british caribbean insurance company limited financial

BRITISH CARIBBEAN INSURANCE COMPANY LIMITED

FINANCIAL STATEMENTS

DECEMBER 31, 2015

KPMG P.O. Box 76 Chartered Accountants Kingston The Victoria Mutual Building Jamaica, W.I. 6 Duke Street Telephone +1(876) 922-6640 Kingston Fax +1(876) 922-7198 Jamaica, W.I. +1(876) 922-4500

e-Mail [email protected]

INDEPENDENT AUDITORS' REPORT

To the Members of BRITISH CARIBBEAN INSURANCE COMPANY LIMITED

Report on the Financial Statements

We have audited the financial statements of British Caribbean Insurance Company Limited ("the company"), set out on pages 3 to 50, which comprise the statement of financial position as at December 31, 2015, the statements of profit or loss and other comprehensive income, changes in equity and cash flows for the year then ended, and notes, comprising a summary of significant accounting policies and other explanatory information.

Management's Responsibility for the Financial Statements

Management is responsible for the preparation of financial statements that give a true and fair view in accordance with International Financial Reporting Standards and the Jamaican Companies Act, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditors' Responsibility

Our responsibility is to express an opinion on the financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance as to whether or not the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence relating to the amounts and disclosures in the financial statements. The procedures selected depend on our judgment, including our assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity's preparation of financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

KPMG, a Jamaican partnership and a

R. Tarun Handa

Nigel R. Chambers

member firm of the KPMG network of

Cynthia L. Lawrence

W. Gihan C. de Mel

independent member firms affiliated with

Rajan Trehan

Nyssa A. Johnson KPMG International Cooperative ("KPMG

Norman 0. Rainford

Wilbert A. Spence International"), a Swiss entity.

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INDEPENDENT AUDITORS' REPORT (CONT'D)

To the Members of BRITISH CARIBBEAN INSURANCE COMPANY LIMITED

Report on the Financial Statements, continued

Opinion

In our opinion, the financial statements give a true and fair view of the financial position of the company as at December 31, 2015, and of its financial performance and cash flows for the year then ended, in accordance with International Financial Reporting Standards and the Jamaican Companies Act.

Report on additional matters as required by the Jamaican Companies Act

We have obtained all the information and explanations which, to the best of our knowledge and belief, were necessary for the purposes of our audit.

In our opinion, proper accounting records have been maintained, so far as appears from our examination of those records, and the financial statements, which are in agreement therewith, give the information required by the Jamaican Companies Act in the manner required.

Chartered Accountants Kingston, Jamaica

March 21, 2016


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Statement of Financial Position December 31, 2015 and December 31, 2014

Notes 2015 2014 $'000 $'000

ASSETS Property, plant and equipment 5 153,134 176,536 Intangible assets 6 104,468 100,904 Investments 7 2,906,174 2,476,785 Deferred acquisition costs 8 164,276 139,858 Reinsurance assets 9 1,094,861 1,265,602 Insurance and other receivables 10 404,953 376,770 Taxation recoverable 242,777 215,621 Due from related companies 11 35,607 30,493 Short-term investments 12 50,895 354,751 Securities purchased under resale agreements 13 951,698 713,110 Cash and cash equivalents 2,376,092 1,628,349

8,484,935 7,478,779

LIABILITIES AND SHAREHOLDERS' EQUITY Bank overdraft 14 70,041 55,776 Insurance and other payables 15 702,656 468,650 Deferred commission income 16 206,982 175,802 Deferred tax liability 17 15,452 25,011 Insurance contract provisions 9 4,511,832 4,121,927 Due to parent company 11 426 1,514

5,507,389 4,848,680

Share capital 18 959,200 959,200 Capital reserves 19 120,476 120,476 Investment revaluation reserve 408,200 121,666 Retained earnings 1,489,670 1,428,757

2,977,546 2,630,099

8,484,935 7,478,779

The financial statements, on pages 3 to 50 were approved for issue by the Board of Directors on M., ch 21, 16, and signed on their behalf by:

ec or Jose h M. Matalon

Director Paul Hanwortr-

The accompanying notes form an integral part of the financial statements.

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BRITISH CARIBBEAN INSURANCE COMPANY LIMITED Statement of Profit or Loss and Other Comprehensive Income Years ended December 31, 2015 and December 31, 2014 Notes 2015 2014 $'000 $'000 Gross premiums written 20,9(b) 6,801,437 4,795,685 Change in gross provision for unearned premiums ( 104,260) ( 376,869)

Gross insurance premium revenue 9(b) 6,697,177 4,418,816 Written premiums ceded to reinsurers 9(b) ( 4,611,304) (2,924,730) Reinsurers’ share of change in provision for unearned premiums ( 46,419) 225,640

Net insurance premium revenue 2,039,454 1,719,726

Claims expenses incurred 9(a) ( 1,299,607) (1,304,462) Reinsurers’ share of claims and benefits incurred 9(a) 76,608 267,359

Net insurance claims 9(a) ( 1,222,999) (1,037,103)

Commission expense 8 ( 424,261) ( 347,532) Commission income 16 638,396 559,684

Net commission income 214,135 212,152

1,030,590 894,775 Operating expenses 22(b) ( 825,876) ( 766,970)

Underwriting profit before other expenses, other income and taxation 204,714 127,805 Other expenses ( 134,089) ( 124,489) Investment income, net 21 356,492 394,391 Gain on sale of property, plant and equipment 175 621 Other income 28,207 4,333 Foreign exchange gain 74,716 105,700

Profit before taxation 22 530,215 508,361 Taxation 23 ( 145,105) ( 127,364)

Profit for the year 385,110 380,997

Other comprehensive income

Items that may be reclassified to profit or loss

Fair value gains on investments, being total other comprehensive income 286,534 98,415 Total comprehensive income for the year $ 671,644 479,412

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BRITISH CARIBBEAN INSURANCE COMPANY LIMITED Statement of Changes in Shareholders’ Equity Years ended December 31, 2015 and December 31, 2014 Investment Share Capital revaluation Retained

Capital reserves reserve earnings Total $’000 $’000 $’000 $’000 $’000 (Note 18) (Note 19)

Balances at December 31, 2013 959,200 120,476 23,251 1,301,957 2,404,884 Profit for the year - - - 380,997 380,997 Other comprehensive income: Fair value gains on investments - - 98,415 - 98,415 Total comprehensive income - - 98,415 380,997 479,412

Dividends paid (Note 29) - - - ( 254,197) ( 254,197)

Net change for the year - - 98,415 126,800 225,215

Balances at December 31, 2014 959,200 120,476 121,666 1,428,757 2,630,099

Profit for the year - - - 385,110 385,110 Other comprehensive income: Fair value gains on investments - - 286,534 - 286,534

Total comprehensive income - - 286,534 385,110 671,644

Dividends paid (Note 29) - - - ( 324,197) ( 324,197)

Net change for the year - - 286,534 60,913 347,447

Balances at December 31, 2015 959,200 120,476 408,200 1,489,670 2,977,546

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BRITISH CARIBBEAN INSURANCE COMPANY LIMITED Statement of Cash Flows Years ended December 31, 2015 and December 31, 2014 Notes 2015 2014 $’000 $’000 CASH FLOWS FROM OPERATING ACTIVITIES Profit for the year 385,110 380,997 Adjustments for: Depreciation 5 45,320 35,568 Increase in insurance contract provisions 560,646 372,048 Amortisation of intangible assets 6 13,268 4,609 Gain on disposal of property, plant and equipment and intangibles ( 175) ( 621) Exchange gain on investments ( 74,716) ( 105,700) Interest income 21 ( 344,140) ( 386,080) Taxation 23 145,105 127,364

730,418 428,185 Changes in: Deferred acquisition costs ( 24,418) ( 33,972) Insurance and other receivables ( 31,710) ( 36,286) Due from related companies ( 5,114) 4,898 Insurance and other payables 234,006 ( 126,421) Deferred commission income 31,180 51,887 Due to parent company ( 1,008) 1,514

933,274 289,805 Interest received 347,667 360,247 Taxation paid ( 181,820) ( 83,584)

Net cash provided by operating activities 1,099,121 566,468

CASH FLOWS FROM INVESTING ACTIVITIES Short term investments, net 303,856 182,034 Securities (purchased)/sold under resale agreements ( 238,588) 194,212 Investments, net ( 68,139) ( 7,271) Acquisition of property, plant and equipment 5 ( 21,918) ( 64,663) Additions to intangible assets 6 ( 16,832) ( 14,063) Proceeds from sale of property, plant and equipment 175 623

Net cash (used)/provided by investing activities ( 41,446) 290,872

CASH FLOWS FROM FINANCING ACTIVITY

Dividends paid, being net cash used by financing activity 29 ( 324,197) ( 254,197)

Net increase in cash and cash equivalents 733,478 603,143 Cash and cash equivalents at beginning of the year 1,572,573 969,430

CASH AND CASH EQUIVALENTS AT END OF THE YEAR 2,306,051 1,572,573

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BRITISH CARIBBEAN INSURANCE COMPANY LIMITED Statement of Cash Flows (Continued) Years ended December 31, 2015 and December 31, 2014 Notes 2015 2014 $’000 $’000 Comprised of:

Cash and bank balances 841,701 367,730 Short-term investments 1,534,391 1,260,619

2,376,092 1,628,349 Less: Bank overdraft, unsecured 14 ( 70,041) ( 55,776)

2,306,051 1,572,573

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BRITISH CARIBBEAN INSURANCE COMPANY LIMITED Notes to the Financial Statements Years ended December 31, 2015 and December 31, 2014

1. Corporate structure and nature of business The company, which is incorporated and domiciled in Jamaica, is a 68.5% subsidiary of ICD Group Holdings Limited (ICDH). ICDH is also incorporated in Jamaica. As of December 17, 2015, the shares held by ICD Group Limited (a company incorporated in Jamaica) were transferred to ICDH. The ultimate parent company is ICD Investments Limited, which is incorporated in St. Lucia. The registered office of the company is situated at 36 Duke Street, Kingston, Jamaica. The principal activity of the company is the underwriting of general insurance business.

