SECTION 7.

Insurance Industry
7.0 INSURANCE INDUSTRY

7.1 Global Insurance

7.1.1 Overview of the Global Insurance Market

In 2013, the global insurance industry encountered a combination of turmoil, economic uncertainty and opportunity that it
has never faced before. Although the US congress agreed to a deal that eventually softens the fiscal cliff and with several
European countries evading bankruptcy, decline in consumer savings still remains a looming concern in the global
insurance industry. Furthermore, prevailing lower interest rates may compel the investment returns to remain relatively
weak. At the end of 2013, the global insurance industry size amounts to USD 4.64 Tn in terms of the total premium volume.

“Life and Non-life Insurance: Slower growth in 2013”

Direct premiums written in the global insurance industry grew by 1.4% in 2013 to USD 4,641 Bn, down from 2.5% growth in
2012. Emerging markets' premiums grew by 7.4% in 2013, slightly stronger than the previous year, however in the advanced
markets the premium growth stagnated at 0.3%.

Figure 7.1 Total real premium growth in Advanced and Emerging markets since 1980

20% Real growth rates

15%

10%

5% Total
Emerging markets
0%
Emerging markets
10-year moving average
– 5%
Advanced markets:
10-year moving average
– 10%
Advanced markets
2011

2013
1981

1983

1997

20 03

20 09
198 5

198 9

1991
1987

1993

1995

2005
2001

2007
1999

Source: World Insurance Report 2013 by Swiss Re

According to the latest statistics, United States ranks No.1 in the world in terms of the total premium volume, which is USD
1.26 Tn that represents a 27.13% market share in the world. Japan stands second with a total premium volume of USD 531
Bn attributing to a market share of 11.45%. United Kingdom ranks third with total premium of USD 329 Bn and owning a
market share of 7.1%. Sri Lanka's rank stands at 79th position with a world market share of 0.02%.

7.1.2 Global Life Insurance

“Flat sales in advanced markets slow global growth”

Global life insurance premiums written were USD 2,608 Bn in 2013 as growth slowed to 0.7% from 2.3% in 2012. The
slowdown was mainly due to flat sales in advanced markets and stronger but below-trend premium growth in the emerging
markets. In terms of Life premium volume, United States ranks No. 1 representing USD 532.8 Bn.

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7.0 INSURANCE INDUSTRY

7.1.3 Global Non-life Insurance

“Advanced markets drag on global premium growth”

Global non-life premium growth slowed to 2.3% in 2013 from 2.7% in 2012. Total premiums amounted to USD 2,033 Bn.
Premium expansion was weaker in the advanced markets. Growth also slowed in the emerging markets at 8.3%,
nevertheless stronger enough. United States ranks No.1 in terms total premium volume in non-life insurance worth of USD
726.3 Bn.

Insurance Penetration and Density

Average per capita spending on insurance in emerging markets rose to USD 129 in 2013 from USD 121 in 2012. In spending
figure of 2013, USD 67 went to life insurance and the remaining USD 62 for non-life compared with USD 64 and USD 57
respectively in 2012.

At present, Taiwan is the top ranker in terms of the total insurance penetration which is 17.6%. South Africa stands at
second with a total penetration of 15.4%. Ranking third, Hong Kong owns a penetration of 13.2%.

Figure 7.2 Insurance density and Penetration in Advance markets in 2013

Source: World Insurance Report 2013 by Swiss Re

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7.0 INSURANCE INDUSTRY

“Reaching the untapped potential in the emerging markets”

Low penetration Levels in Insurance

Insurers, faced with increased saturation in established markets, are compelled to move into emerging markets in South
East Asia, hence, many of the notable insurance providers around the world are in the process of formulating strategies to
enter into these markets and develop their direct insurance and reinsurance business and grow premium income. As
depicted on the below Table 7.1, Countries such as China, Malaysia, Philippines, Thailand, Vietnam, Indonesia and even Sri
Lanka still got potential to tap the unmet demand and to increase the insurance penetration given the current low
penetration levels.

Table 7.1 Insurance Penetration Levels in Asia

Country Population GDP 2013 USD Life Insurance General Insurance World Ranking
(2013) 'Mn 'Bn penetration 2013 penetration 2013 as per insurance
(premium % of GDP) (premium % of GDP) penetration

China 1,380.8 9,262.0 1.60% 1.40% 49

India 1,265.0 1,697.0 3.10% 0.80% 40
Malaysia 29.30 313.00 3.20% 1.70% 30
Thailand 69.30 387.00 3.80% 1.70% 26
Indonesia 240.00 872.00 1.60% 0.50% 58
Philippines 98.70 272.00 1.50% 0.50% 65
Sri Lanka 21.30 67.00 0.50% 0.70% 76
Taiwan 23.40 516.00 14.50% 3.10% 1
Vietnam 91.70 155.00 0.60% 0.70% 72
Source: World Insurance Report 2013 by Swiss Re

Current Sri Lankan Economic environment is conducive to Investment

Prevailing healthy economic conditions including the low interest rate regime and currency stability coupled with stable
political environment highlight Sri Lanka as a favourable investment opportunity to many of the foreign investors. Current
low penetration levels in the local insurance industry create significant potential for world's largest insurers to make a
strategic entry into Sri Lanka to achieve further growth. This is largely due to the stagnant growth in the developed and
matured markets.

Recently, it was evident that many of the leading insurance companies such as AIA Insurance and Fairfax Insurance have
already made their entry into Sri Lanka through acquisitions and mergers with existing local insurers. This in turn proves
the appetite of world insurers to enter into the Sri Lankan market and reap benefits while this might continue to be one of
the trends in creating growth in the Sri Lankan insurance industry.

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7.0 INSURANCE INDUSTRY

7.2 Sri Lankan Insurance Industry

7.2.1 Overview of Sri Lankan Insurance Industry
Insurance industry in Sri Lanka reflects a highly dynamic business atmosphere with rising competition amongst its member
companies and several ongoing regulatory shifts that were intended to make the industry a leading service segment in the
country's projected economic development. The industry broadly comprises of two key business sectors, namely; Life and
Non-Life insurance, and as at 31st December 2013, there were 21 member companies providing insurance services out of
which 12 are composite insurers offering both Life and Non-Life insurance. 06 insurers operate only in General insurance
while 03 insurers including AINS operates exclusively in Life insurance. The industry is mainly governed by the provisions of
the Regulation of Insurance Industry Act No 43 of 2000 and the rules and guidelines issued thereupon by the Insurance Board
of Sri Lanka (IBSL).

Figure 7.3 Composition of Insurance Business Figure 7.4 Listed insurance Companies on CSE

General Composite Life

Non-Listed Listed 36.4%
63.6%

6 12 3

Source: IBSL - Performance of the Insurance Industry for the year 2013 Source: CSE Data

Of the total 21 insurance companies in the industry, 8 companies are listed on the Colombo Stock Exchange and as a
percentage, it is 36.36%.

IBSL as the governing body of the local insurance industry has taken a number of measures to encourage all insurance
providers to get listed on the CSE to be more transparent, adopt better governance standards and to be more compliant. In
order to formalize the process, IBSL has set up a deadline by 2016 for the member companies to complete the listing on the
Stock Exchange and have also informed the composite insurers to split their business separately with the view of listing
them later on as separate entities. Meanwhile, tax incentives have also been offered under the 2014 budget to encourage
companies to expedite the listing process.

Apart from the Insurance companies, there are 59 insurance brokers as at the end of year 2013 which has increased from 55
in year 2012. Also, 38,635 insurance agents offered insurance services in 2013 compared to 36,801 in 2012. Long Term
insurance business has mainly relied on insurance agents. As at the end of year 2013, there were 1,379 branches spread
across the country and that includes 389 general insurance branches, 466 Long Term insurance branches and 524 composite
insurance branches.

7.2.2 Industry at a Glance

Over the last five years, the insurance industry in Sri Lanka has shown a significant growth (growth in Gross Written
Premiums – GWP), especially in the years of 2010 and 2011, reaching its peak levels largely fuelled by the post war boom
and also supported by a sharp increase in the vehicle registrations (2010: 15.12%, 2011: 18.47%) backed by reduced
customs duty. However, the growth was slowed down in 2012 (11.03%) and in first half 2013 (9.06%) due to the stock market
decline that affected unit-linked life products and increased customs duty along with unfavorable exchange rate
movement, hampering the rate of new vehicle registrations (Fitch,2014).

