Ceylinco Life Insurance Limited
INTEGRATED ANNUAL REPORT 2016

FINANCIAL REPORTS

notes to the Consolidated financial statements

1. Corporate Information

1.1 Reporting Entity

Ceylinco Life Insurance Limited (the Company) is a public limited liability company incorporated and domiciled in Sri Lanka. The registered office of the Company is located at No. 106, Havelock Road, Colombo 05. Additional corporate information is given on the inner back page.

1.2 Consolidated Financial Statements

The Consolidated Financial Statements of Ceylinco Life Insurance Limited, as at and for the year ended 31 December 2016 encompass the Company, its Subsidiaries (together referred to as the ‘Group’) and the Group’s interest in Associates.

All companies in the Group are limited liability companies incorporated and domiciled in Sri Lanka.

1.3 Nature of Operations and Principal Activities of the Company and the Group

Descriptions of the nature of operations and principal activities of the Company, its Subsidiaries and Associate are given on page 34. There were no significant changes in the nature of the principal activities of the Company and the Group during the financial year under review.

The parent of Ceylinco Life Insurance Limited is Ceylinco Insurance PLC, incorporated and domiciled in Sri Lanka.

1.4 Approval of Financial Statements

The Consolidated Financial Statements of Ceylinco Life Insurance Limited and its Subsidiaries (collectively, the Group) for the year ended 31 December 2016 were authorised for issue by the Directors on 23 February 2017.

1.5 Responsibility for Financial Statements

The Board of Directors is responsible for preparation and presentation of the Financial Statements of the Company as per the provisions of the Companies Act No. 07 of 2007 and the Sri Lanka Accounting Standards. The responsibility of the Directors in relation to the Financial Statements is set out in detail in the Statement of Directors’ Responsibility Report in the Annual Report.

2. Basis of Preparation

2.1 Statement of Compliance

The Consolidated Financial Statements have been prepared in accordance with the Sri Lanka Accounting and Auditing Standards Act No. 15 of 1995, which requires compliance with Sri Lanka Accounting Standards (hereinafter referred to as SLFRS/LKAS) promulgated by The Institute of Chartered Accountants of Sri Lanka (CA Sri Lanka), and with the requirements of the Companies Act No. 07 of 2007 and the requirements of the Regulation of Insurance Industry Act No. 43 of 2000.

2.2 Basis of Measurement

The Financial Statements have been prepared on the historical cost basis except for the following:

  • Investment property is measured at fair value
  • Financial assets at fair value through profit or loss and available-for-sale financial assets are measured at fair value
  • Land and buildings are stated at revalued amounts
  • Policyholders’ liabilities are actuarially valued
  • Net defined benefit assets/(liabilities) are actuarially valued and recognised at present value

The Group measures financial instruments such as derivatives, and non-financial assets such as land, at fair value at each Reporting date. Fair value related disclosures for financial instruments and non-financial assets that are measured at fair value or where fair values are disclosed, are summarised in the following Notes:

  • Disclosures for valuation methods, significant estimates and assumptions Note 4
  • Quantitative disclosures of fair value measurement hierarchy Note 12 (g)
  • Property (land) under revaluation model Note 3.30.4
  • Financial instruments (including those carried at amortised cost) Note 3.18.4

Fair Value

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either:

  • In the principal market for the asset or liability or
  • In the absence of a principal market, in the most advantageous market for the asset or liability

The principal or the most advantageous market must be accessible by the Group. The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest. A fair value measurement of a non-financial asset takes into account a market participant’s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use. The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs. All assets and liabilities for which fair value is measured or disclosed in the Financial Statements are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:

  • Level 1 — Quoted (unadjusted) market prices in active markets for identical assets or liabilities.
  • Level 2 — Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable.
  • Level 3 — Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable.

For assets and liabilities that are recognised in the Financial Statements on a recurring basis, the Group determines whether transfers have occurred between levels in the hierarchy by reassessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each Reporting period. For the purpose of fair value disclosures, the Group has determined classes of assets and liabilities on the basis of the nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy as explained above.

2.3 Functional and Presentation Currency

These Financial Statements are presented in Sri Lankan Rupees, which is the Company’s functional currency. All financial information is presented in Sri Lankan Rupees rounded to the nearest thousand (Rs. ’000).

2.4 Comparative Information

Accounting policies have been consistently applied by the Company with those of the previous year. Classification of comparative amounts was changed, where necessary, to confirm with the current year presentation.

2.5 Basis of Consolidation

Subsidiaries and Equity Associates are disclosed in Notes 10 and 11 to the Financial Statements.

2.5.1 Subsidiaries

Subsidiaries are entities controlled by the parent company. The Consolidated Financial Statements comprise the Financial Statements of the Group and its subsidiaries as at 31 December 2016. Control is achieved when the Group is exposed or has the right, to variable returns from its involvement with the investee and when it has the ability to affect those returns through its power over the investee. Specially, the Group controls an investee if, and only if, the Group has:

  • Power over the investee (i.e., Existing rights that give it the current ability to direct the relevant activities of the investee).
  • Exposure or rights, to variable returns from its involvement with the investee.
  • The ability to use its power over the investee to affect its return.

Generally, there is a presumption that a majority of voting rights result in control. To support this presumption and when the Group has less than majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee including:

  • The contractual agreement with the other vote holders of the investee.
  • Rights arising from other contractual agreements.
  • The Group’s voting rights and potential voting rights.

The Group reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the Consolidated Financial Statements from the date the Group gains control until the date the Group ceases to control the subsidiary. Profit or loss and each component of other comprehensive income (OCI) are attributed to the equity holders of the parent of the Group and to the non-controlling interests, even if this results in the non-controlling interests having a deficit balance. When necessary, adjustments are made to the Financial Statements of subsidiaries to bring their accounting policies into line with the Group’s accounting policies. A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction. If the Group loses control over a subsidiary, it derecognises the related assets (including goodwill), liabilities, non-controlling interest and other components of equity while any resultant gain or loss is recognised in profit or loss in the Income Statement. Any investment retained is recognised at fair value.

The Consolidated Financial Statements comprise the Financial Statements of the Group as at 31 December each year. The Financial Statements of the subsidiaries are prepared for the same reporting year as the parent company, using consistent accounting policies.

Transactions Eliminated on Consolidation

Intra-group balances and transactions, and any unrealised income expenses arising from intra-group transactions and dividend, are eliminated in preparing the Consolidated Financial Statements.

Business Combination

Business combinations were accounted for using the purchase method. Transaction costs directly attributable to the acquisition formed part of the acquisition costs. The non-controlling interest (formerly known as minority interest) was measured at the proportionate share of the acquiree’s identifiable net assets.

The cost of an acquisition is measured as the aggregate of the consideration transferred measured at acquisition date fair value and the amount of any non-controlling interest in the acquiree. For each business combination, the Group measures the non-controlling interest in the acquiree at fair value or at the proportionate share of the acquiree’s identifiable net assets. Transaction costs, other than those associated with the issue of debt or equity securities that the Group incurs in connection with a business combinations are expensed and included in administrative expenses.

When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date.

If the business combination is achieved in stages, the previously held equity interest is remeasured at its acquisition date fair value and any resulting gain or loss is recognised in Income Statement.

Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the acquisition date. Subsequent changes in the fair value of the contingent consideration which is deemed to be an asset or liability, will be recognised in accordance with LKAS 39 either in Income Statement or as a change to Other Comprehensive Income. If the contingent consideration is classified as equity, it will not be remeasured. Subsequent settlement is accounted for within equity. In instances where the contingent consideration does not fall within the scope of LKAS 39, it is measured in accordance with the appropriate SLFRS/LKAS.

As described in Note 45, Ceylinco Insurance PLC (CIPLC) transferred its assets and liabilities pertaining to life insurance segment with effect from 1 June 2015 to the Company. Together with the other assets, CIPLC transferred its investment in following companies to the Company:

Subsidiaries

Serene Resorts Limited
Ceylinco Seraka Limited
Ceylinco Healthcare Services Limited

Associate

Citizens Development Business Finance PLC

The above transaction is considered as a common control business combination. A business combination involving entities or businesses under common control is a business combination in which all of the combining entities or businesses are ultimately controlled by the same party or parties both before and after the business combination, and that control is not transitory.

As common control business combinations are scoped out in SLRFS 3 – Business Combinations, management used the guidance available in LKAS 8 – Accounting Policies, Changes in Accounting Estimates and Errors and the guidance issued under the Statement of Recommended Practice (‘SoRP’) – ‘Merger Accounting for Common Control Business Combinations’ issued by The Institute of Chartered Accountants of Sri Lanka.

In applying merger accounting, Financial Statement items of the combining entities or businesses for the Reporting period in which the common control combination occurs, and for any comparative periods disclosed, are included in the Consolidated Financial Statements of the combined entity as if the combination had occurred from the date when the combining entities or businesses first came under the control of the controlling party or parties.

Accordingly, the comparative figures of the Consolidated Financial Statements were restated as if the combination had occurred from the date when the combining entities or businesses first came under the control of the controlling party or parties of Ceylinco Life Insurance Limited.

Transactions with Non-Controlling Interests

The profit or loss and net assets of a subsidiary attributable to equity interests that are not owned by the parent, directly or indirectly through subsidiaries, is disclosed separately under ‘Non-Controlling Interest’. Losses within a subsidiary are attributed to the non-controlling interest even if that results in a deficit balance.

2.5.2 Associates (Equity Accounted Investees)

Associates are those entities in which the Group has significant influence, but not control, over the financial and operating policies. Significant influence is the power to participate in the financial and operating policy decisions of the investee, but it is not control or joint control over those policies. Associates are accounted for using the equity method.

Under the equity method, the investment in an associate is initially recognised at cost. The carrying amount of the investment is adjusted to recognise changes in the Group’s share of net assets of the associate since the acquisition date.

The Income Statement reflects the Group’s share of the results of operations of the associate. Any change in Other Comprehensive Income of those investees is presented as part of the Group’s Other Comprehensive Income. In addition, when there has been a change recognised directly in the equity of the associate, the Group recognises its share of any changes and discloses this, when applicable, in the Statement of Changes in Equity. Unrealised gains and losses resulting from transactions between the Group and the associate are eliminated to the extent of the interest in the associate.

The aggregate of the Group’s share of profit or loss of an associate is shown on the face of the Income Statement outside operating profit and represents profit or loss after tax and non-controlling interests in the subsidiaries of the associate.

The Financial Statements of the associate is prepared for the same Reporting period as the Group. When necessary, adjustments are made to bring the accounting policies in line with those of the Group.

After application of the equity method, the Group determines whether it is necessary to recognise an additional impairment loss on the Group’s investment in associates. At each Reporting date, the Group determines whether there is any objective evidence that the investment in the associate is impaired. If there is such evidence, the Group calculates the amount of impairment as the difference between the recoverable amount of the associate and its carrying value and recognises the amount in the ‘share of profit of an associate’ in the Income Statement.

Upon loss of significant influence over the associate, the Group measures and recognises any remaining investment at its fair value. Any differences between the carrying amount of the associate upon loss of significant influence and the fair value of the remaining investment and proceeds from disposal are recognised in Income Statement.

Unrealised gains arising from transactions with equity accounted investees are eliminated against the investment to the extent of the Group’s interest in the investee. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment.

3. Significant Accounting Policies

The accounting policies set out below have been applied consistently to all periods presented in these Consolidated Financial Statements. The Company/Group’s financial position represents the assets, liabilities and equity. The Income Statement and Statement of Profit or Loss and Other Comprehensive Income reflects the total revenue, benefits and claims, surplus from long term insurance business, expenses of life insurance business. Set out below is an index of the significant accounting policies, the details of which are available on the pages that follow:

No. Significant Accounting Policies Page
Income Statement
3.1 Gross Written Premium 199
3.2 Reinsurance Premium
3.3 Acquisition Cost
3.4 Reinsurance Commission Income
3.5 Benefits and Claims Expense
3.6 Finance Income
3.7 Dividend Income
3.8 Realised Gains and Losses
3.9 Fair Value Gains and Losses
3.10 Other Income
3.11 Rental Income
3.12 Revenue from Other Operations 200
3.13 Expenditure Recognition
3.14 Finance Cost
3.15 Income Tax Expense
3.16 Earnings per Share 201
Financial Position
3.17 Insurance and Investment Contracts 201
3.18 Financial Assets and Liabilities 202
3.19 Impairment of Non-Financial Assets 205
3.20 Reinsurance Assets and Liabilities
3.21 Insurance Receivables
3.22 Inventories 206
3.23 Cash and Cash Equivalents
3.24 Life Insurance Contract Liabilities
3.25 Insurance Payables
3.26 Employee Benefits
3.27 Provisions 207
3.28 Capital Commitments and Contingencies
3.29 Ordinary Shares
3.30 Property, Plant and Equipment
3.31 Intangible Assets 205
3.32 Investment Properties
3.33 Leasing 209
3.34 Cash Flow Statement

Income Statement

3.1 Gross Written Premiums (GWP)

Gross recurring premiums are recognised as revenue when receivable from the policyholder. Premiums received in advance are not recognised as revenue but as a liability until the premiums become due. For single premium business, revenue is recognised on the date on which the policy is effective.

3.2 Reinsurance Premiums

Gross reinsurance premiums are recognised as an expense on the earlier of the date when premiums are payable or when the policy becomes effective.

3.3 Acquisition Costs

Commission expense is charged to the period in which it is incurred. Commission payable on accrued premium is recognised to the extent that these costs are recoverable out of future premiums. All expenses vary with, and are primarily related to, the acquisition of new insurance contracts.

3.4 Reinsurance Commission Income

Commission received or receivable in respect of premium paid or payable to a Reinsurer. Reinsurance commission income on outwards reinsurance contracts are recognised as revenue when receivable.

3.5 Benefits and Claims Expense

3.5.1 Gross Benefits and Claims Expense

Gross benefits and claims for life insurance contracts include the cost of all claims arising during the year, including internal and external claims handling costs that are directly related to the processing and settlement of claims and policyholder bonuses. Death claims and surrenders are recorded on the basis of notifications received. Maturities, annuity payments and interim payments are recorded when due.

3.5.2 Reinsurance Claims Recoveries

Reinsurance claims are recognised when the related gross insurance claim is recognised according to the terms of the relevant contract.

3.6 Finance Income

Finance income comprises interest income on funds invested (including available-for-sale financial assets) and dividend income. Interest income is recognised in the Income Statement as it accrues and is calculated by using the effective interest rate method (EIR). Fees and commissions that are an integral part of the effective yield of the financial asset or liability are recognised as an adjustment to the effective interest rate of the instrument. Finance income also includes dividends.

3.7 Dividend Income

Dividend income is recognised when the Company’s right to receive the payment is established.

3.8 Realised Gains and Losses

Realised gains and losses recorded in the Income Statement include gains and losses on financial assets and on disposal of property, plant and equipment. Gains and losses on the sale of investments are calculated as the difference between net sales proceeds and the original or amortised cost and are recorded on occurrence of the sale transaction.

Gains and losses on disposal of property, plant and equipment are calculated as the difference between net sales proceeds and the carrying amount on the date of disposal.

3.9 Fair Value Gains and Losses

Fair value gains and losses recorded in the Income Statement on investments include fair value gains and losses on financial assets at fair value through profit or loss, and on investment property.

3.10 Other Income

Other income comprises fees charged for policy administration services, and miscellaneous income.

3.11 Rental Income

Rental income from property is recognised in profit or loss on a straight line basis over the term of the lease.

3.12 Revenue from Other Operations

Healthcare Segment

Income of the Company comprises of two revenues i.e. from screening packages and screening tests and from radiation treatments. All such revenue is recognised in the Statement of Income on accrual basis.

Services

Revenue is recognised in the accounting periods in which the services are rendered.

3.13 Expenditure Recognition

Expenses are recognised in the Income Statement on the basis of a direct association between the cost incurred and the earning of specific items of income. All expenditure incurred in the running of the business and in maintaining the property, plant and equipment in a state of efficiency has been charged to the Income Statement.

3.14 Finance Cost

Finance cost mainly includes the charges and commission paid on financial services provided by financial institutions, particularly bank charges.

3.15 Income Tax Expense

Income tax expense comprises current and deferred tax.

3.15.1 Current Tax

Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively enacted at the Reporting date and any adjustment to tax payable in respect of previous years.

The Inland Revenue Act No. 10 of 2006 and amendments thereto are applied in determining the taxable income/loss of the Company and its subsidiaries.

Subsidiaries of the Company, are taxable under concessionary rates. [Please refer Note 34 (c)]

3.15.2 Deferred Tax

Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and amounts used for taxation purposes. Deferred tax is not recognised for:

  • Temporary differences on the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss;
  • Temporary differences related to investments in subsidiaries, associates and jointly-controlled entities to the extent that the Company is able to control the timing of the reversal of the temporary differences and it is probable that they will not reverse in the foreseeable future; and

The measurement of deferred tax reflects the tax consequences that would follow the manner in which the Company expects, at the end of the Reporting period, to recover or settle the carrying amount of its assets and liabilities.

Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realised simultaneously.

Deferred tax assets are recognised for all deductible temporary differences, the carry forward of unused tax credits and any unused tax losses. Deferred tax assets are recognised to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be utilised, except:

  • When the deferred tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss.
  • In respect of deductible temporary differences associated with investments in subsidiaries, equity accounted investee and interests in joint ventures, deferred tax assets are recognised only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised.

The carrying amount of deferred tax assets is reviewed at each Reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Unrecognised deferred tax assets are reassessed at each Reporting date and are recognised to the extent that it has become probable that future taxable profits will allow the deferred tax asset to be recovered. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realised or the liability is settled, based on tax rates that have been enacted or substantively enacted at the Reporting date.

Deferred tax relating to items recognised outside Income Statement is recognised outside Income Statement. Deferred tax items are recognised in correlation to the underlying transaction either in Other Comprehensive Income or directly in equity.

Tax benefits acquired as part of a business combination, but not satisfying the criteria for separate recognition at that date, would be recognised subsequently if new information about facts and circumstances changed.

3.15.3 Withholding Tax on Dividends

Withholding tax that arises from the distribution of dividends by the Company is recognised at the time the liability to pay the related dividend is recognised.

3.16 Earnings Per Share (EPS)

The Company presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the period.

Statement of Financial Position

3.17 Insurance and Investment Contracts

3.17.1 Product Classification

SLFRS 4 requires contracts written by insurers to be classified as either ‘insurance contracts’ or ‘investment contracts’ depending on the level of insurance risk transferred.

Insurance contracts are contracts under which one party (the Insurer) accepts significant insurance risk from another party (the policyholder) by agreeing to compensate the policyholder if a specified uncertain future event (the insured event) adversely affects the policyholder. Significant insurance risk exists if an insured event could cause an insurer to pay significant additional benefits in any scenario, excluding scenarios that lack commercial substance (i.e., have no discernible effect on the economics of the transaction). The classification of contracts identifies both the insurance contracts that the Company issues and reinsurance contracts that the Company holds.

Investment contracts are those contracts that transfer significant financial risk and no significant insurance risk. Financial risk is the risk of a possible future change in one or more of a specified interest rate financial instrument price, commodity price, foreign exchange rate, index of price or rates, credit rating or credit index or other variable, provided in the case of a non-financial variable that the variable is not specific to a party to the contract.

Once a contract has been classified as an insurance contract, it remains an insurance contract for the remainder of its lifetime, even if the insurance risk reduces significantly during this period, unless all rights and obligations are extinguished or expire. Investment contracts can, however, be reclassified as insurance contracts after inception if insurance risk becomes significant.

3.17.2 Unit-Linked Contracts

Unit-Linked contracts are that do not meet the definition of insurance or investment contracts with discretionary participating features. For these Unit-Linked contracts, the liabilities are valued at current unit value, i.e., on the basis of the fair value of the financial investments backing those contracts at the Reporting date together with Rights to future management fees.

3.17.3 Discretionary Participating Features (DPF)

DPF is a contractual right to receive, as a supplement to guaranteed benefits, additional benefits that are:

  • Likely to be a significant portion of the total contractual benefits;
  • The amount or timing of which is contractually at the discretion of the issuer;

and that are contractually based on:

  • The performance of a specified pool of contracts or a specified type of contract;
  • Realised and or unrealised investment returns on a specified pool of assets held by the issuer; and
  • The profit or loss of the Company, fund or other entity that issues the contract.

IBSL regulations and the terms and conditions of these contracts set out the bases for the determination of the amounts on which the additional discretionary benefits are based (the DPF eligible surplus) and within which the Company may exercise its discretion as to the quantum and timing of their payment to contract holders. At least 90% of the eligible surplus must be attributed to contract holders as a group (which can include future contract holders) and the amount and timing of the distribution to individual contract holders is at the discretion of the Company, subject to the advice of the appointed actuary. All DPF liabilities including unallocated surpluses, at the end of the Reporting period are held within insurance contract liabilities, as appropriate.

3.18 Financial Assets and Liabilities

3.18.1 Non-Derivative Financial Assets

3.18.1.1 Initial Recognition and Measurement

Depending on the intention and ability to hold the invested assets, the Company classifies its non-derivative financial assets into following categories:

  • Financial assets at fair value through profit or loss (FVtPL)
  • Held-to-maturity (HTM)
  • Loans and receivables (L&R) and
  • Available-for-sale (AFS) financial assets as appropriate.

The Company initially recognises loans and receivables, and deposits on the date that they are originated. All other financial assets (including assets designated at fair value through profit or loss) are recognised initially on the trade date at which the Company becomes a party to the contractual provisions of the instrument. In the case of financial assets not at fair value through profit or loss, a financial asset is measured initially at fair value plus transaction costs that are directly attributable to its acquisition or issue.

Income and expenses are presented on a net basis only when permitted under SLFRS/LKAS, or for gains and losses arising from a group of similar transactions such as in the Company’s trading activity.

3.18.1.2 Subsequent Measurement
(a) Fair Value Through Profit or Loss (FVTPL)

A financial asset is classified as fair value through profit or loss if it is held for trading or is designated as such upon initial recognition. Financial assets are designated at fair value through profit or loss if the Company manages such investments and makes purchase and sale decisions based on their fair value in accordance with the Company’s investment strategy. Attributable transaction costs are recognised in Income Statement as incurred.

Financial assets at fair value through profit and loss investments are carried in the Statement of Financial Position at fair value with changes in fair value recognised in the Income Statement. Financial assets designated at fair value through profit or loss comprises quoted equity instruments and Treasury Bonds unless otherwise have been classified as available-for-sale.

