Table of Contents U A P H O L D I N G S L I M I T E D 1 · Customer Care Centre - Queensway Hse 3rd Floor Kaunda Street | P.O. Box 43013 - 00100 Tel: +254 20 2228070, 2229521 | Fax:

U A P H O L D I N G S L I M I T E D

1 Annual Report & Financial Statementsfor the year ended 31 December 2009

1

Corporate Information 02

Board of Directors 04

Management Team 10

Chairman’s Review 14

Group Managing Director’s Review 18

Corporate Governance Statement 24

Share holding 26

Sustainability and Corporate Social Responsibility Report 28

5 Years Financial Highlights 31

Notice of annual general meeting 32

Directors Report 33

Statement of Director’s Responsibilities 34

Report of the Independent Auditors 35

F I N A N C I A L S T A T E M E N T S

Consolidated Profit and Loss Account 36

Consolidated Statement of Comprehensive Income 37

Consolidated Balance Sheet 38

Company Balance Sheet 39

Consolidated Statement of Changes in Equity 40

Company Statement of Changes in Equity 42

Consolidated Statement of Cash flows 43

Notes to the Financial Statements 44 - 88

Table of Contents U A P H O L D I N G S L I M I T E D

Annual Report & Financial Statementsfor the year ended 31 December 2009


2Annual Report & Financial Statementsfor the year ended 31 December 2009



Q U E E N S WAY - N A I R O B ICustomer Care Centre - Queensway Hse3rd Floor Kaunda Street | P.O. Box 43013 - 00100 Tel: +254 20 2228070, 2229521 | Fax: 222 7659Email: [email protected] M O M B A S ABiashara Bank Building, Nyerere Road, P.O. Box 81612 - 80100 Mombasa, KenyaTel: 041 - 2223777/8 | Fax: 041- 2315888E-mail: [email protected]

N Y E R ISohan PlazaP.O. Box 1231 - 10100 Nyeri, KenyaTel: 061- 2030660\2034722 | Fax: 061-2032941 E-mail: [email protected]

N A K U R UPrestige Mall P.O. Box 14116 - 20100 Nakuru, KenyaTel: 051 - 2212910 | Fax: 051- 2214563E-mail: [email protected]

E L D O R E TImperial Court, Uganda RoadP.O. Box 707 - 30100 Eldoret KenyaTel: 053 - 2061437/8 | Fax: 053 - 2061437E-mail: [email protected]

K I S U M UAl Imran PlazaP.O. Box 3379 - 40100 Kisumu, KenyaTel: 057 - 2020119 | Fax: 057 - 2024488E-mail: [email protected]

M E R UMwalimu Plaza, Ground Floor, P. O. Box 3258 - 60200 Meru, Kenya Tel: 064 - 30089 | Fax: 064 - 30094Wireless: 020 - 2423190/064 - 30089E-mail: [email protected]

M AC H A KO SKCB Building, Machakos P.O. Box 1092 - 90100Tel: 020 2054611E-mail: [email protected]

T H I K ATwin Oak Plaza - st Floor, Kwame Nkrumah RoadPO Box 4280 01000 Thika, KenyaTel: 020 2486803/4/5E-mail: [email protected]

K I S I IOuru Complex - Ground FloorPO Box 209 40200 Kisii, KenyaTel: 058-31851 | 020-8075777E-mail: [email protected]

UAP - HEAD OFFICE

KENYA - BRANCHES

Corporate information Corporate information(continued)

Bishops Garden Towers, Bishops Road P O Box 43013 - 00100, Nairobi, KenyaTel: (+254 20) 2850000, Fax: (+254 20) 2719030 Email: [email protected]: www.uapkenya.com

UGANDA - BRANCHES

H E A D O F F I C EUAP Insurance Uganda LimitedUAP Insurance BuildingPlot 1 Kimathi AvenueP.O. Box 7185, Kampala - UGANDATel: +256 - 414 - 332700Fax: +256 - 414 - 256388Email: [email protected]: www.uapinsurance.co.ug

J I N J APlot 32/34 Main StreetP.O. Box 1747 | Tel: 0434 -120047

L I R APlot 18 Olwol RoadP.O. Box 423 | Tel: 04734 - 20616

M B A R A R APlot 23 High StreetP.O. Box 1171 | Tel: 04854 - 21422

M B A L EPlot 58 Republic StreetP.O. Box 915 | Tel: 0454 - 34568

G U LUPlot 16 Aewich RoadTel: 0471 - 432017

A R UAPlot 24 Avenue RoadMobile: 0772903442

SUDAN - BRANCHES J U B A H E A D O F F I C EPlot No. 3 Block VI at Hai Suk Juba TownP.O. Box 201 Juba,SOUTHERN SUDANTel: +249 - 959 - 000000, +256 - 477 - 296555, +249 - 126 - 454664E-mail: [email protected] WA UTel: +249 - 959 - 028518, SOUTHERN SUDANE-mail: [email protected] N I M U L ETel: +249 111395844, SOUTHERN SUDANE-mail: [email protected] YA M B I OTel: +249 - 959 - 000001, SOUTHERN SUDANE-mail: [email protected]





The board of Directors The board of Directors (Biographies)

Sir Gordon Wavamunno (Non-executive Director) | 66Sir Gordon Wavamunno is the chairman of UAP Uganda since 1988 and a board member since 1979. He joined the board of UAP Holdings in 2009. He is a prominent international businessman who sits in several Boards including Spear Motors Limited, WBS Television among others. He is very knowledgeable of the business environment in Uganda and the region where he has established and run successfully a number of businesses since the 1960s.

James Muguiyi (Executive Director) | 66James has been the Managing Director of Company since 2001. During this time James has overseen the growth of the Companny’s business in Kenya and the expansion into Uganda in 2004 and Sudan in 2005. He has presided over the establishment of the Group Holdings Company and the demerger of Life business from General business in Kenya. Between 1988 and 2001 he was the Deputy Managing Director. During this time he oversaw the merger of Provincial Insurance with Union Insurance to form UAP in 1994. James is a director of several companies and Chairman of the Centum Investments Co. Limited. He is a Fellow of the Institute of Certified Public Accountants of Kenya (FCPA (K)) where he was one time the Chairman. He is also a Certified Public Secretary (CPS (K)) and a Chartered Management Accountant (ACMA). He is the Chairman of Centum Investment Company Limited.

Dr. JB Wanjui, CBS (Chairman) | 73Dr. Wanjui, the Chairman of the Board has a long and illustrious career in the Kenyan corporate scene, the most prominent being the Chief Executive of East Africa Industries (later became Unilever). He is a graduate of Ohio Wesleyan University, (BA Physics and Mathematics) and Columbia University, (MSC Engineering). He is the Chancellor of the University of Nairobi and is also the Chairman of Stanbic Bank Kenya. He is also chairman and Board member of a number of other Kenyan and international organisations. Dr Wanjui has been a director of the Company since 1986 and the Chairman of the Board since 1998.

Chris Kirubi (Non-executive Director) | 69Chris is an alumnus of INSEAD Institute, France, Handles University, Sweden and Harvard Business School. He is a prominent businessman who has invested heavily in a number of Kenya Companies and multinationals. He is the Chairman of Haco Industries, Nairobi Bottlers, International House Limited and DHL East Africa and is the Chairman and CEO of the Capital Group. He is a director of various companies, including Centum Investment Company Limited and Bayer East Africa. Chris is a member of the Corporate Advisory Board of the Global Business Coalition on HIV/AIDS, TB & Malaria, a board member of the Friends of Africa of the Global Fund, and a member of the NEPAD Steering Committee in Kenya. He is also a member of the National Economic and Social Council, Kenya and the Investor’s Advisory Council, Ghana. He is currently the Ghanaian Honorary Consul General in Kenya.

Kamau Kuria (Non-executive Director) | 50Kamau is the University Secretary of Strathmore University in Nairobi. He is a management consultancy professional and prior to joining Strathmore University was the Head of Change for Barclays Bank of Kenya Ltd. Prior to that he was the Managing Director of Quantum Consultants Limited, an independent con-sultancy company he founded in 1996. Before founding Quantum, Kamau was a Senior Manager in the Price Waterhouse East and Central Africa consultancy practice. He is a member of the Institute of Certified Public Accountants of Kenya. Kamau holds a Masters degree in Business Administration from Concordia University, Canada and a Bachelor’s degree in Electronic Engineering from Essex University, UK.

James Mworia (Non-executive Director) | 32James Mworia is the Chief Executive Officer of Centum Investment Company Limited. James is a private equity investment management professional and prior to joining Centum Investment Company Limited he was the Head of Investments at TransCentury Limited. He is a CFA Charterholder, an Advocate of the High Court of Kenya, a Certified Public Accountant and a Chartered Management Accountant. He is a member of the CFA institute, Institute of Certified Public Accountants of Kenya, Law Society of Kenya and the Chartered Institute of Management Accountants

Philip Coulson (Non-executive Director) | 44Philip Coulson joined the Board of UAP Holdings Limited during the course of 2010. He is an Advocate of the High Court of Kenya and is also qualified as an English solicitor. He practises as a commercial lawyer in Nairobi with Coulson Harney, Advocates, specialising in mergers and acquisitions. From 1994 to 2008 he worked with Kaplan & Stratton, Advocates. He is a member of the Law Societies of Kenya and England and Wales and is also a member of the International Bar Association.

Sir. Gordon Wavamunno | James Muguiyi | Dr. JB Wanjui | Chris Kirubi | Kamau Kuria | James Mworia | Philip Coulson

Standing from left to right





Subsidiary Directors Subsidiary Directors (Biographies)

James Wambugu | Prof. Joseph Kimura | Betty-Ann Mboche | Hon. Ngenye Kariuki | Andrew Kasirye Dr. William Kalema | Mathew Koech | Patrick Kanyingi | Prof. Scopas Dima | Lony Duop

Joyce-Ann Wainaina | Francis Ogutu | Joseph Lesiew | Steve Maina


James Wambugu (Managing Director - UAP Insurance Kenya) | 44James joined UAP in July 2003 and has been involved in the development of the company’s quality management systems, business expansion and strategy devel-opment. He previously worked for PricewaterhouseCoopers in Kenya and the UK, Lonrho Africa and African Lakes Corporation in the fields of audit, transac-tion structuring and support and risk management. He has extensive experience across many countries in Africa. He holds an MBA and Bachelor of Commerce degrees from the University of Nairobi and a diploma in Advanced Management Programme (AMP) from IESE Business School, Barcelona and Strathmore Business School, Nairobi. He is a Qualified Risk Manager (MIRM) and a Certified Public Accountant of Kenya (CPA(K)).

Prof. Joseph Kimura (Non-executive Director - UAP Insurance Kenya) | 65Professor Kimura is an academician of high standing in the region. He holds a PhD in Accounting from University of California, Los Angeles, MBA from University of Alberta, Edmonton, Canada and a Bachelor of Commerce from University of East Africa. He is also a Fellow of the Institute of Certified Public Accountants of Kenya (FCPA (K). He is currently the Dean of School of Business, United States International University Africa and between 1999 and 2003 he was the director/CEO of the College of Insurance. Previously he worked with the Institute of Policy Analysis and Research, Institute of Accountancy, Aru-sha, Tanzania and was the Dean of the Faculty of Commerce, University of Nairobi. Professor Kimura is also a director of several other prominent companies among them BAT Kenya Limited and Development Bank of Kenya Ltd. He is also the Chairman of NDEKA, a conservation initiative for the Ndakaini Dam which supplies over 70% of water to the City of Nairobi.

Betty-Ann Mboche (Non-executive Director - UAP Insurance Kenya) | 45Betty – Anne is a graduate in Accounting from Ohio Wesleyan University, USA. She is currently a shareholder and the Managing Director of Bawan Roses Ltd, a company involved in the growing of flowers, coffee and propagation of tree seedlings for sale and internal use. She previously worked for Bawan Group starting as an accountant before briefly becoming Projects Manager and later Managing Director. During this tenure she was instrumental in the growth of the portfolio of the business especially in real estate development, tea growing and later establishing Bawan Roses Ltd which she now owns with her husband.

Hon. Ngenye Kariuki, CBS (Non-executive Director - UAP Insurance Kenya) | 64Hon. Kariuki is a shareholder of Ngenye Kariuki & Co Ltd. stock broking members of the Nairobi Stock Exchange (NSE). He has a Bachelor of Commerce (Finance option) degree from the University of Nairobi. He is a former Member of Parliament and a Cabinet Minister in the Government of Kenya. He is the chairman of board of Trustees of UAP Pension Fund. Before establishing Ngenye Kariuki & Co he worked in senior positions in Dyer and Blair (stock brokers), Family Planning Association and Kenya Engineering Industries. Hon. Kariuki was the chairman of NSE for 12 years and is a director of many companies.

Andrew Kasirye (Executive Director - UAP Uganda) | 49Joined the Board in April 2005. He holds a Bachelor of Laws degree from Makerere University and is a senior partner at Kasirye, Byaruhanga and Co. Advocates. He is a past President of Uganda Law Society, Vice-President of the East Africa Law Society and a Member of Parliament of the Buganda Kingdom. He is Chairman of Uganda Wildlife Authority and is a well known personality in the legal profession.

Dr. William Kalema (Non-executive Director - UAP Uganda) | 57Joined the Board in April 2005. He possesses extensive knowledge of the Ugandan private sector. In 1991 he founded Uganda Manufacturers Association Consultancy and Information Services Limited (UMACIS), which has become established in Uganda as the leading firm with expertise in market and feasibility studies, business development, private sector development and public policy. He holds a Ph.D. degree in chemical engineering from the California Institute of Technology. From1984 to 1991, he worked as a research engineer and as a business analyst in several divisions of the Du Pont Company based in Delaware, USA. Earlier, he had worked as a metallurgical engineer in the Zambian copper mining industry, from 1974 to 1978.

Mathew Koech (Managing Director - UAP Uganda) | 45Mathew has been the Managing Director of UAP Insurance (Uganda), UAP’s subsidiary in Uganda since January 2005. Between 1998 and 2004 he worked at UAP initially as the Financial Controller and later as General Manager and has been a member of the Board since 2000. Mathew joined UAP from BAT Kenya where he was the Internal Audit Manager. Prior to this he had worked for PricewaterhouseCoopers and Ernst & Young both in Kenya and the UK. He is a member of the Institute of Certified Public Accountants of Kenya. He holds a Bachelor of Commerce degree from the University of Nairobi. Mathew is the Honorary Secretary of Uganda Insurers Association.



Subsidiary Directors (Biographies)

Patrick Kanyingi (Managing Director - UAP Sudan) | 58Patrick was appointed Managing Director in July 2006. He was previously Finance and Administration Manager, UAP Insurance Kenya since 1991 and Com-pany Secretary since 2001. Prior to joining UAP he had worked for Tana and Athi Rivers Development Authority (TARDA), the National Irrigation Board and Githongo and Company Certified Public Accountants. Patrick is a member of the Institute of Certified Public Accountants of Kenya ICPA (K) and the Certified Public Secretaries of Kenya ICPS(K). He holds an MBA in Strategic Management from Newport University, USA.

Prof. Scopas Dima (Non-executive Director - UAP Sudan) | 63Professor Dima is an academic of high standing in the Eastern, Central and Southern Africa region. He holds a PhD in Agricultural Economics from ReadingUniversity England, UK, an MSc in Agricultural Engineering and Economics from Makerere University Uganda and a BSc (Agric) Honours from Makerere Uni-versity, Uganda. He is currently an advisor to the Ministry of Agriculture of the Government of Southern Sudan. He has previously taught in various universitiesincluding University of Juba Sudan, Makerere University Uganda, Moi University Kenya, National University of Lesotho and University of Namibia. Professor Dima has also worked for various organizations and projects including being Principal Economist, Central Cabinet Economic Committee, Kampala, Uganda; Director, Directorate of Agricultural Planning and Statistics, Ministry of Agriculture and Natural Resources, Equatorial Region, Southern Sudan; General Manager, Equatorial Trading Corporation Equatorial Region, Southern Sudan, Juba. He is a director of various companies in Southern Sudan and Uganda.

Lony Duop (Non- Executive Director - UAP Sudan) | 35Lony has a diploma in International Relation from Sudan University of Science and Technology. He is currently working in the office of the Vice president, Government of Southern Sudan. He has previously worked with the Southern Sudan Government departments including Relief Assistance for South Sudan Head Office in Nairobi, Sudan Relief and Rehabilitation Commission (SRRC).

Joyce-Ann Wainaina (Non- Executive Director - UAP Life Assurance) | 41Joyce-Ann Wainaina is a Managing Director with Citibank, a leading global financial services company, where she has had an extensive career in Kenya and South Africa spanning 20 years. She holds key positions on several boards including the American Chamber of Commerce Kenya as the Vice President, Junior Achievement Kenya as the Finance Director, and is a founding trustee of the JB Wanjui Education trust fund that focuses on providing education grants to sci-ence students in Kenya. She is a graduate in Finance from Duquesne University in Pittsburgh, USA.

Francis Ogutu (Chairman UAP Life Assurance) | 41Francis is a founder-director of Cassia Capital Partners Limited (previously known as RMB Capital East Africa Limited), a private equity partnership. Before founding Cassia Capital Partners, he was the managing director of Lattice Consulting Limited, a corporate finance, project finance and strategy consultancy firm. He was also previously a manager in the PricewaterhouseCoopers Corporate Finance & Strategy business in Africa Central, and an executive in the Pricewater-houseCoopers Telecommunications Project Finance team in the United Kingdom. He holds an MBA (with distinction) from the Graduate Business School of the University of the Witwatersrand (South Africa) and is a member of the Institute of Certified Public Accountants of Kenya. He also holds a Bachelor of Education (Mathematics and Physics) degree from Egerton University.

Joseph Lesiew (Non- Executive Director - UAP Life Assurance) | 72Joseph Lesiew is a business entrepreneur and farmer based in Eldoret. He is a life member of the Agricultural Society of Kenya, Red Cross and the Flying Doc-tors. He has previously served in the Local Government for over 18 years in various capacities including his tenure as Mayor of Eldoret Town during which various major business ventures were commenced in this region. He has received certifications from the Birmingham University and Strathmore Business School. He has been involved in various community projects over the years as the leader in institutions promoting the improvement of education, local infrastructure and community welfare. He is the current Chairman of Kaptagat Girls High School and St. Patrick’s High School among others and founder of the Eldoret Special School for mentally retarded children.

Steve Maina (Managing Director - UAP Life Assurance) | 52Stephen joined UAP in September 2008 and has been involved in the demerger and restructuring of the Life business. He previously worked for ALICO/CFC Life insurance in capacities including marketing director, Principal Officer. Stephen has extensive experience in life insurance, he holds an MBA from Nazarene University and a Bachelor of Arts Degree from Nairobi University and is an associate of the chartered insurance institute.

My livestock is my life.





UAP Insurance Senior Management Team UAP Life AssuranceSenior Management

Zipporah Mungai | Agnes Mutahi | Dr. Ambrose Nyang’ao | Carol Kioni | James Wambugu

Tazmin Alibhai | Joseph Kamiri | Rosemary Brainerd | Kimemia Mwangi


Samson Mweru | Evans Ndirangu | Stephen Maina | Jerim Otieno






The UAP Insurance Kenya Management Team

The UAP Uganda & Sudan Insurance Management Team

Gerishon Mwangi | Joshua Chiira | Anthony Kiragu | Victoria Ipomai | Benjamin Muthenya | John Njihia | Florence Kimani

Peter Murage| Henry Gisumwa | Jackson Koome | Maryanne Mung’ara | Patrick Odhiambo

John Kiruti | Stephen Lokonyo


George Ochira | Peterson Kingori | Mansoor Adiga | Patrick Kanyingi | Gladys Lanyero | Kimanzi Kyalo | James Wani | Richard Marisin | Jonah Aloro | Michael Bongo | Nicholas Malesi | Simon Macharia | Rose Atemo | Peter Ajak | Antony Mwangi

Boniface Licho | Moses Aloro

Fredrick Muhumuza | Edward Nambafu | Agnes Naluko | Isaac Gunda | Francis Nteza | Mathew Koech | Ronald MusokeFredrick Mutua | Denson Lunga | Angela Kamau | David Serunkuma | Paul Nagemi | Moses Otieno



Sudan

Uganda



14 Chairman’s Report

Despite our hopes, it has been another difficult year, not just for UAP but for the industry and the economy as a whole. Nevertheless, our company is still holding on well in anticipation of the recovery in the economy and business environment in 2010 and going forward.

