Statements (continued)

(c) Liquidity risk Liquidity risk is the risk that the company will encounter difficulty in meeting obligations associated with financial liabilities. Ultimate responsibility for liquidity risk management rests with the Board of Directors, which has devel- oped and put in place an appropriate liquidity risk management framework for the management of the Company’s short, medium and long-term funding and liquidity management requirements. The Company manages liquidity risk by maintaining adequate reserves and banking facilities, by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities

The table below analyses the Company’s financial liabilities that will be settled on a net basis into relevant matu- rity groupings based on the remaining period at the reporting date to the contractual maturity date. The amounts disclosed in the table below are the contractual undiscounted cash flows. Balances due within 12 months equal their carrying balances, as the impact of discounting is not significant.

Between Over Over 1 – 3 months 3 months 12 months Total Shs’000 Shs’000 Shs’000 Shs’000 31 December 2016

Payables arising from - reinsurance arrangements 337,403 - - 337,403 - insurance arrangements 20,444 - - 20,444 Outstanding claims provisions 1,560,348 - - 1,560,348

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

At 31 December 2015

Payables arising from - reinsurance arrangements 311,936 - - 311,936 - insurance arrangements 12,821 - - 12,821 Outstanding claims provisions 1,373,280 - - 1,373,280

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

(ii) Capital Management ■■ to satisfy the requirements of its policyholders, reg- The Company’s objectives in managing its capital ulators and rating agencies; are: ■■ to retain financial flexibility by maintaining strong ■■ to match the profile of its assets and liabilities, tak- liquidity and access to a range of capital markets; ing account of the risks inherent in the business; ■■ to allocate capital efficiently to support growth ■■ to maintain financial strength to support new busi- ness growth; 48 / 03 Mayfair Insurance Company Ltd

NOTES Notes to the Financial Statements (continued)

4.2 FINANCIAL RISKS (CONTINUED) The Insurance Act requires each insurance company to hold the minimum level of paid up capital de- (iii) Capital Management (continued) pending on the insurance business they carry. ■■ to safeguard the Company’s ability to continue as a going concern so that it can continue to provide re- General insurance business is required to maintain turns for shareholders and benefits for other stake- the higher of the following as its minimum capital; holders; and

■■ Shs 300 million; or ■■ to provide an adequate return to shareholders by pricing insurance contracts commensurately with ■■ risk based capital determined by the Insurance Reg- the level of risk. ulatory Authority (IRA) from time to time; or

■■ to comply with the capital requirements as set out in ■■ 20% of net written premiums of the preceding fi- the Insurance Act. nancial year

■■ to comply with the regulatory solvency require- Life insurance business is required to maintain the ments as set out in the Insurance Act. higher of the following as its minimum capital;

An important aspect of the Company’s overall capital ■■ Shs 150 million; or management process is the setting of target risk-ad- justed rate of return which is aligned to performance ■■ risk based capital determined by the Insurance Reg- objectives and ensures that the Company is focused ulatory Authority (IRA) from time to time; or on the creation of value for shareholders.

■■ 5% of liabilities of the life business for the financial The Company has a number of sources of capital year available to it and seeks to optimise its debt to equi- ty structure in order to ensure that it can consistent- The Company manages capital in accordance with ly maximise returns to shareholders. The Company these rules and has embedded in its ALM framework considers not only the traditional sources of capital the necessary tests to ensure continuous and full funding but the alternative sources of capital in- compliance with such regulations. cluding reinsurance, as appropriate, when assessing its deployment and usage of capital. The Company The solvency margin of the Company as at 31 De- manages as capital all items that are eligible to be cember 2016 and 2015 is illustrated below. treated as capital for regulatory purposes.

2016 2015 Shs’000 Shs’000 Admitted assets 3,335,442 2,961,865 Admitted liabilities 2,169,887 1,996,063

Margin 1,165,555 965,802

Required margin 561,987 523,723 You are in safe hands 49 / 03

NOTES Notes to the Financial Statements (continued)

(iv) Fair value estimation ■■ Inputs for the asset or liability that are not based on The table below analyses financial instruments car- observable market data (that is, unobservable in- ried at fair value, by valuation method. The different puts) (Level 3). levels have been defined as follows: The following table presents the Company’s finan- ■■ Quoted prices (unadjusted) in active markets for cial assets and liabilities measured at fair value at 31 identical assets or liabilities (Level 1). December 2016 and 31 December 2015

■■ Inputs other than quoted prices included within lev- el 1 that are observable for the asset or liability, ei- ther directly (that is, as prices) or indirectly (that is, derived from prices) (Level 2).

