KNOW YOUR LIFE INSURER - Ceylinco Life · 2018-06-22 · Ceylinco Life Insurance Limited Ceylinco...

Ceylinco Life In

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Ceylinco Life Insurance Limited Integrated Annual Report 2017

Ceylinco Life Insurance LimitedNo. 106, Havelock Road, Colombo 5, Sri Lanka.T: +94 11 246 1000 F: +94 11 255 5959 E: [email protected] W: www.ceylincolife.com

KN

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YOU

R LIFE IN

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ERIntegrated A

nnual Report 2017

To take the message of Life Insurance and Retirement Planning to every Sri Lankan and provide protection to every family.

OUR VISION

To become the most trusted, acclaimed and progressive life insurance company in Sri Lanka, by providing need based life insurance solutions to our customers, recognising and rewarding our employees, creating successful partnerships with stakeholders and ensuring sustainable business practices for sustainable, responsible and profitable growth, while leaving a smaller carbon footprint on the planet.

OUR PURPOSE

Life insurance is for life. It brings a policyholder and the Company together in a close knit relationship that spans a lifetime. As this relationship progresses through the years, it also grows immense trust between the policyholder and the Company. At Ceylinco Life, such relationships and trust are invaluable as we understand life policies don’t merely protect the policyholder but whilst building peace of mind and a secured life, they also provide succour and comfort to their loved ones – and this is a pact that we hold sacrosanct.

CONTENTS

1–10 PreambleAbout this Report 06

Highlights of the Year 08

11–36 Messages and Management ProfilesMessage from the Chairman 12

Chief Executive Officer’s Review 16

Board of Directors 22

Corporate Management 30

Managers 34

37–79 Business ModelOrganisational Overview 38

Operating Environment 42

Strategic Direction 57

Our Business Model 67

Stakeholders and Materiality 70

81–153 Management Discussion and AnalysisFinancial capital 82

Intellectual Capital 92

Manufactured Capital 98

Social and Relationship Capital 104

– Investor Capital 106

– Customer Capital 108

– Business Partner Capital 119

– Social Capital 126

Employee Capital 132

Natural Capital 148

Events 154

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157–216 StewardshipRisk Management 158

Corporate Governance 165

Annual Report of the Board of Directors 186

Board Subcommittees 194

Report of the Remuneration Committee 196

Report of the Nomination Committee 197

Report of the Audit Committee 198

Report of the Related Party Transactions Review Committee 200

Investment Committee Report 201

Board Investment Committee Report 212

Statement of Directors' Responsibility to Financial Reporting 213

Chief Financial Officer’s Statement 214

The Board’s Statement on Internal Control 215

217–308 Financial ReportsFinancial Calendar 217

Understanding Our Financials 218

Actuarial Report 221

Independent Auditors' Report 222

Statement of Financial Position 223

Statement of Comprehensive Income 224

Statement of Changes in Equity 226

Statement of Cash Flow 227

Insurance Revenue Account 229

Notes to the Consolidated Financial Statements 230

309–330 Supplementary InformationQuarterly Analysis 310

Ten Year Summary 312

Milestones 314

GRI Content Index 316

Sustainability Assurance Report 321

Branch Network 322

Glossary of Key Terms 329

Stakeholder Feedback Form – Enclosed

Corporate Information – Inner Back Cover

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CEYLINCO LIFE INSURANCE LIMITED INTEGRATED ANNUAL REPORT 2017

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OUR VALUES

“We have nearly one million Sri Lankan lives covered by active life policies and have been the market leader in Sri Lanka’s life Insurance industry for fourteen consecutive years”

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In delivering life insurance and retirement planning solutions to meet the individual needs of our customers.

PROFESSIONALISM

Customers, sales force, staff for their dedication and loyalty.

REWARDING

In everything we do, individually and collectively.

INTEGRITY

In communicating the importance of Life Insurance and Retirement Planning to every Sri Lankan.

DEDICATION

In customer service, product development, innovation and fulfilling our social responsibility.

EXCELLENCE

OUR PRIDE

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17PREAMBLE MESSAGES AND MANAGEMENT PROFILES BUSINESS MODEL MANAGEMENT DISCUSSION AND ANALYSIS

ABOUT THIS REPORT

Precautionary principleThe precautionary principle is applied in relation to our social and environmental sustainability. Being mindful of the impact of our actions, we have taken necessary measures to mitigate the risks caused to society and environment. Such impacts are also considered in new product developments. These are detailed under Social and Relationship Capital on pages 104 to 130.

ComplianceThe Financial Statements of Ceylinco Life Insurance Limited has been prepared in accordance with the Sri Lanka Accounting Standards issued by The Institute of Chartered Accountants of Sri Lanka.

This Report presents a detailed yet concise account of the Company’s value creation process over the short, medium and long-term towards its stakeholders. It offers a detailed view into the strategy, governance and capital management and detailed information about the financial performance in the context of the surrounding operating environment in 2017. Finally, the Report addresses all queries pertaining to making sound decisions about the Company and its activities.

Report structureThe Annual Report 2017 covers the 12-month period from 1 January to 31 December 2017, which is consistent with the usual annual reporting cycle for financial and sustainability reporting. The most recent report of the Company for the year ended 31 December 2016 is available on our website: http://www.ceylincolife.com. There are no significant changes from previous reporting periods in the scope and topic boundaries neither are there any restatements as compared to the Annual Report issued in previous reporting years.

The Annual Report 2017 discusses the strategy, governance, financial and non-financial performance and future prospects in the context of the value creation process, in a holistic manner.

Report boundaryThis Report covers the entirety of operations of Ceylinco Life Insurance Limited together with its three subsidiaries – Serene Resorts Limited, Ceylinco Seraka Limited and Ceylinco Healthcare Services Limited and associate company – Citizens Development Business Finance PLC, which are in unrelated businesses and are collectively referred to as “Group” in this Annual Report. Whilst the key financial aspects are discussed in the context of the Company as well as the Group, the non-financial aspects are discussed from the perspective of the Company.

The materiality determination process is discussed under Materiality Assessment that begins on page 76.

External assuranceThe Financial Statements and related notes and disclosures published in this Report have been audited by the Company’s Independent External Auditors, Messrs Ernst & Young, Chartered Accountants and the Independent Auditors’ Report is given on page 222. We also engaged our External Auditor, to provide reasonable assurance on the non-financial content of this Report within the Global Reporting Initiative (GRI) Sustainability Reporting Guidelines. The report and conclusions of Ernst and Young can be found in their Assurance Report on page 321.

This is the third consecutive Integrated Annual Report of Ceylinco Life Insurance Limited.

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STEWARDSHIP FINANCIAL REPORT SUPPLEMENTARY INFORMATION ABOUT THIS REPORT

The Company has followed additional guidelines as established by the Companies Act No. 07 of 2007, Regulation of Insurance Industry Act No. 43 of 2000 as amended and Rules and Regulations issued by the Insurance Regulatory Commission of Sri Lanka (IRCSL).

In writing this Report, we bridge the mandatory standards applicable to Ceylinco Life for financial reporting, with voluntary frameworks and standards, such as those from the International Integrated Reporting Council (IIRC) and the Global Reporting Initiative (GRI).

In particular, we have drawn on concepts, principles and guidance, of Global Reporting Initiative (GRI) Sustainability Reporting Guidelines GRI Standards, where

we have opted for the “In accordance – Core” option, the United Nations Sustainable Development Goals (UNSDG) and the Smart Integrated Reporting MethodologyTM.

For governance-related matters, where applicable, we voluntarily comply with the Code of Best Practice on Corporate Governance issued jointly by The Institute of Chartered Accountants of Sri Lanka and the Securities and Exchange Commission of Sri Lanka.

QueriesWe welcome your comments

or inquiries on this Integrated

Annual Report 2017 which could

be addressed to the Company

Secretarial Department:

Ms Chalana Waidyasekera,

Company Secretary

Ceylinco Life Insurance Limited,

No. 106, Havelock Road,

Colombo 5,

Sri Lanka

Tel : +94 11 246 1117

E-mail : [email protected]

Website : www.ceylincolife.com

Call Centre : +94 11 246 1461

Skype ID : companysecretary_ceylife

We continuously adopted the theme titled “Know Your Life Insurer” for the third consecutive year in our Annual Report. This is because we want our customers and all our stakeholders to know us: our personality, our ethics, our business acumen and strengths. It is our intent on making ourselves better understood by all our stakeholders.

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HIGHLIGHTS OF THE YEAR

Financial Highlights

Company

Year Ended 31 December 2017Rs. ’000

2016Rs. ’000

Change%

Results for the Year

Gross written premium 15,765,484 15,027,600 4.91

Net claims/net benefits 6,686,980 6,651,682 0.53

Increase in long-term insurance fund 7,258,502 8,397,889 (13.57)

Investments and other income 10,280,547 8,780,689 17.08

Transfer to retained earnings (Annual shareholder transfer) 4,500,000 2,300,000 95.65

Transfer to retained earnings (One-off surplus transfer) 3,456,184 –

Profit before taxation (Including one-off surplus transfer) 9,807,535 3,743,727 161.97

Profit before taxation (Excluding one-off surplus transfer) 6,351,351 3,743,727 69.65

Profit after taxation (Including one-off surplus transfer) 9,467,426 3,079,042 207.48

Profit after taxation (Excluding one-off surplus transfer) 6,011,241 3,079,042 95.23

Position at the Year End

Shareholder's equity (Including one-off surplus transfer) 20,646,898 11,911,830 73.33

Shareholder's equity (Excluding one-off surplus transfer) 17,190,714 11,911,830 44.32

Long-term insurance fund 81,723,759 77,925,114 4.87

Investments 92,264,065 84,220,630 9.55

Total assets 106,094,505 96,458,089 9.99

Year Ended 31 December 2017

2016 Change%

Per Ordinary Share

Earnings (Basic) (Including one-off surplus transfer) (Rs.) 189.35 61.58 207.48

Earnings (Basic) (Excluding one-off surplus transfer) (Rs.) 120.22 61.58 95.23

Interim dividends (Rs.) 8.64 5.42 59.34

Final dividends (Rs.) 0.36 2.08 (82.67)

Total dividends (Rs.) 9.00 7.50 20.00

Net asset per share (Including one-off surplus transfer) (Rs.) 412.94 238.2 73.33

Net asset per share (Excluding one-off surplus transfer) (Rs.) 343.81 238.2 44.32

Ratios

Return on total assets (Including one-off surplus transfer) (%) 8.92 3.19 179.55

Return on total assets (Excluding one-off surplus transfer) (%) 5.67 3.19 77.50

Return on equity (Including one-off surplus transfer) (%) 45.85 25.85 77.39

Return on equity (Excluding one-off surplus transfer) (%) 34.97 25.85 35.28

Dividend cover (Times) (Including one-off surplus) 21.04 8.21 156.23

Dividend cover (Times) (Excluding one-off surplus) 13.36 8.21 62.69

Dividend payout ratio (Excluding one-off surplus) 4.75 12.18 (60.97)

Dividend payout ratio (Including one-off surplus) 7.49 12.18 (38.53)

Capital Adequacy Ratio

Total Available Capital (TAC) (Rs. Mn.) 52,477 43,094 22.36

Risk-based Capital Requirement (RCR) (Rs. Mn.) 13,985 12,848 5.72

Risk-based Capital Adequacy Ratio (CAR) (%) 375 335 15.82

Minimum CAR required by regulator (%) 120 120 –

PREAMBLE MESSAGES AND MANAGEMENT PROFILES BUSINESS MODEL MANAGEMENT DISCUSSION AND ANALYSIS

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STEWARDSHIP FINANCIAL REPORT SUPPLEMENTARY INFORMATION HIGHLIGHTS OF THE YEAR

FINANCIALCAPITAL

EMPLOYEECAPITAL

MANUFACTUREDCAPITAL

INTELLECTUALCAPITAL

SOCIAL AND RELATIONSHIP

CAPITALWorth of net claims and benefits paid

Rs. 6.6 Bn.

333 Employees over 15 years of service out of 890 employees

Rs. 903 Mn. investment in Property, Plant and Equipment in 2017

People's life Insurance Brand of the Year for 11th Consecutive Year

Profits retained in 2017 for future growth

Rs. 5.2 Bn.Increase in dividend payout

Rs. 75 Mn.

Life fund grew to

Rs. 81.7 Bn.

A remarkable profit after tax Rs. 9.5 Bn.

Total assets reached

Rs. 106 Bn.

Capital Adequacy Ratio (CAR)

Regulatory MinimumCAR

vs

375% 120%

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Non-Financial Highlights

HIGHLIGHTS OF THE YEAR

Indicator 2017 2016

Manufactured capital

Total number of branches 273 259

Investments in property, plant and equipment Rs. ’000 903,536 366,349

Intellectual capital

New products introduced 2 1

Investment in IT systems Rs. Mn. 75 23

Top of the mind recall % 46 53

Brand equity index 3.9 4.1

Customer capital

Number of new policies 126,838 143,622

Claims and benefits paid Rs. ’000 6,884,013 6,800,076

Number of claims paid over one million 353 444

Breaches of customer privacy – –

Non-compliance with laws and regulations – –

Business partner capital

Reinsurance expense Rs. ’000 422,217 373,829

Reinsurance claim recoveries Rs. ’000 197,033 148,394

Commission paid to agents Rs. ’000 1,720,414 1,645,363

Employee capital

Total workforce 890 910

Total number of new employees hired during the reporting period 54 68

Employee turnover during the period – (count) 78 88

Attrition of new hires (as a percentage of total new hires) % 15 20

Number of injuries – –

Percentage of employees receiving performance reviews % 100 100

Social and environmental capital

Electricity consumption KW 2,251,964 2,481,371

Fuel consumption within the Organisation litres 283,058 302,423

Water consumption units 28,584 34,724

Waidya hamuwa projects 13 14

School development projects 3 2


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STEWARDSHIP FINANCIAL REPORT SUPPLEMENTARY INFORMATION

MESSAGES ANDMANAGEMENT PROFILES

Message from the Chairman 12

Chief Executive Officer’s Review 16

Board of Directors 22

Corporate Management 30

Managers 34

Dynamic vision and bold choices, together with a clear focus on long-term value creation for our stakeholders, we continue to build a robust organisation that our customers trust and society value.

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MESSAGE FROM THE CHAIRMAN

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STEWARDSHIP FINANCIAL REPORT SUPPLEMENTARY INFORMATION MESSAGE FROM THE CHAIRMAN

Our journey began in 1987 which means that 2017 marks a memorable milestone of 30 years of success, first as a division of Ceylinco Insurance PLC and since mid 2015, as a separate legal entity. During our entire history, success never became a destination. It was a journey moving from one success to another. During this period challenges were overcome, threats were subdued and attempts to usurp the leadership were thwarted. Our Company moved. So now it is a time for celebration. A time for rewarding. A time for recognition.

Now that we have reached the 30th milestone let us not be complacent. Let us remember that it is not a destination. It is only a way-side stop. A stop, during which we will reflect as to why we succeeded? And if at any point we failed however temporarily, why we failed? We will also look at the future and ask ourselves the question – what will be the scenario? Worst case or best case, we will strategies. We will get re-energised. We will be prepared, because it is a continuous journey of success.

It is a responsibility now lying on our shoulders which was handed over to us by our predecessors even as we will have to, at some point of time, hand it over to our successors.

During this entire 30-year journey there was only one leader whose integrity, enthusiasm and determination set the standard for everyone else to follow. He set the goal each year and was uncompromising when any overture was made to change it. Mr R Renganathan has to me personally and to the entire team at Ceylinco Life Insurance been a role model. This makes it my privilege to serve as Chairman. Ceylinco Life is what it is today due to the leadership of Mr Renganathan.

A commendableperformance

Details of performance, relevant figures and facts can be found in this Integrated Annual Report and content has been made more descriptive and understandable with diagrams and charts.

It is also my pleasant duty to thank my fellow Directors, who through their individual expertise and disciplines have blended into a truly professional team which ensures that the concept of “Good Governance” is observed both in spirit and in letter and at the same time stimulating the attainment of the highest level of corporate values.

“Success is a journey not a destination.” Arthur Ashe

– Wimbledon Champion and author of the best

seller “A Hard Road to Glory”

Asking the customer to “Know Your Life Insurer” we on our part must “Know Our Customer”. This is a long-term process and Keeping In Touch (KIT) is very important.

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17MESSAGE FROM THE CHAIRMAN

However, I wish to refer to some of the highlights which have made 2017 a very special year in keeping with the significance of the Company’s 30-year history.

Ceylinco Life has for the 14th successive year become the industry market leader recording an increase of 4.9% in Gross Written Premium (GWP) totalling Rs. 15.7 Bn.; the highest ever in the Company’s history. Company’s Life Fund which is the fastest growing in the industry reached Rs. 81.7 Bn. This feat as yet unmatched in Sri Lanka was achieved in a span of 30 years of operations.

Ceylinco Life continued to deliver increased value for its policyholders with unparalleled benefits such as the Avurudu Cash Bonus and the exciting Family Savaris. The unique and innovative product portfolio caters to the specific long-term needs of customers belonging to a variety of market segments.

Company’s expanded branch network spread across Sri Lanka has made Life Insurance more accessible and more convenient. Leveraging on modern technology, the sales force is equipped to reach a wider market, increase efficiency and lower the cost of policy servicing. Ceylinco Life remained committed to corporate social responsibility and to integrating sound environmental, social and governance practices into its business operations as reflected through the education and healthcare CSR projects for the underserved areas in our land.

The decisive, sustainable “Green Projects” has significantly reduced Company’s carbon footprint as well.

Responsible sellingOne reason for the low penetration levels of life insurance is that the majority of people do not fully understand the

long-term value of life insurance or to put it conversely what they are depriving themselves of by not taking a life insurance policy. The problem is two-fold. Firstly the adage that “The customer is always right” has been disproved and discredited over the last few decades. When it comes to life insurance the customer presumes to know but really does not know what its true worth is. Sadly, the reality dawns when it is too late. Leading from this is the second point namely that the selling process is really a consultative process which when effectively done ends with the customer wanting to buy a policy rather than being sold a policy. This consultative process calls for a high level of professionalism for which our Company takes much time and effort in training the sales staff. The key to this area of consultancy is product knowledge and the ability to explain the benefits and necessity of the product in a very understandable manner. As Albert Einstein said “If you cannot explain something simply it means that you have not understood it at all”.

Strong customerrelationshipsOur Company got it absolutely right when “Know Your Life Insurer” was the recurring message in last year’s Annual Report. It is a message which needs to be carried year after year. It is a message which openly claims transparency, welcomes scrutiny and invites a close relationship. From asking the customer to “Know Your Life Insurer” we on our part must “Know Our Customer”. This is a long-term process and Keeping In Touch (KIT) is very important. During a long-term relationship there will be changes in the customer’s life style and socio-economic status-marriage, parenthood, financial growth and an increase in assets. All these means that life insurance plan can be modified or new policies can be added on. Therefore, it is truly “A relationship for Life” as the

customer gets to know his Life Insurer and the Life Insurer gets to know its customer. More importantly it is a relationship based on trust. Getting the concept of Life Insurance entwined into the social fabric of society should be the aim of the entire life insurance industry. In this regard, I am proud to mention that Ceylinco Life has taken and will continue to take the lead role.

I have always maintained that the selling of life insurance is not a mere business transaction. It is a social service, much like education and healthcare.

Awards and accoladesWhile there is a separate section in this report which describes comprehensively with the many awards and accolades won, as Chairman, it is my duty to congratulate Mr R Renganathan for the unique honour he has brought to the Company, to the industry and indeed to the country by being conferred the title of “Grandmaster”, by the Foundation for the Advancement of Life Insurance Around the World (FALIA). He is the only Sri Lankan to be conferred this title.

I must also refer to the international recognition of “Best Life Insurance Company in Sri Lanka” awarded for the 4th consecutive year to Ceylinco Life Insurance Limited, at the World Finance Global Insurance Awards Ceremony.

As a former President of the Sri Lanka Institute of Marketing (SLIM) who was on the Committee that initiated the National Sales Congress (NASCO) Awards, it is with much pride that I congratulate N L Fernando, K S Priyanthi, T C G Rajapaksha, S Dharshan and A D U Kumara for winning salesmanship awards. You have brought honour to our Company.


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STEWARDSHIP FINANCIAL REPORT SUPPLEMENTARY INFORMATION MESSAGE FROM THE CHAIRMAN

Opening of La SerenaRetirement ResortLocated on a beach front site at Uswetakeiyawa, La Serena is a set of luxury chalets for active senior citizens. There is a fully-equipped gymnasium and swimming pool. Each chalet is self contained with modern equipment and facilities. It is a home away from home without the stress of domestic chores. The initial response has been very positive. What is most encouraging are the numerous inquiries from Sri Lankans living overseas who wish to escape the winter season of their adopted country and relax in the summer sunshine of Sri Lanka.

Ceylinco HealthcareServices Limited This fully-owned subsidiary with four specialised centres continues to provide state-of-the-art technology for the treatment of Diabetes and Cancer. The expertise of the internationally qualified medical team, the dedication and care provided by the para-medical staff and the overall ambience of all the units has attracted both local and overseas patients. Treatment for Diabetes and Cancer are invariably long-term and therefore “A Relationship for Life” holds true to our Healthcare Services just as much as it holds true to life insurance.

Corporate governanceThe Company firmly believes that strong governance is an important foundation for its sustainable performance. Significant progress was made during the year, upholding the highest standards of integrity, transparency and accountability in all aspects of its operations.

My thanksIn concluding this message, it is my very pleasant duty to express my sincere gratitude to those without whose

assistance, co-operation and goodwill, we as a Company would not be at the very apex of the life insurance market.

First is the institution which directly regulates our industry, Insurance Regulatory Commission of Sri Lanka (IRCSL). Thank you to the Chairperson Ms Indrani Sugathadasa, the Director General Ms Damayanthi Fernando and the rest of the Board for the services given. We as a company will offer our fullest co-operation regarding all regulatory matters and endeavour to maintain a cordial relationship.

To our Reinsurers who are internationally recognised as being in the top most rung-Swiss Re and Munich Re, I extend a very special word of gratitude for the continuing close co-operation, assistance and loyalty given. As our valued business partners ours will be “A Relationship for Life”. To Mr R Renganathan our Managing Director/CEO who for the last 30 years has demonstrated his sterling leadership qualities. Taking the Company to the top would have been challenging, but maintaining that leadership is much more challenging, specially with ever increasing competition. But Mr Renganathan has done it. Therefore, I am confident that with his integrity, experience and commitment, he will guide the Company from success to success. He will be more determined than ever to make success a journey and not a destination.

It is also my pleasant duty to thank my fellow Directors, who through their individual expertise and disciplines have blended into a truly professional team which ensures that the concept of “Good Governance” is observed both in spirit and in letter and at the same time stimulating the attainment of the highest level of corporate values. And they too, through their professionalism will ensure that success for our Company will not be a destination but a journey.

I thank each and every member of our staff for their sincere commitment to fulfil their responsibilities through the year. They have worked as a team and reaped the rewards of their sustained effort, specially the rewards given in celebration of our 30th anniversary. Individually and collectively, I am confident that they will also ensure that success is a journey and not a destination.

And now I extend my sincere thanks to our customers – the most important of our stakeholders. As you get to know us better we in turn will get to know you better, and for your sake we will enhance our passion for excellence in customer service, product development and innovation.

Godwin Perera Chairman

30 March 2018Colombo

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CHIEF EXECUTIVE OFFICER’S REVIEW


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STEWARDSHIP FINANCIAL REPORT SUPPLEMENTARY INFORMATION CHIEF EXECUTIVE OFFICER’S REVIEW

Our shareholder and policyholders are fully cognisant of the fact that Ceylinco Life has a full annual calendar of activities that range from interactive promotions, network expansion, product development, process improvement, staff training, market expansion, community projects, exploration of new business opportunities, and motivation and recognition of staff.

Life is all about relationships.

Ask anyone about the secret to a stable and happy relationship and the answer will be trust, reciprocated, and mutual understanding of, and respect for, the views and needs of those in it.

This may sound rudimentary enough, yet how many businesses can sustain “A Relationship for Life” with its customers as your Company does, and does so better than anyone else in our industry?

The importance of the million relationships we nurture and enrich is something we visit and revisit virtually 365 days of the year, in our engagements with policyholders and other stakeholders, in new product development, streamlining of processes, training of staff, community welfare initiatives, and in the interactions, in every district of Sri Lanka, of our over 3,500-strong sales team.

That is the secret behind our performance in 2017 – the 14th successive year of market leadership in the life insurance

industry of Sri Lanka, and it gives me great pleasure to present to you the highlights of the year in the pages that follow.

Read on, secure in the knowledge that, shareholder or policyholder, you already “Know Your Life Insurer” not only through this report, but through the Company’s deeds and contributions, over 79 years, going back to its trail-blazing predecessor Ceylon Insurance Company, the first Sri Lankan company to be registered in 1939 under No. 06 of Companies Ordinance 1939 introduced that year.

PerformanceI am proud to report that your Company posted a net profit of Rs. 9.46 Bn. for the year reviewed while reaffirming its market leadership in Sri Lanka’s life insurance industry for the 14th year running, with premium income of Rs. 15.7 Bn.

Our net profit reflects a robust growth of 207.5% and reached Rs. 9.46 Bn., which includes a one-off surplus of Rs. 3.46 Bn. recognised as per the guidelines issued

“Relationships of trust depend on our willingness to look not only to our own interests, but also the interests of others.” – Peter Farquharson

For the year reviewed while reaffirming its market leadership in Sri Lanka’s life insurance industry for the 14th year running, with premium income of Rs. 15.7 Bn.

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17CHIEF EXECUTIVE OFFICER’S REVIEW

by the Insurance Regulatory Commission of Sri Lanka (IRCSL). The Company posted profit before tax of Rs. 9.8 Bn. an improvement of 161.9%. Total income, comprising premium income and investment and other income, grew by 9% to Rs. 25.6 Bn.

Investment and other income improved by 17% to Rs. 10.3 Bn., underlining the success of the investment strategies deployed by your Company. Ceylinco Life’s investment portfolio grew by 9.5% to Rs. 92.2 Bn. as at 31 December 2017.

At the end of the year under review, the Ceylinco Life investment portfolio comprised Government Securities (53%); Fixed Deposits (12%); Real Estate (7%); Corporate Debt (26%) and Others (3%). These investments are made in conformity with the investment guidelines stipulated under the Regulation of the Insurance Industry Act No. 43 of 2000 as amended and are subject to regular monitoring by the Insurance Regulatory Commission of Sri Lanka (IRCSL), formerly known as the Insurance Board of Sri Lanka (IBSL).

In our core business of life insurance, we sold 126,838 new life policies in the year reviewed at an average of 10,570

per month and paid out Rs. 6.7 Bn. in net claims and benefits to policyholders.

Our Life Fund recorded growth of 4.8% to reach Rs. 81.7 Bn. at the end of 2017, following a transfer of Rs. 7.3 Bn. to the fund after the final shareholder transfer.

Total assets grew by a noteworthy 10% to Rs. 106 Bn. in 2017 and the Company’s net assets value per share stood at Rs. 412.94 at the end of the year an improvement of Rs. 174.7 or 73.3%. Earnings per share for the review period totalled Rs. 189.3, an increase of Rs. 127.7 or 207.5%.

Our Capital Adequacy Ratio, a key indicator of your Company’s financial strength and ability to meet its financial obligations in respect of its insurance contracts stood at 375% at the end of 2017, more than 3 times the statutory requirement of 120%.

As I have noted in many previous reports as well, our financial performance demonstrates the importance of concentrating on the core elements of the business: selling the most appropriate and effective life insurance products, and prudent management of investments in the interest of all stakeholders. Everything we do is inspired by our credo that life

insurance is “A Relationship for Life”. The commitment this demands, in every aspect of our operation and at every level in the Company, is the foundation of our continuing leadership in the sector.

Most importantly, our policyholders know that profit is not the sole objective of the Company. Ceylinco Life has the most generous policyholder rewards programme in the industry and our commitments to community welfare are substantial and long term. In that context, our financial performance assumes even greater significance, because it is not detrimental to any stakeholders.

Highlights of the yearOur shareholder and policyholders are fully cognisant of the fact that Ceylinco Life has a full annual calendar of activities that range from interactive promotions, network expansion, product development, process improvement, staff training, market expansion, community projects, exploration of new business opportunities, and motivation and recognition of staff. The concluded year was no less busy than any of its predecessors, but in the interest of brevity, I will touch on just a few key activities in this Report.

Total assets grew by a noteworthy 10% to Rs. 106 Bn. in 2017 and the Company’s net assets value per share stood at Rs. 412.94 at the end of the year an improvement of Rs. 174.7 or 73.3%. Earnings per share for the review period totalled Rs. 189.3, an increase of Rs. 127.7 or 207.5%.


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STEWARDSHIP FINANCIAL REPORT SUPPLEMENTARY INFORMATION CHIEF EXECUTIVE OFFICER’S REVIEW

Branch networkWe laid the foundation stones for two purpose-designed eco-friendly buildings to accommodate our branches in Chilaw and Kadawatha in 2017 and opened a new branch in Hettipola in the Matale District. The new Chilaw branch was ceremonially inaugurated in January 2018 as part of our 30th anniversary celebrations.

Your Company operates the largest network of 273 branches in Sri Lanka’s life insurance industry, giving it a physical presence in 142 cities, towns and villages in every one of the island’s 25 districts. New branches built on Company-owned land are designed for optimal use of natural light, are solar powered, minimise use of timber, are equipped with the latest energy-efficient lighting and air conditioning systems and have a facility for rainwater harvesting where possible. Conforming to the “Go Green” programme of Ceylinco Life, as many trees on the property as possible are preserved during construction.

New product developmentPromoting, facilitating and supporting education has always been a focus area for your Company in terms of its engagements with policyholders and the community. We have now taken this concern into our product portfolio with a new life policy launched in 2017. Combining the features of a life insurance policy and a savings scheme, “Degree Saver” is structured to create an education fund based on an agreed premium and policy term, while offering life cover for the duration. It is intended to help parents save for the higher education of their children, in recognition of the ever-escalating costs of overseas university education. Policyholders may also purchase additional benefits such as cover for critical illness, major surgery, hospitalisation and accidental death or disability, expanding the scope of the protection offered by the

Degree Saver policy. We believe this new product was one of the contributors to our growth in the year reviewed.

Policyholder engagement

Your Company paid mammoth Rs. 3.8 Bn. in annual bonuses, the highest bonus pay-out in the history of Ceylinco Life, to some 300,000 policyholders in April and May 2017. This represented an increase of Rs. 900 Mn. or 31% over that of 2016. Recipients of annual bonuses who were under the age of 55 were also made a limited-time offer – an opportunity to invest in a “Platinum Plan” that combines a new life cover and a fund, offering policyholders extra protection through a life cover as well as an attractive savings fund.

Additionally, we helped enhance the “Avurudu” cheer of more than 15,000 policyholders with cash bonuses totalling Rs. 92 Mn., taking the cumulative value of cash bonuses paid to more than Rs. 500 Mn.

Our “Pranama” scholarships programme, which does not require elaboration, celebrated its 16th year in 2017 with the presentation of another 160 scholarships to high-achieving students and young people, taking your Company’s cumulative investment in the future leaders of Sri Lanka to Rs. 120 Mn.

The “Family Savari” programme, another initiative with which our stakeholders are familiar, marked its 10th edition in the year reviewed, and benefited another 2,260 people from 565 policyholder families, who were rewarded with fully-paid visits to England, Dubai and Singapore, and a day’s outing at the Leisure World theme park. It is noteworthy to mention that about 20,000 people, representing 4,000 policyholder families have now enjoyed the Ceylinco Life Family Savari experience.

Support to the communityWe believe that when it comes to corporate citizenship, actions must speak louder than words, but in the interest of all-encompassing and complete disclosure, devote some space every year to report on our community initiatives across Sri Lanka. One of these is the “Waidya Hamuwa” or “Meet the doctor” programme comprising of a series of free health camps held in towns and villages across the country, to provide free medical examinations by a team of travelling doctors, ophthalmic technicians and nurses. Necessary diagnostic tests such as random blood sugar, ECG and blood pressure and optical check-ups are provided free. In 2017, more than 3,000 people benefited from this programme, taking the number of people assisted over nearly one and a half decades, to approximately 138,000.

Using the expertise and facilities accumulated through the “Waidya Hamuwa” programme, your Company also conducted three special medical camps for flood victims in the Southern Province, to assist 356 residents of Akuressa, 368 residents of Neluwa and 256 people from Kamburupitiya. They were screened for possible infections and diseases which are common after such natural disasters and were educated on how to protect themselves from such infections in addition to being provided with the medications they needed.

Our initiative to build classrooms for underprivileged schools resulted in the Kuda Oya Primary School in Wellawaya, the Werodogama Primary School in Kariyamadiththa, Talawa and the Narawila Muslim Kanishta Vidyalaya in Koswatta of Moneragala, Hambantota and Putlam Districts respectively, each receiving a classroom. These buildings were the 67th, 68th and 69th classrooms projects donated by your Company.

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Responding to appeals from three other schools we donated furniture, clothing and equipment to St. Joseph’s College and Sri Koneswara Hindu College in Trincomalee and to St. Cecilia’s Girls College, Batticaloa.

Awards and recognitionIt gives me great pleasure to report that Ceylinco Life was crowned the “Best Life Insurer in Sri Lanka” by World Finance for the fourth consecutive year in 2017, on the basis of the Company’s performance in 2016. This authoritative UK-based global magazine scrutinises multiple aspects of operational and financial performance before awarding this coveted accolade. The assessment for the award was by a judging panel representing 230 years of cumulative financial and business journalism. It covered the Company’s underwriting processes and process efficiency; policy maintenance – the process of reviewing clients’ policies, appropriateness of coverage and cost per policy; exposure to risk; customer retention rate; time taken to settle claims; new customer acquisition rate and financial stability – Premium income, Market share, Life fund and Company profits.

We were also adjudged the Peoples Life Insurance Brand of the Year at the 2017 SLIM-Nielsen Peoples Awards, reaffirming

our status as the most popular insurer in the country for the 11th consecutive year. The SLIM-Nielsen Peoples Awards recognise brands and personalities that have made a profound impression in the minds of the people of Sri Lanka and are one of the most awaited marketing events in the corporate calendar as the nominees and awardees are chosen by the people, through a comprehensive nation-wide research conducted by Nielsen Sri Lanka.

Stakeholders would also appreciate the fact that our 2016 Annual Report won three awards at the ARC Awards in Tokyo, one of the largest and most prestigious competitions in the world honouring excellence in annual reports. Your Company won the Silver award for “Financial Data” and two Honours awards for “Written Text” and “Interactive Annual Report” improving on its showing at the ARC Awards last year, when the Company won two awards. The ARC Awards are based on the values of creativity, clarity, effectiveness and excellence as represented by elements such as cover design, Chairman's letter, interior design, clarity of written text, photography, presentation of corporate information, expression of financial data and how well the spirit of the Organisation is communicated.

It is also my duty to record our congratulations to Our Chief Digital Officer, Mrs Upamalika Ratnayake who was named Chief Information Officer (CIO) of the Year at the first ever Women in IT Awards (WITA) organised by the Women in IT Association in Sri Lanka in 2017. The award was presented after an assessment of projects and achievements of exemplary female CIOs who have demonstrated innovation, leadership and IT excellence. Their achievements were judged on industry best practices, alignment with organisational goals, leadership and ROI generation.

I am pleased too, to report that five of our sales personnel won awards at the 2017 National Sales Congress (NASCO) Awards presented by the Sri Lanka Institute of Marketing (SLIM). The haul of awards included two awards in the “Frontliner” category and awards in the Sales Executive category and Territory Manager category, all in the life insurance sector.

The policy and regulatory environmentWe welcome a move by the Department of Inland Revenue to tax the surplus from life insurance businesses effective 1 April 2018, following lobbying by the industry against a proposal to tax


Our net profit reflects a robust growth of 207.5% and reached Rs. 9.46 Bn., which includes a one-off surplus of Rs. 3.46 Bn. recognised as per the guidelines issued by the Insurance Regulatory Commission of Sri Lanka (IRCSL).


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interest income less expenses incurred by the investment units of life insurance companies. It is now proposed to tax the surplus transferred from the Life fund to shareholders at 28%. However, the industry as a whole is unhappy with a proposal to tax bonuses declared by life insurance companies at 14% for three years and at 28% thereafter. This would make life insurance less attractive as an investment. It also conflicts with the provision in the Inland Revenue Act which makes the proceeds of an insurance policy tax exempt. We hope to continue to make representations to the authorities on this matter.

We also commend the IRCSL for passing a regulation preventing insurance companies employing sales agents terminated by a competitor for fraud. This is in the interest of the companies and the industry as a whole.

The futureDigitisation, we believe, is the way forward for most businesses, and life insurance is no exception. Your Company intends to work towards ensuring that every member of our sales force will have a smartphone or a tab in the near future. All the information, templates and guidelines required by the sales team is already in the system, and means that a sales agent can service the needs of a potential customer or existing policyholder without generating paper. Digitising information and processes will make our sales agents more productive, will enhance their image as professionals, offer greater convenience and speed to customers and aid supervision.

We are also increasingly using Big Data Analytics to assess our products and processes. Big Data Analytics is the process of examining large and varied data sets to uncover hidden patterns, unknown correlations, market trends, customer


preferences and other useful information that can help organisations make more informed business decisions.

Your Company set up a Data Analytics Department in 2017 under our Chief Digital Officer. Insights in trends and patterns related to policyholders and data pertaining to Sales Officers are provided to the management by this department for necessary action and for business process Improvements.

We continue to explore opportunities to augment convenience in premium payments for our policyholders as well. One such example is our partnership with the Postal Department to enable the payment of premiums at about 4,000 post offices across Sri Lanka. I am happy to report that already 10% of premium collections are via this new channel, and we hope to increase this figure to 20% by the end of 2018. This would result in saving time spent by sales agents in premium collection, enabling them to increase productivity.

Another area that we hope to focus attention on in the year ahead is developing Bancassurance. Ceylinco Life was the pioneer of this channel, but we feel it has not been tapped adequately. More resources are to be allocated to increase the channel’s contribution to our premium income.

Your Company is also looking at a model where it can work with the Government to provide the infrastructure and facilities that a large number of schools in our country lack. Given the shortage of funds faced by the authorities to fulfil these needs, we are hopeful that the Government would see the merit of using the funds at our disposal to provide the needed infrastructure, and repay the Company with Government securities.

HealthcareOur fully-owned subsidiary Ceylinco Healthcare Services Limited (CHSL) continued to make satisfactory progress in the year reviewed. The Company operates four centres of excellence, the Ceylinco Healthcare Centre specialising in screening for cancer, the Ceylinco Radiation Treatment Unit which introduced the Linear Accelerator to Sri Lanka several years ago, the Ceylinco TomoTherapy Centre, which offers one of the most advanced forms of 3-D image-guided radiation treatment in Sri Lanka and the Ceylinco Diabetes Centre.

New ventures – Serene ResortsAs reported last year, your Company’s beachside property in Hendala was refurbished, re-furnished and soft-launched in 2017 as Sri Lanka’s first retirement resort for active retirees. We are now in the process of promoting the property to prospective tenants and hope to look at select overseas markets too. As explained in my review for 2016, this groundbreaking project is intended to be the first in a series of investments in infrastructure and care for the elderly, taking into consideration the needs of our ageing population.

Thank youMy sincere gratitude to my colleagues on the Board of Directors, the staff, policyholder shareholder and regulators for their guidance and support in what has been a busy year. I look forward to their continued assistance in 2018.

R RenganathanManaging Director


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BOARD OF DIRECTORS

Name of Director Date of first appointment as a Director with effect of incorporation of the segregated company

Date of last re-election as a Director

Length of service as a Director (as at 31 December 2017)

Board committees served on

Academic/professional qualifications

Skill and Experience Other Current Appointments

More details of number of Board seats, Executive and Non-executive Directorships are given on page 177

Previous Appointments

J Godwin PereraChairman/Non-Executive Director

10 April 2014 30 March 2017 3 years None Postgraduate Diploma in Marketing

Fellow of The Chartered Institute of Marketing, UK

Honorary Member of SLIM

Conferred tittle of “Practicing Marketer” by SLIM in 1970.

Member of Sri Lanka Institute of Directors.

Chairman – Ceylinco Insurance PLC Former President – Sri Lanka Institute of Marketing (SLIM).

R RenganathanManaging Director/ Chief Executive Officer

10 April 2014 N/A* 3 years Chairman – Board Investment Committee

Fellow of The Institute of Chartered Accountants of Sri Lanka

Fellow of the Chartered Institute of Management Accountants, Sri Lanka

Joined Ceylinco Limited in 1983 and has had a long career in the Group's insurance business. He was responsible for setting up the Life Division of Ceylinco Insurance after the Government of Sri Lanka permitted private insurers to enter the insurance industry in 1987.

He functioned as the MD/CEO of Ceylinco Insurance PLC – Life Division until the segregation became fully operational in 2015.

Director – Ceylinco Insurance PLC

Chairman – Ceylinco Healthcare Services Limited

Chairman – Serene Resorts Limited

Director – Ceylinco Seraka Limited

E T L RanasingheDeputy Chief Executive Officer

10 April 2014 N/A* 3 years Member – Board Investment Committee

MBA – Postgraduate Institute of Management (PIM), University of Sri Jayewardenepura


Joined Ceylinco Limited as a Product Manager in 1986. Counting 39 years in sales, marketing and strategic planning, he is one of the pioneer members who set up Ceylinco Insurance PLC.

Executive Director – Ceylinco Insurance PLC

Director – Ceylinco Healthcare Services Limited

Director – Serene Resorts Limited


Founder Member – Chartered Institute of Marketing, Sri Lanka.

Executive Committee memberships including the post of Senior Vice Chairman of CIM.

P D M CoorayExecutive Director/Head of Human Resources and Training

10 April 2014 N/A* 3 years None Fellow of the Life Underwriters Training Council

LUTCF (USA)

A Chartered Insurance Agency Manager (CIAM)

Certified Manager of Financial Advisors (CMFA)

Executive Diploma in Business Administration, University of Colombo

Having joined Ceylinco Insurance as Assistant Manager – Training in 1987, Mr Cooray played a key role in setting up the sales force for Ceylinco's life insurance business.

He’s an internationally reputed speaker on life insurance and the first South Asian non-member to address the Million Dollar Round Table (MDRT); a prestigious international life insurance convention.




* Refer page 176

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STEWARDSHIP FINANCIAL REPORT SUPPLEMENTARY INFORMATION BOARD OF DIRECTORS









J Godwin PereraChairman/Non-Executive Director

10 April 2014 30 March 2017 3 years None Postgraduate Diploma in Marketing


Honorary Member of SLIM

Conferred tittle of “Practicing Marketer” by SLIM in 1970.

Member of Sri Lanka Institute of Directors.

Chairman – Ceylinco Insurance PLC Former President – Sri Lanka Institute of Marketing (SLIM).

R RenganathanManaging Director/ Chief Executive Officer

10 April 2014 N/A* 3 years Chairman – Board Investment Committee


Fellow of the Chartered Institute of Management Accountants, Sri Lanka

Joined Ceylinco Limited in 1983 and has had a long career in the Group's insurance business. He was responsible for setting up the Life Division of Ceylinco Insurance after the Government of Sri Lanka permitted private insurers to enter the insurance industry in 1987.

He functioned as the MD/CEO of Ceylinco Insurance PLC – Life Division until the segregation became fully operational in 2015.


Chairman – Ceylinco Healthcare Services Limited

Chairman – Serene Resorts Limited


E T L RanasingheDeputy Chief Executive Officer


MBA – Postgraduate Institute of Management (PIM), University of Sri Jayewardenepura


Joined Ceylinco Limited as a Product Manager in 1986. Counting 39 years in sales, marketing and strategic planning, he is one of the pioneer members who set up Ceylinco Insurance PLC.

Executive Director – Ceylinco Insurance PLC




Founder Member – Chartered Institute of Marketing, Sri Lanka.

Executive Committee memberships including the post of Senior Vice Chairman of CIM.

P D M CoorayExecutive Director/Head of Human Resources and Training

10 April 2014 N/A* 3 years None Fellow of the Life Underwriters Training Council

LUTCF (USA)

A Chartered Insurance Agency Manager (CIAM)

Certified Manager of Financial Advisors (CMFA)

Executive Diploma in Business Administration, University of Colombo

Having joined Ceylinco Insurance as Assistant Manager – Training in 1987, Mr Cooray played a key role in setting up the sales force for Ceylinco's life insurance business.

He’s an internationally reputed speaker on life insurance and the first South Asian non-member to address the Million Dollar Round Table (MDRT); a prestigious international life insurance convention.



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Palitha JayawardenaExecutive Director/CFO


Member –RPTR Committee


Fellow of The Institute of Certified Management Accountants, Sri Lanka

Joined the Life Division of Ceylinco Insurance PLC in 1990 as Chief Accountant (Branches) and counts over 25 years experience in the finance industry.





Ranga AbeynayakeExecutive Director/Deputy CFO

10 April 2014 N/A* 3 years Member –Board Investment Committee

MBA from the Postgraduate Institute of Management (PIM), University of Sri Jayewardenepura

Fellow of The Institute of Chartered Accountants, Sri Lanka


Joined the Life Division of Ceylinco Insurance PLC as the Financial Accountant in 1998 and has over 19 years of experience in finance.

Director – Citizens Development Business Finance PLC



Herschel GunawardenaNon-Executive Director

10 April 2014 30 March 2017 3 years Chairman –RPTR Committee

Member – Audit and Remuneration Committees

Fellow of The Chartered Institute of Management Accountants, UK

Chartered Global Management Accountant

He counts for over 45 years of experience in various industries including shipping, airline, finance, mining, and export and import trade.

Chairman – Citizens Development Business Finance PLC

Director – Hunter & Company PLC

Director – Lanka Canneries (Pvt) Limited

Director – Heath & Co. (Ceylon) Limited

Director – Pelwatte Dairy Industries Limited


Gen C S Weerasooriya (Retired) Non-Executive Director

10 April 2014 30 March 2017 3 years None A graduate of the Pakistan Military Academy, Kakul and the National Defence College in India Master's Degree in Defence Studies

Following a 37-year career in the military, Gen Weerasooriya was appointed Commander of the Sri Lanka Army in 1998.

He was conferred the prestigious Civil Award Sitar-e-Pakistan by the President of Pakistan in 2014.

Director – Ceylinco Insurance PLC (w.e.f. 2010)

He was the High Commissioner to Pakistan and also was the Ambassador Extraordinary and Plenipotentiary for Sri Lanka to Tajikistan and Kyrgyzstan.

BOARD OF DIRECTORS PREAMBLE MESSAGES AND MANAGEMENT PROFILES BUSINESS MODEL MANAGEMENT DISCUSSION AND ANALYSIS

* Refer page 176

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Palitha JayawardenaExecutive Director/CFO


Member –RPTR Committee



Joined the Life Division of Ceylinco Insurance PLC in 1990 as Chief Accountant (Branches) and counts over 25 years experience in the finance industry.





Ranga AbeynayakeExecutive Director/Deputy CFO

10 April 2014 N/A* 3 years Member –Board Investment Committee

MBA from the Postgraduate Institute of Management (PIM), University of Sri Jayewardenepura

Fellow of The Institute of Chartered Accountants, Sri Lanka


Joined the Life Division of Ceylinco Insurance PLC as the Financial Accountant in 1998 and has over 19 years of experience in finance.

Director – Citizens Development Business Finance PLC



Herschel GunawardenaNon-Executive Director

10 April 2014 30 March 2017 3 years Chairman –RPTR Committee

Member – Audit and Remuneration Committees

Fellow of The Chartered Institute of Management Accountants, UK

Chartered Global Management Accountant

He counts for over 45 years of experience in various industries including shipping, airline, finance, mining, and export and import trade.

Chairman – Citizens Development Business Finance PLC

Director – Hunter & Company PLC

Director – Lanka Canneries (Pvt) Limited

Director – Heath & Co. (Ceylon) Limited

Director – Pelwatte Dairy Industries Limited


Gen C S Weerasooriya (Retired) Non-Executive Director

10 April 2014 30 March 2017 3 years None A graduate of the Pakistan Military Academy, Kakul and the National Defence College in India Master's Degree in Defence Studies

Following a 37-year career in the military, Gen Weerasooriya was appointed Commander of the Sri Lanka Army in 1998.

He was conferred the prestigious Civil Award Sitar-e-Pakistan by the President of Pakistan in 2014.

Director – Ceylinco Insurance PLC (w.e.f. 2010)

He was the High Commissioner to Pakistan and also was the Ambassador Extraordinary and Plenipotentiary for Sri Lanka to Tajikistan and Kyrgyzstan.

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Rohan SenanayakeNon-Executive Director

10 April 2014 30 March 2017 3 years Member – Risk, RPTR, Board Investment, and Remuneration Committees

Associate of The Chartered Institute of Management Accountants, UK

Fellow of The Certified Management Accountants, Sri Lanka

Serves as a member of the Investment Committee of the Company having previously served Ceylinco Insurance PLC from 1995 to 2009 in the field of investments. He has over 25 years experience in financial markets including insurance, stock broking, fund management, and corporate finance.

Director – Kenanga Investment Corporation Limited

Director – SMB Securities (Pvt) Limited

Director – SMB Real Estate Limited

Director – SMB Money Brokers (Pvt) Limited and

Director – K Seeds Investments (Pvt) Limited

J A Setukavalar Independent Non-Executive Director

10 April 2014 30 March 2017 3 years Chairman of the Audit Committee


Fellow of The Chartered Institute of Management Accountants, UK, and Certified Management Accountants, Sri Lanka;

A Certified Global Management Accountant; and a Fellow of the Institute of Certified Professional Managers

Mr Setukavalar has over 40 years of experience in auditing, accounting, and finance.

A recipient of scholarships awarded by the British Foreign and Commonwealth Office, UK and the Colombo Plan Bureau, he has been trained at INSEAD – France, IBM – Rochester, USA and JICA – Japan.

He also had worked for KPMG Colombo and PricewaterhouseCoopers in Dubai.

Director – A. Baur & Co. (Pvt) Limited

Director – Baurs Air Services Limited

Director – A. Baur & Company (Travel) Limited

Director – A. Baur Trading (Pvt) Limited

Director – Baurs Agri Exports (Pvt) Limited

Swiss Trading Group (Pvt) Limited

Director – Swiss Hotel Management Academy (Pvt) Limited

Director – Singer Finance (Lanka) PLC

Member of the Board of Governors of the CMS schools in Sri Lanka and is the current Chairman of its Finance Committee.

Prof Mohan de SilvaIndependent Non-Executive Director

10 April 2014 None 3 years Chairman of the Remuneration Committee

Master's Degree in Surgery from the University of Colombo, Fellow of the Royal College of Surgeons, Edinburgh

Honorary Fellow of the Asia Pacific Society of Digestive Endoscopy and an Honorary Consultant Surgeon, Colombo South Teaching Hospital

Temporary advisor to WHO-SEARO on Patient Safety.

Prof de Silva has served as a Civil Volunteer Surgeon for the Sri Lanka Armed Forces and has received several accolades in recognition of his outstanding contributions.

Chairman – University Grants Commission of Sri Lanka.

Senior Professor and Chair in Surgery.

President – College of Surgeons of Sri Lanka

Vice President – Sri Lanka Medical Association

Director-Education of the College of Surgeons of Sri Lanka and the Former Dean of the Faculty of Medical Sciences, University of Sri Jayewardenepura.


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Rohan SenanayakeNon-Executive Director

10 April 2014 30 March 2017 3 years Member – Risk, RPTR, Board Investment, and Remuneration Committees

Associate of The Chartered Institute of Management Accountants, UK

Fellow of The Certified Management Accountants, Sri Lanka

Serves as a member of the Investment Committee of the Company having previously served Ceylinco Insurance PLC from 1995 to 2009 in the field of investments. He has over 25 years experience in financial markets including insurance, stock broking, fund management, and corporate finance.

Director – Kenanga Investment Corporation Limited

Director – SMB Securities (Pvt) Limited

Director – SMB Real Estate Limited

Director – SMB Money Brokers (Pvt) Limited and

Director – K Seeds Investments (Pvt) Limited

J A Setukavalar Independent Non-Executive Director

10 April 2014 30 March 2017 3 years Chairman of the Audit Committee


Fellow of The Chartered Institute of Management Accountants, UK, and Certified Management Accountants, Sri Lanka;

A Certified Global Management Accountant; and a Fellow of the Institute of Certified Professional Managers

Mr Setukavalar has over 40 years of experience in auditing, accounting, and finance.

A recipient of scholarships awarded by the British Foreign and Commonwealth Office, UK and the Colombo Plan Bureau, he has been trained at INSEAD – France, IBM – Rochester, USA and JICA – Japan.

He also had worked for KPMG Colombo and PricewaterhouseCoopers in Dubai.

Director – A. Baur & Co. (Pvt) Limited

Director – Baurs Air Services Limited

Director – A. Baur & Company (Travel) Limited

Director – A. Baur Trading (Pvt) Limited

Director – Baurs Agri Exports (Pvt) Limited

Swiss Trading Group (Pvt) Limited

Director – Swiss Hotel Management Academy (Pvt) Limited

Director – Singer Finance (Lanka) PLC

Member of the Board of Governors of the CMS schools in Sri Lanka and is the current Chairman of its Finance Committee.

Prof Mohan de SilvaIndependent Non-Executive Director

10 April 2014 None 3 years Chairman of the Remuneration Committee

Master's Degree in Surgery from the University of Colombo, Fellow of the Royal College of Surgeons, Edinburgh

Honorary Fellow of the Asia Pacific Society of Digestive Endoscopy and an Honorary Consultant Surgeon, Colombo South Teaching Hospital

Temporary advisor to WHO-SEARO on Patient Safety.

Prof de Silva has served as a Civil Volunteer Surgeon for the Sri Lanka Armed Forces and has received several accolades in recognition of his outstanding contributions.

Chairman – University Grants Commission of Sri Lanka.

Senior Professor and Chair in Surgery.

President – College of Surgeons of Sri Lanka

Vice President – Sri Lanka Medical Association

Director-Education of the College of Surgeons of Sri Lanka and the Former Dean of the Faculty of Medical Sciences, University of Sri Jayewardenepura.

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Dr Gamini de Silva Independent Non-Executive Director

10 April 2014 None 3 years Chairman of the Nomination Committee

BDS (Sri Lanka)

Degree from the University of Peradeniya FFDRCS (Ireland) in Oral Surgery

Dr de Silva is a Consultant Dental Surgeon with nearly 40 years experience.

Director – Intercom (Pvt) Limited Past President of the Sri Lanka Dental Association

Past Chairman of the Commission on Oral Diseases Asia Pacific Dental Association

Jayantha Wickramasinghe Independent Non-Executive Director

10 April 2014 None 3 years Member –Risk and Audit Committees

Member of the Chartered Institute of Logistics and Transport

He counts over 35 years experience in Engineering and Information Technology.

Chairman/Managing Director – Linta Enterprises (PVt) Limited

CEO – Lanka Logistics and Technologies Limited (state owned)

Member – Board of Management of the Urban Development Authority

Director – Information and Communication Technology Agency (ICTA) of Sri Lanka

Sugath Caldera Independent Non-Executive Director

10 April 2014 None 3 years None An active member of the Bar Association of Sri Lanka, Attorney-at-Law

Graduate of the Faculty of Law, University of Colombo

Mr Caldera is a practitioner in the Civil Courts in the areas of civil, corporate and commercial litigation together with commercial arbitrations, fundamental rights, administrative law and constitutional law.

Ms A K Seneviratne Independent Non-Executive Director

10 April 2014 None 3 years Chairperson – Risk Committee

BSc Degree with specialisation in Actuarial Mathematics from Concordia University (Canada) the Canadian Risk Management (CRM) designation awarded by the Global Risk Management Institute (GRMI). Associate of the Society of Actuaries (USA) and the Canadian Institute of Actuaries

Ms Seneviratne is an actuary with over 20 years of experience, including 16 years in the life insurance industry in Sri Lanka. She had previously served as the in-house actuary of the Life Division of Ceylinco Insurance PLC.

Director – Technical Activities of the International Actuarial Association


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Dr Gamini de Silva Independent Non-Executive Director

10 April 2014 None 3 years Chairman of the Nomination Committee

BDS (Sri Lanka)

Degree from the University of Peradeniya FFDRCS (Ireland) in Oral Surgery

Dr de Silva is a Consultant Dental Surgeon with nearly 40 years experience.

Director – Intercom (Pvt) Limited Past President of the Sri Lanka Dental Association

Past Chairman of the Commission on Oral Diseases Asia Pacific Dental Association

Jayantha Wickramasinghe Independent Non-Executive Director

10 April 2014 None 3 years Member –Risk and Audit Committees

Member of the Chartered Institute of Logistics and Transport

He counts over 35 years experience in Engineering and Information Technology.

Chairman/Managing Director – Linta Enterprises (PVt) Limited

CEO – Lanka Logistics and Technologies Limited (state owned)

Member – Board of Management of the Urban Development Authority

Director – Information and Communication Technology Agency (ICTA) of Sri Lanka

Sugath Caldera Independent Non-Executive Director

10 April 2014 None 3 years None An active member of the Bar Association of Sri Lanka, Attorney-at-Law

Graduate of the Faculty of Law, University of Colombo

Mr Caldera is a practitioner in the Civil Courts in the areas of civil, corporate and commercial litigation together with commercial arbitrations, fundamental rights, administrative law and constitutional law.

Ms A K Seneviratne Independent Non-Executive Director

10 April 2014 None 3 years Chairperson – Risk Committee

BSc Degree with specialisation in Actuarial Mathematics from Concordia University (Canada) the Canadian Risk Management (CRM) designation awarded by the Global Risk Management Institute (GRMI). Associate of the Society of Actuaries (USA) and the Canadian Institute of Actuaries

Ms Seneviratne is an actuary with over 20 years of experience, including 16 years in the life insurance industry in Sri Lanka. She had previously served as the in-house actuary of the Life Division of Ceylinco Insurance PLC.

Director – Technical Activities of the International Actuarial Association

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CORPORATE MANAGEMENT

P A J JayawardenaLUTCF (USA), CIAM, CMFA

General Manager – Business Development

Ms R M U K RatnayakeMSc (CompSc), MBCS, CITP, CISA (USA), MCS

General Manager/Chief Digital Officer

A H R UdayasiriBSc (Cey), LUTCF (USA), CIAM, MBA (Colombo)

Senior Deputy General Manager – Business Development

T N Y MorsethCMFA, CIAM, LUTCF (USA)

Senior Deputy General Manager – TAKAFUL

E R S G S HemachandraMBA (Australia), Dip Mkt (UK), FCIM (UK), Chartered Marketer

Senior Deputy General Manager – Marketing

J P AbhayaratneDip Mgt, BBA (USA), MBA (UK)

Senior Deputy General Manager – Operations

Our talented leadership team employ their skills and expertise to drive business success and build our Organisation.


31


STEWARDSHIP FINANCIAL REPORT SUPPLEMENTARY INFORMATION CORPORATE MANAGEMENT

M ThenuwaraLUTCF (USA), CIAM

Deputy General Manager – Bancassurance

W A W C WijesingheLUTCF (USA), CIAM, MBA (AUS)

Deputy General Manager – Business Development

H G A SirisenaFCII (UK), Chartered Insurer, MBA (India), DMU (AMS)

Deputy General Manager – Technical

S KumarapperumaBSc (Hons), PG Dip Act Sci (UK), MBA (Colombo)

Deputy General Manager – Actuarial Services

T D De SilvaBBA (Hons), ACCA, MBA (Colombo)

Senior Assistant General Manager – Projects

C B HerathBSc, MBA (Sri J), MBCS, PG Dip (Bus & Fin Admin)

Senior Assistant General Manager – ICT/CIO

M S J L B WeerakoonSenior Assistant General Manager – Business Development

R M P BandaraLUTCF (USA), CIAM

Senior Assistant General Manager – Business Development

T VijayananthSenior Assistant General Manager – Business Development

P P D V HemakumaraCISA (USA), MBCS (UK), Dip Mgt (India), MBA (India), MCSSL (SL)

Assistant General Manager – ICT/Assistant Chief Information Officer

L V KeragalaDip Mkt (UK), Chartered Marketer, ACIM

Assistant General Manager – Customer Relations

D S ThilakarathneAssistant General Manager – Business Development

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17

H A SuraweeraMBA (Colombo), BSc (Mkt Mgt) (Special), Chartered Marketer

Assistant General Manager – Agency Administration

J L N JayawardenaAssistant General Manager – Customer Services

B S E M PereraSenior Manager – Customer Services

P SilvaMBA (USA), AEIA (UK)

Senior Manager – Administration

R M S WijeyesekeraMBA (India), MBCS (UK)

Senior Manager – Systems

R D VipulathejaMBA – Wales (UK), CIAM, CMFA, LUTC Fellow (USA), MFA, NLP, Business Practitioner

Senior Manager – Training

G A H ChandanaBSc Mgt (Sp) (Hons), FCA, ACMA, FCAA

Senior Manager – Finance

B A NandalalCIAM, LUTCF (USA)

Senior Manager – Business Development

V M G KariyawasamMSc (IT), BSc (Hons), MIS, ACSA, PG Dip (IT), OCA

Senior Manager – Database Administration

L G H A S KumaraACII, AIII, LLB, Attorney-at-Law, Chartered Insurer

Senior Manager – Technical

P A C D WijayasekaraFCA, MBA (Colombo)

Senior Manager – Internal Audit

P U C PathinagodaMBA in IT (Moratuwa), BSc (Colombo), CISA (USA), LICA

Senior Manager – Information Systems Audit

CORPORATE MANAGEMENT PREAMBLE MESSAGES AND MANAGEMENT PROFILES BUSINESS MODEL MANAGEMENT DISCUSSION AND ANALYSIS

33



C R P LiyanageDip M (UK), BBDM (Aust), MBA (AUS)

Senior Manager – Group Insurance

K I WeththasingheAttorney-at-Law & Notary Public, Registered Company Secretary

Senior Manager – Legal

M J N S A JayatilakeMBA (Colombo), BSc (Business Administration), PQHRM (IPM), AMIPM

Senior Manager – Human Resources

D M G L AlwisCFA (US), MBA (India), MSc (Actuarial Science), ACMA (UK), CGMA, MCSI, AIB (SL), BSc

Senior Manager – Portfolio

M H Y A SilvaLUTCF (USA)

Senior Manager – Business Development

Ms A A T S A WeerakodyBSc (Hons) Statistics Special (1st Class), MSc Act Mgt (UK), Dip Actuarial Techniques (UK), CFI (UK)

Senior Manager – Actuarial Services

P VincentBSc (Engineering), AMIE (SL)

Senior Manager – Projects

W S DabareraBSc Accounting & Financial Special (Hons), ACA, ACMA (UK), CGMA (UK)

Senior Manager – Finance

D H CanagasabeyChartered Marketer, Dip M, MCIM (UK)

Senior Manager – Brand Development

CORPORATE MANAGEMENT

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17

S K N De SilvaPg Dip (Busi Fin & Admin), CBA

Manager – Financial Services

J S K RatnayakaDip LIM, CIMA, CFMO

Manager – Business Development

M R N L FonsekaAIII, ACII (UK), Chartered Insurer

Manager – Operations

S P K SenadeeraBSc (Engineering)

Manager – Projects

S P MamaduwaTraining Manager

M A C P WijeratneMCSSL, MBCS, Advanced Dip (CIMA), MBA (IT), BSc (IM) PGD (W&C)

Manager – IT Projects

D A WijewardenaMSC (Comp Sc), BSc (Hons), MBCS, MCS

Manager – IT Projects

K M S N KarunanayakeACII, Chartered Insurer, AIII

Manager – Claims

G K S SriyanandaBSc (Hons), AIII, ACII, Chartered Insurer

Manager – Operations

K SumanthiranDip LIM, CIAM


K L U PriyanthaCIAM


N K SubapandithaACIM, CIAM


MANAGERSPREAMBLE MESSAGES AND MANAGEMENT PROFILES BUSINESS MODEL MANAGEMENT DISCUSSION AND ANALYSIS

35



P P S KalyaniwansaCIAM, MFA


D R M T N D BandaraCIAM Dip LIM CFMC


N T SenavirathneLUTCF (USA), CIAM, Associate Trainer


M T A PeirisLUTCF (USA), CIAM, CMFA, MFA


A K D D C PereraLUTCF (USA)


T NirojanZonal Manager

I B L WijesinghePGDBM, MBA, CIAM, BASP (University of Colombo)

Zonal Manager

M N AbdeenDip LIM

Acting Zonal Manager

D S HettiarachchiLUTC, AMTC, MSSAMTC, FMS, PMW – LIMRA

Acting Zonal Manager

L P K RupasiriBSc (Hons), AII (India), ACII (UK), Chartered Insurer

Manger – Operations

B A K S M DharmasenaMSc, IT, MBCS, CCNA

Manager – ICT

K A D R MenakaASA, BSc (Maths) Special, Dip in CMA

Manager – Actuarial

MANAGERS

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17MANAGERS

Regional Sales Managers

H M J BandaBranch Head

E H D J ShanthaBranch Head

E B J I KumaraBranch Head

J M S JayasundaraBranch Head

M A S N PeterBranch Head

S S WettasingheBranch Head

I M G D JayasundaraBranch Head

A R P S AmarakoonBranch Head

S A S ChandralalBranch Head

H H U S C FernandoBranch Head

M L JosephBranch Head

Acting Regional Sales Managers

J A R S Jayasinghe S N Hettiarachchi S A A S Kumara

Assistant Regional Sales Managers

P D H RasangaBranch Head

Acting Assistant Regional Sales Managers

N Kiriwandeniya K M P D Chandradasa R P L Dammika S Dharshan D R J Silva

T J R Perera T V M Lakmal P Premnath W S R Fernando M P W Cooray

N L C Aruna Shantha R K Hettiarachchi M M R L Perera T Thayaseelan V M Ranthilake

K H A Kumara

Senior Branch Sales Managers

H L MunasinghegeBranch Head

A P Perera Branch Head

S A S R SenanayakaBranch Head

W H SarathchandraBranch Head

N PushpaharanBranch Head

R MayuranBranch Head

Corporate Sales

M PriyavirajLUTCF (USA)

Manager – Corporate Sales

A I P ManjulaSenior Business Promotion Manager

W G T K DanapalaSenior Business Promotion Manager

K B A ThusharaBusiness Promotion Manager

W A RavindranathBusiness Promotion Manager

W S FernandoBusiness Promotion Manager

H K B AriyasingheBusiness Promotion Manager


37


BUSINESSMODEL

Organisational Overview 38

Operating Environment 42

Strategic Direction 57

Our Business Model 67

Stakeholders and Materiality 70

Our Business Model supports our growth and defines the activities we engage, the relationships we nurture and the outputs and outcomes we aim to achieve to create value for our stakeholders.


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ORGANISATIONAL OVERVIEW

About Ceylinco LifeInsurance LimitedOur Company, Ceylinco Life Insurance Limited (CLIL) is the market leader in Sri Lanka’s life insurance industry for 14 consecutive years, since 2004. We are a fully-owned subsidiary of Ceylinco Insurance PLC (CIP) and commenced business in January 1988 as the Life Division of CIP; a composite insurance company offering both life and general

insurance. Giving effect to the mandatory segregation introduced in terms of Section 53 of the Regulation of Insurance Industry (Amendment) Act No. 03 of 2011. Ceylinco Life Insurance Limited was incorporated on 22 April 2014 and commenced operations in June 2015. The Company carries out operations only in Sri Lanka.

There are now more than 800 employees and the largest network of agents and branches in the industry covering nearly million lives with active life policies. We draw on our experience and expertise,

our commitment to excellent service and our expansive reach to meet the needs of our broad customer base. Our customers are at the heart of what we do.

Our strengths include our well-known strong brand with positive recognition from customers, strong financial position and wide distribution strategy. We are acknowledged as the benchmark for innovation in the local insurance industry for our work in product research and development, customer service, professional development, and corporate social responsibility.

Group structure

CEYLINCO LIFE INSURANCE

LIMITED

100%

Treatment of cancer and diabetes

Investment Advisory Services

Finance company

Ceylinco Healthcare Services Limited

Serene ResortsLimited

Citizens DevelopmentBusiness Finance PLC

99.45%98.15% 30.25%

Subsidiary companies Associate company

5%

95%Ceylinco Seraka

Limited

Premium living standards for active senior individuals

39


STEWARDSHIP FINANCIAL REPORT SUPPLEMENTARY INFORMATION ORGANISATIONAL OVERVIEW

Subsidiary companies Associate company

Company name Serene Resorts Limited Ceylinco Seraka Limited Ceylinco Healthcare Services Limited Citizens Development Business Finance PLC

Overview Makes investments in retirement living and set up Sri Lanka’s first retirement resort in 2017.

Investment advisory services

Specialised in the treatment of cancer and diabetes. It is only cancer treatment centre in Sri Lanka to offer Tomo Therapy; world’s most advanced radiation treatment for cancer.

A leading non-bank financial institution, offering a broad range of financial services, promotes financial inclusion and financial empowerment in Sri Lanka.

Year of incorporation 1994 1997 2000 1995

Ceylinco Life's interest 98.15% 100% 99.45% 30.25%

Nature of business Premium living standards for active senior individuals

Investment advisory services

Healthcare services Financial services

Financial period/ Year-end

31 December 31 December 31 December 31 March

Profit/(Loss) after tax (Rs. Mn.)

(0.8) 0.1 71 1,007

Asset base (Rs. Mn.) 319 49 982 53,934

Our standing

Industryleader

Attractive value addition

An extensive branch network

Community investment

Strong balance sheet

Largest sales force

Wide product range

14 years 273 branchesRs. 81.7 Bn. Over 3,500 sales consultantsWe are the industry leader

amongst life insurance companies

in Sri Lanka since 2004.

We take pride in setting

up branch buildings in

company-owned property.

We have the fastest

growing life fund in the

industry.

We employ the largest sales

force in the industry.

Growth in bonus payments 31% YoY

Rs. 120 Mn. Pranama scholarships in 2017

Protection-based solutions

We maintain a sector leading growth in bonus

payments and industry-leading policyholder

reward campaigns.

We have one of the largest portfolios of

community-related activities in Sri Lanka's

corporate sector.

We offer products which are

unique, flexible, and tailor-made.

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Leader in the industry We retained our position as the market leader in Sri Lanka’s life insurance industry for the 14th consecutive year. This is a feat as yet unmatched in any other regional nation, where market leadership is held by international insurance companies. World Finance, the respected UK-based magazine, reaffirmed Ceylinco Life as the “Best Life Insurance Company in Sri Lanka” for the fourth consecutive year. This is a strong endorsement of the strength and stability of our Company. Our strategy of focusing on the core message of life insurance and on the importance of trust when entering into “A Relationship for Life” has clearly been successful over the years.

Financial stabilityWith strong growth in new business and noteworthy returns on investments, we steadily grew our total income whilst generating sustainable profits. Our Life Fund crossed Rs. 80 Bn. in April 2017, making it the fastest-growing Life Fund in the local industry. A reflection of our financial stability and strength, this milestone was achieved in a little more than 29 years of operation which is a feat as yet unmatched in Sri Lanka. In tandem, we have grown our bottom line sustainably over the years. Through professional management of the investment fund, the investment income for the year recorded a steady increase of 21% YoY. A measure ability to meet our financial obligations in respect of our insurance contracts is our Capital Adequacy Ratio, which stood at 375% at the end of 2017, more than three times the statutory requirement of 120%.

testament of our financial stability and sustainability. In addition we have the largest number of “Green Branches” in the industry, contributing towards reducing the environmental footprint.

275

270

265

260

255

250

2015 2016 2017

Number of branches (No.)

5

4

3

2

1

0

2013 2014 2015 2016 2017

Number of new green branches (No.)

Professional sales forceWe have the highest life insurance sales in Sri Lanka and employ the largest sales team in Sri Lanka’s life insurance industry, numbering around 3,600 sales consultants. They are highly acclaimed for their professionalism and integrity. This year, five of our sales personnel won awards at

Our Life Fund crossed Rs. 80 Bn. in April 2017, making it the fastest-growing Life Fund in the local industry. A reflection of our financial stability and strength, this milestone was achieved in a little more than 29 years of operation which is a feat as yet unmatched in Sri Lanka.

(%)(Rs. Bn.)

Life fund and assets

125

100

75

50

25

0

25

20

15

10

5

0

2013 2014 2015 2016 2017

Total assets (Rs. Bn.) Life fund (Rs. Bn.)

Asset growth (%) Life fund growth (%)

2016 2017

(Rs. Bn.)Profit before and after tax

Profit before tax Profit after tax

10

8

6

4

2

0

Largest distributionnetworkWe have the largest geographical reach in the life insurance industry of a network of 273 branches. Our reach spans across the island’s 25 Districts and with a physical presence in almost all the cities, town and villages. We are the only insurer in Sri Lanka to set up branch buildings in Company-owned land, which a strong


41



the 2017 National Sales Congress (NASCO) Awards presented by the Sri Lanka Institute of Marketing (SLIM).

2015 2016 2017

Number of NASCO award winners (No.)

6

4

3

2

1

0

5

Product rangeWe understand the importance of identifying customers and selling strategically. Therefore, we place great emphasis on the importance of needs analysis before we develop a policy proposal for a customer, because we know that a business relationship can only be sustained if the product satisfies the needs of the customer. Accordingly, we launch tailor-made to our wide customer base aligned to our unique positioning “A Relationship for Life”. These innovative products cater to each stage of their life and offer a “unique” proposition based on needs that arise at each life stage.

Unique value additionEverything we do is centred on adding value to our policyholders, and unstinted generosity is a key word at Ceylinco Life. We paid the highest bonus payout in the history of our Company in 2017, reflecting a sector-leading growth 31% YoY. Also we invested Rs. 10 Mn. marking Ceylinco Life’s investment in the future leaders of Sri Lanka Rs. 120 Mn. up to date in future leaders

to disburse another 160 scholarships to high-achieving students and young people. Family Savari is one of the largest customer promotions in Sri Lanka’s life insurance industry which has benefited more than 20,000 policyholders to date.

2015 2016 2017

Number of Pranama scholarships (No.)

162

160

158

156

154

152


Commitment tosociety and well-beingWe have one of the largest portfolios of community-related activities in Sri Lanka's corporate sector focusing predominantly on the poorest segments of the population. As Sri Lanka's largest life insurer, our involvement with the community is for the long-term and the benefits devolve across racial, religious, and geographic boundaries. These projects focused on the education, health, and quality of life of residents of underprivileged areas in Sri Lanka.

Whilst being the first Life Insurer in Sri Lanka to open eco-friendly branch buildings, our commitment to environmental sustainability continued with the adoption on environmental-friendly initiatives. These include, opening up green branches, installing rain water harvesting systems in branches, planting-and maintaining trees under the “Go Green” drive.

Scale of operations

2017 2016 Growth

Our strength

Gross written premium (Rs. Mn.) 15,765 15,028 4.9%

Net policyholder benefits (Rs. Mn.) 6,687 6,651 0.5%

Investment and other income (Rs. Mn.) 10,281 8,780 17.1%

Our stability

Life insurance fund (Rs. Mn.) 81,724 77,925 4.9%

Investments (Rs. Mn.) 92,264 84,221 9.6%

Profit before tax (Rs. Mn.) 9,808 3,744 161.97%

Total assets (Rs. Mn.) 106,094 96,458 9.9%

Total number of employees 890 910 (20)

Total number of sales consultants 3,696 3,915 (219)

Total number of branches 273 259 14

Value of Pranama scholarships 120 100 20%

Number of schools development projects 3 2 1

Policyholder bonus (Rs. Bn.) 3.8 2.9 31%

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OPERATING ENVIRONMENT

Global economic growthThe International Monetary Fund (IMF) in its World Economic Outlook Update in January 2018 stated that year 2017 saw the best global growth in seven years. The growth in some 120 economies which accounted for three quarters of world GDP picked up year-on-year in 2017. This was the broadest synchronised global growth upsurge since 2010.

Accordingly, global economic growth is projected to grow at 3.7% in 2017; 0.5 percentage point higher than the 3.2% growth in 2016. Strong growth was evident in world trade in the last few months of 2017, supported by a pickup in investment, particularly among advanced economies, and increased manufacturing output in Asia.

Advanced economiesAdvanced economies, especially Germany, Japan, Korea, and the United States grew at high rate than the projected rated in Q3-2017.

On account of the rise in fuel prices, headline inflation increased in advanced economies, but wage and core-price inflation remained weak. The increase in fuel prices was due to the increase in crude oil prices between August 2017 and mid December 2017.

As of early January 2018, the U.S. dollar and the euro remain close to their August 2017 level in real effective terms. The Japanese yen has depreciated by 5% on widening interest differentials, while the Sterling has appreciated by close to 4% as the Bank of England raised interest rates in November 2017 and as expectations of a Brexit deal rose.

Emerging and developingeconomiesChina’s GDP growth rate of 6.8% was ahead of India’s at 6.7%, giving the former

the label of being the fastest growing emerging economy. The Indian economy, which grew at 7.1% in 2016, slowed in 2017 due to demonetisation in November 2016 and GST rollout on 1 July 2017.

Capital flows to emerging economies have remained resilient through the third quarter of 2017, with continued strength in non-resident portfolio inflows.

Economic growth (%)

2016 2017* 2018* 2019*

5

4

3

2

1

0

World Advanced Economies

Emerging Economies

* Projected

Source: IMF World Economic Outlook January 2018 Update

Future outlookThe stronger momentum experienced in 2017 is expected to carry into 2018 and 2019, with global growth revised up to 3.9% for both years. The revision reflects increased global growth momentum and the expected impact of the recently approved U.S. tax policy changes.

The growth forecast for U.S. has been raised to 2.7% in 2018 and to 2.5% in 2019. For Euro area, the growth rates have been revised upwards, by 0.3 percentage points, reflecting stronger demand.

The growth forecast for emerging and developed economies remain more or less unchanged. However, for China, the growth

rates are expected to moderate gradually from 6.8% in 2017 to 6.6% in 2018 and further to 6.4% 2019.

Emerging and developing Asia will continue to account for over half of world growth and is expected to grow at around 6.5% over 2018/19, broadly the same pace as in 2017. India is projected to grow at 7.4% of its gross domestic product (GDP) in 2018 as against China’s 6.8%, making it the fastest growing economy among emerging economies.

Inflation in the advanced economies is projected to increase by 1.9% in 2018 and 2.1% in 2019 while that of emerging market economies will grow at 4.5% in 2018 and expected to moderate 4.3% in 2019.

Global life insuranceindustryEmerging markets continued to provide growth opportunities for insurers with emerging Asia once again becoming the main driver of overall emerging market premium growth.

Life premium growth is estimated to have increased to 3% in 2017 compared to 2% in 2016. This has been supported by robust performance of savings products in emerging markets, particularly in Asia, with China accounting for most of the recent acceleration.

Real premium growth in different regions has been mixed in 2017

zz North America – premiums are estimated to have declined by 2%

zz Western Europe – life premium income is estimated to have stagnated after adjusting for inflation

zz Developed Asia-Pacific – life premium income is estimated to have risen modestly by+1%

zz Advanced markets – premiums remain sluggish, down an estimated 0.2%; an improvement from the 2% decline in 2016

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STEWARDSHIP FINANCIAL REPORT SUPPLEMENTARY INFORMATION OPERATING ENVIRONMENT

World North America

Western Europe

Developed Asia-Pacific

Emerging markets

2015 2016 2017E 2018F 2019F

Real premium income growth for traditional life insurance (%)

20

15

10

5

0

-5

Note: Figure provides real growth rates for life business alone (ie. Excluding medical expense insurance).Source: Swiss Re InstituteE: Estimated F: Forecasted

Future outlookPremiums are forecast to increase by close to 4% annually over the next two years. Profitability remains challenging given the global low interest rate environment, which is putting pressure on investment returns and existing long-duration books of business.

Emerging markets will remain the major driver Life premium growth to be around 10% in 2018 and 2019. This positive outlook is underpinned by stable, robust economic growth; expanding populations; urbanisation; and, a rising middle class. Premiums in advanced markets are expected to grow by a more modest 1-2% after adjusting for inflation and developed Asia-Pacific are forecasted to grow premiums by 2-3% in 2018 and 2019 respectively.

ProfitabilityOverall profitability as measured by Return on Equity (ROE) remains under pressure on account of the low interest rates generating lower investment income. ROE for the life industry was 8.1% at end of 2016, down from 10.8% in 2015. The strain on rates of return was apparent across regions; North America, ROE was 7.9%, in Europe 9.1% and in Asia 7.5% in 2016.

North America

Europe Asia Weighted average

20

16

12

8

4

0

2007 2010 2013 2016

Life insurer’s Return on Equity (ROE) (%)

Source: Swiss Re Institute

Increase in inflation implies a rise in the general price levels. This leads to a decrease in disposable income, which will lower the demand for life insurance products.

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Sri Lanka

Key economic performance indicators impact on Ceylinco Life

Key indicator Movement Impact insurance industry/Ceylinco Life Level of impact

GDP (1H of 2017 Vs 1H 2016) Increased from 3.7% to 3.9% YoY Increased demand for life insurance products Low

Inflation – NCPI based headline as at September 2017

Increased to 8.6% Increase in inflation implies a rise in the general price levels. This leads to a decrease in disposable income, which will lower the demand for life insurance products. Low

Exchange Rates (September 2017)

Sri Lankan Rupees depreciated by 2.2% against U.S. Dollar YoY

Depreciation in LKR against foreign currencies cause an increase in the value of foreign currency payments in local currency. Low

Interest rates Both standing lending rate and standing deposit rate increased by 25 basis points

Increased investment incomeModerate


GDP Growth The economic growth in the first half of 2017 was 3.9% compared to 3.7% in the preceding comparable period.

The industrial and the services activities recorded higher growth rates of 5.8% and 4.0% respectively. Affected by adverse weather, agricultural activities reported a negative growth rate of 3.1% in the first half of 2017. The spillover effects of adverse weather conditions tricked down to other sectors of the economy through increased import expenditure amid rising international commodity prices, higher prices of domestic food supplies and cost incurred on relief measures.

