REPOSITIONING - Lacp.com

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REPOSITIONING - Lacp.com

REPOSITIONING

WITH GREATER STRENGTH

ANNUAL REPORT 2011


REPOSITIONING

WITH GREATER STRENGTH

Sri Lanka Insurance Corporation LTD. | Annual Report 2011


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ISBN 978-955-1619-05-3

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REPOSITIONING

WITH GREATER STRENGTH

Today is a day of victory and celebration,

as we raise our flag upon the 50 years of hard work,

good faith and success. As the state-owned

insurance company we are honoured to carry on

with us a nation’s pride.

Sri Lanka Insurance Corporation LTD. | Annual Report 2011


REPOSITIONING WITH GREATER STRENGTH

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.

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REPOSITIONING WITH GREATER STRENGTH

Contents

Our 5O Years of Legacy 01

Management Reports 1.0.0 04

Chairman’s Message 1.1.0 04

Managing Director/Chief Executive Officer’s Review 1.2.0 10

Management Discussion and Analysis 1.3.0 16

Sustainability Report 2.0.0 44

Executive Director’s Statement 2.1.0 44

Customers 2.2.0 47

Employees 2.3.0 50

Business Partners 2.4.0 56

Government 2.5.0 56

Economy and the Community 2.6.0 58

Culture 2.7.0 59

Environment 2.8.0 59

Global Reporting Initiative (GRI) G3 Index 2.9.0 60

Corporate Governance -

Board at the Helm of Stewardship 3.0.0 71

Board of Directors 3.1.0 72

Senior Management Team 3.2.0 79

Organisational Chart 3.3.0 82

Enterprise Risk Management 4.0.0 84

Audit And Compliance Committee Report 5.0.0 96

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REPOSITIONING WITH GREATER STRENGTH

Financial Reports 6.0.0 101

Annual Report of the Board of Directors of the Company 6.1.0 103

Statement of Directors’ Responsibility 6.2.0 111

Chief Executive Officer’s and Chief Financial Officer’s

Responsibility Statement 6.3.0 112

Certificate of the Actuary of the Insurer 6.4.0 114

Certification of Incurred but Not (Enough) Reported Claims 6.5.0 116

Independent Auditors’ Report 6.6.0 117

Balance Sheet 6.7.0 120

Statement of Income 6.8.0 122

Statement of Changes in Equity 6.9.0 124

Cash Flow Statement 6.10.0 128

Balance Sheet - Segmental Review 6.11.0 130

Statement of Income - Segmental Review 6.12.0 134

Balance Sheet - Life Insurance 6.13.0 138

Notes to the Financial Statements - Life Insurance 6.14.0 139

Notes to the Financial Statements 6.15.0 150

Supplementary Information 7.0.0 210

Ten Year Summary 7.1.0 210

Glossary 7.2.0 218

Branch Offices 7.3.0 219

Corporate Information 7.4.0 222

Notice of Meeting 7.5.0 223

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REPOSITIONING WITH GREATER STRENGTH | Our 5O Years of Legacy

Our 5O Years of Legacy

1962

The 01st of January 1962 is the appointed date fixed under the Insurance Corporation

Act, No. 2 of 1961 for the commencement of new business by the corporation.

As from the appointed date the corporation exercised the sole monopoly in the

writing of new life insurance business while non-life insurance business was

transacted in competition with privately-owned companies operating in the country.

1993

Insurance Corporation of Sri Lanka was converted to a public limited liability

Company in the name of Sri Lanka Insurance Corporation Ltd. (SLICL) from

03rd February 1993 under the Conversion of Public Corporations or Government-

Owned Business Undertakings into Public Companies Act No. 23 of 1987.

2000

The total premium underwritten in both life and non-life business increased from

Rs. 5,768 million to Rs. 6,177 million, registering an increase of 7.1%. SLICL’s

market share stood at 36% for life and 45% for non-life.

2001

SLICL settled the largest claim ever with a payment of Rs. 36.9 billion, related to

the Bandaranaike International Airport attack by the Liberation Tigers of Tamil

Eelam (LTTE).

2002

The Company continued its position as the market leader in both life and

non-life insurance businesses accounting for 32.12% and 42.44% of the market

share, respectively.

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REPOSITIONING WITH GREATER STRENGTH | Our 5O Years of Legacy

2003

Total gross written premium in both life and non-life insurance increased from

Rs. 7,851 million to Rs. 8,480 million, registering an increase of 8%. Under the

privatisation programme of the Government, the Company was privatised in 2003.

2004

The strength and stability of the Company was emphasised by the AA-(Sri)

National Insurer Financial Strength Rating assigned by Fitch Ratings, London, for

the ability to meet policyholders’ obligations.

2005

The strength and stability of the Company was emphasised by the AA-(Sri)

National Insurer Financial Strength Rating assigned by Fitch Ratings London for

the ability to meet policyholders’ obligations for the third consecutive year.

2006

Total gross written premium in life and non-life insurance recorded an increase

of 4% to Rs. 10.57 billion from Rs. 10.17 billion in 2005.

2007

SLICL was among the top IBSL respected insurance companies in Sri Lanka

holding 22% market share in life and 28% market share in non-life.

2008

SLICL achieved a GWP of Rs. 4.5 billion for life and Rs. 9.1 billion for non-life.

The market share stood at 19% and 26% respectively for life and non-life.

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REPOSITIONING WITH GREATER STRENGTH | Our 5O Years of Legacy

2009

Pursuant to the Supreme Court Judgment on 04th June 2009, annulling the

privatisation, 99.99% shares are vested with the Secretary to the Treasury on

behalf of the Government of Sri Lanka. SLICL was awarded the ISO 9001:2000

Quality Management System certification by SGS Lanka (Pvt) Ltd. covering all its

branches islandwide. Also, SLICL was reinstated in the state sector placing the

Company in a unique position: private sector flair with state ownership.

2010

SLICL regained its market leadership in non-life insurance. RAM Ratings Lanka

upgraded the SLICL’s claims paying ability rating from AA- to AAA with stable outlook.

SLICL was recognised and awarded at the World Finance Awards 2010

held in London as the ‘Best Insurance Company of the Year 2010-Sri Lanka’.

The SLIM-Nielsen People’s Award for Insurance Brand of the year was also jointly

won by SLICL and Ceylinco Insurance Life. SLICL acquired 100% of issued shares

of Litro Gas Terminal Lanka (Pvt) Ltd. [formerly known as Shell Gas Terminal

Lanka (Pvt) Ltd.] and 51% of issued shares of Litro Gas Lanka Ltd. (formerly

known as Shell Gas Lanka Ltd.).

2011

SLICL declared the largest ever bonus to life policyholders in 2011, amounting to

Rs. 4 billion. Fitch Ratings Lanka upgraded SLICL’s National Long-Term Rating

and National Insurer Financial Strength (IFS) rating to ‘AA(lka)’ from ‘AA-(lka)’

with stable outlook.

SLICL was awarded the prestigious International Gold Star Award for

quality at the World Quality Commitment Award 2011 held in Paris. SLICL

recorded highest GWP of Rs. 18.3 billion in the 50 years’ of history. During the

year under review, SLICL acquired balance 49% issued shares of Litro Gas Lanka

Ltd. (formerly known as Shell Gas Lanka Ltd.). SLICL holds 19% and 26% market

share in life and non-life where it continues to be the market leader.

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Management Reports 1.0.0

1.1.0 Chairman’s Message

S

ri Lanka Insurance Corporation (SLICL) completed the year 2011 with

further impressive progress in its achievements and marked the dawn

of another important year for our Company, the 50th Anniversary which

signifies a half century of togetherness of all our stakeholders. Our Company

has been growing strongly reflected in improved financial performance and with

the pride of our legacy as the insurance giant and our new look, refurbished

Rakshana Mandiraya along with enhanced customer care services, especially the

re-launching of our very own 24/7 customer care centre and revamped website

witness that we are renewed everyday. The main elements reckoned for the

overall success story of our Company are reliability, solidity, customer focus and

good governance. Company assets reached Rs. 102.2 billion and we have the

highest Shareholders’ Fund worth of Rs. 24.6 billion, the highest Life Fund worth

of Rs. 55.8 billion, local as well as international accolades and accreditations

received including the World Quality Commitment Award received in Paris.

1.1.1 The Economy

We are pleased that the continuing progress in the economic front in the ambiance

of peace and political stability, particularly the implementation of several key

development initiatives by the Government has resulted in raising growth rate of

the Sri Lankan economy further during the year 2011. As reported by the Central

Bank of Sri Lanka, the Sri Lankan economy registered another impressive growth

performance of 8.3% following almost a similar achievement (8%) in the previous

year, expanding opportunities for the insurance sector also to grow faster. The

unemployment rate has declined to 4.2% from 4.9% in 2010. The rate of inflation

has remained at single digit level with a slight upward movement, from 6.2%

in 2010 to 6.7% in 2011. In the context of evolving macroeconomic situation,

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REPOSITIONING WITH GREATER STRENGTH | Management Report

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REPOSITIONING WITH GREATER STRENGTH | Management Report

“SLICL completed the year

2011 with further impressive

progress in its achievements

and marked the dawn of

another important year

for our Company, the 50th

Anniversary which signifies a

half century of togetherness of

all our stakeholders. Garnering

fifty years of experience and

strength in the insurance

sector, national well-being has

been at the pinnacle of SLICL’s

fifty years legacy”

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REPOSITIONING WITH GREATER STRENGTH | Management Report

the interest rates, particularly the Treasury Bills and Treasury Bond rates,

the prime lending rates and the average deposit rates also moved upwards with

further increases during the first few months of 2012.

1.1.2 Company Performance

SLICL achieved a Gross Written Premium (GWP) of Rs. 6.7 billion for life and

Rs. 11.6 billion for non-life and a combined net profit before tax of Rs. 7.8 billion

in 2011. The combined GWP grew by 20.2% led by 25.2% growth in non-life

insurance business. The market leadership position in non-life insurance that

we regained in 2010 was further strengthened in the year under review. This

is all the more significant considering that the competition within insurance

industry in the country has become more intense with the entry of new players

and aggressive marketing and sales strategies. SLICL is the leader in the motor

insurance and we have gained a market share of 25.58%. Our market leadership

in non-life insurance not only cuts across motor but also across all other classes.

Whilst the industry accounts for a motor ratio (ratio of motor business to the total

non-life insurance business) of 73%, ours stands at a healthy 57%. We have made

continued progress in strengthening our life insurance business as well.

1.1.3 Recognitions

Our strength drew international accolades in 2011 as well. SLICL once again was

shone at the ‘World Quality Commitment Awards’ when the Company bagged the

prestigious International Gold Star Award for Quality at the International Quality

Convention in Paris, on 24th October 2011. ‘World Quality Commitment Award’ was

awarded in recognition of implementing and promoting quality culture within the

organisation in terms of excellence in leadership within each designated sector,

increased market share, improved results and sustainability. SLICL’s AAA claims

paying rating has been confirmed by RAM Ratings with a stable outlook, based on

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REPOSITIONING WITH GREATER STRENGTH | Management Report

its competitive position, state ownership and capitalisations. Fitch Ratings London

upgraded National Long-Term Rating and Insurer Financial Strength Rating from

AA- (lka) to AA(lka) in 2011.

1.1.4 Future Outlook

As Sri Lanka takes full advantage of the ongoing economic development process

with widespread expansion in economic activity carving industry, agriculture and

services including tourism and commercial activities, the future looks positive

and challenging. Simultaneously SLICL is committed and striving to cater to the

people of Sri Lanka across every stratum of demography and geography through

insurance solutions that embrace people. Garnering fifty years of experience and

strength in the insurance sector, national well-being has been at the pinnacle of

SLICL’s fifty years legacy and we are looking forward to pursue a strategy of a

qualitative portfolio of investments as a propagator of economic development of

the country. We are committed to further strengthen SLICL adapting to changing

market conditions and further improving customer service and productivity.

1.1.5 Appreciation

In conclusion, as we celebrate the 50th Anniversary of the Company, I place

on record sincere appreciation to Madam Sirimavo Bandaranaike, Sri Lanka’s

Matriarch and her Finance Minister, Mr. T.B. Illangaratne, essentially a man of the

soil, for setting up the Company in the early 1960’s. Also, as we celebrate the Golden

Jubilee of the Company, I recall the famous quotation ‘to equal a predecessor one

must have twice they worth’; I convey my heartfelt appreciation to all the Chairmen

since inception with my special appreciation to my immediate predecessor,

Mr. Gamini S. Senarath for his excellent leadership.

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REPOSITIONING WITH GREATER STRENGTH | Management Report

Further, I wish to thank all my colleagues on the Board, Managing

Director/Chief Executive Officer and his staff, field sales personnel, strategic

sales partners, insurance brokers and all other stakeholders for their unstinted

support to make 2011, as another year of success.

I am positive that our Company will continue to generate excellent results

in future as well, providing insurance to all Sri Lankans further improving its

value addition.

R. A. Jayatissa

Chairman

08th May 2012

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REPOSITIONING WITH GREATER STRENGTH | Management Report

1.2.0 Managing Director/

Chief Executive Officer’s Review

As the Managing Director/CEO of Sri Lanka Insurance Corporation Ltd.,

a company with a long and trusted tradition of delivering the best insurance

solutions, I am pleased to present to you the Annual Report for the year

ended 31st December 2011.

1.2.1 Financial Results

SLICL reported a 12.2% growth in life insurance premium during the year under

review, increasing from Rs. 6,009 million in 2010 to Rs. 6,743 million in 2011.

The non-life insurance recorded a 25.4% growth from Rs. 9,266 million in 2010 to

Rs. 11,622 million in 2011. The Company’s combined GWP growth rate was 20.2%

against 12.5% achieved in 2010. Non-life insurance contributed 63.3%towards

total GWP in the wake of intense price competition and life insurance at 36.7%.

The Company recorded a profit before tax of Rs. 7,815 million compared with

Rs. 15,034 million in 2010 mainly due to low capital market performance.

However, our prudential long-term investments in both Litro Gas Lanka Ltd. and

Litro Gas Terminal Lanka (Private) Ltd. have paid rich dividends in 2011. SLICL

achieved a consolidated profit before tax of Rs. 12 billion and profit after tax of

9.9 billion in 2011 compared to Rs. 15.1 billion and Rs. 13.3 billion respectively

in 2010. We purchased the balance 49% issued shares of Litro Gas Lanka Ltd. in

2011 and now holds 99.99% and 100% issued shares of Litro Gas Lanka Ltd. and

Litro Gas Terminal Lanka (Private) Ltd. respectively.

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“SLICL reported a 12.2%

growth in life insurance

premium during the year

under review, increasing from

Rs. 6,009 million in 2010 to

Rs. 6,743 million in 2011.

The non-life insurance

recorded a 25.4% growth

from Rs. 9,266 million in 2010

to Rs. 11,622 million in 2011.

The Company’s combined

GWP growth rate is 20.2%

against 12.5% achieved

in 2010.

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REPOSITIONING WITH GREATER STRENGTH | Management Report

Non-life insurance

contributed 63.3% towards

total GWP in the wake of

intense price competition and

life insurance at 36.7%.”

During the year under review several initiatives were taken to provide

enhanced services to our customers including revamping the Company website,

re-launching an upgraded 24/7 Customer Care Centre with the most modern

communication technology equipped with a toll-free number for the convenience

of all customers; opening a branch at the Department of Motor Traffic where

customers now have access to a range of services offered by SLICL, in addition

to obtaining the newly-introduced learner-driver cover and providing insurance

solutions through alternate channels including bancassurance and postal insurance

as morefully detailed in the Management Discussion and Analysis (MD & A).

I’m also pleased to note that we proposed a bonus of Rs. 4 billion to our

life policyholders which has surpassed our own records last year of Rs. 3.4 billion.

This is incidentally the highest ever bonus declared by the Company and also the

highest in the insurance industry in Sri Lanka which goes on to prove our true

commitment and stewardship for the trust placed in us by our valued clientele.

We are proud to be able to celebrate our golden jubilee with such a tribute

to our life policyholders. Holding the largest Life Fund in the industry of

Rs. 55.8 billion, Shareholders’ Fund of Rs. 24.6 billion and assets of Rs. 102.2 billion

which represent 39% of the total insurance industry assets proves beyond doubt

the financial stability, strength and security of SLICL to any policyholder.

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1.2.2 Solvency Ratio and Equity Ratio

SLICL has maintained the required solvency margins during the financial year

2011. Accordingly life insurance business has maintained the solvency ratio of

10.05 and non-life insurance business recorded the solvency ratio of 1.93 for

the year 2011. The life insurance solvency ratios of 6.11 and non-life insurance

solvency ratio of 2.11 have been reported for the year 2010. The life insurance

business has maintained the admissible assets amounting to Rs. 60,943 million

while recording the liabilities of Rs. 42,307 million for the year 2011. The recorded

admissible assets of the non-life insurance business are Rs. 20,801 million and

respective liabilities are Rs. 15,640 million for the year 2011.

The life insurance recorded an equity ratio of 66.32% for the financial

year 2011 compared with the equity ratio 62.75% reported in the year 2010.

The same ratio recorded for non-life insurance was 11.91% for the year 2011

and 75.42% for the year 2010. The life insurance business reported profit

attributable to shareholders of Rs. 4,463 million while recording total equity of

Rs. 6,729 million for the year under review. Net Profit recorded for non-life insurance

business was Rs. 2,131 million and total equity recorded was Rs. 17,896 million.

1.2.3 Future Outlook

Our intention is to maintain the benchmark for effective management and

service excellence in the insurance industry. We will continue to enter into

more strategic partnerships with both state-owned and private-owned entities in

providing services which exceed the expectations of our customers.

In 2012, our branch network will be extended to establish more branches

in Southern and Eastern Provinces. The Northern Province branch network is

already in place and rapid progress is expected in 2012.

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1.2.4 Acknowledgements

None of this would have been possible without the long-term vision of

His Excellency the President Mahinda Rajapaksa in his capacity as the Minister

of Finance, unstinted support from the Chairman and the Board of Directors,

immediate past Chairman Mr. Gamini S. Senarath, loyalty from our vital customers,

commitment and dedication of our employees, field sales personnel, strategic sales

partners, insurance brokers, the generous support from various agencies of the

Government and all other stakeholders. I am very positive that their committed

support which is the basis of all our plans will be forthcoming as we face the

challenges of the future.

A.M. Mohan De Alwis

Managing Director/CEO

08th May 2012

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1.3.0 Management Discussion

and Analysis

1.3.1 Overview

The Management Discussion and Analysis (MD&A) of SLICL for the year

ended 31st December 2011 is presented below. The main objective of this

MD&A is to give an opportunity for the readers to obtain information and

understanding about the Company’s affairs through the eyes of the management.

This report was developed based on both historical and prospective information.

1.3.2 Economic Review

1.3.2.1 The Global Economy

According to the ‘World Economic Outlook (WEO), September 2011’ of the

International Monetary Fund, 2011 was a year of set-back. The economic recovery

had become much more uncertain during 2011. The world economy suffers from

the confluence of two adverse developments; namely, much slower recovery in

advanced economies since the beginning of the year and a large increase in fiscal

and financial uncertainty, which has been particularly pronounced since August.

World Economic Outlook projections indicate that global growth will moderate

to about 3.9% in 2012 while downsized risks to this outlook is higher with the

growth of world output slowing to 3.5% in 2011 compared to 5.9% in 2010.

1.3.2.2 The Sri Lankan Economy

Following the end of the internal conflict, Sri Lanka is engaging in large-scale

reconstruction and infrastructure development projects including growing

electricity access, rebuilding its road and rail network. Furthermore, Sri Lanka

seeks reducing poverty by using a combination of state directed policies and

private investment promotions to stimulate growth in underprivileged areas,

through expansion of small and medium enterprises and agriculture.

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“Opportunity is missed by

most people, because it is

dressed in overalls and looks

like work.” - Thomas Alva Edison

1.3.2.3 Economic Growth

Gross Domestic Product (GDP) increased by 8.3% in 2011 compared to 8%

growth in 2010, according to the Annual Report of the Central Bank of Sri Lanka.

This growth was a combined outcome of stronger performance in industry, services

and a relatively slower growth in agriculture. The industrial sector had recorded

a higher growth of 15.3% in 2011 compared to 12.2% in 2010 underpinned by

increased domestic and external demand, reflected in the growth of domestic

market oriented industries as well as export market oriented industries.

The services sector had grown by 8.6% compared to 8% in 2010 reflecting

increased trade, transport, communication and other services activities.

The hotel and restaurant sub sector grew by 26.4% due to higher tourist arrivals.

As indicated in the Central Bank report, the insurance sector recorded a steady

growth in premium incomes during 2011 with improved business involvements

while maintaining its soundness.

1.3.2.4 Investment and Savings

The gross domestic investment increased to 29.9% of GDP in 2011 from 27.6%

in 2010. However, in the wake of raising domestic demand, the external account

deficit widened and the gross national savings rate declined to 22% in 2011

exerting pressure on interest rates. Foreign direct investments (FDI) increased

to reach USD 1,066 million compared to USD 516 million in 2010, including the

hotel and restaurant sub sector.

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1.3.2.5 Inflation

The rate of annual average inflation as measured by the Colombo Consumers’

Price Index (2006/07 - 100) remained relatively stable, while indicating a slight

upward movement from 6.2% to 6.7% in 2011.

1.3.2.6 Unemployment Rate

With the continued expansion of economic activity, unemployment ratio declined

further from 4.9% in 2010 to 4.2% in 2011. This together with the rising incomes

was a positive factor for the growth of insurance business. The changing structure

of the population, particularly, aging, and other economic conditions pose

additional challenges for the life insurance sector to come up with innovative

insurance products.

1.3.2.7 External Trade and the Balance of Payment

External trade continued to expand with exports growing from USD 8.6 billion to

USD 10.6 billion between 2010 and 2011. Imports increased from Rs. 13.5 billion

in 2010 to Rs. 20.3 billion in 2011, owing to rising oil prices and growth in demand

for durable consumer goods as well as investment goods. Earnings from tourism

and inflows of worker remittances continued to rise. The balance of payment

recorded a deficit in 2011, compared to surpluses in the last two years.

1.3.2.8 Economic and Insurance Industry Outlook - 2012

The budget for Sri Lanka for 2012 has been based on the assumption of a

continuation of impressive growth performance achieved during the last two

years. The growth of 2011 has been estimated at 8.3%. The Gross Domestic Product

(GDP) for 2012 is expected to be around 7.2%. With the ongoing development

activities initiated by the Government and the prevailing peaceful environment

after the ending of war, widespread economic expansion is taking place covering

the entire country and this has opened up new opportunities for the insurance

industry to grow faster. Sri Lanka is also expected to attract a significant amount

of foreign investments, a continued expansion of the tourist sector and a growth

of workers’ remittances.

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Despite these positive expectations, there remains significant uncertainties

mainly relating to the global economic environment including uncertainties

in petroleum oil products market. Given the high degree of global integration

and the heavy dependence of the Sri Lankan economy on imported oil,

the country remains vulnerable to the changing conditions relating to these areas.

A sharp rise in oil prices will have an impact on the economy and the domestic

financial markets.

Overall, Sri Lanka is geared to consolidate the economic growth achieved

in the past few years with a continuation of improved business confidence. It is

expected that appropriate corrective action will be taken to mitigate any adverse

impact of the external market conditions on the Sri Lankan economy and sustain

its growth momentum and stability. However, the significant change in the

economic environment particularly of GDP growth prospects, macroeconomic

policy variables, mainly fiscal and monetary policies (taxation, interest rates etc.)

will have an impact on the insurance business.

1.3.3 Industry Review

1.3.3.1 Local Insurance

The insurance sector recorded a higher growth in premium income in the wake

of improved business environment. The insurance sector in total consists of

22 insurance companies, of which 12 are composite insurers, with 7 offering

only non-life insurance and 3 offering only life insurance products. Forty-six

(46) registered insurance brokering companies, currently engage in insurance

brokering business.

1.3.3.2 Premium Income

The total Gross Written Premium (GWP) of insurance companies rose by 23%

to Rs. 39 billion in the first half of 2011 compared with an increase of 11% in

the first half of 2010. The GWP for long-term insurance increased by 30% to

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Rs. 17 billion, while the GWP for non-life insurance increased by 19% to

Rs. 22 billion. Total investment income of insurance companies declined

marginally by 0.3% to Rs. 12 billion during the first six months of 2011 as against

an increase of 40% in the same period of 2010, on account of the decline in

stock market prices and yields on Government Securities. The overall profit of

insurance companies increased by 44% in the first six months of 2011 primarily

on account of the higher growth in premium income, despite the slightly lower

earnings on investments.

1.3.3.3 Regulatory Environment

The regulatory framework of the insurance sector was strengthened with

the enactment of amendments to the Regulation of Insurance Industry Act

(RII) Act in January 2011 and new amendments to the solvency margin rules

and Determination 1. The Solvency Margin (General Insurance) Rules, 2004

published in Gazette Extraordinary No. 1,341/8 of 17th May 2004 and the Solvency

Margin (Long-Term Insurance) Rules, 2002 published in Gazette Extraordinary

No. 1,255/12 of 24th September 2002 were amended with effect from 01st April 2011.

Determination 1 - 30th October 2002 was amended on 01st March 2011

and further amended on 20th October 2011 which explains the investment criteria

for long term insurance fund and technical reserves.

1.3.4 Financial Performance

‘Trust’ which was until recently absent from business language emerged as

a buzzword in the wake of corporate scandals in the recent past. In the life

insurance industry, policyholders entrust their hard-earned money to the

insurance companies and in turn insurers are obliged to prevent any erosion of

trust. The following tables explain the financial strength of the Company in both

life and non-life insurance and how we have preserved the trust bestowed on us.

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The three factors which most influence profitability of non-life insurance

are the relationship between premiums earned and claims paid out (claims

ratio), operating expenses (expenses ratio) and investment returns. The claims

ratio and the expenses ratio put together are called the combined ratio.

If the combined ratio is below 100%, then the insurer is earning in

premiums more than it is paying out in claims and costs and so is making an

operating profit. Conversely, if the combined ratio exceeds 100%, the insurer

is making an operating loss. However, it can still be profitable as investment

income makes a further contribution to the bottom line.

The table below shows the Company’s combined ratios with their claim

and expense components over the last 5 years:

Profitability of Non-Life Insurance Business

2007

Rs. ’000

2008

Rs. ’000

2009

(Restated)

Rs. ’000

2010

Rs. ’000

2011

Rs. ’000

Gross Written Premium 8,845,352 9,140,844 8,764,542 9,266,637 11,622,119

Net Earned Premium 5,262,586 6,478,099 6,592,541 6,034,185 8,069,863

Net Claims Incurred (3,866,706) (4,819,146) (5,379,207) (2,885,793) (4,757,172)

Operating and Administration

Expenses (2,217,357) (2,006,750) (2,186,107) (1,917,779) (2,433,959)

Operating Profit/(Loss) (821,477) (347,797) (972,773) 1,230,612 878,732

Investment and Other Income 974,643 1,202,306 1,940,038 10,112,693 1,660,335

Interest Expense – (16,225) (1,935) (98) (12)

Profit Before Taxation 153,167 838,283 965,330 11,343,207 2,539,054

Taxation 83,336 (254,598) (233,096) (843,740) (407,432)

Profit After Taxation 236,503 583,685 732,234 10,499,467 2,131,622

Claims Ratio (%) 73.48 74.39 81.60 47.82 58.95

Expenses Ratio (%) 42.13 30.98 33.16 31.78 30.16

Combined Ratio (%) 115.61 105.62 114.79 79.61 89.11

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Profitability of Life Insurance Business

2007

Rs. ’000

2008

Rs. ’000

2009*

(Restated)

Rs. ’000

2010

Rs. ’000

2011

Rs. ’000

Gross Written Premium 4,477,632 4,497,919 4,819,860 6,009,859 6,743,073

Net Written Premium 4,356,180 4,381,490 4,769,590 5,945,561 6,593,457

Claims Incurred (2,502,466) (3,289,846) (3,831,985) (4,957,675) (3,592,818)

Management Expenses (1,679,168) (2,037,946) (1,317,279) (1,483,218) (1,920,566)

Underwriting and

Net Acquisition Costs (492,431) (552,689) (547,848) (648,033) (916,349)

Operating Profit/(Loss) (317,885) (1,498,991) (927,522) (1,143,365) 163,724

Investment and Other Income 4,480,740 5,398,818 7,227,092 13,026,350 11,403,971

Increase in Life Fund

before Taxation 4,162,855 3,899,827 6,299,570 11,882,985 11,567,694

Taxation (634,884) (793,213) (1,075,883) (1,151,175) (813,114)

Increase in Life Fund 3,527,971 3,106,614 5,223,685 10,731,810 10,754,580

* In the year 2009 figures have been restated for better presentation of the Financial Statements.

Gross Written Premium -

General Insurance

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Profit After Tax -

General Insurance

Gross Written Premium -

Long-Term Insurance

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Increase in Profitability -

Long-Term Insurance

Gross Written Premium -

Combined

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REPOSITIONING WITH GREATER STRENGTH | Management Report

Combined Profitability of Life Insurance and Non-Life Insurance

2007

Rs. ’000

2008

Rs. ’000

2009

Rs. ’000

2010

Rs. ’000

2011

Rs. ’000

Revenue 15,074,148 17,460,713 20,529,262 35,011,286 27,727,678

Gross Written Premium 13,322,984 13,638,763 13,584,399 15,276,496 18,365,192

Net Earned Premiums 9,618,766 10,859,589 11,367,130 11,979,746 14,663,319

Benefits, Losses and Expenses (12,537,143) (13,450,368) 15,678,414 18,173,307 17,978,471

Investment and Other Income 5,455,383 6,601,124 9,167,130 23,031,540 13,064,305

Interest Expense (130,184) (3,697) (210) (37)

Operating and Administrative

Expenses (1,748,956) (2,248,664) (2,016,878) 1,803,651 (1,933,486)

Profit before Taxation 788,051 1,631,497 2,830,271 15,034,118 7,815,630

Taxation (551,548) (1,047,811) (1,308,980) (1,994,915) (1,220,547)

Profit after Taxation 236,503 583,685 1,521,291 13,039,203 6,595,083

Profit After Tax -

Combined

Note: In the year 2009, figures have been restated for better presentation of the Financial Statements.

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1.3.5 Investments

1.3.5.1 Investment Strategy

The investment strategy is focused on achieving the appropriate balance among

asset growth as well as income to meet the obligations of the Fund, based on

prudent investment management principles in compliance with rules and

regulation stipulated by the Insurance Board of Sri Lanka (IBSL).

Our investment portfolio bears testimony to our mandate as the insurer to

the nation. We have invested Rs. 39,079 million in Government Securities which

accounts for 51.16% of our total investments.

1.3.5.2 Investments

2007

Rs. ’000

2008

Rs. ’000

2009

Rs. ’000

2010

Rs. ’000

2011

Rs. ’000

Equity Shares 9,415,433 12,144,219 16,913,106 23,056,319 27,595,006

Unit Trusts 1,368,855 1,830,914 899,452 1,116,192 1,402,600

Government Securities 21,604,701 22,078,938 25,057,402 21,116,996 29,367,052

Corporate Securities 4,399,535 3,490,000 1,939,107 3,871,197 5,135,603

Fixed Deposits 114,465 518,648 7,147,608 3,304,548 6,228,323

Loans to Lanka Hospitals

Corporation PLC 561,000 – – – –

Loans to Embilipitiya (Pvt) Ltd. 281,450 203,400 113,900 – –

Development Bonds – – 4,556,000 4,424,000 4,520,000

Interest Receivable – – – 1,857,809 2,128,559

Total Investments 37,745,439 40,266,119 56,626,575 58,747,061 76,377,143

Investments with Short-Term

Maturities 7,293,970 9,787,076 2,227,885 9,637,343 3,064,332

Investments in Subsidiaries 2,558,211 2,925,566 2,925,566 9,965,816 11,715,818

Total 47,597,620 52,978,761 61,780,026 78,350,220 91,157,293

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1.3.5.2 Investment Committee

The Investment Committee, which comprises the following personnel, is responsible

for the ongoing management of the investment portfolio. The Committee is adhered

to the Chartered Financial Analyst (CFA) Institute Asset Manager’s Code.

Board Members:

• Mr. Dhammika Perera (Chairman)

• Mr. Mohan De Alwis

• Mr. P. Kudabalage

• Mr. Noel Selvanayagam

Investment Managers:

• Mr. Dhanuka Liyanagamage

The Senior Deputy General Manager - Finance, Chief Actuary and Assistant

General Manager - Actuarial also attended on invitation.

1.3.5.3 Asset Allocation

1.3.5.3.1 Life Fund

Composition of the Life Fund

Corporate

Debt

6.6%

1.9%

Unit

Trusts

Term

Deposits

8.5%

48.2%

Government

Securities

Equity

34.8%

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Growth of Investable Assets - Life Fund

1.3.5.3.2 Non-Life Fund

Composition of the Non-Life Fund

Corporate

Debt

Unit

Trusts

4%

Term

Deposits

5%

26%

Government

Securities

64%

Equity

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Growth of Investable Assets - Non-Life Fund

1.3.5.4 Liquidity

Life Fund: Traditionally, the fund needed a minimal liquidity. Annual cash

inflows from premium income and other sources have exceeded the cash

outflows. This reflects the growing volume of business, the longer term nature of

liabilities and the rollover in portfolio assets from maturing securities and other

forms of principal payments.

However, in upcoming years, greater than historical volumes of maturities

and cash outflows are expected representing a new phase in the fund’s policy maturity

cycle. Treasury Bonds and Corporate Debt Instruments are expected to be used to

match these anticipated exceptional cash outflows by matching with the maturities.

Short-term allocation included a funding cushion of around Rs. 1 billion in

liquid securities to meet policy obligations, tax obligations and tactical investment

opportunities.

Non-Life Fund: Because of the uncertainty of cash outflows, liquidity remained

an essential consideration for the General Fund. It was important for the fund to

maintain a portfolio of short-term securities, as an immediate liquidity reserve.

Therefore, the Fund maintained a portfolio of readily marketable Treasury Bills

and Bonds, to match those short-term liquidity requirements.

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1.3.5.5 Asset - Liability Matching

Life Fund: There is limited availability of longer term investment assets in

Sri Lanka, owing to its relatively less developed corporate debt market. As such,

maturity matching in the life fund is challenging.

Non-Life Fund: Unlike the Life Fund assets, obligations of the Non-Life Fund are

shorter in term and hence major part of the fund was invested in short-term assets.

1.3.5.6 Investment Performance

The Company achieved extremely healthy returns during 2011 for both Life and

Non-Life Funds under prudential and dynamic investment management whilst

not taking any undue risks. This is a commendable performance under a regime

where both short-term and long-term interest rates were falling continuously.

The Company recorded a total investment income of Rs. 12.1 billion

during the year.

Investment Income - Life Fund

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REPOSITIONING WITH GREATER STRENGTH | Management Report

The Life Fund recorded a healthy investment income of Rs. 10.7 billion

although it was a decline of 15.9% compared to the previous year.

Gains of this magnitude are unlikely recurring in 2012, although the

potential remains for investment returns higher than the historical average,

in light of the positive growth prospects for the country.

Investment Income - Non-Life Fund

The Non-Life Fund recorded an investment income of Rs. 1.4 billion which

is a significant 86.2% decline compared to the previous year. This was mainly due

to the adverse equity market conditions that prevailed during the year.

1.3.5.7 Strategic Investments

As there are no adequate long-term fixed income instruments available in

the market, a substantial portion of the equity portfolio is invested in strategic

investments in large banks and few blue-chip companies. These strategic

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REPOSITIONING WITH GREATER STRENGTH | Management Report

investments have appreciated in value far in excess of the cost of such

investments. Timely partial disposal of these strategic investments is expected

to fill up any shortfalls in investment income due to adverse market conditions.

Further, the Company increased its shareholding in Litro Gas Lanka Ltd.

to 99.99% during the year by acquiring the remaining shares previously owned

by the Secretary to the Treasury. This acquisition will enable SLICL to almost

fully consolidate the Litro Gas Lanka Ltd. to its books in the future and to reap

the benefits of good performance of the Company.

1.3.5.8 New Solvency and Determination I Rules

Rules on investment composition of insurance funds and admissible assets for

solvency computations were revised during 2011, with a more comprehensive

list provided in both cases. Asset risk has been given greater emphasis, with

credit ratings included as guidelines for investments in debt securities, bank

and finance company deposits. These revisions could support an improvement

in the risk based capital position of the Company. The regulator has also

indicated its plans to move towards a risk-based capital model in the future.

Our financial stability is endorsed by the Fitch Ratings and RAM Ratings

also as depicted below:

2005

Fitch Ratings

2006

Fitch Ratings

2007

Fitch Ratings

2008

Fitch Ratings

2009

Fitch Ratings

2010

Fitch Ratings

2011

Fitch Ratings

National

Insurer

Financial

Strength

Rating:

AA-(sri)

National

Insurer

Financial

Strength

Rating:

AA-(sri)

National

Insurer

Financial

Strength

Rating:

AA-(Ika)

National

Insurer

Financial

Strength

Rating:

AA-(Ika)

National

Insurer

Financial

Strength

Rating:

AA-(Ika)

National

Insurer

Financial

Strength

Rating:

AA-(Ika)

National

Insurer

Financial

Strength

Rating:

AA(Ika)

National

Long-Term

Rating: A+(sri)

National

Long-Term

Rating:

A+(sri)

National

Long-Term

Rating:

A+(lka)

National

Long-Term

Rating:

A+(lka)

National

Long-Term

Rating:

AA- (lka)

National

Long-Term

Rating:

AA- (lka)

National

Long-Term

Rating: AA

(lka)

Outlook: Stable

Outlook:

Stable

Outlook:

Stable

Outlook for

both: Positive

Outlook for

both: Stable

Outlook for

both: Stable

Outlook:

Stable

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RAM Ratings RAM Ratings RAM Ratings RAM Ratings

Claims

Claims

Claims

Long-Term

Paying

Paying

Paying

Claims

Ability:

Ability:

Ability: AAA

Paying

AA-

AA-

Ability: AAA

Outlook:

Outlook:

Outlook:

Short-Term

Stable

Stable

Stable

Claims

Paying

Ability: P1

Outlook:

Stable

1.3.5.9 Customers and New Products

The Company’s customer base is very well spread across the length and breadth

of the country. The table below illustrates how closely the spread of our customers

follows the spread of the population across the nine provinces.