2. Insurance licence The company is registered under the Insurance Act 2001 (the Act).

3. Roles of the actuary and auditors The actuary is appointed by the Board of Directors pursuant to the Act. With respect to preparation of financial statements, the actuary carries out an actuarial valuation of management’s estimate of the company’s policy liabilities and reports thereon to the shareholders. Actuarially determined policy liabilities consist of the provisions for, and reinsurance recovery of, unpaid claims and adjustment expenses on insurance policies in force, including provisions for salvage and subrogation, and future obligations on the unearned portion of insurance policies in force, including deferred policy acquisition costs. The valuation is made in accordance with accepted actuarial practice, as well as any other matter specified in any directive that may be made by regulatory authorities. The actuary, in his verification of the management information provided by the company, and which is used in the valuation, also makes use of the work of the external auditors. The actuary’s report outlines the scope of his work and opinion. The external auditors are appointed by the shareholders pursuant to the Jamaican Companies Act to conduct an independent audit of the financial statements of the company in accordance with International Standards on Auditing and to report thereon to the shareholders. In carrying out their audit, the auditors also make use of the work of the actuary and his report on the company’s actuarially determined policy liabilities. The auditors’ report outlines the scope of their audit and their opinion.

4. Statement of compliance, basis of preparation and significant accounting policies

(a) Statement of compliance:

The financial statements are prepared in accordance with International Financial Reporting Standards (IFRS) and their interpretations adopted by the International Accounting Standards Board (IASB), and comply with the provisions of the Jamaican Companies Act. Certain new, revised and amended standards and interpretations came into effect during the current financial year.

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BRITISH CARIBBEAN INSURANCE COMPANY LIMITED Notes to the Financial Statements (Continued) Years ended December 31, 2015 and December 31, 2014 4. Statement of compliance, basis of preparation and significant accounting policies (cont’d)

(a) Statement of compliance (cont’d): The standards relevant to the company are as follows: • Improvements to IFRS 2010-2012 and 2011-2013 cycles contain amendments to

certain standards and interpretations, the main amendments applicable to the entity are as follows:

- IFRS 13 Fair Value Measurement is amended to clarify that issuing of the

standard and consequential amendments to IAS 39 and IFRS 9 did not intend to prevent entities from measuring short-term receivables and payables that have no stated interest rate at their invoiced amounts without discounting, if the effect of not discounting is immaterial.

- IAS 16 Property, Plant and Equipment and IAS 38 Intangible Assets. The

standards have been amended to clarify that, at the date of revaluation:

(i) the gross carrying amount is adjusted in a manner that is consistent with the revaluation of the carrying amount of the asset and the accumulated depreciation (amortisation) is adjusted to equal the difference between the gross carrying amount and the carrying amount of the asset after taking account of accumulated impairment losses or

(ii) the accumulated depreciation (amortisation) is eliminated against the gross carrying amount of the asset.

- IAS 24 Related Party Disclosures has been amended to extend the definition

of ‘related party’ to include a management entity that provides key management personnel services to the reporting entity, either directly or through a group entity. For related party transactions that arise when key management personnel services are provided to a reporting entity, the reporting entity is required to separately disclose the amounts that it has recognised as an expense for those services that are provided by a management entity; however, it is not required to ‘look through’ the management entity and disclose compensation paid by the management entity to the individuals providing the key management personnel services.

The adoption of these improvement did not result in any change in accounting policies and did not have any effect on the company’s financial statements.

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(a) Statement of compliance (cont’d): At the date of authorisation of the financial statements the following new relevant standards, amendments to standards and interpretations, which were in issue, are not yet effective. Those standards and interpretations are effective for the accounting periods beginning on, or after the indicated dates: • IAS 1, Presentation of Financial Statements, has been amended effective for annual

reporting periods beginning on or after January 1, 2016, to clarify or state the following:

- specific single disclosures that are not material do not have to be presented even

if they are minimum requirements of a standard; - the order of notes to the financial statements is not prescribed; - line items on the statement of financial position and the statement of profit or

loss and other comprehensive income (OCI) should be disaggregated if this provides helpful information to users. Line items can be aggregated if they are not material;

- specific criteria are now provided for presenting subtotals on the statement of financial position and in the statement of profit or loss and OCI, with additional reconciliation requirements for the statement of profit or loss and OCI;

- the presentation in the statement of OCI of items of OCI arising from joint ventures and associates accounted for using the equity method follows the IAS 1 approach of splitting items that may, or that will never, be reclassified to profit or loss.

• IFRS 9 Financial Instruments (effective January 1, 2018) replaces the existing

guidance in IAS 39 Financial Instruments: Recognition and Measurement. IFRS 9 includes revised guidance on the classification and measurement of financial assets and liabilities, including a new expected credit loss model for calculating impairment of financial assets and the new general hedge accounting requirements. It also carries forward the guidance on recognition and derecognition of financial instruments from IAS 39. Although the permissible measurement bases for financial assets – amortised cost, fair value through other comprehensive income (FVOCI) and fair value though profit or loss (FVTPL) - are similar to IAS 39, the criteria for classification into the appropriate measurement category are significantly different. IFRS 9 replaces the ‘incurred loss’ model in IAS 39 with an ‘expected credit loss’ model, which means that a loss event will no longer need to occur before an impairment allowance is recognised.

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(a) Statement of compliance (cont’d):

• Improvements to IFRS 2012-2014 cycle, contain amendments to certain standards and interpretations and are effective January 1, 2016. The main amendments applicable to the company are as follows:

- IFRS 7 Financial Instruments: Disclosures, has been amended to clarify when servicing arrangements are in the scope of its disclosure requirements on continuing involvement in transferred assets in cases when they are derecognised in their entirety. A servicer is deemed to have continuing involvement if it has an interest in the future performance of the transferred asset -e.g. if the servicing fee is dependent on the amount or timing of the cash flows collected from the transferred financial asset; however, the collection and remittance of cash flows from the transferred asset to the transferee is not, in itself, sufficient to be considered ‘continuing involvement’.

IFRS 7 has also been amended to clarify that the additional disclosures required by Disclosures: Offsetting Financial Assets and Financial Liabilities (Amendments to IFRS 7) are not specifically required for inclusion in condensed interim financial statements for all interim periods; however, they are required if the general requirements of IAS 34 Interim Financial Reporting, require their inclusion.

• Amendments to IAS 16 and IAS 38 Clarification of Acceptable Methods of Depreciation and Amortisation, are effective January 1, 2016.

- The amendment to IAS 16 Property, Plant and Equipment explicitly states that revenue-based methods of depreciation cannot be used. This is because such methods reflect factors other than the consumption of economic benefits embodied in the assets.

- The amendment to IAS 38 Intangible Assets introduces a rebuttable

presumption that the use of revenue-based amortisation methods is inappropriate for intangible assets.

• IFRS 16, Leases, which is effective for annual reporting periods beginning on or after January 1, 2019, eliminates the current dual accounting model for lessees, which distinguishes between on-balance sheet finance leases and off-balance sheet operating leases. Instead, there is a single, on-balance sheet accounting model that is similar to current finance lease accounting. Companies will be required to bring all major leases on-balance sheet, recognising new assets and liabilities. The on-balance sheet liability will attract interest; the total lease expense will be higher in the early years of a lease even if a lease has fixed regular cash rentals. Optional lessee exemption will apply to short- term leases and for low-value items with value of US$5,000 or less.

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(a) Statement of compliance (cont’d):

• IFRS 16, Leases (cont’d) Lessor accounting remains similar to current practice as the lessor will continue to classify leases as finance and operating leases. Finance lease accounting will be based on IAS 17 lease accounting, with recognition of net investment in lease comprising lease receivable and residual asset. Operating lease accounting will be based on IAS 17 operating lease accounting. Early adoption is permitted if IFRS 15, Revenue from Contracts with Customers is also adopted.

(b) Basis of preparation:

The financial statements are prepared under the historical cost convention, modified for

the inclusion of available-for-sale investments at fair value. These financial statements are presented in Jamaica dollars ($), which is the functional currency of the company. The values presented in the financial statements have been rounded to the nearest thousand ($’000) unless otherwise stated.

(c) Use of estimates and judgements:

The preparation of the financial statements to conform to IFRS requires management to

make estimates and assumptions that affect the reported amount of assets and liabilities, contingent assets and contingent liabilities at the reporting date, and the income and expense for the year then ended. Actual amounts could differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

Judgements made by management in the application of IFRS that have a significant effect on the financial statements and estimates with a significant risk of material adjustment in the next financial year are discussed below:

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(c) Use of estimates and judgements (cont’d):

(i) Allowance for impairment losses on receivables: In determining amounts recorded for impairment losses in the financial statements, management makes judgements regarding indicators of impairment, that is, whether there are indicators that there may be a measurable decrease in the estimated future cash flows from receivables, for example, based on default and adverse economic conditions. Management makes estimates of the likely estimated future cash flows from impaired receivables as well as the timing of such cash flows.

(ii) Outstanding claims: Outstanding claims comprise estimates of the amount of reported losses and loss expenses plus a provision for losses incurred but not reported based on historical experience. The loss and loss expense reserves have been estimated by the company’s actuary using the company’s past loss experience and industry data. Amounts recoverable in respect of claims from reinsurers are estimated in a manner consistent with the underlying liabilities. Notes 9 and 24 contain information about the assumptions and uncertainties relating to insurance liabilities and discloses the risk factors in these contracts. Note 25 contains information about the risks and uncertainties associated with financial instruments.