Level 1 Level 2 Level 3 Total Shs’000 Shs’000 Shs’000 Shs’000 31 December 2016 Available for sale - Equity instruments 164,948 549,192 - 714,140

31 December 2015 Available for sale - Equity instruments 234,597 502,993 - 737,590

5 GROSS EARNED PREMIUMS

2016 2015 Shs’000 Shs’000 Motor 520,330 518,850 Fire 713,458 502,453 Workmen’s compensation 361,225 312,952 Marine 149,262 93,909 Personal accident 34,761 36,584 Engineering 190,762 223,270 Aviation 15,984 8,041 Miscellaneous 141,856 125,951 Theft 112,285 117,239 Others 28,823 23,733

2,268,746 1,962,982 50 / 03 Mayfair Insurance Company Ltd

NOTES Notes to the Financial Statements (continued)

2016 2015 Shs’000 Shs’000

6 INVESTMENT INCOME

Fair value gain on investment properties (Note 15) 19,373 18,603 Interest on bank deposits 88,641 89,238 Interest on Government securities 47,462 43,142 Rental income from investment properties (Note 15) 25,348 21,941 Dividends receivable on equity instruments 12,887 5,636 Interest on corporate bonds 13,690 13,880 Interest on commercial papers - 1,161

207,401 193,601

Investment income earned on financial assets, analysed by category of financial asset, is as follows:

Loans and receivables (including bank and cash balances) 88,641 89,238 Held-to-maturity investments 61,152 58,183 Available for sale financial assets 12,887 5,636 Investment income earned on non financial assets 44,721 40,544

Total investment income 207,401 193,601

7 OTHER INCOME

Miscellaneous income 19,599 1,406 Foreign exchange gains 286 1,245

19,885 2,651

8 CLAIMS INCURRED

Claims paid by principal class of business: Motor 251,623 127,658 Workmen’s compensation 194,320 211,794 Marine 14,898 24,523 Theft 15,599 2,226 Fire 15,445 14,094 Engineering 26,998 22,787 Personal accident 4,754 (6,732) Other (1,099) 2,567

522,538 398,917 You are in safe hands 51 / 03

NOTES Notes to the Financial Statements (continued)

2016 2015 Shs’000 Shs’000 9 OPERATING AND OTHER EXPENSES

Staff costs (note 10) 171,463 162,598 Depreciation of property, plant and equipment (note 13) 20,877 18,560 Amortisation of computer software (note 14) 11,723 5,498 Subscriptions 1,499 1,960 Repairs and maintenance expenditure 4,588 4,182 Rent, rates and parking 6,234 5,488 Printing and stationery 7,804 6,475 Telephone and postage 4,415 6,312 Travelling and entertainment 16,083 15,808 Advertising costs 10,586 19,973 Licences and insurance 5,143 3,164 Auditors’ remuneration 3,635 3,102 Directors’ emoluments 2,688 2,209 Premium tax 26,610 19,276 Other expenses 81,158 76,270

374,506 350,875

10 STAFF COSTS

Salaries and benefits 158,760 150,963 Defined contribution retirement schemes - Pension fund 12,553 11,433 - National Social Security fund 150 202

171,463 162,598 52 / 03 Mayfair Insurance Company Ltd

NOTES Notes to the Financial Statements (continued)

2016 2015 Shs’000 Shs’000 11 INCOME TAX EXPENSE

a) Taxation charge

Current tax expense in respect of the year 108,305 99,883 Deferred income tax – charge recognised (Note 31) (7,699) 7,333 Over provision of deferred tax in prior years 18,149 (82,587)

Total income tax expense 118,755 24,629

b) Reconciliation of taxation charge to expected tax based on accounting profit The Company’s income tax expense is computed in accordance with income tax rules applicable to general insurance companies

Profit before income tax 403,879 402,652

Tax calculated at a tax rate of 30% 121,164 120,796 Tax effect of: - Income not subject to tax (28,143) (17,700) - Expenses not deductible for tax purposes 7,585 4,120 - Over provision of deferred tax in prior years 18,149 (82,587)

