ICWI :: Financial Statements 2013

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THE INSURANCE COMPANY OF THE WEST INDIES LIMITED

Statement of Profit or Loss and Other Comprehensive Income Year ended December 31, 2013

Notes 2013 2012 $’000 $’000 (Restated)* Gross premiums written 12 3,623,651 2,863,497

Change in gross provision for unearned premiums ( 411,569) ( 60,632)

Gross insurance premium revenue 12 3,212,082 2,802,865

Written premiums ceded to reinsurers 12 (1,876,486) (1,640,922)

Reinsurers’ share of change in provision for unearned premiums 90,517 24,906

Net insurance premium revenue 1,426,113 1,186,849

Claims expenses incurred 12 (1,468,276) (1,513,413) Reinsurers’ share of claims 12 683,073 816,595 Net insurance claims ( 785,203) ( 696,818)

Commission income 18 782,352 711,795

Commission expenses 14 ( 267,014) ( 219,160)

Net commission income 515,338 492,635

1,156,248 982,666

Operating expenses (1,123,268) ( 969,597)

Underwriting profit before other income, expenses and taxation 22 32,980 13,069

Investment income 24 121,703 162,891

Foreign exchange gain 91,797 21,195

Change in fair value of investment properties 7,182 -

Loss on disposal of property, plant and equipment ( 425) ( 881)

Other income 10,115 22,513

Profit before taxation 263,352 218,787

Taxation 25 ( 86,918) ( 75,468)

Profit for the year 176,434 143,319

Other comprehensive income/(loss) Items that may be reclassified to profit or loss Appreciation/(diminution) in fair value of investments 32 ( 584)

Items that will never be reclassified to profit or loss Remeasurement gain/(loss) on employee benefit obligation, net of taxes 4,213 ( 9,931)

Total comprehensive income for the year 180,679 132,804

* See note 27 The accompanying notes form an integral part of the financial statements.

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THE INSURANCE COMPANY OF THE WEST INDIES LIMITED Statement of Changes in Stockholders’ Equity Year ended December 31, 2013 Investment Share Share Capital revaluation Retained capital premium reserve reserve earnings Total $’000 $’000 $’000 $’000 $’000 $’000 (note 21) Balances at December 31, 2011 As previously stated 108,333 66,763 2,662 ( 6,033) 819,430 991,155 Impact of change in accounting policy (note 27) - - - - 259 259

Balances at December 31, 2011, as restated 108,333 66,763 2,662 ( 6,033) 819,689 991,414 Total comprehensive income for the year: Profit for the year: As previously reported - - - - 143,301 143,301 Impact of change in accounting policy (note 27) - - - - 18 18

As restated - - - - 143,319 143,319 Other comprehensive income: As previously reported: Diminution in fair value of investments - - - ( 584) - ( 584) Impact of change in accounting policy (note 27) - - - - ( 9,931) ( 9,931) Other comprehensive income for the year, net of taxation, as restated - - - ( 584) ( 9,931) ( 10,515) Total comprehensive income for the year, as restated - - - ( 584) 133,388 132,804

Balances at December 31, 2012, as restated 108,333 66,763 2,662 ( 6,617) 953,077 1,124,218

Balances at December 31, 2012, as previously stated 108,333 66,763 2,662 ( 6,617) 962,731 1,133,872 Impact of change in accounting policy (note 27) - - - - ( 9,654) ( 9,654) Balances at December 31, 2012, as restated 108,333 66,763 2,662 ( 6,617) 953,077 1,124,218

Total comprehensive income: Profit for the year - - - - 176,434 176,434 Other comprehensive income: Re-measurement gain on employee benefit obligation, net of taxes - - - - 4,213 4,213 Appreciation in fair value of investments - - - 32 - 32 Total comprehensive income for the year - - - 32 180,647 180,679 Transactions with owners, recorded directly in equity Issue of shares 75,000 - - - ( 75,000) -

Balances at December 31, 2013 183,333 66,763 2,662 ( 6,585) 1,058,724 1,304,897 The accompanying notes form an integral part of the financial statements.

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Statement of Cash Flows Year ended December 31, 2013

2013 2012 $’000 $’000 CASH FLOWS FROM OPERATING ACTIVITIES Profit for the year 176,434 143,319 Adjustments for: Depreciation on property, plant & equipment 21,411 23,148 Amortisation of intangible asset 2,590 15,542 Loss on disposal of property, plant & equipment 425 881 Change in fair value of investment properties ( 7,182) - Reinsurance assets (139,543) (371,853) Insurance contract provisions 632,906 593,339 Employee benefit obligation 2,612 11,606 Interest income (138,714) (152,440) Taxation 86,918 75,468

637,857 339,010 Changes in: Insurance receivables ( 6,644) ( 14,854) Deferred commission expenses ( 98,176) ( 3,648) Other accounts receivable 2,217 21,500 Accounts payable and accrued charges 23,930 89,302 Insurance payables and deferred income ( 33,520) 92,744

525,664 524,054 Interest received 136,924 141,940 Tax paid ( 3,863) ( 1,467) Benefits paid ( 1,598) ( 1,468) Withholding tax ( 32,034) ( 35,823)

Net cash provided by operating activities 625,093 627,236

CASH FLOWS FROM INVESTING ACTIVITIES Additions to property, plant & equipment (192,362) ( 27,816) Proceeds from sale of intangible asset 59,576 - Addition to intangible asset - ( 77,708) Proceeds from sale of property, plant & equipment 1,341 854 Investments, net ( 73,455) (477,183) Investment in subsidiaries 18,500 -

Net cash used by investing activities (186,400) (581,853)

CASH FLOWS FROM FINANCING ACTIVITIES Parent company ( 86,182) 2,164 Related parties (201,754) 24,109

Net cash (used)/provided by financing activities (287,936) 26,273

INCREASE IN CASH AND CASH EQUIVALENTS 150,757 71,656

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 162,514 90,858

CASH AND CASH EQUIVALENTS AT END OF YEAR 313,271 162,514 The accompanying notes form an integral part of the financial statements.

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THE INSURANCE COMPANY OF THE WEST INDIES LIMITED Notes to the Financial Statements December 31, 2013 1. Corporate structure and nature of business The company is incorporated in Jamaica under the Companies Act, is domiciled in Jamaica and

is a wholly owned subsidiary of ICWI Group Limited (immediate parent), which is also incorporated in Jamaica. The ultimate holding company is Atlantic and Caribbean Sea Development Company Limited which is owned by Caribbean Sea Development Limited and Hon. Dennis Lalor O.J. and it is controlled by Hon. Dennis Lalor O.J.

The principal activity of the company is underwriting general insurance business. The

registered office of the company is located at 2 St. Lucia Avenue, Kingston 5. 2. Insurance licence The company is registered under the Insurance Act 2001 (the Act). 3. Roles of the actuary and auditors The actuary has been appointed by the Board of Directors pursuant to the Act. With respect to

the preparation of financial statements, the actuary is required to carry out an actuarial valuation of management’s estimate of the company’s policy liabilities and report thereon to the shareholders. Actuarially determined policy liabilities consist of the provisions for, and reinsurance recovery of, unpaid claims and adjustment expenses on insurance policies in force, including provisions for salvage and subrogation, and future obligations on the unearned portion of insurance policies in force, including deferred policy acquisition costs. The valuation is made in accordance with accepted actuarial practice, as well as any other matter specified in any directive that may be made by regulatory authorities. The actuary, in his verification of the management information provided by the company and used in the actual valuation, also makes use of the work of the external auditors. The actuary’s report outlines the scope of his work and opinion.

The external auditors have been appointed by the shareholders pursuant to the Jamaican

Companies Act to conduct an independent and objective audit of the financial statements of the company in accordance with International Standards on Auditing and report thereon to the shareholders. In carrying out their audit, the auditors also make use of the work of the actuary and his report on the company’s actuarially determined policy liabilities. The auditors’ report outlines the scope of their audit and their opinion.

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

(a) Statement of compliance:

The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS), and their interpretations issued by the International Accounting Standards Board, and comply with the provisions of the Jamaican Companies Act.

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THE INSURANCE COMPANY OF THE WEST INDIES LIMITED Notes to the Financial Statements (Continued) December 31, 2013 4. Statement of compliance, basis of preparation and significant accounting policies (cont’d)

(b) Basis of preparation:

The financial statements are prepared on the historical cost basis, except for investment properties [note 4(i)] and available-for-sale investments [note 4(j)], which are measured at fair value and employee benefit obligation which is measured as the present value of the defined-benefit obligation as explained in note 4(s).

(c) Basis of non-consolidation

The company elects not to prepare consolidated financial statements on the basis that consolidated financial statements are prepared by Atlantic & Caribbean Sea Development Limited [see note 8].

(d) Functional and presentation currency These financial statements are presented in Jamaica dollars, the company’s functional currency.