Province wise Distribution of Life GWP (Only For Personal Lines)

Province

2007

%

2008

%

2009

%

2010

%

2011

%

Population

2010*

%

Central 10 10 10 11 11 13

Eastern 5 5 5 4 4 8

North Central 5 6 6 6 6 6

North Western 11 11 12 12 12 11

Northern 6 5 5 5 5 6

Sabaragamuwa 5 6 6 6 6 10

Southern 15 15 14 14 14 12

Uva 3 3 3 3 3 6

Western 40 39 39 39 39 28

* Refers to the distribution of the Sri Lankan population. Source - Central Bank of Sri Lanka Annual

Report 2010

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REPOSITIONING WITH GREATER STRENGTH | Management Report

A similar pattern in the geographic spread of our customer base can

be seen in non-life insurance as well. The seemingly disproportionate portion

accounted by the Western Province is really due to the fact that most corporate

headquarters are based in the Western Province.

Province wise Distribution of Motor GWP (Only For Personal Lines)

Province

2007

%

2008

%

2009

%

2010

%

2011

%

Population

2010*

%

Central 13 13 12 12 12 13

Eastern 2 2 2 2 2 8

North Central 4 4 4 4 5 6

North Western 9 9 9 9 9 11

Northern 1 1 1 1 1 6

Sabaragamuwa 6 6 6 6 6 10

Southern 13 13 13 13 12 12

Uva 4 4 4 3 3 6

Western 48 48 49 50 50 28

* Refers to the distribution of the Sri Lankan population. Source - Central Bank of Sri Lanka Annual

Report 2010

1.3.5.10 Motor Insurance

“MotorPlus Double benefit” package was introduced to permit holders in 2011

with the intention of attracting the Government officers’ market segment entitled

for vehicle permits under 2011 scheme.

A special ‘MotorPlus’ package was introduced to the motor insurance

customers of Anuradhapura region in line with Dayata Kirula National

Exhibition 2012. The main objective of this package was to convert SLICL’s

3rd party motor insurance policies (three wheelers, motor cycles, tractors) into

comprehensive policies and capture the potential customers in Anuradhapura

region towards ‘MotorPlus’.

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REPOSITIONING WITH GREATER STRENGTH | Management Report

1.3.5.11 Channel of Business

1.3.5.11.1 Life Insurance

Channel 2007

%

2008

%

2009

%

2010

%

2011

%

Direct Sales 5.62 3.00 2.83 7.37 4.59

Brokers 0.91 0.80 0.68 0.53 0.45

Agents 93.32 95.80 96.15 91.40 93.90

Other 0.15 0.40 0.34 0.70 1.06

100.00 100.00 100.00 100.00 100.00

1.3.5.11.2 Non-Life Insurance

Channel 2007

%

2008

%

2009

%

2010

%

2011

%

Direct Sales 38.95 37.00 36 41.91 32.50

Brokers 11.90 12.00 13 16.01 11.90

Agents 36.23 40.00 40 42.08 40.91

Other 12.92 11.00 11 0.00 14.69

100.00 100.00 100 100.00 100.00

In 2011, the Company focused on developing alternative channels: bancassurance

through National Savings Bank, Bank of Ceylon, Seylan Bank and Commercial

Bank and sale of insurance policies through leasing companies, car importers and

large Government owned enterprises such as Sri Lanka Telecom. This enables

the Company to leverage the databases, branch networks, IT systems, finance

and sales capabilities of these partners. These alternate channels will begin to

bear fruit in the next 2-3 years.

In the meantime, the Company’s collaboration with the Postal Department

of Sri Lanka, which commenced in 2006 has enabled us to reach the rural market

through their network of over 4,000 post offices.

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REPOSITIONING WITH GREATER STRENGTH | Management Report

Along with the settlement of the conflict in the North and the East, the

area proffered investments in the latter parts of 2010 and a plan was set about

to establish new branches there. The first to materialise was Kilinochchi while

re-establishing Jaffna regional office in our own quarters recovered after the

war. The other branches that came up in the North were Chankanai, Mannar and

the next to be were Chavakachcheri and Mulativu.

In the South, strategically all important Hambantota region was carved

with Ambalantota, Beliatta and Tissamaharama branches that were sliced out from

Matara region. People visiting RMV unit Werahera to get licenses are immensely

benefited with special motor insurance counter opened there early this year.

The SLICL ended the year 2011, having its distribution network of 108

physically located branches, 17 customer service centres and 11 virtual branches

under 18 regions to sustain its island-wide customer service.

Reaching out to customers will be further strengthened when the Company

steps into its 50th year of dedicated service to the nation with the opening of

10 more branches in the Eastern and Southern parts of the country within the

coming years.

1.3.5.12 Information Technology (IT)

Information Technology continued to play a vital role at SLICL by providing

support services to the business during 2011. This was driven by technology related

investments which were designed to accomplish specific business objectives of

improving customer reach, access and service within a secure IT environment.

The major focus of all technology related investments were directed

towards increasing the availability and reliability of the IT infrastructure such as

upgrading all hardware to be on par with current state-of-the-art installations in

the industry. As a part of IT infrastructure strengthening initiative, SLICL Head

Office’s Local Area Network and Branches Wide Area Networks’ performance and

monitoring capabilities were improved by introducing many Internet Protocol (IP)

related technologies.

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REPOSITIONING WITH GREATER STRENGTH | Management Report

Many IT initiatives were taken during the year 2011 to accomplish the business

objectives of the organisation. As a result of the adoption of IP based technologies,

it was possible to setup an IP- based Call Centre for all SLICL customers in a single

location with 24 hours accessibility. The automation of daily field operations was

also enhanced through the adoption of cloud based technologies.

The IT security environment was further strengthened with the introduction

of new technologies and implementation of best practices and policies to achieve

IT governance and compliance objectives.

1.3.5.13 Human Capital

SLICL believes that people make the change by differentiating itself when

achieving its corporate vision and mission. Employees of SLICL are its strength

and passion when becoming a competitive player in the industry. The philosophy

of SLICL is represented by its employees ensuring that the right blend of human

resources is with the Company to act as ambassadors of the organisation when

providing a superior service to its customers.

People development at SLICL consists with taping talent, bridging skill

gaps and developing professionalism to craft the uniqueness of employees.

SLICL provides opportunities for career growth and personal development to

build a long-term relationship and commitment with employees.

The Company entered into a first ever 3-year Collective Agreement

with staff and executive unions to mark a historic achievement in harmonising

employer-employee workplace relationship.

1.3.5.14 Opportunities and Challenges

There is ample opportunity for growth in the life insurance sector given the low

penetration rate of life insurance among Sri Lankans and ageing population with

insurance needs as detailed on page 38.

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REPOSITIONING WITH GREATER STRENGTH | Management Report

Life Insurance Penetration

Channel 2004 2005 2006 2007 2008 2009 2010

No. of new Life

Policies Issued 304,639 366,132 409,933 527,385 555,886 464,249 503,543

No. of Life Policies

in Force 1,490,191 1,629,061 1,740,648 1,923,550 2,103,809 2,131,947 2,244,245

Total Population

(in ’000) 19,462 19,668 19,886 20,010 20,217 20,450 20,653

Total Labour Force

(in ’000) 8,061 7,312 7,599 7,489 8,082 8,074 8,108

Penetration as

% of the Total

Population 7.7 8.3 8.8 9.6 10.4 10.4 10.9

Penetration as % of

the Labour Force 18.5 22.3 22.9 25.7 26 26.4 27.7

Source: Insurance Board of Sri Lanka Annual Report 2010

Prevailing peaceful and positive sentiments in the economy and

infrastructure projects that have commenced with many more in the pipeline

provide opportunities in the non-life sector.

We have identified the following as the key challenges:

a. competition in the market with 21 other insurance companies;

b. adaptation to climate change;

c. adaptation to new regulatory requirements;

d. money laundering; and

e. increasing growth rate of insurance business.

Most of these challenges are faced by other insurance companies also and

we are optimistic that we can triumph over these challenges with our strengths

and challenges.

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REPOSITIONING WITH GREATER STRENGTH | Management Report

1.3.5.15 Future Outlook

As per the new amendment to the Insurance Act; namely, the Regulation of

Insurance Industry (Amendment) Act No. 3 of 2011, existing insurers are required

to segregate their life and non-life insurance into two separate companies within

4 years from 2011 and to be listed within 5 years from 2011.

1.3.6 Statement of Solvency

As per section 26(1) of the RII Act, insurers are required to maintain sound solvency

for both life and non-life insurance businesses. We have maintained sound solvency

margins for both life and non-life over the period as depicted below:

Stability of Life Insurance Business

2007

Rs. ’000

2008

Rs. ’000

2009

Rs. ’000

2010

Rs. ’000

2011

Rs. ’000

Life Fund 34,138,239 37,050,153 41,484,784 49,569,355 55,860,474

Net Assets Value 523,998 723,998 1,564,528 4,218,500 6,729,625

Solvency Ratio 5.31 5.46 6.75 6.11 10.05

Long-Term Insurance Fund

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REPOSITIONING WITH GREATER STRENGTH | Management Report

Stability of Non-Life Insurance Business

2007

Rs. ’000

2008

Rs. ’000

2009

Rs. ’000

2010

Rs. ’000

2011

Rs. ’000

Net Assets Value 8,233,056 9,536,699 10,934,409 13,920,485 17,896,941

Solvency Ratio 4.42 4.90 3.93 2.11 1.93

Net Assets - Long-Term Insurance

1.3.6.1 Approved Assets

Approved assets have been derived as per Section 25(1) of the Regulation of

Insurance Industry Act No. 43 of 2000 and subsequent determinations made by

the IBSL in terms of the said Act.

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REPOSITIONING WITH GREATER STRENGTH | Management Report

Approved Assets

2007

Rs. million

2008

Rs. million

2009

Rs. million

2010

Rs. million

2011

Rs. million

Non-Life Insurance Business

Approved Assets for Technical

Reserves 9,685 9,973 10,956 15,030 17,983

Technical Reserve Values 9,233 9,590 10,862 11,001 12,190

Approved Assets in Excess

Technical Reserves 452 383 94 4,029 5,793

Net Assets - Non-Life Insurance

Approved Assets

2007

Rs. million

2008

Rs. million

2009

Rs. million

2010

Rs. million

2011

Rs. million

Life Insurance Business

Approved Assets for Life Fund 34,930 37,050 44,918 52,247 57,911

Life Fund Values 34,138 38,453 41,484 49,569 55,860

Approved Assets in Excess

of Life Fund 792 1,403 3,434 2,678 2,051

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REPOSITIONING WITH GREATER STRENGTH | Management Report

Value Added Statement

2011

Rs. million

2010

Rs. million

Company Value Added Statement

Net Earned Premium 14,663 11,979

Investment and Other Income 13,064 23,031

27,728 35,010

Less

Net Claims and Benefit 8,350 7,843

Cost to External Services 940 1,024

Value Addition 18,437 26,143

Distribution of Value Added

To Employees

Salaries and Other Benefit 1,574 1369

To Intermediaries

Acquisition Cost 2,562 1,468

To Government

Income Tax 1,221 1,994

To Life Policyholders

Increase in Life Insurance Fund 6,291 8,084

To Shareholders

Dividend Paid – 6,720

To Expansion and Growth

Retained as Depreciation 194 189

Retained as Reserves 6,595 6,319

18,437 26,143

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REPOSITIONING WITH GREATER STRENGTH | Management Report

Distribution of Income

8%

To Employees

To Expansion

and Growth

37%

2011

14%

To Intermediaries

7%

To Government

34%

To Life Policyholders

To Employees

5%

6%

To Intermediaries

To Shareholders

26%

8%

To Government

2010

To Expansion

and Growth

25%

30%

To Life Policyholders

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REPOSITIONING WITH GREATER STRENGTH | Sustainability Report

Sustainability Report 2.0.0

2.1.0 Executive Director’s Statement

Dear Stakeholder,

It is with great pleasure that I place before you the Sustainability Report for

2011. We presented our first Sustainability Report last year based on the Global

Reporting Initiative (GRI) G3 framework for sustainability reporting with a

self-declaration at ‘C’ level of application. This year, we are presenting you a

Report which is at a GRI Self-Disclosure Level B.

Major insurers around the globe are admitting that the business case for

sustainability is convincing based on the rising understanding that environmental,

economic and social sustainability are the basis for future feasibility of the

insurance industry. This means that certain impacts of climate change are now

unavoidable and that there is an urgent need to adapt to them. Adaptation is

about making livelihoods, communities, societies and economies resilient to the

adverse impacts of a changing climate.

Insurance is a normal form of adaptation to risks: climate change-related

risks, mainly for increase in the occurrence of extreme weather events such as

floods, storms, hurricanes and droughts. By transferring risks to the insurance

industry, individuals, households and businesses get a financial safety net.

Underpinned by its consistently solid capital structure and financial

strength as well as strong cash flow generating capability, we are well-positioned

to manage risks and achieve sustainable healthy growth.

The function of insurance is strongly related to sustainability. In life

insurance, insurance covers serious risks to human well-being and provide postretirement

income far into the future for savers who have entrusted their funds

to us. On the non-life aspect insurers protect businesses and individuals against

risks to assets, loss of income, third-party liability among others.

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REPOSITIONING WITH GREATER STRENGTH | Sustainability Report

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REPOSITIONING WITH GREATER STRENGTH | Sustainability Report

Our sustainability principles include maintaining the physical

environment in which we operate including strategies to minimise our carbon

emissions; improving water and energy efficiencies, providing a safe and secure

work environment for all our employees, customers and other stakeholders.

Also, treating all our stakeholders - employees, customers, shareholders,

suppliers and the broader community - with respect and decency, investing in the

community through partnerships, programmes and sponsorships. This is over

and above the direct economic and commercial benefits we provide and acting in

accordance with high ethical standards.

At SLICL, we have identified customers, employees, Government, business

partners, field sales personnel and the community and environment as major

stakeholders of the Company.

P. Kudabalage

Executive Director

08th May 2012

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REPOSITIONING WITH GREATER STRENGTH | Sustainability Report

2.2.0 Customers

Focus on sustainability is a vital aspect to ensure our competitive edge in

maintaining our strong customer base, attracting new customers and

more importantly ensuring all stakeholders feel engaged and active in

our insurance business. Our sustainability depends on our customers’ ability to

trust that we will deliver on the promises we make and that there are sufficient

mechanisms in place to address customer queries and concerns. We are resolute

in facing challenges amidst the fierce competition prevalent in the insurance

industry in Sri Lanka and we serve a diversified customer base and maintain

sustainable steady growth.

The sustainability and profitable growth of any industry hinges on the

value proposition it offers to customers as well as the needs of customers it

addresses. In the case of the life insurance sector, the value proposition offered

to customers is a collection of aspects such as the quantum of protection offered,

addressing the long-term financial goals by enabling long-term wealth creation

and lastly, ensuring a speedy and hassle-free claim settlement architecture.

The quintessential purpose of life insurance is to provide protection and

financial security to an individual and his family. We provide an array of life

insurance solutions; namely, Minimuthu, Freedom - Retirement Plan, Divi Thilina -

Protection Plan, Praguna - High Returns Plan, Yasa Isuru - Advance Benefit Plan,

Jana Diri - Two-Year Relief Plan, Yasas - Single Premium Life Plan and Mortgage

Protection Plan.

‘Minimuthu’ covers your child’s future as well as both parents, because

we strongly believes that parents are the cornerstone of a child’s well-being.

Minimuthu is the plan of choice for parents who wish to build a bright and stable

future for their child. ‘Freedom Retirement Plan’ provides you with a monthly

retirement income that can help you be independent so you can make the most

of your retirement. Freedom will also provide a special annual Health Care

benefit that is worth 5 times the monthly income amount, without the hassle of

providing hospital and medical bills. ‘Divi Thilina - Protection Plan’ is designed

to offer unique life insurance solution with high bonuses on maturity that will

exceed your initial investment. ‘Praguna - High Returns Plan’ increases your sum

assured by 5% annually while your insurance premium remains the same.

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“This is not for us, nor for

our children, but for our

grandchildren.” - Frederick Weyerhaeuser, 1900

‘Yasa Isuru - Advance Benefit Plan’ is a unique plan that provides you with advanced

payments even before the policy matures. You can use these payments for your

wedding expenses, home purchase, vehicle purchase or to fund your further

education. ‘Jana Diri - Two-Year Relief Plan’ is a unique policy for those that have

a seasonal income. If you are in farming, fisheries or similar line of work, Jana

Diri policy is an ideal option for your life insurance need. ‘Yasas - Single Premium

Life Plan’ is a single premium plan designed to offer short term benefits to the

policyholder with a tax free sum on maturity. The policy term and sum payable

on maturity can be determined when taking the policy offering you a flexible

insurance product. ‘Mortgage Protection Plan’ provides you adequate protection

for the repayment of your housing loan. This is a single premium plan that repays

your housing loan in case of an untimely death.

Accordingly, in life insurance and savings we strive to educate clients in

planning for a financially secure future.

We also act as a catalyst for a sustainable society by providing innovative

non-life insurance solutions including motor insurance, marine insurance,

comprehensive home insurance, fire insurance for private dwelling houses,

burglary insurance, travel insurance, workmen’s compensation insurance and

business property insurance etc. The function of non-life insurance is also strongly

related to sustainability. On the non-life side we protect businesses and individuals

against risk to assets, loss of income and third-party liability among other.

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We made largest bonus ever declared to policyholders in 2011 amounting

to Rs. 4 billion.

Year

Face Value of Bonus

2007 1,940,458,538

2008 2,117,183,537

2009 2,999,945,893

2010 3,437,504,997

2011 4,013,893,488

Face Value of Bonus

2.2.1 Quality Assurance

As the premier insurance service provider we have been awarded the prestigious

ISO 9001:2008 Quality Management System certification covering our entire

branches islandwide. SLICL is the first and only insurance Company to have been

awarded the certification and thereby becomes the only insurance Company in

Sri Lanka to be endorsed by an International Quality Organisation. This certificate

covers all the activities of the Company’s Head Office and its branches.

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The International Standards Certification takes into consideration five

aspects of process perfection when awarding ISO 9001:2008 - the criteria are

Quality Management Systems, Management Responsibility, Resource Management,

Product Realisation, Measurement, Analysis and Improvement. ISO certification is

an endorsement of the fulfilment of the above criteria by SLICL and formulation

and maintenance of a quality management system in the Company, in compliance

with the required standards. Also, SLICL was awarded ‘World Quality Commitment

Award’ at the International Quality Convention in Pairs, on 24th October 2011.

2.3.0 Employees

People Management at SLICL is driven by four key best practices when

achieving its the corporate objectives.

2.3.1 Driving Change

Change management plays a vital role when transforming and aligning a diversified

workforce to achieve the organisation’s corporate objectives. This focuses on

creating a healthy change management process by way of re-engineering business

processes and modeling employees’ skills, knowledge and attitudes to make a

paradigm shift.

2.3.2 Knowledge Sharing and Learning Culture

Knowledge sharing and learning culture as part of people development focuses

on re-creating human capital to add value to business processes. We invest in

our human capital by moving from ‘survival learning’ to ‘generalised learning’

to generate innovative thinking and creativity to energize synergy. The learning

process begins at the time of placement through a comprehensive induction process

which would then be widespread with technical and soft skills enhancement.

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2.3.3 Investment in Human Capital to Develop and

Retain Best Talent

Human capital is the building block for any organisation. However, strength of it

depends on their technical know-how and job specific competencies. Therefore,

we have identified human capital within the organisation to train and develop.

Identification of training requirements and developing customised training

and development programmes play an important role in this regard. A talent

pool within the organisation is identified, to groom themselves to be future

leaders of the organisation in different functional expertise depending on their

core competencies.

Retaining best talent within an organisation is important for sustainability

and competitiveness of the organisation. Therefore, we have developed different

strategies to retain and develop best talent.

2.3.4 People Engagement

At SLICL we make people to drive the organisation towards success by the people

displaying high levels of commitment and involvement. We believe the ‘success

story’ of SLICL is its people.

2.3.5 Key Initiatives

• Policies and Procedures on HR Practices

Implementation of Human Resources policy manual with the objective of

streamlining the existing procedures whilst providing an enriched service to

our staff members. These policies were introduced as a result of the first-ever

3-years collective agreement signed by the Chairman, Board of Directors and the

Management with the two trade unions namely Rakshana Sewaka Sangamaya and

Sri Lanka Nidahas Sewaka Sangamaya of the organisation, on 27th January 2011.

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The policies would provide guidelines in relation to following key HR

aspects:

◦ Staff Promotions

Structured and organised promotion plans to develop and retain the best

talent within the organisation where individual employees will be evaluated

based on the technical competencies, skills and other competencies.

◦ Staff Transfers

Annual staff transfer procedures to mobilise employees in a most effective

manner that supports business growth. Further the policy focuses on

identifying employee grievances and solving those in a way that is

mutually benefited to both organisation and its employees.

◦ Personal Loans

Personal loans policy to provide housing and vehicle loans to employees

at concessionary rates to fulfill their personal requirements.

◦ Overtime

Revision of previous overtime policy to implement an overtime procedure

that is cost effective to the organisation and most beneficial to employees.

◦ Grievance handling

Grievance handling policy is implemented with the objective of

solving employee grievances as far as possible to maintain and upgrade

industrial harmony.

◦ Medical Scheme

The present medical scheme provides superior benefits to our employees

in line with market rates.

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• People Development

We believe that our people make the difference when becoming the market leader

in the industry. Thus developing and retaining best talent within the organisation

is vital for the success of the organisation. A number of programmes were

developed with the objective of developing people to achieve higher standards

which include the following:

2.3.6 Management Development Programmes

Developing a next level of competent junior management is vital for sustainability

and growth of business. A series of management development programmes were

developed by liaising with leading educational institutions to develop skills and

competencies of our junior management.

2.3.7 International Exposure

Employees are being given foreign exposure with the objective of developing

them to achieve higher standards when competing with our rivals. Further

such learning opportunities are given to identified competent staff who can be

groomed to take future leadership of the organisation.

2.3.8 Career Management

We believe that retention of best talent within the organisation is one of the key

success factors for SLICL to be the market leader in insurance. Thus career paths

have been developed for employees working in different functionalities as part

of the Company’s promotion policy. Since we work with diversified workforce

of different generations, career management has been taken into account the

requirements of all groups.

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2.3.9 Language Development

Language development clubs such as Toastmasters are in place to improve and

upgrade employees language and presentation skills which we believe is one of

the significant factors in the corporate world.

• Employee Recognition

‘Harasara-Pranama’

Every employee is an asset. Therefore they should be recognised at different

junctures during their career. ‘Harasara-Pranama’ or recognising long services

is a programme we organise annually to show our gratitude for the immense

service honoured by our people. Employees who completed 25/35 years were

awarded with commemorative gold coins for their devoted services.

• Employee Programmes

We value our people and ensure they are looked after well. We understand

the link between performance and satisfaction and continuously work towards

achieving higher levels of satisfaction of our employees. With such an objective

in mind we conduct following programs annually:

• Wesak/Christmas programmes;

• Annual sports festivals/new year programmes;

• Educational sessions with popular artists to improve artistic knowledge;

• Relief schemes to provide a helping hand in natural disasters; and

• Scholarship programmes for employees’ children.

We provide an array of welfare facilities to our employees to keep their

motivation levels high which include both statutory and non-statutory

welfare schemes like house-hold appliances at concessionary rates and

Company maintained holiday bungalows at concessionary rates. Statutory

welfare schemes include payments made on time to Employees’ Trust Fund,

Employees’ Provident Fund, Gratuity Payment and maternity leave. Other nonstatutory

welfare schemes include gymnasium facilities, canteen facilities,

in-house medical centre facilities, medical schemes, insurance at concessionary

rates on account of special milestones and welfare through various societies;

namely, Thrift Society, Sports Society and Literary Society etc.

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Staff Retention Rate

2007

Rs. ’000

2008

Rs. ’000

2009

Rs. ’000

2010

Rs. ’000

2011

Rs. ’000

No. of Staff 2163 2234 2,063 2,281 2476

Staff Retention Rate (%) 87.33 84.29 91.70 95.50 91.50

Gender

No. of Employees

Male 1,306

Female 1,170

Total 2,476

Employee Category

No. of Employees

Senior Managerial 45

Managerial and Executive 656

Non-Executive 1,520

Other 255

Age Analysis

56 - 57

58

4%

15%

18 - 25

46 -55

18%

27%

26 - 35

35%

36 - 45

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2.4.0 Business Partners

2.4.1 Reinsurers

The reinsurance is placed with reputed reinsurance/insurance companies

which possess the required ratings from rating agencies as required by

the terms and conditions to be complied with by insurance companies

under Section 31 (1) of the RII Act.

2.4.2 Sales Team

2011 Sri Lanka Insurance Awards Night, felicitated two key categories of

excellence: the Best of the Best Achievers in Sales and Long-Standing Service

Personnel. This was devoted to the sales people who have outperformed and

outshone the rest, to the men and women who have proved their mettle through

sheer dedication, hard work and clear pursuit of their goals. The star awards night

saw 308 insurance advisors and team leaders being awarded for their excellent

sales performances. They were all awarded on the basis of achieving the set sales

targets and standards. The second place achievers were also invited to witness

this magnificent evening to applaud the achievements of their colleagues.

2.5.0 Government

The Secretary to the Treasury on behalf of the Government of Sri Lanka

is the holder of 99.99% shares of the Company pursuant to the Supreme

Court judgment on 4th June 2009, annulling the privatisation. We enjoy

a very strong relationship with the Government and can count on its support for

various initiatives. We in turn provide superior returns to the Government in the

form of dividends and growth in net assets.

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Apart from the total shareholder return, we pay substantial amounts of

taxes to the Exchequer as given below:

2007

Rs.

2008

Rs.

2009

Rs.

2010

Rs.

2011

Rs.

VAT 773,675,698 882,852,460 766,018,147 816,030,873 1,074,671,248

NBT – – 173,490,382 261,316,639 299,706,643

WHT 6,794,163 12,612,704 20,613,451 44,636,968 17,089,095

RST 5,837,720 5,851,887 5,867,690 6,374,027 8,878,986

ESC 60,000,000 60,000,000 120,000,000 120,000,000 120,000,000

ST 12,023,202 5,630,177 5,416,616 5,561,959 7,986,501

IT 551,548,000 1,047,811,000 1,308,980,000 1,994,915,000 1,220,547,000

SRL 2,295,889 2,695,097 25,309,019 18,186,814 4,802,909

TOTAL 1,412,174,671 2,017,453,325 2,425,695,306 3,267,022,280 2,753,682,382

Abbreviations:

VAT - Value Added Tax

NBT - Nation Building Tax

WHT - Withholding Tax

RST - Road Safety Fund

ESC - Economic Service Charge

ST - Stamp Duty

IT - Income Tax

SRL - Social Responsibility Levy

Fees Paid to the IBSL

2007

Rs.

2008

Rs.

2009

Rs.

2010

Rs.

2011

Rs.

The Annual fee 5,283,504 6,661,492 6,819,382 6,792,199 7,638,248

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2.6.0 Economy and the Community

Globally as well as locally, insurance industry sits on a pivotal junction that

helps individuals, communities and businessmen comprehend, manage

and mitigate risk and protect their assets. Flourishing markets support

vibrant communities and vice versa and supplying insurance products, services

and expertise is an essential element that underpins economic development and

social growth.

We are a strong lever for implementing sustainability due to our size.

The extent of our reach into the community and the vital role we play in the

economy is considerably substantial. As the leading insurance provider in Sri

Lanka we allow the victims of accidental losses to recuperate financially and help

households manage their finances in the face of death and disability. Annuities

reduce the likelihood that a retiree will run out of money. By providing these

services, we reduce the pressure on the resources of the Government. Lastly,

with the premiums we receive for providing protection to the nation, we are also

a major contributor to the economy through our sustainable investments.

SLICL has continued to be the insurance partner for key development

projects taking place around the country, which are expected to provide the

base for accelerated economic growth in post-war Sri Lanka. Some of the

projects include, the Uma Oya Hydropower Plant, Norochcholai Power Project,

Ampara Water Supply Scheme, Southern Highway Project, Outer circular

highway, Katunayake Expressway Project, A9 Road Development Project and the

Ruhunupura Water Supply Scheme.

In line with the Government’s vision of taking Sri Lanka to economic

prosperity, SLICL laid initial foundation to minimise the major social concern of

unemployment of youth. A recruitment counter was in operation at the Dayata

Kirula Exhibition, Anuradhapura to collect information of youth interested in

employment opportunities at SLICL as Insurance Advisors, which attracted local

youth in thousands to the SLICL stall.

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2.7.0 Culture

As the concept of sustainable development has matured, it has opened up the

debate for further reflection including that of culture. Culture is a powerful

human tool for survival and it shapes what we mean by development and

determines how people act in the world.

We shouldered a magnanimous social task of being one of the main

sponsors of the recently held Dayata Kirula Exhibition and Cultural Show held in

Oya Maduwa, Anuradhapura, the largest national event of its kind in Sri Lanka.

In order to give the outstation population a feel of the Sri Lanka Insurance

Corporation Head Office building, which has been shedding protection to the

people of this nation for over four decades, the stall at the exhibition was crafted

as a miniature of the Head Office building at Vauxhall Street, Colombo.

2.8.0 Environment

As our common environmental and wider sustainability challenges become

clearer, whether it be climate change, resource depletion, environmental

degradation or one of the myriad of other issues encountered by the

people, the insurance industry performs a growing important role that helps us

better understand the future and face it with courage. As the insurance giant in

Sri Lanka, we provide opportunities to make informed decisions that in turn

allow sustainable livelihoods to be built and flourished.

As we celebrate the Golden Jubilee of the Company our head office is going

through a major modernisation plan and through modernisation as a sustainable

business entity we plan to achieve improved occupant well-being, satisfaction and

environmental performance. As a result, there will be substantial improvements

in thermal comfort and air quality and more modest improvements in acoustic

quality, lighting and office layout.

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At SLICL, we have taken the following actions to contribute to the

environmental sustainability:

1. Leveraged technology to reduce paper usage and the Company intranet system

avoids the generation of paper based memos.

2. Duplexed printing to reduce paper waste.

3. Use of LCD monitors for energy conservation.

4. Central air conditioners are switched off at 5.00 p.m.

5. Regular maintenance and service of the company’s vehicle fleet to reduce emission.

2.9.0 Global Reporting Initiative (GRI)

G3 Index

GRI Indicator Report Section Page

1. Strategy and Analysis

1.1 Statement of Chairman

and the MD/CEO

1.2 Description of key

impacts, risks and

opportunities

Chairman’s Message

MD/CEO’s Review

Chairman’s Message

MD/CEO’s Review

Management Discussion and Analysis

Risk Management

04

10

04

10

16

84

2. Organisational Profile

2.1 Name of the organisation Sri Lanka Insurance Corporation Ltd.

2.2 Primary brands, products

and/or services

2.3 Operational structure of

the organisation

Life and Non-life Insurance

Corporate Governance Report 71

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GRI Indicator Report Section Page

2.4 Location of organisation’s

headquarters

2.5 Number and name of

countries with operation

2.6 Nature of ownership and

legal form

No. 21, Vauxhall Street, Colombo 02

Two (02) Sri Lanka and Republic of Maldives

SLICL was established under the provisions of

Insurance Corporation Act No. 2 of 1961 as a State-

Owned Corporation. In 1993, the Corporation was

converted to a fully Government-owned limited

liability company of which the sole shareholder of

100% shares was the Secretary to the Treasury, under

the Conversion of Public Corporations or Governmentowned

Business Under-takings into Public Companies

Act, No. 23 of 1987. Under the privatisation programme

of the Government, the Company was privatised in

2003 and was under private management for a brief

period of six years. The Corporation was re-registered

under the Companies Act No. 07 of 2007. Pursuant

to the Supreme Court Judgment on 04th June 2009,

annulling the privatisation, 99.99% shares are vested

with the Secretary to the Treasury on behalf of the

Government of Sri Lanka and the balance shares are

held by the employees and ex-employees.

2.7 Markets served Management Discussion and Analysis 16

2.8 Scale of the reporting

organistaion

Number of employees - 2,476

Twenty largest shareholders - 99.99% of the Ordinary

shares in issued and fully paid up as at 31st December

2011 are held by the Secretary to the Treasury and

the balance shares are held by employees and

ex-employees of the Company.

Total Assets - Rs. 102.2 billion.

2.9 Significant changes

during the reporting

period

Nil

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GRI Indicator Report Section Page

2.10 Awards received in the

reporting period

The Company won the prestigious International Gold

Star Award for Quality at the International Quality

Convention in Paris, on 24th October 2011.

Fitch Ratings

National Insurer Financial Strength Rating: AA(Ika)

National Long-Term Rating: AA (lka)

Outlook: Stable

RAM Ratings

Long-Term Claims Paying Ability: AAA

Short-Term Claims Paying Ability: P1

Outlook: Stable

3. Report Parameters -

Report Profile

3.1 Reporting period For the year ended 31st December 2011

3.2 Date of most recent

previous report

For the year ended 31st December 2010

3.3 Reporting cycle Annual

3.4 Contact point Sri Lanka Insurance Corporation Ltd.

No. 21, Vauxhall Street, Colombo 2.

Tel: +94 11 2357457

Fax: +94 11 2447742

Web: www.srilankainsurance.com

3.5 Defining Report Content We have identified the Government, customers,

employees, business partners and the community and

environment as the major stakeholders of the Company.

3.6 Report scope and

boundary

3.7 Limitations on scope/

boundary

This is our second sustainability reporting and this

is based on the Global Reporting Initiative (G3)

Guidelines for Sustainability.

No External Assurance Report was obtained.

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GRI Indicator Report Section Page

3.8 Basis for reporting

on joint ventures,

subsidiaries, leased

facilities, outsourced

operations, and other

entities that can

significantly affect

comparability from period

to period and/or between

organisations

3.9 Data measurement

techniques

3.10 Explanation of the effect

of any re-statement

This report covers only the operations of SLICL.

Not applicable.

No re-statement.

3.11 Significant changes None.

Report Parameters -

GRI Content Index

3.12 Location of the standard

disclosures in the report

3.13 External assurance for the

report

Global Reporting Initiative (GRI) G3 Index.

No External Assurance Report was obtained.

4. Governance and

Commitments

4.1 Governance structure of

the organisation

4.2 Indicate whether the

Chairman of the Board is

also the Chief Executive

Officer

4.3 Independent and/or Non-

Executive Directors

Corporate Governance Report. 82

Role of the Chairman and Chief Executive Officer is

clearly separated.

Corporate Governance Report. 71

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GRI Indicator Report Section Page

4.4 Mechanisms for

shareholders and

employees to provide

recommendations or

directions to the board

4.5 Linkage between

compensation for

members of the Board,

Senior Managers

and Executives, and

the organsiation’s

performance.

There is a mechanism for employees to provide

recommendations to the Board by way of Employee

Forums. Employees can forward their views, opinions,

suggestions and grievances etc., to HR Division and the

same would reach the top management or the Board as

per the standard protocol of the Company, according to

their importance and priority .

Board members are appointed by His Excellency the

President Mahinda Rajapaksa in his capacity as the

Minister of Finance and two Directors represent the

Secretary to the Treasury as the majority shareholder

of the Company and as such no Remuneration

Committee is appointed to make recommendations to

the Board on the Company’s framework of Executive

Directors’ remuneration.

However, the Board has appointed a HR Subcommittee

and the Committee met twice during 2011.

4.6 Processes in place for the

Board to ensure conflicts

of interest are avoided

4.7 Process for determining

the qualifications and

expertise of the members

of the Board for guiding

the organsiation’s strategy

4.8 Statement of mission or

values

Annually obtained.

His Excellency the President Mahinda Rajapaksa

appointed the Board Members in his capacity as the

Minister of Finance and the Board Members possess

requisite educational and professional qualifications

along with relevant experience.

Mission and Vision Statements.

v

4.9 Review of performance by

the Board

4.10 Evaluating Board

performance

Corporate Governance Report. 71

Corporate Governance Report. 71

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GRI Indicator Report Section Page

4.11 Precautionary approach The Board of Directors bestows the overall strategic

direction and risk appetite for the Company including

financial objectives. The general management carves

out the strategic plan in achieving these slated goals

and objectives including measuring the organisation’s

progress towards achieving its mission.

Board of Directors is mainly responsible for establishing

the risk management process and evaluating and

monitoring the activities of the Company. The

Board of Directors gives significant oversight to risk

management and is conscious of and concurs with

the Company’s risk appetite. Audit and Compliance

Committee, Investment Committee, Internal Audit

Department, Actuarial Department and the respective

managers of the Company assist the Company’s risk

management philosophy, promote compliance with its

risk appetite and manage risks within their spheres of

responsibility in line with risk tolerance.

