Generac Holdings Inc
Annual Report 2012

Plain-text annual report

General Accident Insurance Company Jamaica Limited Annual Report 2012 Building on solid foundations General Accident 2012 Annual Report For more information, visit www.genac.com PEACE OF MIND CALL YOUR BROKER OR A GE NAC RE PRE SENTA TIV E FO R FUR THE R DET AILS 876-929-8451 // 876-929-8454 HEAD OFFICE: 58 HAL F WAY TRE E RO AD, KINGSTON 10, JAM AICA W.I. WWW .GENAC.COM Contents Statement of the Chairman Notice of Annual General Meeting Directors Report Our Performance Financial Statistics Management Discussion and Analysis Our Team Corporate Governance Board of Directors Leadership Team Accountability Corporate Data Disclosure of Share holding Our Community Corporate Social Responsibility Appendices Audited financial statements Form of Proxy 4 6 7 9 1 2 16 1 8 2 0 23 24 2 6 For more information, visit www.genac.com THE YEAR AT A GLANCE 14 $3.8 Consecutive years of premium growth Billion in gross written premiums $291 Million in net profit 24% Return on average equity 2 General Accident Insurance Company Jamaica Limited. ANNUAL REPORT 2012 Statement of the Chairman General Accident had another strong year in 2012. In many ways, our financial performance this year was a testimony to the resilience of our business. We faced several negative headwinds, among them: a recession, a hurricane and record low interest rates. Nevertheless, General Accident recorded the highest level of premiums and profits in our history. This was made possible because of our adherence to the principles that have served us well throughout the years: disciplined underwriting, con- servative risk management and a focus on serving the needs of our customers. Operating performance General Accident recorded a net profit of $290.5 million in 2012. If non-recurring gains are ex- cluded from last year’s results, our core profitability increased 32%. Importantly, we continued to under- write profitably this year. We have now made an underwriting profit in five of the last six years, outper- forming the industry by a significant margin over this period. This enviable record is directly attributable to the skill, judgment and prudence of our underwriting team. We also improved the management of our insurance float this year. Despite the lowest interest rates in decades and regulations that greatly limit our investment flexibility, last year we increased our investment income by 39%. I am also pleased to re- port that the direct impact of the JDX on our portfo- lio was inconsequential or less than 0.1% of our capi- tal. Underwriting profitably and investing our in- surance float wisely are the two most important driv- ers of our business. Unsurprisingly, in years like 2012 when we were fortunate enough to do both well, our business was very profitable. Capital management Outlook General Accident writes some of the largest and most complicated commercial property, engi- neering and marine risks in Jamaica. Our capacity to do so is a function or our own resources as well as the support of our international reinsurance part- ners. I am pleased to report that General Accident deepened and extended our relationships with our reinsurance partners this year. The Jamaican economy is likely to get worse before it gets better. Continued weak economic growth is likely to dampen the demand for insurance and keep insurance rates depressed. The Govern- ment of Jamaica’s precarious fiscal situation is likely to lead to even more turbulent markets for its secu- rities. Fortunately, neither a stagnant economy nor choppy financial markets are new to our Board or our Management. Our reinsurance partners are some of the largest and best capitalized in the world. They can choose to do business with any insurance company in any country in the world. In most instances, their fortunes will rise and fall with those of the people they support. We are aware that we are the stewards of their capital and their reputation and are deeply appreciative of their continued support. We believe we have an enduring high qual- ity business capable of continuing a long-term tra- jectory of profitable growth even in the face of these challenges. I would like to thank all of the employees, management and directors for their commitment and hard work throughout the year. I look forward to working with them in the coming year to maintain our positive momentum. As a result of our solid underwriting and in- vestment results this year, we made a return on aver- age equity of 24% on our capital base of $1.29 billion. We were also able to maintain our dividend policy by returning over $100 million to our shareholders while still growing our equity base. Governance This year I invited Max Rochester, a former partner and country head of Price water house Coo- pers to join the Board as an independent director. Mr. Rochester brings a wealth of accounting exper- tise to Board and will be a strong independent voice on financial matters. I am delighted that he accept- ed my invitation. Sincerely, P.B. Scott Chairman 4 General Accident Insurance Company Jamaica Limited. ANNUAL REPORT 2012 “In many ways, our financial performance this year was a testimony to the resilience of our business.” P.B. Scott / Chairman For more information, visit www.genac.com 5 Notice of Annual General Meeting GENERAL ACCIDENT INSURANCE COMPANY (JAMAICA) LIMITED $100,031,250 or 9.7 cents per ordinary share, as the total dividend for that year. NOTICE IS HEREBY GIVEN THAT the annual general meeting of General Accident Insurance Company (Jamaica) Limited (the “Company”) will be held at 10am on June 18th, 2013 at 58 Half Way Tree Road for shareholders to consider and, if thought fit, to pass the following resolutions: Ordinary Resolutions Dated this the 19th day of April 2013 By order of the Board. 1. To receive the report of the Board of Direc- tors and the audited accounts of the Company for the financial year ended December 31, 2012. P.B. Scott Chairman 2. To authorise the Board of Directors to re- appoint PWC as the auditors of the Company, and to fix their remuneration. 3. To re-appoint the following Directors of the Board, who have resigned by rotation in accor- dance with the Articles of Incorporation of the Com- pany and, being eligible, have consented to act on re-appointment: (a) To re-appoint Melanie Subratie as a Director of the Board of the Company. (b) To re-appoint Sharon Donaldson as a Director of the Board of the Company. (c) To re-appoint Christopher Nakash as a Director of the Board of the Company. 4. To authorise the Board of Directors to fix the remuneration of the Directors. 5. To approve the aggregate amount of interim dividends declared by the Board during the financial year ended 31st December 2012, being 6 General Accident Insurance Company Jamaica Limited. ANNUAL REPORT 2012 Dividend A dividend of $0.0485 per share paid on September 28, 2012 is proposed to be the final divi- dend in respect of the financial year ended Decem- ber 31, 2012. On behalf of the Board of Directors, P.B. Scott Chairman Directors Report The Directors are pleased to present their report for General Accident Insurance Company Jamaica Limited for the financial year ended December 31, 2012 Financial Results The Statement of Comprehensive Income for the Company shows pre-tax profits for the year of $285 million, taxation of $5.3 million and a net prof- it after-tax of $290.4 million. Details of these results, along with a comparison with the previous year’s performance and the state of affairs of the Company are set out in the Management Discussion and Analysis and the Financial Statements which are included as part of this Annual Report. Directors The Directors of the Company as at December 31, 2012 are: P.B. Scott, Melanie Subratie, Sharon Donaldson, Ralph Thompson, Geoffrey Messado, Christopher Nakash, Jennifer Scott, Nicholas Scott, Nigel Clarke, Duncan Stewart and Maxim Rochester. The Directors to retire by rotation in accordance with the Articles of Incorporation are: Melanie Subratie, Sharon Donaldson and Christp- pher Nakash but being eligible, will offer themselves for reelection. Auditors The auditors of the Company, Pricewate- houseCoopers of Scotiabank Centre, Duke Street, Kingston, Jamaica have expressed their willingness to continue in office. The Directors recommend their reappointment. For more information, visit www.genac.com 7 Our Performance Our Performance General Accident today Policies in force 15,876 Employees 77 Gross written premiums $3.8b Investment portfolio $1.8b Net worth $1.3b For more information, visit www.genac.com 9 6-Year Financial Statistics Employees 2012 77 2011 74 2010 2009 2008 2007 69 66 64 61 Policies in force 15,876 15,247 13,466 11,727 11,187 12,787 Gross written premiums 3,788,969 3,626,395 2,203,074 1,683,911 1,504,687 1,101,424 Net written premiums 991,175 866,513 784,562 592,741 434,117 502,721 Net earned premiums 932,818 819,490 693,085 599,663 356,433 477,774 Claims 540,775 420,142 426,624 391,416 360,568 273,074 Management expenses 332,903 300,592 241,641 204,357 169,613 150,519 Underwriting profit 117,362 161,589 68,862 33,818 (124,899) 31,997 Investment income Profit before tax Profit after tax Cash Dividends 186,114 285,269 290,537 100,031 1,015,010 204,565 134,106 288,007 89,834 1,341,478 244,775 141,300 142,810 94,685 1,284,816 213,944 105,299 149,018 86,221 90,925 95,000 270,000 - 40,000 Investment assets 1,780,642 1,602,732 1,727,588 1,357,765 1,265,838 1,177,126 Insurance reserves 2,199,132 2,042,511 1,511,904 1,163,257 1,100,096 854,434 Shareholders equity 1,288,850 1,140,743 1,270,502 1,034,229 1,157,244 1,028,409 10 General Accident Insurance Company Jamaica Limited. ANNUAL REPORT 2012 2012 2011 2010 2009 2008 2007 (2) Market Share Growth in gross written premiums Loss ratio Expense ratio (3) Underwriting margin Investment return (4) Return on average equity (5) Dividend yield on average equity Increase in net worth Total return to shareholders (6) 13% 4% 58% 9% 3% 10% 24% 8% 13% 21% 13% 10% 7% 7% 5% 65% 31% 12% 37% 40% 51% 62% 65% 101% 57% 11% 12% 11% 14% 3% 2% 2% -8% 12% 26% 8% 11% 10% 14% 88% 8% 25% 0% 3% 8% 8% 4% 8% 4% 9% (-11%) 23% (-11%) 13% (-7%) 77% 31% 14% (13%) (-3%) Notes: 1. Cash, cash equivalents, fixed income securities, equities and other investment assets 2. Based on gross written premium data from the Insurance Association of Jamaica 3. Management expenses divided by gross written premiums 4. Excludes gains from the sale of available for sale securities and subsidiary in 2011 and dividend from former subsidiary in 2010 5. Excludes gains from the sale of available for sale securities, subsidiary and property in 2011 and dividend from former subsidiary in 2010 6. Includes dividends and capital distributions paid to shareholders and increases in shareholders equity For more information, visit www.genac.com 11 Management Discussion and Analysis Our Business The Company’s principal business, conduct- ed through its operating segments, is the underwrit- ing of insurance risks in Jamaica. We write our busi- ness primarily through brokers and increasingly within the framework of a few exclusive strategic partner- ships. Our underwriting strategy promotes under- writing profitability over merely growing premium income. This strategy includes the key elements of careful risk selection, adequate pricing through strict underwriting discipline and responsive business mix changes as per market dictates. 2012 was a challenging year in many respects. General Accident had to absorb higher claims costs due to a very busy loss year. On top of this we had to contend with upheavals in the government bond markets and persistent low interest rates due to the continuing financial crisis. Not- withstanding the challenges, the company posted another strong year. We were able to close the year with improved profitability and capital efficiency. Financial Performance Highlights •14th consecutive year of premium growth •Net profit of $290.5 million, an increase of 32% (2011: $220.9 million, excluding non-recurring items) •Earnings per share of $0.28 (2011: $0.25, excluding non-recurring items) •Book value of $1.29 billion (2011: $1.14 billion) •Annualized return on average equity of 24% Underwriting Performance This year gross written premiums grew to $3.8 billion, an increase of 4%. This marks the 14th year in a row that General Accident has grown its gross written premiums. Net premiums earned on the other hand grew by 14% to $932 million as our motor portfolio outpaced growth in our other lines of busi- ness. Typically, we retain a greater share of premiums (and risk) in our motor business as compared to our commercial property, homeowners and liability busi- nesses. Despite increasing our net premiums earned considerably, our underwriting profit fell to $117.4 million. This is well below our record underwriting performance of $161.4 million last year. In fact, our combined ratio worsened from 88% in 2011 to 94% in 2012. The combined ratio, a widely used measure of insurance underwriting performance, is the sum of claims and management expenses divided by net premiums earned. Since we slightly improved our management expense efficiency, the increase in our combined ratio was caused solely by an uptick in claims. Our loss ratio worsened from 51% last year to 58% in 2012. This increase was as a result of three fac- tors: Hurricane Sandy, a large commercial property claim and an increase in the frequency and severity of our motor claims. Despite these challenges, we are proud of our underwriting performance. In the face of difficult market conditions, we have made an underwriting profit in 5 of the last 6 years and con- tinue to outperform our peers. Investment Performance Our principal investment objectives are to ensure that funds are available to meet our insur- ance and reinsurance obligations and to maximize after-tax investment income while maintaining a high quality diversified investment portfolio. Our investment portfolio performed well in 2012. Last year, when non-recurring items are ex- cluded, General Accident’s investment income was 12 General Accident Insurance Company Jamaica Limited. ANNUAL REPORT 2012 $133.9 million. This year, we generated investment income of $186.2 million or approximately 9.5% of our average investment portfolio. Including declines in the fair value of our holdings, our total investment re- turn was $141.3 million or 7.5%. Improved investment performance was the result of increases in our float and the more active and efficient management of our capital in the face of low interest rates. We are pleased to report that the impact on our financial performance following the National Debt Exchange was immaterial due to the composi- tion of our portfolio. Profitability General Accident’s core profitability in- creased significantly this year as greater investment income more than compensated for decreases in underwriting profits. Net profit for the year was $290.5 million or $0.28 per share. Last year, we reported a net profit of $1.29 billion. However, as we stressed at the time and have repeated since, this included over $1.06 billion of gains from the sale of long-term equity investments and real estate, which occurred just before our IPO. These gains had absolutely nothing to do with our core insurance business and are non- recurring. When we exclude these gains, our core net profit last year was $220.9 million or $0.25 per share. As a result, our core net profit increased by 32% in 2012. We continued our dividend policy in 2012, paying just over $100 million in cash to our shareholders or $0.097 per share, a slight increase over 2011. Gen- eral Accident ended 2012 with a book value of $1.29 billion and generated a return on average equity for shareholders of 24%. Capital Position Our business operations are in part depen- dent on our financial strength and the market’s perception of our financial strength, measured by Management Discussion and Analysis Sharon E. Donaldson Managing Director shareholder’s equity, which stood at $1.29 billion at December 31, 2012. loyal support. We will continue to make every effort to fulfill the expectations of all our stakeholders. I look forward to working with our team to continue to build our business. Sincerely, Sharon E. Donaldson Managing Director General Accident remains in compliance with the main capital adequacy and liquidity metrics prescribed by the Financial Services Commission that requires the company to maintain a minimum of 225% capital to risk weighted assets (MCT). At year- end our MCT ratio was 251%. The Company’s liquidity is ensured by means of detailed liquidity planning. As a rule, the com- pany generates significant liquidity from its premium income, regular investment income including maturi- ties. At December 31st, 2012 our liquidity ratio of 117% exceeds the regulatory minimum of 95%. In addition, we successfully renewed our treaty with our international reinsurance partners for 2013. Outlook 2013 The slowdown in the economic growth, cou- pled with decreasing real incomes, is expected to produce a curbing effect on the purchase of insur- ance. However, we believe that even in this difficult economic environment, there are opportunities for growth in a number of areas and our strong capital base and management competence enable us to systematically relocate capacity to such attractive business prospects. As we enter 2013, we have every reason to believe that market volatility will continue to be significant given the on going strong political events on the financial markets. However, by continuing our disciplined underwriting principles and sticking to our conservative approach to risk management, we also expect to generate satisfactory returns for our share- holders over the long-term. We wish to thank our all of our policyholders, brokers, reinsurers, and employees for their trust and 14 General Accident Insurance Company Jamaica Limited. ANNUAL REPORT 2011 Our Team Our Team Corporate Governance The Board of Directors of General Accident is responsible for the corporate governance of the company and is committed to establishing and maintaining the highest standards of corporate governance. The Board accepts and embraces the fundamental principles of transparency and accountability and is robust in the protection of all stakeholders’ interest. Our corporate governance policies are overseen by the Board who is vested with the re- sponsibility to ensure that prudent and effective con- trols are in place to promote sustainability and the achievement of strategic objectives. This includes the prudent management of risk and business assets in order to meet legal and regulatory requirements including attaining a high level of compliance. Board Selection The Board consists of eleven (11) members. Members are selected to provide a balance of pro- ficiency and experience. The Board monitors the company’s performance against budget on an on- going basis. Meetings are held quarterly or more fre- quently if the need arises. Board Committees The Board delegates specific duties to com- mittees vested with the authority provide guidance and oversight on strategic issues. There are four (4) committees in place and each committee has its own terms of reference, which is approved by the Board. Audit Committee The Audit committee consists of five (5) members, the majority of which must be indepen- dent members. The primary role of the committee is to review and approve annual returns, review inter- nal and external audit plans and subsequent find- ings, review external audit report and management control memoranda. Mr. Geoffrey Messado chairs the committee. During the period under review the committee met four (4) times and there were no known instances of fraud or reported irregularities. Investment and Loan The Investment and Loan committee con- sists of five(5) members. The Committee is chaired by Mrs. Melanie Subratie and has met four (4) times for the year. The committee is charged with the re- sponsibility of ensuring that the investment portfolio meets regulatory requirements and is in keeping with the Company’s investment policy. Conduct Review The conduct review committee consists of six (6) members, the majority of which must be inde- pendent members. The committee is chaired by Dr. Ralph Thompson and has met four (4) times for the year and is charged with the responsibility of ensur- ing that written procedures are in place to identify and prevent conflict of interest situations. Compensation Committee This committee consists of 4 members and is chaired by Mr. Maxim Rochester. 