(d) Cash and cash equivalents: Cash and cash equivalents comprise cash and bank balances, and include short-term

deposits and other monetary investments with maturities ranging between one and three months from the reporting date. These are not subject to significant risk of change in value and are held for the purpose of meeting short-term cash commitments rather than for investment or other purposes.

Bank overdrafts, repayable on demand and forming an integral part of the company’s

cash management activities, are included as a component of cash and cash equivalents for the purpose of the statement of cash flows.

(e) Short-term investments:

Short-term investments comprise fixed deposits with banks, money market securities, and loans and receivables maturing within one year. They are acquired for their earnings potential and for balancing the company’s risks on its investment portfolio. Their nature, liquidity and risk are similar to those of cash and cash equivalents.

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(f) Insurance and other receivables:

Insurance and other receivables are stated at amortised cost less impairment losses.

(g) Insurance and other payables:

Insurance and other payables are stated at amortised cost.

(h) Provisions: A provision is recognised when the company has a legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation. If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the obligations.

(i) Related parties: A related party is a person or company that is related to the entity which is preparing its financial statements (referred to in IAS 24 Related Party Disclosures as the “reporting entity”).

(a) A person or a close member of that person’s family is related to a reporting entity if that person:

(i) has control or joint control over the reporting entity;

(ii) has significant influence over the reporting entity; or

(iii) is a member of the key management personnel of the reporting entity or of a parent of the reporting entity.

(b) An entity is related to the reporting entity if any of the following conditions applies:

(i) The entity and the reporting entity are members of the same group (which means that each parent, subsidiary and fellow subsidiary is related to the others).

(ii) One entity is an associate or joint venture of the other entity (or an associate or joint venture of a member of a group of which the other entity is a member).

(iii) Both entities are joint ventures of the same third party. (iv) One entity is a joint venture of a third entity and the other entity is an associate

of the third entity.

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BRITISH CARIBBEAN INSURANCE COMPANY LIMITED Notes to the Financial Statements (Continued) Years ended December 31, 2015 and December 31, 2014

4. Statement of compliance, basis of preparation and significant accounting policies (cont’d) (i) Related parties (cont’d):

(b) An entity is related to the reporting entity if any of the following conditions applies (cont’d):

(v) The entity is a post-employment benefit plan established for the benefit of

employees of either the reporting entity or an entity related to the reporting entity. If the reporting entity is itself such a plan, the sponsoring employers are also related to the reporting entity.

(vi) The entity is controlled, or jointly controlled by a person identified in (a). (vii) A person identified in (a)(i) has significant influence over the reporting

entity or is a member of the key management personnel of the reporting entity (or of a parent of the entity).

(viii) The entity, or any member of a group of which it is apart provides key management services of the company.

A related party transaction involves transfer of resources, services or obligations between a reporting entity and a related party, regardless of whether a price is charged.

The company has a related party relationship with its directors, parent company, and

jointly controlled entities, and group post-employment benefit plans, as well as with their directors, trustees and key management personnel. “Key management personnel” represents certain senior officers of the company.

(j) Investments: Investments with fixed or determinable payments and which are not quoted in an active market are classified as loans and receivables, and are initially measured at cost and subsequently at amortised cost, using the effective interest method less impairment losses. Available-for-sale investments are stated at fair value, except where fair value cannot be reliably determined, in which case they are stated at cost, with any movements in fair value included in investment revaluation reserve, except where there is evidence of impairment, in which event, reductions in fair value are recognised in profit or loss. The fair value of available-for-sale investments is based on their quoted market bid price at the reporting date. Where a quoted market price is not available, fair value is estimated using discounted cash flow techniques. Available-for-sale investments are recognised or derecognised by the company on the date they commit to purchase or sell the investments. Other investments are recognised or derecognised on the day they are transferred to/by the company.

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(k) Property, plant and equipment:

(i) Property, plant and equipment are stated at cost or deemed cost, less accumulated

depreciation and impairment losses. Freehold land and buildings that had been revalued to fair value prior to January 1, 2002, the date of transition to IFRS, are measured on the basis of deemed cost, being the revalued amount at the date of that revaluation.

(ii) Depreciation: Fixed assets are depreciated using the straight-line method at annual rates estimated to write down the fixed assets to their estimated residual values at the end of their expected useful lives. No depreciation is charged on freehold land. The depreciation rates for other assets are as follows: Freehold buildings 3⅓% Furniture, fixture and equipment 10% Motor vehicles 33⅓% Computer equipment 33⅓% Leasehold improvements 10% Depreciation methods, useful lives and residual values are reassessed annually.

(l) Intangible assets and amortisation:

(i) Computer software This includes computer software acquired by the company or acquired through business combination. These are stated at cost less accumulated amortisation and impairment losses. Computer software are amortised from the date they are available for use. The estimated useful life of computer software is 3 years.

(ii) Goodwill: Goodwill represents amounts arising on acquisition of subsidiary. This represents the difference between the cost of the acquisition and the fair value of the net identifiable assets acquired, less contingent liabilities. Goodwill is stated at cost and is tested annually for impairment.

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(l) Intangible assets and amortisation (cont’d):

(iii) Customer relationships:

This represents the carrying value of acquired customer relationships, primarily for insurance business and is stated at cost less impairment losses. Customer relationships is determined to have an indefinite useful life but is tested annually for impairment.

(m) Foreign currencies: Foreign currency balances at the reporting date are translated at the rates of exchange ruling on that date. Transactions in foreign currencies are converted at the rates of exchange ruling at the dates of those transactions. Gains and losses arising from fluctuations in exchange rates are recognised in profit or loss. For the purpose of the statement of cash flows, all foreign currency gains and losses recognised in profit or loss are treated as cash items and included in cash flows from operating or financing activities along with movements in the relevant balances.

(n) Impairment:

Objective evidence that financial assets are impaired can include default or delinquency by a customer, indications that a customer will enter bankruptcy and changes in the payment status of customers. The carrying amounts of the company’s assets are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, the asset’s recoverable amount is estimated. Intangible assets are assessed regardless of indication of impairment. An impairment loss is recognised whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. Impairment losses are recognised in profit or loss. Goodwill and customer relationships are tested annually for impairment. Impairment losses in respect of cash generating units are allocated firstly to reduce the carrying amount of any goodwill and customer relationships allocated to cash-generating units and then to reduce the carrying amount of other assets in the unit on a pro-rata basis. When a decline in fair value of an available-for-sale financial asset has been recognised directly in other comprehensive income and there is objective evidence that the asset is impaired, the cumulative loss that had been recognised directly in other comprehensive income is recognised in profit or loss even though the financial asset has not been derecognised. The amount of the cumulative loss that is recognised in the income statement is the difference between the acquisition cost and current fair value, less any impairment loss on that financial asset previously recognised in profit or loss.

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Notes to the Financial Statements (Continued) Years ended December 31, 2015 and December 31, 2014

4. Statement of compliance, basis of preparation and significant accounting policies (cont’d)

(n) Impairment (cont’d):

(i) Calculation of recoverable amounts:

The recoverable amount of the company’s receivables carried at amortised cost is calculated as the present value of expected future cash flows, discounted at the original effective interest rate inherent in the assets.

Receivables with a short duration are not discounted. An impairment loss in respect of an available-for-sale investment is calculated by reference to its current fair value.

The recoverable amount of other assets is the greater of their net selling price and value in use. In assessing the value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit or pool of assets to which the asset belongs.

(ii) Reversals of impairment: Impairment loss in respect of receivables carried at amortised cost is reversed if the subsequent increase in recoverable amount can be related objectively to an event occurring after the impairment loss was recognised. Impairment loss in respect of goodwill is not reversed. For all other assets, an impairment loss is reversed if there is an indication that the impairment loss no longer exists and there has been a change in the estimate used to determine the recoverable amount. All impairment losses are recognised in profit or loss. Any cumulative loss in respect of an available-for-sale investment recognised previously in other comprehensive income is transferred to profit or loss. For available-for-sale equity securities, the reversal is recognised directly in other comprehensive income. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.

(o) Insurance contracts recognition and measurement:

(i) Recognition and measurement Insurance contracts are accounted for in compliance with the recommendations and practices of the insurance industry, and comply with the provisions of the Insurance Act 2001. The underwriting results are determined after making provision for, inter alia, unearned premiums, outstanding claims, unexpired risks, deferred commission expense and deferred commission income.

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4. Statement of compliance, basis of preparation and significant accounting policies (cont’d)

(o) Insurance contracts recognition and measurement (cont’d):

(i) Recognition and measurement (cont’d)

Gross written premiums Gross premiums reflect business written during the year, and include adjustments to premiums written in previous years. The earned portion of premiums is recognised as revenue. Premiums are earned from the effective date of the policy. Unearned premiums Unearned premiums represent that proportion of the premiums written up to the accounting date which is attributable to subsequent periods and are calculated on the “three sixty-fifths” basis on the total premiums written.

Unexpired risks

Unexpired risks represent the amount set aside in addition to unearned premiums, in respect of risks to be borne by the company under contracts of insurance entered into before the end of the financial year and are actuarially determined.

Outstanding claims

Outstanding claims comprise estimates of the amount of reported losses and loss expenses, plus a provision for losses incurred but not reported based on the historical experience of the company. The loss and loss expense reserves have been reviewed by the company’s actuary using the past loss experience of the company and industry data. Amounts recoverable in respect of claims from reinsurers are estimated in a manner consistent with the underlying liabilities.