HighlightsWhile we hoped that 2009 would be a year of recovery after the challenges of 2008, it turned out that the worst was yet to come. The global economic crisis that started in 2007 and escalated in 2008 continued into the first half of 2009 and the large economies only started getting out of recession in the second half of 2009. Due to the lag effect, our regional economies experienced subdued performance for the entire year and only started lifting themselves in first quarter of 2010. In the case of Kenya, our largest market, this was compounded by the severe drought and continued political infighting and instability.

As a result, the stock markets, one of our key sources of investment income, continued to lose ground. Operating income was also affected by increased loss ratios particularly in our motor class in Kenya arising from inflation and hard premium rates in the market. The biggest impact however was on our Life Insurance in Kenya which relies heavily on investment income and has reported a loss of Shs 109 million. The overall effect is a lower than expected profit and a slight reduction in the value of our net assets. The stock markets have since recovered a lot of ground and our net assets had increased by over Shs 458 million by April 2010.

In the midst of these challenges there is the positive story to tell on which we shall continue to build our resilience.

Business volumes grew in all our markets. Total premiums grew by an overall 22%, which is significantly above industry average.

During the year we also finally concluded the de-merger of our life business in Kenya. UAP Life Assurance was licensed in October 2009 and we have since obtained approval and transferred the life business in UAP Insurance to the new company. This will provide the necessary focus to this business and create opportunities for us to grow the business. We are grateful to the Insurance Regulatory Authority (IRA) and the Ministry of Finance for making this process seamless and successful.

During the year UAP Credit Services continued to grow its services of providing insurance premium financing to our clients in Kenya helping us improve our debtors’ position significantly while earning nearly Shs12m in interest income. Total premiums financed were Shs 340m.

Operating EnvironmentThe operating environment in 2009 was as difficult if not more difficult than the year 2008. Recovery from the global economic crisis was slow and it certainly did not arrive in our region during the year. The economy in Kenya grew by just about 2% though the situation was better in Uganda and Southern Sudan. Inflation remained high in Kenya and Uganda due to drought and other factors. The stock markets remained subdued as a result and the Nairobi Stock Exchange lost more ground on top of the losses of 2008.

The political environment in our markets is still one to watch. Bickering and constitutional politics continue to dominate the Kenyan landscape. Despite obvious divisions there is hope the country can enact a new constitution. In Sudan, a general election has just been concluded and this creates hope of a successful conclusion of a referendum on autonomy for South Sudan in 2011.

Uganda also goes to the polls next year but the temperatures are currently still cool.

The industry continues to change at a fast pace even as it faces the same familiar challenges; rates underrating and slow innovation. Micro-insurance is taking shape in Kenya and Uganda and our company has played its role particularly in rolling out products for the small scale farming and livestock communities. In Kenya, the new No Claims Discount (NCD) motor underwriting guidelines were put in place with effect from 1 March 2010 and have been holding on well. These should turn around this class from loss making into profit. At 40% of total general business the industry should begin to make better profits.In Kenya the Insurance Act is under review and new regulations on minimum capital and maximum individual shareholding come into effect in June and December respectively. Our Group will exploit any opportunities arising to expand our business through any strategic alliances.

Overall PerformanceDespite the difficult year we have seen our Group continue to register growth and ensure we remain profitable. Gross written premiums grew by 21% to Shs 4.5 billion. In Kenya general insurance premiums grew by 24% to Shs 3.1 billion while life insurance premiums decreased marginally. We achieved 17% and 28% growth in Uganda and Sudan respectively.

Another important indicator is total assets which grew slightly by 4% to Shs 9.8 billion. However, our net assets declined by 11% to stand at Shs 3.4 billion due largely to unrealised losses on our investments in the stock exchange. Ours is still amongst the the largest net assets among the insurance companies in our region which gives our company great opportunity to attract quality business. It is an important pillar that demonstrates our financial strength in a very competitive industry with rampant price undercutting which still remains a big problem and growing claims levels.

Chairman’s Report

I am delighted to present to you the 2009 annual report and financial

statements of our Group. It’s the second annual report for UAP Holdings that

encompasses our operations in Kenya, Uganda and Sudan.

Dr. JB Wanjui





In the period under review we posted a profit before tax of Shs 280 million. This reflects a reduction of 37%. This is mainly due to a poor performance of the Motor class in Kenya due to inflation and less than expected investment income. Profits grew by 57% in Sudan and remained flat in Uganda. UAP Life made a loss of Shs 109 million mainly due to high claims as the first generation investment policies matured during the year and reduced investment income which normally compensate claims maturity. Overall investment income increased by 33% to Shs.508 million. This was due to increase in interest received from government securities and bank deposit by 21% and dividend from equity investment rose by 15% to stand at 92 million.

Our overall performance is satisfactory in the circumstances. We will however put in more efforts to take advantage of recovery in the investment market and the new NCD motor insurance premium rating to recover some of the lost ground in 2010.

Governance and board performanceFollowing the establishment and licensing of UAP Life Assurance Company Ltd, a new board for the company was established and inducted in line with regulatory requirements. These regulations provide that an individual cannot be a director of more than one insurance company. Francis Ogutu, who was previously a director of UAP Insurance was appointed Chairman of UAP Life Assurance. We also re-organised the Board of UAP Holdings after a careful consideration of the new skills and experience we needed to bring on board. Consequently Mr Philip Coulson, a commercial lawyer who has acted for the Group for a long time and Mr Kamau Kuria, an expert in Information Technology and Governance issues were appointed to the Board. Sir Gordon Wavamunno, our Chairman in Uganda, joined the Group Board to provide extra counsel and an effective link with UAP Uganda.

In addition to these changes we re-organised the Board committees in the Group and subsidiaries in order to spread skills and manage directors’ workload. In order to ensure effectiveness of the Board a board work plan for all the boards and committees was put in place. The directors of the company and its subsidiaries have discharged their duties diligently.

The Group continues to equip its Board members and those of its subsidiary companies with the necessary skills and knowledge for them to be effective. During the year all new directors in UAP Life and other subsidiary companies were provided with training in corporate governance by the Centre for Corporate Governance.

In addition nearly all directors of the Group and its subsidiary Companies attended The Effective Director (TED) course, a world class directors’ course

organised by Strathmore Business School in conjunction with international experts on boards training drawn from IESE Business School in Barcelona, Spain.

Results and dividendsThe Group profit after tax is Shs 200 million. Based on these results the Board recommends a dividend of Shs 1.70 per share (2008: Shs 1.70) being the first and final dividend. This reflects the Board’s assessment that the Group will continue to make good returns in the future. Our retained earnings from which dividend distribution can be made remain very healthy at over Shs 1.6 billion.

Facing the FutureHaving gone through a most difficult year in recent times and survived what we consider the worst of the financial crisis so far we remain confident about the future.

Opportunities to be exploited are still abundant though we also recognise that there are challenges we will need to overcome. A review of the insurance laws is underway in Kenya with an intention of building a model insurance industry for the region. In the meantime the Insurance Regulatory Authority (IRA) in conjunction with the Association of Kenya Insurers (AKI) has put in place the No Claims Discount (NCD) motor rating that should see the motor class turn from loss making to profit. Since this class makes about 40% of total general insurance business the impact on profit will be significant and UAP is better suited to exploit this as our loss ratio remains better than competitors.

The review of the Insurance Act was preceded by the establishment of an independent regulatory authority which is now driving this modernisation. The impact of IRA is already been felt not just in bringing sanity into the rating of risks but also in implementation of the cash and carry rule which will improve the cash flow of insurance companies. UAP has already reaped the benefits of the law and the establishment of UAP Credit Services and has seen a significant reduction in outstanding debtors.

A number of the neighbouring countries had done that earlier although they still have much to learn from Kenya which is the more expansive market. Sudan is yet to establish full regulatory mechanism and we hope they will move in that direction. However in all the markets there is a drive to grow insurance as a service to reach more customers and increase the penetration rate which is quite low in the region, though relatively higher in Kenya.New regulations for increased share capital and restrictions on maximum shareholding by individuals will come into effect in June and December

Chairman’s Report (continued)

respectively. We see opportunities to form strategic alliances with like-minded insurance companies that may be unable to meet those requirements on their own.

We have a robust strategy that has helped us to ride through the hard times and on which we anticipate a great future built around the opportunities that are shaping up in the market.

We shall focus on growing our business by innovation in products, processes and distribution channels. We have invested greatly in our human capital and developed a strong brand to drive this strategy. In this way we expect to expand our business to reach more customers in existing markets and new markets as opportunities for regional expansion opens.

As investing is a core activity from which we derive significant income we shall continue to seek profitable investments and diversify our investment revenue sources to ensure we continue to bring good returns despite challenges in the market.

We anticipate the stock market to begin recovery in 2010 but a full recovery could take a few years. Therefore capital gains, a key contributor to our run of good returns in the last few years, are unlikely to be fully exploited in 2010. Nevertheless we expect the values of our assets and net assets to grow as the market recovers. Already we have recovered nearly Shs 458 million in our investments at the Nairobi Stock exchange since the beginning of the year. In the meantime we shall take advantage of the movements in the market to continue building our portfolio and realising gains where we can.

In place of stock market returns we are well positioned to exploit our diversification into the property market with expected significant growth in rental income. We will also continue building our portfolio of properties in Kenya, Uganda and Sudan where the returns are very good. There are a number of opportunities that we have identified and which we will pursue with vigour to grow our Group.

With respect to regional expansion we remain hungry for further expansion after our successful expansion into Uganda and Southern Sudan. Both of these territories have given us good returns and a reason to accelerate our expansion. We would like to complete our East and Central African footprint by expanding into Tanzania and Rwanda. We are actively looking for opportunities in those countries.

I would like to thank our shareholders for their continued support, my fellow directors for their wise counsel and the Management and Staff for their hard work that is taking our company forward.

We look forward to taking our Group to the next level.

Dr JB Wanjui CBSChairman3 May 2010

Chairman’s Report (continued)



Global review2009 was a year of hope for recovery in the global economy. It started off at the middle of the global economic crisis triggered by the financial crisis in America and Europe in 2008.During this time governments in these economies were frantically putting in measures to prevent a global economic meltdown. The financial system rescue program and the economic stimulus program that involved mind boggling numbers seem to have paid off as slowly these economies started pulling out of recession in the second half of 2009.

The stock markets rebounded and many of the companies that received massive state funding started repaying their public debt. Of course others disappeared completely while others became a pale shadow of their previous sizes. This has left a massive public debt whose effects will be felt for a long time to come. Of course the economies are not yet out of the woods as the collapse of the Greek economy shows. This is threatening another contagion effect with Spain and Portugal in the front line and no one knows how far it will go.

The global financial crisis largely by-passed the emerging economies, even though these economies were initially spared the effects of the subsequent global economic crisis, but in time the crisis arrived on our shores. Export revenues declined as developed markets shrunk, tourist revenues and diaspora remittances shrunk as well. Our own economies in the region are now recovering from this impact.

Growth rates remained significantly low with Kenya, our main market remaining just about 2%. The stock markets declined further. The Nairobi stock exchange lost a further 8% in addition to 35% lost in 2008. The cumulative loss since December 2007 is 43%. You need financial depth to survive such a plunge, thanks to our strong

financial base. The economies are expected to recover in 2010 with an expected growth rate in Kenya of 5% and 6% in Uganda. The stock market in Kenya has already regained a lot of lost ground. It is therefore unwelcome news when we hear about what is happening in Greece as this would put brakes on our expected recovery.

Against such a background, our company has struggled to weather these storms. Performance has been satisfactory. We have achieved growth in a tight market and we have maintained profit in all business units except the Life business in Kenya which was heavily dependent on the investment markets given its asset portfolio mix. We have now re-organized the asset mix of the business to diversify its assets into investment properties. This will enable the business navigate through the various cycles of investments types more effectively.

With regard to operations, we have continued to streamline our business. During the year we completed the de-merger of Life business from General business in Kenya. UAP Life Assurance has an independent board, management and offices to ensure it gets the focus it needs. We are in the process of establishing Group Shared Services to exploit synergies across the Group operations. We have also made various investments in systems and processes engineering as enumerated further below.

Industry reviewDuring the year, further attempts at innovation in the industry were made by various players. This follows from the industry research done in 2008 that showed the need for innovation to increase penetration of insurance services. The two main thrusts in innovation in 2009 were in Bancassurance and Micro-insurance. A number of companies established partnerships to target the lower end of the market and also joined efforts with banks to distribute insurance.

In Uganda, Micro-insurance is the main theatre of innovation. These initiatives are still in their early stages and do not seem to have had any major impact on the numbers yet as growth is still estimated to have been around 15%. In case of General business this is lower at about 10% and Life insurance is gaining ground faster.

Last year I highlighted the threats posed by rates undercutting. This continued in 2009 ferociously and affected our three markets. In Kenya for instance, the motor class which contributes 40% of general insurance premiums recorded a massive loss forcing a number of companies to take unilateral decisions to increase their rating. These efforts have been boosted by the Insurance Regulatory Authority (IRA) with the issuance of the new No Claims Discount (NCD) underwriting guidelines which came into effect on 1st March, 2010. These are surprisingly holding well in the market and with decreasing investment yields the industry has to go back to basics and start making money from its core activity, underwriting.The following are key highlights in each country:

KenyaBesides the new motor underwriting guidelines, the IRA has continued to increase its presence in the market in a positive way. They have intensified audits of insurance companies and extended this to other players in the industry. A key focus has been on the cash and carry rules. The IRA is also preparing the industry for risk based supervision and is leading the review of the Insurance Act.

Following the striking out of sections of the Work Injury Benefits Act (WIBA) in early 2009 by the High Court, no action has been done and insurers remain liable to Common Law Claims. The saving grace is that under WIBA, the premiums have grown and therefore loss ratios remain at profitable levels compared to the huge losses that led to the outcry for the introduction of structured compensation.

18 Group Managing Director’s Report

James Muguiyi

Group Managing Director’s Report

I am delighted to present to you a review of our company’s operations

during the year.





Due to significant losses on the motor class, the general business registered an overall marginal underwriting profit of only Shs 6m. We expect this to turn around significantly in 2010 as the effects of the new industry motor rates and our own increments in November 2009 flow through. We are also looking at ways of improving our medical business performance particularly through better use of technology to contain claims levels.

UgandaTotal premiums grew by 17% to the equivalent of Shs 939 million by harnessing growth in growth sectors of power generation, oil and telecommunications. Despite the downward pressure on premium rates due to competition, the company registered an underwriting profit of Shs 61 million, which is a slight decrease from the prior period. After adding investment and other income, the company closed the year on a net profit before tax of Shs 132 million compared to Shs 128 millions in 2008.

SudanPerhaps the best story comes from our Sudan operation. Four years after our initial investment, we have now made an accumulated profit of Shs 137 million. Total premiums in 2009 grew by 28% to reach US$ 4.1 million. The loss ratio improved from 32% in 2008 to 23% in 2009 while profits after tax for the year were Shs 64 million.

Operating performance improvementsUAP remains a strong leader in customer service improvements which has been a key driving force for our business expansion. During the year we made further investments to improve our customer service. We have continued to revamp our management information and communications systems to support the growing business. Following a successful migration of our core general underwriting system, AIMS, to an Oracle

database in 2008 we have consolidated our gains and have registered improved speed and scale of our general insurance business IT capability. Life FIT - the Life Insurance management system which also went live in 2008 was enhanced further in 2009 to cover more products and hence placing on the threshold to expand our product range and greatly enhancing our capability to service clients.

We made a prudent decision to invest in a new medical insurance system which went live in May 2009. After initial challenges associated with any new system we have now settled down and have registered speed in medical claims processing, underwriting and also quality of information for our own decision making and client needs. Mediware has greatly boosted our capacity to service our medical insurance customers. We are now extending it to Uganda where medical business is in infancy stage and has a great potential to grow.

Even as we celebrate these gains we continue to review our IT systems and skills to ensure we make creative improvements and investments that will propel UAP to deliver a superior service to our customers in the region.

It is not only in IT that we are making advances. Improved customer service also calls for more relevant and simplified products for our customers in line with our brand promise of relevance, simple and inclusive. It also requires process improvements and investments in human capital to deliver an excellent customer service. In all these areas we have made major improvements. The result of these improvements is faster turnaround of claims processing and payment, faster remittance of intermediary commissions and issuance of policy documents. With regard to distribution we now have the widest branch network in Kenya with10 branches. We have also started building a branch network in Sudan by opening 3 branches besides our head office

in Juba. We are also expanding our distribution network in Kenya through satellite branches in at least another 5 towns and also entering into partnerships with various partners to ensure our services are available to our clients ‘where they are when they need them’ in pursuit of our mission.

Expenses managementOur total expenses have grown by 20% which is still lower than what we planned for the year. This reflects our judicious efforts to build capacity to expand our business while managing costs. Some of the major investments were incurred in expanding our distribution network and establishing partnerships as well as investments in information systems.

We consider that we have completed the larger part of this investment especially in Kenya and expect to begin benefiting from them and the result is growing our business volumes without incurring more expenses significantly in future.

Our PeopleWe continue to grow our talent through training and motivation. We have done this through selective recruitment of targeted skills and training of our staff to acquire relevant skills and competencies linked to our business strategy. Our total staff compliment in Kenya has reduced from 193 to 187.

We filled some critical gaps and consolidated some functions and hence the reduction in staff counts on some quarters. We also carried out a job grading exercise across the region and together with the results of an industry salary survey we now can boost of a well balanced staff compliment. However we find it critical to also develop people from among our staff and from the talent pool programme where we engage top university students in internships.

UgandaDespite the challenges brought about by the economy, the insurance industry continued to grow at a faster rate than the growth in GDP. As a result insurance penetration has continued to rise towards 1% of GDP. However, unlike in developed economies, it is still dominated by General (short term) insurance which makes up more than 80% of the total written premiums.

Price undercutting continues to be a major challenge to the industry. Efforts by the Insurance Commission to set minimum premium rates continued during the year but enforcement continues to be a challenge. Competition from new entrants to the market has led to premium rates declining particularly with Parastatals and medium sized companies

SudanThe insurance awareness and penetration is still very low. The penetration for long term business is almost zero. There is thus a huge untapped potential for both general and long term insurance business. The number of insurance companies operating within Southern Sudan remained at the same number six. Substantial business continues to be written by offshore insurers as a result of some businesses arranging global covers.

The formation of the Association of Southern Sudan Insurers (ASSI) is progressing well with an initial membership of three insurance companies licensed by the Bank of Southern Sudan. The industry lacks service providers such as loss assessors and adjusters, motor vehicle valuers, risk surveyors and trained agents. It is hoped that once ASSI is registered it will spearhead development of such service providers to enhance the professionalism in the industry. Going forward it is expected that regulations will change with the new Government formed in 2010 and further changes will occur after the 2011 referendum.

Investment marketsAs the stock markets went through the worst bear period in a long time, our equity investments in both Kenya and Uganda declined in the year by 15%. As a result we incurred further losses on the value of our equity investment of Shs 440m across the markets. This is on top of losses registered in 2008 of Shs 810 m This is not unexpected but as we said last year the fundamentals of the companies in which we invested in were still strong and it was only a matter of time before these investments bounced back. That has now happened and we have recouped at least Shs 458 million by April 2010 hence boosting our assets and net assets. We expect further recovery during the year as the NSE index climbs further.

While the stock market was doing so badly our investment diversification strategy helped our performance during the year. With three buildings in Kenya and one in Uganda our property developments in the last few years ensure that we now have a steady flow of income. The total rental income in 2009 was Shs 191m compared to Shs 143 in 2008. We expect to continue with this investment diversification in Kenya, Uganda and Sudan.

Business PerformanceIn 2008 our total premiums crossed the Shs 3 billion mark. In 2009 we have crossed the Shs 4 billion mark after an overall growth of 22%. This growth is above the average growth of the industry of about 15% and about 10% for the General insurance business which forms over 90% of our business. This growth excludes about Shs 400 million of investment and deposit administration premiums in our life business which are not classified as premiums under International Financial Reporting Standards.

This means we continue to gain market share. For example in Kenya with a growth of 24% of general premiums we have now reached a

market share of about 8% making us one of the three largest general underwriters in Kenya. Our business in Kenya forms over 70% of the total Group premiums. Uganda contributed 21% while Sudan delivered over 6%. Life premiums in Kenya registered a marginal decline while growth was 17% in Uganda and 28% in Sudan. We are developing more risk products in Life which will see the Life insurance premiums grow as a share of our total premiums. We also continue to invest in capacity to grow Life business.