118,755 24,629

c) Corporate tax payable

At 1 January (718) 50,405 Taxation charge - Note (a) 108,305 99,883 Tax paid (109,662) (151,006)

At 31 December (2,075) (718)

12 EARNINGS PER SHARE – BASIC AND DILUTED

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

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

Earnings per share (basic and diluted) (Shs) 47.52 72.00 You are in safe hands 53 / 03

NOTES Notes to the Financial Statements (continued)

13 PROPERTY AND EQUIPMENT

Furniture Motor Computer fittings and Building Partitioning vehicles equipment equipment Total Cost or valuation Shs’000 Shs’000 Shs’000 Shs’000 Shs’000 Shs’000 At 1 January 2015 178,570 47,670 9,180 13,686 56,012 305,118 Additions - 3,317 4,682 2,620 1,890 12,509 Transfer from investment property 17,297 - - - - 17,297 Surplus on revaluation 9,793 - - - - 9,793 Disposals - (1,951) - (409) (6,028) (8,388)

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

At 1 January 2016 205,660 49,036 13,862 15,897 51,874 336,329 Additions - 14,872 3,000 1,131 10,778 29,781 Surplus on revaluation 10,302 - - - - 10,302 Disposals - - (5,650) - - (5,650)

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

Comprising At cost 82,708 63,908 11,212 17,028 62,652 237,508 At valuation - 2016 133,254 - - - - 133,254

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

Depreciation At 1 January 2015 - 15,830 3,762 9,225 20,268 49,085 Charge for the year 5,515 4,203 2,525 2,119 4,198 18,560 Eliminated on disposal - (586) - (391) (1,976) (2,953) Reversal on revaluation (5,515) - - - - (5,515)

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

At 1 January 2016 - 19,447 6,287 10,953 22,490 59,177 Charge for the year 6,544 5,534 1,957 1,822 5,020 20,877 Eliminated on disposal (2,901) (2,901) Reversal on revaluation (6,544) (6,544)

At 31 December 2016 - 24,981 5,343 12,775 27,510 70,609 54 / 03 Mayfair Insurance Company Ltd

NOTES Notes to the Financial Statements (continued)

13 PROPERTY AND EQUIPMENT (CONTINUED)

Furniture Motor Computer fittings and Building Partitioning vehicles equipment equipment Total Shs’000 Shs’000 Shs’000 Shs’000 Shs’000 Shs’000 Net book value At 31 December 2016 215,962 38,927 5,869 4,353 35,042 300,153

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

Net book value (Cost basis) At 31 December 2016 62,014 38,927 5,869 4,353 35,042 146,205

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

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

The different levels have been defined as follows: - Quoted prices (unadjusted) in active markets for identical assets or liabilities(Level 1) - Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (Level 2). - Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (Level 3).

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

Level 1 Level 2 Level 3 Total Shs’000 Shs’000 Shs’000 Shs’000 31 December 2016 - Property, plant and equipment - 215,962 - 215,962

31 December 2015 - Property, plant and equipment - 205,660 - 205,660 You are in safe hands 55 / 03

NOTES Notes to the Financial Statements (continued)

2016 2015 Shs’000 Shs’000

14 INTANGIBLE ASSETS - COMPUTER SOFTWARE

Cost At 1 January 27,663 14,721 Additions 20,246 13,342 Disposals - (400)

At 31 December 47,909 27,663

Amortisation At 1 January 18,328 12,830 Charge for the year 11,723 5,498

At 31 December 30,051 18,328

Net book value 17,858 9,335

15 INVESTMENT PROPERTIES

Revaluation At 1 January 404,913 389,357 Additions 10,688 14,250 Transfer to Property and Equipment - (17,297) Fair value gain* (Note 6) 19,373 18,603

At 31 December 434,974 404,913

Investment properties comprise a building and leasehold land. The building constructed on the land is held for the purposes of earning rental income and capital appreciation. The investment properties are held at fair value. The properties were valued by Gimco Limited, registered valuers, on an open market value basis using the highest and best use valuation principle.