The Audit and Compliance Committee together with

the Board of Directors play a significant role in risk

management by establishing the correct environment

or tone-at-the-top. The main role of the Internal Audit

Department regarding risk management is to provide

objective assurance to the Board of Directors of the

effectiveness of the Company’s risk management

activities thereby to ensure that the key business risks

are being managed properly and that the system of

internal control is working efficiently. Investment

Committee oversees the investment risk including

concentration risk, credit risk, liquidity risk, market

risk and interest risk. In addition, M/S KPMG, the

External Auditor for the Company who is reporting to

shareholders also plays an essential role in the risk

management process of the Company.

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GRI Indicator Report Section Page

4.12 Externally developed

charters, principles,

or other initiatives to

which the organisation

subscribes or endorses

4.13 Memberships in

associations

Not reported.

Members of the Insurance Association of Sri Lanka

(IASL), Chamber of Commerce, Employers’ Federation

of Ceylon (EFC), Sri Lanka Insurance Institute and the

British Council Library.

Stakeholder Engagement

4.14 List of stakeholder

groups engaged by the

organisation

4.15 Basis for identification

and selection of

stakeholders

4.16 Approaches to stakeholder

engagement

4.17 Key topics and concerns

that have been raised

through stakeholder

engagement

Sustainability Report. 44

Sustainability Report. 44

Sustainability Report. 44

Sustainability Report. 44

5. Management Approach

and Performance per

Category Economic

Performance Indicators

EC1

EC3

EC4

Economic value

generated and distributed

Company’s defined benefit

plan obligations

Significant financial

assistance received from

Government

Value Added Statement. 42

Notes to Financial Statements. 159

Did not receive any significant financial assistance

from the government.

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GRI Indicator Report Section Page

EC5

EC9

EN7

EN28

Standard entry level

wage compared to local

minimum wage

Significant indirect

economic impact

(additional)

Environmental

Performance Indicators

Initiatives to reduce

indirect energy

consumption and

reduction achieved

(additional)

Monetary value of

significant fines and

total number of nonmonetary

sanctions for

non-compliance with

environmental laws and

regulations

Wages are competitive with the market rates. Wages

Boards have been established for over 43 trades such

as manufacturers of tea, rubber, garments etc., and the

minimum wages payable and conditions of employment

applicable to those trades are published in the Gazette. A

minimum salary is not applicable to employees covered

under the Shop and Office Act and therefore can be

decided by the employer and employee.

Island wide insurance solutions, taxes to the

Government exchequer and fees to the IBSL.

Sustainability Report. 59

None reported during the year.

EN29

Significant environmental

impacts of transporting

products and other goods

and materials used for the

organisation’s operation,

and transporting members

of the work force

None.

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GRI Indicator Report Section Page

Social Performance

Indicators - Labour

Practices and Decent

Work

LA1

Breakdown of total

workforce

Sustainability Report. 55

LA2 Employee turnover Sustainability Report. 55

LA6

LA7

LA8

Percentage of total

workforce represented in

Worker Health and Safety

Committee

Rates of occupational

diseases

Training in occupational

diseases

Since 2007, the Health and Safety Committee of the

Company held many meetings specially identifying

the requirements under the OHSAS 18001 which is the

internationally recognized assessment specification for

occupational health and safety management systems.

As part of this many awareness programmes were

conducted on health and safety.

None.

None.

LA10 Employee training Sustainability Report. 53

LA11

LA12

LA13

LA14

Programmes for skill

management and lifelong

learning

Employee receiving

regular performance

and career development

reviews

Employees according to

diversity

Basic salary of men and

women

Sustainability Report. 53

Sustainability Report. 53

Sustainability Report. 55

No gender differentials at SLICL.

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GRI Indicator Report Section Page

Society Performance

Indicators

HR4

HR6

HR7

SO4

SO6

SO7

SO8

PR2

Total number of incidents

of discrimination and

actions taken

Operations identified as

having significant risk for

incidents of child labour

Operations identified as

having significant risk

for incidents of forced or

compulsory labour

Actions taken in response

to incidents corruption

Total value of financial and

in-kind contributions to

political parties, politicians

and related institutions

Legal actions for anticompetitive

behaviour,

anti-trust and monopoly

practices

Monetary value of

significant fines and total

number of non-monetary

sanctions for noncompliance

with laws and

regulations

Product Responsibility

Performance Indicators

Total number of incidents

of non-compliance with

regulations and voluntary

codes concerning health

and safety impacts of

products and services

None reported during the year.

Strictly no child labour at SLICL.

Strictly no forced labour at SLICL.

None reported during the year.

No contributions to political parties during the year.

None reported during the year.

None reported during the year.

None reported during the year.

69


REPOSITIONING WITH GREATER STRENGTH | Sustainability Report

GRI Indicator Report Section Page

PR5

Practices related to

customer satisfaction,

including results of

surveys measuring

customer satisfaction.

Sustainability Report. 49

PR6

Programmes for adherence

to laws, standards,

and voluntary codes

related to marketing,

communications, including

advertising, promotion,

and sponsorship

The compliance framework has identified anticompetitive

laws and assigned responsibilities

accordingly to mitigate such risk. The Compliance

Department is currently working on familiarising with

the revisions of the existing 40+9 Recommendations

of the Financial Action Task Force on anti-money

laundering.

PR7

PR8

PR9

Total number of incidents

of non-compliance with

regulations and voluntary

codes concerning market

communications, including

advertising, promotion,

and sponsorship by type of

outcomes

Substantial complaints

regarding breaches of

customer privacy

Total number of

substantial complaints

regarding breaches of

customer privacy and

losses of customer data.

None reported during the year. SLICL has complied

with Directive No. 01 dated 14th October 2004 and

Circular 01 dated 06th August 2001 issued by the IBSL.

None reported during the year.

None reported during the year.

C C+ B B+ A A+

Mandatory Self Declared X

Optional

Third Party Checked

GRI Checked

70


REPOSITIONING WITH GREATER STRENGTH | Corporate Governance

Corporate Governance -

Board at the

Helm of Stewardship 3.0.0

As the topmost decision-making body, SLICL has a Board of Directors

comprising six Directors. They strive to maintain the highest standards of

corporate governance as prescribed in the applicable codes for ensuring

long-term success of the Company in creating value in the interest of all

stakeholders. Risk management, actuarial valuations, internal audit and system

of internal controls strengthen corporate governance standards in SLICL.

Information relating to the Directors including what is required to be

disclosed as per the Code of Best Practice on Corporate Governance issued jointly

by The Institute of Chartered Accountants of Sri Lanka and the Securities and

Exchange Commission of Sri Lanka, 2008 (available at www.sec.gov.lk) is given

below. There were no instances of non-compliance with any of the applicable rules.

The positions of Chairman and CEO are separated and held by two

Directors to ensure balance of power and authority. In discharging its duties,

the Board has approved an effective business strategy and is driving and monitoring

its implementation. A CEO and a management team (as detailed on pages 79

to 81) with the required experience and knowledge to implement the strategy

have been appointed. A formal succession plan too is in place. Risk management

function was further streamlined during the year (Refer pages 84 to 95).

As detailed in the report of the Audit and Compliance Committee on pages 96

to 100, SLICL has an effective system of internal controls. Compliance function

ensures compliance with all applicable laws, rules, regulations and ethical

standards. Periodic actuarial valuations are undertaken of the life fund and

also to determine the policyholders’ and shareholders’ portion of the surplus.

Board ensures adoption of appropriate accounting policies and comprehensive

disclosure of financial information.

71


REPOSITIONING WITH GREATER STRENGTH | Corporate Governance

3.1.0 Board of Directors

Director Executive/Non-Executive Status Independence/

Non-Independence*

Mr. R.A. Jayatissa

Chairman

Non-Executive

Independent

Mr. A.M.M. De Alwis

MD/CEO

Executive

Non-Independent

72


REPOSITIONING WITH GREATER STRENGTH | Corporate Governance

Board Meetings

Profile

Held

Attended

8 8 Mr. Jayatissa is an Economist. He is a BA Honours Graduate from the

University of Ceylon and also holds a MA Degree in Development Economics

from Williams College - USA and a MA Degree in Political Economy from

the Boston University-USA.

He has well over 35 years experience in the field of Economics. He has served

as Director of Economic Research and Assistant Governor of the Central

Bank of Sri Lanka, Senior Economist and later as an Alternate Executive

Director of the International Monetary Fund and Deputy Secretary to the

Treasury and a Senior Economic Policy Advisor of the Ministry of Finance

and Planning. He has extensive knowledge and experience in economic

and financial policy issues and management. Mr. Jayatissa also has served

as a member of the Boards of the National Development Bank, SME Bank,

People’s Bank and the Sri Lanka Ports Authority.

8 8 Mr. Mohan De Alwis, the Managing Director and Chief Executive Officer of

Sri Lanka Insurance Corporation Ltd. and Management Services Rakshana

(Pvt) Ltd. has wide and diversified managerial experience in leading

corporate institutions both in Sri Lanka and overseas including Coopers &

Lybrand, Hayleys PLC, Star Garments Ltd. and Smart Shirts Ltd. He has over

30 years experience in the mercantile sector.

Mr. De Alwis holds a Bachelor of Commerce degree from the University

of Kelaniya, an MBA from the University of Colombo and is a Certified

Management Accountant (Australia).

He is also the Chairman of Ceylon Asset Management Co. (Pvt) Ltd. and

also the Director of Lanka Hospitals Corporation PLC, Seylan Bank PLC,

Sri Lanka Insurance Resorts & Spas (Pvt) Ltd., Taprobane Hotels & Spa (Pvt)

Ltd., Helanco Hotels & Spa (Pvt) Ltd., Sinolanka Hotels & Spa (Pvt) Ltd.,

Canwill Holdings (Pvt) Ltd., E-Channelling PLC and Management Services

Rakshana (Pvt) Ltd. and Executive Director of Litro Gas Lanka Ltd. and Litro

Gas Terminal Lanka (Pvt) Ltd.

73


REPOSITIONING WITH GREATER STRENGTH | Corporate Governance

Director Executive/Non-Executive Status Independence/

Non-Independence*

Mr. P. Kudabalage

Executive Director

Executive

Non-Independent

Mr. K.A.D.D. Perera Non-Executive Independent

74


REPOSITIONING WITH GREATER STRENGTH | Corporate Governance

Board Meetings

Profile

Held

Attended

8 8 Mr. Piyadasa Kudabalage, a Chartered Accountant by profession, is an

Executive Director of Sri Lanka Insurance Corporation Ltd. He holds a

Bachelor of Commerce (Hons) degree from the University of Kelaniya and

is a Fellow Member of The Institute of Chartered Accountants of Sri Lanka,

the Institute of Certified Management Accountants of Sri Lanka and the

Institute of Certified Professional Managers.

Mr. Kudabalage is the Managing Director/Chief Executive Officer of Litro

Gas Lanka Ltd., Litro Gas Terminal Lanka (Pvt) Ltd., Taprobane Hotels &

Spa (Pvt) Ltd., Helanco Hotels & Spa (Pvt) Ltd., Sinolanka Hotels & Spa (Pvt)

Ltd. and Canwill Holdings (Pvt) Ltd. He is the Chairman of the Board of

E-Chanelling PLC and also on the Boards of Seylan Bank PLC, Ceylon Asset

Management Co. (Pvt) Ltd., Management Services Rakshana (Pvt) Ltd. and

Sri Lanka Insurance Resorts & Spas (Pvt) Ltd. and also a Senior Partner of

Messrs P. Kudabalage & Company, Chartered Accountants. He has well over

27 years experience in the mercantile sector. He held several senior positions

in Kahawatta Plantations Ltd., Janatha Estate Development Board and Jay

Cey Group of Companies and a directorate in Malwatte Valley Plantation Ltd.

8 6 Mr. Dhammika Perera is the Secretary to the Ministry of Transport, Sri Lanka

and a well-known prominent entrepreneur and investor whose business

interests include Hydropower Generation, Manufacturing, Hospitality,

Entertainment, Banking and Finance.

He serves as the Chairman of LB Finance PLC, The Fortress Resorts PLC,

Vallibel Power Erathna PLC, Vallibel Finance PLC, Vallibel Holdings (Pvt)

Ltd. and holds Directorships in his other private sector companies. He is

the Deputy Chairman of Royal Ceramics Lanka PLC and Amaya Leisure

PLC. Further, he is a Director of Sampath Bank PLC, Hayleys PLC, Haycarb

PLC, Hayleys-MGT Knitting Mills PLC, Hotel Services (Ceylon) PLC which

owns Ceylon Continental Hotel, Colombo, Hunas Falls Hotels PLC, Dipped

Products PLC, Nirmalapura Wind Power (Pvt) Ltd. and Alutec Anodising &

Machine Tools (Private) Ltd.

He is also a member of the Board of Directors of Strategic Enterprise

Management Agency (SEMA).

75


REPOSITIONING WITH GREATER STRENGTH | Corporate Governance

Director Executive/Non-Executive Status Independence/

Non-Independence*

Mr. C.N.V.

Selvanayagam

Non-Executive

Independent

Dr. B.M.S. Batagoda Non-Executive Independent

*His Excellency The President in his capacity as the Minister of Finance appointed the Board members of SLICL. As

Non-Executive Directors are not engaged in the day-to-day operations of the Company and therefore are capable of

forming an independent view on affairs of the Company, they are considered as independent Directors.

76


REPOSITIONING WITH GREATER STRENGTH | Corporate Governance

Board Meetings

Profile

Held

Attended

8 7 Mr. Noel Selvanayagam is an entrepreneur. He is the Proprietor and

President of Senok Group which consists of 24 subsidiary companies and

holding the franchises for many world renowned brands of construction

machinery, equipment and automobiles, for Sri Lanka and Maldives. He

won the Entrepreneur of the Year award in 1996 and many other national

and international awards for Exports and Imports. He is the president of

the Industrial Association of Sri Lanka, Member of the Power & Energy

Committee, Vice-President, Ceylon Motor Traders’ Association and former

Director, Export Development Board. He is also the Counsel General of

Sweden in Sri Lanka.

8 7 Dr. Batagoda is a BA Honours (in Geography) Graduate from the University

of Sri Jayawardanapura and also holds a Ph.D. in Environmental Science

from University of East Anglia, UK, MSc in Natural Resources Management

from Michigan State University, USA and an Attorney-at-Law of the Supreme

Court of Sri Lanka. In addition, he holds a Certificate in Public Administration

from the Institute of Development Administration, Sri Lanka.

Dr. Batagoda is a Board member of the Board of Directors of Ceylon Electricity

Board, Litro Gas Lanka Ltd., Sri Lanka Tourist Development Authority,

Sri Lanka Tourism Promotion Bureau, Urban Development Authority and

Institute of Policy Studies and Post Graduate Institute of Management. In

addition, he is the Deputy Secretary to the Treasury. He was the Director-

General of the Department of National Planning General Treasury, Ministry

of Finance and Planning. He held several senior positions in the Ministry

of Public Administration, Ministry of Plantation Industries, Ministry of

Environment and Natural Resources and Ministry of Finance and Planning.

Further, he has served as an Assistant Secretary to his Excellency the

President of Sri Lanka, Presidential Secretariat, Sri Lanka. Dr. Batagoda has

authored several books including State of the Environment in Sri Lanka,

The Economic Valuation of Alternative Uses of Mangrove Forests in Sri

Lanka and co-authored books including Urban Air Quality Management in

Sri Lanka, Theoretical Manual for Environmental Valuation in Sri Lanka

and Fiscal Policies on Fuels and Vehicles in Sri Lanka etc.

77


REPOSITIONING WITH GREATER STRENGTH | Corporate Governance

All members of the Board possess extensive knowledge and experience

in various facets of financial management and provide financial acumen and

balance of the Board.

Board members receive board papers, agendas and minutes of previous

Board meetings well in advance of the Board meetings to be held.

One third of the senior most Non-Executive Directors retires at the

Annual General Meeting and are re-elected if eligible. Accordingly, Mr. Noel

Selvanayagam will retire at the forthcoming AGM and, being eligible, offer

himself for re-election.

Directors are provided with adequate training opportunities for continuous

development and are frequently updated on the latest developments and issues

facing the Company and the industry. A summary of Directors’ duties has been

made available to Directors. Company Secretaries, Varners International (Pvt.)

Ltd. attend all Board meetings and advise Board members on regulatory and

compliance matters and ensure that Board procedures are adhered to.

Board carried out an annual appraisal of its members’ performance.

Past Chairmen of SLICL

Chairman

Period

Chairman

Period

Mr. A.E.G. Moragoda 1961

Mr. M. Rafeek 1961-1967

Mr. V.S.M. De Mel 1967-1968

Mr. G.V.S. De Silva 1968-1970

Mr. Jinadasa Samarakkody 1970-1977

Mr. U. Hemasiri Rodrigo 1977-1981

Mr. R. Chanaka De Silva 1982-1989

Mr. D. Peter S. Perera 1989-1993

Mr. K Shanmugalingam 1993

Mr. S.G. Udalamatta 1993-1994

Prof. J.W. Wickramasinghe 1994-1999

Mr. Dhammika Amarasinghe 1999-2000

Mr. Lal De Mel 2001-2002

Mr. Chrishantha Perera 2002-2003

Mr. D.H.S. Jayawardena 2003-2009

Mr. Pradeep Kariyawasam 2009-2010

Mr. Gamini S. Senarath 2010-2011

78


REPOSITIONING WITH GREATER STRENGTH | Corporate Governance

3.2.0 Senior Management Team

Mohan De Alwis

Managing Director,

Chief Executive Officer

BCom, MBA, CMA (Aus)

P. Kudabalage

Executive Director

BCom, FCA, FCMA, FCPM

Neel Hapuhinne

General Manager -

Administration

BCom (Special), Attorney-at-

Law, PG. Dip. (Aus), Member

of the Australian Institute of

Management

Suresh Paranavithana

Chief Officer -

Life Insurance

FCII, MBA, Dip. M, MCIM, M.I.

Mgt, CMA(Aus)

Ainsley J. Alles

Chief Officer - General

Insurance

FCII and Chartered Insurer,

FIII, ANZIIF (Fellow),

MBA, EDBA, FCPM

C.C. Jayasuriya

Consultant - General

Insurance

R.H.G. Lewis

Consultant -

Marine Insurance

Ranjith Perera

Senior DGM - Finance

BSc (Hons) (Pub.Admn.

Sp.), MBA, PG. Dip. in Corp.

Finance, FCMA, FCA

Siri Gunawardena

DGM - Training &

Development

ACII, Chartered Insurer,

BA (Hons)

Renuka Ekanayake

DGM - Motor

BA (Hons)-Banking and

Insurance, AIII, MBA

Pushpa Siriwardena

DGM - General Accident

ACII (London), Chartered

Insurer, BA (Hons)

Niroshini Pethiyagoda

DGM - Marketing

MBA (MGSM, Syd),

MCIM (UK), DipM (UK)

79


REPOSITIONING WITH GREATER STRENGTH | Corporate Governance

Prasanna Vithanage

DGM - Administration

MCIM

Ajith Wijayasundara

DGM - ICT

BSc (Eng), MBA

Nilanga Wickramasinghe

AGM - National Sales

(Life)

PG. Dip. in Mgt., CIAM, Dip.

LIM, LUTCF (USA), Chartered

Insurance Agency Manger

Pubudu Wimalaratne

AGM - Technical Sales/

National Sales - General

ACII, AII, Chartered Insurer

Hasantha Perera

AGM - ICT - Operations

Member of IPMSL, AIE (SL),

MSc (IT), Dip. in Credit Mgmt.,

MSc (Const. P. Mgmt.), MBA,

BSc (Eng.)

Rasika Ranatunga

AGM - Facilities

Management

Member (ASHRAE) (USA),

Member (ASHRAE) (SL), Dip.

HVAC(USA)

Dayaratne Perera

AGM - Life (Technical)

BSc (Hons), ACII, Dip. in BA,

Chartered Insurer

Mahen Peiris

AGM - Legal

LLB (Colombo), Attorney-at-

Law of the Supreme Court of

Sri Lanka

Jerome Vincent

AGM - Sales Dev. and

Admin

BCom, MBA, CIM, Dip. in

Journalism

Dr. Sherica Fernando

AGM - Medical

MBBS (SL), MSc, Community

Medicine (SL), ACII

(UK),MRCGP(INT)(UK)

Tharaka Balasuriya

AGM - Corporate Sales

BA (Econ, Maths)

Prabath Pussadeniya

AGM - HRD

BSc, PGC (PIM), NDTD

(SLITAD), AM SLITAD

80


REPOSITIONING WITH GREATER STRENGTH | Corporate Governance

E.M. Parakrama

Ambanpola

AGM - Branch

Administration

Nalin Subasinghe

AGM - Actuarial and Risk

Management

BSc (Hons), Dip. in Computer

Studies

Champa Kannangara

(Appointed w.e.f. 01.02.2011)

AGM - ICT Systems

Development

BSc, Msc (Comp.Sc.), MBCS

Chaminda Gunasinghe

(Appointed w.e.f. 01.11.2011)

AGM - Finance

B.B. Mgt. (Accountancy) Spl.

Hons, FCA, ACMA

U. Dhanuka

Liyanagamage

(Appointed w.e.f. 01.11.2011)

AGM - Investments

BSc (Eng) (Hons), CFA

Member of the CFA Institute

(USA) and CFA

Sri Lanka Society

Chaminda Athauda

(Appointed w.e.f. 01.11.2011)

AGM - Life (Technical)

BSc.(Hons), ACII (UK), AIII,

Chartered Insurer

Jeewani Gunawardena

(Appointed w.e.f. 01.09.2011)

AGM - Internal Audit

(Designate)

ACA, MBA

Rodney Wanigasekara

(Appointed w.e.f. 22.08.2011)

AGM - Internal Audit

(Designate)

BSc. Bus. Admin., ACA

(SL), Certified Public

Accountant (USA), MIPA(Aus)

Namalee Silva

(Appointed w.e.f. 01.11.2011)

AGM - Corporate

and Marketing

Communications

MCIM, ACIB

81


REPOSITIONING WITH GREATER STRENGTH | Corporate Governance

3.3.0 Organisational Chart

Board of

Directors

Board Committee on

Audit & Compliance

Board Committee on

Risk Management

Managing Director/

Chief Executive Officer

Executive Director

CO Life

Technical

CO Non-Life

Technical

AGM

Actuarial &

Risk Management

AGM

Audit Life

AGM

Life Operations

DGM

Motor

Consultant

Marine

AGM

Audit Non-Life

AGM

Life Claims

Senior Manager

Fire &

Engineering

Consultant

Fire

Manager

Reinsurance

DGM

General Accident

Assistant Company

Secretary/

Senior Manager

Compliance

operational and Advisory Committees

Management

Committee

Note: Tiers in the above structure tapers down from CO (Chief Officer), DGM, AGM, Senior Manager, Manager. Two AGMs of

Internal Audit are functionally responsible to the Board Audit Sub Committee.

82


REPOSITIONING WITH GREATER STRENGTH | Corporate Governance

Board Committee on

HR & Remuneration

Company Secretary

Consultant Actuary

CO

Operations

(Vacant)

AGM

Branch

Administration

DGM

Technical

Training

DGM

Marketing

DGM

Sales

Senior DGM

Finance

AGM

Investments

DGM

ICT

AGM

Human Resources

AGM

Facilities

AGM

Corporate &

Marketing

Communications

AGM National

Sales (Life)

AGM

Finance

Head of

Architecture

AGM

Medical

AGM

Legal

AGM National

Sales (Non-life,

TSD, FBD)

Head of

Business

Technology

Senior Manager

Investigations

Senior Manager

Transport &

Security

AGM Corporate

Business

Division

Head of Systems

Development

Manager

Supplies

Manager

Premises

AGM Sales

Administration

Investment and

Finance Committee

Marketing and

Sales Committee

TIRRIFICS*

Committee

Legal Advisory

Committee

*Technical Issues Relating to Reporting, Investments, Finance, IFRS Compliance and Solvency

83


REPOSITIONING WITH GREATER STRENGTH | Enterprise Risk Management

Enterprise

Risk Management 4.0.0

Recently, risk management practices have become broadly accepted as a

defensive approach to protecting trust; for example, holding on to trust and

loyalty we already have. Risk management practices help business slow

the erosion of customer and investor trust. We have in place both defensive and

complementary offensive (strategies) tools to protect and create trust accordingly.

Insurance being the business of risk assumption, the Board of Directors

understands that effective risk management is a sine qua non of its stewardship

role and that it enhances trust and the prospects of achieving the Company

objectives. Therefore, risk management is not seen merely as a regulatory

imperative. Board has a comprehensive understanding of the risks the Company

is exposed to and instituted an effective risk management system.

Apart from the very nature of business, heavy reliance on estimates and

forecasts, volatile market conditions and resulting impact on the investment

strategy, changing demographic variables, climatic change, increasing frequency

and magnitude of natural disasters, impending regulatory changes etc., have

made risk management all the more important and relevant today for the

insurance industry.

Accordingly, we have made risk management an integral part of our dayto-day

business enterprise-wide. Effective systems and procedures are in place for

the identification, measurement and management of risks at SLICL. Risk appetite

has been defined in risk policies and procedure manuals with tolerance levels

clearly identified for action and/or escalation of issues to senior management.

We have also developed an IT platform for the capture, storage, analysis and

communication of risk information.

Insurance is one of the heavily-regulated industries world over. As the

supervisory body, the IBSL is monitoring the insurance companies in Sri Lanka in

terms of rules, regulations, determinations, Gazette Notifications and Circulars

issued under the Regulation of Insurance Industry Act No. 43 of 2000 as amended.

84


REPOSITIONING WITH GREATER STRENGTH | Enterprise Risk Management

Given below are the most important risks that SLICL is faced with along

with the risk management measures in place and the risk indicators that are being

monitored at the Board and corporate management level:

Risk Category Definition of Risk Risk Management Measures Risk Indicators Remarks

Regulatory Risks

Failure to comply

with the existing

and changing

regulatory

requirements

and the

consequences.

Also refers to

the costs that

may have to

be incurred

as a result of

changes effected

to the rules and

regulations.

• Maintenance of the

required solvency

margins as per the

Solvency Margin Rules

• Submission of periodic

returns to the Regulator

on time

• Payment of relevant

fees on due dates

• Complying with the

necessary regulatory

requirements for

marketing and

advertisements

• Application of relevant

Accounting Standards

• Reporting on Anti-

Money Laundering

Risks to the Central

Bank of Sri Lanka

• Timely payment/

submission of returns to

the Exchequer

• Maintenance of

the comprehensive

compliance webpage

• Monitoring the

compliance

requirements and

reporting to the Audit &

Compliance Committee

• A sum

equivalent to

40% of the

average net

outstanding

claims for

the 3 years

immediately

preceding the

current year

for non-life; not

less than 55%

of the value of

the liabilities

for life

• Updation on

the official

website of the

IBSL

• Payments on

due dates

• Sections

99 (1), 99 (3)

of the RII Act

and Section

43 of RII Act

2011, Directive

No. 1 dated

14.10.2004 and

Directive

No. 2 dated

04.01.2005

• Sri Lanka

Accounting

Standards

• No noncompliance

issues

during the year

85


REPOSITIONING WITH GREATER STRENGTH | Enterprise Risk Management

Risk Category Definition of Risk Risk Management Measures Risk Indicators Remarks

• Relevant laws,

rules and

regulations

including

Financial

Transactions

Reporting Act

No. 06 of 2006

and Prevention

of Money

Laundering Act

No. 05 of 2006.

• Payment/

submission on

due dates

• Timely

updation of the

compliance

web page

• Regular

Monitoring &

Reporting

• Making payments and

submitting returns on

or before due dates

• Obtaining consultants’

services, where

necessary

• Training staff regarding

the compliance

requirements

• Timely

submissions

• End results

productivity

• Continuous

training

Investment Risk

Failure to ensure

that investment

objectives are

achieved.

• Maintaining appropriate

balance between asset

and income growth to

meet the obligations

of the Fund, based

on prudent risk

management principles

within the context of

IBSL regulations.

• Investment

Budget and

Investment

Policy

Statement

• No Noncompliance

issues

during the year

86


REPOSITIONING WITH GREATER STRENGTH | Enterprise Risk Management

Risk Category Definition of Risk Risk Management Measures Risk Indicators Remarks

Interest Rate

Risk

Volatility of

interest rates

when pricing

of assets and

liabilities are not

matched.

• Managed the fixed

income portfolio by

strategically shifting

from low-yielding

investments to

relatively high-yielding

ones, mitigating the

pressure on interest

income while closely

monitoring the duration

mismatches

• Duration

mismatch

between Assets

& Liabilities

as at 31st

December 2011

• Treasury Bill

rate saw a steep

increase towards

end 2011.

• If strong foreign

currency inflows

do not materialise,

Rupee may

depreciate further

during 2012

• Lack of long-term

Fixed Income

instruments

yielding acceptable

returns has

brought in an

Asset-Liability

Duration mismatch

for the Life Fund

Market Risk

Impact of

volatility of the

stock prices

on the equity

portfolio.

• Realised significant

income and to the

growth of the Equity

portfolio

• Equities with huge

capital appreciations

could be disposed to

maintain higher level

of returns for both Life

& General Funds and

to reduce the risk of a

sudden fall in Equity

market

• Diversifying the

portfolio into different

sectors

• Investing in

fundamentally strong

stocks which will

bounce back in the

longer term

• Maximum

Equity

exposure is

limited to 43%

of the portfolio

including

investments in

subsidiaries

• Some Listed Stocks

with huge capital

appreciations were

already disposed in

2012

87


REPOSITIONING WITH GREATER STRENGTH | Enterprise Risk Management

Risk Category Definition of Risk Risk Management Measures Risk Indicators Remarks

Credit Risk and

Concentration

Risk

Credit risk is the

risk of investee

companies,

reinsurers and

other debtors

defaulting

payments due.

Concentration

risk is the

probability of

loss arising from

heavily lopsided

exposure to a

particular group

of counterparties.

• Monitored and

managed at each

borrower’s as well as

at the portfolio level

in order to ensure a

well-balanced portfolio,

with a view to limiting

concentrations in terms

of risk quality, industry,

maturity and large

exposure

• Investment grade

credit rating for the

entity is expected for

all investments in Term

Deposits

• Investment grade

credit rating for both

the entity and the

instrument is expected

for all investments in

Corporate Debt

• No debt investment

made in Related

Companies

• Maximum unsecured

credit exposure to a

single Government

entity is limited to

Rs. 4.0 billion.

• Maximum unsecured

credit exposure to a

single corporate entity is

limited to Rs. 1.0 billion.

• Making a

comprehensive credit

analysis prior to making

any investment in a

debt security

• Single Party

Credit

Exposure

• Credit Rating of

the Entity and

the Instrument

• No noncompliance

issues

during the year

88


REPOSITIONING WITH GREATER STRENGTH | Enterprise Risk Management

Risk Category Definition of Risk Risk Management Measures Risk Indicators Remarks

Liquidity Risk -

Life Fund

Probability of

loss arising

from a situation

where there is

not enough cash

and/or cash

equivalents to

meet the needs of

creditors.

• In the upcoming

years greater than

historical volumes of

maturities and cash

outflows are expected.

Representative of a

new phase in the fund’s

policy maturity cycle

and Treasury Bonds

may be used to match

these anticipated

exceptional cash

outflows by coinciding

maturities

• Short-term allocation

included a funding

cushion of around

Rs. 1 billion in liquid

securities to meet

policy obligations,

tax obligations

and investment

opportunities

• External Cash

Inflow/Outflow

difference

• Traditionally,

Life Fund needed

minimal liquidity.

Annual cash

inflows from

premium income

and others have

exceeded cash

outflows

• Because of

uncertainty of

cash outflows,

liquidity remained

an essential

consideration for

the General Fund

• No noncompliance

issues

during the year

Liquidity Risk -

General Fund

• Maintaining a portfolio

of short-term securities,

as an immediate

liquidity reserve

• Maintaining a

portfolio of readily

marketable Treasury

Bonds, together with

a laddered maturity

schedule and matching

asset maturities against

seasonal cash flow

requirements

(if appropriate)

• No noncompliance

issues

during the year

89


REPOSITIONING WITH GREATER STRENGTH | Enterprise Risk Management

Risk Category Definition of Risk Risk Management Measures Risk Indicators Remarks

Operational Risk

Probability of

loss occurring

from internal

inadequacies

of a firm or a

breakdown in

its controls,

operations or

procedures.

• To mitigate the risks

associated with

maintaining data in

spreadsheets and to

improve MIS, invested

in an Integrated Asset

Management Software

Solution (cited as

SAP) and successfully

commissioned it in

September 2011

• Proper internal

control

processes

• Operational

supportive

systems

• Knowledgeable

people

• Periodic reporting

to Audit and

Compliance

Committee

mitigates the risk.

Reinsurance

Risk

Inadequate

transfer of

underwriting risk

to and inability

of reinsurers

to meet their

commitments

due to

insufficient

financial

strength.

• Careful design of the

reinsurance program to

meet the growing needs

and in line with the

corporate strategy

• Careful selection of reinsurers

based on their

financial stability, claims

paying ability, reputation

in the field, their value

added services and

financial rating

• Selection of the panel

of reinsurers in

compliance with the

requirements of the

IBSL

• Increase in

reinsurance

premium

• IBSL accepted

reinsurers

• Excessive

retention

• Payment on

respective

reinsurance

liabilities

• Properly calculate

the exposure and

reinsured with

IBSL accepted

reinsurers.

90


REPOSITIONING WITH GREATER STRENGTH | Enterprise Risk Management

Risk Category Definition of Risk Risk Management Measures Risk Indicators Remarks

Claims

Reserving Risk

Estimation

of adequate

reserves for

claims.

• Annual certification of

life fund and Technical

Reserves by an

independent actuary

• Carrying out a life

valuation at the end

of each quarter to

determine solvency

and at the end of

each financial year

to determine the

policyholders’ and

shareholders’ portion of

the surplus

• Submission of actuarial

valuation results to the

regulator on a quarterly

basis

• Actuarial certification

of the Incurred But Not

Reported Claims (IBNR)

and Incurred But Not

Enough Reported

Claims (IBNER)

• Use of sound judgment

in making other

claims provisions

in consultation with

the Chief Officer

responsible for

managing Underwriting

and Claims risks

• Actuarial assessment of

the premium reserves

in relation to meeting

future liabilities of the

unexpired risks

• Net premium

to technical

reserves in

non-life has

consistently

been above

100%.

• SLICL ’s reserving

is deemed strong

and SLICL

accounts for the

largest life fund

and the general

fund in the

industry.

91


REPOSITIONING WITH GREATER STRENGTH | Enterprise Risk Management

Risk Category Definition of Risk Risk Management Measures Risk Indicators Remarks

Information

Communication

Technology

(ICT) Risk

Risk of ICT

system failing

to support the

achievement

of business

objectives

• Making technology

related investments

designed to accomplish

specific business

objectives of improving

customer reach, access

and service within a

secure IT environment

• Improved performance

and monitoring

capabilities of the

Head Office Local Area

Network and Branch

Network Wide Area

Network by introducing

many Internet Protocol

(IP) based technologies

• Set up an IP based

Call Center in a single

location with 24 hour

accessibility

• Enhanced automation

of field force operations

through the adoption

of cloud based

technologies

• Generation of

timely/reliable

information

• Proper

customer

service

• SAP Investment

module has been

successfully

implemented

• SAP financial

module is being

developed

• Front-end core

systems are being

developed

92


REPOSITIONING WITH GREATER STRENGTH | Enterprise Risk Management

1 Year Treasury Bill Rate

All Share Price Index

93


0.23%

REPOSITIONING WITH GREATER STRENGTH | Enterprise Risk Management

Maturity Profile - Life Fund

>5 Years

24.63%

39.51%

5 Years

35.29%

2-5 Years

49.37%


REPOSITIONING WITH GREATER STRENGTH | Enterprise Risk Management

Sector Allocation - Listed Equity - Life Fund

D

E

C

F

G H

B

I J

K

L

M N O

P

Q

A

A Bank, Finance & Insurance 47.50%

B Diversified Holdings 15.84%

C Healthcare 11.11%

D Hotel & Travel 7.45%

E Telecommunication 4.51%

F Manufacturing 2.63%

G Construction & Engineering 2.55%

H Beverages, Food & Tobacco 2.34%

I Motors 1.78%

J Chemicals & Pharmaceuticals 1.66%

K Trading 1.15%

L Power & Energy 0.52%

M Investment Trusts 0.42%

N Information Technology 0.30%

O Land & Property 0.17%

P Footwear & Textiles 0.04%

Q Plantation 0.01%

Sector Allocation - Listed Equity - General Fund

F G H

I

J

K

L M

N

E

D

C

B

A

A Bank, Finance & Insurance 46.78%

B Diversified Holdings 20.48%

C Healthcare 18.97%

D Construction & Engineering 4.58%

E Manufacturing 3.37%

F Telecommunication 1.81%

G Chemicals & Pharmaceuticals 1.03%

H Information Technology 0.90%

I Beverages, Food & Tobacco 0.77%

J Power & Energy 0.59%

K Investment Trusts 0.57%

L Trading 0.13%

M Motors 0.02%

N Hotel & Travel 0.01%

95


REPOSITIONING WITH GREATER STRENGTH | Audit And Compliance Committee Report

Audit And Compliance

Committee Report 5.0.0

The Audit and Compliance Committee (ACC) comprised of two

Non-Executive Directors Mr. R.A. Jayatissa and Dr. B.M.S. Batagoda.

Executive Director, Managing Director/CEO, Senior DGM-Finance and

AGMs-Internal Audit also attend the meetings of the Audit Committee by invitation.

The Chief Actuary & Snr. Consultant and Assistance Company Secretary/Senior

Manager-Compliance and other senior officials too participate in the meetings

when called upon by the Committee. The Engagement Partner and the Audit

Team Manager of the Company’s External Auditors, Messrs KPMG too attend the

meetings on the invitation of the Committee. AGM-Internal Audit acted as the

Secretary/Convener of the meetings.