16 General Accident Insurance Company Jamaica Limited. ANNUAL REPORT 2012 Board of Directors Board of Directors Board Of Directors P.B. Scott (appointed November 1998) Chairman Sharon Donaldson (appointed March 2008) Managing Director Geoffrey Messado (appointed May 2001) Non Executive Director P.B. Scott is the Chairman of the Company. In addition to his role with the Company, Mr. Scott is the Chairman, Chief Executive Officer and principal shareholder of the Musson Group, one of the largest privately held groups in the region with business units in some 30 Caribbean and Central American countries including Facey Group Limited, T. Geddes Grant Limited, and others. Mr. Scott serves as a Director of several local companies and organisations including, Seprod and its subsidiaries (Chairman), Scotia Life Insurance Company Limited, the Jamaica Chamber of Commerce and the American International School in Kingston. He currently serves as Honorary Consul General in Jamaica for the Republic of Guatemala. Sharon Donaldson is the Managing Director of the Company. She has been responsible for driving its recent growth and for overseeing its prudent underwriting and risk management strategy. Ms. Donaldson has been with the Company for over 20 years, first joining as the Financial Controller in 1989 before becoming Managing Director in 2001. In addition to her responsibilities at the Company, Ms. Donaldson is a Director of Musson (Jamaica) Limited. Ms. Donaldson holds an LLB from the University of London, England, an M.B.A from University of Wales. She is a Chartered Accountant, a fellow member of the Institute of Chartered Accounts of Jamaica and an attorney at law. Geoffrey Messado is a non executive director of the Company and is Chairman of the Audit Committee of the Board. Mr. Messado is also the Financial Controller of the Musson Group, and he serves as a director of certain subsidiaries and affiliated companies. He also serves as Chairman of Mapco Printers Limited and as a director of Edgechem(Jamaica) Limited, the Coffee Industry Board, Clarendon Distillers Limited, Spirits Pool Association and Caribbean Molasses Company (Jamaica) Limited. Mr. Messado is a Chartered Accountant, FCA, FCAA, ATII. He is also the Past President of the Jamaica Exporters Association. Melanie Subratie (appointed March 2002) Deputy Chairman Melanie Subratie is the Deputy Chairman of the Company and Chairman of the Investment and Loan Committee of the Board. Mrs. Subratie is also Deputy Chairman of the Musson Group and a director of all of its principal subsidiaries and its affiliates. Mrs. Subratie holds a B.Sc. (Hons) from the London School of Economics. She began her career in the United Kingdom in the Financial Services Division of Deloitte & Touche and also worked for startup political news wire service DeHavilland prior to returning to Jamaica in 2002 and joining the Musson Board. Dr. Ralph Thompson, C.D. (appointed January 1993) Non Executive Director Christopher Nakash (appointed December 2006) Independent Non Executive Director Dr. Ralph Thompson is a non – executive director of the Company. He is also the Chairman of the Conduct Review Committee of the Board. Dr. Thompson was formally the Managing Direc- tor of C.D. Alexander Realty Company Limited and was formerly the Chief Executive Officer of Seprod Limited. He serves as a director of several entities within the Musson Group including Musson (Jamaica) Limited and T. Geddes Grant Limited. Dr. Thompson is also a former member of the New York Bar. Christopher Nakash is an independent Non executive Director of the Board of the Company. Mr. Nakash brings to the Board his management experience, gained as Chief Executive Officer of Nakash Construction & Equipment Limited. In the past, Mr. Nakash also served as General Manager of Netstream Global (2003 to 2008), and he was also a founding member and Director of the Riverton Improvement Association and Intelligent Multimedia Limited. Mr. Nakash holds a BBA from University of New Brunswick, Canada. 18 General Accident Insurance Company Jamaica Limited. ANNUAL REPORT 2012 Jennifer Scott (appointed December 2009) Non Executive Director Dr. Nigel L. Clarke (appointed August 2011) Non Executive Director Jennifer Scott is a non executive director of the Board of the Company. Mrs. Scott holds a B.Sc.(Hons) in Psychology from Newcastle University, United Kingdom. She later gained a Graduate Diploma in Legal Studies from Keele University, UK, the Certificate of Legal Practice from the College of Law, London and was admitted as a Solicitor of Supreme Court of England and Wales. She attended Norman Manley Law School, and was admitted as an Attorney-at-Law of the Supreme Court of Jamaica. She is a member of the legal practice of Clinton Hart & Co., Attorneys-at-Law. Dr. Nigel Clarke is a Non Executive Director of the Company. Dr. Clarke is also the Chief Operating Officer of the Musson Group and the Chief Executive Officer of one of its principal subsidiaries, Facey Group Limited. He also serves as a director of many of the Musson Group’s subsidiaries and affiliated companies. Prior to his return to Jamaica, Dr. Clarke worked as an Equity Derivatives Trader at Goldman Sachs in London, England. Dr. Clarke is the Chairman of the National Youth Orchestra of Jamaica. Dr. Clarke holds a B.Sc. In Mathematics from the University of the West Indies, as well as a M.Sc. from Oxford University and a D.Phil. from Oxford University of the United Kingdom, in Numerical Analysis. Maxim G. Rochester (appointed July 2012) Independent Non Executive Director Maxim G. Rochester is an independent non exec- utive director of the company. He holds a – B.Sc. (Account- ing) Hons. FCA and FCCA certification. Max is a member of the Chartered Association of Certified Accountants (UK) and The Institute of Chartered Accountants of Jamaica. He was also a member of the Accounting Standards Commit- tee of the Institute of Chartered Accountants of Jamaica (ICAJ) and played a significant role in the adoption of International Financial Reporting Standards in Jamaica. He also presented several papers at seminars hosted by ICAJ. Max is a former Territory Senior Partner of Pricewa- terhouseCoopers and was responsible for the quality and delivery of the audit of the financial statements of several major companies. As engagement partner, Max was responsible for the overall planning and execution of audit strategies and had the ultimate decision making responsibil- ity on all audit matters. Nicholas A. Scott (appointed July 2011) Non Executive Director Nicholas Scott is a non executive director of the Company. Mr. Scott is the Chief Investment Officer of the Investment and Financial Services businesses of the Musson Group. He is also a Director of Seprod Limited. He returned to Jamaica in 2009 after working as a private equity investor and investment banker at the Blackstone Group and Morgan Stanley in New York and Brazil. Mr. Scott holds a B.Sc. in Economics (Magna Cum Laude) from the Wharton School at the University of Pennsylvania, an M.B.A (Beta Gamma Sigma) from Columbia Business School and a M.P.A. from the Harvard Kennedy School of Government. Duncan Stewart (appointed August 2011) Independent Non Executive Director Duncan Stewart is an independent non executive director of the Company. Mr. Stewart is the General Manager of Stewart Motors Limited and is also involved in related family businesses Stewart’s Auto Sales Limited and its affiliated companies, Stewart’s Auto Paints Limited, Tropic Island Training Company Limited and Silver Star Motors Limited. Mr. Stewart joined as a third generation member after graduating from McGill University with a B.Eng. (Mech). Mr. Stewart is also a director of the Automobile Dealers Association and the Richard and Diana Stewart Foundation. He is also a sponsor of the family charity, Kind Hearts, which is run by his children and their cousins. Mr. Stewart is a past National Rally Champion. For more information, visit www.genac.com 19 Leadership Team Cheryll Henry Lochinvar Lungren Sharon Donaldson Maureen Hall Angella Reynolds 20 General Accident Insurance Company Jamaica Limited. ANNUAL REPORT 2012 Sharon Donaldson Managing Director See Board of Directors. Maureen Hall General Manager Ms. Maureen Hall is the General Manager of the Company with direct responsibility for the Claims and Underwriting Departments. Ms. Hall has been with the Com- pany for over 20 years. She joined the Company in 1989 as Credit Controller, was appointed Marketing and Customer Service Manager in January 1991 and later Claims Man- ager in June 1994. She was promoted to General Manager in 2006. Ms. Hall has also held executive posts at Kingston Terminal Operators Limited and Allied Insurance Brokers Limited. She also served as Coach of Jamaica’s National Netball Team for many years and remains a member of the sport’s international coaching committee. Ms. Hall holds a B. Ed (Hons) degree from the University of Sussex, England, as well as a Diploma in Mass Communication from the University of the West Indies, and a M.B.A from Manchester, University England. Ms. Hall is also an associate member of the Chartered Insurance Institute (UK). Lochinvar Lungren Financial Controller Mr. Lochinvar Lungren is the Financial Controller of the Company with responsibility for leading the finance, accounting and treasury functions. Mr. Lungren has been with the Company for over 20 years, joining in 1988 as an Accounting Clerk. He advanced to the position of Credit Officer in 1996 and he was then seconded to the Company’s found- ing joint venture partner, together with Musson (Jamaica) Limited, General Accident Fire and Life Assurance Compa- ny in Scotland. Mr. Lungren rejoined the Company in 1998. He left briefly to work as General Manager of JN’s finance arm before rejoining General Accident in 2005 as Financial Controller. Angella Reynolds Deputy General Manager Cheryll Henry Human Resources & Facilities Manager Ms. Angella Reynolds joined the Company in 2010. She is the Deputy General Manager of the Company in charge of Underwriting and Marketing. Ms. Reynolds has over 20 years of experience in the insurance industry, having previously held executive posts with the Grace Kennedy Group, Allied Insurance Brokers and Jamaica International Insurance Company. Ms. Reynolds is the holder of the Jamaican Insur- ance Diploma from the College of Insurance & Professional Studies. She is an associate member of the Chartered Insur- ance Institute (UK) and also holds a Diploma in Commercial Insurance Contract Wording from that organisation. Ms. Cheryll Henry is the Human Resources and Fa- cilities Manager of the Company. Ms. Henry has been with the Company for over 15 years. She joined the Company in 1996 as an Administrative Supervisor and, notably, within a 10 year period she rotated through every division, and was also appointed Operations Manager of Orrett& Musson Investment Company Limited, a former subsidiary of the Company. Ms. Henry holds a Bachelors degree in Manage- ment Studies from the University of the West Indies and a Di- ploma in Human Resource Management from the Institute of Management & Production. “Most of our executives have been with “Most of our executives have been with General Accident for over a decade” General Accident for over a decade” For more information, visit www.genac.com 21 For more information, visit www.genac.com 21 Cheryll Henry Lochinvar Lungren Sharon Donaldson Maureen Hall Angella Reynolds Accountability Accountability Corporate Data Chairman Deputy Charman Managing Director ................................................................. Directors: P.B. Scott Melanie Subratie Sharon Donaldson Dr. Ralph Thompson Geoffery Messado Jennifer Scott Christopher Nakash Nicholas Scott Dr. Nigel Clarke t Duncan Strewar Maxim G. Rochester ................................................................. Corporate Secretary: Geoffery Messado Appointed Actuary: Josh Worsham, FCAS, MAAA Auditors: PricewaterhouseCoopers Bankers: First Caribbean International Bank ........................................................................................... Leadership Team: Sharon Donaldson Maureen Hall Angella Reynolds Lochinvar Lungren Cheryll Henry Managing Director General Manager Deputy General Manager Financial Controller Human Resources & Facilities Manager ............................................................................................ Attorneys: DunnCox Patterson Mair Hamilton Registered Office: 58 Halfway Tree Road Kingston, Jamaica W.I. Telephone: (876) 929-2451 Fax: (876) 929-1074 Email: info@genac.com website: www.genac.com Registrar: Jamaica Central Securities Depository General Accident Insurance Company Jamaica Limited. ANNUAL REPORT 2012 23 Shareholdings of Top 10 Shareholders ........................................................................................................................................................................................................................................................................ Shareholders Shareholdings of Directors Director/ Connected persons %Owned Shares Shares Disclosure Of Shareholdings 1. Musson Jamaica Limited 824, 999,989 2. Mayberry West Indes Limited 29,333,387 3. Apex Pharmacy 11,588,279 4. Mayberry Managed Client Account 6,874,102 5. First Caribbean Int’l Sec. Ltd A/C B.U.T. 4,413,539 80.00 2.85 1.12 0.67 0.43 6. Barita Investment Ltd. - Long A/C(Trading) 3,709,461 0.36 7. Sharon Donaldson 8. Colin Steele 9. Konrad Limited 3,000,000 2,887,774 2,688,854 10. Lannaman & Morris(shipping) Limited 2,599,260 0.29 0.27 0.26 0.25 24 For more information, visit www.genac.com . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P.B. Scott NIL 824,999,989) NIL 824,999,989) 1. ( Musson Jamaica Limited 2. Melanie Subratie ( Musson Jamaica Limited 3. Sharon Donaldson 3,000,000) ( Self ( Junior Levine 177,758) 4. Dr Ralph Thompson NIL 5. Geoffery Messado 1,000,000 6. Jennifer Scott NIL 7. Christopher Nakash 1,698,020 1,980,198 8. Nicholas Scott 9. Duncan Stewart 2,475,190 ( and Deborah Strewart) ( and Diana Strewart) 10. Dr. Nigel Clarke 2,475,248 Shareholdings of the Management team ............................................................................................................ Manager/ connected persons 1. Sharon Donaldson ( self ( Junior Levin e 2. Maureen Hall 2,362,000) (and Anthony Dunbar 38,000) (and Errol Kellyman 3. Angella Reynolds 750,000 4. Lochinvar Lungren 645,482 1,980,198 5. Cheryll Henry 3,000,000) 177,758) Our Community Our Community Corperate Social Responsibility For General Accident, corporate social re- sponsibility is an important entranched mandate. We try to conduct our business in a manner consis- tent with excellent corporate citizenship as we seek to ensure that our operations create value for our shareholders, employees, customers, communities and the Jamaican environment. During the financial year under review, despite the financial challeng- es, we continued to play a significant role in nation building through our support of education, cultural heritage, sports, child welfare and the environment. Education and Cultural Heritage General Accident recognizes that the foster- ing of educational opportunities for young people plays a pivotal role in national development. The company renewed its partnership with Next Move Jamaica, with the provision of four (4) scholarships for students pursuing tertiary education in Jamaica. 26 For more information, visit www.genac.com of the nation’s youth as it not only builds patriotism, encourages friendship but inculcates important life skills and shapes character. General Accident is committed to Jamaica’s world renowned sports pro- gramme and our talented athletes. For more than 20 years, we have provided sponsorship of interna- tional tours and the underwriting of travelling costs for many athletes. We have been particularly strong support- ers of the Jamaica Netball Association and in 2012, General Accident provided financial assistance in the amount of J$1.50 million in cash and kind. Our programmes with netball also began some 20 years ago and apart from direct sponsorship of tours and travel, we promote the development of life skills for members of the national team. We continue to support the Chess Founda- tion of Jamaica through our sponsorship of chess competition for high schools to the tune of $300,000. St Jago High School won the 2012 competition. General Accident has supported the Ja- maica Cultural Development Commission (JCDC) since 2008 and in 2012, was again a sponsor of the Miss Festival Queen Competition. Sports Sports not only touches the lives of everyone, it is a unifying force for any nation. We recognize the invaluable contribution of sports in the development We also support the Jamaica Athletic As- sociation by providing sponsorship for Gibson Relays in February of each year, and for individual events such as the Phil Palmer Summer Tennis Camp held annually at the Jamaica Pegasus for over 70 children between the ages of 5 – 16. Child Welfare Environment In conjunction with the staff sports club, we provided much needed support in cash and kind to Sophie’s Place, a home for 27 children with disabili- ties. Each year, Our staff members organize a Christ- mas treat at the home and both staff and children are provided with gifts and day of fun and good food and care. A healthy natural environment is of vital im- portance to the insurance industry. We firmly believe all development should be sustainable and should not result in damage to natural resources. Since 1995, We have been a major donor to the Jamaica Environment Trust (JET), one of Jamaica’s leading en- vironmental non profit groups. General Accident has worked in partnership with JET to educate young Jamaicans about envi- ronmental issues via the Schools’ Environment Pro- gramme, to clean our country’s beaches, and has helped JET invest in training and development for its small staff complement. In recognition of our long standing support, JET recently named us a “Cham- pion for the Environment.” General Accident Insurance Company Jamaica Limited. ANNUAL REPORT 2012 27 Other support At General Accident we encourage our staff to be change leaders and to assit in the nation- al building process. In keeping with this mandate our staff also participated in a number of other CSR events, such as Relay for Life, which raises money for cancer patients; in addition to support for the Ja- maica Fire Brigade with the provision of some much needed office equipment. 