Management believes, based on the analysis completed by their actuary, that the provision for outstanding losses and loss expenses will be adequate to cover the ultimate net cost of losses incurred up to the reporting date. However, the provision is necessarily an estimate and may ultimately be settled for a significantly greater or lesser amount. Any subsequent differences arising are recorded in the period in which they are determined.

Deferred acquisition cost and deferred commission income

Commission income and expense are deferred on a basis consistent with that used for deferring premium income.

(ii) Reinsurance assets

Amounts recoverable from reinsurers are estimated in a manner consistent with the claim liability associated with reinsured policies. Unearned reinsurance premiums on business ceded up to the accounting date which are attributable to subsequent periods are calculated substantially on the “three sixty-fifths” basis on the total premiums ceded.

20

BRITISH CARIBBEAN INSURANCE COMPANY LIMITED Notes to the Financial Statements (Continued) Years ended December 31, 2015 and December 31, 2014 4. Statement of compliance, basis of preparation and significant accounting policies (cont’d) (o) Insurance contracts recognition and measurement (cont’d):

(ii) Reinsurance assets (cont’d)

In the normal course of business the company seeks to reduce the loss that may result from catastrophe or other events that cause unfavourable underwriting results by reinsuring certain levels of risk with other insurers (see note 24). Reinsurance ceded does not discharge the company’s liability as the principal insurer. Failure of reinsurers to honour their obligations could result in losses to the company. Consequently, a contingent liability exists in the event that an assuming reinsurer is unable to meet its obligations. Reinsurance assets are assessed for impairment at each reporting date. A reinsurance asset is deemed impaired if there is objective evidence, as a result of an event that occurred after its initial recognition, that the company may not recover all amounts due, and that event has a reliably measurable impact on the amounts that the company will receive from the reinsurer. Impairment losses on reinsurance assets are recognised in the income statement.

(iii) Insurance receivable and insurance payable Amounts due from and to policyholders, brokers, agents and reinsurers are financial instruments and are included in insurance receivables and payables and not in insurance contract provisions or reinsurance assets.

(p) Revenue: Revenue is recognised in the income statement when the significant risks and rewards of ownership have been transferred to the policyholder. No revenue is recognised if there are significant uncertainties regarding recovery of the consideration due. Revenue comprises the following: (i) Gross written premiums

The accounting policies for the recognition of revenue from insurance contracts are disclosed in note 4(o)(i).

(ii) Commission income Reinsurance commission is recognised on a basis that is consistent with the recognition of the costs incurred on the acquisition of the underlying insurance contracts [see note 4(o)(ii)]. Profit commission in respect of reinsurance contracts is recognised on an accrual basis.

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(p) Revenue (cont’d):

(iii) Investment income Investment income comprises income from financial assets. Income from financial assets comprises interest and dividends and realised gains/losses on financial assets. Dividend income is recognised when the right to receive income is established. Usually this is the ex-dividend date for equity securities.

(q) Taxation:

Taxation of the profit or loss for the year comprises current and deferred tax. Income tax is recognised in profit or loss, except to the extent that it relates to items recognised directly in other comprehensive, in which case it is also recognised in other comprehensive income. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted at the reporting date, and any adjustment to tax payable in respect of previous years. Deferred tax is provided for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted at the reporting date. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised. A deferred tax liability is recognised for all taxable temporary differences, except to the extent that the company is able to control the timing of the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.

(r) Employee benefits:

(i) Defined contribution plan The company is a participating employer in a defined benefit group pension scheme. The defined scheme is effectively guaranteed by the parent company and does not expose the participating subsidiaries to actuarial risks. This plan is therefore accounted for as a defined contribution plan in the financial statements of the individual participating subsidiaries, that is, pension contributions are expensed as and when they fall due.

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(r) Employee benefits (cont’d):

(ii) Other post-retirement benefits

The company provides post-retirement health care benefits, which are not entitlements, to certain of its retirees. These benefits are usually conditional upon the employee remaining in service up to retirement age and the completion of a minimum service period. The expected costs of these benefits are accrued over the period of employment, using a methodology similar to that for defined benefit pension plans and the present value of future benefits at the reporting date is shown as an obligation.

(iii) Other employee benefits Employees’ entitlements to leave are recognised when they accrue to employees. A provision is made for the estimated liability for vacation leave, as a result of services rendered by employees up to the reporting date.

(s) Securities purchased under resale agreements:

Securities purchased under resale agreements (“reverse repos”) are short-term transactions whereby an entity buys securities and simultaneously agrees to resell the securities on a specified date and at a specified price. Title to the security is not actually transferred unless the counterparty fails to comply with the terms of the contract. Reverse repos are accounted for as short-term collateralised lending, classified as loans and receivables and measured at amortised cost. The difference between the sale and repurchase considerations is recognised on an accrual basis over the period of the transaction and is included in interest income.

(t) Financial instruments: A financial instrument is any contract that gives rise to both a financial asset of one enterprise and a financial liability or equity instrument of another enterprise. For the purpose of these financial statements, financial assets have been determined to include cash and cash equivalents, investments, insurance receivables, amounts due from related parties and other accounts receivable. Financial liabilities include accounts payable, insurance payables and related party balances.

(u) Share capital: Preference share capital is classified as equity in accordance with the Jamaican Companies Act. The shares are non-redeemable and have a right to a fixed dividend.

23

BRITISH CARIBBEAN INSURANCE COMPANY LIMITED Notes to the Financial Statements (Continued) Years ended December 31, 2015 and December 31, 2014 4. Statement of compliance, basis of preparation and significant accounting policies (cont’d) (v) Determination of fair value:

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Some financial instruments lack an available trading market. These instruments have been valued using present value or other valuation techniques and the fair value shown may not necessarily be indicative of the amounts realisable in an immediate settlement of the instruments.

(w) Dividends:

Dividends on preference shares are recognised in shareholders’ equity in the period in which they become due based on the rights attached to this class of shares.

5. Property, plant and equipment Furniture, Freehold fixtures land and Leasehold and Motor buildings improvements equipment vehicles Total $’000 $’000 $’000 $’000 $’000 Cost or deemed cost: December 31, 2013 144,019 - 117,530 3,284 264,833 Additions - 25,002 39,661 - 64,663 Disposal - - ( 162) (1,900) ( 2,062)

December 31, 2014 144,019 25,002 157,029 1,384 327,434 Additions - - 21,918 - 21,918 Disposal - - ( 215) - ( 215)

December 31, 2015 144,019 25,002 178,732 1,384 349,137 Accumulated depreciation: December 31, 2013 65,991 - 48,580 2,819 117,390 Charge for the year 4,052 1,303 30,013 200 35,568 Eliminated on disposal - - ( 160) (1,900) ( 2,060)

December 31, 2014 70,043 1,303 78,433 1,119 150,898 Charge for the year 4,052 2,998 38,005 265 45,320 Eliminated on disposal - - ( 215) - ( 215)

December 31, 2015 74,095 4,301 116,223 1,384 196,003 Net book values: December 31, 2015 69,924 20,701 62,509 - 153,134

December 31, 2014 73,976 23,699 78,596 265 176,536

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BRITISH CARIBBEAN INSURANCE COMPANY LIMITED Notes to the Financial Statements (Continued) Years ended December 31, 2015 and December 31, 2014 5. Property, plant and equipment (cont’d) At December 31, 1995, the company’s buildings were valued at open market value by

independent valuators Langford and Brown, Valuers and Real Estate Agents. The revalued amounts were deemed to be the assets’ cost on first time adoption of IFRS. The previously reported surplus on revaluation is included in capital reserves. Freehold land and buildings include freehold land at a cost of $22,459,000 (2014: $22,459,000).

6. Intangible assets Computer Customer software loyalty Goodwill Total $’000 $’000 $’000 $’000 Cost: December 31, 2013 16,577 25,600 54,944 97,121 Additions 14,063 - - 14,063

December 31, 2014 30,640 25,600 54,944 111,184 Additions 16,832 - - 16,832

December 31, 2015 47,472 25,600 54,944 128,016 Amortisation: December 31, 2013 5,671 - - 5,671 Charge for the year 4,609 - - 4,609

December 31, 2014 10,280 - - 10,280 Charge for the year 13,268 - - 13,268

December 31, 2015 23,548 - - 23,548 Net book values: December 31, 2015 23,924 25,600 54,944 104,468

December 31, 2014 20,360 25,600 54,944 100,904

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BRITISH CARIBBEAN INSURANCE COMPANY LIMITED Notes to the Financial Statements (Continued) Years ended December 31, 2015 and December 31, 2014 7. Investments 2015 2014 $’000 $’000 Available-for-sale:

Government of Jamaica securities – US$ Bonds 1,135,580 1,049,063 Government of Jamaica securities – J$ Bonds 195,461 441,807 Quoted shares 206,091 128,843 Unit trust investments 358,969 188,704

1,896,101 1,808,417

Loans and receivables: Government of Jamaica securities – J$ Bonds 815,110 667,834 Corporate bonds – US$ and J$ 194,595 - Mortgage loans 168 334 Unquoted investments - related parties 200 200

1,010,073 668,368

2,906,174 2,476,785

Investments include foreign currency investments aggregating US$10,617,000 (2014:

US$9,193,000). Unit trust investments include certificates evidencing investment holdings totalling J$205,695,000 (2014: J$109,457,000) held to the order of the Financial Services Commission, as required by the Insurance Act.