The total premiums were shared as follows; 18% (2008: 20%) was ceded to re-insurers; 43% (2008: 30%) was paid to clients in claims; 13% (2008: 14%) was paid to intermediaries as commissions and 29% (2008: 29%) was paid out as expenses including staff expenses of 11% (2008: 11%). We recovered about 4% (2008: 6%) from re-insurers in form of commissions and claims reimbursement 5% (2008: 5%). A key change to be noted here is the increase in our premium retention owing to our growing financial strength. Through our partner we have put in place a comprehensive reinsurance program with possibly the highest capacity to underwrite risks in our markets. It also covers not only traditionally insured risks but new type of risk such as political risks and small scale index based risks which are contributing to our innovation.

KenyaIn Kenya total general business premiums grew by 24% to Shs 3.1 billion and life premiums declined marginally to remain just above Shs 200m excluding the Shs 459m of investment and deposit administration premiums. Total premiums in Kenya represent 72% of total Group premiums. Of these premiums 17% was ceded to re-insurers, 54% went to pay claims, 26% to pay expenses and 13% to pay commissions to intermediaries. Of the 17% of premiums ceded to re-insurers 4% was recovered as re-insurance commissions and 4% was received as claims recoveries.

Group Managing Director’s Report (continued)

Group Managing Director’s Report (continued)



I am confident that we now have the best team in the market to drive our business forward and commit that we will continue developing this team through training, mentoring, coaching and competitive remuneration.

During the year we spent over Shs 12 million on staff training and another Shs 32 million on staff welfare. Some of the highlights include a management development programme for senior managers; three managers attended the prestigious Advanced Management Programme (AMP) of Strathmore Business School and IESE Business School. All our managers and middle management staff attended a one year staff development training at Strathmore Business School. We are currently sponsoring another senior manager in AMP in 2010 making a total of 9 managers who have now gone through this training.

AchievementsWe continued to record various achievements with some of the highlights in 2009 being;We successfully de-merged UAP Life Assurance from UAP Insurance in KenyaWe have maintained our ISO certification in both Kenya and UgandaWe have also maintained a strong credit rating in both Kenya and Uganda, AA- minus in Kenya which remains the highest rating to an insurance company in the regionFiRe award – we again won a FiRe award for the seventh time in a row – winner of the best presented financial statements in the insurance industry.

Future prospectsWe are still facing significant challenges in the hard economic environment we are operating in, but expect that as the economy recovers we will share in the benefits of recovery. With marked readjustment, we believe that the stock markets will return to full recovery though investment income may not grow as fast. Even then, low prices present an opportunity to make further investments in the stock market.

We expect to exploit new opportunities that are expected to arise in the region mainly from the EAC integration. We will still continue to develop new products, expand into new markets and innovate distribution mechanisms while strengthening and supporting existing ones as part of our overall business strategy.

AppreciationI would like to thank all our staff for the commitment and effort made in achieving the good performance. I also recognise and appreciate the Board input and guidance into running our business and I want to pay special tribute to our business partners and particularly intermediaries who continue to support us in a great way. We do not take this for granted.

Finally I thank our shareholders for your continued support.

James Muguiyi Group Managing Director3 May 2010

My health is my life.Group Managing Director’s Report (continued)





The UAP Group is committed to adhering to the highest standards of good corporate governance at all levels of its operations. This commitment is rooted in our core values and beliefs. We have put in place elaborate governance processes which comply with best practice as set out in various codes on Corporate Governance.

Board of directorsBoard charter and work planThe Board Charter contains provisions that ensure that the Board observes best practice in corporate governance and contains among other things; the size, role and functions of the Board; appointments, induction and tenure of directors and Board performance evaluation and remuneration of directors.

The Work Plan has a formal schedule of matters specifically reserved for the Board’s attention to ensure it exercises full control over all significant matters. It sets out the schedule of meetings of the Board and its committees and the main business to be dealt with at those meetings. Additional meetings are scheduled when need arises.

Board composition and appointmentsThe Board consists of seven directors, one of whom are executive and six are non-executive. Three of the non-executive directors are also considered independent directors. The Board is composed of directors with a good mix of skills, experience and competencies in the relevant fields of expertise and is well placed to take the business forward. Appointments to the Board are made after careful consideration of these factors. All directors have a fixed tenure of office and are required to retire at least every three years with a provision for re-election. Detailed information on directors, their qualifications and experience is provided on page 2 - 3.

Board meetings; information for directors and board performance evaluationThe full Board meets at least four times a year. The Board deals with all significant matters including strategic direction for the company and Group; ensuring competent management of the business; internal control; compliance with laws and regulations and reporting performance to shareholders.

The directors are given appropriate and timely information on key activities of the business regularly and on request in order to carry out their roles. Specifically the directors are provided with all available information in respect of items to be discussed at a meeting of the Board or committee prior to the meeting. They may also seek independent professional advice, at Company expense, concerning the affairs of the Group in consultation with the Group Managing Director and the Group Company Secretary. The Board regularly commissions a board performance evaluation that is done independently

by a certified professional organisation and the report is used to improve the Board’s performance.

Separation of role of chairman from chief executiveThe Group Chairman is responsible for managing the Board and providing leadership to the Group while the Group Managing Director is responsible to the Board for strategically overseeing and managing the business units in the UAP Group in accordance with instructions given by the Board. The Group Managing Director directs the implementation of Board decisions and instructions and the general management of the business units with the assistance of the chief executives and management teams.

Conflicts of interestThe directors of the company are under a fiduciary duty to act honestly and in the best interests of the company. UAP has put in place a policy to ensure that directors avoid putting themselves in positions where their self interests’ conflict with their duty to act in the best interests of the company and make an annual written declaration of any conflicts that may have arisen in the year. This policy provides that directors, their immediate families and companies where directors have interests must not transact business with UAP without express approval from the Board. Any such business transacted with UAP must be at arms length, fully disclosed to the Board which must consider and approve it. A director must refrain from discussion or voting on matters of potential conflict of interests.

Committees of the boardSubject to fundamental, strategic, policy and formal matters reserved for its decision, the Board has delegated some of its responsibilities to a number of standing committees in the subsidiaries which operate within defined terms of reference laid down by the Board. Three new board committees were established following the formation of a group organisational structure. The Board has three standing committees and one ad hoc committee as follows;

Executive committeeThe Executive committee meets four times a year or as needed. Its main function is to review issues of strategic interests and general policy. In this respect the committee looks at all issues with significant impact on the Company and Group including mergers and acquisitions, business development and cross border business development. Current members of the committee are Mr James Mworia (Chairman) - representing Centum Investment Co Limited, Dr JB Wanjui cbs, CJ Kirubi EBS, and JN Muguiyi.

Group Strategy and Finance CommitteeThe main function of the Group Strategy and Finance committee is to receive and consider the Group’s annual budget, formulation of the Group’s

Corporate Governance Statement Corporate Governance Statement(continued)

investment policy and monitoring the overall financial and operational performance of the Group. The committee also reviews and recommends investments plans and any rationalisation of the business. The Chief Executives present their annual business review reports to this committee. Current members of the committee are: - CJ Kirubi (Chairman) ebs, Dr JB Wanjui cbs, J Muguiyi and Centum Investments Co. Limited.

Group Audit and Risk committeeThe responsibilities of this Committee include review of the Group’s financial information and annual financial statements, evaluation of overall compliance and maintaining an oversight on internal controls systems in the Group in liaison with the internal and external auditors. Current members of the committee are Centum Investments Co. Limited (Chair) and CJ Kirubi. The Group Managing Director, the Risk & Compliance Manager, the Internal Auditor and the Group Company Secretary attend all meetings of the committee. External auditors attend as required and are entitled to meet the committee without the presence of executive directors.

Group Nominations and Corporate Governance CommitteeThe committee meets twice a year or as required and is responsible for reviewing and vetting Board and committee appointments, monitoring and appraising the performance of the chief executives, including the Group Managing Director, review of the overall Group human resource policy and making recommendations to the Board on the remuneration of non-executive directors. The committee also maintains an oversight of the overall corporate governance policy and application of best practices in governance.

Group ICT CommitteeThe Group ICT committee is an ad-hoc committee whose function is to review the Group ICT strategy, its implementation and effective ICT application to enhance business efficiencies and enable business functions in the Group. This also includes development of a risk management policy on disaster preparedness and recovery plan. The committee is populated with ICT expertise. Current members of the committee are: - Centum Investments Co. Limited (Chair), Kamau Kuria and the Chief Information Officer.

Conduct of Business and Performance ReportingThe Group’s business is conducted in accordance with a carefully formulated strategy, annual business plans and budgets which set out very clear objectives. Roles and responsibilities have been clearly defined with approved authority being delegated. Performance against the objectives is reviewed and discussed monthly and quarterly by the management teams in the Group. The Chief Executives and their respective Management teams prepare annual

business review report which is presented to the Group Strategy and Finance Committee. Any issues arising are discussed by the full Board. In this way performance trends, forecasts as well as actual performance against budgets and prior periods are closely monitored.

Compliance with lawsThe Board is satisfied that the Group has, to the best of their knowledge, complied with all applicable laws and conducted its business affairs in accordance within the law. To the knowledge of the Board no director, employee or agent of the Group acted or committed any indictable offence under the Anti Corruption laws in conducting the business of the Group nor been involved or been used as a conduit for money laundering or any other activity incompatible with the relevant laws.

Group Company SecretaryAll members of the Board have direct access to the Group Company Secretary who is responsible for ensuring that all board procedures, corporate governance policies, rules and regulations are followed.

Accountability, audit and shareholder relationsThe Board recognises its responsibility to present a balanced and understandable assessment of the Group’s financial position and prospects. The Group’s financial statements are prepared in accordance with International Financial Reporting Standards (IFRS) and the requirements of the Companies Act and are audited in accordance with International Auditing Standards. The directors recognise and have confirmed their responsibility over the financial statements and have provided other information in this annual report that they consider useful to shareholders and other stakeholders. All shareholders are invited to the Annual General Meeting and are free to put questions to the Board and the auditors on matters concerning operations and financial statements of the Group. During the year the Board held a shareholders’ briefing session which is intended to be a regular event so as to explain the direction the Company is taking and obtain shareholders views and ideas. This has enriched the company in a great way.



Share holdingFor the year ended 31 December 2009

At 31 December 2009, the top ten shareholders in the Company were:

No. of Holding Shares %1. Bawan Limited 42,834,276 35.70%2. Centum Investment Company Limited 29,070,637 24.23%3. CJ Kirubi 20,172,721 16.81%4. JN Muguiyi 12,604,547 10.50%5. WK Martin 3,495,480 2.91%6. ASG Smith 1,765,811 1.47%7. TMJ Owen-Burke 1,367,062 1.14%8. Sayani Investments 1,194,957 1.00%9. Kikagi Limited 1,054,505 0.88%10. Joseph Kiplangat Lesiew 940,098 0.78%

The shareholders profile as at 31 December 2009 was as follows: No. of No. of Holding Shareholders Shares %Kenyan individual investors 21 45,845,625 38.19%Kenyan institutional investors 4 74,154,375 61.81% 25 120,000,000 100.00%Shares range10,001 to 100,000 3 121,271 0.10%100,001 to 1,000,000 13 6,318,733 5.27%Above 1,000,000 9 113,559,956 94.63% 25 120,000,000 100.00%

The directors’ direct and indirect interest in the ordinary share capital of the Company on 31 December 2009 was as follows:

1. Dr JB Wanjui CBS 42,834,276 35.70%2. Centum Investment Company Limited 29,070,637 24.23%3. CJ Kirubi EBS 20,172,721 16.81%4. JN Muguiyi 12,604,547 10.50%

The total number of shareholders at 31 December 2009 was 25 (2008: 25).

Dr JB Wanjui - CBS James Muguiyi (Chairman) (Group Managing Director)3 May 2010 3 May 2010

My kids are my life.





UAP Holdings Limited (“UAP”) recognises that no business can ultimately survive unless it engages in sustainable practices and takes into consideration the society in which it operates. We are fully committed to ensuring the interests of our clients, employees, shareholders and society are taken care of through our business practices. Our decisions recognise the social and environmental consequences of our activities and not just profits, dividends or other financial factors. We therefore do our business with an eye not just for short term goals but long term sustainability.

To implement the Initiatives that we have established, we recognise the power of partnerships with like-minded organisations and individuals in ensuring long term successful and enduring relationships between our business and the society. We are also not shy of unilateral activities to ensure the long term sustainability of our business and society.

We share some of the highlights below.

Industry sustainabilityWe continue to play our part in supporting the sustainability of the insurance industry which we consider critical in the development of our economies in the region. We support the industry regulator by ensuring a high level of compliance and liaison with the Insurance Regulatory Authority (IRA); we support the industry associations particularly the Association of Kenya Insurers (AKI); we continue to provide high quality training to our staff overseas and locally with a view to growing the industry capacity; we have also established training programmes for our in-house and independent intermediaries. Besides these efforts we also continue developing products that address the growing needs of the market. We continue to use our advertising and public outreach events to educate and empower the public about insurance and are continually involved in efforts to combat insurance fraud. We have also played our part in contributing our ideas in the ongoing review of the Insurance Act that will ensure a more sustainable and successful insurance industry in Kenya as a beacon for the industry in the region.

As a key player in the regional insurance industry, UAP supports the development of risk awareness in the society. There are a number of initiatives that we have established to ensure that the general public takes a keener interest in the risk aspect of their lives and activities in general. There is an inherent cost to the society and our business when risks are not deliberately tackled and for us, it remains a core pillar of our vision of a sustainable business. We hope that other industry players see it as we do and follow suit. We believe that, if we act individually and collectively, risk mitigation behaviour is likely to take root quicker with obvious benefits to our business and our society.

Ethics and integrityUAP depends not only on the skills, abilities and commitments of all employees, but also on their integrity and collective common sense. The five key relationships in which employees participate involve customers, suppliers, fellow employees, shareholders, and the communities in which we operate.

The following commitments serve as the basis for shaping these relationships;

We strive to increase customer satisfaction by providing customers with quality products and services that are innovative and responsive to their requirements.

We treat our suppliers fairly, honestly, and objectively.

We treat employees in a fair and even-handed manner and foster a culture rich in diversity that is based on trust, mutual respect, teamwork, and integrity.

We aggressively pursue growth and profitability objectives, while always keeping ethical standards in the forefront of our activities.In the communities in which we are members, we act ethically and as responsible and responsive corporate citizen in compliance with the law.

Health, safety and employee welfareThe Group considers the health and safety of employees, customers and members of the public very important. UAP therefore aims to ensure throughout all company operations that it achieves the highest, reasonable and practical standards of health and safety.

Through management at all levels the Group has a responsibility to ensure, as far as is reasonably practical, the health, safety and prevention of injuries to all employees whilst at work.

The Group maintains a policy of equal opportunity of employment for all qualified persons and strives to provide all employees with fair terms of engagement and quality training. In response to the challenges presented by HIV/AIDS the Group has put in place a policy on dealing with HIV/AIDS and a HIV/AIDS wellness programme. The total annual cost of this programme is Shs 5 million. The programme is built on non-discrimination and is designed to support employees who may be infected or affected, in addition to providing continuous training to all staff on the disease and its consequences.

In 2009 we spent over Shs 73 million on staff welfare including Shs 22 million on training, Shs 16 million on medical and the balance on other staff welfare such as sports events, team building, office refreshments and

various staff awards and other activities. This reflects our deep commitment to our staff.

Corporate social responsibilitySupporting the communities in which we operate is aligned with our corporate objectives. In fact it enhances our capacity to meet our performance objectives and makes our business more sustainable. This is in line with our Corporate Social responsibility (CSR) policy. Under this policy we target to spend at least 1% of previous year’s profits on our CSR programme. During 2009 we spent Shs 7 million. We plan to spend a similar amount in 2010. The theme of our CSR programme is support for sustainable environment and public risk awareness and alleviation. We also provide support to people’s wellbeing especially for disadvantaged or needy people.

Care for the environmentBecause of potential risks of global warming and climate change, environmental sustainability is gaining importance not just for companies that have obvious environmental impact but all forms of human activity. By assessing the risk to our business posed by climate change and other environmental challenges and being proactive about it, UAP will not only ensure its own long term future but build partnerships for sustainable use of natural resources.

In this regard we are proud of three major initiatives;

The annual UAP Ndakaini Half Marathon and tree planting initiativeOur flagship initiative in environmental conservation is support of the sustainability of Thika Dam through the annual UAP Ndakaini Half Marathon and annual tree planting in the Ndakaini area.

This is intended to assist in conservation of the rainwater catchment area for the dam which supplies over 70% of all water consumed in Nairobi. We spent Shs 5 million on the UAP Ndakaini Half Marathon and Shs 700,000 in planting trees around the dam in 2009. We are humbled and encouraged by the way our staff and their families turn out in large numbers consistently to participate in these events. In the last five years we have planted nearly 100,000 trees and plan to eventually plant 250,000. Our ambition is to extend this tree planting to other parts of the country such as the Mau and Aberdares.

Besides support for the environmental cause, the marathon is a testimony of our support for sports and gives an excellent opportunity to aspiring Kenyans to showcase and improve their sporting prowess. It is now the largest half marathon in the country and has become an important event in the Athletics Kenya calendar.

Electronic Document Management System (EDMS) - paperless officeWe strive to contribute effectively to sustainable environmental practice and structure our operations so that they do not lead or contribute to environmental degradation. In this regard we carried out a carbon footprint assessment of our operations to enable identify areas to improve. One of the key areas is in consumption of paper.

We have invested about Shs 33 Million in the last two years in an Electronic Document Management System which, besides increasing our efficiency, has reduced our consumption of paper as most of our business activities are now paperless. A visit to our offices will show any visitor that we have very little paper on our desks. We hope that this way we will contribute to help conserve forests.

Rehabilitation and Beautification of Road intersectionThis is an initiative we started in 2008 in liaison with the Nairobi City Council to improve the environs within which we operate.

Sustainability and corporate social responsibility report

Sustainability and corporate social responsibility report (continued)





This project started with the adoption and rehabilitation of the road median at the Hurlingham shopping centre and the pedestrian walk way. The rehabilitation has upgraded this section of the city by the improvement and maintenance of the flora and will provide safety for pedestrians through the well marked zebra crossing and walk way. We have extended this program to include the round about at the Mbagathi Way and Langata Road Junction.

Public risk awareness and safety - The Lollipop ProjectOur second pillar of corporate social responsibility is public risk awareness and safety. It is part of our desire to assist in reducing public risks in response to the low levels of public awareness and behaviour following our observation of unnecessary loss of life. Our flagship initiative under this pillar is the Lollipop Project. Under this project we have sponsored pedestrian crossings for school children in five schools in Nairobi at a total cost of Shs 500,000 every year for the last two years.

We intend to build this program and other projects that address the issue of safer road use in the years to come. Ultimately lower risk levels should contribute to a better underwriting performance not just for UAP but for the insurance industry as a whole.

The Talent Pool programmeUnder this programme we are working with universities to select talented young people who get an opportunity to work for UAP during their vacations to obtain practical skills in a business environment. In this way we are creating capacity not for UAP alone but for the industry and the Country as well. We have set aside Shs 2 million for this programme. In 2009 about 12 students participated in the programme. They will be joined by more in 2010.

Other initiativesWe spent another Shs 1.9 million on various other events and sponsorships. Some of the key highlights are:• Providing full scholarship support for three needy but very deserving students at Starehe Boys Centre, Starehe Girls Centre and Kahuhia Girls High

School respectively. We are also involved in mentoring and supporting the performance of these students and participate in their schools activities to encourage them to excel despite their difficult circumstances.

• We provided financial support to various charitable organisations particularly involved in health including the Nairobi and Nyeri hospices; the Nairobi Hospital Children’s Heart Fund and Gertrude’s Garden Children’s Hospital.

We are very proud of our record on carrying our business in a sustainable and socially acceptable manner. We will continue to do this to improve our society and ensure we are around for many years to come enhancing the quality of life in Africa in line with our vision and mission.