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7.0 INSURANCE INDUSTRY

Table 7.2 Insurance Premiums and Penetration Levels

Years 2009 2010 2011 2012 (a) 2013(b)

Long Term Insurance (LKR. Mn) 24,005 31,152 35,162 37,477 41,306
General Insurance (LKR. Mn) 33,548 35,101 43,329 49,694 53,177
Total Permium Income (LKR. Mn) 57,553 66,253 78,491 87,171 94,483
Growth Rate in Total Premium (%) (1.06) 15.12 18.47 11.06 8.39
Gross Domestic Production (LKR. Bn) 4,835 5,604 6,544 7,579 8,674
GDP Growth Rate (%) 3.5 8.0 8.2 6.3 7.3
Penetration % (Total Indutry Premium as % of GDP) 1.19 1.18 1.20 1.15 1.09
Penetration % (Premium of Long Term Insurance 0.50 0.56 0.54 0.49 0.48
Business as % of GDP)
Penetration % (Premium of General Insurance 0.69 0.63 0.66 0.66 0.61
Business as % of GDP)
Insurance Density - (Total Premium Income / 2,814 3,208 3,761 4,288 4,613
Population) (LKR)
Mid Year Population 20,450 20,653 20,869 20,328 20,483
No of New Life Policies issued 468,317 516,139 526,023 514,516 552,436
No of Policies in Force 2,068,548 2,214,976 2,355,449 2,438,340 2,494,899

Source: IBSL - Statistical Review 2013 (a) Reinstated Audited Figures (b) Provisional Figures

As depicted in Table 7.1, it appears that the Life insurance penetration in Sri Lanka is very low compared to other Countries
in Asia. According to the statistics provided by IBSL as indicated in the Table 7.2, The ratio of Long term insurance GWP as a
percentage of GDP was only 0.48% by the end of the first half of 2013, this was mainly due to low per capita income and lack
of public understanding about the importance of insurance as an integral part of higher standard of living.

7.2.3 Total Assets of the Insurance Industry

As of the end of the year 2013, Total insurance companies' assets amounted to LKR 356.56 Bn compared to LKR 315.82 Bn in
2012. This reflected a double digit year-on-year growth of 12.9%. By the end of 2013, the total assets of Life insurance
amounted to LKR 217 Bn and the total assets of Non-Life stood at LKR 147 Bn.

Figure 7.5 Total Assets of the Insurance Industry

LKR Mn

400,000 25.00% Total assets of

21.02% 20.81% Insurance Companies
350,000 19.31%
20.00%
300,000 16.06% Growth Rate
250,000 15.00%
200,000 12.90%

150,000 10.00%

100,000
5.00%
50,000
0.00% (a) Reinstated Audited Figures
2009 2010 2011 2012 (a) 2013 (b) (b) Provisional Figures

Source: IBSL - Statistical Review 2013

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7.0 INSURANCE INDUSTRY

7.2.4 Company Wise Analysis of Total Assets

As depicted in the Figure 7.6, Sri Lanka Figure 7.6 Market Share of Long Term Insurers by Total Assets
Insurance Corporation is the largest
insurance provider in the industry,
6.80%
attributing to 40.08% of the total assets 2.06% 40.08%
in the industry. It is notable that the 2.25% SL Insurance
biggest five insurance companies (Sri 5.12%
Lanka Insurance Corporation, Ceylinco Ceylinco
Insurance, AIA Insurance , Union AIA Insurance
8.43%
Assurance and Janashakthi Insurance)
were dominating the insurance industry Union Assurance
by sharing 88.89% of the total assets of Janashakthi
the insurance industry. The remaining
16 companies only represented 11.11% 12.38% HNB Assurance
of the total assets in the industry. Asian Alliance
Other
22.88%

Source: IBSL - Statistical Review 2013

7.2.5 Life Insurance

At present, there are 15 companies Figure 7.7 Market Share of Long Term Insurers by GWP
providing life insurance. As shown in the
Figure 7.7, Ceylinco Insurance PLC was
the Market Leader in the Life Insurance 7.38%
business in the country with a market 4.88% 26.93% Ceylinco
share of 26.93% in terms of Gross
5.21% SL Insurance
Written Premiums in 2013. Top five
companies in the Life Insurance AIA Insurance
business, accounted for 82.53% of the 6.10%
Union Assurance
market share, compared to 84.96% in
2012. It is distinguished that, the Asian Alliance
domination of the largest five Insurance Janashakthi
companies in the Life insurance is 13.35%
HNB Assurance
seemed to be losing, with the
emergence of small industry players. Other
However, it appears, that there's a 19.54%
massive potential in the Life insurance
business given the current penetration 16.62%
levels are very low. This would also
mean that the small players has a Source: IBSL - Statistical Review 2013
substantial industry potential to build-
up their market share, but would also be
subjected to intense competition given
the large number of players in the
industry.

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7.0 INSURANCE INDUSTRY

7.2.6 Industry Analysis using Porter's Bargaining Power of Customers –

Five Forces Moderate to High
Bargaining power of the customers is considered to be
Rivalry Among Existing Players – High high in both Life and Non-life insurance industry as
customers having a wide range of insurance providers to
According to the IBSL statistical review for year 2013, the choose from. However, switching costs are involved when
rivalry among the existing industry players is very high existing customers trying to move to new service
and can mainly be seen amongst the five largest insurance providers in terms of losing no-claim bonuses on Non-life
providers, who totally own 89% of the total assets of the insurance and commitment periods on Life insurance.
industry: Also, there is a growing competition among This would enhance the strength of insurance providers in
small players to retain their position and to grow. But in securing their client base but won't significantly reduce
light of the facts discussed under the industry analysis, customer bargaining power.
small players have the industry potential to grow and
sustain in the industry if they continue to operate while
offering innovative products and deploy market Threat of Substitutes – Low
penetration strategies.
For the service of insurance, there are no direct
substitutes. But the investment plans, pension schemes,
Threat of New Entrants – Low child education plans and other long term financial
services offered by non insurance companies can be
The threat of new entrants to the insurance industry is viewed as indirect substitutes to insurances service.
minimal. Since, it is closely supervised by the regulatory
authority, IBSL. It is unlike that IBSL would issue any new
licenses to new entrants given the financial industry is Figure 7.8 Porter's Five Forces Analysis for
going through a consolidation plan and insurance industry Insurance Industry
is subjected to segregation of Life and General insurance
business. It is a concern that, with the introduction of Rivalry Among Existing
minimum capital requirement of LKR 500 Mn, most of the Players
insurance companies might come across mergers and
acquisitions in order to sustain operations in the industry. 5
4
3
Bargaining Power of Suppliers – High 2
Threat of
Threat of New
1
Primary suppliers to the insurance industry are reinsurers Substitutes Entrants
and their bargaining power is high. IBSL, the regulator for 0
the Sri Lankan insurance industry advices and encourages
all insurance companies to join hands with the world's
best ranked and rated reinsurance companies. When it
comes to the top world ranked reinsurance companies,
they have the bargaining power even to change the
clauses in the agreements signed with the local insurers. Bargaining Power of Bargaining Power of
Hence, it could be considered the bargaining power of the Customers Suppliers
suppliers in the industry is high.

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7.0 INSURANCE INDUSTRY

7.2.7 Regulatory Pressure

In 2011, IBSL introduced few changes to its existing regulations. They include:
Risk-Based Capital (RBC) regime
Segregation of composites into life and Non-life
Increase in capital requirement from LKR 100 Mn to LKR 500 Mn
Mandatory public listing ruling by 2016

IBSL believes that these regulatory changes would encourage better corporate governance and bring about more
transparency into the local insurance industry.

7.2.8 Demand Side Drivers

Growing demand for Healthcare insurance schemes

In Sri Lanka, majority of the citizens depend on public healthcare services. However, due to the inadequacy and
inefficiency inherent in the public healthcare services, most people are now moving in to private healthcare services given
the level of their income and affordability. Hence, there is an increasing demand for healthcare insurance arising as a
result of the changing mindset of general public that there is a need to allocate funds to meet any unexpected future
healthcare needs.

Increasing Ageing population

A latest finding of researchers is the increasing ageing population which is becoming a threat in many of the Asian
countries. It is estimated that the proportion of the population 65 years and older will increase from 6.7% in 2000 to 13.6%
in 2025. Hence, it is expected that people would set aside more money given the health risks that they potentially exposed
to. Also, there's an increasing trend among the public to invest in pension schemes, especially those who work in the
private sector which in turn creates a market for pension schemes offered by life insurance providers.

Figure 7.9 Ageing Population Comparison

2000 2025
Female Male Female Male

90+
90+
75-79
75-79
60-64
Age group

Age group

60-64
45-49
45-49
30-34 30-34
15-19 15-19
0-4 0-4

-10 -5 0 5 10 -10 -5 0 5 10

Percentage Percentage

Source: Capitalizing on the Demographic Transition: Tackling Noncommunicable Diseases in South Asia, The World Bank, February 2011.

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7.0 INSURANCE INDUSTRY

Increase in lifestyle related diseases and growing trend in NCDs

Researcher advocate that the NCDs (Non Communicable Diseases) in Sri Lanka are growing and a leading cause of deaths
occur in low and middle income countries. As per the statistics published by Registrar General of Health Ministry, NCDs have
caused 71% of total deaths. It is believed that the risk of NCDs increases with age and could reasonably be expected that
NCD levels would increase with the projected growth in the aged population in the country. This too would increase the
demand for medical insurance schemes covering such diseases.

Rising per capita income to facilitate insurance service industry

According to CBSL's recent publications, country's per capita income is expected to reach USD 4,000 by 2015 and the Sri
Lankan Government expects it to increase to USD 7,000 in 2020 (as CBSL governor outlined in the presentation at Sri Lanka
Economic Summit 2014). Given the rapid increase in the per capita income that would probably improve people's spending
power, life insurance providers are expected to benefit. It could be expected that individuals may increase the amount
spent on insurance with the increasing income and as a proactive measure.