GDP growth rate (%)

Q1 2016

Q2 2016

1H2016

Q3 2016

Q4 2016

Q1 2017

Q2 2017

1H2017

Q3 2017

6.0

4.8

3.6

2.4

1.2

0

Source: CBSL

Industry growth rates (%)

Agriculture, Forestry and Fishing Industries Services

10.0

7.5

5.0

2.5

0

-10.0

-7.5

-5.0

-2.5

Q1 2016

Q1 2017

Q2 2016

Q2 2017

Q3 2016

Q3 2017

Q4 2016

Annual2016

Source: CBSL

45



InflationConsumer price inflation remained higher than the desired levels up to mid 2017 as a result of the combined effect of tax revisions, domestic weather related disturbances and rising international commodity prices. Headline inflation, measured using the National Consumer Price Index (NCPI, 2013=100) as well as the Colombo Consumer Price Index (CCPI, 2013=100) remained high during the first quarter of 2017.

NCPI based headline inflation increased to 8.6 % YoY, in September 2017, mainly reflecting the high food inflation while CCPI based headline inflation also increased to 7.1% YoY.

Inflation (%)

10

8

6

4

2

0

-2

Jan. 2015

Jan. 2016

Jan. 2017

Mar.2015

Mar.2016

Mar.2017

May2015

May2016

May2017

Jul.2015

Jul.2016

Jul.2017

Sep.2015

Sep.2016

Nov.2015

Nov.2016

Sep.2017

Headline Core

Source: CBSL

External sectorContinuing the upward trend since March 2017, cumulative export earnings grew at a healthy rate of 7.6% YoY as at end August 2017. This was largely on account of the gradual recovery in key export markets, increased commodity prices in international markets, the restoration of the GSP+ concessions coupled with a few other key contributory factors.

Import expenditure also grew substantially by 9.6% YoY for the first eight months of the year, mainly due to increase in imports of fuel, gold and rice.


The improved external environment facilitated the Central Bank to implement a more market based exchange rate policy in 2017. Overall, the Sri Lankan rupee depreciated by 2.2% against the US dollar during the year up to end September 2017.

Overall balance

Gross official reserves

2013 2014 2015 2016 Sep.2017

(USD Mn.)Overall balance and gross official reserves

10,000

6,000

4,000

2,000

0

-2,000

8,000

Source: CBSL

Fiscal policyThere were notable developments in the fiscal sector in the first half of 2017 as reflected in the revenue, as a percentage of estimated GDP, increasing to 9% during the first eight months of 2017 from 8.2% in the corresponding period of 2016.

The Central Bank continued to maintain a tight monetary policy stance by raising policy interest rates by 25 basis points in March 2017. The Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) of the Central Bank stood at 7.25% and 8.75%, respectively, since then.

Responding to the monetary policy stance and the resultant high market interest rates, the growth of credit extended to the private sector decelerated during the first eight months of 2017.

Although the trade deficit widened to USD 6,186 Mn. during the first eight months of 2017, the Balance of Payment (BOP) registered an overall surplus of USD 2,027 Mn. by end September 2017. This resulted from the higher inflows to the Colombo Stock Exchange (CSE), increased foreign direct investments (FDI) and proceeds from the eleventh International Sovereign Bond (ISB) and the foreign currency term financing facility obtained by the Government. The gross official reserves of Sri Lanka also swelled to USD 7.3 Bn. as at end September 2017 from USD 6.0 Bn. at end 2016.

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Movement of selected market interest rates (%)

20

16

12

8

4

0

Sep. 2012

Mar. 2014

Sep. 2015

Dec.2012

Jun.2014

Dec.2015

Mar2013

Sep.2014

Mar.2016

Jun.2013

Dec.2014

Jun.2016

Sep.2013

Mar.2015

Dec.2013

Jun.2015

Sep.2017

Sep.2016

Dec.2016

Mar.2017

Jun.2017

AWLR Monthly AWPR AWFDR AWDR

Source: CBSL

Social rankingSri Lanka made significant progress in human development and is ranked among the highest in South Asia and compare favourably with those in middle-income countries in social indicators. The national poverty headcount ratio declined from 15.3% in 2006/07 to 6.7% in 2012/13. However, unlike other South Asian countries, Sri Lanka is having one of the oldest and fasted ageing populations in the world.

10

8

6

4

2

0

Sri Lanka India Bangladesh Pakistan Nepal

Population aged 65 and above (%)

Source: Sri Lanka paradigm shift in population, W Indralal De Silva, World Bank

Sri Lanka’s economy is transitioning from being predominantly rural-based to urbanised economy-oriented around manufacturing and services. Whilst carrying out fiscal reforms, improving public financial management, increasing public and private investments, addressing infrastructure constraints and improving competitiveness, the Government launched its Vision 2025 on 4 September 2017 to strengthen democracy and reconciliation, inclusive and equitable growth and ensure good governance.

Future outlookThe real economic growth during 2017 is projected to be between 4.0 – 4.5%, on a YoY basis, in comparison to the 4.4% expansion in 2016. Growth is envisaged to improve thereafter with the support of conducive macroeconomic policies and the realisation of growth promotion strategies of the Government, and the resultant increase in domestic and foreign investments.

The Government’s Vision 2025 unveils the future policy direction of Sri Lanka, envisioning to transform Sri Lanka into a hub of the Indian Ocean, with a


knowledge-based, highly competitive, social-market economy.

Therefore, effective and sustainable long-term policy measures would be implemented for accessing foreign markets through exploiting trade and investment opportunities. In particular, the Central Bank seeks avenues to capitalise opportunities created by the revival of global growth supported by synchronised economic expansion in Europe, Japan and the US for the first time since the Global Financial Crisis. Sri Lanka is also steadily progressing towards an effective Flexible Inflation Targeting (FIT) framework to ensure price stability by targeting an inflation range of 4-6 % in 2018.

Non-debt creating FDI flows is expected to increase from 2018 onwards with the commencement of the Hambantota Industrial Zone and the continuation of the Colombo Port City project. With the expected increase in FDIs the Government will adopt foreign exchange intervention policies which are consistent with a flexible exchange rate regime and supportive of improving foreign exchange market functionality. Accordingly, maintaining a competitive exchange rate will be an important objective of the Central Bank.

In addition, promoting a dynamic and resilient financial sector to lower vulnerabilities in the financial system remains a key priority for achieving objectives in relation to growth, employment and incomes in the future.

Sri Lanka’s life insuranceindustrySri Lanka’s life insurance industry has been growing at a higher rate compared to the economic growth of Sri Lanka. In 2016 Life insurance industry grew by 18% YoY compared to the GDP growth of 4.4%. However, Sri Lanka’s life insurance penetration remains low, compared to its regional peers.

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25

20

15

10

5

0

2013 2014 2015 2016

Long-term insurance industry growth Vs GDP growth

(%)

Life insurance asset growth Life insurance GDP growth

GDP growth

Source: Insurance Regulatory Commission of Sri Lanka and CBSL

Gross written premium (GWP)Long-term insurance industry performed commendably in 2016, generating a GWP of Rs. 63 Bn. in 2016, reflecting a 18% growth YoY, compared to Rs. 54 Bn. recorded in 2015. In terms of quarterly performance, GWP of Rs. 52 Bn. for the third quarter of 2017 was an increase of 12% compared to Rs. 46 Bn. recorded in the third quarter of 2016.

75

60

45

30

15

0

2013 2014 2015 2016 Q3 2017

(Rs. Bn.)Long-term insurance industry gross written premium

Source: Insurance Regulatory Commission of Sri Lanka

60

48

36

24

12

0

Q2 Q3Q1

(Rs. Bn.)Long-term insurance industry Gross written premium Quarterly comparison

2016 2017


The top five players in the long-term insurance industry in terms of GWP in 2016 were Ceylinco Life, Sri Lanka Insurance Corporation (SLIC), AIA Life, Union Life, and Softlogic Life. Collectively, they accounted for 80% of market share, whilst the rest of the 10 players in the industry accounted for the balance 20% of market share in 2016.

Ceylinco Life remained the market leader for the 14th consecutive year with a share of 23.7% in 2016. The market leadership position has been retained by Ceylinco Life for the nine months ended September 2017.

Ceylinco Life Others

22%

78%

Market share of long-term insurance industry – Q3 2017


Claims incurredTotal claims increased by 8% to Rs. 22,622 Mn. in 2016, of which maturity benefits represented the largest share of claims amounting to 56% of total. The rest of the claims comprised death benefits, surrenders, disability benefits and other benefits.


Claims incurred (Rs. Mn.)

2012 2013 2014 2015 (a) 2016 (b)

14,000

11,200

8,400

5,600

2,800

0

Disability benefits Death Surrenders Maturity benefits Others


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Total assetsTotal assets increased by 10% YoY to Rs. 345,675 Mn. as at 31 December 2016 compared to Rs. 312,713 Mn. recorded as at 31 December 2015.


Except for one long-term insurance company, all other long-term insurers had maintained a TAC more than the minimum requirement of Rs. 500 Mn., as at 31 December 2016. Further, all insurance companies had satisfied the minimum CAR requirement of 120% as at 31 December 2016 and all except one insurer maintained a CAR of over 160%.

Profit before tax Profit before tax of long-term insurance companies amounted to Rs. 5.1 Bn. for the third quarter of 2017, marginally lower than Rs. 5.2 Bn. recorded in the previous comparable period of 2016.

6,000

4,800

3,600

2,400

1,200

0

Q2 Q3Q1

(Rs. Mn.)Profit before tax

2016 2017


National vision and the life insurance sectorThe national vision is to establish Sri Lanka’s insurance industry to be a pillar of the financial sector, as Sri Lanka moves forward to be a middle income country.

Several measures have been implemented to increase the operational efficiency and strengthen the balance sheets of insurance companies to meet customer requirements. In addition, steps have been taken to increase insurance penetration in Sri Lanka as well.

A larger chunk of total assets were invested in government debt securities followed by corporate debts and equities.

The long-term insurance industry has complied with the requirement of the Insurance Regulatory Commission of Sri Lanka that a minimum of 30% of the investment of the long-term Insurance fund should be in government securities.

Government Debt Securities

Corporate Debt

Investment in Subsidiaries

and Associates

Equities Deposits Land and Buildings

Unit Trusts Mortgage Loans

Policy Loans

Long-term Insurance Industry – Concentration of Assets (%)

2016 2017

50

40

30

20

10

0


Investment income increased by 18% YoY to Rs. 27,652 Mn. in 2016. Investment Yield has shown an improving trend for each of the three quarters in 2017, compared to 2016 as shown below:

12.5

10.0

7.5

5.0

2.5

0

Q2 Q3Q1

(%)Long-term insurance industry investment yield ratio

2016 2017


Number of policiesThe number of policies issued in 2016 declined by 11% YoY to 662,701 compared to 740,511 policies in 2015. However, there has been a gradual increase in the total life insurance policies in force over the last five years, reflecting the continuous expansion of the long-term insurance business in Sri Lanka.

The number of new life insurance policies lapsed recorded an increase of 3.76% to 96,502 in 2016 compared to 93,008 in 2015.

Solvency positionUnder RBC Rules 2015, the capital adequacy requirements are to maintain a minimum Total Available Capital (TAC) of Rs. 500 Mn. and a Capital Adequacy Ratio (CAR) of 120%.

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Future outlookSri Lanka’s long-term insurance industry has a high growth potential due to a combination of factors. Sri Lanka is significantly underpenetrated compared to its peer nations giving strong potential for growth. Sri Lanka also has one of the fastest ageing populations in the world which creates more demand for life insurance products. Also the higher trend of urbanisation and low unemployment levels in Sri Lanka increases the demand for life insurance products.

Industry attractivenessand competitivenessUnderstanding the competitiveness of our business environment is imperative to formulate effective strategies for organisational growth and profitability. Therefore, we constantly monitor and evaluate the dynamics of the life insurance industry to ascertain the factors influencing industry attractiveness. Using Michael Porter’s Five Forces Model we have assessed the competitiveness of Sri Lanka’s life insurance industry. Based on the analysis, Sri Lanka’s life insurance industry has a high growth potential.


Bargaining power of suppliers

Moderate

Rivalry among existing Life

Insurers

Moderate

Threat of new life

insurers

Moderate

Threatof substitutes

Low

Bargaining power of

Policyholders

Low

“As a life insurer, we have a broader understanding of our sensitivity to changes in these external factors. Sustainability of our business is largely impacted by macroeconomic conditions, performance of financial markets, changes in regulations of the Insurance Regulatory Commission of Sri Lanka (IRCSL) and other competitive factors. Being a local life insurer, our operations and financial performance, is heavily dependent on Sri Lanka’s economic conditions”

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17PREAMBLE MESSAGES AND MANAGEMENT PROFILES BUSINESS MODEL MANAGEMENT DISCUSSION AND ANALYSISOPERATING ENVIRONMENT

Force Description Strength of the force

Rivalry among existing life insurers

There is a positive correlation between demand for life insurance and disposable income and aging population.

Demand for life insurance increases in tandem with the rise in people’s disposable income and increasing aging population.

Life insurance penetration in Sri Lanka remains low (2016 – 0.54% of GDP) compared to regional peers. Therefore, even though competition is high, there’s high potential for market growth. There is untapped market to be penetrated and high exit barriers for existing players in the industry due to stringent regulations.

Moderate

Threat of new life insurers

There are moderate entry barriers in the industry. The IRCSL has imposed stringent requirements for the registration of new life insurance companies such as the imposing of the minimum capital requirement of Rs. 500 Mn. These regulatory requirements deter new players entering the industry.

It is also not easy for a new entrant to compete with the established players in the industry and acquire specialised staff such as actuaries and underwriters. Despite these deterrents, a few financially stable companies are entering the industry and the industry is being disrupted by information technology as well.

Although new entrants are attracted by the increased demand created by the rising ageing population of Sri Lanka, the life insurance market is comparatively small. This too deters new entrants.

Moderate

Threat of substitutes There are only a few substitutes for life insurance products such as pension plans and savings plans offered by other financial institutions. These are not considered as direct substitutes and as they do not feature substantial life insurance elements.

Low

Bargaining power of suppliers

Re-insurers and actuaries have a high bargaining power as many are international companies and the volume of business with Sri Lankan clients is relatively small. Their expertise and know-how is also unique.

Other vendors and service providers have low bargaining power as a life insurer can shift from one supplier to another with ease.

Moderate

Bargaining power of policyholders

The industry largely serves individual policyholders who have significantly low bargaining power.

High switching costs, such as surrender penalties discourage customers from switching to other life insurers.

Low

Regulatory environment

Overview

Insurance companies are regulated by the Insurance Regulatory Commission of Sri Lanka (IRCSL) through Regulation of Insurance Industry Act No. 43 of 2000 and amendments thereto, coupled with the

subordinate regulations issued. IRCSL has adopted several regulatory measures to increase transparency and safeguard the interests of life insurance policyholders.

The Regulation of Insurance Industry (Amendment) Act No. 23 of 2017 amended the name of the regulatory body to "Insurance Regulatory Commission

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STEWARDSHIP FINANCIAL REPORT SUPPLEMENTARY INFORMATION OPERATING ENVIRONMENT

of Sri Lanka" (formerly Insurance Board of Sri Lanka). This Amendment Act has granted exemptions to insurers from being listed on the Stock Exchange. According to the Amendment Act, if a local subsidiary insurance company is held by a company that is listed on a stock exchange licensed under the Securities and Exchange Commission of Sri Lanka Act No. 36 of 1987, such local subsidiary insurance company shall be exempted from being listed on the Colombo Stock Exchange.

Risk based capitaland capital adequacyrequirementRisk Based Capital (RBC) rules compel companies to become financially secure and more liquid. The minimum stated capital is Rs. 500 Mn.

Guidelines on investmentsThese guidelines issued by the IRCSL set out the minimum policies that need to be observed in governance of investment management, management of investment portfolios and associated risks. A key change is the requirement for the Board to establish an Investment Committee which may include Independent Directors, Principal Officer and Chief Investment Officer. The new guidelines aim to institute effective and efficient governance of investment activities of an insurance company.

Regulatory guidelinesissued by IRCSLIRCSL has directed life insurance companies to grant policyholders a cooling-off period (free look period) of 21 days to examine the terms and conditions of the policy documents. This is to provide the policyholder an opportunity to terminate the policy during the free look period and the insurer is liable to refund the initial deposits or premium paid by the prospective policyholder.

A set of guidelines on complaints handling by insurers and brokers was issued in October 2016 with the objective of ensuring that processes are in place, for timely and fair handling of complaints by insurers and brokers. In addition, the IBSL, under its overall objective of safeguarding the interests of policyholders, inquires into policyholders’ grievances in connection with insurance claims pertaining to insurance policies.

New Inland Revenue Act No. 24 of 2017The new Inland Revenue Act No. 24 of 2017 passed by the Parliament of Sri Lanka on 7 September 2017 becomes operative with effect from 1 April 2018. Under the Act, several corporate tax and dividend tax-related changes pertaining to life insurance industry have been approved.

Under the existing Income Tax Law of section 92 of the Inland Revenue Act No. 10 of 2006, the profits of a life insurance company deem for income tax are calculated by deducting the management expenses such as admin expenses, agents’ commission and finance cost from the investment income. However, under the new law, the taxable profit of a life insurer will include the “surplus attributable to shareholders”, in addition to the excess of investment income over the expenses incurred in the production of such income of shareholders resulting in a higher taxable profit and thereby a higher tax expense. Moreover, bonus declared to policyholders will also be subject to income tax at the rate of 14% for 3 years and at 28% thereafter.

Also restriction on deduction of losses (35% of statutory income) from life insurance businesses has also been removed by the new Act and can now be claimed in full, but can be carried forward only to six years instead of indefinite period previously. These amendments

create a negative profitability impact to life insurers.

Risks and opportunities Scanning the external environment for risks and opportunities and executing effective strategies to mitigate risks and capitalise on the opportunities is an integral aspect of strategic management at Ceylinco Life.

Risks and challengesSignificant social, technological, economic, and environmental forces are reshaping the needs and expectations of insurance customers, as well as the business environment in which insurance providers operate.

As a life insurer, we have a broader understanding of our sensitivity to changes in these external factors. Sustainability of our business is largely impacted by macroeconomic conditions, performance of financial markets, changes in regulations of the IRCSL and other competitive factors. Being a local life insurer, our operations and financial performance, is heavily dependent on Sri Lanka’s economic conditions. Shown below are external factors that posed risks to our Company in 2017, as well as their potential impact and mitigating actions taken by us. For a comprehensive overview of our enterprise risk management, refer to pages 158 to 163.

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Risks/Challenge Impact on the Company Our response

Economic Volatility in interest rates affect the demand for life insurance products and investment income earned.

Affects the Company’s profits and pose challenges to projecting the long-term returns of the Company which is done for 10 to 15 years.

We adopt prudent assumptions in forecasting and implement investment strategies that optimise returns with minimal risk. We do this by investing in real estate, government securities, bank savings and corporate debt. We do not invest in the Stock Market.

Maintain a well diversified investment portfolio.

Social Changes in demography and consumer needs disrupt the industry

We need to offer more retirement benefit and medical related insurance solutions to cater to the increasing aging population and urbanisation.

Being active in InsurTech to discover emerging coverage needs and risks that require new insurance products and services is also imperative.

Invested in developing customer-agent relationships to build trust and increases cross-selling and up-selling.

Effecting continuous improvements to our systems, processes, and products.

Actively monitoring new trends and changes in consumer demands by setting up a data analytics unit and by conducting a brand health study through an independent research agency.

Invest in La Serena, a retirement resort at Uswetakeiyawa.

Technological Keeping abreast with changes in technology, cyber attacks and data security.

We need to cater to an increasingly sophisticated customer base who are technologically savvy.

Also new technologies pose threats to information security.

Conduct regular information system audits, maintenance, and system updates.

Maintain a disaster recovery site.

Leverage on technology to drive product innovation and customer convenience.

Legal/Regulatory

Impact of regulatory changes on financial reporting, operations, and the business overall.

High cost of compliance and limited expert knowledge on regulatory changes.

Regular consultations with our in-house legal officers.

Conducting regular compliance audits.

Provide training to our employees on regulatory aspects.


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Opportunities

Opportunity Description Impact Ceylinco Life response

Low insurance penetration

Sri Lanka Philippines IndiaIndonesia MalaysiaVietnam Thailand

Life premium as a percentage of GDP

3.75

3.00

2.25

1.50

0.75

0

Source: Swiss Re sigma No. 3/2016

Sri Lankan life insurance industry remains underpenetrated compared to its regional peers who have comparable GDP per capita.

Develop products to reach the young and rural customers by offering affordable, tailor-made solutions which are conveniently accessible.

Promote inclusion through product diversification and innovation.

Invest in branch expansion and increase the number of insurance agents.

Leverage on technology to improve reaching untapped segments.

Urbanisation

2013 20142012 2015 2016

Urban population as a percentage of total population

18.5

18.4

18.3

18.2

18.1

18.0

Source: World Bank

Sri Lanka is expected to see rapid urbanisation with annual growth rate of 3.3% over next 15 years. This gives an impetus for the industry growth as the need to have life insurance coverage increases.

Also the boom in the housing market and low unemployment rate is also poised well for urban living, creating an opportunity for life industry growth.

Developing customised life insurance solutions targeting urban customer segments.


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Rapid growth in ageing population

2040 206020202000 2080 2100

Rapid growth in ageing population (%)

40

32

24

16

8

0

60 – 69 70 – 79 80 +

Source: World Bank, “Sri Lanka – Addressing the Needs of an Ageing Population – 2008”

Sri Lanka’s population is one of the oldest and fastest ageing in the world with total population at the age of 65+, surpassing most of the South Asian regional peers. By 2041 it is expected to increase up to 18%. People are expected to set aside more money for health risk that they would potentially expose to.

Taking into consideration the needs of our ageing population, develop retirement resorts and assisted care homes.

Increased deaths due to non-communicable diseases

2009 2011201020082007200620052004 20132012 2014*

12

8

10

6

4

2

0

4,800

3,200

4,000

2,400

1,600

800

0

Cancer Heart diseases Diabetes GDP per capita

Increased deaths due to Non-communicable diseases

GDP per Capita (USD)

Number of Deaths (’000)

Source: Health Ministry and the World Bank

Non-communicable diseases (NCDs) have shown an increasing trend, with 71% of annual deaths being attributed to chronic NCDs. Compared to the past, people have become more aware of the risks of NCDs and are looking for life/health covers.

Launch new health-based products in the health industry space, related to our core business of life insurance.

Continue to expand the operations and healthcare services offered by the four centres of excellence of Ceylinco Healthcare Services Limited.


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Mobile phone penetration

2012 20132011 20142010 2015

Mobile phone penetration(%)(Mn.)

25

20

15

10

5

0

125

100

75

50

25

0

Population (Mn.) Mobile phones (Mn.) Penetration (%)

Source: CBSL Socio-economic Data – 2016

The mobile phone penetration has been high (107%). Hence, there’s more potential to conveniently reach more and new customers with the development in IT and mobile technology.

Increasingly partner with mobile network operators to use their platforms to conveniently approach a large pool of mobile phone subscribers.

Reinforce the Customer Relationship Management (CRM) unit to improve customer reach.

Launch more mobile payment methods and SMS notifications.

Opportunity to support tertiary education

20122011 2013 2014 2015

Opportunity to support tertiary education (No.)

300,000

240,000

180,000

120,000

60,000

0

No. of candidates sitting for A/L Exam

No. of admissions to State Universities

Source: CBSL Socio-economic Data – 2016

Introduced the Degree Saver Plan which has an education fund and a comprehensive life insurance plan to ensure a child’s higher studies.


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SWOT analysisWe also carry out a SWOT analysis to analyse the strengths and weaknesses, and the opportunities and threats faced by our Organisation. This helps us to focus on our strengths, minimise threats, and take the greatest possible advantage of opportunities available to us.

zz Visionary leadership

zz 14 years of market leadership

zz Financial strength and stability

zz Industry expertise

zz Professional sales team

zz Professionally-qualified staff

zz Sales force turnover

zz Low market penetration

zz Urbanisation

zz Rapid growth in aging population

zz Mobile phone penetration

zz Opportunity to support tertiary education

zz New entrants

zz Volatility in financial markets

zz Ad hoc changes in legislation

zz Political instability

Strengths

Opportunities

Weaknesses

Threats


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STRATEGIC DIRECTION

Delivering sustainable value

Determineposition

Developstrategy

Build the plan

Manageperformance

Insights from industry and market analysis

Stakeholder insights

SWOT analysis

Vision

Mission

Values

Core competences

Strategy

Objectives

Forecasts

Strategic priorities

Key performance indicators

Goals (short-term, medium-term and long-term)

Resources

Performance measurement

Reviews

Training

Monitoring

In 2017, we continued to build a sustainable and stronger organisation, maintaining our leadership position in the industry whilst delivering increased value to all our stakeholders. Clear and solid progress was made on each of our six strategic priorities during the year which consisted of defined Key Performance Indicators (KPIs) and a set of target value drivers to be achieved each year.

Our strategic planning process is comprehensive and is driven by the Strategic Planning Committee of the

organisation, comprising the heads of departments, headed by the Managing Director/CEO of the Company.

The steps of our strategic planning process involves, determining our position in the industry through stakeholder insights and market analysis and by conducting a SWOT analysis of our Company. The corporate strategy and objectives are formulated aligned to the corporate vision and mission, based on our core competencies and strengths. It also involves mitigating threats, capitalising on opportunities and

In 2017, we continued to build a sustainable and stronger organisation, maintaining our leadership position in the industry whilst delivering increased value to all our stakeholders.

managing risks within acceptable tolerance levels. Thereafter, the departmental heads decide on the departmental objectives, the action plans and KPIs, aligned to the overall corporate objective of the Company. Short-term goals are set in line with the medium and long-term goals and communicated to stakeholders. A progress review meeting is convened at least every two months, to ascertain progress, KPI achievement, and to take apt measures.

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Short, medium and long-term goals of the Company Shown below are the goals of our Organisation for each capital:

Financial Capital

Short-term goals 2018

Medium-term goals

Long-term goals

zz Increase GWP by 15%

zz Achieve a profit after tax

of Rs. 6.5 Bn.

zz Meet the regulatory minimum


zz Life Fund of Rs. 90 Bn.

zz Increase GWP by 15%. zz Retain market leadership in the

life insurance industry whilst

maintaining a healthy and

sustainable profit growth

zz Sustainable growth of the Life Fund

whilst providing the best-in-industry

customer benefits

zz Maintain a healthy profit after tax

growth of 8%

zz Maintain an Investment yield

above 7%

zz Consistently meet the regulatory

minimum CAR

zz Grow the Life Fund to Rs. 100 Bn. in

the next three years

Strategies

KPIs

Market penetration

Need based product development

Development of other channels of distribution such as Bancassurance

Prudent investment management by investing in high quality investment products

Develop need-based products

Prudent investment management

GWP growth PAT growth Total assets GWP generated from other channels

Capital Adequacy Ratio Life Fund growth

Employee Capital


Medium-term goals

Long-term goals

zz Increase the training hours by 10%

zz Extend leadership training to the

second tier of management

zz Maintain employee retention rate

above 90%

zz Provide enhanced employee

benefits

zz Maintain a competent and loyal

workforce with integrity who makes

a significant contribution to the

growth of the Company

StrategiesCreate a unique, challenging and rewarding environment

Provide improved retirement benefits

Provide the best work-life fit

Promote a continuous learning environment

Provide comprehensive training

KPIsAverage service period

Retention ratio Employee turnover ratio Training hour per employee

Investment in training per employee

STRATEGIC DIRECTION

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Social and Relationship Capital


Medium-term goals

Long-term goals

zz Continue with Family Savari promotions

zz Reducing the time taken for settling inquiry per

customer by 10%

zz Increase customer experience

zz Strengthen distribution channels

zz Conduct customer satisfaction surveys regularly

zz Improve customer loyalty and

customer satisfaction

zz Grow customer base by 5%

zz Maintain customer complaints as

a percentage of active policies

below 5%

zz Continue to establish healthy, long-

term customer relationship through

an excellent customer experience

StrategiesPromote “A Relationship

for Life” with customers

Ensure a stable financial position

for customers

Develop and maintain an

exceptional product offering

Promote a customer centric culture

KPIsLIMRA Average length of customer

relationship

Claims and benefits paid No. of complaints as a percentage of

customer base

– Customers



Medium-term goals

Long-term goals

zz Improve Net Assets Per Share (NAPS)

by 12%

zz Increase earnings per share (EPS) by 8%

zz Increase dividend per share (DPS) by 10%

zz Achieve a consistent and sustainable

growth in EPS and DPS

zz Increase value delivered to investors

Strategies

KPIsIncrease in EPS Increase in DPS Increase in NAPS

– Investors

Prudent investment management Improve governance systems and transparency Operation of a sound risk management system

STRATEGIC DIRECTION

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Medium-term goals

Long-term goals

zz Increase the MDRT/High Flyer Club qualifiers by 10%

zz Increase minimum hours of Continuous Professional Development (CDP) per agent by 10%

zz Reduce agent turnover

zz Develop exceptional sales professionals who are loyal to the Company

zz Empowering entire sales force with latest ICT technologies

StrategiesCreating a unique, challenging, and rewarding environment

Develop sales agents as ambassadors of life insurance

Inculcate a training culture to develop trainers from within the sales force

KPIsNumber of MDRT/High Flyers Club qualifiers Hall of Fame qualifiers Size of the training budget Training hours per sales agent

– Sales Agents


Short- term goals 2018

Medium-term goals

Long-term goals

zz Conduct 12 Waidya Hamuwa clinics

zz Conduct 5 school development projects

zz Improve the quality of health in Sri Lanka by making

meaningful investments in the health sector

Strategies

KPIsCorporate Social Responsibility budget

Number of Waidya Hamuwa clinics conducted

Number of government hospitals developed

Donations made through the Cancer Fund

Make investments to develop health and education in Sri Lanka Create positive impacts on the society by granting Pranama Scholarships

– Society

Manufactured Capital


Medium-term goals

Long-term goals

zz Construction of two new buildings

zz Purchasing of two new blocks of land

zz Expansion of our distribution regions by 10 more regions

zz Take the message of protection to every Sri Lanka island-wide with our expansive network of branches

StrategiesExpand our geographical presence Leverage on Information Technology

KPIsNumber of branches opened Investment in Information Technology Investment in furniture and fittings

STRATEGIC DIRECTION

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Natural Capital


Medium-term goals

Long-term goals

zz Reduce fuel consumption by 2%

zz Reduce electricity consumption

by 5%

zz Reduce paper consumption by 5%

zz Reduce greenhouse emissions by 5%

zz Promote and invest in green

initiatives that contribute towards

reduced carbon footprint and

dependence on natural resources

over the next three years

zz Setting a standard in the industry

to implement green initiatives to

contribute towards environmental

sustainability

Strategies

KPIsReduction in fuel consumption

Reduction in electricity consumption

Increase in solar energy units

Reduction in paper consumption

Increase in recycled e-waste

Increase in water recycled

Align business model to the Green Policy of the Company Process re-engineering to reduce carbon footprint

Intellectual Capital


Medium-term goals

Long-term goals

zz Improved our LMD ranking by 2

positions

zz Nurture a knowledge culture

zz Technology development

zz Maintain brand equity at 4

zz Enhance our brand reputation

zz Enhance the expertise and knowledge of our staff

zz Continuous improvement in Information Technology and processes to increase productivity and efficiency of our workforce

zz Continuous enhancement of our brand positioning and brand reputation whilst nurturing a knowledge based culture

zz Keep pace with digitalisation and offer increased value to customers

StrategiesOffer protection based life insurance solutions to customers

Continuous knowledge development of our workforce

Invest in process improvement

Extend IT related training to our workforce

Digitalising of processes

Invest in state-of-the-art information systems

KPIsImprovement in top of the mind recall

Brand value Improvement in brand rankings

Training hours per employee

Number of new systems introduced

Investment in Information Technology

STRATEGIC DIRECTION

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Our strategic priorities Our strategy addresses sustainable growth and our enduring strategic aim is to demonstrate the values and performance that make Ceylinco Life Insurance the Company that provides “A Relationship for Life” for customers, employees, shareholders, business partners and other stakeholders.

We aim to do this by delivering industry-leading, innovative protection-based solutions and outstanding service to our customers, by providing engaging and rewarding work for employees, generating sustainable growth and returns for our shareholders and delivering increased value to other stakeholders. These aims are underpinned by the six strategic priorities which frame our decision-making and enable us gauge progress over the long-term. The priorities are detailed below:

Staying aheadof the pack

Investing in people

Reaping the result of smart investing

Technology development

Championing Environmental Sustainabilityand Corporate Citizenship

Strengthening relationships and collaborations

STRATEGIC DIRECTION

Staying ahead of the pack We have been the market leader in Sri Lanka’s life insurance industry for 14 consecutive years since 2004. Adjudged Sri Lanka’s Best Life Insurer in 2017 for the fourth consecutive year by World Finance, we have close to a million lives covered by active policies. Compared to regional peers in Asia, Sri Lanka is the only country where market leadership of the life insurance industry is held by a local insurance company. This has been a tremendous feat for Ceylinco Life for 14 consecutive years. In other regional nations, the market leadership position is held by multinational insurance companies.

Our goal is to maintain this position. We aim to do this by being benchmarked for innovation in the local insurance industry for product research and development, customer service, professional development, and corporate social responsibility.

These aims are underpinned by the six strategic priorities which frame our decision-making and enable us gauge progress over the long-term.

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Value driver Overview Key risks KPIs

Exceptional product portfolio

We offer a broad range of protection-based insurance solutions through our sales team and develop innovative value-added solutions to meet evolving needs of different customer segments. Our solutions are tailor-made and flexible and cater to diverse customer requirements.

Volatility in interest rates and tax regulations

Demographic transition

Customer evaluations

Competitors deviating from core insurance business

Growth in Gross Written Premium

Number of new products launched

Number of new policies issued

Increase in customer base

Growth of the Life Fund

Growth in investment income

Growth in profit after tax

Improvement in brand ranking

Capital adequacy ratio

Market share growth

Unmatched customer experience

We build long-term customer relationships based on trust and loyalty and deliver exceptional customer value. We also extend a dedicated and professional service to every customer through our full-time sales force and continuously enhance customer convenience. We also nurture a customer-centric work culture in the organisation.

Growing our Life Fund

Maintain the growth momentum of our Life Fund which is the fastest growing Fund in the industry. This is a strong reflection of the financial strength and stability of our Organisation.

Capital adequacy Continue to enhance our capital adequacy level by implementing prudent investment strategies. This is an indication of the stability, strength, and confidence of our Organisation to meet the policyholder benefits.

Increasing market share

There is untapped potential in Sri Lanka’s life insurance industry with life insurance penetration at just 13%. We will use our expertise, large sales force, and our wide branch network to increase market penetration, especially in the rural areas. We will continue to offer innovative tailor-made life insurance solutions to meet customer requirements and also launch new products by understanding demographics and lifestyle trends in Sri Lanka.

Developing our brand

Continue to enhance our brand value and brand equity.

STRATEGIC DIRECTION

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Investing in people Our employees are critical to our Organisation's success. Therefore, we invest in nurturing a winning team of professionals to underpin our commitment to delivering consistent service excellence and high standards of ethical and legal compliance. We recruit, develop and deploy the best people in the industry. Whilst every department is headed by a qualified and experienced professional, a culture of continuous learning is promoted by providing regular training to our employees. We also promote a healthy work-life balance.

We have an exceptional sales force in the industry. Our goal is to recruit, train and retain the best by investing in training and development programmes.


Training and development

Investing in the professional development of our employees by offering a wide range of training and career development programmes.

Unethical poaching of our sales agents Dearth of competent talent in the industry

Maintaining high ethical standards among sales consultants

Training hours per employee

Training hours per sales agent

Employee satisfaction score

Employee attrition rate

Average service period

MDRT/High Flyers Club qualifiers

Hall of fame qualifiers

Work-life balance Promote a healthy work-life balance in the Organisation.

Strengthening relationships and collaborationsWe build and nurture relationships for life, which is our forte. These relationships which are founded on trust, transparency and integrity extend to our key stakeholders and to every individual and corporate whom we work with.


Caring for policyholders

We continually strive to build best client relationships throughout the customer value chain. From customised policies to prompt payment of claims and benefits to creating a culture where “customer comes first”, we retain the trust and loyalty of our policyholders.

Average length of customer relationships

Number of new policyholders

Value of bonuses paid

Number of customer complaints per average policyCollaboration with

stakeholdersWe maintain excellent professional relationships with our suppliers, regulators, reinsurers, and actuaries.

Reaping results of smart investingWe ensure secure, smooth and steady returns through prudent investment of the long-term Insurance Fund, whilst abiding by the relevant guidelines issued by the Regulation of the Insurance Industry Act No. 43 of 2000 as amended and subject to regular monitoring by the Insurance Regulatory Commission of Sri Lanka (IRCSL).


Prudent investments

The Board Investment Committee formulates investment strategies which maximise returns whilst keeping risks at minimal level.

Volatility in interest rates and tax regulations

Volatile macroeconomic environment

Ad hoc implementation of policies without proper understanding of the life insurance industry

Increase in investment income

Investment income as a percentage of total revenue

Growth in investment portfolioHigh quality investment portfolio

We maintain an investment portfolio of the highest quality comprising of government securities, fixed deposits, real estate, corporate debt and other.

STRATEGIC DIRECTION

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Technology developmentInvest in state-of-the-art information systems to support our business operations and drive productivity and efficiency in the Organisations. We also take apt measures to enhance the reliability and security of the IT systems through proactive maintenance and upgrades. Data security and privacy is given high importance as well.


Investment in Information Technology

We continually upgrade our IT systems and implement new systems to enhance our operations. In particular, our sales agents are equipped with necessary smart devices and given comprehensive training on IT.

The risk of data loss or unauthorised access causing a security issue, data or systems abuse, cyber attack, or denial of service to systems.

Number of new systems implemented

Number of sales agents enabled with IT

Number of hours of IT related training per sales agent

Championing environmental sustainability and corporate citizenshipWe are committed to enhance the lives of the communities around us. Focusing on health, we aim to develop healthy communities that make a productive output to our economy. We also aim to create opportunities for higher learning and sustainable employment for the next generation by developing education infrastructure in Sri Lanka. Additionally, we take great effort to preserve the environment by implementing green concepts that reduce carbon footprint, and conserve energy and natural resources.


Focus on community health and education

We have been developing health and education infrastructure of our nation. We will continue to uplift community health and provide better educational facilities to underdeveloped schools in rural areas through the Waidya Hamuwa medical clinics, schools development project, and the Cancer Fund.

Number of medical clinics conducted

Number of schools developed

Hospitals developed

Cancer Fund

Carbon footprint

Number of kilograms of paper recycled

Number of kilograms of e-waste recycled

Number of trees saved

Number of Green Branches

Caring for the environment

Under the ‘Go Green’ initiatives we have implemented measures to drive environmental sustainability including the tree planting project, setting up green branches, rainwater harvesting, water recycling, and waste management.

Strategic priority Target for 2017 Actual for 2017 Status Objective for 2018

Staying ahead of the pack

Gross written premium Rs. 18.7 Bn. Achieved GWP of Rs.15.7 Bn. 84%

achieved

Rs. 17.8 Bn. (Company budget)


Internal – 200% Regulatory – 120%

Meet minimum

requirement

CAR was 375% as at end 2017 Achieved Continue to meet the minimum

CAR Ratio

Profit after tax Rs. 3.5 Bn. Profit after tax was Rs. 9.4 Bn. Achieved Profit after tax was Rs. 6.5 Bn.

Growth in Life Fund 10% growth Life Fund grew by 4.8% after the

one-off surplus transfer. Excluding the

one-off surplus transfer, Life Fund was

Rs. 85.1 Bn. as at end 2017, which

reflects a 9.3% growth

Achieved Grow the Life Fund by 10%

Investing in people

Employee turnover ratio Below 15% 8.64% Achieved Below 15%

Employee service period Average of 8

years

13 years Achieved Average of 8 years

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Strategic priority Target for 2017 Actual for 2017 Status Objective for 2018

Employee training budget Rs. 8 Mn. Spent Rs. 8 Mn. on local training and

Rs. 14 Mn. on foreign training

Achieved Rs. 9 Mn. for local training

Rs. 15 Mn. for foreign training

MDRT/High Flyers Club qualifiers 30 qualifiers 44 MDRT qualifiers and 59 High Flyers

Club qualifiers

Achieved 10% increase in the number of

qualifiers

Sales staff training budget Rs. 25 Mn. Spent Rs. 26 Mn. on sales staff training Achieved Rs. 30 Mn.

Relationships and collaboration

Average length of customer relationships Average

10-15 years

Average length of customer relationship –

15 years

Maintain length of customer

relationship at an average of

10-15 years

Customer complaints as a percentage of

average policies

Below 5% 0.24% Achieved Maintain customer complaints

as a percentage of active

policies below 3%

Net benefits and claims Rs. 7 Bn. Rs. 6.6 Bn. worth of benefits and

claims paid

96%

Achieved

Rs. 9 Bn.

Reaping the result of smart investing

Investment income Rs. 8 Bn. Rs. 10.2 Bn. investment income earned Achieved Rs. 9 Bn.

Investment portfolio growth 15% Investments grew by 9.5% 63%

Achieved

Maintain investment portfolio

growth at 15%

Technology development

Percentage of sales officers enabled with IT 40% of sales

officers

60% of sales officers are IT enabled

Achieved

Achieved Enabling 70% of sales officers

with IT

Championing environmental sustainability and corporate citizenship

Reduction in fuel consumption By 10% Fuel consumption was reduced by 6%

over 2016

63%

Achieved

Reduce fuel consumption by

10%

School development projects 4 schools 3 schools renovated 75%

Achieved

School development projects – 5

Waidya Hamuwa medical clinics 12 clinics 13 medical camps were conducted

benefiting over 3,200 people

Achieved Waidya Hamuwa medical

clinics – 12

Strategic priorities for 2018

Strategic priorities for 2018 Value drivers

Growth in profit after tax zz Prudent underwriting of risk

zz Prudent investment management

zz Continuous control over costs

High performance of the sales officers zz IT ennoblement of sales officers

zz Continuous training

zz Pride of praise for integrity and honesty

Customer centricity zz Expansion of the branch network

zz Continuous adoption of the “Treating Customers Fairly” concept

Corporate stewardship zz Continue to invest in health and education infrastructure development of Sri Lanka

zz Continue to spearhead environmental friendly initiatives in the industry

Nurture a motivated and dedicated workforce zz Enhance the work-life balance of employees

zz Non-discrimination and non-interference in payments and rewards

zz Continuous investment in training

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OUR BUSINESS MODEL

Our Business Model is based on a value cycle and each component of the value cycle is important to achieve our strategic objectives. As the market leader in Sri Lanka’s life insurance industry, we add significant value for all our stakeholders.

The value creation model shows the critical resources we rely on, to offer life insurance solutions and create value for our stakeholders. Consistent delivery of sustainable value to all our stakeholders has always been the key to our success. We apply six different forms of capitals in our processes to deliver a range of outcomes. These capitals are stocks of value that are affected or transformed by our Organisation’s activities. Therefore, we manage our capitals and processes in an efficient and effective manner to ensure consistent delivery of value. This year, we have changed the way of categorising our capitals, in an effort to improve the presentation of our value creation process in accordance with the International Integrated Reporting (IR) Framework. As we continue on our journey in integrated reporting and integrated thinking, we can better understand how these forms of value relate to one another. The six capitals are detailed as shown in the diagram.

We also take equal importance to managing the economic, social and environmental impacts of our value creation activities. This entire value creation process is overseen by the governance body to ensure performance and conformance. This also ensures that we stand by the principles of integrity and the standards of governance, on which our stakeholders’ trust depends.

This is how we make sure that every day at Ceylinco Life is a brand new day, opening up new opportunities and new insights into improving what we are already doing well. The trust placed in us by our countless stakeholders proves how well we have interwoven value creation into our business.

FINANCIAL CAPITAL

The pool of funds available for Ceylinco Life to use in the provision of life insurance products and related services.

INTELLECTUAL CAPITAL

Knowledge based intangibles including Ceylinco Life’s corporate culture, organisational knowledge and learning, systems and software and corporate brand.

SOCIAL AND

RELATIONSHIP CAPITAL

Cordial relationships with customers, society, community and business partners such as actuaries, independent contractual agents, reinsurers, suppliers, and industry associations.

MANUFACTURED CAPITAL

Physical infrastructure that support the business process including branch buildings.

HUMAN CAPITAL

Competencies and experience of the highly motivated Ceylinco Life employees.

NATURAL CAPITAL

All renewable and non-renewable resources from the environment employed by Ceylinco Life.

Our value creation model, illustrated below, is a simplified way of showing how we create such value for and with our stakeholders.

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17PREAMBLE MESSAGES AND MANAGEMENT PROFILES BUSINESS MODEL MANAGEMENT DISCUSSION AND ANALYSISOUR BUSINESS MODEL

CAPITALS

EXTERNAL ENVIRONMENT

INPUTS

SALES AND DISTRIBUTION

INVESTMENTMANAGEMENT

PRODUCTMANAGEMENT

TECHNOLOGY DEVELOPMENT

The financial resources contributed by the shareholders, generated through retained earnings and secured through other funding sources are invested in our activities

Our talented and committed employees make a difference for our clients, now and in to the future

This includes our specialised skills and expertise in the life insurance industry, our brand and innovative capabilities that optimise customer experience

As a responsible company we aim to minimise the environmental impact of our supply chain, our operations, and also our solutions to generate sustainable stakeholder value

Using our branch network and IT infrastructure to creating value to our stakeholders

We maintain strong relationships with our key stakeholders by delivering value to and deriving value from them which makes us a better organisation and a good corporate citizen

Stated Capital Rs. 500 Mn.Gross Reserves Rs. 20.1 Bn.Gross Written Premium Rs. 15.7 Bn.

Agency Administration, Group Sales

Investment and Fund Management, Asset-liability Management, Financial Risk Management, Arbitraging and Proprietary Trading,

Cash and Liquidity Management

Product Development, Product Profit Testing,

Product Pricing

CUSTOMERSERVICE AND RELATIONS

Handling Customer Inquiries and Complaints, Customer

Education, Customer Relationship Management

Staff strength 890Training and development Rs. 22 Mn. Gender diversity Skills and talent of staff

Brand equity Brand development.System development Rs. 75 Mn. Research & development

“Go Green” driveGreen branches 1Solar installation at Head OfficeEnergy saving initiatives GHG emission analysis

Investment on land and buildings Rs. 561 Mn.1,143.83 perches of land and 304,377 square feet of building space.

Marketing communicationsSales force 3,696Reinsurance premium paid Rs. 422 Mn.

Financial capitalpages 82 to 90

Employee capitalpages 132 to 147

Intellectual capitalpages 92 to 97

Natural capitalpages 148 to 153

Manufactured capitalpages 98 to 102

Social and relationship capital– Investor– Customer– Business partners– Communitypages 104 to 130

Opportunities and threats pages 51 to 55

Performancepages 82 to 153

VISION AND PURPOSE

PRIMARY AND SUPPORT ACTIVITIES

GOVERNANCE STRUCTURE

Upgrading IT systems, Maintaining System Security, Automation

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OUTPUTS OUTCOMES

MARKETING

HUMAN RESOURCE

MANAGEMENT

UNDERWRITING AND CLAIMS

MANAGEMENT

FINANCIAL ACCOUNTING

SUPPORT SERVICES

Market Research, Brand Development and

Positioning, Campaign Management, Advertising and Promotions, Corporate

Communications

Talent Management, Knowledge Management

Quote Illustration, Document Submission,

Claims Registration, Claims Validation, Claims Adjudications, Litigations,

Fraud Management

Budgeting, Financial, Accounting, Dividend

Policy

Life Fund Rs. 81.7 Bn. Investment Income Rs. 10.2 Bn. Increase in reserves Rs. 8.7 Bn.Return on shareholders’ funds 45.85%Total dividend per share Rs. 9.00Net assets per share Rs. 412.94Capital Adequacy Ratio (CAR) 375%

Training hours per employee 18.45 Employee benefits Rs. 1.7 Bn. Average service period 13 yearsLow attrition 8.64% or 1% reduction in attritionWork-family balance 54% of annual leave used

New products developed – 2Moved up to 12th position in Business Today Brand rankingPeople's Life Insurance Brand for the 11th consecutive year

Paper recycled 11,064 kgFuel 19,365 litres saved197,330 kwh of power generated from renewable sources65 tonnes of CO2 reduced

One new branch opened

Rs. 76 Mn. rental income generated from investment property

Branch network enhanced to 273

Commission paid Rs. 1,782 Mn.44 MDRT qualifiers and 59 High Flyers Club qualifiersRecovery of claims Rs. 197 Mn.New policies issued 126,838 EPS - Rs. 189.35DPS - Rs. 9.00ROE - 45.85% 13 Waidya Hamuwa clinics treating 3,200 patients3 school renovationsClaims and benefits paid Rs. 6.6 Bn.

We contribute to a strong Sri Lankan economy with stable and sustainable financial capital growth

Our engaged staff share their expertise with our clients and partners to deliver increased value

We continuously strengthen our capabilities, expand our product offering and augment our distribution model to respond to changing client needs

We minimise the environmental footprint of our operations by embedding environmental principles in our corporate strategy

We are augmenting our network and ensure a stable, secure IT landscape with high availability while protecting client data and guaranteeing privacy

We offer personalised advice and tailor-made products and services, increased returns, greater value additions and build sustainable communities

Future Outlook(Each Capital Report)

Strategy and resource allocation pages 57 to 65

Security services and Waste Management

OUR BUSINESS MODEL

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STAKEHOLDERS AND MATERIALITY

Stakeholders At Ceylinco Life, we have diverse stakeholders, without whom our business wouldn’t exist. We assure sustainable benefits and effective value creation through successful dialogue and committed engagement. Therefore, we actively maintain regular interactions with our stakeholders, and continuously strive to address and honour their varied needs. We also work hard to listen to their expectations and views on how well we are meeting them, as well as collaborate

At Ceylinco Life, we have diverse stakeholders, without whom our business wouldn’t exist.

Stakeholder identificationOur stakeholders are individuals, groups or entities that can reasonably be expected to be significantly affected by our organisation’s business decisions; and whose actions can reasonably be expected to affect the operations of our organisation. The broad range of stakeholders are categorised based on marketplace, workplace, financial and business community, and environment and society as shown below:

with them for deeper insight and mutual benefit. This results in efficient resource allocation, effective strategic delivery and optimised value creation.

Following is the stakeholder engagement process of our Company. As illustrated, it is a cyclical process of identifying, ranking, prioritising, and engaging with high priority stakeholders, assessing their needs and finally reporting and reviewing which again leads to identifying relevant stakeholders.

REVIEW AND REPORTING

STAKEHOLDERS IDENTIFICATION

ASSESSMENT OF STAKEHOLDER CONCERNS AND EXPECTATIONS

STAKEHOLDER MAPPING AND

PRIORITISATION

STAKEHOLDER ENGAGEMENT

Stakeholder Marketplace Workplace Financial and business community

Environment/Society

Shareholders

Customers

Business partners:

– Actuaries

– Independent sales agents

– Reinsurers

– Industry associations

Suppliers and service providers

Employees

Community and environment

Government

Regulators:

– Insurance Regulatory Commission of Sri Lanka

– Central Bank of Sri Lanka

– Department of Inland revenue

Professional bodies

Ombudsman

Banks and financial institutions

Competitors

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STEWARDSHIP FINANCIAL REPORT SUPPLEMENTARY INFORMATION STAKEHOLDERS AND MATERIALITY

Stakeholder mappingand prioritisationThe extent of our engagement with our stakeholders is based on stakeholder mapping and prioritisation. This is dependent on the relative significance of each stakeholder group to our organisation, based on their power of influence and the degree of interest in our Company’s value creation process. This mapping enables to prioritise stakeholder categories and efficiently allocate Company’s resources and managerial effort. Using Mendelow’s matrix for prioritising stakeholders we have categorised our stakeholders as shown in the diagram.

Low

Hig

h

Low High

Interest of Stakeholder

Employees

Independent sales agents

Actuaries

Reinsurers


Competitors

Professional bodies

Shareholders

Customers

Government

Regulators

Community

KEEP SATISFIED

MINIMAL EFFORT

WORK IN COLLABORATION

KEEP INFORMED

Pow

er o

f St

akeh

olde

r

Stakeholder engagementOnce stakeholder mapping and prioritisation is done, engaging effectively with each stakeholder group is critical. Engaging in long-term dialogue helps to ascertain their needs, aspirations and concerns which are important input for our decision-making and to make steady progress towards our strategic agenda. In particular, crucial decisions are made to address aspects which are deemed as being important. These in turn contributes towards sustainable growth of our organisation and maximising the value creation process of delivering value to stakeholders and deriving value for our organisation.

Assessment of stakeholderconcerns and expectationsThe expectations and concerns of each stakeholder group is identified and

assessed. This enables to have a clear understanding of the varying concerns and expectations of each group. By using the stakeholder engagement model, we assess issues/concerns identified through engagement with the stakeholder. This facilitates us to achieve lasting and sustainable outcomes.

Listed below are the primary concerns and expectations of the identified stakeholders.

Stakeholder Marketplace Workplace Financial and business community

Environment/Society

Shareholders

Customers

Business partners:

– Actuaries

– Independent sales agents

– Reinsurers

– Industry associations

Suppliers and service providers

Employees

Community and environment

Government

Regulators:

– Insurance Regulatory Commission of Sri Lanka

– Central Bank of Sri Lanka

– Department of Inland revenue

Professional bodies

Ombudsman


Competitors

The extent of our engagement with our stakeholders is based on stakeholder mapping and prioritisation. This is dependent on the relative significance of each stakeholder group to our organisation, based on their power of influence and the degree of interest in our Company’s value creation process.

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Stakeholder Primary concerns and expectations

Shareholders Healthy financial returns

Timely payment of dividends

Financial information and disclosures

Customers Service standards

Policy bonuses/delivery of claims, maturity payments, policy payments on time

Financial stability of the insurer

Actuaries Data for the actuarial valuation

Timely payment of actuarial fees

Independent sales agents Healthy commissions

Job satisfaction

Job security

Reinsurers Timely payment of reinsurance premium

Industry associations Participation in industry-related seminars, forums and conferences

Contribution towards industry development

Employees Competitive salary and remuneration

Bonuses and other incentives

Promotions and career advancement

Job satisfaction

Job security

Community and environment Corporate social responsibility (CSR)

Employment opportunities

Contribution to the preservation of environment

Government, regulators, professional bodies, ombudsman

Financial prudence and stability of the industry

Compliance with laws and regulations

Innovation

Payment of taxes

Business ethics

Fair settlement of claims

Adherence to best practices

Banks and financial institutions Investment opportunities

Cross-selling opportunities

Facilitate continuous relationships

Competitors Fair competition

Industry development and growth


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Given below is an overview of our engagement approach and frequency of engagement together with a summary of the feedback we’ve received and how we responded:

Method of Engagement Frequency of Engagement

Key Topics and Concerns Raised How the Company Responded to Such Topics and Concerns

Shareholders

Annual General Meeting Annually Review of the prior financial year’s performance and discussions with the Board of Directors

Approval of dividends re-appointment and re-election of Directors', Auditors and approval of Auditors' remuneration

The Company held the third AGM on 30 March 2017

Annual Report Annually Financial information and disclosures Timely publication of the Interim Financial Statements and making them easily accessible to shareholders.

Quarterly interim Financial Statements

Quarterly Condensed financial information and disclosures

Voluntary publication of the Interim Financial Statements in newspapers.

Corporate website Continuous Company news and latest information and updates on current affairs

The corporate website is regularly updated with latest information.

Customers

Complaints, inquiries and requests received from customers

Ongoing Queries pertaining to their policies and service offered

Easily accessible hotline/website to provide information and customer service points at all our branches.

Sales force feedback Ongoing basis Concerns of policyholders about their policies and services offered

Establishing the most extensive island-wide branch network and increasing the interaction between the sales personnel and the customers.

Customer surveys As required Monitor service standards Conduct regular customer satisfaction surveys and take corrective action promptly where necessary.

Inquiries/complaints received through the Call Centre

Ongoing basis Concerns of policyholders regarding their policies and services offered

Easily accessible hotline to provide information and monitor service levels.

Individual sales agents

Annual and mid year awards ceremonies

Annually Motivate by recognising and rewarding outstanding performance

Giving awards, cash rewards and foreign tours including media publicity.

Sports Meet Annually Opportunity to showcase talents and interact with colleagues

Reward best performers and give recognition in the Company newsletters.

Grievance handling Ongoing basis Work-related issues Discussions with immediate supervisors.Dedicated sales support centre.Frequent visits by senior management to branches and divisions.

Actuaries

Year-end actuarial valuation of the long-term insurance business

Annually Data required for the year-end valuation, data validations done, new product introductions during the year, assumptions used, computation of product-wise reserves and capital adequacy ratios and preparation of information required by the regulator

The data was validated and submitted to the Actuary with the necessary information including the assumptions used and product-wise reserves to determine the bonuses for the participating policyholders.

Computed the Company’s capital adequacy ratio and prepared the relevant information required by the regulator for the final review of the Actuary.


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Reinsurers

Long-term treaty Ongoing basis Continue a long-term and mutually beneficial partnership with Sri Lanka’s leading life insurer

Actively maintaining business relationships.Honour contractual obligation including timely payment of the reinsurance premium.

Formal interactions with reinsurance partners

Ongoing basis Maintain a healthy portfolio Implement international underwriting and claim management processes with technical guidelines.Mitigate losses.

On site visits and meetings As required Support product development and knowledge sharing.

Industry associations

Participation for industry forums and meetings

As required Formulate joint industry initiatives on technical updates, regulatory matters, grievances and coordinate correspondence with IRCSL

Ceylinco Life Participates in Life Insurance Awareness Month which is a joint industry effort aimed at highlighting the importance of life insurance among the general public.

Ceylinco Life plays a key role in the industry associations as the market leader and holds the position of Chairmanship of both MSF and Life forums of the Insurance Association of Sri Lanka.

Employees

Succession planning Annually and as required

Increase internal competition Introduce a career progression and develop on special projects.

Leadership training to second tier of management.

Share information and Company performance

New year message, year-end reviews, mid-year conferences, monthly messages

Create high expectations on rewards and recognition

Implementation of a performance-based reward system.

Departmental forums with the CEO

Quarterly Communication of employee opinions and suggestions

Forums within departments to obtain employee ideas and suggestions.

Celebrate financial and non-financial achievements

As required Recognition for exceptional performance High performers are rewarded through annual awards and promotions.

Encourage volunteering Company events and other official activities

Lack of opportunities to engage all volunteers

Creating new opportunities and allocation of opportunities based on competencies.

Give and receive feedback Inculcated in the corporate culture, at biannual appraisals and at different stages of the projects

Encourage constructive feedback from all levels

Conduct regular training on counselling and coaching.

Show respect Embedded as a core value in the corporate culture

Generational gap Encourage all to practice corporate values.


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Encourage learning Promote a culture of learning, performance-based promotions

Encourage continuous learning in all age groups

Encourage team performance.

Align with the Company goals and strategies

Annual objective formulation and biannual appraisals

Changes in objectives due to changes in the operating environment

Set new key performance indicators and rewards through regular review.

Programmes for work-life balance

Daily

Regulator: Insurance Regulatory Commission of Sri Lanka (IRCSL)

Submission of statutory returns Quarterly and annually as stipulated

Clarifications about information furnished in the returns

Timely submission of all statutory returns.Prompt responses to all clarifications required by the IRCSL.

Submission of other documents Ongoing Submission of other documentation (e.g. new product details, new advertisements etc.) as stipulated by the IRCSL.

Industrial forums, meetings and discussions

As and when required

New developments and concerns in the industry

Participation in industrial forums, meetings and discussions organised by the IRCSL.

Regulator: Central Bank of Sri Lanka

Submission of monthly and quarterly information to the Central Bank

Monthly and quarterly

Timely submission of all information.

Contribution to surveys and indices of the Central Bank

Monthly and quarterly

Clarifications on information furnished Timely submission of information for Purchasing Mangers’ Index, Business Outlook Surveys and National Accounts Estimates.

Regulator: Department of Inland Revenue

Submission of tax returns and payment of taxes

Quarterly and annually

Timely payment of all applicable taxes and timely submission of tax returns.

Meetings and discussions with the Department of Inland Revenue

As and when required

Clarifications about information furnished in tax returns

Participation in discussions and providing explanations to queries.

Community

CSR projects Ongoing basis Identifying groups who need assistance in the areas of healthcare and education

Deserving beneficiaries are identified and assisted through school development projects and “Waidya Hamuwa” medical camps.

Sustainability initiatives Ongoing basis Minimising adverse environmental impacts, optimal use non-renewable natural resources

Set up green branches, installed solar energy in the head office, launched environment sustainability initiative in the branches.


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Review and reportingThe stakeholder engagement process is an ongoing process in our organisation that evolves and adapts to the developments in the business environment. Given the dynamic nature of the business environment and its effect on shareholder concerns and expectations, this process is regularly reviewed and the key developments are reported to the management.

Stakeholder InclusivenessIt is imperative to define key stakeholder groups to ensure materiality in engagement and reporting. Stakeholder inclusiveness enables us to derive numerous benefits by embedding opinions of key stakeholders in business activities, ensuring active stakeholder engagement and facilitating optimal resource allocation and managerial effort based on materiality. The key stakeholder groups of our Company are given on page 72.

Materiality AssessmentWe conduct a stringent materiality assessment to identify material topics which impact our Company and our stakeholders. Since it is impractical to address all possible issues that may have a bearing on our organisational activities, we address only the topics which are deemed material.

Materiality of topics is considered from the perspective of the Company and the stakeholders. Topics deemed material if it substantially affects our organisation’s ability to create value over the short, medium and long-term. Additionally, relevance and significance is also taken into consideration to determine materiality while taking into account the probability of occurrence and the magnitude of the impact. Topics material to our orgainsation are identified through an effective


stakeholder engagement process, and are depicted in a two-dimensional materiality matrix, based on the GRI guidelines, shown on page 77. This helps us to identify, prioritise and review material economic, social and environmental topics and formulate strategies accordingly to create sustainable value for all our stakeholders. These are rated for its importance to the Company and the stakeholder with cross reference to the GRI Content Index on pages 316 to 320 of the Annual Report.

Considering the dynamic nature of the environment, we update the list annually to keep current with the priorities and concerns of our stakeholders.

Topic Importance to Company

Importance to Stakeholder

Economic

1. Economic performance Very high Very high

2. Indirect economic impacts High High

3. Procurement practices Medium Medium

4. Anti-competitive behaviour Medium Medium

Environmental

5. Energy High High

6. Emissions High High

7. Effluents and waste High High

8. Environmental compliance High High

Social

9. Employment Very high Very high

10. Training and education Very high Very high

11. Diversity and equal opportunity High High

12. Non-discrimination High High

13. Local communities High Very high

14. Marketing and labelling Very high High

15. Customer privacy Very high Very high

16. Socioeconomic compliance Very high Very high

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Materiality Matrix

Very

Hig

hH

igh

Med

ium

Importance to the Organisation

Very High

1, 9, 10, 15, 16

14

High

13

2, 5, 6, 7,

8, 11, 12

Medium

3, 4

Impo

rtan

ce t

o St

akeh

olde

rs

Economic performance For business survival, it is essential to have a satisfactory economic performance. We need to maintain our leadership position in the life insurance industry through healthy economic performance that leads to business growth, market expansion and increased capacity. To create financial value, we adopt prudent and effective investment strategies to maximise the financial value we can create. The financial value is distributed among our stakeholders including our employees, sales staff, Government, community and shareholders. This also results in infrastructure development, generation of new employment opportunities and environmental and social sustainability. By achieving a commendable economic performance we aim to create and deliver value through our Business Model to all


our stakeholders. Results of our investment strategies are regularly evaluated by the Operational Investment Committee and monitored by the Board Investment Committee. Financial results are evaluated by the Board.

Indirect economic impacts We believe we have a responsibility to be a responsible corporate citizen in the communities in which we operate, and contribute to infrastructure development and support services of those communities. We also believe that as the market leader we have to set the benchmark in infrastructure development and social services, with special focus on enhancing educational and health facilities in underdeveloped communities. We implement “Waidya Hamuwa” clinics and “School Development” projects through

our focused CSR strategy to improve educational and health facilities in local communities. Whilst we have set targets and made budget allocations for these CSR activities, the progress is reviewed regularly by the top management.

Procurement practicesBeing a service organisation, we do not procure as much as a manufacturing organisation. However, we always strive to procure from the localities in which we operate and support local suppliers. Our branches source their daily supplies from the localities. We have an approved list of suppliers for procurement of items such as assets and stationery. We also maintain signed service agreements with key service providers, such as janitorial services, office maintenance and courier services etc. Our procurement process is monitored and evaluated by the Administration Department.

Anti-Competitive behaviourEven though we operate in the highly competitive life insurance industry, our stakeholders expect us to uphold the highest standards of ethics. We maintain a zero tolerance policy for fraud and customer exploitation. We also train our staff members who are directly or indirectly involved with sales and marketing; especially our sales staff on ethical sales practices. We comply with all regulatory requirement and meet the requirements of our stakeholders.

We complied with all the regulatory requirements of the life insurance business, advertising and fair competition. The IRCSL closely monitors the sales and marketing practices of life insurers to safeguard policyholders’ interests. The Compliance Officer of the Company evaluates overall compliance with regulatory requirements in this area. The sales staff is evaluated on their ethical standards as part of their performance appraisals.

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Energy As a service organisation, we do not use energy extensively. However, energy is important for us to perform efficiently. Therefore, we analyses our energy consumption and take measures to reduce usage. We also monitor the use of non-renewable energy sources such as the fuel consumption of managers and promote the use of fuel efficient hybrid vehicles. We use renewable sources of energy such as solar energy at our Head Office and green branches. Energy saving initiatives are implemented in all our new branches. Energy consumption of branches is monitored by the management and motivational incentives are granted to branches that achieve energy savings.

Emissions We are an environmentally responsible entity and strive to reduce our emissions. We reduced paper consumption and recycled paper, which results in prevention of carbon dioxide emissions. We aim to adopt an electronic system to handle issuing of policies and underwriting in the ensuing year. The management monitors paper consumption and evaluates most emission-free options in our procurement process.

Effluents and waste Generation and improper disposal of waste could pose a threat to human health and the environment. Dumping of waste and waste management is also a burning issue in Sri Lanka. Hence, we prioritise the reduction and management of waste generation. Accordingly, we take measures to reduce paper consumption and we obtain the services of a third party to recycle our used paper and e-waste. To minimise water wastage, we have installed sensor-controlled valves. Our Bandarawela and Panadura branches have a sewerage water treatment plant. Our paper consumption is monitored by the management to evaluates more efficient options to reduce paper waste.


programmes, special projects or foreign training programmes. The Company has set aside a training budget and its utilisation is regularly reviewed by the top management. Actual training statistics are compared against the related targets. Trainings are evaluated using participants’ feedback.

Diversity and equalopportunityDiversity enhances company performance and power of innovation and spurs creativity, motivation and identification with the Company. Our leadership plays an important role in promoting and appreciating inclusion and diversity in our Organisation. The Company’s HR policy promotes inclusion, diversity and equal opportunities. The policy serves as a reference for evaluation of our equal opportunities. Employees provide their comments on their perceptions of diversity and equal opportunities.

Non-Discrimination Non-discrimination enhances Company performance by ensuring that the right individuals get the right opportunities. It also improves the image of the Company in the eyes of both internal and external stakeholders. Our leadership plays an important role in promoting non-discrimination. If any individual is treated unequally, they can inform their grievances to the HR. Our marketing communications are conducted in all three languages. The Company’s HR policy promotes non-discrimination. The policy serves as a reference for evaluation of our equal opportunities. If any grievance is received, they are evaluated and necessary rectification is done.

Local communities We believe we have a responsibility to be a responsible corporate citizen in the communities in which we operate. As the

Environmental compliance We are an environmentally responsible entity. Therefore, we prioritise compliance with relevant environmental laws and regulations. The Regulatory Risk Committee, under the ERM structure, discusses changes in regulatory requirements and the status of compliance of the Company. The Compliance Officer of the Company evaluates overall compliance with relevant environmental laws and regulations.

Employment Our employees are critical to our service delivery. Therefore, we nurture an engaged and motivated workforce who makes an outstanding contribution to excellent results and growth of our Company. Their unique skills and shared values are focused on delivering an exceptional service to our many customers. We foster a culture of continuous learning and development, high work ethics, open communication, rewards and recognition, and promoting a healthy work-life balance. All recruitments are done based on the talent acquisition policy of the Company. The Company has a competent HR team that uses various KPIs to measure employee contributions. Satisfaction surveys are conducted to measure the level of satisfaction. Training need analysis is carried out to identify opportunities for career development.

Training and education We believe that our ability to develop employees internally is an important competitive advantage. Training and education is important to inculcate and maintain a high performing culture that underpins our leadership. A training need analysis is conducted in all departments through the performance evaluation system to ascertain training needs at the beginning of each year. Based on the training gaps identified, appropriate training programmes are designed, which are either internal or external

79



market leader, we strive to conduct local community development programmes based on local communities’ needs. When recruiting staff for our branches, we hire from the local neighborhood. We understand the needs of local communities when we offer our insurance policies. Our School Development Projects and Waidya Hamuwa medical camps are planned after taking into account the needs of the local communities affected by those programmes. Ceylinco Life has targets for School Development Projects and Waidya Hamuwa clinics. There are budgets dedicated for these projects and budget utilisation is regularly reviewed by the top management. Progress of the School Development projects is reviewed by the top management.

Marketing and labelling It is important that we disseminate clear, accurate, timely, and relevant information about our products and services because this enables customers to make informed decisions. Our marketing communications are conducted in all three languages. Our product brochures contain all the information mandated by the IRCSL. Policyholders are also made aware about our products and their features by sales staff through a product quotation at the time of purchasing a policy. After the proposal form is filled along with the consent of the policyholder, the policy document is issued. The product brochures we give our customers are evaluated against the information required to be disclosed by the IRCSL. Our product details are made available to customers through website, brochures available at all our branches and through the Call Centre.

Customer privacy We believe that ensuring customer privacy is important for us since we need to develop a trusting relationship with customers. This trust is crucial for us to enhance our reputation and to build

a life-long relationship with policyholders. The Company collects policyholders’ personal data only to the extent required for establishing an insurance contract and for meeting regulatory guidelines on customer identification. The IT Security Department is dedicated to ensuring IT infrastructure security, including safeguard of customer data. The ICT Risk Committee, under the ERM structure, discusses IT security matters in detail. The Chief Information Officer evaluates the adequacy of measures on protecting customer data privacy. The Company employs independent consultants to assess the level of IT security periodically.

Socioeconomic compliance Ceylinco Life is a socially responsible entity and takes importance in complying with relevant laws and regulations in the social and economic area. The Regulatory Risk Committee, under the ERM structure, discusses changes in regulatory requirements and the status of compliance of the Company. The Compliance Officer of the Company evaluates overall compliance with relevant laws and regulations.


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81


MANAGEMENTDISCUSSIONANDANALYSIS

Financial Capital 82

Intellectual Capital 92

Manufactured Capital 98

Social and Relationship Capital 104

Investor Capital 106

Customer Capital 108

Business Partner Capital 119

Social Capital 126

Employee Capital 132

Natural Capital 148

Events 154

With a holistic view and strong focus on continuous improvement, we develop solutions that add value to our stakeholders.

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FINANCIAL CAPITAL

We leverage on our financial capital including, equity and policyholders’ liabilities to fund our business operations to achieve sustainable growth and maintain our leadership position in the industry. By focusing on our business fundamentals and adopting judicious investment strategies we increase the value of financial capital which enables us to deliver increased value to our stakeholders.

Highlights for 2017Long-term Insurance Fund increased to Rs. 81.7 Bn.

Gross written premium increased to Rs. 15.7 Bn.

Investment income increased to Rs. 10.2 Bn.

Assets increased to Rs. 106 Bn.

PROCESS

Prudent fund management

OUTPUT

zz Net income Rs. 25.62 Bn.zz Profit after tax Rs. 9.4 Bn.zz Earnings per share Rs. 189.35 zz Return on net assets 45.85%zz Return on total assets 8.92%zz Investors – Shareholders' equity Rs. 17.1 Bn.zz Insurance policyholders – Insurance contract liabilities Rs 82.1 Bn.

OUTCOME

zz Employees Benefits and rewards

zz Investors – High returns

zz Government Tax payments and infrastructure development

zz Environment and community – Investment in community projects and environmental conservation

zz Policyholders – Claims and other benefits

zz Reinsurers – Reinsurance payments

INPUT

zz Stated capital - Rs. 500 Mn.

zz Gross written premium - Rs. 15.7 Bn.

Financial capital value creation model

83



Financial capital contributing to value creation

Maintaining a healthy bottom line with adequate liquidity and comfortable capital levels through prudent and efficient management of our financial resources enables us to deliver optimal value to our stakeholders.

Increasing our financial capital value

We increase the value of our financial capital by maintaining a well-balanced product mix and a high quality investment portfolio. We also maintain adequate liquidity levels and maintain a healthy growth in the bottom line.

FINANCIAL CAPITAL

Financial performance

Highlights

Description 2017Rs. Mn.

2016Rs. Mn.

Change%

Gross written premiums 15,765 15,028 5

Premiums ceded to reinsurers (422) (374) 13

Investment and other income 10,281 8,781 17

Change in contract liabilities due to transfer of one-off surplus 3,456 – 0

Net benefits and claims paid (6,687) (6,652) 1

Acquisition cost (1,782) (1,694) 5

Expenses (3,545) (2,947) 20

Income tax expense (340) (665) -49

Profit after tax (including one-off surplus) 9,467 3,079 207

Profit after tax (excluding one-off surplus) 6,011 3,079 95

Underwriting results

For the year ended 31 December, 2017Rs. Mn.

2016Rs. Mn.

Change%

Gross written premiums 15,765 15,028 5

Premiums ceded to reinsurers (422) (374) 13

Net written premiums 15,343 14,654 5

Investment and other income attributable to policyholders 9,459 7,975 19

Net benefits and claims paid (6,687) (6,652) 1

Increase in long-term insurance fund (7,259) (8,398) -14

Acquisition cost (1,782) (1,694) 5

Operating and administrative expenses attributable to policyholders (4,195) (2,969) 41

Interest expense (11) (9) 17

Tax expense (369) (607) -39

Surplus from life insurance business/underwriting result 4,500 2,300 96

One-off surplus generated from non-participating fund 3,456 – –

Total surplus transferred to shareholders 7,956 2,300 246

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Gross writtenpremium (GWP)Gross Written Premium is the total premium paid by the policyholders to the insurance company, before deducting reinsurance and ceding commission. This is our main source of income. We have maintained market leadership in the life insurance industry for the past 14 consecutive years by recording the highest GWP in the industry. In 2017, our Company’s GWP increased by 4.9% Year-on Year (YoY) to Rs. 15,765 Mn. The increase in GWP was largely due to due to the increase in group insurance premium from Rs. 196 Mn. in 2016 to Rs. 441 Mn. in 2017 and due to the increase in normal premium collected from existing policyholders.

Year GWPRs. Mn.

GWP growth %

2013 11,125 2.71

2014 12,002 7.91

2105 13,456 12.12

2016 15,028 11.67

2017 15,765 4.91

17.5

14.0

10.5

7.0

3.5

0

2013 2014 2015 2016 2017

(Rs. Bn.)Gross written premium

Composition of GWPGWP comprises four categories premiums – new business premium, single premium, renewal premium and Group life premium. The largest category in 2017 was the renewal premium which recorded a growth of 8.8% YoY.


2016Rs. Mn.

Change%

New business 3,530 3,538 -0.23

Single premium 2,398 2,659 -9.82

Renewal premium 9,396 8,634 8.83

Group life premium 441 196 125.00

Total 15,765 15,027 4.91

New business Single premium

Renewal premium Group life premium

60%

3%22%

15%

Composition of GWP – 2017

New business Single premium

Renewal premium Group life premium

57%

1%24%

18%

Composition of GWP – 2016

Average premium per policy

Description 2017 2016 Change

Annualised new business premium – Rs. ’000 4,318,763 3,820,601 13.03

Number of new

policies issued

during the period 126,838 143,622 -11.69

Average premium

per policy – Rs. 34,049 26,608 27.99

The average premium per policy has increased to Rs. 34,049/- reflecting by 28% YoY in 2017.

Ceylinco Life has recorded a 4% increase in GWP for the third quarter (nine months ended September 2017), whilst the life insurance industry had recorded a GWP growth rate of 12% for the same period.

Description Industry 2017 Q3

Company 2017 Q3

GWP (Rs. Mn.) 51,932 11,487

GWP growth (YoY) 12% 4%

Investment income

Year 2017 2016

Rental income from investment property

76 72

Investment income from FVTPL assets

269 55

Investment income from HTM assets

7,518 6,501

Investment income from AFS assets

375 149


1,631 1,404

Investment income for 2017 increased by 20.6% YoY to Rs. 9.8 Bn. The increase is mainly due to the prudent investment strategies adopted by the Company’s Investment Committee; the details

FINANCIAL CAPITAL

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STEWARDSHIP FINANCIAL REPORT SUPPLEMENTARY INFORMATION FINANCIAL CAPITAL

of which are given in the Investment Committee Report on pages 201 to 211.

Investment income was mainly driven by held-to-maturity financial assets, which swelled by an impressive 15.6% from Rs. 6,501 Mn. in 2016 to Rs. 7,518 Mn. in 2017.

Company’s insurance liabilities which are long-term in nature, are largely matched by investments made through held-to-maturity assets, which mainly comprise long-term Treasury Bonds and corporate debentures.

10,000

8,000

6,000

4,000

2,000

0

2016 2017

(Rs. Mn.)Investment income

Rental income from investment property

Investment income from FVtPL assets

Investment income from HTM assets


Investment income from L&R assets

Net benefits and claimsNet benefits and claims of the life insurance business, excluding net change in contract liabilities, increased marginally by 0.5% to Rs. 6,687 Mn. in 2017, compared to Rs. 6,652 Mn. in 2016. The main reason for this increase was due to the increase in surrenders in 2017, which recorded a 24% growth from 2016 to Rs. 1.13 Bn.

Description 2017Rs. ’000

2016Rs. ’000

Change%

Gross claims and benefits (excluding gross change in contract liabilities)

Claim – death, disability and hospitalisation 783 648 21

Policy maturities 3,900 4,220 -8

Interim payments on anticipated endowment plans 783 750 4

Policy surrenders 1,127 907 24

Encashment of bonus to policyholders – cash and loyalty bonus

266

261 2

Annuities 25 14 79

Life insurance gross claims and benefits 6,884 6,800 1

Reinsurance recoveries (197) (148) 33

Life insurance net benefits and claims 6,687 6,652 1

Year Net benefits and claims

Transfer to long-term

insurance fund

2013 4,757 7,654

2014 4,893 7,256

2105 5,957 7,135

2016 6,652 8,398

2017 6,687 7,259

8,750

7,000

5,250

3,500

1,750

0

2016 201720152014

(Rs. Mn.)Net benefits and claims and transfer to long-term insurance fund – 2017

Net benefits and claims

Transfer to long-term insurance fund

2013

Rs. 7,258 Mn. was transferred to the Long-term Insurance Fund in 2017, compared to Rs. 8,398 Mn. transferred in 2016. This reflects an decrease of 13.57% YoY.

The main reason for the decrease in the amount transferred to the Log-term Insurance Fund in 2017 was the increase in the shareholder fund transfer from Rs. 2.3 Bn. in 2016 to Rs. 4.5 Bn. in 2017. This was also affected by the one-off surplus transfer of Rs. 3.45 Bn, in 2017, as required by the Insurance Regulation Commission of Sri Lanka (IRCSL).

The increased transfer to the Long-term Insurance Fund is attributed to the growth in GWP and the higher investment income generated through prudent investments in 2017. The funds were more than sufficient to absorb the escalation in acquisition cost, higher value of customer benefits and claims and the increase in tax expense.

Acquisition costAcquisition cost mainly represents the commission expenses incurred in underwriting life insurance policies. We deploy our large number of independent sales agents to take the message of life insurance to every family in Sri Lanka. Therefore, the 5% YoY increase in

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acquisition cost in 2017, correlates with the 5% increase in GWP in the same period.

Year Acquisition costRs. Mn.

2013 1,265

2014 1,389

2105 1,610

2016 1,694

2017 1,782

2,000

1,600

1,200

800

400

0

2013 2014 2015 2016 2017

(Rs. Mn.)Acquisition cost

Operating andadministrative expensesOperating and administrative expenses increased by 20.26% YoY, from Rs. 2,937 Mn. in 2016 to Rs. 3,532 Mn. in 2017.

Component 2017Rs. Mn.

2016Rs. Mn.

Growth%

Administration expenses 1,318 1,203 10

Selling Expenses 453 370 22

Employee benefits 1,761 1,364 29

Total 3,532 2,937 20

FINANCIAL CAPITAL

Selling expenses increased by 22% YoY largely due to advertising and business promotion expenses incurred during 2017, to generate more businesses and defend our market share in an intensely competitive market.

Employee benefit expenses increased due to provision of higher benefits to reward our exceptional staff members who contributed to the organisation’s value creation during the year. Employee benefits are discussed in detail under Employee Capital on pages 132 to 142.

Profitability

(Rs. Mn.)PBT, income tax and PAT

11,250

9,000

6,750

4,500

2,250

0

20172016

Profit before tax

Income tax expense

Profit after tax

The Company's profit after tax (excluding one-off surplus transfer) soared by 95.23% and reached Rs. 6 Bn. Further, the Company recognised a one-off surplus of Rs. 3.46 Bn. as per the guidelines issued by the IRCSL, boosting the net profit to Rs. 9.46 Bn.

