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TPL Insurance: Annual Report 2018

IM Insights
By IM Insights
5 years ago
TPL Insurance: Annual Report 2018

Arif, Mudarib, Mufti, Shariah, Shariah advisor, Shariah compliant, Sukuk, Takaful, Waqf, Zakat, Credit Risk, General Takaful, Mark-Up, Net Assets, Participation, Provision, Receivables, Reserves, Sales

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  3. 1 COMPANY INFORMATION 1 .1 1.2 1.3 1.4 1.5 1.6 1.7 MISSION AND VISION STRATEGIC OBJECTIVES COMPANY PROFILE GEOGRAPHICAL PRESENCE PRODUCT PORTFOLIO SWOT ANALYSIS CALENDAR OF MAJOR EVENTS DURING THE YEAR OTHER INFORMATION 1.8 02 05 09 20 22 24 25 26 27 2 CEO’S MESSAGE 28 3 STAKEHOLDERS’ INFORMATION 32 3.1 3.2 3.3 3.4 3.5 3.6 3.7 3.8 3.9 3.10 3.11 3.12 HORIZONTAL ANALYSIS VERTICAL ANALYSIS CASHFLOW ANALYSIS DUPONT ANALYSIS RATIO ANALYSIS COMMENTS ON FINANCIAL ANALYSIS PERFORMANCE AT A GLANCE SHARE PRICE SENSITIVITY ANALYSIS STATEMENT OF VALUE ADDITION STATEMENT OF CHARITY ACCOUNT STAKEHOLDERS' ENGAGEMENT ISSUES RAISED IN THE LAST AGM AND DECISIONS TAKEN 4 CORPORATE GOVERNANCE 4.1 4.2 4.3 BOARD OF DIRECTORS’ PROFILE SHARIAH ADVISOR‘S PROFILE COMPOSITION OF BOARD AND MANAGEMENT COMMITTEES TERMS OF REFERENCE - BOARD AND MANAGEMENT COMMITTEES MANAGEMENT TEAM DIRECTORS’ TRAINING PROGRAM OTHER DIRECTORSHIP OF COMPANY’S EXECUTIVE DIRECTORS ROLE OF CHAIRMAN AND CEO ORGANIZATION CHART WHISTLEBLOWING POLICY CODE OF BUSINESS CONDUCT AND ETHICAL PRINCIPLES SUCCESSION PLANNING POLICY FOR ACTUAL AND PERCEIVED CONFLICT OF INTEREST POLICY FOR SAFETY OF RECORDS OF THE COMPANY SECURITY CLEARANCE POLICY POLICY ON DIVERSITY POLICY OF RETENTION OF BOARD FEE BY THE EXECUTIVE DIRECTOR IN OTHER COMPANIES INVESTOR GRIEVANCE POLICY IT GOVERNANCE FRAMEWORK ANNUAL EVALUATION OF BOARD'S PERFORMANCE PERFORMANCE REVIEW OF THE CEO 4.4 4.5 4.6 4.7 4.8 4.9 4.10 4.11 4.12 4.13 4.14 4.15 4.16 4.17 4.18 4.19 4.20 4.21 34 35 36 37 38 40 41 46 46 48 48 49 50 52 56 56 57 60 62 62 63 64 66 69 71 71 72 72 72 72 72 73 73 73 4.22 4.23 4.24 4.25 CHAIRMAN’S REVIEW REPORT REPORT OF THE AUDIT COMMITTEE DIRECTORS' REPORT MANAGEMENT RESPONSIBILITIES TOWARDS FINANCIAL STATEMENTS 4.26 PATTERN OF SHAREHOLDING 4.27 CATEGORY OF SHAREHOLDING 74 75 76 84 84 85 5 COMPLIANCE WITH CODE OF CORPORATE GOVERNANCE 5.1 5.2 INDEPENDENT AUDITOR’S REVIEW REPORT 88 STATEMENT OF COMPLIANCE WITH THE CODE OF CORPORATE GOVERNANCE 89 6 MANAGEMENT REVIEW AND REPRESENTATION 6.1 6.2 SUSTAINABILITY REPORT MANAGEMENT OBJECTIVES, KPI’s AND SIGNIFICANT CHANGES BUSINESS CONTINUITY PLAN FORWARD LOOKING STATEMENT RISK AND OPPORTUNITY REPORT MANAGING QUALITY SERVICES AT TPL INSURANCE 106 106 107 107 7 FINANCIAL STATEMENTS 112 7.1 7.2 7.3 7.4 7.5 7.6 AUDITOR’S REPORT TO THE MEMBERS STATEMENT OF FINANCIAL POSITION STATEMENT OF COMPREHENSIVE INCOME STATEMENT OF CHANGES IN EQUITY STATEMENT OF CASHFLOW NOTES TO THE FINANCIAL STATEMENTS 8 WINDOW TAKAFUL OPERATIONS 170 8.1 8.2 SHARIAH ADVISOR’S REPORT SHARIAH AUDITOR’S REPORT ON COMPLIANCE STATEMENT OF COMPLIANCE WITH THE TAKAFUL RULES, 2012 AND SHARIA RULES AND PRINCIPLES AUDITOR’S REPORT TO THE MEMBERS STATEMENT OF FINANCIAL POSITION STATEMENT OF COMPREHENSIVE INCOME STATEMENT OF CHANGES IN FUND STATEMENT OF CASHFLOW NOTES TO THE FINANCIAL STATEMENTS 6.3 6.4 6.5 6.6 8.3 8.4 8.5 8.6 8.7 8.8 8.9 86 94 96 111 114 120 122 123 124 126 172 174 176 177 182 183 184 185 187 9 ANNUAL GENERAL MEETING 218 9.1 9.2 9.3 NOTICE OF ANNUAL GENERAL MEETING 220 STATEMENT OF MATERIAL FACTS 222 PROXY FORM 225 10 GLOSSARY 228 11 DIRECTOR’S REPORT URDU TRANSLATION 240
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  5. COMPANY COMPANY INFORMATION INFORMATION 1 .1 MISSION AND VISION 1.1 1.2 1.3 1.4 1.5 1.6 1.7 VISION 1.2 AND STRATEGIC MISSION OBJECTIVES STRATEGIC 1.3 COMPANY OBJECTIVES PROFILE COMPANY 1.4 GEOGRAPHICAL PROFILE PRESENCE GEOGRAPHICAL 1.5 PRODUCT PRESENCE PORTFOLIO PRODUCT 1.6 SWOT PORTFOLIO ANALYSIS SWOT 1.7 ANALYSIS CALENDAR OF MAJOR EVENTS OTHER INFORMATION DURING THE YEAR 1.8 OTHER INFORMATION 03
  6. 04 Transforming Imagination Through Digitization
  7. 1 .1 - MISSION AND VISION To combine aggressive strategic marketing with effective and efficient execution; providing incomparable services and product innovations to continuously create sustainable value for our stakeholders. To evolve as a dominant insurance player in Pakistan by exploiting profitable niches through deployment of cutting-edge technology and proficient human capital 05
  8. 06 Transforming Imagination Through Digitization
  9. DRIVING INNOVATION DRIVING INNOVATION TPL Insurance is designed to cater to customers across all TPL Insurance is designed to Driven cater to all market segments . bycustomers innovation,across we emphasize on market segments. Driven by innovation, we emphasize on optimizing the latest technology, with the aim to attain global optimizing dominance the latest technology, with the aim toTPL attain global is one of in the insurance industry. Insurance dominancePakistan’s in the insurance industry. digital TPL Insurance onewe of continue most innovative companyisand Pakistan’s to most innovative digital companies and weto empower the benefit from cutting-edge technology, continue tolocal benefit from cutting-edge technology, to service industry. empower the local service industry. 07
  10. 08 Transforming Imagination Through Digitization
  11. Strategic Objective 1 .2 - STRATEGIC OBJECTIVE To ensure To hassle ensure - free hassle claim - free settlement claim settlement expertise experience which guarantees which guarantees speed, transparency, speed, transparency, convenience convenience and reliability. andTo reliability. ensure To higher ensure standards higher standards of ofcustomer customer relationsrelations whilst following whilst following a set of a set of pragmatic pragmatic core core values values which which are are reflected reflected in in our our attitudes, attitudes, decisions and behaviors. 09
  12. 10 Transforming Imagination Through Digitization
  13. DRIVING TRANSFORMATION DRIVING TRANSFORMATION Based on digital Basedtransformation , on digital transformation, TPL Insurance TPL Insurance provides quick provides and convenient quick and convenient solutions, so solutions, our so our customerscustomers can experience can experience hassle-free hassle-free insurance insurance procedures. procedures. The Company The continues Company continues to invest intosupreme invest intechnology supreme technology and technical and technical expertise as expertise its ongoing as its digital ongoing transformation. digital transformation. 11
  14. 12 Transforming Imagination Through Digitization
  15. WELCOMING NEW SERVICE AREA WELCOMING NEW SERVICE AREA Keeping up with the innovative service era , Keeping up with the innovative service era, TPL Insurance has embraced Insure Tech and TPL Insurance hasare embraced Insure Tech and IoT. We the leading insurance service IoT. We areproviders the leading service and upgraded andinsurance have transformed providers and have transformed the insurance industry and yearupgraded after year. For the insurance industry year after we year. For customer gratification, aim to establish a flexible network incorporates customer gratification, we that aim is to establishintelligence a into operations and management, flexible network that incorporates intelligenceas well as enhancing efficiency andas return. into operations and management, well as enhancing efficiency and return. 13
  16. 14 Transforming Imagination Through Digitization
  17. DRIVING HIGH DRIVING GROUND HIGH GROUND TPL Insurance TPL Insurance extends itsextends servicesitstoservices customers to customers across across all market all segments . market segments. Motivated Motivated by innovation, by innovation, we we emphasizeemphasize on improving on our improving digital our applications digital applications through through latest technology. latest technology. Our advanced Our advanced infrastructure infrastructure is aimed is aimed at attaining atglobal attaining leadership global leadership in the technological in the technological front. front. Customer Customer convenience convenience being our utmost being our priority, utmost wepriority, we continue tocontinue transform to transform the general the insurance general insurance industry byindustry by providing them providing with them revolutionary with revolutionary digital technology. digital technology. 15
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  19. MOVING AHEAD WITH NEW TRENDS TPL Insurance prides itself for being the pioneers of launching OVING AHEAD WITH NEW TRENDS new trends in the industry . From innovation-based products to PL Insurance prides itself for being the pioneers of launching exclusive value additions and enhanced usability, the Company ew trends in the industry. From innovation-based products to excels in providing peace of mind through ease and convenience. clusive value additions and to enhanced usability,leaders the Company We renew our vow be the industry by introducing cels in providing peace of mind through ease and convenience. exceptional solutions and quality services, all at the best value e renew your our vow to be the industry leaders by introducing money can provide. ceptional solutions and quality services, all at the best value our money can provide. 17
  20. 18 Transforming Imagination Through Digitization
  21. hics & Integrity Ethics & Integrity e conduct Weour conduct business ourfairly business with ethics fairly with & integrity ethics &being integrity a being a merstone cornerstone of everything of everything that we do.that Wewe match do. We our match behaviors our behaviors our words to our andwords take responsibility and take responsibility for our actions. for our actions. ur PeopleOur People e are committed We are committed to the professional to the professional development development and the and the ersonal growth personal of our growth employees. of our employees. We strive to Weprovide strive to the provide the ghest quality highest services qualityand services continually and continually challenge ourselves challenge to ourselves to e the best. beWe theassume best. We responsibility assume responsibility for our actions for our and actions and nduct ourselves conduct with ourselves the highest with the level highest of professionalism level of professionalism and and ersonal integrity personaland integrity treat others and treat withothers respect. with respect. novationInnovation e continue Wetocontinue seek ways to seek to improve ways tothe improve way we the doway we do usiness for business the betterment for the betterment of our employees, of our employees, customerscustomers nd the organization and the organization ustomer Customer Focus Focus e are dedicated We are dedicated to meetingtoand meeting exceeding and exceeding our our stomer needs customer andneeds honoring andthe honoring commitment the commitment ade to them. made to them. orporateCorporate Social Responsibility Social Responsibility e are committed We are committed to behave to ethically behave and ethically to and to ntributecontribute to economic to development economic development while while proving the improving qualitythe of life quality of the of workforce life of the workforce nd their families and their asfamilies well as of as the welllocal as of the local mmunitycommunity and society and at society large. at large. 19
  22. 1 .3 - COMPANY PROFILE TPL Insurance is Pakistan’s first direct insurance company with the aim to provide seamless insurance services to its customers through its 24 / 7 call center and integrated insurance systems. TPL Insurance has launched Pakistan’s first insurance customer app with distinguished features of policy issuance, claim lodging, self-surveys, endorsements and renewal of policies with further features and products to be included in the app soon. TPL Insurance is disrupting the concept of insurance by digitally enabling its business partners and customers in issuance of policies and servicing of customers. With the promise to lodge claims in less than 60 seconds and to process in 45 minutes, TPL Insurance upholds its unmatchable quality service standards through a highly diligent insurance team and customer friendly processes. The company is offering all lines of general insurance viz. Auto, Fire, Marine, Health, Home and Travel with both conventional and Takaful (Islamic insurance) solutions to ensure peace of mind for its customers. 20 Transforming Imagination Through Digitization
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  24. 1 .4 - GEOGRAPHICAL PRESENCE KARACHI OFFICE Head Office TPL Insurance Ltd. 11th Floor, Centrepoint, Off Shaheed-e-Millat Expressway, Adjacent K.P.T. Interchange, Karachi - 74900 Tel: 021.37130223 Fax: 021.35316031-2 UAN: 021.111.000.301 LAHORE Branch Office Lahore 51-M, Denim Road, Quaid-e-Azam Industrial Estate, Kot Lakhpat, Lahore. Tel: 042-35209000 UAN: 042.111.000.301 Fax: 042.35157233 ISLAMABAD Branch Office Islamabad 55-B, 10th Floor (South) ISE Tower, Jinnah Avenue, Blue Area, Islamabad. UAN: 051.111.000.301 Fax: 051.2895073 FAISALABAD Branch Office Faisalabad Office No. 4-02, 4th floor, Meezan Executive Tower, Civil Lines, Faisalabad. UAN: 051.111.000.301 Tel: 041.8501471-3 Fax: 041.8501470 MULTAN Branch Office Multan Haider Street, Shalimar Colony Northern Bypass-Boson Road Multan. UAN: 061.111.000.301 Fax: 061.44243451 HYDERABAD Branch Office Hyderabad A-8, District Council Complex, Hyderabad. Tel: 022.2728676 Fax: 022.2783154 22 Transforming Imagination Through Digitization
  25. ISL LHR FSL MUL HYD KHI 23
  26. 1 .5 - PRODUCT PORTFOLIO TPL Insurance Ltd, capitalizes on cutting edge technology and innovative products. With a mission to provide incomparable services and creating sustainable value for its stakeholders, TPL Insurance Ltd has introduced unparalleled standards of service to its customers for over a decade. TPL Insurance Ltd creates new and innovative methods to understand its customers' needs, ensuring a hassle-free claim settlement experience. Capitalizing on speed, transparency, convenience and reliability to ensure high standards of customer relations, it follows a set of pragmatic core values reflected in attitudes, decisions and behavior of the exceptional human capital. The only insurer in Pakistan that gives customers the ability to lodge, and monitor progress of claims through a free to use mobile app, TPL Insurance has introduced ease and convenience backed by innovation and technology like no other. TPL Insurance offers a wide range of personal lines and commercial lines products including but not limited to Property, Marine, Engineering, Health, Auto, Home and Travel Insurance both on conventional as well as on takaful mode. ▪ Cash in Safe ▪ Comprehensive ▪ Self Insurance ▪2T ▪3T ▪ Cash in Transit TPL INSURANCE LIMITED AUTO INSURANCE ▪5T MISCELLANEOUS ▪ Fidelity Guarantee ▪ Liability Insurance ▪ Workmen Compensation ▪ Mobile Insurance ▪ Secure T ▪ Cyber Insurance ▪ Financial Line Insurance ▪ Bond and Guarantee HEALTH INSURANCE MARINE INSURANCE ▪ Retail / Corporate ▪ Inland Transit ▪ Micro Health ▪ Import HOME INSURANCE TRAVEL INSURANCE ▪ Owner ▪ Landlord ▪ Tenant ▪ Export ▪ Hull & Machinery ▪ Container Insurance ▪ Fire ▪ International Travel ▪ Domestic Travel ▪ Students Guard ▪ Hajj & Umrah coverage ▪ Ziarat coverage 24 PROPERTY INSURANCE Transforming Imagination Through Digitization ▪ Business Interruption ▪ Comprehensive Machinery ▪ Terrorism ▪ Hotel Owners All Risk ▪ Engineering
  27. ANNUAL REPORT 2018 1 .6 - SWOT ANALYSIS STRENGTHS • First insurance customer App • Digitization across the organization • Branch network in leading cities • Comprehensive product portfolio • Fastest claim settlement in the industry • A+ Rating by PACRA • Competent and skilled human resource • Window Takaful Operations • Preferred insurance provider • One of the largest retail customer base • CAGR of 22.6% • 24/7 call center • In-house survey capability WEAKNESSES • Under-penetration in corporate lines OPPORTUNITIES • Product bundling • One of the lowest insurance penetration in the world • New entrants in auto industry • New product requirements under cyber insurance • Micro finance banks improving insurance penetration THREATS • Law & order situation • Cut throat pricing • Economic conditions • Changes in tax regime 25
  28. 1 .7 - CALENDAR OF MAJOR EVENTS DURING THE YEAR February • BOD Meeting - Annual Financial Statements of the Company for the year ended December 31, 2017. • Issue Bonus shares in the proportion of 1 share(s) for every 10 share(s) held i.e 10%. April • BOD Meeting - Financial Statements of the Company for the quarter ended March 31, 2018. • Annual General Meeting. August • BOD Meeting - Financial Statements of the Company for the six months ended June 30, 2018. • Issue Bonus shares in the proportion of 1.3 share(s) for every 10 share(s) held i.e 13%. October • BOD Meeting - Financial Statements of the Company for the nine months ended September 30, 2018. • Issue Cash Dividend @ 20% i.e. Rs. 2 Per Share. December • BOD Meeting - Approval of Budget for the year 2019. 26 Transforming Imagination Through Digitization
  29. ANNUAL REPORT 2018 1 .8 - OTHER INFORMATION BANKERS Al-Baraka Bank Pakistan Ltd. AUDITORS EY Ford Rhodes Chartered Accountants Bank Al Habib Ltd. Bank Islami Pakistan Ltd. LEGAL ADVISOR Dubai Islamic Bank Pakistan Ltd. Lari & Co. Faysal Bank Ltd. Habib Bank Ltd. Maritime & Insurance Advocates SHARE REGISTRAR Habib Metropolitan Bank Ltd. THK Associates (Pvt) Limited JS Bank Ltd. 1st Floor, 40-C MCB Bank Ltd. Block-6, P.E.C.H.S Karachi-75400, Pakistan. Meezan Bank Ltd. Tel: 021.34168270 MIB Islamic Bank Ltd. UAN: 021.111.000.322 Mobilink Micro Finance Bank Ltd. Fax: 021.34168271 National Bank of Pakistan Samba Bank Ltd. Silk Bank Ltd. Summit Bank Ltd. Telenor Micro Finance Bank Ltd. United Bank Ltd. REGISTERED OFFICE 11th & 12th Floor, Centrepoint, Off Shaheed-e-Millat Expressway, Adjacent KPT Interchange Flyover, Karachi, Postal Code: 74900 Fax: 021.35316032 UAN: 021.111.000.301 Tel: 021.37130223 WEB PRESENCE www.tplinsurance.com 27
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  31. CEO ’S MESSAGE 29
  32. CEO ’S MESSAGE I am pleased to announce that TPL Insurance Ltd. has completed another successful year of innovation, growth and value creation. 2018 was marred by political uncertainty of general elections, pressures on foreign reserves and resultant depreciation of PKR against USD by 26%, an increase in State Bank’s Benchmark rate from 6% to 10% and the new government introducing tighter controls over spending by non-filers of income tax. All these factors impacted the business origination of TPL Insurance as prices for new cars soared, imports of used vehicles declined and investment in new corporate ventures slowed down. However, the Company took this as an opportunity and continued to invest in development of new sales channels, broadening of its products base and introduction of customer centric digital initiatives to strengthen its outreach and improve service quality. The Company launched Pakistan’s First Insurance App that allows customers to buy motor, travel, mobile & home insurance, make claims, conduct self-surveys and maintain vehicles at their convenience. Further, the Company worked diligently to strengthen and enhance its business partnerships with Banks, Insurance Brokers, Motor Dealerships and Travel Agents during the year resulting in a premium growth of 5% despite challenging market conditions. TPL Insurance also introduced unique products for retail segment within Auto, Travel, Mobile and Home insurance categories and Art, Cyber and Liability insurance in the corporate segment. During 2018, TPL Insurance achieved a milestone by insuring over 216,000 lives in the micro health segment with the assistance of leading micro finance bank in Pakistan. This achievement reaffirms our commitment to become an insurer for all segments of the society and an evidence of the scalability of our customer services function. I am confident that TPL Insurance will continue to rise above all challenges and surpass its growth trajectory of 22.6% during last 5 years. The Company aims to continue its growth in the retail and micro segments by investing in product innovation, introducing new channels for customers and providing efficient customer services through digital means. Also, our corporate insurance segment is shaping up well with improved reinsurance arrangements, higher market acceptability and positive customer experience. I am certain that our corporate segment will continue to show dedicated efforts in contributing value for our shareholders. In the end, I would like to reiterate our commitment and show our gratitude to all our shareholders, business partners and customers who have reposed their trust in TPL Insurance Ltd. Muhammad Aminuddin Chief Executive Officer 30 Transforming Imagination Through Digitization
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  35. STAKEHOLDERS ’ INFORMATION 3.1 3.2 3.3 3.4 3.5 3.6 3.7 3.8 3.9 3.10 3.11 3.12 HORIZONTAL ANALYSIS VERTICAL ANALYSIS CASHFLOW ANALYSIS DUPONT ANALYSIS RATIO ANALYSIS COMMENTS ON FINANCIAL ANALYSIS PERFORMANCE AT A GLANCE SHARE PRICE SENSITIVITY ANALYSIS STATEMENT OF VALUE ADDITION STATEMENT OF CHARITY ACCOUNT STAKEHOLDERS' ENGAGEMENT ISSUES RAISED IN THE LAST AGM AND DECISIONS TAKEN 33
  36. 3 .1 - HORIZONTAL ANALYSIS Statement of Financial Position 2018 2017 2016 2015 2014 2013 --------------------------------------------Rupees in million-------------------------------------Assets Property and equipment Investments Loans and other receivables Insurance / reinsurance receivables Reinsurance recoveries against outstanding claims Deferred commission expense Deferred taxation Prepayments Taxation - payments less provision Cash and bank balances Total Assets of general takaful operations 129.60 673.12 348.81 147.15 91.39 1,069.46 274.37 258.49 361.16 821.77 106.72 284.89 384.71 726.98 8.36 148.06 313.54 49.94 272.80 87.47 188.14 153.24 118.46 88.24 67.72 91.08 31.98 225.09 13.72 153.05 370.02 21.51 61.62 21.24 193.24 133.59 335.50 39.94 60.87 109.54 176.42 318.93 24.32 59.56 1.31 309.96 16.65 190.68 23.64 80.29 351.70 8.95 81.40 5.14 57.43 356.55 108.35 - 2,251.35 2,500.62 2,280.24 1,870.59 1,269.75 1,075.54 Shareholders' Equity Issued, subscribed and paid up share capital Unappropriated profits Share premium - net of share issuance cost Available-for-sale reserve 938.66 16.90 8.03 (26.70) 755.15 253.92 138.68 (26.45) 755.15 148.89 138.69 2.27 755.15 45.72 138.69 1.63 452.31 12.44 - 452.31 (13.49) - Total Shareholders' Equity 936.90 1,121.30 1,044.99 941.19 464.76 438.83 Liabilities Provision for outstanding claims [including IBNR] Provision for unearned premium Deferred commission income Deferred taxation Premiums received in advance Insurance / reinsurance payables Other creditors and accruals Taxation - provision less payments Total liabilities of general takaful operations 136.34 636.45 19.51 4.63 122.27 226.22 169.04 129.52 671.87 4.36 2.78 114.67 219.12 2.73 234.27 126.59 699.87 4.57 2.39 1.61 56.96 164.77 0.35 178.13 121.20 572.65 1.79 18.48 101.38 8.21 105.69 152.84 543.04 15.14 2.23 12.55 48.96 2.69 27.54 126.09 441.91 7.28 2.50 15.35 33.89 9.69 - Total Liabilities 1,314.45 1,379.32 1,235.24 929.40 804.99 636.72 Total Shareholders' Equity and Liabilities 2,251.35 2,500.62 2,280.24 1,870.59 1,269.75 1,075.54 2018 2017 2016 2015 2014 2013 Total Assets Statement of Comprehensive Income --------------------------------------------Rupees in million-------------------------------------Net insurance premium Net insurance claims Management expenses Net commission expense Underwriting results Investment income Other income Financial charges Other expenses Profit before tax Profit/ (Loss) before tax from Window Takaful Operations Profit before tax for the year Taxation Profit after tax 34 Transforming Imagination Through Digitization 1,264.04 (485.92) (486.70) (135.02) 156.40 1.25 214.24 (1.64) (243.57) 126.69 1,299.46 (502.05) (516.99) (113.93) 166.50 15.16 156.19 (0.77) (221.24) 115.84 1,204.42 (507.90) (525.05) (120.76) 50.70 43.64 137.87 (0.40) (118.50) 113.30 1,129.28 (531.77) (400.78) (141.85) 54.88 9.84 130.65 (0.53) (159.62) 35.23 1,042.93 (527.03) (292.73) (145.36) 77.80 13.77 79.36 (0.57) (134.62) 35.74 733.46 (314.17) (227.45) (78.26) 113.58 6.99 67.35 (0.77) (108.79) 78.36 (112.18) 14.51 (10.94) 47.53 163.36 (58.34) 35.53 148.83 (45.66) 10.39 45.62 (12.34) 3.21 38.95 (13.02) 78.36 (26.84) 3.58 105.03 103.17 33.28 25.93 51.52
  37. ANNUAL REPORT 2018 3 .2 - VERTICAL ANALYSIS Statement of Financial Position 2018 2017 2016 2015 2014 2013 Assets Property and Equipment Investments Loans and other receivables Insurance / reinsurance receivables Reinsurance recoveries against outstanding claims Deferred commission expense Deferred taxation Prepayments Taxation - payments less provision Cash and bank balances Total Assets of general takaful operations 5.8% 29.9% 15.5% 6.5% 3.7% 42.8% 11.0% 10.3% 15.8% 36.0% 4.7% 12.5% 20.6% 38.9% 0.4% 7.9% 24.7% 3.9% 21.5% 6.9% 17.5% 14.2% 11.0% 8.2% 3.0% 4.0% 1.4% 10.0% 0.6% 6.8% 16.4% 2.5% 2.5% 0.8% 7.7% 0.0% 5.3% 13.4% 1.8% 2.7% 0.0% 4.8% 0.0% 7.7% 14.0% 1.3% 3.2% 0.1% 16.6% 0.0% 0.9% 10.2% 1.9% 6.3% 0.0% 27.7% 0.0% 0.7% 6.4% 0.5% 5.3% 0.0% 33.2% 0.0% 10.1% 0.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Shareholders' Equity Issued, subscribed and paid up share capital Share premium - net of share issuance cost Unappropriated profits Available-for-sale reserve 41.7% 0.4% 0.8% -1.2% 30.2% 5.5% 10.2% -1.1% 33.1% 6.1% 6.5% 0.1% 40.4% 7.4% 2.4% 0.1% 35.6% 0.0% 1.0% 0.0% 42.1% 0.0% -1.3% 0.0% Total Shareholders' Equity 41.6% 44.8% 45.8% 50.3% 36.6% 40.8% Liabilities Provision for outstanding claims [including IBNR] Provision for unearned premium Deferred commission income Deferred taxation Premiums received in advance Insurance / reinsurance payables Other creditors and accruals Taxation - provision less payments Total Liabilities of general takaful operations 6.1% 28.3% 0.9% 0.0% 0.2% 5.4% 10.0% 0.0% 7.5% 5.2% 26.9% 0.2% 0.0% 0.1% 4.6% 8.8% 0.1% 9.4% 5.6% 30.7% 0.2% 0.1% 0.1% 2.5% 7.2% 0.0% 7.8% 6.5% 30.6% 0.0% 0.0% 0.1% 1.0% 5.4% 0.4% 5.7% 12.0% 42.8% 0.0% 1.2% 0.2% 1.0% 3.9% 0.2% 2.2% 11.7% 41.1% 0.0% 0.7% 0.2% 1.4% 3.2% 0.9% 0.0% Total Shareholders' Equity and Liabilities 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Statement of Comprehensive Income 2018 2017 2016 2015 2014 2013 Net insurance premium Net Insurance claims Management expenses Net commission expense Underwriting results Investment income Other income Financial charges Other expenses Profit / (Loss) before tax Profit before tax from Window Takaful Operations Profit / (Loss) before tax for the year Taxation 100.0% -38.4% -38.5% -10.7% 12.4% 0.1% 16.9% -0.1% -19.3% 10.0% 100.0% -38.6% -45.0% -8.8% 7.6% 1.2% 12.0% -0.1% -11.8% 8.9% 100.0% -42.2% -43.6% -10.0% 4.2% 3.6% 11.4% 0.0% -9.8% 9.4% 100.0% -47.1% -35.5% -12.6% 4.9% 0.9% 11.6% 0.0% -14.1% 3.1% 100.0% -50.5% -28.1% -13.9% 7.5% 1.3% 7.6% -0.1% -12.9% 3.4% 100.0% -42.8% -31.0% -10.7% 15.5% 1.0% 9.2% -0.1% -14.8% 10.7% -8.9% 1.1% -0.9% 3.7% 12.6% -4.5% 3.0% 12.4% -3.8% 0.9% 4.0% -1.1% 0.3% 3.7% -1.2% 0.0% 10.7% -3.7% 0.3% 8.1% 8.6% 2.9% 2.5% 7.0% Total Assets Profit / (Loss) after tax 35
  38. 3 .3 - CASHFLOW ANALYSIS Particulars 2018 2017 2016 2015 2014 2013 --------------------------------------------Rupees in million-------------------------------------Net Cashflows from Operating Activities 25.24 (30.68) 277.21 178.93 163.39 156.32 Net Cashflows from Investing Activities 30.46 (378.38) (24.05) 11.77 (212.22) (64.97) Net Cashflows from Financing Activities (186.24) (0.77) (0.39) 441.00 (50.57) (0.77) Net Cash Inflow / (Outflow) (130.54) (409.82) 252.77 631.70 (99.40) 90.58 Cash and cash equivalent at the start of the year 483.59 893.42 640.65 8.95 108.35 17.77 Cash and cash equivalent at the end of the year 353.05 483.59 893.42 640.65 8.95 108.35 36 Transforming Imagination Through Digitization
  39. ANNUAL REPORT 2018 3 .4 - DuPONT ANALYSIS 2018 2017 Total Revenues 1,480 - Net Profit 4 Net Profit Margin 0.27% x Return on Assets (ROA) 0.18% 105 ÷ 7.1% Total Cost 1,476 1,480 1,471 ÷ Asset Turnover Ratio 0.59 Non-Current Assets 130 Total Assets Return on Equity (ROE) 0.43% ÷ 9.4% 1,366 Total Revenues 4.2% 0.66 1,471 2,251 91 + 2,500 Current Assets 2121 - Owners’ Equity 937 2409 1,121 Non-Current Liabilities ÷ Ownership Ratio 42% 44.8% - + Total Liabilities 1315 2,251 1379 + Total Assets 2,500 Current Liabilities Owners’ Equity 936 - 1315 1,379 1,121 37
  40. 3 .5 RATIO ANALYSIS 2018 2017 38 38.63% Claim Ratio % 38.44% 8.77% Commission Ratio % 10.68% 47.45% Management Expense Ratio % 46.47% 94.86% Combined Ratio % 95.59% Transforming Imagination Through Digitization
  41. ANNUAL REPORT 2018 RATIO ANALYSIS 2018 2017 2016 2015 2014 2013 Profitability Profit Before Tax / Gross Premium % 1.1% 11.8% 10.9% 3.9% 3.2% 9.0% Profit Before Tax / Net Premium % 1.2% 12.6% 12.4% 4.0% 3.7% 10.7% Profit After Tax / Gross Premium % 0.3% 7.6% 7.5% 2.8% 2.1% 5.9% Underwriting Result / Gross Premium % 11.6% 12.0% 3.7% 4.7% 6.4% 13.1% Underwriting Result / Net Premium % 12.4% 12.8% 4.2% 4.9% 7.5% 15.5% Profit Before Tax / Total Income % 1.0% 11.1% 10.7% 3.6% 3.4% 9.7% Profit After Tax / Total Income % 0.2% 7.1% 7.4% 2.6% 2.3% 6.4% Combined Ratio % 95.6% 94.9% 98.2% 104.3% 105.3% 99.5% Net Claims / Net Premium % 38.4% 38.6% 42.2% 47.1% 50.5% 42.8% Net Commission / Net Premium % 10.7% 8.8% 10.0% 12.6% 13.9% 10.7% Total Expenses / Net Premium % 46.5% 47.5% 46.1% 44.7% 40.8% 45.9% Net Profit Margin % 0.3% 8.1% 8.6% 2.9% 2.5% 7.0% Return on Equity % 0.4% 9.4% 9.9% 3.5% 5.6% 11.7% Return on Assets % 0.2% 4.2% 4.5% 1.8% 2.0% 4.8% Earnings Per Share Rs. 0.04 1.12 1.37 0.47 0.50 1.12 Price Earning Ratio Times 547.5 22.1 13.9 50.6 51.6 8.9 Price to Book Ratio Times 2.2 1.7 1.4 1.9 2.5 1.0 Rs. 10.0 14.8 13.8 12.5 10.1 9.5 Market Price Per Share at the end of the year Rs. 21.9 24.8 19.0 23.8 25.8 10.0 Market Price Per Share Highest during the year Rs. 25.7 28.4 23.2 24.5 28.0 11.7 Market Price Per Share Lowest during the year Rs. 18.3 17.1 14.0 16.4 8.5 7.5 Times 1.6 1.7 1.6 1.6 1.2 1.4 0.1% 0.1% 0.1% 0.0% 0.0% 0.2% Return to Shareholders Breakup Value Per Share Market Data Performance / Liquidity Current Ratio / Quick Ratio Cash / Current Liabilities % Total Assets Turnover Times 0.6 0.5 0.5 0.6 0.8 0.7 Fixed Assets Turnover Times 9.8 14.2 3.3 2.9 3.3 3.9 Total Liabilities / Equity Times 1.4 1.2 1.2 1.0 1.7 1.5 Cashflow from Operations Margin % 2.0% -2.4% 23.0% 15.8% 15.7% 21.3% No. of days in Premium Receivable Days 40 68 76 46 26 37 No. of days in Claim Settlement Days 65 64 62 64 79 100 Paid-up Capital / Total Assets % 41.7% 30.2% 33.1% 40.4% 35.6% 42.1% Earning Assets / Total Assets % 36.7% 48.1% 43.8% 39.8% 4.6% 24.3% Equity / Total Assets % 41.6% 44.8% 45.8% 50.3% 36.6% 40.8% 39
  42. 3 .6 - COMMENTS ON KEY FINANCIAL DATA Performance Ratios • Claims ratio has remained relatively stable at 38.4% (2017: 38.6%) due to effective vendor management. The Company managed to reduce average claims size by 10% despite increase in part prices due to Rupee devaluation of more than 30% during 2018. • Commission ratio reported increase of 1.9% at 10.7% (2017: 8.8%). This is due to increase in non-motor portfolio, which carries higher commission rates. • The earning per share has declined to Rs. 0.04 per share during 2018 from Rs. 1.12 in 2017, attributed to investment in digitization and development of commercial lines operations. Balance Sheet • The Company’s total assets have increased by 109% to Rs. 2.25 billion at the end of 2018 from Rs. 1.08 billion at the end of 2013. • The value of total investments has increased to Rs. 673.1 million as at 31 December 2018 compared to Rs. 153.3 million as at 31 December 2013, an increase of 339%. • Number of days in premium receivable has decreased from 68 days one year ago to 40 days at the end of 2018. This is due to effective receivables management. • The total equity stood at Rs. 936.9 million as at 31 December 2018 compared to Rs. 438.83 million as at 31 December 31, 2013 which reflects increase of 114% over last six years. • Breakup value per share has reduced from Rs. 14.8 per share in 2017 to Rs. 10.0 per share at the end of 2018. This is attributed to cash dividend of 20% to shareholders and issuance of 23% bonus shares during the year. Profit and Loss Account • The gross and net premium have reported growth of 55.21% and 72.34% respectively over the period of six years (Conventional business only). • The profit before tax reported at Rs. 14.51 million for the year ended 31 December 2018. This is lower compared to prior years, mainly due to ongoing investment in digitization and development of non-motor operations. Cash Flows 40 • The positive trend of the cash inflow from operating activities of the Company over the 6 years is a sound foundation for the Company’s thriving future. • During the year, the Company paid 20% cash dividend to shareholders’ resulting in net cash outflow from financing activities of Rs. 186.2 million. The Company maintains strong liquidity position to carry out its operations smoothly. Transforming Imagination Through Digitization
  43. ANNUAL REPORT 2018 3 .7 - PERFORMANCE AT A GLANCE Share Capital* 1000.0 900.0 800.0 Rs. In Million 700.0 600.0 500.0 400.0 300.0 200.0 100.0 0.0 2013 2014 2015 2016 2017 2018 2017 2018 *Share capital includes issued share capital and share premium reserve Assets vs. Liabilities 3,000.00 Rs. In Million 2,500.00 2,000.00 1,500.00 1,000,00 500.00 - 2013 2014 2015 Total Liabilities 2016 Total Assets 41
  44. 3 .7 - PERFORMANCE AT A GLANCE (CONTINUED) Gross Premium vs. Net Premium 1,600.00 1,400.00 Rs. In Million 1,200.00 1,000.00 800.00 600.00 400.00 200.00 2013 2014 2015 Gross Premium 2016 2017 2018 Net Premium Net Premium vs. Underwriting Results 1,400.00 Rs. In Million 1,200.00 1,000.00 800.00 600.00 400.00 200.00 2013 2014 2015 Net Premium 42 Transforming Imagination Through Digitization 2016 Underwriting Results 2017 2018
  45. ANNUAL REPORT 2018 3 .7 - PERFORMANCE AT A GLANCE (CONTINUED) Investment Income 50.00 45.00 Rs. In Million 40.00 35.00 30.00 25.00 20.00 15.00 10.00 5.00 2013 2014 2015 2016 2017 2018 PBT vs. PAT 180.00 160.00 Rs. In Million 140.00 120.00 100.00 80.00 60.00 40.00 20.00 - 2013 2014 2015 PBT 2016 2017 2018 PAT 43
  46. 3 .7 - PERFORMANCE AT A GLANCE (CONTINUED) Earnings Per Share 1.60 Amount Per Share 1.40 1.20 1.00 0.80 0.60 0.40 0.20 0.00 2013 2014 2015 2016 2017 2018 2017 2018 Equity vs. Total Assets 3,000 Rs. In Million 2,500 2,000 1,500 1,000 500 2013 2014 2015 Equity 44 Transforming Imagination Through Digitization 2016 Assets
  47. ANNUAL REPORT 2018 3 .7 - PERFORMANCE AT A GLANCE (CONTINUED) Breakup Value Per Share vs. Market Value Per Share 30.00 25.00 20.00 15.00 10.00 5.00 - 2013 2014 2015 Breakup Value 2016 Premium 2017 2018 Market Value 45
  48. 3 .8 - SHARE PRICE SENSITIVITY ANALYSIS Months Jan 2018 Feb 2018 Mar 2018 Apr 2018 May 2018 Jun 2018 Jul 2018 Aug 2018 Sep 2018 Oct 2018 Nov 2018 Dec 2018 Highest Price 24.00 23.50 21.00 21.01 22.59 21.53 25.67 25.00 24.00 23.00 19.28 21.90 Lowest Price 21.30 22.35 19.00 19.00 19.54 19.39 22.53 23.95 21.50 21.28 18.30 18.75 Per Day Average Volume 1,000 26,833 22,188 4,056 1,875 145,167 917 1,833 750 1,000 667 13,167 3.9 - STATEMENT OF VALUE ADDITION WEALTH GENERATED Net premium earned Wakala fee earned Commission from reinsurers Investment and other income Less: Claims, Expenses (excluding employees remuneration, donation, depreciation and taxes) Rupees 2018 Rupees 2017 1,264,044,832 331,943,038 22,838,240 215,492,351 1,299,464,809 328,934,265 13,427,081 180,949,875 1,834,318,461 1,822,776,031 (1,189,449,222) Rupees % (1,174,825,316) 644,869,239 WEALTH DISTRIBUTED % 100.0% 2018 % 647,950,714 Rupees 2017 100.0% % To employees 318,863,417 49.4% 249,027,124 38.4% To business partners 259,406,910 40.2% 174,006,081 26.9% To government 10,936,073 1.7% 58,006,124 9.0% To society 18,952,523 2.9% 22,515,058 3.5% To financer 1,642,832 0.3% 769,430 0.1% 31,492,452 4.9% 39,080,285 6.0% 3,575,032 0.6% 105,006,612 16.2% 35,067,484 5.4% 144,086,897 22.2% 644,869,239 100.0% 647,950,714 100.0% Retained in business Depreciation and amortization Retained profit / loss 46 Transforming Imagination Through Digitization
  49. ANNUAL REPORT 2018 2018 2 % 0% 3% 40% 49% To Employees To Business Partners To Society To Financer To Government 2017 9% 0% 3% 27% 38% To Employees To Business Partners To Society To Financer To Government 47
  50. 3 .10 - STATEMENT OF CHARITY ACCOUNT 2018 S.No Particulars 1 2 3 Education General Donations Health Care and Environment Total 2017 Rupees in million 3.36 1.94 16.04 21.34 9.79 1.93 11.07 22.79 3.11 - STAKEHOLDERS’ ENGAGEMENT Institutional Investors TPL Insurance Limited convenes Annual and Extra Ordinary General Meetings in accordance with the Companies Act, 2017. The Company’s quarterly financial reports, annual reports and complete financial statements are published and hosted on the Company’s website (www.tplinsurance.com). This transparency allows shareholders to remain connected with the Company as well as reaffirm their trust in the Company’s promising performance and growth. Additionally, it facilitates potential investors in making their investment choices. In compliance with the Code of Corporate Governance and the listing regulations of the stock exchange, the Company notifies information to the Stock Exchange and the Securities and Exchange Commission of Pakistan regarding the dates of Board of Directors meetings and financial results in a timely manner. Minority Shareholders In order to ensure that the minority shareholders of the Company attend the general meetings of the Company, notices are circulated to the shareholders well in advance. The notices of the general meeting are published in widely circulated newspapers of the country and the same are published in both English and Urdu. Customers The Company’s philosophy has always been to keep its customers and policy holders above all. The Company, with its customer-centric service philosophy, offers three 24/7 platforms such as the call center, Company website and Yodelee App. Our dedicated teams for sales, claims, renewals, and customer services have been acknowledged and awarded for observing, maintaining and raising the Quality and Standard in the industry. The Company also reaches out and engages its customers and policy holders through social media and the Company website in order to get feedback and eradicate grievances (if any). This results in solidifying our customer’s trust and satisfaction. Banks The Company holds true to its values and relationships. We partner with various forerunners of finance and banking industry and forge relations in the FIG sector. This collaboration is always aimed at providing mutual benefits. Media Events, achievements, product launches, expansions, briefings, press releases and advertisements keep the Company in the news often. The Company has a strong presence in the media and its promotional and social activities are thoroughly covered and published in various forms including print, radio, TV, digital, etc. Regulators In compliance with applicable laws and regulations, the Company’s statutory returns and forms are filed with various regulatory bodies and federal and provisional taxation authorities periodically. The Company ensures that all requirements are met and complied with. Analysts The Company is recognized by Pakistan Credit Rating Agency (PACRA) with a rating of “A+”. 48 Transforming Imagination Through Digitization
  51. ANNUAL REPORT 2018 3 .12 - ISSUES RAISED IN THE LAST AGM AND DECISIONS TAKEN No major issues were raised by the shareholders during the meeting. The following matters were taken up in the meeting as per the Agenda and were approved by the shareholders: 1. Approval of minutes of Extraordinary General Meeting held on December 11, 2017. 2. Approval of audited financial statements of the Company for the year ended 31, December 2017. 3. Appointment of auditors for the year ended 31, December 2018. 4. Approval of issue of bonus shares to the shareholders. 5. Election of Directors for three year term in accordance with the requirements of Companies Act 2017. 6. Approval of remuneration of Directors. 7. Approval of special resolution for investment in related company. 8. Approval of amendment in Articles of Association of the Company to comply with the requirements of Companies Act 2017. 49
  52. 50 Transforming Imagination Through Digitization
  53. CORPORATE GOVERNANCE 4 .1 4.2 4.3 4.4 4.5 4.6 4.7 4.8 4.9 4.10 4.11 4.12 4.13 4.14 4.15 4.16 4.17 4.18 4.19 4.20 4.21 4.22 4.23 4.24 4.25 4.26 4.27 BOARD OF DIRECTORS’ PROFILE SHARIAH ADVISOR‘S PROFILE COMPOSITION OF BOARD AND MANAGEMENT COMMITTEES TERMS OF REFERENCE - BOARD AND MANAGEMENT COMMITTEES MANAGEMENT TEAM DIRECTORS’ TRAINING PROGRAM OTHER DIRECTORSHIP OF COMPANY’S EXECUTIVE DIRECTORS ROLE OF CHAIRMAN AND CEO ORGANIZATION CHART WHISTLEBLOWING POLICY CODE OF BUSINESS CONDUCT AND ETHICAL PRINCIPLES SUCCESSION PLANNING POLICY FOR ACTUAL AND PERCEIVED CONFLICT OF INTEREST POLICY FOR SAFETY OF RECORDS OF THE COMPANY SECURITY CLEARANCE POLICY POLICY ON DIVERSITY POLICY OF RETENTION OF BOARD FEE BY THE EXECUTIVE DIRECTOR IN OTHER COMPANIES INVESTOR GRIEVANCE POLICY IT GOVERNANCE FRAMEWORK ANNUAL EVALUATION OF BOARD'S PERFORMANCE PERFORMANCE REVIEW OF THE CEO CHAIRMAN’S REVIEW REPORT REPORT OF THE AUDIT COMMITTEE DIRECTORS' REPORT MANAGEMENT RESPONSIBILITIES TOWARDS FINANCIAL STATEMENTS PATTERN OF SHAREHOLDING CATEGORY OF SHAREHOLDING 51
  54. 4 .1 - BOARD OF DIRECTORS’ PROFILE JAMEEL YUSUF (S.ST.) CHAIRMAN Mr. Jameel Yusuf is a businessman by profession and is the Chairman of TPL Corp Ltd. He was the founder Chairman of Citizen-Police Liaison Committee (CPLC), and remained its Chairman from September 1989 to March 2003. He is also the Director of Asia Crime Prevention Foundation (ACPF) and is the founding trustee of "PANAH", a shelter home established for women in distress. Mr. Yusuf is also a member of Advisory Council Fellowship Fund for Pakistan (FFFD) since 2004. He was awarded Presidential Award "Sitara-e-Shujaat" for gallantry services in August 1992 and was also nominated for the First United Nations Vienna Civil Society Award in 1999. 52 Transforming Imagination Through Digitization
  55. MUHAMMAD ALI JAMEEL DIRECTOR Mr . Ali Jameel is the CEO of TPL Corp Ltd. He is also the director of TRG Pakistan Ltd. Formerly Mr. Jameel was the Chief Executive Officer of Jahangir Siddiqui Investment Bank. He has also held several advisory posts in Board of Investment, Economic Advisory Council, Pakistan’s information technology and telecommunication sectors, including appointments on the Task Force on Telecom Deregulation, the Fiscal Incentive Group on the IT Commission and the Task Force on Venture Capital. Mr. Jameel received his B.Sc. degree in Economics from London School of Economics. He is also an Associate Member of the Institute of Chartered Accountants in England & Wales and qualified in 1994 at KPMG Peat Marwick in London. MUHAMMAD AMINUDDIN CEO Mr. Muhammad Aminuddin is the CEO of TPL Insurance and an experienced professional in the field of Global Financial Services. Starting his career with American Express, Aminuddin has served as the CEO of United Bank UK and as Deputy CEO and Executive Director of IGI Life Insurance Limited. He has also held roles of increasing seniority at ABN AMRO and RBS, within the Global Commodity Finance, Financial Institutions and Capital Markets groups. He also headed Trade & Working Capital for Africa for ABSA Bank, Barclay’s African subsidiary bank. In Jan 2018, Mr. Aminuddin qualified as a Chartered Director which is a corporate governance qualification under Royal Charter and is now a Fellow of The Institute of Directors, UK. 53
  56. ANDREW BORDA DIRECTOR Mr . Andrew Borda has a Bachelor's of Arts (B.A.) degree from Washington and Lee University, Virginia, United States and a Master's of Science (M.S) degree from Graduate Institute of International and Development Studies, Geneva, Switzerland. Mr. Borda has been Managing Partner at Greenoaks Global Operations Ltd. (London) since September 2013. Prior to this, Mr. Borda was the Vice President at Swiss Re (Zurich Switzerland, London U.K. and New York U.S.A) from 2011 to 2013 and a Senior Associate at McKinsey & Company in Geneva and Zurich, Switzerland for three years from 2008 to 2011. RANA ASSAD AMIN DIRECTOR Mr. Rana Assad Amin has a vast experience gathered over a span of more than thirty five years in public service at key posts in Government of Pakistan. He served as the Auditor General of Pakistan from 2015 to 2017, after serving for more than 11 years in various positions including accounting, auditing and public financial management. He holds Master’s degree in Project Management from Malardalens University, Sweden and MBA from Bradford University, United Kingdom. In addition, he also possesses degrees in LLB (Law) and M.A. Political Science from Punjab University. Mr. Amin brings with him a rich professional and academic experience and represented Pakistan at various national and international forums including Corporate Governance, Anti-Money Laundering and Countering Terrorist Financing etc. He has also been on boards of various Public Sector Organizations. Mr. Amin has been associated with budget preparation and execution in the Finance Division, Government of Pakistan, and has contributed in financial policy formulation of Pakistan, at the highest level. 54 Transforming Imagination Through Digitization
  57. WAQAR AHMED MALIK DIRECTOR Mr . Waqar Ahmed Malik is a fellow of The Institute of Chartered Accountants in England and Wales and is also an Alumnus of the Harvard Business School and INSEAD. Mr. Malik’s professional career and past engagements spans over more than 27 years across three continents with Fortune 500 companies including ICI PLC, State Bank of Pakistan, IGI Insurance, Engro Polymer, and Akzo Nobel. He was the Chief Executive Officer of ICI Pakistan and Chairman Pakistan PTA Limited, now Lotte Pakistan Limited. He currently serves as the Board Member of Pakistan Petroleum Limited and Engro Corporation Limited. SYED NADIR SHAH DIRECTOR Syed Nadir Shah is an experienced professional who has served at ANZ Banking Group, Grindlays Bank Ltd., Jardine Fleming Pakistan, World Tel (MECA), Infinity Global Telecom and Energy Saving Solution Ltd. Mr. Shah holds a BA Degree in Economics and a BBA Degree, majoring in Finance. Mr. Shah currently serves as the Chairman of the Audit Committee and as a member in the Human Resources & Remuneration Committee of TPL Insurance Limited. His valuable inputs have made it possible to achieve the highest standards in the audit and HR functions. At present, he also holds directorship positions in Fauji Akbar Portia Terminals (Pvt.) Limited, Asia Petroleum Limited and Princely Jets Private Limited. 55
  58. 4 .2 - SHARIAH ADVISOR’S PROFILE Mufti Muhammad Talha Iqbal Mufti Muhammad Talha Iqbal is a qualified and certified Islamic scholar and Mufti from Jamia Darul Uloom Karachi, a premier institution promoting the guidelines of Islamic Economic and Banking System. He has Takhassus fil Ifta / specialization in Fatwa (Islamic jurisprudence) and has vast experience in Islamic Fiqh and Islamic Banking and Finance to provide solutions in corporate related matters in the light of Shariah Principles. He has expertise on Shariah Standards and Takaful as he has completed PGD from Centre for Islamic Economics (CIE). He serves as teacher of Dars e Nizami at Jamiah Darul uloom Karachi since 2006 till date and is also faculty member of Centre for Islamic Economics (CIE) since 2010. 4.3 - COMPOSITION OF BOARD AND MANAGEMENT COMMITTEES a) BOARD COMMITTEES: b) MANAGEMENT COMMITTEES: ETHICS, HUMAN RESOURCE, REMUNERATION AND NOMINATION COMMITTEE RISK MANAGEMENT AND COMPLIANCE COMMITTEE 1 Syed Nadir Shah Chairman 1 Waqar Ahmed Malik 2 Ali Jameel Member 2 Raza Ali Shah Member 3 Rana Assad Amin Member 3 Muhammad Aminuddin Member 4 Waqar Ahmed Malik Member 4 Syed Kazim Hasan Secretary 5 Nader Nawaz Secretary UNDERWRITING COMMITTEE INVESTMENT COMMITTEE Chairman 1 Andrew Borda Chairman Chairman 2 Raza Ali Shah Member 1 Ali Jameel 2 Andrew Borda Member 3 Muhammad Aminuddin Member 3 Waqar Ahmed Malik Member 4 Syed Kazim Hasan Secretary 4 Muhammad Aminuddin Member CLAIM SETTLEMENT COMMITTEE 5 Syed Kazim Hasan Secretary AUDIT COMMITTEE 1 Syed Nadir Shah Chairman 2 Ali Jameel Member 3 Andrew Borda Member 4 Yousuf Zohaib Ali Secretary 1 Muhammad Aminuddin 2 Syed Kazim Hasan Member 3 Ovais Alam Secretary REINSURANCE & CO-INSURANCE COMMITTEE 1 Andrew Borda 2 Athar Abbas Member 3 Muhammad Saleem Junejo Secretary STRUCTURE OF THE BOARD Category Independent Directors Syed Nadir Shah, Mr. Rana Assad Amin Executive Directors Mr. Muhammad Aminuddin, Mr. Ali Jameel Non-Executive Directors Mr. Jameel Yusuf (S.St.), Mr. Andrew Borda, Mr. Waqar Ahmed Malik 56 Transforming Imagination Through Digitization Chairman Chairman
  59. ANNUAL REPORT 2018 4 .4 - TERMS OF REFERENCE - BOARD AND MANAGEMENT COMMITTEES 1- AUDIT COMMITTEE: The Committee is responsible for: a. b. c. d. Recommending the appointment of external auditors by the Company’s shareholders and shall consider any question of resignation or removal of external auditors, audit fees and provision by external auditors of any service to the Company in addition to audit of its financial statements, Determining appropriate measures to safeguard the Company’s assets; Reviewing preliminary announcements of results prior to publication; Reviewing quarterly, half-yearly and annual financial statements of the Company, prior to their approval by the Board of Directors, focusing on: • • • • • • e. f. g. h. i. j. k. l. m. n. o. 2- Major judgmental areas; Significant adjustments resulting from the audit; The going-concern assumption; Any changes in accounting policies and practices; Compliance with applicable accounting standards; and Compliance with statutory and regulatory requirements. Facilitating the external audit and discussion with external auditors of major observations arising from interim and final audits and any matter that the auditors may wish to highlight (in the absence of management, where necessary); Reviewing management letter issued by external auditors and management's response thereto; Ensuring coordination between the internal and external auditors of the Company; Reviewing the scope and extent of internal audit and ensuring that the internal audit function has adequate resources and is appropriately placed within the Company; Consideration of major findings of internal investigations and management's response thereto; Ascertaining the internal control system including financial and operational controls, accounting system and reporting structure are adequate and effective; Reviewing the Company’s statement on internal control systems prior to endorsement by the Board of Directors; Instituting special projects, value for money studies or other investigations on any matter specified by the Board of Directors, in consultation with the Chief Executive and to consider remittance of any matter to the external auditors or to any other external body; Determination of compliance with relevant statutory requirements; Monitoring compliance with the best practices of corporate governance and identification of significant violations thereof; and Consideration of any other issue or matter as may be assigned by the Board of Directors. HUMAN RESOURCE, REMUNERATION AND NOMINATIONS COMMITTEE The Committee is responsible for: a. b. c. d. e. f. Proposing a remuneration approach and related policies; Preparing remuneration reports and disclosures on compensation practices, on an annual basis but at least prior to the convening of the annual general meeting for the immediate preceding year; Reviewing and making recommendations to the Board of Directors regarding the specific remuneration, retirement, succession planning of the Board members, the CEO, senior management and key officers; Reviewing and approving training need assistance at all levels of the organization; Establishing code of business and corporate ethics that are circulated to all the staff members, Implementing the Board’s policy on Board’s renewal so that the Board individually and collectively continues to maintain target skill levels and independence; 57