The Committee, with the valuable service provided by the senior support

staff, had an adequate blend of financial and insurance expertise in order to carry

out ACC duties effectively.

5.0.1 Terms of Reference

The terms of reference of the Audit and Compliance Committee of SLICL are

clearly defined in the Charter of the Board’s Audit and Compliance Committee

which is based on the guiding principles and best practices on audit committees

including the ‘Code of Best Practice on Corporate Governance’ jointly issued by

the Securities and Exchange Commission of Sri Lanka (“SEC”) and The Institute

of Chartered Accountants of Sri Lanka, June 2008. The Committee is responsible

to the Board of Directors and reports its activities regularly to the Board.

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REPOSITIONING WITH GREATER STRENGTH | Audit And Compliance Committee Report

5.0.2 Meetings of the committee

During the financial year ended 31st December 2011, 07 meetings of the

Committee were held. The proceedings of the Committee meetings are recorded

with adequate details and are reported regularly to the Board of Directors. The

attendance of the Committee members at the meeting is stated below. On the

invitation of the Committee, the engagement partner of the Company’s External

Auditors M/S KPMG, attended one Committee meeting during the year.

Name of Director Total ACCM

No. of Meetings

Held

Attended

Dr. B.M.S. Batagoda (Chairman and Non-Executive Director) 7 6

Mr. R.A. Jayatissa (Member and Non-Executive Director) 7 7

Mr. A.M.M. De Alwis (MD/CEO By invitation) 7 6

Mr. P. Kudabalage (Executive Director by Invitation) 7 7

5.0.3 Role of the Audit and Compliance Committee

The ACC continues to assist the Board of Directors in fulfilling effectively its

responsibilities relating to financial and other connected affairs of the Company.

The Committee has been empowered to:

1. Ensuring that a good financial reporting system is in place in order to give

accurate, appropriate and timely information to the management, regulatory

authorities and the shareholders in compliance with the Companies Act

No. 07 of 2007, Sri Lanka Accounting Standards (SLAS), Regulation of Insurance

Industry Act No. 43 of 2000 as amended and Statement of Recommended

Accounting Practice-ICASL etc.

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REPOSITIONING WITH GREATER STRENGTH | Audit And Compliance Committee Report

2. Ensuring that there are appropriate plans, internal controls and procedures are

in place in SLICL and monitor the Internal and External Audit Programmes,

review the Internal and External Audit/Inspection Reports, follow up their

findings and recommendations.

3. Ensuring that the strategies, plans, manning and organisation for internal

auditing and the methodologies promulgated as best practice are carried out.

4. Review the suitability and the quality of Accounting Policies and any changes

in accounting policies and practices and their adherence to Statutory and

Regulatory compliance and applicable Accounting Standards.

5. Carrying out appropriate investigations to mitigate the fraud risk.

5.0.4 Internal Audit

The Company has its own internal audit department. During the year Company

recruited two fully qualified Chartered Accountants as Assistant General Managers

to strengthen and lead activities of the internal audit department. The internal audit

programme was presented and approved by the ACC and Committee regularly

reviews and monitors the internal audit and the inspection function.

5.0.5 External Audit

The ACC reviews the audit and non-audit services provided by the External

Auditors to ensure that such services do not impair the independence of the

External Auditors.

The ACC has noted the declaration dated 23rd April 2012 from Messrs

KPMG, as required by the Companies Act, No. 07 of 2007, confirming that they do

not have any relationship or interest in the Company, which may have a bearing on

their independence within the meaning of the Code of Conduct and Ethics of The

Institute of Chartered Accountants of Sri Lanka.

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REPOSITIONING WITH GREATER STRENGTH | Audit And Compliance Committee Report

The ACC has recommended to the Board of Directors that Messrs KPMG

be re-appointed as Auditors for the financial year ended 31st December 2012 at

the next Annual General Meeting. The ACC recommends the fees payable to the

statutory auditors for approval.

The Management Letter together with the Management’s Responses

thereto and Annual Accounts were reviewed with the Auditors.

5.0.6 Non-audit Services

No non-audit services were provided by the External Auditors during the year

under review.

5.0.7 Good Governance

The Committee monitored on a continuous basis the maintenance of the highest

standards in Corporate Good Governance. All staff have been encouraged to

resort to whistle-blowing in the strictest confidence, when they suspect wrong

doings or other improprieties. Appropriate procedures are in place to conduct

independent investigation into all such reported incidents.

5.0.8 Conclusion

The ACC is satisfied that the Company’s internal controls are effectively

implemented and the Company’s assets are sufficiently safeguarded. The

Committee is satisfied that the internal audit department and External Auditors

have been effective and independent throughout the year. In addition, the

Committee is also satisfied with the appropriateness of application of the

accounting policies and thus gives a reasonable assurance that the Financial

99


REPOSITIONING WITH GREATER STRENGTH | Audit And Compliance Committee Report

Statements of the Company are reliable. Further, the Committee is satisfied that

the Compliance Framework of the Company ensures that the Company complies

with all applicable laws, rules and regulations and corrective and preventive

actions were taken where appropriate.

The ACC approved this report on 24th April 2012.

Dr. B.M.S. Batagoda

Chairman - Audit and Compliance Committee

08th May 2012

100


REPOSITIONING WITH GREATER STRENGTH | Financial Reports

Financial Reports 6.0.0

Annual Report of the Board of Directors of the Company 6.1.0 103

Statement of Directors’ Responsibility 6.2.0 111

Chief Executive Officer’s and Chief Financial Officer’s

Responsibility Statement 6.3.0 112

Certificate of the Actuary of the Insurer 6.4.0 114

Certification of Incurred but Not (Enough) Reported Claims 6.5.0 116

Independent Auditors’ Report 6.6.0 117

Balance Sheet 6.7.0 120

Statement of Income 6.8.0 122

Statement of Changes in Equity 6.9.0 124

Cash Flow Statement 6.10.0 128

Balance Sheet - Segmental Review 6.11.0 130

Statement of Income - Segmental Review 6.12.0 134

Balance Sheet - Life Insurance 6.13.0 138

Notes to the Financial Statements - Life Insurance 6.14.0 139

Notes to the Financial Statements 6.15.0 150

101


REPOSITIONING WITH GREATER STRENGTH | Financial Reports

6.1.0 Annual Report of the Board of

Directors of the Company

6.1.1 General

The Board of Directors of the Company has pleasure in presenting their Annual Report

to the members together with the Audited Financial Statements for the year ended

31st December 2011 of the Company and the Group and the Auditors’ Report on those

Financial Statements confirming the requirements of the Companies Act No. 07 of 2007,

Regulation of Insurance Industry Act No. 43 of 2000 and Sri Lanka Accounting and Auditing

Standards Act No. 15 of 1995 and amendments made thereon.

As at 31st December 2011, 99.99% shares are vested with the Secretary to the

Treasury on behalf of the Government of Sri Lanka.

Litro Gas Terminal Lanka (Pvt) Ltd. and Management Services Rakshana (Pvt) Ltd.

are fully-owned subsidiaries of the Company. The SLICL has 99.99% shareholding of Litro

Gas Lanka Limited and 54.61% Share holding of The Lanka Hospitals Corporation PLC.

The registered office and the head office of the Company is at ‘Rakshana Mandiraya’

No. 21, Vauxhall Street, Colombo 02.

This Report was approved by the Board of Directors on 08th May 2012.

6.1.2 Principal Activities of the Company and

the Group

The principal activities of the Company are to transact life and non-life insurance in

Sri Lanka and non-life insurance in Maldives. There were no major changes to the principal

activities of the Company during the year under review.

Litro Gas Terminal Lanka (Pvt) Ltd. is involved in storage/terminalling of Liquid

Petroleum Gas (LPG) and Litro Gas Lanka Ltd. provides the importation and distribution

of LPG in domestic, commercial and bulk form. The Lanka Hospitals Corporation PLC

provide healthcare services and Management Services Rakshana (Pvt) Ltd. provides the

payroll management.

103


REPOSITIONING WITH GREATER STRENGTH | Financial Reports

6.1.3 Review of Business

The review of Company’s operational and financial performance and future developments

are outline in the Chairman’s Message on page 04, Managing Director/CEO’s Review on

page 10 and the Management Discussion and Analysis (Page 16) of the Annual Report.

These reports are integral parts of the Report of the Directors and the Audited Financial

Statements reflect the state of the affairs of the Company.

6.1.4 Directors’ Responsibility for Financial Reporting

The Directors are responsible for preparation and presentation of Financial Statements of

the Company and the Group to reflect the true and fair view of its affairs. The Directors

responsibilities include designing, implementing, maintaining internal control relevant to

the preparation and fair presentation of the Financial Statements that are free from material

misstatements whether due to fraud or error, selecting and adopting accounting policies

and making accounting estimates that are reasonable in the circumstances.

The Directors are of the view that Balance Sheet, Income Statement, Statement of

Changes in Equity, Cash Flow Statement, Significant Accounting Policies and Notes thereto

on pages 150 to 209 have been prepared in conformity with the Sri Lanka Accounting

Standards, Regulation of Insurance Industry Act No. 43 of 2000 and Companies Act No. 07 of

2007. The Statement of Directors’ Responsibility is given on page 111 of this Annual Report.

6.1.5 Financial Statements and Auditors’ Report

The Financial Statements of the Group and the Company signed by the Chief Financial

Officer and the Directors are given on pages 120 to 209.

The Company’s Financial Statements are audited by Messrs KPMG and Auditors’

Report issued for the financial year 2011 is on pages 117 to 119 on this Annual Report.

In accordance with the Companies Act No. 07 of 2007, a resolution relating to their

re-appointment and authorising the Directors to determine their remuneration will be

proposed at the forthcoming Annual General Meeting.

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REPOSITIONING WITH GREATER STRENGTH | Financial Reports

6.1.6 Fees on Audit and Other Related Services

The amount paid as audit fees during the year under review and the amount paid as other

related services are given below. The Directors are aware that the Auditors do not have

any relationship, interest in the Company other than those disclosed in this paragraph.

2011

Rs. ’000

2010

Rs. ’000

Statutory Audit Fees 3,250 2,975

Audit Related Services 2,400 550

6.1.7 Significant Accounting Policies

The significant accounting policies adopted in preparation of these Financial Statements

are given on pages 150 to 167 of the Annual Report. There were no major changes in the

accounting policies adopted during the financial year and those were consistent with that

of previous year.

6.1.8 Going Concern

The Board is expected that the Company and the Group have adequate resources to

continue its operations in foreseeable future by considering the financial positions and

performance, cash flows and regulatory and statutory factors and adopt the going concern

basis in preparing Financial Statements.

6.1.9 Turnover/Gross Written Premium (GWP)

The total turnover of the Company recorded Rs. 18,365 million for the year under review

and Rs. 15,276 million for the comparative figure.

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REPOSITIONING WITH GREATER STRENGTH | Financial Reports

The total GWP Rs. 18,365 million comprised of life insurance Gross

Written Premium Rs. 6,743 million and non-life insurance Gross Written Premium

Rs. 11,622 million for the year 2011. The reported value for total Gross Written

Premium in 2010 was Rs. 15,276 million out of which life insurance Gross Written

Premium is Rs. 6,009 million and non-life insurance Gross Written Premium

Rs. 9,266 million for the last year. A detailed analysis of the total GWP achieved by the

Company is given in Note 26 on page 201 of the Financial Statements.

6.1.10 Financial Results and Appropriations

2011 2010

Profit Before Taxation (PBT) 7,815 15,304

Income Tax Expenses 1,220 1,994

Profit After Taxation 6,595 13,039

Transfer from Life Insurance Surplus 1,952 –

Unappropriated Profit Brought Forward 5,891 2,219

Profits Available for Appropriation 14,438 15,257

Appropriations

Dividends Paid – 6,720

Transferred to Surplus from Life Insurance Business 4,463 2,647

Unappropriated Profit Carried Forward 9,975 5,891

6.1.11 Dividends

The Company has not declared dividend during the year under review. The dividend of

Rs. 11.20 per share amounting to Rs. 6,720 million has been declared for the year 2010.

The dividends are subject to 10% withholding tax.

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REPOSITIONING WITH GREATER STRENGTH | Financial Reports

6.1.12 Reserves

The movement in reserves during the financial year is set out in the Statement of Changes

in Equity on pages 124 to 127.

6.1.13 Provision for Taxation

The tax position in the Company is disclosed in the Note 17 on page 193 in the

Financial Statements.

6.1.14 Insurance and Other Provisions

The Directors have taken all reasonable steps to ensure adequate provisioning for unearned

premiums and claims outstanding including provisions for Claims Incurred But Not Reported

(IBNR) and Claims Incurred But Not Enough Reported (IBNER) in non-life insurance.

The Directors have also consulted an independent Actuary in the process of valuing IBNR

and IBNER reserves and his reports are given on page 116. Moreover, the Directors have

arranged an independent Actuary to value the Life Fund and the Report of the Independent

Actuary is given on pages 114 and 115.

Gratuity liability was also valued by an independent Actuary as required by the

Sri Lanka Accounting Standard No. 16 ‘Employee Benefits’ (revised 2006).

As at the date of this report, the Directors are not aware of any circumstances, which

would render inadequate provisions made in the Financial Statements.

6.1.15 Investments

The amount of investments held by the Company as at 31st December 2011 amounted to

Rs. 76,377 million (2010 - Rs. 58,747 million). A detailed breakup of the investments held

is disclosed in Note 4 in the Financial Statements on page 168.

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REPOSITIONING WITH GREATER STRENGTH | Financial Reports

6.1.16 Property, Plant & Equipment

The details of Property, Plant & Equipment are shown in Note 5 on pages 179 to 183.

6.1.17 Market Value of Freehold Properties

The Company uses the cost method as the accounting policy for recording Property, Plant

& Equipment other than Land and Building. The Company’s policy for revaluing the assets

is once every two years. Accordingly, the Land and Buildings were revalued in the financial

year 2010 by the Valuation Department of Sri Lanka. Such assets were valued on an open

market value for existing use basis. The results of such revaluation were incorporated in

the Financial Statements from its effective date which is 31st December 2010.

6.1.18 Events Occurring After the Balance Sheet Date

There have not been any material events that occurred subsequent to the Balance Sheet

date which require adjustments to or disclosure in the Financial Statements.

6.1.19 Related Party Transactions

The related party transactions as per the Sri Lanka Accounting Standard No. 30 - ‘Related

Party Disclosures’ (revised 2005), which is adopted in the preparation of the Financial

Statements are given on page 209 of this Annual Report.

6.1.20 Directors’ Meetings

Details of Directors’ meeting are presented on pages 73 to 77.

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REPOSITIONING WITH GREATER STRENGTH | Financial Reports

6.1.21 Directors’ Interest in Contracts

The Directors’ interests in contracts are disclosed in Note 38.1 on page 208 of the Financial

Statements. These interests have been duly disclosed at the meeting of Directors. Directors

do not hold any shares of the Company.

6.1.22 Directors’ Remunerations

The Directors, fees and emoluments paid during the year is Rs. 27.25 million and the figure

reported in the last year is Rs. 10.27 million.

6.1.23 Stated Capital

The stated capital stood at the Financial Statements is Rs. 6,000 million of the Company in

compliance with the Companies Act No. 07 of 2007.

6.1.24 Statutory Payments

The Directors, to the best of their knowledge and belief are satisfied that all statutory

payments in relation to the Government, the IBSL and related to the employees have been

made on time.

6.1.25 Intangible Assets

Intangible assets as at 31st December 2011 have recorded in the Financial Statements of

the Company in Note 7 on page 185.

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REPOSITIONING WITH GREATER STRENGTH | Financial Reports

6.1.26 Compliance with Laws and Regulations

The Company has complied with all applicable laws and regulations during the Financial

Year. The compliance department monitors the compliance functions of the Company and

reports to the Audit and Compliance Committee.

6.1.27 Board of Directors

Mr. G.S. Senarath - Chairman (Resigned from the Board w.e.f. 20th December 2011)

Mr. R.A. Jayatissa - (Appointed as the Chairman w.e.f. 23rd March 2012)

Mr. A.M.M. De Alwis - Managing Director/CEO

Mr. P. Kudabalage

Mr. K.A.D.D. Perera

Mr. C.N.V. Selvanayagam

Dr. B.M.S. Batagoda

6.1.28 Annual General Meeting

The Annual General Meeting will be held on 20th June 2012 at the auditorium

of the Company at its registered office at No. 21, Vauxhall Street, Colombo 2.

The Notice of Meeting is given on page 223.

By order of the Board,

Varners International (Pvt) Ltd.

Company Secretaries

08th May 2012

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REPOSITIONING WITH GREATER STRENGTH | Financial Reports

6.2.0 Statement of Directors’ Responsibility

The responsibility of the Directors, in relation to the Financial Statements, is set out in

the following statement. The responsibility of the Auditors, in relation to the Financial

Statements, is set out in the Report of the Auditors on pages 117 to 119 of this Annual Report.

Directors are of the view that the Financial Statements have been prepared under

the Generally Accepted Accounting Principles and in conformity with the requirements

of the Sri Lanka Accounting Standards, Companies Act, No. 07 of 2007 and Regulation of

Insurance Industry Act No. 43 of 2000. The formats and the disclosures are in accordance

with the Statement of Recommended Practice for Insurance Contracts (SoRP), adopted by

The Institute of Chartered Accountants of Sri Lanka.

The Directors confirm that appropriate Accounting Policies have been consistently

applied and supported by prudent judgments and estimates in the preparation of Financial

Statements. Further, the Directors ensure that the Company has adequate resources to

continue in operation to justify applying the going concern basis in preparing these Financial

Statements. In addition, the Directors have confirmed that the Company maintains sufficient

accounting records to disclose, with reasonable accuracy the financial position of the Company.

In addition, the Directors have taken all reasonable steps to ensure adequate

provisioning for Unearned Premium, Unexpired Risks, Outstanding Claims including Claims

Incurred But Not Reported, Claims Incurred But Not Enough Reported and Receivables.

Directors confirm that to the best of their knowledge all taxes, duties and levies

payable by the Company and all contributions and taxes payable on behalf of employees of

the Company and all other known statutory dues, as at the Balance Sheet date have been

paid or provided for.

The Directors adopted a report from the actuary on which bonus payable to

policyholders and the surplus available to shareholders in Life Insurance business

were determined.

By Order of the Board,

Varners International (Pvt) Ltd.

Company Secretaries

08th May 2012

111


REPOSITIONING WITH GREATER STRENGTH | Financial Reports

6.3.0 Chief Executive Officer’s and

Chief Financial Officer’s

Responsibility Statement

The Financial Statements are prepared in accordance with Sri Lanka Accounting Standards

issued by The Institute of Chartered Accountants of Sri Lanka and the requirements of the

Companies Act No. 07 of 2007 and the Regulation of Insurance Industry Act No. 43 of 2000.

The formats and disclosures are also in accordance with the Statement of Recommended

Practice for Insurance Contracts (SoRP), adopted by The Institute of Chartered Accountants

of Sri Lanka.

There have been no changes in the accounting policies adopted by the Company

during the year under review. The accounting policies used in the preparation of the Financial

Statements are appropriate and are consistently applied, except unless otherwise stated in

the notes accompanying the Financial Statements.

The Board of Directors and the Management of the Company accept the

responsibility for the integrity of the Financial Statements. We confirm that to the best of

our knowledge, the Financial Statements, and other financial information included in the

Annual Report, 2011, fairly present in all material respects the financial position, results

of operations and cash flows of the Company as of, and for, the periods presented in this

Annual Report.

The Financial Statements were audited by Messrs KPMG. Audit and Compliance

Committee (ACC) reviews the audit and non-audit services provided by the External Auditors

to ensure that such services do not impair the independence of the External Auditors.

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REPOSITIONING WITH GREATER STRENGTH | Financial Reports

ACC ensures that there are appropriate plans, internal controls and procedures are

in place in SLICL in support of smooth functioning of its business. Further, ACC ensures that

the strategies, plans, manning and organisation for internal auditing and the methodologies

promulgated as best practice are carried out.

We confirm that the Company has complied with all applicable laws, regulations

and guidelines and that there are no material litigations that are pending against the

Company other than those arising in the normal course of conducting insurance business.

A.M.M. De Alwis

Managing Director/Chief Executive Officer

M.S.P.R. Perera

Senior Deputy General Manager (Finance)/Chief Financial Officer

08th May 2012

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REPOSITIONING WITH GREATER STRENGTH | Financial Reports

6.4.0 Certificate of the

Actuary of the Insurer

Certificate of the Actuary of the Insurer

As under section 48 of the regulation of insurance industry Act No. 43 of 2000.

I, Jacobus Simon Albert Plugge, being the actuary, to the best of my knowledge

certify the following:

a. that I have included each and every policy for which there is a policy liability

in conducting the valuation of liabilities for the purposes of section 48 of the

Regulation of Insurance Industry Act No. 43 of 2000, and the Solvency Margin

(Long Term Insurance) Rules, 2002;

b. that I have taken all reasonable steps to ensure the accuracy and completeness

of the policies mentioned in item (a) above;

c. that I have complied with the provisions of the said Act in item (a) above;

d. that I have complied with provisions of the Solvency Margin (Long Term

Insurance) Rules, 2002 and guidance notes/guidelines prescribed by the Board

there under in the determination of the net amount of liabilities;

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REPOSITIONING WITH GREATER STRENGTH | Financial Reports

e. that in my opinion that the net liability so determined by me, in the Form

H-LT - the valuation balance sheet, is adequate to meet the insurer’s future

commitments under the insurance contracts, and the policyholder’s reasonable

expectations.

1. NAME AND ADDRESS OF ACTUARY WITH PHONE NUMBER AND EMAIL:

Jacobus Simon Albert Plugge

Nauernaschevaartdijk 32

1551 BA Westzaan

The Netherlands

+31-75-6223530

jaap@plugge.nl

2. SIGNATURE:

3. PLACE: Westzaan

4. DATE: 08th May 2012

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6.5.0 Certification of Incurred but Not

(Enough) Reported Claims

I hereby certify, as Consultant Actuary to Sri Lanka Insurance Corporation Limited,

No 21 Vauxhall Street, Colombo 2, that the IBNR/IBN(E)R Claims Reserve as at

31 December 2011 is Rs. 1,936,893,932 net of reinsurance, which is an amount equal to 24.0%

of the Net Earned Premium of Rs. 8,069,862,858 as at 31 December 2011. This IBNR/IBN(E)R

provision, together with the case reserves held by the Company, is expected to be adequate

to meet the future liabilities in respect of the Company’s incurred claims obligations as at

31 December 2011, in many but not all scenarios of future experience.

The result for the reserve for IBNR and IBN(E)R has been determined using

actuarial techniques deemed reasonable and thus adequate to meet Sri Lanka Insurance

Corporation’s future obligations for claims incurred but not reported and claims incurred

but not enough reported for all classes of business underwritten by the Company.

drs. J. S. A. Plugge

Fellow of the Actuarial Association of Sri Lanka (AASL)

Fellow of the Dutch Actuarial Society (AAG)

08th May 2012

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6.6.0 Independent Auditors’ Report

TO THE MEMBERS OF SRI LANKA INSURANCE

CORPORATION LIMITED

Report on the Financial Statements

We have audited the accompanying financial statements of Sri Lanka Insurance

Corporation Limited (the “Company”), and the consolidated Financial Statements of the

Company and its subsidiaries (the “Group”), which comprise the balance sheet as at

31st December 2011, and the Income Statement, Statement of Changes in Equity and Cash

Flow Statement for the year then ended, and a summary of significant accounting policies

and other explanatory notes as set out on pages 150 to 209 of this Annual Report.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these Financial

Statements in accordance with Sri Lanka Accounting Standards. This responsibility includes:

designing, implementing and maintaining internal controls relevant to the preparation and

fair presentation of Financial Statements that are free from material misstatement, whether

due to fraud or error; selecting and applying appropriate accounting policies; and making

accounting estimates that are reasonable in the circumstances.

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Scope of Audit and Basis of Opinion

Our responsibility is to express an opinion on these Financial Statements based on our audit.

We conducted our audit in accordance with Sri Lanka Auditing Standards. Those standards

require that we plan and perform the audit to obtain reasonable assurance whether the

Financial Statements are free from material misstatement.

An audit includes examining, on a test basis, evidence supporting the amounts and

disclosures in the Financial Statements. An audit also includes assessing the accounting

policies used and significant estimates made by management, as well as evaluating the

overall financial statement presentation.

We have obtained all the information and explanations, which to the best of our

knowledge and belief were necessary for the purposes of our audit except for the matters

referred to in the opinion paragraph. We therefore believe that our audit provides a

reasonable basis for our opinion.

Opinion

1. According to the judgment delivered by Supreme Court of Sri Lanka on

04th June 2009, the legal ownership of the majority of the shares of the Company was vested

in the Secretary to the Treasury to be held on behalf of the Government of Sri Lanka. Further,

according to the said judgment, the Secretary to the Treasury was directed to cause profits

of the Company during the period Distilleries Company of Sri Lanka PLC was the parent

of the Company, be computed and the profits attributable to the previous parent be settled.

No adjustments have been made in the Financial Statements pending determination of the

aforesaid attributable profits.

2. In the absence of confirmation of balances, we were unable to satisfy ourselves as the

completeness, existence and accuracy of amount due from the Distilleries Company of

Sri Lanka PLC Group of Companies disclosed in Note 9 to the Financial Statements.

In our opinion, except for the effects of such adjustments, if any, as might have been

determined to be necessary had we been able to satisfy ourselves as to the matters disclosed

in the aforesaid paragraphs 1 and 2, so far as appears from our examination, the Company

maintained proper accounting records for the year ended 31st December 2011 and the

Financial Statements give a true and fair view of the Company’s state of affairs as at

31st December 2011 and its profit and cash flows for the year then ended in accordance

with Sri Lanka Accounting Standards.

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In our opinion, except for the effects of such adjustments, if any, as might

have been determined to be necessary had we been able to satisfy ourselves as

to the matters disclosed in the aforesaid paragraphs 1 and 2, the consolidated

Financial Statements give a true and fair view of the state of affairs as at

31st December 2011 and the profit and cash flows for the year then ended, in accordance

with Sri Lanka Accounting Standards, of the Company and its subsidiaries dealt with

thereby, so far as concerns the shareholders of the Company.

Report on Other Legal and Regulatory Requirements

These Financial Statements also comply with the requirements of Section 153(2) to 153(7)

of the Companies Act No. 07 of 2007.

Chartered Accountants

Colombo

8th May 2012

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6.7.0 Balance Sheet

Consolidated company

As at 31st December

Note

2011

Rs. ’000

2010

Rs. ’000

2011

Rs. ’000

2010

Rs. ’000

Assets

Investments 4 76,377,143 58,747,057 76,377,143 58,747,061

Investments in Subsidiaries

and Associates 4.5 – – 11,715,818 9,965,816

Intangible Assets 7 2,992,805 2,992,805 – –

Property, Plant & Equipment 5 16,451,361 15,827,567 4,556,748 4,440,213

Leasehold Properties 6 141,604 128,009 21,613 21,881

Loans to Life Policyholders 8 1,711,012 1,850,812 1,711,012 1,850,812

Reinsurance Receivable 10 1,327,575 1,514,432 1,327,575 1,514,432

Premium Receivable

from Policyholders 11 1,131,145 995,498 1,182,098 995,498

Premium Receivable from Agents,

Brokers and Intermediaries 12 394,033 331,833 394,033 331,833

Other Assets 9 3,121,979 2,509,761 1,382,840 950,368

Deferred Tax Assets 13 45,100 49,764 45,100 49,764

Cash and Cash Equivalents 14 10,669,005 14,333,061 3,464,997 10,126,137

Total Assets 114,362,762 99,280,600 102,178,977 88,993,819

Consolidated company

As at 31st December

Note

2011

Rs. ’000

2010

Rs. ’000

2011

Rs. ’000

2010

Rs. ’000

Liabilities and Shareholders’ Equity

Liabilities

Insurance Provision - Life 15 58,494,521 52,573,602 58,494,521 52,573,602

Insurance Provision - Non-Life 16 13,359,262 12,359,448 13,359,262 12,359,448

Current Tax Liabilities 17 1,532,427 1,465,369 931,417 1,427,816

Deferred Tax Liabilities 18 2,029,694 2,326,369 293,583 399,560

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Consolidated company

As at 31st December

Note

2011

Rs. ’000

2010

Rs. ’000

2011

Rs. ’000

2010

Rs. ’000

Employee Benefits 19 513,514 469,311 392,620 370,304

Other Liabilities 20 9,284,987 9,408,069 3,770,735 3,545,900

Interest-Bearing Borrowings 21 392,747 438,092 310,275 285,703

Total Liabilities 85,607,151 79,040,261 77,552,412 70,962,333

Equity

Stated Capital 22 6,000,000 6,000,000 6,000,000 6,000,000

Capital Reserve 23 1,819,809 1,566,107 1,336,692 1,336,692

Revenue Reserves 24 19,417,822 10,633,129 17,289,873 10,694,790

Total Equity Attributable to

Equity Holders of the Company 27,237,630 18,199,235 24,626,565 18,031,486

Minority Interest 1,517,980 2,041,104 – –

Total Equity 28,755,610 20,240,339 24,626,565 18,031,486

Total Liabilities and Equity 114,362,762 99,280,600 102,178,977 88,993,819

The above Balance Sheet is to be read in conjunction with the Notes to the Financial Statements

from pages 150 to 209 which form an integral part of the Financial Statements.

I certify that the above Financial Statements comply with the requirements of Companies

Act No. 07 of 2007.

Chief Financial Officer

The Board of Directors is responsible for the preparation and presentation of these

Financial Statements.

Signed for and on behalf of the Board by

Managing Director

Executive Director

Colombo

08th May 2012

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6.8.0 Statement of Income

Consolidated company

For the Year ended 31st December

Note

2011

Rs. ’000

2010

Rs. ’000

2011

Rs. ’000

2010

Rs. ’000

Revenue 25 53,209,883 40,480,743 27,727,678 35,011,286

Gross Written Premium 26 18,306,568 15,239,001 18,365,192 15,276,496

Less: Premium Ceded to Reinsurers (2,823,921) (2,363,687) (2,823,921) (2,363,687)

Net Written Premium 15,482,647 12,875,314 15,541,271 12,912,809

Net Change in Reserve for

Unearned Premium (877,952) (933,063) (877,952) (933,063)

Net Earned Premium 14,604,695 11,942,251 14,663,319 11,979,746

Revenue from Subsidiaries 25,553,074 5,504,596 – –

40,157,769 17,446,847 14,663,319 11,979,746

Benefits, Losses and Expenses

Insurance Claims and Benefits (Net) 27 (8,345,749) (7,841,416) (8,349,989) (7,843,468)

Underwriting and Net

Acquisition Costs 28 (1,240,339) (840,824) (1,240,339) (840,824)

Other Insurance-Related Costs

(including reinsurance) (2,097,025) (1,404,444) (2,097,025) (1,404,444)

Increase in Provision for Life Business (6,291,119) (8,084,571) (6,291,119) (8,084,571)

Cost of Services of Subsidiaries (19,642,047) (4,032,309) – –

Total Benefits,

Losses and Expenses (37,616,278) (22,203,564) (17,978,471) (18,173,307)

Net Revenue less Benefits,

Losses and Expenses 2,541,491 (4,756,717) (3,315,152) (6,193,561)

Other Revenue

Income from Investments 29 12,068,939 22,537,127 12,068,939 22,537,127

Other Income 30 1,722,245 496,771 995,366 494,413

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Consolidated company

For the Year ended 31st December

Note

2011

Rs. ’000

2010

Rs. ’000

2011

Rs. ’000

2010

Rs. ’000

Expenses

Other Operating, Investment-Related

and Administrative Expenses 31 (4,618,542) (3,185,308) (1,933,486) (1,803,651)

Profit from Operations 32 11,714,133 15,091,873 7,815,667 15,034,329

Net Finance Income/(Expense) 305,985 38,522 (37) (210)

Profit before Income Tax 12,020,118 15,130,395 7,815,630 15,034,118

Income Tax Expense 33 (2,121,975) (1,860,560) (1,220,547) (1,994,915)

Profit for the Year 9,898,143 13,269,835 6,595,083 13,039,203

Attributable to:

Equity Holders of the Company 9,699,288 13,220,925 6,595,083 13,039,203

Minority Interest 198,854 48,910 – –

Profit for the Year 9,898,142 13,269,835 6,595,083 13,039,203

Basic Earnings per Share 34 16.17 22.03 10.99 21.73

Dividend per Share 35 – 11.20 – 11.20

The above Statement of Income is to be read in conjunction with the Notes to the Financial

Statements from pages 150 to 209 which form an integral part of the Financial Statements.

Note:

Consolidation of the Financial Results of Litro Gas Lanka Ltd. and Litro Gas Terminal Lanka (Pvt) Ltd.

The Company acquired a controlling interest of Litro Gas Lanka Ltd. and Litro Gas Terminal Lanka (Pvt) Ltd.

on 15th November 2010. Hence, the Consolidated Statement of Income of the Company for the year ended

31st December 2010 included the results of the aforesaid subsidiaries for the period from 15th November 2010 to

31st December 2010 (11/2 months). However, the Consolidated Statement of Income of the Company for the year ended

31st December 2011 includes the financial results of the aforesaid subsidiaries Litro Gas Lanka Ltd. and Litro

Gas Terminal Lanka (Pvt) Ltd. for the entire financial year.

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6.9.0 Statement of Changes in Equity

Consolidated

Stated

Capital

Rs. ’000

Revaluation

Reserve

Rs. ’000

Balance as at 01st January 2010 6,000,000 1,457,510

Profit for the Year – –

Profit Transfer at the Consolidation – –

Dividend Declared and Paid during the Year – –

Surplus Attributable to Shareholders from Life Insurance – –

Surplus on Revaluation – 178,700

Tax Effect on Surplus on Revaluation – (62,908)

Realisation of Revaluation Surplus – (7,195)

Balance as at 31st December 2010 6,000,000 1,566,107

Profit for the Year – –

Effect of Change in Percentage Holding in Subsidiaries – –

Effect on Change in Tax Rate – 96,433

Surplus Attributable to Shareholders from Life Insurance – –

Depreciation Transfer – (18,229)

Surplus on Revaluation – 85,775

Deferred Tax on Revaluation Surplus – 105,643

Transfer from Life Insurance Surplus – –

Realisation of Revaluation Surplus – (15,920)

Balance as at 31st December 2011 6,000,000 1,819,809

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Other

Reserves

Rs. ’000

Surplus from

Life Insurance

Rs. ’000

Retained

Earnings

Rs. ’000

Total

Rs. ’000

Minority

Interest

Rs. ’000

Total

Rs. ’000

643,442 1,513,053 1,968,880 11,582,885 911,246 12,494,131

– – 13,220,925 13,220,925 48,910 13,269,835

– – – – 884,286 884,286

– – (6,720,366) (6,720,366) – (6,720,366)

– 2,647,238 (2,647,238) – – –

– – – 178,700 248,947 427,647

– – – (62,908) (52,287) (115,195)

– – 7,195 – – –

643,442 4,160,291 5,829,396 18,199,236 2,041,102 20,240,338

– – 9,699,288 9,699,288 198,854 9,898,142

– – (948,046) (948,046) (801,639) (1,749,685)

– – (698) 95,735 79,662 175,397

– 4,463,461 (4,463,461) – – –

– – 18,229 – – –

– – – 85,775 – 85,775

– – – 105,643 – 105,643

– (1,952,335) 1,952,335 – – –

– – 15,920 – – –

643,442 6,671,417 12,102,963 27,237,630 1,517,980 28,755,610

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Company

Stated

Capital

Rs. ’000

Balance as at 01st January 2010 6,000,000

Profit for the Year –

Transfer from Revaluation Reserve –

Dividend Declared and Paid during the Year –

Surplus Attributable to Shareholders from Life Insurance –

Balance as at 31st December 2010 6,000,000

Profit for the Year –

Transfer from Life Insurance Surplus –

Surplus Attributable to Shareholders from Life Insurance –

Balance as at 31st December 2011 6,000,000

The above Statement of Changes in Equity is to be read in conjunction with the Notes

to the Financial Statements from pages 150 to 209 which form an integral part of the

Financial Statements.