8. Deferred acquisition costs The analysis of the movement in deferred commission expense is as follows: 2015 2014 $’000 $’000 Balance January 1 139,858 105,886 Commission paid during the year 448,679 381,504 Amounts recognised in income during the year (424,261) (347,532)

Balance December 31 164,276 139,858

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BRITISH CARIBBEAN INSURANCE COMPANY LIMITED Notes to the Financial Statements (Continued) Years ended December 31, 2015 and December 31, 2014 9. Reinsurance assets and insurance contract provisions Analysis of movements in reinsurance assets and insurance contract provisions: 2015 2014 Gross Reinsurance Net Gross Reinsurance Net $’000 $’000 $’000 $’000 $’000 $’000

Claims outstanding 2,567,157 201,355 2,365,802 2,281,512 325,677 1,955,835 Unearned premiums 1,944,675 893,506 1,051,169 1,840,415 939,925 900,490

4,511,832 1,094,861 3,416,971 4,121,927 1,265,602 2,856,325 (a) Claims outstanding: 2015 2014 Gross Reinsurance Net Gross Reinsurance Net $’000 $’000 $’000 $’000 $’000 $’000

Claims notified 1,889,277 149,572 1,739,705 1,752,639 133,942 1,618,697 Claims incurred but not reported 392,235 176,105 216,130 211,226 94,907 116,319

Balance at January 1 2,281,512 325,677 1,955,835 1,963,865 228,849 1,735,016 Claim expenses incurred 1,299,607 76,608 1,222,999 1,304,462 267,359 1,037,103 Claims paid in year (1,013,962) ( 200,930) ( 813,032) ( 986,815) (170,531) ( 816,284)

Change in outstanding claims provision 285,645 ( 124,322) 409,967 317,647 96,828 220,819

Balance at December 31 2,567,157 201,355 2,365,802 2,281,512 325,677 1,955,835

Analysis: Claims notified 2,244,701 109,213 2,135,488 1,889,277 149,572 1,739,705 Claims incurred but not reported 322,456 92,142 230,314 392,235 176,105 216,130

Balance December 31 2,567,157 201,355 2,365,802 2,281,512 325,677 1,955,835 Outstanding claims include claims payable to related parties of $19,572,000 (2014: $19,374,000).

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BRITISH CARIBBEAN INSURANCE COMPANY LIMITED Notes to the Financial Statements (Continued) Years ended December 31, 2015 and December 31, 2014 9. Reinsurance assets and insurance contract provisions (cont’d)

(b) Unearned premiums: 2015 2014 Gross Reinsurance Net Gross Reinsurance Net $’000 $’000 $’000 $’000 $’000 $’000

Balance January 1 1,840,415 939,925 900,490 1,463,546 714,285 749,261 Premiums written during the year 6,801,437 4,611,304 2,190,133 4,795,685 2,924,730 1,870,955 Premiums earned during the year (6,697,177) (4,657,723) (2,039,454) (4,418,816) (2,699,090) (1,719,726)

Balance December 31 1,944,675 893,506 1,051,169 1,840,415 939,925 900,490 (c) Gross unearned premiums are analysed as follows: 2015 2014 $'000 $'000

Motor 892,685 761,634 Property 772,401 831,736 Pecuniary loss 117,848 121,260 Loss liability 74,827 69,519 Engineering 86,914 56,266

1,944,675 1,840,415

Process used to determine the assumptions for measuring insurance contracts: The company adopts a consistent process in the calculation of provisions for insurance contracts. The overriding aim is to establish reserves which are expected to be at least adequate and that there is consistency from year to year. Therefore the reserves are set at a level above the actuarial “best estimate” position. However, there is a risk that, due to unforeseen circumstances, the reserves may be insufficient to meet insurance claim liabilities reported in future years on policy periods which have expired. The insurance contract claims provision at the reporting date comprises the expected ultimate cost of settlement of all claims incurred in respect of events up to that date, whether reported or not, together with related claims handling expenses less amounts already paid. This provision is not discounted for the time value of money. The estimation of claims incurred but not reported is generally subject to a greater degree of uncertainty than the estimates of claims already notified, where more information is available. The outstanding claims provisions are estimated based on facts known at the date of estimation. Case estimates are generally set by skilled claims technicians, applying their experience and knowledge to the circumstances of individual claims. The ultimate cost of outstanding claims is estimated using standard actuarial claims projection techniques.

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9. Reinsurance assets and insurance contract provisions (cont’d)

The main assumption underlying these techniques is that a company’s past claims development experience can be used to project future claims development and hence ultimate claims costs. As such, these methods extrapolate the development of paid and incurred losses, average costs per claim and claim numbers based on the observed development of earlier years and expected loss ratios. There are reasons why this may not be the case, which, insofar as they can be identified, have been allowed for by modifying the methods. Such reasons include:

• Economic, legal, political and social trends (resulting in, for example, a difference in expected levels of inflation);

• Changes in the mix of insurance contracts written; and • Impact of large losses

Incurred but not reported provisions and provisions for outstanding claims are initially estimated at a gross level and a separate calculation is carried out to estimate the size of reinsurance recoveries. The company purchases a range of excess of loss and other reinsurance contracts with sufficiently high retentions for only relatively few, large claims to be recoverable. The method uses historical data, gross incurred but not reported estimates and the terms and conditions of the reinsurance contracts to estimate the carrying value of the reinsurance asset. Impairment of reinsurance asset is considered separately.

10. Insurance and other receivables 2015 2014 $'000 $'000

Premiums receivable 230,050 236,569 Insurance premium financing 71,337 53,934 Prepaid expenses 3,523 539 Accrued investment income 77,706 81,233 Other receivables 22,337 4,495

404,953 376,770 The premiums receivable balance is shown after an allowance for impairment of $64,036,000

(2014: $65,591,000). Insurance premium financing is shown after an allowance for impairment of $5,721,000 (2014: $Nil). Other receivables are shown net of an allowance for impairment of $14,176,000 (2014: $22,623,000). Information relating to credit risk management and the maturity profile of insurance receivables is outlined in more detail in note 25(a)(i) and (iii). Movement on provision for impairment of insurance and other receivables is as follows:

2015 2014 $’000 $’000

At January 1 88,214 84,463 (Decrease)/increase in provision for impairment of receivables ( 4,281) 3,751

December 31 83,933 88,214

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Notes to the Financial Statements (Continued) Years ended December 31, 2015 and December 31, 2014 11. Due from/to related companies 2015 2014 $’000 $’000 Due from related company: CGM Gallagher Insurance Brokers Jamaica Limited 35,607 30,493

Due to parent company: ICD Group Holdings Limited 426 -

ICD Group Limited - 1,514

426 1,514 These balances were incurred in the normal course of business. 12. Short-term investments 2015 2014 $’000 $’000

Available-for-sale: IAJ debenture 895 895

Loans and receivables: Government of Jamaica securities – J$ Bonds - 225,471

Corporate bonds 50,000 128,385

50,000 353,856

50,895 354,751 Investments include Government of Jamaica securities and corporate bonds denominated in foreign currency aggregating US$Nil (2014: US$1,125,000).

13. Securities purchased under resale agreements The fair value of the underlying securities approximate to cost and amounts to $951,698,000 (2014: $713,110,000).

14. Bank overdraft The company does not have any bank overdraft facility. The negative balance arose from unpresented cheques.

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BRITISH CARIBBEAN INSURANCE COMPANY LIMITED Notes to the Financial Statements (Continued) Years ended December 31, 2015 and December 31, 2014 15. Insurance and other payables 2015 2014 $’000 $’000 Payables arising from insurance and reinsurance contracts due to other insurance companies 414,504 190,204 Commission payable 37,396 36,654 Other payables and accrued charges 250,756 241,792

702,656 468,650 Insurance and other payables includes $11 million (2014:$8 million) owed to a related party in the normal course of business.

16. Deferred commission income The analysis of the movement in deferred commission income is as follows: 2015 2014 $’000 $’000

Balance January 1 175,802 123,915 Commission received during the year 669,576 611,571 Amounts recognised in income during the year (638,396) (559,684)

Balance December 31 206,982 175,802

17. Deferred tax liability (a) Deferred tax liability is attributable to the following: Recognised Recognised December 31, in December 31, in December 31, 2013 income 2014 income 2015 $'000 $'000 $'000 $'000 $'000 [note 23(a)] [note 23(a)] Property, plant and equipment (14,106) 1,633 (12,473) 7,753 ( 4,720) Gain on exchange (12,455) 12,016 ( 439) 282 ( 157) Employee benefits 10,718 4,094 14,812 - 14,812 Accrued investment income (18,312) ( 8,599) (26,911) 1,524 (25,387)

(34,155) 9,144 (25,011) 9,559 (15,452)

(b) Movements in temporary differences are all recognised in profit or loss.

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18. Share capital 2015 2014 $’000 $’000 Authorised:

160,000,000 ordinary shares of no par value 85,000,000 20% non redeemable preference shares of no par value

Stated, issued and fully paid:

145,985,401 (2014: 145,985,401) ordinary shares of no par value 784,579 784,579 72,992,701 (2014: 72,992,701) 20% non redeemable preference shares of no par value 174,621 174,621

959,200 959,200

19. Capital reserves

(i) This comprises of realised gains on disposal of investments of $27,541,000 (2014: $27,541,000) and unrealised gains on revaluation of property, plant and equipment of $92,935,000 (2014:$92,935,000).

(ii) Realised capital reserves are available for distribution to shareholders, subject to transfer tax at 5% (2014: 5%).

20. Gross premiums written

Gross premiums written include $94,812,000 (2014: $132,449,000) arising from transactions with related parties.