  60. 3- g . Making recommendation to the Board with regard to the nomination for appointment or reappointment of members of the Board consistent with appropriate criteria established in their profile and any succession plans; h. i. Ensuring proper orientation of Board members in respect of their responsibilities; and Establishing a mechanism for the formal assessment of the effectiveness of the Board as a whole as well as the contribution of individual Board members along with ongoing training to fulfill their role requirements. FINANCE AND INVESTMENT COMMITTEE: The Committee is responsible for: 4- a. Setting investment policies (subject to approval of the Board) and guidelines, including policies and guidelines regarding asset classes, asset allocation ranges, and prohibited investments in compliance with regulatory requirements; b. Overseeing investment and reinvestment of the funds and maintenance of adequate solvency as laid down under Insurance Ordinance 2000 and rules framed thereunder; c. Monitoring the management of the funds by reviewing written reports from investment staff and by discussions with investment staff at Committee meetings that focus on the primary determinants of returns, including asset allocation and investment strategy; d. Evaluating investment performance based on a comparison of actual returns and benchmarks as the Board or Committee may from time to time select. The evaluation will take into account compliance with investment policies and guidelines and risk levels; and e. Conducting a quarterly performance evaluation of the Committee and report its findings to the Chairman of the Board. RISK MANAGEMENT COMMITTEE The committee is responsible for: 58 a. Overseeing the activities of the Risk Management function of the Company, and make appropriate recommendation to the Board; b. Assisting the Board in implementation of the decision taken by the Board to mitigate probable risks falling within the scope of the risk management function; c. Assessing, quantifying, monitoring and controlling the nature, significance and interdependence of the risk (at individual level and aggregate level) to which the Company is or may be exposed and shall also manage them accordingly; d. Ensuring that the Company’s Risk Management system is well integrated into its organization structure, decision making process and corporate culture and that there is a clear link to other functions; e. Assisting the Board in its oversight of the risk profile, Risk Management framework and the risk reward strategy determined by the Board; f. Reviewing and approving the Company’s Risk Management policy including risk appetite and risk strategy. g. Reviewing the adequacy and effectiveness of risk management and controls; h. Assisting in oversight of management’s process for the identification of significant risks across the Company and the adequacy of prevention, detection and reporting mechanisms; i. Reviewing Company’s compliance level with applicable laws and regulatory requirements that may impact the Company’s risk profile; j. Periodically reviewing changes in the economic and business environment, including emerging trends and other factors relevant to the Company’s risk profile; and k. Reviewing and recommending approval of the Board risk management procedures and controls for new products and services. Transforming Imagination Through Digitization
  61. ANNUAL REPORT 2018 5- UNDERWRITING COMMITTEE The Underwriting Committee is responsible for : 6- a. Reviewing periodically the policies and guidelines governing the Company's insurance and reinsurance underwriting; b. Reviewing periodically the policies and guidelines regarding the Company's agent, broker, insured, ceding Company, and reinsurer counterparty risk in connection with its insurance and reinsurance underwriting activities; c. Evaluating the Company's professional and development plans for key insurance and reinsurance underwriting and actuarial functions; and d. Performing such other responsibilities regarding the Company's insurance and reinsurance underwriting activities or policies or other matters as the Board may from time to time assign the Committee. CLAIMS SETTLEMENT COMMITTEE The Claim Settlement Committee is responsible for: 7- a. Establishing, implementing and maintaining the claims processing time; b. Claims monitoring and ensuring the transparency, fairness and equality; c. Reviewing and analyzing periodically the feedback & complains obtained through the mechanism; d. Reviewing claims for suggesting corrective underwriting measures; and e. Ensuring that salvage sales made are at their optimum price and with transparency. REINSURANCE / COINSURANCE COMMITTEE The Reinsurance and Coinsurance Committee is responsible for: a. Monitoring on an ongoing basis; • The processes and procedures; • The policies and guidelines; • The counterparty risk; • The level of risk assumed; and • The performance of the insurance or reinsurance component of any investment by the Company in any security whose return is determined in whole or in part by reference to the performance of an actual or hypothetical single insurance or reinsurance risk or portfolio of insurance or reinsurance risks; b. Performing such other responsibilities regarding the Company's insurance and reinsurance underwriting activities or policies or other matters as the Board may from time to time assign the Committee; and c. Monitoring that proper commission are charged on outward cessions. 59
  62. 4 .5 - MANAGEMENT TEAM 60 Transforming Imagination Through Digitization
  63. ANNUAL REPORT 2018 61
  64. 4 .6 - DIRECTORS’ TRAINING PROGRAM Due to changes in the Board, three out of seven Board of Directors of the Company have undertaken the Directors’ Training Program from SECP approved institutions. The remaining Directors are yet to obtain the certification. However, the Company aims to certify half of its Board by December 31, 2019. Names of Directors who have already obtained the Certification are as follows: 1. Mr. Waqar Ahmed Malik 2. Mr. Jameel Yusuf (S.St.) 3. Syed Nadir Shah As regards the requirement of Head of Departments and Female Executives to undertake the Directors’ Training Program, the Company shall comply with the said requirement within the time prescribed under the Listed Companies (Code of Corporate Governance) Regulations 2017. 4.7 - OTHER DIRECTORSHIP OF COMPANY’S EXECUTIVE DIRECTORS Mr. Mohammad Ali Jameel and Mr. Muhammad Aminuddin hold Non- Executive Director positions in the following companies: Mr. Mohammad Ali Jameel • TRG Pakistan Limited • Agriauto Industries Limited Mr. Mohammad Aminuddin • TPL Life Insurance Limited 62 Transforming Imagination Through Digitization
  65. ANNUAL REPORT 2018 4 .8 - ROLE OF CHAIRMAN AND CEO The roles and responsibilities of the Chairman and the Chief Executive Officer are distinct and complementary. The same are set out below: Chairman The Chairman is in charge of the leadership of the Board. In particular, he is responsible for the following: • To set the agenda and tone of the meetings of the Board in order to stimulate productive debate and ensure appropriate decision making regarding issues pertinent to those areas which are considered by the Board. • To set a performance-oriented agenda which is largely fixated on strategizing, value creation and answerability. • To manage the meetings of the Board to make sure that suitable time is allowed for discussion of all items on the agenda. • To also ensure that complex or contentious issues are dealt with meritoriously, making sure in particular that non-executive directors have sufficient time to consider them. • To ensure the constructive running of the Board and its relevant committees while in compliance of the maximum standards set by the Code of Corporate Governance. • To ensure active, accurate and timely communication with shareholders and Board members alike regarding inter alia the performance of the Company. • To ensure that the Board defines, to the best of its ability, the extent of the significant risks the Company can afford to and is willing to take in the employment of its devised plans. • To warrant that the members review, consistently and continuously, the effectiveness of risk management and internal control systems. Chief Executive Officer The CEO is responsible to lead the business, supervising it within the authorities delegated to him by the Board. He oversees the implementation and development of the devised policies. In particular, he is responsible for the following: • To lead, in conjunction with the Board, the development of the Company’s strategy. • To lead and oversee the implementation of the Company’s long and short term plans in accordance with its strategy. • To ensure the Company is appropriately organized and appropriately staffed and to enable it to achieve the approved strategy. • To assess the principal risks of the Company and to ensure that these risks are being monitored and managed. • To ensure that the Company has appropriate systems to enable it to conduct its activities both lawfully and ethically. • To ensure that the Company maintains high standards of corporate citizenship and social responsibility wherever/ whenever it does business. • To act as a liaison between management and the Board and to provide information to the Board to enable the Directors to form appropriate judgments. • To communicate effectively with shareholders, employees, Government authorities, other stakeholders and the public. • To keep abreast of all material undertakings and activities of the Company and all material external factors affecting the Company, and ensure the integrity of all public disclosures by the Company. • In concert with the Chairman, to develop focused agendas to be discussed by the Board in its meetings. • To request that special or general meetings of the Board and shareholders be called when appropriate. • To sit on committees of the Board where appropriate as determined by the Board. • To abide by specific internally established control systems and authorities, to lead by personal example and encourage all employees to conduct their activities in accordance with all applicable laws and the Company’s standards and policies, including its environmental, safety and health policies. 63
  66. 4 .9 - ORGANIZATION CHART BOARD AUDIT COMMITTEE BOARD OF DIRECTORS CHIEF INTERNAL AUDITOR CHIEF EXECUTIVE OFFICER COMPANY SECRETARY CHIEF OPERATING OFFICER CHIEF FINANCIAL OFFICER FINANCIAL CONTROLLER 64 GROUP HEAD – ADMIN HEAD OF REINSURANCE Transforming Imagination Through Digitization HEAD OF CLAIMS – AUTO HEAD OF CLAIMS – NON AUTO HEAD OF UNDERWRITING
  67. ANNUAL REPORT 2018 NUMBER OF EMPLOYEES : - TOTAL NUMBER OF EMPLOYEES AT END OF THE YEAR ARE 284. - AVERAGE NUMBER OF EMPLOYEES FOR THE YEAR ARE 294. GROUP HEAD SUSTAINABILITY GROUP HEAD – HUMAN RESOURCE GROUP HEAD – MARKETING AND COMMUNICATION CHIEF INFORMATION OFFICER CHIEF STRATEGY AND TRANSFORMATION OFFICER DEPUTY MANAGING DIRECTOR HEAD OF PERSONAL LINE SALES HEAD OF FIG SALES HEAD OF COMMERCIAL LINE SALES 65
  68. 4 .10 - WHISTLEBLOWING POLICY 1. Introduction All employees of TPL Insurance Limited are under an obligation implied in their contract of employment to give honest and faithful service to the Company. This includes an obligation not to disclose to external sources any trade secrets or confidential information acquired during the course of employment or act in a manner that will undermine the mutual trust and confidence on which the employment relationship is based. The Company complements obligations by providing protection to employees for disclosure made without malice and in good faith of certain specific confidential information to a third party in defined circumstances. These are outlined below in document. The purpose of this policy is to provide a means by which employees are enabled to raise concerns with the appropriate authorities if they have reasonable grounds for believing there is serious malpractice within the Company. The Company encourages employees to raise matters of concern responsibly through the procedures laid down in this policy statement. 2. Scope of the Policy The policy is designed to deal with concerns raised in relation to the specific issues which are in the public interest and are detailed in below document, and which fall outside the scope of other policies and procedures. The policy will not apply to personal grievances concerning an individual's terms and conditions of employment, or other aspects of the working relationship, complaints of bullying or harassment, or disciplinary matters. Such complaints will be dealt with under existing procedures on grievance, bullying and harassment, discipline and misconduct. Details of these procedures will be found in the relevant employee handbook. They are also published on the online HR portal. The policy may deal with specific concerns which are in the public interest and may include: • • • • • • • • • A criminal offence Failure to comply with legal obligations or with the Statutes, Ordinances, Code of Conduct, and Regulations of the Company Financial or non-financial maladministration or malpractice or impropriety or fraud Academic or professional malpractice A risk to the health or safety of any individual Environmental damage A miscarriage of justice Improper conduct or unethical behavior Attempts to suppress or conceal any information relating to any of the above. If in the course of investigation any concern raised in relation to the above matters appears to the investigator to relate more appropriately to grievance, bullying or harassment, or discipline, those procedures will be invoked. 3. Who can raise a concern? Any employee, who has a reasonable belief that there is serious malpractice relating to any of the protected matters specified in above document, may raise a concern under the procedure detailed in section 6 below. The issues raised under the protected list may relate to another employee, a group of employees, the individual's own department or another part of the Company. Concerns must be raised without malice and in good faith, and the individual must reasonably believe that the information disclosed, and any allegations contained in it, are substantially true. The disclosure must not be made for purposes of personal gain, and in all the circumstances it must be reasonable to make the disclosure. The Company will ensure that any member of staff who makes a disclosure in such circumstances will not be penalized or suffer any adverse treatment for doing so. However, a member of staff who does not act in good faith or makes an allegation without having reasonable grounds for believing it to be substantially true, or makes it for purposes of personal gain, or makes it malicious or vexatious may be subject to disciplinary proceedings. 66 Transforming Imagination Through Digitization
  69. ANNUAL REPORT 2018 In view of the protection afforded to an employee raising a bona fide concern , it is preferable if that individual puts his/her name to any disclosure. The identity of the person raising the matter will be kept confidential, if so requested, for as long as possible provided that this is compatible with a proper investigation. Anonymous complaints are not covered by this procedure, but may be reported, investigated or acted upon as the person receiving the complaint sees fit (including the use of this procedure), having regard to the seriousness of the issue raised, the credibility of the complaint, the prospects of being able to investigate the matter, and fairness to any individual mentioned in the complaint. 4. Procedure 4.1 Raising a concern To raise a concern under the policy employees are required to complete the whistle blowing complaint form. The employee is requested to duly fill the form and submit it to Internal Audit/ Human Resources department. If employee is unsure about whether his/her concerns are best dealt with under this policy or grievance procedure, employees are expected to consult his / her HR Business Manager for further advice. 4.2 Process The person to whom the disclosure is made will normally consider the information and decide whether there is a prima facie case to answer. He or she will decide whether an investigation should be conducted and what form it should take. This will depend on the nature of the matter raised and may be, • • • Investigated internally Referred to the relevant departments The subject of independent enquiry If the person to whom the disclosure is made decides not to proceed with an investigation, the decision will be explained as fully as possible to the individual who raised the concern. It is then open to the individual to make the disclosure again either to another of the persons specified in the paragraph above or to the Head of the Internal Audit or HR department. 4.3 Investigation Any investigation will be conducted as sensitively and speedily as possible. The employee will be notified of the intended timetable for the investigation. The person to whom the disclosure is made may authorize an initial investigation to establish the relevant facts. The investigation may be conducted by the internal auditor in the case of a financial irregularity, or by another person. The investigator will report his or her findings to the person to whom the disclosure was made, who will then decide if there is a case to answer and what procedure to follow. This may include taking steps with the competent authority to set up a special internal independent investigation or reference to some other authority, for further investigation. The decision may be that the matter would be more appropriately handled under existing procedures for grievance, bullying and harassment, or discipline. The individual making the disclosure will be informed of what action is to be taken. 4.4 Records An official written record will be kept of each stage of the procedure. 67
  70. 4 .5 Reporting of outcomes A report of all disclosures and subsequent actions taken will be made by the persons deciding on the issues. This record should be signed by the Investigating Officer and the person who made the disclosure, and dated. Where appropriate the formal record need not identify the person making the disclosure, but in such a case that person will be required to sign a document confirming that the complaint has been investigated. Such reports will normally be retained for at least five years. In all cases a report of the outcome will be made to the relevant authorities, which will refer the report on appropriately if necessary. 5. Confidentiality and Protection Mechanism The Policy assures that all complaints will be handled in complete confidence, and that the identity of the complainant will not be revealed to Management. In the unlikely event that the identity of Whistle Blower is revealed to any person in the Company, it will be ensured that the complainant is not subjected to any form of detrimental treatment. 5.1 Complaints of retaliation as a result of disclosure The company accepts that it has an obligation to ensure that employee who make a disclosure without malice and in good faith are protected, regardless of whether or not the concern raised is upheld. An employee who has made a disclosure and who feels that, as a result, he or she has suffered adverse treatment should submit a formal complaint under the grievance procedure as set out in the relevant employee handbook detailing what has been done to him or her. If it appears that there are reasonable grounds for making the complaint, the onus will be on the person against whom the complaint of adverse treatment has been made to show that the actions complained of were not taken in retaliation for the disclosure. Where it is determined that there is a prima facie case that an employee has suffered adverse treatment, harassment or victimization as a result of his or her disclosure, a further investigation may take place and disciplinary action may be taken against the perpetrator in accordance with the relevant procedure. 6. Success of the Policy and its implementation All stakeholders are responsible for the success of this Policy and should ensure that they use it to disclose suspected danger or wrongdoing. If a stakeholder has any question about the content or application of this Policy, he or she may contact the Internal Audit & Human Resources Department for obtaining necessary clarification. 7. Number of instances reported No instances have been reported during the year 2018 68 Transforming Imagination Through Digitization
  71. ANNUAL REPORT 2018 4 .11 -CODE OF BUSINESS CONDUCT AND ETHICAL PRINCIPLES Ethical Obligations TPL Insurance Limited strives to maintain a positive work environment where employees treat each other with respect and courtesy. Certain guidelines of acceptable conduct such as responsibility and diligence towards work duties, courteous and civil behavior towards colleagues and customers alike, and high standards of integrity and honesty must be observed by all employees of the organization at all times. This includes avoiding using abusive or insulting language in communication (verbal or written). Any language which is deemed offensive by normal standards and practice is prohibited. Code of Conduct It is our aim to establish business principles for the professional conduct of the employees of TPL Insurance. All employees are liable for disciplinary action if found in violation of the policies. In general, the use of good judgment, based on high ethical principles, is the standard of acceptable conduct. The successful business operation and reputation of TPL Insurance is built upon the principles of fair dealing and ethical conduct of our employees. Our reputation for integrity and excellence require careful observance of the spirit and letter of all applicable laws and regulations, as well as a scrupulous regard for the highest standards of conduct and personal integrity. The continued success of TPL Insurance is dependent upon our customers' trust and we are dedicated to preserving that trust. Employees owe a duty to TPL Insurance customers, and shareholders to act in a way that will merit the continued trust and confidence of the public. TPL Insurance will comply with all applicable laws and regulations and expects its directors, officers, and employees to conduct business in accordance with the letter, spirit, and intent of all relevant laws and to refrain from any illegal, dishonest, or unethical conduct. Conflict of Interest TPL Insurance’s policy regarding possible conflict of interest is based on the principle that an employee’s decisions in the business must be made solely in the best interest of the company. In reaching these decisions, an employee should not be influenced by personal or family considerations which might consciously (or unconsciously) affect his or her judgment as to what is in the best interest of the company. Each employee has an obligation to conduct business within guidelines that prohibit actual or potential conflicts of interest. This document establishes only the framework within which the company wishes the business to operate. As a principle, relatives are not hired. On a later occasion if it is found out that a relative was hired with prior knowledge of an employee, this could become grounds for termination. Child Labor and Worker Exploitation Policy TPL Insurance does not use child or forced labor in any of our operations or facilities. We do not tolerate unacceptable worker treatment, such as exploitation of children, physical punishment or abuse, or involuntary servitude. We expect our suppliers and contractors with whom we do business to uphold the same standards. We do not commit to exposing workers to situations in or outside of the workplace that are hazardous, unsafe, or unhealthy. The company does not hire any employee under the age of 18 years for employment. Confidentiality All employees must protect confidential information, and prevent such information from being improperly disclosed to others inside or outside the organization. Any employee may not disclose any confidential information obtained from their position at the company to others or use any such information to obtain any benefit. Employees should not communicate or transmit confidential or sensitive information through external online communications services, such as the Internet. Interaction with competitors beyond the approved level will be regarded as gross misconduct. Appropriate disciplinary actions will be taken in case of negligence in case of non-compliance with the above policy. Privacy of Records It is vital that all employees maintain the utmost confidentiality with regards to work and employee information. All employees must ensure that organization work files are returned to their appropriate location at the end of each working day. All aspects of the employee records and information must be treated in the strictest confidence. Any violation will be treated under Gross Misconduct as applicable under the service rules. Access to HR files is provided to relate HR Officials, HODs, Internal/External Auditors, CEO and CFO and is viewed in the HR offices only. 69
  72. Environmental Friendly We are committed to running our business in an environmentally sound and sustainable manner . Accordingly, our aim is to ensure that, our processes and services have the minimum adverse impact commensurate with legitimate needs of the business. Bribery & Fraud Bribery is not tolerated in any form and any such matters are reported to HR immediately. In acting on the Company’s behalf, the employee is strictly prohibited from offering, paying, soliciting or accepting bribes/gifts. External and internal bribery risks are regularly and systematically assessed and preventative measure are in place to avoid such matters. Engaging in fraud is a fundamental breach of our core value of honesty and we treat it as the most serious breach of discipline. The management is required to establish and maintain sufficient controls to ensure that fraud risk is properly identified, monitored and mitigated. Gifts, Entertainment and Gratuities We conduct our business on the basis of the superior value of goods and services we buy and sell. Our policy on gifts, entertainment and gratuities is designed to preserve and maintain the Company’s reputation as a global enterprise, which acts with integrity and bases decisions only on legitimate business considerations. Receiving gifts, entertainment or other gratuities from people with whom we do business is generally not acceptable because doing so would imply an obligation on the part of the Company and potentially pose a conflict of interest. Misconduct The following acts are considered as misconduct and are liable for termination of service without notice and benefits. The service of an employee is suspended without pay (14 days’ maximum) in case of misconduct, during the pendency of the proceedings initiated. • • • • • • • • • • Habitual late attendance Absent from duty without information for more than 03 days. Habitual negligence or neglect of work Insubordination or disobedience of senior member of the employee Resorting to strike or instigating other employees to stop working or go slow or spreading discontentment Giving or possessing classified/unclassified information to unauthorized persons Any act bringing disrepute to the company Any fraudulent act or forgery or another criminal act Misuse of company assets Non-adherence to the Code of Conduct Health & Fire Safety To build awareness on the Health, Safety and Environment standards, the organization on recurring basis, provide relevant information and training to the employees. The Administration/Security department ensures safe and healthy environment, conduct regular fire drills, so as to prepare every employee of the organization in the case of emergency situation. There are emergency exit routes, fire exits and fire extinguishers placed strategically. Associates will have the opportunity to have hands-on training on fire extinguisher and briefings on the proper use of firefighting equipment in their areas. Environmental Safety All employees are requested to ensure a safe work environment is maintained at all times. The use of alcohol, chewing of betel nut, illegal drugs may seriously affect a person’s ability to perform their duties in a proper and safe manner and therefore are strictly prohibited while on duty both on and off premises. Smoking of cigarettes is prohibited on all office premises. Legal Proceedings It is essential that an employee, who becomes involved in legal proceedings, whether civil or criminal, should immediately inform his/her superior with a copy to the HR in writing. Failure to do so may result in termination of employment. Compliance Compliance with Business Ethics and Conduct is the responsibility of every employee. Disregarding or failing to comply with this standard of Business Ethics and Conduct could lead to disciplinary action, up to and including the possible termination of employment. It is the responsibility of the HR and all the immediate managers to ensure that the principles embodied in this code are communicated to, understood and observed by all employees. 70 Transforming Imagination Through Digitization
  73. ANNUAL REPORT 2018 4 .12 -SUCCESSION PLANNING Our succession planning process covers the following areas: Step 1 – Identify Key Positions Criteria for key positions include: • • • Positions that require specialized job skills or expertise. High-level leadership positions. Positions that are considered “critical” to the organization. Step 2 – Build Job Profiles for each Key Position • Determine the key success factors of the job and how proficient the job holder would need to be. This information can be obtained several ways, including performing on the job analysis or gathering critical information during the performance appraisal process. The information that is gathered includes the knowledge, skills, abilities, and attributes that the current employee in a position possesses that allow for competent and efficient performance of the function. Step 3 – Competency Gap Analysis • • • Using relevant tools, gather data on current employee competencies for the key positions. Analyze the difference between current employee competencies and future needs. Document findings for development opportunities. Step 4 – Development Opportunities • • Assess the abilities and career interests of employees Candidates should demonstrate high potential or ability that will enable them to achieve success at a higher level within the organization. Step 5 – Individual Development Plans • • Design a plan for each candidate – developmental plans should be available for candidates and then incorporated into their performance management plans. Plans may include identifying career paths for high-potential candidates and others who have the interest and ability to move upward in the organization. Provide development opportunities – This can be accomplished through job assignments, training, or on job rotation, and it is one of the best ways for employees to gain additional knowledge and skills. Step 6 – Maintain Skills Inventory • • Continually monitor skills and needs to determine any gaps and develop plans to meet deficiencies. Keep an inventory of current and future needs and maintain the information for individual and group development. 4.13 -POLICY FOR ACTUAL AND PERCEIVED CONFLICT OF INTEREST TPL Insurance maintains the highest standards in ensuring that business ethics are always upheld and no corruption takes place. The Company ensures all Directors uphold and adhere to the code of conduct and recognize their fiduciary duty to act in the highest standards of Corporate Governance and avoid conflict of interests. Every director of the Company whose interest lies in any of the Company’s dealings or arrangements are required to fully divulge their interests to the Board. They would not be a part of voting system for those matters. Each director is required to disclose the names of the Companies and their associations with them 71
  74. 4 .14 -POLICY FOR SAFETY OF RECORDS OF THE COMPANY TPL Insurance ensures safety of records in the following ways: • • • We have properly documented and tested Business Continuity Plan/Disaster Recovery Plan (BCP/DRP) which elucidates the safety of company records and ensure continuity of business operations in the event of a disaster. Every department in the Company is self-responsible for daily backups on the server. Advanced machines are in place through which electronic retrieval of printed data can be extracted. 4.15 -POLICY FOR SECURITY CLEARANCE OF FOREIGN DIRECTORS In accordance with the requirements of Ministry of Interior (MoI), foreign directors cannot resume charge of their position unless the MoI provides security clearance of the foreign director. The Company obtains declarations along with other requisite documents from the Foreign Directors, which are submitted with the Securities and Exchange Commission of Pakistan for onward submission to MoI. In the event, the MoI refuses to provide clearance of the Foreign Director(s), the Company takes adequate steps to replace the said Director. 4.16 -POLICY ON DIVERSITY The Company believes in cultural diversity and has blend of employees with varying characteristics. The Company promotes and encourages diversity in the form of gender, ethnicity and physical ability and ensures that the employees are treated in a fair and impartial manner. 4.17 -POLICY OF RETENTION OF BOARD FEE BY THE EXECUTIVE DIRECTOR IN OTHER COMPANIES Mr. Mohammad Ali Jameel and Mr. Muhammad Aminuddin who hold Executive Director positions in the Company also hold Non-Executive Director positions on the Boards of other Companies and receive remuneration in compliance with the respective Company’s policies approved by their Board of Directors. 4.18 -INVESTOR’S GRIEVANCES POLICY TPL Insurance has a well-defined mechanism for handling investor grievances and the subsequent redressal of the grievance. Our Compliance team undertakes to ensure that the investors are provided impeccable services. The Company has set the following guidelines to handle investor queries and complaints: • • • Timely responses to investor grievances; Fair treatment of all investors; Corrective measures to be taken instantly to avoid complaints in the future 72 Transforming Imagination Through Digitization
  75. ANNUAL REPORT 2018 The Company Secretary is the point of contact in such cases . Investors may directly write to the Company at the following address: The Company Secretary TPL Insurance Limited 12th Floor, CenterPoint, Off Shaheed-e-Millat Expressway, Adjacent KPT Interchange, Karachi. Shareholders' enquiries about their shareholding, dividends or share certificates etc. can be directed to the Share Registrar at the following address: THK Associates (Pvt) Limited 1st Floor, 40-C, Block-6, P.E.C.H.S., Karachi - 75400 UAN: (92-21):111-000-322 Tel: (92-21) 34168266-70 Alternatively, the investors can also send an email to designated email address info@tplinsurance.com for their queries/complaints. In other cases, an investor who is not satisfied can also approach the Securities & Exchange Commission of Pakistan (SECP) complaint cell through the interactive link available on our website. 4.19 - IT GOVERNANCE FRAMEWORK TPL Insurance maintains a documented IT Security Policy which is approved by the Board of Directors. The policy aims to ensure that the operations are running effectively and are protected from any security threats. The Policy entails the following aspects: • • • • • • • Staff Trainings Roles and Responsibilities Protection of Information Assets System Development Life Cycles (SDLC) Security Investigation and Reporting Intrusion Prevention and Detection Disaster Recovery Plan 4.20 - ANNUAL EVALUATION OF BOARD'S PERFORMANCE The Board has developed a mechanism to evaluate its own performance, on an annual basis, through a questionnaire. The said questionnaire is prepared in accordance with the Code of Corporate Governance and is circulated to all the Directors covering inter-alia the following areas: • • • • • Fiduciary Duties Business Strategy Compliance with the Law Participation on the Board Corporate Reporting 4.21 - PERFORMANCE REVIEW OF THE CEO The Chief Executive Officer is appointed by the Board of Directors for tenure of three years. The Human Resource & Remuneration Committee of the Board sets operational, financial and strategic objectives to evaluate his performance. The Committee reviews and monitors the CEO’s performance on an annual basis. 73
  76. 4 .22 -CHAIRMAN’S REVIEW REPORT On behalf of the Board, I am pleased to present the performance review of the Board of Directors of the Company. I would like to take this opportunity to thank my fellow Board Members for providing the Company their consistent support and vision it required to thrive. The Board completed its term of office in April, 2018 and the Directors were re-elected for a fresh term commencing from May, 2018. Two casual vacancies were created upon the resignations of Mr. Saad Nissar and Mr. Bilal Bin Zafar, however the same were duly filled by Mr. Muhammad Aminuddin and Mr. Rana Assad Amin respectively. I would like to take this opportunity to appreciate the out-going directors for the services rendered and thank them for their valuable contribution to the Board. The current composition of the Board is a blend of seasoned and experienced individuals. The Board of Directors have played an important role at all levels whereas the Committees of the Board operated efficiently and assisted the Board in all key matters in accordance with the requirements under the Listed Companies (Code of Corporate Governance) Regulations, 2017. In addition, the Board effectively carried out Board Performance Appraisal at the end of the financial year in terms of which the performance was found to be satisfactory. It gives me great pleasure to report that the performance of the Board has been par excellence which assisted the Company to succeed in all its endeavors. The Board carries out its fiduciary duties with objective judgment and in the best interest of the Company. Moving forward, I am confident that the Company with the guidance of the Board would surpass all expectations by exponential growth in the coming years. Jameel Yusuf (S.St.) Chairman February 21, 2019 74 Transforming Imagination Through Digitization
  77. ANNUAL REPORT 2018 4 .23 -AUDIT COMMITTEE REPORT The Audit Committee The Audit Committee (AC) is delegated with the authority from the Board to provide independent oversight of the Company’s financial reporting and internal control systems, and the adequacy of the external and internal audits. The AC is provided with sufficient resources to perform its duties including support, as necessary, from the Internal Audit Department (IAD), the external auditor, legal counsel and management in examining all matters relating to the Company’s adopted accounting policies and practices, and in reviewing all material financial, operational and compliance controls. The AC comprises of one independent director, one executive director and one non-executive director, and includes a member who is qualified chartered accountant. The AC held four meetings in 2018. Review of Financial Results The AC reviewed the 2018 Financial Statements in conjunction with the Company’s external auditors. Based on this review and discussions with management, the AC was satisfied that the Financial Statements were prepared in accordance with applicable accounting standards and fairly present the Company’s financial position and results for the year ended 31 December 2018. The AC therefore recommended the Financial Statements for the year ended 31 December 2018 be approved by the Board. Review of Internal Control Systems The AC reviewed the effectiveness of the Company’s policies and procedures regarding internal control systems by reviewing the work of the IAD and the Company’s external auditor, and regular reports from management including those on risk management, regulatory compliance and legal matters. In conjunction with the Risk Committee, the AC reviewed and concurred with the management confirmation that for the year ended 31 December 2018, the Company’s risk management and internal control systems were effective. The AC is satisfied that the Company has adopted necessary control mechanisms to ensure that it satisfactorily complies with the requirements of the Code of Corporate Governance in respect of internal control systems. Review of Accounting, Financial Reporting and Internal Audit Functions The AC reviewed and was satisfied with the adequacy of the resources, staff qualifications and experience, training programs and budget of the Company’s accounting, financial reporting and internal audit functions. Review of Related Party Transactions During 2018, the Company entered into certain related party transactions as disclosed in the notes to the financial statements. The AC reviewed these transactions. The AC confirmed that the transactions were entered into by the Company are in accordance with the applicable requirements. Independence of External Auditor The AC is mandated to monitor the independence of the Company’s external auditor, EY Ford Rhodes (EYFR) Chartered Accountants. With respect to the independence of the Company’s external auditor, the AC received confirmation from and discussed with EYFR on its independence and objectivity. During the year, the AC reviewed EYFR’s statutory audit scope and concurred with it. Re-appointment of External Auditors The AC has reviewed the external auditors’ independence and objectivity. External auditors have confirmed that they have been given satisfactory rating under Quality Control Review program of the Institute of Chartered Accountants of Pakistan. Accordingly, AC has recommended the re-appointment of EYFR (which has indicated its willingness to continue in office) as the Company’s external auditor for 2019 for Shareholders’ approval at the 2018 AGM. Syed Nadir Shah Chairman of Audit Committee 21 February 2019 75
  78. 4 .24 - DIRECTORS' REPORT 2018 On behalf of the Board of Directors of TPL Insurance Limited, I am pleased to present the annual report of the Company for the year ended December 31, 2018. BUSINESS REVIEW GROSS WRITTEN PREMIUM During the year, the company reported gross written premium of Rs. 2,409 million registering growth of 5.0%. The premium includes contributions written by window takaful operations of the company which amounts to Rs. 1,058.5 million (2017: 909.0 million). The lower growth is mainly ascribed to the motor insurance business segment that has faced unprecedented challenges during the year under review. Firstly the non-filer issue where auto sales were not permissible to individuals who did not have a “tax-filer” status in govt. records effective 1 July 2018, while in addition during the year 2018, the State bank of Pakistan raised its benchmark interest rate by 400 bps to 10.0%. Both these factors reduced demand for new car sales and in turn negatively impacted fresh motor insurance sales in 2018, which still constitutes the largest business segment of the company. The Company maintained its 3rd position in the motor market on overall basis and 5th rank in the industry (based on Net Earned Premium for the year ended 31 December 2017). Year Gross written premium (Rs. In millions) Growth % 2013 869.9 23% 2014 1,220.8 40% 2015 1,635.5 34% During 2018, the Company continued to expand into non-motor segment with gross written premium for the year reaching 351 million (2017: Rs. 197 million) in this segment. Thus the proportion of non-motor business increased from 9% in 2017 to 15% in 2018. The Company is pursuing a diversification based, selective high quality growth strategy in the non – motor segment while remaining keenly focused on digitalization initiatives to further 26% 2,054.5 2016 strengthen its outreach and improve service quality for the retail customer base. During 2018, we successfully digitalized claims 12% 2,292.7 2017 operations via a customer app, thereby facilitating lodging of 5% 2,408.7 2018 claims, and registering the survey reports directly into our claims processing system making the whole process paperless and at the same time improving the claims settlement turnaround time. Work on further strengthening the underwriting system in a similar manner is in progress. Also, we are enhancing the features of our customer app to facilitate getting quotes and buying policy online, self-survey of vehicle damages, requesting endorsements and renewal of policies. As a result of these initiatives, we expect to improve our engagement digitally with our retail customer base and thus accelerate the Company’s growth trajectory in 2019. CLAIMS ANALYSIS In 2018, the Company by implementing effective vendor management resulted in reduction in average claim size by 10% despite increase in part prices due to Rupee devaluation of more than 30% during the year. As a result, claim ratio was maintained at 43% during the year. No major claim costs has been incurred in commercial lines business to date due to prudent underwriting and lower retention of risk. The company has developed a team of professionals in the segment to ensure effective risk management to ensure that claim costs are managed well in this business segment. 76 Transforming Imagination Through Digitization YEARLY CLAIMS INCURRED Year % of Earned Premium 2013 43% 2014 50% 2015 47% 2016 46% 2017 43% 2018 43%
  79. ANNUAL REPORT 2018 WINDOW TAKAFUL OPERATIONS The Company ’s Window Takaful Operations (WTO) crossed the one billion mark during 2018 and has underwritten contributions amounting to Rs. 1,058.5 million (2017: Rs. 909.0 million). This represents YoY growth of 16.4%. The consolidated assets of operator fund and participant takaful fund amount to Rs. 1,249.6 million (2017: Rs. 1,001.9 million). The Company continues to maintain 2nd position in motor takaful market. During the year, for the first time, the participant takaful fund registered a surplus of Rs. 20.2 million (2017: loss of Rs. 69.9 million). This was achieved as a result of prudent underwriting and reduction in wakala fee. It is projected that participant takaful fund profitability would further improve in the next years and the company will recover the Qard e Hasna provided to the fund in full. FINANCIAL REVIEW PROFITABILITY AND GROWTH 200 148.8 150 100 The Company has recorded a pretax profit of Rs 14.5 million (2017: Rs. 163.4 million), including loss from operator fund of Rs. 112.2 million (2017: profit of Rs. 47.5 million). The surplus from participant takaful fund of Rs. 20.1 million (2017: loss of Rs. 69.9 million) is not included in the profit of the Company as per SECP’s circular 25 of 2015. The pre-tax and post-tax basic earnings per share are 0.15 and 0.04 respectively (2017: Rs. 1.74 and Rs. 1.12). 163.3 78.4 50 38.9 45.6 14.5 The decline in profitability during the year is attributed to investment made in development of the non-motor business segment, digitization initiatives undertaken by the Compa2013 2014 2015 2016 2017 2018 ny, as well as the reduction in wakala fee charged to particiProfit Before Tax (Rs. In Million) pant’s takaful fund. While these measures have had a short term negative impact on profitability of the Company, we believe that these steps will enable us to achieve sustainable profitable growth in the coming years. 0 INVESTMENTS As at 31 December 2018, investments made by the Company (including investments made by Participant’s Takaful Fund) stand at Rs. 1,026.3 million (2017: Rs. 1,188.4 million). These mainly comprise of investments in term deposits amounting to 350 million (2017: 405.0 million), investment in government securities amounting to Rs. 292.8 million (2017: Rs.99.5 million), investment in corporate sukuk amounting to Rs. 50 million (2017: Rs. Nil) and investment in equities and mutual funds amounting to 333.5 million (2017: 683.9 million). The aggregate market value of these investments is Rs. 1,023.4 million (2017: Rs. 1,195.2 million). CASH & BANK BALANCES The cash and bank balances of the Company stand at Rs. 153.0 million (2017: Rs. 133.6 million). In addition, cash and bank balances of participants’ takaful fund stand at Rs.93.8 million (2017: Rs. 102.7 million). DIVIDEND The Board of Directors have declared interim dividend and bonus shares @ 20% and @13% respectively during the year, resulting in total pay-out for the year of 33% or Rs. 3.3 per share (2017: 10% Bonus shares issued). The Board of Directors do not recommend any final dividend for the financial year ended 31 December 2018. 77
  80. CREDIT RATING The Pakistan Credit Rating Agency Ltd (PACRA) has maintained the credit rating of the Company to “A+” with a stable outlook. KEY FINANCIAL DATA FOR THE LAST SIX YEARS INCOME STATEMENT - CONVENTIONAL BUSINESS (Rs. In millions) Profit and Loss 2018 2017 2016 2015 2014 Gross premium written 1,350.1 1,383.7 1,370.2 1,171.3 1,156.0 869.9 Net premium revenue 1,264.0 1,299.5 1,204.4 1,129.3 1,042.9 733.5 (1,107.6) (1,133.0) (1,153.7) (1,074.4) (965.1) (619.9) Underwriting results 156.4 166.5 50.7 54.9 77.8 113.6 Investment income and other income 215.5 171.3 181.5 140.5 93.1 74.3 (245.2) (222.0) (118.9) (160.1) (135.2) (109.6) 126.7 115.8 113.3 35.2 35.7 78.4 Underwriting expenses Other expenses Profit before tax from General Insurance Operations Profit before tax from Window Takaful Operations Profit / (Loss) before tax for the year Profit / (Loss) after tax 2013 (112.2) 47.5 35.5 10.4 3.2 - 14.5 163.3 148.8 45.6 38.9 78.4 3.6 105.0 103.2 33.3 25.9 51.5 CONSOLIDATED INCOME STATEMENT (including profit and loss account of Participant’s Takaful Fund) (Rs. In millions) Consolidated Profit and Loss (including profit and loss account of Participant’s Takaful Fund) 2018 2017 2016 2015 2014 Gross premium written 2,408.7 2,292.7 2,054.5 1,635.5 1,220.8 869.9 Net premium revenue 2,246.6 2,068.8 1.750.5 1,419.2 1,056.4 733.5 (1,967.4) (1,831.9) (1,634.3) (1,419.8) (956.6) (619.9) 279.2 236.9 116.2 (0.6) 99.8 113.6 70.7 60.9 106.8 142.8 92.7 74.3 (315.3) (204.3) (141.0) (160.1) (155.5) (109.6) Profit / (Loss) before tax 34.6 93.5 82.0 (7.5) 37.0 78.4 Profit / (Loss) after tax 23.7 35.2 36.4 (19.9) 24.0 51.5 Underwriting expenses Underwriting results Investment income and other income Other expenses 78 Transforming Imagination Through Digitization 2013