JN Muguiyi Group Managing Director3 May 2010

Five year financial highlights

2009 2008 2007 2006 2005 Shs ‘000 Shs ‘000 Shs ‘000 Shs ‘000 Shs ‘000

Gross written premium 4,526,058 3,746,777 2,895,322 2,303,848 2,101,536

Gross earned premium 4, 148,264 3,254,823 2,741,981 2,166,098 2,080,272

Net earned premium 3,338,081 2,511,133 2,084,683 1,587,301 1,519,327Investment and other income 762,393 674,999 1,265,721 991,142 716,273

Total income 4,100,474 3,186,132 3,350,404 2,578,443 2,235,600

Claims and policy owners’ benefits payable (1,951,616) (1,133,110) (973,142) (835,533) (845,103)Commissions and other operating expenses (1,868,369) (1,606,758) (1,250,306) (928,415) (891,240)

Profit before income tax 280,489 446,263 1,126,956 814,495 499,257Income tax expense (80,737) (119,387) (183,071) (116,185) (35,661)

Profit after income tax 199,752 326,876 943,885 698,310 463,596Minority Interest (38,085) (46,651) (60,073) (21,135) 13,259

NET PROFIT ATTRIBUTABLE TO SHAREHOLDERS 161,667 280,225 883,812 677,175 476,855 Dividends 204,000 204,000 402,000 240,000 175,000Bonus issue - - - 350,000 -

Total distributions 204,000 204,000 402,000 590,000 175,000

Total assets 9,827,091 9,430,394 8,477,090 7,527,876 5,273,796Total equity 3,445,910 3,853,409 4,671,898 4,534,781 2,542,526

Sustainability and corporate social responsibility report (continued)

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NOTICE IS HEREBY GIVEN that the second Annual General Meeting of the Company will be held on 25 May 2010 at 12:00 noon at the offices of the Company, 8th floor, Bishop Garden Towers, Bishops Road, Nairobi for the following purposes:

ORDINARY BUSINESS

1. To receive and consider the report of the Directors and the audited balance sheet and accounts of the Company in respect of the year ended 31 December 2009.

2. To approve the proposed final dividend of Shs 1.70 for each ordinary share of Shs 5 on the issued share capital of the Company in respect of the year ended 31 December 2009.

3. To approve the directors’ remuneration for the year ended 31 December 2009 as provided in the Financial Statements and authorize the Board to fix the directors’ remuneration for the year ending 31 December 2010.

4. To elect the directors In accordance with Articles 102, 103 and 104 of the Company’s Articles of Association Dr. Joseph B Wanjui, Chris Kirubi and Centum Investments Co.

Limited retire by rotation from office as Directors of the Company, and being eligible, offer themselves for re-election respectively.

Messrs Gordon Wavamunno, appointed on 22 September 2009 and Philip Coulson and Kamau Kuria both appointed on 22 March 2010 to fill casual vacancies, retire from the Board in accordance with Article 101 and being eligible offer themselves for election as directors of the Company.

5. To authorise the Directors to fix the auditors’ remuneration. PricewaterhouseCoopers continue as auditor of the Company in accordance with Section 159(2) of the Companies Act.

6. To transact any other business which is proper to be transacted at an Annual General Meeting.

Caroline KioniGroup Company Secretary3 May 2010

NOTE:In accordance with Section 136(2) of the Companies Act (Cap. 486) every member entitled to vote at the above meeting is entitled to appoint a proxy to attend and vote on his/her behalf. A proxy need not be a member of the Company. A form of proxy is enclosed and should be returned to the Group Company Secretary, P.O. Box 43013 – 00100, Nairobi, to arrive no later than 48 hours before the meeting or any adjournment thereof.

The directors submit their report together with the audited financial statements for the year ended 31 December 2009 which disclose the state of affairs of the Company and the Group.

Principal activitiesThe Group’s subsidiaries underwrite all classes of life and non-life insurance risks. They also issue investment contracts to provide customers with asset management solutions for their savings and retirement needs, and provide premium financing services.

Group results 2009 2008 Shs’000 Shs’000

Profit for the year 199,752 326,876Profit attributable to shareholders of the company 161,667 280,225

The directors recommend the approval of a first and final dividend of Shs 204 million (2008: Shs 204 million).

DirectorsThe directors of the Company, who held office to the date of this report are:-

Dr. JB Wanjui CBS – ChairmanJN Muguiyi – Group Managing DirectorCentum Investment Holdings Ltd. – (Alternate: James Mworia)CJ Kirubi EBSG Wavamunno (Appointed 22 September 2009)Kamau Kuria (Appointed 22 March 2010)Philip Coulson (Appointed 22 March 2010)

AuditorThe Company’s auditor, PricewaterhouseCoopers, continues in office in accordance with Section 159(2) of the Companies Act.

By order of the Board

Caroline KioniGroup Company Secretary3 May 2010

Annual General Meeting Director’s report





The Kenyan Companies Act requires the directors to prepare financial statements for each financial year that give a true and fair view of the state of affairs of the Company and the Group as at the end of the financial year and the Group’s profit or loss. It also requires the directors to ensure that the Company keeps proper accounting records that disclose, with reasonable accuracy, the financial position of the Company. They are also responsible for safeguarding the assets of the Company.

The directors accept responsibility for the annual financial statements, which have been prepared using appropriate accounting policies supported by reasonable estimates, in conformity with International Financial Reporting Standards and the requirements of the Companies Act. The directors are of the opinion that the financial statements give a true and fair view of the state of the financial affairs of the Company and of the Group and of the Group’s profit in accordance with International Financial Reporting Standards. The directors further accept responsibility for the maintenance of accounting records that may be relied upon in the preparation of financial statements, as well as designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement.

Nothing has come to the attention of the directors to indicate that the Company and its subsidiaries will not remain a going concern for at least twelve months from the date of this statement.

Dr JB Wanjui - CBS (Chairman) JN Muguiyi (Group Managing Director)3 May 2010 3 May 2010

Report on the financial statements We have audited the accompanying consolidated financial statements of UAP Holdings Limited (‘the Company’) and its subsidiaries (together “the Group”) as set out on pages 36 to 88. These financial statements comprise the consolidated balance sheet at 31 December 2009 and the consolidated profit and loss account, consolidated statement of comprehensive income and consolidated statement of cash flows for the year then ended together with the balance sheet of the Company standing alone as at 31 December 2009 and the statement of changes in equity of the Company for the year then ended, and a summary of significant accounting policies and other explanatory notes.

Directors’ responsibility for the financial statementsThe directors are responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards and with the requirements of the Kenyan Companies Act. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.

Auditor’s responsibilityOur responsibility is to express an opinion on the financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform our audit to obtain reasonable assurance that the financial statements are free from material misstatement.

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

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

OpinionIn our opinion the accompanying financial statements give a true and fair view of the state of the financial affairs of the Group and of the Company at 31 December 2009 and of the profit and cash flows of the Group for the year then ended in accordance with International Financial Reporting Standards and the Kenyan Companies Act.

Report on other legal requirementsThe Kenyan Companies Act requires that in carrying out our audit we consider and report to you on the following matters. We confirm that:i) We have obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purposes of our audit;ii) In our opinion proper books of account have been kept by the Company, so far as appears from our examination of those books; andiii) The Company’s balance sheet and profit and loss account are in agreement with the books of account.

Certified Public AccountantsNairobi 3 May 2010

Statement of directors’ responsibilities Report of the independent auditorto the members of UAP Holdings Limited





2009 2008 Notes Shs ’000 Shs ’000

Gross written premium 5 4,526,058 3,746,777

Gross earned premium 5 4,148,264 3,254,823Reinsurance ceded (810,183) (743,690)

Net earned premium 3,338,081 2,511,133

Investment income 6 508,014 381,987Commissions earned 188,140 227,909Other income 7 66,239 65,103

Total income 4,100,474 3,186,132Claims and policy holders’ benefits payable 8 (2,164,748) (1,336,275)Less: Amount recoverable from reinsurers 213,132 203,165

Net claims payable (1,951,616) (1,133,110) Operating and other expenses 9 (1,228,034) (1,046,986)Finance costs 41 (71,290) (38,097)Commissions payable (569,045) (521,676)

Profit before income tax 280,489 446,263 Income tax expense 11 (80,737) (119,387)

Profit for the year 199,752 326,876

Attributable to:Equity holders of the company 161,667 280,225Minority interest 38,085 46,651


Basic and diluted earnings per share (Shs) 13 1.35 2.34

2009 2008 Notes Shs ’000 Shs ’000


Other comprehensive loss:Exchange differences on translating foreign operations (39,643) 67,107Gains/ (losses) on revaluation of equity investments;-quoted ordinary shares 21(i) (341,882) (773,501)-unquoted ordinary shares 21(ii) 764 799Realised gains/(losses) on sale of equity investments 6 (13,946) (87,794)Impairment loss on equity investments 21(i) - 55,208

Total other comprehensive loss (394,707) (738,181)

Total comprehensive loss for the year (194,955) (411,305)

Attributable to:Equity holders of the company (235,554) (483,147)Minority interest 40,599 71,842

Total comprehensive loss for the year (194,955) (411,305)

Consolidated profit and loss account For the year ended 31 December 2009

Consolidated statement of comprehensive income For the year ended 31 December 2009





2009 2008 Notes Shs ’000 Shs ’000CAPITAL EMPLOYEDShare capital 14 600,000 600,000Fair value reserve for equity investments 16 729,400 1,177,513Retained earnings 17 1,629,498 1,582,384Proposed dividend 12 204,000 204,000Translation reserve (52,674) (10,517)Statutory reserve 15 68,048 64,446

Shareholders’ funds 3,178,272 3,617,826Minority interest 267,638 235,583

Total Equity 3,445,910 3,853,409 REPRESENTED BY: AssetsGoodwill 42 50,545 50,545Property and equipment 18 134,260 85,386Intangible assets 19 94,761 77,089Investment properties 20 2,937,800 2,730,244Reinsurers share of insurance liabilities 24 666,987 737,919Mortgage loans receivable 22 54,214 45,389Deferred acquisition costs 26 133,021 93,500Receivables arising out of direct insurance arrangements 619,719 578,363Receivables arising out of reinsurance arrangements 93,437 134,020Current income tax recoverable 57,210 11,235Retirement benefit asset 40 71,693 23,072Corporate bonds 110,402 44,743Other receivables and prepayments 27 364,481 479,340Equity investments 21 2,360,361 2,774,582Government securities 25 1,112,789 912,972Deposits with financial institutions 37 646,549 477,186Cash and bank balances 37 318,862 174,809

Total assets 9,827,091 9,430,394LiabilitiesPayable under deposit administration contracts 30 1,029, 388 742,735Unit - linked investment contracts 31 382,692 202,524Insurance contract liabilities 28 1,773,555 1,493,702Borrowings 41 707,001 705,521Deferred income tax 33 280,340 253,292Unearned premium 32 1,775,369 1,530,598Creditors arising from reinsurance arrangements 112,483 158,979Other payables 34 301,144 445,598Current income tax payable 19,209 44,036

Total liabilities 6,381,181 5,576,985

Net assets 3,445,910 3,853,409

The financial statements on pages 36 to 88 were approved for issue by the board of directors on 3 May 2010 and signed on its behalf by:

Dr JB Wanjui - CBS (Chairman) JN Muguiyi (Group Managing Director)

2009 2008 Notes Shs ’000 Shs ’000CAPITAL EMPLOYED Share capital 14 600,000 600,000Proposed dividend 12 204,000 204,000Retained earnings (144,833) -

Shareholders’ funds 659,167 804,000

REPRESENTED BY: AssetsIntangible assets 19 6,238 -Investment in subsidiaries 23 1,087,871 980,404Prepayments 38,536 -Cash and bank balances 4,464 -

Total assets 1,137,109 980,404

Liabilities Amount due to UAP Insurance Company Limited 39(iii) 473,599 176,404Other payables 4,343 -

Total liabilities 477,942 176,404Net assets 659,167 804,000

Consolidated balance sheet As at 31 December 2009

Company balance sheet As at 31 December 2009





Notes Share Fair value Retained Translation Statutory Proposed Minority Total capital reserves earnings reserve reserve dividends Interest equity Shs’000 Shs’000 Shs’000 Shs’000 Shs’000 Shs’000 Shs’000 Shs’000Year ended 31 December 2008 At start of year 600,000 1,987,383 1,517,087 (57,015) 43,826 402,000 178,617 4,671,898Comprehensive income/(loss) for the year:Profit for the year - - 280,225 - - - 46,651 326,876Other comprehensive income/(loss): Gains/(losses) on revaluation of equity investments -quoted ordinary shares - (778,083) - - - - 4,582 (773,501)-unquoted ordinary shares - 799 - - - - - 799Realised gains on sale of shares - (87,794) - - - - - (87,794)Impairment of equity investments - 55,208 - - - - - 55,208Currency translation differences - - - 46,498 - - 20,609 67,107

Total other comprehensive income - (809,870) - 46,498 - - 25,191 (738,181)

Total comprehensive income for the year - (809,870) 280,225 46,498 - - 71,842 (411,305)Transfer to statutory reserve (10,928) 20,620 (9,692) - Transactions with ownersDividends:- Final for 2007 paid - - - - (402,000) (402,000)- Proposed final for 2008 12 - - (204,000) - 204,000 - -Dividend paid to minority shareholders - - - - - - (5,184) (5,184)

Total transactions with owners - - (204,000) - - (198,000) (5,184) (407,184)

At end of year 600,000 1,177,513 1,582,384 (10,517) 64,446 204,000 235,583 3,853,409

Consolidated statement of changes in equityAttributable to equity holders of the Company

Consolidated statement of changes in equityAttribute to equity holders of the Company

(continued)

Notes Share Fair value Retained Translation Statutory Proposed Minority Total capital reserves earnings reserve reserve dividends Interest equity Shs’000 Shs’000 Shs’000 Shs’000 Shs’000 Shs’000 Shs’000 Shs’000Year ended 31 December 2009 At start of year 600,000 1,177,513 1,582,384 (10,517) 64,446 204,000 235,583 3,853,409

Transfer of fair value reserves to retained earnings on early adoption of IFRS 2(a) - (93,049) 93,049 - - - - -

Adjusted balances after early adoption of IFRS 9 Comprehensive income/(loss) for the year: 600,000 1,084,464 1,675,433 (10,517) 64,446 204,000 235,583 3,853,409Profit for the year - - 161,667 - - - 38,085 199,752Other comprehensive income/(loss): Gains/(losses) on revaluation of equity investments -quoted ordinary shares - (341,882) - - - - - (341,882)-unquoted ordinary shares - 764 - - - - - 764Realised gains on sale of shares - (13,946) - - - - - (13,946)Currency translation differences - - - (42,157) - - 2,514 (39,643)

Total other comprehensive income/(loss) - (355,064) - (42,157) - - 2,514 (394,707)

Total comprehensive income/(loss) for the year - (355,064) 161,667 (42,157) - - 40,599 (194,955)Net transfer to statutory reserve - - (3,602) - 3,602 - - -Transactions with owners, Dividends: - Final for 2008 paid 12 - - - - - (204,000) - (204,000)- Proposed final for 2009 12 - - (204,000) - - 204,000 - -Dividend paid to minority shareholders - - - - - - (8,544) (8,544)

Total transactions with owners - - (204,000) - - - (8,544) (212,544)

At end of year 600,000 729,400 1,629,498 (52,674) 68,048 204,000 267,638 3,445,910

3.) 16. Fair value reserve for equity investments

Movements in the fair value reserve are shown in the statement of changes in equity on pages 40 and 43 comparative figures for year 2008 should read as follows:





Notes Share Retained Proposed capital earnings dividends Total

Shs’000 Shs’000 Shs’000 Shs’000Year ended 31 December 2009At start of year 600,000 - 204,000 804,000Comprehensive income for the year:Profit for the year - 59,167 - 59,167Other comprehensive income - - - -

Total comprehensive income for the year - 59,167 - 59,167

Transactions with ownersDividends:- Final for 2008 paid 12 - - (204,000) (204,000)- Proposed Final for 2009 12 - (204,000) 204,000 -

Total transactions with owners - (204,000) - (204,000)

At end of year 600,000 (144,833) 204,000 659,167

Year ended 31 December 2008 At start of year - - - -Comprehensive income for the year:Profit for the year - 204,000 - 204,000Other comprehensive income - - - -

Total comprehensive income for the year - 204,000 - 204,000

Transactions with owners Issue of capital 600,000 - - 600,000Dividends:- Proposed final for 2008 12 - (204,000) 204,000 -

Total transactions with owners 600,000 (204,000) 204,000 600,000

At end of year 600,000 - 204,000 804,000

2009 2008 Notes Shs ’000 Shs ’000Operating activities Cash generated from operations 38 799,786 753,721Tax paid (124,491) (43,662)

Net cash generated from operating activities 675,295 710,059

Investing activitiesPurchase of property and equipment 18 (102,214) (76,084)Purchase of intangible assets 19 (23,632) (7,964)Net purchase of government securities (210,718) 99,684Purchase of equity investments 21 (25,924) (1,100,560)Net purchase of corporate bonds (65,659) -Purchase of investment properties 20 (83,149) (193,230)Proceeds from the Kenya Motor Insurance Pool - 16,138Net mortgage loans advanced 22 (8,825) (2,627)Proceeds from disposals of property and equipment 577 750Proceeds from sale of equity investments 52,791 217,426Rent, interest and dividends received 325,706 304,735

Net cash used in investing activities (141,047) (741,732)

Financing activities Dividends paid (204,000) (402,000)Proceeds from borrowings 41 - 700,000Repayments on interest costs on borrowings 41 (69,810) (32,576)

Net cash (used in) / from financing activities (273,810) 265,424

Increase in cash and cash equivalents 260,438 233,751

Movement in cash and cash equivalents At 1 January 37 729,123 495,372 Increase during the year 260,438 233,751

At 31 December 37 989,561 729,123

Company statement of changes in equity Consolidated statement of cash flowsFor the year ended 31 December 2009





1. General informationThe Company is incorporated in Kenya under the Companies Act as a limited liability company, and is domiciled in Kenya. The address of its registered office is Bishops Garden Towers, Bishops Road, P.O. Box 43013 - 00100 Nairobi. The Company has four subsidiary companies that operate as insurance companies and one subsidiary company, UAP Credit Services Limited that provides insurance premiums financing services. Two of the Company’s insurance subsidiaries are short term (“general”) insurance companies, one is a long term (“life”) insurance company and one is a composite insurance company selling both general and life insurance. Long term business comprises life assurance business, deposit administration business and investment contracts.

Life assurance business relates to the underwriting of risks relating to death of an insured person, and includes contracts subject to the payment of premiums for a term dependent on the termination or continuance of the life of an insured person. Short term (general) insurance business relates to all other categories of short term insurance business, analysed into several sub-classes of business based on the nature of the assumed risks. UAP Credit Services Limited provides premium financing services to policyholders of the Group’s Kenyan insurance companies.

2. Summary of significant accounting policiesThe principal accounting policies adopted in the preparation of these financial statements are set out below. These policies have been consistently applied to all years presented, unless otherwise stated. (a) Basis of preparationThe financial statements are prepared in accordance with International Financial Reporting Standards (IFRS). The measurement basis applied is the historical cost basis, except where otherwise stated in the accounting policies set out below. The financial statements are presented in the functional currency, Kenya Shillings (Shs), rounded to the nearest thousand.

The preparation of financial statements in conformity with IFRS requires the use of estimates and assumptions. It also requires management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or where assumptions and estimates are significant to the financial statements, are disclosed in Note 3.

Adoption of new and revised standards

(i) New accounting standards and amendments to existing standards adopted by the Group

IAS 1 (revised), ‘Presentation of financial statements’ – effective 1 January 2009. The revised standard prohibits the presentation of items of income and expenses (that is, ‘non-owner changes in equity’) in the statement of changes in equity, requiring ‘non-owner changes in equity’ to be presented separately from owner changes in equity in a statement of comprehensive income. As a result, the Group presents in the consolidated statement of changes in equity all owner changes in equity, whereas all non-owner changes in equity are presented in the consolidated statement of comprehensive income. Comparative information has been re-presented so that it also is in conformity with the revised standard. Since the change in accounting policy only impacts presentation aspects, there is no impact on earnings per share. IFRS 7, ‘Financial Instruments – Disclosures’ (amendment) – effective 1 January 2009. The amendment requires enhanced disclosures about fair value measurement and liquidity risk. In particular, the amendment requires disclosure of fair value measurements by level of a fair value measurement hierarchy. The adoption of the amendment results in additional disclosures but does not have an impact on the measurement basis adopted by the Group.