(b) Held-to-Maturity Financial Assets (HTM)

Financial assets with fixed or determinable payments and fixed maturities are classified as held-to-maturity when the Group has the positive intention and ability to hold it to maturity. Held-to-maturity financial assets are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition held-to-maturity financial assets are measured at amortised cost using the effective interest method, less any impairment losses.

Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the effective interest rate (EIR). The EIR amortisation is included in finance income in the Income Statement.

The losses arising from impairment are recognised as finance cost in the Income Statement. Held-to-maturity financial assets comprise of Debt Securities and Treasury Bonds.

(c) Loans and Receivables (L&R)

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial measurement, such financial assets are subsequently measured at amortised cost using the effective interest rate method (EIR), less impairment. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortisation is included in finance income in the Income Statement. The losses arising from impairment are recognised in the Income Statement in finance costs for loans and in other operating expenses for receivables.

(d) Available-for-Sale Financial Assets (AFS)

Available-for-sale financial assets are financial assets that are designated as Available-for-Sale and that are not classified in any of the previous categories. Subsequent to initial recognition, they are measured at fair value and changes therein, other than impairment losses on available-for sale equity instruments are recognised in Other Comprehensive Income and presented within equity in the available-for-sale reserve. When an investment is derecognised, the cumulative gain or loss in Other Comprehensive Income is transferred to the Income Statement.

Available-for-sale financial investments include equity and debt securities. Equity investments classified as available-for-sale are those that are neither classified as held for trading nor designated at fair value through profit or loss. Debt securities in this category are those that are intended to be held for an indefinite period of time and which may be sold in response to needs for liquidity or in response to changes in the market conditions.

The Group evaluates its available-for-sale financial assets to determine whether the ability and intention to sell them in the near term would still be appropriate. In the case where the Group is unable to trade these financial assets due to inactive markets and management’s intention significantly changes to do so in the foreseeable future, the Group may elect to reclassify these financial assets in rare circumstances. Reclassification to loans and receivables is permitted when the financial asset meets the definition of loans and receivables and management has the intention and ability to hold these assets for the foreseeable future or until maturity. There classification to held-to-maturity is permitted only when the entity has the ability and intention to hold the financial asset until maturity.

3.18.1.3 Derecognition of Financial Assets

A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is derecognised when:

  • The rights to receive cash flows from the asset have expired; or
  • The Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a ‘pass-through’ arrangement; and either:
    • the Group has transferred substantially all the risks and rewards of the asset; or
    • the Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

When the Group has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, it evaluates if and to what extent it has retained the risks and rewards of ownership. When it has neither transferred nor retained substantially all of the risks and rewards of the asset, nor transferred control of the asset, the asset is recognised to the extent of the Group’s continuing involvement in the asset. In that case, the Group also recognises an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Group has retained.

Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay.

3.18.1.4 Impairment of Financial Assets

The Group assesses, at each Reporting date, whether there is any objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset (an incurred ‘loss event’) and that loss event has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated.

Evidence of impairment may include indications that the debtors or a group of debtors is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganisation and when observable data indicate that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults.

(a) Financial Assets Carried at Amortised Cost

For financial assets carried at amortised cost, the Group first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, or collectively for financial assets that are not individually significant. If the Group determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be, recognised are not included in a collective assessment of impairment.

If there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future expected credit losses that have not yet been incurred). The present value of the estimated future cash flows is discounted at the financial asset’s original effective interest rate. If a loan has a variable interest rate, the discount rate for measuring any impairment loss is the current EIR.

The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognised in the Income Statement. Interest income continues to be accrued on the reduced carrying amount and is accrued using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. The interest income is recorded as part of finance income in the Income Statement. Loans together with the associated allowance are written off when there is no realistic prospect of future recovery and all collateral has been realised or has been transferred to the Group. If, in a subsequent year, the amount of the estimated impairment loss increases or decreases because of an event occurring after the impairment was recognised, the previously recognised impairment loss is increased or reduced by adjusting the allowance account. If a future write-off is later recovered, the recovery is credited to finance costs in the Income Statement.

(b) Available-for-Sale Financial Investments

The Group assesses at each Reporting date whether there is objective evidence that an investment or a group of investments is impaired.

In the case of equity investments classified as Available-for-sale, objective evidence would include a significant or prolonged decline in the fair value of the investment below its cost. ‘Significant’ is evaluated against the original cost of the investment and ‘prolonged’ against the period in which the fair value has been below its original cost. When there is evidence of impairment, the cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that investment previously recognised in the Income Statement – is removed from Other Comprehensive Income and recognised in the Income Statement. Impairment losses on equity investments are not reversed through the Income Statement; increases in their fair value after impairment are recognised directly in Other Comprehensive Income.

In the case of debt instruments classified as available-for-sale, impairment is assessed based on the same criteria as financial assets carried at amortised cost. However, the amount recorded for impairment is the cumulative loss measured as the difference between the amortised cost and the current fair value, less any impairment loss on that investment previously recognised in the Income Statement. Future interest income continues to be accrued based on the reduced carrying amount of the asset and is accrued using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. The interest income is recorded as part of finance income. If, in a subsequent year, the fair value of a debt instrument increases and the increase can be objectively related to an event occurring after the impairment loss was recognised in the Income Statement, the impairment loss is reversed through the Income Statement.

The determination of what is ‘significant’ or ‘prolonged’ requires judgment. In making this judgment, the Group evaluates among other factors, the duration or extent to which the fair value of the investment is less than its cost.

3.18.2 Financial Liabilities

3.18.2.1 Initial Recognition and Measurement

Financial liabilities within the scope of LKAS 39 are classified as Financial Liabilities at Fair Value through Profit or Loss, loans and borrowings as appropriate. The Group determines the classification of its financial liabilities at initial recognition.

All financial liabilities are recognised initially at fair value plus, in the case of loans and borrowings, directly attributable transaction costs.

The Group’s financial liabilities include trade and other payables, bank overdrafts, loans and borrowings, amounts due to equity accounted investees.

3.18.2.2 Subsequent Measurement

The measurement of financial liabilities depends on their classification as described below:

(a) Financial Liabilities at Fair Value Through Profit or Loss

Financial liabilities at Fair Value through Profit or Loss include financial liabilities held for trading and financial liabilities designated upon initial recognition as at Fair Value through Profit or Loss. Financial liabilities are classified as held for trading if they are acquired for the purpose of selling in the near term. Gains or losses on liabilities held for trading are recognised in the Income Statement.

Financial liabilities designated upon initial recognition at Fair Value through Profit and Loss are so designated at the initial date of recognition, if and only if the criteria of LKAS 39 are satisfied.

(b) Loans and Borrowings

After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the EIR method. Gains and losses are recognised in the Income Statement when the liabilities are derecognised as well as through the EIR amortisation process.

Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortisation is included in finance costs in the Income Statement.

3.18.2.3 Derecognition of Financial Liabilities

A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires.

When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognised in the Income Statement.

3.18.3 Offsetting of Financial Instruments

Financial assets and financial liabilities are offset and the net amount is reported in the Consolidated Statement of Financial Position if, and only if, there is a currently enforceable legal right to offset derecognised amounts and there is an intention to settle on a net basis, or to realise the assets and settle the liabilities simultaneously. Income and expense will not be offset in the Consolidated Income Statement unless required or permitted by any accounting standard or interpretation, as specifically disclosed in the accounting policies of the Group

3.18.4 Fair Value of Financial Instruments

The fair value of financial instruments that are actively traded in organised financial markets is determined by reference to quoted market bid prices for assets and offer prices for liabilities, at the close of business on the Reporting date, without any deduction for transaction costs.

For financial instruments where there is not an active market, the fair value is determined by using appropriate valuation techniques. Valuation techniques include the discounted cash flow method, net assets, comparison to similar instruments for which market observable prices exist and other relevant valuation models.

The fair value of repo and call deposits with credit institutions is their carrying value. The carrying value is the cost of the investment.

If the fair value cannot be measured reliably, these financial instruments are measured at cost, being the fair value of the consideration paid for the acquisition of the investment or the amount received on issuing the financial liability. All transaction costs directly attributable to the acquisition are also included in the cost of the investment.

3.19 Impairment of Non-Financial Assets

The carrying amounts of the Group’s non-financial assets are reviewed at each Reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated.

Calculation of Recoverable Amount

The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. 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.

Impairment/Reversal of Impairment

An impairment loss is recognised if the carrying amount of an asset or its cash-generating unit exceeds its estimated recoverable amount. Impairment losses are recognised in Income Statement.Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the units and then to reduce the carrying amount of the other assets in the unit on a pro rata basis.

An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognised in prior periods are assessed at each Reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.

3.20 Reinsurance Assets and Liabilities

The Company cedes insurance risk in the normal course of business for all of its businesses. Reinsurance assets represent balances due from reinsurance companies. These assets consist of short term balances due from reinsurers that are dependent on the expected claims and benefits arising under the related reinsured insurance contracts. Amounts recoverable from reinsurers are estimated in a manner consistent with the outstanding claims provision or settled claims associated with the reinsurer’s policies and are in accordance with the related reinsurance contract. Reinsurance is recorded gross in the Statement of Financial Position unless a right to offset exists.

Reinsurance assets are reviewed for impairment at each Reporting date or more frequently when an indication of impairment arises during the reporting year. Impairment occurs when there is objective evidence as a result of an event that occurred after initial recognition of the reinsurance asset that the Company may not receive all outstanding amounts due under the terms of the contract and the event has a reliably measurable impact on the amounts that the Company will receive from the reinsurer. The impairment loss is recorded in the Income Statement.

Reinsurance liabilities represent balances due to reinsurance companies. Amounts payable are estimated in a manner consistent with the related reinsurance contract. Reinsurance assets or liabilities are derecognised when the contractual rights are extinguished or expired or when the contract is transferred to an another party.

3.21 Insurance Receivables

Insurance receivables are recognised when due and measured on initial recognition at the fair value of the consideration receivable. The carrying value of insurance receivables is reviewed for impairment whenever events or circumstances indicate that the carrying amount may not be recoverable, with the impairment loss recorded in the Income Statement.

Insurance receivables are derecognised when the derecognition criteria for financial assets have been satisfied.

3.22 Inventories

Inventories include all consumable items and are measured at the lower of cost and net realisable value. Cost is generally determined by reference to weighted average cost. Net realisable value is the estimated market price in the ordinary course of business less any estimated expense to sell.

The cost of the inventories include all expenses incurred in bringing inventories to the present location and condition.

3.23 Cash and Cash Equivalents

Cash and cash equivalents comprise cash in hand and cash at bank. Bank overdrafts that are repayable on demand and form an integral part of the Group’s cash management are included as a component of cash and cash equivalents for the purpose of the Statement of Cash Flows.

Liabilities and Provisions

3.24 Life Insurance Contract Liabilities

These liabilities are calculated as the total of best estimate liability and a risk margin for adverse deviation. The best estimate liabilities are measured by using the gross premium method. The liability is determined as the sum of the discounted value of the expected future benefits, claims handling and policy administration expenses, policyholder options and guarantees, investment income from assets backing such liabilities and investment management expenses, which are directly related to the contract, less the discounted value of the expected premiums that would be required to meet the future cash outflows, based on the valuation assumptions used, charges and fees. Adjustments to the liabilities at each Reporting date are recorded in the Income Statement in ‘Increase in life insurance contract liabilities’.

The liability is released when the contract expires, discharged or cancelled.

At each Reporting date, an assessment is made of whether the recognised life insurance liabilities are adequate, by using an existing liability adequacy test in accordance with SLFRS 4, as set out in Note 3.24.1.

For products containing DPF, the amount of the DPF is deemed to be the investment return on all related assets, where the apportionment between the shareholder and the policyholder has not yet been determined. The liability includes certain elements of net unrealised gains/(losses) and retained earnings attributable to the DPF, based on the mandated rates applied to these gains and earnings on the assumption that they had been realised as of the Statement of Financial Position date.

The minimum mandated amounts, which are to be paid to policyholders plus any declared/undeclared additional benefits, are recorded in liabilities.

3.24.1 Liability Adequacy Test (LAT)

At each Reporting date, an assessment is made of whether the recognised life insurance liabilities are adequate by using an existing liability adequacy test as laid out under SLFRS 4. The liability value is adjusted to the extent that it is sufficient to meet future benefits and expenses. In performing the adequacy test, current best estimates of future contractual cash flows, including related cash flows such as claims handling and policy administration expenses, policyholder options and guarantees, as well as investment income from assets backing such liabilities, are used. A number of valuation methods are applied, including discounted cash flows to the extent that the test involves discounting of cash flows, the interest rate applied based on management’s prudent expectation of current market interest rates. Any deficiency shall be recognised in the Income Statement by setting up a provision for liability adequacy.

3.25 Insurance Payables

Insurance payables are recognised when due and measured on initial recognition at the fair value of the consideration payable less directly attributable transaction costs. Subsequent to initial recognition, they are measured at amortised cost using the effective interest rate method.

3.25.1 Derecognition of Insurance Payables

Insurance payables are derecognised when the obligation under the liability is discharged, cancelled or expired.

3.26 Employee Benefits

3.26.1 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 obligation to pay further amounts. Obligations for contributions to Provident and Trust Funds covering all employees are recognised as an employee benefit expense in profit or loss in the periods during which services are rendered by employees. The Group contributes 12% and 3% of gross emoluments to employees as Provident Fund and Trust Fund contribution respectively.

Obligations for contributions to a defined contribution pension plan are recognised as an employee benefit expense in profit or loss when they are due.

3.26.2 Pensions and Other Post-Employment Benefits

The Group operates a defined benefit pension plan, which requires contributions to be made to a separately administered fund. The cost of providing benefits under the defined benefit plan is determined separately using the projected unit credit valuation method as recommended by LKAS 19 – ‘Employee Benefits’. Actuarial gains and losses are recognised immediately retained earnings through other comprehensive income (OCI) in the period in which they occur. Remeasurements are not reclassified to profit or loss in subsequent periods.

Past service costs are recognised in profit or loss on the earlier of:

  • The date of the plan amendment or curtailment and
  • The date that the Group recognises restructuring-related costs.

The defined benefit asset or liability comprises the present value of the defined benefit obligation less the fair value of plan assets out of which the obligations are expected to be settled directly.

Plan assets are assets that are held by a long term employee benefit fund. Plan assets are not available to creditors of the Group nor can they be paid directly to the Group.

Fair value is based on market price information and, in the case of quoted securities, it is the published market price. The value of any defined benefit asset is restricted to the sum of any past service cost and actuarial gains and losses not yet recognised and the present value of any economic benefits available in the form of refunds from the plan or reductions in future contributions to the plan.

The amount recognised as defined benefit liabilities has been netted with the fair value of the plan assets of the Reporting period. Any surplus in plan assets has been measured based on the requirements of LKAS 19 – ‘Employee Benefits’, Para 58 and IFRIC 14 – ‘The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction’.

However, according to the Payment of Gratuity Act No. 12 of 1983, the liability for gratuity payments to an employee arises on the completion of five years of continued service with the Group. The provision is externally funded.

3.26.3 Short Term Benefits

Short term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided. A liability is recognised for the amount expected to be paid under short term cash bonus if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably.

3.27 Provisions

Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. When the Group 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.

3.28 Capital Commitments and Contingencies

Capital commitments and contingent liabilities of the Group are disclosed in the respective Note 8 (c) to the Financial Statements.

3.29 Ordinary Shares

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares are recognised as a deduction from equity, net of any tax effects.

3.30 Property, Plant and Equipment

3.30.1 Recognition and Measurement

Items of property, plant and equipment are stated at cost or revalued amount less accumulated depreciation and accumulated impairment losses.

Cost includes expenditure that is directly attributable to the acquisition or construction 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. Purchased software that is integral to the functionality of the related equipment is capitalised as part of that equipment. Borrowing costs related to the acquisition or construction of qualifying assets are also capitalised.

When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment.

3.30.2 Subsequent Costs

The cost of replacing part of an item of property, plant and 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. The costs of the day-to-day servicing of property, plant and equipment are recognised in profit or loss as incurred.

3.30.3 Depreciation

Depreciation is recognised in profit or loss on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment. Land is not depreciated. The assets are depreciated from the month it is available for use and cease to depreciate from the month of disposal.

The estimated useful lives for the property, plant and equipment are as follows:

Item Useful Life
Buildings 50-70 Years
Furniture and Fittings 05-10 Years
Office Equipment 03-10 Years
Computer Equipment 02-05 Years
Motor Vehicles 04-05 Years
Plant and Machinery/Project Equipment 04-33 Years
Civil Construction 57-60 Years
Medical Equipments 05 Years
Electrical Equipment 05 Years

Depreciation methods, useful lives and residual values are reviewed at each Reporting date.

3.30.4 Revaluation

Revaluation is performed on freehold land and buildings by professionally qualified valuers using the open market value. Land and buildings are revalued in every three years.

The revaluation surplus is recognised on the net carrying value of the asset. Any revaluation gain or loss attributable to policyholders is recognised in the Life Insurance Fund, whereas any revaluation gain or loss attributable to shareholders is recognised in revaluation reserve. During the year, Company valued its lands and buildings and the outcome of the valuation is shown under the Note 8.

3.30.5 Derecognition

An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is recognised in Income Statement in the year the asset is derecognised. When a previously revalued asset is derecognised, the revaluation reserve pertaining to such asset is transferred to retained earnings.

3.31 Intangible Assets

Intangible assets acquired separately are measured at cost on initial recognition. The cost of intangible assets acquired in a business combination is their fair value as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and any accumulated impairment losses.

Intangible assets with finite lives are amortised over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method for an intangible asset with a finite useful life are reviewed at least at each financial year end. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are accounted for by changing the amortisation period or method, as appropriate, and are treated as changes in accounting estimates. The amortisation expense on intangible assets with finite lives is recognised in the Income Statement in the expense category consistent with the function of the intangible asset. The estimated useful lives for intangible asset is as follows:

Item Useful Life
Computer Software 3-5 Years

3.32 Investment Properties

Investment properties are measured initially at cost, including transaction costs. The carrying amount includes the cost of replacing part of an existing investment property at the time that cost is incurred if the recognition criteria are met; and excludes the costs of day-to-day servicing of an investment property. Subsequent to initial recognition, investment properties are stated at fair value, which reflects market conditions at the Reporting date. Gains or losses arising from changes in the fair values of investment properties are included in the Income Statement in the year in which they arise.

Fair values are evaluated annually by an accredited external, independent valuer, applying a valuation model, when there are indications of fair value changes in investment property.

Investment properties are derecognised either when they have been disposed of, or when the investment property is permanently withdrawn from use and no future economic benefit is expected from its disposal. Any gains or losses on the retirement or disposal of an investment property are recognised in the Income Statement in the year of retirement or disposal.

Transfers are made to or from investment property only when there is a change in use evidenced by the end of owner-occupation, commencement of an operating lease to another party or completion of construction or development. For a transfer from investment property to owner occupied property, the deemed cost for subsequent accounting is the fair value at the date of change in use. If owner-occupied property becomes investment property, the Company and the Group account for such property in accordance with the policy stated under property, plant and equipment up to the date of the change in use.

3.33 Leasing

3.33.1 Group as a Lessee

Finance leases that transfer to the Group substantially all the risks and benefits incidental to ownership of the leased item, are capitalised at the commencement of the lease at the fair value of the leased property or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are recognised in finance cost in the Income Statement.

Leased assets are depreciated over the useful life of the asset. However, if there is no reasonable certainty that the Group will obtain ownership by the end of the lease term, the asset is depreciated over the shorter of the estimated useful life of the asset and the lease term.

Leases which do not transfer to the Group substantially all the risks and benefits incidental to ownership of the leased items are operating leases. Operating lease payments are recognised as an expense in the Income Statement on a straight-line basis over the lease term. Contingent rentals are recognised as an expense in the period in which they are incurred.

3.34 Cash Flow Statement

The Statements of Cash Flows has been prepared using the ‘Direct Method’. Interest paid is classified as an operating cash flow. Dividend and interest income are classified as operating cash flows. Dividends paid are classified as financing cash flows. For cash flow purposes, cash and cash equivalents are presented net of bank overdrafts.

4. Use of Judgments, Estimates and Assumptions

The preparation of Financial Statements in conformity with Sri Lanka Accounting Standards (SLFRS and LKAS) 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 for 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 under uncertainty and critical judgments in applying accounting policies that have the most significant effect on the amounts recognised in the Financial Statements is included in the following Notes:

Critical Accounting Judgments, Estimates and Assumptions Disclosure Reference
Note Page
Insurance Provision – Life 22 246
Valuation of Investment Property 9. (c) 223
Deferred Tax – Utilisation of Tax Losses 34. (c) 255
Measurement of Defined Benefit Obligation 13-14 235-241

4.1. Going Concern

The Directors have made an assessment of the Group’s ability to continue as a going concern and is satisfied that it has the resources to continue in business for the foreseeable future. Furthermore, management is not aware of any material uncertainties that may cast significant doubt upon the Group’s ability to continue as a going concern. Therefore, the Financial Statements continue to be prepared on the going concern basis.

4.2 Taxation

Uncertainties exist with respect to the interpretation of complex tax regulation, changes in tax laws and the amount and timing of future taxable income. Given the long term nature and the complexity of existing contractual agreements, differences arising between the actual results and the assumptions made, or future changes to such assumptions, could necessitate future adjustments to tax income and expense already recorded. The Group establish provisions, based on reasonable estimates, for possible consequences of audits by the tax authorities of the respective countries in which it operates. The amount of such provisions is based on various factors, such as experience of previous tax audits and differing interpretations of tax regulations by the taxable entity and the responsible tax authority. Such differences of interpretation may arise on a wide variety of issues depending on the conditions prevailing in the respective domicile of the Group companies.

Deferred tax assets are recognised for unused tax losses to the extent that it is probable that taxable profit will be available against which the losses can be utilised. Significant management judgment is required to determine the amount of deferred tax assets that can be recognised, based on upon the likely timing and the level of future taxable profits together as with future tax planning strategies.

4.3 Measurement of the Defined Benefit Obligations

The present value of the defined benefit obligations depends on a number of factors that are determined on an actuarial basis using a number of assumptions. Key assumptions used in determining the defined retirement benefit obligations are given in Note 13 and 14 to the Financial Statements. Any changes in these assumptions will impact the carrying amount of defined benefit obligations

4.4 Impairment of Property, Plant and Equipment and Intangible Assets other than Goodwill

The impairment analysis is principally based upon discounted estimated cash flows from the use and eventual disposal of the assets. Factors like lower than anticipated sales and resulting decreases of net cash flows and changes in the discount rates could lead to impairment.