  81. ANNUAL REPORT 2018 BALANCE SHEET - CONVENTIONAL BUSINESS Balance Sheet Paid up share capital 2018 2017 (Rs. In millions) 2016 2015 2014 2013 946.7 893.8 893.8 893.8 452.3 452.3 16.9 253.9 148.9 45.7 12.4 -13.5 Unrealized gain (loss) on revaluation of available-for-sale investments (26.7) (26.4) 2.3 1.6 0.0 0.0 Total Equity 936.9 1,121.3 1,045.0 941.2 464.8 438.8 Investments 673.1 1,069.5 821.8 727.0 49.9 153.2 Fixed assets 122.1 79.4 361.2 384.7 308.7 169.1 7.5 21.4 0.0 0.0 4.8 19.1 Cash and bank deposits 153.0 133.6 176.4 16.6 9.0 108.4 Other assets 925.6 861.2 602.0 551.6 815.9 625.8 Total assets of General Takaful Operations – OF 370.0 335.5 318.9 190.7 81.4 - 2,251.3 2,500.6 2,280.2 1,870.6 1,269.8 1,075.5 Underwriting liabilities 792.2 805.7 831.0 693.9 695.9 568.0 Other liabilities 353.1 339.3 226.1 129.9 81.6 68.7 Total liabilities of General Takaful Operations – OF 166.0 234.3 178.1 105.7 27.5 - 1,314.4 1,379.3 1,235.2 929.4 805.0 636.7 Accumulated (losses) / Unappropriated profits Capital work in progress Total Assets Total Liabilities CONSOLIDATED BALANCE SHEET (including balance sheet of Participant’s Takaful Fund) (Rs. In millions) Consolidated Balance Sheet (including balance sheet of Participant’s Takaful Fund) Paid up share capital 2018 2017 2016 2015 2014 2013 946.7 893.8 893.8 893.8 452.3 452.3 18.9 255.9 150.9 47.7 14.4 (13.5) Unrealized gain (loss) on revaluation of available-for-sale investments (25.4) (36.4) 2.3 1.6 - - Total Equity 940.2 1,113.3 1,047.0 943.1 466.7 438.8 Accumulated (losses) / Unappropriated profits 79
  82. (Rs. In millions) Consolidated Balance Sheet (including balance sheet of Participant’s Takaful Fund) 2018 2017 2016 2015 2014 2013 Investments 1,026.3 1,213.3 1,056.7 101.4 49.9 153.2 Fixed assets 112.9 58.0 357.3 384.7 313.5 169.1 7.6 21.4 - - 4.8 19.1 251.9 247.2 240.8 753.5 89.8 108.4 Other assets 1,412.4 1,419.8 1,017.8 988.8 844.8 625.7 Total Assets 2,811.1 2,959.7 2,672.6 2,228.4 1,302.8 1,075.5 Underwriting liabilities 1,447.5 1,383.6 1,247.9 969.9 756.0 568.0 Capital work in progress Cash and bank deposits Other liabilities 423.4 462.8 377.7 315.4 80.1 68.7 Total Liabilities 1,870.9 1,846.4 1,625.6 1,285.3 836.1 636.7 AUDITORS M/s EY Ford Rhodes, Chartered Accountants retire and offer themselves for reappointment. The Board of Directors has recommended their appointment as auditors for the year ending 31 December 2019, at a fee to be mutually agreed. RELATED PARTY TRANSACTIONS The related party transactions were placed before the Board of Audit Committee and approved by the Board. These transactions were in line with the International Financial Reports Standards and the Companies Act, 2017. CORPORATE SOCIAL RESPONSIBILITY The management takes great care that its objective of contributing to society by focusing on responsible growth and thereby creating an environmental and social impact is always in focus During 2018, the company deployed requisite resources into formulating frameworks and arrangements that address social challenges such as poor education outcomes, low health and living standards and improving the economic wellbeing of the people wherever they are, regardless of race, color, religion or ethnicity. On on overall basis, by our efforts, we endeavor to deliver a noticeable positive impact on society and become a catalyst for change. STATEMENT ON CORPORATE AND FINANCIAL REPORTING FRAMEWORK The Board is fully aware of its corporate responsibilities as envisaged under the Code of Corporate Governance, prescribed by the Securities and Exchange Commission of Pakistan and is pleased to certify that: • The financial statements prepared by the Company present fairly its state of affairs, the result of its operations, cash flows and changes in equity. • The Company has maintained proper books of accounts. • Appropriate accounting policies have been consistently applied in preparation of financial statements except as disclosed in the financial statements and accounting estimates are based on reasonable and prudent judgment. 80 Transforming Imagination Through Digitization
  83. ANNUAL REPORT 2018 • International Accounting Standards, International Financial Reporting Standard and other regulations (including but not limited to the Shariah guidelines /principles) as applicable in Pakistan, have been followed in the preparation of the financial statements and any departure there from have been adequately disclosed. • The system of internal control is sound in design and has been effectively implemented and monitored. • The fundamentals of the Company are strong and there are no doubts about Company’s ability to continue as a going concern. • The Company has followed the best practices of the Corporate Governance and there has been no material departure there from. • Key operating and financial data for the last six years in summarized form, is included in this annual report. • Significant deviations from last year’s operating results have been explained in this report. • Statutory payments on account of taxes, duties, levies and charges outstanding are in the normal course of business. • The board has ensured trainings for its directors; three directors of the Company have attended the director’s training program. • The value of investments of provident fund on the basis of audited financial statements of the provident fund as on 30 June 2018 is Rs. 38.9 million (2017: Rs. 28.4 million). DIRECTORS’ REMUNERATION The Board of directors have a formal policy and transparent procedures for remuneration of directors in accordance with the Companies Act 2017. The details of remuneration to directors are mentioned in notes to the financial statements. INSURANCE ORDINANCE 2000 As required under the Insurance Ordinance 2000 and rules framed there under, the Directors confirm that: • In their opinion and to the best of their belief, the annual statutory accounts of the Company set out in the forms attached with this statement have been drawn up in accordance with Insurance Ordinance 2000 and rules made there under. • The Company has at all times in the year complied with the provisions of the Ordinance and the rules made there under relating to the paid up capital, solvency and reinsurance arrangements; and as at the date of the statement, it continues to be in compliance with the provisions of the Ordinance and rules framed there under as mentioned above. CODE OF CONDUCT The Company ensures that all its activities are carried out in a transparent manner strictly following the code of business ethics with zero tolerance. 81
  84. PATTERN OF SHAREHOLDING A statement of pattern of shareholding of the Company as at 31 December 2018 is as follows : Shareholder's Category Number of Shares Held Parent Company – TPL Corp Limited Directors Mutual Fund Percentage of Share holding 88,452,950 94.23% 126,781 0.14% 454,290 0.48% 3,965,691 4.22% General Public (Foreign) 171,272 0.19% Others 695,277 0.74% 93,866,261 100% General Public (Local) Total TRADING IN COMPANY’S SHARES Details of trade in shares of the Company by Directors, CEO, CFO, Company Secretary, Head of Internal Audit, other employees and their spouses and minor children are reported in Pattern of Shareholding. BOARD MEETINGS The Board of Directors held six meetings in 2018. Attendance of Directors is indicated below: NAME OF DIRECTOR Mr. Jameel Yusuf (S.St.) * ** 82 MEETINGS ATTENDED 3 Mr. Ali Jameel 6 Mr. Rana Assad Amin ** 5 Mr. Bilal Bin Zafar* 1 Mr. Waqar Malik 6 Mr. Syed Nadir Shah 6 Mr. Saad Nissar* 2 Mr. Muhammad Aminuddin ** 2 resigned during the year filled casual vacancy during the year Transforming Imagination Through Digitization
  85. ANNUAL REPORT 2018 FUTURE OUTLOOK The Company is targeting focused growth in personal lines business as well as investing in digitalization initiatives to increase its outreach in the market . This, alongwith diversification benefits through penetration into non-motor segment would significantly strengthen company’s position in future. We believe that the prevailing economic uncertainty due to deficit in balance of payment is expected to be over in near future. We are confident that initiatives taken by the government to improve foreign investments and GDP growth would bring economic stability and would supplement insurance industry growth. Although increasing discount rate and automobile prices cast doubt on auto insurance growth, but Company is confident to improve market share through product development, channel deepening and penetration through digitalization initiatives. Stock market is also expected to recover to normal level, leading to improved investment returns. ACKNOWLEDGEMENT We would like to thank the shareholders of the Company for the confidence they have reflected in us. We also appreciate the valued support and guidance provided by the Pakistan Stock Exchange, Federal Board of Revenue, Provincial Revenue Authorities, Central Depository Company and Securities and Exchange Commission of Pakistan over time. We would also express our sincere thanks to the employees, strategic partners, vendors, bankers and customers for their support in pursuit of our corporate objectives. For and on behalf of the Board of Directors, Muhammad Aminuddin Chief Executive Officer 83
  86. 4 .25 -MANAGEMENT RESPONSIBILITIES TOWARDS FINANCIAL STATEMENTS Management is responsible for the preparation and fair presentation of the financial statements in accordance with accounting and reporting standards as applicable in Pakistan and the requirements of Insurance Ordinance, 2000 and, Companies Act, 2017, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement. In preparing the financial statements, management is responsible for assessing th e Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so. Board of directors are responsible for overseeing the Company’s financial reporting process. 4.26 -PATTERN OF SHAREHOLDING -----NO. OF SHARES----- 84 No. of Shareholders From To 224 38 102 101 14 12 3 5 2 2 2 1 1 1 2 4 1 1 1 1 1 2 1 1 1 1 1 1 1 1 1 1 1 1 533 1 101 501 1,001 5,001 10,001 15,001 20,001 25,001 30,001 35,001 40,001 45,001 50,001 55,001 60,001 80,001 85,001 90,001 95,001 100,001 120,001 155,001 160,001 195,001 270,001 355,001 370,001 405,001 435,001 440,001 515,001 1,075,001 87,375,001 100 500 1,000 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000 50,000 55,000 60,000 65,000 85,000 90,000 95,000 100,000 105,000 125,000 160,000 165,000 200,000 275,000 360,000 375,000 410,000 440,000 445,000 520,000 1,080,000 87,380,000 Transforming Imagination Through Digitization Shares Held 1,233 9,484 63,254 197,425 91,178 145,172 53,285 117,825 59,386 63,726 74,763 43,307 49,494 51,564 115,725 248,352 80,397 85,185 93,225 96,331 100,500 248,600 156,000 161,357 198,000 273,460 358,641 373,290 405,919 436,752 440,827 519,654 1,076,990 87,375,960 93,866,261 Percentage 0.00 0.01 0.07 0.21 0.10 0.15 0.06 0.13 0.06 0.07 0.08 0.05 0.05 0.05 0.12 0.26 0.09 0.09 0.10 0.10 0.11 0.26 0.17 0.17 0.21 0.29 0.38 0.40 0.43 0.47 0.47 0.55 1.15 93.09 100.00
  87. ANNUAL REPORT 2018 4 .27 -CATEGORY OF SHAREHOLDING Category of Shareholders as of December 31, 2018 Particulars No of Folio No. of Shares Percentage 126,781 0.14 Mr. Jameel Yusuf (S.St.) 620 0.00 Mr. Ali Jameel 620 0.00 1 0.00 620 0.00 Directors, CEO & their Spouse and Minor Children 6 Mr. Andrew Borda Syed Nadir Shah Mr. Waqar Ahmed Malik Associated Companies 3 TPL Corp Limited TPL Holdings (Pvt) Ltd. Mutual Funds 4 124,920 0.13 88,452,950 94.23 87,375,960 93.09 1,076,990 1.15 454,290 0.48 373,290 0.40 CDC - Trustee PICIC Investment Fund 120 0.00 CDC - Trustee PICIC Growth Fund 483 0.00 Golden Arrow Selected Stocks Fund Limited CDC - Trustee AKD Opportunity Fund 80,397 0.09 504 3,965,691 4.22 4 171,272 0.18 14 695,277 0.74 33,412 0.04 189 0.00 405,919 0.43 Bonus Fraction B-2019 168 0.00 Habib Sugar Mills Ltd. 60,062 0.06 1 0.00 55,935 0.06 329 0.00 Federal Board of Revenue 16,734 0.02 Sherman Securities (Private) Limited 61,867 0.07 1 0.00 38,038 0.04 General Public (Local) General Public (Foreign) Others Toyota Hyderabad Motors Bonus Fraction B-2018 CDC Stay Order Cases with Fraction Maple Leaf Capital Limited Pearl Securities Limited Fawad Yusuf Securities (Pvt.) Limited Falcon-I (Private) Limited Toyota Sahara Motors (Pvt.) Ltd Paradigm Factors (Private) Limited Company Total 535 22,622 0.02 93,866,261 100.00 Details of purchase of shares by directors and majority shareholders during the year 2018 are as follows; Name of Director No. of Shares Price Per Share Settlement Date Nature of Transaction Waqar Ahmed Malik 100,000/- 20.00 April 3, 2018 Purchase TPL Holdings (Pvt) Ltd 349,000/- 19.93 June 27, 2018 Purchase TPL Holdings (Pvt) Ltd 5,000/- 20.51 June 28, 2018 Purchase 85
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  89. COMPLIANCE WITH CODE OF CORPORATE GOVERNANCE 5 .1 5.2 INDEPENDENT AUDITOR’S REVIEW REPORT STATEMENT OF COMPLIANCE WITH THE CODE OF CORPORATE GOVERNANCE 87
  90. EY Ford Rhodes UAN : + 9221 111 11 39 37 (EYFR) Chartered Accountants Tel: +9221 3565 0007-11 Progressive Plaza, Beaumont Road Fax: +9221 3568 1965 P.O. Box 15541, Karachi 75530 ey.khi@pk.ey.com Pakistan ey.com/pk 5.1 - INDEPENDENT AUDITOR’S REVIEW REPORT To the members of TPL Insurance Limited (the Company) Review Report on the Statement of Compliance with Code of Corporate Governance We have reviewed the enclosed Statement of Compliance with the Code of Corporate Governance prepared by the Board of Directors of TPL Insurance Limited for the year ended 31 December 2018 in accordance with the requirements of the Pakistan Stock Exchange Rule Book and Code of Corporate Governance for Insurers, 2016 (the Code). The responsibility for compliance with the Code is that of the Board of Directors of the Company. Our responsibility is to review whether the Statement of Compliance reflects the status of the Company’s compliance with the provisions of the Code and report if it does not and to highlight any non-compliance with the requirements of the Code. A review is limited primarily to inquiries of the Company’s personnel and review of various documents prepared by the Company to comply with the Code. As a part of our audit of the financial statements we are required to obtain an understanding of the accounting and internal control systems sufficient to plan the audit and develop an effective audit approach. We are not required to consider whether the Board of Directors’ statement on internal control covers all risks and controls or to form an opinion on the effectiveness of such internal controls, the Company’s corporate governance procedures and risks. The Code require the Company to place before the Audit Committee, and upon recommendation of the Audit Committee, place before the Board of Directors for their review and approval, its related party transactions and also ensure compliance with the requirements of section 208 of the Companies Act, 2017. We are only required and have ensured compliance of this requirement to the extent of the approval of the related party transactions by the Board of Directors upon recommendation of the Audit Committee. We have not carried out procedures to assess and determine the Company’s process for identification of related parties and that whether the related party transactions were undertaken at arm’s length price or not. Based on our review, nothing has come to our attention which causes us to believe that the Statement of Compliance does not appropriately reflect the Company's compliance, in all material respects, with the requirements contained in the Code as applicable to the Company for the year ended 31 December 2018. _____________________ Chartered Accountants Date: 21 February 2019 88 Transforming Imagination Through Digitization
  91. ANNUAL REPORT 2018 5 .2 - STATEMENT OF COMPLIANCE WITH THE CODE OF CORPORATE GOVERNANCE FOR THE YEAR ENDED DECEMBER 31, 2018 This statement is being presented in compliance with the Code of Governance for Insurers, 2016 (“2016 Code”) for the purpose of establishing a framework of good governance, whereby an insurer is managed in compliance with the best practices of corporate governance. TPL Insurance Limited (the “Company”) has applied the principles contained in the Code in the following manner: 1. The Company encourages representation of Independent and Non-Executive Directors representing the minority’s interests on its Board of Directors. At present the Board includes: Category Names Independent Directors Syed Nadir Shah, Mr. Rana Assad Amin Executive Directors Mr. Muhammad Aminuddin, Mr. Ali Jameel Non-Executive Directors Mr. Jameel Yusuf (S.St.), Mr. Andrew Borda, Mr. Waqar Ahmed Malik All Independent Directors meet the criteria of independence as laid down under the 2016 Code. 2. The Directors have confirmed that none of them is serving as a director in more than five listed companies, including this Company. 3. All the resident Directors of the Company are registered as taxpayers and none of them has defaulted in payment of any loan to a banking company, a DFl or an NBFI or, being a member of stock exchange, has been declared as a defaulter by a stock exchange. 4. The casual vacancies were duly filled up by the directors as follows: S.No. Resigned Dated Appointment Dated 1 Mr. Bilal Bin Zafar February 6, 2018 Mr. Rana Assad Amin February 22, 2018 2. Mr. Saad Nissar August 2, 2018 Mr. Muhammad Aminuddin August 11, 2018 5. The Company has prepared a Code of Conduct, which has been disseminated among all the Directors and employees of the Company. 6. The Board has developed a vision/mission statement, overall corporate strategy and significant policies of the Company. A complete record of particulars of significant policies along with the dates on which they were approved or amended has been maintained. 7. All powers of the Board have been duly exercised and decisions on material transactions, including appointment and determination of remuneration and terms and conditions of employment of the Chief Executive Officer, other Executive Directors and the key officers, have been taken by the Board. 8. The meetings of the Board were presided over by the Chairman and in his absence, by a Director elected by the Board for this purpose, and the Board met at least once in every quarter. Written notices of the Board meetings, along with agenda and working papers, were circulated at least seven (7) days before the meeting. The minutes of the meeting were appropriately recorded and circulated. 9. The Board has established a system of sound internal control, which is effectively implemented at all levels within the Company. The Company has adopted and complied with all the necessary aspects of internal controls given in the 2016 Code. 10. An orientation of the Board of Directors was conducted to apprise them of their duties and responsibilities including the fiduciary duties as contained in the Companies Act, 2017. 89
  92. 11 . The Board has approved appointment of the Chief Financial Officer and Chief Executive Officer, including their remuneration and terms and conditions of employment. 12. The Directors' Report for this year has been prepared in compliance with the requirements of the 2016 Code and fully describes the salient matters required to be disclosed. 13. The financial statements of the Company were duly endorsed by Chief Executive Officer and Chief Financial Officer before approval of the Board. 14. The Directors, Chief Executive Officer and other executives do not hold any interest in the shares of the Company other than disclosed in the pattern of shareholding. 15. The Company has complied with all the corporate and financial reporting requirements of the 2016 Code. 16. The Board has formed the following Management Committees: Underwriting Committee: Name of the Member Category Andrew Borda Chairman Raza Ali Shah Member Muhammad Aminuddin Member Syed Kazim Hasan Secretary Claim Settlement Committee: Name of the Member Category Muhammad Aminuddin Chairman Syed Kazim Hasan Member Ovais Alam Secretary Reinsurance and Co-insurance Committee: Name of the Member Category Andrew Borda Chairman Athar Abbas Member Muhammad Saleem Junejo Secretary Risk Management and Compliance Committee: 17. Name of the Member Category Waqar Ahmed Malik Chairman Raza Ali Shah Member Muhammad Aminuddin Member Syed Kazim Hasan Secretary The Board has formed the following Board Committees: Ethics, HR, Remuneration and Nomination Committee: 90 Name of the Member Category Syed Nadir Shah Chairman Ali Jameel Member Rana Assad Amin Member Waqar Ahmed Malik Member Nader Nawaz Secretary Transforming Imagination Through Digitization
  93. ANNUAL REPORT 2018 Investment Committee : Name of the Member 18. Category Ali Jameel Chairman Andrew Borda Member Waqar Ahmed Malik Member Muhammad Aminuddin Member Syed Kazim Hasan Secretary The Board has formed an Audit Committee. It comprises of three members of whom one is an independent director, one non-executive director and one executive director. The chairman of the Committee is an independent director. The composition of the Audit Committee is as follows: Audit Committee: Name of the Member Category Syed Nadir Shah Chairman Ali Jameel Member Andrew Borda Member Yousuf Zohaib Ali Secretary 19. The meetings of the Committees were held once every quarter prior to approval of interim and final results of the Company, whereas the Ethics, Human Resources, Remuneration and Nomination Committee met on an annual basis as required under 2016 Code. The terms of references of all committees were duly formed and the Committees were further advised to comply with the same. 20. The Board has set up an effective internal audit function which has been staffed with resources who are considered suitably qualified and experienced for the purpose and are conversant with the policies and procedures of the Company and are involved in the internal audit function on a regular basis. 21. The Chief Executive Officer, Chief Financial Officer, Compliance Officer and the Head of Internal Audit possess such qualification and experience as is required under the 2016 Code. Moreover, the persons heading the underwriting, claim, reinsurance and risk management departments possess qualification and experience of direct relevance to their respective functions, as required under section 12 of the Insurance Ordinance. 2000 (Ordinance No. XXXIX of 2000): Name of Person Designation Muhammad Aminuddin Chief Executive Officer Syed Kazim Hasan Chief Financial Officer Danish Qazi Compliance Officer Danish Qazi Company Secretary Yousuf Zohaib Ali Head of Internal Audit Raza Ali Shah Head of Underwriting Ovais Alam Head of Claims Muhammad Saleem Junejo Head of Reinsurance Aeman Shujaat Head of Risk Management Sania Hassan Khan Head of Grievance Dept. During the year, there were changes in the position of the Chief Financial Officer and Chief Executive Officer due to resignations and change in the position of Head of Risk Management. 22. The statutory auditors of the Company have been appointed from the panel of auditors approved by the Commission in terms of Section 48 of the Insurance Ordinance, 2000 (Ordinance No. XXXIX of 2000). The statutory auditors have confirmed that they have been given a satisfactory rating under the Quality Control Review program of the Institute of Chartered Accountants of Pakistan, that they or any of the partners of the firm, their spouses and minor children do not hold shares of the Company and that the firm and all its partners are in 91
  94. compliance with the International Federation of Accountants (IFAC) guidelines on Code of Ethics as adopted by the Institute of Chartered Accountants of Pakistan. 23. The statutory auditors or the persons associated with them have not been appointed to provide other services and the auditors have confirmed that they have observed IFAC guidelines in this regard. 24. The Board ensures that the investment policy of the Company has been drawn up in accordance with the provisions of the 2016 Code. 25. The Board ensures that the risk management system of the Company is in place as per the requirements of the 2016 Code. The Company has set up a risk management function/ department, which carries out its tasks as covered under the 2016 Code. 26. The Company has been rated by PACRA and the rating assigned by the rating agency on December 13, 2018 is A+ with stable outlook. 27. The Board has set up a grievance department/function, which fully complies with the requirements of the 2016 Code. 28. The Company has complied with the requirements relating to maintenance of register of persons having access to inside information by designated senior management officer in a timely manner and maintained proper record including basis for inclusion or exclusion of names from the said list. 29. We confirm that all other material principles contained in the Code of Corporate Governance for Insurers, 2016 have been complied with. By Order of the Board _____________________ Chairman Date: February 21, 2019 92 Transforming Imagination Through Digitization
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  97. MANAGEMENT REVIEW AND REPRESENTATION 6 .1 6.2 6.3 6.4 6.5 6.6 SUSTAINABILITY REPORT MANAGEMENT OBJECTIVES, KPI’s AND SIGNIFICANT CHANGES BUSINESS CONTINUITY PLAN FORWARD LOOKING STATEMENT RISK AND OPPORTUNITY REPORT MANAGING QUALITY SERVICES AT TPL INSURANCE 95
  98. 6 .1 - SUSTAINABILITY REPORT INTRODUCTION As Pakistan’s first direct insurance company, TPL Insurance believes in playing a prominent role in contributing to the society by focusing on responsible growth, environmental and social impact. The following report communicates our sustainability strategies, management approaches and performances. It also comprehensively covers our ongoing initiatives, in accordance with United Nations Sustainable Development Goals (SDGs) which fall in the categories of: Health Environment Education IMPACT PORTFOLIO: HOW WE CONTRIBUTED TO THE SOCIETY 802,624 beneficiaries provided with healthcare facilities 132 employees trained in various technical and soft skills 96 65% 2,841 energy conserved by using efficient technologies beneficiaries were provided with educational opportunities 1,000 Rs. 463 million trees planted in the 1 km radius public area surrounding our corporate office Transforming Imagination Through Digitization were paid as direct and indirect taxes to the Government
  99. ANNUAL REPORT 2018 SUSTAINABILITY GOALS Sustainability forms the core of our strategic vision and serves as a guiding principle for our business objectives . Our sustainability goals are based on the Sustainable Development Goals 2030 set by the United Nations. TPL Insurance has invested more than Rs. 21 million in the areas of education, health and environment during the last fiscal year. Conventional and Takaful S.No Particulars 2018 2017 Rupees in million 1 Education 3.36 9.79 2 General Donations 1.94 1.93 3 Health Care and Environment 16.04 11.07 Total 21.34 22.79 All the SDGs are relevant to TPL Insurance’s operations to varying degrees. In 2018, we prioritized seven of the goals that have particular significance for TPL Insurance across its operations. TPL is a regular donor of the Panah Shelter Home that aims to provide safe shelter to women in distress and their dependent children, by providing informal education to women and children as well as vocational training which include courses in sewing, arts, crafts and beautician training. TPL in collaboration with Panah Shelter Home wants women to look for employment with some basic skill set and take a step in eradicating poverty. Health is a driver of sustainable development and TPL is proud to have benefitted 802,624 individuals with healthcare facilities. We have made contributions to improving healthcare across various hospitals like Layton Rahmatullah Benevolent Trust (LRBT), Patient’s Aid Foundation and Lady Dufferin to name a few. Health is at the heart of all human development and is essential for communities to thrive. Over the span of last year, TPL has provided 2,841 beneficiaries with educational opportunities. As a company we support various institutes like the Family Educational Services Foundation, Kashmir Education Foundation and Teacher’s Resource Center to name a few. Moreover, we have sponsored an Event Hall at IBA and contributed funds for hostel facilities for the students of Sindh Madressah Board Quaid-e-Azam Public School & College (SMB QAPS). Through its focus on employee development and training, the company is not only promoting a healthy work environment but also strengthening the country’s economy by expanding the access of individuals to our company’s products. Over the past year we have had 63 number of new hirings. It is TPL’s mission to use disruptive technology to maximize stakeholder return and achieve sustainable growth for our portfolio companies. All our companies have innovation at its very core and to use advanced technology to provide maximum ease to the customers and create sustainable value for the stakeholders. For the conservation of energy, we have taken measures at our Corporate Head Office like installing smart lighting solutions that minimizes energy consumption. Our building has been designed using high quality energy efficient glass façade that minimizes energy consumption up to 65%. We are working to ensure that none of our products have any carbon emissions and all elements of our supply chain have zero environmental impact. The Company has partnered with various institutions to support the causes of imparting education, catering to the well-being of the society and enhancing the environment. By providing either donations or sponsoring a cause, the Company intends to do its role in generating sustainable value for communities. 97
  100. ECONOMIC PERFORMANCE : Micro Insurance Segment: Micro insurance covers the low income group of the society working towards economic independence and stability. TPL Insurance launched its first micro insurance product with the leading micro finance bank in Pakistan in 2014 to ensure continuity in the efforts towards economic stability and improved risk taking of this segment. Our Impact: To date TPL Insurance has served over 528,000 customers by underwriting their health risk of approximately Rs. 18.4 billion. The company also created awareness through medical camps and training sessions across the country and by educating the customers through onboarding calls. Retail Insurance Segment: TPL Insurance registered itself as the first direct insurer in Pakistan in 2005 with focus on risk coverage and service to the retail segment. The company introduced measures to improve service to this segment by providing 24/7 Call Center, EVAC, Door Step Settlements and without survey settlements with the aim to create an impact on customer service. Our Impact: To date TPL Insurance has served over 150,000 customers (sum insured over Rs. 500 billion) with highest retention and satisfaction. The company has paid Rs. 6.5 billion in claims (Count: 137,000) which not only served its customers but also ensured constant economic activity and stability. Corporate Segment: Growth in corporate sector ensures creation of jobs, competitive products in market and improved returns for all stakeholders which creates an overall impact in society. TPL Insurance entered into mainstream corporate insurance in 2017 with the aim to serve corporate segment with its known service centric approach. Our Impact: Although the multiplying social benefits of corporate insurance is difficult to gauge, the company has paid Rs. 144.8 million (Count: 668) in claims supporting all stakeholders of its corporate customers in keeping their finances afloat. 98 Transforming Imagination Through Digitization
  101. ANNUAL REPORT 2018 ENVIRONMENTAL PERFORMANCE Introducing green efficiency at work At TPL Insurance , we continue to seek ways to reduce the environmental impact of our operations. We implement high environmental standards so that our actions today will contribute to economic growth, social well-being, and a healthy environment for tomorrow. Since climate change is on the rise, we explore opportunities to support environment friendly projects which promote cleanliness, greenery and reduction in carbon emissions. We also strive to conserve energy which in turn, further reduces the emission of Greenhouse Gases (GHC) by using smart technologies and solutions and engage with environmentally conscious clients, investors and stakeholders. Green Office, Greener World TPL Insurance is resolute in keeping the environment green and clean. We continuously carry out cleanliness and plantation drives and recently we planted 1000 trees around a 1 KM radius surrounding the corporate office to do our role in creating a greener ecosystem. Boosting energy conservation We strongly believe in reducing our carbon footprint and saving maximum energy. We have implemented several energy conservation measures such as installing smart lighting solutions in our offices for improved energy efficiency. Double-glazed Glass façade Centrepoint has installed high quality energy efficient glass façade as a measure to reduce energy consumption. Heat-recovery System The office is equipped with a Heat Recovery System which is facilitated by a 2 x1 gas generator for an uninterrupted independent power supply that maximizes conservation of energy. Saving the Ozone We recognize the potential environmental impact our digital transformation might implicate. Hence, we prioritize the reduction of carbon footprints and undertake energy conservation initiatives in our day to day operations to contribute to environment’s sustainability. A socially aware and responsible Supply Chain Our supply chain is sourced from approved suppliers whose ethical values and strict social and environmental standards mirror our own. 99
  102. “Pani Hai Zindagi” “We are immensely fortunate for the sponsorship by TPL and Mr. Jameel Yusuf’s personal interest in making Pani Hai Zindagi a success.” -Artchowk Team TPL was proud to sponsor the event “Pani Hai Zindagi” by ArtChowk which started on December 29, 2018 and featured photographs from all over Pakistan. The event was held in collaboration with environmentalist Tofiq Pasha Mooraj. The photographs exhibited and the thought process behind them strongly advocated protecting the most valuable asset – water. The show was intended to create awareness on the looming crisis caused due to the shortages of water especially amongst the youth of this country who will actually be facing the reality of these shortages. SOCIAL PERFORMANCE Fostering sustainable growth Integral to sustainable development, TPL Insurance focuses on investing in its most valuable asset: its employees and ensuring that their work environment is productive. The employees thrive in an inclusive environment and are presented with multiple growth opportunities. Consistent recognition and rewards for outstanding performance ensures their financial, physical and emotional wellness. HUMAN RESOURCE Workforce Diversity Embedding diversity and inclusion in our business plans help us ensure that we reach our goal to become a world-class insurance company. Our working culture, values and differences stand for fair and equal treatment for all, irrespective of origin, race, religion or gender. 31 female employees 268 male employees 35 average age of employees Health & Safety TPL Insurance is committed to maintaining a healthy and safe environment for all our employees and takes reasonable steps to ensure that the work environment is exposed to the lowest practicable risk. Through a culture of care, we ensure our workforce is motivated to perform at its best, delivering quality work in a safe way. 2 Fire & Safety drills conducted 0 Fatalities 100 Transforming Imagination Through Digitization
  103. ANNUAL REPORT 2018 Employees Training & Development At TPL Insurance the best investment we can make is in our employees, providing them with the tools, training and opportunities they need to perform at their potential. This harnesses the employees’ collective ingenuity to solve future challenges. We thus have a specific yearly budget allocated to regularly conducting technical and soft-skills training sessions for our employees. 132 Employees were trained 14 Technical skills 118 Soft Skills Children Education Benefit Policy TPL has a Children Education Benefit policy in place to provide educational assistance to the low income employees in the company. Through this support program, 11 children studying in various schools were provided with the benefit of having their education sponsored by the company. 11 children of employees provided with educational assistance HEALTHY COMMUNITY DEVELOPMENT 802,624 patients were provided with healthcare facilities. According to the Ministry of Planning Development and Reforms, 29.5% of Pakistan’s population falls below the national poverty line. In order to ensure the sustainable well-being of society there is a dire need for the provision of quality healthcare facilities, which can contribute towards the country’s prosperity. In view thereof, TPL Insurance has prioritized healthcare in its CSR initiatives. Digital Reach TPL Insurance encouraged a healthy lifestyle by spreading awareness to individuals in Pakistan through digital platforms #Safeliving #TPLCares Our Impact: TPL Insurance reached out to 14.1 million individuals. Fut’school League TPL organized the Fut’school League to raise awareness on healthy activities and a well-balanced, active lifestyle where students from 20 renowned schools participated. Our Impact: The Fut’school League was a widely attended event with more than 500 people, consisting of families and students participating in the activities. 101
  104. Special Olympics Pakistan Special Olympics International is a global movement of people working for inclusion and community where every single person is accepted and welcomed , regardless of ability or disability. They are dedicated to unite the world and transform the lives of people with intellectual disabilities through the Power of Sports. Our Impact: TPL Insurance’s contribution to Special Olympics Pakistan helped to train the special determined athletes. Blood Donation by TPL Employees TPL Insurance conducted an in-house blood donation drive for various institutions, where 80 employees donated their blood to save lives. With an ageing population, more advanced life-saving medical procedures and new hospitals being established, more blood is required every year. According to WHO, each unit of donated blood can save up to three lives. Our Impact: 240 People benefitted from the blood donation drive conducted by TPL. Patients’ Aid Foundation Patients’ Aid Foundation (PAF) is a non-profit organization committed to providing free treatment to the thousands of patients walking in to Jinnah Hospital Karachi looking for quality healthcare. Our Impact: Patients’ Aid Foundation was provided with PKR 10 million as a donation for the treatment of patients and as a contribution to build a new surgical complex with improved facilities, including 18 operation theatres, which will lead to the increase in the number of surgeries per year by 40,000. Lady Dufferin Hospital Lady Dufferin Hospital is the largest women’s hospital in Pakistan with one of the largest maternity facilities providing specialized care for women and infants. Our Impact: TPL Insurance contributed PKR 2 Million to Lady Dufferin Hospital for the development of infrastructural facilities. “Recognize the possibilities” “TPL’s generosity and commitment are invaluable to KDSP and we are proud to have TPL as part of our sponsors’ family.” Karachi Down Syndrome Program (KDSP) My name is Muniza Durrani and I am Huzaifa’s mother. I am immensely grateful to KDSP, for had it not been for this institution I would have no idea what therapies and treatments Huzaifa should go through to lead a healthy life. KDSP has over the years not only enhanced his fine motor skills but also improved his cognitive abilities. I still remember there was a time when Huzaifa couldn’t even hold up his neck but due to the efforts of KDSP he can now run around like any other child. Their Early Childhood Intervention Program deals with challenges that children with Down’s syndrome face and it’s wonderful how they empower families. I continue to rely on KDSP for support and am thankful to the sponsors too who actively contribute to this cause and make it all possible. 102 Transforming Imagination Through Digitization
  105. ANNUAL REPORT 2018 SOCIAL PERFORMANCE EMPOWERMENT THROUGH EDUCATION EDUCATION In Pakistan , as many as 44% children between the ages of 5 and 16 are still out of school (Ministry of Federal Education & Professional Training – Government of Pakistan, 2017). Education is vital to transform the life of a child, but for many, this is a distant dream. With a focus in the field of education, TPL Insurance has generously supported and promoted various educational organizations. Our Impact: 2,841 students were impacted in the field education. FESF- Family Education Services Foundation Family Educational Services Foundation (FESF) is a non-profit educational organization dedicated to enhancing the quality of life for all members of the community, especially the one’s suffering from hearing impairment. They provide innovative training programs developmental tools and services to enable recipients gain self-sufficiency, empowering them to reach their fullest potential. Our Impact: TPL Insurance’s contribution of PKR 300,000 has helped support an FESF school unit that is responsible for the education of 250 children. Ida Rieu Welfare Association Ida Rieu has been imparting education from K.G. to M.A. Level and providing vocational training to children with impaired hearing and visual abilities. Our Impact: TPL Insurance contributed PKR 250,000 to cater for the education and welfare of blind and deaf students. Mentorship Sessions Ms. Anika Effendi, Group Head - External Relations and CSR at TPL, is taking the company’s mission forward by holding mentorship sessions at various educational institutes like PAF KIET to share her vast experience in the corporate world. The students learned about organizational culture, work ethics and management of workload pressure through these enlightening sessions. Our Impact: The mentorship sessions have benefitted 300 students from educational institutes. Institute of Business Administration (IBA) IBA is an autonomous degree-awarding institute based in Karachi. It has established itself as a premier business school with a track record of over fifty years of producing quality undergraduates and post-graduates in Business and Computer Sciences. Our Impact: TPL contributed PKR 6.5 million for the development of an Event Hall at IBA which has a footfall of 2000 students per day. The Event Hall has been dedicated to the company in appreciation of the ongoing efforts for the institution. 103
  106. “Making a Difference” “Thank you so much for your organization’s generous contribution to TRC Early Childhood Education and Development Programme. Your financial support has enabled the teachers enrolled in our ECED Programme to share their knowledge with young minds.” Teachers’ Resource Centre My name is Shaheen Zia and I am a primary school teacher. Once I began teaching, I had this feeling of dissatisfaction that the students didn’t respond to the teaching methods as effectively as they should do. Enrolling in the Early Childhood Education and Development Programme offered by Teachers’ Resource Centre was an eye opener for me as it not only enhanced my teaching skills but made me realize that interaction with the students on an individual level leads to quicker learning. I wish TRC introduces more programmes like the ECED that will enable teachers to adopt the latest teaching methods in the education sector so that the students are equipped with the same knowledge being taught everywhere else. 104 Transforming Imagination Through Digitization
  107. ANNUAL REPORT 2018 LIST OF PARTNERS 105
  108. 6 .2 - MANAGEMENT OBJECTIVES, KPI AND SIGNIFICANT CHANGES Management Objectives, Strategies and KPIs Objective No. 1 Enhance Customer Satisfaction Strategy Improve the efficiency of complaint management system, reduce the complaints and providing the best value for Money Objective No. 2 Augment Premium and to attain persistent economic advancement Strategy Through innovation and digitization, we will pull the demand for our products and engage a new channel of business for this purpose Objective No. 3 Grooming of Human Capital Strategy Through appropriate trainings and reward and recognition system in place and by reducing employee turnover ratio, we can achieve highly effective and efficient human capital as they are the ones who represent us to the customers Objective No. 4 Maximising Shareholder Returns Strategy By enhancing the Company’s overall performance, the shareholder returns would be maximized Objective No. 5 Enhance operational efficiency to achieve synergies Strategy By aligning our strategies to our processes and through innovation and digitization, we can achieve synergies KPI - No. of Complaints - Time taken to resolve those complaints - Value for Money KPI - Growth in the turnover KPI - No. of trainings - Employee turnover ratio KPI - EPS - ROE - Asset Turnover KPI - Target vs. achieved SIGNIFICANT CHANGES IN OBJECTIVES & STRATEGIES TPL Insurance’s strategies and objectives are aligned and no significant changes have been made, however, our focus for digitization has enhanced in order to achieve operational efficiencies and augment sales and profitability. 6.3 - BUSINESS CONTINUITY PLAN Business continuity planning (BCP) involves defining potential risks, determining how those risks will affect operations, implementing safeguards and procedures designed to mitigate those risks, testing those procedures to ensure that they work, and periodically reviewing the process to make sure that it is up to date. It also provides a means to recover technologies in the event of loss, damage or failure which is covered in the Disaster Recovery Plan (DRP). The Company, in its BCP/DRP, covers risks pertaining to the operations of the Company, their impacts upon occurrence, prevention of a disaster to occur and backup strategies for each of the key business processes. Upon successful implementation of BCP/DRP, the Company has established the competences to endure its business operations without any interruptions. In order to ensure its efficient continuation, a department is assigned who conducts various simulation drills to ensure the BCP/DRP is effective and in function. 106 Transforming Imagination Through Digitization
  109. ANNUAL REPORT 2018 6 .4 - FORWARD LOOKING STATEMENT The Company is targeting focused growth in personal lines business as well as investing in digitalization initiatives to increase its outreach in the market. This, along-with diversification benefits through penetration into non-motor segment would significantly strengthen company’s position in future. We believe that the prevailing economic uncertainty due to deficit in balance of payment is expected to be over in near future. We are confident that initiatives taken by the government to improve foreign investments and GDP growth would bring economic stability and would supplement insurance industry growth. Although increasing discount rate and automobile prices cast doubt on auto insurance growth, but Company is confident to improve market share through product development, channel deepening and penetration through digitalization initiatives. Stock market is also expected to recover to normal level, leading to improved investment returns. Affirmative of the economy and the future fruition, the expected outcomes are projected in the below mentioned genres: • Gross Premium and overall profitability – high growth in gross premiums leading to maximization of Shareholders’ wealth and sustainability of overall profits • Return on Investments – high investment returns • Financial Strength – flourishing based on the results of regulated rating agencies 6.5 - RISK AND OPPORTUNITY REPORT Enterprise Risk Management The Board of TPL Insurance (TPLI) has approved an Enterprise Risk Management (ERM) Policy prepared by the Risk Management Committee. TPL Insurance has a formal Risk Management Committee under the supervision of Chairman that ensures the implementation of Enterprise Risk Management Program. The program aims effective and efficient operations, reliable financial reporting and compliance with applicable laws and regulations such that all the measures for managing risks entity-wide are addressed and strategic objectives are achieved. The program incorporates the following aspects: • • • • Identification of Risk. Quantification & Prioritization of Risk. Risk Responses. Risk Management Implementation and Evaluation. Risk Consciousness and Organizational Resiliency Risk Reporting and Monitoring Process Improvement and Training Business Continuity Planning & Exercising Emergency Preparedness & Response Risk Appetite Risk Identification ERM Risk Assessment and Analysis Risk Mitigation and Controls 107
  110. Below mentioned is the list of risks faced by TPLI and mitigating strategies that are in place to alleviate those risks : Risks Mitigating Strategies Political and Economic Risks Challenges in the business due to the political instability and changes in the interest rates may become a snag in the achievement of Business objectives. The Company is working on diversifying its insurance portfolio to reduce its exposure to political risk. The Company also has established the Strategy & Transformation Department to monitor and devise strategies to minimize exposure to political and economic risks. Regulatory Risk The Company is operating in an industry with high regulations. Failure to meet those regulatory standards and requirements would expose the Company to various penalties and would increase reputational risk The Company is cognizant of its responsibilities and thus has established a Compliance Department which is responsible to keep tracks of important deadlines and ensures all the mandatory requirements are met timely Reinsurance Risks Reinsurance risk is the risk that reinsurance partners are unable to discharge their liabilities which makes the Company liable to the insured fully. The Company only deals with reinsurance counterparties having strong financial strength ratings to minimize these risks Investment Risk Changes in the macro economic factors may affect the stock market and interest rates which impacts the Company’s cash flows The Company observes a prudent policy to minimize its risks through diversification of its portfolio and dedicating a specialized department to continuously monitor relevant fixed income, mutual funds and equity investments. Liquidity Risk The Company may not be able to meet its financial obligations towards insured. The Company manages its liquidity by sustaining strong cash flow position and regular monitoring of maturity profile of financial assets and liabilities. Cyber Risk Any risk of financial loss, disruption or damage to the reputation of TPLI from failure of its information technology systems. The Company has implemented strong controls including firewall, antivirus solutions and backup and recovery systems to minimize the risks posed by cyber risks. People & Environment Risk People are the single most important asset in any business but they are also the most vulnerable asset. In TPLI, High graduate Level Intake as per HR policy with background checks. Market based remuneration and adjustments made at annual appraisals. Long term benefits like PF is offered. Group insurance, health insurance covers are taken for each employee. Training is regularly imparted across the board. Solvency Risk The Company may not be able to meet its Solvency requirement as define by regulatory bodies. 108 Transforming Imagination Through Digitization Quarterly solvency margin calculations are prepared to gauge the excess solvency.