IFRS 9, ‘Financial instruments’ - effective 1 January 2013. The Group has early adopted IFRS 9, which addresses classification and measurement of financial assets. IFRS 9 replaces the multiple classification and measurement models in IAS 39, ‘Financial instruments: Recognition and Measurement’, with a single model that has only two classification categories: amortised cost and fair value. IFRS 9 represents the first milestone in the IASB’s planned replacement of IAS 39. The Group early adopted this standard with effect from 12 November 2009, when the standard was issued. The early adoption of this standard has had the following effects on these financial statements: • Two of the Group’s subsidiaries have elected to present the fair value

changes in equity investments through other comprehensive income. This election is irrevocable. Following this change, the consolidated profit for the year has increased by Shs 36 million mainly as a result of impairment that would have been recognised at 31 December 2009, had the Group not early adopted IFRS 9. Following this election, the Group

Notes to the financial statements

will no longer be able to recycle realised gains/losses on sale of equity investments through profit or loss for the portfolio of equity investments

held by the two subsidiaries. As no equity investments were disposed off after the adoption of IFRS 9, this requirement has had no effect on the Group’s financial statements.

• Two of the Group’s subsidiaries have elected to present the fair value changes in equity investments through profit and loss. This election is irrevocable. Following this change, the consolidated profit for the year has increased by Shs 8 million as a result of net fair value gains in the current year transferred from equity to profit and loss, net of the impairment that would have been recognised at 31 December 2009, had the Group not early adopted IFRS 9.

• The Group’s other financial assets continue to be classified at amortised cost and have not been significantly affected by the early adoption of IFRS 9.

As permitted by IFRS 9 for those entities adopting IFRS 9 for annual periods beginning 1 January 2012, comparatives in these financial statements have not been restated on early adoption of the standard.

Further details on the Group’s classification and measurement of its financial assets are presented in note 2 (i).

(ii) Standards, amendments and interpretations to existing standards effective in 2009 but not relevant

IFRS 8, ‘Operating segments’ – effective 1 January 2009. IFRS 8 replaces IAS 14, ‘Segment reporting’. The new standard requires a ‘management approach’, under which segment information is presented on the same basis as that used for internal reporting purposes. It is relevant for entities whose debt or equity instruments are traded in a public market or files financial statements with a securities commission for the purpose of issuing any class of instruments in a public market.

IFRS 2 (amendment), ‘Share-based payment’ - effective from 1 January 2009. It clarifies that vesting conditions are service conditions and performance conditions only. All cancellations, whether by the entity or by other parties, should receive the same accounting treatment.

IAS 23 (amendment), ‘Borrowing costs’ - effective from 1 January 2009. The amendment requires an entity to capitalise borrowing costs directly attributable to the acquisition, construction or production of a qualifying

asset (one that takes a substantial period of time to get ready for use or sale) as part of the cost of that asset.

(iii) Standards, amendments and interpretations to existing standards that are not yet effective and have not been early adopted by the Group

Two revised standards (IFRS 3 – Business combinations and IAS 27 – Consolidated and separate financial statements) and numerous amendments to existing standards and new interpretations have been published and will be effective for the Group’s accounting periods beginning on or after 1 January 2010, but the Group has not early adopted any of them.The Directors have assessed the relevance of the new standards, interpretations, and amendments to existing standards with respect to the Group’s operations and concluded that they will not have a significant impact on the Group’s financial statements.

b) Insurance contracts

a) Classification The Group issues contracts that transfer both insurance risk and financial risk. Insurance contracts are those contracts that transfer significant insurance risk. Such contracts may also transfer financial risk. As a general guideline, the Group defines as significant insurance risk, the possibility of having to pay benefits on the occurrence of an insured event that are at least 10% more than the benefits payable if the insured event did not occur. Investment contracts are those contracts that transfer financial risk with no significant insurance risk. The accounting policy for these contracts is set out under Note 2(d).

Insurance contracts are classified into two main categories, depending on the duration of risk and as per the provisions of the Insurance Act: long term insurance business and short term insurance business.

i) Long term insurance business Includes business of all or any of the following classes, namely; group

life business, ordinary life business, deposit administration business and unit linked business.

Life insurance business means the business of, or in relation to, the issuing

of, or the undertaking of liability to pay money on death (not being death by accident or in specified sickness only) or on the happening of any contingency dependent on the termination or continuance of human life (either with or without provision for a benefit under a continuous disability insurance contract), and include a contract which is subject to the payment of premiums for term dependent on the termination or

Notes to the financial statements(continued)





continuance of human life and any contract securing the grant of an annuity for a term dependent upon human life.

Superannuation business means life assurance business, being business of, or in relation to, the issuing of or the undertaking of the liability under superannuation, group life and permanent health insurance policy.

ii) Short term insurance business Means insurance business of any class or classes not being long term

insurance business. Classes of General Insurance include Aviation insurance, Engineering insurance, Fire insurance - domestic risks, Fire insurance - industrial and commercial risks, Liability insurance, Marine Insurance, Motor insurance - private vehicles , Motor insurance - commercial vehicles, Personal accident insurance, Theft insurance ,Workmen’s Compensation and Employer’s Liability insurance and Miscellaneous insurance (i.e. class of business not included under those listed above)

Motor insurance business means the business of affecting and carrying out contracts of insurance against loss of, or damage to, or arising out of or in connection with the use of, motor vehicles, inclusive of third party risks but exclusive of transit risks.

Personal accident insurance business means the business of affecting and carrying out contracts of insurance against risks of the persons insured sustaining injury as the result of an accident or of an accident of a specified class or dying as the result of an accident or of an accident of a specified class or becoming incapacitated in consequence of disease or of disease of a specified class.

Fire insurance business means the business of affecting and carrying out contracts of insurance, otherwise than incidental to some other class of insurance business against loss or damage to property due to fire, explosion, storm and other occurrences customarily included among the risks insured against in the fire insurance business.

b) Recognition and measurementi) Premium income For long term insurance business, premiums are recognised as revenue

when they become payable by the contract holder. Premiums are shown before deduction of commission.

For short term insurance business, premium income is recognised on assumption of risks, and includes estimates of premiums due but not yet received less unearned premium. Unearned premiums represent the

proportion of the premiums written in periods up to the accounting date that relates to the unexpired terms of policies in force at the balance sheet date, and is computed using the 365ths method. Premiums are shown before deduction of commission and are gross of any taxes or duties levied on premiums.

ii) Claims For long term insurance business, benefits are recorded as an expense

when they are incurred. Claims arising on maturing policies are recognised when the claim becomes due for payment. Death claims are accounted for on notification. Surrenders are accounted for on payment.

For short term insurance business, claims incurred comprise claims paid in the year and changes in the provision for outstanding claims. Claims paid represent all payments made during the year, whether arising from events during that or earlier years. Outstanding claims represent the estimated ultimate cost of settling all claims arising from incidents occurring prior to the balance sheet date, but not settled at that date. Outstanding claims are computed on the basis of the best information available at the time the records for the year are closed, and include provisions for claims incurred but not reported (“IBNR”). Outstanding claims are not discounted.

iii) Commissions payable and deferred acquisition costs (“DAC”) Commissions payable are based on the premium written and are recorded

as an expense in the period in which they are incurred

A proportion of commissions payable is deferred and amortised over the period in which the related premium is earned. Deferred acquisition costs represent a proportion of acquisition costs that relate to policies that are in force at the year end.

iv) Liability adequacy test At each balance sheet date, liability adequacy tests are performed to ensure

the adequacy of the insurance contract liabilities net of related DAC. In performing these tests, current best estimates of future contractual cash flows and claims handling and administration expenses, as well as investment income from the assets backing such liabilities, are used. Any deficiency is immediately charged to profit or loss.

v) Reinsurance contracts held Contracts entered into by the Group with reinsurers under which the

Group is compensated for losses on one or more contracts issued by the Group and that meet the classification requirements for insurance contracts are classified as reinsurance contracts held. Contracts that

do not meet these classification requirements are classified as financial assets. Insurance contracts entered into by the Group under which the contract holder is another insurer (inwards reinsurance) are included with insurance contracts.

The benefits to which the Group is entitled under its reinsurance contracts held are recognised as reinsurance assets. These assets consist of short-term balances due from reinsurers, as well as longer term receivables that are dependent on the expected claims and benefits arising under the related reinsured insurance contracts. Amounts recoverable from or due to reinsurers are measured consistently with the amounts associated with the reinsured insurance contracts and in accordance with the terms of each reinsurance contract. Reinsurance liabilities are primarily premiums payable for reinsurance contracts and are recognised as an expense when due.

The Group assesses its reinsurance assets for impairment on a quarterly

basis. If there is objective evidence that the reinsurance asset is impaired, the Group reduces the carrying amount of the reinsurance asset to its recoverable amount and recognises that impairment loss in the income statement. The Group gathers the objective evidence that a reinsurance asset is impaired using the same process adopted for financial assets held at amortised cost. The impairment loss is also calculated following the same method used for these financial assets. These processes are set out under Note 2(j)

vi) Receivables and payables related to insurance contracts and investment contracts

Receivables and payables are recognised when due. These include amounts due to and from agents, brokers and insurance contract holders.

If there is objective evidence that the insurance receivable is impaired, the Group reduces the carrying amount of the insurance receivable accordingly and recognises that impairment loss in the income statement. The Group gathers the objective evidence that an insurance receivable is impaired using the same process adopted for loans and receivables. The impairment loss is also calculated under the same method used for these financial assets. These processes are described under Note 2 (j).

vii) Salvage and subrogation reimbursements Some insurance contracts permit the Group to sell (usually damaged)

property acquired in settling a claim (for example, salvage). The Group may also have the right to pursue third parties for payment of some or all costs (for example, subrogation).

Estimates of salvage recoveries are included as an allowance in the measurement of the insurance liability for claims, and salvage property

is recognised in other assets when the liability is settled. The allowance is the amount that can reasonably be recovered from the disposal of the property.

Subrogation reimbursements are also considered as an allowance in the measurement of the insurance liability for claims and are recognised in other assets when the liability is settled. The allowance is the assessment of the amount that can be recovered from the action against the liable third party.

(c) Revenue recognitioni) Insurance premium revenue The revenue recognition policy relating to insurance contracts is set out

under note 2 (b) above

ii) Commissions Commissions receivable are recognised as income in the period in which

they are earned.

iii) Interest income Interest income is recognised on a time proportion basis that takes into

account the effective yield on the asset. When a receivable is impaired, the Group reduces the carrying amount to its recoverable amount, being the estimated future cash flow discounted at the original effective interest rate of the instrument, and continues unwinding the discount as interest income.

iv) Dividend income Dividends are recognised as income in the period in which the right to

receive payment is established.

v) Rental income Rental income is recognised as income in the period in which it is earned. All investment income is stated net of investment expenses.

vi) Fee income Fee income consists primarily of administration fees arising from

services rendered in relation to the issue and management of deposit administration and investment contracts. Fees are recognised in the accounting period in which the services are rendered and are presented in the profit and loss account within ‘other income’.







d) Investment contractsThe Group issues investment contracts without fixed terms (unit-linked) and investment contracts with fixed and guaranteed terms (fixed interest rate). The investment contracts include funds administered for a number of retirement benefit schemes.

Investment contracts without fixed terms are financial liabilities whose fair value is dependent on the fair value of underlying financial assets, and are designated at inception as at fair value through profit or loss. The Group designates these investment contracts to be measured at fair value through profit and loss because it eliminates or significantly reduces a measurement or recognition inconsistency (sometimes referred to as ‘an accounting mismatch’) that would otherwise arise from measuring assets or liabilities or recognising the gains and losses on them on different bases.

The best evidence of the fair value of these financial liabilities at initial recognition is the transaction price (i.e. the fair value received) unless the fair value of that instrument is evidenced by comparison with other observable current market transactions in the same instrument or based on a valuation technique whose variables include only data from observable markets. When such evidence exists, the Group recognises profit on day1. The fair value of financial liabilities for investment contracts without fixed terms is determined using the current unit values in which the contractual benefits are denominated. These unit values reflect the fair values of the financial assets contained within the Group’s unitised investment funds linked to the financial liability. The fair value of the financial liabilities is obtained by multiplying the number of units attributed to each contract holder at the balance sheet date by the unit value for the same date.

For investment contracts with fixed and guaranteed terms, the amortised cost basis is used. In this case, the liability is initially measured at its fair value less transaction costs that are incremental and directly attributable to the acquisition or issue of the contract.

Subsequent measurement of investment contracts at amortised cost uses the effective interest method. This method requires the determination of an interest rate (the effective interest rate) that exactly discounts to the net carrying amount of the financial liability, the estimated future cash payments or receipts through the expected life of the financial instrument or, when appropriate, a shorter period if the holder has the option to redeem the instrument earlier than maturity.

The Group re-estimates at each reporting date the expected future cash flows and recalculates the carrying amount of the financial liability by computing

the present value of estimated future cash flows using the financial liability’s original effective interest rate. Any adjustment is immediately recognised as income or expense in the profit and loss account.

e) Property and equipmentAll categories of property and equipment are initially recorded at cost and subsequently stated at historical cost less depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance costs are charged to the profit and loss account during the financial period in which they are incurred.

Depreciation is calculated using the straight line method to write down their cost to their residual values over their estimated useful lives, as follows:

• Equipment and motor vehicle 3 - 8 years The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date.An asset’s carrying amount is written down immediately to its estimated recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount.

Gains and losses on disposal of property and equipment are determined by comparing proceeds with carrying amount and are included in the profit and loss account.

f ) Investment propertiesBuildings, or part of a building, (freehold or held under a finance lease) and land (freehold or held under an operating lease) held for long term rental yields and/or capital appreciation and are not occupied by the Group are classified as investment property under non-current assets. Investment property is carried at fair value, representing open market value determined annually by external valuers. Changes in fair values are included in investment income in the profit and loss account.

g) Intangible assets The Group’s intangible assets relate to computer software. Acquired computer software licences are capitalised on the basis of the costs incurred to acquire and bring to use the specific software. These costs are amortised over their estimated useful lives of three years.

Costs associated with developing or maintaining computer software programmes are recognised as an expense as incurred. Costs that are directly associated with the production of identifiable and unique software products controlled by the Group, and that will probably generate economic benefits exceeding costs beyond one year, are recognised as intangible assets. Direct costs include the software development employee costs and an appropriate portion of relevant overheads.

Computer software development costs recognised as assets are amortised over their estimated useful lives (not exceeding three years).

h) Impairment of non-financial assetsAssets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Non-financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at each reporting date.

(i) Financial assets Classification and measurement - 2009 Following the early adoption of IFRS9, the Group classifies its financial

assets as subsequently measured at either amortised cost or fair value on the basis of both the Group’s business model for managing the financial assets and the contractual cash flow characteristics of the financial asset.

A financial asset is measured at amortised cost if both of the following conditions are met:

a) the asset is held within a business model whose objective is to hold assets in order to collect contractual cash flows; and

b) the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

The Group’s corporate bonds, government securities, receivables and mortgage loans are classified at amortised cost. Financial assets in this class had a total carrying value of Shs 3,932,919,000 at 31 December 2009.

All financial assets that do not meet the above criteria are measured at fair value. The Group’s equity investments are classified at fair value. These investments had a carrying value of Shs 2,360,361,000 at 31 December 2009.

Classification and measurement - 2008 In 2008, the Group classified its financial assets in accordance with the

classification criteria of IAS 39 – Financial Instruments: Recognition and Measurement, as follows:

(i) Financial assets at fair value through profit or loss This category had two sub-categories: financial assets held for trading,

and those designated at fair value through profit or loss at inception. A financial asset was classified as held for trading if acquired principally for the purpose of selling in the short term. Derivatives were also categorised as held for trading. Financial assets were designated at fair value through profit or loss when:

• doing so significantly reduced or eliminates a measurement inconsistency; or

• they formed part of a group of financial assets that is managed and evaluated on a fair value basis in accordance with a documented risk management or investment strategy and reported to key management personnel on that basis.

In 2008, a portfolio of the Group’s equity investments with a carrying value of Shs 488,332,000 was classified under this category.

(ii) Loans and receivables Loans and receivables were non-derivative financial assets with fixed or

determinable payments that were not quoted in an active market, other than: (a) those classified as held for trading and those that the Group on initial recognition designated as at fair value through profit and loss; (b) those that the Group upon initial recognition designated as available-for-sale; or (c) those for which the holder may not recover substantially all of its initial investment, other than because of credit deterioration.







In 2008, loans advanced to staff, receivables arising out of direct and reinsurance arrangements and other receivables were classified under this category. These financial assets had a total carrying value of Shs 1,963,047,000 at 31 December 2008

iii) Held-to maturityHeld-to-maturity assets were non-derivative financial assets with fixed or determinable payments and fixed maturities that the Group had the positive intention and ability to hold to maturity. Were the Group to sell more than an insignificant amount of held-to-maturity assets, the entire category would have had to be reclassified as available for sale.

In 2008, government securities and corporate bonds which had a total carrying value of Shs 957,715,000 were classified under this category.

(iv) Available for saleAvailable-for-sale assets were non-derivatives that were either designated in this category or not classified in any other categories.

In 2008, a portfolio of the Group’s equity investments with a carrying value of Shs 2,286,250,000 was classified under this category.

Recognition and de-recognitionRegular purchases and sales of financial assets are recognised on the trade date, which is the date on which the Group commits to purchase or sell the asset. Initial recognition of financial asset is at fair value plus, for all financial assets except those carried at fair value through profit or loss, transaction costs. Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or where the Group has transferred substantially all risks and rewards of ownership.

Equity investments are carried at fair value. Gains and losses arising from changes in the fair value of equity investments are recognised in other comprehensive income or in profit and loss account depending on classification. Dividends on equity instruments are recognised in the profit and loss account when the Group’s right to receive payment is established.

Fair values of quoted investments in active markets are based on current bid prices. Fair values for unlisted equity securities are estimated using valuation techniques. These include the use of recent arm’s length transactions, discounted cash flow analysis and other valuation techniques commonly used by market participants.

j) Impairment of financial assetsi) Assets carried at amortised cost The group assesses at the end of each reporting period whether there

is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a ‘loss event’) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated.

The criteria that the group uses to determine that there is objective evidence of an impairment loss include:

a) significant financial difficulty of the issuer or obligor;b) a breach of contract, such as a default or delinquency in interest or

principal payments;c) the group, for economic or legal reasons relating to the borrower’s

financial difficulty, granting to the borrower a concession that the lender would not otherwise consider;

d) it becomes probable that the borrower will enter bankruptcy or other financial reorganisation;

e) the disappearance of an active market for that financial asset because of financial difficulties; or

f) observable data indicating that there is a measurable decrease in the estimated future cash flows from a portfolio of financial assets since the initial recognition of those assets, although the decrease cannot yet be identified with the individual financial assets in the portfolio, including:

• adverse changes in the payment status of borrowers in the portfolio;

• national or local economic conditions that correlate with defaults on the assets in the portfolio.

The group first assesses whether objective evidence of impairment exists. The amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate. The asset’s carrying amount of the asset is reduced and the amount of the loss is recognised in the consolidated income statement. If a loan or

held-to-maturity investment has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract. As a practical expedient, the group may measure impairment on the basis of an instrument’s fair value using an observable market price.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised (such as an improvement in the debtor’s credit rating), the reversal of the previously recognised impairment loss is recognised in the consolidated profit and loss account.

Prior to early adoption of IFRS 9, the Group policy was to assess at the

end of each reporting period whether there was objective evidence that a financial asset or a group of financial assets classified as available for sale was impaired. In the case of equity investments classified as available-for-sale, a significant or prolonged decline in the fair value of the security below its cost was considered as evidence that the asset was impaired. If any such evidence existed for available-for-sale financial assets, the cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in profit or loss – was removed from equity and recognised in the consolidated profit and loss account. Impairment losses recognised in the consolidated profit and loss account in relation to equity instruments were not reversed through the consolidated profit and loss account.

k) Accounting for leasesLeases of property and equipment where the Group assumes substantially all the risks and rewards of ownership are classified as finance leases. Assets acquired under finance leases are capitalised at the inception of the lease at the lower of their fair value and the estimated present value of the underlying lease payments. Each lease payment is allocated between the liability and finance charges so as to achieve a constant rate on the finance balance outstanding. The corresponding rental obligations, net of finance charges, are included in non-current liabilities. The interest element of the finance charge is charged to the profit and loss account over the lease period. Property and equipment acquired under finance leases is depreciated over the estimated useful life of the asset.

Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases are charged to the profit and loss account on a straight-line basis over the period of the lease.

l) Cash and cash equivalentsCash and cash equivalents includes cash in hand, deposits held at call with banks, other short term highly liquid investments with original maturitiesof three months or less, and bank overdrafts.

m) Employee benefits(i) Retirement benefit obligations The group operates a defined benefit scheme for employees. A defined

benefit plan is a pension plan that defines an amount of pension benefit that an employee will receive on retirement, usually dependent on one or more factors such as age, years of service and compensation. A defined contribution plan is a pension plan under which the Group pays fixed contributions into a separate entity. The Group has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods.