5. STANDARDS ISSUED BUT NOT YET EFFECTIVE

The following Sri Lanka Accounting Standards have been issued by The Institute of Chartered Accountants of Sri Lanka (CA Sri Lanka) which have not been effective and that will be effective from in the future. Further, these standards were not yet applied by the Company in preparation of these Financial Statements.

SLFRS 9 – Financial Instruments

In December 2014, the CA Sri Lanka issued the final version of SLFRS 9 – ‘Financial Instruments: Classification and Measurement’ which reflects all phases of the financial instruments project and replaces the existing guidance in LKAS 39 – ‘Financial Instruments: Recognition and Measurement’. SLFRS 9 includes revised guidance on the classification and measurement of financial instruments, a new expected credit loss model for calculating impairment on financial assets, and new general hedge accounting requirements. It also carries forward the guidance on recognition and derecognition of financial instruments from LKAS 39.

SLFRS 9 is effective for annual Reporting periods beginning on or after 1 January 2018, with early adoption permitted. Retrospective application is required, but comparative information is not compulsory. The adoption of SLFRS 9 will have an effect on the classification and measurement of the Company’s financial assets, but no impact on the classification and measurement of the Company’s financial liabilities.

Applying SLFRS 9 – Financial Instruments with SLFRS 4 –Insurance Contracts — Amendments to SLFRS 4

The amendments change the existing SLFRS 4 Insurance contracts to allow entities issuing insurance contracts within the scope of SLFRS 4 to mitigate certain effects of applying SLFRS 9 Financial Instruments before CA Sri Lanka’s new insurance contracts standard (referred to as SLFRS 17 – ‘Insurance Contracts’) becomes effective. The amendments help to resolve issues arising from the different effective dates for SLFRS 9 (1 January 2018) and SLFRS 17 (still to be decided, but not before 1 January 2020).

Entities issuing insurance contracts will still be able to adopt SLFRS 9 on 1 January 2018 without any further specific changes. In addition, the amendments introduce two alternative options that will allow entities issuing contracts within the scope of SLFRS 4:

  • To apply a temporary exemption from applying SLFRS 9 until the earlier of the effective date of a new insurance contracts standard and annual Reporting periods beginning on or after 1 January 2021. This exemption will only be available to entities whose activities are predominantly connected with insurance (temporary exemption)

    Or
  • Adopt SLFRS 9 but, for designated financial assets, remove from profit or loss the effects of some of the accounting mismatches that may occur before SLFRS 17 is implemented (overlay approach). The amendments make these alternative options part of SLFRS 4, rather than changing SLFRS 9.

The Company is currently assessing the potential impact on its Financial Statements resulting from the application of SLFRS 9.

SLFRS 15 – Revenue from Contracts with Customers

SLFRS 15 establishes a comprehensive framework for determining whether, how much and when revenue is recognised. It replaces existing revenue recognition guidance, including LKAS 18 – ‘Revenue’, LKAS 11 – ‘Construction Contracts’ and IFRIC 13 – ‘Customer Loyalty Programmes’.

SLFRS 15 is effective for Annual Reporting periods beginning on or after 1 January 2018, with early adoption permitted.

Since SLFRS 4 – ‘Insurance Contracts’ is scope out from this standard. Therefore, we may not have a significant impact to insurance transactions from this standard.

However, there could be an impact to other revenue transaction with the implementation of this standard. The Company is currently assessing the potential impact on its Financial Statements resulting from the application of SLFRS 15.

Amendments to LKAS 7 – ‘Statement of Cash Flows’

The amendments to LKAS 7 – ‘Statement of Cash Flows’ are part of the CA Sri Lanaka’s Disclosure Initiative and require an entity to provide disclosures that enable users of Financial Statements to evaluate changes in liabilities arising from financing activities, including both changes arising from cash flows and non-cash changes. On initial application of the amendment, entities are not required to provide comparative information for preceding periods. These amendments are effective for annual periods beginning on or after 1 January 2017, with early application permitted. Application of amendments will result in additional disclosure provided by the Company.

The Company is currently assessing the potential impact on its Financial Statements resulting from the application of SLFRS 7.

LKAS 12 – Recognition of Deferred Tax Assets for Unrealised Losses – Amendments to LKAS 12

The amendments clarify that an entity needs to consider whether tax law restricts the sources of taxable profits against which it may make deductions on the reversal of that deductible temporary difference. Furthermore, the amendments provide guidance on how an entity should determine future taxable profits and explain the circumstances in which taxable profit may include the recovery of some assets for more than their carrying amount.

Entities are required to apply the amendments retrospectively. However, on initial application of the amendments, the change in the opening equity of the earliest comparative period may be recognised in opening retained earnings (or in another component of equity, as appropriate), without allocating the change between opening retained earnings and other components of equity. Entities applying this relief must disclose that fact.

These amendments are effective for annual periods beginning on or after 1 January 2017 with early application permitted. If an entity applies the amendments for an earlier period, it must disclose that fact. These amendments are not expected to have any impact on the Company.

6. Segment Reporting

A segment is a distinguishable component of the Group that is engaged either in providing related products or services (business segment), or in providing products or services within a particular economic environment (geographical segment), which is subject to risks and returns that are different from those of other segments. The Group’s primary format for segment reporting is based on business segments. The business segments are determined based on the Group’s management and internal reporting structure.

Inter-segment pricing is determined on an arm’s length basis.

Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis.

The activities of the Group are located mainly in Sri Lanka. Consequently, the economic environment in which the Group operates is not subject to risks and rewards that are significantly different on a geographical basis. Hence, disclosure by geographical region is not provided.

For management purposes, the Group is organised into business units based on their products and services and has following reportable operating segments as follows:

  • The Company offers a wide range of whole life, endowment, anticipated endowment, term insurance, mortgage protection, retirement and group insurance products.
  • Healthcare segment includes Healthcare Centre for Cancer Screening, Radiation Treatment Unit and Diabetes Centre.
  • Other segment includes investment management services.

Transaction between operating segments are set on an arm’s length basis in a manner similar to transactions with third parties. Segment income, expenses and results will include those transfers between business segments which will then be eliminated on consolidation.

6. (a) Segment Income Statement for the Year Ended 31 December 2016

Company Ceylinco
Healthcare
Services Limited
Other
Operations
Adjustments and
Eliminations
Total
Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000
Gross Premiums 15,027,600 (130) 15,027,470
Premiums Ceded to Reinsurers (373,829) (373,829)
Net Premiums 14,653,771 (130) 14,653,641
Income from Subsidiaries 338,904 8,324 (23,317) 323,911
Fees and Commission Income 120,399 120,399
Investment Income 8,180,786 12,873 4,408 (2,069) 8,195,998
Realised Gains (5,283) 3,600 854 (829)
Fair value Gains and Losses 470,023 (182,380) 287,643
Other Operating Revenue 14,763 921 141 15,825
Other Revenue 8,780,688 356,298 12,873 (206,912) 8,942,947
Segment Revenue 23,434,459 356,298 12,873 (207,042) 23,596,588
Gross Benefits and Claims Paid (6,800,076) (6,800,076)
Claims Ceded to Reinsurers 148,394 148,394
Gross Change in Contract Liabilities (8,397,889) (8,397,889)
Cost of Sales of Subsidiaries (142,333) (142,333)
Net Benefits and Claims (15,049,571) (142,333) (15,191,904)
Acquisition Cost (1,693,985) 7,127 (1,686,858)
Other Operating and Administrative Expenses (2,937,262) (130,206) (5,235) 9,213 (3,063,490)
Finance Costs (9,915) (19) (9,934)
Other Expenses (4,641,162) (130,206) (5,254) 16,340 (4,760,282)
Segment Benefits, Claims and Other Expenses (19,690,733) (272,539) (5,254) 16,340 (19,952,186)
Share of Profit of Associates 319,658 319,658
Segment Results 3,743,726 83,759 7,619 128,956 3,964,060

6. (b) Segment Income Statement for the Year Ended 31 December 2015

Company Ceylinco
Healthcare
Services Ltd.
Other
Operations
Adjustments and
Eliminations
Total
Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000
Gross Premiums 8,291,277 8,291,277
Premiums Ceded to Reinsurers (183,464) (183,464)
Net Premiums 8,107,813 8,107,813
Income from Subsidiaries 310,693 7,023 317,716
Fees and Commission Income 50,662 50,662
Investment Income 3,896,071 772 3,896,843
Realised Gains 4,369 4,369
Fair Value Gains and Losses 65,389 65,389
Other Operating Revenue 4,758 4,758
Other Revenue 4,021,249 310,693 7,795 4,339,737
Segment Revenue 12,129,062 310,693 7,795 12,447,550
Gross Benefits and Claims Paid (3,805,625) (3,805,625)
Claims Ceded to Reinsurers 115,746 115,746
Gross Change in Contract Liabilities (3,675,856) (3,675,856)
Net Benefits and Claims (7,365,735) (7,365,735)
Direct Cost of Subsidiaries (127,727) (127,727)
Acquisition Cost (977,782) (977,782)
Other Operating and Administrative Expenses (1,761,496) (124,780) (7,055) (1,893,331)
Finance Costs (6,001) (3,708) (17) (9,726)
Other Expenses (2,745,279) (256,215) (7,072) (3,008,566)
Segment Benefits, Claims and Other Expenses (10,111,014) (256,215) (7,072) (10,374,301)
Share of Profit of Associates 200,666 200,666
Segment Results 2,018,048 54,478 723 200,666 2,273,915

6. (c) Segment Statement of Financial Position as at 31 December 2016

Company Healthcare Other
Operations
Adjustments and
Eliminations
Total
Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000
Intangible Assets 2,759 491 3,250
Property, Plant and Equipment 7,068,634 478,272 2,879 764,000 8,313,785
Investment Property 1,796,000 (764,000) 1,032,000
Investment in Associates 437,994 1,307,152 1,745,146
Investments in Subsidiaries 1,021,000 (1,021,000)
Financial Instruments 77,496,111 413,291 248,504 78,157,905
Reinsurance Assets 41,298 41,298
Loans to Policyholders 1,378,954 1,378,954
Premium Receivables 214,604 214,604
Other Assets 7,000,735 29,605 20,619 7,050,959
Total Assets 96,458,089 921,658 272,002 286,152 97,937,903
Insurance Contract Liabilities 78,258,243 2,380 78,260,623
Other Liabilities 6,288,017 82,278 3,257 5,088 6,378,640
Total Liabilities 84,546,260 82,278 3,257 7,468 84,639,263

6. (d) Segment Statement of Financial Position as at 31 December 2015

Company Healthcare Other
Operations
Adjustments and
Eliminations
Total
Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000
Intangible Assets 645 594 1,239
Property, Plant and Equipment 5,343,752 538,348 5,882,100
Investment Property 1,399,171 1,399,171
Investment in Associates 365,553 955,797 1,321,350
Investments in Subsidiaries 521,000 (521,000)
Financial Instruments 64,853,851 9500 12,485 64,875,836
Reinsurance Assets 46,007 46,007
Loans to Policyholders 1,335,634 1,335,634
Premium Receivables 192,401 192,401
Other Assets 6,177,151 16,615 2,579 6,196,345
Total Assets 80,235,165 565,057 15,064 434,797 81,250,083
Insurance Contract Liabilities 68,279,597 68,279,597
Other Liabilities 2,509,199 47,713 2,456 2,353 2,561,721
Total Liabilities 70,788,796 47,713 2,456 2,353 70,841,318

6. (e) Summarised Financial of Information Subsidiaries of with NCI

Summarised Income Statement

Ceylinco Healthcare Services Limited
2016
Rs. ’000
2015
Rs. ’000
Revenue 338,904 310,693
Cost of Sales (142,333) (127,727)
Other Income 4,521
Administrative Expenses (129,062) (121,606)
Selling and Distribution Expenses (1,143) (3,174)
Net Finance Income/(Cost) 12,873 (3,708)
Profit Before Tax 83,759 54,477

Summarised Statement of Financial Position

Ceylinco Healthcare Services Limited
2016
Rs. ’000
2015
Rs. ’000
Current Assets 442,896 26,116
Non-Current Assets 478,763 538,942
Current Liability ( 36,413) (15,799)
Non-Current Liability (45,865) (30,182)
Total Equity 839,381 519,077

Summarised Statement of Cash Flows

Ceylinco Healthcare Services Limited
2016
Rs. ’000
2015
Rs. ’000
Operating 152,838 122,199
Investing (399,537) (10,756)
Financing 250,000 (89,000)
Net Increase/(Decrease ) in Cash and Cash Equivalents During the Year 3,301 22,443
Cash and Cash Equivalents at the Beginning of the Year (5,715) (28,157)
Cash and Cash Equivalents at the End of the Year (2,413) (5,715)

7. Intangible Assets

Group Company
Note Computer
Software
and License
Total Computer
Software
and License
Total
  Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000
Cost
As at 1 January 2015 10,841 10,841
Addition During the Year 1,026 1,026 406 406
Transferred from Ceylinco Insurance PLC 279,487 279,487 279,487 279,487
As at 1 January 2016 291,354 291,354 279,893 279,893
Addition During the Year 3,103 3,103 3,103 3,103
As at 31 December 2016 294,458 294,458 282,996 282,996
Accumulated Amortisation and Impairment
As at 1 January 2015 10,841 10,841
Amortisation for the Year 1,257 1,257 1,232 1,232
Transferred from Ceylinco Insurance PLC 278,016 278,016 278,016 278,016
As at 1 January 2016 290,114 290,114 279,248 279,248
Amortisation for the Year 32 1,093 1,093 989 989
As at 31 December 2016 291,207 291,207 280,237 280,237
Carrying Amount
As at 1 January 2016 1,240 1,240 645 645
As at 31 December 2016 3,251 3,251 2,759 2,759

7. (a) Acquisition of Intangible Assets During the Year

During the year, the Group/Company acquired intangible assets to the aggregate value of Rs. 3,103,218/- and cash payments amounting to Rs. 3,103,218/- were made during the year of purchase for intangible assets.

Intangible assets are amortised during the period of five years

7. (b) Fully Amortised Intangible Assets in Use

Intangible Assets includes fully amortised Computer software which are in the use of normal business activities having a gross

carrying amounts of Rs. 277 Mn (2015 – Rs. 271 Mn).

7. (c) Title Restriction on Intangible Assets

There were no restrictions that existed on the title of the Intangible Assets of the Company/Group as at the Reporting date.

7. (d) Assessment of Impairment of Intangible Assets

The Board of Directors has assessed potential impairment indicators of intangible assets as at 31 December 2016. Based on the assessment, no impairment indicators were identified.

7. (e) Capitalisation of Borrowing Costs

There were no capitalised borrowing costs related to the acquisition of Intangible Assets during the year. (2015 – Nil)

7. (f) The useful lives of the intangible assets are discussed in Note No. 3.31 of the Financial Statements.

8. Property, Plant and Equipment

Group Note Freehold
Land
Building Plant and
Machinery
Motor
Vehicles
Office
Equipment
Computer
Equipment
Furniture
and Fittings
Capital
WIP
Total
    Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000
Cost/Valuation
As at 1 January 2015 861,080 4,850 13,138 11,094 74,670 964,832
Additions During the Year 189,973 333 7,636 28,891 83,058 13,692 95,058 418,641
Transfers 9 385,000 306,620 (169,648) 521,972
Disposals (3,788) (1,829) (12,786) (2,840) (21,243)
Transferred from Ceylinco Insurance PLC 2,568,726 1,710,515 470,045 443,394 486,578 279,643 76,543 6,035,443
As at 1 January 2016 2,953,726 2,207,108 861,413 478,743 483,594 567,944 365,165 1,953 7,919,645
Additions During the Year 94,836 102,711 19,953 40,404 20,525 11,102 87,900 377,429
Transfers (63,915) (63,915)
Revaluation 1,602,438 171,681 1,774,119
Disposals (30,000) (28,296) (1,884) (130,493) (1,189) (191,862)
As at 31 December 2016 4,621,000 2,481,500 861,413 470,399 522,114 457,975 375,077 25,938 9,815,416
Accumulated Depreciation
As at 1 January 2015 287,767 3,395 10,021 11,003 47,858 360,044
Depreciation for the Year 20,900 61,729 38,127 23,128 28,389 17,846 190,119
Disposals (2,645) (1,170) (12,646) (2,595) (19,056)
Transferred from Ceylinco Insurance PLC 44,152 151,503 221,772 363,608 143,782 924,817
As at 1 January 2016 65,052 349,496 190,380 253,751 390,354 206,891 1,455,924
Depreciation for the Year 32 39,414 60,133 55,960 41,780 44,123 28,538 269,947
Revaluation (104,466) (104,466)
Disposals (17,020) (1,218) (100,482) (1,054) (119,744)
As at 31 December 2016 (0) 409,629 229,320 294,313 333,995 234,375 1,501,631
Carrying Amount
As at 1 January 2016 2,678,726 1,835,436 511,917 288,363 229,843 177,590 158,274 1,953 5,882,101
As at 31 December 2016 4,621,000 2,481,500 451,784 241,080 227,800 123,980 140,703 25,938 8,313,785
Company Note Freehold
Land
Building Plant and
Machinery
Motor
Vehicles
Office
Equipment
Computer
Equipment
Furniture
and Fittings
Capital
WIP
Total
    Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000
Cost/Valuation
As at 1 January 2015
Additions During the Year 189,973 7,636 28,621 83,011 13,648 95,058 417,947
Transfers 9 110,000 (169,648) (59,648)
Disposals (3,788) (1,829) (12,786) (2,840) (21,243)
Transferred from Ceylinco Insurance PLC 2,568,726 1,710,515 470,045 443,394 486,578 279,643 76,543 6,035,443
As at 1 January 2016 2,678,726 1,900,488 473,893 470,186 556,803 290,451 1,953 6,372,499
Additions During the Year 94,836 102,711 12,478 40,255 20,018 11,030 85,021 366,349
Transfers (63,915) (63,915)
Disposals (30,000) (23,446) (1,884) (130,493) (1,189) (187,012)
Revaluation 1,449,438 142,301 1,591,739
As at 31 December 2016 4,193,000 2,145,500 462,924 508,557 446,328 300,291 23,059 8,079,659
Accumulated Depreciation
As at 1 January 2015
Depreciation for the Year 20,900 37,157 23,038 28,368 13,523 122,986
Disposals (2,645) (1,170) (12,646) (2,595) (19,056)
Transferred from Ceylinco Insurance PLC 44,152 151,503 221,772 363,608 143,782 924,817
As at 1 January 2016 65,052 186,015 243,640 379,330 154,710 1,028,747
Depreciation for the Year 32 39,414 54,602 41,067 43,984 22,602 201,669
Disposals (12,170) (1,218) (100,482) (1,054) (114,924)
Revaluation (104,466) (104,466)
As at 31 December 2016 228,447 283,489 322,832 176,258 1,011,026
Carrying Amount
As at 1 January 2016 2,678,726 1,835,436 287,878 226,546 177,473 135,741 1,953 5,343,752
As at 31 December 2016 4,193,000 2,145,500 234,477 225,068 123,496 124,034 23,059 7,068,634

8. (a) As at 31 December 2016, the fair values of the freehold land and building are based on valuations performed by an accredited independent valuer, Mr Chandrasena Weerasinghe.

Valuation models used for valuation include Cost Basis Method, Investment Method and Comparison Method which are in compliance with the SLFRS/LKAS and also in accordance with the 8th Edition of International Valuation Standards recommended by the International Valuation Standards Committee.

There were no transfers between Levels 1 and 2 or to Level 3 during the year.

8. (b) Acquisition of Property, Plant and Equipment During the Year

Group

During the financial year the Group acquired property, plant and equipment to the aggregate value of Rs. 289 Mn (2015 – Rs. 323 Mn). Cash payments amounting to Rs. 289 Mn were made for the purchase of property, plant and equipment.

Company

During the financial year, the Company acquired property, plant and equipment to the aggregate value of Rs. 281 Mn (2015 – Rs. 323 Mn). Cash payments amounting to Rs. 281 Mn were made during the year for purchase of property, plant and equipment.

8. (c) Capital Commitments

The Company has committed to pay an amount of Rs. 209,651,784/- as at the Reporting date under contract entered into on Capital expenditure projects.

8. (d) Title Restriction on Property, Plant and Equipment

There are no restrictions that existed on the title of the property, plant and equipment of the Group and Company as at the Reporting date.

8. (e) Temporarily Idle Property, Plant and Equipment

There were no temporarily idle properties as at year ended 31 December 2016.

8. (f) Assessment of Impairment

The Board of Directors has assessed the potential impairment indicators of property, plant and equipment as at 31 December 2016.Based on the assessment, no impairment indicators were identified.

8. (g) Capitalisation of Borrowing Cost

There were no capitalised borrowing costs relating to the acquisition construction or production of property, plant and equipment during the year (2015 – Nil).

8. (h) The useful lives of the property, plant and equipment are disclosed in Note 3.30.3 of these Financial Statements.