Life insurance specific ratios

Description 2017%

2016%

Explanation%

Claims and benefit ratio 44 45 Claims and other benefits paid as a percentage of premium income

Claims ratio (without maturities and surrenders)

5

4 Claims paid as a percentage of premium income

Reinsurance ratio 3 2 Percentage of the risk transferred to reinsurers

Acquisition ratio 12 12 Acquisition cost as a percentage of premium Income

Capital adequacy ratio (CAR) 375 335 Total Available Capital (TAC) as a percentage of Risk Based Capital Requirement (RCR)

Performance dashboard 2017 and targets for 2018

2017 2018

Performance indicator ActualRs. Mn.

TargetRs. Mn.

Achievement%

TargetRs. Mn.

Expected growth%

Gross written premiums 15,765 18,780 84 17,853 13

Investment and other income 10,281 8,369 123 10,795 5

Net benefits and claims (6,687) (7,065) 95 (8,055) 20

Acquisition cost (1,782) (1,880) 95 (1,874) 5

Expenses (3,545) (3,162) 112 (3,911) 10

Profit after tax (excluding one-off surplus transfer) 6,011 3,711 162 6,500 8

Financial position

Total assets

2017Rs. Mn.

2016Rs. Mn.

2015Rs. Mn.

2014Rs. Mn.

2013Rs. Mn.

Total assets 106,095 96,458 80,235 71,068 63,946

Assets growth (%) 9.99 20.22 12.90 11.14 20.90

Company’s total assets crossed the Rs. 106 Bn. mark in December 2017, recording a 10% growth YoY. This increase was fuelled mainly by the investments in new software, growth in financial assets at fair value through profit or loss and increase in financial assets available for sale.

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(%)(Rs. Bn.)

Total assets

125

100

75

50

25

0

25

20

15

10

5

0

2013 2014 2015 2016 2017

Total assets (Rs. Bn.)

Assets growth (%)

Life insurance specific ratios

Description 2017%

2016%

Explanation%

Claims and benefit ratio 44 45 Claims and other benefits paid as a percentage of premium income

Claims ratio (without maturities and surrenders)

5

4 Claims paid as a percentage of premium income

Reinsurance ratio 3 2 Percentage of the risk transferred to reinsurers

Acquisition ratio 12 12 Acquisition cost as a percentage of premium Income

Capital adequacy ratio (CAR) 375 335 Total Available Capital (TAC) as a percentage of Risk Based Capital Requirement (RCR)

Performance dashboard 2017 and targets for 2018

2017 2018

Performance indicator ActualRs. Mn.

TargetRs. Mn.

Achievement%

TargetRs. Mn.

Expected growth%

Gross written premiums 15,765 18,780 84 17,853 13

Investment and other income 10,281 8,369 123 10,795 5

Net benefits and claims (6,687) (7,065) 95 (8,055) 20

Acquisition cost (1,782) (1,880) 95 (1,874) 5

Expenses (3,545) (3,162) 112 (3,911) 10

Profit after tax (excluding one-off surplus transfer) 6,011 3,711 162 6,500 8

Financial position

Total assets

2017Rs. Mn.

2016Rs. Mn.

2015Rs. Mn.

2014Rs. Mn.

2013Rs. Mn.

Total assets 106,095 96,458 80,235 71,068 63,946

Assets growth (%) 9.99 20.22 12.90 11.14 20.90

Property, plant and equipmentProperty, plant and equipment increased by 4.3% from Rs. 7,068 Mn. in 2016 to Rs. 7,371 in 2017. Freehold land and buildings, considered as an admissible asset in capital adequacy calculations accounted for 89% of the value of property, plant and equipment. During the year, the Company acquired land and buildings to the value of Rs. 903 Mn., which includes one new branch constructed in 2017. More information about Company’s property, plant and equipment are given on pages 238 to 244.

Investment propertyInvestment property includes land and buildings held by the Company for investment purposes. Such property generates rental income for the Company and gains from capital appreciation. Additional details on investment property are given on pages 244 to 246.

Investments in subsidiariesInvestments in subsidiaries were Rs. 1,036 Mn. as at end 2017. This includes investments in Ceylinco Healthcare Services Limited and Serene Resorts Limited amounting to Rs. 771 Mn. and Rs. 265 Mn. respectively.

Financial instruments

2017Rs. Mn.

2016Rs. Mn.

Held-to-maturity financial assets 65,273 66,582

Loans and receivables 17,199 12,998

Available-for-sale financial assets 3,808 1,220

Financial assets at fair value through profit or loss 2,350 166

Total financial instruments 88,629 80,966

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Treasury bonds

Quoted debentures

64%

36%

Composition of HTM financial assets – 2017

3%8%

2%

88%

Composition of loans and receivables – 2017

Staff loans Debentures

Repo Term deposits

3%5%

75%17%

Composition of AFS financial assets – 2017

Treasury bonds Quoted debentures

Quoted shares Preference shares

FINANCIAL CAPITAL

75

60

45

30

15

0

Available-for-sale financial assets

Financial assets at fair value through

profit or loss

Loans and

receivables

Held-to-maturity financial assets

(Rs. Bn.)Financial instruments

2016 2017

Company’s investments in financial instruments grew by 9.47% YoY to Rs. 88.6 Bn. in 2017. Financial instruments account for 84% of our Company’s total asset base.

A larger percentage of the Life Insurance Fund is invested in Government Securities and other fixed income securities such as quoted debentures and term deposits, as per the guidelines issued by the Insurance Regulatory Commission of Sri Lanka.

In compliance with the Sri Lanka Accounting Standards (SLFRS/LKAS), we have segregated financial instruments into four categories; Held to Maturity (HTM), Loans & Receivables (L&R), Available for Sale (AFS) and Fair Value through Profit or Loss (FVtPL).

Held-to-Maturity financialinstruments

HTM financial assets are those with fixed or determinable payments and fixed maturities. We have held such assets until maturity, with 74% of Company’s financial instruments in the HTM category. As a

prudent life insurer, Ceylinco Life holds long term investments to match its long-term insurance liabilities. Therefore, 64% of the HTM financial assets are held in “risk-free” Treasury Bonds, and the remaining assets are held in quoted debentures. The Company mainly invests in corporate debentures of issuers bearing credit ratings between AAA to A-. The objective of this strategy is to earn steady returns from relatively lower-risk investments, while adhering to the stringent regulatory and internal investment guidelines.

Loans & receivables (L&R)

These are non-derivative financial assets with fixed or determinable payments and are not quoted in an active market. Our Company holds 19% of its financial instruments in the L&R category. Loans and receivables are made-up of 88% investments in term deposits, of which 99% are term deposits with licensed commercial banks and the balance are with licensed finance companies.

Available-for-Sale financial instruments

AFS financial assets are financial assets designated as available for sale and are not classified in any of the other categories. AFS financial assets account for a mere 4% of the investments in financial instruments. 75% of the AFS financial assets are held in Treasury Bonds, 17% in quoted debentures and 5% in quoted shares. 3% is held in preference shares.

Fair Value through Profit or Loss(FVtPL) financial assets

These financial assets are held for trading. The proportion of the FVtPL assets in the financial instruments portfolio of our Company is relatively insignificant, accounting for a mere 3% of the investments in financial instruments. Government Securities account for 99% of the FVtPL financial assets.

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Treasury bonds

Quoted debentures

1%

99%

Composition of financial assets at fair value through profit or loss – 2017

Shareholders’ equityShareholders’ equity increased from Rs. 11,912 Mn. in 2016 to Rs. 17,190 Mn., excluding the Restricted Regulatory Reserve, recognised due to transfer of the one-off surplus in 2017, reflecting a 44.3% YoY growth. Including the Restricted Regulatory Reserve, shareholders' equity was Rs. 20,647 Mn. Company’s stated capital remained unchanged at Rs. 500 Mn. Rs. 5,575 Mn. was transferred to retained earnings in 2017, increasing the retained earnings balance as at end 2017 to Rs. 9,279 Mn. In compliance with Direction 16 issued by the IRCSL, the Company recognised a Restricted Regulatory Reserve of Rs. 3,456 Mn. in 2017. This is the one-off surplus transfer from other than participating business to shareholders. Shareholders’ equity also includes a Special Reserve of Rs. 7,311 Mn., which represents the value of net assets transferred to Ceylinco Life from Ceylinco Insurance PLC on 1 June 2015 as part of the regulatory segregation of the life insurance business from Ceylinco Insurance PLC.

Insurance contractliabilities – LifeInsurance Contract Liabilities (or simply the “Life Fund”) is the fund maintained for the long-term insurance business by our Company in accordance with the

Regulation of Insurance Industry Act, as amended. The size of the life fund indicates the financial strength and solidity of a life insurer. A bigger fund indicates that the insurance company is financially strong and sound.

Our Life Fund reached Rs. 81.7 Bn. as at end 2017, recording a 4.87% growth compared to Rs. 77.9 Bn. as at end 2016. This is the net growth after a transfer of Rs. 4.5 Bn. and the one-off surplus transfer of Rs. 3.4 Bn to the shareholders’ funds in 2017.

The actuarial valuation of the Life Fund as at 31 December 2017 was carried out by the independent consulting actuary, Willis Towers Watson, whose report is given on page 221.

As recommended by the independent consulting actuary, adequate provisions, including those for bonuses to policyholders have been made.

FINANCIAL CAPITAL

(%)(Rs. Bn.)

Life fund

87.5

70.0

52.5

35.0

17.5

0

20

16

12

8

4

0

2013 2014 2015 2016 2017

Life fund

Life fund growth

Capital Adequacy Ratio (CAR)The Company's CAR ratio as at 31 December 2017 stood at 375%, compared to 335% recorded as at end 2016.

Value added and distributed statement For the period ended December 2017 2017

Rs. ’000% 2016

Rs. ’000

Net Earned Premium 15,343,267 14,653,771

Investment and other income 10,280,547 8,780,689

25,623,814 23,434,460

Net claim incurred (6,686,980) (6,651,682)

Cost of external services (772,565) (824,665)

18,164,269 15,958,113

To employees as remuneration 1,761,122 29.09 1,364,300

To intermediaries as commission 1,782,479 5.22 1,693,985

To the Government as tax 722,158 35.30 533,729

To the Shareholders as dividend 432,000 (37.16) 687,500

Increase in life fund 7,258,502 (13.57) 8,397,889

Retained as depreciation 196,765 (2.43) 201,669

Retained as reserves 6,011,241 95.23 3,079,041

18,164,269 13.82 15,958,113

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For the period ended December 2017 2017Rs. ’000

% 2016Rs. ’000

Distribution of Income 2017

To employees 10% 9%

To intermediaries 10% 11%

To Government 4% 3%

To Shareholders 2% 4%

To Life Policyholders 40% 53%

To expansion and growth 34% 21%

100% 100%

Challenges facedVolatility in interest rates had a significant effect on our investment income and profitability. Also changes in taxes and lack of consistency in Government’s fiscal policy significantly impacts Company’s profitability as well.

Focus for 2018We will utilise our financial capital prudently to enhance our profitability. We will adopt effective cost management initiatives to improve efficiency and thereby increase profits. We will also maintain sound capital and liquidity levels.

Future outlookWe will continue to optimise our investment income through prudent investment management. We will achieve a sustainable growth in the bottom line and maintain optimal liquidity levels to meet cash requirements.

FINANCIAL CAPITAL

As a prudent life insurer, Ceylinco Life holds long-term invest-ments to match its long-term insurance liabilities. Therefore, 64% of the HTM financial assets are held in “risk-free” Treasury Bonds, and the remaining assets are held in quoted debentures.

To Employees To Intermediaries

To Government To Shareholders

To Life Policy Holders To Expansion and Growth

34%

40%

10%

10%

4%2%

Distribution of Income – 2017

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The Ceylinco portfolio truly enshrines sustainability... across people and planet.

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The intellectual capital of our Company comprises the knowledge-based assets which includes our brand, product innovations, IT systems, awards and accolades, compliance, corporate culture and business ethics. Tacit knowledge, which is the expert knowledge gained by working in the organisation for a long period of time, is an important resource which has a significant impact on innovation. This is a very relevant asset in the value creation process of our Company.

Intellectual capital value creation model

PROCESS

Campaign

Management, research

and development,

process and service

enhancement

OUTPUT

zz Best Life Insurance brand

zz Service enhancement

zz Innovative Products

zz System upgrades

zz Automation and Digitisation

zz Employee skills and experience

OUTCOME

zz Enhanced brand equity

zz Efficient systems and processes

zz Enhanced service delivery and convenience

zz Customer centricity

zz Enhanced brand value

INPUT

zz Total Investment in IT systems Rs. 340 Mn.

zz Investment in brand building

zz Investment in Product innovations

zz Employee training programmes

Highlights for 2017

Peoples Life Insurance Brand of the Year for the 11th consecutive year

Ceylinco Life Brand moved up to the 12th position in Business Today Brand ranking

Only insurance company selected amongst the top 20 brands by InterBrands Sri Lanka

Best Life Insurer for the 4th time by World Finance UK

Staff experience – 333 employees with over 15 years of service

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Intellectual capital contributing to value creation

By nurturing an effective knowledge sharing and learning organisation with a strong brand reputation we are able to achieve an improved performance, create innovative products and thereby boost our competitiveness in the market. In particular, Company’s tacit knowledge is an important driver of the innovation process which is a significant success factor. This in turn improves the profitability and sustainability of our Organisation.

Increasing our intellectual capital value

We increase the value of intellectual capital by fostering a culture of innovation and continuous improvement, maintaining a strong compliance culture, developing our processes and systems, nurturing an open and proactive work environment, strengthening our positive brand reputation and brand image and being always customer-centric in our operations.


Organisational knowledgeWe have nearly one million Sri Lankan lives covered by active life policies and have been the market leader in Sri Lanka’s life insurance industry for 14 consecutive years. We have won the trust and confidence of nearly a million people. Our in-depth knowledge of the industry and expertise have enabled us to build a reputation of having the best and innovative life insurance plans, of being the best in claim settlements, offering exceptional customer service and rewarding our policyholders with industry-leading benefits.

In addition to operating the largest branch network in Sri Lanka’s life insurance industry, we employ the industry’s largest sales consultants. Adopting effective strategies, we sustain our growth momentum by successfully adapting to the changing environment. We inspire our policyholders to successfully progress in life by offering innovative products for each life stage.

CONFIDENCE, AMBITION AND PROGRESSION

LOVE AND CAREPROTECTION AND

TRUST

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17PREAMBLE MESSAGES AND MANAGEMENT PROFILES BUSINESS MODEL MANAGEMENT DISCUSSION AND ANALYSISINTELLECTUAL CAPITAL

Corporate cultureCulture encompasses who we are and is an enabler to live our purpose. It is about how we interact with one another, our customers and society, and how we live our values. We can only maintain our position as the undisputed leader if we have the right cultural norms and behaviours in place. Hence, maintaining high employee engagement, customer centricity, fostering a high-performance company culture and open communication are important focus areas for us.

We nurture an open culture, sharing and celebrating success and best practices to create a sense of pride and trust among our people. Customer centricity and delivering unwavering quality and excellence are other important aspect of our Organisation.

We also believe in developing leaders internally which is an important competitive advantage. Hence, succession planning is an integral aspect of our corporate strategy as we seek to build a strong bench of inspirational leaders across all leadership levels to ensure continuity and long-term growth for our business. At the same time we focus on developing our people by creating opportunities for faster development, building the correct knowledge, skills and experience, embedding our corporate values.

We also foster a workforce that reflects diversity by actively attracting and retaining employees from a range of backgrounds. Whilst work-life balance is an important aspect of our culture, our employees are encouraged to present themselves in a professional manner, with a deep commitment to integrity. All our activities are reinforced with good governance and ethics. It’s an environment where our people are proud to work. As per our tagline, we nurture a relationship for life with all our stakeholders, creating a deep commitment and loyalty as their progress drives our own.

Brand and its development Ceylinco Life Brand is synonymous with trust, leadership, innovation and inclusivity. Our brand mission is to be the most trusted, acclaimed and progressive life insurer in Sri Lanka, providing innovative need-based life insurance solutions to customers, industry leading rewards to employees, creating successful partnerships with stakeholders and ensuring sustainable business practices. Even as our logo symbolises protection, love, care, trust, confidence, ambition and progression to our policyholders, our tagline “A Relationship for Life” signify the long standing relationships we nurture with each of our stakeholders based on trust. Our brand also demonstrates our key values – PRIDE; which stands for Professionalism, Rewarding, Integrity, Dedication and Excellence.

During the year under review, we invested in revitalising the Ceylinco Life Brand. We also invested in corporate brand related campaigns. These expenses were made in order to develop and maintain our brand reputation in the market. The success of these initiatives is reflected in the positive results we continue to achieve as per the independent brand health study conducted to track our brand positioning.

Based on brand tracking studies conducted by an independent market research organisation over a period of time, Ceylinco Life Brand is perceived in the market as a socially responsible and customer Oriented company, offering attractive benefits and promotions, competitive premiums and flexible insurance solutions. According to the study, our brand maintained high top of mind brand recall, high brand equity index and a strong brand leverage.

Brand equityThe brand equity is a brand’s value determined by consumer perception of and experiences with the brand. A strong, positive brand is a powerful factor in driving customer loyalty which is a strong factor in winning greater market share. The drivers of brand equity includes, brand awareness and consideration, product and service offering and Company image. Whilst we continually portray ourselves as the number one life insurer in Sri Lanka, the brand index for Ceylinco Life ranked on top compared to peers, which has helped us to consolidate our market leadership in the industry.

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Our new brand campaign

IT systems and processes

We make the best use of all our systems and processes to deliver the best value to all our stakeholders. In doing so, we constantly monitor the security of our systems and effect the necessary upgrades to ensure data protection and system uptime. We also constantly develop our internal processes to ensure smooth and efficient operations.

Whilst our business processes are centralised, we have introduced a sales app and electronic devices to our sales force to provide an efficient service to our customers. We have provided a host of applications for users such as simplified version of collection modules and policy level benefits, information required by business heads for team evaluation purposes and document management solutions. We also develop in-house

systems which provide business insight for effective decision-making.

SAP implementation and e–submissionWe initiated the implementation of the state-of-the-art ERP system SAP HANA for the Finance and Investment Divisions. SAP, as a world renowned application system, is very strong in the finance sector. The

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implementation was started in November 2017 and the full benefits of the project will be derived in the latter part of the next year.

E-Submission System will digitalise the manual proposal processing, and leverage the process from prospect creation to policy issuance, while reducing the turnaround time and operational cost and increasing the productivity of the sales personnel. This project will also be completed in 2018.

Governance structure

Our governance structure plays a crucial role in building the intellectual capital providing strategic direction and ensuring rigorous review of performance against agreed goals. Pages 165 to 185 give a comprehensive description about our Corporate Governance framework and practices. Evolving over time and fit for purpose, they safeguard the Company’s reputation and risk profile on daily basis, providing guidance on conduct of business throughout the organisation.

Ethics and Code of Conduct

We are committed to upholding the highest level of ethics in all our operations. We also conduct operations in a fair and transparent manner. All our staff members voluntarily comply with Ceylinco Life’s Code of Conduct which is a list of stringent guidelines. These guidelines are communicated throughout the Organsiation through an effective communication process. The basics of the Code of Conduct, values and ethics are explained to the new recruits at the induction programme. In addition, the Code of Conduct is made available on the Company’s HR portal for easy reference of our employees. Our corporate culture, values and ethics are reinforced to employees at quarterly employee induction programmes as well. In addition, all heads of departments are empowered to guide their associates

on ethical compliance. Employees can approach their immediate supervisor, Head of the Department on any ethical matters. Further, they can also consult the Senior Manager – HR if needed.

Employee skills and tacit knowledgeHaving been in the life insurance business for over 30 years, we have acquired a wealth of expertise in the areas of underwriting, actuary, claim management, investment management, financial management and risk management. A majority; 77% of our employees have been with the Company for over 5 years. They have accumulated a vast store of tacit knowledge which is usually a part of a long-term accumulated learning process. This is an important driver of innovation and a competitive advantage for our Company. We have enhanced the tacit knowledge by retaining our employees and providing opportunities for sharing and transferring of tacit knowledge. We are also in the process of documenting the tacit knowledge for future reference.

Service Category 2> 3-5 6-10 11-15 16-20 21-25 25< Total

Executive Directors 0 0 0 0 1 0 4 5

Senior Managers 1 4 9 5 4 8 10 41

Manager 0 0 2 3 9 10 1 25

Asst. Manager 6 7 5 8 3 9 4 42

Branch Head 6 1 41 29 17 12 2 108

Career Sales 0 0 13 8 15 11 2 49

Executive 83 91 130 92 69 75 37 577

Staff 1 1 7 4 6 16 8 43

Total 97 104 207 149 124 141 68 890


Awards and recognition We have made every effort to improve our corporate ranking in the market which is a strong testament of the strong brand reputation and our standing in the industry. We continued to be felicitated for our efforts as evidenced through the numerous awards and recognitions received during the year.

For the 4th consecutive year, we were adjudged the best life insurer in Sri Lanka, by World Finance, U.K., having emerged on top on a number of parameters including customer retention rate; average time in claim settlement; new customer acquisition rate; average cost per policy and net premium.

We were also adjudged the Peoples Life Insurance Brand of the Year at the 2017 SLIM-Nielsen Peoples Awards, reaffirming our status as the most popular insurer in the country for the 11th consecutive year. This is a reflection that we do everything for our policyholders, and we insure the lives of about 5% of our country’s population, making us truly the life insurance company of the people.

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In addition, we were chosen amongst Sri Lanka’s Best 20 Brands and is incidentally the only insurance company selected amongst the elite list of brands by Interbrands, the world’s leading brand listing agency.

For the fifth consecutive year, we earned the honour of being the only insurance company amongst the “Business Today Top 30” companies in Sri Lanka. We have moved up the corporate ladder to the 12th position, achieving a truly unique feat.

Challenges facedRedefining our value proposition based demographic changes and consumer preferences. Need to offer our products and services to an increasingly digitally savvy customer segments by exploiting new avenues of distribution.

Focus for 2018We will continue to reinforce our brand through brand visibility and awareness campaigns. Through training and development the knowledge and expertise of our employees will be developed further whilst providing awareness and training on the Code of Conduct. We will continue

to foster an open and rewarding culture, steeped on our corporate values and strong compliance.

Future outlookWe will strengthen our brand by offering industry-leading benefits and promotions, competitive premiums and flexible insurance solutions to our policyholders, being socially and environmentally responsible, customer-centric and promoting the well-being and motivation of our employees. We will continue to reach out to customers around their important life triggers to grow our product sales even more significantly in the years ahead through product innovation and exploiting new distribution channels.

In recognition for his contribution towards the finance industry Mr Palitha Jayawardena received the CMA Professional Excellence Award and the Professional Excellence Award for Digital Transformation from the Institute of Certified Management Accountants of Sri Lanka.

Ms Upamalika Ratnayake received the CIO of the Year Award at the FITIS Women in IT Awards 2017.

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Manufactured capital which is integral to our value creation process consists of the physical infrastructure, particularly our branch network, IT infrastructure and fixed assets that support the provision of life insurance solutions.

Manufactured capital value creation model

INPUT

zz Investments in physical assets

zz Investment in new branches

zz Investments for upgrading the IT facilities

zz New look to the branch network

PROCESS

Utilising available physical resources and optimise the

usage

OUTPUT

zz Expanded branch network

zz Rental income from properties

zz Number of new branches opened

zz Training space

zz Upgraded IT facilities

OUTCOME

zz Expanded customer reach

zz Enhanced customer service

zz Environmental friendly branches

zz Enhanced productivity and efficiency

Highlights for 2017

One new branch and shifted one rented branches to our own buildings

Invested Rs. 903 Mn. in property, plant and equipment

35 own buildings islandwide

More than Rs. 100 Bn. of Total Asset

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Manufactured capital contributing to value creation

Efficient use of manufactured capital enables us to be flexible, responsive to market and societal needs, innovative and faster in getting our products and services to the market. Also, manufactured capital and technology reduces resource use and enable us to focus more on human creativity, thereby enhancing both efficiency and sustainable development of our organsiation.

Increasing our manufactured capital value

We continue to invest in the growth of these assets, reducing our environmental footprint and enabling compliance with regulatory requirements. Given the increasing concerns about environmentally-sustainable business practices, we have reformulated our branch expansion strategies to reduce the environmental footprint, while expanding our physical presence in Sri Lanka to reach the underpenetrated customer segments across the island. We have also allocated sufficient capital to maintain and upgrade our manufactured capital to ensure smooth and sustainable business operations.

2016 2017

(Rs. Mn.)Investment in freehold and buildings

Freehold land

Buildings

500

400

300

200

100

0

Our branch networkOur aim is to reach the unpenetrated customer segments in our nation through our wide branch network; the largest in the industry. Through our network of 273 branches, we are present in every province in Sri Lanka.

Our branch expansion strategy is to own our office buildings for cost-saving and investment purposes by operating from company-owned buildings. We believe, a relationship for life cannot be built on an unstable foundation. Just like a family needs a strong and secure home to make a positive contribution; we too continuously strive to build a strong, secure platform by setting up branches mainly in company-owned property.


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Shown below is an analysis of our own and leasehold branch network.

Own Building

Total

Lease Buildings 119

21

140

Branch

Akkaraipattu

Akuressa

Aluthgama/Beruwala

Ambalangoda

Ambalantota

Ampara

Anamaduwa

Anuradhapura

Athurugiriya

Avissawella

Alawwa

Atchuvely

Aralaganwila

Badulla

Balangoda

Bandaragama

Bandarawela

Battaramulla

Batticaloa

Beliatta

Bambalapitiya

Boralesgamuwa

Baddegama

Bibile

Chilaw

Chunnakam

Chavakachcheri

Chenkalady

Dambulla

Dankotuwa

Deniyaya

Divulapitiya

Dehiattakandiya

Delgoda

Elpitiya

Embilipitiya

Eheliyagoda

Galgamuwa

Galle

Gampaha

Gampola

Godakawela

Ganemulla

Galenbindunuwewa

Hatton

Hingurakgoda

Horana

Hanwella

Branch

Hettipola

Ja-ela

Jaffna

Ingiriya

Kalmunai

Kadawatha

Kekirawa

Kaduruwela

Kaduwela

Kalutara

Kandana

Kandy

Kantale

Katugastota

Kegalle

Kelaniya

Kesbewa

Kirindiwela

Kolonnawa

Jampetta Street

Kottawa/Homagama

Kuliyapitiya

Kurunegala

Kalawana

Kirulapane

Kamburupitiya

Kahatagasdigiliya

Kochchikade

Kaluwanchikudy

Kilinochchi

Maharagama

Mahiyangana

Maho

Maradana

Matale

Matara

Matugama

Mawanella

Medawachchiya

Minuwangoda

Mirigama

Monaragala

Moratuwa

Malabe

Mawathagama

Melsiripura

Manipay

Mannar

Branch

Middeniya

Nattandiya

Negombo

Nittambuwa

Nochchiyagama

Nugegoda

Nuwara Eliya

Nelliadi

Nikaweratiya

Neluwa

Narammala

Padaviya

Panadura

Panduwasnuwara

Pannala

Pilimathalawa

Piliyandala

Puttalam/Norochchole

Pelmadulla

Ratnapura

Rikillagaskada

Ruwanwella

Rambukkana

Sooriyawewa

Tissamaharama

Trincomalee

Teldeniya

Thambuththegama

Uragaha

Valachchanai

Vavuniya

Veyangoda

Warakapola

Wattala

Welimada

Weliweriya

Wennappuwa

Wellawatta

Wadduwa

Wariyapola

Wellawaya

Wattegama

Yakkala

Mt Lavinia


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Iconic branch buildings of Ceylinco Life.

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17PREAMBLE MESSAGES AND MANAGEMENT PROFILES BUSINESS MODEL MANAGEMENT DISCUSSION AND ANALYSISMANUFACTURED CAPITAL

New branchesDuring the year, we opened a new branch at Chilaw and shifted our rented branch at Hettipola to our own building. Whilst expanding our reach, we strive keep the carbon footprint at minimal levels by installing more environmental-friendly features in our branch buildings. These branches have minimal impact on the environment. The construction cost of company-owned branches is borne by internally-generated funds, which is a strong indication of the financial stability of our Company.

Investment in property,plant and equipmentDuring the year under review, we invested Rs. 903 Mn., to secure new land and property in order to facilitate the expansion of our branch network.

Our investments in property, plant and equipment has significantly grown during the past years which has added a great value to the business.

Significant investments were also made to develop and upgrade Company’s IT infrastructure which is essential to the rapid digitalisation goals of our Company. These goals are designed to empower employees to consistently deliver an outstanding customer service.

Motor vehicles

20162016 2017234

Rs. Mn. Rs. Mn.

Rs. Mn. Rs. Mn.

2802017

Office equipment

20162016 2017225 225

2017

PROPERTY, PLANT AND EQUIPMENT

Growth in property, plant and equipment

Furniture and fittings

20162016 2017124 115

2017

Computer equipment

20162016 2017123 154

2017

Information technology Our IT Department is a key support department that impacts the entire business operations of our Organsiation. IT enables operational efficiencies which provide us a competitive edge through enhanced customer experience. Hence, we conduct regular maintenance and necessary upgrades to keep pace with the increasingly complex operating and regulatory environment. We continued to streamline our business processes to achieve operational efficiencies as well. Accordingly, certain processes were streamlined through IT during the year resulting in significant productivity gains and cost savings.

Challenges facedzz Availability of strategic locations to purchase property to set up branches

zz Management of construction projects and meeting the project deadlines and budget targets

zz Cyber security and vulnerability of IT infrastructure

We will continue to expand our branch network to reach untapped customer segments in line with our vision of taking the message of life insurance and retirement planning to every Sri Lankan.

Focus for 2018 We will continue to expand our branch network. The construction of the Kadawatha Branch will be completed and will be opened in January 2018. Further, we will commence construction of three new green buildings in Jaffna, Ja-ela and Nugegoda. These are expected to be opened in 2019.

Future outlook We will continue to expand our branch network to reach untapped customer segments in line with our vision of taking the message of life insurance and retirement planning to every Sri Lankan. Our strategy is to set up company-owned buildings to realise cost-saving and for investment purposes.

We will conduct necessary operational evaluations, regular upgrades and needed IT investments to ensure smooth business operations, enhance customer experience, strengthen internal controls and compliance and provide improved information to facilitate effective decision-making.

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In life’s more vulnerable moments such as death or disability, Ceylinco enshrines empathy and understanding across all its interactions.

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SOCIAL AND RELATIONSHIP CAPITAL

Social and relationship capital at Ceylinco Life includes a diverse range of relationships fostered mainly with our investors, customers, business partners, and the community. We continually strive to nurture relationships for life with each of our stakeholders, on which the success of our operations depends on.

Social and relationship capital value creation model

INPUT

zz More than 3,600 sales consultants

zz Business partnerships

zz Reinsurance premium paid Rs. 422 Mn.

zz Investment in community projects

zz Regulatory compliance

zz Environmental conservation

zz Products and services

PROCESS

Compliance and governance, customer value addition, social relationships, environmental stewardship, product innovation, business ethics customer profiling

OUTPUT

zz Bonuses to policyholders Rs. 3.8 Bn.

zz 44 MDRT qualifiers

zz Reinsurers, share of customer claims, Rs. 197 Mn.

zz Reinsurance commission and profit received, Rs. 78 Mn.

zz Commissions to sales consultants Rs. 1.7 Bn.

OUTCOME

zz Customer loyalty

zz Strong business partnerships

zz Enhanced branch network

zz Responsible corporate citizenship

zz Motivated sales force

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Social and relationship capital contributing to value creation

The success of our business depends on the strength of stakeholder relationships and the well-being of communities we operate in.

Increasing our social and relationship capital value

We increase the value of social and relationship capital by building trust through responsible operations and sustainable business practices. We work in partnership with communities, government, customers, business partners and investors to deliver winning solutions that increase sustainable stakeholder value.


Highlights for 2017

zz Thirteen Waidya Hamuwa projects in 2017

zz Three school development projects in 2017

Society

zz Rs. 3.8 Bn. as bonus payments

zz 2,260 Family Savari participants

Customers

zz Rs. 75 Mn. increase in dividend payout

zz Rs. 3.4 Bn. transferred to investors as one-off surplus

zz Rs. 5.2 Bn. accumulated in 2017 in retained earnings

Investors

zz Rs. 1.7 Bn. commissions paid to independent contractual agents

zz 44 Mn. Dollar Round Table (MDRT) qualifiers

zz 59 Highflyers Club qualifiers

zz Reinsurance expense of Rs. 422 Mn.

Business partners

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37.5

30.0

22.5

15.0

7.5

0

2015 2016 2017

(%)Return on equity By definition, investors are stakeholders that allocate capital with the expectation of a future financial return. At Ceylinco Life, our investors play a key role in our value creation process. They provide the capital necessary to fuel our operations. We continually strive to maximise shareholder wealth through sustainable and increased returns. We do this by growing our profits and delivering healthy financial returns whilst maintaining transparency, integrity, and sustainability in our operations.

Shareholder profileOur Company, Ceylinco Life is a fully-owned subsidiary of Ceylinco Insurance PLC. We focus on prudent profitability growth whilst strengthening our financial stability. That’s why we have recorded a steady increase in profits and assets over the years as detailed under “our standing” on page 39.

Return to shareholders

Description 2017

2016 2015 YoY Growth (2017)%

Profit for the year (Rs. Mn.) 9,467 3,079 2,060 207

Return on equity (%) 45.85 25.85 21.81 35

Net Assets per share (Rs.) 412.93 238.24 188.93 44

Earnings per share (Rs.) 189.35 61.58 38.03 95

Dividends per share (Rs.) 9.00 7.50 6.25 20

Dividend payout ratio (%) 7.49 12.18 16.44 39

Dividend cover (Times) 21.04 8.21 6.08 63


Our Company, Ceylinco Life is a fully-owned subsidiary of Ceylinco Insurance PLC. We focus on prudent profitability growth whilst strengthening our financial stability.

INVESTOR CAPITAL

500

400

300

200

100

0

2015 2016 2017

(Rs.)Net assets per share

Economic value addedThis is a measure of our performance focused more on value creation for our shareholders rather than just the accounting profits. Through efficient use of capital and higher profits we have delivered increased returns to shareholders over the years.

Year ended 31 December 2017Rs. ’000

2016Rs. ’000

2015Rs. ’000

2014Rs. ’000

2013Rs. ’000

Invested equity

Shareholders’ funds 17,190,714 11,911,829 9,446,370 8,890,550 7,628,393

Add: cumulative loan loss provision/ provision for impairment – – – – –

Total 17,190,714 11,911,829 9,446,370 8,890,550 7,628,393

Earnings

Profit after tax and dividend on preference shares

9,467,426 3,079,041 2,060,046 1,362,987 1,240,387

Add: Impairment provisions and other losses

– – – – –

Less: Loan Losses Written Off – – – – –

Total 9,467,426 3,079,041 2,060,046 1,362,987 1,240,387

Cost of equity (based on 12 months weighted average t-bill rate plus 2% for risk premium) (%) 12.05 11.92 8.60 8.69 12.62

Cost of average equity 2,071,481 1,419,890 812,388 772,589 962,703

Economic value added 7,395,945 1,659,151 1,247,658 590,398 277,684

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STEWARDSHIP FINANCIAL REPORT SUPPLEMENTARY INFORMATION SOCIAL AND RELATIONSHIP CAPITAL

500

400

300

200

100

0

2015 2016 2017

(Rs.)Net assets per share

Economic value addedThis is a measure of our performance focused more on value creation for our shareholders rather than just the accounting profits. Through efficient use of capital and higher profits we have delivered increased returns to shareholders over the years.

Year ended 31 December 2017Rs. ’000

2016Rs. ’000

2015Rs. ’000

2014Rs. ’000

2013Rs. ’000

Invested equity

Shareholders’ funds 17,190,714 11,911,829 9,446,370 8,890,550 7,628,393

Add: cumulative loan loss provision/ provision for impairment – – – – –

Total 17,190,714 11,911,829 9,446,370 8,890,550 7,628,393

Earnings

Profit after tax and dividend on preference shares

9,467,426 3,079,041 2,060,046 1,362,987 1,240,387

Add: Impairment provisions and other losses

– – – – –

Less: Loan Losses Written Off – – – – –

Total 9,467,426 3,079,041 2,060,046 1,362,987 1,240,387

Cost of equity (based on 12 months weighted average t-bill rate plus 2% for risk premium) (%) 12.05 11.92 8.60 8.69 12.62

Cost of average equity 2,071,481 1,419,890 812,388 772,589 962,703

Economic value added 7,395,945 1,659,151 1,247,658 590,398 277,684

4,000

3,200

2,400

1,600

800

0

2015 2016 2017

(Rs. Mn.)Economic value added Dividend policyThe dividend policy of our Company is based on providing a dividend that is fair both to the shareholder and the Company. Therefore, we ensure that we pay an attractive dividend whilst maintaining adequate funds to meet solvency requirements of the Companies Act No. 07 of 2017.

The profitability of a life insurance company is decided by the actuary after the annual actuarial valuation. Once the actuary ascertains the surplus for the year, the Company’s Board of Directors declares the dividend.

Dividends In the year under review, Rs. 450 Mn. was paid as dividend to our sole shareholder, Ceylinco Insurance PLC. The Board has declared a dividend of Rs. 9 per share for the financial year ended 31 December 2017.

We maintain an optimal balance between dividend payment and retention to ensure shareholder wealth maximisation.

375

300

225

150

75

0

2016 20172015

(Rs.)EPS and DPS

EPS

DPS

Challenges faced We did not raise additional capital during the year under review. This was because we had adequate retained earnings and reserves for growth and expansion whilst satisfying the capital adequacy requirements. Hence, we did not encounter challenges pertaining to capital during the fiscal year.

Focus for 2018 We will continue to maximise shareholder wealth through sustainable and increased returns. We will do this by generating increased profits and delivering attractive financial returns. We will also maintain a healthy capital base to meet capital adequacy requirements.

Future outlook We will continue to grow the positive economic value generated by our operations.

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Product portfolioOur product offering is innovative, flexible and cost effective. They cater to every life stage of our customers.

Life insurance plans

Ceylinco Life Endowment

This is a unique plan which enables the policyholder to customise the insurance cover. Whilst it guarantees a return at maturity, the cover can be customised based on policyholder’s income and add on optional protection covers as well. The product offers affordable premium payments and higher benefits to the policyholder.

Ceylinco Life Ran Daru

This is the only product in the market providing a high life cover to children along with educational and medical benefits. In case of accidental death, a life cover of ten to

twenty times the basic sum assured is provided.

Ceylinco Life Advance Payment

A unique and innovative product which pays advance payments regularly and the balance amount at maturity with bonuses. Even though advance payments are made, the life cover is not reduced.

Ceylinco Life Uthum

Provides a comprehensive cover to policyholder and dependants and a free life time cover even after the policyholder receives the maturity value. The death benefit in the event of a sudden loss of life can be increased up to six times the basic sum assured as well.


CUSTOMER CAPITAL

We have nearly one million lives covered by active life policies, equivalent to approximately 5% of our nation’s population. Broadly, our customers comprise mainstream and upper mainstream individuals in the 25 to 45 age category.

OverviewThe customer is at the heart of our business. We have built our product and service offerings around the specific needs of our customers and built Sri Lanka’s largest life insurance company that make a significant difference to people’s lives. We are protecting the lives of nearly one million Sri Lankans by offering a wide product range, outstanding value propositions, extensive distribution channel, unmatched quality, and service standards. This has enabled us to build a strong customer capital over the years.

Analysis of our customersWe have nearly one million lives covered by active life policies, equivalent to approximately 5% of our nation’s population. Broadly, our customers comprise mainstream and upper mainstream individuals in the 25 to 45 age category. 58% of our customers are male whilst the balance 42% are female. In terms of employment, they comprise executives, middle managers, professionals, entrepreneurs, Government employees, and self-employed individuals. They are largely from the urban, semi-urban, and rural economies of Sri Lanka, and are strongly family oriented,

ambitious, and driven by achievement. Our customers give high priority to stability and security and are interested in investing in retirement planning.

Male

Female

42%

58%

Customers in force – 2017

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Ceylinco Life Degree Saver

The Degree Saver product was introduced as a solution for parents who dream to provide their children the best education possible. Higher education, especially overseas, is an expensive investment and there was a void in the market where a long-term product which would act as an education fund and provide protection to the policyholder was not available.

The Degree Saver plan is a product which has the two vital components of an accumulation fund which would grow to provide a substantial maturity for the policyholders' children to use for their tertiary education and a life insurance component which would provide peace of mind to the family.

Ceylinco Life Double Growth

The life cover of the policy is increased by 5% to 10% each year to compensate for inflation.

Ceylinco Life Sipsetha

Sipsetha is a unique plan that provides support to children during their decisive GCE Ordinary Level, GCE Advance Level and higher studies. If a child is left without parental support, Sipsetha triples the annuities and waive future premium payments.

Ceylinco Life Retirement Plan

Facilitates the policyholder to build a large retirement fund with personalised benefits. This product has a range of attractive features as well, including flexible monthly contributions, selection of the age of retirement, and the period over which contributions are made.

Ceylinco Life Supreme

This is a rewarding policy that combines a life insurance policy and an investment policy. The policy provides a comprehensive life cover and optional rider covers such as critical illness, major surgery and hospitalisation. It also provides financial returns every four years through lump sum payments and an above average maturity value.

Ceylinco Life Whole Life Plans

This is a personalised policy with added protection for a lower premium. Policyholder can select from two product options based on the requirement.

Ceylinco Life Saubhagya

This is a specially designed policy for women providing a comprehensive life insurance cover and lump sum

payments with attractive savings.

Family Takaful Pilgrimage Plan

A plan specially designed to enable spiritual pilgrimages to Mecca. The plan has four options and additional benefits to select.

Family Takaful Education Plan

The Family Takaful Education Plan is the second Takaful product that has been introduced by the Company. The plan provides financial benefits to the participants children to continue their education uninterrupted. It also stands as an asset that could be made use of in the future for the children's higher education.

Rider Benefits

Ceylinco Life Family Digasiri Plus

Covers the whole family against 36 critical illnesses and provides financial support to obtain treatment from either local or overseas hospitals.

Micro Insurance

Ceylinco Life Pradeepa

A policy for low income earners that provides adequate cover at an affordable price. A life cover of Rs.100,000/- for a term of five years is provided for a single premium of Rs. 1,250/-.

Ceylinco Life Major Surgery Benefit

Provides cover against expenses for 526 types of surgeries and benefits include annual incremental benefits and permitting the policyholder to draw up to three times the value of the policy.

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New products launched in 2017Degree Saver

This product is structured combining the features of a life insurance policy and a savings scheme, to create an education fund-based on an agreed premium and policy term, while offering life cover for the duration.

The Education Fund will accumulate for the term of the policy with interest calculated at an accumulation rate, declared by the Company on a monthly basis, ensuring that a fund adequate to meet the family's higher education costs will be available when the policy matures.

The protection component of the Degree Saver policy provides life insurance cover to the parents, offering them peace of mind knowing that their child's or children's


Ceylinco Life Family Hospital Cash Benefit

Upto Rs. 12,500/- per day is provided to the policyholder and his family including children over six months of age for each day spent in hospital. An additional Rs. 5,000/- is paid daily for Intensive Care Unit treatment irrespective of daily benefits. The claims are paid based without the submission of bills.

Ceylinco Life Extra Cover

A cover specially designed to enhance cancer treatment benefit, provided under Digasiri plan scheme in the event the insured is diagnosed with cancer.

Ceylinco Life Health Support

The Health Support rider which can be added on to the main life cover, reimburses hospitalisation expenses for hospitalisation due to a pre-agreed number of critical illnesses, major surgeries and day care surgeries.

Ceylinco Life Jeewa Yathra

In the event permanent disability prevents the policyholder from earning a permanent income, Jeewa Yathra guarantees a steady monthly income. Benefits include a guaranteed lump sum payment, in the event of a death due to accident or partial disability.

Family Income Benefit

The policyholder receives an annual payment for 10 years.

Family Protection Benefits

Policyholder receives the option of enhancing the life

insurance coverage.

Ceylinco Life Yugadivi

This is a special benefit offered to the spouse of the policyholder. Yugadivi enables the policyholder to extend the same cover to his/her spouse for a small additional payment.

higher education will continue even if they lose their lives before the policy matures.

The policyholder can select the frequency of premium payments, term of the policy and has the option to purchase additional benefits such as critical illness, major surgery, hospitalisation and accidental death or disability.

Protection PLus

This is a life insurance plan targeting the Sectors A and B customers. It is a 5-year product with higher returns at maturity.

Product and servicelabelling and marketingcommunications We disseminate clear, accurate, timely, and relevant information about our products and services because we respect customer

rights to have fair information. This enables customers to make informed decisions. Our marketing communications which are conducted in all three languages reflect and support our corporate image. Communication of our products and services is always based on principles of ethical and responsible advertising. Hence, all communications comply with technical guidelines of the product and its features ensuring the customer is not misled. We provide all information mandated by the IRCSL and avoid racial content or inappropriate imagery. We also ensure the information is transparent and doesn’t infringe intellectual property rights.

Our product details are made available to customers through website, brochures available at all our branches and through the Call Centre which operates from 8.30am to 5.00pm on all business days. The policyholders are also made aware

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about our products by sales officers through a product quotation at the time of purchasing a policy. After the proposal form is filled along with the consent of the policyholder, the policy document is issued. At the time of delivery of the policy document, the officer further explains the features of the policy.

Customer touch points We offer our broad range of life insurance solutions across all 25 Districts in Sri Lanka, through our widest network of branches across the island. In addition, we have deployed multiple channels to connect with our customers including our over 3,600 Strong sales force, bancassurance, online channels and direct marketing. Our Head Office provides after sales service to any walk-in customer and anyone can obtain our services by calling the Ceylinco Life Call Centre (hotline: +94 11 246 1461).

Additionally, information about us, including our product and services are made available on our website www.ceylincolife.com. Our life insurance products can be purchased online without the presence and assistance of an insurance representative, increasing the convenience of our customers.

Our multiple channels of distribution are shown below:

CUSTOMER TOUCH POINTS

273 Branches

CustomerRelation

Department

Bancassurance

websitewww.ceylincolife.com

3,696 Sales force

Operational excellence We focus on delivering unwavering quality and excellence that goes beyond the expectations of our customers. One of our important strategic initiatives in this regard is to ensure quality. We do this by continuous investments to improve efficiency and effectiveness of our operations and by nurturing a customer-centric organisation culture.

Fund transfers andpremium collectionsIn our continuous efforts to provide an excellent quality of service to our customers, we have taken steps to enhance customer convenience by offering multiple channels of fund transfer and make premium payments. Hence, in addition to our 270 plus branches which operates across the country, we have made available the option of paying premiums from their Dialog mobile phones via the “eZ cash” m-commerce programme, via the mCash Mobitel network and via the Company’s website www.ceylincolife.com. The policyholders can also receive their claims through their respective banks, including the transfer of hospital claims, surrender benefits and policy loans. We have expanded this facility to include death claims, maturities and advance payments as well.


BancassuranceIn our efforts to take the message of life insurance into every Sri Lankan household, we tie up with banking institutions to sell our life insurance products and collect premiums from customers with convenience.

Premium payments at post officesWe have partnered with Sri Lanka Post, to give our policyholders in Sri Lanka another 4,000 plus outlets to pay their premiums. The milestone agreement signed by Postmaster General and Ceylinco Life has paved the way for 653 Post Offices and 3,410 Sub Post Offices to collect insurance premiums from Ceylinco Life policyholders. A fine example of a private sector – public sector partnership, has a win-win for both sides. Whilst this is a new source of revenue for the Postal Department, we have reduced the cost of premium collection through this arrangement. Premium collected from post offices was Rs. 886 Mn. in 2017.

Customer RelationsDepartment (CRD)The CRD, established in 2004 with team of just four members has expanded to over sixty members with five sub-departments. The department, which is a key “service arm” of our organisation comprise of a team of dedicated individuals who are committed to delivering an excellent service to our customers.

The sub departments are the Call Centres, Customer Retention Unit (CRU), Sales Support Centre (SSC), Direct Marketing Unit (DMU), and Customer Relationship Management Unit (CRM). Each unit plays a vital role within the organisation structure to collectively provide our customers with best service experience in the industry.

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Shown below is how our CRD is organised to deliver a better customer service:

Sales Support Centre

Direct Marketing Unit

Customer Relationship Management Unit

CRD

Customer Relations Unit

Call Centre

Our customer contact points


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Service levelsWe are happy to maintain high service levels over 90% as illustrated in the graph below. This is a testament of our excellent customer service standards.

Service Level (%)

Jan. Apr.Feb. May Jun. Jul.Mar. Dec.Aug. Sep. Oct. Nov.

2016 Service Level 2017 Service Level

100

98

96

94

92

90

2016 2017

(No.)Call count comparison

Received calls

Answered calls

115,000

114,000

113,000

112,000

111,000

110,000

Calls managementWe have in operation an inbound and outbound unit to manage phone calls. The inbound unit handles all incoming complaints, claim related calls and inquiries. The outbound unit handles the


policyholder from the day of opening a policy till the policy matures, including after sales services.

Complaint handling In 2010, we introduced the Customer Relationship Management (CRM) system to handle complaints and inquiries in an efficient and speedy manner and to add increased value to customers to maintain their trust.

The CRM system was made available in all our branches and the Customer Service and Contact Centre was made responsible to handle all complaints methodically.

Complaint handling process

Customer complaint

Lodge to the CRM system

Acknowledge the customer according to the mood of complaint

Follow-up on the complaint

Issue a reference number

Inform the end result to the customer

Number of complaint handled Given below are the details of the complaints received for the year ended 2017. A total of 2,223 complaints were received during this period.

Description Total

Brought forward from 2016 442

Number of complaints received 2,223

Number of complaints resolved in-house by the Company 2,550

Number of complaints not resolved and escalated to disputes 66

Carried forward to August 2017 115

Outbound operation The outbound division handles the policyholder from the day of opening a policy till the policy matures, including after sales services.

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OutboundOperations

Welcome calls

Lapse policy call

Call on the advance payment and future maturity

Maturity call

Database marketing

Direct Marketing UnitThe Direct Marketing Unit (DMU) is a newly established unit which drives the Company’s sales through online delivery channels.

Even as Sri Lanka’s insurance industry is witnessing a strong growth inclination with the rise in per capita income and growing insurance awareness, non-traditional delivery channels are growing in popularity and showing major potential for development.

The emergence of online insurance services and increasing foreign investments in the industry is expected to drive insurance penetration in Sri Lanka. In this milieu, we have tremendous potential to reach customer segments

who are unreachable through conventional channels, through our innovative online products and efficient online delivery channels. Accordingly, we are able to effectively reach the urban and semi-urban customers and Sri Lankan expatriates through non-traditional direct marketing methods.

Outbound direct marketingThe Direct Marketing Executives call current, former and potential customers from a directory/database listing to promote Company’s insurance products. They also respond to customer queries, and establish point of sale opportunities for future referrals or leads.

Inbound direct marketingInbound Direct Marketing Executives, respond to new leads generated through customer requests made to the Call Centre and through the digital channels. They also help customers to complete online policy purchasing documentations and offer quotations as well.

Performance Year 2017 was a tremendous year for the DMU with commendable results generated both online and traditional direct marketing channels. The DMU contributed Rs. 25 Mn. to the Company’s annual premium income, of which Rs. 21 Mn. was collected by the Direct Marketing Channel and Rs. 4 Mn. by the online channel.

Sales Support CentreThe Sales Support Centre was established in 2013 to support Company’s sales force and the branch network. The Centre facilitates the sales force to deliver a strong performance by providing consistent support. This has resulted in increased LIMRA persistency, direct payment ratio and increase in new business. The Centre also introduces new reward schemes and provides assistance to branches as well.

PerformanceThe revenue generated by the Sales Support Centre has been consistently increasing over the years.

Customer RelationshipManagement Unit (CRM)The Customer Relationship Management Unit was established in 2007 under the CRD to retain and maintain high value customers. It is mandatory to for this Unit to maintain exceptional service standards, as they serve, the Company’s Premium Club members.

The Unit provides, value addition to customers through loyalty programmes and by implementing new processes and IT infrastructure to support such value additions. The functions of this Unit includes, conducting Premium Club loyalty programmes to reward Ceylinco Life's high value customers, make available an organised online e-document process for policyholders to manage their policies with utmost ease and security, handling rejected credit card standing orders and returned cheques of policyholders and cleaning up and eliminating redundant documents while reducing the number of complaints. In addition, cost effective and user-friendly auto-settlement options have been introduced to offer ultimate customer convenience.

Customer satisfaction

Customer feedbackWe constantly strive to deliver an excellent customer service. By investing in capability, processes and performance measures that drive growth, customer retention and customer satisfaction, we aim to maintain a high level of customer satisfaction. We obtain customer feedback to measure customer satisfaction which is one of our main performance indicators. This enables us to monitor whether we are


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learning to the Company. It also to show our commitment to the guidelines issued by the IRCSL pertaining to fair treatment of customers, complaint handling by insurance brokers, following good practices in conducting inquiries on insurance agents and conducting investigations of insurance claims.

Campaigns and promotionsAs the most profitable life insurer in Sri Lanka, we reward our policyholders with numerous benefits, including the Ceylinco Life Family Savari programme and the Pranama scholarships for their children.

providing our customers with products and services that meet their needs through an accessible and responsible manner.

Customer feedback is obtained by a customer feedback systems installed at selected branches. We are extremely happy that our customer satisfaction score is above 85%.

Mystery customer auditWe conducted a mystery shopper audit through a reputed research agency In order to provide a superior customer service, Ceylinco Life wishes to understand and track the current service standards across key touch points through a mystery shopper programme in February to March 2017 for eight branches. The objective was to assess and track our service levels and to identify areas on improvement. Total score for the wave 4 is 84%.


Key touch points are as follows:

zz First impression and background information,

zz Inquiry process,

zz Payment-related observations and overall feedback.

Treating Customers Fairly To demonstrate our commitment to promotion of fair treatment to customers we launched the Treating Customers Fairly (TFC) programme. Phase I of the training programme was conducted by Global Business Counseling (GBC) Singapore and Sri Lanka and TCF Consulting UK in association with Sri Lanka Insurance Institute (SLII). This programme was designed to provide Company’s senior management with an appraisal of the concept of Conduct Risk to develop a comprehensive understanding of the principles of fair treatment and transfer the

Annual bonuses worth Rs. 3,800 Mn.

Family Savari rewards

Claims and benefitsworth Rs. 6,800 Mn.

Pranama Rs. 120 Mn. worthscholarships

Policyholders received

Policyholders and their families received

Policyholders received

Children of policyholders received

304,000

2,260

147,000

2,200

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Pranama ScholarshipsThe Pranama scholarships programme is to acknowledge and honour academic excellence while helping parents with the burden of the high cost of educating their children.

Our investment in the future leaders of Sri Lanka surpassed Rs. 120 Mn. in 2017 when we disbursed another 160 scholarships to high-achieving students and young people at our 16th “Pranama” scholarships presentation. Among the recipients of the latest round of scholarships presented by our Company were 28 children who excelled at the Year 5 scholarship examination of 2017, 24 high scorers at the GCE Ordinary Level Examination of 2016, 98 high achievers at the GCE Advanced Level Examination of 2016 and 10 young people that excelled at the national or international level in sports, culture, arts, drama, or invention.

Scholarship recipients in the Year 5 category receive 25 scholarships worth Rs. 120,000/- each over five years, whilst high achievers at the GCE (Ordinary Level) examination receive Rs. 84,000/- each over two years and students who excel at the GCE (Advanced Level) receive Rs. 144,000/- each over three years.

Students placed 2nd, 3rd, and 4th in their districts at the GCE Advanced Level examination also receive a one-time cash payment of Rs. 30,000/- each. The national merit awards presented by us are each worth Rs. 35,000/-.

To date we have conferred Pranama scholarships to over 2,200 high achievers since the programme began, and we are extremely proud that many past recipients are now excelling as doctors, engineers, lawyers and in academia.


Pranama Scholarships

in 2017

GCE Ordinary Level Rs. 84, 000/-

each

GCE Advance LevelRs. 144,000/-

each

Year 5 Scholarship Examination

Rs. 120,000/- each

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Family SavariCeylinco Life Family Savari remains the biggest, most anticipated and most engaging promotion in Sri Lanka's insurance industry focused on promoting family bonding, and making memories that last a lifetime.

The promotion rewards over 2,200 people every year with all-expenses-paid, overseas holidays to multiple destinations and a day-long excursion to a local theme park. Overseas holiday destinations have included Singapore, China, Paris, Japan, Switzerland, Dubai, and Germany. Five


policyholder families won an all-expenses-paid holiday to England at the Family Savari grand draw, while another 10 families were selected to visit Dubai, and a further 50 families for a tour of Singapore, and 500 families for a day at the Leisure World theme park in 2017.

England

Germany

Switzerland

Dubai

China Japan

SingaporeSri Lanka

France

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17PREAMBLE MESSAGES AND MANAGEMENT PROFILES BUSINESS MODEL MANAGEMENT DISCUSSION AND ANALYSISSOCIAL AND RELATIONSHIP CAPITAL

Bonuses to policyholders We recorded excellent growth in 2017. In our efforts to share this success with our policyholders, a mammoth Rs. 3.8 Bn. in annual bonuses were awarded, close to 300,000 policyholders in April and May 2017. This reflects a staggering 31% increase of Rs. 900 Mn. over the previous year making it the highest bonus pay-out in the history of our Company.

All those who purchased their policies up to December 2017 were eligible to receive a bonus, in line with our Company’s policy of declaring bonuses from the very first year of issue of a policy.

In addition, Avurudu cheer was spread to more than 15,000 policyholders with cash bonuses totalling Rs. 92 Mn. in the form of immediately encashable cheques during the Sinhala and Tamil New Year. The Avurudu Cash Bonus which is a feature unique to our organisation was 39% higher in 2017 than the cash bonuses paid in 2016. The cumulative value of cash bonuses paid by us thus far exceeds Rs. 500 Mn.

The annual bonus payout in 2017 was based on the surplus generated by the Company’s Life Fund in 2016.

Viewing of the Kandy Perahara for Premium Club MembersThe Premium Club Members received the opportunity to view the Kandy Esala Perahara from one of the best vantage points in the Kandy city. Accordingly, a group of 100 people comprising 25 policyholders from different parts of Sri Lanka and their families watched the grand pageant from a special viewing area

at our Kandy branch and were provided refreshments and dinner by the Company as a special reward for their loyalty. The Premium Club Members also receive numerous gifts and benefits such as dining and accommodation packages, power banks and many more.

ComplianceThere were no incidents of non-compliance with regulations and voluntary codes concerning product and service information and labelling and marketing communications, there were no substantiated complaints received concerning breaches of customer privacy and losses of customer data. In addition, there were no fines imposed for non-compliance with laws and regulations concerning the provision and use of products and services during the year.

There were no legal actions filed against the Company for anti-competitive behaviour, anti-trust or monopoly practices.

Challenges faced The disposable income in many population segments is relatively low, which has generally made life insurance a low priority in Sri Lanka, despite the high level of education and literacy in the country. There is high incidence of policies lapsing, due to a combination of factors, including low disposable incomes, inadequate understanding of products, incorrect selling, and the existing commission structure, which makes it more profitable for an agent to sell a new policy rather than follow-up on overdue premium incomes. Many of these issues trickle down to a lack of awareness regarding life insurance.

Developing products and services catering to the changing consumer needs and preferences is also a challenge in particular with the increasing ageing population in Sri Lanka. The emerging younger generation requires specific long-term insurance products and prefers a multichannel, digital-enabled experience.

Focus for 2018We will continue to launch more initiatives to generate increased value to our customers during 2018. More products focused on retirement planning and medical plans will be launched to cater to the growing demand for such products. In particular, the medical reimbursement plan will be launched during the year, covering 38 critical illnesses and surgeries. We will also continue to reward our policyholders with exceptional benefits.

Future outlookBy understanding our customers’ needs and offering them value-added, innovative, cost-effective life insurance solutions we will continue to build enduring relationships – based on our sustainable business model. We will also increase the efficiency of our distribution channel and enhance our service standards to deliver increased value to our customers.

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BUSINESS PARTNER CAPITAL

In business, it is often said that you are only as strong as your weakest link, with this in mind we at Ceylinco Life ensure that every link we make is one that is well-judged and build on a solid foundation, with long-term potential and strong mutual benefit. The Life Insurance Business is one that requires a network of professional service providers and our business partners, both locally and overseas, are all seasoned veterans, committed to the highest standards of service, and the zenith of professional expertise and endeavour.

Business partner Ceylinco Life’s expectations Ceylinco Life’s offer

Suppliers zz Goods and services of specified quality

zz Ethical business practices

zz Commitment to delivery on-time

zz Competitive and fair prices

zz Timely payments

zz Repeat business

Reinsurers zz Financial strength and stability

zz Due settlement of reinsurance claims

zz Contribution to develop best underwriting practices and professional advice

zz Transparency

zz Good governance and ethical practices

zz Timely payments

zz Long-standing business relationship

Consulting actuaries zz Professional and independent advice

zz Financial strength and stability

zz Accurate and quality data

zz Good governance and ethical practices

zz Timely payments

zz Long-standing business relationship

Industry associations zz Co-operation for betterment of the industry zz Business expertise

zz Sharing of good practices

Contractual agents zz Achievement of premium targets

zz Professionalism and integrity

zz Serving as a brand ambassador

zz Unmatched career development and growth

zz Monetary and other benefits


Supply chain managementA trusted supplier base is an essential element for the smooth functioning of our business operations. Since we are a service organisation, the supplies we obtain are usually support services.

Selection processWe source external service providers in the event a higher value could be derived by doing so. All outsourced services are based on signed written agreements. Suppliers are selected via a stringent supplier evaluation process which includes an inspection of the supplier’s business premises by an independent team from our company. We follow a transparent procurement process taking into consideration factors such as price, quality, after sales support, timely delivery and technical capacity during the evaluation and selection process.

Local suppliesProvided our quality standards are maintained, we give priority to local suppliers, as it makes a positive contribution to the economic development of our nation. If local suppliers are unable to meet the given procurement specifications, we source foreign suppliers.

The table below show the key types of suppliers we obtain services. We mostly engage with local suppliers and about 94% of our spending on such external services is made to local suppliers.

Local suppliers Foreign suppliers

Type of supplier No. of suppliers

Payments in 2017Rs. Mn.

Type of suppliers

No. of suppliers

Payments in 2017Rs. Mn.

Capital items 110 641 Actuarial services 1 17

Financial services 7 16 IT services 5 28

Health services 26 31 Training 5 10

Office space providers 165 77

Security services 1 15

Stationery and material

suppliers 27 55

Telecommunication

services 11 94

Total 347 929 11 55

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MonitoringWe maintain excellent long-term relationships through a clear and up to date communication strategy, in addition to making prompt payments. We are also consistent in monitoring our procurement process. We reviewed and evaluate our procurement contracts at regular review meetings and carryout site visits periodically to ascertain any potential sustainability risks, and to select products and services which have positive social and environmental impacts.

There were no negative impacts reported in the supply chain during the financial year 2017.

ReinsurersReinsurers provide the financial strength and flexibility needed by primary insurers to maximise growth and profitability within the boundaries of their risk appetite and tolerance. Reinsurers also provide the additional financial protection required when the magnitude of the risk is too large for a primary insurer to take on. This enables the primary insurer to take on the risk, as well as to obtain more business and offer a wide range of insurance products and services to customers.

We have a long-standing association with world’s top two reinsurers; Swiss Re of Switzerland and Munich Re of Germany.

Munich Re in Germany, founded in 1880, is the world’s leading reinsurer, employing over 40,000 people worldwide. Swiss Re, based in Zurich, Switzerland is the world’s second-largest reinsurer. Founded in 1863, Swiss Re operates through offices in more than 25 countries.

We maintain close relationships with our two reinsurers having frequent meetings to discuss matters relevant to both parties. In addition to reinsurance protection, a host of support services

including disciplined underwriting, prudent portfolio management, innovative product development and staff training is provided by them.

The knowledge sharing sessions with our reinsurers helps us to be up-to-date, and aligned with global best practices in terms of underwriting. This allows us to provide complete protection for insurance portfolios and better terms for customers.

There are five main methods of reinsurance; they are Facultative, Treaty, Proportional, Non-proportional and Retrocession. We use three of these on a

regular basis to offer optimal benefits to our policy holders:

zz Facultive reinsurance is used when the magnitude of the contract is considerably large that it requires its own reinsurance (for example, when formulating a policy for an extremely wealthy life).

zz Treaty reinsurance covers a large pool of similar risks.

zz Proportional reinsurance allows us to divide a proportional share of risk and claims with the reinsurer.

We also purchase Catastrophe reinsurance to limit the accumulated total loss we would incur in case of natural or man-made disasters.

Our relationship with reinsurers

Consumer Primary Insurer Reinsurer

Claims/Payments

Premium/Risk

Claims/Payments

Reinsurance premium/Risk

Gross premium cededCeded gross premium refers to a portion of risk in insurance policies that is transferred from the primary insurer to the reinsurer, in exchange for a predefined premium. The gross premium ceded to reinsurers during 2017 amounted to Rs. 422 Mn.


2016Rs. Mn.

2015Rs. Mn.

2014Rs. Mn.

2013Rs. Mn.

Swiss Re 306 267 216 187 172

Munich Re 116 107 102 93 84

Total 422 374 318 280 256


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375

300

225

150

75

0

2016 201720152014

(Rs. Mn.)Reinsurance premium ceded

Swiss Re

Munich Re

2013

Reinsurance ratio

Description 2017 2016

Premium income excluding CRA and investments (Rs. Mn.) 12,301 11,046

Reinsurance gross premium ceded including catastrophe cover (Rs. Mn.) 422 376

Reinsurance ratio (%) 3.4 3.4

Consulting actuariesWe have enjoyed a long-term relationship with Willis Towers Watson, a leading global advisory, broking and solutions company, obtaining actuarial advisory services covering the long-term insurance business since inception.

Willis Towers Watson employs close to 40,000 people and serves over 140 countries. The Company which has been in business for almost 200 years, designs and delivers solutions that manage risk, optimise benefits, cultivate talent, and expand the power of capital to protect and strengthen institutions and individuals.

Industry associations

Insurance Association of Sri Lanka Ceylinco Life is a member of the Insurance Association of Sri Lanka (IASL) which is the representative body of the insurance industry in Sri Lanka. The IASL Executive Committee functions as the apex forum that takes up for discussion matters of relevance to member companies pertaining to the insurance industry. This forum formulates joint industry initiatives, takes up important issues that come up from the Subcommittees, and coordinates correspondence with the Insurance Regulatory Commission of Sri Lanka (IRCSL).

Seven Subcommittees function under the stewardship of this Executive Committee. We actively participate through nominees in its committees and forums.

Memberships inindustry associations Member of Insurance Association of Sri Lanka (IASL)

Our nominees for IASL Executive Committee and Subcommittees are given below:

zz Executive Committee Thushara Ranasinghe (Alternate: Palitha Jayawardene)

zz Legal Advisory Forum Kushan Weththasinghe (Alternate: Saman Prematathne)

zz Life Insurance Forum Asoka Sirisena (Alternate: Saman Kumara)

zz Finance and Technical Subcommittee

Ranga Abeynayake (Alternate: Hemantha Chandana)

zz Marketing and Sales Forum Samitha Hemachandra (Alternate: Sushan Sirisena)

zz HR Forum Sudharshana Jayathilake (Alternate: H A Suraweera)

zz IT Forum Mrs Upamalika Rathnayake (Alternate: Chandana Herath)

zz Actuarial Subcommittee Sujeewa Kumrapperuma (Alternate: Roshan Menaka)

Sri Lanka Insurance Institute (SLII)

Mr Asoka Sirisena, Deputy General Manager – Technical holds the President post of SLII. The Institute operates as the main body supporting insurance professionals in Sri Lanka by offering management courses for furthering of their careers.


Independent contractualagents We engage the largest team of independent contractual agents in Sri Lanka’s life insurance industry who works exclusively for us. They are the best in the industry and serves as an essential link between the Company and the customer, generating new business by contacting potential customers and selling insurance solutions based on need. They also handle a host of related services such as collecting premiums, policy renewals and claim settlements. Our 3,696 strong sales cadre works across our branch network in the local industry comprising 273 branches island-wide. Close to 96% of our business is generated by our sales agents.

The recruitment process of our agents is handled by the management of the respective branches. They are hired from localities of the branches and are selected based on their qualifications and the needs of the locality in which they will be serving. Close to 1,200 agents are based in the Western Province where we have the largest concentration of branches.

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We are proud to have an equal opportunity policy when it comes to our sales agents. This is proven by the fact that 51% of our independent contractual agents are female.

Independent contractual agents by gender and geographic distribution:

Province Male Female Total

Central 137 142 279

Eastern 139 89 228

North-Central 151 115 266

North-Western 217 243 460

Northern 168 171 339

Sabaragamuwa 110 135 245

Southern 169 203 372

Uva 124 90 214

Western 589 704 1,293

Total 1,804 1,892 3,696

Independent contractual agents by gender and geographical distribution No.

Male A Central Province D North Western Province G Southern Province

Female B Eastern Province E Northern Province H Uva Province

C North Central Province F Sabaragamuwa Province I Western Province

750

600

450

300

150

0

A B C D E F G H I

Central Province Sabaragamuwa Province

Eastern Province Southern Province

North Central Province Uva Province

North Western Province Western Province

Northern Province

35%

8%

7%

12%

9%

7%10%

6%

6%

Independent contractual agents by geographical distribution

Impact to our businessThe largest volume of our business is generated by the contractual agents amounting to a share of 96%. As the market leader in Sri Lanka’s life insurance industry for 14 consecutive years, we serve close to a million customers across the nation. Our contractual agents play a pivotal role in the business operations of our company. Therefore, we have initiated several strategies to communicate, develop, empower, reward and motivate them. This leads to increased level of customer service.

Rewards

Hall of fameThis is a sales competition launched during 2017 to reward high performing sales agents. The top prize is a company- maintained Mercedes Benz car. Apart from rewarding top performers, this competition was launched to motivate and enhance the performance and productivity of all our sales agents.

Annual awardsThis is the most anticipated annual event of our sales force calendar. The event, which was held with the participation of over 1,500 agents this year, recognised and honoured the top achievers who have made a noteworthy contribution to the growth of our Organisation. Winners are selected on categories including best branch head, unit head and consultants and are awarded with plaques, medals, certificates, cash prizes and overseas trips.

We are proud that over one hundred contractual agents qualified to travel to Singapore, Malaysia, China and the United Kingdom on a combined training programme and vacation in 2017. The cost was borne by the Company.


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to undergo a six-day training programme and thereafter sit for a pre-contract examination before being absorbed into the Company. They are also required to obtain the license issued by the IRCSL to sell life insurance, after passing the examination conducted by the Insurance Association of Sri Lanka (IASL).

Various training modules have been introduced to enhance the knowledge of our contractual agents on areas such as life insurance, customer service, selling policies and best management practices. An examination is conducted at the end of each training programme, and the successful participants are rewarded.

It is also mandatory for contractual agents to follow training courses prior to being promoted to the positions of team leader, agency supervisor and agency head.

Local and international trainers and professionals are engaged from within and outside the industry to conduct a broad range of training aspects including, customer service to selling policies and best management practices. These are conducted on a regular basis, at least every quarter. Participants are awarded certificates and this has proved to be a success in exposing our contractual agents to some of the best industry training programmes available locally and globally. In addition, special training programmes were carried out locally in 2017. These include:

Motivational training programA full-day training programme was conducted by Mr Dananjaya Hettiarachchi, the 2014 world champion of public speaking at Toastmasters International. The training was scheduled for selected agency supervisors and all heads of branches.

Mid-year awardsThis is a biannual event held in July each year to honour and reward outstanding performance of sales agents. The winners are awarded plaques, medals and certificates and cash prizes. This year, 238 sales officers were recognised and rewarded for their performance.

Sports meetAnnual sports meets are held regionally and for the Company as a whole to encourage sales agents to be involved in sports as it results in close interaction and enhanced team spirit. It also helps to inculcate the Company culture and values in our sales agents. This year Company’s main sports meet was held in November at the Diyagama Mahinda Rajapaksha Stadium grounds with participation of many sales officers.

Sales Staff Outing The sales staff outing is another annual event organised by the Company for the sales agents and their families. This too is an excellent opportunity for the sales officers and their families to interact and develop friendships.

This year’s outing was to Pegasus Reef Hotel Wattala.

Training and development We continuously train and develop our contractual sales agents to empower them to deliver an outstanding professional service. It is compulsory for every newly recruited independent contractual agent

Underwriting andservicing examinationThis was conducted for all sales agents to enhance their knowledge. Branch heads, agency supervisors, life insurance advisors, financial advisors, financial planners, master financial planners, special sales consultants, business promotion officers, business promotion executives, business promotion managers and senior business promotion managers were nominated to participate. A special refresher training course was conducted prior to the examination, and the examination was held in fourteen centres across the island.

Training by international trainersA special training programme was conducted for all Tamil speaking sales agents in Jaffna, Batticoloa and Colombo. The programme was conducted by Mr Haridas Kandasamy, a renowned trainer from Malaysia.

Ceylinco Life Field OfficersProfessional Development Course (CFPDC)Launched in 2017, the course is designed to help sales officers to enhance their personal performance, income and skills. It also provides an ideal platform to discuss and compare their experiences and insights gained while working in the life insurance sector. This course is an adaptation of the American College module – LUTC, translated into Sinhala and Tamil for local implementation. Ceylinco Life pioneered this twenty five week course in Sri Lanka, and the 2017 inaugural batch produced seventy two qualifiers.

Asia Pacific Life Insurance Congress (APLIC)High achieving members of the sales force were nominated to receive foreign training and exposure at the renowned APLIC.

The 16th APLIC was held in May 2017 in Malaysia, organised by the Asia Pacific

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and National Association of Malaysian Life Insurance Field-force and Advisors (NAMLIFA). APLIC gathers life insurance sales professionals and financial advisors from the Asia Pacific Region. In 2017, we nominated a group of twenty sales consultants to participate in this event, including Manager – Business Development, regional sales managers, Zonal managers heads of branches and trainers. The sessions covered sales, marketing and IT, which are essential areas of expertise to have successful careers in the life insurance industry.

Our training summary

Names of Training programmes

Number of participants

Number of training

programmes

Sales Skills 1,395 31

Agent orientation 996 20

Basic sales skills 721 28

Cross road 340 20

HOB programmes 206 13

Leadership development programme 871 14

Management training courses 231 18

Sales Refresher 3,205 61

Skill sharpening 493 34

Sale skills programmes 359 17

No. of participants

A ADS C BSK E HOB G Management I Skill Sharpening

B Agent Orientation D Cross Road F LDR H Sales Refresher J SKS

A B C D E F G H JI

3,500

2,800

2,100

1,400

700

0

Star Cruise – SingaporeA total of 59 Highflyers’ Club members were selected for a Star Cruise tour in 2017.

China tourTen COT (Court of the Table) members were nominated for the China Tour which included a city tour, theme park tours and a visit to the Great Wall.

The competitive advantage Whilst continuous training and development is given to our contractual agents, their knowledge is tested from time to time through examinations and competitions. This not only creates a


Foreign tours

Star Cruise Malaysia UK

Dubai Singapore China

7%1%1% 10%

62%19%

Foreign tours for nominated agents

Annual award toursThe high performing sales agents are selected to the Highflyers’ Club. There are four main membership titles namely, Associate Member, Member, Court of the Table and Top of the Table. The club membership is awarded at the annual awards ceremony along with a foreign tour package.

Malaysia tourThe Malaysian tour is entitled for Associate Members of the Highflyers’ Club. This year, 18 agents were selected as Associate Members.

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tabs. This year, we further enhanced the usage of tabs by providing our heads of branches with tabs or laptops, whilst 93% of the unit heads are equipped with tabs.

The Company intranet is one of the most efficient tools available to the sales force. Accessible to all, the intranet provides instant recognition and motivation for high performers and winners of the intranet based competitions conducted weekly and monthly.

Challenges facedAgent poaching by our competitors in the industry is still one of the primary challenges we face. Every agent represents an investment of time, resources and finance for the Company. Therefore, poaching of agents adversely impacts not only our organisation but the industry as well. This is because it stunts the growth and development of agents whilst preventing new jobs opportunities being created in the industry.

The decreasing unemployment rate in Sri Lanka while being a positive sign overall creates a highly competitive environment in which recruiting suitable candidates for the industry becomes a challenge.

Also although rapid digitisation is mandatory and is a positive development for the industry, it necessitates considerable investment and the immediate acquisition of digital tools, technology and resources. This in turn creates the need for further training and development for our sales force.

Requirements to comply with financial, underwriting, and governance standards of the reinsurers is also a challenge.

Focus for 2018We will maintain our customer service standards at the highest level and ensure proper systems are in place to provide an excellent service at all times. We will continue to focus on retaining our trained sales force through increased rewards and recognition schemes.

vibrant and rewarding atmosphere but also promotes a spirit of friendly competition among the agents.

Every time a new product is launched, the agents are given a thorough training about the product and its features. Based on the post evaluation test, only the contractual agents who passed the test are permitted to promote the product.

Million Dollar RoundTable (MDRT)The Million Dollar Round Table (MDRT) is the premier association of financial professionals that recognise excellence in the life insurance industry.

In 2017, forty-four of our contractual sales agents qualified for the MDRT, which included three life members and two Court of the Table members. Further, thirty-one non-members were selected for MDRT Experience Conference held at the Bangkok International Trade and Exhibition Centre (BITEC) Thailand in 2018.

This elite group includes ten business development managers, three regional sales managers, seventeen head of branches and one senior training manager.

IT empowermentWe have invested in equipping our contractual sales agents with the latest in tabs, mobile point-of-sale devices and laptops to facilitate their work and enhance convenience for customers. They are given access to all the required information on their device which has resulted in improving service levels.

This is because digitalisation is an integral aspect of our industry. Technology not only keeps our sales agents up-to-date, but enables customers to conveniently access and purchase life insurance products. During the year under review, we continued with our extensive digitisation drive which commenced in 2016 by equipping 173 sales agents with

Future outlookWe will build long-lasting customer relationships and create a strong bond between our sales force and our Organisation. In addition, communication among all stakeholders will be enhanced and we will equip every sales agent with a smart phone to facilitate access to required knowledge and information.

More training and development programmes will be introduced to ensure our sales force has access to the latest information and is kept motivated in terms of their personal development within the Company.

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SOCIAL CAPITAL

We are committed to creating a sustainable business environment even in the most remote areas of our country through meaningful interventions in areas such as healthcare and education for needy people.

Miracle of life insuranceLife insurance business, due to its long-term nature, fuels capital formation and economic development of a country. The premiums collected from policyholders are accumulated in a Life Insurance Fund, which is an investment vehicle that targets both the private and public sectors. Bulk of the investments are made through risk free, long-term financial instruments that provide a long-term yield. These include Government Securities, deposits in State-owned banks and non-speculative real estate and infrastructure development projects.

Our Life Fund which has grown over the years is one of Sri Lanka’s largest funds. It is a pillar of strength and a source of wealth that facilitates smooth and timely payment of customer benefits. Our investment in gilt-edged securities supports long-term capital needs of the Government to fund various infrastructure projects. The Life Fund also makes direct investments in the private sector which infuse capital and long-term financing that fuel entrepreneurship and growth. Through productive investments from the Life Fund we indirectly support employment creation and wealth creation which helps to improve the quality of life across the nation.

Additionally, our support to the long-term capital markets leads to social and environmental benefits such as better infrastructure facilities, new employment opportunities and a cleaner environment

for all. It also generates equitable returns for the Company, which is passed on to the policyholders in the form of claims and benefits with residual profit for shareholders.

Private Sector Life Fund

Premium Benefits

Employment

Government

Employment

Labour force

DEVELOPMENT DEVELOPMENT

InterestProfits

InvestmentInvestment

The success of our business depends on the strength and well-being of the communities in which we operate. Therefore, based on a clear direction and focus, we make community investments to enable our communities to grow.


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Social responsibilityIn our efforts to make a positive difference in the communities in which we operate, we consciously work on a structured

CSR programme that includes business operations, volunteerism and philanthropy. Through the Ceylinco Life Social Responsibility projects we extend our

Our CSR initiatives have benefited communities islandwide

Lunugamwehera

Embilipitiya

Monaragala

Wellawaya

Ampara

Sainthamaruthu

Bandarawela

Sittandy

Batticaloa

Neluwa

Deniyaya

Elpitiya

Ambalangoda

Talawa

Kamburupitiya

Akuressa

Matale

Balangoda

Doloswalakanda

Rikillagaskada

Mahiyanganaya

Madulkele

Kuruvwita

Ratnapura

Ruwanwella

NittambuwaKegalle

Beligala

Avissavella

Yakkala

Gonawala

Ja-ela

Divulapitiya

Ingiriya

Matugama

Aranayaka

Pilimatalawa

Rideegama

Rambukkana

Anamaduwa

Galgamuwa

Chilaw

YakwilaGiriulla

Maho

Boraluwewa

Nikeweratiya

Kaduruwela

Kahatagasdigiliya

Anuradhapura

Kantale

Trincomalee

Erlalai

Vavuniya

Mannar

Killinochchi

Padaviya

Jaffnavelanai

Boragas

commitment to uplifting underprivileged communities across the island, mainly is the areas such as healthcare and education for needy people.

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Health Good health is essential to achieving a high quality of life. Therefore, we build “A relationship for life” with our communities by providing access to quality medical care.

Ceylinco Life ”Waidya Hamuwa” The “Waidya Hamuwa” project initiated in 2006 and has since served 138,000 people across 350 locations. During the year under review, 13 medical camps were conducted benefiting over 3,200 people in 13 locations.

Among areas where medical camps were conducted during 2017 were Akuressa and Neluwa. The programme is conducted by a team of doctors, medical and ophthalmic technicians and nurses who travel across Sri Lanka offering free consultancy and diagnostic checks.

Education Our focus is to provide a quality educational environment for children and youth in rural communities by improving educational infrastructure and facilities.

