Royal Exchange Plc - Proshare

Royal Exchange Plc (RC: 6752) Unaudited Financial Statements For the 3rd Quarter ended 30 September 2016

Royal Exchange Plc Unaudited Financial Statements for the Quarter Ended 30th September 2016

Table of Contents Corporate information

1

Consolidated Statements of Financial Position

2

Consolidated Statement of Profit or Loss and Other Comprehensive Income

3

Statement of Changes in Equity Consolidated Statements of Cashflows Notes to the financial statements

4-5 6 7 - 45

Royal Exchange Plc Unaudited Financial Statements for the Quarter Ended 30th September 2016

CORPORATE INFORMATION Directors: Chairman

Kenneth Ezenwani Odogwu

Non-Executive Directors:

Chief Anthony Ikemefuna Idigbe (SAN) Mr. Daniel Maegerle Chief Uwadi Okpa-Obaji Alhaji Ahmed Rufai Mohammed Alhaji Rabiu Muhammad Gwarzo, OON Mr. Adeyinka Ojora

Group Managing Director

Alhaji Auwalu Muktari

Executive Director Independent Director Company Secretary

Ms. Sheila Ezeuko

Registered Office

31, Marina, Lagos

Auditors

KPMG Professional Services

Bankers:

Access Bank Diamond Bank Plc Ecobank FCMB Plc First Bank of Nigeria Ltd Guaranty Trust Bank Plc Heritage Bank Stanbic IBTC Bank Plc Keystone Bank Skye Bank Plc Royal Exchange Microfinance Bank Sterling Bank Plc UBA UBN Plc Wema Bank Plc Zenith Bank

Registrars

Cardinal Stone Registrars Limited, 358, Herbert Macauley Street, Yaba, Lagos.

RC No

6752

1

Royal Exchange Plc Unaudited Financial Statements for the Quarter ended 30th September 2016

Consolidated Statements of Financial Position For the 3rd Quarter ended 30th September 2016

In thousands of Naira ASSETS Cash and cash equivalents Loans and advances to customers Advances under finance lease Investment securities Investment in subsidiaries Trade receivables Reinsurance assets Deferred acqusition cost Other receivables and prepayments Investment in associates Investment properties Property and equipment Intangible assets Employees retirement benefit asset (Net) Statutory deposits Deferred tax assets Assets classified as held for sale

Note 5 6 7 8 9 10 11 12 13 14 15 17 18 19(a) 20 21 16

Total assets LIABILITIES Borrowings Deferred Income Trade payables Other liabilities Depositors' funds Insurance contract Liabilities Investment contract Liabilities Current income tax liabilities Employees benefit liability Deferred tax liabilities

29 22 23 24 25 26 27 28(b) 19(a) 21

Total liabilities EQUITY Share capital Share premium Contingency reserve Treasury shares Retained earnings Other component of equity Total equity Total equity & liabilities

30 31 32 33 34 35( c )

Unaudited Group 30-Sep-16

Audited Group 31-Dec-15

Unaudited Company 30-Sep-16

Audited Company 31-Dec-15

1,149,649 1,016,963 148,775 3,579,389 693,350 2,918,419 376,234 1,922,415 274,088 6,666,143 2,333,673 36,056 127,603 555,000 433,333

7,035,842 1,278,434 123,269 3,448,883 528,399 1,889,750 382,490 387,396 274,088 6,807,743 2,219,584 39,088 154,016 555,000 427,621

152,988 17,935 8,660,464 95,716 65,773 -

105,452 17,935 8,660,464 79,119 26,600 -

973,639

973,639

23,204,729

26,525,242

8,992,875

8,889,570

875,703 185,454 122,149 1,750,295 1,255,940 10,258,632 346,841 507,716 43,870

1,020,083 122,169 5,387,629 1,469,737 1,196,324 8,263,204 336,271 488,713 570,008

852,353 1,619,269 255,109 12,934

872,257 1,199,985 255,109 43,329

244,868

244,868

-

-

15,591,468

19,099,006

2,739,665

2,370,680

2,572,685 2,690,936 1,682,111 (500,000) 761,907 405,622

2,572,685 2,690,936 1,422,919 (500,000) 834,374 405,322

2,572,685 2,690,936 989,169 420

2,572,685 2,690,936 1,254,849 420

7,613,261

7,426,236

6,253,210

6,518,890

23,204,729

26,525,242

8,992,875

8,889,570

The financial statements was approved by the board of directors on 17 October, 2016 and signed on its behalf by:

Auwalu Muktari Group Managing Director (FRC/2013/IODN/00000004058)

Francis Okoli Chief Financial Officer (FRC/2013/ICAN/00000002399)

2


Consolidated Statement of Profit or Loss and Other Comprehensive Income For the 3rd Quarter ended 30th September 2016 Unaudited Group

Unaudited Group

Unaudited Company

Unaudited Company

30-Sep-16 Y-T-D

30-Sep-15

30-Sep-16 Y-T-D

30-Sep-15

10,821,379 (1,433,331) 9,388,048

8,873,709 (681,233) 8,192,476

-

-

(3,232,714)

(2,052,602)

-

-

6,155,334

6,139,874

-

-

357,019

307,661

-

-

6,512,353

6,447,535

-

-

38 39

(3,552,115) 1,028,775

(3,115,648) 681,727

-

-

40

(2,523,340) (2,008,919)

(2,433,921) (2,062,245)

-

-

(4,532,259)

(4,496,166)

-

-

1,980,094

1,951,369

-

-

214,105 295,896 (113,668) (68,710) 359,329

170,473 393,711 (219,413) (55,542) 115,697

162,709

131,000 170,783

2,667,046

2,356,295

162,709

301,783

579 (2,393,030)

46,538 (2,291,492)

(428,389)

(370,365)

(2,392,451)

(2,244,954)

(428,389)

(370,365)

Profit before tax

274,595

111,341

(265,680)

(68,582)

Minimum tax Income taxes

(87,870)

(35,629)

-

-

186,725

75,712

(265,680)

(68,582)

Items that will never be reclassified subsequently to profit or loss: Revaluation surplus on PPE Net actuarial gains/(losses) of defined benefit obligations Tax effects on other comprehensive income

-

(4,890)

-

-

Items that are or may be reclassified subsequently to profit or loss: Changes in fair value of AFS investments

-

-

-

-

186,725

(4,890) 70,822

(265,680)

(68,582)

4

1

(5)

(1)

In thousands of Naira

Note

Gross premium written: Unearned premium Gross premium income Reinsurance expenses

36

Net premium income Fees and commission income

37

Net underwriting income Insurance claims and benefits incurred Insurance claims and benefits incurred - recoverable from reinsurers Net claims expenses Changes in insurance contract liabilities Underwriting expenses Total underwriting expenses Underwriting profit Net Interest Income Investment and other income Net fair value gain or loss on financial assets Charge/write-back of impairment allowance Other operating income

41 42 43 44 45

Net Income Foreign exchange gains/(losses) Management expenses

46 47

Total expenses

28

Profit after taxation Other comprehensive income, net of tax

Total other comprehensive income, net of tax Total comprehensive income for the period Total comprehensive income attributable to shareholders Earnings per share - Basic and diluted (kobo)

48

The statement of significant accounting policies and the accompanying notes form an integral part of these financial statements.

3


Statement of Changes in Equity As at 30th September 2016 Group In thousands of Naira

Other component of equity Share Capital

As at 1 January 2016

2,572,685

Profit for the year Transfer to contingency reserve Transfer to regulatory reserve Other comprehensive income: Changes in fair value of AFS investments Revaluation surplus on PPE Net actuarial gains/losses Tax Effects on other comprehensive income Total comprehensive income Transactions within equity: Dividend paid As at 30 September 2016

Share Premium

2,690,936

-

-

-

-

2,572,685 2,572,685

2,690,936 2,690,936

Contingency Reserve

1,422,919 259,192 -

Retained Earnings

834,374 186,725 (259,192) -

1,682,111

761,907

1,682,111

Treasury Shares

761,907

(500,000)

Regulatory risk reserve

298,229

Actuarial Gain/Loss Reserve

Fair value Other Component Total Equity reserve of Equity (Total)

41,753

65,340

405,322 -

7,426,236

-

-

-

-

-

-

-

300 -

300 -

300 -

41,753

65,640

405,622

7,613,261

-

-

-

-

298,229

41,753

65,640

405,622

(500,000) (500,000)

298,229

186,725 -

7,613,261

Statement of Changes in Equity as at 30 September 2015 Group In thousands of Naira

Other component of equity Share Capital

Share Premium

As at 1 January 2015 Profit for the year Transfer to Contingency Reserve Transfer to Regulatory Reserve Other Comprehensive Income: Changes in fair value of AFS Investments Revaluation Surplus on PPE Net Actuarial Gains/Losses Tax Effects on Other Comprehensive Income

2,572,685 -

Total comprehensive income Transactions within Equity: Dividend paid As at 30 September 2015

2,572,685

-

2,572,685

2,690,936 2,690,936 2,690,936

Contingency Reserve

1,176,375 202,599 1,378,974 1,378,974

Retained Earnings

Treasury Shares

2,719,243 75,712 (202,599) 2,592,356 (102,907) 2,489,449

(500,000) (500,000) (500,000)

Regulatory risk reserve

123,580 123,580 123,580

Actuarial Gain/Loss Reserve 109,485 (4,890) 104,595 104,595

Fair value Other Component Total Equity reserve of Equity (Total)

53,122 -

-

286,187 (4,890) -

8,945,426 75,712 (4,890) -

53,122

281,297

9,016,248

53,122

281,297

(102,907) 8,913,341

4


Statement of Changes in Equity As at 30th September 2016 Company Other Component of Equity Share Capital

Share Premium


Retained Earnings

In thousands of Naira As at 1 January 2016

2,572,685

2,690,936

1,377,883

-

-

(265,680) -

2,572,685

2,690,936

1,112,203

-

-

-

2,572,685

2,690,936

1,112,203

Profit for the year Net actuarial gains/losses Total comprehensive income Transactions within equity: Dividend paid As at 30 September 2016

-

-

-

Other Component of Equity (Total)

Total Equity

423

423

-

-

6,641,927 (265,680) -

423

423

6,376,247

-

-

-

423

423

6,376,247

Statement of Changes in Equity as at 30 September 2015 Company Other Component of Equity Share Capital

Share Premium


Retained Earnings

In thousands of Naira As at 1 January 2015 Loss for the year Net actuarial gains/losses Total comprehensive income Transactions within equity: Dividend paid As at 30 September 2015

2,572,685

2,690,936

1,549,372

-

-

(68,582) -

2,572,685

2,690,936

1,480,790

-

-

(102,907)

2,572,685

2,690,936

1,377,883

-

-

-

Other Component of Equity (Total)

Total Equity

423

423

-

-

6,813,416 (68,582) -

423

423

6,744,834

-

-

(102,907)

423

423

6,641,927

5


Consolidated Statements of Cashflows For the 3rd Quarter ended 30 September 2016 In thousands of Naira Notes Profit for the year Add: Minimum tax Add: Income tax Profit before taxes Adjustments for: Impairment allowance on loans and advances to customers Impairment allowance on advance under finance lease Impairment allowance on premium receivables Write back of impairment on other receivables Fair value gain on investment properties Depreciation on property and equipment Amortization of intangible assets Loss/(Profit) on disposal of property and equipment Dividend income on equity investments (AFS &FVTPL) Rental income Interest income Interest expense on borrowings Interest expense on depositors funds Foreign exchange (gains)/losses Fair value gain/(loss) on FVTPL investment securities

28(a)

Group 30-Sep-15

Company 30-Sep-15

75,712

(265,680)

(68,581)

87,870 274,595

35,629 111,341

(265,680)

(68,581)

21,806 65,237 (18,333) 194,329 10,609

10,155

6,748

5,318 -

(250,207)

(61,833)

(16,597) 419,284 -

(8,028) 366,182 -

1,995,428 (526,138) (6,160,170)

14,215 8,793 (268,954) (296,046) (73,482) (548,150) 45,205 (4,912,923) 660,760 82,234 45,133 709,071 546,765 14,324 (3,684,906)

152,480

296,321

(68,867)

(102,627)

(6,229,037)

(3,787,533)

(30,396) 122,084

(13,100) 283,221

Group 30-Sep-16

Group 30-Sep-15

Company 30-Sep-16

Company 31-Dec-15

(329,884) (7,577) 135,000 96,859 237,160 (44,388) 22,194 38,700 214,105 362,169

(209,436) (2,950) 780,726 18,551

(54,645) (54,645)

(18,871) (18,871)

(19,904)

(19,904)

(163,036) 102,907 (60,129)

(19,904)

(163,036) (102,907) (265,943)

7,035,842

6,606,762

105,452

36,411

579 (5,886,772)

(4,547,890)

47,536

(1,593)

1,149,649

2,058,872

152,988

34,818

45 41

(38,700) (214,105)

14,587 1,936 51,255 (7,266) 193,771 13,261 4,599 (10,209) (15,690) (288,849)

46 43

(579) (25,334) 269,525

219,413 288,149

44 44 44 17(a) 18

261,471 (25,506) (164,951) (1,028,669) 6,256 (1,535,019) 63,285 (5,265,480) (280,558) 59,616 10,570

28(b)

Cash flows from investing activities: In thousands of Naira Notes Purchases of property and equipment Purchases of intangible assets Proceed from disposal of investment properties Proceed from disposal of property and equipment Proceed from redemption/disposal of investment securities Purchase of investment securities Dividend received Rent received Net interest received Net cash provided by investing activities

Company 30-Sep-16

186,725

Changes in working capital: Loans and advances to customers Advance under finance lease Trade receivables Re-insurance asset Deferred acquisition cost Other receivables and prepayment Deferred income Trade and other payables Other liabilities Depositors' funds Investment contract liabilities Changes in unearned premium Changes in provision for outstanding claims Changes in employee retirement benefits

Income tax paid Contribution to employees retirement benefits Employee benefits paid Net cash provided by operating activities

Group 30-Sep-16

17(a) 18 17(a)

45 41

(1,601,867) 10,209 15,690 288,849 (700,228)

-

Cash flows from financing activities: Repayment of borrowings Dividend paid Net used in financing activities Cash and cash equivalent at beginning of year Effect of exchange rate flunctuations on cash and cash equivalents Net increase in cash and cash equivalent Cash and cash equivalent at end of year

(19,904)

6


Group information and statement of accounting policies 1 Reporting Entity The Company was incorporated as Royal Exchange Assurance (Nigeria) Plc, a private limited liability Company on 29 December 1969. It was converted to a public limited Company on 15 July 1989 and then listed on the Nigerian Stock Exchange on 3 December 1990. On 28 July 2008, the Company changed its name to Royal Exchange Plc and transferred its life and general insurance businesses to newly incorporated subsidiaries, Royal Exchange General Insurance Company Limited and Royal Exchange Prudential Life Plc.