The assets of the scheme are held in separate trustee administered funds, which are funded by contributions from both the Group and employees. The Group and all its employees also contribute to the appropriate National Social Security Fund, which are defined contribution schemes. The Group’s contributions to the defined contribution schemes are charged to the profit and loss account in the year to which they relate.

The liability recognised in the balance sheet in respect of defined benefit pension plans is the present value of the defined benefit obligation at the balance sheet date less the fair value of plan assets, together with adjustments for unrecognised actuarial gains or losses and past service costs. The defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating to the terms of the related pension liability. Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions in excess of the greater of 10% of the value of plan assets or 10% of the defined benefit obligation are charged or credited to income over the employees’ expected average remaining working lives.

Past-service costs are recognised immediately in income, unless the changes to the pension plan are conditional on the employees remaining in service for a specified period of time (the vesting period). In this case, the past-service costs are amortised on a straight-line basis over the vesting period.







ii) Other entitlements Employee entitlements to long service awards are recognised when they

accrue to employees. A provision is made for the estimated liability for such entitlements as a result of services rendered by employees up to the balance sheet date.

The estimated monetary liability for employees’ accrued annual leave entitlement at the balance sheet date is recognised as an expense accrual.

n) Income taxIncome tax expense is the aggregate of the charge to the profit and loss account in respect of current income tax and deferred income tax. Current income tax is the amount of income tax payable on the taxable profit for the year determined in accordance with the relevant tax legislation.

Deferred income tax is provided in full, using the liability method, on all temporary differences arising between the tax bases of assets and liabilities and their carrying values for financial reporting purposes. However, if the deferred income tax arises from the initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss, it is not accounted for. Deferred income tax is determined using tax rates and laws that have been enacted or substantively enacted at the balance sheet date and are expected to apply when the related deferred income tax liability is settled.

Deferred income tax assets are recognised only to the extent that it is probable that future taxable profits will be available against which the temporary differences can be utilised.

Deferred income tax is provided on temporary differences arising on investments in subsidiaries and associates, except where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future.o) Functional currency and translation of foreign currenciesTransactions are recorded on initial recognition in the currency of the primary economic environment in which the Group operates (the functional currency). Transactions in foreign currencies are converted into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the profit and loss account.

Foreign exchange gains and losses that relate to borrowings and cash and cash equivalents are presented in the profit and loss account within ‘finance income or cost’. All other foreign exchange gains and losses are presented in the profit and loss account within ‘other (losses)/gains – net’.

p) DividendsDividends payable to the Group’s shareholders are charged to equity in the period in which they are declared. Proposed dividends are shown as a separate component of equity until declared.

q) Consolidation of subsidiariesi) Subsidiaries Subsidiaries are all entities over which the Company has the power to

govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights. Subsidiaries are fully consolidated from the date on which control is transferred to the Company. They are de-consolidated from the date the control ceases.

The purchase method of accounting is used to account for the acquisition of subsidiaries by the Company. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition.

Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the company’s share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognised directly in the income statement.

Inter-company transactions, balances and unrealised gains on transactions between companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.

ii) Translation of results and financial position Results and financial position of all the Group entities (none of which

has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows:

i) assets and liabilities for each balance presented are translated at the closing rate at the date of that balance sheet;

ii) income and expenses for each profit and loss accounts are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the translation dates, in which case it is assumed expenses are translated at the dates of the transactions; and

iii) all resulting exchange differences are recognised as a separate

component of equity in the translation reserve.

On consolidation, the exchange differences arising from the translation of the net investment in foreign entities are recognised in the translation reserve within equity. When a foreign operation is sold, such exchange differences are recognized in the profit and loss account as part of the gain or loss on sale.

Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at closing rate.

r) GoodwillGoodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net identifiable assets of the acquired subsidiary/associate at the date of acquisition. Goodwill on acquisitions of subsidiaries is included in intangible assets. Goodwill on acquisitions of associates is included in investments in associates. Goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. Gains and losses on disposal of an entity include the carrying amount of goodwill relating to the entity sold.

Goodwill is allocated to cash-generating units for the purpose of impairment testing. Each of those cash-generating units represents the Group’s investment in each country of operation by each reporting segment.

3. Critical accounting estimates and judgements in applying accounting policiesThe Group makes estimates and assumptions that affect the reported amounts of assets and liabilities within the next financial year. Estimates and judgements are continually evaluated and based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

(a) Future benefit payments from long-term insurance contracts The estimation of future benefit payments from long-term insurance

contracts is one of the Group’s most critical accounting estimates. There are several sources of uncertainty that need to be considered in the estimate of the liability that the Group will ultimately pay for such claims. Note 28 contains further details on this process.

The determination of the liabilities under long-term insurance contracts is dependent on estimates made by the Group. Estimates are made as to the expected number of deaths for each of the years in which the Group is exposed to risk. The Group bases these estimates on standard mortality tables that reflect historical mortality experience. The estimated number of deaths determines the value of the benefit payments and the value of the valuation premiums. The main source of uncertainty is that epidemics such as AIDS could result in future mortality being significantly worse than in the past for the age groups in which the Group has significant exposure to mortality risk.

However, continuing improvements in medical care and social conditions could result in improvements in longevity in excess of those allowed for in the estimates used to determine the liability for contracts where the Group is exposed to longevity risk. For contracts without fixed terms and with discretionary participation in profits, it is assumed that the Group will be able to increase mortality risk charges in future years in line with emerging mortality experience. Estimates are also made as to future investment income arising from the assets backing long-term insurance contracts. These estimates are based on current market returns as well as expectations about future economic and financial developments. The average estimated rate of investment return is 12% p.a.

(b) Claims reserving and determination of IBNR The estimation of future contractual cash flows in relation to reported

losses and losses incurred but not reported is a key accounting estimate. There are several sources of uncertainty that need to be considered in the estimate of the liability that the Group will ultimately pay for such claims. Case estimates are computed on the basis of the best information available at the time the records for the year are closed. Further details on the process used to estimate claims incurred but not reported and amounts recorded as liabilities at the end of the current and previous year are set out in note 28 of the financial statements.





c) Fair value of financial assets Fair values of certain financial assets recognised in the financial statements are determined using valuation techniques based on assumptions that are

not supported by prices from current market transactions or observable market data. The fair values of financial instruments that are not quoted in active markets are determined by using valuation techniques. Where valuation techniques

(for example models) are used to determine fair values, they are validated and periodically independently reviewed by qualified senior personnel. All models are certified before they are used, and models are calibrated to ensure that outputs reflect actual data and comparative market prices. To the extent practical, models use observable data, however, areas such as credit risk (both own and counterparty), volatilities and correlations require management to make estimates.

d) Recoverable amount of loans and receivables Critical estimates are made by the directors in determining the recoverable amount of impaired loans and receivables. The carrying amounts of loans

and receivables are shown on note 4(b)

e) Useful lives of property and equipment Estimates are made by directors in determining the useful lives of property and equipment. The estimated useful lives are set out in accounting

policy 2(e).




4. Management of insurance and financial riskThe Group’s activities expose it to a variety of risks, including insurance risk and financial risk. The Group’s overall risk management programme focuses on the identification and management of risks and seeks to minimise potential adverse effects on its financial performance, by use of underwriting guidelines and capacity limits, reinsurance planning, credit policy governing the acceptance of clients, and defined criteria for the approval of intermediaries and reinsurers. Investment policies are in place which help manage liquidity, and seek to maximise return within an acceptable level of interest rate risk.

This section summarises the way the Group manages key risks:

(a) Insurance risk

The risk under any one insurance contract is the possibility that the insured event occurs and the uncertainty of the amount of the resulting claim. By the very nature of an insurance contract, this risk is random and therefore unpredictable. For a portfolio of insurance contracts where the theory of probability is applied to pricing and provisioning, the principal risk that the Group faces under its insurance contracts is that the actual claims and benefit payments exceed the carrying amount of the insurance liabilities. This could occur because the frequency or severity of claims and benefits are greater than estimated. Insurance events are random and the actual number and amount of claims and benefits will vary from year to year from the level established using statistical techniques. Experience shows that the larger the portfolio of similar insurance contracts, the smaller the relative variability about the expected outcome will be. In addition, a more diversified portfolio is less likely to be affected across the board by a change in any subset of the portfolio. The group has developed its insurance underwriting strategy to diversify the type of insurance risks accepted and within each of these categories to achieve a sufficiently large population of risks to reduce the variability of the expected outcome. Factors that aggravate insurance risk include lack of risk diversification in terms of type and amount of risk, geographical location and type of industry covered.

The following tables disclose the concentration of insurance risk by the class of business in which the contract holder operates and by the maximum insured loss limit included in the terms of the policy. The amounts are the maximum insured loss limit of the insurance liabilities (gross and net of reinsurance) arising from insurance contracts.

Year ended 31 December 2009 Class of business Maximum insured loss General insurance business Shs 0 m - 15m Shs 15m - 250m Shs 250m - 1000m Total(Amounts presented in Shs ‘000)

Motor Gross 6,474,217 19,028,727 441,639,289 467,142,233 Net 6,249,705 18,381,701 430,295,878 454,927,284Fire Gross 4,610,939 26,524,866 202,846,927 233,982,732 Net 2,725,420 15,716,491 114,470,941 132,912,852Accident Gross 1,140,360 7,329,920 38,199,008 46,669,288 Net 795,256 6,690,971 36,303,458 43,789,685Others Gross 6,685,931 37,659,078 1,563,172,482 1,607,517,491 Net 5,987,960 33,486,634 1,393,953,572 1,433,428,166Life assurance business Ordinary life Gross 1,153,924 - - 1,153,924 Net 1,153,924 - - 1,153,924Group life Gross 30,632,872 4,710,368 - 35,343,240 Net 21,388,241 694,282 - 22,082,523

Total Gross 50,698,243 95,252,959 2,245,857,706 2,391,808,908 Net 38,300,506 74,970,079 1,975,023,849 2,088,294,434 The concentration by sector or maximum insured loss at the end of the year is broadly consistent with the prior year.






4. Management of insurance and financial risk (Continued)a) Insurance risk (continued)

Year ended 31 December 2008

Class of business Maximum insured loss General insurance business Shs 0 m - 15m Shs 15m - 250m Shs 250m - 1000m Total(Amounts presented in Shs ‘000) Motor Gross 15,291,662 3,556,822 283,425 19,131,909 Net 15,292,451 3,556,822 99,940 18,949,213Fire Gross 14,933,411 31,542,493 326,131,792 372,607,696 Net1 5,727,848 26,283,761 9,913,375 51,924,984Accident Gross 7,727,299 2,235,488 1,044,000 11,006,787 Net 8,183,149 2,080,756 835,200 11,099,105Others Gross 12,381,084 34,124,486 43,722,321 90,227,891 Net 10,055,610 23,132,264 15,818,743 49,006,617Life assurance business Ordinary life Gross 815,425 - - 815,425 Net 815,425 - - 815,425Group life Gross 33,898,264 3,531,544 - 37,429,808 Net 20,402,249 326,364 - 20,728,613

Total Gross 85,047,145 74,990,833 371,181,538 531,219,516 Net 70,476,732 55,379,967 26,667,258 152,523,956

b) Financial risk

The Group is exposed to financial risk through its financial assets, financial liabilities (investment contracts and borrowings), reinsurance assets and insurance liabilities. In particular the key financial risk is that the proceeds from its financial assets are not sufficient to fund the obligations arising from its insurance and investment contracts. The most important types of risk are credit risk, liquidity risk and market risk. Market risk includes currency risk, interest rate risk, equity price risk and other price risks.

These risks arise from open positions in interest rate, currency and equity prices, all of which are exposed to general and specific market movements. The risks that the Group primarily faces due to the nature of its investments and liabilities are liquidity rate risk and equity price risk.

The Group manages these risks through policies set out by the Finance and Investment Committee of the Board (FIC). These policies have been developed to achieve long-term investment returns in excess of the Group’s obligations under insurance and investment contracts. The principal technique is to match assets to the liabilities arising from insurance and investment contracts by reference to the type of benefits payable to contract holders. For each distinct category of liabilities, a separate portfolio of assets is maintained.

4. Management of insurance and financial risk (continued)b) Financial risk (continued) Market riski) Foreign exchange risk The Group underwrites some short term insurance policies contracted in US dollars and maintains foreign currency denominated current accounts

with local banks. Additionally, the Group invests in off shore stock exchange markets and places deposits in local financial institutions denominated in foreign currencies. This exposes the Group to foreign exchange risk arising from the various currency exposures, primarily with respect to the US dollar, Euro and Sterling Pound. Foreign exchange risk arises from future commercial transactions and recognised assets and liabilities. Currency exposures arising from US dollar denominated balances are managed by closely monitoring and matching these to specific US dollar settlement requirements that may arise.

At 31 December 2009, if the Shilling had weakened/strengthened by 10% against the US dollar with all other variables held constant, the pre tax profit for the year would have been Shs 6,744,000 (2008: Shs 12,499,226) higher/lower, mainly as a result of US dollar bank balances.

At 31 December 2009 and 31 December 2008, Uganda Shilling, Euro and Sterling Pound denominated balances held by the Group were not material.

The company, as a standalone entity, did not have material foreign exchange risk exposures as at 31 December 2009 and 31 December 2008.

ii) Price risk The Group is exposed to equity securities price risk because of investments in quoted and unquoted shares. The Group is not exposed to commodity

price risk. To manage its price risk arising from investments in equity and debt securities, the Group diversifies its portfolio. Diversification of the portfolio is done in accordance with limits set by the Finance & Investment Committee of the Board. All quoted shares held by the Group are traded on the Nairobi Stock Exchange (NSE) and Uganda Stock Exchange (USE).

At 31 December 2009, if the NSE/USE indices had increased/decreased by 10% with all other variables held constant and all the Group’s equity instruments moved according to the historical correlation to the indices, pre tax profit for the year would have been Shs 50 million (2008: Shs 49 million) higher/lower and other comprehensive income would have been Shs 184 million (2008: Shs 229 million) higher/lower.

The company, as a standalone entity, did not hold any financial instruments exposed to price risk as at 31 December 2009 (2008: Nil).

iii) Cash flow and fair value interest rate risk The Group’s investments in quoted corporate bonds, all of which are fixed rate and are carried at fair value through profit or loss exposes the Group

to fair value interest rate risk. The Group has borrowings at variable rates, which expose the Group to cash flow interest rate risk. The Group regularly monitors financing options available to ensure optimum interest rates are obtained. At 31 December 2009, an increase/decrease of 1% on the treasury bill rate, on which interest rates on borrowings are pegged, would have resulted in an decrease/increase in consolidated pre-tax profit of Shs 5,710,000 (2008: Shs 4,083,000), mainly as a result of higher/lower interest charges on variable rate borrowings.







4. Management of insurance and financial risk (Continued)(b) Financial risk (continued)

Credit riskThe Group has exposure to credit risk, which is the risk that a counterparty will be unable to pay amounts in full when due. Key areas where the Group is exposed to credit risk are:

• receivables arising out of direct insurance arrangements;• receivables arising out of reinsurance arrangements; • reinsurers’ share of insurance liabilities.• Loans and corporate bonds and• Deposits and government securities

The Group has no significant concentrations of credit risk. The Group structures the levels of credit risk it accepts by placing limits on its exposure to a single counterparty, or groups of counterparty, and to geographical and industry segments. Such risks are subject to an annual or more frequent review. Limits on the level of credit risk by category and territory are approved quarterly by the Board of Directors.

Reinsurance is used to manage insurance risk. This does not, however, discharge the Group’s liability as primary insurer. If a reinsurer fails to pay a claim for any reason, the Group remains liable for the payment to the policyholder. The creditworthiness of reinsurers is considered on an annual basis by reviewing their financial strength prior to finalisation of any contract.

The exposure to individual counterparties is also managed by other mechanisms, such as the right of offset where counterparties are both debtors and creditors of the Group. Management information reported to the Board of Directors includes details of provisions for impairment on loans and receivables and subsequent write-offs. The Finance and Investment Committee of the Board makes regular reviews to assess the degree of compliance with the Group’s procedures on credit..

Maximum exposure to credit risk before collateral held - Group 2009 2008 Shs ’000 Shs ’000 Receivables arising out of reinsurance arrangements 93,437 134,020 Receivables arising out of direct insurance arrangements 966,636 809,614 Reinsurers’ share of insurance liabilities 666,987 737,919 Other receivables 309,960 467,356 Government securities 1,112,789 957,715 Corporate bonds 110,402 44,743Mortgage loans receivable 54,214 45,389Deposits with financial institutions 646,549 477,186Cash at bank 318,687 174,634 4,279,661 3,848,576

4. Management of insurance and financial risk (Continued)(b) Financial risk (continued)

Credit risk (continued)

Maximum exposure to credit risk before collateral held - Company 2009 2008 Shs ’000 Shs ’000 Cash at bank 4,464 - 4,464 -

No collateral is held for any of the above assets other than for staff mortgage loans and car loans included under other receivables. Properties in relation to staff mortgage loans and motor vehicles in relation to staff car loans are charged to the company as collateral. The fair value of collateral held as at 31 December 2009 was Shs 54million (2008: Shs 45 million) for mortgage loans and Shs 42 million (2008: Shs 41 million) for staff car loans. None of the Company’s credit risk counter parties are rated except the Government of Kenya, the issuer of the Group’s government securities, which has B+ rating.

All receivables that are neither past due or impaired are within their approved credit limits, and no receivables have had their terms renegotiated.

None of the above assets are either past due or impaired except for the following amounts in the Group’s receivables under direct insurance and reinsurance arrangements.

Receivables Receivables arising from arising direct insurance re-insurance arrangements arrangements 2009 2008 2009 2008 Shs’000 Shs’000 Shs’000 Shs’000Past due but not impaired:- by up to 30 days 155,053 37,887 - -- by 31 to 60 days 137,024 37,813 - 9,333- by 61 to 150 days 55,062 48,122 57,547 8,188- by 151 to 360 days 55,094 31,163 - 56,594

Total past due but not impaired 402,233 154,985 57,547 74,115 Receivables individually determined to be impaired: Carrying amount before provision for impairment loss 346,917 231,251 - -Provision for impairment loss (346,917) (231,251) - -

Net carrying amount - - - -







4. Management of insurance and financial risk (Continued)b) Financial risk (continued)

Credit risk (continued)

Movements on the provision for impairment of receivables arising on direct insurance arrangements are as follows: 2009 2008 Shs ’000 Shs ’000 At start of year 234,251 174,062Provision in the year 113,666 60,189

347,917 234,251

All receivables past due by more than 365 days are considered to be impaired, and are carried at their estimated recoverable value. Receivables arising out of direct insurance arrangements individually impaired of the total gross amount of impaired receivables, the following amounts have been individually assessed:

Direct insurance arrangements 2009 2008 Individually assessed impaired receivables Shs ‘000 Shs ‘000

Brokers 91,132 117,218 Agents 33,949 39,970 Insurance companies 28,788 11,534 Direct clients 193,048 65,529 346,917 234,251

(4) Management of insurance and financial risk (continued) b) Financial risk (continued) Liquidity risk

Liquidity risk is the risk that the Group is unable to meet its payment obligations associated with its financial liabilities as they fall due and to replace funds when they are withdrawn.

The Group is exposed to daily calls on it’s available cash resources for claims settlement and other administration expenses. The Group does not maintain cash resources to meet all of these needs as experience shows that a minimum level of reinvestment of maturing funds can be predicted with a high level of certainty. The Finance and Investment Committee sets limits on the minimum level of cash balances.