School development projectsFor over 14 years we have continued to focus on educating children and youth in rural communities to provide them a better future. Majority of children in Sri Lanka are dependent on free education provided by State schools. However, many schools in remote areas desperately need aid to develop basic facilities. We have assisted many such rural schools by reconstructing classrooms and donating furniture and other basic amenities. In the year under review, we supported schools

in Wellawaya, Embilipitiya and Narawila bringing the total number of schools we’ve assisted to 69.

Our contribution to sustainabledevelopment goalsSustainable Development Goals (SGD) which came into effect in January 2016, are a universal call to action to end poverty, protect the planet and ensure that

all people enjoy peace and prosperity. They provide clear guidelines and targets for all countries to adopt. Working in the spirit of partnership and pragmatism they enable to make the right choices now to improve life, in a sustainable way for future generations.

As a responsible and sustainable corporate citizen, we are equipped to meet these goals and make a meaningful contribution towards building a sustainable nation. The following diagrams illustrate the process of embedding SDGs into our integrated thinking process.

Value creation aligned with sustainable

development through increases, decreases and transformation

of the capitals

Understand sustainable development issues

relevant to the organisation’s external

environment

Identify material sustainable development

issues that influence value creation

Step 1

Step 2

Develop strategy to contribute to

the SDGs through the business model

Develop integrated thinking, connectivity

and governance

Prepare the integrated report

Step 3Step 4

Step 5


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Our commitment to Sustainability Development Goals is exemplified in the table shown below:

Sustainable development goal Ceylinco Life’s commitment Ceylinco Life’s contribution

zz Promoting health in communities through “Waidya Hamuwa” project

zz Healthcare services provided through Ceylinco Healthcare Services Limited

zz Health check-ups packages at concessionary rates for employees and customers

zz Group medical insurance cover for staff and their families

zz Fully-equipped company-maintained gymnasium for staff members

Social and Relationship Capital, pages 104 to 130

zz Ensure inclusive and quality education for all through the school development project

zz Ceylinco Pranama and Pranama Weerayo scholarships

zz Products to support education – Sipsetha, Ran Daru, Family Takaful Education Plan and Degree Saver Plan

zz Training and development for sales force and permanent staff


zz Gender equality in our sales force

zz Recruitment of female employees

zz Products targeted at women – Ceylinco Life Saubhagya

Employee Capital, pages 132 to 147


zz Use of sustainable energy in our “Green branches” and implementing measures to promote clean energy

zz Incentive schemes to encourage reduction of electricity consumption at branches

zz Largest solar installation in Colombo city

Natural Capital, pages 148 to 153

zz Promoting an inclusive and sustainable work environment focused on employee development

zz Growth in GWP contributing to economic growth

zz Investments in Government securities and other financial instruments

zz Employee benefits and rewards

zz Commitment to anti-corruption and non-discrimination

zz Healthy work-life balance

Employee Capital, pages 132 to 147


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Sustainable development goal Ceylinco Life’s commitment Ceylinco Life’s contribution

zz Contribute to national development through indirect investment in infrastructure development

zz Providing innovative products to suit customers’ evolving needs

zz Representation in industry committees

zz Leading Sri Lanka’s life insurance industry

zz Largest branch network in the industry

zz Branches in Company-owned buildings


zz Hiring sales staff from all across the country contributes to reducing income inequality

zz Products offered for low income earners (Pradeepa) and for needs of all stages of life

zz The islandwide branch network established providing employment opportunities contributes to reducing income inequality


zz Managing the direct environmental impact of our operations

zz Promoting resource conservation and optimal usage of resources

zz Recycling of paper waste and e-waste

zz Sewerage water recycling plant in Bandarawela and Panadura

Natural Capital, pages 148 to 153

zz Complying with all statutory requirements and regulations

zz Promoting ethical practices in our Organisation

zz Best practices of corporate and enterprise governance to ensure transparency


Challenges faced Delivery of our CSR strategy to ensure that desired social impact is created through the Waidya Hamuwa and School Development projects. Difficulties in sourcing needed resources for successful completion of our CSR projects.

ComplianceThere were no incidents of non-compliance with laws and regulations in the social and economic area. There were no fines or non-monetary sanctions imposed for non-compliance with laws and regulations in the social and economic area.


Focus for 2018We will continue our efforts to improve the impacts on the society created by our Company. We will hold more medical camps in identified locations and develop needy schools through the provision of educational infrastructure and facilities.

Future outlookWe will continue to build sustainable communities by developing health and education. We will also contribute towards Sri Lanka’s economic development by building a sustainable Life Fund.

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STEWARDSHIP FINANCIAL REPORT SUPPLEMENTARY INFORMATIONINVALUABLE...BESTOWING KNOWLEDGE AND EXPERIENCE

The transference of the knowledge and experience of seniors across Ceylinco is of incalculable value.

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EMPLOYEE CAPITAL

Our employees are critical to our service delivery. We nurture an engaged and motivated workforce who makes an outstanding contribution to excellent results and growth of our Company. We attract and retain talented individuals and support them in their development through life-long learning. Their unique skills and shared values are focused on delivering an exceptional service to our many customers. Whilst promoting a well-balanced life, we cultivate a working environment that inspires and motivates people to excel in their roles. It is founded on engaged leadership based on mutual trust, respect, integrity, and commitment to high performance.

Human capital value creation model

PROCESS

Employee relations, performance

management, talent development,

leadership development,

employee engagement

OUTPUT

zz Training hours per employee 18.45

zz Revenue per employee Rs. 17.7 Mn.

zz Performance review and rewards

zz Employee recognition

zz Exceptional customer service

OUTCOME

zz Employee satisfaction

zz Dedicated and motivated workforce

zz Long service period

zz Healthy work-life balance

zz Employee personal development

zz Succession planning

zz Low staff turnover

zz Hazards free working environment

INPUT

zz 890 Employees

zz Equal opportunity

zz Conducive work environment

zz Investment in training and development

zz Health and safety grievance handling

zz Competitive remuneration and benefits

zz High performance and Learning culture

zz Talent acquisition

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STEWARDSHIP FINANCIAL REPORT SUPPLEMENTARY INFORMATION EMPLOYEE CAPITAL

Highlights for 2017

18.45 hours of training per employee

333 employees with over 15 years of service

54 new recruitments

Employee attrition reduced by 10%

Employee retention rate of 91%

160 employee promotions

Employee capital contributing to value creation

The value creation process of our Organisation has been built around our loyal and committed employees. By motivating and encouraging our employees to perform to the best of their ability through a performance oriented culture based on transparent and ethical behaviour, enables our Company to achieve a sustainable and profitable growth.

Increasing our employee capital value

We increase the value of employee capital by fostering a culture of continuous learning and development, high work ethics, open communication, rewards and recognition, and promoting a healthy work-life balance.

Employees at Ceylinco Life

Our HR strategy Our Company’s human resource strategy is aligned to our corporate strategy. Our employee value proposition is executed through well designed, transparent HR policies and procedures. Our strong financial performance is underpinned by recruiting, developing and deploying the best people in the industry. We do this by investing in building robust recruitment, screening, vetting, and training processes to underpin our commitment to delivering

consistent service excellence and high standards of ethical and legal compliance.

Additionally, we engage employees from diverse backgrounds and cultures to even better understand the expectations of customers and offer an efficient service every time.

Therefore, our key HR strategic functions that add value to our employees include, HR planning, talent acquisition, training and development, reward management and talent development.

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Shown below are the key strategic functions of our corporate HR strategy.

CORPORATEHR STRATEGY

High performance

culture

Talent development

and successionplanning

HRplanning

Talentacquisition

PerformanceManagement

Talent acquisitionThe ability to identify, attract and retain the best talent who drive business success is a significant competitive advantage. Therefore, our HR Department has developed an effective process to attract, recruit, train, motivate, and retain the best talent in the industry based on the HR plan of the Company. All recruitments are done based on the talent acquisition policy of the Company. Clear job descriptions are prepared for each position that has to be filled along with minimum competency levels. Through a comprehensive and effective interviewing and screening processes the right candidate is selected and given a thorough induction. An effective talent acquisition process has enabled us to deploy the right person for the right position which has helped us to retain our top talent and successfully

shape the future of our employees by understanding them better.

Our main methods of talent acquisition are internal recruitment, external recruitment, subcontracting and outsourcing. Highest priority is given for internal recruitment.

Our talent acquisition process

Internal recruitment

External recruitment (If there is a competency gap with the

immediate successor.)

Long listing of candidates based on basic criteria

Shortlisting of candidates based on specific criteria

Interview with HOD and Senior Manager – HR

Conduct knowledge test (presentation for certain positions)

Conduct reference check

Interview with executive director

Select the candidate for Appointment

Conduct medical check for the selected candidate

Issue the offer letter to selected candidate

InductionWe have in place a comprehensive induction process for all new recruits. The main four induction programmes are:

zz Induction by the Head of Department (HOD) – introducing the new employee to the rest of the Organisation.

zz Cross functional induction – depending on the position, new employee is

HR planningHR planning is a key HR function that ensures our Organisation is appropriately staffed with the right calibre of people in order to achieve our strategic objectives. In this context, HR planning entails identifying current and future human resource requirements as per our corporate plan. Effective HR planning enables us to remain flexible and successfully adapt to changes in the business environment.

At the beginning of every year, each department develops a set of objectives aligned to the corporate objectives. Based on these objectives, a gap analysis is conducted to identify skill gaps and training needs, which form the input for the overall human resource plan of the Company.

EMPLOYEE CAPITAL

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enabled to get an understanding of the different functions of our Company.

zz E-induction – it is mandatory for every new employee to refer the HR portal on the Company’s intranet and get an in depth understanding of the Organisation. Thereafter, an online test is conducted within 14 days and the score is a prerequisite for the employee’s confirmation.

zz Quarterly induction – this is a one day programme conducted by the HR Department for all new employees within the first quarter of recruitment, to introduce Company’s vision, mission and values, key functional areas etc. This is followed by a visit to our corporate head office.

Performance appraisalWe seek to treat our employees fairly, offer meaningful professional development and deliver rewards commensurate with their performance. Therefore, a bi-annual performance appraisal is implemented for all our staff to appraise, evaluate and reward employee performance. Additionally, our employees are expected to demonstrate the corporate values daily at work.

The performance evaluation process of our Organisation:

zz Each employee conducts a self- evaluation based on the key performance indicators (KPIs) set at the beginning of the year. This is followed by a discussion with the respective Head of the Department (HOD).

zz The HOD conducts a 180 degree one-to one evaluation of the direct reports, biannually.

zz Employee’s final rating is agreed through mutual discussion.

zz Any performance gaps, training and development requirements are discussed and ascertained for each employee through the evaluation.

zz Evaluation ratings of each HOD is reviewed by their immediate supervisor for amendments or comments

Setting Key PerformanceIndicators (KPIs)We use the balanced scorecard to set departmental KPIs at the beginning of every year. Each department is required to set at least one objective and a minimum of three KPIs for each quadrant of the balanced scorecard. The departmental KPIs are linked to the overall corporate objective and the KPIs of each employee are based on the respective departmental KPIs.

Our balanced scorecardThis is a management system we use to translate our Organisation's strategic objectives into a set of departmental performance objectives that, in turn, are measured, monitored and changed if necessary to ensure that our corporate strategic goals are met.

CORPORATEOBJECTIVES

Internal business process

“Efficiency”

Customer/Stakeholder

“Satisfaction”

Financial stewardship

“Financial Performance”

Organisational capacity

“Knowledge and Innovation”

Talent development andsuccession planningWe believe that our ability to develop leaders internally is an important competitive advantage. Therefore, we seek to build a strong bench of inspirational leaders across all leadership levels in our organisation, to ensure continuity and long-term growth for our business. We also continue to create opportunities for faster development, building the correct knowledge, skills, and experience, whilst embedding our values. This is why year 2017 was declared as the year of leadership development at Ceylinco Life.

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Succession planningBuilding a pipeline of talented future leaders remains a key strategic intent for our business. Whilst sourcing new talent externally to bring fresh ideas and expertise, we also strive to promote from within the Organisation. Succession planning is an acute need for our Organistion, given the fact that our workforce over the age of 55 years has increased from 2% to 2.5% . Approximately, 235 employees are in the 46 to 55 age category. This shows that we will face a significant talent vacuum in the next ten years. Hence, taking apt steps now through succession planning is imperative for our Organisation’s continued success in the future.

Our succession planning process includes selecting two successors from each functional area and designing a development plan for each selected employee in consultation with the respective HOD.

High performance culture Our success is underpinned by the way we lead and engage with our people, the way we work, and the way we are organised. The end result of our HR process is a high performance culture, where employees are recognised and promoted based on performance. Our performance incentive schemes are reviewed and refreshed annually so they align with our business priorities with a clear link between performance and rewards.

Our organisation chart

Investment

Business Intelligence

Actuarial

Technical and Claims

Finance ICT

Audit Committee

Remuneration Committee

Related Party Transactions Review Committee

Board Investment Committee

Nomination Committee

Risk Committee

Investment Committee Internal Audit and IS Audit

Administration Marketing

Legal Business Development

Operations

Projects

Chairman

MD/CEO

Board of Directors

Deputy CEO/Director

Human Resources

Training

Group Insurance

Company Secretarial

Director(Deputy CFO)

Director(CFO)

Business Risk Committee

Insurance and Demographic Risk Committee

Operations Risk Committee

Financial Risk Committee

ICT Risk Committee

Regulatory Risk Committee

Director(HR and Training)

Employee engagement We engage with our employees at regular intervals to address a range of concerns. The details of employee engagement is given on pages 74 to 75 of the report.

Our teamAt the end of 2017, we had 890 employees excluding our sales force who are independent contractual agents included under Business Partner Capital on pages 119 to 125.

Our staff numbers had reduced compared to the previous year from 910 in 2016 to 890 in 2017. This is because we made a conscious decision not to replace our manpower as a result of increased automation of our processes and

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centralisation of many branch operational functions. The additional staff requirements at our branches were also reduced significantly by recruiting multi-skilled individuals.

Majority (97%) of our staff members were in the permanent cadre.

Employment type 2017 2016

Permanent staff 865 884

Contract staff 7 11

Special contract 18 15

Total 890 910

(Nos.)Employees by type of employment

2016 A Permanent staff C Special contract

2017 B Contract staff

B CA

1,000

800

600

400

200

0

Employees by type of employment and category

Employment type

Category Contract Permanent Special Contract Total

Executive Directors – 5 – 5

Senior managers 2 35 4 41

Managers – 24 1 25

Assistant managers – 39 3 42

Executives 5 564 8 577

Branch heads – 107 1 108

Career sales – 49 – 49

Staff – 42 1 43

Grand total 7 865 18 890

Employees by categoryand gender 19% of our employees are female. The highest percentage (65%) of employees were executives and 74% of executives were male.

Employees by type of employment and region

Employment Type

Category Contract Permanent Special Contract Grand Total

Central 53 2 55

Eastern 32 32

North 38 38

North Central 37 37

North Western 61 1 62

Sabaragamuwa 37 37

Southern 53 2 55

Uva 29 29

Western 7 525 13 545

Grand Total 7 865 18 890

Employees by category (%)

12.1%4.7%

5.6%0.6%

4.8%

2.8%4.6%

64.8%

Staff Executives Branch heads

Senior managers Directors Assistant managers

Managers Career sales

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Employees by category and gender (%)

Male A Executive Directors C Managers E Branch heads G Executives

Female B Senior managers D Assistant managers F Career sales H Staff

100

80

60

40

20

0

A

5

C

25

D

34

8

F

47

2

B

39

2

E

3

105

G

149

428

H

39

4

(No.)

Age 18-25 26-35 36-45 46-55 55< Total

Category Male Female Male Female Male Female Male Female Male Female

Executive Directors – – – – – – 1 – 4 – 5

Senior managers – – 3 – 10 – 21 1 5 1 41

Managers – – 1 – 9 – 14 – 1 – 25

Assistant Managers – – 11 5 11 1 10 1 2 1 42

Branch heads – – 9 – 61 2 34 1 1 – 108

Career sales – – 2 – 16 1 29 1 – – 49

Executives 36 29 174 69 147 14 67 35 4 2 577

Staff – – 3 1 15 3 20 – 1 – 43

Total 36 29 203 75 269 21 196 39 18 4 890

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Analysis of female employees (%)

Senior managers Branch heads Executives

Assistant managers Career sales Staff

2.0%

1.0%

2.0%

1.0%5.0%

89.0%

Service analysis of employees54% of our employees have served the Company for over 10 years, whilst 77% of our employees have served for over five years.

Employees by employment type and gender

Category Female No.

Male No.

Total Female %

Male%

Total%

Permanent staff 158 707 865 18 82 100

Contract staff 3 4 7 43 57 100

Special contract 7 11 18 39 61 100

Total 168 722 890

EMPLOYEE CAPITAL

Male Female

21-25

> 25

16-20

11-15

6-10

3-5

< 2

406080100 20 0 20 40 60 80 100 (No.)

(Years)Employees by service and gender

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18%

6%

11%

16%24%132

6

6

24

7

6%

38

32

55

37545

62

82%

94%

89%

84%76%413

31

49

3058

31

94%

Northern Province

4%

4%

7%4%

6%

61%4%

3%

6%

North Central Province

WesternProvince

Eastern Province

North WesternProvince

Uva Province

SabaragamuwaProvince

Southern Province

Central Province

14%4

29

86%25

713%

5548

87%

0%0

37

100%37

Employees by regionand genderOf the total, 168 (19%) were female employees and majority of 545 (61%) employees were based in the Western Province.

Province Female No.

Male No.

TotalNo.

Central 7 48 55

Eastern 2 30 32

Northern 7 31 38

North Central – 37 37

North Western 4 58 62

Sabaragamuwa 6 31 37

Southern 6 49 55

Uva 4 25 29

Western 132 413 545

Total 168 722 890

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Age of employees (Years)

Male

Female

> 55

46-55

36-45

26-35

18-25

250300 200 150 100 50 0 50 100 (No.)

Employee recruitment We have a comprehensive recruitment policy to ensure the right candidate is appointed to the right position. We continuously strive to enrich our Company’s talent pool that enables us to successfully meet our corporate objectives and maintain our leadership position.

A total of 54 employees were recruited in 2017 of which 44% were females. The highest number of recruits were from the Western Province to the executive category.

Recruitment by age group, category and gender

Age (Years) 18-25 26-35 36-45 46-55 >55**Special contracts

Category Male Female Male Female Male Female Male Female Male Female Total

Executive Directors – – – – – – – – – – –

Senior managers – – – – – – – – 2 – 2

Managers – – – – – – – – – – –

Assistant managers – – 2 – – – 1 – 1 – 4

Branch heads – – 1 – 3 – 1 – – – 5

Career sales – – – – – – – – – – –

Executives 6 13 10 6 – – – – 3 5 43

Staff – – – – – – – – – – –

Total 6 13 13 6 3 – 2 – 6 5 54

** Employee who have reached 55 and granted post retirement orientations.

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Recruitment by age group and gender

(%)

100

80

60

40

20

0

18-25

32

68

26-35

32

68

36-45

100

46-55

100

> 55

45

55

(No.)

Male

Female

Recruitment by region and gender

Gender Total

Province Female Male 2017 2016

Central 2 2 4 2

Eastern – – – 4

Northern – 3 3 4

North Central – – – 4

North Western 1 1 2 4

Southern 2 2 4 2

Uva – – – 1

Western 19 22 41 47

Total 24 30 54 68

Parental LeaveOnly female employees are entitled to parental (maternity) leave as per the Sri Lankan labour laws. Given below are the numbers of employees who took parental leave in 2017.

No. of employees

Entitled to parental leave 168

Took parental leave 8

Returned to work after parental leave 4

Did not return to work after parental leave 1

Due to return in 2018 3

Employee trainingDuring the year under review, we spent a significant amount on training and development needs of our staff members. Our Company’s training and development is conducted based on the training and development model.

Our training and development model

EVALUATE DesignImplement

Analyse

Develop

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The model comprises five main processes; analyse, design, develop, implement and evaluate. A training need analysis is conducted in all departments through the performance evaluation system to ascertain training needs at the beginning of each year. Based on the training gaps identified, appropriate training programmes are designed, which are either internal or external programmes, special projects or foreign training programmes. Required resources and materials are then allocated to develop the training programmes, Thereafter, time and action plans are formulated including costs structures to implement each training programme. A post evaluation is conduct after the implementation of each training programme to obtain feedback from the employee and ascertain improvement in skills and competencies. In addition, an evaluation is conducted by the trainer six months after the training programme as well. In the event of foreign training programmes, the employee is expected to make a presentation to the Board of Directors after participating in the training programme on how they could execute the learning in improving performance.

Leadership developmentWe declared year 2017 as the year of leadership development with the intention of preparing our employees for future leadership of the Company. This is a part of Company’s succession planning agenda. The selected employees were categorised

into three leadership groups namely, emerging leaders comprising executives, leadership challenge comprising senior executives and assistant managers and leadership development comprising managers and above.

Participants faced a 360o leadership skills assessment conducted by an independent third party. The programme includes a pre and post evaluation mechanisms, continuous follow-up sessions, team building activities and personality assessment tests. A self-development plan was formulated for each participant as well.

Soft skills developmentIn order to develop the soft skills of our employees, we have formed our own Toastmasters Club to harness the power of effective public speaking for their personal and professional advancement. The fourth installation ceremony of Ceylinco Life’s Toastmasters Club was held in 2017.

Functional trainingFunctional trainings enable the operational and other supportive associates to deliver an exceptional service to the stakeholders. Operational, Finance, Customer Service, IT and Technical are the areas touched under this.

Health and safety Ensuring employee well-being, health and safety are key priorities for us. Therefore, we have a Health and Safety Committee, comprising representatives from the management and executive staff to execute first aid, fire fighting and evacuation, and psychological assistance to ensure a hazard free and safe working environment. We also ensure our cafeteria maintains high hygiene standards and our employees can avail themselves to a modern fully-equipped company maintained gymnasium.

Training summary

Key area focused No. of participants

No. of training

hours

Leadership training 85 1,604

Soft skills development

865 6,105

Functional training 1,238 5,998

Health and Safety 11 33

Training hours

2017

Training (hours) 13,739.5

Average hours of training per employee

18 hours and 45

minutes

We declared year 2017 as the year of leadership development with the intention of preparing our employees for future leadership of the Company. This is a part of Company’s succession planning agenda.

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Average training per employee by gender

2017hrs.

Male 17

Female 24

Average training hours per employee by employee category

Category 2017hrs.

Senior managers 18

Managers 19

Assistant managers 36

Executives 18

Staff 6

During the year, 35 employees were trained on effective English communication, 236 employees on personal grooming and social etiquette, 188 employees on Psychological relaxation and another 35 employees on creative thinking. Additionally, 40 employees were trained on conflict management and decision making whilst 130 employees attended a Music Therapy programme. A total of 80 employees were trained on service enhancement through relationships and 90 employees were trained on service excellence under our tag line “Relationship for life.”

Employee satisfaction We continuously strive to maintain a high level of employee satisfaction. Therefore, we periodically assess employee satisfaction levels to ascertain whether we are delivering our commitments to our employees. We obtain employee feedback at regular intervals during performance appraisals, post training evaluations and exit interviews.

EMPLOYEE CAPITAL

Key performance measures

Aspect Measurement 2017 2016 2015

Attrition Turnover as a percentage of average employees (%) 8.64 9.67 6.33

Employee tenure Average service period of an employee (years) 13 12.37 11.44

Knowledge and skills development

Average training hours per employee (hours) 18.45 13.00 –

Internal job hires Internal promotions as a percentage of average employees (%) 18 9.55 16.25

Work-family balance Percentage of vacation days used (annual leave) (%) 54 59.00 68.05

Attrition Attrition is the reduction in the number of employees due to retirement and resignations. Attrition helps to measure the health of a company’s workforce with a moderate attrition rate reflecting a healthy workforce. Our employment separation process fully complies with the applicable labour laws and we track and monitor

the reasons for exit. During the year under review 78 employees exited our Organisation.

Highest attrition in 2017 was in the executive cadre in the Western Province whilst more males left our Organsiation.

Employee turnover by age group, gender and employee category

Age 18-25 26-35 36-45 46-55 >55

Category Male Female Male Female Male Female Male Female Male Female Total

Executive Directors – – – – – – – – – – –

Senior managers – – – – – – – – 3 1 4

Manager – – – 1 – 1 – – – – 2

Assistant managers – – – – 1 – 1 – 1 – 3

Branch head – – – – 5 – 3 – – – 8

Career sales – – – – 3 – 2 – 1 – 6

Executives 6 9 13 5 3 1 2 6 6 4 55

Staff – – – – – – – – – – –

Total 6 9 13 6 12 2 8 6 11 5 78

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Employees turnover by region and category

Province

Category Central Eastern North North Central North Western Sabaragamuwa Southern Uva Western Grand Total

Executive Directors – – – – – – – – – –

Senior managers – – – – – – – – 4 4

Managers – – – – – – – – 2 2

Assistant manager – – – – – – – – 3 3

Branch Heads 1 – – 1 1 1 2 – 2 8

Career sales – – – – – 1 – 1 4 6

Executives 2 1 1 1 2 – 4 1 43 55

Staff – – – – – – – – – –

Total 3 1 1 2 3 2 6 2 58 78

EMPLOYEE CAPITAL

Employee attrition by gender (%)

Male

Female

64.0%

36.0%

During 2017, 50 male employees and 28 female employees exited our Company.

Employee turnover by category

(%)

Directors Assistant managers Executives

Senior managers Branch heads Staff

Managers Career sales

0.0%

70.5%

0.0% 5.1%

3.8%

10.3%

7.7%

2.6%

Employee attrition by category and region (Provinces)

100 20 30 40 50 60 70 80 90 100 (%)

Central

Eastern

Northern

North Central

North Western

Sabaragamuwa

Southern

Uva

Western

Directors Branch heads

Senior managers Career sales

Managers Executives

Assistant managers Staff

Employee tenureWe have maintained a healthy employee tenure ratio over the past three years indicating that our employee retention is extremely healthy. The average tenure of employees has increased to 13 years during the year under review, compared to the previous year. This, a reflection of the effective orientation programmes and the successful career planning and succession planning processes implemented in the Organisation.

Knowledge and skills developmentThe average training hours per employee is a strong reflection of the adequate employee development process we have implemented in our Organisation. On average, an employee undergoes 18.45 hours of training per annum, both foreign (4%) and local (96%). This indicates a healthy level, and is a reflection of our commitment to effectively developing and empowering our people.

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Ceylinco Life Toastmasters Club is one of the salient development modules, which creates leaders and competent communicators.

Internal job hiresWith the exception of positions filled through succession planning all other vacancies are advertised internally by the HR Department through the “Ceylife Ladder” concept. We strive to promote within and develop knowledge and capabilities of our employees so that we retain our competitive advantage in the market place. During the year, 18% of our employees were given career promotions.

Work-family balance We support our employees to balance their personal and professional lives by instituting policies, procedures, actions, and expectations. We also give fair consideration to our employees’ individual needs through various offers and opportunities. We strive to strengthen their identification with the Company and bolster our position as an attractive employer.

Therefore, we encourage employees to utilise their annual leave on a pre-planned basis. The percentage of annual leave that has been utilised by employees has been increasing over the years. We have implemented a five days a week, eight hours a day work plan, encouraging all employees to complete their work by 5.00pm every weekday.

We also organised several events during the year, to promote a healthy work-life balance and encourage employee engagement. These included the annual sports meet, held with the participation of 3000 employees and sales consultants at Mahinda Rajapaksha Stadium – Diyagama and the annual Bhakthi Gee and Christmas carols, which encouraged volunteerism and camaraderie. The family day outing to Pegasus Reef Hotel – Wattala was another event, which promoted bonding

among associates and their families. The maintenance of a holiday bungalow in Nuwara Eliya, allows employees to spend quality time with their family members.

Employee benefits and rewardsOur compensation and benefit policy is geared to attract and retain employees of the highest calibre. We acknowledge and recognise their efforts through a performance-based reward system and a benefit structure which includes bonuses based on performance, medical benefits, wellness programmes, opportunities for career development, and many more. By implementing service-based employee oriented pension schemes and retirement benefit schemes, we encourage our employees for a long tenure of service. All employees are given two comprehensive life insurance policies apart from the staff health insurance cover and the contributory medical fund. The employees have the option of enhancing their life and critical illness covers at a concessionary rate as well.

We extend our employees with due compensation on a par with industry standards maintaining an equitable remuneration structure. There is no systematic difference in remuneration for men and women, provided the position and qualifications are comparable.

We also ensure that all employee EPF, ETF and gratuity payments are executed on time as per the relevant regulations. Accordingly, Ceylinco Life contributes 12% EPF and 3% to ETF and an employee contributes 8% to EPF. The company pays gratuity to those employees who have completed five years of service on their resignation or retirement, as per the legislation.

Our benefits include:

zz Free medical cover for all staff members including contract employees

zz Life insurance cover for employee and family

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zz Salary advances and staff sundry loans

zz Employee distress loans

zz Motor vehicle loans

zz Wedding grant for employees

zz Death donations

zz Reimbursement of fuel expenses

The entire permanent cadre is covered by the collective bargaining agreements signed by the union.

Occupational health and safety We places the highest importance to ensuring a safe working environment for all our employees, taking steps to ensure that health and safety concerns are prioritised and addressed across the Company. Employees are granted a special health check-up package at a concessionary rate, to assess their health and take necessary preventive measures. Appropriate number of staff members have been trained, equipped and empowered as fire fighters to handle any emergency as well.

Grievance handlingWe consider grievances to be opportunities for improvement. We approach this in a productive manner. The grievance handling procedure is absolutely transparent and the speed of the process has been accelerated through right sizing the span of control. Through our open door policy, Heads of Departments are empowered to address any relevant grievance through established procedures. Unsolved issues are elevated for equitable resolution with due process. Ceylinco Life Employees Union often acts as a key mediator in conveying employment related grievances to Management irrespective of the type of issue or category of the employee. Branch employees are encouraged to table

their concerns and grievances at any union forum. There were no cases filed against Ceylinco Life at the Labour Tribunal on any employee-related issues during the year. Nor were there any cases pertaining to incidents of discrimination or human rights violations.

Collective bargaining All employees are covered by the terms and conditions of the collective bargaining agreement of the Ceylinco Insurance Employees Union. All operational changes are executed based on business requirements after discussion and concurrence of key stakeholders.

As per our tagline; building relationships for life, we foster strong relationships with our employees. Freedom of association and expression is encouraged and we maintain a constant dialogue with our employees ensuring they are well informed and engaged. We conduct regular staff meetings, use the intranet and hold informal staff gatherings to promote open communication and active staff engagement.

Diversity and equalityAs an equal opportunity employer, we encourage workplace diversity, bringing about innovative thinking while creating an enabling environment which promotes a productive workforce.

Diversity enhances company performance and power of innovation and spurs creativity, motivation and identification with the Company. Our leadership plays an important role in promoting the appreciation and inclusion in diversity in our Organisation. There were no incidents of discrimination reported during the year under review.

Challenges facedMatching the expertise of the retiring employees, especially of those senior staff members who are nearing retirement is a key challenge. Our trained and skilled people being hired by competitors and other companies not behaving in line with our values is another challenge.

Focus for 2018We will continue to focus on developing leadership talent, promote operational excellence, and improving employee engagement.

Future outlook We will strengthen our position as an attractive employer by creating shared values that promote employee well-being. We will continue to nurture a team that is best in the industry and build strong leaders across all leadership levels in our organisation, to ensure continuity and long-term growth for our organisation.

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NATURAL CAPITAL

Natural capital includes all renewable and non-renewable resources sourced from environment that we utilise internally in the value creation process. We strongly believe that a sound Natural Capital management Strategy is vital for long-term and sustainable value creation. Therefore, we have established policies and procedures that enable sustainable and efficient business operations. Our environmental management system is focused on energy conservation, reduction of carbon footprint, optimum water usage and efficient waste management. Through these initiatives we contribute to achieving the Sustainable Development Goals (SDGs) as an environmentally responsible organisation.

Natural capital value creation model

PROCESS

Rain water harvesting, waste paper recycling,

sewerage water recycling, environmental sustainability

initiatives

OUTPUT

zz 73 MT GHG emissions offset

zz 197,330 KWh of power generated from renewable sources

zz Active adoption of “Go Green” concept

zz Set up two Green branches (Kalutara – conversion and Chilaw – new building)

OUTCOME

zz Efficient electricity consumption

zz Optimal use of water and resources

zz Employee commitment to green initiatives

zz Environmental sustainability

INPUT

zz Waste management

zz Energy conservation

zz Tree planting and “Green” concepts

zz Recycling

zz Energy management

zz Carbon footprint analysis

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Natural capital contributing to value creation

Reducing the environmental impact of our business improves the sustainability and long-term success of our business which helps to deliver increased value to all our stakeholders.

Increasing our natural capital value

We increase the value of natural capital by developing green consciousness in our Organisation, reducing our carbon footprint, implementing energy and water conservation initiatives and adopting responsible methods of waste management.

Highlights for 2017

Set up two green branches (Kaluthara – Conversion and Chilaw – new building)

Reduced electricity consumption by 9.2%

Kalutara branch was converted solar energy

Reduced water consumption by 2.6%

Recycled 11,064 kg of paper

Going green Our deep commitment to preserving the natural environment was reflected when we launched the “Go Green” sustainability initiative in 2016 in the head office and in all our branches. The concept was constructed on three pillars of “Reuse”, “Reduce” and “Encourage”. During the year under review, we continued to make steady progress in the “Go Green” drive across the Organisation with significant investments and resource allocations to make a deep impact in environmental stewardship. We continued to set up new green branches, maintain the 4,000 plus trees planted in 2016, install solar energy in more branch buildings and introduce

water and energy conservation method to all our branches. Under the Green vehicle scheme we have taken a policy decision that all new vehicles purchased by the Company would be hybrid vehicles. Additionally, we started using only recycled material for our corporate rebranding campaigns across the branches.

Green branchesA key aspect of the “Go Green” campaign is our commitment that every new branch constructed on Company-owned land will be a “Green” building.

These buildings are designed to make optimal use of natural light and are entirely solar powered with a high power generating capacity. They are built with minimal use of timber and are equipped with the latest energy-efficient lighting and air conditioning systems with facilities for rainwater harvesting and its own car park as well.

To commemorate our 30 anniversary, a two-storey, 6,000 square feet Green building was constructed in Chilaw in 2017. During the next year, two more green branches to be opened in Kadawatha and Ja-Ela increasing the number of green branches to 13.

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zz Batticaloa

zz Horana

zz Panadura

zz Wennapuwa

zz Colombo 05

zz Kurunegala

zz Ratnapura

zz Bandarawela

zz Trincomalee

zz Chilaw

zz Kalutara

11 GreenBranches

Key Green features of every new building we construct include:

zz Solar energy

All our new buildings are solar powered as part of our commitment to use renewable energy in adherence to the corporate “Go Green” strategy. Our head office, which is one of the largest of its kind in the city, generates 63.18kW of electricity annually through solar energy. Kalutara branch was converted to solar energy during the year under review increasing the total of solar powered branches to 11.

zz Blend with topography and natural surroundings

Green buildings are designed to embrace and blend in with their natural surroundings, and thereby decrease the necessity for landfill and cutting down of trees. Our branches in Bandarawela and Kadawatha are prime examples of our commitment to constructing structures that blend with the natural contours of the respective sites.

zz Space saving designs

All new buildings are designed to optimise space with 85% of the floor area allocated as usable space and approximately 750 square feet allocated for sales. This has a positive effect in optimising consumption of utilities and improving waste management. We also hire smaller buildings when operating branches in leased properties as this helps to optimise utilisation of our resources.

zz Natural light

All new buildings are designed to make optimal use of natural light to minimise energy consumption.

NATURAL CAPITAL

zz Use of energy saving lighting

We only use energy saving LED lights in all our newly constructed buildings, whilst all our existing branches are being installed with energy saving lighting. During the year under review, one floor of our head office building and branches in Kotahena, Wennapuwa and Negombo were installed with LED lights. We also strive to make the branches located in hired buildings energy efficient by converting customer service areas which are high in light usage to LED lighting.

zz Abandoning suspended ceilings

Sourcing of mineral fibers required for the construction of suspended ceilings has detrimental effects on the environment. Therefore, we have stopped installation of suspended ceilings in buildings. This strategy has contributed to optimised space in buildings as more height is available in each floor.

zz Abandoning the use of granite and tiles

In our efforts to preserve natural resources and minimise mining of non-renewable resources, our buildings are made with cement floors and surface areas are installed with stainless steel sheets and melamine boards instead of using granite.

zz Saving trees

To contribute towards reducing deforestation, we have used aluminum instead of timber doors and windows in our green branches at Kadawatha and Horana. We also repair and recycle wooden furniture to use them for a longer period.

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zz Regulation of air conditioning

A larger chunk of energy is consumed for air conditioning. In order to minimise our energy consumption, we have made low usage spaces in our new buildings such as lobbies, corridors and lunch rooms non-air-conditioned. We also maintain the temperature of the centralised and regulated air conditioning at 26 degrees across our branches.

zz Eco-friendly pest control measures

We adopt the “Queen sterilisation treatment” which is an environmentally friendly termite treatment method that doesn’t contaminate the soil nor adversely affect the environment.

Energy savingWe have made firm commitment to contribute towards energy saving by optimising the use of renewable energy in our buildings. Our head office has the largest installation of solar energy system in Colombo which has a system capacity of 63.18Kw, contributing to reduction of 65 tonnes of CO2 emissions annually and saving of 7,580 units of electricity per month. Whilst all our new branch buildings are installed with solar energy, the rest of the branches are being converted to solar energy gradually. All the old air conditioners are being replaced by energy efficient air conditions which consume

NATURAL CAPITAL

less energy. In addition, several other energy saving initiatives such as installing LED lighting, repairing and reusing old furniture, designing branch interiors that optimise natural light have been implemented as well.

Water conservationWater is a natural resource which needs to be managed responsibly. We make best efforts to reduce our water requirement through implementing measures that conserve water and reduce wastage. During the year, we have utilised 720,000 litres of water in our Head Office and branches.

Rainwater water harvesting system was installed in all our green branches. A sewerage water recycling plant is installed in the Panadura branch. Both the Wennappuwa and Panadura branches are installed with urinals which are sensor-controlled. In addition, all three branches in Wennappuwa, Horana and Panadura are installed with flow controlled, flushing systems, valves and taps. These measures have reduced water consumption significantly by reducing water wastage.

All our branches use pipe borne water sourced from the National Water Supply and Drainage Board, except the Bandarawela branch which use ground water. During the year, we continued to monitor branches that have the highest

consumption of water and implemented apt measures to reduce wastage and water consumption.

Our Carbon FootprintIn line with our commitment to environmental stewardship, we measure and disclose our greenhouse gas (GHG) emissions on a voluntary basis. The computation is based on the GHG Protocol Corporate Standard developed by the World Resources Institute and the World Business Council for Sustainability Development.

This assessment includes our Head Office and branch offices. The Scope 1 computation is completed except for fugitive emissions from air conditioning plant and equipment (which are relatively negligible), whilst Scope 2 is completed. Scope 3 disclosure, which is optional, is limited to data availability and materiality.

Thus, for benchmarking purposes, our GHG emissions for 2017 arising from Scopes 1 and 2 is 1,183.19 tonnes carbon dioxide equivalent (tCO

2e).

As will be seen in the analysis given below, purchased grid electricity accounts for a large 55% slice of our total GHG emissions of 1,763.67 tCO

2e. This is a

major reduction of 27.5% compared to last year. Hence, our efforts on energy efficiency and switching to renewable energy sources are positive steps towards reducing our carbon footprint.

2017 2016

Scope Source tCO2e % tCO2e %

Scope 01 (Direct) Stationary Combustion 17.77 1.01 8.69 0.40

Mobile Combustion 643.11 36.46 687.11 31.68

Total Scope 1 660.87 37.47 695.79 32.08

Scope 02 (Indirect) Purchased Electricity (CEB) 522.32 29.62 851.46 39.26

Total scopes 1 and 2 1,183.19 67.09 1,547.25 71.33

Scope 03 (Indirect) Purchased Electricity (CEB) 452.14 25.64 493.45 22.75

Employee Air Travel 128.34 7.28 128.34 5.92

Total Scope 3 580.48 32.91 621.79 28.67

Total Scopes 1, 2 and 3 1,763.67 100.00 2,169.04 100.00

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Waste ManagementWe make a conscious effort to minimise waste across our network. Waste that cannot be avoided is disposed in a responsible manner. Reduction in paper consumption throughout the Organisation continued to be an important initiative. Waste paper was recycled through a recognised recycler.

During the year under review, we recycled 11,064 kg of paper which has saved approximately:

188 fully grown trees

19,417 litres of oil

44,256 kWh of electricity

351,614m3 of water

33 cubic metre of landfill

Reduced 11,064 kg's of Carbon equivalent in GHG emissions

Due to the nature of our business, we do not release any significant effluents or spills neither do we encounter issues pertaining to the transportation of hazardous waste. Also the locations of our business operations do not affect water bodies or related habitats. Our e-waste waste is stored in a suitable site and when the bulk builds up, tenders are called for its safe disposal.

e-waste campaignDuring the year 2016 we prevented 4056 Kg's of e-waste from being dumped into land filling through our e-waste campaign. This translates into preventing of approximately 26,970 lbs of carbon emissions from entering the atmosphere, saving 1,040 trees and recycling 39,047 plastic bottles.

NATURAL CAPITAL

There has been no substantial e-waste collected during the year 2017 and the Company is expecting to re-initiate the campaign in 2018.

Energy consumption

Fuel consumption fromnon-renewable sourcesPetrol and diesel are the non-renewable sources of fuel we use. Total usage for the year 2017 is 283,058 litres, which translates into a saving of 19,365 litres of fuel compared to 2016. We encourage our employees to use hybrid vehicles to reduce fuel consumption form non-renewable sources.

400

320

240

160

80

0

2015 2016 2017

(Litres ’000)Fuel consumption

Electricity usageTotal electricity consumption for rented and Company owned buildings for 2017 is 2,251,964 kWh, which is a 229,407 Kw savings compared to 2016.

3,000

2,400

1,800

1,200

600

0

2015 2016 2017

(MW) Electricity Consumption

80% of total electricity consumption is for cooling of our premises. We widely use solar energy in our buildings. All our new branches are equipped with solar energy and we have the biggest solar electricity system in the city of Colombo to date. During the year under review, we have reduced 405.37 tonnes of CO

2 emissions to

the environment as a result of the energy saving measures implemented. This has enabled us to minimised consumption of power from the National grid and thermal power generators.

We do not operate businesses in the vicinity of protected environmental areas, neither do our operations pose any significant impact on biodiversity in protected areas.

2017 Progress towardsour environmentalsustainability objectives

Objective Status

Reduction of fuel consumption by 10% Reduced by 6%

Save electricity consumption by 10% Reduced by 9.2%

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ComplianceThere were no incidents of non-compliance with environmental laws and regulations. There were no fines or non-monetary sanctions imposed for non-compliance with laws and regulations.

Challenges facedMaintaining good quality construction, timely completions and maintaining construction cost within budget of our branch buildings.

Focus for 2018We will continue to reduce our carbon footprint by promoting green practices and energy efficient improvements throughout our Company. We will open two green branches in Chilaw and Kadawatha and commission the construction of three new Green branches in Jaffna, Ja-ela and Nugegoda.

Future outlook We will continue to minimising our environmental impact by consistently reducing our water and energy use and carbon emissions. We will also use resource saving processes in our operations to make products that create value for our customers and the environment. We will also set up more new green branches island-wide, particularly in Piliyandala and Malabe in the upcoming years.

NATURAL CAPITAL

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JANUARY FEBRUARY MARCH

Foundation stone laying ceremony at Kadawatha

Ceylinco Life celebrated its 29th anniversary by laying the founda-tion stone for a new Green Branch building.

Family Savari 10 Grand Draw

Five policy holder families won the opportunity to holiday in selected countries and a day at Leisure World at the family savari promotion.

Pranama Awards CeremonyAt the 16th Pranama scholarships presentation, Ceylinco Life disbursed scholarships to high achieving students.

Annual Awards

Sales and Non-Sales members were awarded with performance awards under various categories.

Foundation Stone laying at Chilaw Branch

Construction of a new Green Branch building in Chilaw commenced to reduce the Company’s carbon footprint.

JULY AUGUST SEPTEMBER

Waidya Hamuwa

Ceylinco Life provided free medical consultations and medicines at medical camps organised by the Company for the benefit of thousands affected by the floods.

Pranama relaunch

The search for youngsters to be rewarded with scholarships commenced through the 17th round of the “Pranama” Scholarships programme which was presented in early 2018.

Kandy PeraharaA chance to view the Kandy Esala Perahera from one of the best points in the city was accorded to policyholders of Ceylinco Life who belong to the company’s Premium Club and members of their families.

Family Savari Launch 11

20 people from five policyholder families wan a holiday to Rome in 2018 as the grand prize while 10 policyholders with families won a trip to China and another 50 won a trip to Singapore.

EVENTS

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APRIL

Annual Bonus and Cash Bonus

Rs. 3.8 Bn. in annual bonuses reached some 300,000 policyhold-ers of Ceylinco Life in April and May this year. Cash bonuses totaling Rs. 92 Mn. in the form of immediately encashable cheques were sent during the Sinhala and Tamil New Year to more than 15,000 policyholders.

MAY JUNE

Retirement Planning Month

Ceylinco Life’s 10th annual Retirement Planning Month commenced with the company’s entire sales force being tasked with generating wider awareness of the importance of retirement planning.

Family Savari 10 Tours - Leisure World

500 policy holders and their fami-lies were selected for a day of fun at Leisure World under the Ceylinco Life “Family Savari” programme.

Launch of education plan-Degree saver

Family Savari 10 Tours - Dubai

A visit to Dubai was won by a group of Ceylinco Life policyholder families in the second phase of the life insurance leader’s ‘Family Savari’ mega promotion.

Family Savari 10 Tours - Singapore

OCTOBER

Seminar series for students taking Grade 5 Scholarship Examination

Students who sat the Year 5 schol-arship Examination this year re-ceived valuable prepping courtesy of Ceylinco Life which conducted a series of 10 seminars for them.

Launch of protection plus

NOVEMBER DECEMBER

Ceylinco Life Sports Festival

The athletics segment of the festival was worked out at the Mahinda Rajapaksa International Stadium, after the cricket, volleyball and netball tournaments were concluded a few days before.

Family Savari 11 Mid Draw

The draw identified 24 families and 285 families that would visit Singapore and Leisure World respectively.

PREAMBLE MESSAGES AND MANAGEMENT PROFILES BUSINESS MODEL MANAGEMENT DISCUSSION AND ANALYSISBEYOND LINKS IN A CHAIN

Empathy and warmth characterise Ceylinco’s relationship with our support community.



157

STEWARDSHIP

Risk Management 158

Corporate Governance 165

Annual Report of the Board of Directors 186

Board Subcommittees 194

Report of the Remuneration Committee 196

Report of the Nomination Committee 197

Report of the Audit Committee 198

Report of the Related Party Transactions Review Committee 200

Investment Committee Report 201

Board Investment Committee Report 212

Statement of Directors' Responsibility to Financial Reporting 213

Chief Financial Officer’s Statement 214

The Board’s Statement on Internal Control 215

Ethical conduct provides confidence to our stakeholders that they are working with an ethical organisation. Acting with integrity is a key element of our business strategy and a positive differentiator with customers. Our well defined and effective governance structure promotes the success of our Organisation and promotes sustainability.

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RISK MANAGEMENT

Governance of Risk ManagementAt Ceylinco Life, the Board of Directors retains overall accountability for the governance of risk and is committed to effective risk management in pursuit of our strategic objectives. It is the responsibility of the Board, in conjunction with the Board Risk Committee, to review the Company’s portfolio of risks and assess them against the risk appetite.

Risk management is inextricably linked to our strategy and control is exercised by way of a governance framework, which includes principles based on ISO 31000:2009(E) Risk Management – Principles and Guidelines.

The Executive Risk Committee, headed by the Chief Risk Officer, is responsible for developing, facilitating and monitoring the control framework and execution of proper risk management strategies.

The line management and staff are responsible for day-to-day risk management and are represented at the Sub-Committee level. The six Sub-Committees, namely the Operations Risk Committee, Financial Risk Committee, Insurance and Demographic Risk Committee, ICT Risk Committee, Business Risk Committee and Regulatory Risk Committee, ensure timely identification of risks, initiation of controls and reporting to the Chief Risk Officer and higher-level management.

Board Committee Level

(3rd Line Defence)

Executive Committee Level

(2nd Line Defence)

ExecutiveRisk Committee and CRO

Subcommittee Level(1st Line Defence)

OperationsRisks

Investment Risks Liquidity

Risks

RegulatoryRisks

BusinessRisks

Technical Risks (Underwriting/

Claims/ Actuarial )

ICTRisks

Internal Audit and IS Audit

Boardof Directors

Board Risk Committee

OperationsRisk

Committee

FinancialRisk

Committee

RegulatoryRisk

Committee

BusinessRisk

Committee

Insurance and Demographic

RiskCommittee

ICTRisk

Committee

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STEWARDSHIP FINANCIAL REPORT SUPPLEMENTARY INFORMATION RISK MANAGEMENT

The Risk Management Governance Structure of Ceylinco Life incorporates the Three Lines of Defence Model, which identifies, defines and segregates duties and responsibilities in relation to risk management at Ceylinco Life. This model brings all the key functions into the Risk Management Governance Structure and provides simple but comprehensive clarity on roles and responsibilities in managing risks.

Three Lines of Defence Model at Ceylinco Life

First Line of DefenceSubcommittees including departments and island wide branches

zz Compliance with operational policies and procedures

zz Proactive risk identification, assessment, control and monitoring

zz Collaborative communication to promote a strong risk culture and risk awareness

zz Whistle-blowing to alert others about potential risks

Second Line of DefenceExecutive Risk Committee

zz Implementation of the Risk Management Governance Structure

zz Review and reporting of risks of the departments, branches, products, processes, systems to the Board Risk Committee, as required

zz Identification and assessment of risks and monitoring risks against the Board-approved risk appetite

zz Recommending appropriate action to mitigate risks, if any, that have exceeded beyond tolerance levels

Third Line of DefenceBoard of Directors, Board Risk Committee, Internal Audit and IS Audit

zz Monitoring compliance with the Risk Management Governance Structure

zz Assessment of the effectiveness of risk management tools and techniques adopted

zz Obtaining reasonable assurance from Executive Risk Committee that all known and emerging risks have been identified and appropriately managed

zz Independent assurance on the effectiveness of the first and second lines of defence by Internal Audit and Information Systems (IS) Audit

Risk Management ProcessThe risk management process of Ceylinco Life is continuous and sequential, as depicted in the diagram. We strongly believe that an ongoing commitment to risk management is necessary in the modern business context, and also recognise the importance of improving the risk management process, while ensuring smooth flow of the activities within the process.

Risk Identification

Identify all uncertain future events that may impact the achievement of objectives. This forms the basis for further analysis

Risk Response

Identify responses and controls to manage inherent risk to an acceptable residual risk level

Recording Assessment and

Rating

Assess risks in terms of consequence and likelihood, rate them and plot them on risk matrix

Reporting

Report risks at different levels through the defined reporting line

Monitoringand Control

Track the currentstatus of the risk profile, detect changes in the risk context and ensure that the responses and controls are adequate

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17PREAMBLE MESSAGES AND MANAGEMENT PROFILES BUSINESS MODEL MANAGEMENT DISCUSSION AND ANALYSISRISK MANAGEMENT

Mitigating Our Top RisksWe determine our top risks through a review process that analyses the risks facing Ceylinco Life, in relation to our strategy and longer-term aspirations, in the context of the external and internal

environment. Top risks include those risks that have a direct potential impact on achievement of longer-term strategic priorities, reputation and delivery of key business plans. Such top risks also have a material impact on our ability to create value.

Ceylinco Life risk portfolio at a glance

Likelihood Minor MajorInsignificant Moderate Catastrophic

Almost Certain

Possible 2, 9

Likely 1

Unlikely 7 3, 4, 5, 86

Rare

The following table shows the key risks of Ceylinco Life. It provides a snapshot of the potential impact on the Company and what strategic priorities will be affected if the risks materialise. It also shows the controls and actions we have set in place to address these risks and to mitigate the potential impact on the Company.

Risk Potential Impact Strategic Priorities Impacted

Mitigation

Strategic Risks

1. Risk of political and regulatory changes

This includes risks emerging in the political and regulatory landscape that could have an impact on the Company’s activities.

zz Impact on long-term planning and forecasting due to unpredicted changes to laws and regulations

zz Increase in tax expenses

zz Increased costs to ensure compliance


zz PESTEL analysis to identify any emerging risks as well as opportunities arising from the external environment

zz The socioeconomic and political environment is comprehensively evaluated by the Strategic Planning Committee

2. Maintaining a high calibre sales force

This risk includes internal and external factors that affect our ability to maintain a best-of-the-class sales force which is essential to providing an unmatched customer experience.

zz Inability to meet customer service and satisfaction standards

zz Reduced profitability and financial strength

zz Negative impact on reputation of the Company


Investing in People

Strengthening Relationships and Collaborations

zz Update the profiles of sales designations to meet the changing expectations of customers

zz A dedicated team of internal trainers, as well as local and foreign trainers, provide training to sales force based on individual training needs

zz Create a high performance, ethical and inclusive culture for our sales professionals

zz Use of a wide range of KPIs to measure agents’ performance and rewarding based on performance

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Mitigation

3. Compliance risk

The risk of legal or regulatory sanction, financial loss or damage to reputation as a result of failure to comply with applicable laws, regulations, codes of conduct and standards of good practice.

zz Regulatory sanctions and fines

zz Negative impact on corporate image

zz Changes in tax regulations impact bottom line


Championing Environmental Sustainability andCorporate Citizenship

zz Set the tone at the top through appropriate policies and procedures to improve the control environment

zz Compliance Officer supervises the departments on compliance matters and is responsible to the Board on overall compliance of the Company

zz Identify changes in the regulatory landscape through the Regulatory Risk Committee and ensuring preparedness to respond to these changes

zz Internal audits on status of compliance with applicable laws and regulations

zz Regular consultation with in-house legal officers

zz Provide training to relevant staff on compliance requirements and any regulatory changes

4. Generic investment concentration risk

This risk arises due to excessive concentration of the investment portfolio. Unless the investment portfolio is sufficiently diversified, excessive concentration in one or more asset classes, entities (issuers), currencies or markets would create investment concentration risk.

Impact on the revenues and profitability by way of; zz Reduced benefits of diversification

zz Likelihood of higher correlation and volatility in the market value of assets


Reaping the Result of Smart Investing

zz Compliance with the Investment Policy of the Company, which formally specifies investment concentration limits

zz The Company has more stringent internal limits in addition to the limits stipulated by the IRCSL

zz Both internal and regulatory limits are reviewed and updated in line with business and regulatory changes

zz Review of actual concentration against the limits by the Board Investment Committee on a periodic basis

zz Review the list of financial markets, asset classes, issuers and counterparties periodically.

5. Generic interest rate risk

The risk that the market value or future cash flows of a financial instrument will fluctuate due to changes in interest rates. This includes reinvestment risk and inflation risk, which eventually impacts the interest rate. Interest rate changes will affect reported earnings and the underlying value of the current asset and liability position.

Impact on the revenues and profitability by way of;zz increased volatility of investment returns and market value of assets

zz Strain on the capital adequacy if assets and liabilities are not adequately matched



zz Monitor and evaluate the impact of interest rate risk charge to the Capital Adequacy Ratio (CAR)

zz Monitor maturities and interim cash flows falling due and make suitable arrangements for reinvestments or recalling

zz Monitor the exposure and the impact of the proprietary trading portfolio to short-term interest rate movements and trends

zz Oversee the overall strategy to manage the interest rate risk and to revisit, change or fine-tune the strategy as required

zz Continuous monitoring of the asset and liability position, including the duration, convexity and sensitivity of the same to market interest rate changes

zz Aligning the portfolio duration to optimise the fit with the liability structure and the interest rate outlook

zz Periodic monitoring of the Central Bank’s monetary policy, Government fiscal policy and key economic variables

RISK MANAGEMENT

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Mitigation

6. Liquidity risk

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

Impact on the revenues, profitability and reputation of the Company by way of; zz inability to meet liabilities and financial commitments as and when they fall due

zz possible losses due to sale of illiquid assets

zz possible loss of confidence among counterparties, financial market participants and policyholders



zz Ensure interim cash flows and maturity proceeds are notified and collected on time without delay

zz Ensure investments are assessed and made only in sufficiently liquid assets, unless where such increased level of liquidity risk is properly compensated through its expected return

zz Monitor and review the current and future cash flows to assess the exposure to liquidity risk

zz Monitor the current and expected money market liquidity position to ensure that sufficient liquidity or credit lines are available to meet expected funding/lending requirements

zz Verify all the transactions entered/agreed against confirmations to ensure that all the settlements are accounted and funded and to avoid any unexpected cash flows

7. Credit risk

Credit risk is the risk that a borrower or counterparty will fail to meet its obligations towards Ceylinco Life.

Impact on the revenues and profitability of the Company by way of; zz impairment/write-off of assets leads to a reduction in profitability and possible strain on the financial and capital adequacy position

zz May lead to liquidity risk (explained above) due to non-realisation of expected cash inflows



zz Ensure that all maturity and interim cash flows proceeds are collected duly, on time and without any delay

zz Ensure that outright, repurchase and reverse repurchase transactions are entered only with Board Investment Committee approved counterparties

zz Ensure that proper Board Investment Committee approval is obtained for all significant investment transactions

zz Monitor the current exposure to credit risk and compliance with relevant IRCSL limits, determinations and guidelines

zz Review the list of financial markets, asset classes, issuers and counterparties periodically

8. Insurance and demographic risk

These risks include changes in mortality and morbidity, changes in policyholder behaviour, reinsurance basis risk and deviation in experience.

zz Unexpected claim payments which may impact profitability

zz Reduced financial strength


Strengthening Relationships and Collaborations

zz Determination and application of best estimates and assumptions and monitoring deviations

zz Independent sign-off on statutory valuation of life fund by Messrs Towers Watson and defined employee benefit plans by Messrs K A Pandit

zz Use of Algo Financial Modeler for actuarial analysis

zz Review of underwriting limits periodically

zz Continually monitor non-disclosures, anti-selections, fraudulent claims, high lapse ratios, free look cancellation, changes in types of claims etc.

zz Obtain professional advice and service on pricing, reinsurance, etc. (Towers Watson/Munich-re, Milliman actuarial consultants)

RISK MANAGEMENT

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Mitigation

Operational Risks

9. Cyber risk

Any risk of financial loss, disruption or damage to the reputation of the Company from failure of its information technology systems.

zz Operational disruptions

zz Loss of critical and sensitive data and information

zz Unauthorised access to corporate information


Technology Development

zz Adherence to the Board-approved Information Security Policy, which is regularly reviewed for changes in local and global IT and communication technologies

zz Continuous scanning of IT control environment and strengthen security activities and measures as required

zz Advanced firewall filters on data being transmitted

zz Regular virus definitions update

zz Access controls on external devices

zz Regular health checks on the servers

zz Regular training is provided to all staff on cyber security

zz Penetration testing and vulnerability assessment by an external consultant

zz Independent audits on adequacy of the IT security measures adopted by the Company

Key Developments in 2017zz Developed a Key Risk Indicator (KRI) dashboard to monitor movements in key quantifiable risks against the Company’s risk appetite

zz Reviewed the Business Continuity Plan and IT Disaster Recovery Plan of the Company by an external consultant

zz Reviewed adequacy of the backup methods and IT controls in protection of critical data and information of the Company

zz Enhanced escalation process for major decisions to a central risk screening unit

zz Reviewed the IT Policy to mitigate cyber risks

zz Gradually extended the duration of the portfolio to provide an optimum match against the liabilities

zz Selected and commenced the implementation of a state-of-the-art Finance and Investment Management System

zz Updated the investment operations based on the recent stringent guidelines issued by the IRCSL on investment management

zz Redrafted the Investment Policy of the Company to better align with the recent regulatory and industry changes

zz Reaped benefits of our conservative and cautious counterparty selection strategy, thereby assuring the safety of policyholder funds, while averting reputations risks faced by certain financial institutions due to adverse selection of investment/dealing counterparties

Looking AheadThrough the continuous assessment of current and emerging risks, Ceylinco Life is equipped to identify, manage and mitigate risks more effectively. Increased attention will be placed on maintain market leadership, mitigating risks to the value of our investment portfolio and income generated thereon, mitigating risks from changing business dynamics and compliance with changes in laws and regulations. Cyber risk remains a key focus and, given the increase in the number and sophistication of cyber-attacks against business entities, we will continue to invest in our capabilities to mitigate such attacks.

RISK MANAGEMENT

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17PREAMBLE MESSAGES AND MANAGEMENT PROFILES BUSINESS MODEL MANAGEMENT DISCUSSION AND ANALYSISRISK MANAGEMENTA QUALITY RESPONSE

The Ceylinco Customer Experience...high quality, comprehensive solutions that lead to “premier” relationships.

165



CORPORATE GOVERNANCE

We believe that corporate governance stands for a form of responsible company management and control geared to loan-term creation of value. One of our aims in this context is to foster the confidence of our stakeholders such as investors, clients, employees and general public.

Efficient practices on the Board of Directors, good collaboration between staff and the Board, open and transparent corporate communications are also very important to us.

Chairman’s Statement onCorporate GovernanceOur company firmly believes that strong governance is an important foundation for sustainable performance and is fundamental to its success. Accordingly, your Board strives to ensure good governance is embedded throughout the organisation, which goes beyond mere compliance with corporate governance requirements and best practices. Therefore, Ceylinco Life, though not a listed entity, voluntarily adopts best corporate governance practices to ensure transparency, integrity and accountability.

It is these sound governance practices that has enabled our company to successfully withstand and overcome

numerous challenges and risks over the years. Company’s Board of Directors provides governance oversight, executing their collective and individual responsibilities in an ethical and professional manner. The Board is assisted by subcommittees operating under approved charters/terms of reference developed in accordance with applicable regulations.

During the year, our company implemented several initiatives to improve the corporate governance process. These include forming the Board Investment Committee as per the guidelines issued by Insurance Regulatory Commission of Sri Lanka (IRCSL), developing terms of reference for the Board Investment Committee, obtaining Board approval for the Company’s remuneration policy and Investment policy statement and developing the key risk indicator dashboard.

The Corporate Governance Report presented on pages 166 to 185 details the governance framework of our company. This report shows the status of compliance with the Code of Best Practice on Corporate Governance, issued jointly by the Securities and Exchange Commission of Sri Lanka (SEC) and The Institute of Chartered Accountants of Sri Lanka (CA Sri Lanka). As required by the above Code, I hereby confirm that I am not aware of any material violations of the provisions of

Good corporate governance creates lasting value. We therefore apply the highest standards to our operations and activities, complying with all the recommendations and proposals of the relevant rules, regulations and codes.

the Code of Conduct and Ethics, by any Director or any member of the corporate management team of the Company/Group.

J Godwin Perera Chairman


Key Initiatives Taken During the Year 2017zz Forming the Board Investment Committee as per the guidelines issued by IRCSL and Terms of Reference for the Board Investment Committee was developed.

zz The Remuneration Policy was formally approved by the Board or Directors.

zz Key Risk Indicator dashboard was developed.

zz Investment Policy Statement of the Company was approved by the Board.

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17PREAMBLE MESSAGES AND MANAGEMENT PROFILES BUSINESS MODEL MANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCE

Corporate Governance Model of Ceylinco Life Insurance Limited (CLIL) depicts the framework used by the Board of Directors to discharge its leadership with prudent and effective controls, enabling the risk of the Company to be assessed and managed.

MandatoryCompliance

External Auditors

Internal Controls

External Controls

Code of Ethics

Employee Participation (Union)

Companies Act No. 07 of 2007

VoluntaryCompliance

Code of Best Practice issued by

CA Sri Lanka and SEC

IRCSL Rules and Determinations

Inland Revenue Act as amended

Other ApplicableLegislation

Regulation of Insurance Industry

Act No. 43 of 2000 as amended

ASSURANCE MECHANISMS

STRATEGIC BUSINESS PLANNING COMMITTEE

Shareholderat AGM

Chairman and Board of

Directors

Managing Director/CEO

Board AuditCommittee

Senior ManagerInternal Audit

Senior Manager IS Audit

Chief RiskOfficer

Executive RiskCommittee

SustainabilityCommittee

BoardRemuneration

Committee

BoardNominationCommittee

BoardRelated PartyTransactions

ReviewCommittee

Board RiskCommittee

REGULATORYFRAMEWORK

BoardInvestmentCommittee

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STEWARDSHIP FINANCIAL REPORT SUPPLEMENTARY INFORMATION CORPORATE GOVERNANCE

MandatoryCompliance

External Auditors

Internal Controls

External Controls

Code of Ethics

Employee Participation (Union)

Companies Act No. 07 of 2007

VoluntaryCompliance

Code of Best Practice issued by

CA Sri Lanka and SEC

IRCSL Rules and Determinations

Inland Revenue Act as amended

Other ApplicableLegislation

Regulation of Insurance Industry

Act No. 43 of 2000 as amended

ASSURANCE MECHANISMS

STRATEGIC BUSINESS PLANNING COMMITTEE

Shareholderat AGM

Chairman and Board of

Directors

Managing Director/CEO

Board AuditCommittee

Senior ManagerInternal Audit

Senior Manager IS Audit

Chief RiskOfficer

Executive RiskCommittee

SustainabilityCommittee

BoardRemuneration

Committee

BoardNominationCommittee

BoardRelated PartyTransactions

ReviewCommittee

Board RiskCommittee

REGULATORYFRAMEWORK

BoardInvestmentCommittee

Board of Directors

Meetings

Executive Directors

Rajkumar Renganathan

Thushara Ranasinghe

Devaan Cooray

Palitha Jayawardena

Ranga Abeynayake

Board

6 Meetings

Remuneration Committee

1 Meeting

Audit Committee

4 Meetings

RPTR Committee

4 Meetings

Risk Committee

4 Meetings

Board Investment Committee

2 Meetings

Expertise

Finance 5Marketing 2HR 1Military 1Investment 1Medicine 2IT 1Legal 1Actuarial 1

Gender

Female 1Male 14

Age

41–50 Years Male 151–60 Years Male 5 Female 161–70 Years Male 671 and above Male 2

Non-Executive Directors

Godwin Perera

Herschel Gunawardena

Chandrika Sirilal Weerasooriya

Rohan Senanayake

Independent Non-Executive Directors

J A Setukavalar

Mohan De Silva

Gamini De Silva

Jayantha Wickramasinghe

Sugath Caldera

Amali Kaushala Seneviratne

Nomination Committee

1 Meeting

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Code of Best Practice on Corporate Governance issued jointly by The Institute of Chartered Accountants of Sri Lanka (CASL) and Security Exchange Commission (SEC).

The Code of Best Practice on Corporate Governance was introduced in 2003 and revised in 2008, 2013 and recently in 2017.

The Code revised in 2017 is applicable from 1st January 2018 onwards. Therefore, this Annual Report does not include revised sections of the new Code. The main objective of a Code of Corporate Governance is to reduce the agency problem between those charged with governance (Directors) of a business entity and the shareholders, which arises when the Directors do not act in the best interest of the shareholders.

Section How the Code is complied with Status of Compliance

A Directors

A.1 The Board – Every public company should be headed by an effective Board, which should direct, lead and control the Company.

The Company is headed by an effective Board and it directs, leads, and controls the Company to ensure long-term success.

The Board of Directors is the highest and central governance body of Ceylinco Life Insurance Limited (CLIL). The Board of Directors acts as the custodians of the Company’s Vision, Purpose and Values.

The Board and the Committees provide direction to the Senior Management and provide entrepreneurial leadership to pursue best interests of the Company.

A.1.1 The Board should meet regularly at least once in every quarter of a financial year

Name of the Director No. ofmeetings

Attendance

1. Rajkumar Renganathan 6 6/6

2. Thushara Ranasinghe 6 4/6

3. Devaan Cooray 6 5/6

4. Palitha Jayawardena 6 6/6

5. Ranga Abeynayake 6 6/6

6. Godwin Perera 6 6/6

7. Herschel Gunawardena 6 6/6

8. Chandrika Sirilal Weerasooriya 6 4/6

9. Rohan Senanayake 6 6/6

10. J A Setukavalar 6 5/6

11. Mohan de Silva 6 3/6

12. Gamini de Silva 6 5/6

13. Jayantha Wickramasinghe 6 5/6

14. Sugath Caldera 6 6/6

15. Amali Kaushala Seneviratne 6 6/6

Frequency of meetingsThe Board of Directors meets once in every two months to discharge their duties, responsibilities towards the Company. Additionally, subcommittee meetings were held as the requirements. For the year 2017 the Board met six times.

Provision of information to the BoardThe Company Secretary prepares Board agendas in consultation with the Directors and this is shared among the Directors at least one week before meetings. This enables the Directors to prepare well for the meetings and contribute effectively to Board discussions.

The minutes of previous Board meetings, as well as of subcommittee meetings, are sent to all Directors in a timely manner for their comments and record. All subcommittee minutes are tabled at the Board meeting that follows immediately.

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A.1.2 The Board's role and responsibilities; Corporate Governance Model of Ceylinco Life Insurance Limited (CLIL) depicts (Pages 166 to 167) the framework used by the Board to discharge its entrepreneurial leadership with prudent and effective controls enabling the risk of the Company to be assessed and managed.

√

ensuring the formulation and implementation of a sound business strategy;

The Board of Directors provides strategic direction to the Management to develop short, medium and long-term corporate business strategies. The objectives of the Company are disclosed to the Board at the first Board meeting of the year and progress is monitored throughout the year. Accordingly, Director/CFO presented to the Board the objectives for 2017 which were reviewed by the Board throughout the year. Board approval is sought for major decisions and substantial investments. Strategies are implemented by the Senior Management of the Company.

√

ensuring that the CEO and Management team possess the skills, experience and knowledge to implement the strategy;

The Board has taken into consideration, the necessity of the right mix of skills and professional experience to implement the Company's strategy. Management Team also possess the skills, experience, and knowledge (Refer pages 30 to 36 for Corporate Management profiles) to implement the strategies executed through the Strategic Business Planning Committee.

√

ensuring the adoption of an effective CEO and Key Management Personnel succession strategy;

Key Management Personnel succession is considered vital in the Company. To this end, the Company launched a project in 2016 to recognise and develop the second tier of management with a long-term view of enabling them to assume key management positions.

√

ensuring effective systems to secure integrity of information, internal controls, business continuity and risk management;

Effective systems and procedures are in place to ensure the integrity of information, internal controls and information security. Accordingly, Board Subcommittees such as the Audit, Remuneration, Nomination, Related Party Transactions Review Committee (RPTRC), Investment, and Risk Committees have been formed. Such systems are continuously monitored by the Management, Internal and External Auditors, and at times by independent experts.

The Company has a Business Continuity Plan (BCP) which is implemented through the BCP team. During 2017, a BCP review was conducted by the Company.

√

ensuring compliance with laws, regulations and ethical standards;

In compliance with Insurance Regulatory Commission of Sri Lanka (IRCSL) regulations, the Board has appointed a Compliance Officer, who monitors compliance with all applicable laws, rules and regulations. Compliance reports, signed by the Compliance Officer, are submitted quarterly to the Board through the Audit Committee. The Company submitted all statutory returns to the IRCSL, Central Bank of Sri Lanka (CBSL), Registrar of Companies (ROC) and other regulatory bodies and all statutory payments were duly made.

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ensuring all stakeholder interests are considered in corporate decisions;

Strategic Business Planning Committee (SBPC) brings all the stakeholder concerns to the overview of the Executive Directors who thereby inform the Board to consider all the stakeholder interests are addressed to ensure that the interests of all stakeholders are considered and safeguarded in making corporate decisions.

The Company's stakeholder engagement process is described on pages 71 to 75.

√

recognising sustainable business development in Corporate Strategy, decisions and activities;

The Board recognises the necessity of sustainable business development in the corporate strategy, decisions, and activities. Please refer to Management Discussion and Analysis on pages 82 to 153 for more information on the Company’s activities with regard to sustainable business development.

√

ensuring that the Company’s values and standards are set with emphasis on adopting appropriate accounting policies and fostering compliance with financial regulations; and

The Board is committed to adopting most appropriate accounting policies, based on Sri Lanka Accounting Standards (SLFRS/LKAS). They are reviewed periodically in the light of changes in business requirements and best industry practices.Refer to the Independent Auditors’ Report given on page 222.

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fulfilling such other Board functions as are vital, given the scale, nature and complexity of the business concerned.

The Board assumes responsibility for functions that are vital and complex given the nature of the Life Insurance business, for example Actuarial, Underwriting and Investment Functions.

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A.1.3 The Board collectively, and Directors individually, must act in accordance with the laws and a procedure agreed by the Board of Directors should be in place, to obtain independent professional advice, at the Company’s expense.

Members of the Board collectively and the Directors individually, act in accordance with the laws of the country, as applicable and the Board obtains professional advice from most qualified external independent parties at the expense of the Company.

During the year under review, the Company sought advice on various matters regarding actuarial valuation, marketing, legal, tax and accounting aspects etc.

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A.1.4 All Directors should have access to the advice and services of the Company Secretary. Any question of the removal of the Company Secretary should be a matter for the Board as a whole.

Advice and services of the Company SecretaryThe Company Secretary's role is to support the Chairman, the Board and the subcommittees of the Board by ensuring the proper flow of information and that Board policies and procedures are followed. Any Director may call upon her at any time for advice and assistance in respect of their duties and the effective operation of the Board and Board subcommittees. The Company Secretary also plays a critical role in maintaining the relationship between the Company and its stakeholders, including assisting the Board in discharging its obligations to the shareholder. The role of the Company Secretary is in line with Schedule ‘F’ of the Code.

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Removal of the Company SecretaryRemoval of the Company Secretary, if the need arises, will be decided by the Board as a whole.

A.1.5 All Directors should bring independent judgement to bear on issues of strategy, performance, resources and standards of business conduct.

All Directors are expected to make decisions objectively, avoiding conflicts of interest and in the best interests of the Company. The Board has established a Related Party Transactions Review Committee (RPTRC) to review all related party transactions and an Interests Register is maintained to preserve independence of the Directors. Particularly, Non-Executive Directors are encouraged and welcomed to provide their independent analysis and opinion using their professional knowledge and experience. (Refer Composition of skills and expertise on page 172).

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A.1.6 Every Director should dedicate adequate time and effort to matters of the Board and the Company, to ensure that the duties and responsibilities owed to the Company are satisfactorily discharged.

The Board met once in every two months in 2017 to discharge its duties. In addition to attending the Board meetings, Directors contribute by attending the Subcommittee meetings. Details of the members of the said Committees, meetings and attendance in respective committee reports on pages 196 to 212.

A.1.7 Every Director should receive appropriate training when first appointed to the Board of a company, and subsequently as necessary. The Board should regularly review and agree the training and development needs of the Directors.

New Directors are inducted to the Board by providing them with a comprehensive understanding of their duties and responsibilities. Continuous self-development is decided upon by the Directors and executed. The Board is kept constantly updated on key industry and regulatory changes and their effects on Company operations.

√

A.2 Clear division of responsibilities between Chairman and Chief Executive Officer to ensure a balance of power and authority.

The posts of Chairman and MD/CEO were held separately by Mr Godwin Perera and Mr R Renganathan respectively.

This segregation ensures a clear division between the Chairman’s responsibility to manage the Board and the MD/CEO’s responsibility to manage the Company’s business, which thereby ensures a balance of power and authority.

√

A.2.1 A decision to combine the posts of Chairman and CEO in one person should be justified and highlighted in the Annual Report.

The positions of the Chairman and the MD/CEO are separated. Not applicable

A.3 The role of the Chairman to preserve order and facilitate the effective discharge of Board functions.

The Chairman is responsible for ensuring that the Board operates under the highest standards of governance. He is charged with ensuring effective discharge of the Board functions.

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A.3.1 Role of the Chairman. The Non-Executive Chairman is responsible for chairing and managing the operations of the Board. He encourages all Directors to contribute effectively to decision-making. He particularly encourages Independent Non-Executive Directors and Non-Executive Directors to voice their views and concerns openly, which ensure a balance of power between Executive and Non-Executive Directors. He also builds constructive relations between the MD/CEO and Non-Executive Directors to reach consensus in Board decisions. He takes appropriate steps to provide effective communication with stakeholders and to ensure that stakeholders’ views are communicated to the Board as a whole.

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A.4 Financial Acumen

Qualified accountants

Other

40%

60%

Composition of qualified accountants

The Board should ensure the availability within it of those with sufficient financial acumen and knowledge to offer guidance on matters of finance.

The Board comprises four (4) Fellow Chartered Accountants including the Managing Director/CEO and two (2) Chartered Management Accountants, who provide guidance on financial matters. The Board also comprises a qualified Actuary. Please refer to their profiles on pages 22 to 29.

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A.5 Board Balance – The Board to have a balance of Executive and Non-Executive Directors such that no individual or small group of individuals can dominate the Board’s decision-taking.

The Board comprises ten Non-Executive Directors and five Executive Directors. Refer to composition of the Board on page 173.

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A.5.1 The Board should include at least two Non-Executive Directors or such number of Non-Executive Directors equivalent to one-third of total number of Directors, whichever is higher.

Non-ExecutiveDirectors

Executive Directors

Executive and Non-executive director composition

(No.)

10

8

6

4

2

0

Independent Directors

Number of Non-Executive DirectorsThe CLIL’s Board of Directors comprises 15 members of whom 5 are Executive Directors and 10 are Non-Executive Directors.

Role of Non-Executive DirectorsThe 10 Non-Executive Directors are highly experienced professionals in their respective fields and bring a worth mix of experience to the Board. The Non-Executive Directors scrutinise the Management’s performance in achieving agreed corporate goals and objectives. They also constructively challenge the Executive Management in all areas.

√

A.5.2 Two or one-third of Non-Executive Directors appointed to the Board of Directors whichever is higher should be “independent”.

The Board consists of six Independent Directors, who represents more than one-third of the Non-Executive Directors in the Board.

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A.5.3 For a Director to be deemed “independent” such Director should be independent of management and free of any business or other relationship that could materially interfere with or could reasonably be perceived to materially interfere with the exercise of their unfettered and independent judgement.

All Independent Non-Executive Directors are independent of management and free of any business or other interest that could materially interfere with or could reasonably be perceived to materially interfere with the exercise of their unfettered and independent judgement.

√

A.5.4 Each Non-Executive Director should submit a signed and dated declaration annually of his/her independence or non-independence.

Each Non-Executive Director submitted a signed declaration of independence/non-independence, against specified criteria for the year 2017.

√

A.5.5 The Board should make a determination annually as to the independence or non-independence of each Non-Executive Director based on such a declaration made and other information available to the Board. The Board determines that a Director is independent notwithstanding the existence of relationships or circumstances which indicate the contrary, the names of Directors so determined to be “independent” should be set out in the Annual Report.

The Board has determined the independence or non-independence of each Director based on the signed declarations submitted to the Board.

No Director was determined to be independent by the Board, notwithstanding the existence of relationships or circumstances which indicate the contrary.

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Not applicable


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A.5.6 Appointment of an Alternate Director by a Non-Executive Independent Director.

An Alternate Director has been appointed by an Independent Non-Executive Director and the person so appointed satisfies the criteria of independence and the appointment of Alternative Director does not violate the provision on minimum number of Independent Directors.

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A.5.7 In the event of the Chairman and CEO is the same person, the Board should appoint one of the Independent Non-Executive Directors to be the “Senior Independent Director” (SID) and disclose this appointment in the Annual Report. As the positions of Chairman and CEO are separated, the

need to appoint a Senior Independent Director has not arisen. However, if the need arises, the Company will make provisions.

Not applicableA.5.8 The Senior Independent Director should make himself

available for confidential discussions with other Directors who may have concerns which they believe have not been properly considered by the Board as a whole and which pertain to significant issues that are detrimental to the Company.

A.5.9 The Chairman should hold meetings with the Non-Executive Directors only, without the Executive Directors being present, as necessary and at least once each year.

If a need arises, Non-Executive Directors shall meet without the presence of the Executive Directors. Further Chairman consults Non-Executive Directors to obtain their assessment on matters of importance as and when necessary.

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A.5.10 Where Directors have concerns about the matters of the Company which cannot be unanimously resolved, they should ensure their concerns are recorded in the Board Minutes.

During the year 2017 the Board made all decisions unanimously and there were no concerns raised by the Directors which needed to be recorded in the Board minutes. However, if such concerns do arise, the Company’s policy is to record them accordingly.

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A.6 Supply of Information – The Board should be provided with timely information in a form and of quality appropriate to enable it to discharge its duties.

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A.6.1 Management has an obligation to provide the Board with appropriate and timely information. The Chairman should ensure all Directors are properly briefed on issues arising at Board meetings

Board Papers, Minutes, Reports and other documents to be tabled at Board meetings are sent to members of the Board well in advance, giving adequate time for Directors to study the said documents and prepare for a meaningful discussion at respective Board meetings. Also, when the Board finds that the information provided is insufficient or not clear, they can request additional information.

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A.6.2 The Minutes, Agenda and Papers required for a Board meeting should ordinarily be provided to Directors at least seven (7) days before the meeting, to facilitate its effective conduct.

The minutes, agenda and other Board papers are circulated within the Board of Directors one week before the meeting to be held.

Similar processes apply to Board Subcommittee meetings as well. All Board Subcommittee minutes are tabled at the Board meeting that follows immediately.

√

A.7 Appointments to the Board – There should be a formal and transparent procedure for the appointment of new Directors to the Board.

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A.7.1 A Nomination Committee should be established to make recommendations to the Board on all new Board appointments.

The Nomination Committee of CLIL makes recommendations to the Board on all new Board appointments if any arises. Details on the Nomination Committee are given on page 197 For the year 2017 there were no new appointments

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A.7.2 The Nomination Committee should assess Board composition to ascertain whether the combined knowledge and experience of the Board matches the strategic demands facing the Company.