Figure 7.10 Per Capita GDP in Sri Lanka

8,000
7,000
6,000
5,000 2003
4,000 2013
3,000 2015E
2,000 2020E
1,000

2003 2013 2015E 2020E

Source: CBSL Data and CBSL Projections.

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7.0 INSURANCE INDUSTRY

7.2.9 Supply Side Drivers

Life Insurance Penetration

Compared to similar populated nations in the Asian region, Sri Lankan Life Insurance Penetration in 2013 (As a percentage
of GDP) is low as 0.5% leaving a huge market potential to be addressed.

Table 7.3 Life Insurance Penetration Levels in Asia

Country Population 2013 Life Insurance Penetration It is inevitable that Sri Lankan life
(Mn) (As a percentage of GDP) insurance industry has the
capacity to grow compared to its
China 1380.8 1.60% regional peers. Use of superior
India 1265 3.10% marketing strategies that will
Malaysia build confidence and trust in the
29.3 3.20%
hearts of people will attract
Thailand 69.3 3.80% growth to the local insurance
Indonesia 240 1.60% industry.
Philippines 98.7 1.50%
Sri Lanka 21.3 0.50%
Taiwan 23.4 14.50%
Vietnam 91.7 0.60%
Source: SwissRE

Product diversification strategies

At present, many of the local insurance providers are promoting life insurance with a wide variety of products that cater to
different lifestyle needs of people. By introducing more and more new customer centered life insurance products such as
medical insurance, long term investment plans and retirement plans, insurance providers would probably be able to tap
new markets while expanding the prevailing market and industry.

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SECTION 8.0

Arpico Insurance
Limited
8.0 ARPICO INSURANCE LIMITED

8.1 Company Overview

Arpico Insurance Limited is a subsidiary company of
Richard Pieris & Company PLC, (RPC) one of the largest
business conglomerates in Sri Lanka with an operating
history of 82 years. RPC has diversified business interests
across a number of business segments including Retail,
Plantation, Tyre, Furniture, Plastics, Rubber and
Services. Arpico Insurance is the latest addition to RPC's
financial services sector.
Arpico Insurance was incorporated in June 2011 with the
intention of building up an insurance company with the
brand ARPICO under the wings of Richard Pieris Group and
to add value to group's financial services sector. Arpico
Insurance was also formed to cater to the Sri Lankan
community by providing a life insurance service that
would deliver long term value and benefits to its
customers while adding value while enhancing wealth of
its Shareholders.
The popularly known concept of Life Insurance in Sri
Lanka is believed to be the schemes that provide benefits
only at the death of the policyholder. However, Arpico
Insurance has identified this expectation gap and came
up with the concept “Insurance for the Living” whereby
Arpico Insurance aims to offer benefits so that one can
enjoy life whilst living and continue to provide for those
who live thereafter. Hence, Arpico Insurance offers a
wide variety of customized products that is in line with
this motive.
Arpico Insurance is proudly associated with World's
largest and number 01 re-insurer, the German based
Munich Re for risk preclusion along with global entities
such as Life Insurance and Market Research Association
(LIMRA) and Million Dollar Round Table (MDRT).
The Company commenced its commercial operations in
January 2012, following the insurance license it obtained
in October 2011.

Ownership Structure of Arpico Insurance Limited is as

follows:

Richard Pieris &

Company PLC

100% 25.38% 77%

Richard Pieris Arpico Insurance Kegalle

Distributors Ltd Limited Plantations PLC

29.85% 44.77%

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8.0 ARPICO INSURANCE LIMITED

Vision
To be the most trusted and innovative solutions provider
for life insurance needs

Mission
Provide unparalleled services to clients through team
sprit nourished by passion and developing innovative life
insurance solutions, technical expertise, value additions
and unique service capability.

Values of the Company

To serve customers with care, compassion and respect
To do the right thing for the right reason
Always think to lead in new ways and introduce result oriented
solutions to customers
Always nurture and value team sprit along with satisfaction
Ensure maintenance of high ethical standard in all professional
aspects and practices of the Company

8.2 The Icon “Tree of Life”

The icon “Tree of Life” visual identity symbolizes the
wisdom, protection, strength and stability of the Richard
Pieris Group which is in the backdrop of the brand. The
stretched out tree, is considered to be a powerful symbol
to represent the group's 82 years of deep rooted heritage,
continuous growth and diversification because tree would
be the only living thing that continues to grow throughout
its life-time.
The colour scheme of the entire logo is a mixture of blue,
signifying strength and stability with orange depicting
warmth, energy, expansiveness, loyalty and confidence.
White is universally accepted as representing purity- thus
establishing the company's integrity. The Company has
introduced a stylized tree for visual appeal and to make it
contemporary.

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8.0 ARPICO INSURANCE LIMITED

8.3 Business Overview

Arpico Insurance operates in the Life Insurance business
and currently has 08 products in its product portfolio that
are geared to meet and fulfil many life insurance needs
prevailing in the market. The Company has reached
various parts of Sri Lanka and currently has presence in 04
main provinces including Western, Southern, North East
and North Central. At present Arpico Insurance operates
with 19 physical branches and 28 virtual branches. The
Company expects to increase the number of physical
branches to 31 by the end of year 2015 with the addition
of another 12 more branches.
Arpico Insurance targets to cater to a niche market
initially as it is a much younger insurer in the life
insurance segment in Sri Lanka who is still in the initiation
(introduction) stage of its business cycle who has much
larger potential for growth in the years to come. The
target market of Arpico Insurance at present is the Sri
Lankan population who earns an average monthly income
of LKR 40,000 or above in the Western, Southern, North
Eastern and North Central Provinces while it expects to
move into other provinces too in the near future.

8.4 Key Milestones

2011 2012 2013

JUNE DECEMBER MARCH
Incorporated as a Public Reached LKR 100 Mn GWP Total Assets recorded an
Limited Company under in the first year of commercial increase of LKR 150 Mn,
the name “Arpico operations even after the capital
Insurance Limited” infusion of only LKR 60 Mn

2011 2012
OCTOBER
DECEMBER 2013
IBSL granted the License to
Increased the No. of branches to 4 DECEMBER
by the end of 2012 Branches were increased to
Arpico Insurance to act as
11 with the addition of 07
a Life Insurer primarily
new branches in 2013
conducting Life Insurance
business in Sri Lanka

2012
DECEMBER
2013
2012 Reached market share of
1% on the basis of the DECEMBER
JANUARY First Year’s Premium Doubled the GWP
Arpico Insurance officially (LKR 206.5 Mn) as at
commenced its Operations end of 2013
at Hyde Park Corner Office
2012
DECEMBER
2014
2012 Introduced 02 new
products (School SEPTEMBER
JANUARY fees and Investment Bond) Opened up 08
Launched 5 new Insurance increasing total number of new branches increasing the
Products products to 07 network to 19 branches

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8.0 ARPICO INSURANCE LIMITED
8.5 Product Portfolio
Arpico Term Assurance
Plan
The Term Assurance plan is designed for the
policyholder to enjoy receiving cost effective
living benefits. Under this plan, the sum assured
will be paid in the case of any unforeseen death
during the term of the policy. This could be
extended with the additional living benefits that
can be added separately, depending on the need
of the policyholder.
Arpico Investment
Plan
Investment Plan is designed to allow the
policyholder investment benefits by providing
attractive returns as a living benefit. The rate of
return is decided on every year. The policyholder
can decide the frequency of premium payments.
(e.g. monthly, quarterly, bi-annually or annually)
Additionally, the living benefits can be attached
to the plan.
Arpico Hospitalization
Reimbursement
Plan
The plan covers the policy holder and his family
for surgical & hospitalization expenses up to LKR
300,000 per annum. If hospitalization does occur
within Sri Lanka, as a result of an accident or
illness, this benefit will reimburse the expenses
incurred on such treatment up to an agreed
amount per policy year.
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Arpico Endowment
Plan
Endowment Plan offers a living benefit where the
sum assured is increased by 2.5% every year to
accommodate inflation. Although the sum assured
will be increased, the original premium will
remain the same. The Endowment Plan can be
used as a fund, which could be used to fulfil a
living need of the policy holder in the future such
as an emergency, education, retirement, etc. This
could be extended with the additional living
benefits that can be added separately, depending
on the need of the policy holder.
Arpico Hospitalization
Per Day Plan
If a policyholder is hospitalized within Sri Lanka,
as a result of an accident or illness, this benefit
will pay an amount equal to the stated per day
amount, multiplied by the number of completed
hospitalized days. In the event of ICU treatment,
the benefit will be doubled. The Hospitalization
benefit can be obtained up to LKR 10,000 per day.
Arpico Loan
Protection Plan
Mortgage protection Plan will ensure that the
policyholder's loan balances are paid to the
financial institution where borrowed from, in the
event of a death. The policy ensures that the
policyholder's assets such as house, building, etc,
are free from mortgage as a living benefit to
his/her dependents.
8.0 ARPICO INSURANCE LIMITED
Arpico Education /
School Fees Plan
School Fees plan is designed to lessen parent's'
burden of the children's school fees in the event
of an unforeseen circumstance. The monthly
amount, which is to be paid to the policyholder's
beneficiary, can be decided on at the time of
obtaining the policy.
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Arpico Group Assurance
Plan
Group Insurance Plan Covers a group of people;
usually members of a common society, employees
of a common employer or professionals in a
common group. Additionally, the following living
benefits can be attached to this plan.
Accidental Death Benefit
Permanent &Total Disability Benefit
Permanent Partial Disability Benefit
Critical illness Benefit
Funeral Expense Benefit
The difference and the value addition of Arpico
Insurance products is that the policyholder has
the option to upgrade and customize their
products with additional benefits, such as;
Accidental Death Benefit
Permanent &Total Disability Benefit
Permanent Partial Disability Benefit
Critical illness Benefit
Funeral Expense Benefit
Additional term protection Benefit
Family Income Benefit
Spouse Cover Benefit
Child Critical Illness benefit
Waiver of Premium Benefit
Hospitalization per Day Benefit
Hospitalization Reimbursement Benefit
8.0 ARPICO INSURANCE LIMITED