28 For more information, visit www.genac.com Appendices Appendices GENERAL ACCIDENT INSURANCE COMPANY JAMAICA LIMITED Financial Statements 31 December 2012 General Accident Insurance Company Jamaica Limited Index 31 December 2012 Actuary’s Report Independent Auditors’ Report to the Members Financial Statements Statement of comprehensive income Statement of financial position Statement of changes in equity Statement of cash flows Notes to the financial statements Page 1 2 3 4-5 6 - 61 Independent Auditors’ Report To the Members of General Accident Insurance Company Jamaica Limited Report on the Financial Statements We have audited the accompanying financial statements of General Accident Insurance Company Jamaica Limited, set out on pages 1 to 61, which comprise the statement of financial position as at 31 December 2012 and the statements of comprehensive income, changes in equity and cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information. Management’s Responsibility for the Financial Statements Management is responsible for the preparation of financial statements that give a true and fair view in accordance with International Financial Reporting Standards and with the requirements of the Jamaican Companies Act, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors’ Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation of financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Members of General Accident Insurance Company Jamaica Limited Independent Auditors’ Report Page 2 Opinion In our opinion, the financial statements give a true and fair view of the financial position of General Accident Insurance Company Jamaica Limited as at 31 December 2012, and of its financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards and the requirements of the Jamaican Companies Act. Report on Other Legal and Regulatory Requirements As required by the Jamaican Companies Act, we have obtained all the information and explanations which, to the best of our knowledge and belief, were necessary for the purposes of our audit. In our opinion, proper accounting records have been kept, so far as appears from our examination of those records, and the accompanying financial statements are in agreement therewith and give the information required by the Jamaican Companies Act, in the manner so required Chartered Accountants 27 March 2013 Kingston, Jamaica General Accident Insurance Company Jamaica Limited Statement of Comprehensive Income Year ended 31 December 2012 (expressed in Jamaican dollars unless otherwise indicated) Page 1 Gross Premiums Written Reinsurance ceded Excess of loss reinsurance cost Net premiums written Changes in unearned premiums, net Net Premiums Earned Commission income Commission expense Claims expense Management expenses Underwriting Profit Investment income Other income Other operating expenses Profit before Taxation Taxation Net Profit for the Year Note 2012 $’000 2011 $’000 3,788,969 3,626,395 (2,665,753) (2,632,089) (132,041) (127,793) 991,175 (58,357) 932,818 295,485 866,513 (47,023) 819,490 294,374 (237,263) (231,689) 10 (540,775) (420,142) 11 12 (332,903) (300,592) 117,362 161,441 136,062 1,015,010 61,711 193,669 (29,866) (28,642) 285,269 1,341,478 15 5,268 (56,662) 290,537 1,284,816 Other Comprehensive Income: Unrealised (losses)/gains on available-for-sale investments, net of tax (30,959) 98,193 Gains recycled to profit or loss on disposal and maturity of available-for- sale investments Total Other Comprehensive Income TOTAL COMPREHENSIVE INCOME (11,440) (847,201) (42,399) (749,008) 248,138 535,808 EARNINGS PER SHARE 16 $0.28 $1.46 General Accident Insurance Company Jamaica Limited Statement of Changes in Equity Year ended 31 December 2012 (expressed in Jamaican dollars unless otherwise stated) Page 3 Balance at 31 December 2010 75,000 129,456 859,525 206,521 1,270,502 Share Capital Note $’000 Capital Reserves $’000 Fair Value Reserve $’000 Retained Earnings $’000 Total $’000 Comprehensive income : Net profit for the year Other comprehensive income Total comprehensive income Transactions with owners Issue of shares Dividends Profits capitalised – Capital distribution received Total transactions with owners Balance at 31 December 2011 Comprehensive income : Net profit for the year Other comprehensive income Total comprehensive income Transactions with owners 17 30 Dividends 17 - - - 395,358 - - 395,358 470,358 - - - - - - - - - 22,574 22,574 - 1,284,816 1,284,816 (749,008) - (749,008) (749,008) 1,284,816 535,808 - - - - - 395,358 (1,060,925) (1,060,925) (22,574) - (1,083,499) (665,567) 152,030 110,517 407,838 1,140,743 - - - - - 290,537 290,537 (42,399) - (42,399) (42,399) 290,537 248,138 - (100,031) (100,031) Balance at 31 December 2012 470,358 152,030 68,118 598,344 1,288,850 General Accident Insurance Company Jamaica Limited Statement of Cash Flows Year ended 31 December 2012 (expressed in Jamaican dollars unless otherwise indicated) Page 4 Cash Flows from Operating Activities Net profit Adjustments for items not affecting cash: Depreciation Amortisation of intangible assets Gain on sale of investments Gain on sale of leases Gain on disposal of subsidiary Unrealised gain on Unit Trust Fund Gain on disposal of property, plant and equipment Interest income Dividend income Capital distribution received Current taxation Deferred taxation Foreign exchange gains Increase in deferred policy acquisition cost Increase in insurance reserves Changes in operating assets and liabilities: Due from policyholders, brokers and agents Other receivables Loans receivable Other liabilities Due from related parties Due from reinsurers and coinsurers, net Taxation paid Net cash provided by operating activities Cash Flows from Investing Activities Acquisition of investments Leases receivable, net Acquisition of property, plant and equipment Acquisition of intangible asset Disposal of subsidiary Proceeds from disposal of property, plant and equipment Proceeds from disposal and maturity of investments Capital distribution received Dividend received Interest received Net cash provided by/(used in) by investing activities Note 2012 $’000 2011 $’000 290,537 1,284,816 24 25 11 11 12 11 11 11 15 15 24 25 30 15,057 14,808 (10,361) (999) - (4,510) (6,337) (110,708) (8,007) - - (5,268) (58,583) (6,316) 156,621 265,934 (74,893) (3,202) (1,037) (15,268) 406 79,789 251,729 (64,682) 187,047 (232,277) (21,040) (33,303) (10,757) - 9,207 210,025 - 8,007 112,376 42,238 15,563 13,079 (848,471) - (61,928) (7,103) (157,554) (74,934) - (22,574) 49,993 6,669 (6,506) (8,587) 530,607 713,070 46,656 3,182 (25,669) 23,982 12,693 (455,211) 318,703 (37,439) 281,264 (125,519) (41,962) (9,081) (10,732) (3,314) 12,315 31,271 22,574 20,000 72,868 (31,580) General Accident Insurance Company Jamaica Limited Statement of Cash Flows (Continued) Year ended 31 December 2012 (expressed in Jamaican dollars unless otherwise indicated) Net cash provided by/(used in) investing activities brought forward Cash Flows from Financing Activities Proceeds from issue of shares Dividends paid Net cash (used in)/provided by financing activities Increase in cash and cash equivalents Effect of exchange rate changes on cash and cash equivalents Cash and cash equivalents at beginning of year 2012 $’000 42,238 - (100,031) (100,031) 129,254 53,671 1,134,278 Page 5 2011 $’000 (31,580) 395,358 (90,925) 304,433 554,117 4,667 575,494 CASH AND CASH EQUIVALENTS AT END OF THE YEAR (NOTE 18) 1,317,203 1,134,278 Non- cash transactions The principal non-cash transactions in the prior year were as follows: Dividends declared and paid Proceeds from sale of available-for-sale equity investments Procceds from sale of subsidiary Proceeds from disposal of property, plant and equipment . 2012 $’000 - - - - - 2011 $’000 970,000 887,287 66,288 189,000 2,112,575 General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2012 (expressed in Jamaican dollars unless otherwise indicated) Page 6 1. Identification and Activities General Accident Insurance Company Jamaica Limited is incorporated and domiciled in Jamaica. On 21 September 2012, the company issued ordinary shares to the public, and became listed on the Jamaica Junior Stock Exchange. Consequent on the listing of its shares, the company became an 80% subsidiary of Musson (Jamaica) Limited (Musson), having previously been a wholly owned subsidiary of Musson. The registered office of the company is located at 58 Half-Way-Tree Road, Kingston 10. The Company’s ultimate parent company, Musson, is incorporated and domiciled in Jamaica. The company is licensed to operate as a general insurance company under the Insurance Act, 2001. Its principal activity is the underwriting of commercial and personal property and casualty insurance. 2. Summary of Significant Accounting Policies The principal financial accounting policies adopted in the preparation of these financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. (a) Basis of preparation These financial statements have been prepared in conformity with International Financial Reporting Standards (IFRS) and have been prepared under the historical cost convention as modified by the revaluation of certain financial instruments carried at fair value. The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Company’s accounting policies. Although these estimates are based on managements’ best knowledge of current events and action, actual results could differ from those estimates. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in Note 7. Accounting pronouncements effective in 2012 which are relevant to the Company’s operations Certain new standards, amendments and interpretations to existing standards have been published that became effective during the current financial year and are relevant to the Company’s operations. The adoption of these new pronouncements has impacted the Company as discussed below. • IFRS 7, (Amendment) ‘Financial Instruments: Disclosures’ (effective 1 July 2011). This amendment requires additional disclosures in respect of risk exposures arising from transferred financial assets. The amendment includes a requirement to disclose by class of asset the nature, carrying amount and a description of the risks and rewards of financial assets that have been transferred to another party yet remain on the entity's statement of financial position. Disclosures are also required to enable a user to understand the amount of any associated liabilities, and the relationship between the financial assets and associated liabilities. The company has adopted the amendment effective 1 January 2012, however there was no impact on the entity’s disclosures. General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2012 (expressed in Jamaican dollars unless otherwise indicated) Page 7 2. Summary of Significant Accounting Policies (Continued) (a) Basis of preparation (continued) Accounting pronouncements that are not yet effective, and have not been early adopted At the date of authorisation of these financial statements, certain new standards, interpretations and amendments to existing standards have been issued which are mandatory for the Company’s accounting periods beginning on or after 1 January 2012 or later periods, but were not effective at the date of the statement of financial position, and which the Company has not early adopted. The Company has assessed the relevance of all such new standards, interpretations and amendments, has determined that the following may be relevant to its operations, and has concluded as follows: • • • • • IAS 1 (Amendment), ‘Presentation of financial statements’ (effective 1 July 2012). This amendment changes the disclosure of items presented in other comprehensive income (OCI) in the statement of comprehensive income. The amendment requires entities to separate items presented in OCI into two groups, based on whether or not they may be recycled to profit or loss in the future. The Company will adopt the amendments from 1 January 2013. IFRS 9, ‘Financial instruments’ (effective 1 January 2015). The standard introduces new requirements for the classification and measurement of financial assets and liabilities and is effective from 1 January 2015 with early adoption permitted. The standard divides all financial assets and liabilities that are currently in the scope of IAS 39 into two classifications – those measured at amortised cost and those measured at fair value. This standard is a work in progress and will eventually replace IAS 39 in its entirety. Management is currently assessing the impact this may have on the Company. IFRS 11, ‘Joint arrangements,’ (effective 1 January 2013). The standard gives a more realistic reflection of joint arrangements by focusing on the rights and obligations of the arrangement rather than its legal form. There are two types of joint arrangement: joint operations and joint ventures. Joint operations arise where a joint operator has rights to the assets and obligations relating to the arrangement and hence accounts for its interest in assets, liabilities, revenue and expenses. Joint ventures arise where the joint operator has rights to the net assets of the arrangement and hence equity accounts for its interest. Proportional consolidation of joint ventures is no longer allowed. The Company is yet to assess IFRS 11’s full impact and intends to adopt IFRS 11 no later than the accounting period beginning on or after 1 January 2013. IFRS 12, 'Disclosures of interests in other entities' (effective 1 January 2013). This standard includes the disclosure requirements for all forms of interests in other entities, including joint arrangements, associates, special purpose vehicles and other off balance sheet vehicles. Management is currently assessing the impact this may have on the Company. IFRS 13, ‘Fair Value Measurement’, (effective 1 July 2013). This standard, aims to improve consistency and reduce complexity by providing a precise definition of fair value and a single source of fair value measurement and disclosure requirements for use across IFRSs. The requirements, which are largely aligned between IFRSs and US GAAP, do not extend the use of fair value accounting but provide guidance on how it should be applied where its use is already required or permitted by other standards within IFRSs or US GAAP. The Company will adopt the standard from 1 January 2014. General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2012 (expressed in Jamaican dollars unless otherwise indicated) 2. Summary of Significant Accounting Policies (Continued) Page 8 (b) Revenue and income recognition Revenue comprises the fair value of the consideration received or receivable for the provision of services in the ordinary course of the Company’s activities. Revenue is shown net of General Consumption Tax and is recognised as follows: Insurance services Gross premiums written are recognised on a pro-rated basis over the life of the policies written. The portion of premiums written in the current year which relates to coverage in subsequent years is deferred as unearned premiums (Note 2(q)(i)). Commissions payable on premium income and commissions receivable on reinsurance of risks are charged and credited to profit or loss, respectively, over the life of the policies. Interest income Interest income is recognised on a time-proportion basis using the effective interest method. When a receivable is impaired, the Company reduces the carrying amount to its recoverable amount, being the estimated future cash flow discounted at the original effective interest rate of the instrument, and continues unwinding the discount as interest income. Dividend Dividend income for equities is recognised when the right to receive payment is established. Rental income Rental income is recognised on an accrual basis. (c) Foreign currency translation (i) Functional and presentation currency Items included in the financial statements of the Company are measured using the currency of the primary economic environment in which it operates (the functional currency). The financial statements are presented in Jamaican dollars which is also the company’s functional currency. (ii) Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss. Translation differences resulting from changes in the amortised cost of foreign currency monetary assets classified as available-for-sale are recognised in profit or loss. Other changes in the fair value of these assets are recognised in other comprehensive income. Translation differences on non-monetary financial assets classified as available-for-sale are reported as a component of the fair value gain or loss in other comprehensive income. (d) Financial instruments Financial instruments carried on the statement of financial position include investments, due to and from related parties, due to and from reinsurers and coinsurers, due from policyholders, brokers and agents, loans and other receivables, cash and short term investments, other liabilities and claims liabilities. The particular recognition methods adopted are disclosed in the individual policy statements associated with each item. The fair values of the company’s financial instruments are discussed in Note 6. General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2012 (expressed in Jamaican dollars unless otherwise indicated) 2. Summary of Significant Accounting Policies (Continued) Page 9 (e) Cash and cash equivalents Cash and cash equivalents are stated at cost. For purposes of the cash flow statement, cash and cash equivalents comprise balances with maturity dates of less than 90 days from the dates of acquisition including cash and bank balances and deposits held on call with banks. (f) Investments Investments are classified as held-to-maturity, available-for-sale and fair value through profit or loss. Management determines the appropriate classification of investments at the time of purchase. Purchases and sales of investments are recognised on the trade date, which is the date that the Company commits to purchase or sell the asset. (i) Held-to-maturity financial assets Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturities that the Company’s management has the positive intention and ability to hold to maturity. Were the Company to sell other than an insignificant amount of held-to-maturity assets, the entire category would be tainted and reclassified as available-for-sale. Held-to-maturity investments are initially recorded at fair value and subsequently measured at amortised cost. (ii) Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss are financial assets held for trading or designated at fair value through profit or loss at inception. The Company has designated certain of its equity securities as fair value through profit or loss as they are managed and their performance evaluated on a fair value basis. Investments classified as fair value through profit or loss, are initially recognised at fair value and transaction costs are expensed through profit or loss. Investments at fair value through profit or loss are subsequently measured at fair value. Gains or losses arising from changes in the fair value of investments at fair value through profit or loss are presented in investment income in arriving at profit or loss. (iii) Available for sale financial assets Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories. Available-for-sale investments are initially recognised at fair value, which includes transaction costs, and subsequently carried at fair value based on quoted bid prices or amounts derived from cash flow models. Unrealised gains and losses arising from changes in fair value of available-for-sale securities are recognised in other comprehensive income. Equity securities for which fair values cannot be measured reliably are recognised at cost less impairment. When securities classified as available-for-sale are sold or impaired, the accumulated fair value adjustments in equity at the date of disposal or impairment are reclassified to profit or loss. (iv) Reclassification of financial assets Financial assets are reclassified if; as a result of a change in intention or ability, management has determined that it is no longer appropriate to classify an investment as held-to-maturity.   