8. (i) Fully-Depreciated Property, Plant and Equipment

The initial cost of fully-depreciated property, plant and equipment still in use as at the Reporting date is as follows:

Group Company
As at 31 December 2016
Rs. ’000
2015
Rs. ’000
2016
Rs. ’000
2015
Rs. ’000
Plant and Machinery 14,336
Computer Equipment 186,759 146,727 181,935 146,727
Office Equipment 88,948 37,581 87,634 37,581
Furniture and Fittings 62,267 31,109 44,950 31,109
Motor Vehicles 77,022 54,836 77,022 54,836
Total 429,332 270,253 391,541 270,253

8. (j) Details of Freehold Land and Buildings of Company

Address Building
Sq. Ft.
Land Extent Method of
Valuation
Significant Unobservable Inputs Estimation for Unobservable Inputs Value of Land
Rs. ’000
Value of Buildings
Rs. ’000
Cost/Revaluation
Rs. ’000
Date of the
Valuation
Company
No. 115, Greens Road, Negombo 13,169 A-0-R-0-P-15.00 Investment Method Rent per Sq.ft. per month Rs. 15 – Rs. 70 30,000 46,000 76,000 25/12/2016
No. 63, Janadhipathi Mawatha, Colombo 01 A-0-R-0-P-13.84 Residual Method Price per perch Rs. 10,000,000 138,500 138,500 15/12/2016
Rent per Sq.ft. per month Rs. 230
No. 60, Colombo Road, Kaluwella, Galle 11,385 A-0-R-0-P-15.00 Investment Method Rent per Sq.ft. per month Rs. 30 – Rs. 110 37,000 59,000 96,000 02/12/2016
No. 54, Harichchandra Mawatha, Anuradhapura 23,100 A-0-R-1-P-10.68 Investment Method Rent per Sq.ft. per month Rs. 12 – Rs. 60 61,000 114,000 175,000 04/12/2016
Serene Resorts, Bopitiya Road, Uswetakeiyawa 37,184 A-02-R-03-P-30 Market Comparable Method Price per perch Rs. 3,000,000 141,000 146,000 287,000 25/12/2016
Price per Sq.ft. Rs. 3,000 – Rs. 5,500
No. 144, Hambantota Road, Kachcheriyagama, Tissamaharama 8,130 A-0-R-1-P- 00.00 Replacement Cost Method Price per perch Rs. 1,000,000 30,000 41,000 71,000 04/12/2016
Price per Sq.ft. Rs. 6,000
No. 45, Dharmapala Mawatha, Ratnapura 3,022 A-0-R-0-P-35.50 Investment Method Rent per Sq.ft. per month Rs. 30 – Rs. 100 71,000 9,200 80,200 02/12/2016
No. 45, Dharmapala Mawatha, Ratnapura (New Building) 8,102 Investment Method Rent per Sq.ft. per month Rs. 30 – Rs. 100 68,800 68,800 02/12/2016
No. 264, Galle Road, Panadura 7,116 A-0-R-1-P-4.12 Investment Method Rent per Sq.ft. per month Rs. 55 – Rs. 100 154,000 49,000 203,000 02/12/2016
No. 423, Main Street, Kalutara 12,000 A-0-R-0-P-32.75 Investment Method Rent per Sq.ft. per month Rs. 35 – Rs. 60 49,000 79,000 128,000 02/12/2016
No. 327, Badulla Road, Bandarawela 8,970 A-0-R-0-P-17.01 Market Comparable Method Price per perch Rs. 9,000,000 15,000 88,000 103,000 20/12/2016
Price per Sq.ft. Rs. 9,800
No. 106, Havelock Road, Colombo 05 61,630 A-0-R-0-P-35.27 Investment Method Rent per Sq.ft. per month Rs. 190 – Rs. 200 353,000 673,000 1,026,000 01/12/2016
No. 32, Mistry Hills, Nuwara Eliya 4,727 A-0-R-0-P-26.9 Direct Comparison Method Price per perch Rs. 450,000 12,000 22,000 34,000 17/12/2016
Price per Sq.ft. Rs. 5,000
No. 15, Rexdias Mawatha, Wennappuwa 8,663 A-0-R-0-P-37.40 Investment Method Rent per Sq.ft. per month Rs. 20 – Rs. 70 28,000 59,000 87,000 26/12/2016
No. 91, Bauddhaloka Mawatha, Gampaha 9,458 A-0-R-0-P-32.5 Investment Method Rent per Sq.ft. per month Rs. 65 – Rs. 100 89,000 68,000 157,000 20/11/2016
No. 40, Rajapihilla Road, Kurunegala 10,485 A-0-R-0-P-15.5 Investment Method Rent per Sq.ft. per month Rs. 50 – Rs. 80 31,000 89,000 120,000 20/12/2016
No. 90/4, Kurunegala Road, Chilaw A-0-R-0-P-30.0 Direct Comparison Method Price per perch Rs. 600,000 18,000 18,000 26/12/2016
No. 38, Abdul Gafoor Mawatha, Colombo 03 A-0-R-1-P-4.5 Income Capitalisation Method Price per perch Rs. 10,000,000 445,000 445,000 02/12/2016
No. 406, Galle Road, Rawatawatta, Moratuwa 6,874 A-0-R-0-P.39.73 Investment Method Rent per Sq.ft. per month Rs. 30 – Rs. 70 99,000 16,000 115,000 05/12/2016
No. 37, 39 & 41, Kannarthiddy Road, Jaffna 4,144 A-0-R-1-P-7.9 Investment Method Rent per Sq.ft. per month Rs. 100 – Rs. 180 86,000 12,000 98,000 29/12/2016
No. 22 (New 32), Lloyd's Avenue, Batticaloa 12,317 A-0-R-0-P-23.83 Investment Method Rent per Sq.ft. per month Rs. 20 – Rs. 70 35,000 82,000 117,000 05/12/2016
No. 2, Gower Street, Colombo 05 5,210 A-0-R-1-P-27.25 Market Comparable Method Price per perch Rs. 10,000,000 672,500 14,500 687,000 18/12/2016
Price per Sq.ft. Rs. 5,000
No. 20 & 22/3, Kandy Road, Trincomalee 10,910 A-0-R-1-P-20 Contractor's Test Method Price per perch Rs. 750,000 40,000 90,000 130,000 15/12/2016
Price per Sq.ft. Rs. 8,000
No. 38, 38/B, Rajapihilla Road, Kurunegala A-0-R-0-P-23.93 Market Comparable Method Price per perch Rs. 2,000,000 48,000 48,000 20/12/2016
No. 92 & 98, Jampettah Street, Colombo 13 17,000 A-0-R-1-P-11.22 Market Comparable Method Price per perch Rs. 3,000,000 146,000 71,000 217,000 06/12/2016
Price per Sq.ft. Rs. 5,000 – Rs. 6,000
No. 70, Park Street, Colombo 02 4,510 A-0-R-1-P-32.4 Investment Method Rent per Sq.ft. per month Rs. 125 – Rs. 160 724,000 122,000 846,000 22/12/2016
No. 615, Galle Road, Mount Lavinia 4,315 A-0-R-1-P-12.5 Market Comparable Method Price per perch Rs. 3,000,000 157,500 19,500 177,000 18/12/2016
Price per Sq.ft. Rs. 5,000
No. 274, Panadura Road, Horana 5,859 A-0-R-0-P-25.5 Investment Method Rent per Sq.ft. per month Rs. 60 – Rs. 100 46,000 39,000 85,000 28/12/2016
No. 65, King Street, Kandy 14650 A-0-R-1-P-1.25 Investment Method Rent per Sq.ft. per month Rs. 80 – Rs. 160 227,000 49,000 276,000 05/12/2016
No. 45, Anagarika Dharmapala Mawatha, Matara 7232 A-0-R-0-P-26.44 Replacement Cost Method Price per perch Rs. 4,250,000 112,500 19,500 132,000 02/12/2016
Price per Sq.ft. Rs. 4,500
No. 213, High Level Road, Nugegoda A-0-R-0-P-23.75 Market Comparable Method Price per perch Rs. 3,350,000 80,000 80,000 15/12/2016
No. 15A, Jaya Mawatha, Kadawatha A-0-R-0-P-19.5 Market Comparable Method Price per perch Rs. 870,000 17,000 17,000 24/12/2016
Total 4,193,000 2,145,500 6,338,500

The effective date of valuation of the property, plant and equipment is 31 December 2016.

Description of the above valuation techniques together with narrative descriptions on sensitivity of the fair value measurement to changes in significant unobservable inputs are tabulated below:

The fair value measurement for all Freehold Land and Building has been categorised as Level 3, based on the inputs to the valuation techniques used.

Valuation Technique Significant Unobservable Valuation Inputs Sensitivity of the Fair Value Measurement to Inputs
Market Comparable Method
This method considers the selling price of a similar property within a reasonably recent period of time in determining the fair value of the property being revalued. This involves evaluation of recent active market prices of similar assets, making appropriate adjustments for differences in size, nature, location and condition of specific property. In this process, outlier transactions, indicative of particularly motivated buyers or sellers are too compensated for since the price may not adequately reflect the fair market value.
Price per perch for Land/Price per square foot Estimated fair value would increase (decrease) if; Price per perch increases (decreases), Price per square foot increases (decreases), Depreciation rate for building (decreases)/increases
Investment Method
This method involves capitalisation of the expected rental income at an appropriate rate of years purchase currently characterised by the real estate market.
Gross Monthly Rental Years Estimated fair value would increase (decrease) if; Gross Annual Rental increases (decreases), Years Purchase increases (decreases), Void Period (decrease)/increases

9. Investment Properties

Group Company
As at 31 December Note 2016
Rs. ’000
2015
Rs. ’000
2016
Rs. ’000
2015
Rs. ’000
As at 1 January 1,399,171 1,399,171
Transferred from Ceylinco Insurance PLC 1,513,171 1,513,171
Transfers (691,620) (110,000)
Disposals during the Year (4,000) (4,000)
Fair Value Gains 29 214,449 396,829
As at 31 December 1,032,000 817,551 1,796,000 1,399,171

As at 31 December 2016 the fair values of the investment properties are based on valuations performed by an accredited independent valuer, Mr Chandrasena Weerasinghe.

Valuation models used for valuation include Cost Basis method, Investment Method and Comparison Method which are in compliance with the SLFRS/LKAS and also in accordance with the 8th Edition of International Valuation Standards recommended by the International Valuation Standards Committee.

* For better presentation of the Financial Statements, investment properties relating to the Group in 2015 have been reclassified to property, plant and equipment during 2016. Depreciation relating to these reclassified investment properties for 2015 has been recognised in the current year Statement of Comprehensive Income.

9. (a) Temporarily Idle Investment Properties

There were no temporarily idle investment properties as at year ended 31 December 2016.

9. (b) Assessment of Impairment

The Board of Directors has assessed the potential impairment indicators of investment properties as at 31 December 2016. Based on the assessment, no impairment indicators were identified.

There were no transfers between Levels 1 and 2 or to Level 3 during the year.

9. (c) Details of Investment Property of Company

Addresses Building Sq. Ft. Land Extent Method of Valuation Significant Unobservable Inputs Estimation for Unobservable Inputs Value of Land
Rs. ’000
Total Value
Rs. ’000
Date of the Valuation
No. 07, Mistry Hills, Nuwara Eliya A-0-R-0-P-13.5 Market Comparable Method Price per perch Rs.460,000 6,000 6,000 17/12/2016
No. 36, Talbot Town, Galle 6,668 A-0-R-0-P-20 Investment Method Rent per Sq.ft. per month Rs. 85 – Rs. 130 90,000 106,000 02/12/2016
No. 24 A, New Galle Road, Nambimulla, Ambalangoda 4,614 A-0-R-0-P-20 Investment Method Rent per Sq.ft. per month Rs. 75 – Rs. 100 55,000 72,000 02/12/2016
No. 115, Green Road, Negombo A-0-R-0-P-37.5 Market Comparable Method Price per perch Rs. 2,500,000 94,000 94,000 25/12/2016
No. 428, 428/2/1, R. A. De Mel Mawatha, Colombo 03 8,249 Condominium Investment Method Rent per Sq.ft. per month Rs. 140 – Rs. 160 125,000 28/12/2016
No. 60, Park Street, Colombo 02 34,854 A-0-R-1-P-2.82 Investment Method Rent per Sq.ft. per month Rs. 125 – Rs. 160 428,000 638,000 22/12/2016
No. 70, Park Street, Colombo 02 4,510 Market Comparable Method Price per perch Rs. 126,000,000 126,000 18/12/2016
No. 06, Railway Station Road, Matara 2,982 A-0-R-0-P-25.88 Investment Method Rent per Sq.ft. per month Rs. 40 – Rs. 60 52,000 57,000 03/12/2016
Ceylinco House, No. 69, Janadhipathi Mawatha, Colombo 01 (5th Floor) 11,323 Investment Method Rent per Sq.ft. per month Rs. 160 226,000 15/12/2016
Ceylinco House, No. 69, Janadhipathi Mawatha, Colombo 01 (6th Floor) 11,323 Investment Method Rent per Sq.ft. per month Rs. 165 233,000 15/12/2016
Ceylinco House, No. 69, Janadhipathi Mawatha, Colombo 01 (7th Floor) 5,318 Investment Method Rent per Sq.ft. per month Rs. 170 113,000 15/12/2016
Total 725,000 1,796,000

The fair value of investment properties reflects the actual market value as at the Reporting date.

No depreciation was recognised for the investment properties carried at fair value.

The effective date of valuation of investment properties is 31 December 2016.

Description of the above valuation techniques together with narrative descriptions on sensitivity of the fair value measurement to changes in significant unobservable inputs, are tabulated below:

The fair value measurement for all freehold land and building has been categorised as Level 3, based on the inputs to the valuation techniques used.

Valuation Technique Significant Unobservable Valuation Inputs Sensitivity of the Fair Value Measurement to Inputs
Market Comparable Method
This method considers the selling price of a similar property within a reasonably recent period of time in determining the fair value of the property being revalued. This involves evaluation of recent active market prices of similar assets, making appropriate adjustments for differences in size, nature, location and condition of specific property. In this process, outliers transactions, indicative of particularly motivated buyers or sellers are too compensated for since the price may not adequately reflect the fair market value.
Price per perch for land rent/per square foot for buildings Estimated fair value would increase (decrease) if; Price per perch increases (decreases), Price per square foot increases (decreases), Depreciation rate for building (decreases)/increases
Investment Method
This method involves capitalisation of the expected rental income at an appropriate rate of years purchase currently characterised by the real estate market.
Gross Monthly Rental Years Estimated fair value would increase (decrease) if; Gross Annual Rental increases (decreases), Years Purchase increases (decreases), Void Period (decrease)/increases

9. (d) Rental Income and Operating Expenses Derived from above Investment Properties

Group Company
For the year ended 31 December Note 2016
Rs. ’000
2015
Rs. ’000
2016
Rs. ’000
2015
Rs. ’000
Rental Income Derived from Investment Properties 27 70,032 39,566 72,101 40,585
Direct Operating Expenses Generating Rental Income (1,439) (590) (1,439) (590)
Direct Operating Expenses not Generating Rental Income (4,513) (1,048) (4,513) (1,048)
Net Profit Arising from Investment Properties 64,080 37,928 66,150 38,947

10. Investment in Subsidiaries

Investment in Subsidiaries – (Unquoted)

% of Holding (Direct) Number of Shares Cost
2016
%
2015
%
2016
Rs. ’000
2015 2016
Rs. ’000
2015
Rs. ’000
Company
Serene Resorts Limited 98.15% 75.00% 26,500,000 1,500,000 250,000
Ceylinco Seraka Limited 5.00% 5.00% 5,000 5,000
Ceylinco Healthcare Services Limited 99.45% 99.15% 77,100,000 52,100,000 771,000 521,000
Total 1,021,000 521,000

The Company invested a further Rs. 250 Mn each during the year in Serene Resorts Limited and the Ceylinco Healthcare Services Limited. Accordingly, the percentage of holding of the Company in Serene Resorts Limited and Ceylinco Healthcare Services Limited has increased from 75% to 98.15% and from 99.15% to 99.45% respectively.

The percentage of effective holding of the Company in Ceylinco Seraka Limited is 98.24% as at 31 December 2016 (2015 – 76.25%).

All subsidiary companies are incorporated in Sri Lanka. The details of the subsidiaries are given on page 34.

11. Investment in Associates

Company/Group Investments in Associate

% Holding Number of shares Value
2016 2015 2016 2015 2016
Rs. ’000
2015
Rs. ’000
Quoted Investments
Citizens Development Business Finance PLC 35.48% 33.54% 16,429,116 15,529,116 437,994 365,553
Company/Group Investments in Associate (at Cost) 437,994 365,553
Group
Negative Goodwill on Acquisition Over consideration
Citizens Development Business Finance PLC (132,653) 103,749
Group's Share of Retained Assets of Associates
Citizens Development Business Finance PLC 1,439,805 852,048
Group Investment in Associates (Equity Basis) 1,745,146 1,321,350

11. (a) Summarised Financial Information of the Associate

Group
2016
Rs. ’000
2015
Rs. ’000
Share of Associate’s Statement of Financial Position
Total Assets 17,191,933 13,553,733
Total Liabilities 15,446,787 12,232,383
Net Assets 1,745,146 1,321,350
Share of Associate’s Revenue and Profit
Revenue 2,486,412 1,996,201
Profit Before Tax 389,630 342,716
Profit After Tax 319,658 262,527
Other Comprehensive Income 31,697 9,765

Citizens Development Business Finance PLC (CDB) is a public limited liability Company incorporated in Sri Lanka. CDB is a listed Company on the Colombo Stock Exchange and provides a wide range of financial services including accepting deposits, leasing, hire purchase and loan facilities etc.

2016
Rs. ’000
2015
Rs. ’000
Fair Value of the Investment in the Associate as at 31 December 1,150,038 1,552,912

12. Financial Instruments and Fair Values of Financial Instruments

Financial Assets at Fair Value through Profit or Loss and Available-for-Sale Financial Assets have been valued at fair value. Held-to-Maturity Financial Assets and Loans and Receivable investments have been valued at amortised cost.

Group Company
Note 2016
Rs. ’000
2015
Rs. ’000
2016
Rs. ’000
2015
Rs. ’000
Held-to-Maturity Financial Assets 12. (a) 64,552,885 46,856,945 64,552,885 46,856,945
Loans and Receivables 12. (b) 12,242,455 16,752,882 11,580,660 16,730,897
Available-for-Sale Financial Assets 12. (c) 1,204,176 1,051,072 1,204,176 1,051,072
Financial Assets at Fair Value Through Profit or Loss 12. (d) 158,390 214,936 158,390 214,936
Total Financial Instruments 78,157,906 64,875,835 77,496,111 64,853,850

The following table compares the fair values of the financial instruments to their carrying values:

Group Company
2016 2015 2016 2015
Carrying Value
Rs. ’000
Fair Value
Rs. ’000
Carrying Value
Rs. ’000
Fair Value
Rs. ’000
Carrying Value
Rs. ’000
Fair Value
Rs. ’000
Carrying Value
Rs. ’000
Fair Value
Rs. ’000
Held-to-Maturity Financial Assets 64,552,885 60,997,169 46,856,945 46,721,344 64,552,885 60,997,169 46,856,945 46,721,344
Loans and Receivables 12,242,455 12,242,455 16,752,882 16,752,882 11,580,660 11,580,660 16,730,897 16,730,897
Available-for-Sale Financial Assets 1,204,176 1,204,176 1,051,072 1,051,072 1,204,176 1,204,176 1,051,072 1,051,072
Financial Assets at Fair Value Through Profit or Loss 158,390 158,390 214,936 214,936 158,390 158,390 214,936 214,936
Total Financial Instruments 78,157,906 74,602,190 64,875,835 64,740,234 77,496,111 73,940,395 64,853,851 64,718,250

12. (a) Held-to-Maturity Financial Assets Carried at Amortised Cost

Group Company
Note 2016
Rs. ’000
2015
Rs. ’000
2016
Rs. ’000
2015
Rs. ’000
Fair Value
Treasury Bonds 38,356,770 35,010,675 38,356,770 35,010,675
Debentures – Quoted 22,640,399 11,710,669 22,640,399 11,710,669
Total Held-to-Maturity Financial Assets at Fair Value 60,997,169 46,721,344 60,997,169 46,721,344
Amortised Cost
Treasury Bonds 42,202,822 35,396,292 42,202,822 35,396,292
Debentures – Quoted 12. (i) (1) 22,350,063 11,460,653 22,350,063 11,460,653
Total Held-to-Maturity Financial Assets at Amortised Cost 64,552,885 46,856,945 64,552,885 46,856,945

12. (b) Loans and Receivables Carried at Amortised Cost

Group Company
Note 2016
Rs. ’000
2015
Rs. ’000
2016
Rs. ’000
2015
Rs. ’000
Staff Vehicle Loans 343,503 363,989 369,157 363,989
Staff Loans Other than Vehicle Loans 160,599 154,927 134,945 154,927
Repo Investment 3,034,467 49,811 2,986,263 49,811
Debentures – Unquoted 12. (i) (2) 1,000,000 250,000 1,000,000 250,000
Term Deposits 12. (i) (3) 7,703,886 15,934,155 7,090,295 15,912,170
Total Loans and Receivables at Amortised Cost 12,242,455 16,752,882 11,580,660 16,730,897

The carrying value of the staff vehicle loans and staff loans other than vehicle loans have been computed based on the market interest rates prevailed at the time of granting the loan.

12. (c) Available-for-Sale Financial Assets Carried at Fair Value

Group Company
Note 2016
Rs. ’000
2015
Rs. ’000
2016
Rs. ’000
2015
Rs. ’000
Treasury Bond and Bills 136,949 190,915 136,949 190,915
Unquoted Preference Share Investment 12. (i) (6) 131,886 131,886 131,886 131,886
Quoted Debentures 12. (i) (4) 706,898 512,405 706,898 512,405
Quoted Share Investment 12. (i) (5) 228,443 215,867 228,443 215,867
Total Available-for-Sale Financial Assets at Fair Value 1,204,176 1,051,073 1,204,176 1,051,072

12. (d) Financial Assets at Fair Value Through Profit or Loss Carried at Fair Value

Group Company
Note 2016
Rs. ’000
2015
Rs. ’000
2016
Rs. ’000
2015
Rs. ’000
Fair Value
Treasury Bonds 141,159 194,353 141,159 194,353
Short Term Investment – Quoted 12. (i) (7) 17,231 20,583 17,231 20,583
Total Financial Assets at Fair Value Through Profit or Loss 158,390 214,936 158,390 214,936

12. (e) Carrying Values of Financial Instruments

The movement of carrying value of above financial instruments as of Reporting date is as follows:

Group Held-to-
Maturity

Rs. ’000
Loans and
Receivables

Rs. ’000
Available-
for-Sale

Rs. ’000
Fair Value t
hrough
Profit or Loss
Rs. ’000
Total


Rs. ’000
As at 1 January 2015 100,000 100,000
Transferred from Ceylinco Insurance PLC 33,230,585 17,578,227 3,378,423 1,084,898 55,272,132
Purchases 17,224,493 76,041,176 1,224,709 7,054,965 101,545,343
Maturities (4,905,000) (77,002,610) (81,907,610)
Disposals (3,556,102) (7,990,315) (11,546,418)
Fair Value Gains Recorded in the Income Statement 65,389 65,389
Fair Value Gains Recorded in Other Comprehensive Income 4,043 4,043
Amortisation Adjustment 1,306,868 14,104 1,320,972
As at 1 January 2016 46,856,946 16,730,897 1,051,072 214,936 64,853,852
Purchases 22,959,940 291,371,596 9,222,531 16,800,000 340,354,067
Maturities (4,861,274) (295,845,838) (300,707,112)
Disposals (9,061,761) (16,850,000) (25,911,761)
Fair Value Gains Recorded in the Income Statement 73,194 73,194
Fair Value Gains Recorded in Other Comprehensive Income 27,001 27,001
Amortisation Adjustment (402,727) (14,201) (34,667) (79,741) (531,337)
As at 31 December 2016 64,552,885 12,242,454 1,204,177 158,389 78,157,904
Company Held-to-
Maturity

Rs. ’000
Loans and
Receivables

Rs. ’000
Available-
for-Sale

Rs. ’000
Fair Value
through
Profit or Loss
Rs. ’000
Total


Rs. ’000
As at 1 January 2015 100,000 100,000
Transferred from Ceylinco Insurance PLC 33,230,585 17,578,227 3,378,423 1,084,898 55,272,132
Purchases 17,224,493 76,041,176 1,224,709 7,054,965 101,545,343
Maturities (4,905,000) (77,002,610) (81,907,610)
Disposals (3,556,102) (7,990,315) (11,546,418)
Fair Value Gains Recorded in the Income Statement 65,389 65,389
Fair Value Gains Recorded in Other Comprehensive Income 4,043 4,043
Amortisation Adjustment 1,306,868 14,104 1,320,972
As at 1 January 2016 46,856,946 16,730,897 1,051,073 214,937 64,853,851
Purchases 22,959,940 286,329,518 9,222,531 16,800,000 335,311,989
Maturities (4,861,274) (291,465,554) (296,326,828)
Disposals (9,061,761) (16,850,000) (25,911,761)
Fair Value Gains Recorded in the Income Statement 73,194 73,194
Fair Value Gains Recorded in Other Comprehensive Income 27,001 27,001
Amortisation Adjustment (402,727) (14,201) (34,668) (79,741) (531,337)
As at 31 December 2016 64,552,885 11,580,660 1,204,176 158,390 77,496,109

12. (f) Assets for which Fair Value Approximates Carrying Value

For financial assets and financial liabilities that have a short term maturity (less than three months), it is assumed that the carrying amounts approximate their fair value. This assumption is also applied to demand deposits and savings accounts without a specific maturity.