Branch Network of
Arpico Insurance

Vavuniya
Trincomalee

Anuradhapura

Batticaloa
Kurunegala

Negombo

Gampaha
Kiribathgoda Maharagama
Avissawella
Homagama
Panadura Rathnapura
Balangoda
Kaluthara Mathugama

Embilipitya

Galle

Matara

Arpico Insurance | Initial Public Offering | 38

8.0 ARPICO INSURANCE LIMITED

8.6 Key Strengths of Arpico Insurance

Backed by the Strong Brand Name “ARPICO”

“ARPICO” is a well known brand name among the Sri Lankan community, from Households to Corporates, from young to Old
and from Urban to Rural, the ARPICO name is popular and has built trust with its operations for over 82 years. Hence, taking
the products of Arpico Insurance to its target market is much easier which in turn enables AINS to build up its customer base
quickly and easily.

Professional Team

AINS strongly believes in the capability and strength of its professional staff that is also well trained to sell the products to
its target market. At present, AINS operates with 406 sales employees. AINS' sales staff is also equipped with modern
technology that enables them to provide a quick and convenient service to their customers that would facilitate
productivity.

Distribution Reach

Although AINS is a budding life insurer in its 3rd year of commercial operation, the Company has managed to establish a
branch network of 19 physical branches and 28 virtual branches across 8 major provinces in Sri Lanka, i.e. Western,
Southern, North Central, Northern, North Western, Sabaragamuwa, Eastern and Uva. AINS aims at continuously investing
on new branches so as to be in line with its growth targets and objectives.

Customer Service and Innovation

AINS operates with a range of life insurance products which are also customized and could be arranged to suit the varying
needs of the customers. Hence, it provides a customer oriented service that would be a key selling point when attracting
new customers as well as retaining the existing customers. Furthermore, AINS have introduced few products that are
unique and innovative, for example their Arpico Education / School Fees plan has grabbed customer interest due to its
ability to serve evolving customer needs.

Use of Modern Technology

Technology advancement is of key importance in the insurance industry this is because, use of technology enables insurers
to provide a customized service to their clients which is also convenient and efficient. Hence, Arpico Insurance has
identified the importance of using technology in their services. AINS' sales staff are equipped with modern technology in
their hands thereby replacing the conventional paperwork that definitely adds value to the customer and increase the
efficiency of the processes too. In addition to that, AINS also have introduced Short Message Services (SMS) which is a
popular means of communication, to send payment acknowledgements, premium payment reminders and other
information that create awareness about their benefits and special offers among the policyholders.

Arpico Insurance | Initial Public Offering | 39

8.0 ARPICO INSURANCE LIMITED

8.7 Future Direction & 8.8 Assumptions Relating to

Strategic Plans
Arpico Insurance (AINS) aims to achieve LKR 1 Bn in GWP
in year 2017, which would be the 6th year of its
operations. In addition to that, Arpico Insurance also
aims to make profits in 2014 which would be the 3rd year
of operations. If achieved, this would be a record that has
not been achieved by any life insurer in the history of the
Sri Lankan insurance industry.
AINS intends to build up a life fund of LKR 1 Bn by the end
of year 2018. In terms of the premium retention, AINS is
planning to increase the first year retention to 75% and
2nd year premium retention to 65% by year 2018 from the
current levels of 58% and 45% respectively. Furthermore,
the Company is looking at strategically strengthening its
branch network to cover all the geographical areas of Sri
Lanka. Company's plan is to increase its branch network
to 31 by the end of year 2015, from the current branch
network of 19.
Future Plans
AINS expects the macroeconomic conditions of the
country would remain favourable to its business or
would not become adverse to its ongoing and
planned business operations.
AINS believes that the prevailing tax legislation in the
country that directly or indirectly applicable to its
products/services to either remain unchanged or
have no adverse change.
AINS assumes that its existing staff strength and the
productivity of the work force will not significantly
reduce as a result of any driving force.
AINS believes that the industry regulator IBSL, will
not impose any new regulations that would
significantly affect the operations and the expected
future plans of AINS.

Arpico insurance believes its human resources to be at the
heart of its success and is committed towards the
continuous improvement of its human capital. Hence, the
extensive training modules of the trilingual training
department are committed in improving the sales team
from all across Sri Lanka. In terms of the sales force,
Company is focused on developing the active sales force
to 680 by end of 2015.
AINS expects to be efficient in terms of its operations
and would also increase the efficiency of its
insurance products that are offered which would
ultimately enable it to increase its retention
premiums as discussed in the future plans.

Arpico Insurance is redefining the landscape of insurance

with its novel concept of “Insurance for the Living”.
Hence, the Company is focused at developing innovative
and customized insurance solutions to strengthen its
current product portfolio.

In terms of the regulatory changes, such as the

implementation of the Risk-Based Capital (RBC), Arpico
Insurance works closely with its Consultant Actuaries to
ensure that it complies with all the regulatory
requirements when the RBC rule becomes compulsory by
2016. Arpico Insurance expects to promote its operations
backed by an advanced system and thereby, will continue
to actively engage in developing its systems in such a way
that its services are provided in a customized way with
highest satisfaction for its customers.

Arpico Insurance | Initial Public Offering | 40

SECTION 9.0

Corporate Information
9.0 CORPORATE INFORMATION
9.1 Corporate Structure
The Board of Directors of Arpico
Insurance Limited
The Board of Directors of AINS endeavours to provide
entrepreneurial leadership through effective formulation
and execution of policies and procedures to attain the
objectives of the Company. As at the date of the
Prospectus, the Board of Arpico Insurance comprises of
Four (04) Directors out of which Two (02) are Non-
Executive Directors and two (02) are Independent
Directors.
Table 9.1 Details of Board of Directors
Name Address
Mr. Viville Perera 33C1, King's Gate, Keells
Housing Scheme, Buthgamuwa
Road, Kalapaluwawa,
Rajagiriya.
Mr. Jagath Dissanayake 264/3, Dewala Road,
Koswatte, Battaramulla.
Mrs. Lasinee Serasinhe 17B, Anura Mawatha, off
Anderson Road, Kalubowila.
Mr. S. Sirikananathan 291/7, Edward Avenue,
Havelock Road, Colombo 06.
Mr. Viville Perera (Non-Executive Director)
Mr. Viville Perera is a Science graduate from Kelaniya
University with Second Class Honours and a Fellow
Member of the Chartered Institute of Management
Accountants and Associate Member of the Chartered
Institute of Marketing in United Kingdom. Mr. Perera has
over 30 years experience in senior managerial capacity in
leading business organizations such as Associated
Newspapers of Ceylon Limited, Middleway Ltd (Ceylinco
Group) and Amico Group of Companies. He has served as a
Treasurer and Vice President of Sri Lanka Institute of
Packaging and a member of the lecture panel for SLIM and
ABE Sri Lanka Branch for examinations leading to CIM and
ABE (UK).
Mr. Jagath Dissanayake (Non-Executive Director)
He is an Associate Member of the Institute of Chartered
Accountants of Sri Lanka with over 27 years of managerial
experience in the fields of accounting, auditing &
marketing and on operational activities. He has gained
extensive experience both overseas and in Sri Lanka. Most
of his overseas experience has been in multinationals. He
is currently the Group Chief Financial Officer of the
Richard Pieris Group.
Arpico Insurance | Initial Public Offering | 42
Mrs. Lasinee Serasinhe (Independent Non-Executive
Director)
Mrs. Serasinhe is a Fellow of the Chartered Institute of
Management Accountants (UK), Fellow of the Chartered
Global Management Accountants and holds a Diploma in
Computer Programming. Mrs. Serasinhe counts over 20
years of regulatory experience serving the Securities and
Exchange Commission of Sri Lanka and the Insurance
Board of Sri Lanka (IBSL). She took up duties as the
Director General of the IBSL at the time that IBSL set up its
office independently and worked at the IBSL until her
retirement.
Whilst being the Director General of the IBSL, she served
as a Board Member of the National Insurance Trust Fund in
the capacity of an Ex-officio Member. Subsequently, she
served the Ministry of Finance in the capacity of an
Advisor for a short period of time. Prior to taking up the
post of the Director General, IBSL she served the
Securities and Exchange Commission as a Director. Mrs.
Serasinhe has several years of experience in the field of
Finance in the Private Sector prior to her entry into the
regulatory arena. Mrs. Serasinhe is currently functioning
as a consultant to the private sector and is attached to
SSP Corporate Services (Pvt.) Ltd.
Mr. S. Sirikananathan (Independent Non-Executive
Director)
Mr. Sirikananathan is a retired partner of KPMG, an
international firm of chartered accountants and is
presently a sole practitioner under the firm name Sarasi &
Company. He is also on the Board of Bartleet Finance PLC
as an Independent Non-Executive Director and the
Chairman of the company's Audit Committee.
Mr. Sirikananathan counts over 40 years of audit
experience with KPMG and had engaged on audits of star
class hotels, conglomerates, development organizations,
multinational banks, finance companies, insurance
companies and several listed companies. He also served
as Director / Financial Consultant to the Associated News
Papers of Ceylon Ltd. (ANCL)
Mr. Sirikananathan is a Fellow Member of The Institute of
Chartered Accountants of Sri Lanka (FCA) and is also a
Fellow Member of the Institute of Certified Management
Accountants of Sri Lanka (FCMA). He holds a Bachelor of
Science Honours Degree in Physical Science from the
University of Peradeniya and has served on the
Accounting Standards and Auditing Standards Committee
of The Institute of Chartered Accountants of Sri Lanka for
eleven (11) and seven (7) years respectively.
9.0 CORPORATE INFORMATION