(e) Use of estimates and judgement:

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

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

(i) Allowance for impairment losses on receivables:

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

(ii) Outstanding claims [see note 4(v)].

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(e) Use of estimates and judgement (cont’d):

(iii) Post-retirement health and life insurance benefits:

The amounts recognised in the statement of financial position and income statement for post-retirement health and life insurance benefits to certain pensioners, are determined actuarially using several assumptions. The primary assumptions used in determining the amounts recognised include the discount rate used to determine the present value of estimated future cash flows required to settle the pension and other post-retirement obligations and the expected rate of increase in medical costs for post-retirement medical benefits.

The discount rate is determined based on the estimate of yield on long-term government securities that have maturity dates approximating the terms of the company’s obligation; in the absence of such instruments in Jamaica, it has been necessary to estimate the rate by extrapolating from the longest tenor security on the market. The estimate of expected rate of increase in medical costs is determined based on inflationary factors. Any changes in these assumptions will impact the amounts recorded in the financial statements for these obligations.

(f) New, revised and amended standards and interpretations that became effective during the year:

Certain new, revised and amended standards and interpretations came into effect during the current financial year. The company has adopted the following new standards and amendments to standards, including any consequential amendments to other standards, applicable to its operations, with a date of initial application of January 1, 2013. The nature and effects of the changes are as follows: (i) IFRS 10 Consolidated Financial Statements (2011)

IFRS 10 introduces a new control model that focuses on whether the company has power over an investee, exposure or rights to variable returns from its involvement with the investee and ability to use its power to affect those returns. The company has reassessed the control conclusion in respect of its investees as at January 1, 2013. This has however, not resulted in any changes to the control conclusions previously determined.

(ii) IFRS 13 Fair Value Measurement

IFRS 13 establishes a single framework for measuring fair value and making disclosures about fair value measurements when such measurements are required or permitted by other IFRSs. It unifies the definition of fair value as 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. It replaces and expands the disclosure requirements about fair value measurements in other IFRSs, including IFRS 7. Consequently, the company has included additional disclosures in this regard (see note 30).

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(f) New, revised and amended standards and interpretations that became effective during the year (cont’d):

(ii) IFRS 13 Fair Value Measurement (cont’d)

In accordance with the transitional provisions of IFRS 13, the company applied the new fair value measurement guidance prospectively and has not provided any comparative information for new disclosures. Notwithstanding the above, the change had no significant impact on the measurements of the company’s assets and liabilities.

(iii) IAS 19, Employee Benefits

As a result of the adoption of IAS 19, Employee Benefits (2011), the company has changed its accounting policy with respect to the basis for determining the income or expense related to its post-employment employee benefit plans.

As a result of the change, the company now determines the net interest expense on the net employee benefit liability for the period by applying the discount rate used to measure the employee benefit obligation at the beginning of the annual period to the net employee benefit liability at the beginning of the annual period. Net interest also takes into account any changes in the net employee benefit liability during the period as a result of contributions and benefit payments. Actuarial gains and losses are now recognised immediately in other comprehensive income. Previously, the company recognised actuarial gains and losses using the corridor method, which required that any cumulative unrecognised gains or losses exceeding 10% of the present value of the benefit obligation be recognised in profit or loss over the expected average remaining working lives of the employees affected.

The change in policy is applied retrospectively (see note 27).

(iv) Presentation of Items of Other Comprehensive Income (Amendments to IAS 1)

As a result of the amendments to IAS 1, items of other comprehensive income (OCI) that may be reclassified to profit or loss in the future are presented separately from those that will never be reclassified to profit or loss. Also, the title of the statement has changed from statement of comprehensive income to statement of profit or loss and other comprehensive income.

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Notes to the Financial Statements (Continued) December 31, 2013

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

(g) New standards, and interpretations of and amendments to existing standards that are not yet effective: At the date of authorisation of the financial statements, certain new, revised and amended standards and interpretations, have been issued which are not yet effective and which the company has not early-adopted. The company has assessed the relevance of all such new standards, amendments and interpretations with respect to its operations and has determined that the following may be relevant to its operations and has concluded as follows:

IFRS 9, Financial Instruments (2010). The revised IFRS supersedes the previous version of IFRS 9 issued in 2009 and is effective for accounting periods beginning on or after January 1, 2017 (previously January 1, 2015). The standard retains but simplifies the mixed measurement model and establishes two primary measurement categories for financial assets: amortised cost and fair value. The revised standard includes guidance on classification and measurement of financial liabilities designated as fair value through profit or loss and incorporates certain existing requirements of IAS 39 Financial Instruments: Recognition and Measurement on the recognition and de-recognition of financial assets and financial liabilities.

Amendments to IFRS 10 Consolidated Financial Statements, IFRS 12 Disclosure of interest in Other Entities and IAS 27 Consolidated and Separate Financial Statements is effective for accounting periods beginning on or after January 1, 2014. The amendment defines an investment entity and requires a parent that is an investment entity to measure its investments in particular subsidiaries at fair value through profit or loss, instead of consolidating those subsidiaries in its consolidated and separate financial statements. In addition, the amendments introduce new disclosure requirements related to investment entities in IFRS 12 Disclosure of Interests in Other Entities and IAS 27 Separate Financial Statements.

Improvements to IFRS 2010-2012 and 2011-2013 cycles contain amendments to certain standards and interpretations and are effective for accounting periods beginning on or after July 1, 2014. The main amendments applicable to the company are as follows:

IFRS 13 Fair Value Measurement is amended to clarify that issuing of the standard and consequential amendments to IAS 39 and IFRS 9 did not intend to prevent entities from measuring short-term receivables and payables that have no stated interest rate at their invoiced amounts without discounting, if the effect of not discounting is immaterial.

IAS 24 Related Party Disclosures has been amended to extend the definition of ‘related party’ to include a management entity that provides key management personnel services to the reporting entity, either directly or through a group entity. For related party transactions that arise when key management personnel services are provided to a reporting entity, the reporting entity is required to separately disclose the amounts that it has recognized as an expense for those services that are provided by a management entity; however, it is not required to ‘look through’ the management entity and disclose compensation paid by the management entity to the individuals providing the key management personnel services.

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(g) New standards, and interpretations of and amendments to existing standards that are not yet effective (cont’d): IAS 40 Investment Property has been amended to clarify that an entity should assess

whether an acquired property is an investment property under IAS 40 and perform a separate assessment under IFRS 3 to determine whether the acquisition of the investment property constitutes a business combination.

The company is assessing the impact, if any, that the new, revised and amended standards may have on its financial statements in future years when they become effective.

(h) Property, plant and equipment and intangible asset:

(i) Property, plant and equipment and intangible asset are stated at cost or deemed cost, less accumulated depreciation/amortisation and impairment losses [see accounting policy (r)].

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

(ii) Depreciation and amortisation:

Property, plant and equipment and intangible asset with the exception of freehold land, on which no depreciation is provided, are depreciated/amortisated using the straight-line method at annual rates estimated to write-off the property, plant and equipment and intangible asset over their expected useful lives.

The depreciation/amortisation rates are as follows:

Buildings 2½% Leasehold improvements 10% Furniture, fixtures and equipment 10% & 20% Motor vehicle 20% Computers and computer software 20%

The depreciation/amortisation methods, useful lives and residual values are reassessed at the reporting date.

(i) Investment properties:

Investment properties are carried at open market value using valuations performed on an annual basis by independent appraisers or the directors. Changes in the fair value of investment properties are recognised in profit or loss.

Investment properties are held to earn rental income or for capital appreciation or both. Investment properties are measured at fair value with any changes therein recognised in the profit or loss. Fair value is based on current prices for properties similar in location and condition.

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

(j) Investments:

Available-for-sale investments are stated at fair value, except where fair value cannot be reliably determined, in which case they are stated at cost, with any movements in fair value included in investment revaluation reserve. Investments with fixed or determinable payments and which are not quoted in an active market are classified as loans and receivables, and are measured at amortised cost less impairment losses.

The fair value of available-for-sale investments is based on their quoted market bid price at the reporting date. Where a quoted market price is not available, fair value is estimated using discounted cash flow techniques.

Available-for-sale investments are recognised or derecognised by the company on the date they commit to purchase or sell the investments.

Other investments are recognised or derecognised on the day they are transferred to/by the company.

(k) Securities purchased under resale agreements:

Securities purchased under resale agreements (“reverse repos”) are short-term transactions whereby an entity buys securities and simultaneously agrees to resell the securities on a specified date and at a specified price. Title to the security is not actually transferred unless the counterparty fails to comply with the terms of the contract.

Reverse repos are accounted for as short-term collateralised lending, classified as loans and receivables and measured at amortised cost.

The difference between the sale and repurchase considerations is recognised on an accrual basis over the period of the transaction and is included in interest income.

(l) Related parties:

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

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

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

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

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

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(l) Related parties (cont’d):

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

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

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

(iii) Both entities are joint ventures of the same third party.