The table below presents the cash flows payable by the Group under financial liabilities by remaining expected maturities at the balance. Up to 1 1-3 3-12 1-5 Over 5

month months months years years Total As at 31 December 2009: Shs ’000 Shs ’000 Shs ’000 Shs ’000 Shs ’000 Shs ’000 LiabilitiesInsurance contract liabilities 229,441 215,234 566,416 425,408 337,056 1,773,555 Creditors arising from reinsurance arrangements 112,483 - - - - 112,483Payable under deposit administration contracts 1,029,388 - - - - 1,029,388 Unit-linked investment contracts 382,692 - - - - 382,692 Other payables 301,144 - - - - 301,144Borrowings 778,291 - - - - 778,291

Total financial liabilitiesAs at 31 December 2009 2,833,439 215,234 566,416 425,408 337,056 4,377,553

As at 31 December 2008: LiabilitiesInsurance contract liabilities 135,504 129,995 639,686 366,207 222,310 1,493,702Creditors arising from reinsurance arrangements 158,979 - - - - 158,979Payable under deposit administration contracts 742,735 - - - - 742,735Unit-linked investment contracts 202,524 - - - - 202,524Other payables 445,598 - - - - 445,598Borrowings 775,331 - - - - 775,331

Total financial liabilitiesAs at 31 December 2008 2,460,671 129,995 639,686 366,207 222,310 3,818,869

Investment contracts and deposit administration contracts can be surrendered before maturity for a cash surrender value specified in the contractual terms and conditions. Prudent liquidity risk management includes maintaining sufficient cash balances to cover anticipated surrenders before the contractual maturity dates. In addition, the Group invests only a limited proportion of its assets in investments that are not actively traded. The Group’s listed securities are considered readily realisable, as they are actively traded on the Nairobi Stock Exchange and Uganda Stock Exchange.







4. Management of insurance and financial risk (continued)b) Financial risk (continued)

Liquidity risk (continued)The table below presents the cash flows payable by the company under financial liabilities by remaining expected maturities at the balance.

Less than 1 year Shs’000At 31 December 2009: - amounts due to UAP Insurance Company Limited 473,599- other payables 4,343

477,942

At 31 December 2008: - amounts due to UAP Insurance Company Limited 176,404

176,404

c) Capital management

The Group’s objectives when managing capital, which is a broader concept than the ‘equity’ on the balance sheets, are:• to comply with the capital requirements as set out in the regulations of the jurisdictions in which the Group entities operate in;• to comply with regulatory solvency requirements as set out in legislation in the jurisdictions in which the Group entities operate in;.• to safeguard the Group’s ability to continue as a going concern, so that it can continue to provide returns to shareholders and benefits for other stake

holders; and • to provide an adequate return to shareholders by pricing insurance and investment contracts commensurately with the level of risk.

During the year the Group held the minimum paid up share capital required as well as met the required solvency margins required in the jurisdictions in which the Group entities operate in except for the Group’s subsidiary in Sudan which had not met the minimum level of paid share capital required for insurance companies operating in Southern Sudan. The company has obtained an extension to increase the paid up share capital in 2010. In addition, the Group’s life insurance subsidiary in Kenya did not meet the minimum solvency margins required by Insurance regulations in Kenya in 2009 and 2008, as shown below.

Capital adequacy and solvency margin are monitored regularly by the Board of Directors. The required information is filed with the respective authorities.

The Group’s paid up capital at the end of 2009 and 2008 is presented on note 14. The table below summarises the capital requirements of the Group’s entities in the various jurisdictions in which the Group operates and the amount of capital held.

4. Management of insurance and financial risk (continued) c) Capital management (continued) 2009 2008 Kenya General Kenya Life Kenya General Kenya Life Insurance Assurance Sudan Uganda Insurance Assurance Sudan Uganda Shs’000 Shs’000 Shs’000 Shs’000 Shs’000 Shs’000 Shs’000 Shs’000Regulatory capital requirements 100,000 50,000 341,190 79,602 100,000 50,000 349,700 79,600Amount of capital held by the Group 600,000 150,000 227,460 159,202 450,000 150,000 135,994 119,400Required solvency margin 289,416 99,267 - 129,787 237,093 59,411 - -Solvency margin by Group 1,094,866 49,012 - 39,337 1,278,825 (186,232) - - d) Fair values of financial assets and liabilities

The fair value of government securities at 31 December 2009 is estimated at Shs 1,124 million (2008: Shs958million) compared to their carrying value of Shs 1,112 million (2008: Shs 958 million). The fair values of the Group’s other financial assets and liabilities approximate the respective carrying amounts, due to the generally short periods to contractual repricing or maturity dates as set out above. Fair values are based on discounted cash flows using a discount rate based upon the borrowing rate that the directors expect would be available to the Group at the balance sheet date.

e) Fair values estimation

Effective 1 January 2009, the Group adopted the amendment to IFRS 7 for financial instruments that are measured in the balance sheet at fair value. This requires disclosure of fair value measurements by level of the following fair value measurement hierarchy:

• Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1).• Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that

is, derived from prices) (level 2).• Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (level 3). The following table presents the Group’s assets that are measured at fair value at 31 December 2009.

Total Level 1 Level 2 Level 3 balance Shs’000 Shs’000 Shs’000 Shs’000Assets Equity investments 2,339,414 - 20,947 2,360,361

2,339,414 - 20,947 2,360,361







4. Management of insurance and financial risk (continued)e) Fair values estimation (continued)

The fair value of financial instruments traded in active markets is based on quoted market prices at the balance sheet date. A market is regarded as active if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service, or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm’s length basis. The quoted market price used for financial assets held by the company is the current bid price. These instruments are included in level 1. Instruments included in level 1 comprise primarily equity investments quoted at Nairobi Stock Exchange and Uganda Stock Exchange.

Financial instruments measured at fair value that are not traded in active markets relate to Group’s investment in the holding company for an investment property. Fair value estimate is based on the Group’s share of the net asset of the investee company. As the investment property of the investee company is measured at their fair value, the net asset value of the investee company approximates its fair value.

5. Gross earned premiums The premium income of the Group can be analysed between the main classes of business as shown below:-

Gross Written Premium Gross Earned Premium 2009 2008 2009 2008 Shs ’000 Shs ’000 Shs ’000 Shs ’000Short term insurance business Engineering 143,777 226,949 145,383 168,790Fire 568,955 519,964 531,386 425,703Liability 111,858 101,317 104,626 85,340Marine 187,422 200,079 183,271 191,740Motor 1,601,139 1,199,786 1,433,446 968,635Workmen’s compensation 311,052 196,947 249,099 159,227Personal accident 1,016,285 773,585 934,751 733,445Theft 292,403 195,811 274,832 189,635 Others 33,183 53,773 31,486 53,742

4,266,074 3,468,211 3,888,280 2,976,257 Long term insurance business Ordinary life 91,404 113,912 91,403 113,912Group life 168,580 164,654 168,581 164,654

259,984 278,566 259,984 278,566

4,526,058 3,746,777 4,148,264 3,254,823

Gross written premium represents the total premiums receivable by the Group before adjusting for the unearned proportion of the premiums. It is reported in the profit and loss account for information purposes only. Revenue comprises gross earned premiums.

Premiums by source country 2009 2008 Kenya Uganda Sudan Total Kenya Uganda Sudan Total Shs ’000 Shs ’000 Shs ’000 Shs ’000 Shs ’000 Shs ’000 Shs ’000 Shs ’000 Short - term insurance Gross written premium 3,064,856 887,244 313,974 4,266,074 2,465,158 793,410 209,643 3,468,211Gross earned premium 2,841,204 753,687 293,389 3,888,280 2,113,557 683,100 179,600 2,976,257Net earned premium 2,361,154 571,986 236,888 3,170,028 1,676,960 489,308 144,930 2,311,198

Long - term business Gross written / earned premium 208,200 51,784 - 259,984 229,174 49,392 - 278,566Net earned premium 127,705 40,348 - 168,053 159,953 39,982 - 199,935

Gross written premium 3,273,056 939,028 313,974 4,526,058 2,694,332 842,802 209,643 3,746,777Gross earned premium 3,049,404 805,471 293,389 4,148,264 2,342,731 732,492 179,600 3,254,823Net earned premium 2,488,859 612,334 236,888 3,338,081 1,836,913 529,290 144,930 2,511,133







6. Investment income 2009 2008 Shs ’ 000 Shs ’ 000

Interest from government securities 96,034 85,517Bank deposit interest 39,885 26,450Loan interest receivable 17,042 6,083Rental income from investment properties 191,151 143,160Miscellaneous income 4,007 12,921Loss in exchange rates (6,920) (13,108) Gain on disposal of property and equipment 120 750 Fair value gains on investment properties (Note 20) 121,290 185,986Dividends receivable from equity investments 91,641 79,705Realised gains on sale of financial assets 13,946 87,794Fair value losses on financial assets at fair value through profit & loss (60,182) (233,271) 508,014 381,987

Realised gains on sale of financial assets relate to realised gains on equity investments disposed off prior to early adoption of IFRS 9.

7. Other income 2009 2008 Shs ’ 000 Shs ’ 000

Fee income 17,001 13,200Others 49,238 51,903 66,239 65,103

Fee income relates to administration fees arising from services rendered in relation to the issue and management of deposit administration and other investment contracts.

8. Claims and policyholder benefits payablei) Short term insurance business 2009 2008 Shs ’000 Shs ’000

Engineering 119,170 28,912Fire 47,508 57,398Liability (1,941) 18,216 Marine 94,502 52,606 Motor 818,556 574,288 Workmen’s compensation 51,808 14,182 Personal accident 703,468 427,108Theft 78,361 87,188Others 19,050 6,599

1,930,482 1,266,497 ii) Long term insurance business

Death, maturity and benefits payable 106,382 58,635(Decrease)/increase in policy owners’ liabilities 50,904 (17,117)Interest payable on deposit administration and unit linked investments contracts 76,980 (5,947)

234,266 69,778

2,164,748 1,336,275

9. Operating and other expenses 2009 2008 Shs ’000 Shs ’000

Staff costs (Note 10) 496,676 495,147 Auditors’ remuneration 8,823 8,449 Depreciation (Note 18) 52,688 36,616Amortisation on intangible assets (Note 19) 5,960 6,507 Impairment charge on receivables arising out of direct insurance arrangements (Note 4) 115,666 57,189Operating lease rentals 27,064 29,197 Repairs and maintenance 55,836 47,783Other expenses 465,321 366,098 1,228,034 1,046,986







10. Staff costs 2009 2008 Shs ’000 Shs ’000

Salaries and wages 451,564 404,218 Social security benefit costs 5,762 4,119 Retirement benefit costs Defined benefit scheme (Note 40) 26,271 72,936Defined contribution scheme 13,079 13,874

Total 496,676 495,147

11. Income tax expense 2009 2008 Shs ’000 Shs ’000

Current income tax 53,689 84,071Deferred income tax (Note 33) 45,067 35,316Overprovision of deferred income tax in prior years (18,019) -

Income tax expense 80,737 119,387

The tax on the Group’s profit before income tax differs from the theoretical amount that would arise using the statutory income tax rate as follows: 2009 2008 Shs ’000 Shs ’000

Profit before tax 280,489 446,263Tax calculated at a tax rate of 30% 84,147 133,879Less: tax effect of income not subject to tax (40,840) (89,707)Add: tax effect of expenses not deductible for tax purposes 55,449 75,215Overprovision of deferred income tax in prior years (18,019) -

Income tax expense 80,737 119,387

12. DividendsAt the annual general meeting to be held on 25 May 2010, a first and final dividend in respect of the year ended 31 December 2009 of Shs 1.70 per share amounting to a total of Shs 204 million is to be proposed (2008: Shs 1.70 per share amounting to Shs 204 million).

Payment of dividends is subject to withholding tax at a rate of either 5% or 10% depending on the residence of the respective shareholders.

13. Earnings per share Basic earnings per share are calculated by dividing the profit attributable to equity holders of the Company by the weighted average number of ordinary shares in issue during the year. 2009 2008

Profit attributable to equity holders of the Company(Shs’000) 161,667 280,225Weighted number of shares in issue (in thousands) 120,000 120,000Basic earnings per share 1.35 2.34 Diluted earnings per share 1.35 2.34

There were no potentially dilutive shares outstanding at 31 December 2009 or 31 December 2008.

Diluted earnings per share are therefore the same as basic earnings per share.

14. Share capital

The total authorised number of ordinary shares is 120 million with a par value of Shs 5 per share. At 31 December 2009, 120 million ordinary shares were in issue All issued shares are fully paid.

Number of Ordinary shares shares (Thousands) Shs’000

Balance at 1 January 2008 - - Issue of shares 120,000 600,000

Balance at 1 January 2009 120,000 600,000 Balance at 31 December 2009 120,000 600,000

15. Statutory reserve

The statutory reserve represents amounts set up in the Group’s Ugandan subsidiary in accordance with the Ugandan Insurance Act, which requires the following amounts to be appropriated from earnings:• a contingency reserve calculated at the higher of 2% of gross premium and 15% of net profits of UAP Uganda.• a capital reserve, calculated at 5% of net profits of UAP Insurance Uganda Limited.

16. Fair value reserve for equity investmentsMovements in the fair value reserve are shown in the statement of changes in equity on pages 40 and 43.

17. Retained earningsThe retained earnings balance represents the amount available for dividend distribution to the shareholders of the Company, except for cumulative fair value gains on the Company investment properties of Shs 880 million (2008: Shs 759 million) whose distribution is subject to restrictions imposed by regulation.







18. Property and equipment Office Capital furniture & Computer Motor work-in- Telephone equipment equipment vehicles progress equipment Total Shs ’000 Shs ’000 Shs ’000 Shs ’000 Shs ’000 Shs ’000Year ended 31 December 2009: Cost At 1 January 2009 142,570 148,830 30,610 7,519 6,413 335,942Additions 19,401 47,139 4,044 31,630 - 102,214Disposals - (271) (1,144) - - (1,415)Transfer to computer equipment (27) 27 - - - -Translation difference (2,817) 1,830 792 - - (195)

At 31 December 2009 159,127 197,555 34,302 39,149 6,413 436,546

Depreciation At 1 January 2009 106,513 116,735 20,895 - 6,413 250,556Charge for the year 18,086 30,553 4,049 - - 52,688Accumulated depreciation on disposals - (220) (738) - - (958)

At 31 December 2009 124,599 147,068 24,206 - 6,413 302,286

Net book amountAt 31 December 2009 34,528 50,487 10,096 39,149 - 134,260

Year ended 31 December 2008: Cost At 1 January 2008 117,857 128,959 25,566 1,609 6,413 280,404Additions 22,336 37,891 7,570 8,287 - 76,084Disposals - (127) (2,526) - - (2,653)Transferred to intangible assets (Note 19) - (17,893) - - - (17,893)Transfer from work in progress 2,377 - - (2,377) - -

At 31 December 2008 142,570 148,830 30,610 7,519 6,413 335,942

Depreciation At 1 January 2008 91,054 100,464 18,662 - 6,413 216,593Charge for the year 15,459 16,398 4,759 - - 36,616Accumulated depreciation ondisposals - (127) (2,526) - - (2,653)

At 31 December 2008 106,513 116,735 20,895 - 6,413 250,556

Net book amountAt 31 December 2008 36,057 32,095 9,715 7,519 - 85,386

Property and equipment are classified as non-current assets.



19. Intangible assetsa) Group 2009 2008 Shs’000 Shs’000 At 1 January: Cost 83,596 57,739 Accumulated amortisation and impairment (6,507) -

Net book amount 77,089 57,739 Year ended 31 December: Opening net book amount 77,089 57,739 Additions 23,632 7,964 Transferred from computer equipment (Note 18) - 17,893 Amortisation (5,960) (6,507) Closing net book amount 94,761 77,089 At 31 December: Cost 107,228 83,596Accumulated amortisation and impairment (12,467) (6,507)

Net book amount 94,761 77,089

Intangible assets relate to computer software. As at 31 December 2009, the cost associated with computer software that had not been commissioned was Shs 89 million. No amortisation was therefore charged on this component of software.

Intangible assets - company 2009 2008 Shs’000 Shs’000 Carrying value At start of year - - Additions 6,238 - At end of year 6,238 - The intangible assets for the company relate to computer software acquired during the year that had not been commissioned as at 31 December 2009. No amortisation was therefore charged on the software. All intangible assets are classified as non-current assets.





21. Equity investments 2009 2008 Shs ‘000 Shs ‘000i) Listed securities

At start of year 2,754,399 2,815,183Additions 25,924 1,100,560 Disposals (38,845) (209,780) Fair value losses charged to equity (341,882) (773,501) Impairment loss on equity investments - 55,208Fair value losses charged to income statement (60,182) (233,271)

At end of year 2,339,414 2,754,399

ii) Unlisted securities At start of year 20,183 19,384Fair value gains unrealized 764 799 At end of year 20,947 20,183

At end of year 2,360,361 2,774,582

From 12 November 2009, the Group’s equity investments are measured at fair value with fair value changes recorded through both other comprehensive income and profit and loss for different portfolios of equity investments, following early adoption of IFRS 9, as follows:

21. Equity investments(continued)

2009 Shs’000 Equity investments at fair value through other comprehensive income 1,865,084Equity investments at fair value through profit and loss 495,277 2,360,361

Previously, the Group classified its equity investments into two categories, as set out in note 2(i): equity investments at fair value through profit and loss and equity investments classified as available for sale. The portfolios had a fair value of Shs 488,332,000 and Shs 2,286,250,000 respectively at 31 December 2008.

Equity investments are classified as non-current assets.

22. Mortgage loans receivable 2009 2008 Shs ’000 Shs ’000

At start of year 45,389 42,762 Loans advanced 20,047 10,542 Loan repayments (11,222) (7,915)

At end of year 54,214 45,389

Maturity profile of loans 2009 2008 Shs ’000 Shs ’000 Loans maturing Within 1 year 3,771 9,120 In 1-5 years 6,631 27,054 Over 5 years 43,812 9,215

At end of year 54,214 45,389

There is no concentration of credit risk with respect to mortgage loans. Loans maturing within 1 year are classified as current assets while those with a maturity period of more than 1 year are classified as non-current assets.



20. Investment properties 2009 2008 Shs ‘000 Shs ‘000

At start of year 2,730,244 2,326,651Additions 83,149 193,230Fair value gains 121,290 185,986Currency translation difference 3,117 24,377 At end of year 2,937,800 2,730,244

The Group’s investment properties were revalued in December 2009 by Knight Frank and Bageine & Company Surveyors and Valuers, professional independent valuers in Kenya and Uganda respectively. The rental income earned by the Group from its investment properties leased out under operating leases amounted to Shs 191 million (2008: Shs 143 million). Direct operating expenses arising on investment properties amounted to Shs. 10.2 million (2008: Shs 9 million). All investment properties are classified as non-current assets.





23. Investment in subsidiaries

Country of 2009 2008 Incorporation Interest held(%) Shs ’000 Shs’000

UAP Insurance Company Limited Kenya 100 600,000 600,000UAP Insurance Uganda Limited Uganda 53 202,507 202,507UAP Insurance Sudan Limited Sudan 100 213,667 117,897UAP Life Assurance Limited Kenya 100 61,697 50,000UAP Credit Services Limited Kenya 100 10,000 10,000 1,087,871 980,404

During the year, the company increased its investment in subsidiaries as follows:

2009 2008 Shs’000 Shs’000 UAP Insurance Sudan Limited 95,770 -UAP Life Assurance Limited 11,697 -

Total 107,467 - The investment in subsidiaries is classified as a non-current asset.

24. Reinsurer’s share of insurance liabilities 2009 2008 Shs ’000 Shs ’000

Reinsurer’s share of:Unearned premium (Note 32) 313,104 232,624 Notified claims outstanding (Note 29) 271,931 333,539Long term insurance contract liabilities (Note 29) 37,954 112,871Claims incurred but not reported (Note 29) 43,998 58,885 At 31 December 666,987 737,919

Amounts due from reinsurers in respect of claims already paid by the Group on contracts that are reinsured are included in receivables arising out of reinsurance arrangements on the balance sheet. Movements in the above reinsurance assets are shown in note 29 and 32.

Reinsurer’s share of insurance liabilities is classified as a current asset.

25. Government securities 2009 2008 Shs ’000 Shs ’000

Treasury bills and bonds maturing: -Within 91 days from date of acquisition 24,150 77,128 -91 days to 1 year 305,555 189,917 -In 1-5 years 359,526 357,314 -After 5 years 423,558 288,613

At end of year 1,112,789 912,972 Government securities with a maturity period of up to 1 year are classified as current assets while those with a maturity profile of more than 1 year are classified as non-current assets.

26. Deferred acquisition costs 2009 2008 Shs ’000 Shs ’000

At start of year 93,500 76,053 Additions 129,406 89,563 Amortization charge (89,885) (72,116) At end of year 133,021 93,500

Deferred acquisition costs are classified as current assets.

27. Other receivables and prepayments 2009 2008

Shs ’000 Shs ’000

Prepayments 54,521 11,984Accrued income 4,146 12,334 Staff debtors 54,449 58,201 Loans and advances to customers 66,846 34,641Others 184,519 362,180 364,481 479,340

Loans and advances to customers arise from premium financing services by UAP Credit Services Limited. The average effective interest rate charged during the year was 7.65%. Interest income on loans and advances to customers is included within loan interest receivable under investment income (Note 6). Other receivables and prepayments are classified as current assets.