Table 9.2 Directors' other Directorships

Name Company Name

Mr. Viville Perera
Richard Pieris & Company PLC
Richard Pieris Exports PLC
Richard Pieris Plantations (Private) Limited
R P C Retail Developments (Private) Limited
Arpico Insurance Limited
Arpico Ataraxia Asset Management (Private) Limited
Arpico Warehouse (Private) Limited
RPC Logistics Limited
Arpimalls Development Company (Private) Limited
Arpico Industrial Development Company (Private) Limited
Markray Systems (Private) Limited
RPC Real Estate Development Company (Private) Limited
Arpico Exotica Asiana (Private) Limited
Arpico Natural Latexfoams (Private) Limited
Arpico Furniture Distributors (Private) Ltd
Arpico Hospital (Private) Ltd
Arpico Infosys (Private) Ltd
Arpico Homes Ltd
Arpico Hotel Services (Pvt) Ltd
Richard Pieris Financial Services (Pvt) Ltd
Arpico Developments (Pvt) Ltd
Arpico Furniture Limited
RPC Construction
Arpico Capital Limited

Mr. Jagath Dissanayake Eastern Brokers Limited

Mrs. Lasinee Serasinhe N/A

Mr. S. Sirikananathan Bartleet Finance PLC

9.2 Directors' Interest in Shares 9.5 Directors' Emoluments

Aggregate emoluments paid in the form of salaries,
None of the Directors of AINS owns any Shares of AINS as at
bonuses and/or profit sharing payments to the Directors
31st October 2014.
inclusive of Executive Directors are given below.

9.3 Directors' Interest in Assets
The Directors of AINS hold no interest either directly or
indirectly in any other assets acquired, disposed or leased
by the company during the past two (02) years preceding
the date of this Prospectus. Further, it is not proposed
that the Directors of AINS will hold any interest in assets
to be acquired, disposed or leased by the Company in the
two (02) years subsequent to the Issue.
9.4 Directors' Interest in Contracts
There are no contracts or arrangements in force as at
31st October 2014, in which the Directors of AINS are
materially interested in relation to the business of the
company.
During the FY 2013 AINS has not paid any emoluments to
its Directors. However, Directors are expected to be
remunerated in the form of salaries, bonuses and/or
profit sharing payments during the FY 2014 which is
estimated to be LKR 0.88 Mn.
9.6 Statement – Board of Directors
No Director or person nominated to become a director of
the company has been involved in any of the followings;
A petition under any bankruptcy laws filed against such
person or any partnership in which he was a partner or
any corporation of which he was an executive officer:
and
Conviction for fraud, misappropriation or breach of
trust or any other similar offence which the CSE
considers disqualification.

Arpico Insurance | Initial Public Offering | 43

9.0 CORPORATE INFORMATION

9.7 Corporate Governance Investment Committee

Corporate Governance is undoubtedly one of the most Members of the Investment Committee are as follows:
important features of a corporate which distinct it from
competitors in the eyes of investors and other key Mr. Viville Perera Non-Executive Director
stakeholders. A Corporate entity with high standards of Mr. Jagath Dissanayake Non-Executive Director
governance would necessarily provide the comfort to
stakeholders that the conduct of its business is carried Mrs. Lasinee Serasinhe Independent Non-
out and maintained at a high ethical and professional Executive Director
standard.

The Board of Directors of Arpico Insurance Limited is

committed and takes responsibility to maintain the
highest standards of Corporate Governance. Arpico
Insurance has designed its Corporate Governance policies
and practices to ensure that the Company is focused on its
responsibilities to its stakeholders and on creating long
term Shareholder value. Company's vision is firmly
embedded and maintained throughout with principals of
transparency and ethical business practices where the
Board of Directors and the Senior Management of the
Company maintains the philosophy of sound corporate
governance by being transparent to all its stakeholders
with proper ethics, values and accountability committed
to higher standards of corporate governance in the
Organization.
Frequent reviews are made to ensure smooth and proper
functioning of good governance. This is further facilitated
by the proper mix of Executive, Non Executive and
Independent Directors in the Board of AINS. In fact, the
Board of AINS only comprises of Non Executive Directors
and Independent Non Executive Directors who do not
have any business interest that could materially influence
their independent judgment in the decision making
process of AINS which demonstrates more transparency
and independence in corporate affairs.
Arpico Insurance operates with its own Audit Committee
and Investment Committee. However, in terms of the
remuneration committee, AINS uses its Parent's (Richard
Pieris & Company PLC's) remuneration committee.
Audit Committee
The Audit Committee of AINS comprises of Two (02)
Independent Non Executive Directors of the Company.
Members of the Audit Committee are as follows:
Mr. S. Sirikananathan Independent Non-
Executive Director
Remuneration Committee
AINS uses the same remuneration committee of its
Parent, Richard Pieris & Company PLC.
The Remuneration Committee of Richard Pieris &
Company PLC comprises of Chairman and three (03)
Independent Non Executive Directors.
Members of the Remuneration Committee are as follows:
Dr. Sena Yaddehige Chairman
Prof. Lakshman R. Independent Non-
Watawala Executive Director
Susantha Pathirana Independent Non-
Executive Director
Dr. S. A. B. Ekanayake Independent Non-
Executive Director
In a highly competitive environment, attracting and
retaining high calibre executives is a key challenge faced
by the Group. Hence, the remuneration policy of the
Company intends to retain and attract required human
resources in order to ensure the sustainability of its
operations while it would also reward the employees
based on their performance. In this context, the
remuneration committee of the Group takes into
account, competition, market information and business
performance in declaring the overall remuneration policy
of the Group.
9.8 Corporate Management
Corporate Management of AINS possesses extensive
knowledge and excellent business acumen in functioning
of its business operation. Brief profiles of the key
management of AINS are provided below.

