Annual report - front page - Jubilee Insurance

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NOTES TO THE FINANCIAL STATEMENTSAS AT 31ST DECEMBER 2011 (CONTINUED)4. MANAGEMENT OF INSURANCE AND FINANCIAL RISK (CONTINUED)(ii)Price riskThe Group is exposed to equity securities price risk because of investments in quoted and unquoted shares classified either asfinancial assets at fair value through other comprehensive income or at fair value through profit or loss. The Group is notexposed to commodity price risk. To manage its price risk arising from investments in equity and debt securities, the Groupdiversifies its portfolio. Diversification of the portfolio is done in accordance with limits set by the Group. All quoted shares heldby the Group are traded on the Nairobi Securities Exchange (NSE), the Uganda Securities Exchange (USE) and Dar es SalaamStock Exchange (DSE).GroupAt 31st December, 2011, if the NSE and USE indices had increased/decreased by 20% with all other variables held constantand all the Group’s equity instruments moved according to the historical correlation to the index, the post-tax profit would havebeen Kshs 3.3m lower/higher and equity would have been Kshs 357m higher/lower.CompanyAt 31st December, 2011, the Company did not hold any shares in the Nairobi Stock Exchange. If the USE indices had increased/decreased by 20% with all other variables held constant, all the companies’ equity instruments moved according to the historicalcorrelation to the index, then equity movement would have been negligible.(b) Cash flow and fair value interest rate riskFixed interest rate financial instruments expose the Group to fair value interest rate risk. Variable interest rate financialinstruments expose the Group to cash flow interest rate risk.The Group’s fixed interest rate financial instruments are government securities, deposits with financial institutions and quotedcorporate bonds.The Group’s variable interest rate financial instruments are some of the quoted corporate bonds – Barclays Bank Medium TermLoan. These are held to maturity thus do not expose the Group to interest rate riskThe sensitivity analysis for interest rate risk illustrates how changes in the fair value or future cash flows of a financial instrumentwill fluctuate because of changes in market interest rates at the reporting date.For liabilities under long-term insurance contracts with fixed and guaranteed terms, changes in interest rate will not cause achange to the amount of the liability, unless the change is severe enough to trigger a liability adequacy test adjustment. The levelof the reduction of the level of interest rate that will trigger an adjustment is an interest rate of 1%. An additional liability of Kshs81 million (2010 Kshs 81 million) would be required as a result of a further worsening of 20% in mortality.Investment contracts with fixed and guaranteed terms, government securities and deposits with financial institutions held tomaturity are accounted for at amortized cost and their carrying amounts are not sensitive to changes in the level of interest rates.(c) Credit riskThe Group has exposure to credit risk, which is the risk that a counterparty will be unable to pay amounts in full when due. Keyareas where the Group is exposed to credit risk are:• Receivables arising out of direct insurance arrangements;• Receivables arising out of reinsurance arrangements; and• Reinsurers’ share of insurance liabilitiesOther areas where credit risk arises include cash and cash equivalents, corporate bonds and deposits with banks and other receivables.Reinsurance is used to manage insurance risk. This does not, however, discharge the Group’s liability as primary insurer. If areinsurer fails to pay a claim for any reason, the Group remains liable for the payment to the policyholder. The credit worthinessof reinsurers is considered on an annual basis by reviewing their financial strength prior to finalization of any contract.The exposure to individual counterparties is also managed by other mechanisms, such as the right of offset where counterpartiesare both debtors and creditors of the Group. Management information reported to the Group includes details of provisionsfor impairment on loans and receivables and subsequent write-offs. Internal audit makes regular reviews to assess the degreeof compliance with the Group procedures on credit. Exposures to individual policyholders and groups of policyholders arecollected within the ongoing monitoring of the controls associated with regulatory solvency. Where there exists significantexposure to individual policyholders, or homogenous groups of policyholders, a financial analysis equivalent to that conductedfor reinsurers is carried out by the Group risk department.The Government of Kenya (GOK) has a long term rating of (B+) (stable) by Standard and Poors. GOK has not defaulted on debtobligation in the past.40JUBILEE HOLDINGS LIMITEDAnnual Report and Financial Statements 2011
NOTES TO THE FINANCIAL STATEMENTSAS AT 31ST DECEMBER 2011 (CONTINUED)4. MANAGEMENT OF INSURANCE AND FINANCIAL RISK (CONTINUED)The amount that best represents the Group’s and Company’s maximum exposure to credit risk at 31st December, 2011 is madeup as follows:Maximum exposure to credit risk before collateral held Group Company2011 2010 2011 2010Kshs ‘000 Kshs ‘000 Kshs ‘000 Kshs ‘000Receivables arising out of reinsurance arrangements 1,256,667 889,477 - -Receivables arising out of direct insurance arrangements 1,647,112 835,299 - -Reinsurers’ share of insurance liabilities 3,724,830 2,633,592 - -Government securities at amortised cost 10,264,017 6,344,018 - -Commercial bond 1,113,410 1,111,380 - -Cash and bank balances 1,022,086 575,252 999 5,208Loans on life insurance policies 290,775 213,994 - -Mortgage loans 11,988 40,161 - -Deposits with financial institutions 2,639,679 3,312,606 1,707 45,050Totals 21,970,564 15,955,779 2,706 50,258Surrender value of the life insurance policies and title documents are held as collateral for loans on life policies and mortgageloans respectively. All receivables that are neither past due or impaired are within their approved credit limits, and no receivableshave had their terms renegotiated.None of the above assets are past due or impaired except for the following amounts in;• Receivables arising out of direct insurance arrangements (which are due on inception of insurance cover):• Receivables arising out of reinsurance arrangementsReceivables arising out of direct insurance and re-insurance arrangements are summarized as follows:Group2011 2010Kshs ‘000 Kshs ‘000Direct InsuranceNeither past due nor impaired 721,438 634,089Past due but not impaired 841,383 616,356Impaired 298,383 168,866Gross 1,861,204 1,419,311Less: allowance for impairment (214,093) (214,638)Net 1,647,111 1,204,673Re-insuranceNeither past due nor impaired 10,686 95,719Past due but not impaired 753,276 662,992Impaired 503,329 140,671Gross 1,267,291 899,382Less: allowance for impairment (10,625) (10,625)Net 1,256,666 888,757JUBILEE HOLDINGS LIMITEDAnnual Report and Financial Statements 2011 41
Page 3 and 4: CONTENTGROUP INFORMATION 02ANNUAL G
Page 5 and 6: NOTICE OF THE ANNUAL GENERAL MEETIN
Page 7 and 8: BOARD OF DIRECTORSIvy C. NganaMrs.
Page 9 and 10: CHAIRMAN’S STATEMENT (CONTINUED)o
Page 11 and 12: REPORT OF THE DIRECTORSThe Director
Page 13 and 14: CORPORATE GOVERNANCE STATEMENTThe B
Page 15 and 16: CORPORATE GOVERNANCE STATEMENT (CON
Page 17 and 18: CORPORATE SOCIAL RESPONSIBILITY5 67
Page 19 and 20: CONSOLIDATED INCOME STATEMENT2011 2
Page 21 and 22: COMPANY STATEMENT OF FINANCIAL POSI
Page 23 and 24: COMPANY STATEMENT OF CHANGES IN EQU
Page 25 and 26: NOTES TO THE FINANCIAL STATEMENTSAS
Page 41: NOTES TO THE FINANCIAL STATEMENTSAS
Page 72 and 73: ADVERTISEMENTS70JUBILEE HOLDINGS LI
Page 74: NOTES72JUBILEE HOLDINGS LIMITEDAnnu

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