(iv) One entity is a joint venture of a third entity and the other entity is an associate of the third entity.

(v) The entity is a post-employment benefit plan for the benefit of employees of either the reporting entity or an entity related to the reporting entity. If the reporting entity is itself such a plan, the sponsoring employers are also related to the reporting entity.

(vi) The entity is controlled, or jointly controlled by a person identified in (a).

(vii) A person identified in (a)(i) has significant influence over the entity or is a member of the key management personnel of the entity (or of a parent of the entity).

The company has a related party relationship with its ultimate and intermediate holding companies, the directors of the company and those of its holding companies, its key management personnel, companies with common directors and pension plans established for the benefit of its employees. “Key management personnel” represents certain senior officers of the company.

A related party transaction is a transfer of resources, services or obligations between related parties, regardless of whether a price is charged.

(m) Accounts receivable:

Trade and other receivables are stated at cost less impairment losses [see accounting policy (r)].

(n) Cash and cash equivalents:

Cash and cash equivalents comprise cash and bank balances.

Bank overdrafts, repayable on demand and forming an integral part of the company’s cash management activities, are included as a component of cash and cash equivalents for the purpose of the statement of cash flows. Otherwise, they are included as a financing activity.

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(o) Accounts payable:

Trade and other payables, are stated at cost.

(p) Provisions: A provision is recognised in the statement of financial position when the company has a

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

(q) Foreign currencies:

Transactions in foreign currencies are converted at the rates of exchange ruling at the dates of those transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated to Jamaica dollars at the rates of exchange ruling on that date. Gains and losses arising from fluctuations in exchange rates are recognised in profit or loss. For the purpose of the statement of cash flows, all foreign currency gains and losses recognised in profit or loss are treated as cash items and included in cash flows from operating or financing activities along with movements in the principal balances.

(r) Impairment:

The carrying amount of the company’s assets is reviewed at each reporting date to

determine whether there is any indication of impairment. If any such indication exists, the asset’s recoverable amount is estimated at the reporting date. An impairment loss is recognised whenever the carrying amount of an asset or its cash generating unit exceeds its recoverable amount. Impairment losses are recognised in profit or loss.

When a decline in the fair value of an available-for-sale financial asset has been

recognised directly in other comprehensive income and there is objective evidence that the asset is impaired, the cumulative loss that had been recognised in other comprehensive income is recognised in profit or loss even though the financial asset has not been derecognised. The amount of the cumulative loss that is recognised in profit or loss is the difference between the acquisition cost and current fair value, less impairment loss on that financial asset previously recognised in profit or loss.

(i) Calculation of recoverable amount:

The recoverable amount of the company’s loans and receivables is calculated as the

present value of the expected future cash flows, discounted at the original effective interest rate inherent in the asset. Receivables with a short duration are not discounted.

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(r) Impairment (cont’d):

(i) Calculation of recoverable amount (cont’d):

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

(ii) Reversal of impairment: An impairment loss in respect of loans and receivables is reversed if the subsequent

increase in recoverable amount can be related objectively to an event occurring after the impairment loss was recognised.

An impairment loss in respect of an investment in an equity instrument classified as

available-for-sale is not reversed through profit or loss.

In respect of other assets, an impairment loss is reversed if there has been a change in estimate 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, if no impairment loss had been recognised.

(s) Employee benefits:

(i) Post retirement health and life insurance benefits: Employee benefits comprising post-employment medical benefits included in

these financial statements have been actuarially determined by a qualified independent actuary, appointed by management. The appointed actuary’s report outlines the scope of the valuation and the actuary’s opinion. The actuarial valuations were conducted in accordance with IAS 19, and the financial statements reflect the company’s post-employment benefit obligations as computed by the actuary. In carrying out their audit, the auditors have relied on the work of the actuary and the actuary’s report.

The company provides post retirement health benefits to retirees. During April

2006, the company revised its policy to provide post retirement health benefits to persons employed as at that date.

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(s) Employee benefits (cont’d):

(i) Post retirement health and life insurance benefits (cont’d): The company’s net obligation in respect of post retirement health and life

insurance benefits is calculated by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods; that value is discounted to determine the present value, and the fair value of any plan assets is deducted.

The discount rate is determined based on the estimate of yield at the reporting date on long-term government securities that have maturity dates approximating the terms of the company’s obligations. The calculation is performed by a qualified actuary using the Projected Unit Credit Method. Re-measurements of the net employee benefit liability, which comprise actuarial gains and losses are recognized immediately in other comprehensive income. The company determines the net interest expense/(income) on the net employee benefit liability for the period by applying the discount rate used to measure the employee benefit obligation at the beginning of the annual period to the then-net employee benefit liability, taking into account any changes in the net employee benefit liability during the period as a result of contributions and benefit payments. Net interest expense and other post-retirement obligations expenses are recognised in profit or loss. When the benefits of a plan are changed or when the plan is curtailed, the resulting change in benefit that relates to past service or the gain or loss on curtailment is recognised immediately in profit or loss. The company recognises gains and losses on the settlement of a employee benefit plan when the settlement occurs.

(ii) Defined contribution pension plan: The company participates in a defined contribution pension plan, the assets of

which are held separately from those of the company. The plan does not expose the company to actuarial risk, and as such, pension contributions are expensed as and when incurred.

(iii) Other employee benefits:

Employee entitlements to leave are recognised when they accrue to employees. A provision is made for the estimated liability for vacation leave, as a result of services rendered by employees up to the reporting date.

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(t) Taxation:

Taxation on profit or loss for the year comprises current and deferred tax. Income tax

is recognised in the profit or loss except to the extent that it relates to items recognised directly in other comprehensive income, in which case it is recognised in other comprehensive income.

Current tax is the expected tax payable on the taxable income for the year, using tax

rates enacted at the reporting date, and any adjustment to tax payable in respect of previous years. Deferred tax is provided for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted at the reporting date. For investment properties that are measured at fair value, the presumption that the carrying amount of the investment properties will be recovered through sale has not been rebutted. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised.

(u) Revenue recognition:

Revenue is recognised in profit or loss when the significant risks and rewards of ownership have been transferred to the policyholder. No revenue is recognised if there are significant uncertainties regarding recovery of the consideration due.

Revenue comprises the following:

(i) Gross written premiums

The accounting policies for the recognition of revenue from insurance contracts are disclosed in note 4[v][i].

(ii) Reinsurance assumed:

The accounting policies for the recognition of reinsurance assumed are disclosed in

note 4[v][i].

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(u) Revenue recognition (cont’d):

(iii) Commission income

Reinsurance commission is recognised on a basis that is consistent with the

recognition of the costs incurred on the acquisition of the underlying insurance contracts (see note 4[v][i]). Profit commission in respect of reinsurance contracts is recognised on an accrual basis.

(iv) Investment income

Investment income arises from financial assets and is comprised of interest and

dividend and realised gains/losses on financial assets. Dividend income is recognised when the right to receive income is established. Usually this is the ex-dividend date for equity securities. Rental income from investment property under operating leases is recognised in profit or loss on a straight line basis over the term of each lease.

(v) Insurance contract recognition and measurement:

(i) Insurance contracts

Insurance contracts are accounted for in compliance with recommendations and practices of the insurance industry, and comply with provisions of the Insurance Act 2001. The underwriting results are determined after making provision for, inter alia, unearned premiums, outstanding claims, unexpired risks, deferred commission expense and deferred commission income. Short term insurance contracts consist of property, liability, motor and marine insurance contracts.

Gross written premiums

Gross premiums reflect business written during the year, and include adjustments to premiums written in previous years. The earned portion of premiums is recognised as revenue. Premiums are earned from the effective date of the policy.

Reinsurance assumed The company assumes reinsurance risk on insurance contracts issued by a related party. Premiums and claims assumed on reinsurance contracts are recognised as revenue or expenses in the same manner as they would be if the reinsurance were considered direct business, taking into account the product classification of the reinsured business.

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(v) Insurance contract recognition and measurement (cont’d):

(i) Insurance contracts (cont’d)

Unearned premiums

Unearned premiums represent that proportion of the premiums written up to the accounting date which is attributable to subsequent periods and is calculated on the “three sixty fifth” basis on the total premiums written, except for unearned premiums acquired from a related party that is calculated on the “twenty-fourths’ basis.

Unexpired risks Unexpired risks represent the amount set aside in addition to unearned premiums,

in respect of risks to be borne by the company under contracts of insurance entered into before the end of the financial year and is actuarially determined.

Outstanding claims

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

Management believes, based on the analysis completed by their actuary, that the

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

Deferred acquisition cost and deferred commission income

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

(ii) Reinsurance assets

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

21


(v) Insurance contract recognition and measurement (cont’d): (ii) Reinsurance assets (cont’d)

In the normal course of business the company seeks to reduce the loss that may result from catastrophe or other events that cause unfavourable underwriting results by reinsuring certain levels of risk with other insurers (see note 26). Reinsurance ceded does not discharge the company’s liability as the principal insurer. Failure of reinsurers to honour their obligations could result in losses to the company. Consequently, a contingent liability exists in the event that an assuming reinsurer is unable to meet its obligations.