21. Investment income 2015 2014 $'000 $'000 Interest income: Available-for-sale 99,593 132,598 Loans and receivables 244,547 253,482

344,140 386,080

Dividend income 12,352 8,311

356,492 394,391 22. Disclosure of expenses

Profit before taxation is stated after charging:

(a) Related party transactions: 2015 2014 $’000 $’000

Transactions with fellow subsidiaries: Commission expense 38,636 33,770

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22. Disclosure of expenses (cont’d)

Profit before taxation is stated after charging (cont’d):

(a) Related party transactions (cont’d): 2015 2014 $’000 $’000

Transactions with ultimate parent company: Management fees:

- Parent company 90,000 90,000 - Minority shareholder 34,489 34,489

124,489 124,489

Compensation of key management personnel is as follows: Short term employment benefits Salary 69,728 91,738 Pension contributions [see note 4(r)] 8,683 9,490

78,411 101,228 (b) Operating expenses:

Depreciation 45,320 35,568 Amortisation 13,268 4,609 Directors’ emoluments Fees 4,550 4,550 Remuneration 20,945 22,137 Staff costs 463,560 457,733 Auditors’ remuneration 7,640 7,790 Data processing charge and maintenance 29,294 27,318 Advertising and promotion 34,929 24,642 Professional fees 29,423 30,344 Motor Vehicle expenses 32,545 32,526 Telephone 19,401 16,035 Stationery and office supplies 15,234 11,728 Bank interest and other charges 11,963 9,367 Other administrative expenses 97,804 82,623

825,876 766,970 23. Taxation

(a) The expense is based on the profit for the year adjusted for tax purposes and is made up as follows:

2015 2014 $’000 $’000

Current tax expense: Income tax at 33⅓% 154,664 136,508

Deferred tax expense: Origination and reversal of other temporary differences (note 17) ( 9,559) ( 9,144)

Total taxation expense in profit or loss 145,105 127,364

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23. Taxation (cont’d) 2015 2014 $’000 $’000 (b) Reconciliation of effective tax rate: Profit before taxation 530,215 508,361 Computed "expected" tax expense at 33⅓% 176,739 169,454 Difference between profit for financial statements and tax reporting purposes on: Depreciation charge and capital allowances 13 463 Items not allowed for tax purposes 2,570 845 Tax exempt income ( 5,954) ( 5,482) Unrealised capital foreign exchange gain ( 18,531) ( 28,184) Preference dividends ( 9,732) ( 9,732)

Actual tax expense 145,105 127,364

24. Insurance risk management Risk management objectives and policies for mitigating insurance risk: (a) Overview:

The company’s management of insurance risk is a critical aspect of the business. The primary insurance activity carried out by the company is the transfer of risk from persons or entities that are directly subject to the risk, by means of the sale of insurance policies. As such the company is exposed to uncertainty surrounding the timing, frequency and severity of claims under these policies. The principal types of policy written by the company are as follows:

Liability insurance Property insurance Motor insurance

The company manages its insurance risk through its underwriting policy that includes, inter alia, authority limits, approval procedures for transactions that exceed set limits, pricing guidelines and the centralised management of reinsurance.

The company actively monitors insurance risk exposures both for individual and portfolio types of risks. These methods include internal risk measurement, portfolio modelling and scenario analyses.

Underwriting strategy:

The company seeks to underwrite a balanced portfolio of risks at rates and terms that will produce an underwriting result consistent with its long term objectives. The board of directors approves the underwriting strategy which is set out in an annual business plan and management is responsible for the attainment of the established objectives.

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24. Insurance risk management (cont’d)

(a) Overview (cont’d):

Reinsurance strategy:

The company reinsures a portion of the risks it underwrites in order to protect capital resources and to limit its exposure to variations in the projected frequency and severity of losses.

Ceded reinsurance includes credit risk, and the company monitors the financial condition of reinsurers on an ongoing basis and reviews its reinsurance arrangements periodically. The board of directors is responsible for setting the minimum security criteria for accepting reinsurance and monitoring the purchase of reinsurance against those criteria. They also monitor its adequacy on an ongoing basis. Credit risk on reinsurance is addressed in more detail in note 25(a).

(b) Terms and conditions of general insurance contracts:

The table below provides an overview of the terms and conditions of general insurance contracts written by the company and the key factors upon which the timing and uncertainty of future cash flows of these contracts depend.

Type of contract Terms and conditions

Key factors affecting future cash flows

Liability Under these contracts,

compensation is paid for injury suffered by individuals, including employees or members of the public. The main liability exposures are in relation to bodily injury, and environmental injury.

The timing of claim reporting and settlement is a function of factors such as the nature of the coverage and the policy provisions.

The majority of bodily injury claims have a relatively short tail and are settled in full within four years. In general, these contracts involve greater estimation uncertainty.

Property Property insurance indemnifies, subject to any limits or excesses, the policyholder against the loss or damage to their own material property and business interruption arising from this damage.

The risk on any policy varies according to many factors such as location, safety measures in place and the age of the property.

The event giving rise to a claim for damage to buildings or contents usually occurs suddenly (as for fire and burglary) and the cause is easily determinable. Therefore, claims are generally notified promptly and can be settled without delay.

The cost of repairing, rebuilding or replacement of assets and/or contents and the time taken to restart or resume operations to original levels for business interruption losses are the key factors influencing the level of claims under these policies.

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24. Insurance risk management (cont’d)

(b) Terms and conditions of general insurance contracts (cont’d):

Motor Motor insurance contracts provide cover in respect of policyholders’ motor vehicles and their liability to third parties in respect of damage to property and injury. The exposure on motor insurance contracts is normally limited to the replacement value of the vehicle and a policy limit in respect of third party damage.

In general, claims reporting lags are minor and claim complexity is relatively low. The frequency of claims is affected by excessive speeding, the condition of the road network, failure by some motorists to obey traffic signals and an overall increase in the incidence of motor vehicle theft. The number of claims is also correlated with economic activity, which also affects the amount of traffic activity.

(c) Risk exposure and concentrations of risk:

Liability contracts:

Risks arising from liability insurance are managed primarily through pricing, product design, risk selection, adopting an appropriate investment strategy, rating and reinsurance. The company monitors and reacts to changes in the general economic and commercial environment in which it operates to ensure that only liability risks which meet its criteria for profitability are underwritten. In pricing contracts, the company makes assumptions that costs will increase in line with the latest available financial and actuarial forecasts.

Property contracts:

The risks relating to property contracts are managed primarily through the pricing process. The company uses strict underwriting criteria to ensure that the risk of losses is acceptable. Furthermore, the company accepts property insurance risks for one year so that each contract can be re-priced on renewal to reflect the continually evolving risk profile.

Motor contracts:

The risks relating to motor contracts are managed primarily through the pricing process. The company monitors and reacts to changes in trends of injury awards, litigation and the frequency of claims.

The following table shows the company’s exposure to general insurance risk (based on the carrying value of insurance provisions at the reporting date) per major category of business. 2015

Engineering/ Liability Property Motor CAR Accident Total $’000 $’000 $’000 $’000 $’000 $’000

Gross 437,036 64,537 2,034,331 7,670 23,583 2,567,157

Net of reinsurance 381,385 5,300 1,972,413 580 6,124 2,365,802

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BRITISH CARIBBEAN INSURANCE COMPANY LIMITED Notes to the Financial Statements (Continued) Years ended December 31, 2015 and December 31, 2014 24. Insurance risk management (cont’d)

(c) Risk exposure and concentrations of risk (cont’d): 2014

Engineering/ Liability Property Motor CAR Accident Total $’000 $’000 $’000 $’000 $’000 $’000

Gross 401,732 87,958 1,737,785 12,975 41,062 2,281,512

Net of reinsurance 325,287 7,139 1,608,914 1,154 13,341 1,955,835

(d) Claims development:

Claims development information is disclosed in order to illustrate the insurance risk inherent in the company. The top part of the table shows how the estimates of total claims for each accident year develop over time. The estimates are increased or decreased as losses are paid and more information becomes known about the severity of unpaid claims. The lower part of the table provides a reconciliation of the total provision included in the statement of financial position and the estimate of cumulative claims. Analysis of net claims development

Accident year 2010 2011 2012 2013 2014 2015 Total $’000 $’000 $’000 $’000 $’000 $’000 $’000

Estimate of cumulative claims at end of accident year 1,480,095 767,978 928,362 883,580 1,003,974 1,331,338 -one year later 1,650,529 908,555 911,619 837,063 1,003,215 - -two years later 1,535,853 950,729 927,962 831,320 - - -three years later 1,631,615 963,342 907,163 - - - -four years later 1,707,094 983,797 - - - - -five years later 1,710,872 - - - - - Estimate of cumulative

claims 1,710,872 983,797 907,163 831,320 1,003,215 1,331,338 6,767,705 Cumulative payments to date (1,325,623) (794,394) (652,617) (561,031) ( 618,387) ( 449,851) (4,401,903) Net outstanding claims

liabilities 385,249 189,403 254,546 270,289 384,828 881,487 2,365,802

25. Financial risk management The company has exposure to the following risks from its use of financial instruments and insurance contracts: Credit risk Liquidity risk Market risk

37

BRITISH CARIBBEAN INSURANCE COMPANY LIMITED Notes to the Financial Statements (Continued) Years ended December 31, 2015 and December 31, 2014 25. Financial risk management (cont’d)

Risk management framework: This note presents information about the company’s exposure to each of the above risks, the company’s objectives, policies and processes for measuring and managing risk, and the company’s management of capital.

The Board of Directors has overall responsibility for the establishment and oversight of the

company’s financial risk management framework. The company’s risk management policies are established to identify and analyse the risks faced by the company, to set appropriate risk limits and controls, and to monitor risks and adherence to established limits. The Chief Financial Officer and Credit Manager are responsible for developing and monitoring the company’s financial risk management policies. These persons report regularly to the Board on their activities. The Audit Committee oversees how management monitors compliance with the company’s management policies and procedures and reviews the adequacy of the risk management framework in relation to the risks faced by the company. The Investment and Risk Management Committee is assisted in these functions by Internal Audit, which undertakes periodic reviews of risk management controls and procedures, the results of which are reported to the Investment and Risk Management Committee. The focus of financial risk management for the company is ensuring that the proceeds from its financial assets are sufficient to fund the obligations arising from its insurance contracts. The goal of the investment management process is to optimise the net of taxes, risk-adjusted investment income and risk-adjusted total return by investing in a diversified portfolio of securities, whilst ensuring that the assets and liabilities are managed on a cash flow and duration basis.