12. (g) Determination of Fair Value and Fair Values Hierarchy

The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:

Level 1: Quoted (unadjusted) prices in active markets for identical assets or liabilities;

Level 2: Other techniques for which all inputs which have a significant effect on the recorded fair value are observable,

either directly or indirectly; and

Level 3: Techniques using inputs which have a significant effect on the recorded fair value that are not based on observable market data.

Fair Value Basis – Instrument Wise

Instrument Measurement Basis
Government Securities
Treasury Bonds Average of the buy/sell yields included in the weekly economic indicators published daily by the Central Bank of Sri Lanka
Treasury Bills Average of the buy/sell yields included in the weekly economic indicators published daily by the Central Bank of Sri Lanka
Investment in Listed Shares Volume Weighted-Average (VWA) prices
Corporate Debt
Listed Last traded price
Unlisted Fixed Rate Discounted Cash Flow (DCF) Method (Cost plus accrued interest)
Fixed and Term Deposits
Deposit > 1 Year Discounted Cash Flow (DCF) Method (Cost plus accrued interest)

Fixed Rate Financial Instruments

The fair values of fixed rate financial assets and liabilities carried at amortised cost are estimated by comparing market interest rates when they were first recognised with current market rates for similar financial instruments.

For quoted debt instruments the fair values are determined based on quoted market prices.

For unquoted debt instruments, the carrying amounts approximate the fair value of the investments.

The following table shows an analysis of assets recorded at fair value by level of the fair value hierarchy:

2016 2015
Level 1

Rs. ’000
Level 2

Rs. ’000
Level 3

Rs. ’000
Total
Fair Value
Rs. ’000
Level 1

Rs. ’000
Level 2

Rs. ’000
Level 3

Rs. ’000
Total
Fair Value
Rs. ’000
Company
Financial Assets
Financial Assets at Fair Value Through Profit or Loss
Equity Securities 17,231 17,231 20,583 20,583
Debt Securities 141,159 141,159 194,353 194,353
158,390 158,390 214,936 214,936
Available-for-Sale Financial Assets
Equity Securities 228,443 131,886 360,329 215,867 131,886 347,753
Debt Securities 843,847 843,847 703,320 703,320
1,072,290 131,886 1,204,176 919,187 131,886 1,051,073
Held to Maturity Financial Assets 60,997,167 60,997,167 46,721,344 46,721,344
Total Financial Assets 1,230,680 60,997,167 131,886 62,359,733 1,134,123 46,721,344 131,886 47,987,353
Property, Plant & Equipment
Land 4,193,000 4,193,000 2,329,726 2,329,726
Building 2,145,000 2,145,000 1,518,093 1,518,093
6,338,500 6,338,500 3,847,819 3,847,819
Investment Properties 1,796,000 1,796,000 1,399,171 1,399,171
Total Assets 1,230,680 60,997,167 8,266,386 70,494,232 1,134,123 46,721,344 5,378,876 53,234,343

The subsidiaries in the Group does not have assets recorded at fair value by level of fair value hierarchy.

12. (h) Reconciliation of Movements in Level 3 Financial Instruments Measured at Fair Value

The following table shows a reconciliation of the opening and closing recorded amount of Level 3 financial assets which are recorded at fair value:

As at 1 January
2016


Rs. ’000
Total Gains/(Loss)
Recorded in Other
Comprehensive
Income
Rs. ’000
Additions/
Settlements


Rs. ’000
As at
31 December
2016

Rs. ’000
Financial Assets
Available-for-Sale Financial Assets
Debt Securities
Equities 131,886 131,886
Total Level 3 Financial Assets 131,886 131,886

In case of a change in the assumptions having a 10% variation, the effect on Other Comprehensive Income would be as follows:

Carrying
Amount
as at 31
Dec. 2015
Rs. ’000
Effect of
Possible
Alternate
Assumptions
Rs. ’000
Carrying
Amount
as at 31 Dec.
2016
Rs. ’000
Effect of
Possible
Alternate
Assumptions
Rs. ’000
Debt Securities
Equity Securities 131,886 13,189 131,886 13,189
131,886 13,189 131,886 13,189

12. (i) Entity-Wise Details of Financial Instruments

12. (i) (1) Held-to-Maturity Financial Assets – Debentures (Quoted)

s
Group Company
Note 2016
Rs. ’000
2015
Rs. ’000
2016
Rs. ’000
2015
Rs. ’000
Bank of Ceylon 2,788,453 1,689,282 2,788,453 1,689,282
Central Finance PLC 320,401 320,328 320,401 320,328
Citizens Development Business Finance PLC 99,770 99,770 99,770 99,770
Commercial Bank of Ceylon PLC 1,169,774 1,169,774
Commercial Credit & Finance PLC 14,222 14,222 14,222 14,222
DFCC Bank PLC 4,255,669 880,462 4,255,669 880,462
Hatton National Bank PLC 4,891,351 2,179,003 4,891,351 2,179,003
National Development Bank PLC 1,771,038 1,676,740 1,771,038 1,676,740
Nations Trust Bank PLC 483,190 638,234 483,190 638,234
People’s Leasing & Finance PLC 979,234 481,708 979,234 481,708
Sampath Bank PLC 4,080,270 2,975,078 4,080,270 2,975,078
Seylan Bank PLC 1,496,689 494,705 1,496,689 494,705
Siyapatha Finance PLC 1,121 1,121
SMB Leasing Company PLC 10,000 10,000
12. (a) 22,350,063 11,460,653 22,350,063 11,460,653

12. (i) (2) Loans and Receivables – Debentures (Unquoted)

Group Company
Note 2016
Rs. ’000
2015
Rs. ’000
2016
Rs. ’000
2015
Rs. ’000
Central Finance PLC 250,000 250,000
National Savings Bank 1,000,000 1,000,000
12. (b) 1,000,000 250,000 1,000,000 250,000

12. (i) (3) Loans and Receivables – Term Deposits

Group Company
Note 2016
Rs. ’000
2015
Rs. ’000
2016
Rs. ’000
2015
Rs. ’000
Bank of Ceylon 1,000,000 1,000,000 1,000,000 1,000,000
Citizens Development Business Finance PLC 250,000 250,000 250,000 250,000
Commercial Bank of Ceylon PLC 1,600,000 600,000 1,600,000 600,000
DFCC Bank PLC 7,035,000 7,035,000
Hatton National Bank PLC 171,535 2,170,020 127,945 2,170,020
National Development Bank PLC 512,200 2,330,000 12,200 2,330,000
Nations Trust Bank PLC 10,100 100 10,100 100
Pan Asia Bank PLC 25,000 25,000
People’s Bank 27,000 27,000
Regional Development Bank 25,000 25,000
Sampath Bank PLC 3,525,000 1,000,000 3,455,000 1,000,000
Seylan Bank PLC 585,050 1,522,035 585,050 1,500,050
Total 12. (b) 7,703,885 15,934,155 7,090,295 15,912,170

12. (i) (4) Available-for-Sale Financial Assets – Quoted Debentures

Group Company
Note 2016
Rs. ’000
2015
Rs. ’000
2016
Rs. ’000
2015
Rs. ’000
Bank of Ceylon 2,316 2,316 2,316 2,316
Central Finance PLC 25,115 25,000 25,115 25,000
Commercial Bank of Ceylon PLC 50,000 50,000
DFCC Bank PLC 81,388 31,402 81,388 31,402
Hatton National Bank PLC 51,915 51,915
National Development Bank PLC 137,702 135,814 137,702 135,814
Nations Trust Bank PLC 133,820 83,740 133,820 83,740
People’s Leasing & Finance PLC 1,055 1,244 1,055 1,244
Sampath Bank PLC 73,615 82,915 73,615 82,915
Seylan Bank PLC 24,998 25,000 24,998 25,000
Siyapatha Finance PLC 124,975 124,975 124,975 124,975
Total 12. (c) 706,899 512,405 706,899 512,405

12. (i) (5) Available-for-Sale Financial Assets – Quoted Shares

Group Company
Note 2016
Rs. ’000
2015
Rs. ’000
2016
Rs. ’000
2015
Rs. ’000
Quoted Share Investment
Blue Diamonds Jewellery Worldwide Limited 3,601 2,880 3,601 2,880
Commercial Credit and Finance PLC 224,831 212,787 224,831 212,787
Merchant Bank of Sri Lanka 11 200 11 200
Total 12. (c) 228,443 215,867 228,443 215,867

12. (i) (6) Unquoted Preference Share Investments

Group Company
Note 2016
Rs. ’000
2015
Rs. ’000
2016
Rs. ’000
2015
Rs. ’000
Unquoted Preference Share Investment
Castle Realty (Pvt) Limited 12. (c) 131,886 131,886 131,886 131,886

12. (i) (7) Financial Assets at Fair Value Through Profit or Loss – Quoted Shares

Group Company
Note 2016
Rs. ’000
2015
Rs. ’000
2016
Rs. ’000
2015
Rs. ’000
Banking, Finance and Insurance
National Development Bank PLC 16 19 16 19
Commercial Bank of Ceylon PLC 47 45 47 45
DFCC Bank PLC 221 303 221 303
Central Finance PLC 21 25 21 25
Manufacturing, Plantations
Chevron Lubricants Lanka PLC 79 86 79 86
Tokyo Cement Company PLC 58 47 58 47
Dipped Products PLC 30 39 30 39
Chemical Industries Colombo PLC 16,320 19,488 16,320 19,488
Hayleys PLC 28 31 28 31
Kotagala Plantation 1 2 1 2
Kotmale Holdings PLC 6 6
Services
John Keels Holdings PLC 60 65 60 65
Aitken Spence PLC 145 215 145 215
Hemas Holdings PLC 121 114 121 114
Dialog Axiata PLC 37 37 37 37
Royal Palms Beach Hotels PLC 2 3 2 3
Asiri Surgical Hospital Holdings PLC 32 41 32 41
Ceylon Hospitals PLC 14 17 14 17
Total 12. (d) 17,231 20,583 17,231 20,583

13. Gratuity Benefit Liability/(Asset)

The amounts recognised in the Income Statement are as follows:

Group Company
2016
Rs. ’000
2015
Rs. ’000
2016
Rs. ’000
2015
Rs. ’000
Current Service Cost 36,174 18,913 36,174 18,913
Interest Cost on Benefit Obligation 86,847 29,310 86,847 29,310
Expected Return on Plan Assets (159,419) (53,658) (159,419) (53,658)
(36,398) (5,435) (36,398) (5,435)

The amounts recognised in the Statement of Financial Position at the Reporting date are as follows:

Group Company
Note 2016
Rs. ’000
2015
Rs. ’000
2016
Rs. ’000
2015
Rs. ’000
Present Value of the Defined Benefit Obligation 13. (a) (967,216) (868,467) (967,216) (868,467)
Fair Value of Plan Assets 13. (b) 1,664,554 1,594,193 1,664,554 1,594,193
Net Defined Benefit Obligation 697,338 725,726 697,338 725,726
Total Net Defined Benefit Asset 697,338 725,726 697,338 725,726

13. (a) The Movement in the Defined Benefit Liability is as Follows:

Group Company
2016
Rs. ’000
2015
Rs. ’000
2016
Rs. ’000
2015
Rs. ’000
As at 1 January 868,467 868,467
Transferred from Ceylinco Insurance PLC 863,223 863,223
Current Service Cost 36,174 18,913 36,174 18,913
Interest Cost 86,847 29,310 86,847 29,310
Benefits Paid (38,169) (10,641) (38,169) (10,641)
Actuarial Gains/(Losses) 13,898 (32,339) 13,898 (32,339)
As at 31 December 967,216 868,467 967,216 868,467
Defined Gratuity Benefit Obligation 967,216 868,467
Gratuity Liability – Subsidiaries 12,750 10,357

As at 31 December 2016 and as at the end of the comparative period, the gratuity liability was actuarially valued under the Projected Unit Credit (PUC) Method by Consultant Actuary Mr K A Pandit as required by Sri Lanka Accounting Standard (LKAS) 19 – ‘Employee Benefits’.

According to LKAS 19 – ‘Employee Benefits’, actuarial gains or losses arising from remeasurements of the net defined benefit liability and assets are recognised in Other Comprehensive Income.

13. (b) The Movement in the Plan Assets is as Follows:

Company
2016
Rs. ’000
2015
Rs. ’000
As at 1 January 1,594,193
Transferred from Ceylinco Insurance PLC 1,531,787
Expected Return on Plan Assets 159,419 53,658
Actuarial Gains/(Losses) (89,058) 8,748
Benefits Paid
As at 31 December 1,664,554 1,594,193

The overall expected rate of return on assets is determined based on market expectations prevailing on that date, applicable to the period over which the obligation is to be settled.

The principal actuarial assumptions used in determining the gratuity benefit obligation for the Group’s plan assets are as follows:

2016 2015
Future Salary Increases 10.00% 8.50%
Discount Rate 12.00% 10.00%
Expected Rate of Return on Plan Assets 10.00% 10.00%
Retirement Age 55 yrs 55 yrs
Attrition Rate 1% 1%
Mortality Table IALM 2006-08 IALM 2006-08

Changes in the Defined Benefit Obligation and Fair Value of Plant Assets

Amounts Charged to Profit or Loss Amounts Charged to Profit or Loss Remeasurement Gains/(Losses) in Other Comprehensive Income
31 December 2016 1 Jan. 2016
Rs. ’000
Service
Cost
Rs. ’000
Net
Interest
Rs. ’000
Subtotal
Included in
Profit or
Loss
Rs. ’000
Benefit Paid
Rs. ’000
Return on
Plan Assets
(Excluding
Amounts
Included in
Net Interest
Expenses)
Rs. ’000
Actuarial
Changes
Arising from
Changes in
Demographic
Assumptions
Rs. ’000
Actuarial
Changes
Arising from
Changes in
Financial
Assumptions
Rs. ’000
Experience
Adjustments
Rs. ’000
Subtotal
Included in
OCI
Rs. ’000
Contribution
by Employers
Rs. ’000
31 Dec. 2016
Rs. ’000
Defined Benefit Obligation (868,467) (36,174) (86,847) (123,021) 38,169 471 (14,369) (13,898) (967,217)
Fair Value of Plan Assets 1,594,193 159,419 (89,058) (89,058) 1,664,555
Benefit Assets/(Liability) 725,726 (36,174) (86,847) (123,021) 38,169 159,419 471 (103,427) (102,956) 697,338
Amounts Charged to Profit or Loss Amounts Charged to Profit or Loss Remeasurement Gains/(Losses) in Other Comprehensive Income
31 December 2015 1 Jan. 2015
Rs. ’000
Transferred
from Ceylinco
Insurance PLC
Rs. ’000
Service
Cost
Rs. ’000
Net
Interest
Rs. ’000
Subtotal
Included in
Profit or Loss
Rs. ’000
Benefit Paid
Rs. ’000
Return on
Plan Assets
(Excluding
Amounts
Included in
Net Interest
Expenses)
Rs. ’000
Actuarial
Changes
Arising from
Changes in
Demographic
Assumptions
Rs. ’000
Actuarial
Changes
Arising from
Changes in
Financial
Assumptions
Rs. ’000
Experience
Adjustments
Rs. ’000
Subtotal
Included in
OCI
Rs. ’000
Contribution
by Employers
Rs. ’000
31 Dec. 2015
Rs. ’000
Defined Benefit Obligation (863,223) (18,913) (29,310) (48,224) 10,641 32,339 32,339 (868,467)
Fair Value of Plan Assets 1,531,787 53,658 8,748 8,748 1,594,193
Benefit Assets/(Liability) 668,564 (18,913) (29,310) (48,224) 10,641 53,658 41,087 41,087 725,726

A Quantitative Sensitivity Analysis for Significant Assumptions as at 31 December 2016 is Shown Below:

Discount Rate Future Salary Increasement Rate Rate of Employee Turnover
Increase Decrease Increase Decrease Increase Decrease
Sensitivity Level 1% 1% 1% 1% 1% 1%
Impact on Defined Benefit Obligation (43,445) 49,061 49,531 (44,570) 6,495 (7,197)

Following payments are expected contributions to the defined benefit plan obligation on the future years:

2016
Rs. ’000
2015
Rs. ’000
Within the Next 12 Months 377,814 321,464
Between 2 and 5 Years 232,482 114,094
Between 5 and 10 Years 457,218 624,324

14. Pension Benefit obligation

The Company has two defined benefit pension plans, both of which require contributions to be made to separately administered funds namely Pension Trust Fund of Ceylinco Insurance PLC and Pension Fund of Ceylinco Insurance PLC.

Changes in the defined benefit obligation, fair value of plan assets and unrecognised past service costs:

Amounts Charged to Profit or Loss Amounts Charged to Profit or Loss Remeasurement Gains/(Losses) in Other Comprehensive Income
31 December 2016 1 January
2016
Current
Service
Cost
Interest
Cost on
Benefit
Obligation
Subtotal
Included in
Profit/Loss
Benefit
aid
Return on
Plan Assets
(Excluding
Amounts
in
Net Interest
Expenses)
Past
Service
Costs
Recognised
Recognised
in Income
Statement
Note
Actuarial
Changes
Arising from
Changes in
Demographic
Assumptions
Actuarial
Changes
Arising from
Changes in
Financial
Assumptions
Experience
Adjustments
Subtotal
Included
in OCI
Contributions
by Employers
Total
31
December
2016
Defined Benefit Obligation (454,707) (3,149) (45,471) (48,620) 4,012 (44,608) (8,418) (49,850) (18,668) (76,935) (576,250)
Fair Value of Plan Assets 1,327,788 (4,012) 132,779 128,766 (41,162) (41,162) 52,792 1,468,184
Total Recognised Benefit (Liability)/Asset 873,081 (3,149) (45,471) (48,620) 132,779 84,158 (8,418) (91,012) (18,668) (118,097) 52,792 891,934
Amounts Charged to Profit or Loss Amounts Charged to Profit or Loss Remeasurement Gains/(Losses) in Other Comprehensive Income
31 December 2015 1 January
2015
Transferred
from Ceylinco
Insurance PLC
Current
Service
Cost
Interest
Cost on
Benefit
Obligation
Subtotal
Included in
Profit/Loss
Benefit Paid Return on
Plan Assets
(Excluding
Amounts in
Net Interest
Expenses)
Past
Service
Costs
Recognised
Recognised
in Income
Statement
Note
Actuarial
Changes
Arising from
Changes in
Demographic
Assumptions
Actuarial
Changes
Arising from
Changes in
Financial
Assumptions
Experience
Adjustments
Subtotal
Included
in OCI
Contributions
by Employers
Total
31 December
2015
Defined Benefit Obligation (444,915) (1,206) (24,944) (26,150) 1,371 (24,779) 14,987 14,987 (454,707)
Fair Value of Plan Assets 1,446,093 (1,371) 68,692 67,321 (216,941) (216,941) 31,315 1,327,788
Total Recognised Benefit (Liability)/Asset 1,001,178 (1,206) (24,944) (26,150) 68,692 42,541 (201,954) (201,954) 31,315 873,081

As at 31 December 2016, and as at the end of the comparative period the gratuity liability was actuarially valued under the Projected Unit Credit (PUC) method by Consultant Actuary K A Pandit, as required by Sri Lanka Accounting Standard (LKAS) 19 – ‘Employee Benefits’.

Pension benefit obligation is valued by K A Pandit Actuarial Valuers.

Actuarial gains and losses have been recognised immediately in the Statement of Other Comprehensive Income.

The assets include investment in equity share of Ceylinco Insurance PLC, market value amounting to Rs. 2,020,997,259/- at the Reporting date (2015 – Rs. 2,653,630,527/-).

The principal assumptions used in determining pension and post-employment benefit obligations for the Company’s plans are shown below:

2016 2015
Discount Rate 12% 10%
Rate of Return on Plan Assets Current 10% 10%
Previous 10% 10%
Salary Escalation Rate Scheme 10% 10%
Attrition Rate 1% p.a 1% p.a
Retirement Age Scheme A, B & D 55 Yrs. 55 Yrs.
Scheme C 60 Yrs. 60 Yrs.
Mortality Table PA 90 PA 90

15. Reinsurance Receivables

Group Company
2016
Rs. ’000
2015
Rs. ’000
2016
Rs. ’000
2015
Rs. ’000
Reinsurance Receivable – Swiss RE 27,268 17,201 27,268 17,201
Reinsurance Receivable – Munich RE 14,030 28,806 14,030 28,806
Total Reinsurance Receivable 41,298 46,007 41,298 46,007

The carrying amounts disclosed above is in respect of the reinsurance of insurance contracts approximate fair value at the Reporting date.

The amount recognised as reinsurance recievable is the amount due from reinsurers only for less than 3 months.

