Generac Holdings Inc
Annual Report 2013

Plain-text annual report

Annual Report 2013 Building on solid foundations General Accident 2013 Annual Report For more information, visit www.genac.com Peace of mind PEACE OF MIND CALL YOUR BROKER OR A GENAC REPRESENTATIVE FOR FURTHER DETAILS 876-929-8451 // 876-929-8454 HEAD OFFICE: 58 HALF WAY TREE ROAD, KINGSTON 10, JAMAICA W.I. WWW.GENAC.COM PEACE OF MIND Statement of the Chairman ..................... Notice of Annual General Meeting.......... Directors Report .......................................... Our Performance Financial Statistics ....................................... Management Discussion and Analysis .... Our Team Board of Directors ...................................... Leadership Team ........................................ Accountability Corporate Data .......................................... Disclosure of Shareholding......................... 4 6 7 10 14 18 22 24 26 Our Community Corperate Social Responsibility ................ 29 Appendices Audited financial statements Form of Proxy CALL YOUR BROKER OR A GENAC REPRESENTATIVE FOR FURTHER DETAILS 876-929-8451 // 876-929-8454 For more information, visit www.genac.com HEAD OFFICE: 58 HALF WAY TREE ROAD, KINGSTON 10, JAMAICA W.I. WWW.GENAC.COM Contents THE YEAR AT A GLANCE $4.5 Billion in gross written premiums 24% Return on average equity Statement of the Chairman General Accident had another record year in 2013 recording the highest premiums and profits in our history. Operating performance General Accident recorded a net profit of $327.9 million in 2013 or an in- crease of 13% over 2012. While the operating environment remained challenging, General Accident produced an underwriting profit for the fifth consecutive year. Underwriting profitably on a consistent basis over time is difficult and is the result of the expertise and discipline of our underwriting team. Our insurance float has grown considerably in the last few years and was over $2.3 billion at the end of 2013. We invested this float prudently last year, earn- ing a 13% return. Capital management General Accident’s reinsurance partners are some of the largest and best capitalized in the world. The support of these reinsurers allows us to under- write some of the largest and most complicated commercial property, engineer- ing and marine risks in Jamaica. I am pleased to report that we deepened and strengthenes our relationships with our reinsurers in 2013. As a result of our solid underwriting and investment results, General Acci- dent made a return on average equity of 24%. In line with our dividend policy, we returned over $140 million to our shareholders last year and still managed to grow our equity base. Outlook The outlook for the Jamaican economy remains uncertain. For the fore- seeable future, the demand for insurance services is likely to remain depressed. Thankfully, I believe we have an enduring high quality business capable of con- tinuing a long-term trajectory of profitable growth even in the face of these chal- lenges. I look forward to working with our team to continue to build our business. I would like to thank the board, management and the staff for their commitment to this task throughout 2013. Sincerely, P.B. Scott Chairman 4 General Accident Insurance Company Jamaica Limited. ANNUAL REPORT 2012 Statement of the Chairman P.B. Scott Chairman For more information, visit www.genac.com 5 “In many ways, our financial performance this year was a testimony to the resilience of our business.”Notice Of Annual General Meeting GENERAL ACCIDENT INSURANCE COMPANY (JAMAICA) LIMITED NOTICE IS HEREBY GIVEN THAT the annual general meeting of General Acci- dent Insurance Company (Jamaica) Limited (the “Company”) will be held at 10am on July 8th, 2014 at 58 Half Way Tree Road for shareholders to consider and, if thought fit, to pass the following resolutions: Ordinary Resolutions 1. To receive the report of the Board of Directors and the audited accounts of the Company for the financial year ended December 31, 2013. 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 accordance with the Articles of Incorporation of the Company and, being eligible, have consented to act on re-appointment: (a) To re-appoint Jennifer Scott as a Director of the Board of the Company. (b) To re-appoint Nicholas Scott as a Director of the Board of the Company. (c) To re-appoint Nigel Clarke 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 2013, being $140,023,125.43 or 13.578 cent per ordinary share, as the final dividend for that year. Dated this the 25th day of April 2014 By order of the Board. P.B. Scott Chairman 6 General Accident Insurance Company Jamaica Limited. ANNUAL REPORT 2013 Directors Report The Directors are pleased to present their report for General Accident Insurance Company Jamaica Limited for the financial year ended December 31, 2013 Financial Results The Statement of Comprehensive Income for the Company shows pre-tax profits for the year of $324 million, taxation recoverable of $4.2 million and a net profit after-tax of $328 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, 2013 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: Jennifer Scott, Nichalos Scott and Nigel Clarke but being eligible, will offer themselves for reelection. Auditors The auditors of the Company, PricewaterhouseCoopers of Scotiabank Centre, Duke Street, Kingston, Jamaica have expressed their willingness to continue in office. The Directors recommend their reappointment. Dividend A dividend of $0.08728 per share paid on October 14, 2013 is proposed to be the final dividend in respect of the financial year ended December 31, 2013. On behalf of the Board of Directors, P.B. Scott Chairman For more information, visit www.genac.com 7 Our Performance General Accident today Policies in force 16,015 Employees 83 Gross written premiums $4.5b Investment portfolio $2.1b Net worth $1.5b For more information, visit www.genac.com 9 7-Year Financial Statistics Employee 2013 83 2012 7 7 2011 74 Policies in force 16,015 15,876 15,247 Gross written premiums 4,479,755 3,788,969 3,626,395 Net written premiums 1,018,398 991,175 866,513 Net earned premiums Claim 994,193 646,791 932,818 540,775 819,490 693,085 420,142 426,624 Management expenses 381,073 332,903 300,592 241,641 Underwriting profit Investment income Profit before tax Profit after tax Cash Dividends 58,503 284,788 323,702 327,914 140,025 117,362 186,114 285,269 290,537 100,031 161,589 68,862 1,015,010 1,341,478 1,284,816 90,925 Investment assets 2,104,201 1,780,642 1,602,732 Insurance reserves 2,364,658 2,199,132 2,042,511 Shareholders equity 1,456,944 1,288,850 1,140,743 10 General Accident Insurance Company Jamaica Limited. ANNUAL REPORT 2013 7-Year Financial Statistics 2010 2009 2008 2007 4 69 66 64 61 13,466 11,727 11,187 12,787 3,626,395 2,203,074 1,683,911 1,504,687 1,101,424 866,513 784,562 592,741 434,117 502,721 819,490 693,085 599,663 356,433 477,774 420,142 426,624 391,416 360,568 273,074 300,592 241,641 204,357 169,613 150,519 161,589 68,862 33,818 (124,899) 31,997 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 95,000 270,000 - 40,000 1,602,732 1,727,588 1,357,765 1,265,838 1,177,126 2,042,511 1,511,904 1,163,257 1,100,096 854,434 1,140,743 1,270,502 1,034,229 1,157,244 1,028,409 For more information, visit www.genac.com 11 7-Year Financial Statistics 2013 2012 Market Share (2) Growth in gross written premiums Loss ratio Expense ratio (3) Underwriting margin4 Investment return% Return on average equity (5) Dividend yield on average equity Increase in net worth Total return to shareholders (6) 15% 18% 65% 9% 1% 13.5% 24% 10% 13% 23% 13% 4% 58% 9% 3% 10% 24% 8% 13% 21% 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 securites and subsidiary in 2011 and dividend from former subsidiary in 2010 5. Excludes gains from the sale of available for sale securites, 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 12 General Accident Insurance Company Jamaica Limited. ANNUAL REPORT 2013 7-Year Financial Statistics 2011 2010 2009 2008 13% 10% 7% 7% 65% 31% 12% 37% 51% 62% 65% 101% 8% 11% 12% 11% 3% 2% 2% -8% 12% 26% 11% 10% 14% 9% 8% 88% 8% 25% 0% (-11%) 23% (-11%) 13% 77% 31% 14% (13%) For more information, visit www.genac.com 13 Management Discussion and Analysis Our Business General Accident is committed to focusing on the specific needs of all its stakeholders and our 2013 results are the product of a defined strategic road- map that continues to drive our activities on building long term value for our clients, shareholders, employees and society as a whole. We operate in an environment that has become more uncertain and therefore less predictable and even less calculable resulting in the task of provid- ing insurance more challenging. Notwithstanding, we accept as insurers that our core business is to assume risks from our clients in exchange for security. With our risk knowledge we continue to offer solutions that can relieve our insureds of some of the uncertainty as we provide insurance cover against peak risks, in particular those arising from natural catastrophes. The ever-changing dynamics of our operating environment requires responsive, informed strategies and the tools at our disposal rest on three major pillars, namely underwriting, investments and capital management. We mea- sure our success by the increase in shareholders value over time, which represents growth in book value per share plus dividend paid. Since our entry into the public market, the company has increased shareholder’s value at a compound rate of 24% which we believe is a demonstration of our strength and effective operating strategies. We remain committed to achieving double-digit returns, de- spite a challenging economic environment. Our main tool in achieving this objec- tive is the employment of strict underwriting discipline, which is firmly embedded in all our business operations The essence of our strategy is to earn a bottom line profit by focusing on that which we know and we do not risk profitability and the strength of our balance sheet for market share. Financial Performance Highlights • 15th consecutive year of premium growth • Profit for the year of $327.9 million, an increase of 13.5% (2012: $290.5 million) • Earnings per share of $0.32 (2012: $0.28) • Book value of $1.45 billion (2012: $1.28 billion) • Annualized return on average equity of 24% 14 General Accident Insurance Company Jamaica Limited. ANNUAL REPORT 2013 Underwriting Performance This year gross written premiums grew to $4.5 billion, an increase of 18%, with net written premiums, before excess of loss reinsurance costs, increasing to $1.165 billion over prior year of $1.123 billion. While net premiums earned (after all reinsurance outflows) increased marginally over prior year [$994.0 million compared to $991 million], our underwriting profit fell to $58.5 million, well below prior year of $117.4 million. Our underwriting performance was negatively impacted by signifi- cant increases in our claims cost that produced ripple effect deterioration in our loss ratio and combined ratio, which worsened from 94% in 2012 to 96% in 2013. The combined ratio, a widely used measure of insurance underwriting performance, is the sum of claims and management expenses divided by net premiums earned. Although our loss ratio worsened from 58% last year to 65% in 2013 we be- lieve that our financial strength, combined with our hands on risk management, our prudent investment policy and our efficient capital management have made us resilient despite the upstream current of increasing claims cost. Investment Performance We underwrite insurance to make a profit, not to generate funds for invest- ment. Nevertheless, General Accident dedicates significant resources to actively managing our insurance float. In managing our investment portfolio, we balance our desire to maximize returns with our needs to limit the risk of loss relative to our capital and the need to ensure that our liquidity exceeds our claims in even the most conservative of scenarios. Our investment portfolio continued to perform well in 2013. We generated investment income of $286 million. We also recorded a small unrealized gain in the fair value of our holdings. We made a 12.9% return on our investment portfolio this year, far exceeding both inflation and the returns on benchmark securities. This improved performance was the result of increases in our float and the more active and efficient management of our capital in the face of continued low interest rates. Profitability General Accident’s profitability improved significantly this year benefitting primarily from increased investment income rather than better technical results. During 2013, General Accident earned $268.5 million in investment income. Invest- ment returns continue to be an important lever in driving the overall profitability of the company. We continue our dividend policy as the company’s consistent performance has enabled us to raise dividend again by 40% compared to last year out $140.03 million in cash to our shareholders or $0.08728 per share, a slight increase over 2012. General Accident ended 2013 with a book value of $1.45 billion and For more information, visit www.genac.com 15 Management Discussion and Analysis paying out $140.03 million in cash to our shareholders or $0.08728 per share, a slight increase over 2012. General Accident ended 2013 with a book value of $1.45 billion and generated a return on average equity for shareholders of 24%. Capital Position Our business operations are in part dependent on our financial strength and the market’s perception of our financial strength, measured by shareholder’s equity, stood at $1.45 billion at December 31, 2013. General Accident remains in compliance with the capital adequacy and liquidity metrics prescribed by the Financial Services Commission and requires the company to maintain a minimum of 250% capital to risk weighted assets [MCT]. At year-end our MCT ratio was 260%. The company’s liquidity is ensured by means of detailed liquidity planning. At December 31st, 2013 our liquidity ratio of 116% exceeds the regulatory minimum of 95%. In addition, we successfully renewed our reinsurance treaty with our inter- national reinsurance partners for 2014. Outlook 2013 As we enter 2014, we have every reason to believe that market volatility will continue as our industry is highly competitive and subject to pricing cycles that can be very pronounced. However, given that our underwriting strategies emphasize flexibility and responsiveness to changing market conditions, we believe that our broad underwriting expertise and strong capital base will allow us to take advan- tage of those market opportunities that provide the greatest potential for underwrit- ing profitability. The business model pursued by General Accident combines a well-man- aged direct portfolio with significant broker partner business that require focus on strengthening of relationships and the enhancement of our value proposition to each of our customer segments. We are confident that this model produces the best opportunity for profitable growth. In closing we continue to reiterate that our strategic focus in the short term will be building our business on the key platforms of speedy claims settlement, efficiency and excellent customer relationship. We wish to thank our all of our policyholders, brokers, reinsurers, and em- ployees for their loyal support and the trust you placed in us. We will continue to 16 General Accident Insurance Company Jamaica Limited. ANNUAL REPORT 2012 make every effort to fulfill justified expectations of all our stakeholders. On behalf of the Board of Directors. Sincerely, Sharon E. Donaldson Managing Director Sharon E. Donaldson Managing Director Managing Director For more information, visit www.genac.com 17 