General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2012 (expressed in Jamaican dollars unless otherwise indicated) Page 10 2. Summary of Significant Accounting Policies (Continued) (f) Investments (continued) (v) Impairment of financial assets A financial asset is considered impaired if its carrying amount exceeds its estimated recoverable amount. The Company assesses at each year end whether there is objective evidence that a financial asset or group of financial assets is impaired. The amount of the impairment loss for assets carried at amortised cost is calculated as the difference between the asset’s carrying amount and the present value of expected future cash flows discounted at the original effective interest rate. The recoverable amount of a financial asset carried at fair value is the present value of expected future cash flows discounted at the current market interest rate for a similar financial asset. In the case of equity securities classified as available-for- sale, a significant or prolonged decline in the fair value of the security below its cost is considered as an indicator that the securities are impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss - measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in other comprehensive income – is recycled through other comprehensive income and recognised in profit or loss for the current year. Impairment losses recognised in profit or loss on equity instruments are not reversed through profit or loss. (g) Loans and receivables The Company classifies its financial assets other than investments in the loans and receivables category. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification at initial recognition and re-evaluates this designation at every reporting date. Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Financial assets classified as loans and receivables either meet the definition of loans and receivables at the date of acquisition, or at the date of reclassification from another category (fair value through profit or loss or available-for-sale). Leases and loans receivable have been classified as loans and receivables. (h) Loans receivable Loans are recognised when the cash is advanced to borrowers. They are initially recorded at fair value, which is the cash given to originate the loan including any transaction costs, and subsequently measured at amortised cost using the effective interest rate method. A provision for bad debts is established if there is objective evidence that a loan is impaired. A loan is considered impaired when management determines that it is probable that all amounts due will not be collected according to the original contractual terms. When a loan has been identified as impaired, the carrying amount of the loan is reduced by recording specific provisions for bad debt to its estimated recoverable amount, which is the present value of the expected future cash flows including amounts recoverable from guarantees and collateral, discounted at the original effective interest rate of the loan. General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2012 (expressed in Jamaican dollars unless otherwise indicated) 2. Summary of Significant Accounting Policies (Continued) Page 11 (i) Leases Leases of property, plant and equipment where the Company has substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalised at the inception of the lease at the lower of the fair value of the leased property or the present value of the minimum lease payments. Each lease payment is allocated between the liability and finance charges so as to achieve a constant rate on the finance balance outstanding. The corresponding rental obligations, net of finance charges, are included in non-current borrowings. The interest element of the finance cost is charged to the statement of comprehensive income over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. Property, plant and equipment acquired under finance leases are depreciated over the shorter of the useful life of the asset or the lease term. Leases where a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the statement of comprehensive income on a straight-line basis over the period of the lease. When an operating lease is terminated before the lease period has expired, any payment required to be made to the lessor by way of penalty is recognised in profit or loss in the period in which termination takes place (j) Insurance contracts Insurance contracts are those contracts that transfer significant insurance risk. The Company’s insurance contracts are classified as short-term insurance contracts which include casualty and property insurance contracts. Casualty insurance contracts protect the Company’s customers against the risk of causing harm to third parties as a result of their legitimate activities. Damages covered include both contractual and non-contractual events. The typical protection offered is designed for employers who become legally liable to pay compensation to injured employees (employer’s liability) and business customers who become liable to pay compensation to a third party for bodily harm or property damage (public liability). Property insurance contracts mainly compensate the Company’s customers for damage suffered to their properties or for the value of property lost. Customers who undertake commercial activities on their premises could also receive compensation for loss of earnings caused by the inability to use the insured properties in their business activities (business interruption cover). Premiums are recognised as revenue (earned premiums) proportionally over the period of coverage. The portion of premium received on in-force contracts that relates to unexpired risk at the date of the statement of financial position is reported as unearned premium in Insurance Reserves. Premiums are shown before deductible commission. Claims and loss adjustments expenses are charged to profit or loss as incurred based on estimated liability for compensation owed to contract holders or third parties damaged by the contract holders. They include direct and indirect claims settlement costs and arise from events that have occurred up to the date of the statement of financial position even if they have not yet been reported to the Company. The Company does not discount its liabilities for unpaid claims. Liabilities for unpaid claims are estimated using the input of assessments for individual cases reported to the Company. Statistical analysis is used to estimate claims incurred but not reported, as well as the expected ultimate cost of more complex claims that may be affected by external factors. General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2012 (expressed in Jamaican dollars unless otherwise indicated) 2. Summary of Significant Accounting Policies (Continued) Page 12 (k) Receivables and payables related to insurance contracts Receivables and payables related to insurance contracts are recognised when due. These include amounts due to and from agents, brokers and insurance contract holders. If there is objective evidence that the insurance receivable is impaired, the Company reduces the carrying amount of the insurance receivable accordingly and recognises the impairment loss in profit or loss. (l) Reinsurance ceded Contracts entered into by the Company with reinsurers under which the Company is compensated for losses on one or more contracts issued by the Company are classified as reinsurance contracts. The benefits to which the Company is entitled under its reinsurance contracts held are recognised as reinsurance assets. These assets consist of short–term balances due from reinsurers as well as longer term receivables that are dependent on the expected claims and benefits arising under the related reinsurance contracts. Amounts recoverable from or due to reinsurers are measured consistently with amounts associated with the reinsured insurance contracts and in accordance with the terms of each reinsurance contract. Reinsurance liabilities are primarily premiums payable for reinsurance contracts and are recognised as an expense when due. Estimated amounts of reinsurance recoverable, which represent the portion of unearned premiums ceded to the reinsurers, are included in recoverable from reinsurers on the statement of financial position. The Company relies upon reinsurance agreements to limit the potential for losses and to increase its capacity to write insurance. Reinsurance arrangements are effected under reinsurance treaties and by negotiation on individual risks. Reinsurance does not relieve the Company from liability to its policyholders. To the extent that a reinsurer may be unable to pay losses for which it is liable under the terms of the reinsurance agreement, the Comapany is exposed to the risk of continued liability for such losses. However, in an effort to reduce the risk of non-payment, the Company requires all of its reinsurers to have a Standard & Poor or equivalent rating of A- or better. The Company assesses its reinsurance assets for impairment. If there is objective evidence that the reinsurance asset is impaired, the Company reduces the carrying amount of the reinsurance asset to its recoverable amount and recognises that impairment loss in profit or loss. (m) Deferred policy acquisition costs The cost of acquiring and renewing insurance contracts, including commissions, underwriting and policy issue expenses, which vary with and are directly related to the contracts, are deferred over the unexpired period of risk carried. Deferred policy acquisition costs are subject to recoverability testing at the time of policy issue and at the end of each accounting period. (n) Property, plant and equipment Land is stated at historical cost. All other property, plant and equipment are stated at historical cost less accumulated depreciation and impairment. Depreciation is computed on the straight line method at rates estimated to write off the assets over their expected useful lives as follows: Buildings Furniture, fixtures and equipment Motor vehicles 5% and 2.5% 10% 25% General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2012 (expressed in Jamaican dollars unless otherwise indicated) Page 13 2. Summary of Significant Accounting Policies (Continued) (n) Property, plant and equipment (continued) Property, plant and equipment are reviewed periodically for impairment. Where the carrying amount of an asset is greater than its estimated recoverable amount, it is written down immediately to its recoverable amount. Gains and losses on disposals are determined by comparing proceeds with carrying amount and are included in operating profit. Repairs and maintenance expenses are charged to profit or loss during the financial period in which they are incurred. The cost of major renovations is included in the carrying amount of the asset when it is probable that future economic benefits in excess of the originally assessed standard of performance of the existing asset will flow to the Group. Major renovations are depreciated over the remaining useful life of the related asset. (o) Intangible assets Computer software Acquired software licences are capitalised on the basis of the costs incurred to acquire and bring to use the specific software. These costs are amortised on the basis of the expected useful life, which is between three to five years. (p) Impairment of long-lived assets Long-lived assets are reviewed for impairment losses whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the carrying amount of the asset exceeds its recoverable amount, which is the higher of an asset’s net selling price and value in use. For the purpose of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows. (q) Insurance reserves Under the Insurance Regulations, 2001, the Company is required to actuarially value its insurance reserves annually. Consequently, provision for claims incurred but not reported (IBNR) has been independently actuarially determined. The remaining components of the reserves are also reviewed by the actuary in determining the overall adequacy of the provision for the Company’s insurance liabilities. (i) Provision for unearned premium The provision for unearned premium represents that proportion of premiums written in respect of risks to be borne subsequent to the year end, under contracts entered into on or before the date of the statement of financial position and is computed by applying the “365th” method to gross written premiums for the period, except for marine where the unearned premium reserve is calculated as 20% of the year’s gross written premiums. (ii) Unearned commission The unearned commission represents the actual commission income on premium ceded on proportional reinsurance contracts relating to the unexpired period of risk carried. The income is deferred as unearned commission reserves, and amortised over the period in which the commissions are expected to be earned. These reserves are calculated on the 365th method. General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2012 (expressed in Jamaican dollars unless otherwise indicated) Page 14 2. Summary of Significant Accounting Policies (Continued) (q) Insurance reserves (continued) (iii) Claims outstanding A provision is made to cover the estimated cost of settling claims arising out of events which occurred by the year end, including claims incurred but not reported (IBNR), less amounts already paid in respect of those claims. This provision is estimated by management (insurance case reserves) and the appointed actuary (IBNR) on the basis of claims admitted and intimated. (iv) Claims incurred but not reported The reserve for IBNR claims has been calculated by an independent actuary using the Paid Loss Development method, the Incurred Loss Development method, the Bornhuetter-Ferguson Paid Loss method, the Bornhuetter-Ferguson Incurred Loss method, the Expected Loss Ratio method and the Frequency-Severity method (Note 28). This calculation is done in accordance with the Insurance Act 2001. (r) Accounts payable Payables are recognised at fair value and subsequently measured at amortised cost. (s) Taxation Taxation on the profit or loss for the year comprises current and deferred tax. Current and deferred taxes are recognised as income tax expense or benefit in net profit or loss in the statement of comprehensive income except where they relate to items recorded in other comprehensive income or equity, in which case they are also charged or credited to other comprehensive income or equity. (i) Current taxation Current tax is the expected taxation payable on the taxable income for the year, using tax rates enacted at date of the statement of financial position, and any adjustment to tax payable and tax losses in respect of the previous years. (ii) Deferred income taxes Deferred tax liabilities are recognised for temporary differences between the carrying amounts of assets and liabilities and their amounts as measured for tax purposes, which will result in taxable amounts in future periods. Deferred tax assets are recognised for temporary differences which will result in deductible amounts in future periods, but only to the extent it is probable that sufficient taxable profits will be available against which these differences can be utilised. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the asset will be realised or the liability will be settled based on enacted rates. (t) Employee benefits (i) Pension obligations The Company participates in the defined contribution pension plan of a related company, T. Geddes Grant (Distributors) Limited. A defined contribution pension plan is a pension plan under which the Company pays fixed contributions into a separate entity. The Company has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods. The contributions paid by the Company are recorded as an expense in profit or loss. General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2012 (expressed in Jamaican dollars unless otherwise indicated) Page 15 2. Summary of Significant Accounting Policies (Continued) (t) Employee benefits (continued) (ii) Accrued vacation Employee entitlements to annual leave are recognised when they accrue to employees. A provision is made for the estimated liability for annual leave as a result of services rendered by employees up to the date of the statement of financial position. (iii) Termination benefits Termination benefits are payable whenever an employee’s employment is terminated before the normal retirement date or whenever an employee accepts voluntary redundancy in exchange for these benefits. The Company recognises termination benefits when it is demonstrably committed to either terminating the employment of current employees according to a detailed formal plan without possibility of withdrawal or providing termination benefits as a result of an offer made to encourage voluntary redundancy. (iv) Profit-sharing and bonus plan The Company recognises a liability and an expense for bonuses and profit-sharing, based on a formula that takes into consideration the profit attributable to the Company’s shareholders after certain adjustments. The Company recognises a provision where contractually obliged or where there is a past practice that has created a constructive obligation. (u) Dividend distribution Dividend distribution to the Company’s shareholders is recognised as a liability in the Company’s financial statements in the period in which the dividends are approved by the Company’s shareholders. (v) Segment reporting Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, which is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Board of Directors that makes strategic decisions. General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2012 (expressed in Jamaican dollars unless otherwise indicated) 3. Responsibilities of the Appointed Actuary and External Auditors Page 16 The Board of Directors, pursuant to the Insurance Act, appoints the Actuary. His responsibility is to carry out an annual valuation of the Company’s claims liabilities and insurance reserves in accordance with accepted actuarial practice and regulatory requirements and report thereon to the shareholders. In performing the valuation, the Actuary analyses past experience with respect to number of claims, claims payment and changes in estimates of outstanding liabilities. The shareholders, pursuant to the Companies Act, appoint the external auditors. Their responsibility is to conduct an independent and objective audit of the financial statements in accordance with International Standards on Auditing and report thereon to the shareholders. In carrying out their audit, the auditors also make use of the work of the appointed Actuary and his report on claims liabilities and insurance reserves. 