Finance Military IT

Marketing Investment Legal

HR Medicine Actuary

30%

14%

14%

7%7%7%

7%

7%7%

Composition of skills and expertise

The Nomination Committee met once for the year 2017 and assessed the Board composition to ascertain whether the combined knowledge and experience of the Board matches the strategic demands facing the Company, considering changes in the business environment. Details are given in the Nomination Committee Report in page 197.

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A.7.3 Upon the appointment of a new Director to the Board, the Company should disclose such appointment and the relevant information of the Director to shareholders

No new Directors were appointed during the year under review.

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A.8 Re-election – The Board mandate clearly defines the procedure to be adopted in appointing new members to the Board. Nomination Committee shall make recommendations to the Board on all new Board appointments.

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A.8.1 Non-Executive Directors should be appointed for specified terms subject to re-election and their re-appointment should not be automatic.

The Articles of Association of the Company do not allow automatic re-election of Non-Executive Directors. According to the Articles 18B one-third of the Non-Executive Directors should let themselves re–elected by rotation.

The Directors who retire by rotation are those who have been longest in office since their appointment/reappointment.

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A.8.2 All Directors including the Chairman of the Board should be subject to election by shareholders at the first opportunity after their appointment, and to re-election thereafter at intervals of no more than three years.

All Directors including the Chairman of the Board were re-elected by the shareholder at the AGM held on 30 March 2016.

According to the Articles of Association of the Company, all Directors except for the Executive Directors are subject to re-election at intervals of 3 years.

In terms of Section 210 of the Companies Act No. 07 of 2007, Directors reaching the age of 70 years are recommended for re-election by way of an ordinary resolution by the shareholder.

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A.9 Appraisal of Board Performance – Boards should periodically appraise their own performance in order to ensure that Board responsibilities are satisfactorily discharged.

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A.9.1 The Board should annually appraise itself on its performance.

The Board has in place a system of self-assessment and appraisal.

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A.9.2 The Board should also undertake an annual self-evaluation of its own performance and that of its committees.

The Board undertakes annual self-evaluation of its own performance and that of its committees.

√

A.9.3 The Board should state how such performance evaluations have been conducted, in the Annual Report.

The Board evaluates the performance by using the evaluation stated in the Code.

√

A.10 Disclosure of Information in respect of Directors – Shareholders should be kept advised of relevant details in respect of Directors

√

A.10.1 Details with regards to each Director to be disclosed in the Annual Report.

Disclosure Requirement

Name, qualifications and brief profile

The nature of his/her expertise in relevant functional areas

Executive, Non-Executive and/or Independent Director

Number of Board meetings of the Company attended during the year

The total number of Board seats held by each Director indicating listed and unlisted companies and whether in an Executive or Non-Executive capacity

Names of Board Subcommittees in which the Director serves as Chairman or a member

Number of committee meetings attended during the year

Page No.

22-29

22-29

22-29

168

177

194-195

196-212


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Board seats

Name of the Directors Listed Unlisted Executive Non Executive

1. Rajkumar Renganathan 1 9 1 9

2. Thushara Ranasinghe 1 5 4 2

3. Devaan Cooray 1 1 1 1

4. Palitha Jayawardena 1 4 4 1

5. Ranga Abeynayake 2 1 1 2

6. Godwin Perera 1 1

7. Herschel Gunawardena 3 3 3 3

8. Chandrika Sirilal Weerasooriya 1 1

9. Rohan Senanayake 9 9

10. J A Setukavalar 1 6 6 1

11. Mohan De Silva

12. Gamini De Silva 1 1

13. Jayantha Wickramasinghe 1 1

14. Sugath Caldera

15. Amali Kaushala Seneviratne

A.11 Appraisal of CEO – The Board should be required, at least annually, to assess the performance of the CEO. √

A.11.1 The Board in consultation with the CEO should set, short, medium and long-term objectives of the Company, reasonable financial and non-financial targets that should be met by the CEO.

The Board has set out financial and non-financial targets and short medium and long-term objectives that need to be achieved by the CEO.

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A.11.2 The performance of the CEO should be evaluated by the Board at the end of each fiscal year.

This is an ongoing process and performance at the end of the financial year is assessed by comparing performance with budgeted targets.

√

B Directors remuneration

B.1 Remuneration Procedure – Companies should establish a formal and transparent procedure for developing policy on executive remuneration.

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B.1.1 The Board of Directors should set up a remuneration Committee to make recommendations to the Board, within agreed Terms of Reference, on the Company’s framework of remunerating Executive Directors.

The Board of Directors of CLIL has set up a remuneration Committee and the Committee acts according to the Board approved Terms of Reference.

The Remuneration Committee makes recommendations to the Board on the remuneration payable to the Directors. They compile and review the guidelines and recommendations for the remuneration of the Senior Management of the Company.

The Board makes the final determination, having considered the recommendations of this Committee and also its performance.

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B.1.2 Remuneration Committee should consist exclusively of Non-Executive Directors, and should have a Chairman, who should be appointed by the Board.

The Remuneration Committee comprises 3 (three) Non-Executive Directors, out of whom the Chairman of the Committee is an Independent Non-Executive Director appointed by the Board.

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B.1.3 The Chairman and members of the Remuneration Committee should be listed in the Annual Report each year.

Details on the members of the Committee are given on the Remuneration Committee on page 196.

√

B.1.4 The Board as a whole should determine the remuneration of Non-Executive Directors, including members of the Remuneration Committee, within the limits set in the Articles of Association.

The Board decides upon the remuneration of the Non-Executive Directors who do not play a part in the determination of their own remuneration. This is done within the limits of the Articles of Association.

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B.1.5 The Remuneration Committee should consult the Chairman and/or CEO about its proposals relating to the remuneration of other Executive Directors and have access to professional advice.

The Remuneration Committee consults the MD/CEO about its proposals relating to remuneration. The Terms of Reference of the Remuneration Committee set out provisions to obtain professional advice from within and outside the Company.

The Remuneration Committee has the access to professional advice from within and outside the Company to effective discharge of their duties.

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B.2 The Level and Make up of Remuneration – Levels of remuneration of both Executive and Non-Executive Directors should be sufficient to attract and retain the Directors needed to run the Company successfully.

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B.2.1 The Remuneration Committee should provide the packages needed to attract, retain and motivate Executive Directors.

The Remuneration Policy is structured in a manner to attract and retain high calibre professionals as Executive Directors, in line with industry standards. Details of the Directors’ remunerations are given in page 304.

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B.2.2 Comparison of remuneration with other companies. Industry standards and trends are taken in to consideration by the Remuneration Committee when deciding upon levels of remuneration and links are made between remuneration levels and performance.

√

B.2.3 Comparison of remuneration with other companies in the Group.

The Remuneration Committee takes in to consideration the remuneration levels elsewhere in the Group when determining the remuneration levels and increments

B.2.4 The performance-related elements of remuneration of Executive Directors should be designed and tailored to align their interests with those of the Company and main stakeholders.

The performance-related elements of remuneration have been designed in a way that individual performance and increases in company performance are positively linked.

B.2.5 Executive share options should not be offered at a discount.

No executive share options exist in the Company. Not applicable

B.2.6 In designing schemes of performance-related remuneration, Remuneration Committee should follow the provisions set out in Schedule E in the Code.

The Remuneration Policy of the Company has encapsulated the guidelines provided in Schedule E of the Code.

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B.2.7 Remuneration Committees should consider compensation commitments on early termination.

Termination of the Executive Directors is governed by the contract of service/employment of each Director.

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B.2.8 Where the initial contract does not explicitly provide for compensation commitments, Remuneration Committees should, within legal constraints, tailor their approach in early termination cases to the relevant circumstances.

The Remuneration Policy of the Company has been designed to be in line with all applicable legal requirements.

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B.2.9 Levels of remuneration for Non-Executive Directors should reflect the time, commitment and responsibilities of their role, taking into consideration market practices.

Remuneration for Non-Executive Directors should not normally include share options.

The time, commitment and responsibilities that the role entails are taken in to consideration when determining the remuneration of Non-Executive Directors. Remuneration for Non-Executive Directors does not include share options.

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B.3 Disclosure of Remuneration – The Company’s Annual Report should contain a Statement of Remuneration Policy and details of remuneration of the Board as a whole and a specimen of a Remuneration Committee report followed by Schedule D.

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B.3.1 The Annual Report should set out the names of Directors comprising the remuneration committee, contain a statement of remuneration policy and set out the aggregate remuneration paid to Executive and Non-Executive Directors.

Details on the members of the Committee and a statement of the Remuneration Policy are given on page 196.

The aggregate remuneration paid to the Directors is disclosed on page 304.

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C Relations with shareholders

C.1 Constructive use of the AGM and Conduct of General Meetings – Boards should use the AGM to communicate with shareholders and should encourage their participation.

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C.1.1 Companies should count all proxy votes. The Company is a 100% owned subsidiary of Ceylinco Insurance PLC. The Company solicits the Holding Company’s views, promoting a healthy dialogue. The Company held its third AGM on 30 March 2017. The Sole shareholder appointed a proxy who attended the meeting and all the resolutions proposed were carried out unanimously.

C.1.2 Companies should propose separate resolutions for each substantially separate issue and adoption of the Annual Report and Accounts.

Each substantially different issue is proposed as a separate resolution at the AGM. The adoption of the Annual Report of the Board of Directors on the Affairs of the Company and Financial Statements with Independent Auditors’ Report thereon, is also proposed as a separate resolution.

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C.1.3 Availability of Chairmen of Board committees at the AGM.

The Chairmen of the Audit, Remuneration, Nomination, RPTR and Risk Committees were present at the last AGM to answer questions and concerns raised by the shareholder. A representative (usually the engagement partner) of the External Auditors also attends the AGM and takes questions from the shareholder relating to their audit of the Company’s Financial Statements, if required.

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C.1.4 Adequate notice of the AGM. The Company has given more than 15 working days notice as per the Companies Act No. 07 of 2007 and the Articles of Association of the Company.

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C.1.5 Circulation of a summary of the procedures governing voting at General Meetings with the Notice of General Meetings.

The summary of the procedure governing the voting is circulated with the Proxy Form.

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C.2 Communication with Shareholders – The Board should implement effective communication with shareholder. √

C.2.1 A channel to reach all shareholders of the Company in order to disseminate timely information.

The Company maintains a healthy dialogue with its sole shareholder, Ceylinco Insurance PLC at all times. The Company uses the AGM, Annual Report, Quarterly Financial Statements, MEMOs, notices in the newspapers and the Company website to reach the shareholder.

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C.2.2 The Company should disclose the policy and methodology for communication with shareholders.

The Company's policy with regard to the communication with shareholders is as per applicable statutory requirements and adopted best practices. This involves the utilisation of a variety of effective and formal channels to ensure that accurate information is given in a timely manner.

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C.2.3 The Company should disclose how they implement the above policy and methodology.

The implementation of this policy is done through the utilisation of a variety of channels mentioned under C.2.1

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C.2.4 The Company should disclose the contact person for such communication.

The contact person to contact is the Company Secretary and the contact Nos. are disclosed in the Annual Report on Page 7.

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C.2.5 A process to make all Directors aware of major issues and concerns of shareholders, and this process has to be disclosed by the Company.

If there are any major issues and/or concerns raised by shareholder, they are brought to the attention of all Directors by the Company Secretary. No such issues and/or concerns were raised by the shareholder during the year.

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C.2.6 The Company should decide the person to contact in relation to shareholders’ matters.

The shareholder is encouraged to maintain direct communication with the Company. The Company Secretary is the main contact person in relation to such matters whose contact details are provided on page 7.

√

C.2.7 The process for responding to shareholder matters. Appropriate responses and action, if any are decided upon by the Board and then the Company Secretary communicates this to the shareholder in the most appropriate manner depending on the circumstances.

√

C.3 Major and Material Transactions – Directors should disclose to shareholders all proposed material transactions, which if entered into, would materially alter/vary the Company’s net assets base.

√

C.3.1 Directors responsibility to disclose the details of major and material transactions to the shareholders for their approval.

RPTR Committee is appointed to review all related party transactions and if there is any major and material related party transaction the Company discloses such transactions according to the statutory requirements.

√


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D Accountability and audit

D.1 Financial Reporting – Board responsibility for statutory and regulatory reporting. √

D.1.1 Board responsibility for statutory and regulatory reporting.

The Board of Directors of CLIL takes all steps to present a balanced and understandable assessment of the Company's financial position, performance and prospects. The Board assumes the responsibility to present such balanced and understandable assessment and that they extend it to interim and other price-sensitive public reports and reports to regulators as well as to information to be presented by statutory requirements.

Also the Company presents its Financial Statements in line with Sri Lanka Accounting Standards (SLFRS/LKAS) and other applicable laws and regulations. The Board’s responsibility for financial reporting is given on page 213 The Company voluntarily published its Interim Financial Statements on time during the year under review to promote a culture or transparency and the all regulatory reports were filed by their due dates. More details are given in the Statement of Directors Responsibility to financial reporting on page 213.

√

D.1.2 Declarations by Directors in the Annual Report of Board of Directors'.

The following information has been declared in the Annual Report of the Board of Directors from pages 186 to 193.

– Declaration that the Company has not engaged in any activity which contravenes laws and regulations page 192

– Declaration that the Directors have declared all material interests in contracts involving the Company is given on page 190

– Declaration that the Company has made all endeavours to ensure the equitable treatment of the shareholder is given on page 73 and 189

– Declaration that the business is a going concern is given on page 191

– Declaration that the Directors have conducted a review of the internal controls, covering financial, operational and compliance controls’ and risk management is given on page 191

√

D.1.3 Statements by Directors and Independent External Auditors.

Refer the Statement of Internal Control on page 215 and the Independent Auditors’ report on page 222.

√

D.1.4 The Annual Report should contain a “Management Discussion and Analysis”.

Management Discussion and Analysis is given in the pages 82 to 153 which includes the disclosures set in the code as given below.

√

D.1.5 Declaration on the going concern of the Business by the Directors.

The declaration of the Company as a “going concern” is given in the Statement of Directors responsibility on page 191.

√


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D.1.6 Summoning of an Extraordinary General Meeting (EGM) in the event the net asset fall below 50% of the value of the Company's shareholders’ funds.

During the year under review, there has not been a requirement to summon an EGM to notify serious loss of capital yet if such an event arises, an EGM would be called to notify the shareholder of the position and remedial action to be taken.

√

D.1.7 Disclosure of related party transactions in the Annual Report

Related party transactions (RPT) during the year 2017 are given on page 304.

The Related Party Transactions Review Committee (RPTR) reviews and approves all related party transactions of the Company and the details of the duties discharged during the year are given in the Report of the Related Party Transactions Review Committee on page 200.

√

D.2 Internal Control – The Board should have a process of risk management and a sound system of internal control to safeguard shareholders’ investments and the Company’s assets.

√

D.2.1 The Directors should, at least annually, conduct a review of the risks facing the Company and the effectiveness of the system of internal controls.

The ultimate responsibility for the system of internal controls lies with the Board of Directors. Some of these responsibilities have been delegated to the subcommittees to better discharge. These committees review internal control processes of the Company. Particularly Board Risk and Audit Committees take necessary measures and steps to ensure the proper systems are designed to safeguard the Company’s assets, proper and accurate accounting records are maintained, accurate management information is presented etc. The Company conducts regular reviews of risks through the comprehensive risk management process in place.

√

D.2.2 Companies should have an internal audit function. The internal audit function of the Company is monitored by the Internal Audit Department and IS Audit Department of the Company, subject to the direct supervision of the Audit Committee. They monitor the Company’s adherence to the procedures and guidelines, developed based on the policies adopted by the Company as well as laws and regulations.

Prior to each Audit Committee meeting the senior manager Internal Audit and IS Audit meet the Chairman of the Audit Committee without the presence of the Management.

√

D.2.3 Audit Committee to carry out reviews of the process and effectiveness of risk management and internal controls.

The Audit Committee also assesses the efficiency and effectiveness of the risk review process and systems of internal control on a regular basis. Further, the Audit Committee reviews the compliance system of the Company on a quarterly basis. Minutes of both Audit Committee and the Risk Committee meetings are tabled at Board meetings for review.

√

D.2.4 Statement of Internal Control. Refer the Statement of Internal Control on page 215. √


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D.3 Audit Committee – The Board should establish formal and transparent arrangements for considering how they should select and apply accounting policies, financial reporting and internal control principles and maintaining an appropriate relationship with the Company’s Auditors.

The broad purposes of the Audit Committee is to oversee the preparation, presentation and adequacy of the disclosure of information in Financial Statements, in accordance with prevailing Accounting Standards and all other statutory requirements.

The Audit Committee also ensures the Company’s internal control system is up to the industrial/international standards.

The Committee monitors the compliance of statutory requirements by the Management. The Committee also assesses the independence and performance of the Company’s Auditors.

√

D.3.1 Composition of the Audit Committee Full detailed report on the Audit Committee, names of the members of the Committee and the External Auditors are disclosed on pages 198 and 199 under “The Report of the Audit Committee”

Audit Committee comprises three Non-Executive Directors, two of whom are Independent Directors. The Chairman of the Audit Committee is a Non-Executive Director appointed by the Board.

√

D.3.2 The duties of the Audit Committee The Audit Committee monitors and reviews the External Auditors’ independence, objectivity and the effectiveness of the audit process, taking into account the relevant professional and regulatory requirements.

Messrs Ernst & Young, the External Auditors of the Company, has given a declaration of its independence to the Audit Committee, as per the relevant rules.

√

D.3.3 The Audit Committee should have a written Terms of Reference, dealing clearly with its authority and duties.

The Audit Committee Charter adopted by the Board of Directors governs the Committee. More details are given on pages 198 to 199 under “Audit Committee Report”.

√

D.3.4 Disclosures required by the Audit Committee in the Annual Report.

Names of the Directors in the Audit Committee, determination of the independence of the Auditors, basis of such determination and more details on the audit function of the Company are given under the Report of the Audit Committee on pages 198 to 199.

√

D.4 Code of Business Conduct and Ethics – Companies must adopt a Code of Business Conduct and Ethics for Directors, and Key Management Personnel and must promptly disclose any waivers of the Code for Directors or others.

√


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D.4.1 All Companies must disclose whether they have a Code of Business Conduct and Ethics

The Company practices a Code of Best Business Conduct and Ethics requiring all employees to exercise honesty, objectivity and due diligence in performing their duties, maintain confidentiality of commercial and price sensitive information, work within applicable laws and regulation, safeguard the Company’s assets and avoid conduct which will badly reflect on them or the Company’s image. The said Code of Conduct and Ethics, addresses issues relating to conflict of interest situations, bribery and corruption, entertainment and gifts, accurate accounting and record keeping, corporate opportunities, confidentiality, fair dealing, protection and proper use of Company assets, compliance with laws and regulations and encouraging the reporting of any illegal or unethical behaviour.

√

D.4.2 Affirmation by the Chairperson There has been no violation of the Code of Conduct of the Company by any Director or any member of the Corporate Management of the Company during the year. The Chairmanhas affirmed this in his statement on page 165 that there is no violation of the Code of Business Conduct and Ethics.

√

D.5 Corporate Governance Disclosures – Directors should be required to disclose the extent to which the Company adheres to established principles and practices of Good Corporate Governance.

√

D.5.1 Disclosure of compliance with the Corporate Governance Code.

Board of Directors of CLIL have taken steps within their full power to sure that the Company has complied to the corporate governance principles and practices. The Corporate Governance Report is included in the Annual Report. Pages 168 to 185 set out the manner and extent to which the Company has complied with the principles and provisions of the Code of Best Practice on Corporate Governance issued jointly by CA Sri Lanka and SEC.

√

Section 02

Shareholders Compliance

E Institutional investors

E.1 Shareholder Voting – Institutional shareholders have a responsibility to make considered use of their votes and should be encouraged to ensure their voting intentions are translated into practice.

Not applicable

E.1.1 Communication with shareholders Not applicable

E.2 Evaluation of Governance Disclosures The Company’s Corporate Governance Framework and Practices are discussed in detail from pages 168 to 185 giving due attention to the interests of institutional investors.

√


185



Section 02

Shareholders Compliance

F Other investors

F.1 Investing/Divesting Decision – Individual shareholders, investing directly in shares of companies should be encouraged to carry out adequate analysis or seek independent advice in investing or divesting decisions.

Not applicable

F.2 Shareholder Voting – Individual shareholders should be encouraged to participate in General Meetings of companies and exercise their voting rights.

The Company is a 100%-owned subsidiary of Ceylinco Insurance PLC.

Not applicable

G Sustainability reporting

G.1 Principles of Sustainability Reporting The Company, having identified the importance of sustainability reporting, provides a detailed review of its sustainability initiatives during the year under review in the below mentioned sections of the Annual Report.

√

G.1.1 Economic sustainability “Operating Environment” and “Financial Capital” on pages 42 to 56 and 82 to 90.

√

G.1.2 The Environment “Social and Relationship Capital” on pages 104 to 130. √

G.1.3 Labour Practice “Employee Capital” on pages 132 to 147. √

G.1.4 Society “Social and Relationship Capital” on pages 104 to 130. √

G.1.5 Product Responsibility “Customer Capital” on pages 108 to 118. √

G.1.6 Stakeholder identification, engagement and effective communication

“Operating Environment” on pages 42 to 56. √

G.1.7 Sustainable reporting and disclosure should be formalised as part of the Company’s reporting processes and take place on a regular basis.

The report is done according to the GRI guidelines. Refer "Social and Relationship Capital" for more details on pages 104 to 130.

√

Accountability and disclosure The members of the Board of Directors have reviewed in detail the Financial Statements in order to satisfy themselves that they present a true and fair view of the Company’s affairs.

By Order of the Board,

A C H WaidyasekaraCompany SecretaryCeylinco Life Insurance Limited



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ANNUAL REPORT OF THE BOARD OF DIRECTORS

General The Directors of Ceylinco Life Insurance Limited (CLIL) are pleased to submit the 04th Annual Report of Directors for the year ending 31 December 2017 on the affairs of the Company together with the Audited Financial Statements and the Auditors Report on those Financial Statements conforming to all relevant statutory requirements in terms of Section 168 of the Companies Act No. 07 of 2007.

The details set out in the following report are guided by the Companies Act No. 07 of 2007 and by the recommended best practices on Corporate Governance depicted in the Code of Best Practices on Corporate Governance 2013, issued jointly by the Institute of CA Sri Lanka and SEC of Sri Lanka.

Following table depicts the information disclosed in this report as required by Section 168 of the Companies Act No. 07 of 2007.

Reference to the Companies Act No. 07 2007 Sections

Companies Act No. 07 2007 requirement Annual Reportpage reference

Section 168 (1) (a) The nature of the business of the Company together with any changes thereof during the accounting period.

187

Section 168 (1) (b) Signed Financial Statements of the Company for the accounting period completed in accordance with Section 152.

223

Section 168 (1) (c) Independent Auditors’ Report on the Financial Statements of the Company. 222

Section 168 (1) (d) Accounting Policies of the Company and any changes therein. 230-308

Section 168 (1) (e) Particulars of the entries made in the Interest Registers of the Company during the accounting period

190

Section 168 (1) (f) Remuneration and other benefits paid to Directors of the Company during the accounting period.

304

Section 168 (1) (g) Total amount of donations made by the Company and its subsidiaries during the accounting period.

188

Section 168 (1) (h) Information on Directorate of the Company during and at the end of the accounting period. 22-29

Section 168 (1) (i) Separate disclosure on amounts payable to the Auditors as Audit Fees and Fees for other services rendered during the accounting period by the Company.

188

Section 168 (1) ( j) Auditors’ relationship or any interest with the Company. 188

Section 168 (1) (k) Acknowledgement of the contents of this report/Signatures on behalf of the Board of Directors.

193

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STEWARDSHIP FINANCIAL REPORT SUPPLEMENTARY INFORMATION ANNUAL REPORT OF THE BOARD OF DIRECTORS

This report was approved by the Board of Directors on 30 March 2018. The appropriate no. of copies of the Annual report will be submitted to the Central Bank, Insurance Regulatory Commission of Sri Lanka (IRCSL) and to the Sri Lanka Accounting and Auditing Standards Monitoring Board within the statutory deadlines.

Nature of the business of the Company and its subsidiariesCLIL is a Public Company with limited liability incorporated on 22 April 2014 bearing Registration No. PB 5183, licensed as a Company authorised by IRCSL (formerly known as Insurance Board of Sri Lanka) to carry on long-term life insurance business, under the control of Regulation of Insurance Industry (Amendment) Act No. 43 of 2000. The Company was incorporated as a legal requirement that arose out of Section 53 of the said Act, which required segregating long term and general insurance business from the composite insurance companies. The Company is domiciled in Sri Lanka and the registered office is situated at No. 106, Havelock Road, Colombo 05 where the Company’s head office is operated.

The Company’s Vision and Purpose are exhibited on the inner cover page of the Annual Report.

In achieving its Vision and Purpose, all Directors and employees conduct their activities to the highest level of ethical standards, reflecting the commitment to high standards of business conducts and ethics.

The Company’s principal activity is carrying out underwriting all classes of Life Insurance. The Company received the license to carry out its business as a long term insurance provider by the IRCSL on 1 June 2015. The Directors declare that

the Company has not engaged in any activity, which contravene with laws and regulations of the country during the said period. Further, there were no significant changes in the nature of the principal activities of the Company during the financial year under review.

The ultimate holding Company is Ceylinco Insurance PLC. Subsidiaries of the Company are Serene Resorts Limited, Ceylinco Seraka Limited and Ceylinco Healthcare Services Limited. Citizens Development Business Finance PLC is an Associate Company of CLIL.

Ceylinco Healthcare Services CLIL has 99.45% stake and the registered number of the Company is PB 135.

Ceylinco Healthcare Services Limited was established in the year 2000 and it is the only private sector “Radiation Treatment Centre” for treating cancer patients in Sri Lanka.

Serene Resorts Limited CLIL has 98.15% stake and the registered number of the Company is PB 19.

Serene Resorts Limited is aimed at serving the elderly population of the country by establishing a retirement home.

Ceylinco Seraka LimitedCLIL has 98.2425% stake and the registered number of the Company is PB 1786.

Ceylinco Seraka Limited is engaged in offering investment advisory services.

More details are given on page 38 under the topic of “Group Structure”.

Financial Statements of the CompanyThe Financial Statements of the Company, for the year ended 31 December 2017,

are duly certified by the Director/CFO, recommended by the Audit Committee, approved by the Board of Directors and signed by the Director/CFO and the Managing Director, in compliance with the requirements of Sections 151, 152 and 168 (1) (b) of the Companies Act No. 07 of 2007 are given on pages 223 to 308 of this Annual Report.

The Auditors’ Report Further, the Company Auditors performed the audit on the Financial Statements for the year ended 31 December 2017 and the Auditors’ Report issued thereon, is given on page 222 as required by Section 168 (1) (c) of the Companies Act No. 07 of 2007.

Changes to the groupstructure and accountingpolicesThere were no changes to the group structure or to the accounting policies during the Financial year ended31 December 2017.

Entries in the interest registerThe Company maintains an Interest Register in compliance with the Companies Act No. 07 of 2007. All Directors have made declarations as required by Section 192 (1) and (2) of the Companies Act No. 07 of 2007.

Remunerations and other benefits of DirectorsDirectors’ remuneration in respect of the Company for the financial year ended31 December 2017 is given in Note 42 to the Financial Statements as required by Section 168 (1) (f) of the Companies Act No. 07 of 2007.

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Donations and other corporatesocial responsibilityDuring the year, the Company has made donations amounting to Rs. 4.4 Mn. in terms of the Shareholder Resolution passed by the shareholders, in the AGM held on 30 March 2017.

The CSR initiatives of the Company are detailed under the “Social and Relationship Capital” in the section on “Management Discussion and Analysis” in the Annual Report on pages 82 to 153.

Amount payable to the AuditorsThe fees paid to the Auditors are disclosed in the Note 31 in the Financial Statements attached.

Auditors’ relationship or any interestwith the CompanyIndependence confirmation has been provided by Messrs Ernst & Young as required by the Section 163 (3) of the Companies Act No. 07 of 2007, in connection with the audit for the year ended 31 December 2017 confirming that Ernst & Young is not aware of any relationship with or interest in the Company or any subsidiary audited by Ernst & Young that in their judgement, may reasonably be thought to have a bearing on their independence within the meaning of the Code of Professional Conduct and Ethics issued by The CA Sri Lanka, applicable as at the Reporting date.

Review of the businessThe Chairman’s Review on pages 12 to 15, The Managing Director's Review on pages 16 to 21 and the Management Discussion and Analysis on pages 82 to 153, together

with the Audited Financial Statements provide an overall review of business performance and the state of affairs of the Company, together with the important events took place during the year under review as required by Section 168 of the Companies Act. No. 07 of 2007 and the recommended best accounting practices.

Further, the Company has opened branches across all districts of the country. As at end of the year under review there were 273 branches.

Sector wise contribution to the Company’s revenue, results, assets and liabilities is disclosed in Note 5 to the Financial Statements on pages 232 to 235.

Future developments Likely future developments in business are discussed in the Review of Managing Director on pages 16 to 21.

Gross income/gross writtenpremium The Gross Income of the Company for year 2017 was Rs. 15.7 Bn. (Rs. 15 Bn. in 2016). The sources of external operating income, net operating profit and asset allocation of the Company together with their proportions are given in Note 24 (a) to the Financial Statements on page 281.

Dividends and reservesPerformance of the Company and Transfers to reserves.

The profit before tax of the Company amounted to Rs. 9.8 Bn. in 2017 (Rs. 3.7 Bn. in 2016) and this was an increase of 162% (72% in 2016). Further the net profit after tax of the Company amounted to Rs. 9.4 Bn. in 2017 and this was an increase of 207% compared to 2016.

On this basis, the dividend payout ratio amounts to 4.75% of the profit after tax of 2017, compared to 12.18% in year 2016.

Dividends on ordinary sharesThe Directors recommend to pay a final dividend of Rs. 0.36 per share which will be paid partly out of Rs. 9 per share.

The Board of Directors provided the Statement of Solvency to the Auditors and obtained Certificates of Solvency from Auditors in terms of Section 56 (2) of the Companies Act No. 07 of 2007 and they also will fulfil the requirements of the Solvency Test in terms of Section 56(3) of the Companies Act No. 07 of 2007 immediately after the paymentof dividend.

The Board was satisfied that the Company would meet the solvency test after the declaration of the aforesaid dividend and required to obtain a solvency certificate from the Company’s Auditors to that effect. The Board authorised the distribution, in terms of Section 56 of the Companies Act No. 07 of 2007. The said dividend will be paid, subject to the approval by the Shareholder Rs. 5,275 Mn. (net of dividend) was transferred during the year to retained earnings.

ReservesA summary of the Company’s reserves are given below:

Total reserves of the Company stood at Rs. 20.65 Bn. as at 31 December 2017. This includes the Restricted Regulatory Reserve of Rs. 3.46 Bn. recognised in compliance with the IRCSL Direction 16 on Transfer of the One-off Surplus. Information on the movement of reserves is given in the Statement of Changes in Equity on page 226 and the Notes 19 (b) to 19 (d) to the Financial Statements on pages 272 to 273.


189



Property, plant andequipment The net book value of property, plant and equipment of the Company, as at the Reporting date amounted to Rs. 7.4 Bn.Total capital expenditure during the year for acquisition of property, plant and equipment by the Company, amounted to Rs. 903.5 Mn. More information on property, plant and equipment are given in Notes 7, of the Financial Statements on pages 237 to 244.

Specific information on extent, location, valuation of the land and buildings held by the Company are given in Notes 7 (i) to the Financial Statements on pages 242 to 243.

The details of capital expenditure approved and contracted for are given in Notes 7 (b) and 7 (c) to the Financial Statements on pages 240 to 241.

Market value of the propertiesThe Company carried out a revaluation of all its freehold land and buildings as at 31 December 2016. The revaluation of the land and buildings of the Company was carried out by professionally qualified independent valuers and the Board of Directors of the Company is of the opinion that the revalued amounts are not in excess of the current market values of such properties.

Details of the market value (revalued amounts) of freehold properties of the Company are given in Note 7 (i) to the Financial Statements on pages 242 to 243.

The next revaluation exercise on the freehold land and buildings of the Company will be carried out as at 31 December 2019.

Issue of shares

or debenturesDuring the year the Company has not raised any funds either through a public issue, right issue or in a private placement.

Share informationThe stated capital is the total of all amounts received by the Company, in respect of the issue of shares. The stated capital of the Company, as at 31 December 2017, amounts to Rs. 500,000,500.00 (Rupees Five Hundred Million and Five Hundred), which is represented by issued and fully paid 50,000,050 ordinary shares.

The Company has not purchased its own shares during the year under review.

Substantial shareholdingThe Company is a fully owned subsidiary of Ceylinco Insurance PLC. The Company has issued 50,000,050 ordinary shares to the said Sole Shareholder. Information relating to dividends and net asset per share are stated under Investor Capital on pages 106 to 107.

Directors of the Company The Board of Directors of the Company as at 31 December 2017, consisted of 15 Directors with wide knowledge and experience on economic, financial, commercial and healthcare as detailed in the Board of Directors profiles on pages 22 to 29.

Names of the Directors of the Company during and as end of 31 December 2017 as required by the Section 168 (1) (h) of the Companies Act No. 07 of 2007 are given below:


J G P Perera – Chairman/Non-Executive Director

R Renganathan – Executive Director/Managing Director/Chief Executive Officer

E T L Ranasinghe – Executive Director/Deputy Chief Executive Officer

P D M Cooray – Executive Director/Head of HR and Training

Palitha Jayawardena – Executive Director/Chief Financial Officer

Ranga Abeynayake – Executive Director/Deputy Chief Financial Officer

D H J Gunawardena – Non-Executive Director

Gen C S Weerasooriya (Retired) – Non-Executive Director

R S W Senanayake – Non-Executive Director

J A Setukavalar – Non-Executive Independent Director

Prof Mohan de Silva – Non-Executive Independent Director

Dr B G S De Silva – Non-Executive Independent Director

Jayantha Wickramasinghe – Non-Executive Independent Director

Sugath Caldera – Non-Executive Independent Director

Ms A K Seneviratne – Non-Executive Independent Director

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Directors of the subsidiary companies

Ceylinco Healthcare Services Limited Ceylinco Seraka Limited Serene Resorts Limited

R Renganathan – Chairman R Renganathan – Director R Renganathan – Chairman/Director

E T L Ranasinghe – Director E T L Ranasinghe – Director E T L Ranasinghe – Director

Palitha Jayawardena – Director Palitha Jayawardena – Director P D M Cooray – Director

Dr S Larry Lessin – Director Palitha Jayawardena – Director

Dr W M James – Director Ranga Abeynayake – Director

E R S G S Hemachandra – Director R M U K Ratnayake – Director

Prof M M R W Jayasekara – Director A H R Udayasiri – Director

Disclosure of Directors’ dealings in sharesAs the Company is not listed in the CSE, there were no shares nor debentures of the Company held by the Directors.

Directors’ disclosure of interest

Directors’ interests in contracts or proposed contracts (as requested by S 192 of the Companies Act No. 07 of 2007)The Directors of the Company have no direct or indirect interest in any contract or proposed contract with the Company, except for those specified which have been disclosed and declared at meetings of Directors.

The Company carried out transactions in the ordinary course of business on an arm’s length basis with entities where a Director of the Company is the Chairman or a Director of such entities, as details below:

Name of the Company/Trust J P G

Per

era

R R

enga

nat

han

E L

T R

anas

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e

P D

M C

oora

y

P A

Jaya

war

den

a

S R

Abe

ynay

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D H

J G

unaw

arde

na

R S

W S

enan

ayak

e

Gen

. C S

W

eera

soor

iya

1. Ceylinco Healthcare Services Limited

2. Ceylinco Insurance PLC

3. Ceylinco Seraka Limited

4. Citizen Development Business Finance PLC

5. Seraka Investment Limited

6. Serene Resorts Limited

7. SMB Real Estate Limited

8. SMB Securities (Pvt) Limited

9. Castle Realty Private Limited

10. Ciesot Private Limited

In addition, Related Party Disclosures as per Sri Lanka Accounting Standards are detailed in Note 42 to the Financial Statement on pages 303 to 307 of this Annual Report.


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Directors’ and officers’ insuranceThe Company has, during the financial year paid an insurance premium in respect of insurance policy for the benefit of the Company and the Directors are given in Note to the Financial Statement on Page 305.

Retirement and Re-election(i) In accordance with the Section 210

of Companies Act No. 07 of 2007, J Godwin Perera will retire and be eligible himself to be re-elected as a Director of the Company. J Godwin Perera will be 81 years of age in December 2018 and the shareholders approval shall be sought by way of an ordinary resolution that J Godwin Perera to be re-elected as a Companies Act No. 07 of 2007, shall not apply to J Godwin Perera.

In accordance with the Section 210 of Companies Act No. 07 of 2007, Gen C S Weerasooriya will retire and be eligible himself to be re-elected as a Director of the Company. Gen C S Weerasooriya will be 74 years of age in December 2018 and the shareholders approval shall be sought by way of an ordinary resolution that No. 07 of 2007, shall not apply to Gen C S Weerasooriya.

Both appointments were considered at the Nomination Committee of the Company and recommended to the Board of Directors to notify to the Shareholder.

(ii) In terms of Articles 18 (B) of the Articles of Association, one third out of the Non-Executive Directors are required to retire by rotation at each AGM. Article 18 provides that the Directors to retire by rotation at an AGM shall be those who (being subject to retirement by rotation) have been longest in office, since their last election or appointment.

The Board recommended the re-election of the following Directors after considering the recommendations of the Nomination Committee:

zz Prof Mohan De Silva

zz Dr Gamini De Silva

zz Jayantha Wickramasinghe

Environmental protectionThe Company has not engaged in any activity that was detrimental to the environment and has been in due compliance with all applicable laws and regulations of the country to the best of its ability. The Company has chosen“Go Green” as the theme for the year under review. The Company’s effort in this regard is described in the Natural Capital on pages 148 to 153.

Statutory paymentsThe Board of Directors confirm that to the best of their knowledge and belief, all taxes, duties and levies payable by the Company and in respect of the employees of the Company and all other known statutory dues, as were due and payable by the Company, as at the Reporting date have been paid or, where relevant provided for.

Events after reporting date No material events have taken place after the Reporting date, which require an adjustment to or a disclosure in the Financial Statements and disclosed in Note no. 43 to the Financial Statement on page 307.

Going concernThe Board of Directors is satisfied that the Company has adequate resources to continue in operational existence for the foreseeable future, to justify adopting the going concern basis in preparing these Financial Statements.

Exposure to risk internal controlThe Directors acknowledge their responsibility for the Company’s system of internal control. The systems are designed to provide reasonable assurance that the assets of the Company are safeguarded and to ensure that proper accounting records are maintained. The Board of Directors, having reviewed the system of internal control, is satisfied with the systems and measures in effect at the date of signing this Annual Report.

Risk management The Company has a separate Board Risk Committee, to look after the policy development for risk management of the Company. Risk Management of the Company is given in pages 158 to 163 under the topic of ‘Risk Management’.

Appointment of AuditorsThe Financial Statements for the year have been audited by Messrs Ernst & Young (Chartered Accountants) and in accordance with the Companies Act No. 07 of 2007 a resolution will be proposed to the shareholder for the approval pertaining to their reappointment and authorising the Directors to determine their remuneration.The retiring Auditors, Messrs Ernst & Young (Chartered Accountants) have signified their willingness to continue to function as the Auditor to the Company. Auditors’ remuneration The fees paid to the Auditors are disclosed in the Note 31 to the Financial Statements on page 286. The Auditors of the Company, Messrs Ernst & Young have confirmed that they do not have any relationship with the Company other than that as the Auditors which would have an impact on their independence.


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Ratios and market price information

2017 2016 %

Dividend per share 9.0 7.5 20.0

Dividend Payout 7.5 12.2 (38.5)

Net assets value

per share 412.9 238.2 73.3

Directors’ meetingsThe details of the Board and BoardSubcommittees meetings and the attendance of Directors at thesemeetings, are given on page 168 and in the respective Committee reports.

Board subcommitteesThe Board of Directors of the Company has formed three main Board Committees namely Nomination Committee, Remuneration Committee and Audit Committee as suggested by the Code of Best Practices on Corporate Governance issued jointly by CA Sri Lanka and SEC of Sri Lanka. Also the Board formed the Related Party Transaction Review Committee to assist the Board in reviewing all related party transactions carried out by the Company by adopting the Code of Best Practice on Related Party Transactions as issued by the Securities and Exchange Commission of Sri Lanka.

The Board has formed two more voluntary Board Subcommittees to assist the Board of Directors. They are Board Risk Committee and Board Investment Committee. These committees play a critical role in order to ensure that the activities of the Company are conducted with the highest ethical standards and in the best interest of all its stakeholders. The terms of reference of these subcommittees conform to the recommendations made by various

regulatory bodies such as IRCSL, CBSL, The institute of Chartered Accountants of Sri Lanka and the SEC.

The Composition of Board Subcommittees as at 31 December 2017 and the details of the attendance by Directors at meetings are tabulated on respective Committee reports on pages 196 to 212.

Directors’ responsibility for

financial reporting The Directors assume the responsibility for preparing Financial Statements, which reflect a true and fair view of the state of affairs of the Company. The Directors are of the view that the Income Statement, Statement of Comprehensive Income, Statement of Financial Position, Statement of Changes in Equity, Statement of Cash Flows, Significant Accounting Policies and Notes thereto appearing on pages 223 to 308 have been prepared in accordance with Sri Lanka Accounting Standards (SLFRS/LKAS). The said Accounting Policies adopted in the Financial Statements, are given on pages 223 to 308 as required by the Section 168 (1) (d) of the Companies Act No. 07 of 2007. The Board of Directors wish to confirm that there were no material changes in the Accounting Policies adopted by the Company, during the year under review.

The Statement of Directors' Responsibility to Financial Reporting appearing on page 213 forms as integral part of this Report.

Tax expensesTax expense has been computed at the rates given in Note 33 to the Financial Statements, appearing on pages 287 to 289 of this Report.

InvestmentsTotal investments of the Company and other equity investments amounted to Rs. 92.26 Bn.

Corporate GovernanceDirectors’ declarations

(i) The Company complied with all applicable laws and regulations in conducting its business and has not engaged in any activity contravening the relevant laws and regulations. Compliance officer, who has the ultimate responsibility for ensuring compliance with the provisions in various laws and regulations, confirm compliance in each quarter to the Audit Committee of the Company, through the Internal Auditor.

(ii) The Directors have declared all material interests in contracts involving the Company and refrained from voting on matters in which they were materially interested.

(iii) The business is a going concern with supporting assumptions as necessary, and that the Board of Directors has reviewed the Company’s business plans and is satisfied that the Company has adequate resources to continue its operations in the foreseeable future. Accordingly the Financial Statements to the Company, its Subsidiaries and Associates are prepared on the Going Concern assumption.

(iv) They have conducted a review of internal controls covering financial, operational and compliance controls, risk management and have obtained a reasonable assurance of their effectiveness and proper adherence.

The Board of Directors have shown their commitment to maintain an effective Corporate Governance structure andalways be in compliance with all relevant rules, regulations and best practices on Corporate Governance, extending beyond regulatory requirements. More details are given in the Corporate Governance report on pages 165 to 185.


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SustainabilityThe Company has considered the sustainability aspects when formulating its business strategies and the more details are given on pages 57 to 61.

Human resourcesThe Company continued to develop appropriate human resources management policies and focus their contribution towards the achievement of corporate goals. The Company’s HR Policy and more other details are given in Employee Capital section on pages 132 to 147.

Register of Directors

and SecretariesAs required under Section 223 (1) of the Companies Act No. 07 of 2007, the Company maintains a Register of Directors and Secretaries, which contain information of each Director and the Company Secretary.

TechnologyAll of our processes involve information technology and the Company use technology to deliver superior products and services to our customers. Key achievements for the year are detailed on page 95.

Operational excellenceTo increase efficiency and reduce operating cost the Company has ongoing initiatives to drive policy and process standardisation and to optimise the use of existing technology platforms.

Annual General MeetingThe fourth Annual General Meeting of CLIL, will be held by way of a resolution in accordance with S (144) (3) of the Companies Act No. 07 of 2007 on 30 March 2018 and the approval of the sole shareholder, Ceylinco Insurance PLC will be sought for all important matters on separate resolutions.

Acknowledgement of

the contents of the reportAs required by the Section 168 (1) (k) of the Companies Act No. 07 of 2007, the Board of Directors does acknowledge the contents of the Annual Report and is signed for and on behalf of the Board of Directors.

Signed in accordance with the resolution adopted by the Directors.

P A JayawardenaDirector/CFO

R RenganathanManaging Director/CEO

30 March 2018


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BOARD SUBCOMMITTEES

Board subcommittees

Meeting frequency

Members Secretary Invitees Notice of the meeting

Professional advise

Terms of reference/ charters

Objectives

1. Remuneration Committee

Once in six months

Prof Mohan De Silva (Chairman)

Independent Non-Executive Director

Company Secretary

Managing Director/CEO, Director/ CFO and Director/Deputy CFO

Week before Available Available – Term and Reference of Remuneration Committee

The objective of the Committee is to set the principles, parameters and governance framework of the Company’s remuneration policy and to recommend the terms and conditions of employment of the Chairman of the Board, Executive Directors, members of the Executive and the Company Secretary.

Herschel Gunerwardena

Non-Executive Director

Rohan Senanayake Non-Executive Director

2. Audit Committee Quarterly J A Setukavalar (Chairman)


Company Secretary

Director/CFO, Director/Deputy CFO, Senior Manager – Internal Audit. Senior Manager – IS Audit, Senior manager – Finance and External Audit Partners (If necessary)

Week before Available Available – Audit Charter Committee

The objectives of the Committee are to assist the Board of Directors to carry out its responsibilities relating to the following areas:

1. Preparation, presentation and adequacy of disclosure in the Financial Statements, in accordance with Sri Lanka Accounting Standards comprising SLFRS and LKAS.

2. Company’s compliance with financial reporting requirements, information requirements of Companies Act, IBSL, SEC of Sri Lanka and other regulations and requirements.

3. Processes to ensure that the Company’s internal controls and risk management procedures are adequate to meet the requirements of the Sri Lanka Auditing Standards.

4. Assessing the Company’s ability to continue as a going concern in the foreseeable future.5. Independence and performance of the Company’s External Auditors.





3. Nomination Committee

As and when necessary or once a year

Dr Gamini De Silva (Chairman)


Company Secretary

Director/CFO Week before Available Available – Terms of Reference of the Nomination Committee

The primary function is to assist the Board with making recommendations on Board appointments and on maintaining a balance of skills and experience on the Board and its committees.



R Renganathan Executive Director – MD/CEO

4. Related Party Transaction Review Committee

Quarterly Herschel Gunerwardena (Chairman)


Company Secretary

Senior Manager – Finance Week before Available Available – Mandate of RPTR Committee

The main objective of the Committee is to safeguard the shareholder's interests and to prevent directors, chief executives or substantial shareholders taking advantage of their positions.


Palitha Jayawardena Executive Director – CFO

5. Risk Committee Quarterly Ms A K Seneviratne (Chairperson)


Company Secretary

Director/CRO and Senior Manager – Finance

Week before Available Available – Risk Committee Mandate

Primary function is to oversee and approve the company-wide risk management practices to assist the Board in:

zz Setting the tone and developing a culture of the Company vis-à-vis risk;zz Overseeing that the executive team has identified and assessed all risks that the Company faces and has established a risk management framework, capable of addressing those risks;zz Overseeing, in conjunction with other Board level committees, all principal risks facing the Company such as strategic, financial, market, IT, legal, regulatory, reputational and other risks;zz Monitoring risk management capabilities within the Company, including communication about escalating risk and crisis preparedness and recovery plans; and zz Overseeing the division of risk-related responsibilities to each Board Committee as clearly as possible and performing a gap analysis to determine that the oversight of any risks is not missed.




6. Board Investment Committee

Quarterly R Renganathan (Chairman)

Executive Director Company Secretary

AGM – Actuarial and Senior Manager – Portfolio

Week before Available Available – Board Investment Committee Charter

The goals and objectives of the Committee with respect to the Company's investment strategy, management, policies, guidelines and operations are:

zz Exercise due care to ensure that the interests and rights of policyholders are not compromised at any time;zz Ensure full compliance with laws, rules, regulations, determinations and guidelines issued by the Insurance Regulatory Commission of Sri Lanka and any other relevant regulatory authority, as the case may be;zz Institute effective and efficient governance of investment activities of the Company;zz Ensure that the Company develops investment strategies and implements policies and procedures to execute the strategies at the operational level;zz Ensure that the Company develops appropriate risk management framework for identifying, monitoring and mitigating various risks arising from investment activities and that the Company controls their investment portfolio effectively and efficiently; andzz Ensure that the Company establishes internal control mechanisms specifically with respect to investment activities.

E T L Ranasinghe Executive DirectorPalitha Jayawardena Executive DirectorRanga Abeynayake Executive DirectorRohan Senanayake Non-Executive

Director

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Board subcommittees

Meeting frequency

Members Secretary Invitees Notice of the meeting

Professional advise

Terms of reference/ charters

Objectives

1. Remuneration Committee

Once in six months

Prof Mohan De Silva (Chairman)


Company Secretary

Managing Director/CEO, Director/ CFO and Director/Deputy CFO

Week before Available Available – Term and Reference of Remuneration Committee

The objective of the Committee is to set the principles, parameters and governance framework of the Company’s remuneration policy and to recommend the terms and conditions of employment of the Chairman of the Board, Executive Directors, members of the Executive and the Company Secretary.




2. Audit Committee Quarterly J A Setukavalar (Chairman)


Company Secretary

Director/CFO, Director/Deputy CFO, Senior Manager – Internal Audit. Senior Manager – IS Audit, Senior manager – Finance and External Audit Partners (If necessary)

Week before Available Available – Audit Charter Committee

The objectives of the Committee are to assist the Board of Directors to carry out its responsibilities relating to the following areas:

1. Preparation, presentation and adequacy of disclosure in the Financial Statements, in accordance with Sri Lanka Accounting Standards comprising SLFRS and LKAS.

2. Company’s compliance with financial reporting requirements, information requirements of Companies Act, IBSL, SEC of Sri Lanka and other regulations and requirements.

3. Processes to ensure that the Company’s internal controls and risk management procedures are adequate to meet the requirements of the Sri Lanka Auditing Standards.

4. Assessing the Company’s ability to continue as a going concern in the foreseeable future.5. Independence and performance of the Company’s External Auditors.





3. Nomination Committee

As and when necessary or once a year

Dr Gamini De Silva (Chairman)


Company Secretary

Director/CFO Week before Available Available – Terms of Reference of the Nomination Committee

The primary function is to assist the Board with making recommendations on Board appointments and on maintaining a balance of skills and experience on the Board and its committees.



R Renganathan Executive Director – MD/CEO

4. Related Party Transaction Review Committee

Quarterly Herschel Gunerwardena (Chairman)


Company Secretary

Senior Manager – Finance Week before Available Available – Mandate of RPTR Committee

The main objective of the Committee is to safeguard the shareholder's interests and to prevent directors, chief executives or substantial shareholders taking advantage of their positions.


Palitha Jayawardena Executive Director – CFO

5. Risk Committee Quarterly Ms A K Seneviratne (Chairperson)


Company Secretary

Director/CRO and Senior Manager – Finance

Week before Available Available – Risk Committee Mandate

Primary function is to oversee and approve the company-wide risk management practices to assist the Board in:

zz Setting the tone and developing a culture of the Company vis-à-vis risk;zz Overseeing that the executive team has identified and assessed all risks that the Company faces and has established a risk management framework, capable of addressing those risks;zz Overseeing, in conjunction with other Board level committees, all principal risks facing the Company such as strategic, financial, market, IT, legal, regulatory, reputational and other risks;zz Monitoring risk management capabilities within the Company, including communication about escalating risk and crisis preparedness and recovery plans; and zz Overseeing the division of risk-related responsibilities to each Board Committee as clearly as possible and performing a gap analysis to determine that the oversight of any risks is not missed.




6. Board Investment Committee

Quarterly R Renganathan (Chairman)

Executive Director Company Secretary

AGM – Actuarial and Senior Manager – Portfolio

Week before Available Available – Board Investment Committee Charter

The goals and objectives of the Committee with respect to the Company's investment strategy, management, policies, guidelines and operations are:

zz Exercise due care to ensure that the interests and rights of policyholders are not compromised at any time;zz Ensure full compliance with laws, rules, regulations, determinations and guidelines issued by the Insurance Regulatory Commission of Sri Lanka and any other relevant regulatory authority, as the case may be;zz Institute effective and efficient governance of investment activities of the Company;zz Ensure that the Company develops investment strategies and implements policies and procedures to execute the strategies at the operational level;zz Ensure that the Company develops appropriate risk management framework for identifying, monitoring and mitigating various risks arising from investment activities and that the Company controls their investment portfolio effectively and efficiently; andzz Ensure that the Company establishes internal control mechanisms specifically with respect to investment activities.

E T L Ranasinghe Executive DirectorPalitha Jayawardena Executive DirectorRanga Abeynayake Executive DirectorRohan Senanayake Non-Executive

Director

BOARD SUBCOMMITTEES

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REPORT OF THE REMUNERATION COMMITTEE

CompositionRemuneration Committee of Ceylinco Life Insurance Limited (CLIL) comprises the following Non-Executive and Non-Executive Independent Directors:

Prof Mohan de Silva (Independent/ Non-Executive Director) – Chairman

Herschel Gunawardena (Non-Executive Director) – Member

Rohan Senanayake (Non-Executive Director) – Member

Brief profiles of the Directors are given on pages 22 to 29 of this Annual Report.

Meetings, attendanceand secretaryThe Chairman of the Committee is an Independent Non-Executive Director who is free from any business or any other relationship which may interfere with the execution of his independent judgement.

The Committee has the authority to seek external professional advice on matters within its purview.

The Remuneration Committee formally met once during the year 2017. The Managing Director/CEO, Director/CFO attended the said meeting by invitation and assisted in the discussions by providing relevant information, except when matters concerning them were discussed.

The Company Secretary functions as the Secretary to the Committee. The attendance of Committee members at meetings is given below:

Board subcommittee Members No. of meetings

Attendance

Remuneration

Committee

Prof Mohan de Silva

(Chairman)

Independent –


1 1/1

Herschel Gunerwardena Non-Executive Director 1 1/1

Rohan Senanayake Non-Executive Director 1 1/1

The proceedings of the Committee meetings have been regularly circulated to and confirmed by the Board of Directors.

Terms of Reference of the CommitteeThe Committee is governed by the “Terms and Reference for the Remuneration Committee” approved by the Board of Directors.

The said Terms of Reference defines the Objective, Membership, Quorum and Meetings, Responsibilities of the Committee Chairman and reporting responsibilities of the Committee.

Purpose of the CommitteeThe purpose of the Committee is to set the principles, parameters and governance framework of the Company’s remuneration policy and to recommend the terms and conditions of employment of the Chairman of the Board, Executive Directors, members of the Executive and the Company Secretary (together, the “Senior Executives” being those whose appointment requires Board approval; employees who perform a significant influence function; employees whose activities have or could have a material impact on the Company’s risk profile; and any other employee as determined by the Committeefrom time to time).

The overall focus and responsibilities of the Remuneration Committee are:

zz To determine the remuneration policy of the Company and to make recommendations to the Board on the Company’s policy and structure.

zz To periodically review the adequacy and effectiveness of the remuneration policy.

zz To give the Board additional assurance as it may reasonably require regarding the Human resources policies of the Company, pertaining to the terms and conditions of employment which are fair and will attract and retain high calibre staff.

zz To review and approve any statement required by the Company’s regulators from the Committee on the Company’s remuneration policy.

zz To go through the proposals for employee share plans for the Company and make recommendations to the Main Board.

zz To ensure that no Director or Senior Executive or any of their associates is involved in deciding their own remuneration.

zz To review and disclose, as appropriate, in the Directors’ Remuneration Report in the Annual Report and accounts whether any Executive Director or Senior Executive has the right or opportunity to receive enhanced benefits beyond those already disclosed and whether the Committee has exercised its discretion during the year to enhance such benefits either generally or for any member of the Company.

zz To review and endorse the content of the Directors’ Remuneration Report in the Annual Report and accounts for submission to the Board as a whole.

zz Ensure that contractual terms on termination and any payments made are fair to the individual, and the Company, that failure is not rewarded and that the duty to mitigate loss is fully recognised.

zz To give due consideration to laws, regulations and any published guidelines or recommendations regarding the remuneration of Directors of listed and non-listed companies and formation and operation of share schemes in determining recommendations.

zz To undertake on behalf of the Chairman or the Board such other related tasks as the Chairman or the Board may from time to time entrust to it.

Initiatives taken during the year 2017The Remuneration Policy of the Company was approved by the Board of Directors upon the recommendation of the Committee.

On behalf of the Remuneration Committee,

Prof Mohan de SilvaChairman – Remuneration Committee


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CompositionNomination Committee of Ceylinco Life Insurance Limited (CLIL) comprises following Executive and Non-Executive Independent Directors:

Dr Gamini De Silva (Independent/ Non-Executive Director) – Chairman

Jayantha Wickramasinghe (Independent/Non-Executive Director – Member

R Renganathan (Managing Director/ Chief Executive Officer – Member

Brief profiles of the members of the Committee are given on pages 22 to 29 of the Annual Report.

The Chairman of the Committee is an Independent Non-Executive Director who is free from any business or any other relationship which may interfere with the execution of his independent judgment. Also majority of the membership of the Committee are Non-Executive Directors.

Meetings, attendanceand secretaryThe Committee assessed Board composition and decided members of the Board contain the required combine knowledge and experience in order to match the strategic demands of the Company.

The Nomination Committee formally met once during the year 2017. The attendance of Committee members at meetings is given below. Director/CFO also was present at the meetings by invitation.


Attendance

Nomination

Committee

Dr Gamini de Silva

(Chairman)

Independent –


1 1/1

Jayantha Wickramasinghe Independent –


1 1/1

R Renganathan Executive Director –

MD/CEO

1 1/1

REPORT OF THE NOMINATION

COMMITTEE

There shall be a quorum of two-thirds of the members of the Committee to hold a meeting. The Company Secretary functions as the Secretary to the Nomination Committee. The proceedings and the minutes of the Committee meetings have been regularly circulated to and confirmed by the Board of Directors.

Terms of Reference ofthe CommitteeThe Committee is governed by the “Terms and Reference for the Nomination Committee” approved by the Board of Directors.

The above defines the Objective, Membership, Secretary, Advisors, Quorum, Duties, Frequency of Meetings, Notice of Meetings, Minutes of Meetings, Annual General Meeting and Reporting Responsibilities of the Committee.

Purpose of the CommitteePrimary function of the Nomination Committee is to assist the Board with making recommendations on Board appointments and on maintaining a balance of skills and experience on the Board and its Committees. In order to fulfil this, they follow the “Terms of Reference for Nomination Committee” as guidance to the members of the Committee as to their duties and responsibilities.

The “Terms of Reference for Nomination Committee” which has been prepared as per the rules set out in the Code of Best Practices on Corporate Governance

is approved by the Board of Directors. It clearly states the purpose of establishing the Committee, its composition, authority, duties and scheduling of the meetings.

The power and authority of the Committee is subject to the provisions of Companies Act No. 07 of 2007 and other applicable law, responsibilities as set forth in the Company’s Articles of Association, Code of Best Practices on Corporate Governance – 2013 (Issued jointly by The Institute of Chartered Accountants of Sri Lanka and the Security Exchange Commission of Sri Lanka), applicable policies, practices, other statutory, and regulatory obligations.

The Committee is authorised by the Board to seek appropriate professional advice inside and outside the Company. The relevant provisions are given in the said Terms of Reference for Nomination Committee.

Initiatives taken during the year 2017The Committee recommended the re-election of Directors, taking into consideration the contribution made by them towards the overall discharge of the Board’s responsibilities.

The Committee continued to work closely with the Board of Directors on matters assigned to the Committee and reported back to the Board of Directors with its recommendations.

On behalf of the Nomination Committee,

Dr Gamini De SilvaChairman – Nomination Committee


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REPORT OF THEAUDIT COMMITTEE

Composition The Audit Committee which was established on 25 April 2014, appointed by and responsible to the Board of Directors, comprised the following Non-Executive Directors:

J A Setukavalar (FCA, FCMA-UK, FCMA-SL, CGMA, FCPM) – Chairman – (Independent, Non-Executive Director)

Herschel Gunawardena (FCMA-UK, CGMA) – Member – (Non-Executive Director)

Jayantha Wickramasinghe (CILT) – Member (Independent, Non-Executive Director)

Each of the members has the finance literacy whereas the Chairman is a Fellow member of The Institute of Chartered Accountants of Sri Lanka and the Chartered Institute of Management Accountants (UK) and profiles of members which consist of qualifications and experience are given on pages 22 to 29 of this Annual Report.

Meetings, attendance and secretaryThe Audit Committee formally met four times during the year 2017. The attendance of Committee members at meetings is given below:


Attendance

Audit Committee J A Setukavalar (Chairman) Independent –


4 3/4

Herschel Gunerwardena Non-Executive Director 4 4/4

Jayantha Wickramasinghe Independent –


4 4/4

Director/CFO, Director/Deputy CFO, Senior Manager –Internal Audit, Senior Manager – Information Systems Audit and Senior Manager – Finance attended these meetings on the invitation of the Committee.

The engagement Partner and the Manager of the Company’s External Auditors, Ernst & Young attended on the invitation of the Committee, after finalising the audit for the period ended 31 December 2017.

The Audit Committee’s activities were communicated to the Board of Directors at the quarterly Board meetings by way of tabling the reports of the Audit Committee meetings, held during the period.

There shall be a quorum of two-thirds of the members of the Committee to hold a meeting. The Company Secretary functions as the Secretary to the Audit Committee. The proceedings and the minutes of the Committee meetings have been regularly circulated to and confirmed by the Board of Directors.

Charter of the CommitteeThe Charter of the Committee which clearly defines the Term of Reference of the Committee was reviewed on 15 July 2015 by the Audit Committee and amended

in order to address new concerns and developments in the current business context. It was approved by the Board of Directors on 27 August 2015.

Purpose of the Committee The principal purpose of the Audit Committee is to assist the Board of Directors in fulfilling its oversight responsibilities for the financial reporting process of the Company, by way of safeguarding the interests of all stakeholders including, shareholders of the Company.

Authority and rules The Committee is authorised to seek any information as it considers necessary, from the Management of the Company in order to carry out its monitoring and reviewing activities on the following core areas:

zz Preparation, presentation and adequacy of disclosures in the Financial Statements, in accordance with Sri Lanka Accounting Standards comprising SLFRS and LKAS.

zz The Company’s compliance with financial reporting requirements, requirements of the Companies Act, the IRCSL, the Inland Revenue Department and other regulatory bodies.

zz Processes to ensure that the Company’s internal controls and risk management procedures are adequate to meet the requirements of the Sri Lanka Auditing Standards.

zz Assessing the Company’s ability to continue as a going concern in the foreseeable future.

zz Independence and performance of the Company’s External Auditors.

ComplianceThe Committee reviewed the effectiveness of the system for monitoring compliance with the laws and regulations and the results of Management’s investigation and follow-up, including disciplinary action of any instances of non-compliance.

199


STEWARDSHIP FINANCIAL REPORT SUPPLEMENTARY INFORMATION REPORT OF THE AUDIT COMMITTEE

The Committee reviewed the quarterly regulatory Compliance Reports, submitted to it and observed that the Company’s compliance framework provides reasonable assurance that all relevant laws, regulations, code of ethics and standards of conduct have been followed.

Any instances of non-compliance is included in the Audit Committee’s Reports to the Board of Directors and followed up to ensure that appropriate, corrective and timely action is taken.

Financial reporting The Committee reviewed and approved the Quarterly Financial Statements and Annual Financial Statements, prior to its submission for Board approval and filing with regulators, in order to ensure compliance with Sri Lanka Accounting Standards, the Companies Act No. 07 of 2007 and the Regulation of Insurance Industry Act No. 43 of 2000. Further, the Committee reviewed and discussed the audit issues communicated by the External Auditors, through their Management Letter.

The Committee reviewed the financial reporting processes in order to ensure the reliability of the information provided for the determination of the most appropriate accounting policies and the fairness of the disclosures made in the Financial Statements. Further, the Committee reviewed the involvement of the Internal and External Auditors with regard to the financial reporting process.

External audit The Committee reviewed the independence of the External Auditors by obtaining Statements from the Auditors on relationships between the Auditors and the Company, including non-audit services and discussing the relationships with the Auditors.

The Committee had a meeting with the External Auditors to review the External Auditors’ proposed audit scope and timeline set out in the plan, including approach and coordination of audit effort with the Internal Auditors.

The Committee also discussed the key audit issues and their resolution, Management responses with both the External Auditors and the Management and continuously monitored the action taken by the Management to implement the recommendations. The Committee reviewed the performance of the External Auditor and made the recommendation on the remuneration of the Auditor for approval to the Board.

Initiatives taken during the year 2017The Audit Committee reviewed and approved the internal audit activity after concerning new developments in the current business context in order to set clear guidelines to assist the Company in accomplishing its objectives, by bringing a systematic and disciplined approach to evaluate and improve the effectiveness of the Company’s governance, risk management and internal controls. As a part of this process, the Committee reviewed the following areas, in order to strengthen the internal control environment of the Company:

zz Risk management system

zz Departmental risk registers

zz Risk-based internal audit plan

zz Internal audit budget and resource plan

zz Independence and objectivity of the Internal Auditors

zz Responsibilities of the Internal Auditors

zz Reporting and monitoring process

zz Significant audit findings and management responses

zz Progress the implementation of internal audit recommendations

zz Quality assurance and improvement programmes of the Internal Audit Department

ConclusionThe Committee is satisfied that the Company’s internal controls are effectively implemented as designed to assess and manage risks and that the Company’s assets are adequately safeguarded. The Committee is satisfied that the Company’s Internal and External Auditors have been effective and independent throughout the period under review.

The Committee is also satisfied that the operational controls and the application of appropriate Accounting Policies, provide reasonable assurance that the Financial Statements of the Company are true and fair.

The Audit Committee has proposed to the Board of Directors that Ernst & Young, Chartered Accountants, be recommended for reappointment as Statutory Auditors of the Company for the financial year ending 31 December 2018, subject to approval by the shareholders at the next Annual General Meeting.

On behalf of the Audit Committee,

J A Setukavalar Chairman – Audit Committee


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As a voluntarily adoption of the Code of Best Practices on related party transactions, issued by the Securities Exchange Commission of Sri Lanka, the Related Party Transaction Review Committee (RPTRC) was established by the approval of the Board of Directors of CLIL to ensure compliance of the said code and good governance.

CompositionThe Board appointed RPTRC of CLIL comprises the following Executive and Non-Executive Directors:

Herschel Gunawardena (Non-Executive Director) – Chairman

Rohan Senanayake (Non-Executive Director) – Member

Palitha Jayawardena (CFO – Executive Director) – Member

Purpose of the CommitteeThe main purpose of the Committee is to review the proposed related party transactions other than what is exempted from the code, in advance to safeguard the shareholders’ interests by preventing Directors, Chief Executives or substantial shareholders taking advantage of their positions.

Terms of Reference of the CommitteeThe Committee is governed by the “Mandate of the Related Party Transaction Review Committee” and the said mandate defines the General Purpose and Authority, Membership, Process and Operations, Report to the Board and Stakeholders, Specific responsibilities, Independent Consultants, and Reporting and Review.

REPORT OF THE RELATED PARTY TRANSACTIONS REVIEW COMMITTEE

Meetings, attendance and secretaryThe Related Party Transaction Review Committee formally met four times during the year 2017. The Director/CFO and Director/Deputy CFO and Senior Manager Finance attended the said meetings by invitation and assisted in the discussions by providing relevant information. The attendance of Committee members at meetings is given below:


Attendance

Related Party

Transaction Review

Committee


(Chairman)

Non-Executive Director 4 4/4


Palitha Jayawardena Executive Director – CFO 4 4/4

The proceedings of the Committee meetings have been regularly circulated to and confirmed by the Board of Directors.

The Company Secretary acts as the Secretary to the Committee.

Initiatives taken during the yearDuring the year under review, the Board of Directors approved a procedure of reporting the RPTs in the Company upon recommended by the Committee. Also the Committee continued to consistently update the list of related parties and to monitor the related party transactions of the Company which comes within the purview of the Committee.

On behalf of the RPTR Committee,

D H J GunawardenaChairman – RPTR Committee


201



INVESTMENT COMMITTEE REPORT

The long-term Insurance Fund of Ceylinco Life is overseen by the Board Investment Committee to ensure it provides a secure and a steady return for its policyholders.

As an adaptation of the Guidelines on Investment for Insurance Companies issued by Insurance Regulatory Commission of Sri Lanka (IRCSL), the Board Investment Committee was established by the approval of the Board of Directors of Ceylinco Life to ensure compliance of the said code and good governance. The Committee is acting in a fiduciary capacity with respect to the Fund, and is accountable to the Board of Directors of Ceylinco Life. The Board Investment Committee formulates investment Investment strategies and overviews the performance of the investments on a quarterly basis. In order to make timely decisions to execute strategies implemented, Board Investment Committee has delegated its authority by appointing an Operational Investment Committee who meets on a weekly basis. In order to ensure a return that is secure, smooth and steady, investments are made prudently according to diverse investment objectives and varied risk preferences. By crafting investment strategies that add value, continually monitoring the execution of the set strategies to ensure conformity, and making timely calls deemed necessary to ensure probity, the Committee ensures that the funds are well positioned, ideally invested and coherently managed to meet the objectives of various stakeholders such as policyholders, shareholders and regulators. As at 31 December 2017, the long-term Insurance Fund of Ceylinco Life kept growing as a formidable force and stood firm for its policyholders, at Rs. 81.7 Bn.

YEAR IN REVIEW

1. Global MarketsIt was a tumultuous year marked by many natural disasters, geopolitical tensions, and deep political divisions in many countries.

On the Economic front, however, 2017 ended on a high note, with Gross Domestic Product (GDP) continuing to accelerate in most parts of the world in the broadest cyclical upswing since the start of the decade.

2017 started off with uncertainty on what a Trump Presidency in the US would mean for the global economy. 45th President of the United States, Donald Trump’s unpredictable foreign policy and “America First” policies did have their impacts – from heightened tensions with North Korea to the isolation of Qatar by its Gulf neighbours.

On the other end, elections in Europe attracted much attention due to the upsurge in populist politics. Elections in Netherlands, France and Germany ended fears of further gains for populism following the Brexit and Trump victories, allowing markets to focus more clearly on changes happening in global monetary policy.

The major central banks, led by the US Federal Reserve, carried out measures intended to winding up unconventional accommodative monetary policies brought about following the 2008 financial crisis. As expected by the markets, US Fed hiked rates thrice in the year and announced the shrinking of its balance sheet, while the European Central Bank (ECB) stated that it would halve its quantity of monthly bond purchases beginning in 2018 and signalled the possibility of ending this practice of quantitative easing from September 2018.

Despite the outlook for tighter monetary policy, financial markets continued to ease in 2017 helped by the weakening of the US Dollar and rallies in global stock markets. Emerging Markets (EM) benefited from the continued search for yields by investors, with the Institute for International Finance (IIF) reporting that the year saw USD 235 Bn. in portfolio inflows into Emerging Market equities and debt – the highest since 2014.

Oil prices moved higher in the second half of the year, ending at a two-year high close to USD 70 a barrel. This upward momentum was largely due to the success of the output limitation agreements arrived at by the OPEC-led coalition of oil producing nations that included Russia, with the intention of ending the supply glut that has kept prices low. Geopolitical tensions in the Middle East also helped to push the prices higher. However, gains were capped by concerns that the US and other Non-OPEC nations will increase their output amidst the higher prices.

1.1 Looking ahead to 2018 and beyond“Don’t let a good recovery go to waste.” – Says International Monetary Fund (IMF).

While the end of accommodative monetary policy has raised concerns about how investor behaviour will change over the coming years, forward guidance provided by the major central banks have prevented markets from returning to a 2013 “taper tantrum” like scenario. 2018 is likely to see markets watching central banks for signals on where monetary policy is headed, with the US Fed projected to carry out three more rate hikes during the year. As Janet Yellen concludes as the 15th Chair of US Federal Reserve, the current gradual rate hike policy, which was carried out by her administration is expected to continue thanks to President Trump’s nomination of Jerome Powell to be its next Chair from February 2018. However, with US economic growth being buoyant, despite stubbornly low inflation, alongside the impact of the tax reforms finalised in December, there is a concern that the Fed might have to hike rates at a faster pace than projected.

IMF, in their World Economic Outlook, has called the current economic upsurge the broadest since 2010 and has upgraded the global growth forecasts for 2017, 2018

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and 2019. Global growth for 2017 has been upgraded to 3.7%, driven by upsides in Asia, Europe and the US. However, it was highlighted that there is little space for complacency since most of the growth was simply cyclical and further reforms are needed to sustain it into the 2020s and beyond, while higher inflation and interest rates also could puncture the buoyant mood in the years ahead.

Key global indicators – History and beyond 2017

GDP growth and forecasts

GDP Growth – Advanced Economies (%)

2015 2018*2016 2019* 2020* 2021*2017* 2022*

United States of America Australia United Kingdom Germany Japan

3.5

2.8

2.1

1.4

0.7

0

* Projected Source: World Economic Outlook 2017

On the Advanced Economies, we see a clear demarcation from Japan to the rest of the countries. As expected by most economists, US to overcome all economies and head the way for its peers.

GDP Growth – Developing Economies (%)

2015 2018*2016 2019* 2020* 2021*2017* 2022*

India China Bangladesh Vietnam Philippines Sri Lanka Pakistan

9.0

7.8

6.6

5.4

4.2

3.0

*Projected Source: World Economic Outlook 2017


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India to dominate the Developing Nations from 2017 and beyond with their monetary and fiscal policies placed firmly with the new administration of Prime Minister Narendra Modi. Though Sri Lanka is lagging behind with several turbulences and uncertainties, it is expected to see a steady growth from 2018 onwards.

Oil Oil Oil – Brent Oil analyst forecastsIn the short term, analysts forecasts Brent Oil to hover around USD 60-70 per barrel. This will highly depend on the output limitation by OPEC, whether US would re-establish the Iranian sanctions and US Brent Oil productions output.

Oil – Brent Oil Analyst Forecasts (USD/Barrel)

Q12018

Q42018

Q22018

2019* 2020* 2021*Q32018

2022*

Barclays Citi Credit Suisse Deutsche Bank JP Morgan Thomson Reuters Mean

70

66

62

58

54

50

*Projected Source: World Economic Outlook 2017

US Economy – Reviving with interest rates edging higher

(%)Projected Median of US Fed Fund Rates

2017 20192018 2020

3.5

2.8

2.1

1.4

0.7

0

Source: US Fed Monetary Update 2017


(%)Average US Interest Rates for Past 03 Years

2015 2016 2017

10 Year T Bond US Fed Fund Rates

5 Year T Bond

2.5

2.0

1.5

1.0

0.5

0

Source: US Fed Monetary Update 2017

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Best way to see the future – Stock Indexes – MSCI Market IndexesMorgan Stanley Capital International, better known as MSCI Inc, compiles influential indices tracked by global investment managers. The following graph depicts the performance of MSCI World Index over the last three (3) years.

MSCI World Index

MSCI World Market (stock) Index

01 Jan.

2015

01 Jan.

2016

01 Jan.

2017

01 Mar. 2015

01 Mar. 2016

01 Mar. 2017

01 May 2015

01 May 2016

01 May 2017

01 Jul.

2015

01 Jul.

2016

01 Jul.

2017

01 Sep. 2015

01 Sep. 2016

01 Sep. 2017

01 Nov. 2015

01 Nov. 2016

01 Nov. 2017

01 Dec. 2017

2,200

2,000

1,800

1,600

1,400

1,200

Source: Bloomberg

The MSCI World Index measures the market performance of 4,500 large and mid-cap companies that have a global presence. It is often quoted by financial media to describe how the world's stock market is doing. It includes the following 23 countries: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, United Kingdom and the United States.

MSCI Emerging Markets Index

MSCI Emerging Market (Stock) Index

01 Jan.

2015

01 Jan.

2016

01 Jan.

2017

01 Mar. 2015

01 Mar. 2016

01 Mar. 2017

01 May 2015

01 May 2016

01 May 2017

01 Jul.

2015

01 Jul.

2016

01 Jul.

2017

01 Sep. 2015

01 Sep. 2016

01 Sep. 2017

01 Nov. 2015

01 Nov. 2016

01 Nov. 2017

01 Dec. 2017

1,300

1,160

1,020

880

740

600

Source: Bloomberg

The MSCI Emerging Markets Index tracks the performance of stock markets in the following 24 developing countries: Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Pakistan, Peru, Philippines, Poland, Qatar, Russia, South Africa, Taiwan, Thailand, Turkey and United Arab Emirates. The Index is considered a good measurement of the stock performance of emerging markets. It represents 13% of the world's total market capitalisation. It is estimated that USD 1.7 Tn. is invested in all emerging market funds.


205



MSCI Frontier Markets to Index

MSCI Frontier Market (stock) Index

01 Jan.

2015

01 Jan.

2016

01 Jan.

2017

01 Mar. 2015

01 Mar. 2016

01 Mar. 2017

01 May 2015

01 May 2016

01 May 2017

01 Jul.

2015

01 Jul.

2016

01 Jul.

2017

01 Sep. 2015

01 Sep. 2016

01 Sep. 2017

01 Nov. 2015

01 Nov. 2016

01 Nov. 2017

01 Dec. 2017

3,250

3,000

2,750

2,500

2,250

2,000

Source: Bloomberg

The MSCI Frontier Market Index was created in 2007 and tracks the stock markets of countries which are even more volatile than emerging markets. The 21 countries in the Index are: Argentina, Bahrain, Bangladesh, Croatia, Estonia, Jordan, Kazakhstan, Kenya, Kuwait, Lebanon, Lithuania, Mauritius, Morocco, Nigeria, Oman, Romania, Serbia, Slovenia, Sri Lanka, Tunisia, and Vietnam.

When you consider all three market indexes, we can clearly see a huge growth in 2017. In addition, to further expand on this growth, MSCI plans to add 222 Chinese A-shares to its Emerging Markets Index. The full inclusion of domestic Chinese stocks in the widely tracked MSCI Emerging Markets Index could pull more than USD 400 Bn. of funds from asset managers, pension funds and insurers into mainland China’s equity markets over the next decade, according to analysts.

A greater inflow of funds into Chinese equities is expected in the long run from actively-managed funds. What’s more important, the inclusion is a milestone in the opening up of the mainland Chinese equity market to the world, bolstering the country’s credibility as the world’s second-largest economy and allow China to take a bigger role on the international stage.

2. Sri Lankan EconomyThe year 2017, saw a number of key developments taking place in the domestic economy with cautious monetary policy, an exchange rate which is increasingly determined by the market and a focus on reforms being the theme of the year. However, the country continued to be challenged by events such as the unfavourable changes in the global political landscape and harsh weather conditions – droughts, floods and tropical storms – having widespread effects on the domestic economy as a whole.

Real GDP GrowthThe persistent cycle of droughts, floods and tropical storms, experienced since 2016, resulted in continuous poor performance in the agriculture sector. During the first three quarters of the year, the economic growth moderated to 3.7% from the 4.0% YoY growth seen during the corresponding period in 2016 – weighed down by the poor performance in the agriculture sector, which recorded consistent contractions of around 3% YoY in each quarter. However, the services and industrial sectors continued to record healthy growth, rising by 4.2% and 4.5% YoY respectively during the period.

The overall growth was mainly driven by the robust growth seen in the construction and mining sectors as well as increased activity in Financial Services, Telecommunication and Wholesale and Retail trade.

5.0

4.0

3.0

2.0

1.0

0

2013 2014 2015 2016 2017

(%)Real GDP Growth – Sri Lanka

Source: Central Bank of Sri Lanka (CBSL)


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(%)GDP (Quarterly) – Sri Lanka

40.0

30.0

20.0

10.0

0

-10.0

Q1 ’13

Q3 ’14

Q1 ’16

Q1 ’17

Q2 ’13

Q4 ’14

Q2 ’16

Q2 ’17

Q3 ’13

Q1 ’15

Q3 ’16

Q4 ’13

Q2 ’15

Q4 ’16

Q3 ’17

Q1 ’14

Q3 ’15

Q2 ’14

Q4 ’15

Services (LHS) Industry (LHS) Agriculture,Forestry and Fishing (LHS) Gross Domestic Product (RHS)

12.0

9.0

6.0

3.0

0

-3.0

Source: CBSL

Private Sector Credit GrowthEven after two rounds of rate hikes in 2016, credit to the private sector continued to grow strong, rising at a pace of around 20% YoY in the first four months of 2017. Accordingly, the CBSL opted for a third round of policy rate hike , amounting to 25 basis points in March. Consequently, credit growth saw signs of moderation from May onwards, reducing to 14.6% YoY by end-December. In absolute terms, however, credit growth remained strong, with a monthly average of Rs. 51.5 Bn. during the year.

(%)(Rs. Bn.)

Private Sector Credit Growth

Jan. 2015

Jan. 2016

Jan. 2017

Mar. 2015

Mar. 2016

Mar. 2017

May2015

May2016

May2017

Jul. 2015

Jul. 2016

Jul. 2017

Sep. 2015

Sep. 2016

Sep. 2017

Nov. 2015

Nov. 2016

Nov. 2017

Credit to the Private Sector Annual Change

30

24

18

12

6

0

175

140

105

70

35

0

Source: CBSL

InflationIn January 2017, the Department of Census and Statistics (DCS) rebased the Colombo Consumer Price Index (CCPI) from 2006/07 to 2013; with the weightage of F&B (Food & Beverages) inflation being reduced to 28% (previously 41%), while the weightage for Non-Food category being increased to 72%. The Utilities category now holds the largest weightage in the overall index.


207



Under the new base, overall YoY headline inflation recorded a considerable acceleration, remaining at around 6-8% levels during most of the year. The impacts of both the tax revisions reintroduced in late 2016 and the adverse weather conditions disrupting food supplies in the domestic market were the main contributors to this increased pace in prices.