The Group currently comprises Royal Exchange Plc (Parent Entity), Royal Exchange General Insurance Company Limited, Royal Exchange Prudential Life Assurance Plc, Royal Exchange Finance and Asset Management Ltd, Royal Exchange Micro-Finance Bank Limited and Royal Exchange Healthcare Limited. The principal activities of the Group are general and health insurance, life assurance, asset management, credit financing and microfinance banking. The financial statements of the Group are as at and for the year ended 30 September, 2016. The registered office address of the Group is New Africa House, 31, Marina, Lagos, Nigeria. 2 Basis of preparation (a) Statement of compliance with International Financial Reporting Standards These financial statements for the quarter ended 30 September 2016 have been prepared in accordance with, and comply with the, International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB). The financial statements comply with the Companies and Allied Matters Act of Nigeria, the Financial Reporting Council of Nigeria Act 2011, the Insurance Act of Nigeria and National Insurance Commission of Nigeria ("NAICOM") circulars. The financial statements include the statement of financial position, statement of profit or loss and other comprehensive income, the statement of cash flows, the statement of changes in equity and the notes to the account. (b) Functional and presentation currency The financial statement is presented in Naira, which is the Group's functional currency. Financial information presented in Naira has been rounded to the nearest thousands except where otherwise indicated.

(c) Basis of measurement These consolidated and seperate financial statements have been prepared on a historical cost basis except for the following items: (i) Carried at fair value: • financial instruments at fair value through profit or loss; • available-for-sale investment securities; • investment properties; • plan assets for defined benefits obligations (ii) Carried at amortised cost: • loans and receivables; • held to maturity financial instruments; • financial liabilities at amortised cost; (iii) Carried at a different measurement basis • Retirement benefit obligations are measured in terms of the projected unit credit method; • Insurance contract liabilities are measured using a gross premium valuation approach for indivdual and group life risk business while discounted cashflows approach are used for measuring annuity and the risk reserve for individual deposit based businesses. (d) Reporting period The financial statements have been prepared for the 9 month period ended 30 September, 2016.

7


(e) Use of estimates and judgment In preparing these financial statements, management has made judgements, estimates and assumptions that affect the application of the Group’s accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to estimates are recognised prospectively. Information about significant areas of estimation uncertainties and critical judgements in applying accounting policies that have the most significant effect on the amounts recognised in the financial statements are disclosed in Note 5. (f) Changes in accounting policies The accounting policies adopted in the preparation of the Group's financial statements are consistent with those followed in the preparation of the financial statements for the quarter ended 30 September 2016, except for changes/amendments highlighted below:

Standards, amendments and interpretations effective during the reporting period Amendments to IAS 19 and the improvement cycles 2010 - 2012 and 2011 - 2013 which became effective in the reporting period from 1st January 2015 do not have any material impact on the accounting policies, financial position or performance of the Group. (g) Standards, amendments and interpretations issued but not yet effective A number of new standards and amendments to standards are effective for annual periods beginning after 1 January 2016, and have not been applied in preparing these financial statements. The Group does not plan to adopt these standards early. (i) Effective for the financial year commencing 1 January 2016 (a) Accounting for Acquisitions of Interests in Joint Operations (Amendments to IFRS 11) The amendments require business combination accounting to be applied to acquisitions of interests in a joint operation that constitutes a business. Business combination accounting also applies to the acquisition of additional interests in a joint operation while the joint operator retains joint control. The additional interest acquired will be measured at fair value. The previously held interest in the joint operation will not be remeasured. As a consequence of these amendments, the Group has ended its accounting policy with effect from 1st January 2016 for acquisitions of interests in a joint operation. The amendments which will apply prospectively has no impact on the financial statements of statements of the Group.

(b) Clarification of Acceptable Methods of Depreciation and Amortisation (Amendments to IAS 16 and IAS 38) The amendments to IAS 16 Properties,Plant and Equipment explicitly state that revenue-based methods of depreciation cannot be used for property, Plant and equipment. The amendments to IAS 38 Intangible Assets introduce a rebuttable presumption that the use of revenue-based amortisation methods for intangible assets is inappropriate. The presumption can be overcome only when revenue and the consumption of the economic benefits of the intangible asset are 'highly correlated; or when the intangible asset is expressed as a measure of revenue. The Group does not apply the revenue based amortisation method for it's intangible assets. Therefore, this amendment has no impact on the Group.

8


(c) Agriculture: Bearer Plants (Amendments to IAS 16 and IAS 41 ) The amendments to IAS 16 and IAS 41 include bearer plants in the scope of IAS 16 Property, Plant and Equipment, because their operation is similar to that of manufacturing. Agriculture requires all biological assets related to agricultural activity to be measured at fair value less costs to sell. The amendments have no impact on the Group as there are no agriculture assets owned by the Group or plans to invest in agriculture.

(d) Equity Method in Separate Financial Statements (Amendments to IAS 27) The amendments allow an entity to apply the equity method in its separate financial statements to account for its investments in subsidiaries, associate and joint ventures. The amendments apply retrospectively. The ammendment is not expected to have any significant impact on the Group.

(e) Sale or Contribution of Assets between an Investor and its associate or Joint Venture (Amendments to IFRS 10 and IAS 28) The amendments require the full gain to be recognised when assets transferred between an investor and its associate or Joint Venture meet the definition of a 'business' under IFRS 3 Business Combinations.Where the assets transferred do not meet the definition of business, a partial gain to the extent of unrelated investors' interests in the associate or joint venture is recognised. The definition of a business is key to determining the extent of the gain to be recognised. The amendments apply prospectively. The amendment is not expected to have any significant impact on the Group. (f) Disclosure Initiative (Amendments to IAS 1) The amendments provide additional guidance on the application of materiality and aggregation when preparing financial statements. The amendments also clarify presentation principles applicable to the order of notes, subtotals presented in the statement of financial position and the statement of profit or loss and other comprehensive income. The Group will adopt amendments in the year ending 31 December 2016

(g) Investment Entities: Applying the Consolidation Exception (Amendments to IFRS 12 and IAS 28) The amendment to IFRS 12 Disclosure of Interest in Other Entities requires an entity that prepares financial statements in which all its subsidiaries are measured at fair value through profit or loss in accordance with IFRS 10 to make disclosures required by IFRS 12 relating to investment entities The amendment to IAS 28 Investment in Associates and Joint Ventures modifies the conditions where an entity need not apply the equity method to its investments in associates or joint ventures to align these to the amended IFRS 10 conditions for not presenting consolidated financial statements.The amendments introduce relief when applying the equity method which permits a non-investor in an associate or joint venture that is an investment entity to retain the fair value through profit or loss measurement applied by the associate or joint venture to its subsidiaries. The amendments apply retrospectively. The amendment is not expected to have any significant impact on the Group.

9


(ii) Effective for the financial year commencing 1 January 2018 (a) IFRS 15 Revenue from contracts with customers This standard replaces IAS 11 Construction Contracts, IAS 18 Revenue, IFRIC 13 Customer Loyalty Programmes, IFRIC 15 Agreements for the Construction of Real Estate, IFRIC 18 Transfer of Assets from Customers and SIC-31 Revenue-Barter of Transactions involving Advertising Services. The standard contains a single model that applies to contracts with customers and two approaches to recognising revenue at a point in time or over time. The model features a contract-based five-step analysis of transactions to determine whether, how much and when revenue is recognised. This new standard will most likely have a significant impact on the Group, which will include a possible change in the timing of when revenue is recognised and the amount of revenue recognised. The Group is currently in the process of performing more detailed assessment of the impact of this standard on the Group. The standard is effective for annual periods beginning on or after 1 January 2018, with early adoption permitted.The Group will adopt the amendments for the year ending 31 December 2018.

(b) IFRS 9 Financial Instruments On 24 July 2014, the IASB issued the final IFRS 9 Financial Instruments Standard, which replaces earlier versions of IFRS 9 and completes the IASB's project to replace IAS 39 Financial Instruments: Recognition and Measurement. This standard will have a significant impact on the Group, which will include changes in the measurement bases of the Group's financial assets to amortised cost, fair value through other comprehensive income or fair value through profit or loss. Even though these measurement categories are similar to IAS 39, the criteria for classification into these categories are significantly different. In addition, the IFRS 9 impairment model has been changed from an "incurred loss" model from IAS 39 to an "expected credit loss" model which is expected to increase the provision of bad debts recognised in the Group. The Group is currently in the process of performing more detailed assessment of the impact of this standard on the Group The standard is effective for annual periods beginning on or after 1 January 2018 with retrospective application, early adoption is permitted.. The Group will adopt the amendments for the year ending 31 December 2018

(iii) Effective for the financial year commencing 1 January 2019 (a) IFRS 16 Leases This standard replaces IAS 17 Leases The standard fundamentally changes the accounting treatment for leases by the lessee. It eliminates the current dual accounting model for leases, which distinguishhes 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 under which the lessor recognizes all major leases on balance sheet. Lessor accounting remains similar to current practice. At commencement of lease period, the lessee will calculate the present value of the lease payments using the interest rate implicit in the lease. The lessee measures the right-of-use of the assets at cost less accumulated depreciation and accumulated impairment losses (if any). The lessee will also adjust the right-to-use asset for any remeasurement differences in the lease liability. The cost includes the lease liability, initial direct costs, prepaid lease payments, estimated costs to dismantle, remove or restore the asset less any lease incentive received.

At each reporting date, a company is expected to reassess its key judgments regarding its lease agreements. The standard is effective for annual periods beginning on or after 1 January 2019, with early adoption permitted for companies that also adopt IFRS 15. The Company will adopt the amendments for the year ending 31 December 2018. Based on preliminary assessment of the Group or Company, the new accounting policies are not expected to have significant impact on the financial statements, except for possibly IFRS 9 and IFRS 15 3 Summary of Significant Accounting Policies Except for the changes explained in Note 2(f) above, the Group consistently applied the following accounting policies to the periods presented in the financial statements

10


(a) Basis of consolidation (i) Business Combination The Group applies IFRS 3 Business Combinations in accounting for business combinations. Business combinations are accounted for using the acquisition method as at the acquisition date, which is the date on which control is transferred to the Group. The consideration transferred in the acquisition is generally measured at fair value, as are the identifiable net assets acquired. Any goodwill that arises is tested annually for impairment. Any gain on bargain purchase is recognised in profit or loss immediately.

The Group measures goodwill at the acquisition date as the total of: - the fair value of the consideration transferred, which is generally measured at fair value; plus - the recognized amount of any non-controlling interests in the acquiree; plus if the business combination is achieved in stages, the fair value of the existing equity interest in the acquiree; less -the net recognised amount (generally fair value) of the identifiable assets acquired and liabilities assumed. Subsequent to initial recognition, goodwill is measured at cost less accumulated impairment losses.The consideration transferred does not include amounts related to the settlement of pre-existing relationships. Such amounts are generally recognised in profit or loss. Transactions costs related to the acquisition, other than those associated with the issue of debt or equity securities, that the Group incurs in connection with a business combination are expensed as incurred. Any contingent consideration payable is measured at fair value at the acquisition date. If the contingent consideration is classified as equity, then it is not re-measured and settlement is accounted for within equity. Otherwise, subsequent changes in the fair value of the contingent consideration are recognised in profit or loss. When share-based payment awards (replacement awards) are required to be exchanged for awards held by the acquiree’s employees(acquiree’s awards) and relate to past services , then all or a portion of the amount of the acquirer’s replacement awards is included in measuring the consideration transferred in the business combination. This determination is based on the market-based value of the replacement awards compared with the market-based value of the acquiree’s awards and the extent to which the replacement awards relate to pre-combination service. (ii) Non-controllling interest Non controlling interest are measured at their proportionate share of the acquiree's identifiable net assets at the acquisition date.Changes in the Groups's interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions. (iii) Subsidiaries Subsidiaries are investees controlled by the Group. The Group ' controls' an investee if it is exposed to, or has rights to, variable returns from its involvement with investee and has the ability to affect those returns through its power over the investee. The Group financial statements incorporates the assets, liabilities and results of; Royal Exchange General Insurance Company Limited, Royal Exchange Prudential Life Plc, Royal Exchange Microfinance Bank, Royal Exchange Healthcare Limited and Royal Exchange Finance and Asset Management Limited. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. (iv) Associates Associates are those entities in which the Group has significant influence, but not control or joint control, over the financial and operating policies. Investments in associates are accounted for using the equity method of accounting. They are initially recognised at cost, which includes transaction costs. The Group’s investment in associates includes goodwill (net of any accumulated impairment loss) identified on acquisition. Subsequent to initial recognition, the Group’s share of its associates’ post-acquisition profits or losses is recognised in the consolidated profit or loss; its share of post-acquisition movements is recognised in other comprehensive income. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. When the Group’s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate.

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Intra-group gains on transactions between the Group and its associates are eliminated to the extent of the Group’s interest in the associates. Intragroup losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. For preparation of consolidated financial statements, equal accounting policies for similar transactions and other events in similar circumstances are used. Dilution gains and losses in associates are recognised in the consolidated profit or loss.

(v) Loss of control When the Group loses control over a subsidiary, the Group derecognizes the assets and liabilities of the subsidiary, any non-controlling interests and the other components of equity related to the subsidiary. Any interest retained in the former subsidiary is measured at fair value when control is lost. (vi) Transaction eliminated on consolidation Intra-group balances and transactions, and any unrealized income and expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. Unrealized gains arising from transactions with equity-accounted investees are eliminated against the investment to the extent of the Group’s interest in the investee. Unrealized losses are eliminated in the same way as unrealized gains, but only to the extent that there is no evidence of impairment.