4. Insurance and Financial Risk Management (a) Insurance risk The Company’s activities expose it to a variety of insurance and financial risks and those activities necessitate the analysis, evaluation, control and/or acceptance of some degree of risk or combination of risks. Taking various types of risk is core to the financial services business and operational risks are an inevitable consequence of being in business. The Company’s aim is therefore to achieve an appropriate balance between risk and return and minimise potential adverse effects on the Company’s financial performance. The Board of Directors is ultimately responsible for the establishment and oversight of the risk management framework. The Board of Directors has established committees and departments for managing and monitoring risks, as follows: (i) Investment and Loan Committee The Investment and Loan Committee is responsible for monitoring and approving investment strategies for the Company. (ii) Finance Department The Finance Department is responsible for managing the Company’s assets and liabilities and the overall financial structure. It is also primarily responsible for managing the funding and liquidity risks of the Company. (iii) Conduct Review Committee The Conduct Review Committee is responsible for monitoring the Company’s adherence to regulatory and statutory requirements. (iv) Audit Committee The Audit Committee oversees how management monitors compliance with the Company’s risk management policies and procedures and reviews the adequacy of the risk management framework in relation to the risks faced by the Company. (v) Remuneration Committee The remuneration committee is responsible for reviewing and recommending for approval, the remuneration arrangements of the directors and senior officers. General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2012 (expressed in Jamaican dollars unless otherwise indicated) Page 17 4. Insurance and Financial Risk Management (Continued) (a) Insurance risk (continued) The most important types of risk are insurance risk, reinsurance risk, credit risk, liquidity risk, market risk and other operational risk. Market risk includes currency risk, interest rate and other price risk. The Company issues contracts that transfer insurance risk. This section summarises these risks and the way the Company manages them. The risk under any one insurance contract is the possibility that the insured event occurs and the uncertainty of the amount of the resulting claim. By the very nature of an insurance contract, this risk is random and therefore unpredictable. The principal risk that the Company faces under its insurance contracts is that the actual claim payments exceed the carrying amount of the insurance liabilities. This could occur because the frequency or severity of claims and benefits are greater than estimated. Insurance events are random and the actual number and amount of claims and benefits will vary from year to year from the level established using statistical techniques. Experience shows that the larger the portfolio of similar insurance contracts, the smaller the relative variability about the expected outcome will be. In addition, a more diversified portfolio is less likely to be affected across the board by a change in any subset of the portfolio. The Company has developed its insurance underwriting strategy to diversify the types of insurance risks accepted to achieve a sufficiently large population of risks to reduce the variability of the expected outcome. Factors that increase insurance risk include lack of risk diversification in terms of type and amount of risk and geographical location. Management maintains an appropriate balance between commercial and personal policies and type of policies based on guidelines set by the Board of Directors. Insurance risk arising from the Company’s insurance contracts is, however, concentrated within Jamaica. The Company has the right to re-price the risk on renewal. It also has the ability to impose deductibles and reject fraudulent claims. Where applicable, contracts are underwritten by reference to the commercial replacement value of the properties or other assets and contents insured. Claims payment limits are always included to cap the amount payable on occurrence of the insured event. The cost of rebuilding properties, of replacement or indemnity for other assets and contents and time taken to restart operations for business interruption are the key factors that influence the level of claims under these policies. Claims on insurance contracts are payable on a claims-occurrence basis. The Company is liable for all insured events that occurred during the term of the contract, even if the loss is discovered after the end of the contract term. This is however subject to the policy limit. Liability claims are settled over a long period of time and a portion of the claims provision relates to incurred but not reported (IBNR) claims. There are several variables that affect the amount and timing of cash flows from these contracts. These mainly relate to the inherent risks of the business activities carried out by individual contract holders and the risk management procedures they adopted. The compensation paid on these contracts is the monetary awards granted for bodily injury suffered by employees (for employer’s liability covers) or members of the public (for public liability covers). Such awards are lump-sum payments that are calculated as the present value of the lost earnings and rehabilitation expenses that the injured party will incur as a result of the accident. General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2012 (expressed in Jamaican dollars unless otherwise indicated) Page 18 4. Insurance and Financial Risk Management (Continued) (a) Insurance risk (continued) The estimated cost of claims includes direct expenses to be incurred in settling claims, net of the expected subrogation value and other recoveries. The Company takes all reasonable steps to ensure that it has appropriate information regarding its claims exposures. However, given the uncertainty in establishing the claims provisions, it is likely that the final outcome will prove to be different from the original liability established. The liability for these contracts comprises a provision for IBNR, a provision for reported claims not yet paid and a provision for unexpired risks at the date of financial position. The amount of casualty claims is particularly sensitive to the level of court awards and to the development of legal precedent on matters of contract and tort. Casualty contracts are also subject to the emergence of new types of latent claims, but no allowance is included for this at the date of the statement of financial position. In calculating the estimated cost of unpaid claims (both reported and not), the Company uses estimation techniques that are a combination of loss-ratio-based estimates (where the loss ratio is defined as the ratio between the ultimate cost of insurance claims and insurance premiums earned in a particular financial year in relation to such claims) and an estimate based upon actual claims experience using predetermined formulae where greater weight is given to actual claims experience as time passes. The initial loss-ratio estimate is an important assumption in the estimation technique and is based on previous years’ experience, adjusted for factors such as premium rate changes, anticipated market experience and historical claims inflation. The initial estimate of the loss ratios used for the current year (before reinsurance) is analysed by type of risk for current and prior year premiums earned. The estimation of IBNR is generally subject to a greater degree of uncertainty than the estimation of the cost of settling claims already notified to the Company, where information about the claim event is available. IBNR claims may not be apparent to the insured until many years after the event that gave rise to the claims. For casualty contracts, the IBNR proportion of the total liability is high and will typically display greater variations between initial estimates and final outcomes because of the greater degree of difficulty of estimating these liabilities. In estimating the liability for the cost of reported claims not yet paid, the Company considers any information available from loss adjusters and information on the cost of settling claims with similar characteristics in previous periods. Large claims are assessed on a case-by-case basis or projected separately in order to allow for the possible distortive effect of their development and incidence on the rest of the portfolio. General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2012 (expressed in Jamaican dollars unless otherwise indicated) 4. Insurance and Financial Risk Management (Continued) Page 19 (a) Insurance risk (continued) Management sets policy and retention limits based on guidelines set by the Board of Directors. The policy limit and maximum net retention of any one risk for each class of insurance for the year are as follows: Commercial property – Fire and consequential loss Personal property Engineering Liability Marine, aviation and transport Motor Miscellaneous Accident – All Risk Burglary Cash/Money Fidelity Bonds Goods in Transit Personal Accident 2012 2011 Policy Limit ’000 Maximum Net Retention ’000 Policy Limit ’000 Maximum Net Retention ’000 US$5,500 US$5,500 US$3,000 J$40,000 US$750 J$10,000 J$22,500 J$5,000 J$5,000 J$5,000 J$20,000 J$5,000 J$7,500 US$1,100 US$1,100 US$75 J$20,000 US$125 J$5,000 U$5, 000 US$5,000 US$2,000 J$40,000 US$500 J$10,000 J$1,500 J$1,000 J$1,000 J$1,000 J$4,000 J$1,000 J$1,500 J$10,000 J$5,000 J$5,000 J$5,000 J$20,000 J$5,000 J$7,500 US$1,000 US$1,000 US$62.50 J$20,000 US$100 J$5,000 J$1,000 J$1,000 J$1,000 J$1,000 J$4,000 J$1,000 J$1,500 General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2012 (expressed in Jamaican dollars unless otherwise indicated) Page 20 4. Insurance and Financial Risk Management (Continued) (a) Insurance risk (continued) Sensitivity Analysis of Actuarial Liabilities The determination of actuarial liabilities is sensitive to a number of assumptions, and changes in those assumptions could have a significant effect on the valuation results. In applying the noted methodologies, the following assumptions were made: (i) Claims inflation has remained relatively constant and there have been no material legislative changes in the Jamaican civil justice system that would cause claim inflation to increase dramatically. (ii) There is no latent environmental or asbestos exposure embedded in the Company’s loss history. (iii) The Company’s case reserving and claim payments rates have remained, and will remain, relatively constant. (iv) The overall development of claims costs gross of reinsurance is not materially different from the development of claims costs net of reinsurance. This assumption is supported by the following:  The majority of agreements; and the Company’s reinsurance program consists of proportional reinsurance  The Company’s non-proportional reinsurance agreements consist primarily of high attachment points. (v) Claims are expressed at their estimated ultimate undiscounted value, in accordance with the requirement of the Insurance Act, 2001. Provision for adverse deviation assumptions The basic assumptions made in establishing insurance reserves are best estimates for a range of possible outcomes. To recognise the uncertainty in establishing these best estimates, to allow for possible deterioration in experience and to provide greater comfort that the reserves are adequate to pay future benefits, the appointed actuary is required to include a margin for adverse deviation in each assumption. General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2012 (expressed in Jamaican dollars unless otherwise indicated) Page 21 4. Insurance and Financial Risk Management (Continued) (a) Insurance risk (continued) Development Claim Liabilities In addition to sensitivity analysis, the development of insurance liabilities provides a measure of the Company’s ability to estimate the ultimate value of claims. The table below illustrates how the Company’s estimate of the ultimate claims liability for accident years 2008 - 2012 has changed at successive year-ends, up to 2012. Updated unpaid claims and adjustment expenses (UCAE) and IBNR estimates in each successive year, as well as amounts paid to date are used to derive the revised amounts for the ultimate claims liability for each accident year, used in the development calculations. 2008 2008 2009 2009 2010 2010 2011 2011 2012 and prior $’000 $’000 and prior and prior $’000 $’000 $’000 $’000 $’000 and prior $’000 $’000 2012 and prior $’000 2008 Paid during year 180,368 258,800 UCAE, end of year 150,154 305,606 IBNR, end of year Ratio: excess (deficiency) 30,030 58,733 2009 Paid during year 92,444 155,743 175,935 331,678 UCAE, end of year IBNR, end of year Ratio: excess 85,910 10,644 147,754 200,976 348,730 15,037 58,042 73,079 (deficiency) (4.89%) 12.57% 2010 Paid during year UCAE, end of year IBNR, end of year Ratio: excess 54,841 50,182 3,698 77,304 92,674 4,809 98,674 175,978 171,620 347,598 96,738 189,412 235,477 424,889 9,744 14,553 68,193 82,746 (deficiency) (11.64%) 9.28% 20.79% 9.93% 2011 Paid during year UCAE, end of year IBNR, end of year Ratio: excess 18,688 36,714 626 41,616 58,059 1,005 38,747 80,363 100,861 181,224 183,148 364,372 61,664 119,722 120,936 240,659 232,245 472,903 6,200 7,205 15,834 23,039 65,680 88,719 (deficiency) (12.84%) 8.40% 20.75% 9.14% 21.75% 12.35% 2012 Paid during year UCAE, end of year IBNR, end of year Ratio: excess 11,894 24,107 3,105 16,962 16,227 33,189 43,783 76,972 142,264 219,236 210,963 430,200 43,065 45,535 88,599 60,033 148,633 155,272 303,904 272,082 575,987 3,105 5,154 8,260 8,241 16,501 20,258 36,759 60,864 97,263 (deficiency) (13.82%) 7,29% 21.11% 8.40% 29.89% 16.61% (6.67%) 0.31% General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2012 (expressed in Jamaican dollars unless otherwise indicated) 4. Insurance and Financial Risk Management (Continued) Page 22 (b) Reinsurance risk To limit its exposure of potential loss on an insurance policy, the insurer may cede certain levels of risk to a reinsurer. The Company selects reinsurers which have established capability to meet their contractual obligations and which generally have high credit ratings. The credit ratings of reinsurers are monitored. Retention limits represent the level of risk retained by the cedant insurer. Coverage in excess of these limits is ceded to reinsurers up to the treaty limit or as agreed. The retention programs used by the Company are summarised below: (a) Facultative reinsurance treaties are accepted on a per risk basis. (b) The Company has treaty arrangements as follows: (i) Property and allied perils 80%:20% Quota Share of premiums i.e. 80% ceded premiums and 20% retention. (ii) Excess of loss treaty for motor and third party liability, which covers losses in excess of J$5,000,000 for any one loss or event. (iii) First surplus and a quota share treaty for engineering business with retention of US$75,000. (iv) First surplus treaty for miscellaneous accident, losses covered in excess of J$1,500,000. (v) Catastrophe excess of loss treaty which covers losses in excess of J$60,000,000 for any one catastrophic event as defined. (c) The Company reinsures with several reinsurers. Of significance are Munich Reinsurance Company, Munich, Federal Republic of Germany and Swiss Reinsurance Company, Ontario, Canada. All other reinsurers carry lines under 10%. The Company’s business model supports the placement of specialty risk directly in the overseas market on a per risk basis. In keeping with the Company’s risk policy, placement of these risks are with several reinsures. Of significance are Munich Reinsurance Company, Swiss Reinsurance Company and Lloyds of London. At 31 December, the A. M. Best ratings for the major reinsurers are as follows: Munich Reinsurance Company Swiss Reinsurance Company 2012 A+ A+ 2011 A+ A General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2012 (expressed in Jamaican dollars unless otherwise indicated) Page 23 4. Insurance and Financial Risk Management (Continued) (b) Reinsurance risk (continued) (d) The amount of reinsurance recoveries recognised during the period is as follows: Property Motor Marine Liability Burglary Miscellaneous Accidents 2012 $’000 51,454 9,779 2,736 4,272 2 15,936 84,179 2011 $’000 31,632 2,138 800 1,918 235 32,983 69,706 (c) Financial risk The Company is exposed to financial risk through its financial assets, reinsurance assets and insurance liabilities. In particular the key financial risk is that the proceeds from its financial assets are not sufficient to fund the obligations arising from its insurance contracts. The most important components of this financial risk are interest rate risk, market risk, cash flow risk, currency risk, price risk and credit risk. These risks arise from open positions in interest rates, currency and equity products, all of which are exposed to general and specific market movements. The risks that the Company primarily faces due to the nature of its investments and liabilities are credit risk, interest rate risk and market risk. The Company’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects of the Company’s financial performance. (i) Credit risk The Company takes on exposure to credit risk, which is the risk that its reinsurers, brokers, customers, clients or counterparties will cause a financial loss for the Company by failing to discharge their contractual obligations. Credit risk is an important risk for the Company’s business; management therefore carefully manages its exposure to credit risk. Credit exposures arise principally from the amounts due from reinsurers, amounts due from insurance contract holders and insurance brokers and investment contracts and loans receivable. The Company structures the levels of credit risk it undertakes by placing limits on the amount of risk accepted in relation to a single counterparty or groups of related counterparties. General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2012 (expressed in Jamaican dollars unless otherwise indicated) Page 24 4. Insurance and Financial Risk Management (Continued) (c) Financial risk (continued) (i) Credit risk (continued) Credit review process The Company’s senior management meets on a monthly basis to discuss the ability of customers and other counterparties to meet repayment obligations. (i) Reinsurance Reinsurance is used to manage insurance risk. This does not, however, discharge the Company’s liability as primary insurer. If a reinsurer fails to pay a claim for any reason, the Company remains liable for the payment to the policyholder. The creditworthiness of reinsurers is considered on an annual basis by reviewing their financial strength prior to finalisation of any contract. The Company’s senior management assesses the creditworthiness of all reinsurers and intermediaries by reviewing credit grades provided by rating agencies and other publicly available financial information. (ii) Premium receivables The Company’s senior management examines the payment history for significant contract holders with whom they conduct regular business. Management information reported to the Company includes details of provisions for impairment on premium receivables and subsequent write-offs. Exposures to individual policyholders and groups of policyholders are collected within the ongoing monitoring of the controls associated with regulatory solvency. Where significant exposure to individual policyholders or homogenous groups of policyholders exists, a financial analysis is carried out by senior management and where necessary cancellation of policies is effected for amounts deemed uncollectible. (iii) Loans and leases receivable The Company’s management of exposure to loans and leases receivable is influenced mainly by the individual characteristics of each customer. Management has established a credit policy under which each customer is analysed individually for creditworthiness prior to the Company offering credit facilities. Customers are required to