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Revaluation

Reserve

Rs. ’000

Other

Reserves

Rs. ’000

Surplus from

Life Insurance

Rs. ’000

Retained

Earnings

Rs. ’000

Total

Rs. ’000

1,457,510 643,442 1,513,055 2,219,456 11,833,463

– – – 13,039,203 13,039,203

(120,816) – – – (120,816)

– – – (6,720,366) (6,720,366)

– – 2,647,238 (2,647,238) –

1,336,694 643,442 4,160,293 5,891,055 18,031,484

– – – 6,595,083 6,595,083

– – (1,952,335) 1,952,335 –

– – 4,463,461 (4,463,461) –

1,336,694 643,442 6,671,419 9,975,012 24,626,565

127


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6.10.0 Cash Flow Statement

Consolidated company

For the Year ended 31st December 2011

Rs. ’000

2010

Rs. ’000

2011

Rs. ’000

2010

Rs. ’000

Cash Flows from Operating Activities

Premium Received from Customers 17,801,352 14,548,721 17,859,976 14,548,721

Reinsurance Premium Paid (2,351,779) (1,970,604) (2,351,779) (1,970,604)

Claims Paid (8,869,769) (8,551,020) (8,874,009) (8,551,020)

Reinsurance Receipts in Respect of Claims 512,111 410,939 512,111 410,939

Cash Receipts from Debtors 367,908 979,826 313,524 979,826

Cash Paid to and on behalf of Employees (2,231,430) (1,763,681) (1,396,014) (1,225,917)

Interest Received 6,010,064 5,645,483 5,724,891 5,602,806

Dividend Received 1,265,276 1,052,637 1,265,276 1,052,637

Interest Paid 10,932 (8,221) – –

Other Operating Cash Payments 1,504,294 (1,634,730) (3,482,359) (3,519,132)

Cash Flows from

Operating Activities 14,018,958 8,709,350 9,536,094 7,328,256

Retiring Gratuity Paid – (6,302) (17,761) (3,538)

Income Tax Paid (2,066,601) (1,659,419) (1,818,259) (1,642,374)

Net Cash from

Operating Activities 11,952,357 7,043,628 7,735,596 5,682,344

Cash Flows from/(used in)

Investing Activities

Acquisition of Investments (17,354,763) (33,426,461) (17,354,763) (33,426,461)

Proceeds on Sale of Investments 3,214,126 41,761,900 3,214,126 41,761,900

Proceeds on Sale of Property,

Plant & Equipment 51,299 40,506 17,040 39,428

Acquisition of Property, Plant & Equipment (1,506,577) (437,630) (312,751) (201,728)

Cash Received from Consolidation – 2,843,873 – –

Net Cash Used in

Investing Activities (15,595,914) 10,782,188 (14,436,348) 8,173,138

128


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Consolidated company

For the Year ended 31st December 2011

Rs. ’000

2010

Rs. ’000

2011

Rs. ’000

2010

Rs. ’000

Cash Flows from Financing Activities

Payment of Interest-Bearing Loans (22,590) (30,120) – –

Dividends Paid – (6,720,366) – (6,720,366)

Net Cash Used in

Financing Activities (22,590) (6,750,486) – (6,720,366)

Effect of Exchange Rate Changes on

Cash and Cash Equivalents 15,037 (52,039) 15,037 (52,039)

Net Increase/(Decrease) in Cash

and Cash Equivalents (3,641,299) 11,023,297 (6,685,715) 7,083,084

Cash and Cash Equivalents at

beginning of the Year 13,917,558 2,894,257 9,840,438 2,757,352

Cash and Cash Equivalents at

end of the Year 10,276,259 13,917,557 3,154,723 9,840,436

Cash and Cash Equivalents

at the end of the Year

Cash at Bank and in Hand 1,023,063 4,899,094 400,665 488,794

Short-Term Investments 9,645,943 9,433,965 3,064,332 9,637,343

Bank Overdraft (392,747) (415,502) (310,275) (285,701)

10,276,259 13,917,557 3,154,723 9,840,436

The above Cash Flow Statement is to be read in conjunction with the Notes to the Financial

Statements from pages 150 to 209 which form an integral part of the Financial Statements.

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6.11.0 Balance Sheet - Segmental Review

As at 31st December 2011

Non-Life

Insurance

Rs. ’000

Life

Insurance

Rs. ’000

Healthcare

Rs. ’000

Energy

Rs. ’000

Other

Rs. ’000

Eliminations

Rs. ’000

Total

Rs. ’000

Assets

Investments 16,971,661 59,405,482 – – – – 76,377,143

Property, Plant

& Equipment 4,510,194 46,553 2,825,238 9,069,376 – – 16,451,361

Leasehold Properties 21,613 – 119,991 – – – 141,604

Intangible Assets – – – – – 2,992,805 2,992,805

Investments

in Subsidiaries

and Associates 8,507,905 3,207,914 – – – (11,715,819) –

Loans to Life

Policyholders – 1,711,012 – – – – 1,711,012

Reinsurance Receivable 1,224,069 103,506 – – – – 1,327,575

Premium Receivable

from Policyholders 1,182,098 – – – – (50,953) 1,131,145

Premium Receivable

from Agents, Brokers

and Intermediaries 394,033 – – – – – 394,033

Other Assets 660,292 1,113,677 392,150 1,453,134 53,406 (550,680) 3,121,979

Deferred Tax Assets – 45,100 – – – – 45,100

Cash and Cash

Equivalents 1,299,064 2,165,934 671,547 6,532,461 – – 10,669,005

Total Assets 34,770,929 67,799,178 4,008,926 17,054,971 53,406 (9,324,647) 114,362,762

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2010

Non-Life

Insurance

Rs. ’000

Life

Insurance

Rs. ’000

Healthcare

Rs. ’000

Energy

Rs. ’000

Other

Rs. ’000

Eliminations

Rs. ’000

Total

Rs. ’000

12,576,603 46,170,455 – – – – 58,747,058

4,386,869 53,343 2,778,835 8,608,520 – – 15,827,567

21,881 – 106,127 – – – 128,009

– – – – – 2,992,805 2,992,805

8,615,406 1,457,911 – – – (10,073,317) –

– 1,850,812 – – – – 1,850,812

1,428,515 85,917 – – – – 1,514,432

995,498 – – – – – 995,498

331,833 – – – – – 331,833

236,637 891,406 302,694 1,365,372 22,021 (308,367) 2,509,762

– 49,764 – – – – 49,764

1,304,548 8,821,592 467,743 3,739,168 14 – 14,333,061

29,897,791 59,381,200 3,655,399 13,713,060 22,034 (7,388,880) 99,280,600

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As at 31st December 2011

Non-Life

Insurance

Rs. ’000

Life

Insurance

Rs. ’000

Healthcare

Rs. ’000

Energy

Rs. ’000

Other

Rs. ’000

Eliminations

Rs. ’000

Total

Rs. ’000

Liabilities and Equity

Liabilities

Insurance Provision - Life – 58,494,521 – – – – 58,494,521

Insurance Provision -

Non-Life 13,359,262 – – – – – 13,359,262

Current Tax Liabilities 330,563 600,854 – 601,011 – – 1,532,427

Deferred Tax Liabilities 293,583 – 224,911 1,511,200 – – 2,029,694

Employee Benefits 204,845 187,775 42,722 69,290 8,882 – 513,514

Other Liabilities 2,490,539 1,671,325 315,252 5,365,232 44,523 (601,883) 9,284,988

Interest-Bearing

Borrowings 195,196 115,079 82,472 – – – 392,747

Total Liabilities 16,873,988 61,069,553 665,357 7,546,733 53,405 (601,883) 85,607,153

Equity

Stated Capital 6,000,000 – 2,671,543 1,947,109 – (4,618,652) 6,000,000

Capital Reserve 1,320,586 16,106 874,754 4,040,007 – (4,431,644) 1,819,809

Revenue Reserves 10,576,355 6,713,519 (202,727) 3,521,123 – (1,190,448) 19,417,822

Minority Interest – – – – – 1,517,980 1,517,980

Total Equity 17,896,941 6,729,625 3,343,570 9,508,240 – (8,722,764) 28,755,610

Total Liabilities

and Equity 34,770,929 67,799,178 4,008,927 17,054,974 53,405 (9,324,647) 114,362,763

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2010

Non-Life

Insurance

Rs. ’000

Life

Insurance

Rs. ’000

Healthcare

Rs. ’000

Energy

Rs. ’000

Other

Rs. ’000

Eliminations

Rs. ’000

Total

Rs. ’000

– 52,573,602 – – – – 52,573,602

12,359,448 – – – – – 12,359,448

751,168 676,648 – 38,336 (783) – 1,465,369

399,560 – 457,893 1,468,916 – – 2,326,369

188,006 182,300 33,011 60,524 5,472 – 469,311

2,119,564 1,604,010 282,099 5,693,417 17,344 (308,367) 9,408,069

159,560 126,140 152,394 – – – 438,092

15,977,306 55,162,700 925,396 7,261,194 22,034 (308,367) 79,040,261

6,000,000 – 2,671,543 1,947,109 0.05 (4,618,653) 6,000,000

1,320,586 16,106 740,388 3,866,819 – (4,377,794) 1,566,107

6,599,899 4,202,394 (681,929) 637,938 – (125,168) 10,633,139

– – – – – 2,041,104 2,041,104

13,920,485 4,218,500 2,730,002 6,451,866 0.05 (7,080,512) 20,240,339

29,897,791 59,381,200 3,655,399 13,713,060 22,034 (7,388,880) 99,280,600

133


REPOSITIONING WITH GREATER STRENGTH | Financial Reports

6.12.0 Statement of Income -

Segmental Review

For the Year ended 31st December 2011

Non-Life

Insurance

Rs. ’000

Life

Insurance

Rs. ’000

Healthcare

Rs. ’000

Energy

Rs. ’000

Other

Rs. ’000

Eliminations

Rs. ’000

Total

Rs. ’000

Revenue 9,730,197 17,997,427 3,680,174 21,872,900 – (70,869) 53,209,883

Gross Written Premium 11,622,119 6,743,073 – – – (58,624) 18,306,568

Less: Premium

Ceded to Reinsurers (2,674,304) (149,616) – – – – (2,823,921)

Net Written Premium 8,947,815 6,593,457 – – – (58,624) 15,482,647

Net Change in Reserve

for Unearned

Premium (877,952) – – – – – (877,952)

Net Earned

Premium 8,069,863 6,593,457 – – – (58,624) 14,604,695

Revenue from

Subsidiaries – – 3,680,174 21,872,900 – – 25,553,074

8,069,863 6,593,457 3,680,174 21,872,900 – (58,624) 40,157,769

Benefits, Losses

and Expenses

Insurance Claims and

Benefits (Net) (4,757,172) (3,592,818) – – – 4,240 (8,345,749)

Underwriting and Net

Acquisition Costs (323,990) (916,349) – – – – (1,240,339)

Other Insurance-Related

Costs (including

reinsurance) (1,982,718) (114,307) – – – – (2,097,025)

Increase in Provision

for Life Business – (6,291,119) – – – – (6,291,119)

Cost of Services

of Subsidiaries – – (2,030,532) (17,611,515) – – (19,642,047)

Total Benefits,

Losses and

Expenses (7,063,880) (10,914,593) (2,030,532) (17,611,515) – 4,240 (37,616,279)

134


REPOSITIONING WITH GREATER STRENGTH | Financial Reports

2010

Non-Life

Insurance

Rs. ’000

Life

Insurance

Rs. ’000

Healthcare

Rs. ’000

Energy

Rs. ’000

Eliminations

Rs. ’000

Total

Rs. ’000

16,146,878 18,971,911 3,157,044 2,349,910 (144,998) 40,480,743

9,266,637 6,009,859 – – (37,495) 15,239,001

(2,299,389) (64,298) – – – (2,363,687)

6,967,248 5,945,561 – – (37,495) 12,875,314

(933,063) – – – – (933,063)

6,034,185 5,945,561 – – (37,495) 11,942,251

– – 3,156,023 2,348,574 – 5,504,596

6,034,185 5,945,561 3,156,023 2,348,574 (37,495) 17,446,847

(2,885,793) (4,957,675) – – 2,052 (7,841,416)

(192,791) (648,033) – – – (840,824)

(1,343,465) (60,979) – – – (1,404,444)

– (8,084,571) – – – (8,084,571)

– – (1,753,920) (2,278,389) – (4,032,309)

(4,422,049) (13,751,258) (1,753,920) (2,278,389) 2,052 (22,203,564)

135


REPOSITIONING WITH GREATER STRENGTH | Financial Reports

For the Year ended 31st December 2011

Non-Life

Insurance

Rs. ’000

Life

Insurance

Rs. ’000

Healthcare

Rs. ’000

Energy

Rs. ’000

Other

Rs. ’000

Eliminations

Rs. ’000

Total

Rs. ’000

Net Revenue less

Benefits, Losses

and Expenses 1,005,983 (4,321,136) 1,649,642 4,261,385 – (54,384) 2,541,491

Other Revenue

Income from Investments 1,371,478 10,697,462 – – – – 12,068,939

Other Income 288,857 706,509 22,884 523,895 192,345 (12,245) 1,722,245

Expenses

Other Operating,

Investment-Related

and Administrative

Expenses (127,251) (1,806,235) (1,331,514) (1,227,826) (192,345) 66,629 (4,618,542)

Profit from

Operations 2,539,066 5,276,599 341,011 3,557,454 – – 11,714,133

Net Finance Income/

(Cost) (12) (24) 38,403 267,616 – – 305,983

Profit before

Taxation 2,539,054 5,276,575 379,415 3,825,070 – – 12,020,118

Income Tax Expenses (407,432) (813,114) 58,686 (960,114) – – (2,121,975)

Net Profit after

Taxation/

Transfer to

Shareholders’

Fund 2,131,622 4,463,461 438,101 2,864,956 – – 9,898,142

136


REPOSITIONING WITH GREATER STRENGTH | Financial Reports

2010

Non-Life

Insurance

Rs. ’000

Life

Insurance

Rs. ’000

Healthcare

Rs. ’000

Energy

Rs. ’000

Eliminations

Rs. ’000

Total

Rs. ’000

1,612,136 (7,805,697) 1,402,102 70,185 (35,443) (4,756,717)

9,922,381 12,722,249 – – (107,503) 22,537,127

190,312 304,101 1,021 1,336 – 496,771

(381,524) (1,422,127) (1,125,824) (291,276) 35,443 (3,185,308)

11,343,305 3,798,526 277,300 (219,755) (107,503) 15,091,873

(98) (112) 12,002 26,730 – 38,522

11,343,207 3,798,414 289,302 (193,024) (107,503) 15,130,395

(843,740) (1,151,175) (158) 134,513 – (1,860,560)

10,499,467 2,647,239 289,144 (58,511) (107,503) 13,269,835

137


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6.13.0 Balance Sheet - Life Insurance

As at 31st December

Note

2011

Rs. ’000

2010

Rs. ’000

Assets

Investments a 62,613,395 47,628,368

Property, Plant & Equipment b 46,554 53,343

Deferred Tax 45,100 49,764

Loans to Life Policyholders 1,711,012 1,850,812

Reinsurance Receivable 103,506 85,917

Other Assets c 1,113,677 891,407

Cash and Cash Equivalents 2,165,934 8,821,592

Total Assets 67,799,180 59,381,200

Liabilities and Equity

Liabilities

Insurance Provision - Life 58,494,520 52,573,602

Employee Benefits 187,775 182,300

Reinsurance Payable 188,969 140,481

Agency Commission Payable 196,688 167,995

Current Tax Liabilities 600,854 676,648

Other Liabilities d 1,285,668 1,295,535

Interest-Bearing Borrowings 115,079 126,140

Equity Attributable to Shareholders

Capital Reserve 16,106 16,106

Revenue Reserve e 6,671,419 4,160,294

Other Reserve 42,100 42,100

Total Liabilities and Equity 67,799,180 59,381,200

138


REPOSITIONING WITH GREATER STRENGTH | Financial Reports

6.14.0 Notes to the Financial

Statements - Life Insurance

As at 31st December

Note

2011

Rs. ’000

2010

Rs. ’000

a. Investments

Investments in Shares a.1 22,478,700 18,492,036

Investments in Unit Trusts a.2 1,253,927 989,811

Government Securities a.3 26,480,352 19,115,994

Corporate Securities a.4 4,061,529 3,345,882

Fixed Deposits 4,701,221 2,380,897

Development Bond 1,695,000 1,659,000

Interest Receivable 1,942,666 1,644,748

62,613,395 47,628,368

As at 31st December 2011 2010

No. of

Shares

Cost

Rs. ’000

Market

Value

Rs. ’000

No. of

Shares

Cost

Rs. ’000

Market

Value

Rs. ’000

a.1 Quoted Shares

Bank, Finance

and Insurance

Central Finance

Company PLC – – – 1,672,833 159,563 1,380,087

Commercial Bank

of Ceylon PLC 38,867,290 734,542 3,886,729 18,022,212 499,201 4,685,775

Development Finance

Corporation of

Ceylon PLC 26,509,832 934,321 2,992,960 34,423,532 1,213,234 6,867,495

Sampath Bank PLC 3,805,870 185,592 742,145 7,615,396 212,916 2,071,388

Lanka ORIX Leasing

Company PLC 10,762,560 70,146 897,598 12,420,160 80,949 1,577,360

139


REPOSITIONING WITH GREATER STRENGTH | Financial Reports

As at 31st December 2011 2010

No. of

Shares

Cost

Rs. ’000

Market

Value

Rs. ’000

No. of

Shares

Cost

Rs. ’000

Market

Value

Rs. ’000

Pan Asia Banking

Corporation PLC 1,394,666 9,950 34,867 697,333 9,950 36,261

Seylan Bank PLC -

Voting 8,666,666 798,367 593,667 6,500,000 635,867 630,500

Hatton National Bank

PLC - Voting 30,939,519 2,369,338 4,640,928 18,751,224 1,751,954 7,498,614

Seylan Bank PLC -

Non-Voting 350,000 4,375 10,710 350,000 4,375 17,080

Janashakthi

Insurance PLC – – – – – –

Nations Trust

Bank PLC 1,122,100 46,541 63,960 1,122,100 46,541 93,695

National Development

Bank PLC 7,805,426 621,384 1,092,760 3,902,713 621,384 1,363,998

LB Finance PLC 1,842,900 324,483 254,320 – – –

Nation Lanka

Finance PLC 979,500 25,318 15,476 – – –

Beverage, Food and Tobacco

Ceylon Brewery PLC 283,400 26,526 113,360 283,400 26,526 90,688

Ceylon Tobacco

Company PLC – – – 440 17 156

Distilleries Company

of Sri Lanka PLC 2,320,200 382,534 341,301 2,320,200 382,534 412,996

Lion Brewery PLC 723,140 78,551 137,397 560,640 31,253 105,400

Cargills (Ceylon) PLC 776,000 90,812 157,528 382,100 11,056 74,510

Ceylon Cold Stores

PLC 18,400 542 1,842 4,600 542 2,436

140


REPOSITIONING WITH GREATER STRENGTH | Financial Reports

As at 31st December 2011 2010

No. of

Shares

Cost

Rs. ’000

Market

Value

Rs. ’000

No. of

Shares

Cost

Rs. ’000

Market

Value

Rs. ’000

Footwear and Textiles

Hayleys MGT

Knitting Mills PLC 78,800 3,988 2,246 78,800 3,988 2,522

Kuruwita Textiles PLC 414,400 20,775 9,904 414,400 20,775 12,432

Diversified Holdings

John Keells Holdings

PLC 14,288,150 1,221,949 2,443,274 11,216,113 1,278,964 3,343,523

Hayleys PLC – – – 38,100 3,574 13,145

Hemas Holdings PLC 6,635,700 138,742 221,632 13,044,000 272,730 579,154

CT Holdings PLC 82,000 4,482 14,678 82,000 4,482 14,924

Aitken Spence Hotel

Holdings PLC 18,000,000 4,161,218 2,250,000 18,000,000 4,161,218 3,060,000

Colombo Fort Land &

Buildings Co. PLC 3,020,600 253,967 147,405 – – –

Vallibel One PLC 65,900 1,648 1,575 – – –

Hotels & Travels

Aitken Spence Hotel

Holdings PLC 8,815,100 140,849 612,649 10,695,209 184,524 1,133,692

Asian Hotels &

Properties PLC 10,055,900 419,920 801,455 5,058,500 422,570 981,349

John Keells

Hotels PLC 72,747,800 1,467,361 974,821 72,747,800 1,467,361 1,454,956

141


REPOSITIONING WITH GREATER STRENGTH | Financial Reports

As at 31st December 2011 2010

No. of

Shares

Cost

Rs. ’000

Market

Value

Rs. ’000

No. of

Shares

Cost

Rs. ’000

Market

Value

Rs. ’000

Healthcare

Asiri Hospitals PLC – – – 130,695,495 397,250 1,150,120

The Lanka Hospitals

Corporation PLC 66,097,350 1,457,914 3,437,062 66,097,350 1,457,914 2,062,237

Asiri Surgicals

Hospitals PLC 15,493,000 139,388 122,395 15,493,000 139,388 136,338

Manufacturing

Chevron Lubricants

Lanka PLC – – – 500 22 80

Sierra Cables PLC 800 2 3 800 2 3

Lanka Cement PLC 509,700 7,482 9,939 509,700 7,482 14,272

Piraml Glass PLC – – – – – –

ACL Cabels PLC 2,748,400 132,263 203,382 2,188,900 78,606 186,275

Tokyo Cement PLC -

Voting 1,830,375 25,514 80,537 1,830,375 25,514 101,586

Royal Ceramics PLC 2,514,000 176,623 351,960 875,000 52,960 266,788

Lanka Walltiles PLC 807,600 99,297 76,318 130,000 6,397 17,953

Tokyo Cement Co.

Lanka PLC -

Non-Voting 4,003,600 79,047 122,110 4,003,600 79,047 160,945

Telecommunications

Dialog Axiata PLC 74,585,920 1,115,978 589,229 74,585,920 1,115,978 887,572

Sri Lanka Telecom

PLC 17,713,735 629,009 857,345 17,713,735 629,009 850,259

142


REPOSITIONING WITH GREATER STRENGTH | Financial Reports

As at 31st December 2011 2010

No. of

Shares

Cost

Rs. ’000

Market

Value

Rs. ’000

No. of

Shares

Cost

Rs. ’000

Market

Value

Rs. ’000

Trading

Singer (Sri Lanka)

PLC – – – 8 – 2

Browns & Company

PLC 1,069,600 371,111 251,142 – – –

Tess Agro PLC 26,380,200 147,345 118,711 – – –

Power & Energy

Lanka Indian Oil

Company PLC 8,964,400 251,564 165,841 9,854,500 276,543 186,250

Laugf Gas PLC 3,900 90 148 3,900 90 102

Plantations

Thalawakelle Tea

Estate PLC 105,600 3,114 3,147 105,600 3,114 4,657

Constructions

and Engineering

Colombo Dockyard

PLC 3,421,475 294,985 816,364 3,421,475 294,985 940,906

Information

Technology

E-Channelling PLC 10,714,400 43,417 85,715 1,245,700 23,907 27,281

PC House PLC 876,700 9,644 12,011 1,812,300 19,935 20,479

143


REPOSITIONING WITH GREATER STRENGTH | Financial Reports

As at 31st December 2011 2010

No. of

Shares

Cost

Rs. ’000

Market

Value

Rs. ’000

No. of

Shares

Cost

Rs. ’000

Market

Value

Rs. ’000

Chemical and

Pharmaceuticals

Chemical Industries

(Colombo) PLC 4,769,800 311,828 531,833 4,769,800 311,828 667,772

Motors

Diesel & Motor

Engineering PLC 315,466 476,867 410,106 – – –

Colonial Motors PLC 400,000 193,176 160,000 – – –

Land and Property

Overseas Reality PLC 3,972,300 64,015 56,009 3,972,300 64,015 60,776

Investment and Trust

Ceylon Guardian

Investments PLC 200,000 65,728 51,000 – – –

Renuka Holdings 1,526,316 95,079 83,184 – – –

Unquoted - Shares

Litro Gas Lanka Ltd. 17,616,853 1,750,000 – – – –

22,478,700 32,052,678 18,492,036 45,246,789

Provision for Fall in

Value of Investment – – – –

22,478,700 32,052,678 18,492,036 45,246,789

144


REPOSITIONING WITH GREATER STRENGTH | Financial Reports

As at 31st December 2011 2010

No. of

Units

Cost

Rs. ’000

Market Value

Rs. ’000

No. of

Units

Cost

Rs. ’000

Market Value

Rs. ’000

a.2 Unit Trusts

Ceybank Unit Trust 33,628,319 447,927 1,065,008,863 32,058,003 383,811 1,253,147

Ceybank Gilt

Edged Fund 20,594,648 206,000 243,222,794 20,594,648 206,000 206,976

Namal Gilt Edged

Fund 25,007,021 250,000 318,589,441 25,007,021 250,000 321,840

Ceylon Income Fund 29,581,022 350,000 397,615,610 13,786,765 150,000 165,441

1,253,927 2,024,436,708 989,811 1,947,405

As at 31st December

Notes

2011

Rs. ’000

2010

Rs. ’000

a.3 Government Securities

Investments in Treasury Bills 96,450 91,491

Treasury Bonds 26,383,902 19,024,503

26,480,352 19,115,994

a.4 Corporate Securities

Investments in Debentures - Quoted a.4.1 2,739,360 2,185,466

Investments in Debentures - Unquoted a.4.2 1,075,000 1,025,000

Trust Certificate - People’s Leasing Co. Ltd. 24,404 32,295

Promissory Notes – 103,122

Commercial Paper 222,765 –

4,061,529 3,345,882

145


REPOSITIONING WITH GREATER STRENGTH | Financial Reports

As at 31st December 2011 2010

Redeemable

Date

Face

Value

Rs. ’000

Cost

Rs. ’000

Market

Value

Rs. ’000

Face

Value

Rs. ’000

Cost

Rs. ’000

Market

Value

Rs. ’000

a.4.1 Quoted

Hatton National

Bank PLC 11.09.2012 17,500 17,500 17,850 17,500 17,500 17,850

Hatton National

Bank PLC 02.04.2021 182,126 182,126 182,126 164,314 164,314 164,314

Hatton National

Bank PLC 02.04.2024 368,976 368,976 368,976 332,172 332,172 332,172

Commercial Bank

of Ceylon PLC 18.12.2016 250,000 250,000 250,000 250,000 250,000 250,000

Sampath Bank

PLC 30.08.2012 300,000 300,000 285,000 300,000 300,000 300,000

Nations Trust

Bank PLC 19.08.2013 200,000 200,000 200,000 200,000 200,000 200,000

Nations Trust

Bank PLC 04.08.2016 200,000 200,000 200,000 – – –

LB Finance PLC 22.09.2013 50,000 50,000 49,854 50,000 50,000 49,854

Urban

Development

Authority 05.10.2015 871,480 871,480 871,480 871,480 871,480 871,480

LOLC PLC 05.08.2015 100,000 100,000 100,000 – – –

DFCC 07.09.2016 74,074 74,074 74,074 – – –

MBSL PLC 15.11.2014 140,000 140,000 140,000 – – –

2,754,156 2,754,156 2,739,360 2,185,466 2,185,466 2,185,670

Provision for Fall

in Value of

Investment – (14,796) – – – –

2,754,156 2,739,360 2,739,360 2,185,466 2,185,466 2,185,670

146


REPOSITIONING WITH GREATER STRENGTH | Financial Reports

As at 31st December 2011 2010

Redeemable

Date

Face Value

Rs. ’000

Cost

Rs. ’000

Redeemable

Date

Face Value

Rs. ’000

Cost

Rs. ’000

a.4.2 Unquoted

Bank of Ceylon – – – 31.12.2011 250,000 250,000

Commercial Bank of Ceylon PLC 15.05.2016 125,000 125,000 15.05.2016 125,000 125,000

Senkadagala Finance Co. PLC 21.09.2012 50,000 50,000 21.09.2012 50,000 50,000

People’s Leasing Co. Ltd. 26.04.2014 500,000 500,000 26.04.2014 500,000 500,000

Merchant Bank of Sri Lanka PLC 31.08.2013 100,000 100,000 31.08.2013 100,000 100,000

Abans Company Ltd. 31.03.2014 100,000 100,000 – –

NDB Bank 30.06.2016 100,000 100,000 – –

Senkadagala Finance Co. PLC 02.12.2014 100,000 100,000 – –

1,075,000 1,075,000 1,025,000 1,025,000

As at 31st December 2011

Rs. ’000

2010

Rs. ’000

b. Property, Plant & Equipment

Carrying Amount 46,554 53,343

46,554 53,343

147


REPOSITIONING WITH GREATER STRENGTH | Financial Reports

Freehold

Land

Rs. ’000

Buildings

Rs. ’000

Equipment

Rs. ’000

Furniture

& Fittings

Rs. ’000

Generator

Rs. ’000

Electrical

Fixtures

Rs. ’000

Others

Rs. ’000

Total

Rs. ’000

Cost

Balance as at

01st January 2011 19,850 13,750 218,077 50,361 8,681 9,376 87 320,183

Additions during

the Year – – – – – – – –

Balance as at

31st December 2011 19,850 13,750 218,077 50,361 8,681 9,376 87 320,183

Depreciation

Balance as at

01st January 2011 – – 213,394 37,002 7,012 9,345 87 266,840

Depreciation Charge

for the Year – 688 1,644 3,559 869 31 – 6,791

Balance as at

31st December 2011 – 688 215,038 40,561 7,881 9,374 87 273,629

Carrying Amount

As at

31st December 2011 19,850 13,062 3,039 9,800 800 2 – 46,554

As at

31st December 2010 19,850 13,750 4,683 13,359 1,669 31 – 53,343

148


REPOSITIONING WITH GREATER STRENGTH | Financial Reports

As at 31st December 2011

Rs. ’000

2010

Rs. ’000

c. Other Assets

Inventories 6,447 7,723

Other Receivables 533,918 275,629

Less: Allowance for Uncollectible Amounts (8,493) (7,619)

Other Loans 581,805 615,674

1,113,677 891,407

d. Other Liabilities

Policyholder Advance Payments 285,883 492,727

Other Payables Including Accrued Expenses 999,785 802,807

1,285,668 1,295,535

e. Revenue Reserve

Balance as at 01st January 4,160,294 1,513,055

Surplus Attributable to Shareholders from Life Insurance 4,463,461 2,647,238

Transfer from Life Fund Surplus (1,952,336) –

Balance as at 31st December 6,671,419 4,160,294

149


REPOSITIONING WITH GREATER STRENGTH | Financial Reports

6.15.0 Notes to the Financial Statements

1. Reporting Entity

1.1 General

Sri Lanka Insurance Corporation Ltd. (‘the Company’) is a public limited liability company

incorporated and domiciled in Sri Lanka. The registered office of the Company is located

in the District of Colombo and the principal place of business is located at ‘Rakshana

Mandiraya’ No. 21, Vauxhall Street, Colombo 02. All companies in the Group are limited

liability companies incorporated and domiciled in Sri Lanka.

The Consolidated Financial Statements of the Company as at and for the year ended

31st December 2011 comprise the Company and its Subsidiaries (together referred to as

the ‘Group’ and individually as ‘Group entities’).

599,598,516 number of ordinary shares (99.99%) of the Parent Company is owned

by Secretary to the Treasury and rest owned by employees of the Company.

1.2 Principal Activities and Nature of Operations

The principal activities of the Group are to undertake and carry on all classes of insurance

businesses, healthcare services, provide bulk storage facilities for Liquid Petroleum Gas

(LPG) and to import, process, store, distribute and sell Liquid Petroleum Gas (LPG) and

provide other incidental services.

1.3 Date of Authorisation for Issue

The Financial Statements were authorised for issue by the Board of Directors on

08th May 2012.

2. Basis of Preparation

2.1 Statement of Compliance

The consolidated and separate Financial Statements have been prepared in

accordance with Sri Lanka Accounting Standards (SLAS), and the requirements of the

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REPOSITIONING WITH GREATER STRENGTH | Financial Reports

Companies Act No. 07 of 2007 and the Regulation of Insurance Industry Act No. 43 of 2000.

The formats and disclosures are also in accordance with the Statement of Recommended

Practice for Insurance Contracts (SoRP), adopted by The Institute of Chartered Accountants

of Sri Lanka (ICASL).

2.2 Basis of Measurement

The Financial Statements have been prepared on the historical cost basis except for the following.

• Land and buildings are measured at fair value.

• Quoted securities are stated at lower of cost and market value.

• Retirement benefit obligations are measured at the present value of the defined benefit plans.

2.3 Functional and Presentation Currency

These Financial Statements are presented in Sri Lankan Rupees, which is the Group’s

functional currency. All financial information is presented in Sri Lankan Rupees rounded

to the nearest thousand unless otherwise stated.

2.4 Use of Estimates and Judgments

The preparation of Financial Statements in conformity with SLASs requires management

to make judgments, estimates and assumptions that affect the application of accounting

policies and the reported amounts of assets, liabilities, income and expenses. Actual results

may differ from these estimates.

Estimates and underlying assumptions are based on historical experience and various

other factors that are believed to be reasonable under the circumstances, the results of

which form the basis of making the judgments about the carrying amount of assets and

liabilities that are not readily apparent from other sources.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions

to accounting estimates are recognised in the period in which the estimates are revised

and in any future periods affected.

Information about significant areas of estimation uncertainty and critical judgments in

applying accounting policies that have the most significant effect on the amounts recognised

in the Financial Statements are included in following notes.

• Unearned premium

• Deferred acquisition costs

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REPOSITIONING WITH GREATER STRENGTH | Financial Reports

• Reserve for gross outstanding claims

• Insurance provision - life

• Deferred tax

• Measurement of retirement benefit obligations

• Measurement of cash-generating units containing goodwill

2.5 Significant Accounting Policies

The accounting policies set out below are consistent with those used in the previous year.

Certain comparative amounts have been reclassified to conform with the current

year’s presentation.

The Company Balance Sheet represents the assets, liabilities and equity of the

shareholders.

The life insurance Balance Sheet represents assets and liabilities of the life insurance

fund. The Statement of Income reflects underwriting results and investment and other income

of the general insurance business as well as the surplus from the life insurance business.

2.5.1 Basis of Consolidation

Subsidiaries

Subsidiaries are entities controlled by the Group. Control exists when the Group has the

power to govern the financial and operating policies of an entity so as to obtain benefits

from its activities. In assessing control, potential voting rights that currently are exercisable

are also taken into account. The Financial Statements of Subsidiaries are included in the

Consolidated Financial Statements from the date that control commences until the date

that control ceases.

The interest of the outside shareholders of the Group is disclosed separately under

the heading ‘Minority Interest’.

Acquisitions of non-controlling interests are accounted for as transactions with

owners in their capacity as owners, and therefore no goodwill is recognised as a result.

2.5.2 Transactions Eliminated on Consolidation

Intra-group balances and transactions, and any unrealised income and expenses arising

from intra-group transactions, are eliminated in full in the preparation of the Consolidated

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Financial Statements. Unrealised losses are eliminated in the same way as unrealised gains,

but only to the extent that there is no evidence of impairment.

2.5.3 Foreign Currency Translation

Transactions in foreign currencies are translated to the functional currencies of the Group

entities at exchange rates at the dates of the transactions. Monetary assets and liabilities

denominated in foreign currencies at the reporting date are retranslated to the functional

currency at the exchange rate at that date. Non-monetary assets and liabilities denominated

in a foreign currency are translated using the exchange rates as at the dates of the initial

transactions. Foreign currency differences arising on translation are recognised in the

Income Statement.

2.5.4 Segment Reporting

A segment is a distinguishable component of the Group engaged in providing services subject

to risks and rewards that are different to those of other segments. Segmental information

reflects the Non-Life and Life Insurance business of the Parent and healthcare and energy

business of the Subsidiaries.

The Parent Company’s business activities are mainly located in Sri Lanka and a

branch in the Republic of Maldives (Male’). However, assets and liabilities of the Male’

branch are considered not material to disclose as segmental by geographic region. The

business activities of the subsidiary companies are located in Sri Lanka.

Expenses directly identified to a particular segment are charged accordingly. An

expense that cannot be directly identified to a particular segment is allocated on basis

decided by the management.

2.5.5 Investments

(a) Initial Recognition

Cost of investment includes purchase cost and acquisition charges such as brokerages,

fees, duties and bank regulatory fees.

(b) Measurement

Quoted Shares, Quoted Debt Instruments and Unit Trust Investments

Quoted shares, quoted debentures and unit trust investments are stated at lower of cost

and market value determined on an aggregate portfolio basis in total.

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Unquoted Shares and Unquoted Debt Instruments

Unquoted shares and unquoted debt instruments are held on a long-term basis and stated

at cost. Provision for diminution in value is made when there has been a decline, other

than temporary in the value of the investment.

(c) Investment in Subsidiaries

Investments in subsidiaries are treated as long-term investments and measured at cost in

the separate Financial Statements of the Company.

Provision for diminution in value is made when in the opinion of the Directors there

has been a decline other than temporary in the carrying amount of the investment.

(d) Investments in Government Securities

Investments in Treasury Bills and Treasury Bonds are initially recognised at cost and

interest is accrued up to year-end. The premium/discount arising from Treasury Bonds are

systematically amortised to/recognised in income throughout the period up to maturity.

(e) Securities Purchased Under Resale Agreements

Securities purchased under re-sale agreements are recorded at cost. The difference between

the consideration paid and resale price represents interest income and is accrued over the

period of the resale agreement.

(f) Disposal of Investments

On disposal of an investment, the difference between net disposal proceeds and the carrying

amount is recognised in profit and loss.

2.5.6 Property, Plant & Equipment

(a) Recognition and Measurement

Owned Assets

Items of property, plant & equipment are stated at cost or revaluation less accumulated

depreciation or impairment losses.

The cost of property, plant & equipment includes expenditure that is directly

attributable to the acquisition of the asset. The cost of self-constructed assets includes the

cost of materials and direct labour, any other costs directly attributable to bringing the asset

to a working condition for its intended use and the costs of dismantling and removing the

items and restoring the site on which they are located.

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Purchased software that is integral to the functionality of the related equipment is

capitalised as part of that equipment.

When parts of an item of property, plant & equipment have different useful lives, they

are accounted for as separate items (major components) of property, plant & equipment.

A revaluation of land is carried out when there is a substantial difference between the

fair value and the carrying amount of land and is undertaken by professionally qualified valuers.

Increases in the carrying amount on revaluation are credited to the revaluation

reserve in shareholders’ equity. Decreases that offset previous increases of the same

individual asset are charged against revaluation reserve directly in equity. All other decreases

are expensed in profit and loss.

(b) Subsequent Costs

The cost of replacing a part of an item of property, plant & equipment is recognised in the

carrying amount of the item if it is probable that the future economic benefits embodied

within the part will flow to the Group and its cost can be measured reliably. The carrying

amount of the replaced part is derecognised in accordance with the derecognition policy

given below.