(b) Foreign currency transactions Transactions in foreign currencies are translated into the functional currency of the Group at the exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are translated into the functional currency at the exchange rate at the reporting date. Non-monetary assets and liabilities that are measured at fair value in a foreign currency are translated into the functional currency at the exchange rate when the fair value was determined. Non-monetary items that are measured based on historical cost in a foreign currency are translated at the exchange rate at the date of the transaction. Foreign currency differences are generally recognised in profit or loss. However, foreign currency differences arising from the translation of the following items are recognised in OCI: • available-for-sale equity investments (except on impairment, in which case foreign currency differences that have been recognised in OCI are reclassified to profit or loss). (c) Cash and Cash Equivalents Cash comprises cash in hand, and demand deposits. Cash equivalents are short-term highly liquid investments that are readily convertible to known amounts of cash and are subject to insignificant risk of changes in their fair value. Cash equivalents comprise investments with original maturities of three months or less and used by the Group to manage its short - term commitments. Subsequent to initial recognition, cash and cash equivalents are carried at amortised cost in the statement of financial position.For the purpose of the statement of cash flows, cash and cash equivalents are net of outstanding overdrafts.

(d) Financial Instruments The classification of the Group’s financial instruments depends on the nature and purpose of the instruments and are determined at the time of initial recognition. (i) Classification of Financial Assets The financial assets have been recognised in the statement of financial position and measured in accordance with their assigned classifications. h Group classifies l ifi its i financial fi i l assets into i h following f ll i categories: i The the • financial assets at fair value through profit or loss (FVTPL), • Available-for-sale' (AFS) financial assets, • Held to maturity and • Loans and receivables Financial Assets at Fair Value through Profit or Loss (FVTPL) Financial instruments are classified at FVTPL when the financial instrument is either held for trading or it is designated as at FVTPL. Financial instruments at FVTPL are stated at fair value.

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Available-for-sale Finanacial assets (AFS) Available-for-sale financial instruments are non-derivatives that are either designated as AFS or are not classified as: (a) loans and receivables; (b) held-to-maturity investments; or (c) financial assets at fair value through profit or loss. Listed redeemable notes held by the Group that are traded in an active market are classified as AFS and are stated at fair value at the end of each reporting period. The Group also has investments in unlisted shares that are not traded in an active market but that are also classified as AFS financial assets. Held to maturity Held-to-maturity financial assets are non-derivative financial assets with fixed or determinable payments and fixed maturities that the Group has the positive intent and ability to hold to maturity, and which are not designated as at fair value through profit or loss or as available-for-sale. Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Loans and receivables are measured at amortized cost using the effective interest method, less any impairment. (ii) Classification of Financial Liabilities A financial liability is classified as at fair value through profit or loss if it is classified as held-for-trading or is designated as such on initial recognition. Directly attributable transaction costs are recognised in profit or loss as incurred. Financial liabilities at fair value through profit or loss are measured at fair value and changes therein, including any interest expense, are recognised in profit or loss. Other financial liabilities are initially measured at fair value less any directly attributable transaction costs. Financial liabilities have been recognised in the statement of financial position and measured in accordance with their assigned classifications.

(iii) Initial recognition and measurement All financial instruments are initially recognized at fair value, which includes directly attributable transaction costs for financial instruments that are not classified as fair value through profit and loss. (iv) Subsequent measurement Subsequent to intial recognition, financial assets are measured either at fair value or amortised cost, depending on their categorization: Financial Assets at Fair Value through Profit or Loss (FVTPL) Financial assets at FVTPL are stated at fair value. Any gains or losses arising on re-measurement are recognized in the statement of profit or loss in the period in which they arise. The net gain or loss recognized in the statement of profit or loss incorporates any dividend or interest earned on the financial asset and is included in the ‘investment income' line item in the Group's profit or loss statement.

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Available-for-sale financial assets (AFS) Available-for-sale financial assets are carried at fair value, with the exception of investments in equity instruments where fair value cannot be reliably determined, which are carried at cost. The fair values for quoted instruments are determined by reference to regulated exchange quoted ruling prices. If quoted market prices are not available, reference is also made to readily and regularly available broker or dealer price quotations. The fair values of unquoted equities and other instruments for which there is no active market, are established using valuation techniques. These include the use of recent arm’s length transactions, reference to the current market value of other instruments that are substantially the same and discounted cash flow analysis. Where the fair value of financial assets is determined using discounted cash flow techniques, estimated future cash flows are based on management’s best estimates and the discount rate used is a market related rate for a similar instrument. Available for sale equity instruments for which fair value cannot be reliably determined are carried at cost less impairment allowance, if any. Impairment losses are recognised in profit or loss and reflected in an allowance account in the statement of financial position. Changes in the fair value of available-for-sale financial assets are recognized in the statement of other comprehensive income as a separate component of equity under the heading of Fair value reserves. When an AFS instrument carried at fair value is disposed of, the cumulative gain or loss previously accumulated in the Fair value reserve is reclassified to profit or loss and gains or losses on disposal recognised. Dividends on AFS equity instruments are recognized in profit or loss as investment and other Income when the Group's right to receive the dividends is established. Interest income recognized on available for sale instruments are recognized in profit or loss as net interest income as it accrues and is calculated by using the effective interest rate method. Loans and receivables Loans and receivables on the statement of financial position comprise cash and cash equivalent, loans and advances to customers, advances under finance lease, trade receivables, other receivables and statutory deposits. Loans and receivables, after initial measurement, are measured at amortized cost, using the effective interest rate method less any impairment (if any). Amortized cost is calculated by taking into account any discount or premium on acquisition and fee or costs that are an integral part of the effective interest rate. Loans granted at below market rates are fair valued by reference to expected future cash flows and current market interest rates for instruments in a comparable or similar risk class and the difference between the historical cost and fair value is accounted for as employee benefits under staff costs. Interest on loans and receivables are included in profit or loss When the asset is impaired, impairment losses are recognised in profit or loss and reflected in an allowance account against loans and receivables. Interest on the impaired assets continues to be recognised through the unwinding of the discount. If an event occurring after the impairment was recognised causes the amount of impairment loss to decrease, then the decrease in impairment loss is reversed through profit or loss.

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Held to maturity Held-to-maturity investments are carried at amortised cost using the effective interest method, less any impairment losses. A sale or reclassification of a more than insignificant amount of held-to-maturity investments would result in the reclassification of all held-to-maturity investments as available-for-sale, and would prevent the Group from classifying investment securities as held-to-maturity for the current and the following two financial years. However, sales and reclassification in any of the following circumstances would not trigger a reclassification: • sales or reclassifications that are so close to maturity that changes in the market rate of interest would not have a significant effect on the financial asset's fair value; • sales or reclassifications after the Group has collected substantially all of the asset's original principal; and • sales or reclassifications that are attributable to non-recurring isolated events beyond the Group's control that could not have been reasonably anticipated. Trade receivables Trade receivables arising under insurance contracts are recognized when due. These include premium due from agents, brokers, co-assurers and insurance contract holders for which credit notes issued are within 31days, in conformity with the “NO PREMIUM NO COVER” policy. Trade receivables are stated at cost less impairment.

Financial liabilities Subsequent to initial recognition, other financial liabilities are measured at amortised cost. Trade payables are recognized when due. These include amounts due to agents, reinsurers, co-assurers and insurance contract holders. Trade payables are recognized initially at fair value and subsequently measured at amortized cost using the effective interest method. (v) Fair value measurement 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 in the principal or, in its absence, the most advantageous market to which the Group has access at that date. The fair value of an asset or liability reflects its non-performance risk. When available, the Group measures the fair value of an instrument using the quoted price in an active market for that instrument. A market is regarded as active if transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis. If there is no quoted price in an active market, then the Group uses valuation techniques that maximise the use of relevant observable inputs and minimise the use of unobservable inputs. The chosen valuation technique incorporates all of the factors that market participants would take into account in pricing a transaction. The best evidence of the fair value of a financial instrument at initial recognition is normally the transaction price - i.e. the fair value of the consideration given or received. If the Group determines that the fair value at initial recognition differs from the transaction price and the fair value is evidenced neither by a quoted price in an active market for an identical asset or liability nor based on a valuation technique that uses only data from observable markets, then the financial instrument is initially measured at fair value, adjusted to defer the difference between the fair value at initial recognition and the transaction price. Subsequently, that difference is recognised in profit or loss on an appropriate basis over the life of the instrument but no later than when the valuation is wholly supported by observable market data or the transaction is closed out. If an asset or liability measured at fair value has a bid price and an ask price, then the Group measures the assets and long positions at a bid price and liabilities and short positions at an ask price. The fair value of a non-interest bearing liability is its discounted repayment amount. If the due date is less than one year, discounting is omitted. Portfolios of financial assets and financial liabilities that are exposed to market risk and credit risk that are managed by the Group on the basis of a price that would be received to sell a net long position (or paid to transfer a net short position) for a particular risk exposure. Those portfoliolevel adjustments are allocated to the individual assets and liabilities on the basis of the relative risk adjustment of each of the individual instruments in the portfolio. The Group recognises transfers between levels of the fair value heirachy as of the end of the reporting period during which the change has occurred.

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(vi) Impairment of financial assets The Group assesses its financial assets, other than those at fair value through profit or loss, for indicators of impairment at the end of each reporting period. Financial assets are considered to be impaired when there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been affected. For Available-for-sale (AFS) equity investments, a significant or prolonged decline in the fair value of the security below its cost is considered to be objective evidence of impairment. Objective evidence that a financial asset or group of financial assets is impairment could include: • Significant financial difficulty of the issuer or counter party; • Breach of contract, such as a default or delinquency in interest or principal payments; • It becoming probable that the borrower will enter bankruptcy or other financial re-organization; • The disappearance of an active market for that financial asset because of financial difficulties. Loans and receivables and held to maturity For loans and receivables and held to maturity instruments, the amount of the impairment loss recognized is the difference between the asset's carrying amount and the present value of estimated future cash flows, discounted at the financial asset's original effective interest rate. If in a subsequent period the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed through profit or loss to the extent that the carrying amount of the investment at the date the impairment is reversed does not exceed what the amortized cost would have been had the impairment not been recognized.

When the asset is impaired, impairment losses are recognised in profit or loss and reflected in an allowance account against loans and receivables and held to maturity instruments. Interest on the impaired assets continues to be recognised through the unwinding of the discount. If the amount of impairment loss subsequently decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, then the previously recognised impairment loss is reversed through profit or loss. Available-for-sale financial assets (AFS) Impairment losses on available-for-sale financial assets are recognised by reclassifying the losses accumulated in the fair value reserve to profit or loss. The amount reclassified is the difference between the acquisition cost (net of any principal repayment and amortisation) and the current fair value, less any impairment loss previously recognised in profit or loss. If the fair value of an impaired available-for-sale debt security subsequently increases and the increase can be related objectively to an event occurring after the impairment loss was recognised, then the impairment loss is reversed through profit or loss. Impairment losses recognised in profit or loss for an investment in an equity instrument classified as available-for-sale are not reversed through profit or loss

Trade receivables An impairment is established when there is objective evidence that, as a result of one or more events that occurred after the initial recognition, the estimated future cash flows have been impaired. The carrying amount of the financial asset is reduced by the impairment loss through the use of an allowance account and recognized as impairment loss in income statement. The Group’s allowance for impairment is based on incurred loss model for each customer. The probability of default and the age of the debts are also taken into account in arriving at the impairment amount. When a trade receivable is considered uncollectible, it is written off against the impairment allowance account. (vii) De-recognition of financial assets The Group derecognizes a financial asset only when the contractual rights to the cash flows from the asset expires, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. If the Group neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Group recognizes its retained interest in the asset and an associated liability for amounts it may have to pay. If the Group retains substantially all the risks and rewards of ownership of a transferred financial asset, The Group continues to recognize the financial asset and financial liability separately.

On de-recognition of a financial asset in its entirety, the difference between the asset's carrying amount and the sum of the consideration received and receivable and the cumulative gain or loss that had been recognized in other comprehensive income and accumulated in equity is recognized in profit or loss.

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On de-recognition of a financial asset other than in its entirety (e.g. when the Group retains an option to repurchase part of a transferred asset), the Group allocates the previous carrying amount of the financial asset between the part it continues to recognize under continuing involvement, and the part it no longer recognizes on the basis of the relative fair values of those parts on the date of the transfer. The difference between the carrying amount allocated to the part that is no longer recognized and the sum of the consideration received for the part no longer recognized and any cumulative gain or loss allocated to it that had been recognized in other comprehensive income is recognized in profit or loss. A cumulative gain or loss that had been recognized in other comprehensive income is allocated between the part that continues to be recognized and the part that is no longer recognized on the basis of the relative fair values of those parts.

The Group derecognises a financial liability when its contractual obligations are discharged or cancelled, or expire. Financial assets and financial liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Group currently has a legally enforceable right to offset the amounts and intends either to settle them on a net basis or to realise the asset and settle the liability simultaneously. (d) Impairment of other non-financial assets At the end of each reporting period, the Group reviews the carrying amounts of its non-financial assets ( other than deferred tax assets and investment property) to determine whether there is any indication of impairment. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of impairment loss (if any). When it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. When a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest Group of cash-generating units for which a reasonable and consistent allocation basis can be identified.

Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment at least annually, and whenever there is an indication that the asset may be impaired. Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognized immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease.

When an impairment loss subsequently reverses, the carrying amount of the asset (or a cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognized immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase. (e) Reinsurance Assets The Group cedes reinsurance in the normal course of business in order to limit its net loss potential for losses arising from certain exposures. The cost of reinsurance related to long-term contracts is accounted for over the life of the underlying reinsured policies, using assumptions consistent with those used to account for these policies. However, reinsurance arrangements do not relieve the Group from its direct obligations to its policyholders. Reinsurance assets include balances due from various reinsurance companies for ceded insurance contracts. Amounts recoverable from reinsurers are estimated in a manner consistent with the underlying reinsurance contract. Reinsurance assets are assessed for impairment at each reporting date. If there is reliable objective evidence that a reinsurance asset is impaired as a result of an event that occurred after initial recognition of the reinsurance asset, that the Group may not receive all amounts due to it under the terms of the contract and the event has a reliably measurable impact on the amounts that the Group will receive from the reinsurer. The Group gathers the objective evidence that a reinsurance asset is impaired using the same process adopted for financial assets held at amortised cost. The impairement loss is calculated and recognised following the same method used for financial assets.