Mrs. Lasinee Serasinhe Independent Non-

Executive Director

Arpico Insurance | Initial Public Offering | 44

9.0 CORPORATE INFORMATION
Mr. D. C. Kevitiyagala (CEO)
Mr. Kevitiyagala is an Associate Member of Charted
Insurance Institute of UK with experience spanning over
35 years in the insurance industry in both Sri Lanka and in
overseas. He is also a holder of Business Development
Degree specialized in Banking, finance and insurance
from the University of Colombo. He is a member of the
Society of Mortgage Professionals as well.
CEO's Address:
No: 9/2A, 8th Lane, Pagoda Road, Nugegoda.
Mr. E. C. Perera (Specified Officer)
Mr Perera counts over 30 of experience in the field of
Insurance. He is an associate member of Chartered
Institute of Insurance (UK) and a Chartered Insurer.
Mr. T .S. Kitchilan (AGM-Operation)
Mr. Kitchilan counts over 13 years of experience in the
field of Insurance. He holds an MSc in information
Management from SLIIT and a Postgraduate Diploma in
Information Management. He has worked in the capacity
of Senior Manager at Janashakthi Insurance PLC for both
Life and General Business and was directly accountable
for the company's Sales Force Administration and
Performance Evaluation.
Mr. H. E. T. Sampath (AGM- Sales)
Mr. Sampath counts over 21 years in the industry. He has
completed AMTC – LIMRA, LUTC Diploma in Insurance –
LIMRA, LUTC Personal insurance Course – LIMRA and
Management Skills Course – IMS.
Mr. W. N. C. P. Nishan (AGM- Sales)
Mr. Nishan counts over 20 years in the industry. He has
completed AMTC – LIMRA, LUTC Diploma in Insurance –
LIMRA, LUTC Personal insurance Course – LIMRA and
Management Skills Course – IMS.
Mr. Melanga A. Doolwala (Finance Manager)
Mr. Doolwala counts over 12 years of experience in
finance and out of which 8 years in the insurance industry.
He is an Associate Member of the Chartered Institute of
Management Accountants UK. He also holds a Diploma in
Computer Studies from National Centre for Computing
UK. He has completed the Licentiate Exams from
Insurance Institute of India.
Arpico Insurance | Initial Public Offering | 45
9.9 Human Resources
Arpico Insurance is driven by a team of highly motivated
and technically qualified staff focused on core Company
activities. The Company remains committed in
developing the skills and knowledge base of its employees
at all levels. Training programs are organized on a regular
basis and employees have been provided with
opportunities for developing their knowledge and skills in
keeping with the Company's focus on continuous
professional development.
Arpico Insurance periodically reviews staff welfare in
order to uplift the quality of work life of its staff. Current
staff strength of AINS consists of 128 permanent
employees. The employees of the Company are not
members of any labour union and the Company has not
entered into any agreements with any labour union.
Table 9.3 Human Resources of AINS
Staff Category Number of Employees
Management and Professional 38
Operational 79
Clerical 11
Total 128
9.10 Key Management's
Emoluments
Total emoluments paid to the Corporate Management
(excluding Directors) in the form of salaries, bonuses
and/or profit sharing payments during the FY 2013
amounted to LKR 9.75 Mn.
The Corporate Management is expected to be
remunerated in the form of salaries, bonuses and/or
profit sharing payments during the FY 2014 to an
approximate extent of LKR 14.8 Mn.
9.11 Statement – CEO
The CEO of AINS has not been involved in any of the
following:
A petition under any bankruptcy laws filed against
such person or any partnership in which he was a
partner or any corporation of which he was an
executive officer;
Conviction for fraud, misappropriation or breach of
trust or any other similar offence which the CSE
considers a disqualification.
SECTION 10.0

Other Company
Information
10.0 OTHER COMPANY INFORMATION

10.1 Relationship with Key 10.3.4 Mortgages and Charges on Assets

Clients and Suppliers As at 31st October 2014, there are no lease, lease
purchase, hire purchase and capital commitments of
Clients AINS.

AINS approaches its clients through 406 of sales force
(Permanent Sale Force 95, Remaining 311 serves as sales
agents) and established a good relationship over the
years. AINS has an extra advantage of offering a group
insurance policy for all employees in the Richard Pieris &
Company PLC group. However, it should be noted that
there is no significant dependency as a client. Hence,
there is no dependency on any single customer that would
affect the performance of AINS.
Suppliers
As at 31st October 2014, there are no guarantees and
other material contingent liabilities outstanding of AINS.
As at 31st October 2014, there are no mortgages and
charges on the assets of AINS.
10.3.5 Inter-company Balances
Table 10.1 Inter-Company Balances of AINS
as at 30th September 2014

AINS is affiliated with Munich Re, one of World's leading Related Company Name Due From Due To
reinsurance providers. AINS has been maintaining a strong
relationship with Munich Re during the last two and a half Maskeliya Plantation 2,082,159
years. Richard Pieris & Company PLC 75,470
Total 2,082,159 75,470
10.2 Dividend Policy
Details of dividends declared during the preceding
financial years have been stated under 2.5 - "Dividends" in 10.4 Working Capital
the "Accountants' Report" presented in Section 15.1 of the
Prospectus. The Board is of the opinion that working capital is
sufficient for the purpose of carrying out day-to-day
operations of the Company. However, for future business
10.3 Details of Material expansions, the Company intends to utilize the proceeds
of the Issue contemplated herein, and Company Reserves
Indebtedness as set out in Section 5.2 of the Prospectus.
Could be outlined as follows;

10.3.1 Debentures
As at 31st October 2014, there are no debentures
outstanding of AINS.

10.3.2 Loan Capital

As at 31st October 2014, there are no loan capital
outstanding of AINS.

10.3.3 Bank Loans & Other Borrowings

As at 31st October 2014, there are no bank loans, term
loans, other borrowings, or indebtedness in the nature of
borrowings, including bank overdrafts and liabilities
under acceptance or acceptance credits outstanding of
AINS.

Arpico Insurance | Initial Public Offering | 47

10.0 OTHER COMPANY INFORMATION

10.5 Litigation, Disputes and 10.8 Details of Benefits Paid to

Contingent Liabilities
As at 31st October 2014, there are no material legal,
arbitration or mediation proceedings pending against the
Company that would materially affect the current
financial position, future operations or profits of the
Company. The Company was not involved in any legal,
arbitration or mediation proceedings in the recent past
which had any significant effects on the Company's
financial position or profitability. Further, there are no
penalties imposed by any regulatory or state authority
against the Company.
As at 31st October 2014, there are no penalties imposed
by any regulatory or state authority against the Company.
Promoters
No benefit has been paid or given within the two (02)
years preceding the Issue and there are no benefits
intended to be paid or given to any promoter.
10.9 Details of Management
Agreements
There are no any management agreements presently in
force or currently being considered as at 31st October
2014.

As at 31st October 2014, there are no contingent

liabilities that would affect current and future profits of
the Company.

10.6 Material Contracts

As at 31st October 2014, there are no material contracts
entered into or any agreements entered into with other
parties by the Company other than those contracts
entered into as part of the ordinary course of business.

10.7 Details of Commissions Paid

No commission has been paid in the two (02) years
preceding the issue or payable for subscribing or agreeing
to subscribe or procuring or agreeing to procure
subscriptions for any Shares of the Company.

Arpico Insurance | Initial Public Offering | 48

SECTION 11.0

Capital Structure
11.0 CAPITAL STRUCTURE

11.1 An Overview of the Stated Capital

An overview of the Stated Capital of AINS as at the date of this Prospectus is set forth below. There has not been any change
in the Stated Capital of the Company since the date of this prospectus.

Table 11.1 Movements in Stated Capital (January 1, 2012 - October 31, 2014)

Fully Paid Ordinary Shares

No. of Shares LKR
Balance as at January 1, 2012 50,300,007 503,000,070
Balance as at December 31, 2012 50,300,007 503,000,070

Balance as at January 1, 2013 50,300,007 503,000,070

On March 1, 2013 issue of 6,000,000 Ordinary Voting Shares were issued 6,000,000 60,000,000
at LKR 10 per Share
Balance as at December 31, 2013 56,300,007 563,000,070
Balance as at January 1, 2014 56,300,007 563,000,070
On February 21, 2014 issue of 3,300,000 Ordinary Voting Shares were 3,300,000 33,000,000
issued at LKR 10 per Share
Balance as at October 31, 2014 59,600,007 596,000,070

The Company does not have any Subsidiary or any Associate Companies as at date.
The Shareholding structure as at 31st October 2014, has remained unchanged up to the date of this Prospectus.

11.2 Details Pertaining to the Locked-in Shares

Table 11.2 Details of Shares locked- in (Based on Shares held prior to IPO)

Category of Locked-in The time period after No. of Shares No. of Shares as a
Shareholders Shares which the Shares will percentage of total
(Pre- Listing) be available for trading No. of Shares in issue

Non- Public Locked-in 6 months from the date 59,600,007 100%

of listing

Public N/A N/A - -

The Entity hereby confirms that the information furnished herewith shall remain unchanged until the Date of
Listing.

Arpico Insurance | Initial Public Offering | 50

11.0 CAPITAL STRUCTURE

Table 11.3 Details of Shares locked-in subsequent to the IPO

Category of Locked-in The time period after No. of Shares No. of Shares as a
Shareholders Shares which the Shares will percentage of total
(Pre- Listing) be available for trading No. of Shares in issue

Non- Public Locked-in 6 months from the date 59,600,007 89.99%

of listing

Public Not Locked-in N/A 6,630,400 10.01%

11.3 Transfer / Gifting of Shares by Major Shareholders

There had not been any Shares of the Company, either being transferred or gifted by any Shareholder of the Company
during the one (01) year period preceding the date of the Initial Listing Application.

11.4 Shareholders of AINS

Tabulated below are the Shareholders of the Company as at the date of the prospectus and subsequent to the Issue,
assuming full subscription.