Reinsurance assets are assessed for impairment at each reporting date. A reinsurance asset is deemed impaired if there is objective evidence, as a result of an event that occurred after its initial recognition, that the company may not recover all amounts due, and that event has a reliably measurable impact on the amounts that the company will receive from the reinsurer. Impairment losses on reinsurance assets are recognised in profit or loss.

(iii) Insurance receivables and insurance payables

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

(w) Operating leases: Payments made under operating leases are included in profit or loss under administrative

expenses. Assets leased under operating leases are not included in the statement of financial position.

(x) Financial instruments:

A financial instrument is any contract that gives rise to both a financial asset of one

enterprise and a financial liability or equity instrument of another enterprise. For the purpose of these financial statements, financial assets have been determined to include cash and cash equivalents, insurance receivables, other accounts receivable and amounts due from other insurance companies. Financial liabilities include accounts payable, amounts due to other insurance companies, and related party balances.

(y) Dividends:

Dividends are recognised in the period in which they are declared.

22

THE INSURANCE COMPANY OF THE WEST INDIES LIMITED Notes to the Financial Statements (Continued) December 31, 2013 5. Property, plant and equipment Land, buildings Furniture, and leasehold fixtures and Motor Work in improvement equipment vehicles progress Total $’000 $’000 $’000 $’000 $’000 At cost or valuation: December 31, 2011 106,159 68,477 62,427 - 237,063 Additions 13,894 10,828 3,094 - 27,816 Disposals ( 6,033) ( 132) (12,837) - ( 19,002)

December 31, 2012 114,020 79,173 52,684 - 245,877 Additions 134,100 15,915 3,034 39,313 192,362 Disposals - ( 9,869) ( 7,332) - ( 17,201)

December 31, 2013 248,120 85,219 48,386 39,313 421,038 Depreciation: December 31, 2011 38,254 51,544 36,014 - 125,812 Charge for year 5,965 5,733 11,450 - 23,148 Disposals ( 4,329) ( 101) (12,837) - ( 17,267)

December 31, 2012 39,890 57,176 34,627 - 131,693 Charge for year 6,700 6,682 8,029 - 21,411 Disposals - ( 8,119) ( 7,316) - ( 15,435)

December 31, 2013 46,590 55,739 35,340 - 137,669 Net book values: December 31, 2013 201,530 29,480 13,046 39,313 283,369

December 31, 2012 74,130 21,997 18,057 - 114,184

December 31, 2011 67,905 16,933 26,413 - 111,251

Freehold land and buildings were revalued on October 28, 1997, at an open market valuation

of $12,400,000 by Sagicor Property Management Limited, valuators and appraisers of Kingston. The revalued amounts have been deemed to be the assets’ cost upon first-time adoption of IFRS. The previously reported surplus arising on revaluation is included in capital reserve.

Land, buildings and leasehold improvement include freehold land at a deemed cost/cost of

$67,759,000 (2012: $12,275,000). Furniture, fixtures and equipment were revalued at January 1, 1994, at an open market

valuation of $63,056,000 by Sagicor Property Management Limited. The revalued amount was deemed to be the assets’ cost upon first-time adoption of IFRS. The previously reported surplus arising on revaluation is included in capital reserve.

23

THE INSURANCE COMPANY OF THE WEST INDIES LIMITED Notes to the Financial Statements (Continued) December 31, 2013 6. Intangible asset Total $’000

At cost: December 31, 2012 77,708 Disposal (77,708)

December 31, 2013 - Amortisation: December 31, 2012 15,542 Charge for the year 2,590 Disposal (18,132)

December 31, 2013 - Carrying value: December 31, 2013 -

December 31, 2012 62,166 Intangible asset represented computer software. During the year, intangible asset was sold to its immediate parent company.

7. Investment properties 2013 2012

$’000 $’000

Balance at January 1 159,818 159,818 Revaluation adjustments 7,182 -

Balance at December 31 167,000 159,818 Investment properties comprise commercial properties that are leased to a third party and land held for capital appreciation. Investment properties are valued every three years by an independent professional valuer and in the intervening years by the directors, based on professional advice received. Investment properties were valued on varying dates between May 2011 and September 2013 by D.C. Tavares & Finson Realty Limited. A director’s revaluation done as at December 31, 2013 revealed that the fair value did not materially change from the valuation done by the independent professional valuators. The rental income earned on the property during the year amounted to $9,976,000 (2012: $10,251,000) and the related expenses totalled $2,048,000 (2012: $1,009,000). The fair value measurement for investment property of $167,000,000 has been categorised as a level 3 in the fair value hierarchy. The following table shows the valuation technique used in measuring fair value as well as the significant unobservable inputs used.

24

THE INSURANCE COMPANY OF THE WEST INDIES LIMITED Notes to the Financial Statements (Continued) December 31, 2013 7. Investment properties (cont’d)

Valuation techniques Significant unobservable inputs

Inter-relationship between key unobservable inputs and fair value measurement

Market based approach: The approach is based on the principle of substitution whereby the purchaser with perfect knowledge of the property market pays no more for the subject property than the cost of acquiring an existing comparable property, assuming no cost delay in making the substitution. The approach requires comparison of the subject property with others of similar design and utility, inter alia, which were sold in the recent past. However as no two properties are exactly alike, adjustment is made for the difference between the property subject to valuation and comparable properties.

Details of the sales of comparable properties

Conditions influencing the sale of the comparable properties.

Comparability adjustment.

The estimated fair value would increase/(decrease) if: Sale value of comparable

properties were higher/(lower).

Comparability adjustment

were higher/(lower).

8. Investment in subsidiaries 2013 2012

$’000 $’000

Shares, at cost 22,513 22,513 Less: Disposal (18,500) -

4,013 22,513

25

THE INSURANCE COMPANY OF THE WEST INDIES LIMITED Notes to the Financial Statements (Continued) December 31, 2013 8. Investment in subsidiaries (cont’d) The subsidiaries, all of which are incorporated in Jamaica, and are non-trading, are as follows: % of equity capital held 2013 2012

Insurance Company of Jamaica Limited 100 100 Arlcourt Company Limited - 100

9. Related party balances/transactions 2013 2012

$’000 $’000 Due from parent company: ICWI Group Limited 231,923 145,741

2013 2012

$’000 $’000 Due from fellow subsidiaries: The Great Northern Insurance Company Limited 196,685 - The Insurance Company of the West Indies (Cayman) Limited 22,169 11,747 Turks & Caicos First Insurance Company Limited 681 832

219,535 12,579 Due from related company: REACT Limited 3,100 1,723 2013 2012

$’000 $’000

Due to fellow subsidiaries: The Insurance Company of the West Indies (Bahamas) Limited 401 9,829 ICWI Investments Limited 17,580 1,573

17,981 11,402 Transactions Corporate office expenses - parent company 65,927 112,525 Other charges - related company 24,148 18,211 Lease expense/(income) - parent company 14,927 ( 9,368)

26

THE INSURANCE COMPANY OF THE WEST INDIES LIMITED Notes to the Financial Statements (Continued) December 31, 2013 10. Investments 2013 2012

$’000 $’000 Loans and receivables: Certificates of deposit 627,947 334,908 Government of Jamaica Securities: - Debentures 1,015,338 1,026,480 Government of Trinidad and Tobago Securities: - Debentures 59,133 -

1,702,418 1,361,388 Available-for-sale investments: Government of Jamaica Securities 27,523 25,048 Corporate bond 51,828 45,267 Unquoted investments 599 599 Quoted investments 4,759 3,251

84,709 74,165

1,787,127 1,435,553

Investments mature, in relation to the reporting date, as follows: 2013 2012 $’000 $’000 Certificates of deposit: Within 3 months 480,157 283,614 From 3 months to 1 year 147,790 51,294

627,947 334,908 Government of Jamaica Securities: Within 3 months 59,936 259,352 From 1 year to 5 years 573,729 737,127 Over 5 years 409,196 55,049

1,042,861 1,051,528 Government of Trinidad and Tobago Securities: Over 5 years 59,133 -

Other 57,186 49,117

1,787,127 1,435,553

27

THE INSURANCE COMPANY OF THE WEST INDIES LIMITED Notes to the Financial Statements (Continued) December 31, 2013 10. Investments (cont’d) The fair value of the Government of Jamaica securities amounts to $1,042,861,000 (2012:

$1,061,044,000).

Government of Jamaica securities include $45,000,000 (2012: $45,000,000) held to the order of the Financial Services Commission as required by the Insurance Act 2001. The company has received the benefit of the renewal rights to an insurance portfolio in Trinidad and Tobago which was acquired by its immediate parent and the company has made deposits with an ultimate right of set off with a commercial bank not exceeding US$3,200,000 in relation to a loan facility to its immediate parent which relates primarily to the acquisition of the portfolio.