  111. ANNUAL REPORT 2018 Risk Assessment Matrix Risks are an inevitable part of our business . However, the success of TPLI depends on its ability to manage and respond to risks properly. The Company uses Risk Assessment Matrix to evaluate and prioritize risks based on the severity of their impact and their likelihood to occur. A risk assessment matrix is a chart that plots the severity of an event occurring on one axis, and the probability of it occurring on the other. By visualizing existing and potential risks in this way, the Company assesses their impact, and also identifies which ones are highest-priority. From there, TPLI creates a plan for responding to the risks that need the most attention. A risk assessment matrix focuses on two aspects: Severity: The impact of a risk and the negative consequences that would result. Likelihood: The probability of the risk occurring. To place a risk in the risk assessment matrix, a rating is assigned to its severity and likelihood. Then it is plotted in the appropriate position in the chart. The classifications used are: Severity: Insignificant: Risks that bring no real negative consequences, or pose no significant threat to the Company. Minor: Risks that have a small potential for negative consequences, but will not significantly impact overall success. Moderate: Risks that could potentially bring negative consequences, posing a moderate threat to the Company. Critical: Risks with substantial negative consequences that will seriously impact the success of the Company. Catastrophic: Risks with extreme negative consequences that could cause the Company to fail or severely impact daily operations of the organization. These are the highest-priority risks to address. Likelihood: Unlikely: Extremely rare risks, with almost no probability of occurring. Seldom: Risks that are relatively uncommon, but have a small chance of manifesting. Occasional: Risks that are more typical, with about a 50/50 chance of taking place. Likely: Risks that are highly likely to occur. Definite: Risks that are almost certain to manifest. Classifying and Prioritizing Risk After each risk is placed in the matrix, it is given an overall “risk ranking.” Risks that have severe negative consequences and are highly likely to occur receive the highest rank; risks with both low impact and low likelihood receive the lowest rank. Risk rankings combine impact and likelihood ratings to help you identify which risks pose the greatest overall threats. In our organization, ranking fall into a few broad categories, which are often color-coded: Low: The consequences of the risk are minor, and it is unlikely to occur. These types of risks are generally ignored, and often color-coded green. Medium: Somewhat likely to occur, these risks come with slightly more serious consequences. If possible, steps are taken to prevent medium risks from occurring. These risks are often color-coded yellow. High: These are serious risks that both have significant consequences, and are likely to occur. These risks are prioritized and responded in near term. They are often color-coded orange. 109
  112. Extreme : Catastrophic risks that have severe consequences and are highly likely to occur. Extreme risks are the highest priority. They should be responded immediately, as they can threaten the success of the organization or project. They are often color-coded red. Once risk have been ranked, risk response plan can be vetted to prevent or address those risks that are “high” or “extreme”. It may not need to respond to risks ranked “low” or “medium” before work begins. HEAT MAP IMPLEMENTED BY TPLI AS PER FRAMEWORK LIKELIHOOD Rare < 10% Critical > 1b IMPACT Major > 500m < 1b Material > 50m < 500m Minor > 10m < 50m Insignificant < 10m 110 Transforming Imagination Through Digitization Unlikely >10% <35% Possible >25% <65% Likely > 65% < 90%
  113. ANNUAL REPORT 2018 Board ’s efforts for determining the company’s level of risk tolerance by establishing risk management policies. The Board of Directors have established risk management committee which comprises of three members. The committee oversees and approves the company-wide risk management practices and provide an infrastructure to address the enterprise risks. Each member has an understanding of risk management expertise commensurate with the Company’s size, complexity and capital structure. The committee is responsible for: • Overseeing the development and implementation of risk management policy / framework which will set the risk management tone in the Company. The policy / framework will provide the guidelines to help in the identification of risks, assess the priorities according to their impacts and likelihoods and implement the relevant procedures to mitigate those risks to an acceptable level. • Overseeing compliance framework which will report on compliances with legislation and regulations of risks pertaining to the entity. • Provide an analysis regarding Company’s approved risk appetite level and communicate the same to the entire enterprise. • Review and confirm that all responsibilities outlined in the framework have been carried out. • Review and monitor the steps taken to mitigate the risks identified. • Continually, obtain reasonable assurance from the management that all known and emerging risks have been identified, mitigated and managed and monitor the adequacy of risk identification process. • Make such recommendations with respect to any of the above and other matters as the Committee deems necessary or appropriate. • Receive and review risk based reports and ensure entity-wide risks are mitigated to an acceptable level. Opportunity Report The insurance sector in Pakistan has remained dormant. This is reflected in very low level of insurance density and insurance penetration in the country. The Company is proficient of availing all arising opportunities, and focused to digitize its operations by providing innovative insurance solutions to the customers and providing them risk transfer solutions. The Company is also concentrating on the other line of business to maximize its return on earning assets. Materiality Approach Financial statements are prepared, in all material respects, in accordance with an applicable financial reporting framework. Judgements about materiality are made in the light of surrounding circumstances. The primary purpose for setting overall materiality when preparing the accounts is that it is used to identify performance materiality which is needed. Key Sources of Uncertainty International Financial Reporting Standards require management to make judgments, estimates and assumptions while preparing financial statements which affects the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. 6.6 - MANAGING QUALITY SERVICES AT TPL INSURANCE TPL Insurance focuses on identification of customer’s requirements. We continue to improve our systems and processes based on feedback from customers. We have developed Key Performance Indicators to monitor our services against benchmarks. These KPI’s are monitored on a regular basis. We have dedicated a team to monitor these KPIs and corrective actions are taken in case actual results deviate from benchmarks. 111
  114. 112 Transforming Imagination Through Digitization
  115. FINANCIAL STATEMENTS 7 .1 7.2 7.3 7.4 7.5 7.6 AUDITOR’S REPORT TO THE MEMBERS STATEMENT OF FINANCIAL POSITION STATEMENT OF COMPREHENSIVE INCOME STATEMENT OF CHANGES IN EQUITY STATEMENT OF CASHFLOW NOTES TO THE FINANCIAL STATEMENTS 113
  116. EY Ford Rhodes UAN : + 9221 111 11 39 37 (EYFR) Chartered Accountants Tel: +9221 3565 0007-11 Progressive Plaza, Beaumont Road Fax: +9221 3568 1965 P.O. Box 15541, Karachi 75530 ey.khi@pk.ey.com Pakistan ey.com/pk INDEPENDENT AUDITOR’S REPORT To the members of TPL Insurance Limited Report on the Audit of the Financial Statements Opinion We have audited the annexed financial statements, which comprise the statement of financial position as at 31 December 2018, the statement of comprehensive income, the statement of changes in equity and the statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies and other explanatory information and we state that we have obtained all the information and explanations which, to the best of our knowledge and belief, were necessary for the purposes of the audit. In our opinion and to the best of our information and according to the explanations given to us, the statement of financial position, the statement of comprehensive income, the statement of changes in equity and the statement of cash flows together with the notes forming part thereof, conform with the accounting and reporting standards as applicable in Pakistan and give the information required by the Insurance Ordinance, 2000 and the Companies Act, 2017 (XIX of 2017), in the manner so required and respectively give a true and fair view of the state of Company’s affairs as at 31 December 2018 and of the total comprehensive income, the changes in equity and its cash flows for the year then ended. Basis for Opinion We conducted our audit in accordance with International Standards on Auditing (ISAs) as applicable in Pakistan. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Company in accordance with the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants as adopted by the Institute of Chartered Accountants of Pakistan (the Code) and we have fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key Audit Matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. 114 Transforming Imagination Through Digitization
  117. Following are the Key Audit Matters : S. # 1 Key Audit Matter(s) How the matter was addressed in our audit Liabilities in respect of Insurance contracts The liabilities in respect of insurance contracts issued as of 31 December 2018 amounts to Rs.136.343 million (note 22 to the financial statement), which represent 10% of the Company’s total liabilities. We considered adequacy of insurance liabilities as a key audit matter due to significant judgments involved in estimating the liabilities and use of experts in this regard. Our key audit procedures included the following: - We assessed the controls over recording and settlement of claims in respect insurance business and performed tests of such controls to check their effectiveness in relation to the year under audit. - In respect of adequacy of insurance contract liabilities (including IBNR and premium deficiency reserve) which are measured on the basis of undiscounted value of expected future payments, we reviewed historical loss experience and other factors considered by the management expert in developing the expectations of future claim liabilities based on the contract issued at the reporting date. We checked that the methodology used by the management’s expert in estimation claims liabilities is in accordance with the prescribed methodology. As part of our testing we also considered the competence and objectivity of the experts used by the management for this purpose. - For insurance claims we also evaluated the management estimates regarding cost of claims settlements by considering reports of independent surveyors and the estimates regarding salvage values of insured assets; - We performed subsequent review to identify any significant claims reported post year end which pertain to the financial year under audit; and - We assessed the adequacy of disclosures made in respect of insurance contract liabilities in accordance with the approved accounting standards as applicable in Pakistan. (Refer to note 3.4 and 35 to the financial statements for relevant disclosures). 2 Qard-e-Hasna Receivable from Participants’ Takaful Fund (PTF) The SECP Takaful Rules, 2012 require that in case, admissible assets of PTF are not sufficient to cover its liabilities, the deficit shall be funded by way of actual transfer of funds as Qard-e-Hasna (interest free loan) from Operators’ Fund to the PTF. As at 31 December 2018, the Company has provided Qard-e-Hasna of Rs. 246.9 million (note 1.3 to the financial statements) from Operator’s Fund to PTF. Our key audit procedures included the following: - We reviewed the overall financial projections prepared by the management for the PTF including key assumptions underlying such projections such as expected growth in premiums and reduction in claims over future periods; 115
  118. S . # 2 Key Audit Matter(s) How the matter was addressed in our audit Qard-e-Hasna Receivable from Participants’ Takaful Fund (PTF) The recoverability of Qard-e-Hasna from PTF depends on the surplus / profitability of PTF. For this purpose, the management of the Company has prepared financial projections of PTF to assess impairment, if any, in respect of Qard-e-Hasna receivable (refer note 1.3 to the financial statements). - We obtained an understanding of the rationale and basis used by the management in respect of key assumptions and estimates used in developing the financial projections; and - We performed sensitivity analysis by applying appropriate hair-cuts on the key assumptions and evaluated the impact on the results shown by the projections; and We considered the appropriateness of the related disclosures in the financial statements. We focused on this area due to the significance of the receivable to the financial statements as well as the involvement of management estimates. 3 Impairment of equity / mutual fund investments As disclosed in note 7 to the financial statements of the Company for the year ended 31 December 2018, the Company holds investments in listed equity securities and mutual funds amounting to Rs. 250.569 million classified under the available for sale category. Due to sharp decline in market prices during the current year, the Company has recognized an aggregate impairment charge of Rs. 39.537 million on such portfolio of investments. We have identified the impairment of equity investments as a key audit matter due to its significant impact on the financial statements and the management judgements that may be required in making the assessments about the impairment of financial assets. (Refer to note 7 and 3.10.2.3 to the financial statements for relevant disclosures). 116 Transforming Imagination Through Digitization Our key procedures included the following; - We reviewed the appropriateness of the accounting policies and practices followed by the Company to recognize impairment of equity investments on the basis of the requirements of the financial reporting standards. - We obtained an understanding of the procedures applied by the Company to identify impairments in the equity and mutual fund portfolio and observed the applications of such procedures. - We evaluated management’s assessment of the indicators for impairment and compared the quoted values of equity investments and net asset values of mutual funds with their cost to check that the Company’s policy for impairment is consistently applied and impairment charge is appropriately recognized. - We checked the valuations of equity investments on the basis of quoted market prices at the Pakistan Stock Exchange Limited and valuation of mutual funds based on net assets values as at 31 December 2018. - We also assessed the adequacy of the overall disclosures in the financial statements in respect of the equity investment portfolio in accordance with the requirements of the financial reporting framework as applicable to the Company.
  119. Information Other than the Financial Statements and Auditor ’s Report Thereon Management is responsible for the other information. The other information comprises the information included in the Annual Report, but does not include the financial statements and our auditors’ report thereon. Our opinion on the financial statements does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of Management and Board of Directors for the Financial Statements Management is responsible for the preparation and fair presentation of the financial statements in accordance with accounting and reporting standards as applicable in Pakistan and the requirements of Insurance Ordinance, 2000 and, Companies Act, 2017 (XIX of 2017), and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, management is responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so. Board of directors are responsible for overseeing the Company’s financial reporting process. Auditor’s Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs as applicable in Pakistan will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. As part of an audit in accordance with ISAs as applicable in Pakistan, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. 117
  120. • Obtain an understanding of internal control relevant to the audit 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 Company’s internal control. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. • Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Company to cease to continue as a going concern. • Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. We communicate with the board of directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide the board of directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with the board of directors, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Report on Other Legal and Regulatory Requirements Based on our audit, we further report that in our opinion: a) Proper books of account have been kept by the Company as required by the Insurance Ordinance, 2000 and the Companies Act, 2017 (XIX of 2017); b) The statement of financial position, the statement of comprehensive income, the statement of changes in equity and the statement of cash flows together with the notes thereon have been drawn up in conformity with the Insurance Ordinance, 2000, the Companies Act, 2017 (XXI of 2017), and are in agreement with the books of account ; 118 Transforming Imagination Through Digitization
  121. c ) Investments made, expenditure incurred and guarantees extended during the year were for the purpose of the company’s business; and; d) Zakat deductible at source under the Zakat and Ushr Ordinance, 1980 (XVIII of 1980), was deducted by the Company and deposited in the Central Zakat Fund established under section 7 of that Ordinance. The engagement partner on the audit resulting in this independent auditor’s report is Arslan Khalid. Chartered Accountants Karachi Date: 21 February 2019 119
  122. STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2018 Note 31 December 2018 31 December 2017 (Rupees ) ASSETS Property and equipment 5 120,491,630 79,476,151 Intangible assets 6 9,107,599 11,913,934 Equity securities and mutual fund units 7 250,569,554 620,003,489 Government Securities 8 192,555,107 99,457,402 Debt securities 9 30,000,000 Term deposits 10 200,000,000 350,000,000 Loans and other receivables 11 348,807,642 274,370,944 Insurance / reinsurance receivables 12 147,146,207 258,493,866 Reinsurance recoveries against outstanding claims 10,529,385 21,515,947 Salvage recoveries accrued 57,187,621 40,201,885 Investments - Deferred commission expense 24 91,084,451 61,621,674 Deferred taxation 13 31,981,982 21,237,574 Taxation - payment less provision 13,721,203 - Prepayments 14 225,089,727 193,241,458 Cash and bank balances 15 153,052,811 133,592,489 1,881,324,921 2,165,126,813 370,022,394 335,497,378 2,251,347,315 2,500,624,191 Total assets of General Takaful Operations - Operator's Fund Total assets 120 Transforming Imagination Through Digitization 1.3 & 2.1.2
  123. ANNUAL REPORT 2018 STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2018 31 December 2018 Note 31 December 2017 (Rupees ) EQUITIES AND LIABILITIES Ordinary share capital 16 938,662,610 755,158,990 Share premium - net of share issuance cost 17 8,033,837 138,676,334 Unappropriated profits 17 16,898,950 253,917,563 Available-for-sale reserve 17 (26,697,564) (26,446,916) 936,897,833 1,121,305,971 Total Equity Liabilities Underwriting Provisions Outstanding claims including IBNR 22 136,343,591 129,515,223 Unearned premium reserves 21 636,445,691 671,873,202 Unearned reinsurance commission 24 19,506,278 4,358,320 4,629,066 2,779,624 Premium received in advance Insurance / reinsurance payables 18 122,268,570 114,673,701 Other creditors and accruals 19 226,217,448 219,116,925 Taxation - provision less payment - 2,733,398 Total Liabilities 1,145,410,644 1,145,050,392 Total equity and liabilities 2,082,308,477 2,266,356,363 169,038,838 234,267,828 2,251,347,315 2,500,624,191 Total liabilities of General Takaful Operations - Operator's Fund 2.1.2 Total equity and liabilities Contingencies and commitment 20 The annexed notes from 1 to 41 form an integral part of these financial statements. Director Director Chief Financial Officer Chief Executive Officer Chairman 121
  124. STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2018 31 December 2018 Note 31 December 2017 (Rupees ) Net insurance premium 21 1,264,044,832 1,299,464,809 Net insurance claims Net commission expense 22 24 (485,917,776) (135,022,253) (502,047,755) (113,925,515) (620,940,029) (615,973,270) (486,702,936) (516,993,546) 156,401,867 166,497,993 1,251,849 214,240,502 (243,565,387) 15,155,075 156,194,800 (221,243,903) 128,328,831 116,603,965 Insurance claims and commission expense Management expenses 25 Underwriting results Investment income [includes impairment on available-for-sale investment of Rs.38.5 million (2017:0.1 million) ] Other income Other expenses 26 27 28 Results of operating activities Financial charges Profit before tax from General Insurance Operations (Loss) / profit before tax from Window Takaful Operations 2.1.2 Profit before tax for the year Income tax expense 29 Profit after tax (1,642,832) (769,430) 126,685,999 115,834,535 (112,174,894) 47,528,202 14,511,105 163,362,737 (10,936,073) (58,336,124) 3,575,032 105,026,613 (25,906,737) (57,637,470) Other comprehensive income: Unrealised loss on available-for-sale investments during the year - net Less: net (gain) / loss transferred to profit and loss on disposal / redemption / Impairment of investment 26,633,415 17,041,792 726,678 (40,595,678) Related tax impact (977,326) 11,881,947 Other comprehensive loss for the year (250,648) (28,713,731) 3,324,384 76,312,882 0.04 1.12 Total comprehensive income for the year Earning (after tax) per share - Rupees 30 The annexed notes from 1 to 41 form an integral part of these financial statements. Director 122 Director Transforming Imagination Through Digitization Chief Financial Officer Chief Executive Officer Chairman
  125. 16 ,936,998 Director Director - (130,642,497) - - - 147,579,495 147,579,495 - - - 147,579,495 The annexed notes from 1 to 41 form an integral part of these financial statements. 938,662,610 - Balance as at December 31, 2018 183,503,620 Cash dividend paid during the year - - Bonus shares issued during the year (loss) for the year Total comprehensive income / for sale investments Change in fair value of available - 755,158,990 Balance as at January 1, 2018 Net loss for the year 755,158,990 - - - 755,158,990 Balance as at December 31, 2017 Total comprehensive income for the period for sale investments Change in fair value of available Net profit for the year Balance as at January 1, 2017 Share premium Share issuance cost Net share premium Unappropriated profit Reserves Available-forsale reserve Revenue reserves Total Total 8,033,837 - (130,642,497) - - - 138,676,334 138,676,334 - - - 138,676,334 Chief Financial Officer (8,903,161) - - - - - (8,903,161) (8,903,161) - - - (8,903,161) (26,697,564) - - (250,648) (250,648) - (26,446,916) (26,446,916) (28,713,731) (28,713,731) - 2,266,815 Chief Executive Officer 16,898,950 (187,732,522) (52,861,123) 3,575,032 - 3,575,032 253,917,563 253,917,563 105,026,612 - 105,026,612 148,890,951 (9,798,614) (187,732,522) (52,861,123) 3,324,384 (250,648) 3,575,032 227,470,647 227,470,647 76,312,881 (28,713,731) 105,026,612 151,157,766 Chairman 936,897,833 (187,732,522) - 3,324,384 (250,648) 3,575,032 1,121,305,971 1,121,305,971 76,312,881 (28,713,731) 105,026,612 1,044,993,090 ----------------------------------------------------------------------------------------------------------------------- (Rupees) --------------------------------------------------------------------------------------------------------------------- Share capital Capital reserve FOR THE YEAR ENDED 31 DECEMBER 2018 STATEMENT OF CHANGE IN EQUITY ANNUAL REPORT 2018 123
  126. STATEMENT OF CASH FLOW FOR THE YEAR ENDED 31 DECEMBER 2018 31 December 2018 31 December 2017 (Rupees ) Operating cash flow (a) Underwriting activities Insurance premium received 1,409,000,782 Reinsurance premium paid (175,696,280) (53,421,605) Claims paid (753,019,694) (730,722,483) 267,931,112 209,829,170 (188,036,678) (113,506,039) 34,680,982 12,700,277 (430,814,443) (591,779,410) 218,397,470 142,100,692 Reinsurance and other recoveries received Commission paid Commission received Management and other expenses paid Net cash flow from underwriting activities (b) 1,463,352,471 Other operating activities Income tax paid Other operating payments Loans advanced Loan repayment received Net cash flow from other operating activities Total cash flow from all operating activities (38,135,082) (50,929,709) (153,217,804) (119,971,732) (4,960,221) (3,469,683) 3,156,546 1,593,588 (193,156,561) (172,777,536) 25,240,908 (30,676,844) 42,649,633 41,099,943 Investment activities Profit / return received Dividend received Payment for investments 60,000 (403,351,950) (900,665,306) Proceeds from investments 481,638,651 251,958,350 Fixed capital expenditure (93,490,978) (44,360,204) 3,017,000 273,528,397 30,462,356 (378,378,820) Proceeds from sale of property, plant and equipmentTotal Cash flow from investing activities 124 - Transforming Imagination Through Digitization
  127. ANNUAL REPORT 2018 STATEMENT OF CASH FLOW FOR THE YEAR ENDED 31 DECEMBER 2018 31 December 2018 31 December 2017 (Rupees ) Financing activities Cash Dividend Paid (184,600,108) Financial charges paid - (1,642,832) (769,430) Total cashflow from financing activities (186,242,940) (769,430) Net cash flow from all activities (130,539,676) (409,825,095) Cash and cash equivalents at beginning of year 483,592,489 893,417,583 Cash and cash equivalents at end of year 353,052,813 483,592,488 Operating cash flows 25,240,908 (30,676,844) Depreciation expense (17,719,123) (32,696,599) Income tax paid 38,135,082 50,929,709 Financial charges expense (1,642,832) (769,430) 656,976 (523,756) Reconciliation to profit and loss account Profit / (loss) on disposal of Property, plant and equipment Provision for impairment (39,155,868) Return on government securities 9,539,309 (25,906,039) Profit on disposal of investments 11,888,592 19,460,965 Profit on term deposit 18,979,816 21,656,372 Dividend income - 60,000 Share of (loss) / profit from Window Takaful Operations - Operator's Fund (112,174,894) 47,528,202 Provision for taxation (10,936,073) (58,336,124) Decrease in assets other than cash 86,332,759 203,471,252 Increase in liabilities other than running finance (5,569,620) (89,171,096) 3,575,032 105,026,612 Profit after taxation The annexed notes from 1 to 41 form an integral part of these financial statements. Director Director Chief Financial Officer Chief Executive Officer Chairman 125
  128. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 1 . LEGAL STATUS AND NATURE OF BUSINESS 1.1 TPL Insurance Limited (the Company) was incorporated in Pakistan in 1992 as a public limited company under the Companies Ordinance, 1984 (now Companies Act, 2017) to carry on general insurance business. The Company was allowed to work as Window Takaful Operator on 04 September 2014 by Securities and Exchange Commission of Pakistan (SECP) under SECP Takaful Rules, 2012 to carry on General Window Takaful Operations in Pakistan. The Company is listed at Pakistan Stock Exchange Limited. The principal office of the Company is located at 12th Floor, Centrepoint, Off Shaheed-e-Millat Expressway, Near KPT Interchange Flyover, Karachi, Pakistan. The Company is owned 94.23% by TPL Corp Limited. 1.2 The Company operates through the following locations in Pakistan; 1.3 Locations Head Office Address 11th & 12th Floor, Centrepoint, Off Shaheed-e-Millat Expressway, Near KPT Interchange, Karachi Postal Code: 74900. Lahore Branch 51-M, Quaid-e-Azam Industrial Estate, Kot Lakhpat, Lahore. Islamabad Branch 55-B, 10th Floor (South), ISE Towers, Jinnah Avenue, Blue Area, Islamabad. Faisalabad Branch P-6161, West Canal Road, adjacent to Toyota Faisalabad Motors & behind HBL Canal Road Br, Faisalabad. Multan Branch Haider Street, Shalimar Colony, Northern Bypass-Boson Road, Multan. Hyderabad Branch A-8/9, District Council Complex, Hyderabad. The total assets of Operator Fund of Window Takaful Operation include an amount of Rs. 246.9 million (2017: 199.0 million ) being Qard-e-Hasna receivable from Participant Takaful Fund of WTO. In accordance with the Takaful Rules, 2012, if at any point in time, assets in Participant Takaful Fund are not sufficient to cover its liabilities, the deficit shall be funded by way of an interest free loan (Qard-e-Hasna) from Operator Fund. In the event of future surplus in the Participant Takaful Fund to which a Qard-e-Hasna has been made, the Qard-e-Hasna shall be repaid prior to distribution of surplus to participants. The Company has prepared financial projections of Participant Takaful Fund and based on such financial projections believes that the Participant Takaful Fund would be able to repay Qard-e-Hasna to Operator's Fund. The financial projections are based on various assumptions including expected growth in premiums and reduction in claims over future periods. 2. BASIS OF PREPARATION These financial statements have been prepared in accordance with the format prescribed under Insurance Rules, 2017. 2.1 Statement of Compliance 2.1.1 These financial statements have been prepared in accordance with the accounting and reporting standards as applicable in Pakistan. The accounting and reporting standards comprise of: 126 - International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) as are notified under the Companies Act, 2017; and - Provisions of and directives issued under the Companies Act, 2017 and Insurance Ordinance, 2000, Insurance Rules 2017, Insurance Accounting Regulations, 2017 and Takaful Rules, 2012. Transforming Imagination Through Digitization
  129. ANNUAL REPORT 2018 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 In case requirement differ , the provisions or directives of the Companies Act, 2017, the Insurance Ordinance, 2000, the Insurance Rules, 2017, the Insurance Accounting Regulations and Takaful Rules, 2012, shall prevail. 2.1.2 In terms of the requirements of the Takaful Rules 2012, read with SECP Circular 25 of 2015 dated 09 July 2015, the assets, liabilities and profit and loss of the Operator's Fund of the General Takaful Operations of the Company have been presented as a single line item in the balance sheet and profit and loss account of the Company respectively. 2.1.3 Further, a separate set of financial statements of the General Takaful operations has been annexed to these financial statements as per the requirements of the Takaful Rules 2012. 2.2 Basis of measurement These financial statements have been prepared on the historical cost basis except for certain investment which are carried at fair value. 2.3 Functional and presentation currency These financial statements are presented in Pak Rupees which is also the Company’s functional currency. All financial information presented in Pak Rupees has been rounded to nearest Rupees, unless otherwise stated. 2.4 Standards, interpretations and amendments to published approved accounting standards that are effective in the current year The Company has adopted the following accounting standards and the amendments and interpretation of IFRSs which became effective for the current year: Standard or Interpretation - IFRS 2 - Share-based Payments – Classification and Measurement of Share-based Payments Transactions (Amendments) - IFRS 4 - Insurance Contracts: Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts – (Amendments) - IFRIC Interpretation 22 - Foreign Currency Transactions and Advance Consideration Improvements to Accounting Standards Issued by the IASB in December 2016 - IAS 28 - Investments in Associates and Joint Ventures: Clarification that measuring investments at fair value through profit or loss is an investment-by-investment choice The adoption of the above amendments, improvements to accounting standards and interpretations did not have any effect on the financial statements. 2.5 Standards, interpretations and amendments to published approved accounting standards that are not yet effective The following standards, amendments and interpretations with respect to the approved accounting standards would be effective from the dates mentioned there against: 127
  130. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 Standard or Interpretation Effective date (annual periods beginning) - January 01, 2020 July 01, 2018 January 01, 2019 - IFRS 3 - Definition of a Business (Amendments) IFRS 9 - Financial Instruments: Classification and Measurement IFRS 9 - Prepayment Features with Negative Compensation – (Amendments) IFRS 10 - Consolidated Financial Statements and IAS 28 Investment in Associates and Joint Ventures - Sale or Contribution of Assets between an Investor and its Associate or Joint Venture (Amendment) IFRS 15 - Revenue from Contracts with Customers Not yet finalized July 01, 2018 - IFRS 16 - Leases IFRIC 23 - Uncertainty over Income Tax Treatments IAS 1/ IAS 8 - Definition of Material (Amendments) IAS 19 - Plan Amendment, Curtailment or Settlement (Amendments) IAS 28 - Long-term Interests in Associates and Joint Ventures (Amendments) January 01,2019 January 01,2019 January 01,2020 January 01,2019 January 01,2019 The above standards, amendments and interpretations are not expected to have any material impact on the Company's financial statements in the period of initial application. Except for IFRS 16 and IFRS 9 for which the company is currently evaluating the impact on the financial statements. In addition to the above standards and amendments, improvements to various accounting standards have also been issued by the IASB in December 2017. Such improvements are generally effective for accounting periods beginning on or after 01 January 2019. The company expects that such improvements to the standards will not have any impact on the company financial statements in the period of initial application. Further, following new standards have been issued by IASB which are yet to be notified by the SECP for the purpose of applicability in Pakistan. Standards - IFRS 14 – Regulatory Deferral Accounts IFRS 17 – Insurance Contracts 3. SIGNIFICANT ACCOUNTING POLICIES 3.1 Insurance contracts Insurance contracts are those contracts where the Company (the insurer) has accepted significant insurance risk from another party (the policy holders) by agreeing to compensate the policyholders if a specified uncertain future event (the insured event) adversely affects the policyholders. Once a contract has been classified as an insurance contract, it remains an insurance contract for the remainder of its period, even if the insurance risk reduces significantly during this period, unless all rights and liabilities are extinguished or expired. "The Company underwrites non-life insurance contracts that can be categorised into Fire and Property Damage, Marine, Aviation and Transport, Health, Motor and Miscellaneous contracts. Contracts may be concluded for a fixed term of one year, for less than one year and in some cases for more than one year. However, most of the contracts are for twelve months duration. Insurance contracts entered into by the Company under which the contract holder is another insurer (inwards reinsurance) of a facultative nature are included within the individual category of insurance contracts, other than those which fall under Treaty. The insurance risk involved in these contracts is similar to the contracts undertaken by the Company as insurer. 128 Transforming Imagination Through Digitization
  131. ANNUAL REPORT 2018 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 Fire and Property insurance contracts mainly compensate the customers for damage suffered to their property . Customers who undertake commercial activities on their premises could also receive compensation for the loss of earnings caused by the inability to use the insured properties in their business activities (business interruption cover). Marine, Aviation and Transport class of business provides coverage against loss and damage to goods in transit by any means of conveyance, physical loss or damage to aircraft, ships and liabilities to third parties and passengers arising from their use. Motor insurance covers physical loss or damage to the vehicle and liabilities to third parties as provided under the requirements of the Motor Vehicle Ordinance, 1965. All other insurances like cash in hand, cash in transit, personal accident, travel are included under Miscellaneous Insurance cover. The company neither issues investments contracts nor does it issue insurance contracts with discretionary participation features (DPF). These contracts are made with group companies, corporate clients and individuals residing or located in Pakistan. 3.2 Premium Premium income under a policy is recognized, evenly over the period of insurance from the date of issuance of the policy till the date of its expiry. Administrative surcharge is recognised as income at the time policies are written. Revenue from premiums is determined after taking into account the unearned portion of premium by applying 1/24th method as prescribed by the Insurance Rules, 2017. The unearned portion of premium income is recognised as liability. Premium due but unpaid under insurance contracts are recognised when due, at the fair value of the consideration receivable less provision for doubtful debts, if any. If there is objective evidence that the receivable is impaired, the Company reduces the carrying amount of the receivable accordingly and recognizes it as impairment loss. 3.3 Reinsurance contracts Insurance contracts entered into by the Company with reinsurers for compensation of losses suffered on insurance contracts issued are reinsurance contracts. These reinsurance contracts include both facultative and treaty arrangement contracts and are classified in same categories of insurance contracts for the purpose of these financial statements. The Company recognises the entitled benefits under the contract as various reinsurance assets. Outward reinsurance premiums are accounted for in the same period as the related premiums for the direct or accepted reinsurance business being reinsured. Reinsurance liabilities represent balances due to reinsurance companies. Amounts payable are estimated in a manner consistent with the related reinsurance contract. Reinsurance assets represent balances due from reinsurance companies. Amounts recoverable from reinsurers are estimated in a manner consistent with the provision for outstanding claims or settled claims associated with the reinsurance policies and are in accordance with the related reinsurance contract. Reinsurance assets are not offset against related insurance liabilities. Income or expenses from reinsurance contract are not offset against expenses or income from related insurance assets. 129
  132. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 The deferred portion of reinsurance premium ceded is recognised as a prepayment which is calculated by using 1 /24th method as prescribed by the Insurance Rules, 2017. The Company assesses its reinsurance assets for impairment on balance sheet date. If there is an objective evidence that the reinsurance asset is impaired, the Company reduces the carrying amount of the reinsurance asset to its recoverable amount and recognises that impairment loss in the profit and loss account. 3.4 Claims expense Insurance claims include all claims incurred during the year, whether reported or not, related internal and external claims handling costs that are directly related to the processing and settlement of claims, and any adjustments to claims outstanding from previous years. The Company recognises liability in respect of all claims incurred upto the balance sheet date which is measured at the undiscounted value of the expected future payments. The claims are considered to be incurred at the time of the incident giving rise to the claim except as otherwise expressly indicated in an insurance contract. The liability for claims include amounts relating to unpaid reported claims, claims incurred but not reported (IBNR) and expected claims settlement costs. Provision for liability in respect of unpaid reported claims is made on the basis of individual case estimates. The provision for claims incurred but not reported (IBNR) is made at the balance sheet date. In accordance with SECP circular no. 9 of 2016, the Company takes actuarial advice for the determination of IBNR claims. Provision for IBNR claims have been determined by analyzing the lag between the incurrence and reporting of motor and health business claims. For Fire and Marine businesses, as the Company has started these businesses recently, no historical data is available, therefore, industry wide-data has been used to calculate provision of IBNR claims. For Travel business, in absence of credible industry wide-data, an average of all other classes has been used to determine provision for IBNR claims. 3.5 Reinsurance recoveries against outstanding claims Claims recoveries against outstanding claims from the reinsurer and salvage are recognised as an asset at the same time as the claims which give rise to the right of recovery are recognised as a liability and are measured at the amount expected to be received. 3.6 Commission Commission expense incurred in obtaining and recording policies is deferred and recognised in profit and loss account as an expense in accordance with the pattern of recognition of premium revenue. Commission income from reinsurers is recognised at the time of issuance of the underlying insurance policy. These are deferred and recognised as liability and recognised in the profit and loss account as revenue in accordance with the pattern of recognition of the reinsurance premiums. 3.7 Premium deficiency reserve The Company is required as per Insurance Rules, 2017 and IFRS-4, to maintain a provision in respect of premium deficiency for the class of business where the unearned premium reserve is not adequate to meet the expected future liability, after reinsurance, from claims and other expenses, including reinsurance expense, commissions and other underwriting expenses, expected to be incurred after the balance sheet date in respect of the unexpired policies in that class of business at the balance sheet date. The charge for premium deficiency reserve is recorded as an expense in the profit and loss account. 130 Transforming Imagination Through Digitization
  133. ANNUAL REPORT 2018 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 For this purpose , loss ratios for each class are estimated based on historical claim development. Judgment is used in assessing the extent to which past trends may not apply in future or the effects of one-off claims. If these ratios are adverse, premium deficiency is determined. Further actuarial valuation has been carried out to determine the amount of premium deficiency reserve in respect of Health insurance as required by SRO 16 (I) / 2012 issued by Securities and Exchange Commission of Pakistan on 9 January 2012. 3.8 Staff retirement benefits The Company operates an funded contributory provident fund (defined contribution plan) for all permanent employees. Equal contributions are made by the Company and the employees at the rate 8.33% of basic salary, to the fund. 3.9 Taxation 3.9.1 Current Provision for current taxation is based on taxable income for the year determined in accordance with the prevailing law for taxation of income. The charge for current tax is calculated using prevailing tax rates or tax rates expected to apply to the profit for the year, if enacted. The charge for current tax also include adjustments, where considered necessary, to provision for tax made in previous years arising from assessments finalised during the current year for such years. 3.9.2 Deferred Deferred tax is accounted for using the balance sheet liability method, in respect of temporary differences arising at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred tax liabilities are generally recognised for all taxable temporary differences. Deferred tax assets are recognised for all deductible temporary differences to the extent that it is probable that the future taxable profits will be available against which the assets may be utilized. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised. The carrying amount of deferred tax asset is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the deferred tax asset to be recognised. Unrecognised deferred tax assets are reassessed at each balance sheet date and are recognised to the extent that it has become probable that future taxable profit will allow deferred tax asset to be recovered. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the periods when the asset is utilized or the liability is settled, based on the tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date. Deferred tax is charged or credited to the profit and loss account except in the case of items credited or charged to equity in which case it is included in equity. 3.10 Investments 3.10.1 Recognition All investments are initially recognised at cost, being the fair value of the consideration given and include transaction costs except for held for trading investments in which case transaction costs are charged to the profit and loss account. All purchase and sale of investments that require delivery within the required time frame established by regulations or market convention are accounted for at the trade date. Trade date is the date when the Company commits to purchase or sell the investments. These are recognised and classified as follows: 131
  134. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 - Investment at fair value through profit and loss (held for trading) Available for sale Held to maturity Investment in Subsidiary Company Investment in Associates 3.10.2 Measurement 3.10.2.1 Investment at fair value through profit or loss (held for trading) At the time of acquisition, quoted investments which are acquired principally for the purpose of generating profit from short term fluctuations in price or are part of portfolio for which there is a recent actual pattern of short term profit taking are classified as held for trading. Subsequent to initial recognition these are remeasured at fair value by reference to quoted market prices with the resulting gain or loss being included in net profit or loss for the period in which it arises. 3.10.2.2 Available for sale Available for Sale investments are those non-derivative instruments /contracts that are designated as available for sale or are not classified in any other category. At the time of acquisition, investments which are intended to be held for an undefined period of time but may be sold in response to the need for liquidity or changes in interest rates are classified as available for sale. Subsequent to initial measurement, these are remeasured at fair value. Surplus / (deficit) on revaluation from one reporting date to other is taken to other comprehensive income in the statement of comprehesive income. On derecognition or impairment of available-for-sale investments, the cumulative gain or loss previously reported in other comprehensive income is transferred to profit and loss for period within statement of comprehensive income. These are reviewed for impairment at year end. The Company considers that available-for-sale equity investments and mutual funds are impaired when there has been a significant or prolonged decline in the fair value below its cost. This determination of what is significant or prolonged requires judgment. The Company considers that a decline of 30% in the market value of any scrip below its cost shall constitute as a significant decline and where market value remains below the cost for a period of one year shall constitute as a prolonged decline. Any losses arising from impairment in values are charged to the profit and loss account. 3.10.2.3 Held-to-maturity At the time of acquisition, investments with fixed maturity, where management has both the intent and the ability to hold to maturity, are classified as held-to-maturity. Subsequently, these are measured at amortised cost less provision for impairment in value, if any. Amortised cost is calculated by taking into account any discount or premium on acquisition by using the effective yield method. The difference between the redemption value and the purchase price of the held-to-maturity investments is amortised and taken to the profit and loss account over the term of the investment. These are reviewed for impairment at year end and any losses arising from impairment in values are charged to the profit and loss account. 3.10.2.4 Investment in Subsidiary and Associate Subsidiary is an entity in which the Company directly or indirectly controls, beneficially owns or holds more than fifty percent of its voting securities or otherwise has power to elect and appoint more than fifty percent of its directors. 132 Transforming Imagination Through Digitization
  135. ANNUAL REPORT 2018 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 Investments in associates are initially recognised at cost and the carrying amounts are increased or decreased to recognise the Company ’s share of the profit or loss of the associates after the date of acquisition, less impairment losses, if any. Distributions received from associates reduce the carrying amount of the investment. Adjustments to the carrying amounts are also made for changes in the Company’s proportionate interest in the associates arising from changes in the associates’ equity that have not been recognised in the associates’ profit or loss. The Company’s share of those changes is recognised directly in equity of the Company. Gain / (loss) on sale of above investments, if any, are recognised in the period of sale. The carrying amount of the investment is tested for impairment, by comparing its recoverable amount (higher of value in use and fair value less costs to sell) with its carrying amount and loss, if any is recognised in the profit and loss account. 3.11 Management expenses Underwriting expenses have been allocated to various classes of business on a basis deemed equitable by the management. Expenses not attributable to the underwriting business are charged as administrative expenses. 3.12 Creditors, accruals and provisions Liabilities for creditors and other amounts payable are carried at cost which is the fair value of the consideration to be paid in future for the goods and / or services received, whether or not billed to the Company. Provisions are recognised when the Company has a present legal or constructive obligation as a result of past events and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate of the amount can be made. Provisions are reviewed at each balance sheet date and adjusted to reflect the current estimate. 3.13 Cash and cash equivalents Cash and cash equivalents are carried in the balance sheet at cost. For the purpose of cash flow statement, cash and cash equivalents consists of cash in hand, stamps in hand and deposits with banks (except for the deposit placed with statutory requirement) net off short term running finance. 3.14 Sundry receivable These are recognised at cost, which is the fair value of the consideration given. However, an assessment is made at each balance sheet date to determine whether there is objective evidence that a financial asset or group of assets may be impaired. If such evidence exists, the estimated recoverable amount of that asset is determined and any impairment loss is recognised for the difference between the recoverable amount and the carrying amount. 3.15 Fixed assets 3.15.1 Tangible assets - owned These are stated at cost less accumulated depreciation and impairment loss, if any. Depreciation is charged to income over the useful life of the asset on a systematic basis applying the straight line method at the rates specified in note 5.1 to the financial statements. Depreciation is charged on additions from the month of acquisition and no depreciation is charged in the month of disposal. An item of fixed asset is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Gain and loss on disposal of fixed assets is included in income currently. 133