Table 11.4 Shareholders of AINS

Name of Shareholder Number of Shares Percentage of Shareholding %

Kegalle Plantations PLC 26,685,001 44.77%
Richard Pieris Distributors (Pvt) Ltd. 17,790,001 29.85%
Richard Pieris & Company PLC 15,125,001 25.38%
Richard Pieris Securities (Pvt) Ltd. 1 0.00%
Richard Pieris Financial Services (Pvt) Ltd. 1 0.00%
Plastishells Ltd. 1 0.00%
Arpico Plastics Ltd. 1 0.00%
Total 59,600,007 100.00%

Arpico Insurance | Initial Public Offering | 51

11.0 CAPITAL STRUCTURE

Table 11.5 Pre IPO Vs Post IPO Shareholding of AINS

Name of Shareholder Pre IPO Shareholding Post IPO Shareholding

No. of Shares % No. of Shares %

Kegalle Plantations PLC 26,685,001 44.77% 26,685,001 40.29%
Richard Pieris Distributors (Pvt) Ltd. 17,790,001 29.85% 17,790,001 26.86%
Richard Pieris & Company PLC 15,125,001 25.38% 15,125,001 22.84%
Richard Pieris Securities (Pvt) Ltd. 1 0.00% 1 0.00%
Richard Pieris Financial Services (Pvt) Ltd. 1 0.00% 1 0.00%
Plastishells Ltd. 1 0.00% 1 0.00%
Arpico Plastics Ltd. 1 0.00% 1 0.00%
Public - - 6,630,400 10.01%
Total 59,600,007 100.00% 66,230,407 100.00%

11.5 Details of Other Changes to Stated Capital

The Company has not carried out any redemption or repurchase of Shares or any reduction of Stated Capital in the last two
(02) years preceding the date of this Prospectus.

11.6 Details of Convertible Debt Securities

The Company has no outstanding convertible debt securities as at the date of this Prospectus.

11.7 Details of Shares Sold Privately in Conjunction with the Issue

No Shares are being issued privately in conjunction with this Issue.

11.8 Free Transferability of Shares

Other than the 59,600,007 Shares that has to be locked - in for a period of six months from the date of listing of Shares on
the Colombo Stock Exchange as per the Section 2.1.1 (d) of the CSE Listing Rules and as per the approval granted under
Section 28A of the Securities and Exchange Commission of Sri Lanka Act No. 36 of 1987 (as amended), there are no
restrictions on the transferability of the Shares and Shares shall be freely transferable subsequent to the Shares being
listed on the CSE.

11.9 Take-over Offers

There have been no take-over offers by third parties in respect of the Company's Shares during the past two (02) years,
preceding the date of this Prospectus.
The Company has not made any take-over offers in respect of Shares of a third party during the past two (02) years,
preceding the date of this Prospectus.

Arpico Insurance | Initial Public Offering | 52

11.0 CAPITAL STRUCTURE

11.10 Taxation

11.10.1 Corporate Taxation and Tax on Income

AINS is liable for tax at the rate of 28% in terms of the provisions in the Inland Revenue Act No. 10 of 2006 and amendments
therto. Ascertainment of Profits and Income of AINS for the purpose of calculating Income Tax will be governed by Section
92 of the Inland Revenue Act No. 10 of 2006 and subsequent amendments.

11.10.2 Economic Service Charge (ESC)

In accordance with the Economic Service Charge Act No. 13 of 2006, as amended, Arpico Insurance is liable at the rate of
0.25% on the premium income, only if the company does not have taxable income for the preceding year of assessment.
However, the following shall not to be liable for ESC

Life Insurance Premium

Insurance premium against damages or destruction by strike, riot, civil commotion or acts of terrorism and paid into
the consolidated fund.

11.10.3 Value Added Tax (VAT)

Under the Value Added Tax Act No. 14 of 2002 and its subsequent amendments, Arpico Insurance's Life insurance premium is
exempt from VAT.

11.10.4 Nation Building Tax (NBT)

In line with the Nation Building Tax Act No. 9 of 2009, Arpico Insurance's Life insurance premium is exempt from NBT.

11.10.5 Stamp Duty

Stamp Duty is applicable on policy insurance of LKR 1 for every LKR 1,000 or part thereof other than following

(a) Policy of life or medical insurance; or

(b) Policy of insurance on
(i) plant, machinery or equipment used in the construction industry or agriculture; or
(ii) any motor vehicle other than any motor vehicle used for private traveling.

Arpico Insurance | Initial Public Offering | 53

SECTION 12.0

Management Discussion
& Analysis
12.0 MANAGEMENT DISCUSSION & ANALYSIS

Arpico Insurance Limited started commercial operations in 2012. Presented below are the summarized extracts from the
financials of AINS for the period since 2012.

Period under consideration for the Management Discussion & Analysis: Financial year ending 31st December 2012,
Financial year ending 31st December 2013 and 2014 3Q*

2014 Q3* - 09 months ending 30th September 2014

12.1 Total Revenue

“Significant growth in revenue” Figure 12.1 Revenue
Total Revenue of AINS is comprised
of revenue sources in the form of 300,000,000.00
Gross Written Premium (GWP), Fee
250,000,000.00
& Commission Income, Investment
Income and other Operating Income 200,000,000.00
less Premium ceded to reinsurers. 150,000,000.00
Over the last two and half years,
approximately 63% of the Total 100,000,000.00
Revenue of the Company has come 50,000,000.00
from its primary operating income
-
of Net Gross Written Premium (i.e.
2012 2013 2014 3Q*
Gross Written Premium less
Premium ceded to reinsurers). Also,
during the year 2013, AINS recorded Source: Company Financials
75% year on year growth in Total
Re v e n u e e v e n i n a h i g h l y
competitive environment reflecting
the success of the Company's
penetration in to the focused
market segment.

12.2 Gross Written

Premium
“Highest First Year Gross Figure 12.2 Gross Written Premium
Written Premium Ever by a
Life Insurer” 250,000,000.00

Arpico Insurance managed to post 200,000,000.00

LKR 101.9 Mn in GWP in the FY2012
150,000,000.00
which is the highest ever First Year
GWP recorded by any Life Insurer in 100,000,000.00
Sri Lanka as per IBSL statistics.
50,000,000.00
Further continuing on that the
Company was able to record a 103% -
growth in GWP in the FY13. During 2012 2013 2014 3Q*
the first nine months of FY14, the
Company registered total GWP of Source: Company Financials
LKR 167.76 Mn.

Arpico Insurance | Initial Public Offering | 55

12.0 MANAGEMENT DISCUSSION & ANALYSIS

12.3 Profitability
“Gradual decrease in Net Figure 12.3 Net Profit, ROE, Net Profit Margin
Losses approaching Break
Net Loss ROE Net Profit Margin
Even”
2012 2013 2014 3Q*
AINS is in the introduction stage of - 0.0%
its Business Life Cycle and it is (5,000,000.00)
-5.0%
operating in losses. It is (10,000,000.00)
understandable that an infant
(15,000,000.00) -10.0%
organization takes some time to
(20,000,000.00)
Breaking Even. Past records suggest -15.0%
the Break Even is within four (04) to (25,000,000.00)
Five (05) years. AINS believes that (30,000,000.00) -20.0%
the Company will break even by its (35,000,000.00)
4th year of Commercial Operations -25.0%
(40,000,000.00)
(2015).
(45,000,000.00) -30.0%

Also fueled by the rapid increase in

Source: Company Financials
the Revenue and effective cost
control mechanism, the Company
was able to reduce the net losses.

12.4 Total Assets

“Overall asset base grew by Figure 12.4 Total Assets
11.56% and 25.94% in 2012
and 2013 respectively” 900,000,000.00 30.00%
800,000,000.00
25.00%
AINS' Total Asset base has recorded a 700,000,000.00
significant growth in the year 2013. 600,000,000.00 20.00%
This growth has outperformed the 500,000,000.00
15.00%
average growth of local Life 400,000,000.00
Insurance industry's Total Assets, 300,000,000.00 10.00%
which amounts to 15.2% and 13.8% 200,000,000.00
5.00%
in 2012 and 2013 respectively as 100,000,000.00
indicated in the IBSL Annual Report - 0.00%
2012 2013 2014 3Q*
for year 2013.
Total Assets

Source: Company Financials

Arpico Insurance | Initial Public Offering | 56

12.0 MANAGEMENT DISCUSSION & ANALYSIS

12.5 Solvency Margin

For an insurance business, Solvency Figure 12.5 Solvency Margin As at year ended 31 December
Margin is one of the basic
requirements to be fulfilled. Though LKR 000's
Arpico Insurance is an infant to the
industry, AINS has duly maintained 25,000
the solvency ratio up to the level
that is required by IBSL. It has been 20,000 19,065
depicted in the Actuary's Valuation
report (By M. Poopalanathan) that is 15,000
been attached in the section xxxx
Appendices. 10,000 7,466
In his opinion, AINS has adequate 5,000 3,006 3,474
and proper reserves have been
provided as at 31 December 2012 -
and 31 December 2013 for the 2012 2013
liabilities in respect of Long Term
Insurance business of the Company. Solvency Margin required by Insurance Industry Act
As per his opinion, the Long Term
Excess Acturial Reserves by AINS
Insurance Fund as included in the
audited accounts as at 31 December
2013 exceed the required actuarial Source: Actuary's Valuation Report (Year 2012 and 2013, M. Poopalanathan)
reserves as at 31 December 2013 by
LKR 19.065 Mn.

The solvency margin required under

the regulation of Insurance Industry
Act No. 43 of 2000 is LKR 7.466 Mn
and, is fully provided for.

The written consent of Kreston MNS

& Company has been obtained to
include their Independent Valuation
in the Prospectus.