By end-December, Food inflation recorded a 14.4% YoY growth, while Non-Food inflation slowed down to 4.2% YoY. In contrast, core inflation observed an overall declining trend through most of the year. moderating to 4.3% YoY in December from a high of 7.3% YoY reached in March. Since the underlying inflationary trends in the economy seem to moderate towards the end of the year, Central Bank expressed less concern regarding the high levels in headline inflation, attributing the rising trend mainly to supply side shocks.

(%)CCPI Base

Jan. 2017

Jul. 2017

Feb. 2017

Aug. 2016

Mar.2017

Sep.2017

Apr. 2017

Oct. 2017

May 2017

Nov. 2017

Jun. 2015

Dec. 2017

Core Inflation YOY Headline Inflation YOY

10

8

6

4

2

0

Source: CBSL

External Sector PerformanceThe external sector trade deficit widened by 7.4% at the end of 2017 on a YoY basis, driven by the improvement in export earnings by 18.7% YoY witnessed compared to 12.8% YoY expanding in import expenditure. The recovery in exports is mainly attributable to improved global market conditions amidst domestic supply constraints. Tea exports recorded a strong growth during the year due to higher prices in the international market, while increased access to the EU market following the lifting of the seafood exports ban and regaining of the GSP+ concession led to the substantial rises in Seafood and Garment exports.

Meanwhile, import expenditure also accelerated during the year, led by increased fuel imports for coal and thermal power generation under the adverse weather conditions, while higher rice imports to meet domestic market shortages also contributed significantly. Nevertheless, import of vehicles recorded a contraction due to the measures taken to curtail demands, and the growth in imports of investment goods remained subdued.

(%)Trade Deficit (YoY)

Jan. 2017

Jul. 2017

Feb. 2017

Aug. 2017

Mar.2017

Sep.2017

Apr. 2017

Oct. 2017

May 2017

Nov. 2017

Jun. 2017

Dec. 2017

45

30

15

0

-15

-30

Source: CBSL


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Higher inflows from investmentsWe also witnessed a higher capital inflows, reversing the continuous outflows experienced in the past into both Colombo Stock Exchange and Government Securities market reflecting improved investor sentiment.

(Rs. Bn.)Capital Inflows to CSE

2015 2016 2017

20

15

10

5

0

-5

Source: CBSL

(Rs. Bn.)Capital Inflows to Government Securities

2015 2016 2017

150

75

0

-75

-150

-225

Source: CBSL

Tourism and Worker RemittancesHowever, Tourism earnings and Workers’ Remittances saw a below par performance in 2017, providing minimal cushion to the current account deficit unlike before. Although, the slowdown of tourist arrivals during the first few months of the year was attributed to the renovations of the Bandaranaike International Airport, adverse climate conditions coupled with the spread of Dengue epidemic saw tourist earnings reducing further and the year ended with mere growth of 11.60%.

Dec. 2017

Nov. 2017

Tourist Arrivals (Nos.) Tourist Earnings (USD Mn.)

Jan. 2017

Jul. 2017

Feb. 2017

Aug. 2017

Mar. 2017

Sep. 2017

Apr. 2017

Oct. 2017

May 2017

Jun. 2017

(USD Mn.)(Nos.)

Tourism

250,000

200,000

150,000

100,000

50,000

500

400

300

200

100

00

Source: CBSL

(%)(USD Mn.)

Tourism

Tourist Earnings (USD Mn.) Growth (%)

2010 20162011 2012 2013 20172014 2015

75

60

45

30

15

0

4,000

3,200

2,400

1,600

800

0

Source: CBSL

Adding fuel to the fire, workers’ remittances reported a (-1.07%) contraction YoY, which is largely attributed to the unexpected geopolitical tensions that arose in the Middle East, aggravated by the Qatar crisis.

(%)(USD Mn.)

Worker Remittances

Total (USD Mn.) Growth (%)

2010 20162011 2012 2013 20172014 2015

28

21

14

7

0

-7

7,500

6,000

4,500

3,000

1,500

0

Source: CBSL


209



Exchange Rate MovementThe LKR saw some depreciatory pressure during the first half of 2017, owing to net foreign outflows from domestic Government Securities market and high debt repayments. However, along with the return of foreign inflows and fall in debt repayments, the pressures eased off towards the latter part of the year, enabling Central Bank of Sri Lanka (CBSL) to maintain a more flexible exchange rate regime as advocated by the IMF. As at 31 December, the rupee recorded a 1.83% depreciation Year-to-Date (YTD) against the USD. As the sterling pound gained ground, putting behind it the Brexit uncertainty, the LKR weakened considerably against the sterling pound, depreciating 10.5% during the same period.

(Rs./USD)(%)

Rs./USD Exchange Rate Movement

2001 2007 20132002 2008 20142003 2009 20152004 2010 20162005 2011 20172006 2012

Depreciation (%) Exchange Rate (Rs./USD)

300

150

0

-150

-300

20

10

0

-10

-20

Source: CBSL

Gross Official Reserves – Silver LiningGross official reserves strengthened during the year from a low of USD 5.4 Bn. in January to USD 7.9 Bn. by the end of the year, supported by the issuance of a USD 1.5 Bn. dual-tranche sovereign bond and inflows from the IMF’s Extended Fund Facility (EFF) agreement. Foreign Direct Investments (FDI) also contributed with a sizable improvement in the first three quarters of 2017, reaching USD 766 Mn., compared to the USD 397 Mn. in the same period in 2016.

(USD Bn.)Gross Official Reserves

Jan. 2015

Jan. 2016

Mar. 2015

Mar. 2016

May2015

Jul.2016

May2016

Jul. 2015

Nov. 2016

Sep. 2016

Sep. 2015

Mar. 2017

Jul. 2017

May 2017

Jan. 2017

Nov. 2015

Nov. 2017

Dec. 2017

Sep. 2017

9

8

7

6

5

4

Source: CBSL


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2.1 2018 and beyondDr Indrajit Coomaraswamy, will be the most highlighted personality on the Sri Lankan Economy who will be put to task in the coming year, which promises to be a testing year, as it has to maintain a flexible exchange rate policy while maintaining a growth biased accommodative monetary policy.

Moving forward, the Budget for 2018 is expected to bring in a number of policies geared towards reforms, liberalisations and tax simplification. The budget met a number of guidelines set by the IMF as prerequisites for the third review of the EFF programme. The fourth tranche of about USD251.4 Mn. was approved as scheduled; putting the country back on track with the program following the previous delays on disbursements. Many experts, including ratings agencies such as Fitch and Moody’s, commended the Government’s efforts to keep in line with the IMF program milestones, but highlighted the need for further fiscal consolidation. Further, it was noted that the country remains vulnerable to changes in the political and economic environment, both domestic and global, which could alter this stable course.

With the introduction of the New Inland Revenue Act along with the tax reforms such as increase in value added tax rate from 11% to 15% and new taxes on capital gains and property, abolishment of notional tax credit and tax exemption on corporate debentures are few revenue reforms expected to boost Government revenue.

If Sri Lanka’s Government begins to deliver on reforms, being in line with IMF proposals, which will create a more conducive macroeconomic environment, there will be phenomenal progress towards a Sri Lankan economic resurgence.

On the insurance aspect, this would create a favourable climate for long-term insurers and policyholders which would drive-up

the demand for insurance, which will increase revenues while extending much needed protection for policyholders.

3. Ceylinco Life Insurance Limited – Another Name for Stability

i. Life Fund – Breaking Records Each YearThe long-term Insurance Fund of Ceylinco Life, which is considered as a safe haven for investors, has surged over the 80 Bn. mark, which depicts the superior performance and stability of its investments, and the continuous trust and loyalty placed by the policyholders.

(Rs. Bn.)Life Fund Growth

2009 20102008 20162011 2012 2013 20172014 2015

100

80

60

40

20

0

Surpassing 80 Billion

ii. Quality of Investments – Why we strive forwardThe Investment Division of Ceylinco Life, with the recommendations and guidance of the Operational Investment Committee along with the oversight and supervision of Board Investment Committee, manages the long-term Insurance Fund, which is regarded as one of the largest and thriving portfolios in Sri Lanka.

Risk and Return, although carrying an inherent trade-off, are two aspects which hold paramount importance in crafting an investment strategy. Ceylinco Life takes utmost accountability in providing the best investment solutions to maintain an optimum and cautious balance between the two aspects.

In order to emphasise the prudence and diligence of Life Fund investments, the below chart elaborates the asset allocation of investments of the long-term Insurance Fund as at 31 December 2017.

Government Securities Corporate Debt

Term Deposits Real Estate

Others

26%

12%

7% 3%

52%

Asset Allocation


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iii. Investment Income – Making History offAmidst challenging and volatile market conditions, for the first time in the company’s history, Investment Income surpassed the legendary figure of 10 Bn. mark in 2018.

Surpassing 10 Billion

(Rs. Bn.)Investment and Other Income

2009 20102008 20162011 2012 2013 20172014 2015

12.5

10.0

7.5

5.0

2.5

0

Board Investment Committee As an adaptation of the Guidelines on Investment for Insurance Companies issued by Insurance Regulatory Commission of Sri Lanka (IRCSL), the Board Investment Committee was established by the approval of the Board of Directors of Ceylinco Life to ensure compliance of the said code and good governance. The Board has appointed a five-member committee, out of whom four are executive directors and a Non-Executive Director who is a veteran in financial markets as the Board Investment Committee.

The following members served in the Board Investment Committee during the year:

1. R Renganathan (Managing Director/CEO) – Chairman

2. E T L Ranasinghe (Director/Deputy CEO) – Member

3. P A Jayawardena (Director/CFO) – Member

4. S R Abeynayake (Director/Deputy CFO) – Member

5. R S W Senanayake (Non-Executive Director) – Member

Operational Investment CommitteeIn order to make timely decisions to execute investment strategies formulated, Board Investment Committee has delegated its authority by appointing an Operational Investment Committee which meets on a weekly basis.

The following members served in the Operational Investment Committee during the year:

1. R Renganathan (Managing Director/CEO) – Chairman

2. E T L Ranasinghe (Director/Deputy CEO) – Member

3. P A Jayawardena (Director/CFO) – Member

4. S R Abeynayake (Director/Deputy CFO) – Member

5. R S W Senanayake (Non-Executive Director) – Member

6. S Kumarapperuma (DGM – Actuarial) – Member

7. D M G L Alwis (Senior Manager – Portfolio) – Member

8. C S Kumarasinghe (Assistant Manager) – Member

9. K V Wickramasuriya (Assistant Manager) – Member

The Committee members contribute immensely and add value to the investment decision making process through their vast knowledge and diverse experience. In addition, the Committee obtains external professional advice on matters within its purview.

Meeting and AttendanceThe Board Investment Committee of Ceylinco Life met twice during the year to review the investment performance and set medium term investment strategies.

The Operational Investment Committee met fifty (50) times during the year, recognising the prominence of the investment decision making function, to proactively monitor the implementation of investment strategies, and to timely face the challenges posed from ever-changing global and domestic macroeconomic landscapes.

Managing Director/CEO of Ceylinco Life chairs the meeting and Management representatives from the areas such as Actuarial, Finance, Life Operation, Marketing and Systems attend the meetings on the invitation of the Committee.

R RenganathanChairman – Operational Investment Committee

Chairman – Board Investment Committee

30 March 2018

Investment CommIttee RepoRt

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BOARD INVESTMENT COMMITTEE REPORT

As a voluntarily adoption of the “Guidelines on Investment for Insurance Companies” issued by IRCSL, the Investment Committee was established by the approval of the Board of Directors of CLIL to ensure compliance of the said code and good governance.

CompositionThe Board-appointed Investment Committee of CLIL comprises the following Executive and Non-Executive Directors:

R Renganathan (Managing Director/CEO) – Chairman

E T L Ranasinghe (Deputy CEO) – Member

Palitha Jayawardena (CFO – Executive Director) – Member

Ranga Abeynayake (Deputy CFO – Executive Director) – Member

Rohan Senanayake (Director – Non-Executive Director) – Member

Purpose of the CommitteeThe main purpose of the Committee is to ensure that funds under management are invested in a sound and prudent manner. The Committee is accountable for setting out the policies that need to be observed in governance of investment management, management of investment portfolios and associated risks.

Charter of the CommitteeThe Committee is governed by the “The Investment Committee Charter” and the charter defines the purpose, membership, secretary, meeting, duties and responsibilities, authority to engage advisers and evaluation of the Committee’s performance.

Meetings, attendance and secretaryThe Investment Committee formally met four times during the year 2017. The AGM-Actuarial and Senior Manager – Portfolio attended the said meetings by invitation and assisted in the discussions by providing relevant information. The attendance of Committee members at meetings is given below:


Attendance

Board

Investment

Committee

R Renganathan Executive Director 2 2/2

E T L Ranasinghe Executive Director 2 2/2

Palitha Jayawardena Executive Director 2 2/2

Ranga Abeynayake Executive Director 2 2/2


The proceedings of the Committee meetings have been regularly circulated to and confirmed by the Board of Directors.The Company Secretary acts as the Secretary to the Committee.

Initiatives taken during the yearDuring the year under review, the Board of Directors formally approved the updated Investment Policy Statement of the Company upon recommendation of the Committee. Also the Terms of Reference for the Board Investment Committee Charter was recommended to the Board by the Committee and got the approval.

On behalf of the Board Investment Committee,

R RenganathanChairman – Board Investment Committee

30 March 2018

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The Directors are responsible under the Companies Act No. 07 of 2007, to ensure compliance of the requirements set out therein to prepare Financial Statements for each financial year, giving a true and fair view of the state of affairs of the Company as at the balance sheet date and the profit of the Company for the financial period. Further, the Board of Directors ensures the compliance of all regulatory requirements imposed by the said act and other applicable statutory and regulatory provisions. The Board of Directors accepts the responsibility for the integrity and objectivity of the Financial Statements prepared and presented. The Directors confirm that in preparing the Financial Statements, appropriate accounting policies have been selected and applied in a consistent manner and material departures, if any have been disclosed and explained.

Also, reasonable and prudent judgements and estimates have been used so that the form and substance of transactions are appropriately reflected.

The Directors are responsible for ensuring that the Company keeps sufficient accounting records to disclose with reasonable accuracy, the financial position of the Company and for ensuring that the Financial Statements have been prepared and presented in accordance with the Sri Lanka Accounting Standards and provide the information required by the Companies Act No. 07 of 2007.

STATEMENT OF DIRECTORS' RESPONSIBILITY TO

FINANCIAL REPORTING

Further, the Directors confirm that the Financial Statements have been prepared on a going concern basis and are of the view that sufficient funds and other resources are available within the Company to continue its operations and to facilitate planned future expansions and capital commitments.

They are also responsible for taking reasonable measures to safeguard the assets of the Company and in that context, to have a proper regard to the establishment of appropriate systems of internal control, with a view to preventing and detecting fraud and other irregularities. Accordingly, the Directors have taken steps to establish appropriate systems of internal controls comprising of internal audit, checks, risk assessment tests and financial and other controls to mitigate, prevent and detect fraud and other irregularities.

The Directors provided the Statement of Solvency to the Auditors, in respect of dividend payable (proposed) conforming to the Section 57 of the CompaniesAct No. 07 of 2007. The Board of Directors also wishes to confirm that, as required by the Sections 166 (1) and 167 (1) of the Companies Act; they have prepared this Annual Report in time and ensured that a copy thereof is sent to Ceylinco Insurance PLC, the sole shareholder of the Company.

The Directors are required to prepare the Financial Statements and to provide its External Auditors; Messrs Ernst & Young,

with every opportunity to take whatever steps and undertake whatever inspections that may be considered being appropriate to enable them to give their audit opinion. The said Messrs Ernst & Young were reappointed at the last Annual General Meeting held on 30 March 2017.

The Directors confirm that to the best of their knowledge and belief that all statutory payments in relation to regulatory and statutory authorities that were due, in respect of the Company as at the balance sheet date have been duly paid or where relevant, provided for.

The Directors are of the view that they have duly discharged their responsibilities as set out in this Statement.


A C H WaidyasekaraCompany Secretary Ceylinco Life Insurance Limited

30 March 2018 Colombo

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Chief Financial Officer’sStatement of Responsibility

The Financial Statements are prepared in compliance with the Sri Lanka Accounting Standards (SLFRS/LKAS) issued by The Institute of Chartered Accountants of Sri Lanka (ICASL), the Companies Act No. 07 of 2007 and the Regulation of Insurance Industry Act No. 43 of 2000 as amended, Sri Lanka Accounting and Auditing Standards Act No. 15 of 1995, Code of Best Practice on Corporate Governance issued jointly by CA Sri Lanka and Securities Exchange Commission of Sri Lanka (SEC) Directions issued thereunder relating to Financial Statement formats and disclosure of information.

The Accounting Policies used in preparation of the Consolidated Financial Statements are appropriate and consistently applied, except unless otherwise stated in the Notes accompanying the Financial Statements. There are no deviations from the prescribed Accounting Standards in their adoption.

Comparative information has been reclassified wherever necessary to comply with the current presentation. Significant accounting policies and estimates that involved a high degree of judgement and complexity were discussed with the Audit Committee.

The Board of Directors of the Company is responsible for preparation and presentation of these Financial Statements which give a true and fair view of the financial performance and the position of the Company. The estimates and judgements relating to the Financial Statements were made on a prudent and reasonable basis.

To ensure this, the Company has taken proper and adequate care in implementing a system of internal control and accounting records, which are reviewed, evaluated and updated on an ongoing basis.

CHIEF FINANCIALOFFICER’S STATEMENT

All accounting controls are continually updated to ensure prudence and completeness, prevention and detection of fraud and other irregularities. This ensures accounting records are free from error and omission. The internal control system in place functions properly and it is regularly evaluated. All procedure manuals are updated continuously and are accessible to all the staff.

The Internal Auditors of the Company have conducted periodic audits to provide reasonable assurance that the established policies and procedures of the Company have been consistently followed. However, there are inherent limitations that should be recognised in weighing the assurances provided by any system of internal controls and accounting.

The Financial Statements of the Company for the financial year end of 31 December 2017 were audited by Messrs E & Y and the Financial Statements of the subsidiary companies were audited by the appointed Auditors.

The Audit Committee of the Company meets once in a quarter with the Internal Auditors and the Independent Auditors when necessary to review the manner in which these Auditors perform their responsibilities and to discuss major variations or observations, internal control and financial reporting issues. To ensure complete independence, the Independent Auditor and the Internal Auditors have full and free access to the members of the Audit Committee to discuss any matters of substance.

P A JayawardenaDirector/Chief Financial Officer

30 March 2018

215



THE BOARD’S STATEMENT ON

INTERNAL CONTROL

RequirementAs per the requirement of the Section D 1.3 of the Code of Best Practice on Corporate Governance – 2013, jointly issued by the Securities and Exchange Commission of Sri Lanka and The Institute of Chartered Accountants of Sri Lanka, the Board of Directors presents this Report on internal control mechanisms of Ceylinco Life Insurance Limited (“the Company”).

ResponsibilityThe Board of Directors is responsible for the Company’s system of internal controls and reviewing its design and effectiveness in order to safeguard shareholders’ investment and the Company’s assets.

This system is designed to manage the Company’s key areas of risk within an acceptable risk profile, rather than eliminating the risk of failure to achieve the business objectives and policies of the Company. Accordingly, a reasonable but not absolute assurance can be provided, against material misstatement of management and financial information and records or against financial losses or fraud.

The Company has established key processes that aid in ensuring the integrity and efficacy of the system of internal controls that has been adopted with respect to financial reporting. These processes are overseen by Committees which assist the Board in matters relating to the Company’s operations, and ensure that approved corporate objectives, strategies and policies are adhered to.

Internal control processes

Risk Management Committee The Board Risk Committee is responsible for assisting the Board in all matters relating to the overall management of principal areas of risk to the Company. The Board Risk Committee implements the risk management framework via executive risk committees. Monthly meetings are held during which key risk areas are discussed and required action initiated, All areas that come under discussion are escalated to Board level. A detailed account of the activities carried out by the Board and Executive Risk Committees is available in the Risk Management section from pages 158 to 163 of this Report.

Internal Audit Departments The Internal Audit Department and Information System Audit Department are responsible for reviewing the design and effectiveness of the internal control systems, management information systems, as well as the systems for compliance with applicable laws, regulations, rules and directives. Audits are carried out on all the branches and departments. The frequency of these audits is determined using a risk-based methodology which factors in the input of senior management. An independent and objective report is mandatory.

Some reviews are outsourced to external parties with specialist knowledge in the relevant area. These external audits are carried out depending on the nature and complexity of the area requiring review.

The annual audit plan is drawn up by the Internal Audit Department and Information System Audit Department and is reviewed and approved by the Audit Committee.

Audit Committee The Audit Committee conducts quarterly reviews to address significant findings with respect to non-compliances or ineffectiveness of internal controls that are identified by the Internal Audit Department and Information Systems Audit Department.

The Audit Committee is also responsible for taking action to deal with significant issues and control weaknesses highlighted by External Auditors.

The Audit Committee reviews the quality assurance and improvement programmes of the Internal Audit Departments and the performance of External Auditors, in order to evaluate the adequacy and effectiveness of the Company’s risk management and internal control system.

The minutes of the Audit Committee meetings, and recommendations with regard to the requirements for improvements, are tabled for the information of the Board on a periodic basis. Further details of the activities undertaken by the Audit Committee of the Company are available in the report of the audit committee on pages 198 to 199.

216

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17PREAMBLE MESSAGES AND MANAGEMENT PROFILES BUSINESS MODEL MANAGEMENT DISCUSSION AND ANALYSISTHE BOARD’S STATEMENT ON INTERNAL CONTROL

ConfirmationBacked by the Internal Audit Department’s continued review and verification of the suitability and effectiveness of pre-existing procedures and controls, the Board of Directors confirms that the financial reporting system of the Company has been designed to provide a reasonable assurance regarding the reliability of financial reporting; and that the preparation of Financial Statements for various stakeholders has been done in accordance with Sri Lanka Accounting Standards, and comply with regulatory requirements including the Companies Act No. 07 of 2007 and the Insurance Industry Act No. 43 of 2000.


J A Setukavalar Chairman – Audit Committee

P A Jayawardena Director/Chief Financial Officer

R Renganathan Managing Director/Chief Executive Officer

Colombo 30 March 2018

217STEWARDSHIP FINANCIAL REPORT SUPPLEMENTARY INFORMATION 217


FINANCIALREPORTS

Financial Calendar 217

Understanding Our Financials 218

Actuarial Report 221

Independent Auditors’ Report 222

Statement of Financial Position 223

Statement of Comprehensive Income 224

Statement of Changes In Equity 226

Statement of Cash Flows 227

Insurance Revenue Account 229

Notes to The Consolidated Financial Statements 230

FINANCIAL CALENDAR2018 2017

Annual Report 30 March 23 February

Annual General Meeting 30 March (By resolution) 30 March

Interim Dividend Paid – In the Second half of 2017

Final Dividend Proposed 30 March 30 March

PREAMBLE MESSAGES AND MANAGEMENT PROFILES BUSINESS MODEL MANAGEMENT DISCUSSION AND ANALYSIS218

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UNDERSTANDING OUR FINANCIALS

The Statement of Income of a life insurance company contains the income and expenses pertaining to the underwriting of life insurance. Thus, the Statement of Income of a life insurer contains income and expense items that do not appear in a Statement of Income of a manufacturing and trading business. Similarly, the Statement of Financial Position of a life insurer also contains some industry-specific assets and liabilities.

This brief note is aimed at helping the reader to understand our financials and is to be read along with the explanatory Notes to the Financial Statements and the glossary.

Income statement

For the Year Ended 31 December 2017 Comment Rs. ’000

Gross Written Premiums The main source of income of a life insurer is the premium paid by customers for the risks transferred to the life insurer through the insurance contract. GWP is comparable to the “turnover” of a manufacturing and trading company. 15,765,484

Premiums Ceded to Reinsurers Reinsurance is the process by which part of the risks undertaken by the life insurer is transferred to a reinsurer, for which reinsurance premium paid by the insurer to the reinsurer. (422,217)

Net Written Premiums Net earned premium is the premium earned by the insurer for the financial year. 15,343,267

Fees and Commission Income Fees and commission income includes the charges and policy fees paid by customers, as well as commission received from the reinsurer. 127,129

Investment Income Investment income contains the interest income, dividend income and rental income on investments made by the Company, after deducting the related investment expenses. 9,866,801

Realised Gains Realised gains and losses include gains and losses arising on sale of financial assets. 39,421

Fair Value Gains and Losses Fair value gains and losses are gains and losses that arise from changes in fair values of financial assets which one held for trading. 215,095

Other Operating Revenue Other income comprises fees charged for policy administration services, disposal gains and losses on property, plant and equipment, gains and losses on foreign currency translations, and miscellaneous income. 32,101

Other Revenue 10,280,547

Net Income 25,623,814

Gross Benefits and Claims Paid Gross benefits and claims paid refer to the total amount of claims and claim-related expenses incurred during the year. (6,884,013)

Claims Ceded to Reinsurers Claims ceded to reinsurers contain the proportion of claims paid, which was recovered from reinsurers. 197,033

Gross Change in Contract Liabilities Gross change in contract liabilities is the net transfer to the Life Fund during the period. (7,258,502)

Change in Contract Liabilities Due to Transfer of One-Off Surplus

Include amount which was transferred to sharehodlders’ Fund as one-off surplus attributable to other than participation business. 3,456,184

Net Benefits and Claims (10,489,299)

Acquisition Cost Acquisition cost refers to the commission expenses incurred for the financial year. Life insurance business is predominantly transacted through independent contractual agents who are paid commission based on premium they collected. (1,782,479)

Other Operating and Administrative Expenses

Other operating and administrative expenses include administration, staff, sales and marketing expenses related to the Company. (3,532,496)

Finance Cost Finance cost includes charges on the financial services provided by financial institutions, particularly bank charges. (12,005)

Total Other Expenses (5,326,981)

Profit Before Tax 9,807,535

Income Tax Expense Income tax expense comprises the current and deferred tax. Current tax is the expected tax payable on the taxable income for the year and any adjustment to tax payable in respect of previous year. (340,109)

Profit for the Year 9,467,426




Statement of Financial Position

As at 31 December 2017 Comment Rs. ’000

Assets

Intangible Assets 56,950

Property, Plant and Equipment 7,371,482

Investment Properties 2,160,914

Investment in Subsidiaries 1,036,000

Investment in Associates 437,994

Financial Instruments Financial instruments represent the financial investments made by the Company, with the aim of earning investment income to increase profitability of the Company. 88,629,157

Employee Gratuity Benefit Asset 1,149,672

Employee Pension Benefit Asset 1,048,119

Reinsurance Receivables Reinsurance receivables represent the amounts receivable by the Company for the claims made the policyholders. 115,010

Income Tax Receivables 787,539

Deferred Tax Assets 181,589

Loans to Life Policyholders Loans to life policyholders include the loans granted by the Company to policyholders. Eligible policyholders can obtain loans up to a predetermined percentage of the surrender value of their policy. 1,630,346

Premium Receivables Premium receivables represent the gross written premium accrued up to the reporting date. 247,393

Other Assets 359,035

Cash and Cash Equivalents 883,303

Total Assets 106,094,505

Equity and Liabilities

Equity

Stated Capital 500,001

Retained Earnings 9,278,621

Revaluation Reserves 100,501

AFS Reserve (60)

Restricted Regulatory Reserve Include a surplus generated from other than participation business. 3,456,184

Special Reserve Represents the value (Net book value) of net assets transferred from Ceylinco Insurance PLC on 1 June 2015 as a result of the segregation. 7,311,651

Total Equity 20,646,898


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As at 31 December 2017 Comment Rs. ’000

Liabilities

Insurance Contract Liabilities – Life Due to the long-term nature of life insurance business, life insurers are required to maintain a separate fund to meet future policyholder obligations. This fund is known as “Insurance Contract Liabilities – Life”, or more commonly as “Life Fund”. An actuarial valuation is performed at each year end to determine the size of the fund necessary in comparison to the assets maintained out of the fund. Any excess of assets over the policy liabilities of the fund, known as the “Life Surplus”, is transferred to the shareholders’ funds of the Company. 81,723,759

Insurance Contract Liabilities – Unit Linked

These items represent the balances of the other separately identifiable funds, in addition to the Life Fund, maintained by the Company. 315,943

Insurance Contract Liabilities – Family Takaful 16,970

Individual Investment Fund ISF 94,233

Reinsurance Payables Reinsurance payables contain amounts outstanding to be paid to reinsurers by the Company as at the reporting date. 165,715

Trade and Other Payables 2,781,246

Bank Overdraft 349,745

Total Liabilities 85,447,611

Total Equity and Liabilities 106,094,505




ACTUARIAL REPORT

30 March 2018To the Directors of Ceylinco Life Insurance Limited

Actuarial Valuation as at 31 December 2017

I have carried out an actuarial valuation of the Life Fund of Ceylinco Life Insurance Limited (“the Company”) as at 31 December 2017. I hereby certify that:

1. I have satisfied myself about the accuracy of the valuation data furnished to me by making a number of reasonableness checks;

2. Adequate and proper reserves have been provided as at 31 December 2017 for all known liabilities in respect of the long term business of the Life Fund, taking into account all bonus declared as at that date in accordance with the requirements of Solvency Margin (Risk Based Capital) Rules 2015 dated 15 December 2015; and

3. Based on information on assets extracted from the audited accounts of the Company for the year ended 31 December 2017, the Company has adequate financial resources to cover its capital requirements in accordance with the Solvency Margin (Risk Based Capital) Rules 2015 dated 15 December 2015.

Yours faithfully

Mark Birch, FIAHead of Core Actuarial SolutionsInsurance Consulting & Technology, Asia Pacific

63 Chulia Street#09-01 OCBC Centre East Singapore 049514

T +65 6880 5688D +65 6880 5688F +65 6880 5699W willistowerswatson.com

Willis Towers Watson Consulting (Singapore) Pte Ltd (198600361K)


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INDEPENDENT AUDITORS’ REPORT

INDEPENDENT AUDITORS’ REPORT TO THE SHAREHOLDERS OF CEYLINCO LIFE INSURANCE LIMITED

Report on the Financial Statements

We have audited the accompanying financial statements of Ceylinco Life Insurance Limited, (“the Company”), and the consolidated financial statements of the Company and its subsidiaries (“Group”), which comprise the statement of financial position as at 31 December 2017, and the statement of comprehensive income, statement of changes in equity and, cash flows statement for the year then ended, and a summary of significant accounting policies and other explanatory information.(set out in Pages 223 to 308)

Board’s Responsibility for the Financial Statements

The Board of Directors (“Board”) is responsible for the preparation of these financial statements that give a true and fair view in accordance with Sri Lanka Accounting Standards, and for such internal controls as Board determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Sri Lanka Auditing Standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain

reasonable assurance about whether the financial statements are free from material misstatements.

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

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

Opinion

In our opinion, the consolidated financial statements give a true and fair view of the financial position of the Group as at 31 December 2017, and of its financial performance and cash flows for the year then ended in accordance with Sri Lanka Accounting Standards.

Report on Other Legal and Regulatory Requirements

As required by Section 163(2) of the Companies Act No. 07 of 2007, we state the following:

a) The basis of opinion, scope and limitations of the audit are as stated above.

b) In our opinion :

– we have obtained all the information and explanations that were required for the audit and, as far as appears from our examination, proper accounting records have been kept by the Company,

– the financial statements of the Company give a true and faire view of the financial position as at 31 December 2017 and of its financial performance and cash flows for the year then ended in accordance with Sri Lanka Accounting Standards, and

– the financial statements of the Company and Group, comply with the requirements of Sections 151 and 153 of the Companies Act No. 07 of 2007.

As required by the Section 47(2) of the regulation of Insurance Industry Act. No.43 of 2000, we state that, the accounting records of the Company have been maintained in the manner required by the rules issued by the Insurance Regulatory Commission of Sri Lanka, so as to clearly indicate the true and fair view of the financial position of the Company.


Ernst & YoungChartered Accountants201 De Saram PlaceP.O. Box 101Colombo 10Sri Lanka

Tel : +94 11 2463500Fax Gen : +94 11 2697369 Tax : +94 11 [email protected]



STATEMENT OF FINANCIAL POSITION

GROUP COMPANY

As at 31 December PageNo.

Note 2017Rs. ’000

2016Rs. ’000

2017Rs. ’000

2016Rs. ’000

Assets

Intangible Assets 235 6 57,337 3,250 56,950 2,759Property, Plant and Equipment 237 7 8,929,678 8,313,787 7,371,482 7,068,635Investment Properties 244 8 1,026,000 1,032,000 2,160,914 1,796,000Investment in Subsidiaries 247 9 – – 1,036,000 1,021,000Investment in Associate 249 10 2,077,665 1,745,146 437,994 437,994

Financial Instruments Held-to-Maturity Financial Assets 251 11. (a) 65,272,728 66,581,929 65,272,728 66,581,929 Loans and Receivables 251 11. (b) 17,973,682 13,664,301 17,199,112 12,998,491 Available-for-Sale Financial Assets 251 11. (c) 3,851,240 1,219,654 3,807,709 1,219,654 Financial Assets at Fair Value Through Profit or Loss 251 11. (d) 2,349,607 165,562 2,349,607 165,562Employee Gratuity Benefit Asset 262 12 1,149,672 697,338 1,149,672 697,338Employee Pension Benefit Asset 262 13 1,048,119 891,933 1,048,119 891,933Reinsurance Receivables 266 14 115,010 41,298 115,010 41,298Income Tax Receivables 268 15. (a) 789,139 1,044,662 787,539 1,042,571Deferred Tax Assets 269 15. (d) 181,589 – 181,589 –Loans to Life Policyholders 270 16 1,630,346 1,378,954 1,630,346 1,378,954Premium Receivables 247,395 214,604 247,393 214,604Other Assets 271 17 396,326 343,380 359,035 315,112Cash and Cash Equivalents 271 18 894,540 600,104 883,303 584,256Total Assets 107,990,074 97,937,903 106,094,505 96,458,089

Equity and LiabilitiesEquity Attributable to Equity Holders of ParentStated Capital 272 19. (a) 500,001 500,001 500,001 500,001Retained Earnings 272 19. (b) 10,628,715 5,165,535 9,278,621 4,003,754AFS Reserves 272 19. (b) 46,196 24,212 (60) (60)Revaluation Reserves 272 19. (b) 318,887 290,772 100,501 96,484Restricted Regulatory Reserves 273 19. (d) 3,456,184 – 3,456,184 –Special Reserves 272 19. (c) 7,311,651 7,311,651 7,311,651 7,311,651Total Ordinary Shareholders’ Equity 22,261,634 13,292,171 20,646,898 11,911,830Non-Controlling Interests 6,013 6,464 – –Total Equity 22,267,646 13,298,635 20,646,898 11,911,830

LiabilitiesInsurance Contract Liabilities – Life 274 20 81,726,139 77,927,494 81,723,759 77,925,114Insurance Contract Liabilities – Unit Linked 274 20 315,943 265,685 315,943 265,685Insurance Contract Liabilities – Family Takaful 274 20 16,970 10,563 16,970 10,563Individual Investment Fund – ISF 274 20 94,233 56,881 94,233 56,881Employee Gratuity Benefit Liability 262 12 11,683 12,750 – –Other Financial Liabilities 279 21. (a) – 2,980,013 – 2,980,013Deferred Tax Liabilities 269 15. (c) 176,807 261,847 – 227,716Reinsurance Payables 280 22 165,715 25,837 165,715 25,837Trade and Other Payables 280 23 2,849,523 1,853,052 2,781,246 1,824,372Interest-Bearing Borrowings 279 21. (b) – 1,000,000 – 1,000,000Bank Overdraft 271 18 365,414 245,142 349,745 230,080Total Liabilities 85,722,427 84,639,264 85,447,611 84,546,260Total Equity and Liabilities 107,990,074 97,937,903 106,094,505 96,458,089

Certification

The above Statement of Financial Position is to be read in conjunction with the Notes to the Financial Statements on pages 230 to 308 which form an integral part of the Financial Statements.

These Financial Statements have been prepared in compliance with the requirements of the Companies Act No. 07 of 2007.

P A JayawardenaDirector/Chief Financial Officer

The Board of Directors is responsible for these Financial Statements.

Approved and signed on behalf of the Board by,

R Renganathan E T L Ranasinghe Managing Director/Chief Executive Officer Director/Deputy Chief Executive Officer

30 March 2018


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STATEMENT OF COMPREHENSIVE INCOME

GROUP COMPANY

For the Year Ended 31 December PageNo.

Note 2017Rs. ’000

2016Rs. ’000

Change%

2017Rs. ’000

2016Rs. ’000

Change%

Net Income 25,979,885 23,604,912 10.06 25,623,814 23,434,460 9.34

Gross Written Premiums 281 24. (a) 15,765,392 15,027,469 4.91 15,765,484 15,027,600 4.91

Premiums Ceded to Reinsurers 281 24. (b) (422,217) (373,829) 12.94 (422,217) (373,829) 12.94

Net Written Premiums 15,343,175 14,653,641 4.71 15,343,267 14,653,771 4.71

Revenue from Subsidiaries 282 24. (e) 328,917 332,235 (1.00) – – –

15,672,093 14,985,876 4.58 15,343,267 14,653,771 4.71

Fees and Commission Income 282 25 127,129 120,399 5.59 127,129 120,399 5.59

Investment Income 282 26 9,894,635 8,195,998 20.73 9,866,801 8,180,786 20.61

Realised Gains 283 27 39,421 (829) 4,855.17 39,421 (5,283) 846.18

Fair Value Gains and Losses 284 28 215,095 287,643 (25.22) 215,095 470,023 (54.24)

Other Operating Revenue 31,513 15,825 99.13 32,101 14,763 117.44

Other Revenue 10,307,793 8,619,036 19.59 10,280,547 8,780,689 17.08

Gross Benefits and Claims Paid 284 29. (a) (6,883,413) (6,800,076) 1.23 (6,884,013) (6,800,076) 1.23

Claims Ceded to Reinsurers 284 29. (b) 197,033 148,394 32.78 197,033 148,394 32.78

Gross Change in Contract Liabilities 284 29. (c) (7,258,502) (8,397,889) (13.57) (7,258,502) (8,397,889) (13.57)

Change in Contract Liabilities Due to Transfer of One-Off Surplus 284 29. (d) 3,456,184 – – 3,456,184 – –

Net Benefits and Claims (10,488,698) (15,049,571) (30.31) (10,489,299) (15,049,571) (30.30)

Direct Costs of Subsidiaries (181,627) (142,333) 27.61 – – –

Acquisition Cost 285 30 (1,782,479) (1,686,858) 5.67 (1,782,479) (1,693,985) 5.22

Other Operating and Administrative Expenses 286 31 (3,706,968) (3,063,490) 20.52 (3,532,496) (2,937,262) 20.26

Finance Cost 286 32 (13,244) (9,934) 33.31 (12,005) (9,915) 21.08

Total Benefits, Claims and Other Expenses (16,173,017) (19,952,187) (18.94) (15,816,279) (19,690,733) (19.68)

Profit Before Share of Associates 9,806,868 3,652,725 168.48 9,807,535 3,743,727 161.97

Share of Profit of Associate 250 10. (b) 346,032 319,658 8.25 – – –

Profit Before Tax 10,152,900 3,972,384 155.59 9,807,535 3,743,727 161.97

Tax Expense 288 33. (c) (495,892) (680,635) (27.14) (340,109) (664,686) (48.83)

Profit for the Year 9,657,009 3,291,748 193.37 9,467,426 3,079,042 207.48

Profit Attributable to:

Equity Holders of the Parent 9,656,646 3,291,610 193.37 9,467,426 3,079,042 207.48

Non-Controlling Interests 290 34. (b) 363 138 163.04 – –

9,657,009 3,291,748 193.37 9,467,426 3,079,042 207.48

Basic Earnings Per Share (Including One-Off Surplus Transfer) 290 35 (a) 193.13 65.83 193.37 189.35 61.58 207.48

Basic Earnings Per Share (Excluding One-Off Surplus Transfer) 291 35 (b) 124.01 65.83 88.37 120.22 61.58 95.23

Dividend Per Share 291 36 9.00 7.50 20.00 9.00 7.50 20.00

The above Statement of Comprehensive Income is to be read in conjunction with the Notes to the Financial Statements on pages 230 to 308 which form an integral part of the Financial Statements.



GROUP COMPANY

For the Year Ended 31 December Page No.

Note 2017Rs. ’000

2016Rs. ’000

2017Rs. ’000

2016Rs. ’000

Profit for the Year 9,657,009 3,291,748 9,467,426 3,079,042

Other Comprehensive Income

Items that will not be Reclassified Subsequently to Income Statement

Revaluation Surplus/(Deficit) During the Year – 1,887,085 – 1,704,705

Actuarial Gain on Defined Benefit Plans 292 37 (206,728) (221,053) (206,728) (221,053)

Share of Other Comprehensive Income of Equity Accounted Investees 16,252 14,222 – –

Items that may be Reclassified Subsequently to Income Statement

Share of Other Comprehensive Income of Equity Accounted Investees 21,983 17,474 – –

Net Gain/(Loss) on Available-for-Sale Assets 292 37 (20,685) 27,001 (20,685) 27,001

Income Tax Relating to Components of Other Comprehensive Income 292 37 27,257 (24,919) 27,257 (24,919)

Other Comprehensive Income for the Year, Net of Tax (161,920) 1,699,810 (200,156) 1,485,733

Total Comprehensive Income for the Year, Net of Tax 9,495,088 4,991,558 9,267,270 4,564,776

Total Comprehensive Income Attributable to:

Equity Holders of the Parent 9,494,725 4,991,420 9,267,270 4,564,776

Non-Controlling Interests 363 138 – –

9,495,088 4,991,558 9,267,270 4,564,776

The above Statement of Comprehensive Income is to be read in conjunction with the notes to the Financial Statements on pages 230 to 308 which form an integral part of the Financial Statements.

STATEMENT OF COMPREHENSIVE INCOME


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STATEMENT OF CHANGES IN EQUITY

Attributable to Equity Holders of the Parent

Group Note StatedCapital

Rs. ’000

Special Reserve

Rs. ’000

Restricted Regulatory

ReserveRs. ’000

Revaluation Reserves

Rs. ’000

RetainedEarnings

Rs. ’000

Available-for-Sale

ReserveRs. ’000

Total Ordinary Share-holders’

EquityRs. ’000

Non-Controlling

InterestsRs. ’000

Total Equity

Rs. ’000

Balance as at 1 January 2016 500,001 7,311,651 – – 2,683,456 (92,663) 10,402,445 6,326 10,408,771

Net Profit for the Year – – – – 3,291,610 – 3,291,610 138 3,291,748

Other Comprehensive Income for the Year – – – 1,880,345 (225,906) 45,371 1,699,810 – 1,699,810

Total Comprehensive Income for the Year – – – 1,880,345 3,065,704 45,371 4,991,420 138 4,991,558

Final Dividend Paid – 2015 36 – – – – (312,500) – (312,500) – (312,500)

Interim Dividend Paid – 2016 36 – – – – (271,125) – (271,125) – (271,125)

Transferred to Long-term Insurance Fund – – – (1,589,573) – 71,504 (1,518,069) – (1,518,069)

Balance as at 31 December 2016 500,001 7,311,651 – 290,772 5,165,535 24,212 13,292,171 6,464 13,298,635

Net Profit for the Year – – 3,456,184 – 6,200,461 – 9,656,645 363 9,657,008

Other Comprehensive Income for the Year – – – 28,115 (208,345) 18,310 (161,921) – (161,921)

Total Comprehensive Income for the Year – – 3,456,184 28,115 5,992,116 18,310 9,494,725 363 9,495,088

Final Dividend Paid – 2016 36 – – – – (103,875) – (103,875) – (103,875)

Interim Dividend Paid – 2017 36 – – – – (425,061) – (425,061) (814) (425,875)

Transferred to Long-term Insurance Fund – – – – – 3,674 3,674 – 3,674

Balance as at 31 December 2017 500,001 7,311,651 3,456,184 318,887 10,628,715 46,196 22,261,634 6,013 22,267,646

Company Note Stated Capital

Rs. ’000

Special Reserve

Rs. ’000

Restricted Regulatory

ReserveRs. ’000

Revaluation Reserves

Rs. ’000

Retained Earnings

Rs. ’000

Available-for-Sale

ReserveRs. ’000

Total OrdinaryShare-holders’

EquityRs. ’000

Total Equity

Rs. ’000

Balance as at 1 January 2016 500,001 7,311,651 – – 1,733,281 (98,563) 9,446,370 9,446,370

Net Profit for the Year – – – – 3,079,042 – 3,079,042 3,079,042

Other Comprehensive Income for the Year – – – 1,683,677 (224,944) 27,001 1,485,734 1,485,734

Total Comprehensive Income for the Year – – – 1,683,677 2,854,098 27,001 4,564,776 4,564,776

Final Dividend Paid – 2015 36 – – – – (312,500) – (312,500) (312,500)

Interim Dividend Paid – 2016 36 – – – – (271,125) – (271,125) (271,125)

Transferred to Long-term Insurance Fund – – – (1,587,193) – 71,502 (1,515,691) (1,515,691)

Balance as at 31st December 2016 500,001 7,311,651 – 96,484 4,003,754 (60) 11,911,830 11,911,830

Net Profit for the Year – – 3,456,184 – 6,011,241 – 9,467,426 9,467,426

Other Comprehensive Income for the Year – – – 4,017 (200,499) (3,674) (200,156) (200,156)

Total Comprehensive Income for the Year – – 3,456,184 4,017 5,810,742 (3,674) 9,267,270 9,267,270

Final Dividend Paid – 2016 36 – – – – (103,875) – (103,875) (103,875)

Interim Dividend Paid – 2017 36 – – – – (432,000) – (432,000) (432,000)

Transferred to Long-Term Insurance Fund – – – – – 3,674 3,674 3,674

Balance as at 31 December 2017 500,001 7,311,651 3,456,184 100,501 9,278,621 (60) 20,646,898 20,646,898

The above Statement of Cash Flow is to be read in conjunction with the Notes to the Financial Statements on pages 230 to 308 which form an integral part of the Financial Statements.



STATEMENT OF CASH FLOWS

GROUP COMPANY

For the Year Ended 31 December Note 2017Rs. '000

2016 Rs. '000

2017Rs. '000

2016Rs. '000

Cash Flows from Operating Activities

Premiums/Revenue Received from Customers 15,817,109 15,038,006 15,817,201 15,038,136

Reinsurance Premiums (Net of Commission) Paid (282,338) (406,145) (282,338) (406,145)

Commission Paid (1,759,704) (1,855,514) (1,760,304) (1,862,641)

Claims and Benefits Paid (6,613,051) (6,529,593) (6,613,051) (6,529,593)

Reinsurance Receipts in Respect of Claims and Benefits 4,598 90,071 4,598 90,071

Interest and Dividends Received 10,664,230 7,296,843 10,598,198 7,282,047

Other Operating Cash Payments (3,176,422) (2,739,305) (3,249,950) (2,671,123)

Other Income 75,727 198,060 65,990 49,800

Contributions to Gratuity Fund/Gratuity Payments (162,129) (151,158) (158,794) (151,158)

Income Taxes Paid (8,075) (2,091) – –

Interest Paid (39,977) (9,919) (12,005) (9,915)

Net Cash Flows from Operating Activities Note A 14,519,968 10,929,255 14,409,545 10,829,478

Cash Flows from Investing Activities

Investments in/Proceeds from Subsidiaries/Associates – – – (572,441)

Proceeds from Sale of Investment Property 7,425 – 7,425 –

Acquisition of Financial Investments (377,482,324) (340,354,067) (376,305,598) (335,311,989)

Proceeds from Financial Investments 368,502,930 326,618,872 367,460,490 322,238,586

Acquisition of Property, Plant and Equipment 7 (916,780) (289,528) (885,631) (281,328)

Proceeds from Disposal of Property, Plant and Equipment 29,194 181,054 29,194 177,454

Acquisition of Intangible Assets 6 (57,038) (3,103) (57,038) (3,103)

REPO Borrowings (Net) (2,923,131) 2,680,202 (2,980,013) 2,680,203

Net Cash Flows from Investing Activities (12,839,724) (11,166,570) (12,731,171) (11,072,618)

Cash Flows from Financing Activities

Proceeds from Short-Term Borrowing (999,335) 1,000,000 (1,000,000) 1,000,000

Dividends Paid to Equity holders (506,745) (557,380) (498,992) (557,380)

Net Cash Flows from Financing Activities (1,506,079) 442,620 (1,498,992) 442,620

Increase/(Decrease) in Cash and Cash Equivalents Note B 174,164 205,304 179,382 199,480


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For the Year Ended 31 December Note 2017Rs. '000

2016 Rs. '000

2017Rs. '000

2016Rs. '000

Note A

Reconciliation of Profit Before Tax with Net Cash Flows from Operating Activities

Profit Before Tax 9,806,868 3,972,384 9,807,535 3,743,727

Adjustments for:

Depreciation 7 275,010 269,947 196,765 201,669

Provision for Gratuity and Pension (41,847) 153,550 (45,741) 151,158

Amortisation of Intangible Assets 6 2,951 1,093 2,847 989

Change in Trade and Other Receivables (213,329) (1,832,641) (204,767) (1,627,307)

Change in Reinsurance Receivables (73,712) 4,709 (73,712) 4,709

Increase in Life Insurance Funds 29 (c) 7,258,502 8,397,889 7,258,502 8,397,889

Increase in Unit-Linked Fund 50,258 25,031 50,258 25,031

Increase in Takaful Fund 6,406 5,855 6,406 5,855

Increase in Individual Investment Fund (IFS) 37,353 34,181 37,353 34,181

Change in Contract Liabilities due to Transfer of One-Off Surplus 19 (d) (3,456,184) – (3,456,184) –

Change in Trade and Other Payables 1,357,990 528,973 1,227,510 517,033

Realised Gain (17,859) (7,875) (23,341) (4,275)

Fair Value Gain Recorded in Income Statement (300,610) (470,023) (215,095) (470,023)

Income Tax Paid (8,075) (2,659) – –

Payment to Gratuity and Pension Funds (163,755) (151,158) (158,794) (151,158)

Net Cash Flows from Operating Activities 14,519,968 10,929,255 14,409,545 10,829,478

Note B

Cash and Cash Equivalents at 1 January 354,962 149,657 354,176 154,696

Cash and Cash Equivalents at 31 December Note C 529,126 354,962 533,558 354,176

Increase/(Decrease) in Cash and Cash Equivalents 174,164 205,304 179,382 199,480

Note C

Cash at Bank and in Hand 18 894,540 600,104 883,303 584,256

Bank Overdraft 18 (365,414) (245,142) (349,745) (230,080)

18 529,126 354,962 533,558 354,176

The above Statement of Cash Flow is to be read in conjunction with the Notes to the Financial Statements on pages 230 to 308 which form an integral part of the Financial Statements.

STATEMENT OF CASH FLOWS



INSURANCE REVENUE ACCOUNT

COMPANY

For the Year Ended 31 December Glossary Item 2017Rs. '000

2016 Rs. '000

Change %

Gross Written Premium 15 15,765,484 15,027,600 4.91

Net Written Premium (Net of Premium Ceded to Reinsurers) 27 15,343,267 14,653,771 4.71

Investment and Other Income Attributable to Policyholders 9,459,168 7,975,299 18.61

Net Benefits and Claims Paid (6,686,980) (6,651,682) 0.53

Increase in Long-Term Insurance Fund (7,258,502) (8,397,889) (13.57)

Acquisition Cost 1 (1,782,479) (1,693,985) 5.22

Operating and Administrative Expenses Attributable to Policyholders (4,194,810) (2,969,190) 41.28

Interest Expense (10,531) (8,984) 17.22

Tax Expenses (369,131) (607,340) (39.22)

Surplus from Life Insurance Business 20 4,500,000 2,300,000 95.7

Change in Contract Liabilities Due to Transfer of One-Off Surplus 3,456,184 – –

Surplus from Life Insurance Business 4,500,000 2,300,000 95.65

Investment and Other Income Not Attributable to Policyholders 821,379 805,390 1.99

Operating and Administrative Expenses Not Attributable to Policyholders 662,315 31,929 1,974.34

Interest Expense Not Attributable to Policyholders (1,474) (932) 58.17

Tax Expenses Not Attributable to Policyholders 29,022 (57,346) (150.61)

Profits from Operations After Interest Expense 9,467,426 3,079,041 207.48


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17 1. Corporate Information

Entity information

1.1. Reporting Entity

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

1.2. Nature of Operations and Principal Activities

Descriptions of the nature of operations and principal activities of the Company, its Subsidiaries and Associate are given on page 38. There were no significant changes in the nature of the principal activities of the Company and the Group during the financial year under review.

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

Financial Statements

1.3. Consolidated Financial Statements

The Consolidated Financial Statements of Ceylinco Life Insurance Limited, as at and for the year ended 31 December 2017 encompass the Company, its Subsidiaries (together referred to as the “Group”) and the Group’s interest in Associates. All companies in the Group are limited liability companies incorporated and domiciled in Sri Lanka.

The assets and liabilities presented in the Statement of Financial Position are grouped by nature and listed in an order that reflects their relative liquidity and maturity pattern.

No adjustments have been made for inflationary factors affecting the Financial Statements.

1.4. Responsibility for Financial Statements

The Board of Directors is responsible for the Financial Statements of the Group/Company as per the provisions of the Companies Act No. 07 of 2007 and the Sri Lanka Accounting Standards. The responsibility of the Directors in relation to the Financial Statements is set out in detail in the Statement of Directors’ Responsibility to Financial Reporting is on page 213.

1.5. Approval of Financial Statements

The Consolidated Financial Statements of Ceylinco Life Insurance Limited and its Subsidiaries (collectively, the Group) for the year ended 31 December 2017 were authorised for issue by the Directors on 30 March 2018.

2. Basis of Accounting

2.1. Statement of Compliance

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

2.2. Basis of Measurement

The Financial Statements, except for information on cash flows, have been prepared on accrual basis under the historical cost convention except for the following:

Item Basis of Measurement

Land and buildings Initially at cost and subsequently at revalued amount

Investment property Fair value

Financial assets at fair value through profit or loss and available-for-sale financial assets

Fair value

Policyholder liabilities Valued actuarially

Net defined benefit assets or liabilities

Valued actuarially and recognised at present value

2.3. Functional and Presentation Currency

Items included in the Financial Statements of the Group are measured using the currency of the primary economic environment in which the Company operates (the Functional Currency). These Financial Statements are presented in Sri Lankan rupees, the Company’s Functional and Presentation Currency. There was no change in the Company’s Presentation and Functional Currency during the year under review. All amounts presented in rupees have been rounded to the nearest rupees thousand (Rs. ’000), except when otherwise indicated.

2.4. Materiality and Aggregation

Each item which is similar in nature is presented separately if material. Items of dissimilar nature or function are presented separately unless they are immaterial as permitted LKAS 1 – “Presentation of Financial Statements”.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS




2.5. Going Concern

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

2.6. Comparative Information

The presentation and classification of assets and liabilities in the Financial statements of the previous year have been amended, where relevant for better presentation and to be comparable with those of the current year and reclassifications are presented in note 44 on page 307.

3. Summary of Significant Accounting Policies

Policies disclosed within individual notes

A summary of significant accounting policies have been disclosed along with the relevant individual notes to the Financial Statements. The accounting policies presented within each note have been applied consistently by the Group.

Policies not covered with individual notes

Following accounting policies which have been applied consistently by the Group, are considered to be significant but are not covered with individual notes.

(a) Insurance Receivables

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

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

(b) Cash Flow Statement

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

4. Use of Judgements, Estimates and Assumptions

The preparation of Financial Statements in conformity with Sri Lanka Accounting Standards (SLFRS and LKAS) requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

Estimates and underlying assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making the judgements about the carrying amount of assets and liabilities that are not readily apparent from other sources. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in

any future periods affected. Information about significant areas of estimation under uncertainty and critical judgements in applying accounting policies that have the most significant effect on the amounts recognised in the Financial Statements is included in the following Notes:

Critical Accounting Judgements, Estimates and Assumptions

Disclosure Reference

Note Page

Insurance Provision – Life 20 274

Valuation of Investment Property

8. (a) 245

Deferred Tax – Utilisation of Tax Losses

33. (e) 289

Measurement of Defined Benefit Obligation

12-13 262


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17NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

5. Segment Information

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

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

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

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

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

(i) The Company offers a wide range of whole life, endowment, anticipated endowment, term insurance, mortgage protection, retirement and Group insurance products.

(ii) Healthcare segment includes Healthcare Centre for Cancer Screening, Radiation Treatment Unit and Diabetes Centre.

(iii) Other segment includes Investment Management Services.

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

5. (a) Segment Income Statement for the Year Ended 31 December 2017

Life InsuranceSegment Rs. ’000

HealthcareSegmentRs. ’000

Other Operations

Rs. ’000

Adjustments andEliminations

Rs. ’000

Total

Rs. ’000

Gross Premiums 15,765,484 – – (91) 15,765,392

Premiums Ceded to Reinsurers (422,217) – – – (422,217)

Net Premiums 15,343,267 – – (91) 15,343,176

Income from Subsidiaries – 341,195 161 (12,440) 328,917

Fees and Commission Income 127,129 – – – 127,129

Investment Income 9,866,801 57,884 31,353 (61,403) 9,894,635

Realised Gains 39,421 – – – 39,421

Fair value Gains and Losses 215,095 – – – 215,095

Other Operating Revenue 32,101 (181) 1,467 (1,873) 31,513

Other Revenue Including Revenue from Subsidiaries 10,280,547 398,898 32,981 (75,716) 10,636,710

Segment Revenue 25,623,814 398,898 32,981 (75,808) 25,979,886

Gross Benefits and Claims Paid (6,884,013) – – 600 (6,883,413)

Claims Ceded to Reinsurers 197,033 – – – 197,033

Gross Change in Contract Liabilities (7,258,502) – – – (7,258,502)

Change in Contract Liabilities due to Transfer of One-Off Surplus 3,456,184 – – – 3,456,184

Net Benefits and Claims (10,489,298) – – 600 (10,488,698)

Direct Cost of Subsidiaries – (176,364) (5,264) – (181,627)

Acquisition Cost (1,782,479) – – – (1,782,479)

Other Operating and Administrative Expenses (3,532,496) (140,042) (21,357) (13,073) (3,706,968)

Finance Costs (12,005) – (1,239) – (13,244)

Other Expenses (5,326,980) (316,406) (27,860) (13,073) 5,684,319

Segment Benefits, Claims and Other Expenses (15,816,280) (316,406) (27,860) 12,473 16,173,017

Share of Profit of Associates – – – 346,032 346,032

Segment Results before Tax 9,807,536 82,493 5,122 257,752 10,152,901




5. (b) Segment Income Statement for the Year Ended 31 December 2016

Life Insurance Segment Rs. ’000

Healthcare Segment

Rs. ’000

Other Operations

Rs. ’000

Adjustments and Eliminations

Rs. ’000

Total

Rs. ’000

Gross Premiums 15,027,600 – – (130) 15,027,470

Premiums Ceded to Reinsurers (373,829) – – – (373,829)

Net Premiums 14,653,771 – – (130) 14,653,641

Income from Subsidiaries – 338,904 8,324 (23,317) 323,911

Fees and Commission Income 120,399 – – – 120,399

Investment Income 8,180,786 12,873 4,408 (2,069) 8,195,998

Realised Gains (5,283) 3,600 – 854 (829)

Fair Value Gains and Losses 470,023 – – (182,380) 287,643

Other Operating Revenue 14,763 921 141 – 15,825

Other Revenue Including Revenue from Subsidiaries 8,780,688 356,298 12,873 (206,912) 8,942,947

Segment Revenue 23,434,459 356,298 12,873 (207,042) 23,596,588

Gross Benefits and Claims Paid (6,800,076) – – – (6,800,076)

Claims Ceded to Reinsurers 148,394 – – – 148,394

Gross Change in Contract Liabilities (8,397,889) – – – (8,397,889)

Change in Contract Liabilities due to Transfer of One-Off Surplus – – – – –

Net Benefits and Claims (15,049,571) – – – (15,049,571)

Direct Cost of Subsidiaries – (142,333) – – (142,333)

Acquisition Cost (1,693,985) – – 7,127 (1,686,858)

Other Operating and Administrative Expenses (2,937,262) (130,206) (5,235) 9,213 (3,063,490)

Finance Costs (9,915) – (19) – (9,934)

Other Expenses (4,641,162) (272,539) (5,254) 16,340 (4,902,615)

Segment Benefits, Claims and Other Expenses (19,690,733) (272,539) (5,254) 16,340 (19,952,186)

Share of Profit of Associates – – – 319,658 319,658

Segment Results before Tax 3,743,726 83,759 7,619 128,956 3,964,060

5. (c) Segment Statement of Financial Position as at 31 December 2017


Healthcare Segment

Rs. ’000

Other Operations

Rs. ’000


Rs. ’000

Total

Rs. ’000

Intangible Assets 56,950 388 – – 57,338

Property, Plant and Equipment 7,371,482 414,419 23,450 1,120,324 8,929,675

Investment Property 2,160,914 – – (1,134,914) 1,026,000

Investment in Associates 437,994 – – 1,639,671 2,077,665

Investments in Subsidiaries 1,036,000 – 44,649 (1,080,649) –

Financial Instruments 88,629,157 540,577 277,524 – 89,447,265

Reinsurance Assets 115,010 – – – 115,010

Loans to Policyholders 1,630,346 – – – 1,630,346

Premium Receivables 247,393 – – – 247,393

Other Assets 4,409,259 27,329 22,798 – 4,459,386

Total Assets 106,094,505 982,713 368,422 544,433 107,990,074

Insurance Contract Liabilities 82,150,905 – – 2,380 82,153,285

Other Liabilities 3,296,706 79,705 53,771 138,961 3,569,143

Total Liabilities 85,447,611 79,705 53,771 141,341 85,722,428


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5. (d) Segment Statement of Financial Position as at 31 December 2016


Healthcare Segment

Rs. ’000

Other Operations

Rs. ’000


Rs. ’000

Total

Rs. ’000

Intangible Assets 2,759 491 – – 3,250

Property, Plant and Equipment 7,068,635 478,272 2,879 764,000 8,313,786

Investment Property 1,796,000 – – (764,000) 1,032,000

Investment in Associates 437,994 – – 1,307,152 1,745,146

Investments in Subsidiaries 1,021,000 – – (1,021,000) –

Financial Instruments 80,965,635 417,308 248,504 – 81,631,447

Reinsurance Assets 41,298 – – – 41,298

Loans to Policyholders 1,378,954 – – – 1,378,954

Premium Receivables 214,604 – – – 214,604

Other Assets 3,531,210 25,588 20,619 – 3,577,417

Total Assets 96,458,090 921,659 272,002 286,152 97,937,903

Insurance Contract Liabilities 78,258,243 – – 2,380 78,260,623

Other Liabilities 6,288,017 82,278 3,257 5,088 6,378,640

Total Liabilities 84,546,260 82,278 3,257 7,468 84,639,263

5. (e) Summarised information of Significant Subsidiaries Including NCI

Summarised Statement of Comprehensive Income


2017Rs. ’000

2016Rs. ’000

Revenue 341,195 338,904

Cost of Sales (176,364) (142,333)

Other Income 821 4,521

Administrative Expenses (134,006) (129,062)

Selling and Distribution Expenses (6,036) (1,143)

Net Finance Income/(Cost) 56,881 12,873

Profit Before Tax 82,493 83,759

Summarised Statement of Financial Position


2017Rs. ’000

2016Rs. ’000

Current Assets 567,906 442,896

Non-Current Assets 414,806 478,763

Total Assets 982,712 921,659

Current Liability 31,751 36,413

Non-Current Liability 47,953 45,865

Total Equity 903,007 839,381

Total Assets and Liabilities 982,712 921,659




Summarised Statement of Cash Flows


2017Rs. ’000

2016Rs. ’000

Net Cash flow from Operating activities 73,536 152,838

Net Cash flow from Investing activities (70,296) (399,537)

Net Cash flow from Financing activities (7,753) 250,000

Net Increase/(Decrease) In cash and cash equivalents (4,513) 3,301

Cash and Cash Equivalents at the Beginning of the Year (2,413) (5,715)

Cash and Cash Equivalents at the End of the Year (6,926) (2,413)

6. Intangible Assets

Accounting policyAn intangible asset is recognised if it is probable that the future economic benefits that are attributable to the asset will flow to the Group and the cost of the asset can be measured reliably. An intangible asset is initially measured at cost. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and any accumulated impairment losses. Internally generated intangibles are not capitalised and the related expenditure is reflected in profit or loss in the year in which the expenditure is incurred.

Intangible assets with finite useful lives

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

The estimated useful lives for Intangible Assets are as follows:

Item Useful life

Computer Software 3-5 years

Intangible assets with indefinite useful lives

Intangible assets with indefinite useful lives are tested for impairment annually either individually or at cash generating unit level, irrespective of whether there is an indication of impairment. Such intangibles are not amortised. The useful life of an intangible asset with an indefinite life is reviewed annually to determine whether indefinite life assessment continues to be supportable. If not, the change in the useful life assessment from indefinite to finite is made on a prospective basis.

Derecognition

The carrying amount of an intangible asset is derecognised on disposal or when no future economic benefits are expected from its use. Gain or loss arising from derecognition of an intangible asset is calculated as the difference between the net disposal proceeds and the carrying amount of the asset as at the date of disposal, and are recognised in the Statement of Profit or Loss when the asset is derecognised.


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GROUP COMPANY

Note Computer Software and License

Rs. ’000

Total

Rs. ’000

Computer Software and License

Rs. ’000

Total

Rs. ’000

Cost

As at 1 January 2016 291,354 291,354 279,893 279,893

Addition During the Year 3,103 3,103 3,103 3,103

As at 1 January 2017 294,457 294,457 282,996 282,996

Addition During the Year 57,038 57,038 57,038 57,038

As at 31 December 2017 351,495 351,495 340,034 340,034

Accumulated Amortisation and Impairment

As at 1 January 2016 290,114 290,114 279,248 279,248

Amortisation for the Year 31 1,093 1,093 989 989

As at 1 January 2017 291,207 291,207 280,237 280,237

Amortisation for the Year 31 2,951 2,951 2,847 2,847

As at 31 December 2017 294,158 294,158 283,084 283,084

Carrying Amount

As at 1 January 2017 3,250 3,250 2,759 2,759

As at 31 December 2017 57,337 57,337 56,950 56,950

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

During the year, the Group/Company acquired intangible assets to the aggregate value of Rs. 57 Mn. and cash payments amounting to Rs. 57 Mn. were made during the year of purchase of intangible assets.

6. (b) Fully-Amortised Intangible Assets in Use

Intangible Assets includes fully amortised Computer Software which are in the use of normal business activities having a gross carrying amounts of Rs. 280.1 Mn. (2016 – Rs. 277 Mn.).

6. (c) Title Restriction on Intangible AssetsThere were no restrictions that existed on the title of the Intangible Assets of the Company/Group as at the reporting date.

6. (d) Assessment of Impairment of Intangible Assets

The Board of Directors has assessed potential impairment indicators of Intangible Assets as at 31 December 2017. Based on the assessment, no impairment indicators were identified.

6. (e) Capitalisation of Borrowing Costs

There were no capitalised borrowing costs related to the acquisition of Intangible Assets during the year (2016 – Nil).




7. Property, Plant and Equipment

Accounting policyProperty, plant and equipment are tangible items that are held for use in the production or supply of goods or services, for rental to others or for administrative purposes and are expected to be used during more than one period.

Basis of recognition

Property, plant and equipment are recognised if it is probable that future economic benefits associated with the asset will flow to the Group and the cost of the asset can be measured reliably in accordance with "LKAS 16 – Property, Plant and Equipment”.

Basis of measurement

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

Initially items of property, plant and equipment are measured at its cost. Cost includes expenditure that is directly attributable to the acquisition or construction of the asset. The cost of self-constructed assets includes the cost of materials and direct labour, any other costs directly attributable to bringing the assets to a working condition for their intended use and the costs of dismantling and removing the items and restoring the site on which they are located. Purchased software that is integral to the functionality of the related equipment is capitalised as part of that equipment. Borrowing costs related to the acquisition or construction of qualifying assets are also capitalised.

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

Subsequent Costs

The cost of replacing part of an item of property, plant and equipment is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Group and its cost can be measured reliably. The carrying amount of the replaced part is derecognised. The costs of the day-to-day servicing of property, plant and equipment are recognised in profit or loss as incurred.

Depreciation

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

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

Item Useful Life

Buildings 50-70 years

Furniture and Fittings 5-10 years

Office Equipment 3-10 years

Computer Equipment 2-5 years

Motor Vehicles 4-5 years

Plant and Machinery/Project Equipment 3-5 years

Medical Equipment 5 years

Electrical Equipment 5 years


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Revaluation

Revaluation is performed on freehold land and buildings by professionally qualified valuers using the open market value. Land and buildings are revalued in every three years. The revaluation surplus is recognised on the net carrying value of the asset.

Any revaluation gain or loss attributable to policyholders is recognised in the Life Insurance Fund, whereas any revaluation gain or loss attributable to shareholders is recognised in revaluation reserve.

Impairment

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

The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.

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

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

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

Derecognition

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

Group Note Freehold Land

Rs. ’000

Building

Rs. ’000

Plant and Machinery

Rs. ’000

Motor VehiclesRs. ’000

Office Equipment

Rs. ’000

ComputerEquipment

Rs. ’000

Furniture and Fittings

Rs. ’000

Capital WIP

Rs. ’000

Total

Rs. ’000

Cost/Valuation

As at 1 January 2016 2,953,726 2,207,108 861,413 478,743 483,594 567,944 365,165 1,953 7,919,646

Additions During the Year 94,836 102,711 – 19,953 40,404 20,525 11,102 87,900 377,431

Transfers – – – – – – – (63,915) (63,915)

Disposals (30,000) – – (28,296) (1,884) (130,493) (1,189) – (191,862)

Revaluation 1,602,438 171,681 – – – – – – 1,774,119

As at 1 January 2017 4,621,000 2,481,500 861,413 470,400 522,114 457,976 375,078 25,938 9,815,419

Additions During the Year 486,977 157,293 40 115,002 68,139 72,271 10,986 104,789 934,686

Transfers – – – – – – – (104,575) 104,575

Disposals – – – (46,316) (4,591) (20) (2,306) – (53,233)

As at 31 December 2017 5,107,977 2,638,793 861,453 539,086 585,662 530,227 383,758 26,152 10,673,108




Group Note Freehold Land

Rs. ’000

Building

Rs. ’000

Plant and Machinery

Rs. ’000

Motor VehiclesRs. ’000

Office Equipment

Rs. ’000

ComputerEquipment

Rs. ’000


Rs. ’000

Capital WIP

Rs. ’000

Total

Rs. ’000

Accumulated Depreciation

As at 1 January 2016 – 65,052 349,496 190,380 253,751 390,354 206,891 – 1,455,924

Depreciation for the Year 31 – 39,414 60,133 55,960 41,780 44,123 28,538 – 269,948

Disposals – (104,466) – (17,020) (1,218) (100,482) (1,054) – (224,240)

As at 1 January 2017 – – 409,629 229,320 294,313 333,995 234,375 – 1,501,632

Depreciation for the Year 31 – 54,645 55,472 56,519 44,598 39,641 24,135 – 275,010

Disposals – – – (27,189) (4,141) (11) (1,871) – (33,212)

As at 31 December 2017 – 54,645 465,101 258,650 334,770 373,625 256,639 – 1,743,430

Carrying Amount

As at 1 January 2017 4,621,000 2,481,500 451,784 241,080 227,801 123,981 140,703 25,938 8,313,787

As at 31 December 2017 5,107,977 2,584,149 396,352 280,436 250,891 156,602 127,119 26,152 8,929,678

Company Note Freehold Land

Rs. ’000

Building

Rs. ’000

Motor Vehicles

Rs. ’000

Office Equipment

Rs. ’000

ComputerEquipment

Rs. ’000


Rs. ’000

Capital WIP

Rs. ’000

Total

Rs. ’000

Cost/Valuation

As at 1 January 2016 2,678,726 1,900,488 473,893 470,186 556,803 290,451 1,953 6,372,500

Additions During the Year 94,836 102,711 12,478 40,255 20,018 11,030 85,021 366,349

Transfers – – – – – – (63,915) (63,915)

Disposals (30,000) – (23,446) (1,884) (130,493) (1,189) – (187,012)

Revaluation 1,449,438 142,301 – – – – – 1,591,739

As at 1 January 2017 4,193,000 2,145,500 462,925 508,557 446,328 300,292 23,059 8,079,661

Additions During the Year 486,977 74,502 115,002 40,863 70,492 10,911 104,789 903,536

Transfers (141,000) (146,000) – – – – (104,575) (391,575)

Disposals – – (38,841) (4,591) (20) (2,306) – (45,758)

As at 31 December 2017 4,538,977 2,074,002 539,086 544,829 516,800 308,897 23,273 8,545,864

Accumulated Depreciation –

As at 1 January 2016 – 65,052 186,015 243,640 379,330 154,710 – 1,028,747

Depreciation for the Year 31 – 39,414 54,602 41,067 43,984 22,602 – 201,669

Disposals – – (12,170) (1,218) (100,482) (1,054) – (114,924)

Revaluation – (104,466) – – – – – (104,466)

As at 1 January 2017 – – 228,447 283,489 322,832 176,258 – 1,011,026

Depreciation for the Year 31 – 42,433 55,398 40,322 39,524 19,088 – 196,765

Disposals – – (25,196) (4,141) (11) (1,871) – (31,219)

Transfers – (2,190) – – – – – (2,190)

As at 31 December 2017 – 40,243 258,649 319,670 362,345 193,475 – 1,174,382

Carrying Amount

As at 1 January 2016 4,193,000 2,145,500 234,478 225,068 123,496 124,034 23,059 7,068,635

As at 31 December 2017 4,538,977 2,033,759 280,437 225,158 154,455 115,422 23,273 7,371,482


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7. (a) Valuation of Freehold Land and Building

As at 31 December 2017, the fair values of the freehold land and buildings are based on valuations performed by an accredited independent valuer, Mr Chandrasena Weerasinghe.

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

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

The Effective date of valuation of the property, plant and equipments is 31 December 2016

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

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

Valuation technique Sensitivity of the fair valuation inputs Significant unobservable value measurement to inputs

Market Comparable MethodThis method considers the selling price of a similar property within a reasonably recent period of time in determining the fair value of the property being revalued. This involves evaluation of recent active market prices of similar assets, making appropriate adjustments for differences in size, nature, location, condition of specific property in this process outlier transactions, indicative of particularly motivated buyers or sellers are too compensated for since the price may not adequately reflect the fair market value.

Price per perch for LandPrice per square foot

Estimated fair value would increase (decrease) if; Price per perch increases (decreases) Price per square foot increases (decreases) Depreciation rate for building (decreases)/increases

Investment MethodThis method involves capitalisation of the expected rental income at an appropriate Rate of years purchase currently characterised by the real estate market.

Gross Monthly Rental Years Estimated fair value would increase (decrease) if; Gross Annual Rental increases (decreases) Years Purchase increases (decreases) Void Period (decrease)/increases

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

Group

During the financial year the Group acquired property, plant and equipment to the aggregate value of Rs. 934 Mn. (2016 – Rs. 377 Mn.). Cash payments amounting to Rs. 916 Mn. (2016 – Rs. 289 Mn.) were made for the purchase of property, plant and equipment.

Company

During the financial year, the Company acquired property, plant and equipment to the aggregate value of Rs. 903 Mn. (2016 – Rs. 366 Mn.). Cash payments amounting to Rs. 886 Mn. (2016 – Rs. 281 Mn.) were made during the year for purchase of property, plant and equipment.




7. (c) Capital Commitments

The Company has committed to pay an amount of Rs. 43,336,727/- (2016 – Rs. 209,651,784/-) as at the reporting date under contract entered into on Capital expenditure projects.

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

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

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

There were no temporarily idle properties as at year ended 31 December 2017.

7. (f) Assessment of Impairment

The Board of Directors has assessed the potential impairment indicators of property, plant and equipment as at 31 December 2017. Based on the assessment, no impairment indicators were identified.

7. (g) Capitalisation of Borrowing Cost

There were no capitalised borrowing costs relating to the acquisition construction or production of property, plant and equipment during the year (2016 – Nil).

7. (h) Fully-Depreciated Property, Plant and Equipment

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

GROUP COMPANY

As at 31 December 2017 2017Rs. ’000

2016Rs. ’000

2017Rs. ’000

2016Rs. ’000

Plant and Machinery 330,816 14,336 – –

Computer Equipment 223,076 186,759 212,501 181,935

Office Equipment 124,437 88,948 117,814 87,634

Furniture and Fittings 142,198 62,267 109,211 44,950

Motor Vehicles 189,954 77,022 189,954 77,022

Total 1,010,482 429,332 629,481 391,542


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7. (i) Details of Freehold Land and Buildings of Company

Address Building Sq. Ft.

Land Extent Method of Valuation

Significant Unobservable Inputs

Estimation for Unobservable Inputs

Rs.

Value of Land

Rs. ’000

Value of Buildings Rs. ’000

Cost/Revaluation

Rs. ’000

Date of the Valuation

Company

No. 115, Greens Road, Negombo

13,169 A-0-R-0-P-15.00 Contractor’s Test Method

Price per perch 2,000,000 30,000 46,000 76,000 12.25.2016

Price per Sq.ft. 5,000

No. 63, Janadhipathi Mawatha, Colombo 01

– A-0-R-0-P-13.84 Residual Method

Price per perch 10,000,000 138,500 – 138,500 12.15.2016

No. 60, Colombo Road, Kaluwella, Galle


Price per perch 2,500,000 37,000 59,000 96,000 12.2.2016


No. 54, Harichchandra Mawatha, Anuradhapura


Price per perch 1,200,000 61,000 114,000 175,000 12.4.2016


No. 144, Hambantota Road, Kachcheriyagama, Tissamaharama

8,130 A-0-R-1-P- 01.00 Replacement Cost Method

Price per perch 738,000 30,000 41,000 71,000 12.4.2016


No. 45, Dharmapala Mawatha, Ratnapura

2,560 A-0-R-0-P-35.50 Investment Method

Price per perch 2,000,000 71,000 9,200 80,200 12.2.2016


No. 45, Dharmapala Mawatha, Ratnapura (New Building)

8,102 – Investment Method

Price per Sq.ft. 8,500 – 72,420 72,420 12.2.2016

No. 401, Main Street, Panadura


Price per perch 3,500,000 154,000 60,689 214,689 12.2.2016


No. 423, Main Street, Kalutara


Price per perch 1,500,000 49,000 79,000 128,000 12.2.2016


No. 327, Badulla Road, Bandarawela

8,970 A-0-R-0-P-17.01 Market Comparable Method

Price per perch 900,000 15,000 88,000 103,000 12.20.2016


No. 106, Havelock Road, Colombo 05


Price per perch 10,000,000 353,000 673,000 1,026,000 12.1.2016


No. 32, Mistry Hills, Nuwara Eliya

5,227 A-0-R-0-P-26.9 Direct Comparison Method

Price per perch 450,000 12,000 22,000 34,000 12.17.2016

Price per Sq.ft. 2,000 – 5,000

No. 15, Rex dias Mawatha, Wennappuwa


Price per perch 750,000 28,000 60,797 88,797 12.26.2016


No. 91, Bauddhaloka Mawatha, Gampaha


Price per perch 2,750,000 89,000 68,000 157,000 11.20.2016


No. 40, Rajapihilla Road, Kurunegala


Price per perch 2,000,000 31,000 89,000 120,000 12.20.2016


No. 90/4, Kurunegala Road, Chilaw

6,150 A-0-R-0-P-30.0 Direct Comparison Method

Price per perch 600,000 18,000 23,764 41,764 12.26.2016

No. 38, Abdul Gafoor Mawatha, Colombo 03

– A-0-R-1-P-4.5 Income Capitalisation Method

Price per perch 10,000,000 445,000 – 445,000 12.2.2016

No. 406, Galle Road, Rawatawatta, Moratuwa

6,874 A-0-R-0-P.39.73 Contractor’s Test Method

Price per perch 2,500,000 99,000 16,000 115,000 12.5.2016

Price per Sq.ft. 4,000 - 4,500

Nos. 37, 39 & 41, Kannarthiddy Road, Jaffna


Price per perch 1,800,000 86,000 12,000 98,000 12.29.2016





Address Building Sq. Ft.


Significant Unobservable Inputs

Estimation for Unobservable Inputs

Rs.