  136. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 The assets residual values , useful lives and methods are reviewed and adjusted, if appropriate at each financial year end. Maintenance and normal repairs are charged to income as and when incurred. Major renewals and improvements are capitalised and assets so replaced, if any, are retired. Gain or loss on disposal of fixed asset is included in income currently. 3.15.2 Tangible assets - leased Assets subject to finance lease are initially recorded at the lower of the present value of minimum lease payments under the lease agreements and the fair value of the leased assets. The related obligation under the lease less financial charges allocated to future period are shown as a liability. These financial charges are allocated to accounting periods in a manner so as to provide a constant periodic rate of charge on the outstanding liability. Leased assets are depreciated on a straight line basis at the same rate as Company's owned assets as disclosed in note 5.1 to the financial statements. Depreciation is charged on additions from the month of acquisition, and no depreciation is charged in the month of disposal. 3.15.3 Intangible assets - owned These are stated at cost less accumulated amortisation and impairment, if any. Amortisation is charged to income over the useful life of the asset on a systematic basis applying the straight line method at the rates specified in note 6 to the financial statements. Amortisation is calculated from the month the assets are available for use. While on disposal, no amortisation is charged in the month in which the assets are disposed off. Software development costs are only capitalised to the extent that future economic benefits are expected to be derived by the Company. 3.15.4 Capital work-in-progress Capital work-in-progress is stated at cost less any impairment in value. 3.16 Operating lease Operating lease payments are recognised as an expense in the profit and loss account over the lease term. 3.17 Impairment The carrying amount of assets are reviewed at each balance sheet date to determine whether there is any indication of impairment of any asset or group of assets. If such indication exists, the recoverable amount of the asset is estimated. An impairment loss is recognised whenever the carrying amount of an asset exceeds its recoverable amount. Impairment losses are recognised in profit and loss account. An impairment loss is reversed if the reversal can be objectively related to an event occurring after the impairment loss was recognised. Provisions for impairment are reviewed at each balance sheet date and adjusted to reflect the current best estimate. Changes in the provisions are recognised as income or expense. 3.18 Financial instruments Financial assets and financial liabilities within the scope of IAS - 39 are recognised at the time when the Company becomes a party to the contractual provisions of the instrument. Financial assets are de-recognised when the contractual right to future cash flows from the asset expire or is transferred along with the risk and reward of the asset. Financial liabilities are de-recognised when obligation specified in the contract is discharged, cancelled or expired. Any gain or loss on de-recognition of the financial asset and liabilities is recognised in the profit and loss account of the current year. 134 Transforming Imagination Through Digitization
  137. ANNUAL REPORT 2018 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 Financial instruments carried on the balance sheet include bank deposits , investments, premium due but unpaid, premium received in advance, amount due from other insurers / reinsurers, accrued investment income, reinsurance recoveries against outstanding claims, sundry receivables, advances deposits and prepayments provision for outstanding claims, amount due to other insurers / reinsurers, accrued expenses, other creditors and accruals, short term running finance and obligation under finance lease. The particular recognition methods adopted are disclosed in the individual policy statements associated with each item. 3.19 Off setting of financial assets and financial liabilities Financial assets and financial liabilities are offset and the net amount is reported in the balance sheet, if the Company has a legally enforceable right to set-off and the Company intends either to settle the assets and liabilities on a net basis or to realise the asset and settle the liability simultaneously. 3.20 Foreign currency translations Foreign currency transactions are translated into Pak Rupees using the exchange rates prevailing at the dates of the transactions. All monetary assets and liabilities in foreign currencies are translated into Pak Rupees at the rates of exchange prevailing at the balance sheet date. Foreign exchange gains and losses on translation are recognized in the profit and loss account. All non-monetary items are translated into rupees at exchange rates prevailing on the date of transaction or on the date when fair values are determined. 3.21 Revenue recognition 3.21.1 Premium The revenue recognition policy for premiums is given under note 3.2. 3.21.2 Commission from reinsurers The revenue recognition policy for commission from reinsurer is given under note 3.6. 3.21.3 Dividend income Dividend income is recognized when the right to receive the dividend is established. 3.21.4 Gain / loss on sale / redemption of investments Gain / loss on sale / redemption of investments is taken to profit and loss account in the year of sale / redemption. 3.21.5 Income on held to maturity investment Income from held to maturity investments is recognised on a time proportionate basis taking account the effective yield on the investment. 3.21.6 Profit on bank accounts and deposits Profit on bank accounts and deposits is recognised on accrual basis. 3.22 Operating segments An operating segment is a component of the Company that engages in business activities from which it may earn revenues and incur expenses. The Company presents segment reporting of operating results using the classes of business as specified under the Insurance Ordinance, 2000 and the SECP (Insurance) Rules, 2017 as the primary reporting format. 135
  138. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 The Company has five primary business segments for reporting purposes namely , fire and property, marine, health, motor and miscellaneous. The nature and business activities of these segments are disclosed in note no. 3.1. Assets, liabilities and capital expenditures that are directly attributable to segments have been assigned to them while the carrying amount of certain assets used jointly by two or more segments have been allocated to segments on a reasonable basis. Those assets and liabilities which cannot be allocated to a particular segment on a reasonable basis are reported as unallocated corporate assets and liabilities. 3.23 Dividend declaration and reserve appropriation Dividend declaration and reserve appropriations are recognized when approved. 4. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS The preparation of financial statements in conformity with approved accounting standards requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the Company’s accounting polices. The estimates / judgments and associated assumptions used in the preparation of the financial statements are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The estimates / judgments and associated assumptions are reviewed on an ongoing basis. Revision to the accounting estimates are recognised in the period in which the estimate is revised, if the revision affects only that period, or in the period of revision and future periods if the revision affects both current and future periods. The areas involving a higher degree of judgment or complexity, or areas where assumption and estimates are significant to the financial statements, or judgments was exercised in application of accounting policies, are as follows: Classification of Insurance Contracts (note 3.1) Provision for unearned premium (note 3.2) Provision for outstanding claims including IBNR (note 3.4) Premium deficiency reserve (note 3.7) Provision for current and deferred tax (note 3.9) Classification of investments and impairment (note 3.10) Useful lives and residual value of assets and methods of depreciation (note 3.15) Provision for impairment (note 3.17) 5. PROPERTY AND EQUIPMENT Operating Assets Capital work-in-progress 136 Transforming Imagination Through Digitization Note 5.1 5.1.3 31 December 2018 31 December 2017 (Rupees ) 112,939,895 7,551,735 58,046,793 21,429,358 120,491,630 79,476,151
  139. Additions 85 ,939,243 - 21,308,340 18,859,223 119,837,706 - Office equipments Motor vehicles 12,941,651 - 23,273,674 777,363,174 18,105,223 886,301,563 - Office equipments Tracking devices Motor vehicles Cost Disposals / Write-offs* (4,922,300) (14,821,028) (1,900,000) (7,510,969) (372,300) (5,382,105) (2,650,000) (1,927,954) (779,405,508) - Accumulated Depreciation - 31,000 3,023,500 (1,996,334) (777,363,174) (46,000) - Capital Work-In-Progress includes advances to supplier for various IT related equipment and services. (2,664,459) 4,922,300 Fully depreciated assets amounts to Rs. 12.7187 million (purchase price) at year end (2017: 31.554 million). (791,667) (1,306,667) (196,682) (369,444) 1,250,000 1,400,000 372,300 1,900,000 5.1.3 Motor Vehicles Toyota Corolla GLI Honda Civic Office Equipment Mobile Phones As at 31 December 2018 As at 1 January 2018 As at 31 December 2017 186,033,621 - 88,919,023 15,931,497 24,885,580 28,351,496 27,946,025 8,356,164 As at 1 January 2017 61,790,913 - 12,346,037 15,400,139 4,993,870 20,694,703 Book value 119,837,706 - 18,859,223 - 18,742,797 21,308,340 32,981,321 27,946,025 Sale proceeds 529,013,233 - 9,383,883 482,496,335 13,060,493 3,370,178 15,140,785 5,561,559 2,257,840 458,333 93,333 175,618 1,530,556 2017 3,017,000 1,237,000 880,000 - 900,000 ............................................................. (Rupees) ............................................................... Cost 800,000 15,719,297 Furniture and fixtures 9,087,151 23,894,170 Computer equipments - 27,946,025 Computers and Related Accessories Projector Disposals / Write-offs* Charge for the Year Disposals / Write-offs* Accumulated Depreciation As at 31 December 2018 (2,664,459) (14,718,844) (369,444) (7,510,969) (196,682) (5,279,921) (2,098,333) (1,927,954) Charge for the Year Disposals / Write-offs* Accumulated Depreciation 28,686,116 - 13,131,697 3,047,348 2,719,794 6,992,675 2,794,602 As at 31 December 2017 73,093,726 - 21,451,447 12,970,884 7,713,664 19,806,965 11,150,766 759,160 778,667 786,667 (175,618) (630,556) Net gain (loss) 38,131,040 - 2,984,391 21,374,442 3,799,992 1,623,692 5,553,918 2,794,605 Negotiation Negotiation Company Policy Negotiation Mode of disposals (505,353,360) - (1,460,346) (503,870,777) (22,237) - - 61,790,913 - 12,346,037 - 15,400,139 4,993,870 20,694,703 8,356,164 ......................................................................................................................... (Rupees) ........................................................................................................................ Additions 377,562 6,142,783 Leasehold Improvements As at 1 January 2017 74,637,754 18,742,797 Furniture and fixtures - 32,981,321 4,781,144 27,946,025 Computer equipments Disposal of operating assets Cost 2018 As at 31 December 2018 Written Down Value 20 16.67 20 10 33.33 10 Depreciation Rate % 20 20 10 33.33 10 Depreciation Rate % Mr. Farrukh Jamshaid Mr. Ahmed Kamal Various Employees TPL Trakker Private Limited Associated Company. Sold to 58,046,793 - 6,513,186 - 5,908,201 13,748,927 12,286,618 19,589,861 As at 31 December 2017 Written Down Value 112,939,895 - 67,467,576 2,960,613 17,171,916 8,544,531 16,795,259 ..................................................................................................................................................................... (Rupees) ................................................................................................................................................................... As at 1 January 2018 Leasehold Improvements Owned Operating Assets 5.1.2 5.1.1 5.1 FOR THE YEAR ENDED 31 DECEMBER 2018 NOTES TO THE FINANCIAL STATEMENTS ANNUAL REPORT 2018 137
  140. 138 Transforming Imagination Through Digitization Accumulated Amatisation Written Down Value Additions - Cost Disposals / Write-offs* (4,868,558) As at 31 December 2017 14,031,675 As at 1 January 2017 6,986,299 2017 (4,868,558) Charge for the Year Disposals / Write-offs* Accumulated Amatisation 2,806,336 As at 31 December 2017 4,924,076 As at 31 December 2017 Written Down Value 9,107,599 9,189,195 The remaining useful life of material assets are estimated to be 5 years. 9,711,038 - 18,900,233 5,837,054 1,149,245 - 6,986,299 11,913,934 ..................................................................................................................................................................... (Rupees) ................................................................................................................................................................... As at 1 January 2017 18,900,233 6.2 6.1 Additions 2018 Disposals / As at 31 As at 1 Charge for Disposals / As at 31 As at 31 Write-offs* December 2018 January 2018 the Year Write-offs* December 2018 December 2018 (note 6.1) ..................................................................................................................................................................... (Rupees) ................................................................................................................................................................... As at 1 January 2018 Cost This represents GIS Development Software written off during the year upon expiry of its licence. Software licences Owned Software licences Owned INTANGIBLE ASSETS 6.1 6. FOR THE YEAR ENDED 31 DECEMBER 2018 NOTES TO THE FINANCIAL STATEMENTS 20 Amatisation Rate % 20 Amatisation Rate %
  141. 7 . Mutual funds AKD Aggressive Income AKD Opportunity Askari High Yield Scheme Alfalah GHP Income Multiplier Alfalah GHP Stock Fund Faysal Asset Allocation Faysal Money Market First Habib Cash Fund First Habib Stock Fund HBL Cash Fund UBL Growth & Income UBL Stock Advantage Others Listed shares Business Industrial Insurance Company Limited Bank of Punjab Limited Hub Power Company Limited Bank of Khyber Summit Bank Limited Available-for-sale Related party Listed shares TPL Properties Limited (3% holding) 2018 Revaluation surplus/(deficit) Carrying Value Cost Impairment / Provision 2017 Revaluation surplus/(deficit) (21,192,841) (13,948,969) (3,348,998) (38,490,808) (39,537,737) 226,065,704 327,709,431 (1,046,929) 1,643,727 95,312,797 68,825,591 44,970,104 16,957,212 (251,260) (294,024) (501,645) - 100,000,000 251,260 357,727 357,000 162,975 514,765 - (37,602,140) (17,646,477) (17,646,477) - 563,537 28,837 500,900 33,800 - (20,519,200) (20,519,200) 250,569,554 169,928,419 74,119,956 51,179,114 31,021,135 13,608,214 1,160,335 92,540 857,900 196,775 13,120 79,480,800 79,480,800 659,348,081 557,704,354 101,258,483 95,312,797 100,000,000 2,245,206 68,825,591 44,970,104 25,000,000 50,000,000 499,999 50,428,710 2,206,252 16,957,212 1,643,727 251,260 357,727 357,000 162,975 514,765 100,000,000 100,000,000 (1,015,729) - - (1,015,729) (251,260) (294,024) (470,445) - - (38,328,863) (33,964,021) 1,655,064 (14,162,374) 369,396 51,315 (11,603,296) (9,758,347) 356,445 170,325 290,444 887,469 40,942 (2,261,404) 595,158 553,000 42,158 - (4,960,000) (4,960,000) .......................................................................................................................... (Rupees) .................................................................................................................................. Impairment / Provision 100,000,000 Cost INVESTMENT IN EQUITY SECURITIES AND MUTUAL FUNDS FOR THE YEAR ENDED 31 DECEMBER 2018 NOTES TO THE FINANCIAL STATEMENTS 620,003,489 523,740,333 102,913,547 81,150,423 100,369,396 2,296,521 57,222,295 35,211,757 25,356,445 50,170,325 790,443 51,316,179 2,247,194 14,695,808 1,223,156 63,703 910,000 205,133 44,320 95,040,000 95,040,000 Carrying Value ANNUAL REPORT 2018 139
  142. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 8 . INVESTMENT IN GOVERNMENT SECURITIES Note 31 December 2018 31 December 2017 (Rupees ) Held to maturity Treasury Bills Pakistan Investment Bonds (PIBs) 8.1 8.2 98,374,678 94,180,429 99,457,402 192,555,107 99,457,402 8.1 This represents three month treasury bills having face value of Rs. 100 million [2017: Nil]. These carry mark-up of 10.25% and will mature on 28 February 2019. 8.2 This represents five and ten years Pakistan Investment Bonds having face value of Rs. 95 million (market value of Rs. 91.2409 million) [2017: Rs. 100 million (market value of Rs. 106.402 million)]. These carry mark-up ranging from 7.75% to 12% (2017: 8.75% to 12%) per annum and will mature between 03 September 2019 to 19 July 2022. These have been deposited with the State Bank of Pakistan (SBP) as statutory deposit in accordance with the requirements of Section 29 of the Insurance Ordinance 2000 and circular No. 15 of 2008 dated 7 July 2008 issued by the Securities and Exchange Commission of Pakistan. 9. INVESTMENT IN DEBT SECURITIES Available for sale 2018 Note Cost Impairment / Provision 2017 Revaluation surplus/ (deficit) Carrying Value Cost Impairment / Provision Revaluation surplus/ (deficit) Carrying Value ----------------------------------------------------------------------------- (Rupees) --------------------------------------------------------------------------- Sukuk 9.1 10. 9.1 30,000,000 - - 30,000,000 TERM DEPOSITS Deposits maturing within 12 months 140 - - - These are issued by Dubai Islamic Bank Pakistan Limited and carry mark-up of 12.27% per annum. Note 10.1 - 10.1 31 December 2018 31 December 2017 (Rupees ) 200,000,000 350,000,000 These carry profit rate ranging from 9.0% to 10.0% per annum (2017: 5.6% to 6.4% per annum) and have maturities upto 10 July 2019. Transforming Imagination Through Digitization
  143. ANNUAL REPORT 2018 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 11 . LOANS AND OTHER RECEIVABLES Note 31 December 2018 31 December 2017 (Rupees ) Considered good Advance to a related party Receivable from related parties Deposit for medical and travel assistance Deposit for hospital enlistment Accrued investment income Loans to employees Placement with a company Advance salaries Receivable in respect of sublet of offices Receivable from Participant's Takaful Fund Advance Lease Rentals Security Deposit Other receivable 11.1 11.2 11.3 11.4 200,000,000 76,950,470 5,290,000 6,361,552 4,075,915 25,000,000 558,923 18,706,960 7,600,000 3,932,734 331,088 200,000,000 35,811,391 1,942,392 5,290,000 9,237,328 2,272,240 431,920 884,936 14,608,836 3,657,846 234,055 348,807,642 274,370,944 8,500,000 884,936 (9,384,936) 8,500,000 (8,500,000) Considered doubtful Margin deposit placed against purchase of shares - unsecured Receivable in respect of sublet of offices Provision against doubtful debt 348,807,642 274,370,944 11.1 This represents advance to a related party. A special resolution of the shareholders authorising the Company to extend advance upto Rs.200 million was passed in Annual General Meeting of the Company held on 19 April 2018. The balance carries interest at the rate of 1 year KIBOR + 3.5% with a floor of 10% per annum. 11.2 This represent a refundable deposit placed for various hospital enlistments for services to the policy holders. 11.3 These loans were given to employees for domestic purposes and are secured against provident fund balances of employees. These loans carry a mark-up rate ranging from 0% - 5% (2017: 0% - 5%) per annum, and are maturing at various dates until February 2021. 11.4 This represents placement with Pearl Securities Limited and carries mark up at the rate of 8% per annum and willl mature by 10 July 2019. 141
  144. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 12 . INSURANCE / REINSURANCE RECEIVABLES - Unsecured Note Due from insurance contract holders Considered good Considered doubtful Less: provision for impairment of receivables from Insurance contract holders Due from other insurers / reinsurers Considered doubtful Less: provision for impairment of due from other insurers / reinsurers 31 December 2018 31 December 2017 (Rupees ) 147,146,207 258,493,866 18,578,198 18,592,413 (18,578,198) (18,592,413) 147,146,207 258,493,866 2,754,393 2,754,393 (2,754,393) (2,754,393) - 13. 147,146,207 258,493,866 8,618,042 1,174,500 22,066,955 8,954,042 2,680,855 11,881,947 122,485 (2,279,270) 31,981,982 21,237,574 Opening balance Reversal for the year 21,237,574 10,744,408 (2,390,402) 23,627,976 Closing balance 31,981,982 21,237,574 123,902,899 1,967,181 2,066,724 92,793,761 2,728,464 1,630,698 141,497,116 13,041,972 1,878,840 31,040,660 2,905,875 2,876,995 225,089,727 193,241,458 DEFERRED TAXATION - net Deferred debits arising in respect of Provision for doubtful debts / deposits Provision for IBNR Unrealized loss on avaliable for sale investments Deferred credits arising in respect of Accelerated depreciation 13.1 14. Reconciliation of deferred tax PREPAYMENTS Prepaid - annual monitoring and other charges - rent - maintenance charges - reinsurance premium ceded - subscription - others 14.1 142 - 14.1 14.2 This includes prepaid annual monitoring charges amounting to Rs. 114.432 million (2017: Rs. 130.301 million) paid to TPL Trakker Limited (Associated company) against the tracking services provided to the insurance policy holders of the Company. Transforming Imagination Through Digitization
  145. ANNUAL REPORT 2018 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 14 .2 This represents maintenance charges paid to Centrepoint Management Services (Private) Limited (a related party) for the principal office space of the Company. 15. CASH AND BANK BALANCES 31 December 2018 Note (Rupees ) Cash and cash equivalent - Cash in hand - Policy and Revenue stamps, Bond papers etc. Cash at bank - Current accounts - Profit and loss sharing accounts 15.1 31 December 2017 15.1 30,866 395,843 54,995 387,500 61,997,987 90,628,115 35,776,137 97,373,857 152,626,102 133,149,994 153,052,811 133,592,489 These accounts carry mark-up at a rate between 4.75% to 7.00% (2017: 3.5% to 5.5%) per annum. Cash and cash equivalents for the purpose of statement of cash flows: Cash and cash equivalent Term deposit receipts 16. SHARE CAPITAL 16.1 Authorized Capital 31 December 2018 31 December 2017 16.2 353,052,811 483,592,489 31 December 2017 (Rupees ) 150,000,000 Ordinary shares of Rs.10 each 1,500,000,000 1,500,000,000 755,158,990 755,158,990 Issued, Subscribed and paid- up share capital 75,515,899 18,350,362 93,866,261 16.3 133,592,489 350,000,000 31 December 2018 Number of Shares 150,000,000 153,052,811 200,000,000 75,515,899 75,515,899 Ordinary shares of Rs. 10 each at the beginning of the year Bonus Shares issued during the year Ordinary shares of Rs. 10 each at the end of the year 183,503,620 - 938,662,610 755,158,990 As at 31 December 2018 shares held by related parties are as follows: 2017 2018 Number of Shares TPL Corp Limited TPL Holdings (Private) Limited Directors 87,375,960 1,076,990 126,781 88,579,731 Holding 93.09% 1.15% 0.14% 94.38% Number of Shares 70,615,397 547,114 222,501 71,385,012 Holding 93.51% 0.72% 0.29% 94.52% 143
  146. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 17 . RESERVES Capital reserves Share premium Share issuance cost Note Net share premium Revenue reserves Unappropriated profit Available for sale reserve 17.1 17.1 144 16,936,998 (8,903,161) 147,579,495 (8,903,161) 8,033,837 138,676,334 16,898,950 (26,697,564) 253,917,563 (26,446,916) (9,798,614) 227,470,647 (1,764,777) 366,146,981 (37,602,140) 10,904,576 (38,328,863) 11,881,947 (26,697,564) (26,446,916) 122,268,570 114,673,701 31,850,865 23,547,998 1,052,708 14,499,288 4,208,313 35,869,489 19,782,687 1,209,945 11,715,050 3,525,000 65,707,498 5,843,734 3,968,503 5,691,084 61,782,699 3,132,414 4,770,815 161,529 61,044,166 7,606,309 3,775,895 26,774,972 44,696,309 2,976,126 140,976 226,217,448 219,116,925 OTHER CREDITORS AND ACCRUALS Commission payable Creditors Federal Insurance Fee Federal Excise Duty (FED) - net Margin deposit from customers Unearned Rentals from Window Takaful Operations Unearned service income Withholding tax payable Advance tax on premium Accrued expenses Dividend payable Payable to provident fund Others 19.1 (Rupees ) INSURANCE / REINSURANCE PAYABLES Due to other insurers / reinsurers 19. 31 December 2017 Available for Sale Reserve Unrealised loss on available-for-sale investment Related deferred tax 18. 31 December 2018 19.1 and 19.2 19.3 This includes outstanding claims in respect of which cheques aggregating to Rs. 0.996 million (2017: Rs. 7.458 million) have been issued by the Company for claim settlement but the same have not been encashed by the claimant. Transforming Imagination Through Digitization
  147. ANNUAL REPORT 2018 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 The following is the ageing as required by SECP circular 11 of 2014 dated 19 May 2014 : 31 December 2018 31 December 2017 (Rupees ) - More than 6 months - 1 to 6 months (included in provision for outstanding claims) 996,188 7,458,174 13,443,432 15,059,831 14,439,620 22,518,005 AGE-WISE BREAKUP Claims not encashed 1 to 6 months 7 to 12 months 13 to 24 months 2018 13,443,432 492,886 503,302 2017 15,059,831 2,738,939 3,794,882 25 to 36 months Beyond 36 months - 515,967 TOTAL - 408,386 14,439,620 22,518,005 19.2 This includes Rs. 0.660 million (2017: Rs. 1.812 million) payable to Centre Point Management Services (Private) Limited (related party). 19.3 Represents rentals received from Window Takaful Operations (WTO) - Participant Takaful Fund for tracking devices installed in vehicles insured by the WTO. 20. CONTINGENCIES AND COMMITMENT 20.1 Contingencies 20.1.1 In respect of matter of carry forward of Minimum Tax paid in the year of loss, Sindh High Court (SHC) through an order dated May 07, 2013 (now reported as 2013 PTD 420) has held that Minimum Tax paid in the year of loss is not eligible for adjustment in future years. In the opinion of SHC, only the ‘excess’ of Minimum Tax over Normal Tax (which must not be zero) can only be carried forward in future years. Therefore, where there is no tax payable, interalia, due to brought forward tax losses, minimum tax could not be carried forward for adjustment with future tax liability. The matter is currently pending before the Supreme Court for final decision. The Company adjusted minimum tax amounting to Rs. 10.73 million against its income tax liability in prior years. The Company, based on its tax advisor's opinion, is confident that the ultimate outcome in this regard would be favourable. Hence, no provision in this respect has been made in these financial statements. 20.1.2 Federal Government, through Finance Act 2017, has imposed a tax on undistributed profits at the rate of 7.5% of profit before tax, in case the Company does not distribute at least 40% of its profit after tax to its shareholders either through cash dividend or issuance of bonus shares. The legislation requires tax to be paid for Tax Year 2017 and onwards. In respect of Tax Year 2017 (Financial Year 2016) the Company did not make distribution to its shareholders. The Company has filed a constitutional petition in the High Court of Sindh challenging the tax on undistributed reserves. The constitutional petition is pending in the High Court of Sindh and the Company has been granted stay order by the Court. The Company believes based on the opinion of it legal counsel, that outcome of this would be in its favour and accordingly, no provision for taxation on undistributed reserve amounted to Rs. 11.162 million has been made in these financial statements. 145
  148. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 20 .1.3 During the year, FBR has issued order under section 122(5A) demanding income tax of Rs. 53 million in respect of Tax Year 2017. The Company has filed appeal before Commissioner Inland Revenue (Appeal), which is pending adjudication. The Company is confident that the order issued by the Assessing Officer is not in accordance with the applicable law and therefore, no provision for any potential liability has been made in these financial statements. 20.2 Ijarah commitments The Company has entered into various non-cancellable operating lease agreements. The lease term is five years. The future minimum lease payments under non-cancellable operating leases are as follows: 31 December 2018 31 December 2017 (Rupees ) No later than 1 year Later than 1 year and no later than 5 years 21. 36,037,545 - 1,350,155,369 671,873,202 (636,445,691) 1,383,696,653 699,873,641 (671,873,202) 1,385,582,880 1,411,697,092 183,291,149 31,040,660 (92,793,761) 113,391,973 29,880,970 (31,040,661) (121,538,048) (112,232,282) 1,264,044,832 1,299,464,809 753,019,694 136,343,591 (129,515,223) 730,722,483 129,515,223 (126,585,842) 759,848,062 733,651,864 267,931,113 209,829,170 67,717,006 61,717,833 Less: Reinsurance and other recoveries in respect of outstanding claims net of impairment - opening (61,717,833) (39,942,894) Reinsurance and other recoveries revenue (273,930,286) (231,604,109) 485,917,776 502,047,755 Premium earned Less: Reinsurance premium ceded Add: Prepaid reinsurance premium opening Less: Prepaid reinsurance premium closing Reinsurance expense Net insurance Premium NET INSURANCE CLAIMS EXPENSE Claims paid/ payable Add: Outstanding claims including IBNR closing Less: Outstanding claims including IBNR opening Claims expense Less: Reinsurance and other recoveries received Add: Reinsurance and other recoveries in respect of outstanding claims net of impairment - closing Net insurance claims expense 146 - NET INSURANCE PREMIUM Written net premium Add: Unearned premium reserve opening Less: Unearned premium reserve closing 22. 8,402,748 27,634,797 Transforming Imagination Through Digitization
  149. ANNUAL REPORT 2018 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 23 . Claim Development Claim Development table is included in note 35.1.8 to the financial statements. 24. NET COMMISSION EXPENSE Note (Rupees ) 184,018,054 61,621,674 (91,084,451) 127,593,711 60,865,415 (61,621,674) Commission expense 154,555,277 126,837,452 Less: Commission from reinsurers Commission received or receivable Add: Deferred commission - opening Less: Deferred commission - closing 34,680,982 4,358,320 (19,506,278) 12,700,277 4,569,980 (4,358,320) Commission from reinsurance 19,533,024 12,911,937 135,022,253 113,925,515 148,331,836 142,131,533 5,738,688 29,004,458 26,762,078 7,395,679 37,674,247 12,225,435 4,518,487 6,839,408 8,675,215 31,704,590 16,140,148 1,578,975 4,109,053 3,856,730 16,376 143,472,768 152,730,348 26,557,047 12,575,317 47,815,004 5,908,419 37,376,266 4,869,022 6,133,158 8,036,979 9,245,882 22,044,459 4,755,859 10,595,471 726,687 3,270,914 18,592,414 1,795,443 492,089 486,702,936 516,993,546 MANAGEMENT EXPENSES Employee benefit costs Annual Monitoring fee Travelling expenses Travelling incentives Advertisement and marketing Printing and Stationary Rent, rates and taxes Outsourcing Expenses - Call Centre Services Communication Utilities - Electricity and Water Vehicle running expenses Repair and Maintenance Depreciation - Trakker units Depreciation - Other Amortization expense Annual Supervision Fee SECP Bad and doubtful debts Insurance Others 25.1 31 December 2017 Commissions paid or payable Add: Deferred commission - opening Less: Deferred commission - closing Net Commission expense 25. 31 December 2018 25.1 This includes Rs. 135.124 million being salaries and wages (2017: Rs. 134.849) and Rs. 13.153 million (2017: Rs. 8.624 million) being contribution to employees' provident fund. 147
  150. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 26 . INVESTMENT INCOME 31 December 2018 31 December 2017 (Rupees ) Dividend and markup income Dividend Income Return on debt securities Return on Term Deposits Net realized gains / (losses) on investments - Available-for-sale Realized gains - Equity Securities - Mutual Funds Loss on disposal/redemption of mutual funds Total investment income Impairment in value of available-for-sale securities - Equity Securities - Mutual Funds Less: Investment related expenses 27. 60,000 10,596,718 21,656,372 28,519,125 32,313,090 11,888,592 823,050 8,041,197 11,888,592 8,864,247 - (25,906,039) 11,888,592 (17,041,792) 40,407,717 15,271,298 (38,522,008) (98,829) - (633,860) (17,394) 1,251,849 15,155,075 41,697,886 144,426,668 18,409,362 5,895,436 934,778 2,876,371 5,037,596 122,341,667 1,062,365 20,288,464 6,949,250 515,458 214,240,502 156,194,800 OTHER INCOME Interest on advance to associated company Tracker rental from Window Takaful Operations Income from sublet of office premises Income from other services Income from savings accounts Gain sale of fixed assets Others 148 9,539,309 18,979,816 Transforming Imagination Through Digitization
  151. ANNUAL REPORT 2018 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 28 . OTHER EXPENSES Note Employee benefit costs Annual Monitoring fee Legal and professional charges Auditors’ remuneration Registration, subscription and association Donations Communication IT Related Cost Travelling and conveyance Utilities Depreciation - Trakker Vehicle running expenses Loss on disposal of fixed assets Lease Rentals Bad Debt Expense Service fee of co-insurer Others 28.1 28.2 31 December 2017 (Rupees ) 31,075,610 144,426,667 10,634,752 1,123,245 1,896,013 10,663,574 1,177,141 8,131,642 10,387,210 1,461,412 1,853,679 3,997,186 884,936 4,917,235 10,935,085 14,954,356 122,341,667 16,096,027 1,626,112 4,089,750 14,407,367 1,739,033 15,264,242 2,204,741 858,652 16,618,583 987,808 523,754 9,531,811 243,565,387 221,243,903 440,000 250,000 256,335 176,910 400,000 350,000 725,000 151,112 1,123,245 1,626,112 AUDITOR'S REMUNERATION Audit fee Review of financial statements Special certifications Out-of-pocket expenses 28.2 28.1 31 December 2018 DONATIONS None of the directors, sponsor shareholders, key management personnel and their spouses had any interest in the Donee. 149
  152. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 Note 29 . 31 December 2018 31 December 2017 (Rupees ) TAXATION For the year Current Deferred 29.1 22,657,808 (11,721,735) 64,412,083 (11,746,029) 10,936,073 52,666,054 For the prior years Current Deferred - 5,670,070 - 10,936,073 58,336,124 29.1 The Relationship between tax expense and accounting profit is not produced as the tax charge is based on minimum tax on turnover. 29.2 The tax rate applicable on the Company for Tax Year 2018 is 29% (2017: 30%). The change in tax rate since last year was enacted in Finance Act 2018. 29.3 Provision for tax made is sufficient to cover the income tax liability for the year ended 31 December 2018. The analysis of tax provision compared to tax assessed for the last three years is as follows: Tax Year Tax Year 2019 Tax Year 2018 Tax Year 2017 30. EARNINGS PER SHARE – BASIC AND DILUTED Provision made 22,657,808 64,412,083 41,967,997 31 December 2018 Return to be filed 64,412,083 41,967,997 31 December 2017 (Rupees ) Profit after tax for the year Tax Assessed 3,575,032 Restated (note 30.1) 105,026,613 ...................... (Number of Shares) ...................... Weighted average number of ordinary shares of Rs.10 each 93,866,261 93,866,261 .............................. (Rupees) ............................... Earnings per share - basic and diluted 30.1 150 0.04 1.12 The Company has issued bonus shares during the year and accordingly, the earnings per share for the comparative year has been restated. Transforming Imagination Through Digitization
  153. ANNUAL REPORT 2018 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 31 . COMPENSATION OF DIRECTORS AND EXECUTIVES The aggregate amount charged to in the financial statements, including all benefits, to the Chief Executive, Directors and Executives / Key Management Personnel of the Company are as follows: Chief Executive Officer Note Managerial remuneration Bonus House rent allowance Utilities Retirement benefits Relocation allowances Others Director fee Number of persons 31.2 2018 Directors Executives Total 2017 2018 2017 2018 2017 2018 ...................................................................................... (Rupees) ...................................................................................... 2017 13,377,192 6,019,716 1,336,425 1,114,320 2,491,392 7,887 - 11,700,000 1,085,000 5,118,600 1,260,000 982,416 1,181,400 - 3,300,000 800,000 68,159,000 852,000 30,576,920 6,810,032 5,459,079 15,155,285 - 52,580,288 1,625,400 22,692,748 14,692,667 4,627,489 5,619,714 - 81,536,192 852,000 36,596,636 8,146,457 6,573,399 2,491,392 15,163,172 3,300,000 64,280,288 2,710,400 27,811,348 15,952,667 5,609,905 6,801,114 800,000 24,346,932 21,327,416 3,300,000 800,000 127,012,316 101,838,306 154,659,248 123,965,722 2 1 3 2 22 36 27 39 31.1 In addition, the Chief Executive Officer, Directors and Executives are provided with free use of Company maintained cars in accordance with their entitlement. 31.2 During the year, the previous Chief Executive Officer resigned from his position on 31 July 2018 and new Chief Executive Officer was appointed with effect from 31 July 2018. 32. TRANSACTIONS WITH RELATED PARTIES 32.1 The related parties comprise Holding Company, associated undertakings, common directorships, employees provident fund, directors and key management personnel. The balances with / due from and transactions with related parties, other than those which have been specifically disclosed elsewhere in the financial statements are as follows: 32.2 Balances and transactions with related parties 31 December 2018 31 December 2017 (Rupees ) TPL Trakker Limited - (associated company) Opening balance - receivable Interest charged during the year Net expenses charged - group shared costs Rent and other services on tracking units Payments made on behalf of the associated company Receivable in respect of sale of tracking units installed in advance Net payment made by the Company 31,369,420 41,697,886 (8,079,421) (229,757,907) 10,255,815 75,450,164 5,037,596 (94,166,840) (373,729,570) - 223,851,067 315,575,224 103,202,846 69,336,860 31,369,420 Advance to TPL Trakker Limited - (associated company) Opening balance - receivable Advance paid during the year 200,000,000 - 200,000,000 Closing balance - receivable 200,000,000 200,000,000 Closing balance - receivable 151
  154. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 32 .2 Balances and transactions with related parties (continued) This represents advance to a related party. A special resolution of the shareholders authorising the Company to extend advance upto Rs.200 million was passed in Annual General Meeting of the Company held on 19 April, 2018. The balance carries interest at the rate of 1 year KIBOR + 3.5% with a floor of 10% per annum. 31 December 2018 TPL Properties Limited- common directorship Opening balance - receivable Advance rent paid during the year Rent and maintenance expenses during the year Other movement during the year Expenses incurred by the company 31 December 2017 (Rupees ) 11,763,149 28,471,672 (28,471,672) (9,601,744) 3,054,164 8,578,400 45,014,501 (43,991,157) 2,161,405 5,215,569 11,763,149 Opening accrued outsourcing expenses Services received during the year Payments made during the year 644,000 19,922,665 (10,566,665) 736,000 7,617,600 (7,709,600) Closing accrued outsourcing expenses 10,000,000 644,000 TRG Pakistan Limited Opening balance - receivable Sublet of office premises Payment received during the year 884,936 - 5,050,162 1,139,165 (5,304,391) Closing balance - receivable 884,936 884,936 1,812,001 (8,266,896) 8,266,896 (1,191,797) 9,795,271 (9,755,432) 2,665,969 (7,868,304) 7,868,304 8,071,723 (8,925,691) 660,043 1,812,001 719,357 1,726,382 (1,184,300) 672,800 719,357 (1,113,200) 1,113,200 1,934,239 719,357 Closing balance - receivable Virtual World (Private) Limited - common directorship Centrepoint Management Services (Private) Limited - common directorship Opening balance - payable Maintenance charges expensed during the year Maintenance charges paid during the year Other movement during the year Services received during the year Payments made during the year Closing balance - payable TPL Security Services (Private) Limited - common directorship Opening balance Expenses incurred by the company Services received during the year Payments made during the year Closing balance - receivable 152 Transforming Imagination Through Digitization
  155. ANNUAL REPORT 2018 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 32 .2 Balances and transactions with related parties (continued) 31 December 2018 TPL Insurance Limited Employees Provident Fund Opening balance - payable Charge for the year Contribution made during the year Closing balance - payable 31 December 2017 (Rupees ) 3,323,344 26,323,170 (24,875,699) 1,173,732 26,894,660 (24,745,048) 4,770,815 3,323,344 1,561,209 6,216,777 (10,598,488) 1,924,394 2,882,667 (1,321,458) - (896,108) 1,561,209 TPL Life Insurance Limited - common directorship Opening balance - receivable Expenses incurred on behalf of the company Services received from the company Payments made during the year Closing balance - receivable TPL Maps - common directorship Opening balance - receivable Expenses incurred on behalf of the company 1,186,671 - Closing balance - receivable 1,186,671 - Opening balance - receivable Expenses incurred on behalf of the company 43,662 - Closing balance - receivable 43,662 - Opening balance - receivable Expenses incurred on behalf of the company 129,577 - Closing balance - receivable 129,577 - TPL Rupiya - common directorship TPL Corp - common directorship Window Takaful Operations - Participant Takaful Fund Opening balance - receivable / (payable) Rental and other services charged on Tracking devices during the year Payments received / (made) by PTF - net Closing balance - receivable / (payable) 32.2.1 14,608,836 5,897,661 149,090,000 (144,991,876) 134,530,000 (125,818,825) 18,706,960 14,608,836 Remuneration to the key management personnel are in accordance with the terms of their employment. Contribution to the provident fund is in accordance with the Company's staff services rules and other transactions with the related parties are in accordance with the agreed terms. 153
  156. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 33 . SEGMENT REPORTING 2018 Fire & property damage Gross Written Premium (inclusive of Administrative Surcharge) Insurance premium earned Insurance premium ceded to reinsurers Net insurance premium Commission income Net underwriting income Marine, aviation & transport Motor Health Miscellaneous Aggregate ........................................................................ (Rupees) ........................................................................ 58,169,710 48,854,357 1,081,584,371 137,664,710 23,882,220 1,350,155,369 74,961,358 47,563,747 1,142,431,531 100,424,415 20,201,828 1,385,582,880 (58,872,214) (20,330,532) (36,178,845) (6,156,457) (121,538,048) 16,089,144 9,299,582 27,233,215 4,976,059 1,106,252,686 5,016,961 100,424,415 - 14,045,372 240,422 1,264,044,832 19,533,024 - 25,388,726 32,209,274 1,111,269,647 100,424,415 14,285,793 1,283,577,856 Insurance claims Insurance claims recovered from reinsurers (65,002,395) (26,094,015) (655,837,175) (7,431,733) (5,482,744) (759,848,063) 61,527,935 6,641,023 205,639,872 Net Claims Commission expense Management expenses Net insurance claims and expenses (3,474,460) (14,706,717) (20,968,971) (19,452,993) (7,547,218) (17,610,980) (450,197,302) (80,591,865) (389,888,676) (39,150,148) (44,611,190) (13,761,422) (12,401,916) Underwriting result Investment income Other income Other expenses - 121,457 273,930,286 (7,431,733) (47,445,751) (49,625,265) (5,361,288) (4,263,726) (8,609,044) (485,917,776) (154,555,277) (486,702,936) (920,677,843) (104,502,749) (18,234,058) (1,127,175,989) 190,591,804 (4,078,334) (3,948,264) 156,401,866 1,251,849 214,240,502 (243,565,387) Results of operating activities Other charges Profit before tax from General Insurance Operations Loss before tax from Window Takaful Operations - Operator's Fund 128,328,830 (1,642,832) 126,685,998 (112,174,894) 14,511,105 Profit before tax for the year 2017 Fire & property damage Aggregate Gross Written Premium (inclusive of Administrative Surcharge) 70,055,574 34,685,082 1,208,474,689 57,808,070 12,673,238 1,383,696,653 Insurance premium earned Insurance premium ceded to reinsurers 67,230,101 (52,718,361) 32,668,536 (23,490,915) 1,230,093,471 (34,165,582) 72,362,953 (419,719) 9,342,031 (1,437,707) 1,411,697,092 (112,232,284) 14,511,740 8,007,779 9,177,621 4,529,016 1,195,927,889 - 71,943,234 - 7,904,324 375,141 1,299,464,808 12,911,936 Net insurance premium Commission income Net underwriting income 22,519,519 13,706,637 1,195,927,889 71,943,234 8,279,465 1,312,376,744 Insurance claims Insurance claims recovered from reinsurers (20,222,427) (10,399,769) (683,007,742) (13,814,136) (6,207,789) (733,651,863) 18,869,716 7,013,630 203,340,476 2,380,286 231,604,108 Net Claims Commission expense Management expenses (1,352,711) (9,739,227) (29,581,753) (3,386,139) (6,830,282) (14,646,166) (479,667,266) (77,860,585) 169,038,838 (13,814,136) (30,385,434) (24,410,107) (3,827,503) (2,021,923) (5,351,417) (502,047,755) (126,837,451) (516,993,546) Net insurance claims and expenses (40,673,691) (24,862,587) (388,489,013) (68,609,677) (11,200,843) (1,145,878,752) Underwriting result Investment income Other income Other expenses (18,154,172) (11,155,950) 807,438,876 3,333,557 (2,921,378) 166,497,992 15,155,075 156,194,800 (221,243,903) Results of operating activities Other charges Profit before tax from General Insurance Operations Profit before tax from Window Takaful Operations - Operator's Fund Profit before tax for the year 154 Marine, aviation Motor Health Miscellaneous & transport ........................................................................ (Rupees) ........................................................................ Transforming Imagination Through Digitization - 116,603,964 (769,430) 115,834,534 47,528,202 163,362,736
  157. ANNUAL REPORT 2018 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 34 . MOVEMENT IN INVESTMENTS Held to Maturity Available for Sale Total ................................... (Rupees) .................................. As at 1 January 2017 Net movement Additions Disposals (sale and redemption) Fair value net gains (excluding net realized gains) (Impairment) / Reversal of Impairment Amortisation of premium / discount As at 31 December 2017 Additions Disposals (sale and redemption) Fair value net gains (excluding net realized gains) (Impairment) / Reversal of Impairment Amortisation of premium / discount As at 31 December 2018 35. 817,391,625 (367,000,000) - 2,111,828 900,000,000 (243,680,647) 819,503,453 (367,000,000) 900,000,000 (243,680,647) (38,328,863) (38,328,863) (934,223) (98,829) - (98,829) (934,223) 449,457,402 620,003,489 1,069,460,891 117,920,015 (175,000,000) 96,842,911 (367,784,768) 214,762,926 (542,784,768) (29,970,070) (29,970,070) 177,690 (38,522,008) - (38,522,008) 177,690 392,555,107 280,569,554 673,124,661 - - MANAGEMENT OF INSURANCE RISK AND FINANCIAL RISK The Company issue contracts that transfer insurance risk or financial risk or both. This section summarises the insurance risks and the way the Company manages them. 35.1 INSURANCE RISK MANAGEMENT 35.1.1 INSURANCE RISK The risk under any insurance contract is the possibility that the insured event occurs and the uncertainty of the amount of compensation to the insured. Generally most insurance contracts carry the insurance risk for a period of one year. The Company's major insurance contracts are in respect of motor vehicles through issuance of general insurance contracts relating to motor insurance. For these contracts the most significant risks arise from theft, accidents and terrorist activities. The Company's risk exposure is mitigated by employing a comprehensive framework to identify, assess, manage and monitor risk. This framework includes implementation of underwriting strategies which aim to ensure that the underwritten risks are well diversified in terms of type and amount of the risk. Adequate reinsurance is arranged to mitigate the effect of the potential loss to the Company from individual to large or catastrophic insured events. Further, the Company adopts strict claim review policies including active management and prompt pursuing of the claims and regular detailed review of claim handling procedures and frequent investigation of possible false claims to reduce the insurance risk. 155
  158. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 35 .1.2 FREQUENCY AND SEVERITY OF CLAIMS Risk associated with general insurance contracts includes the reasonable possibility of significant loss as well as the frequent occurrence of the insured events. This has been managed by having in place underwriting strategy, reinsurance arrangements and proactive claim handling procedures. The reinsurance arrangements against major risk exposure include excess of loss, quota share, surplus arrangements and catastrophic coverage. The objective of having such arrangements is to mitigate adverse impacts of severe losses on Company's net retentions. 35.1.3 UNCERTAINTY IN THE ESTIMATION OF FUTURE CLAIM PAYMENTS Claims on motor insurance contracts are payable on a claim occurrence basis. The Company is liable for all insured events that occur during the term of the insurance contracts respectively, including the event reported after the expiry of the insurance contract term. An estimated amount of the claim is recorded immediately on the intimation to the Company. The estimation of the amount is based on management judgment or preliminary assessment by the independence surveyor appointed for the purpose. The initial estimates include expected settlement cost of the claims. Provision for IBNR is based on the management's best estimate which takes into account expected future patterns of reporting of claims and the claim actually reported subsequent to the balance sheet date. There are several variable factors which affect the amount and timing of recognized claim liabilities. The Company takes all reasonable measures to mitigate the factors affecting the amount and timing of claim settlements. However, uncertainty prevails with estimated claim liabilities and it is likely that final settlement of these liabilities may be different from initial recognized amount. Outstanding claims are reviewed on a periodic basis. 35.1.4 KEY ASSUMPTIONS The process used to determine the assumptions for calculating the outstanding claim reserve is intended to result in neutral estimates of the most likely or expected income. The nature of the business makes it very difficult to predict with certainty the likely outcome of any particular claim and the ultimate cost of notified claims. Each notified claim is assessed on a separate case to case basis with due regard to the claim circumstances, information available from surveyors and historical evidence of the size of similar claims. Core estimates are reviewed regularly and are updated as and when new information is available. The principal assumption underlying the liability estimation of IBNR and Premium Deficiency Reserves is that the Company's future claim development will follow similar historical pattern for occurrence and reporting. The management uses qualitative judgment to assess the extent to which past occurrence and reporting pattern will not apply in future. The judgment includes external factors e.g. treatment of one-off occurrence claims, changes in market factors, economic conditions, etc. During the year, the Company has not changed its assumptions for the insurance contracts. 35.1.5 SENSITIVITY ANALYSIS The risks associated with the insurance contracts are complex and subject to a number of variables which complicate quantitative sensitivity analysis. The Company makes various assumptions and techniques based on past claims development experience. This includes indications such as average claims cost, ultimate claims numbers and expected loss ratios. The Company considers that the liability for claims recognized in the balance sheet is adequate. However, actual experience may differ from the expected outcome. 156 Transforming Imagination Through Digitization