 Board Of Directors P.B. Scott (appointed November 1998) Chairman Sharon Donaldson (appointed March 2008) Managing 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 coun- tries including Facey Group Limited, T. Geddes Grant Limited, and others. Mr. Scott serves as a Director of several lo- cal companies and organisations including, Seprod and its subsidiaries (Chairman), Scotia Life Insurance Company Limited, the Jamaica Chamber of Com- merce and the American International School in Kingston. He currently serves as Honorary Consul Gen- eral in Jamaica for the Republic of Guatemala. Sharon Donaldson is the Managing Di- rector of the Company. She has been responsible for driving its recent growth and for overseeing its prudent underwriting and risk management strat- egy. Ms. Donaldson has been with the Company for over 20 years, first joining as the Financial Con- troller in 1989 before becoming Managing Direc- tor 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 Uni- versity 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. Melanie Subratie (appointed March 2002) Deputy Chairman Dr. Nigel L. Clarke (appointed August 2011) Non Executive Director Melanie Subratie is the Deputy Chairman of the Company and Chairman of the Investment and Loan Committee of the Board. Mrs. Subratie is also Vice Chairman of the Musson Jamaica Limited 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 Divi- sion of Deloitte & Touche and also worked for startup political newswire service DeHavilland prior to return- ing to Jamaica in 2002 and joining the Musson Board. Dr. Nigel Clarke is a Non Executive Direc- tor of the Company. Dr. Clarke is also the Musson Group Deputy Chairman, CFO and previously CEO oF Facey Group. He also serves as a director of many of the Musson Group’s subsidiaries and affili- ated 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 Chair- man 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 Univer- sity of the United Kingdom, in Numerical Analysis. 18 General Accident Insurance Company Jamaica Limited. ANNUAL REPORT 2013 Board Of Directors Geoffrey Messado (appointed May 2001) Non Executive Director Jennifer Scott (appointed December 2009) Non Executive Director 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 Con- troller of the Musson Group, and he serves as a di- rector of certain subsidiaries and affiliated compa- nies. He also serves as Chairman of Mapco Printers Limited and as a director of Edgechem (Jamaica) Limited, the KRB Lea Jamaica Rums Limited, Cor- rpak Jamaica Limited, Clarendon Distillers Limited, Spirits Pool Association and Caribbean Molasses Company (Jamaica) Limited. Mr. Messado is a Chartered Accoun- tant, FCA, FCAA, ATII. He is also the Past President of the Jamaica Exporters Association. Jennifer Scott is a non executive direc- tor 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 Di- ploma 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 Attor- ney-at-Law of the Supreme Court of Jamaica. She is a member of the legal practice of Clinton Hart & Co., Attorneys-at-Law. Nicholas A. Scott (appointed July 2011) Non Executive Director Dr. Ralph Thompson, C.D. (appointed January 1993) Non Executive Director Nicholas Scott is a non executive direc- tor of the Company. Mr. Scott is the Chief Invest- ment Officer of the Investment and Financial Ser- vices businesses of the Musson Group and in this capacity serves as the Managing Director of Ep- pley Limited. He is also a Director of Seprod Lim- ited. 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 M.P.A. from the Harvard Kennedy School of Government. 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 Director of C.D. Alexander Realty Company Limited and was formerly the Chief Executive Officer of Se- prod 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. For more information, visit www.genac.com 19 Board Of Directors Duncan Stewart (appointed August 2011) Independent Non Executive Director Christopher Nakash (appointed December 2006) 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 business operating under the umbrella of Stewart’s Automotive Group. Mr. Stewart joined as a third generation member af- ter graduating from McGill University with a B.Eng. (Mech). Mr. Stewart is also a director of the Auto- mobile Dealers Association and the Richard and Di- ana 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. Christopher Nakash is an independent non executive Director of the Board of the Com- pany. Mr. Nakash brings to the Board his manage- ment experience, gained as Chief Executive Offi- cer 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 Intelli- gent Multimedia Limited. Mr. Nakash holds a BBA from University of New Brunswick, Canada. Maxim G. Rochester (appointed July 2012) Non Executive Director Mr. Maxim G. Rochester is an independent non executive director of the Company. Mr. Roch- ester – B.Sc. (Accounting) Hons. FCA, FCCA. Max is a member of the Chartered Association of Certified Accountants (UK) and The Institute of Chartered Ac- countants of Jamaica. He was also a member of the Accounting Standards Committee of the Institute of Chartered Accountants of Jamaica (ICAJ) and played a significant role in the adoption of Interna- tional Financial Reporting Standards in Jamaica. He also presented several papers at seminars hosted by ICAJ. Mr. Maxim G. Rochester is a former Territory Senior Partner of PricewaterhouseCoopers 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 responsibility on all audit matters. 20 General Accident Insurance Company Jamaica Limited. ANNUAL REPORT 2013 Board Of Directors Leadership Team Leadership Team Cheryll Henry Lochinvar Lungren Sharon Donaldson Maureen Hall Angella Reynolds General Accident Insurance Company Jamaica Limited. ANNUAL REPORT 2013 22 Leadership Team Cheryll Henry Lochinvar Lungren Sharon Donaldson Maureen Hall Angella Reynolds Sharon Donaldson Managing Director See Board of Directors. Maureen Hall General Manager Lochinvar Lungren Financial Controller Ms. Maureen Hall is the General Manag- er of the Company with direct responsibility for the Claims and Underwriting Departments. Ms. Hall has been with the Company for over 20 years. She joined the Company in 1989 as Credit Controller, was ap- pointed Marketing and Customer Service Manager in January 1991 and later Claims Manager 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 Insur- ance 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 coach- ing committee. Ms. Hall holds a B. Ed (Hons) degree from the University of Sussex, England, as well as a Di- ploma in Mass Communication from the University of the West Indies, and a M.B.A from Manchester, Univer- sity England. Ms. Hall is also an associate member of the Chartered Insurance Institute (UK). Angella Reynolds Deputy General Manager 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 founding joint venture partner, togeth- er with Musson (Jamaica) Limited, General Acci- dent Fire and Life Assurance Company 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. 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 experi- ence in the insurance industry, having previously held executive posts with the Grace Kennedy Group, Al- lied Insurance Brokers and Jamaica International In- surance Company. Ms. Reynolds is the holder of the Jamaican Insurance Diploma from the College of Insurance & Professional Studies. She is an associate member of the Chartered Insurance Institute (UK) and also holds a Diploma in Commercial Insurance Contract Word- ing from that organisation. Ms. Cheryll Henry is the Human Re- sources and Facilities 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 Management Studies from the University ofthe West Indies and a Diploma in Human Resource Management from the Institute ofManagement & Production. For more information, visit www.genac.com 23 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 24 General Accident Insurance Company Jamaica Limited. ANNUAL REPORT 2013 .............................................................. 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 For more information, visit www.genac.com 25 Disclosure Of Shareholdings Shareholdings of Top 10 Shareholders Shareholders Shares %Owned 1. Musson Jamaica Limited 824, 999,989 2. Mayberry West Indes Limited 31,011.807 3. Apex Pharmacy 11,588,279 4. Mayberry Managed Client Account 12,411,826 5. First Caribbean Int’l Sec. Ltd A/C B.U.T. 4,413,539 80.00 3.00 1.12 1.20 0.43 6. Barita Investment Ltd. - Long A/C(Trading) 3,098,561 0.38 7. Sharon Donaldson 8. Konrad Limited 3,000,000 2,688,854 9. Lannaman & Morris(shipping) Limited 2,599,260 10. Lloyd Baday 4,004,040 0.29 0.26 0.25 0.38 26 General Accident Insurance Company Jamaica Limited. ANNUAL REPORT 2013 Shareholdings of Directors Director/ Connected persons Shares P.B. Scott NIL 824,999,989) NIL 824,999,989) 1. ( Musson Jamaica Limited 2. Melanie Subratie ( Musson Jamaica Limited 3. Sharon Donaldson ( Self 3,000,000) ( 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 2,475,190 9. Duncan Stewart ( and Deborah Strewart) ( and Diana Strewart) . Nigel Clarke 10. Dr 2,475,248 11. Maxim Rochester 1,237,624 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 500,000 4. Lochinvar Lungren 645,482 1,980,198 5. Cheryll Henry 3,000,000) 177,758) For more information, visit www.genac.com 27 Our Community Corperate Social Responsibility For General Accident, corporate so- for any nation. We recognize the invaluable cial responsibility is an important entranched contribution of sports in the development mandate. We try to conduct our business in of the nation’s youth as it not only builds a manner consistent with excellent corporate patriotism, encourages friendship but incul- citizenship and as we seek to ensure that our cates important life skills and shapes char- operations create value for our sharehold- acter. General Accident is committed to Ja- ers, employees, customers, communities and maica’s world renowned sports programme Jamaica. During the financial year under and our talented athletes. For more than review, despite the financial challenges, we 20 years, we have provided sponsorship of continue to play a significant role in nation international tours and the underwriting of building through our support in education, travelling costs for many athletes. cultural heritage, sports, child welfare and the environment. Education and Cultural Heritage We support the Jamaica Athletic Association 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 be- tween the ages of 5 – 16. General Accident recognizes that the fostering of educational opportunities for young people plays a pivotal role in na- tional development. The company renewed Child Welfare In conjunction with the staff sports its partnership with Next Move Jamaica, with club, GA provided much needed support in the provision of fourteen (14) scholarships for cash and kind to Sophie’s Place, a home for students pursuig tertiary education at a Uni- 27 children with disabilities. Each year, GA versity in Jamaica. staff members organize a Christmas treat at We continue to support the Chess Foundation of Jamaica through our spon- the home and both staff and children are sorship of chess competition for high schools provided with gifts and day of fun and good to the tune of$300,000. St Jago High School food and care. won the 2012 competition. GA has supported the Jamaica Cul- tural 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 undoubtedly, is a uniting force For more information, visit www.genac.com 29 Our Community Corperate Social Responsibility Environment A healthy natural environment is of vital importance to the insurance industry. GA firmly believes all development should be sustainable and should not result in dam- age to natural resources. Since 1995, GA has been a major donor to the Jamaica Environ- ment Trust (JET), one of Jamaica’s leading environmental non profit groups. GA has worked in partnership with JET to educate young Jamaicans about environ- mental issues via the Schools’ Environment Programme, to clean our country’s beach- es, and has helped JET invest in training and development for its small staff complement. In recognition of GA’s long standing support, JET recently named GA a “Champion for the Environment.” Other support At General Accident we en- courage our staff to be change lead- ers and to assit in the nation building process. In keeping with this mandate our staff also participated in a number of other CSR events, such as Sigma run which raises money for child related charities. 