The Management team is responsible for the asset/liability management policy of the company.

This policy details the framework for matching liabilities with appropriate assets, the approaches to be taken when liabilities cannot be matched and the required monitoring processes. The matching of assets and liabilities is also governed by the existing regulatory framework.

The asset/liability matching process is largely influenced by estimates of the timing of

payments. These estimates are revaluated on a regular basis. There are also criteria for ensuring the matching of assets and liabilities as investment markets change.

(a) Credit risk

Credit risk is the risk of financial loss to the company if a counterparty fails to meet its

contractual obligations. The company’s key areas of exposure to credit risk include: • debt securities, and cash and cash equivalents; • amounts due from policyholders; • amounts due from intermediaries; • reinsurers’ share of insurance liabilities; and • amounts due from reinsurers in respect of payments already made to policyholders.

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Notes to the Financial Statements Years ended December 31, 2015 and December 31, 2014

25. Financial risk management (cont’d)

(a) Credit risk (cont’d)

The nature of the company’s exposure to credit risk and its objectives, policies and processes for managing credit risk have not changed significantly from the prior period.

(i) Management of credit risk

The company manages its credit risk in respect of debt securities by placing limits on its exposure to a single counterparty, by reference to the credit rating of the counterparty. The company has a policy of investing only in high quality corporate bonds and government issued debts.

Its exposure to individual policyholders and groups of policyholders is monitored as part of its credit control process. Financial analyses are conducted for significant exposures to individual policyholders or homogenous groups of policyholders. All intermediaries must meet minimum requirements that are established and enforced by the company’s management. The credit ratings and payment histories of intermediaries are monitored on a regular basis. The company also operates a policy to manage its reinsurance counterparty exposures. The company assesses the credit worthiness of all reinsurers by reviewing public rating information and from internal investigations. The impact of reinsurer default is measured regularly and managed accordingly.

Exposure to credit risk 2015 AA A Not rated Total $’000 $’000 $’000 $’000

Financial assets: Carrying amount - - 6,284,859 6,284,859

Reinsurance assets (excluding unearned premiums):

Neither past due nor impaired 49,332 152,023 - 201,355 Insurance and other receivables:

Neither past due nor impaired - - 215,667 215,667 Past due but not impaired - - 189,286 189,286 Individually impaired - - 83,933 83,933

Gross amount - - 488,886 488,886 Allowance for specific impairment - - ( 83,933) ( 83,933)

Carrying amount [note 25(a)(iii)] - - 404,953 404,953

Due from related company: Neither past due nor impaired - - 35,607 35,607

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(a) Credit risk (cont’d) (i) Management of credit risk (cont’d)

Exposure to credit risk (cont’d)

2014 AA A Not rated Total $’000 $’000 $’000 $’000

Financial assets: Carrying amount - - 5,172,995 5,172,995

Reinsurance assets

(excluding unearned premiums): Neither past due nor impaired 122,943 202,734 - 325,677 Insurance and other receivables:

Neither past due nor impaired - - 159,802 159,802 Past due but not impaired - - 216,968 216,968 Individually impaired - - 88,214 88,214

Gross amount - - 464,984 464,984 Allowance for specific impairment - - ( 88,214) ( 88,214)

Carrying amount [note 25(a)(iii)] - - 376,770 376,770 Due from related company: Neither past due nor impaired - - 30,493 30,493

The carrying amounts of financial assets and cash and cash equivalents do not include any assets that are either past due or impaired. The company has no financial assets or reinsurance assets that would be past due or impaired whose terms have been renegotiated. The company does not hold any collateral as security or any credit enhancements, (such as guarantees, credit derivatives and netting arrangements that do not qualify for offset).

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(ii) Concentration of credit risk for insurance and other receivables

The specific concentration of risk from counterparties where receivables for any one counterparty or group of connected counterparties is $10 million or more at the year end is as follows:

2015 2014 $’000 $’000

Allied Insurance Brokers Limited 13,022 36,713 Assurance Brokers Limited 13,218 14,459 CGM Gallagher Insurance Brokers Jamaica Limited 46,909 41,523 Covenant Insurance Brokers Limited 13,659 16,301 Fraser, Fontaine and Kong Insurance Brokers Limited 33,371 14,701 G. Desmond Mair Insurance Brokers Limited - 12,544 Jamaica Cooperative Insurance Agency 19,959 12,287 JMMB Insurance Brokers Limited - 11,111 Marathon Insurance Brokers Limited - 11,171 National Property and General Insurance Brokers Limited 24,786 13,872 Thwaites, Finson Sharpe Insurance Brokers Limited - 13,048

164,924 197,730

(iii) Aged analysis

The company has insurance and other receivables that are past due but not all impaired at the reporting date (as indicated by the overall credit risk exposure analysis). Management believes that impairment of these receivables is not appropriate on the based on stage of collection of amounts owed to the company. An aged analysis of the carrying amounts of insurance and other receivables is presented below.

2015 More 0 to 45 46 to 60 61-90 than 90 days days days days Total

$’000 $’000 $’000 $’000 $’000 Receivable arising from

insurance agents and brokers 40,764 35,432 51,425 166,465 294,086 Insurance premium financing 71,337 - - 5,721 77,058 Other receivables 103,566 - - 14,176 117,742 Less: Allowance for impairment - - - ( 83,933) ( 83,933)

Carrying amount [Note 25 (a)(i)] 215,667 35,432 51,425 102,429 404,953

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(iii) Aged analysis (cont’d)

2014 More 0 to 45 46 to 60 61-90 than 90 days days days days Total

$’000 $’000 $’000 $’000 $’000 Receivable arising from

insurance agents and brokers 19,601 41,157 91,138 150,264 302,160 Insurance premium financing 53,934 - - - 53,934 Other receivables 86,267 - - 22,623 108,890 Less: Allowance for impairment - - - (88,214) ( 88,214)

Carrying amount [Note 25 (a)(i)] 159,802 41,157 91,138 84,673 376,770

(iv) Assets that are individually impaired The analysis of overall credit risk exposure indicates that the company has

insurance and other receivables that are impaired at the reporting date. The assets that are individually impaired aggregating $83,933,000 (2014: $88,214,000) have been assessed after considering information such as historical payment pattern. The allowance for impairment for individually impaired premiums receivable is calculated net of commission and reinsurance.

(b) Liquidity risk

Liquidity risk is the risk that the company will encounter difficulty in meeting obligations from its financial and insurance liabilities. The company is exposed to daily calls on its available cash resources mainly from claims arising from insurance contracts. Liquidity risk may arise from a number of potential areas, such as a duration mismatch between assets and liabilities and unexpectedly high levels of claims. The nature of the company’s exposures to liquidity risk and its objectives, policies and processes for managing liquidity risk have not changed significantly from the prior year.

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(b) Liquidity risk (cont’d)

Management of liquidity risk

The company’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to its reputation. Consequently, the company invests in marketable securities that can be readily realised as its obligations under insurance contracts fall due, and in the event of reasonably foreseeable abnormal circumstances. The company also manages this risk by keeping a substantial portion of its financial assets in liquid form, in accordance with regulatory guidelines. The company is subject to a liquidity limit imposed by the Financial Services Commission (FSC). The key measure used for assessing liquidity risk is the liquid assets (as defined) to total liabilities ratio. The liquid assets to total liabilities ratio at the end of the year is 93% (2014: 94%). The FSC standard liquid assets to total liabilities ratio is 95%.

An analysis of the contractual maturities of the company’s financial and insurance

contract liabilities is presented below. The analysis provided is by estimating timing of the amounts recognised in the statement of financial position.

2015 Contractual undiscounted cash flows Total Less Carrying cash than 1-2 2-5 5-10 Amount outflow 1 year years years years $’000 $’000 $’000 $’000 $’000 $’000 Financial liabilities: Bank overdraft 70,041 70,041 70,041 - - - Insurance and other payable 702,656 702,656 702,656 - - - Due to parent company 426 426 426 - - - Total financial liabilities 773,123 773,123 773,123 - - -

Insurance contract liabilities: Claims liabilities 2,567,157 2,567,157 1,382,790 307,410 492,250 384,707

3,340,280 3,340,280 2,155,913 307,410 492,250 384,707

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(b) Liquidity risk (cont’d)

Management of liquidity risk (cont’d)

2014 Contractual undiscounted cash flows Total Less Carrying cash than 1-2 2-5 5-10 Amount outflow 1 year years years years $’000 $’000 $’000 $’000 $’000 $’000 Financial liabilities: Bank overdraft 55,776 55,776 55,776 - - - Insurance and other payables 468,650 468,650 468,650 - - - Due to parent company 1,514 1,514 1,514 - - - Total financial liabilities 525,940 525,940 525,940 - - -

Insurance contract liabilities: Claims liabilities 2,281,512 2,281,512 1,263,358 383,320 411,311 223,523

2,807,452 2,807,452 1,789,298 383,320 411,311 223,523 (c) Market risk Market risk is the risk that changes in market prices, such as interest rate, foreign

exchange rates and equity prices will affect the value of the company’s assets, the amount of its liabilities and/or the company’s income. Market risk arises in the company due to fluctuations in the value of liabilities and the value of investments held. The company is exposed to market risk on all of its financial assets.