  159. ANNUAL REPORT 2018 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 The claim liabilities are sensitive to the incidence of insured events and severity / size of claims. As the Company enters into short term insurance contracts, it does not assume any significant impact of changes in market conditions on unexpired risks. However, some results of sensitivity testing are set out below, showing the impact on profit before tax net of reinsurance. The impact of 10 % increase / decrease in incidence of insured events on profit before tax and shareholder's equity is as follows: Average claim cost Underwriting results / profit before tax 2018 2017 ................. (Rupees) ................. Fire & property damage Marine, aviation & transport Motor business Health Miscellaneous 35.1.6 347,446 1,945,299 45,019,730 743,173 536,129 48,591,778 Shareholder's equity 2018 2017 ................. (Rupees) ................. 135,271 338,614 47,966,727 1,381,414 382,750 50,204,776 246,687 1,381,162 31,964,008 527,653 380,651 34,500,162 93,337 233,644 33,097,041 953,175 264,098 34,641,295 Concentration of risk To optimise benefits from the principle of average and law of large numbers, geographical spread of risk is of extreme importance. There are a number of parameters which are significant in assessing the accumulation of risk with reference to the geographical location, the most important of which is risk survey. Risk surveys are carried out on a regular basis for the evaluation of physical hazards associated with the insured property. The adequate event limit is a multiple of the treaty capacity or the primary recovery from excess of loss treaty, which is very much in line with the risk management philosophy of the Company. Reinsurance ceded does not relieve the Company from its obligation towards policy holders and, as a result the Company remains liable for the portion of outstanding claims reinsured to the extent that reinsurer fails to meet the obligation under the reinsurance agreements. The Company minimises its exposure to significant losses by obtaining reinsurance from a number of reinsurers, who are dispersed over several geographical regions. 35.1.7 The concentration of risk by type of contracts based on single risk with maximum exposure is summarised below: Gross sum insured Reinsurance Net 2018 2017 2018 2017 2018 2017 ................................................................................................ (Rupees) ................................................................................................... Fire & property damage Marine, aviation & transport Motor business Health Miscellaneous 3,844,524,423 387,604,800 20,000,000 40,000 232,000,000 4,000,000,000 439,690,241 15,000,000 800,000 848,000,000 3,796,467,868 374,315,493 17,000,000 231,000,000 3,900,000,000 399,258,955 814,080,000 48,056,555 13,289,307 3,000,000 40,000 1,000,000 100,000,000 40,431,286 15,000,000 800,000 33,920,000 157
  160. 158 Transforming Imagination Through Digitization 35 .1.8 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Total 6,757,711 6,757,711 (5,563,711) 1,194,000 Ten years later Estimate of cumulative claims Cumulative payments to date Liability for outstanding claims 2,540,949 Six years later 2,540,949 2,769,694 Five years later Nine years later 2,769,694 Four years later 2,540,949 2,769,694 Three years later 2,540,949 2,769,694 Two years later Eight years later 2,769,694 One year later Seven years later 2,773,342 - (4,623,878) 4,623,878 4,623,878 4,623,878 4,623,878 4,623,878 4,623,878 4,623,878 4,623,878 4,623,878 4,623,878 4,688,378 5,294,196 - (11,732,891) 11,732,891 11,732,891 11,732,891 11,732,891 11,732,891 11,732,891 11,732,891 11,732,891 11,732,891 11,732,891 11,729,996 9,952,578 - (8,657,940) 8,657,940 8,657,940 8,657,940 8,657,940 8,657,940 8,657,940 8,657,940 8,955,940 8,955,940 8,924,574 9,282,400 11,577,588 - (26,112,818) 26,112,818 - 26,112,818 26,075,318 26,075,318 26,075,318 26,075,318 26,075,318 25,210,318 25,210,318 27,008,646 32,625,169 - (30,539,581) 30,539,581 - - 30,539,581 30,539,581 30,389,581 30,389,581 30,389,581 30,389,581 30,389,581 30,393,508 47,340,288 - (37,428,166) 37,428,166 - - - 37,428,166 37,428,166 37,428,166 37,428,166 37,428,166 37,423,966 37,511,141 48,351,225 - (352,720,503) 352,720,503 - - - - 352,720,503 352,717,003 352,717,003 352,717,003 352,717,003 352,896,739 363,140,143 - (469,692,371) 469,692,371 - - - - - 469,692,371 468,442,371 468,442,371 468,442,371 468,385,716 469,482,097 1,058,750 (692,011,003) 693,069,753 - - - - - - 693,069,753 692,941,803 693,681,098 701,532,973 703,987,518 32,311 (695,649,646) 695,681,957 - - - - - - - 695,681,957 695,673,822 692,344,679 681,432,916 1,623,152 (754,711,006) 756,334,159 - - - - - - - - 756,334,159 760,148,277 738,511,849 2,932,550 (740,559,944) 743,492,494 - - - - - - - - - 743,492,494 709,275,588 129,502,827 (598,515,361) 728,018,188 - - - - - - - - - - 728,018,188 136,343,591 (4,428,518,818) 4,564,862,410 31,772,420 26,112,818 30,539,581 37,428,166 352,720,503 469,692,371 693,069,753 695,681,957 756,334,159 743,492,494 728,018,188 .......................................................................................................................................................................................................................... (Rupees) .......................................................................................................................................................................................................................... At end of accident year Estimate of ultimate claims cost: Accident year Analysis on gross basis The following table shows the development of claims over a period of time on gross basis. For each class of business the uncertainty about the amount and timings of claims payment is usually resolved within a year. Claims development tables FOR THE YEAR ENDED 31 DECEMBER 2018 NOTES TO THE FINANCIAL STATEMENTS
  161. ANNUAL REPORT 2018 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 36 . FINANCIAL RISK MANAGEMENT The Board of Directors of the Company has overall responsibility for the establishment and oversight of the Company's risk management framework. The Company has exposure to the following risks from its use of financial instruments: - Credit risk - Liquidity risk - Market risk Risk management framework The Company’s risk management policies are established to identify and analyse the risks faced by the Company, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Company’s activities. 36.1 Credit risk Credit risk is the risk that arises with the possibility that one party to a financial instrument will fail to discharge its obligation and cause the other party to incur a financial loss. The Company attempts to control credit risk by monitoring credit exposures by undertaking transactions with a large number of counterparties in various industries and by continually assessing the credit worthiness of counterparties. 36.1.1 Management of credit risk The Company's policy is to enter into financial contracts in accordance with the guidelines set by the Board of Directors. Credit risk is managed and controlled by the management of the Company in the following manner: - Credit rating and / or credit worthiness of the counter party is taken into account along with the financial background so as to minimize the risk of default. Collaterals are obtained wherever appropriate / relevant. - The risk of counterparty exposure due to failed agreements causing a loss to the Company is mitigated by a periodic review of the credit ratings, financial statements, credit worthiness, etc. on a regular basis and makes provision against those balances considered doubtful of recovery. - Loans given to employees are deductible from the salary of the employees. - Cash is held with reputable banks only. To reduce the credit risk the management continuously reviews and monitors the credit exposure towards the policyholders and other insurers/reinsurers and makes provision against those balances considered doubtful of recovery. 36.1.2 Exposure to credit risk In summary, compared to the amount included in statement of assets and liabilities, the maximum exposure to credit risk as at 31 December is as follows: 159
  162. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 December 2018 Balance as per the financial statements December 2017 Balance as per the financial statements Maximum exposure Maximum exposure .................................................................. (Rupees) .................................................................... Investment in government securities Investment in debt securities Term deposits Loans and other receivables Insurance / reinsurance receivables Reinsurance recoveries against outstanding claims Salvage recoveries accrued Bank balances 36.1.3 192,555,107 30,000,000 200,000,000 348,807,642 192,555,107 30,000,000 200,000,000 348,807,642 99,457,402 350,000,000 274,370,944 99,457,402 350,000,000 274,370,944 147,146,207 147,146,207 258,493,866 258,493,866 10,529,385 57,187,621 152,626,102 10,529,385 57,187,621 152,626,102 21,515,947 40,201,885 133,149,994 21,515,947 40,201,885 133,149,994 946,296,957 946,296,957 1,077,732,636 1,077,732,636 Past due / impaired assets Age analysis of premium due but unpaid at the reporting date was: 2018 2017 Gross Impairment Gross Impairment ................................................................. (Rupees) ................................................................. 0-90 days Over 90 days 111,373,261 54,351,144 18,578,198 119,528,975 157,557,304 18,592,413 Total 165,724,405 18,578,198 277,086,279 18,592,413 Age analysis of amount due from other insurers / reinsurers at the reporting date was: 2018 2017 Gross Impairment Gross Impairment ................................................................. (Rupees) ................................................................. Upto 1 year 1-2 years Over 2 years 2,754,393 2,754,393 2,754,393 2,754,393 Total 2,754,393 2,754,393 2,754,393 2,754,393 Age analysis of reinsurance recoveries against outstanding claims at the reporting date was: 2018 Gross 160 2017 Impairment Gross Impairment ............................................... (Rupees) ............................................... Up to 1 year 1-2 years Over 2 years 58,935,043 8,662,563 119,400 - 61,598,432 119,400 - Total 67,717,006 - 61,717,832 - Transforming Imagination Through Digitization
  163. ANNUAL REPORT 2018 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 In respect of the aforementioned insurance and reinsurance assets , the Company takes into account its past history / track record of recoveries and financial position of the counterparties while creating provision for impairment. Further, reinsurance recoveries are made when corresponding liabilities are settled. 36.1.4 Credit Rating and Collateral The credit quality of Company's bank balances can be assessed with reference to external credit rating as follows: Long term Rating Rating Agency 2018 Amount (in Rupees) 2017 AAA AAA AA+ AA+ AA AA AAAAA+ A A ABBB BBB- JCR-VIS PACRA JCR-VIS PACRA PACRA JCR-VIS JCR-VIS PACRA PACRA JCR-VIS PACRA JCR-VIS JCR-VIS JCR-VIS 14,468,196 1,011,564 42,126,973 1,003,042 302,323 351,432 42,356,128 2,428,765 243,807 1,520,374 271,736,498 15,087,831 821,974 7,766,155 29,186,816 25,929,681 6,271,763 3,787,270 1,175,455 73,932 134,769 367,914,348 25,000,000 - 377,549,102 483,149,994 The Company enters into re-insurance / co-insurance arrangements with re-insurers / other insurers having sound credit ratings accorded by reputed credit rating agencies. The Company is required to comply with the requirements of circular no. 32 / 2009 dated October 27, 2009 issued by SECP which requires an insurance company to place at least 80% of their outward treaty cessions with reinsurers rated 'A' or above by Standard & Poors with the balance being placed with entities rated at least 'BBB' by reputable ratings agency. An analysis of all reinsurance assets relating to outward treaty cessions recognised by the rating of the entity from which it is due is as follows: Reinsurance recoveries Prepaid against reinsurance outstanding premium claims ceded 2018 2017 ............................................... (Rupees) ............................................... A or above (including PRCL) 36.1.5 10,529,385 92,793,761 103,323,146 52,556,607 Concentration of credit risk Concentration of credit risk arises when a number of counterparties have a similar type of business activities. As a result, any change in economic, political or other conditions would effect their ability to meet contractual obligations in similar manner. The company manages concentration of credit risk through diversification of activities among individuals, groups and industry segments. 161
  164. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 Sector-wise analysis of premium due but unpaid at the reporting date was : 2018 (Rupees) Individuals Corporate 36.1.6 2017 % (Rupees) % 37,954,822 109,191,385 26% 74% 69,781,030 188,712,836 27% 73% 147,146,207 100% 258,493,866 100% Settlement risk The company’s activities may give rise to risk at the time of settlement of transactions. Settlement risk is the risk of loss due to the failure of an entity to honour its obligations to deliver cash, securities or other assets as contractually agreed on sale. This risk is addressed more or less in accordance with the parameters set out in the credit risk management above. 36.2 Liquidity risk Liquidity risk is the risk that the Company will encounter difficulty in meeting its financial obligations as they fall due. Liquidity risk arises because of the possibility that the Company could be required to pay its liabilities earlier than expected or may face difficulty in raising funds to meet commitments associated with financial liabilities as they fall due. 36.2.1 Management of liquidity risk The Company’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Company's reputation. The Company’s liquidity management involves projecting cash flows and considering the level of liquid assets necessary to fulfil its obligation; monitoring balance sheet liquidity ratios against internal and external requirements and maintaining debt financing plans. 36.2.2 Maturity analysis for financial assets and liabilities The table below analyses the Company's financial assets and liabilities into relevant maturity groupings based on the remaining period at the balance sheet date to maturity date and represents the undiscounted cash flows. The amounts in the table are the gross nominal undiscounted cash flows (including interest payments). 2018 Carrying amount Financial assets Investments Equity securities and mutual fund units Government Securities Debt securities Term deposits Loans and other receivables Insurance / reinsurance receivables Reinsurance recoveries against outstanding claims Salvage recoveries accrued Cash and bank balances Total assets of General Takaful Operations - Operator's Fund 162 Transforming Imagination Through Digitization Upto one year More than one year ........................................................... (Rupees) ......................................................... 250,569,554 192,555,107 30,000,000 200,000,000 348,807,642 147,146,207 250,569,554 98,374,678 30,000,000 200,000,000 348,807,642 147,146,207 10,529,385 57,187,621 153,052,811 10,529,385 57,187,621 153,052,811 370,022,394 1,759,870,721 370,022,394 1,665,690,292 94,180,429 94,180,429
  165. ANNUAL REPORT 2018 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 2018 Carrying amount Financial liabilities Underwriting Provisions Outstanding claims including IBNR Unearned premium reserves Unearned reinsurance commission Premium received in advance Insurance / reinsurance payables Other creditors and accruals Total liabilities of General Takaful Operations - Operator's Fund Upto one year More than one year .......................................... (Rupees) .......................................... 136,343,591 636,445,691 19,506,278 4,629,066 122,268,570 226,217,448 136,343,591 636,445,691 19,506,278 4,629,066 122,268,570 226,217,448 - 169,038,838 169,038,838 - 1,314,449,482 1,314,449,482 - 2017 Carrying amount Financial assets Investments Equity securities and mutual fund units Government Securities Term deposits Loans and other receivables Insurance / reinsurance receivables Reinsurance recoveries against outstanding claims Salvage recoveries accrued Cash and bank balances Total assets of General Takaful Operations - Operator's Fund Financial liabilities Underwriting Provisions Outstanding claims including IBNR Unearned premium reserves Unearned reinsurance commission Premium received in advance Insurance / reinsurance payables Other creditors and accruals Taxation - provision less payment Total liabilities of General Takaful Operations - Operator's Fund Upto one year More than one year .......................................... (Rupees) .......................................... 620,003,489 99,457,402 350,000,000 274,370,944 258,493,866 620,003,489 50,391,359 350,000,000 274,370,944 258,493,866 21,515,947 40,201,885 133,592,489 21,515,947 40,201,885 133,592,489 - 335,497,378 335,497,378 - 2,133,133,400 2,084,067,357 129,515,223 671,873,202 4,358,320 2,779,624 114,673,701 219,116,925 2,733,398 129,515,223 671,873,202 4,358,320 2,779,624 114,673,701 219,116,925 2,733,398 - 234,267,828 234,267,828 - 1,379,318,221 1,379,318,221 - 49,066,043 - 49,066,043 163
  166. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 36 .3 Market risk Market risk is the risk that changes in market prices, such as interest rates, equity prices, foreign exchange rates and credit spreads (not relating to changes in the obligor’s/issuer’s credit standing) will effect the company’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return on risk. The Company is exposed to interest rate risk, currency risk and other price risk. 36.3.1 Interest rate risk Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. Interest rate exposure arises from balances held in profit and loss sharing accounts with reputable banks and government securities. The Company limits interest rate risk by monitoring changes in interest rates. Other risk management procedures are the same as those mentioned in the credit risk management. 36.3.1.1 Sensitivity analysis At the balance sheet date the interest rate profile of the Company’s interest-bearing financial instrument are as follows: 2018 Financial assets Assets subject to fixed rate - Government securities - Term deposits - Loan to employees Assets subject ot variable rate - Debt securities - Advance to related parties - Bank balances 2017 Effective interest rate (in %) 2018 2017 .................. (Rupees) .................. 7.75% - 12.00% 8.00% - 10.00% 0% to 5.00% 8.75% - 12.00% 5.40% to 6.00% 0% to 5.00% 192,555,107 200,000,000 4,075,915 99,457,402 350,000,000 2,272,240 12.00% to 13.00% 10.00% to 14.5% 4.75% - 7.00% 10.00% 3.50% to 5.50% 30,000,000 259,081,045 90,628,115 231,369,420 97,373,857 Fair value sensitivity analysis for fixed rate instruments The Company does not account for any fixed rate financial assets at fair value through profit and loss. Therefore, a change in interest rates at the reporting date would not affect profit and loss account and equity of the Company. Cash flow sensitivity analysis for variable rate instruments A hypothetical change of 100 basis points in interest rates at the reporting date would have decreased / (increased) profit for the year by the amounts shown below. It is assumed that the changes occur immediately and uniformly to each category of instrument containing interest rate risk. Variations in market interest rates could produce significant changes at the time of early repayments. For these reasons, actual results might differ from those reflected in the details specified below. The analysis assumes that all other variables remain constant. 164 Transforming Imagination Through Digitization
  167. ANNUAL REPORT 2018 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 2018 2017 Profit and loss 100 bps Profit and loss 100 bps Increase Decrease Increase .................... (Rupees) .................... Cash flow sensitivity Variable rate financial assets 36.3.1.2 9,062,812 Decrease .................... (Rupees) .................... (9,062,812) 9,737,386 (9,737,386) Exposure to interest rate risk A summary of the Company’s interest rate gap position, categorised by the earlier of contractual re-pricing or maturity date, is as follows: 2018 Assets less than 1 year More than 1 year to 5 years 5 years Total ................................................ (Rupees) ................................................ Investment in government securities Investment in debt securities Term deposits Loans and other receivables Bank balances 118,356,970 200,000,000 261,373,129 152,626,102 74,198,137 - 30,000,000 - 192,555,107 30,000,000 200,000,000 261,373,129 152,626,102 Total assets 732,356,201 74,198,137 30,000,000 836,554,338 Liabilities Total interest sensitivity gap 732,356,201 - - 74,198,137 - 30,000,000 836,554,338 2017 Assets 36.3.2 less than 1 year More than 1 year to 5 years 5 years Total ................................................ (Rupees) ................................................ Investment in debt securities Term deposits Loans and other receivables Bank balances 50,000,000 350,000,000 238,083,631 133,592,489 49,457,402 - - 99,457,402 350,000,000 238,083,631 133,592,489 Total assets Liabilities 771,676,120 - 49,457,402 - - 821,133,522 - Total interest sensitivity gap 771,676,120 49,457,402 - 821,133,522 Price risk Price risk represents the risk that the fair value of a financial instrument will fluctuate because of changes in the market prices (other than those arising from interest/mark up rate risk or currency risk), whether those changes are caused by factors specific to the individual financial instrument or its issuer, or factors affecting all or similar financial instruments traded in the market. Company is exposed to equity price risk since it has investments in quoted equity securities at the balance sheet date. The Company's strategy is to hold its strategic equity investments for long period of time. Thus, Company's management is not concerned with short term price fluctuations with respect to its strategic investments provided that the underlying business, economic and management characteristics of the investee remain favourable. Company strives to maintain above average levels of shareholders' capital to provide a margin of safety against short term equity price volatility. Company manages price risk by monitoring exposure in quoted equity securities and implementing the strict discipline in internal risk management and investment policies. 165
  168. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 Market prices are subject to fluctuation and consequently the amount realized in the subsequent sale of an investment may significantly differ from the reported market value . Furthermore, amount realized in the sale of a particular security may be affected by the relative quantity of the security being sold. The Company has no significant concentration of price risk. 36.3.2.1 Sensitivity analysis The table below summarizes Company's equity price risk as of 31 December 2018 and 2017 and shows the effects of a hypothetical 10% increase / decrease in market prices as at the year end. The selected hypothetical change does not reflect what could be considered to be the best or worst case scenarios. Indeed, results could be worse in Company's equity investment portfolio because of the nature of equity markets. Hypothetical price change Estimated fair value after change in prices Increase / (decrease) in shareholders' equity Increase (decrease) in profit before tax .................................. (Rupees) .................................. 36.3.3 31 December 2018 10% increase 10% decrease 275,626,509 (275,626,509) 25,056,955 (25,056,955) 25,056,955 (25,056,955) 31 December 2017 10% increase 10% decrease 682,003,838 (682,003,838) 62,000,349 (62,000,349) 62,000,349 (62,000,349) Foreign currency risk Foreign currency risk is the risk that the fair value or future cash flows of financial instruments will fluctuate because of changes in foreign exchange rates. The Company, at present is not materially exposed to currency risk as majority of the transactions are carried out in Pak Rupees. 36.4 Capital Management The Company's objective when managing capital is to safe guard the Company's ability to continue as a going concern so that it can continue to provide returns for shareholders and benefits for other stakeholders and to maintain a strong capital base to support the sustained development of its businesses. The Company manages its capital structure by monitoring return on net assets  and makes adjustments to it in the light of changes in economic conditions. In order to maintain or adjust the capital structure, the Company may adjust the amount of dividend paid to shareholders or issue new shares. 36.5 Fair value of financial assets and liabilities IFRS 13 defines fair value as an exit price. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole: 166 Level 1 - Quoted (unadjusted) market prices in active markets for identical assets or liabilities Level 2 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly observable Level 3 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable Transforming Imagination Through Digitization
  169. ANNUAL REPORT 2018 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 Following are the asssets which are either measured at fair value or for which fair value is only disclolsed and is different from their carrying value : 2018 Fair value measurement using Level 1 Level 2 Level 3 ...................................... (Rupees) ....................................... Available-sale-investments (measured at fair value) Held-to-maturity (fair value only disclosed) 250,569,554 250,569,554 30,000,000 - 189,615,593 - 219,615,593 - 2017 Fair value measurement using Level 1 Level 2 Level 3 ...................................... (Rupees) ....................................... Available-sale-investments (measured at fair value) Held-to-maturity (fair value only disclosed) 620,003,489 620,003,489 37. STATEMENT OF SOLVENCY Assets Property and equipment Intangible assets Investments Equity securities and mutual fund units Government securities Debt securities Term deposits Loans and other receivables Insurance/ reinsurance receivable Reinsurance recoveries against outstanding claims Salvage recoveries accrued Deferred commission expense Deferred taxation Taxation - Payment less provision Prepayments Cash and bank deposits Assets of under takaful / Operations - Operator's Fund Total Assets (A) - - 106,402,657 - 106,402,657 - 31 December 2018 31 December 2017 (Rupees ) 120,491,630 9,107,599 79,476,151 11,913,934 250,569,554 192,555,107 30,000,000 200,000,000 348,807,642 147,146,207 10,529,385 57,187,621 91,084,451 31,981,982 13,721,203 225,089,727 153,052,811 370,022,394 620,003,489 99,457,402 350,000,000 274,370,944 258,493,867 21,515,947 40,201,886 61,621,674 21,237,574 193,241,458 133,592,489 335,497,378 2,251,347,315 2,500,624,193 In-admissible assets as per following clauses of section 32(2) of the Insurance Ordinance, 2000 167
  170. 31 December 2018 31 December 2017 (Rupees ) Property and equipment Intangible assets Investments Equity securities Loans and other receivables Insurance/ reinsurance receivable Deferred taxation Taxation - Payment less provision Prepayments 87,600,106 9,107,599 33,850,745 11,913,934 79,480,800 297,949,514 35,772,946 31,981,982 13,721,203 - 95,040,000 274,370,944 138,964,892 21,237,574 16,245,351 Total of In-admissible Assets (B) 555,614,150 591,623,439 1,695,733,165 1,909,000,574 136,343,591 636,445,691 19,506,278 4,629,066 122,268,570 226,217,448 169,038,838 129,515,223 671,873,202 4,358,320 2,779,623 114,673,701 219,116,925 2,733,398 234,267,828 1,314,449,482 1,379,318,220 381,283,683 529,682,533 (252,808,966) (259,892,962) 128,474,717 269,789,572 Total of Admissible Assets (C=A-B) Total Liabilities Underwriting Provisions Outstanding claims including IBNR Unearned premium reserves Unearned reinsurance commission Premium received in advance Insurance / reinsurance payables Other creditors and accruals Taxation - Provision less payment Total liabilities of Takaful Operations - OF Total Liabilities (D) Total Net Admissible Assets (E= C-D) Minimum Solvency Requirement Excess Solvency 38. PROVIDENT FUND The following is based on the unaudited financial statements for the year ended 30 June 2018: 31 December 2018 31 December 2017 (Rupees ) Size of the fund - Net Assets 44,718,337 36,024,169 Cost of investments 38,879,064 28,418,448 88.20% 83.01% 39,442,786 29,903,546 Percentage of investments made Fair value of investments 168 Transforming Imagination Through Digitization
  171. ANNUAL REPORT 2018 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 38 .1 The breakup of fair value of investments is as follows: 2018 Investment In Equity Securities 2017 2018 2017 .................... (Rupees) .................... 0.01% 0.01% 3,511 3,512 Investment In Government Securities 23.59% 61.63% 9,303,001 18,430,181 Investment In Unlisted Debt Securities 12.68% - 5,000,000 Investment In Term Deposits 45.64% - 18,000,000 Bank Balances 14.15% 33.17% 5,582,532 Mutual Funds Total 9,918,448 3.94% 5.19% 1,553,742 1,551,405 100.00% 100.00% 39,442,786 29,903,546 38.2 The above investment / placement of funds in special bank account has been made in accordance with the provision of company Act 2017 and the rules formulated for this purpose. 39. CORRESPONDING FIGURES Corresponding figures have been rearranged wherever necessary, for purposes of comparision. There were no material reclassification to report. 40. DATE OF AUTHORISATION FOR ISSUE These financial statements have been authorised for issue on 21 February 2019 by the Board of Directors of the Company. 41. GENERAL 41.1 Figures have been rounded off to the nearest Rupee. 41.2 Total number of employees as at 31 December 2018 are 284 (2017: 259) Director Director Chief Financial Officer Chief Executive Officer Chairman 169
  172. 170 Transforming Imagination Through Digitization
  173. WINDOW TAKAFUL OPERATIONS 8 .1 8.2 8.3 8.4 8.5 8.6 8.7 8.8 8.9 SHARIAH ADVISOR’S REPORT SHARIAH AUDITOR’S REPORT ON COMPLIANCE STATEMENT OF COMPLIANCE WITH THE TAKAFUL RULES, 2012 AND SHARIA RULES AND PRINCIPLES AUDITOR’S REPORT TO THE MEMBERS STATEMENT OF FINANCIAL POSITION STATEMENT OF COMPREHENSIVE INCOME STATEMENT OF CHANGES IN FUND STATEMENT OF CASHFLOW NOTES TO THE FINANCIAL STATEMENTS 171
  174. SHARIAH ADVISOR ’S REPORT 2018 INTRODUCTION: Alhamdulillah, TPL Insurance Limited – Window Takaful Operations (“TPLI – WTO”) has successfully completed its financial year ended 31st December 2018 with encouraging growth in contributions and number of participants. I, acknowledge that as Shariah Advisor of the Company it is my responsibility to ensure that the financial arrangements, contracts, policies, operational processes and transactions entered into by the company with its participants and stakeholders are in compliance with the requirements of Shariah rules and in line with Takaful rules 2012. It is the responsibility of the company's management as Wakeel of PTF to ensure that the rules and principles issued by Shariah Advisor and the guidelines set by regulator are complied with and all policies and services being offered by the company are duly approved by the Shariah Advisor. The Company arranged various internal training sessions for its employees on Takaful conducted by Shariah Compliance Department of the Company and is committed to disseminate regular training sessions. TPLI - WTO maintains all of its deposits in Riba free Banks and Shariah Compliant Mutual Funds as per investment guideline approved by its Shariah Advisor. The Company has introduced a Shariah Compliant Mechanism to monitor the functions of TPLI-WTO. An effective Shariah compliance function is fundamental in achieving the objectives of Window Takaful Operations to operate as per Shariah principles and hence an experienced Islamic scholar acts as Shariah Compliance Officer. Shariah Compliance Officer ensures and supervise on daily basis that the functions of TPLI-WTO including policy issuance, re takaful arrangements, claim settlements and financial transactions are undertaken as per the applicable regulatory guidelines and instructions issued by the Shariah Advisor. SCOPE & OBJECTIVE OF SHARIAH REVIEW: The scope of the Shariah Review is to evaluate the overall functions of TPLI - WTO in accordance with the Islamic Shariah Principles and guidelines laid by SECP. The objective of the Shariah Review is to determine that appropriate procedures and control mechanism is effectively in place for all major functions such as Policy issuance, Claims Settlements, Re-Takaful Arrangements, Financial transactions of the TPLI - WTO. CONCLUSION: In my opinion, the overall structure and operations of TPLI – WTO are in accordance with Shariah Principles and Takaful Rules issued by SECP. To gain further confidence of our participants, we should continuously revitalize our motives, intention and commitment towards promotion of Takaful concept. So as a Shariah Advisor, I am hopeful that the management will put its efforts to promote Takaful by introduction of new business channels and products in Takaful and improve the effectiveness of Takaful operations by introducing segregation of duties, conducting regular Takaful trainings and enhanced reporting mechanism. 172 Transforming Imagination Through Digitization
  175. ANNUAL REPORT 2018 The primary responsibility for ensuring Shariah Compliance lies with the management of TPLI-WTO . The services provided were reviewed and operations undertaken by TPLI – WTO during the year ended 31 December 2018 in my opinion, were found overall in conformity with the principles and guidelines of SECP. Finally, I pray that Allah Ta’ala guide us to the righteous path. Allah Ta’ala knows better. Mufti Muhammad Talha Iqbal Shariah Advisor Karachi: 21st February 2019 173
  176. EY Ford Rhodes UAN : + 9221 111 11 39 37 (EYFR) Chartered Accountants Tel: +9221 3565 0007-11 Progressive Plaza, Beaumont Road Fax: +9221 3568 1965 P.O. Box 15541, Karachi 75530 ey.khi@pk.ey.com Pakistan ey.com/pk INDEPENDENT REASONABLE ASSURANCE REPORT TO THE BOARD OF DIRECTORS ON THE STATEMENT OF MANAGEMENT’S ASSESSMENT OF COMPLIANCE WITH THE TAKAFUL RULES, 2012 1. Introduction We were engaged by the Board of Directors of TPL Insurance Limited (the Operator) to report on the management’s assessment of compliance of the Window Takaful Operations (Takaful Operations) of the Operator, as set out in the annexed Statement of Compliance (the Statement) prepared by the management for the year ended 31 December 2018, with the Takaful Rules, 2012, in the form of an independent reasonable assurance conclusion about whether the annexed statement presents fairly the status of compliance of the Takaful Operations with the Takaful Rules, 2012, in all material respects. 2. Applicable Criteria The criteria against which the subject matter information (the Statement) is assessed is the Takaful Rules, 2012. 3. Responsibilities of Management The management of the Operator is responsible for preparation of the annexed Statement that is free from material misstatement. This responsibility includes designing, implementing and maintaining internal controls relevant to the preparation of the annexed Statement that is free from material misstatement, whether due to fraud or error. It also includes ensuring the overall compliance of the Takaful Operations with the Takaful Rules, 2012. 4. Our Independence and Quality Control We have complied with the independence and other ethical requirements of the Code of Ethics for Chartered Accountants issued by the Institute of Chartered Accountants of Pakistan, which is founded on fundamental principles of integrity, objectivity, professional competence and due care, confidentiality and professional behavior. The firm applies International Standard on Quality Control 1 “Quality Control for firms that perform Audits and Reviews of Historical Financial Information, and Other Assurance and Related Services Engagements” and accordingly maintains a comprehensive system of quality control including documented policies and procedures regarding compliance with ethical requirements, professional standards and applicable legal and regulatory requirements. This engagement was conducted by a multidisciplinary team including assurance practitioners and internal Shari’ah experts. 5. Our Responsibility and Summary of Work Performed Our responsibility is to carry out an independent reasonable assurance engagement to express a conclusion as to whether the Statement is prepared in accordance with the applicable criteria, based on our work performed and the evidences obtained. 174 Transforming Imagination Through Digitization
  177. We conducted our engagement in accordance with International Standard on Assurance Engagements 3000 (Revised), ‘Assurance Engagements other than audits or reviews of historical financial statements’ (ISAE 3000) (Revised) issued by the International Auditing and Assurance Standards Board. ISAE 3000 (Revised) requires that we plan and perform this engagement to obtain reasonable level of assurance about whether the Statement presents fairly the status of compliance of the Takaful Operations with the Takaful Rules 2012, in all material respects. The procedures selected by us for the engagement depended on our judgment, including the assessment of the, risks of the Operator’s material non-compliance with the Takaful Rules 2012, whether due to fraud or error. In making those risk assessments, we considered internal control relevant to the Operator’s compliance with the Takaful Rules, 2012, in order to design assurance procedures that are appropriate in the circumstances but not for the purpose of expressing a conclusion as to the effectiveness of the Operator’s internal control over the Takaful Operations’ compliance with the Takaful Rules, 2012. A system of internal control, because of its nature, may not prevent or detect all instances of non-compliance with the Takaful Rules, 2012, and consequently cannot provide absolute assurance that the objective of compliance with the Takaful Rules, 2012 will be met. Further, projection of any evaluation of effectiveness to future periods is subject to the risk that the controls may become inadequate or fail. We have designed and performed necessary verification procedures on various financial arrangements, contracts, classes of transactions and related policies and procedures based on judgmental and systematic samples with regard to the compliance with Takaful Rules, 2012. In performing our audit procedures necessary guidance on Shari’ah matters was provided by the internal Shari’ah experts. We believe that the evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. 6. Conclusion In our opinion, the Statement for the year ended 31 December 2018 present fairly the status of compliance of the Takaful Operations of the Operator with the Takaful Rules, 2012, in all material respects. Chartered Accountants Date: 21st February 2019 Karachi 175
  178. STATEMENT OF COMPLIANCE WITH THE TAKAFUL RULES , 2012 AND SHARIA RULES AND PRINCIPLES The financial arrangements, contracts and transactions, entered into by TPL Insurance Limited – Window Takaful Operations (the Operator) for the year ended 31 December 2018 are in compliance with the Takaful Rules, 2012 and the Sharia Rules and Principles determined by the Shariah Advisor of the Operator, (Sharia Rules and Principles). Further, we confirm that: • The Operator has developed and implemented all the policies and procedures in accordance with the Takaful Rules, 2012 and rulings of the Shariah Advisor along with a comprehensive mechanism to ensure compliance with such rulings and Takaful Rules, 2012 in their overall operations. Further, the governance arrangements including the reporting of events and status to those charged with relevant responsibilities, such as the Audit Committee / Shariah Advisor and the Board of Directors have been implemented; • The Operator has imparted trainings / orientations and ensured availability of all manuals / agreements approved by Shariah Advisor / Board of Directors to maintain the adequate level of awareness, capacity and sensitization of the staff, management; • All the products and policies have been approved by Shariah Advisor and the financial arrangements including investments made, policies, contracts and transactions, entered into by Window Takaful Operations are in accordance with the polices approved by Shariah Advisor; • The assets and liabilities of Operator are segregated from the TPL Insurance Limited’s other assets and liabilities, at all times in accordance with the provisions of the Takaful Rules, 2012. This has been duly confirmed by the Shariah Advisor of the Operator. __________________________ Muhammad Aminuddin Chief Executive Officer Date: 21 February, 2019 176 Transforming Imagination Through Digitization
  179. EY Ford Rhodes UAN : + 9221 111 11 39 37 (EYFR) Chartered Accountants Tel: +9221 3565 0007-11 Progressive Plaza, Beaumont Road Fax: +9221 3568 1965 P.O. Box 15541, Karachi 75530 ey.khi@pk.ey.com Pakistan ey.com/pk INDEPENDENT AUDITOR’S REPORT To the members of TPL Insurance Limited Window Takaful Operations Report on the Audit of the Financial Statements Opinion We have audited the annexed financial statements, which comprise the statements of financial position as at 31 December 2018, the statements of comprehensive income, the statements of changes in fund and the statements of cash flows of TPL Insurance Limited – Window Takaful Operations for the year then ended, and notes to the financial statements, including a summary of significant accounting policies and other explanatory information and we state that we have obtained all the information and explanations which, to the best of our knowledge and belief, were necessary for the purposes of the audit. In our opinion and to the best of our information and according to the explanations given to us, the statement of financial position, the statements of comprehensive income, the statements of changes in fund and the statements of cash flows together with the notes forming part thereof, conform with the accounting and reporting standards as applicable in Pakistan and give the information required by the Insurance Ordinance, 2000 and the Companies Act, 2017 (XIX of 2017), in the manner so required and respectively give a true and fair view of the state of Operator’s affairs as at 31 December 2018 and the results of its takaful operations for the year then ended. Basis for Opinion We conducted our audit in accordance with International Standards on Auditing (ISAs) as applicable in Pakistan. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Operator in accordance with the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants as adopted by the Institute of Chartered Accountants of Pakistan (the Code) and we have fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key Audit Matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. 177
  180. Following are the Key Audit Matters : S. # 1 Key Audit Matter(s) How the matter was addressed in our audit Liabilities in respect of Takaful contracts The liabilities in respect of Takaful contracts issued as of 31 December 2018 amounts to Rs.139 million (note 16 to the financial statement), which represent 13% of the Participants’ Takaful Fund’s (PTF) total liabilities. We considered adequacy of takaful liabilities as a key audit matter due to significant judgments involved in estimating the liabilities and use of experts in this regard. Our key audit procedures included the following: - We assessed the controls over recording and settlement of claims in respect Takaful business and performed tests of such controls to check their effectiveness in relation to the year under audit. - In respect of adequacy of Takaful contract liabilities (including IBNR and premium deficiency reserve) which are measured on the basis of undiscounted value of expected future payments, we reviewed historical loss experience and other factors considered by the management expert in developing the expectations of future claim liabilities based on the contract issued at the reporting date. We checked that the methodology used by the management’s expert in estimation claims liabilities is in accordance with the prescribed methodology. As part of our testing we also considered the competence and objectivity of the experts used by the management for this purpose. - For insurance claims we also evaluated the management estimates regarding cost of claims settlements by considering reports of independent surveyors and the estimates regarding salvage values of insured assets; - We performed subsequent review to identify any significant claims reported post year end which pertain to the financial year under audit; and - We assessed the adequacy of disclosures made in respect of takaful contract liabilities in accordance with the approved accounting standards as applicable in Pakistan. (Refer to note 3.4 and 25 to the financial statements for relevant disclosures). 2 Qard-e-Hasna Receivable from Participants’ Takaful Fund (PTF) The SECP Takaful Rules, 2012 require that in case, admissible assets of PTF are not sufficient to cover its liabilities, the deficit shall be funded by way of actual transfer of funds as Qard-e-Hasna (interest free loan) from Operators’ Fund to the PTF. As at 31 December 2018, the Operator has provided Qard-e-Hasna of Rs. 246.9 million (note 8 to the financial statements) from Operator’s Fund to PTF. 178 Transforming Imagination Through Digitization Our key audit procedures included the following: - We reviewed the overall financial projections prepared by the management for the PTF including key assumptions underlying such projections such as expected growth in premiums and reduction in claims over future periods;
  181. S . # 2 Key Audit Matter(s) Qard-e-Hasna Receivable from Participants’ Takaful Fund (PTF) The recoverability of Qard-e-Hasna from PTF depends on the surplus / profitability of PTF. For this purpose, the management of the Operator has prepared financial projections of PTF to assess impairment, if any, in respect of Qard-e-Hasna receivable (refer note 8.1 to the financial statements). We focused on this area due to the significance of the receivable to the financial statements as well as the involvement of management estimates. 3 How the matter was addressed in our audit - We obtained an understanding of the rationale and basis used by the management in respect of key assumptions and estimates used in developing the financial projections; and - We performed sensitivity analysis by applying appropriate hair-cuts on the key assumptions and evaluated the impact on the results shown by the projections; and We considered the appropriateness of the related disclosures in the financial statements. Impairment of mutual fund investments As disclosed in note 5 to the financial statements of the Operator for the year ended 31 December 2018, the Operator holds investments in listed mutual funds amounting to Rs. 82.9 million classified under the available for sale category. Due to sharp decline in market prices during the current year, the Operator has recognized an aggregate impairment charge of Rs. 15 million on such portfolio of investments. We have identified the impairment of equity investments as a key audit matter due to its significant impact on the financial statements and the management judgements that may be required in making the assessments about the impairment of financial assets. (Refer to note 3.18 and 5 to the financial statements for relevant disclosures). Our key procedures included the following; - We reviewed the appropriateness of the accounting policies and practices followed by the Operator to recognize impairment of investments on the basis of the requirements of the financial reporting standards. - We obtained an understanding of the procedures applied by the Operator to identify impairments in the equity portfolio and observed the applications of such procedures. - We evaluated management’s assessment of the indicators for impairment and compared the net asset values of respective mutual funds with their cost to check that the Operator’s policy for impairment is consistently applied and impairment charge is appropriately recognized. - We checked the valuations of investments on the basis of net asset values of respective funds as at 31 December 2018. - We also assessed the adequacy of the overall disclosures in the financial statements in respect of the equity investment portfolio in accordance with the requirements of the financial reporting framework as applicable to the Operator. 179
  182. Information Other than the Financial Statements and Auditor ’s Report Thereon Management is responsible for the other information. The other information comprises the information included in the Annual Report, but does not include the financial statements and our auditors’ report thereon. Our opinion on the financial statements does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of Management and Board of Directors for the Financial Statements Management is responsible for the preparation and fair presentation of the financial statements in accordance with accounting and reporting standards as applicable in Pakistan and the requirements of Insurance Ordinance, 2000 and, Companies Act, 2017 (XIX of 2017), and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, management is responsible for assessing the Operator’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Operator or to cease operations, or has no realistic alternative but to do so. Board of directors are responsible for overseeing the Operator’s financial reporting process. Auditor’s Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs as applicable in Pakistan will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. As part of an audit in accordance with ISAs as applicable in Pakistan, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: • • Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Obtain an understanding of internal control relevant to the audit 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 Operator’s internal control. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. • Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit 180 Transforming Imagination Through Digitization
  183. evidence obtained , whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Operator’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Operator to cease to continue as a going concern. • Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. We communicate with the board of directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide the board of directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with the board of directors, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Report on Other Legal and Regulatory Requirements Based on our audit, we further report that in our opinion: a) Proper books of account have been kept by the Operator as required by the Insurance Ordinance, 2000 and the Companies Act, 2017 (XIX of 2017); b) The statement of financial position, the statements of comprehensive income, the statement of changes in fund and the statements of cash flows together with the notes thereon have been drawn up in conformity with the Insurance Ordinance, 2000, the Companies Act, 2017 (XXI of 2017), and are in agreement with the books of account; c) Investments made, expenditure incurred and guarantees extended during the year were for the purpose of the Operator’s business; and d) No Zakat was deductible at source under the Zakat and Ushr Ordinance, 1980 (XVIII of 1980). The engagement partner on the audit resulting in this independent auditor’s report is Arslan Khalid. ________________________ Chartered Accountants Karachi Date: 21 February 2019 181
  184. WINDOW TAKAFUL OPERATIONS STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2018 Note 2018 2017 ------------------------- (Rupees)------------------------- -------------------------(Rupees)------------------------- Operators' Fund ASSETS Investments Mutual Funds Government Securities Debt securities Term deposits Other receivables including Qard-e-Hasna to PTF of Rs. 246.9 million (2017 : 199 million) Accrued Investment Income Takaful/ retakaful receivable Retakaful recoveries against outstanding claims Salvage recoveries accrued Deferred Wakala expense Deferred commission expense Receivable from TPL Insurance Limited Prepayments Bank balances 5 6 7 Participants' Takaful Fund Aggregate Operators' Fund Participants' Takaful Fund Aggregate - 82,945,792 100,278,988 20,000,000 150,000,000 82,945,792 100,278,988 20,000,000 150,000,000 75,000,000 63,856,353 5,000,000 63,856,353 80,000,000 - 353,224,780 353,224,780 75,000,000 68,856,353 143,856,353 9 291,265,473 24,310 - 3,057,128 4,386,460 151,157,841 294,322,601 4,410,770 151,157,841 204,908,282 663,014 - 190,121,088 204,908,282 663,014 190,121,088 19 18 73,685,941 3,230,000 55,827,364 120,781,703 - 3,230,000 55,827,364 120,781,703 73,685,941 43,955,293 40,253,650 173,113,525 - 40,253,650 173,113,525 43,955,293 10 11 5,046,670 100,218,439 93,824,559 100,218,439 98,871,229 14,306,989 10,970,789 77,123,012 102,674,658 14,306,989 77,123,012 113,645,447 370,022,394 885,708,274 1,255,730,668 349,804,367 652,142,286 1,001,946,653 Total assets EQUITY AND LIABILITIES RESERVES ATTRIBUTABLE TO: - OPERATORS' FUND (OF) Statutory Fund Unappropriated profit 50,000,000 (50,801,948) - 50,000,000 (50,801,948) 50,000,000 65,536,539 - 50,000,000 65,536,539 (801,948) - (801,948) 115,536,539 - 115,536,539 - WAQF / PARTICIPANT'S TAKAFUL FUND (PTF) Ceded money Accumulated deficit Unrealized profit/(loss) on available-for-sale investments - 2,000,000 (173,589,343) 2,000,000 (173,589,343) - 2,000,000 (193,753,691) 2,000,000 (193,753,691) - 1,311,533 1,311,533 - (9,900,875) (9,900,875) - (170,277,810) (170,277,810) - (201,654,566) (201,654,566) 120,781,703 17,834,328 201,785,504 30,422,807 139,070,744 511,363,901 4,727,505 246,900,000 4,066,280 67,060,239 64,090,456 18,706,959 - 139,070,744 511,363,901 4,727,505 120,781,703 246,900,000 4,066,280 67,060,239 81,924,784 220,492,463 30,422,807 98,896,694 477,955,216 1,040,281 199,000,000 1,661,239 44,251,205 16,383,382 14,608,835 - 98,896,694 477,955,216 1,040,281 173,113,525 199,000,000 1,661,239 44,251,205 46,412,811 14,608,835 31,124,874 Total Liabilities 370,824,342 1,055,986,084 1,426,810,426 234,267,828 853,796,852 1,088,064,680 Total fund and liabilities 370,022,394 885,708,274 1,255,730,668 349,804,367 652,142,286 1,001,946,653 Balance of WAQF / PTF LIABILITIES PTF Underwriting provisions Outstanding claims (including IBNR) Unearned contribution reserve Unearned retakaful commission Unearned Wakala Fee Qard-e-Hasna Contribution received in advance Takaful / retakaful payable Other creditors and accruals Payable to TPL Insurance Limited Taxation - payments less provision 16 15 18 19 8 12 13 14 173,113,525 30,029,429 31,124,874 The annexed notes from 1 to 29 form an integral part of these financial statements. Director 182 Director Transforming Imagination Through Digitization Chief Financial Officer Chief Executive Officer Chairman