Ongoing repairs and maintenance of property, plant & equipment is expensed

as incurred.

(c) Depreciation

Items of property, plant & equipment are depreciated on a straight-line basis in profit and

loss over the estimated useful lives of items of each part of an item of property, plant &

equipment. Assets held under finance leases are depreciated over the shorter of the lease

term and their useful lives unless it is reasonably certain that the Company will have

ownership by the end of the lease term. Freehold land is not depreciated.

Depreciation of an asset begins when it is available for use and ceases at the earlier of

the date that the asset is classified as held for sale and the date that the asset is derecognised.

The estimated useful lives for the current and comparative periods are as follows.

Sri Lanka Insurance Corporation Ltd.

Assets Category

Buildings

Furniture & Fittings

20 years

10 years

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Electrical Generators

Office & Other Equipment

Air Condition Plant

Passenger Lifts

Electrical Fixtures & Fittings

Computers & Computer Equipment

Motor Vehicles

10 years

10 years

10 years

6 2/3 years

6 2/3 years

4 years

4 years

The Lanka Hospitals Corporation PLC

Buildings on Leasehold Land

Medical Equipment

Furniture & Fittings

Office Equipment

Computers

Other Equipment

Kitchen Equipment

Medical Vehicles

Motor Vehicles

40 years

10 years

10 years

10 years

6 2/3 years

10 years

3 years

4 years

4 years

Litro Gas Lanka Ltd. and Litro Gas Terminal Lanka (Pvt) Ltd.

Building and Site Development

Plant and Machinery

Storage Tanks, Pipelines, Pumping Station

Submarine Pipe Lines

Instrumentation Equipment

Bulk Delivery and Packed Products Delivery Instruments

Other Equipment

Office Equipment

Furniture & Fittings

Computers

Motor Vehicles

20 years

20 years

20 years

10 years

10 years

20 years

20 years

6 years

6-7 years

3 years

4 years

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(d) Derecognition

An item of property, plant & equipment is derecognised upon disposal; or when no future

economic benefits are expected from its use. Gains and losses on derecognition are

recognised in profit and loss in the year the asset is derecognised.

(e) Leasehold Property

Leasehold property is stated at recorded carrying amounts as at the effective date of

Sri Lanka Accounting Standard 19 - ‘Leases’. Such carrying amounts are amortised over the

remaining lease term or useful life of the leased property whichever is shorter. No further

revaluations of the said leasehold property will be carried out.

2.5.7 Leases

Leases in which a significant portion of the risks and rewards of ownership are retained

by the lessor are classified as operating leases. Payments made under operating leases are

charged to profit and loss on a straight-line basis over the period of the lease.

2.5.8 Inventories

Inventories are stated at the lower of cost and net realisable value. Cost is determined by

using the first-in first-out (FIFO) method. Cost includes costs of purchase and other costs

incurred in bringing the inventory to the present location and condition. Net realisable

value is the estimated selling price in the ordinary course of business less the estimated

costs of completion and selling expenses.

2.5.9 Policyholder & Other Loans and Other Receivables

Policyholder & other loans are stated at the amounts they are estimated to realise net of

allowances for bad and doubtful receivables.

2.5.10 Premium and Reinsurance Receivable

Premium and reinsurance receivables are stated at their estimated realisable value.

Recoverability of premium receivable is reviewed on an ongoing basis. Debts that are known

to be uncollectible are written off.

Reinsurance assets include the balances due from reinsurance companies for

unpaid losses and loss adjustment expenses. Amounts recoverable from reinsurers are

estimated in a manner consistent with the claim liability associated with the reinsured

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policy. Reinsurance is recorded gross in the Balance Sheet unless a right to off-set exists.

A provision for doubtful debt is raised when some doubt as to collection exists.

2.5.11 Other Assets and Receivables

Other receivables and dues from related parties are recognised at cost less allowances for

bad and doubtful receivables.

2.5.12 Impairment of Non-Financial Assets

The Company assesses at each reporting date whether there is an indication that an asset

may be impaired. If any such indication exists, or when annual impairment testing for an

asset is required, the Company makes an estimate of the asset’s recoverable amount.

An asset’s recoverable amount is the higher of an asset’s or cash-generating unit’s fair

value less costs to sell and its value in use and is determined for an individual asset, unless

the asset does not generate cash inflows that are largely independent of those from other

assets or groups of assets. Where the carrying amount of an asset exceeds its recoverable

amount, the asset is considered impaired and is written down to its recoverable amount.

In assessing value in use, the estimated future cash flows are discounted to their present

value using a pre-tax discount rate that reflects current market assessments of the time

value of money and the risks specific to the asset. In determining fair value less costs to sell,

an appropriate valuation model is used. These calculations are corroborated by valuation

multiples or other available fair value indicators.

Impairment losses of continuing operations are recognised in profit and loss in those

expense categories consistent with the function of the impaired asset, except for property

previously revalued where the revaluation was taken to equity. In this case the impairment

is also recognised in equity up to the amount of any previous revaluation.

2.5.13 Cash and Cash Equivalents

Cash and cash equivalents comprise cash in hand, demand deposits and short-term highly

liquid investments, readily convertible to known amounts of cash and subject to insignificant

risk of changes in value.

For the purpose of cash flow statement, cash and cash equivalents consist of

cash in hand and deposits in banks net of outstanding bank overdrafts. Investments with

short maturities i.e. three months or less from the date of acquisition are also treated as

cash equivalents.

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2.6 Liabilities and Provisions

All known liabilities have been accounted for in preparing the Financial Statements.

2.6.1 Provisions (Excluding Insurance Contracts)

A provision is recognised, if as a result of a past event, the Group has a legal or constructive

obligation that can be measured reliably, and, it is probable that an outflow of economic

benefits will be required to settle the obligation, except for insurance-related contracts.

When the Company expects some or all of a provision to be reimbursed, the reimbursement

is recognised as a separate asset but only when the reimbursement is virtually certain.

The expense relating to any provision is presented in the Income Statement net of

any reimbursement.

2.6.2 Retirement Benefit Obligations

(a) Defined Benefit Plan - Retiring Gratuity

A defined benefit plan is a post-employment benefit plan other than a defined contribution

plan. The Group’s net obligation in respect of defined benefit plan is calculated by estimating

the amount of future benefit that employees have earned in return for their service in

the current and prior periods, that benefit is discounted to determine its present value.

The calculation is performed by a qualified independent actuary by using projected unit

credit method as recommended by SLAS 16 - ‘Employment Benefits’. Any actuarial gains

and losses are recognised in profit and loss in the period in which they arise.

(b) Defined Contribution Plans

A defined contribution plan is a post-employment benefit plan under which an entity pays

fixed contributions into a separate entity and will have no legal or constructive obligations

to pay further amounts.

Obligation for contributions to provident and trust funds covering all employees

are recognised as an employee benefit expense in profit and loss in the periods during

related services are rendered by employees. The Company contributes 15% and 3% of

gross emoluments of employees to Employees’ Provident Fund and Employees’ Trust

Fund respectively.

(c) Short-Term Benefits

Short-term employees benefit obligations are measured on an undiscounted basis and are

expensed as the related service is provided.

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2.6.3 Customer Deposits Payable

Cylinder Deposits/Bulk Customer Deposits

LP Gas cylinders remain the property of the Company. These are issued to the customers

on payment of cylinder deposits, which consist of two elements, part refundable and part

non-refundable. The same cylinder issued on deposits does not remain with the customer till

it is scrapped. Another refilled cylinder is issued when the cylinder is brought for refilling.

Refilling the cylinders brought in is not practical after the expiry of their life time.

As a result, the Company has to replace the cylinders scrapped at the end of their lifetime.

Due to foregoing facts, the Company discloses the cylinders under property, plant &

equipment at the purchase price less depreciation. The refundable deposit component on

cylinders issued is reflected under cylinder deposits. The customer has the right to return

cylinders at any time and obtain the refundable deposit paid previously on the cylinder.

As stated under revenue, non-refundable deposits are taken as income of the Company.

2.7 Income Statement

2.7.1 Non-Life Insurance Business

(a) Gross Written Premium

Premium is generally recognised as written upon inception of the policy. Upon inception

of the contract, premiums are recorded as written and are earned primarily on a pro rata

basis over the term of the related policy coverage. However, for those contracts for which

the period of risk differs significantly from the contract period, premiums are earned over

the period of risk in proportion to the amount of insurance protection provided.

(b) Outwards Reinsurance

Premium ceded to reinsurers is recognised as an expense in accordance with pattern of

reinsurance services received. Accordingly, a portion of outwards reinsurance premium is

treated at the Balance Sheet date as a prepayment.

(c) Unearned Premium

Unearned premium reserve represents the portion of gross written premium and

reinsurance premium written in the current year in respect of risk related to subsequent

periods. Unearned premium is calculated based on 1/365th pro rata basis.

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(d) Unexpired Risk

Provision is made where appropriate for the estimated amount required over and above

the unearned premiums to meet future claim and related expenses on the business in force

as at the reporting date.

(e) Claims

Claims expense and liability for outstanding claims are recognised in respect of direct and

inwards reinsurance business. The liability covers claims reported but not yet paid; incurred

but not enough reported claims (‘IBNER’), incurred but not reported claims (‘IBNR’), and

the anticipated direct and indirect cost of settling those claims. Claims outstanding are

assessed by review of individual claim files and estimating changes in the ultimate cost

of settling claims. Provisions for anticipated losses are posted if the future premiums and

proportional investment income in a portfolio will probably not be sufficient to cover the

expected claims and costs.

Actuarial Valuation is Performed on an Annual Basis.

While the Directors consider that the provision for claims are fairly stated on the basis of

information currently available, the ultimate liability will vary as a result of subsequent

information and events. This may result in adjustments to the amounts provided. Such

amounts are reflected in the Financial Statements for that period. The methods used and

the estimates made are reviewed regularly.

(f) Deferred Acquisition Cost

Acquisition costs, representing commissions and other underwriting expenses, which vary

with and are directly related to the production of business, are deferred and amortised over

the period in which the related written premiums are earned. Reinsurance commission is

also treated in the same manner within deferred acquisition costs.

2.7.2 Life Insurance Business

(a) Gross Written Premium

Premium from traditional life insurance contracts, including participating contracts and

annuity policies with life contingencies, are recognised as revenue when cash is received

from the policyholder. Benefits and expenses are provided against such revenue to recognise

such profits over the estimated life of the policies. Moreover, for single premium contracts,

premium is recorded as income when received with any excess profit deferred and recognise

in income in a constant relationship to insurance in force or, for annuities the amount of

expected benefit payments.

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(b) Reinsurance Contracts

Outward reinsurance premiums are recognised when payable. Reinsurance recoveries are

credited to match the relevant gross claims.

(c) Benefits, Losses and Expenses

Expenses related to the acquisition and maintenance of Life insurance business.

Claims by death or maturity are recorded on the basis of notification received or

payment due. Interim payments and surrenders are accounted for only at the time of

settlement. Claims payable includes direct cost of settlement.

(d) Actuarial Valuation for Life Insurance Provision

The Directors agree to the Life Insurance business provisions for the Company on the

recommendation of the reporting actuary following his annual investigation of the Life

Insurance business.

The actuarial valuation takes into account of all liabilities including contingent

liabilities and is based on assumptions recommended by the consultant actuary.

2.7.3 Other Income and Investment Income

(a) Investment Income

Investment income comprises interest income on funds invested, dividend income, and

gains on the disposal of investments. Interest income is recognised as it accrues in the

profit and loss, using the effective interest method. Dividend income is recognised in profit

and loss on the date that the Company’s right to receive is established. Interest income on

loans granted to life policyholders is accounted on a cash basis.

(b) Rental Income

Rental income from property is recognised in profit and loss on a straight-line basis over

the term of lease.

(c) Healthcare Segment

Income of the Company comprises of two avenues i.e., from Hospital and Pharmacy revenue.

All such revenue is recognised in profit and loss on an accrual basis.

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(d) Sale of Goods

Sale of goods are recognised when the Company delivers products to the distributor/

customer and distributor/customer accepts the products.

(e) Sale of Services

Sale of services is recognised in the accounting period in which the services are rendered.

(f) Non-Refundable Deposit Income

Non-refundable part of the customer cylinder deposits are recognised as non-refundable

deposit income at the time of issuing new cylinders to the distributors.

2.7.4 Expenses

(a) Lease Payments

Minimum lease payments under finance leases are apportioned between the finance

expense and the reduction of the outstanding liability. The finance expense is allocated to

each period during the lease term so as to produce a consistent periodic rate of interest on

the remaining balance of liability.

Contingent lease payments are accounted for by revising the minimum lease

payments over the remaining term of the lease when lease adjustments are confirmed.

(b) Finance Cost

Finance cost is recognised as expenditure in the period in which it is incurred.

2.7.5 Income Tax

Income tax expense comprises current and deferred tax. Income tax expense is recognised

in profit and loss except to the extent that it relates to items recognised directly in equity,

when it is recognised in equity.

Current tax is the expected tax payable on the taxable income for the year, using

tax rates enacted at the reporting date and any adjustments to tax payable in respect of

previous years.

Deferred Taxation

Deferred tax is recognised in respect of temporary differences between the carrying amounts

of assets and liabilities for financial reporting purposes and the amounts used for taxation

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purposes. Deferred tax is not recognised for the following temporary differences: the initial

recognition of goodwill, the initial recognition of assets or liabilities in a transaction that

is not a business combination and that affects neither accounting nor taxable profit, and

differences relating to investments in subsidiaries to the extent that they probably will not

reverse in the foreseeable future.

Deferred tax is measured at the tax rates that are expected to be applied to the

temporary differences when they reverse, based on the laws that have been enacted or

substantively enacted by the reporting date.

A deferred tax asset is recognised for unused tax losses and deductible temporary

differences to the extent that it is probable that future taxable profits will be available against

which they can be utilised. Deferred tax assets are reviewed at each reporting date and are

reduced to the extent that it is no longer probable that the related tax benefit will be realised.

Tax withheld on dividend income from subsidiaries is recognised as an expense

in the Consolidated Income Statement at the same time as the liability to pay the related

dividend is recognised.

Economic Service Charge

As per provisions of the Economic Service Charge Act No. 13 of 2006, Economic Service

Charge (ESC) is payable on the liable turnover at specified rates. ESC is deductible from

the income tax liability. Any unclaimed amount can be carried forward and set off against

the income tax as per the relevant provisions of the Act.

Social Responsibility Levy

As per the provisions of the Finance Act No. 5 of 2005, as amended by the Finance Act No. 11

of 2006, Social Responsibility Levy (SRL) was introduced with effect from 01st January 2005.

SRL is payable at the rate of 1.5% on all taxes and levies chargeable as specified in the First

Schedule of the Act.

2.7.6 Earnings per Share

The Group presents basic Earnings Per Share (EPS) for its ordinary shares. Basic EPS is

calculated by dividing the profit or loss attributable to ordinary shareholders of the Group

by the weighted average number of ordinary shares outstanding during the period.

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2.7.7 Cash Flow Statement

The Cash Flow Statement has been prepared using the ‘direct method’ in accordance with

the Sri Lanka Accounting Standard 9 - ‘Cash Flow Statements’.

Interest paid is classified as an operating cash flow. Dividend and interest income

are classified as cash flows from investing activities.

Dividends paid are classified as financing cash flows.

2.8 Capital Commitments and Contingencies

Capital commitments of the Company are disclosed in the respective notes to the Financial

Statements.

2.9 Events Occurring after the Balance Sheet Date

All material Post Balance Sheet events have been considered and where appropriate

adjustment to or disclosures have been made in Financial Statements.

3. New Standards Issued But Not Effective at the

Reporting Date

The Institute of Chartered Accountants of Sri Lanka issued a new volume of Sri Lanka

Accounting Standards which will become applicable for annual periods beginning on or

after 01st January 2012. Accordingly, these Standards have not been applied in preparing

these Financial Statements as they were not effective for the year ended 31st December 2011.

These Sri Lanka Accounting Standards comprise of Accounting Standards prefixed

both SLFRS (corresponding to IFRS) and LKAS (corresponding to IAS). Application of

Sri Lanka Accounting Standards prefixed SLFRS and LKAS for the first time shall be deemed

to be an adoption of SLFRSs.

The said new/revised Standards have become applicable to the Company from

01st January 2012 and accordingly, the reporting framework for the year ending

31st December 2012 will be LKAS/SLFRS. Given the complexities and technical expertise

required in the process of convergence, the Company carried out an initial impact analysis

with the assistance of an external consultant based on the 2010 balances. As this is only

a preliminary assessment of the potential effects of these Standards, it is based on a few

assumptions and approximation.

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Accounting Standard Key Requirements in the Standard Impact on the Financial Statements

SLFRS 4 -

Insurance

Contracts

SLFRS 4 requires insurance company

to evaluate a product classification

exercise to see whether all insurance

products are within the purview of the

said standard.

Companies should continue their

existing accounting policies for all

products classified as Insurance

Contracts as per the above exercise.

A liability adequacy test is required

to ensure that the measurement of an

entity’s insurance liabilities considers

all contractual cash flows, using

current estimates.

Renewal Premium for Life Insurance

contracts to be accounted on Accrual

Basis which is currently recognised on

cash basis.

However the Company will continue

with the cash basis as per the SLFRS.

SLFRS 4 does not permit to recognise

as a liability any provisions for possible

future claims, if those claims arise

under insurance contracts that are

not in existence at the end of the

reporting period (such as catastrophe

provisions).

The Company carried out

the product classification

exercise required under

SLFRS 4 and have concluded

that all the existing Life

and General products are

Insurance Contracts as

defined under SLFRS.

The Company will continue

to account for all the other

insurance products without

any changes.

No change in accounting

for any General Insurance

Products.

The Company intends to

perform Liability Adequacy

Tests as per SLFRS 4 from the

2012 onwards.

The Company is in the

process of re-validating such

provisions and if found to

be excessive, same will be

release to equity statement.

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Accounting Standard Key Requirements in the Standard Impact on the Financial Statements

LKAS 32

Financial

Instrument -

Presentation

LKAS 39

Financial

Instrument -

Recognition and

Measurement

The Company requires reclassifying

all investments as required under

these standards into one of the buckets

noted below:

• Financial asset at fair value through

profit or loss (FVTPL)

• Held to maturity investments (HTM)

• Financial Loans and Receivables

(L&R)

• Available for sale assets (AFS)

Loans granted to Employees and

Insurance Advisors (Agents) at

concessionary interest rates should be

fair valued.

Difference between fair value and

cash value of the loan should be

treated as Prepaid Employee Cost

(in the case of Loans to Employees)

or Prepaid Benefits to Insurance

Advisors (Agents) (in the case of Loans

to Insurance Advisors (Agents)), and

amortised on a straight-line basis

through the Income Statement over

the tenure of the loan so granted.

The Company has finalised

the classification of its

investments into different

categories as required by the

standard and is currently in

the process of assessing the

same and quantifying the

potential impact with the

assistance of consultants.

The Company is in the

process of computing the

fair value of the loans given

at concessionary interest

rates as required by the

standards and quantifying the

potential impact.

Accordingly, Prepaid

Employee Cost/Prepaid

Benefits to Insurance

Advisors (Agents) up to

31st December 2011 will

be charged to Equity and

Prepaid Cost from 01st

January 2012 will be charged

to the Income Statement.

In addition to the above, there may be some impact with the adoption of other new/

revised accounting standards which have become effective from 01st January 2012, and

Company does not expect any material impact.

The Company will also experience changes in presentation and disclosure

requirements under the new/revised accounting standards from the year ending

31st December 2012 onwards.

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Consolidated

company

As at 31st December Note 2011

Rs. ’000

2010

Rs. ’000

2011

Rs. ’000

2010

Rs. ’000

4. Investments

Investments in Equity Securities 4.1 27,595,006 23,056,319 27,595,006 23,056,319

Investments in Unit Trusts 4.2 1,402,600 1,116,192 1,402,600 1,116,192

Investments in Government

Securities 4.3 29,367,052 21,116,996 29,367,052 21,116,996

Investments in Corporate Securities 4.4 5,135,603 3,871,197 5,135,603 3,871,197

Investments in Fixed Deposits 6,228,323 3,304,548 6,228,323 3,304,548

Development Bonds 4,520,000 4,424,000 4,520,000 4,424,000

Interest Receivables 2,128,559 1,857,805 2,128,559 1,857,805

76,377,143 58,747,057 76,377,143 58,747,057

2011 2010

As at 31st December

No. of

Shares

Cost

Rs. ’000

Market

Value

Rs. ’000

No. of

Shares

Cost

Rs. ’000

Market

Value

Rs. ’000

4.1 Investments in

Equity Securities

(a) Quoted Investments

Bank, Finance & Insurance

Central Finance Co. PLC – – – 1,702,133 164,605 1,404,260

Commercial Bank of

Ceylon PLC - Non-Voting – – – 1,317,941 20,883 212,188

Commercial Bank of

Ceylon PLC - Voting 72,287,812 1,368,574 7,228,781 33,518,835 930,872 8,714,897

LB Finance PLC 1,842,900 324,483 254,320 – – –

DFCC Bank PLC 26,509,832 934,321 2,992,960 35,667,332 1,260,572 7,115,632

Lanka Orix Leasing PLC 10,762,560 70,146 897,598 12,420,160 80,949 1,577,360

Pan Asia Banking

Corporation PLC 1,394,666 9,950 34,867 697,333 9,950 36,261

Hatton National Bank PLC -

Non-Voting 101,591 1,582 8,717 202,994 4,740 43,522

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2011 2010

As at 31st December

No. of

Shares

Cost

Rs. ’000

Market

Value

Rs. ’000

No. of

Shares

Cost

Rs. ’000

Market

Value

Rs. ’000

Hatton National Bank

PLC-Voting 46,940,572 4,335,010 7,041,086 28,448,832 3,398,332 11,376,687

National Development

Bank PLC 17,193,914 1,282,530 2,407,148 8,596,957 1,282,529 3,004,636

Nations Trust Bank PLC 2,780,629 143,333 158,496 1,128,594 46,715 94,237

Nations Trust Bank PLC

(Warrant) - 2010 – – – – 2 4

Nations Lanka Finance PLC 979,500 25,318 15,476 35 – 2

People’s Merchant Bank PLC 1,500 48 24 1,500 48 44

Sampath Bank PLC 3,805,870 185,592 742,145 7,615,396 212,916 2,071,387

Union Bank 11,100 278 211 – – –

Janashakthi Insurance PLC – – – – 2 4

Seylan Bank PLC -

Non-Voting 350,000 4,375 10,710 714,000 11,216 34,843

Seylan Bank PLC - Voting 25,999,999 1,578,367 1,781,000 19,500,000 1,090,866 1,891,500

10,263,907 23,573,537 8,515,197 37,577,464

Beverage, Food & Tobacco

Distilleries Company of

Sri Lanka PLC 2,878,600 486,854 423,442 2,320,200 382,533 412,995

Coco Lanka PLC 868,200 43,539 47,751 1,002,300 50,264 64,749

Ceylon Tobacco PLC – – – 440 17 156

Cargills (Ceylon) PLC 776,000 90,812 157,528 382,100 11,056 74,509

Ceylon Cold Stores PLC 18,400 542 1,842 4,600 542 2,435

Lion Brewery PLC 723,140 78,551 137,397 560,640 31,253 105,400

Raigam Wayamba Salterns 1,700,000 7,564 7,140 – – –

Ceylon Brewery PLC 283,400 26,526 113,360 283,400 26,526 90,688

734,388 888,459 502,191 750,932

169


REPOSITIONING WITH GREATER STRENGTH | Financial Reports

2011 2010

As at 31st December

No. of

Shares

Cost

Rs. ’000

Market

Value

Rs. ’000

No. of

Shares

Cost

Rs. ’000

Market

Value

Rs. ’000

Footwear & Textiles

Hayleys MGT Knitting

Mills PLC 78,800 3,988 2,246 78,800 3,988 2,521

Kuruwita Textiles Mills

PLC 414,400 20,775 9,904 414,400 20,775 12,432

24,763 12,150 24,763 14,953

Hotels & Travels

Aitken Spence Hotel

Holdings PLC 8,815,100 140,849 612,649 10,695,209 184,524 1,133,692

Asian Hotel & Properties

PLC 10,055,900 419,920 801,455 5,058,500 422,570 981,349

John Keels Hotels PLC 72,847,800 1,469,384 976,160 72,847,800 1,469,384 1,456,956

2,030,153 2,390,264 2,076,478 3,571,997

Manufacturing

Chevron Lubricants

Lanka PLC 469,000 80,373 79,730 500 22 79

Sierra Cables PLC 800 2 3 800 2 3

Lanka Cement PLC 509,700 7,482 9,939 509,700 7,482 14,272

ACL Cables PLC 2,748,400 132,263 203,382 2,188,900 78,606 186,275

Royal Ceramics PLC 5,244,000 626,894 734,160 875,000 52,959 266,787

Lanka Walltile PLC 807,600 99,297 76,318 130,000 6,397 17,953

Blue Diamonds Jewellery

Worldwide PLC 10,865,900 88,314 88,014 – – –

Tokyo Cement PLC -

Non-Voting 4,003,600 79,047 122,110 4,003,600 79,046 160,944

Tokyo Cement PLC 3,005,975 103,567 132,263 1,830,375 25,514 101,586

Samson International PLC 37 3 5 9,437 644 892

1,217,243 1,445,924 250,674 748,795

170


REPOSITIONING WITH GREATER STRENGTH | Financial Reports

2011 2010

As at 31st December

No. of

Shares

Cost

Rs. ’000

Market

Value

Rs. ’000

No. of

Shares

Cost

Rs. ’000

Market

Value

Rs. ’000

Land & Property

Overseas Reality PLC 3,972,300 64,015 56,009 3,972,300 64,015 60,776

64,015 56,009 64,015 60,776

Investment & Trusts

Ceylon Guardian

Investment 472,100 162,213 120,386 – – –

Renuka Holdings PLC 2,122,698 130,720 115,687 2,500,000 152,025 155,000

292,933 236,073 152,025 155,000

Trading

Singer (Sri Lanka) PLC 177,500 19,904 23,608 8 – 2

Brown & Co. PLC 1,069,600 371,111 251,142 – – –

Tess Agro PLC 26,380,200 147,345 118,711 – – –

538,361 393,460 – 2

Motor

United Motors PLC 24,200 3,793 3,533 – – –

Diesel & Motor

Engineering PLC 315,466 476,867 410,106 – – –

Colonial Motors PLC 400,000 193,176 160,000 – – –

673,836 573,639 – –

Healthcare

Asiri Surgical Hospital PLC 74,775,298 490,977 590,725 75,563,498 495,652 664,958

Asiri Hospitals PLC – – – 130,695,495 397,250 1,150,120

490,977 4,027,787 892,902 1,815,078

171


REPOSITIONING WITH GREATER STRENGTH | Financial Reports

2011 2010

As at 31st December

No. of

Shares

Cost

Rs. ’000

Market

Value

Rs. ’000

No. of

Shares

Cost

Rs. ’000

Market

Value

Rs. ’000

Construction & Engineering

Colombo Dockyard PLC 6,843,378 1,223,633 1,632,830 6,843,378 1,223,632 1,881,928

1,223,633 1,632,830 1,223,632 1,881,928

Information Technology

E-Channelling PLC 30,781,062 80,683 246,248 4,112,366 61,174 90,061

PC House PLC 876,700 9,644 12,011 1,812,300 19,935 20,479

90,327 258,259 81,109 110,540

Chemical & Pharmaceuticals

Chemical Industries

(Colombo) PLC 5,209,100 375,789 580,815 4,769,800 311,827 667,772

Lankem Ceylon PLC 516,500 214,747 134,290 – – –

590,537 715,105 311,827 667,772

Diversified Holdings

Aitken Spence PLC 44,032,575 4,630,526 5,504,072 44,032,575 4,630,526 7,485,538

John Keells Holdings PLC 14,623,216 1,257,398 2,500,570 11,416,113 1,299,951 3,403,143

Hayleys PLC – – – 38,101 3,573 13,144

C.T. Holding PLC 82,000 4,482 14,678 82,000 4,482 14,924

Colombo Fort Land PLC 3,020,600 253,967 147,405 – – –

Vallibel One PLC 1,121,800 37,038 26,811 – – –

Soft Logic PLC 15,812,400 318,185 286,204 – – –

Expo Lanka PLC 1,071,600 15,002 9,323 – – –

Richard Pieris PLC 2,430,000 30,448 21,870 1,000,000 10,204 10,600

Hemas Holdings PLC 6,635,700 138,742 221,632 13,044,000 272,730 579,153

6,685,790 8,732,566 6,221,466 11,506,502

172


REPOSITIONING WITH GREATER STRENGTH | Financial Reports

2011 2010

As at 31st December

No. of

Shares

Cost

Rs. ’000

Market

Value

Rs. ’000

No. of

Shares

Cost

Rs. ’000

Market

Value

Rs. ’000

Telecommunications

Dialog Telecom PLC 96,906,280 1,443,678 765,560 96,906,280 1,443,677 1,153,184

Sri Lanka Telecom PLC 20,745,935 723,131 1,004,103 20,877,935 727,228 1,002,141

2,166,808 1,769,663 2,170,905 2,155,325

Plantations

Talawakelle Plantations PLC 105,600 3,114 3,147 105,600 3,114 4,656

3,114 3,147 3,114 4,656

Power & Energy

Lanka Indian Oil

Company PLC 14,694,700 458,962 271,852 15,584,800 483,940 294,553

Laugfs Gas PLC 7,800 179 296 7,800 179 204

459,141 272,148 484,119 294,757

Total Net Carrying Value

of Investments in Quoted

Equity Securities 27,549,924 46,954,019 22,974,416 61,316,475

173


REPOSITIONING WITH GREATER STRENGTH | Financial Reports

2011 2010

As at 31st December

No. of

Shares

Cost

Rs. ’000

No. of

Shares

Cost

Rs. ’000

(b) Unquoted Investments

Associated Newspapers of Ceylon Ltd. 61,206 539 61,206 539

Texpro Industries Ltd. 2,250,000 22,500 2,250,000 22,500

Equity Investments Lanka Ltd. – – 2,812,500 33,750

Duft & Phelps Credit Rating Lanka Ltd. 62,500 625 62,500 625

Splendor Media(Pvt) Ltd. – – 25,000 250

National Assets Management Co. Ltd. – – 1 –

VINC Advertising (Pvt) Ltd. 250,000 2,500 250,000 2,500

Ceylon Assets Management Co. Ltd. 1,250,000 12,500 1,000,000 10,000

Ceybank Asset Management Ltd. 759,998 18,328 759,998 18,328

Total Gross Carrying Amount of

Investments in Unquoted

Equity Securities 56,992 88,492

Allowance for Decline in Value Other than

Temporary (11,910) (6,598)

Total Net Carrying Amount of

Investments in Unquoted

Equity Securities 45,082 81,894

Total Net Carrying Amount of

Investments in Equity Securities 27,595,006 23,056,319

Directors are in the opinion that the Company’s investments in unquoted shares have not

significantly deviated from the recorded cost of such investments.

174


REPOSITIONING WITH GREATER STRENGTH | Financial Reports

2011 2010

As at 31st December

No. of

Shares

Cost

Rs. ’000

Market

Value

Rs. ’000

No. of

Shares

Cost

Rs. ’000

Market

Value

Rs. ’000

4.2 Investments

Unit Trusts

Ceybank Unit Trust 33,628,319 447,927 1,065,009 32,058,003 383,811 1,253,147

Ceylon Income Fund 29,851,022 350,000 397,616 13,786,765 150,000 165,441

Ceybank Guilt Edged

Fund 20,594,648 206,000 243,223 20,594,648 206,000 206,976

Namal Guilt Edged

Fund 25,007,021 250,000 318,589 25,007,021 250,000 321,841

Com Trust Equity

Fund 12,016,630 148,673 246,221 11,146,260 126,381 302,732

Total Gross

Carrying Value

of Investments

in Unit Trusts 1,402,600 2,270,658 1,116,192 2,250,137

As at 31st December

2011

Rs. ’000

2010

Rs. ’000

4.3 Investments in Government Securities

Treasury Bills 192,899 182,982

Treasury Bonds 29,145,297 20,934,014

Trust Certificate 28,856 –

29,367,052 21,116,996

175


REPOSITIONING WITH GREATER STRENGTH | Financial Reports

2011 2010

As at 31st December

Redeemable

Date

Cost

Rs. ’000

Market

Value

Rs. ’000

No. of

Shares

Cost

Rs. ’000

4.4 Investments in

Corporate Securities

(a) Investments in Debentures

Quoted

Hatton National Bank PLC 11.09.2012 17,500 17,850 17,500 17,850

Hatton National Bank PLC 02.04.2021 182,126 182,126 164,314 164,314

Hatton National Bank PLC 02.04.2024 368,976 368,976 332,172 332,172

DFCC 07.09.2016 148,148 148,148 – –

Urban Development Authority 05.10.2015 871,480 871,480 871,480 871,480

Commercial Bank of Ceylon PLC 18.12.2016 250,000 250,000 250,000 250,000

Sampath Bank PLC 30.08.2012 300,000 285,000 300,000 300,000

Nations Trust Bank PLC 19.08.2013 200,000 200,000 200,000 200,000

Nations Trust Bank PLC 04.08.2016 200,000 200,000 – –

Lanka Orix Leasing Company PLC 05.08.2015 100,000 100,000 – –

Merchant Bank of Sri Lanka PLC 16.05.2014 140,000 140,000 – –

L.B. Finance PLC 01.09.2013 50,000 49,854 50,000 49,854

Total Gross Carrying

Value of Investments in

Quoted Debentures 2,828,230 2,813,434 2,185,466 2,185,670

Allowance for Fall in Value of

Investment in Debentures (14,796) – – –

Total Net Carrying Value

of Investments in

Quoted Debentures 2,813,434 2,813,434 2,185,466 2,185,670

176


REPOSITIONING WITH GREATER STRENGTH | Financial Reports

As at 31st December

Redeemable

Date

2011

Rs. ’000

2010

Rs. ’000

(b) Unquoted

Bank of Ceylon 31.12.2011 – 250,000

Senkadagala Finance PLC 21.09.2012 50,000 50,000

Senkadagala Finance PLC 02.12.2014 100,000 –

Merchant Bank of Sri Lanka PLC 31.08.2013 100,000 100,000

Abans (Pvt) Ltd. 19.09.2014 100,000 –

Abans Co. Ltd. 31.03.2014 100,000 –

Peoples Leasing Co. Ltd. 26.04.2014 500,000 500,000

Lankem Ceylon PLC 08.04.2016 200,000 –

Commercial Leasing Co. Ltd. 21.09.2012 500,000 500,000

NDB 30.06.2016 200,000 –

Commercial Bank of Ceylon PLC 15.05.2016 125,000 125,000

Total Net Carrying Value of Investments

in Unquoted Debentures 1,975,000 1,525,000

As at 31st December

2011

Rs. ’000

2010

Rs. ’000

(c) Trust Certificate and Promissory Notes

Peoples Leasing PLC 24,404 57,609

Commercial Paper 322,765 –

Promissory Notes – 103,122

347,169 160,731

Total Net Carrying Amount of Investments in

Corporate Securities 5,135,603 3,871,197

177


REPOSITIONING WITH GREATER STRENGTH | Financial Reports

%

Holding

No. of

Shares

Cost

31.12.2011

Rs. ’000

Market Value

31.12.2011

Rs. ’000

4.5 Investments in Subsidiaries

and Associates

Quoted Subsidiaries

The Lanka Hospital Corporation PLC 54.61 122,177,993 2,925,567 6,353,255

2,925,567 6,353,255

Unquoted Subsidiaries

Management Services Rakshana (Pvt) Ltd. 100.00 – – –

Litro Gas Lanka Ltd. 99.99 35,976,853 3,510,063 –

Litro Gas Terminal Lanka (Pvt) Ltd. 100.00 158,710,945 5,280,188 –

8,790,251 –

11,715,818 6,353,255

Comparative Figures %

Holding

No. of

Shares

Cost

31.12.2010

Rs. ’000

Market Value

31.12.2010

Rs. ’000

Quoted Subsidiaries

The Lanka Hospitals Corporation PLC. 54.61 122,177,993 3,033,069 3,811,953

Elimination (Note 4.5.1) (107,503) –

2,925,566 3,811,953

Unquoted Subsidiaries

Management Services Rakshana (Pvt) Ltd. 100.00 5 –

Litro Gas Lanka Ltd. 51.00 18,360,000 1,760,063

Litro Gas Terminal Lanka (Pvt) Ltd. 100.00 158,710,945 5,280,188

7,040,250

9,965,817

Management Services Rakshana (Pvt) Ltd. is a wholly-owned subsidiary of Sri Lanka

Insurance Corporation Ltd., with a Stated Capital of Rs. 50/-.

178


REPOSITIONING WITH GREATER STRENGTH | Financial Reports

Principal Activities

The Lanka Hospitals Corporation PLC

: Providing healthcare services

Management Services Rakshana (Pvt) Ltd.

Litro Gas Lanka Ltd.

Litro Gas Terminal Lanka Ltd.

: Providing payroll management services

: Providing import, process, store, distribute and

sell Liquid Petroleum Gas (LPG) and provide

other incidental services.

: Providing bulk storage facilities for Liquid

Petroleum Gas (LPG)

Total Equity % Holding Group Share Cost

4.5.1 Impact of Associates Which

were Not Accounted as

Equity Accounted Investees

Company

Ceylon Asset Management Co. Ltd. 27,119 25 6,780 10,000

Ceybank Asset Management Co. Ltd. 206,222 27 54,793 18,528

E-Channelling PLC 160,763 25 40,512 80,685

Share of Associates 102,085 109,213

Had the associates being equity accounted the impact on the Group is not considerable as

per above computation. Hence the associates have not been equity accounted during the

year under review.