Loss arising from National Debt Exchange The company voluntarily participated in Government of Jamaica (‘GOJ’) National Debt Exchange in February 2013. The acceptance of the offer resulted in the company exchanging local debt instruments of J$895,467,000 and US$570,000. The exchange resulted in a one off loss of $26,987,000 (see note 24).

11. Resale agreements 2013 2012 $’000 $’000 Denominated in Jamaica dollars 459,582 470,416 Denominated in United States dollars [US$Nil (2012: US$2,647,129)] - 241,551 Denominated in Great Britain pounds sterling [£Nil (2012: £172,498)] - 25,702

459,582 737,669 At the reporting date, the fair value of the securities obtained and held by the company under

resale agreements was $459,582,000 (2012: $737,669,000).


Notes to the Financial Statements (Continued) December 31, 2013 12. Reinsurance assets and insurance contract provisions 2013 2012 Gross Reinsurance Net Gross Reinsurance Net $’000 $’000 $’000 $’000 $’000 $’000

Claims outstanding 2,251,460 968,288 1,283,172 2,030,123 919,262 1,110,861 Unearned premiums 1,458,672 658,726 799,946 1,047,103 568,209 478,894

3,710,132 1,627,014 2,083,118 3,077,226 1,487,471 1,589,755

Analysis of movement in insurance contracts provision

Claims notified 1,100,891 526,492 574,399 738,523 266,995 471,528

Claims incurred but not yet reported 929,232 392,770 536,462 758,893 305,320 453,573

Balance at January 1 2,030,123 919,262 1,110,861 1,497,416 572,315 925,101

Claims expenses incurred 1,468,276 683,073 785,203 1,513,413 816,595 696,818

Claims paid in the year (1,246,939) (634,047) ( 612,892) ( 980,706) ( 469,648) ( 511,058)

Change in outstanding claims provision 221,337 49,026 172,311 532,707 346,947 185,760

Balance at December 31 2,251,460 968,288 1,283,172 2,030,123 919,262 1,110,861

Claims notified 1,227,742 552,698 675,044 1,100,891 526,492 574,399

Claims incurred but not reported 1,023,718 415,590 608,128 929,232 392,770 536,462

Balance at December 31 2,251,460 968,288 1,283,172 2,030,123 919,262 1,110,861

Unearned premiums:

Balance at January 1 1,047,103 568,209 478,894 986,471 543,303 443,168

Premiums written during the year 3,623,651 1,876,486 1,747,165 2,863,497 1,640,922 1,222,575

Premiums earned during the year (3,212,082) (1,785,969) (1,426,113) (2,802,865) (1,616,016) (1,186,849)

Balance at December 31 1,458,672 658,726 799,946 1,047,103 568,209 478,894

28

29

THE INSURANCE COMPANY OF THE WEST INDIES LIMITED Notes to the Financial Statements (Continued) December 31, 2013 12. Reinsurance assets and insurance contract provisions (cont’d) (a) Gross unearned premiums are analysed as follows: 2013 2012 $’000 $’000

Accident 3,575 4,266 Liability, engineering, bond and guarantee 8,204 10,732 Marine, aviation and transportation 311 341 Motor vehicle 1,327,308 931,646 Fire 119,274 100,118

1,458,672 1,047,103

(b) Insurance contract provisions include an estimate of $96,221,000 (2012: $103,432,000) in respect of unallocated loss adjustment expense.

13. Insurance receivables 2013 2012 $’000 $’000 Premiums receivable 185,409 178,765 Premiums receivable is stated net of commission and after deduction of a provision for doubtful

debts of $6,526,000 (2012: $11,349,000). 14. Deferred commission expense 2013 2012 $’000 $’000 Balance January 1 82,419 78,771 Commission paid during the year (168,838) (215,512) Amounts recognised in income during the year 267,014 219,160

Balance December 31 180,595 82,419 15. Other accounts receivable 2013 2012 $’000 $’000

Prepayments 16,150 12,388

Other accounts receivable 60,001 65,980

76,151 78,368

30

THE INSURANCE COMPANY OF THE WEST INDIES LIMITED Notes to the Financial Statements (Continued) December 31, 2013 16. Cash and cash equivalents Cash and cash equivalents include amounts denominated in foreign currencies as follows:

2013 2012 $’000 $’000

United States dollars 2,483 554

Cayman Islands dollars 6 31 Bahamas dollars 18 11 Trinidad & Tobago dollars 37 - Netherlands Antilles guilders 177 37

17. Accounts payable and accrued charges 2013 2012 $’000 $’000 Accrued charges 107,603 68,194 Other payables 137,278 152,757

244,881 220,951 18. Insurance payables 2013 2012 $’000 $’000 Due to reinsurers 104,291 177,075 Deferred commission income 228,319 189,055

332,610 366,130 The analysis of the movement in deferred commission income is as follows:

2013 2012 $’000 $’000

Balance January 1 189,055 187,739 Commission received during the year 821,616 713,111 Amounts recognised in profit or loss during the year (782,352) (711,795)

Balance December 31 228,319 189,055

31

THE INSURANCE COMPANY OF THE WEST INDIES LIMITED Notes to the Financial Statements (Continued) December 31, 2013 19. Deferred taxation

Deferred tax asset is attributable to the following:

Recognised Recognised Recognised in other Recognised in other in comprehensive in comprehensive 2011 income income 2012 income income 2013

$’000 $’000 $’000 $’000 $’000 $’000 $’000 (Restated)* (Restated)*

Property, plant and equipment 3,064 ( 5,899) - ( 2,835) ( 45) - ( 2,880) Investment properties ( 4,257) ( 626) - ( 4,883) 115 - ( 4,768) Accounts receivable ( 9,876) ( 3,730) - (13,606) ( 351) - (13,957) Accounts payable and accruals 120 280 - 400 ( 123) - 277 Retirement benefit obligation 25,068 3,379 4,965 33,412 338 ( 2,106) 31,644 Unrealised gain on exchange ( 52) 39 - ( 13) ( 999) - ( 1,012)

14,067 ( 6,557) 4,965 12,475 (1,065) ( 2,106) 9,304

20. Retirement benefits

The employee benefit liability represents the present value of the company’s constructive obligation to provide medical and life insurance benefits.

(i) Employee benefits obligation recognised in the statement of financial position:

2013 2012 $’000 $’000 (Restated)*

Net liability at the beginning of the year 100,237 75,203 Net (income)/expense recognised in the statement of comprehensive income ( 3,707) 26,502 Benefits paid ( 1,598) ( 1,468)

Recognised liability at the end of the year 94,932 100,237

(ii) Movements in the present value of obligations: 2013 2012 $’000 $’000 (Restated)*

Balance at beginning of year 100,237 75,203 Past service cost ( 13,630) - Current service costs 5,250 3,781 Interest costs 10,992 7,825 Benefits paid ( 1,597) ( 1,468) Re-measurement (gain)/loss on obligations ( 6,320) 14,896

Balance at end of year 94,932 100,237

* See note 27

32

THE INSURANCE COMPANY OF THE WEST INDIES LIMITED Notes to the Financial Statements (Continued) December 31, 2013

20. Retirement benefits (cont’d)

(iii) Expense recognised in profit or loss: 2013 2012 $’000 $’000 (Restated)*

Past service cost (13,630) - Current service costs 5,250 3,781 Interest on obligations 10,992 7,825

2,612 11,606

Expense recognised in profit or loss is included in operating expenses.

(iv) Other comprehensive (income)/loss: 2013 2012 $’000 $’000

Experience (gains)/losses (9,953) 10,985 Re-measurement losses 3,634 3,911

(6,319) 14,896

(v) Net (income)/expense recognised in the statement of profit or loss and other comprehensive income.

2013 2012 $’000 $’000

Expense recognised in profit or loss 2,612 11,606 Items in other comprehensive income ( 6,319) 14,896

( 3,707) 26,502

(vi) Principal actuarial assumptions at the reporting date (expressed as weighted averages):

2013 2012 % %

Discount rate 9.5 10.50 Medical claims growth 7.5 8.50

Assumptions regarding future mortality are based on 1994 Group annuitants mortality table.

(vii) Assumed health care cost trends have a significant effect on the amounts recognised in profit or loss. A one percent change in assumed healthcare cost trend rates would have the following effects:

One percentage One percentage point increase point decrease 2013 2012 2013 2012 $’000 $’000 $’000 $’000

Effect on the employee benefit obligation 10,980 11,034 (10,190) (8,554)

* See note 27

33


20. Retirement benefits (cont’d)

(viii) Historical information

2013 2012 2011 2010 2009 $’000 $’000 $’000 $’000 $’000 Present value of the employee benefit obligation 94,932 100,237 75,203 68,000 51,760 Experience adjustments arising on plan liabilities ( 9,954) ( 10,985) 6,153 2,093 ( 6,996)

The company is expected to contribute $1,716,000 towards the group health and life benefit plan in 2014 (2013: $1,334,000).