The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return on risk. The nature of the company’s exposures to market risks and its objectives, policies and processes for managing credit risk have not changed significantly from the prior period. Management of market risk The Investment Committee manages market risks in accordance with its asset/liability management framework. The Committee reports regularly to the Board of Directors on its activities. For each of the major components of market risk the company has policies and procedures in place which detail how each risk should be managed and monitored. The management of each of these major components of major risk and the exposure of the company at the reporting date to each major risk are addressed below.

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(c) Market risk (cont’d)

(i) Interest rate risk

Interest rate risk arises primarily from the company’s investments. The company manages its interest rate risk by matching, where possible, the duration and profile of assets and liabilities to minimise the impact of mismatches between the value of assets and liabilities from interest rate movements.

Interest bearing financial assets are primarily represented by long term investments, which have been contracted at fixed and floating interest rates for the duration of the term.

The nature of the company’s exposures to interest rate risk and its objectives, policies and processes for managing interest rate risk have not changed significantly from the prior period.

At the reporting date the interest profile of the company’s interest-bearing financial instruments was:

Carrying amount 2015 2014 $’000 $’000

Fixed rate instruments Financial assets 3,248,386 3,277,702

Variable rate instruments Financial assets 1,203,880 1,357,253

Fair value sensitivity analysis for fixed rate instruments

The company does not account for any fixed rate financial assets and liabilities at fair value through profit or loss. Therefore, a change in interest rates at the reporting date would not affect fair value changes in profit before tax.

An increase or decrease in interest rates at the reporting date would have

decreased/(increased) equity as outlined below. This analysis assumes that all other variables, in particular foreign currency rates, remain constant. The analysis is performed on the same basis for 2014.

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(i) Interest rate risk (cont’d) Sensitivity Effect on Equity Increase Decrease Increase Decrease $’000 $’000

December 31, 2015 Fixed rate instruments – J$ 1% 1.5% 4,100 ( 5,139)

– US$ 1% 0.5% 50,409 (26,458)

December 31, 2014 Fixed rate instruments – J$ 2.5% 1% 18,165 ( 7,668)

– US$ 2% 0.5% 100,100 (26,945) Cash flow sensitivity analysis for variable rate instruments

A 1% (2014: 2.5%) increase and a 1.5% (2014: 1%) decrease in interest rates at the reporting date would have increased/(decreased) profit or loss before tax by the amounts shown below. This analysis assumes that all other variables, in particular foreign currency rates, remain constant. The analysis is performed on the same basis for 2014.

Effect on profit or loss Increase Decrease $’000 $’000

2015 Variable rate instruments – J$ 12,039 (18,058) 2014 Variable rate instruments – J$ 33,391 (13,573)

(ii) Currency risk Currency risk is the risk that the market value of or cash flows from financial instruments will vary because of exchange rate fluctuations.

The company incurs foreign currency risk primarily on insurance and reinsurance contracts and investments that are denominated in a currency other than the Jamaica dollar. Such exposure comprises the monetary assets and liabilities of the company that are not denominated in that currency. The principal foreign currency risk of the company is denominated in United States dollars (US$).

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(ii) Currency risk (cont’d)

At the reporting date, the company’s exposure to foreign currency risk is as follows:

2015 2014 Foreign currency assets: US$’000 US$’000

Investments 11,335 10,672 Premium receivable 202 576 Cash and cash equivalents 1,202 1,038 Interest receivable 252 119

12,991 12,405

Foreign currency liabilities:

Accounts payable 556 508 Commission payable 84 118

640 626

Net foreign currency assets 12,351 11,779

Exchange rates for the US dollar, in terms of Jamaica dollars were as follows:

At December 31, 2015: $119.64 At December 31, 2014: $114.12

Sensitivity analysis A 1% (2014: 1%) strengthening of the Jamaica dollar against the United States dollar at December 31, would have decreased the profit before tax for the year by $15 million (2014: $13 million). An 8% (2014: 10%) weakening of the Jamaica dollar against the United States dollar at December 31, would have increased the profit before tax for the year by $118 million (2014: $135 million).

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(iii) Equity price risk

Equity price risk arises from available-for-sale equity securities and unit trust investments held by the company as part of its investment portfolio. Management monitors the mix of debt and equity securities in its investment portfolio based on market expectations. The primary goal of the company’s investment strategy is to maximise investment returns. A 20% (2014: 10%) increase or decrease in the bid price at the reporting date would cause an increase or an equal decrease respectively in equity of $113 million (2014: $32 million).

26. Operational risk

Operational risk is the risk of direct or indirect loss arising from a wide variety of causes associated with the company’s processes, personnel, technology and infrastructure, and from external factors other than financial risks such as those arising from legal and regulatory requirements and generally accepted standards of corporate behaviour. The company’s objective is to manage operational risk so as to balance the avoidance of financial losses and damage to its reputation with overall cost effectiveness and to avoid control procedures that restrict initiative and creativity. The primary responsibility for the development and implementation of controls to address operational risk is assigned to senior management within each department. The Audit Committee monitors each department to ensure compliance with the company’s internal control procedures.

27. Capital risk management

Capital risk is the risk that the company fails to comply with mandated regulatory requirements, resulting in a breach of its minimum asset ratios and the possible suspension or loss of its financial institution license (see note 2). The company’s objectives when managing capital, which is a broader concept than the ‘equity’ on the face of the statements of financial position, are:

(i) To comply with the capital requirements set by the regulators of the insurance

industry.

(ii) To safeguard the company’s ability to continue as a going concern so that it can continue to provide returns for stockholders and benefits to other stakeholders; and

(iii) To maintain a strong capital base to support the development of its business.

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27. Capital risk management (cont’d)

Capital adequacy is managed by the company’s management. It is calculated by management, certified by the Appointed Actuary and reviewed by executive management, the audit committee and the board of directors. In addition, the company seeks to maintain internal capital adequacy ratios at levels higher than the regulatory requirements. To assist in evaluating the current business and strategic opportunities, the company currently uses the Minimum Capital Test (MCT) as stipulated by the insurance regulations. The regulator requires general insurance companies to achieve a minimum Prescribed Capital Ratio of 250% (2014: 250%). At December 31, 2015, the company’s capital ratio was 271% (2014: 266%).

28. Fair value of financial instruments

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Where quoted market prices are not available, the fair values of these instruments have been determined using a generally accepted alternative method.

The following methods and assumptions were used to estimate the fair value of each class of financial instrument for which it is practicable to estimate that value. Financial instrument Method

Government of Jamaica securities Discounting future cash flows of these securities at the estimated reporting date using yields published by a broker. Where prices are not available fair value is assumed to approximate amortised cost.

Government of Jamaica US$ Global bonds Prices of bonds at reporting date as quoted by broker/dealer, where available.

Cash equivalents, resale agreements, insurance and other receivables, insurance and other payables, reinsurance assets and insurance contract provisions.

Quoted equities and unitised funds

Assumed to approximate their carrying values, due to their short-term nature.

Bid prices published by the Jamaica Stock Exchange and fund managers respectively.

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BRITISH CARIBBEAN INSURANCE COMPANY LIMITED Notes to the Financial Statements (Continued) Years ended December 31, 2015 and December 31, 2014 28. Fair value of financial instruments (cont’d)

Fair values hierarchy IFRS 7 specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. These two types of inputs have created the following fair value hierarchy: Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities. This

level includes equity securities and debt instruments listed on exchanges. Level 2 – 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). This includes financial assets with fair values based on broker quotes and investments in funds with fair values obtained via fund managers.

Level 3 – Inputs for the asset or liability that are not based on observable market data

(unobservable inputs). This level includes equity investments and debt instruments with significant unobservable components. This hierarchy requires the use of observable market data when available.

The tables below analyses financial instruments carried at fair value (which are classified as available for sale) and those not carried at fair value (which are classified as loans and receivables) but for which fair value has been disclosed. The fair value of corporate bonds, mortgage loans and unquoted investments has not been estimated as there is no practical means of estimating the fair value.

The fair value of certain short-term financial instruments such as cash equivalents, premiums and other receivables and accounts payable was determined to approximate their carrying value and are not disclosed in the tables below. Carrying Fair value amount Level 1 Level 2 Level 3 Total $’000 $’000 $’000 $’000 $’000

2015 Available for sale financial assets: GOJ securities 1,331,041 - 1,331,041 - 1,331,041 Other bonds 895 - - 895 895 Quoted equities 206,091 206,091 - - 206,091 Unitised funds 358,969 - 358,969 - 358,969

1,896,996 206,091 1,690,010 895 1,896,996

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BRITISH CARIBBEAN INSURANCE COMPANY LIMITED Notes to the Financial Statements (Continued) Years ended December 31, 2015 and December 31, 2014 28. Fair value of financial instruments (cont’d)

Fair values hierarchy (cont’d) Carrying Fair value amount Level 1 Level 2 Level 3 Total $’000 $’000 $’000 $’000 $’000

2015 Loans and receivables: GOJ securities 815,110 - 815,110 - 815,110

2014 Available for sale financial assets: GOJ securities 1,490,870 - 1,490,870 - 1,490,870 Other bonds 895 - - 895 895 Quoted equities 128,843 128,843 - - 128,843 Unitised funds 188,704 - 188,704 - 188,704

1,809,312 128,843 1,679,574 895 1,809,312

Loans and receivables: GOJ securities 893,305 - 893,305 - 893,305

29. Dividends declared Preference dividends are paid gross and are treated as a charge before taxation in accordance with the Income Tax Act.

2015 2014 $’000 $’000

Ordinary dividends 145,985,401 @ $2.02075 (2014: $1.54125) per share 295,000 225,000 Preference dividends 72,992,701 @ 40 cents (2014: 40 cents) per share 29,197 29,197

324,197 254,197

british caribbean insurance company limited financial

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