As at 31st December

2011

Rs. ’000

2010

Rs. ’000

5. Property, Plant & Equipment

Consolidated

Carrying Amount 16,413,039 15,792,065

Working Progress 38,322 35,502

16,451,361 15,827,567

179


REPOSITIONING WITH GREATER STRENGTH | Financial Reports

Land

Buildings

on Freehold

Land

Building on

Leasehold

Land

Equipment

Furniture &

Fittings

Motor

Vehicle

Rs. ’000

Rs. ’000

Rs. ’000

Rs. ’000

Rs. ’000

Rs. ’000

Cost/Valuation

Balance as at

01st January 2011 2,672,066 1,753,619 2,199,876 2,932,311 439,577 727,496

Additions 12,718 19,660 8,756 471,587 28,175 114,646

Transfers to Revaluation

Reserve – – – – (15,102) 85,799

Disposals/Transfers (1,250) – – – – (15,181)

Balance as at

31st December 2011 2,683,534 1,773,279 2,208,632 3,403,898 452,650 912,760

Accumulated Depreciation

Balance as at

01st January 2011 – 136,190 1,648 1,910,167 298,058 556,226

Depreciation Charge

for the Year – 78,203 55,251 222,925 28,675 70,184

Disposals – – – – – (14,413)

Balance as at

31st December 2011 – 214,393 56,899 2,133,092 326,733 611,998

Carrying Amount

As at

31st December 2011 2,683,534 1,558,886 2,151,733 1,270,806 125,916 300,762

As at 31st December 2010 2,672,066 1,617,429 2,198,228 1,022,143 141,518 171,270

Subsidiary

The Lanka Hospitals Corporation PLC

The land and building were revalued during the year 2010 by Messrs A.A.M. Fathihu - F.I.V

(Sri Lanka) Incorporated Valuer. Only the surplus on revaluation relating to the building

was incorporated in the Financial Statements from its effective date which is 31st December

2010. Such assets were valued on an open market value for existing use basis, the surplus

arising from the revaluation was transferred to the revaluation reserve.

180


REPOSITIONING WITH GREATER STRENGTH | Financial Reports

Electrical

Generators

Rs. ’000

Fixtures &

Fittings

Rs. ’000

Passenger

Lifts

Rs. ’000

Air-cond.

Plant

Rs. ’000

Plant &

Machinery

Rs. ’000

Storage

Tanks, Pipe

Lines and

Pumping

Stations

Rs. ’000

LPG

Cylinders

Rs. ’000

Others

Rs. ’000

Total

Rs. ’000

81,135 30,442 56,194 97,315 1,098,567 6,923,194 4,757,855 93,834 23,863,482

3,850 399 – 19,542 11,498 2,892 761,565 29,032 1,484,320

– – – – (161,263) – 176,365 – 85,799

– – – – – (973) (120) – (17,525)

84,985 30,841 56,194 116,857 948,802 6,925,113 5,695,665 122,866 25,416,076

33,882 28,756 56,194 34,905 229,239 1,730,527 2,982,272 72,467 8,070,532

6,766 1,871 – 10,235 33,001 209,926 220,102 9,778 946,917

– – – – – – – – (14,413)

40,649 30,627 56,194 45,140 262,240 1,940,453 3,202,373 82,245 9,003,037

44,337 214 – 71,717 686,562 4,984,660 2,493,292 40,621 16,413,039

47,253 1,687 – 62,410 869,328 5,192,667 1,775,583 21,367 15,792,065

181


REPOSITIONING WITH GREATER STRENGTH | Financial Reports

As at 31st December

2011

Rs. ’000

2010

Rs. ’000

Company

Carrying Amount 4,556,748 4,440,213

4,556,748 4,440,213

Land

Rs. ’000

Buildings

on Freehold

Land

Rs. ’000

Building on

Leasehold

Land

Rs. ’000

Equipment

Rs. ’000

Furniture &

Fittings

Rs. ’000

Cost/Valuation

Balance as at 01st January 2011 2,545,941 1,509,531 10,426 614,032 125,294

Additions – – – 269,247 9,963

Disposals/Transfers (1,250) – – – –

Balance as at

31st December 2011 2,544,691 1,509,531 10,426 883,279 135,257

Depreciation

Balance as at 01st January 2011 – – 1,648 491,947 79,064

Depreciation Charge for the Year – 75,476 486 50,401 9,445

Disposals – – – – –

Balance as at

31st December 2011 – 75,476 2,134 542,348 88,509

Carrying Amount

As at 31st December 2011 2,544,691 1,434,055 8,292 340,930 46,747

As at 31st December 2010 2,545,941 1,509,531 8,778 122,084 46,231

Property, Plant & Equipment includes fully-depreciated assets having a gross carrying

amount of Rs. 737.196 million (2010 - Rs. 638.127 million). During the year Company

has acquired Property, Plant & Equipment amounting to Rs. 312.751 million

(2010 - Rs. 201.728 million).

182


REPOSITIONING WITH GREATER STRENGTH | Financial Reports

Motor

Vehicle

Electrical

Generators

Fixtures &

Fittings

Passenger

Lifts

Air-cond.

Plant

Others

Total

Rs. ’000

Rs. ’000

Rs. ’000

Rs. ’000

Rs. ’000

Rs. ’000

Rs. ’000

319,166 81,135 30,442 56,194 97,315 25,990 5,415,466

5,812 3,850 399 – 19,542 3,938 312,751

(15,789) – – – – – (17,040)

309,189 84,985 30,841 56,194 116,857 29,928 5,711,178

233,288 33,882 28,756 56,194 34,905 15,568 975,253

34,527 6,766 1,871 – 10,235 4,381 193,589

(14,413) – – – – – (14,413)

253,402 40,649 30,627 56,194 45,140 19,949 1,154,429

55,787 44,337 214 – 71,717 9,979 4,556,748

85,878 47,253 1,687 – 62,410 10,422 4,440,213

183


REPOSITIONING WITH GREATER STRENGTH | Financial Reports

As at 31st December

2011

Rs. ’000

2010

Rs. ’000

6. Leasehold Property

Consolidated

Leasehold Property 21,613 21,881

Advanced Lease Premium 119,991 106,127

Total Carrying Value at the end of the Period 141,604 128,009

Company

Cost

Balance as at 01st January 28,015 28,015

28,015 28,015

Amortisation

Balance as at 01st January 6,134 5,865

Amortisation of Leasehold Land 268 269

Balance as at 31st December 6,402 6,134

Net Balance as at 31st December 21,613 21,881

The Company obtained leasehold rights to lands situated in Puttalam, Ratnapura, Paradise

Island - Bentota, Nuwara-Eliya, Batticaloa for 99 years from the Government of Sri Lanka.

Based on the Ruling 11 of Urgent Issues Task Force (UITF) of The Institute of Chartered

Accountants of Sri Lanka, it was stated at revalued amounts. As a result of a revision to the

said ruling, the Company now carries such leasehold rights to land, at the values recorded

in the Balance Sheet as at the effective date of SLAS 19 - Leases (Revised 2005).

The revised UITF ruling does not permit further revaluation of Leasehold Property.

An amount of Rs. 24.18 million is remaining in the equity under revaluation surplus relating

to previous revaluation of leasehold rights to land.

184


REPOSITIONING WITH GREATER STRENGTH | Financial Reports

As at 31st December

2011

Rs. ’000

2010

Rs. ’000

Subsidiary

Advanced Lease Premium

Balance at the beginning of the Period 106,127 88,752

Premium Paid during the Period 18,547 22,059

Amortised during the Period (4,683) (4,683)

Balance at the end of the Period 119,991 106,127

The Lanka Hospitals Corporation PLC

The Lanka Hospitals Corporation PLC has entered into a 99-year lease agreement with

the Urban Development Authority from 1999. In terms of this agreement a further sum of

Rs. 268.92 million is payable by 2026.

Premium paid on each instalment is carried forward and amortised over the 99-year

period, in accordance with the said agreement.

This leasehold interest in the land obtained on lease was revalued on

31st December 2010 by Messrs A.A.M. Fathihu - F.I.V. (Sri Lanka) Incorporated Valuer

amounting to Rs. 1,294,051,875/-, and this is not incorporated in this Financial Statements.

Consolidated

As at 31st December 2011

Rs. ’000

2010

Rs. ’000

7. Intangible Assets

Goodwill on Acquisition

Balance as at 01st January 2,992,805 1,576,730

On acquisition of Subsidiaries – 1,416,075

Balance as at 31st December 2,992,805 2,992,805

185


REPOSITIONING WITH GREATER STRENGTH | Financial Reports

There has been no permanent impairment of intangible assets that requires a provision.

Methods used in estimating recoverable amounts are given below.

The Recoverable amount of The Lanka Hospitals Corporation PLC, Litro Gas Lanka

Ltd. and Litro Gas Terminal Lanka (Pvt) Ltd., was based on the value in use. Value in use

was determined by discounting the future cash flows generated from the continuing use

of the assets. Key assumptions used are given below:

Business growth Based on historical growth rate and business plan

Inflation - Based on the year-to-year inflation as per CBSL

Discount Rate - Average market borrowing rate adjusted for risk premium

Margin - Based on current margin and business plan

The aggregate carrying amount of goodwill allocated to each unit is as follows:

As at 31st December

Rs. million

The Lanka Hospitals Corporation PLC 1,580

Litro Gas Lanka Ltd. 839

Litro Gas Terminal Lanka (Pvt) Ltd. 574

2,993

Consolidated

company

As at 31st December 2011

Rs. ’000

2010

Rs. ’000

2011

Rs. ’000

2010

Rs. ’000

8. Loans to Life Policyholders

Loans Receivable from Policyholders 1,711,012 1,850,812 1,711,012 1,850,812

1,711,012 1,850,812 1,711,012 1,850,812

186


REPOSITIONING WITH GREATER STRENGTH | Financial Reports

Consolidated

company

As at 31st December 2011

Rs. ’000

2010

Rs. ’000

2011

Rs. ’000

2010

Rs. ’000

9. Other Assets

Inventories (Note 9.1) 1,141,186 1,140,447 67,058 57,426

Other Receivables 675,226 201,570 597,114 201,570

Less: Allowance for Uncollectible

Amounts (120,843) (109,433) (120,843) (109,433)

554,383 92,137 476,271 92,137

Amount due from Distilleries

Company of Sri Lanka PLC 145,676 167,381 145,676 167,381

Staff Loans (Note 9.2) 328,690 351,703 328,690 351,703

Other Loans 253,115 263,971 253,115 263,971

Due from Lanka Hospitals Corporation PLC – – 7,916 7,067

Due from Litro Gas Lanka Ltd. – – 13,714 –

Advance on Property, Plant & Equipment 90,401 10,682 90,401 10,682

Trade and Other Receivables (Note 9.3) 608,529 476,590 – –

Economic Service Charge Recoverable – 6,848 – –

3,121,979 2,509,761 1,382,840 950,368

9.1 Inventories

Insurance 67,058 57,426 67,058 57,426

Healthcare 145,639 86,451 – –

Energy 928,938 996,570 – –

1,141,635 1,140,447 67,058 57,426

Provision for Obsolete Inventories (449) – – –

1,141,186 1,140,447 67,058 57,426

187


REPOSITIONING WITH GREATER STRENGTH | Financial Reports

Consolidated

company

As at 31st December 2011

Rs. ’000

2010

Rs. ’000

2011

Rs. ’000

2010

Rs. ’000

9.2 Loans due from Employees

At the beginning of the Year 351,703 137,524 351,703 137,524

Loans Granted during the Year 99,762 256,481 99,762 256,481

Recoveries during the Year (122,775) (42,302) (122,775) (42,302)

At the end of the Year 328,690 351,703 328,690 351,703

9.3 Trade and Other Receivables

Trade Receivable

Trade & Other Receivables 340,339 254,362 – –

Provision for Doubtful Debt (7,623) (5,476) – –

Total Trade Receivable 332,716 248,886 – –

Deposit and Prepayments 78,608 42,630 – –

Advances and Other Receivables 197,205 185,075 – –

608,529 476,590 – –

Advances and other receivable include an advance of Rs. 22,000,000/- (2010 - Rs. 22,000,000/-)

paid to the Urban Development Authority in respect of the purchase of a property in Panadura.

However, the Company abandoned the plan subsequently and has claimed the refund of the

advance paid which is yet to be received.

Other receivables include Value Added Tax recoverable amounting to Rs. 68,786,820/-

(2010 - Rs. 29,874,071/-), receivable from Ceylon Petroleum Corporation amounting to

Rs. 12,936,007/- (2010 - Rs. 12,936,007/-) on sale of land from Shell Gas Lanka Ltd.

188


REPOSITIONING WITH GREATER STRENGTH | Financial Reports

Consolidated

company

As at 31st December 2011

Rs. ’000

2010

Rs. ’000

2011

Rs. ’000

2010

Rs. ’000

10. Reinsurance Receivables

Reinsurance Receivable on Settled Claims 250,575 221,175 250,575 221,175

Reinsurance Receivable on

Outstanding Claims 1,168,932 1,357,831 1,168,932 1,357,831

Less: Allowance for Uncollectible Amounts (91,932) (64,574) (91,932) (64,574)

1,327,575 1,514,432 1,327,575 1,514,432

11. Premium Receivable

from Policyholders

Premium Receivable from Policyholders 1,602,360 1,403,064 1,653,313 1,403,064

Less: Allowance for Uncollectible Amounts (471,215) (407,566) (471,215) (407,566)

1,131,145 995,498 1,182,098 995,498

12. Premium Receivable

from Agents, Brokers and

Intermediaries

Premium Receivable from Agents,

Brokers and Intermediaries 551,104 467,688 551,104 467,688

Less: Allowance for Uncollectible

Amounts (157,072) (135,855) (157,072) (135,855)

394,033 331,833 394,033 331,833

189


REPOSITIONING WITH GREATER STRENGTH | Financial Reports

Consolidated

company

As at 31st December 2011

Rs. ’000

2010

Rs. ’000

2011

Rs. ’000

2010

Rs. ’000

13. Deferred Tax Assets/

(Liabilities)

Deferred Tax Liabilities

Capital Allowances for Tax Purpose (7,477) (12,882) (7,477) (12,882)

Revaluation/(Deficit) of Building – (1,159) – (1,159)

Deferred Tax Assets

(7,477) (14,041) (7,477) (14,041)

Defined Benefit Obligations 52,577 63,805 52,577 63,805

Net Deferred Tax Asset 45,100 49,764 45,100 49,764

14. Cash and Cash Equivalents

Cash in Hand and at Bank 675,555 2,055,223 400,665 488,794

On Acquisition of Subsidiaries – 2,843,871 – –

Short-Term Investments

Treasury Bonds – 5,088,896 – 5,088,896

Treasury Bills/Bonds (Repos) 9,645,943 174,107 3,064,332 174,107

Term Deposits 347,508 4,170,963 – 4,374,340

Total Cash & Cash Equivalents 10,669,005 14,333,061 3,464,997 10,126,137

15. Insurance Provision - Life

Long duration contract liabilities included in the Life Insurance Fund, result primarily

from traditional participating and non-participating life insurance products. Short duration

contract liabilities are primarily accident and health insurance products. The insurance

provision has been established based upon the following:

190


REPOSITIONING WITH GREATER STRENGTH | Financial Reports

• Interest rates which vary by product and year of assurance.

• Mortality rates based on published mortality tables adjusted for actual experience by

geographic area and modified to allow the variations in policy form.

• Surrender rates based upon actual experience by geographic area and modified to allow

for variation in policy form.

The amount of policyholder dividend to be paid is determined annually by the

Company. The dividend includes life policyholders’ share of net income that are required

to be allocated by the insurance contract or by insurance regulations.

The valuation of the Insurance Provision - Life Insurance Business, as at

31st December 2011 was made by Drs. J.S.A. Plugge, Fellow of the Dutch Actuarial Society

(AAG) and Fellow of the Actuarial Association of Sri Lanka (AASL), for and on behalf of

Sri Lanka Insurance Corporation Ltd. In accordance with the Consultant Actuary’s Report,

the sum of provision, Rs. 2,329.36 million (2010 - Rs. 2,053.87 million), is included as the

liability in respect of policyholders’ bonus. In the opinion of the Consultant Actuary, the

admissible assets of the Life Insurance Fund as at 31st December 2011 is adequate to cover

the liabilities of the fund and the solvency margin requirement prescribed under Section

26 of the regulation of Insurance Industry Act No. 43 of 2000. The Life Fund also carried

forward surplus for future growth and contingencies.

The Life Insurance Fund Assets including Shareholders’ Transfer as at

31st December 2011 is Rs. 60,323.93 million (2010 - Rs. 52,216.59 million). The Board of

Directors decided to transfer Rs. 4,463.46 million (2010 - Rs. 2,647.24 million) to Shareholders’

Fund in the Life Balance Sheet. Subsequent to this transfer, the Life Insurance Fund stands

Rs. 55,860.47 million (2010 - Rs. 49,569.35 million).

Consolidated

company

As at 31st December 2011

Rs. ’000

2010

Rs. ’000

2011

Rs. ’000

2010

Rs. ’000

Life Insurance Fund as at

1st January 49,569,355 41,484,784 49,569,355 41,484,784

Movement of the Fund 10,754,581 10,731,809 10,754,581 10,731,809

Transfer of Surplus to Shareholders’ Funds (4,463,461) (2,647,238) (4,463,461) (2,647,238)

Life Insurance Fund as at

31st December 55,860,474 49,569,355 55,860,474 49,569,355

Policyholder Outstanding Claims 2,634,046 3,004,247 2,634,046 3,004,247

58,494,521 52,573,602 58,494,521 52,573,602

191


REPOSITIONING WITH GREATER STRENGTH | Financial Reports

Consolidated

company

As at 31st December 2011

Rs. ’000

2010

Rs. ’000

2011

Rs. ’000

2010

Rs. ’000

16. Insurance Provision -

Non-Life

Premiums

Unearned Premium

Gross 6,033,970 4,527,583 6,033,970 4,527,583

Reinsurance (1,205,337) (673,601) (1,205,337) (673,601)

Net 4,828,633 3,853,982 4,828,633 3,853,982

Unexpired Risks

Gross 348,156 407,658 348,156 407,658

Reinsurance (48,056) (10,859) (48,056) (10,859)

Net 300,100 396,799 300,100 396,799

Deferred Income Reinsurance Commission 139,917 78,683 139,917 78,683

Deferred Acquisition Expenses (363,484) (252,678) (363,484) (252,678)

Gross Claims Reserve

(223,568) (173,995) (223,568) (173,995)

4,905,165 4,076,786 4,905,165 4,076,786

Claims Outstanding (Gross) 5,891,381 5,047,124 5,891,381 5,047,124

Claims Incurred But Not Reported

(IBNR/IBNER) 2,112,715 1,708,072 2,112,715 1,708,072

Catastrophe (CAT) 450,000 360,000 450,000 360,000

Contingency – 1,167,466 – 1,167,466

Claims Reserve Total 8,454,097 8,282,662 8,454,097 8,282,662

Total 13,359,262 12,359,448 13,359,262 12,359,448

192


REPOSITIONING WITH GREATER STRENGTH | Financial Reports

Significant delays occur in the notification of claims and a substantial measure of experience

and judgment is involved in assessing outstanding liabilities. The ultimate cost of these

outstanding liabilities cannot be known with certainty as of the Balance Sheet date.

The reserves are determined based on the information currently available. However, it is

inherent to the nature of the business written that the ultimate liability may vary as a result

of subsequent developments.

Since 2006 onwards, the Company valued its insurance provision - Non-Life by way of

an Actuarial Valuation. Accordingly, the basis of estimating unearned premium reserve has

also changed from 50% of Net Premium received during the year to 1/365th pro rata basis.

Consolidated

company

As at 31st December 2011

Rs. ’000

2010

Rs. ’000

2011

Rs. ’000

2010

Rs. ’000

16.1 Technical Reserve

Insurance Provision 13,359,262 12,359,448 13,359,262 12,359,447

Reinsurance on Outstanding Claims -

Non-Life (1,168,932) (1,357,831) (1,168,932) (1,357,831)

Technical Reserve 12,190,330 11,001,617 12,190,330 11,001,617

17. Current Tax Liabilities

Balance as at 1st January 1,466,151 954,259 1,427,816 954,217

Income Tax Charge for the Year 2,134,047 2,086,274 1,321,860 2,115,973

Income Tax Settlements made

during the Year (2,067,771) (1,659,419) (1,818,259) (1,642,374)

On Acquisition of Subsidiaries – 84,255 – –

At the End of the Year 1,532,427 1,465,369 931,417 1,427,816

193


REPOSITIONING WITH GREATER STRENGTH | Financial Reports

Consolidated

company

As at 31st December 2011

Rs. ’000

2010

Rs. ’000

2011

Rs. ’000

2010

Rs. ’000

18. Deferred Tax

Deferred Tax Liabilities

Capital Allowances for Tax Purposes 1,444,868 838,679 437,016 678,609

Revaluation/(Deficit) of Building 757,900 179,519 – (127,547)

On acquisition of Subsidiaries – 1,627,053 – –

2,202,768 2,645,251 437,016 551,062

Deferred Tax Assets

Defined Benefit Obligations (81,885) (75,045) (57,357) (65,802)

Provision for Doubtful Debts (89,016) (85,700) (86,077) (85,700)

Tax Loss Carried Forward – – – –

Provision for Inventories (2,174) – – –

On acquisition of Subsidiaries – (158,137) – –

(173,075) (318,882) (143,434) (151,502)

Net Deferred Tax Liabilities 2,029,694 2,326,369 293,583 399,560

19. Employee Benefits

Balance as at 01st January 469,311 268,357 370,304 236,329

On Acquisition of Subsidiaries – 60,524 – –

Current Service Cost 42,026 38,000 25,665 30,167

Interest Expense 47,289 29,112 37,060 26,665

Actuarial Gain/(Loss ) (19,400) 81,004 (22,648) 80,681

539,225 476,997 410,381 373,842

Benefit Paid by the Plan (25,711) (7,687) (17,761) (3,538)

Balance as at 31st December 513,514 469,311 392,620 370,304

194


REPOSITIONING WITH GREATER STRENGTH | Financial Reports

As at 31st December 2010 the Gratuity Liability was actuarially valued under the Projected

Unit Credit (PUC) method by Messrs Actuarial & Management Consultants (Pvt) Ltd.,

1st Floor, No. 434, R.A. de Mel Mawatha, Colombo 03 for Rs. 392,619,877/-. The actuarial

valuation will be performed every year. Principle actuarial assumptions used:

2011

% per Annum

2010

% per Annum

Discount Rate 10 10

Salary Increment Rate 7.5 7.5

The liability is not externally funded.

Subsidiaries

The Lanka Hospitals Corporation PLC

As at 31st December 2011 the Gratuity Liability was actuarially valued under the Projected

Unit Credit (PUC) method by Messrs Actuarial & Management Consultants (Pvt) Ltd.,

1st Floor, No. 434, R.A. de Mel Mawatha, Colombo 03 for Rs. 42,721,726/-. The actuarial

valuation will be performed every year. Principle actuarial assumptions used:

2011

% per Annum

2010

% per Annum

Discount Rate 10.5 10

Salary Increment Rate – –

Salary Denoted in Sri Lankan Rupees 10 12

Salary Denoted in Indian Rupees and USD 5 5

The liability is not externally funded.

195


REPOSITIONING WITH GREATER STRENGTH | Financial Reports

Litro Gas Terminal Lanka (Pvt) Ltd.

As at 31st December 2011 the Gratuity Liability was actuarially valued under the Projected

Unit Credit (PUC) method by Messrs Actuarial & Management Consultants (Pvt) Ltd.,

1st Floor, No. 434, R.A. de Mel Mawatha, Colombo 03 for Rs. 3,178,472/-. The actuarial

valuation will be performed every year. Principle actuarial assumptions used:

2011

% per Annum

2010

% per Annum

Discount Rate 10 –

Salary Increment Rate 5 –

Litro Gas Lanka Ltd.

As at 31st December 2011 the Gratuity Liability was actuarially valued under the Projected

Unit Credit (PUC) method by Messrs Actuarial & Management Consultants (Pvt) Ltd.,

1st Floor, No. 434, R.A. de Mel Mawatha, Colombo 03, for Rs. 66,111,610/-. The actuarial

valuation will be performed every year. Principle actuarial assumptions used:

2011

% per Annum

2010

% per Annum

Discount Rate 10 –

Salary Increment Rate 5 –

Management Services Rakshana (Pvt) Ltd.

As at 31st December 2011 the Gratuity Liability was actuarially valued under the Projected

Unit Credit (PUC) method by Messrs Actuarial & Management Consultants (Pvt) Ltd.,

1st Floor, No. 434, R.A. de Mel Mawatha, Colombo 03 for Rs. 8,882,185/-. The actuarial

valuation will be performed every year. Principle actuarial assumptions used:

2011

% per Annum

2010

% per Annum

Discount Rate 10 10

Salary Increment Rate 7.5 7.5

196


REPOSITIONING WITH GREATER STRENGTH | Financial Reports

Consolidated

company

As at 31st December 2011

Rs. ’000

2010

Rs. ’000

2011

Rs. ’000

2010

Rs. ’000

20. Other Liabilities

Policyholder Advance Payments 367,963 616,555 367,963 616,555

Payables

Agency Commission Payable 655,253 437,861 655,253 437,861

Reinsurance Payable 721,204 576,278 721,204 576,278

Economic Services Charge Payable 33,215 33,290 30,000 30,000

Others Including Accrued Expenses 2,071,592 1,784,421 1,604,299 1,350,283

Agrahara Premium Payable – 138,835 – 138,835

Riot Fund 47,016 51,088 47,016 51,088

Trade Payable 1,076,802 1,828,999 – –

VAT Payable 24,779 13,626 – –

Provision for Assessment of VAT Liability 345,000 345,000 345,000 345,000

Other Payables 95,664 79,471 – –

Advanced Received 30,731 29,991 – –

Customer Deposit Payable 3,815,767 3,472,651 – –

9,284,987 9,408,069 3,770,735 3,545,900

21. Interest-Bearing Borrowings

Syndicate Loan (Note 22.1) – 15,090 – –

NDB Loan (Note 22.2) – 7,500 – –

Bank Overdraft 392,747 415,502 310,275 285,703

392,747 438,092 310,275 285,703

Amount Payable within 1 Year 392,747 438,092 310,275 285,703

197


REPOSITIONING WITH GREATER STRENGTH | Financial Reports

Consolidated

As at 31st December 2011

Rs. ’000

2010

Rs. ’000

21.1 Lender

Hatton National Bank PLC – 7,500

National Development Bank PLC – 3,795

Seylan Bank PLC – 3,795

– 15,090

21.2 National Development Bank PLC – 7,500

– 7,500

Consolidated

company

As at 31st December 2011

Rs. ’000

2010

Rs. ’000

2011

Rs. ’000

2010

Rs. ’000

22. Stated Capital

Issued and Fully Paid

600,000,000 Ordinary Shares 6,000,000 6,000,000 6,000,000 6,000,000

6,000,000 6,000,000 6,000,000 6,000,000

The holders of ordinary shares are entitled to receive dividends as declared from time to

time and are entitled to one vote per individual person at meetings of the shareholder or

vote per share in the case of a poll.

198


REPOSITIONING WITH GREATER STRENGTH | Financial Reports

Consolidated

company

As at 31st December 2011

Rs. ’000

2010

Rs. ’000

2011

Rs. ’000

2010

Rs. ’000

23. Capital Reserve

Revaluation Reserve (23.1) 1,819,809 1,566,107 1,336,692 1,336,692

23.1 Reserve for Revaluation of

Land & Building

Balance as at 01st January 2011 1,566,107 1,457,510 1,336,692 1,457,510

Surplus/(Deficit) on Revaluation of

Property, Plant & Equipment (18,229) 178,700 – (120,816)

Surplus on Revaluation 85,775 (1,123) – –

Deferred Tax on Revaluation Surplus 105,642 (83,864) – –

Realisation of Revaluation Surplus (15,920) (6,072) – –

Effect on Change in Tax Rate 96,434 20,956 – –

Balance as at

31st December 2011 1,819,809 1,566,107 1,336,692 1,336,694

199


REPOSITIONING WITH GREATER STRENGTH | Financial Reports

Consolidated

company

For the year ended 31st December 2011

Rs. ’000

2010

Rs. ’000

2011

Rs. ’000

2010

Rs. ’000

24. Revenue Reserve

General Reserve 643,442 643,442 643,442 643,442

Surplus from Life Insurance (Note 24.1) 6,671,417 4,160,293 6,671,417 4,160,293

Retained Earnings (Note 24.2) 12,102,963 5,829,396 9,975,012 5,891,054

19,417,822 10,633,129 17,289,872 10,694,790

24.1 Surplus from Life insurance

Balance as at 01st January 4,202,394 1,513,053 4,202,394 1,513,053

Surplus transferred from Life insurance 4,463,461 2,647,238 4,463,461 2,647,238

Transferred to Shareholders (1,952,335) – (1,952,335) –

6,671,417 4,160,293 6,671,417 4,160,293

24.2 Retained Earnings

Balance as at 01st January 5,829,395 1,968,880 5,891,054 2,219,456

Profit for the Year 9,699,288 13,220,925 6,595,083 13,039,202

Surplus Attributable to Shareholders

from Life Insurance (4,463,461) (2,647,238) (4,463,461) (2,647,238)

Transfer from Life Insurance Surplus 1,952,335 – 1,952,335 –

Dividend Declared and Paid – (6,720,366) – (6,720,366)

Effect on Realisation of Reserves due to

Changes in Tax Rate (698) – – –

Deferred Tax Transfer 18,229 – – –

Effect of Change in Percentage Holding

in Subsidiaries (948,046) – – –

Realisation of Revaluation Surplus 15,920 7,195

Balance as at 31st December 12,102,963 5,829,396 9,975,012 5,891,054

General Reserves represent the amounts set aside by the Directors for the future expansion

and to meet any contingencies, which formed part of the Company’s distributable reserves.

200


REPOSITIONING WITH GREATER STRENGTH | Financial Reports

Consolidated

company

For the year ended 31st December 2011

Rs. ’000

2010

Rs. ’000

2011

Rs. ’000

2010

Rs. ’000

25. Revenue

Gross Written Premium 18,294,323 15,239,001 18,365,192 15,276,496

Less: Premium Ceded to Reinsurers (2,823,921) (2,363,687) (2,823,921) (2,363,687)

Net Written Premium 15,470,402 12,875,314 15,541,271 12,912,809

Net Change in Reserve for Unearned

Premium (877,952) (933,063) (877,952) (933,063)

Net Earned Premium 14,592,450 11,942,251 14,663,319 11,979,746

Income from Investments 12,068,939 22,537,127 12,068,939 22,537,127

Other Income 995,419 496,771 995,419 494,413

Hospital Revenue 2,728,888 2,280,248 – –

Pharmacy Revenue 951,286 875,775 – –

Revenue from Liquid Petroleum Gas

(LPG) Activities 21,109,235 2,237,364 – –

Throughput Fee 763,665 111,208 – –

53,209,883 40,480,743 27,727,678 35,011,286

26. Gross Written Premium

Life Insurance

Group and Non-Group 6,360,925 5,854,145 6,419,549 5,854,145

Group Term Life Assurance 323,524 155,714 323,524 155,714

Non-Life Insurance

Fire & Engineering Risk 1,798,416 1,564,477 1,798,416 1,601,972

General Accident 2,650,486 2,095,493 2,650,486 2,095,493

Marine 449,760 413,840 449,760 413,840

Workmen’s Compensation 80,405 83,149 80,405 83,149

Motor 6,643,052 5,072,183 6,643,052 5,072,183

18,306,568 15,239,001 18,365,192 15,276,496

201


REPOSITIONING WITH GREATER STRENGTH | Financial Reports

Consolidated

company

For the year ended 31st December 2011

Rs. ’000

2010

Rs. ’000

2011

Rs. ’000

2010

Rs. ’000

27. Insurance Claims and

Benefit (Net)

Life Insurance

Group Term Life Assurance 22,172 496,650 22,172 496,650

Policy Maturities 3,388,508 3,820,311 3,392,748 3,820,311

Surrenders 188,937 214,121 188,937 214,121

Death, Disability, Ex-gratia, Annuities,

Hospitalisation and Mortgage Protection 80,838 453,178 80,838 453,178

Reinsurance Recoveries (45,939) (4,373) (45,939) (4,373)

3,634,516 4,979,887 3,638,756 4,979,887

Non-Life Insurance

Non-Life Insurance Gross Claims Incurred 5,036,487 3,699,248 5,036,487 3,701,300

Reinsurance Recoveries (325,254) (837,719) (325,254) (837,719)

4,711,233 2,861,529 4,711,233 2,863,581

Total Insurance Claims/

Benefits (Net) 8,345,749 7,841,416 8,349,989 7,843,468

28. Underwriting and

Policy Acquisition Costs

Increase/(Decrease) in Deferred

Acquisition Expenses 1,568,322 1,140,849 1,568,322 1,140,849

Reinsurance Commission (327,983) (300,025) (327,983) (300,025)

1,240,339 840,824 1,240,339 840,824

202


REPOSITIONING WITH GREATER STRENGTH | Financial Reports

Consolidated

company

For the year ended 31st December 2011

Rs. ’000

2010

Rs. ’000

2011

Rs. ’000

2010

Rs. ’000

29. Income from

Investments

Dividend Income 1,265,276 1,052,637 1,265,276 1,052,637

Interest Income 5,995,645 5,898,153 5,995,645 5,898,153

Net Realised Capital Gains and Losses 4,808,018 15,586,337 4,808,018 15,586,337

12,068,939 22,537,127 12,068,939 22,537,127

30. Other Income

Rent Income 100,191 90,960 111,086 90,960

Gain on Foreign Exchange Transactions 175,715 – 175,715 –

Interest on Policyholders and

Other Loans 316,011 236,491 315,274 236,491

Liabilities no longer Payable Written Back 36,535 – 36,535 –

Amortisation of Government Grants – 221 – –

Sundry Income 1,061,143 168,020 356,755 166,962

Gain on Disposal of Property,

Plant & Equipment 32,649 1,079 – –

1,722,245 496,771 995,366 494,413

203


REPOSITIONING WITH GREATER STRENGTH | Financial Reports

Consolidated

company

For the year ended 31st December 2011

Rs. ’000

2010

Rs. ’000

2011

Rs. ’000

2010

Rs. ’000

31. Other Operating,

Investment Related and

Administration Expenses

Staff Expenses (Note 31.1) 2,012,059 1,278,189 798,686 680,254

Reversal/(Charge) of Provision for fall in

Value of Investment 5,312 5,473 5,312 5,473

Administration & Establishment Expenses 971,914 624,773 241,833 443,428

Selling Expenses 114,648 337,125 22,683 311,648

Government Levies 88,705 82,070 88,705 82,070

Assets Management Fees – 187 – 187

Depreciation on Property, Plant

& Equipment 221,614 205,875 104,879 102,267

Other Operating Expenses 1,204,291 651,615 671,389 178,324

4,618,542 3,185,308 1,933,486 1,803,651

31.1 Staff Expenses

Wages and Salaries 1,599,620 972,777 569,320 426,660

Retirement Benefits - Gratuity 44,781 70,953 14,946 65,676

Company Contribution to Defined

Contribution Plans 170,666 113,075 76,537 68,923

Bonuses 76,722 31,593 76,722 31,593

Other Expenses 120,270 89,791 61,161 87,402

2,012,059 1,278,189 798,686 680,254

204


REPOSITIONING WITH GREATER STRENGTH | Financial Reports

Consolidated

company

For the year ended 31st December 2011

Rs. ’000

2010

Rs. ’000

2011

Rs. ’000

2010

Rs. ’000

32. Profit from Operations

Auditors’ Remuneration

Statutory Audit 4,240 4,593 3,250 2,975

Audit Related Services 2,400 550 2,400 550

Legal Fees 8,929 24,783 7,172 24,783

Fund Management Fees – 187 – 187

Depreciation on Property, Plant & Equipment 946,917 451,831 193,589 189,429

(Reversal)/Provision for Doubtful Debts 121,419 (58,699) 119,272 (55,866)

(Profit)/Loss Disposal of Property, Plant

& Equipment (10,757) 19,683 (10,757) 19,683

(Reversal)/Provision for Inventories 449 (3,387) – –

Amortisation of Advanced Leased Premium 4,683 4,683 – –

Donation – 10,765 – 10,765

33. Income Tax Expense

Current Tax Expense

Taxation on Profits for the Year 2,150,595 2,022,625 1,321,860 2,052,324

Reversal of Economic Service Charge (17,718) – – –

Under/(Over) Provision in Previous Years – 63,649 – 63,649

2,132,877 2,086,274 1,321,860 2,115,973

Deferred Tax Expense

Origination and Reversal of

Temporary Differences 75,284 (225,713) (101,313) (121,058)

Effect on Changes in Tax Rate (86,187) – – –

2,121,975 1,860,560 1,220,547 1,994,915

205


REPOSITIONING WITH GREATER STRENGTH | Financial Reports

Parent Company

SLICL is liable to income tax of 28% (2010 - 35%) in terms of Inland Revenue Act No. 10 of

2006 and amendments thereto. Current year tax charge consists of income tax charge on

General Insurance and investment income in Life Insurance.

Subsidiaries

The Lanka Hospitals Corporation PLC

In accordance with the power conferred on the Board of Investment of Sri Lanka, under

Section 170 of the BOI Law No. 4 of 1978, the operating profits and income accruing to the

Company is exempt from tax for a period of 12 years. However, income tax has been provided

at 28% (2010 - 35%) on non-trading income.