21. Share capital 2013 2012 $’000 $’000 Authorised: 185,000,000 (2012: 110,000,000) shares of no par value

Issued and fully paid: 183,333,334 (2012: 108,333,334) stock units of no par value In issue at 1 January 108,333 108,333 Issued from retained profits 75,000 -

183,333 108,333

22. Disclosure of income and expenses

(a) Underwriting profit before other income, expenses and taxation for the year is stated after charging:

2013 2012 $’000 $’000

Depreciation and amortisation 24,001 38,690 Directors' remuneration - fees 2,375 2,650 - management 82,067 - Auditors' remuneration 8,066 7,400

(b) Transactions with key management personnel:

Compensation of key management personnel is as follows:

2013 2012 $’000 $’000 Short term employment benefits: Salary 44,925 17,161 Pension contributions [see note 4(s)] 2,938 913

47,863 18,074

34

THE INSURANCE COMPANY OF THE WEST INDIES LIMITED Notes to the Financial Statements (Continued) December 31, 2013 23. Employee costs

The aggregate payroll costs were as follows:

2013 2012 $'000 $'000 Salaries 443,044 316,878 Pension cost 1,979 ( 2,347) Statutory contributions 57,308 42,088 Staff welfare 48,799 44,920 Staff profit share 101,369 94,814 Post-retirement health and life insurance benefits 41,134 38,849

693,633 535,202

24. Investment income 2013 2012 $’000 $’000 Interest income: Available for sale financial assets 7,324 2,137 Loans and receivables 131,386 150,303 Cash and cash equivalents 4 - Rental income 9,976 10,251 Dividend income - 200 Net loss on the sale of financial assets* ( 26,987) -

121,703 162,891

* This represents loss arising from the National Debt Exchange (see note 10). 25. Taxation

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

2013 2012 $’000 $’000 (Restated)* Current tax expense: Income tax 85,853 67,444 Adjustment in respect of prior year - 1,467

85,853 68,911 Deferred tax expense:

Origination and reversal of temporary differences 1,065 6,557

Total taxation expense 86,918 75,468 * See note 27

35


25. Taxation (cont’d)

(b) Reconciliation of expected tax expense and actual tax expense

The effective tax rate was 33% (2012: 34.5%) of pre-tax profits compared to a statutory tax rate of 33⅓%. The actual tax expense differed from the “expected” tax expense for the year as follows:

2013 2012 $’000 $’000 (Restated)*

Profit before taxation 263,352 218,787

Computed "expected" tax expense 87,784 72,929 Difference between profit for financial statements and tax reporting purposes on Exempt interest income - ( 12) Depreciation charge and capital allowances 7,805 2,633 Income not allowed for tax purposes ( 6,418) ( 1,843) Loss on disposal of property, plant and equipment 141 294 Revaluation of investment property ( 2,394) -

86,918 74,001

Adjustment in respect of prior year - 1,467

86,918 75,468 26. Reinsurance ceded The company limits its net exposure to a maximum amount on any one loss of J$1,000,000 for

Public Liability, US$50,000 for Marine Hull, US$33,333 for Marine Cargo and US$12,500 to US$50,000 for Accident, US$30,000 on Engineering, US$8,750 for Property claims, J$8,000,000 on Motor and US$125,000 for Bonds and Fidelity Guarantee for the year ended December 31, 2013. The company also has a 50% quota share treaty with its reinsurer for its motor business.

In addition, the company has catastrophe reinsurance on which its liability on each event is

limited to US$225,000. 27. Impact of change in accounting policy

As indicated in note 4(f)(iii), effective January 1, 2013, the Board of Directors adopted IAS 19 Revised (Employee Benefits). The change in accounting policy was applied retrospectively. The effects of the adjustments are detailed below:

* See note 27

36



27. Impact of change in accounting policy (cont’d)

(a) Effect on the statement of financial position:

Employee benefits Deferred tax Retained obligation asset earnings $'000 $'000 $'000

Balances as reported at December 31, 2011 (75,592) 14,197 (819,430) Effect on other comprehensive income for the year 389 ( 130) ( 259)

Restated balances as at December 31, 2011 (75,203) 14,067 (819,689)

Balances as reported at December 31, 2012 ( 85,757) 7,649 (962,731) Effect on other comprehensive income for 2011 389 ( 130) ( 259)

Effect on other comprehensive income for 2012 ( 14,869) 4,956 9,913

Restated balances as at December 31, 2012 (100,237) 12,475 (953,077)

(b) Effect on profit or loss for the year: 2012 $’000

Operating expenses ( 27) Deferred tax 9

( 18)

(c) Effect on statement of other comprehensive income for the year ended December 31, 2012:

2012 $’000

Actuarial losses recognised in other comprehensive income 14,896 Deferred tax on actuarial loss ( 4,965)

9,931

(d) Other than restatement of comparatives there was no effect on the statement of cash flows for the year ended December 31, 2012.

37

THE INSURANCE COMPANY OF THE WEST INDIES LIMITED Notes to the Financial Statements (Continued) December 31, 2013 28. Insurance risk management

Risk management objectives and policies for mitigating insurance risk: The company’s management of insurance risk is a critical aspect of the business. The primary insurance activity carried out by the company is the transfer of risk from persons or entities that are directly subject to the risk, by means of the sale of insurance policies. As such the company is exposed to uncertainty surrounding the timing, frequency and severity of claims under these policies. The principal types of policy written by the company are as follows: Liability insurance Property insurance Motor insurance The company manages its insurance risk through its underwriting policy that includes, inter alia, authority limits, approval procedures for transactions that exceed set limits, pricing guidelines and the centralised management of reinsurance. The company actively monitors insurance risk exposures both for individual and portfolio types of risks. These methods include internal risk measurement, portfolio modelling and scenario analyses. Underwriting strategy: The company seeks to underwrite a balanced portfolio of risks at rates and terms that will produce an underwriting result consistent with its long term objectives. The board of directors approves the underwriting strategy which is set out in an annual business plan and management is responsible for the attainment of the established objectives. Reinsurance strategy: The company reinsures a portion of the risks it underwrites in order to protect capital resources and to limit its exposure to variations in the projected frequency and severity of losses. Ceded reinsurance includes credit risk, and the company monitors the financial condition of reinsurers on an ongoing basis and reviews its reinsurance arrangements periodically. The board of directors is responsible for setting the minimum security criteria for accepting reinsurance and monitoring the purchase of reinsurance against those criteria. They also monitor its adequacy on an ongoing basis. Credit risk on reinsurance is addressed in more detail in note 26.

38

THE INSURANCE COMPANY OF THE WEST INDIES LIMITED Notes to the Financial Statements (Continued) December 31, 2013 28. Insurance risk management (cont’d) Terms and conditions of general insurance contracts: The table below provides an overview of the terms and conditions of general insurance

contracts written by the company and the key factors upon which the timing and uncertainty of future cash flows of these contracts depend.

Type contract

Terms and

conditions

Key factors affecting

future cash flows

Liability

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

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

Although majority of bodily injury claims have a relatively long tail, the majority of the claims incurred by the company are settled in the short term. In general, these claims involve higher estimation uncertainty.

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

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

The event giving rise to a claim for damage to buildings or contents usually occurs suddenly (as for fire and burglary) and the cause is easily determinable. Therefore, claims are generally notified promptly and can be settled without delay (property business is therefore classified as “short-tailed” and expense deterioration and investment return is of less importance in estimating provisions.)

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

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

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

39

THE INSURANCE COMPANY OF THE WEST INDIES LIMITED Notes to the Financial Statements (Continued) December 31, 2013 28. Insurance risk management (cont’d) Liability contracts:

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

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

Motor contracts: The risks relating to motor contracts are managed primarily through the pricing process. The

company monitors and reacts to changes in trends of injury awards, litigation and frequency of claims appeal.

Risk exposure and concentrations of risk: The following table shows the company’s exposure to general insurance risk (based on the

carrying value of insurance provisions at the reporting date) per major category of business.