30 General Accident Insurance Company Jamaica Limited. ANNUAL REPORT 2013 Corperate Social Responsibility “Our mission is to be “a general insurance company, which provides an innovative product, excellent service for our customers, fair remuneration to our staff and a fair return to our shareholders.” Appendices General Accident Insurance Company Jamaica Limited Index 31 December 2013 GENERAL ACCIDENT INSURANCE COMPANY JAMAICA LIMITED Financial Statements 31 December 2013 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 - 59 General Accident Insurance Company Jamaica Limited Index 31 December 2013 GENERAL ACCIDENT INSURANCE COMPANY JAMAICA LIMITED Financial Statements 31 December 2013 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 - 59 General Accident Insurance Company Jamaica Limited Statement of Comprehensive Income Year ended 31 December 2013 (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 2013 $’000 2012 $’000 4,479,755 3,788,969 (3,314,356) (2,665,753) (147,001) (132,041) 1,018,398 (24,205) 994,193 269,094 991,175 (58,357) 932,818 295,485 (176,920) (237,263) 10 (646,791) (540,775) (381,073) (332,903) 11 12 58,503 141,407 151,091 (27,299) 117,362 136,062 61,711 (29,866) 323,702 285,269 15 4,212 5,268 327,914 290,537 Other Comprehensive Income: Items that may be subsequently reclassified to profit or loss Unrealised losses on available-for-sale investments, 15 (15,621) (30,959) Gains recycled to profit or loss on disposal and maturity of available-for- sale investments Total Other Comprehensive Income TOTAL COMPREHENSIVE INCOME (4,174) (19,795) (11,440) (42,399) 308,119 248,138 EARNINGS PER SHARE 16 $0.32 $0.28 General Accident Insurance Company Jamaica Limited Statement of Comprehensive Income Year ended 31 December 2013 (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 2013 $’000 2012 $’000 4,479,755 3,788,969 (3,314,356) (2,665,753) (147,001) (132,041) 1,018,398 (24,205) 994,193 269,094 991,175 (58,357) 932,818 295,485 (176,920) (237,263) 10 (646,791) (540,775) (381,073) (332,903) 11 12 58,503 141,407 151,091 (27,299) 117,362 136,062 61,711 (29,866) 323,702 285,269 15 4,212 5,268 327,914 290,537 Other Comprehensive Income: Items that may be subsequently reclassified to profit or loss Unrealised losses on available-for-sale investments, 15 (15,621) (30,959) Gains recycled to profit or loss on disposal and maturity of available-for- sale investments Total Other Comprehensive Income TOTAL COMPREHENSIVE INCOME (4,174) (19,795) (11,440) (42,399) 308,119 248,138 EARNINGS PER SHARE 16 $0.32 $0.28 Page 3 Page 4 General Accident Insurance Company Jamaica Limited Statement of Changes in Equity Year ended 31 December 2013 (expressed in Jamaican dollars unless otherwise stated) Balance at 31 December 2011 470,358 152,030 110,517 407,838 1,140,743 Share Capital $’000 Capital Reserves $’000 Fair Value Reserve $’000 Retained Earnings $’000 Note Total $’000 Comprehensive income : Net profit for the year Other comprehensive income Total comprehensive income Transactions with owners Dividends 17 - - - - - - - - - 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 Comprehensive income : Net profit for the year Other comprehensive income Total comprehensive income Transactions with owners Dividends 17 - - - - - - - - 327,914 327,914 (19,795) - (19,795) (19,795) 327,914 308,119 - (140,025) (140,025) Balance at 31 December 2013 470,358 152,030 48,323 786,233 1,456,944 General Accident Insurance Company Jamaica Limited Statement of Cash Flows Year ended 31 December 2013 (expressed in Jamaican dollars unless otherwise indicated) 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 Unrealised gain on Unit Trust Fund Gain on disposal of property, plant and equipment Interest income Dividend income 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 Tax withheld at source 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 Proceeds from disposal of property, plant and equipment Proceeds from disposal and maturity of investments 24 25 Dividend received Interest received Net cash (used in)/provided by investing activities Note 2013 $’000 2012 $’000 327,914 290,537 24 25 11 12 11 11 15 17,352 9,947 (4,498) - - (1,378) (129,638) (7,271) (4,212) (146,495) (7,724) 165,526 219,523 4,775 (13,528) 70,418 12,125 628 (4,075) 289,866 (34,172) 255,694 (667,546) (33,017) (26,923) (537) 1,415 218,787 7,271 123,000 (377,550) 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 General Accident Insurance Company Jamaica Limited Statement of Changes in Equity Year ended 31 December 2013 (expressed in Jamaican dollars unless otherwise stated) Balance at 31 December 2011 470,358 152,030 110,517 407,838 1,140,743 Share Capital Capital Reserves $’000 Fair Value Reserve $’000 Retained Earnings $’000 Note $’000 Total $’000 Page 3 Dividends 17 - (100,031) (100,031) Balance at 31 December 2012 470,358 152,030 68,118 598,344 1,288,850 Comprehensive income : Net profit for the year Other comprehensive income Total comprehensive income Transactions with owners Comprehensive income : Net profit for the year Other comprehensive income Total comprehensive income Transactions with owners - - - - - - - - - - - - - - - - - 290,537 290,537 (42,399) (42,399) - (42,399) 290,537 248,138 327,914 327,914 (19,795) - (19,795) (19,795) 327,914 308,119 Dividends 17 - (140,025) (140,025) Balance at 31 December 2013 470,358 152,030 48,323 786,233 1,456,944 General Accident Insurance Company Jamaica Limited Statement of Cash Flows Year ended 31 December 2013 (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 Unrealised gain on Unit Trust Fund Gain on disposal of property, plant and equipment Interest income Dividend income 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 Tax withheld at source 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 Proceeds from disposal of property, plant and equipment Proceeds from disposal and maturity of investments Dividend received Interest received Net cash (used in)/provided by investing activities Note 2013 $’000 2012 $’000 327,914 290,537 24 25 11 12 11 11 15 24 25 17,352 9,947 (4,498) - - (1,378) (129,638) (7,271) (4,212) (146,495) (7,724) 165,526 219,523 4,775 (13,528) 70,418 12,125 628 (4,075) 289,866 (34,172) 255,694 (667,546) (33,017) (26,923) (537) 1,415 218,787 7,271 123,000 (377,550) 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 Page 5 Page 6 General Accident Insurance Company Jamaica Limited Statement of Cash Flows (Continued) Year ended 31 December 2013 (expressed in Jamaican dollars unless otherwise indicated) Net cash (used in) /provided by investing activities brought forward Cash Flows from Financing Activities Dividends paid Net cash used in by financing activities (Decrease)/increase in cash and cash equivalents Effect of exchange rate changes on cash and cash equivalents Note 2013 $’000 (377,550) 2012 $’000 42,238 17 (140,025) (140,025) (261,881) 114,208 (100,031) (100,031) 129,254 53,671 Cash and cash equivalents at beginning of year 1,317,203 1,134,278 CASH AND CASH EQUIVALENTS AT END OF THE YEAR (NOTE 18) 1,169,530 1,317,203 2. Summary of Significant Accounting Policies . General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2013 (expressed in Jamaican dollars unless otherwise indicated) 1. Identification and Activities General Accident Insurance Company Jamaica Limited is incorporated and domiciled in Jamaica. The company is a public listed company with its listing on the Jamaica Junior Stock Exchange. The company is an 80% subsidiary of Musson (Jamaica) Limited (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. 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 2013 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.   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 has adopted these amendments from 1 January 2013. 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 has assessed the impact of IFRS 11 and has concluded that there is no impact on the financial statements. General Accident Insurance Company Jamaica Limited Statement of Cash Flows (Continued) Year ended 31 December 2013 (expressed in Jamaican dollars unless otherwise indicated) Net cash (used in) /provided by investing activities brought forward Cash Flows from Financing Activities Dividends paid Net cash used in by financing activities (Decrease)/increase in cash and cash equivalents Effect of exchange rate changes on cash and cash equivalents Note 2013 $’000 (377,550) 2012 $’000 42,238 17 (140,025) (140,025) (261,881) 114,208 (100,031) (100,031) 129,254 53,671 Page 5 Page 6 Page 6 General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2013 (expressed in Jamaican dollars unless otherwise indicated) 1. Identification and Activities General Accident Insurance Company Jamaica Limited is incorporated and domiciled in Jamaica. The company is a public listed company with its listing on the Jamaica Junior Stock Exchange. The company is an 80% subsidiary of Musson (Jamaica) Limited (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. Cash and cash equivalents at beginning of year 1,317,203 1,134,278 CASH AND CASH EQUIVALENTS AT END OF THE YEAR (NOTE 18) 1,169,530 1,317,203 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 2013 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.   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 has adopted these amendments from 1 January 2013. 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 has assessed the impact of IFRS 11 and has concluded that there is no impact on the financial statements. General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2013 (expressed in Jamaican dollars unless otherwise indicated) 2. Summary of Significant Accounting Policies (Continued) (a) Basis of preparation (continued) Page 7 Page 8 General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2013 (expressed in Jamaican dollars unless otherwise indicated) 2. Summary of Significant Accounting Policies (Continued) Accounting pronouncements effective in 2013 which are relevant to the Company’s operations   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 has adopted the provisions of this standard and has concluded there will be no impact on the Company. IFRS 13, ‘Fair Value Measurement’, (effective 1 January 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 adopted the standard from 1 January 2013. 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 2013 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 32, (Amendment), ‘Financial instruments: Presentation’, (effective 1 January 2014). These amendments clarify some of the requirements for offsetting financial assets and a financial liability on the balance sheet. Management is currently assessing the impact this may have on the Company. IAS 36, (Amendment), ‘Impairment of assets’, (effective 1 January 2014). This amendment addresses the disclosure of information about the recoverable amount of impaired assets if that amount is based on fair value less costs of disposal. The Company will adopt the standard from 1 January 2014. 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. (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(p)(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 2013 (expressed in Jamaican dollars unless otherwise indicated) 2. Summary of Significant Accounting Policies (Continued) (a) Basis of preparation (continued)      Accounting pronouncements effective in 2013 which are relevant to the Company’s operations 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 has adopted the provisions of this standard and has concluded there will be no impact on the Company. IFRS 13, ‘Fair Value Measurement’, (effective 1 January 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 adopted the standard from 1 January 2013. 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 2013 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 32, (Amendment), ‘Financial instruments: Presentation’, (effective 1 January 2014). These amendments clarify some of the requirements for offsetting financial assets and a financial liability on the balance sheet. Management is currently assessing the impact this may have on the Company. IAS 36, (Amendment), ‘Impairment of assets’, (effective 1 January 2014). This amendment addresses the disclosure of information about the recoverable amount of impaired assets if that amount is based on fair value less costs of disposal. The Company will adopt the standard from 1 January 2014. 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. Page 7 Page 8 General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2013 (expressed in Jamaican dollars unless otherwise indicated) 2. Summary of Significant Accounting Policies (Continued) (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(p)(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 2013 (expressed in Jamaican dollars unless otherwise indicated) 2. Summary of Significant Accounting Policies (Continued) Page 9 General Accident Insurance Company Jamaica Limited Page 10 (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. 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. Notes to the Financial Statements 31 December 2013 (expressed in Jamaican dollars unless otherwise indicated) 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. 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 Page 9 Notes to the Financial Statements 31 December 2013 (expressed in Jamaican dollars unless otherwise indicated) 2. Summary of Significant Accounting Policies (Continued) (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. 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 2013 (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. 