28. Insurance contract liabilities

2009 2008 Shs ’000 Shs ’000

Short term insurance contracts - claims reported and claims handling expenses 1,303,715 1,055,642 - claims incurred but not reported 226,830 190,482

Total 1,530,545 1,246,124

Long term contractsClaims reported and claims handling expenses 243,010 247,578

Total gross insurance liabilities 1,773,555 1,493,702 Insurance contract liabilities are classified as current liabilities. Movements in insurance liabilities and reinsurance assets are shown in Note 29.

i) Short term insurance contracts Gross claims reported, claims handling expenses liabilities and the liability for claims incurred but not reported are net of expected recoveries from

salvage and subrogation. The expected recoveries at the end of 2009 and 2008 are not material.

The Group uses chain-ladder techniques to estimate the ultimate cost of claims and the IBNR provision. Chain ladder techniques are used as they are an appropriate technique for mature classes of business that have a relatively stable development pattern. This involves the analysis of historical claims development factors and the selection of estimated development factors based on this historical pattern. The selected development factors are then applied to cumulative claims data for each accident year that is not fully developed to produce an estimated ultimate claims cost for each accident year.

The development of insurance liabilities provides a measure of the Groups’ ability to estimate the ultimate value of claims. The table below illustrates how the Groups’ estimate of total claims outstanding for each accident year has changed at successive year ends.


28.Insurance contract liabilities (continued)ii) Short term insurance contract liabilities Year ended 31 December 2009

Accident year 2005 2006 2007 2008 2009 Total Kshs’000 Kshs’000 Kshs’000 Kshs’000 Kshs’000 Kshs’000Estimate of ultimate claims costs At end of accident year 949,772 850,227 1,026,738 1,275,892 1,269,807 5,372,435One years later 933,778 953,336 1,251,981 1,440,969 - 4,580,065Two years later 912,680 907,151 1,308,312 - - 3,128,143Three years later 911,435 932,326 - - - 1,843,761Four years later 933,510 - - - - 933,510

Current estimate of cumulative claims 933,510 932,326 1,308,312 1,440,969 1,269,807 5,884,924Less: Cumulative payments to date (879,336) (861,104) (1,169,663) (1,262,090) (615,001) (4,787,194)

Liability in the Balance sheet 54,174 71,222 138,649 178,879 654,806 1,097,730Liability in respect of prior years - - - - 205,985 205,985Incurred but not reported - - - - 226,830 226,830

Total gross claims liability included in the balance sheet 54,174 71,222 138,649 178,879 1,087,621 1,530,545

Year ended 31 December 2008

Accident year 2004 2005 2006 2007 2008 Total Kshs’000 Kshs’000 Kshs’000 Kshs’000 Kshs’000 Kshs’000Estimate of ultimate claims costs At end of accident year 818,363 949,772 850,227 1,026,738 1,275,892 4,920,992One years later 846,380 933,778 953,336 1,251,981 - 3,985,475Two years later 827,481 912,680 907,151 - - 2,647,312Three years later 822,655 911,435 - - - 1,734,090Four years later 805,201 - - - - 805,201

Current estimate of cumulative claims 805,201 911,435 907,151 1,251,981 1,275,892 5,151,660Less: Cumulative payments to date (745,322) (848,688) (840,750) (989,640) (778,043) (4,202,443)

Liability in the Balance sheet 59,879 62,747 66,401 262,341 497,849 949,217Liability in respect of prior years - - - - 106,425 106,425Incurred but not reported - - - - 190,482 190,482

Total gross claims liability included in the balance sheet 59,879 62,747 66,401 262,341 794,756 1,246,124

iii) Long term business contractsThe Group determines its liabilities on long term insurance contracts based on assumptions in relation to future deaths, voluntary terminations, investment returns and administration expenses. A margin for risk and uncertainty is added to these assumptions. The liabilities are determined on the advice of the consulting actuary and actuarial valuations are carried out on an annual basis.






28. Insurance contract liabilities (continued) iii) Long term business contracts(continued)

Valuation assumptions The latest actuarial valuation of the Life Fund was carried out as at 31 December 2009 by QED Actuaries and Consultants, using the Net Premium

Valuation method (and basis) prescribed by the Kenyan Insurance Act, 1988, as amended, and the Gross Premium Valuation (GPV) method for the universal and unit-linked policies for which it was not possible to use the NPV method. The GPV method is generally accepted in the actuarial industry as an appropriate method to place realistic value (with an appropriate allowance for margins) on the liabilities of a life Company. This method is based on a discounted cashflow approach taking into account the expected cashflows from the existing inforce business. By setting appropriate assumptions this method determines liabilities which are consistent with the value of assets included in the accounts.

The more significant valuation assumptions are summarised below. The assumptions used for the previous year-end valuation are shown in brackets:

a) Mortality - For the GPV basis, the Group used SA56-62 (2008: SA56-62) as a base table of standard mortality. Statistical methods are used to adjust the rates reflected in the table based on the Group’s experience. An allowance for AIDS is made based on the Actuarial Society of South Africa’s 2003 AIDS tables (HA2M/F model). For contacts insuring survivorship the a(55) (2008 : a(55)) life table was used as a base; no allowance is made for future mortality improvements. For the NPV basis, the Group used A49-52 for assured lives and a 550 for annuities (2008:unchanged).

b) Persistency - The Group does not have sufficient historical data to allow statistical methods to be used to determine an appropriate persistency rate. The persistency rates used in the GPV valuation were set according to the experience observed (by the actuary) in similar environments. Under the NPV method it is not possible to model persistency explicitly.

c) Investment returns - For the GPV basis, these are derived with reference to the return on long term fixed interest investments available in Kenya and adjusted to reflect the actual underlying mix of assets. For the current valuation, the rate of return was 12% p.a. (2008: 12%p.a.) for the GPV basis and 6% p.a. (2008:unchanged) for the NPV basis.

d) Expenses, tax and inflation - For the GPV basis, the current level of renewal expenses were taken to be an appropriate expense base. Expenses pertaining to business establishment and expansion were excluded from the valuation assumption. Expense inflation is assumed to be 9%p.a. (2008:9%p.a.). It has been assumed that the current tax legislation and rates continue unaltered. Under the NPV method it is not possible to model expenses, tax and inflation explicitly.

Sensitivity analysisThe following table presents the sensitivity of the value of long term insurance liabilities to movements in key assumptions used in the estimation of liabilities. For liabilities under insurance contracts with fixed and guaranteed terms, key assumptions are unchanged for the duration of the contract. For long term insurance contracts without fixed terms and with discretionary participation in profits, the liability is set approximately equal to the value of the underlying asset of the contract. Hence, there is no sensitivity analysis for these types of contracts. Long-term contracts without fixed terms and with DPF – variable: Change Increase in Increase in in variable liability - 2009 liability -2008

Contracts with Fixed and Guaranteed Terms – Variable: Shs ’000 Shs ’000 Worsening of mortality +10% 1,383 2,792 Lowering of investment returns p.a. -1% (1,380) (240) Worsening of expense inflation rate +1% 1,379 1,077 Worsening of lapse rate +10% 1,378 129


29. Movements in insurance liabilities and reinsurance assets a) Short term insurance business 2009 2008

Gross Reinsurance Net Gross Reinsurance Net Shs ’000 Shs ’000 Shs ’000 Shs ’000 Shs ’000 Shs ’000

Notified claims 1,055,642 (333,539) 722,103 1,098,298 (370,714) 727,584Incurred but not reported 190,482 (58,885) 131,597 151,945 (18,999) 132,946

Total at beginning of year 1,246,124 (392,424) 853,700 1,250,243 (389,713) 860,530 Cash paid for claims settled in year (1,592,592) 220,002 (1,372,590) (968,530) 112,456 (856,074)Increase in liabilities - arising from current year claims 959,055 (93,618) 865,437 346,718 (81,597) 265,121 - arising from prior year claims 917,958 (49,889) 868,069 617,693 (33,570) 584,123

Total at end of year 1,530,545 (315,929) 1,214,616 1,246,124 (392,424) 853,700 Notified claims 1,303,715 (271,931) 1,031,784 1,055,642 (333,539) 722,103Incurred but not reported 226,830 (43,998) 182,832 190,482 (58,885) 131,597

Total at end of year 1,530,545 (315,929) 1,214,616 1,246,124 (392,424) 853,700 b) Long term business

2009 2008 Gross Reinsurance Net Gross Reinsurance Net Shs ’000 Shs ’000 Shs ’000 Shs ’000 Shs ’000 Shs ’000

At January 247,578 (112,871) 134,707 204,384 (86,066) 118,318Premium received/valuation premium 259,983 (91,930) 168,053 281,843 (78,566) 203,277Liabilities released for payments (148,917) 50,419 (98,498) (188,018) 37,901 (150,117)Other movements (115,634) 116,428 794 (50,631) 13,860 (36,771)

Total at end of year 243,010 (37,954) 205,056 247,578 (112,871) 134,707

Total at end of year 1,773,555 (353,883) 1,419,672 1,493,702 (505,295) 988,407






30. Amounts payable under deposit administration contracts Deposit administration contracts are recorded at amortised cost. Movements in amounts payable under deposit administration contracts during the year were as shown below. The liabilities are shown inclusive of interest accumulated to 31 December. Interest was declared and credited to the customers accounts at a weighted average rate of 4 % for the year (2008: 7.5 %).

2009 2008 Shs ’000 Shs ’000

At start of year 742,735 585,491Pension fund deposits received 330,921 253,092 Surrenders and annuities paid (78,734) (100,109)Interest payable to policyholders 41,519 46,074Administration fees (7,053) (8,603)Other movements - (33,210)

At end of year 1,029,388 742,735

Other movements relate to a release of excess liabilities recognised following reconciliation of the deposit administration policyholders accounts in 2009 and 2008. Amounts payable under deposit administration contracts are classified as current liabilities.

31. Unit-linked investment contractsThe benefits offered under these contracts are based on the return of a portfolio of equities and debt securities. The maturity value of the financial liabilities is determined by the fair value of the linked assets. There will be no difference between the carrying amount and the maturity amount at maturity date. 2009 2008 Shs ’000 Shs ’000

At start of year 202,524 194,560Premium received 172,960 127,077Interest credited / (investment losses) 35,461 (52,048) Liabilities released for payment (18,305) (3,597)Administration fees (9,948) (4,597)Other movements - (58,871)

At end of year 382,692 202,524

Other movements relate to a release of excess liabilities recognised following reconciliation of the investment contracts accounts in 2009 and 2008. Unit linked Investment contracts are classified as current liabilities.



32. Unearned premium Unearned premium represents the liability for short term business contracts where the Group’s obligations are not expired at the year end. Movements

in the reserve are shown below:

2009 2008 Gross Reinsurance Net Gross Reinsurance Net Shs ’000 Shs ’000 Shs ’000 Shs ’000 Shs ’000 Shs ’000

At beginning of the year 1,530,598 (232,624) 1,297,974 932,294 (140,863) 791,431Increase in the period 244,771 (80,480) 164,291 598,304 (91,761) 506,543

At end of year 1,775,369 (313,104) 1,462,265 1,530,598 (232,624) 1,297,974 Unearned premiums are classified as current liabilities.

33. Deferred income tax Deferred tax is calculated, in full, on all temporary differences under the liability method using a principal tax rate of 30% (2006: 30%). The movement

on the deferred income tax account is as follows: 2009 008 Shs ’000 Shs ’000

At start of year 253,292 217,976Income statement charge (Note 11) 45,067 35,316

Over provision in prior years (18,019) -

At end of year 280,340 253,292

Deferred tax assets and liabilities and deferred tax charge/(credit) in the profit and loss account are attributable to the following items:

(Charged)/credited Year ended 31 December 2009 1.1.09 to P&L 31.12.09 Shs ’000 Shs ’000 Shs ’000 Property and equipment: - on historical cost basis 4,920 16,763 21,683 Investment property fair value gains (276,945) (22,887) (299,832) Other provisions 18,733 (20,924) 2,191 Net deferred tax liability (253,292) (27,048) (280,340)





33. Deferred income tax (continued) (Charged)/credited

Year ended 31 December 2008 1.1.08 to P&L 31.12.09 Shs ’000 Shs ’000 Shs ’000

Property and equipment:- on historical cost basis 12,053 (7,133) 4,920Investment property fair value gains (221,149) (55,796) (276,945)Other provisions (8,880) 27,613 18,733

Net deferred tax liability (217,976) (35,316) (253,292)

Deferred income tax liabilities are classified as non-current liabilities.

34. Other payables 2009 2008

Shs ’000 Shs ’000

Accrued expenses 97,550 86,512 Accrued leave 16,436 18,384Withheld taxes 12,637 7,481Commissions payable 20,058 17,222Other liabilities 154,463 315,999 301,144 445,598

Other payables are classified as current liabilities.

35. Contingent liabilitiesIn common with the insurance industry in general, the Group’s insurance subsidiaries are subject to litigation arising in the normal course of insurancebusiness. The directors are of the opinion that this litigation will not have a material effect on the financial position or profits of the Group.

36. CommitmentsCapital commitmentsCapital expenditure contracted for at the balance sheet date but not recognised in the financial statements is as follows:

2009 2008 Shs ’000 Shs ’000

Investment property 379,100 83,000Property and equipment - 50,150 379,100 133,150



37. Cash and cash equivalentsFor the purposes of the cash flow statement, cash and cash equivalents comprise the following: 2009 2008 Shs ’000 Shs ’000

Cash and bank balances 318,862 174,809Deposits with financial institutions 646,549 477,186Treasury bills maturing within 90 days of the date of acquisition (Note 25) 24,150 77,128 Cash and cash equivalents are classified as current assets. 989,561 729,123

38. Cash generated from operations

Reconciliation of profit before tax to cash generated from operations 2009 2008 Shs ’000 Shs ’000

Profit before tax 280,489 446,263 Adjustments for: Investment income (Note 6) (508,014) (381,987)Depreciation (Note 18) 52,688 36,616Amortization (Note 19) 5,960 6,507Finance costs (Note 41) 71,290 38,097

Changes in: Insurance contract liabilities (net) 431,265 (24,259)Deposit administration contracts 286,653 156,713Unit-linked contracts 180,168 7,964Unearned premium (net) 164,291 506,543Trade and other payables (190,948) 204,229Trade and other receivables 114,086 (285,558)Deferred acquisition costs (39,521) (17,447)Retirement benefit asset (48,621) 60,040

Cash generated from operations 799,786 753,721





39. Related party transactions

The following transactions were carried out with related parties: 2009 2008 Shs ’000 Shs ’000 i) Administration of staff pension scheme- Group

Contributions paid 22,024 19,754 Benefits paid (18,112) (9,251)

ii) Outstanding balances with related parties - Group

Mortgage loans receivable (note 22) 54,214 45,389 Mortgages to staff are fully secured on the mortgage properties and are charged interest at 6% (2008: 6%).

iii) Outstanding balances with related parties - Company Amount payable to UAP Insurance Company Limited 473,599 176,404 The amounts payable to UAP Insurance Company Limited have no specific repayment date. No interest is chargeable on the balances.

iv) Loans to directors At January 11,420 7,726 Loans advanced during the year 5,038 6,805 Loans repayments received (3,117) (3,111) 13,341 11,420

Loans to directors are fully secured and are charged interest at 6% (2008: 6%).

v) Directors emoluments Executive salaries (included in key management compensation below) 83,638 62,373 Fees 18,608 16,375

Other remuneration 1,034 4,150 103,280 82,898

vi) Key Management compensation Salaries (including executive directors salaries) 194,513 145,645 Retirement benefit costs 12,908 12,922 207,421 158,567



40. Retirement benefit obligationDescription of plan

The Group operates a funded defined benefit plan for all employees. The Scheme is open to new entrants. Scheme members’ contributions are a fixed percentage of pensionable pay with the Group responsible for the balance of the cost of benefits accruing. The Scheme is established under trust. The Scheme funds are invested by a fund manager in a variety of asset classes comprising government securities (Treasury bills and bonds), stocks and shares and commercial paper.

The amounts recognised in the balance sheet are determined as follows: 2009 2008 Shs ’000 Shs ’000

Present value of funded obligations 295,127 276,515Fair value of plan assets 392,179 341,349

Present value of unfunded obligations/(over-funding) (97,052) (64,834)Unrecognised actuarial gains 25,359 41,762

Asset in the balance sheet (71,693) (23,072)

The retirement benefit asset is classified as a non-current asset. The movement in the defined benefit obligation over the year was as follows:

2009 2008 Shs ’000 Shs ’000

At start of year 276,515 168,106Current service cost 33,077 16,262Interest cost 34,054 20,581Actuarial losses (30,407) 80,368Benefits paid (18,112) (9,251)Past service costs - 449

At end of year 295,127 276,515

The movement in the fair value of the plan assets is as follows: 2009 2008 Shs ’000 Shs ’000

At start of year 341,349 357,595Expected return on scheme assets 42,386 44,347Actuarial losses (9,163) (81,895)Employer contributions 22,024 19,754Employee contributions 13,695 10,799Benefits paid (18,112) (9,251)

At end of year 392,179 341,349





40. Retirement benefit obligation (continued)Plan assets comprise: 2009 2009 2008 2008 Shs ’000 % age Shs ’000 % age

Equity instruments 141,140 35.99 142,948 41.47Debt instruments 224,154 57.16 168,117 48.78Other 26,885 6.86 33,599 9.75

392,179 100 344,664 100 The expected return on plan assets is determined by considering the expected returns available on the assets underlying the investment policy. Expected yields on fixed interest investments are based on gross redemption yields as at the balance sheet date. Expected returns on equity and property investments reflect long-term real rates of return experienced in the respective markets.

Expected contributions to the plan for the year ending 31 December 2009 are Shs 41,641,584

The amounts recognised in the profit and loss account for the year are as follows:

2009 2008 Shs ’000 Shs ’000

Current service cost 33,077 16,262Interest cost 34,054 20,581Expected return on scheme assets (42,386) (44,347)Net actuarial losses recognised in the year 1,526 79,991Past service costs - 449

Total included in employee benefit expense (note 9) 26,271 72,936 The total charge is included in operating expenses.

The principal actuarial assumptions used were as follows:

2009 2008Discount rate 13.4% 12%Expected rate of return on scheme assets 13.4% 12%Future salary increases 11.4% 10%Future pension increases 4.6% 4%



40. Retirement benefit obligation (continued)

Five year summary: 2009 2008 2007 2006 2005 Shs ’000 Shs ’000 Shs ’000 Shs ’000 Shs ’000

Present value of defined benefit obligation 295,127 276,515 168,106 146,260 104,747Fair value of plan assets 392,179 344,664 357,595 333,344 199,184

Surplus in the plan (97,052) (68,149) (189,489) (187,084) (94,437)

41. Borrowings 2009 2008 Shs’000 Shs’000

At start of year 705,521 -Proceeds from borrowings - 700,000Interest cost payable 71,290 38,097Interest paid (69,810) (32,576)

At end of year 707,001 705,521 Bank borrowings are repayable on demand and bear an average interest rate of equivalent to the 91-day treasury bill rate plus 1.5% -2% per annum (2008: 91-day treasury bill rate plus 1.5% -2% per annum).

Bank borrowings are classified as current liabilities. The carrying amounts of borrowings approximate to their fair value.

None of the borrowings was in default at any time during the year.



42. GoodwillThe goodwill arose from acquisition of UAP Insurance Uganda Limited in 2004 and is therefore all allocated to the Uganda Cash Generating unit (CGU) for the purposes of impairment assessment.

During the year ended 31 December 2009 there was no asset impairment and hence goodwill remained at Shs 50,545,000 (2008: Shs. 50,545,000)

The recoverable amount of a CGU is determined based on value-in-use calculations. These calculations use cash flow projections based on financial budgets approved by management covering a 5 years period. The growth rates do not exceed the long-term average growth rates for the respective businesses in which CGUs operate.

The key assumptions used for the value in use calculations are:

2009 2008Profit from operating activities (Shs) 67m 67mGrowth rate % 36 36Discount rate % 13 13

Management determined budgeted profit from operating activities based on past performance and its expectations for the market development. The weighted average growth rates used are consistent with the forecasts included in industry reports. The discount rates used are pre-tax and reflect specific risks relating to the Uganda segment.

Goodwill is classified as a non-current asset.


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