provide a letter of guarantee and proof of collateral to be held as security. (iv) Investments The Company limits its exposure to credit risk by investing mainly in liquid securities, with counterparties that have high credit quality and Government of Jamaica securities. Accordingly, management does not expect any counterparty to fail to meet its obligations. General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2012 (expressed in Jamaican dollars unless otherwise indicated) Page 25 4. Insurance and Financial Risk Management (Continued) (c) Financial risk (continued) (i) Credit risk (continued) Maximum exposure to credit risk The maximum exposure to credit risk, of the company, equal the respective carrying amounts on the statements of financial position, for all financial assets which are subject to credit risk. Ageing analysis of premium receivables past due but not impaired: Premium receivables that are less than forty-five (45) days old are not considered impaired. At year end, premium receivables of $161,168,000 (2011 - $136,841,000) were past due but not impaired. These relate to a number of independent customers for whom there is no recent history of default. The ageing analysis of these receivables is as follows: 46 to 60 days 61 to 90 days More than 90 days 2012 $’000 41,863 80,895 38,410 2011 $’000 32,550 86,009 18,282 161,168 136,841 There are no premium receivables balances that are considered impaired. Premium receivables The following table summarises the Company’s credit exposure for premium receivables at their carrying amounts, as categorised by brokers and direct business: Brokers and Insurance Companies Direct 2012 $’000 335,488 133,708 469,196 2011 $’000 261,794 132,509 394,303 All premium receivables are receivable from policyholders, brokers and agents in Jamaica. Debt securities The following table summarises the Company’s credit exposure for debt securities at their carrying amounts, as categorised by issuer: Government of Jamaica 2012 $’000 354,963 2011 $’000 312,499 General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2012 (expressed in Jamaican dollars unless otherwise indicated) Page 26 4. Insurance and Financial Risk Management (Continued) (c) Financial risk (continued) (ii) Liquidity risk Liquidity risk is the risk that the Company is unable to meet its payment obligations associated with its financial liabilities when they fall due and to replace funds when they are withdrawn. The consequence may be the failure to meet obligations to fulfil claims and other liabilities incurred. Liquidity risk management process The Company’s liquidity management process, as carried out within the Company and monitored by the Board of Directors, includes: (i) Monitoring future cash flows and liquidity on a daily basis. This incorporates an assessment of expected cash flows and the availability of high grade collateral which could be used to secure funding if required; (ii) Maintaining a portfolio of highly marketable assets that can easily be liquidated as protection against any unforeseen interruptions to cash flow; (iii) Optimising cash returns on investments; (iv) Monitoring statement of financial position liquidity ratios against internal and regulatory requirements; and (v) Managing the concentration and profile of debt maturities. Monitoring and reporting take the form of cash flow measurement and projections for the next day, week and month, as these are key periods for liquidity management. The starting point for those projections is an analysis of the contractual maturity of the financial liabilities and the expected collection date of the financial assets. The matching and controlled mismatching of the maturities and interest rates of assets and liabilities is fundamental to the management of the Company. It is unusual for companies ever to be completely matched since business transacted is often of uncertain term and of different types. An unmatched position potentially enhances profitability, but can also increase the risk of loss. The maturities of assets and liabilities and the ability to replace, at an acceptable cost, interest-bearing liabilities as they mature, are important factors in assessing the liquidity of the Company and its exposure to changes in interest rates and exchange rates. General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2012 (expressed in Jamaican dollars unless otherwise indicated) Page 27 4. Insurance and Financial Risk Management (Continued) (c) Financial risk (continued) (ii) Liquidity risk (continued) Liquidity risk management process (continued) Financial assets and financial liabilities cash flows The tables below present the undiscounted cash flows of the company’s financial assets and liabilities based on contractual repayment obligations: Within 1 Month $’000 Within 3 Months $’000 3 to 12 Months $’000 1 to 5 Years $’000 Over 5 Years $’000 No Specific Maturity $’000 Total $’000 At 31 December 2012: Cash and short term investments 667,289 651,191 Due from policyholders, brokers and agents 149,496 319,700 Due from reinsurers and coinsurers Other receivables Due from related parties Loans receivable Leases receivable Investment securities - - - - - - - - - - - - - - - - - - 1,318,480 469,196 213,418 10,286 10,286 750 750 - - 499,424 77,759 1,922 70,846 17,297 92,250 317,109 2,499 4,998 22,488 47,774 - 7,264 15,892 200,877 74,844 134,564 108,476 541,917 213,418 - - - - Total financial assets 828,470 1,276,045 240,662 214,868 451,673 119,512 3,131,230 Due to reinsurers and coinsurers - 343,361 - Other liabilities Claims liabilities 10,424 8,324 32,365 205,562 123,337 164,449 328,898 Total financial liabilities 215,986 475,022 196,814 328,898 - - - - - - - - - - 343,361 51,113 822,246 1,216,720 Net Liquidity Gap 612,484 801,023 43,848 (114,030) 451,673 119,512 1,914,510 Cumulative gap 612,484 1,413,507 1,457,355 1,343,325 1,794,998 1,914,510 - General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2012 (expressed in Jamaican dollars unless otherwise indicated) Page 28 4. Insurance and Financial Risk Management (Continued) (c) Financial risk (continued) (ii) Liquidity risk Financial asset and financial liabilities cash flows (continued) Within 1 Month Within 3 Months 3 to 12 Months 1 to 5 Years Over 5 Years No Specific Maturity $’000 $’000 $’000 $’000 $’000 $’000 Total $’000 At 31 December 2011: Cash and short term investments 638,964 499,230 Due from policyholders, brokers and agents 139,213 255,090 Due from reinsurers and coinsurers - 178,730 563 - - - - - - - - - - - - - - - - - - - - - 6,746 1,156 1,138,194 394,303 178,730 7,309 1,156 - - 517,684 52,778 1,922 66,043 17,297 92,250 340,172 1,882 3,764 16,940 30,192 - 1,844 18,529 10,611 221,665 105,543 155,955 514,147 784,388 1,021,386 44,848 344,107 445,715 163,857 2,804,301 Other receivables Due from related parties Loans receivable Leases receivable Investment securities Total financial assets Other liabilities Claims liabilities Due to reinsurers and coinsurers - 253,009 - 32,252 9,268 37,000 41,009 117,028 371,737 158,333 - - Total financial liabilities 73,261 379,305 408,737 158,333 - - - - - - - - 253,009 78,520 688,107 1,019,636 Net Liquidity Gap Cumulative gap 711,127 642,081 (363,889) 185,774 445,715 163,857 1,784,665 711,127 1,353,208 989,319 1,175,093 1,620,808 1,784,665 - Assets available to meet all of the liabilities and to cover financial liabilities include cash and bank balances and investment securities. The Company is also able to meet unexpected net cash outflows by selling securities and accessing additional funding sources from its parent company and other financial institutions. (iii) Market risk The Company takes on exposure to market risks, which is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risks mainly arise from changes in foreign currency exchange rates, interest rates and prices of quoted equities. Market risk is monitored by the finance department which carries out research and monitors the price movement of financial assets on the local and international markets. There has been no change to the Company’s exposure to market risks or the manner in which it manages and measures the risk. General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2012 (expressed in Jamaican dollars unless otherwise indicated) Page 29 4. Insurance and Financial Risk Management (Continued) (c) Financial risk (continued) (iii) Market risk (continued) Currency risk Currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Company manages its foreign exchange risk by ensuring that the net exposure in foreign assets and liabilities is kept to an acceptable level by monitoring currency positions. The Company also has transactional currency exposure. Such exposure arises from having financial assets in currencies other than those in which financial liabilities are expected to settle. The Company ensures that its net exposure is kept to an acceptable level by buying or selling foreign assets to address short term imbalances. Concentrations of currency risk The tables below summarise the company’s exposure to foreign currency exchange rate risk at 31 December: At 31 December 2012: Financial Assets Cash and short term investments Due from policyholders, brokers and agents Due from reinsurers and coinsurers Other receivables Due from related parties Loans receivable Leases receivable Investment securities Total financial assets Financial Liabilities Due to reinsurers and coinsurers Other liabilities Claims liabilities Total financial liabilities Net financial position Jamaican$ J$’000 US$ J$’000 GBP J$’000 Total J$’000 515,470 323,573 160,737 10,286 750 237,933 64,565 801,613 145,623 52,681 - - - - 120 - 1,317,203 469,196 - - - - - 213,418 10,286 750 237,933 64,565 386,224 77,215 1,699,538 1,077,132 - 120 463,439 2,776,790 179,068 47,888 782,040 1,008,996 164,293 3,225 40,206 207,724 690,542 869,408 - - - - 120 343,361 51,113 822,246 1,216,720 1,560,070 General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2012 (expressed in Jamaican dollars unless otherwise indicated) Page 30 4. Insurance and Financial Risk Management (Continued) (c) Financial risk (continued) (iii) Market risk (continued) Currency risk (continued) Concentrations of currency risk (continued) At 31 December 2011: Financial Assets Cash and short term investments Due from policyholders, brokers and agents Due from reinsurers and coinsurers Other receivables Due from related parties Loans receivable Leases receivable Investment securities Total financial assets Financial Liabilities Due to reinsurers and coinsurers Other liabilities Claims liabilities Total financial liabilities Net financial position Jamaican$ J$’000 US$ J$’000 GBP J$’000 Total J$’000 468,035 237,709 163,331 7,309 1,156 236,896 41,962 420,576 1,576,974 126,564 78,520 641,431 846,515 666,137 150,225 15,399 - - - - 47,878 879,639 126,445 - 46,676 173,121 730,459 706,518 106 1,134,278 394,303 178,730 7,309 1,156 236,896 41,962 6,369 - - - - - - 468,454 6,475 2,463,088 253,009 - 78,520 - 688,107 - - 1,019,636 6,475 1,443,452 General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2012 (expressed in Jamaican dollars unless otherwise indicated) 4. Insurance and Financial Risk Management (Continued) Page 31 (c) Financial risk (continued) (iii) Market risk (continued) Currency risk (continued) Foreign currency sensitivity The following tables indicate the currencies to which the company had significant exposure on its monetary assets and liabilities and its forecast cash flows. The change in currency rates below represents management’s assessment of the possible change in foreign exchange rates. The sensitivity analysis shows the impact of translating outstanding foreign currency denominated monetary items, assuming changes in currency rates shown in the table below. The sensitivity analysis includes cash and short term deposits, investment securities, premium and other receivables and claims liabilities. The percentage change in the currency rate will impact each financial asset/liability included in the sensitivity analysis differently. Consequently, individual sensitivity analyses were performed. The effect on pre-tax profit below is the total of the individual sensitivities done for each of the assets/liabilities. There was no impact on the other components of equity. % Change in Currency Rate 2012 1% 10% Effect on Pre-tax Profit 2012 $’000 (8,694) 86,941 % Change in Currency Rate 2011 0.5% 0.5% Effect on Pre-tax Profit 2011 $’000 (35,326) 35,326 USD – J$Revaluation USD – J$Devaluation General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2012 (expressed in Jamaican dollars unless otherwise indicated) Page 32 4. Insurance and Financial Risk Management (Continued) (c) Financial risk (continued) (iii) Market risk (continued) Interest rate risk Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. Floating rate instruments expose the Company to cash flow interest risk, whereas fixed interest rate instruments expose the Company to fair value interest risk. The Company’s interest rate risk policy requires it to manage interest rate risk by maintaining an appropriate mix of fixed and variable rate instruments. The policy also requires it to manage the maturities of interest bearing financial assets and interest bearing financial liabilities. The following tables summarise the Company’s exposure to interest rate risk. It includes the Company’s financial instruments at carrying amounts, categorised by the earlier of contractual repricing or maturity dates. Within 1 Month $’000 Within 3 Months $’000 3 to 12 Months $’000 1 to 5 Years $’000 Over 5 Years $’000 Non- Interest Bearing $’000 Total $’000 At 31 December 2012: Cash and short term investments 668,420 648,780 Due from policyholders, brokers and agents Due from reinsurers and coinsurers Other receivables Due from related parties Loans receivable Leases receivable Investment securities Total financial assets - - - - - - - - - - - - - - - - 3 1,317,203 469,196 469,196 213,418 213,418 10,286 10,286 750 750 171,799 64,565 - - - 237,933 64,565 - - - - 66,134 - - - - - - - 139,518 111,273 9,314 94,858 108,476 463,439 668,420 854,432 111,273 73,879 266,657 802,129 2,776,790 Due to reinsurers and coinsurers Other liabilities Claims liabilities Total financial liabilities - - - - - - - - - - - - - - - - - - - 343,361 343,361 51,113 51,113 822,246 822,246 - 1,216,720 1,216,720 Total interest repricing gap 668,420 854,432 111,273 73,879 266,657 (414,591) 1,560,070 Cumulative gap 668,420 1,522,852 1,634,125 1,708,004 1,974,661 1,560,070 - General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2012 (expressed in Jamaican dollars unless otherwise indicated) 4. Insurance and Financial Risk Management (Continued) Page 33 (c) Financial risk (continued) (iii) Market risk (continued) Interest rate risk (continued) At 31 December 2011: Cash and short term investments Due from policyholders, brokers and agents Due from reinsurers and coinsurers Due from related parties Leases receivable Loans receivable Other receivables Investment securities Total financial assets Within 1 Month Within 3 Months 3 to 12 Months 1 to 5 Years Over 5 Years Non-Interest Bearing $’000 $’000 $’000 $’000 $’000 $’000 Total $’000 547,882 586,396 - - - - - - - - - - - - - - 1,041 2,152 10,954 27,815 - - - - - 182 62,568 1,755 12,541 159,850 - 1,134,278 394,303 394,303 178,730 178,730 1,156 - - 1,156 41,962 236,896 - - 39 102,445 - - - - 7,309 7,309 134,763 75,252 155,955 468,454 549,144 753,561 12,709 175,119 235,102 737,453 2,463,088 Due to reinsurers and coinsurers Other liabilities Claims liabilities Total financial liabilities - - - - - - - - - - - - - - - - - - - 253,009 253,009 62,134 62,134 688,107 688,107 - 1,003,250 1,003,250 Total interest repricing gap 549,144 753,561 12,709 175,119 235,102 (265,797) 1,459,838 Cumulative gap 549,144 1,302,705 1,315,414 1,490,533 1,725,635 1,459,838 - General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2012 (expressed in Jamaican dollars unless otherwise indicated) 4. Insurance and Financial Risk Management (Continued) Page 34 (c) Financial risk (continued) (iii) Market risk (continued) Interest rate risk (continued) Interest rate sensitivity The following table indicates the sensitivity to a reasonably possible change in interest rates, with all other variables held constant, on the Company’s profit or loss and shareholders’ equity. The sensitivity of the profit or loss is the effect of the assumed changes in interest rates on income based on the floating rate non-trading financial assets and financial liabilities. The sensitivity of other components of equity is calculated by revaluing fixed rate financial assets and liabilities for the effects of the assumed changes in interest rates. The change in the interest rates will impact the financial assets and liabilities differently. Consequently, individual analyses were performed. The effect on pre- tax profit and other components of equity below is the total of the individual sensitivities done for each of the assets and liabilities. It should be noted that the changes in the pre-tax profit and other components of equity as shown in the analysis are non-linear. Change in Basis points: 2012 JMD/USD -100/50 +400/250 Effect on Profit before Taxation Effect on Other Components of Equity 2012 $’000 (729) 2,915 2012 $’000 474 (10,689) Change in Basis points: 2011 JMD/USD -50/-50 +50/+50 Effect on Profit before Taxation Effect on Other Components of Equity 2011 $’000 - - 2011 $’000 (413) 387 General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2012 (expressed in Jamaican dollars unless otherwise indicated) Page 35 4. Insurance and Financial Risk Management (Continued) (c) Financial risk (continued) (iii) Market risk (continued) Price risk The Company is exposed to equity securities price risk because of investments held by the Company. These investments are classified on the statement of financial position as available-for-sale and fair value through profit or loss. The table below summarises the impact of increases/decreases on the Company’s pre-tax profit for the year and on equity. The analysis is based on the assumption that the equity prices had increased/decreased by 10% (2011 - 10%) with all other variables held constant. Effect on Profit before Taxation Effect on Other Components of Equity Effect on Profit before Taxation Effect on Other Components of Equity 2012 $’000 2012 $’000 2011 $’000 2011 $’000 - - (10,847) 10,847 (5,817) 5,817 (9,782) 9,782 Change in index: -10% (2011 -10%) +10% (2011 + 10%) General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2012 (expressed in Jamaican dollars unless otherwise indicated) Page 36 5. Capital Management The Company’s objectives when managing capital, which is a broader concept than the ‘equity’ on the face of statement of financial position, are: (a) To comply with the capital requirements set by the regulators of the insurance markets where the Company operates; (b) To safeguard the Company’s ability to continue as a going concern so that it can continue to provide returns for stockholders and benefits for other stakeholders; and (c) To maintain a strong capital base to support the development of its business. To assist in evaluating the current business and strategies, a risk-based capital approach is used in the form of the Minimum Capital Test (MCT) as stipulated by the regulators. The MCT is calculated by management. This information is required to be filed with the Financial Services Commission on a monthly, quarterly and annual basis. The required MCT ratio was initially set at 200% and will be gradually increased to 250%. The MCT for the company for the year ended 31 December 2012 is as