Litro Gas Terminal Lanka (Pvt) Ltd.

In accordance with the power conferred on the Board of Investment of Sri Lanka, under

Section 170 of the BOI Law No. 4 of 1978, the operating profits and income accruing to the

Company is exempt from tax for a period of 15 years commencing from year 2000.

However, income tax has been provided at 28% (2010 - 35%) for interest income.

34. Basic Earnings Per Share

Basic earnings per share is calculated by dividing the net profit for the year attributable to ordinary

shareholders by weighted average number of ordinary shares outstanding during the year.

Consolidated

company

For the year ended 31st December 2011 2010 2011 2010

Amounts Used as the Numerators

Net Profit Attributable to

Ordinary Shareholders (Rs. ’000) 9,699,288 13,220,925 6,595,083 13,039,203

Numbers of Ordinary Shares

Used as Denominators

Weighted Average Number of Ordinary

Shares in Issue (’000) 600,000 600,000 600,000 600,000

Basic Earnings per Share (Rs.) 16.17 22.03 10.99 21.73

206


REPOSITIONING WITH GREATER STRENGTH | Financial Reports

35. Dividend Per Share

Dividend per share is calculated by dividing total dividend by the number of ordinary shares

in issue as at the year end.

Consolidated

company

For the year ended 31st December 2011

Rs. ’000

2010

Rs. ’000

2011

Rs. ’000

2010

Rs. ’000

Dividend Paid and Proposed

Interim Dividend Paid (Rs. ’000) – 6,720,366 – 6,720,366

Weighted Average Number

of Ordinary Shares in

Issue (Rs. ’000) 600,000 600,000 600,000 600,000

Dividend per Share (Rs.) – 11.20 – 11.20

36. Commitments, Contingencies and Guarantees

36.1 Capital Commitments

The Company does not have significant capital commitments as at the Balance Sheet date.

36.2 Contingent Liabilities and Guarantees

There were no Significant Contingent Liabilities and Guarantees that would require

adjustments to or disclosure in the Financial Statements, other than described below.

36.3 Contingent Liabilities and Guarantees

(a) Contingent Liabilities

Value Added Tax Assessments issued by the Commissioner General of Inland Revenue

In 2006 the Commissioner General of Inland Revenue had issued Value

Added Tax Assessments on Reinsurance claims received from foreign reinsurers,

for the years of assessments 2004/05 and 2005/06 amounting to Rs. 318,099,913/- and

Rs. 26,903,739/- respectively.

207


REPOSITIONING WITH GREATER STRENGTH | Financial Reports

The Company filed valid appeals against these assessments. The Board of Review

by letter dated 21st July 2010 determined that the assessments are valid. The Company is

making an appeal to the Court of Appeal contesting the determination made by the Board

of Review. The Company has provided the liability of Rs. 345 million pending the decision

of the Court of Appeal. In the event, the decision of the Court of Appeal is unfavourable to

the Company, an additional liability of Rs. 690 million from the year 2007 may arise.

(b) Guarantees

For the year ended 31st December 2011

Rs. ’000

2010

Rs. ’000

Company

Shell Brands International AG 112,500 112,500

37. Events after the Balance Sheet date

There were no significant events after the Balance Sheet date which would have any material

effects on the Company.

38. Related Party Disclosures

38.1 Transactions with Key Management Personnel

According, to Sri Lanka Accounting Standard No. 30 (Revised 2005) - ‘Related Party

Transaction’, Key Management Personnel are those having authority and responsibility for

planning, directing and controlling the activities of the entity. Accordingly Chairman and

the Board of Directors have been classified as Key Management Personnel of the Company.

(a) Key Management Personnel Compensation

Emoluments and compensation paid to Key Management Personnel are as follows.

For the year ended 31st December 2011

Rs. ’000

2010

Rs. ’000

Short-Term Employee Benefits 27,257 10,275

208


REPOSITIONING WITH GREATER STRENGTH | Financial Reports

38.2 Other Transactions

Details of Significant Related Party Disclosures are as follows;

Transactions with Related Companies

Name of the Company

Management Services Rakshana (Pvt) Ltd.

The Lanka Hospitals Corporation PLC

Litro Gas Lanka Ltd.

Litro Gas Terminal Lanka (Private) Ltd.

E-Channeling PLC

Ceybank Asset Management (Pvt) Ltd.

Ceylon Asset Management Co. Ltd.

For the year ended 31st December 2011

Rs. ’000

2010

Rs. ’000

Nature of the Transaction

Insurance Premium received 36,109 24,070

Claims Paid 4,240 10,042

Investment in Equity Shares as at 31st December 11,827,529 11,157,401

Loan Granted 54 34,385

Loans Outstanding as at 31st December 18,670 31,751

Advances Given 7,799 7,799

Other Receivables as at 31st December 7,916 7,067

Payment of Emoluments 196,271 273,793

Payment of Expenses 685 2,422

Other Payables 43,036 15,167

Investments in Unit Trusts 1,003,927 739,811

Rent Income 13,714 –

209


REPOSITIONING WITH GREATER STRENGTH | Supplementary information

Supplementary Information 7.0.0

7.1.0 Ten Year Summary

7.1.1 Statement of Income

2011

Rs. ’000

2010

Rs. ’000

2009

(Restated)

Rs. ’000

Non-Life

Gross Written Premium 11,622,119 9,266,637 8,764,542

Net Earned Premiums 8,069,863 6,034,185 6,592,541

Net Claims Incurred (4,757,172) (2,885,793) (5,379,207)

Operating and administration Expenses (2,433,959) (1,917,779) (2,186,107)

Investment and Other Income 1,660,335 10,112,693 1,940,038

Interest Expense (12) (98) (1,935)

Profit Before Taxation 2,539,054 11,343,207 965,330

Taxation (407,432) (843,740) (233,096)

Profit After Taxation 2,131,622 10,499,467 732,232

Long-Term

Gross Written Premium 6,743,073 6,009,859 4,819,860

Net Written Premium 6,593,457 5,945,561 4,769,590

Investment and Other Income 11,403,971 13,026,350 7,227,092

Claims Incurred (3,592,818) (4,957,675) (3,831,985)

Commission Expenses (916,349) (648,033) (547,848)

Management Expenses (1,920,566) (1,483,218) (1,317,279)

Increase in Life Fund Before Taxation 11,567,694 11,882,985 6,299,570

Taxation (813,114) (1,151,175) (1,075,883)

Special Grant from Gen. Business/Adjustments – – –

Transfer of Surplus to General Fund – – –

Increase in Life Fund 10,754,580 10,731,810 5,223,687

210


REPOSITIONING WITH GREATER STRENGTH | Supplementary information

2008

2007

2006

2005

2004

2003

2002

Rs. ’000

Rs. ’000

Rs. ’000

Rs. ’000

Rs. ’000

Rs. ’000

Rs. ’000

9,140,844 8,845,352 6,643,634 6,621,006 5,351,162 5,267,734 5,063,418

6,478,099 5,262,586 4,031,808 4,280,599 3,386,583 3,183,531 3,203,062

(4,819,146) (3,866,706) (3,509,847) (2,313,991) (2,642,581) (2,340,909) (2,512,037)

(2,006,750) (2,217,357) (1,443,369) (1,467,795) (1,207,624) (1,140,748) (1,911,495)

1,202,306 974,643 1,475,458 715,804 1,182,605 1,890,673 800,613

(16,225) – – – – – –

838,283 153,167 554,051 1,214,617 718,983 1,592,551 (419,857)

(254,598) 83,336 5,652 (134,189) (87,211) (59,149) 1,829

583,685 236,503 559,703 1,080,428 631,772 1,533,402 (418,028)

4,497,919 4,477,632 3,923,374 3,550,511 3,245,456 3,212,343 2,788,623

4,381,490 4,356,180 3,848,363 3,438,723 3,180,326 3,133,151 2,729,907

5,398,818 4,480,740 3,908,694 3,267,900 2,638,266 2,871,676 2,899,516

(3,289,846) (2,502,466) (2,188,818) (2,064,039) (1,382,438) (1,412,155) (1,074,457)

(552,689) (492,431) (395,926) (346,135) (359,917) (372,305) (358,068)

(2,037,946) (1,679,168) (1,294,991) (1,033,132) (1,494,255) (640,455) (660,022)

3,899,827 4,162,855 3,877,322 3,263,316 2,581,983 3,579,911 3,536,876

(793,213) (634,884) (556,641) (312,587) 178,552 (325,969) (428,066)

– – – – – – 126,874

– – – – – (179,780) –

3,106,614 3,527,971 3,320,681 2,950,729 2,760,535 3,253,942 3,235,684

211


REPOSITIONING WITH GREATER STRENGTH | Supplementary information

2011

Rs. ’000

2010

Rs. ’000

2009

(Restated)

Rs. ’000

Total Business

Revenue 53,209,829 40,480,745 22,306,632

Gross Written Premium 18,306,568 15,239,001 13,584,399

Net Earned Premiums 14,604,695 11,942,251 11,362,130

Benefits, Losses and Expenses (37,616,279) (22,203,564) (16,673,008)

Investment and Other Income 39,344,258 28,538,494 10,945,554

Interest Expense 305,983 38,522 (7,231)

Operating & Administrative Expenses (4,618,542) (3,185,308) (2,776,014)

Profit Before Taxation 12,020,115 15,130,395 2,851,431

Taxation (2,121,975) (1,860,560) (1,322,893)

Profit after Taxation 9,898,140 13,269,836 1,528,566

212


REPOSITIONING WITH GREATER STRENGTH | Supplementary information

2008

2007

2006

2005

2004

2003

2002

Rs. ’000

Rs. ’000

Rs. ’000

Rs. ’000

Rs. ’000

Rs. ’000

Rs. ’000

17,460,713 15,074,148 13,264,324 11,703,025 10,387,780 11,079,032 9,633,098

13,638,763 13,322,984 10,567,008 10,171,517 8,596,618 8,480,077 7,852,041

10,859,589 9,618,766 7,880,171 7,719,321 6,566,909 6,316,682 5,932,969

(13,450,368) (12,537,143) (10,683,110) (8,867,951) (8,170,413) (8,441,955) (9,091,741)

6,601,124 5,455,383 5,384,152 3,983,705 3,820,871 4,762,349 3,700,129

(130,184) – – – – – –

(2,248,664) (1,748,956) (1,470,521) (1,307,872) (1,676,936) (718,555) (660,022)

1,631,497 788,051 1,110,692 1,527,203 540,431 1,918,521 (118,665)

(1,047,811) (551,548) (550,989) (446,776) 91,341 (385,119) (426,237)

583,685 236,503 559,703 1,080,427 631,772 1,533,402 (418,028)

213


REPOSITIONING WITH GREATER STRENGTH | Supplementary information

7.1.2 Balance Sheet

2011

Rs. ’000

2010

Rs. ’000

2009

(Restated)

Rs. ’000

ASSETS

Property,Plant and Equipment 16,451,361 15,827,566 6,926,428

Investments 76,377,143 56,889,252 56,626,575

Other Assets 21,534,258 26,563,781 11,545,918

Total Assets 114,362,764 99,280,599 75,098,921

EQUITY AND LIABILITIES

Share Capital 6,000,000 6,000,000 6,000,000

Capital Reserve 1,819,809 1,566,105 1,457,507

General Reserve 643,442 643,442

Retained Earnings 19,417,822 9,989,692 3,481,934

Non-Controlling Interest 1,517,980 2,041,103 911,246

Total Capital and Reserves 28,755,612 20,240,341 12,494,129

LIABILITIES

Insurance Provision-Long Term 58,494,521 52,573,602 43,956,012

Insurance Provision - Non-Life 13,359,262 12,359,448 11,804,983

Other Liabilities 13,753,369 14,107,213 6,843,796

Total Liabilities 85,607,152 79,040,264 62,604,792

Total Equity and Liabilities 114,362,764 99,280,605 75,098,921

214


REPOSITIONING WITH GREATER STRENGTH | Supplementary information

2008

2007

2006

2005

2004

2003

2002

Rs. ’000

Rs. ’000

Rs. ’000

Rs. ’000

Rs. ’000

Rs. ’000

Rs. ’000

4,748,020 3,785,584 3,826,497 3,118,738 3,036,336 2,273,421 2,250,574

43,191,685 40,303,650 32,919,361 21,532,711 22,876,599 27,214,758 22,616,746

16,818,869 14,008,393 15,813,698 21,905,509 17,558,524 6,611,681 6,430,546

64,758,574 58,097,627 52,559,556 46,556,958 43,471,459 36,099,860 31,297,866

6,000,000 6,000,000 6,000,000 6,000,000 500,000 500,000 500,000

1,448,135 536,339 536,339 – – – –

601,342 601,342 601,342 601,342 6,101,342 4,670,361 4,086,993

1,487,222 1,095,375 1,258,871 1,099,169 9,706 7,821 (405,361)

– – – – – – –

9,536,699 8,233,056 8,396,552 7,700,511 6,611,048 5,178,182 4,181,632

39,470,887 35,654,300 31,947,127 28,496,288 25,926,748 23,279,431 19,476,883

10,636,192 9,887,724 8,342,175 6,255,057 7,657,600 4,368,248 3,709,027

5,114,796 4,322,547 35,820,829 3,912,201 3,276,063 3,273,897 3,930,324

55,221,875 49,864,571 44,163,004 38,856,447 36,860,411 30,921,576 27,116,234

64,758,574 58,097,627 52,559,556 46,556,958 43,471,459 36,099,760 31,297,866

215


REPOSITIONING WITH GREATER STRENGTH | Supplementary information

2011

Rs. ’000

2010

Rs. ’000

2009

(Restated)

Rs. ’000

LONG-TERM - SUPPLEMENTAL

Assets

Property,Plant and Equipment 46,553 53,343 63,305

Investments 59,405,482 45,983,617 42,219,092

Other Assets 8,347,143 13,344,239 6,216,560

Total Assets 67,799,178 59,381,200 48,498,957

LIABILITIES

Long-Term Insurance Funds 58,494,521 52,573,602 43,956,013

Other Liabilities 2,575,032 2,589,099 2,978,417

Equity Attributable to Shareholders

Capital Reserve 16,106 16,106 9,372

Revenue Reserve 6,713,519 4,202,394 1,555,156

Total Liabilities 67,799,178 59,381,200 48,498,957

216


REPOSITIONING WITH GREATER STRENGTH | Supplementary information

2008

2007

2006

2005

2004

2003

2002

Rs. ’000

Rs. ’000

Rs. ’000

Rs. ’000

Rs. ’000

Rs. ’000

Rs. ’000

107,748 134,488 140,960 151,205 107,400 70,085 52,951

30,815,851 28,201,706 21,325,082 18,113,080 16,636,161 12,975,187 19,129,592

11,054,551 9,079,332 11,993,334 11,876,465 10,629,713 11,554,118 2,096,729

41,978,150 37,415,526 33,459,376 30,140,750 27,373,274 24,599,390 21,279,272

39,470,892 35,654,300 31,947,127 28,496,288 25,926,748 23,329,362 19,476,883

2,516,258 1,761,226 1,512,249 1,644,462 1,446,526 1,270,028 1,802,389

41,987,150 37,415,526 33,459,376 30,140,750 27,373,274 24,599,390 21,279,272

217


REPOSITIONING WITH GREATER STRENGTH | Supplementary information

7.2.0 Glossary

This Glossary was

developed basically

based on the definitions

given in the Statement of

Recommended Practice

for Insurance Contracts

issued by the Institute of

Chartered Accountants of

Sri Lanka.

Actuary

Actuary is a person

who provides solutions

to insurance-related

problems using

mathematics, statistics

and financial theory.

The actuary will study

significant data such as

mortality, sickness, injury

and disability rates and

use that information to

assist those involved

with insurance.

Acquisition Expenses

All expenses mainly

incurred in acquiring

new business premiums

and conservation of

renewal business. Broad

in scope, it includes cost

of soliciting business,

issuance of policies,

collection of premiums,

agents’ compensation,

field supervision,

advertising, and any other

expenses reasonably

attributable to acquisition

and conservation of

written premiums.

Admissible Assets

Assets that may be

included in determining

an insurer’s statutory

solvency. Such assets are

specified under the rules

made by the Insurance

Board of Sri Lanka

under the Regulation of

Insurance Industry

Act No. 43 of 2000.

Approved Assets

Assets that represent

the technical reserves

and the long-term

insurance fund as per

the Determination made

under the Regulation of

Insurance Industry

Act No. 43 of 2000.

Bancassurance

A partnership between a

bank and an insurance

company whereby the

insurance company uses

the bank sales channel to

sell its insurance products.

Beneficiary

In life insurance business,

the person named in the

policy by the policyholder

(insured) to whom the

insurance money is paid at

the death of the insured.

Claim

The amount payable

under a contract of

insurance arising from

the concurrence of an

insured event.

Claims Incurred

A claim is incurred when

the event giving rise to

the claim occurs. Claims

incurred include paid

claims and movements in

outstanding claims.

Claims Incurred but

not Reported

Claims arising out of events

which have occurred by

the Balance Sheet date, but

have not reported to the

insurer at that date.

Claims Outstanding -

Non-Life Insurance

Business

The amount provided

to cover the estimated

ultimate cost of settling

claims arising out of

events which have

occurred by the Balance

Sheet date including

IBNR claims and claims

handling expenses, less

amounts already paid in

respect of those claims.

Claims Outstanding -

Life Insurance

Business

The amount provided

to cover the estimated

ultimate cost of settling

claims arising out of

events which have been

notified by the Balance

Sheet date being the

sums due to beneficiaries

together with claims

handling expenses, less

amounts already paid in

respect of those claims.

Co-Insurance

An arrangement whereby

two or more insurance

undertakings enter into

a single contract with the

insured to cover a risk in

agreed proportions at a

specified premium.

Commissions

A payment made to a

broker or a sales agent

in return for selling and

servicing an insurer’s

products.

Deferred Acquisition

Costs - Non-Life

Insurance Business

Under the annual basis of

accounting, acquisition

costs relating to the

unexpired period of risk

of contracts in force at the

Balance Sheet date which

are carried forward from

one accounting period to

subsequent accounting

periods.

Deferred Acquisition

Costs - Life

Insurance Business

Acquisition costs relating

to contracts in force at the

Balance Sheet date which

are carried forward from

one accounting period at

subsequent accounting

periods in the expectation

that they will be

recoverable out of future

margins within insurance

contracts after providing

for contractual liabilities.

218


REPOSITIONING WITH GREATER STRENGTH | Supplementary information

7.3.0 Branch Offices

1. Akuressa

40 2/1, Matara Road,

Tel: 041-2283590,

041-5674482

2. Ambalangoda

299, Wickramasuriya Road,

Tel: 091-2258339,

091-5678298

3. Ambalantota

156/8, Tissa Road,

Tel: 047-2223235,

047-5670906

4. Ampara

01, Inginiyagala Road,

Tel: 063-2222073,

063-5670307

5. Anamaduwa

70, Puttalam Road,

Tel: 032-2263033,

032-5675227

6. Anuradhapura

61, 2nd Lane, Main Street,

Tel: 025-2235258,

025-2222167

7. Avissawella

77, Ratnapura Road,

Tel: 036-2222311,

036-5672324

8. Baddegama

Kumme, Galle Road,

Tel: 091-5624502,

091-2292303

9. Badulla

14, R.H. Gunawardena

Mawatha,

Tel: 055-2230972

10. Balangoda

60/1/1,

Barns Ratwatte Mawatha,

Tel: 045-2287670,

045-5678445

11. Bambalapitiya

316, Galle Road,

Tel: 011-5632790,

011-5673296

12. Bandaragama

72, Jayakody Building,

Horana Road,

Tel: 038-2293940

13. Bandarawela

250/1/A, Badulla Road,

Tel: 057-2223526,

057-5670703

14. Batticaloa

30, Pioneer Road,

Tel: 065-2224470

15. Battaramulla

90/1/1, Pannipitiya Road,

Tel: 011-2866357,

011-5634629

16. Beliatta

74, Tangalle Road,

Tel: 047-2243211,

047- 5670908

17. Beruwala

167/1, Galle Road,

Tel: 034-2276409,

034 - 5674655

18. Bibile

Opposite R.S. Office,

Badulla Road,

Tel: 055-5675673

19. Chankanai

45, Ponnala Road,

(Main Street)

Tel: 021-2250462

20. Chilaw

431/1, Kurunegala Road,

Tel: 032-2222371,

032-5671749

21. City Office

288, Union Place,

Colombo 02

Tel: 011-2303914,

011-5677136

22. Dambulla

642, Anuradhapura Road,

Tel: 066-2284616,

066-5671624

23. Dehiwala

Ramanayaka Auto Mobile

(Pvt) Ltd.

121 1/1, Galle Road,

Tel: 011-5744962

24. Deniyaya

122, Rathna Mahal,

Main Street,

Tel: 041-2273565,

041-5674483

25. Dikwella

95, Matara Road,

Tel: 041-2255630,

041-5674476

26. Digana

42, Gonawala Road,

Tel: 081-5630744,

081-2376814

27. Eheliyagoda

Fancy Mahal Building,

Main Street,

Tel: 036-2259014

28. Elpitiya

Royal Beauty Salon

Building,

1st Floor,

Ambalangoda Road,

Tel: 091-2291365,

091-5673672

29. Embilipitiya

150/A, Parakum

Agricultural Service

Building, Pallegama,

Tel: 047-2230389,

047-5672205

30. Fort

96/1- 6B, Consistory

Building, Front Street,

Colombo 11

Tel: 011-5741820

31. Galewela

59-A, Kurunegala Road,

Tel: 066-2289285,

066-5671651

32. Galgamuwa

47/6, Anuradhapura Road,

Tel: 037-2254141,

037-5673406

33. Galle

50A, Havelock Place,

Tel: 091-2276409,

091-2224029

34. Gampaha

14, Holy Cross Road,

Tel: 033-2222676,

033-5675786

35. Gampola

147, Kandy Road,

Tel: 081-2351709,

081-5675128

36. Giriulla

90, Negombo Road,

Tel: 037-2288304,

037-5673405

37. Hatton

175/1, Dimbula Road,

Tel: 051-2222196,

051-5670202

38. Hingurakgoda

59, 3rd Cross Street,

Tel: 027-2246345,

027-5672038

39. Homagama

64, High Level Road,

Tel: 011-2893426,

011-5634670

219


REPOSITIONING WITH GREATER STRENGTH | Supplementary information

40. Horana

50/09/C, Graceland

Circular Road,

Tel: 034-2261351,

034-5674512

41. Ja-Ela

142, Negombo Road,

Tel: 011-2233169,

011-5639270

42. Jaffna

571, Hospital Road,

Tel: 021-2222023,

021-2223591

43. Kadawatha

151/5, Kandy Road,

Tel: 011-2921567

44. Kaduruwela

399, Main Street,

Tel: 027-2222954,

027-5672041

45. Kaduwela

482/8, Colombo Road,

Tel: 011-2579976,

011-5628269

46. Kahawatta

46/1A, Walauwatta Road,

Tel: 045-2270160,

045-5674248

47. Kalawana

56, Sampath Bank

Building, Matugama Road,

Manana

Tel: 045-2255930

48. Kalmunai

102/1, Police Station Road,

Tel: 067-2229912,

067-5670168

49. Kalutara

55 1/1, Paranagama

Building,

Galle Road,

Tel: 034-2222474,

034-5674535, 034-5620770

50. Kandana

54, Negombo Road,

Tel: 011-2228848,

011-5649536

51. Kandy

25, Hill Street,

Tel: 081-2234954,

081-2228172,

081-2234296, 081-2224036

52. Kandy - FBD

202/3, Katugastota Road,

Tel: 081-5627274

53. Kandy - Motor

06, Wadugodapitiya Street,

Tel: 081-2224246

54. Kantale

62/U, Agrabodhi Mawatha,

Tel: 026-2234043

55. Kegalle

389, Main Street,

Tel: 035-2231242,

035-5672982

56. Kekirawa

81, Thalawa Road,

Tel: 025-2264573,

025-5673430

57. Kilinochchi

31, Karady Doke Junction,

A-9 Road,

Tel: 021-2280031

58. Kiribathgoda

101/1, Kandy Road,

Tel: 011-5554485,

011-5635483

59. Kirulapone

88, 1/1, 1st Floor,

High Level Road,

Tel: 011-2514348,

011-5649541

60. Kochchikade

96, Chilaw Road,

Tel: 031-2274626,

031-5677135

61. Kotahena

174, Belcom Building,

1st Floor, George R. De

Silva Mawatha,

Tel: 011-5673345

62. Kuliyapitiya

74/A, Hettipola Road,

Tel: 037-2281304,

037-5673401

63. Kurunegala

16/1, Dambulla Road,

Tel: 037-2222376,

037-2227433

64. Kurunegala City

63/1, Rajapihilla Road,

Tel: 037-2234176

65. Maharagama

L 2/2, Amity Building,

123, High Level Road,

Tel: 011-2843563,

011-5635465

66. Mahiyanganaya

14, Samanala Building,

1st floor, Kandy Road,

Tel: 055-2257179,

055-5670344

67. Malabe

821/3C, New Kandy Road,

Tel: 011-2762312,

011-5651612

68. Mannar

Station Road,

(Opposite Pakiya Studio)

Tel: 023-2223236

69. Marawila

59, Negombo Road,

Tel: 032-2254297,

032-5672090

70. Matale

134, Dharmapala

Mawatha,

Tel: 066-2233989,

066-5671653

71. Matara

5A, Hakmana Road,

Tel: 041-2227962,

041-2222352

72. Matara - FBD

5A, Hakmana Road,

Tel: 041-2222227,

041-5620528

73. Matugama

79/1/1, Kalutara Road,

Tel: 034-2247510,

034-5674654

74. Mawanella

238 1/1, Kandy Road,

Tel: 035-2249335,

035-5672981

75. Melsiripura

Nanda Building,

Dambulla Road,

Tel: 037-2250459

76. Minuwangoda

21/B, M.P. De Z.

Siriwardhana Mawatha,

Tel: 011-2280870,

011-5667822

77. Monaragala

114/1, Wellawaya Road,

Tel: 055-2276145,

055-5670525

78. Moratuwa

710, Idama, Galle Road,

Tel: 011-5554451,

011-5644634

79. Narammala

159/A, Super City

Building,

U.B. Wijekoon Mawatha,

Kurunegala Road,

Tel: 037-2248920

80. Nawalapitiya

79, Kothmale Road,

Tel: 054-2222019

81. Negombo

20, Rajapaksha Broadway,

Tel: 031-2231374,

031-2235235

82. Nelliadi

Main Street, Opposite

People’s Bank,

Tel: 021-2264686

83. Nikaweratiya

169, Puttalam Road,

Tel: 037-2260279,

037-5673441

220


REPOSITIONING WITH GREATER STRENGTH | Supplementary information

84. Nittambuwa

New Super Market

Complex,

Tel: 033-2289709,

033-5671351

85. Nugegoda

Sausiri Building, 4th Floor,

High Level Road,

Tel: 011-2817739,

011-2826364, 011-5635464

86. Nuwara Eliya

60/1, Park Street,

Tel: 052-2222759,

052-5670529

87. Panadura

474A 1/1, Arther V. Dias

Mawatha,

Tel: 038-2234736,

038-5671547

88. Pilimathalawa

211/C, Colombo Road,

Tel: 081-5630070,

081-2575444

89. Piliyandala

24/2, Park Lane,

Tel: 011-2613976

90. Pitakotte

463, Kotte Road,

Tel : 011-2866755

91. Puttalam

80, Kurunegala Road,

Tel: 032-2265324,

032-5672749

92. Ratmalana

101/1/A, Galle Road,

Mt. Lavinia

Tel: 011-2715992,

011-5635475

93. Ratnapura

258, Main Street,

Tel: 045-2222433

94. Rikillagaskada

68, Ragala Road,

Tel: 081-2365279,

081-5674793

95. Talgaswala

New Town,

Tel: 091-5676789

96. Thambuttegama

137, Kurunegala Road,

Tel: 025-2275088

97. Tissamaharama

211B, Kachcheriyagama,

Tel: 047-2237152,

047-5670905

98. Trincomalee

46, Main Street,

Tel: 026-2222434,

026-5675025

99. Udugama

Pasans New Building,

Mavi Dola, Bar Junction,

Tel: 091-5674987,

091-2285097

100. Vavuniya

119/1, Kandy Road,

Tel: 024-2222380,

024-5670021

101. Veyangoda

166, Negombo Road,

Tel: 033-2288027,

033-5676037

102. Warakapola

459, Main Street,

Tel: 035-2267747,

035-5671938

103. Wariyapola

Adhikari Mawatha,

Tel: 037-2267451,

037-5673407

104. Wattala

396, Negombo Road,

Tel: 011-5355531,

011-5355532

105. Weligama

353/2, Galle Matara

Middle Road,

Tel: 041-2250647,

041-5673167

106. Welimada

15 2/1, 3rd Floor,

New Shopping Complex,

Badulla Road,

Tel: 057-2245174,

057-5670702

107. Wellawaya

25, Haputale Road,

Tel: 055-2274874,

055-5673345

108. Wennappuwa

23/1/1, Chilaw Road,

Tel: 031-2253319,

031-5672447

Customer Service

Centres

1. Divulapitiya

56, Kurunegala Road,

Tel : 031-5674774

2. Ganemulla

187/A/8, Main Street,

Kirindiwita Road,

Tel: 033-5621208

3. Habaraduwa

10/1, Matara Road,

Tel: 091-2282605

4. Hakmana

95, Kosgahawatta,

Matara Road,

Tel: 041-5670600

5. Hikkaduwa

231, Galle Road

Tel: 091-2277124

6. Imaduwa

New Shopping Complex,

Main Street

Tel: 091-5783790

7. Kamburupitiya

154A/1, Matara Road,

Tel: 041-5670291

8. Karapitiya

572/M, Hirimbura Road,

Tel: 091-5624190

9. Kirindiwela

27/8/1, Colombo Road,

Tel: 033-5621192

10. Medirigiriya

Main Street,

Tel: 071-8600247

11. Middeniya

Walasmulla Road,

Tel: 047-5670437

12. Mirigama

Opposite Police Station,

Tel: 033-2273441

13. Narahenpita

Department of Motor

Traffic,

P.O. Box 533, Elvitigala

Mawatha, Colombo 05

14. Pugoda

40/1, Kospitiyana,

Tel: 033-5621223

15. Tangalle

12, Indipokunagoda Road,

Tel: 047-5676144

16. Thanipolgaha

97/1B, H.K. Edmond

Mawatha, Galle Road,

Tel: 091-2227041

17. Urubokka

New Market Complex,

Main Street,

Tel: 041-5670420

221


REPOSITIONING WITH GREATER STRENGTH | Supplementary information

7.4.0 Corporate Information

Name of the Company and

Registered Office

Sri Lanka Insurance Corporation Ltd.

No. 21, Vauxhall Street, Colombo 2

Tel: +94 11 2357457

Fax: +94 11 2447742

Web: www.srilankainsurance.com

Registered Number

Company was incorporated on

03rd February 1993 under the

Companies Act No. 17 of 1982,

bearing No. N(PBS/CGB)/159 and

reregistered under the Companies

Act No. 07 of 2007 on 17th April 2008

bearing No. PB 289.

Board of Directors

Mr. G.S. Senarath - Chairman

(Resigned from the Board

w.e.f. 20th December 2011)

Mr. R.A. Jayatissa -

(Appointed as the Chairman

w.e.f. 23rd March 2012)

Mr. A.M.M. De Alwis -

Managing Director/CEO

Mr. P. Kudabalage -

Executive Director

Mr. K.A.D.D. Perera

Mr. C.N.V. Selvanayagam

Dr. B.M.S. Batagoda

Legal Form

Sri Lanka Insurance Corporation was

established under the provisions of

Insurance Corporation Act No. 02 of

1961 as a State-Owned Corporation.

In 1993, the Corporation was

converted to a fully, Governmentowned

limited liability company of

which the sole shareholder of 100%

shares was the Secretary to the

Treasury, under the Conversion of

Public Corporations or Government-

Owned Business Undertakings into

Public Companies Act No. 23 of 1987.

Under the privatisation programme

of the Government, the Company

was privatised in 2003 and was

under the private management

for a brief period of six years. The

Corporation was re-registered

under the Companies Act No. 07

of 2007. Pursuant to the Supreme

Court Judgment on 04th June 2009,

annulling the privatisation, 99.99%

shares are vested with the Secretary

to the Treasury on behalf of the

Government of Sri Lanka.

Tax Payer Identification

Number (TIN)

294001590

VAT Registration Number

294001590-7000

Company Secretaries

Varners International (Pvt) Ltd.

Level 14, West Tower,

World Trade Center,

Echelon Square, Colombo 01.

Subsidiaries

Management Services Rakshana

(Pvt) Ltd.

The Lanka Hospitals

Corporation PLC

Litro Gas Lanka Ltd.

Litro Gas Terminal Lanka (Pvt) Ltd.

Auditors

KPMG

32A, Sir Mohamed Macan Markar

Mawatha, Colombo 03.

Bankers

Bank of Ceylon

People’s Bank

Commercial Bank of Ceylon PLC

Hatton National Bank PLC

Standard Chartered Bank

Citi Bank

Deutsche Bank

Nations Trust Bank PLC

Sampath Bank PLC

Hongkong and Shanghai Banking

Corporation Limited

National Development Bank PLC

Development Finance Corporation

of Ceylon (DFCC)

Actuary

drs. J.S.A. Plugge, AAG

Member of the Dutch Actuarial

Society (AAG)

222


REPOSITIONING WITH GREATER STRENGTH | Supplementary information

7.5.0 Notice of Meeting

NOTICE IS HEREBY GIVEN that the ANNUAL GENERAL MEETING of SRI LANKA INSURANCE

CORPORATION LTD. will be held at the Auditorium of the Company at its Registered Office at

No. 21, Vauxhall Street, Colombo 02 on 20th June 2012, at 10.30 a.m. for the following purposes:

1. To receive and consider the Report of the Directors and the Financial Statements for the year ended

31st December 2011 and the Report of the Auditors thereon.

2. To re-elect Mr. C.N.V. Selvanayagam, who retires in terms of Articles 92 of the Articles of Association

of the Company.

3. To reappoint Messrs KPMG, the retiring Auditors and to authorise the Directors to determine

their remuneration.

4. To authorise the Directors to determine donations for the year 2012 and up to the date of the next

Annual General Meeting.

5. Any other business of which due notice has been given.

By Order of the Board,

Varners International (Pvt) Ltd.

Level 14, West Tower,

World Trade Center,

Colombo 1.

28th May 2012

223


REPOSITIONING WITH GREATER STRENGTH

Form of Proxy

I/We* ……………...............………………………………………………...............................………………

of …………………………........................………....................…...……………………………………………………

being a member/members* of SRI LANKA INSURANCE CORPORATION LTD. hereby appoint

…………………………………………………………………….……................................…………………………. of

…………………………………………………………………………………………………………………………………

or failing him/her*

Mr. R.A. Jayatissa

Mr. Mohan De Alwis

Mr. Dhammika Perera

Mr. Noel Selvanayagam

Mr. Piyadasa Kudabalage

Dr. B.M.S. Batagoda

of Colombo or failing him

of Colombo or failing him

of Colombo or failing him

of Colombo or failing him

of Colombo or failing him

of Colombo

as my/our* proxy to represent me/us* and to vote as indicated hereunder for me/us* and on my/our*

behalf at the Thirty-Ninth Annual General Meeting of the Company to be held on …….......... 2012 and at

every poll which may be taken in consequence of the aforesaid meeting and at any adjournment thereof.

RESOLUTION FOR AGAINST

1. To receive and adopt the Report of the Directors and the

Financial Statements for the year ended 31st December 2011

with the Report of the Auditors thereon.

2. To re-elect as Director, Mr. C.N.V. Selvanayagam, who retires in

terms of Article 92 of the Articles of Association of the Company.

3. To reappoint Messrs KPMG, the retiring Auditors and to authorise

the Directors to determine their remuneration.

4. To authorise the Directors to determine donations for the year

2012, and upto the date of the next Annual General Meeting.

Signed this ……………………… day of ………………. 2012.

*Please delete the inappropriate words.

…………......…………………….

Signature of Shareholder


REPOSITIONING WITH GREATER STRENGTH

Instructions as to Completion

1. To be valid, this Form of Proxy must be deposited at the Registered Office of the Company at

No. 21, Vauxhall Street, Colombo 02, at least 48 hours before the time appointed for the meeting.

2. In perfecting this Form of Proxy, please ensure that all details are legible.

3. If you wish to appoint a person other than the Chairman or the Directors of the Company as your

proxy, please insert the relevant details at (1) above and initial against this entry.

4. Please indicate clearly how your proxy is to vote on the resolutions. If no indication is given the

proxy in his/her discretion may vote as he/she thinks fit.

5. In the case of a Company/Corporation, the proxy must be under its common seal which should be

affixed and attested in the manner prescribed by its Articles of Association.

6. Where the proxy is signed under a Power of Attorney (POA) which has not been registered with

the Company, the original POA together with a photocopy of same or a copy certified by a Notary

Public must be lodged with the Company along with this proxy.

7. A shareholder appointing a proxy (other than a Director of the Company) to attend the meeting

should indicate the proxy holder’s National Identity Card (NIC) number on the Form of Proxy and

should instruct the proxy holder to bring his/her National Identity Card to the meeting.

Please provide the following information:

Shareholder’s NIC No.:

………………………………………………

Share Certificate No. :

.……………………………………………...

No. of shares held:

……………………………………………….

Proxy holder’s NIC No.:

…………………………………………………

(If not a Director of the Company)


www.srilankainsurance.com

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