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Management Discussion and Analysis

Financial Capital

Ceylinco Life turned in strong financial results all-round during the year under review, maintaining its position as the biggest life insurer in the country.

Stability (Life Insurance Business)

Year ended 31 December 2015 2014 2013 2012 2011 YoY % change,
2014/15
Total assets (Rs. Mn) 80,235 71,068 63,946 52,892 48,695 12.90%
Net transfer to Life Fund (Rs. Mn) 7,135 7,256 7,655 6,766 6,335 -1.67%
No. of policies issued 170,007 139,777 147,091 153,938 143,259 21.63%
Life Fund (Rs. Mn) 68,011 60,022 52,765 45,111 38,203 13.31%

A commendable 12% growth in GWP driven by awareness campaigns and consumer engagement activities saw a corresponding 12.9% asset growth. This in turn enabled a Rs. 7.1 Bn transfer to the Life Fund, which grew by 13% to reach Rs. 68 Bn at the end of 2015.

Solvency Ratio (Life Insurance Business)

Year ended 31 December 2015 2014 2013 2012 2011
Available solvency margin (Rs. Mn) 19,509 21,163 20,933 15,627 10,280
Required solvency margin (Rs. Mn) 2,365 2,016 1,630 1,458 1,256
Solvency ratio (Times) 8.25 10.50 12.85 10.72 8.19

The solvency ratio continues to be maintained far above the statutory requirement, reflecting the Company's comfortable cushion to meet obligations arising from its life insurance contracts.

Profitability (Life Insurance Business)

Year ended 31 December 2015 2014 2013 2012 2011
Profit before tax (Rs. '000) 2,181,009 2,118,086 1,240,387 995,832 696,105
Profit after tax (Rs. '000) 2,060,046 1,362,987 1,240,387 995,832 696,105


Net customer benefits and claims paid (Life Insurance Business)



A solvency margin of 8.25 times the minimum required level

Of the regulator as at 31 December 2015


Components of income (Life Insurance Business)

Year ended 31 December 2015 2014 2013 2012 2011 YoY % change,
2014-2015
Gross written premiums (Rs. Mn) 13,457 12,003 11,123 10,829 9,834 12.12%
Net written premiums (Rs. Mn) 13,147 11,715 10,867 10,576 9,597 12.22%
Fees and commission income (Rs. Mn) 90 91 88 71 64 -0.36%
Investment income (Rs. Mn) 6,474 6,524 6,454 4,701 3,634 -0.76%
Realised gains (Rs. Mn) 61 141 108 22 20 -56.54%
Fair value gains and losses (Rs. Mn) 115 70 55 33 236 63.36%
Total income (Rs. Mn) 19,888 18,541 17,573 15,402 13,551 7.26%

Investment income declined by 1% during 2015 due to the low interest rates that prevailed in the financial markets.

Customer benefits and claims (Life Insurance Business)

Year ended 31 December 2015 2014 2013 2012 2011 YoY % change
2014-2015
Gross customer benefits and claims (Rs. Mn) 6,109 5,002 4,863 4,093 3,056 22.13%
Net customer benefits and claims (Rs. Mn) 5,957 4,894 4,757 3,991 2,946 21.72%

Increases during the year were 25% in maturity expenses, 13% in claims, 17% in surrenders and 26% in cash bonuses. A loyalty bonus scheme was introduced in 2015 under which bonus worth Rs. 142 Mn was paid.

Costs

Year ended 31 December 2015 2014 2013 2012 2011 YoY % change,
2014-2015
Acquisition cost (Rs. Mn) 1,610 1,390 1,354 1,428 1,302 15.85%
Other operating and administrative expenses (Rs. Mn) 2,994 2,674 2,517 2,214 2,164 11.99%

The increase in acquisition costs arose from recruitment of additional agents, duly matched by revenue growth arising from business expansion. The increase in other operating and administrative expenses was mainly due to inflation.

Investments

Investments pertaining to the Life Fund are made in conformity with the investment guidelines stipulated under the Regulation of the Insurance Industry Act No. 43 of 2000 (as amended). In addition, to ensure prudence, diligence and professionalism, the Company maintains Board approved internal investment guidelines and limits which are more stringent than the statutory guidelines.

The majority of the investments (55%) is made in credit risk-free financial instruments, such as Government Securities and deposits in state-owned banks which provide a secure and a stable return. A smaller proportion of investments (7%) is made in real estate, which provides an attractive long term hedge against inflation. Most of such investments consist of Company-owned buildings, which also highlight the presence of Ceylinco Life at prime locations around the country, while providing convenience to clients.

Considering that one of the main objectives of a life insurer is to provide financial protection to its policyholders, the Company does not make significant investments in speculative instruments such as equities, which increases the volatility and uncertainty of returns/benefits available to the policyholders. However, recognising the value of building long term business partnerships and synergy, the Company holds several strategic stakes in certain entities which enhances the returns and value of the Company in the long run.

The investment function is performed solely by an in-house, dedicated investment team, which consists of academically and professionally qualified members who possess an excellent track record in investment and portfolio management.

The Life Fund is invested in safe and secure investments that guarantee a steady flow of income such as in Government Securities, fixed deposits and listed debentures that offer attractive rates of return. Your insurer is also the only insurer to posses over 40 Company-owned properties, reflecting the strong presence and financial stability of the Company

Financial Value Added and Distributed

(Life Insurance Business)

Year ended 31 December 2015
Rs. '000
2014
Rs. '000
Value Added
Net written premium 13,146,773 11,715,219
Investment and other income 6,740,775 6,826,012
19,887,548 18,541,231
Net claims incurred (5,956,745) (4,893,847)
Cost of external services (663,709) (1,162,638)
Value added 13,267,094 12,484,746
Value Distributed
To employees as remuneration 1,454,260 1,187,242
To intermediaries as commission 1,609,936 1,389,842
To the Government as tax 545,350 935,098
To shareholders as dividend 241,000 192,800
Transfer to life fund 7,135,305 7,256,468
Retained as depreciation 221,197 160,309
Retained as reserves 2,060,046 1,362,987
13,267,094 12,484,746