16. Taxation

(a) Tax Receivable

Group Company
2016
Rs. ’000
2015
Rs. ’000
2016
Rs. ’000
2015
Rs. ’000
As at 1 January 1,183,836 1,183,836
Transferred from Ceylinco Insurance PLC 1,107,957 1,107,957
Amounts Recorded in the Income Statement (603,163) (111,450) (603,163) (111,450)
Notional Tax/WHT Recognised 461,897 187,329 461,897 187,329
Payments Made on Account During the Year 2,091
As at 31 December 1,044,662 1,183,836 1,042,571 1,183,836

Included in the Income Tax Receivable is an amount of Rs. 1,035,715,437/- recognised as Notional Tax Credit available in the Life insurance business.

(b) Deferred Tax Liabilities – Company

Other Comprehensive
Income Statement
Income Statement Statement of Financial Position
2016
Rs. ’000
2015
Rs. ’000
2016
Rs. ’000
2015
Rs. ’000
2016
Rs. ’000
2015
Rs. ’000
Losses Carried Forward 44,803 65,106 44,803
Temporary Difference from Retirement Benefit Liability 3,891 9,057 (31,541) (10,523) 270,821 243,171
Temporary Difference from Property, Plant and Equipment 117,695 26,866 (430,403) (312,708)
Revaluation Reserve 68,134 (36,545) (68,134)
Available-for-Sale Financial Assets (47,106) (2) (47,106)
Deferred Tax Expense/(Income) 24,919 9,055 130,957 44,904
Deferred Tax Liabilities (227,716) (71,840)

Total Deferred Tax Liability

Company
2016
Rs. ’000
2015
Rs. ’000
As at 1 January 71,840
Transferred from Ceylinco Insurance PLC 17,880
Amounts Recorded in the Income Statement 130,957 44,903
Amounts Recorded in Other Comprehensive Income 24,919 9,057
As at 31 December 227,716 71,840

(c) Deferred Tax Liabilities – Group

Consolidated Other Comprehensive
Income Statement
Consolidated Income Statement Consolidated Statement of
Financial Position
2016
Rs. ’000
2015
Rs. ’000
2016
Rs. ’000
2015
Rs. ’000
2016
Rs. ’000
2015
Rs. ’000
Losses Carried Forward 67,257 77,497 (18,714)
Temporary Difference from Retirement Benefit Obligation 3,891 9,057 (31,821) (12,247) 211,785 244,311
Temporary Difference from Property, Plant and Equipment 110,009 35,844 (428,927) (269,972)
Revaluation Reserve 68,134 (36,545) (44,704)
Temporary Difference from Retained Reserves of Associates (47,106) (2) (47,106)
Deferred Tax Expense/(Income) 24,919 9,055 145,445 64,549
Deferred Tax Liability (261,846) (91,481)

(d) Movement of Deferred Tax Liability

Group
2016
Rs. ’000
2015
Rs. ’000
As at 1 January 91,483
Transferred from Ceylinco Insurance PLC 17,880
Amounts Recorded in the Income Statement 145,445 64,548
Amounts Recorded in Other Comprehensive Income 24,919 9,055
As at 31 December 261,847 91,483

A deferred tax asset is recognised for a tax loss carried forward from 2015 only to the extent that realisation of the related tax benefit is probable.

Deferred tax assets are recognised in respect of tax losses to the extent that it is probable that future taxable profits will be available against which such tax losses can be utilised.

17. Loans to Policyholders

Policyholder loans are granted up to 90% of the surrender value of a Life Insurance Policy at a rate equivalent to market rate. Policyholder loans are initially measured at fair value of loan amount granted and subsequently measured at the amortised cost. If the policyholder dies before the full repayment of the loan, the loan balance is deducted from the death benefit. Policyholder loans are reviewed for impairment at each Reporting date. Loans receivable as at Reporting date as follows:

17. (a) Movement of Loans to Policyholders

Group Company
2016
Rs. ’000
2015
Rs. ’000
2016
Rs. ’000
2015
Rs. ’000
Balance as at 1 January 2015 1,335,634 1,335,634
Transferred from Ceylinco Insurance PLC 1,511,406 1,511,406
Loans Granted During the Period 883,372 463,036 883,372 463,036
Repayment During the Period (840,052) (638,808) (840,052) (638,808)
Total Policyholder Loans 1,378,954 1,335,634 1,378,954 1,335,634

17. (b) Fair Value of Loans to Life Policyholders

The fair value of the policyholder loans are equal to its carrying value as those are given at competitive market rates.

17. (c) Concentration Risk of Loans to Life Policyholders

There is lower concentration of credit risk with respect to policyholders, as the Company has a large number of dispersed receivables. The total receivable of the loan, including interest due and accrued, exceeds the cash surrender value, the policy terminates and becomes void. The Company has a first lien on all policies which are subject to policy loans. This mitigates the Company’s credit exposure on policy loans.

17. (d) Impairment of Loans to Life Policyholders

The Board of Directors has assessed the potential impairment loss of Loans to Life Policyholders as at 31 December 2016. Based on the assessment, no impairment provision is required to be made in the Financial Statements as at the Reporting date in respect of Loans to life policyholders.

17. (e) Number of Policy Loans

Number of policy loans due as at 31 December 2016 was 43,715.

17. (f) Collateral Details

The Company does not hold any collateral as security against potential default by policyholders other than surrender value.

18. Accrued Income

Group Company
2016
Rs. ’000
2015
Rs. ’000
2016
Rs. ’000
2015
Rs. ’000
Held-to-Maturity Investments 2,034,745 1,377,032 2,034,745 1,377,032
Financial Assets at Fair Value Through Profit or Loss 7,172 6,498 7,172 6,498
Loans and Receivables 1,421,846 1,096,226 1,417,829 1,096,226
Available-for-Sale Investments 9,777 5,666 9,777 5,666
Total 3,473,541 2,485,422 3,469,524 2,485,422

19. Other Assets

Group Company
2016
Rs. ’000
2015
Rs. ’000
2016
Rs. ’000
2015
Rs. ’000
Advances, Deposits and Prepayments 134,790 97,918 109,188 80,265
Inventories 65,519 63,579 62,853 63,579
Deferred Staff Benefits 127,287 126,251 127,287 126,251
Other Receivables 15,784 40,340 15,784 40,340
Total 343,380 328,088 315,112 310,435

20. Cash and Cash Equivalents

Group Company
2016
Rs. ’000
2015
Rs. ’000
2016
Rs. ’000
2015
Rs. ’000
Cash in Hand and at Bank 600,104 600,192 584,256 598,651
Bank Overdraft (245,142) (450,534) (230,080) (443,955)
Total Cash and Cash Equivalents 354,962 149,658 354,176 154,696

The carrying amounts disclosed above reasonably approximate fair value at the Reporting date.

21. EQUITY

Group Company
Note 2016
Rs. ’000
2015
Rs. ’000
2016
Rs. ’000
2015
Rs. ’000
Ordinary Shares – Voting 21 (a) 500,001 500,001 500,001 500,001
Other Reserves 21 (b) 12,792,171 9,902,443 11,411,828 8,946,367
Total Equity 13,292.172 10,402,444 11,911,829 9,446,368

All issued shares are fully paid. There is one class of ordinary shares. All shares issued carry equal voting rights. The holders of ordinary shares – voting are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the Company. The holders of ordinary shares – voting are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the Company.

21. (a) Ordinary Shares – Voting

Group Company
2016
Rs. ’000
2015
Rs. ’000
2016
Rs. ’000
2015
Rs. ’000
Balance as at 1 January 500,001 500,001 500,001 500,001
50,000,050 Ordinary Shares Voting 500,001 500,001 500,001 500,001

21. (b) Other Reserves

Group Company
Note 2016
Rs. ’000
2015
Rs. ’000
2016
Rs. ’000
2015
Rs. ’000
Retained Earnings 5,165,536 2,683,456 4,003,753 1,733,281
Available-for-Sale Reserve 24,212 (92,663) (60) (98,563)
Special Reserve 21. (c) 7,311,651 7,311,651 7,311,651 7,311,651
Revaluation Reserve 290,772 96,484
12,792,171 9,902,443 11,411,828 8,946,368

21. (c) Special Reserve

Group Company
2016
Rs. ’000
2015
Rs. ’000
2016
Rs. ’000
2015
Rs. ’000
Special Reserve Recognised on Segregation 7,311,651 7,311,651 7,311,651 73,311,651
7,311,651 7,311,651 7,311,651 73,311,651

This special reserve represents the value (net book value) of net assets transferred from Ceylinco Insurance PLC on 1 June 2016 as a result of the segregation.

22. Insurance Contract Liabilities

Group Company
Note 2016
Rs. ’000
2015
Rs. ’000
2016
Rs. ’000
2015
Rs. ’000
Insurance Contract Liabilities – Life 22. (a) 77,927,494 68,011,535 77,925,114 68,011,535
Insurance Contract Liabilities – Unit Linked 265,685 240,654 265,685 240,654
Insurance Contract Liabilities – Family Takaful 10,563 4,708 10,563 4,708
Individual Investment Fund 56,881 22,700 56,881 22,700
Total 78,260,623 68,279,597 78,258,243 68,279,597

One-off Surplus Created in Migrating to RBC Regime

The Insurance Board of Sri Lanka (IBSL), in their letter dated 30 December 2016, has advised the insurance companies to maintain the one-off surplus created due to change in valuation method from ‘Net Premium Valuation’ to ‘Gross Premium Valuation’ until specific instructions are issued. Accordingly, the Company has kept the one-off surplus resulted due to basis change in the Long Term Insurance Fund of Life Policyholders and disclosed under the name ‘Surplus created due to change in valuation method from NPV to GPV’ as required. The one-off surplus of the Company as at 31 December 2015, amounted to Rs. 17,429,882,567/-.

The valuation of the Life Insurance business as at 31 December 2016 was carried out by our Consulting Actuary, Mr Mark Birch, FIA, on behalf of ‘Willis Towers Watson’. In the opinion of the Consulting Actuary, proper reserves have been provided for all known liabilities in respect of the Life Insurance business and the Company has adequate financial resources to cover its capital requirements in accordance with the Solvency Margin (risk-based capital) Rules 2015 dated 15th December 2015.

Following the actuarial valuation as at 31 December 2016 the Consulting Actuary has approved a transfer of Rs. 2.3 Bn (2015 - Rs. 1.8 Bn) from the Life Fund to the Shareholder’s Retained Profit Account.

The Company’s Capital Adequacy Ratio (CAR) as at 31 December 2016 is 335% and is well above the minimum requirement of 120%.

Key Assumptions

The Company exercises a significant judgment in determining the policy liabilities and in selecting assumptions. The key assumptions for which the liability value can be sensitive are mortality, morbidity, expenses, lapse and surrender rates and discount rates. The choice of assumptions depends on the past and current experience of the Company and other available information. Assumptions on future expenses are based on current expense levels, adjusted for expected expense inflation, if appropriate. Lapse and surrender rates are based on the Company’s historical experience. Discount rates are based on current industry risk free rates. All these assumptions are within the guidelines issued by the IBSL.

Key Assumption Used

Mortality Rate

Mortality assumptions are based on standard mortality tables.

Lapse Rates

Lapses occur due to non-payment of premiums before the policy acquires a surrender value. Surrenders occur due to termination of policies by policyholders after acquiring a surrender value.

Risk Free Rate

Risk free discount rate is used to discount the cash flows for corresponding durations for guaranteed benefits of non-participating and participating insurance fund policies. The applicable risk free rates are shared by the Insurance Board of Sri Lanka every quarter.

Fund-based Yield

Fund-based yield was used in the participating fund to discount the cash flows for corresponding durations where total benefits are considered.

Management Expense

The assumptions for management expenses are determined based on the expense investigation into the expenses of the Company over the last four calendar years. Each expense is classified as acquisition/maintenance/termination and then classified as fixed/variable.

Sensitivity of the Value of Insurance Liabilities for Change in Assumptions

A sensitivity analysis was performed to see the impact of expense level and mortality experience on the value of insurance liabilities as at 31 December 2016. The results are shown below:

Sensitivity of the Value of Insurance Liabilities 31 December 2016 Changes in
Assumptions
Impact on Net Best
Estimate Liability
Expenses +10% +2.54%
Mortality +10% +0.88%
-10% -0.86%

22. (a) Life insurance contract liabilities

As at 1 January 2016 Insurance
Contract
Liabilities
with DPF
Rs. ’000
Insurance
Contract
Liabilities
without DPF
Rs. ’000
Total
Gross Insurance
Contract
Liabilities
Rs. ’000
As at 1 January 2016 36,485,976 31,525,560 68,011,536
Gross Premium Income 6,048,253 8,850,822 14,899,075
Premiums Ceded to Reinsurers (16,458) (357,156) (373,614)
Liabilities Paid for Death, Maturities, Surrenders, Benefits and Claims (3,181,160) (3,470,522) (6,651,682)
Investment Return 4,187,682 3,702,255 7,889,937
Reinsurance Commission Income 3,854 81,509 85,362
Other Operating and Admin Expenses Including Income Tax (1,694,640) (1,792,732) (3,487,372)
Underwriting and Net Acquisition Cost (779,234) (884,584) (1,663,818)
Net Transfer to Shareholder (116,530) (2,183,470) (2,300,000)
Revaluation Reserve and AFS Reserve Transferred to Life Fund 788,072 727,618 1,515,690
As at 31 December 2016 41,725,814 36,199,300 77,925,114
As at 1 January 2015 Insurance
Contract
Liabilities
with DPF
Rs. ’000
Insurance
Contract
Liabilities
without DPF
Rs. ’000
Tota
l Gross Insurance
Contract
Liabilities
Rs. ’000
As at 1 January 2015
Transferred from Ceylinco Insurance PLC 34,236,865 30,098,814 64,335,679
Gross Premium Income 3,436,169 4,855,108 8,291,277
Premiums Ceded to Reinsurers (7,965) (175,498) (183,463)
Liabilities Paid for Death, Maturities, Surrenders, Benefits and Claims (1,557,815) (2,132,080) (3,689,895)
Investment Return 1,766,988 2,069,567 3,836,555
Reinsurance Commission Income (682) 30,671 29,989
Other Operating and Admin Expenses Including Income Taxes (704,509) (1,126,315) (1,830,824)
Underwriting and Net Acquisition Cost (516,846) (460,936) (977,782)
Net Transfer to Shareholder (166,229) (1,633,771) (1,800,000)
As at 31 December 2015 36,485,976 31,525,560 68,011,536

23. Financial Liabilities

23. (a) Other Financial Liabilities

Group Company
2016
Rs. ’000
2015
Rs. ’000
2016
Rs. ’000
2015
Rs. ’000
Repo Borrowings 2,980,013 299,811 2,980,013 299,811
2,980,013 299,811 2,980,013 299,811

23. (b) Interest-Bearing Borrowings

Group Company
2016
Rs. ’000
2015
Rs. ’000
2016
Rs. ’000
2015
Rs. ’000
As at 1 January 2016
Addition during the Period 1,000,000 1,000,000
Settlement during the Period
As at 31 December 2016 1,000,000 1,000,000

This short term facility was obtained as a part of the Company’s investment strategy.

Counterparty Hatton National Bank

24. Trade and Other Payables

Group Company
2016
Rs. ’000
2015
Rs. ’000
2016
Rs. ’000
2015
Rs. ’000
Policyholders Payments in Advance 486,483 453,745 486,483 453,745
Agency Commission Payable 197,216 194,493 197,216 194,493
Government Levies 1,258 432
Trade Creditors and Accrued Expenses 1,069,759 899,280 1,042,332 883,770
Death Claims Payable 98,340 103,432 98,340 103,432
1,853,056 1,651,380 1,824,371 1,635,439

The carrying amounts disclosed above reasonably approximate fair value at the Reporting date.

All amounts are payable within one year.

25. Net Premiums

25. (a) Gross Written Premiums on Insurance Contracts

Group Company
Note 2016
Rs. ’000
2015
Rs. ’000
2016
Rs. ’000
2015
Rs. ’000
Life Insurance Premium 25. (c) 15,027,469 8,291,271 15,027,600 8,291,277
Gross Written Premiums 15,027,469 8,291,271 15,027,600 8,291,277

25. (b) Premiums Ceded to Reinsurers on Insurance Contracts

Group Company
2016
Rs. ’000
2015
Rs. ’000
2016
Rs. ’000
2015
Rs. ’000
Life Insurance (373,829) (183,464) (373,829) (183,464)
Premiums Ceded to Reinsurers (373,829) (183,464) (373,829) (183,464)

25. (c) Life Insurance Premium – Company

2016
Rs. ’000
2015
Rs. ’000
New Businesses 3,537,775 2,279,089
Single Premium 2,659,154 1,043,956
Renewal Premium 8,634,272 4,874,680
Group Life Premium 196,399 93,553
Total 15,027,600 8,291,278
Company
2016 2015

25. (d) Annualised New Business Life Premium – Company

3,820,601,685 2,203,997,332

26. Fees and Commission Income

Group Company
2016
Rs. ’000
2015
Rs. ’000
2016
Rs. ’000
2015
Rs. ’000
Reinsurance Commission Income 85,362 29,989 85,362 29,989
Other Fees 35,037 20,673 35,037 20,673
Total Fees and Commission Income 120,399 50,662 120,399 50,662

27. Investment Income

Group Company
Note 2016
Rs. ’000
2015
Rs. ’000
2016
Rs. ’000
2015
Rs. ’000
Rental Income from Investment Properties 9. (d) 70,032 39,566 72,101 40,585
Financial Assets at Fair Value Through Profit or Loss (Held for Trading Purposes)
Interest Income 55,084 34,160 55,084 34,160
Held-to-Maturity Financial Assets Interest Income 6,500,670 2,344,236 6,500,670 2,344,236
Available-for-Sale Financial Assets
Interest Income 88,665 126,639 88,665 126,639
Dividend Income 60,140 50,045 60,140 50,045
Loans and Receivables Interest Income 1,387,839 1,284,834 1,370,558 1,286,594
Interest Income from Staff Loan 33,568 13,812 33,568 13,812
Total Investment Income 8,195,999 3,893,292 8,180,787 3,896,071

28. Realised Gains and Losses

Group Company
2016
Rs. ’000
2015
Rs. ’000
2016
Rs. ’000
2015
Rs. ’000
Property, Plant and Equipment
Realised Gains (5,104) 361 (9,558) 361
Available-for-Sale Financial Assets
Realised Gains
Debt Securities 4,275 7,008 4,275 7,008
Realised Losses
Equity Securities (3,000) (3,000)
Total Realised Gains for Available-for-Sale Financial Assets 4,275 4,008 4,275 4,008
Total Realised Gains (829) 4,369 (5,283) 4,369

29. Fair Value Gains and Losses

Group Company
Note 2016
Rs. ’000
2015
Rs. ’000
2016
Rs. ’000
2015
Rs. ’000
Fair Value Gains on Investment Properties 9 214,449 396,829
Fair Value Gains on Financial Assets at Fair Value Through Profit or Loss (Held for Trading Purposes) 73,194 65,389 73,194 65,389
Total Fair Value Gains and Losses 287,643 65,389 470,023 65,389

30. Net Benefits and Claims

Group Company
Note 2016
Rs. ’000
2015
Rs. ’000
2016
Rs. ’000
2015
Rs. ’000
30. (a) Gross Benefits and Claims Paid 30. (d) (6,800,076) (3,805,625) (6,800,076) (3,805,625)
30. (b) Claims Ceded to Reinsurers 30. (d) 148,394 115,746 148,394 115,746
30. (c) Gross Change in Contract Liabilities (8,397,889) (3,675,856) (8,397,889) (3,675,856)
Net Benefits and Claims (15,049,571) (7,365,736) (15,049,571) (7,365,736)
Group Company
2016
Rs. ’000
2015
Rs. ’000
2016
Rs. ’000
2015
Rs. ’000
30. (d) Claims and Benefits (Excluding Life Fund Increase)
Claims – Death, Disability and Hospitalisation 647,858 355,161 647,858 355,161
Policy Maturities 4,220,388 2,296,443 4,220,388 2,296,443
Interim Payments on Anticipated Endowment Plans 750,286 421,581 750,286 421,581
Surrenders 907,419 573,957 907,419 573,957
Cash and Loyalty Bonus Expenses 260,584 144,500 260,584 144,500
Annuities 13,541 13,983 13,541 13,983
Gross Claims and Benefit 6,800,076 3,805,625 6,800,076 3,805,625
Reinsurance Recoveries (148,394) (115,746) (148,394) (115,746)
Life Insurance Net Claims and Benefits 6,651,682 3,689,879 6,651,682 3,689,879

31. Acquisition Costs

Group Company
2016
Rs. ’000
2015
Rs. ’000
2016
Rs. ’000
2015
Rs. ’000
Fees and Commission Expenses 1,686,858 966,369 1,693,985 977,782
Total 1,686,858 966,369 1,693,985 977,782

32. Other Operating and Administrative Expenses

Group Company
Note 2016
Rs. ’000
2015
Rs. ’000
2016
Rs. ’000
2015
Rs. ’000
Amortisation of Intangible Assets 7 1,093 12,098 989 1,232
Depreciation on Property and Equipment 8 269,947 126,038 201,669 122,986
Other Operating Expenses 982,354 665,232 986,800 605,074
Auditors’ Remuneration 4,495 6,541 4,098 6,291
Employee Benefits Expense 32. (a) 1,425,052 835,391 1,364,300 784,813
Selling Expenses 371,290 219,522 370,147 216,348
Legal Expenses 9,259 24,894 9,259 24,753
Total Other Operating and Administrative Expenses 3,063,490 1,889,716 2,937,262 1,761,496

32. (a) Employee Benefits Expense

Group Company
Note 2016
Rs. ’000
2015
Rs. ’000
2016
Rs. ’000
2015
Rs. ’000
Wages and Salaries Including Bonus and Incentives 1,250,963 780,747 1,206,053 737,752
Employees' Provident Fund 94,504 54,715 89,114 48,646
Employees' Trust Fund 23,627 13,692 22,279 12,175
Defined Gratuity Benefit and Pension Costs 30,455 (29,856) 27,838 (29,856)
Other Staff Related Cost 25,504 16,096 19,017 16,096
Total Employee Benefits Expense 32 1,425,052 835,394 1,364,300 784,813

33. Finance Costs

Group Company
2016
Rs. ’000
2015
Rs. ’000
2016
Rs. ’000
2015
Rs. ’000
Current Borrowings
Interest Expense 9,934 9,815 9,915 6,001
Total Finance Cost 9,934 9,815 9,915 6,001

34. Income Tax Expense

The major components of income tax expense for the years ended 31 December 2016 and 2015 are:

34. (a) Current Year Tax Charge

Group Company
Note 2016
Rs. ’000
2015
Rs. ’000
2016
Rs. ’000
2015
Rs. ’000
Current Tax
Income Tax 34. (c) 503,199 75,567 503,199 71,859
Over/Under Provision in Respect of Previous year 26,819 26,819
WHT Refund 3,712 3,712
Total Current Tax 533,729 75,567 533,729 71,859
Deferred Tax
Origination of Temporary Differences 16. (d) & (b) 146,906 66,053 130,957 44,903
Total Income Tax Expense 680,635 141,620 664,686 116,762

34. (b) Tax Recorded in Other Comprehensive Income (See Note 38)

Group Company
Note 2016
Rs. ’000
2015
Rs. ’000
2016
Rs. ’000
2015
Rs. ’000
Current Tax
Deferred Tax 38 24,919 9,053 24,919 9,053
Total Tax Charge to Other Comprehensive Income 24,919 9,053 24,919 9,053

34. (c) Reconciliation of Tax Charge

Company

A reconciliation between income tax expense and the product of accounting profit multiplied by the statutory tax rate is as follows:

Note 2016
Rs. ’000
2015
Rs. ’000
Accounting Profit Before Tax 3,743,727 2,018,048
Less – Income Not a Part of Taxable Income
Premium Income 25. (a) (15,027,600) (8,291,277)
Non-Investment Income (276,396) (125,178)
Add – Benefits, Claims and Other Expenses 19,690,733 10,111,015
Investment Income from the Business 8,130,464 3,712,608
Less – Exempted Interest Income (1,434,461) (616,181)
Less – Management Expenses (4,626,108) (2,649,660)
Total Statutory Income 2,069,894 446,767
Tax Losses Utilised During the Year (272,756) (189,765)
Taxable Income 1,797,139 257,002
Income Tax @ 28% 34. (a) 503,199 71,960
2016
Rs. ’000
2015
Rs. ’000
Tax Losses
Tax Losses Brought Forward
Tax Losses Transferred from Ceylinco Insurance PLC 272,756 462,521
Tax Losses Utilised during the Year (272,756) (189,765)
Loss Incurred during the Year
Tax Losses Carried Forward 272,756

The Company is liable to pay income tax at the rate of 28% on its taxable profits in accordance with the provisions of the Inland Revenue Act No. 10 of 2006 and subsequent amendments thereto. There is no payment due to the Department of Inland Revenue as the tax liability is fully absorbed by payments made in lieu of credit available on the Withholding Tax on Corporate Debt and Notional Tax Credits generated from investments in Government Securities.