Value of Land

Rs. ’000

Value of Buildings Rs. ’000

Cost/Revaluation

Rs. ’000

Date of the Valuation

No. 22 (New 32), Lloyd's Avenue, Batticaloa


Price per perch 1,500,000 35,000 82,000 117,000 12.5.2016


No. 2, Gower Street, Colombo 05


Price per perch 10,000,000 672,500 14,500 687,000 12.18.2016


Nos. 20 & 22/3, Kandy Road, Trincomalee

11,340 A-0-R-1-P-20 Contractor’s Test Method

Price per perch 750,000 40,000 90,000 130,000 12.15.2016


Nos. 38, 38/B, Rajapihilla Road, Kurunegala

– A-0-R-0-P-23.93 Market Comparable Method

Price per perch 2,000,000 48,000 – 48,000 12.20.2016

Nos. 92 & 98, Jampettah Street, Colombo 13


Price per perch 3,000,000 146,000 71,000 217,000 12.6.2016

Price per Sq.ft. 5,000 – 6,000

No. 70, Park Street, Colombo 02

4,510 A-0-R-1-P-32.4 Replacement Cost Method

Price per perch 10,000,000 724,000 122,000 846,000 12.22.2016


No. 615, Galle Road, Mount Lavinia


Price per perch 3,000,000 157,500 19,500 177,000 12.18.2016


No. 274, Panadura Road, Horana


Price per perch 1,800,000 46,000 41,802 87,802 12.28.2016


No. 65, King Street, Kandy


Price per perch 5,500,000 227,000 49,000 276,000 12.5.2016


No. 45, Anagarika Dharmapala Mawatha, Matara

7,232 A-0-R-0-P-26.44 Replacement Cost Method

Price per perch 4,250,000 112,500 19,500 132,000 12.2.2016


No. 213, High Level Road, Nugegoda


Price per perch 3,350,000 80,000 – 80,000 12.15.2016

No. 15A, Jaya Mawatha, Kadawatha


Price per perch 870,000 17,000 – 17,000 12.24.2016

No. 26, Gammedda Road, Ja-ela

– A-0-R-0-P-32 Market Comparable Method

Price per perch 1,500,000 50,000 – 50,000 2.23.2017

No. 190, Horana Road, Mampe, Kesbewa


Price per perch 2,500,000 66,517 – 66,517 10.4.2017

No. 43 & 45, Galle Road, Wellawatta, Colombo 6

12,676 A-0-R-0-P-25.31 Contractor's Test Method

Price per perch 15,000,000 370,460 30,831 401,292 8.24.2017

Price per Sq ft 6,500

Total 4,538,977 2,074,002 6,612,979


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7 (j) Movement of Revalued Freehold Land and Building if Accounted on Cost

Freehold landRs. ’000

BuildingRs. ’000

At Cost

As at 1 January 2016 2,678,726 1,900,487

Addition 94,836 102,710

Disposal (30,000) –

As at 31 December 2016 2,743,562 2,003,197

Addition 486,977 74,502

Disposal – –

Transfers (94,000) (149,714)

As at 31 December 2017 3,136,539 1,927,985

Depreciation

As at 1 January 2016 – 65,053

Addition – 39,413

Disposal – –

As at 31 December 2016 – 104,466

Addition – 42,433

Disposal – –

Transfers – (11,709)

As at 31 December 2017 – 135,190

Carrying amount

As at 1 January 2016 2,678,726 1,835,434

As at 31 December 2016 2,743,562 1,898,731

As at 31 December 2017 3,136,539 1,792,795

8. Investment Properties

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

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

There were no indication triggered that will result in changes in fair value of the investment property when compared to prior year.

Transfers

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




Derecognition

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

GROUP COMPANY

Note 2017Rs. ’000

2016Rs. ’000

2017Rs. ’000

2016Rs. ’000

At 1 January 1,032,000 817,551 1,796,000 1,399,171

Transfers – – 370,914 –

Disposal During the Year (6,000) – (6,000) –

Fair Value Gains 28 – 214,449 – 396,829

At 31 December 1,026,000 1,032,000 2,160,914 1,796,000

8. (a) Valuation of Investment Properties

The fair values of the freehold land and building are based on valuations performed by an accredited independent valuer, Mr Chandrasena Weerasinghe.

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

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

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

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

Valuation Technique Sensitivity of the fair valuation inputs Sensitivity of the Fair Value Measurement to Inputs

Market Comparable MethodThis method considers the selling price of a similar property within a reasonably recent period of time in determining the fair value of the property being revalued. This involves evaluation of recent active market prices of similar assets, making appropriate adjustments for differences in size, nature, location, condition of specific property in this process outlier transactions, indicative of particularly motivated buyers or sellers are too compensated for since the price may not adequately reflect the fair market value.

Price per perch for Land/Price per square foot

Estimated fair value would increase/(decrease) if; Price per perch increases/(decreases) Price per square foot increases/(decreases) Depreciation rate for building (decreases)/increases.

Investment MethodThis method involves capitalisation of the expected rental income at an appropriate rate of years purchase currently characterised by the real estate market.

Gross Monthly Rental Years Estimated fair value would increase/(decrease) if; Gross Annual Rental increases/(decreases) Years Purchase increases/(decreases) Void Period (decrease)/increases.

The Effective date of valuation of the investment property is 31 December 2016.


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8. (b) Temporarily Idle Investment Properties

There were no temporarily idle investment property as at year ended 31 December 2017.

8. (c) Assessment of Impairment

The Board of Directors has assessed the potential impairment indicators of investment property as at 31 December 2017. Based on the assessment, no impairment indicators were identified.

8. (d) Details of Investment Property of Company

Addresses BuildingSq. Ft.


SignificantUnobservableInputs

Estimation for Unobservable

Value of Land

Rs. ’000

Value of Buildings

Rs. ’000

Cost/ Revaluation

Rs. ’000

Date of theValuation

No. 36, Talbot Town, Galle 6,668 A-0-R-0-P-20 Investment

Method

Rent per Sq.ft.

per month

Rs. 85 –

Rs. 130

90,000 16,000 106,000 12/2/2016

No. 24 A, New Galle Road,

Nambimulla, Ambalangoda

4,614 A-0-R-0-P-20 Investment

Method

Rent per Sq.ft.

per month

Rs. 75 –

Rs. 100

55,000 17,000 72,000 12/2/2016

No. 115, Green Road, Negombo A-0-R-0-P-37.5 Market

Comparable

Method

Price per perch Rs. 2,500,000 94,000 – 94,000 12/25/2016

Nos. 428, 428/2/1, R. A. De Mel

Mawatha, Colombo 03

8,249 Condominium Investment

Method

Rent per Sq.ft.

per month

Rs.120 –

Rs. 160

125,000 125,000 12/28/2016

No. 60, Park Street, Colombo 02 34,854 A-0-R-1-P-2.82 Investment

Method

Rent per Sq.ft.

per month

Rs.125 –

Rs. 160

428,000 210,000 638,000 12/22/2016

No. 70, Park Street, Colombo 02 4,510 Market

Comparable

Method

Rent per Sq.ft.

per month

Rs. 125 –

Rs. 160

– 126,000 126,000 12/18/2016

No. 06, Railway Station Road, Matara 2,982 A-0-R-0-P-25.88 Investment

Method

Rent per Sq.ft.

per month

Rs. 40 –

Rs. 60

52,000 5,000 57,000 12/3/2016

Ceylinco House, No. 69, Janadhipathi

Mawatha, Colombo 01 (5th Floor)

11,323 Investment

Method

Rent per Sq.ft.

per month

Rs. 160 226,000 226,000 12/15/2016



11,323 Investment

Method

Rent per Sq.ft.

per month

Rs. 165 – 233,000 233,000 12/15/2016



5,318 Investment

Method

Rent per Sq.ft.

per month

Rs. 170 – 113,000 113,000 12/15/2016

Serene Resorts, Bopitiya Road,

Uswetakeiyawa

37,184 A-2-R-3-P-30 Market

Comparable

Method

Price per perch Rs. 300,000 141,000 229,914 370,914 12/25/2016

Price per Sq.ft. Rs. 3,000 –

5,500

Total 860,000 1,300,914 2,160,914

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




8. (e) Rental Income

GROUP COMPANY

For the year ended 31 December Note 2017Rs. ’000

2016Rs. ’000

2017Rs. ’000

2016Rs. ’000

Rental Income Derived from Investment Properties 26 74,438 70,032 76,147 72,101

Direct Operating Expenses Generating Rental Income (1,348) (1,439) (1,348) (1,439)

Direct Operating Expenses that did not Generating Rental Income (4,409) (4,513) (4,409) (4,513)

Net Profit Arising from Investment Properties 68,681 66,149 70,390 66,149

9. Investment in Subsidiaries -Company

Accounting policyBusiness combinations are accounted for using the purchase method. Transaction costs directly attributable to the acquisition form part of the acquisition costs. Non-controlling interests are measured at the proportionate share of the acquiree’s identifiable net assets.

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

When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. If the business combination is achieved in stages, the previously held equity interest is remeasured at its acquisition date fair value and any resulting gain or loss is recognised in Income Statement. Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the acquisition date. Subsequent changes in the fair value of the contingent consideration which is deemed to be an asset or liability, will be recognised in accordance with LKAS 39 either in Income Statement or as a change to Other Comprehensive Income. If the contingent consideration is classified as equity, it will not be remeasured. Subsequent settlement is accounted for within equity. In instances where the contingent consideration does not fall within the scope of LKAS 39, it is measured in accordance with the appropriate SLFRS/LKAS.


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Transactions Eliminated on Consolidation

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

Subsidiaries

Subsidiaries are entities controlled by the Parent Company. Control is achieved when the Group is exposed or has the right, to variable returns from its involvement with the investee and when it has the ability to affect those returns through its power over the investee. Specially, the Group controls an investee if, and only if, the Group has:

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

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

zz The contractual agreement with the other vote holders of the investeezz Rights arising from other contractual agreementszz The Group’s voting rights and potential voting rights

The Group reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the Consolidated Financial Statements from the date the Group gains control until the date the Group ceases to control the subsidiary.

Profit or loss and each component of other comprehensive income (OCI) are attributed to the equity holders of the Parent of the Group and to the non-controlling interests, even if this results in the non-controlling interests having a deficit balance. When necessary, adjustments are made to the Financial Statements of subsidiaries to bring their accounting policies into line with the Group’s accounting policies. A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction. If the Group loses control over a subsidiary, it derecognises the related assets (including goodwill), liabilities, non-controlling interest and other components of equity while any resultant gain or loss is recognised in profit or loss. Any investment retained is recognised at fair value.

The Financial Statements of the subsidiaries are prepared for the same reporting year as the Parent Company, using consistent accounting policies.




Unquoted Shares

% of Direct Holding Number of shares Cost

As at 31 December 2017%

2016%

2017

2016 2017Rs. ’000

2016Rs. ’000

Serene Resorts Limited 98.15 98.15 26,500,000 26,500,000 265,000 250,000

Ceylinco Seraka Limited 5.0 5.00 5,000 5,000 – –

Ceylinco Healthcare Services Limited 99.45 99.45 77,100,000 77,100,000 771,000 771,000

Total 1,036,000 1,021,000

Transactions with Non-Controlling Interests

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

10. Investment in Associate

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

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

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

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

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

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

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


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10. (a) Company/Group Investments in Associates

Holding Number of shares Value

2017 %

2016%

2017 Nos.

2016Nos.

2017Rs. ’000

2016Rs. ’000

Company

Quoted InvestmentsCitizens Development Business Finance PLC 30.25 30.25 16,429,116 16,429,116 437,994 437,994

Company/Group Investments in Associate (at Cost) – – – – 437,994 437,994

Group

Negative Goodwill on Acquisition Over ConsiderationCitizens Development Business Finance Limited – – – – 103,749 103,749

Group's Share of Retained Assets of AssociatesCitizens Development Business Finance PLC – – – – 1,535,922 1,203,402

Group Investment in Associates (Equity Basis) – – – – 2,077,665 1,745,146

10. (b) Summarised Financial Information of the Associate

GROUP

2017Rs. ’000

2016Rs. ’000

Share of Associate’s Statement of Financial Position

Total Assets 20,361,748 17,191,933

Total Liabilities 18,284,083 15,446,787

Net Assets 2,077,665 1,745,146

Share of Associate’s Revenue and Profit

Revenue 3,229,598 2,486,412

Profit Before Tax 459,270 389,630

Profit After Tax 346,032 319,658

Other Comprehensive Income 38,229 31,697

Dividend Received 51,752 48,917

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

10. (c) Fair Value of the Investment

Fair value of investments as at reporting date Rs. 1,041 Mn. (2016 Rs.1,150 Mn.)




11. Financial Instruments and Fair Values of Financial Instruments

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

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

Initial Recognition

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

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

The following table consists of the fair values of the financial investments together with their carrying values.Fair Value through Profit or Loss investments and Available-For-Sale investments have been valued at fair value. Held-to-maturity investments and loans and receivable investments are valued at amortised cost.

GROUP COMPANY

As at 31 DecemberNote

2017Rs. ’000

2016Rs. ’000

2017Rs. ’000

2016Rs. ’000

Held-to-Maturity Financial Assets 11 (a) 65,272,728 66,581,929 65,272,728 66,581,929

Loans and Receivables 11 (b) 17,973,682 13,664,301 17,199,112 12,998,491

Available-for-Sale Financial Assets 11 (c) 3,851,240 1,219,654 3,807,709 1,219,654

Financial Assets at Fair Value through Profit or Loss 11 (d) 2,349,607 165,562 2,349,607 165,562

Total Financial Instruments 89,447,258 81,631,446 88,629,157 80,965,635

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

GROUP COMPANY

As at 31 December 2017 2016 2017 2016

Carrying value

Rs. ’000

Fair value

Rs. ’000

Carrying value

Rs. ’000

Fair value

Rs. ’000

Carrying value

Rs. ’000

Fair value

Rs. ’000

Carrying value

Rs. ’000

Fair value

Rs. ’000

Held-to-Maturity Financial Assets 65,272,728 65,785,966 66,581,929 63,026,213 65,272,728 65,785,966 66,581,929 63,026,213

Loans and Receivables 17,973,682 17,973,682 13,664,301 13,664,301 17,199,112 17,199,112 12,998,491 12,998,491

Available-for-Sale Financial Assets 3,851,240 3,851,240 1,219,654 1,219,654 3,807,709 3,807,709 1,219,654 1,219,654

Financial Assets at Fair Value through

Profit or Loss 2,349,607 2,349,607 165,562 165,562 2,349,607 2,349,607 165,562 165,562

Total Financial Instruments 89,447,258 89,960,495 81,631,446 78,075,730 88,629,157 89,142,394 80,965,635 77,409,919


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Impairment of Financial Assets

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

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

Offsetting

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

Derecognition of Financial Assets

A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is derecognised when: zz The rights to receive cash flows from the asset have expired; orzz The Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a “pass-through” arrangement; and either:

(a) the Group has transferred substantially all the risks and rewards of the asset; or (b) the Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

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

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

11. (a) Held-to-Maturity Financial Assets

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

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

The losses arising from impairment are recognised as finance cost in the Income Statement.




GROUP COMPANY

As at 31 December Note 2017Rs. ’000

2016Rs. ’000

2017Rs. ’000

2016Rs. ’000

Amortised Cost

Treasury Bonds 41,750,734 43,473,354 41,750,734 43,473,354

Debentures – Quoted 11 ( j) (1) 23,521,994 23,108,575 23,521,994 23,108,575

Total Held-to-Maturity Financial Assets at Amortised Cost 65,272,728 66,581,929 65,272,728 66,581,929

Fair Value

Treasury Bonds 42,577,694 39,627,302 42,577,694 39,627,302

Debentures – Quoted 23,208,271 23,398,910 23,208,271 23,398,910

Total Held-to-Maturity Financial Assets at Fair Value 65,785,966 63,026,213 65,785,966 63,026,213

11. (b) Loans and Receivables

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

GROUP COMPANY


2016Rs. ’000

2017Rs. ’000

2016Rs. ’000

Staff Vehicle Hire 399,283 343,503 399,283 369,157

Staff Loans Other than Vehicle Hire 168,627 160,599 168,627 134,945

Repo Investment 241,199 3,035,856 236,199 2,987,652

Debentures – Unquoted 11. ( j) (2) 1,301,203 1,001,072 1,301,203 1,001,072

Term Deposits 11. ( j) (3) 15,863,370 9,123,270 15,093,799 8,505,664

Total Loans and Receivables Financial Assets at Amortised Cost 17,973,682 13,664,301 17,199,112 12,998,491

The carrying value of the staff loan and the Car hire to sales agents have been computed based on the market interest rates prevailed at the time of granting the loan.

Impairment of Financial Assets Carried at Amortised Cost

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


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

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

11. (c) Available-for-Sale Financial Assets

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

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

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

GROUP COMPANY


2016Rs. ’000

2017Rs. ’000

2016Rs. ’000

Treasury Bonds and Bills 2,844,923 141,997 2,844,923 141,997

Unquoted Preference Share Investment 11. ( j) (6) 131,886 131,886 131,886 131,886

Quoted Debentures 11. ( j) (4) 656,091 717,328 656,091 717,328

Quoted Share Investment 11. ( j) (5) 218,341 228,443 174,810 228,443

Total Available-for-Sale Financial Assets at Fair Value 3,851,240 1,219,654 3,807,709 1,219,654




Impairment of Available-for-Sale Financial Investments

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

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

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

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

11. (d) Financial Assets at Fair Value through Profit or Loss

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

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

GROUP COMPANY


2017Rs. ’000

2016Rs. ’000

2017Rs. ’000

2016Rs. ’000

Fair Value

Treasury Bonds 2,336,205 148,331 2,336,205 148,331

Short Term Investment – Quoted 11. ( j) (7) 13,402 17,231 13,402 17,231

Total Financial Assets at Fair Value Through Profit or Loss 2,349,607 165,562 2,34s9,607 165,562


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11. (e) Accrued Income

GROUP COMPANY

As at 31 December 2017Rs. ’000

2016Rs. ’000

2017Rs. ’000

2016Rs. ’000

Held-to-Maturity Investments 2,012,385 2,029,044 2,012,385 2,029,044

Financial assets at fair value through profit or loss 65,557 7,172 65,557 7,172

Loans and Receivables 565,268 1,421,846 557,388 1,417,829

Available for sale investments 102,565 15,478 102,565 15,478

2,745,775 3,473,540 2,737,895 3,469,523

Accrued Income of Financial Instruments, which were shown separately in the Statement of Financial Position in year 2016 are amalgamated to the each instruments and shown under each class of financial instruments above.

11. (f) Determination of Fair Value and Fair Values Hierarchy

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

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

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

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

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

Level 2: Other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly; and

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

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

For the purpose of fair value disclosures, the Group has determined classes of assets and liabilities on the basis of the nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy as explained above.




Fair Value Basis – Instrument-Wise

Instrument Measurement Basis

Government Securities

Treasury Bonds Average of the buy/sell yields included in the weekly economic indicators published by the Central Bank of Sri Lanka

Treasury Bills Average of the buy/sell yields included in the weekly economic indicators published by the Central Bank of Sri Lanka

Investment in Listed Shares Volume Weighted-Average (VWA) prices

Corporate Debt

Listed Last traded price

Unlisted Fixed Rate Discounted Cash Flow (DCF) Method (Cost plus accrued interest)

Fixed and Term Deposits

Deposit > 1 Year Discounted Cash Flow (DCF) Method (Cost plus accrued interest)

Fixed Rate Financial Instruments

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

Quoted debt instruments Quoted market prices

Unquoted debt instruments Carrying amounts approximate the fair value of the investments

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

2017 2016

Instrument Level 1Rs. ’000

Level 2Rs. ’000

Level 3Rs. ’000

Total Fair ValueRs. ’000

Level 1Rs. ’000

Level 2Rs. ’000

Level 3Rs. ’000

Total Fair ValueRs. ’000

Company Financial Assets Financial Assets at Fair Value through Profit or Loss

Equity Securities 13,402 – – 13,402 17,231 – – 17,231

Debt Securities 2,336,205 – – 2,336,205 148,331 – – 148,331

2,349,607 – – 2,349,607 165,562 – – 165,562

Available-for-SaleFinancial Assets

Equity Securities 174,810 – 131,886 306,696 228,443 – 131,886 360,329

Debt Securities 3,501,014 – – 3,501,014 859,325 – – 859,325

3,675,823 – 131,886 3,807,709 1,087,768 – 131,886 1,219,654

Held to Maturity Financial Assets – 65,785,966 – 65,785,966 63,026,213 – 63,026,213

Total Financial Assets 6,025,431 65,785,966 131,886 71,943,282 1,253,330 63,026,213 131,886 64,411,429

Property, Plant & Equipment

Land – – 4,538,977 4,538,977 – – 4,193,000 4,193,000

Buildings – – 2,033,759 2,033,759 – – 2,145,500 2,145,500

– – – – – – 6,338,500 6,338,500

Investment Properties – – 2,160,914 2,160,914 – – 1,796,000 1,796,000

Total Assets 6,025,431 65,785,966 2,292,800 74,104,196 1,253,330 63,026,213 8,266,386 72,545,929


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11. (g) Reconciliation of Movements in Level 3 Financial Instruments Measured at Fair Value

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

Company As at 1 January

2017

Rs. ’000

Total Gains/(Loss) Recorded in Other

Comprehensive IncomeRs. ’000

Additions/Settlements

Rs. ’000

As at 31 December

2017

Rs. ’000

Financial Assets

Available-for-Sale Financial Assets

Equities 131,886 – – 131,886

Total Level 3 Financial Assets 131,886 – – 131,886

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

Carrying Amount as at

31 December 2017Rs. ’000

Effect of Possible Alternate

AssumptionsRs. ’000

Carrying Amountas at

31 December 2016Rs. ’000

Effect of PossibleAlternate

AssumptionsRs. ’000

Equity Securities 131,886 13,189 131,886 13,189

131,886 13,189 131,886 13,189

11. (h) Carrying Values of Financial Instruments

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

Group Held to MaturityRs. ’000

Loans and Receivables

Rs. ’000

Available for SaleRs. ’000

Fair Value through Profit or Loss

Rs. ’000

Total

Rs. ’000

As at 1 January 2016

Transferred from Ceylinco Insurance PLC 46,856,946 16,730,897 1,051,072 214,936 64,853,852

Purchases 22,959,940 291,371,596 9,222,531 16,800,000 340,354,067

Maturities (4,861,274) (295,845,838) – – (300,707,112)

Disposals – – (9,061,761) (16,850,000) (25,911,761)

Fair Value Gains Recorded in the Income Statement – – – 73,194 73,194

Fair Value Gains Recorded in Other Comprehensive Income – – 27,001 – 27,001

Interest Accrual Adjustment 2,029,043 1,421,847 15,478 7,172 3,473,540

Amortisation Adjustment (402,727) (14,201) (28,966) (79,741) (525,635)

As at 1 January 2017 66,581,928 13,664,302 1,219,654 165,561 81,631,445

Purchases 2,535,876 333,359,363 16,865,157 24,765,278 377,525,675

Maturities (3,224,095) (328,228,001) – – (331,452,096)

Disposals – – (14,331,726) (22,719,107) (37,050,834)


Fair Value Gains Recorded in Other Comprehensive Income – – (20,685) – (20,685)

Interest Accrual Adjustment (16,658) (856,579) 92,788 58,385 (722,064)

Amortisation Adjustment (604,322) 34,598 26,052 (135,605) (679,277)

As at 31 December 2017 65,272,728 17,973,682 3,851,240 2,349,607 89,447,258




Company Held to MaturityRs. ’000


Rs. ’000

Available for SaleRs. ’000

Fair Value through Profit or Loss

Rs. ’000

Total

Rs. ’000

As at 1 January 2016

Transferred from Ceylinco Insurance PLC 46,856,946 16,730,897 1,051,072 214,936 64,853,852

Purchases 22,959,940 286,329,518 9,222,531 16,800,000 335,311,989

Maturities (4,861,274) (291,465,554) – – (296,326,828)

Disposals – – (9,061,761) (16,850,000) (25,911,761)


Fair Value Gains Recorded in Other Comprehensive Income – – 27,001 – 27,001

Interest Accrual Adjustment 2,029,043 1,417,830 15,478 7,172 3,469,523

Amortisation Adjustment (402,727) (14,201) (28,966) (79,741) (525,635)

As at 1 January 2017 66,581,928 12,998,491 1,219,654 165,561 80,965,634

Purchases 2,535,876 332,182,817 16,821,626 24,765,278 376,305,598

Maturities (3,224,095) (327,185,561) – – (330,409,656)

Disposals – – (14,331,726) (22,719,107) (37,050,834)


Fair Value Gains Recorded in Other Comprehensive Income – – (20,685) – (20,685)

Interest Accrual Adjustment (16,658) (860,443) 92,788 58,385 (725,928)

Amortisation Adjustment (604,322) 63,808 26,052 (135,605) (650,067)

As at 31 December 2017 65,272,728 17,199,111 3,807,709 2,349,607 88,629,156

11. (i) Assets for which Fair Value Approximates Carrying Value

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

11. (j) Entity-Wise Details of Financial Instruments – Company

11. (j) (1) Held-to-Maturity Financial Assets – Debentures (Quoted)

GROUP COMPANY


2016Rs. ’000

2017Rs. ’000

2016Rs. ’000

Bank of Ceylon 2,829,938 2,830,793 2,829,938 2,830,793

Central Finance PLC 320,247 320,480 320,247 320,480

Citizens Development Business Finance PLC 100,339 100,339 100,339 100,339

Commercial Bank of Ceylon PLC 1,371,753 1,201,698 1,371,753 1,201,698

Commercial Credit & Finance PLC 14,226 14,226 14,226 14,226

DFCC Bank PLC 4,474,600 4,501,564 4,474,600 4,501,564

Hatton National Bank PLC 4,612,188 5,143,461 4,612,188 5,143,461

National Development Bank PLC 1,829,636 1,771,516 1,829,636 1,771,516

Nations Trust Bank PLC 496,437 485,890 496,437 485,890

People’s Leasing & Finance PLC 749,363 990,033 749,363 990,033

Sampath Bank PLC 5,161,228 4,185,578 5,161,228 4,185,578

Seylan Bank PLC 1,562,040 1,562,995 1,562,040 1,562,995

23,521,994 23,108,575 23,521,994 23,108,575


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11. (j) (2) Loans and Receivables – Debentures (Unquoted)


2016Rs. ’000

2017Rs. ’000

2016Rs. ’000

Regional Development Bank 300,132 – 300,132 –

National Savings Bank 1,001,071 1,001,072 1,001,071 1,001,072

1,301,203 1,001,072 1,301,203 1,001,072

11. (j) (3) Loans and Receivables – Term Deposits

GROUP COMPANY


2016Rs. ’000

2017Rs. ’000

2016Rs. ’000

Bank of Ceylon 100,093 1,739,224 100,093 1,739,224

Citizens Development Business Finance PLC 271,267 263,795 271,267 263,795

Commercial Bank of Ceylon PLC – 2,070,136 – 2,070,136

DFCC Bank PLC 3,449,214 – 3,345,214 –

Hatton National Bank PLC 95,298 193,853 42,608 150,263

National Development Bank PLC 1,770,399 516,216 1,750,399 12,200

Nations Trust Bank PLC 1,053,885 10,201 1,053,885 10,201

Pan Asia Bank PLC 2,115 25,523 2,115 25,523

People’s Bank 3,972,198 – 3,842,198 –

Regional Development Bank – 25,079 – 25,079

Sampath Bank PLC 4,376,728 3,669,119 3,913,848 3,599,119

Seylan Bank PLC 772,173 610,125 772,173 610,125

Total 15,863,370 9,123,270 15,093,799 8,505,664

11. (j) (4) Available-for-Sale Financial Assets – Quoted Debentures

GROUP COMPANY


2016Rs. ’000

2017Rs. ’000

2016Rs. ’000

Bank of Ceylon 2,183 2,365 2,183 2,365

Central Finance PLC 25,123 25,121 25,123 25,121

Commercial Bank of Ceylon PLC 46,603 51,068 46,603 51,068

DFCC Bank PLC 50,926 86,305 50,926 86,305

Hatton National Bank PLC 54,205 54,156 54,205 54,156

National Development Bank PLC 125,870 137,717 125,870 137,717

Nations Trust Bank PLC 126,124 134,388 126,124 134,388

People’s Leasing & Finance PLC 1,016 1,055 1,016 1,055

Sampath Bank PLC 73,986 73,644 73,986 73,644

Seylan Bank PLC 25,051 26,504 25,051 26,504

Siyapatha Finance PLC 125,005 125,005 125,005 125,005

Total 656,091 717,328 656,091 717,328




11. (j) (5) Available-for-Sale Financial Assets – Quoted Shares

GROUP COMPANY


2016Rs. ’000

2017Rs. ’000

2016Rs. ’000

Blue Diamonds Jewellery Worldwide Limited 2,160 3,601 2,160 3,601

Commercial Credit and Finance PLC 172,638 224,831 172,638 224,831

Merchant Bank of Sri Lanka 11 11 11 11

Investrust Wealth Management Limited 43,531 – – –

Total 218,341 228,443 174,810 228,443

11. (j) (6) Available-For-Sale Financial Assets – Unquoted Preference Shares

GROUP COMPANY


2016Rs. ’000

2017Rs. ’000

2016Rs. ’000

Unquoted preference shares – Castle Realty (Pvt) Limited 131,886 131,886 131,886 131,886

Total 131,886 131,886 131,886 131,886

11. (j) (7) Financial Assets at Fair Value Through Profit or Loss – Shares

GROUP COMPANY


2016Rs. ’000

2017Rs. ’000

2016Rs. ’000

Banking, Finance and Insurance

National Development Bank PLC 14 16 14 16

Commercial Bank of Ceylon PLC 45 47 45 47

DFCC Bank PLC 223 221 223 221

Central Finance PLC 19 21 19 21

Manufacturing, Plantations

Chevron Lubricants Lanka PLC 60 79 60 79

Tokyo Cement Company PLC 77 58 77 58

Dipped Products PLC 30 30 30 30

Chemical Industries Colombo PLC 12,480 16,320 12,480 16,320

Hayleys PLC 24 28 24 28

Kotagala Plantations 1 1 1 1

Services

John Keels Holdings PLC 62 60 62 60

Aitken Spence PLC 120 145 120 145

Hemas Holdings PLC 154 121 154 121

Dialog Axiata PLC 46 37 46 37

Royal Palms Beach Hotels PLC 2 2 2 2

Asiri Surgical Hospital Holdings PLC 32 32 32 32

Ceylon Hospitals PLC 14 14 14 14

Total 13,402 17,231 13,402 17,231


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12/13 Pensions, Gratuity and Other Post-Employment Benefits

Accounting Policy

(a) Pensions and Other Post-Employment Benefits

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

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

zz The date of the plan amendment or curtailment; andzz The date that the Group recognises restructuring-related costs.

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

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

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

The amount recognised as defined benefit liabilities has been netted with the fair value of the plan assets of the reporting period. Any surplus in plan assets has been measured based on the requirements of LKAS 19 – “Employee Benefits”, Para 58 and IFRIC 14 – “The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction”. However, according to the Payment of Gratuity Act No. 12 of 1983, the liability for gratuity payments to an employee arises on the completion of five years of continued service with the Group. The provision is externally funded.

The present value of the defined benefit obligations depends on a number of factors that are determined on an actuarial basis using a number of assumptions. Key assumptions used in determining the defined retirement benefit obligations are given in Notes 12 and 13 to the Financial Statements. Any changes in these assumptions will impact the carrying amount of defined benefit obligations.

(b) Short-Term Benefits

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

12. Gratuity Benefit Liability/(Asset)

The amounts recognised in the Income Statement are as follows:

GROUP COMPANY


2016Rs. ’000

2017Rs. ’000

2016Rs. ’000

Current Service Cost 37,940 36,174 37,940 36,174

Interest Cost on Benefit Obligation 116,066 86,847 116,066 86,847

Expected Return on Plan Assets (199,747) (159,419) (199,747) (159,419)

(45,741) (36,399) (45,741) (36,399)

Net actuarial gain/(loss) recognised in the other comprehensive income (203,444) (102,956) (203,444) (102,956)




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

GROUP COMPANY


2016Rs. ’000

2017Rs. ’000

2016Rs. ’000

Present Value of the Defined Benefit Obligation 12. a (1,219,289) (967,216) (1,219,289) (967,216)

Fair Value of Plan Assets 12. b 2,368,961 1,664,554 2,368,961 1,664,554

Net Defined Benefit Obligation 1,149,672 697,338 1,149,672 697,338

Total Net Defined Benefit Asset 1,149,672 697,338 1,149,672 697,338

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

GROUP COMPANY

2017Rs. ’000

2016Rs. ’000

2017Rs. ’000

2016Rs. ’000

Defined Gratuity Benefit Obligation

As at 1 January 967,217 868,467 967,217 868,467

Current Service Cost 37,940 36,174 37,940 36,174

Interest Cost 116,066 86,847 116,066 86,847

Benefits Paid (64,828) (38,169) (64,828) (38,169)

Actuarial Gains/(Losses) 162,894 13,898 162,894 13,898

As at 31 December 1,219,289 967,217 1,219,289 967,217

Gratuity Liability – Subsidiaries 11,683 12,750 – –

As at 31 December 2017 and as at the end of the comparative period, the gratuity liability was actuarially valued under the Projected Unit Credit (PUC) Method by Consultant Actuary Mr K A Pandit as required by Sri Lanka Accounting Standard (LKAS) 19 – “Employee Benefits”.

According to LKAS 19 – “Employee Benefits”, the remeasurement of the net defined benefit liability,assets, which comprise actuarial gains and losses are recognised in Other Comprehensive Income.

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

GROUP COMPANY

2017Rs. ’000

2016Rs. ’000

2017Rs. ’000

2016Rs. ’000

As at 1 January 1,664,555 1,594,193 1,664,555 1,594,193

Contribution Paid by Employer 610,038 – 610,038 –

Expected Return on Plan Assets 199,747 159,419 199,747 159,419

Actuarial Gains (40,550) (89,058) (40,550) (89,058)

Benefit Paid (64,828) – (64,828) –

As at 31 December 2,368,961 1,664,554 2,368,961 1,664,554

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


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

COMPANY

2017 2016

Future Salary Increases 10.00% 10.00%

Discount Rate 10.50% 12.00%

Expected Rate of Return on Plan Assets 10.00% 10.00%

Retirement Age 55 Yrs 55 Yrs

Attrition Rate 1% 1%

Mortality Table IALM2006-08 IALM2006-08

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

Company

Amounts Charged to Profit or Loss


Remeasurement Gains/(Losses) in Other Comprehensive Income

31 December 2017Group/Company

1 January2017

Rs. ’000

Service Cost

Rs. ’000

Net Interest

Rs. ’000

Subtotal Included in

Profit or Loss

Rs. ’000

Benefit Paid

Rs. ’000

Return on Plan Assets (Excluding

AmountsIncluded in

Net Interest Expenses)

Rs. ’000

Actuarial Changes

Arising from Changes in

Financial Assumptions

Rs. ’000

Experience Adjustments

Rs. ’000


OCI

Rs. ’000

Contribution by

Employers

Rs. ’000

31 December 2017

Rs. ’000

Defined Benefit Obligation (967,217) (37,940) (116,066) (154,006) 64,828 – (79,957) (82,937) (162,894) (1,219,289)

Fair Value of Plan Assets 1,664,554 – – – (64,828) 199,747 – (40,550) (40,550) 610,038 2,368,961

Benefit Assets/(Liability) 697,337 (37,940) (116,066) (154,006) – 199,747 (79,957) (123,487) (203,444) 610,038 1,149,672





1 January 2016

Rs. ’000

Service Cost

Rs. ’000

Net Interest

Rs. ’000


Profit or Loss

Rs. ’000

Benefit Paid

Rs. ’000


AmountsIncluded in

Net Interest Expenses)

Rs. ’000

Actuarial Changes



Rs. ’000


Rs. ’000


OCI

Rs. ’000

Contribution by

Employers

Rs. ’000

31 December2016

Rs. ’000

Defined Benefit Obligation (868,467) (36,174) (86,847) (123,021) 38,169 – 471 (14,369) (13,898) – (967,217)

Fair Value of Plan Assets 1,594,193 – – – – 159,419 – (89,058) (89,058) – 1,664,554

Benefit Assets/(Liability) 725,726 (36,174) (86,847) (123,021) 38,169 159,419 471 (103,427) (102,956) – 697,337

Gratuity benefit asset has been excess over the gratuity benefit liability due to share investment which has share appreciation annually.

A Quantitative Sensitivity Analysis for Significant Assumptions as at 31 December 2017 is Shown Below:

Discount Rate Future Salary Increasement Rate Rate of Employee Turnover

Increase Decrease Increase Decrease Increase Decrease

Sensitivity Level 1% 1% 1% 1% 1% 1%

Impact on Defined Benefit Obligation (54,933) 62,415 62,115 (55,642) 1,768 (1,989)




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

2017Rs. ’000

2016Rs. ’000

Within the Next 12 Months 483,575 377,814

Between 2 and 5 Years 228,464 232,482

Between 5 and 10 Years 751,434 457,218

13. Pension Benefit Obligation

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

As at 31 December 2017, and as at the end of the comparative period the gratuity liability was actuarially valued under the Projected Unit Credit (PUC) Method by Consultant Actuary K A Pandit, as required by Sri Lanka Accounting Standard (LKAS) 19 – “Employee Benefits”.

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

According to LKAS 19 – “Employee Benefits”, the remeasurement of the net defined benefit liability,assets, which comprise actuarial gains and losses are recognised in Other Comprehensive Income.



1 January 2017

Rs. ’000

Current Service

Cost

Rs. ’000

Interest Cost

on Benefit Obligation

Rs. ’000

Subtotal Included in Profit/Loss

Rs. ’000

Benefit Paid

Rs. ’000


Amounts in Net

Interest Expenses)

Rs. ’000

Recognised in Income

Statement Note

Rs. ’000

Actuarial Changes


Demographic Assumptions

Rs. ’000

Actuarial Changes



Rs. ’000


Rs. ’000

Subtotal Included

in OCI

Rs. ’000

Contributions by

Employers

Rs. ’000

Total 31 December

2017

Rs. ’000

Defined Benefit Obligation (576,251) (352) (69,150) (69,502) 8,853 – (60,650) – (738) 13,066 12,328 – (624,573)

Fair Value of Plan Assets 1,468,184 – – – (4,275) 176,182 171,907 – – (20,190) (20,190) 52,792 1,672,692

Total Recognised Benefit (Liability)/Asset 891,933 (352) (69,150) (69,502) 4,578 176,182 111,257 – (738) (7,125) (7,863) 52,792 1,048,119

Pension benefit asset has been excess over the gratuity benefit liability due to share investment which has share appreciation annually.



1 January2016

Rs. ’000

Current Service

Cost

Rs. ’000

Interest Cost on Benefit

Obligation

Rs. ’000

Subtotal Included in Profit/Loss

Rs. ’000

Benefit Paid

Rs. ’000


Amounts in Net

Interest Expenses)

Rs. ’000

Recognised in Income

Statement Note

Rs. ’000

Actuarial Changes


Demographic Assumptions

Rs. ’000

Actuarial Changes



Rs. ’000


Rs. ’000

Subtotal Included

in OCI

Rs. ’000

Contributions by

Employers

Rs. ’000

Total 31 December

2016

Rs. ’000

Defined Benefit Obligation (454,707) (3,149) (45,471) (48,620) 4,012 – (44,608) (8,418) (49,850) (18,668) (76,936) – (576,251)

Fair Value of Plan Assets 1,327,788 – – – (4,012) 132,779 128,766 – (41,162) – (41,162) 52,792 1,468,184

Total Recognised Benefit (Liability)/Asset 873,081 (3,149) (45,471) (48,620) – 132,779 84,158 (8,418) (91,012) (18,668)

(118,098) 52,792 891,933


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Plan Assets include investment in equity shares of Ceylinco Insurance PLC, market value amounting to Rs. 2,166,129,278/- at the reporting date. (2016 – Rs. 2,020,997,259/- )

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

2017 2016

Discount Rate 10.50% 12%

Rate of Return on Plan Assets Current 10.50% 10%

Salary Escalation Rate Scheme A, B & D 0% 0%

Scheme C 10% 10%

Attrition Rate 1% p.a 1% p.a

Retirement Age Scheme A, B & D 55Yrs 55Yrs

Scheme C 60 Yrs 60 Yrs

Mortality Table PA 90 PA 90

14. Reinsurance Receivables

Accounting policyReinsurance receivables consist of short-term balances due from reinsurers that are dependent on the expected claims and benefits arising under the related reinsured insurance contracts. Amounts recoverable from reinsurers are estimated in a manner consistent with the outstanding claims provision or settled claims associated with the reinsurer’s policies and are in accordance with the related reinsurance contract. Reinsurance is recorded gross in the Statement of Financial Position unless a right to offset exists.

Impairment

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

Derecognition

Reinsurance assets are derecognised when the contractual rights are extinguished or expired or when the contract is transferred to an another party.

GROUP COMPANY


2016Rs. ’000

2017Rs. ’000

2016Rs. ’000

Reinsurance Receivable – Swiss RE 83,742 27,268 83,742 27,268

Reinsurance Receivable – Munich RE 31,268 14,030 31,268 14,030

Total Reinsurance Receivable 115,010 41,298 115,010 41,298

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

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




15. Taxation

Accounting Policy

(a) Income Tax Expense

Income tax expense comprises current and deferred tax.

(i) Current Tax

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

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

Business income of Ceylinco Health Care Services Limited is taxable under concessionary rates at 12% and investment income is taxed at 28%.

(ii) Deferred Tax

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

zz Temporary differences on the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss;

zz Temporary differences related to investments in subsidiaries, associates and jointly-controlled entities to the extent that the Group/Company is able to control the timing of the reversal of the temporary differences and it is probable that they will not reverse in the foreseeable future; and

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

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

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

zz When the deferred tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss.

zz In respect of deductible temporary differences associated with investments in subsidiaries, equity accounted investee and interests in joint ventures, deferred tax assets are recognised only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised.

The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Unrecognised deferred tax assets are reassessed at each reporting date and are recognised to the extent that it has become probable that future taxable profits will allow the deferred tax asset to be recovered.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realised or the liability is settled, based on tax rates that have been enacted or substantively enacted at the reporting date.


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

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

(iii) Withholding Tax on Dividends

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

15. (a) Tax Receivable

GROUP COMPANY


2016Rs. ’000

2017Rs. ’000

2016Rs. ’000

As at 1 January 1,044,662 1,183,836 1,042,571 1,183,836

Income Tax Change (764,188) (603,163) (747,211) (603,163)

Notional Tax/WHT Recognised 500,591 461,897 492,180 461,897

Payments Made on Account During the Year 8,075 2,091 – –

As at 31 December 789,139 1,044,662 787,539 1,042,571

Included in the Income Tax Recoverable is an amount of Rs. 787,539,483/- recognised as Notional Tax Credit available in the life business.

15. (b) Deferred Tax Assets – Group

Consolidated Other Comprehensive Income

Statement

Consolidated Income Statement

Consolidated Statement of Financial Position


2016Rs. ’000

2017Rs. ’000

2016Rs. ’000

2017Rs. ’000

2016Rs. ’000

Losses carried forward – – – 67,257 – –

Temporary Difference from Retirement Benefit Liability – Gratuity 45,610 3,891 (116,190) (31,821) 341,401 211,785

Temporary Difference from Retirement Benefit Liability – Pension (4,734) – (170,147) – 174,880 –

Temporary Difference from Property Plant and Equipment – – (121,937) 110,009 (308,466) (428,927)

Revaluation reserve (68,134) 68,134 – – – (44,704)

Available for sale financial assets – (47,106) – – – –

Temporary Difference from Land (Capital gain) – – 26,226 – (26,226) –

Share of Profit of the Associate – – 138,963 – (138,963) –

Deferred Tax Expense/(Income) (27,257) 24,919 (239,371) 145,445 – –

Deferred Tax Assets – – – – 181,589 –

Deferred Tax Liabilities – – – – (176,847) (261,847)




15. (c) Total Deferred Tax Liability

GROUP

2017Rs. ’000

2016Rs. ’000

As at 1 January 261,847 91,483

Deferred Tax Assets Recognised for Ceylinco Life Insurance Limited 181,589 –

Amounts Recorded in the Income Statement (239,371) 145,445

Amounts Recorded in Other Comprehensive Income (27,257) 24,919

Share of Profit of Associate 138,963 –

As at 31 December 176,807 261,847

15. (d) Deferred Tax Asset – Company

Consolidated Other Comprehensive Income

Statement

Consolidated Income Statement

Consolidated Statement of Financial Position


2016Rs. ’000

2017Rs. ’000

2016Rs. ’000

2017Rs. ’000

2016Rs. ’000

Losses Carried Forward – – – 44,803 – –

Temporary Difference from Retirement Benefit Liability – Gratuity 45,610 3,891 (116,190) (31,541) 341,401 270,821

Temporary Difference from Retirement Benefit Liability – Pension (4,734) – (170,147) – 174,880 –

Temporary Difference from Property, Plant and Equipment – – (121,937) 117,695 (308,466) (430,403)

Revaluation Reserve (68,134) 68,134 – – – (68,134)

Available-for-sale Financial Assets – (47,106) – – – –

Temporary Difference from Land (Capital Gain) – – 26,226 – (26,226) –

Deferred Tax Expense/(Income) (27,257) 24,919 (382,048) 130,956 – –

Deferred Tax (Asset)/Liability – – – – 181,589 (227,716)

15.(e) Total Deferred Tax (Assets)/Liability

COMPANY

2017Rs. ’000

2016Rs. ’000

As at 1 January 227,716 71,840

Amounts Recorded in the Income Statement (382,048) 130,956

Amounts Recorded in Other Comprehensive Income (27,257) 24,919

As at 31 December (181,590) 227,716


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

The Inland Revenue Act No. 24 of 2017 is applied in determining the deferred tax asset/liability of the Group.

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

16. Loans to Policyholders

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

16. (a) Movement of Policy Loans

GROUP COMPANY

2017Rs. ’000

2016Rs. ’000

2017Rs. ’000

2016Rs. ’000

As at 1 January 1,378,954 1,335,634 1,378,954 1,335,634

Loans Granted During the Period 1,037,829 883,372 1,037,829 883,372

Repayment During the Period (786,437) (840,052) (786,437) (840,052)

Total Policyholder Loans 1,630,346 1,378,954 1,630,346 1,378,954

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

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

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

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

16. (d) Impairment of Loans to Life Policyholders

The Board of Directors has assessed the potential impairment loss of loans to life policyholders as at 31 December 2017. Based on the assessment, no impairment provision is required to be made in the Financial Statements as at the reporting date in respect of loans to life policyholders

17. (e) Number of Policy Loans

Number of policy loans due as at 31 December 2017 was 43,159 (2016 – 43,715).

16. (f) Collateral Details

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




17. Other Assets

Accounting Policy – Inventories

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

GROUP COMPANY


2016Rs. ’000

2017Rs. ’000

2016Rs. ’000

Advances, Deposits and Prepayments 174,292 134,791 137,002 109,188

Inventories 59,597 65,517 59,597 62,853

Deferred Staff Benefits 162,437 127,287 162,437 127,287

Other Receivables – 15,784 – 15,784

396,326 343,380 359,035 315,112

18. Cash and Cash Equivalents

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

GROUP COMPANY


2016Rs. ’000

2017Rs. ’000

2016Rs. ’000

Cash in Hand and at Bank 894,540 600,104 883,303 584,256

Bank Overdraft (365,414) (245,142) (349,745) (230,080)

Total Cash and Cash Equivalents 529,126 354,962 533,558 354,176

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

19. EQUITY

GROUP COMPANY


2017Rs. ’000

2016Rs. ’000

2017Rs. ’000

2016Rs. ’000

Ordinary Shares – Voting 19. (a) 500,001 500,001 500,001 500,001

Other Reserves 19. (b) 21,761,633 12,792,170 20,146,898 11,411,829

Total Equity 22,261,633 13,292,171 20,646,898 11,911,830


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19. (a) Ordinary Shares - Voting (Stated Capital)

Accounting Policy

Ordinary Shares

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

GROUP COMPANY

2017Rs. ’000

2016Rs. ’000

2017Rs. ’000

2016Rs. ’000

As at 1 January 500,001 500,001 500,001 500,001

50,000,050 Ordinary Shares Voting 500,001 500,001 500,001 500,001

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

19. (b) Other Reserves

GROUP COMPANY


2016Rs. ’000

2017Rs. ’000

2016Rs. ’000

Retained Earnings 10,628,715 5,165,535 9,278,621 4,003,754

Available-for-Sale Reserve 46,196 24,212 (60) (60)

Revaluation Reserve 318,887 290,772 100,501 96,484

Restricted Regulatory Reserve 19. (d) 3,456,184 – 3,456,184 –

Special Reserve 19. (c) 7,311,651 7,311,651 7,311,651 7,311,651

21,761,633 12,792,170 20,146,898 11,411,829

19. (c) Special Reserve

GROUP COMPANY


2016Rs. ’000

2017Rs. ’000

2016Rs. ’000

Special Reserve 7,311,651 7,311,651 7,311,651 7,311,651

7,311,651 7,311,651 7,311,651 7,311,651

This special reserve represents the value (net book value) of net assets transferred from Ceylinco Insurance PLC on 1 June 2015 as a result of the segregation.




19. (d) Restricted Regulatory Reserve

GROUP COMPANY


2016Rs. ’000

2017Rs. ’000

2016Rs. ’000

Restricted Regulatory Reserve 3,456,184 – 3,456,184 –

3,456,184 – 3,456,184 –

Restricted Regulatory reserve is created as a result of One-Off Surplus generated due to change in valuation method from “Net Premium Valuation” to “Gross Premium Valuation” as specified in Direction 16, issued by IRCSL on 20 March 2018, for identification and treatment of One-Off Surplus. Complying with the same, the transfer made from policyholders’ to shareholders' fund is limited to surplus generated from other than participating business, whereas the One-Off surplus generated from the participating business will be maintained within the participating fund.

The basis for computation of One-Off Surplus is in line with the Direction issued by IRCSL titled “Directions on the Identification and Treatment of One-Off Surplus” dated 20 March 2018.

The Company’s One-Off Surplus is equal to the minimum One-Off Surplus prescribed in the recommendations in the Direction issued by the IRCSL. The basis is same for both participating business and other than participating business.

The One-Off Surpluses in amounts, created for participating business and other than participating business are as follows:

Line item One-Off Surplus Rs. '000

Participating Business 2,736,685

Other than Participating Business 3,456,184

Tabarru Reserve 1,920

Total 6,194,789

Distribution of One-Off Surplus to Shareholders, held as part of the Restricted Regulatory Reserve, is subject to meeting governance requirements stipulated by the IRCSL and can only be released upon receiving approval from IRCSL. The One-Off Surplus in the SHF will remain invested in assets in below Note as per Directions of IRCSL:

One-Off surplus of participating business amounted to Rs. 2,736,685,339/- will be held within the participating fund as part of the unallocated valuation surplus and may only be transferred to the shareholders by means of bonuses to policyholders in line with Section 38 of the “Regulation of Insurance Industry Act No. 43 of 2000”.


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The composition of the assets, which will be held to support the Restricted Regulatory Reserves (One-Off Surplus for other than participating business) are disclosed below at their market values:

Assets Market ValueRs. ’000

Government Debt Securities 2,761,756

Deposits

Deposits with a licensed commercial bank

People’s Bank 488,617

DFCC Vardhana Bank PLC 205,811

Total 3,456,184

20. Insurance Contract Liabilities

Accounting Policy

(a) Classification of Insurance Contracts

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

Insurance contracts are contracts under which one party (the Insurer) accepts significant insurance risk from another party (the policyholder) by agreeing to compensate the policyholder if a specified uncertain future event (the insured event) adversely affects the policyholder. The classification of contracts identifies both, the insurance contracts that the Company issues and reinsurance contracts that the Company holds.

Once a contract has been classified as an insurance contract, it remains an insurance contract for the remainder of its lifetime, even if the insurance risk reduces significantly during this period, unless all rights and obligations are extinguished or expired. Investment contracts can, however, be reclassified as insurance contracts after inception, if insurance risk becomes significant. Insurance and investment contracts are further classified as being either with or without discretionary participating features (DPF).

(b) Discretionary Participating Features (DPF)DPF is a contractual right to receive, as a supplement to guaranteed benefits, additional benefits that are –

zz likely to be a significant portion of the total contractual benefits;

zz the amount or timing of which is contractually at the discretion of the issuer; and that are contractually based on:

zz the performance of a specified pool of contracts or a specified type of contracts;

zz realised and or unrealised investment returns on a specified pool of assets held by the issuer; and

zz the profit or loss of the Company, fund or other entity that issues the contract.




IRCSL regulations and the terms and conditions of these contracts set out the bases for the determination of the amounts on which the additional discretionary benefits are based (the DPF eligible surplus) and within which the Company may exercise its discretion as to the quantum and timing of their payment to contract holders.

At least 90% of the eligible surplus must be attributed to contract holders as a group (which can include future contract holders) and the amount and timing of the distribution to individual contract holders is at the discretion of the Company, subject to the advice of the Appointed Actuary. All DPF liabilities including unallocated surpluses, at the end of the reporting period are held within insurance contract liabilities, as appropriate.

(c) Unit-Linked Contracts

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

(d) Life Insurance Contract Liabilities

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

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

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

(e) Liability Adequacy Test (LAT)

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


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GROUP COMPANY


2016Rs. ’000

2017Rs. ’000

2016Rs. ’000

Insurance Contract Liability – Long term 20. (h) 81,726,139 77,927,494 81,723,759 77,925,114

Insurance Contract Liability – Unit linked 315,943 265,685 315,943 265,685

Insurance Contract Liability – Takaful 16,970 10,563 16,970 10,563

Individual Investment Fund 94,233 56,881 94,233 56,881

Total Insurance Contract Liabilities 82,153,285 78,260,623 82,150,905 78,258,243

The Company's actuaries have performed Liability Adequacy Test in accordance with SLFRS – 4 “Insurance Contracts Requirements”.

The valuation of the Life Insurance business as at 31 December 2017 was carried out by our Consulting Actuary, Mr Mark Birch, FIA, on behalf of Willis Towers Watson. In the opinion of the Consulting Actuary, proper reserves have been provided for all known liabilities in respect of the Life Insurance business and the Company has adequate financial resources to cover its capital requirements in accordance with the Solvency Margin (risk-based capital) Rules 2015 dated 15 December 2015.

Following the actuarial valuation as at 31 December 2017 the Consulting Actuary has approved a transfer of Rs. 4.5 Bn. (2016 – Rs. 2.3 Bn.) from the Life Fund to the Shareholder’s Account.

The Company’s Capital Adequacy Ratio (CAR) as at 31 December 2017 is 375% and is well above the minimum requirement of 120%.

Key assumptions

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

Mortality rate

Mortality assumptions are based on standard mortality tables.

Lapse rates

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

Risk-Free Rate

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

Fund-Based Yield

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

Management Expense

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




20. (f) Sensitivity of the Value of Insurance Liabilities for Change in Assumptions

Sensitivity of the Value of Insurance Liabilities

31 December 2017

Changes in Assumptions

Impact on Net Best Estimate Liability

Expenses +10% 1.9%

Mortality +10% 0.4%

-10% -0.4%

20. (g) Nature and Extent of Risk Arising From Insurance Contracts

Company determines its capital requirement in accordance with the Solvency Margin (Risk-Based Capital) Rules 2015 dated 15 December 2015. Best estimate assumptions required to be used by the regulation to assess Company's capital adequacy have been reviewed by the Appointed Actuary and updated as specified in RBC rules. Mortality, expense and lapse assumptions have been estimated based on Company's past experience. Morbidity assumption has been determined based on reinsurance risk premium rates.

According to RBC rules, the concentration risk is considered under risk charges. Company calculates the concentration risk capital charge as specified in the said rules in determining its capital requirement. For contracts where death is the insured risk, the factors that can significantly impact Company's expected claim patterns are epidemics, natural disasters and changes in factors affecting life style such as smoking and exercise habits. Company manages its insurance risk mainly through reinsurance and underwriting. The underwriting strategy used by the Company is intended to ensure a better selection of risks in terms of level of insured benefit and type of risk. Company maintains a retention limit of Rs. 1.5 Mn. on any single life insured. Substandard lives are charged higher insurance premiums based on their health conditions and types of occupation. Further, with regard to computing the total liability, the mortality rates were stressed by 10% upward and as a result, the overall liability was increased by 0.4%.

20. (h) Life Insurance Contract Liabilities of Company

Insurance Contract Liabilities with DPFRs. ’000

Insurance Contract Liabilities

without DPFRs. ’000

Total Gross Insurance

Contract LiabilitiesRs. ’000

As at 1 January 2017 41,725,814 36,199,300 77,925,114

Gross Premium Income 6,390,098 9,352,874 15,742,972

Premiums Ceded to Reinsurers (17,123) (404,930) (422,052)

Liabilities Paid for Death, Maturities, Surrenders, Benefits and Claims (3,053,219) (3,633,761) (6,686,980)

Investment Return 4,909,644 4,471,213 9,380,857

Reinsurance Commission Income 4,689 73,621 78,310

Other Operating and Admin Expenses Including Income Tax (2,057,350) (2,494,775) (4,552,125)

Underwriting and Net Acquisition Cost (864,329) (918,150) (1,782,479)

Net Transfer to Shareholder (204,758) (4,295,242) (4,500,000)

Change in Contract Liabilities Due to Transfer of One-Off Surplus – (3,456,184) (3,456,184)

Revaluation Reserve and AFS Reserve Transferred to Life Fund (10,847) 7,174 (3,674)

As at 31 December 2017 46,822,618 34,901,141 81,723,759


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Insurance Contract Liabilities with DPFRs. ’000

Insurance Contract Liabilities

without DPFRs. ’000

Total Gross Insurance

Contract LiabilitiesRs. ’000

As at 1 January 2016 36,485,976 31,525,560 68,011,536

Gross Premium Income 6,048,253 8,850,822 14,899,075

Premiums Ceded to Reinsurers (16,458) (357,156) (373,614)

Liabilities Paid for Death, Maturities, Surrenders, Benefits and Claims (3,181,160) (3,470,522) (6,651,682)

Investment Return 4,187,682 3,702,255 7,889,937

Reinsurance Commission Income 3,854 81,509 85,362

Other Operating and Admin Expenses Including Income Tax (1,694,640) (1,792,732) (3,487,372)

Underwriting and Net Acquisition Cost (779,234) (884,584) (1,663,818)

Net Transfer to Shareholder (116,530) (2,183,470) (2,300,000)

Revaluation Reserve and AFS Reserve Transferred to Life Fund 788,072 727,618 1,515,690

As at 31 December 2016 41,725,814 36,199,300 77,925,114

21. Financial Liabilities

Accounting Policy

(i) Initial Recognition and Measurement

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

All financial liabilities are recognised initially at fair value plus, in the case of loans and borrowings, directly attributable transaction costs. The Group’s financial liabilities include trade and other payables, bank overdrafts, loans and borrowing and amounts due to equity accounted investees.

(ii) Subsequent Measurement

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

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

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

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

(b) Loans and Borrowings

After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the EIR method. Gains and losses are recognised in the Statement of Comprehensive Income when the liabilities are derecognised as well as through the EIR amortisation process. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortisation is included in finance costs in the Statement of Comprehensive Income.




(iii) Derecognition of Financial Liabilities

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

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

(iv) Offsetting of Financial Instruments

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

21. (a) Other Financial Liabilities

GROUP COMPANY


2016Rs. ’000

2017Rs. ’000

2016Rs. ’000

Repo Borrowings – 2,980,013 – 2,980,013

– 2,980,013 – 2,980,013

21. (b) Interest-Bearing Borrowings

GROUP COMPANY

2017Rs. ’000

2016Rs. ’000

2017Rs. ’000

2016Rs. ’000

As at 1 January 1,000,000 – 1,000,000 –

Addition during the year – 1,000,000 – 1,000,000

Settlement during the year (1,000,000) – (1,000,000) –

As at 31 December – 1,000,000 – 1,000,000


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22. Reinsurance Payables

Accounting policy

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

GROUP COMPANY


2016Rs. ’000

2017Rs. ’000

2016Rs. ’000

Reinsurance Payables of Insurance Contracts 165,715 25,837 165,715 25,837

165,715 25,837 165,715 25,837

23. Trade and Other Payables

Accounting policy

(a) Insurance Payables

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

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

(b) Provisions

Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. When the Group expects some or all of a provision to be reimbursed, the reimbursement is recognised as a separate asset, but only when the reimbursement is virtually certain. The expense relating to any provision is presented in the Income Statement net of any reimbursement.

GROUP COMPANY


2016Rs. ’000

2017Rs. ’000

2016Rs. ’000

Policyholders Payment in Advance 570,990 486,483 570,990 486,483

Agency Commission Payable 219,392 197,216 219,392 197,216

Government Levies 5,820 1,258 – –

Trade Creditors and Accrued Expenses 1,988,164 1,069,755 1,925,707 1,042,332

Death Claims Payable 65,157 98,340 65,157 98,340

2,849,523 1,853,052 2,781,246 1,824,372

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




24. Net Premiums

24. (a) Gross premiums

Accounting policy

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

GROUP COMPANY


2016Rs. ’000

2017Rs. ’000

2016Rs. ’000

Life Insurance 24.( c) 15,765,392 15,027,469 15,765,484 15,027,600

Gross Written Premiums 15,765,392 15,027,469 15,765,484 15,027,600

24. (b) Premiums ceded to reinsurers on insurance contracts

Accounting Policy

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

GROUP COMPANY

For the year ended 31 December 2017Rs. ’000

2016Rs. ’000

2017Rs. ’000

2016Rs. ’000

Life Insurance 422,217 373,829 422,217 373,829

Premiums Ceded to Reinsurers 422,217 373,829 422,217 373,829

24. ( c) Life Insurance Premium

COMPANY


2016Rs. ’000

New Businesses 3,530,010 3,537,775

Single Premium 2,398,444 2,659,154

Renewal Premium 9,395,987 8,634,272

Group Life Premium 441,043 196,399

Total 15,765,484 15,027,600

COMPANY


2016Rs. ’000

24. (d) Annualised New Business Life Premium 4,318,763 3,820,601


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24. ( e) Revenue From Subsidiaries

COMPANY


2016Rs. ’000

Ceylinco Health Services Limited

Packages 296,650 290,762

Tests 43,399 46,009

Registration Fees 1,147 2,133

341,196 338,904

Serene Resorts

Resident Income 161 –

161 –

Consolidation Adjustments (12,440) (6,669)

Total Revenue from Subsidiaries 328,917 332,235

25. Fees and Commission Income

Accounting Policy

Reinsurance Commission Income

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

GROUP COMPANY


2016Rs. ’000

2017Rs. ’000

2016Rs. ’000

Reinsurance Commission Income 78,310 85,362 78,310 85,362

Other Fees 48,819 35,037 48,819 35,037

Total Fees and Commission Income 127,129 120,399 127,129 120,399

26. Investment Income

Accounting Policy

Finance Income

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

Dividend Income

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




Rental Income

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

Other Income

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

GROUP COMPANY


2016Rs. ’000

2017Rs. ’000

2016Rs. ’000

Rental Income from Investment Properties 74,438 70,032 76,147 72,101

Financial Assets at Fair Value Through Profit or Loss (Held for Trading Purposes) – – – –

Interest Income 269,651 55,084 268,986 55,084

Held–to–Maturity Financial Assets Interest Income 7,517,873 6,500,670 7,517,873 6,500,670

Available–for–Sale Financial Assets

Interest Income 304,422 88,665 304,422 88,665

Dividend Income 10,152 60,140 68,843 60,140

Loans and Receivables Interest Income 1,700,350 1,387,839 1,612,781 1,370,558

Interest Income from Staff Loan 17,749 33,568 17,749 33,568

Total Investment Income 9,894,635 8,195,998 9,866,801 8,180,786

27. Realised Gains

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

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

GROUP COMPANY


2016Rs. ’000

2017Rs. ’000

2016Rs. ’000

Property, Plant and Equipment

Realised Gains 16,080 (5,104) 16,080 (9,558)

Available–for–Sale Financial Assets – – – –

Realised Gains

Debt Securities 23,341 4,275 23,341 4,275

Realised Losses

Equity Securities – – – –

Total Realised Gains for Available–for–Sale Financial Assets 23,341 4,275 23,341 4,275

Total Realised Gains 39,421 (829) 39,421 (5,283)


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28. Fair Value Gains and Losses

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

GROUP COMPANY


2016Rs. ’000

2017Rs. ’000

2016Rs. ’000

Fair Value Gains on Investment Properties – 214,449 – 396,829

Fair Value Gains on Financial Assets at Fair Value Through Profit or Loss (Held for Trading Purposes) 215,095 73,194 215,095 73,194

Total Fair Value Gains and Losses 215,095 287,643 215,095 470,023

29. Net Benefits and Claims

Accounting Policy

Gross Benefits and Claims Expense

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

Reinsurance Claims Recoveries

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

GROUP COMPANY


2016Rs. ’000

2017Rs. ’000

2016Rs. ’000

29. (a) Gross Benefits and Claims Paid 29. (e) 6,883,413 6,800,076 6,884,013 6,800,076

29. (b) Claims Ceded to Reinsurers 29. (e) (197,033) (148,394) (197,033) (148,394)

29. (c) Gross Change in Contract Liabilities 7,258,502 8,397,889 7,258,502 8,397,889

29. (d) Change in Contract Liabilities Due to Transfer of One-Off Surplus (3,456,184) – (3,456,184) –

Net Benefits and Claims 10,488,698 15,049,571 10,489,299 15,049,571

According to Direction No. 16 – Identification and Treatment of One-off Surplus, issued by the Insurance Regulatory Commission of Sri Lanka (IRCSL), life insurance companies were directed to transfer the One-off Surplus attributable to other than participating business to the Shareholders' Fund as at the financial year ending 31 December 2017. This transfer has been presented in the Statement of Comprehensive Income as “Change in contract liabilities due to transfer of One-off surplus”, which amounts to Rs. 3,456,184,283/-. As a result of this, the profit for the year increased by the amount of the One-off Surplus and it is accumulated in “Restricted Regulatory Reserve”, presented in the Statement of Financial Position. The Group/Company has presented its financial highlights and financial ratios both with and without the impact of the One-off Surplus Transfer, wherever applicable, in order to provide a clearer understanding to the users of the Financial Statements.




29. (e) Gross Claims and Benefits (Excluding Life Fund Increase)

GROUP COMPANY


2016Rs. ’000

2017Rs. ’000

2016Rs. ’000

Claims – Death, Disability and Hospitalisation 782,929 647,858 783,529 647,858

Policy Maturities 3,900,156 4,220,388 3,900,156 4,220,388

Interim Payments on Anticipated Endowment Plans 783,377 750,286 783,377 750,286

Surrenders 1,127,385 907,419 1,127,385 907,419

Encashment of Bonus to Policyholders

Cash and Loyalty Bonus Expenses 266,092 260,584 266,092 260,584

Annuities 23,473 13,541 23,473 13,541

6,883,413 6,800,076 6,884,013 6,800,076

Share of Claim (197,033) (148,394) (197,033) (148,394)

Life Insurance Net Claims and Benefits 6,686,380 6,651,682 6,686,980 6,651,682

30. Acquisition Costs

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

GROUP COMPANY


2016Rs. ’000

2017Rs. ’000

2016Rs. ’000

Fees and Commission Expenses 1,782,479 1,686,858 1,782,479 1,693,985

1,782,479 1,686,858 1,782,479 1,693,985


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31. Other Operating and Administrative Expenses

Accounting Policy

Expenditure Recognition

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

GROUP COMPANY


2016Rs. ’000

2017Rs. ’000

2016Rs. ’000

Amortisation of Intangible Assets 2,951 1,093 2,847 989

Depreciation on Property and Equipment 275,010 269,947 196,765 201,669

Other Operating Expenses 1,119,812 982,354 1,104,928 986,800

Auditors’ Remuneration 5,701 4,495 5,288 4,098

Employee Benefits Expense 31. (a) 1,834,240 1,425,052 1,761,122 1,364,300

Selling Expenses 465,520 371,290 453,311 370,147

Legal Expenses 8,234 9,259 8,234 9,259

Total Other Operating and Administrative Expenses 3,706,968 3,063,490 3,532,496 2,937,262

31. (a) Employee Benefits Expense

GROUP COMPANY


2016Rs. ’000

2017Rs. ’000

2016Rs. ’000

Wages and Salaries Including Bonus and Incentives 1,752,703 1,250,963 1,679,585 1,206,053

Employees' Provident Fund 95,642 94,504 95,642 89,114

Employees' Trust Fund 23,910 23,627 23,910 22,279

Defined Gratuity Benefit and Pension Costs (45,741) 30,455 (45,741) 27,838

Other Staff-Related Cost 7,726 25,504 7,726 19,017

Total Employee Benefits Expense 1,834,240 1,425,052 1,761,122 1,364,300

32. Finance Costs

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

GROUP COMPANY


2016Rs. ’000

2017Rs. ’000

2016Rs. ’000

Interest Expense 13,244 9,934 12,005 9,915

Total Finance Cost 13,244 9,934 12,005 9,915




33. Income Tax Expense

Accounting PolicyIncome tax expense comprises current and deferred tax.

(a) Current Tax

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

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

Subsidiaries of the Company, are taxable under concessionary rates. [Please refer Note 33 (e)]

(b) Deferred Tax

Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and amounts used for taxation purposes. Deferred tax is not recognised for:zz Temporary differences on the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss;zz Temporary differences related to investments in subsidiaries, associates and jointly-controlled entities to the extent that the Company is able to control the timing of the reversal of the temporary differences and it is probable that they will not reverse in the foreseeable future; and

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

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

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

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

The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Unrecognised deferred tax assets are reassessed at each reporting date and are recognised to the extent that it has become probable that future taxable profits will allow the deferred tax asset to be recovered.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realised or the liability is settled, based on tax rates that have been enacted or substantively enacted at the reporting date.

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


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

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

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

The major components of income tax expense for the years ended 31 December 2017 and 2016 are:

33. (c) Current Year Tax Charge

GROUP COMPANY


2016Rs. ’000

2017Rs. ’000

2016Rs. ’000

Current Tax

Income Tax 33 (c) 764,188 503,199 747,211 503,199

(Over)/Under Provision in Respect of Previous year (28,925) 26,819 (25,054) 26,819

WHT Refund – 3,712 – 3,712

Total Current Tax 735,264 533,730 722,158 533,729

Deferred Tax

Origination of Temporary Differences 15 (b) & (d) (239,372) 146,906 (382,048) 130,956

Total Income Tax Expense 495,892 680,635 340,109 664,686

33. (d) Tax Recorded in Other Comprehensive Income

GROUP COMPANY


2016Rs. ’000

2017Rs. ’000

2016Rs. ’000

Deferred Tax 37 (27,257) 9,053 (27,257) 9,053

Total Tax Charge to Other Comprehensive Income (27,257) 9,053 (27,257) 9,053




33. (e) Reconciliation of Tax Charge

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


2016Rs. ’000

Accounting Profit Before Tax 9,807,535 3,743,727

Less – Income Not a Part of Taxable Income

Net Premium Income (15,765,484) (15,027,600)

Non–Investment Income (127,129) (276,396)

Add – Benefits, Claims and Other Expenses 15,816,279 19,690,733

Investment Income from the Business 9,731,201 8,130,464

Less – Exempted Interest Income (1,543,652) (1,434,461)

Less – Management Expenses (5,518,937) (4,626,108)

Total Statutory Income 2,668,612 2,069,894

Tax Losses Utilised During the Year – (272,756)

Taxable Income 2,668,612 1,797,138

Income Tax @ 28% 747,211 503,199


2016Rs. ’000

Tax Losses

Tax Losses Brought Forward – –

Tax Losses Transferred from Ceylinco Insurance PLC – 272,756

Tax Losses Utilised during the Year – (272,756)

Tax Losses Carried Forward – –

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

Ceylinco Health Care Services Limited is liable to pay 12% on its business income and 28% on its investment income.

The Company has received tax assessments for the years of assessments 2010/11, 2011/12, 2012/13 and 2013/14. Assessments have been issued by the Department of Inland Revenue in contrary to the Inland Revenue Act No. 10 of 2006.

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


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34. Non-Controlling Interests (NCI)

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

Name of Company 2017

Rs. ’000

2016

Rs. ’000

Effective Ownership

by NCI %

Ceylinco Sereka Limited (25) (25) 0.01%

Ceylinco Healthcare (Pvt) Limited 3,839 4,651 0.55%

Serene Resort Limited 2,201 1,838 1.85%

6,013 6,464 –

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

Name of Company 2017Rs. ’000

2016Rs. ’000

Ceylinco Sereka Limited (1) (25)

Ceylinco Healthcare (Pvt) Limited 2 498

Serene Resort Limited 362 (335)

363 138

35. Basic/Diluted Earnings Per Share (EPS)

Accounting PolicyThe Group/Company presents basic and diluted Earnings Per Share (EPS) data for its ordinary shares.

Basic EPS of the Company is calculated by dividing the profit or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the period.

Basic Earnings Per Share of the Group has been calculated by dividing profit after taxation attributable to ordinary shareholders of the parent by the weighted average Ordinary Shares in issue at the year-end.

35. (a) Earnings Per Share (Including One-Off Surplus Transfer)

GROUP COMPANY

For the year ended 31 December 2017 2016 2017 2016

Profit for the Year (Rs. ’000) 9,657,009 3,291,610 9,467,426 3,079,042

Weighted Average Number of Ordinary Shares (’000) 50,000 50,000 50,000 50,000

Basic Earnings Per Ordinary Share (Rs.) 193.13 65.83 189.35 61.58




35. (b) Earnings Per Share (Excluding One-Off Surplus Transfer)

GROUP COMPANY

For the year ended 31 December 2017 2016 2017 2016

Profit for the Year (Rs. ’000) 6,200,461 3,291,610 6,011,241 3,079,042

Weighted Average Number of Ordinary Shares (’000) 50,000 50,000 50,000 50,000

Basic Earnings Per Ordinary Share (Rs.) 124.01 65.83 120.22 61.58

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

36. Dividends Paid and Proposed

COMPANY

For the year ended 31 December 2017 2016

Interim Dividend (Rs. ’000) – Paid 432,000 271,125

Final Dividend (Rs. ’000) – Proposed 18,000 103,875

Total Proposed Dividend (Rs. ’000) 450,000 375,000

No. of Shares in Issue for the Year (’000) 50,000 50,000

Dividend per Share (Rs.)

Proposed Final 9.00 7.50

The Board of Directors has recommended a total dividend of Rs. 9.00 per share inclusive of interim dividend of Rs. 8.64 per share (paid) and a final dividend of Rs. 0.36 per share proposed for the year ended 31 December 2017 (2016 – Rs. 7.50 – per share) which is to be approved by the shareholders at the Annual General Meeting to be held on 30 March 2018. As stipulated by LKAS 10 – “Events after the Reporting Period”, this proposed dividend is disclosed, but not recognised as a liability as at 31 December 2017.

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

As required by Section 56 of the Companies Act No. 07 of 2007, the Board of Directors of the Company has satisfied the solvency test in accordance with Section 57, prior to recommending the interim and final dividend for the year ended 31 December 2017. A statement of solvency was completed and duly signed by Directors on 13 December 2017 and 23 February 2018 respectively and has been audited by Messrs Ernst & Young Chartered Accountants.


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37. Income Tax Effects Relating to Other Comprehensive Income

2017 2016

Group Before Tax Amount

Rs. ’000

Tax (Expense)Benefit

Rs. ’000

Net of Tax Amount Rs. ’000

Before Tax Amount

Rs. ’000


Rs. ’000


Net Gain/(Loss) on Available–for– Sale Financial Assets (20,685) – (20,685) 27,001 47,106 74,107

Actuarial Gain on Defined Benefit Plans (206,728) (40,877) (247,605) (221,053) (3,891) (224,944)

Share of Other Comprehensive Income of Equity Accounted Investees 38,236 – 38,236 31,696 – 31,696

Revaluation Surplus/(Deficit) During the Year – 68,134 68,134 1,887,085 (68,134) 1,818,951

Total (189,178) 27,257 (161,920) 1,724,729 (24,919) 1,699,810

2017 2016

Company Before Tax Amount

Rs. ’000


Rs. ’000


Before Tax Amount

Rs. ’000


Rs. ’000


Net Gain/(Loss) on Available–for– Sale Financial Assets (20,685) – (20,685) 27,001 47,106 74,107

Actuarial Gain on Defined Benefit Plans (206,728) (40,877) (247,605) (221,053) (3,891) (224,944)

Revaluation Surplus/(Deficit) During the Year – 68,134 68,134 1,704,705 (68,134) 1,636,571

Total (227,413) 27,257 (200,156) 1,510,652 (24,919) 1,485,733

38. Risk Management Framework

38. (a) Governance Framework

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

Financial risk management is embedded into the Group's broader Risk Management Framework and spans across the Group with clear objectives, duties and responsibilities specified at each level. The Board of Directors, with the assistance of the Board Risk Committee, bears the overall responsibility for establishment and oversight of the Risk Management Framework. The Executive Risk Management Committee, headed by the Chief Risk Officer, is responsible for developing, facilitating and monitoring the control framework and execution of proper risk management strategies. The line management and staff are responsible for day-to-day risk management and are represented at the Sub committee level. Regular review of risks and effective risk mitigation strategies ensure consistent corporate performance, while risks are managed within the risk appetite of the Group.




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

The Group has established the following capital management objectives, policies and approach to managing the risks that affect its capital position:

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

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

The Group maintains capital, investments and solvency as per the regulations prescribed by Insurance Regulatory Commission of Sri Lanka. (IRCSL). New changes in regulations are timely adopted and necessary changes are made to internal processes.

Approach to capital management

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

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

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

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

38. (c) Regulatory Framework

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

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

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

The new “Risk-Based Capital framework” or RBC is focused on managing the risks rather than complying with solvency margin rules. The RBC framework has been tested and refined since 2011 and full implementation of RBC started from January 2016. RBC reporting to the regulator consists of templates and questionnaires developed over the past years. The insurance industry was going through a challenging phase in the recent past with increase in capital requirements, segregation of composite companies and future listing requirements in addition to the implementation of RBC.


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RBC is a flexible framework for maintenance of minimum capital requirements based on riskiness of respective insurance company. It consists of risk factors exposed by insurance companies such as Credit Risk, Concentration Risk, Market Risk, Operational Risk and Liability Risk. It also includes quantified capital charges for those risk factors and valuation methodology for assets and liabilities of insurance companies. The implementation of RBC is intended to increase transparency and establish appropriate risk management systems. It is expected to create a more stable industry with greater public confidence.

This framework will help to develop a culture of risk awareness in the industry while encouraging efficient use of capital to improve return based on the risk exposure. This will be advantageous to the companies with good risk management practices.

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

ALM framework is used to manage the risks arising from mismatch of cash flows from assets and liabilities. ALM is the ongoing process of formulating, implementing, monitoring and revising strategies related to assets and liabilities to achieve an organisation's financial objectives, given the organisation's risk appetite, tolerance and other constraints. ALM deals with the optimal investment of assets in view of meeting current goals and future liabilities. Various financial risks arise from open positions in interest rates, currency and equity products, all of which are exposed to general and specific market movements. The main risk that the Company faces, due to the nature of its investments and liabilities, is the interest rate risk. The Board Investment Committee, along with the inputs from Operational Investment Committee, identifies the nature of the liabilities arising from the product portfolio and evaluates the investment options that best suit to hedge/manage the liability. The Company manages these selected positions within a strategically crafted ALM framework that has been developed considering the cyclical nature of the domestic interest rates to achieve risk-adjusted investment returns in excess of its obligations in the long term.

39. Insurance and Financial Risk

39. (a) Insurance Risk

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

The variability of risks is also improved by careful selection and implementation of underwriting strategy guidelines, as well as the use of reinsurance arrangements.

The Company has entered into long-term reinsurance treaties with world's leading reinsurers as a part of its risks mitigation programme. The reinsurance programme is designed to mitigate the Group’s net exposure to a single claim as well as to catastrophic losses.




39. (a) (1) Life insurance contracts

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

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

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

The Company's underwriting strategy is designed to ensure that risks are properly assessed and correct premium is charged.

The use of scientifically designed proposal forms and medical screening ensures that appropriate data related to the risks to be covered are collected and arrive at a premium which takes into account of current health conditions and additional risks of the life to be insured.

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

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

39. (b) Credit Risk

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

The sub-categories of credit risk include –

i. Default risk: the risk that the issuer will fail to make timely interest or principal payments.

ii. Downgrade risk: the risk that the debt instrument will be downgraded, reducing its market value.

iii. Credit spread risk: the risk that credit spreads (in general) will widen or narrow, decreasing or increasing, respectively, the market value of a debt instrument.

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

In addition, the individual exposures to such approved counterparties are set and monitored based on Insurance Regulatory Commission of Sri Lanka (formerly known as Insurance Board of Sri Lanka) IRCSL determinations and internal limits. The internal exposure limits are reviewed and refined periodically.

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


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

zz Reinsurance is placed with counterparties that have a good credit rating. At each reporting date, an assessment of creditworthiness of reinsurers are performed and updates the reinsurance purchase strategy, ascertaining suitable allowance for impairment.

zz The credit risk in respect of customer balances incurred on non-payment of premiums or contributions will only persist during the grace period specified in the policy document until expiry, when the policy is either paid up or terminated. Commission paid to intermediaries is netted off against amounts receivable from them to reduce the risk of doubtful debts.

Credit Exposure

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

GROUP COMPANY

As at 31 December Note 2017 Rs. ’000

2016 Rs. ’000

2017 Rs. ’000

2016 Rs. ’000

Financial Instruments

Held-to-Maturity Financial Assets

Debt Securities 11. (a) 65,272,728 66,581,929 65,272,728 66,581,929


Debt Securities 11. (b) 17,405,772 13,160,198 16,631,201 12,494,388

Other 11. (b) 567,911 504,103 567,911 504,103


Debt Securities 11. (c) 3,501,014 859,325 3,501,014 859,325

Equity Securities 11. (c) 350,227 360,329 306,696 360,329

Financial Assets at Fair Value through Profit or Loss

Equity Securities 11. (d) 13,402 17,231 13,402 17,231

Debt Securities 11. (d) 2,336,205 148,331 2,336,205 148,331

Reinsurance Assets 14 115,010 41,298 115,010 41,298

Loans to Life Policyholders 16 1,630,346 1,378,954 1,630,346 1,378,954

Premium Receivables 247,393 214,604 247,393 214,604

Cash and Cash Equivalents 18 894,540 600,104 883,303 584,256

Total Credit Risk Exposure 92,334,548 83,866,406 91,505,210 83,184,749




Industry Analysis – Company

As at 31 December 2017 Financial ServicesRs. ’000

Government

Rs. ’000

Services

Rs. ’000

Manufacturing and Power

Rs. ’000

Others

Rs. ’000

Total

Rs. ’000

Assets


Debt Securities 23,521,994 41,750,734 – – – 65,272,728

23,521,994 41,750,734 – – – 65,272,728


Term Deposits 15,093,799 – – – – 15,093,799

Repo Investments 236,199 – – – – 236,199

Unquoted Debentures 1,301,203 – – – – 1,301,203

Staff and Vehicle Loans (Hire) – – – – 567,911 567,911

Other Loans – – – – – –

16,631,201 – – – 567,911 17,199,112


Equity Securities 172,649 – 2,160 131,886 306,696

Debt Securities 656,091 2,844,923 – – – 3,501,014

828,740 2,844,923 – 2,160 131,886 3,807,709


Equity Securities 301 – 430 12,671 – 13,402

Debt Securities – 2,336,205 – – – 2,336,205

301 2,336,205 430 12,671 – 2,349,607

Total Credit Risk Exposure 40,982,237 46,931,862 430 14,831 699,796 88,629,158

As at 31 December 2016 Financial ServicesRs. ’000

Government

Rs. ’000

Services

Rs. ’000

Manufacturing and Power

Rs. ’000

Others

Rs. ’000

Total

Rs. ’000


Debt Securities 23,108,574 43,473,354 – – – 66,581,929

23,108,574 43,473,354 – – – 66,581,929


Term Deposits 8,505,664 – – – – 8,505,664

Repo Investments 2,987,653 – – – – 2,987,653

Unquoted Debentures 1,001,072 – – – – 1,001,072

Staff and Vehicle Loans – – – – – –

Other Loans – – – – 504,102 504,102

12,494,389 – – – 504,102 12,998,491


Equity Securities 224,842 – – 3,601 131,886 360,329

Debt Securities 717,328 141,997 – – – 859,325

942,170 141,997 – 3,601 131,886 1,219,654

Financial Assets at Fair Value through

Profit or Loss

Equity Securities 304 – 412 16,516 – 17,232

Debt Securities – 148,331 – – – 148,331

304 148,331 412 16,516 – 165,563

Total Credit Risk Exposure 36,545,437 43,763,683 412 20,117 635,988 80,965,637


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The below table indicates the rating of investments as at 31 December 2017 and 2016.