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(f) Deferred acquisition costs The incremental costs directly attributable to the acquisition of new business which had not expired at the reporting date, are deferred by recognizing an asset. For non-life insurance contracts, acquisition costs include both incremental acquisition costs and other indirect costs of acquiring and processing new businesses. Deferred acquisition costs are amortised in the income statement systematically over the life of the contracts at each reporting date.

(g) Other Receivables and Prepayments Other receivables balances include dividend receivable, inter-group balances, accrued rental income and security holding trust account. The Group has an internal system of assessing the credit quality of other receivables through established policies and approval systems. The Group constantly monitors its exposure to their receivables via periodic review. Prepayment are essentially prepaid rents and staff upfront payments. Other receivables are carried at amortised cost less accumulated impairment losses. (h) Investment in associates (equity-accounted investees) Associates are those entities in which the Group has significant influence, but not control, over the financial and operating policies. Significant influence is primarily presumed to exist when the Group holds between 20% and 50% of the voting power of another entity. However, where other factors are involved, these are taken into consideration in exercising judgment. Investments in associates are accounted for using the equity method of accounting. Under the equity method, the investment is initially recognised at cost, and the carrying amount is increased or decreased to recognise the investor's share of the profit or loss of the investee after the date of acquisition. If the ownership interest in an associate is reduced but significant influence is retained, only a proportionate share of the amounts previously recognised in other comprehensive income is reclassified to profit or loss where appropriate. The Group’s share of post-acquisition profit or loss is recognised in the income statement; its share of post-acquisition movements in other comprehensive income is recognised in other comprehensive income, with a corresponding adjustment to the amount of the investment. When the Group’s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Group does not recognise further losses, unless it has incurred legal or constructive obligations or made payments on behalf of the associate.

The Group determines at each reporting date whether there is any objective evidence that the investment in the associate is impaired. If this is the case, the Group calculates the amount of impairment as the difference between the recoverable amount of the associate and its carrying value, and recognises the amount of profit/ (loss) of an associate’ in the income statement.

(i) Investment Properties Investment properties are properties held for long-term rental yields or for capital appreciation (including property under construction for such purposes) or for both purposes, but not for sale in the ordinary course of business. Recognition and measurement Recognition of investment properties takes place only when it is probable that the future economic benefits that are associated with the investment property will flow to the entity and the cost can be measured reliably. Investment properties are measured initially at cost, including all transaction costs. Subsequent to initial recognition, investment properties are measured at fair value, which reflects market conditions at the reporting date. Gains or losses arising from changes in the fair value of investment properties are included in the statement of profit or loss in the period in which they arise. Fair values are evaluated and assessed annually by an external valuer who is accredited by the Financial Reporting Council.

De-recognition An investment property is derecognized upon disposal or when the investment property is permanently withdrawn from use and no future economic benefits are expected from the disposal. Any gain or loss arising on de-recognition of the property (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is recognized in the income statement in the period of de-recognition. Transfers Transfers are made to or from investment property only when there is a change in use. For a transfer from investment property to owner occupied property, the deemed cost for subsequent accounting is the fair value at the date of change. If owner-occupied property becomes an investment property, the Group accounts for such property in accordance with the policy stated under property and equipment up to the date of change. Subsequently, the property is re-measured to fair value and reclassified as investment property.

(j) Property and Equipment Recognition and measurement All property and equipment used by the Group is stated at historical cost less accumulated depreciation and any accumulated impairment losses. Historical cost includes expenditure that is directly attributable to the acquisition of the items. If significant parts of a property and equipment have different useful lives, then they are accounted for as seperate items ( major components ) of property and equipment.

Subsequent costs Subsequent expenditures are recognized in the carrying amount of the asset or as a seperate asset as appropriate if it is probable that the future economic benefits embodied within the part will flow to the Group and its cost can be reliably measured. The costs of the day-to-day servicing of property and equipment are recognized in the statement of profit or loss as incurred. Depreciation Depreciation is recognized so as to allocate the cost of assets (other than freehold land) less their residual values over their useful lives, using the straight-line method. The estimated useful lives, residual values and depreciation method are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on a prospective basis. Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets. However, when there is no reasonable certainty that ownership will be obtained by the end of the lease term, assets are depreciated over the shorter of the lease term and their useful lives.

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reehold land is not depreciated F The estimated useful lives of property and equipment are as follows: Leasehold land Buildings Furniture and office equipment - New Motor vehicles - Salvage Computer hardware

Over the lease period 50 years 5 years 4 years 3 years 4 years

De-recognition An item of property, plant and equipment is derecognized upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognized in the statement of profit or loss of the year that the asset is de-recognized. (k) Intangible Assets Software expenditure An internally-generated intangible asset arising from the Group’s software development is recognized if and only if all of the following conditions are met: • The technical feasibility of completing the intangible asset so that it will be available for use or sale; • The intention to complete the intangible asset and use or sell it; • The ability to use or sell the intangible asset; • How the intangible asset will generate probable future economic benefits; • The availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset; and • The ability to measure reliably the expenditure attributable to the intangible asset during its development. The amount initially recognized for internally-generated intangible assets is the sum of the expenditure incurred from the date when the intangible asset first meets the recognition criteria listed above. Where no internally-generated intangible asset can be recognized, development expenditure is recognized in profit or loss in the period in which it is incurred. Subsequent to initial recognition, internally-generated intangible assets are reported at cost less accumulated amortization and accumulated impairment losses, on the same basis as intangible assets that are acquired separately. Acquired computer software Acquired computer software licences are capitalised on the basis of the cost incurred to acquire and bring to use the specific software. Computer software is stated at cost less amortization and impairment losses. Subsequent expenditure is capitalized only when it increases the future economic benefits embodied in the specific asset to which it relates. Cost associated with maintaining computer software programmes are recognised as an expense as incurred. Amortization Computer software costs, whether developed or acquired, are amortized for a period of five years using the straight line method. Intangible assets which are not available for use are tested for impairment annually. Amortisation methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate An intangible asset shall be derecognized by the Group on disposal; or when no future economic benefit are expected from its use or disposal. Any gain or loss arising on de-recognition of the assets (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in profit or loss in the period the asset is recognised. (l) Taxation Income tax expense comprises current and deferred tax. Income tax expense is recognized in the statement of profit or loss except to the extent that it relates to items recognized in other comprehensive income or directly in equity. In this case, the tax is also recognized in other comprehensive income or directly in equity, respectively.

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Current income taxes The Company is subject to the Companies Income Tax Act (CITA). Total amount of tax payable under CITA is determined based on the higher of two components namely income tax (based on taxable income (or loss) for the year; and Minimum tax (determined based on the sum of the highest of 0.25% of revenue of N500,000, 0.5% of gross profit, 0.25% of paid up share capital and 0.5% of net assets and 0.125% of revenue in excess of N500,000). Taxes based on taxable profit for the period are treated as current income tax in line with IAS 12; whereas taxes which is based on gross amounts is outside the scope of IAS 12 and therefore are not treated as current income tax. Where the minimum tax is higher than the Company Income Tax (CIT), a hybrid tax situation exits. In this situation, the CIT is recognized in the income tax expense line in the profit or loss and the excess amount is presented above income tax line as minimum tax. The Group Income tax expense and payable is the sum of the individual tax expense and payable under the various tax laws governing each of the subsidiaries of the Group and the Company. The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported in the Group's statement of profit or loss because of items of income or expense that are taxable or deductible in other years and items that are never taxable or deductible. The Group's liability for current tax is calculated using tax rates that have been enacted by the end of the reporting period. The current taxes include: Group Income Tax at 30% of taxable profit; Education Tax at 2% of assessable profit; Capital Gain Tax at 10% of chargeable gains; and Information Technology Development levy at 1% of accounting profit. Deferred tax Deferred tax is recognized on temporary differences between the carrying amounts of assets and liabilities in the Group's financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognized for all taxable temporary differences. Deferred tax assets are generally recognized for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilized. Such deferred tax assets and liabilities are not recognized if the temporary difference arises from goodwill (arising in a business combination) or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax liabilities and assets are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realized, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.

For the purposes of measuring deferred tax liabilities and deferred tax assets for properties held for sale that are measured using the fair value model, the carrying amount of such properties are presumed to be recovered entirely through the sale unless the presumption is rebutted. The presumption is rebutted when the investment property is depreciable and is held within a business model whose objective is to consume substantially all the economic benefits embodied in the investment property over time, rather than through sale.

(m) Statutory Deposits Statutory deposits are cash balances held with the Central Bank of Nigeria (CBN) in compliance with the Insurance Act, CAP 117, LNF 2004 for the general insurance companies. The deposits are only available as a last resort to the Group if it goes into liquidation. Statutory deposits are measured at cost.

(n) Borrowings Borrowings by way of bank overdrafts that are repayable on demand and form an integral part of the Group’s cash management are included as a component of cash and cash equivalents for the purpose of the statement of cash flows. Borrowings have been measured in line with the Group's accounting policy for financial instruments (see note 2(d)) Borrowing costs comprise interest payable on loans and bank overdrafts. They are charged to profit or loss as incurred, except those that relate to qualifying assets. Arrangement fees in respect of financing arrangements are charged to borrowing costs over the life of the related facility.

20


(o) Deferred income Deferred income comprises deferred rental income and deferred commission. Deferred Rental Income relates to rents received in advance. These are amortized and transferred to the statement of profit or loss over the periods that they relate. Deferred commission income relates to commissions received on ceded reinsurance businesses but not yet earned as at reporting date. Deferred commission incomes are amortized systematically over the life of the contracts at each reporting date. (p) Provisions and other liabilities Provisions Provisions are recognized when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that the Group will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. The amount recognized as a provision is the best estimate of the consideration required to settle the present obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation. When a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows (when the effect of the time value of money is material). Other liabilities Other liabilities are recognized initially at fair value and subsequently measured at amortized cost using the effective interest rate method. The fair value of a non-interest bearing liability is its discounted repayment amount. If the due date is less than one year, discounting is omitted.

(q) Finance and operating lease obligations These are the corresponding liabilities on assets acquired under finance lease. Lease payments are apportioned between finance expenses and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance expenses are recognized immediately in profit or loss, unless they are directly attributable to qualifying assets, in which case they are capitalized in accordance with the Group’s general policy on borrowing costs. Lease assets - lessee Assets held by the Group under leases that transfer to the Group substantially all of the risks and rewards of ownership are classified as finance leases. The leased asset is initially measured at an amount equal to the lower of its fair value and the present value of the minimum lease payments. Subsequent to initial recognition, the asset is accounted for in accordance with the accounting policy applicable to that asset. Assets held under other leases are classified as operating leases. Lease payments Payments made under operating leases are recognised in profit or loss on a straight-line basis over the term of the lease. Lease incentives received are recognised as an integral part of the total lease expense, over the term of the lease. Lease assets - lessor If the Group is the lessor in a lease agreement that transfers substantially all of the risks and rewards incidental to ownership of the asset to the lessee, then the arrangement is classified as a finance lease and a receivable equal to the net investment in the lease is recognised and presented within loans and advances (r) Insurance Contract Liabilities (i) Classification IFRS 4 requires contracts written by insurers to be classified as either 'insurance contracts' or ‘investment contracts' depending on the level of insurance risk transferred. Insurance contracts are those contracts when the insurer has accepted significant insurance risk from another party (the policyholders) by agreeing to compensate the policyholders if a specified uncertain future event (the insured event) adversely affects the policyholders. The Group only enters into insurance contracts. Therefore, its insurance contract liabilities represent the Group's liability to the policy holders. It comprises the unearned premium, unexpired risk, outstanding claims and the incurred but not reported claims. At the end of each accounting period, this liability is reflected as determined by the actuarial valuation report.

21


Unearned premium provision The provision for unearned premiums represents the proportion of premiums written in the periods up to the accounting date that relate to the unexpired terms of policies in force at the end of the reporting date. This is estimated to be earned in subsequent financial periods, computed separately for each insurance contract using a time apportionment basis. Reserve for unexpired risk A provision for additional unexpired risk reserve is recognised for an underwriting year where it is envisaged that the estimated cost of claims and expenses exceed the unearned premium provision. Reserve for outstanding claims Outstanding claims represent the estimated ultimate cost of settling all claims arising from incidents occurring prior to the end of reporting date, but not settled at that date. Reserve for incurred but not reported claims (IBNR) A provision is made for claims incurred but not yet reported as at the end of the financial year. This provision is based on the liability adequacy test report. Liability Adequacy Test At the end of each reporting period, liability adequacy tests are performed to ensure that material and reasonably foreseeable losses arising from existing contractual obligations are recognised. In performing these tests, current best estimates of future contractual cash flows, claims handling and administration expenses, investment income backing such liabilities are considered. Long-term insurance contracts are measured based on assumptions set out at the inception of the contract. Any deficiency is charged to the statement of profit or loss by increasing the carrying amount of the related insurance liabilities. The Liability Adequacy Test (LAT) was carried out by HR Nigeria Limited (Consultant Actuaries). Insurance contract with discretionary participating features (DPF) Some insurance contracts and investment contracts contain a discretionary participating feature (DPF), which is a contractual right to receive as, a supplement to guaranteed benefits, additional benefits that are: • Likely to be a significant portion of the total contractual benefits; • The amount or timing is contractually at the discretion of the insurer; and • That are contractually based on: i. the performance of a specified pool of contracts or a specified type of contract; ii. realized and or unrealized investment returns on a specified pool of assets held by the issuer; or iii. the profit or loss of the Company. Recognition and measurement Insurance contracts with DPF are classified into two main categories, depending on the duration of risk and whether or not the terms and conditions are fixed. (i) Short-term insurance contracts Short-duration life insurance contracts (Group Life) protect the Group's clients from the consequences of events (such as death or disability) that would affect the ability of the client or his/her dependants to maintain their current level of income. These contracts have no maturity or surrender value and the premiums are recognized as earned premiums proportionally over the period of coverage. The proportion of premium received on in-force contracts that relates to unexpired risks at the reporting date is reported as unearned premium liability. Premiums are shown before deductions of commissions and are gross of any taxes or duties levied on premiums. Claims expenses are recognized in the statement of profit or loss as incurred based on the estimated liability for compensation owed to contract holders. They include direct and indirect claims settlement costs that arise from events that have occurred up to the end of the reporting period even if they have not been reported to the Group. The Group does not discount it liabilities for unpaid claims. Liabilities for unpaid/outstanding claims are estimated using the input of assessments for individual cases reported to the Group and statistical analyses for the claims incurred but not reported. (ii) Long-term insurance contracts with fixed and guranteed terms These contracts insure events associated with human life (for example, death or survival) over a long duration. Premiums are recognized as revenue when they become payable by the contract holder. Premiums are shown before deduction of commission. Benefits are recognized as an expense when they are incurred. A liability for contractual benefits that are expected to be incurred in the future is recorded when the premiums are recognized. The liability is actuarially determined based on assumptions such as mortality, persistency, maintenance expenses and investment income that are estabilished at the time the contract is issued.