  185. ANNUAL REPORT 2018 WINDOW TAKAFUL OPERATIONS STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2018 31 December 2018 Note 31 December 2017 (Rupees ) Participants' Takaful Fund Net takaful contribution Net takaful claims Wakala fee Direct expenses 15 16 19 21 982,560,117 (479,522,049) (331,943,038) (149,447,500) 769,318,368 (391,106,896) (328,934,265) (123,341,667) Underwriting result 21,647,530 (74,064,460) Investment income [includes impairment on available-for-sale investment of Rs. 15.4 million (2017 : NIL)] (1,483,182) 4,192,313 Surplus / (deficit) for the year 20,164,348 (69,872,147) - Unrealised gain / (loss) on available-for-sale investments 11,212,408 (9,900,875) Total comprehensive profit / (loss) for the year 31,376,756 (79,773,022) 331,943,038 (101,047,971) (274,161,268) 328,934,265 (46,220,882) (196,156,689) (43,266,201) 86,556,694 Other comprehensive income : Operators' Fund Wakala fee Net commission expense Management expenses 19 18 22 Investment income including net of mudarib's share of loss of Rs. 0.64 million (2017: Profit of Rs. 1.80 million) 1,144,386 8,616,829 (42,121,815) 95,173,523 (70,053,079) (47,645,321) (Loss) / profit before taxation Taxation - net (112,174,894) (4,163,593) 47,528,202 (16,771,768) (Loss) / profit after tax for the year (116,338,487) 30,756,434 Other expenses 23 Other comprehensive income - Total comprehensive income / (loss) for the year (116,338,487) 30,756,434 The annexed notes from 1 to 29 form an integral part of these financial statements. Director Director Chief Financial Officer Chief Executive Officer Chairman 183
  186. WINDOW TAKAFUL OPERATIONS STATEMENT OF CHANGES IN FUND FOR THE YEAR ENDED 31 DECEMBER 2018 Operators ' Fund Statutory Fund Accumulated profit Unrealized gain / (loss) on revaluation of available for sale investments net of tax Total ---------------------------------------------------(Rupees)--------------------------------------------------Balance as at 1 January 2017 50,000,000 Net profit for the year - 34,780,105 - 84,780,105 30,756,434 - 30,756,434 Balance as at 31 December 2017 50,000,000 65,536,539 - 115,536,539 Balance as at 1 January 2018 50,000,000 65,536,539 - 115,536,539 (116,338,487) - (116,338,487) (50,801,948) - (801,948) Net loss for the year - Balance as at 31 December 2018 50,000,000 Participants' Takaful Fund Ceded money Accumulated profit Unrealized gain / (loss) on revaluation of available for sale investments net of tax Total ---------------------------------------------------(Rupees)--------------------------------------------------Balance as at 1 January 2017 2,000,000 Deficit for the year - Other comprehensive income - (123,881,544) - (121,881,544) (69,872,147) - (69,872,147) - (9,900,875) (9,900,875) Balance as at 31 December 2017 2,000,000 (193,753,691) (9,900,875) (201,654,566) Balance as at 1 January 2018 2,000,000 (193,753,691) (9,900,875) (201,654,566) Surplus for the year Unrealized gain on revaluations of - available-for-sale investments - 20,164,348 - 11,212,408 11,212,408 Total comprehensive surplus for the year - 20,164,348 11,212,408 31,376,756 (173,589,343) 1,311,533 (170,277,810) Balance as at 31 December 2018 2,000,000 - 20,164,348 The annexed notes from 1 to 29 form an integral part of these financial statements. Director 184 Director Transforming Imagination Through Digitization Chief Financial Officer Chief Executive Officer Chairman
  187. ANNUAL REPORT 2018 WINDOW TAKAFUL OPERATIONS STATEMENT OF CASH FLOW FOR THE YEAR ENDED 31 DECEMBER 2018 Operator 's Fund Participants' Takaful Fund 2018 2017 Aggregate Aggregate ---------------------------------------------------(Rupees)--------------------------------------------------Operating activities (a) Takaful activities Contributions received - 1,105,874,429 1,105,874,429 815,977,630 Retakaful contribution paid - (38,160,400) (38,160,400) 858,364 Claims paid - (430,948,813) (430,948,813) (451,927,158) Retakaful and other recoveries received - 77,872,182 77,872,182 87,512,124 (143,311,364) (68,780,861) Commission paid Wakala fees received Wakala fees paid Mudarib fees received Mudarib fees paid Net cash inflow from takaful activities (143,311,364) 271,022,250 5,096,164 132,807,050 (271,022,250) - 271,022,250 439,631,476 (271,022,250) (439,631,476) 5,096,164 - (5,096,164) (5,096,164) - 438,518,984 571,326,034 383,640,099 (b) Other operating activities Income tax adjustment / paid Direct expenses paid Management and other expenses paid Other operating (payments) / receipts (4,865,660) (163,384,248) - (215,607,773) - (4,865,660) 2,332,897 (215,607,773) (134,652,798) (163,384,248) (235,777,104) - (61,468,395) Net cash outflow from other operating activities Total cash flow from all operating activities (168,249,908) (215,607,773) (383,857,681) (429,565,400) (35,442,858) 222,911,211 187,468,353 (45,925,301) Investment activities Profit / return received Investment in Mutual Funds - net Qard-e-Hasna Payments for purchase of investments Total cash flow from investing activities 2,418,739 (47,900,000) (45,481,261) 8,940,416 11,359,154 13,877,056 (23,322,737) (23,322,737) (73,757,228) 47,900,000 - (120,278,988) (120,278,988) (86,761,309) (132,242,571) (59,880,172) 185
  188. WINDOW TAKAFUL OPERATIONS STATEMENT OF CASH FLOW FOR THE YEAR ENDED 31 DECEMBER 2018 Operator 's Fund Participants' Takaful Fund 2018 2017 Aggregate Aggregate ---------------------------------------------------(Rupees)--------------------------------------------------Net cash flow from all activities (80,924,119) 136,149,902 55,225,782 (105,805,473) 85,970,789 107,674,658 193,645,447 299,450,920 5,046,670 243,824,560 248,871,229 193,645,447 (35,442,858) 222,911,211 187,468,353 (45,925,301) 2,418,739 8,940,416 11,359,155 13,877,056 Cash and cash equivalent at beginning of the year Cash and cash equivalent at end of the year Reconciliation to profit and loss account Operating cash flows Profit on term deposit Increase in assets other than cash Increase in liabilities Profit / (loss) after taxation 50,185,018 (45,009,468) 5,175,550 110,368,331 (133,499,386) (166,677,811) (300,177,197) (117,435,799) (116,338,487) 20,164,348 (96,174,139) (39,115,713) Attributed to: Operators' Fund Participants' Takaful Fund (116,338,487) 30,756,434 20,164,348 (69,872,147) (96,174,139) (39,115,713) Definition of cash Cash comprises of cash in hand, policy stamps, bank balances which are readily convertible to cash in hand and which are used in the cash management function on a day-to-day basis. The annexed notes from 1 to 29 form an integral part of these financial statements. Director 186 Director Transforming Imagination Through Digitization Chief Financial Officer Chief Executive Officer Chairman
  189. ANNUAL REPORT 2018 WINDOW TAKAFUL OPERATIONS NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 1 . STATUS AND NATURE OF BUSINESS 1.1 TPL Insurance Limited (the Company) was incorporated in Pakistan in 1992 as a public limited company under the Companies Ordinance, 1984 (now Companies Act, 2017) to carry on general insurance business. The Company was allowed to work as Window Takaful Operator on 04 September 2014 by Securities and Exchange Commission of Pakistan (SECP) under SECP Takaful Rules, 2012 to carry on General Window Takaful Operations in Pakistan. The Company is listed at Pakistan Stock Exchange Limited. The principal office of the Operator is located at 12th Floor, Centrepoint, Off Shaheed-e-Millat Expressway, Near KPT Interchange Flyover, Karachi, Pakistan. 1.2 For the purpose of carrying on the takaful business, the Operator formed a Waqf / Participant Takaful Fund (PTF) on 20 August 2014 under the Waqf deed. The Waqf deed governs the relationship of Operator and Participants for management of takaful operations. 2. BASIS OF PREPARATION These financial statements have been prepared in line with the format issued by the SECP through Insurance Rules, 2017, and SECP circular no 25 of 2015 dated 9 July 2015. These financial statements reflect the financial position and results of operations of both the Operator’s Fund (OPF) and Participants’ Takaful Fund (PTF) in a manner that the assets, liabilities, income and expenses of the Operator and PTF remain separately identifiable. 2.1 Statement of compliance 2.1.1 These financial statements have been prepared in accordance with the accounting and reporting standards as applicable in Pakistan. The accounting and reporting standards comprise of: - International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) as are notified under the Companies Act, 2017; and - Provisions of and directives issued under the Companies Act, 2017 and Insurance Ordinance, 2000, Insurance Rules 2017, Insurance Accounting Regulations, 2017 and SECP Takaful Rules, 2012. In case requirements differ, the provisions or directives of the Companies Act, 2017, the Insurance Ordinance, 2000, the Insurance Rules, 2017, the Insurance Accounting Regulations and Takaful Rules, 2012, shall prevail. 2.1.2 In terms of the requirements of the Takaful Rules 2012, read with SECP Circular 25 of 2015 dated 09 July 2015, the assets, liabilities and profit and loss of the Operator's Fund of the General Takaful Operations of the Company have been presented as a single line item in the balance sheet and profit and loss account of the Company respectively. 2.2 Basis of measurement These financial statements have been prepared under the historical cost convention except for investments which are carried at fair value. 2.3 Functional and presentation currency These financial statements are presented in Pak Rupees which is also the Company’s functional currency. All financial information presented in Pak Rupees has been rounded to nearest Rupees, unless otherwise stated. 2.4 Standards, interpretations and amendments to published approved accounting standards that are effective in the current year The Company has adopted the following accounting standards and the amendments and interpretation of IFRSs which became effective for the current year: 187
  190. WINDOW TAKAFUL OPERATIONS NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 Standard or Interpretation - IFRS 2 - Share-based Payments – Classification and Measurement of Share-based Payments Transactions (Amendments) IFRS 4 - Insurance Contracts: Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts – (Amendments) IFRIC Interpretation 22 - Foreign Currency Transactions and Advance Consideration Improvements to Accounting Standards Issued by the IASB in December 2016 - IAS 28 - Investments in Associates and Joint Ventures: Clarification that measuring investees at fair value through profit or loss is an investment-by-investment choice The adoption of the above amendments, improvements to accounting standards and interpretations did not have any effect on the financial statements. 2.5 Standards, interpretations and amendments to published approved accounting standards that are not yet effective 2.5.1 The following standards, amendments and interpretations with respect to the approved accounting standards would be effective from the dates mentioned there against: Standard, Interpretations and Amendments IFRS 3 - Definition of a Business (Amendments) IFRS 9 - Financial Instruments: Classification and Measurement IFRS 9 - Prepayment Features with Negative Compensation – (Amendments) IFRS 10 - Consolidated Financial Statements and IAS 28 Investment in Associates and Joint Ventures - Sale or Contribution of Assets between an Investor and its Associate or Joint Venture (Amendment) IFRS 15 - Revenue from Contracts with Customers IFRS 16 - Leases IFRIC 23 - Uncertainty over Income Tax Treatments IAS 1/ IAS 8 - Definition of Material (Amendments) IAS 19 - Plan Amendment, Curtailment or Settlement (Amendments) IAS 28 - Long-term Interests in Associates and Joint Ventures (Amendments) Effective date (accounting periods beginning on or after) January 01, 2020 July 01, 2018 January 01, 2019 Not yet finalized July 01, 2018 January 01, 2019 January 01, 2019 January 01, 2020 January 01, 2019 January 01, 2019 2.5.2 The above standards, amendments and interpretations are not expected to have any material impact on the Company's financial statements in the period of initial application. 2.5.3 In addition to the above standards and amendments, improvements to various accounting standards have also been issued by the IASB in December 2017. Such improvements are generally effective for accounting periods beginning on or after 01 January 2019. The operator expects that such improvements to the standards will not have any impact on the operator's financial statements in the period of initial application. Further, following new standards have been issued by IASB which are yet to be notified by the SECP for the purpose of applicability in Pakistan. Standards - 188 IFRS 14 – Regulatory Deferral Accounts IFRS 17 – Insurance Contracts Transforming Imagination Through Digitization
  191. ANNUAL REPORT 2018 WINDOW TAKAFUL OPERATIONS NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 3 . SIGNIFICANT ACCOUNTING POLICIES 3.1 Takaful contracts The takaful contracts are based on the principles of Wakala. The takaful contracts so agreed usually inspire concept of tabarru (to donate for benefit of others) and mutual sharing of losses with the overall objective of eliminating the element of uncertainty. A separate Participants Takaful Fund (PTF) is created in which all contribution received under general takaful contribution net off any government levies and administrative surcharge are credited. The role of takaful operator is of the management of the PTF. At the initial stage of the setup of the PTF, the takaful operator makes an initial donation to the PTF. The terms of the takaful contracts are in accordance with the generally accepted principles and norms of insurance business suitably modified with guidance by the Shariah Advisor of the Takaful operator. Once a contract has been classified as a takaful contract, it remains a takaful contract for the remainder of its lifetime, even if the Takaful risk reduces significantly during this period, unless all rights and obligations are extinguished or expired. The Operator underwrites non-life takaful contracts that can be categorised into Fire and Property Damage, Marine, Aviation and Transport, Motor and Miscellaneous contracts. Contracts may be concluded for a fixed term of one year, for less than one year and in some cases for more than one year. However, most of the contracts are for twelve months duration. Takaful contracts entered into by the Operator under which the contract holder is another Takaful Operator (inwards retakaful) of a facultative nature are included within the individual category of takaful contracts, other than those which fall under Treaty. The takaful risk involved in these contracts is similar to the contracts undertaken by the Operator as takaful operator. Fire and Property takaful contracts mainly compensate the customers for damage suffered to their property. Customers who undertake commercial activities on their premises could also receive compensation for the loss of earnings caused by the inability to use the covered properties in their business activities (business interruption cover). Marine, Aviation and Transport class of business provides coverage against loss and damage to goods in transit by any means of conveyance, physical loss or damage to aircraft, ships and liabilities to third parties and passengers arising from their use. Motor takaful covers physical loss or damage to the vehicle and liabilities to third parties as provided under the requirements of the Motor Vehicle Ordinance, 1965. All other takaful contracts like cash in hand, cash in transit, personal accident, infidelity, public liabilities, health, crop, livestock, travel, bankers and other financial institutions packages, product liabilities, professional indemnity, workers compensation etc. are included under Miscellaneous takaful cover. 3.2 Contribution Contribution income net off administrative surcharge under a policy is recognised over the period of takaful from the date of inception of the policy to which it relates to its expiry as follows: Administrative surcharge is recognised as income at the time policies are written in OF. Contribution income net off administrative surcharge under a policy is recognised after taking into account the unearned portion of premium by applying 1/24th method as prescribed by the Insurance Rules, 2017. The unearned portion of contribution is recognised as liability. Contribution due but unpaid under takaful contracts are recognised when due, at the fair value of the consideration receivable less provision for doubtful debts, if any. If there is objective evidence that the receivable is impaired, the Operator reduces the carrying amount of the receivable accordingly and recognizes it as impairment loss. 189
  192. WINDOW TAKAFUL OPERATIONS NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 3 .3 Re-takaful contracts Re-takaful expense is recognised evenly in the period of indemnity. The portion of retakaful contribution not recognised as an expense is shown as a prepayment which is calculated in the same manner as of unearned contribution. Rebate from retakaful operators is recognised at the time of issuance of the underlying takaful policy by the Operator. This income is deferred and brought to account as revenue in accordance with the pattern of recognition of the retakaful contribution to which it relates. Receivable against claims from the retakaful operators are recognised as an asset at the same time as the claims which gives rise to the right of recovery are recognised as a liability and are measured at the amount expected to be recovered after considering an impairment in relation thereto. Amount due from other takaful / re-takaful are carried at cost less provision for impairment, if any. Cost represents the fair value of consideration to be received in the future. Amount due to takaful / re-takaful companies represent the balance due to re-takaful companies. Re-takaful assets or liabilities are derecognised when the contractual rights are extinguished or expired. 3.4 Claims expense Takaful claims include all claims incurred during the year, whether reported or not, related internal and external claims handling costs that are directly related to the processing and settlement of claims, and any adjustments to claims outstanding from previous years. The PTF recognises liability in respect of all claims incurred upto the balance sheet date which is measured at the undiscounted value of the expected future payments. The claims are considered to be incurred at the time of the incident giving rise to the claim except as otherwise expressly indicated in a takaful contract. The provision for claims incurred but not reported (IBNR) is made at the balance sheet date. In accordance with SECP circular no. 9 of 2016, the Operator takes actuarial advice for the determination of IBNR claims. Provision for IBNR claims is estimated using Chain Ladder (CL) methodology. The Chain Ladder (CL) Method involves determination of development factors or link ratios for each period. These are then subsequently combined to determine Cumulative Development Factor (CDF) which represents the extent of future development of claims to reach their ultimate level. 3.5 Retakaful recoveries against outstanding claims Claims recoveries against outstanding claims from the retakaful operator and salvage are recognised as an asset at the same time as the claims which give rise to the right of recovery are recognised as a liability and are measured at the amount expected to be received. 3.6 Commission Commission expense incurred in obtaining and recording policies is deferred and recognised in profit and loss account as an expense in accordance with the pattern of recognition of contribution revenue. Commission income from retakaful is recognised at the time of issuance of the underlying takaful policy. These are deferred and recognised as liability and recognised in the profit and loss account as revenue in accordance with the pattern of recognition of the retakaful contributions. 190 Transforming Imagination Through Digitization
  193. ANNUAL REPORT 2018 WINDOW TAKAFUL OPERATIONS NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 3 .7 Contribution deficiency reserve The PTF is required as per Insurance Rules, 2017 and IFRS-4, to maintain a provision in respect of contribution deficiency for the class of business where the unearned contribution reserve is not adequate to meet the expected future liability, after retakaful, from claims and other expenses, including retakaful expense, commissions and other underwriting expenses, expected to be incurred after the balance sheet date in respect of the unexpired policies in that class of business at the balance sheet date. The movement in the contribution deficiency reserve is recorded as an expense in the profit and loss account and the same shall be recognised as a liability. For this purpose, loss ratios for each class are estimated based on historical claim development. Judgment is used in assessing the extent to which past trends may not apply in future or the effects of one-off claims. If these ratios are adverse, contribution deficiency is determined. Further actuarial valuation has been carried out to determine the amount of contribution deficiency reserve in respect of Health insurance as required by SRO 16 (I) / 2012 issued by Securities and Exchange Commission of Pakistan on 9 January 2012. 3.8 Wakala and Mudarib fees The Takaful operator manages the general takaful operations for the Participants. With effect from 1 January 2018, wakala fee has been reduced to 25% of the gross contribution on all classes of business except health business. No wakala fee is charged on health business. Wakala fee under a policy is recognised, evenly over the period of takaful from the date of issuance of the policy till the date of its expiry. The Takaful operator also manages the participants' investment as Mudarib and charges 30% of the investment \ deposit income earned by the Participants' Takaful Fund as Mudarib's share. Administrative surcharge is included in Wakala Fee at the date of inception of policy to which it relates. 3.9 Revenue recognition 3.9.1 Contribution The revenue recognition policy for contributions is given under note 3.2. 3.9.2 Commission from reinsurers The revenue recognition policy for commission from retakaful is given under note 3.6. 3.9.3 Dividend income Dividend income is recognized when the right to receive the dividend is established. 3.9.4 Gain / loss on sale / redemption of investments Gain / loss on sale / redemption of investments is taken to profit and loss account in the year of sale / redemption. 3.9.5 Income on held to maturity investment Income from held to maturity investments is recognised on a time proportionate basis taking account the effective yield on the investment. 3.9.6 Profit on bank accounts and deposits Profit on bank accounts and deposits is recognised on accrual basis. 191
  194. WINDOW TAKAFUL OPERATIONS NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 3 .10 Management expenses Underwriting expenses have been allocated to various classes of business on a basis deemed equitable by the management of operator. Expenses not attributable to the underwriting business are charged as administrative expenses. 3.11 Takaful surplus Takaful surplus attributable to the participants is calculated after charging all direct cost and setting aside various reserves. Allocation to participants, if applicable, is made after adjustment of claims paid to them during the year. 3.12 Qard-e-Hasna Qard-e-hasna is provided by Operators' Fund to Participants Takaful Fund in case of deficit in PTF. Qard-e-Hasna is recognised at the amount provided to Participant Takaful Fund less impairment, if any. 3.13 Creditors, accruals and provisions Liabilities for creditors and other amounts payable are carried at cost which is the fair value of the consideration to be paid in future for the goods and / or services received, whether or not billed to the Operator. Provisions are recognised when the Operator/PTF has a present legal or constructive obligation as a result of past events and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate of the amount can be made. Provisions are reviewed at each balance sheet date and adjusted to reflect the current estimate. 3.14 Cash and cash equivalents Cash and cash equivalents are carried in the balance sheet at cost. For the purpose of cash flow statement, cash and cash equivalents consists of cash in hand, stamps in hand and deposits with banks (except for the deposit placed with statutory requirement) net off short term running finance. 3.15 Sundry receivable These are recognised at cost, which is the fair value of the consideration given. However, an assessment is made at each balance sheet date to determine whether there is objective evidence that a financial asset or group of assets may be impaired. If such evidence exists, the estimated recoverable amount of that asset is determined and any impairment loss is recognised for the difference between the recoverable amount and the carrying amount. 3.16 Impairment The carrying amount of assets are reviewed at each balance sheet date to determine whether there is any indication of impairment of any asset or group of assets. If such indication exists, the recoverable amount of the asset is estimated. An impairment loss is recognised whenever the carrying amount of an asset exceeds its recoverable amount. Impairment losses are recognised in profit and loss account. An impairment loss is reversed if the reversal can be objectively related to an event occurring after the impairment loss was recognised. Provisions for impairment are reviewed at each balance sheet date and adjusted to reflect the current best estimate. Changes in the provisions are recognised as income or expense. 192 Transforming Imagination Through Digitization
  195. ANNUAL REPORT 2018 WINDOW TAKAFUL OPERATIONS NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 3 .17 Taxation 3.17.1 Current Provision for current taxation is based on taxable income for the year determined in accordance with the prevailing law for taxation of income. The charge for current tax is calculated using prevailing tax rates or tax rates expected to apply to the profit for the year, if enacted. The charge for current tax also include adjustments, where considered necessary, to provision for tax made in previous years arising from assessments finalised during the current year for such years. 3.17.2 Deferred Deferred tax is accounted for using the balance sheet liability method, in respect of temporary differences arising at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred tax liabilities are generally recognised for all taxable temporary differences. Deferred tax assets are recognised for all deductible temporary differences to the extent that it is probable that the future taxable profits will be available against which the assets may be utilized. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised. The carrying amount of deferred tax asset is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the deferred tax asset to be recognised. Unrecognised deferred tax assets are reassessed at each balance sheet date and are recognised to the extent that it has become probable that future taxable profit will allow deferred tax asset to be recovered. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the periods when the asset is utilized or the liability is settled, based on the tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date. Deferred tax is charged or credited to the profit and loss account except in the case of items credited or charged to equity in which case it is included in equity. 3.18 Investments 3.18.1 Recognition All investments are initially recognised at cost, being the fair value of the consideration given and include transaction costs except for held for trading investments in which case transaction costs are charged to the profit and loss account. All purchase and sale of investments that require delivery within the required time frame established by regulations or market convention are accounted for at the trade date. Trade date is the date when the Company commits to purchase or sell the investments. These are recognised and classified as follows: - Investment at fair value through profit and loss (held for trading) Available for sale - Held to maturity 3.18.2 Measurement 3.18.2.1 Investment at fair value through profit or loss (held for trading) At the time of acquisition, quoted investments which are acquired principally for the purpose of generating profit from short term fluctuations in price or are part of portfolio for which there is a recent actual pattern of short term profit taking are classified as held for trading. Subsequent to initial recognition these are remeasured at fair value by reference to quoted market prices with the resulting gain or loss being included in net profit or loss for the period in which it arises. 193
  196. WINDOW TAKAFUL OPERATIONS NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 3 .18.2.2 Available for sale Available for Sale investments are those non-derivative instruments /contracts that are designated as available for sale or are not classified in any other category. At the time of acquisition, investments which are intended to be held for an undefined period of time but may be sold in response to the need for liquidity or changes in interest rates are classified as available for sale. Subsequent to initial measurement, these are remeasured at fair value. Surplus / (deficit) on revaluation from one reporting date to other is taken to other comprehensive income in the statement of comprehesive income. On derecognition or impairment of available-for-sale investments, the cumulative gain or loss previously reported in other comprehensive income is transferred to profit and loss for period within statement of comprehensive income. These are reviewed for impairment at year end. The Operator considers that available-for-sale equity investments and mutual funds are impaired when there has been a significant or prolonged decline in the fair value below its cost. This determination of what is significant or prolonged requires judgment. The Operator considers that a decline of 30% in the market value of any scrip below its cost shall constitute as a significant decline and where market value remains below the cost for a period of one year shall constitute as a prolonged decline. Any losses arising from impairment in values are charged to the profit and loss account. 3.18.2.3 Held-to-maturity At the time of acquisition, investments with fixed maturity, where management has both the intent and the ability to hold to maturity, are classified as held-to-maturity. Subsequently, these are measured at amortised cost less provision for impairment in value, if any. Amortised cost is calculated by taking into account any discount or premium on acquisition by using the effective yield method. The difference between the redemption value and the purchase price of the held-to-maturity investments is amortised and taken to the profit and loss account over the term of the investment. These are reviewed for impairment at year end and any losses arising from impairment in values are charged to the profit and loss account. 3.19 Staff retirement benefits The Operator operates funded contributory provident fund (defined contribution plan) for all permanent employees. Equal contributions are made by the Operator and the employees at the rate 8.33% of basic salary, to the fund. 3.20 Financial instruments Financial assets and financial liabilities within the scope of IAS - 39 are recognised at the time when the Operator becomes a party to the contractual provisions of the instrument. Financial assets are de-recognised when the contractual right to future cash flows from the asset expire or is transferred along with the risk and reward of the asset. Financial liabilities are de-recognised when obligation specified in the contract is discharged, cancelled or expired. Any gain or loss on de-recognition of the financial asset and liabilities is recognised in the profit and loss account of the current year. Financial instruments carried on the balance sheet include bank deposits, investments, contribution due but unpaid, contribution received in advance, amount due from other takaful / retakaful operator, accrued investment income, retakaful recoveries against outstanding claims, sundry receivables, advances and deposits, provision for outstanding claims, amount due to other takaful / retakaful operators, accrued expenses, other creditors and accruals, short term running finance and obligation under finance lease. The particular recognition methods adopted are disclosed in the individual policy statements associated with each item. 194 Transforming Imagination Through Digitization
  197. ANNUAL REPORT 2018 WINDOW TAKAFUL OPERATIONS NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 3 .21 Off setting of financial assets and financial liabilities Financial assets and financial liabilities are offset and the net amount is reported in the balance sheet, if the Operator has a legally enforceable right to set-off and the Operator intends either to settle the assets and liabilities on a net basis or to realise the asset and settle the liability simultaneously. 3.22 Foreign currency translations Foreign currency transactions are translated into Pak Rupees using the exchange rates prevailing at the dates of the transactions. All monetary assets and liabilities in foreign currencies are translated into Pak Rupees at the rates of exchange prevailing at the balance sheet date. Foreign exchange gains and losses on translation are recognized in the profit and loss account. All non-monetary items are translated into rupees at exchange rates prevailing on the date of transaction or on the date when fair values are determined. 3.23 Operating segments An operating segment is a component of the Operator that engages in business activities from which it may earn revenues and incur expenses. The Operator presents segment reporting of operating results using the classes of business as specified under the Insurance Ordinance, 2000 and the SEC (Insurance) Rules, 2017 as the primary reporting format. The Operator has five primary business segments for reporting purposes namely, fire and property, marine, health,motor and miscellaneous. The nature and business activities of these segments are disclosed in note no. 3.1. Assets, liabilities and capital expenditures that are directly attributable to segments have been assigned to them while the carrying amount of certain assets used jointly by two or more segments have been allocated to segments on a reasonable basis. Those assets and liabilities which cannot be allocated to a particular segment on a reasonable basis are reported as unallocated corporate assets and liabilities. 4. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS The preparation of financial statements in conformity with approved accounting standards requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the Operator’s accounting polices. The estimates / judgments and associated assumptions used in the preparation of the financial statements are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The estimates / judgments and associated assumptions are reviewed on an ongoing basis. Revision to the accounting estimates are recognised in the period in which the estimate is revised, if the revision affects only that period, or in the period of revision and future periods if the revision affects both current and future periods. The areas involving a higher degree of judgment or complexity, or areas where assumption and estimates are significant to the financial statements, or judgments were exercised in application of accounting policies are as follows: - Classification of Takaful Contracts (note 3.1) - Provision for unearned contribution (note 3.2) - Provision for outstanding claims including IBNR (note 3.4) - Contribution deficiency reserve (note 3.7) - Provision for current and deferred tax (note 3.17) - Provisions (note 3.13) 195
  198. 196 Transforming Imagination Through Digitization 2018 Revaluation surplus /(deficit) Carrying Value 97,079,965 25,000,000 72,079,965 82,945,792 26,311,534 56,634,258 7.1 7.1 Note Cost Impairment / Provision 2017 Revaluation surplus/(deficit) Carrying Value Impairment / Provision 2018 Revaluation surplus/(deficit) Carrying Value Cost Impairment / Provision 2017 (Rupees ) (9,900,875) 165,458 - (10,066,333) Revaluation surplus/(deficit) 100,278,988 100,278,988 31 December 2018 - - - Carrying Value - 31 December 2017 63,856,353 1,718,452 - 62,137,901 20,000,000 - - 20,000,000 - - - - -------------------------------------------------------------------------------------------------------(Rupees)------------------------------------------------------------------------------------------------------------ Cost 6.1 Note 73,757,228 1,552,994 - 72,204,234 This represents Term Finance Certificates of Dubai Islamic Bank and carry mark-up of 12.27 %. PTF holds 4,000 certificates of Rs. 5,000/- each. Term Finance Certificates PTF INVESTMENT IN DEBT SECURITIES - AVAILABLE FOR SALE 1,311,534 1,311,534 - 7. (15,445,707) - (15,445,707) This represents the Sukkuk issued by Government of Pakistan and carries markup rate of 6.1%. Government of Pakistan Sukkuk Held to maturity - PTF Impairment / Provision -----------------------------------------------------------------------------------------------------(Rupees)------------------------------------------------------------------------------------------------------ INVESTMENT IN GOVERNMENT SECURITIES Mutual funds MCB Arif Habib AlHamra Islamic Stock Fund MCB Arif Habib AlHamra Islamic Income Fund AKD Islamic Income Fund Cost INVESTMENT IN MUTUAL FUNDS - AVAILABLE-FOR-SALE 6.1 6. 5. FOR THE YEAR ENDED 31 DECEMBER 2018 WINDOW TAKAFUL OPERATIONS NOTES TO THE FINANCIAL STATEMENTS
  199. ANNUAL REPORT 2018 WINDOW TAKAFUL OPERATIONS NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 8 . OTHER RECEIVABLES Note Wakala fee Taxes and Duties receivable Qard e Hasna Mudarib fee 8.1 2018 OF PTF Total --------------------------------------- (Rupees) --------------------------------------11,822,563 32,542,910 246,900,000 291,265,473 3,057,128 3,057,128 11,822,563 32,542,910 246,900,000 3,057,128 294,322,601 2017 OF PTF Total --------------------------------------- (Rupees) --------------------------------------Wakala fee Qard e Hasna Mudarib fee 8.1 8.1 3,233,597 199,000,000 2,674,685 204,908,282 Qard e Hasna Balance as at the beginning of the year Qard e Hasna provided during the year Balance as at the end of the year - 3,233,597 199,000,000 2,674,685 204,908,282 31 December 2018 31 December 2017 (Rupees ) 199,000,000 47,900,000 246,900,000 110,000,000 89,000,000 199,000,000 In accordance with the Takaful Rules, 2012, if at any point in time, assets in participant takaful fund are not sufficient to cover its liabilities, the deficit shall be funded by way of an interest free loan (Qard-e-Hasna) from Operator Fund. In the event of future surplus in the Participant Takaful Fund to which a Qard-e-Hasna has been made, the Qard-e-Hasna shall be repaid prior to distribution of surplus to participants. The Operator has prepared financial projections of Participant Fund and based on such financial projections believes that the Participant Takaful Fund would be able to repay Qard-e-Hasna to Operator's Fund. During the period , the Operator has reduced the Wakala Fee to 25% on all classes of business except health business. No wakala fee is charged on health business with effect from January 01, 2018. 9. TAKAFUL / RETAKAFUL RECEIVABLE Due from Takaful contract holders Considered good Considered doubtful Less: Provision for impairment of receivables from takaful contract holders. Due from other takaful/ retakaful operators - Considered good 31 December 2018 31 December 2017 (Rupees ) 149,745,680 188,753,806 6,000,000 1,000,000 (6,000,000) - (1,000,000) - 1,412,161 151,157,841 1,367,282 190,121,088 197
  200. WINDOW TAKAFUL OPERATIONS NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 10 PREPAYMENTS Note 2018 OF PTF Total --------------------------------------- (Rupees) --------------------------------------- Prepaid - annual monitoring and other charges - retakaful contribution ceded - 65,707,498 34,510,941 65,707,498 34,510,941 - 100,218,439 100,218,439 2017 OF PTF Total --------------------------------------- (Rupees) --------------------------------------- Prepaid - annual monitoring and other charges - retakaful contribution ceded 11 - 61,044,166 16,078,846 61,044,166 16,078,846 - 77,123,012 77,123,012 BANK BALANCES Cash and cash equivalent Current Accounts Profit and loss sharing (PLS) accounts 2018 OF PTF Total --------------------------------------- (Rupees) --------------------------------------11.1 and 11.2 - 74,945 74,945 5,046,670 93,749,614 98,796,284 5,046,670 93,824,559 98,871,229 2017 Cash and cash equivalent Current Accounts Profit and loss sharing (PLS) accounts 11.1 OF PTF Total --------------------------------------- (Rupees) --------------------------------------11.1 and 11.2 - 111,367 111,367 10,970,789 102,563,291 113,534,080 10,970,789 102,674,658 113,645,447 Cash and cash equivalents for the purpose of statement of cash flows: 2018 OF PTF Total --------------------------------------- (Rupees) --------------------------------------Cash and cash equivalent Term deposit receipts 198 Transforming Imagination Through Digitization 5,046,670 - 93,824,559 150,000,000 98,871,229 150,000,000 5,046,670 243,824,559 248,871,229
  201. ANNUAL REPORT 2018 WINDOW TAKAFUL OPERATIONS NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 2017 OF PTF Total --------------------------------------- (Rupees) --------------------------------------Cash and cash equivalent Term deposit receipts 10,970,789 75,000,000 102,674,658 5,000,000 113,645,447 80,000,000 85,970,789 107,674,658 193,645,447 11.2 These accounts carry profit at a rate between 4.75% to 7.00% (2017: 3.5% to 5.6%) per annum. 12. TAKAFUL/ RETAKAFUL PAYABLE 2018 2017 PTF PTF --------------- (Rupees) --------------Amount due to other takaful / retakaful operator 13. 67,060,239 44,251,205 OTHER CREDITORS AND ACCRUALS Note 2018 OF PTF Total --------------------------------------- (Rupees) --------------------------------------- Creditors Wakala fee payable Modarib fee payable Federal Insurance Fee Federal Excise Duty (FED) - net Commission payable Taxes and duties payable 13.1 and Others 13.2 Withholding tax payable 2,673,420 3,057,128 4,102,721 5,539,669 2,461,390 966,502 11,822,563 892,794 11,084,491 32,542,910 3,213,416 3,567,780 3,639,922 11,822,563 3,057,128 892,794 11,084,491 4,102,721 32,542,910 8,753,085 6,029,170 17,834,328 64,090,456 81,924,784 2017 OF PTF Total --------------------------------------- (Rupees) --------------------------------------Creditors Wakala fee payable Payable to Participants' Takaful Fund Modarib fee payable Federal Insurance Fee Federal Excise Duty (FED) - net Commission payable Others Withholding tax payable 13.1 1,809,135 20,322,690 5,851,113 2,046,491 643,940 3,233,597 2,674,685 871,552 8,959,608 - 2,453,075 3,233,597 2,674,685 871,552 8,959,608 20,322,690 5,851,113 2,046,491 30,029,429 16,383,382 46,412,811 This includes Rs. 3.2 million in respect of time barred cheques. 199
  202. WINDOW TAKAFUL OPERATIONS NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 13 .2 This includes outstanding claims in respect of which cheques aggregating to Rs. 1.768 million (2017: 2.722 million) have been issued by the Operator for claim settlement but the same have not been encashed by the claimant. 13.3 The following is the ageing as required by SECP circular 11 of 2014 dated 19 May 2014: 31 December 2018 31 December 2017 (Rupees ) - More than 6 months - 1 to 6 months (included in provision for outstanding claims) 1,767,917 11,225,109 2,721,835 637,584 12,993,026 3,359,419 AGE-WISE BREAKUP Claims not encashed 14. 1 to 6 months 7 to 12 months 13 to 24 months 25 to 36 months 2018 11,225,109 1,015,031 752,886 2017 637,584 1,865,781 513,502 TOTAL 342,552 12,993,026 3,359,419 PAYABLE TO TPL INSURANCE LIMITED This represents payable in respect of funds provided by TPL Insurance to meet expenses and to provide Qard-e-Hasna to Participants' Takaful Fund. 31 December 2018 15. NET TAKAFUL CONTRIBUTION (Rupees ) Written gross contribution Add: Unearned contribution reserve opening Less: Unearned contribution reserve closing 1,058,506,141 477,955,216 (511,363,901) 909,018,216 353,131,293 (477,955,216) Contribution earned 1,025,097,456 784,194,293 60,969,434 16,078,846 (34,510,941) 23,080,933 7,873,838 (16,078,846) 42,537,339 14,875,925 982,560,117 769,318,368 Less: Retakaful contribution ceded Add: Prepaid retakaful contribution opening Less: Prepaid retakaful contribution closing Retakaful expense Net takaful contribution 200 31 December 2017 Transforming Imagination Through Digitization
  203. ANNUAL REPORT 2018 WINDOW TAKAFUL OPERATIONS NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 31 December 2018 16 . 17. NET TAKAFUL CLAIMS EXPENSE 31 December 2017 (Rupees ) Claims paid or payable Add: Outstanding claims including IBNR closing Less: Outstanding claims including IBNR opening Claims expense 579,415,934 139,070,744 (98,896,694) 619,589,984 451,927,158 98,896,694 (63,703,488) 487,120,364 Less: Retakaful and other recoveries received Add: Retakaful and other recoveries in respect of outstanding claims net of impairment - closing Less: Retakaful and other recoveries in respect of outstanding claims net of impairment - opening 121,264,221 87,512,124 59,057,364 40,253,650 (40,253,650) (31,752,306) Retakaful and other recoveries revenue 140,067,935 96,013,468 Net takaful claims expense 479,522,049 391,106,896 CLAIM DEVELOPMENT TABLE The following table shows the development of claims over a period of time on gross basis. For each class of business the uncertainty about the amount and timings of claims payment is usually resolved within a year. Accident year 2014 2015 2016 2017 2018 Total ---------------------------------------------------------------------- (Rupees) ---------------------------------------------------------------------- Estimate of ultimate claims cost: At end of accident year 4,674,723 190,721,464 381,323,105 480,355,303 One year later 4,674,723 205,217,425 389,247,844 487,410,451 Two year later 4,611,264 204,057,746 388,529,318 Three years later 4,611,264 204,298,155 Four years later 4,611,264 Estimate of cumulative claims 4,611,264 204,298,155 388,529,318 487,410,451 613,435,787 1,698,284,975 (4,611,264) (204,198,155) (386,489,468) (485,570,737) (478,344,607) (1,559,214,231) 100,000 2,039,850 1,839,714 135,091,180 139,070,744 Cumulative payments to date Liability for outstanding claims 18. - NET COMMISSION EXPENSE - 613,435,787 1,670,510,382 - 1,086,550,443 - - 597,198,328 - - - 208,909,419 - - - 4,611,264 31 December 2018 31 December 2017 (Rupees ) Commissions paid or payable Add: Deferred commission - opening Less: Deferred commission - closing Commission expense 134,083,835 43,955,293 (73,685,941) 104,353,187 77,601,437 13,089,882 (43,955,293) 46,736,026 Less: commission from reinsurers Commission received or receivable Add: Deferred commission - opening Less: Deferred commission - closing Commission from reinsurance 6,992,440 1,040,281 (4,727,505) 3,305,216 1,519,741 35,684 (1,040,281) 515,144 101,047,971 46,220,882 Net commission expense 201
  204. WINDOW TAKAFUL OPERATIONS NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 19 . 31 December 2018 NET WAKALA FEE (Rupees ) Gross Wakala Fee Add: Deferred wakala fee - opening Less: Deferred wakala fee - closing Net wakala fee 20. 31 December 2017 279,611,216 173,113,525 (120,781,703) 360,795,273 141,252,517 (173,113,525) 331,943,038 328,934,265 SEGMENT INFORMATION For the year ended 31 December 2018 Fire & property damage 20.1 Participants' Takaful Fund Health Miscellaneous Aggregate ------------------------------------------------------------------- (Rupees) ------------------------------------------------------------------ 27,105,073 10,871,147 976,809,509 43,517,772 202,640 1,058,506,141 Takaful contribution earned 23,371,217 10,074,354 974,477,566 16,991,920 182,399 1,025,097,456 Takaful contribution ceded to retakaful operators (17,202,157) (6,626,032) (18,709,150) Net takaful contribution 6,169,060 3,448,322 955,768,416 16,991,920 182,399 982,560,117 Net underwriting income 6,169,060 3,448,322 955,768,416 16,991,920 182,399 982,560,117 (6,849,846) (408,175) (587,185,839) (24,911,924) (234,200) (619,589,984) Retakaful claims and other recoveries 6,157,634 126,540 133,783,761 Net Claims (692,212) (281,635) (453,402,078) (24,911,924) (234,200) (479,522,049) (7,619,657) (3,009,275) (320,575,518) (684,494) (54,093) (331,943,038) Wakala expensed during the period Direct expenses Underwriting result (2,142,809) 157,412 (149,447,499) 32,343,321 - - (8,604,498) - - (105,894) (42,537,339) 140,067,935 (149,447,500) 21,647,530 Investment income (1,483,182) Deficit for the period 20,164,348 Operator's Fund Wakala fee 7,619,657 3,009,275 320,575,518 Commission income 2,445,716 187,684 671,816 Commission expense (2,159,189) (1,601,598) (99,074,278) (1,505,395) (12,727) (104,353,187) Management expenses (7,020,423) (2,815,711) (253,001,209) (11,271,439) (52,485) (274,161,268) 885,761 (1,220,350) (30,828,153) (12,092,340) (11,119) (43,266,201) Underwriting result Investment income Other expenses Loss before taxation 202 Motor Gross Written Contribution (inclusive of Administrative Surcharge) Takaful claims 20.2 Marine Transforming Imagination Through Digitization 684,494 - 54,093 - 331,943,038 3,305,216 1,144,386 (70,053,079) (112,174,894)
  205. ANNUAL REPORT 2018 WINDOW TAKAFUL OPERATIONS NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 For the year ended 31 December 2017 Fire & property damage 20.3 Participants' Takaful Fund Gross Written Premium (inclusive of Administrative Surcharge) Insurance premium earned Insurance premium ceded to reinsurers Marine Motor Health Miscellaneous Aggregate ------------------------------------------------------------------- (Rupees) ------------------------------------------------------------------ 16,641,590 1,897,202 887,796,988 2,672,011 10,425 909,018,216 7,731,114 694,337 773,738,602 2,028,194 2,046 784,194,293 (5,394,725) (445,200) (9,036,000) Net insurance premium 2,336,389 249,137 764,702,602 2,028,194 2,046 769,318,368 Net underwriting income 2,336,389 249,137 764,702,602 2,028,194 2,046 769,318,368 Insurance claims (886,017) - (484,186,311) (2,048,036) Insurance claims recovered from reinsurers 814,838 - 95,198,630 Net Claims (71,179) - (388,987,681) (2,048,036) (324,534,047) (813,678) Wakala expensed during the period Direct expenses Underwriting result (3,270,536) (1,005,326) (314,888) - - - (123,341,667) (65,751) (72,160,793) (833,520) - (14,875,925) - (487,120,364) - 96,013,468 - (391,106,896) (1,116) (328,934,265) - (123,341,667) 930 (74,064,460) Investment income 4,192,313 Deficit for the period 20.4 (69,872,147) Operator's Fund Wakala fee 3,270,536 314,888 324,534,047 - 328,934,265 515,144 Commission expense (528,771) (99,870) (46,099,975) (7,215) (195) (46,736,026) (3,591,082) (409,396) (191,577,368) (576,592) (2,250) (196,156,688) (334,173) (194,378) 86,856,704 229,871 (1,329) 86,556,695 Underwriting result - 1,116 Commission income Management expenses - 813,678 - 515,144 Investment income 8,616,828 Other expenses (47,645,321) Profit before taxation 21. DIRECT EXPENSES 47,528,202 Note 2018 PTF 2017 PTF --------------------- (Rupees) --------------------Tracker rental expense and monitoring fee Bad and doubtful debts 21.1 21.1 144,426,668 5,020,832 122,341,667 1,000,000 149,447,500 123,341,667 This represents rental expense of trackers installed including tracker monitoring charges. 203