Arpico Insurance | Initial Public Offering | 57

SECTION 13.0

Investment Considerations
& Associated Risks
13.0 INVESTMENT CONSIDERATIONS & ASSOCIATED RISKS
13.1 Associated Risks
This Section describes the potential risks associated with
AINS' business and risks associated with investing in AINS
Shares. It does not purport to list every risk that may be
associated with an investment in AINS Shares now or in the
future, and the occurrence of consequences of some of
the risks described in this Section are partially or
completely outside the control of AINS, its Directors and
senior management team.
The selection of risks has been based on an assessment of
a combination of the probability of the risk occurring and
impact of the risk if it did occur. The assessment is based
on the knowledge of the Directors as at the date of this
Prospectus, but there is no guarantee or assurance that
the importance of different risks will not change or other
risks will not appear.
Before applying for Shares, you should satisfy yourself
that you have a sufficient understanding of these matters
and should consider whether Shares are a suitable
investment for you, having regard to your own investment
objectives, financial circumstances and taxation
position. If you do not understand any part of this
Prospectus or are in any doubt as to whether to invest in
Shares, it is recommended that you seek professional
guidance from your Stockbroker, Solicitor, Accountant,
Tax Advisor or other independent and qualified
professional advisor before deciding whether to invest.
Pricing Risk
Pricing risk is associated with the long term nature of a
life insurance policy. Unlike other businesses, a life
insurance company probably cannot identify all the
possible costs certainly for many years inherent to a life
insurance policy which is usually projected over a long
period of time when setting the policy price. Failing to
fully appreciate the risks being taken, not to mention
their value can lead to under pricing of the policy itself
and ultimately the Company incurring losses. Arpico
Insurance keeps this risk under control by proactively
valuing the policies and getting the help of a consultant
actuary in determining the right price for a particular
policy.
Arpico Insurance | Initial Public Offering | 59
Insurance Risks
Arpico Insurance could be exposed to the following
insurance specific risks. They could be outlined as
follows:
Underwriting Risk
AINS could be threatened by an underwriting risk by
accepting insurance business that carries unacceptably
high exposure to the risk of claims and accepting risks at a
rate that do not contain adequate premium to cover the
risks. AINS' strategy in keeping this risk under control is
through selectively conducting underwriting by
considering both risk and return instead of solely focusing
on GWP growth. AINS' management also relies on a
consultant actuary that reviews business more closely
and guide the management to take more informed
decisions
Re-insurance Risk
Retaining risks beyond Arpico Insurance's net retention
capacity without having adequate reinsurance or the
inability of reinsurers to meet their commitments due to
insufficient financial strength may give rise to a
reinsurance risk for AINS. However, by maintaining a close
professional relationship with reinsurers and reinsurance
brokers, AINS keeps this risk under control. AINS is also
powered by the World's largest and number 1 re-insurer
Munich Re which gives them additional leverage on
mitigating this risk. Munich Reinsurance Company is rated
A+ by Standard & Poor's, AA- by A.M Best Co. and AA- by
Fitch.
Credit Risk
AINS could possibly be exposed to credit risk due to an
uncertainty on the debtors' ability to meet obligations
due to the Company. AINS adopts a policy where
continuous lapse of premiums for two months and if they
weren't settled within 6 months, those policies will be
considered as lapsed and agreements would be
terminated. In this case, if policyholders have honoured
the premium payments for consecutively 3 years, AINS
will only return one third of the total premiums paid by
the policyholders.
13.0 INVESTMENT CONSIDERATIONS & ASSOCIATED RISKS
Investment Risks
Investment risks arise as a result of the significant
portfolio of investments managed by the Company.
Following risks could be identified as some of the
Investment risks AINS is exposed to;
Interest Rate Risk
From time to time with the volatility in market interest
rates, AINS may be exposed to interest rate risk that
would possibly occur from lower interest rates that may
not provide adequate returns to cover the liabilities
expected to meet by AINS. It could also be a risk when the
Company cannot meet its solvency standards as a result of
the fall in bond prices at times of rising interest rates.
AINS takes timely action to mitigate this risk by having in
force an investment committee and the management
that closely monitor the macroeconomic conditions and
thereby making required changes to the asset allocation
and the maturity mix of investments periodically.
Concentration Risk
Arpico Insurance may suffer from concentration risk due
to over-exposure to a particular company or sector and
due to lack of diversification in the investment portfolio.
AINS manages exposure to this risk by adhering to the
target asset allocations decided by the independent
investment committee which are in line with IBSL
investment guidelines. The Company also conducts
frequent review meetings to monitor the state of its
investment portfolio and its diversification thereby
reducing exposure to a specific sector or company or type
of investment.
Liquidity Risk
Liquidity risk could arise as a result of inability to meet
claim settlements and payments to reinsurers and other
creditors due to the insufficient availability of cash and
other liquid investments. Arpico Insurance takes
adequate measures to mitigate this risk by regularly
reviewing the maturity mix of the investment portfolio by
the management and planning large cash outflows in
advance to ensure availability of funds.
Arpico Insurance | Initial Public Offering | 60
Regulatory Risk
Arpico Insurance is regulated by the Insurance Board of Sri
Lanka (IBSL). Hence, throughout its operations AINS has to
comply with the laws and regulations enforced by IBSL in
conducting Life Insurance business. However, these
regulations change from time to time and may require
various commitments from the insurer. Failing to conform
to these laws and regulations may pose a threat on Arpico
Insurance's business operations in that case regulator
would even have the right to cancel the license of AINS
which would threaten the operations of the Company.
Therefore, AINS strictly adheres to the laws and
regulation encompassed by IBSL and would continue to
conform to any such regulations enforced by IBSL and
other regulatory bodies.
Operational Risks
AINS could be exposed to certain operational risks such as
the business continuity risk, information security risk and
human resource risk. Business continuity of AINS can be
threatened by any unexpected force that could disrupt
the continuous operations. However, this risk is mitigated
by having a contingency plan to continue operations even
under such situation. AINS operates with IT infrastructure
and virtual branches that enable the main business
operations to continue without any disruption even
during an unexpected occurrence.
AINS heavily relies on its human resources, especially the
sales force that directly influences the main revenue
streams of the Company. Therefore, loss or inadequacy of
professionally qualified personnel and heavy labor
turnover can create a risk on AINS' operations. In order to
mitigate this risk, AINS adopts an HR policy that aims at
continuous development of personnel through training
and development. The Company also ensures their
employees are rewarded with industry par benefits, so
that they could continue to attract and retain the skillful
human resource throughout the organization.
13.0 INVESTMENT CONSIDERATIONS & ASSOCIATED RISKS
Reputational Risk
Arpico Insurance may suffer from reputational risk due to
any possible impairment of the corporate image and
goodwill of the Company created by an unforeseeable
event or behavior. As a budding company in the life
insurance industry of Sri Lanka, AINS relies heavily on its
parent's brand name ARPICO. Hence, any possible
incident that could negatively affect the brand name
“ARPICO” will also have a significant impact on the
business operations and sustainability of AINS. Therefore,
AINS is very careful on its branding, marketing and also on
every aspect of its operations that could possibly carry
risks.
Price of Shares
Once AINS becomes a publicly listed company on CSE it
will become subject to general market risks that is
inherent in all securities listed on a stock exchange. This
may result in fluctuations in the Share price that are not
explained by the fundamental operations and activities of
AINS.
The price at which Shares are traded on CSE may increase
or decrease due to a number of factors. These factors may
cause the Shares to trade at prices below the Offer Price.
There is no assurance that the price of the Shares will
increase following the listing on CSE, even if AINS'
earnings increase.
Some of the factors which may affect the price of the
Shares include fluctuations in the domestic market for
listed stocks, general economic conditions, including
interest rates, inflation rates, exchange rates, changes to
government fiscal, monetary or regulatory policies,
legislation or regulation, the nature of the markets in
which AINS operates and general operational and business
risks.
Please note, that AINS has no impact on the
Company as a result of the Central Bank of Sri
Lanka Master Plan of Consolidating the Financial
Sector Companies.
Arpico Insurance | Initial Public Offering | 61
13.2 Risks Relating to Future Plans
Unfavourable macroeconomic conditions could pose
a threat to Company's future plans, especially
frequent changes and the volatility in the interest
rates could create an interest rate risk and
ultimately influence the achievement of AINS' future
plans.
Inability to find suitable locations and inadequacy of
capital required for the expected branch expansion
plan of AINS may threaten the achievement of its
strategic plan of widening its reach around the
country. This could also influence the achievement of
other corporate objectives such as the profit and the
GWP targets.
Arpico Insurance's concept of “Insurance for the
living” is largely built upon the ability of the
Company to introduce innovative products from time
to time with the ability to customize them according
to the prevailing customer needs. Failure to come up
with new concepts and inability to introduce
customer cantered products could pose a threat on
the sustainability of AINS' operations as well as its
ability to achieve the future plans outlined.
Achievement of the future plans of AINS is dependent
upon the ability of AINS to retain and attract
productive and talented staff. Failure to do so could
threaten the achievement of the said plans.