With Strength Undiminished www.srilankainsurance.com ANNUAL REPORT 2013 WITH STRENGTH UNDIMINISHED SRI LANKA INSURANCE CORPORATION LTD. | ANNUAL REPORT 2013 This Sri Lanka Insurance Corporation Ltd. annual report has been produced by Smart Media The Annual Report Company, a certified carbon neutral organisation. Additionally, the greenhouse gas emissions resulting from activities outsourced by Smart Media in the production of this annual report, including the usage of paper and printing, are offset through verified sources. WITH STRENGTH UNDIMINISHED With over half a century of enterprise single mindedly focused on evolving and providing the ultimate insurance portfolio, Sri Lanka Insurance Corporation Ltd., today brings to bear all of its undiminished strength as an exciting new era unfolds. Restructure within the industry and the segregation of our Life and General Insurance arms of business pose no hindrance to a strongly founded operation…this is SLICL! SRI LANKA INSURANCE CORPORATION LTD. | ANNUAL REPORT 2013 WITH STRENGTH UNDIMINISHED Vision To be the trusted insurer to the nation. Mission To be a customer-focused company that is trusted, which constantly innovates in providing insurance services of best value to our customers, whilst rewarding our employees and adding value to our shareholders. v WITH STRENGTH UNDIMINISHED Contents Management Reports 1.0.0 1 Chairman’s Message 1.1.0 1 Managing Director’s Review 1.2.0 6 Management Discussion and Analysis 1.3.0 10 Sustainability Report 2.0.0 36 Customers 2.1.0 37 Employees 2.2.0 40 Business Partners 2.3.0 46 Society 2.4.0 48 Government and the Economy 2.5.0 51 Global Reporting Initiative (GRI) G3 Index 2.6.0 52 Corporate Governance - Board at the Helm of Stewardship 3.0.0 64 Board of Directors 3.1.0 66 Senior Management Team 3.2.0 73 Organisational Structure 3.3.0 76 Enterprise Risk Management 4.0.0 78 Audit and Compliance Committee Report 5.0.0 104 vi WITH STRENGTH UNDIMINISHED Financial Reports 6.0.0 109 Annual Report of the Board of Directors of the Company 6.1.0 111 Statement of Directors’ Responsibility 6.2.0 121 Chief Executive Officer’s and Chief Financial Officer’s Responsibility Statement 6.3.0 122 Certificate of Actuary of the Insurer 6.4.0 124 Certification of Incurred But Not (Enough) Reported Claims 6.5.0 126 Independent Auditors’ Report 6.6.0 127 Statement of Financial Position 6.7.0 130 Statement of Income 6.8.0 132 Statement of Comprehensive Income 6.9.0 134 Statement of Changes in Equity 6.10.0 136 Cash Flow Statement 6.11.0 140 Statement of Financial Position - Segmental Review 6.12.0 142 Statement of Income - Segmental Review 6.13.0 146 Notes to the Financial Statements 6.14.0 150 Supplementary Information 7.0.0 264 Statement of Financial Position of the Life Insurance Fund 7.1.0 264 Notes to the Financial Statements - Life Insurance 7.2.0 265 Ten Year Summary 7.3.0 278 Glossary 7.4.0 286 Branch Offices 7.5.0 287 Corporate Information 7.6.0 290 Notice of Annual General Meeting 7.7.0 291 vii WITH STRENGTH UNDIMINISHED | MANAGEMENT REPORTS Management Reports 1.0.0 1.1.0 Chairman’s Message In 2013, Sri Lanka Insurance Corporation Ltd. (SLICL) continued to demonstrate its stability, strength and long term sustainability. Having established itself as one of the most respected players in the insurance industry, SLICL has an unparalleled assets base of over Rs. 143.56 billion with a life fund of over Rs. 66.5 billion and over half a million policies in force. It is the only insurer in Sri Lanka to be ranked AAA by RAM Ratings Lanka Ltd., and AA(lka) by the global rating agency Fitch Ratings (London). 1.1.1 Performance The Company recorded stellar performance in 2013 recording a profit before taxation of Rs. 6.35 billion for the year, the highest ever in the history of the insurance industry. Life and general insurance premiums recorded commendable growth rates as well, with all indicators moving in the right direction. Gross Written Premium (GWP) grew to Rs. 8.4 billion for life and Rs. 12.95 billion for general (non-life). The combined GWP grew by 5.84%. SLICL is the market leader in motor insurance with a market share of 21.61% as per the figures shared by the insurance players in the industry. Whilst the industry accounts for a motor ratio of 60.76%, ours stands at a strong 56.34%. We have made substantial progress in strengthening our life insurance business as well. Our progressive business approach enabled us to benefit from the opportunities that arose in our rapidly growing nation. Our diversification strategy also made a key contribution on achieving an unprecedented consolidated profit during the year. 1 WITH STRENGTH UNDIMINISHED | MANAGEMENT REPORTS 2 WITH STRENGTH UNDIMINISHED | MANAGEMENT REPORTS “The Company recorded stellar performance in 2013 recording a profit before taxation of Rs. 6.35 billion for the year, the highest ever in the history of the insurance industry” 3 WITH STRENGTH UNDIMINISHED | MANAGEMENT REPORTS 1.1.2 Recognition The SLICL Annual Report 2012 was successful in winning a Bronze Award in the Asia Pacific region under the Insurance Category at the 2012 Vision Awards, organised by the League of American Communications Professionals (LACP). 