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 2013 (expressed in Jamaican dollars unless otherwise indicated) 2. Summary of Significant Accounting Policies (Continued) Page 11 Page 12 General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2013 (expressed in Jamaican dollars unless otherwise indicated) 2. Summary of Significant Accounting Policies (Continued) (h) 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 (i) 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. (j) 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. (k) 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. (l) 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. (m) 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 2013 (expressed in Jamaican dollars unless otherwise indicated) 2. Summary of Significant Accounting Policies (Continued) General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2013 (expressed in Jamaican dollars unless otherwise indicated) 2. Summary of Significant Accounting Policies (Continued) Page 11 Page 12 Page 12 (h) 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 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 (i) 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 the lease. place 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. (j) 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. (k) 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. (l) 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. (m) 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 2013 (expressed in Jamaican dollars unless otherwise indicated) General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2013 (expressed in Jamaican dollars unless otherwise indicated) Page 13 Page 14 2. Summary of Significant Accounting Policies (Continued) 2. Summary of Significant Accounting Policies (Continued) (m) 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. (p) Insurance reserves (continued) (iii) Claims outstanding 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. (n) 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. (o) 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. (p) 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. 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. (q) Accounts payable (r) Taxation Payables are recognised at fair value and subsequently measured at amortised cost. 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. 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 (i) Current taxation 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. (s) 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 2013 (expressed in Jamaican dollars unless otherwise indicated) General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2013 (expressed in Jamaican dollars unless otherwise indicated) Page 13 Page 14 2. Summary of Significant Accounting Policies (Continued) 2. Summary of Significant Accounting Policies (Continued) (m) 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. (n) Intangible assets Computer software three to five years. 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 (o) 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. (p) 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. (p) 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. (q) Accounts payable Payables are recognised at fair value and subsequently measured at amortised cost. (r) 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. (s) 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 2013 (expressed in Jamaican dollars unless otherwise indicated) General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2013 (expressed in Jamaican dollars unless otherwise indicated) Page 15 Page 16 2. Summary of Significant Accounting Policies (Continued) 3. Responsibilities of the Appointed Actuary and External Auditors (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. 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 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 performance. risks, as follows: (i) Investment and Loan Committee strategies for the Company. (ii) Finance Department the Company. (iii) Conduct Review Committee and statutory requirements. (iv) Audit Committee The Investment and Loan Committee is responsible for monitoring and approving investment 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 Conduct Review Committee is responsible for monitoring the Company’s adherence to regulatory 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 2013 (expressed in Jamaican dollars unless otherwise indicated) General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2013 (expressed in Jamaican dollars unless otherwise indicated) Page 15 Page 16 2. Summary of Significant Accounting Policies (Continued) 3. Responsibilities of the Appointed Actuary and External Auditors (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. 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. (u) Dividend distribution (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. 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 2013 (expressed in Jamaican dollars unless otherwise indicated) General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2013 (expressed in Jamaican dollars unless otherwise indicated) Page 17 Page 18 4. Insurance and Financial Risk Management (Continued) 4. Insurance and Financial Risk Management (Continued) (a) Insurance risk (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. 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 2013 (expressed in Jamaican dollars unless otherwise indicated) General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2013 (expressed in Jamaican dollars unless otherwise indicated) Page 17 Page 18 4. Insurance and Financial Risk Management (Continued) 4. Insurance and Financial Risk Management (Continued) (a) Insurance risk (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. 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 2013 (expressed in Jamaican dollars unless otherwise indicated) 4. Insurance and Financial Risk Management (Continued) (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: General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2013 (expressed in Jamaican dollars unless otherwise indicated) 4. Insurance and Financial Risk Management (Continued) (a) Insurance risk (continued) Sensitivity Analysis of Actuarial Liabilities Page 19 Page 20 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 2013 2012 Policy Limit ’000 Maximum Net Retention ’000 Policy Limit ’000 Maximum Net Retention ’000 US$6,000 US$6,000 US$3,000 J$40,000 US$750 J$10,000 J$30,000 J$5,000 J$5,000 J$5,000 J$20,000 J$5,000 J$7,500 US$1,200 US$1,200 US$75 J$20,000 US$125 J$5,000 US$5,500 US$5,500 US$3,000 J$40,000 US$750 J$10,000 J$2,000 J$1,000 J$1,000 J$1,000 J$4,000 J$1,000 J$1,500 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 J$1,500 J$1,000 J$1,000 J$1,000 J$4,000 J$1,000 J$1,500 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 the Company’s reinsurance program consists of proportional reinsurance agreements; and  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 2013 (expressed in Jamaican dollars unless otherwise indicated) 4. Insurance and Financial Risk Management (Continued) (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 2013 2012 Policy Limit ’000 Maximum Retention Net ’000 Policy Limit ’000 Maximum Retention Net ’000 US$6,000 US$6,000 US$3,000 J$40,000 US$750 J$10,000 J$30,000 J$5,000 J$5,000 J$5,000 J$20,000 J$5,000 J$7,500 US$1,200 US$5,500 US$1,200 US$5,500 US$75 US$3,000 J$20,000 J$40,000 US$125 J$5,000 US$750 J$10,000 J$2,000 J$1,000 J$1,000 J$1,000 J$4,000 J$1,000 J$1,500 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 J$1,500 J$1,000 J$1,000 J$1,000 J$4,000 J$1,000 J$1,500 Page 19 Page 20 General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2013 (expressed in Jamaican dollars unless otherwise indicated) 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 the Company’s reinsurance program consists of proportional reinsurance agreements; and  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 2013 (expressed in Jamaican dollars unless otherwise indicated) General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2013 (expressed in Jamaican dollars unless otherwise indicated) Page 21 Page 22 4. Insurance and Financial Risk Management (Continued) 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 2009 - 2013 has changed at successive year-ends, up to 2013. 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. 2009 2009 2010 2010 2011 2011 2012 2012 2013 and prior $’000 $’000 and prior And Prior $’000 $’000 $’000 $’000 $’000 and prior $’000 $’000 2013 and prior $’000 2009 Paid during year 175,935 331,678 UCAE, end of year 200,976 348,730 IBNR, end of year Ratio: excess (deficiency) 58,042 73,079 2010 Paid during year 98,674 175,978 171,620 347,598 UCAE, end of year 96,738 189,412 235,477 424,889 IBNR, end of year Ratio: excess 9,744 14,553 68,193 82,746 (deficiency) 20.79% 9.93% 2011 Paid during year UCAE, end of year IBNR, end of year Ratio: excess 38,747 61,664 6,200 80,363 100,861 181,224 183,148 364,372 119,722 120,936 240,659 232,245 472,903 7,205 15,834 23,039 65,680 88,719 (deficiency) 20.75% 9.14% 21.75% 12.35% 2012 Paid during year UCAE, end of year IBNR, end of year Ratio: excess 16,227 45,535 5,154 33,189 88,599 8,260 43,783 76,972 142,264 219,236 210,963 430,200 60,033 148,633 155,272 303,904 272,082 575,987 8,241 16,501 20,258 36,759 60,864 97,263 (deficiency) 21.11% 8.40% 29.89% 16.61% (6.67%) 0.31% 2013 Paid during year UCAE, end of year IBNR, end of year Ratio: excess 11,394 35,281 2,993 33,884 23,866 57,750 69,298 127,048 156,978 284,026 239,700 523,726 66.043 43,048 109,091 111,383 220,474 161,264 381,738 291,198 672,936 2,993 5,225 8,218 12,732 20,950 25,397 46,347 70,085 116,433 (deficiency) 21.30% 6.96% 28.61% 14.65% (12.67%) (4.64%) (3.21%) (5.72%) - - (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. for any one loss or event. (ii) Excess of loss treaty for motor and third party liability, which covers losses in excess of J$5,000,000 (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$2,000,000. (v) Catastrophe excess of loss treaty which covers losses in excess of J$80,000,000 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 2013 A+ A+ 2012 A+ A+ General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2013 (expressed in Jamaican dollars unless otherwise indicated) General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2013 (expressed in Jamaican dollars unless otherwise indicated) Page 21 Page 22 4. Insurance and Financial Risk Management (Continued) 4. Insurance and Financial Risk Management (Continued) (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 $’000 $’000 $’000 $’000 $’000 $’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$2,000,000. (v) Catastrophe excess of loss treaty which covers losses in excess of J$80,000,000 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 2013 A+ A+ 2012 A+ A+ (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 2009 - 2013 has changed at successive year-ends, up to 2013. 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. 2009 2009 2010 2010 2011 2011 2012 2012 2013 and prior $’000 and prior And Prior and prior $’000 2013 and prior $’000 2009 Paid during year 175,935 331,678 UCAE, end of year 200,976 348,730 IBNR, end of year 58,042 73,079 Ratio: excess (deficiency) 2010 Paid during year 98,674 175,978 171,620 347,598 UCAE, end of year 96,738 189,412 235,477 424,889 IBNR, end of year 9,744 14,553 68,193 82,746 Ratio: excess (deficiency) 20.79% 9.93% 2011 Paid during year 80,363 100,861 181,224 183,148 364,372 119,722 120,936 240,659 232,245 472,903 7,205 15,834 23,039 65,680 88,719 2012 Paid during year UCAE, end of year IBNR, end of year Ratio: excess (deficiency) UCAE, end of year IBNR, end of year Ratio: excess (deficiency) UCAE, end of year IBNR, end of year Ratio: excess (deficiency) 38,747 61,664 6,200 11,394 35,281 2,993 20.75% 9.14% 21.75% 12.35% 16,227 45,535 5,154 33,189 88,599 8,260 43,783 76,972 142,264 219,236 210,963 430,200 60,033 148,633 155,272 303,904 272,082 575,987 8,241 16,501 20,258 36,759 60,864 97,263 21.11% 8.40% 29.89% 16.61% (6.67%) 0.31% 2013 Paid during year 33,884 23,866 57,750 69,298 127,048 156,978 284,026 239,700 523,726 66.043 43,048 109,091 111,383 220,474 161,264 381,738 291,198 672,936 2,993 5,225 8,218 12,732 20,950 25,397 46,347 70,085 116,433 21.30% 6.96% 28.61% 14.65% (12.67%) (4.64%) (3.21%) (5.72%) - - General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2013 (expressed in Jamaican dollars unless otherwise indicated) General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2013 (expressed in Jamaican dollars unless otherwise indicated) Page 23 Page 24 4. Insurance and Financial Risk Management (Continued) 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 2013 $’000 87,973 11,312 5,424 162 558 10,234 115,663 2012 $’000 51,454 9,779 2,736 4,272 2 15,936 84,179 (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. (c) Financial risk (continued) (i) Credit risk (continued) Credit review process (i) Reinsurance information. (ii) Premium receivables The Company’s senior management meets on a monthly basis to discuss the ability of customers and other counterparties to meet repayment obligations. 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 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 held as security. (iv) Investments 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 The Company limits its exposure to credit risk by investing mainly in liquid securities, with counterparties that have high credit quality and Government 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 2013 (expressed in Jamaican dollars unless otherwise indicated) General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2013 (expressed in Jamaican dollars unless otherwise indicated) Page 23 Page 24 4. Insurance and Financial Risk Management (Continued) 4. Insurance and Financial Risk Management (Continued) (b) Reinsurance risk (continued) (d) The amount of reinsurance recoveries recognised during the period is as follows: (c) Financial risk (continued) (i) Credit risk (continued) Property Motor Marine Liability Burglary Miscellaneous Accidents 2013 $’000 87,973 11,312 5,424 162 558 10,234 115,663 2012 $’000 51,454 9,779 2,736 4,272 2 15,936 84,179 (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. 