22


(iii) Annuity Annuity premium are recognised as income when received from policy holders, and payments to policy holders are recognised as an expense when due. Annuities are valued by using a discounted cash flow approach. The reserves are set equal to the present value of future annuity payments plus expenses, with allowance being made for any guaranteed periods as required by the terms of the contract. Annuities collected in a year are credited to the Gross Premium written and the portion that extends beyond one year is taken out via the unearned premium. The assets representing the annuities are invested in near-cash money market financial instruments with a tenor of 30 days on rolling basis. The annuity is valued at year end by a professional consultant actuary registered with the Financial Reporting Council ("FRC"). Also a liability adequacy test is required by law to be performed on annuity fund to determine its sufficieny in meeting the contractual liabilities. Some of the assumptions being considered in valuing the annuity fund at the year end are: (a) a 10 year guaranteed minimum annuity payment (b) a valuation interest determined by a long term FGN bond yield (c) a maintenance expenses and the mortality rates. (ii) Recognition and Measurement of Insurance Contract Premium Gross written premiums for general insurance contracts comprise premiums received in cash as well as premiums that have been received and confirmed as being held on behalf of the Group by insurance brokers and duly certified thereto. Gross premiums are stated gross of commissions and taxes payable and stamp duties that are payable to intermediaries and relevant regulatory bodies respectively. Unearned premiums represent the proportions of premiums written in the year that relate to the unexpired risk of policies in force at the reporting date. Reinsurance Premiums, losses and other amounts relating to reinsurance treaties are measured over the period from inception of a treaty to expiration of the related business. The actual profit or loss on reinsurance business is therefore not recognized at the inception but as such profit or loss emerges. In particular, any initial reinsurance commissions are recognized on the same basis as the acquisition costs incurred. Premiums ceded, claims recovered and commission received are presented in the statement of profit or loss and statement of financial position separately from the gross amounts. Amounts recoverable under reinsurance contracts are assessed for impairment at each reporting date. Such assets are deemed impaired if there is objective evidence, as a result of an event that occurred after its initial recognition, that the Group may not recover all amounts due under the contract terms and that the event has a reliably measurable impact on the amounts the Group will receive from the reinsurer. Claims and policy holders benefit payable Claims incurred comprise claims and claims handling expenses paid during the financial year and changes in the provision for outstanding claims. Claims and claims handling expenses are charged to profit or loss as incurred. For long term insurance business, benefits are recorded as an expense when they are incurred. Claims arising on maturing policies are recognized when the claims become duefor payment. Death claims are accounted for on notification. Surrenders are accounted for on payment. (s) Investment contract liabilities Investment contracts are those contracts that transfer significant financial risk. Financial risk is the risk of a possible future change in one or more of a specified interest rate, financial instrument price, commodity price, foreign exchange rate, index of price or rates, credit rating or credit index or other variable, provided in the case of a non-financial variable that the variable is not specific to a party to the contract. The investment contract comprises of the Royal Policy Product, (RPP), the Royal Insurance Savings Account (ISA) and the Deposit Administration (DA). Amounts collected from investment linked contracts with no discretionary participating features are reported as deposits (i.e. as investment contract lialibilities) in the statement of financial position. Interest, usually agreed with clients, is credited per annum to each account holder and the amount expensed to statement of profit or loss. Payment of benefits are treated as withdrawal (reduction) from the balance standing in the credit account of the client.

23


(t) Employee Benefits liabilities (i) Short-term benefits Staff benefits such as wages, salaries, paid annual leave allowance, and non-monetary benefits are recognized as employee benefit expenses. The expenses are accrued when the associated services are rendered by the employees of the Group. Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided.

(ii) Defined Contribution Plans The Group operates a defined contribution plan in accordance with the provisions of the Pension Reform Act 2014. The Group contributes 10% and employees contribute 8% each of the qualifying monthly emoluments in line with the Pension Reform Act. The Group’s monthly contribution to the plan is recognized as an expense in profit or loss. The Group pays contributions to privately administered pension fund administration on a monthly basis. The Group has no further payment obligation once the contributions have been paid. Prepaid contributions are recognized as an asset to the extent that a cash refund or reduction in the future payments is available. Payments to defined contribution retirement benefit plans are recognised as an expense when employees have rendered service entitling them to the contributions. (iii) Termination Benefits Termination benefits are payable when employment is terminated before the normal retirement date, or whenever an employee accepts voluntary redundancy in exchange for these benefits. The Group recognizes termination benefits when it is demonstrably committed to either: terminating the employment of current employees according to a detailed formal plan without possibility of withdrawal; or providing termination benefits as a result of an offer made to encourage voluntary redundancy. (iv) Defined Benefit Plan The Group operates a staff gratuity scheme for some of its employees. The gratuity liability is valued by an actuary using the projected unit credit method with discount rate used being the market yield on government bonds. The plan is unfunded and payments are made on a pay-as-you-go basis. Only staff of the Group as at 1 June 2008 are eligible for the staff gratuity scheme. Benefits accrue after a minimum of five years of service. Remeasurements of the net defined benefit liability, which comprise actuarial gains and losses, are recognised immediately in OCI. The Group determines the net interest expense (income) on the defined benefit liability for the period by applying the discount rate used to measure the defined benefit obligation at the beginning of the annual period to the then-net defined benefit liability, taking into account any changes in the net defined benefit liability during the period as a result of benefit payments. Net interest expense and other expenses related to defined benefit plans are recognised in profit or loss. (v) Pension The Group operated a funded pension scheme for its employees prior to the Pension Reform Act 2004. It therefore has continuing pension obligation to its staff who retired prior to the commencement of the contributory pension scheme. Pensioners are entitled to 3% annual increment. Over 90% of the pension assets are being managed by a pension fund administrator while the balance is invested in marketable securities and bank placement. The calculation of defined benefit obligations is performed annually by a qualified actuary using the projected unit credit method. When the calculation results in a potential asset for the Group, the recognised asset is limited to the present value of economic benefits available in the form of any future refunds from the plan or reductions in future contributions to the plan. To calculate the present value of economic benefits, consideration is given to any applicable minimum funding requirements. Remeasurements of the net defined benefit liability, which comprise actuarial gains and losses, the return on plan assets (excluding interest) and the effect of the asset ceiling (if any, excluding interest), are recognised immediately in OCI. The Group determines the net interest expense (income) on the net defined benefit liability (asset) for the period by applying the discount rate used to measure the defined benefit obligation at the beginning of the annual period to the then-net defined benefit liability (asset), taking into account any changes in the net defined benefit liability (asset) during the period as a result of contributions and benefit payments. Net interest expense and other expenses related to defined benefit plans are recognised in profit or loss. When the benefits of a plan are changed or when a plan is curtailed, the resulting change in benefit that relates to past service or the gain or loss on curtailment is recognised immediately in profit or loss. The Group recognises gains and losses on the settlement of a defined benefit plan when the settlement occurs.

24


(vi) Other Long term benefits The Group operates a long service award plan for eligible staff who have rendered continued service to the organization. Benefits accrue after a minimum of 10 years and a maximum of 35 years. The main benefits payable on the scheme are both cash and gift items which vary according to the number of years of service. The liability is valued annually by a qualified actuary using the projected unit credit method. Remeasurements of the obligation, which comprise actuarial gains and losses, are recognised immediately in OCI. The Group determines the net interest expense (income) on the obligation for the period by applying the discount rate used to measure the obligation at the beginning of the annual period to the liability, taking into account any changes in the liability during the period as a result of benefit payments. Net interest expense and other expenses related to obligation are recognised in profit or loss.

(u) Capital and Reserves (i) Share capital The equity instruments issued by the Group are classified as equity in accordance with the substance of the contractual arrangements and the definitions of an equity instrument. Equity instruments issued by the Group are recognized as the proceeds are received, net of direct issue costs. Repurchase of the Group's own equity instruments is recognized and deducted directly in equity. No gain or loss is recognized in profit or loss on the purchase, sale, issue or cancellation of the Group's own equity instruments. (ii) Share premium This represents the excess amount paid by shareholders on the nominal value of the shares. This amount can be utilized as provided in Section 120(3) of Companies Allied Matters Act. The share premium is classified as an equity instrument in the statement of financial position.

(iii) Contingency reserve The Group maintains Contingency reserves for the general business in accordance with the provisions of S.21 (1) of the Insurance Act 2003. In compliance with the regulatory requirements in respect of Contingency Reserve for general business, the Group maintains contingency reserve at the rate equal to the higher of 3% of gross premium or 20% of the total profit after taxation until the reserve reaches the greater of minimum paid up capital or 50% of net premium. In compliance with the regulatory requirements in respect of Contingency Reserve for Life business, the Company maintains contingency reserve at the rate equal to the higher of 1% of gross premium or 10% of the net profit accumulated until it reaches the amount of the minimum paid up capital. (iv) Retained Earnings The reserve comprises undistributed profit/ (loss) from previous years and the current year. Retained Earnings is classified as part of equity in the statement of financial position. (v) Fair value reserves Fair value reserves represent the cummulative net change in the fair value of available-for-sale financial assets at the reporting date.

(vi) Other reserves - employee benefit actuarial surplus Actuarial (surplus)/deficit on employee benefits represent changes in benefit obligation due to changes in actuarial valuation assumptions or actual experience differing from experience. The gains/losses for the year, net of applicable deferred tax asset/liability on employee benefit obligation, are recognized in other comprehensive income. (vii) Treasury shares Where the Company or any member of the Group purchases the Company’s share capital, the consideration paid is deducted from the shareholders’ equity as treasury shares until they are cancelled.Where such shares are subsequently sold or reissued, any consideration received is included in shareholders’ equity.

25


(viii) Dividends on ordinary shares Dividends on ordinary shares are recognised in equity in the period in which they are approved by the Group’s shareholders. Dividends for the year that are declared after the end of the reporting period are dealt with in the subsequent period. Dividends proposed by the Directors but not yet approved by shareholders are disclosed in the financial statements in accordance with the requirements of the Group and Allied Matters Act of Nigeria. (v) Revenue Recognition (i) Gross Written Premium Gross written premiums for non-life (general) insurance comprise premiums received in cash as well as premiums that have been received and confirmed as being held on behalf of the Group by insurance brokers and duly certified thereto. Gross written premiums are stated gross of commissions, net of taxes and stamp duties that are payable to intermediaries and relevant regulatory bodies respectively. Unearned premiums represent the proportions of premiums written in the year that relate to the unexpired risk of policies in force at the reporting date. Deposits collected from investment-linked contracts with non-discretionary participating features are reported as investment contract liabilities in the statement of financial position. Outward facultative premiums and reinsurance premiums ceded are accounted for in the same accounting period as the premiums for the related direct insurance or facultative business assumed. The earned portion of premiums received is recognized as revenue. Premiums are earned from the date of attachment of risk, over the indenmity period, based on the patern of risks underwritten. Outward reinsurance premiums are recognized as an expense in accordance with the pattern of indenmity received. (ii) Reinsurance expenses Reinsurance cost represents outward premium paid/payable to reinsurance companies less the unexpired portion as at the end of the financial year. (iii) Fees and commission income Fees and commission income consists primarily of insurance agency and brokerage commission, reinsurance and profit commissions, policyholder administration fees and other contract fees. Reinsurance commissions receivable are deferred in the same way as acquisition costs. All other fee and commission income is recognized as the services are provided. (iv) Interest income Interest income is recognized in the income statement as it accrues and is calculated by using the effective interest rate method. Fees and commissions that are an integral part of the effective yield of the financial asset or liability are recognized as an adjustment to the effective interest rate of the instrument. The effective interest method is a method of calculating the amortised cost of a financial asset or a financial liability and of allocating the interest income or interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or, when appropriate, a shorter period to the net carrying amount of the financial asset or financial liability. When calculating the effective interest rate, the Group estimates cash flows considering all contractual terms of the financial instrument (for example, prepayment options) but does not consider future credit losses. The calculation includes all fees and points paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums or discounts. Where the estimated cash flows on financial assets are subsequently revised, other than impairment losses, the carrying amount of the financial assets is adjusted to reflect actual and revised estimated cash flows. Once a financial asset or a group of similar financial assets has been written down as a result of an impairment loss, interest income is recognised using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. (v) Investment Income Investment income consists of dividends, realized gains and losses as well as unrealized gains and losses on financial instruments.

(vi) Dividend income Dividend income from investments is recognized when the shareholders’ rights to receive payment have been established.

26


(vii) Realized gains and losses and unrealized gains and losses Realized gains and losses on investments include gains and losses on financial assets and investment properties. Gains and losses on the sale of investments are calculated as the difference between net sales proceeds and the original or amortized cost and are recorded on occurrence of the sale transaction. Unrealized gains or losses represent the difference between the carrying value at the year end and the carrying value at the previous year end or purchase value during the year, less the reversal of previously recognized unrealized gains and losses in respect of disposals during the year.

(viii) Other operating income Other operating income represents income generated from sources other than premium revenue and investment income. It includes rental income, profit on disposal of fixed assets. Rental income is recognized on an accrual basis. (w) Expense Recognition (i) Insurance claims and benefits incurred Gross benefits and claims consist of benefits and claims paid / payable to policyholders, which include changes in the gross valuation of insurance contract liabilities, except for gross change in the unearned premium provision which are recorded in premium income. It further includes internal and external claims handling costs that are directly related to the processing and settlement of claims. Amounts receivable in respect of salvage and subrogation are also considered. Salvage Some non-life insurance contracts permit the Group to sell (usually damaged) property acquired in the process of settling a claim. Subrogation Subrogation is the right of an insurer to pursue a third party that caused an insurance loss to the insured. This is done as a means of receiving the amount of the claim paid to the insured for the loss. (ii) Underwriting expenses Underwriting expense include acquisition costs and maintenance expense. Acquisition costs comprise direct and indirect costs associated with the writing of insurance contracts. These include commission expenses and other technical expenses. Maintenance expenses are expenses incurred in servicing existing policies and clients. All underwriting expenses are charged to income statement as they accrue or become payable.