Rental income arising from investment properties during the year amounted to Ksh 25,348,041 (2015: Ksh 21,941,482) as disclosed in note 6. Expenses relating to investment property amounted to Ksh 1,171,729 (2015: Ksh 1,477,456). 56 / 03 Mayfair Insurance Company Ltd

NOTES Notes to the Financial Statements (continued)

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

Level 1 Level 2 Level 3 Total Shs’000 Shs’000 Shs’000 Shs’000 31 December 2016 - 434,947 - 434,947

31 December 2015 - 404,913 - 404,913

16 INVESTMENT IN ASSOCIATE

The Company has a 40% equity interest in Mayfair Insurance Company Zambia Limited. The share of net assets of the associate as at 31 December is as shown below

2016 2015 Shs’000 Shs’000 At 1 January 57,022 48,777 Reversal of revaluation loss 8,350 - Reversal of revaluation loss - 8,245

At 31 December 65,372 57,022

Further information on the associate company is shown below:

Company % owned Country of Incorporation Mayfair Insurance Company Zambia Limited 40% Zambia

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

2016 Shs’000 Total assets 678,849 Total liabilities (515,420)

Net assets 163,429

Company’s share of net assets 65,372

Net earned premiums 224,982

Profit before income tax 17,987

Income tax expense (10,648)

Profit for the year 7,339 You are in safe hands 57 / 03

NOTES Notes to the Financial Statements (continued)

17 INVESTMENT IN JOINT ARRANGEMENTS

The Company holds interests in joint operations for the acquisition and the development of real estate projects in the above companies. Currently, the Company has deposited funds with the Companies that are serving as vehicles for execution of joint arrangement projects. The joint operations have not yet commenced full operation.

2016 2015 Shs’000 Shs’000 At 1 January 264,222 263,032 Additions 5,600 1,190

At 31 December 269,822 264,222

Proportion of ownership Principal Place of interest held by 2016 2015 Name of joint arrangement activity incorporation the Company Shs’000 Shs’000 Mayfair Estates Limited Real Estate Kenya 50% 69,850 69,350

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

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

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

269,822 264,222 58 / 03 Mayfair Insurance Company Ltd

NOTES Notes to the Financial Statements (continued)

18 AVAILABLE FOR SALE EQUITY INSTRUMENTS

Unquoted Quoted equity shares investments Total Shs’000 Shs’000 Shs’000 2016

At 1 January 226,352 511,238 737,590 Additions 6,550 51,354 57,904 Exchange gains - 531 531 Fair value gains through other comprehensive income (67,954) (13,931) (81,885)

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

2015

At 1 January 266,971 377,298 644,269 Additions 14,089 15,378 29,467 Disposals - - - Exchange gains - 35,668 35,668 Fair value gains/(losses) through other comprehensive income (54,708) 82,894 28,186

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

The unquoted investments relate to ordinary shares the rates of exchange ruling at the end of reporting in PTA Reinsurance Company Limited, Family Bank period. The exchange gains and losses are dealt with Company Limited, UAP Insurance and Mayfair Bank. through other comprehensive income. The investments are carried at fair value and are de- nominated in the US Dollar in the case of the invest- Details of the fair value hierarchy of the Company’s ment in PTA Reinsurance and in Kenya shillings in all Available for sale financial instruments as at 31 De- other cases. The investments denominated in for- cember 2016 are as follows: eign currencies are translated into Kenya Shillings at

Level 1 Level 2 Level 3 Total Shs’000 Shs’000 Shs’000 Shs’000 31 December 2016 Available for sale - Equity instruments 164,948 549,192 - 714,140 December 2015 Available for sale - Equity instruments 234,597 502,993 - 737,590 You are in safe hands 59 / 03

NOTES Notes to the Financial Statements (continued)

19 REINSURERS’ SHARE OF TECHNICAL 2016 2015 PROVISIONS AND RESERVES Shs’000 Shs’000 Reinsurers’ share of - unearned premiums 510,039 418,616 - notified claims (note 27) 254,603 202,622 - claims incurred but not reported (note 27) 61,744 60,718

826,386 681,956

20 DEFERRED ACQUISITION COSTS

At 1 January 129,811 87,614 Increase/ (decrease) in the year 17,406 42,197

At 31 December 147,217 129,811

21 OTHER RECEIVABLES

Deposit held at financial institution under statutory management 10,000 25,934 Prepayments and deposits 1,732 2,463 Sundry receivables 37,775 59,388

49,507 87,785

22 GOVERNMENT SECURITIES - Held to maturity

Treasury bills and bonds maturing: Within 90 days - 18,914 In 1 to 5 years 40,261 20,142 More than 5 years 390,007 390,296