Liability Property Motor Other Total $’000 $’000 $’000 $’000 $’000

At 31 December 2013 Gross 36,658 26,628 2,174,013 14,161 2,251,460 Net of reinsurance 24,030 95 1,257,017 2,030 1,283,172

At 31 December 2012

Gross 60,919 123,403 1,836,941 8,860 2,030,123 Net of reinsurance 36,583 1,198 1,071,491 1,589 1,110,861

Claims development:

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

40

THE INSURANCE COMPANY OF THE WEST INDIES LIMITED Notes to the Financial Statements (Continued) December 31, 2013 28. Insurance risk management (cont’d)

Claims development (cont’d):

Analysis of net claims development Accident year

2008 2009 2010 2011 2012 2013 Total $’000 $’000 $’000 $’000 $’000 $’000 $’000 Estimate of cumulative claims at end of accident year 792,938 695,862 505,195 519,229 635,823 847,307 -one year later 903,287 733,643 563,270 584,863 639,577 -two years later 1,007,100 723,081 547,973 555,165 - -three years later 1,014,297 733,431 525,584 - - -four years later 1,014,898 715,297 - - - -five years later 1,017,663 - - - - Estimate of cumulative claims 1,017,663 715,297 525,584 555,165 639,577 847,307 4,300,593 Cumulative payments to date ( 857,563) (645,817) (452,153) (412,059) (385,803) (264,026) (3,017,421) Net outstanding claims liabilities 160,100 69,480 73,431 143,106 253,774 583,281 1,283,172

29. Financial risk management The company has exposure to the following financial risks from its use of financial instruments

and its insurance contracts: Credit risk Liquidity risk Market risk Risk management framework This note presents information about the company’s exposure to each of the above risks, the

company’s objectives, policies and processes for measuring and managing risk, and the company’s management of capital.

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

company’s financial risk management framework. The company’s risk management policies are established to identify and analyse the risks faced by the company, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. The focus of financial risk management for the company is ensuring that the proceeds from its financial assets are sufficient to fund the obligations arising from its insurance and investment contracts. The goal of the investment management process is to optimise the net of taxes, risk- adjusted investment income and risk-adjusted total return by investing in a diversified portfolio of securities, whilst ensuring that the assets and liabilities are managed on a cash flow and duration basis.

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THE INSURANCE COMPANY OF THE WEST INDIES LIMITED Notes to the Financial Statements (Continued) December 31, 2013 29. Financial risk management (cont’d) Risk management framework (cont’d) The asset/liability matching process is largely influenced by estimates of the timing of

payments required in terms of insurance. These estimates are re-evaluated on a regular basis. There are also criteria for ensuring the matching of assets and liabilities as investment markets change.

Firstly, the risk is managed through the establishment of an appropriate underwriting strategy and its implementation by means of the company’s underwriting policy. Secondly, the risk is managed through the use of reinsurance. The company arranges proportional reinsurance at the risk level and purchases excess of loss covers for liability and property business. The company assesses the costs and benefits associated with the reinsurance programme on a regular basis.

(a) Credit risk

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

contractual obligations. The company’s key areas of exposure to credit risk include: • debt securities, and cash and cash equivalents • amounts due from policyholders • amounts due from intermediaries • reinsurers’ share of insurance liabilities • amounts due from reinsurers in respect of payments already made to policyholders The nature of the company’s exposures to credit risk and its objectives, policies and processes for managing credit risk have not changed significantly from the prior period. Management of credit risk The company manages its credit risk in respect of debt securities by placing limits on its exposure to a single counterparty, by reference to information available in the market place relating to the financial standing of the counterparty. The company has a policy of investing only in high quality corporate bonds and government issued debts. Its exposure to individual policyholders and groups of policyholders is monitored as part of its credit control process. Financial analyses are conducted for significant exposures to individual policyholders or homogenous groups of policyholders. All intermediaries must meet minimum requirements that are established and enforced by the company’s management. The payment histories of intermediaries are monitored on a regular basis.

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Notes to the Financial Statements (Continued) December 31, 2013 29. Financial risk management (cont’d)

(a) Credit risk (cont’d):

Management of credit risk (cont’d): The company also operates a policy to manage its reinsurance counterparty exposures. The company assesses the credit worthiness of all reinsurers by reviewing public rating information and from internal investigations. The impact of reinsurer default is measured regularly and managed accordingly.

(i) Exposure to credit risk:

Credit ratings are not publicly available for any assets with credit risk except for reinsurance assets. The following table analyses the credit rating by investment grade of reinsurance assets bearing credit risk.

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

December 31, 2013

Financial assets Carrying amount - - 2,241,351 2,241,351 Reinsurance assets (excluding unearned premium reserve) Carrying amount 668,119 300,169 - 968,288

Insurance and other receivables (excluding

prepayments) Neither past due nor impaired - - 218,260 218,260

Past due but not impaired - - 27,150 27,150 Individually impaired - - 6,526 6,526

Gross amount - - 251,936 251,936

Allowance for impairment - - ( 6,526) ( 6,526)

Carrying amount - - 245,410 245,410

Cash and cash equivalents - - 313,271 313,271

668,119 300,169 2,800,032 3,768,320

The carrying amounts of financial assets and cash and cash equivalents do not include any assets that are either past due or impaired.

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THE INSURANCE COMPANY OF THE WEST INDIES LIMITED Notes to the Financial Statements (Continued) December 31, 2013 29. Financial risk management (cont’d)


Management of credit risk (cont’d):

(i) Exposure to credit risk (cont’d):

The company has no financial assets or reinsurance assets that would be past due or

impaired whose terms have been renegotiated.

The company does not hold any collateral as security or any credit enhancements, credit derivatives and netting arrangements that do not qualify for offset.

AA A Not rated Total $’000 $’000 $’000 $’000 December 31, 2012

Financial assets

Carrying amount - - 2,169,372 2,169,372 Reinsurance assets (excluding unearned premium reserve) Carrying amount 164,186 755,076 - 919,262

Insurance and other receivables (excluding

prepayments) Neither past due nor impaired - - 200,882 200,882

Past due but not impaired - - 43,863 43,863 Individually impaired - - 11,349 11,349

Gross amount - - 256,094 256,094

Allowance for impairment - - ( 11,349) ( 11,349)

Carrying amount - - 244,745 244,745

Cash and cash equivalents - - 162,514 162,514

164,186 755,076 2,576,631 3,495,893

The carrying amounts of financial assets and cash and cash equivalents do not

include any assets that are either past due or impaired. The company has no financial assets or reinsurance assets that would be past due or

impaired whose terms have been renegotiated. The company does not hold any collateral as security or any credit enhancements,

credit derivatives and netting arrangements that do not qualify for offset.

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(ii) Concentrations of credit risk

The specific concentration of risk from counterparties where receivables for any one counterparty is $10,000,000 or more at the year end is as follows:

2013 2012 $’000 $’000

Covenant Insurance Brokers Limited 13,922 15,504 Thwaites Finson Sharp Insurance Brokers 4,497 12,072 Allied Insurance Brokers Limited 26,424 10,907 ICWI Group Limited 231,923 145,741 Fraser Fontaine and Kong 38,936 47,091

The Great Northern Insurance Company Limited 96,685 - The Insurance Company of the West Indies (Cayman) Limited 22,169 11,747 (iii) Assets that are past due The company has insurance and other receivables that are past due but not impaired

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

Less More than 46 46 to 90 than 90 days days days Total $’000 $’000 $’000 $’000

December 31, 2013 Receivable arising from insurance and reinsurance contracts

- agents, brokers and intermediates 104,682 53,577 27,150 185,409

December 31, 2012 Receivable arising from insurance and reinsurance contracts

- agents, brokers and intermediates 75,791 59,111 43,863 178,765

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(a) Credit risk (cont’d): (iv) Assets that are individually impaired The analysis of overall credit risk exposure indicates that the company has other

receivables that are impaired at the reporting date. The assets that are individually impaired are analysed below:

2013 2012 Gross Net Gross Net $’000 $’000 $’000 $’000

Insurance and other receivables 6,526 - 11,349 -

The above assets have been individually impaired after considering information such as the occurrence of significant changes in the counterparty’s financial position, patterns of historical payment information and disputes with counterparties.

(b) Liquidity risk

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

Management of liquidity risk The company’s approach to managing liquidity is to ensure, as far as possible, that it will

always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to its reputation.

Consequently, the company invests in marketable securities that can be readily realised as

its obligations under insurance contracts fall due, and in the event of reasonably foreseeable abnormal circumstances. An analysis of the contractual maturities of the company’s financial and insurance contract liabilities is presented below. The analysis provided is by estimating timing of the amounts recognised in the statement of financial position.