(iii) Management expenses Management expenses are charged to profit or loss when goods are received or services rendered. They are expenses other than claims, maintenance and underwriting expenses and include employee benefits, depreciation charges and other operating expenses.

x Segment reporting Operating segments are identified and reported in consonance with the internal reporting policy of the Group that are regularly reviewed by the Chief Executive (being the chief operating decision maker) who allocates resources to the segment and assesses their performance thereof. The Group’s reportable segments, for management purpose, are organized into business units based on the products and services offered as follows: • Non life insurance - (Royal Exchange General Insurance Company Limited); • Life insurance - (Royal Exchange Prudential Life Assurance Plc); • Financial services - (Royal Exchange Micro-Finance Bank Limited ); • Healthcare - (Royal Exchange Healthcare Limited);and • Asset Management (Royal Exchange Finance and Asset Management Ltd). The other segments include corporate shared services and other activities not related to the core business segment and which are not reportable segments due to their immateriality. Certain expenses such as finance costs and taxes are also not allocated to particular segments. The segment reporting is the measure used by the Group’s Chief Executive for the purposes of resource allocation and assessment of segment performance.

27


y Earnings per share The Group presents basic and diluted EPS data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss that is attributable to ordinary shareholders of the Group by the weighted average number of ordinary shares outstanding during the period. Diluted EPS is determined by adjusting the profit or loss that is attributable to ordinary shareholders and the weighted-average number of ordinary shares outstanding for the effects of all dilutive potential ordinary shares (a) Fiduciary activities The Group acts as trustees and in other fiduciary capacities that results in the holding and placing of assets on behalf of clients and oversight functions over certain funds. The value of the assets held on behalf of clients as at reporting date are excluded from the statement of financial position of the Group as they are not assets of the Group, but are disclosed in the financial statements (see Note 61). The carrying value of the assets under custody were determined as follows: - Cash and cash equivalents are carried at amortised cost. - Loans and receivables and Held-to maturity investments are carried at amortised cost. - Other Liabilities are measured at amortized cost using the effective interest rate method. Fees and commissions earned from providing such services are generally recognised on an accrual basis in the statement of profit and loss in line with the agreement between the Group and the party for which the Group holds its assets.

28


5 Cash and cash equivalents In thousands of Naira Cash Bank balances Short-term deposits (including demand and time deposits) Cash and cash equivalents (as per statement of financial position)

Group 30-Sep-16 4,951 670,070

Group 31-Dec-15 7,222 5,661,565

Company 30-Sep-16 92,920

Company 31-Dec-15 7 45,375

474,628

1,367,055

60,068

60,070

1,149,649

7,035,842

152,988

105,452

(i) Short–term deposits are made for varying periods of between one day and three months depending on the immediate cash requirements of the Group. All deposits are subject to an average variable interest rate of 12% (2014: 12%). The carrying amounts disclosed above reasonably approximate fair value at the reporting date.

6 Loans and advances to customers In thousands of Naira

Group 30-Sep-16 1,083,427

Group 31-Dec-15 1,386,913

Company 30-Sep-16 -

Company 31-Dec-15 -

(66,464) (66,464)

(106,990) (1,489) (108,479)

-

-

1,016,963

1,278,434

-

-

409,560

(41,435)

(d) The movements in impairment allowance on loans and advances to customers is analyzed below; Group In thousands of Naira Group Company 30-Sep-16 31-Dec-15 30-Sep-16 58,845 10,329 Balance, beginning of year

Company 31-Dec-15 -

Term loan Specific impairment Collective impairment Total impairment (see note 6(d) below) Carrying amount

Impairment allowance recognised during the year (see note 43) Balance, end of year

7,619 66,464

48,516 58,845

-

-

Group 30-Sep-16

Group 31-Dec-15

Company 30-Sep-16

Company 31-Dec-15

166,775 (18,000) 148,775

136,269 (13,000) 123,269

-

-

(b) The movements in impairment allowance on advance under lease is analyzed below; In thousands of Naira Group Group 30-Sep-16 31-Dec-15 13,000 37,801 Balance, beginning of year (26,737) Write back of impairment

Company 30-Sep-16 -

Company 31-Dec-15 -

-

-

7 Advances under finance lease In thousands of Naira

Gross investment in finance lease (see note 7(a) below) Impairment allowance (see note 7(b) below)

Impairment allowance recognised during the year Balance, end of year

5,000 18,000

1,936 13,000

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8 Investment securities In thousands of Naira

Group 30-Sep-16

Group 31-Dec-15

Company 30-Sep-16

Company 31-Dec-15

415,263

415,263

-

2,112,356

1,936,874

17,935

17,935

1,051,770 3,579,389

1,096,746 3,448,883

17,935

17,935

987,695 2,591,694 3,579,389

1,255,548 2,204,514 3,460,062

-

-

Group 30-Sep-16 9,447 581,411

Group 31-Dec-15 94,235 496,623

Company 30-Sep-16 -

Company 31-Dec-15 -

(171,385) (4,210) 415,263

(171,385) (4,210) 415,263

-

-

Group 30-Sep-16 171,385 171,385

Group 31-Dec-15 169,411 1,974 171,385

Company 30-Sep-16 -

Company 31-Dec-15 -

Group 30-Sep-16 448,638 201,812 1,461,906 2,112,356

Group 31-Dec-15 298,531 79,611 1,558,732 1,936,874

Company 30-Sep-16 17,935 17,935

Company 31-Dec-15 17,935 17,935

Group 30-Sep-16 148,484 29,728 866,476 1,051,770

Group 31-Dec-15 219,386 23,045 854,315 1,096,746

Company 30-Sep-16 -

Company 31-Dec-15 -

Group 30-Sep-16

Group 31-Dec-15

Company 30-Sep-16

Company 31-Dec-15

Royal Exchange General Insurance Company Limited (see note (i) below)

-

-

5,169,404

5,169,404

Royal Exchange Prudential Life Assurance Plc. (see note (ii) below)

-

-

2,565,833

2,565,833

Royal Exchange Finance And Investment Company Limited (see note (iii) below)

-

-

667,353

667,353

Royal Exchange Healthcare Company Lmimited (see note (iv) below)

-

-

151,669

151,669

Royal Exchange Microfinance Bank Limited (see note (v) below)

-

-

106,205

106,205

-

-

8,660,464

8,660,464

Available for sale financial assets (see note 8(a) below) Fair value through profit or loss (FVTPL) (see note 8(b) below) Loans and receivables at amortised cost (see note 8(c ) below) Total financial assets Within one year More than one year

(a) Available for sale financial assets: In thousands of Naira Listed equities Unlisted equities at cost Specific impairment allowance (see note 8(a)(ii) below) Changes in Fair Value

In thousands of Naira Balance, beginning of year Impairment allowance recognised during the year Write-off during the year Balance, end of year (b) Fair value through profit or loss (FVTPL) In thousands of Naira Federal government bonds Treasury bills Listed equities

( c) Loans and receivables at amortised cost In thousands of Naira State government bonds Corporate bonds Unlisted debenture Staff mortgage loans Policy holders loan Placement

9 Investment in subisidiaries In thousands of Naira

(i) This represents the Company's 99.9% (2015: 99.9%) shareholdings in Royal Exchange General Company Limited, a Nigerian registered company involved in general insurance business. (ii) This represents the Company's 99.9% (2015: 99.9%) shareholdings in Royal Exchange Prudential Life Assurance Plc., a Nigerian registered company involved in life insurance business. (iii) This represents the Company's 99.9% (2015: 99.9%) shareholdings in Royal Exchange Finance and Asset Management Limited, a Nigerian registered company involved in the business of finance, financial advisory, fund management, leasing and investment (iv) This represents the Company's 30% (2015: 30%) shareholdings in Royal Exchange Healthcare Limited, a Nigerian registered company involved in the business of healthcare insurance service. The balance of 70% is owned by Royal Exchange General Company Limited (v) This represents the Company's 99.9% (2015: 99.9%) shareholdings in Royal Exchange Microfinance Bank Limited, a Nigerian registered company involved in the business of microfinance banking.

30


10 Trade receivables In thousands of Naira

Group 30-Sep-16

Group 31-Dec-15

Company 30-Sep-16

Company 31-Dec-15

Due from agents Due from reinsurers

470,558 222,792 693,350

380,535 147,864 528,399

-

-

Within one year More than one year

693,350 693,350

528,399 528,399

-

-

Group 30-Sep-16

Group 31-Dec-15

Company 30-Sep-16

Company 31-Dec-15

963,523

808,264

-

-

(492,965) 470,558

(427,729) 380,535

-

-

The carrying amount is a reasonable approximation of fair value (a) The analysis of due from agents is as follows: In thousands of Naira

Gross receivable from agents (see note 10(a)(i) below) Less: Impairment allowance (see note 10a(ii) below)

(i) The implementation of Section 50 of the Insurance Act 2003 on "No Premium No Cover" by the regulator (NAICOM) with effect from 1st January 2013 has necessitated that any outstanding premium receivables as at that date should be written off. Consequently only outstanding premium backed by broker's credit note and collectible within 30 days from the end of the quarter is permissible. (ii) The movements in impairment allowance on amount due from agents is analysed below; In thousands of Naira Group 30-Sep-16

Group 31-Dec-15

Company 30-Sep-16

Company 31-Dec-15

Balance, beginning of year Allowance made during the year Write off Write back

427,729 65,236 -

127,235 320,435 (19,104) (837)

-

-

Balance, end of the year

492,965

427,729

-

-

Group 30-Sep-16

Group 31-Dec-15

Company 30-Sep-16

Company 31-Dec-15

375,574

360,799

-

-

(152,782)

(212,935)

-

-

222,792

147,864

-

-

Group 30-Sep-16

Group 31-Dec-15

Company 30-Sep-16

Company 31-Dec-15

Balance, beginning of year Allowance made during the year Reversal during the year

212,935 (60,153)

137,510 15,272 60,153

-

-

Balance, end of the year

152,782

212,935

-

-

Group 30-Sep-16

Group 31-Dec-15

Company 30-Sep-16

-152782 Company 31-Dec-15

2,452,714

1,582,128

-

-

465,705 -

307,622 -

-

-

2,918,419

1,889,750

-

-

2,656,781 261,638 2,918,419

1,760,238 129,512 1,889,750

-

-

Group 30-Sep-16

Group 31-Dec-15

Company 30-Sep-16

Company 31-Dec-15

1,696,874 755,840 2,452,714

858,696 723,433 1,582,129

-

-

(b) The analysis of due from reinsurers is as follows: In thousands of Naira Reinsurance receivables Less: Impairment allowance (see note 6(b)(i) below)

(i) The movements in impairment allowance on reinsurance receivables is analysed below; In thousands of Naira

11 Reinsurance assets In thousands of Naira Non-life business reinsurance share of insurance liabilities (see 11(a) below) Life business reinsurance share of insurance liabilities (see 11(b) below) JLT reinsurance – profit commission


(a) Non-life business reinsurance share of insurance liabilities In thousands of Naira

Prepaid reinsurance premium Reinsurance claims recoverable

31


(b) Life business reinsurance share of insurance liabilities In thousands of Naira

Short-term insurance contract Long-term insurance contract

Group 30-Sep-16

Group 31-Dec-15

Company 30-Sep-16

Company 31-Dec-15

204,067 261,638 465,705

204,068 103,554 307,622

-

-

Reinsurance assets are valued after an allowance for their recoverability and the carrying amount is a reasonable approximation of fair value 12 Deferred acquisition costs This represents the unexpired portion of the commission paid to brokres and agents as at reporting date. Group Group 30-Sep-16 31-Dec-15 In thousands of Naira

Company 30-Sep-16

Company 31-Dec-15

382,490 575,845 (582,101)

366,892 853,049 (837,451)

-

-

376,234

382,490

-

-

Group 30-Sep-16

Group 31-Dec-15

Company 30-Sep-16

Company 31-Dec-15

69,217 2,254,876 370,179 2,694,272 (771,857) 1,922,415

172,819 818,170 274,786 1,265,775 (878,379) 387,396

46,014 13,744 35,958 95,716

47,280 23,537 10,591 81,408 (2,289) 79,119

1,483,019 439,396 1,922,415

387,396 387,396

50,123 45,593 95,716

Group 30-Sep-16

Group 31-Dec-15

Company 30-Sep-16

Company 31-Dec-15

-

-

-

-

4,509 (10,189) 51,693 46,014

1,397 1,897 43,986 47,280

Group 30-Sep-16

Group 31-Dec-15

Company 30-Sep-16

Company 31-Dec-15

69,217

172,819

-

-

69,217

172,819

-

-

In thousands of Naira

Group 30-Sep-16

Group 31-Dec-15

Company 30-Sep-16

Company 31-Dec-15

Sundry receivables

2,254,876

818,170

23,537

2,254,876

818,170

10,323 3,421 13,744

Group 30-Sep-16

Group 31-Dec-15

Company 30-Sep-16

Company 31-Dec-15

878,379 (106,522) 771,857

869,889 24,610 (7,265) (8,855) 878,379

-

-

Group 30-Sep-16

Group 31-Dec-15

Company 30-Sep-16

Company 31-Dec-15

274,088 -

295,250 30,000 (14,535) (48,799) 12,172 274,088

-

-

-

-

Balance at start of the year Additions in the year Amortization in the year Balance as at year end 13 Other receivables and prepayment In thousands of Naira

Intercompany receivables (see note 13(a) below) Accrued investment income (see note 13(b) below) Other receivables (see note 13(c) below) Prepayments Impairment on other receivables (see 13(c)(i) below


(a) Due from related parties In thousands of Naira

Royal Exchange Microfinance Bank Limited Royal Exchange Finance and Asset Management Royal Exchange Healthcare Limited

(b) Accrued investment income In thousands of Naira Dividend receivables

95,716

79,119 79,119

(c ) Other receivables

(i) The movements in impairment allowance on other receivables is analysed below; In thousands of Naira Balance, beginning of year Allowance made during the year (see note 43) Write off Recoveries (see note 43) Balance, end of year 14 Investment in associates (a) The movement in balances of investment in associates are as shown below: In thousands of Naira

Balance, beginning of the year Additional investment during the year Dividend income Share of current year result recognised in profit or loss Share of cumulative unrecognised results Share of current year result recognised in OCI Balance, end of the year

274,088

23,537

32


15 Investment Properties In thousands of Naira

Group 30-Sep-16

Group 31-Dec-15

Company 30-Sep-16

Company 31-Dec-15

6,807,743 (141,600) -

-

-

6,666,143

7,722,739 600,530 (541,887) (973,639) 6,807,743

-

-

Group 30-Sep-16

Group 31-Dec-15

30-Sep-16

31-Dec-15

Balance, beginning of year Transfer from investment properties

973,639 -

973,639

-

-

Balance, end of year

973,639

973,639

-

-

At 1 January Additions during the year Disposals during the year Fair value gains Transfer to property and equipment Transfer to non current assets held for sale At 31 December 16 Assets classified as held for sale In thousands of Naira

In December 2015, management committed to a plan to sell one of its investment property located at Abuja Commercial. Accordingly, this property is presented as a non current assets held for sale. At 31 December 2015, the non current assets held for sale was stated at its carrying amount; as investment properties are measured at the lower of its carrying amount or fair value less cost to sell. The company conducted an impairment test on the non current asset held for sale in the period under review and there was no indication of impairment on the assets in the view of Management. The fair value of the non current asset held for sale as at 31 December 2015 stood at N990 million with a carrying amount of N974 million. The determination of the fair value was conducted by a professional Estate Surveyor and Valuer; Emeka Orji Partnership, with FRC number FRC/2013/NIESV/00000000976.