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 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 2013 (expressed in Jamaican dollars unless otherwise indicated) General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2013 (expressed in Jamaican dollars unless otherwise indicated) Page 25 Page 26 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 $138,724,000 (2012 - $161,168,000) 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 2013 $’000 41,782 56,538 40,404 2012 $’000 41,863 80,895 38,410 138,724 161,168 (iv) Monitoring statement of financial position liquidity ratios against internal and regulatory 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 2013 $’000 361,360 103,061 464,421 2012 $’000 335,488 133,708 469,196 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 Other Government Corporate 2013 $’000 634,377 130,370 13,950 778,697 2012 $’000 342,707 - 12,256 354,963 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 Board of Directors, includes: The Company’s liquidity management process, as carried out within the Company and monitored by the (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; 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. Page 25 Page 26 General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2013 (expressed in Jamaican dollars unless otherwise indicated) 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; 138,724 161,168 (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 2013 (expressed in Jamaican dollars unless otherwise indicated) 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 $138,724,000 (2012 - $161,168,000) 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 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 All premium receivables are receivable from policyholders, brokers and agents in Jamaica. Debt securities amounts, as categorised by issuer: The following table summarises the Company’s credit exposure for debt securities at their carrying 2013 $’000 41,782 56,538 40,404 2012 $’000 41,863 80,895 38,410 2013 $’000 361,360 103,061 464,421 2012 $’000 335,488 133,708 469,196 2013 $’000 634,377 130,370 13,950 778,697 2012 $’000 342,707 - 12,256 354,963 Government of Jamaica Other Government Corporate General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2013 (expressed in Jamaican dollars unless otherwise indicated) General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2013 (expressed in Jamaican dollars unless otherwise indicated) Page 27 Page 28 4. Insurance and Financial Risk Management (Continued) 4. Insurance and Financial Risk Management (Continued) (c) Financial risk (continued) (ii) Liquidity risk (continued) (c) Financial risk (continued) (ii) Liquidity risk Liquidity risk management process (continued) Financial asset and financial liabilities cash flows (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 2013: Cash and short term investments 468,927 703,916 Due from policyholders, brokers and agents 162,547 301,874 Due from reinsurers and coinsurers Other receivables Due from related parties Loans receivable Leases receivable Investment securities - - - - - - - - - - - - - - - - - - 174,883 - - 1,922 3,844 17,297 92,250 294,047 5,126 10,252 46,134 56,078 - - - - 7,088 122 - - 1,172,843 464,421 174,883 7,088 122 409,360 117,590 11,325 244,988 181,924 264,237 195,153 156,690 1,054,317 Total financial assets 649,847 1,439,757 245,355 412,565 489,200 163,900 3,400,624 Due to reinsurers and coinsurers - 361,147 - Other liabilities Claims liabilities 12,537 6,040 41,788 191,390 114,834 153,112 306,223 Total financial liabilities 203,927 482,021 194,900 306,223 - - - - - - - - - 361,147 60,365 765,559 - 1,187,071 Net Liquidity Gap Cumulative gap 445,920 957,936 50,455 106,342 489,200 163,900 2,213,553 445,920 1,403,656 1,454,111 1,560,453 2,049,653 2,213,553 - Within 1 Month Within 3 Months 3 to 12 Months 1 to 5 Years Over No Specific 5 Years Maturity $’000 $’000 $’000 $’000 $’000 $’000 - - - - - - - Total $’000 1,318,480 469,196 213,418 499,424 77,759 - - - - - 10,286 10,286 750 750 - 343,361 - - 51,113 678,438 - 1,216,720 - - - - - - - - - - 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 213,418 - - - - - - - - - Other receivables Due from related parties Loans receivable Leases receivable Investment securities Other liabilities Claims liabilities Net Liquidity Gap Cumulative gap financial institutions. (iii) Market risk 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 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 - Total financial liabilities 180,034 453,451 168,053 271,375 10,424 8,324 32,365 169,610 101,766 135,688 271,375 648,437 822,594 72,609 (56,507) 451,673 119,512 2,058,318 648,437 1,741,031 1,543,640 1,487,133 1,938,806 2,058,318 - 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 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 2013 (expressed in Jamaican dollars unless otherwise indicated) General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2013 (expressed in Jamaican dollars unless otherwise indicated) Page 27 Page 28 4. Insurance and Financial Risk Management (Continued) 4. Insurance and Financial Risk Management (Continued) (c) Financial risk (continued) (ii) Liquidity risk (continued) (c) Financial risk (continued) (ii) Liquidity risk Liquidity risk management process (continued) 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 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 213,418 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 - - - - Total financial assets 828,470 1,276,045 240,662 214,868 451,673 119,512 3,131,230 Total financial assets 649,847 1,439,757 245,355 412,565 489,200 163,900 3,400,624 11,325 244,988 181,924 264,237 195,153 156,690 1,054,317 Other liabilities Claims liabilities 10,424 8,324 32,365 169,610 101,766 135,688 271,375 Due to reinsurers and coinsurers - 343,361 - - - - - - - - 343,361 - - 51,113 678,438 - 1,216,720 Total financial liabilities 180,034 453,451 168,053 271,375 Net Liquidity Gap Cumulative gap 648,437 822,594 72,609 (56,507) 451,673 119,512 2,058,318 648,437 1,741,031 1,543,640 1,487,133 1,938,806 2,058,318 - 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. 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 No Specific 5 Years $’000 Maturity $’000 Total $’000 At 31 December 2013: Cash and short term investments 468,927 703,916 Due from policyholders, brokers and agents 162,547 301,874 Due from reinsurers and coinsurers Other receivables Due from related parties Loans receivable Leases receivable Investment securities - - - 174,883 - - 1,922 3,844 17,297 92,250 294,047 5,126 10,252 46,134 56,078 - - - - - - - - - - - - - - - - - - - - - - - - - - - - 7,088 122 1,172,843 464,421 174,883 7,088 122 409,360 117,590 - - - 361,147 60,365 765,559 - 1,187,071 Due to reinsurers and coinsurers - 361,147 Other liabilities Claims liabilities 12,537 6,040 41,788 191,390 114,834 153,112 306,223 Total financial liabilities 203,927 482,021 194,900 306,223 Net Liquidity Gap Cumulative gap 445,920 957,936 50,455 106,342 489,200 163,900 2,213,553 445,920 1,403,656 1,454,111 1,560,453 2,049,653 2,213,553 - General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2013 (expressed in Jamaican dollars unless otherwise indicated) General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2013 (expressed in Jamaican dollars unless otherwise indicated) Page 29 Page 30 4. Insurance and Financial Risk Management (Continued) 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 2013: 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$’000 568,931 253,601 114,091 7,088 122 167,515 97,582 599,730 210,820 60,792 - - - - 869 - 1,169,530 464,421 - - - - - 174,883 7,088 122 167,515 97,582 498,584 436,087 1,707,514 1,307,429 - 869 934,671 3,015,812 121,272 56,655 720,850 898,777 239,875 3,710 44,710 288,295 808,737 1,019,134 - - - - 869 361,147 60,365 765,559 1,187,071 1,828,741 (c) Financial risk (continued) (iii) Market risk (continued) Currency risk (continued) Concentrations of currency risk (continued) At 31 December 2012: Financial Assets Cash and short term investments Due from policyholders, brokers and agents Due from reinsurers and coinsurers Other receivables Due from related parties Loans receivable Leases receivable Investment securities Total financial assets Financial Liabilities Other liabilities Claims liabilities Total financial liabilities Net financial position Due to reinsurers and coinsurers Jamaican$ J$’000 US$ J$’000 GBP J$’000 Total J$’000 515,470 323,573 160,737 10,286 750 237,933 64,565 386,224 801,613 145,623 52,681 - - - - 77,215 120 1,317,203 469,196 213,418 10,286 750 237,933 64,565 463,439 1,699,538 1,077,132 120 2,776,790 179,068 164,293 47,888 638,232 865,188 3,225 40,206 207,724 343,361 51,113 678,438 - 1,072,912 834,350 869,408 120 1,703,878 - - - - - - - - - - General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2013 (expressed in Jamaican dollars unless otherwise indicated) General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2013 (expressed in Jamaican dollars unless otherwise indicated) Page 29 Page 30 4. Insurance and Financial Risk Management (Continued) 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 The tables below summarise the company’s exposure to foreign currency exchange rate risk at 31 address short term imbalances. Concentrations of currency risk December: At 31 December 2013: 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 Other liabilities Claims liabilities Total financial liabilities Net financial position Due to reinsurers and coinsurers Jamaican$ J$’000 US$ J$’000 GBP J$’000 Total J$’000 568,931 253,601 114,091 7,088 122 167,515 97,582 599,730 210,820 60,792 - - - - 498,584 436,087 121,272 239,875 56,655 720,850 898,777 3,710 44,710 288,295 869 1,169,530 - - - - - - - - - - - 464,421 174,883 7,088 122 167,515 97,582 934,671 361,147 60,365 765,559 1,187,071 1,707,514 1,307,429 869 3,015,812 808,737 1,019,134 869 1,828,741 (c) Financial risk (continued) (iii) Market risk (continued) Currency risk (continued) Concentrations of currency risk (continued) At 31 December 2012: Financial Assets Cash and short term investments Due from policyholders, brokers and agents Due from reinsurers and coinsurers Other receivables Due from related parties Loans receivable Leases receivable Investment securities Total financial assets Financial Liabilities Due to reinsurers and coinsurers Other liabilities Claims liabilities Total financial liabilities Net financial position Jamaican$ 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 - - - - 386,224 77,215 1,699,538 1,077,132 179,068 47,888 638,232 865,188 164,293 3,225 40,206 207,724 834,350 869,408 120 1,317,203 469,196 213,418 10,286 750 237,933 64,565 - - - - - - - 463,439 120 2,776,790 343,361 - 51,113 - 678,438 - - 1,072,912 120 1,703,878 General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2013 (expressed in Jamaican dollars unless otherwise indicated) 4. Insurance and Financial Risk Management (Continued) (c) Financial risk (continued) (iii) Market risk (continued) Currency risk (continued) Page 31 Page 32 General Accident Insurance Company Jamaica Limited 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 2013 1% 15% Effect on Pre-tax Profit 2013 $’000 (10,191) 152,870 % Change in Currency Rate 2012 1% 10% Effect on Pre-tax Profit 2012 $’000 (8,694) 86,941 USD – J$Revaluation USD – J$Devaluation Notes to the Financial Statements 31 December 2013 (expressed in Jamaican dollars unless otherwise indicated) 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. Cash and short term investments 468,860 700,667 At 31 December 2013: 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 Due to reinsurers and coinsurers Other liabilities Claims liabilities Total financial liabilities Within 1 Month Within 3 Months 3 to 12 Months 1 to 5 Years Over 5 Years $’000 $’000 $’000 $’000 $’000 $’000 Non- Interest Bearing Total $’000 167,515 97,582 - - 167,515 97,582 117,867 293,196 196,952 169,966 156,690 934,671 468,860 818,534 293,196 294,534 337,481 803,207 3,015,812 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 3 1,169,530 464,421 464,421 174,883 174,883 7,088 7,088 122 122 361,147 361,147 60,365 60,365 765,559 765,559 - 1,187,071 1,187,071 - - - - - - - - - - - - - - - - - - - - - Total interest repricing gap 468,860 818,534 293,196 294,534 337,481 (383,864) 1,828,741 Cumulative gap 468,860 1,287,394 1,580,590 1,875,124 2,212,605 1,828,741 - General Accident Insurance Company Jamaica Limited Page 31 Notes to the Financial Statements 31 December 2013 (expressed in Jamaican dollars unless otherwise indicated) 4. Insurance and Financial Risk Management (Continued) (c) Financial risk (continued) (iii) Market risk (continued) Currency risk (continued) Foreign currency sensitivity The following tables indicate the currencies to which the company had significant exposure on its monetary assets and liabilities and its forecast cash flows. The change in currency rates below represents management’s assessment of the possible change in foreign exchange rates. The sensitivity analysis shows the impact of translating outstanding foreign currency denominated monetary items, assuming changes in currency rates shown in the table below. The sensitivity analysis includes cash and short term deposits, investment securities, premium and other receivables and claims liabilities. The percentage change in the currency rate will impact each financial asset/liability included in the sensitivity analysis differently. Consequently, individual sensitivity analyses were performed. The effect on pre-tax profit below is the total of the individual sensitivities done for each of the assets/liabilities. There was no impact on the other components of equity. USD – J$Revaluation USD – J$Devaluation 2013 1% 15% % Change in Currency Rate % Change in Currency Rate Effect on Pre-tax Profit 2013 $’000 (10,191) 152,870 Effect on Pre-tax Profit 2012 $’000 (8,694) 86,941 2012 1% 10% General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2013 (expressed in Jamaican dollars unless otherwise indicated) Page 32 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. At 31 December 2013: Cash and short term investments 468,860 700,667 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 Within 1 Month $’000 Within 3 Months $’000 3 to 12 Months $’000 1 to 5 Years $’000 Over 5 Years $’000 - - - - - - - - - - - - - - - - - - 167,515 97,582 - - - - - - - - - - - - - - Non- Interest Bearing $’000 Total $’000 3 1,169,530 464,421 464,421 174,883 174,883 7,088 7,088 122 122 - - 167,515 97,582 117,867 293,196 196,952 169,966 156,690 934,671 468,860 818,534 293,196 294,534 337,481 803,207 3,015,812 Due to reinsurers and coinsurers Other liabilities Claims liabilities Total financial liabilities - - - - - - - - - - - - - - - - - - - 361,147 361,147 60,365 60,365 765,559 765,559 - 1,187,071 1,187,071 Total interest repricing gap 468,860 818,534 293,196 294,534 337,481 (383,864) 1,828,741 Cumulative gap 468,860 1,287,394 1,580,590 1,875,124 2,212,605 1,828,741 - General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2013 (expressed in Jamaican dollars unless otherwise indicated) 4. Insurance and