Ceylinco Healthcare Services Limited is liable to pay income tax at 12% on its business income and 28% on its investment income.

The Company has received tax assessments for the years of assessments 2010/2011, 2011/2012, 2012/2013 and 2013/2014. Assessments have been issued by the Department of Inland Revenue in contrary to the Inland Revenue Act No. 10 of 2006.

Therefore, the Company is of the view that these assessments will not materialise and there will be no additional tax liabilities arising against the Company. Hence, no provision has been made for the assessments received. The Company has made representations against the assessments issued to the Department of Inland Revenue in consultation with the tax consultants of the Company.

Above Balances are free from Material Misstatements.

35. Non-Controlling Interests (NCI)

35. (a) Accumulated Balances of Non-Controlling Interest

2016 2015 Effective
Ownership
by NCI
%
Ceylinco Sereka Limited (25) 0.00%
Ceylinco Healthcare (Pvt) Limited 4,651 4,153 0.55%
Serene Resort Limited 1,838 2,173 1.85%
6,464 6,326

35. (b) Profit Allocated to Non-Controlling Interest

2016 2015
Ceylinco Sereka Limited (25)
Ceylinco Healthcare (Pvt) Limited 498 259
Serene Resort Limited (335) (209)
138 50

36. Basic Earnings Per Share

Basic earnings per share has been calculated by dividing profit after taxation attributable to ordinary shareholders of the parent by the weighted average ordinary shares in issue at the year end.

Group Company
2016 2015 2016 2015
Profit for the Year (Rs. ’000) 3,291,611 2,132,214 3,079,041 1,901,286
Weighted Average Number of Ordinary Shares (’000) 50,000 50,000 50,000 50,000
Basic/Diluted Earnings Per Ordinary Share (Rs.) 65.83 42.64 61.58 38.03

There were no potential dilutive ordinary shares outstanding at any time during the year. Therefore, diluted earnings per share is same as basic earnings per share shown above.

37. Dividends Paid and Proposed

Company
2016 2015
Interim Dividend – Paid (Rs. ’000) 271,125
Final Dividend – Proposed (Rs. ’000) 103,875 312,500
Total Dividend (Rs. ’000) 375,000 312,500
No. of Shares in Issue for the Year (’000) 50,000 50,000
Dividend per Share (Rs.)

The Board of Directors has recommended a total dividend of Rs. 7.50 per share inclusive of interim dividend of Rs. 5.42 per share (paid) and a final dividend of Rs. 2.08 per share for the year ended 31 December, 2016 (2015 - Rs. 6.25 - per share) which is to be approved by the shareholders at the Annual General Meeting to be held on 30 March 2017. As stipulated by LKAS 10 – ‘Events after the Reporting Date’, this proposed dividend is disclosed, but not recognised as a liability as at 31 December 2016.

However, for the purpose of computing Dividend per Share, the final dividend proposed has been taken into consideration.

As required by Section 56 of the Companies Act No. 07 0f 2007, the Board of Directors of the Company has satisfied the solvency test in accordance with Section 57, prior to recommending the interim and final dividend for the year ended 31 December 2016. A statement of solvency was completed and duly signed Directors on 20 December 2016 and 23 February 2017 respectively and has been audited by Messrs Ernst & Young Chartered Accountants.

38. Income Tax Effects Relating to Other Comprehensive Income

2016 2015
Group Amount
Before Tax
Rs. ’000
(Expense)
Benefit
Rs. ’000
Amount
Net of Tax
Rs. ’000
Amount
Before Tax
Rs. ’000
(Expense)
Benefit
Rs. ’000
Amount
Net of Tax
Rs. ’000
Net Gain/(Loss) on Available-for-Sale Financial Assets 27,001 47,106 74,107 (98,565) 2 (98,563)
Actuarial Gain on Defined Benefit Plans (221,053) (3,891) (224,944) (160,867) (9,055) (169,922)
Revaluation Surplus/(Deficit) During the Year 1,704,705 (68,134) 1,636,571
Total 1,510,653 (24,919) 1,485,734 (259,432) (9,053) (268,485)
2016 2015
Company Amount
Before Tax
Rs. ’000
(Expense)
Benefit
Rs. ’000
Amount
Net of Tax
Rs. ’000
Amount
Before Tax
Rs. ’000
(Expense)
Benefit
Rs. ’000
Amount
Net of Tax
Rs. ’000
Net Gain/(Loss) on Available-for-Sale Financial Assets 27,001 47,106 74,107 (98,565) 2 (98,563)
Actuarial Gain on Defined Benefit Plans (221,053) (3,891) (224,944) (160,867) (9,055) (169,922)
Share of Other Comprehensive Income of Equity Accounted Investees 31,083 31,083 9,250 9,250
Revaluation Surplus/(Deficit) during the Year 1,887,085 (68,134) 1,818,951
Total 1,724,116 (24,919) 1,699,197 (250,182) (9,053) (259,235)

39. Risk Management Framework

39. (a) Governance Framework

The primary objective of the Group’s financial risk management is to manage financial risks with its risk appetite and provide reasonable assurance on the achievement of financial objectives.

Financial risk management is embedded into the Group’s broader Risk Management Framework and spans across the Group with clear objectives, duties and responsibilities specified at each level. The Board of Directors, with the assistance of the Board Risk Committee, bears the overall responsibility for establishment and oversight of the Risk Management Framework.

The Executive Risk Management Committee, headed by the Chief Risk Officer, is responsible for developing, facilitating and monitoring the control framework and execution of proper risk management strategies. The line management and staff are responsible for day-to-day risk management and are represented at the Sub-Committee level. Regular review of risks and effective risk mitigation strategies ensure consistent corporate performance, while risks are managed within the risk appetite of the Group.

39. (b) Capital Management Objectives, Policies and Approach

The Group has established the following capital management objectives, policies and approach to managing the

risks that affect its capital position:

  • To maintain the required level of stability of the Group thereby providing a degree of security to policyholders.
  • To allocate capital efficiently and support the development of business by ensuring that return on capital employed meet the requirements of its capital providers.
  • To retain financial flexibility by maintaining strong liquidity and access to a range of capital markets.
  • To align the profile of assets and liabilities taking account of risks inherent in the business.
  • To maintain financial strength to support new business growth and to satisfy the requirements of the policyholders, regulators and stakeholders.

Operations of the Group are also subject to regulatory requirements within the jurisdictions in which it operates. Such regulations not only prescribe approval and monitoring of activities, but also impose certain restrictive provisions (e.g., capital adequacy) to minimise the risk of insolvency on the part of the insurance companies to meet unforeseen liabilities as these arise.

The Company maintains capital, investments and Capital Adequacy Ratio as per the regulations prescribed by Insurance Board of Sri Lanka (IBSL). New changes in regulations are timely adopted and necessary changes are made to internal processes.

Approach to Capital Management

The Group allocates capital to businesses as required and ensures the sufficient returns to shareholders and policyholders. The assets and liabilities management establishes the required level of liquidity and reduces the risks of the Company and achieves the required capital levels of the Company.

The primary source of capital used by the Company is equity shareholders’ funds.

The return expectations are regularly forecast and comparisons are made in order to ensure the requirements of stakeholders are achieved.

The Group has had no significant changes in its policies and processes to its capital structure during the past year from previous years.

39. (c) Regulatory Framework

Regulators are primarily interested in protecting the rights of policyholders and monitor them closely to ensure that the Group is satisfactorily managing affairs for their benefit. At the same time, regulators are also interested in ensuring that the Group maintains an appropriate Capital Adequacy position to meet unforeseen liabilities arising from economic shocks or natural disasters.

The Company is regulated by IBSL with the objective of protecting shareholders and policyholders. There are various regulations and directive the Company is expected to adhere in order to achieve the expected norms, which leads the Company to maintain required Capital Adequacy Ratio and maintain sufficient capital.

Financial risks arise due to movements in market variables. The risks mainly involve interests rate risk and equity price risk. The company manages these risks through various strategies adopted at the Investment Committee and Financial Risk Committee.

“The new Risk Based Capital framework or RBC is focused on managing risks rather than complying with solvency margin rules. The RBC framework has been tested and refined since 2011 and full implementation of RBC started from January 2016. RBC reporting to the regulator consists of templates and questionnaires developed over the past years.

The insurance industry was going through a challenging phase in the recent past with increase in capital requirements, segregation of composite companies and future listing requirements in addition to the implementation of RBC. RBC is a flexible framework for maintenance of minimum capital requirements based on riskiness of respective insurance company. It consists of risk factors exposed by insurance companies such as Credit Risk, Concentration Risk, Market Risk, Operational Risk and Liability Risk. It also includes quantified capital charges for those risk factors and valuation methodology for assets and liabilities of insurance companies. The implementation of RBC is intended to increase transparency and establish appropriate risk management systems. It is expected to create a more stable industry with greater public confidence. This framework will help to develop a culture of risk awareness in the industry while encouraging efficient use of capital to improve return based on the risk exposure. This will be advantageous to the companies with good risk management practices.”

39. (d) Asset Liability Management (ALM) Framework

ALM is the ongoing process of formulating, implementing, monitoring and revising strategies related to assets and liabilities to achieve an organisation’s financial objectives, given the organisation’s risk appetite, tolerance and other constraints. ALM deals with the optimal investment of assets in view of meeting current goals and future liabilities.

Various financial risks arise from open positions in interest rates, currency and equity products, all of which are exposed to general and specific market movements. The main risk that the Company faces, due to the nature of its investments and liabilities, is the interest rate risk.

The Investment Committee identifies the nature of the liabilities arising from the product portfolio and evaluates the investment options that best suit to hedge/manage the liability. The Company manages these selected positions within a strategically crafted ALM framework that has been developed considering the cyclical nature of the domestic interest rates to achieve risk adjusted investment returns in excess of its obligations in the long term.

40. Insurance and Financial Risk

40. (a) Insurance Risk

The principal insurance risk the Company faces is that the actual claims and benefit payments or the timing thereof, differ from expectations. This is influenced by the frequency of claims, severity of claims, actual benefits paid and subsequent development of long term claims. Therefore, the objective of the Company is to ensure that sufficient financial and reinsurance protection is available to cover these liabilities.

The variability of risks is also improved by careful selection and implementation of underwriting strategy guidelines, as well as the use of reinsurance arrangements. The Company has entered into long term reinsurance treaties with the world’s leading reinsurers as a part of its risks mitigation programme. The reinsurance programme is designed to mitigate the Company’s net exposure to a single claim as well as to catastrophic losses.

40. (a) (1) Life insurance contracts

Life insurance contracts offered by the Company include: whole life, term assurance, endowment plans, Retirement plans, Critical illness benefit, disability insurance, daily hospital cash and major surgery benefit.

The main risks that the Company is exposed to are as follows:

  • Mortality risk – risk of loss arising due to policyholder death experience being higher than expected
  • Morbidity risk – risk of loss arising due to policyholder’s health experience being worse than expected
  • Investment return risk – risk of loss arising from actual returns being lower than expected
  • Expense risk – risk of loss arising from expense experience being higher than expected
  • Policyholder decision risk – risk of loss arising due to policyholder experiences (lapses and surrenders) being different than expected

The Company’s underwriting strategy is designed to ensure that risks are properly assessed and correct premium are charged. The use of scientifically designed proposal forms and medical screening ensure appropriate data related the insured risk are collected and premium charged takes account of current health conditions and additional risk of life to be insured.

The strategy also address regular review of actual claims experience and product pricing, as well as detailed claims handling procedures. Underwriting limits are in place to enforce appropriate risk selection criteria.

For contracts in which death or disability is the insured risk, the significant factors that could increase the overall frequency of claims are epidemics, widespread changes in lifestyle and natural disasters, resulting in earlier or more claims than expected.

40. (b) Credit Risk

Credit risk (in ALM context) is the risk that a borrower or counterparty will fail to meet its obligations towards Ceylinco Life in accordance with agreed terms due to various reasons such as declining financial strength.

The sub-categories of credit risk include:

  • Default risk: the risk that the issuer will fail to make timely interest or principal payments.
  • Downgrade risk: the risk that the debt instrument will be downgraded, reducing its market value.
  • Credit spread risk: the risk that credit spreads (in general) will widen or narrow, decreasing or increasing, respectively, the market value of a debt instrument.

To minimise credit risk, financial investments (such as term deposits, debentures, etc.) are placed, investment transactions (such as Government Security purchases and sales, repurchase/reverse repurchase agreements) are entered into, strictly with Board Investment Committee approved counterparties.

In addition, the individual exposures to such approved counterparties are set and monitored based on IBSL determinations and internal limits. The internal exposure limits are reviewed and refined periodically.

Since a default by an issuer could create a significant credit loss, Ceylinco Life usually invests in credit instruments (term deposits, corporate debentures, etc.) issued by reputed and stable issuers such as Top Tier Licensed Commercial Banks.

Since this check for the credit rating floor is applied at the point of purchase, the subsequent rating upgrades/downgrades are monitored periodically.

  • Reinsurance is placed with counterparties that have a good credit rating. At each Reporting date, an assessment of creditworthiness of reinsurers are performed and updates the reinsurance purchase strategy, ascertaining suitable allowance for impairment.
  • The credit risk in respect of customer balances incurred on non-payment of premiums or contributions will only persist during the grace period specified in the policy document until expiry, when the policy is either paid-up or terminated. Commission paid to intermediaries is netted off against amounts receivable from them to reduce the risk of doubtful debts.

Credit Exposure

The table below shows the maximum exposure to credit risk for the components of the Statement of Financial Position and items such as future commitments:

Group Company
Note 2016
Rs. ’000
2015
Rs. ’000
2016
Rs. ’000
2015
Rs. ’000
Financial Instruments
Held-to-Maturity Financial Assets 12. (a)
Debt Securities 64,552,885 46,856,945 64,552,885 46,856,945
Loans and Receivables 12. (b)
Debt Securities 11,738,352 16,233,966 11,076,558 16,211,981
Other 504,103 518,916 504,102 518,916
Available-for-Sale Financial Assets 12. (c)
Equity Securities 228,443 215,867 360,329 347,753
Debt Securities 975,733 835,206 843,847 703,320
Financial Assets at Fair Value Through Profit or Loss 12. (d)
Equity Securities 17,231 20,583 17,231 20,583
Debt Securities 141,159 194,353 141,159 194,353
Assets Other than Financial Instruments
Reinsurance Assets 15 41,298 46,007 41,298 46,007
Loans to Policyholders 17 1,378,954 1,335,634 1,378,954 1,335,634
Cash and Cash Equivalents 20 600,104 600,192 584,256 598,651
Total Credit Risk Exposure 80,178,262 66,857,669 79,500,619 66,834,143

Industry Analysis

31 December 2016 Note Financial
Services
Rs. ’000
Government

Rs. ’000
Services

Rs. ’000
Manufacturing
and Power
Rs. ’000
Others

Rs. ’000
Total

Rs. ’000
Assets
Held-to-Maturity Financial Assets 12. (a)
Debt Securities 22,350,063 42,202,822 64,552,885
22,350,063 42,202,822 64,552,885
Loans and Receivables 12. (b)
Term Deposits 7,090,295 7,090,295
Repo Investments 2,986,263 2,986,263
Unquoted Debentures 1,000,000 1,000,000
Staff and Vehicle Loans (Hire) 504,102 504,102
Other Loans
8,090,295 3,490,365 11,580,660
Available-for-Sale Financial Assets 12. (c)
Equity Securities 224,842 3,601 131,886 360,329
Debt Securities 706,898 136,949 843,847
931,740 136,949 3,601 131,886 1,204,176
Financial Assets at Fair Value Through Profit or Loss 12. (d)
Equity Securities 304 412 16,516 17,231
Debt Securities 141,159 141,159
304 141,159 412 16,516 158,390
Total Credit Risk Exposure 31,372,402 42,480,930 412 20,117 3,622,251 77,496,111
31 December 2015 Note Financial
Services
Rs. ’000
Government

Rs. ’000
Services

Rs. ’000
Manufacturing
and Power
Rs. ’000
Others

Rs. ’000
Total

Rs. ’000
Held-to-Maturity Financial Assets 12. (a)
Debt Securities 11,460,653 35,396,292 46,856,945
11,460,653 35,396,292 46,856,945
Loans and Receivables 12. (b)
Term Deposits 15,912,170 15,912,170
Repo Investments 49,811 49,811
Unquoted Debentures 250,000 250,000
Staff and Vehicle Loans
Other Loans 518,916 518,916
16,162,170 568,727 16,730,897
Available-for-Sale Financial Assets 12. (c)
Equity Securities 212,987 2,880 131,886 347,753
Debt Securities 512,405 190,915 703,320
725,392 190,915 2,880 131,886 1,051,073
Financial Assets at Fair Value Through 12. (d)
Profit or Loss
Equity Securities 392 98 19,660 433 20,583
Debt Securities 194,353 194,353
392 194,353 98 19,660 433 214,936
Total Credit Risk Exposure 28,348,607 35,781,560 98 22,540 701,046 64,853,852

The Below Table Indicates the Rating of Investments as at 31 December 2015 and 2016:

31 December 2016 Note AAA
Rs. ’000
AA+
Rs. ’000
AA
Rs. ’000
AA-
Rs. ’000
A+
Rs. ’000
A
Rs. ’000
A-
Rs. ’000
BBB+
Rs. ’000
BBB
Rs. ’000
BBB-
Rs. ’000
BB+
Rs. ’000
BB
Rs. ’000
BB-
Rs. ’000
B+
Rs. ’000
Not Rated
Rs. ’000
Total
Rs. ’000
Financial Instruments
Held-to-Maturity Financial Assets 12. (a)
Debt Securities 42,202,822 2,788,453 1,169,774 10,126,255 6,171,710 483,190 1,496,689 113,992 64,552,885
Loans and Receivables 12. (b) 3,986,263 1,000,000 1,600,000 127,945 3,467,200 35,100 585,050 250,000 25,000 504,102 11,580,660
Available-for-Sale Financial Assets 12. (c)
Equity Securities 11 224,831 135,487 360,329
Debt Securities 136,949 2,316 50,000 134,358 236,432 133,820 149,973 843,847
Financial Assets at Fair Value Through Profit or Loss 12. (d)
Equity Securities 37 47 369 36 1 16,741 17,231
Debt Securities 141,159 141,159
Total 46,467,229 3,790,769 2,819,821 10,388,927 9,875,378 652,121 2,231,712 588,823 25,000 1 656,330 77,496,111
31 December 2015 Note AAA
Rs. ’000
AA+
Rs. ’000
AA
Rs. ’000
AA-
Rs. ’000
A+
Rs. ’000
A
Rs. ’000
A-
Rs. ’000
BBB+
Rs. ’000
BBB
Rs. ’000
BBB-
Rs. ’000
BB+
Rs. ’000
BB
Rs. ’000
BB-
Rs. ’000
B+
Rs. ’000
Not Rated
Rs. ’000
Total
Rs. ’000
Financial Instruments
Held-to-Maturity Financial Assets 12. (a)
Debt Securities 35,396,292 1,689,293 4,755,486 3,300,884 643,990 947,009 113,992 10,000 46,856,946
Loans and Receivables 12. (b) 49,811 1,027,000 600,000 11,535,020 1,250,000 100 1,500,050 250,000 518,916 16,730,897
Available-for-Sale Financial Assets 12. (c)
Equity Securities 212,987 134,766 347,753
Debt Securities 190,915 2,316 168,360 107,935 83,820 149,975 703,320
Financial assets at Fair Value Through Profit or Loss 12. (d)
Equity Securities 37 45 322 25 20,153 20,583
Debt Securities 194,353 194,353
Total 35,831,409 2,718,609 600,045 16,459,188 4,658,843 727,910 2,597,034 576,979 683,836 64,853,852

40. (c) Liquidity Risk

Liquidity risk is the risk that Ceylinco Life will not be able to meet efficiently both expected and unexpected current and future cash flow and collateral needs, without affecting either daily operations or the financial condition of the firm.