430,268 429,352

23 CORPORATE BONDS - Held to maturity

KenGen - Public Infrastructure Bond 7,972 10,577 Guarantee Trust Bank Limited 10,000 10,000 British American Insurance Bond 43,380 41,000 UAP Holdings Bond 16,467 15,600 NIC Bank Bond 33,561 32,300

111,380 109,477 60 / 03 Mayfair Insurance Company Ltd

NOTES Notes to the Financial Statements (continued)

2016 2015 Shs’000 Shs’000

23 CORPORATE BONDS - Held to maturity (continued)

Movement in corporate bonds: 7,972 10,577 At 1 January 109,477 112,164 Accrued Interest 4,591 - Disposals (2,688) - Amortization - (2,687)

At 31 December 111,380 109,477

24 DEPOSITS WITH FINANCIAL INSTITUTIONS - Held to maturity

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

25 WEIGHTED AVERAGE EFFECTIVE INTEREST RATES

The following table summarises the weighted average effective interest 2016 2015 rates realised during the year on interest-bearing investments: % %

Government securities 12.2 12.25 Deposits with financial institutions 11.8 16.49 Corporate bonds 12.0 12.58

26 SHARE CAPITAL

2016 2015 Shs’000 Shs’000 Authorised: 7,500,000 ordinary shares of Sh 100 each 750,000 750,000

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

Movement At 1 January 525,000 350,000 Capitalization of dividends 75,000 175,000

At 31 December 600,000 525,000 You are in safe hands 61 / 03

NOTES Notes to the Financial Statements (continued)

27 OUTSTANDING CLAIMS PROVISION 2016 2015 Shs’000 Shs’000

At 1 January 1,373,280 1,359,830 Claims incurred and claim handling expenses 762,375 423,572 Payments for claims and claims handling expenses (798,416) (654,013) Claims incurred but not reported 223,109 207,891

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

The development of insurance liabilities provides a measure of the Company’s ability to estimate the ultimate val- ue of claims. The table below illustrates how the Company’ estimate of total claims outstanding for each accident year has changed at successive year ends.

Accident year 2012 2013 2014 2015 2016 Total Shs’000 Shs’000 Shs’000 Shs’000 Shs’000 Shs’000 Cumulative incurred claims estimate At end of accident year 698,440 1,935,716 651,593 727,803 769,828 4,783,380 One year later 633,309 927,564 575,794 845,832 2,982,499 Two years later 572,163 899,825 625,718 2,097,706 Three years later 554,408 915,545 1,469,953 Four years later 541,766 541,766 Current estimate of cumulative claims 541,766 915,545 625,718 845,832 769,828 3,698,689 Less: Cumulative payments to date (498,644) (699,365) (395,537) (477,509) (407,083) (2,478,138) Liability in the statement of financial position 43,122 216,180 230,181 368,323 362,745 1,220,551 Liability in respect of prior years 116,688 Incurred but not reported 223,109 Total gross claims liability included in the statement of financial position 1,560,348 62 / 03 Mayfair Insurance Company Ltd

NOTES Notes to the Financial Statements (continued)

28 MOVEMENTS IN INSURANCE LIABILITIES AND REINSURANCE ASSETS

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

Gross outstanding Reinsurance claims share Net 2016 Shs’000 Shs’000 Shs’000 At 1 January 2016 Notified claims 1,165,389 202,622 962,767 Incurred but not reported 207,891 60,718 147,173

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

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

Increase in liabilities:- - Arising from current year claims 793,951 406,120 387,831 - Arising from prior year claims 191,535 56,827 134,708

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

Notified claim 1,337,239 254,604 1,082,635 Incurred but not reported 223,109 61,744 161,365

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

2015 At 1 January 2015 Notified claims 1,151,042 162,588 988,454 Incurred but not reported 244,788 105,672 139,116

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

Claims paid in year 654,013 237,413 416,600 Decrease in liabilities:- - Arising from current year claims 641,783 234,253 407,530 - Arising from prior year claims 10,320 1,760 8,560

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

Notified claims 1,165,389 202,622 962,767 Incurred but not reported 207,891 60,718 147,173

Total at end of year 1,373,280 263,340 1,109,940 You are in safe hands 63 / 03

NOTES Notes to the Financial Statements (continued)