33


17 Property, plant & equipment (a) Group In thousands of Naira

Land

Freehold buildings

Computer Equipment

Furniture and Fittings

Motor Vehicles

Total

Cost Balance at 1 January 2016 Transfer from investment properties Reclassification Additions Disposals Balance at 30 September 2016

197,525 42,250 239,775

1,780,044 188 1,780,232

300,055 15,801 315,856

575,618 26,243 (6,846) 595,015

826,053 245,402 (111,479) 959,976

3,679,295 329,884 (118,325) 3,890,854

Balance at 1 January 2015 Transfer from investment properties Reclassification Additions Disposals Balance at 31 December 2015

137,649 (2,624) 62,500 197,525

1,161,958 541,887 2,624 73,575 1,780,044

280,857 1,747 17,451 300,055

558,544 (1,747) 22,233 (3,412) 575,618

789,841 117,012 (80,800) 826,053

2,928,849 541,887 292,771 (84,212) 3,679,295

2,456 749 3,205

Computer Equipment 257,760 14,560 272,320

Furniture and Fittings 472,755 33,050 (3,654) 502,151

Motor Vehicles 565,496 118,950 (93,205) 591,241

Total

Balance at 1 January 2016 Charge for the year Reclassification/ transfers Disposals Balance at 30 September 2016

Freehold buildings 161,244 27,020 188,264

1,459,711 194,329 (96,859) 1,557,181

Balance at 1 January 2015 Charge for the year Transfer to intangible assets Disposals Balance at 31 December 2015

16 2,440 2,456

121,064 40,180 161,244

236,307 20,850 603 257,760

425,291 50,656 (603) (2,589) 472,755

472,993 141,489 (48,986) 565,496

1,255,671 255,615 (51,575) 1,459,711

Carrying amounts: Balance at 30 September 2016 Balance at 31 December 2015

236,570 195,069

1,591,968 1,618,800

43,536 42,295

92,864 102,863

368,735 260,557

2,333,673 2,219,584

Depreciation In thousands of Naira

(i) There were no capitalised borrowing costs related to the acquisition of property and equipment during the year (2015: nil). (ii) In the opinion of the directors, the market value of the Group's property and equipment is not less than the value shown in the financial statements. (iii) The Group had no capital commitments as at the balance sheet date (2015: nil)

(b) Company In thousands of Naira

Freehold buildings

Computer Equipment

Furniture and Fittings

Motor Vehicles

Total

Cost Balance at 1 January 2016 Revaluation Additions Disposals Balance at 30 September 2016

-

16,371 2,146 18,517

25,732 3,177 (3,260) 25,649

49,150 49,323 (8,150) 90,323

91,253 54,646 (11,410) 134,489

Depreciation Balance at 1 January 2016 Charge Disposals Balance at 30 September 2016

-

14,731 836 15,567

22,617 1,223 (1,847) 21,993

27,305 8,096 (4,245) 31,156

64,653 10,155 (6,092) 68,716

Carrying amounts: Balance at 30 September 2016 Balance at 31 December 2015

-

2,950 1,640

3,656 3,115

59,167 21,845

65,773 26,600

(i) There were no capitalised borrowing costs related to the acquisition of property and equipment during the period (ii) In the opinion of the directors, the market value of the Company's property and equipment is not less than the value shown in the financial statements. (iii) The Company had no capital commitments as at the balance sheet date (iv) There was no property and equipment that has been pledged as security for borrowing as at 30th September 2016

34


18 Intangible assets In thousands of Naira

Group 30-Sep-16

Group 31-Dec-15

Company 30-Sep-16

Company 31-Dec-15

Cost: At 1 January Additions Reclassification Transfer from property and equipment Balance at 30 September 2016

231,455 7,577 239,032

229,445 2,010 231,455

9,375 9,375

9,375 9,375

Accumulated amortisation: At 1 January Charge for the year Reclassification Transfer from property and equipment Balance at 30 September 2016

192,367 10,609 202,976

182,582 9,785 192,367

9,375 9,375

9,375 9,375

Carrying Amount as at 30 September

36,056

39,088

-

-

The Intangible assets of the Group comprised computer software.The computer software is accounted for using the cost model less accumulated amortization and accumulated impairment. The amortization is charged to the income statements in accordance with the Group's policy. As at 30 September 2016, these assets were tested for impairment, and Management has determined that no impairment is required of these intangibles.

35


19 Employee benefit obligations The Group operates defined contribution pension plan based on the New Pension Act 2014, and a defined benefit gratuity plan based on employee's pensionable and other post-employment remuneration and length of service. Defined benefit plan: The Group offers its employees defined benefit plans in the form of long service awards. The Group operates a Long Service Award scheme for its employees. Qualification for long service awards are 10 years, 15 years, 20 years, 25 years, 30 years and 35 years. The defined benefit obligations are actuarially determined at the year end by H R Nigeria Limited with FRC number FRC/2012/NAS/00000000738. The actuarial valuation is done based on the “Projected Unit Credit” method. Gains and losses of changed actuarial assumptions are charged to other comprehensive income. (a) The details of the defined benefit plans are as below: Group 30-Sep-16

Group 31-Dec-15

Company 30-Sep-16

Company 31-Dec-15

Pension (net asset)

127,603

154,016

-

-

Employee benefit asset in statement of financial position

127,603

154,016

-

-

(539)

(514,004)

(11,071)

(41,467)

(43,332) (43,870)

(56,004) (570,008)

(1,863) (12,934)

(1,862) (43,329)

Gratuity (outstanding liability) Long service award (outstanding liability) Employee benefit liability in statement of financial position 20 Statutory deposits

In line with section 10 (3) of the Insurance Act of Nigeria, a deposit of 10% of the regulatory share capital is kept with the Central Bank of Nigeria. The cash amount held is considered to be a restricted cash balance. In thousands of Naira

Deposits with CBN

Group 30-Sep-16

Group 31-Dec-15

Company 30-Sep-16

Company 31-Dec-15

555,000

555,000

-

-

The analysis of the statutory deposit is as follows: Deposit with CBN for non-life business Deposit with CBN for life business

340,000 215,000

340,000 215,000

-

-

555,000

555,000

-

-

36


21 Deferred taxation The movement in the net deferred tax assets/(liabilities) during the year are shown below: Group In thousands of Naira

Note

Net balance as at 1 January

2016 Recognised in profit Recognised in or loss OCI

Deferred tax assets Property and equipment, and software Allowances for loans and receivables Unrelieved loss Employee benefits Foreign exchange

39,401 242,663 145,557 -

(28,207)

Deferred tax assets

427,621

5,712

Deferred tax liabilities Investment properties

(244,868) 182,753

Net deferred tax assets/(liabilities)

33,919

5,712

Net balance as at 30 September 2016

-

11,194 242,663 179,476 -

-

433,333

-

(244,868) 188,465

-

Group In thousands of Naira

Note

Net balance as at 1 January

2015 Recognised in profit Recognised in or loss OCI

Net balance as at 31 December 2015

Deferred tax assets Property and equipment, and software Allowances for loans and receivables Unrelieved loss Employee benefits Foreign exchange

(11,235) 507,197 144,857 (374)

50,636 (264,534) (6,713) 374

7,413 -

39,401 242,663 145,557 -

Deferred tax assets

640,445

(220,237)

7,413

427,621

(172,495)

(72,373)

-

467,950

(292,610)

7,413

(244,868) 182,753

Deferred tax liabilities Investment properties Net deferred tax assets/(liabilities)

37


22 Deferred income In thousands of Naira Deferred rental income (see 21(a) below) Deferred acquisition income (see 21(b) below) At 31 December (a) Deferred rental income In thousands of Naira At 1 January Additions during the year Amortised for the year At 31 December

Group 30-Sep-16 23,392 162,062 185,454

Group 31-Dec-15 23,392 98,777 122,169

Company 30-Sep-16 -

Company 31-Dec-15 -

Group 30-Sep-16 23,392 -

Group 31-Dec-15 28,716 34,060 (39,384)

Company 30-Sep-16 -

Company 31-Dec-15 -

23,392

23,392

-

-

(b) Deferred acquisition income This represents the unexpired portion of commission received from businesses ceded to Reinsurers as at the reporting date. In thousands of Naira

Group 30-Sep-16

Group 31-Dec-15

Company 30-Sep-16

Company 31-Dec-15

Balance at start of the year Additions in the year Amortization in the year

98,777 389,489 (326,204)

73,518 305,245 (279,986)

-

-

162,062

98,777

-

-

Group 30-Sep-16 119,875 2,274

Group 31-Dec-15 358,483 5,018,782 10,364

Company 30-Sep-16 -

Company 31-Dec-15 -

122,149

5,387,629

-

-

122,149 122,149

5,387,629 5,387,629

-

-

At 31 December 23 Trade payables In thousands of Naira Reinsurance payables Individual life payables Deposit for premium Premium payables to Co-insurers


The carrying amount disclosed above approximate fair value at the reporting date. All amounts are payable within one year

38


24 Other liabilities In thousands of Naira Due to related parties (see 24(a) below) Other liabilities (see 24(b) below)


(a) Due to related parties In thousands of Naira

Group 30-Sep-16 1,750,295

Group 31-Dec-15 1,469,737

Company 30-Sep-16 1,029,250 590,020

Company 31-Dec-15 738,352 461,633

1,750,295

1,469,737

1,619,270

1,199,985

1,382,788 367,507 1,750,295

1,382,788 86,949 1,469,737

215,287 1,403,983 1,619,270

215,287 964,565 1,179,852

Group 30-Sep-16

Group 31-Dec-15

Company 30-Sep-16

Company 31-Dec-15

-

-

1,029,250

466,294 272,058 738,352

Group 30-Sep-16

Group 31-Dec-15

Company 30-Sep-16

Company 31-Dec-15

1,333 96,331 4,144

9,447 248,033 105,699 101,326 38,914 29,526 108

37,636 46,059 85,055 -

35,297 46,182 76,920 -

237,193 52,444

237,193 52,444 13,597 461,633

Company 31-Dec-15 -

Royal Exchange General Insurance Company Royal Exchange Prudential Life Limited Royal Exchange Microfinance Bank

(b) Analysis of other liabilities is as follows: In thousands of Naira

Defferred income Accruals PAYE and WHT payables VAT Payable NAICOM levy Deposit for shares Staff payables Finance Lease Bank overdrafts (see note 5 above) CBN Loan Dividend payable held as collateral Unclaimed Dividend Trustee Fund Sundry creditors

25 Depositors' funds In thousands of Naira Royal Exchange investment notes Royal Prudential Annuity fund High yield investment papers Savings Demand deposit Term deposit and call borrowings

164,394 30,618 143,275

704,232 325,018

237,193 62,919 1,010,088 1,750,295

647,047 1,469,737

237,193 62,919 121,158 590,020

Group 30-Sep-16 112,960 1,037,239 30,720 34,383 40,638 1,255,940

Group 31-Dec-15 31,482 1,040,041 29,686 19,593 75,522 1,196,324

Company 30-Sep-16 -

39


26 Insurance contract liabilities In thousands of Naira Non-life general insurance Healthcare insurance Life insurance

27 Investment contract liabilities In thousands of Naira Deposit administered funds Investment managed funds

Group 30-Sep-16 5,769,671 155,232 4,333,729 10,258,632

Group 31-Dec-15 4,434,285 172,498 3,656,421 8,263,204

Company 30-Sep-16 -

Company 31-Dec-15 -

Group 30-Sep-16 125,590 221,251

Group 31-Dec-15 113,911 222,360

Company 30-Sep-16 -

Company 31-Dec-15 -

346,841

336,271

-

-

40


28 Taxation (a) Charge for the year Recognised in profit or loss In thousands of Naira Notes Income tax (Over)/under provision in prior years Capital gains tax Education tax Technology tax WHT expense Deferred tax charge/(credit) Income taxes Minimum tax

(b) Current income tax liabilities In thousands of Naira At 1 January Charge for the year Payment during the year At 31 December 29 Borrowings In thousands of Naira Bank borrowing (see note 29(i) below)

20

Group 30-Sep-16 78,857 9,013 87,870 87,870

Group 31-Dec-15 7,971 14,267 3,354 1,525 27,117 18,740 292,610 338,467

Company 30-Sep-16 -

Company 31-Dec-15 -

-

63,532

-

-

87,870

401,999

-

-

Group 30-Sep-16 488,713 87,870 (68,867)

Group 31-Dec-15 502,951 90,649 (104,887)

Company 30-Sep-16 255,109 -

Company 31-Dec-15 255,109 -

507,716

488,713

255,109

255,109

Group 30-Sep-16

Group 31-Dec-15

Company 30-Sep-16

Company 31-Dec-15

852,353

872,257

875,703

1,020,083

(i) The amount of ₦828,035,000 represents the carrying amount of a ₦800,000,000 term loan obtained from WEMA Bank Plc as at 31 December 2015 to finance the Company's investment in Royal Exchange General Insurance Company Limited. The facility is effective 29th December 2015 with a tenor of six months (180 days) at fourteen (17.5) percent interest rate to the Company. The accrued interest and the principal amount are payable by bullet payment on or before maturity.