follows: MCT 6. Fair Value Estimation Actual Required Actual 2012 251 2012 225 2011 226% Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction. In accordance with IFRS 7, the Company discloses fair value measurements for items carried on the statement of financial position at fair value, by level of the following fair value measurement hierarchy: (a) Quoted prices (unadjusted) in active markets for identical assets or liabilities are disclosed as Level 1. (b) Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) are disclosed as Level 2. (c) Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) are disclosed as Level 3. General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2012 (expressed in Jamaican dollars unless otherwise indicated) 6. Fair Value Estimation (Continued) Page 37 The following table presents the Company’s assets that are measured at fair value. There are no liabilities that are measured at fair value at the year end, and the Company had no instruments classified in Level 3 during the year. At 31 December 2012 Assets Available-for-sale financial assets – Equity securities Debt securities Total assets measured at fair value At 31 December 2011 Assets Financial assets at fair value through profit or loss – Equity securities Available-for-sale financial assets – Equity securities Debt securities Total assets measured at fair value Level 1 Level 2 $’000 $’000 Total balance $’000 108,476 - 108,476 - 296,415 296,415 108,476 296,415 404,891 Level 1 Level 2 $’000 $’000 Total balance $’000 - 58,174 58,174 97,781 - 97,781 - 292,445 292,445 97,781 350,619 448,400 Market price is used to determine fair value where an active market (such as a recognised stock exchange) exists as it is the best evidence of the fair value of a financial instrument. The quoted market price used for financial assets held by the Company is the current bid price. These instruments are included in Level 1. However, market prices are not available for all financial assets held by the Company. Therefore, for financial instruments where no market price is available, the fair values presented have been estimated using present value or other estimation and valuation techniques. These valuation techniques maximise the use of observable market data where it is available and rely as little as possible on entity specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in Level 2. If one or more of the significant inputs is not based on observable market data, the instrument is included in Level 3. The following methods have been used to value financial instruments: (a) Investment securities classified as available-for-sale and fair value through profit or loss are measured at fair value by reference to quoted market prices when available. If quoted market prices are not available, then fair values are estimated on the basis of pricing models or other recognised valuation techniques; Page 38 General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2012 (expressed in Jamaican dollars unless otherwise indicated) 6. Fair Value Estimation (Continued) (b) The fair value of short-term assets and liabilities maturing within one year is assumed to approximate their carrying amount. This assumption is applied to liquid assets and the short-term elements of all other financial assets and financial liabilities; (c) The fair value of variable rate financial instruments is assumed to approximate their carrying amounts, as these instruments are expected to reprice at the prevailing market rates; (d) Loans and leases are carried at amortised cost which is assumed to approximate fair value as loans are issued at terms and conditions available in the market for similar transactions. 7. Critical Accounting Estimates and Judgements in Applying Accounting Policies The Company makes estimates and assumptions that affect the reported amounts of assets and liabilities in the future. Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that will have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are as follows: (a) Liabilities arising from claims made under insurance contracts The determination of the liabilities under insurance contracts represents the liability for future claims payable by the Company based on contracts for the insurance business in force at the date of the statement of financial position using several methods, including the Paid Loss Development method, the Incurred Loss Development method, the Bornhuetter-Ferguson Paid Loss method, the Bornhuetter- Ferguson Incurred Loss method and the Frequency-Severity method. These liabilities represent the amounts that will, in the opinion of the actuary, be sufficient to pay future claims relating to contracts of insurance in force, as well as meet the other expenses incurred in connection with such contracts. A margin for risk or uncertainty (adverse deviations) in these assumptions is added to the liability. The assumptions are examined each year in order to determine their validity in light of current best estimates or to reflect emerging trends in the Company’s experience. Claims are analysed separately between those arising from damage to insured property and consequential losses. Claims arising from damage to insured property can be estimated with greater reliability, and the Company’s estimation processes reflect all the factors that influence the amount and timing of cash flows from these contracts. The shorter settlement period for these claims, allows the Company to achieve a higher degree of certainty about the estimated cost of claims, and relatively little IBNR is held at year-end. However, the longer time needed to assess the emergence of claims arising from consequential losses makes the estimation process more uncertain for these claims. General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2012 (expressed in Jamaican dollars unless otherwise indicated) 7. Critical Accounting Estimates and Judgements in Applying Accounting Policies (Continued) Page 39 (b) Income taxes There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. The Company recognises liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made. (c) Fair value of financial assets determined using valuation techniques As described in Note 6, where the fair values of financial assets recorded on the statement of financial position cannot be derived from active markets, they are determined using a variety of valuation techniques that include the use of discounted cash flows model and/or mathematical models. The inputs to these models are derived from observable market data where possible, but where observable market data are not available, judgment is required to establish fair values. For discounted cash flow analysis, estimated future cash flows and discount rates are based on current market information and rates applicable to financial instruments with similar yields, credit quality and maturity characteristics. Estimated future cash flows are influenced by factors such as economic conditions, types of instruments or currencies, market liquidity and financial conditions of counterparties. Discount rates are influenced by risk free interest rates and credit risk. Changes in assumptions about these factors could affect the reported fair value of financial instruments. 8. Segment Information Management has determined the operating segments based on the reports reviewed by the board of directors that  are  used  to  make  strategic  decisions.  All  operating  segments  used  by  management  meet  the  definition  of  a  reportable segment under IFRS 8. The  Company  is  organised  into  seven  operating  segments.  These  segments  represent  the  different  types  of  risks  that are written by the entity through various forms of brokers, agents and direct marketing programmes, which  are all located in Jamaica. Management identifies its reportable operating segments by product line consistent with  the reports used by the board of directors. These segments and their respective operations are as follows: (a) Fire and allied perils - Loss, damage or destruction to insured property as specified on the policy schedule.  (b) Homeowners - Loss, damage or destruction to insured property used for residential purposes as specified on  the  policy  schedule,  resulting  from  fire  and  allied  perils,  burglary,  theft,  or  accidental  damage.  This  includes  liability to third parties and domestic employees. (c) Marine - Loss or damage to goods from the perils of the seas and other perils whilst in transit from destination to destination by sea, air or land and from warehouse to warehouse. (d) Liability - Legal liability of the insured to third parties for accidental bodily injury, death and/or loss of or damage to property occurring in connection with the insured’s business, subject to a limit of indemnity. In the case of an employee liability this is legal liability of the insured to pay compensation to its employees in respect of death, injury or disease sustained during and in the course of their employment, subject to a limit of indemnity. General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2012 (expressed in Jamaican dollars unless otherwise indicated) 8. Segment Information (Continued) Page 40 (e) Burglary - Loss of or damage to the insured’s property involving forcible and/or violent entry into or exit from the building including damage to the premises. (f) Miscellanous Accidents - This operating segment covers the following policies: • Fidelity Guarantee - Loss of money or goods owned by the insured (or for which the insured is responsible) as a result of fraud or dishonesty by an employee. • Goods in Transit - Loss, destruction or damage to insured goods by fire and allied perils, including loss or damage from accidental collision or overturning and whilst in, on or being loaded or unloaded from any road vehicle or whilst temporarily housed overnight during the ordinary course of transit. • • • • Engineering and machinery breakdown - Loss or damage by fire and allied perils including burglary, theft and accidental damage to specified equipment, including loss or damage resulting from electrical and mechanical breakdown subject to maintenance. Loss of money - Loss, damage or destruction of money including hold-up on premises during and out of business hours and in transit. Plate glass - Accident breakage to plate glass windows and doors of buildings. Personal accident - Compensation for bodily injury caused by violent, visible, external and accidental means, which injury shall solely and independently of any other cause result in death or dismemberment within 12 months of such injury. Subject to the limits specified on the policy schedule. General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2012 (expressed in Jamaican dollars unless otherwise indicated) 8. Segment Information (Continued) Page 41 The segment information provided to the board of directors for the reportable segments for the year ended 31  December 2012 is as follows:  2012 $’000 $’000 $’000 $’000 $’000 $’000 $’000 Fire Homeowners Motor Marine Liability Burglary Misellaneous Accident Total $’000 Gross Premiums Written 2,198,086 113,076 827,683 104,680 295,378 7,880 242,186 3,788,969 Reinsurance ceded (2,096,574) (90,584) (26,125) (85,749) (174,767) (5,173) (186,781) (2,665,753) Excess of loss reinsurance cost (79,664) (21,109) (22,050) - (9,218) - - (132,041) Net premiums written 21,848 1,383 779,508 18,931 111,393 2,707 55,405 991,175 Changes in unearned premiums, net Net Premiums Earned (2,886) 18,962 (512) (47,841) 575 (6,457) 458 (1,694) (58,357) 871 731,667 19,506 104,936 3,165 53,711 932,818 Commission income 187,129 21,641 2,962 18,478 14,600 1,271 49,404 295,485 Commission expense (111,067) (13,575) (74,790) (2,853) (6,359) (357) (28,262) (237,263) Claims expense (31,561) 1,767 (472,948) (679) (28,900) (2) (8,452) (540,775) Management expenses (29,501) (6,679) (238,028) (5,622) (35,816) (804) (16,453) (332,903) Segment results Unallocated income Unallocated expenses Profit before tax Taxation Net profit 33,962 4,025 (51,137) 28,830 48,461 3,273 49,948 117,362 197,773 (29,866) 285,269 5,268 290,537 General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2012 (expressed in Jamaican dollars unless otherwise indicated) 8. Segment Information (Continued) Page 42 2011 $’000 $’000 $’000 $’000 $’000 $’000 $’000 Fire Homeowners Motor Marine Liability Burglary Misellaneous Accident Total $’000 Gross Premiums Written 2,147,158 102,972 715,659 141,396 279,758 9,286 230,166 3,626,395 Reinsurance ceded (2,058,611) (82,509) (25,786) (118,113) (159,060) (5,593) (182,417) (2,632,089) Excess of loss reinsurance cost (76,868) (21,248) (21,930) - (7,747) - - (127,793) Net premiums written Changes in unearned premiums, net Net Premiums Earned 11,679 (4,689) 6,990 (785) 667,943 23,283 112,951 3,693 47,749 866,513 88 (45,058) (114) (1,891) (133) 4,774 (47,023) (697) 622,885 23,169 111,060 3,560 52,523 819,490 Commission income 198,314 19,709 2,737 27,904 12,726 1,354 31,630 294,374 Commission expense (113,093) (11,948) ( 63,298) (2,595) (14,111) ( 536) (26,108) (231,689) Claims expense (1,947) ( 4,300) (313,549) (210) (83,744) (2,176) (14,216) (420,142) Management expenses (26,768) (6,186) (208,558) (7,038) (36,488) (1,118) (14,436) (300,592) Segment results Unallocated income Unallocated expenses Profit before tax Taxation Net profit 63,496 (3,422) 40,217 41,230 (10,557) 1,084 29,393 161,441 1,208,679 (28,642) 1,341,478 (56,662) 1,284,816 Profit from the reportable segments is reconciled to the Company’s profit before taxation as follows: Profit from reportable segments Unallocated income Investment income Other income Unallocated expenses Depreciation and amortisation 2012 $’000 117,362 2011 $’000 161,441 136,062 61,711 197,773 1,015,010 193,669 1,208,679 (29,866) 285,269 (28,642) 1,341,478 General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2012 (expressed in Jamaican dollars unless otherwise indicated) Page 43 8. Segment Information (Continued) Total capital expenditure was as follows: Property, plant and equipment Intangible assets 2012 $’000 33,303 10,757 44,060 2011 $’000 9,081 10,372 19,453 Assets, liabilities and capital expenditure are not reported by segment to the board of directors. 9. Related Party Transactions and Balances (a) Related party transactions are as follows: Interest income - Fellow subsidiary (Note 11) Subsidiary (Note 11) Rental and maintenance income - Fellow subsidiary Rental expense Fellow subsidiary Capital distribution received - Other related parties (Note 11) Premium income - Key management Parent company Fellow subsidiaries Affiliates 2012 $’000 2011 $’000 25,497 - 25,497 6,907 5,110 12,017 1,022 429 12,509 3,056 - 22,574 2,696 37,371 119,557 63,776 223,400 2,506 17,562 226,554 65 246,687 General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2012 (expressed in Jamaican dollars unless otherwise indicated) Page 44 9. Related Party Transactions and Balances (Continued) (a) Related party transactions (continued) Claims expense - Key management Parent company Fellow subsidiaries Affiliates Gain on sale of investment - Parent company (Note 11) Gain on disposal of subsidiary - Parent company Gain on disposal of property, plant and equipment Fellow subsidiary Dividends declared - Key management Parent company Key management compensation - Salaries and other short term benefits Directors emoluments Directors’ fees (included above) 2012 $’000 2011 $’000 - 100 - 7,760 7,860 - - - 41 3,910 7,456 - 11,407 847,200 61,928 157,554 1,927 80,025 81,952 - 1,054,750 1,054,750 49,222 37,371 1,720 1,840 (b) The statement of financial position includes the following balances with group companies: Due from related parties - Receivables - Fellow subsidiary 2012 $’000 2011 $’000 750 1,156 General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2012 (expressed in Jamaican dollars unless otherwise indicated) Page 45 9. Related Party Transactions and Balances (Continued) (b) Balances with group companies (continued) Due from policyholders, brokers and agents - Fellow subsidiary Parent company Key management Loans receivable - Fellow subsidiary (Note 21) Investment securities - Shares in affiliated entity (Note 27) Claims liabilities Parent company Affiliated company Fellow subsidiary 2012 $’000 2011 $’000 39,273 40,472 - 43,034 1,796 1,638 79,745 46,468 237,933 236,896 67,331 97,781 2,452 5,436 8,306 - 6,422 4,538 Included in the investments of the company are shares in a related party. At 31 December 2012, these shares represented 1.73% of the total assets (2011 – 2.76 %). General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2012 (expressed in Jamaican dollars unless otherwise indicated) Page 46 10. Claims Expense Gross claims expense Reinsurers share of claims expense (Note 4(b) (d)) Net claims expense 11. Investment Income Interest income - Leases receivable Loan due from fellow subsidiary (Note 9(a)) Loan due from subsidiary (Note 9(a)) Cash and deposits and investment securities Capital distribution (Note 9(a)) Gain on disposal of subsidiary Gain on sale of investments Dividend income Realised gain on Unit Trust Fund 2012 $’000 2011 $’000 624,954 489,848 (84,179) (69,706) 540,775 420,142 2012 $’000 2011 $’000 7,661 25,497 - 77,550 110,708 - - 2,226 6,907 5,110 60,691 74,934 22,574 61,928 12,837 848,471 8,007 4,510 - 7,103 136,062 1,015,010 Included in gain on sale of investments for the prior year is the gain on sale of shares to the parent company totalling $847,200. 