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(b) Liquidity risk (cont’d)

Management of liquidity risk (cont’d)

Contractual undiscounted cash flows Total Less Carrying cash than 1-2 2-5 5-10 Amount outflow 1 year years years years $’000 $’000 $’000 $’000 $’000 $’000 December 31, 2013 Financial liabilities -Accounts payable & accrued charges 244,881 244,881 244,881 - - - -Insurance payables 104,291 104,291 104,291 - - - -Due to fellow subsidiaries 17,981 17,981 17,981 - - -

Total financial liabilities 367,153 367,153 367,153 - - - Insurance contract liabilities -Claims liabilities 2,251,460 2,251,460 892,042 800,997 525,721 32,700

2,618,613 2,618,613 1,259,195 800,997 525,721 32,700 Contractual undiscounted cash flows Total Less Carrying cash than 1-2 2-5 5-10 Amount outflow 1 year years years years $’000 $’000 $’000 $’000 $’000 $’000 December 31, 2012 Financial liabilities -Accounts payable & accrued charges 220,951 220,951 220,951 - - - -Insurance payables 177,075 177,075 177,075 - - - -Due to fellow subsidiaries 11,402 11,402 11,402 - - -

Total financial liabilities 409,428 409,428 409,428 - - - Insurance contract liabilities -Claims liabilities 2,030,123 2,030,123 848,347 690,465 467,582 23,729

2,439,551 2,439,551 1,257,775 690,465 467,582 23,729

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(c) Market risk:

Market risk is the risk that changes in market prices, such as interest rates, foreign

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

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

Interest-bearing financial assets are primarily represented by relatively short term investments, which have been contracted at fixed and floating interest rates for the duration of the term. The nature of the company’s exposures to interest rate risk and its objectives, policies and processes for managing interest rate risk have not changed significantly from the prior period. (i) Interest rate risk:

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

Carrying amount 2013 2012 $’000 $’000

Fixed rate instruments: Financial assets 1,530,004 1,216,639 Variable rate instruments: Financial assets 251,764 251,762

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(c) Market risk (cont’d) (i) Interest rate risk (cont’d): Fair value sensitivity analysis for fixed rate instruments The company does not account for any fixed rate financial assets and liabilities at

fair value through profit or loss. Therefore a change in interest rates at the reporting date would not affect profit or loss.

A change in interest rates would have increased or decreased equity by the amounts shown below: Increase/(decrease) in equity 2013 2012 $’000 $’000 2.0% (2012: 2.5%) increase (8,756) (4,391)

0.5% (2012: 0.5%) decrease 2,465 1,079 Cash flow sensitivity analysis for variable rate instruments A change in interest rates at the reporting date would have increased/(decreased) equity and profit or loss by the amounts shown below. This analysis assumes that all other variables, in particular foreign currency rates, remain constant. Increase/(decrease) in profit before taxation 2013 2012 $’000 $’000 2.5% (2012: 2.5%) increase 67 45

1% (2012: 0.5%) decrease (27) ( 9)

(ii) Foreign currency risk:

The company incurs foreign currency risk on transactions that are denominated in a currency other than the Jamaica dollar. The currency giving rise to this risk is primarily the United States dollar, however there are other transactions denominated in Netherlands Antilles guilder, Bahamas dollar, Great Britain pound sterling, Cayman Islands dollar and Trinidad and Tobago dollar.

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29. Financial risk management (cont’d)

(c) Market risk (cont’d)

(ii) Foreign currency risk (cont’d):

2013 2012 $’000 $’000 United States dollars 6,325 5,871 Cayman Islands dollars 183 144 Bahamas dollars 14 600 Great Britain pounds sterling - 172 Netherlands Antilles guilders 177 37 Trinidad and Tobago dollars 15,512 - In accordance with accounting policies applied consistently, exchange gains and

losses are recognised in profit or loss when incurred [see note 4q]. Sensitivity analysis

Movement of J$ against Increase/(decrease) in profit other currencies before taxation 2013 2012 $'000 $'000

15% (2012: 10%) weakening 143,661 64,596 1% (2012: 1%) strengthening ( 9,578) ( 6,460) (iii) Equity price risk

Equity price risk arises from available-for-sale equity securities held by the

company as part of its investment portfolio. Management monitors the mix of debt and equity securities in its investment portfolio based on market expectations. The primary goal of the company’s investment strategy is to maximise investment returns.

A 10% (2012: 10%) increase in the market price at the reporting date would result in

an increase in other comprehensive income of $465,000 (2012: $291,000). A 10% (2012: 10%) decrease would have an equal but opposite effect on other comprehensive income.

(d) Operational risk Operational risk is the risk of direct or indirect loss arising from a wide variety of causes

associated with the company’s processes, personnel, technology and infrastructure, and from external factors other than financial risks such as those arising from legal and regulatory requirements and generally accepted standards of corporate behaviour.

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(d) Operational risk (cont’d):

The company’s objective is to manage operational risk so as to balance the avoidance of financial losses and damage to its reputation with overall cost effectiveness and to avoid control procedures that restrict initiative and creativity.

The primary responsibility for the development and implementation of controls to

address operational risk is assigned to the company’s senior management team. (e) Capital risk management

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

To comply with the capital requirements set by the regulators To safeguard the company’s ability to continue as a going concern so that it can

continue to provide returns for shareholders and benefits for other stakeholders; and To maintain a strong capital base to support the development of its business.

General insurance companies must maintain a minimum level of assets, capital and surplus to meet the liabilities of the company. The regulator requires that the total capital available to a general insurance company is at least 250% (2012: 225%) of the capital required as calculated under the minimum capital test (MCT). At December 31, 2013 the company’s capital available was 266% (2012: 240%) of the capital required under the MCT.

30. Fair value of financial instruments Fair value amounts represent estimates of the arm’s-length consideration that would currently

be agreed between knowledgeable, willing parties who are under no compulsion to act and is best evidenced by a quoted market price, if one exists. Where quoted market prices are not available, the fair values of these instruments have been determined using a generally accepted alternative method. The following methods and assumptions were used to estimate the fair value of each class of financial instrument for which it is practicable to estimate that value.

Financial instrument Method

Government of Jamaica securities, Government of Trinidad and Tobago securities and other corporate bonds.

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

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THE INSURANCE COMPANY OF THE WEST INDIES LIMITED Notes to the Financial Statements (Continued) December 31, 2013 30. Fair value of financial instruments (cont’d)

Financial instrument Method

Government of Jamaica US$ Global bonds and other corporate bonds.

Prices of bonds at reporting date as quoted by broker/dealer, where available.

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

Quoted equities

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

Bid prices published by the Jamaica Stock Exchange.

Determination of fair value and fair values hierarchy

IFRS 7 specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. These two types of inputs have created the following fair value hierarchy:

Level 1 - Quoted prices in active markets for identical assets or liabilities. This level includes listed equity securities and debt instruments on exchanges.

Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the

asset or liability, either directly or indirectly. The source of the input parameter for the Jamaica Sovereign bonds and corporate bond yield curve is Oppenheimer.

Level 3 - Inputs for the asset or liability that are not based on observable market data (unobservable inputs). This level includes equity investments and debt instruments with significant unobservable components. This hierarchy requires the use of observable market data when available.

The Company considers relevant and observable market prices in its valuations where possible.

2


Accounting classifications and fair values

The following table shows the carrying amounts and fair values of financial assets and financial liabilities, including their levels in the fair value hierarchy. It does not include fair value information for financial assets and financial liabilities not measured at fair value if the carrying amount is a reasonable approximation of fair value.

2013 Carrying amount Fair value Other Loan and Available financial Note receivables for-sale liabilities Total Level 1 Level 2 Level 3 Total $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000

Financial assets measured at fair value: Investment securities 10 - 84,709 - 84,709 4,759 79,351 599 84,709

Financial assets not measured at fair value: Investments 10 1,702,418 - - 1,702,418 Cash and cash equivalents 313,271 - - 313,271 Securities purchased under resale agreements 459,582 - - 459,582 Reinsurance assets 968,288 - - 968,288 Insurance and other receivables 245,410 - - 245,410

3,688,969 - - 3,688,969 Financial liabilities not measured at fair value: Insurance contract liabilities - - 2,251,460 2,251,460 Accounts payable and accrued charges - - 244,881 244,881 Insurance payables - - 104,291 104,291 Due to fellow subsidiaries - - 17,981 17,981

- - 2,618,613 2,618,613

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2


Accounting classifications and fair values (cont’d)

2012 Carrying amount Fair value Other Loan and Available financial Note receivables for-sale liabilities Total Level 1 Level 2 Level 3 Total $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000

Financial assets measured at fair value: Investment securities 10 - 74,165 - 74,165 3,251 70,315 599 74,165

Financial assets not measured at fair value: Investments 10 1,361,388 - - 1,361,388 Cash and cash equivalents 162,514 - - 162,514 Securities purchased under resale agreements 737,669 - - 737,669 Reinsurance assets 919,262 - - 919,262 Insurance and other receivables 244,745 - - 244,745

3,425,578 - - 3,425,578 Financial liabilities not measured at fair value: Insurance contract liabilities - - 2,030,123 2,030,123 Accounts payable and accrued charges - - 220,951 220,951 Insurance payables - - 177,075 177,075 Due to fellow subsidiaries - - 11,402 11,402

- - 2,439,551 2,439,551

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THE INSURANCE COMPANY OF THE WEST INDIES LIMITED Notes to the Financial Statements (Continued) December 31, 2013 31. Commitments

(a) Lease commitments are payable as follows: 2013 2012 $’000 $’000 Within one year 12,398 10,640 Two to five years 6,901 12,265

19,299 22,905

Documents

ICWI :: Financial Statements 2013