41


30 Share capital and premium In thousands of Naira

Group 30-Sep-16

Group 31-Dec-15

Company 30-Sep-16

Company 31-Dec-15

Authorized share capital 10,000,000,000 ordinary share of 50k each

5,000,000

5,000,000

5,000,000

5,000,000

Issued share capital 5,145,370,074 ordinary share of 50k each

2,572,685

2,572,685

2,572,685

2,572,685

Group 30-Sep-16

Group 31-Dec-15

Company 30-Sep-16

Company 31-Dec-15

2,690,936

2,690,936

2,690,936

2,690,936

Share capital comprises

31 Share premium In thousands of Naira

As at year end 32 Contingency reserve

In compliance with Section 21(1) of Insurance Act 2003, the contingency reserve for general business is credited with the greater of 3% of gross premium or 20% of Net Profit and accumulated until it reaches the amount of greater of minimum Paid up Capital or 50 percent of Net Premium, where as, the contingency reserve for life business is credited with the greater of 1% of gross premium or 10% of Net Profit and accumulated until it reaches the amount of greater of minimum Paid up Capital or 50 percent of net premium. In thousands of Naira

Group 30-Sep-16

Group 31-Dec-15

Company 30-Sep-16

Company 31-Dec-15

Beginning of the year Transfer from profit or loss account As at year end

1,422,919 259,192 1,682,111

1,176,375 246,544 1,422,919

-

-

Group 30-Sep-16

Group 31-Dec-15

Company 30-Sep-16

Company 31-Dec-15

(500,000)

(500,000)

-

-

33 Treasury shares In thousands of Naira

As at year end

Treasury shares represent the cost of the 250,000,000 ordinary shares of the company (2013:N500,000,000) held by the Security holding trust Ltd as share ownership scheme for staff of a subsidiary as at 30 September 2016. 34 Retained earnings The amount represents the retained earnings available for dividend distribution to the equity shareholders of the company (if approved at the Annual General Meeting). For the analysis of movement in Retained Earnings, see the 'Statement of Changes in Equity' Group Group Company Company In thousands of Naira 30-Sep-16 31-Dec-15 30-Sep-16 31-Dec-15 At the beginning of the year Transfer from profit and loss Transfer to contingency reserve Transfer to regulatory reserve Deferred tax effects Dividend paid during the year At the end of the year

834,374 186,725 (259,192) -

2,657,434 (1,298,960) (246,544) (174,649) (102,907)

1,254,849 (265,680) -

1,487,563 (129,807) (102,907)

761,907

834,374

989,169

1,254,849

35 Other Component of Equity Other component of equity comprises of actuarial gains or losses on employee benefit obligation, cumulative net change in the fair value of available-for-sale financial assets until assets are derecognized and transfers to regulatory risk reserve. (a) Actuarial losses gains or on employee benefit obligation In thousands of Naira

At the beginning of the year Actuarial (losses)/gain Tax effects on other comprehensive income At the end of the year

Group 30-Sep-16

Group 31-Dec-15

Company 30-Sep-16

Company 31-Dec-15

41,753 41,753

109,485 (75,145) 7,413 41,753

420 420

423 (3) 420

42


(b) Fair value reserves In thousands of Naira

At the beginning of the year Fair value (losses) At the end of the year (c ) Regulatory risk reserve In thousands of Naira At the beginning of the year Transfer from profit or loss account At the end of the year Total other component of equity

Gross Written Premium In thousands of Naira

Gross written Premium Non-Life Life Healthcare Unearned Premium Non-Life Life Healthcare Earned Premium

36 Reinsurance expenses In thousands of Naira Non-life reinsurance premiums: Gross written reinsurance premiums Change in reinsurance unearned premiums Life reinsurance premiums: Insurance premium ceded to reinsurers

37 Fee and commission income In thousands of Naira Reinsurance commissions on non-life business Reinsurance commissions on life business Reinsurance commissions on Healthcare Business

Group 30-Sep-16

Group 31-Dec-15

Company 30-Sep-16

Company 31-Dec-15

65,340 300 65,640

53,122 12,218 65,340

-

-

Group 30-Sep-16 298,229 298,229

Group 31-Dec-15 123,580 174,649 298,229

Company 30-Sep-16 -

Company 31-Dec-15 -

405,622

405,322

420

420

Group 30-Sep-16

Group 30-Sep-15

Company 30-Sep-16

Company 30-Sep-15

7,681,540 2,874,578 265,261 10,821,379

5,906,222 2,676,746 290,741 8,873,709

-

-

(1,193,678) (258,906) 19,253 (1,433,331) 9,388,048

(695,335) 27,838 (13,736) (681,233) 8,192,476

-

-

Group 30-Sep-16

Group 30-Sep-15

Company 30-Sep-16

Company 30-Sep-15

3,862,915 (838,178) 3,024,737

1,950,102 (221,731) 1,728,371

-

-

207,977 3,232,714

324,231 2,052,602

-

-

Group 30-Sep-16 326,204 30,815

Group 30-Sep-15 234,072 52,294 21,295 307,661

Company 30-Sep-16 -

Company 30-Sep-15 -

-

-

357,019 38 Insurance claims and benefits incurred In thousands of Naira

Group

Group

Company

Company

30-Sep-16

30-Sep-15

30-Sep-16

30-Sep-15

Insurance claims and benefits incurred on non-life busines(see note 38(i) below)

1,825,452

1,708,739

-

-

Insurance claims and benefits incurred on life busines(see note 38(ii) below)

1,572,082

1,208,035

-

-

Insurance claims and benefits incurred on healthcare business (see note 38(iii) below)

154,581 3,552,115

198,874 3,115,648

-

-

Group 30-Sep-16 670,813 701,720 450,507 11,418 (72,575) 63,569 1,825,452

Group 30-Sep-15 600,765 636,181 350,300 86,228 (5,756) 41,021 1,708,739

Company 30-Sep-16 -

Company 30-Sep-15 -

Group 30-Sep-16 843,577 310,102

Group 30-Sep-15 835,718 197,176

Company 30-Sep-16 -

Company 30-Sep-15 -

Increase/decrease in outstanding claims short term insurance contract

413,810

174,512

-

Increase/decrease in outstanding claims long term insurance contract Increase/decrease in investment contract liabilities

4,593 1,572,082

629 1,208,035

-

Group 30-Sep-16 154,581

Group 30-Sep-15 198,874

Company 30-Sep-16 -

154,581

198,874

-

(i) Insurance claims and benefits incurred on Non-life busines: In thousands of Naira Motor and accident Fire and IAR Marine Engineering Bond Special risk

(ii) Insurance claims and benefits incurred on life busines: In thousands of Naira Short term insurance contract Long term insurance contract

-

(iii) Insurance claims and benefits incurred on healthcare business: In thousands of Naira Short term insurance contract Increase/decrease in outstanding claims short term insurance contract

-

Company 30-Sep-15 -

43


39 Insurance claims and benefits incurred - recoverable from reinsurers In thousands of Naira

Group 30-Sep-16

Group 30-Sep-15

Insurance claims and benefits incurred- recoverable on non-life busines(see note 38(i) below)

793,182

484,555

Insurance claims and benefits incurred-recoverable on life busines(see note 38(ii) below)

235,593

197,172

-

-

1,028,775

681,727

-

-

Group 30-Sep-16 150,967 376,995 106,612 139,869 3,320 15,419 793,182

Group 30-Sep-15 74,700 298,254 97,035 22,145 (2,581) (4,998) 484,555

Company 30-Sep-16 -

Company 30-Sep-15 -

Group 30-Sep-16 235,593 -

Group 30-Sep-15 197,172 -

Company 30-Sep-16 -

Company 30-Sep-15 -

Increase/decrease in outstanding claims short term insurance contract

-

-

-

Increase/decrease in outstanding claims long term insurance contract Increase/decrease investment contract liabilities

235,593

197,172

-

-

Group 30-Sep-16 812,448 221,492 46,903 884,498 43,578 2,008,919

Group 30-Sep-15 593,140 213,487 1,218,932 1,215 35,471 2,062,245

Company 30-Sep-16 -

Company 30-Sep-15 -

Group 30-Sep-16

Group 30-Sep-15

Company 30-Sep-16

Company 30-Sep-15

51,176 564 202,033 54,844 308,617

38,427 1,552 223,219 4,139 267,337

-

-

-

-

(2,602) (91,910) 214,105

(1,605) (94,711) (548) 170,473

-

-

-

-

Insurance claims and benefits incurred- recoverable on healthcare business

(i) Insurance claims and benefits incurred- recoverable on non-life busines: In thousands of Naira Motor and accident Fire and IAR Marine Engineering Bond Special risk

(ii) Insurance claims and benefits incurred- recoverable on life busines: In thousands of Naira Short term insurance contract Long term insurance contract

Company 30-Sep-16 -

Company 30-Sep-15 -

-

40 Underwriting expenses In thousands of Naira Acquisition costs: Non-life business Acquisition costs: Life Acquisition costs: Healthcare Salaries & Allowances - underwriting employees Guaranteed interest on life products Other commissions

41 Net Interest Income In thousands of Naira Gross Interest Income: Interest income on placement with local banks Interest income on treasury bills Interest income on loans and receivables Interest income on advances under finance lease Interest expense: Interest expense on depositors funds Interest income on loans and receivables Interest expense on advances under finance lease Net interest income 42 Investment and other income

Group

Group

30-Sep-16 In thousands of Naira

Debt securities: *Available-for-sale *At fair value through profit/loss *Loans & receivables (amortised cost) Equity securties: Dividend from investment in subsidiaries Income on disposal of equities (FVTPL &AFS) *Available-for-sale *At fair value through profit/loss Derivative financial instruments: Investment properties Cash and cash equivalents Deposits with credit institutions Investment management income Net realised gains and losses

Net investment income

30-Sep-15 Net investment income

Company

Company

30-Sep-16

30-Sep-15



4,596

-

-

-

237,853 -

82,740 -

-

-

-

-

-

10,049 -

19,063 10,209 8,818 12,201 8,000 46,607 206,073

-

24,064 19,334 295,896

393,711

131,000 -

-

-

131,000

44


43 Net fair value gain or loss on financial assets In thousands of Naira

Debt securities: *At fair value through profit/loss *Loans & receivables (amortised cost) Equity securties: *At fair value through profit/loss Derivative financial instruments: Investment properties Cash and cash equivalents

44 Charge/(write-back) of impairment allowance In thousands of Naira Allowance/(write back) on premium receivables(see note 10(a)(ii) Allowance/(write back) on reinsurance receivables -(see note 10(b)(i)) Allowance on loans and advances (see note6(d)) Allowance on advance under lease (see note 7(b)) Allowance on other receivables (see note 13(c )(i)) Write back of impairment on other receivables (see note 13(c )(i)) Write back of impairment on premium receivables (see note 10(a)(ii) Allowance on financial assets (see note 8(a)(i))

45 Other operating income In thousands of Naira Rental income Profit on disposal of property & equipment Interest on loan & advances Management fee income from subsidiaries Renewal Incentive bonus on oil & gas Other income Other commission income Derecognized items Fees for services rendered Recoveries of previously written off assets

46 Foreign exchange gains/(losses) In thousands of Naira

(Loss)/gains on translation of foreign currency transactions 47 Management expenses In thousands of Naira Salaries and allowances of other employees Post employment defined benefit expenses Audit fees Amortization and impairment charges Depreciation on property and equipment Promotional and advert expenes Rent and rates Directors' fees Donations Bank charges Legal fee Insurance premium Accounting consultancy fee Investment expenses Finance cost Power charges Government charges Stationeries Printing external Repairs and maintenance Transport expenses Transport fare swt Software expenses Subscription and journals E-business Fine paid (contravention) Other administrative expenses

Group 30-Sep-16 Changes in fair value

Company Group 30-Sep-15 30-Sep-16 Changes in fair Changes in fair value value

Company 30-Sep-15 Changes in fair value

-

-

-

-

(25,334) (88,334) (113,668)

(219,413) (219,413)

-

-

Group 30-Sep-16 65,237

Group 30-Sep-15 (39,782)

Company 30-Sep-16 -

Company 30-Sep-15 -

(15,760) -

-

-

(55,542)

-

-

Company 30-Sep-16 162,604 105

Company 30-Sep-15 170,783 -

359,329

Group 30-Sep-15 15,690 (4,599) 36 90,590 694 506 12,780 115,697

162,709

170,783

Group 30-Sep-16

Group 30-Sep-15

Company 30-Sep-16

Company 30-Sep-15

21,806 (18,333) 68,710

Group 30-Sep-16 38,700 (945) 814 306,050 14,710

(579)

46,538

-

-

Group 30-Sep-16 657,298 120,953 13,874 6,319 197,863 8,436 1,160 20,712 225 24,757 19,821 187,459 49,117 158,677 125,323 2,951 1,851 3,580 24,395 88,405 99,127 142 1,642 282 578,661 2,393,030

Group 30-Sep-15 653,139 93,249 14,562 2,558 193,771 13,261 1,145 15,575 3,965 29,150 19,632 65,140 50,194 (78,058) 112,109 9,615 1,029 3,500 36,031 83,179 64,720 33,650 155 2,032 2,798 865,391 2,291,492

Company 30-Sep-16 61,715 103,819 10,155 (125) 1,065 2,338 8,884 296 2,401 124,607 (35) 69 2,260 47,610 397 128 62,805 428,389

Company 30-Sep-15 65,911 13,938 3,203 6,749 1,426 1,065 280 711 928 5,690 8,979 110,883 3,357 1,029 5,345 1,238 31,327 683 2,626 104,997 370,365

Group 30-Sep-16

Group 30-Sep-15

Company 30-Sep-16

Company 30-Sep-15

(5)

(1)

48 Earnings per share

Basic and diluted earnings per share(kobo)

4

1

45