2016 2015 Shs’000 Shs’000

29 UNEARNED PREMIUMS RESERVE

At 1 January 841,313 691,613 Increase in the year 124,729 149,700

At 31 December 966,042 841,313

30 DEFERRED REINSURANCE COMMISSIONS

At 1 January 69,238 84,643 Increase in the year 14,150 (15,405)

At 31 December 83,388 69,238

31 DEFERRED INCOME TAX

Deferred income tax is calculated using the enacted tax rate of 30% (2015: 30%). Deferred tax assets and liabili- ties, and the deferred tax charge / (credit) in the statement of profit or loss (P/L) and in other comprehensive income (OCI) are attributable to the following items:

At 1 Jan (Credited/ (Credited)/ At 31 Dec 2016 charged charged 2016 to P/L to OCI Year ended 31 December 2016 Shs’000 Shs’000 Shs’000 Shs’000 Deferred income tax asset Leave pay provision (1,970) (291) - (2,261)

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

Deferred income tax liability Accelerated capital allowances 8,708 2,157 - 10,865 Unrealised exchange gains 431 497 - 928 Revaluation surplus 14,460 18,787 842 34,089 Interest receivable 10,700 (10,700) - -

34,299 10,741 842 45,882

Net deferred tax liability/(asset) 32,329 10,450 842 43,621 64 / 03 Mayfair Insurance Company Ltd

NOTES Notes to the Financial Statements (continued)

31 DEFERRED INCOME TAX

At 1 Jan (Credited/ (Credited)/ At 31 Dec 2015 charged charged 2015 to P/L to OCI Year ended 31 December 2015 Shs’000 Shs’000 Shs’000 Shs’000 Deferred income tax asset Unrealised exchange losses (1,966) 1966 - - Leave pay provision (1,898) 72 - (1,970)

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

Deferred income tax liability Accelerated capital allowances 15,560 (6,852) 8,708 Unrealised exchange gains 1371 (940) 431 Revaluation surplus 92,820 76,664 1,696 14,460 Interest receivable - 10,700 - 10,700

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

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

The charge to other comprehensive income relates to:

2016 2015 Shs’000 Shs’000 Items that will not be reclassified subsequently to profit or loss: Surplus on revaluation of property and equipment 842 1,696

842 1,696

32 OTHER PAYABLES

2016 2015 Shs’000 Shs’000 Accrued expenses 8,669 7,596 Other liabilities 62,414 29,507

71,083 37,103 You are in safe hands 65 / 03

NOTES Notes to the Financial Statements (continued)

33 NOTES TO THE STATEMENT OF CASH FLOWS

2016 2015 Shs’000 Shs’000 (a) Cash generated from operations

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

Profit before income tax 403,879 402,652

Adjustments for: Depreciation (note 13) 20,877 18,560 Amortisation of intangible asset (note 14) 11,723 5,498 Fair value gain on investment properties (19,373) (18,603)

Changes in: - receivables arising out of reinsurance arrangements (5,528) 5,240 - receivables arising out of direct insurance arrangements (118,265) (73,919) - reinsurers share of technical provisions and reserves (144,430) (82,724) - deferred acquisition cost (17,406) (42,197) - other receivables 58,278 (14,726) - outstanding claims provisions 187,068 (22,550) - unearned premiums reserve 124,729 149,700 - payables arising out of reinsurance arrangements 25,467 152,878 - payables arising out of direct insurance arrangements 7,623 7,393 - deferred reinsurance commission 14,150 (15,405) - other payables 33,980 (26,260)

Cash generated from operations 582,772 445,537

(b) Analysis of cash and cash equivalents

Cash and bank balances 69,776 55,003 Government securities maturing within 3 months (note 22) - 18,914 Deposits with financial institutions maturing in 3 months (note 4)2 1,039,416 763,718

At 31 December 1,109,192 837,635 66 / 03 Mayfair Insurance Company Ltd

NOTES Notes to the Financial Statements (continued)

34 RELATED PARTIES

2016 2015 Shs’000 Shs’000 The following transactions were carried out with related parties:

Directors’ fees 2,688 2,209

Directors and key management remuneration 77,444 58,118

Gross earned premiums

Related partied 1,381 9,700

36 DIVIDENDS

The Directors recommend a first and final cash dividend of 16.67 per share amounting to Shs. 100,000,000 (2015 dividends Shs. 50,000,000 and a bonus share amounting to Shs. 75,000,000) The movement in the dividend account is as follows:

2016 2015 Shs’000 Shs’000 The movement in the dividend account is as follows:

Payable at 1 January 125,000 175,000 Final dividend declared 100,000 125,000 Dividends paid (125,000) (175,000)

At 31 December 100,000 125,000 You are in safe hands 67 / 03

NOTES Notes to the Financial Statements (continued)

37 OPERATING LEASE COMMITMENTS

2016 2015 Shs’000 Shs’000 Outstanding commitments under operating leases are as follows:

Company as a lessor: Not later than one year 27,883 25,853

Amounts charged to the profit or loss in the Year in respect of operating leases 24,176 20,465

38 INCORPORATION

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

39 CURRENCY

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

For the year ended 31 December 2016 68 / 03 Class of insurance business Fire Fire Motor Motor Personal Workmens 2016 2015 Aviation Engineering Domestic Industrial Liability Marine Private Commercial Accident Theft Compensation Miscellaneous Total Total Shs’000 Shs’000 Shs’000 Shs’000 Shs’000 Shs’000 Shs’000 Shs’000 Shs’000 Shs’000 Shs’000 Shs’000 Shs’000 Shs’000 Gross premium written 16,037 198,210 52,981 675,914 33,245 151,875 269,647 244,214 35,410 116,139 359,550 148,829 2,302,051 2,025,039 Unearned premium at the beginning of the year (17) 14,323 7,174 28,627 6,316 28,491 96,391 93,967 2,356 9,271 123,618 12,181 422,698 360,641 Unearned premium at the end of the year 36 21,771 8,126 43,112 10,739 31,104 100,124 83,765 3,005 13,125 121,942 19,154 456,003 422,698 Premium ceded to re-insurers 15,880 153,880 31,591 579,248 8,958 77,589 17,429 17,423 25,448 71,801 17,206 118,214 1,134,667 965,349

Net earned premium 104 36,882 20,438 82,181 19,864 71,673 248,485 236,993 9,313 40,484 344,020 23,642 1,134,079 997,633

Claims paid - 23,130 10,661 12,270 669 14,749 156,802 87,872 3,186 13,622 65,104 413 388,478 416,549 Claims outstanding brought forward 40 23,425 5,663 11,296 7,113 55,197 149,959 324,689 2,270 12,018 498,242 20,028 1,109,940 1,127,572 Claims outstanding carried forward 1 27,293 5,073 4,399 12,074 55,346 115,959 365,639 3,839 13,994 627,458 12,925 1,244,000 1,109,940

Claims incurred (39) 26,998 10,071 5,373 5,630 14,898 122,802 128,822 4,755 15,598 194,320 (6,690) 522,538 398,917

Commissions (net) (2,311) (16,537) 1,428 (18,936) 4,779 11,951 23,599 23,587 (690) 782 68,561 (27,421) 68,792 41,442 Expenses of management 382 10,719 6,995 33,092 4,006 15,256 74,363 54,071 2,965 13,042 52,934 11,815 279,640 294,685 Premium tax 185 2,291 612 7,813 384 1,756 3,117 2,823 409 1,342 4,156 1,720 26,608 24,171

Total expenses (1,744) (3,527) 9,035 21,969 9,169 28,963 101,079 80,481 2,684 15,166 125,651 (13,886) 375,040 360,299 Mayfair Insurance Company Ltd

Underwriting profit 1,887 13,411 1,332 54,839 5,065 27,812 24,604 27,690 1,874 9,720 24,049 44,218 236,501 238,417

Joe Okwach Bharat Shah Joshua Chiira Chairman Director Managing Director WE ARE RELIABLE

Over the years we have grown to become one of the most reliable insurance companies in the region. This is why indusrty leaders trust us - WE INSURE INDUSTRY LEADERS You are in safe hands

KENYA ZAMBIA Mayfair Centre, 8th Floor Lubuto House Ralph Bunche Road, Nairobi Lubuto Road, Rhodes Park, Lusaka +254 20 2999000, +254 724/733 256925 +260 211 255182/3 [email protected] [email protected]

TANZANIA RWANDA TAN-RE House, 2nd Floor Makuza Peace Plaza Building, 2nd Floor Longido Street, Upanga, Dar es Salaam KN4, Avenue de la Paix, Nyarugenge, Kigali +255 22 2922337/338, +255 785 032970 +250 788 302124 [email protected] [email protected]

WWW.MAYFAIR.CO.KE