In the context of providing financial protection to policyholders through Life Insurance, timely settlement of financial commitments such as customer benefits and claims is essential. In addition, preserving the confidence of the policyholders and investors are vital for a financial service provider such as Ceylinco Life.

Since a strain on liquidity would lead to fire sale of assets which would adversely affect the profitability and policyholder/investor confidence, zero tolerance is maintained for adverse deviations. Ceylinco Life ensures that sufficient liquid assets/credit lines are available to meet any such unforeseen cash outflows.

40. (d) Market Risk

Market risk is the risk that the market value or future cash flows of a financial instrument will fluctuate due to changes in market prices and/or financial variables directly/indirectly related to financial markets.

The sub-categories of market risk include:

i. Interest rate risk: the risk that the market value or future cash flows of a financial instrument will fluctuate due to changes in market interest rates. This includes reinvestment risk and inflation risk, which eventually impacts the interest rate.

ii. Exchange rate risk: the risk that the market value or future cash flows of a financial instrument will fluctuate due to changes in exchange rates.

iii. Equity price risk: the risk that the market value or future cash flows of a financial instrument will fluctuate due to changes in equity prices.

iv. Commodity price risk: the risk that the market value or future cash flows of a financial instrument will fluctuate due to changes in commodity prices.

40. (e) Currency Risk

The Group has no significant exposure of currency risk.

(ii) Interest Rate Risk

Interest rate risk is the risk that the market value or future cash flows of a financial instrument will fluctuate due to changes in market interest rates. This includes reinvestment risk and inflation risk, which eventually impacts the interest rate.

Since financial investments of Ceylinco Life consist mainly of fixed income securities (such as Government Securities, term deposits, corporate debt etc.), interest rate risk is one of the most significant risks faced by Ceylinco Life.

Given (a) unavailability of long term financial instruments with adequate yields, (b) cyclical and volatile movements in the domestic interest rates, and (c) frequent changes to taxation, to optimise the returns on its investment portfolio, Ceylinco Life diligently carries a duration mismatch in its asset liability management.

The Company’s investment policy identifies the volatile and cyclical nature of Sri Lankan interest rate environment. The Company closely monitors the current and future expected shifts in the monetary and fiscal policy, movements in domestic and global interest rates, inflation expectations, movements in exchange rates, Balance of Payment, changes in taxation and other key macroeconomic indicators when making investment decisions and fine tune the investment horizons/vehicles accordingly.

In addition to internal expertise, to ensure prudence and probity, the Company seeks the views of independent macro research providers in crafting investment strategy.

40. (f) Operational Risks

This is the risk that the Group may not meet its objectives due to failed, inadequate or incomplete internal processes, people, systems, controls, or due to external events. In the context of financial risk management, this involves management of operational risks which could lead to financial losses.

The Group manages operational risks by initiating a rigorous control framework and by monitoring and responding to potential risks. Controls include effective segregation of duties, access controls, authorisation and reconciliation procedures, ethical business practices and standards, staff education, training and assessment processes, including the use of internal audit.

40. (g) Maturity Profile

The following table summarises the maturity profile of the financial assets, financial liabilities and insurance contract liabilities of the Company based on remaining undiscounted contractual obligations, including interest payable and receivable.

For insurance contracts liabilities, maturity profiles are determined based on estimated timing of net cash outflows from the recognised insurance liabilities.

Maturity Analysis

Asset and Liabilities

31 December 2016
Note Total

Rs.
Less Than
1 Year
Rs.
1 Year to
3 Years
Rs.
3 Years to
5 Years
Rs.
5 Years to
15 Years
Rs.
More than
15 Years
Rs.
Assets
Financial Instruments Held-to-Maturity Financial Assets 12. (a)
Debt Securities 64,552,885 4,101,080 13,810,222 10,598,050 30,608,030 5,435,504
Loans and Receivables 12. (b) 11,580,660 10,152,711 74,723 1,017,710 335,517
Available-for-Sale Financial Assets 12. (c)
Equity Securities 360,329 360,329
Debt Securities 843,847 33,957 428,714 136,977 174,129 70,069
Financial Assets at Fair Value Through Profit or Loss 12. (d)
Equity Securities 17,231 17,231
Debt Securities 141,159 141,159
Assets Other than Financial Instruments
Reinsurance Receivables 15 41,298 41,298
Income Tax Recoverable 16. (a) 1,026,921 392,285 634,636
Loans to Life Policyholders 17 1,378,955 72,977 192,714 176,839 697,054 239,370
Premium Receivables 214,604 214,604
Accrued Income 18 3,469,524 3,469,524
Other Assets 19 315,112 315,112
Cash and Cash Equivalents 20 584,256 584,256
Total 84,526,781 19,377,804 15,141,009 11,929,576 31,955,889 6,122,503
Liabilities
Other Financial Liabilities 23 3,980,013 3,980,013
Reinsurance Payables 25,837 25,837
Trade and Other Payables 24 1,824,372 1,824,372
Bank Overdraft 20 230,080 230,080
6,060,301 6,060,301
Asset and Liabilities

31 December 2015
Note Total

Rs.
Less Than
1 Year
Rs.
1 Year to
3 Years
Rs.
3 Years to
5 Years
Rs.
5 Years to
15 Years
Rs.
More than
15 Years
Rs.
Assets
Financial Instruments Held-to-Maturity Financial Assets 12. (a)
Debt Securities 46,856,946 3,208,698 13,048,689 6,266,080 19,652,637 4,680,841
Loans and Receivables 12. (b) 16,730,897 14,592,371 1,774,919 18,230 345,376
Available-for-Sale Financial Assets 12. (c)
Equity Securities 347,753 347,753
Debt Securities 703,320 342,709 219,963 66,393 74,255
Financial Assets at Fair Value Through Profit or Loss 12. (d)
Equity Securities 20,583 20,583
Debt Securities 194,353 194,353
Assets Other than Financial Instruments
Reinsurance Receivables 15 46,007 46,007
Income Tax Recoverable 16. (a) 1,183,836 70,402 338,987 774,447
Loans to Life Policyholders 17 1,335,634 70,684 186,660 171,284 675,156 231,850
Premium Receivables 192,401 192,401
Accrued Income 18 2,485,422 2,485,422
Other Assets 19 310,435 310,435
Cash and Cash Equivalents 20 598,651 598,651
Total 71,006,238 21,575,071 15,886,317 7,450,004 20,739,562 5,355,282
Liabilities
Other Financial Liabilities 23 299,811 299,811
Reinsurance Payables 58,153 58,153
Trade and Other Payables 24 1,635,439 1,635,439
Bank Overdraft 20 443,955 443,955
2,437,358 2,437,358

41. Contingencies and Commitments

There are no any contingencies due to legal proceeding and regulations. Capital commitments relating to property, plant and equipment have been disclosed separately in Note 8 (c).

42. Assets Pledged

The following assets have been pledged as security for liabilities:

Nature of Assets Nature of Liability Carrying
Amount
Pledged
Rs. ’000
Included Under
Treasury Bonds Pledged to Seylan Bank PLC to Obtain Banking Facilities 136,000 Held-to-Maturities
Fixed Deposits Pledged to Seylan Bank PLC to Obtain Banking Facilities 50 Loans & Receivables
Fixed Deposits Pledged to Nations Trust Bank PLC to Obtain Banking Facilities 100 Loans & Receivables

43. Related Party Disclosures

According to Sri Lanka Accounting Standard (LKAS) 24 – ‘Related Party Disclosure’, Key Management Personnel (KMP) are those having authority and responsibility for planning, directing and controlling the activities of the entity. Accordingly, the Directors (including Executive and Non-Executive Directors) of the Company and their immediate family members have been classified as Key Management Personnel of the Company. In addition, Chief Executive Officer together with their immediate family members have also been classified as Key Management Personnel of the Company.

Immediate family member is defined as spouse or dependent. A dependent is defined as anyone who depends on the respective KMP for his/her financial needs. As the Ceylinco Insurance PLC (CIPLC) is the ultimate parent of the Company, and the Board of Directors of the CIPLC has the authority and responsibility of planning, directing and controlling the activities of the Company, the Directors of the CIPLC and their immediate family members have also been identified as Key Management Personnel of the Company.

Company
Year ended 31 December Note 2016 Rs. 2015 Rs.

43. I Amounts Received from Related Parties

Subsidiaries 43. I.a 4,557,997 2,493,100
Equity Accounted Investees 43. II.b 335,054,935 65,460,539
Other Related Companies 43. I.c 42,954,999 26,895,780
Key Management Personnel 43. I.d 1,224,744 927,507
Total 383,792,675 95,776,926

43. II Amounts Paid to Related Parties

Subsidiaries 43. II.a (514,993,271) (14,003,375)
Equity Accounted Investees 43. II.b (327,491,060) (343,627,477)
Other Related Companies 43. II.C (621,738,931) (10,009,040)
Key Management Personnel 43. II.d (324,617,446) (222,842,890)
(1,788,840,708) (590,482,782)

43. I.a Transaction with Related Parties Amount Received from Related Parties

Subsidiaries
Ceylinco Health Care Services Limited 43. IV.a 4,557,997 2,493,100
Serene Resorts Limited 43. IV.a
4,557,997 2,493,100

43. I.b Equity Accounted Investees

Citizen Development Business Finance PLC 43. IV.b 335,054,935 65,460,539
335,054,935 65,460,539

43. I.c Other Related Companies

Ceylinco General Insurance Limited 43. IV.c 42,954,999 26,895,780
42,954,999 26,895,780

43. I.d Key Management Personnel

Premium Received 43. III.d 1,224,744 927,507
1,224,744 927,507

43. II.a Amounts Paid to Related Parties

Subsidiaries
Ceylinco Health Care Services Limited 43.IV.a (257,126,976) (11,413,375)
Serene Resorts Limited 43.IV.a (257,866,295) (2,590,000)
(514,993,271) (14,003,375)

43. II.b Equity Accounted Investees

Citizen Development Business Finance PLC 43.IV.b (327,491,060) (343,627,477)
(327,491,060) (343,627,477)

43. II.c Other Related Companies

Ceylinco General Insurance Limited 43.IV.c (38,113,619) (10,009,040)
Ceylinco Insurance PLC 43.IV.c (583,625,313)
(621,738,931) (10,009,040)

43. II.d Key Management Personnel

Short term Employee Benefits 43.IV.d (254,493,555) (167,484,175)
Post Employment Benefits 43.IV.d (68,097,224) (50,007,881)
Legal Fees Paid 43.III.d (2,026,667) (5,350,834)
(324,617,446) (222,842,890)
Company
Year ended 31 December Note 2016
Rs.
2015
Rs.

43. III Transaction with Related Parties

43. III.a Subsidiaries

46.III.b
Premium Received/(Paid) 130,430 5,863
Rent Received/(Paid) 2,069,388 1,019,388
Investment in Shares (500,000,000)
Medical Fees for Staff and Customers (7,126,976) (11,413,375)
Reimbursement of Expenses 2,358,179 1,467,849
Training Expenses (7,866,295) (2,590,000)
(510,435,274) (11,510,275)

43. III.b Equity Accounted Investees

Insurance Premium Received/(Paid) 46.III.c 5,707,490 2,117,465
Purchase of Shares by the Company (72,441,000) (93,627,477)
Investment in Fixed Deposit (250,000,000) (250,000,000)
Maturity of Fixed Deposit 250,000,000
Claim (Received)/Paid (5,050,060)
Dividend Received/(Paid) 48,916,715 46,122,813
Rent Received/(Paid) 2,434,653 1,257,061
Interest Received/(Paid) 27,996,077 15,963,200
7,563,875 (278,166,938)

43. III.c Other Related Companies

Premium Paid 46.III.a (34,438,619) (10,009,040)
Premium Received 19,441,618 13,967,376
Dividend Received/(Paid) (3,675,000)
Rent Received/(Paid) 23,513,381 12,928,404
4,841,380 16,886,740

43. III.d Key Management Personnel

Premium Received (P D M Cooray, Palitha Jayawardena, S R Abeynayake, Ms. A K Seneviratne) 1,224,744 927,507
Legal Fees Paid (S B Caldera) (2,026,667) (5,350,834)
(801,923) (4,423,327)

43. IV Transaction with Related Parties – Subsidiaries

43. IV.a Ceylinco Healthcare Services Limited

Premium Received/(Paid) 130,430 5,863
Rent Received/(Paid) 2,069,388 1,019,388
Investment in Shares (250,000,000)
Medical Fees for Staff and Customers (7,126,976) (11,413,375)
Reimbursement of Expenses 2,358,179 1,467,849
(252,568,979) (8,920,275)
Serene Resorts Limited
Investment in Shares (250,000,000)
Training Expenses Paid (7,866,295) (2,590,000)
(257,866,295) (2,590,000)

43. IV.b Transaction with Related Parties – Associates

Citizen Development Business Finance PLC
Insurance Premium Received 5,707,490 2,117,465
Purchase of Shares by the Company (72,441,000) (93,627,477)
Investment in Fixed Deposit (250,000,000) (250,000,000)
Maturity of Fixed Deposit 250,000,000
Claim Paid (5,050,060)
Dividend Received/(Paid) 48,916,715 46,122,813
Rent Received/(Paid) 2,434,653 1,257,061
Interest Received/(Paid) 27,996,077 15,963,200
Total 7,563,875 (278,166,938)

43. IV.c Transaction with Related Parties – Other Related Companies

Ceylinco General Insurance Limited
Premium Paid (34,438,619) (10,009,040)
Premium Received 19,441,618 13,967,376
Claim Paid (3,675,000)
Rent Received 23,513,381 12,928,404
4,841,380 16,886,740
Ceylinco Insurance PLC
Dividend Paid (583,625,313)
(583,625,313)

43. IV.d Compensation of Key Management Personnel

Short term Employee Benefits (254,493,555) (167,484,175)
Post Employment Benefits (68,097,224) (50,007,881)
Total (322,590,779) (217,492,056)

Investment in Associate

No restrictions are placed on the ability of the associate to transfer funds to the parent company in the form of cash dividends or for the repayment of loans when due.

No guarantees or collaterals were provided to the associate.

The assets include investment in equity share of Ceylinco Insurance PLC, market value amounting to Rs. 2,020,997,259/- at the Reporting date (2015 – Rs. 2,653,630,527/-).

44. Events after the reporting date

Events after the Reporting period are those events, favourable and unfavourable, that occur between the Reporting date and the date when the Financial Statements are authorised for issue.

All material post Reporting date events have been considered and where appropriate, adjustments or disclosures have been made in the respective Notes to the Financial Statements.

45. Segregation

In terms of Section 53 of the Regulation of Insurance Industry (Amendment) Act No. 03 of 2011, all composite insurance companies were required to segregate their Life and General Insurance businesses into two separate legal entities (‘Segregation’). In consultation with the insurance industry, the Insurance Board of Sri Lanka (‘IBSL’) proposed the timeline for compliance as 1 January 2015 and issued a timetable with key milestones leading to the completion of the process by that date. Further, the IBSL has issued a set of Guidelines to Insurers in this regard.

As at 1 January 2015, Ceylinco Insurance PLC (CIPLC), the parent entity, complied with all the requirements, including obtaining Court approvals as required by the aforementioned Guidelines and the Regulation of Insurance Industry (Amendment) Act No. 03 of 2011. Additionally, on 22 April 2014, CIPLC incorporated Ceylinco Life Insurance Limited and Ceylinco General Insurance Limited as fully-owned subsidiaries of CIPLC in order to carry out the Life and General Insurance businesses, respectively. However, subsequently, a shareholder challenged the Judgment given by the District Court on the segregation and hence, the date of segregation was postponed.

Upon clearance of the above mentioned legal matters, the IBSL has approved 1 June 2015 to be the date of segregation and Ceylinco Insurance PLC transferred its Life and General insurance businesses to its newly formed subsidiary companies, Ceylinco Life Insurance Limited and Ceylinco General Insurance Limited, respectively, with effect from 1 June 2015.

Ceylinco Life Insurance Limited was incorporated on 22 April 2014 with a stated capital of Rs. 100 Mn issued on 28 April 2014 and increased the stated capital up to Rs. 500 Mn on 31 May 2015 by issuing 40 Mn new shares for a consideration of Rs. 400 Mn. Accordingly, with effect from 1 June 2015, Ceylinco Life Insurance Limited has become a Life Insurance Company while Ceylinco Insurance PLC has become the ultimate parent of the entity.

The transfer of the Life Insurance business to the Company was carried out by transferring the assets and liabilities of Ceylinco Insurance PLC pertaining to Life Insurance business at its carrying value as at 31 May 2015, with effect from 1 June 2015.

Ceylinco Insurance PLC would not be carrying on insurance business with effect from 1 June 2015.

Therefore, financial information disclosed under ‘Company’ includes insurance business information from date of segregation i.e. 1 June 2015.

We provide following disclosures of Life Insurance Segment incorporating comparative information of the same for the fair and better presentation of Financial Statements.

Comparative Information of Life Insurance Business

45. (a) Statement of Financial Position

As at 31 December Company
  2016
Rs. ’000
2015
Rs. ’000
Assets
Intangible Assets 2,759 645
Property, Plant and Equipment 7,068,634 5,343,752
Investment Properties 1,796,000 1,399,171
Investment in Subsidiaries 1,021,000 521,000
Investment in Associates 437,994 365,553
Financial Instruments
Held-to-Maturity Financial Assets 64,552,885 46,856,945
Loans and Receivables 11,580,660 16,730,897
Available-for-Sale Financial Assets 1,204,176 1,051,073
Financial Assets at Fair Value Through Profit or Loss 158,390 214,936
Employee Gratuity Benefit Asset 697,338 725,726
Employee Pension Benefit Asset 891,934 873,081
Reinsurance Receivables 41,298 46,007
Income Tax Recoverable 1,042,571 1,183,836
Loans to Life Policyholders 1,378,954 1,335,634
Premium Receivables 214,604 192,401
Accrued Income 3,469,524 2,485,422
Other Assets 315,112 310,435
Cash and Cash Equivalents 584,256 598,651
Total Assets 96,458,089 80,235,165
Equity and Liabilities
Equity Attributable to Equity Holders of Parent
Stated Capital 500,001 500,001
Retained Earnings 4,003,753 1,733,281
Other Reserves (60) (98,563)
Revaluation Reserves 96,484
Special Reserve 7,311,651 7,311,651
Total Equity 11,911,829 9,446,370
Liabilities
Insurance Contract Liabilities – Life 77,925,114 68,011,535
Insurance Contract Liabilities – Unit Linked 265,685 240,654
Insurance Contract Liabilities – Family Takaful 10,563 4,708
Individual Investment Fund ISF 56,880 22,700
Other Financial Liabilities 2,980,013 299,811
Deferred Tax Liabilities 227,716 71,840
Reinsurance Payables 25,837 58,153
Trade and Other Payables 1,824,372 1,635,439
Interest Bearing Borrowing 1,000,000
Bank Overdraft 230,080 443,955
Total Liabilities 84,546,260 70,788,796
Total Equity and Liabilities 96,458,089 80,235,165

Comparative Information of Life Insurance Business

45. (b) Statement of Comprehensive Income

For the Period Ended 31 December Company
  2016
Rs. ’000
2015
Rs. ’000
Change
%
Net Income 23,434,460 19,887,549 18
Gross Written Premiums 15,027,600 13,456,828 12
Premiums Ceded to Reinsurers (373,829) (310,054) 21
Net Written Premiums 14,653,771 13,146,774 11
14,653,771 13,146,774
Fees and Commission Income 120,399 90,377 33
Investment Income 8,180,786 6,474,428 26
Realised Gains and Losses (5,283) 61,172 (109)
Fair Value Gains and Losses 470,023 114,798 309
Fair Value Gains and Losses 14,763
Other Revenue 8,780,687 6,740,775 30
Gross Benefits and Claims Paid (6,800,076) (6,109,171) 11
Claims Ceded to Reinsurers 148,394 152,426 (3)
Gross Change in Contract Liabilities (8,397,889) (7,135,304) 18
Net Benefits and Claims (15,049,571) (13,092,049) 15
Acquisition Cost (1,693,985) (1,610,178) 5
Other Operating and Administrative Expenses (2,937,262) (2,994,099) (2)
Finance Cost (9,915) (10,214) (3)
Total Benefits, Claims and Other Expenses (19,690,733) (17,706,540) 11
Profit Before Tax 3,743,727 2,181,009 72
Income Tax Expense (664,686) (120,963) 449
Profit for the Year 3,079,041 2,060,046 49

Comparative Information of Life Insurance Business

45. (c) Statement of Comprehensive Income

For the Period Ended 31 December 2016
Rs. ’000
2015
Rs. ’000
Change
%
Profit for the Year 3,079,041 2,060,046 49
Other Comprehensive Income
Revaluation Surplus/(Deficit) During the Year 1,704,705
Net Gain/(Loss) on Available-for-Sale Assets 27,001 (98,564) (127)
Actuarial Gain on Defined Benefit Plans (221,053) (160,867) 37
Income Tax Relating to Components of Other Comprehensive Income (24,919) (9,053) 175
Other Comprehensive Income for the Year, Net of Tax 1,485,734 (268,484) (52)
Total Comprehensive Income for the Year, Net of Tax 4,564,775 1,791,562 65

Comparative Information of Life Insurance Business

45. (d) Insurance Revenue Account – Company

For the Period Ended 31 December 2016
Rs. ’000
2015
Rs. ’000
Change
%
Gross Written Premium 15,027,600 13,456,828 12
Net Written Premium (Net of Premiums Ceded to Reinsurers ) 14,653,771 13,146,773 11
Investment and Other Income Attributable to Policyholders 7,975,299 6,507,792 23
Net Benefits Payable (6,651,682) (5,956,760) 12
Increase in Long Term Insurance Fund (8,397,889) (7,135,305) 18
Acquisition Cost (1,693,985) (1,609,936) 5
Operating and Administrative Expenses Attributable to Policyholders (2,969,190) (2,971,012) (0)
Interest Expense (8,984) (10,195) (12)
Tax Expenses (607,340) (171,357) 254
Surplus from Life Insurance Business 2,300,000 1,800,000 28
Surplus From Life Insurance Business 2,300,000 1,800,000 28
Investment and Other Income not Attributable to Policyholders 805,390 227,908 253
Operating and Administrative Expenses not Attributable to Policyholders 31,929 (18,235) (275)
Interest Expense (932) (21) 4,336
Tax Expenses (57,346) 50,394 (214)
Profits from Operations After Interest Expense 3,079,041 2,060,046 49