Jubilee Insurance 2010 Annual Report

34
JUBILEE HOLDINGS
ANNUAL REPORT AND FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 ST DECEMBER 2010
NOTES (continued)
4. Management of Insurance and Financial Risk (continued)
Level 1 Level 2 Level 3
balance balance balance
Kshs’000 Kshs’000 Kshs’000
Financial assets:
at fair value through OCI - quoted shares 597,916 - -
at fair value through profit or loss - unquoted shares - - 1,052,957
at fair value through profit or loss - quoted shares 5,075,100 - -
Total assets 5,673,016 - 1,052,957
Specific valuation techniques used to value financial instruments include:
• Quoted market prices or dealer quotes for similar instruments
• The fair value of interest rate swaps is calculated as the present value of the estimated future cash flows based on observable yield curves.
• The fair value of forward foreign exchange contracts is determined using forward exchange rates at the balance sheet date, with the resulting
value discounted back to present value.
• Other techniques, such as discounted cash flow analysis, are used to determine fair value for the remaining financial instruments.
Note that all of the resulting fair value estimates are included in level 2 except for certain forward foreign exchange contracts as explained below.
The following table presents the changes in level 3 instruments for the year ended 31 December 2010. Trading at fair value through profit or loss
Unquoted shares at fair value through profit or loss
Kshs’000
Opening balance 1,051,593
Gains and losses recognised in other comprehensive income 1,117
Gains and losses recognised in profit or loss 3,626
Exchange variation (3,379)
Closing balance (Note 19) 1,052,957
Total gains or losses for the period included in profit or loss for assets held at the
3,626
end of the reporting period (Note 19)
Capital risk management
The Group’s objectives when managing capital, which is a broader concept than the ‘equity’ on the balance sheets, are to:
• Comply with the capital requirements as set out in the Insurance Act;
• Comply with regulatory solvency requirements as set out in the Insurance Act.
• Safeguard the Group’s ability to continue as a going concern, so that it can continue to provide returns to shareholders and benefits for other
stakeholders; and
Provide an adequate return to shareholders by pricing insurance and investment contracts commensurately with the level of risk.
The table below summarises the minimum required capital across the Group and the regulatory capital held against each of them. These figures are
an aggregate number, being the sum of the statutory capital and surplus for each insurance company in each country subject to local regulatory
requirements, which may differ from jurisdiction to jurisdiction. The current year is, in general, an estimate that is updated once calculations prepared
for the regulators are final.
2010 2009
Kenya Uganda Tanzania Total Kenya Uganda Tanzania Total
Shs ‘000 Shs ‘000 Shs ‘000 Shs ‘000 Shs ‘000 Shs ‘000 Shs ‘000 Shs ‘000
Regulatory capital held 700,000 92,132 127,690 919,822 700,000 92,132 127,690 919,822
Minimum regulatory capital 450,000 75,169 55,042 580,211 450,000 75,169 55,042 580,211
The Group has different requirements depending on the country in which it operates. The three main countries are Kenya, Uganda and Tanzania
In Kenya the solvency and capital adequacy margins are calculated based on Kenyan Solvency Law, which requires the application of a formula that
contains variables for expenses and admitted assets, as contained in section 41 -1 of the Insurance Act.
General insurance businesses are required to keep a solvency margin, i.e. admitted assets less admitted liabilities, equivalent to the higher of Shs 10
million or 15% of the net premium income during the preceding financial year.
Long term insurance businesses are required to keep a solvency margin i.e. admitted assets less admitted liabilities, equivalent to the higher of Shs
10 million or 5% of total admitted liabilities.
In Uganda, required capital is determined to be the ‘company action level risk based capital’, based on Section 6 of the Insurance statute 1996.
In Tanzania, the Group is required to hold regulatory capital for its general insurance business in compliance with the rules issued by the Insurance
regulator as per Government notice published on 25 th March, 2003 and Government notice 189 published on 9 th July, 2003.
All statutory requirements under the Insurance Act in the respective countries have been fulfilled.
JUBILEE HOLDINGS