As at 31 December 2017 AAARs. ’000

AA+Rs. ’000

AARs. ’000

AA-Rs. ’000

A+Rs. ’000

ARs. ’000

A-Rs. ’000

BBB+Rs. ’000

BBBRs. ’000

BBB-Rs. ’000

B+Rs. ’000

Not RatedRs. ’000

TotalRs. ’000



Debt Securities 41,750,734 2,829,938 1,371,753 9,836,150 7,311,603 496,437 1,562,040 99,847 14,226 – – – 65,272,728

Loans and Receivables 1,237,270 3,942,290 – 3,387,822 5,664,247 1,053,885 1,072,305 271,267 – 2,115 – 567,911 17,199,112


Equity Securities – – – – – 11 – – 172,638 – – 134,046 306,696

Debt Securities 2,844,923 – 2,183 224,415 153,314 – 251,129 25,051 – – – – 3,501,014


Equity Securities 46 – – 446 33 – – – – – – 12,878 13,403

Debt Securities 2,336,205 – – – – – – – – – – – 2,336,205

Total 48,169,179 6,772,228 1,373,935 13,448,833 13,129,197 1,550,334 2,885,474 396,165 186,864 – – 714,835 88,629,158


AA+Rs. ’000

AARs. ’000

AA-Rs. ’000

A+Rs. ’000

ARs. ’000

A-Rs. ’000

BBB+Rs. ’000

BBBRs. ’000

BBB-Rs. ’000

B+Rs. ’000

Not RatedRs. ’000

TotalRs. ’000



Debt Securities 43,473,354 2,830,793 1,201,699 10,635,058 6,277,575 485,890 1,563,004 – 114,556 – – – 66,581,929

Loans and Receivables 3,987,335 1,740,614 2,070,136 150,263 3,611,319 35,201 610,204 – 263,795 25,523 – 504,102 12,998,491



Debt Securities 147,044 2,316 50,049 140,359 233,660 133,820 152,077 – – – – – 859,325

Financial Assets at Fair Value Through Profit or Loss

Equity Securities 37 – 47 369 36 – – – – – 1 16,741 17,231

Debt Securities 148,331 – – – – – – – – – – – 148,331

Total 47,756,102 4,573,723 3,321,930 10,926,049 10,122,590 654,922 2,325,284 – 603,182 – 1 656,330 80,965,637




The below table indicates the rating of investments as at 31 December 2017 and 2016.


AA+Rs. ’000

AARs. ’000

AA-Rs. ’000

A+Rs. ’000

ARs. ’000

A-Rs. ’000

BBB+Rs. ’000

BBBRs. ’000

BBB-Rs. ’000

B+Rs. ’000

Not RatedRs. ’000

TotalRs. ’000



Debt Securities 41,750,734 2,829,938 1,371,753 9,836,150 7,311,603 496,437 1,562,040 99,847 14,226 – – – 65,272,728

Loans and Receivables 1,237,270 3,942,290 – 3,387,822 5,664,247 1,053,885 1,072,305 271,267 – 2,115 – 567,911 17,199,112



Debt Securities 2,844,923 – 2,183 224,415 153,314 – 251,129 25,051 – – – – 3,501,014


Equity Securities 46 – – 446 33 – – – – – – 12,878 13,403

Debt Securities 2,336,205 – – – – – – – – – – – 2,336,205

Total 48,169,179 6,772,228 1,373,935 13,448,833 13,129,197 1,550,334 2,885,474 396,165 186,864 – – 714,835 88,629,158


AA+Rs. ’000

AARs. ’000

AA-Rs. ’000

A+Rs. ’000

ARs. ’000

A-Rs. ’000

BBB+Rs. ’000

BBBRs. ’000

BBB-Rs. ’000

B+Rs. ’000

Not RatedRs. ’000

TotalRs. ’000



Debt Securities 43,473,354 2,830,793 1,201,699 10,635,058 6,277,575 485,890 1,563,004 – 114,556 – – – 66,581,929

Loans and Receivables 3,987,335 1,740,614 2,070,136 150,263 3,611,319 35,201 610,204 – 263,795 25,523 – 504,102 12,998,491



Debt Securities 147,044 2,316 50,049 140,359 233,660 133,820 152,077 – – – – – 859,325


Equity Securities 37 – 47 369 36 – – – – – 1 16,741 17,231

Debt Securities 148,331 – – – – – – – – – – – 148,331

Total 47,756,102 4,573,723 3,321,930 10,926,049 10,122,590 654,922 2,325,284 – 603,182 – 1 656,330 80,965,637


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39. (c) Liquidity Risk

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

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

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

39. (d) Market Risk

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

The sub-categories of market risk include –

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

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

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

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

In addition Ceylinco Life is also exposed to adverse changes in real estate values.

39. (e) Currency Risk

The Group has no significant exposure to currency risk.

39. (f) Interest Rate Risk

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

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

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

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

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




39. (g) Equity Price risk

The equity price risk is relatively negligible insignificant due to diminutive exposure to equity market. However, the Company maintains a closer watch on the movements in stock prices and indices.

39. (h) Operational risks

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

The Group manages operational risks by initiating a rigorous control framework and by monitoring and responding to potential risks.

Controls include effective segregation of duties, access controls, authorisation and reconciliation procedures, ethical business practices and standards, staff education, training and assessment processes, including the use of internal audit.

39. (i) Maturity Profile – Company

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

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

Asset and Liabilities31 December 2017

Note Total

Rs.

Less than 1 Year

Rs.

1 Year to 3 Years

Rs.

3 Years to 5 Years

Rs.

5 Years to 15 Years

Rs.

More than 15 Years

Rs.

Assets

Financial Instruments Held-to-Maturity Financial Assets

Debt Securities 11. (a) 65,272,728 11,883,273 9,435,193 10,977,793 27,545,776 5,430,692

Loans and Receivables 11. (b) 17,199,112 15,398,013 63,833 1,319,621 417,644 –


Equity Securities 11. (c) 306,696 – – – – 306,696

Debt Securities 11. (c) 3,501,013 361,106 2,774,849 144,429 144,939 75,691


Equity Securities 11. (d) 13,402 – – – – 13,402

Debt Securities11. (d) 2,336,205 65,557 610,064 101,631 417,748 1,141,205

Reinsurance Receivables 14 115,010 115,010 – – – –

Loans to Life Policyholders 16 1,630,346 153,339 217,316 203,797 798,179 257,716

Premium Receivables 247,393 247,393 – – – –

Cash and Cash Equivalents 18 883,303 883,303 – – – –

91,505,209 29,106,994 13,101,256 12,747,272 29,324,285 7,225,402

Liabilities

Reinsurance Payables 22 165,715 165,715 – – – –

Trade and Other Payables 23 2,781,246 2,781,246 – – – –

Bank Overdraft 18 349,745 349,745 – – – –

3,296,706 3,296,706 – – – –


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Asset and Liabilities31 December 2016

Note Total

Rs.

Less than 1 Year

Rs.

1 Year to 3 Years

Rs.

3 Years to 5 Years

Rs.

5 Years to 15 Years

Rs.

More than 15 Years

Rs.

Assets

Financial Instruments Held-to-Maturity Financial Assets

Debt Securities 11. (a) 66,581,929 6,130,124 13,810,222 10,598,050 30,608,030 5,435,504

Loans and Receivables 11. (b) 12,998,490 11,570,540 74,723 1,017,710 335,517 –


Equity Securities 11. (c) 360,329 – – – – 360,329

Debt Securities 11. (c)859,325 49,435 428,714 136,977 174,129 70,069


Equity Securities 11. (d) 17,231 – – – – 17,231

Debt Securities 11. (d) 148,331 7,172 – – 141,159 –

Reinsurance Receivables 14 41,298 41,298 – – – –

Loans to Life Policyholders 16 1,378,955 72,977 192,714 176,839 697,054 239,370

Premium Receivables 214,604 214,604 – – – –

Cash and Cash Equivalents 18 584,256 584,256 – – – –

83,184,747 18,670,406 14,506,373 11,929,576 31,955,888 6,122,503

Liabilities

Other Financial Liabilities 21 3,980,013 3,980,013 – – – –

Reinsurance Payables 22 25,837 25,837 – – – –

Trade and Other Payables 23 1,824,372 1,824,372 – – – –

Bank Overdraft 18 230,080 230,080 – – – –

6,060,301 6,060,301 – – – –

40. Contingencies and Commitments

(a) Legal Proceedings and Regulations

There are no any contingencies due to legal proceeding and regulations. Capital commitments relating to property, plant and equipment have been disclosed separately in Note 7 (c).

(b) Capital Commitments

Capital Commitment relating to property, plant and equipment has been discussed separately in Note 7(c).




41. Assets Pledged

The following assets have been pledged as security for banking facilities:

Nature of Assets Nature of Liability Carrying AmountPledgedRs. ’000

Included Under

Treasury Bonds Pledged to Seylan Bank PLC to obtain banking facilities. 155,700 Held to Maturities

Fixed Deposits Pledged to Seylan Bank PLC to obtain banking facilities. 134,000 Loans and Receivables

Fixed Deposits Pledged to Seylan Bank PLC to obtain banking facilities. 50 Loans and Receivables

Fixed Deposits Pledged to Nations Trust Bank PLC to obtain banking facilities. 100 Loans and Receivables

42. Related Party Disclosures

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

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

COMPANY

For the year ended 31 December 2017Rs.

2016Rs.

42. i Amounts Received from Related PartiesSubsidiaries 7,059,420 4,557,997

Equity Accounted Investees 352,231,816 335,054,935

Other Related Companies 41,550,186 42,954,999

Key Management Personnel 656,745 1,224,744

Total 401,498,167 383,792,675

42. ii Amounts Paid to Related PartiesSubsidiaries (16,400,546) (514,993,271)

Equity Accounted Investees (250,000,000) (327,491,060)

Other Related Companies (48,325,819) (621,738,931)

Key Management Personnel (360,894,589) (324,617,446)

(675,620,954) (1,788,840,708)

42. i. a Transaction with Related Parties Amount Received from Related PartiesSubsidiaries

Ceylinco Health Care Services Limited 7,059,420 4,557,997

Serene Resorts Limited – –

7,059,420 4,557,997


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COMPANY


2016Rs.

42. i. b Equity Accounted InvesteesCitizen Development Business Finance PLC 352,231,816 335,054,935

352,231,816 335,054,935

42. i. c Other Related CompaniesCeylinco General Insurance Limited 41,550,186 42,954,999

41,550,186 42,954,999

42. i. d Key Management PersonnelPremium Received 656,745 1,224,744

656,745 1,224,744

COMPANY


2016Rs.

42. ii. a Amounts Paid to Related Parties

Subsidiaries

Ceylinco Health Care Services Limited (16,400,546) (257,126,976)

Serene Resorts Limited – (257,866,295)

(16,400,546) (514,993,271)

42. ii. b Equity Accounted Investees

Citizen Development Business Finance PLC (250,000,000) (327,491,060)

(250,000,000) (327,491,060)

42. ii. c Other Related Companies

Ceylinco General Insurance Limited (47,789,944) (38,113,619)

Ceylinco Insurance PLC (535,875,535) (583,625,313)

(583,665,479) (621,738,931)

42. ii. d Key Management Personnel

Short-Term Employee Benefits (292,741,313) (254,493,555)

Post-Employment Benefits (68,152,521) (68,097,224)

Legal Fees Paid (754,501) (2,026,667)

(361,648,335) (324,617,446)




COMPANY


2016Rs.

42. iii Transaction with Related Parties

42. iii. a Subsidiaries

Premium Received/(Paid) 91,492 130,430

Fund Management Fees Received/(Paid) (600,000) –

Claim (Received)/Paid 6,939,000 –

Rent Received/(paid) 2,112,245 2,069,388

Investment in shares – (500,000,000)

Medical Fees for staff and Customers (16,400,546) (7,126,976)

Reimbursement of Expenses 4,855,683 2,358,179

Training Expenses – (7,866,295)

(3,002,126) (510,435,274)

42. iii. b Equity Accounted InvesteesInsurance Premium Received/(Paid) 6,875,742 5,707,490

Purchase of Shares by the Company – (72,441,000)

Investment in Fixed Deposit (250,000,000) (250,000,000)

Maturity of Fixed Deposit 250,000,000 250,000,000

Claim (Received)/Paid – (5,050,060)

Dividend Received/(Paid) 51,751,715 48,916,715

Rent Received/(Paid) 2,230,200 2,434,653

Interest Received/(Paid) 41,374,159 27,996,077

102,231,816 7,563,875

42. iii. c Other Related CompaniesPremium Paid (42,464,924) (34,438,619)

Premium Received 21,395,296 19,441,618

Dividend Received/(Paid) (5,325,020) (3,675,000)


(6,239,758) 4,841,381

42. iii. d Key Management Personal

Premium Received 656,745 1,224,744

Legal Fees Paid (754,501) (2,026,667)

(97,756) (801,923)


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COMPANY


2016Rs.

42. iv Transactions with Related Parties

42. iv. a Transaction with Related Parties – Subsidiaries

Ceylinco Health Care Services Limited

Premium Received/(Paid) 91,492 130,430

Claim (Received)/Paid (600,000) –

Dividend Received/(Paid) 6,939,000 –

Rent Received/(paid) 2,112,245 2,069,388

Investment in Shares – (250,000,000)

Medical Fees for Staff and Customers (16,400,546) (7,126,976)

Reimbursement of Expenses 4,855,683 2,358,179

(3,002,126) (252,568,979)

Serene Resorts LimitedInvestment in Shares – (250,000,000)

Rent Received/(Paid) 600,000 –

Training Expenses Paid – (7,866,295)

600,000 (257,866,295)

42. iv. b Transaction with Related Parties – Associates

Citizen Development Business Finance PLC

Insurance Premium Received 6,875,742 5,707,490

Purchase of Shares by the Company – (72,441,000)

Investment in Fixed Deposit (250,000,000) (250,000,000)

Maturity of Fixed Deposit 250,000,000 250,000,000

Claims Paid – (5,050,060)

Dividend Received/(Paid) 51,751,715 48,916,715


Interest Received/(Paid) 41,374,159 27,996,077

102,231,816 7,563,875

42. iv. c Transaction with Related Parties – Other Related Companies

Ceylinco General Insurance Limited

Premium Paid (42,464,924) (34,438,619)

Premium Received 21,395,296 19,441,618

Claim Paid (5,325,020) (3,675,000)

Rent Received 20,154,890 23,513,381

(6,239,758) 4,841,381

Ceylinco Insurance PLC

Dividend Paid (535,875,535) (583,625,313)

(535,875,535) (583,625,313)




COMPANY


2016Rs.

42. iv. d Compensation of Key Management PersonnelShort-Term Employee Benefits (292,741,313) (254,493,555)

Post Employment Benefits (68,152,521) (68,097,224)

(360,893,834) (322,590,779)

Investment in Associate

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

No guarantees or collaterals were provided to the associate.

43. Events after the Reporting Period

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

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

44. Reclassification of Comparatives

Interest Receivable which was included under Accrued Income has been reclassified under Financial Instruments for better presentation and fair valuation purposes.

Impact on the Statement of Financial Position 31 December 2016

Previously Reported

Rs. ’000

Impact of Adjustment

Rs. ’000

Reclassified AmountRs. ’000

Group

Accrued Income 3,473,540 (3,473,540) –

Held to Maturity Financial Assets 64,552,885 2,029,044 66,581,929

Loans and Receivables 12,242,455 1,421,846 13,664,302

Available-For-Sale Financial Assets 1,204,176 15,478 1,219,654

Financial Assets at Fair Value Through Profit or Loss 158,390 7,172 165,562

78,157,906 – 81,631,446

Company

Accrued Income 3,469,523 (3,469,523) –

Held-to-Maturity Financial Assets 64,552,885 2,029,044 66,581,929

Loans and Receivables 11,580,660 1,417,829 12,998,490

Available-For-Sale Financial Assets 1,204,176 15478 1,219,654

Financial Assets at Fair Value Through Profit or Loss 158,390 7,172 165,562

77,496,111 – 80,965,634


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45. Standards Issued But Not Yet Effective

The standards and interpretations that are issued, but not yet effective, up to the date of issuance of Financial Statements of the Group are disclosed below. The Group intends to adopt these standards, if applicable, when they become effective.

SLFRS 15 – Revenue from Contracts with Customers

SLFRS 15 establishes a five-step model to account for revenue arising from contracts with customers. Under SLFRS 15, revenue is recognised at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer. It replaces existing revenue recognition guidance, including LKAS 18 – Revenue, LKAS 11 – Construction Contracts, and IFRIC 13 – Customer Loyalty Programmes.

Either a full retrospective application or a modified retrospective application is required for 1 January 2018.Contracts within the scope of SLFRS 4 Insurance Contracts are scope out according to scope (paragraph 5 (b)) of SLFRS 15. The Group is evaluating the impact of other revenue contacts currently.

SLFRS 16 – Leases

SLFRS 16 will replace Sri Lanka Accounting Standard LKAS 17 – “Leases”, IFRIC 4 – “Determining whether an Arrangement contains a Lease, SIC 15 – Operating Leases Incentives” and SIC 27 – Evaluating the Substance of Transactions Involving the Legal Form of a Lease. SLFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to account for all leases under a single on balance sheet model similar to the accounting for finance leases under LKAS 17. The standard includes two recognition exemptions for lessees – leases of “low-value” assets and short-term leases. At the commencement date of a lease, a lessee will recognise a liability to make lease payments and an asset representing the right to use the underlying asset during the lease term. Lessees will be required to separately recognise the interest expense on the lease liability and the depreciation expense on the right-of-use asset. Lessor accounting under SLFRS 16 is substantially unchanged from today’s accounting under LKAS 17. Lessors will continue to classify all leases using the same classification principle as in LKAS 17 and distinguish between two types of leases: operating and finance leases. SLFRS 16 also requires lessees and lessors to make more extensive disclosures than under LKAS 17.

SLFRS 16 is effective for annual periods beginning on or after 1 January 2019. Early application is permitted, Lessee can choose to apply the standard using either a full retrospective or a modified retrospective approach. The standard’s transition provisions permit certain reliefs. The impact on the implementation of the above Standard has not been quantified yet.

SLFRS 9 – Financial Instruments

SLFRS 9 replaces the existing guidance in LKAS 39 – “Financial Instruments: Recognition and Measurement”. SLFRS 9 includes revised guidance on the classification and measurement of financial instruments, a new expected credit loss model for calculating impairment on financial assets, and new general hedge accounting requirements. It also carries forward the guidance on recognition and derecognition of financial instruments from LKAS 39.

SLFRS 9 is effective for annual reporting periods beginning on or after 1 January 2018, with early adoption permitted.

The Group meets the eligibility criteria of the temporary exemption from SLFRS 9 and intend to defer the application of SLFRS 9 until annual reporting periods beginning on or after 1 January 2021.

SUPPLEMENTARY INFORMATION

Quarterly Analysis 310

Ten Year Summary 312

Milestones 314

GRI Content Index 316

Sustainability Assurance Report 321

Branch Network 322

Glossary of Key Terms 329

309



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QUARTERLY ANALYSIS

2017

Company Statement of Income(Values are to the Nearest Rupees Thousand)

1 QuarterJan. – Mar. 17

2 QuarterApr. – Jun. 17

3 QuarterJul. – Sep. 17

4 QuarterOct. – Dec. 17

TotalJan. – Dec. 17

Gross Written Premiums 3,560,155 3,858,389 4,068,339 4,278,601 15,765,484

Premiums Ceded to Reinsurers (103,590) (110,142) (107,798) (100,687) (422,217)

Net Written Premiums 3,456,565 3,748,247 3,960,541 4,177,914 15,343,267

Net Change in Reserve for Unearned Premium –

Net Earned Premium 3,456,565 3,748,247 3,960,541 4,177,914 15,343,267

Investment and Other Income 2,306,201 2,438,343 2,826,170 2,709,833 10,280,547

Net Income 5,762,766 6,186,590 6,786,711 6,887,747 25,623,814

Net Benefits and Claims (1,602,999) (1,659,623) (1,841,626) (1,582,132) (6,686,980)

Gross Change in Contract Liabilities (2,052,947) (2,428,845) (2,838,937) 62,227 (7,258,502)

Change in Contract Liabilities Due to Transfer of One-Off Surplus – – – 3,456,184 3,456,184

Acquisition Cost (452,941) (398,812) (415,798) (514,928) (1,782,479)

Other Operating and Administrative Expenses (829,368) (888,785) (792,334) (1,022,009) (3,532,496)

Finance Cost (1,773) (4,620) (2,685) (2,927) (12,005)

Total Benefits, Claims and Other Expenses (4,940,029) (5,380,684) (5,891,380) 396,414 (15,816,279)

Profit Before Tax 822,738 805,905 895,331 7,284,161 9,807,535

Income Tax Expense (149,390) (122,157) (223,069) 154,507 (340,109)

Profit for the Year 673,347 683,749 672,262 7,438,668 9,467,426

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STEWARDSHIP FINANCIAL REPORT SUPPLEMENTARY INFORMATION QUARTERLY ANALYSIS

2016

Company Statement of Income(Values are to the nearest Rupees thousand)

1 QuarterJan. – Mar. 16

2 QuarterApr. – Jun. 16

3 QuarterJul. – Sep. 16

4 QuarterOct. – Dec. 16

TotalJan. – Dec. 16

Gross Written Premiums 3,319,266 3,853,870 3,832,051 4,022,414 15,027,600

Premiums Ceded to Reinsurers (89,123) (87,630) (95,510) (101,566) (373,829)

Net Written Premiums 3,230,143 3,766,240 3,736,540 3,920,848 14,653,771

Net Change in Reserve for Unearned Premium – – – – –

Net Earned Premium 3,230,143 3,766,240 3,736,540 3,920,848 14,653,771

Investment and Other Income 1,899,862 1,955,944 2,304,900 2,619,983 8,780,689

Net Income 5,130,005 5,722,184 6,041,440 6,540,831 23,434,460

Net Benefits and Claims (1,738,709) (1,545,657) (1,651,656) (1,715,660) (6,651,682)

Gross Change in Contract Liabilities (1,636,497) (2,534,313) (2,539,484) (1,687,595) (8,397,889)

Change in Contract Liabilities Due to Transfer of One-Off Surplus – – – – –

Acquisition cost (414,278) (417,464) (419,991) (442,251) (1,693,985)

Other Operating and Administrative Expenses (794,164) (775,666) (770,806) (596,625) (2,937,262)

Finance Cost (1,326) (3,090) (2,275) (3,224) (9,915)

Total Benefits, Claims and Other Expenses (4,584,974) (5,276,190) (5,384,213) (4,445,355) (19,690,733)

Profit Before Tax 545,031 445,993 657,227 2,095,475 3,743,727

Income Tax Expense (118,376) (19,031) (130,403) (396,876) (664,686)

Profit for the Year 426,655 426,963 526,824 1,698,599 3,079,041

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TEN YEAR SUMMARY

Statement of Financial Position

Company 2017Rs. ’000

2016Rs. ’000

2015Rs. ’000

2014Rs. ’000

2013Rs. ’000

2012Rs. ’000

2011Rs. ’000

2010Rs. ’000

2009Rs. ’000

2008Rs. ’000

Assets

Intangible Assets 56,950 2,759 645 2,198 4,609 15,105 42,396 82,695 135,077 154,284

Property, Plant and Equipment 7,371,482 7,068,634 5,343,752 4,760,395 4,596,053 3,906,294 3,396,144 3,090,739 2,763,072 2,414,207

Investments 92,264,065 84,220,630 67,139,575 57,209,653 50,751,773 44,198,752 40,410,190 29,836,507 23,361,974 19,421,328

Other Assets 6,402,008 5,166,066 7,751,193 9,096,076 8,593,577 4,771,500 4,845,898 3,991,859 4,383,642 3,041,298

Total Assets 106,094,505 96,458,089 80,235,165 71,068,322 63,946,012 52,891,651 48,694,628 37,001,800 30,643,765 25,031,117

Liabilities

Insurance Provision – Life 81,723,759 77,925,114 68,011,535 60,021,879 52,765,411 45,110,789 38,203,473 31,868,141 26,449,967 21,300,965

Unit Linked Fund and Other Funds 427,146 333,129 268,062 228,872 190,135 157,657 146,659 115,269 102,671 101,428

Equity and Other Liabilities

23,943,600 18,199,847 11,955,567 10,817,572 10,990,466 7,623,205 10,344,494 5,018,390 4,091,127 3,628,724

Total Liabilities 106,094,505 96,458,089 80,235,165 71,068,322 63,946,012 52,891,651 48,694,628 37,001,800 30,643,765 25,031,117

Investor Information 2017 2016 2015

Return on Net Assets (Including One-Off Surplus Transfer) (%) 45.85 25.85 21.81

Return on Net Assets (Excluding One-Off Surplus Transfer) 34.97

Return on Total Assets (Including One-Off Surplus Transfer) (%) 8.92 3.19 2.57

Return on Total Assets (Excluding One-Off Surplus Transfer) 5.67

Net Assets Per Share (Including One-Off Surplus Transfer) Rs. 412.94 238.24 188.93

Net Assets Per Share (Excluding One-Off Surplus Transfer) 343.81

Earnings Per Share (Including One-Off Surplus Transfer) Rs. 189.35 61.58 38.03

Earnings Per Share (Excluding One-Off Surplus Transfer) 120.22

Dividend Per Share Rs. 9.00 7.50 6.25

Dividend Cover (Times) 21.04 8.21 6.08

Dividend Payout Ratio (%) 4.75 12.18 16.44

Note:

Company financial information has been disclosed for the Life insurance business, including the operation of Ceylinco insurance PLC up to year 2015.

Further financial information for the years 2011, 2012, 2013, 2014 and 2015 are based on LKAS/SLFRS and balance years are based on SLAS.

Investments include financial instruments for the years 2011, 2012, 2013 and 2014.

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STEWARDSHIP FINANCIAL REPORT SUPPLEMENTARY INFORMATION TEN YEAR SUMMARY

Statement of Comprehensive Income

Company 2017Rs. ’000

2016Rs. ’000

2015Rs. ’000

2014Rs. ’000

2013Rs. ’000

2012Rs. ’000

2011Rs. ’000

2010Rs. ’000

2009Rs. ’000

2008Rs. ’000

Gross Written Premium 15,765,484 15,027,600 13,456,828 12,002,524 11,122,906 10,829,470 9,833,905 8,786,121 7,522,328 8,257,279

Net Written Premium 15,343,267 14,653,771 13,146,773 11,715,219 10,866,904 10,576,066 9,597,478 8,639,853 7,395,301 8,060,219

Investment Income and Other Income 10,280,547 8,780,689 6,740,775 6,826,012 6,706,341 4,825,823 3,889,608 3,454,269 3,352,433 2,639,208

Net Claims and Benefit (6,686,980) (6,651,682) (5,956,745) (4,893,847) (4,757,321) (3,990,881) (2,946,295) (2,685,361) (2,698,277) (2,113,092)

Acquisition Cost (1,782,479) (1,693,985) (1,610,178) (1,389,842) (1,353,905) (1,427,626) (1,237,818) (1,171,497) (1,079,487) (1,244,224)

Increase in Long-Term Insurance Fund (7,258,502) (8,397,889) (7,135,304) (7,256,468) (7,654,622) (6,765,658) (6,335,332) (5,418,174) (4,417,313) (4,374,916)

Change in Contract Liabilities Ceded to Reinsurers 3,456,184 – – – – – – – – –

Operating and Administrative Expenses (3,532,496) (2,937,262) (2,994,099) (2,673,594) (2,517,219) (2,213,918) (2,163,561) (2,217,267) (2,056,341) (2,517,582)

Finance Expenses (12,005) (9,915) (10,214) (29,394) (9,817) (7,974) (7,890) (10,828) (13,490) (30,241)

Profit Before Tax 9,807,535 3,743,727 2,181,009 2,298,086 1,280,361 995,832 796,190 590,995 482,826 419,372

Taxation (340,109) (664,686) (120,963) (935,099) (39,973) – – – – –

Profit After Tax 9,467,426 3,079,041 2,060,046 1,362,987 1,240,388 995,832 796,190 590,995 482,826 419,372

Employee Information 2017 2016 2015

Revenue per employee (Including One-Off Surplus Transfer) Rs. Mn. 28.79 25.75 21.22

Net profit per employee (Including One-Off Surplus Transfer) Rs.'000 11,020 4,114 2,328

Net profit per employee (Excluding One-Off Surplus Transfer) Rs.'000 7,137 – –

Number of employees Nos. 890 910 937

Note:

Company financial information has been disclosed for the Life insurance business, including the operation of Ceylinco insurance PLC up to year 2015.

Further, financial information for the years 2010, 2011, 2012 , 2013, 2014 and 2015 are based on LKAS/SLFRS and balance years are based on SLAS.

314

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MILESTONES

1939

1962

1987 1988

20012003

2005

2004

20072009 2010 2011

Ceylon Insurance Company Limited, the forerunner of Ceylinco Insurance PLC, becomes the first Sri Lankan public company to be registered in British-ruled Ceylon (now Sri Lanka).

Ceylon Insurance Company Limited later changed its name to Ceylinco Limited.

Ceylinco Limited becomes the leading insurer in Sri Lanka following the nationalisation of the insurance industry.

Taking over the business of Ceylinco Limited, Ceylinco Insurance Limited established on 14 January 1988 and listed on 21 April 1988, thus becoming Ceylinco Insurance PLC.

Life Division set up as a separate business segment within Ceylinco Insurance PLC.

Ceylinco Limited becomes the leading principal Agent of the

National Insurance Company when the insurance sector was liberalised.

”Pranama“ Scholarship Programme launched.

”Waidya Hamuwa“ the nationwide community health programme, launched.

Recognised as the No. 1 Service Brand in Sri Lanka by the SLIM Brand Excellence Awards, a feat repeated for 2005 and 2008 as well.

Life Division becomes market leader in the country's life insurance industry, a position it has retained ever since.

First ever CSR Award for an insurance company in the Asia Pacific Region won by Life Division at the 9th Asian Insurance Industry Awards in Singapore.

The country's first private radiation

treatment unit established.

Dedicated residential

training centre established.

Ceylinco Life moves to its new corporate head office in Havelock Road, Colombo 5.

Awarded the Social Marketing Award by the World Brand Congress.

Recognised as the Best in Asia

for CSR at the CMO Asia Awards

in India.

315


STEWARDSHIP FINANCIAL REPORT SUPPLEMENTARY INFORMATION MILESTONES

1989 1991 1992

1993

199619981999

2014 20162015 2017

Life Division sells 8,799 policies, earning a premium income of Rs. 23.7 Mn.

The first critical illness insurance product launched in Sri Lanka, branded as “Ceylinco Life Digasiri ”.

Life Division emerges as the leader of the

life insurance segment among private sector insurance companies

in the country.

Ceylinco Insurance PLC is ranked 20th among Sri Lanka's "Top 50 Companies by Lanka Monthly Digest (LMD) magazine.

Ceylinco Life produces 1st MDRT (Million Dollar Round Table) winner in Sri Lanka.

Life Division's annual premium income

crosses the Rs. 1 Bn. milestone as Ceylinco

Insurance PLC celebrates its 10th

Anniversary.

Ceylinco Cancer Detection Centre (the present Ceylinco Healthcare Centre) set up in partnership with Washington Cancer Center.

The first private sector insurer to introduce pension plans.

Recognised as the Best Life Insurance Company in Sri Lanka at the World Finance Global Insurance Award 2014.

Ceylinco Life Insurance Limited established on 22 April 2014 following the segregation of the long-term (life) insurance business and general (non-life) insurance business of Ceylinco Insurance PLC by setting up two separate legal entities.

Ceylinco Life unveiled its new brand logo of father and child, reflecting progress, confidence and trust with the new tagline “Relationship for Life”. The new brand positioning reflects the Company's confidence and progression to capitalise new sources of growth and move into new markets whilst keeping its promise to its customers.

Ceylinco Life Insurance Limited commences business on 1 June 2015, having seamlessly taken over the business of the Life Division of Ceylinco Insurance PLC.

Wining the 4th World Finance Award

11th People's Choice Award

Ranked among the Top 20 Brands in Sri Lanka by Inter-Brand

Life Division sets up its own Actuarial Division

with international consultancy assistance

and forms its own strategic planning

process.

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GRI CONTENT INDEX

GRI Standard Disclosure Page number(s)and/or URL(s)

GRI 101: Foundation 2016 [GRI 101 does not include any disclosures]

General Disclosures

GRI 102: General Disclosures 2016 Organisational Profile

102-1 Name of the organisation Page 38

102-2 Activities, brands, products, and services Pages 108-110 and Inner back cover

102-3 Location of headquarters Inner back cover

102-4 Location of operations Page 38

102-5 Ownership and legal form Inner back cover

102-6 Markets served Page 108, pages 322-328

102-7 Scale of the organisation Page 41

102-8 Information on employees and other workers Pages 137-139

102-9 Supply chain Page 119

102-10 Significant changes to the organisation and its supply chain

Page 102

102-11 Precautionary Principle or approach Page 6

102-12 External initiatives Pages 6-7

102-13 Membership of associations Page 121

Strategy

102-14 Statement from senior decision-maker Pages 16-21

102-15 Key impacts, risks, and opportunities Pages 51-55

Ethics and integrity

102-16 Values, principles, standards, and norms of behaviour Page 5, 94 and 96

102-17 Mechanisms for advice and concerns about ethics Page 96

Governance

102-18 Governance structure Pages 166-167

102-22 Composition of the highest governance body and its committees

Pages 22-29

102-23 Chair of the highest governance body Page 172

102-24 Nominating and selecting the highest governance body Page 175

102-25 Conflicts of interest Pages 171, 190, 200

102-30 Effectiveness of risk management processes Pages 158-159

317


STEWARDSHIP FINANCIAL REPORT SUPPLEMENTARY INFORMATION GRI CONTENT INDEX


Stakeholder engagement

102-40 List of stakeholder groups Page 72

102-41 Collective bargaining agreements Page 147

102-42 Identifying and selecting stakeholders Pages 70-71

102-43 Approach to stakeholder engagement Pages 73-75

102-44 Key topics and concerns raised Pages 73-75

Reporting practice

102-45 Entities included in the Consolidated Financial Statements

Page 38

102-46 Defining report content and topic boundaries Page 6

102-47 List of material topics Pages 76-77

102-48 Restatements of information Page 6

102-49 Changes in reporting Page 6

102-50 Reporting period Page 6

102-51 Date of most recent report Page 6

102-52 Reporting cycle Page 6

102-53 Contact point for questions regarding the report Page 7

102-54 Claims of reporting in accordance with the GRI Standards Page 7

102-55 GRI content index Pages 316-320

102-56 External assurance Page 6 and

Material Topics

Economic Performance

GRI 103: Management Approach 2016 103-1 Explanation of the material topic and its boundaries Page 77

103-2 The management approach and its components Page 77

103-3 Evaluation of the management approach Page 77

GRI 201: Economic Performance 2016 201-1 Direct economic value generated and distributed Page 89

201-3 Defined benefit plan obligations and other retirement plan Pages 262-266

Indirect Economic Impacts




GRI 203: Indirect Economic Impacts 2016 203-1 Infrastructure investments and services supported Page 128

203-2 Significant indirect economic impacts Page 128

318

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Procurement Practices




GRI 204: Procurement Practices 2016 204-1 Proportion of spending on local suppliers Page 119

Anti-Competitive Behaviour




GRI 206: Anti-Competitive Behaviour 2016 206-1 Legal actions for anti-competitive behaviour, anti-trust, and monopoly practices

Page 118

Energy




GRI 302: Energy 2016 302-1 Energy consumption within the organisation Page 152

302-4 Reduction of energy consumption Page 152

Emissions




GRI 305: Emissions 2016 305-1 Direct (Scope 1) GHG emissions Page 151

305-2 Energy indirect (Scope 2) GHG emissions Page 151

305-3 Other indirect (Scope 3) GHG emissions Page 151

305-5 Reduction of GHG emissions Page 151

Effluents and Waste




GRI 306: Effluents and Waste 2016 306-2 Waste by type and disposal method Page 152

GRI CONTENT INDEX

319




Environmental Compliance




GRI 307: Environmental Compliance 2016 307-1 Non-compliance with environmental laws and regulations Page 153

Employment




GRI 401: Employment 2016 401-1 New employee hires and employee turnover Pages 141-142 and pages 144-145

401-2 Benefits provided to full-time employees that are not provided to temporary and part-time employees

Pages 146-147

401-3 Parental leave Page 142

Training and Education




GRI 404: Training and Education 2016 404-1 Average hours of training per year per employee Page 143-144

404-2 Programmes for upgrading employee skills and transition assistance programmes

Page 143

404-3 Percentage of employees receiving regular performance and career development reviews

Page 135

Diversity and Equal opportunity




GRI 405: Diversity and Equal Opportunity 2016 405-1 Diversity of governance bodies and employees Page 137 and page 167

GRI CONTENT INDEX

320

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Non-Discrimination




GRI 406: Non-Discrimination 2016 406-1 Incidents of discrimination and corrective actions taken Page 147

Local Communities

GRI 103: Management Approach 2016 103-1 Explanation of the material topic and its boundaries Pages 78-79

103-2 The management approach and its components Pages 78-79

103-3 Evaluation of the management approach Pages 78-79

GRI 413: Local Communities 2016 413-1 Operations with local community engagement, impact assessments, and development programmes

Page 128

Marketing and Labelling




GRI 417: Marketing and Labelling 2016 417-1 Requirements for product and service information and labelling

Pages 110-111

417-2 Incidents of non-compliance concerning product and service information and labelling

Page 118

417-3 Incidents of non-compliance concerning marketing communications

Page 118

Customer Privacy




GRI 418: Customer Privacy 2016 418-1 Substantiated complaints concerning breaches of customer privacy and losses of customer data

Page 118

Socioeconomic Compliance




GRI 419: Socioeconomic Compliance 2016 419-1 Non-compliance with laws and regulations in the social and economic area

Page 130

GRI CONTENT INDEX

321



SUSTAINABILITY ASSURANCE REPORT

Independent Assurance Report to Ceylinco Life Insurance Limited on the Sustainability Reporting Criteria Presented in the Integrated Annual Report – 2017

Introduction and scope of the engagementThe management of Ceylinco Life Insurance Ltd. (“the Company”) engaged us to provide an independent assurance on the following elements of the sustainability reporting criteria presented in the annual report – 2017 (“the Report”).

zz Reasonable assurance on the information on financial performance as specified on page 222 of the Report.

zz Limited assurance on other information presented in the Report, prepared in accordance with the requirements of the Global Reporting Initiative GRI Standards: “In accordance” – Core guidelines.

Basis of our work and level of assurance We performed our procedures to provide limited assurance in accordance with Sri Lanka Standard on Assurance Engagements (SLSAE 3000): “Assurance Engagements Other than Audits or Reviews of Historical Financial Information”, issued by The Institute of Chartered Accountants of Sri Lanka (“CASL”).

The evaluation criteria used for this limited assurance engagement are based on the Sustainability Reporting Guidelines (“GRI Guidelines”) and related information in particular, the requirements to achieve GRI Standards “In accordance” – Core guideline publication, publicly available at GRI’s global website at “www.globalreporting.org”.

Our engagement provides limited assurance as well as reasonable assurance. A limited assurance engagement is substantially less in scope than a reasonable assurance engagement conducted in accordance with SLSAE-3000 and consequently does not enable to obtain assurance that we would

become aware of all significant matters that might be identified in a reasonable assurance engagement. Accordingly, we do not express an opinion providing reasonable assurance.

Management of the Company’s responsibility for the ReportThe management of the Company is responsible for the preparation of the self-declaration, the information and statements contained within the Report, and for maintaining adequate records and internal controls that are designed to support the sustaining reporting process in line with the GRI Sustainability Reporting Guidelines.

Ernst & Young’s responsibilityOur responsibility is to express a conclusion as to whether we have become aware of any matter that causes us to believe that the Report is not prepared in accordance with the requirements of the Global Reporting Initiative, GRI Standards: “In accordance” – Comprehensive guidelines. This report is made solely to the Company in accordance with our engagement letter dated 20 March 2018. We disclaim any assumption of responsibility for any reliance on this report to any person other than the Company or for any purpose other than that for which it was prepared. In conducting our engagement, we have complied with the independence requirements of the Code for Ethics for Professional Accountants issued by the CASL.

Key assurance procedures We planned and performed our procedures to obtain the information and explanations considered necessary to provide sufficient evidence to support our limited assurance conclusions. Key assurance procedures included:

zz Interviewing relevant the Company’s personnel to understand the process for collection, analysis, aggregation and presentation of data.

zz Reviewing and validation of the information contained in the Report.

zz Checking the calculations performed by the Company on a sample basis through recalculation.

zz Reconciling and agreeing the data on financial performance are properly derived from the Company’s audited financial statements for the year ended 31 December 2017.

zz Comparison of the content of the Report against the criteria for a Global Reporting Initiative, GRI Standards: “In accordance” – Core guidelines.

Our procedures did not include testing electronic systems used to collect and aggregate the information.

Limitations and considerationsEnvironmental and social performance data are subject to inherent limitations given their nature and the methods used for determining, calculating and estimating such data.

ConclusionBased on the procedures performed, as described above, we conclude that;

zz The information on financial performance as specified on page 224 of the Report are properly derived from the audited financial statements of the Company for the year ended 31 December 2017.

zz Nothing has come to our attention that causes us to believe that other information presented in the Report are not fairly presented, in all material respects, in accordance with the Company’s sustainability practices and policies some of which are derived from Sustainability Reporting Guideline, GRI Standards – “In accordance” Core.

Ernst & YoungChartered Accountants


Ernst & YoungChartered Accountants201 De Saram PlaceP.O. Box 101Colombo 10Sri Lanka

Tel : +94 11 2463500Fax Gen : +94 11 2697369 Tax : +94 11 [email protected]

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BRANCH NETWORK

Northern Province

Branches


WesternProvince

Eastern Province

North WesternProvince

Uva Province

SabaragamuwaProvince

Southern Province

Central Province

21

273273

17

91

2135

1519

30

22

Western Province

Athurugiriya – 03

No. 28/2B, Godagama Road, Athurugiriya

Tel: – 011-2742433 – 011-2760950

Avissawella – 01

No. 23/1/1, Kudagama Road, Avissawella

Tel: – 036-2222134 – 036-2231620

Avissawella – 04

No. 23/1/1, Kudagama Road, Avissawella

Tel: – 036-2222134 – 036-2231620

Bandaragama – 01

No. 51, Panadura Road, Bandaragama

Tel: – 038-2289033 – 038-2293066

Bandaragama – 03

No. 51, Panadura Road, Bandaragama

Tel: – 038-2289033 – 038-2293066

Battaramulla

No. 956/A, Pannipitiya Road, Pelawatta, Battaramulla

Tel: – 011-2177109 – 011-2177110

Beruwala – 01

No. 303, Galle Road, Aluthgama

Tel: – 034-2271557 – 034-2271761

Boralesgamuwa

No. 215A, Raththanapitiya, Boralesgamuwa

Tel: – 011-2509659 – 011-2509149

Borella – 01

No. 85, Cotta Road, Colombo 08

Tel: – 011-2687512 – 011-2691546

Colombo – 09

No. 92, Jampettah Street, Colombo 13

Tel: – 011-2423196 – 011-2421589

Colombo – 10


Tel: – 011-2423196 – 011-2421589

Colombo North – 01


Tel: – 011-2423196 – 011-2421594



Tel: – 0112-423196 – 0112-337106



Tel: – 011-2423196 – 011-2421596

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STEWARDSHIP FINANCIAL REPORT SUPPLEMENTARY INFORMATION BRANCH NETWORK



Tel: – 011-2423196 – 011-2421586



Tel: – 011-2423196 – 011-2336005

Corporate Sales – 04

Ceylinco Life, Training Centre, No. 02, Gower Street,

Colombo 05

Tel: – – 011-2506036

Corporate Sales – 09


Tel: – 011-2824115 – 011-2816004

Delgoda – 01

No. 335/1, New Kandy Road, Delgoda

Tel: – 0112-403633 – 0112-402505

Dematagoda – 01

No. 58, Symonds Road, Colombo 10

Tel: – 011-2687269 – 011-2687255

Divulapitiya – 01

No. 73/2, Kurunegala Road, Divulapitiya

Tel: – 031-2243043 – 031-2248987

Divulapitiya – 03

No. 73/2, Kurunegala Road, Divulapitiya

Tel: – 031-2243043 – 031-2248987

Gampaha – 01


Tel: – 033-2222905 – 033-2234222

Gampaha – 03


Tel: – 033-2222905 – 033-2220188

Gampaha – 04


Tel: – 033-2222905 – 033-2220188

Gampaha – 05


Tel: – 033-2222905 – 033-2236773

Ganemulla – 01

No. 236 E1, Kirindivita Road, Ganemulla

Tel: – 033-2264117 – 033-2264922

Hanwella – 01

137/3C, 2nd Floor, Main Street, Hanwella

Tel: – 036-2251488 – 036-2253947

Homagama – 01

No. 496/3, High Level Road, Makumbura,

Kottawa, Pannipitiya

Tel: – 011-2781142 – 011-2172501

Horana – 03


Tel: – 034-2265095 – 034-2261474

Horana – 05


Tel: – 034-2265095 – 034-2261570

Horana – 06


Tel: – 034-2265095 – 034-2263951

Horana – 07


Tel: – 034-2265095 – 034-2263488

Ingiriya – 01

Panadura Road, Ingiriya

Tel: – 034-2268035 – 034-2269896

Ja-Ela – 01

No. 81, Negombo Road, Ja-Ela

Tel: – 011-2247010 – 011-2247728

Ja-Ela – 02


Tel: – 011-2247010 – 011-2243006

Ja-Ela – 04


Tel: – 011-2247010 – 011-2247044

Kadawatha – 01

No. 134/10C, Jaya Mawatha, Kandy Road,

Kadawatha

Tel: – 011-2927233 – 011-2901030

Kadawatha – 03

No. 134/10C, Jaya Mawatha, Kandy Road,

Kadawatha

Tel: – 011-2927233 – 011-2901030

Kaduwela – 01

No. 510/2, Avissawella Road, Kaduwela

Tel: – 011-2539937 – 011-2579980

Kaduwela – 02


Tel: – 011-2539937 – 011-2538139

Kaduwela – 03


Tel: – 011-2539937 – 011-2538139

Kalutara – 01

No. 423, Galle Road, Kalutara

Tel: – 034-2221526 – 034-2228490

Kalutara – 03


Tel: – 034-2221526 – 034-2228036

Kalutara – 04


Tel: – 034-2221526 – 034-2236750

Kandana – 01

No. 76/1/1, Station Road, Kandana

Tel: – 011-2242892 – 011-2240956

Kelaniya – 01

No. 27/1/1/1, Kandy Road, Kiribathgoda

Tel: – 011-2914429 – 011-2907309

Kesbewa – 01

No. 130/A/3, Horana Road, Kesbewa

Tel: – 011-2602233 – 011-2703507

Kirindiwela – 01

No. 129, Colombo Road, Kirindiwela

Tel: – 033-2268423 – 033-2268424

Kirindiwela – 02

No. 129, Colombo Road, Kirindiwela

Tel: – 033-2268423 – 033-2247677

Kirulapone – 02

No. 98 A/2/1, High Level Road, Kirulapone

Tel: – 011-2513090 – 011-2513091

Kochchikade – 01

No. 24, Negombo Road, Manaweriya, Kochchikade

Tel: – 031-2274452 – 031-2274545

Kolonnawa – 01

N0. 260A, Rajagiriya Road, Kotikawatta,

Mulleriyawa New Town

Tel: – 011-2549052 – 011-2567990

Kolonnawa – 02



Tel: – 011-2549052 – 011-2157163

Kolonnawa – 03



Tel: – 011-2549052 – 011-2157163

Kotahena – 01


Tel: – 011-2423196 – 011-2543708

Kottawa – 01

No. 496/3, High Level Road, Makumbura,

Kottawa, Pannipitiya

Tel: – 011-2781142 – 011-2783414

Maharagama – 01

No. 223, 1/1, High Level Road, Maharagama

Tel: – 011-2745768 – 011-2838820

Malabe – 01

No. 743/12/B, Thalangama North, Battaramulla

Tel: – 011-2791958 – 011-2791623

Maradana – 02

No. 58, Symonds Road, Colombo 10

Tel: – 011-2687269 – 011-2687268

Tel: – O

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Mathugama – 06

No. 98/2, Agalawatte Road, Mathugama

Tel: – 034-2248059 – 034-2249228

Mathugama – 07

No. 98/2, Agalawatte Road, Mathugama

Tel: – 034-2248059 – 034-2249227

Minuwangoda – 01

No. 52B, Negombo Road, Minuwangoda

Tel: – 011-2295480 – 011-2297122

Minuwangoda – 03

No. 52B, Negombo Road, Minuwangoda

Tel: – 011-2295480 – 011-2297122

Mirigama – 01

No. 93B, 1st Floor, Giriulla Road, Mirigama

Tel: – 033-2274318 – 033-2275475

Moratuwa – 01

No. 509, Galle Road, Rawathawatte, Moratuwa

Tel: – 011-2641843 – 011-2641100

Mount Lavinia – 04

No. 615, Galle Road, Mt. Lavinia

Tel: – 011-2761654 – 011-2724698

Negombo – 01

No. 115, 3rd Floor, Greens Road, Negombo

Tel: – 031-2228006 – 031-2224417

Negombo – 02

No. 115, Ground Floor, Greens Road, Negombo

Tel: – 031-2236455 – 031-2236456

Negombo – 03

No. 115, 2nd Floor, Greens Road, Negombo

Tel: – 031-2228006 – 031-2236457

Negombo – 05

No. 115, 2nd Floor, Greens Road, Negombo

Tel: – 031-2228006 – 031-2227400

Negombo – 07

No. 115, 1st Floor, Greens Road, Negombo

Tel: – 031-2228006 – 031-2238305

Negombo – 09

No. 115, 4th Floor, Greens Road, Negombo

Tel: – 031-2228006 – 031-2232519

Negombo – 11

No. 115, 4th Floor, Greens Road, Negombo

Tel: – 031-2228006 – 031-2232518

Nittambuwa – 01

No. 198, Kandy Road, Nittambuwa

Tel: – 033-2295013 – 033-2293632

Nittambuwa – 02

No. 198, Kandy Road, Nittambuwa

Tel: – 033-2295013 – 033-2294650

Nugegoda – 01


Tel: – 011-2824115 – 011-2816004

Panadura – 01

No. 401, Galle Road, Panadaura

Tel: – 038-2232370 – 038-2240372

Panadura – 04


Tel: – 038-2232370 – 038-2241289

Panadura – 05


Tel: – 038-2232370 – 038-2246175

Panadura – 06


Tel: – 038-2232370 – 038-2246176

Piliyandala – 01

No. 48/1/1, Colombo Road, Piliyandala

Tel: – 011-2608450 – 011-2613269

Piliyandala – 04

No. 48/1/1, Colombo Road, Piliyandala

Tel: – 011-2608450 – 011-2615508

Ragama – 01

No. 61B, Kadawatha Road, Ragama

Tel: – 011-2951698 – 011-2951692

Veyangoda – 01

No. 177 1/1, Negombo Road, Veyangoda

Tel: – 033-2297065 – 033-2297064

Wadduwa – 02

No. 560/D/1/1, 1st Floor, Galle Road, Wadduwa

Tel: – 038-2284002 – 038-2285605

Wattala – 01

No. 492A, Negombo Road, Wattala

Tel: – 011-2943354 – 011-2945579

Weliveriya – 01

No. 43/1, Palliyawatte, New Kandy Road,

Weliveriya

Tel: – 033-2255891 – 032-2256095

Wellawatte – 01

No. 124/1, Collingwood Place, Wellawatte,

Colombo 06

Tel: – 011-2362229 – 011-2362339

Yakkala – 01

No. 104, Kandy Road, Yakkala

Tel: – 033-2234805 – 033-2234109

Yakkala – 02

No. 104, Kandy Road, Yakkala

Tel: – 033-2234805 – 033-2234109

North Western Province

Anamaduwa – 01

Chandrika Motors, 2nd Floor, Chilaw Road,

Anamaduwa

Tel: – 032-2263585 – 032-2263343

Chilaw – 01

No. 66/1, Puttalam Road, Chilaw

Tel: – 032-2223310 – 032-2220079

Dankotuwa – 01

No. 90A, Negombo Road, Dankotuwa

Tel: – 031-2259401 – 031-2253515

Dankotuwa – 02

No. 90A, Negombo Road, Dankotuwa

Tel: – 031-2259401 – 031-2261947

Galgamuwa – 01

No. 18, Opposite Pradeshiya Sabawa,

Kurunegala Road, Galgamuwa

Tel: – 037-2254002 – 037-2254001

Giriulla – 01

No. 64/1, Kuliyapitiya Road, Narammala

Tel: – 037-2248965 – 037-2248965

Hettipola

No. 152 A, Kandegedara House, Hettipola

Tel: – 066-2250133 – 066-2250144

Kuliyapitiya – 01

No. 257, Madampe Road, Kuliyapitiya

Tel: – 037-2281844 – 037-2283348

Kurunegala – 01


Tel: – 037-2223894 – 037-2228880

Kurunegala – 02


Tel: – 037-2223894 – 037-2222074

Kurunegala – 06


Tel: – 037-2223894 – 037-2220713

Kurunegala – 07


Tel: – 037-2223894 – 037-2220613

Kurunegala – 08


Tel: – 037-2223894 – 037-2230655

Maho – 01

Main Street, Maho

Tel: – 037-2275242 – 037-2275501

Tel:

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Malsiripura

Ramyasiri Pharmacy Building, Dambulla Road,

Malsiripura

Tel: – 037-3986665 – 037-3986664

Mawathagama

No. 226/A, Kandy Road, Mawathagama

Tel: – 037-2296052 – 037-2296033

Mawathagama – 03

No. 226/A, Kandy Road, Mawathagama

Tel: – 037-2296052 – 037-2296033

Narammala – 01

No. 64/1, Kuliyapitiya Road, Narammala

Tel: – 037-2248965 – 037-2248964

Nattandiya – 01

No. 106, Kuliyapitiya Road, Nattandiya

Tel: – 032-2251285 – 032-2255415

Nattandiya – 02


Tel: – 032-2251285 – 032-2252333

Nattandiya – 03


Tel: – 032-2251285 – 032-2252330

Nattandiya – 05


Tel: – 032-2251285 – 032-2252332

Nattandiya – 06


Tel: – 032-2251285 – 032-2252330

Nikaweratiya – 01

Senarathne Building, Puttalam Road, Nikaweratiya

Tel: – 037-2260960 – 037-2260903

Nikaweratiya – 02

Senarathne Building, Puttalam Road, Nikaweratiya

Tel: – 037-2260960 – 037-2260903

Norochcholai – 01

No. 116A, Opposite Base Hospital, Kurunegala

Road, Puttalam

Tel: – 032-2267072 – 032-2266368

Panduwasnuwara – 01

No. 14, Bogolla Road, Hettipola

Tel: – 037-2291929 – 037-2291788

Pannala

No. 112, Negombo Road, Pannala

Tel: – 037-2245069 – 037-2245070

Puttalam – 01


Road, Puttalam

Tel: – 032-2267072 – 032-2266101

Puttalam – 02


Road, Puttalam

Tel: – 032-2267072 – 032-2267733

Puttalam – 04


Road, Puttalam

Tel: – 032-2267072 – 032-2267733

Wariyapola

No. 141, Chilaw Road, Wariyapola

Tel: – 037-2268658 – 037-2268643

Wennappuwa – 01

No. 15, Rev. Rex Dias Mawatha, Wennappuwa

Tel: – 031-2255971 – 031-2254832

Wennappuwa – 05


Tel: – 031-2255971 – 031-2262592

Wennappuwa – 07


Tel: – 031-2255971 – 031-2262594


Alawwa – 01

No. 28, Colombo Road, Wariyagoda, Alawwa

Tel: – 037-2277114 – 037-2277113

Anuradhapura – 01

No. 54, Dharmapala Mawatha, Anuradhapura

Tel: – 025-2234886 – 025-2222004

Anuradhapura – 02


Tel: – 025-2234886 – 025-2234377

Anuradhapura – 08


Tel: – 025-2234886 – 025-2235302

Aralaganwila – 01

No. 26/14, New Town, Aralaganwila

Tel: – 027-2257270 – 027-2257271

Galenbindunuwewa – 01

Kahatagasdigiliya Road, Galenbindunuwewa

Tel: – 025-2258003 – 025-2258004

Hingurakgoda – 01

No. 55, Airport Road, Hingurakgoda

Tel: – 027-2247582 – 027-2246356

Hingurakgoda – 02

No. 55, Airport Road, Hingurakgoda

Tel: – 027-2247582 – 027-2245056

Kaduruwela – 01

No. 245/1, Saw Mill Junction, Kaduruwela

Tel: – 027-2225957 – 027-2223164

Kahatagasdigiliya – 01

Anuradhapura Road, Kahatagasdigiliya

Tel: – 025-2247002 – 025-2247010

Kekirawa – 01

Opposite Hospital, Maradankadawala Road,

Kekirawa

Tel: – 025-2263069 – 025-2264083

Medawachchiya – 01

No. 102, 1st Floor, Jaffna Road, Medawachchiya

Tel: – 025-2245962 – 025-2245511

Nochchiyagama – 01

No. 395, Puttalam Road, Nochchiyagama

Tel: – 025-2257015 – 025-2257542



Tel: – 025-2257015 – 025-2257542



Tel: – 025-2257015 – 025-2257020

Padaviya – 01

Opposite Hospital, No. 04, Padaviya

Tel: – 025-2253010 – 025-2253280

Thambuththegama – 01

No. 272, Rajangana Junction, Anuradhapura Road,

Thambuththegama

Tel: – 025-2275492 – 025-2275034

Tel: – O

perations – Sales

BRANCH NETWORK

Eastern Province

Akkaraipattu – 01

No. 288, Main Street, Akkaraipattu

Tel: – 067-2278547 – 067-2278446

Ampara – 01

No. 63A, Lakshmi Building, D S Senanayake

Mawatha, Ampara

Tel: – 063-2223704 – 063-2222682

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Ampara – 02

No. 63A, Lakshmi Building, D S Senanayake

Mawatha, Ampara

Tel: – 063-2223704 – 063-2222682

Batticaloa – 01

No. 32, Lloyd’s Avenue, Batticaloa

Tel: – 065-2226364 – 065-2226363

Batticaloa – 04


Tel: – 065-2226364 – 065-2227474

Batticaloa – 06


Tel: – 065-2226364 – 065-2222673

Chenkalady – 01

Main Street, Chenkalady

Tel: – 065-2054039 – 065-2258078

Dehiyattakandiya – 01

No. 32, Main Street, Dehiattakandiya

Tel: – 027-2250400 – 027-2274099

Dehiyattakandiya – 03

No. 32, Main Street, Dehiattakandiya

Tel: – 027-2250400 – 027-2274099

Kalmunai – 01

No. 105, 1st Floor, Main Street, Batticaloa Road,

Kalmunai

Tel: – 067-2224531 – 067-2224530

Kalmunai – 02

No. 105, 1st Floor, Main Street, Batticaloa Road,

Kalmunai

Tel: – 067-2224531 – 067-2225638

Kaluwanchikudy – 01

Main Street, Kaluwanchikudy

Tel: – 065-2250062 – 065-2250212

Kaluwanchikudy – 03

Main Street, Kaluwanchikudy

Tel: – 065-2250062 – 065-2251633

Kantale – 01

No. 259, 1st Floor, Main Street, Kantale

Tel: – 026-2234000 – 026-2234110

Trincomalee – 01

No. 20, Kandy Road, Trincomalee

Tel: – 026-2227724 – 026-2227740

Trincomalee – 02


Tel: – 026-2227724 – 026-2227303

Trincomalee – 05


Tel: – 026-2227724 – 026-2055070

Trincomalee – 06


Tel: – 026-2227724 – 026-2055070

Uva Province

Badulla – 02

No. 07, Badulupitiya Road, Badulla

Tel: – 055-2223299 – 055-2228288

Badulla – 04


Tel: – 055-2236175 – 055-2242613

Badulla – 05


Tel: – 055-2236175 – 055-2242613

Bandarawela – 01


Tel: – 057-2222531 – 057-2232529

Bandarawela – 02


Tel: – 057-2222531 – 057-2233236

Bandarawela – 04


Tel: – 057-2222531 – 057-2233365

Bandarawela – 05


Tel: – 057-2222531 – 057-2232065

Bibile – 01

Monaragala Junction, Bibile

Tel: – 055-2265955 – 055-2265950

Mahiyangana – 01

Kandy Road, Mahiyangana

Tel: – 055-2257772 – 055-2257980

Mahiyangana – 02


Tel: – 055-2257772 – 055-2257066

Mahiyangana – 03


Tel: – 055-2257772 – 055-2051499

Monaragala – 01

No. 75, Sampath Bank Building, 1st Floor,

Pothuvil Road, Monaragala

Tel: – 055-2277059 – 057-2276332

Monaragala – 03

No. 75, Sampath Bank Building, 1st Floor,

Pothuvil Road, Monaragala

Tel: – 055-2277059 –

Welimada – 01

No. 11B, Boralanda Road, Welimada

Tel: – 057-2244784 – 057-2244565

Welimada – 02


Tel: – 057-2244784 – 057-2244134

Welimada – 04


Tel: – 057-2244784 – 057-2244134

Wellawaya – 01

No. 45/1A, Monaragala Road, Wellawaya

Tel: – 055-2274911 – 055-2274901

Southern Province

Akuressa – 01

No. 50/1, D C Wanigasekara Road, Akuressa

Tel: – 041-2283971 – 041-2283644

Akuressa – 03


Tel: – 041-2283971 – 041-2283970

Akuressa – 04


Tel: – 041-2283971 – 041-2283970

Aluthgama – 01

No. 303, Galle Road, Aluthgama

Tel: – 034-2271557 – 034-2275424

Ambalangoda – 02

No. 17, Kularathne Road, Ambalangoda

Tel: – 091-2257937 – 091-2258030

Ambalangoda – 04

No. 17, Kularathne Road, Ambalangoda

Tel: – 091-2257937 – 091-2254088

Ambalanthota – 03

No. 177/A, Tangalle Road, Ambalanthota

Tel: – 047-2225059 – 047-2225242

Tel:

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Valaichchenai

Trinco Road, Valaichchenai

Tel: – 065-2257699 – 065-2258022

Valaichchenai – 02


Tel: – 065-2257699 – 065-2258487

Valaichchenai – 03


Tel: – 065-2257699 – 065-2258486

BRANCH NETWORK

327



Baddegama

No. 112, Diyawagura, Kumme, Baddegama

Tel: – 091-2292130 – 091-2292131

Baddegama – 02

No. 112, Diyawagura, Kumme, Baddegama

Tel: – 091-2292130 – 091-2292131

Beliatta

No. 59, Walasmulla Road, Beliatta

Tel: – 047-2251242 – 047-2251132

Deniyaya – 01

No. 153/1, Main Street, Deniyaya

Tel: – 041-2273755 – 041-2273407

Elpitiya – 01

No. 10/1, Pituwala Road, Elpitiya

Tel: – 091-2291312 – 091-2291310

Elpitiya – 02

No. 10/1, Pituwala Road, Elpitiya

Tel: – 091-2291312 – 091-2291036

Galle – 01


Tel: – 091-2234158 – 091 2246010

Galle – 02


Tel: – 091-2234158 – 091-2227450

Galle – 05


Tel: – 091-2234158 – 091-2232174

Kamburupitiya – 01

No. 03, Akuressa Road, Kamburupitiya

Tel: – 041-2294451 – 041-2294450

Kamburupitiya – 02

No. 03, Akuressa Road, Kamburupitiya

Tel: – 041-2294451 – 041-2292522

Matara – 02


Tel: – 041-2224824 – 041-2225533

Matara – 03


Tel: – 041-2224824 – 041-2236580

Matara – 04


Tel: – 041-2224824 – 041-2236579

Matara – 06


Tel: – 041-2224824 – 041-2233703

Middeniya – 01

“Nelsha Building”, 1st Floor, Walasmulla Road,

Middeniya

Tel: – 047-2248445 – 047-2248444

Middeniya – 02


Middeniya

Tel: – 047-2248445 – 047-2248511

Middeniya – 03


Middeniya

Tel: – 047-2248445 – 047-2248443

Neluwa – 01

Morawaka Road, Neluwa

Tel: – 091-2285210 – 091-3919350

Sooriyawewa – 01

No. 6712, 1st Floor, Main Street, Sooriyawewa

Tel: – 047-2289221 – 047-2289222

Tissamaharama – 01

No. 223, Kachcheriyagama, Tissamaharama

Tel: – 047-2239637 – 047-2239057

Tissamaharama – 03

No. 223, Kachcheriyagama, Tissamaharama

Tel: – 047-2239637 – 047-2237116

Uragaha – 01

Aluthgama Road, Uragasmanhandiya

Tel: – 091-2264701 – 091-2264762

Central Province

Dambulla – 01

No. 669, Anuradhapura Road, Dambulla

Tel: – 066-2285281 – 066-2284523

Gampola – 01

No. 191/A, Ambagamuwa Road, Gampola

Tel: – 081-2352769 – 081-2350923

Gampola – 02

No. 191/A, Ambagamuwa Road, Gampola

Tel: – 081-2352769 – 081-2065879

Hatton – 01

No. 66, Liberty Building, Dunbar Road, Hatton

Tel: – 051-2224480 – 051-2224629

Hatton – 02

No. 66, Liberty Building, Dunbar Road, Hatton

Tel: – 051-2224480 – 051-2261300

Kandy – 01

No. 65, Kings Street, Kandy

Tel: – 081-2234803 – 081-2236407

Tel: – O

perations – Sales

Kandy – 02


Tel: – 081-2234891 – 081-2234895

Kandy – 05


Tel: – 081-2234891 – 081-2234895

Kandy – 06


Tel: – 081-2234892 – 081-2234896

Katugastota – 01

No. 278-1/2, 1st Floor, Katugastota Road, Kandy

Tel: – 081-2213399 – 081-2213400

Matale – 01

No. 186/2/1, Trincomalee Street, Matale

Tel: – 066-2223203 – 066-2233158

Matale – 02


Tel: – 066-2223203 – 066-2230205

Matale – 03


Tel: – 066-2223203 – 066-2230205

Matale – 04


Tel: – 066-2223203 – 066-2230205

Nuwara Eliya – 01

No. 72, Tharanga Complex, Park Road, Nuwara Eliya

Tel: – 052-2223185 – 052-2235152

Nuwara Eliya – 02

No. 72, Tharanga Complex, Park Road, Nuwara Eliya

Tel: – 052-2223185 – 052-2235152

Peradeniya – 01


Tel: – 081-2387227 – 081-2387228

Pilimathalawa – 01

No. 169/1, Colombo Road, Pilimathalawa

Tel: – 081 2579707 – 081 2577064

Pilimathalawa – 03

No. 169/1, Colombo Road, Pilimathalawa

Tel: – 081 2579707 – 081 2577064

Rikillagaskada – 01

No. 127, Kandy Road, Rikillagaskada

Tel: – 081-3993360 – 081-3808908

Teldeniya – 01

No. 226/3, Kandy Road, Teldeniya

Tel: – 081-3808909 – 081-3993575

Wattegama – 01

No. 97, Matale Road, Wattegama

Tel: – 081-2476974 – 081-2476975

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Sabaragamuwa Province

Balangoda – 01

No. 118, Barnes Ratwatte Mawatha, Balangoda

Tel: – 045-2286654 – 045-2287474

Balangoda – 03


Tel: – 045-2286654 – 045-2287474

Balangoda – 04


Tel: – 045-2286654 – 045-2287474

Eheliyagoda – 01

No. 13/1/1, Main Street, Eheliyagoda

Tel: – 036-2259964 – 036-2259963

Embilipitiya – 01

No. 122, 1st Floor, New Town Road, Embilipitiya

Tel: – 047-2230023 – 047-2261071

Embilipitiya – 02


Tel: – 047-2230023 – 047-2261562

Embilipitiya – 03


Tel: – 047-2230023 – 047-2261218

Godakawela – 01

2nd Floor, Saru Building, Main Street, Godakawela

Tel: – 045-2240792 – 045-2240791

Kalawana – 01

Rathnapura Road, Manana, Kalawana

Tel: – 045-2255989 – 045-2255955

Kegalle – 03

No. 290/28, Main Street, Kegalle

Tel: – 035-2222280 – 035-2223126

Mawanella – 01

No. 269, Kandy Road, Beligammana, Mawanella

Tel: – 035 2247777 – 035 2247092

Pelmadulla – 01

No. 122A, Main Street, Pelmadulla

Tel: – 045-2275985 – 045-2275984

Rambukkana – 01

No. 152, Kurunegala Road, Rambukkana

Tel: – 035-2266451 – 035-2266450

Ratnapura – 01


Tel: – 045-2224036 – 045-2230049

Northern Province

Achchuveli – 01

Raja Vidhee, Achchuveli

Tel: – 021-2058044 – 021-2058045

Achchuveli – 03

Raja Vidhee, Achchuveli

Tel: – 021-2058044 – 021-2058045

Chavakachcheri – 01

No. 179, 2nd Floor, Kandy Road, Chavakachcheri

Tel: – 021-2270725 – 021-2270064

Chavakachcheri – 02

No. 179, 2nd Floor, Kandy Road, Chavakachcheri

Tel: – 021-2270725 – 021-2270064

Chunnagam – 01

No. 145, K K S Road, Chunnagam

Tel: – 021-2242099 – 021-2240274

Chunnagam – 02

No. 145, K K S Road, Chunnagam

Tel: – 021-3216413 – 021-2242274

Jaffna – 01

No. 37, Kannathiddy Road, Jaffna

Tel: – 021-2225061 – 021-2228488

Jaffna – 04


Tel: – 021-2225061 – 021-2219937

Jaffna – 05


Tel: – 021-2225061 – 021-2219937

Ratnapura – 02


Tel: – 045-2224036 – 045-2224901

Ratnapura – 03


Tel: – 045-2224036 – 045-2230165

Ratnapura – 04


Tel: – 045-2224036 – 045-2230165

Ruwanwella – 01

No. 93 1/1, Main Street, Ruwanwella

Tel: – 036-2268696 – 036-2268686

Warakapola – 01

No. 177, Kandy Road, Warakapola

Tel: – 035-2268420 – 035-2267823

Jaffna – 06


Tel: – 021-2225061 – 021-2219937

Kilinochchi – 01

No. 32, A9 Kandy Road, Killinochchi

Tel: – 021-2060973 – 021-2060972

Mannar – 01

Parameshwary Building, Hospital Road, Mannar

Tel: – 023-2223211 – 023-2223210

Manipay – 01

Sangarapillai Road, Manipay

Tel: – 021-2255296 – 021-2255997

Nelliady – 01

Kathigesu Building, Point Pedro Road, Nelliady

Tel: – 021-2264807 – 021-2264183

Nelliady – 02


Tel: – 021-2264807 – 021-2262807

Nelliady – 03


Tel: – 021-2264807 – 021-2264050

Nelliady – 04


Tel: – 021-2264807 – 021-2261300

Vavuniya – 01

No. 52, 2nd Cross Street, Vavuniya

Tel: – 024-2221536 – 024-2221584

Vavuniya – 02


Tel: – 024-2221536 – 024-3248128

Vavuniya – 03


Tel: – 024-2221536 – 024-2227265

Vavuniya – 05


Tel: – 024-2221536 – 024-2227265

Tel:

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GLOSSARY OF KEY TERMS

1. Acquisition Expenses – Long-Term InsuranceAll expenses which vary with and are primarily related to, the acquisition of new insurance contracts.

2. ActuaryAn expert concerned with the application of probability and statistical theory to problems of insurance, investment, financial management and demography.

3. Actuarial ValuationA determination by an actuary at a specific date of the value of a life insurance company’s assets and its liabilities. The purpose of a valuation is to ensure that the Company holds adequate assets to fund the Company’s liabilities.

4. Admissible AssetsAssets that are included in determining an insurer’s statutory solvency margin, specified under the rules made by the IRCSL under the regulation of Insurance Industry Act No. 43 of 2000.

5. AnnuityA series of regular payments. Annuities include annuities certain, where payments are made at definite times and life annuities where payments depend on the survival of an annuitant. A life annuity is a contract that provides a regular payment, typically monthly, during the life time of the policyholder or a fixed period if less. If the payment starts at the outset of the contract, it is an immediate annuity. If it starts at some point in the future, it is a deferred annuity.

6. BeneficiaryThe person or financial institution (for e.g. a trust fund) named in the policy as the recipient of insurance money in the event of the policyholder’s death.

7. BonusBonus is a method of distribution of surplus amongst the participating policyholders of a Life Insurance Company. A bonus is an enhancement to the basic sum assured under a contract and is declared as a percentage of the sum assured.

8. ClaimsThe amount payable under a contract of insurance arising from the occurrence of an insured event.

9. Claim IncurredThe aggregate of all claims paid during the accounting period together with attributable claims handling expenses, where appropriate, adjusted by the gross claims reserve at the beginning and end of the accounting period.

10. Claims Outstanding – Long-Term InsuranceThe amounts provided to cover the estimated ultimate cost of settling claims arising out of events which have been notified by the Balance Sheet date, being sums due to beneficiaries together with claims handling expenses, less amounts already paid in respect of those claims.

11. CommissionRemuneration to an intermediary for services such as selling and servicing an insurer’s products. This is one component of acquisition expenses.

12. Dividend CoverProfits after tax divided by dividend measures the number of times dividends are covered by distributable profits for the period.

13. Earned PremiumWritten premium adjusted by the unearned premium reserve at the beginning and end of the accounting period.

14. Earnings Per ShareNet profits of the Company after tax, divided by the number of ordinary shares in issue.

15. Gross Written Premium – LifePremium to which the insurer is contractually entitled and receivable in the accounting period.

16. Global Reporting Initiative (GRI)A leading organisation in the sustainability field. GRI promotes the use of sustainability reporting as a way for organisations to become more sustainable and contribute to sustainable development allied with the UN Global Compact.

17. InsuranceInsurance is a contract whereby one party- the insurer, in return for a consideration i.e, the premium, undertakes to pay to the other party – the insured, a sum of money or its equivalent in kind, upon the happening of a specified event that is contrary to the interest of the insured.

18. Insurance Provision – LifeThe funds or funds to be maintained by an insurer in respect of its life insurance business in accordance with the Regulation of Insurance Industry Act No. 43 of 2000.

19. Interim PaymentsPeriodic payments to the policyholders on a specific type of policy.

20. Life SurplusThe excess of the assets over the liabilities as determined by the actuary and after the distribution of dividends to policyholders.

21. Lapsed PolicyA policy terminated at the end of the grace period because of non-payment of premiums.

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22. Life Insurance Business Insurance (including reinsurance) business falling within the classes of insurance specified as Long-Term Insurance Business under the Regulation of Insurance Industry Act No. 43 of 2000.

23. Market CapitalisationNumber of shares in issue multiplied by the market value of each share as at the Balance Sheet date.

24. MaturityThe time at which payment of the sum insured under a life insurance policy falls due at the end of its term.

25. Net Earned PremiumGross written premium adjusted for the reinsurance incurred and for the increase or decrease in unearned premium.

26. Net Assets Per Share Net assets attributable to shareholders’ equity divided by the number of ordinary shares issued.

27. Net Written PremiumGross written premium less reinsurance payable.

28. Net Claims IncurredClaims incurred less reinsurance recoveries.

29. PolicyThe printed document issued to the policyholder by the Company stating the terms of the insurance contract.

30. Policy LoanUnder an insurance policy, the amount that can be borrowed at a specific rate of interest from the issuing company by the policyholder, who used the value of the policy as collateral for the loan. In the event the policyholder dies with the debt partially or fully unpaid, the insurance

company deducts the amount borrowed, plus any accumulated interest, from the amount payable.

31. Price Earning RatioMarket price of a share divided by earnings per share.

32. PremiumThe payment, or one of the periodic payments, a policyholder agrees to make for an insurance policy. Depending on the terms of the policy, the premium may be paid in one payment or a series of regular payments.

33. Reinsurance Commission Commission received or receivable in respect of premium paid or payable to a reinsurer.

34. Reinsurance PremiumThe premium payable to the reinsurer.

35. Return on Shareholders’ Equity Profits after tax divided by the Capital employed as at Balance Sheet date.

36. Return on Total Assets Profits after tax divided by total assets attributable to shareholders.

37. Revenue ReserveAn account which shows a financial summary of the insurance related revenue transactions for the accounting period.

38. Risk-based Capital (RBC) An amount of capital based on an assessment of risks that a company should hold to protect policyholders against adverse developments.

39. SurrenderThe amounts refundable to life policyholders when they terminate their insurance contracts after a specific period.

GLOSSARY OF KEY TERMS

CEYLINCO LIFE INSURANCE LIMITED INTEGRATED ANNUAL REPORT 2017CEYLINCO LIFE INSURANCE LIMITED INTEGRATED ANNUAL REPORT 2017

Your opinion matters, please share your views with us. ___________________________________________________________________________________________________________________

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To request information or submit a comment/query to the Company, please provide the following details and return this page to:

The Company Secretary,Ceylinco Life Insurance Limited,No. 106, Havelock Road, Colombo 05,Sri Lanka

Name : …………………………………………………………………………………………………………………………………………….……

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STAKEHOLDER FEEDBACK FORM

CORPORATE INFORMATION

Company nameCeylinco Life Insurance Limited

Registered officeNo. 106, Havelock Road, Colombo 05, Sri Lanka

Company registrationnumberPB 5183

Legal form A Public Company with limited liability incorporated on 22 April 2014, Licensed as a Company authorised by the Insurance Regulatory Commission of Sri Lanka (IRCSL) formerly known as Insurance Board of Sri Lanka (IBSL) to carry-on long-term life insurance business under the Regulation of Insurance Industry Act No. 43 of 2000 as amended.

Main place of business No. 106, Havelock Road, Colombo 05, Sri Lanka

Telephone : +94 11 4261000

Call Centre : +94 11 2461461 (Hotline)

Fax : +94 11 2437613, +94 11 2555959

Email : [email protected]

Website : www.ceylincolife.com

Principal activitiesUnderwriting all classes of life insurance

SubsidiariesCeylinco Healthcare Services LimitedCeylinco Seraka Limited Serene Resorts Limited

Associate companyCitizen Development Business Finance PLC

AuditorsErnst & Young Chartered Accountants No. 201, De Saram Place, Colombo 10

BankersBank of Ceylon

Commercial Bank of Ceylon PLC

Deutsche Bank AG (Custodian Bank)

DFCC Bank PLC

Hatton National Bank PLC

National Savings Bank

Nations Trust Bank PLC

National Development Bank PLC

Pan Asia Banking Corporation PLC

People’s Bank

Sampath Bank PLC

Standard Chartered Bank

Seylan Bank PLC

Union Bank of Colombo Limited

Consulting actuariesTowers Watson Consulting (Singapore) Pte. LimitedNo. 135, Cecil Street, #09-01, Singapore 069536

Accounting year end31 December

Board of DirectorsJ Godwin Perera – Chairman – Non-Executive Director

R Renganathan – Managing Director/CEO – Executive Director

E T L Ranasinghe – Deputy CEO – Executive Director

P D M Cooray – Head of HR and Training – Executive Director

Palitha Jayawardena – Chief Financial Officer – Executive Director

Ranga Abeynayake – Deputy Chief Financial Officer – Executive Director

D H J Gunawardena – Non-Executive Director

Gen C S Weerasooriya (Retired) – Non-Executive Director

R S W Senanayake – Non-Executive Director

J A Setukavalar – Independent – Non-Executive Director

Prof Mohan de Silva – Independent – Non-Executive Director

Dr B G S de Silva – Independent – Non-Executive Director

J Wickramasinghe – Independent – Non-Executive Director

Sugath Caldera – Independent – Non-Executive Director

Ms A K Seneviratne – Independent – Non-Executive Director

Company secretaryA C H Waidyasekara

Compliance officerRanga Abeynayake

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Ceylinco Life Insurance Limited Integrated Annual Report 2017

Ceylinco Life Insurance LimitedNo. 106, Havelock Road, Colombo 5, Sri Lanka.T: +94 11 246 1000 F: +94 11 255 5959 E: [email protected] W: www.ceylincolife.com

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KNOW YOUR LIFE INSURER - Ceylinco Life · 2018-06-22 · Ceylinco Life Insurance Limited Ceylinco...

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Transcript of KNOW YOUR LIFE INSURER - Ceylinco Life · 2018-06-22 · Ceylinco Life Insurance Limited Ceylinco...