1.1.3 Outlook The regulatory changes that are currently being implemented would have a positive effect on the insurance industry and encourage market consolidation. These include the risk-based (RBC) capital regime, segregation of composites into life and non-life, an increase in minimum regulatory capital and public listing. The split of life and non-life business from 2015 would promote greater transparency and policyholder protection. The mandatory public listing by 2016 will also enhance transparency and encourage better governance. Premium growth is likely to continue, supported by low penetration in an economy that is still growing, though at a slower pace. 4 WITH STRENGTH UNDIMINISHED | MANAGEMENT REPORTS 1.1.4 Appreciation As I conclude I convey my gratitude to all my colleagues on the Board, Managing Director and his staff, field sales personnel, strategic sales partners, insurance brokers and all other stakeholders for their unwavering support in making 2013 another year of momentous accomplishment. H. K. Upali Dharmadasa Chairman 21st March 2014 5 WITH STRENGTH UNDIMINISHED | MANAGEMENT REPORTS 1.2.0 Managing Director’s Review I am pleased to present the Annual Report of Sri Lanka Insurance Corporation Ltd. (SLICL) for the financial year 2013. SLICL is the largest composite insurance provider in Sri Lanka. Our performance during the year has reaffirmed our status as the most robust insurance company in the industry. 1.2.1 Excellent Performance Your Company recorded an impressive profit before tax of Rs. 6.35 billion for the year, an increase Year-on-Year. This is undoubtedly one of the highest profits achieved in the history of our Company and also in the insurance industry in Sri Lanka. The life insurance premium grew by a commendable 13.95% to Rs. 8.40 billion whilst general insurance premium increased to Rs. 12.95 billion during the same period. The combined Gross Written Premium (GWP) grew by a healthy 5.84% as well. Year after year, we have continued to declare unprecedented bonuses to our policy holders, reinforcing their trust in us. This is consequent to the excellent management of our well-matured life insurance fund and prudent investments. I am pleased to announce that we have declared a bonus of Rs. 4.5 billion for the year which is the highest ever bonus in the history of the insurance industry of Sri Lanka. The cumulative life insurance bonus paid out during the past nine years has surpassed a massive Rs. 25.9 billion, making us the largest bonus paying insurance company in the nation. 6 WITH STRENGTH UNDIMINISHED | MANAGEMENT REPORTS 7 WITH STRENGTH UNDIMINISHED | MANAGEMENT REPORTS 1.2.2 Regulatory Changes In order to strengthen customer confidence in the industry, several new regulations were introduced under the Regulation of Insurance Industry (Amendment) Act No. 03 of 2011. Accordingly, a Risk Based Capital (RBC) framework was introduced to protect the interest of the stakeholders and to minimise the risk of possible financial crisis. Capital adequacy requirements and the solvency positions are regulated by this framework as well. The Act also mandates composite insurance companies to segregate into two segments, as life insurance and general insurance. 1.2.3 Our Operations Understanding the changing dynamics in the post-conflict economy, we played a vital role catering to the evolving needs with competitive prices, whilst preserving the credibility of our contractual obligations to the policyholders. As the leading insurer of the nation we give much emphasis to managing the risks of the Company, particularly the investment risk. This is of paramount importance in the context of turbulent market conditions, characterised by highly volatile returns, reduced diversification benefits and wide dispersion in market sentiments. The main focus of risk management at SLICL is to promptly identify, measure, manage, report and monitor risks that affect the investment objectives of the Company. We also maintain a funding cushion of over Rs. 3 billion in liquid securities to meet obligations and also a portfolio of readily marketable Treasury Bonds and Bills as well. In keeping pace with mobile technology, we tied up with a leading mobile service provider to offer greater convenience to our life insurance customers in making premium payments. This facility has enabled us to define an advanced level of efficiency and convenience across the customer engagement value chain for insurance services.