  206. WINDOW TAKAFUL OPERATIONS NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 22 . MANAGEMENT EXPENSES Employee benefit costs Travelling expenses Travelling incentive to agent Advertisement and marketing Printing and Stationary Rent, rates and taxes Outsourcing Expenses - Call Centre Services Communication Utilities - Electricity and Water Vehicle running expenses Repair and Maintenance Depreciation - Other Amortization expense Insurance Others 23. 2018 2017 OF OF ---------------------- (Rupees) ---------------------115,300,455 4,460,765 30,619,706 20,802,546 5,748,768 29,284,731 9,503,005 3,512,283 5,316,370 8,184,260 24,644,431 12,545,968 1,227,360 2,997,891 12,729 274,161,268 81,392,289 15,722,491 8,314,483 27,803,784 3,435,666 21,733,798 2,831,271 3,566,350 4,673,395 5,950,753 12,818,558 6,161,124 422,558 1,044,026 286,143 196,156,689 24,155,516 8,266,545 873,115 4,667,823 8,288,949 915,009 6,320,842 1,135,976 2,337,515 13,091,789 70,053,079 8,695,757 9,359,624 945,563 4,280,127 8,377,691 1,011,224 8,875,953 499,294 5,600,088 47,645,321 14,608,835 149,090,000 (144,991,876) 18,706,959 5,897,661 134,530,000 (125,818,826) 14,608,835 204,908,282 279,611,216 47,900,000 3,998,063 286,764,915 (530,340,419) 292,842,057 63,560,087 288,995,419 80,000,000 2,479,669 (252,792,885) 182,242,290 OTHER EXPENSES Employee benefit costs Legal and professional charges Auditors’ remuneration Registration, subscription and association Donations Communication IT Related Cost Utilities Lease Rentals Others 24. Note TRANSACTIONS WITH RELATED PARTIES - PTF TPL Insurance Limited Opening balance - payable Rental and other services charges Payments made by PTF - net Closing balance - payable Operator's Fund Opening balance - payable (including Qard Hasan) Wakala fee charged during the year Qard-e-Hasna provided during the year Modarib Fee charged during the year Taxes and other movement Payments made during the year Closing balance - payable 204 Transforming Imagination Through Digitization
  207. ANNUAL REPORT 2018 WINDOW TAKAFUL OPERATIONS NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 25 . MANAGEMENT OF TAKAFUL AND FINANCIAL RISK The Operator issue contracts that transfer takaful risk or financial risk or both. This section summarises the takaful risks and the way the Company manages them. 25.1 Takaful risk management 25.1.1 Takaful risk The risk under any takaful contract is the possibility that the insured event occurs and the uncertainty of the amount of compensation to the participant. Generally most takaful contracts carry the takaful risk for a period of one year. The Operator's major takaful contracts are in respect of motor vehicles through issuance of general takaful contracts relating to motor takaful. For these contracts the most significant risks arise from theft, accidents and terrorist activities. The Operator's risk exposure is mitigated by employing a comprehensive framework to identify, assess, manage and monitor risk. This framework includes implementation of underwriting strategies which aim to ensure that the underwritten risks are well diversified in terms of type and amount of the risk. Adequate retakaful is arranged to mitigate the effect of the potential loss to the PTF from individual to large or catastrophic insured events. Further, the Operator adopts strict claim review policies including active management and prompt pursuing of the claims and regular detailed review of claim handling procedures and frequent investigation of possible false claims to reduce the takaful risk. 25.1.2 Frequency and severity of claims Risk associated with general takaful contracts includes the reasonable possibility of significant loss as well as the frequent occurrence of the covered events. This has been managed by having in place underwriting strategy, retakaful arrangements and proactive claim handling procedures. The retakaful arrangements against major risk exposure include excess of loss, quota share, surplus arrangements and catastrophic coverage. The objective of having such arrangements is to mitigate adverse impacts of severe losses on PTF's net retentions. 25.1.3 Uncertainty in the estimation of future claim payments Claims on motor takaful contracts are payable on a claim occurrence basis. The PTF is liable for all covered events that occur during the term of the takaful contracts respectively, including the event reported after the expiry of the takaful contract term. An estimated amount of the claim is recorded immediately on the intimation to the Company. The estimation of the amount is based on management judgement or preliminary assessment by the independence surveyor appointed for the purpose. The initial estimates include expected settlement cost of the claims. Provision for IBNR claims is determined based on actuary advice and is estimated using Chain Ladder (CL) methodology. The Chain Ladder (CL) Method involves determination of development factors or link ratios for each period. These are then subsequently combined to determine Cumulative Development Factor (CDF) which represents the extent of future development of claims to reach their ultimate level. There are several variable factors which affect the amount and timing of recognised claim liabilities. The Company takes all reasonable measures to mitigate the factors affecting the amount and timing of claim settlements. However, uncertainty prevails with estimated claim liabilities and it is likely that final settlement of these liabilities may be different from initial recognised amount. Outstanding claims are reviewed on a periodic basis. 205
  208. WINDOW TAKAFUL OPERATIONS NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 25 .1.4 Key assumptions The process used to determine the assumptions for calculating the outstanding claim reserve is intended to result in neutral estimates of the most likely or expected income. The nature of the business makes it very difficult to predict with certainty the likely outcome of any particular claim and the ultimate cost of notified claims. Each notified claim is assessed on a separate case to case basis with due regard to the claim circumstances, information available from surveyors and historical evidence of the size of similar claims. Core estimates are reviewed regularly and are updated as and when new information is available. The principal assumption underlying the liability estimation of IBNR and Contribution Deficiency Reserves is that the PTF's future claim development will follow similar historical pattern for occurrence and reporting. The management uses qualitative judgement to assess the extent to which past occurrence and reporting pattern will not apply in future. The judgement includes external factors e.g. treatment of one-off occurrence claims, changes in market factors, economic conditions, etc. The estimation of IBNR is generally subject to a greater degree of uncertainty than the estimation of the cost of settling claims already notified to the Operator, in which case information about the claim event is available. IBNR provisions are initially estimated at a gross level and a separate calculation is carried out to estimate the size of the reinsurance recoveries. The estimation process takes into account the past claims reporting pattern and details of reinsurance programs. The details of estimation of outstanding claims (including IBNR) are given under note 3.4. 25.1.5 Sensitivity analysis The risks associated with the takaful contracts are complex and subject to a number of variables which complicate quantitative sensitivity analysis. The Operator makes various assumptions and techniques based on past claims development experience. This includes indications such as average claims cost, ultimate claims numbers and expected loss ratios. The Operator considers that the liability for claims recognised in the balance sheet is adequate. However, actual experience may differ from the expected outcome. The claim liabilities are sensitive to the incidence of covered events and severity / size of claims. As the Operator enters into short term takaful contracts, it does not assume any significant impact of changes in market conditions on unexpired risks. However, some results of sensitivity testing are set out below, showing the impact on profit before tax net of retakaful. The impact of 10 % increase / decrease in incidence of covered events on underwriting results, fund balances as follows: PTF Average claim cost Underwriting results 2018 2017 Fund balance 2018 2017 -------------------------------------------------- (Rupees) -------------------------------------------------Fire & property damage Marine Motor business Health Miscellaneous 25.1.6 69,221 28,164 45,340,208 2,491,192 23,420 47,952,205 7,118 38,898,768 204,804 39,110,690 47,762 19,433 31,284,744 1,718,922 16,160 33,087,021 4,983 27,229,138 143,363 27,377,484 Concentration of risk To optimise benefits from the principle of average and law of large numbers, geographical spread of risk is of extreme importance. There are a number of parameters which are significant in assessing the accumulation of risk with reference to the geographical location, the most important of which is risk survey. 206 Transforming Imagination Through Digitization
  209. ANNUAL REPORT 2018 WINDOW TAKAFUL OPERATIONS NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 Risk surveys are carried out on a regular basis for the evaluation of physical hazards associated with the insured property . The adequate event limit is a multiple of the treaty capacity or the primary recovery from excess of loss treaty, which is very much in line with the risk management philosophy of the Company. Retakaful ceded does not relieve the Operator from its obligation towards participants and, as a result the Operator remains liable for the portion of outstanding claims retakaful to the extent that retakaful operator fails to meet the obligation under the retakaful agreements. The Operator minimises its exposure to significant losses by obtaining retakaful from a number of retakaful, who are dispersed over several geographical regions. The concentration of risk by type of contracts based on single risk with maximum exposure is summarised below: Gross sum covered 2018 2017 Retakaful 2018 Net 2017 2018 2017 ---------------------------------------------------------- (Rupees) ----------------------------------------------------------Fire & property damage Marine, aviation & transport Motor business Health Miscellaneous 26. 680,000,000 537,577,163 646,000,000 483,819,447 34,000,000 53,757,716 310,159,872 15,000,000 800,000 5,000,000 281,439,447 15,000,000 800,000 100,000 307,058,273 10,000,000 - 258,924,291 - 3,101,599 5,000,000 800,000 5,000,000 22,515,156 15,000,000 800,000 100,000 1,010,959,872 834,916,610 963,058,273 742,743,738 47,901,599 92,172,872 FINANCIAL RISK MANAGEMENT The Board of Directors of the Operator has overall responsibility for the establishment and oversight of the Company's risk management framework. The Operator has exposure to the following risks from its use of financial instruments: - Credit risk - Liquidity risk - Market risk Risk management framework The Operator’s risk management policies are established to identify and analyse the risks faced by the Operator, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Operator’s activities. 26.1 Credit risk Credit risk is the risk that arises with the possibility that one party to a financial instrument will fail to discharge its obligation and cause the other party to incur a financial loss. The Operator attempts to control credit risk by monitoring credit exposures by undertaking transactions with a large number of counterparties in various industries and by continually assessing the credit worthiness of counterparties. 26.1.1 Management of credit risk The Operator's policy is to enter into financial contracts in accordance with the guidelines set by the Board of Directors. Credit risk is managed and controlled by the management of the Operator in the following manner 207
  210. WINDOW TAKAFUL OPERATIONS NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 - Credit rating and / or credit worthiness of the counter party is taken into account along with the financial background so as to minimize the risk of default. Collaterals are obtained wherever appropriate / relevant. - The risk of counterparty exposure due to failed agreements causing a loss to the Operator is mitigated by a periodic review of the credit ratings, financial statements, credit worthiness, etc. on a regular basis and makes provision against those balances considered doubtful of recovery. - Cash is held with reputable banks only. To reduce the credit risk the management continuously reviews and monitors the credit exposure towards the policyholders and other insurers/reinsurers and makes provision against those balances considered doubtful of recovery. 26.1.2 Exposure to credit risk In summary, compared to the amount included in statement of assets and liabilities, the maximum exposure to credit risk as at 31 December is as follows: OF Balance as per the financial statement 2018 PTF Maximum exposure Balance as per the financial statement ---------------------------------------------------- (Rupees) ---------------------------------------------------- Investment in: Government Securities Debt Securities Term deposits Other receivables including Qard-e-Hasna to PTF Takaful/ retakaful receivable Salvage recoveries accrued Bank balances - - 100,278,988 20,000,000 150,000,000 100,278,988 20,000,000 150,000,000 291,265,473 5,046,670 291,265,473 5,046,670 3,057,128 151,157,841 55,827,364 93,824,559 3,057,128 151,157,841 55,827,364 93,824,559 296,312,143 296,312,143 574,145,880 574,145,880 OF Balance as per the financial statement 2017 PTF Maximum exposure Balance as per the financial statement Maximum exposure --------------------------------------------------- (Rupees) --------------------------------------------------- Term deposits Other receivables including Qard-e-Hasna to PTF Takaful/ retakful receivable Salvage recoveries accrued Receivable from TPL Insurance Limited Bank balances 208 Maximum exposure Transforming Imagination Through Digitization 75,000,000 75,000,000 5,000,000 5,000,000 204,908,282 - 204,908,282 - 190,121,088 40,253,650 190,121,088 40,253,650 14,306,989 10,970,789 305,186,060 14,306,989 10,970,789 305,186,060 102,674,658 338,049,396 102,674,658 338,049,396
  211. ANNUAL REPORT 2018 WINDOW TAKAFUL OPERATIONS NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 26 .1.3 Past due / impaired assets Age analysis of premium due but unpaid at the reporting date was: PTF 2018 2017 --------------- (Rupees) --------------0-90 days Over 90 days 103,396,551 47,761,290 147,510,151 42,610,937 Total 151,157,841 190,121,088 The above balance is considered good and is not impaired. 26.1.4 Credit Rating and Collateral The credit quality of Company's bank balances can be assessed with reference to external credit rating as follows: OF Rating Rating Long term Agency AA+ AA+ AA A+ A A- PACRA JCR-VIS JCR-VIS JCR-VIS PACRA JCR-VIS ............................... Rupees) ................................ 2018 2017 1,376,293 2,712,050 958,327 - 75,000,000 9,538,812 916,791 515,186 5,046,670 85,970,789 PTF Rating Rating ............................... Rupees) ................................ Long term Agency 2018 AA+ AA+ AA AAA+ A+ A- PACRA JCR-VIS JCR-VIS JCR-VIS PACRA JCR-VIS JCR-VIS 74,945 50,868,287 23,999,670 18,688,630 150,193,027 5,000,000 17,753,026 38,005,079 46,805,186 111,367 - 243,824,559 107,674,658 2017 The Operator enters into re-takaful / co-takaful arrangements with re-takaful / other takaful operators having sound credit ratings accorded by reputed credit rating agencies. The Operator is required to comply with the requirements of circular no. 32 / 2009 dated October 27, 2009 issued by SECP which requires an insurance company to place at least 80% of their outward treaty cessions with reinsurers rated 'A' or above by Standard & Poors with the balance being placed with entities rated at least 'BBB' by reputable ratings agency. An analysis of re-takaful assets relating to outward treaty cessions recognised by the rating of the entity from which it is relates is as follows: 209
  212. WINDOW TAKAFUL OPERATIONS NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 PTF Rating Prepaid re-takaful ceded 26 .1.5 2018 2017 --------------- (Rupees) --------------- A or above (including PRCL) 34,510,941 16,078,846 Concentration of credit risk Concentration of credit risk arises when a number of counterparties have a similar type of business activities. As a result, any change in economic, political or other conditions would effect their ability to meet contractual obligations in similar manner. The Operator manages concentration of credit risk through diversification of activities among individuals, groups and industry segments. Sector-wise analysis of contribution due but unpaid at the reporting date was: (Rupees) Individuals Corporate 26.1.6 PTF PTF 2018 2017 % (Rupees) % 13,648,710 137,509,131 9% 91% 15,006,457 175,114,631 8% 92% 151,157,841 100% 190,121,088 100% Settlement risk The Operator’s activities may give rise to risk at the time of settlement of transactions. Settlement risk is the risk of loss due to the failure of an entity to honour its obligations to deliver cash, securities or other assets as contractually agreed on sale. This risk is addressed more or less in accordance with the parameters set out in the credit risk management above. 26.2 Liquidity risk Liquidity risk is the risk that the Operator will encounter difficulty in meeting its financial obligations as they fall due. Liquidity risk arises because of the possibility that the Operator could be required to pay its liabilities earlier than expected or may face difficulty in raising funds to meet commitments associated with financial liabilities as they fall due. 26.2.1 Management of liquidity risk The Operator’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Operator's reputation. Due to nature of the business, the Operator maintains flexibility in funding by maintaining committed credit lines available. The Operator’s liquidity management involves projecting cash flows and considering the level of liquid assets necessary to fulfil its obligation; monitoring balance sheet liquidity ratios against internal and external requirements and maintaining debt financing plans. 26.2.2 Maturity analysis of assets and liabilities The table below analyses the Operator's financial liabilities into relevant maturity groupings based on the remaining period at the balance sheet date to maturity date and represents the undiscounted cash flows. The amounts in the table are the gross nominal undiscounted cash flows (including profit payments). 210 Transforming Imagination Through Digitization
  213. ANNUAL REPORT 2018 WINDOW TAKAFUL OPERATIONS NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 OF 2018 Carrying Upto one More than amount year one year ---------------------------------------- (Rupees) ---------------------------------------ASSETS Other receivables including Qard-e-Hasna to PTF Accrued Investment Income Deferred commission expense Bank balances 291,265,473 24,310 73,685,941 5,046,670 143,125,473 24,310 73,685,941 5,046,670 148,140,000 - Total assets 370,022,394 221,882,394 148,140,000 LIABILITIES Unearned Wakala Fee Other creditors and accruals Payable to TPL Insurance Limited Taxation - payments less provision 120,781,703 17,834,328 201,785,504 30,422,807 120,781,703 17,834,328 201,785,504 30,422,807 - Total Liabilities 370,824,342 370,824,342 - - OF 2017 Carrying Upto one More than amount year one year ---------------------------------------- (Rupees) ---------------------------------------ASSETS Investments Term deposits Other receivables including Qard-e-Hasna to PTF Accrued Investment Income Deferred commission expense Receivable from TPL Insurance Limited Bank balances 75,000,000 75,000,000 204,908,282 663,014 43,955,293 14,306,989 10,970,789 45,708,282 663,014 43,955,293 14,306,989 10,970,789 159,200,000 - Total assets 349,804,367 190,604,367 159,200,000 LIABILITIES Unearned Wakala Fee Other creditors and accruals Taxation - payments less provision 173,113,525 30,029,429 31,124,874 173,113,525 30,029,429 31,124,874 - Total Liabilities 234,267,828 234,149,932 - - 211
  214. WINDOW TAKAFUL OPERATIONS NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 PTF 2018 ASSETS Investments Mutual Funds Government Securities Debt securities Term deposits Other receivables including Qard-e-Hasna to PTF Accrued Investment Income Takaful / retakaful receivable Retakaful recoveries against outstanding claims Salvage recoveries accrued Deferred Wakala expense Prepayments Bank balances Carrying Upto one More than amount year one year --------------------------------------- (Rupees) --------------------------------------82,945,792 100,278,988 20,000,000 150,000,000 82,945,792 100,278,988 20,000,000 150,000,000 - 3,057,128 4,386,460 151,157,841 3,057,128 4,386,460 151,157,841 - 3,230,000 55,827,364 120,781,703 100,218,439 93,824,559 3,230,000 55,827,364 120,781,703 100,218,439 93,824,559 - Total assets 885,708,274 885,708,274 - LIABILITIES PTF Underwriting provisions Outstanding claims (including IBNR) Unearned contribution reserve Unearned retakaful commission Qard-e-Hasna Contribution received in advance Takaful / retakaful payable Other creditors and accruals Payable to TPL Insurance Limited 139,070,744 511,363,901 4,727,505 246,900,000 4,066,280 67,060,239 64,090,456 18,706,959 139,070,744 511,363,901 4,727,505 98,760,000 4,066,280 67,060,239 64,090,456 18,706,959 148,140,000 - 1,055,986,084 907,846,084 148,140,000 Total Liabilities PTF 2017 ASSETS Investments Mutual Funds Term deposits Amounts due from other takaful / retakaful operators Salvage recoveries accrued Deferred Wakala expense Prepayments Bank balances Total assets 212 Transforming Imagination Through Digitization Carrying Upto one More than amount year one year --------------------------------------- (Rupees) --------------------------------------63,856,353 5,000,000 63,856,353 5,000,000 - 190,121,088 40,253,650 173,113,525 77,123,012 102,674,658 190,121,088 40,253,650 173,113,525 77,123,012 102,674,658 - 652,142,286 652,142,286 -
  215. ANNUAL REPORT 2018 WINDOW TAKAFUL OPERATIONS NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 PTF 2017 LIABILITIES PTF Underwriting provisions Outstanding claims (including IBNR) Unearned contribution reserve Unearned retakaful commission Qard-e-Hasna Contribution received in advance Takaful / retakaful payable Other creditors and accruals Payable to TPL Insurance Limited Carrying Upto one More than amount year one year --------------------------------------- (Rupees) --------------------------------------- Total Liabilities 26.3 98,896,694 477,955,216 1,040,281 199,000,000 1,661,239 44,251,205 16,383,382 14,608,835 98,896,694 477,955,216 1,040,281 39,800,000 1,661,239 44,251,205 16,383,382 14,608,835 159,200,000 - 853,796,852 694,596,852 159,200,000 Market risk Market risk is the risk that changes in market prices, such as profit rates, equity prices, foreign exchange rates and credit spreads (not relating to changes in the obligor’s/issuer’s credit standing) will effect the Operator’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return on risk. The Operator is exposed to profit rate risk, currency risk and other price risk. 26.3.1 Profit rate risk Profit rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market profit rates. Profit rate exposure arises from balances held in profit and loss sharing accounts with reputable banks and government securities. The Operator limits profit rate risk by monitoring changes in profit rates. Other risk management procedures are the same as those mentioned in the credit risk management. 26.3.1.1 Sensitivity analysis At the balance sheet date the profit rate profile of the Operator’s profit-bearing financial instrument are as follows: OF 2018 Financial assets Assets subject to fixed rate - Bank deposits Assets subject to variable rate - Bank balances 2017 Effective profit rate (in %) - 5.50% to 5.75% 5.00% to 7.00% 3.50% to 5.00% 2018 2017 (Rupees) - 5,046,670 75,000,000 10,970,789 213
  216. WINDOW TAKAFUL OPERATIONS NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 PTF 2018 2017 Effective interest rate (in %) Financial assets 2018 2017 (Rupees) Assets subject to fixed rate - Government Securities - Term deposits 6.00% to 6.50% 9.00% to 9.50% 5.50% to 5.75% 100,278,988 150,000,000 5,000,000 Assets subject to variable rate - Debt Securities - Bank balances 12.00% - 13.00% 5.00% to 7.50% 3.50% to 5.60% 20,000,000 93,824,559 102,563,291 Fair value sensitivity analysis for fixed rate instruments: The Operator does not account for any fixed rate financial assets at fair value through profit and loss. Therefore, a change in interest rates at the reporting date would not affect profit and loss account and Fund of the Operator. Cash flow sensitivity analysis for variable rate instruments: The Operator is exposed to cash flow profit rate risk in respect of its balances with profit and loss sharing account with banks. A hypothetical change of 100 basis points in profit rates at the reporting date would have decreased / (increased) profit for the year by the amounts shown below. It is assumed that the changes occur immediately and uniformly to each category of instrument containing interest rate risk. Variations in market interest rates could produce significant changes at the time of early repayments. For these reasons, actual results might differ from those reflected in the details specified below. The analysis assumes that all other variables remain constant. 2018 Profit and loss 100 bps Increase Decrease 2017 Profit and loss 100 bps Increase Decrease ----------(Rupees )---------Cash flow sensitivity 2,000,000 ----------(Rupees )---------- OF (2,000,000) 1,097,079 (1,097,079) 10,256,329 (10,256,329) PTF Cash flow sensitivity 26.3.1.2 9,382,456 (9,382,456) Exposure to interest rate risk A summary of the Operator’s interest rate gap position, categorised by the earlier of contractual re-pricing or maturity date, is as follows: OF 2018 Mark-up / return (%) less than 1 year Assets Term Deposits Cash and bank deposits 5.00% to 7.00% - Total interest sensitivity gap 214 More than 5 years Total ---------------------------------------------- (Rupees) ---------------------------------------------- Total assets Liabilities 1 year to 5 years Transforming Imagination Through Digitization - - - 5,046,670 - - 5,046,670 5,046,670 - - 5,046,670 - - - - 5,046,670 - 5,046,670
  217. ANNUAL REPORT 2018 WINDOW TAKAFUL OPERATIONS NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 OF 2017 Mark-up / return (%) less than 1 year More than Total 1 year to 5 years 5 years ----------------------------------------------- (Rupees) ---------------------------------------------- Assets Term Deposits Cash and bank deposits 3.50% - 5.75% 75,000,000 - - 75,000,000 3.50% - 5.75% 10,970,789 - - 10,970,789 85,970,789 Total assets 85,970,789 Liabilities - Total interest sensitivity gap 85,970,789 - - - - - - 85,970,789 PTF 2018 Mark-up / return (%) Assets Investment in: Government Securities Debt Securities Term Deposits Bank deposits less than 1 year More than Total 1 year to 5 years 5 years ----------------------------------------------- (Rupees) ---------------------------------------------- 6.00% to 6.50% 12.00% - 13.00% 9.00% to 9.50% 5.00% - 9.50% Total assets Liabilities - Total interest sensitivity gap 100,278,988 20,000,000 150,000,000 93,824,559 - - 100,278,988 20,000,000 150,000,000 93,824,559 364,103,547 - - 364,103,547 - - - - 364,103,547 364,103,547 PTF 2017 Mark-up / return (%) less than 1 year More than Total 1 year to 5 years 5 years ----------------------------------------------- (Rupees) ---------------------------------------------- Assets Term Deposits Bank deposits 3.50% - 5.75% 3.50% - 5.75% Total assets Liabilities Total interest sensitivity gap 26.3.2 - 5,000,000 102,674,286 - - 5,000,000 102,674,286 107,674,286 - - 107,674,286 - - - - 107,674,286 107,674,286 Price risk Price risk represents the risk that the fair value of a financial instrument will fluctuate because of changes in the market prices (other than those arising from interest/mark up rate risk or currency risk), whether those changes are caused by factors specific to the individual financial instrument or its issuer, or factors affecting all or similar financial instruments traded in the market. the Operator is not exposed to any price risk at the balance sheet date as it has no financial instrument that is linked to market price. 26.3.3 Foreign currency risk Foreign currency risk is the risk that the fair value or future cash flows of financial instruments will fluctuate because of changes in foreign exchange rates. The Operator, at present is not materially exposed to currency risk as majority of the transactions are carried out in Pak Rupees. 215
  218. WINDOW TAKAFUL OPERATIONS NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 26 .4 Fund management The Operator's objective when managing capital is to safe guard the Operator's ability to continue as a going concern so that it can continue to provide returns for shareholders and benefits for other stakeholders and to maintain a strong capital base to support the sustained development of its businesses. The Operator manages its fund structure by monitoring return on net assets  and makes adjustments to it in the light of changes in economic conditions. 27. STATEMENT OF SOLVENCY 31 December 2018 Assets Investments Mutual Funds Government Securities Debt Securities Term deposits Other Receivable Accrued investment income Takaful/ retakaful receivable Retakaful recoveries against outstanding claims Salvage recoveries accrued Deferred Wakala expense Accrued investment income Prepayments Bank balances Total assets (A) 31 December 2017 (Rupees ) 82,945,792 100,278,988 20,000,000 150,000,000 3,057,128 4,386,460 151,157,841 3,230,000 55,827,364 120,781,703 100,218,439 93,824,559 885,708,274 63,856,353 5,000,000 190,121,088 40,253,650 173,113,525 77,123,012 102,674,658 652,142,286 11,929,325 36,924,654 48,853,979 38,126,701 42,610,937 80,737,638 836,854,295 571,404,648 1,055,986,084 (219,131,789) 246,900,000 27,768,211 853,796,852 (282,392,204) 199,000,000 (83,392,204) In-admissible assets as per following clauses of section 32(2) of the Insurance Ordinance, 2000 Mutual Funds Takaful / retakaful receivable Total of In-admissible Assets (B) Total of admissible Assets (C=A-B) Total liabilities including Qard-e-Hasna Net deficit as at 31 December Deficit already financed by Qard-e-Hasna 28. GENERAL 28.1 Figures have been rounded off to the nearest Rupee. 29. DATE OF AUTHORIZATION FOR ISSUE These financial statements have been authorised for issue on 21 February 2019 by the Board of Directors of the Operator. Director 216 Director Transforming Imagination Through Digitization Chief Financial Officer Chief Executive Officer Chairman
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  221. ANNUAL GENERAL MEETING 9 .1 9.2 9.3 NOTICE OF ANNUAL GENERAL MEETING STATEMENT OF MATERIAL FACTS PROXY FORM 219
  222. 9 .1 - NOTICE OF ANNUAL GENERAL MEETING Notice is hereby given that the Annual General Meeting (“AGM”) of the members of TPL Insurance Limited (“Company”) will be held on Wednesday, April 24, 2019 at 11:00 a.m., at Avari Towers Hotel Fatima Jinnah Road Karachi, to transact following business: ORDINARY BUSINESS 1. To approve the minutes of the Annual General Meeting held on April 19, 2018. 2. To receive, consider and adopt Annual Audited Financial Statements of the Company together with the Chairman’s Review Report, Directors’ and Auditors’ reports thereon for the year ended December 31, 2018. 3. To appoint Auditors for the year ending December 31, 2019 and fix their remuneration. Messrs EY Ford Rhodes., Chartered Accountants, retire and being eligible have offered themselves for re-appointment. 4. To consider and approve the interim cash dividend paid at Rs. 2 per share i.e. 20%. 5. To consider and approve the interim dividend by way of bonus shares issued at 13%. SPECIAL BUSINESS: 6. Investment in the Associated Company To consider and, if thought fit, pass resolution pursuant to Section 199 of the Companies Act, 2017 for increase in amount of advance to TPL Trakker Limited to PKR. 300 Million to guarantee supply of tracking services and to pass the following resolution as Special Resolution, with or without modification: “RESOLVED THAT pursuant to Section 199 of the Companies Act 2017, the advance of Rs. 300 Million to the Associated Company, TPL Trakker Limited be and is hereby approved.” FURTHER RESOLVED that the, Chief Executive Officer, and the Company Secretary of the Company, be and are hereby authorized to singly take all steps necessary, as may be required in respect of the aforementioned advance and all other matters incidental and / or ancillary thereto”. ANY OTHER BUSINESS: 7. To consider any other business with the permission of Chairman. By Order of the Board Danish Qazi Company Secretary 220 Transforming Imagination Through Digitization Dated: April 3, 2019
  223. ANNUAL REPORT 2018 Notes : 1) The Share Transfer Books of the Company will be closed from April 16, 2019 to April 24, 2019 (both days inclusive). 2) A Member entitled to attend and vote at the AGM is entitled to appoint another person as proxy to attend and vote instead of him. The Proxy Forms, in order to be effective, must be received at the Registrar of the Company M/s THK Associates (Pvt.) Ltd, 1st Floor, 40-C, Block-6, P.E.C.H.S, KARACHI-75400., not less than 48 hours before the Meeting. 3) For identification, CDC account holders should present the participant’s National Identity Card, and CDC Account Number and in case of proxy must enclose an attested copy of his/her CNIC. The representatives of corporate bodies should bring attested copy of Board of Directors Resolution/ Power of Attorney and/or all such documents as are required under Circular No. 1 dated 26 January 2000 issued by Securities & Exchange Commission of Pakistan for this purpose. 4) Members are requested to timely notify any change in their addresses and provide copies of their CNIC /NTN (if not provided earlier) to Company’s Registrar / Share Transfer Agent, M/s. THK Associates (Pvt.) Limited, 1st Floor, 40-C, Block-6, P.E.C.H.S, Karachi-75400. 5) The Company shall provide video conference facility to its members for attending the General Meeting at places other than the town in which general meeting is taking place after considering the geographical dispersal of its members: provided that if members, collectively holding 10% or more shareholding residing at a geographical location, provide their consent to participate in the meeting through video conference at least 10 days prior to date of the meeting, the Company shall arrange video conference facility in that city subject to availability of such facility in that city. The Company will intimate members regarding venue of video-link facility at least 5 days before the date of the AGM along with complete information necessary to enable them to access the facility. In this regard, please fill the following form and submit to registered address of the Company 10 days before holding of the AGM:- I/We, _____________________ of __________________ being a member of TPL Insurance Limited, holder of ________ Ordinary shares as per Register Folio No.________ hereby opt for video conference facility at _______________________. _____________________________ Signature of member 6) Members are requested to immediately notify the change, if any, in their registered address/contact numbers to the Share Registrar on the following address: THK Associates (Pvt) Limited, 1st Floor, 40-C, Block-6, P.E.C.H.S, Karachi-75400. 221
  224. 9 .2 - STATEMENT OF MATERIAL FACTS UNDER SECTION 134 OF THE COMPANIES ACT, 2017 This statement set out the material facts concerning the Special Business to be transacted at the Annual General Meeting of the Company to be held on Wednesday April 24, 2019. Agenda Item No. 6 Authorization of increase in advance to TPL Trakker Limited TPL Insurance Limited (the Company) is desirous to renew the advance to TPL Trakker Limited which was subject to a maximum amount of Rs. 200 million initially approved by the Board of Directors on August 15, 2017 and increase the said amount to Rs. 300 million. The outstanding balance of advance to TPL Trakker Limited as at December 31, 2018 amounts to Rs. 200 million. Markup will be charged at a rate equivalent of 1 year KIBOR + 3.5% subject to a floor of 10% of the outstanding principal balance. The above renewal and increase in amount of advance to Rs. 300 million has been approved by the Board of Directors of the Company in their meeting held on February 21, 2019. The information required to be annexed to the Notice by Notification No. SRO 27(I)/2012 dated 16th January 2012 is set out below: Name along with the basis of relationship of the associated company / undertaking; TPL Trakker Limited, an associated company with a common directorship: Mr. Ali Jameel is Director of the Company and TPL Insurance Limited). Amount of loans or advances Up to Rs.300 million Purpose of loans or advances and benefits likely to accrue to the investing company and its members from such loans or advances; For uninterrupted supply of tracking units and its monitoring services to the company. In case any loan has already been granted, the complete details thereof Advances on account of rentals of tracking units. Financial position of the associated company The extracts of the unaudited balance sheet and profit and loss account of the associated company as at and for the period ended 31st December 2018 is as follows: Balance Sheet 222 Transforming Imagination Through Digitization Rupees Non-current assets 2,212,773,954 Other assets 2,619,499,014 Total Assets 4,832,272,969 Total Liabilities 3,544,260,692
  225. ANNUAL REPORT 2018 Balance Sheet Rupees Represented by : Paid up capital 929,262,525 Unappropriated profit / (losses) 130,781,144 Surplus on Revaluation of Fixed Assets 227,968,607 Equity 1,288,012,276 Profit and Loss Profit before interest and taxation 142,940,658 Financial charges 121,758,577 Profit before taxation 21,182,081 Taxation 17,339,738 Profit after taxation Average borrowing cost of the investing company or in case of absence of borrowing the KIBOR (Karachi Inter Bank Offered Rate) for the relevant period 1 year KIBOR+3.5% with Floor of 10% Rate of interest, mark up, profit, fees or commission etc. to be charged; 1 year KIBOR+3.5% with Floor of 10% Sources of funds from where loans or advances will be given Own funds Where loans or advances are being granted using borrowed funds: a) justification for granting loan or advance out of borrowed funds; b) detail of guarantees / assets pledged for obtaining such funds, if any; and c) repayment schedules of borrowing of the investing company Not applicable. Particulars of collateral security to be obtained against loan to the borrowing company or undertaking, if any; The advance is unsecured. 3,842,343 223
  226. Earnings per Share of investee company for the past 3 years June 2018 : Rs. 1.61 per share June 2017: Rs. 0.26 per share June 2016: Rs. 0.28 per share Break-up Value Per Share of the investee company for the past 3 years June 2018: Rs. 19.92 per share June 2017: Rs. 14.68 per share June 2016: Rs. 13.55 per share In case any investment in associated company or associated undertaking has already been made, the performance review of such investment including complete information/justification for any impairment or write offs; and Not applicable If the loans or advances carry conversion feature i.e. it is convertible into securities, this fact along with complete detail including conversion formula, circumstances in which the conversion may take place and the time when the conversion may be exercisable; Not applicable. Repayment schedule and terms of loans or advances to be given to the investee company The advance shall be set off with the monthly rental expenses over the period as per the invoicing by the investee company. Salient feature of all agreements entered or to be entered with its associated company/undertaking with regards to proposed investment The Company has entered into cost sharing agreement with TPL Trakker Limited to obtain synergies. Interest, direct or indirect, of directors, sponsors, majority shareholders and their relatives, if any, in the associated company/undertaking or the transaction under consideration Mr. Ali Jameel, the Director of the Company, is also a Director of TPL Trakker Limited. Any other important details necessary for the members to understand the transaction; and These have been explained above. In case of investment in a project of an associated company / undertaking that has not commenced operations, in addition to the information referred to above, the following further information is also required: a) a description of the project and its history since conceptualization; b) starting date and expected date of completion; c) time by which such project shall become commercially operational; d) expected return on total capital employed in the project; and e) funds invested or to be invested by the promoters distinguishing between cash and non-cash amounts; Not applicable. 224 Transforming Imagination Through Digitization
  227. ANNUAL REPORT 2018 9 .3 - PROXY FORM PROXY FORM I/We ____________________________________________________________________, of ____________________________________ being a member of TPL Insurance Limited hereby appoint, ____________________________________ of ______________________ or failing him ________________________________ of __________________________ as my proxy to vote for me and on my behalf at the Annual General Meeting of the Company to be held on the 24th Day of April, 2019 and at any adjournment thereof. Signed the ______________________________ day of ______________________________ 2019. 1. Signature Name Address CNIC or Passport No. 2. Signature Revenue Stamp Signature Name Address (Signature should agree with specimen signature registered with the Company) CNIC or Passport No. Share holders Folio No. and/or CDC Participant ID No. and Sub Account No. 225
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  231. GLOSSARY 229
  232. GLOSSARY S .No Term Designation 1 Actuary An actuary is a professional who assesses and manages the risks of financial investments, insurance policies and other potentially risky ventures. 2 Actuarial Valuations A determination by an actuary at a special date of the value of a insurance Company's assets and its liabilities. 3 Amortization The process of allocating the cost of an intangible asset over a period of time. It also refers to the repayment of loan principal over time. 4 Authorized Share Capital The maximum value of share that a Company can legally issue. 5 Book Value The value of an asset as entered in a company’s books. 6 Capital Reserves Any reserve not regarded free for distribution by way of dividends. 7 Cedant Client of a reinsurance company. 8 Combined Ratio Percentage ratio of the sum of net claims plus management expenses and net commission to net earned premiums. It corresponds to the sum of the loss ratio, commission ratio and the expense ratio. 9 Commission Remuneration to an intermediary for services such as selling and servicing an insurer's products. 10 Claims The amount payable under a contract of insurance arising from occurrence of an insured event 11 Claims Incurred The aggregate of all claims paid during the accounting period together with attributable claims handling expenses, where appropriate, adjusted by the gross claims reserve at the beginning and end of the accounting period. 12 Corporate Social Responsibility Is a process with the aim to embrace responsibility for the company's actions and encourage a positive impact through its activities on the environment, consumers, employees, communities, and all other members of the public who may also be considered as stakeholders. 13 CPEC The China-Pakistan Economic Corridor (OPEC] is a collection of infrastructure projects currently under construction throughout Pakistan. 14 Deferred Commission Expenses which vary with and are primarily related to the acquisition of new insurance contracts and renewal of existing contracts, which are deferred as they relate toe period of risk subsequent to the Balance Sheet data. 15 Deferred Tax An accounting concept (also known as future income taxes), meaning a future tax liability or asset in respect of taxable temporary differences. 16 Depreciation Is the systematic allocation of the cost of an asset over its useful life. 17 Doubtful debts Is a debt where circumstances have rendered its ultimate recovery uncertain. 18 Earnings per share Amounts for profit or loss attributable to ordinary shareholders of the entity. 19 Fair Value The amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing business partners in an arm's length transaction. 20 General Insurance All kind of Insurance except Life Insurance. i.e.,Fire. Marine. Motor and Other Insurance. 21 General Takaful Protection to participants for losses arising from perils such accident, fire, flood, liability and burglary. 22 Gross contribution It is the payment of an amount by a participant to the Takaful Participant Fund, whether direct, through intermediaries for the purpose of mutual protection and assistance. 23 Gross Written Premium Premium which an insurer is contractually entitled to receive from the insured in relation to contracts of insurance 24 Impairment The amount by which the carrying amount of an asset or a cash-generating unit exceeds its recoverable amount. 25 Incurred but not reported (IBNR) Claim incurred but not reported to the insurer until the financial statements reporting date. 26 Insurance Contracts A contract under which one party (the insurer) accepts significant insurance risk from another party (the policyholder) by agreeing to compensate the policyholder for a specified uncertain future event. 27 Intangibles An identifiable non-monetary asset without physical substance. 230 Transforming Imagination Through Digitization
  233. ANNUAL REPORT 2018 S .No Term Designation 28 Internal Control An accounting procedure or system designed to promote efficiency or assure the implementation of a policy or safeguard assets or avoid fraud and error etc. 29 KIBOR (Karachi Interbank Offered Rate) Interbank lending / borrowing rates quoted by the banks 30 Loss Ratio Percentage ratio of claims expenses to net premium. 31 Market Share The portion of a market controlled by a particular company or product. 32 Market Value The highest estimated price that a buyer would pay and a seller would accept for an item in an open and competitive market 33 MIS Management Information System. 34 Mutual fund A type of professionally managed investment fund that pools money from many investors to purchase securities 35 National Exchequer The account into which tax funds and other public funds are deposited. 36 Net Asset Value The value of Total Assets less Current Liabilities. 37 Net Contributions Gross Contributions less all re-takaful contributions payable. 38 Net Premium Revenue Gross written premium less Reinsurance expense. 39 None-life Insurance Non-Life Insurance and General Insurance have the identical meaning. 40 Outstanding Claims A type of technical reserve or accounting provision in the FinancialStatements of an Insurer to provide for the future liability or claims. 41 Paid up Capital The amount of money a company has received from shareholders in exchange for shares of stock. 42 Pakistan Investment Bonds Long term instruments issued by the Government of Pakistan. 43 Participant's Takaful Fund (PTF) Waqf Fund An account to credit a portion of contribution from the participant for the purpose of Tabarru'. 44 Premium Amount that has to be paid by the insured for the cover provided by the Insurer. 45 Proxy Power of Attorney by which the Shareholder transfers the voting rights to another shareholder. 46 Qard-e-Hasna Interest Free Loan from Takaful Operator to the Takaful Participant Fund in order to meet any shortfall in the Fund. 47 Quoted Being listed on a Stock Exchange. 48 Registered Office The registered office is an address which is registered with the government registrar as the official address of a company. 49 Reinsurance A method of insurance arranged by insurers to share the exposure of risks accepted. 50 Re-Tekaful The arrangement under which a part of the risk is shared between the companies originally issuing the policy (the takaful operator] to another Takaful company (Re-Takeful) known as the re-takaful 51 Reinsurance Commission Commission received or receivable in respect of premium paid or payable tea reinsurer. 52 Reinsurance Premium The premium payable to the reinsurer in respect of reinsurance contract. 53 Related Party Parties are considered to be related if one party has the ability to control the other party or exercise significant influence over the other party in making financial and operating decisions. 54 Retrocession Transfer of risk from a reinsurer to another reinsurer. 55 Revenue Reserves Reserve that is normally regarded as available for distribution through the profit and loss account, including general reserves and other specific reserves created out of profit and unappropriated profit. 56 Risk Condition in which there is a possibility of loss. 57 Risk Management Includes analyzing all exposures to gauge the likelihood of loss and choosing options to better manage or minimize loss. 231
  234. S .No Term Designation 58 Statutory levies Fee charged (levied) by a government on a product, income, or activity. 59 Strategic Objectives A broadly defined objective that an organisation must achieve to make its strategy succeed. 60 Subsequent Event Are events concerning conditions which arose after the balance sheet date, but which may be of such materiality that their disclosure is required to ensure that the financial statements are not misleading. 61 Takaful An Islamic concept of insurance. 62 Tekeful Operator A legal entity, who underwrites, administers and manages the Takaful program on behalf of the participants. 63 Takaful Policy The agreement entered into between the operator and the participant(s) for the purposes of Takaful arrangements. 64 Tangibles An asset whose value depends on particular physical properties. 65 Underwriting Profit This is the profit generated purely from the General Insurance business without taking into account the investment income and other nontechnical income and expenses. 66 Unearned Premium It represents the portion of premium already entered in the accounts as due but which relates toa period of risk subsequent tothe Balance Sheet date. 67 Wakala Islamic terminology for agent-principal relationship, where a person nominates another to act on his behalf. 232 Transforming Imagination Through Digitization
  235. ANNUAL REPORT 2018 233
  236. 94 .23% 88,452,950 0.14% 126,781 0.48% 454,290 4.22% 3,965,691 0.19% 171,272 0.74% 695,277 100% 93,866,261 3 6 5 1 6 6 2 2 234 Transforming Imagination Through Digitization
  237. ANNUAL REPORT 2018 235
  238. 2013 236 2014 2015 2016 2017 2018 153 .2 49.9 101.4 1,056.7 1,213.3 1,026.3 169.1 313.5 384.7 357.3 58.0 112.9 19.1 4.8 - - 21.4 7.6 108.4 89.8 753.5 240.8 247.2 251.9 625.7 844.8 988.8 1,017.8 1,419.8 1,412.4 1,075.5 1,302.8 2,228.4 2,672.6 2,959.7 2,811.1 568.0 756.0 969.9 1,247.9 1,383.6 1,447.5 68.7 80.1 315.4 377.7 462.8 423.4 636.7 836.1 1,285.3 1,625.6 1,846.4 1,870.9 Transforming Imagination Through Digitization
  239. ANNUAL REPORT 2018 2013 2014 2015 2016 2017 2018 452 .3 452.3 893.8 893.8 893.8 946.7 -13.5 12.4 45.7 148.9 253.9 16.9 0.0 0.0 1.6 2.3 (26.4) (26.7) 438.8 464.8 941.2 1,045.0 1,121.3 936.9 153.2 49.9 727.0 821.8 1,069.5 673.1 169.1 308.7 384.7 361.2 79.4 122.1 19.1 4.8 0.0 0.0 21.4 7.5 108.4 9.0 16.6 176.4 133.6 153.0 625.8 815.9 551.6 602.0 861.2 925.6 - 81.4 190.7 318.9 335.5 370.0 1,075.5 1,269.8 1,870.6 2,280.2 2,500.6 2,251.3 568.0 695.9 693.9 831.0 805.7 792.2 68.7 81.6 129.9 226.1 339.3 353.1 - 27.5 105.7 178.1 234.3 166.0 636.7 805.0 929.4 1,235.2 1,379.3 1,314.4 2013 2014 2015 2016 2017 2018 452.3 452.3 893.8 893.8 893.8 946.7 (13.5) 14.4 47.7 150.9 255.9 18.9 - 1.6 2.3 (36.4) (25.4) 943.1 1,047.0 1,113.3 940.2 438.8 466.7 237
  240. 2013 2014 2016 2017 2018 869 .9 1,156.0 1,171.3 1,370.2 1,383.7 1,350.1 733.5 1,042.9 1,129.3 1,204.4 1,299.5 1,264.0 (619.9) (965.1) (1,074.4) (1,153.7) (1,133.0) (1,107.6) 113.6 77.8 54.9 50.7 166.5 156.4 74.3 93.1 140.5 181.5 171.3 215.5 (109.6) (135.2) (160.1) (118.9) (222.0) (245.2) 78.4 35.7 35.2 113.3 115.8 126.7 - 3.2 10.4 35.5 47.5 (112.2) 78.4 38.9 45.6 148.8 163.3 14.5 51.5 25.9 33.3 103.2 105.0 3.6 2013 238 2015 2014 2015 2016 2017 2018 869.9 1,220.8 1,635.5 2,054.5 2,292.7 2,408.7 733.5 1,056.4 1,419.2 1.750.5 2,068.8 2,246.6 (619.9) (956.6) (1,419.8) (1,634.3) (1,831.9) (1,967.4) 113.6 99.8 (0.6) 116.2 236.9 279.2 74.3 92.7 142.8 106.8 60.9 70.7 (109.6) (155.5) (160.1) (141.0) (204.3) (315.3) 78.4 37.0 (7.5) 82.0 93.5 34.6 51.5 24.0 (19.9) 36.4 35.2 23.7 Transforming Imagination Through Digitization
  241. ANNUAL REPORT 2018 200 148 .8 150 100 163.3 78.4 38.9 50 45.6 14.5 0 2013 2014 2015 2016 2017 2018 Profit Before Tax (Rs. In Million) 239
  242. 240 43 % 2013 50% 2014 47% 2015 46% 2016 43% 2017 43% 2018 Transforming Imagination Through Digitization 23% 869.9 2013 40% 1,220.8 2014 34% 1,635.5 2015 26% 2,054.5 2016 12% 2,292.7 2017 5% 2,408.7 2018
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