Financial Risk Management (Continued) Page 33 Page 34 General Accident Insurance Company Jamaica Limited (c) Financial risk (continued) (iii) Market risk (continued) Interest rate risk (continued) At 31 December 2012: 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 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 $’000 668,420 648,780 - - - - - - - - - - - - - - - 3 1,317,203 469,196 469,196 213,418 213,418 10,286 10,286 750 750 - - - - 66,134 171,799 - - 64,565 - - - 237,933 64,565 139,518 111,273 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 51,113 678,438 678,438 1,072,912 1,072,912 Total interest repricing gap 668,420 854,432 111,273 73,879 266,657 (270,783) 1,703,878 Cumulative gap 668,420 1,522,852 1,634,125 1,708,004 1,974,661 1,703,878 - Notes to the Financial Statements 31 December 2013 (expressed in Jamaican dollars unless otherwise indicated) 4. Insurance and Financial Risk Management (Continued) (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: 2013 JMD/USD -100/-50 +250/+200 Effect on Profit before Taxation Effect on Other Components of Effect on Profit before Taxation Effect on Other Components of 2013 $’000 (1,973) 4,932 Equity 2013 $’000 3,438 (11,965) Change in Basis points: 2012 JMD/USD -100/-50 +400/-250 2012 $’000 (729) 2,915 Equity 2012 $’000 474 (10,689) General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2013 (expressed in Jamaican dollars unless otherwise indicated) 4. Insurance and Financial Risk Management (Continued) General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2013 (expressed in Jamaican dollars unless otherwise indicated) 4. Insurance and Financial Risk Management (Continued) Page 33 Page 34 Page 34 (c) Financial risk (continued) (iii) Market risk (continued) Interest rate risk (continued) (c) Financial risk (continued) (iii) Market risk (continued) Interest rate risk (continued) Cash and short term investments 668,420 648,780 At 31 December 2012: Due from policyholders, brokers and agents Due from reinsurers and coinsurers Other receivables Due from related parties Loans receivable Leases receivable Investment securities Due to reinsurers and coinsurers Other liabilities Claims liabilities Total financial liabilities Within 1 Month Within 3 Months 3 to 12 Months 1 to 5 Years Over Non-Interest 5 Years Bearing $’000 $’000 $’000 $’000 $’000 $’000 Total $’000 66,134 171,799 - 64,565 139,518 111,273 9,314 94,858 108,476 463,439 668,420 854,432 111,273 73,879 266,657 802,129 2,776,790 - - - - - - - - - - - - - - - - - - - - - - - - - - - - 3 1,317,203 469,196 469,196 213,418 213,418 10,286 10,286 750 750 - - 237,933 64,565 343,361 343,361 51,113 51,113 678,438 678,438 1,072,912 1,072,912 - - - - - - - - - - - - - - - - - - - Total interest repricing gap 668,420 854,432 111,273 73,879 266,657 (270,783) 1,703,878 Cumulative gap 668,420 1,522,852 1,634,125 1,708,004 1,974,661 1,703,878 - 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: 2013 JMD/USD -100/-50 +250/+200 Effect on Profit before Taxation Effect on Other Components of Equity 2013 $’000 (1,973) 4,932 2013 $’000 3,438 (11,965) 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) General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2013 (expressed in Jamaican dollars unless otherwise indicated) General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2013 (expressed in Jamaican dollars unless otherwise indicated) Page 35 Page 36 4. Insurance and Financial Risk Management (Continued) 5. Capital Management (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% (2012 - 10%) with all other variables held constant. Change in index: -10% (2012 -10%) +10% (2012 + 10%) Effect on Other Components of Equity Effect on Other Components of Equity 2013 $’000 (15,597) 15,597 2012 $’000 (10,847) 10,847 MCT 6. Fair Value Estimation The Company’s objectives when managing capital, which is a broader concept than the ‘equity’ on the face of statement of financial position, are: Company operates; (a) To comply with the capital requirements set by the regulators of the insurance markets where the (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 2013 is as follows: Actual Required Actual 2013 308% 2013 250% 2012 251% 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 2013 (expressed in Jamaican dollars unless otherwise indicated) General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2013 (expressed in Jamaican dollars unless otherwise indicated) Page 35 Page 36 4. Insurance and Financial Risk Management (Continued) 5. Capital Management 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 (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 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; (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 2013 is as follows: MCT 6. Fair Value Estimation Actual Required Actual 2013 308% 2013 250% 2012 251% 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. (c) Financial risk (continued) (iii) Market risk (continued) Price risk 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% (2012 - 10%) with all other variables held constant. Change in index: -10% (2012 -10%) +10% (2012 + 10%) Effect on Other Components of Effect on Other Components of Equity 2013 $’000 (15,597) 15,597 Equity 2012 $’000 (10,847) 10,847 General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2013 (expressed in Jamaican dollars unless otherwise indicated) General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2013 (expressed in Jamaican dollars unless otherwise indicated) Page 37 Page 38 6. Fair Value Estimation (Continued) 6. Fair Value Estimation (Continued) 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 2013 Assets Available-for-sale financial assets – Equity securities Debt securities Total assets measured at fair value At 31 December 2012 Assets Available-for-sale financial assets – Equity securities Debt securities Total assets measured at fair value Level 1 Level 2 $’000 $’000 Total balance $’000 155,974 - 155,974 - 541,557 541,557 155,974 541,557 697,531 Level 1 Level 2 $’000 $’000 Total balance $’000 108,476 - 108,476 - 296,415 296,415 108,476 296,415 404,891 There were no transfers between levels 1 and level 2 during the year. 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; (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 2013 (expressed in Jamaican dollars unless otherwise indicated) General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2013 (expressed in Jamaican dollars unless otherwise indicated) Page 37 Page 38 6. Fair Value Estimation (Continued) 6. Fair Value Estimation (Continued) 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 2013 Assets Available-for-sale financial assets – Equity securities Debt securities Total assets measured at fair value At 31 December 2012 Assets Available-for-sale financial assets – Equity securities Debt securities Total assets measured at fair value Level 1 Level 2 $’000 $’000 Total balance $’000 155,974 - 155,974 - 541,557 541,557 155,974 541,557 697,531 Level 1 Level 2 $’000 $’000 Total balance $’000 108,476 - 108,476 - 296,415 296,415 108,476 296,415 404,891 There were no transfers between levels 1 and level 2 during the year. 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; (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 2013 (expressed in Jamaican dollars unless otherwise indicated) General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2013 (expressed in Jamaican dollars unless otherwise indicated) Page 39 Page 40 7. Critical Accounting Estimates and Judgements in Applying Accounting Policies (Continued) 8. Segment Information (Continued) (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.      (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 2013 (expressed in Jamaican dollars unless otherwise indicated) General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2013 (expressed in Jamaican dollars unless otherwise indicated) Page 39 Page 40 7. Critical Accounting Estimates and Judgements in Applying Accounting Policies (Continued) 8. Segment Information (Continued) (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. (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 2013 (expressed in Jamaican dollars unless otherwise indicated) General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2013 (expressed in Jamaican dollars unless otherwise indicated) Page 41 Page 42 8. Segment Information (Continued) 8. Segment Information (Continued) The segment information provided to the board of directors for the reportable segments for the year ended 31 December 2013 is as follows: 2013 $’000 $’000 $’000 $’000 $’000 $’000 $’000 Fire Homeowners Motor Marine Liability Burglary Misellaneous Accident Total $’000 Gross Premiums Written 2,788,787 112,344 850,344 128,746 302,810 7,822 288,902 4,479,755 Reinsurance ceded (2,682,216) (89,965) (20,308) (103,411) (185,108) (5,247) (228,101) (3,314,356) Excess of loss reinsurance cost (86,233) (25,635) (29,564) - (5,569) - - (147,001) Net premiums written 20,338 (3,256) 800,472 25,335 112,133 2,575 60,801 1,018,398 Changes in unearned premiums, net Net Premiums Earned (2,128) 18,210 140 (19,186) 821 (1,229) 92 (2,715) (24,205) Commission income 187,129 21,641 2,962 18,478 14,600 1,271 49,404 295,485 (3,116) 781,286 26,156 110,904 2,667 58,086 994,193 Commission expense (111,067) (13,575) (74,790) (2,853) (6,359) (357) (28,262) (237,263) Commission income 183,368 18,966 3,330 18,162 8,946 1,248 35,074 269,094 Claims expense (31,561) 1,767 (472,948) (679) (28,900) (2) (8,452) (540,775) Commission expense (62,118) (12,414) (72,402) (1,309) (4,157) (256) (24,264) (176,920) Management expenses (29,501) (6,679) (238,028) (5,622) (35,816) (804) (16,453) (332,903) Claims expense (7,860) (2,127) (541,913) (5,516) (85,750) (1,770) (1,855) (646,791) Management expenses (34,962) (7,342) (272,303) (8,312) (38,613) (845) (18,696) (381,073) 33,962 4,025 (51,137) 28,830 48,461 3,273 49,948 117,362 Segment results Unallocated income Unallocated expenses Profit before tax Taxation Net profit 96,638 (6,033) (102,002) 29,181 (8,670) 1,044 48,345 58,503 292,498 (27,299) 323,702 4,212 327,914 Profit from the reportable segments is reconciled to the Company’s profit before taxation as follows: 2012 Fire Homeowners Motor Marine Liability Burglary Accident $’000 $’000 $’000 $’000 $’000 $’000 $’000 Total $’000 Misellaneous 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 Changes in unearned premiums, net Net Premiums Earned 21,848 (2,886) 18,962 1,383 779,508 18,931 111,393 2,707 55,405 991,175 (512) (47,841) 575 (6,457) 458 (1,694) (58,357) 871 731,667 19,506 104,936 3,165 53,711 932,818 Segment results Unallocated income Unallocated expenses Profit before tax Taxation Net profit Profit from reportable segments Unallocated income Investment income Other income Unallocated expenses Depreciation and amortisation 197,773 (29,866) 285,269 5,268 290,537 2013 $’000 58,503 141,407 151,091 292,498 2012 $’000 117,362 136,062 61,711 197,773 (27,299) 323,702 (29,866) 285,269 General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2013 (expressed in Jamaican dollars unless otherwise indicated) 8. Segment Information (Continued) Page 42 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 Changes in unearned premiums, net Net Premiums Earned 21,848 (2,886) 18,962 1,383 779,508 18,931 111,393 2,707 55,405 991,175 (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 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 2013 $’000 58,503 141,407 151,091 292,498 2012 $’000 117,362 136,062 61,711 197,773 (27,299) 323,702 (29,866) 285,269 General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2013 (expressed in Jamaican dollars unless otherwise indicated) General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2013 (expressed in Jamaican dollars unless otherwise indicated) Page 43 Page 44 8. Segment Information (Continued) Total capital expenditure was as follows: Property, plant and equipment Intangible assets 2013 $’000 26,923 537 27,460 2012 $’000 33,303 10,757 44,060 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 - 2013 $’000 2012 $’000 Fellow subsidiary (Note 11) 21,522 25,497 Rental and maintenance income - Fellow subsidiary Rental expense Fellow subsidiary Premium income - Key management Parent company Fellow subsidiaries Affiliates 868 1,022 14,132 12,509 3,644 35,079 124,800 127,223 290,746 2,696 37,371 119,557 63,776 223,400 9. Related Party Transactions and Balances (Continued) (a) Related party transactions (continued) Claims expense - Key management Parent company Fellow subsidiaries Affiliates Dividends declared - Key management Parent company Key management compensation - Salaries and other short term benefits Directors emoluments Directors’ fees (included above) Due from related parties - Receivables - Fellow subsidiary 2013 $’000 2012 $’000 94 1,264 18,867 4,484 24,709 100 - - 7,760 7,860 2,657 112,018 114,675 1,927 80,025 81,952 54,512 49,222 2,040 1,720 2013 $’000 2012 $’000 122 750 (b) The statement of financial position includes the following balances with group companies: General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2013 (expressed in Jamaican dollars unless otherwise indicated) General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2013 (expressed in Jamaican dollars unless otherwise indicated) Page 43 Page 44 8. Segment Information (Continued) Total capital expenditure was as follows: Property, plant and equipment Intangible assets 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: Fellow subsidiary (Note 11) 21,522 25,497 2013 $’000 26,923 537 27,460 2012 $’000 33,303 10,757 44,060 2013 $’000 2012 $’000 868 1,022 14,132 12,509 3,644 35,079 2,696 37,371 124,800 119,557 127,223 63,776 290,746 223,400 Interest income - Rental and maintenance income - Fellow subsidiary Rental expense Fellow subsidiary Premium income - Key management Parent company Fellow subsidiaries Affiliates 9. Related Party Transactions and Balances (Continued) (a) Related party transactions (continued) Claims expense - Key management Parent company Fellow subsidiaries Affiliates Dividends declared - Key management Parent company Key management compensation - Salaries and other short term benefits Directors emoluments Directors’ fees (included above) 2013 $’000 2012 $’000 94 1,264 18,867 4,484 24,709 - 100 - 7,760 7,860 2,657 112,018 114,675 1,927 80,025 81,952 54,512 49,222 2,040 1,720 (b) The statement of financial position includes the following balances with group companies: Due from related parties - Receivables - Fellow subsidiary 2013 $’000 2012 $’000 122 750 General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2013 (expressed in Jamaican dollars unless otherwise indicated) General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2013 (expressed in Jamaican dollars unless otherwise indicated) Page 45 Page 46 9. Related Party Transactions and Balances (Continued) 10. Claims Expense (b) Balances with group companies (continued) Due from policyholders, brokers and agents - Fellow subsidiary Parent company Loans receivable - Fellow subsidiary (Note 21) Investment securities - Shares in affiliated entity (Note 23) Claims liabilities Parent company Affiliated company Fellow subsidiary 2013 $’000 2012 $’000 81,369 - 81,369 39,273 40,472 79,745 167,515 237,933 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)) Cash and deposits and investment securities 79,867 67,331 Bond premium amortisation 7,556 14,152 26,840 2,452 5,436 8,306 Gain on sale of investments Dividend income Realised gain on Unit Trust Fund Included in the investments of the company are shares in related parties. At 31 December 2013, these shares represented 1.87% of the total assets (2012 – 1.73%). 