12. Other Income Foreign exchange gains Rental income Gain on disposal of property, plant and equipment Miscellaneous income 2012 $’000 2011 $’000 50,052 28,020 2,126 6,715 6,337 157,554 3,196 1,380 61,711 193,669 General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2012 (expressed in Jamaican dollars unless otherwise indicated) Page 47 13. Expenses by Nature Management and other expenses by nature are as follows: Advertising costs Audit fees Bad debt expense Computer expenses Directors fees Depreciation and amortisation Insurance Professional fees Printing and stationery Registration fees Rent Repairs and maintenance Staff costs (Note 14) Transportation expenses Utilities Other operating expenses 14. Staff Costs Wages and salaries Statutory contributions Pension costs Other 2012 $’000 24,861 4,412 - 8,467 1,720 2011 $’000 16,093 3,920 4,741 6,619 1,840 29,866 28,642 715 9,733 4,413 11,782 12,509 13,915 6,118 8,207 4,757 11,015 3,056 14,677 201,108 182,518 6,969 14,093 18,206 5,637 13,149 18,245 362,769 329,234 2012 $’000 2011 $’000 150,091 138,488 12,841 2,889 9,461 3,002 35,287 31,567 201,108 182,518 General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2012 (expressed in Jamaican dollars unless otherwise indicated) Page 48 15. Taxation (a) The company’s shares were listed on the Junior Market of the Jamaica Stock Exchange, effective 21 September 2011. Consequently, the company is entitled to a remission of tax for ten (10) years in the proportions set out below, provided the shares remain listed for at least 15 years: Years 1 to 5 100% Years 6 to 10 50% The financial statements have been prepared on the basis that the company will have the full benefit of the tax remissions. Subject to agreement with the Minister of Finance and Planning, the income tax payable for which remission has been granted is $85,593,000 (2011 - $33,112,000). (b) Taxation is based on the profit for the year adjusted for taxation purposes and represents income tax at 33 1/3%: Current income taxes: Income tax charge Prior year income tax adjustment Deferred income taxes (Note 27) 2012 $’000 2011 $’000 - - - (5,268) (5,268) 46,598 3,395 49,993 6,669 56,662 (c) The tax charge on the company’s profit differs from the theoretical amount that would arise using the statutory tax rate as follows: Profit before tax Tax calculated at a rate of 33 1/3% Adjusted for the effects of: Income relieved Income not subject to tax Expenses not deductible for tax Prior year income tax adjustment Net effect of other charges and allowances 2012 $'000 2011 $'000 285,268 1,341,478 95,089 447,160 (118,987) (33,120) (15,935) (373,581) 33,438 12,608 - 1,127 3,395 200 (5,268) 56,662 General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2012 (expressed in Jamaican dollars unless otherwise indicated) 15. Taxation (Continued) (d) The tax charge/credit relating to components of other comprehensive income is as follows: Page 49 2012 $'000 2011 $'000 Fair value reserve - Available-for-sale investments - Unrealised (losses)/gains on available-for-sale investments, before tax (33,377) 99,089 Unrealised gains on available-for-sale investments, tax (credit)/charge (Note 27) Unrealised gains on available-for-sale investments, after tax Gains recycled to profit or loss on disposal and maturity of available-for- sale investments 2,418 (30,959) (896) 98,193 (11,440) (42,399) (847,201) (749,008) 16. Earnings Per Share The calculation of earnings per share is based on the net profit for the year and 1,031,250,000 (2011 - 882,071,000) ordinary shares in issue. Net profit from continuing operations ($’000) Weighted average number of ordinary shares in issue (‘000) Earnings per share ($) 2012 290,537 1,031,250 0.28 2011 1,284,816 882,071 1.46 17. Dividends per Share The dividends paid in 2012 and 2011 were as follows: Interim dividends:- 27 cent per stock unit – April 2011 53 cents per stock unit – July 2011 1,293 cent per stock unit – August 2011 2.8 cents per stock unit – December 2011 4.85 cents per stock unit – June 2012 4.85 cents per stock unit – September 2012 2012 $’000 - - - - 50,016 50,015 2011 $’000 20,000 40,000 970,000 30,925 - - 100,031 1,060,925 General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2012 (expressed in Jamaican dollars unless otherwise indicated) Page 50 18. Cash and Cash Equivalents Cash and bank balances Short term deposits Short term investments 2012 $’000 103,822 1,077,926 135,455 1,317,203 2011 $’000 90,776 1,043,502 - 1,134,278 Short term deposits comprise term deposits and repurchase agreements with an average maturity of 61 days (2011 – 67 days), and include interest receivable of $1,955,000 (2011 – $3,308,000). The weighted average effective interest rate on short term investments and deposits were as follows: J$ US$ 2012 % 6.3 3.0 2011 % 6.7 3.9 The weighted average effective interest rates on cash balances for the year were as follows: J$ US$ GBP 19. Due from Reinsurers and Coinsurers Reinsurers’ portion of unearned premium (Note 28) Reinsurers’ portion of claims liabilities (Note 28) Other amounts recoverable from reinsurers and coinsurers 20. Other Receivables Prepayments Other receivables 2012 % 1.1 0.2 0.1 2011 % 1.5 0,8 0.1 2012 2011 $’000 $’000 820,016 148,637 64,781 844,140 126,485 52,245 1,033,434 1,022,870 2012 $’000 3,220 10,286 13,506 2011 $’000 2,995 7,309 10,304 General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2012 (expressed in Jamaican dollars unless otherwise indicated) Page 51 21. Loans Receivable Mortgage receivable from fellow subsidiary (Note 9) Loans receivable from fellow subsidiary (Note 9) 2012 $’000 2011 $’000 171,799 174,420 62,476 237,933 236,896 66,134 Mortgage receivable represents a loan extended by the company to a fellow subsidiary for land and building sold to that fellow subsidiary. The loan attracts an interest of 12% per annum and has tenure of 30 years. Loans receivable from fellow subsidiary attracts interest at a rate of 5.25% and was repayable as at 31 December 2012. The loan has since been renegotiated and is now repayable in March 2013 at a rate of 5.25%. . 22. Lease Receivables = Gross investment in finance leases – Not later than one year Later than one year and not later than five years Less: Unearned income Net investment in finance leases may be classified as follows: Not later than one year Later than one year and not later than five years 2012 $’000 2011 $’000 29,985 47,774 77,759 (13,194) 22,586 30,192 52,778 (10,816) 64,565 41,962 21,808 42,757 64,565 14,147 27,815 41,962 General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2012 (expressed in Jamaican dollars unless otherwise indicated) Page 52 23. Investment Securities Debt securities - Available for sale – at fair value Government of Jamaica Securities Benchmark Investment Notes United States Dollar Benchmark Notes United States Dollar Bonds Treasury Bills Certificate of Deposits United States Dollar Corporate Bond Interest receivable Equity securities - Fair value through profit or loss Units in Unit Trust Funds Available for sale, at fair value – Quoted shares Available for sale, at cost – Unquoted shares Less: Provision for diminution in value Weighted average effective interest rate: Government of Jamaica Securities – Benchmark Investment Notes United States Dollars Benchmark Notes United States Dollar Bonds 2012 $’000 2011 $’000 219,199 6,220 59,997 12,862 40,000 10,999 349,277 5,686 354,963 221,552 5,871 57,105 20,054 - - 304,582 7,917 312,499 - 58,174 108,476 97,781 105 16,990 (105) - 108,476 463,439 (16,990) - 155,955 468,454 2012 % 7.93 6.88 9.47 2011 % 10.81 6.88 10.21 General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2012 (expressed in Jamaican dollars unless otherwise indicated) 23. Investment Securities (Continued) Page 53 Investment securities - Available-for-sale - Debt securities Equity securities Fair value through profit or loss 2012 2011 Carrying Amount $'000 Fair Value $'000 Carrying Amount $'000 Fair Value $'000 349,277 108,476 457,753 - 349,277 108,476 457,753 - 457,753 457,753 304,582 97,781 402,363 58,174 460,537 304,582 97,781 402,363 58,174 460,537 Included in investments, are Government of Jamaica Benchmark Investment Notes valued at $45,000,000 which have been pledged with the FSC, pursuant to Section 8(1)(b) of the Insurance Regulations, 2001. In the prior year, the Unit Trust Funds valued at $50,000,000 were pledged with the FSC. Included in investments are shares in Seprod Limited, a related party, with a fair value of approximately $67,331,000 (2011 - $97,781,000). The company is the beneficial owner of these shares, which are held in trust by the company’s parent, Musson Jamaica Limited, which is the registered owner. General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2012 (expressed in Jamaican dollars unless otherwise indicated) 24. Property, Plant and Equipment Page 54 At Cost - At 1 January 2011 Additions Disposals At 31 December 2011 Additions Disposals At 31 December 2012 Depreciation - At 1 January 2011 Charge for the year On disposals At 31 December 2011 Charge for the year On disposals At 31 December 2012 Net Book Value - 31 December 2012 31 December 2011 Furniture, Fixtures & Equipment Buildings $’000 $’000 Land $’000 Motor Vehicles $’000 Total $’000 4,569 - 80,260 1,392 50,941 7,272 45,642 181,412 417 9,081 (4,569) (65,222) (1,124) (6,805) (77,720) - - - - - - - - - - - - - - 16,430 5,965 57,089 5,853 39,254 21,485 112,773 33,303 - (1,404) (15,833) (17,237) 22,395 61,538 44,906 128,839 31,960 890 (26,785) 6,065 1,051 - 25,200 6,034 32,300 8,639 89,460 15,563 (728) (6,447) (33,960) 30,506 6,275 34,492 7,731 71,063 15,057 (728) (13,639) (14,367) 7,116 36,053 28,584 71,753 15,279 10,365 25,485 26,582 16,322 4,762 57,086 41,709 General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2012 (expressed in Jamaican dollars unless otherwise indicated) Page 55 25. Intangible Assets At Cost - At 1 January 2011 Additions At 31 December 2011 Additions At 31 December 2012 Amortisation - At 1 January 2011 Charge for the year At 31 December 2011 Charge for the year At 31 December 2012 Net Book Value - 31 December 2012 31 December 2011 26. Other Liabilities Statutory contributions payable Accrued expenses General consumption tax Other payables Computer Software $’000 54,665 10,732 65,397 10,757 76,154 25,694 13,079 38,773 14,808 53,581 22,573 26,624 2011 $’000 3,076 52,811 10,698 15,011 81,596 2012 $’000 4,083 43,989 8,265 9,991 66,328 General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2012 (expressed in Jamaican dollars unless otherwise indicated) Page 56 27. Deferred Income Taxes Deferred income taxes are calculated in full on temporary differences under the liability method using a principal tax rate of 33⅓%. Deferred income tax liabilities Net liabilities The net movement on the deferred income tax account is as follows: Balance as at 1 January Credited/(charged) to profit or loss (Note 15) Credited/(charged) to other comprehensive income (Note 15) Balance as at 31 December Deferred income tax assets and liabilities are attributable to the following items: Deferred income tax liabilities Accelerated tax depreciation Unrealised fair value gains 2012 $’000 2011 $’000 (5,027) (12,713) (5,027) (12,713) 2012 $’000 (12,713) 5,268 2011 $’000 (5,148) (6,669) 2,418 (5,027) (896) (12,713) 2012 $’000 2011 $’000 (5,027) (10,295) - (2,418) (5,027) (12,713) General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2012 (expressed in Jamaican dollars unless otherwise indicated) Page 57 28. Insurance Reserves (a) These reserves are as follows: Gross - Unearned premiums Claims liabilities Unearned commission Recoverable from reinsurers - Reinsurers’ portion of unearned premiums (Note 19) Reinsurers’ portion of claims liabilities (Note 19) Net - Unearned premiums Claims liabilities Unearned commission (b) Claims liabilities comprise: Gross - Outstanding claims IBNR Unallocated loss adjustment expense Recoverable from reinsurers - Outstanding claims IBNR Net - Outstanding claims IBNR Unallocated loss adjustment expense 2012 $’000 2011 $’000 1,293,349 822,246 83,537 2,199,132 1,259,115 688,107 95,289 2,042,511 (820,016) (148,637) (968,653) (844,140) (126,485) (970,625) 473,333 673,609 83,537 1,230,479 414,975 561,622 95,289 1,071,886 2012 $’000 678,438 134,990 8,818 822,246 111,269 37,368 148,637 567,169 97,622 8,818 673,609 2011 $’000 532,840 147,719 7,548 688,107 67,485 59,000 126,485 465,355 88,719 7,548 561,622 General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2012 (expressed in Jamaican dollars unless otherwise indicated) Page 58 28. Insurance Reserves (Continued) (c) The gross unearned premium reserve by class of business is as follows: Fire, consequential loss and liability Motor Marine Accident 29. Share Capital Authorised - 2012 $’000 814,511 376,297 11,141 91,400 2011 $’000 817,776 325,400 10,798 105,141 1,293,349 1,259,115 2012 $’000 2011 $’000 1,100,000,000 (2011 – 1,100,000,000) Ordinary shares of no par Issued and fully paid - 1,031,250,000 (2011 – 1,031,250,000) Ordinary shares of no par 470,358 470,358 During the prior year, the company issued 750,000,000 ordinary shares to its existing shareholders by way of an 11:1 stock split. The Company issued 206,250,000 shares on 21 September 2011 (20% of the total ordinary share capital issued) to the public.The shares issued have the same rights as the other shares in issue. The fair value of the shares issued amounted to $416,625,000 ($2.02 per share). The related transaction costs amounting to $21,267,000 have been deducted from the proceeds of the share issue. General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2012 (expressed in Jamaican dollars unless otherwise indicated) Page 59 30. Capital Reserves At beginning of year Movement during the year - Capital distribution income transferred from retained earnings At end of year The capital reserves at year end represent realised surpluses. 31. Fair Value Reserve 2012 $’000 2011 $’000 152,030 129,456 - 152,030 22,574 152,030 This represents the unrealised surplus, net of tax, on the revaluation of available-for-sale investments at the year end. 32. Pension Scheme Employees participate in a defined contribution pension scheme operated by a related company, T. Geddes Grant (Distributors) Limited. The scheme is open to all permanent employees, as well as the employees of certain related companies. The scheme is funded by employees’ compulsory contribution of 5% of earnings and voluntary contributions up to a further 5%, as well as employer’s contribution of 5% of employees’ earnings. The scheme is valued triennially by independent actuaries. The results of the most recent actuarial valuation, as at 31 December 2009, indicated that the scheme was adequately funded at that date. Pension contributions for the period totalled $2,889,000 (2011 – $3,002,000), and are included in staff costs (Note 14). 33. Contingency The Company is involved in certain legal proceedings incidental to the normal conduct of business. Management believes that none of these legal proceedings, individually or in the aggregate, will have a material effect on the Company. General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2012 (expressed in Jamaican dollars unless otherwise indicated) Page 60 34. Commitments Operating lease commitments The company leases its office situated at 58 Half Way Tree Road from fellow subsidiary Unity Capital Incorporated under non-cancellable operating lease agreement. The lease is for a term of five (5) years, and is renewable at the end of the lease period at market rate. The future aggregate minimum lease payments under non-cancellable operating leases are as follows No later than 1 year Later than 1 year and no later than Later than 5 years 35. Subsequent Event 2012 US$’000 2011 US$’000 142 388 - 530 142 530 - 672 In February 2013, the Company participated in the National Debt Exchange (NDX) transaction under which it exchanged its holdings of domestic debt instruments issued by the Government of Jamaica for new, longer-dated debt instruments with lower coupon interest rates. The key features of the NDX are as follows: • • • • Jamaican-resident holders of certain domestic debt instruments (collectively referred to as the “Old Notes”) were invited to exchange those Old Notes for new, longer-dated debt instruments (collectively referred to as the “New Notes”). Participation in the NDX was voluntary. The New Notes offered have a variety of payment terms, including but not limited to fixed and variable rates in J$, CPI-indexed in J$, and fixed rates in USD. Eligible investors had the option to choose New Notes based on the type and maturity of the Old Notes which are offered for exchange based on certain election options. The election options only allow investors to choose New Notes of longer tenor relative to Old Notes. Most New Notes have lower coupon interest rates than Old Notes. Introduction of new Fixed Rate Accreting Notes (“FRANs”) which were issued with J$80 of principal value for every J$100 of principal value of Old Notes, whereby such principal will accrete to J$100 of principal value by the maturity date in 2028. The Company elected not to receive any FRANs. Eligible investors who made offers to the Government of Jamaica to exchange Old Notes received an equivalent principal value (par-for-par value) of New Notes and the payment in cash of accrued interest, net of applicable withholding taxes, on the Old Notes up to but excluding 22 February 2013 (the Settlement Date). 35. Subsequent Event (Continued) General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2012 (expressed in Jamaican dollars unless otherwise indicated) Page 61 The NDX has had a significant impact on the expected future cash flows from the Company's investment portfolio. The table below summarises the impact on coupon rates and maturities of the instruments that were exchanged. = = Jamaican dollar denominated instruments: Total face value exchanged J$215 million Pre NDX Post NDX Weighted average coupon rate Weighted average tenor to maturity 8.69% 2.0 years 7.57% 6.8 years US dollar denominated instruments: Total face value exchanged US$34 thousand (including J$ denominated instruments indexed to US$) Weighted average coupon rate Weighted average tenor to maturity 6.75% 0.7 yea 5.25% 4.1years General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2012 (expressed in Jamaican dollars unless otherwise indicated) Page 61 The NDX has had a significant impact on the expected future cash flows from the Company's investment portfolio. The table below summarises the impact on coupon rates and maturities of the instruments that were exchanged. = = Jamaican dollar denominated instruments: Total face value exchanged J$215 million Pre NDX Post NDX Weighted average coupon rate Weighted average tenor to maturity 8.69% 2.0 years 7.57% 6.8 years US dollar denominated instruments: Total face value exchanged US$34 thousand (including J$ denominated instruments indexed to US$) Weighted average coupon rate Weighted average tenor to maturity 6.75% 0.7 yea 5.25% 4.1years General Accident 2012 Annual Report For more information, visit www.genac.com Notes For more information, visit www.genac.com Notes For more information, visit www.genac.com Form Of Proxy GENERAL ACCIDENT INSURANCE COMPANY (JAMAICA) LIMITED No. Resolution details (tick as appropriate) Vote for or against “ I/We _______________________________________ ______________________(insert name) 1. ORDINARY RESOLUTIONS To receive the report of the Board of Directors and the audited accounts of the Company for the year ended December 31, 2012. For Against For Against 2. Company and to fix their remuneration. To authorise the Board of Directors to re-appoint PWC as the Auditors of the To re-appoint the following Directors of the Board, who have resigned by rotation in accordance with the Articles of Incorporation of the Company and, being eligible, have consented to act on re-appointment. 3.(a) To re-appoint Melanie Subratie as a Director of the Board of the Company.. For Against 3.(b) To re-appoint Sharon Donaldson as a Director of the Board of the Company. For Against 3.(c) To re-appoint Christopher Nakash as a Director of the Board of the Company. For Against 4(a) To authorise the Board of Directors to fix the remuneration of the Directors. To approve the aggregate amount of interim dividends declared by the 5. Board during the financial year ended 31st December 2012, being $100,031,250 or 9.7 cent per ordinary share, as the final dividend for that year. For Against For Against of ___________________________________________ __________________________ (address) being a shareholder(s) of the above-named Company, hereby appoint: ______________________________________________ _____________________ (proxy name) of ___________________________________________ __________________________(address) or failing him, _________________________________ __________________(alternate proxy) of ___________________________________________ __________________________(address) as my/our proxy to vote for me/us on my/our behalf at the Annual General Meeting of the Company to be held at 10am on the 21 day of June 18th, 2013 at 58 Halfway Tree Road and at any adjournment thereof . I desire this form to be used for/against the resolutions as follows (unless directed the proxy will vote as he sees fit): Signed this day of 2013: Signed: _____________________________________ (signature of primary shareholder) Name: _____________________________________ (print name of primary shareholder) Signed: _____________________________________ (signature of joint shareholder, if any) Name: _____________________________________ (print name of joint shareholder, if any) General Accident Insurance Company Jamaica Limited 58 Halfway Tree Road Kingston, Jamaica www.genac.com 

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