12. Other Income Foreign exchange gains Rental income Miscellaneous income Gain on disposal of property, plant and equipment 2013 2012 $’000 $’000 762,454 624,954 (115,663) (84,179) 646,791 540,775 2013 2012 $’000 $’000 18,018 21,522 7,661 25,497 91,312 77,550 (1,214) - 129,638 110,708 4,498 7,271 - 12,837 8,007 4,510 141,407 136,062 2013 2012 $’000 143,381 2,082 1,378 4,250 $’000 50,052 2,126 6,337 3,196 151,091 61,711 General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2013 (expressed in Jamaican dollars unless otherwise indicated) General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2013 (expressed in Jamaican dollars unless otherwise indicated) Page 45 Page 46 9. Related Party Transactions and Balances (Continued) 10. Claims Expense (b) Balances with group companies (continued) Due from policyholders, brokers and agents - Fellow subsidiary Parent company Loans receivable - Fellow subsidiary (Note 21) Investment securities - Shares in affiliated entity (Note 23) Claims liabilities Parent company Affiliated company Fellow subsidiary 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)) Cash and deposits and investment securities 79,867 67,331 Bond premium amortisation Gain on sale of investments Dividend income Realised gain on Unit Trust Fund 2013 2012 $’000 $’000 81,369 - 81,369 39,273 40,472 79,745 167,515 237,933 7,556 14,152 26,840 2,452 5,436 8,306 Included in the investments of the company are shares in related parties. At 31 December 2013, these shares represented 1.87% of the total assets (2012 – 1.73%). 12. Other Income Foreign exchange gains Rental income Gain on disposal of property, plant and equipment Miscellaneous income 2013 $’000 2012 $’000 762,454 624,954 (115,663) (84,179) 646,791 540,775 2013 $’000 2012 $’000 18,018 21,522 7,661 25,497 91,312 77,550 (1,214) - 129,638 110,708 4,498 7,271 - 12,837 8,007 4,510 141,407 136,062 2013 $’000 2012 $’000 143,381 50,052 2,082 1,378 4,250 2,126 6,337 3,196 151,091 61,711 General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2013 (expressed in Jamaican dollars unless otherwise indicated) General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2013 (expressed in Jamaican dollars unless otherwise indicated) Page 47 Page 48 13. Expenses by Nature 15. Taxation Management and other expenses by nature are as follows: Advertising costs Audit fees 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 2013 $’000 13,810 4,982 16,859 2,040 27,299 1,779 14,830 4,493 12,505 14,132 15,148 2012 $’000 24,861 4,412 8,467 1,720 29,866 715 9,733 4,413 11,782 12,509 13,915 231,662 201,108 4,541 15,431 28,861 6,969 14,093 18,206 408,372 362,769 2013 $’000 2012 $’000 174,915 150,091 15,722 3,500 37,525 12,841 2,889 35,287 231,662 201,108 (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 $115,024,000 (2012 - $85,593,000). (b) Taxation is based on the profit for the year adjusted for taxation purposes and represents income tax at 33 1/3%: Deferred income taxes (Note 27) (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 Net effect of other charges and allowances 2013 $’000 (4,212) (4,212) 2012 $’000 (5,268) (5,268) 2013 $'000 2012 $'000 323,702 285,268 107,901 95,089 (115,024) (118,987) (14,543) (15,935) 19,993 (2,539) (4,212) 33,438 1,127 (5,268) General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2013 (expressed in Jamaican dollars unless otherwise indicated) General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2013 (expressed in Jamaican dollars unless otherwise indicated) Page 47 Page 48 13. Expenses by Nature 15. Taxation Management and other expenses by nature are as follows: Advertising costs Audit fees 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 2013 $’000 13,810 4,982 16,859 2,040 27,299 1,779 14,830 4,493 12,505 14,132 15,148 4,541 15,431 28,861 2012 $’000 24,861 4,412 8,467 1,720 29,866 715 9,733 4,413 11,782 12,509 13,915 6,969 14,093 18,206 231,662 201,108 2013 $’000 2012 $’000 174,915 150,091 15,722 3,500 37,525 12,841 2,889 35,287 231,662 201,108 (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 $115,024,000 (2012 - $85,593,000). (b) Taxation is based on the profit for the year adjusted for taxation purposes and represents income tax at 33 1/3%: Deferred income taxes (Note 27) 2013 $’000 (4,212) (4,212) 2012 $’000 (5,268) (5,268) (c) The tax charge on the company’s profit differs from the theoretical amount that would arise using the statutory tax rate as follows: 408,372 362,769 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 Net effect of other charges and allowances 2013 $'000 2012 $'000 323,702 285,268 107,901 95,089 (115,024) (118,987) (14,543) (15,935) 19,993 (2,539) (4,212) 33,438 1,127 (5,268) General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2013 (expressed in Jamaican dollars unless otherwise indicated) General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2013 (expressed in Jamaican dollars unless otherwise indicated) Page 49 Page 50 15. Taxation (Continued) 18. Cash and Cash Equivalents (d) The tax charge/credit relating to components of other comprehensive income is as follows: Fair value reserve - Available-for-sale investments - 2013 $'000 2012 $'000 Cash and bank balances Short term deposits Short term investments Unrealised losses on available-for-sale investments, before tax (16,776) (33,377) Unrealised gains on available-for-sale investments, tax credit (Note 27) 1,155 2,418 Unrealised losses on available-for-sale investments, after tax (15,621) (30,959) Gains recycled to profit or loss on disposal and maturity of available-for- sale investments (4,174) (19,795) (11,440) (42,399) 16. Earnings Per Share The calculation of earnings per share is based on the net profit for the year and 1,031,250,000 (2012 - 1,031,250,000) ordinary shares in issue. Net profit from continuing operations ($’000) Weighted average number of ordinary shares in issue (‘000) Earnings per share ($) 2013 327,914 1,031,250 0.32 2012 290,537 1,031,250 0.28 Short term deposits comprise term deposits and repurchase agreements with an average maturity of 67 days (2012 – 61 days), and include interest receivable of $4,648,000 (2012 – $1,955,000). The weighted average effective interest rate on short term investments and deposits were as follows: The weighted average effective interest rates on cash balances for the year were as follows: J$ US$ US$ J$ GBP 19. Due from Reinsurers and Coinsurers 17. Dividends per Share The dividends paid in 2013 and 2012 were as follows: Interim dividends:- 4.85 cents per stock unit – June 2012 4.85 cents per stock unit – September 2012 4.85 cents per stock unit – March 2013 8.72 cents per stock unit – October 2013 2013 $’000 - - 50,017 90,008 140,025 2012 $’000 50,016 50,015 - - 100,031 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 2013 $’000 2012 $’000 96,007 103,822 1,026,917 1,077,926 46,606 135,455 1,169,530 1,317,203 2013 % 7.6 3.2 2012 % 6.3 3.0 2013 % 1.0 0.1 0.1 2012 % 1.1 0.2 0.1 2013 2012 $’000 $’000 880,411 101,468 73,415 820,016 148,637 64,781 1,055,294 1,033,434 2013 2012 $’000 19,946 7,088 27,034 $’000 3,220 10,286 13,506 General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2013 (expressed in Jamaican dollars unless otherwise indicated) General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2013 (expressed in Jamaican dollars unless otherwise indicated) Page 49 Page 50 15. Taxation (Continued) 18. Cash and Cash Equivalents (d) The tax charge/credit relating to components of other comprehensive income is as follows: 2013 $'000 2012 $'000 Cash and bank balances Short term deposits Short term investments 2013 $’000 96,007 1,026,917 46,606 1,169,530 2012 $’000 103,822 1,077,926 135,455 1,317,203 The calculation of earnings per share is based on the net profit for the year and 1,031,250,000 (2012 - The weighted average effective interest rates on cash balances for the year were as follows: Short term deposits comprise term deposits and repurchase agreements with an average maturity of 67 days (2012 – 61 days), and include interest receivable of $4,648,000 (2012 – $1,955,000). The weighted average effective interest rate on short term investments and deposits were as follows: J$ US$ 2013 % 7.6 3.2 2012 % 6.3 3.0 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 2013 % 1.0 0.1 0.1 2012 % 1.1 0.2 0.1 2013 2012 $’000 880,411 101,468 73,415 $’000 820,016 148,637 64,781 1,055,294 1,033,434 2013 $’000 19,946 7,088 27,034 2012 $’000 3,220 10,286 13,506 Fair value reserve - Available-for-sale investments - Unrealised losses on available-for-sale investments, before tax (16,776) (33,377) Unrealised gains on available-for-sale investments, tax credit (Note 27) 1,155 2,418 Unrealised losses on available-for-sale investments, after tax (15,621) (30,959) Gains recycled to profit or loss on disposal and maturity of available-for- sale investments (4,174) (19,795) (11,440) (42,399) 16. Earnings Per Share 1,031,250,000) ordinary shares in issue. Net profit from continuing operations ($’000) Weighted average number of ordinary shares in issue (‘000) Earnings per share ($) 2013 327,914 1,031,250 0.32 2012 290,537 1,031,250 0.28 17. Dividends per Share The dividends paid in 2013 and 2012 were as follows: Interim dividends:- 4.85 cents per stock unit – June 2012 4.85 cents per stock unit – September 2012 4.85 cents per stock unit – March 2013 8.72 cents per stock unit – October 2013 2013 $’000 - - 50,017 90,008 140,025 2012 $’000 50,016 50,015 - - 100,031 General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2013 (expressed in Jamaican dollars unless otherwise indicated) General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2013 (expressed in Jamaican dollars unless otherwise indicated) Page 51 Page 52 21. Loans Receivable 23. Investment Securities Mortgage receivable from fellow subsidiary (Note 9) Loans receivable from fellow subsidiary (Note 9) 2013 $’000 2012 $’000 167,515 171,799 66,134 - 167,515 237,933 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. In the prior year, loans receivable from fellow subsidiary attracted interest at a rate of 5.25% and was repaid in March 2013. . 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 2013 $’000 71,384 42,887 114,271 (16,689) 97,582 60,187 37,395 97,582 2012 $’000 29,985 47,774 77,759 (13,194) 64,565 21,808 42,757 64,565 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 Indexed Notes United States Dollar Corporate Bond Other Government Securities Interest receivable Equity securities - 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 Corporate Bonds Other Government Securities 2013 $’000 2012 $’000 216,741 7,127 - - 224,815 176,575 625,258 12,613 128,502 12,324 778,697 219,199 6,220 59,997 12,862 40,000 338,278 10,999 - - 5,686 354,963 155,974 108,476 105 (105) - 105 (105) - 155,974 934,671 108,476 463,439 2013 % 7.96 6.13 11.00 6.34 2012 % 7.93 6.88 9.47 - General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2013 (expressed in Jamaican dollars unless otherwise indicated) General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2013 (expressed in Jamaican dollars unless otherwise indicated) Page 51 Page 52 21. Loans Receivable 23. Investment Securities Mortgage receivable from fellow subsidiary (Note 9) Loans receivable from fellow subsidiary (Note 9) 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. In the prior year, loans receivable from fellow subsidiary attracted interest at a rate of 5.25% and was repaid in March 2013. . 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 2013 2012 $’000 $’000 167,515 171,799 - 66,134 167,515 237,933 2013 $’000 71,384 42,887 114,271 (16,689) 97,582 60,187 37,395 97,582 2012 $’000 29,985 47,774 77,759 (13,194) 64,565 21,808 42,757 64,565 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 Indexed Notes United States Dollar Corporate Bond Other Government Securities Interest receivable Equity securities - 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 Corporate Bonds Other Government Securities 2013 $’000 2012 $’000 216,741 7,127 - - 224,815 176,575 625,258 12,613 128,502 12,324 778,697 219,199 6,220 59,997 12,862 40,000 - 338,278 10,999 - 5,686 354,963 155,974 108,476 105 105 (105) - 155,974 934,671 (105) - 108,476 463,439 2013 % 7.96 6.13 11.00 6.34 2012 % 7.93 6.88 9.47 - General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2013 (expressed in Jamaican dollars unless otherwise indicated) General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2013 (expressed in Jamaican dollars unless otherwise indicated) Page 53 Page 54 23. Investment Securities (Continued) 24. Property, Plant and Equipment Investment securities - Available-for-sale - Debt securities Equity securities 2013 2012 Carrying Amount $'000 Fair Value $'000 Carrying Amount $'000 Fair Value $'000 766,373 155,974 922,347 766,373 155,974 922,347 349,277 108,476 457,753 349,277 108,476 457,753 Included in investments, are Government of Jamaica Benchmark Investment Notes valued at $45,000,000 (2012-$45,000,000) which have been pledged with the FSC, pursuant to Section 8(1)(b) of the Insurance Regulations, 2001. Included in investments are shares in Seprod Limited, a related party, with a fair value of approximately $52,127,000 (2012 - $67,331,000). 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. 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 fair value of the instruments exchanged totalled $221,408,000 and the loss arising on initial recognition of the new notes was $2,070,000. At 31 December 2013 25,310 76,530 51,772 153,612 At Cost - At 1 January 2012 At 31 December 2012 Additions Disposals Additions Disposals Depreciation - At 1 January 2012 Charge for the year On disposals At 31 December 2012 Charge for the year On disposals At 31 December 2013 Net Book Value - 31 December 2013 31 December 2012 16,430 5,965 22,395 2,915 - - 6,065 1,051 7,116 1,265 - - Furniture, Fixtures & Motor Buildings Equipment Vehicles $’000 $’000 $’000 Total $’000 57,089 5,853 39,254 21,485 112,773 33,303 (1,404) (15,833) (17,237) 61,538 15,142 44,906 128,839 8,866 (150) (2,000) 26,923 (2,150) 30,506 6,275 34,492 7,731 71,063 15,057 (728) (13,639) (14,367) 36,053 8,395 28,584 7,692 (113) (2,000) 71,753 17,352 (2,113) 86,992 8,381 44,335 34,276 16,929 15,279 32,195 25,485 17,496 16,322 66,620 57,086 General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2013 (expressed in Jamaican dollars unless otherwise indicated) General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2013 (expressed in Jamaican dollars unless otherwise indicated) Page 53 Page 54 Page 54 23. Investment Securities (Continued) 24. Property, Plant and Equipment At Cost - At 1 January 2012 Additions Disposals At 31 December 2012 Additions Disposals Furniture, Fixtures & Equipment Buildings $’000 $’000 Motor Vehicles $’000 Total $’000 16,430 5,965 57,089 5,853 39,254 21,485 112,773 33,303 - (1,404) (15,833) (17,237) 22,395 2,915 61,538 15,142 44,906 128,839 8,866 26,923 (2,150) - (150) (2,000) At 31 December 2013 25,310 76,530 51,772 153,612 Investment securities - Available-for-sale - Debt securities Equity securities 2013 2012 Carrying Amount $'000 Fair Value $'000 Carrying Amount $'000 Fair Value $'000 766,373 155,974 922,347 766,373 155,974 922,347 349,277 108,476 457,753 349,277 108,476 457,753 Included in investments, are Government of Jamaica Benchmark Investment Notes valued at $45,000,000 (2012-$45,000,000) which have been pledged with the FSC, pursuant to Section 8(1)(b) of the Insurance Regulations, 2001. Included in investments are shares in Seprod Limited, a related party, with a fair value of approximately $52,127,000 (2012 - $67,331,000). 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. 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 fair value of the instruments exchanged totalled $221,408,000 and the loss arising on initial recognition of the new notes was $2,070,000. 30,506 6,275 34,492 7,731 71,063 15,057 (728) (13,639) (14,367) 6,065 1,051 - 7,116 1,265 - 36,053 8,395 28,584 7,692 (113) (2,000) 71,753 17,352 (2,113) 86,992 8,381 44,335 34,276 Depreciation - At 1 January 2012 Charge for the year On disposals At 31 December 2012 Charge for the year On disposals At 31 December 2013 Net Book Value - 31 December 2013 31 December 2012 16,929 15,279 32,195 25,485 17,496 16,322 66,620 57,086 General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2013 (expressed in Jamaican dollars unless otherwise indicated) Page 55 25. Intangible Assets At Cost - At 1 January 2012 Additions At 31 December 2012 Additions At 31 December 2013 Amortisation - At 1 January 2012 Charge for the year At 31 December 2012 Charge for the year At 31 December 2013 Net Book Value - 31 December 2013 31 December 2012 26. Other Liabilities Statutory contributions payable Accrued expenses General consumption tax Other payables Computer Software $’000 65,397 10,757 76,154 537 76,691 38,773 14,808 53,581 9,947 63,528 13,163 22,573 2012 $’000 4,083 43,989 8,265 9,991 66,328 2013 $’000 4,293 51,780 11,755 10,625 78,453 General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2013 (expressed in Jamaican dollars unless otherwise indicated) General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2013 (expressed in Jamaican dollars unless otherwise indicated) Page 56 25. Intangible Assets 27. Deferred Income Taxes Computer Software Deferred income taxes are calculated in full on temporary differences under the liability method using a principal tax rate of 16.57⅓%. Deferred income tax assets Deferred income tax liabilities Net assets/(liabilities) The net movement on the deferred income tax account is as follows: Balance as at 1 January Credited to profit or loss (Note 15) Credited 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 assets Unrealised fair value losses Deferred income tax liabilities Accelerated tax depreciation 2013 $’000 1,155 (815) 340 2012 $’000 - (5,027) (5,027) 2013 $’000 2012 $’000 (5,027) (12,713) 4,212 5,268 1,155 340 2,418 (5,027) 2013 $’000 1,155 2012 $’000 - - (815) (5,027) At Cost - Amortisation - At 1 January 2012 Additions At 31 December 2012 Additions At 31 December 2013 At 1 January 2012 Charge for the year At 31 December 2012 Charge for the year At 31 December 2013 Net Book Value - 31 December 2013 31 December 2012 26. Other Liabilities Statutory contributions payable Accrued expenses General consumption tax Other payables Page 55 $’000 65,397 10,757 76,154 537 76,691 38,773 14,808 53,581 9,947 63,528 13,163 22,573 2012 $’000 4,083 43,989 8,265 9,991 66,328 2013 $’000 4,293 51,780 11,755 10,625 78,453 General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2013 (expressed in Jamaican dollars unless otherwise indicated) 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 Page 57 Page 58 General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2013 (expressed in Jamaican dollars unless otherwise indicated) 28. Insurance Reserves (Continued) (c) The gross unearned premium reserve by class of business is as follows: 2013 $’000 2012 $’000 1,377,948 900,384 86,326 2,364,658 1,293,349 822,246 83,537 2,199,132 (880,411) (101,468) (981,879) 497,537 798,916 86,326 1,382,779 (820,016) (148,637) (968,653) 473,333 673,609 83,537 1,230,479 2013 $’000 765,559 125,278 9,547 900,384 92,623 8,845 101,468 672,936 116,433 9,547 798,916 2012 $’000 678,438 134,990 8,818 822,246 111,269 37,368 148,637 567,169 97,622 8,818 673,609 2013 $’000 854,900 390,118 8,507 124,423 2012 $’000 814,511 376,297 11,141 91,400 1,377,948 1,293,349 2013 $’000 2012 $’000 Fire, consequential loss and liability Motor Marine Accident 29. Share Capital Authorised - Issued and fully paid - . 30. Capital Reserves 31. Fair Value Reserve end. 1,100,000,000 (2012 – 1,100,000,000) Ordinary shares of no par 1,031,250,000 (2012 – 1,031,250,000) Ordinary shares of no par 470,358 470,358 At beginning of and end of year The capital reserves at year end represent realised surpluses. 2013 $’000 2012 $’000 152,030 152,030 This represents the unrealised surplus, net of tax, on the revaluation of available-for-sale investments at the year General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2013 (expressed in Jamaican dollars unless otherwise indicated) 28. Insurance Reserves (a) These reserves are as follows: General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2013 (expressed in Jamaican dollars unless otherwise indicated) 28. Insurance Reserves (Continued) (c) The gross unearned premium reserve by class of business is as follows: Page 57 Page 58 Fire, consequential loss and liability Motor Marine Accident 29. Share Capital Authorised - 1,100,000,000 (2012 – 1,100,000,000) Ordinary shares of no par 2013 $’000 854,900 390,118 8,507 124,423 2012 $’000 814,511 376,297 11,141 91,400 1,377,948 1,293,349 2013 $’000 2012 $’000 (b) Claims liabilities comprise: Issued and fully paid - 1,031,250,000 (2012 – 1,031,250,000) Ordinary shares of no par 470,358 470,358 . 30. Capital Reserves At beginning of and end of year The capital reserves at year end represent realised surpluses. 31. Fair Value Reserve 2013 $’000 2012 $’000 152,030 152,030 This represents the unrealised surplus, net of tax, on the revaluation of available-for-sale investments at the year end. Gross - Unearned premiums Claims liabilities Unearned commission Net - Unearned premiums Claims liabilities Unearned commission Recoverable from reinsurers - Reinsurers’ portion of unearned premiums (Note 19) Reinsurers’ portion of claims liabilities (Note 19) Gross - Outstanding claims IBNR Unallocated loss adjustment expense Recoverable from reinsurers - Outstanding claims IBNR Net - Outstanding claims IBNR Unallocated loss adjustment expense 2013 $’000 2012 $’000 1,377,948 1,293,349 900,384 86,326 822,246 83,537 2,364,658 2,199,132 (880,411) (101,468) (981,879) 497,537 798,916 86,326 (820,016) (148,637) (968,653) 473,333 673,609 83,537 1,382,779 1,230,479 2013 $’000 765,559 125,278 9,547 900,384 92,623 8,845 101,468 672,936 116,433 9,547 798,916 2012 $’000 678,438 134,990 8,818 822,246 111,269 37,368 148,637 567,169 97,622 8,818 673,609 General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2013 (expressed in Jamaican dollars unless otherwise indicated) Page 59 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 $3,500,000 (2012 – $2,889,000), and are included in staff costs (Note 14). 33. Contingency The Company is involved in certain legal proceedings incidental to the normal conduct of business. Management believes that none of these legal proceedings, individually or in the aggregate, will have a material effect on the Company. 34. Commitments Operating lease commitments The company leases its office situated at 58 Half Way Tree Road from fellow subsidiary Unity Capital Incorporated under non-cancellable operating lease agreement. The lease is for a term of five (5) years, and is renewable at the end of the lease period at market rate. The future aggregate minimum lease payments under non-cancellable operating leases are as follows No later than 1 year Later than 1 year and no later than 2013 US$’000 2012 US$’000 142 246 388 142 388 530 Notes 32. Pension Scheme (Note 14). 33. Contingency Company. 34. Commitments General Accident Insurance Company Jamaica Limited Notes to the Financial Statements 31 December 2013 (expressed in Jamaican dollars unless otherwise indicated) Page 59 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 $3,500,000 (2012 – $2,889,000), and are included in staff costs The Company is involved in certain legal proceedings incidental to the normal conduct of business. Management believes that none of these legal proceedings, individually or in the aggregate, will have a material effect on the Operating lease commitments The company leases its office situated at 58 Half Way Tree Road from fellow subsidiary Unity Capital Incorporated under non-cancellable operating lease agreement. The lease is for a term of five (5) years, and is renewable at the end of the lease period at market rate. The future aggregate minimum lease payments under non-cancellable operating leases are as follows No later than 1 year Later than 1 year and no later than 2013 US$’000 2012 US$’000 142 246 388 142 388 530 For more information, visit www.genac.com Notes No. Resolution details Vote for or against (tick as appropriate) ORDINARY RESOLUTIONS 1. To receive the report of the Board of Directors and the audited accounts of the Company for the year ended December 31, 2013. 2. To authorise the Board of Directors to re-appoint PWC as the Auditors of the Company and to fix their remuneration. 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 Jennifer Scott as a Director of the Board of the Company.. 3.(b) To re-appoint Nichalas Scott as a Director of the Board of the Company. 3.(c) To re-appoint Nigel Clarke as a Director of the Board of the Company. 4(a) 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 2013, being $140,023,125.43 or 13.578 cent per ordinary share, as the final dividend for that year. Signed this day of 2014: Signed: _____________________________________ (signature of primary shareholder) Signed: _____________________________________ (signature of joint shareholder, if any) For more information, visit www.genac.com Name: _____________________________________ (print name of primary shareholder) Name: _____________________________________ (print name of joint shareholder, if any) Form Of Proxy “ I/We _____________________________________________________________(insert name) of _________________________________________________________________(address) being a shareholder(s) of the above-named Company, hereby appoi nt:________________________________________________________________(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 Meet- ing of the Company to be held at 10am on the 8th day of July, 2014 at 58 Half- way 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): No. Resolution details Vote for or against (tick as appropriate) ORDINARY RESOLUTIONS 1. To receive the report of the Board of Directors and the audited accounts of the Company for the year ended December 31, 2013. 2. To authorise the Board of Directors to re-appoint PWC as the Auditors of the Company and to fix their remuneration. For Against For Against 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 Jennifer Scott as a Director of the Board of the Company.. For Against 3.(b) To re-appoint Nichalas Scott as a Director of the Board of the Company. For Against 3.(c) To re-appoint Nigel Clarke as a Director of the Board of the Company. 4(a) To authorise the Board of Directors to fix the remuneration of the Directors. For Against For Against 5. To approve the aggregate amount of interim dividends declared by the Board during the financial year ended 31st December 2013, being $140,023,125.43 or 13.578 cent per ordinary share, as the final dividend for that year. For Against Signed this day of 2014: Signed: _____________________________________ (signature of primary shareholder) Signed: _____________________________________ (signature of joint shareholder, if any) Name: _____________________________________ (print name of primary shareholder) Name: _____________________________________ (print name of joint shareholder, if any) General Accident Insurance Company Jamaica Ltd. 58 Half Way Tree Road, Kingston 10, Jamaica. 

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